SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. __________________________________ SCHEDULE 13E-3 Amendment No. 1 RULE 13E-3 TRANSACTION STATEMENT (Pursuant to Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3 ((S)240.13e-3) thereunder) Petroleum Heat and Power Co., Inc. (Name of Issuer) Petroleum Heat and Power Co., Inc. Star Gas Partners, L.P. Star Gas Corporation (Name(s) of Person(s) Filing Statement) ----------------------------------------- Class A Common Stock, par value $.10 per share (Title of Class of Securities) ----------------------------------------- 716600 309 (Cusip Number of Class of Securities) ----------------------------------------- Joseph P. Cavanaugh Irik P. Sevin President Chairman of the Board and Star Gas Corporation Chief Executive Officer 2187 Atlantic Street Petroleum Heat and Power Co., Inc. P.O. Box 120011 2187 Atlantic Street Stamford, Connecticut 06912-0011 Stamford, Connecticut 06902 (Name, Address and Telephone Number of Persons Authorized to Receive Notices and Communications on Behalf of Person(s) Filing Statement) ------------------------------------------------------------ With Copies To: Michael Rosenwasser, Esq. Alan Shapiro, Esq. R. Joel Swanson, Esq. Andrews & Kurth, L.L.P. Phillips Nizer Benjamin Baker & Botts, L.L.P. 805 Third Avenue Krim & Ballon LLP One Shell Plaza New York, NY 10022 666 Fifth Avenue 910 Louisiana (212) 850-2800 New York, NY 10103-0084 Houston, TX 77002-4995 (212) 977-9700 (713) 229-1300 This statement is filed in connection with (check the appropriate box): a. [X] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. [X] The filing of a registration statement under the Securities Act of 1933. c. [_] A tender offer. d. [_] None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: [X] Calculation of Filing Fee * Calculated by multiplying $0.9844, by 26,562,481, the sum of the number of shares of Common Stock to be converted in the Transaction. [X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $9,825 Form or Registration No.: Registration Statement on Form S-4; SEC File No. 333-66005 Filing Party: Star Gas Partners, L.P. Date Filed: October 22, 1998
- ------------------------------------------------------------------------------ Transaction Valuation* Amount of Filing Fee - ------------------------------------------------------------------------------ $26,148,106.30 $5,230 INTRODUCTION This Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E- 3") is being filed by (1) Petroleum Heat and Power Co., Inc, a Minnesota corporation (the "Issuer"); (2) Star Gas Partners, L.P., a Delaware limited partnership and an indirect subsidiary of the Issuer (the "Partnership"); and (3) Star Gas Corporation, a Delaware corporation and a wholly-owned subsidiary of the Issuer ("Star Gas") and the general partner of the Partnership, pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended, and Rule 13e-3 thereunder, in connection with a transaction (the "Transaction") consisting of (a) the merger of a wholly-owned indirect subsidiary of the Partnership ("Mergeco"), with and into the Issuer (the "Merger"), with the Issuer surviving the Merger as an indirect wholly-owned subsidiary of the Partnership, and the conversion of each outstanding share of Class A and Class C common stock, par value $.10 per share of the Issuer, (the "Common Stock"), into senior subordinated units of limited partner interest ("Senior Subordinated Units") of the Partnership, upon the terms and subject to the conditions set forth in a certain Agreement and Plan of Merger dated as of October 22, 1998 (the "Merger Agreement") among the Issuer, the Partnership and Mergeco, et al., a copy of which is filed as Exhibit (c)(1) hereto; and (b) the exchange (the "Exchange") (1) by certain holders of shares of Common Stock of the Issuer that are affiliates of the Issuer (the "LLC Owners") with (A) Star Gas LLC, a Delaware limited liability company, of a portion of the Common Stock (the "LLC Shares") held by the LLC Owners for 100% of the limited liability company interests in Star Gas LLC (which in turn will exchange the LLC Shares with the Partnership for General Partner Units) and (B) with the Partnership, of their remaining shares of Common Stock held by the LLC Owners, for junior subordinated units of limited partner interest ("Junior Subordinated Units") of the Partnership, and (2) by certain other holders of Common Stock, that are affiliates of the Issuer with the Partnership, of their Common Stock for Senior Subordinated Units, upon the terms and subject to the conditions set forth in a certain exchange agreement dated October 22, 1998 (the "Exchange Agreement") among the Issuer, the Partnership, the LLC Owners and the other affiliated holders of Common Stock referred to above, a copy of which is filed as Exhibit (c) (2) hereto. The following Cross Reference Sheet, prepared pursuant to General Instruction F to Schedule 13E-3, shows the location in the joint proxy statement and prospectus of the Partnership (the "Proxy Statement"), included in the registration statement on Form S-4 (the "S-4") filed by the Partnership with the Securities and Exchange Commission on the date hereof, of the information required to be included in this Schedule 13E-3. The information set forth in the S-4, including all exhibits thereto and the Annual Report on Form 10-K of the Issuer for its fiscal year ended December 31, 1997 (the "Petro 10-K"), the Proxy Statement of the Issuer for its 1998 annual meeting of shareholders (the "Petro Annual Meeting Proxy Statement") and the Annual Report on Form 10-K of the Partnership for its fiscal year ended September 30, 1997 (the "Partnership 10-K") are hereby expressly incorporated herein by reference as set forth in the Cross Reference Sheet and the responses in this Schedule 13E-3, and such responses are qualified in their entirety by reference to the information contained in the Proxy Statement, the 2 annexes thereto, the Petro 10-K, the Petro Annual Meeting Proxy Statement and the Partnership 10-K which are incorporated by reference in and/or accompany the Proxy Statement. The information contained in this Schedule 13E-3 concerning the Issuer, including, without limitation, the information concerning the background of the Transaction, the deliberations of the Issuer's Board of Directors in connection with the Transaction, the opinion of the Issuer's financial advisor and the Issuer's capital structure and historical financial statements of the Issuer, was supplied by the Issuer. The Partnership and Star Gas take no responsibility for the accuracy or completeness of such information. The information contained in this Schedule 13E-3 concerning the Partnership, including, without limitation, the information concerning the background of the Transaction, the opinion of the financial advisor to the special committee (the "Special Committee") of the board of directors of Star Gas, the Partnership's capital structure and historical financial statements of the Partnership, was supplied by Star Gas, on behalf of the Partnership. Petro takes no responsibility for the accuracy or completeness of such information. 3 CROSS REFERENCE SHEET 4
Item in Where Located in Schedule 13E-3 Proxy Statement - -------------- ---------------- Item 1(a)............................. Cover Page, "Proxy Statement Summary - Parties - Petro" and "Parties and Conflicts - Parties to the Transaction - Petro" Item 1(b)............................. Cover Page, "Proxy Solicitations - The Special Meeting - Petro Record Date," "Proxy Solicitations - The Special Meeting - Voting Rights; Vote Required" and "Proxy Solicitations - The Special Meeting - Petro Preferred Stock" Items 1(c) and (d).................... "Comparative Security Price and Distribution Information - Petro Capital Stock -Class A Common Stock," "Comparison of Securities - Distributions and Dividends" and "Incorporation of Certain Documents by Reference" Item 1(e)............................. * Item 1(f)............................. * Items 2(a) - (d) and (g).............. Cover Page, "Proxy Statement Summary - Parties," "Parties and Conflicts - Parties to the Transaction," "Management of the Partnership After the Transaction - Officers and Employees of the Operating Partnership and Petro," "Beneficial Ownership of Principal Unitholders and Management" and "Incorporation of Certain Documents by Reference" Items 2(e) and (f).................... * Items 3(a) and (b).................... "Proxy Statement Summary - The Transaction," "Proxy Statement Summary - The Transaction - The Merger and the Exchange," "The Transaction - Description of the Transaction," "The Transaction - 5
Description of the Merger and the Exchange," "Special Factors - Background of the Transaction," "Management of the Partnership After the Transaction" and "Incorporation of Certain Documents by Reference" Item 4(a) and (b)..................... Cover Page, "Proxy Statement Summary - The Transaction," "Proxy Statement Summary - The Transaction - The Merger and the Exchange," "The Transaction - Description of the Transaction," "The Transaction - Description of the Merger and the Exchange" and "The Transaction - Description of the Merger Agreement" Items 5(a) - (g)...................... "Proxy Statement Summary - The Transaction," "Proxy Statement Summary - The Transaction - The Merger and the Exchange," "The Transaction - Description of the Transaction," "The Transaction - Description of the Merger and the Exchange" and "The Transaction - Description of the Merger Agreement" Item 6(a)............................. "Proxy Statement Summary - The Transaction - Financings and Refinancings," "Proxy Statement Summary - Financial Information - Estimated Sources and Uses of Funds of the Equity Offering and Debt Offering" and "The Transaction - Related Financing and Refinancing Transactions" Item 6(b)............................. "Proxy Statement Summary - Financial Information - Estimated Sources and Uses of Funds of the Equity Offering and Debt Offering," "Proxy Solicitations - The Unitholders Meeting - Cost of Solicitation of Proxies," "Proxy Solicitation - The Special Meeting - Cost of Solicitation of Proxies," "Special Factors - Opinion of A.G. Edwards - Terms of A.G. Edwards' Engagement," "Special Factors - Opinion of Dain Rauscher Wessels - Dain Rauscher Wessels' Engagement Agreement" and "The Transaction - Description of the Merger Agreement - Expenses" Item 6(c)............................. "Proxy Statement Summary - The Transaction - Related Financings and Refinancings" and "The 6
Transaction - Related Financing and Refinancing Transactions" Item 6(d)............................. * Item 7(a)............................. "Proxy Statement Summary - Special Factors - Potential Advantages to the Common Stockholders," "Proxy Statement Summary - Special Factors - Recommendations of Petro Board of Directors and Opinion of Dain Rauscher Wessels," "Proxy Statement Summary - Description of the Partnership Units," "Special Factors - Background of the Transaction," "Special Factors - Reasons for the Transaction that the Petro Board Considered; Recommendation of the Petro Board," "Cash Available for Distribution" and "Description of the Units" Items 7(b) and (c).................... "Proxy Statement Summary - The Transaction" and "The Transaction - Background of the Transaction" Item 7(d)............................. "Proxy Statement Summary - Special Factors - Potential Advantages to the Common Stockholders," "Proxy Statement Summary - Special Factors - Potential Disadvantages and Risks to the Common Stockholders," "Proxy Statement Summary - Financial Information - Summary Selected Unaudited Pro Forma Condensed Consolidated Financial Information," "Risk Factors - Risks to Common Stockholders," "Risk Factors - Tax Risks to Common Stockholders," "Parties and Conflicts - Conflicts of Interest - Certain Persons Have Interests in the Transaction that Conflict, or May be Perceived to Conflict, with the Interests of Common Stockholders and Common Unitholders," "Special Factors - Reasons for the Transaction that the Petro Board Considered; Recommendation of the Petro Board," 7
"Management of the Partnership After the Transaction," "The Amended and Restated Partnership Agreement," "Cash Distribution Policy," "Cash Available for Distribution," "Description of the Units," "Comparison of Securities" and "Certain Federal Income Tax Considerations" Items 8(a) - (e)...................... Cover Page, "Proxy Statement Summary - Special Factors - Recommendations of Petro Board of Directors and Opinion of Dain Rauscher Wessels," "Proxy Solicitations - The Special Meeting - Petro Board Recommendation," "Proxy Solicitations - The Special Meeting - Voting Rights; Vote Required," "Special Factors - Background of the Transaction," "Special Factors - Reasons for the Transaction that the Petro Board Considered; Recommendation of the Petro Board" and "Special Factors - Opinion of Dain Rauscher Wessels" Item 8(f)............................. * Items 9(a) - (c)...................... "Proxy Statement Summary - Special Factors - Recommendation of Petro Board of Directors and Opinion of Dain Rauscher Wessels," "Special Factors - Background of the Transaction - Petro Retains Dain Rauscher Wessels to Provide a Fairness Opinion to Petro's Public Common Stockholders" and "Special Factors - Opinion of Dain Rauscher Wessels" Items 10(a)........................... "Proxy Solicitations - The Special Meeting - Voting Rights; Vote Required" Item 10(b)............................ * Item 11............................... "Proxy Statement Summary - The Transaction," 8
"Proxy Statement Summary - The Transaction - The Merger and the Exchange," "Proxy Statement Summary - The Transaction - Financings and Refinancings," "The Transaction - Description of the Transaction," "The Transaction - Description of the Merger and the Exchange," "The Transaction - Related Financing and Refinancing Transactions" and "Parties and Conflicts - Conflicts of Interest - Certain Persons Have Interests in the Transaction that Conflict, or May be Perceived to Conflict, with the Interests of Common Stockholders and Common Unitholders" Items 12(a) and (b)................... "Proxy Statement Summary - Special Factors - Recommendation of Petro Board of Directors and Opinion of Dain Rauscher Wessels," "Proxy Solicitations - The Special Meeting - Petro Board Recommendation," "Proxy Solicitations - The Special Meeting - Voting Rights; Vote Required" and "Special Factors - Reasons for the Transaction that the Petro Board Considered; Recommendation of the Petro Board" Item 13(a)............................ "Proxy Solicitations - The Special Meeting - Dissenters' Rights," "Dissenters' Rights," and Annex F to the Proxy Statement Item 13(b)............................ * Item 13(c)............................ * Item 14(a) and (b).................... "Proxy Statement Summary - Financial Information - Summary Selected Historical Financial and Operating Data of Petro," "Proxy Statement Summary - Financial Information - Summary Selected Unaudited Pro Forma Condensed Consolidated Financial Information," "Comparative Security Price and Distribution Information - Comparative Per Share/Per Unit Information (Unaudited)," "Unaudited Pro Forma Condensed Consolidated Financial Information" and "Incorporation of Certain Documents by Reference" Item 14(b)............................ * Item 15(a)............................ "Proxy Statement Summary - The Transaction," "Proxy Statement Summary - The Transaction - Financings * The Item is located in the Schedule 13E-3 only. 9
and Refinancings, "Proxy Statement Summary - Financial Information - Estimated Sources and Uses of Funds of the Equity Offering and Debt Offering," "Proxy Solicitations - The Unitholders Meeting - Cost of Solicitation of Proxies," "Proxy Solicitations - The Special Meeting - Cost of Solicitation of Proxies," "The Transaction - Related Financing and Refinancing Transactions - Public Offerings" and "The Transaction - Description of the Merger Agreement - Expenses" Item 15(b)............................ "Proxy Solicitations - The Unitholders Meeting - Cost of Solicitation of Proxies," "Proxy Solicitations - The Special Meeting - Cost of Solicitation of Proxies," "Special Factors - Opinion of A.G. Edwards - Terms of A.G. Edwards' Engagement" and "Special Factors - Opinion of Dain Rauscher Wessels - Dain Rauscher Wessels' Engagement Agreement" Item 16............................... The Proxy Statement in its entirety Item 17............................... * - -------------------- ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION. (a) The relevant information set forth in the Proxy Statement on the cover page thereof and under "Proxy Statement Summary - Parties - Petro" and "Parties and Conflicts - Parties to the Transaction - Petro" is incorporated herein by reference. (b) The information set forth in the Proxy Statement on the cover page thereof and under "Proxy Solicitations - The Special Meeting - Petro Record Date," "Proxy Solicitations - The Special Meeting - Voting Rights; Vote Required" and "Proxy Solicitations - The Special Meeting - Petro Preferred Stock" is incorporated herein by reference. (c) and (d) The relevant information set forth in the Proxy Statement under "Comparative Security Price and Distribution Information - Petro Capital Stock -Class A Common Stock," "Comparison of Securities - Distributions and Dividends" and "Incorporation of Certain Documents by Reference" is incorporated herein by reference. The information set forth in Item 5, Part II of the Petro 10-K under the heading "Market for Registrant's Common Equity and Related Stockholder Matters" is incorporated herein by reference. (e) On December 22, 1997, the Partnership offered, in an underwritten public offering registered under the Securities Act, 832,727 of its common units representing limited partner interests (the "Common Units"), at an offering price to the public of $21.25 per Common Unit. 809,000 of such Common Units were offered by the Partnership and 23,727 of such Common Units were offered by Star Gas as the selling unitholder. The Partnership received net proceeds of $16,244,720 for 809,000 Common Units sold by the Partnership, and Star Gas received net proceeds of $2,966.358 for 87,000 Common Units sold by Star Gas (including 62,273 Common Units sold by Star Gas pursuant to the over-allotment option to purchase an additional 124,000 Common Units granted to the underwriters, which was exercised in part on January 7, 1998). (f) Not Applicable. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d) and (g) This Statement is being filed by the Issuer, the Partnership and Star Gas. The information set forth on the cover page thereof and under "Proxy Statement Summary - Parties," "Parties and Conflicts - Parties to the Transaction," "Management of the Partnership After the Transaction - Officers and Employees of the Operating Partnership and Petro" and "Beneficial Ownership of Principal Unitholders and Management" and information appearing under Item 10 of the Petro 10-K and under "Election of Directors" and "Executive Officers" in the Petro Annual Meeting Proxy Statement and information appearing under Item 10 of the Partnership 10-K, which information is incorporated by reference in the Proxy Statement under "Incorporation of Certain Documents by Reference" and is incorporated herein by reference. 10 (e) and (f) During the last five years, none of (i) the Issuer, the Partnership or Star Gas or, (ii) to the best knowledge of the Issuer, the Partnership and Star Gas, any person who is a director or executive officer of the Issuer, the Partnership or Star Gas has been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. The Partnership and the Operating Partnership do not have any officers, directors or employees. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS. (a) and (b) The relevant information set forth in the Proxy Statement under "Proxy Statement Summary - The Transaction," "Proxy Statement Summary - The Merger and the Exchange" and "Proxy Statement Summary - Partnership Structure and Management Following the Transaction," "The Transaction - Description of the Transaction," "The Transaction - Description of the Merger and the Exchange," "The Transaction - Background of and Reasons for the Transaction- Background of the Transaction" and "Management of the Partnership After the Transaction" and information appearing under Item 13 of the Petro 10-K and under "Election of Directors - Certain Transactions" in the Petro Annual Meeting Proxy Statement and information appearing in Note 16 (Related Party Transactions) to the Consolidated Financial Statements of the Partnership and its subsidiary included in the Partnership 10-K, which information is incorporated by reference in the Proxy Statement under "Incorporation of Certain Documents" and is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION. (a) and (b) The information set forth in the Proxy Statement on the cover page thereof and under "Proxy Statement Summary - The Transaction," "Proxy Statement Summary - The Transaction - The Merger and the Exchange," "The Transaction - Description of the Transaction," "The Transaction - Description of the Merger and the Exchange" and "The Transaction - Description of the Merger Agreement" is incorporated herein by reference. ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (a)-(g) The information set forth in the Proxy Statement under "Proxy Statement Summary - The Transaction," "Proxy Statement Summary - The Merger and the Exchange," "The Transaction - Description of the Transaction," "The Transaction - Description of the Merger and the Exchange" and "The Transaction - Description of the Merger Agreement" is incorporated herein by reference. 11 ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION. (a) The information set forth in the Proxy Statement under "Proxy Statement Summary - Financings and Refinancings, "Proxy Statement Summary - Financial Information - Estimated Sources and Uses of Funds of the Equity Offering and Debt Offering" and "The Transaction - Related Financing and Refinancing Transactions" is incorporated herein by reference. (b) The information set forth in the Proxy Statement under "Proxy Statement Summary - Financial Information - Estimated Sources and Uses of Funds of the Equity Offering and Debt Offering," "Proxy Solicitations - The Unitholders Meeting - Cost of Solicitation of Proxies," "Proxy Solicitations - The Special Meeting - Cost of Solicitation of Proxies," "Special Factors - Opinion of A.G. Edwards - Terms of A.G. Edwards' Engagement," "Special Factors - Opinion of Dain Rauscher Wessels - Dain Rauscher Wessels' Engagement Agreement" and "The Transaction - Description of the Merger Agreement - Expenses" is incorporated herein by reference. (c) The information set forth in the Proxy Statement under "Proxy Statement Summary - Financings and Refinancings" and "The Transaction - Related Financing and Refinancing Transactions" is incorporated herein by reference. (d) Not applicable. ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS. (a) The information set forth in the Proxy Statement under "Proxy Statement Summary - Special Factors - Potential Advantages to the Common Stockholders," "Proxy Statement Summary - Special Factors - Recommendations of Petro Board of Directors and Opinion of Dain Rauscher Wessels," "Proxy Statement Summary - Description of the Partnership Units," "Special Factors - Background of the Transaction," "Special Factors - Reasons for the Transaction that the Petro Board Considered; Recommendation of the Petro Board," "Cash Available for Distribution" and "Description of the Units" is incorporated herein by reference. (b) and (c) The information set forth in the Proxy Statement under "Proxy Statement Summary - The Transaction" and "Special Factors - Background of the Transaction" is incorporated herein by reference. (d) The information set forth in the Proxy Statement "Proxy Statement Summary - Special Factors - Potential Advantages to the Common Stockholders," "Proxy Statement Summary - Special Factors - Potential Disadvantages and Risks to the Common Stockholders," "Proxy Statement Summary - Financial Information - Summary Selected Unaudited Pro Forma Condensed Consolidated Financial Information," "Risk Factors - Risks to Common Stockholders," "Risk Factors - Tax Risks to Common Stockholders," "Parties and Conflicts - Conflicts of Interest - Certain Persons Have Interest in the Transaction that Conflict, or May be Perceived to Conflict, with the Interests of Common Stockholders and Common Unitholders," 12 "Special Factors - Reasons for the Transaction that the Petro Board Considered; Recommendation of the Petro Board," "Management of the Partnership After the Transaction," "The Amended and Restated Partnership Agreement," "Cash Distribution Policy," "Cash Available for Distribution," "Description of the Units," "Comparison of Securities" and "Certain Federal Income Tax Considerations" is incorporated herein by reference. ITEM 8. FAIRNESS OF THE TRANSACTION. (a) - (e) The information set forth in the Proxy Statement on the cover page thereof and under "Proxy Statement Summary - Special Factors - Recommendation of Petro Board of Directors and Opinion of Dain Rauscher Wessels," "Parties and Conflicts - Conflicts of Interests - Certain Persons Have Interests in the Transaction that Conflict, or May be Perceived to Conflict, with the Interests of the Common Stockholders and Common Unitholders," "Proxy Solicitations - The Special Meeting - Petro Board Recommendation," "Proxy Solicitations - The Special Meeting - Voting Rights; Vote Required" "Special Factors - Background of the Transaction," "Special Factors - Reason for the Transaction that the Petro Board Considered; Recommendations of the Petro Board," and "Special Factors - Opinion of Dain Rauscher Wessels" is incorporated herein by reference. (f) Not applicable. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS. (a) - (c) The information set forth in the Proxy Statement under "Proxy Statement Summary - Special Factors - Recommendation of Petro Board of Directors and Opinion of Dain Rauscher Wessels," "Special Factors - Background of the Transaction - Petro Retains Dain Rauscher Wessels to Provide a Fairness Opinion to Petro's Public Common Stockholders" and "Special Factors - Opinion of Dain Rauscher Wessels" is incorporated herein by reference. The opinion of Dain Rauscher Wessels is attached to the Proxy Statement as Annex E. ITEM 10. INTEREST IN SECURITIES OF THE ISSUER. (a) The information set forth in the Proxy Statement under "Proxy Solicitations - The Special Meeting - Voting Rights; Vote Required" and the information set forth in the Petro Annual Meeting Proxy Statement under "Ownership of Equity Securities" is incorporated herein by reference. (b) Not applicable. 13 ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S SECURITIES PROXY STATEMENT - SUMMARY - THE TRANSACTION. The information set forth in the Proxy Statement under "Proxy Statement Summary - The Transaction," "Proxy Statement Summary - The Transaction - The Merger and the Exchange," "Proxy Statement Summary - The Transaction -Financings and Refinancings," "The Transaction - Description of the Transaction," "The Transaction - Description of the Merger and the Exchange," "Parties and Conflicts - Conflicts of Interest - Certain Persons Have Interests in the Transaction that Conflict, or May be Perceived to Conflict, with the Interests of Common Stockholders and Common Unitholders," and "The Transaction - Related Financing and Refinancing Transactions" is incorporated herein by reference. ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE TRANSACTION. (a) and (b) The information set forth in the Proxy Statement under "Proxy Statement Summary - Special Factors - Recommendation of Petro Board of Directors and Opinion of Dain Rauscher Wessels," "Proxy Solicitations - The Special Meeting - Petro Board Recommendation," "Proxy Solicitations - The Special Meeting - Voting Rights; Vote Required" and "Special Factors - Reasons for the Transaction that the Petro Board Considered; Recommendation of the Petro Board" is incorporated herein by reference. ITEM 13. OTHER PROVISIONS OF THE TRANSACTION. (a) The information set forth in the Proxy Statement under "Proxy Solicitations - The Special Meeting - Dissenters' Rights," "Dissenters' Rights," and Annex F to the Proxy Statement is incorporated herein by reference. (b) Not applicable. (c) Not applicable. ITEM 14. FINANCIAL INFORMATION. (a) The information set forth in the Proxy Statement under "Proxy Statement Summary - Financial Information - Summary Selected Historical Financial and Operating Data of Petro," "Proxy Statement Summary - Financial Information - Summary Selected Unaudited Pro Forma Condensed Consolidated Financial Information," "Comparative Security Price and Distribution Information- Comparative Per Share/Per Unit Information (Unaudited)" and "Unaudited Pro Forma Condensed Consolidated Financial Information" is incorporated herein by reference. The consolidated financial statements of Petro and its subsidiaries included in the Petro 10 - K have been incorporated by reference in the Proxy Statement under "Incorporation of Certain Documents by Reference" are incorporated herein by reference. 14 (b) Not applicable. ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED. (a) The relevant information set forth under "Proxy Statement Summary - The Transaction," "Proxy Statement Summary - The Transaction - Financings and Refinancings," "Proxy Statement Summary - Financial Information - Estimated Sources and Uses of Funds of the Equity Offering and Debt Offering," "Proxy Solicitations - The Unitholders Meeting - Cost of Solicitation of Proxies," "Proxy Solicitations - The Special Meeting - Cost of Solicitation of Proxies," "The Transaction - Related Financing and Refinancing Transactions - Public Offerings" and "The Transaction - Description of the Merger Agreement - Expenses" is incorporated herein by reference. (b) The relevant information set forth under "Proxy Solicitations - The Unitholders Meeting - Cost of Solicitation of Proxies," " Proxy Solicitations The Special Meeting - Cost of Solicitation of Proxies," "Special Factors - Opinion of A.G. Edwards - Terms of A.G. Edwards' Engagement" and "Special Factors - Opinion of Dain Rauscher Wessels - Dain Rauscher Wessels' Engagement Agreement" is incorporated herein by reference. ITEM 16. ADDITIONAL INFORMATION. The information set forth in the Proxy Statement, a copy of which is filed as Exhibit (d)(l) hereto, is incorporated herein by reference. 15 ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. (a) Loan Agreements referred to in Item 6.** (b)(1) Opinion of Dain, Rauscher Wessels, dated October 22, 1998 (attached as Annex E to the Proxy Statement).** (b)(2) Dain Rauscher Wessels' Presentation to the Issuer's Board of Directors.* (b)(3) PaineWebber Incorporated's Presentations to the Issuer's Board of Directors.* (b)(4) Opinion of A. G. Edwards, dated October 16, 1998 (attached as Annex D to the Proxy Statement).** (b)(5) A. G. Edwards' Preliminary Report to Star Gas' Special Committee dated April 28, 1998.* (b)(6) A. G. Edwards' Appendices to Preliminary Report to Star Gas' Special Committee dated April 28, 1998.* (b)(7) A. G. Edwards' Preliminary Status Report to the Partnership's Board of Directors draft dated May 4, 1998.* (b)(8) A. G. Edwards' Round II Appendices to Preliminary Report to the Special Committee-Analyses Performed at $2.00 per share dated May 4, 1998.* (b)(9) A. G. Edwards' Round II Appendices to Preliminary Report to the Special Committee-Analyses Performed at $2.50 per share dated May 4, 1998.* (b)(10) A. G. Edwards' Preliminary Status Report to the Partnership's Board of Directors dated May 7, 1998.* (b)(11) A. G. Edwards' Proposal to Star Gas' Special Committee draft dated May 20, 1998.* (b)(12) A. G. Edwards' Round III Update to Preliminary Report to Star Gas' Special Committee dated May 21, 1998.* (b)(13) A. G. Edwards' Round III Appendices to Preliminary Report to Star Gas' Special Committee-Analyses Performed at $2.50 per share plus issuances of DPUs dated May 21, 1998.* (b)(14) A. G. Edwards' Revised Proposal to Star Gas' Special Committee draft dated May 26, 1998.* (b)(15) A. G. Edwards' Revised Proposal to Star Gas' Special Committee draft dated July 28, 1998.* (b)(16) A. G. Edwards' Fairness Opinion Presentation to Star Gas' Special Committee dated October 16, 1998.* (b)(17) A. G. Edwards' Appendix I to Fairness Opinion Presentation to Star Gas' Special Committee dated October 16, 1998.* (b)(18) A. G. Edwards' Appendix II to Fairness Opinion Presentation to Star Gas' Special Committee dated October 16, 1998.* (c)(1) Agreement and Plan of Merger dated October 22, 1998, among Issuer, the Partnership, the Operating Partnership, and Mergeco and the Company (attached as Annex A to the Proxy Statement).** (c)(2) Exchange Agreement dated October 22, 1998 among the Partnership and certain affiliated Common Stockholders of Petro (attached as Annex B to the Proxy Statement).** (d)(l) Preliminary Proxy Statement/Prospectus dated December 22, 1998.** (d)(2) Form of Letter of Transmittal to holders of Petro Common Stock .** (d)(3) Form of Notice of Special Meeting.** (d)(4) Press Release issued by Parent on August 14, 1998.* (e) Section 302A-471 and 302A-473 of the Minnesota Business Corporation Act (attached as Annex F to the Proxy Statement).*** (f) Not applicable. - - - - - - - - * Filed herewith. ** Incorporated by reference to the Registration Statement on Form S-4 filed by the Issuer with the Securities and Exchange Commission on October 22, 1998. *** Filed on October 22, 1998. 16 SIGNATURES After due inquiry and to the best of my knowledge and belief, each of the undersigned hereby certifies that the information set forth in this statement is true, complete and correct. December 23, 1998. PETROLEUM HEAT AND POWER CO., INC. By: /s/ Irik P. Sevin ------------------------------------ Name: Irik P. Sevin Title: Chairman of the Board and Chief Executive Officer STAR GAS PARTNERS, L.P. By: Star Gas Corporation ------------------------------------ its General Partner By: /s/ Joseph P. Cavanaugh ------------------------------------ Name: Joseph P. Cavanaugh Title: President STAR GAS CORPORATION By: /s/ Joseph P. Cavanaugh ------------------------------------ Name: Joseph P. Cavanaugh Title: President 17 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION (a) Loan Agreements referred to in Item 6.*** (b)(1) Opinion of Dain, Rauscher Wessels, dated October 22, 1998 (attached as Annex E to the Proxy Statement).** (b)(2) Dain, Rauscher Wessels' Presentation to the Issuer's Board of Directors.* (b)(3) Paine Webber Incorporated's Presentations to the Issuer's Board of Directors.* (b)(4) Opinion of A.G. Edwards, dated October 16, 1998 (attached as Annex D to the Proxy Statement).** (b)(5) A.G. Edwards' Preliminary Report to Star Gas' Special Committee dated April 28, 1998.* (b)(6) A. G. Edwards' Appendices to Preliminary Report to Star Gas' Special Committee dated April 28, 1998.* (b)(7) A. G. Edwards' Preliminary Status Report to the Partnership's Board of Directors draft dated May 4, 1998.* (b)(8) A. G. Edwards' Round II Appendices to Preliminary Report to the Special Committee-Analyses Performed at $2.00 per share dated May 4, 1998.* (b)(9) A. G. Edwards' Round II Appendices to Preliminary Report to the Special Committee-Analyses Performed at $2.50 per share dated May 4, 1998.* (b)(10) A. G. Edwards' Preliminary Status Report to the Partnership's Board of Directors dated May 7, 1998.* (b)(11) A. G. Edwards' Proposal to Star Gas' Special Committee draft dated May 20, 1998.* (b)(12) A. G. Edwards' Round III Update to Preliminary Report to Star Gas' Special Committee dated May 21, 1998.* (b)(13) A. G. Edwards' Round III Appendices to Preliminary Report to Star Gas' Special Committee-Analyses Performed at $2.50 per share plus issuances of DPUs dated May 21, 1998.* (b)(14) A. G. Edwards' Revised Proposal to Star Gas' Special Committee draft dated May 26, 1998.* (b)(15) A. G. Edwards' Revised Proposal to Star Gas' Special Committee draft dated July 28, 1998.* (b)(16) A. G. Edwards' Fairness Opinion Presentation to Star Gas' Special Committee dated October 16, 1998.* (b)(17) A. G. Edwards' Appendix I to Fairness Opinion Presentation to Star Gas' Special Committee dated October 16, 1998.* (b)(18) A. G. Edwards' Appendix II to Fairness Opinion Presentation to Star Gas' Special Committee dated October 16, 1998.* (c)(1) Agreement and Plan of Merger dated October 22, 1998, among Issuer, the Partnership, the Operating Partnership, and Mergeco and the Company (attached as Annex A to the Proxy Statement).** (c)(2) Exchange Agreement dated October 22, 1998 among the Partnership and certain affiliated Common Stockholders of Petro (attached as Annex B to the Proxy Statement).** (d)(l) Preliminary Proxy Statement/Prospectus dated December 22, 1998.** (d)(2) Form of Letter of Transmittal to holders of Petro Common Stock.** (d)(3) Form of Notice of Special Meeting.** (d)(4) Press Release issued by Parent on August 14, 1998.* (e) Section 302A-471 and 302A-473 of the Minnesota Business Corporation Act (attached as Annex F to the Proxy Statement).*** (f) Not applicable. - ----------------- * Filed herewith. ** Incorporated by reference to the Registration Statement on Form S-4 filed by the Issuer with the Securities and Exchange Commission on October 22, 1998. *** Filed on October 22, 1998. 19
EXHIBIT 99(b)(2) [LOGO OF PETRO APPEARS HERE] Materials Prepared for Discussion Board of Directors Meeting October 6, 1998 DAIN RAUSCHER WESSELS a division of Dain Rauscher Incorporated - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Table of Contents - --------------------------------------------------------------------------------
TABLE OF CONTENTS: SECTION - ----------------- ------- Transaction Summary........................................... 1 Pro Forma Analysis............................................ 2 Unit Reference Value Analysis................................. 3 Historical and Pro Forma MVE and MVC Comparison............... 4 Discounted Cash Flow Analysis................................. 5 Relative Contribution Analysis................................ 6 Net Asset Value Analysis...................................... 7 Comparable Company Trading Analysis Energy and Fuel Marketing and Distribution Companies.......... 8 Propane Master Limited Partnerships........................... 9 Comparable Transactions Analysis.............................. 10 Merger Premiums Analysis...................................... 11 Price and Volume Data......................................... 12 LOGO PETRO Project Intense Heat - -------------------------------------------------------------------------------- Transaction Summary - -------------------------------------------------------------------------------- Dain Rauscher Wessels Page 1 LOGO PETRO Transaction Summary Summary of Proposed Terms - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Summary of Proposed Terms (In thousands, except as otherwise indicated) DPU Distribution Pro rata distribution of Sr Sub Units based upon Petro pro forma ownership of total Star Units issued to Petro. Up to 303,000 DPUs can be earned each year if Petro provides $0.50 per Unit accretion to Star, up to a maximum of 909,000 DPUs. GP Incentive Distributions Pro rata distribution based upon Petro pro forma ownership of total Star Units issued to Petro. Petro Debt & Preferred Exchange Petro will issue to holders of certain Petro debt and preferred stock 3.37 shares of Petro Junior Convertible Preferred Stock for each $1,000 in principal or liquidation value. Each share of Petro Junior Convertible Preferred Stock will be exchangeable into 0.13 Star Common Units. - ------------------------------------------------------------------------------ Dain Rauscher Wessels Page 2
Pro Forma Star Units Historical ------------------------------------------------------------- Petro Common Sr Sub Jr Sub GP Petro Shareholders (A only) Common Units Units Units Units - ------------------------------------------- ---------- ------------ ------------ ------------ ------------ Class A 12,918 -- 1,688 -- Petro Shareholders (excluding A only) - ------------------------------------------- Class A (to receive Sr Sub Units) 8,258 -- 1,079 -- Class A & C (to receive Jr Sub Units) 5,386 -- -- 578 279 Class B 11 -- -- -- -- --------- ---------- ---------- ---------- ---------- Total Petro Shareholders (excluding A only) 13,655 1,079 578 279 --------- ---------- ---------- ---------- ---------- Total Petro Shareholders 26,573 2,766 578 279 ========= ========== ========== ========== ========== Existing Star Public Unitholders -- 3,832 -- -- -- New Star Units - ------------------------------------------- Debt and Preferred Stock Exchange -- 104 -- -- -- Public Offering -- 6,375 -- -- -- ---------- ---------- ---------- ---------- Pro Forma Star Units Outstanding -- 10,311 2,766 578 279 ========== ========== ========== ========== General Assumptions - ------------------------------------------- Exchange Ratio (Petro Share / Star Unit) -- -- 0.13064 0.15913 0.15913 Star Historical MQD $2.200 Star Pro Forma MQD $2.300 GP Interest 2.0% Pro Forma Star Units ---------------------------------------------------------------- GP Total DPUs Total Units Fully-Diluted Incentive Petro Shareholders (A only) Units (Sr Sub) (incl. DPUs) Ownership Distributions - ------------------------------------------- ---------- ------------ ------------ ------------ ------------- Class A 1,688 423 2,111 14.2% 46.6% Petro Shareholders (excluding A only) - ------------------------------------------- Class A (to receive Sr Sub Units) 1,079 271 1,349 9.1% 29.8% Class A & C (to receive Jr Sub Units) 857 215 1,072 7.2% 23.7% Class B -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total Petro Shareholders (excluding A only) 1,936 486 2,422 16.3% 53.4% ---------- ---------- ---------- ---------- ---------- Total Petro Shareholders 3,624 909 4,533 30.5% 100.0% ========== ========== ========== ========== ========== Existing Star Public Unitholders 3,832 -- 3,832 25.8% -- New Star Units - ------------------------------------------- Debt and Preferred Stock Exchange 104 -- 104 0.7% -- Public Offering 6,375 -- 6,375 43.0% -- ---------- ---------- ---------- ---------- ---------- Pro Forma Star Units Outstanding 13,934 909 14,843 100.0% 100.0% ========== ========== ========== ========== ========== General Assumptions - ------------------------------------------- Exchange Ratio (Petro Share / Star Unit) -- -- -- -- -- Star Historical MQD Star Pro Forma MQD GP Interest LOGO PETRO Project Intense Heat - ------------------------------------------------------------------------------ Pro Forma Analysis - ------------------------------------------------------------------------------ Dain Rauscher Wessels Page 3 LOGO PETRO Pro Forma Analysis Petro Summary Historical Financial Data - -------------------------------------------------------------------------------- PETROLEUM HEAT AND POWER CO., INC. Summary Historical Financial Data (In thousands, except as otherwise indicated) - --------------- (1) EBITDA excludes non-recurring expenses. (2) Petro provided estimate for maintenance capital expenditures. - ------------------------------------------------------------------------------ Dain Rauscher Wessels Page 4
At or for the Year Ended December 31, ------------------------------------------------------------ INCOME STATEMENT DATA 1993 1994 1995 1996 - ------------------------------------------------------ ------------ ------------ ------------ ------------ Net Sales $538,526 $546,677 $609,507 $608,161 Gross Profit (after direct delivery expense) 141,815 150,701 185,048 147,671 EBITDA (1) 48,436 55,387 56,753 42,070 EBITDA (including SGU Distributions) (1) 48,436 55,387 56,753 46,383 EBIT 13,772 22,992 17,710 12,125 Net Income (Loss) before Extraordinary Items (7,564) (3,611) (22,043) (21,901) Net Income (Loss) (8,431) (4,265) (23,479) (28,315) Net Income (Loss) to Common (11,798) (7,776) (26,742) (30,704) Cash Flow (Loss) to Common 25,971 28,905 16,028 8,764 Less: Maintenance Capex (2) 3,000 3,000 3,000 3,000 Free Cash Flow (Loss) 22,971 25,905 13,028 5,764 PER SHARE DATA - ------------------------------------------------------ Earnings (Loss) per Share before Extra Items ($0.50) ($0.33) ($1.00) ($0.95) Earnings (Loss) per Share ($0.54) ($0.36) ($1.06) ($1.20) Cash Flow (Loss) per Share $1.19 $1.32 $0.63 $0.34 Free Cash Flow (Loss) per Share $1.06 $1.18 $0.51 $0.23 Dividends Paid per Share $0.53 $0.55 $0.60 $0.60 Weighted Average Shares Outstanding 21,755 21,897 25,324 25,593 BALANCE SHEET DATA - ------------------------------------------------------ Working Capital $16,694 $28,345 $65,408 $18,093 Total Assets 256,589 397,174 357,241 275,025 Total Debt (including short-term) 213,344 315,562 341,430 316,384 Preferred Stock (including current maturities) 25,000 20,834 16,667 12,500 Total Stockholders' Equity (Deficiency) (61,964) (66,176) (100,903) (145,733) Total Capitalization 176,380 270,220 257,194 183,151 FINANCIAL RATIO DATA - ------------------------------------------------------ Interest Expense $22,156 $25,282 $41,084 $34,669 EBITDA to Interest Expense 2.2 x 2.2 x 1.4 x 1.2 x EBITDA (including SGU Distributions) to Interest Expense 2.2 x 2.2 x 1.4 x 1.3 x Total Debt to EBITDA 4.4 x 5.7 x 6.0 x 7.5 x Total Debt to EBITDA (including SGU Distributions) 4.4 x 5.7 x 6.0 x 6.8 x Total Debt to Total Capitalization 121.0% 116.8% 132.8% 172.7% Total Debt & Preferred to Total Capitalization 135.1% 124.5% 139.2% 179.6% At or for the Year Ended December 31, 1997 ------------------------------------------------------------------------- INCOME STATEMENT DATA Q1 Q2 Q3 Q4 Total - ------------------------------------------------------ ------------ ------------ ------------- ----------- ----------- Net Sales $248,095 $87,972 $50,788 $161,286 $548,141 Gross Profit (after direct delivery expense) 72,443 17,793 4,161 43,990 138,387 EBITDA (1) 47,147 (6,945) (20,908) 16,716 36,010 EBITDA (including SGU Distributions) (1) 48,524 (5,568) (19,532) 18,093 41,517 EBIT 39,796 (14,380) (28,362) 9,210 6,264 Net Income (Loss) before Extraordinary Items 33,388 (27,454) (40,316) 11,483 (22,899) Net Income (Loss) 33,388 (27,454) (40,316) 11,483 (22,899) Net Income (Loss) to Common 32,492 (28,375) (42,177) 10,517 (27,543) Cash Flow (Loss) to Common 39,328 (17,035) (30,400) 7,000 (1,107) Less: Maintenance Capex (2) 750 750 750 750 3,000 Free Cash Flow (Loss) 38,578 (17,785) (31,150) 6,250 (4,107) PER SHARE DATA - ------------------------------------------------------ Earnings (Loss) per Share before Extra Items $1.26 ($1.09) ($1.61) $0.40 ($1.06) Earnings (Loss) per Share $1.26 ($1.09) ($1.61) $0.40 ($1.06) Cash Flow (Loss) per Share $1.53 ($0.66) ($1.16) $0.27 ($0.04) Free Cash Flow (Loss) per Share $1.50 ($0.69) ($1.19) $0.24 ($0.16) Dividends Paid per Share $0.08 $0.08 $0.08 $0.08 $0.30 Weighted Average Shares Outstanding 25,759 25,935 26,147 26,359 26,050 BALANCE SHEET DATA - ------------------------------------------------------ Working Capital $78,544 $54,179 $5,414 $12,436 $12,436 Total Assets 296,338 259,761 223,918 247,846 247,846 Total Debt (including short-term) 297,888 291,654 291,472 294,348 294,348 Preferred Stock (including current maturities) 42,500 42,500 38,334 36,656 36,656 Total Stockholders' Equity (Deficiency) (116,158) (145,848) (189,361) (177,033) (177,033) Total Capitalization 224,230 188,306 140,445 153,971 153,971 FINANCIAL RATIO DATA - ------------------------------------------------------ Interest Expense $8,805 $8,344 $8,432 $8,232 $33,813 EBITDA to Interest Expense -- -- -- -- 1.1 x EBITDA (including SGU Distributions) to Interest Expense -- -- -- -- 1.2 x Total Debt to EBITDA -- -- -- -- 8.2 x Total Debt to EBITDA (including SGU Distributions) -- -- -- -- 7.1 x Total Debt to Total Capitalization 132.8% 154.9% 207.5% 191.2% 191.2% Total Debt & Preferred to Total Capitalization 151.8% 177.5% 234.8% 215.0% 215.0% LTM Fiscal 1998 Ended ---------------------------- June 30, INCOME STATEMENT DATA Q1 Q2 1998 - ------------------------------------------------------ ------------ -------------- ----------- Net Sales $183,139 $66,227 $461,440 Gross Profit (after direct delivery expense) 63,483 14,081 125,715 EBITDA (1) 40,733 (6,355) 30,186 EBITDA (including SGU Distributions) (1) 42,154 (4,934) 35,781 EBIT 33,318 (13,432) 734 Net Income (Loss) before Extraordinary Items 26,978 (22,974) (24,829) Net Income (Loss) 26,978 (22,974) (24,829) Net Income (Loss) to Common 25,415 (23,939) (30,184) Cash Flow (Loss) to Common 32,165 (12,857) (4,092) Less: Maintenance Capex (2) 750 750 3,000 Free Cash Flow (Loss) 31,415 (13,607) (7,092) PER SHARE DATA - ------------------------------------------------------ Earnings (Loss) per Share before Extra Items $0.96 ($0.90) ($1.14) Earnings (Loss) per Share $0.96 ($0.90) ($1.14) Cash Flow (Loss) per Share $1.21 ($0.48) ($0.15) Free Cash Flow (Loss) per Share $1.18 ($0.51) ($0.27) Dividends Paid per Share Weighted Average Shares Outstanding 26,564 26,571 26,410 BALANCE SHEET DATA - ------------------------------------------------------ Working Capital $40,653 $23,139 $23,139 Total Assets 248,777 229,120 229,120 Total Debt (including short-term) 287,010 286,978 286,978 Preferred Stock (including current maturities) 36,819 36,854 36,854 Total Stockholders' Equity (Deficiency) (151,137) (175,066) (175,066) Total Capitalization 172,692 148,766 148,766 FINANCIAL RATIO DATA - ------------------------------------------------------ Interest Expense $8,275 $8,210 $33,149 EBITDA to Interest Expense -- -- 0.9 x EBITDA (including SGU Distributions) to Interest Expense -- -- 1.1 x Total Debt to EBITDA -- -- 9.5 x Total Debt to EBITDA (including SGU Distributions) -- -- 8.0 x Total Debt to Total Capitalization 166.2% 192.9% 192.9% Total Debt & Preferred to Total Capitalization 187.5% 217.7% 217.7% LOGO PETRO Pro Forma Analysis Star Gas Summary Historical Financial Data - -------------------------------------------------------------------------------- STAR GAS PARTNERS, L.P. Summary Historical Financial Data (In thousands, except as otherwise indicated) Note: Financial data prior to December 20, 1995 reflects operations of the Predecessor Company. (1) Includes two quarters of distributions and a pro rata distribution of $0.0725 per Unit for the period December 20, 1995 to December 31, 1995. - ------------------------------------------------------------------------------ Dain Rauscher Wessels Page 5
At or for the Year Ended September 30, ------------------------------------------------- INCOME STATEMENT DATA 1993 1994 1995 1996 - ------------------------------------------------ ---------- ---------- ---------- ---------- Sales $ 143,216 $ 128,040 $ 104,550 $ 119,634 Gross Profit (after delivery and branch expense) 23,103 27,957 19,668 26,327 EBITDA 19,437 21,946 13,541 19,870 EBIT (30,313) 8,907 3,468 10,062 Net Income (Loss) (47,049) (1,404) (6,169) 2,593 Limited Partners' Interest in Net Income (Loss) Cash Flow (Loss) 4,271 11,966 5,626 13,083 Maintenance Capex 4,688 5,419 7,988 5,332 Distributable Cash Flow (Loss) (417) 6,547 (2,362) 7,751 PER UNIT DATA - ------------------------------------------------ Net Income (Loss) per Unit Cash Flow (Loss) per Unit Distributable Cash Flow (Loss) per Unit Cash Distributions per Unit $1.17 (1) Weighted Avg. Limited Partner Units Outstanding BALANCE SHEET DATA - ------------------------------------------------ Working Capital (Deficit) $1,976 ($486) $7,546 Total Assets 147,608 155,393 156,913 Total Debt (including short-term) 74,929 2,137 87,350 Cumulative Redeemable Preferred Stock 8,264 8,625 -- Total Partners' Capital 44,328 44,305 61,398 Total Capitalization 127,521 55,067 148,748 FINANCIAL RATIO DATA - ------------------------------------------------ Interest Expense $16,479 $10,497 $8,549 $7,124 EBITDA to Interest Expense 1.2 x 2.1 x 1.6 x 2.8 x Total Debt to EBITDA 3.4 x 0.2 x 4.4 x Total Debt to Total Capitalization 58.8% 3.9% 58.7% At or for the Year Ended September 30, 1997 ------------------------------------------------------------ INCOME STATEMENT DATA Q1 Q2 Q3 Q4 Total - ------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Sales $ 50,876 $ 46,442 $ 20,078 $ 17,763 $ 135,159 Gross Profit (after delivery and branch expense) 12,001 12,019 1,744 757 26,521 EBITDA 10,402 9,725 253 (677) 19,703 EBIT 7,816 7,095 (2,400) (3,213) 9,298 Net Income (Loss) 5,892 5,325 (4,143) (5,062) 2,012 Limited Partners' Interest in Net Income (Loss) 5,774 5,218 (4,060) (4,960) (1,972) Cash Flow (Loss) 8,650 8,049 (1,245) (2,430) 13,024 Maintenance Capex 2,517 1,271 666 825 5,279 Distributable Cash Flow (Loss) 6,133 6,778 (1,911) (3,255) 7,745 PER UNIT DATA - ------------------------------------------------ Net Income (Loss) per Unit $1.10 $0.99 ($0.77) ($0.94) $0.37 Cash Flow (Loss) per Unit $1.61 $1.50 ($0.23) ($0.45) $2.42 Distributable Cash Flow (Loss) per Unit $1.14 $1.26 ($0.36) ($0.61) $1.44 Cash Distributions per Unit $0.55 $0.55 $0.55 $0.55 $2.20 Weighted Avg. Limited Partner Units Outstanding 5,271 5,271 5,271 5,271 5,271 BALANCE SHEET DATA - ------------------------------------------------ Working Capital (Deficit) $12,428 $14,583 $9,684 $3,319 $3,319 Total Assets 168,485 158,678 153,767 147,469 147,469 Total Debt (including short-term) 91,850 85,000 85,000 85,000 85,000 Cumulative Redeemable Preferred Stock -- -- -- -- -- Total Partners' Capital 64,332 66,699 59,598 51,578 51,578 Total Capitalization 156,182 151,699 144,598 136,578 136,578 FINANCIAL RATIO DATA - ------------------------------------------------ Interest Expense $1,848 $1,771 $1,671 $1,676 $6,966 EBITDA to Interest Expense -- -- -- -- 2.8 x Total Debt to EBITDA -- -- -- -- 4.3 x Total Debt to Total Capitalization 58.8% 56.0% 58.8% 62.2% 62.2% LTM Fiscal 1998 Ended ---------------------------------- June 30, INCOME STATEMENT DATA Q1 Q2 Q3 1998 - ------------------------------------------------ ----------- ----------- ---------- Sales $ 41,844 $ 37,884 $ 16,243 $ 113,734 Gross Profit (after delivery and branch expense) 10,041 12,736 1,187 24,721 EBITDA 8,672 11,287 (415) 18,867 EBIT 5,847 8,381 (3,328) 7,687 Net Income (Loss) 3,707 6,363 (5,235) (227) Limited Partners' Interest in Net Income (Loss) 3,633 6,236 (5,130) (221) Cash Flow (Loss) 6,690 9,421 (2,179) 11,502 Maintenance Capex 2,085 943 797 4,650 Distributable Cash Flow (Loss) 4,605 8,478 (2,976) 6,852 PER UNIT DATA - ------------------------------------------------ Net Income (Loss) per Unit $0.66 $1.00 ($0.82) ($0.04) Cash Flow (Loss) per Unit $1.20 $1.48 ($0.34) $1.94 Distributable Cash Flow (Loss) per Unit $0.82 $1.33 ($0.47) $1.16 Cash Distributions per Unit $0.55 $0.55 $0.55 $2.20 Weighted Avg. Limited Partner Units Outstanding 5,474 6,228 6,228 5,800 BALANCE SHEET DATA - ------------------------------------------------ Working Capital (Deficit) $10,475 $14,841 $4,242 $4,242 Total Assets 179,451 178,308 173,265 173,265 Total Debt (including short-term) 96,000 96,000 96,950 96,950 Cumulative Redeemable Preferred Stock -- -- -- -- Total Partners' Capital 71,883 74,751 66,020 66,020 Total Capitalization 167,883 170,751 162,970 162,970 FINANCIAL RATIO DATA - ------------------------------------------------ Interest Expense $2,086 $1,875 $1,873 $7,510 EBITDA to Interest Expense -- -- -- 2.5 x Total Debt to EBITDA -- -- -- 5.1 x Total Debt to Total Capitalization 57.2% 56.2% 59.5% 59.5% LOGO PETRO Pro Forma Analysis Pro Forma Unit Coverage Analysis - ------------------------------------------------------------------------------ PROJECT INTENSE HEAT Pro Forma Unit Coverage Analysis (In thousands, except as otherwise indicated) - -------------------------------------------------------------------------------- Dain Rauscher Wessels Page 6
Projected for the Year Ended September 30, -------------------------------------------------------------------- 15 Year Weather Case --------------------------------------------------------- Estimated Normalized Pro Forma EBITDA 1998E 1998E 1999E 2000E 2001E 2002E - ------------------------------------------ --------- --------- --------- --------- --------- --------- Star $ 18,781 $ 20,731 $ 23,032 $ 24,465 $ 25,898 $ 27,331 Petro 37,630 44,749 46,094 49,605 52,824 55,897 Synergies 500 500 500 500 500 500 --------- --------- --------- --------- --------- --------- Pro Forma EBITDA $ 56,911 $ 65,980 $ 69,626 $ 74,570 $ 79,222 $ 83,728 Distributable Cash Flow - ------------------------------------------ Pro Forma EBITDA $ 56,911 $ 65,980 $ 69,626 $ 74,570 $ 79,222 $ 83,728 Interest Expense (27,722) (27,722) (28,186) (29,479) (31,065) (32,560) Maintenance Capex (6,210) (6,210) (6,298) (6,419) (6,541) (6,667) Other (525) (525) (525) (525) (525) (525) --------- --------- --------- --------- --------- --------- Distributable Cash Flow $ 22,454 $ 31,523 $ 34,617 $ 38,147 $ 41,091 $ 43,976 Weighted Average Units Outstanding - ------------------------------------------ Common Units 10,311 10,311 10,682 11,260 11,676 12,111 Senior Subordinated Units (incl. DPUs) 2,766 2,766 2,766 3,069 3,372 3,675 Junior Subordinated & General Partner Units 857 857 857 857 857 857 --------- --------- --------- --------- --------- --------- Total Weighted Average Units Outstanding 13,934 13,934 14,305 15,186 15,905 16,643 Distributable Cash Flow per Unit - ------------------------------------------ Common Units $ 2.18 $ 3.06 $ 3.24 $ 3.39 $ 3.52 $ 3.63 Senior Subordinated Units (incl. DPUs) $ 1.72 $ 2.41 $ 2.57 $ 2.66 $ 2.73 $ 2.79 Junior Subordinated & General Partner Units $ 1.61 $ 2.26 $ 2.42 $ 2.51 $ 2.58 $ 2.64 --------- --------- --------- --------- --------- --------- Total Units Outstanding $ 1.61 $ 2.26 $ 2.42 $ 2.51 $ 2.58 $ 2.64 Distributions per Unit - ------------------------------------------ MQD per Unit $ 2.20 $ 2.20 $ 2.30 $ 2.30 $ 2.30 $ 2.30 Indicated Distribution per Unit $ 2.20 $ 2.20 $ 2.30 $ 2.40 $ 2.40 $ 2.50 MQD Coverage per Unit - ------------------------------------------ Common Units 0.99 x 1.39 x 1.41 x 1.47 x 1.53 x 1.58 x Senior Subordinated Units (incl. DPUs) 0.78 x 1.10 x 1.12 x 1.16 x 1.19 x 1.21 x Junior Subordinated & General Partner Units 0.73 x 1.03 x 1.05 x 1.09 x 1.12 x 1.15 x --------- --------- --------- --------- --------- --------- Total Units 0.73 x 1.03 x 1.05 x 1.09 x 1.12 x 1.15 x Indicated Distribution Coverage per Unit - ------------------------------------------ Common Units 0.99 x 1.39 x 1.41 x 1.41 x 1.47 x 1.45 x Senior Subordinated Units (incl. DPUs) 0.78 x 1.10 x 1.12 x 1.11 x 1.14 x 1.11 x Junior Subordinated & General Partner Units 0.73 x 1.03 x 1.05 x 1.05 x 1.08 x 1.06 x --------- --------- --------- --------- --------- --------- Total Units 0.73 x 1.03 x 1.05 x 1.05 x 1.08 x 1.06 x Projected for the Year Ended September 30, --------------------------------------------------------------------- 30 Year Weather Case --------------------------------------------------------- Estimated Normalized Pro Forma EBITDA 1998E 1998E 1999E 2000E 2001E 2002E - ------------------------------------------ --------- --------- ---------- ---------- ---------- ---------- Star $ 18,781 $ 22,135 $ 24,491 $ 26,029 $ 27,566 $ 29,104 Petro 37,630 46,900 48,881 53,536 57,814 61,900 Synergies 500 500 500 500 500 500 --------- --------- ---------- ---------- ---------- ---------- Pro Forma EBITDA $ 56,911 $ 69,535 $ 73,872 $ 80,065 $ 85,880 $ 91,504 Distributable Cash Flow - ------------------------------------------ Pro Forma EBITDA $ 56,911 $ 69,535 $ 73,872 $ 80,065 $ 85,880 $ 91,504 Interest Expense (27,722) (27,608) (28,857) (31,150) (33,254) (35,120) Maintenance Capex (6,210) (6,210) (6,273) (6,393) (6,516) (6,641) Other (525) (525) (525) (525) (525) (525) --------- --------- ---------- ---------- ---------- ---------- Distributable Cash Flow $ 22,454 $ 35,192 $ 38,217 $ 41,997 $ 45,585 $ 49,218 Weighted Average Units Outstanding - ------------------------------------------ Common Units 10,311 10,311 10,311 10,357 10,550 10,874 Senior Subordinated Units (incl. DPUs) 2,766 2,766 2,766 3,069 3,372 3,675 Junior Subordinated & General Partner Units 857 857 857 857 857 857 --------- --------- ---------- ---------- ---------- ---------- Total Weighted Average Units Outstanding 13,934 13,934 13,934 14,284 14,780 15,407 Distributable Cash Flow per Unit - ------------------------------------------ Common Units $ 2.18 $ 3.41 $ 3.71 $ 4.05 $ 4.32 $ 4.53 Senior Subordinated Units (incl. DPUs) $ 1.72 $ 2.69 $ 2.92 $ 3.13 $ 3.27 $ 3.38 Junior Subordinated & General Partner Units $ 1.61 $ 2.53 $ 2.74 $ 2.94 $ 3.08 $ 3.19 --------- --------- ---------- ---------- ---------- ---------- Total Units Outstanding $ 1.61 $ 2.53 $ 2.74 $ 2.94 $ 3.08 $ 3.19 Distributions per Unit - ------------------------------------------ MQD per Unit $ 2.20 $ 2.20 $ 2.30 $ 2.30 $ 2.30 $ 2.30 Indicated Distribution per Unit $ 2.20 $ 2.20 $ 2.30 $ 2.50 $ 2.70 $ 2.90 MQD Coverage per Unit - ------------------------------------------ Common Units 0.99 x 1.55 x 1.61 x 1.76 x 1.88 x 1.97 x Senior Subordinated Units (incl. DPUs) 0.78 x 1.22 x 1.27 x 1.36 x 1.42 x 1.47 x Junior Subordinated & General Partner Units 0.73 x 1.15 x 1.19 x 1.28 x 1.34 x 1.39 x --------- --------- ---------- ---------- ---------- ---------- Total Units 0.73 x 1.15 x 1.19 x 1.28 x 1.34 x 1.39 x Indicated Distribution Coverage per Unit - ------------------------------------------ Common Units 0.99 x 1.55 x 1.61 x 1.62 x 1.60 x 1.56 x Senior Subordinated Units (incl. DPUs) 0.78 x 1.22 x 1.27 x 1.25 x 1.21 x 1.17 x Junior Subordinated & General Partner Units 0.73 x 1.15 x 1.19 x 1.18 x 1.14 x 1.10 x --------- --------- ---------- ---------- ---------- ---------- Total Units 0.73 x 1.15 x 1.19 x 1.18 x 1.14 x 1.10 x Pro Forma Analysis Pro Forma Credit Analysis PROJECT INTENSE HEAT Pro Forma Credit Analysis (In thousands, except as otherwise indicated) - --------------- (1) Interest coverage ratio is EBITDA divided by interest expense. (2) Fixed charge coverage ratio is EBITDA divided by total fixed charges. - ------------------------------------------------------------------------------ Dain Rauscher Wessels Page 7
Projected for the Year Ended September 30, ------------------------------------------------------------------ 15 Year Weather Case Estimated ---------------------------------------------------- Pro Forma EBITDA 1998E 1999E 2000E 2001E 2002E - ------------------------------------ ---------- ---------- ---------- ---------- ---------- Star $ 18,781 $ 23,032 $ 24,465 $ 25,898 $ 27,331 Petro 37,630 46,094 49,605 52,824 55,897 Synergies 500 500 500 500 500 ---------- ---------- ---------- ---------- ---------- Pro Forma EBITDA $ 56,911 $ 69,626 $ 74,570 $ 79,222 $ 83,728 Distributable Cash Flow - ------------------------------------ Pro Forma EBITDA $ 56,911 $ 69,626 $ 74,570 $ 79,222 $ 83,728 Interest Expense (27,722) (28,186) (29,479) (31,065) (32,560) Maintenance Capex (6,210) (6,298) (6,419) (6,541) (6,667) Other (525) (525) (525) (525) (525) ---------- ---------- ---------- ---------- ---------- Distributable Cash Flow $ 22,454 $ 34,617 $ 38,147 $ 41,091 $ 43,976 Fixed Charges - ------------------------------------ Interest Expense $ 27,722 $ 28,186 $ 29,479 $ 31,065 $ 32,560 Lease and Rental Expense 5,281 4,676 4,058 3,642 3,541 ---------- ---------- ---------- ---------- ---------- Total Fixed Charges $ 33,003 $ 32,862 $ 33,537 $ 34,707 $ 36,101 Pro Forma Balance Sheet Data - ------------------------------------ Working Capital $ 7,177 $ 7,177 $ 7,177 $ 7,177 $ 7,177 Total Assets 376,824 379,732 379,450 373,923 363,512 Total Long-Term Debt 314,234 329,549 351,798 372,734 393,010 Total Partners' Capital (Deficit) (37,889) (55,252) (84,504) (117,291) (154,104) Total Capitalization 276,345 274,297 267,294 255,443 238,906 Pro Forma Credit Analysis - ------------------------------------ Interest Coverage Ratio (1) 2.05 x 2.47 x 2.53 x 2.55 x 2.57 x Fixed Charge Coverage Ratio (2) 1.72 x 2.12 x 2.22 x 2.28 x 2.32 x Total Debt to Total Capitalization 113.7% 120.1% 131.6% 145.9% 164.5% Total Debt to EBITDA 5.52 x 4.73 x 4.72 x 4.70 x 4.69 x Total Debt to Distributable Cash Flow 13.99 x 9.52 x 9.22 x 9.07 x 8.94 x Projected for the Year Ended September 30, ------------------------------------------------------------------ 30 Year Weather Case Estimated ---------------------------------------------------- Pro Forma EBITDA 1998E 1999E 2000E 2001E 2002E - ------------------------------------ ---------- ---------- ---------- ---------- ---------- Star $ 18,781 $ 24,491 $ 26,029 $ 27,566 $ 29,104 Petro 37,630 48,881 53,536 57,814 61,900 Synergies 500 500 500 500 500 ---------- ---------- ---------- ---------- ---------- Pro Forma EBITDA $ 56,911 $ 73,872 $ 80,065 $ 85,880 $ 91,504 Distributable Cash Flow - ------------------------------------ Pro Forma EBITDA $ 56,911 $ 73,872 $ 80,065 $ 85,880 $ 91,504 Interest Expense (27,722) (28,857) (31,150) (33,254) (35,120) Maintenance Capex (6,210) (6,273) (6,393) (6,516) (6,641) Other (525) (525) (525) (525) (525) ---------- ---------- ---------- ---------- ---------- Distributable Cash Flow $ 22,454 $ 38,217 $ 41,997 $ 45,585 $ 49,218 Fixed Charges - ------------------------------------ Interest Expense $ 27,722 $ 28,857 $ 31,150 $ 33,254 $ 35,120 Lease and Rental Expense 5,281 4,676 4,058 3,642 3,541 ---------- ---------- ---------- ---------- ---------- Total Fixed Charges $ 33,003 $ 33,533 $ 35,208 $ 36,896 $ 38,661 Pro Forma Balance Sheet Data - ------------------------------------ Working Capital $ 7,177 $ 7,177 $ 7,177 $ 7,177 $ 7,177 Total Assets 376,824 384,961 389,763 388,457 381,446 Total Long-Term Debt 314,234 348,066 379,371 405,538 430,848 Total Partners' Capital (Deficit) (37,889) (69,178) (103,669) (138,643) (178,219) Total Capitalization 276,345 278,888 275,702 266,895 252,629 Pro Forma Credit Analysis - ------------------------------------ Interest Coverage Ratio (1) 2.05 x 2.56 x 2.57 x 2.58 x 2.61 x Fixed Charge Coverage Ratio (2) 1.72 x 2.20 x 2.27 x 2.33 x 2.37 x Total Debt to Total Capitalization 113.7% 124.8% 137.6% 151.9% 170.5% Total Debt to EBITDA 5.52 x 4.71 x 4.74 x 4.72 x 4.71 x Total Debt to Distributable Cash Flow 13.99 x 9.11 x 9.03 x 8.90 x 8.75 x LOGO PETRO Project Intense Heat - ------------------------------------------------------------------------------ Unit Reference Value Analysis - ------------------------------------------------------------------------------ Dain Rauscher Wessels Page 8 LOGO PETRO Unit Reference Value Analysis Unit Reference Value Analysis Summary - ------------------------------------------------------------------------------ PROJECT INTENSE HEAT Unit Reference Value Analysis Summary - ------------------------------------------------------------------------------ Dain Rauscher Wessels Page 9
Dain 15 Year 30 Year Rauscher Downside Weather Weather Wessels Indicated Reference Values per Star Unit Case Case Case Case - ---------------------------------------------------------- --------- --------- --------- --------- Common Unit $ 20.75 $ 26.33 $ 31.55 $ 22.54 Senior Subordinated Unit $ 17.74 $ 26.90 $ 35.62 $ 22.76 Junior Subordinated / General Partner Unit $ 13.74 $ 20.78 $ 27.83 $ 17.73 Exchange Ratio (Petro Share / Star Unit) - ---------------------------------------------------------- Senior Subordinated Unit 0.13064 0.13064 0.13064 0.13064 Junior Subordinated / General Partner Unit 0.15913 0.15913 0.15913 0.15913 Implied Reference Value per Petro Share Senior Subordinated Unit - ---------------------------------------------------------- ---------------------------------------------- Implied Reference Value (excluding DPUs and GP Incentives) $ 2.32 $ 2.98 $ 3.80 $ 2.54 DPUs and GP Incentives Value -- 0.54 0.85 0.43 --------- --------- --------- --------- Total Implied Reference Value $ 2.32 $ 3.51 $ 4.65 $ 2.97 ========= ========= ========= ========= Implied Reference Value per Petro Share Junior Subordinated / General Partner Unit ---------------------------------------------- Implied Reference Value (excluding DPUs and GP Incentives) $ 2.19 $ 2.76 $ 3.57 $ 2.39 DPUs and GP Incentives Value 0.54 0.86 0.44 Total Implied Reference Value $ 2.19 $ 3.31 $ 4.43 $ 2.82 LOGO PETRO Unit Reference Value Analysis Unit Reference Value Analysis Discount Rate Assumptions - ------------------------------------------------------------------------------ PROJECT INTENSE HEAT Unit Reference Value Analysis Discount Rate Assumptions Dain Rauscher Wessels Page 10
15 Year 30 Year Dain Rauscher Downside Case Weather Case Weather Case Wessels Case -------------------- -------------------- -------------------- -------------------- Discount Bps Spread Discount Bps Spread Discount Bps Spread Discount Bps Spread Rate to Common Rate to Common Rate to Common Rate to Common -------- ---------- -------- ---------- -------- ---------- -------- ---------- Common Unit 11.30% -- 9.50% -- 9.00% -- 10.75% -- Senior Subordinated Unit - ------------------------------------------ Senior Subordinated Unit Distributions 13.30% 200 bps 11.00% 150 bps 9.75% 75 bps 12.50% 175 bps Petro Incentive Distributions (DPU) -- -- 13.00% 350 bps 12.50% 350 bps 14.25% 350 bps GP Incentive Distributions -- -- 13.50% 400 bps 13.00 400 bps 14.75% 400 bps Junior Subordinated / General Partner Unit - ------------------------------------------ Junior Subordinated Unit Distributions 14.30% 300 bps 12.00% 250 bps 10.50% 150 bps 13.50% 275 bps Petro Incentive Distributions (DPU) -- -- 13.00% 350 bps 12.50% 350 bps 14.25% 350 bps GP Incentive Distributions -- -- 13.50% 400 bps 13.00% 400 bps 14.75% 400 bps [LOGO OF PETRO(TM) APPEARS HERE] Unit Reference Value Analysis Projected Indicated Distribution per Unit and Cash Distributions per Unit Class ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Projected Indicated Distribution per Unit and Cash Distributions per Unit Class (In thousands, except as otherwise indicated) - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 11
Projected for the Year Ended September 30, ----------------------------------------------- 15 Year Weather Case ----------------------------------------------- Distributable Cash Flow 1999E 2000E 2001E 2002E - ---------------------------------------------- --------- --------- --------- --------- Distributable Cash Flow $34,617 $38,147 $41,091 $43,976 Indicated Distribution per Unit $2.30 $2.40 $2.40 $2.50 Cash Distributions - ---------------------------------------------- Distributions to Unitholders $32,902 $36,447 $38,173 $41,608 GP Incentive Distributions 0 0 0 247 --------- --------- --------- --------- Total Cash Distributions $32,902 $36,447 $38,173 $41,855 ========= ========= ========= ========= Weighted Average Units Outstanding - ---------------------------------------------- Common Units 10,682 11,260 11,676 12,111 Senior Subordinated Units (Incl. DPUs) 2,766 3,069 3,372 3,675 Junior Subordinated Units 578 578 578 578 General Partner Units 279 279 279 279 --------- --------- --------- --------- Total Units Outstanding 14,305 15,186 15,905 16,643 Splits ---------------------- Annual Unit. GP GP Incentive Distributions Targets Target holders Incentives - ---------------------------------------------- --------- --------- ---------- Minimum Quarterly Distribution $2,300 98% 2% First Target Distribution $2,416 98% 2% Second Target Distribution $2,844 85% 15% Third Target Distribution $3,704 75% 25% Thereafter -- 50% 50% Cash Distributions prior to First Target - ---------------------------------------------- Cash Distributed to Unitholders $32,902 $36,447 $38,173 $40,210 Allocation to Common Units 24,568 27,023 26,022 29,260 Allocation to Senior Subordinated Units 6,363 7,367 8,094 8,880 Allocation to Junior Subordinated Units 1,330 1,388 1,388 1,397 Allocation to General Partner Units 641 669 669 673 GP Incentive Distributions -- -- -- -- Total Cash Distributed 32,902 36,447 38,173 40,210 Cash Distributions First to Second Target - ---------------------------------------------- Cash Distributed to Unitholders $0 $0 $0 $1,398 Allocation to Common Units 0 0 0 1,017 Allocation to Senior Subordinated Units 0 0 0 309 Allocation to Junior Subordinated Units 0 0 0 49 Allocation to General Partner Units 0 0 0 23 GP Incentive Distributions 0 0 0 247 Total Cash Distributed 0 0 0 1,645 Cash Distributions Second to Third Target - ---------------------------------------------- Cash Distributed to Unitholders $0 $0 $0 $0 Allocation to Common Units 0 0 0 0 Allocation to Senior Subordinated Units 0 0 0 0 Allocation to Junior Subordinated Units 0 0 0 0 Allocation to General Partner Units 0 0 0 0 GP Incentive Distributions 0 0 0 0 Total Cash Distributed 0 0 0 0 Cash Distributions Third to Thereafter Target - ---------------------------------------------- Cash Distributed to Unitholders $0 $0 $0 $0 Allocation to Common Units 0 0 0 0 Allocation to Senior Subordinated Units 0 0 0 0 Allocation to Junior Subordinated Units 0 0 0 0 Allocation to General Partner Units 0 0 0 0 GP Incentive Distributions 0 0 0 0 Total Cash Distributed 0 0 0 0 Projected for the Year Ended September 30, ----------------------------------------------- 30 Year Weather Case ----------------------------------------------- Distributable Cash Flow 1999E 2000E 2001E 2002E - ---------------------------------------------- --------- --------- --------- --------- Distributable Cash Flow $38,217 $41,997 $45,585 $49,218 Indicated Distribution per Unit $2.30 $2.50 $2.70 $2.90 Cash Distributions - ---------------------------------------------- Distributions to Unitholders $32,049 $35,709 $39,905 $44,680 GP Incentive Distributions 0 212 714 1,451 --------- --------- --------- --------- Total Cash Distributions $32,049 $35,921 $40,646 $46,131 ========= ========= ========= ========= Weighted Average Units Outstanding - ---------------------------------------------- Common Units $10,311 10,357 10,550 10,874 Senior Subordinated Units (Incl. DPUs) 2,766 3,069 3,372 3,675 Junior Subordinated Units 578 578 578 578 General Partner Units 279 279 279 279 --------- --------- --------- --------- Total Units Outstanding 13,934 14,284 14,780 15,407 Cash Distributions prior to First Target - ---------------------------------------------- Cash Distributed to Unitholders $32,049 $34,510 $35,708 $37,223 Allocation to Common Units 23,715 25,023 25,489 26,272 Allocation to Senior Subordinated Units 6,363 7,416 8,148 8,880 Allocation to Junior Subordinated Units 1,330 1,397 1,397 1,397 Allocation to General Partner Units 641 673 673 673 GP Incentive Distributions -- -- -- -- Total Cash Distributed 32,049 34,510 35,708 37,223 Cash Distributions First to Second Target - ---------------------------------------------- Cash Distributed to Unitholders $0 $1,200 $4,197 $6,594 Allocation to Common Units 0 870 2,996 4,654 Allocation to Senior Subordinated Units 0 258 958 1,573 Allocation to Junior Subordinated Units 0 49 164 248 Allocation to General Partner Units 0 23 79 119 GP Incentive Distributions 0 212 741 1,164 Total Cash Distributed 0 1,412 4,938 7,758 Cash Distributions Second to Third Target - ---------------------------------------------- Cash Distributed to Unitholders $0 $0 $0 $863 Allocation to Common Units 0 0 0 609 Allocation to Senior Subordinated Units 0 0 0 206 Allocation to Junior Subordinated Units 0 0 0 32 Allocation to General Partner Units 0 0 0 16 GP Incentive Distributions 0 0 0 288 Total Cash Distributed 0 0 0 1,150 Cash Distributions Third to Thereafter Target - ---------------------------------------------- Cash Distributed to Unitholders $0 $0 $0 $0 Allocation to Common Units 0 0 0 0 Allocation to Senior Subordinated Units 0 0 0 0 Allocation to Junior Subordinated Units 0 0 0 0 Allocation to General Partner Units 0 0 0 0 GP Incentive Distributions 0 0 0 0 Total Cash Distributed 0 0 0 0 [LOGO OF PETRO(TM) APPEARS HERE] Unit Reference Value Analysis Projected Indicated Distribution per Unit and Cash Distributions per Unit Class ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Projected Indicated Distribution per Unit and Cash Distributions per Unit Class (In thousands, except as otherwise indicated) ================================================================================ Dain Rauscher Wessels Page 12
Projected for the Year Ended September 30, ----------------------------------------------------------- 15 Year Weather Case ----------------------------------------------------------- Common Unit Cash Distributions 1999E 2000E 2001E 2002E - ------------------------------------------------- --------- --------- --------- --------- Cash Distributions prior to First Target $24,568 $27,023 $28,022 $29,260 Cash Distributions First to Second Target 0 0 0 1,017 Cash Distributions Second to Third Target 0 0 0 0 Cash Distributions Third to Thereafter Target 0 0 0 0 --------- --------- --------- --------- Total Cash Distributions $24,568 $27,023 $28,022 $30,277 Total Cash Distributions per Unit $2,300 $2,400 $2,400 $2,500 Weighted Average units Outstanding 10,682 11,260 11,676 12,111 Senior Subordinated Unit Cash Distributions - ------------------------------------------------- Cash Distributions prior to First Target $6,363 $7,367 $8,094 $8,880 Cash Distributions First to Second Target 0 0 0 309 Cash Distributions Second to Third Target 0 0 0 0 Cash Distributions Third to Thereafter Target 0 0 0 0 --------- --------- --------- --------- Total Cash Distributions $6,363 $7,367 $8,094 $9,169 Total Cash Distributions per Unit $2,300 $2,400 $2,400 $2,500 Weighted Average Units Outstanding 2,766 3,069 3,372 3,675 Junior Subordinated Unit Cash Distributions - ------------------------------------------------- Cash Distributions prior to First Target $1,330 $1,388 $1,388 $1,397 Cash Distributions First to Second Target 0 0 0 49 Cash Distributions Second to Third Target 0 0 0 0 Cash Distributions Third to Thereafter Target 0 0 0 0 --------- --------- --------- --------- Total Cash Distributions $1,330 $1,388 $1,388 $1,446 Total Cash Distributions per Unit $2,300 $2,400 $2,400 $2,500 Weighted Average Units Outstanding 578 578 578 578 General Partner Unit Cash Distributions - ------------------------------------------------- Cash Distributions prior to First Target $641 $669 $669 $673 Cash Distributions First to Second Target 0 0 0 23 Cash Distributions Second to Third Target 0 0 0 0 Cash Distributions Third to Thereafter Target 0 0 0 0 --------- --------- --------- --------- Total Cash Distributions $641 $669 $669 $697 Total Cash Distributions per Unit $2,300 $2,400 $2,400 $2,500 Weighted Average Units Outstanding 279 279 279 279 GP Incentive Distributions - ------------------------------------------------- Cash distributions prior to First Target - - - - Cash Distributions First to Second Target 0 $0 $0 $247 Cash Distributions Second to Third Target 0 0 0 0 Cash Distributions Third to Thereafter Target 0 0 0 0 --------- --------- --------- --------- Total Cash Distributions $0 $0 $0 $247 Total Cash Distributions per unit (Sr, Jr & GP) $0.000 $0.000 $0.000 $0.054 Weighted Average Units Outstanding (Sr, Jr & GP) 3,624 3,927 4,230 4,533 - ---------------------------------------------------------------------------------------------------------------------- Projected for the Year Ended September 30, ----------------------------------------------------------- 30 Year Weather Case ----------------------------------------------------------- Common Unit Cash Distributions 1999E 2000E 2001E 2002E - ------------------------------------------------- --------- --------- --------- --------- Cash Distributions prior to First Target $23,715 $25,023 $25,489 $26,272 Cash Distributions First to Second Target 0 870 2,996 4,654 Cash Distributions Second to Third Target 0 0 0 609 Cash Distributions Third to Thereafter Target 0 0 0 0 --------- --------- --------- --------- Total Cash Distributions $23,715 $25,893 $28,486 $31,535 Total Cash Distributions per Unit $2,300 $2,500 $2,700 $2,900 Weighted Average units Outstanding 10,311 10,357 10,550 10,874 Senior Subordinated Unit Cash Distributions - ------------------------------------------------- Cash Distributions prior to First Target $6,363 $7,416 $8,148 $8,880 Cash Distributions First to Second Target 0 258 958 1,573 Cash Distributions Second to Third Target 0 0 0 206 Cash Distributions Third to Thereafter Target 0 0 0 0 --------- --------- --------- --------- Total Cash Distributions $6,363 $7,674 $9,106 $10,659 Total Cash Distributions per Unit $2,300 $2,500 $2,700 $2,900 Weighted Average Units Outstanding 2,766 3,069 3,372 3,675 Junior Subordinated Unit Cash Distributions - ------------------------------------------------- Cash Distributions prior to First Target $1,330 $1,397 $1,397 $1,397 Cash Distributions First to Second Target 0 49 164 248 Cash Distributions Second to Third Target 0 0 0 32 Cash Distributions Third to Thereafter Target 0 0 0 0 --------- --------- --------- --------- Total Cash Distributions $1,330 $1,446 $1,562 $1,677 Total Cash Distributions per Unit $2,300 $2,500 $2,700 $2,900 Weighted Average Units Outstanding 578 578 578 578 General Partner Unit Cash Distributions - ------------------------------------------------- Cash Distributions prior to First Target $641 $673 $673 $673 Cash Distributions First to Second Target 0 23 79 119 Cash Distributions Second to Third Target 0 0 0 16 Cash Distributions Third to Thereafter Target 0 0 0 0 --------- --------- --------- --------- Total Cash Distributions $641 $697 $752 $808 Total Cash Distributions per Unit $2,300 $2,500 $2,700 $2,900 Weighted Average Units Outstanding 279 279 279 279 GP Incentive Distributions - ------------------------------------------------- Cash distributions prior to First Target - - - - Cash Distributions First to Second Target $0 $212 $741 $1,164 Cash Distributions Second to Third Target 0 0 0 288 Cash Distributions Third to Thereafter Target 0 0 0 0 --------- --------- --------- --------- Total Cash Distributions $0 $212 $741 $1,451 Total Cash Distributions per unit (Sr, Jr & GP) $0.000 $0.054 $0.175 $0.320 Weighted Average Units Outstanding (Sr, Jr & GP) 3,624 3,927 4,230 4,533 - ---------------------------------------------------------------------------------------------------------------------- [LOGO OF PETRO(TM) APPEARS HERE] Unit Reference Value Analysis Cumulative Incremental DPU per Unit Calculation ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Cumulative Incremental DPU per Unit Calculation (In thousands, except as otherwise indicated) ================================================================================ Dain Rauscher Wessels Page 13
Projected for the Year Ended September 30, ------------------------------------------ 15 Year Weather Case ------------------------------------------ Units to Receive DPUs 1999E 2000E 2001E 2002E - ---------------------------------------------- ----------- --------- --------- ---------- Senior Subordinated Units (Includes DPUs) 2,766 3,069 3,372 3,675 Junior Subordinated Units 578 578 578 578 General Partner Units 279 279 279 279 - ---------------------------------------------- ----------- --------- --------- ---------- Total Units 3,624 3,927 4,230 4,533 Cumulative Incremental DPU per Unit - ---------------------------------------------- DPUs Distributed 0 303 303 303 DPU per Outstanding Unit 0.000 0.084 0.077 0.072 - ------------------------------------------------------------------------------------------------ Cumulative incremental DPU per Unit 0.000 0.084 0.167 0.251 - ------------------------------------------------------------------------------------------------ Projected for the Year Ended September 30, ------------------------------------------ 30 Year Weather Case ------------------------------------------ Units to Receive DPUs 1999E 2000E 2001E 2002E - ---------------------------------------------- ----------- --------- --------- ---------- Senior Subordinated Units (Includes DPUs) 2,766 3,069 3,372 3,675 Junior Subordinated Units 578 578 578 578 General Partner Units 279 279 279 279 - ---------------------------------------------- ----------- --------- --------- ---------- Total Units 3,624 3,927 4,230 4,533 Cumulative Incremental DPU per Unit - ---------------------------------------------- DPUs Distributed 0 303 303 303 DPU per Outstanding Unit 0.000 0.084 0.077 0.072 - ------------------------------------------------------------------------------------------------ Cumulative incremental DPU per Unit 0.000 0.084 0.167 0.251 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ [LOGO OF PETRO(TM) APPEARS HERE] Unit Reference Value Analysis Unit Reference Value Analysis (Downside Case) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Unit Reference Value Analysis (Downside Case) - -------------------- (1) Common Unit discount rate is derived by using the appropriate rate to calculate a net present value equal to the 09/25/98 closing price of $20.75. (2) Terminal value is calculated as a perpetuity by dividing 2002E distribution by the discount rate. (3) The Junior Subordinated and General Partner Unit discount is determined by using a 20% liquidity discount for both Units and a 10% control premium for a General Partner Unit. The weighted average based upon pro forma Unit ownership is a discount of 17%. - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 14
Downside Case ----------------------------------------------------------------------------------------- Projected for the Year Ended September 30, ------------------------------------------ Terminal Total Liquidity Adjusted Common Unit (1) 1998E 2000E 2001E 2002E Value (2) NPV Discount (3) NPV - ----------------------------------------- ------- ------- ------- ------- ----------- ------- -------------- -------- Cash Distributions $2.30 $2.30 $2.30 $2.30 $20.36 Period 0.50 1.50 2.50 3.50 4.00 - ------------------------------------------------------------------------------------------------------------------------------------ NPV @ 11.30% $2.18 $1.96 $1.76 $1.58 $13.27 $20.75 -- $20.75 - ------------------------------------------------------------------------------------------------------------------------------------ Senior Subordinated Unit - ----------------------------------------- Cash Distributions $2.30 $2.30 $2.30 $2.30 $17.30 Period 0.50 1.50 2.50 3.50 4.00 - ------------------------------------------------------------------------------------------------------------------------------------ NPV @ 13.30% (200 bps spread to Common) $2.16 $1.91 $1.68 $1.49 $10.50 $17.74 -- $17.74 - ------------------------------------------------------------------------------------------------------------------------------------ Junior Subordinated/General Partner Unit - ----------------------------------------- Cash Distributions $2.30 $2.30 $2.30 $2.30 $18.09 Period 0.50 1.50 2.50 3.50 4.00 - ------------------------------------------------------------------------------------------------------------------------------------ NPV @ 14.30% (300 bps spread to Common) $2.15 $1.88 $1.65 $1.44 $9.43 $16.55 17.0% $13.74 - ------------------------------------------------------------------------------------------------------------------------------------ [LOGO OF PETRO(TM) APPEARS HERE] Unit Reference Value Analysis Common Unit Reference Value Analysis (15 Year Weather Case) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Common Unit Reference Value Analysis (15 Year Weather Case) - -------------- (1) Common Unit discount rate is a Dain Rauscher Wessels assumed yield based upon the growth rate in distributions in the 15 year weather case. (2) Terminal value is calculated as a perpetuity by dividing 2002E distribution by the discount rate. - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 15
15 Year Weather Case -------------------------------------------------------------------------------------- Projected for the Year Ended September 30, Terminal Total ---------------------------------------------------- Common Unit (1) 1999E 2000E 2001E 2002E Value (2) NPV - --------------------------------- ------- ------- ------- ------- ----------- --------- Cash Distributions $2.30 $2.40 $2.40 $2.50 $26.32 Period 0.50 1.50 2.50 3.50 4.00 - -------------------------------------------------------------------------------------------------------------------------------- NPV @ 9.50% $2.20 $2.09 $1.91 $1.82 $18.30 $26.33 - -------------------------------------------------------------------------------------------------------------------------------- [LOGO OF PETRO(TM) APPEARS HERE] Unit Reference Value Analysis Senior Subordinated Unit Reference Value Analysis (15 Year Weather Case) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Senior Subordinated Unit Reference Value Analysis (15 Year Weather Case) - ------------------ (1) Terminal value is calculated as a perpetuity by dividing 2002E distribution by the discount rate. - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 16
15 Year Weather Case ------------------------------------------------------------------------- Projected for the Year Ended September 30, ---------------------------------------------- Terminal Total Senior Subordinated Unit Distributions 1999E 2000E 2001E 2002E Value (1) NPV - ----------------------------------------------- ------- ------- ------- ------- ----------- -------- Cash Distributions $2.30 $2.40 $2.40 $2.50 $22.73 Period 0.50 1.50 2.50 3.50 4.00 NPV@ 11.00% (150 bps spread to Common) $2.18 $2.05 $1.85 $1.74 $14.97 $22.79 Deferred Participation Unit (DPU) - ----------------------------------------------- Cumulative Incremental DPU per Unit 0.000 0.084 0.167 0.251 Cash Distributions per Fractional Unit $0.00 $0.20 $0.40 $0.63 $4.82 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 13.00% (350 bps spread to Common) $0.00 $0.17 $0.30 $0.41 $2.96 $3.83 GP Incentive Distributions - ----------------------------------------------- Cash Distributions $0.00 $0.00 $0.00 $0.05 $0.40 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 13.50% (400 bps spread to Common) $0.00 $0.00 $0.00 $0.03 $0.24 $0.28 - --------------------------------------------------------------------------------------------------------------------------------- Total Net Present Value per Unit $2.18 $2.22 $2.14 $2.18 $18.17 $26.90 - --------------------------------------------------------------------------------------------------------------------------------- [LOGO OF PETRO(TM) APPEARS HERE] Unit Reference Value Analysis Junior Subordinated/General Partner Unit Reference Value Analysis (15 Year Weather Case) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Junior Subordinated/General Partner Unit Reference Value Analysis (15 Year Weather Case) - --------------------- (1) Terminal value is calculated as a perpetuity by dividing 2002E distribution by the discount rate. (2) The Junior Subordinated and General Partner Unit discount is determined by using a 20% liquidity discount for both Units and a 10% control premium for a General Partner Unit. The weighted average based upon pro forma Unit ownership is a discount of 17%. - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 17
15 Year Weather Case ---------------------------------------------------------------------------------------- Projected for the Year Ended September 30, Terminal Total Liquidity Adjusted ------------------------------------------- Junior Subordinated/GP Unit Distributions 1999E 2000E 2001E 2002E Value(1) NPV Discount (2) NPV - ------------------------------------------- ----------- -------- -------- ---------- -------- ------ ------------ -------- Cash Distributions $2.30 $2.40 $2.40 $2.50 $20.83 Period 0.50 1.50 2.50 3.50 4.00 NPV @12.00% (260 bps spread to Common) $2.17 $2.02 $1.81 $1.68 $13.24 $20.93 17% $17.37 Deferred Participation Unit (DPU) - ------------------------------------------- Cumulative Incremental DPU per Unit 0.000 0.084 0.167 0.251 Cash Distributions per Fractional Unit $0.00 $0.20 $0.40 $0.63 $4.82 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 13.00% (350 bps spread to Common) $0.00 $0.17 $0.30 $0.41 $2.96 $3.83 17% $3.18 GP Incentive Distributions - ------------------------------------------- Cash Distributions $0.00 $0.00 $0.00 $0.05 $0.40 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 13.50% (400 bps spread to Common) $0.00 $0.00 $0.00 $0.03 $0.24 $0.28 17% $0.23 - ------------------------------------------------------------------------------------------------------------------------------------ Total Net Present Value per Unit $2.17 $2.19 $2.10 $2.13 $16.44 $25.04 17% $20.78 - ------------------------------------------------------------------------------------------------------------------------------------ [LOGO OF PETRO(TM) APPEARS HERE] Unit Reference Value Analysis Common Unit Reference Value Analysis (30 Year Weather Case) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Common Unit Reference Value Analysis (30 Year Weather Case) - ------------------- (1) Common Unit discount rate is a Dain Rauscher Wessets assumed yield based upon the growth rate in distributions in the 30 year weather case. (2) Terminal value is calculated as a perpetuity by dividing 2002E distribution by the discount rate. - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 18
30 Year Weather Case ---------------------------------------------------------------------- Projected for the Year Ended September 30 ------------------------------------------- Terminal Total Common Unit (1) 1999E 2000E 2001E 2002E Value (2) NPV - ------------------------------------------ ------- ------- ------- ------- ----------- ------- Cash Distributions $2.30 $2.50 $2.70 $2.90 $32.22 Period 0.50 1.50 2.50 3.50 4.00 - ---------------------------------------------------------------------------------------------------------------------- NPV @ 9.00% $2.20 $2.20 $2.18 $2.14 $22.83 $31.55 - ---------------------------------------------------------------------------------------------------------------------- [LOGO OF PETRO(TM) APPEARS HERE] Unit Reference Value Analysis Senior Subordinated Unit Reference Value Analysis (30 Year Weather Case) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Senior Subordinated Unit Reference Value Analysis (30 Year Weather Case) - ---------------------- (1) Terminal value is calculated as a perpetuity by dividing 2002E distribution by the discount rate. - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 19
30 Year Weather Case ---------------------------------------------------------------------------------------- Projected for the Year Ended September 30, ------------------------------------------------------- Terminal Total Senior Subordinated Unit Distributions 1999E 2000E 2001E 2002E Value (1) NPV - ----------------------------------------- ------- ------- ------- ------- ----------- -------- Cash Distributions $2.30 $2.50 $2.70 $2.90 $29.74 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 9.75% (75 bps spread to Common) $2.20 $2.17 $2.14 $2.09 $20.50 $29.10 Deferred Participation Unit DPU - ----------------------------------------- Cumulative Incremental DPU per Unit 0.000 0.084 0.167 0.251 Cash Distributions per Fractional Unit $0.00 $0.21 $0.45 $0.73 $5.82 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 12.50% (350 bps spread to Common) $0.00 $0.18 $0.34 $0.48 $3.63 $4.63 GP Incentive Distributions - ----------------------------------------- Cash Distributions $0.00 $0.05 $0.18 $0.32 $2.46 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 13.00% (400 bps spread to Common) $0.00 $0.04 $0.13 $0.21 $1.51 $1.89 - ------------------------------------------------------------------------------------------------------------------------------------ Total Net Present Value per Unit $2.20 $2.39 $2.61 $2.78 $25.65 $35.62 - ------------------------------------------------------------------------------------------------------------------------------------ [LOGO OF PETRO(TM) APPEARS HERE] Unit Reference Value Analysis Junior Subordinated/General Partner Unit Reference Value Analysis (30 Year Weather Case) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Junior Subordinated General Partner Unit Reference Value Analysis (30 Year Weather Case) - ---------------------- (1) Terminal value is calculated as a perpetuity by dividing 2002E distribution by the discount rate. (2) The Junior Subordinated and General Partner Unit discount is determined by using a 20% liquidity discount for both Units and a 10% control premium for a General Partner Unit. The weighted average based upon pro form a Unit ownership is a discount of 17%. - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 20
30 Year Weather Case --------------------------------------------------------------------------------------- Projected for the Year Ended September 30, ------------------------------------------ Terminal Total Liquidity Adjusted Junior Subordinated/GP Unit Distributions 1999E 2000E 2001E 2002E Value (1) NPV Discount (2) NPV - ------------------------------------------- ------- ------- ------- ------- ----------- ------- ------------ -------- Cash Distributions $2.30 $2.50 $2.70 $2.90 $27.62 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 10.50% (150 bps spread to Common) $2.19 $2.15 $2.10 $2.04 $18.53 $27.01 17% $22.42 Deferred Participation Unit (DPU) - ------------------------------------------- Cumulative Incremental DPU per Unit 0.000 0.084 0.167 0.251 Cash Distributions per Fractional Unit $0.00 $0.21 $0.45 $0.73 $5.82 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 12.50% (350 bps spread to Common) $0.00 $0.18 $0.34 $0.48 $3.63 $4.63 17% $3.84 GP incentive Distributions - ------------------------------------------- Cash Distributions $0.00 $0.05 $0.18 $0.32 $2.48 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 13.00% (400 bps spread to Common) $0.00 $0.04 $0.13 $0.21 $1.51 $1.89 17% $1.57 - ------------------------------------------------------------------------------------------------------------------------------------ Total Net Present Value per Unit $2.19 $2.37 $2.57 $2.74 $23.67 $33.53 17% $27.83 - ------------------------------------------------------------------------------------------------------------------------------------ [LOGO OF PETRO(TM) APPEARS HERE] Unit Reference Value Analysis Common Unit Reference Value Analysis (Dain Rauscher Wessels Case) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Common Unit Reference Value Analysis (Dain Rauscher Wessels Case) - ------------------- Note: Dain Rauscher Wessels Case assumes distributions of $2.30, $2.30, $2.40 and $2.40 for the years 1999E, 2000E, 2001E and 2002E, respectively. (1) Common Unit discount rate is a Dain Rauscher Wessels assumed yield based upon the growth rate in distributions in the Dain Rauscher Wessels case. (2) Terminal value is calculated as a perpetuity by dividing 2002E distribution by the discount rate. - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 21
Dain Rauscher Wessels Case ------------------------------------------------------------------------------------- Projected for the Year Ended September 30, ---------------------------------------------------- Terminal Total Common Unit (1) 1999E 2000E 2001E 2002E Value (2) NPV - ------------------------------ ------- ------- ------- ------- ----------- --------- Cash Distributions $2.30 $2.30 $2.40 $2.40 $22.33 Period 0.50 1.50 2.50 3.50 4.00 - ------------------------------------------------------------------------------------------------------------------------ NPV @ 10.75% $2.19 $1.97 $1.86 $1.68 $14.84 $22.54 - ------------------------------------------------------------------------------------------------------------------------ [LOGO OF PETRO(TM) APPEARS HERE] Unit Reference Value Analysis Senior Subordinated Unit Reference Value Analysis (Dain Rauscher Wessels Case) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Senior Subordinated Unit Reference Value Analysis (Dain Rauscher Wessels Case) - ------------------- Note: Dain Rauscher Wessels Case assumes distributions of $2.30, $2.30, $2.40 and $2.40 for the years 1999E, 2000E, 2001E and 2002E, respectively. (1) Terminal value is calculated as a perpetuity by dividing 2002E distribution by the discount rate. ================================================================================ Dain Rauscher Wessels Page 22
Dain Rauscher Wessels Case ------------------------------------------------------------------------- Projected for the Year Ended September 30, ---------------------------------------------- Terminal Total Senior Subordinated Unit Distributions 1999E 2000E 2001E 2002E Value (1) NPV - ------------------------------------------ ------- ------- ------- ------- ----------- --------- Cash Distributions $2.30 $2.30 $2.40 $2.40 $19.20 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 12.50% (175 bps spread to Common) $2.17 $1.93 $1.79 $1.59 $11.99 $19.46 Deferred Participation Unit (DPU) - ------------------------------------------ Cumulative Incremental DPU per Unit 0.000 0.084 0.167 0.251 Cash Distributions per Fractional Unit $0.00 $0.19 $0.40 $0.60 $4.23 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 14.25% (350 bps spread to Common) $0.00 $0.16 $0.29 $0.38 $2.48 $3.30 GP Incentive Distributions - ------------------------------------------ Cash Distributions $0.00 $0.00 $0.00 $0.00 $0.00 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 14.75% (400 bps spread to Common) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 - ------------------------------------------------------------------------------------------------------------------------- Total Net Present Value per Unit $2.17 $2.09 $2.08 $1.97 $14.47 $22.76 - ------------------------------------------------------------------------------------------------------------------------- [LOGO OF PETRO(TM) APPEARS HERE] Unit Reference Value Analysis Junior Subordinated/General Partner Unit Reference Value Analysis (Dain Rauscher Wessels Case) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Junior Subordinated General Partner Unit Reference Value Analysis (Dain Rauscher Wessels Case) - ------------------- Note: Dain Rauscher Wessels Case assumes distributions of $2.30, $2.30, $2.40 and $240 for the years 1 999E, 2000E, 2001E and 2002E, respectively. (1) Terminal value is calculated as a perpetuity by dividing 2002E distribution by the discount rate. (2) The Junior Subordinated and General Partner Unit discount is determined by using a 20% liquidity discount for both Units and a 10% control premium for a General Partner Unit. The weighted average based upon pro forma Unit ownership is a discount of 17%. - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 23
Dain Rauscher Wessels Case -------------------------------------------------------------------------------------- Projected for the Year Ended September 30, ------------------------------------------ Terminal Total Liquidity Adjusted Junior Subordinated/GP Unit Distributions 1999E 2000E 2001E 2002E Value (1) NPV Discount (2) NPV - ------------------------------------------ ------- ------- ------- ------- ----------- ------ ------------ -------- Cash Distributions $2.30 $2.30 $2.40 $2.40 $17.78 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 13.50% (276 bps spread to Common) $2.16 $1.90 $1.75 $1.54 $10.71 $18.06 17% $14.99 Deferred Participation Unit (DPU) - ------------------------------------------ Cumulative Incremental DPU per Unit 0.000 0.084 0.167 0.251 Cash Distributions per Fractional Unit $0.00 $0.19 $0.40 $0.60 $4.23 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 14.26% (350 bps spread to Common) $0.00 $0.16 $0.29 $0.38 $2.48 $3.30 17% $2.74 GP Incentive Distributions - ------------------------------------------ Cash Distributions $0.00 $0.00 $0.00 $0.00 $0.00 Period 0.50 1.50 2.50 3.50 4.00 NPV @ 14.75% (400 bps spread to Common) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 17% $0.00 - ------------------------------------------------------------------------------------------------------------------------------------ Total Net Present Value per Unit $2.16 $2.06 $2.04 $1.92 $13.19 $21.37 17% $17.73 - ------------------------------------------------------------------------------------------------------------------------------------ [LOGO OF PETRO(TM) APPEAR HERE] Project Intense Heat ================================================================================ Historical and Pro Forma MVE and MVC Comparison ================================================================================ Dain Rauscher Wessels Page 24 [LOGO OF PETRO(TM) APPEARS HERE] Historical and Pro Forma MVE and MVC Comparison Petro Historical and Pro Forma Adjusted MVE and MVC Summary ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Petro Historical and Pro Forma Adjusted Market Value of Equity and Market Value of Capitalization Summary (In thousands, except as otherwise indicated) - -------------------- (1) Petro historical value per share is the closing market price one day prior to announcement and the Star pro forma value per Unit is based on the Unit Reference Value Analysis (Dain Rauscher Wessels Case), [See Unit Reference Value Analysis Summary on page 9]. (2) Petro value for Preferred Stock is liquidation value estimated at September 30, 1998, except pro forma value for the 12.88% Preferred, which is 92% of liquidation value. - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 25
Pro Forma Adjusted Market Value of Equity and Market Value of Capitalization Historical ---------------------------------------------- MVE & Common Sr Sub Jr Sub/GP Total Percent Market Value of Equity MVC Units Units Units Units Change - --------------------------------------------------------------- ---------- ---------- ---------- ---------- --------- --------- Shares/Units Outstanding 26,573 -- 2,766 857 3,624 Valuation per Share/Unit (1) $1.875 $22,537 $22.762 $17.733 Market Value of Equity $49,824 -- $62,970 $15,199 $78,169 56.9% Principal Amount of Debt estimated at 9/30/98 (pre-transaction) - --------------------------------------------------------------- 11.96% Senior Notes $60,000 $60,000 14.10% Senior Notes 3,100 3,100 14.10% Subordinated Notes 3,100 3,100 10.13% Subordinated & Senior Subordinated Notes 50,000 50,000 9.38% Subordinated & Senior Subordinated Notes 75,000 75,000 12.25% Subordinated & Senior Subordinated Notes 81,250 81,250 8.00% Acq. & Other Notes 14,508 14,508 8.25% Existing Credit Facility 0 0 ---------- --------- Total Principal Amount of Debt $286,958 $286,958 Value of Preferred Stock estimated at 9/30/98 (2) - --------------------------------------------------------------- 14.33% Preferred Stock $4,167 $4,167 12.88% Preferred Stock 30,000 27,600 ---------- --------- Total Liquidation Value of Preferred Stock $34,167 $31,767 Debt and Preferred Stock Exchange (Common Units Issued) - --------------------------------------------------------------- Common Units Issued in Exchange -- 104 Dain Rauscher Wessels Reference Value per Unit -- $22,537 Total Value of Units Issued -- $2,337 $2,337 Market Value of Capitalization - --------------------------------------------------------------- Total Value of Equity, Debt & Preferred $370,949 $399,231 Less: Excess Cash (pre-transaction) (20,000) (20,000) ---------- --------- Market Value of Capitalization $350,949 $379,231 8.1% ========== ========= [LOGO OF PETRO(TM) APPEARS HERE] Historical and Pro Forma MVE and MVC Comparison Star Historical and Pro Forma Adjusted MVE and MVC Summary ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Star Historical and Pro Forma Adjusted Market Value of Equity and Market Value of Capitalization Summary (in thousands, except as otherwise indicated) - --------------------- (1) Star historical value per Common Unit is the closing market price one day prior to announcement, the Star value per Subordinated Unit is the value of a Common Unit less a 20% liquidity discount and a 10% subordination discount. The value of an implied General Partner Unit is the value of a Common Unit less a 20% liquidity discount plus a 10% control premium. The value of each pro forma Star Unit is based on the Unit Reference Value Analysis (Dain Rauscher Wessels Case). (2) Total debt and excess cash for historical is based on the Star September 30, 1998 estimated balance sheet and for pro forma is based on the Star September 30, 1998 pro forma balance sheet. - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 26
Historical Market Value of Equity and Market Value of Capitalization ---------------------------------------------------------------------- Common Sub Implied Total Market Value of Equity Units Units GP Units Units - ------------------------------------------ --------- --------- ---------- ---------- Units Outstanding 3,832 2,396 127 6,355 Valuation per Unit (1) $21,063 $14,744 $18,956 Market Value of Equity $80,706 $35,327 $2,409 $118,442 Market Value of Capitalization - ------------------------------------------ Market Value of Equity $118,442 Total Debt (2) 110,080 Less: Excess Cash (2) (501) ---------- Market Value of Capitalization $228,021 ========== Pro Forma Adjusted Market Value of Equity and Market Value of Capitalization ------------------------------------------------------------- Common Sr Sub Jr Sub/GP Total Percent Market Value of Equity Units Units Units Units Change - ------------------------------------------- --------- -------- ----------- --------- ----------- Units Outstanding 10,311 2,766 857 13,934 Valuation per Unit (1) $22,537 $22,762 $17,733 Market Value of Equity $232,371 $62,970 $15,199 $310,540 162.2% Market Value of Capitalization - ------------------------------------------- Market Value of Equity $310,540 Total Debt (2) 314,234 Less: Excess Cash (2) (7,177) ---------- Market Value of Capitalization $617,597 170.9% ========== [LOGO OF PETRO(TM) APPEARS HERE] Project Intense Heat ================================================================================ Discounted Cash Flow Analysis ================================================================================ Dain Rauscher Wessels Page 27 [LOGO OF PETRO(TM) APPEARS HERE] Discounted Cash Flow Analysis Petro Stand-Alone Free Cash Flow Projections (Unlevered) ================================================================================ - -------------------------------------------------------------------------------- PETROLEUM HEAT AND POWER CO., INC. Stand-Alone Free Cash Flow Projections (Unlevered) (In thousands, except as otherwise indicated) ================================================================================ Dain Rauscher Wessels Page 28
Projected for the Year Ended September 30, ------------------------------------------------------------------------------ 15 Year Weather Case Estimated ------------------------------------------------------------- 1998E 1999E 2000E 2001E 2002E ---------- ---------- ---------- ---------- ---------- Volume (gallons) 355,157 369,707 356,249 343,852 332,333 Sales $475,541 $490,828 $477,965 $466,187 $455,287 Cost of Sales 318,900 328,642 318,786 309,754 301,400 ---------- ---------- ---------- ---------- ---------- Gross Profit 156,641 162,186 159,179 156,433 153,887 Operating Expenses 119,011 118,794 117,410 116,196 115,118 ---------- ---------- ---------- ---------- ---------- Heating Oil EBITDA 37,630 43,392 41,769 40,237 38,769 MLP Distribution 5,684 2,788 2,981 3,266 3,576 ---------- ---------- ---------- ---------- ---------- Total EBITDA 43,314 46,180 44,750 43,503 42,345 Depreciation and Amortization 28,710 23,500 19,500 15,500 11,500 ---------- ---------- ---------- ---------- ---------- Pretax Income (Loss) 14,604 22,680 25,250 28,003 30,845 Income Tax Expense 500 500 500 500 500 ---------- ---------- ---------- ---------- ---------- Net Income 14,104 22,180 24,750 27,503 30,345 Plus: Depreciation and Amortization 28,710 23,500 19,500 15,500 11,500 ---------- ---------- ---------- ---------- ---------- Cash Flow $42,814 $45,680 $44,250 $43,003 $41,845 ========== ========== ========== ========== ========== Less: Maintenance Capex (2,776) (3,000) (3,000) (3,000) (3,000) ---------- ---------- ---------- ---------- ---------- Free Cash Flow $40,038 $42,680 $41,250 $40,003 $38,845 ========== ========== ========== ========== ========== Projected for the Year Ended September 30, ------------------------------------------------------------------------------ 30 Year Weather Case Estimated ------------------------------------------------------------- 1998E 1999E 2000E 2001E 2002E ---------- ---------- ---------- ---------- ---------- Volume (gallons) 355,157 380,161 366,323 353,575 341,730 Sales $475,541 $504,120 $490,912 $478,817 $467,624 Cost of Sales 318,900 337,106 326,993 317,724 309,151 ---------- ---------- ---------- ---------- ---------- Gross Profit 156,641 167,014 163,919 161,093 158,473 Operating Expenses 119,011 121,466 120,052 118,810 117,707 ---------- ---------- ---------- ---------- ---------- Heating Oil EBITDA 37,630 45,548 43,867 42,283 40,766 MLP Distribution 5,684 4,436 5,008 5,570 5,577 ---------- ---------- ---------- ---------- ---------- Total EBITDA 43,314 49,984 48,875 47,853 46,343 Depreciation and Amortization 28,710 23,500 19,500 15,500 11,500 ---------- ---------- ---------- ---------- ---------- Pretax Income (Loss) 14,604 26,484 29,375 32,353 34,843 Income Tax Expense 500 500 500 500 500 ---------- ---------- ---------- ---------- ---------- Net Income 14,104 25,984 28,875 31,853 34,343 Plus: Depreciation and Amortization 28,710 23,500 19,500 15,500 11,500 ---------- ---------- ---------- ---------- ---------- Cash Flow $42,814 $49,484 $48,375 $47,353 $45,843 ========== ========== ========== ========== ========== Less: Maintenance Capex (2,776) (3,000) (3,000) (3,000) (3,000) ---------- ---------- ---------- ---------- ---------- Free Cash Flow $40,038 $46,484 $45,375 $44,353 $42,843 ========== ========== ========== ========== ========== - --------------------------------------------------------------------------------------------------------------------------------- [LOGO OF PETRO(TM) APPEARS HERE] Discounted Cash Flow Analysis Leveraged Weighted Average Cost of Capital Calculation ================================================================================ - -------------------------------------------------------------------------------- PETROLEUM HEAT AND POWER CO., INC. Leveraged Weighted Average Cost of Capital Calculation - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 29
Risk Free Rate -------- 30-Year treasury bond yield (9/25/98) Risk Free Rate (Rf) 5.12% -------- Expected Return on Equity Market 30-Year treasury bond yield (9/25/98) Rf 5.12% Historical spread between equity returns and 30-year treasury bond yield (Ibbotson Associates) S 7.00% -------- Expected Return on Equity Market (Rm) = Rf+S 12.12% -------- Cost of Debt Long-term debt interest rate (Petro Estimate) lr 12.00% Corporate tax rate t 35.00% -------- Cost of Debt (Cd) = lr*(1-t) 7.80% -------- Unleveraged Beta -------- Unleveraged beta (Dain Rauscher Wessels estimate) Unleveraged Beta (Ub) 1.25 -------- Leveraged Beta Target long-term debt/total capitalization Td 60.00% Target long-term equity/total capitalization Te 40.00% Debt/equity ratio De 150.00% -------- Leveraged Beta (B) = Ub*(1+(1-t)*De) 2.47 -------- Unleveraged Cost of Equity Risk free rate Rf 5.12% Expected return on equity market Rm 12.12% Unleveraged beta Ub 1.25 -------- Unleveraged Cost of Equity = Rf+Ub(Rm-Rf) 13.87% -------- Leveraged Cost of Equity Risk free rate Rf 5.12% Expected return on equity market Rm 12.12% Leveraged beta B 2.47 -------- Leveraged Cost of Equity (Ceu) = Rf+B(Rm-Rf) 22.40% -------- Leveraged Weighted Average Cost of Capital Target long-term debt/total capitalization Td 60.00% Target long-term equity/total capitalization Te 40.00% Leveraged cost of equity Ceu 22.40% Cost of debt Cd 7.80% -------- Leveraged Weighted Average Cost of Capital (WACC) = (Td*Cd) + (Te*Ceu) 13.64% -------- [LOGO OF PETRO(TM) APPEARS HERE] Discounted Cash Flow Analysis Petro Stand-Alone Discounted Cash Flow Analysis (15 Year Weather Case) ================================================================================ - -------------------------------------------------------------------------------- PETROLEUM HEAT AND POWER CO,. INC. Stand-Alone Discounted Cash Flow Analysis (15 Year Weather Case) (In thousands, except as otherwise Indicated) - ------------------- (1) 1998E results include only the last two quarters of the year. (2) Total debt, preferred stock and working capital are estimated at September 30, 1998. (3) Per share numbers are based upon shares outstanding of 26,573. - -------------------------------------------------------------------------------- ================================================================================ Dain Rauscher Wessels Page 30
Terminal Projected for the Year Ended September 30, Value Total ---------------------------------------------------------------- @ 7.5 x Enterprise 1998E (1) 1999E 2000E 2001E 2002E EBITDA Value ----------- ------- ------- ------- -------- ---------- --------- Unlevered Free Cash Flow $6,787 $42,680 $41,250 $40,003 $38,845 $317,588 Period 0.25 1.25 2.25 3.25 4.25 4.75 Discounted Cash Flow - ----------------------------- @ 12.0% $6,597 $37,043 $31,966 $27,678 $23,997 $185,386 $312,667 @ 13.0% $6,583 $36,633 $31,333 $26,890 $23,107 $177,722 $302,268 - --------------------------------------------------------------------------------------------------------------------------------- @ 14.0% $6,568 $36,232 $30,718 $26,131 $22,258 $170,438 $292,345 - --------------------------------------------------------------------------------------------------------------------------------- @ 15.0% $6,554 $35,839 $30,120 $25,399 $21,447 $163,512 $282,871 @ 16.0% $6,540 $35,453 $29,539 $24,695 $20,672 $156,923 $273,822 Less: Total Debt & Pref. Total Plus: Total Equity Working Equity Value Per Capital (2) Value Share(3) ------------- --------- ----------- Unlevered Free Cash Flow Period Discounted Cash Flow - ---------------------------- @ 12.0% ($301,125) $11,542 $0.43 @ 13.0% ($301,125) $1,143 $0.04 - -------------------------------------------------------------------------------- @ 14.0% ($301,125) ($8,780) ($0.33) - -------------------------------------------------------------------------------- @ 15.0% ($301,125) ($18,254) ($0.69) @ 16.0% ($301,125) ($27,303) ($1.03) [LOGO OF PETRO APPEARS HERE] DISCOUNTED CASH FLOW ANALYSIS Petro Stand-ALone Discounted Cash Flow Analysis (30 Year Weather Case) ================================================================================ - -------------------------------------------------------------------------------- PETROLEUM HEAT AND POWER CO., INC, STAND-ALONE DISCOUNTED CASH FLOW ANALYSIS (30 YEAR WEATHER CASE) (IN THOUSANDS, EXCEPT AS OTHERWISE INDICATED) ____________________ (1) 1998E results include only the last two quarters of the year. (2) Total debt, preferred stock and working capital are estimated at September 30, 1998. (3) Per share numbers are based upon shares outstanding of 26,573. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 31
LESS:TOTAL TERMINAL DEBT & PREF TOTAL VALUE TOTAL PLUS: TOTAL EQUITY PROJECTED FOR THE YEAR ENDED SEPTEMBER 30, @ 7.5 X ENTERPRISE WORKING EQUITY VALUE PER ------------------------------------------------ 1998E (1) 1999E 2000E 2001E 2002E EBITDA VALUE CAPITAL (2) VALUE SHARE(3) -------- ------- ------- ------- ------- -------- ---------- ----------- ----- --------- UNLEVERED FREE CASH FLOW $6,787 $46,375 $45,375 $44,353 $42,843 $347,573 PERIOD 0.25 1.25 2.25 3.25 4.25 4.75 Discounted Cash flow - -------------------- @ 12.0% $6,597 $40,344 $35,162 $30,688 $26,467 $202,890 $342,148 ($301,125) $41,023 $1.54 @ 13.0% $6,583 $39,898 $34,466 $29,814 $25,486 $194,501 $330,748 ($301,125) $29,623 $1.11 - ---------------------------------------------------------------------------------------------------------------------------------- @ 14.0% $6,568 $39,461 $33,789 $28,972 $24,549 $186,529 $319,870 ($301,125) $18,745 $0.71 - ---------------------------------------------------------------------------------------------------------------------------------- @ 15.0% $6,554 $39,033 $33,132 $28,161 $23,655 $178,950 $309,484 ($301,125) $ 8,359 $0.31 @ 16.0% $6,540 $38,613 $32,493 $27,380 $22,800 $171,739 $299,565 ($301,125) ($ 1,560) ($0.06) [LOGO OF PETRO APPEARS HERE] DISCOUNTED CASH FLOW ANALYSIS Stand-Alone Discounted Cash Flow Analysis Matrix ================================================================================ - -------------------------------------------------------------------------------- PETROLEUM HEAT AND POWER CO., INC. STAND-ALONE DISCOUNTED CASH FLOW ANALYSIS MATRIX (IN THOUSANDS, EXCEPT AS OTHERWISE INDICATED) __________ Note: Per share numbers are based upon shares outstanding of 26,573. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 32
TERMINAL VALUE MULTIPLES (EBITDA) -------------------------------------------------------------------------- 15 YEAR WEATHER CASE 30 YEAR WEATHER CASE ------------------------------------ ------------------------------------ DISCOUNTED CASH FLOW 6.5X 7.5X 8.5X 6.5X 7.5X 8.5X - ------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- @ 12.0% ($0.50) $0.43 $1.36 $0.53 $1.54 $2.56 @ 13.0% ($0.85) $0.04 $0.93 $0.14 $1.11 $2.09 - -------------------------------------------------------------------------------------------------------------- @ 14.0% ($1.19) ($0.33) $0.52 ($0.23) $0.71 $1.64 - -------------------------------------------------------------------------------------------------------------- @ 15.0% ($1.51) ($0.69) $0.13 ($0.58) $0.31 $1.21 @ 16.0% ($1.81) ($1.03) ($0.24) ($0.92) ($0.06) $0.80 [LOGO OF PETRO APPEARS HERE] PROJECT INTENSE HEAT ================================================================================ RELATIVE CONTRIBUTION ANALYSIS - -------------------------------------------------------------------------------- Page 33 [LOGO OF PETRO APPEARS HERE] RELATIVE CONTRIBUTION ANALYSIS (Not Adjusted for Pro Forma Unit Class Value Difference) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT RELATIVE CONTRIBUTION ANALYSIS (NOT ADJUSTED FOR PRO FORMA UNIT CLASS VALUE DIFFERENCE) (in thousands, except as otherwise indicated) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 34
Projected for the Year Ended September 30, -------------------------------------------------------- Normalized 16 Yr. Weather Star Stand-Alone Distributable Cash FLow 1998E 1999E - ---------------------------------------------- -------------- -------------- EBITDA $ 20,731 $ 23,032 Interest Expense (7,662) (8,538) Maintenance Capex (2,710) (2,657) Other (25) (25) -------------- -------------- Distributable Cash Flow $ 10,334 $ 11,812 Distribution to Star Common - ---------------------------------------------- Cash Distribution to Star Common Units $ 8,430 $ 8,430 Distribution per Common Unit $ 2.20 $ 2.20 Weighted Avg. Star Common Units Outstanding $ 3,832 3,632 Distribution to Star Sub Units (Petro) - ---------------------------------------------- Cash Distribution to Star Sub Units $ 1,904 $ 3,362 Weighted Avg. Star Sub Units outstanding 2,396 2,396 Cash Distribution per Star Sub Unit $ 0.79 $ 1.41 Petro Distributable Cash Flow - ---------------------------------------------- EBITDA $ 44,749 $ 46,094 Pro Forma Synergies 500 500 Preferred Dividends (5,026) (4,432) Interest Expense (31,444) (30,971) Maintenance Capex (2,776) (3,000) Taxes (500) (500) -------------- -------------- Distributable Cash Flow $ 5,503 $ 7,691 Cash Distribution to Star Sub Units 1,904 3,382 -------------- -------------- Total Distribution Cash Flow $ 7,407 $ 11,073 ============== ============== Star Pro Forma Units Outstanding - ---------------------------------------------- Star 3,832 3,832 Petro 3,624 3,624 -------------- -------------- Total Units 7,455 7,455 Star Relative Contribution - ---------------------------------------------- Distributable Cash Flow Contribution 53.2% 43.2% Percent of Pro Forma Units Received 51.4% 51.4% Petro Relative Contribution - ---------------------------------------------- Distributable Cash Flow Contribution 46.8% 56.8% Percent of Pro Forma Units Received 48.6% 48.6% [LOGO OF PETRO APPEARS HERE] RELATIVE CONTRIBUTION ANALYSIS (Adjusted for Pro Forma Unit Class Value Difference) ================================================================================ _________________ (1) Value ratio is based on the Dain Rauscher Wessels Case. - -------------------------------------------------------------------------------- Page 35
PROJECT INTENSE HEAT Relative Contribution Analysis (Adjusted for Pro Forma Unit Class Value Difference) (In thousands, except as otherwise Indicated) Projected for the Year Ended September 30, ----------------------------------------------------- Normalized 15 Yr. Weather Star Stand-ALone Distributable Cash Flow 1998E 1998E - ------------------------------------------------------- --------------- ------------------ EBITDA $20,731 $ 23,032 Interest Expense (7,662) (8,538) Maintenance Capex (2,710) (2,657) Other (25) (25) -------------- ------------------ Distributable Cash Flow $10,334 $ 11,812 Distribution to Star Commmon - ------------------------------------------------------- Cash Distribution to Star Common Units $ 8,430 $ 8,430 Distribution per Common Unit $ 2.20 $ 2.20 Weighted Avg. Star Common Units Outstanding $ 3,832 $ 3,832 Distribution to Star Sub Units (Petro) - ------------------------------------------------------- Cash Distribution to Star Sub Units $ 1,904 $ 3,382 Weighted Avg. Star Sub Units Outstanding $ 2,398 $ 2,398 Cash Distribution per Star Sub Unit $ 0.79 $ 1.41 Petro Distributable Cash Flow - ------------------------------------------------------- EBITDA $44,749 $ 48,094 Pro Forma Synergies 500 500 Preferred Dividends (5,028) (4,432) Interest Expense (31,444) (30,971) Maintenance Capex (2,778) (3,000) Taxes (500) (500) --------------- ------------------ Distributable Cash Flow $ 5,503 $ 7,691 Cash Distribution to Star Sub Units 1,904 3,382 --------------- ------------------ Total Distributable Cash Flow $ 7,407 $ 11,079 =============== ================== Pro Forma Unit Class Value Adjustment - ------------------------------------------------------- Pro Forma Senior Subordinated Units 2,766 2,766 Senior Subordinated / Common Unit Value Ratio (1) 1.01 1.01 Adjusted Senior Subordinated Units 2,794 2,794 Pro Forma Junior Subordinated & GP Units 857 857 Junior Subordinated & GP / Common Unit Value Ratio (1) 0.79 0.79 Adjusted Junior Subordinated & GP Units 674 674 Total Star Units Received by Petro (Value Adjusted) 3,468 3,468 Star Pro Forma Units Outstanding - ------------------------------------------------------- Star 3,832 3,832 Petro (Adjusted) 3,468 3,468 --------------- ------------------ Total Units 7,900 7,300 Star Relative Contribution - ------------------------------------------------------- Distributable Cash Flow Contribution 53.2% 43.2% Percent of Pro Forma B Units Received 52.5% 52.5% Petro Relative Contribution - ------------------------------------------------------- Distributable Cash Flow Contribution 48.8% 58.8% Percent of Pro Forma Units Received 47.5% 47.5% [LOGO PETRO APPEARS HERE] PROJECT INTENSE HEAT ================================================================================ NET ASSET VALUE ANALYSIS - -------------------------------------------------------------------------------- Page 36 [LOGO OF PETRO APPEARS HERE] NET ASSET VALUE ANALYSIS Home Heating Oil Business Valuation ================================================================================ ------------------------------------------------------------------------------ PETROLEUM HEAT AND POWER CO., INC. Home Heating Oil Business Valuation (in thousands, except as otherwise indicated) _________________ (1)Excludes Star Gas distributions. (2)Petro EBITDA compound annual growth rate (CAGR) from 1999E to 2002E, assuming 15 year weather and $25.0 million of acquisitions per year. - -------------------------------------------------------------------------------- ________________________________________________________________________________ Page 37
Method 1 Method 2 - ------------------------------------------------- ------------------------------------------------ Petro 1998E Normalized EBITDA (1) $ 44,749 Petro 1998E Normalized Gallons 384,390 Mean EBITDA Multiple 4.2x Mean Acquisition Cost per Gallon $ 0.84 Total Enterprise Value $187,946 Total Enterprise Value $ 322,888 Petro Size Premium 10.0% Petro Size Premium 10.0% Total Adjusted Enterprise Value $206,740 Total Adjusted Enterprise Value $ 355,176 Methodology Petro Methodology Petro Acquisitions Acquisitions 1996-1997 1996-1997 Ten Largest Ten Largest Method 3 Method 4 - ------------------------------------------------- ------------------------------------------------ Petro 1998E Forecasted Customers 335,000 Petro 1998E Normalized EBITDA (1) $ 44,749 Mean Acquisition Cost per Customer $ 1,194 Mean EBITDA Multiple 6.1x Total Enterprise Value $399,990 Total Enterprise Value $272,969 Petro Size Premium 10.0% Petro Size Premium 10.0% Total Adjusted Enterprise Value $439,989 Total Adjusted Enterprise Value $300,266 Methodology Petro Methodology Star Gas Acquisitions Acquisitions 1996-1997 1994-1998 Ten Largest Method 5 Method 6 - ------------------------------------------------- ------------------------------------------------- Petro LTM 6/30/98 EBITDA (1) $ 30,186 Petro LTM 6/30/98 EBITDA (1) $ 30,186 Mean EBITDA Multiple 11.4x Consolidator Growth Rate Factor 66.3 Total Enterprise Value $344,120 Petro EBITDA CAGR (2) 6.6% Implied EBITDA Multiple 4.4x Total Enterprise Value $132,818 Methodology Selected Energy Methodology Selected Marketing & Industry Distribution Consolidators M&A Analysis [LOGO OF PETRO APPEARS HERE] NET ASSET VALUE ANALYSIS NET ASSET VALUE SUMMARY ================================================================================ - -------------------------------------------------------------------------------- PETROLEUM HEAT AND POWER CO., INC. NET ASSET VALUE SUMMARY (In thousands, except as otherwise indicated) ___________ (1) Assumes all debt is prepaid at 108% of par. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 38
HOME HEATING OIL BUSINESS METHOD 1 METHOD 2 METHOD 3 METHOD 4 METHOD 5 METHOD 6 - --------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Total Enterprise Value (See Previous Page) $ 206,740 $ 355,176 $ 439,989 $ 300,266 $ 344,120 $ 132,818 INVESTMENT IN STAR - --------------------------------------------------------- Total Subordinated Units 2,396 2,396 2,396 2,396 2,396 2,396 Implied OP Units 127 127 127 127 127 127 Total Implied Units 2,523 2,523 2,523 2,523 2,523 5,523 Common Unit Price (one day prior to announcement) $ 21,063 $ 21,063 $ 21,063 $ 21,063 $ 21,063 $ 21,063 Structural Subordination Discount 15% 15% 15% 15% 15% 15% Value per Unit $ 17.90 $ 17.90 $ 17.90 $ 17.90 $ 17.90 $ 17.90 Total Value of Investment in Star $ 45,173 $ 45,173 $ 45,173 $ 45,173 $ 45,173 $ 45,173 GROSS ASSET VALUE $ 251,913 $ 400,349 $ 485,162 $ 345,439 $ 389,293 $ 177,991 PRINCIPAL AMOUNT OF DEBT ESTIMATED AT 9/30/98 - --------------------------------------------------------- 11.96% Senior Notes $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 14.10% Senior Notes 3,100 3,100 3,100 3,100 3,100 3,100 14.10% Subordinated Notes 3,100 3,100 3,100 3,100 3,100 3,100 10.13% Subordinated & Senior Subordinated Notes 50,000 50,000 50,000 50,000 50,000 50,000 9.38% Subordinated & Senior Subordinated Notes 75,000 75,000 75,000 75,000 75,000 75,000 12.25% Subordinated & Senior Subordinated Notes 81,250 81,250 81,250 81,250 81,250 81,250 8.00% Acq. & Other Notes 14,508 14,508 14,508 14,508 14,508 14,508 8.25% Existing Credit Facility 0 0 0 0 0 0 ---------- ---------- ---------- ---------- ---------- ---------- Total Principal Amount of Debt $ 286,958 $ 286,958 $ 286,958 $ 286,958 $ 286,958 $ 286,958 LIQUIDATION VALUE OF PREFERRED STOCK ESTIMATED AT 9/30/98 - --------------------------------------------------------- 14.33% Preferred Stock $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 12.88% Preferred Stock 30,000 30,000 30,000 30,000 30,000 30,000 ---------- ---------- ---------- ---------- ---------- ---------- Total Liquidation Value of Preferred Stock $ 34,167 $ 34,167 $ 34,167 $ 34,167 $ 34,167 $ 34,167 PREPAYMENT PENALTIES & OTHER LIABILITIES - --------------------------------------------------------- Prepayment Penalties on Outstanding Debt (1) $ 22,957 $ 22,957 $ 22,957 $ 22,957 $ 22,957 $ 22,957 Other Long-Term Liabilities 10,711 10,711 10,711 10,711 10,711 10,711 Working Capital & Cash Escrow Adjustment (20,000) (20,000) (20,000) (20,000) (20,000) (20,000) Liquidation Transaction Costs 5,000 5,000 5,000 5,000 5,000 5,000 ---------- ---------- ---------- ---------- ---------- ---------- Total Prepayment Penalties & Other Liabilities $ 18,668 $ 18,668 $ 18,668 $ 18,668 $ 18,668 $ 18,668 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE ($87,880) $ 60,556 $ 145,369 $ 5,646 $ 49,500 ($161,802) ========== ========== ========== ========== ========== ========== NET ASSET VALUE PER SHARE ($3.31) $ 2.28 $ 5.47 $ 0.21 $ 1.86 ($6.09) ========== ========== ========== ========== ========== ========== TOTAL SHARES OUTSTANDING 26,573 26,573 26,573 26,573 26,573 26,573 [LOGO OF PETRO APPEARS HERE] PROJECT INTENSE HEAT ================================================================================ COMPARABLE COMPANY TRADING ANALYSIS Energy and Fuel Marketing and Distribution Companies - -------------------------------------------------------------------------------- Page 39 [LOGO OF PETRO APPEARS HERE] ENERGY AND FUEL MARKETING AND DISTRIBUTION COMPANIES Market Value of Equity to Latest Twelve Months Net Income from Operations ================================================================================ [GRAPH APPEARS HERE] ___________ Note: Market data as of 9/25/98. Source: Factset Data Systems and publicly available information. (1) Market value of equity for Petro is calculated using the closing market price one day prior to announcement. - -------------------------------------------------------------------------------- Page 40 [LOGO OF PETRO APPEARS HERE] ENERGY AND FUEL MARKETING AND DISTRIBUTION COMPANIES Market Value of Equity to Latest Twelve Months Cash Flow ================================================================================ [GRAPH APPEARS HERE] __________________ Note: Market data as of 9/25/98. Source: Factset Data Systems and publicly available information. (1) Market value of equity for Petro is calculated using the closing market price one day prior to announcement. - -------------------------------------------------------------------------------- Page 41 [LOGO OF PETRO APPEARS HERE] ENERGY AND FUEL MARKETING AND DISTRIBUTION COMPANIES Price to Book Value per Common Share ================================================================================ [GRAPH APPEARS HERE] ____________ Note: Market data as of 9/25/98. Source: Factset Data Systems and publicly available information. - -------------------------------------------------------------------------------- Page 42 [LOGO OF PETRO APPEARS HERE] ENERGY AND FUEL MARKETING AND DISTRIBUTION COMPANIES Market Value of Capitalization to Latest Twelve Months Revenues ================================================================================ [GRAPH APPEARS HERE] _____________ Note: Market data as of 9/25/98. Source: Factset Data Systems and publicly available information. (1) Market value of capitalization for Petro is calculated using the closing market price one day prior to announcement. - -------------------------------------------------------------------------------- Page 43 [LOGO OF PETRO APPEARS HERE] ENERGY AND FUEL MARKETING AND DISTRIBUTION COMPANIES Market Value of Capitalization to Latest Twelve Months EBITDA ================================================================================ [GRAPH APPEARS HERE] __________ Note: Market data as of 9/25/98. Source: Factset Data Systems and publicly available information. (1) Market value of capitalization for Petro is calculated using the closing market price one day prior to announcement. Petro latest twelve months EBITDA includes Star Gas distributions and excludes non-recurring expenses. - -------------------------------------------------------------------------------- Page 44 [LOGO OF PETRO APPEARS HERE] ENERGY AND FUEL MARKETING AND DISTRIBUTION COMPANIES Market Value of Capitalization to Latest Twelve Months EBIT ================================================================================ [GRAPH APPEARS HERE] _________ Note: Market data as of 9/25/98. Source: Factset Data Systems and publicly available information. (1) Market value of capitalization for Petro is calculated using the closing market price one day prior to announcement. - -------------------------------------------------------------------------------- Page 45 [LOGO OF PETRO APPEARS HERE] PROJECT INTENSE HEAT ================================================================================ COMPARABLE COMPANY TRADING ANALYSIS Propane Master Limited Partnerships - -------------------------------------------------------------------------------- Page 46 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Percentage of 52 Week High Common Unit Price ================================================================================ [GRAPH APPEARS HERE] __________ Note: Market data as of 9/25/98. Source: Factset Data Systems. (1) Percentage of 52 week high one day prior to announcement of merger on August 13, 1998. - -------------------------------------------------------------------------------- Page 47 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Current Yield ================================================================================ [GRAPH APPEARS HERE] ____________ Note: Market data as of 9/25/98. Source: Factset Data Systems and publicly available information. (1) Star Gas yield based on annual distribution of $2.20 per Unit. ________________________________________________________________________________ Page 48 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Historical Yields [GRAPH APPEARS HERE] ________ Source: Factset Data Systems and publicly available information. - -------------------------------------------------------------------------------- Page 49 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Historical Yields vs. 10-Year Treasury ================================================================================ [GRAPH APPEARS HERE] ___________ Source: Factset Data Systems and publicly available information. (1) Peer group includes Amerigas Partners, Cornerstone Propane Partners, Ferrellgas Partners, Heritage Propane Partners and Suburban Propane Partners and excludes National Propane Partners. - -------------------------------------------------------------------------------- Page 50 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Yield Spread To Treasury ================================================================================ [GRAPH APPEARS HERE] _________________ Source: Factset Data Systems and publicly available information. (1) Peer group includes Amerigas Partners, Cornerstone Propane Partners, Ferrellgas Partners, Heritage Propane Partners and Suburban Propane Partners and excludes National Propane Partners. ________________________________________________________________________________ Page 51 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Adjusted Market Value of Capitalization/(1)/ ================================================================================ [GRAPH APPEARS HERE] ________________________ Note: Market data as of 9/25/98. Source: Factset Data Systems, publicly available information and Petroleum Heat and Power Co., Inc. (1) Adjusted Market Value of Capitalization (MVC) is defined as adjusted market value of equity (common units multiplied by current common unit price, plus subordinated units multiplied by current common unit price less a 20% liquidity discount and a 10% subordination discount, plus implied GP units multiplied by current common unit price less a 20% liquidity discount plus a 10% control premium) plus book value of total debt, less cash and equivalents in excess of a 1.0 working capital ratio. (2) Adjusted MVC for Star Gas historical is calculated based upon the definition above using the closing market price one day prior to announcement. The adjusted MVC for Star Gas pro forma is based upon the Unit Reference Value Analysis (Dain Rauscher Wessels Case), [See Unit Reference Value Analysis on page 9]. - -------------------------------------------------------------------------------- Dain Rauscher Wessels Page 52 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Adjusted Market Value of Capitalization/(1)/ to Latest Twelve Months EBITDA ================================================================================ [GRAPH APPEARS HERE] ___________________ Note: Market data as of 9/25/98. Source: Factset Data Systems and publicly available information. (1) Adjusted Market Value of Capitalization (MVC) is defined as adjusted market value of equity (common units multiplied by current common unit price, plus subordinated units multiplied by current common unit price less a 20% liquidity discount and a 10% subordination discount, plus implied GP units multiplied by current common unit price less a 20% liquidity discount plus a 10% control premium) plus book value of total debt, less cash and equivalents in excess of a 1.0 working capital ratio. (2) Adjusted MVC for Star Gas is calculated based upon the definition above using the closing market price one day prior to announcement. - -------------------------------------------------------------------------------- Page 53 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Adjusted Market Value of Equity/(1)/ to Latest Twelve Months Flow from Operations ================================================================================ [GRAPH APPEARS HERE] _______________ Note: Market data as of 9/25/98. Source: Factset Data Systems and publicly available information. (1) Adjusted Market Value of Equity (MVE) is defined common units multiplied by current common unit price, plus subordinated units multiplied by current common unit price less a 20% liquidity discount and a 10% subordination discount, plus implied GP units multiplied by current common unit price less a 20% liquidity discount plus a 10% control premium. (2) Adjusted MVE for Star Gas is calculated based upon the definition above using the closing market price one day prior to announcement. - -------------------------------------------------------------------------------- Page 54 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Total Debt to Adjusted Market Value of Capitalization/(1)/ ================================================================================ [GRAPH APPEARS HERE] _____________ Note: Market data as of 9/25/98. Source: Factset Data Systems, publicly available information and Petroleum Heat and Power Co., Inc. (1) Adjusted Market Value of Capitalization (MVC) is defined as adjusted market value of equity (common units multiplied by current common unit price, plus subordinated units multiplied by current common unit price less a 20% liquidity discount and a 10% subordinated discount, plus implied GP units multiplied by current common unit price less a 20% liquidity discount plus a 10% control premium) plus book value of total debt, less cash and equivalents in excess of a 1.0 working capital ratio. (2) Adjusted MVC for Star Gas historical is calculated based upon the definition above using the closing market price one day prior to announcement. The adjusted MVC for Star Gas pro forma is based upon the Unit Reference Value Analysis (Dain Rauscher Wessels Case). [See Unit Reference Value Analysis on page 9]. - -------------------------------------------------------------------------------- Page 55 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Total Debt to Total Book Capitalization ================================================================================ [GRAPH APPEARS HERE] ___________ Source: Publicly available information and Petroleum Heat and Power Co., Inc. (1) Pro forma total debt to total book capitalization for Star Gas is estimated at September 30, 1998. - -------------------------------------------------------------------------------- Page 56 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Latest Twelve Months EBITDA to Interest Expense (Interest Coverage) ================================================================================ [GRAPH APPEARS HERE] ______________ Source: Publicly available information and Petroleum Heat and Power Co., Inc. (1) Pro forma EBITDA to interest expense for Star Gas is estimated for the year ended September 30, 1998. - -------------------------------------------------------------------------------- Page 57 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Total Debt to Latest Twelve Months EBITDA ================================================================================ [GRAPH APPEARS HERE] ______________ Source: Publicly available information and Petroleum Heat and Power Co., Inc. (1) Pro forma total debt to EBITDA for Star Gas is estimated at and for the year ended September 30, 1998. - ------------------------------------------------------------------------------- Page 58 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Latest Twelve Months Profitability Margins ================================================================================ [GRAPH APPEARS HERE] ______________ Source: Publicly available information. - -------------------------------------------------------------------------------- Page 59 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Latest Twelve Months Retail Gallons ================================================================================ [GRAPH APPEARS HERE] ________________ Source: Publicly available information. - -------------------------------------------------------------------------------- Page 60 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Latest Twelve Months Sales Percentage by Customer Type ================================================================================ [GRAPHS APPEARS HERE] ______________ Source: Publicly available information - -------------------------------------------------------------------------------- Page 61 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Latest Twelve Months Operating Results per Retail Gallon ================================================================================ [GRAPH APPEARS HERE] _______________ Source: Publicly available information - -------------------------------------------------------------------------------- Page 62 [LOGO OF PETRO APPEARS HERE] PROPANE MASTER LIMITED PARTNERSHIPS Latest Twelve Months Operating Results per Branch ================================================================================ [GRAPH APPEARS HERE] ___________ Source: Publicly available information. - -------------------------------------------------------------------------------- Page 63 [LOGO OF PETRO APPEARS HERE] PROJECT INTENSE HEAT ================================================================================ COMPARABLE TRANSACTIONS ANALYSIS - -------------------------------------------------------------------------------- Page 64 [LOGO OF PETRO APPEARS HERE] COMPARABLE TRANSACTIONS ANALYSIS Selected Energy Marketing & Distribution Merger & Acquisition Transactions (1994 - Present) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT SELECTED ENERGY MARKETING & DISTRIBUTION MERGER & ACQUISITION TRANSACTIONS (1994 - PRESENT) ________________ Source: Securities Data Company, publicly available information and Petroleum Heat and Power Co., Inc. (1) Transaction Enterprise Value is defined as common equity purchase price plus total debt and preferred stock, less cash and equivalents, excluding fees and expenses. The stock is valued using the closing price on the last full trading day prior to announcement. (2) Petro market value of capitalization and market value of equity are based on the Unit Reference Value Analysis (Dain Rauscher Wessels Case). (See Unit Reference Value Analysis Summary on page 9). LTM EBITDA includes Star Gas distributions and excludes non-recurring expenses. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 65
TRANSACTION TRANSACTION ENTERPRISE ENTERPRISE DATE VALUE (1) VALUE/LTM EFFECTIVE ACQUIROR NAME TARGET NAME ($ MIL.) EBITDA - ------------- ------------------------------------ --------------------------------------- ----------- ----------- 05/31/94 Valero Energy Corporation Valero Natural Gas Partners, LP. $ 665.6 14.6x 07/01/94 Associated Natural Gas Corporation Grand Valley Gas Company 53.8 7.3x 07/13/94 K N Energy, Inc. American Oil and Gas Company 410.9 10.9x 12/15/94 Panhandle Eastern Corp. Associated Natural Gas Corporation 750.7 9.6x 03/14/95 Natural Gas Clearinghouse Trident NGL Holding, Inc. 719.3 9.8x 06/15/95 LG&E Energy Corporation Hadson Corporation 143.0 11.9x 08/05/97 El Paso Natural Gas Company Eastex Energy, Inc. 35.6 NM 04/15/97 PacifiCorp Holdings, Inc. TPC Corporation 388.7 13.4x 11/18/97 Enron Corp. Enron Global Power & Pipelines L.L.C. 829.1 14.3x 03/06/98 Kinder Morgan Energy Partners, LP. Santa Fe Pacific Pipeline Partners, L.P. 1,464.9 10.9x ----------------------------------------------------------------------- MEAN $ 566.2 11.4x MEDIAN 565.1 10.9x HIGH 1,464.9 14.6x LOW 35.6 7.3x ----------------------------------------------------------------------- PENDING STAR GAS PARTNERS, L.P. PETROLEUM HEAT AND POWER CO., INC. (2) $ 379.2 10.6x TRANSACTION TRANSACTION TRANSACTION TRANSACTION EQUITY EQUITY ENTERPRISE EQUITY VALUE/ VALUE/ DATE VALUE/LTM VALUE LTM NET LATEST EFFECTIVE EBIT ($ MIL.) INCOME BOOK VALUE - ------------- ----------- ----------- ----------- ------------ 05/31/94 21.4x $ 230.4 55.3x 4.3x 07/01/94 10.9x 56.7 26.5x 3.5x 07/13/94 20.5x 302.1 54.8x 1.6x 12/15/94 15.2x 577.5 19.5x 2.8x 03/14/95 18.2x 333.7 50.3x 1.4x 06/15/95 NM 143.0 NM NM 08/05/95 NM 34.2 NM 2.2x 04/15/97 23.3x 241.4 47.9x 2.5x 11/18/97 14.3x 865.3 15.4x 2.5x 03/06/98 13.0x 1,163.1 21.3x 4.3x ----------------------------------------------------------- 17.1x $ 394.7 36.4x 2.8x 16.7x 271.8 37.2x 2.5x 23.3x 1,163.1 55.3x 4.3x 10.9x 34.2 15.4x 1.4x ----------------------------------------------------------- PENDING NM $ 78.2 NM NM ----------------------------------------------------------- [LOGO OF PETRO APPEARS HERE] COMPARABLE TRANSACTIONS ANALYSIS Petro Acquisitions Summary ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Petro Acquisitions Summary (Dollar and gallon amounts in thousands, except per gallon and per customer amounts) _______________ Source: Petroleum Heat and Power Co., Inc. (1) Acquisition cost is based on the Pro Forma Market Value of Capitalization Analysis (Dain Rauscher Wessels Case), (See Petro Historical and Pro Forma MVE and MVC Summary on page 25) less Petro's investment in Star. The value of Petro's investment in Star is the closing market price of a Star Common Unit one day prior to announcement less a structural subordination discount of 15% multiplied by Petro's total implied Star units. (2) EBITDA excludes Star Gas distributions and non-recurring expenses. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 66
Mean Mean Total Total Target LTM EBITDA Total Acquisition Total Acquisition ---------------------- Companies Acquisition Mean Gallons Cost Customers Cost Petro 1996 - 1997 Acquisitions Acquired Costs EBITDA Multiple Acquired per Gallon Acquired per Customer ------------------------------ --------- ----------- --------- --------- -------- ---------- -------- ------------ Ten Largest 10 $ 33,465 $ 7,848 4.2 x 40,446 $ 0.84 31,358 $ 1,194 Excluding Ten Largest 14 8,629 2,064 4.1 x 13,730 0.55 14,224 630 Petroleum Heat and Power Co., Inc. ---------------------------------------------------------------------------------------------------------------------------------- Normalized 1998E EBITDA $334,058 (1) $44,749 (2) 7.5 x 384,390 $ 0.87 335,000 $ 997 LTM 6/30/98 EBITDA 334,058 (1) 30,186 (2) 11.1 x ---------------------------------------------------------------------------------------------------------------------------------- [LOGO OF PETRO APPEARS HERE] COMPARABLE TRANSACTIONS ANALYSIS 1996 - 1997 Petro Acquisitions (Ten Largest) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT 1996 - 1997 PETRO ACQUISITIONS (TEN LARGEST) (Dollar and gallon amounts in thousands, except per gallon and per customer amounts) _____________ Source: Petroleum Heat and Power Co., Inc. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 67
TOTAL TARGET LTM EBITDA TOTAL ACQUISITION TOTAL ACQUISITION ACQUISITION (PRO FORMA PETRO OWNERSHIP) GALLONS COST CUSTOMERS COST --------------------------- DATE COMPANY ACQUIRED COSTS EBITDA MULTIPLE ACQUIRED PER GALLON ACQUIRED PER CUSTOMER - ---------- ----------------------- ----------- ---------- ------------ -------- ----------- ---------- ------------ 02/01/96 Seaman $ 7,134 $1,552 4.6x 7,522 $0.95 7,806 $ 914 01/11/96 Garrison 5,242 1,154 4.5x 5,925 0.88 6,575 797 01/19/96 Cibro 4,368 1,087 4.0x 6,200 0.70 2,426 1,800 10/18/96 Bergen 3,202 718 4.5x 5,501 0.58 1,593 2,010 04/14/97 Mugullian Fuel 2,802 638 4.4x 3,000 0.93 2,570 1,090 04/01/96 McDowell 2,723 669 4.1x 2,675 1.02 2,305 1,182 08/29/97 Oil Burner Utility 2,633 603 4.4x 3,500 0.75 1,590 1,656 09/10/97 Romary 2,252 545 4.1x 2,348 0.96 2,210 1,019 09/29/97 T.W. Perry 1,619 439 3.7x 2,118 0.76 2,461 658 08/26/97 Bellomo 1,489 443 3.4x 1,657 0.90 1,822 817 ---------------------------------------------------------------------------------------------------------------------- TOTAL $33,465 $7,848 -- 40,446 -- 31,358 -- MEAN 3,346 785 4.2x 4,045 $0.84 3,136 $1,194 WEIGHTED AVERAGE -- -- 4.3x -- 0.83 -- 1,067 MEDIAN 2,763 654 4.2x 3,260 0.89 2,366 1,055 HIGH 7,134 1,552 4.6x 7,622 1.02 7,806 2,010 LOW 1,489 439 3.4x 1,657 0.68 1,690 658 ---------------------------------------------------------------------------------------------------------------------- [LOGO OF PETRO APPEARS HERE] COMPARABLE TRANSACTIONS ANALYSIS 1996 - 1997 Petro Acquisitions (Excluding Ten Largest) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT 1996 - 1997 PETRO ACQUISITIONS (EXCLUDING TEN LARGEST) (Dollar and gallon amounts in thousands, except per gallon and per customer amounts) ____________ SOURCE: Petroleum Heat and Power Co. Inc. - -------------------------------------------------------------------------------- Page 68
TOTAL TARGET LTM EBITDA TOTAL ACQUISITION TOTAL ACQUISITION ACQUISITION (PRO FORMA PETRO OWNERSHIP) GALLONS COST CUSTOMERS COST ------------------------------ DATE COMPANY ACQUIRED COSTS EBITDA MULTIPLE ACQUIRED PER GALLON ACQUIRED PER CUSTOMER - ---------- ------------------- ------------- ------------- -------------- ---------- ------------ ----------- -------------- 11/24/97 Shreve $1,457 $ 300 4.9X 2,425 $ 0.60 2,782 $ 524 09/11/96 Flynn 1,038 232 4.5X 1,316 0.79 1,070 970 12/18/97 Genovese 1,011 281 3.6X -- -- 1,054 959 10/31/96 Hy-Test 813 177 4.6X 1,468 0.55 1,269 641 01/15/97 Oils Inc. 748 188 4.0X 1,189 0.63 826 905 10/01/97 Miltbrook 527 112 4.7X 908 0.58 900 588 07/10/97 Good 521 117 4.5X 1,200 0.43 1,559 334 12/26/96 Sherman 493 103 4.8X 564 0.67 475 1,037 12/30/96 Grasso 423 116 3.6X 1,118 0.38 1,080 392 05/14/97 Alderfer Heating 401 111 3.6X 787 0.51 740 542 12/27/96 Matco 368 97 3.8X 988 0.37 722 510 12/18/96 Dexter Bros. 332 99 3.4X 786 0.42 700 474 09/24/96 Farren 264 69 3.8X 481 0.55 520 507 10/18/96 Highstown 233 62 3.8x 500 0.47 527 443 ------------------------------------------------------------------------------------------------------------------------ TOTAL $8,629 $2,064 -- 13,730 -- 14,224 -- MEAN 616 147 4.1X 1,066 $ 0.55 1,016 $ 630 WEIGHTED AVERAGE -- -- 4.2X -- 0.83 -- 607 MEDIAN 507 114 3.9X 998 0.55 863 633 HIGH 1,457 300 4.9X 2,425 0.87 2,782 1,037 LOW 233 62 3.4X 481 0.37 475 334 ------------------------------------------------------------------------------------------------------------------------ [LOGO OF PETRO APPEARS HERE] COMPARABLE TRANSACTIONS ANALYSIS 1994 - 1998 Star Gas Partners Acquisitions ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT 1994 - 1998 STAR GAS PARTNERS ACQUISITIONS (Dollar and gallon amounts in thousands, except per gallon and per customer amounts) ______________ Source: Star Gas Partners, L.P. and Petroleum Heat and Power Co., Inc. (1) Acquisition cost is based on the Pro Forma Market Value of Capitalization Analysis (Dain Rauscher Wessels Case), [See Petro Historical and Pro Forma MVE and MVC Summary on page 25] less Petro's investment in Star. The value of Petro's investment in Star is the closing market price of a Star Common Unit one day prior to announcement less a structural subordination discount of 15% multiplied by Petro's implied Star units. (2) EBITDA excludes Star Gas distributions and non-recurring expenses. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 69
Total Acquisition Target LTM EBITDA ---------------------------- Date Company Acquired Costs EBITDA Multiple - ---------- -------------------------------------- --------------- ------------ ------------ 06/15/94 Loveland $ 700 $ 127 5.5x 11/24/94 Baystate 1,450 209 6.9x 09/12/95 Debolt 950 151 6.3x 03/22/96 Bob White L.P. Gas/Mitchell Bottle Gas 1,500 263 5.7x 07/22/96 Fuzzy Moore 850 147 5.8x 10/22/97 Pearl Gas Co. 24,127 3,288 7.3x 02/20/98 Tri-County Gas 550 108 5.1x 05/28/98 Knowles LP Gas 3,000 426 7.0x 05/28/98 Tioga Petroleum 1,200 257 4.7x 07/30/98 Lowe Bros & Dad, Inc. 3,750 602 6.2x 08/11/98 Myers Appliance 1,200 191 6.3x ----------------------------------------------------------------------------------------- TOTAL $ 39,277 $ 5,769 -- MEAN 3,571 524 6.1x WEIGHTED AVERAGE -- -- 6.8x MEDIAN 1,200 209 6.2x HIGH 24,127 3,288 7.3x LOW 560 108 4.7x ----------------------------------------------------------------------------------------- PETROLEUM HEAT AND POWER CO., INC. ----------------------------------------------------------------------------------------- Normalized 1998E EBITDA $334,058 $44,749 (2) 7.6x LTM 6/30/98 EBITDA 334,058 30,186 (2) 11.1x ----------------------------------------------------------------------------------------- [LOGO OF PETRO APPEARS HERE] PROJECT INTENSE HEAT ================================================================================ MERGER PREMIUMS ANALYSIS - -------------------------------------------------------------------------------- Page 70 [LOGO OF PETRO APPEARS HERE] Merger Premiums Analysis Selected Energy Industry Merger & Acquisition Transactions (1994 - Present, Stock-for-Stock, $100 - $500 million) ================================================================================ - -------------------------------------------------------------------------------- Page 71
- ------------------------------------------------------------------------------------------------------------------------------------ PROJECT INTENSE HEAT SELECTED ENERGY INDUSTRY MERGER & ACQUISITION TRANSACTIONS (1994 - Present, Stock-for-Stock, $100 -$500 million) Transaction Transaction Enterprise Equity Premium No. --------------------------- Date Value ($) Value For 1 Day 1 Week 4 Weeks Announced Acquiror Name Target Name ($ Mil.) Share Prior Prior Prior - --------- ------------------------------ ------------------------------ ----------- ---------- --------- -------- ------- 03/24/94 K N Energy, Inc. American Oil and Gas Company $ 410.9 $ 11.05 4.0% 4.0% 5.2% 06/23/94 Drasser Industries, Inc. Wheatley TXT Corp. 173.8 14.70 25.1% 25.1% 32.1% 06/02/94 Ray McDermott S.A. Offshore Pipelines, Inc. 278.6 21.88 14.4% 15.1% 40.0% 06/13/94 Noble Drilling Corporation Chilee Offshore Drilling Company 200.2 5.25 5.0% 2.4% 23.5% 06/20/94 Kelley Oil Corporation Kelley Oil & Gas Partners Ltd. 101.7 5.64 -35.6% -32.7% -16.5% 03/10/94 United Meridian Corporation General Atlantic Resources, Inc. 182.3 16.50 -7.0% -9.6% 11.9% 03/13/94 BJ Services Company Western Company of North America 377.2 20.00 63.3% 73.9% 70.2% 03/20/94 Parker & Parlsey Petroleum Company Tide West Oil Company 141.0 14.24 -0.1% 21.2% 16.2% 11/30/94 National Energy Group, Inc. Alexander Energy Corporation 103.6 4.46 -28.6% -27.1% -23.2% 03/08/95 Moorco International Daniel Industries, Inc. 187.8 16.29 29.0% 22.9% 19.6% 05/03/95 Barnett Resources Corporation Plains Petroleum Company 299.6 30.23 34.3% 38.2% 39.0% 11/20/95 Tidewater, Inc. Homeback Offshore Services, Inc. 310.8 21.67 40.9% 40.9% 46.9% 01/25/95 ENSCO International, Inc. Dual Drilling (Mosvold Shipping) 224.7 14.22 8.9% 13.2% 23.7% 02/26/95 HS Resources, Inc. Tide West Oil Company 201.3 15.91 44.6% 44.6% 51.5% 06/17/97 Baker Hughes Incorporated Drilex International, Inc. 120.1 17.58 31.4% 37.9% 59.8% 08/10/97 Holburton Company Numar Corporation 341.6 39.62 90.9% 99.3% 95.7% 06/20/97 Forcenergy Inc. Convest Energy Corporation 102.0 9.44 11.1% 11.1% 18.9% 06/20/97 Forcenergy Inc. Edisio Resources Corporation 147.7 10.27 -6.6% -6.6% -0.4% 06/24/97 Louis Drayfus Natural Gas Company American Exploration Company 275.5 15.96 13.0% 15.0% 21.6% 06/30/97 Balco Oil & Gas Corporation Hugoton Energy Corporation 263.1 15.00 15.4% 20.0% 36.4% 07/07/97 Meridan Resource Corporation Caim Energy USA, Inc. 233.6 13.30 22.3% 29.0% 26.7% 11/13/97 Chesapeske Energy Corporation Hugoton Energy Corporation 377.0 13.33 7.7% 11.0% 26.9% 12/15/97 EVI, Inc. Christiana Companies, Inc. 214.7 34.74 -14.7% -16.5% -15.0% 03/12/98 El Paso Natural Gas Company Deep Tech International 375.4 14.00 8.7% 9.8% 15.5% 05/12/98 Lomak Petroleum, Inc. Domain Energy Corporation 151.9 9.36 -25.1% -30.0% -28.7% 06/13/98 MoMoRan Oil & Gas Company Freeport-MoMo Ran Sulphur, Inc. 124.2 12.50 14.9% 6.4% 4.2% 06/03/98 CFAS Energy Corporation Continental Natural Gas, Inc. 151.2 9.31 1.4% 26.3% 33.0% 08/10/98 R&B Falcon Corporation Cliffs Drilling Company 452.1 28.16 39.0% 41.2% 17.0% 09/14/98 TransMontalons Inc. Louis Dreyfus Energy Corp. 161.0 11.63 8.1% 7.5% -15.5% ------------------------------------------------------------------------------------- Mean $ 230.5 14.3% 17.0% 21.9% Median 201.3 11.1% 15.0% 21.6% High 452.1 90.9% 99.3% 95.7% Low 101.7 -35.6% -32.7% -28.7% ------------------------------------------------------------------------------------- Petroluem Heat and Power Co., Inc. (Senior Subordinated Unit/Implied Reference Value 08/14/98 Parker & Parsley Premium Company per Petro Share) (2) ------------------------------------------------------------------------------------- Implied Reference Value (including DPUs and GP Incentives) $ 2.54 35.6% 62.7% 40.3% DPUs and GP Incentive Value 0.43 -------- Total Implies Reference Value $ 2.97 58.6% 90.3% 64.1% ------------------------------------------------------------------------------------- _______________ Source: Securities Data Company, publicly available information and Petroleum Heat and Power Co., Inc. (1) Transaction Enterprise Value is defined as common equity purchase price plus total debt and preferred stock, less cash and equivalents, excluding fees and expenses. The stock is valued using the closing price on the last full trading day prior to announcement. (2) The Senior Subordinated Unit Implied Reference Value per Petro share is based on the Unit Reference Value Analysis (Dain Rauscher Wessels Case), (See Unit Reference Value Analysis Summary on page 9) - ------------------------------------------------------------------------------------------------------------------------------------ [LOGO OF PETRO APPEARS HERE] MERGER PREMIUMS ANALYSIS Selected Recent All Industries Merger & Acquisitions Transactions (1998 - Present, Stock-for-Stock, $100 - $500 million) ================================================================================ - -------------------------------------------------------------------------------- PROJECT INTENSE HEAT Selected Recent All Industries Merger & Acquisition Transactions (1998 - Present, Stock-for-Stock, $100 - $500 million) - -------------------------------------------------------------------------------- ________________________________________________________________________________ 72
Transaction Transaction Premium to: Enterprise Equity ------------------------- Date Value Value Per 1 Day 1 Week 4 Weeks Announced Acquired Name Target Name ($ mill.) Share Prior Prior Prior - ----------- -------------------------------- ---------------------------- -------------- ------------ ------------------------- 01/01/98 ConAgra Inc GoodMark Foods Inc $217.8 $28.58 54.5% 75.9% 69.4% 01/12/98 Mercantile Bancorp, St Louis, MO CBT Corp, Paducah Kentucky 275.8 34.36 3.3% 1.8% 19.5% 01/14/98 Suiza Foods Corp Continental Con Co Inc 330.5 40.65 45.8% 74.4% 71.2% 01/15/98 First Midwest Bancorp, IL Heritage Financial Services 405.8 32.61 7.8% 10.5% 31.1% 01/15/98 International Technology Corp OHM Corp 326.8 11.33 24.2% 45.1% 51.4% 01/26/98 USA Waste Services Inc TransAmerican Waste Industries 142.3 2.18 51.4% 36.6% 78.6% 02/02/98 BMC Software Inc BOS Systems Inc 306.9 45.00 23.3% 32.4% 42.9% 02/02/98 CompassBank, New Bedford, MA Sandwich Bancorp, Sandwich,MA 129.6 64.00 47.1% 48.8% 48.8% 02/02/98 Romac International Inc Source Services Corp 454.4 31.93 51.1% 56.7% 50.2% 02/02/98 Primus Telecomunicstions TresCom International Inc 134.7 10.30 25.2% 30.9% 51.5% 02/09/98 Kinross Gold Corp Amax Gold (Cyprus Amax Mineral) 365.5 2.90 -9.0% -1.3% 36.5% 02/17/98 Applied Graphics Technologies Devon Group Inc 474.4 60.08 29.2% 32.0% 37.9% 02/17/98 Bayou Steel Corp Northwestern Steel & Wire Co 239.7 4.00 10.3% -4.5% 20.6% 02/17/98 Cape Cod Bank & Trust, Hyannis Sandwich Bancorp, Sandwich, MA 121.4 60.00 20.2% 20.3% 37.9% 02/19/98 First Security Corp, Utah California State Bank 276.9 48.72 11.4% 14.0% 18.6% 02/19/98 PLATINUM Technology Inc Mastering Inc 198.7 12.50 31.6% 25.0% 33.3% 02/23/98 Network Associates Inc Trusted Information Systems 322.1 20.19 59.9% 84.6% 92.3% 02/24/98 Baxter International Inc Somatogen Inc 232.9 9.00 35.8% 39.8% 92.0% 02/25/98 BB&T Corp, Winston-Salem, NC Maryland Federal Bancorp Inc 243.6 37.05 16.7% 19.0% 22.5% 03/02/98 Unitrode Corp Benchmarq Microelectronics Inc 150.6 18.81 15.6% 14.0% 67.2% 03/02/98 Sunbean Corp Coleman Co Inc 333.0 30.14 44.4% 58.6% 121.2% 03/02/98 El Paso Natural Gas Co DeepTech International 375.4 14.00 8.7% 9.8% 15.5% 03/02/98 Slebell Systems Inc Scopus Technology Inc 490.7 22.39 58.5% 93.6% 100.1% 03/08/98 Protective Life Corp United Dental Care Inc 180.4 19.58 20.5% 49.2% 57.4% 03/09/98 Commercial Federal, Omaha, NE First Colorado Bancorp Inc, CO 449.5 25.54 -9.6% 0.2% 0.2% 03/13/98 St. Paul Bancorp Chicago, IL Beverly Bancorp, Tinley Park, IL 161.8 28.10 16.5% 17.4% 19.6% 03/16/98 PLATINUM Technology Inc Logic Works Inc 212.9 15.32 13.0% 36.2% 57.1% 03/24/98 Cognizant Corp Pharmaceutical Marketing Services 188.7 14.65 13.8% 22.1% 45.6% 03/24/98 Cognizant Corp Walsh International Inc 176.8 15.91 8.8% 36.8% 53.3% 03/25/98 Fidelity National Financial Matrix Capital Corp 193.1 27.95 45.2% 64.4% 74.7% 03/26/98 Aviation Sales Whitehall Corp 139.9 22.57 2.6% -2.9% 9.1% 03/27/98 ISP Holdings Inc Intl Speciality Products 324.5 18.25 4.3% 1.7% 14.5% 03/31/98 Union Planters Corp, Memphis, TN Ambanc Corp, Vincennes Indiana 210.8 30.10 3.8% 22.9% 20.4% 03/31/98 Hubco Inc, Mahwah, New Jersey Dime Financial Corp 214.0 38.25 6.3% 25.4% 22.9% 03/31/98 Hubco Inc, Mahwah, New Jersey IBS Financial Corp 242.4 20.73 3.6% 2.4% 16.0% 03/31/98 Omnicare Inc IBAH Inc 154.3 5.75 12.2% 61.4% 58.6% 04/06/98 FirstMerit Corp Security First Corporation 251.2 29.28 30.8% 30.8% 34.6% 04/06/98 Applied Power Inc Zero Corp 431.6 33.63 16.5% 18.0% 33.2% 04/09/98 Complete Business Solutions Claremont Technology Group Inc 282.5 27.00 21.3% 77.0% 118.2% 04/15/98 Giant Industries Inc Holly Corp 251.4 27.43 3.0% 2.5% -1.2% 04/16/98 Phoenix Technologies Ltd Award Software International 129.5 16.08 12.8% 21.3% 53.1% 04/17/98 Sterling Commerce Inc XcelleNet Inc 214.3 22.02 6.1% 12.5% 7.7% 04/27/98 Bright Horizons Holdings Inc Corporate Family Solutions Inc 127.0 23.69 -21.4% -22.3% -7.5% 05/12/98 Lomak Petroleum Inc Domain Energy Corporation 151.9 9.36 -25.1% -30.0% -28.7% 05/19/98 First Charter Corp, NC HFNC Financial Corp 240.2 13.97 -12.4% -12.7% -13.4% 05/19/98 Quantum Corp ATL Products Inc (???) 304.0 29.00 8.4% 19.0% 45.0% 05/28/98 Republic Security Financial First Palm Beach Bancorp Inc 295.0 55.05 50.8% 46.8% 45.1% 05/29/98 Pogo Producing Co Arch Petroleum Inc 114.0 2.47 0.1% 5.5% -3.5% [LOGO OF PETRO APPEARS HERE] Merger Premiums Analysis Selected Recent All Industries Merger & Acquisition Transactions (1998 - Present, Stock-For-Stock, $100-$500 million) ================================================================================ PROJECT INTENSE HEAT Selected Recent All Industries Merger & Acquisition Transactions (1998-Present, Stock-for-Stock, $100-$500 million) - -------------------------------------------------------------------------------- Page 73
Transaction Transaction Preminum to: Enterprise Equity ------------------------------ Date Value (1) Value For 1 day 1 week 4 weeks Announced Acquiror Name Target Name ($ mill.) Shares prior prior prior - ---------- ------------------- ----------------------- ----------- ---------- ------ ------- ------- 06/02/98 State Financial Services Corp Home Bancorp of Elgin. Elgin, IL $134.0 $19.05 11.3% 11.3% 8.9% 06/04/98 PMC Commercial Trust Supertel Hospitality Inc 131.9 12.15 -6.5% 5.6% -4.7% 06/04/98 World Access Inc Telco Systems Inc 194.5 17.00 77.8% 65.9% 63.9% 06/12/98 Davel Communications Group Inc PhoneTel Technologies Inc 227.7 3.08 64.3% 69.9% 208.0% 06/18/98 Summit Bancorp, Princeton, NJ HSS Bancorp, Norwalk, CT 151.3 58.83 28.2% 36.8% 31.5% 06/22/98 Leaming Co Inc Broderbund Software Inc 424.3 20.00 21.2% 16.4% 19.0% 06/24/98 Mylan Laboratories Inc Penederm Inc 193.1 21.89 39.0% 39.5% 88.3% 06/29/98 Philadelphia Suburban Corp Consumers Water Co 465.6 30.46 25.6% 33.1% 42.5% 07/01/98 Metzler Group Inc Lecg Inc 294.4 21.98 46.5% 49.0% 41.8% 07/06/98 Davel Communications Group Inc Peoples Telephone Co Inc 114.5 5.86 87.5% 80.3% 118.0% 07/09/98 Zebra Technologies Corp Eltron International Inc 287.7 36.00 25.8% 34.6% 57.4% 07/16/98 First Commonwealth Financial Southwest National Corp, PA 269.8 88.63 61.1% 80.9% 77.3% 07/20/98 Richmond County Financial Corp Bayonne Bancshares New Jersey 177.7 19.03 11.1% 16.7% 18.9% 07/20/98 Santa Barbara Bancorp, CA Pacific Capital Bancorp, CA 291.4 62.40 27.4% 41.8% 45.1% 07/20/98 Peoples Heritage Fini Group, ME SIS Bancorp Inc, Springfield, MA 427.6 57.23 27.2% 34.7% 44.0% 07/23/98 HBO & Co IMNET Systems Inc 287.7 27.62 69.9% 74.0% 77.4% 07/23/98 Digital Microwave Corp Inova Corp 115.7 6.83 16.2% 36.5% 30.0% 07/31/98 Banknorth Group Inc Evergreen Bancorp Inc 313.1 34.43 24.1% 28.4% 19.7% 08/03/98 CMS Energy Corporation Continental Natural Gas, Inc. 151.2 9.31 1.4% 26.3% 33.0% 08/03/98 McMoRan Oil & Gas Co Freeport, McMoRan Sulphur Inc 124.2 12.50 14.9% 6.4% 4.2% 08/04/98 Public Storage Inc Storage Trust Realty 366.2 25.00 11.1% 8.1% 1.0% 08/07/98 City Holding Co, Charleston, WV Horizon Bancorp, Beckley WV 413.4 45.00 6.2% 8.4% 15.0% 08/10/98 R&B Falcon Corp Cliffs Drilling Co 452.? 28.16 39.0% 41.2% 17.0% 08/10/98 BB&T Corp, Winston-Salem, NC Scott & Stringfollow Financial 126.4 34.44 19.8% 28.7% 35.0% 08/24/98 Liberty Media (Tele-Commun) Tele-Commun Inti (Tele-Commun) 379.1 20.77 -1.1% -4.5% -9.9% 09/02/98 Sanmina Corp Altron Inc 195.3 12.39 16.6% 6.5% 7.7% 09/02/98 USWeb Corp CKS Group Inc 342.9 21.66 53.3% 30.3% 23.7% 09/02/98 Rent-Way Inc Home Choice Holdings Inc 231.4 13.60 7.2% 4.1% 7.7% 09/08/98 Sovereign Bancorp. PA Peoples Bancorp Inc, New Jersey 381.4 10.50 26.3% 44.8% 21.7% 09/09/98 First Consulting Group Inc Integrated Systems Consulting 110.4 13.67 33.7% 30.2% 12.7% 09/14/98 TransMontaigne Inc. Louis Dreyfus Energy Corp 161.0 11.63 8.1% 7.5% -15.5% 09/14/98 Qwest Commun Int Inc. Icon CMT Corp 190.6 12.00 65.5% 60.0% -4.0% ----------------------------------------------------------------------------------------- Mean $253.8 23.2% 29.6% 38.5% Medium 236.3 16.2% 28.6% 33.3% High 490.7 87.5% 93.6% 208.0% Low 110.4 -25.?% 30.0% -28.7% ----------------------------------------------------------------------------------------- ?? Star Gas Partners, LP. Petroleum Heat and Power Co, Inc. (Senior Subordinated Unit/Implied Reference Value per Petro Shares)(92) ----------------------------------------------------------------------------------------- Implied Reference Value (excluding DPUs and GP Incentives) $2.54 35.6% 62.7% 40.3% DPUs and GP Incentives Value 0.43 ------ Total Implied Reference Value $2.97 58.6% 90.3% 64.1% ----------------------------------------------------------------------------------------- __________________ Source: Securities Data Company, pubilcy available information and Petroleum heat and Power Co., Inc. (1) Transaction Enterprise Value is defined as common equity purchase price plus total debt and preferred stock, less cash and equivalent, excluding fees and expenses. The stock is valued using the closing price on the last full trading day prior to announcement. (2) The Senior Subordinated Unit Implied Reference Value per Petro share is based on the Unit Reference Value Analysis (Dain Rauscher Wessel's Case), (See Unit Reference Value Analysis Summary on page 9) - ------------------------------------------------------------------------------------------------------------------------------------ [LOGO OF PETRO APPEARS HERE] PROJECT INTENSE HEAT ================================================================================ PRICE AND VOLUME DATA - -------------------------------------------------------------------------------- Page 74 [LOGO OF PETRO APPEARS HERE] PRICE AND VOLUME DATA First Trading Day of Class A Common Shares (July 29, 1992) - Present Petro Weekly Stock Price/Volume ================================================================================ [GRAPH APPEARS HERE] __________________ Source: Factset Data Systems and publicly available information. - -------------------------------------------------------------------------------- Page 75 [LOGO OF PETRO APPEARS HERE] PRICE AND VOLUME DATA IPO (December 14, 1995) - Present Star Gas Daily Unit Price/Volume ================================================================================ [GRAPH APPEARS HERE] ___________ Source: Factset Data Systems and Publicly available information. - -------------------------------------------------------------------------------- Page 76 [LOGO OF PETRO APPEARS HERE] PRICE AND VOLUME DATA 1997 - Present Relative Price Performance ================================================================================ [GRAPH APPEARS HERE] ___________ Source: Factset Data Systems. (1) Peer group includes Amerigas Partners, Cornerstone Propane Partners, Ferrellgas Partners, Heritage Propane Partners and Suburban Propane Partners and excludes National Propane Partners. - -------------------------------------------------------------------------------- Page 77 [LOGO OF PETRO APPEARS HERE] PRICE AND VOLUME DATA Relative Price Performance Since Annoncement of Merger (August 14, 1998) ================================================================================ [GRAPH APPEARS HERE] ___________ Source: Factset Data Systems. (1) Peer group includes Amerigas Partners, Cornerstone Propane Partners, Ferrellgas Partners, Heritage Propane Partners and Suburban Propane Partners and excludes National Propane Partners. - -------------------------------------------------------------------------------- Page 78 [LOGO OF PETRO APPEARS HERE] PRICE AND VOLUME DATA Present Total Return/(1)/ ================================================================================ [GRAPH APPEARS HERE] ___________ Source: Factset Data Systems. (1) Total return is defined as compound return, with distributions reinvested on ex-dates. - -------------------------------------------------------------------------------- Page 79 [LOGO OF PETRO APPEARS HERE] PRICE AND VOLUME DATA 1997 - Present Total Return/(1)/ ================================================================================ [GRAPH APPEARS HERE] ___________ Source: Factset Data Systems. (1) Total return is defined as compound return, with distributions reinvested on ex-dates. (2) Peer group includes Amerigas Partners, Cornerstone Propane Partners, Ferrellgas Partners, Heritage Propane Partners and Suburban Propane Partners and excludes National Propane Partners. - -------------------------------------------------------------------------------- Page 80
EXHIBIT 99(b)(3) - -------------------------------------------------------------------------------- Confidential - -------------------------------------------------------------------------------- PETROLEUM HEAT & POWER CO., INC. BOARD OF DIRECTORS PRESENTATION July 24, 1997 Paine Webber Incorporated - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- TABLE OF CONTENTS --------------------------------------------------------------------------- I SITUATION ANALYSIS II THE TRANSACTION III BENEFITS OF THE TRANSACTION IV ECONOMICS OF THE TRANSACTION V COMPARABLE MLP ANALYSIS --------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- PART I SITUATION ANALYSIS - -------------------------------------------------------------------------------- 1 - ------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - ------------------------------------------------------------------------------- SITUATION ANALYSIS --------------------------------------------------------------------------- HEATING OIL BUSINESS . Petro remains the dominant force in the heating oil business, selling at least 3 times as much as its nearest competitor. . Petro also dominates the acquisition market, acquiring a substantial share of all heating oil businesses sold. . While the company has constantly made acquisitions over the last 5 years, higher than expected attrition rates have resulted in little EBITDA growth. . Operational changes which were instituted on a small scale in 1996-1997 are expected to reduce the attrition rates over the next several years. . It is anticipated that the acquisition market will continue to be strong as more owners approach retirement age and capital gain tax relief appears in sight. --------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- SITUATION ANALYSIS ___________________________________________________________________________ PETRO'S STOCK PERFORMANCE . Petro's stock has been in a steady decline since 1992. . Petro's stock was particularly hard hit as a result of the warm winter of 1996-1997. . It is difficult to determine what portion of the stock's performance was related to Petro's financial performance and what portion is attributable to a lack of research and institutional following and a lack of comps. . More importantly, one must question whether or not the operational improvement which is expected over the next two years will be reflected in a higher stock price. . Furthermore, Petro's ability to pursue accretive acquisitions will continue to be limited by capital constraints. ___________________________________________________________________________ 3 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- SITUATION ANALYSIS --------------------------------------------------------------------------- PROPANE BUSINESS . Large acquisitions have been scarce. Steady stream of mega-acquisitions (1994-96) as over $1.5 billion of equity capital has been raised from 1992-1996. . Pricing on all acquisitions has become extremely competitive. . Multiples for even small deals have expanded. . Wholesale price spike during the 1996-1997 season revealed another level of uncertainty, even for those companies (like Star) which profited from the spike. . Warm winter in the Northeast compounded the problem for many players. . The market is starting to question whether propane MLPs are really growth vehicles. . The market is also starting to question if the weather is ever normal (it always seems to be abnormally warm in some section, which more than offsets good results elsewhere). --------------------------------------------------------------------------- 4 - ------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- SITUATION ANALYSIS --------------------------------------------------------------------------- STAR'S STOCK PERFORMANCE . While Star has performed relatively well, it is difficult for the market to assess how much of the performance was related to inventory gains. . Star continues to lag behind other MLPs in terms of acquisitions, where Star's ability to compete is limited. - Management's limited propane experience limits deal flow - Geographic concentration limits "blend-in" opportunities - Larger and better capitalized players competing for the same assets --------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- PART II THE TRANSACTION --------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- THE TRANSACTION --------------------------------------------------------------------------- OVERVIEW . We believe that a public stock corporation is not the optimal format for Petro. - No direct comparables - Rapid amortization of customer lists results in no earnings - Perceived limited growth in heating oil industry - Small capitalization results in limited research coverage . Furthermore, the leveraged capital structure limits financial flexibility and growth opportunities. * AS A RESULT, PETRO'S STOCK HAS NOT PERFORMED WELL AND IS NOT LIKELY TO ACHIEVE FULL VALUATION EVEN IF OPERATIONS IMPROVE. --------------------------------------------------------------------------- 7 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- THE TRANSACTION --------------------------------------------------------------------------- IN ORDER TO ADDRESS THESE VALUATION ISSUES, PETRO SHOULD CONSIDER THE BENEFITS OF AN MLP STRUCTURE WHICH CAN BE ACHIEVED THROUGH A MERGER WITH STAR GAS . MLPs typically trade on a yield basis, which currently translates into a 9-10x EBITDA multiple vs a 7-8x multiple historically at Petro. . The combination of the two companies would result in a sizable MLP (approximately $300 million implied equity value) which translates into better valuation and greater liquidity. . Concurrent with the merger, the issuance of new equity would restructure and delever the balance sheet. . The new entity would have substantially better access to capital to fund future growth. * THE COMBINED ENTITY WOULD HAVE THE INVESTMENT STORY TO ATTRACT RESEARCH COVERAGE AND WOULD BENEFIT BOTH PETRO AND STAR GAS SHARE/UNIT HOLDERS. --------------------------------------------------------------------------- 8 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- THE TRANSACTION -------------------------------------------------------------------------- THE TRANSACTION INVOLVES TWO SEPARATE STAGES: -------------------------------------------------------------------------- STAGE 1 -- THE EXCHANGE -------------------------------------------------------------------------- PETRO SHAREHOLDERS EXCHANGE THEIR COMMON STOCK FOR STAR GAS MASTER LIMIT PARTNERSHIP UNITS AT $4.50/SHARE . Shareholders who hold only Class A shares exchange into Senior Subordinated MLP units . Senior Subordinated MLP Units valued at +/- 10% discount to Common Units . "Inside" shareholders /(1) /exchange either into Senior Subordinated MLP Units or Subordinated Units plus the General Partnership Interest . Senior Subordinated Units offered to "Insiders" will be capped at 3.5 million Petro shares in order to provide adequate coverage to Star Common Units . Subordinated Units valued at +/- 20% discount to Common Units . All Senior Subordinated and Subordinated Units convert to Common Units after 3 years of "Earn & Pay" of $2.30 (i.e. increase the MQD on the Common Units) -------------------------------------------------------------------------- _____________________ (1) Insiders for the purposes of this discussion are those individuals who own Class C and Class A common shares. - -------------------------------------------------------------------------------- 9 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- THE TRANSACTION --------------------------------------------------------------------------- THE TRANSACTION INVOLVES TWO SEPARATE STAGES: --------------------------------------------------------------------------- STAGE 2 -- THE RECAPITALIZATION --------------------------------------------------------------------------- APPROXIMATELY $330 MILLION OF PETRO DEBT AND PREFERRED STOCK ARE REFINANCED . Existing issues will be either redeemed, exchanged, defeased or tendered for, depending on issue . Approximately $140 million of new Star equity will be raised through the sale of Common Units . Approximately $125 million of new, investment grade debt will be issued --------------------------------------------------------------------------- ___________________________________________________________________________ 10 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- THE TRANSACTION ---------------------------------------------------------------------------- [GRAPH APPEARS HERE] * PETRO PUBLIC SHAREHOLDERS EXCHANGE FOR SENIOR SUBORDINATED; INSIDERS EXCHANGE FOR A COMBINATION OF SENIOR SUBORDINATED AND/OR SUBORDINATED + G.P. UNITS. THE MLP SELLS COMMON UNITS AND USES THE PROCEEDS TO RECAPITALIZE AND REFINANCE. ---------------------------------------------------------------------------- 11 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- THE TRANSACTION ---------------------------------------------------------------------------
STAGE 1 -- THE EXCHANGE -------------------------------------------------------- ---------------------------------------------------------- CURRENT CONSIDERATION RECEIVED -------------------------------------------------------- ---------------------------------------------------------- SHARES UNITS PETRO SHAREHOLDER TYPE (000'S) TYPE OF MLP INTEREST (000'S) -------------------------------------------------------- ---------------------------------------------------------- Holders of Class A Only 16,355 Senior Subordinated Units 3,520 Holders of Class A and C Shares Shares Permitted To Be Exchanged Into Senior Subordinated Units 3,500 Senior Subordinated Units 753 Shares To Be Exchanged Into Subordinated Units and GP Interest 5,904 Subordinated and General Partner Interest 1,186 ------ ----- Sub Total 9,404 ------ TOTAL 25,759 TOTAL 5,459 -------------------------------------------------------- ---------------------------------------------------------- --------------------------------------------------------------------------- 12
STAGE 2 -- THE RECAPITALIZATION --------------------------------------------------------------------------------- UNITS OUTSTANDING AT MLP AFTER RECAPITALIZATION (000'S) --------------------------------------------------------------------------------- Common Units Currently Outstanding 2,875 Newly Issued ($139.0 million) 6,046 ------ Total 8,921 Senior Subordinated Units 4,273 Subordinated Units and GP Interest 1,186 ------ TOTAL 14,380 --------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- PART III BENEFITS OF THE TRANSACTION --------------------------------------------------------------------------- 13 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- BENEFITS TO PETRO SHAREHOLDERS - -------------------------------------------------------------------------------- . Premium to market. -- At $4.50 per share, the exchange represents approximately a 50% premium to market . Higher valuation multiples. -- MLPS typically trade at 9-10x EBITDA . Enhanced growth potential due to greater access to capital. -- Branding and internal marketing -- Improved productivity through capital investment -- Acquisitions . Lower overall cost of capital. -- New debt at +/- 8% vs. 12% existing debt -- Equity capital with limited upside . Greater size and liquidity. -- Implied equity market value quadruples to over $300 million . Greater financial flexibility. -- Extend maturities through refinancing -- Improved covenants due to investment grade rating --------------------------------------------------------------------------- 14 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- BENEFITS TO STAR UNITHOLDERS --------------------------------------------------------------------------- DESPITE ATTRACTIVE FINANCIAL PERFORMANCE, STAR TRADES AT A HIGHER YIELD THAN ITS PEER GROUP. THIS IS DUE TO LACK OF SIZE, GROWTH POTENTIAL, AND GEOGRAPHIC DIVERSITY. AS A RESULT OF THE TRANSACTIONS, STAR HOLDERS WILL BENEFIT FROM THE FOLLOWING: . Increased earnings and distributions. . Increase MQD to $2.30 per unit. . Higher total distribution coverage.
------------------------------------------------------------------------ FROM TO /(1)/ ------------------------------------------------------------------------ Distributable Cash per unit $2.28 $2.84 Distributions per unit $2.20 $2.30 ------------------------------------------------------------------------ . Larger size equity market capitalization. . Provides vehicle for growth in otherwise stagnant market. . New identity following aborted sale. ____________ (1) Based on weather normalized 1997 results as provided by the Company. --------------------------------------------------------------------------- 15
------------------------------------------------------------------------ FROM TO /(1)/ ------------------------------------------------------------------------ Coverage on Common Units 1.9x 2.0x Coverage on Total Units 1.0x 1.2x ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- BENEFITS OF THE TRANSACTION --------------------------------------------------------------------------- DISTRIBUTION INCREASE OF SELECTED MLPS SINCE IPO (CURRENT IMPLIED YIELD)/(1)/ [GRAPHS APPEARS HERE] * INVESTORS HAVE REWARDED INCREASED CASH FLOW WITH ATTRACTIVE VALUATIONS. __________________ (1) As of 7/22/07. --------------------------------------------------------------------------- 16 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- BENEFITS OF THE TRANSACTION --------------------------------------------------------------------------- IMPLIED MARKET VALUE OF EQUITY OF SELECTED PROPANE MLPS (CURRENT IMPLIED YIELD)/(1)/ [GRAPH APPEARS HERE] * THE LARGER PROPANE MLPS HAVE GREATER MARKET LIQUIDITY AND INVESTOR AWARENESS AND ARE SUBSEQUENTLY OFTEN REWARDED WITH LOWER YIELDS. _______________________________ (1) As of 7/22/97. Implied Market Value of Equity includes all Common, Subordinated and GP interests. --------------------------------------------------------------------------- 17 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- BENEFITS OF THE TRANSACTIONS --------------------------------------------------------------------------- PUBLIC UNIT DISTRIBUTION COVERAGE OF SELECTED PROPANE MLPS (CURRENT IMPLIED YIELD)/(1)/ [GRAPH APPEARS HERE] * PROPANE MLPS WITH HIGHER DISTRIBUTION COVERAGE PROVIDE INVESTORS WITH ADDITIONAL SECURITY, RESULTING IN IMPROVED MARKET VALUATIONS. __________________________ (1) As of 7/22/97. --------------------------------------------------------------------------- 18 - -------------------------------------------------------------------------------- Petroleum Heat & Co., Inc. - -------------------------------------------------------------------------------- PART IV ECONOMICS OF THE TRANSACTION --------------------------------------------------------------------------- 19 - -------------------------------------------------------------------------------- Petroleum Heat & Co., Inc. - -------------------------------------------------------------------------------- TRANSACTION ASSUMPTIONS --------------------------------------------------------------------------- PETROLEUM HEAT & POWER STAR GAS PARTNERS --------------------------------------------------------------------------- ALL CASES --------------------------------------------------------------------------- $2.75 Million in Acquisitions Per Year at 6.5X EBITDA 2% Internal Growth 2.0 Million International Growth CapEx per Year 3.0 Million in Maintenance Growth CapEx per Year --------------------------------------------------------------------------- Scenario 1 Scenario 2 --------------------------------------------------------------------------- 30 Year Weather 15 Year Weather --------------------------------------------------------------------------- ____________________ (1) Petro pro forma for the transaction assumes $25.0 million in acquisitions per year. --------------------------------------------------------------------------- 20
BASE CARE OPTIMISTIC CARE PESSIMISTIC CARE ------------------------------- ------------------------------ ----------------------------- $3.5 Million Maint. CapEx $3.5 Million Maint. CapEx $3.5 Million Maint. CapEx 15-Year Weather 30-Year Weather 15-Year Weather 60% productivity improvement 60% productivity improvement 60% productivity improvement ------------------------------- ------------------------------ ----------------------------- ATTRITION ACQUISITIONS/(1)/ ATTRITION ACQUISITIONS/(1)/ ATTRITION ACQUISITIONS/(1)/ 1998 5.0% $15.0 MILLION 4.0% $25.0 MILLION 5.0% $15.0 MILLION 1999 3.5 15.0% 3.0 25.0 4.0 7.5 2000 3.5 22.5 2.0 25.0 4.0 -- 2001 1.6 22.5 1.0 25.0 4.0 -- - -------------------------------------------------------------------------------- Petroelum Heat & Power Co., - -------------------------------------------------------------------------------- ECONOMICS OF THE TRANSACTION --------------------------------------------------------------------------- IMPACT OF TRANSACTION ON CASH DISTRIBUTION AND VALUE TO PETRO SHAREHOLDERS _________________________ (1) Assumes dividends are cut in order to conserve cash and fund acquisitions. - ------------------------------------------------------------------------------- 21
--------------------------------------------------------------------------------------------------------------------- BASE CASE OPTIMISTIC CASE PESSIMISTIC CASE CURRENT/(1)/ PRO FORMA CURRENT/(1)/ PRO FORMA CURRENT/(1)/ PRO FORMA --------------------------------------------------------------------------------------------------------------------- 1997 $0.30 $ 0.49 $ 0.30 $ 0.63 $0.30 $0.49 1998 - 0.51 - 0.68 - 0.49 1999 - 0.54 - 0.82 - 0.49 2000 - 0.57 - 0.93 - 0.49 2001 - 0.78 - 0.98 - 0.49 Terminal Share Value $7.53 $ 9.45 $11.86 $12.25 $2.60 $5.44 Basis for Terminal Value 8.0x EBITDA 8.25% Yield 8.0x EBITDA 8.0% Yield 7.0x EBITDA 9.0% Yield Total Future Value $7.92 $12.70 $12.25 $16.78 $2.99 $8.23 --------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- ECONOMICS OF THE TRANSACTION - -------------------------------------------------------------------------------- EFFECT OF TRANSACTION ON STAR UNITHOLDER DISTRIBUTIONS AND UNIT VALUE -- BASE CASE
-------------------------------------------------------------------------------------------------------------------- CURRENT DISTRIBUTABLE CASH ------------------------------------------------------------------------------------------------ ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 -------------------------------------------------------------------------------------------------------------------- Earned $ 1.95 $ 2.28 $ 2.09 $ 2.19 $ 2.30 $ 2.42 Paid 2.20 2.20 2.20 2.20 2.30 2.40 Yield 10.0% 10.0% 10.0% 9.5% 9.0% 9.0% Unit Value $22.00 $22.00 $22.00 $23.16 $25.56 $26.67 -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 22
-------------------------------------------------------------------------------------------------------------------- PRO FORMA DISTRIBUTABLE CASH ------------------------------------------------------------------------------------------------ ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 -------------------------------------------------------------------------------------------------------------------- Earned $ 2.17 $ 2.84 $ 2.64 $ 2.92 $ 3.12 $ 3.24 Paid 2.30 2.30 2.40 2.50 2.60 2.70 Yield 10.0% 10.0% 10.0% 9.0% 8.0% 7.5% Unit Value $22.00 $23.00 $24.00 $26.32 $32.50 $36.00 -------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - ------------------------------------------------------------------------------- ECONOMICS OF THE TRANSACTION -------------------------------------------------------------------------- EFFECT OF TRANSACTION ON STAR UNITHOLDER DISTRIBUTIONS AND UNIT VALUE -- BASE CASE
------------------------------------------------------------------------------------------------ CURRENT DISTRIBUTABLE CASH ----------------------------------------------------------------------------- ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ------------------------------------------------------------------------------------------------ Earned $ 1.95 $ 2.28 $ 2.38 $ 2.50 $ 2.63 $ 2.77 Paid 2.20 2.20 2.38 2.49 2.60 2.72 Yield 10.0% 10.0% 10.0% 9.5% 9.0% 8.5% Unit Value $22.00 $22.00 $23.80 $26.21 $28.89 $32.00 ------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------- 23
------------------------------------------------------------------------------------------------ PRO FORMA DISTRIBUTABLE CASH ----------------------------------------------------------------------------- ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ------------------------------------------------------------------------------------------------ Earned $ 2.17 $ 2.84 $ 2.98 $ 3.36 $ 3.63 $ 3.77 Paid 2.30 2.30 2.85 3.04 3.18 3.25 Yield 10.0% 10.0% 10.0% 9.0% 8.0% 8.0% Unit Value $23.00 $23.00 $28.50 $33.78 $39.75 $40.63 ------------------------------------------------------------------------------------------------ - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- ECONOMICS OF THE TRANSACTION --------------------------------------------------------------------------- EFFECT OF TRANSACTION ON STAR UNITHOLDER DISTRIBUTIONS AND UNIT VALUE -- PESSIMISTIC CASE
------------------------------------------------------------------------------------------------ CURRENT DISTRIBUTABLE CASH ----------------------------------------------------------------------------- ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ------------------------------------------------------------------------------------------------ Earned $ 1.95 $ 2.28 $ 2.09 $ 2.19 $ 2.30 $ 2.42 Paid 2.20 2.20 2.20 2.20 2.20 2.20 Yield 10.0% 10.0% 10.0% 9.5% 9.0% 9.0% Unit Value $ 22.00 $ 22.00 $ 22.00 $23.16 $24.44 $24.44 ------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------- 24
------------------------------------------------------------------------------------------------ PRO FORMA DISTRIBUTABLE CASH ----------------------------------------------------------------------------- ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ------------------------------------------------------------------------------------------------ Earned $ 2.17 $ 2.84 $ 2.64 $ 2.87 $ 2.90 $ 2.61 Paid 2.30 2.30 2.30 2.30 2.30 2.30 Yield 10.0% 10.0% 10.0% 9.5% 9.0% 9.0% Unit Value $ 23.00 $ 23.00 $ 23.00 $24.21 $25.56 $ 25.56 ------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- ECONOMICS OF THE TRANSACTION --------------------------------------------------------------------------- EFFECT OF THE TRANSACTION ON STAR UNIT COVERAGE -- BASE CASE
-------------------------------------------------------------------------------------------------- CURRENT COVERAGE ------------------------------------------------------------------------------- ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 -------------------------------------------------------------------------------------------------- Coverage on Common Units 1.7x 1.9x 1.8x 1.9x 2.0x 2.1x Coverage on Total Units 0.9 1.0 1.0 1.0 1.0 1.1 -------------------------------------------------------------------------------------------------- ________________________________ /(1)/ Based on $2.30 minimum quarterly distribution. --------------------------------------------------------------------------- 25
-------------------------------------------------------------------------------------------------- PRO FORMA COVERAGE/(1)/ ------------------------------------------------------------------------------- ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 -------------------------------------------------------------------------------------------------- Coverage on Common Units 1.5x 2.0x 1.9x 2.1x 2.2x 2.3x Coverage on Total Units 0.9 1.2 1.2 1.3 1.4 1.4 -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- ECONOMICS OF THE TRANSACTION --------------------------------------------------------------------------- EFFECT OF TRANSACTION ON STAR UNIT COVERAGE -- OPTIMISTIC CASE
----------------------------------------------------------------------------------- CURRENT COVERAGE ---------------------------------------------------------- ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ----------------------------------------------------------------------------------- Coverage on Common Units 1.7x 1.9x 2.0x 2.1x 2.2x 2.4x Coverage on Total Units 0.9 1.0 1.1 1.1 1.2 1.3 ----------------------------------------------------------------------------------- ____________________________ (1) Based on $2.30 minimum quarterly distribution. ---------------------------------------------------------------------------- 26
----------------------------------------------------------------------------------- PRO FORMA COVERAGE /(1)/ ---------------------------------------------------------- ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ----------------------------------------------------------------------------------- Coverage on Common Units 1.5x 2.0x 2.1x 2.4x 2.5x 2.6x Coverage on Total Units 0.9 1.2 1.3 1.5 1.6 1.6 ----------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- ECONOMICS OF THE TRANSACTION --------------------------------------------------------------------------- EFFECT OF TRANSACTION ON STAR UNIT COVERAGE -- OPTIMISTIC CASE
----------------------------------------------------------------------------------- CURRENT COVERAGE ---------------------------------------------------------- ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ----------------------------------------------------------------------------------- Coverage on Common Units 1.7x 1.9x 1.8x 1.9x 2.0x 2.1x Coverage on Total Units 0.9 1.0 1.0 1.0 1.0 1.1 ----------------------------------------------------------------------------------- __________________________ (1) Based on $2.30 minimum quarterly distribution. --------------------------------------------------------------------------- 27
----------------------------------------------------------------------------------- PRO FORMA COVERAGE /(1)/ ---------------------------------------------------------- ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ----------------------------------------------------------------------------------- Coverage on Common Units 1.5x 2.0x 1.9x 2.0x 2.0x 1.9x Coverage on Total Units 0.9 1.2 1.2 1.3 1.3 1.1 ----------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- PART V COMPARABLE MLP ANALYSIS --------------------------------------------------------------------------- 28 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- COMPARABLE MLP ANALYSIS ____________________ (1) Implied Market Value of Equity implies value of total equity based on value of public units. (2) Implied Market Capitalization equals Implied Market Value of Equity plus net debt and other long-term liabilities. (3) Based on most recent distribution declared on an annualized basis. (4) Indicated Distribution per Unit reflects a Quarterly Distribution of $0.88 as proposed by the General Partner on June 24, 1997. The increased distribution is subject to approval by the G.P.'s Board of Directors and will be paid August 1997 to unitholders of record on June 16, 1997. (5) Pro forma for the expected distribution increase from $0.63 per unit per quarter to $1.00 per unit. (6) Pro forma for the public offering of 7,500,000 Common Units. (7) Indicated Distribution per Unit reflects an increased Quarterly Distribution of $0.78 as announced on July 17, 1997. The Increased distribution is payable August 14, 1997, to unitholders of record on July 31, 1997. (8) Indicated Distribution per Unit reflects an increased Quarterly Distribution of $0.45 as announced on July 21, 1997. The Increased distribution is payable August 14, 1997, to unitholders of record on July 31, 1997. (9) Distributable Cash Flow is based upon income statement items adjusted for approximate 30% minority interest. (10) Indicated Distribution per Unit reflects a Quarterly Distribution of $0.80 as announced by the General Partner on July 14, 1997. The increased distribution is payable August 8, 1997 to unitholders of record on July 31, 1997. (11) Pro forma for the initial public offering of 9,821,000 limited partner units and the private placement of $220 million of Senior Secured Notes. (12) Pro forma for the $90 million acquisition of Skelgas on April 30, 1996. ________________________________________________________________________________ 29
---------------------------------------------------------------------------------------------------------------------------- COMPARATIVE ANALYSIS OF SELECTED MLPS ---------------------------------------------------------------------------------------------------------------------------- ($ in millions, except per share data) MARKET IMPLIED VALUE OF MARKET IMPLIED INDICATED CLOSING PUBLIC VALUE OF MARKET DISTRIBUTION IMPLIED COMPANY 22-JUL-97 EQUITY EQUITY/(1)/ CAPITALIZATION/(2)/ PER UNIT YIELD/(3)/ ---------------------------------------------------------------------------------------------------------------------------- PIPELINES Buckeye Partners/(4)/ $49.13 $592.8 $ 598.8 $ 823.9 $3.52 7.2% Kinder Morgan Energy Partners/(5)/ 62.13 404.4 412.7 564.5 4.00 6.4 EOTT Energy Partners 18.88 188.8 362.7 442.9 1.90 10.1 Genesis Energy/(6)/ 20.38 175.7 224.1 212.6 2.00 9.8 Kaneb Pipe Line Partners 358.3 489.9 627.9 Senior Preference Units 30.63 2.40 7.8 Preference Units 29.31 2.40 8.2 Lakehead Pipeline Partners/(7)/ 41.88 841.3 1,025.6 1,445.2 3.12 7.5 Leviathan Gas Pipeline Partners/(8)/ 25.06 453.0 623.2 848.4 1.80 7.2 Northern Border Partners/(9)/ 29.94 592.2 800.4 1,295.8 2.20 7.3 Santa Fe Pacific Pipeline Partners 40.38 773.1 788.9 1,166.9 3.00 7.4 TEPPCO Partners/(10)/ 49.00 710.5 728.8 1,022.4 3.20 6.5 PIPELINE MEAN $2.69 7.8% PIPELINE MEDIAN 2.40 7.4 PROPANE AmeriGas Partners $25.69 $566.7 $1,096.8 $1,823.7 $2.20 8.6% Cornerstone Propane Partners/(11)/ 22.50 221.0 377.0 608.7 2.16 9.6 Ferrellgas Partners/(12)/ 22.69 331.5 745.1 1,220.0 2.00 8.8 Heritage Propane Partners 22.75 97.5 185.4 324.4 2.00 8.8 National Propane Partners $20.38 $136.5 $ 233.6 $ 358.8 $2.10 10.3% Star Gas Partners 22.50 64.7 121.0 207.5 2.20 9.8 Suburban Propane Partners 19.25 415.1 564.2 1,106.7 2.00 10.4 PROPANE MEAN $2.09 9.5% PROPANE MEDIAN 2.10 9.6 ---------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------ COMPARATIVE ANALYSIS OF SELECTED MLPS ------------------------------------------------------------------------------------------------------------------ ($ in millions, except per share data) LTM DISTRIBUTABLE CASH FLOW/ LTM DISTRIBUTABLE CASH FLOW/ ---------------------------- ---------------------------- INDICATED INDICATED LTM LTM DISTRIBUTION DISTRIBUTION DISTRIBUTION DISTRIBUTION COMPANY TO PUBLIC UNITS TO TOTAL UNITS TO PUBLIC UNITS TO TOTAL UNITS ------------------------------------------------------------------------------------------------------------------ PIPELINES Buckeye Partners/(4)/ 1.1x 1.0x 1.2x 1.2x Kinder Morgan Energy Partners/(5)/ 0.5 0.5 0.8 0.8 EOTT Energy Partners 2.0 1.1 2.0 1.1 Genesis Energy/(6)/ 1.2 1.0 NM NM Kaneb Pipe Line Partners Senior Preference Units 2.5 1.1 2.6 1.1 Preference Units 1.5 1.1 1.6 1.1 Lakehead Pipeline Partners/(7)/ 1.6 1.3 1.9 1.6 Leviathan Gas Pipeline Partners/(8)/ 2.3 1.7 2.8 2.1 Northern Border Partners/(9)/ 1.8 1.3 1.8 1.3 Santa Fe Pacific Pipeline Partners 1.4 1.4 1.4 1.4 TEPPCO Partners/(10)/ 1.3 1.2 1.4 1.3 PIPELINE MEAN 1.6X 1.2X 1.7X 1.3X PIPELINE MEDIAN 1.5 1.1 1.7 1.3 PROPANE AmeriGas Partners 1.6x 0.8x 1.6x 0.8x Cornerstone Propane Partners/(11)/ 1.2 0.7 NM NM Ferrellgas Partners/(12)/ 1.8 0.8 1.8 0.8 Heritage Propane Partners 1.5 0.8 1.6 0.8 National Propane Partners 0.7x 0.4x 0.7x 0.4x Star Gas Partners 1.6 0.9 1.6 0.9 Suburban Propane Partners 0.7 0.5 0.7 0.5 PROPANE MEAN 1.3X 0.7X 1.3X 0.7X PROPANE MEDIAN 1.5 0.8 1.6 0.8 ------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------- COMPARATIVE ANALYSIS OF SELECTED MLPS ---------------------------------------------------------------------------------------------- ($ in millions, except per share data) LTD/MARKET EBITDA/ MARKET CAP/ COMPANY CAPITALIZATION INTEREST EXP. EBITDA ---------------------------------------------------------------------------------------------- PIPELINES Buckeye Partners/(4)/ 24.0% 3.7x 10.1x Kinder Morgan Energy Partners/(5)/ 28.4 2.6 16.8 EOTT Energy Partners 0.0 11.6 9.2 Genesis Energy/(6)/ 0.0 NM 8.9 Kaneb Pipe Line Partners 22.1 5.6 10.0 Senior Preference Units Preference Units Lakehead Pipeline Partners/(7)/ 32.0 3.9 9.9 Leviathan Gas Pipeline Partners/(8)/ 25.8 NM 10.2 Northern Border Partners/(9)/ 25.9 3.7 10.7 Santa Fe Pacific Pipeline Partners 30.4 3.6 8.8 TEPPCO Partners/(10)/ 30.3 3.1 9.8 PIPELINE MEAN 21.9% 4.8X 10.5X PIPELINE MEDIAN 25.8 3.7 9.9 PROPANE AmeriGas Partners 37.7% 2.4x 11.8x Cornerstone Propane Partners/(11)/ 38.2 2.7 18.4 Ferrellgas Partners/(12)/ 37.6 2.5 10.6 Heritage Propane Partners 41.2 2.3 11.9 National Propane Partners 35.7% 2.0x 14.0x Star Gas Partners 41.0 2.9 10.4 Suburban Propane Partners 38.7 2.7 12.3 PROPANE MEAN 38.6% 2.5X 12.8X PROPANE MEDIAN 38.2 2.5 11.9 ---------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- COMPARABLE MLP ANALYSIS _____________________ (1) As of 7/22/97. - -------------------------------------------------------------------------------- 30
---------------------------------------------------------------------------------------------------------------- DIVERSIFIED MLPS ------------------------------------------------------------------------------------------------------------ IMPLIED MARKET DIVERSIFIED IMPLIED VALUE OF EQUITY LTM DISTRIBUTION COVERAGE --------------------------- LINES OF BUSINESS YIELD /(1)/ (MILLIONS) COMMON UNITS TOTAL UNITS ------------------------------------------------------------------------------------------------------------ Genesis Energy Crude pipeline 9.8% $224.1 1.2x 1.0x Crude marketing Kaneb Pipe Line Products pipeline 8.2% $489.9 1.5 1.1 Storage terminals Kinder Morgan Products pipeline 6.4% $412.7 0.8 0.8 Coal storage Coal transfer NGL fractionation Gas processing Leviathan Gas Pipeline Gas pipeline 7.2% $623.2 2.3 1.7 Crude pipeline Oil & gas production ------------------------------------------------------------------------------------------------------------ - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- STEPS OF THE TRANSACTION AND TAX IMPLICATIONS --------------------------------------------------------------------------- 31 - -------------------------------------------------------------------------------- Petroleum Heat & Power Co., Inc. - -------------------------------------------------------------------------------- STEPS OF THE TRANSACTION AND TAX IMPLICATIONS ----------------------------------------------------------------------------- STEPS OF THE TRANSACTION . STEP ONE: Star Gas Corp. merges into Petro. Petro obtains from Star Gas -------- Corp. the GP units of MLP and OLP and MLP subordinated units. Petro transfers the GP units to an LLC. The subordinated units are designated Senior Subordinated Units. . STEP TWO: Petro transfers assets to MLP in exchange for additional Senior -------- Subordinated Units so as to have a total number of Senior Subordinated Units equal in value to the value of the Petro Class A Common Stock held by the public. . STEP THREE: Petro exchanges all LLC shares for an equivalent value of ---------- Class C shares held by Petro insiders. . STEP FOUR: The Petro insiders transfer their remaining Class A and Class C --------- Stock to the MLP in exchange for Junior Subordinated Units. . STEP FIVE: OLP organized Newco. MLP transfers to OLP and OLP transfer to --------- Newco, all Petro shares owned by the MLP, as acquired by MLP from the Petro insiders. . STEP SIX: Newco merges with and into Petro. Class A Shares owned by the -------- public are changed into Senior Subordinated Units. Class A and Class C shares owned by Newco are canceled. Newco shares owned by OLP are changed into Class A Petro shares. CORRESPONDING TAX IMPLICATION . Tax free. . Tax free. . This triggers tax at Petro measured by the value of the LLC shares in excess of Petro's basis in them and tax at the Petro insider level measured by the value of the LLC shares in excess of their basis in the Petro shares surrendered. . Tax free. . Tax free. . This step is tax free to Newco and OLP. Petro will recognize gain equal to the value of the Senior Subordinated Units in excess of Petro's basis in them. The public shareholders will recognize gain (or loss) measured by the excess (or deficit) in value of the Senior Subordinated Units as compared to their basis in the Petro Class A Common Stock. ----------------------------------------------------------------------------- 32 EXHIBIT 99(B)(4) - -------------------------------------------------------------------------------- Confidential - -------------------------------------------------------------------------------- STAR GAS PARTNERS, L.P. BOARD OF DIRECTORS PRESENTATION January 26, 1998 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- TABLE OF CONTENTS --------------------------------------------------------------------------- I SITUATION ANALYSIS II PETRO'S STRATEGY III THE TRANSACTION IV BENEFITS OF THE TRANSACTION V ECONOMICS OF THE TRANSACTION VI COMPARABLE MLP ANALYSIS Exhibit I Steps of the Transaction and Tax Implications --------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- PART I SITUATION ANALYSIS --------------------------------------------------------------------------- 1 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- SITUATION ANALYSIS --------------------------------------------------------------------------- PROPANE BUSINESS . Pricing on all acquisitions has become extremely competitive as over $1.5 billion of equity has come into the industry since 1994. . Large acquisitions have been scarce and multiples for even small deals have expanded. . Wholesale price spike during the 1996-1997 season revealed another level of uncertainty, even for those companies (like Star) which profited from the spike. . Warm winter in the Northeast compounded the problem for many players. . The market is starting to question whether propane MLPs are really growth vehicles, as many have failed to demonstrate internal growth. . The market is also starting to question if the weather is ever normal (it always seems to be abnormally warm in some section, which more than offsets good results elsewhere). --------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- SITUATION ANALYSIS --------------------------------------------------------------------------- IN SPITE OF SOLID PERFORMANCE AND THE RECENT PEARL ACQUISITION, STAR HAS BEEN UNABLE TO IMPROVE ITS VALUATION RELATIVE TO OTHER MLPs STAR GAS YIELD [GRAPH APPEARS HERE] ________________________ (1) Index is a composite of APU, CNO, FGP, HPG, NPL and SPH. --------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- SITUATION ANALYSIS --------------------------------------------------------------------------- CURRENT LTM COVERAGES ON TOTAL UNITS [GRAPH APPEARS HERE] CURRENT YIELDS [GRAPH APPEARS HERE] * ONLY NATIONAL PROPANE AND SUBURBAN -- WHICH ARE HAVING OPERATIONAL PROBLEMS -- TRADE AT A HIGHER YIELD THAN STAR. __________________ (1) As of 1/23/98. --------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- SITUATION ANALYSIS --------------------------------------------------------------------------- IMPLIED MARKET VALUE OF EQUITY OF SELECTED PROPANE MLPS (CURRENT IMPLIED YIELD) /(1)/ [GRAPH APPEARS HERE] * THE LARGER PROPANE MLPS HAVE GREATER MARKET LIQUIDITY AND INVESTOR AWARENESS AND ARE SUBSEQUENTLY OFTEN REWARDED WITH LOWER YIELDS. * AMERIGAS AND STAR HAVE COMPARABLE COVERAGES, BUT AMERIGAS TRADES AT A 100 B.P. PREMIUM - PRIMARILY DUE TO SIZE. ____________________ (1) As of 1/23/98. Implied Market Value of Equity includes all Common, Subordinated and GP interests. --------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- SITUATION ANALYSIS --------------------------------------------------------------------------- STAR CONTINUES TO LAG BEHIND OTHER MLPS IN TERMS OF ACQUISITIONS, WHERE STAR'S ABILITY TO COMPETE IS LIMITED . Management's limited propane experience lowers deal flow . Geographic concentration limits "blend-in" opportunities . Larger and better capitalized players compete for the same assets --------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- SITUATION ANALYSIS --------------------------------------------------------------------------- SINCE GOING PUBLIC, MOST PROPANE MLPS HAVE MADE ACQUISITIONS AT A DISAPPOINTING PACE PERCENTAGE GALLONS ACQUIRED AS A % OF ORIGINAL GALLONS/(1)/ [GRAPH APPEARS HERE] * INVESTORS HAVE RESPONDED FAVORABLY TO ACQUISITION OPPORTUNITIES. THE ENTITIES WHICH HAVE GROWN THE MOST ON A PERCENTAGE BASIS (FGP AND HPG) TRADE AT PREMIUM MULTIPLES. ____________ (1) As of 1/23/98. --------------------------------------------------------------------------- 7 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- SITUATION ANALYSIS ------------------------------------------------------------------------- HEATING OIL BUSINESS . Petro remains the dominant force in the heating oil business, selling at least 3 times as much as its nearest competitor. . Petro also dominates the acquisition market, acquiring a substantial share of all heating oil businesses sold. . While the company has constantly made acquisitions over the last 5 years, higher than expected attrition rates have resulted in little EBITDA growth. . Operational changes which were instituted on a small scale in 1996-1997 are expected to reduce the attrition rates over the next several years. . It is anticipated that the acquisition market will continue to be strong as more owners approach retirement age and capital gain tax relief appears in sight. --------------------------------------------------------------------------- 8 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- PART II PETRO'S STRATEGY --------------------------------------------------------------------------- 9 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- PETRO'S STRATEGY --------------------------------------------------------------------------- PETRO WILL TAKE ADVANTAGE OF FAVORABLE CONDITIONS IN THE HEATING OIL MARKET . Significant competitive advantages. -- Industry is populated by thousands of relatively small local family owned businesses -- Higher concentration of customers than in the propane industry creates critical mass -- Sufficient financial resources to make key strategic acquisitions -- Management openness and ability to modify historical operating practices . Consumer attitudes facilitate creation of a brand image. -- Utility product that is delivered without affirmative purchase decision -- 92% of customers do not know competitor's prices -- 35% of consumers do not know the name of another heating oil company -- Only 34% know the name of only one other company (no one specific competitor) . Unique size provides significant opportunities. -- Engage professional management and achieve efficient organizational structure -- Enhance MIS and communication technology -- Operating and marketing efficiencies --------------------------------------------------------------------------- 10 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- PETRO'S STRATEGY --------------------------------------------------------------------------- ANTICIPATED BENEFITS FROM STRATEGY . Reduced operating costs and increased profitability. . Growth through internal marketing. . Attract new customers. . Retain existing customers. . Improve products and services. --------------------------------------------------------------------------- 11 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- PETRO'S STRATEGY --------------------------------------------------------------------------- BY CREATING A BRAND IMAGE, PETRO CAN TARGET A NEW CUSTOMER BASE . Consumers moving into oil heated homes. . Other fuel oil dealers' dissatisfied customers. -- Represents 8% to 10% of market . Customers of other nationally branded companies offering home delivered products and services. -- HFS real estate family of companies (Century 21, ERA, Coldwell Banker) -- Security systems -- Bottled water -- Extermination -- Electricity -- Lawn care * CREATING A BRAND IMAGE WOULD PROVIDE PETRO THE OPPORTUNITY TO FILL THE VOID IN THE INDUSTRY BY BECOMING THE ONLY CONSUMER-RECOGNIZABLE HEATING OIL COMPANY. --------------------------------------------------------------------------- 12 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- PETRO'S STRATEGY --------------------------------------------------------------------------- IMPROVE EXISTING CUSTOMER RETENTION . Improve product thereby increasing customer satisfaction and reducing triggering events. -- Reduce oil runouts -- Reduce incomplete and repeat equipment repairs -- Provide unique on-time repairs . All employees function as salesmen. . Segmented and unbundled pricing. . Create deeper customer relationships. --------------------------------------------------------------------------- 13 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- PETRO'S STRATEGY --------------------------------------------------------------------------- CREATE SEGMENTED AND UNBUNDLED PRICING . Heating equipment repair and maintenance revenues lower than cost. -- Bundled with and subsidized by oil price . Unlimited annual service contracts. . Tailor unbundled pricing packages for different customer segments. -- Shift charges away from more visible oil to less sensitive equipment repair -- Replace unlimited service contracts with co-pay program based on usage --------------------------------------------------------------------------- 14 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- PETRO'S STRATEGY --------------------------------------------------------------------------- CREATE DEEPER CUSTOMER RELATIONSHIPS . Offer rationally related products requiring similar operating expertise. -- Air conditioning -- Electric repair -- Plumbing . Create affinity group buying benefits with cross marketing partners. -- Security systems -- Bottled water -- Extermination -- Electricity -- Lawn care --------------------------------------------------------------------------- 15 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- Part III THE TRANSACTION --------------------------------------------------------------------------- 16 - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- THE TRANSACTION -------------------------------------------------------------------------- OVERVIEW . Star's limited size relative to other comparable MLPs restricts both its financial flexibility and access to strategic acquisitions. . We believe that a public stock corporation is not the optimal format for Petro. __ No direct comparables __ Rapid amortization of customer lists results in no earnings __ Perceived limited growth in heating oil industry __ Small capitalization results in limited research coverage . Furthermore, Petro's leveraged capital structure also limits its financial flexibility and growth opportunities. * AS A RESULT, STAR GAS TRADES AT A SLIGHT DISCOUNT TO ITS PEERS, WHILE PETRO'S STOCK HAS PERFORMED POORLY AND IS NOT LIKELY TO ACHIEVE FULL VALUATION EVEN IF OPERATIONS IMPROVE. -------------------------------------------------------------------------- 17 - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- THE TRANSACTION -------------------------------------------------------------------------- IN ORDER TO ADDRESS THESE VALUATION ISSUES, STAR GAS SHOULD CONSIDER THE BENEFITS OF A MERGER WITH PETRO . The combination of the two companies would result in a sizable MLP (approximately $325 million implied equity value) which translates into better valuation and greater liquidity. . The new entity would have substantially better access to capital to fund future growth. . Concurrent with the merger, the issuance of new equity would restructure and delever the balance sheet. . The restructuring would be accretive to distributable cash flow. * THE COMBINED ENTITY WOULD HAVE THE INVESTMENT STORY TO ATTRACT RESEARCH COVERAGE AND WOULD BENEFIT BOTH STAR GAS AND PETRO SHARE/UNIT HOLDERS. -------------------------------------------------------------------------- 18 - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- THE TRANSACTION -------------------------------------------------------------------------- CERTAIN FACTORS MUST BE INHERENT TO THE TRANSACTION IN ORDER FOR THE MERGER TO BE ATTRACTIVE TO STAR UNITHOLDERS . The transaction must be substantially accretive to Star Unitholders based on current operations. . Petro shareholders must be subordinate to existing Star Unitholders. . The indicated distribution and Minimum Quarterly Distribution ("MQD") must be increased from their current levels. -------------------------------------------------------------------------- 19 - ------------------------------------------------------------------------------- Star Gas Partners L.P. - ------------------------------------------------------------------------------- THE TRANSACTION -------------------------------------------------------------------------- THE TRANSACTIN INVOLVES TWO SEPARATE STAGES: -------------------------------------------------------------------------- STAGE 1-- THE EXCHANGE -------------------------------------------------------------------------- PETRO SHAREHOLDERS EXCHANGE THEIR COMMON STOCK FOR STAR GAS MASTER LIMIT PARTNERSHIP UNITS AT $3.15/SHARE . Shareholders who hold only Class A shares exchange into Senior Subordinated MLP units. . Senior Subordinated MLP Units valued at + 10% discount to Common Units. . "Inside" shareholders /(1) /exchange either into Senior Subordinated MLP Units or Subordinated Units plus the General Partnership Interest. . Senior Subordinated Units offered to "Insiders" will be capped at 3.5 million Petro shares in order to provide adequate coverage to Star Common Units. . Subordinated Units valued at + 20% discount to Common Units. . All Senior Subordinated and Subordinated Units convert to Common Units after 3 years of "Earn & Pay" of $2.30 (i.e. increase the MQD on the Common Units). -------------------------------------------------------------------------- ___________________ (1) Insiders for the purposes of this dicussion are those individuals who own Class C and Class A common shares. -------------------------------------------------------------------------- 20 - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- THE TRANSACTION -------------------------------------------------------------------------- THE TRANSACTION INVOLVES TWO SEPARATE STAGES: -------------------------------------------------------------------------- STAGE 2 -- THE RECAPITALIZATION -------------------------------------------------------------------------- APPROXIMATELY $320 MILLION OF PETRO DEBT AND PREFERRED STOCK ARE REFINANCED . Existing issues will be either redeemed, exchanged, defeased or tendered for, depending on issue. . Approximately $140 million of new Star equity will be raised through the sale of Common Units. . Approximately $125 million of new debt will be issued. -------------------------------------------------------------------------- -------------------------------------------------------------------------- 21 - -------------------------------------------------------------------------------- STAR GAS PARTNERS, L.P - -------------------------------------------------------------------------------- THE TRANSACTION --------------------------------------------------------------------------- [GRAPH APPEARS HERE] * PETRO PUBLIC SHAREHOLDERS EXCHANGE FOR SENIOR SUBORDINATED; INSIDERS EXCHANGE FOR A COMBINATION OF SENIOR SUBORDINATED AND/OR SUBORDINATED + G.P. UNITS. THE MLP SELLS COMMON UNITS AND USES THE PROCEEDS TO RECAPITALIZE AND REFINANCE. --------------------------------------------------------------------------- 22 - -------------------------------------------------------------------------------- STAR GAS PARTNERS, L.P - -------------------------------------------------------------------------------- THE TRANSACTION --------------------------------------------------------------------------- STAGE 1 -- THE EXCHANGE STAGE 2 -- THE RECAPITALIZATION - --------------------------------------------------------------------------------
CURRENT CONSIDERATION RECEIVED -------------------------------------------------------- ---------------------------------------------------------- SHARES UNITS PETRO SHAREHOLDER TYPE (000'S) TYPE OF MLP INTEREST (000'S) Holders of Class A Only 16,355 Senior Subordinated Units 2,464 Holders of Class A and C Shares Shares Permitted To Be Exchanged Into Senior Subordinated Units 3,500 Senior Subordinated Units 527 Shares To Be Exchanged Into Subordinated Units and GP Interest 5,904 Subordinated and General Partner Interest 1,296 ------ ----- Sub Total 9,404 ------ TOTAL 25,759 TOTAL 4,287 -------------------------------------------------------- ---------------------------------------------------------- --------------------------------------------------------------------------- 23
-------------------------------------------------------------------------------- UNITS OUTSTANDING AT MLP AFTER RECAPITALIZATION (000'S) -------------------------------------------------------------------------------- Common Units Currently Outstanding 3,832 Newly Issued ($137.6 million) 6,116 ------ Total 9,947 Senior Subordinated Units 2,991 Subordinated Units and GP Interest 1,296 ------ TOTAL 14,234 -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- STAR GAS PARTNERS, L.P - -------------------------------------------------------------------------------- PART IV BENEFITS OF THE TRANSACTION --------------------------------------------------------------------------- 24 - -------------------------------------------------------------------------------- STAR GAS PARTNERS, L.P - -------------------------------------------------------------------------------- BENEFITS OF THE TRANSACTION --------------------------------------------------------------------------- AS A RESULT OF THE TRANSACTIONS, STAR HOLDERS WILL BENEFIT FROM THE FOLLOWING: . Increased earnings and distributions. . Increase MQD to $2.30 per unit. . Higher total distribution coverage.
1997 ------------------------------------------------------ ACTUAL NORMALIZED 1998 (1) ------------------------------------------------------ ------------------------ FROM TO FROM TO FROM TO ---------------------------------------------------------------------------------------------------------------------------- Distributable Cash per unit $2.06 $2.19 $2.06 $2.65 $2.27 $2.93 Distributions per unit $2.20 $2.30 $2.20 $2.30 $2.20 $2.30 ---------------------------------------------------------------------------------------------------------------------------- . Larger size equity market capitalization. . A vehicle for growth in otherwise stagnant market. ___________________ (1) Based on projected 1998 results. Assumes annually MQD of $2.20 --------------------------------------------------------------------------- 25
1997 ------------------------------------------------------ ACTUAL NORMALIZED 1998 /(1)/ ------------------------------------------------------ ---------------------------- From TO FROM TO FROM TO ------------------------------------------------------------------------------------------- ---------------------------- Coverage on Common Units 1.6x 1.4x 1.6x 1.7x 1.7x 1.9x Coverage on Total Units 0.9x 1.0x 0.9x 1.2x 1.0x 1.3x ---------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- BENEFITS OF THE TRANSACTION -------------------------------------------------------------------------- CHANGE IN DISTRIBUTIONS OF SELECTED MLPS SINCE IPO /(1)/ [GRAPH APPEARS HERE] * INVESTORS HAVE REWARDED INCREASED DISTRIBUTIONS WITH ATTRACTIVE VALUATIONS. ______________________ (1) As of 1/23/98. -------------------------------------------------------------------------- 26 - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- BENEFITS OF THE TRANSACTION -------------------------------------------------------------------------- A MERGER WITH PETRO WILL RESPOND TO SEVERAL IMPORTANT INVESTOR ISSUES -------------------------------------------------------------------------- Q: How will the market value the mixed MLP? A: Growth and ability to make distributions are the key considerations for valuing an MLP. The merger provides the size, business mix and flexibility that investors are seeking. Several diversified MLPs exist and perform favorably compared to their peers. -------------------------------------------------------------------------- DIVERSIFIED MLPS -------------------------------------------------------------------------- * APPROXIMATELY 45% OF PIPELINE MLPS ARE DIVERSIFIED AND HAVE COMPARABLE YIELDS RELATIVE TO PURE-PLAY MLPS. __________________________ (1) As of 1/23/98. -------------------------------------------------------------------------- 27
IMPLIED MARKET VALUE DIVERSIFIED IMPLIED OF EQUITY LTM DISTRIBUTION COVERAGE ----------------------------- LINES OF BUSINESS YIELD /(1)/ (MILLIONS) /(1)/ COMMON UNITS TOTAL UNITS ----------------------------------------------------------------------------------------------------------------------------- Genesis Energy Crude pipeline 10.2% $ 215.9 0.8x 0.6x Crude marketing Kaneb Pipe Line Products pipeline 7.7% $ 563.3 1.3 1.0 Storage terminals Kinder Morgan Products pipeline 6.0% $ 536.4 0.7 0.7 Coal storage and transfer NGL fractionation Gas processing Leviathan Gas Pipeline Gas pipeline 6.7% $ 745.9 2.0 1.5 Crude pipeline Oil & gas production ----------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- BENEFITS OF THE TRANSACTION --------------------------------------------------------------------------- INVESTOR ISSUES (CONT'D) --------------------------------------------------------------------------- Q: The propane industry has low annual growth (1%-2%) versus the heating oil industry which is declining (2%-4%) each year. Why should Star enter an industry that experiences attrition? A: While propane is a growth industry, there are several larger and better capitalized companies that are actively taking advantage of industry consolidation. As a result, average acquisition multiples have been bid up to 7x EBITDA or higher. On the other hand, Petro is the dominant player and leading consolidator in the heating oil market. As a result, Petro has averaged 10 acquisitions each year since 1992 at an average purchase multiple of approximately 4x EBITDA. As demonstrated below, an acquisition at a 4x EBITDA multiple is profitable even taking into account attrition: --------------------------------------------------------------------------- ACQUISITION RATE OF RETURN --------------------------------------------------------------------------- --------------------------------------------------------------------------- 28
EBITDA PURCHASE INTERNAL RATE OF GROWTH RATE (ATTRITION) MULTIPLE RETURN (IRR) ----------------------------------------------------------------------- (6.0%) 4.0x 15.6% (4.0%) 4.0x 19.3% ----------------------------------------------------------------------- (2.0%) 4.0x 22.3% ----------------------------------------------------------------------- 1.5% 7.0x 15.9% ----------------------------------------------------------------------- - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- BENEFITS OF THE TRANSACTION -------------------------------------------------------------------------- INVESTOR ISSUES (CONT'D) -------------------------------------------------------------------------- Q: What initiatives is Petro taking to reverse its high attrition? A: Petro's new strategic focus includes: - Attracting new customers through brand imaging - Cross marketing to new and existing customers - Improving customer service - Creating segmented and unbundled pricing - Create deeper customer relationships through marketing related services -------------------------------------------------------------------------- * ALTHOUGH THE BENEFITS OF THESE INITIATIVES HAVE BEGUN TO BE REALIZED, THE IMPLIED VALUE HAS NOT YET BEEN FACTORED INTO PETRO'S STOCK PRICE. THESE IMPROVEMENTS WILL SIGNIFICANTLY BENEFIT THE COMBINED ENTITY. -------------------------------------------------------------------------- 29 - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- BENEFITS OF THE TRANSACTION -------------------------------------------------------------------------- INVESTOR ISSUES (CONT'D) -------------------------------------------------------------------------- Q: Why would Petro be interested in a merger with Star Gas? A: Premium to market - At $3.15 per share, the exchange represents approximately a 20% premium to the market Higher valuation multiples - MLPs typically trade at 10-11x EBITDA Enhanced growth potential due to greater access to capital - Branding and internal marketing - Improved productivity through capital investment - Acquisitions Lower overall cost of capital - New debt at +/- 8% vs. 12% existing debt - Equity capital with limited upside Greater size and liquidity - Implied equity market value quintuples to over $325 million Greater financial flexibility - Extend maturities through refinancing - Improved covenants due to investment grade rating -------------------------------------------------------------------------- -------------------------------------------------------------------------- 30 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- BENEFITS OF THE TRANSACTION --------------------------------------------------------------------------- INVESTOR ISSUES (CONT'D) --------------------------------------------------------------------------- Q: What evidence is there that Petro's recent efforts to reduce costs and manage attrition have been successful? --------------------------------------------------------------------------- A: ___________________________ (1) Based on performance in the first six months of the year; 3Q and 4Q data is not available. --------------------------------------------------------------------------- 31
HEATING EQUIPMENT REPAIR AND MAINTENANCE 12 MONTHS 1996 12 MONTHS 1997 IMPROVEMENT ---------------------- ---------------------- ------------------ Runouts (per 100 deliveries) 0.99 0.68 31.3% Reworks 25.9% 24.9% 3.9% Incompletes 5.8% 2.6% 55.2% Not-At-Homes /(1)/ 4.2% 2.1% 50.0% Service Calls/8 Hours 5.41 5.24 (3.1)% OIL DELIVERY Deliveries/8 Hours 22.2 23.9 7.7% Gallons/Hour 569 607 6.7% ----------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- PART V ECONOMICS OF THE TRANSACTION --------------------------------------------------------------------------- 32 - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- TRANSACTION ASSUMPTIONS --------------------------------------------------------------------------- PETROLEUM HEAT & POWER STAR GAS PARTNERS --------------------------------------------------------------------------- All Cases --------------------------------------------------------------------------- $5.0 Million in Acquisitions per Year at 7.0x EBITDA 2% Internal Growth $2.0 Million Internal Growth CapEx per Year $3.0 Million in Maintenance CapEx per Year --------------------------------------------------------------------------- --------------------------------------------------------------------------- 33
Base Case Pessimistic Case ----------------------------------------- ---------------------------------------- $3.5 Million Maint. CapEx $3.5 Million Maint. CapEx 30-Year Weather 30-Year Weather $1.0 Million Annual Productivity Savings $1.0 Million Annual Productivity Savings 5.0x Acquisition Multiple 4.0x Acquisition Multiple ------------------------------------------ ---------------------------------------- Attrition Acquisitions Attrition Acquisitions 1998 4.0% $50.0 Million 4.0% $20.0 Million 1999 3.0 50.0 4.0 20.0 2000 2.0 50.0 4.0 20.0 2001 2.0 50.0 4.0 20.0 - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- ECONOMICS OF THE TRANSACTION -------------------------------------------------------------------------- EFFECT OF TRANSACTION ON STAR UNITHOLDER DISTRIBUTIONS AND UNIT VALUE -- BASE CASE
------------------------------------------------------------------------------------------ CURRENT DISTRIBUTABLE CASH ------------------------------------------------------------------------- ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ------------------------------------------------------------------------------------------ Earned $ 2.06 $ 2.06 $ 2.27 $ 2.43 $ 2.57 $ 2.72 Paid 2.20 2.20 2.20 2.20 2.30 2.40 Yield 9.5% 9.5% 9.5% 9.0% 8.5% 8.5% Unit Value $23.16 $23.16 $23.16 $24.44 $27.06 $28.24 ------------------------------------------------------------------------------------------ --------------------------------------------------------------------------- 34
------------------------------------------------------------------------------------------ PRO FORMA DISTRIBUTABLE CASH ------------------------------------------------------------------------- ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ------------------------------------------------------------------------------------------ Earned $ 2.19 $ 2.65 $ 2.93 $ 3.17 $ 3.54 $ 3.90 Paid 2.20 2.30 2.30 2.40 2.60 2.80 Yield 9.5% 9.5% 9.0% 8.0% 7.5% 7.0% Unit Value $23.16 $24.21 $25.56 $30.00 $34.67 $40.00 ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- ECONOMICS OF THE TRANSACTION -------------------------------------------------------------------------- EFFECT OF TRANSACTION ON STAR UNITHOLDER DISTRIBUTIONS AND UNIT VALUE -- PESSIMISTIC CASE
---------------------------------------------------------------------------------------------------------- CURRENT DISTRIBUTABLE CASH --------------------------------------------------------------------------------------- ACTUAL 1997 /(1)/ NORMALIZED 1997 /(1)/ 1998 1999 2000 2001 ---------------------------------------------------------------------------------------------------------- Earned $ 2.06 $ 2.06 $ 2.27 $ 2.43 $ 2.57 $ 2.72 Paid 2.20 2.20 2.20 2.20 2.30 2.40 Yield 9.5% 9.5% 9.5% 9.0% 8.5% 8.5% Unit Value $23.16 $23.16 $23.16 $24.44 $27.06 $28.24 ---------------------------------------------------------------------------------------------------------- ________________________________________ (1) 1997 is pro forma for acquisitions. --------------------------------------------------------------------------- 35
--------------------------------------------------------------------------------------------------------- PRO FORMA DISTRIBUTABLE CASH -------------------------------------------------------------------------------------- ACTUAL 1997 /(1)/ NORMALIZED 1997 /(1)/ 1998 1999 2000 2001 --------------------------------------------------------------------------------------------------------- Earned $ 2.19 $ 2.65 $ 2.74 $ 2.80 $ 2.89 $ 2.93 Paid 2.20 2.30 2.30 2.30 2.35 2.45 Yield 9.5% 9.5% 9.5% 9.0% 8.5% 8.5% Unit Value $23.16 $24.21 $24.21 $25.56 $27.65 $28.82 --------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- ECONOMICS OF THE TRANSACTION --------------------------------------------------------------------------- EFFECT OF TRANSACTION ON STAR UNIT COVERAGE -- BASE CASE
------------------------------------------------------------------------------------- CURRENT COVERAGE ------------------------------------------------------------- ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ------------------------------------------------------------------------------------- Coverage on Common Units 1.6x 1.6x 1.7x 1.8x 1.9x 2.1x Coverage on Total Units 0.9 0.9 1.0 1.1 1.2 1.2 ------------------------------------------------------------------------------------- ___________________________________ (1) Based on $2.20 annual MQD. --------------------------------------------------------------------------- 36
------------------------------------------------------------------------------------- PRO FORMA COVERAGE /(1)/ ------------------------------------------------------------ ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ------------------------------------------------------------------------------------- Coverage on Common Units 1.4x 1.7x 1.9x 2.1x 2.3x 2.6x Coverage on Total Units 1.0 1.2 1.3 1.4 1.6 1.8 ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Star Gas Partners, L.P. - ------------------------------------------------------------------------------- ECONOMICS OF THE TRANSACTION -------------------------------------------------------------------------- EFFECT OF TRANSACTION ON STAR UNIT COVERAGE -- PESSIMISTIC CASE
------------------------------------------------------------------------------------- CURRENT COVERAGE ------------------------------------------------------------ ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ------------------------------------------------------------------------------------- Coverage on Common Units 1.6x 1.6x 1.7x 1.8x 1.9x 2.1x Coverage on Total Units 0.9 0.9 1.0 1.1 1.2 1.2 ------------------------------------------------------------------------------------- __________________________________ (1) Based on $2.20 annual MQD. --------------------------------------------------------------------------- 37
------------------------------------------------------------------------------------- PRO FORMA COVERAGE /(1)/ ------------------------------------------------------------ ACTUAL 1997 NORMALIZED 1997 1998 1999 2000 2001 ------------------------------------------------------------------------------------- Coverage on Common Units 1.4x 1.7x 1.8x 1.8x 1.9x 1.9x Coverage on Total Units 1.0 1.2 1.2 1.3 1.3 1.3 ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Star Gate Partners, L.P. - ------------------------------------------------------------------------------- PART VI COMPARABLE MLP ANALYSIS --------------------------------------------------------------------------- 38 - -------------------------------------------------------------------------------- Star Gas Partners, L.P. - -------------------------------------------------------------------------------- COMPARABLE MLP ANALYSIS --------------------------------------------------------------------------- COMPARATIVE ANALYSIS OF SELECTED MLPS (1) Implied Market Value of Equity implies value of total equity based on value of public units. (2) Implied Market Capitalization equals Implied Market Value of Equity plus net debt and other long-term liabilities. (3) Based on most recent distribution declared on an annualized basis. (4) Indicated Distribution per Unit reflects an increased Quarterly Distribution of $1.05 as announced on October 23, 1997. The increased distribution is payable November 28, 1997, to unitholders of record on November 5, 1997. (5) Not pro forma for the announced merger with Santa Fe Pacific Pipeline. Indicated Distribution per Unit reflects an increased Quarterly Distribution of $0.5625 as announced on January 15, 1998 and payable on February 17, 1998. (6) Indicated Distribution per Unit reflects an increased Quarterly Distribution of $0.65 as announced on October 9, 1997. The increased distribution is payable November 14, 1997, to unitholders of record on October 31, 1997. (7) Indicated Distribution per Unit reflects an increased Quarterly Distribution of $0.50 as announced on January 20, 1998. The increased distribution is payable February 13, 1998, to all holders of record of Preference Units and Common Units at the close of business on January 30, 1998. (8) Distributable Cash Flow is based upon income statement items adjusted for approximate 30% minority interest. Implied Market Value of Equity, Implied Market Capitalization and Market Cap/EBITDA are not adjusted. Indicated Distribution per Unit reflects an increased Quarterly Distribution of $0.575 as announced on January 15, 1998. The increased distribution is payable February 13, 1998, to unitholders of record on January 30, 1998. (9) Indicated Distribution per Unit reflects an increased Quarterly Distribution of $0.85 as announced on January 16, 1998. The increased distribution is payable February 6, 1998, to unitholders of record on January 30, 1998. (10) Implied Market Value of Equity and Implied Market Capitalization include market value of GP interest based on its share of distributions. (11) Pro forma for the Initial Public Offering 11/13/97, the Weyerhauser Acquisition, and for the refinancing of debt in connection with Ochoco Acquisition. Not pro forma for any Ochoco Acquisition revenue. --------------------------------------------------------------------------- 39
------------------------------------------------------------------------------------------------------------------------------ ($ in millions, except per share data) MARKET IMPLIED VALUE OF MARKET IMPLIED INDICATED CLOSING PUBLIC VALUE OF MARKET DISTRIBUTION IMPLIED COMPANY 23-JAN-98 EQUITY EQUITY/(1)/ CAPITALIZATION/(2)/ PER UNIT YIELD/(3)/ ------------------------------------------------------------------------------------------------------------------------------ Pipelines Buckeye Partners/(4)/ $57.94 $ 774.1 $ 781.9 $1,005.7 $4.20 7.2% Kinder Morgan Energy Partners/(5)/ 37.25 525.6 536.4 681.6 2.25 6.0 Kaneb Pipe Line Partners/(6)/ 446.0 563.3 696.9 Senior Preference Units 35.31 2.60 7.4 Preference Units 33.63 2.60 7.7 Lakehead Pipeline Partners 45.75 1,019.8 1,223.2 1,511.1 3.12 6.8 Leviathan Gas Pipeline Partners/(7)/ 30.00 542.3 745.9 975.4 2.00 6.7 Northern Border Partners/(8)/ 33.19 747.7 1,400.6 1,785.0 2.30 6.9 TEPPCO Partners/(9)/ 54.88 795.7 816.1 1,120.8 3.40 6.2 ------------------------------------------------------------------------------------------------------------------------------ PIPELINE MEAN $2.81 6.9% PIPELINE MEDIAN 2.60 6.9 ------------------------------------------------------------------------------------------------------------------------------ Diversified EOTT Energy Partners $18.63 $ 186.3 $ 357.9 $ 460.1 $1.90 10.2% Genesis Energy 19.63 169.3 215.9 198.4 2.00 10.2 ------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED MEAN $1.95 10.2% DIVERSIFIED MEDIAN 1.95 10.2 ------------------------------------------------------------------------------------------------------------------------------ Propane AmeriGas Partners $26.25 $ 579.1 $1,120.8 $1,886.3 $2.20 8.4% Cornerstone Propane Partners 23.00 247.5 407.4 661.6 2.16 9.4 Ferrellgas Partners 22.13 325.3 706.5 1,246.3 2.00 9.0 Heritage Propane Partners 24.31 113.0 207.2 367.9 2.00 8.2 National Propane Partners $21.94 $ 147.0 $ 256.7 $ 395.5 $2.10 9.6 Star Gas Partners 23.50 90.0 149.3 238.3 2.20 9.4 Suburban Propane Partners 19.63 423.2 575.2 1,102.7 2.00 10.2 ------------------------------------------------------------------------------------------------------------------------------ PROPANE MEAN $2.09 9.2% PROPANE MEDIAN 2.10 9.4 ------------------------------------------------------------------------------------------------------------------------------ Timber Crown Pacific Partners, L.P $25.94 $ 553.3 $ 717.4 $1,134.0 $2.15 8.3% Plum Creek Timber, L.P./(10)/ 32.31 1,496.8 1,995.8 2,637.8 2.20 6.8 U.S. Timberlands, L.P./(11)/ 21.25 182.3 275.1 498.6 2.00 9.4 ------------------------------------------------------------------------------------------------------------------------------ TIMBER MEAN $2.12 8.2% TIMBER MEDIAN 2.15 8.3 ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------ LTM DISTRIBUTABLE CASH FLOW/ ---------------------------- INDICATED INDICATED DISTRIBUTION DISTRIBUTION LTD/MARKET EBITDA/ MARKET CAP/ COMPANY TO PUBLIC UNITS TO TOTAL UNITS CAPITALIZATION INTEREST EXP. EBITDA ------------------------------------------------------------------------------------------------------------------------------ Pipelines Buckeye Partners/(4)/ 0.8x 0.8x 18.8% 4.0x 11.7x Kinder Morgan Energy Partners/(5)/ 0.7 0.7 19.2 3.1 17.2 Kaneb Pipe Line Partners/(6)/ 19.8 5.7 10.8 Senior Preference Units 2.3 1.0 Preference Units 1.3 1.0 Lakehead Pipeline Partners 1.5 1.2 30.6 3.8 10.3 Leviathan Gas Pipeline Partners/(7) 2.0 1.5 22.6 6.4 10.9 Northern Border Partners/(8)/ 1.3 1.0 24.1 4.0 11.5 TEPPCO Partners/(9)/ 1.4 1.4 27.6 3.5 9.9 ------------------------------------------------------------------------------------------------------------------------------ PIPELINE MEAN 1.4X 1.1X 23.2% 4.3X 11.8X PIPELINE MEDIAN 1.4 1.0 22.6 4.0 10.9 ------------------------------------------------------------------------------------------------------------------------------ Diversified EOTT Energy Partners 0.7x 0.4x 0.0% 4.3x 18.1x Genesis Energy 0.8 0.6 0.0 NM 12.0 ------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED MEAN 0.8X 0.5X 0.0% 4.3X 15.0X DIVERSIFIED MEDIAN 0.8 0.5 0.0 4.3 15.0 ------------------------------------------------------------------------------------------------------------------------------ Propane AmeriGas Partners 2.0x 1.0x 36.3% 2.6x 11.0x Cornerstone Propane Partners 0.7 0.5 38.1 2.1 16.8 Ferrellgas Partners 1.8 0.8 39.5 2.4 11.3 Heritage Propane Partners 1.5 0.8 44.0 2.3 12.4 National Propane Partners 1.1 0.6 34.9 2.5 13.0 Star Gas Partners 1.4 0.9 40.3 3.0 10.2 Suburban Propane Partners 0.8 0.6 38.8 2.7 12.0 ------------------------------------------------------------------------------------------------------------------------------ PROPANE MEAN 1.3X 0.7X 38.8% 2.5X 12.4X PROPANE MEDIAN 1.4 0.8 38.8 2.5 12.0 ------------------------------------------------------------------------------------------------------------------------------ Timber Crown Pacific Partners, L.P 1.2x 0.9x 35.9% 2.9x 10.5x Plum Creek Timber, L.P./(10)/ 1.8 1.3 28.2 4.2 10.3 U.S. Timberlands, L.P./(11)/ NM NM 45.1 1.2 17.3 ------------------------------------------------------------------------------------------------------------------------------ TIMBER MEAN 1.5X 1.1X 36.4% 2.7X 12.7X TIMBER MEDIAN 1.5 1.1 35.9 2.9 10.5 ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------- Star Gas Partners, L. P. - ------------------------------------------------------------------------------- EXHIBIT I STEPS OF THE TRANSACTION AND TAX IMPLICATIONS --------------------------------------------------------------------------- 40 - ------------------------------------------------------------------------------- Star Gas Partners, L. P. - ------------------------------------------------------------------------------- STEPS OF THE TRANSACTION AND TAX IMPLICATIONS -------------------------------------------------------------------------- Steps of the Transaction . STEP ONE: Star Gas Corp. merges into Petro. Petro obtains from Star Gas -------- Corp. the GP units of MLP and OLP and MLP subordinated units. Petro transfers the GP units to an LLC. The subordinated units are designated Senior Subordinated Units. . STEP TWO: Petro transfers assets to MLP in exchange for additional -------- Senior Subordinated Units so as to have a total number of Senior Subordinated Units equal in value to the value of the Petro Class A Common Stock held by the public. . STEP THREE: Petro exchanges all LLC shares for an equivalent value of ---------- Class C shares held by Petro insiders. . STEP FOUR: The Petro insiders transfer their remaining Class A and Class --------- C Stock to the MLP in exchange for Junior Subordinated Units. . STEP FIVE: OLP organized Newco. MLP transfers to OLP and OLP transfer to --------- Newco, all Petro shares owned by the MLP, as acquired by MLP from the Petro insiders. . STEP SIX: Newco merges with and into Petro. Class A Shares owned by the -------- public are changed into Senior Subordinated Units. Class A and Class C shares owned by Newco are canceled. Newco shares owned by OLP are changed into Class A Petro shares. Corresponding Tax Implication . Tax free. . Tax free. . This triggers tax at Petro measured by the value of the LLC shares in excess of Petro's basis in them and tax at the Petro insider level measured by the value of the LLC shares in excess of their basis in the Petro shares surrendered. . Tax free. . Tax free. . This step is tax free to Newco and OLP. Petro will recognize gain equal to the value of the Senior Subordinated Units in excess of Petro's basis in them. The public shareholders will recognize gain (or loss) measured by the excess (or deficit) in value of the Senior Subordinated Units as compared to their basis in the Petro Class A Common Stock. --------------------------------------------------------------------------- 41
PRELIMINARY REPORT TO THE SPECIAL COMMITTEE OF GAS A.G. EDWARDS & SONS, INC. INVESTMENT BANKING April 28, 1998 TABLE OF CONTENTS Section ------- Introduction.................................... I Review of Events to Date........................ II Summary of Transaction.......................... III Summary Observations............................ IV Preliminary Report to the Special Committee..... V INTRODUCTION TRANSACTION [_] During 1997, Gas ("Gas" or the "Company") and Oil ("Oil") PROPOSAL discussed the idea of a possible business combination by and between Gas and Oil. The series of proposed transactions involved in such combination is referred to as the "Transaction". A.G. EDWARDS' [_] A.G. Edwards & Sons, Inc. ("A.G. Edwards") has been engaged ENGAGEMENT by the Special Committee (the "Special Committee") of the Board of Directors of Gas (the "Board") to act as its financial advisor with respect to the Transaction and to issue to the Board an opinion as to the fairness, from a financial point of view, to the common unitholders of Gas who are not affiliated with Oil (the "Common Unitholders"), of the Transaction (the "Fairness Opinion"). [_] The preparation of a fairness opinion is not susceptible to partial analyses or summary. In rendering its Fairness Opinion, A.G. Edwards will apply its judgment to a variety of complex analyses and assumptions. A.G. Edwards may give various analyses more or less weight than other analyses, and may deem various assumptions more or less probable than other assumptions. The assumptions made and the judgments applied by A.G. Edwards in rendering its opinion are not readily susceptible to description beyond that set forth in the written text of the Fairness Opinion itself. Page 1 INTRODUCTION (continued) AS PART OF ITS [_] A review of the preliminary structure of the Transaction ENGAGEMENT, (See Tab III -"Summary of Transaction"); A.G. EDWARDS' ACTIVITIES [_] A review of Gas' and Oil's historical financial statements INCLUDED, BUT and the financial projections of Gas and Oil (See WERE NOT Appendices A and B -"Overview of Oil and Gas," LIMITED TO, THE respectively); FOLLOWING: [_] A review of certain market data of Gas' Common Units and Oil's Common Stock (See Appendices A and B -"Overview of Oil and Gas," respectively); [_] An analysis of the pro forma financial statements of Gas giving effect to the Transaction (as proposed) (See Appendix C - "Pro Forma Ownership Analysis"); [_] Conversations with PaineWebber regarding the nature and extent of development of the terms of the Transaction; [_] An investigation regarding current operations and future prospects of Gas and Oil, through interviews with members of Gas' and Oil's management, respectively (See Appendices A and B - "Overview of Oil and Gas," respectively); [_] A review of the industries in which Gas and Oil operate; [_] A review of the market data for stocks of public companies in the same or similar lines of business to Gas (See Appendix I - "Public Company Analysis"); [_] Analyses of the Transaction using various valuation methodologies; and [_] Other analyses which it deemed necessary. Page 2 INTRODUCTION (continued) NATURE OF [_] A.G. Edwards relied upon and assumed, without independent INFORMATION verification, the accuracy and completeness of all REVIEWED AND financial and other information publicly available, or PRESENTED furnished to, or otherwise discussed with A.G. Edwards including financial statements and financial projections, as provided by management of Gas and Oil and Oil's financial advisor. With respect to financial projections and other information provided to or otherwise discussed with A.G. Edwards, A.G. Edwards assumed and was advised by the senior management of Gas and Oil, respectively, that such projections and other information were reasonably prepared on a basis that reflects the best currently available estimates and judgments of the senior management of Gas and Oil, respectively, as to the expected future financial performance of Gas and Oil, in each case on a stand-alone basis and after giving effect to the Transaction. A.G. Edwards was not engaged to, and did not, independently verify the information provided and performed no audit of assets or liabilities and no independent appraisal of assets or liabilities of either Gas or Oil. A.G. Edwards has relied upon the assurances of the management of Gas and Oil that they are not aware of any facts that would make such information inaccurate or misleading. [_] In performing its analyses, A.G. Edwards made numerous assumptions with respect to the propane distribution industry and the home heating oil distribution industry, and general business and economic conditions which are beyond the control of Gas and Oil. The analyses performed by A.G. Edwards are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of A.G. Edwards' Preliminary Report to the Special Committee. [_] This presentation is for the private use of the Special Committee and may not be distributed to any other parties without A.G. Edwards' written permission. Page 3 REVIEW OF EVENTS TO DATE FEBRUARY 11 [_] A.G. Edwards presents its qualifications to the Special Committee and its legal counsel. MARCH 23 [_] Special Committee engaged A.G. Edwards. MARCH 23 [_] A.G. Edwards met with members of Gas' and Oil's management and submitted preliminary data request list. [_] A.G. Edwards began due diligence with management and other representatives of Gas and Oil. - Business - Financial - Accounting - Other MARCH 30 [_] A.G. Edwards received data related to its preliminary data request list. MARCH 30 - APRIL [_] A.G. Edwards continued the due diligence process with 27 respect to Gas and Oil. APRIL 28 [_] Special Committee meeting to discuss the Transaction. Page 4 SUMMARY OF TRANSACTION PRO FORMA GAS UNITS OUTSTANDING (IN THOUSANDS) TO SIMPLIFY [_] There are currently 6,355 Gas units outstanding comprised THE COMPLEXITY of 3,832 common units, 2,396 subordinated units and 127 OF THE STEPS general partner ("GP") units. The subordinated units and GP IN THE units are assets of Oil. TRANSACTION, A.G. EDWARDS PREPARED A SUMMARY OF ITS UNDERSTANDING. [_] There are currently 26,563 shares of Oil common stock outstanding, comprised of public shareholders and "insiders." The public holds 17,160 Class A shares. The "insiders" hold 9,404 shares which include 6,795 Class A shares, 11 Class B shares and 2,598 Class C shares. [_] Each shareholder of Oil will receive a certain number of units in Gas such that the implied consideration paid for each Oil share is $3.15. [_] The publicly held 17,160 Class A shares will receive .1596 shares of newly created Senior Subordinated units (2,738 units in total) with an implied value of $19.74/unit. This represents an implied purchase price of $3.15/share for an implied total purchase price of $54.1 million. [_] The "insiders" of Oil, who hold a total of 9,404 shares (comprised of A, B and C shares) will also receive $3.15/share for a total of $29.6 million. The consideration received by these shareholders will be funded by: - (1) the distribution of existing units of Gas which are currently owned by Oil [_] all of the 127 GP units owned by Oil will be given as consideration at an implied value of $21.28/unit, for a total of $2.7 million. [_] 754 of the 2,396 Subordinated units owned by Oil will be given as consideration at an implied value of $16.33/unit, for a total of $12.3 million. - (2) the distribution of newly-created units of Gas [_] to fund the remaining $14.6 million of the $29.6 million due to the Oil "insiders", Gas will issue 559 newly-created Senior Subordinated units and 168 newly-created GP units. The implied values for these new units are $19.74 and $21.28, respectively. Page 5 Merger Premiums to Market Value Analysis Mergers with Target Price Equal to or Less than $5 per Share Announced and Completed 1/1/96-10/9/98 Page F-10
- ------------------------------------------------------------------------------------------------------------------------------------ Date Date Announced Effective Target Name Target Business Description Acquiror Name - ------------------------------------------------------------------------------------------------------------------------------------ 01/10/96 06/26/96 American Resource Corp Gold mining company REA Gold Corp 01/18/96 08/23/96 AMSERV Healthcare Inc Pvd temp nursing employment Star Multi Care Services Inc 01/23/96 05/09/96 Portage Industries Corp Mnfr extruded plastic sheets Spartech Corp 02/05/96 09/30/96 Customedix Corp Mnfr dental, medical products CUS Acquisitions Inc 02/13/96 07/12/96 Medical Innovations Inc Pvd home health care services Horizon/CMS Healthcare Corp 02/15/96 04/29/96 LDI Corp Computer equip leasing svcs NationsBank Corp, Charlotte, NC 02/28/96 07/11/96 Salton/Maxim Housewares Inc Mnfr electric housewares, fans Windmere Corp 03/13/96 09/27/96 DeSoto Inc Mnfr paints and detergents Keystone Consolidated Inds Inc 04/16/96 05/31/96 CIS Technologies Inc Manufacture computers National Data Corp 04/22/96 06/04/96 Cornerstone Natural Gas Co Natural gas distribution svcs El Paso Field Svcs(El Paso) 05/03/96 03/17/98 Homeowners Group Inc Real estate, insurance agency Cross Country Group Inc 05/06/96 09/03/96 Transcisco Industries Inc Mnfr, service railroad equip Trinity Industries Inc 05/07/96 09/03/96 NMR of America Inc Pvd. medical equip leasing svcs Medical Resources Inc 05/13/96 08/30/96 MDT Corp Mnfr sterility assurance equip Getinge Industries AB 05/15/96 09/10/96 Carlisle Plastics Inc Mnfr, whl plastic prods, resins Tyco International Ltd 06/03/96 01/09/97 Bio-Dental Technologies Corp Provide dental research svcs Zila Inc 06/10/96 07/22/96 SysteMed Inc Pvd medical services Merck-Medco Managed Care Inc 06/11/96 09/03/96 Computer Identics Corp Manufacture bar code scanners Robotic Vision Systems Inc 06/17/96 10/07/96 Scanforms Inc Mnfr business forms Big Flower Press Holdings Inc 06/21/96 08/23/96 Computer Identics Corp Information retrieval svcs United Communications Group 06/24/96 12/05/96 MEM Co Manufacture toiletries Renaissance Cosmetics Inc 07/31/96 11/13/96 Calgene Inc Own and operate greenhouse Monsanto Co 08/13/96 02/27/97 LaTex Resources Inc Oil and gas expln, prodn Alliance Resources PLC 09/10/96 01/03/97 GreenStone Industries Corp Manufacture stationery Louisiana-Pacific Corp 09/11/96 03/04/97 Chempower Inc Insulation, asbestos abatement American Eco Corp 09/16/96 12/06/96 Proler International Corp Whl scrap metals & metals Schnitzer Steel Industries Inc 09/26/96 01/24/97 General Physics Corp Provide training services National Patent Development 10/02/96 12/27/96 Software Publishing Corp Develop software Allegro New Media 10/03/96 11/12/97 Pittencrieff Communications Pvd radiotelephone commun svcs Nextel Communications Inc 10/04/96 12/31/96 Pet Food Warehouse Inc Own, op pet food stores Petco Animal Supplies Inc 10/30/96 12/20/96 Pacific Rehab & Sports Med Own, op rehab hospital Horizon/CMS Healthcare Corp 11/05/96 03/14/97 Panatech Research & Development Manufacture semiconductors Harbour Group Ltd 11/25/96 02/28/97 American Studios Inc Pvd photography services PCA International Inc 12/06/96 03/18/97 MaxServ Inc (Sears Roebuck) Pvd technical info support svc Sears Roebuck & Co 12/09/96 02/28/97 Houston Biotechnology Inc Mnfr monoclonal antibodies Medarex Inc 01/24/97 07/02/97 INCSTAR Corp (Sorin Biomedical) Mnfr diagnostic substances American Standard Inc 01/28/97 05/21/97 Calgene Inc (Monsanto Co) Own and operate greenhouse Monsanto Co 01/30/97 08/12/97 AST Research Inc Mnfr computers; dvlp software Samsung electronic Co Ltd 02/07/97 08/01/97 MS Financial (MS Diversified) Pvd financial credit services Search Financial Services Inc 02/11/97 07/31/97 Serv-Tech Inc Maintenance and cleaning svcs Philip Environmental Inc 03/04/97 06/27/97 Audio King Corp Own, op consumer electn stores Ultimate electronic Inc 04/15/97 06/30/97 Kurzweil Applied Intelligence Electronic computing equip Lernout & Hauspic speech 04/30/97 07/25/97 Arden Industrial Products Inc Whl fasteners Park-Ohio Industries Inc 05/01/97 08/01/97 Cryenco Sciences Inc Mnfr liquid gas storage tanks Chart Industries Inc 05/08/97 09/10/97 Imex Medical Systems Inc Mnfr fetal diagnostic instr Nicolet Biomedical Inc 06/16/97 09/30/97 Frederick's of Hollywood, Inc Women's clothing stores Investor Group 06/24/97 07/25/97 Jillians Entertainment Corp Own, op billiard clubs JW Childs Equity Partners LP 07/23/97 12/02/97 Rudy's Restaurant Group Own and operate restaurants Benihana Inc 08/01/97 09/26/97 Community Care of America Inc Own, op nursing homes Integrated Health Services Inc 08/07/97 12/02/97 Magnetic Technologies Corp Manufacture copiers, printers SPS Technologies Inc 08/14/97 12/31/97 Allied Capital Advisers Inc Investment advisory svcs Allied Capital Lending Corp 09/02/97 12/03/97 Ground Round Restaurants Own and operate restaurants GRR Holdings LLC 09/04/97 12/30/97 Cinergi Pictures Entertainment Pvd motion picture prodn svcs Investor Group 09/26/97 09/26/97 Laclede Steel Co Own, operate steel works Birmingham Steel Corp 10/10/97 01/07/98 Puro Water Group Inc Whl bottled water United States Filter Corp 10/13/97 03/19/98 Integrated Brands Inc Produce ice cream Yogen Fuz World-Wide Inc 11/03/97 02/25/98 Individual Inc Pvd on-line info retrieval svc Desktop Data Inc 11/04/97 01/12/98 ComputerVision Corp Mnfr computers, peripherals Parametric Technology Corp 11/12/97 03/03/98 PureTec Corp Manufacture plastic products Tekni-Plex Inc 11/24/97 01/07/98 General Host Corp Own, op specialty retail stores Cypress Group LLC 12/02/97 03/17/98 Staodyn Inc Mnfr electromedical equipment Rehabilicare Inc 12/12/97 02/13/98 Impact Systems Inc Paper prodn control systems Voith Sulzer Paper Technology 12/12/97 09/10/98 Timber Lodge Steakhouse Inc Own, op restaurants Santa Barbara Restaurant Group 12/15/97 02/24/98 MetroGolf Inc Own, op golf courses Family Golf Centers Inc 12/22/97 05/20/98 Artistic Greetings Inc Mnfr personalized stationery MDC Communications Corp - ------------------------------------------------------------------------------------------------------------------------------------ Value of Enter- Trans- prise Date Date Acquiror action Value Announced Effective Target Name Business Description ($ mil) ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 01/10/96 06/26/96 American Resource Corp Gold mining company 77.5 76.353 01/18/96 08/23/96 AMSERV Healthcare Inc Pvd home health care services 9.2 7.895 01/23/96 05/09/96 Portage Industries Corp Manufacture Plastic products 15.8 17,540 02/05/96 09/30/96 Customedix Corp Investment company 3.6 15,103 02/13/96 07/12/96 Medical Innovations Inc Pvd nursing care services 30.3 41,725 02/15/96 04/29/96 LDI Corp Bank bldg co; pvd finl svcs 28.1 288,893 02/28/96 07/11/96 Salton/Maxim Housewares Inc Mnfr personal care appliances 21.1 53,442 03/13/96 09/27/96 DeSoto Inc Manufacture steel wire 36.1 40,529 04/16/96 05/31/96 CIS Technologies Inc Pvd homeowner membership svcs 99.3 112,471 04/22/96 06/04/96 Cornerstone Natural Gas Co Own, op diagnostic imaging ctrs 96.6 97,614 05/03/96 03/17/98 Homeowners Group Inc Pvd homeowner membership svcs 11.4 14,968 05/06/96 09/03/96 Transcisco Industries Inc Mnfr transp equip,parts 44.7 51,126 05/07/96 09/03/96 NMR of America Inc Own,op diagnostic imaging ctrs 40.4 57,369 05/13/96 08/30/96 MDT Corp Mnfr sterilizing equipment 70.3 69.457 05/15/96 09/10/96 Carlisle Plastics Inc Mnfr fire protection systems 122.4 273.282 06/03/96 01/09/97 Bio-Dental Technologies Corp Mnfr,whl pharmaceuticals 40.3 48.477 06/10/96 07/22/96 SysteMed Inc Health insurance company 64.8 60,646 06/11/96 09/03/96 Computer Identics Corp Mnfr 2-D,3-D vision-based sys 42.0 40,881 06/17/96 10/07/96 Scanforms Inc Pvd advertising,marketing svcs 27.5 15,661 06/21/96 08/23/96 Computer Identics Corp Publish newsletters 12.0 11,548 06/24/96 12/05/96 MEM Co Investor group 38.2 29.577 07/31/96 11/13/96 Calgene Inc Mnfr agro chems,manmade fibers 50.0 584,080 08/13/96 02/27/97 LaTex Resources Inc Oilo and gas exploration, prodn 27.1 44,759 09/10/96 01/03/97 GreenStone Industries Corp Mnfr lumber,plywood,pulp 29.2 40,823 09/11/96 03/04/97 Chempower Inc Pvd engineering services 50.0 36,189 09/16/96 12/06/96 Proler International Corp Manufacture steel products 42.5 68,146 09/26/96 01/24/97 General Physics Corp Mnfr contact lenses 261. 70,360 10/02/96 12/27/96 Software Publishing Corp Pvd software services 25.2 8,786 10/03/96 11/12/97 Pittencrieff Communications Pvd cellular telephone svcs 158.4 159,860 10/04/96 12/31/96 Pet Food Warehouse Inc Own and operate pet stores 60.7 55,986 10/30/96 12/20/96 Pacific Rehab & Sports Med Pvd nursing care services 72.7 75,706 11/05/96 03/14/97 Panatech Research & Development Mnfr steel cutting tools 29.2 26,218 11/25/96 02/28/97 American Studios Inc Pvd photo processing services 66.3 67.650 12/06/96 03/18/97 MaxServ Inc (Sears Roebuck) Mnfr steel Department stores; finl svcs 46.0 87.263 12/09/96 02/28/97 Houston Biotechnology Inc Manufacture pharmaceutiCALS 8.6 8.700 01/24/97 07/02/97 INCSTAR Corp (Sorin Biomedical) Transportation, building prod 106.3 102.865 01/28/97 05/21/97 Calgene Inc (Monsanto Co) Mnfr agro chems, manmade fibers 242.6 567.548 01/30/97 08/12/97 AST Research Inc Mnfr consumer electronics 495.8 558.108 02/07/97 08/01/97 MS Financial (MS Diversified) Pvd business credit services 17.2 102.602 02/11/97 07/31/97 Serv-Tech Inc Provide waste management svcs 73.4 54.956 03/04/97 06/27/97 Audio King Corp Own, op radio, TV, electn stores 6.0 12.363 04/15/97 06/30/97 Kurzweil Applied Intelligence Mnfr speech tech products 51.3 50.852 04/30/97 07/25/97 Arden Industrial Products Inc Mnfr forged and machined parts 42.0 44.995 05/01/97 08/01/97 Cryenco Sciences Inc Mnfr process control instmnts 19.2 27.904 05/08/97 09/10/97 Imex Medical Systems Inc Investment company 9.3 10.238 06/16/97 09/30/97 Frederick's of Hollywood, Inc Investor group 69.4 57.007 06/24/97 07/25/97 Jillians Entertainment Corp Investment company 4.7 7.007 07/23/97 12/02/97 Rudy's Restaurant Group Own and operate restaurants 18.8 18.936 08/01/97 09/26/97 Community Care of America Inc Pvd specialty healthcare svcs 94.0 89.996 08/07/97 12/02/97 Magnetic Technologies Corp Mnfr industrial fasteners 16.8 15.984 08/14/97 12/31/97 Allied Capital Advisers Inc Closed-end mgmt investment co 49.5 44.111 09/02/97 12/03/97 Ground Round Restaurants Investment company 17.5 56.945 09/04/97 12/30/97 Cinergi Pictures Entertainment Investor group 16.3 59.794 09/26/97 09/26/97 Laclede Steel Co Manufacture steel, steel prod 15.0 131.767 10/10/97 01/07/98 Puro Water Group Inc Mnfr water treatment equip 25.7 30.186 10/13/97 03/19/98 Integrated Brands Inc Produce frozen yogurt 46.8 51.274 11/03/97 02/25/98 Individual Inc Pvd info retrieval svcs 86.8 79.390 11/04/97 01/12/98 ComputerVision Corp Develop, wholesale software 250.3 460.128 11/12/97 03/03/98 PureTec Corp Mnfr plastic 324.6 281.484 11/24/97 01/07/98 General Host Corp Investment bank 326.2 278.128 12/02/97 03/17/98 Staodyn Inc Mnfr electromedical equip 22.5 22.867 12/12/97 02/13/98 Impact Systems Inc Provide paper tech dvlp svcs 28.6 28.467 12/12/97 09/10/98 Timber Lodge Steakhouse Inc Own, op fast food restaurants 30.4 30.925 12/15/97 02/24/98 MetroGolf Inc Own and operate golf courses 6.6 18.428 12/22/97 05/20/98 Artistic Greetings Inc Provide marketing services 33.6 35.618 - ------------------------------------------------------------------------------------------------------------------------------------ Premium ---------------------------------------------------------------------------------- Date Date 1 Day Prior 1 Week Prior 4 Weeks Prior 3 Months Prior 1 Year Prior Announced Effective Target Name to Annc. Date to Annc. Date to Annc. Date to Annc. Date to Annc. Date - ------------------------------------------------------------------------------------------------------------------------------------ 01/10/96 06/26/96 American Resource Corp 30.77 23.50 27.03 01/18/96 08/23/96 AMSERV Healthcare Inc 14.56 27.29 20.59 (4.67) 20.42 01/23/96 05/09/96 Portage Industries Corp 46.67 78.98 78.98 134.67 193.33 02/05/96 09/30/96 Customedix Corp 22.58 26.67 5.56 19.00 (18.98) 02/13/96 07/12/96 Medical Innovations Inc 13.85 18.40 5.71 5.71 37.67 02/15/96 04/29/96 LDI Corp 31.20 21.48 49.09 26.15 5.81 02/28/96 07/11/96 Salton/Maxim Housewares Inc (0.19) 12.84 3.81 1.65 (9.05) 03/13/96 09/27/96 DeSoto Inc 65.41 53.00 80.00 118.57 53.00 04/16/96 05/31/96 CIS Technologies Inc 50.50 30.16 30.16 (5.57) 33.78 04/22/96 06/04/96 Cornerstone Natural Gas Co 28.00 29.73 100.00 134.15 182.35 05/03/96 03/17/98 Homeowners Group Inc 22.07 26.77 93.88 135.43 17.71 05/06/96 09/03/96 Transcisco Industries Inc 15.56 36.84 28.40 57.58 271.43 05/07/96 09/03/96 NMR of America Inc 41.43 86.79 90.39 98.08 37.56 05/13/96 08/30/96 MDT Corp 12.82 22.22 4.76 15.79 (6.38) 05/15/96 09/10/96 Carlisle Plastics Inc 38.20 38.20 41.83 73.94 31.51 06/03/96 01/09/97 Bio-Dental Technologies Corp 64.99 43.28 109.42 194.49 65.09 06/10/96 07/22/96 SysteMed Inc (4.00) 4.35 9.09 (23.81) (56.36) 06/11/96 09/03/96 Computer Identics Corp 63.11 54.53 54.53 72.71 19.84 06/17/96 10/07/96 Scanforms Inc 61.40 61.40 58.62 70.37 130.00 06/21/96 08/23/96 Computer Identics Corp 28.33 46.67 71.11 105.33 208.00 06/24/96 12/05/96 MEM Co 13.21 81.82 90.48 93.55 114.29 07/31/96 11/13/96 Calgene Inc 64.10 80.28 39.13 31.96 14.29 08/13/96 02/27/97 LaTex Resources Inc 181.14 202.77 181.14 228.00 107.16 09/10/96 01/03/97 GreenStone Industries Corp 33.33 52.73 58.49 42.37 50.00 09/11/96 03/04/97 Chempower Inc 48.06 48.06 45.88 50.30 65.33 09/16/96 12/06/96 Proler International Corp 132.26 125.00 148.28 33.33 9.09 09/26/96 01/24/97 General Physics Corp 16.57 31.61 36.00 23.64 45.71 10/02/96 12/27/96 Software Publishing Corp 14.86 10.90 60.80 (88.09) 10/03/96 11/12/97 Pittencrieff Communications 8.95 14.40 30.74 (13.08) 29.14 10/04/96 12/31/96 Pet Food Warehouse Inc 22.93 26.00 48.24 48.24 57.50 10/30/96 12/20/96 Pacific Rehab & Sports Med 67.74 62.50 48.57 60.00 6.12 11/05/96 03/14/97 Panatech Research & Development 55.56 55.56 51.35 11/25/96 02/28/97 American Studios Inc 90.48 110.53 166.67 (65.28) (73.33) 12/06/96 03/18/97 MaxServ Inc (Sears Roebuck) 19.23 67.57 55.00 67.57 129.63 12/09/96 02/28/97 Houston Biotechnology Inc 52.00 62.13 52.00 (93.01) (92.05) 01/24/97 07/02/97 INCSTAR Corp (Sorin Biomedical) 42.93 53.21 68.53 01/28/97 05/21/97 Calgene Inc (Monsanto Co) 62.03 60.00 60.00 60.00 42.22 01/30/97 08/12/97 AST Research Inc 16.76 8.00 20.00 23.43 (31.43) 02/07/97 08/01/97 MS Financial (MS Diversified) 20.00 46.67 10.00 1.54 (70.67) 02/11/97 07/31/97 Serv-Tech Inc 32.00 60.00 88.57 129.57 12.34 03/04/97 06/27/97 Audio King Corp 60.00 68.00 68.00 68.00 (18.05) 04/15/97 06/30/97 Kurzweil Applied Intelligence 83.83 69.69 66.49 84.00 63.56 04/30/97 07/25/97 Arden Industrial Products Inc 41.18 50.00 37.14 20.00 26.32 05/01/97 08/01/97 Cryenco Sciences Inc 69.23 76.00 72.55 41.94 (26.67) 05/08/97 09/10/97 Imex Medical Systems Inc 7.90 2.76 2.76 (30.32) (32.50) 06/16/97 09/30/97 Frederick's of Hollywood, Inc 48.85 44.47 25.95 93.75 85.07 06/24/97 07/25/97 Jillians Entertainment Corp 14.29 77.78 45.46 220.00 166.67 07/23/97 12/02/97 Rudy's Restaurant Group 50.94 70.21 72.04 60.00 5.26 08/01/97 09/26/97 Community Care of America Inc 23.08 18.52 88.24 68.42 (48.39) 08/07/97 12/02/97 Magnetic Technologies Corp 25.00 25.00 33.33 42.86 33.33 08/14/97 12/31/97 Allied Capital Advisers Inc 10.41 4.68 10.41 8.97 (28.00) 09/02/97 12/03/97 Ground Round Restaurants 10.00 10.00 (5.71) 14.78 (34.00) 09/04/97 12/30/97 Cinergi Pictures Entertainment 26.90 24.75 56.60 236.00 26.00 09/26/97 09/26/97 Laclede Steel Co 106.45 106.45 106.45 113.33 88.24 10/10/97 01/07/98 Puro Water Group Inc 33.95 47.69 44.00 44.00 10/13/97 03/19/98 Integrated Brands Inc 69.94 106.35 167.50 501.33 381.07 11/03/97 02/25/98 Individual Inc 0.92 14.93 (7.02) 47.71 (6.00) 11/04/97 01/12/98 ComputerVision Corp 28.31 69.92 18.63 14.33 (55.09) 11/12/97 03/03/98 PureTec Corp 28.74 34.94 31.77 143.48 69.70 11/24/97 01/07/98 General Host Corp 60.00 62.96 79.59 51.72 77.69 12/02/97 03/17/98 Staodyn Inc 47.38 47.38 89.49 100.45 152.95 12/12/97 02/13/98 Impact Systems Inc 57.14 49.15 44.26 69.23 109.52 12/12/97 09/10/98 Timber Lodge Steakhouse Inc 74.13 74.13 81.19 94.32 139.43 12/15/97 02/24/98 MetroGolf Inc 20.00 20.00 (11.11) (25.00) (75.51) 12/22/97 05/20/98 Artistic Greetings Inc 28.45 47.10 52.00 47.10 21.60 SUMMARY OF GAS UNITS OUTSTANDING PRE-FINANCING ASSUMPTIONS ___________________________________ (a) The number of GP units issued reflect the assumption of a 6,587 common unit equity offering to refinance certain of the assumed Oil debt. Hence, the number of GP units reflected in the pro forma column do not equal 2% of the pro forma outstanding units shown above but do equal exactly 2% of the pro forma units outstanding on a post financing basis. Page 7
- ----------------------------------------------------------------------------------------------------------------------- Distributed to Oil Issued to Oil -------------------- -------------------- Type of Units Current Public Insiders Public Insiders Retired Pro Forma - -------------- ------- ------ -------- ------ -------- ------- --------- Common 3,832 - - - - - 3,832 Senior Subordinated - - - 2,738 559 - 3,297 Subordinated 2,396 - 754 - - 1,642 754 General Partner (a) 127 - 127 - 168 - 295 -------- --------- 6,355 8,178 EQUITY PURCHASE PRICE CALCULATION IMPLIED EQUITY VALUE OF OIL'S ASSETS (units in thousands, $ in millions, except per unit amounts) - -------------------------------------------------------------------------------- Divided by 26.563 shares of Oil's Common stock = $3.15 per share Page 8
Purchase Price of Oil's Equity Purchase Price of Oil's Equity ------------------------------ -------------------------------------------------------- Value of Securities Equity Value of Oil's Value of Oil's GP and Event Paid to Oil Shareholders Heating Oil Assets Subordinated Units in Star - ------------------ ------------------------------ ------------------------ -------------------------- Issuance of Senior Subordinated Units to Public Oil Shareholders 2,738 x $19.74 ------------------------------ $54.1 $54.1 - Distribution of General Partner Unit to Inside Oil Shareholders 127 x $21.28 ------------------------------ $2.7 - $2.7 Distribution of Subordinated Units to Inside Oil Shareholders 754 x $16.33 ------------------------------ $12.3 - $12.3 Issuance of General Partner Units to Inside Oil Shareholders 168 x $21.28 $3.6 - ------------------------------ $3.6 Issuance of Senior Subordinated Units to Inside Oil Shareholders 559 x $19.74 ------------------------------ $11.0 $11.0 - Retire Subordinated Units 1,642 x $16.33 --------------------- ($26.8) $26.8 $41.8 $41.8 ----------- ------------------------------------ Total $83.7 $83.7 SUMMARY OBSERVATIONS COMPARATIVE STOCK PRICE PERFORMANCE [_] A.G. Edwards has compared the historical prices of Gas' and Oil's common unit/stock to an index of selected companies. (See Appendix E - "Exchange Ratio Analysis.") [_] While Gas' unit price has remained relatively flat over the last two years, in line with the comparable index, Oil's stock price has declined significantly over this period. (a) Composite index includes the following companies: APU, CNO, HPG, EGP, NPL, SPH. (b) As of 4/22/98 [Gas Graph appears here] [Oil Graph appears here] Page 9
COMPARATIVE STOCK PRICE PERFORMANCE ---------------------------------------------------------------------------- Premium of Current Price to Price ----------------------------------------------------------------------------- Current 2 Years 1 Year 180 Days 60 Days 30 Days Price (b) Prior Prior Prior Prior Prior ----------------------------------------------------------------------------- Gas 21.94 5.1% 1.4% -2.0% -6.2% -0.3% Oil 1.63 -76.8% -45.8% -48.1% -35.0% -0.9% Composite (a) 21.96 -2.2% 6.4% -5.4% -4.4% 1.3% SUMMARY OBSERVATIONS (continued) PREMIUM PAID ANALYSIS [_] A.G. Edwards calculated the implied equity purchase price of Oil and compared the premium to Oil's current and historical prices. These premiums were compared to premiums paid in "Merger of Equals" transactions. (See Appendix D -"Premium Paid Analysis.") ______________________ (a) Adjusted mean excludes highest and lowest data points. Page 10
------------------------------------------------------------------------- Mergers of Equals ------------------------- Oil Median Adj. Mean(a) --- ------ ------------- Premium to stock price one day prior 93.8% 9.3% 10.1% Premium to stock price one week prior 97.6% 10.0% 8.0% Premium to stock price one month prior 101.6% 6.5% 6.5% SUMMARY OBSERVATIONS (continued) EXCHANGE RATIO ANALYSIS [_] A.G. Edwards reviewed the historical prices of Gas' and Oil's common unit/stock and the implied exchange ratio and compared them to the proposed Exchange Ratio of 6.96x, which represents the proposed Oil price of $3.15/share and Gas price of $21.94/unit. (See Appendix E - "Exchange Ratio Analysis.") [_] Due to the price decline of Oil's common stock over the past year, the current exchange ratio, based upon the current unit/share prices of Gas and Oil ($21.938 and $1.625, respectively, as of April 22, 1998), represents a premium of 93.8% to the current market price of Oil. [_] Relative to current prices, the exchange ratio at $3.15 is low, however, it is in line with the average prices of the companies' equity over the past two years. [GRAPH APPEARS HERE] Page 11 SUMMARY OBSERVATIONS (continued) TRANSACTION MULTIPLE ANALYSIS [_] A.G. Edwards calculated the implied transaction multiple paid for Oil on a firm valuation basis, including costs and certain adjustments associated with the Transaction, and arrived at the following multiples: EBITDA Multiple ------ -------- 1997 Adjusted 9.1x Adjusted 1998 Budget 10.2x 1999 Projected 7.6x (See Appendix F - "Transaction Multiple Analysis.") [_] A.G. Edwards calculated the implied transaction multiple paid for Oil's existing heating oil business, excluding the valuation attributable to consolidation opportunities, and arrived at the following multiples: EBITDA Multiple ------ -------- 1997 Adjusted 6.1x Adjusted 1998 Budget 6.9x 1999 Projected 5.1x (See Appendix F - "Transaction Multiple Analysis.") [_] Oil has historically paid EBITDA multiples averaging 4.5x, with a range of 2.7x to 6.5x, for its acquisitions. [_] Gas has historically paid EBITDA multiples averaging 7.0x, with a range of 5.1x to 7.3x, for its acquisitions. Page 12 SUMMARY OBSERVATIONS (continued) RELATIVE CONTRIBUTION ANALYSIS [_] A.G. Edwards reviewed and compared the relative contribution of Gas and Oil to the pro forma combined equity based upon 1996, 1997, 1998E and 1999E EBITDA. (See Appendix G - "Relative Contribution Analysis") Other measures of relative contribution analysis were non-meaningful. [_] For Gas' contribution of approximately 34% of the combined entity's EBITDA(a), it will receive approximately 37% of the implied firm value. [GRAPHS APPEAR HERE] _____________________________________________ (a) For purposes of its analysis, A.G. Edwards converted Oil's historical December 31st fiscal year-end to a September 30th fiscal year-end for comparison purposes. Oil's projections are based on a December 31st calendar year end. Other measures of relative contribution analysis are non- meaningful. (b) Includes only heating oil EBITDA for Oil. (c) Firm value for all of Oil. (d) Implied firm value of only Oil's heating oil assets. Page 13 Summary Observations (continued) Accretion/Dilution Analysis [_] A.G. Edwards reviewed the distributable cash flow per unit and the related accretion, common unit coverage and total unit coverage on a pro forma basis (See Appendix H - "Accretion/Dilution Analysis"). [_] For the purpose of this analysis, A.G. Edwards had PaineWebber run its pro forma financial model for six scenarios to determine the sensitivity of certain assumptions.
Base Case ----------------------------- 4.1% Attrition Gas $0.01 Margin growth Stand-alone $30.0mm at 4.75x Acquisitions ----------- ----------------------------- DCF per unit 1998E (a) $1.270 $1.570 1998N (b) 1.930 2.190 1999P 2.250 3.200 Accretion/Dilution 1998E (a) 23.6% 1998N (b) 13.5% 1999P 42.2% Common unit coverage 1998E (a) 0.94x 0.99x 1998N (b) 1.42 1.38 1999P 1.66 1.93 Total unit coverage 1998E (a) 0.58x 0.71x 1998N (b) 0.88 0.99 1999P 1.02 1.39
Sensitivity Cases ----------------------------------------------------- Attrition Margin Growth Acquisitions --------------- ---------------- ------------- 6.00% 2.00% $0.000 $0.015 $50mm at 5.75 ----- ----- ------ ------ ------------- DCF per unit 1998E (a) $1.570 $1.570 $1.570 $1.570 $1.570 1998N (b) 2.190 2.190 2.190 2.190 2.190 1999P 3.080 3.330 2.910 3.350 3.480 Aceration/Dilution 1998E (a) 23.6% 23.6% 23.6% 23.6% 23.6% 1998N (b) 13.5% 13.5% 13.5% 13.5% 13.5% 1999P 36.9% 48.0% 29.3% 48.9% 54.7% Common Unit Coverage 1998E (a) 0.99x 0.99x 0.99x 0.99x 0.99x 1998N (b) 1.38 1.38 1.38 1.38 1.38 1999P 1.86 2.01 1.76 2.02 2.10 Total Unit Coverage 1998E (a) 0.71x 0.71x 0.71x 0.71x 0.71x 1998N (b) 0.99 0.99 0.99 0.99 0.99 1999P 1.34 1.45 1.26 1.45 1.51 __________________ (a) 1998 estimate assumes no acquisitions for either company, and is adjusted to reflect actual results through 3/31/98 . (b) 1998 budgeted. Page 14
High Case ---------------------------- 4.1% Attrition $0.015 Margin growth $50mm at 5.75x Acquisitions DCT per unit 1998E (a) $1.570 1998N (b) 2.190 1999P 3.640 Accretion/Dilution 1998E (a) 23.6% 1998N (b) 13.5% 1999P 61.8% Common unit coverage 1998E (a) 0.99x 1998N (b) 1.38 1999P 2.20 Total unit coverage 1998E (a) 0.71x 1998N (b) 0.99 1999P 1.58 Summary Observations (continued) Public Company Analysis [_] A.G. Edwards compared certain financial and market information of Gas on both a stand-alone and pro forma basis to that of certain public master limited partnerships (See Appendix I -- Public Company Analysis"). Public Comparable Companies (a) (a) Public comparable companies include: APU, CNO, FGP, HPG, CNL and SPH (b) Firm value/adjusted 1998 budget EBITDA. (c) Firm value/1999 estimated EBITDA. (d) Equity market cup/adjusted 1998 budget EBITDA. (e) Equity market cap/1999 estimated DCF. (f) Adjusted 1998 budget. (g) 1999 estimates. (h) Adjusted 1998 budget. (i) 1999 estimates. Page 15
- --------------------------------------------------------------------------------------------------------------- Public Public Pro forma Company Company Gas Gas Medians Ranges - --------------------------------------------------------------------------------------------------------------- Yield 10.0% 10.5% 9.6% 8.5% to 10.6% Firm value/LTM EBITDA 12.7x (b) 10.8x (b) 12.5x 9.8x to 16.7x Firm value/1998 normalized EBITDA 8.7x (c) 7.9x (c) 11.5x 10.3x to 13.7x Equity Market Cap/LTM DCF 18.0x (d) 14.0x (d) 15.7x 9.4x to 25.5x Equity Market Cap/1998 normalized DCF 9.7x (e) 7.5x (e) 13.9x 11.6x to 16.9x LTM common unit coverage 0.9x (f) 1.0x (f) 1.4x 0.6x to 1.5x 1998E common unit coverage 1.7x (g) 1.8x (g) 1.4x 0.9x to 1.9x LTM total unit coverage 0.6x (h) 0.7x (h) 0.7x 0.4x to 1.0x 1998E total unit coverage 1.0x (i) 1.3x (i) 0.7x 0.7x to 1.0x - --------------------------------------------------------------------------------------------------------------- Summary Observations (continued) DISCOUNTED CASH FLOW ANALYSIS [_] A.G. Edwards calculated the implied present value of estimated unlevered free cash flows for Gas on both a stand-alone and pro forma basis (See Appendix J -- "Discounted Cash Flow Analysis"). [_] Key assumptions used in the analysis were: - Oil maintaining a flat 4.1% attrition rate; relatively no margin improvement; and completing $30 million in acquisitions each year at a 4.75x EBITDA multiple. - A 7.9% weighted average cost of capital for both cases. (See Appendix B, page 24 and Appendix K, page 57). - A 10.2x terminal EBITDA multiple, representing the current year normalized EBITDA. ____________________________________________________ (a) Represent total projected debt less cash as of 9/30/98. (b) Total units include common, subordinated and GP units. (c) Current market value of common units is $84,065. Page 16
DISCOUNTED CASH FLOW -------------------------------------------------------------------------------------------- Net Present Original Equity value Present Current Value Common units/ to Original ($ in thousands) Value Net Debt (a) of Equity Total units (b) Common Units (c) -------------------------------------------------------------------------------------------- Pro Forma $970,827 ($297,334) $673,493 26.0% $174,793 Gas Stand-alone $329,620 ($102,956) $226,664 60.3% $136,669 ---------- Increase in value to original common unit holders: $ 38,124 ========== SUMMARY OBSERVATIONS (continued) POTENTIAL QUALITATIVE ADVANTAGES AND DISADVANTAGES TO GAS UNITHOLDERS Page 17
Advantages Disadvantages ---------- ------------- . Geographic diversification . Market perception of heating oil . Product diversification . Impact of attrition on growth . Critical mass . MQD reserves & coverage -acquisition programs -economies of scale . Institutional ownership -investor profile -cross marketing . Potential for NYSE listing . Market liquidity PRELIMINARY REPORT TO GAS' SPECIAL COMMITTEE [_] A.G. Edwards has initiated a full diligence review of Oil and has updated its earlier reviews of Gas, including: visits to corporate headquarters; meetings with senior operations and financial officers; review of financial statements, projections, documents and information; evaluation and revision of alternative modeling of the Transaction with Oil's financial advisor; visit to Long Island calling center and meeting with Oil's former consultant and now Vice President; meeting with A.G. Edwards' equity research analyst covering MLP's; and other relevant inquiries regarding operations, acquisitions, financings and other matters. [_] A.G. Edwards preliminary diligence and work has resulted in certain tentative conclusions and observations regarding Oil and Gas which differ from its original expectations and perceptions, including: - the anemic heating season in first quarter of calendar 1998 had a greater adverse impact on Gas than on Oil; - Oil has made strides to implement key portions of Oil's plan and the McKinsey report, including corporate identification, customer communications and implementation of a service culture, regionalization, cross marketing arrangements and rationalization of the management team; - although the El Nino affect distorted the first quarter of 1998, Oil's attrition was moderated and its pricing strategy was enhanced; and - Gas has demonstrated an ability to make propane acquisitions on a tuck-in and market expansion basis, and has already agreed to acquire a heating oil business. Page 18 PRELIMINARY REPORT TO GAS' SPECIAL COMMITTEE (continued) [_] Although A.G. Edwards does not presently have an adequate basis to form any opinion regarding the Transaction, A.G. Edwards does recommend that the Special Committee and its advisors proceed with its careful consideration and evaluation of the proposed Transaction. [_] A.G. Edwards requests that Joel Swanson, Esq. and Baker & Botts, LLP consult with Oil's attorneys regarding the proposed resolution of the myriad of legal issues involving tax, partnership and corporate compliance and the timing of the documentation of the Transaction in terms of definitive agreements, proxy statements and the like. [_] A.G. Edwards perceives Gas as taking appropriate steps to assure procedural fairness of the Transaction including the appointment of the Special Committee, the engagement of counsel and financial advisor and the approval of the Transaction by the majority of Unitholders. The Special Committee should consider whether Oil should be obligated to take parallel action to assure procedural fairness. Page 19 PRELIMINARY REPORT TO GAS' SPECIAL COMMITTEE (continued) [_] A.G. Edwards suggests that the Special Committee's consideration of substantive fairness to the Common Unitholders should include an evaluation by the Special Committee and its advisors of: - whether Gas' partnership agreement should be amended to raise the future required minimum quarterly distribution ("MQD") for common unitholders and, if so, by how much and for what period(s); - whether the $3.15 exchange ratio should be lowered and, if so, by how much; - whether the definitive agreements should be drafted consistent with the PaineWebber models so that any excess funds expended by Oil for debt refinancings and the Transaction fees in general should automatically reduce the aggregate consideration paid by Gas for the acquisition of Oil by an equal amount; - whether cash balances should be set aside for (a) the funding of any unearned MQD to be paid to the new unitholders, (b) the funding of Gas' surplus balance to account for the addition of new outstanding units, and (c) the funding of any off- balance sheet liabilities, such as pension or tax; - whether cash payments should be required for the issuance of new general partner interests and, if so, by how much; and - such other issues suggested by the members of the Special Committee and its counsel. [_] A.G. Edwards recommends that the Special Committee communicate suggested revisions of the Transaction to management of Oil for their consideration. Page 20
Appendices to PRELIMINARY REPORT TO THE SPECIAL COMMITTEE OF GAS A.G. EDWARDS & SONS, INC. INVESTMENT BANKING April 28, 1998 TABLE OF CONTENTS
Appendices ---------- Overview of Oil...................................... A Overview of Gas...................................... B Pro Forma Ownership Analysis......................... C Premium Paid Analysis................................ D Exchange Ratio Analysis.............................. E Transaction Multiple Analysis........................ F Relative Contribution Analysis....................... G Accretion/Dilution Analysis.......................... H Public Company Analysis.............................. I Discounted Cash Flow Analysis........................ J Capital Structure Analysis........................... K PaineWebber Models as of 4/24/98..................... L OVERVIEW OF OIL [_] Oil is the largest retail distributor of home heating oil in the United States, serving approximately 350,000 customers in the Northeast and Mid- Atlantic states, including the metropolitan areas of Baltimore, Boston, New York City and Washington, D.C. [_] Since 1979 Oil has been the principal consolidator in the industry, having acquired 188 retail heating oil distributors. As a result of these acquisitions, heating oil volume sold has increased from 59.4 million gallons in 1980 to 410.3 million gallons in 1997. [_] Despite Oil's size, its customer base represents only approximately 5% of the residential home heating oil customers in the Northeast, uniquely positioning the company to continue its strategy of growth through acquisitions. [_] Oil's strongest competitive advantage is clearly its size, particularly in relation to its competitors. Oil's size provides it significant opportunities not afforded to most of the industry's small, local, family- owned businesses. These opportunities include attracting and retaining a professional management team, accessing and maintaining the latest developments in computer and communications technology, and achieving significant operating and marketing efficiencies. [_] Oil's primary goals currently include: reducing operating costs and increasing profitability; reducing customer attrition through a focus on attracting new customers (better structured, upgraded sales force, brand image, cross marketing agreements) and retaining existing customers (improving service and having all employees function as salespeople); and, given the financial wherewithal, exploit its ability to further consolidate the home heating oil market. Page 1 Overview of Oil Summary Financial Analysis ($ in thousands, except per share data) - ------------------------------------------ (a) Includes Class A, B and C shares. (b) Includes debt and redeemable and exchangeable preferred stock. (c) EBITDA is defined as gross profit less SG&A expenses and direct delivery expense. (d) Represents EBITDA less interest expense, maintenance capital expenditures, and cash taxes. (e) Source: management's projections; 1998 EBITDA is before acquisitions, adjusted for actual 1Q results. See pages 9 to 13. (f) Calculated based on (Class A + Class C* market price) + [(Class B* ($17.50+$0.2763)] (g) Includes balance in the cash collateral account which is required by the company's credit agreement. Page 2
- -------------------------------------------------------------------------------------------------------------------- State of Incorporation: Minnesota Market Price (4/22/98): $1.625 Headquarters: Stamford, CT 52-Week High - Low: $3.875 - 1.438 Auditors: KPMG Peat Marwick LLP Shares Outstanding: 26,563 (a) Primary Exchange: NASDAQ Most Recent Fiscal Year End: 12/31/97 Primary Area of Focus: Northeast and Mid-Atlantic U.S. Selected Data - -------------------------------------------------------------------------------------------------------------------- Total Net Loss Loss Distributable DCF Acquisition Year Revenues EBITDA (c) to Common per Share Cash Flow (d) per Share CapEx. - ----------------------------------------------------------------------------------------------------------------------------------- 1994 $ 546,677 $ 55,387 ($7,776) ($0.36) $ 28,020 $ 1.29 $ 26,411 1995 609,507 56,753 (26,742) (1.06) 14,461 0.57 26,438 1996 608,161 42,070 (30,704) (1.20) 6,158 0.24 28,493 1997 548,141 36,010 (27,543) (1.06) 842 0.03 16,252 Proj- 1998 (e) 38,500 Proj- 1999 (e) 51,657 - -------------------------------------------------------------------------- BOOK CAPITALIZATION - -------------------- (12/31/97) ----------- Total Debt (b) $ 331,004 Total Stockholders' Equity (177,033) ----------- TOTAL $ 153,971 =========== ESTIMATED FIRM VALUE - -------------------- Market Value of Total Debt (b) $ 314,473 Market Value of Common (f) 43,347 ----------- TOTAL $ 357,819 =========== Less: Cash and Equivalents (g) 11,740 NET FIRM VALUE $ 346,079 =========== MULTIPLE ANALYSIS - ----------------- CURRENT Net Firm Value/ 97A EBITDA: 9.6X Net Firm Value/ 98E EBITDA: 9.0 Net Firm Value/ 99E EBITDA: 6.7 PROPOSED $3.15 PRICE Net Firm Value/ 97A EBITDA: 11.1X Net Firm Value/ 98E EBITDA: 10.3 Net Firm Value/ 99E EBITDA: 7.7 - -------------------------------------------------------------------------- OVERVIEW OF OIL SELECTED FINANCIAL DATA ($ IN THOUSANDS) __________________________________________________ (a) Gas operations consolidated into OIL. (b) Weighted shares do not include Class B shares. (c) Calculated as gross profit minus SG&A expense and direct delivery expense. (d) Excludes $867 for early extinguishment of debt. (e) Excludes $655 for early extinguishment of debt. (f) Excludes $1,436 for early extinguishment of debt. (g) Excludes $6,414 for early extinguishment of debt. (h) Excludes $11,400 gals on sale of TLC. (i) Management's estimates. Page 3
==================================================================================================================== HISTORICAL YEARS ENDED DECEMBER 31, --------------------------------------------------------------------------------- 1993 % 1994(a) % 1995(a) % 1996 % - -------------------------------------------------------------------------------------------------------------------- Net sales $538,526 100.0% $546,677 100.0% $609,507 100.0% $608,161 100.0% % Growth 1.5% 11.5% -0.2% Cost of sales 366,810 68.1% $362,981 66.4% 387,825 63.6% 427,388 03.3 --------------- --------------- -------------- --------------- Gross profit 171,717 31.9% 183,696 33.6% 221,682 36.4% 180,773 29.7% SG&A expenses 93,379 17.3% 95,314 17.4% 128,295 21.0% 105,601 17.4% Direct delivery expense 29,902 5.6% 32,995 6.0% 36,634 6.0% 33,102 5.4% Restructuring charges - - - 1,150 0.2% Corporate identity expenses - - - 2,659 0.4% Pension curtailment expense - - - 557 0.1% Amortization of customer lists 23,183 4.3% 19,748 3.6% 20,527 3.4% 18,611 3.1% Depreciation of plant and equipment 5,933 1.1% 6,469 1.2% 12,374 2.0% 6,574 1.1% Amortization of deferred charges 5,548 1.0% 6,177 1.1% 6,142 1.0% 4,760 0.8% Provision for supplemental benefits 264 0.0% 373 0.1% 1,407 0.2% 873 0.1% --------------- -------------- -------------- --------------- Operating income (loss) 13,509 2.5% 22,619 4.1% 16,303 2.7% 6,886 1.1% Interest expense, net (20,508) -3.8% (23,766) -4.3% (38,792) -6.4% (32,412) -5.3% Other income (expense) (165) 0.0% 109 0.0% 218 0.0% 1,842 0.3% --------------- --------------- --------------- ---------------- Loss before income taxes, equity interest and extraordinary item (7,164) -1.3% (1,038) -0.2% (22,271) -3.7% (23,684) -3.9% Income taxes 400 0.1% 600 0.1% 500 0.1% 500 0.1% --------------- --------------- --------------- ---------------- Loss before equity interest and extraordinary item (7,564) -1.4% (1,638) -0.3% (22,771) -3.7% (24,184) -4.0% Share of income (loss) of Gas - 0.0% (1,973) -0.4% 728 0.1% 2,283 0.4% --------------- --------------- --------------- ---------------- Extraordinary item-loss on early extinguishment of debt (867) -0.2% (655) -0.1% (1,436) -0.2% (6,414) -1.1% --------------- -------------- --------------- ---------------- Net loss (8,431) -1.6% (4,266) -0.8% (23,479) -3.9% (28,315) -4.7% Preferred stock dividends (3,367) -0.6% (3,510) -0.6% (3,263) -0.5% (2,389) -0.4% --------------- --------------- --------------- ---------------- Net loss to common ($11,798) -2.2% ($7,776) -1.4% ($26,742) -4.4% ($30,704) -5.0% ======== ===== ======== ==== ======== ==== ======== ==== Net loss per share ($0.55) ($0.36) ($1.06) ($1.20) ======== ======== ======== ======== Weighted average shares outstanding(b) 21,538 21,745 25,309 25,581 EBITDA(c) $48,437 9.0% $55,387 10.1% $56,753 9.3% $42,070 6.9% Adjusted net loss to common (10,931) -2.0%(d) (7,121) -1.3%(e) (25,306) -4.2%(f) (22,583) -3.7%(g) Adjusted net loss per share ($0.51) ($0.33) ($1.00) ($0.88) ======== ======== ======== ======== Acquisition capital expenditures $15,399 $26,411 $26,438 $28,493 Maintenance capital expenditures(i) 3,000 3,000 3,000 3,000 EBITDA/total assets 18.9% 13.9% 15.9% 15.3% Distributable cash flow 24,528 28,020 14,461 6,158 1997 % --------------- Net sales $548,141 100.0% % Growth -9.9% Cost of sales 379,748 69.3% --------------- Gross profit 168,393 30.7% SG&A expenses 102,377 18.7% Direct delivery expense 30,006 5.5% Restructuring charges 2,850 0.5% Corporate identity expenses 4,136 0.8% Pension curtailment expense 654 0.1% Amortization of customer lists 17,903 3.3% Depreciation of plant and equipment 7,204 1.3% Amortization of deferred charges 4,639 0.8% Provision for supplemental benefits 565 0.1% --------------- Operating income (loss) (1,941) 4.0% Interest expense, net (31,668) -5.8% Other income (expense) 11,445 2.1% --------------- Loss before income taxes, equity interest and extraordinary item (22,164) -4.0% Income taxes 500 0.1% --------------- Loss before equity interest and extraordinary item (22,664) -4.1% Share of income (loss) of Gas (235) 0.0% --------------- Extraordinary item-loss on early extinguishment of debt - --------------- Net loss (22,899) -4.2% Preferred stock dividends (4,644) -0.8% -------------- Net loss to common ($27,543) -5.0% ======== ==== Net loss per share ($1.06) ======== Weighted average shares outstanding(b) 26,039 EBITDA(c) $36,010 6.6% Adjusted net loss to common (35,439) -6.5%(b) Adjusted net loss per share ($1.36) ======== Acquisition capital expenditures $16,252 Maintenance capital expenditures(i) 3,000 EBITDA/total assets 14.5% Distributable cash flow 842 OVERVIEW OF OIL MARKET PRICE ANALYSIS PRICE AND VOLUME 12/15/95 - 4/22/98 [GRAPH APPEARS HERE] Page 4 OVERVIEW OF OIL CLASS A COMMON STOCK TRADING HISTORY - VOLUME DISTRIBUTION 1995 - 1998 (a) __________________ (a) Through April 22, 1998. (b) Based on 23,954,560 Class A shares outstanding (c) Based on 12,085,729 Class A shares by institutional and retail public holders. Page 5
- ------------------------------------------------------------------------------------------------------------------------------------ 1995 1996 1997 1998 (a) -------------------- ------------------- ------------------ -------------------- Price Per Share Volume % Volume % Volume % Volume % ---------------------- -------------------- ------------------- ------------------ -------------------- Greater Than $9,400 9.200 9,400 600 100.00% 9.000 9,200 0 99.99% 8.800 9,000 49,200 99.99% 8.600 8,800 6,800 99.41% 8.400 8,600 67,500 99.33% 8.200 8,400 289,100 98.54% 8.000 8,200 161,500 95.13% 1,600 100.00% 7.800 8,000 873,500 93.22% 47,400 99.96% 7.600 7,800 245,800 82.92% 236,200 98.87% 7.400 7,600 193,300 80.02% 185,000 93.44% 7.200 7,400 1,154,800 77.74% 822,300 89.19% 7.000 7,200 5,190,500 64.12% 1,507,100 70.28% 6.800 7,000 246,000 2.90% 815,300 35.63% 6.600 6.800 498,500 16.88% 6.400 6.600 129,300 5.42% 417,300 100.00% 6.200 6.400 37,600 2.45% 526,900 96.34% 6.000 6.200 44,100 1.58% 417,700 91.72% 5.800 6.000 24,700 0.57% 110,200 88.06% 5.600 5.800 868,000 87.09% 5.400 5.600 143,300 79.48% 5.200 5.400 92,600 78.22% 5.000 5.200 940,500 77.41% 4.800 5.000 142,200 69.16% 4.600 4.800 20,200 67.92% 4.400 4.600 13,900 67.74% 4.200 4.400 - 67.62% 4.000 4.200 - 67.62% 3.800 4.000 117,100 67.62% 3.600 3.800 370,600 66.59% 3.400 3.600 250,900 63.34% 3.200 3.400 1,236,200 61.14% -------------------------------------------------------------------------------------------------------- PROPOSED EXCHANGE PRICE 3.000 3.200 1,652,500 50,30% -------------------------------------------------------------------------------------------------------- 2.800 3.000 2,785,300 35.1% 130,000 100.00% 2.600 2.800 788,500 11.39% 249,100 96.12% 2.400 2.600 430,100 4.47% 270,800 88.69% 2.200 2.400 79,800 0.70% 1,044,100 80.61% 2.000 2.200 357,500 49.45% 1.800 2.000 311,500 38.78% -------------------------------------------------------------------------------------------------------- CURRENT PRICE 1.600 1.800 277,900 29.48% -------------------------------------------------------------------------------------------------------- 1.400 1.600 710,000 21.19% Less Than $1.400 ---------- ---------- ----------- ---------- Total Stock for Period 8,478,600 4,349,500 11,403,800 3,350,900 Cumulative % of Total Traded 30.74% 15.77% 41.34% 12.15% % Traded of Current Stock Out (b) 35.39% 18.16% 47.61% 13.99% % Traded of Current Float (c) 70.15% 35.99% 94.36% 27.73% Wtd. Average Stock Price $7.31 $7.07 $3.90 $2.09 - --------------------------------------------------------------------- 1995 - 1998 (a) -------------------- Price Per Share Volume % ---------------------- -------------------- Greater Than $9,400 9.200 9,400 600 100.00% 9.000 9,200 - 100.00% 8.800 9,000 49,200 100.00% 8.600 8,800 6,800 99.82% 8.400 8,600 67,500 99.79% 8.200 8,400 289,100 99.55% 8.000 8,200 163,100 98.50% 7.800 8,000 920,900 97.91% 7.600 7,800 482,000 94.57% 7.400 7,600 378,300 92.82% 7.200 7,400 1,977,100 91.45% 7.000 7,200 6,697,600 84.29% 6.800 7,000 1,061,700 60.00% 6.600 6.800 498,500 56.15% 6.400 6.600 546,600 54.35% 6.200 6.400 564,500 52.37% 6.000 6.200 461,800 50.32% 5.800 6.000 134,900 48.64% 5.600 5.800 868,000 48.16% 5.400 5.600 143,300 45.01% 5.200 5.400 92,600 44.49% 5.000 5.200 940,500 44.15% 4.800 5.000 142,200 40.74% 4.600 4.800 20,200 40.23% 4.400 4.600 13,900 40.15% 4.200 4.400 - 40.10% 4.000 4.200 - 40.10% 3.800 4.000 117,100 40.10% 3.600 3.800 370,600 39.68% 3.400 3.600 250,900 38.34% 3.200 3.400 1,236,200 37.43% ----------------------------------------- PROPOSED EXCHANGE PRICE 3.000 3.200 1,652,500 32.94% ----------------------------------------- 2.800 3.000 2,915,300 26.95% 2.600 2.800 1,037,600 16.38% 2.400 2.600 700,900 12.62% 2.200 2.400 1,123,900 10.08% 2.000 2.200 357,500 6.01% 1,800 2.000 311,500 4.71% ----------------------------------------- CURRENT PRICE 1,600 1,800 277,000 3.58% ----------------------------------------- 1,400 1,600 710,000 2.57% Less Than $1,400 ----------- Total Stock for Period 27,582,800 Cumulative % of Total Traded 100.00% % Traded of Current Stock Out (b) 115.15% % Traded of Current Float (c) 228.23% Wtd. Average Stock Price $5.13 OVERVIEW OF OIL SHAREHOLDER ANALYSIS (a)
================================================================================ Class A % Of Total Institutions (b) Shrs. Held % Of Total Voting Power - ------------------------------ ---------- ---------- ------------ Dimensional Fund Adv. 621,000 2.6% 1.2% CNA Financial Group 410,900 1.7% 0.8% Barclays Bank plc 353,178 1.5% 0.7% Deltec Asset Mgmt. 250,810 1.0% 0.5% Frank Russell Company 236,386 1.0% 0.5% Wellington Management 224,905 0.9% 0.5% Vanguard Group 215,500 0.9% 0.4% Fleming Overseas 202,611 0.8% 0.4% Bear, Stearns & Co. 167,231 0.7% 0.3% Fidelity Management 118,700 0.5% 0.2% Mellon Bank 115,243 0.5% 0.2% Northern Trust 85,611 0.4% 0.2% ANB Investment Mgmt. 51,100 0.2% 0.1% Prudential Insurance 47,300 0.2% 0.1% World Asset Management 23,937 0.1% 0.0% IBM Retirement Funds 16,300 0.1% 0.0% Miss Pub-Dom Eq 4,600 0.0% 0.0% DLJ Corp. 3,086 0.0% 0.0% Beck, Mack & Oliver 3,000 0.0% 0.0% Legg Mason 2,000 0.0% 0.0% ---------- ---------- ------------ All Institutions (c) 3,153,398 13.2% 6.3% Class A Class C Directors And Officers (C) Title Shrs. Held % Of Total Shrs. Held % Of Total - ----------------------------- ------------------------------------- ---------- ---------- ---------- ---------- Audrey L. Sevin Director and Secretary of Oil and Gas 1,876,863 7.8% 477,716 18.4% Irik P. Sevin Chairman, CEO and Director of Oil 740,438 3.1% 201,641 7.8% Phillip Ean Cohen Director of Oil 679,262 2.8% 113,423 4.4% Thomas J. Edelman Director of Oil and Gas 653,312 2.7% 129,019 5.0% Vincent De Palma VP and GM of New York Region 5,000 0.0% - 0.0% Hanseatic Corporation (d) (e) 1,777,279 7.4% 298,717 11.5% Tortosa (d) - 0.0% 298,717 11.5% Wolfgang Traber (e) Director of Oil and Gas - 0.0% 9,038 0.3% Paul Biddelman (e) Director of Oil and Gas 2,386 0.0% - 0.0% ---------- ---------- ---------- ---------- Total Directors & Officers Holdings 5,734.540 23.9% 1,528,271 58.8% Class A Class C 5% Beneficial Owners Shrs. Held % Of Total Shrs. Held % Of Total - ----------------------------- ---------- ---------- ---------- ---------- Schneider Capital 4,388,920 18.3% - 0.0% Richard O'Connell 1,128,745 4.7% 302,461 11.6% Barcel Corporation 616,626 2.6% 151,231 5.8% ---------- ---------- ---------- ---------- Total 5% Beneficial Holdings 6,134,291 25.6% 453,692 17.5% Total % Of Total Directors And Officers (C) Voting Power Voting Power - ----------------------------- ----------- ------------ Audrey L. Sevin 6,654,023 13.3% Irik P. Sevin 2,756,848 5.5% Phillip Ean Cohen 1,813,492 3.6% Thomas J. Edelman 1,943,502 3.9% Vincent De Palma 5,000 0.0% Hanseatic Corporation (d) (e) 4,764,449 9.5% Tortosa (d) 2,987,170 6.0% Wolfgang Traber (e) 90,380 0.2% Paul Biddelman (e) 2,386 0.0% ----------- ------------ Total Directors & Officers Holdings 21,017,250 42.1% Total % Of Total 5% Beneficial Owners Voting Power Voting Power - ----------------------------- ----------- ------------ Schneider Capital 4,388,920 8.8% Richard O'Connell 4,153,355 8.3% Barcel Corporation 2,128,936 4.3% ----------- ------------ Total 5% Beneficial Holdings 10,671,211 21.4% ____________________________ (a) Based on shares outstanding, most recently available data as of 4/23/98 and does not include options to purchase and Class B shares. (b) Source: Vickers Stock Research Corporation, Bloomberg and Oil's Proxy. (c) Does not include 5% beneficial ownership institutions. (d) Hanseatic Corporation holds shared voting power in Tortosa. (e) Mr. Traber and Mr. Biddelman are executive officers of Hanseatic Corporation. (f) AGE has 29,412 Class A shares in its system. Page 6
- -------------------------------------------------------------------------------------------------------------------- % Of % Of Total % Of Total Summary Class A Total Class C Total Voting Power Voting Power - ------- ---------- --------- ---------- ---------- ------------ ------------ Insider Holdings Directors and Officers as a Group 5,734,540 23.9% 1,528,271 58.8% 21,017,250 42.1% 5% Beneficial Owners 6,134,291 25.6% 453,692 17.5% 10,671,211 21.4% ---------- --------- ---------- ---------- ------------ ------------ 11,868,831 49.5% 1,981,963 76.3% 31,688,461 63.5% Public Holdings Institutional 3,153,398 13.2% 3,153,398 6.3% Retail 8,932,331 (f) 37.3% 8,932,331 17.9% ---------- --------- ------------ ------------ 12,085,729 50.5% 12,085,729 24.2% Other Holdings 615,556 23.7% 6,155,560 12.3% ---------- ---------- ------------ ------------ 615,556 23.7% 6,155,560 12.3% Total 23,954,560 100.0% 2,597,519 100.0% 49,929,750 100.0% ==================================================================================================================== OVERVIEW OF OIL RESEARCH COVERAGE
WHILE OIL HAD DECENT RESEARCH COVERAGE DATE PUBLISHED ESTIMATES UPDATED ----------------- -------------- ----------------- COVERAGE IN 1996, THERE HAVE NOT BEEN ANY Published Research Reports REPORTS PUBLISHED Bear Stearns 9/5/96 10/18/96 RECENTLY. DLJ 8/2/96 -- PaineWebber 7/16/96 11/11/97 Additional Research Jefferies - Hold Page 7
EARNINGS ESTIMATES NUMBER OF ESTIMATES MEAN 1998 MEAN 1999 ------------------ ------------------- --------- --------- IBES 1 $0.70 NA Nelson 1 $0.70 NA OVERVIEW OF OIL DISCOUNTED CASH FLOW ANALYSIS WEIGHTED AVERAGE COST OF CAPITAL DERIVATION ($ IN MILLIONS) - ------------ (a) Source: Bloomberg. (143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Includes preferred stock; not net of cash. (c) Ten-year Treasury rate on April 22, 1998. (d) Bloomberg's reported beta for Oil is .63. (e) Ibhotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (f) Based on Oil's current debt structure. (g) Calculation based upon use of the Capital Asset Pricing Model (CAPM).
- ------------------------------------------------------------------------------------------------------------------------------------ Total Implied Total Total Market Unit Total Market Debt/ Debt as % Un- Levered Val. Debt Price at Units Value of Total of Total levered Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Ont. (Mh) Equity Equity Capital Beta - ------------------------------------------------------------------------------------------------------------------------------------ AmeriGas Partners, L.P. 0.48 $777.8 $25.938 41.9 $1,108.6 70.2% 41.2% 0.282 Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264 Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210 Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227 National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208 Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195 Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203 ----------------------------------------------- Comparable group's average Oil's capitalization--at market unlevered beta: 0.23 Total debt (b) $314.5 87.9% Oil's debt-to-equity ratio: 725.5% Common equity 43.3 12.1% Oil's debt as a percent of total ------ ----- capital: 87.9% $357.8 100.0% Comparable group's beta relevered ----------------------------------------------- for Oil's capital structure: 1.874 ===== Oil's capitalization - at market Total debt(b) $314.5 87.9% Common equity 43.3 12.1% ----- ----- $357.8 100.0% Derivation of Weighted Average Cost of Capital: Market Risk Premium Range (e) - ---------------------------------------------- ----------------------------- 11.3% 12.3% 13.3% Oil's theoretical levered beta(d): 1.874 Assumed % of equity in Oil's capital structure: 21.1% Risk-free rate of return(c): 5.7% Oil's cost of equity range (at various market risk premiums): 26.9% 28.7% 30.6% ==== ==== ==== Oil's assumed tax rate: 0.0% Assumed % of debt in capital structure(b): 87.9% Oil's estimated cost of debt(f): 11.2% Oil's estimated after-tax cost of debt: 11.2% 11.2% 11.2% 11.2% ==== ==== ==== Oil's weighted average cost of capital range(g): 13.1% 13.3% 13.6% ==== ==== ==== OVERVIEW OF OIL EBITDA RECONCILIATION: 1997 (a) - ------------------------------------------------------------------------------ (a) Management's assumptions. Page 9
--------------------------------------------------------------------------- OIL --- 1997 Actual EBITDA $36,010 NORMALIZING ADJUSTMENTS: Weather was 3.8% warmer than 30-year normal 3.8% of 1997 budgeted retail gallons 13,482 gallons Gross profit margin $0.4545 Delivery and garage cost savings ($0.0814) --------- Net impact per gallon $0.3731 $ impact 5,030 Insurance reserve 2,000 ------- 1997 Adjusted EBITDA $43,040 ======= OVERVIEW OF OIL EBITDA RECONCILIATION: 1997 - 1998 (a) (continued) ----------------------------------------------------------------------------- (a) Management's assumptions. (b) Represents the average gross profit per gallon ($.4700 per gallon) offset by $.30 per gallon reduction in operating expenses. (c) Actual gross profit margin increase achieved in first quarter of 1998 was $5.9 million (156 million gallons @ $0.037/gallon). (d) Represents already accomplished reductions in branch, regional and corporate expenses in excess of normal indexing related to volume reductions as well as 1% productivity improvements. Page 10
----------------------------------------------------------------------------- OIL --- 1997 Adjusted EBITDA $43,040 Volume Adjustments for 1998 Sale of TLC Division in 1997 (16,926) gallons Attrition in 1998 (4.1%) (17,375) 1997 Acquisitions 9,828 ------- (24,473) gallons @ $0.1700/gallon (b) (4,159) Gross Profit Margin Increase $0.006 per gallon on 395,086 gallons (c) 2,371 Inflation (3,662) Operating Cost Reductions (d) 5,850 ------- 1998 EBITDA Budget $43,440 ======= OVERVIEW OF OIL EBITDA RECONCILIATION: 1998 (a) (continued) ---------------------------------------------------------------------- (a) Management's assumptions. Page 11
----------------------------------------------------------------------- OIL --- 1998 EBITDA Budget $43,440 Normalized Acquisition Growth $30,000 of acquisitions at 4.75x multiple 6,315 ------- 1998 EBITDA Normalized $49,755 ======= 1998 EBITDA Budget $43,440 Actual Differential between first three months of Fiscal 1998 vs. Budget (9,318) Revised margin improvement and cost savings estimates based on first three months of Fiscal 1998 vs. Budget. 4,378 ----- Adjusted 1998 EBITDA Budget $38,500 ======= OVERVIEW OF OIL EBITDA RECONCILIATION: 1998-1999 (a) (continued) ----------------------------------------------------------------------- (a) Management's assumptions. Page 12
----------------------------------------------------------------------- OIL --- 1998 EBITDA Normalized $49,755 Internal Attrition (4.1%) and other adjustments (4,413) Normalized Acquisition Growth $30,000 of acquisitions at 4.75x multiple 6,315 ------- 1999 Projection $51,657 ======= OVERVIEW OF OIL EBITDA SUMMARY -------------------------------------------------------------- Page 13
-------------------------------------------------------------- OIL --- 1997 Actual $36,010 1997 Adjusted 43,040 1998 Budget $43,440 1998 Normalized 49,755 Adjusted 1998 Budget $38,500 1999E $51,657 OVERVIEW OF OIL ACQUISITION HISTORY Page 14
-------------------------------------------------------------------------------------------- Date EBITDA Acquired Cost per Acquired Company Purchase Price EBITDA Multiple Gallonage Gallon -------- ------- -------------- ------ -------- --------- ------ 1/26/93 Houck Service $ 663.9 $ 245.0 2.7x 807.2 $0.823 1/28/93 Harris and Gans 1,607.9 475.0 3.4x 2,599.6 0.619 5/28/93 Goodrich 2,397.7 672.0 3.6x 4,156.0 0.577 6/4/93 Warren 2,965.0 712.0 4.2x 14,448.3 0.205 6/23/93 Savin 1,655.4 403.0 4.1x 2,769.0 0.598 6/25/93 Baylis and Baylis 989.3 251.0 3.9x 1,224.7 0.808 7/28/93 Agway 1,660.6 315.0 5.3x 2,708.5 0.613 9/28/93 Garden State 1,015.2 312.0 3.3x 1,408.0 0.721 9/29/93 Essex 866.3 234.0 3.7x 2,649.4 0.327 1993 Totals $ 13,821 $ 3,619 3.8x 32,771 $0.422 --------- -------- ------ -------- ------ 1/7/94 Petrilla Oil $ 189.5 $ 53.4 3.5x 329.0 $0.576 3/8/94 Rettig 1,813.0 466.0 3.9x 4,930.0 0.368 6/30/94 Deblois Oil 15,374.6 2,909.0 5.3x 19,869.0 0.774 7/26/94 Herbert Fuel 5,133.0 882.0 5.8x 6,103.0 0.841 7/28/94 Trico Fuel 3,126.3 930.0 3.4x 4,091.0 0.764 9/1/94 Sickley 1,261.4 355.0 3.6x 1,702.0 0.741 9/13/94 Sinkler 4,880.0 948.0 5.1x 7,433.0 0.657 12/1/94 Ryan 2,954.3 528.0 5.6x 4,804.0 0.615 12/2/94 Fowler 182.8 37.4 4.9x 354.0 0,516 1994 Totals $ 34,915 $ 7,109 4.9x 49,615 $0.704 --------- -------- ------ -------- ------ 3/30/95 Reliable Oil $ 6,065.6 $1,183.0 5.1x 10,102.2 $0.600 5/24/95 Rosetta (Waldman) 3,413.2 684.0 5.0x 5,153.6 0.662 5/24/95 Rosetta (Price) 789.4 153.0 5.2x 1,309.5 0.603 7/27/95 Slocum 643.8 198.0 3.3x 742.6 0.867 8/23/95 Contex 1,856.8 448.0 4.1x 2,503.2 0.742 8/31/95 Rackliffe 546.2 139.0 3.9x 904.0 0.604 9/1/95 A-One 5,184.2 1,164.0 4.5x 5,900.0 0.879 9/11/95 Reading Merchants 4,260.0 656.0 6.5x 3,613.0 1.179 10/25/95 Franklin Fuel 293.5 76.0 3.9x 445.0 0,660 11/17/95 Home Fuel 2,158.9 430.0 5.0x 6,072.3 0.356 12/19/95 Texaco 3,854.8 1,071.0 3.6x 5,845.1 0.659 1995 Totals $ 29,066 $ 6,202 4.7x 42,590 $0.682 --------- -------- ------ -------- ------ OVERVIEW OF OIL ACQUISITION HISTORY (continued) Page 15
--------------------------------------------------------------------------------------------- Date EBITDA Acquired Cost per Acquired Company Purchase Price EBITDA Multiple Gallonage Gallon -------- ------- -------------- ------ -------- --------- ------ 1/11/96 Garrison $ 5,242.5 $1,154.0 4.5x 6,017.0 $0.871 1/19/96 Cibro 4,367.6 1,087.0 4.0x 6,200.0 0.704 2/1/96 Seaman 7,133.7 1,552.0 4.6x 7,522.0 0.948 4/1/96 McDowell 2,723.5 669.0 4.1x 2,675.0 1.018 9/11/96 Flynn 1,038.0 232.0 4.5x 1,316.0 0.789 9/24/96 Farren 263.6 69.0 3.8x 481.0 0.548 10/18/96 Bergen 3,202.5 718.0 4.5x 5,933.0 0.540 10/18/96 Hightstown 233.5 62.0 3.8x 500.0 0.467 10/31/96 Hy-Test 813.4 177.0 4.6x 1,468.0 0.554 12/18/96 Dexter 331.9 99.0 3.4x 796.0 0.417 12/26/96 Sherman 492.5 103.0 4.8x 564.0 0.873 12/27/96 Malco 369.2 97.0 3.8x 988.0 0.374 12/30/96 Grasso 422.9 116.0 3.6x 1,212.0 0.349 1996 Totals $ 26,635 $ 6,135 4.3x 35,672 $0.747 --------- -------- ------ ------- ------ 1/15/97 Oils Inc $ 747.6 $ 188.0 4.0x 1,189.0 $0.629 4/14/97 Mugullian Fuel 2,801.9 638.0 4.4x 3,000.0 0.934 5/14/97 Alderfer Heating 401.1 111.0 3.6x 787.0 0.510 6/26/97 Bellomo 1,488.8 443.0 3.4x 1,657.0 0.898 7/10/97 Good 521.4 117.0 4.5x 1,200.0 0.434 8/29/97 Oil Burner 2,633.1 603.0 4.4x 3,500.0 0.752 9/10/97 Romary 2,252.5 545.0 4.1x 2,348.0 0.959 9/29/97 T. W. Perry 1,619.3 439.0 3.7x 2,118.0 0.765 10/1/97 MiliBrook 527.5 112.0 4.7x 908.0 0.581 11/24/97 Shreve 1,457.0 300.0 4.9x 2,425.0 0.601 12/18/97 Genovese 1,010.8 281.0 3.6x - - 1997 Totals $ 15,461 $ 3,777 4.1x 19,132 $0.808 --------- -------- ------ ------- ------ 5 Year Totals $ 119,898 $ 26,842 4.5x $179,780 $0.667 ========= ======== ====== ======== ====== OVERVIEW OF OIL MARGIN ANALYSIS (VOLUME IN GALLONS; GALLONS AND $ IN THOUSANDS, EXCEPT MARGINS) ______________________________________________________________________________ (a) Assumes 4.1% steady attrition, 0% margin improvement, and $30 million in acquistions at 4.?5 multiple. (b) Includes protected ????? volumes Page 16
==================================================================================================================================== Fiscal Years Ended December 31, ---------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- RETAIL (b) Volume 355,347 360,207 343,759 375,121 338,478 Margin $ 0.4883 $ 0.5030 $ 0.5027 $ 0.4993 $ 0.5196 -------- -------- -------- -------- -------- Gross profit $173,501 $181,202 $172,811 $187,290 $175,867 COMMERCIAL Volume 81,515 79,514 75,476 81,020 71,813 Margin $ 0.2301 $ 0.2416 $ 0.2458 $ 0.2471 $ 0.2452 -------- -------- -------- -------- -------- Gross profit $ 18,755 $ 19,214 $ 18,554 $ 20,018 $ 17,607 PROPANE Volume 6,625 7,435 5,538 - - Margin $ 0.5352 $ 0.5730 $ 0.5805 $ 0.0000 $ 0.0000 -------- -------- -------- -------- -------- Gross profit $ 3,546 $ 4,260 $ 3,215 - - OTHER PETROLEUM PRODUCTS Volume 36,406 35,709 31,228 32,026 29,855 Margin $ 0.1424 $ 0.1417 $ 0.1481 $ 0.1401 $ 0.1424 -------- -------- -------- -------- -------- Gross profit $ 5,183 $ 5,061 $ 4,624 $ 4,487 $ 4,251 TOTAL PETROLEUM PRODUCTS Volume 479,893 482,865 456,001 488,167 440,146 Margin $ 0.4188 $ 0.4344 $ 0.4368 $ 0.4339 $ 0.4492 -------- -------- -------- -------- -------- Gross profit $200,985 $209,737 $199,204 $211,795 $197,725 -------- -------- -------- -------- -------- DISCOUNTS $ 1,294 $ 1,200 $ 944 $ 1,084 $ 802 -------- -------- -------- -------- -------- Net service loss ($34,243) ($37,941) ($33,822) ($37,386) ($35,184) Net installation income 3,681 4,944 4,364 5,280 5,050 -------- -------- -------- -------- -------- Gross profit (loss) ($30,562) ($32,997) ($29,458) ($32,106) ($30,134) -------- -------- -------- -------- -------- Gas Gross Profit - $ 5,756 $ 50,992 - - Total Gross Profit $171,717 $183,696 $221,682 $180,773 $168,393 ======== ======== ======== ======== ======== Projected Years Ended December 31, (a) ---------------------------------------------------------------------------------- 1998 1999 2000 2001 2002 -------- -------- -------- -------- -------- RETAIL (b) Volume 362,070 376,560 390,457 403,784 416,564 Margin $ 0.5220 $ 0.5220 $ 0.5220 $ 0.5220 $ 0.5220 -------- -------- -------- -------- -------- Gross profit $189,001 $196,564 $203,819 $210,775 $217,446 COMMERCIAL Volume 71,547 75,948 80,168 84,215 88,096 Margin $ 0.2502 $ 0.2502 $ 0.2502 $ 0.2502 $ 0.2502 -------- -------- -------- -------- -------- Gross profit $ 17,901 $ 19,002 $ 20,058 $ 21,071 $ 22,042 PROPANE Volume - - - - - Margin $ 0.000 $ 0.000 $ 0.000 $ 0.000 $ 0.000 -------- -------- -------- -------- -------- Gross profit - - - - - OTHER PETROLEUM PRODUCTS Volume 29,038 27,847 26,706 25,611 24,561 Margin $ 0.1379 $ 0.1379 $ 0.1379 $ 0.1379 $ 0.1379 -------- -------- -------- -------- -------- Gross profit $ 4,004 $ 3,840 $ 3,683 $ 3,532 $ 3,387 TOTAL PETROLEUM PRODUCTS Volume 462,655 480,355 497,331 513,610 529,221 Margin $ 0.4559 $ 0.4568 $ 0.4576 $ 0.4583 $ 0.4589 -------- -------- -------- -------- -------- Gross profit $210,906 $219,407 $227,559 $235,378 $242,875 -------- -------- -------- -------- -------- DISCOUNTS $ 841 - - - - -------- -------- -------- -------- -------- Net service loss (33,135) ($34,526) ($35,803) ($36,972) ($38,038) Net installation income 5,627 6,610 7,612 8,632 9,668 -------- -------- -------- -------- -------- Gross profit (loss) ($27,508) ($27,916) ($28,191) ($28,340) ($28,370) -------- -------- -------- -------- -------- Gas Gross Profit - - - - - Total Gross Profit $ 184,239 $191,491 $199,368 $207,037 $214,505 ========= ======== ======== ======== ======== OVERVIEW OF OIL ATTRITION ANALYSIS Page 17
- ------------------------------------------------------------------------------------------------------------------------------------ Average Accounts Absolute Account Losses Loss Rate Gains Net Attrition Rate ---------------------------- --------------------------- ------------------- ------------------ ------------------ Base Business, Base Business, Base Year Total excl. Acquisitions Total excl. Acquisitions Total Base Accounts % Total Business - ------ ----- ------------------ ----- ------------------ ------ -------- -------- ----- ------ ---------- 1993 391,454 352,576 70,127 56,459 17.9% 16.0% 47,090 12.0% -5.9% -4.0% 1994 386,235 354,786 57,442 46,386 14.9% 13.1% 35,380 9.2% -5.7% -3.9% 1995 381,842 344,342 59,550 46,366 15.6% 13.5% 34,516 9.0% -6.6% -4.5% 1996 386,398 354,471 60,084 48,860 15.5% 13.8% 39,192 10.1% -5.4% -3.7% 1997 366,421 342,738 60,907 52,581 16.6% 15.3% 39,561 10.8% -5.8% -4.5% - ------------------------------------------------------------------------------------------------------------------------------------ Mean 382,470 349,783 61,622 50,130 16.1% 14.3% 39,148 10.2% -5.9% -4.1% - ------------------------------------------------------------------------------------------------------------------------------------ OVERVIEW OF GAS SUMMARY FINANCIAL ANALYSIS ($ in thousands, except per unit data) ________________________________________________________________________________ (a) EBITDA is defined as gross profit less operating expenses. (b) Source: management's projections; 1998 EBITDA is before acquisitions, adjusted for actual 1Q results. See pages 25 to 26. (c) Implied equity value equals common, subordinated, and GP units, multiplied by the market price of common units. Page 18
- ------------------------------------------------------------------------------------------------------------- State of Incorporation: Delaware Market Price (4/22/98): $21,938 Headquarters: Stanford, CT 52- Week High-Low $24,750 - 19,000 Auditors: KPMG Peat Marwick LLP Common, Sub, And GP Units Outstanding: 6,355 Primary Exchange: NASDAQ Most Recent Fiscal Year End: 9/30/97 Primary Area of Focus: Midwest, Northeast US Selected Data - ----------------------------------------------------------------------------------------------------------- Total Net Earnings Distributable Distributable Year Revenues EDITDA (a) Income Per Unit Cash Flow CF/Unit CapEx. - ---------- -------- ---------- ------ -------- ------------ ------------- ---------- 1996 $119,634 $19,870 $2,593 $0.49 $10,361 $1.97 $5,332 1997 135,159 19,703 1,972 0.37 9,612 1.82 5,279 Proj. 1998 (b) 121,024 18,279 (1,321) (0.21) 7,737 1.22 4,551 Proj. 1999 (b) 156,296 26,730 3,691 0.54 14,317 2.09 5,071 - ---------------------------------------------------- Book Capitalization ------------------- (12/31/97) ---------- Total Debt $ 96,600 Total Partners' Capital 71,883 --------- Total $ 167,883 ========= Estimated Firm Value -------------------- Total Debt $ 96,000 Implied Market Val. of Equity (c) 139,411 --------- Total $ 235,411 --------- Less: Cash and Equivalents 3,452 --------- Net Firm Value $ 231,959 ========= Multiple Analysis ----------------- Net Firm Value/97A EDITDA: 11.8x Net Firm Value/98E EDITDA: 12.7 Net Firm Value/99E EDITDA: 8.7 1997A Common Unit coverage 1.5x 1998E Common Unit coverage 0.9 1999E Common Unit coverage 1.5 1997A Total Distribution coverage 0.8x 1999E Total Distribution coverage 0.6 1999E Total Distribution coverage 1.0 - ---------------------------------------------------- OVERVIEW OF GAS SELECTED FINANCIAL DATA ($ in thousands) ________________________________ (a) Proforma for December 16, 1997 common unit offering and the acquisition of Pearl Gas Co. (b) Projected figures per Management. (c) Growth over 1996. (d) Includes $350 in special project expenses. (e) Excludes loss from sale of assets. Page 19
- -------------------------------------------------------------------------------------------------------------------------- Historical Years Ended September 30, ------------------------------------------------------------------------------------------- 1996 % 1997 % 1997 (a) % Sales $119,634 100.0% $135,159 100.0% $149,766 100.0% % Growth 17.0% 13.0% 25.2% (c) Cost of sales 58,557 48.9% 72,211 53.4% 80,370 53.7% ----------------- ----------------- -------------------- Gross profit 61,077 51.1% 62,948 46.6% 69,396 46.3% Operating expenses 41,207 34.4% 43,245 32.0% (d) 46,408 31.0% Net (loss) on sales of assets (260) -0.2% (295) -0.2% (265) -0.2% Depreciation and amortization 9,808 8.2% 10,405 7.7% 11,495 7.7% ----------------- ----------------- -------------------- Operating income 9,802 8.2% 9,003 6.7% 11,228 7.5% Interest expense, net 7,124 6.0% 6,966 5.2% 7,766 5.2% ----------------- ----------------- -------------------- Income (loss) before income taxes 2,678 2.2% 2,037 1.5% 3,462 2.3% Income taxes 85 0.1% 25 0.0% 25 0.0% General Partners' interest - 0.0% 40 0.0% 69 0.0% ----------------- ----------------- -------------------- Net income $ 2,593 2.2% $ 1,972 1.5% $ 3,368 2.2% ================= ================= ==================== Net income per limited partner unit $ 0.49 $ 0.37 $ 0.54 ========= ========= ========== Weighted average L.P. units outstanding 5,271 5,271 6,228 EBITDA (e) $ 19,870 16.6% $ 19,703 14.6% $ 22,988 15.3% Capital expenditures $ 5,332 $ 5,279 $ 5,579 Maintenance capital expenditures 2,300 3,100 3,400 Distributable cash flow 10,361 9,612 11,797 Distributable cash flow per unit $ 1.97 $ 1.82 $ 1.89 Common distribution coverage 1.8x 1.5x 1.4x Total distribution coverage 0.9x 0.8x 0.8X EBITDA/total assets 12.7% 13.4% 12.8% Net income / partners' capital 4.2% 3.8% 4.7% - -------------------------------------------------------------------------------------------- Projected Years Ending September 30, ----------------------------------------------------- 1998 (b) % 1999 (b) % - -------------------------------------------------------------------------------------------- Sales $121,024 100.0% $156,296 100.0% % Growth -19.2% 29.1% Cost of sales 58,041 48.0% 77,391 49.5% ----------------- ----------------- Gross profit 62,983 52.0% 78,905 50.5% Operating expenses 44,704 36.9% 52,175 33.4% Net (loss) on sales of assets 0.0% - 0.0% Depreciation and amortization 11,768 9.7% 13,900 8.9% ----------------- ----------------- Operating income 6,511 5.4% 12,830 8.2% Interest expense, net 7,807 6.5% 9,114 5.8% ----------------- ----------------- Income (loss) before income taxes (1,296) -1.1% 3,716 2.4% Income taxes 25 0.0% 25 0.0% General Partners' interest - 0.0% - 0.0% ----------------- ----------------- Net income ($ 1,321) -1.1% $ 3,691 2.4% ================= ================= Net income per limited partner unit ($ 0.21) $ 0.54 ========= ========= Weighted average L.P. units outstanding 6,355 6,840 EBITDA (e) $ 18,279 15.1% $ 26,730 17.1% Capital expenditures $ 4,551 $ 5,071 Maintenance capital expenditures $ 2,710 $ 3,274 Distributable cash flow 7,737 14,317 Distributable cash flow per unit $ 1.22 $ 2.09 Common distribution coverage 0.9x 1.5x Total distribution coverage 0.6x 1.0x EBITDA/total assets 10.4% 15.1% Net income / partners'capital -2.1% 6.8% OVERVIEW OF GAS MARKET PRICE ANALYSIS PRICE AND VOLUME 12/15/95 - 4/22/98 [CHART APPEARS HERE] Page 20 OVERVIEW OF GAS COMMON UNIT TRADING HISTORY - VOLUME DISTRIBUTION 1995-1998 (A) ________________________________________ (a) Through April 22, 1998. (b) Based on 3,831,727 common units outstanding. Page 21
- ------------------------------------------------------------------------------------------------------------------------------------ Dec. 15-31 1995 1996 1997 1998 (a) ------------------- -------------------- -------------------- --------------------- Price Per Share Volume % Volume % Volume % Volume % --------------------- ------------------- -------------------- -------------------- --------------------- Greater than $24.600 24.400 24.600 32,400 100.00% 24.200 24.400 55,300 99.34% 26,000 100.00% 75,500 100.00% 24.000 24.200 27,200 98.20% 25,800 99.24% - 96.47% 23.800 24.000 436,500 97.65% 38,400 98.49% - 96.47% 23.600 23.800 119,200 88.71% 3,000 97.37% 131,200 96.47% 23.400 23.600 79,500 86.27% 56,900 97.28% 85,600 90.32% 23.200 23.400 105,000 84.64% 194,500 95.62% 173,700 86.31% 23.000 23.200 396,900 82.49% 148,000 89.94% 51,400 78.18% 22.800 23.000 229,200 74.36% 102,100 85.62% 36,200 75.77% 22.600 22.800 96,100 69.67% 184,500 82.64% 42,700 74.08% 22.400 22.600 273,800 67.70% 145,500 77.26% 148,600 72.08% 22.200 22.400 33,400 100.00% 430,500 62.09% 128,000 73.01% 603,100 65.12% 22.000 22.200 762,000 95.80% 510,900 53.28% 217,500 69.27% 205,600 36.89% ------------------------------------------------------------------------------------------------------------------- Current Price 21.800 22.000 400,400 42.82% 411,600 62.92% 299,800 27.26% ------------------------------------------------------------------------------------------------------------------- 21.600 21.800 422,600 34.62% 302,200 50.91% 155,300 13.22% 21.400 21.600 259,400 25.96% 290,200 42.09% 127,100 5.95% 21.200 21.400 214,300 20.65% 372,800 33.62% 21.000 21.200 388,000 16.26% 499,100 22.74% 20.800 21.000 110,900 8.32% 108,000 8.17% 20.600 20.800 137,500 6.05% 34,300 5.01% 20.400 20.600 41,900 3.23% 16,000 4.01% 20.200 20.400 62,800 2.38% 46,500 3.55% 20.000 20.200 53,200 1.09% 22,000 2.19% 19.800 20.000 24,400 1.55% 19.600 19.800 28,600 0.83% Less Than $19.600 ------- --------- --------- --------- Total Units for Period 795,400 4,883,500 3,425,900 2,135,800 Cumulative % of Total Traded 7.08% 43.45% 30.48% 19.00% % Traded of Current Units Out. (b) 20.76% 127.45% 89.41% 55.74% Wtd. Average Unit Price $22.11 $22.25 $21.89 $22.47 - ----------------------------------------------------------------- 1995-1998 (a) --------------------- Price Per Share Volume % --------------------- --------------------- Greater than $24.600 24.400 24.600 32,400 100.00% 24.200 24.400 156,800 99.71% 24.000 24.200 53,000 98.32% 23.800 24.000 474,900 97.85% 23.600 23.800 253,400 93.62% 23.400 23.600 222,000 91.37% 23.200 23.400 473,200 89.39% 23.000 23.200 596,300 85.18% 22.800 23.000 367,500 79.88% 22.600 22.800 323,300 76.61% 22.400 22.600 567,900 73.73% 22.200 22.400 1,195,000 68.68% 22.000 22.200 1,696,000 58.05% -------------------------------------------------- Current Price 21.800 22.000 1,111,800 42.96% -------------------------------------------------- 21.600 21.800 880,100 33.07% 21.400 21.600 676,700 25.24% 21.200 21.400 587,100 19.22% 21.000 21.200 887,100 14.00% 20.800 21.000 218,900 6.10% 20.600 20.800 171,800 4.16% 20.400 20.600 57,900 2.63% 20.200 20.400 109,300 2.11% 20.000 20.200 75,200 1.14% 19.800 20.000 24,400 0.47% 19.600 19.800 28,600 0.25% Less Than $19.600 ---------- Total Units for Period 11,240,600 Cumulative % of Total Traded 100.00% % Traded of Current Units Out. (b) 293.36% Wtd. Average Unit Price $22.17 OVERVIEW OF GAS UNITHOLDER ANALYSIS (a) - ------------------ (a) Based on units outstanding and most recently available data as of 4/23/98. (b) Source: Vickers Stock Research Corporation and Bloomberg. (c) AGE has 226,060 Common Units in its system. Page 22
- ----------------------------------------------------------------------------------------------------------------------------------- COMMON INSTITUTIONS (b) UNITS HELD % OF TOTAL - ---------------------- ---------- ---------- Bear, Stearns & Co. 47,700 1.2% PaineWebber Group 38,750 1.0% Graver Bokhof 28,400 0.7% DLJ Corp. 24,331 0.6% Orion Capital Corp. 16,000 0.4% Advest Group, Inc. 10,900 0.3% CIBC Oppenheimer 1,000 0.0% Legg Mason Wood Walker 500 0.0% U.S. Trust Co. NY 500 0.0% Cullen/Frost Bankers 300 0.0% ------- ------ All Institutions 168,381 4.4% - ---------------------------------------------------------------------------------------------- COMMON SUBORDINATED DIRECTORS AND OFFICERS TITLE UNITS HELD % OF TOTAL UNITS HELD % OF TOTAL - ---------------------- ---- ---------- ---------- ------------ ---------- 10,400 0.3% - 0.0% Wolfgang Traber Gas Director and Oil Director 525 0.0% - 0.0% Richard F. Ambury V.P. of Finance --------- ---- ---------- -------- Total Directors & Officers Holdings 10,925 0.3% - 0.0% Common Subordinated General Partner Units Held % of Total Units Held % of Total - -------------------- ----------- ---------- ----------- ---------- OIL 60,727 1.6% 2,396,078 100.0% - ------------------------------------------------------------------------------------------------- SUMMARY - ------- Common % of Subordinated % of INSIDER HOLDINGS Units Total Units total ------ ----- ------------ ----- Directors and Officers as a Group 10,925 0.3% - 0.0% General Partner 60,727 1.6% 2,396,078 100.0% ------ ------ ----------- ----- 71,652 1.9% 2,396,078 100.0% PUBLIC HOLDINGS Institutional 168,381 4.4% Retail 3,591,694 (c) 93.7% ------------- ------ 3,760,075 98.1% TOTAL UNITS OUTSTANDING 3,831,727 100.0% 2,396,078 100.0% - --------------------------------------------------------------------------------------------------- OVERVIEW OF GAS RESEARCH COVERAGE Page 23
Gas has ongoing Research Coverage Date Published Estimates Updated research coverage by ----------------- -------------- ----------------- two firms. Published Research Reports A.G. Edwards - Buy 1/5/98 4/8/98 PaineWebber - Attractive 12/30/97 2/5/98 Lehman 2/7/96 11/4/96 Earnings Estimates Number of Estimates Mean 1998 Mean 1999 ------------------ ------------------- --------- --------- IBES 2 $0.82 $0.85 Nelson 2 $0.52 $0.88 Zacks 2 $0.48 $0.88 OVERVIEW OF GAS DISCOUNTED CASH FLOW ANALYSIS WEIGHTED AVERAGE COST OF CAPITAL DERIVATION ($ IN MILLIONS) - --------------------------- (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of debt is assumed to be equal to the book value; debt is not net of cash. (c) Ten - year Treasury rate on April 22, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on Gas' current debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). Page 24
- ------------------------------------------------------------------------------------------------------------------------------------ Total Implied Total Total Market Unit Total Market Debt/ Debt as % Un- Levered Val. Debt Price at Units Value of Total of Total Levered Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta - ------------------------------------------------------------------------------------------------------------------------------------ AmeriGas Partners, L.P. 0.48 $777.8 $ 25.938 41.9 $1,108.6 70.2% 41.2% 0.282 Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264 Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210 Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227 National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208 Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195 Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203 -------------------------------------------------------- Gas' capitalization - at market (b) Comparable group's average unlevered beta: 0.23 Total debt $ 96.0 40.8% Gas' debt - to - equity ratio (b): 68.9% Common equity 139.4 59.2% ------ ----- Gas' debt as a percent of total capital (b): 40.8% $235.4 100.0% -------------------------------------------------------- Comparable group's beta relevered for Gas' capital structure: 0.329 ===== DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: - ----------------------------------------------- MARKET RISK PREMIUM RANGE (d) --------------------------------- 11.3% 12.3% 13.3% --------------------------------- Gas' theoretical levered beta: 0.329 Assumed % of equity in Gas' Capital structure (b): 59.2% Risk - free rate of return (c): 5.7% Gas' cost of equity range (at various market risk premiums): 9.4% 9.7% 10.1% ==== ==== ===== Gas' assumed tax rate: 35.0% Assumed % of debt in capital structure (b): 40.8% Gas' estimated cost of debt (e): 7.9% Gas' estimated after - tax cost of debt: 5.2% 5.2% 5.2% 5.2% --------------------------------- Gas' weighted average cost of capital range (f): 7.7% 7.9% 8.1% --------------------------------- OVERVIEW OF GAS EBITDA RECONCILIATION: 1997 (a) ($ IN THOUSANDS) ------------------------------------------------------------------------- GAS --- 1997 Actual EBITDA $19,703 (b) NORMALIZING ADJUSTMENTS: Weather Residential - 1,125 gallons @ 0.7106 margin 799 Commercial - 277 gallons @ 0.4459 margin 124 Margin Residential - 50,832 gallons @ (0.7106 - 0.6995) (564) Commercial - 19,864 gallons @ (0.4454 - 0.4348) (220) Wholesale - 38,404 gallons @ (0.0975 - 0.0675) (1,152) Compensation (56) Elimination of strategic expense 902 (c) Pearl Gas EBITDA 3,012 Pearl Gas acquisition adjustments 273 (d) ------- 1997 Adjusted EBITDA $22,821 ======= ----------------- (a) Management's assumptions. (b) Not pro forma for Pearl Gas acquisition. (c) Certain expenses including the exploration of strategic alternatives by Morgan Stanley. (d) Certain cost savings, primarily salary and benefit expenses of certain selling shareholders. Page 25 OVERVIEW OF GAS EBITDA RECONCILIATION: 1997-1999 (a) ($ IN THOUSANDS) (continued) ----------------------------------------------------------------------------- (a) Management's assumptions. Page 26
----------------------------------------------------------------------------- GAS --- 1998 EBITDA Budget $22,781 Actual Differential between first six months (4,502) of Fiscal 1998 vs. Budget ------- Adjusted 1998 EBITDA Budget $18,279 ======= 1998 EBITDA Budget $22,781 Internal Growth of 1.7% 379 Acquisition Growth $20 million of acquisitions at 7x multiple completed on 9/30/98 2,857 $10 million of acquisitions at 7x multiple completed on 4/1/99 713 ------- 1999 EBITDA Projection $26,730 ======= OVERVIEW OF GAS ACQUISITION HISTORY ($ IN THOUSANDS) Page 27
----------------------------------------------------------------------------- DATE EBITDA ACQUIRED COST PER ACQUIRED COMPANY PURCHASE PRICE EBITDA MULTIPLE GALLONAGE GALLON -------- ------- -------------- ------ -------- --------- ------ 6/15/94 Loveland $ 700.0 $ 127.0 5.5x 433.0 $1.616 11/24/94 Baystate 1,450.0 209.0 6.9x 768.7 $1.886 9/12/95 Debolt 950.0 151.0 6.3x 852.3 $1.115 3/22/96 Bob While L.P. Gas/ 1,500.0 263.0 5.7x 897.7 $1.671 Mitchell Bottle Gas 7/22/96 Fuzzy Moore 850.0 147.0 5.8x 454.3 $1.871 10/22/97 Pearl Gas Co. 24,126.0 3,288.0 7.3x 14,000.0 $1.723 2/20/98 Tri-County Gas 550.0 108.0 5.1x 319.7 $1.720 --------- ------- -------- 4 YEAR TOTALS $ 30,126 $ 4,293 7.Ox 17,726 $1.700 ========= ======= ======= ======== ====== Pending Como 15,500.0 2,450.0 6.3x Pending Tioga 4,100.0 625.0 6.6x OVERVIEW OF GAS MARGIN ANALYSIS (VOLUME IN GALLONS; GALLONS AND $ IN THOUSANDS, EXCEPT MARGINS) Page 28
- -------------------------------------------------------------------------------------------------------------------- FISCAL YEARS ENDED SEPTEMBER 30, ------------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 1997 ---------- -------- -------- -------- ----------- -------- Stand alone Pro Forma Weather Residential Volume 44,590 48,430 45,235 54,336 49,707 50,832 Margin $ 0.6902 $ 0.6861 $ 0.6677 $ 0.6592 $ 0.7106 $ 0.7106 ---------- -------- -------- -------- --------- -------- Gross profit $ 30,777 $ 33,228 $ 30,203 $ 35,818 $ 35,322 $ 36,121 Commercial Volume 17,617 19,875 18,831 21,194 19,587 19,864 Margin $ 0.4614 $ 0.4611 $ 0.4271 $ 0.4202 $ 0.4459 $ 0.4459 ---------- -------- -------- -------- --------- -------- Gross profit $ 8,129 $ 9,164 $ 8,043 $ 8,906 $ 8,734 $ 8,858 Agriculture Volume 23,291 16,053 15,080 12,567 17,338 17,338 Margin $ 0.2349 $ 0.2630 $ 0,2357 $ 0.2556 $ 0.2694 $ 0.2694 ---------- -------- -------- -------- --------- -------- Gross profit $ 5,471 $ 4,222 $ 3,554 $ 3,212 $ 4,671 $ 4,671 Motor fuel & Other Volume 7,581 8,060 8,056 8,197 8,024 8,024 Margin $ 0.4922 $ 0.5359 $ 0.5271 $ 0.5215 $ 0.5765 $ 0.5765 ---------- -------- -------- -------- --------- -------- Gross profit $ 3,731 $ 4.319 $ 4,246 $ 4,275 $ 4,626 $ 4,626 Wholesale Volume 51,493 45,318 38,941 39,025 38,404 38,404 Margin $ 0.0619 $ 0.0680 $ 0.0568 $ 0.0704 $ 0.0975 $ 0.0975 ---------- -------- -------- -------- --------- -------- Gross profit $ 3,189 $ 3,082 $ 2,212 $ 2,747 $ 3,743 $ 3,743 Total Propane Volume 144,572 137,736 126,143 135,319 133,060 134,462 Margin $ 0.3548 $ 0.3922 $ 0.3826 $ 0.4061 $ 0.4291 $ 0.4315 ---------- -------- -------- -------- --------- -------- Total propane gross profit $ 51,297 $ 54,015 $ 48,258 $ 54,958 $ 57,096 $ 58,019 ---------- -------- -------- -------- --------- -------- Appliances/other Revenue $ 9,237 $ 9,454 $ 7,536 $ 8,269 $ 8,043 $ 8,043 Cost 3,232 3,187 1,935 2,150 2,191 2,191 ---------- -------- -------- -------- --------- -------- Gross profit $ 6,005 $ 6,267 $ 5,601 $ 6,119 $ 5,852 $ 5,852 TOTAL GROSS PROFIT $ 57,302 $ 60,282 $ 53,859 $ 61,077 $ 62,948 $ 63,871 ========== ======== ======== ======== ========= ======== - ------------------------------------------------------------------------------------------ FISCAL YEARS ENDED SEPTEMBER 30, ----------------------------------------------------------- 1997 1998 1998 -------------------- ---------- -------------- Pro Forma Pearl and Budget Adjusted Weather for actual Residential Volume 62,630 63,614 56,037 Margin $ 0.6554 $ 0.6436 $ 0.6585 ---------- -------- -------- Gross profit $ 41,049 $ 40,945 $ 36,898 Commercial Volume 20,936 20,521 19,126 Margin $ 0.4399 $ 0.4278 $ 0.4431 ---------- -------- -------- Gross profit $ 9,209 $ 8,779 $ 8,474 Agriculture Volume 18,275 16,615 18,224 Margin $ 0.2678 $ 0.2633 $ 0.2537 ---------- -------- -------- Gross profit $ 4,895 $ 4,375 $ 4,624 Motor fuel & other Volume 8,391 8,381 8,298 Margin $ 0.5926 $ 0.5845 $ 0.5924 ---------- -------- -------- Gross profit $ 4,973 $ 4,899 $ 4,916 Wholesale Volume 38,532 40,597 32,474 Margin $ 0.0972 $ 0.0674 $ 0.0604 ---------- -------- -------- Gross profit $ 3,744 $ 2,738 $ 1,961 Total propane Volume 148,764 149,728 134,159 Margin $ 0.4293 $ 0.4123 $ 0.4239 ---------- -------- -------- Total propane gross profit $ 63,870 $ 61,735 $ 56,874 Appliances/other Revenue $ 8,760 $ 8,694 $ 8,509 Cost 2,303 2,298 2,399 ---------- -------- -------- Gross profit $ 6,457 $ 6,396 $ 6,110 TOTAL GROSS PROFIT $ 70,327 $ 68,130 $ 62,983 ========== ======== ======== PRO FORMA OWNERSHIP ANALYSIS GAS CURRENT OWNERSHIP AND ORGANIZATION [CHART APPEARS HERE] Page 29 PRO FORMA OWNERSHIP ANALYSIS EFFECTIVE OWNERSHIP OF GAS - CURRENT CURRENTLY, THE DIRECTORS AND OFFICERS OF OIL EFFECTIVELY CONTROL 100% OF OIL (IN TERMS OF [CHART APPEARS HERE] VOTING RIGHTS), 100% OF GAS' GP INTEREST, AND CONTROL 39% OF GAS' LIMITED PARTNERSHIP UNITS. Page 30 SUMMARY OF TRANSACTION PRO FORMA GAS UNITS OUTSTANDING (IN THOUSANDS) TO SIMPLIFY THE [_] There are currently 6,355 Gas units COMPLEXITY OF THE STEPS outstanding comprised of 3,832 common units, IN THE TRANSACTION, 2,396 subordinated units and 127 general A.G. EDWARDS PREPARED partner ("GP") units. The subordinated units A SUMMARY OF ITS and GP units are assets of Oil. UNDERSTANDING. [_] There are currently 26,563 shares of Oil common stock outstanding, comprised of public shareholders and "insiders." The public holds 17,160 Class A shares. The "insiders" hold 9,404 shares which include 6,795 Class A shares, 11 Class B shares and 2,598 Class C shares. [_] Each shareholder of Oil will receive a certain number of units in Gas such that the implied consideration paid for each Oil share is $3.15. [_] The publicly held 17,160 Class A shares will receive .1596 shares of newly created Senior Subordinated units (2,738 units in total) with an implied value of $19.74/unit. This represents an implied purchase price of $3.15/share for an implied total purchase price of $54.1 million. [_] The "insiders" of Oil, who hold a total of 9,404 shares (comprised of A, B and C shares) will also receive $3.15/share for a total of $29.6 million. The consideration received by these shareholders will be funded by: - (1) the distribution of existing units of Gas which are currently owned by Oil [_] all of the 127 GP units owned by Oil will be given as consideration at an implied value of $21.28/unit, for a total of $2.7 million. [_] 754 of the 2,396 Subordinated units owned by Oil will be given as consideration at an implied value of $16.33/unit, for a total of $12.3 million. - (2) the distribution of newly-created units of Gas [_] to fund the remaining $14.6 million of the $29.6 million due to the Oil "insiders", Gas will issue 559 newly-created Senior Subordinated units and 168 newly-created GP units. The implied values for these new units are $19.74 and $21.28, respectively. Page 31 SUMMARY OF TRANSACTION PRO FORMA GAS UNITS OUTSTANDING (IN THOUSANDS) (continued) [_] Of the 2,396 Subordinated units and 127 GP units owned by Oil, only 1,642 Subordinated units will not have been used as consideration paid to the "inside" Oil shareholders. Hence, these 1,642 Subordinated units will be retired by Gas. A.G. Edwards has assumed that the implied value of these units are $16.33/unit for a total retired value of approximately $26.8 million. Page 32 SUMMARY OF GAS UNITS OUTSTANDING PRE-FINANCING ASSUMPTIONS ________________________ (a) The number of GP units issued reflect the assumption of a 6,587 common unit equity offering to refinance certain of the assumed Oil debt. Hence, the number of GP units reflected in the pro forma column do not equal 2% of the pro forma outstanding units shown above but do equal exactly 2% of the pro forma units outstanding on a post financing basis. Page 33
------------------------------------------------------------------------------------------------ Distributed to Oil Issued to Oil ------------------ ----------------- Type of Units Current Public Insiders Public Insiders Retired Pro Forma ------------- ------- ------ -------- ------ -------- ------- --------- Common 3,832 - - - - - 3,832 Senior Subordinated - - - 2,738 559 - 3,297 Subordinated 2,396 - 754 - - 1,642 754 General Partner (a) 127 - 127 - 168 - 295 ------ --------- 6,355 8,178 EQUITY PURCHASE PRICE CALCULATION IMPLIED EQUITY VALUE OF OIL'S ASSETS (units in thousands, $ in millions, except per unit amounts) Page 34
- -------------------------------------------------------------------------------------------------------------------------------- Purchase Price of Oil's Equity Purchase Price of Oil's Equity ------------------------------ -------------------------------------------------------- Value of Securities Equity Value of Oil's Value of Oil's GP and Event Paid of Oil Shareholders Heating Oil Assets Subordinated Units in Star - --------------------------------- ------------------------------ -------------------------- --------------------------- Issuance of Senior Subordinated Units to Public Oil Shareholders 2,738 x $19.74 ------------------- $54.1 $54.1 - Distribution of General Partner Units to Inside Oil Shareholders 127 x $21.28 ------------------- $2.7 - $2.7 Distribution of Subordinated Units of Inside Oil Shareholders 754 x $16.33 ------------------- $12.3 - $12.3 Issuance of General Partner Units to Inside Oil Shareholders 168 x $21.28 ------------------- $3.6 $3.6 - Issuance of Senior Subordinated Units to Inside Oil Shareholders 559 x $19.74 ------------------- $11.0 $11.0 - Retire Subordinated Units 1,642 x $16.33 ------------------- ($26.8) $26.8 $41.8 $41.8 ----- --------------------------------- Total $83.7 $83.7 Divided by 26,563 shares of Oil's Common Stock= $3.15 per share PREMIUM PAID ANALYSIS ______________________________________________ (a) Updated through April 22, 1998. (b) Includes cost of debt at assumed redemption value, preferred stock at assumed redemption value, transaction fees, and certain off-balance sheet liabilities, net of excess cash. See appendix F, page 40. (c) Calculated as gross profit minus SG&A expense and direct delivery expense. See appendix D, pages 9 through 13. (d) Excludes restructuring charge, pension curtailment expense, provision for supplemental benefits and corporate identity expenses. (e) As of 12/31/97. Page 35
- -------------------------------------------------------------------------------- Dollars STOCK PRICE PREMIUM ANALYSIS (a) in thousands Notes - ----------------------------------------------- ------------ ------ Equity purchase price of Oil $83,673 $3.15 share price x 26,563 shares. Premium to stock price one day prior 93.8% $1.625 close on April 22, 1998. Premium to stock price one month prior 101.6% Premium to stock price three months prior 26.0% Premium to stock price six months prior 0.8% PURCHASE PRICE - ------------------------------------------------ Equity purchase price of heating oil assets $ 41,847 See appendix F, page 40. Debt assumption value (b) 349,587 -------- Aggregate purchase price of heating oil assets $391,434 ======== MULTIPLES Notes - --------------------------------------------- ----------------------- ----------------------------------------------- Multiples ----------------------- 1997 Revenue $548,141 0.71 x As a multiple of aggregate transaction value. 1997 EBITDA (c) 36,010 10.87 As a multiple of aggregate transaction value. 1997 EBIT (d) 6,264 62.49 As a multiple of aggregate transaction value. 1997 Net loss to common shares (d) ($19,338) NM As a multiple of equity value. Equity (e) (117,033) NM As a multiple of equity value. 1997 Adjusted EBITDA (c) 43,040 9.09 x As a multiple of aggregate transaction value. 1998 EBITDA budget (c) 43,440 9.01 As a multiple of aggregate transaction value. Adj. 1998 EBITDA budget (c) 38,500 10.17 As a multiple of aggregate transaction value. 1999P EBITDA (c) 51,657 7.58 As a multiple of aggregate transaction value. MERGERS OF EQUALS PREMIUM ANALYSIS(a) $100 MILLION AND GREATER 1/1/94 - 4/22/98 Premium Premium Premium Exchange Exchange Exchange 1 Day 1 Week 4 Weeks Prior Prior Prior - ---------------------------------------------- MEAN 9.6% 10.0% 6.5% MEDIAN 9.3% 8.0% 2.8% ADJ. MEAN (B) 10.1% 10.0% 6.5% - ---------------------------------------------- - -------------------------------------------------------------------------------- (a) "Merger of Equals" is defined as a merger of two companies of similar market cap size. It does not imply any similarity of business between the target and acquiror, nor does it imply any change of control of either company post-merger. Excludes financial institutions. (b) Adjusted Mean excludes highest and lowest data points Source: Securities Data Company, Inc. and Bloomberg Page 36
- ----------------------------------------------------------------------------------------------------------------------------------- Exchange Exchange Value of Ratio Ratio Date Date Transaction Exchange 1 Day 1 Week Annc'd Effective Target Name Acquiror Name ($ mil) Ratio Prior Prior - ------------------------------------------------------------------------------------------------------------------------------------ 12/23/97 03/27/98 United Meridian Corp Ocean Energy Inc 1,331.7 0.556 0.645 0.565 09/02/97 12/19/97 Doubletree Corp Promus Hotel Corp 2,207.6 1.081 1.288 1.133 08/25/97 12/17/97 Mosinee Paper Corp Wausau Paper Mills Co 497.1 1.400 1.211 1.238 07/10/97 12/31/97 Reading & Bates Corp Falcon Drilling Co 2,587.0 0.590 0.506 0.485 06/30/97 12/23/97 Rykoff-Sexton Inc JP Foodservice Inc 1,404.3 0.840 0.652 0.668 05/27/97 12/18/97 HFS Inc CUC International Inc 11,342.9 2.403 2.268 2.443 05/12/97 09/09/97 Smith's Food & Drug Centers Fred Meyer(Kohlberg Kravis) 2,018.0 1.050 0.955 0.878 05/06/97 07/22/97 BW/IP Inc Durco International Inc 530.7 0.697 0.737 0.657 10/01/96 04/01/97 Health Systems International Foundation Health Corp 1,277.4 0.769 0.838 0.770 08/02/96 11/07/96 Colonial Data Technologies US Order Inc 186.5 1.000 0.792 0.800 07/18/96 02/12/97 ROC Communities Inc Chateau Properties Inc 288.6 1.042 0.984 1.040 04/22/96 08/15/97 NYNEX Corp Bell Atlantic Corp 21,345.5 0.768 0.815 0.835 06/13/95 10/27/95 First Financial Management First Data Corp 5,757.5 1.586 1.349 1.300 03/02/95 06/28/95 Abbey Healthcare Group Inc. Homedco Group Inc. 658.7 0.700 0.641 0.664 08/30/94 03/15/95 Lockheed Corp Martin Marietta Corp 5,204.1 1.630 1.368 1.321 - -------------------------------------------------------------------------------------------------------------------------------- Exchange Acq/ Acq/ Premium Ratio Target Target Exchange Date Date 4 Weeks Equity Total 1 Day Annc'd Effective Target Name Acquiror Name Prior Mkt Cap Mkt Cap Prior - -------------------------------------------------------------------------------------------------------------------------------- 12/23/97 03/27/98 United Meridian Corp Ocean Energy Inc 0.557 0.97 1.13 -13.9% 09/02/97 12/19/97 Doubletree Corp Promus Hotel Corp 1.153 1.13 0.96 -16.1% 08/25/97 12/17/97 Mosinee Paper Corp Wausau Paper Mills Co 1.419 1.94 1.88 15.6% 07/10/97 12/31/97 Reading & Bates Corp Falcon Drilling Co 0.535 2.26 2.12 16.5% 06/30/97 12/23/97 Rykoff-Sexton Inc JP Foodservice Inc 0.671 1.19 0.82 28.9% 05/27/97 12/18/97 HFS Inc CUC International Inc 2.765 1.06 0.89 5.9% 05/12/97 09/09/97 Smith's Food & Drug Centers Fred Meyer(Kohlberg Kravis) 0.891 1.92 0.89 9.9% 05/06/97 07/22/97 BWAP Inc Durco International Inc 0.714 1.47 1.32 5.4% 10/01/96 04/01/97 Health Systems International Foundation Health Corp 0.824 1.58 1.28 8.2% 08/02/96 11/07/96 Colonial Data Technologies US Order Inc 0.990 1.28 1.46 26.3% 07/18/96 02/12/97 ROC Communities Inc Chateau Properties Inc 1.039 0.47 0.76 5.9% 04/22/96 08/15/97 NYNEX Corp Bell Atlantic Corp 0.790 1.20 1.04 5.8% 06/13/95 10/27/95 First Financial Management First Data Corp 1.263 1.39 1.39 17.5% 03/02/95 06/28/95 Abbey Healthcare Group Inc. Homedco Group Inc. 0.658 1.59 1.24 9.3% 08/30/94 03/15/95 Lockheed Corp Martin Marietta Corp 1.360 1.16 1.17 19.2% - ----------------------------------------------------------------------------------------------------------------- Premium Premium Exchange Exchange Date Date 1 Week 4 Weeks Annc'd Effective Target Name Acquiror Name Prior Prior - ----------------------------------------------------------------------------------------------------------------- 12/23/97 03/27/98 United Meridian Corp Ocean Energy Inc -1.7% -0.2% 09/02/97 12/19/97 Doubletree Corp Promus Hotel Corp -4.6% -6.2% 08/25/97 12/17/97 Mosinee Paper Corp Wausau Paper Mills Co 13.1% -1.3% 07/10/97 12/31/97 Reading & Bates Corp Falcon Drilling Co 21.6% 10.3% 06/30/97 12/23/97 Rykoff-Sexton Inc JP Foodservice Inc 25.7% 25.1% 05/27/97 12/18/97 HFS Inc CUC International Inc -1.6% -13.1% 05/12/97 09/09/97 Smith's Food & Drug Centers Fred Meyer(Kohlberg Kravis) 19.6% 17.9% 05/06/97 07/22/97 BWAP Inc Durco International Inc -6.2% 2.4% 10/01/96 04/01/97 Health Systems International Foundation Health Corp 0.1% 6.6% 08/02/96 11/07/96 Colonial Data Technologies US Order Inc 25.0% 1.0% 07/18/96 02/12/97 ROC Communities Inc Chateau Properties Inc 0.2% 0.2% 04/22/96 08/15/97 NYNEX Corp Bell Atlantic Corp 8.0% 2.8% 06/13/95 10/27/95 First Financial Management First Data Corp 22.0% 25.6% 03/02/95 06/28/95 Abbey Healthcare Group Inc. Homedco Group Inc. 5.5% 6.4% 08/30/94 03/15/95 Lockheed Corp Martin Marietta Corp 23.4% 19.9% Merger of Equals Premium Analysis (a) [Chart appears here] ------------------ (a) "Merger of Equals" is defined as a merger of two companies of similar market cap size. It does not imply any similarity of business between the target and acquiror, nor does it imply any change of control of either company post-merger. Excludes financial institutions. Page 37 Exchange Ratio Analysis Relative to current prices, the exchange Gas Unit Price/Oil Stock Price ratio at $3.15 is low, 12/15/95 - 4/22/98 however, it is in line with the average prices of the companies' equity over the past two years. [Chart appears here] Factset: Daily (a) Represents the current price of Gas divided by the current price of Oil. (b) Represents the current price of Gas divided by the proposed $3.15 price per share of Oil. (c) Represents Gas' average price for the period divided by Oil's average price for the period. Page 38 Exchange Ratio Analysis Comparative Stock Price Performance While Gas' unit price has remained relatively Indexed Stock Price Performance flat, Oil's stock price 12/15/95 - 4/22/98 has declined significantly in the past year. [Chart appears here] Premium of Current Price to Price --------------------------------- Current 2 Years 1 Year 180 Days 60 Days 30 Days Price (b) Prior Prior Prior Prior Prior --------------------------------------------------------- Gas 21.94 5.1% 1.4% -2.0% -6.2% -0.3% Oil 1.63 -76.8% -45.8% -48.1% -35.0% 0.9% Composite (a) 21.96 -2.2% 6.4% -5.4% -4.4% 1.3% (a) Composite index includes the following companies: APU, CNO, HPG, FGP, NPL, SPH. (b) As of 4/22/98 Page 39 TRANSACTION MULTIPLE ANALYSIS FIRM VALUATION ________________________________________________________________________________ (a) Comprised of total new units multiplied by the quarterly distribution payable immediately following the transaction of $0.575 plus the original units multiplied by the incremental distribution required by the higher distribution of $0.025, all divided by two for the assumption of a mid- quarter closing. (b) Assumes an additional Surplus of $0.95 per new unit is set aside.
- ------------------------------------------------------------------------------------------------------------------------------------ Equity Purchase Price of Heating Oil Assets $ 41,847,360 + Cost of Debt at Redemption Value 290,992,000 + Cost of Preferred stock at Redemption Value 34,375,000 + Transaction Fees 17,743,000 349,587,000 + Off-Balance Sheet Pension and Tax Liability 8,500,000 - Excess Cash Oil's cash balance at 9/30/98 13,005,000 Required cash on hand (500,000) "Unearned MQD" (a) (2,497,025) Additional Surplus (b) (7,984,975) 2,023,000 ------------- Firm Value $ 391,434,360 ============= TRANSACTION MULTIPLE ANALYSIS TRANSACTION MULTIPLES FOR FIRM VALUATION Page 41
================================================================================ EBITDA ------------------------------------------ Purchase Price Year Amount Multiple Paid - -------------- -------------------- ---------------- ---------------- $391,434,360 1997 Adjusted $43,040,000 9.1x $391,434,360 Adjusted 1998 Budget $38,500,000 10.2x $391,434,360 1999 Projected $51,657,000 7.6x TRANSACTION MULTIPLE ANALYSIS DISTRIBUTION OF VALUE
- -------------------------------------------------------------------------------- OIL 1997 Adjusted EBITDA EBITDA Multiple Purchase Price - -------------- ---------- ---------------- $43,040,000 9.1x $391,434,360 (a) A.G. Edwards' estimate of the decline rate of EBITDA based on a 4.1% attrition rate. (b) See page 57. Page 42
ABILITY TO FURTHER CONSOLIDATE HEATING OIL INDUSTRY CORE BUSINESS - --------------------------------------------------- ------------- Acquisition EBITDA $ 43,040,000 EBITDA Multiple Purchase Price EBITDA Decline Rate 7.75% (a) - -------------- ------------- ----------------- $6,315,789 4.75x $ 30,000,000 WACC 7.85% (b) Decline Rate 7.75% (a) WACC 7.85% (b) Perpetuity $ 40,477,946 Purchase Price $ 30,000,000 -------------- Net Present Value of the Heating Oil Acq. $ 10,477,946 Value in perpetuity of Ability to -------------- ------------- Consolidate Heating Oil Industry $133,425,382 Value Of Core Business $275,843,712 ============== ============= - --------------------------------------------------------------------------- Implied Total Valuation $409,269,094 % of Valuation attributable to core business 67.4% % of Valuation attributable to consolidation opportunities 32.6% - --------------------------------------------------------------------------- TRANSACTION MULTIPLE ANALYSIS TRANSACTION MULTIPLES FOR EXISTING HEATING OIL BUSINESS - -------------------------------------------------------------------------------- (a) Represents A.G. Edwards' estimate of the portion of the $391 million price being paid for Oil's heating oil business that can be attributable to its core business. Calculation: $391 million x 67.4%. See page 42. Page 43
================================================================================ Revised EBITDA ---------------------------------------- Purchase Price (a) Year Amount Multiple Paid - ------------------ --------------------- ---------------- ------------- $263,823,260 1997 Adjusted $43,040,000 6.1x $263,823,260 Adjusted 1998 Budget $38,500,000 6.9x $263,823,260 1999 Projected $51,657,000 5.1x RELATIVE CONTRIBUTION ANALYSIS (a) ($ IN THOUSANDS) Gas' EBITDA Contribution 96-97 35.4% [CHART APPEARS HERE] 98-99 33.3% 96-99 34.3% For Gas' contribution IMPLIED FIRM VALUE of approximately 34% APRIL 22, 1998 of the combined entity's EBITDA, it will receive IMPLIED FIRM VALUE (TRANSACTION) approximately 37% of the APRIL 22, 1998 implied firm value. [CHART APPEARS HERE] __________________ (a) For purposes of its analysis, A.G. Edwards converted Oil's historical December 31st fiscal year-end to a September 30th fiscal year-end for comparison purposes. Oil's projections are based on a December 31st calendar year end. Other measures of relative contribution analysis are non-meaningful. (b) Includes only heating oil EBITDA for Oil. (c) Firm value for all of Oil. (d) Implied firm value of only Oil's heating oil assets. Page 44 ACCRETION/DILUTION ANALYSIS VARIATIONS IN ATTRITION RATES, MARGIN GROWTH RATES, AND ACQUISITION ASSUMPTIONS
==================================================================================================================================== 4.1% Attrition Gas $0.01 Margin growth Attrition Margin Growth --------------------- --------------------- Stand-alone $30.0mm at 4.75x Acquisitions 6.00% 2.00% $0.000 $0.015 ------------- ------------------------------- --------- -------- --------- --------- -------- DCF per unit 1998E (a) $1.270 $1.570 $1.570 $1.570 $1.570 $1.570 1998N (b) 1.930 2.190 2.190 2.190 2.190 2.190 1999P 2.250 3.200 3.080 3.330 2.910 3.350 Accretion/Dilution 1998E (a) 23.6% 23.6% 23.6% 23.6% 23.6% 1998N (b) 13.5% 13.5% 13.5% 13.5% 13.5% 1999P 42.2% 36.9% 48.0% 29.3% 48.9% Common unit coverage 1998E (a) 0.94x 0.99x 0.99x 0.99x 0.99x 0.99x 1998N (b) 1.42 1.38 1.38 1.38 1.38 1.38 1999P 1.66 1.93 1.86 2.01 1.76 2.02 Total unit coverage 1998E (a) 0.58x 0.71x 0.71x 0.71x 0.71x 0.71x 1998N (b) 0.88 0.99 0.99 0.99 0.99 0.99 1999P 1.02 1.39 1.34 1.45 1.26 1.45 -------- 4.1% Attrition Acquisitions $0.015 Margin growth ------------ $50mm at 5.75x $50.0mm at 5.75x Acquisitions -------------- ------------------------------- DCF per unit 1998E (a) $1.570 $1.570 1998N (b) 2.190 2.190 1999P 3.480 3.640 Accretion/Dilution 1998E (a) 23.6% 23.6% 1998N (b) 13.5% 13.5% 1999P 54.7% 61.8% Common unit coverage 1998E (a) 0.99x 0.99x 1998N (b) 1.38 1.38 1999P 2.10 2.20 Total unit coverage 1998E (a) 0.71x 0.71x 1998N (b) 0.99 0.99 1999P 1.51 1.58 - --------------------------------------------------- (a) 1998 estimate assumes no acquisitions for either company, and is adjusted to reflect actual results through 3/31/98. (b) 1998 budgeted. Page 45 PUBLIC COMPANY ANALYSIS [_] A.G. Edwards compared certain financial and market information of Gas on a historical and pro forma basis to that of certain public master limited partnerships which A.G. Edwards deemed relevant for the purposes of this analysis. A.G. Edwards reviewed the trading multiples from a total of 6 public propane master limited partnerships. [_] The selected propane master limited partnerships are as follows: - AmeriGas Partners, L.P. - Heritage Propane Partners, L.P. - Cornerstone Propane Partners, L.P. - National Propane Partners, L.P. - Ferrellgas Partners, L.P. - Suburban Propane Partners, L.P. [_] No company used in the analysis is identical to Gas. PUBLIC COMPARABLE COMPANIES (A) (a) Public comparable companies include: APU, CNO, (f) Adjusted 1998 budget. FGP, HPG, CNL and SPH. (g) 1999 estimates. (b) Firm value/adjusted 1998 budget EBITDA. (h) Adjusted 1998 budget. (c) Firm value/1999 estimated EBITDA. (i) 1999 estimates. (d) Equity market cap/adjusted 1998 budget EBITDA. (e) Equity market cap/1999 estimated DCF. Page 46
- --------------------------------------------------------------------------------------------------------- PUBLIC PUBLIC PRO FORMA COMPANY COMPANY GAS GAS MEDIANS RANGES - --------------------------------------------------------------------------------------------------------- Yield 10.0% 10.5% 9.6% 8.5% to 10.6% Firm value/LTM EBITDA 12.7x (b) 10.8x (b) 12.5x 9.8x to 16.7x Firm value/1998 normalized EBITDA 8.7x (c) 7.9x (c) 11.5x 10.3x to 13.7x Equity Market Cap/LTM DCF 18.0x (d) 14.0x (d) 15.7x 9.4x to 25.5x Equity Market Cap/1998 normalized DCF 9.7x (e) 7.5x (e) 13.9x 11.6x to 16.9x LTM common unit coverage O.9x (f) l.Ox (f) 1.4x 0.6x to 1.5x 1998E common unit coverage 1.7x (g) 1.8x (g) 1.4x 0.9x to 1.9x LTM total unit coverage 0.6x (h) 0.7x (h) 0.7x 0.4x to l.Ox 1998E total unit coverage l.Ox (i) 1.3x (i) 0.7x 0.7x to l.Ox - --------------------------------------------------------------------------------------------------------- PUBLIC COMPANY ANALYSIS ($ IN MILLIONS, EXCEPT PER UNIT DATA) ____________________________________ 1998 estimates per A.G. Edwards' research, except for Gas, Oil, and Pro Forma. Implied Firm Value equals common, subordinated and GP units, mulitiplied by the market price of common units plus debt, less cash. (a) Pro forma for the Pearl Gas acquisition and the common unit offering. Fiscal 1997 maintenance capital expenditure used as LTM figure. (b) For Gas and Pro forma only, LTM DCF figures are adjusted 1998 budget, DCF estimates. (c) For Gas and Pro forma only, FY98E DCF figures are 1999 DCF estimates. (d) Financial information pro forma for common unit offering. Maintenance capital expenditures assumed to be 8% of EBITDA due to lack of disclosure. (e) Maintenance capital expenditure assumed to be 8% of EBITDA due to lack of disclosure. (f) Financial figures exclude $5.1 million gain from sale of minority interest. (g) 14,764 units at $21.9375. (h) $323.3 in equity plus $308.316 pro forma debt (see page 56), less $10.982 cash. Page 47
- ------------------------------------------------------------------------------------------------------------------------------------ Closing Implied Implied Common Price On Market Value Firm Distribution Units/ Company Ticker (4/22/98) Of Equity Value Per Unit Yield Total Units - ------------------------------------------------------------------------------------------------------------------------------------ Gas (a) $21.938 $ 139.4 $ 232.0 $ 2.20 10.0% 60.3% AmeriGas Partners, L.P. APU 25.938 1,108.6 1,867.2 2.20 8.5% 52.8% Cornerstone Propane Partners, L.P. (d) CNO 22.688 455.7 671.7 2.16 9.5% 66.5% Ferrellgas Partners, L.P. (e) FGP 20.875 666.6 1,192.3 2.00 9.6% 47.0% Heritage Propane Partners, L.P. HPG 23.125 197.8 371.8 2.00 8.6% 55.8% National Propane Partners, L.P. NPL 20.313 232.9 375.6 2.10 10.3% 59.6% Suburban Propane Partners, L.P. (f) SPH 18.813 551.4 942.0 2.00 10.6% 75.1% - ------------------------------------------------------------------------------------------------------------------------------------ Mean 9.5% 59.5% Median 9.6% 57.7% ==================================================================================================================================== PRO FORMA $ 21.938 $ 323.9 (g) $ 621.2 (h) $ 2.30 10.5% 70.6% - ------------------------------------------------------------------------------------------------------------------------------------ LTM Distributable Cash Flow/ FY98E Distributable Cash Flow/ ---------------------------------- -------------------------------- Distribution To Distribution FY98E Distribution To Distribution Company Common Units To Total Units DCF/Unit Common Units To Total Units - ------------------------------------------------------------------------------------------------------------------------------------ Gas (a) 0.9x (b) 0.6x (b) $2.25 (c) 1.7x (c) 1.0x (c) AmeriGas Partners, L.P. 1.5x 0.8x 2.14 1.9x 1.0x Cornerstone Propane Partners, L.P. (d) 0.6x 0.4x 1.47 1.1x 0.7x Ferrellgas Partners, L.P. (e) 1.4x 0.7x 1.34 1.4x 0.7x Heritage Propane Partners, L.P. 1.3x 0.8x 2.01 1.8x 1.0x National Propane Partners, L.P. 0.9x 0.5x 1.60 1.3x 0.8x Suburban Propane Partners, L.P. (f) 1.4x 1.0x 1.41 0.9x 0.7x - ------------------------------------------------------------------------------------------------------------------------------------ Mean 1.2x 0.7x 1.4x 0.8x Median 1.4x 0.7x 1.4x 0.7x ==================================================================================================================================== PRO FORMA 1.0x (b) 0.7x 2.91 (c) 1.8x (c) 1.3x (c) PUBLIC COMPANY ANALYSIS - ------------------------------------------------------------- EBITDA is defined as net income (loss) before extraordinary items plus interest, income taxes, depreciation and amortization, impairment expense, and other non- recurring and non-operating items. (a) For Gas and Pro Forma only, LTM EBITDA figures are adjusted 1998 budget estimates. (b) For Gas and Pro Forma only, 1998E EBITDA figures are 1999 estimates. (c) For Gas and Pro Forma only, LTM DCF figures are adjusted 1998 budget DCF estimates. (d) For Gas and Pro Forma only, 1998E DCF figures are 1999 DCF estimates.
- ------------------------------------------------------------------------------------------------------------------------- Long Term LTM Firm Value/ Firm Value/ Equity Equity Debt/ EBITDA/ LTM 1998E Market Cap/ Market Cap/ Firm Value Int. Exp. EBITDA EBITDA LTM DCF 1998E DCF - ------------------------------------------------------------------------------------------------------------------------- Gas 41.4% 2.3x (a) 12.7x (a) 8.7x (b) 18.0x (c) 9.7x (d) Amerigas Partners, L.P. 37.3% 2.2x 12.6x 12.1x 15.5x 14.1x Cornerstone Propane Partners, L.P. 35.1% 2.1x 16.7x 13.7x 25.5x 16.9x Ferrellgas Partners, L.P. 41.5% 2.1x 12.5x 12.0x 15.8x 15.9x Heritage Propane Partners, L.P. 46.0% 2.6x 10.9x 10.6x 15.7x 11.6x National Propane Partners, L.P. 36.8% 3.2x 16.3x 11.0x 18.0x 13.0x Suburban Propane Partners, L.P. 45.5% 2.9x 9.8x 10.3x 9.4x 13.6x - ------------------------------------------------------------------------------------------------------------------------- Mean 40.4% 2.5x 13.1x 11.6x 16.6x 14.2x Median 39.4% 2.4x 12.5x 11.5x 15.7x 13.9x - ------------------------------------------------------------------------------------------------------------------------- Pro Forma 49.6% 2.1x (a) 10.8x (a) 7.9x (b) 14.0x (c) 7.5x (d) PUBLIC COMPANY DESCRIPTIONS AMERIGAS PARTNERS, LP. AmeriGas Partners operates the largest retail propane distribution business in the U.S., serving approximately 968,000 residential, commercial, industrial, agricultural, and motor-fuel customers in 45 states. AmeriGas Partners also sells propane-related supplies and equipment, including home appliances. The company owns or leases a fleet of about 385 transport trucks, 680 railroad tank cars, and 2,300 bobtail and rack trucks. It also owns or leases propane-storage facilities in Arizona and Rhode Island. AmeriGas Propane, a wholly owned subsidiary of UGI Corp., owns 58% of AmeriGas Partners. [GRAPH APPEARS HERE] CORNERSTONE PROPANE Cornerstone Propane Partners, L.P. distributes PARTNERS, L.P. propane for residential, commercial, industrial, agricultural and other retail uses; markets and distributes propane and natural gas liquids; services propane heating systems and appliances; and sells propane-related supplies, appliances and other equipment. It is the fifth largest retail marketer of propane in the U.S. in terms of volume. The partnership's operations are concentrated in the east coast, south-central and west coast regions of the U.S. [GRAPH APPEARS HERE] Page 49 PUBLIC COMPANY DESCRIPTIONS (continued) FERRELLGAS PARTNERS, L.P. Ferrellgas is the second largest U.S. distributor of propane serving more than 800,000 residential and commercial customers. The company also engages in propane/natural gas trading, wholesale propane marketing, and chemical feedstock marketing. It markets its products primarily in the Midwest, the Great Lakes area, and the Southeast. With a delivery fleet of approximately 4,000 vehicles, Ferrellgas sells almost 700 million gallons of fuel annually to its retail customers, which represents about 8% of all retail propane bought in the U.S. The company has acquired more than 100 companies in 11 years. [GRAPH APPEARS HERE] HERITAGE PROPANE Heritage Propane Partners distributes propane to PARTNERS, LP. more than 220,000 residential, commercial, industrial, and agricultural customers. The propane is used primarily for heating, drying, cooking, as fuel for engines, as a cutting gas for mining operations, and for curing tobacco. The company's retail operations distribute propane to customers in 23 states in the western, southeastern, and northeastern U.S. The company also distributes wholesale propane and sells, installs, and repairs propane-related equipment. Heritage has acquired 40 retail propane operations since 1989, bringing annual propane sales to over 125 million gallons. [GRAPH APPEARS HERE] Page 50 PUBLIC COMPANY DESCRIPTIONS (continued) NATIONAL PROPANE National Propane L.P. markets propane on a retail PARTNERS, L.P. basis to residential, commercial, industrial and agricultural customers and dealers in 25 states; and also sells propane-related supplies and equipment, including home and commercial appliances. It is the sixth largest retail marketer of propane in the U.S. in terms of volume, supplying approximately 250,000 active retail and wholesale customers in 25 states through 166 service centers located in 24 states. Operations are concentrated in the Midwest, Northeast, Southeast and Southwest regions of the U.S. [GRAPH APPEARS HERE] SUBURBAN PROPANE Suburban Propane Partners markets and distributes PARTNERS, L.P. propane to residential, commercial, industrial and agricultural customers through a retail distribution network consisting of 352 district locations in 41 states. The company, the third largest retail marketer of propane in the U.S., serves over 730,000 active customers primarily located in the east and west coast regions of the country. Suburban Propane also sells, installs and services equipment related to its propane distribution business, including heating and cooking appliances and, at some locations, propane fuel systems. [GRAPH APPEARS HERE] Page 51 DISCOUNTED CASH FLOW ANALYSIS GAS - STAND ALONE ($ IN THOUSANDS) (a) Based on management projections. (b) Based on comparable companies' WACC. See Weighted Average Cost of Capital analysis. (c) Gas' current firm value of $232.0 million/$22.781 million normalized 1998 EBITDA = 10.2x, which represents a multiple of current year normalized EBITDA. (d) Discount factor calculated using half-year convention. (e) Terminal value calculated using EBITDA multiple. (f) Represents total projected debt less cash as of 9/30/98. (g) Total units include common, subordinated and GP units. (h) Current market value of common units is 3,832 units * $21.938 unit price = $84,065 Page 52
----------------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT SUMMARY (a): 1998 1999 2000 2001 2002 Terminal --------- ---------- ---------- ---------- ---------- ----------------- EBITDA 18,279 26,730 28,541 30,361 32,188 % increase 46.2% 6.8% 6.4% 6.0% Net income (1,321) 3,691 3,554 3,779 4,198 CASH FLOW SUMMARY: - ------------------ After-tax EBI 12,805 13,582 14,527 15,474 Depreciation and amortization 13,900 14,934 15,809 16,689 Maintenance capital expenditures (3,274) (3,395) (3,694) (3,816) Working capital increases (500) (500) (500) (500) ---------- ---------- ---------- ---------- Net operating cash flow (free cash flow) 22,931 24,621 26,142 27,847 -------------- Weighted average cost of capital (b) 7.9% -------------- -------------- Terminal EBITDA multiple (c) 10.2x -------------- Discount factor (d) 0.9629 0.8927 0.8276 0.7673 0.7388 Terminal value (e) $328,318 -------------- Present value $329,620 $22,079 $21,979 $21,635 $21,367 $242,560 -------------- ---------- ---------- ---------- ---------- ---------------- Current net debt (f) ($102,956) -------------- Net present value of equity $226,664 ============== Common units/Total units (g) 60.3% -------------- Equity value to common units (h) $136,669 -------------- - ------------------------------------------------------------------------------------------------------------------------------------ DISCOUNTED CASH FLOW ANALYSIS GAS - PRO FORMA PAINEWEBBER MODEL (a) ($ IN THOUSANDS) (a) Scenario assumes 4.1% steady attrition, 0% margin improvement, and $30 million in acquisitions at 4.75 multiple. (b) Based on management projections. (c) A.G Edwards' assumption. (d) Based on comparable companies' WACC. See Weighted Average Cost of Capital analysis. (e) Gas' current firm value of $232.0 million/$22.781 million normalized 1998 EBITDA = 10.2x, which represents a multiple of current year normalized EBITDA. (f) Terminal value calculated using half-year convention. (g) Discount factor calculated using EBITDA multiple. (h) Represents total proforma projected debt less cash as of 9/30/98. (i) Total units include common, newly issued common, senior subordinated, subordinated and GP units. (j) Current market value of common units is 3,832 units * $21,938 unit price=$84,065 Page 53
==================================================================================================================== INCOME STATEMENT SUMMARY (b): 1998 1999 2000 2001 2002 Terminal - ----------------------------- --------- -------- ------- -------- -------- ---------- EBITDA 57,629 78,887 83,412 87,919 92,408 % increase 36.9% 5.7% 5.4% 5.1% Net income (11,497) 4,970 2,830 3,156 5,021 CASH FLOW SUMMARY: - ------------------ After-tax EBI 33,584 33,532 34,781 35,995 Depreciation and amortization 44,778 49,354 52,613 55,888 Maintenance capital expenditures (6,774) (6,895) (7,194) (7,316) Working capital increases (c) 8,982 (1,000) (1,000) (1,000) -------- -------- ------- ------- Net operating cash flow (free cash flow) 80,570 74,991 79,200 83,567 --------- Weighted average cost of capital (d) 7.9% --------- --------- Terminal EBITDA multiple (e) 10.2x --------- Discount factor (f) 0.9629 0.8928 0.8278 0.7675 0.7390 Terminal value (g) $942,562 --------- Present value $970,827 $77,581 $66,952 $65,561 $64,139 $696,595 --------- -------- -------- ------- ------- --------- Less net debt (h) ($297,334) --------- Net present value of equity $673,493 ========= Original common units/Total units (i) 26.0% --------- Equity value to common units (j) $174,793 --------- - -------------------------------------------------------------------------------------------------------------------- Capital Structure Analysis Oil ($ in millions) - ------------------------- (a) Class B market price is calculated as: $17.50+$0.2763. (b) Market price is assumed to equal that of the Class A shares, since the Class C shares do not trade. Page 54
- --------------------------------------------------------------------------------------------------------------------------- 12/31/97 4/22/98 Book Value Coupon Market Price Market Value ------------ -------- -------------- -------------- Debt: Credit Agreement Working Capital facility $3.000 7.75% NA $3.0 Acquisition facility 0.000 7.75% NA 0.0 Notes payable Notes payable for fuel oil dealer purchases, etc. 16.798 8.0%-10.0% NA 16.8 11.85%, 12.17%, 12.18% Senior Notes 60.000 11.96% NA 60.0 14.1% Subordinated and Senior 8.300 14.10% NA 8.3 10.125% Subordinated 50.000 10.13% 92.13% 46.1 9.375% Subordinated Debentures 75.000 9.38% 87.00% 65.3 12.25% Subordinated Debentures 81.250 12.25% 96.50% 78.4 Total Debt $294.348 $277.8 Effective Cost of Debt 11.0% Preferred Stock: Redeemable preferred stock $8.334 14.34% NA 8.3 12.875% Exchangeable preferred stock 30.000 12.88% NA 30.0 Adjustment to balance sheet (1.678) NA (1.7) Total Preferred Stock $36.7 $36.7 Effective Cost of Preferred Stock 13.2% Total Debt and Preferred Stock $331.0 $314.5 Effective Cost of Debt and Preferred Stock 11.2% 12/31/97 4/22/98 Shares Out. Market Price Market Value ------------- -------------- -------------- Equity: Common stock Class A 23,954,560 $1.625 $38.9 Class B 11,228 17.776 (a) 0.2 Class C 2,597,519 NA (b) 4.2 Total Equity $43.3 Effective Cost of Equity 28.7% Total Capitalization $357.8 WACC 13.3% Less: Cash 11.7 Net Capitalization $346.1 Net Market Market Value % of Ownership Value of Gas of Interest ---------------- -------------- -------------- Less: Interest in Gas 40.7% $231.959 $94.3 Total Value of Oil Without Interest in Gas $263.5 Capital Structure Analysis Gas ($ in millions)
- ------------------------------------------------------------------------------------------------------------------------------------ 12/31/97 4/22/98 Book Value Coupon Market Price Market Value ---------- ------ --------------- -------------- DEBT: Credit Agreement Working Capital facility $ 0.000 None Not applicable Not applicable Acquisition facility 0.000 None Not applicable Not applicable Notes payable 8.04% First Mortgage Notes 85.000 8.04% NA $85.0 7.17% First Mortgage Notes (a) 11.000 7.17% NA 11.0 Total Debt $96.0 Effective Cost Of Debt 7.9% After-tax Cost Of Debt 5.2% (a) The 7.17% First Mortgage Notes were placed 1/26/98; proceeds were used to repay the acquisition facility. (b) Market price assumed to equal common units. (c) Implied 2% general partner interest. Page 55
12/31/97 4/22/98 Shares Out. Market Price Market Value ----------- ------------ ------------ EQUITY: Common units 3,831,727 $21.938 $ 84.1 Subordinated units 2,396,078 NA (b) 52.6 General Partner 2.8 (c) Total Equity $139.4 Effective cost of equity 9.7% Total Capitalization $235.4 WACC 7.9% Less: Cash $ 3.5 Net Capitalization $232.0 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Structure Analysis Gas - Pro Forma as of 9/30/98 ($ In Thousands) Page 56
- ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma Gas Oil Adjustments Gas ------------ ------------ ------------------ ----------- Debt: 8.04% First Mortgage Notes $85,000 $0 $0 $85,000 8.25% WC Revolver 7,457 - - 7,457 7.17% First Mortgage Notes 11,000 - - 11,000 11.96% Senior Notes - 60,000 (60,000) - 14.10% Senior Notes - 3,100 (3,100) - 14.10% Subordinated Notes - 3,100 (3,100) - 10.13% Sub Notes & Sr Notes - 50,000 (50,000) - 9.38% Sub Notes & Sr Notes - 75,000 (75,000) - 12.25% Sub Notes & Sr Notes - 81,250 (81,250) - 8.00% Existing Acq Notes Payable - 13,859 - 13,859 8.46% Exchange Debt - - 66,000 66,000 8.50% New Debt - - 125,000 125,000 ------------ ------------ ------------------ ----------- Total Debt $103,457 $286,309 ($81,450) $308,316 Weighted average cost of Debt 8.3% Preferred Stock: 14.33% Preferred Stock $0 $4,167 ($4,167) $0 12.88% Preferred Stock - 30,000 (30,000) - ------------ ------------ ------------------ ----------- - 34,167 (34,167) - Common Equity $56,368 $210,015 $123,378 ($30,268) - ------------------------------------------------------------------------------------------------------------------------------------ Discounted Cash Flow Analysis Pro Forma Weighted Average Cost Of Capital Derivation ($ in millions) Comparable group's average unlevered beta: 0.23 Pro forma debt - to - equity ratio (b): 95.2% Pro forma debt as a percent of total capital (b): 48.8% Comparable group's beta relevered for Pro forma capital structure: 0.368 ===== - ----------------------------------------------------------------------------- Pro forma capitalization - at market (b) $308.3 48.8% Total debt 323.9 51.2% -------- ------- Common Equity $632.2 100.00% - ----------------------------------------------------------------------------- DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL : - -------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Total Implied Total Total Market Unit Total Market Debt/ Debt as % Un- Levered Val. Debt Price at Units Value of Total Of Total levered Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta - ------------------------------------------------------------------------------------------------------------------------------------ AmeriGas Partners, L.P. 0.52 $ 777.8 $ 25.938 41.9 $1,108.6 70.2% 41.2% 0.306 Cornerstone Propane Partners, L.P. 0.41 235.8 22.688 19.7 455.7 51.7% 34.1% 0.270 Ferrellgas Partners, L.P. 0.39 537.2 20.875 31.3 666.6 80.6% 44.6% 0.216 Heritage Propane Partners, L.P. 0.44 176.9 23.125 8.4 197.8 89.4% 47.2% 0.232 National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208 Star Gas Partners, L.P. 0.34 96.0 21.938 6.2 139.4 68.9% 40.8% 0.201 Suburban Propane Partners, L.P. 0.38 428.2 18.813 28.7 551.4 77.6% 43.7% 0.214 - ----------------------------------------------------- (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of long-term debt is assumed to be equal to the book value. (c) Ten - year Treasury rate on April 22, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on Pro forma current debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). Page 57
Market Risk Premium Range (d) ------------------------------------------- 11.3% 12.3% 13.3% ------------------------------------------- Pro forma theoretical levered beta: 0.368 Assumed % of equity in Pro forma capital structure (b): 51.2% Risk - free rate of return (c): 5.7% Pro forma cost of equity range (at various market risk premiums): 9.8% 10.2% 10.6% ===== ===== ===== Pro forma assumed tax rate: 35.0% Assumed % of debt in capital structure (b): 48.8% Pro forma estimated cost of debt (e): 8.3% Pro forma estimated after - tax cost of debt: 5.4% 5.4% 5.4% 5.4% ------------------------------------------- Pro forma weighted average cost of capital range (f): 7.7% 7.9% 8.0% ------------------------------------------- COMPARISON OF CAPITAL STRUCTURES AND COSTS OF CAPITAL ($ IN MILLIONS) Page 58
- ---------------------------------------------------------------------------------------------------------------- AMERIGAS PARTNERS, CORNERSTONE PROPANE FERRELLGAS PARTNERS, L.P. Partners, L.P. L.P. ------------------ ------------------- -------------------- Capital Cost Capital Cost Capital Cost ------- ------- --------- ------- ------- ------- DEBT: Working capital/Revolving credit facility $ 28.0 6.44% $ 24.2 7.76% $ 84.6 8.40% Acquisition facility 37.0 6.32% Term loan 50.0 8.40% Senior Notes 100.0 10.13% 220.0 7.53% 200.0 10.00% 160.0 9.38% First Mortgage Notes Series A 222.8 10.53% Series B 211.6 10.07% Series C 110.0 8.83% Purchase contract obligations 12.0 7.50% Notes payable on noncompete agreements 14.6 6.05% Other, including capital leases 9.4 NA TOTAL DEBT PER MOST RECENT 10K 718.7 256.2 509.1 TOTAL DEBT 12/31/97 777.8 9.56% 235.8 7.55% 537.2 9.27% MINORITY INTEREST $ 5.1 $ 0.0 $ 2.0 EQUITY: TOTAL EQUITY $1,108.6 9.75% $455.7 9.41% $ 666.6 9.93% TOTAL CAPITALIZATION $1,891.6 8.29% $691.5 7.88% $1,205.8 8.19% Less: Cash 24.4 19.8 13.5 NET CAPITALIZATION $1,867.2 $671.7 $1,192.3 FINANCIAL RATIOS: Bank debt/total debt 8.36% 10.26% 25.05% Total debt/total cap 41.12% 34.10% 44.55% Common/total units 52.77% 66.48% 46.97% - ---------------------------------------------------------------------------------------------------------------- HERITAGE PROPANE NATIONAL PROPANE SUBURBAN PROPANE Partners, L.P. Partners, L.P. Partners, L.P. ------------------- ------------------ -------------------- Capital Cost Capital Cost Capital Cost -------- ------ -------- ------- --------- ------- DEBT: Working capital/Revolving credit facility $ 12.3 7.59% $ 8.5 7.95% $ 0.0 Acquisition facility 25.0 7.38% 12.0 7.35% $ 0.0 Term loan Senior Notes 120.0 8.55% 425.0 7.54% 3.5 8.00% First Mortgage Notes 125.0 8.54% Series A Series B Series C Purchase contract obligations Notes payable on noncompete agreements 3.3 8.00% 1.9 8.00% Other, including capital leases 1.0 TOTAL DEBT PER MOST RECENT 10K 161.5 147.4 428.5 TOTAL DEBT 12/31/97 176.9 8.23% 147.4 8.40% 428.2 7.54% MINORITY INTEREST $ 0.0 $ 0.0 $ 0.0 EQUITY: TOTAL EQUITY $197.8 10.10% $ 232.9 9.62% $551.4 9.88% TOTAL CAPITALIZATION $374.6 7.86% $ 380.2 8.01% $979.6 7.71% Less: Cash 2.8 4.6 37.6 NET CAPITALIZATION $371.8 $ 375.6 $942.0 FINANCIAL RATIOS: Bank debt/total debt 21.06% 13.91% 0.00% Total debt/total cap 47.21% 38.76% 43.71% Common/total units 55.82% 59.65% 75.06% AMERIGAS PARTNERS, L.P. DISCOUNTED CASH FLOW ANALYSIS WEIGHTED AVERAGE COST OF CAPITAL DERIVATION ($ in millions)
- ------------------------------------------------------------------------------------------------------------------------------------ Total Implied Total Total Market Unit Total Market Debt/ Debt as % Un- Levered Val. Debt Price at Units Value of Total of Total Levered Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta - ------------------------------------------------------------------------------------------------------------------------------------ AmeriGas Partners, L.P. 0.48 $777.8 $ 25.938 41.9 $1,108.6 70.2% 41.2% 0.282 Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264 Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210 Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227 National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208 Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195 Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203 Comparable group's average unlevered beta: 0.23 ------------------------------------------------------------ AmeriGas' debt-to-equity ratio(b): 70.2% AmeriGas' debt as a percent of total capital (b): 41.2% AmeriGas' capitalization-at market (b) Comparable group's beta relevered for Amerigas' Total debt $777.8 41.2% capital structure: 0.331 Common equity 1,108.6 58.8% ====== -------- ------ $1,886.5 100.0% ------------------------------------------------------------ (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of long-term debt is assumed to be equal to the book value. (c) Ten-year Treasury rate on April 22, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on AmeriGas' current debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). Page 59
Derivation Of Weighted Average Cost Of Capital : Market Risk Premium Range (d) - ------------------------------------------------ -------------------------------------------- AmeriGas' theoretical levered beta: 0.331 11.3% 12.3% 13.3% Assumed % of equity in Amerigas' capital structure (b): 58.8% -------------------------------------------- Risk-free rate of return (c): 5.7% AmeriGas' cost of equity range (at various market risk premiums): 9.4% 9.7% 10.1% AmeriGas' assumed tax rate: 35.0% ===== ===== ===== Assumed % of debt in capital structure (b): 41.2% AmeriGas' estimated cost of debt (e): 9.6% AmeriGas' estimated after-tax cost of debt: 6.2% 6.2% 6.2% 6.2% -------------------------------------------- AmeriGas' weighted average cost of capital range (f): 8.1% 8.3% 8.5% ____________________________________________________________ -------------------------------------------- CORNERSTONE PROPANE PARTNERS, L.P. DISCOUNTED CASH FLOW ANALYSIS WEIGHTED AVERAGE COST OF CAPITAL DERIVATION ($ IN MILLIONS) ____________________________ (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of long-term debt is assumed to be equal to the book value. (c) Ten - year Treasury rate on April 22, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on Cornerstone's current debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). Page 60
=============================================================================================================================== Total Implied Total Total Market Unit Total Market Debt/ Debt as % Levered Val. Debt Price at Units Value of Total of Total Unlevered Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta - ------------------------------------------------------------------------------------------------------------------------------- AmeriGas Partners, L.P. 0.48 $777.8 $25.938 41.9 $1,108.6 70.2% 41.2% 0.282 Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264 Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210 Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227 National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208 Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195 Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203 -------------------------------------------------- Cornerstone's capitalization - at market (b) Comparable group's average unlevered beta: 0.23 Total debt $235.8 34.1% Cornerstone's debt - to - equity ratio (b): 51.7% Common equity 455.7 65.9% ------ ------ Cornerstone's debt as a percent of total capital (b): 34.1% Comparable group's beta relevered for Cornerstone's $691.5 100.0% capital structure: 0.303 ===== -------------------------------------------------- DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: Market Risk Premium Range (d) - ----------------------------------------------- ------------------------------------------ 11.3% 12.3% 13.3% ------------------------------------------ Cornerstone's theoretical levered beta: 0.303 Assumed % of equity in Cornerstone's capital structure (b): 65.9% Risk - free rate of return (c): 5.7% Cornerstone's cost of equity range (at various market risk premiums): 9.1% 9.4% 9.7% ==== ==== ==== Cornerstone's assumed tax rate: 35.0% Assumed % of debt in capital structure (b): 34.1% Cornerstone's estimated cost of debt (e): 7.6% Cornerstone's estimated after - tax cost of debt: 4.9% 4.9% 4.9% 4.9% Cornerstone's weighted average cost of capital range (f): ------------------------------------------ 7.7% 7.9% 8.1% ------------------------------------------ Ferrellgas Partners, L.P. Discounted Cash Flow Analysis Weighted Average Cost of Capital Derivation ($ in millions) - -------------------------------------------------------------------------------- (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of long-term debt is assumed to be equal to the book value. (c) Ten - year Treasury rate on April 22, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on Ferrellgas' current debt structure. 61 (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM).
Total Implied Total Total Market Unit Total Market Debt/ Debt as % Un- Levered Val, Debt Price at Units Value of Total Of Total Levered Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta - ---------------------------------------------------------------------------------------------------------------------------------- AmeriGas Partners, L.P. 0.48 $ 777.8 $25.938 41.9 $1,108.6 70.2% 41.2% 0.282 Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264 Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210 Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227 National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208 Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195 Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203 --------------------------------------------- Ferrellgas 'capitalization - at Market (b) Comparable group's average unlevered beta: 0.23 Total debt $537.2 44.6% Ferrellgas' debt - to - equity ratio (b): 80.6% Common equity 666.6 55.4% Ferrellgas' debt as a percent of total capital (b): 44.6% --------- ------- Comparable group's beta relevered for Ferrell gas' capital structure: 0.346 $1,203.8 100.0% ========= --------------------------------------------- Derivation Of Weighted Average Cost Of Capital : Market Risk Premium Range (d) - ------------------------------------------------ -------------------------------------- 11.3% 12.3% 13.3% Ferrellgas' theoretical levered beta: 0.346 -------------------------------------- Assumed % of equity in Ferrell gas' capital structure (b): 55.4% Risk - free rate of return (c): 5.7% Ferrellgas' cost of equity range (at various market risk premiums): 9.6% 9.9% 10.3% Ferrellgas' assumed tax rate: 35.0% ==== ==== ===== Assumed % of debt in capital structure (b): 44.6% Ferrellgas' estimated cost of debt (e): 9.3% Ferrellgas' estimated after - tax cost of debt: 6.0% 6.0% 6.0% 6.0% -------------------------------------- Ferrellgas' weighted average cost of capital range (f): 8.0% 8.2% 8.4% - ------------------------------------- -------------------------------------- HERITAGE PROPANE PARTNERS, L.P. DISCOUNTED CASH FLOW ANALYSIS WEIGHTED AVERAGE COST OF CAPITAL DERIVATION ($ IN MILLIONS) __________________________________________________________ (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of long-term debt is assumed to be equal to the book value. (c) Ten - year Treasury rate on April 22, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on Heritage's current debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). Page 62
==================================================================================================================================== TotaL Implied Total Total Market Unit TotaL Market Debt/ Debt as % Un- Levered Val. Debt Price at Units Value of Total of Total Levered Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta - ------------------------------------------------------------------------------------------------------------------------------------ AmeriGas Partners, L.P. 0.48 $777.8 $25.938 41.9 $1,108.6 70.2% 41.2% 0.282 Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264 Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210 Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227 National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208 Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195 Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203 ------------------------------------------------ Heritage's Capitalization - at market (b) Comparable group's average unlevered beta: 0.23 Total debt $176.9 47.2% Heritage's debt - to - equity ratio(b): 89.4% Common Equity 197.8 52.8% ------- ------ Heritage's debt as a percent of total capital (b): 47.2% $374.6 100.0% Comparable group's beta relevered for Heritage's capital structure: 0.359 ------------------------------------------------ ===== DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL : MARKET RISK PREMIUM RANGE (d) - ------------------------------------------------ ---------------------------------- 11.3% 12.3% 13.3% ---------------------------------- Heritage's theoretical levered beta: 0.359 Assumed % of equity in Heritage's capital structure (b): 52.8% Risk - free rate of return (c): 5.7% Heritage's cost of equity range (at various market risk premiums): 9.7% 10.1% 10.5% ==== ===== ===== Heritage's assumed tax rate: 35.0% Assumed % of debt in capital structure (b): 47.2% Heritage's estimated cost of debt (e): 8.2% Heritage's estimated after - tax cost of debt: 5.4% 5.4% 5.4% 5.4% ---------------------------------- Heritage's weighted average cost of capital range (f): 7.7% 7.9% 8.0% ---------------------------------- National Propane Partners,L.P. Discounted Cash Flow Analysis Weighted Average Cost of Capital Derivation ($ in millions) ______________________________ (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of long-term debt is assumed to be equal to the book value. (c) Ten - year Treasury rate on April 22, 1998. (d) lbbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on National's current debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). Page 63
- ------------------------------------------------------------------------------------------------------------------------------------ Total Implied Total Total Market Unit Total Market Debt/ Debt as % Un- Levered Val.Debt Price at Units Value of Total of Total levered Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta - ------------------------------------------------------------------------------------------------------------------------------------ AmeriGas Partners, L.P. 0.48 $777.8 $ 25.938 41.9 $1,108.6 70.2% 41.2% 0.282 Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264 Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210 Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227 National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208 Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195 Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203 -------------------------------------------------------- National's capitalization - at market (b) Comparable group's average unlevered beta: 0.23 Total debt $147.4 38.8% National's debt - to - equity ratio (b): 63.3% Common equity 232.9 61.2 ------ ----- National's debt as a percent of total capital (b): 38.8% $380.2 100.0% -------------------------------------------------------- Comparable group's beta relevered for National's capital structure: 0.320 ===== Derivation of Weighted Average Cost of Capital: Market Risk Premium Range (d) - ------------------------------------------------ --------------------------------- 11.3% 12.3% 13.3% --------------------------------- National's theoretical levered beta: 0.320 Assumed % of equity in National's capital structure (b): 61.2% Risk - free rate of return (c): 5.7% National's cost of equity range (at various market risk premiums): 9.3% 9.6% 9.9% === === === National's assumed tax rate: 35.0% Assumed % of debt in capital structure (b): 38.8% National's estimated cost of debt (e): 8.4% National's estimated after - tax cost of debt: 5.5% 5.5% 5.5% 5.5% --------------------------------- National's weighted average cost of capital range (f): 7.8% 8.0% 8.2% --------------------------------- SUBURBAN PROPANE PARTNERS, L.P. DISCOUNTED CASH FLOW ANALYSIS WEIGHTED AVERAGE COST OF CAPITAL DERIVATION ($ IN MILLIONS) __________________________________ (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of long-term debt is assumed to be equal to the book value. (c) Ten - year Treasury rate on April 22, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on Suburban's current debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). Page 64
- ------------------------------------------------------------------------------------------------------------------------------------ TOTAL IMPLIED TOTAL TOTAL MARKET UNIT TOTAL MARKET DEBT/ DEBT AS % UN- LEVERED VAL. DEBT PRICE AT UNITS VALUE OF TOTAL OF TOTAL LEVERED COMPARABLE COMPANY BETA (A) (BK = MKT) (4/22/98) OUT. (IL) EQUITY EQUITY CAPITAL BETA - --------------------------------------------------------------------------------------------------------------------------------- AmeriGas Partners, L.P. 0.48 $777.8 $ 25.938 41.9 $1,108.6 70.2% 41.2% 0.282 Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264 Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210 Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227 National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208 Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195 Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203 ------------------------------------------------------- Suburban's capitalization - at market (d) Comparable group's average unlevered beta: 0.23 Total debt $428.2 43.7% Suburban's debt - to - equity ratio (b): 77.6% Common equity 551.4 56.3% ------ ----- Suburban's debt as a percent of total capital (b): 43.7% $979.6 100.0% ------------------------------------------------------- Comparable group's beta relevered for Suburban's capital structure: 0.342 ===== DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL : MARKET RISK PREMIUM RANGE (d) - ------------------------------------------------ ---------------------------------- 11.3% 12.3% 13.3% ---------------------------------- Suburban's theoretical levered beta: 0.342 Assumed % of equity in Suburban's capital structure (b): 56.3% Risk - free rate of return (c): 5.7% Suburban's cost of equity range (at various market risk premiums): 9.5% 9.9% 10.2% ==== ==== ===== Suburban's assumed tax rate: 35.0% Assumed % of debt in capital structure (b): 43.7% Suburban's estimated cost of debt (e): 7.5% Suburban's estimated after - tax cost of debt: 4.9% 4.9% 4.9% 4.9% ---------------------------------- Suburban's weighted average cost of capital range (f): 7.5% 7.7% 7.9% ----------------------------------
PROJECT HEAT - ------------------------------------------------------------------------------------------------------------------------------------ Transaction Summary and Assumptions (in thousands except per share and per unit data) Scenario III: Worst Case EQUITY RESTRUCTURING CALCULATION OF SUB GP UNITS OFFERED - -------------------------------------------------------------------------- ------------------------------------------------- Petro ----------------------- Public Insiders -------- --------- Securities Offered Sr Sub Sub & GP Value of Sub/GP Units to be Incentive Rights 76% 24% To be Coverial $18,597 Value Offered $ 3.15 $ 3.15 Less: Value of GP 6,284 ------------- Current Market $ 1.63 $ 1.63 12,313 Premium in Market 93.8% 98.6% Remaider at $16.33 754 Required Yeild w/out PV of Incentive Rights 11.5% 14.0% Value of Security w/out PV of Incent. Rights $ 19.13 $ 15.71 Assumed Value of Incentive Rights $ 0.61 $ 0.61 Value of Security Offered $ 19.74 $ 16.33 PRESENT VALUE OF INCENTIVE RIGHTS Security Offered per Share 0.16 0.19 Discount Rate 25% Total Shares 17,160 9,404 PV of Cash Flows 1997-2005 1,478 Insiders to Receive Sr.Sub 3,500 (3,500) PV of Terminal Value 4x 1,189 ------------- Shares to be Converted 20,660 5,904 Total PV of Incentive Rights 2,667 Units Offered 3,296 754 Current Sub/GP 0 Value of Incentive Rights Value of GP/Unit $ 21.28 per Ut $ 0.61
DEBT RESTRUCTURING - ------------------------------------------------------------------------------------------------------------------------------------ Projected 12/31/97 Privates Principal Strategy Price ----------- ---------- ------- 11.96% Sr Notes 60,000 Exchange 110.0% 14.10% Sr Notes 3,100 Neg.Tender 110.0% 14.10% Sub Notes 3,100 Neg.Tender 110.0% 14.33% Pfd Stock 4,167 Neg.Tender 105.0% Publics: 10.13% Sub Notes & Sr Notes 50,000 Neg.Tender 100.0% 9.38% Sub Notes & Sr Notes 75,000 Tender 100.0% 12.25% Sub Notes & Sr Notes 81,250 Tender 105.0% 12.88% Pfd Stock 30,000 Tender 100.0%
FINANCING SUMMARY - ------------------------------------------------------------------------------------------------------------------------------------ Amount Rate Unit Price ---------- -------- -------------- New Common Raised $145,728 $ 22.13 New Debt Raised 125,000 8.50%
UNITS OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------------------ Current Pro Forma -------------------- ---------------------- Units % Units % -------- ------- -------- --------- Existing Common 3,832 60.3% 3,832 26.0% New Common 0 0.0% 6,587 44.6% Common to Petro Shareholders 0 0.0% 0 0.0% Sr Sub to Petro Shareholders 0 0.0% 3,296 22.3% Existing Sub 2,396 37.7% 754 5.1% Implied GP 127 2.0% 295 2.0% -------- ------- -------- --------- Total Units 6,355 100.0% 14,764 100.0% -------- ------- -------- ---------
SUMMARY CASH FLOW AND COVERAGE ANALYSIS - ------------------------------------------------------------------------------------------------------------------------------------ ($ on per Unit data) Estimated Normalized Projected ---------------------------------------------- 1998 1998 1999 2000 2001 2002 -------- --------- -------- --------- --------- ---------- STAR STAND ALONE EBITDA $18,629 $ 22,781 $26,730 $ 28,541 $ 30,361 $ 32,188 Interest Expense (7,807) (7,807) (9,114) (10,028) (10,748) (11,276) Maintenance CapEx (2,710) (2,710) (3,274) (3,395) (3,694) (3,816) Taxes (25) (25) (25) (25) (25) (25) -------- --------- -------- --------- --------- ---------- Distributable Cash Flow $ 8,087 $ 12,239 $14,317 $ 15,093 $ 15,894 $ 17,071 ======== ========= ======== ========= ========= ========== DCF per common Unit $ 2.11 $ 3.19 $ 3.74 $ 3.94 $ 4.15 $ 4.46 DCF/Common Unit MQD 0.94 x 1.42 x 1.66 x 1.75 x 1.85 x 1.98 DCF per Total Unit $ 1.27 $ 1.93 $ 2.25 $ 2.38 $ 2.50 $ 2.69 DCF/Total MQD 0.58 x 0.88 x 1.02 x 1.08 x 1.14 x 1.22 Indicated Distribution per Common Unit $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 Star Pro Forma EBITDA Star $18,629 $ 22,781 $26,730 $ 28,541 $ 30,361 $ 32,188 Petro 38,500 43,440 51,657 54,371 57,058 59,720 Synergies 500 500 500 500 500 500 -------- --------- -------- --------- --------- ---------- Total 57,629 66,721 78,887 $ 83,412 87,919 92,408 -------- --------- -------- --------- --------- ---------- Interest Expense (27,697) (27,697) (28,649) (30,737) (31,660) (31,009) Maintenance CapEx (6,210) (6,210) (6,774) (6,895) (7,194) (7,316) Taxes (525) (525) (525) (525) (525) (525) -------- --------- -------- --------- --------- ---------- Distributable Cash Flow $23,197 $ 32,289 $42,939 $ 45,255 $ 48,540 $ 53,558 ======== ========= ======== ========= ========= ========== DCF per Common Unit $ 2.23 $ 3.10 $ 4.12 $ 4.34 $ 4.66 $ 5.14 DCF per Total Unit 1.57 2.19 2.91 3.07 3.29 3.63 Indicated Distribution per Common Unit $ 2.20 $ 2.20 $ 2.30 $ 2.40 $ 2.60 $ 2.80 Pro Forma Coverage Ratios MQD Coverage Common Unit 0.99 x 1.38 x 1.84 x 1.93 x 2.08 x 2.29 x Senior Subordinated Unit 0.75 1.05 1.39 1.47 1.58 1.74 Total Unit 0.71 0.99 1.32 1.39 1.49 1.65 Indicated Distribution Coverage Common Unit 0.99 x 1.38 x 1.76 x 1.77 x 1.76 x 1.80 x Senior Subordinated Units 0.75 1.05 1.33 1.35 1.33 1.37 Total Unit 0.71 0.99 1.26 1.28 1.26 1.30 Aceration/Dilution DCF per Unit - Star Stand Alone $ 1.27 $ 1.93 $ 2.25 $ 2.38 $ 2.50 $ 2.69 DCF per Unit - Pro Forma 1.57 2.19 2.91 3.07 3.29 3.63 Pro Forma Credit Analysis EBITDA Interest 2.08 x 2.41 x 2.75 x 2.71 x 2.78 x 2.98 x LT Debt/EBITDA 5.22 4.51 4.17 4.32 4.01 3.71 PROJECT - -------------------------------------------------------------------------------- TRANSACTION SUMMARY AND ASSUMPTIONS (in thousands except per share and per unit
OPERATING ASSUMPTIONS - ------------------------------------------------------- Petro Star -------- ------ Normalized Maintenance CapEx $3,500 $2,710 Maintenance CapEx Life 15 yrs 15 yrs Growth CapEx Life 15 yrs 15 yrs Life of Existing Depreciation 15 yrs 15 yrs Interest Income Rate 3.5% 3.5% Marginal Tax Percent 30.0% 33.0% Deferred Tax Percent 0.0% Minimum Cash Balance $1,000 Initial Incremental Cash Req'd for Distributions $5,000 Consolidation Savings $500 Annual Bank Fees $692 $94 Current Stock Price $1.63 $22.13
ACQUISITION ASSUMPTIONS ------------------------------------------------------------------ Petro Multiple 1998 1999 2000 2001 2002 ----- ---------- ------- ------- ------- ------- ------- Amount 4.75x $15,000 $30,000 $30,000 $30,000 $30,000 Timing End Mid Mid Mid Mid % EBITDA 0.0% 50.0% 50.0% 50.0% 50.0% % Attrition 4.1% Star Amount 7.00x $20,000 $10,000 $10,000 $10,000 $10,000 Timing End Mid Mid Mid Mid 0.0% 50.0% 50.0% 50.0% 50.0% % EBITDA Amount 7.00x $5,000 Timing Reg % EBITDA 100.0%
NEW SECURITY ASSUMPTIONS - ------------------------------------------------------------------------------------------------------------------- New MLP Equity New Star Debt Advisory Fees - -------------------------------------- -------------------------------- ----------------------------------- Gross Proceeds $145,728 Gross Proceeds $125,000 Fairness Opinion $1,000 Common Units to Public 6,587 Gross Spread % 1.0% Financial Advisory $2,500 Gross Spread % 5.0% Gross Spread $ $ 1,250 Debt Tender Fee 0.26% $ 507 Gross Spread $ $ 7,286 Coupon 8.50% Offering Price/Share $ 22.13 (current market price)
EXCHANGE ASSUMPTIONS - ------------------------------------------------------------------------------ Gets New Units of: ---------------------------- Shareholders of: Dividend Common 5x Sub Sub - ---------------------------------------------- -------- --------- ------- Public Class A Shares 17,160 $0.30 - 2,738 - Insider Class A Shares 6,795 $0.30 - - 754 Insider Class B Shares 11 $0.30 - 2 - Insider Class C Shares 2,598 $0.30 - 556 - ------- -------- --------- ------- 26,563 - 3,296 754
TRANSACTION COSTS SUMMARY SOURCES AND USES OF FUNDS - ------------------------------------------------------------ ------------------------------------------------------------------ New MLP Equity $ 7,286 Sources $ 2,023 Uses: New Star Debt 1,250 Excess Cash on Hand 125,000 Repay Debt Principal $212,450 Fairness Opinion 1,000 New Star Debt 145,728 Redeem Preferred 34,167 Financial Advisory 2,500 New MLP Equity 0 Premium on Redemption/ Solicitation Fees on Exchange of Outsider Petro Cash Balance Exchange/Defeasance 4,891 Debt 507 Exchange of 11.96% Notes 300 Transaction Fees 17,743 Prefunding of Liabilities 3,500 Legal Fees 1,000 --------- --------- $272,751 $272,751 Printing 2,500 ========= ========= Accounting Fees 250 Other: Environmetal 350 Rating Agencies 100 Roadshow 200 Asset Appraisal 250 Solicitation expenses 100 Other Bank Fees 150 -------- $17,743 ======== Star Stand Alone Distribution Assumptions - --------------------------------------------------------------------------------
TRANSACTION SUMMARY AND ASSUMPTION (in thousands except per share and per unit data) Scenario III: Worst Case RECAPITALIZATION ASSUMPTIONS - ----------------------------------------------------------------------------------------------------------------------------- (D)efease (T)ender (R)edeem Principal (E)xchange as of Maturity Period Coupon/ Sinking Fund Payment ------------------- ------------------------ Petro Instruments: (N)othing 9/30/98 m/d yr Dividend Payment Year Start - ---------------------------- -------------- ------------ --------- -------- ------------ ---------- ------------ 11.96% Sr Notes e $ 60,000 v 1-Oct 0 11.960% $ 0 0 14.10% Sr Notes t 3,100 v 15-Jan 2001 14.100% 1,050 1997 14.10% Sub Notes t 3,100 v 15-Jan 2001 14.100% 1,050 1997 10.13% Sub Notes & Sr Notes t 50,000 v 1-Apr 2003 10.110% - 9.38% Sub Notes & Sr Notes t 75,000 v 1-Feb 2006 9.375% - 12.25% Sub Notes & Sr Notes t 81,250 v 1-Feb 2005 12.250% - 8.00% Acq. & Other Notes Payable n 13,859 v 0 8.000% - 0 8.25% Existing Credit Facility n 0 v 1998 8.250% - 0.00% Other Notes n 0 v NA NA 0.000% 0 NA ------------ $286,309 Pfrd Stock: - ----------- 14.33% Pfd Stock t 4,167 v 1-Aug 1999 14.330% 4,167 1997 12.88% Pfd Stock t 30,000 v 15-Feb 2009 12.875% 0 0.00% n 0 0.000% ------------ $ 34,167 ------------ Total Petro $320,476 ------------ Star Instruments: - ---------------------------- 8.04% 1st Mortgage Notes n 85,000 v NA NA 8.040% - 0 8.25% WC Revolver n 0 NA NA 8.250% - NA 7.50% Acquisition Facility n 0 v NA NA 7.500% - NA 8.50% New Debt n 125,000 v NA NA 8.500% 0 NA 7.17% Pearl Notes n 11,000 NA NA 7.170% 0 NA ------------ $210,000 ------------ Total Combined $530,476 ============ % Red/ Red/Exchg Defeasance Red/Exchg/Defease Exchanged ------------------- Petro Instruments: Exchanged Price Price Value Premium Int Rate Security Type - ---------------------------- ----------- ----------- ---------- --------- --------- ---------- ------------- 11.96% Sr Notes 100.0% 110.0% $66,000 $ 0 8.5% Sr Notes 14.10% Sr Notes 100.0% 110.0% 3,410 310 Sr Notes 14.10% Sub Notes 100.0% 110.0% 3,410 310 Sub Notes 10.13% Sub Notes & Sr Notes 100.0% 100.0% 106.2% 50,000 - Sub Notes & Sr Notes 9.38% Sub Notes & Sr Notes 100.0% 100.0% 108.2% 75,000 - Sub Notes & Sr Notes 12.25% Sub Notes & Sr Notes 100.0% 105.0% 116.2% 85,313 4,063 Sub Notes & Sr Notes 8.00% Acq. & Other Notes Payable 0.0% 100.0% - - Acq. & Other Notes Payable 8.25% Existing Credit Facility 0.0% 100.0% - - Existing Credit Facility 0.00% Other Notes 0.0% 0.0% - - 11.0% Other Notes --------- $ 4,683 Pfrd Stock: - ----------- 14.33% Pfd Stock 100.0% 105.0% 4,375 208 Pfd Stock 12.88% Pfd Stock 100.0% 100.0% 30,000 - Pfd Stock 0.00% - - --------- $ 208 --------- Total Petro $ 4,891 --------- Star Instruments: - ---------------------------- 8.04% 1st Mortgage Notes 0.0% 0.0% - - 1st Mortgage Notes 8.25% WC Revolver 0.0% 0.0% - - WC Revolver 7.50% Acquisition Facility 0.0% 0.0% - - Acquisition Facility 8.50% New Debt 0.0% 0.0% - - Now Debt 7.17% Pearl Notes 0.0% 0.0% - - Pearl Notes --------- $ 0 --------- Total Combined $ 4,891 --------- - --------------------------------------------------------------------------------
Marginal Interest In: ------------------------ Distribution Public GP ------------ ------ -------- Minimum Quarterly Distribution $2.20 98% 2% First Target Distribution $2.42 98% 2% Second Target Distribution $2.84 85% 15% Third Target Distribution $3.70 75% 25% Thereafter NM 50% 50% Target Distribution Level $2.20 Annual Distribution Increase $0.00 Standard Distribution Structure ("S") ------------ or Target ("T") t ------------ 3 of 18
- ----------------------------------------------------------------------------------------------------------------------- Marginal Interest In Incentive Rights ------------------------ ------------------------ Distribution Public GP Incen. Rt. GP Sr. Sub. ------------ ------ -------- ---------- ---------- ------------ Minimum Quarterly Distribution $2.20 98% 2% 0% 24% 76% First Target Distribution $2.42 98% 2% 0% 24% 76% Second Target Distribution $2.84 85% 2% 13% 24% 76% Third Target Distribution $3.70 75% 2% 23% 24% 76% Thereafter NM 50% 2% 48% 24% 76% 1998 1999 2000 2001 2002 Thereafter ------------ ------ -------- ---------- ---------- ------------ Annual Indicated Distribution Increase $0.00 $0.10 $0.10 $0.20 $0.20 $0.05 Target Indicated Distribution Level $2.20 $2.30 $2.40 $2.60 $2.80 Standard Distribution Structure ("S") ------------ or Target ("T") t ------------ - ------------------------------------------------------------------------------------------------------------------------ PROJECT HEAT ================================================================================ PRO FORMA OPENING BALANCE SHEET (in thousands except per share and per unit data) SCENARIO III: WORST CASE
OPENING BALANCE SHEET STAR GAS PETRO ------------------------------------- ------------------------------------- 12/31/97 ADJUSTMENTS 9/30/98 12/31/97 ADJUSTMENTS 9/30/98 ---------- ------------- ---------- ---------- ------------- ---------- Assets: Cash $ 3,452 ($ 2,951) $ 501 $ 2,390 $10,615 $ 13,005 Other Current Assets 18,537 (3,142) 15,395 102,734 (43,030) 59,704 ---------- ---------- ---------- ---------- Total Current Assets 21,989 15,895 105,124 72,709 PP&E and Intangibles, Net 108,809 (3,995) 104,814 124,804 - 107,763 Investments in Unconsolidated Affiliates - - - 7,535 (7,122) 413 Other Assets 48,653 (2,115) 46,338 10,385 (19) 10,364 ---------- ---------- ---------- ---------- Total Assets 179,451 167,248 247,846 191,269 ========== ========== ========== ========== Liabilities: Current Liabilities 11,514 (4,143) 7,371 92,688 - 70,110 8.25% Existing Credit Facility - 7,457 7,457 21,500 (21,500) - Long Term Debt 96,000 - 96,000 278,378 7,931 286,309 Total Preferred Stock - - - 34,167 - 34,167 Other Liabilities 54 (3) 51 10,745 (47) 10,698 ---------- ---------- ---------- ---------- Total Liabilities 107,568 110,879 437,478 401,284 Common Shareholder's/Partner's Equity 71,883 (15,515) 56,368 (189,632) (20,383) (210,015) ---------- ---------- ---------- ---------- Total Liabilities and Equity $179,451 $167,248 $247,846 $191,269 ========== ========== ========== ========== check - - - PRO FORMA MERGER STAR GAS ADJUSTMENTS 9/30/98 ----------- ----------- ASSETS: Cash ($ 2,023) $ 10,982 Other Current Assets - 75,099 ----------- ----------- Total Current Assets (2,023) 86,081 PP&E and Intangibles, Net - 212,597 Investments in Unconsolidated Affiliates (413) - Other Assets - 56,902 ----------- ----------- Total Assets (2,436) 355,580 LIABILITIES: Current Liabilities - 77,481 8.25% Existing Credit Facility - 7,437 Long Term Debt (81,450) 300,859 Total Preferred Stock (34,167) - Other Liabilities (10,698) 51 ----------- ----------- Total Liabilities (126,315) 385,848 Common Shareholder's/Partner's Equity 123,378 (30,268) ----------- ----------- Total Liabilities and Equity ($ 2,937) $355,580 =========== check - - 4 of 18
PRO FORMA CAPITAL STRUCTURE STAR GAS PETRO ------------------------------------- ------------------------------------- 12/31/97 ADJUSTMENTS 9/30/98 12/31/97 ADJUSTMENTS 9/30/98 ---------- ------------- ---------- ---------- ------------- ---------- Debt: 8.04% 1st Mortgage Notes $ 85,000 $ 85,000 $ 0 $ 0 $ 0 8.25% WC Revolver - 7,437 7,457 - - - 7.50% Acquisition Facility - - - - - 7.17% Pearl Notes 11,000 11,000 - - - 11.96% Sr Notes - - 60,000 - 60,000 14.10% Sr Notes - - 4,150 (1,050) 3,100 14.10% Sub Notes - - 4,150 (1,050) 3,100 10.13% Sub Notes & Sr Notes - - 50,000 - 50,000 9.38% Sub Notes & Sr Notes - - 75,000 - 75,000 12.25% Sub Notes & Sr Notes - - 81,250 - 81,250 0.00% Other Notes - - 0 - 0 8.00% Arg. & Other Notes Payable - - 16,798 (2,939) 13,859 8.25% Existing Credit Facility - - 0 - 0 8.46% Exchanged Debt - - - - - 8.50% New Debt - - - - - ---------- ---------- ---------- ---------- Total Debt 96,000 103,457 291,348 286,309 ---------- ---------- ---------- ---------- Preferred Stock: 14.33% Pfd Stock - - 4,167 - 4,167 12.88% Pfd Stock - - 30,000 - 30,000 ---------- ---------- ---------- ---------- Total Preferred - - 34,167 34,167 ---------- ---------- ---------- ---------- Common Shareholder's/Partner's Equity 71,883 56,368 (189,632) (20,383) (210,015) ---------- ---------- ---------- ---------- Total Capital $167,883 $159,825 $135,883 $110,461 ========== ========== ========== ========== PRO FORMA MERGER STAR GAS ADJUSTMENTS 9/30/98 ----------- ----------- Debt: 8.04% 1st Mortgage Notes $ 0 $ 85,000 8.25% WC Revolver - 7,457 7.50% Acquisition Facility - - 7.17% Pearl Notes - 11,000 11.96% Sr Notes (60,000) - 14.10% Sr Notes (3,100) - 14.10% Sub Notes (3,100) - 10.13% Sub Notes & Sr Notes (50,000) - 9.38% Sub Notes & Sr Notes (75,000) - 12.25% Sub Notes & Sr Notes (81,250) - 0.00% Other Notes - - 8.00% Arg. & Other Notes Payable - 13,859 8.25% Existing Credit Facility - - 8.46% Exchanged Debt 66,000 66,000 8.50% New Debt 125,000 125,000 Total Debt (81,450) 308,316 (123,543.00) ----------- Preferred Stock: 14.33% Pfd Stock (4,167) - 12.88% Pfd Stock (30,000) - ----------- ----------- Total Preferred (34,167) - ----------- Common Shareholder's/Partner's Equity 123,378 (30,268) ----------- Total Capital $278,048 =========== 5 of 18
PROJECT HEAT ==================================================================================================================================== (In thousands except per share and per unit data) SCENARIO III: WORST CASE STAR GAS STAND ALONE INCOME STATEMENT Estimated Normalized Projected ---------------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 2004 2005 --------- -------- --------- --------- --------- --------- --------- -------- --------- EBITDA $18,629 $22,781 $26,730 $28,541 $30,361 $32,188 $34,125 $36,178 $38,356 Depreciation and Amortization 11,629 11,629 12,768 15,111 16,137 17,178 18,229 19,291 20,364 --------- -------- --------- --------- --------- -------- -------- ------- ------- EBIT 7,000 11,152 13,962 13,430 14,224 15,010 15,896 16,887 17,992 Interest Expense (7,807) (7,807) (9,114) (10,028) (10,748) (11,276) (9,858) (10,217) (10,452) Interest Income 18 18 35 35 35 35 35 35 35 Other Income - - - - - - - - - --------- -------- --------- --------- --------- -------- -------- ------- ------- Income Before Taxes (789) 3,363 4,883 3,437 3,511 3,769 6,073 6,705 7,575 Current Income Taxes (25) (25) (25) (25) (25) (25) (25) (25) (25) Deferred Income Taxes - - - - - - - - - --------- ------- --------- --------- --------- -------- -------- -------- ------- Net Income Available To Common ($814) $3,338 $4,858 $3,412 $3,486 $3,744 $6,048 $6,680 $7,550 ========== ======= ========= ========= ======== ======== ======== ======= ======= STAR GAS STAND ALONE UNITS OUTSTANDING Common Units Beginning Balance 3,832 3,832 3,832 4,317 4,317 4,517 4,717 4,717 4,717 Issuance 0 0 485 0 200 200 0 0 0 Buyback 0 0 0 0 0 0 0 0 0 ---------- ------- --------- --------- -------- -------- -------- -------- ------- Ending Balance 3,832 3,832 4,317 4,317 4,517 4,717 4,717 4,717 4,717 ---------- ------- --------- --------- -------- -------- -------- -------- ------- Subordinated Units Beginning Balance 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 Issuance 0 0 0 0 0 0 0 0 0 Buyback 0 0 0 0 0 0 0 0 0 ---------- ------- --------- --------- -------- -------- -------- ------- ------- Ending Balance 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 ---------- ------- --------- --------- -------- -------- -------- ------- ------- GP Implied Units Beginning Balance 127 127 127 127 127 127 127 127 127 Issuance 0 0 0 0 0 0 0 0 0 Buyback 0 0 0 0 0 0 0 0 0 ---------- ------- --------- --------- -------- -------- -------- ------- ------- Ending Balance 127 127 127 127 127 127 127 127 127 ---------- ------- --------- --------- -------- -------- -------- ------- ------- Total Units 6,355 6,355 6,840 6,840 7,040 7,240 7,240 7,240 7,240 ========== ======= ========= ========= ======== ======== ======== ======= ======= PROJECT HEAT ================================================================================ (in thousands except per share and per unit data) 6 of 18
Scenario III: Worst Case Estimated Projected --------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 2004 2005 ------ ------ ------ ------ ------ ------ ------ ------ STAR GAS STAND ALONE BALANCE SHEET Assets: Cash $ 501 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 Other Current Assets 15,395 18,600 19,317 20,037 20,760 21,526 22,339 23,200 -------- -------- -------- -------- -------- -------- -------- -------- Total Current Assets 15,895 19,600 20,317 21,037 21,760 22,526 23,339 24,200 PP&E and Intangibles, Net 104,814 112,117 112,225 111,632 110,148 107,768 104,484 100,291 Other Assets 46,538 46,538 46,538 46,538 46,538 46,538 46,538 46,538 -------- -------- -------- -------- -------- -------- -------- -------- Total Assets 167,248 178,255 179,080 179,207 178,446 176,832 174,361 171,029 ======== ======== ======== ======== ======== ======== ======== ======== Liabilities: Current Liabilities 7,371 10,576 11,293 12,013 12,736 13,502 14,315 15,176 Total Debt 103,457 109,651 120,328 125,805 130,133 135,685 139,702 141,910 Other Liabilities 51 51 51 51 51 51 51 51 -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities 110,879 120,279 131,672 137,869 102,920 149,239 154,068 157,167 Partner's Equity 56,368 57,976 47,407 41,338 35,526 27,593 20,293 13,862 -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities and Equity $167,248 $178,255 $179,080 $179,207 $178,446 $176,832 $174,361 $171,029 ======== ======== ======== ======== ======== ======== ======== ======== Check - - - - - - - - STAR GAS STAND ALONE CASH FLOW STATEMENT Net Income $ 4,858 $ 3,412 $ 3,486 $ 3,744 $ 6,048 $ 6,680 $ 7,550 Depreciation and Amortization 12,768 15,111 16,137 17,178 18,229 19,291 20,364 Deferred Taxes - - - - - - - Other Income - - - - - - - Other Asset/Liabilities - - - - - - - Change in Working Capital (0) - (0) (0) 0 (0) (0) -------- -------- -------- -------- -------- -------- -------- Cash from Operations 17,626 18,523 19,623 20,922 24,277 25,971 27,914 -------- -------- -------- -------- -------- -------- -------- Maintenance CapEx (3,274) (3,395) (3,694) (3,816) (3,942) (4,072) (4,206) Internal Growth CapEx (1,797) (1,824) (1,850) (1,878) (1,906) (1,935) (1,965) External Growth CapEx (15,000) (10,000) (10,000) (10,000) (10,000) (10,000) (10,000) -------- -------- -------- -------- -------- -------- -------- Cash from Investments (20,071) (15,219) (15,544) (15,694) (15,848) (16,007) (16,171) -------- -------- -------- -------- -------- -------- -------- Acquisition Borrowing 16,797 11,824 11,850 11,878 11,906 11,935 11,965 Remaining Distributions to Repay Debt (336) (1,112) (1,913) (3,090) (6,319) (7,884) (9,692) Amortization of Mortgage Notes - - - - - - - Borrowing to Repay Existing Debt - - - - - - - Borrowing for Changes in WC 0 - 0 0 (0) 0 0 Borrowing to Pay Full MQD - - - - - - - Change in Equity 10,731 - 4,425 4,425 - - - Distributions (13,981) (13,981) (13,981) (13,981) (13,981) (13,981) (13,981) -------- -------- -------- -------- -------- -------- -------- Cash from Financing 13,211 (3,269) 381 (768) (8,393) (9,929) (11,708) -------- -------- -------- -------- -------- -------- -------- Net Cash Flow 10,766 35 4,460 4,460 35 35 35 Initial Cash Balance 501 1,000 1,000 1,000 1,000 1,000 1,000 -------- -------- -------- -------- -------- -------- -------- Cash Available for Paydown of WC Revolver and Acq. Facility 11,266 1,035 5,460 5,460 1,035 1,035 1,035 Minimum Cash Balance 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Borrowing/(Paydown) on WC Revolver and Acq. Facility (10,266) (35) (4,460) (4,460) (35) (35) (35) -------- -------- -------- -------- -------- -------- -------- Net Change in Cash 499 - - - - - - -------- -------- -------- -------- -------- -------- -------- Ending Cash Balance $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 ======== ======== ======== ======== ======== ======== ======== 7 of 18
PROJECT HEAT - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands except per share and per unit data) Scenario III: Worst Case Estimated Normalized Projected ------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- Star Gas Stand Alone EBITDA Calculation (see Tab 3; cases) - ------------------------------------------------------------------------------------------------------------------------------------ Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 EBITDA Growth Rate 22.3% 1.7% 1.7% 1.7% 1.7% 1.7% - ------------------------------------------------------------------------------------------------------------------------------------ Base EBITDA: Timing End 1998 Mid 1999 Mid 2000 Mid 2001 Mid 2002 Mid 2003 Mid 2004 Mid 2005 ------- ------- ------- ------- ------- ------- --------- Total EBITDA $18,629 $22,781 $26,730 $28,541 $30,361 $32,188 $34,125 ======= ======= ======= ======= ======= ======= ========= Star Gas Stand Alone Depreciation Calculation Existing Depreciation $11,629 $11,629 $11,629 $11,629 $11,629 $11,629 $ 11,629 Maintenance CapEx: 1998 2,710 $0 $0 $ 181 $ 181 $ 181 $ 181 $ 181 Annual Growth: 3.3% 1999 3,274 109 218 218 218 218 2000 3,395 113 226 226 226 2001 3,694 123 246 246 2002 3,816 127 254 2003 3,942 131 2004 4,072 2005 4,206 Internal Growth CapEx: 1998 1,841 - - 123 123 123 123 123 Annual Growth: 1.5% 1999 1,797 60 120 120 120 120 2000 1,824 61 122 122 122 2001 1,850 63 123 123 2002 1,878 63 125 2003 1,906 64 2004 1,935 2005 1,965 External Growth CapEx: 1998 20,000 - - - 1,333 1,333 1,333 1,333 Annual Growth 0.0% 1999 15,000 667 1,000 1,000 1,000 1,000 2000 10,000 333 667 667 667 2001 10,000 333 667 667 2002 10,000 333 667 2003 10,000 333 2004 10,000 2005 10,000 ------- ------- ------- ------- ------- ------- -------- Total Depreciation $11,629 $11,629 $12,768 $15,111 $16,137 $17,178 $ 18,229 ======= ======= ======= ======= ======= ======= ======== PROJECT HEAT - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands except per share and per unit data) Scenario III: Worst Case Estimated Normalized Projected --------------------------------------------------------- 2004 2005 -------- -------- Star Gas Stand Alone EBITDA Calculation (see Tab 3; cases) - ------------------------------------------------------------------------------------------------------------------------------------ EBITDA Growth Rate Year 7 Year 8 1.7% 1.7% - ------------------------------------------------------------------------------------------------------------------------------------ Base EBITDA: Timing End 1998 Mid 1999 Mid 2000 Mid 2001 Mid 2002 Mid 2003 Mid 2004 Mid 2005 -------- -------- $36,178 $38,356 ======== ======== Total EBITDA Star Gas Stand Alone Depreciation Calculation Building Depreciation $11,629 $11,629 Maintenance CapEx: 1998 2,710 $ 181 $ 181 Annual Growth: 3.3% 1999 3,274 218 218 2000 3,395 226 226 2001 3,694 246 246 2002 3,816 254 254 2003 3,942 263 263 2004 4,072 136 271 2005 4,206 140 Internal Growth CapEx: 1998 1,841 123 123 Annual Growth: 1.5% 1999 1,797 120 120 2000 1,824 122 122 2001 1,850 123 123 2002 1,878 125 125 2003 1,906 127 127 2004 1,935 65 129 2005 1,965 65 ` External Growth CapEx: 1998 20,000 1,333 1,333 Annual Growth 0.0% 1999 15,000 1,000 1,000 2000 10,000 667 667 2001 10,000 667 667 2002 10,000 667 667 2003 10,000 667 667 2004 10,000 333 667 2005 10,000 333 ------- ------- Total Depreciation $19,291 $20,364 ======== ======= PAINEWEBBER INCORPORATED For discussion purposes only 8 of 18
Project Heat - ----------------------------------------------------------------------------------------------------------------------------------- Star Gas Stand Alone Debt Schedule (In thousands except per share and per unit share) Scenario III: Worst Case Estimated Normalized Projected ----------------------------------------- 1998 1998 1999 2000 2001 2002 -------- ------- ------- ------ ------ ------ 8.04% 1st Mortgage Notes Beginning Balance $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 Borrowing 0 0 0 0 0 0 Amortization 0 0 0 0 0 0 --------- --------- ---------- --------- ---------- ---------- Ending Balance 85,000 85,000 85,000 85,000 85,000 85,000 Interest Payment 8.04% 6,834 6,134 6,834 6,834 6,834 6,834 Make-Whole Payment 0 0 0 0 0 0 7.17% Pearl Notes Beginning Balance $0 $0 $11,000 $11,000 $11,000 $11,000 Borrowing 11,000 11,000 0 0 0 0 Amortization 0 0 0 0 0 0 --------- --------- ---------- --------- ---------- ---------- Ending Balance 11,000 11,000 11,000 11,000 11,000 11.000 Interest Payment 7.17% 613 613 789 789 789 789 % of year Pearl Notes Outstanding 77.7% 77.7% 0 0 0 0 8.25% WC Revolver Beginning Balance - - $7,457 $7,457 $7,457 $7,457 Borrowing for Change in WC - - 0 0 0 0 Borrowing to Pay Full MQD 5,894 1,742 - - - - Borrowing/(Payment) 1,563 5,715 0 0 0 0 --------- --------- ---------- --------- ---------- ---------- Ending Balance 7,457 7,457 7,457 7,457 7,457 7,457 Effective Avg WC Balance 3,729 3,729 3,729 3,729 3,729 3,729 Interest Payment 8.25% 308 308 308 308 308 308 7.50% Acquisition Facility Beginning Balance - - $0 $ 6,194 $16,871 $22,348 External Acquisitions 20,000 20,000 10,000 10,000 10,000 10,000 External Acquisitions at Beginning of 1999 - - 5,000 - - - Internal Acquisitions 1,841 1,841 1,797 1,824 1,850 1,878 Borrowings to Repay Existing Debt - - - - - - Payment - - (10,266) (35) (4,460) (4,460) Remaining Distributions to Repay Debt - - (336) (1,112) (1,913) (3,090) --------- --------- ---------- --------- ---------- ---------- Ending Balance 0 0 6,194 16,871 22,348 26,676 Interest Payment 7.50% 69 69 420 865 1,471 1,838 Total Debt Beginning Balance $85,000 $85,000 $103,457 $109,651 $120,328 $125,805 Amortization of Mortgage Notes - - - - - - Borrowing for Pearl Notes 11,000 11,000 - - - - Borrowing for Changes in WC - - 0 - 0 0 Borrowing to Pay Full MQD 5,894 1,742 - - - - Acquisition Borrowing 21,841 21,841 16,797 11,824 11,850 11,878 Borrowing to Repay Existing Debt - - - - - - Remaining Distributions to Repay Debt - - (336) (1,112) (1,913) (3,090) Borrowing/(Payment) on WC Revolver and Acq. Facility 1,563 5,715 (10,266) (35) (4,460) (4,460) --------- --------- ---------- --------- ---------- ---------- Ending Balance $125,298 $125,298 $109,651 $120,328 $125,805 $130,133 ========= ========= ========== ========= ========== ========== Interest Expense Interest Expense $7,824 $7,824 $8,350 $8,795 $9,401 $9,769 Bank Fee 94 94 94 94 94 94 --------- ------ -- ------ - --------- ------- --------- Total Interest Payment $7,807 $7,807 $9,114 $10,028 $10,748 $11,276 ======== ======== ======== ========== ========= ========== 2003 2004 2005 ---------- ---------- ---------- 8.04% 1st Mortgage Notes Beginning Balance $85,000 $85,000 $85,000 Borrowing 0 0 0 Amortization 0 0 0 --------- --------- ---------- Ending Balance 85,000 85,000 85,000 Interest Payment 6,834 6,834 6,834 Make-Whole Payment 0 0 0 7.17% Pearl Notes Beginning Balance $11,000 $11,000 $11,000 Borrowing 0 0 0 Amortization 0 0 0 --------- --------- ---------- Ending Balance 11,000 11,000 11,000 Interest Payment 789 789 789 % of year Pearl Notes Outstanding 0 0 0 8.25% WC Revolver Beginning Balance $7,457 $7,457 $7,457 Borrowing for Change in WC (0) 0 0 Borrowing to Pay Full MQD - - - Borrowing(Payment) 0 0 0 --------- --------- ---------- Ending Balance 7,457 7,457 7,457 Effective Avg WC Balance 3,729 3,729 3,729 Interest Payment 308 308 308 7.50% Acquisition Facility Beginning Balance $26,676 $32,228 $36,245 External Acquisitions 10,000 10,000 10,000 External Acquisitions at Beginning of 1999 - - - Internal Acquisitions 1,906 1,935 1,965 Borrowings to Repay Existing Debt - - - Payment (35) (35) (35) Remaining Distributions to Repay Debt (6,319) (7,884) (9,692) --------- --------- ---------- Ending Balance 32,228 36,245 38,483 Interest Payment 1,834 2,193 2,427 Total Debt Beginning Balance $130,133 $135,685 $139,702 Amortization of Mortgage Notes - - - Borrowing for Pearl Notes - - - Borrowing for Changes in WC (0) 0 0 Borrowing to Pay Full MQD - - - Acquisition Borrowing 11,906 11,935 11,965 Borrowing to Repay Existing Debt - - - Remaining Distributions to Repay Debt (6,319) (7,884) (9,692) Borrowing/(Payment) on WC Revolver and Acq. Facility (35) (35) (35) --------- --------- ---------- Ending Balance $135,685 $139,702 $141,940 ========= ========= ========== Interest Expense Interest Expense $9,764 $10,123 $10,358 Bank Fee 94 94 94 --------- --------- ---------- Total Interest Payment $9,858 $10,217 $10,452 ========= ========= ==========
PROJECT HEAT ==================================================================================================================================== STAR GAS STAND ALONE SCHEDULE OF ACTUAL DISTRIBUTIONS Scenario III: Worst Case (in thousands except per share and per unit data) Estimated Normalized Projected --------------------------------------------------- ASSUMES REVISED TARGET DISTRIBUTION STRUCTURE 1998 1998 1999 2000 2001 2002 2003 ---------- ---------- ---------- --------- ---------- --------- ---------- Distributable Cash - ------------------ Cash from Operations $10,815 $14,967 $17,626 $18,523 $19,623 $20,922 $24,277 Maintenance CapEx (2,710) (2,710) (3,274) (3,395) (3,694) (3,816) (3,942) Other (18) (18) (35) (35) (35) (35) (35) ---------- ----------- --------- --------- --------- --------- ---------- Total MLP Distributable Cash Flow 8,087 12,239 14,317 15,093 15,894 17,071 20,300 Distributable Cash Flow/Unit $ 1.27 $ 1.93 $ 2.25 $ 2.38 $ 2.50 $ 2.69 $ 3.19 Structure - --------- Common Unit Ending Balance 3,832 3,832 3,832 3,832 3,832 3,832 3,832 Subordinated Units 2,396 2,396 2,396 2,396 2,396 2,396 2,396 General Partner Interest Unit Equivalent 127 127 127 127 127 127 127 ---------- ----------- --------- --------- --------- --------- ---------- Total Units Outstanding 6,355 6,355 6,355 6,355 6,355 6,355 6,355 Distribution Levels - ------------------- MQD $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 First Target $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 Second Target $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 Third Target $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 Indicated Cash Distribution $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 Distribution of MQD - ------------------- Cash Available 8,087 12,239 14,317 15,093 15,394 17,071 20,300 Cash Borrowed to Pay Full MQD 5,894 1,742 0 0 0 0 0 Allocation to: Common Units 8,430 8,430 8,430 8,430 8,430 8,430 8,430 Subordinated Units 5,271 5,271 5,271 5,271 5,271 5,271 5,271 General Partner Interest 280 280 280 280 280 280 280 First Target Distribution - ------------------------- Cash Available 0 0 336 1,112 1,913 3,090 6,319 Cash Required for Target Distribution 0 0 1,398 1,398 1,398 1,398 1,398 Cash Required for Indicated Distribution 0 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 0 Second Target Distribution - -------------------------- Cash Available 0 0 0 0 0 0 0 Cash Required for Target Distribution 0 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 0 Incentive Distribution 0 0 0 0 0 0 0 Third Target Distribution - ------------------------- Cash Available 0 0 0 0 0 0 0 Cash Required for Target Distribution 0 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 0 Incentive Distribution Projected ------------------------------ Assumes Revised Target Distribution Structure 2004 2005 ------------ -------------- Distributable Cash - ------------------ Cash from Operations $25,971 $27,914 Maintenance CapEx (4,072) (4,206) Other (35) (35) ---------- ----------- Total MLP Distributable Cash Flow 21,864 23,673 Distributable Cash Flow/Unit $3.44 $ 3.73 Structure - --------- Common Unit Ending Balance 3,832 3,832 Subordinated Units 2,396 2,396 General Partner Interest limit Equivalent 127 127 ---------- ----------- Total Units Outstanding 6,355 6,355 Distribution Levels - ------------------- MQD $ 2.20 $ 2.20 First Target $ 2.42 $ 2.42 Second Target $ 2.84 $ 2.84 Third Target $ 3.70 $ 3.70 Indicated Cash Distribution $ 2.20 $ 2.20 Distribution of MQD - ------------------- Cash Available 21,864 23,673 Cash Borrowed to Pay Full MQD 0 0 Allocation to: Common Units 8,430 8,430 Subordinated Units 5,271 5,271 General Partner Interest 280 280 First Target Distribution - ------------------------- Cash Available 7,884 9,692 Cash Required for Target Distribution 1,398 1,398 Cash Required for Indicated Distribution 0 0 Actual Cash Distributed 0 0 Allocation to: Common Units 0 0 Subordinated Units 0 0 General Partner Interest 0 0 Second Target Distribution - -------------------------- Cash Available 0 0 Cash Required for Target Distribution 0 0 Cash Required for Indicated Distribution 0 0 Actual Cash Distributed 0 0 Allocation to: Common Units 0 0 Subordinated Units 0 0 General Partner Interest 0 0 Incentive Distribution 0 0 Third Target Distribution - ------------------------- Cash Available 0 0 Cash Required for Target Distribution 0 0 Cash Required for Indicated Distribution 0 0 Actual Cash Distributed 0 0 Allocation to: Common Units 0 0 Subordinated Units 0 0 General Partner Interest 0 0 Incentive Distribution 0 0 10 of 18
PROJECT HEAT ==================================================================================================================================== STAR GAS STAND ALONE SCHEDULE OF ACTUAL DISTRIBUTIONS (CONT'D) SCENARIO III: WORST CASE (in thousands except per share and per unit data) ESTIMATED NORMALIZED PROJECTED -------------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 2004 2005 --------- ---------- -------- -------- -------- -------- -------- -------- -------- Remaining Distribution - ---------------------- Cash Available 0 0 0 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 0 0 0 Incentive Distribution 0 0 0 0 0 0 0 0 0 Repay Indebtedness 0 0 336 1,112 1,913 3,090 6,319 7,884 9,692 Total Distributions - ------------------- Common Units 8,430 8,430 8,430 8,430 8,430 8,430 8,430 8,430 8,430 Subordinated Units 5,271 5,271 5,271 5,271 5,271 5,271 5,271 5,271 5,271 General Partner Interest 280 280 280 280 280 280 280 280 280 Incentive Distributions 0 0 0 0 0 0 0 0 0 --------- ---------- -------- -------- -------- -------- -------- -------- -------- Total Distributions $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 ========= ========== ======== ======== ======== ======== ======== ======== ======== Total Distributions Per Unit - ---------------------------- Common Unit $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 Subordinated Unit 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 GP Unit 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20
PROJECT HEAT - ----------------------------------------------------------------------------- (in thousands except per share and per unit data) Scenario III: Worst Case Projected Estimated Normalized ______________________________________________________________ 1998 1998 1999 2000 2001 2002 2003 2004 2005 ----------------------------------------------------------------------------------- Petro EBITDA Calculation - --------------------------------------------------------------------------------------------------------------------------------- Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 EBITDA Growth Rate (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% - --------------------------------------------------------------------------------------------------------------------------------- Base EBITDA: Timing Acquisitions: End 1998 $15,000 Mid 1999 30,000 Mid 2000 30,000 Mid 2001 30,000 Mid 2002 30,000 Mid 2003 30,000 Mid 2004 30,000 Mid 2005 30,000 ------- -------- -------- ------- ------- ------- ------- ------- ------- Total EBITDA $38,500 $43.440 $51,657 $54,371 $57,058 $59,720 $62,506 $65,422 $68,475 ======= ======== ======== ======= ======= ======= ======= ======= =======
Petro Depreciation Calculation Existing Depreciation $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 Maintenance CapEx: 1998 $3,500 - - 233 233 233 233 233 233 233 Annual Growth:0.0% 1999 3,500 117 233 233 233 233 233 233 2000 3,500 117 233 233 233 233 233 2001 3,500 117 233 233 233 233 2002 3,500 117 233 233 233 2003 3,500 117 233 233 2004 3,500 117 233 2005 3,500 117 Internal Growth CapEx: 1998 $0 - - - - - - - - - Annual Growth: 0.0% 1999 0 - - - - - - - 2000 0 - - - - - - 2001 0 - - - - - 2002 0 - - - - 2003 0 - - - 2004 0 - - 2005 0 - External Growth CapEx: 1998 $15,000 - - 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Annual Growth: 0.0% 1999 30,000 1,000 2,000 2,000 2,000 2,000 2,000 2,000 2000 30,000 1,000 2,000 2,000 2,000 2,000 2,000 2001 30,000 1,000 2,000 2,000 2,000 2,000 2002 30,000 1,000 2,000 2,000 2,000 2003 30,000 1,000 2,000 2,000 2004 30,000 1,000 2,000 2005 30,000 1,000 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Depreciation $29,660 $29,660 $32,010 $34,243 $36,477 $38,710 $40,943 $43,177 $45,410 ======= ======= ======= ======= ======= ======= ======= ======= ======= PaineWebber Incorporated 11 of 18 For Discussion Purposes Only Project Heat - -------------------------------------------------------------------------------- (in thousands except per share and per unit data) Scenario III: Worst Case Star Pro Forma Income Statement PaineWebber Incorporated 12 of 18 For Discussion Purposes Only
Projected Estimated Normalized ---------------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 2004 2005 --------- ---------- ------- ------- ------- ------- -------- -------- -------- Combined EBITDA $57,129 $66,221 $78,387 $82,912 $87,419 $91,908 $96,631 $101,601 $106,830 Consolidated Savings 500 500 500 500 500 500 500 500 500 ------- ------- ------- ------- ------- ------- -------- -------- -------- Pro Forma EBITDA 57,629 66,721 78,887 83,412 87,919 92,408 97,131 102,101 107,330 Depreciation and Amortization 41,289 41,289 44,778 49,354 52,613 55,888 59,173 62,468 65,774 ------- ------- ------- ------- ------- ------- -------- -------- -------- EBIT 16,340 25,432 34,109 34,058 35,306 36,520 37,959 39,633 41,556 Interest Expense (27,697) (27,697) (28,649) (30,737) (31,660) (31,009) (30,126) (28,881) - Interest Income 384 384 35 35 35 35 35 35 35 Other Income - - - - - - - - - EBT (10,972) (1,880) 5,495 3,355 3,681 5,546 7,867 10,787 41,591 ------- ------- ------- ------- ------- ------- -------- -------- -------- Current Income Tax (525) (525) (525) (525) (525) (525) (525) 525) (525) Deferred Income Taxes - - - - - - - - - ------- ------- ------- ------- ------- ------- -------- -------- -------- Net Income Available to Common ($11,497) ($ 2,405) $ 4,970 $ 2,830 $ 3,156 $ 5,021 $ 7,342 $ 10,262 $ 41,066 ======= ======= ======= ======= ======= ======= ======== ======== ======== Star Pro Forma Units Outstanding Common Units Beginning Balance 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 Issuance - - - - - - - - Buyback - - - - - - - - ------- ------- ------- ------- ------- -------- -------- -------- Ending Balance 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 SR Subordinated Units Beginning Balance - 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 Issuance - - - - - - - - Buyback - - - - - - - - ------- ------- ------- ------- ------- -------- -------- -------- Ending Balance 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 Subordinated Units Beginning Balance 754 754 754 754 754 754 754 754 Issuance - - - - - - - - Buyback - - - - - - - - ------- ------- ------- ------- ------- -------- -------- -------- Ending Balance 754 754 754 754 754 754 754 754 754 GP Implied Units Beginning Balance 295 295 295 295 295 295 295 295 Issuance - - - - - - - - Buyback - - - - - - - - ------- ------- ------- ------- ------- -------- -------- -------- Ending Balance 295 295 295 295 295 295 295 295 295 ------- ------- ------- ------- ------- ------- -------- -------- -------- Total 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764 ======= ======= ======= ======= ======= ======= ======== ======== ======== Project Heat - -------------------------------------------------------------------------------- (in thousands except per share and per unit data) 13 of 18
Star Pro Forma Balance Sheet Scenario III: Worst Case Projected Estimated -------------------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 2004 2005 -------- -------- -------- -------- -------- -------- -------- -------- Assets: Cash $ 10,982 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 Other Current Assets 75,099 103,680 109,763 115,823 121,858 128,209 134,890 141,921 -------- -------- -------- -------- -------- -------- -------- -------- Total Current Assets 86,081 104,680 110,763 116,823 122,858 129,209 135,890 142,921 PP&E and Intangibles, Net 212,597 221,390 220,754 217,185 210,491 200,667 187,707 171,604 Other Assets 56,902 56,902 56,902 56,902 56,902 56,902 56,902 56,902 -------- -------- -------- -------- -------- -------- -------- -------- Total Assets 355,580 382,972 388,420 390,910 390,252 386,778 380,499 371,427 ======== ======== ======== ======== ======== ======== ======== ======== Liabilities: Current Liabilities 77,481 106,062 112,146 118,205 124,240 130,591 137,272 144,303 8.25% Existing Credit Facility 7,457 7,457 7,457 47,422 87,387 127,352 167,317 207,282 Total LT Debt 300,859 328,657 360,624 352,726 343,243 329,181 310,029 257,894 Other Liabilities 51 51 51 51 51 51 51 51 -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities 385,848 442,227 480,278 518,405 554,922 587,175 614,669 609,530 Preferred Stock - - - - - - - - Common Shareholder's Equity (30,268) (59,255) (91,858) (127,494) (164,669) (200,397) (234,170) (238,103) -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities and Equity $355,580 $382,972 $388,420 $390,910 $390,252 $386,778 $380,499 $371,427 ======== ======== ======== ======== ======== ======== ======== ======== Check - - - (0) 0 (0) 0 (0) Star Pro Forma Cash Flow Statement Net Income $ 4,970 $ 2,830 $ 3,156 $ 5,021 $ 7,342 $ 10,262 $ 41,066 Depreciation and Amortization 44,778 49,354 52,613 55,888 59,173 62,468 65,774 Deferred Taxes - - - - - - - Other Assets/Liabilities - - - - - - - Change in Non-Cash Working Capital - - - - - 0 - -------- -------- -------- -------- -------- -------- -------- Cash from Operations 49,748 52,185 55,769 60,909 66,515 72,730 106,840 Maintenance CapEx (6,774) (6,895) (7,194) (7,316) (7,442) (7,572) (7,706) Internal Growth CapEx (1,797) (1,824) (1,850) (1,878) (1,906) (1,935) (1,965) External Growth CapEx (45,000) (40,000) (40,000) (40,000) (40,000) (40,000) (40,000) -------- -------- -------- -------- -------- -------- -------- Cash from Investments (53,571) (48,719) (49,044) (49,194) (49,348) (49,507) (49,671) Acquisition Borrowing 46,797 46,824 1,850 1,878 1,906 1,935 1,965 Remaining Distributions to Repay Debt (8,982) (9,822) (9,748) (11,362) (15,968) (21,088) (54,099) Amortization of Existing Debt (5,478) (8,141) (60) (60) (120) - - Borrowing to Repay Existing Debt 5,478 8,141 60 60 120 - - Borrowing for Changes in WC - - - - - (0) - Change in Common Equity - - - - - - - Distributions (33,957) (35,433) (38,792) (42,196) (43,070) (44,035) (44,999) -------- -------- -------- -------- -------- -------- -------- Cash from Financing 3,858 1,569 (46,690) (51,680) (57,132) (63,188) (97,134) Net Cash Flow 35 5,035 (39,965) (39,965) (39,965) (39,965) (39,965) Initial Cash Balance 10,982 1,000 1,000 1,000 1,000 1,000 1,000 -------- -------- -------- -------- -------- -------- -------- Cash Available for Paydown on WC Revolver and Acq. Facility 11,017 6,035 (38,965) (38,965) (38,965) (38,965) (38,965) Minimum Cash Balance 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Borrowing/(Paydown) on WC Revolver and Acq. Facility (10,017) (5,035) 39,965 39,965 39,965 39,965 39,965 -------- -------- -------- -------- -------- -------- -------- Ending Cash Balance 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Net Change in Cash ($9,982) $0 ($0) $0 ($0) $0 ($0) ======== ======== ======== ======== ======== ======== ======== Project Heat - -------------------------------------------------------------------------------- (in thousands except per share and per unit data)
Star Pro Forma Income Statement Projected Estimated Normalized ----------------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 2004 2005 --------- ---------- ------- ------- ------- ------- ------- -------- --------- Scenario III: Worst Case 8.04% 1st Mortgage Notes Beginning Balance $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 Borrowing - - - - - - - - - Amortization - - - - - - - - - ------- ------- ------- ------- ------- ------- ------- -------- -------- Ending Balance 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 Interest Payment 8.04% 6,834 6,834 6,834 6,834 6,834 6,834 6,834 6,834 6,834 7.17% Pearl Notes Beginning Balance 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 Borrowing - - - - - - - - - Amortization - - - - - - - - - ------- ------- ------- ------- ------- ------- ------- -------- -------- Ending Balance 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 Interest Payment 7.17% 789 789 789 789 789 789 789 789 789 0.00% Other Notes Beginning Balance - - - - - - - - - Borrowing - - - - - - - - - Amortization - - - - - - - - - ------- ------- ------- ------- ------- ------- ------- -------- -------- Ending Balance - - - - - - - - - Interest Payment 0.00% - - - - - - - - - 8.50% New Debt Beginning Balance 125,000 125,000 125,000 130,478 138,619 138,679 138,739 138,859 138,859 Borrowing - - 5,478 8,141 60 120 120 - - Amortization - - - - - - - - - ------- ------- ------- ------- ------- ------- ------- -------- -------- Ending Balance 125,000 125,000 130,478 138,619 138,679 138,739 138,859 138,859 138,859 Interest Payment 8.50% 10,625 10,625 10,858 11,437 11,785 11.790 11,798 11,803 11,803 Exchange of 8.46% Senior Notes Beginning Balance - - 66,000 66,000 66,000 66,000 66,000 66,000 66,000 Borrowing 66,000 66,000 - - - - - - - Amortization - - - - - - - - - ------- ------- ------- ------- ------- ------- ------- -------- -------- Ending Balance 66,000 66,000 66,000 66,000 66,000 66,000 66,000 66,000 66,000 Interest Payment 8.46% 5,584 5,584 5,584 5,584 5,584 5,584 5,584 5,584 5,584 8.00% Acq. & Other Notes Payable Beginning Balance 16,798 16,798 13,859 8,381 240 180 120 - - Borrowing - - - - - - - - - Amortization (2,939) (2,939) (5,478) (8,141) (60) (60) (120) - - ------- ------- ------- ------- ------- ------- ------- -------- -------- Ending Balance 13,859 13,859 8,381 240 180 120 - - - Interest Payment 8.00% 1,226 1,226 890 345 17 12 5 - - 8.25% WC Revolver Beginning Balance - - 7,457 7,457 7,457 47,422 87,387 127,352 167,317 Borrowing for Change in WC - - - - - - - (0) - Borrowing/(Payment) - - - - 39,965 39,965 39,965 39,965 39,965 ------- ------- ------- ------- ------- ------- ------- -------- -------- Ending Balance - 7,457 7,457 7,457 47,422 87,387 127,352 167,317 207,282 Effective Avg WC Balance 23,600 23,600 21,500 21,500 21,500 21,500 21,500 21,500 21,500 Interest Payment 8.25% 1,947 1,947 1,774 1,774 1,774 1,774 1,774 1,774 1,774 7.50% Acquisition Facility Beginning Balance - - - 27,798 59,765 51,867 42,384 28,322 9,170 External Acquisitions 40,000 45,000 - - External Acquisitions at Beginning of 1999 - - 5,000 - - - - - - Internal Acquisitions - - 1,797 1,824 1,850 1,878 1,906 1,935 1,965 Payment - - (10,017) (5,035) - - - - - Remaining Distributions to Repay Debt - - (8,982) (9,822) (9,748) (11,362) (15,968) (21,088) (54,099) ------- ------- ------- ------- ------- ------- ------- -------- -------- Ending Balance - - 27,798 59,765 51,867 42,384 28,322 9,170 (42,965) Interest Payment 7.50% $0 $0 $1,230 $3,284 $4,186 $3,534 $2,651 $1,406 ($1,267) 14 of 18 15 of 18
PROJECT HEAT - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands except per share and per unit data) Scenario III Worst Case Estimated Normalized Projected ---------------------------------- STAR PRO FORMA DEBT SCHEDULE (CONT'D) 199? 1998 1999 2000 2001 --------- ---------- --------- ---------- ----------- TOTAL PRO FORMA DEBT Beginning Balance $237,798 $237,798 $308,316 $336,114 $368,081 Amortization of Existing Debt (2,939) (2,939) (5,478) (8,141) (60) Borrowing for Changes in WC - - - - - Acquisition Borrowing - - 46,797 46,824 1,850 Borrowing to Repay Existing Debt - - 5,478 8,141 60 Remaining Distributions to Repay Debt - - (8,982) (9,822) (9,748) Borrowings/(Payment) on WC Revolver and Acq. Facility - - (10,017) (5,035) 39,965 --------- ---------- --------- ---------- ----------- Ending Balance 234,859 234,859 336,114 368,081 400,148 Interest Expense 27,005 27,005 27,957 30,045 30,968 Chase Fees 692 692 692 692 692 --------- ---------- --------- ---------- ----------- Total Interest Payment 27,697 27,697 28,649 30,737 31,660 ========= ========== ========= ========== =========== ---------------------------------------------- STAR PRO FORMA DEBT SCHEDULE (CONT'D) 2002 2003 2004 2005 --------- ---------- --------- ---------- TOTAL PRO FORMA DEBT Beginning Balance $400,148 $430,630 $456,533 $477,346 Amortization of Existing Debt (60) (120) - - Borrowing for Changes in WC - - (O) - Acquisition Borrowing 1,878 1,906 1,935 1,965 Borrowing to Repay Existing Debt 60 120 - - Remaining Distributions to Repay Debt (11,362) (15,968) (21,088) (54,099) Borrowing/(Payment) on WC Revolver and Acq. Facility 39,965 39,965 39,965 39,965 --------- ---------- --------- ---------- Ending Balance 430,630 456,533 477,346 465,176 Interest Expense 30,317 29,434 28,189 25,516 C???? Fees 692 692 692 692 --------- ---------- --------- ---------- Total Interest Payment 31,009 30,126 28,881 $ 26,208 ========= ========== ========= ========== Project Heat - -------------------------------------------------------------------------------- (in thousands except per share and per unit data) Scenario III: Worst Case Star Pro Forma Distribution Schedule of Actual Distributions
Estimated Normalized Projected ---------------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 2004 2005 --------- ---------- ------- ------- ------- ------- -------- -------- -------- Distributable Cash - ------------------ Cash from Operations (excl chg in WC) $29,792 $38,884 $49,748 $52,185 $55,769 $60,909 $66,515 $72,730 $106,840 Maintenance CapEx (6,210) (6,210) (6,774) (6,895) (7,194) (7,316) (7,442) (7,572) (7,706) Other (384) (384) (35) (35) (35) (35) (35) (35) (35) -------- ------- ------- ------- ------- ------- -------- -------- -------- Total MLP Distributable Cash Flow 23,197 32,289 42,939 45,255 48,540 53,558 59,038 65,123 99,099 Distributable Cash Flow / Unit $1.57 $2.19 $2.91 $3.07 $3.29 $3.63 $4.00 $4.41 $6.71 Structure - --------- Common Unit Ending Balance 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 SR Subordinated Units 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 Subordinated Units 754 754 754 754 754 754 754 754 754 General Partner Interest Unit Equivalent 295 295 295 295 295 295 295 295 295 -------- ------- ------- ------- ------- ------- -------- -------- -------- Total Units Outstanding 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764 Distribution Levels $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 - ------------------- MQD $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 First Target $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 Second Target $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 Third Target $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 Indicated Cash Distribution $2.20 $2.20 $2.30 $2.40 $2.60 $2.80 $2.85 $2.90 $2.95 Distribution of MQD - ------------------- Cash Available 23,197 32,289 42,939 45,255 48,540 53,558 59,038 65,123 99,099 Allocation to: Common Units 22,733 22,920 22,920 22,920 22,920 22,920 22,920 22,920 22,920 SR Subordinated Units 0 7,251 7,251 7,251 7,251 7,251 7,251 7,251 7,251 Subordinated Units 0 1,472 1,659 1,659 1,659 1,659 1,659 1,659 1,659 General Partner Interest 464 646 650 650 650 650 650 650 650 First Target Distribution - ------------------------- Cash Available 0 0 10,458 12,775 16,060 21,078 26,558 32,643 66,619 Cash Required for Target Distribution 0 0 3,248 3,248 3,248 3,248 3,248 3,248 3,248 Cash Required for Indicated Distribution 0 0 1,476 2,953 5,905 8,858 9,596 10,335 11,073 Actual Cash Distributed 0 0 1,476 2,953 3,248 3,248 3,248 3,248 3,248 Allocation to: Common Units 0 0 1,042 2,084 2,292 2,292 2,292 2,292 2,292 SR Subordinated Units 0 0 330 659 725 725 725 725 725 Subordinated Units 0 0 75 151 166 166 166 166 166 General Partner Interest 0 0 30 59 65 65 65 65 65 Total Distributions to: Common Units 0 0 1,042 2,084 2,292 2,292 2,292 2,292 2,292 SR Subordinated Units 0 0 330 659 725 725 725 725 725 Subordinated Units 0 0 75 151 166 166 166 166 166 General Partner Interest 0 0 30 59 65 65 65 65 65 PaineWebber Incorporated 16 of 18 For Discussion Purposes Only Project Heat ================================================================================ (In thousands except per share and per unit data) 17 of 18
Star Gas Pro Forma Schedule of Actual Distributions (cont'd) Scenario III: Worst Case Projected Estimated Normalized ------------------------------------------------------------------ 1998 1998 1999 2000 2001 2002 2003 2004 2005 --------- ---------- ------ ------ ------ ------ ------ ------ ------ Second Target Distribution - -------------------------- Cash Available 0 0 0 0 12,812 17,830 23,310 29,395 63,370 Cash Required for Target Distribution 0 0 0 0 7,149 7,149 7,149 7,149 7,149 Cash Required for Indicated Distribution 0 0 0 0 3,064 6,468 7,319 8,170 9,022 Actual Cash Distributed 0 0 0 0 3,064 6,468 7,149 7,149 7,149 Allocation to: Common Units 0 0 0 0 1,875 3,959 4,376 4,376 4,376 Sr. Subordinated Units 0 0 0 0 593 1,252 1,384 1,384 1,384 Subordinated Units 0 0 0 0 136 287 317 317 317 General Partner Interest 0 0 0 0 61 129 143 143 143 Incentive Right 0 0 0 0 398 841 929 929 929 Incentive Right to GP Interest 0 0 0 0 96 203 224 224 224 Incentive Right to Sr. Sub Units 0 0 0 0 302 638 705 705 705 Total Distributions to: Common Units 0 0 0 0 1,875 3,959 4,376 4,376 4,376 Sr. Subordinated Units 0 0 0 0 895 1,890 2,089 2,089 2,089 Subordinated Units 0 0 0 0 136 287 317 317 317 General Partner Interest 0 0 0 0 157 332 367 367 367 Third Target Distribution - ------------------------- Cash Available 0 0 0 0 0 0 16,161 22,245 56,221 Cash Required for Target Distribution 0 0 0 0 0 0 16,591 16,591 16,591 Cash Required for Indicated Distribution 0 0 0 0 0 0 193 1,157 2,122 Actual Cash Distribution 0 0 0 0 0 0 193 1,157 2,122 Allocation to: Common Units 0 0 0 0 0 0 104 625 1,146 Sr. Subordinated Units 0 0 0 0 0 0 33 198 363 Subordinated Units 0 0 0 0 0 0 8 45 83 General Partner Interest 0 0 0 0 0 0 4 23 42 Incentive Right 0 0 0 0 0 0 44 266 488 Incentive Right to GP Interest 0 0 0 0 0 0 11 64 118 Incentive Right to Sr. Sub Units 0 0 0 0 0 0 34 202 370 Total Distribution to: Common Units 0 0 0 0 0 0 104 625 1,146 Sr. Subordinated Units 0 0 0 0 0 0 67 400 733 Subordinated Units 0 0 0 0 0 0 8 45 83 General Partner Interest 0 0 0 0 0 0 15 87 160 Remaining Distribution - ---------------------- Cash Available 0 0 0 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 0 0 0 Incentive Right 0 0 0 0 0 0 0 0 0 Incentive Right to GP Interest 0 0 0 0 0 0 0 0 0 Incentive Right to Sr.Sub Units 0 0 0 0 0 0 0 0 0 Repay Indebtedness 0 0 8,982 9,822 9,748 11,362 15,968 21,088 54,099 Total Distributions to: Common Units 0 0 0 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 0 0 0 18 of 18
PROJECT HEAT - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands except per share and per unit data) STAR GAS PRO FORMA SCHEDULE OF ACTUAL DISTRIBUTIONS (CONT'D) Scenario III: Worst Case Estimated Normalized Projected -------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 --------- ---------- --------- --------- ---------- ---------- ---------- Total Distributions - ------------------- Common Units $ 22,733 $ 22,920 $ 23,962 $ 25,004 $ 27,088 $ 29,171 $ 29,692 S R Subordinated Units 0 7,251 7,581 7,910 8,872 9,867 10,132 Subordinated Units 0 1,472 1,734 1,810 1,961 2,112 2,149 General Partner Interest 464 646 679 709 872 1,047 1,097 -------- -------- -------- -------- -------- -------- ---------- Total Distributions $ 23,197 $ 32,289 $ 33,957 $ 35,433 $ 38,792 $ 42,196 $ 43,070 ======== ======== ======== ======== ======== ======== ========== Total Distributions Per Unit - ---------------------------- Common Units $ 2.18 $ 2.20 $ 2.30 $ 2.40 $ 2.60 $ 2.80 $ 2.85 S R Subordinated Units 0.00 2.20 2.30 2.40 2.69 2.99 3.07 Subordinated & GP Units 0.44 2.02 2.30 2.40 2.70 3.01 3.09 Total Incentive Distributions NPV ------------ To GP Interest $ 357 $ 0 $ 0 $ 0 $ 0 $ 96 $ 203 $ 235 To Sr. Sub Units 1,121 - - - - 302 638 739 ------------- -------- -------- -------- -------- -------- -------- ---------- Sub-Total 1,478 - - - - 398 841 974 Present Value of - - - - - - - Terminal Value 1,189 ------------- Total $2,667 ---------------------- 2004 2005 --------- ---------- Total Distributions - ------------------- Common Units $ 30,213 $ 30,734 S R Subordinated Units 10,465 10,798 Subordinated Units 2,187 2,225 General Partner Interest 1,169 1,242 -------- -------- Total Distributions $ 44,035 $ 44,999 ======== ======== Total Distributions Per Unit - ---------------------------- Common Units $ 2.90 $ 2.95 S R Subordinated Units 3.18 3.28 Subordinated & GP Units 3.20 3.30 Total Incentive Distributions To GP Interest $ 289 $ 342 To Sr. Sub Units 907 1,075 -------- -------- Sub-Total 1,196 1,417 Present Value of Terminal Value - 5,670 Total Project Heat - -------------------------------------------------------------------------------- Transaction Summary and Assumptions (In thousands except per share and per unit data) Scenario I: Base Case
EQUITY RESTRUCTURING CALCULATION OF SUB/GP UNITS OFFERED - ---------------------------------------------------------------------------- -------------------------------------------- Petro ------------------------- Public Insiders ---------- ------------ Securities Offered Sr Sub Sub & GP Value of Sub/GP Units to be Incentive Rights 76% 24% To Be Converted $18,597 Value Offered $3.15 $3.15 Less: Value of GP 6,284 --------------------- Current Market $1.63 $1.63 12,313 Premium to Market 93.8% 93.8% Remainder at $16.33 754 Required Yield w/out PV of Incent. Rights 11.5% 14.0% Value of Security w/out PV of Incent. Rights $19.13 $15.71 Assumed Value of Incentive Rights $0.61 $0.61 Value of Security Offered $19.74 $16.33 PRESENT VALUE OF INCENTIVE RIGHTS Security Offered per Share 0.16 0.19 Discount Rate 25% Total Shares 17,160 9,404 PV of Cash Flows 1997-2005 1,478 Insiders to Receive Sr. Sub. 3,500 (3,500) PV of Terminal Value 4x 1,189 -------------------- Shares to Be Converted 20,660 5,904 Total PV of Incentive Rights 2,667 Units Offered 3,296 754 Current Sub/GP 0 Value of Incentive Rights per Unit $0.61 Value of GP/Unit $21.28
DEBT RESTRUCTURING - --------------------------------------------------------------------------------------------------------- Projected 12/31/97 Privates: Principal Strategy Price ------------- ----------- --------- 11.96% Sr Notes 60,000 Exchange 110.0% 14.10% Sr Notes 3,100 Neg. Tender 110.0% 14.10% Sub Notes 3,100 Neg. Tender 110.0% 14.33% Pfd Stock 4,167 Neg. Tender 105.0% Publics: 10.13% Sub Notes & Sr Notes 50,000 Neg. Tender 100.0% 9.38% Sub Notes & Sr Notes 75,000 Tender 100.0% 12.25% Sub Notes & Sr Notes 81,250 Tender 105.0% 12.88% Pfd Stock 30,000 Tender 100.0%
FINANCING SUMMARY - --------------------------------------------------------------------------------------------------------- Amount Rate Unit Price ------------- ----------- ---------- New Common Raised $145,728 $22.13 New Debt Raised 125,000 8.50%
UNITS OUTSTANDING - -------------------------------------------------------------------------------------------------------------------------- Current Pro Forma ----------------------------- ----------------------------- Privates: Units % Units % ------------- ----------- ------------- ----------- Existing Common 3,832 60.3% 3,832 26.0% New Common 0 0.0% 6,587 44.6% Common to Petro Shareholders 0 0.0% 0 0.0% Sr Sub to Petro Shareholders 0 0.0% 3,296 22.3% Existing Sub 2,396 37.7% 754 5.1% Implied GP 127 2.0% 295 2.0% ------------- ----------- ------------- ----------- Total Units 6,355 100.0% 14,764 100.0% ============= =========== ============= ===========
SUMMARY CASH FLOW AND COVERAGE ANALYSIS - ---------------------------------------------------------------------------------------------------- ($ on per Unit basis) Estimated Normalized Projected --------------------------------------------------- 1998 1998 1999 2000 2001 2002 ----------- ---------- ---------- ---------- ---------- ---------- Star Stand Alone EBITDA $18,629 $22,781 $26,730 $28,541 $30,361 $32,188 Interest Expense (7,807) (7,807) (9,114) (10,028) (10,748) (11,276) Maintenance CapEx (2,710) (2,710) (3,274) (3,395) (3,694) (3,816) Taxes (25) (25) (25) (25) (25) (25) ----------- ---------- ---------- ---------- ---------- ---------- Distributable Cash Flow $8,087 $12,239 $14,317 $15,093 $15,894 $17,071 =========== ========== ========== ========== ========== ========== DCF per Common Unit $2.11 $3.19 $3.74 $3.94 $4.15 $4.46 DCF / Common unit MQD 0.94 x 1.42 x 1.66 x 1.75 x 1.85 x 1.98 x DCF per Total Unit $1.27 $1.93 $2.25 $2.38 $2.50 $2.69 DCF / Total MQD 0.58 x 0.88 x 1.02 x 1.08 x 1.14 x 1.22 x Indicated Distribution per Common Unit $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 Star Pro Forma EBITDA Star $18,629 $22,781 $26,730 $28,541 $30,361 $32,188 Petro 38,500 43,440 55,798 62,665 69,509 76,324 Synergies 500 500 500 500 500 500 ----------- ---------- ---------- ---------- ---------- ---------- Total 57,629 66,721 83,028 91,706 100,370 109,012 ----------- ---------- ---------- ---------- ---------- ---------- Interest Expense (27,697) (27,697) (28,488) (30,079) (30,142) (28,240) Maintenance CapEx (6,210) (6,210) (6,774) (6,895) (7,194) (7,316) Taxes (525) (525) (525) (525) (525) (525) ----------- ---------- ---------- ---------- ---------- ---------- Distributable Cash Flow $23,197 $32,289 $47,241 $54,207 $62,509 $72,931 =========== ========== ========== ========== ========== ========== DCF per Common Unit $2.23 $3.10 $4.53 $5.20 $6.00 $7.00 DCF per Total Unit 1.57 2.19 3.20 3.67 4.23 4.94 Indicated Distribution per Common Unit $2.20 $2.20 $2.30 $2.40 $2.60 $2.80 Pro Forma Coverage Ratios MQD Coverage ------------ Common Unit 0.99 x 1.38 x 2.02 x 2.32 x 2.67 x 3.12 x Senior Subordinated Unit 0.75 1.05 1.53 1.76 2.03 2.37 Total Unit 0.71 0.99 1.45 1.67 1.92 2.25 Indicated Distribution Coverage ------------------------------- Common Unit 0.99 x 1.38 x 1.93 x 2.12 x 2.26 x 2.45 x Senior Subordinated Unit 0.75 1.05 1.47 1.61 1.72 1.86 Total Unit 0.71 0.99 1.39 1.53 1.63 1.76 Accretion/Dilution DCF per Unit - Star Stand Alone $1.27 $1.93 $2.25 $2.38 $2.50 $2.69 DCF per Unit - Pro Forma 1.57 2.19 3.20 3.67 4.23 4.94 Pro Forma Credit Analysis EBITDA/Interest 2.08 x 2.41 x 2.91 x 3.05 x 3.33 x 3.86 x LT Debt/EBITDA 5.22 4.51 3.91 3.79 3.24 2.72 PaineWebber Incorporated 1 of 18 For Discussion Purposes Only
PROJECT HEAT - ----------------------------------------------------------------------------------------------------------------------------------- Transaction Summary and Assumptions (in thousands except per share and per unit data) Scenario I: Base Case OPERATING ASSUMPTIONS ACQUISITION ASSUMPTIONS - ---------------------------------------------------- ------------------------------------------------------------------ Petro Star ------- ------ Petro Multiple 1998 1999 2000 2001 2002 Normalized Maintenance CapEx $3,500 $2,710 ----- -------- ---- ---- ---- ---- ---- Maintenance CapEx Life 15 yrs 15 yrs Amount 4.75x $15,000 $30,000 $30,000 $30,000 $30,000 Growth CapEx Life 15 yrs 15 yrs Timing End Mid Mid Mid Mid Life of Existing Depreciation 15 yrs 15 yrs %EBITDA 0.0% 50.0% 50.0% 50.0% 50.0% Interest Income Rate 3.5% 3.5% %Attrition 4.1% Marginal Tax Rate 33.0% 33.0% Star Deferred Tax Percent 0.0% ---- Minimum Cash Balance $1,000 Amount 7.00x $20,000 $10,000 $10,000 $10,000 $10,000 Initial Incremental Cash Timing End Mid Mid Mid Mid Req'd for Distributions $5,000 %EBITDA 0.0% 50.0% 50.0% 50.0% 50.0% Consolidation Savings $500 Annual Bank Fees $692 $94 Amount 7.00x $5,000 Current Stock Price $1.63 $22.13 Timing Beg %EBITDA 100.0%
NEW SECURITY ASSUMPTIONS - -------------------------------------------------------------------------------------------------------------------------- New MLP Equity New Star Debt Advisory Fees - ------------------------------------------ ------------------------------ ------------------------------------- Gross Proceeds $145,728 Gross Proceeds $125,000 Fairness Opinion $1,000 Common Units to Public 6,587 Gross Spread % 1.0% Financial Advisory $2,500 Gross Spread % 5.0% Gross Spread $ $1,250 Debt Tender Fee 0.26% $507 Gross Spread $ $7,286 Coupon 8.50% Offering Price/Share $22.13 (current market price)
EXCHANGE ASSUMPTIONS - ------------------------------------------------------------------------------------------------ Gets New Units of: -------------------------------------- Shareholders of: Dividend Common Sr Sub Sub - -------------------------------------------------- ---------- ----------- ----------- Public Class A Shares 17,160 $0.30 - 2,738 - Insider Class A Shares 6,795 $0.30 - - 754 Insider Class B Shares 11 $0.30 - 2 - Insider Class C Shares 2,598 $0.30 - 556 - -------- -------- ---------- ----------- ----------- 26,563 - 3,296 754
TRANSACTION COSTS SUMMARY SOURCES AND USES OF FUNDS - ---------------------------------------------------- ------------------------------------------------------------------------- New MLP Equity $7,286 Sources: Uses: New Star Debt 1,250 Excess Cash on Hand $2,023 Repay Debt Principal $212,450 Fairness Opinion 1,000 New Star Debt 125,000 Redeem Preferred 34,167 Financial Advisory 2,500 New MLP Equity 145,728 Premium on Redemption/ Solicitation Fees on Exchange of Outsider Petro Debt 507 Cash Balance 0 Exchange/Defeasance 4,891 Exchange of 11.96% Notes 300 Transaction Fees 17,743 Legal Fees 2,500 Prefunding of Liabilities 3,500 Printing 1,000 -------- -------- Accounting Fees 250 $272,751 $272,751 Other: ======== ======== Environmental 350 Rating Agencies 100 Roadshow 200 Asset Appraisal 250 Solicitation expenses 100 Other Bank Fees 150 -------- $17,743 ======== PaineWebber Incorporated 2 of 18 - -------------------------------------------------------------------------------- TRANSACTION SUMMARY AND ASSUMPTIONS (In thousands except per share and per unit data) Scenario I: Base Case
RECAPITALIZATION ASSUMPTIONS - ------------------------------------------------------------------------------------------------------------------------ (D)efease (T)ender (R)edeem Principal Maturity Period Sinking Fund Payment (E)xchange as of ------------------ Coupon/ ---------------------------- Petro Instruments: (N)othing 9/30/98 m/d yr Dividend Payment Year Start - -------------------------- ----------- ----------- -------- -------- ---------- ----------- -------------- 11.96% Sr Notes e $ 60,000 v 1-Oct 0 11.960% $0 0 14.10% Sr Notes t 3,100 v 15-Jan 2001 14.100% 1,050 1997 14.10% Sub Notes t 3,100 v 15-Jan 2001 14.100% 1,050 1997 10.13% Sub Notes & Sr Notes t 50,000 v 1-Apr 2003 10.130% - 9.38% Sub Notes & Sr Notes t 75,000 v 1-Feb 2006 9.375% - 12.25% Sub Notes & Sr Notes t 81,250 v 1-Feb 2005 12.250% - 8.00% Acq. & Other Notes Payable n 13,859 v 0 8.000% - 0 8.25% Existing Credit Facility n 0 v 1998 8.250% - 0.00% Other Notes n 0 v NA NA 0.000% 0 NA ----------- $286,309 Pfrd. Stock: - -------------------------- 14.33% Pfd Stock t 4,167 v 1-Aug 1999 14.330% 4,167 1997 12.88% Pfd Stock t 30,000 v 15-Feb 2009 12.875% 0 0.00% n 0 0.000% 0 ----------- $ 34,167 ----------- Total Petro $320,476 Star Instruments: - -------------------------- 8.04% 1st Mortgage Notes n 85,000 v NA NA 8.040% - 0 8.25% WC Revolver n 0 NA NA 8.250% - NA 7.50% Acquisition Facility n 0 v NA NA 7.500% - NA 8.50% New Debt n 125,000 v NA NA 8.500% 0 NA 7.17% Pearl Notes n 11,000 NA NA 7.170% 0 NA ----------- $210,000 ----------- Total Combined $530,476
Red/Exchg/Defease % Red/ Red/Exchg Defeasance ---------------------- Exchanged Petro Instruments: Exchanged Price Price Value Premium Int Rate Security Type - -------------------------- ----------- ----------- ----------- --------- ---------- ------------ -------------------- 11.96% Sr Notes 100.0% 110.0% $66,000 $0 8.5% Sr Notes 14.10% Sr Notes 100.0% 110.0% 3,410 310 Sr Notes 14.10% Sub Notes 100.0% 110.0% 3,410 310 Sub Notes 10.13% Sub Notes & Sr Notes 100.0% 100.0% 106.2% 50,000 - Sub Notes & Sr Notes 9.38% Sub Notes & Sr Notes 100.0% 100.0% 108.2% 75,000 - Sub Notes & Sr Notes 12.25% Sub Notes & Sr Notes 100.0% 105.0% 116.2% 85,313 4,063 Sub Notes & Sr Notes 8.00% Acq. & Other Notes Payable 0.0% 100.0% - - Acq. & Other Notes Payable 8.25% Existing Credit Facility 0.0% 100.0% - - Existing Credit Facility 0.00% Other Notes 0.0% 0.0% - - 11.0% Other Notes ----------- $4,683 Pfrd. Stock: - -------------------------- 14.33% Pfd Stock 100.0% 105.0% 4,375 208 Pfd Stock 12.88% Pfd Stock 100.0% 100.0% 30,000 - Pfd Stock 0.00% - - ----------- ----------- $ 34,167 $208 ----------- Total Petro $4,891 Star Instruments: - -------------------------- 8.04% 1st Mortgage Notes 0.0% 0.0% - - 1st Mortgage Notes 8.25% WC Revolver 0.0% 0.0% - - WC Revolver 7.50% Acquisition Facility 0.0% 0.0% - - Acquisition Facility 8.50% New Debt 0.0% 0.0% - - New Debt 7.17% Pearl Notes 0.0% 0.0% - - Pearl Notes ----------- $0 ----------- Total Combined $4,891
Star Stand Alone Distribution Assumptions - ------------------------------------------------------------------------------- Marginal Interest In -------------------- Distribution Public GP ------------ --------- -------- Minimum Quarterly Distribution $2.20 98% 2% First Target Distribution $2.42 98% 2% Second Target Distribution/(1)/ $2.84 85% 15% Third Target Distribution/(1)/ $3.70 75% 25% Thereafter NM 50% 50% Target Distribution Level $2.20 Annual Distribution Increase $0.00 Standard Distribution Structure ("S") or Target ("T") t - -------------------------------------------------------------------------------- 3 of 18 PaineWebber Incorporated For Discussion Purposes Only
Star Pro Forma Distribution Assumptions - -------------------------------------------------------------------------------------------------------------------------------- Marginal Interest In Incentive Rights ----------------------------- ---------------------------------- Distribution Public GP Incen. Rt. GP Sr. Sub. ------------ -------- ------ ---------- ------------ ----------------- Minimum Quarterly Distribution $2.20 98% 2% 0% 24% 76% First Target Distribution $2.42 98% 2% 0% 24% 76% Second Target Distribution/(1)/ $2.84 85% 2% 13% 24% 76% Third Target Distribution/(1)/ $3.70 75% 2% 23% 24% 76% Thereafter NM 50% 2% 48% 24% 76% 1998 1999 2000 2001 2002 Thereafter ------------ ---------- --------- ---------- ------------ ------------------- Annual Indicated Dist. Increase $0.00 $0.10 $0.10 $0.20 $0.20 $0.05 Target Indicated Dist. Level $2.20 $2.30 $2.40 $2.60 $2.80 Standard Distribution Structure ("S") or Target ("T") t - ------------------------------------------------------------------------------------------------------------- PROJECT HEAT ================================================================================ PRO FORMA OPENING BALANCE SHEET (in thousands except per share and per unit data) Scenario I: Base Case
OPENING BALANCE SHEET STAR GAS PETRO ------------------------------------- ------------------------------------- 12/31/97 ADJUSTMENTS 9/30/98 12/31/97 ADJUSTMENTS 9/30/98 ---------- ------------- ---------- ---------- ------------- ---------- Assets: Cash $ 3,452 ($ 2,951) $ 501 $ 2,390 $10,615 $ 13,005 Other Current Assets 18,537 (3,142) 15,395 102,734 (43,030) 59,704 ---------- ---------- ---------- ---------- Total Current Assets 21,989 15,895 105,124 72,709 PP&E and Intangibles, Net 108,809 (3,995) 104,814 124,804 - 107,783 Investments in Unconsolidated Affiliates - - - 7,535 (7,122) 413 Other Assets 48,653 (2,115) 46,538 10,383 (19) 10,364 ---------- ---------- ---------- ---------- Total Assets 179,451 167,248 247,846 191,269 ========== ========== ========== ========== Liabilities: Current Liabilities 11,514 (4,143) 7,371 92,688 - 70,110 8.25% Existing Credit Facility - 7,457 7,457 21,500 (21,500) - Long Term Debt 96,000 - 96,000 278,378 7,931 286,309 Total Preferred Stock - - - 34,167 - 34,167 Other Liabilities 54 (3) 51 10,745 (47) 10,698 ---------- ---------- ---------- ---------- Total Liabilities 107,568 110,879 437,478 401,284 Common Shareholder's/Partner's Equity 71,883 (15,515) 56,368 (189,632) (20,383) (210,015) ---------- ---------- ---------- ---------- Total Liabilities and Equity $179,451 $167,248 $247,846 $191,269 ========== ========== ========== ========== check - - - PRO FORMA MERGER STAR GAS ADJUSTMENTS 9/30/98 ----------- ----------- ASSETS: Cash ($ 2,023) $ 10,982 Order Current Assets - 75,099 ----------- ----------- Total Current Assets (2,023) 86,081 PP&B and Intangibles, Net - 212,597 Investments in Unconsolidated Affiliates (413) - Other Assets - 56,902 ----------- ----------- Total Assets (2,436) 355,580 LIABILITIES: Current Liabilities - 77,481 8.25% Existing Credit Facility - 7,457 Long Term Debt (81,450) 300,859 Total Preferred Stock (34,167) - Other Liabilities (10,698) 51 ----------- ----------- Total Liabilities (126,315) 385,848 Commerce Shareholder's/Partner's Equity 123,378 (30,268) ----------- ----------- Total Liabilities and Equity ($ 2,937) $355,580 =========== check - 4 of 18
PRO FORMA CAPITAL STRUCTURE STAR GAS PETRO ------------------------------------- ------------------------------------- 12/31/97 ADJUSTMENTS 9/30/98 12/31/97 ADJUSTMENTS 9/30/98 ---------- ------------- ---------- ---------- ------------- ---------- Debt: 8.04% 1st Mortgage Notes $ 85,000 $ 85,000 $ 0 $ 0 $ 0 8.25% WC Revolver - 7,457 7,457 - - - 7.50% Acquisition Facility - - - - - 7.17% Pearl Notes 11,000 11,000 - - - 11.96% Sr Notes - - 60,000 - 60,000 14.10% Sr Notes - - 4,150 (1,050) 3,100 14.10% Sub Notes - - 4,150 (1,050) 3,100 10.13% Sub Notes & Sr Notes - - 50,000 - 50,000 9.38% Sub Notes & Sr Notes - - 75,000 - 75,000 12.25% Sub Notes & Sr Notes - - 81,250 - 81,250 0.00% Other Notes - - 0 - 0 8.00% Acg. & Other Notes Payable - - 16,798 (2,939) 13,859 8.25% Existing Credit Facility - - 0 - 0 8.46% Exchanged Debt - - - - - 8.50% New Debt - - - - - ---------- ---------- ---------- ---------- Total Debt 96,000 103,457 291,348 286,309 ---------- ---------- ---------- ---------- Preferred Stock: 14.33% Pfd Stock - - 4,167 - 4,167 12.88% Pfd Stock - - 30,000 - 30,000 ---------- ---------- ---------- ---------- Total Preferred - - 34,167 34,167 ---------- ---------- ---------- ---------- Common Shareholder's/Partner's Equity 71,883 56,368 (189,632) (20,383) (210,015) ---------- ---------- ---------- ---------- Total Capital $167,883 $159,825 $135,883 $110,461 ========== ========== ========== ========== PRO FORMA MERGER STAR GAS ADJUSTMENTS 9/30/98 ----------- ----------- Debt: 8.04% 1st Mortgage Notes $ 0 $ 85,000 8.25% WC Revolver - 7,457 7.50% Acquisition Facility - - 7.17% Pearl Notes - 11,000 11.96% Sr Notes (60,000) - 14.10% Sr Notes (3,100) - 14.10% Sub Notes (3,100) - 10.13% Sub Notes & Sr Notes (50,000) - 9.38% Sub Notes & Sr Notes (75,000) - 12.25% Sub Notes & Sr Notes (81,250) - 0.00% Other Notes - - 8.00% Acq. & Other Notes Payable - 13,859 8.25% Existing Credit Facility - - 8.46% Exchanged Debt 66,000 66,000 8.50% New Debt 125,000 125,000 ----------- ----------- Total Debt (81,450) 308,316 (123,543,00) ----------- Preferred Stock: 14.33% Pfd Stock (4,167) - 12.88% Pf\ Stock (30,000) - ----------- ----------- Total Preferred (34,167) - Common Shareholder's/Partner's Equity 123,378 (30,268) ----------- Total Capital $278,048 =========== PaineWebber Incorporated For discussion purposes only 5 of 18
PROJECT HEAT - ------------------------------------------------------------------------------------------------------------------------------- (in thousands except per share and per unit data) Scenario 1: Base Case STAR GAS STAND ALONE INCOME STATEMENT Estimated Normalized Projected -------------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 2004 2005 --------- ---------- -------- -------- -------- -------- -------- -------- -------- EBITDA $ 18,629 $ 22,781 $ 26,730 $ 28,541 $ 30,361 $ 32,188 $ 34,125 $ 36,178 $ 38,356 Depreciation and Amortization 11,629 11,629 12,768 15,111 16,137 17,178 1?,229 19,291 20,364 --------- ---------- -------- -------- -------- -------- -------- -------- -------- EBIT 7,000 11,152 13,962 13,430 14,224 15,010 15,896 16,887 17,992 Interest Response (7,807) (7,807) (9,114) (10,028) (10,748) (11,276) (9,858) (10,217) (10,452) Interest Income 18 18 35 35 35 35 35 35 35 Other Income - - - - - - - - - --------- ---------- -------- -------- -------- -------- -------- -------- -------- Income Before Taxes (789) 3,363 4,883 3,437 3,511 3,769 6,073 6,705 7,575 Current Income Taxes (25) (25) (25) (25) (25) (25) (25) (25) (25) Deferred Income Taxes - - - - - - - - - --------- ---------- -------- -------- -------- -------- -------- -------- -------- Net Income Available to Common ($814) $ 3,338 $ 4,858 $ 3,412 $ 3,486 $ 3,744 $ 6,048 $ 6,680 $ 7,550 ========= ========== ======== ======== ======== ======== ======== ======== ======== STAR GAS STAND ALONE UNITS Outstanding Common Units Beginning Balance 3,832 3,832 3,832 4,317 4,317 4,517 4,717 4,717 4,717 Insurance 0 0 485 0 200 200 0 0 0 Buyback 0 0 0 0 0 0 0 0 0 --------- ---------- -------- -------- -------- -------- -------- -------- -------- Ending Balance 3,832 3,832 4,317 4,317 4,517 4,717 4,717 4,717 4,717 --------- ---------- -------- -------- -------- -------- -------- -------- -------- Subordinated Units Beginning Balance 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 Insurance 0 0 0 0 0 0 0 0 0 Buyback 0 0 0 0 0 0 0 0 0 --------- ---------- -------- -------- -------- -------- -------- -------- -------- Ending Balance 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 --------- ---------- -------- -------- -------- -------- -------- -------- -------- GP Implied Units Beginning Balance 127 127 127 127 127 127 127 127 127 Insurance 0 0 0 0 0 0 0 0 0 Buyback 0 0 0 0 0 0 0 0 0 --------- ---------- -------- -------- -------- -------- -------- -------- -------- Ending Balance 127 127 127 127 127 127 127 127 127 --------- ---------- -------- -------- -------- -------- -------- -------- -------- Total Units 6,355 6,355 6,840 6,840 7,040 7,240 7,240 7,240 7,240 ========= ========== ======== ======== ======== ======== ======== ======== ======== PROJECT HEAT ================================================================================ (in thousands except per share and per unit data) 6 of 18
Scenario 1: Base Case Estimated Projected ---------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 2004 2005 -------- ------ ------- ------ ------- ------- ------- ------- STAR GAS STAND ALONE BALANCE SHEET Assets: Cash $ 501 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 Other Current Assets 15,395 18,600 19,317 20,037 20,760 21,526 22,339 23,200 --------- -------- -------- -------- ------- ------- ------- ------- Total Current Assets 15,895 19,600 20,317 21,037 21,760 22,526 23,339 24,200 PP&E and Intangibles, Net 104,814 112,117 112,225 111,632 110,148 107,768 104,484 100,291 Other Assets 46,538 46,538 46,538 46,538 46,538 46,538 46,538 46,538 --------- -------- ------- ------- ------- ------- ------- ------- Total Assets 167,248 178,255 179,080 179,207 178,446 176,832 174,361 171,029 ========= ======== ======= ======= ======= ======= ======= ======= Liabilities: Current Liabilities 7,371 10,576 11,293 12,013 12,736 13,502 14,315 15,176 Total Debt 103,457 109,651 120,328 125,205 130,133 135,685 139,702 141,910 Other Liabilities 51 51 51 51 51 51 51 51 --------- -------- -------- -------- -------- ------- ------- ------- Total Liabilities 110,879 120,279 131,672 137,869 142,920 149,239 154,068 157,167 Partner's Equity 56,368 57,976 47,407 41,338 35,526 27,593 20,293 13,862 --------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities and Equity $ 167,248 $178,255 $179,082 $179,207 $178,446 $176,832 $174,361 $171,029 ========= ======== ======== ======== ======== ======== ======== ======== Check - - - - - - - - STAR GAS STAND ALONE CASH FLOW STATEMENT Net Income $ 4,858 $ 3,412 $ 3,486 $ 3,744 $ 6,048 $ 6,680 $ 7,550 Depreciation and Amortization 12,768 15,111 16,137 17,178 18,229 19,291 20,364 Deferred Taxes - - - - - - - Other Income - - - - - - - Other Asset/Liabilities - - - - - - - Change in Working Capital (0) - (0) (0) 0 (0) (0) -------- -------- -------- -------- ------- ------- ------- Cash from Operations 17,626 18,523 19,623 20,922 24,277 25,971 27,914 -------- -------- -------- -------- ------- ------- ------- Maintenance CapEx (3,274) (3,395) (3,694) (3,816) (3,942) (4,072) (4,206) Internal Growth CapEx (1,797) (1,824) (1,850) (1,878) (1,906) (1,935) (1,965) External Growth CapEx (15,000)(10,000) (10,000) (10,000) (10,000) (10,000) (10,000) -------- -------- -------- -------- ------- ------- ------- Cash from Investments (20,071)(15,219) (15,544) (15,694) (15,848) (16,007) (16,171) -------- -------- -------- -------- ------- ------- ------- Acquisition Borrowing 16,797 11,824 11,850 11,878 11,906 11,935 11,965 Remaining Distributions to Repay Debt (336) (1,112) (1,913) (3,090) (6,319) (7,884) (9,692) Amortization of Mortgage Notes - - - - - - - Borrowing to Repay Existing Debt - - - - - - - Borrowing for Changes in WC 0 - 0 0 (0) 0 0 Borrowing to Pay Full MQD - - - - - - - Change in Equity 10,731 - 4,425 4,425 - - - Distributions (13,981) (13,981) (13,981) (13,981) (13,981) (13,981)(13,981) -------- -------- -------- -------- ------- ------- ------- Cash from Financing 13,211 (3,269) 381 (768) (8,393) (9,929)(11,708) -------- -------- -------- -------- ------- ------- ------- Net Cash Flow 10,766 35 4,460 4,460 35 35 35 Initial Cash Balance 501 1,000 1,000 1,000 1,000 1,000 1,000 -------- -------- -------- -------- ------- ------- ------- Cash Available for Paydown on WC Revolver and Acq. Facility 11,266 1,035 5,460 5,460 1,035 1,035 1,035 Minimum Cash Balance 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Borrowing (Paydown) on WC Revolver and Acq. Facility (10,266) (35) (4,460) (4,460) (35) (35) (35) -------- -------- -------- -------- ------- ------- ------- Net Change in Cash 499 - - - - - 0 -------- -------- -------- -------- ------- ------- ------- Ending Cash Balance $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 ======== ======== ======== ======== ======= ======= ======= Project Heat - -------------------------------------------------------------------------------- (in thousands except per share and per unit data) PaineWebber Incorporated 7 of 18 For Discussion Purposes Only
Scenario I: Base Case Projected Estimated Normalized ------------------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 2004 2005 ------- ------- ------- ------- ------- ------- ------- ------- ------- Star Gas Stand Alone EBITDA Calculation (See Tab 3: Cases) - ------------------------------------------------------------------------------------------------------------------------------------ Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 EBITDA Growth Rate 22.3% 1.7% 1.7% 1.7% 1.7% 1.7% 17% 1.7% - ------------------------------------------------------------------------------------------------------------------------------------ Base EBITDA Timing End 1998 Mid 1999 Mid 2000 Mid 2001 Mid 2002 Mid 2003 Mid 2004 Mid 2005 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total EBITDA $18,629 $22,781 $26,730 $28,541 $30,361 $32,188 $34,125 $36,178 $38,356 ======= ======= ======= ======= ======= ======= ======= ======= ======= Star Gas Stand Alone Depreciation Calulation Existing Depreciation $11,629 $11,629 $11,629 $11,629 $11,629 $11,629 $11,629 $11,629 $11.629 Maintenenance CapEx: 1998 2,710 $0 $0 $181 $181 $181 $181 $181 $181 $181 Annual Growth: 3.3% 1999 3,274 109 218 218 218 218 218 218 2000 3,395 113 226 226 226 226 226 2001 3,694 123 246 246 246 246 2002 3,816 127 254 254 254 2003 3,942 131 263 263 2004 4,072 136 271 2005 4,206 140 Internal Growth CapEx: 1998 1,841 - - 123 123 123 123 123 123 123 Annual Growth: 1.5% 1999 1,797 60 120 120 120 120 120 120 2000 1,824 61 122 122 122 122 122 2001 1,850 62 123 123 123 123 2002 1,878 63 125 125 125 2003 1,906 64 127 127 2004 1,935 65 129 2005 1,965 65 External Growth CapEx: 1998 20,000 - - - 1,333 1,333 1,333 1,333 1,333 1,333 Annual Growth: 0.0% 1999 15,000 667 1,000 1,000 1,000 1,000 1,000 1,000 2000 10,000 333 667 667 667 667 667 2001 10,000 333 667 667 667 667 2002 10,000 333 667 667 667 2003 10,000 333 667 667 2004 10,000 333 667 2005 10,000 333 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Depreciation: $11,629 $11,629 $12,768 $15,111 $16,137 $17,178 $18,229 $19,291 $20,364 ======= ======= ======= ======= ======= ======= ======= ======= =======
Project Heat - -------------------------------------------------------------------------------- Star Gas Stand Alone Debt Schedule (in thousands except per share and per unit data) Scenario I: Base Case Projected Estimated Normalized ------------------------------------------------------------------------ 1998 1998 1999 2000 2001 2002 2003 2004 2005 ------- ------- ------- ------- ------- ------- ------- ------- ------- 8.04% 1st Mortgage Notes Beginning Balance $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 Borrowing 0 0 0 0 0 0 0 0 0 Amortization 0 0 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- ------- ------- Ending Balance 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 Interest Payment 8.04% 6,834 6,834 6,834 6,834 6,834 6,834 6,834 6,834 6,834 Make-Whole Payment 0 0 0 0 0 0 0 0 0 7.17% Pearl Notes Beginning Balance $0 $0 $11,000 $11,000 $11,000 $11,000 $11,000 $11,000 $11,000 Borrowing 11,000 11,000 0 0 0 0 0 0 0 Amortization 0 0 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- ------- ------- Ending Balance 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 Interest Payment 7.17% 613 613 789 789 789 789 789 789 789 % of year Pearl Notes Outstanding 77.7% 77.7% 0 0 0 0 0 0 0 8.25% WC Revolver Beginning Balance - - $7,457 $7,457 $7,457 $7,457 $7,457 $7,457 $7,457 Borrowing for Change in WC - - 0 - 0 0 (0) 0 0 Borrowing for Pay Full MQD 5,894 1,742 - - - - - - - Borrowing/(Payment) 1,563 5,715 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- ------- ------- Ending Balance 7,457 7,457 7,457 7,457 7,457 7,457 7,457 7,457 7,457 Effective Avg WC Balance 3,729 3,729 3,729 3,729 3,729 3,729 3,729 3,729 3,729 Interest Payment 8.25% 308 308 308 308 308 308 308 308 308 7.50% Acquisition Facility Beginning Balance - - $0 $6,194 $16,871 $22,348 $26,676 $32,228 $36,245 External Acquisitions 20,000 20,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 External Acquisitions at Beginning of 1999 - - 5,000 - - - - - - Internal Acquisitions 1,841 1,841 1,797 1,824 1,850 1,878 1,906 1,935 1,965 Borrowings to Repay Existing Debt - - - - - - - - - Payment - - (10,266) (35) (4,460) (4,460) (35) (35) (35) Remaining Distributions to Repay Debt - - (366) (1,112) (1,913) (3,090) (6,319) (7,884) (9,692) ------- ------- ------- ------- ------- ------- ------- ------- ------- Ending Balance 0 0 6,194 16,871 22,348 26,676 32,228 36,245 38,483 Interest Payment 7.50% 69 69 420 865 1,471 1,838 1,834 2,193 2,427 Total Debt Beginning Balance $85,000 $85,000 $103,457 $109,651 $120,328 $125,805 $130,133 $135,685 $139,702 Amortization of Mortgage Notes - - - - - - - - - Borrowing for Pearl Notes 11,000 11,000 - - - - - - - Borrowing for Changes in WC - - 0 - 0 0 (0) 0 0 Borrowing to Pay Full MQD 5,894 1,742 - - - - - - - Acquisition Borrowing 21,841 21,841 16,797 11,824 11,850 11,878 11,906 11,935 11,965 Borrowing to Repay Existing Debt - - - - - - - - - Remaining Distributions to Repay Debt - - (366) (1,112) (1,913) (3,090) (6,319) (7,884) (9,692) Borrowing/(Payment) on WC Revolver and Acq. Facility 1,563 5,715 (10,266) (35) (4,460) (4,460) (35) (35) (35) -------- -------- -------- -------- -------- -------- -------- -------- -------- Ending Balance $125,298 $125,298 $109,651 $120,328 $125,805 $130,133 $135,685 $139,702 $141,940 ======== ======== ======== ======== ======== ======== ======== ======== ======== Interest Expense Interest Expense $7,824 $7,824 $8,350 $8,795 $9,401 $9,769 $9,764 $10,123 $10,358 Bank Fee 94 94 94 94 94 94 94 94 94 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Interest Payment $7,807 $7,807 $9,114 $10,028 $10,748 $11,276 $9,858 $10,217 $10,452 ======= ======= ======= ======= ======= ======= ======= ======= ======= *** Total Interest Numbers are hard input per A.G. Edwards' request.*** PaineWebber Incorporated For discussion purposes only 8 of 18 Project Heat - -------------------------------------------------------------------------------- Star Gas Stand Alone Schedule of Actual Distributions Scenario I: Base Case (in thousands except per share and per unit data) PaineWebber Incorporated 9 0f 18 For discussion purposes only
Projected Assumes Revised Target Estimated Normalized ------------------------------------------------------------------------- Distribution Structure 1998 1998 1999 2000 2001 2002 2003 2004 2005 ------- ------- ------- ------- ------- ------- ------- ------- ------- Distributable Cash - ------------------ Cash from Operations $10,815 $14,967 $17,626 $18,523 $19,623 $20,922 $24,277 $25,971 $27,914 Maintenance CapEx (2,710) (2,710) (3,274) (3,395) (3,694) (3,816) (3,942) (4,072) (4,206) Other (18) (18) (35) (35) (35) (35) (35) (35) (35) ------- ------- ------- ------- ------- ------- ------- ------- ------- Total MLP Distributable Cash Flow 8,087 12,239 14,317 15,093 15,894 17,071 20,300 21,864 23,673 Distributable Cash Flow/Unit $ 1.27 $ 1.93 $ 2.25 $ 2.38 $ 2.50 $ 2.69 $ 3.19 $ 3.44 $ 3.73 Structure - --------- Common Unit Ending Balance 3,832 3,832 3,832 3,832 3,832 3,832 3,832 3,832 3,832 Subordinated Units 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 General Partner Interest Unit Equivalent 127 127 127 127 127 127 127 127 127 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Units Outstanding 6,355 6,355 6,355 6,355 6,355 6,355 6,355 6,355 6,355 Distribution Levels - ------------------- MQD $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 First Target $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 Second Target $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 Third Target $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 Indicated Cash Distribution $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 Distribution of MQD - ------------------- Cash Available 8,087 12,239 14,317 15,093 15,894 17,071 20,300 21,864 23,673 Cash Borrowed to Pay Full MQD 5,894 1,742 0 0 0 0 0 0 0 Allocation to: Common Units 8,430 8,430 8,430 8,430 8,430 8,430 8,430 8,430 8,430 Subordinated Units 5,271 5,271 5,271# 5,271# 5,271 5,271# 5,271# 5,271 5,271 General Partner Interest 280 280 280# 280# 280 280# 280# 280 280 First Target Distribution - ------------------------- Cash Available 0 0 336 1,112 1,913 3,090 6,319 7,884 9,692 Cash Required for Target Distribution 0 0 1,398 1,398 1,398 1,398 1,398 1,398 1,398 Cash Required for Indicated Distribution 0 0 0 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 0 0 0 Second Target Distribution - -------------------------- Cash Available 0 0 0 0 0 0 0 0 0 Cash Required for Target Distribution 0 0 0 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 0 0 0 Incentive Distribution 0 0 0 0 0 0 0 0 0 Third Target Distribution - ------------------------- Cash Available 0 0 0 0 0 0 0 0 0 Cash Required for Target Distribution 0 0 0 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 0 0 0 Incentive Distribution 0 0 0 0 0 0 0 0 0 10 of 18
PROJECT HEAT =================================================================================================================================== STAR GAS STAND ALONE SCHEDULE OF ACTUAL DISTRIBUTIONS (CONT'D) SCENARIO I: BASE CASE (in thousands except per share and per unit data) ESTIMATED NORMALIZED PROJECTED -------------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 2004 2005 --------- ---------- -------- -------- -------- -------- -------- -------- -------- Remaining Distribution - ---------------------- Cash Available 0 0 0 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 0 0 0 Incentive Distribution 0 0 0 0 0 0 0 0 0 Repay Indebtedness 0 0 336 1,112 1,913 3,090 6,319 7,884 9,692 Total Distributions - ------------------- Common Units 8,430 8,430 8,430 8,430 8,430 8,430 8,430 8,430 8,430 Subordinated Units 5,271 5,271 5,271 5,271 5,271 5,271 5,271 5,271 5,271 General Partner Interest 280 280 280 280 280 280 280 280 280 Incentive Distribution 0 0 0 0 0 0 0 0 0 --------- ---------- -------- -------- -------- -------- -------- -------- -------- Total Distribution $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 ========= ========== ======== ======== ======== ======== ======== ======== ======== Total Distributions Per Unit - ---------------------------- Common Unit $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 Subordinated Unit 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 GP Unit 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 PaineWebber Incorporated For discussion purposes only Project Heat - -------------------------------------------------------------------------------- (in thousands except per share and per unit data) PaineWebber Incorporated 11 of 18 For Discussion Purposes Only
Scenario I: Base Case Projected Estimated Normalized ------------------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 2004 2005 ------- ------- ------- ------- ------- ------- ------- ------- ------- Petro EBITDA Calculation - ------------------------------------------------------------------------------------------------------------------------------------ Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 EBITDA Growth Rate (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% - ------------------------------------------------------------------------------------------------------------------------------------ Base EBITDA Timing Acqisitions: End 1998 $15,000 Mid 1999 30,000 Mid 2000 30,000 Mid 2001 30,000 Mid 2002 30,000 Mid 2003 30,000 Mid 2004 30,000 Mid 2005 30,000 ------- ------- ------- ------- ------- ------- ------- ------- -------- Total EBITDA $38,500 $43,440 $55,798 $62,665 $69,509 $76,324 $83,807 $92,024 $101,047 ======= ======= ======= ======= ======= ======= ======= ======= ======== Petro Depreciation Calculation Existing Depreciation $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 Maintenenance CapEx: 1998 $3,500 - - $233 $233 $233 $233 $233 $233 $233 Annual Growth: 0.0% 1999 3,500 117 233 233 233 233 233 233 2000 3,500 117 233 233 233 233 233 2001 3,500 117 233 233 233 233 2002 3,500 117 233 233 233 2003 3,500 117 233 233 2004 3,500 117 233 2005 3,500 117 Internal Growth CapEx: 1998 $0 - - - - - - - - - Annual Growth: 0.0% 1999 0 - - - - - - - 2000 0 - - - - - - 2001 0 - - - - - 2002 0 - - - - 2003 0 - - - 2004 0 - - 2005 0 - External Growth CapEx: 1998 $15,000 - - 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Annual Growth: 0.0% 1999 30,000 1,000 2,000 2,000 2,000 2,000 2,000 2,000 2000 30,000 1,000 2,000 2,000 2,000 2,000 2,000 2001 30,000 1,000 2,000 2,000 2,000 2,000 2002 30,000 1,000 2,000 2,000 2,000 2003 30,000 1,000 2,000 2,000 2004 30,000 1,000 2,000 2005 30,000 1,000 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Depreciation: $29,660 $29,660 $32,010 $34,243 $36,477 $38,710 $40,943 $43,177 $45,410 ======= ======= ======= ======= ======= ======= ======= ======= ======= Project Heat - -------------------------------------------------------------------------------- (in thousands except per share and per unit data) Scenario I: Base Case STAR PRO FORMA INCOME STATEMENT
Projected Estimated Normalized ---------------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 2004 2005 --------- ---------- ------- ------- ------- ------- -------- -------- -------- Combined EBITDA $57,129 $66,221 $82,528 $91,206 $99,870 $108,512 $117,932 $128,202 $139,402 Consolidated Savings 500 500 500 500 500 500 500 500 500 ------- ------- ------- ------- ------- -------- -------- -------- -------- Pro Forma EBITDA 57,629 66,721 83,028 91,706 100,370 109,012 118,432 128,702 139,902 Depreciation and Amortization 41,289 41,289 44,778 49,354 52,613 55,888 59,173 62,468 65,774 ------- ------- ------- ------- ------- -------- -------- -------- -------- EBIT 16,340 25,432 38,250 42,352 47,757 53,124 59,260 66,235 74,128 Interest Expense (27,697) (27,697) (28,488) (30,079) (30,142) (28,240) (25,665) (22,206) - Interest Income 384 384 35 35 35 35 35 35 35 Other Income - - - - - - - - - EBT (10,972) (1,880) 9,797 12,308 17,650 24,919 33,629 44,063 74,163 ------- ------- ------- ------- ------- -------- -------- -------- -------- Current Income Taxes (525) (525) (525) (525) (525) (525) (525) (525) (525) Deferred Income Taxes - - - - - - - - - ------- ------- ------- ------- ------- -------- -------- -------- -------- Net Income Available to Common ($11,497) ($2,405) $9,272 $11,783 $17,125 $24,394 $33,104 $43,538 $73,638 ======= ======== ======= ======= ======= ======== ======= ======== ======== STAR PRO FORMA UNITS OUTSTANDING Common Units Beginning Balance 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 Issuance - - - - - - - - Buyback - - - - - - - - ------- ------- ------- ------- ------- -------- -------- -------- -------- Ending Balance 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 SR Subordinated Units Beginning Balance 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 Issuance - - - - - - - - Buyback - - - - - - - - ------- ------- ------- ------- ------- -------- -------- -------- -------- Ending Balance 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 Subordinated Units Beginning Balance 754 754 754 754 754 754 754 754 Issuance - - - - - - - - Buyback - - - - - - - - ------- ------- ------- ------- ------- -------- -------- -------- -------- Ending Balance 754 754 754 754 754 754 754 754 754 GP Implied Units Beginning Balance 295 295 295 295 295 295 295 295 Issuance - - - - - - - - Buyback - - - - - - - - ------- ------- ------- ------- ------- -------- -------- -------- -------- Ending Balance 295 295 295 295 295 295 295 295 295 Total 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764 ======= ======= ======= ======= ======= ======== ======== ======== ======== PaineWebber Incorporated 12 of 18 For Discussion Purposes Only Project Heat - -------------------------------------------------------------------------------- (in thousands except per share and per unit data)
Star Pro Forma Balance Sheet Scenario I: Base Case Projected Estimated -------------------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 2004 2005 -------- -------- -------- -------- -------- -------- -------- -------- Assets: Cash $ 10,982 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 Other Current Assets 75,099 109,247 120,915 132,563 144,182 156,847 170,655 185,713 -------- -------- -------- -------- -------- -------- -------- -------- Total Current Assets 86,081 110,247 121,915 133,563 145,182 157,847 171,655 186,713 PP&E and Intangibles, Net 212,597 221,390 220,754 217,185 210,491 200,667 187,707 171,604 Other Assets 56,902 56,902 56,902 56,902 56,902 56,902 56,902 56,902 -------- -------- -------- -------- -------- -------- -------- -------- Total Assets 355,580 388,539 399,571 407,651 412,576 415,417 416,265 415,219 ======== ======== ======== ======== ======== ======== ======== ======== Liabilities: Current Liabilities 77,481 111,629 123,297 134,945 146,564 159,229 173,038 188,095 8.25% Existing Credit Facility 7,457 7,457 7,457 47,422 87,387 127,352 167,317 207,282 Total LT Debt 300,859 324,355 347,369 325,503 296,647 256,824 204,395 119,688 Other Liabilities 51 51 51 51 51 51 51 51 -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities 385,848 443,492 478,174 507,921 530,649 543,456 544,801 515,117 Preferred Stock - - - - - - - - Common Shareholder's Equity (30,268) (54,953) (78,603) (100,271) (118,074) (128,040) (128,536) (99,987) -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities and Equity $355,580 $388,539 $399,571 $407,651 $412,576 $415,417 $416,265 $415,219 ======== ======== ======== ======== ======== ======== ======== ======== Check - - - - - - - - Star Pro Forma Cash Flow Statement Net Income $ 9,272 $ 11,783 $ 17,125 $ 24,394 $ 33,104 $ 43,538 $ 73,638 Depreciation and Amortization 44,778 49,354 52,613 55,888 59,173 62,4682 65,774 Deferred Taxes - - - - - - - Other Assets/Liabilities - - - - - - - Change in Non-Cash Working Capital - - 0 - - - - -------- -------- -------- -------- -------- -------- -------- Cash from Operations 54,050 61,137 69,738 80,282 92,277 106,006 139,412 Maintenance CapEx (6,774) (6,895) (7,194) (7,316) (7,442) (7,572) (7,706) Internal Growth CapEx (1,797) (1,824) (1,850) (1,878) (1,906) (1,935) (1,965) External Growth CapEx (45,000) (40,000) (40,000) (40,000) (40,000) (40,000) (40,000) -------- -------- -------- -------- -------- -------- -------- Cash from Investments (53,571) (48,719) (49,044) (49,194) (49,348) (49,507) (49,671) Acquisition Borrowing 46,797 46,824 1,850 1,878 1,906 1,935 1,965 Remaining Distributions to Repay Debt (13,284) (18,774) (23,717) (30,734) (41,729) (54,364) (86,671) Amortization of Existing Debt (5,478) (8,141) (60) (60) (120) - - Borrowing to Repay Existing Debt 5,478 8,141 60 60 120 - - Borrowing for Changes in WC - - - - - (0) - Change in Common Equity - - - - - - - Distributions (33,957) (35,433) (38,792) (42,196) (43,070) (44,035) (44,999) -------- -------- -------- -------- -------- -------- -------- Cash from Financing (444) (7,383) (60,659) (71,053) (82,893) (96,464) (129,706) Net Cash Flow 35 5,035 (39,965) (39,965) (39,965) (39,965) (39,965) Initial Cash Balance 10,982 1,000 1,000 1,000 1,000 1,000 1,000 -------- -------- -------- -------- -------- -------- -------- Cash Available for Paydown on WC Revolver and Acq. Facility 11,017 6,035 (38,965) (38,965) (38,965) (38,965) (38,965) Minimum Cash Balance 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Borrowing/(Paydown) on WC Revolver and Acq. Facility (10,017) (5,035) 39,965 39,965 39,965 39,965 39,965 -------- -------- -------- -------- -------- -------- -------- Ending Cash Balance 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Net Change in Cash ($9,982) $0 ($0) $0 ($0) $0 ($0) ======== ======== ======== ======== ======== ======== ======== PaineWebber Incorporated 13 of 18 For Discussion Purposes Only
Project Heat - -------------------------------------------------------------------------------- (in thousands except per share and per unit data) Projected Estimated Normalized ---------------------------------------------------------------- Star Pro Forma Debt Schedule 1998 1998 1999 2000 2001 2002 2003 2004 2005 ------- ------- ------- ------- ------- ------- ------- ------- ------- Scenario I: Base Case 8.04% 1st Mortgage Notes Beginning Balance $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 Borrowing - - - - - - - - - Amortization - - - - - - - - - ------- ------- ------- ------- ------- ------- ------- ------- ------- Ending Balance 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 Interest Payment 8.04% 6,834 6,834 6,834 6,834 6,834 6,834 6,834 6,834 6,834 7.17% Pearl Notes Beginning Balance 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 Borrowing - - - - - - - - - Amortization - - - - - - - - - ------- ------- ------- ------- ------- ------- ------- ------- ------- Ending Balance 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 Interest Payment 7.17% 789 789 789 789 789 789 789 789 789 0.00% Other Notes Beginning Balance - - - - - - - - - Borrowing - - - - - - - - - Amortization - - - - - - - - - ------- ------- ------- ------- ------- ------- ------- ------- ------- Ending Balance - - - - - - - - - Interest Payment 0.00% - - - - - - - - - 8.50% New Debt Beginning Balance 125,000 125,000 125,000 130,478 138,619 138,679 138,739 138,859 138,859 Borrowing - - 5,478 8,141 60 60 120 - - Amortization - - - - - - - - - ------- ------- ------- ------- ------- ------- ------- ------- ------- Ending Balance 125,000 125,000 130,478 138,619 138,679 138,739 138,859 138,859 138,859 Interest Payment 8.50% 10,625 10,625 10,858 11,437 11,785 11,790 11,798 11,803 11,803 Exchange of 8.46% Senior Notes Beginning Balance - - 66,000 66,000 66,000 66,000 66,000 66,000 66,000 Borrowing 66,000 66,000 - - - - - - - Amortization - - - - - - - - - ------- ------- ------- ------- ------- ------- ------- ------- ------- Ending Balance 66,000 66,000 66,000 66,000 66,000 66,000 66,000 66,000 66,000 Interest Payment 8.46% 5,584 5,584 5,584 5,584 5,584 5,584 5,584 5,584 5,584 8.00% Acq. & Other Notes Payable Beginning Balance 16,798 16,798 13,859 8,381 240 180 120 - - Borrowing - - - - - - - - - Amortization (2,939) (2,939) (5,478) (8,141) (60) (60) (120) - - ------- ------- ------- ------- ------- ------- ------- ------- ------- Ending Balance 13,859 13,859 8,381 240 180 120 - - - Interest Payment 8.00% 1,226 1,226 890 345 17 12 5 - - 8.25% WC Revolver Beginning Balance - - 7,457 7,457 7,457 47,422 87,387 127,352 167,317 Borrowing for Change in WC - - - - (0) - - - - Borrowing/(Payment) - - - - 39,965 39,965 39,965 39,965 39,965 ------- ------- ------- ------- ------- ------- ------- ------- ------- Ending Balance - 7,457 7,457 7,457 47,422 87,387 127,352 167,317 207,282 Effective Avg WC Balance 23,600 23,600 21,500 21,500 21,500 21,500 21,500 21,500 21,500 Interest Payment 8.25% 1,947 1,947 1,774 1,774 1,774 1,774 1,774 1,774 1,774 7.50% Acquisition Facility Beginning Balance - - - 23,496 46,510 24,644 (4,212) (44,035) (96,464) External Acquisitions - - 40,000 45,000 - - - - - External Acquisitions at Beginning of 1999 - - 5,000 - - - - - - Internal Acquisitions - - 1,797 1,824 1,850 1,878 1,906 1,935 1,965 Payment - - (10,017) (5,035) - - - - - Remaining Distributions to Repay Debt - - (13,284) (18,774) (23,717) (30,734) (41,729) (54,364) (86,671) ------- ------- ------- ------- ------- ------- ------- ------- ------- Ending Balance - - 23,496 46,510 26,644 (4,212) (44,035) (96,464)(181,171) Interest Payment 7.50% $0 $0 $1,069 $2,625 $2,668 $766 ($1,809) ($5,269)($10,411) PaineWebber Incorporated 14 of 18 For Discussion Purposes Only
PROJECT HEAT - -------------------------------------------------------------------------------- (in thousands except per share and per unit data) Scenario 1: Base Case Projected Estimated Normalized ---------------------------------------------- STAR PRO FORMA DEBT SCHEDULE (CONT'D) 1998 1998 1999 2000 2001 2002 2003 --------- --------- ------- ------- ------ ------- ------ Total Pro Forma Debt Beginning Balance $237,798 $237,798 308,316 $331,812 $354,826 $372,925 $384,034 Amortization of Existing Debt (2,939) (2,939) (5,478) (8,141) (60) (60) (120) Borrowing for Changes in WC - - - - (0) - - Acquisition Borrowing - - 46,797 46,824 1,850 1,878 1,906 Borrowing to Repay Existing Debt - - 5,478 8,141 60 60 120 Remaining Distributions to Repay Debt - - (13,284) (18,774) (23,717) (30,734) (41,729) Borrowing/(Payment) on WC Revolver and Acq. Facility - - (10,017) (5,035) 39,965 39,965 39,965 -------- -------- ------- -------- -------- -------- -------- Ending Balance 234,859 234,859 331,812 354,826 372,925 384,034 384,176 Interest Expense 27,005 27,005 27,796 29,387 29,450 27,548 24,973 Chase Fees 692 692 692 692 692 692 692 -------- -------- ------- -------- -------- -------- -------- Total Interest Payment 27,697 27,697 28,488 30,079 30,142 28,240 25,665 ======== ======== ======= ======== ======== ======== ======== 15 of 18
PROJECT HEAT - -------------------------------------------------------------------------------- (in thousands except per share and per unit data) Scenario 1: Base Case Projected ---------------------- STAR PRO FORMA DEBT SCHEDULE (CONT'D) 2004 2005 ---------------------- Total Pro Forma Debt Beginning Balance $384,176 $371,712 Amortization of Existing Debt - - Borrowing for Changes in WC - - Acquisition Borrowing 1,935 1,965 Borrowing to Repay Existing Debt - - Renaming Distributions to Repay Debt (54,364) (86,671) Borrowing/(Payment) on WC Revolver and Acq. Facility 39,965 39,965 -------- -------- Ending Balance 371,712 326,970 Interest Expense 21,514 16,372 Chase Fees 692 692 -------- -------- Total Interest Payment $22,206 $17,064 ========= ======== Project Heat - -------------------------------------------------------------------------------- (in thousands except per share and per unit data) Scenario I: Base Case STAR PRO FORMA DISTRIBUTION SCHEDULE OF ACTUAL DISTRIBUTIONS
Projected Estimated Normalized ---------------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 2004 2005 --------- ---------- ------- ------- ------- ------- -------- -------- -------- Distributable Cash Cash from Operations (excl chg in WC) $29,792 $38,884 $54,050 $61,137 $69,738 $80,282 $92,277 $106,006 $139,412 Maintenance CapEx (6,210) (6,210) (6,774) (6,895) (7,194) (7,316) (7,442) (7,572) (7,706) Other (384) (384) (35) (35) (35) (35) (35) (35) (35) ------- ------- ------- ------- ------- -------- -------- -------- -------- Total MLP Distributable Cash Flow 23,197 32,289 47,241 54,207 62,509 72,931 84,800 98,399 131,671 Distributable Cash Flow/Unit $1.57 $2.19 $3.20 $3.67 $4.23 $4.94 $5.74 $6.66 $8.92 Structure Common Unit Ending Balance 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 SR Subordinated Units 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 Subordinated Units 754 754 754 754 754 754 754 754 754 General Partner Interest Unit Equivalent 295 295 295 295 295 295 295 295 295 ------- ------- ------- ------- ------- -------- -------- -------- -------- Total Units Outstanding 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764 Distribution Levels $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 MQD $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 First Target $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 Second Target $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 Third Target $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 Indicated Cash Distribution $2.20 $2.20 $2.30 $2.40 $2.60 $2.80 $2.85 $2.90 $2.95 Distribution of MQD Cash Available 23,197 32,289 47,241 54,207 62,509 72,931 84,800 98,399 131,671 Allocaton to: Common Units 22,733 22,920 22,920 22,920 22,920 22,920 22,920 22,920 22,920 SR Subordinated Units 0 7,251 7,251 7,251 7,251 7,251 7,251 7,251 7,251 Subordinated Units 0 1,472 1,659 1,659 1,659 1,659 1,659 1,659 1,659 General Partner Interest 464 646 650 650 650 650 650 650 650 First Target Distribution Cash Available 0 0 14,761 21,727 30,028 40,450 52,319 65,919 99,190 Cash Required for Target Distribution 0 0 3,248 3,248 3,248 3,248 3,248 3,248 3,248 Cash Required for Indicated Distribution 0 0 1,476 2,953 5,905 8,858 9,596 10,335 11,073 Actual Cash Distributed 0 0 1,476 2,953 3,248 3,248 3,248 3,248 3,248 Allocation to: Common Units 0 0 1,042 2,084 2,292 2,292 2,292 2,292 2,292 SR Subordinated Units 0 0 330 659 725 725 725 725 725 Subordinated Units 0 0 75 151 166 166 166 166 166 General Partner Interest 0 0 30 59 65 65 65 65 65 Total Distribution to: Common Units 0 0 1,042 2,084 2,292 2,292 2,292 2,292 2,292 SR Subordinated Units 0 0 330 659 725 725 725 725 725 Subordinated Units 0 0 75 151 166 166 166 166 166 General Partner Interest 0 0 30 59 65 65 65 65 65 PaineWebber Incorporated 16 of 18 For Discussion Purposes Only Project Heat - -------------------------------------------------------------------------------- (in thousands except per share and per unit data) Scenario I: Base Case STAR PRO FORMA DISTRIBUTION SCHEDULE OF ACTUAL DISTRIBUTIONS (cont'd)
Projected Estimated Normalized ---------------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 2004 2005 --------- ---------- ------- ------- ------- ------- -------- -------- -------- Second Target Distribution Cash Available 0 0 0 0 26,780 37,202 49,071 62,671 95,942 Cash Required for Target Distribution 0 0 0 0 7,149 7,149 7,149 7,149 7,149 Cash Required for Indicated Distribution 0 0 0 0 3,064 6,468 7,319 8,170 9,022 Actual Cash Distributed 0 0 0 0 3,064 6,468 7,149 7,149 7,149 Allocation to: Common Units 0 0 0 0 1,875 3,959 4,376 4,376 4,376 SR Subordinated Units 0 0 0 0 593 1,252 1,384 1,384 1,384 Subordinated Units 0 0 0 0 136 287 317 317 317 General Partner Interest 0 0 0 0 61 129 143 143 143 Incentive Right 0 0 0 0 398 841 929 929 929 Incentive Right to GP Interest 0 0 0 0 96 203 224 224 224 Incentive Right to Sr. Sub Units 0 0 0 0 302 638 705 705 705 Total Distribution to: Common Units 0 0 0 0 1,875 3,959 4,376 4,376 4,376 SR Subordinated Units 0 0 0 0 895 1,890 2,089 2,089 2,089 Subordinated Units 0 0 0 0 136 287 317 317 317 General Partner Interest 0 0 0 0 157 332 367 367 367 Third Target Distribution Cash Available 0 0 0 0 0 0 41,922 55,522 88,793 Cash Required for Target Distribution 0 0 0 0 0 0 16,591 16,591 16,591 Cash Required for Indicated Distribution 0 0 0 0 0 0 193 1,157 2,122 Actual Cash Distributed 0 0 0 0 0 0 193 1,157 2,122 Allocation to: Common Units 0 0 0 0 0 0 104 625 1,146 Sr. Subordinated Units 0 0 0 0 0 0 33 198 363 Subordinated Units 0 0 0 0 0 0 8 45 83 General Partner Interest 0 0 0 0 0 0 4 23 42 Incentive Right 0 0 0 0 0 0 44 266 488 Incentive Right to GP Interest 0 0 0 0 0 0 11 64 118 Incentive Right to Sr. Sub Units 0 0 0 0 0 0 34 202 370 Total Distribution to: Common Units 0 0 0 0 0 0 104 625 1,146 Sr. Subordinated Units 0 0 0 0 0 0 67 400 733 Subordinated Units 0 0 0 0 0 0 8 45 83 General Partner Interest 0 0 0 0 0 0 15 87 160 Remaining Distribution Cash Available 0 0 0 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 0 0 0 Incentive Right 0 0 0 0 0 0 0 0 0 Incentive Right to GP Interest 0 0 0 0 0 0 0 0 0 Incentive Right to Sr. Sub Units 0 0 0 0 0 0 0 0 0 Repay Indebtedness 0 0 13,284 18,774 23,717 30,734 41,729 54,364 86,671 Total Distribution to: Common Units 0 0 0 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 0 0 0 PaineWebber Incorporated 17 of 18 For Discussion Purposes Only PROJECT HEAT ================================================================================ (in thousands except per share and per unit data) 18 of 18
STAR GAS PRO FORMA SCHEDULE OF ACTUAL DISTRIBUTIONS (cont'd) Scenario I: Base Case Estimated Normalized Projected ----------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 2003 2004 2005 ---------- ---------- -------- ------- ------- ------- ------- ------- -------- Total Distributions - ------------------- Common Units $ 22,733 $ 22,910 $ 23,962 $ 25,004 $ 27,088 $ 29,171 $ 29,692 $ 30,213 $ 30,734 SR Subordinated Units 0 7,251 7,581 7,910 8,872 9,867 10,132 10,465 10,798 Subordinated Units 0 1,472 1,734 1,810 1,961 2,112 2,149 2,187 2,225 General Partner Interest 464 646 679 709 872 1,047 1,097 1,169 1,242 -------- ---------- -------- -------- -------- -------- -------- -------- -------- Total Distributions $ 23,197 $ 32,289 $ 32,957 $ 35,433 $ 38,792 $ 42,196 $ 43,070 $ 44,035 $ 44,999 ======== ========== ======== ======== ======== ======== ======== ======== ======== Total Distributions Per Units - ----------------------------- Common Units $ 2.18 $ 2.20 $ 2.30 $ 2.40 $ 2.60 $ 2.80 $ 2.85 $ 2.90 $ 2.95 SR Subordinated Units 0.00 2.20 2.30 2.40 2.69 2.99 3.07 3.18 3.28 Subordinated & GP Units 0.44 2.02 2.30 2.40 2.70 3.01 3.09 3.20 3.30 Total Incentive Distributions NPV -------- To GP Interest $ 357 $ 0 $ 0 $ 0 $ 0 $ 96 $ 203 $ 235 $ 289 $ 342 To Sr. Sub Units 1,121 - - - - 302 638 739 907 1,075 -------- -------- ---------- -------- -------- -------- -------- -------- -------- -------- Sub-Total 1,478 - - - - 398 841 974 1,196 1,417 Present Value of Terminal Value 1,189 - - - - - - - - 5,670 -------- Total $ 2,667
FOR DISCUSSION PURPOSES ONLY 5/4 DRAFT PRELIMINARY STATUS REPORT BOARD OF DIRECTORS STAR GAS PARTNERS, L.P. Petro management and its advisors have been working on a proposed transaction between Petro and Star for over a year. Star Committee has engaged Baker & Botts, LLP as its counsel and A.G. Edwards & Sons, Inc. as its financial advisor. After one month of preliminary due diligence and review, the Committee and its advisors better understand and appreciate the complexity of the proposed transaction and the amount of hard work and creativity dedicated to this proposal. During the past year, both parties have experienced management changes and adverse weather conditions. During this period, Petro has suspended its common dividends and its publicly held common shares have traded down. Star's publicly held common units have traded flat to slightly up, but Star has made distributions to its common unitholders and its subordinated unitholders (that is, Petro) even though such distributions exceeded distributable cash flow (that is, Star returned capital). The Star Committee notes that Petro's capital constraints have effectively eliminated its historic acquisition program while Star has demonstrated a far more viable acquisition program. In light of these and other significant changes in relative performance, market conditions and strategic rationale for the proposed transaction, the Star Committee (after considering the preliminary report of A.G. Edwards and consulting with counsel), proposes a re-examination, restructuring and repricing of the proposed transaction between Petro and Star. Subject to further diligence and assuming no material adverse changes in the parties or in market conditions, the Star Committee proposes: (A) Star Partnership Agreement. Appropriate steps should be initiated -------------------------- to amend the Star Partnership Agreement as of the closing date (assumed to be September 30, 1998) in order to: (A-1) raise the future required minimum quarterly distribution ("MQD") for common unitholders from $2.20 per annum to $2.30 per annum; (A-2) authorize a new class of senior subordinated units which shall be junior to all present and future common units, but senior to the present subordinated units; and (A-3) prohibit the payment of any future distributions to senior subordinated unitholders and to subordinated unitholders except from net distributable cash flow available for such period after first paying MQD to the common unitholders for such period plus any cumulative common unit arrearages. (B) Definitive Transaction Agreement. A draft of the definitive -------------------------------- transaction agreement should be prepared by Petro for Star Committee's careful consideration (and for future submission to the Board of Directors and common unitholders of Star and to the Board of Directors and shareholders of Petro for approval) setting forth the following steps: (B-1) At closing of the Transaction, Star shall be obligated to pay to Petro or assume from Petro a "Maximum Aggregate Consideration" of [$390 million] consisting of (A) the total consideration paid to Petro's common shareholders calculated at [26,563,000] Petro common shares at [$ _________] per share; (B) the principal amount of Petro's total debt and preferred stock outstanding just prior to closing and any refinancing of such debt or preferred stock; and (C) any premiums paid above and beyond the principal amount of such debt and preferred stock to redeem, exchange, defease or otherwise cancel these liabilities. In addition, the distributions made to the Petro common shareholders and the refinancing of any assumed debt or preferred stock may not result in more than [10,300,000] common units outstanding at closing and must result in at least [$125 million] of new debt carrying an interest rate of no greater than [8.50%] having been closed prior to, or simultaneous with, the closing of this Transaction. (B-2) Prior to the closing of the Transaction, in return for the Maximum Aggregate Consideration defined in (B-1), Petro shall represent, warrant and agree that: (A) Petro shall set up appropriate reserves and fund the following: (1) off-balance sheet pension liabilities of [$5 million], (2) off-balance sheet tax liabilities relating to Pearl of [$3.5 million], (3) surplus cash available for distributions equal to [$1.10] per new common unit issued, (4) all of the Transaction costs, including the gross spread on Star's new MLP equity and debt; financial advisory fees and fairness opinions for Petro and Star; legal, accounting and printing fees for Petro and Star; all exchange and solicitation fees related to the retirement or redemption of Petro's debt and preferred stock; all appraisals and environmental reports; all rating agencies and bank fees; and all other out-of- pocket costs and expenses associated with the Transaction, and (5) any "Unearned MQD" monies that Petro wishes to have available for payment to senior subordinated or subordinated unitholders following the closing of the Transaction. (B) Petro shall have no borrowed money debt of any kind outstanding other than any such amounts included in (B-1); (C) Petro shall have no preferred stock of any kind outstanding other than any such amounts included in (B-1); (D) Petro shall have transferred to Star a minimum of [2,000,000] of its subordinated units free and clear for cancellation; (E) Petro shall have a minimum balance of cash of [$500,000], a positive working capital balance (subject to further due diligence), and a total common shareholders' deficit on its balance sheet of no greater than [$_______million], all as of the closing. (B-3) In the event Petro is unable or unwilling to represent and warrant each of the matters set forth in (B-2), then the Maximum Aggregate Consideration set forth in (B-1) shall be reduced on a dollar-for-dollar basis.
Round II Appendices to Preliminary Report to The Special Committee of Gas Analyses Performed at $2.00 Per Share A. G. Edwards & Sons, Inc. INVESTMENT BANKING May 4, 1998 Overview of Oil EBITDA Reconciliation: 1997 //(a)// - -------------------------------------------------------------------------------- (a) Management's assumptions. Page 1
- -------------------------------------------------------------------------------- Oil --- 1997 Actual EBITDA $36,010 NORMALIZING ADJUSTMENTS: Weather was 3.8% warmer than 30-year normal 3.8% of 1997 budgeted retail gallons 13,482 gallons Gross profit margin $0.4545 Delivery and garage cost savings ($0.0814) ------- Net impact per gallon $0.3731 $ impact 5,030 Insurance reserve 2,000 ------- 1997 Adjusted EBITDA $43,040 ======= Overview of Oil EBITDA Reconciliation: 1997-1998 (a) (continued) - -------------------------------------------------------------------------------- (a) Management's assumptions. (b) Represents the average gross profit per gallon ($.4700 per gallon) offset by $.30 per gallon reduction in operating expenses. (c) Actual gross profit margin increase achieved in first quarter of 1998 was $5.9 million (156 million gallons @ $0.037/gallon). (d) Represents already accomplished reductions in branch, regional and corporate expenses in excess of normal indexing related to volume reductions as well as 1% productivity improvements. Page 2
Oil --- 1997 Adjusted EBITDA $43,040 Volume Adjustments for 1998 Sale of TLC Division in 1997 (16,926) gallons Attrition in 1998 (4.1%) (17,375) 1997 Acquisitions 9,828 ------- (24,473) gallons @ $0.1700/gallon (b) (4,159) Gross Profit Margin Increase $0.006 per gallon on 395,086 gallons (c) 2,371 Inflation (3,662) Operating Cost Reductions (d) 5,850 ------- 1998 EBITDA Budget $43,440 ======= Overview of Oil EBITDA Reconciliation: 1998 (a) (continued) - -------------------------------------------------------------------------------- (a) Management's assumptions. Page 3
Oil --- 1998 EBITDA Budget $43,440 Actual Differential between first three months of Fiscal 1998 vs. Budget (9,318) Revised margin improvement and cost savings estimates based on first three months of Fiscal 1998 vs. Budget. 4,318 ------- Adjusted 1998 EBITDA Budget $38,440 ======= OVERVIEW OF OIL EBITDA RECONCILIATION: 1998-1999 (a) (continued) - -------------------------------------------------------------------------------- (a) Management's assumptions. Page 4
OIL --- 1998 EBITDA Budget $43,440 Internal Attrition (4.1%) and other adjustments (3,897) Acquisition Growth $30,000 of acquisitions at 4.75x multiple 6,315 ------- 1999 Projection $45,858 ======= OVERVIEW OF OIL EBITDA SUMMARY - -------------------------------------------------------------------------------- Page 5
OIL --- 1997 Actual $36,010 1997 Adjusted 43,040 1998 Budget $43,440 Adjusted 1998 Budget $38,440 1999E $45,858 OVERVIEW OF GAS EBITDA RECONCILIATION: 1997 (a) ($ in thousands) - -------------------------------------------------------------------------------- (a) Management's assumptions. (b) Not pro forma for Pearl Gas acquisition. (c) Certain expenses including the exploration of strategic alternatives by Morgan Stanley. (d) Certain cost savings, primarily salary and benefit expenses of certain selling shareholders. Page 6
GAS --- 1997 Actual EBITDA $19,703 (b) NORMALIZING ADJUSTMENTS: Weather Residential - 1,125 gallons @ 0.7106 margin 799 Commercial - 277 gallons @ 0.4459 margin 124 Margin Residential - 50,832 gallons @ (0.7106-0.6995) (564) Commercial - 19,864 gallons @ (0.4454-0.4348) (220) Wholesale - 38,404 gallons @ (0.0975-0.0675) (1,152) Compensation (56) Elimination of strategic expense 902 (c) Pearl Gas EBITDA 3,012 Pearl Gas acquisition adjustments 273 (d) ------- 1997 Adjusted EBITDA $22,821 ======= OVERVIEW OF GAS EBITDA RECONCILIATION: 1997-1999 (a) ($ IN THOUSANDS) (continued) - -------------------------------------------------------------------------------- (a) Management's assumptions. Page 7
- -------------------------------------------------------------------------------- GAS --- 1998 EBITDA Budget $22,781 Actual Differential between first six months of Fiscal 1998 vs. Budget (4,502) ------- Adjusted 1998 EBITDA Budget $18,279 ======= 1998 EBITDA Budget $22,781 Internal Growth of 1.7% 379 Acquisition Growth $20 million of acquisitions at 7x multiple completed on 9/30/98 2,857 $10 million of acquisitions at 7x multiple completed on 4/1/99 713 ------- 1999 EBITDA Projection $26,730 ======= Summary of Transaction Pro Forma Gas Units Outstanding (in thousands) To simplify the complexity of the steps in the Transaction, A.G. Edwards prepared a summary of its understanding. [_] There are currently 6,355 Gas units outstanding comprised of 3,832 common units, 2,396 subordinated units and 127 general partner ("GP") units. The subordinated units and GP units are assets of Oil. [_] There are currently 26,563 shares of Oil common stock outstanding, comprised of public shareholders and "insiders." The public holds 17,160 Class A shares. The "insiders" hold 9,404 shares which include 6,795 Class A shares, 11 Class B shares and 2,598 Class C shares. [_] Each shareholder of Oil will receive a certain number of units in Gas such that the implied consideration paid for each Oil share is $2.00. [_] The publicly held 17,160 Class A shares will receive .1000 shares of newly created senior subordinated units (1,716 units in total) with an implied value of $20.00/unit. This represents an implied purchase price of $2.00/share for an implied total purchase price of $34.3 million. [_] The "insiders" of Oil, who hold a total of 9,404 shares (comprised of A, B and C shares) will also receive $2.00/share for a total of $18.8 million. The consideration received by these shareholders will be funded by: - (1) the distribution of existing units of Gas which are currently owned by Oil [_] all of the 127 GP units owned by Oil will be given as consideration at an implied value of $21.62/unit, for a total of $2.7 million. [_] 373 of the 2,396 subordinated units owned by Oil will be given as consideration at an implied value of $16.58/unit, for a total of $6.2 million. - (2) the distribution of newly-created units of Gas [_] to fund the remaining $9.9 million of the $18.8 million due to the Oil "insiders", Gas will issue 350 newly-created senior subordinated units and 133 newly-created GP units. The implied values for these new units are $20.00 and $21.62, respectively. Page 8 Summary of Transaction Pro Forma Gas Units Outstanding (in thousands) (continued) [_] Of the 2,396 Subordinated units and 127 GP units owned by Oil, only 2,023 subordinated units will not have been used as consideration paid to the "inside" Oil shareholders. Hence, these 2,023 subordinated units will be retired by Gas. A.G. Edwards has assumed that the implied value of these units are $16.58/unit for a total retired value of approximately $33.5 million. Page 9 Summary of Gas Units Outstanding Pre-Financing Assumptions ___________________________________ (a) The number of GP units issued reflect the assumption of a 6,461 common unit equity offering to refinance certain of the assumed Oil debt. Hence, the number of GP units reflected in the pro forma column do not equal 2% of the pro forma outstanding units shown above but do equal exactly 2% of the pro forma units outstanding on a post financing basis. Page 10
- ------------------------------------------------------------------------------------------------------------- Distributed to Oil Issued to Oil ---------------------- ------------------------ Type of Units Current Public Insiders Public Insiders Retired Pro Forma - ----------------- ------- ------ ---------- ---------- ---------- --------- ----------- Common 3,832 - - - - - 3,832 Senior Subordinated - - - 1,716 350 - 2,066 Subordinated 2,396 - 373 - - (2,023) 373 General Partner (a) 127 - 127 - 133 - 260 ------- ----------- 6,355 6,531 EQUITY PURCHASE PRICE CALCULATION IMPLIED EQUITY VALUE OF OIL'S ASSETS (units in thousands, $ in millions, except per unit amounts) Divided by 26,563 shares of Oil's Common stock= $2.00 per share Page 11
Purchase Price of Oil's Equity Purchase Price of Oil's Equity ---------------------------------- ------------------------------------- Value of Securities Equity Value of Oil's Value of Oil's GP and Event Paid to Oil Shareholders Heating Oil Assets Subordinated Units in Star - --------------------------------- ------------------------------ ---------------------- ----------------------------- Issuance of Senior Subordinated Units to Public Oil Shareholders 1,716 x $20.00 --------------------- $34.4 $34.3 - Distribution of General Partner Units to Inside Oil Shareholders 127 x $21.62 --------------------- $2.7 - $2.7 Distribution of Subordinated Units to Inside Oil Shareholders 373 x $16.58 --------------------- $6.2 - $6.2 Issuance of General Partner Units to Inside Oil Shareholders 133 x $21.62 --------------------- $2.9 $2.9 - Issuance of Senior Subordinated Units to Inside Oil Shareholders 350 x $20.00 --------------------- $7.0 $7.0 - Retire Subordinated Units ($33.5) 2,023 x $16.58 ------------------ $33.5 $10.7 $42.5 ------- ----------------------------- Total $53.1 $53.1 PREMIUM PAID ANALYSIS
------------------------------------------------------------------------------------------------------------------------------ Dollars Stock Price Premium Analysis in thousands Notes -------------------------------------------- --------------- ---------------------------------------------------------- Equity purchase price of Oil $53,126 $2.00 share price x 26,563 shares. Premium to stock price one day prior 23.1% $1.625 close on April 22, 1998. Premium to stock price one month prior 28.0% Premium to stock price three months prior -20.0% Premium to stock price six months prior -36.0% Purchase Price -------------------------------------------- Equity purchase price of heating oil assets $ 10,657 See page 11. Debt assumption value (b) 338,223 --------------- Aggregate purchase price of heating oil assets $348,880 =============== ________________________________________________________ (a) Updated through April 22, 1998. (b) Includes cost of debt at assumed redemption value, preferred stock at assumed redemption value, transaction fees, and certain off-balance sheet liabilities, net of excess cash. See page 13. (c) Calculated as gross profit minus SG&A expense and direct delivery expense. (d) Excludes restructuring charge, pension curtailment expense, provision for supplemental benefits and corporate identity expenses. (e) As of 12/31/97. Page 12
Multiples -------------------------------------------- ------------------ Multiples Notes ------------------ ----------------------------------- 1997 Revenue $548,141 0.6 x As a multiple of aggregate transaction value. 1997 EBITDA (c) 36,010 9.7 As a multiple of aggregate transaction value. 1997 EBIT (d) 6,264 55.7 As a multiple of aggregate transaction value. 1997 Net loss to common shares (d) ($ 19,338) NM As a multiple of equity value. Equity (e) (177,033) NM As a multiple of equity value. 1997 Adjusted EBITDA (c) 43,040 8.1 x As a multiple of aggregate transaction value. 1998 EBITDA budget (c) 43,440 8.0 As a multiple of aggregate transaction value. Adj. 1998 EBITDA budget (c) 38,440 9.1 As a multiple of aggregate transaction value. 1999P EBITDA (c) 45,858 7.6 As a multiple of aggregate transaction value. ================== Transaction Multiple Analysis Firm Valuation ___________________ (a) Includes cash collateral of $9,350,000. (b) Assumes an Additional Surplus of $1.10 per new common unit issued is funded by Oil. Page 13
Equity Purchase Price of Heating Oil Assets $ 10,656,580 ------- + Cost of Debt at Redemption Value 290,992,000 + Cost of Preferred stock at Redemption Value 34,375,000 + Transaction Fees 19,104,000 ------- 338,223,100 + Off-Balance Sheet Pension and Tax Liability 8,500,000 - Excess Cash Oil's cash balance at 9/30/98(a) 22,355,000 Required cash on hand (500,000) Additional Surplus (b) (7,107,100) 14,747,900 ------- ------------ Firm Value $348,879,680 ============ Transaction Multiple Analysis Transaction Multiples for Firm Valuation Page 14
EBITDA ------------------------------------- Purchase Price Year Amount Multiple Paid - -------------- -------------------- ------------- ------------- $348,879,680 1997 Adjusted $43,040,000 8.1x $348,879,680 Adjusted 1998 Budget $38,440,000 9.1x $348,879,680 1999 Projected $45,858,000 7.6x Transaction Multiple Analysis Distribution of Value - -------------------------------------------------------------------------------- OIL 1997 Adjusted EBITDA EBITDA Multiple Purchase Price - ------------- -------- -------------- $43,040,000 8.1x $348,879,680 (a) A.G. Edwards' estimate of the decline rate of EBITDA based on a 4.1% attribution rate. (b) See page 25. Page 15
Ability to Further Consolidate Heating Oil Industry Core Business - --------------------------------------------------- ------------- Acquisition EBITDA $43,040,000 EBITDA Multiple Purchase Price EBITDA Decline Rate 7.75% (a) - ------------ ------------- -------------- WACC 7.78% (b) $6,315,789 4.75x $30,000,000 Decline Rate 7.75% (a) WACC 7.78% (b) Perpetuity $40,663,681 Purchase Price $30,000,000 -------------- Net Present Value of the Heating Oil Acq. $10,663,681 Value in perpetuity of Ability to -------------- ------------- Consolidate Heating Oil Industry $137,034,135 Value of Core Business $277,109,433 ============== ============= ---------------+---------------------------------- _________________________________________________________________________ Implied Total Valuation $414,143,568 % of Valuation attributable to core business 66.9% % of Valuation attributable to consolidation opportunities 33.1% _________________________________________________________________________ Transaction Multiple Analysis Transaction Multiples for Existing Heating Oil Business - -------------------------------------------------------------------------------- Revised EBITDA --------------------------------- Purchased Price (a) Year Amount Multiple Paid - ------------------- -------------- ------------- --------------- $233,440,425 1997 Adjusted $43,040,000 5.4x $233,440,425 Adjusted 1998 Budget $38,440,000 6.1x $233,440,425 1999 Projected $45,858,000 5.1x - -------------------------------------------------------------------------------- (a) Represents A.G Edwards' estimate of the portion of the $348.9 million price being paid for Oil's heating oil business that can be attributable to its core business. Calculation: $348.9 million x 66.9%. See page 15. Page 16 Relative Contribution Analysis (a) ($ in thousands) Gas' EBIDTA Contribution 96-97 35.4% [CHARTS APPEARS HERE] 98-99 38.4% 96-99 35.1% For Gas' contribution of approximately 35% of the combined entity's EBITDA, it will receive approximately 40% of the implied firm value. ___________________________________ (a) For purposes of its analysis, A.G. Edwards converted Oil's historical December 31st fiscal year-end to a September 30th fiscal year-end for comparison purposes. Oil's projections are based on a December 31st calendar year end. Other measures of relative contribution analysis are non-meaningful. (b) Includes only heating oil EBITDA for Oil. (c) Firm value for all of Oil. (d) Implied firm value of only Oil's heating oil assets. Page 17 ACCRETION/DILUTION ANALYSIS VARIATIONS IN MARGIN GROWTH RATES AND ACQUISITION ASSUMPTIONS - -------------------------------------------------------------------------------- - ------ (a) 1998 estimate assumes no acquisitions for either company, and is adjusted to reflect actual results through 3/31/98. (b) 1998 budgeted. (c) Defined as (DCF+Int)/[((GP units + common units)*MQD) + Int)] PAGE 18
4.1% ATTRITION 4.1% ATTRITION 4.1% ATTRITION GAS $0.00 MARGIN GROWTH $0.00 MARGIN GROWTH $0.005 MARGIN GROWTH STAND-ALONE $30.0MM AT 4.75X ACQUISITIONS $30.0MM AT 5.25X ACQUISITIONS $30.0MM AT 4.75X ACQUISITIONS ----------- ----------------------------- ----------------------------- ----------------------------- DCF PER UNIT 1998E (a) $1.220 $1.770 $1.770 $1.770 1998N (b) 1.930 2.500 2.500 2.500 1999P 2.090 2.780 2.740 2.940 ACCRETION/DILUTION 1998E (a) 45.1% 45.1% 45.1% 1998N (b) 29.5% 29.5% 29.5% 1999P 33.0% 31.1% 40.7% COMMON UNIT COVERAGE 1998E (a) 0.90x 1.00x 1.00x 1.00x 1998N (b) 1.42 1.41 1.41 1.41 1999P 1.48 1.50 1.47 1.58 TOTAL UNIT COVERAGE 1998E (a) 0.55x 0.81x 0.81x 0.81x 1998N (b) 0.88 1.14 1.14 1.14 1999P 0.95 1.21 1.19 1.28 LEVERAGED UNIT COVERAGE (C) 1998E (a) 0.94x 1.00x 1.00x 1.00x 1998N (b) 1.21 1.18 1.18 1.18 1999P 1.24 1.22 1.21 1.26 4.1% ATTRITION $0.005 MARGIN GROWTH $30.0MM AT 5.25X ACQUISITIONS ----------------------------- DCF PER UNIT 1998E (a) $1.770 1998N (b) 2.500 1999P 2.890 ACCRETION/DILUTION 1998E (a) 45.1% 1998N (b) 29.5% 1999P 38.3% COMMON UNIT COVERAGE 1998E (a) 1.00x 1998N (b) 1.41 1999P 1.55 TOTAL UNIT COVERAGE 1998E (a) 0.81x 1998N (b) 1.14 1999P 1.26 LEVERAGED UNIT COVERAGE (C) 1998E (a) 1.00x 1998N (b) 1.18 1999P 1.25 PUBLIC COMPANY ANALYSIS [_] A.G. Edwards compared certain financial and market information of Gas on a historical and pro forma basis to that of certain public master limited partnerships which A.G. Edwards deemed relevant for the purposes of this analysis. A.G. Edwards reviewed the trading multiples from a total of 6 public propane master limited partnerships. [_] The selected propane master limited partnerships are as follows: - AmeriGas Partners, L.P. - Heritage Propane Partners, L.P. - Cornerstone Propane Partners, L.P. - National Propane Partners, L.P. - Ferrellgas Partners, L.P. - Suburban Propane Partners, L.P. [_] No company used in the analysis is identical to Gas. (a) Public comparable companies include: APU, CNO, PGP, HPG, CNL and SPH. (b) Firm value/adjusted 1998 budget EBITDA. (c) Firm value/1999 estimated EBITDA. (d) Equity market cap/adjusted 1998 budget EBITDA. (e) Equity market cap/1999 estimated DCF. (f) Adjusted 1998 budget. (g) 1999 estimates. (h) Defined as (DCF + interest)/(((GP units + common units)*MQD) + interest). Page 19
PUBLIC COMPARABLE COMPANIES (a) - ------------------------------------------------------------------------------------------------------------ PUBLIC PUBLIC PRO FORMA COMPANY COMPANY GAS GAS MEDIANS RANGES - ------------------------------------------------------------------------------------------------------------ Yield 10.0% 10.5% 9.6% 8.5% to 10.6% Firm value/LTM EBITDA 12.7x (b) 10.2x (b) 12.5x 9.8x to 16.7x Firm value/1998 normalized EBITDA 8.7x (c) 8.0x (c) 11.5x 10.3x to 13.7x Equity Market Cap/LTM DCF 18.0x (d) 12.4x (d) 15.7x 9.4x to 25.5x Equity Market Cap/1998 normalized DCF 9.7x (e) 7.9x (e) 13.9x 11.6x to 16.9x LTM common unit coverage 0.9x (f) 1.0x (f) 1.4x 0.6x to 1.5x 1998E common unit coverage 1.5x (g) 1.5x (g) 1.4x 0.9x to 1.9x LTM total unit coverage 0.6x (f) 0.8x (f) 0.7x 0.4x to 1.0x 1998E total unit coverage 1.0x (g) 1.2x (g) 0.7x 0.7x to 1.0x 1998E leveraged unit coverage 1.2x (g) (h) 1.2x (g) (h) 1.1x 0.9x to 1.3x - ------------------------------------------------------------------------------------------------------------- PUBLIC COMPANY ANALYSIS ($ IN MILLIONS, EXCEPT PER UNIT DATA) _________________________________ 1998 estimates per A.G. Edwards' research, except for Gas, Oil and Pro Forma. Implied Firm Value equals common, subordinated and GP units, multiplied by the market price of common units plus debt, less cash. (a) Pro forma for the Pearl Gas acquisition and the common unit offering. Fiscal 1997 maintenance capital expenditure used as LTM figure. (b) For Gas and Pro forma only, LTM DCF figures are adjusted 1998 budget DCF estimates. (c) For Gas and Pro forma only, FY98E DCF figures are 1999 DCF estimates. (d) Financial information pro forma for common unit offering. Maintenance capital expenditures assumed to be 8% of EBITDA due to lack of disclosure. (e) Maintenance capital expenditures assumed to be 8% of EBITDA due to lack of disclosure. (f) Financial figures exclude $5.1 million gain from sale of minority interest. (g) 12.992 units @ $21.9375. (h) $285.0 in equity plus $308.316 pro forma debt (see page 24), less $10.839 cash and $9.350 in cash collateral. Page 20
- ------------------------------------------------------------------------------------------------------------------------------------ Closing Implied Implied Price on Market Value Firm Distribution Company Ticker (4/22/98) of Equity Value per Unit Yield - ------------------------------------------------------------------------------------------------------------------------------------ Gas (a) $21.938 $ 139.4 $ 232.0 $2.20 10.0% AmeriGas Partners, L.P. APU 25.938 1,108.6 1,867.2 2.20 8.5% Cornerstone Propane Partners, L.P. (d) CNO 22.688 455.7 671.7 2.16 9.5% Ferrellgas Partners, L.P. (e) FGP 20.875 666.6 1,192.3 2.00 9.6% Heritage Propane Partners, L.P. HPG 23.125 197.8 371.8 2.00 8.6% National Propane Partners, L.P. NPL 20.313 232.9 375.6 2.10 10.3% Suburban Propane Partners, L.P. (f) SPH 18.813 551.4 942.0 2.00 10.6% - ------------------------------------------------------------------------------------------------------------------------------------ Mean 9.5% Median 9.6% - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma $21.938 $ 285.0 (g) $ 583.8 (h) $2.30 10.5% - ------------------------------------------------------------------------------------------------------------------------------------ Common LTM Distributable Cash Flow/ ---------------------------- Units/ Distribution to Distribution FY98E Company Ticker Total Units Common Units to Total Units DCF/unit - ------------------------------------------------------------------------------------------------------------------------------------ Gas (a) 60.3% 0.9x (b) 0.6x (b) $ 2.09 (c) AmeriGas Partners, L.P. APU 52.8% 1.5x 0.8x 2.14 Cornerstone Propane Partners, L.P. (d) CNO 66.5% 0.6x 0.4x 1.47 Ferrellgas Partners, L.P. (e) FGP 47.0% 1.4x 0.7x 1.34 Heritage Propane Partners, L.P. HPG 55.8% 1.3x 0.8x 2.01 National Propane Partners, L.P. NPL 59.6% 0.9x 0.5x 1.60 Suburban Propane Partners, L.P. (f) SPH 75.1% 1.4x 1.0x 1.41 - ------------------------------------------------------------------------------------------------------------------------------------ Mean 59.5% 1.2x 0.7x Median 57.7% 1.4x 0.7x - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma 79.2% 1.0x (b) 0.8x (b) 2.78 (c) - ----------------------------------------------------------------------------------------------------------- FY98E Distributable Cash Flow / ------------------------------- Distribution to Distribution Company Ticker Common Units to Total Units - ----------------------------------------------------------------------------------------------------------- Gas (a) 1.5x(c) 1.0x(c) AmeriGas Partners, L.P. APU 1.9x 1.0x Cornerstone Propane Partners, L.P. (d) CNO 1.1x 0.7x Ferrell gas Partners, L.P. (e) FGP 1.4x 0.7x Heritage Propane Partners, L.P. HPG 1.8x 1.0x National Propane Partners, L.P. NPL 1.3x 0.8x Suburban Propane Partners, L.P. (f) SPH 0.9x 0.7x - ----------------------------------------------------------------------------------------------------------- Mean 1.4x 0.8x Median 1.4x 0.7x - ----------------------------------------------------------------------------------------------------------- Pro Forma 1.5x (c) 1.2x (c) PUBLIC COMPANY ANALYSIS - ------ EBITDA is defined as net income (loss) before extraordinary items plus interest, income taxes, depreciation and amortization, impairment expense, and other non-recurring and non-operating items. (a) Defined as (DCF + interest)/(((GP units + common units)*MQD) + interest). (b) For Gas and Pro forma only, LTM leveraged unit coverage figures use adjusted 1998 budget estimates. (c) For Gas and Pro forma only, 1998E leveraged unit coverage figures use 1999 estimates. (d) For Gas and Pro forma only, LTM EBITDA figures are adjusted 1998 budget estimates. (e) For Gas and Pro forma only, 1998E EBITDA figures are 1999 estimates. (f) For Gas and Pro forma only, LTM DCF figures are adjusted 1998 budget DCF estimates. (g) For Gas and Pro forma only, 1998E DCF figures are 1999 DCF estimates. Page 21
LTM 1998E LONG TERM LTM FIRM VALUE/ FIRM VALUE/ EQUITY EQUITY LEVERAGED LEVERAGED DEBT/ EBITDA/ LTM 1998E MARKET CAP/ MARKET CAP/ UNIT COVERAGE (A) UNIT COVERAGE (A) FIRM VALUE INT. EXP. EBITDA EBITDA LTM DCF 1998E DCF ----------------- ----------------- ---------- --------- ----------- ----------- ----------- ----------- GAS 0.9x(b) 1.2x(c) 41.4% 2.3x(d) 12.7x(d) 8.7x(e) 18.0x(f) 9.7x(g) AmeriGas Partners, L.P. 1.2x 1.3x 37.3% 2.2x 12.6x 12.1x 15.5x 14.1x Cornerstone Propane Partners, L.P. 0.8x 1.0x 35.1% 2.1x 16.7x 13.7x 25.5x 16.9x Ferrellgas Partners, L.P 1.2x 1.1x 41.5% 2.1x 12.5x 12.0x 15.8x 15.9x Heritage Propane Partners, L.P. 1.1x 1.3x 46.0% 2.6x 10.9x 10.6x 15.7x 11.6x National Propane Partners, L.P. 0.9x 1.1x 36.8% 3.2x 16.3x 11.0x 18.0x 13.0x Suburban Propane Partners, L.P. 1.2x 0.9x 45.5% 2.9x 9.8x 10.3x 9.4x 13.6x --- --- ---- --- ---- ---- ---- ---- MEAN 1.1x 1.1x 40.4% 2.5x 13.1x 11.6x 16.6x 14.2x MEDIAN 1.1x 1.1x 39.4% 2.4x 12.5x 11.5x 15.7x 13.9x === === ==== === ==== ==== ==== ==== PRO FORMA 1.0x(b) 1.2x(c) 54.6% 2.1x(d) 10.2x(d) 8.0x(e) 12.4x 7.9x(g) DISCOUNTED CASH FLOW ANALYSIS GAS--STAND ALONE ($ IN THOUSANDS) - -------------------------------------------------------------------------------- - ------- (a) Based on management projections. (b) Based on comparable companies' WACC. (c) Gas' current firm value of $232.0 million/$22.781 million normalized 1998 EBITDA = 10.2x, which represents a multiple of current year normalized EBITDA. (d) Discount factor calculated using half-year convention. (e) Terminal value calculated using EBITDA multiple. (f) Represents total projected debt less cash as of 9/30/98. (g) Total units include common, subordinated and GP units. (h) Current market value of common units is 3,832 units *$21.938 unit price = $84,065 PAGE 22
INCOME STATEMENT SUMMARY (a): 1998 1999 2000 2001 2002 TERMINAL - ------------------------ ------ ------- ------- ------- ------- -------- EBITDA 18,279 26,730 28,541 30,361 32,188 % increase 46.2% 6.8% 6.4% 6.0% Net income (1,182) 3,733 3,621 3,695 3,953 CASH FLOW SUMMARY: - ------------------ After-tax EBI 12,847 13,649 14,443 15,229 Depreciation and amortization 13,858 14,868 15,893 16,934 Maintenance capital expenditures (3,274) (3,395) (3,694) (3,816) Working capital increases (500) (500) (500) (500) ------- ------- ------- ------- Net operating cash flow (free cash flow) 22,931 24,622 26,142 27,847 --------- WEIGHTED AVERAGE COST OF CAPITAL (b) 7.9% --------- TERMINAL EBITDA MULTIPLE (c) 10.2x --------- Discount factor (d) 0.9629 0.8927 0.8276 0.7673 0.7388 Terminal value (e) $328,318 --------- Present value $329,621 $22,079 $21,980 $21,635 $21,367 $242,560 --------- ------- ------- ------- ------- -------- Current net debt (f) $(113,629) --------- Net present value of equity $ 215,992 ========= Common units/Total units (g) 60.3% --------- Equity value to common units (h) $ 130,234 ========= DISCOUNTED CASH FLOW ANALYSIS GAS--PRO FORMA PAINEWEBBER MODEL (a) ($ IN THOUSANDS) - ------- (a) Scenario assumes 4.1% steady attrition, 0% margin improvement, and $30 million in acquisitions at 4.75 multiple. (b) Based on management projections. (c) A.G. Edwards' assumption. (d) Based on comparable companies' WACC. (e) Gas' current firm value of $232.0 million/$22.781 million normalized 1998 EBITDA = 10.2x, which represents a multiple of current year normalized EBITDA. (f) Discount factor calculated using half-year convention. (g) Terminal value calculated using EBITDA multiple. (h) Represents total pro forma projected debt less cash and cash collateral as of 9/30/98. (i) Total units include common, newly issued common, senior subordinated, subordinated and GP units. (j) Current market value of common units is 3,832 units * $21.938 unit price = $84,065. Page 23
1998 1999 2000 2001 2002 TERMINAL ------- ------- ------- ------- ------- -------- INCOME STATEMENT SUMMARY (b): EBITDA 57,219 73,088 77,832 82,549 87,242 % increase 27.7% 6.5% 6.1% 5.7% Net income (12,056) (5,514) (8,750) (12,482) (16,325) CASH FLOW SUMMARY: After-tax EBI 23,954 22,825 21,649 20,427 Depreciation and amortization 48,609 54,482 60,375 66,290 Maintenance capital expenditures (6,915) (7,109) (7,482) (7,680) Working capital increases (c) 8,839 (1,000) 1,000) (1,000) ------- ------- ------- ------- Net operating cash flow (free cash flow) 74,487 69,198 73,542 78,037 --------- WEIGHTED AVERAGE COST OF CAPITAL (d) 7.8% --------- TERMINAL EBITDA MULTIPLE (e) 10.2x --------- Discount factor (f) 0.9632 0.8937 0.8292 0.7693 0.7410 Terminal value (g) $889,868 --------- PRESENT VALUE $ 913,993 $71,748 $61,841 $60,978 $60,033 $659,393 --------- ------- ------- ------- ------- -------- Less net debt (h) $(298,800) --------- NET PRESENT VALUE OF EQUITY $ 615,193 ========= Original common units/Total units (i) 29.5% --------- EQUITY VALUE TO COMMON UNITS (j) $ 181,439 ========= CAPITAL STRUCTURE ANALYSIS GAS -- PRO FORMA AS OF 9/30/98 ($ IN THOUSANDS) Page 24
===================================================================================================== PRO FORMA GAS OIL ADJUSTMENTS GAS -------- -------- ------------- ----------- DEBT: 8.04% First Mortgage Notes $ 85,000 $ 0 $ 0 $ 85,000 7.25% WC Revolver 7,457 - - 7,457 7.25% Acquisition Facility 10,673 - - 10,673 7.17% First Mortgage Notes 11,000 - - 11,000 11.96% Senior Notes - 60,000 (60,000) - 14.10% Senior Notes - 3,100 (3,100) - 14.10% Subordinated Notes - 3,100 (3,100) - 10.13% Sub Notes & Sr Notes - 50,000 (50,000) - 9.38% Sub Notes & Sr Notes - 75,000 (75,000) - 12.25% Sub Notes & Sr Notes - 81,250 (81,250) - 8.00% Existing Acq Notes Payable - 13,859 - 13,859 8.46% Exchange Debt - - 66,000 66,000 8.50% New Debt - - 125,000 125,000 -------- -------- -------- -------- TOTAL DEBT $114,130 $286,309 ($81,450) $318,989 WEIGHTED AVERAGE COST OF DEBT 8.2% PREFERRED STOCK: 14.33% Preferred Stock $ 0 $ 4,167 ($4,167) $ 0 12.88% Preferred Stock - 30,000 (30,000) - -------- -------- -------- -------- - 34,167 (34,167) - COMMON EQUITY $ 67,042 ($210,015) $112,537 ($30,436) - ----------------------------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS PRO FORMA WEIGHTED AVERAGE COST OF CAPITAL DERIVATION ($ IN MILLIONS) - -------------------------------------------------------------------------------- - -------- (a) Source; Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of long-term debt is assumed to be equal to the book value. (c) Ten-year Treasury rate on April 22, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on Pro forma current debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). 25
TOTAL MARKET IMPLIED TOTAL TOTAL LEVERED VAL. UNIT TOTAL MARKET DEBT/ DEBT AS % UN- BETA DEBT PRICE AT UNITS VALUE OF TOTAL OF TOTAL LEVERED COMPARABLE COMPANY (A) (BK=MKT) (4/22/98) OUT. (MIL) EQUITY EQUITY CAPITAL BETA - ------------------ ------- -------- --------- ---------- -------- ------ --------- ------- AmeriGas Partners, L.P. 0.52 $777.8 $25.938 41.9 $1,108.6 70.2% 41.2% 0.306 Cornerstone Propane Partners, L.P. 0.41 235.8 22.688 19.7 455.7 51.7% 34.1% 0.270 Ferrellgas Partners, L.P. 0.39 537.2 20.875 31.3 666.6 80.6% 44.6% 0.216 Heritage Propane Partners, L.P. 0.44 176.9 23.125 8.4 197.8 89.4% 47.2% 0.232 National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208 Star Gas Partners, L.P. 0.34 96.0 21.938 6.2 139.4 68.9% 40.8% 0.201 Suburban Propane Partners, L.P. 0.38 428.2 18.813 28.7 551.4 77.6% 43.7% 0.214 Comparable group's average unlevered ---------------------------------------------------- beta: 0.23 Pro forma capitalization-at market (b) Pro forma debt-to-equity ratio (b): 111.9% Total debt $319.0 52.8% Pro forma debt as a percent of total Total equity 285.0 47.2% capital (b): 52.8% ------ ------ Comparable group's beta relevered for Pro forma capital structure: 0.392 $604.0 100.0% ------- ---------------------------------------------------- DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: MARKET RISK PREMIUM RANGE (D) --------------------------------------- 11.3% 12.3% 13.3% --------------------------------------- Pro forma theoretical levered beta: 0.392 Assumed % of equity in Pro forma capital structure (b): 47.2% Risk-free rate of return (c): 5.7% Pro forma cost of equity range (at various market risk premiums): 10.1% 10.5% 10.9% ==== ==== ==== Pro forma assumed tax rate: 35.0% Assumed % of debt in capital structure (b): 52.8% Pro forma estimated cost of debt (e): 8.2% Pro forma estimated after-tax cost of debt: 5.3% 5.3% 5.3% 5.3% --- --- --- Pro forma weighted average cost of capital range --------------------------------------- (f): 7.6% 7.8% 8.0% ---------------------------------------
Round II Appendices To Preliminary Report to The Special Committee of Gas Analyses Performed at $2.50 Per Share A.G.Edwards & Sons, Inc. INVESTMENT BANKING May 4, 1998 Equity Purchase Price Calculation Implied Equity Value of Oil's Assets (units in thousands, $ in millions, except per unit amounts) Divided by 26,563 shares of Oil's Common stock = $ 2.50 per share Page 1
- --------------------------------------------------------------------------------------------------------------------------------- Purchase Price of Oil's Equity Purchase Price of Oil's Equity ------------------------------ ----------------------------------------------------- Value of Securities Equity Value of Oil's Value of Oil's GP and Event Paid to Oil Shareholders Heating Oil Assets Subordinated Units in Star - ------------------------------------ ------------------------- ---------------------- --------------------------- Issuance of Senior Subordinated Units to Public Oil Shareholders 2,160 x $ 19.86 ------------------ $42.9 $42.9 -- Distribution of General Partner Units to Inside Oil Shareholders 127 x $ 21.46 ------------------- $2.7 -- $2.7 Distribution of Subordinated Units to Inside Oil Shareholders 540 x $ 16.44 ------------------- $8.9 -- $8.9 Issuance of General Partner Units to Inside Oil Shareholders 147 x $ 21.46 ------------------- $3.2 $3.2 -- Issuance of Senior Subordinated Units to Inside Oil Shareholders 441 x $ 19.86 ------------------- $8.8 $8.8 -- Retire Subordinated Units 1,856 x $16.44 -------------------- ($30.5) $30.5 $24.3 $42.1 ----- ------------------------------------- Total $66.4 $66.4 PREMIUM PAID ANALYSIS _______________________________________________________ (a) Updated through April 22, 1998. (b) Includes cost of debt at assumed redemption value, preferred stock at assumed redemption value, transaction fees, and certain off-balance sheet liabilities, net of excess cash. (c) Calculated as gross profit minus SG&A expense and direct delivery expense. (d) Excludes restructuring charge, pension curtailment expense, provision for supplemental benefits and corporate identity expense. (e) As of 12/31/97. Page 2
- ---------------------------------------------------------------------------------------------------------------------------------- Dollars STOCK PRICE PREMIUM ANALYSIS(a) in thousands Notes - ----------------------------------------- ---------------- -------------------------------------------------------- Equity purchase price of Oil $ 66,408 $2.50 share price x 26,563 shares. Premium to stock price one day prior 53.8% $1.625 close on April 22, 1998. Premium to stock price one month prior 60.0% Premium to stock price three months prior 0.0% Premium to stock price six months prior -20.0% PURCHASE PRICE - ----------------------------------------- Equity purchase price of heating oil $ 24,294 assets Debt assumption value (b) 338,223 ---------- Aggregate purchase price of heating oil $ 362,517 assets ========== MULTIPLES - ---------------------------------------- ----------- MULTIPLES NOTES ----------- --------------------------------------------- 1997 Revenue $ 548,141 0.7 x As a multiple of aggregate transaction value. 1997 EBITDA (c) 36,010 10.1 As a multiple of aggregate transaction value. 1997 EBIT (d) 6,264 57.9 As a multiple of aggregate transaction value. 1997 Net loss to common shares (d) ($ 19,338) NM As a multiple of equity value. Equity (e) (177,033) NM As a multiple of equity value. 1997 Adjusted EBITDA (c) 43,040 8.4 x As a multiple of aggregate transaction value. 1998 EBITDA budget (c) 43,440 8.3 As a multiple of aggregate transaction value. Adj. 1998 EBITDA budget (c) 38,440 9.4 As a multiple of aggregate transaction value. 1999P EBITDA (c) 45,858 7.9 As a multiple of aggregate transaction value. ----------- Transaction Multiple Analysis Firm Valuation _______________________________________________________________________________ (a) Includes cash collateral of $9,350,000. (b) Assumes an Additional Surplus of $1.10 per new common unit issued is funded by Oil. Page 3
-------------------------------------------------------------------------------------------------------------- Equity Purchase Price of Heating Oil Assets $ 24,294,340 ---------------- + Cost of Debt at Redemption Value 290,992,000 + Cost of Preferred stock at Redemption Value 34,375,000 + Transaction Fees 19,104,000 -- 338,223,100 + Off-Balance Sheet Pension and Tax Liability 8,500,000 - Excess Cash Oil's cash balance at 9/30/98 (a) 22,355,000 Required cash on hand (500,000) Additional Surplus (b) (7,107,100) 14,747,900 ---------------- ---------------- Firm Value $362,517,440 ================ Transaction Multiple Analysis Transaction Multiples for Firm Valuation Page 4
----------------------------------------------------------------------- EBITDA --------------------------------- Purchase Price Year Amount Multiple Paid --------------- ------------------ ----------- ----------------- $362,517,440 1997 Adjusted $43,040,000 8.4x $362,517,440 Adjusted 1998 Budget $38,440,000 9.4x $362,517,440 1999 Projected $45,858,000 7.9x (a) A.G. Edwards'estimate of the decline rate of EBITDA based on a 4.1% attrition rate. Page 5
Transaction Multiple Analysis Distribution of Value - ------------------------------------------------------------------------------------------------------------------------------------ OIL 1997 Adjusted EBITDA EBITDA Multiple Purchase Price - -------------- ---------------- ---------------------- $43,040,000 8.4x $362,517,440 Ability to Further Consolidate Heating Oil Industry Core Business - --------------------------------------------------- -------------------- Acquisition EBITDA $ 43,040,000 EBITDA Multiple Purchase Price EBITDA Decline Rate 7.75% (a) - -------------- ---------------- ---------------------- WACC 7.80% $6,315,789 4.75x $ 30,000,000 Decline Rate 7.75% (a) WACC 7.80% Perpetuity $ 40,617,940 Purchase Price $ 30,000,000 ---------------------- Net Present Value of the Heating Oil Acq. $ 10,617,940 Value in perpetuity of Ability to ---------------------- -------------- Consolidate Heating Oil Industry $136,140,329 Value of Core Business $276,797,720 ====================== ============== ------------------------------------------------------------------ - -------------------------------------------------------------------------------- Implied Total Valuation $412,938,049 % of Valuation attributable to core business 67.0% % of Valuation attributable to consolidation opportunities 33.0% - -------------------------------------------------------------------------------- (a) Represents A.G. Edwards' estimate of the portion of the $362.5 million price being paid for Oil's heating oil business that can be attributable to its core business. Calculation: $362.5 million x 66.9%. Page 6
Transaction Multiple Analysis Transaction Multiples for Existing Heating Oil Business - ------------------------------------------------------------------------------------------------------------------------------------ Revised EBITDA ------------------------------------- Purchase Price (a) Year Amount Multiple Paid - ----------------------- ---------------- ----------------- --------------------- $243,000.133 1997 Adjusted $43,040,000 5.6x $243,000,133 Adjusted 1998 Budget $38,440,000 6.3x $243,000,133 1999 Projected $45,858,000 5.3x - ------------------------------------------------------------------------------------------------------------------------------------ Accretion/Dilution Analysis Variations in Margin Growth Rates and Acquisition Assumptions (a) 1998 estimate assumes no acquisitions for either company, and is adjusted to reflect actual results through 3/31/98. (b) 1998 budgeted. (c) Defined as (DCF + Int)/[((GP units + common units)* MQD) + Int)] Page 7
------------------------------------------------------------------------------------------------------------------ $2.00 per share $2.50 per share 4.1% Attrition 4.1% Attrition Gas $0.00 Margin growth $0.00 Margin growth Stand-alone $30.0mm at 4.75x Acquisitions $30.0mm at 4.75x Acquisitions --------------- -------------------------------- ------------------------------- DCF PER UNIT 1998E (a) $1.220 $1.770 $1.680 1998N (b) 1.930 2.500 2.370 l999P 2.090 2.780 2.630 ACCRETION / DILUTION 1998E (a) 45.1% 37.7% 1998N (b) 29.5% 22.8 1999P 33.0% 25.8% COMMON UNIT COVERAGE 1998E (a) 0.90x l.00x 1.00x 1998N (b) 1.42 1.41 1.41 1999P 1.48 1.50 1.50 TOTAL UNIT COVERAGE 1998E (a) 0.55x 0.81x 0.76x 1998N (b) 0.88 1.14 1.08 1999P 0.95 1.21 1.15 LEVERAGED UNIT COVERAGE (c) 1998E (a) 0.94x l.00x l.00x 1998N (b) 1.21 1.18 1.18 1999P 1.24 1.22 1.22 ------------------------------------------------------------------------------------------------------------------ Public Company Analysis [_] A.G. Edwards compared certain financial and market information of Gas on a historical and pro forma basis to that of certain public master limited partnerships which A.G. Edwards deemed relevant for the purposes of this analysis. A.G. Edwards reviewed the trading multiples from a total of 6 public propane master limited partnerships. [_] The selected propane master limited partnerships are as follows: - AmeriGas Partners, L.P. - Heritage Propane Partners, L.P. - Cornerstone Propane Partners, L.P. - National Propane Partners, L.P. - Ferrellgas Partners, L.P. - Suburban Propane Partners, L.P. [_] No company used in the analysis is identical to Gas. (a) Public comparable companies include: APU, CNO, FGP, HPG, CNL and SPH. (b) Firm value/adjusted 1998 budget EBITDA. (c) Firm value/1999 estimated EBITDA. (d) Equity market cap/adjusted 1998 budget EBITDA. (e) Equity market cap/l999 estimated DCF. (f) Adjusted 1998 budget. (g) 1999 estimates. (h) Defined as (DCF + interest)/(((GP units + common units)*MQD)+ interest). Page 8
Public Comparable Companies (a) ------------------------------------------------------------------------------------------------------------------- Public Public Pro Forma Company Company Gas Gas Medians Ranges ------------------------------------------------------------------------------------------------------------------- Yield 10.0% 10.5% 9.6% 8.5% to 10.6% Firm value/LTM EBITDA 12.7x (b) 10.5x (b) 12.5x 9.8x to 16.7x Firm value/1998 normalized EBITDA 8.7x (c) 8.2x (c) 11.5x 10.3x to 13.7x Equity Market Cap/LTM DCF 18.0x (d) 13.1x (d) 15.7x 9.4x to 25.5x Equity Market Cap/1998 normalized DCF 9.7x (e) 8.3x (e) 13.9x 11.6x to 16.9x LTM commnon unit coverage 0.9x (f) 1.0x (f) 1.4x 0.6x to 1.5x 1998E common unit coverage 1.5x (g) 1.5x (g) 1.4x 0.9x to 1.9x LTM total unit coverage 0.6x (f) 0.8x (f) 0.7x 0.4x to l.0x 1998E total unit coverage 1.0x (g) 1.1x (g) 0.7x 0.7x to l.0x 1998E leveraged unit coverage 1.2x (g)(h) 1.2x (g)(h) 1.1x 0.9x to 1.3x ------------------------------------------------------------------------------------------------------------------- Public Company Analysis ($ in millions, except per unit data) - ---------------------------------- 1998 estimates per A.G. Edwards' research, except for Gas, Oil, and Pro Forma. Implied Firm Value equals common, subordinated and GP units, multiplied by the market price of common units plus debt, less cash. (a) Pro Forma for the Pearl Gas acquisition and the common unit offering. Fiscal 1997 maintenance capital expenditure used as LTM figure. (b) For Gas and Pro Forma only, LTM DCF figures are adjusted 1998 budget DCF estimates. (c) For Gas and Pro Forma only, FY98E DCF figures are 1999 DCF estimates. (d) Financial information pro forma for common unit offering. Maintenance capital expenditures assumed to be 8% of EBITDA due to lack of disclosure. (e)Maintenance capital expenditures assumed to be 8% of EBITDA due to lack of disclosure. (f) Financial figures exclude $5.1 million gain from sale of minority interest. (g) 13,708 units x $21.375. (h) $300.7 in equity plus $318.989 pro forma debt, less $10.839 cash and $9.350 in cash collateral. Page 9
- ------------------------------------------------------------------------------------------------------------------------------------ Closing Implied Implied Common Price on Market Value Firm Distribution Units/ Company Ticker (4/22/98) of Equity Value per Unit Yield Total Units - ------------------------------------------------------------------------------------------------------------------------------------ Gas (a) $21.938 $139.4 $232.0 $2.20 10.0% 60.3% AmeriGas Partners L.P. APU 25.938 1,108.6 1,867.2 2.20 8.5% 52.8% Cornerstone Propane Partners, L.P. (d) CN0 22.688 455.7 671.7 2.16 9.5% 66.5% Ferrellgas Partners L.P. (e) FGP 20.875 666.6 1,192.3 2.00 9.6% 47.0% Heritage Propane Partners L.P. HPG 23.125 197.8 371.8 2.00 8.6% 55.8% National Propane Partners L.P. NPL 20.313 232.9 375.6 2.10 10.3% 59.6% Suburban Propane Partners L.P. (f) SPH 18.813 551.4 942.0 2.00 10.6% 75.1% - ----------------------------------------------------------------------------------------------------------------------------------- Mean 9.5% 59.5% Median 9.6% 57.7% - ----------------------------------------------------------------------------------------------------------------------------------- Pro Forma $ 21.938 $ 300.7 (g) $ 599.5 (h) $ 2.30 10.5% 75.1% - ---------------------------------------------------------------------------------------------------------------------------------- LTM Distributable Cash Flow/ FY98E Distributable Cash Flow/ ---------------------------- ------------------------------- Distribution to Distribution FY98E Distribution to Distribution Company Common Units to Total Units DCF/unit Common Units to Total Units - ---------------------------------------------------------------------------------------------------------------------------------- Gas 0.9x (b) 0.6x (b) $ 2.09 (c) 1.5x (c) 1.0x (c) AmeriGas Partners L.P. 1.5x 0.8x 2.14 1.9x l.0x Cornerstone Propane Partners, L.P. 0.6x 0.4x 1.47 1.1x 0.7x Ferrellgas Partners L.P. 1.4x 0.7x 1.34 1.4x 0.7x Heritage Propane Partners L.P. 1.3x 0.8x 2.01 1.8x 1.0x National Propane Partners L.P. 0.9x 0.5x 1.60 1.3x 0.8x Suburban Propane Partners L.P. 1.4x 1.0x 1.41 0.9x 0.7x - ------------------------------------------------------------------------------------------------------------------------------------ Mean 1.2x 0.7x 1.4x 0.8x Median 1.4x 0.7x 1.4x 0.7x - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma 1.0x (b) 0.8x (b) 2.64 (c) 1.5x 1.1x (c) PUBLIC COMPANY ANALYSIS - ------------------------------------------------------------- EBITDA is defined as net income (loss) before extraordinary items plus interest, income taxes, depreciation and amortization, impairment expense, and other non-recurring and non-operating items. (a) Defined as (DCF + interest)/(((GP units + common units)*MQD)+interest). (b) For Gas and Pro forma only, LTM leveraged unit coverage figures use adjusted 1998 budget estimates. (C) For Gas and Pro Forma only, 1998E leveraged unit coverage figures use 1999 estimates. (d) For Gas and Pro Forma only, LTM EBITDA figures are adjusted 1998 budget estimates. (e) For Gas and Pro Forma only, 1998E EBITDA figures are 1999 estimates. (f) For Gas and Pro Forma only, LTM DCF figures are adjusted 1998 budget DCF estimates. (g) For Gas and Pro Forma only, 1998E DCF figures are 1999 DCF estimates. Page 10
LTM 1998E LONG TERM LTM FIRM VALUE/ LEVERAGED LEVERAGED DEBT/ EBITDA/ LTM UNIT COVERAGE (A) UNIT COVERAGE (A) FIRM VALUE INT. EXP. EBITDA -------------------------------------------------------------------------------------------- GAS 0.9x (b) 1.2x (c) 41.4% 2.3x (d) 12.7x (d) AmeriGas Partners, L.P. 1.2x 1.3x 37.3% 2.2x 12.6x Cornerstone Propane Partners, L.P. 0.8x 1.0x 35.1% 2.1x 16.7x Ferrellgas Partners, L.P. 1.2x 1.1x 41.5% 2.1x 12.5x Heritage Propane Partners, L.P. 1.lx 1.3x 46.0% 2.6x 10.9x National Propane Partners, L.P. 0.9x 1.1x 36.8% 3.2x 16.3x Suburban Propane Partners, L.P. 1.2x 0.9x 45.5% 2.9x 9.8x - --------------------------------------------------------------------------------------------------------------------------------- MEAN 1.1x 1.1x 40.4% 2.5x 13.1x MEDIAN 1.1x 1.1x 39.4% 2.4x 12.5x - --------------------------------------------------------------------------------------------------------------------------------- PRO FORMA 1.0x (b) 1.2x (c) 53.2% 2.1x (d) l0.5x (d) FIRM VALUE/ EQUITY EQUITY 1998E MARKET CAP/ MARKET CAP/ EBITDA LTM DCF 1998E DCF ----------------------------------------------- GAS 8.7x (e) 18.0x (f) 9.7x (g) AmeriGas Partners, L.P. 12.1x 15.5x 14.1x Cornerstone Propane Partners, L.P. 13.7x 25.5x 16.9x Ferrellgas Partners, L.P. 12.0x 15.8x 15.9x Heritage Propane Partners, L.P. 10.6x 15.7x 11.6x National Propane Partners, L.P. 11.Ox 18.0x 13.0x Suburban Propane Partners, L.P. 10.3x 9.4x 13.6x - ---------------------------------------------------------------------------------------- MEAN 11.6x 16.6x 14.2x MEDIAN 11.5x 15.7x 13.9x - ---------------------------------------------------------------------------------------- PRO FORMA 8.2x (e) 13.1x (f) 8.3x (g) DISCOUNTED CASH FLOW ANALYSIS PRO FORMA WEIGHTED AVERAGE COST OF CAPITAL DERIVATION ($ IN MILLIONS) - ---------------------------------------------------------------------------------------------------
- ------ (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of long-term debt is assumed to be equal to the book value. (c) Ten-year Treasury rate on April 22, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on Pro forma current debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). PAGE 11TOTAL TOTAL MARKET TOTAL IMPLIED TOTAL DEBT AS LEVERED VAL. UNIT UNITS MARKET DEBT/ % OF BETA DEBT PRICE AT OUT. VALUE OF TOTAL TOTAL UNLEVERED COMPARABLE COMPANY (A) (BK=MKT) (4/22/98) (MIL) EQUITY EQUITY CAPITAL BETA - --------------------------------------------------------------------------------------------------- AmeriGas Partners, L.P. 0.52 $777.8 $25.938 41.9 $1,108.6 70.2% 41.2% 0.306 Cornerstone Propane Partners, L.P. 0.41 235.8 22.688 19.7 455.7 51.7% 34.1% 0.270 Ferrellgas Partners, L.P. 0.39 537.2 20.875 31.3 666.6 80.6% 44.6% 0.216 Heritage Propane Partners, L.P. 0.44 176.9 23.125 8.4 197.8 89.4% 47.2% 0.232 National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208 Star Gas Partners, L.P. 0.34 96.0 21.938 6.2 139.4 68.9% 40.8% 0.201 Suburban Propane Partners, L.P. 0.38 428.2 18.813 28.7 551.4 77.6% 43.7% 0.214 --------------------------- Comparable group's average unlevered Pro forma capitalization-- beta: 0.23 at market (b) Pro forma debt-to-equity ratio (b): 106.1% Total debt $319.0 51.5% Pro forma debt as a percent of total capital (b): 51.5% Total equity 300.7 48.5% ----- ---- Comparable group's beta relevered for ---------------------------- pro forma capital structure: 0.384 $619.7 100.0% ======= DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: MARKET RISK PREMIUM RANGE (D) - ----------------------------------------------- ----------------------------- 11.3% 12.3% 13.3% ------------------- Pro forma theoretical levered beta: 0.384 Assumed % of equity in Pro forma capital structure (b): 48.5% Risk-free rate of return (c): 5.7% Pro forma cost of equity range (at various market risk premiums): 10.0% 10.4% 10.8% ==== ==== ==== Pro forma assumed tax rate: 35.0% Assumed % of debt in capital structure (b): 51.5% Pro forma estimated cost of debt (e): 8.2% Pro forma estimated after-tax cost of debt: 5.3% 5.3% 5.3% 5.3% ------ ---- ---- Pro forma weighted average cost of capital range 7.6% 7.8% 8.0% (f): ------ ---- ---- --------------------
Draft 5/7/98 PRELIMINARY STATUS REPORT BOARD OF DIRECTORS STAR GAS PARTNERS, L.P. Petro management and its advisors have been working on a proposed transaction between Petro and Star for over a year. Star Committee has engaged Baker & Botts, LLP as its counsel and A.G. Edwards & Sons, Inc. as its financial advisor. After one month of preliminary due diligence and review, the Committee and its advisors better understand and appreciate the complexity of the proposed transaction and the amount of hard work and creativity dedicated to this proposal. During the past year, both parties have experienced management changes and adverse weather conditions. During this period, Petro has suspended its common dividends and its publicly held common shares have traded down. Star's publicly held common units have traded flat to slightly up, but Star has made distributions to its common unitholders and its subordinated unitholders (that is, Petro) even though such distributions exceeded distributable cash flow (that is, Star returned capital). The Star Committee notes that Petro's capital constraints have effectively eliminated its historic acquisition program while Star has demonstrated a far more viable acquisition program. In light of these and other significant changes in relative performance, market conditions and strategic rationale for the proposed transaction, the Star Committee (after considering the preliminary report of A.G. Edwards and consulting with counsel), proposes a re-examination, restructuring and repricing of the proposed transaction between Petro and Star. Subject to further diligence and assuming no material adverse changes in the parties or in market conditions, the Star Committee proposes: (A) Star Partnership Agreement. Appropriate steps should be initiated to -------------------------- amend the Star Partnership Agreement as of the closing date (assumed to be September 30, 1998) in order to: (A-1) raise the future required minimum quarterly distribution ("MQD") for common unitholders from $2.20 per annum to $2.30 per annum; (A-2) authorize a new class of senior subordinated units which shall be junior to all present and future common units, but senior to the present subordinated units; and (A-3) prohibit the payment of any future distributions to senior subordinated unitholders and to subordinated unitholders except from net distributable cash flow available for such period after first paying MQD to the common unitholders for such period plus any cumulative common unit arrearages. (B) Definitive Transaction Agreement. A draft of the definitive -------------------------------- transaction agreement should be prepared by Petro for Star Committee's careful consideration (and for future submission to the Board of Directors and common unitholders of Star and to the Board of Directors and shareholders of Petro for approval) setting forth the following steps: (B-1) At closing of the Transaction, Star shall be obligated to pay to Petro or assume from Petro a "Maximum Aggregate Consideration" of [$390 million] consisting of: (A) The issuance of 6,400 new common units at a price per common unit of [$______]. The gross spread on this offering shall not exceed 5.0%. (B) The issuance of $125,000 of new debt. The gross spread on this offering shall not exceed 3.0%. (C) The principal amount of all of Petro's outstanding debt and preferred stock of at closing, less the value of Petro's cash balance at closing. (D) The issuance of no greater than 2,100 new senior subordinated units. The value of such units is assumed to equal $20.00 per unit. (E) The outstanding balance of subordinated units at closing. The value of such units is assumed to equal $16.58 per unit. (F) The outstanding balance of GP units, which shall be no greater than 2% of all outstanding units. The value of such units is assumed to equal [$21.62] per unit. (B-2) Consideration paid to Petro's common shareholders shall consist only of the senior subordinated, subordinated and GP units included in (B-1)(D), (B-1)(E) and (B-1)(F). (B-3) Prior to the closing of the Transaction, in return for the Maximum Aggregate Consideration defined in (B-1), Petro shall represent, warrant and agree that: (A) Petro shall set up appropriate reserves and fund the following: (1) surplus cash available for distributions equal to [$1.10] per new common unit issued, (2) excluding only the gross spreads on the new MLP equity and debt offerings, all other Transaction costs, including financial advisory fees and fairness opinions for Petro and Star; legal, accounting and printing fees for Petro and Star; all exchange and solicitation fees related to the retirement or redemption of Petro's debt and preferred stock; all appraisals and environmental reports; all rating agencies and bank fees; and all other out-of-pocket costs and expenses associated with the Transaction, and (3) any "Unearned MQD" monies that Petro wishes to have available for payment to senior subordinated or subordinated unitholders following the closing of the Transaction. (B) Petro shall have no borrowed money debt of any kind outstanding other than any such amounts included in (B-1); (C) Petro shall have no preferred stock of any kind outstanding other than any such amounts included in (B-1); (D) Petro shall have a minimum balance of cash of [$500,000], a positive working capital balance (subject to further due diligence), and a total common shareholders' deficit on its balance sheet of no greater than [$______ million], all as of the closing. (B-4) In the event Petro is unable or unwilling to represent and warrant each of the matters set forth in (B-3), then the Maximum Aggregate Consideration set forth in (B-1) shall be reduced on a dollar-for-dollar basis.
Draft 5/20/98 PROPOSAL TO THE SPECIAL COMMITTEE STAR GAS PARTNERS, L.P. Subject to further diligence and assuming no material adverse changes in Star or Petro, or in market conditions, A.G. Edwards proposes: (A) Increase Common Unit Distribution Payments. Simultaneous with the ------------------------------------------ closing date, the quarterly distribution for common unitholders shall be raised from $2.20 per annum to $2.30 per annum. (B) Star Partnership Agreement. Appropriate steps should be initiated to -------------------------- amend the Star Partnership Agreement as of the closing date (assumed to be September 30, 1998) in order to: (B-1) authorize the creation of new classes of senior subordinated units and deferred partnership units, which shall be junior to all present and future common units, but senior to the present subordinated units; (B-2) prohibit the payment of any distributions to senior subordinated unitholders and to subordinated unitholders except from net distributable cash flow available for such period after first paying MQD to the common unitholders for such period plus any cumulative common unit arrearages; and (B-3) provide a surplus available for common unit distributions equal to $ 1.10 per new common unit, as part of the Refinancing Transaction, described below. (C) Definitive Transaction Agreement. A draft of the definitive -------------------------------- transaction agreement should be prepared by Petro for The Special Committee's careful consideration (and for future submission to the Board of Directors and common unitholders of Star and to the Board of Directors and shareholders of Petro for approval) setting forth the following steps: (C-1) At closing of the Transaction, Star shall be obligated to pay to Petro's common shareholders, subject to the Revision Amount as defined in (C-4) below, the following: (A) 2,718 senior subordinated units of Star; (B) 524 subordinated units of Star; the balance must be delivered to Star free and clear for retirement; (C) 289 GP units of Star; and (D) 909 deferred partnership units of Star, convertible into senior subordinated units with a trigger relating to the financial performance of Petro only. (C-2) The Closing shall be contingent upon the successful completion of the following (collectively, the "Refinancing Transaction"): (A) The issuance of 6,588 new common units at a gross spread of no greater than 5.0%, and (B) The issuance of $125,000 new debt at a gross spread of no greater than 3.0% The use of proceeds of the Refinancing Transaction shall be solely to refinance certain of the outstanding indebtedness assumed from Petro. (C-3) Prior to the closing of the Transaction, Petro shall represent, warrant and agree that: (A) Prior to the Refinancing Transaction, Petro shall have a balance of debt and preferred stock (at redemption value), less any cash balance in excess of such amounts required in (C-3)(B) below, of no more than $331,367. (B) Petro shall have a minimum cash balance of $500,000, a positive working capital balance, and a total common shareholders' deficit on its balance sheet of no greater than [$___ million], all as of the closing. (C) Petro shall set up appropriate reserves and fund all of the following transactions costs: financial advisory fees and fairness opinions for Petro and Star; legal, accounting and printing fees for Petro and Star; all exchange and solicitation fees related to the retirement or redemption of Petro's debt and preferred stock; all appraisals and environmental reports; all rating agencies and bank fees; and all other out-of-pocket costs and expenses associated with the Transaction. (D) Petro shall not declare or distribute any cash dividends to its common shareholders. (C-4) In the event Petro is unable or unwilling to represent and warrant each of the matters set forth in (C-3), then a Revision Amount (defined below) will be established. The Revision Amount shall reduce, on a dollar-for-dollar basis, the amount to be paid to the Petro common shareholders as set forth in (C-1). The Revision Amount shall be calculated as follows: (A) If the cumulative amount of all revisions, taken as a whole, is less than zero, then the Revision Amount will be equal to zero dollars, and any cash balance remaining at Petro shall be transferred to Star. (B) If the cumulative amount of all revisions, taken as a whole, is greater than zero, then the Revision Amount will be equal to the cumulative amount of all revisions, taken as a whole.
Round III UPDATE TO PRELIMINARY REPORT TO THE SPECIAL COMMITTEE OF GAS A.G.EDWARDS & SONS, INC. INVESTMENT BANKING May 21, 1998 Table of Contents
Section ------- Introduction .......................................................... I Review of Events to Date .............................................. II Summary of Transaction ................................................ III Summary Observations .................................................. IV Updated Report to the Special Committee ............................... V Recommended Proposal to Board of Directors ............................ VI INTRODUCTION TRANSACTION PROPOSAL [ ] During 1997, Gas ("Gas" or the "Company") and Oil ("Oil") discussed the idea of a possible business combination by and between Gas and Oil. The series of proposed transactions involved in such combination is referred to as the "Transaction". A.G. EDWARDS' [ ] A.G. Edwards & Sons, Inc. ("A.G. Edwards") has been engaged by the Special Committee (the "Special Committee") of the Board of Directors of Gas (the "Board") to act as its financial advisor with respect to the Transaction and to issue to the Board an opinion as to the fairness, from a financial point of view, to the common unitholders of Gas who are not affiliated with Oil (the "Common Unitholders"), of the Transaction (the "Fairness Opinion"). [ ] The preparation of a fairness opinion is not susceptible to partial analyses or summary. In rendering its Fairness Opinion, A.G. Edwards will apply its judgment to a variety of complex analyses and assumptions. A.G. Edwards may give various analyses more or less weight than other analyses, and may deem various assumptions more or less probable than other assumptions. The assumptions made and the judgments applied by A.G. Edwards in rendering its opinion are not readily susceptible to description beyond that set forth in the written text of the Fairness Opinion itself. Page 1 INTRODUCTION (continued) AS PART OF ITS ENGAGEMENT, [ ] A review of the preliminary structure of the A.G. EDWARDS' ACTIVITIES Transaction; INCLUDED, BUT WERE NOT [ ] A review of Gas' and Oil's historical LIMITED TO, THE FOLLOWING: financial statements and the financial projections of Gas and Oil; [ ] A review of certain market data of Gas' Common Units and Oil's Common Stock; [ ] An analysis of the pro forma financial statements of Gas giving effect to the Transaction (as proposed); [ ] Conversations with PaineWebber regarding the nature and extent of development of the terms of the Transaction; [ ] An investigation regarding current operations and future prospects of Gas and Oil, through interviews with members of Gas' and Oil's management, respectively; [ ] A review of the industries in which Gas and Oil operate; [ ] A review of the market data for stocks of public companies in the same or similar lines of business to Gas; [ ] Analyses of the Transaction using various valuation methodologies; and [ ] Other analyses which it deemed necessary. Page 2 INTRODUCTION (continued) NATURE OF INFORMATION [ ] A.G. Edwards relied upon and assumed, without REVIEWED AND PRESENTED independent verification, the accuracy and completeness of all financial and other information publicly available, or furnished to, or otherwise discussed with A.G. Edwards including financial statements and financial projections, as provided by management of Gas and Oil and Oil's financial advisor. With respect to financial projections and other information provided to or otherwise discussed with A.G. Edwards, A.G. Edwards assumed and was advised by the senior management of Gas and Oil, respectively, that such projections and other information were reasonably prepared on a basis that reflects the best currently available estimates and judgments of the senior management of Gas and Oil, respectively, as to the expected future financial performance of Gas and Oil, in each case on a stand-alone basis and after giving effect to the Transaction. A.G. Edwards was not engaged to, and did not, independently verify the information provided and performed no audit of assets or liabilities and no independent appraisal of assets or liabilities of either Gas or Oil. A.G. Edwards has relied upon the assurances of the management of Gas and Oil that they are not aware of any facts that would make such information inaccurate or misleading. [ ] In performing its analyses, A.G. Edwards made numerous assumptions with respect to the propane distribution industry and the home heating oil distribution industry, and general business and economic conditions which are beyond the control of Gas and Oil. The analyses performed by A.G. Edwards are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of A.G. Edwards' Preliminary Report to the Special Committee. [ ] This presentation is for the private use of the Special Committee and may not be distributed to any other parties without A.G. Edwards' written permission. Page 3 REVIEW OF EVENTS TO DATE FEBRUARY 11 [ ] A.G. Edwards presents its qualifications to the Special Committee and its legal counsel. MARCH 23 [ ] Special Committee engaged A.G. Edwards. MARCH 23 [ ] A.G. Edwards met with members of Gas' and Oil's management and submitted preliminary data request list. [ ] A.G. Edwards began due diligence with management and other representatives of Gas and Oil. MARCH 30 [ ] A.G. Edwards received data related to its preliminary data request list. MARCH 30 [ ] A.G. Edwards continued the due diligence process with respect to Gas and Oil. APRIL 28 [ ] Special Committee and A.G. Edwards met to discuss the Transaction. MAY 7 [ ] Special Committee and A.G. Edwards met with Oil's management and PaineWebber to discuss the Transaction. MAY 8 [ ] A.G. Edwards continued onsite diligence at Oil MAY 19 [ ] A.G. Edwards met with PaineWebber and Oil's management to discuss the Transaction. MAY 20 [ ] Special Committee meeting to discuss the Transaction. Page 4 Summary of Transaction Pro Forma Gas Units Outstanding (in thousands) To simplify the complexity of the steps in the Transactions, A.G. Edwards prepared a summary of its understanding. [_] There are currently 6,355 Gas units outstanding comprised of 3,832 common units, 2,396 subordinated units and 127 general partner ("GP") units. The subordinated units and GP units are assets of Oil. [_] There are currently 26,563 shares of Oil common stock outstanding, comprised of public shareholders and "insiders." The public holds 17,160 Class A shares. The "insiders" hold 9,404 shares which include 6,795 Class A shares, 11 Class B shares and 2,598 Class C shares. [_] Each shareholder of Oil will receive a certain number of units in Gas such that the implied consideration paid for each Oil share is $2.50. Additionally, each shareholder will receive a certain number of deferred partnership units ("DPUs") such that if each unit is converted at the earliest possible time, then each shareholder will receive an additional $0.65 per share in future value. [_] The publicly held 17,160 Class A shares will initially receive .1316 shares of newly created senior subordinated units (2,258 units in total) with an implied value (per PaineWebber) of $19.00/unit. This represents an implied purchase price of $2.50/share for an implied total purchase price of $42.9 million. [_] The "insiders" of Oil, who hold a total of 9,404 shares (comprised of A, B and C shares) will also initially receive an implied purchase price of $2.50/share for a total of $23.5 million. The consideration received by these shareholders will be funded by: - (1) the distribution of existing units of Gas which are currently owned by Oil [_] all of the 127 GP units owned by Oil will be given as consideration at an implied value of $22.13/unit, for a total of $2.8 million. [_] 524 of the 2,396 subordinated units owned by Oil will be given as consideration at an implied value (per PaineWebber) of $16.00/unit, for a total of $8.4 million. - (2) the distribution of newly-created units of Gas [_] to fund the remaining $12.3 million of the $23.5 million due to the Oil "insiders", Gas will issue 461 newly-created senior subordinated units and 162 newly-created GP units. The implied values for these new units are $19.00 and $22.13, respectively. Page 5 Summary of Transaction Pro Forma Gas Units Outstanding (in thousands) (continued) [_] Of the 2,396 subordinated units and 127 GP units owned by Oil, only 1,872 subordinated units will not have been used as consideration paid to the "inside" Oil shareholders. Hence, these 1,872 subordinated units will be retired by Gas. A.G. Edwards has assumed that the implied value of these units are the same as the value PaineWebber is placing on the subordinated units, which is $16.00/unit, for a total retired value of approximately $30.0 million. Page 6 SUMMARY OF GAS UNITS OUTSTANDING PRE-FINANCING ASSUMPTIONS - -------------------------------------------------------------------------------- (a) The number of GP units issued reflects the assumption of a 6,588 common unit equity offering to refinance certain of the assumed Oil debt and a 475 common unit equity offering to finance Gas' acquisitions. Hence, the number of GP units reflected in the pro forma column do not equal 2% of the pro forma outstanding units shown above but do equal exactly 2% of the pro forma units outstanding on a post financing basis. Page 7
- -------------------------------------------------------------------------------- Distributed to Oil Issued to Oil ------------------------ ----------------------- Type of Units Current Public Insiders Public Insiders Retired Pro Forma - ------------- ---------- -------- ----------- -------- ----------- --------- ----------- Common 3,832 - - - - - 3,832 Senior Subordinated - - - 2,258 461 - 2,718 Subordinated 2,396 - 524 - - (1,872) 524 DPUs - - - 587 322 - 909 General Partner (a) 127 - 127 - 162 - 289 ---------- ----------- 6,355 8,272 Equity Purchase Price Calculation Implied Equity Value Of Oil's Assets (units in thousands, $ in thousands, except per unit amounts) - ------------------------------------------------------------------- Divided by 26,563 shares, of Oil's Common stock = $3.15 per share - ------------------------------------------------------------------- Total excluding DPUs $66,426 - ------------------------------------------------------------------- Divided by 26,563 shares of Oil's Common stock = $2.50 per share - ------------------------------------------------------------------- Page 8
Purchase Price of Oil's Equity Purchase Price of Oil's Equity ------------------------------ -------------------------------------------------------- Value of Securities Equity Value of Oil's Value of Oil's GP and Event Paid to Oil Shareholders Heating Oil Assets Subordinated Units in Star - -------------------------------- --------------------------- -------------------------- ----------------------------- Issuance of Senior Subordinated Units to Public Oil Shareholders 2,258 x $19.00 ----------------------- $42,900 $42,900 - Distribution of General Partner Units to Inside Oil Shareholders 127 x $22.13 ----------------------- $2,810 - $2,810 Distribution of Subordinated Units to Inside Oil Shareholders 524 x $16.00 ----------------------- $8,382 - $8,382 Issuance of General Partner Units to Inside Oil Shareholders 162 x $22.13 ----------------------- $3,584 $3,584 - Issuance of Senior Subordinated Units to Inside Oil Shareholders 461 x $19.00 ----------------------- $8,750 $8,750 - Issuance of DPUs 909 x $19.00 ----------------------- $17,271 $17,271 1,872 x $16.00 ---------------- Retire Subordinated Units (29,954) $29,954 $42,551 $41,146 --------------------------------- ------------- Total including DPUs $83,697 $83,697 PRO FORMA WEIGHTED AVERAGE COST OF CAPITAL DERIVATION FOR COMMON UNITS ($ IN MILLIONS) - ---------------------------------------------------------------------------------------------------
- ------ (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of long-term debt is assumed to be equal to the book value. (c) Ten-year Treasury rate on May 15, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on Pro forma current debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). PAGE 9TOTAL TOTAL MARKET TOTAL IMPLIED TOTAL DEBT AS LEVERED VAL. UNIT UNITS MARKET DEBT/ % OF BETA DEBT PRICE AT OUT. VALUE OF TOTAL TOTAL UNLEVERED COMPARABLE COMPANY (A) (BK=MKT) (5/15/98) (MIL) EQUITY EQUITY CAPITAL BETA - --------------------------------------------------------------------------------------------------- AmeriGas Partners, L.P. 0.50 $701.7 $24.688 41.9 $1,055.2 66.5% 39.9% 0.300 Cornerstone Propane Partners, L.P. 0.40 237.1 21.875 19.8 442.7 53.6% 34.9% 0.260 Ferrellgas Partners, L.P. 0.38 537.2 21.750 31.3 694.5 77.4% 43.6% 0.214 Heritage Propane Partners, L.P. 0.43 176.9 23.000 8.4 196.7 89.9% 47.3% 0.226 National Propane Partners, L.P. 0.34 141.0 19.688 11.2 225.7 62.5% 38.5% 0.209 Star Gas Partners, L.P. 0.29 96.0 21.375 6.2 135.8 70.7% 41.4% 0.170 Suburban Propane Partners, L.P. 0.35 428.2 19.063 28.7 558.8 76.6% 43.4% 0.198 --------------------------- Comparable group's average unlevered Pro forma capitalization-- beta: 0.23 at market (b) Pro forma debt-to-equity ratio (b): 103.5% Total debt $319.0 50.8% Pro forma debt as a percent of total capital (b): 50.85% Total equity 308.3 49.2% ------ ----- Comparable group's beta relevered for pro forma capital structure: 0.377 $627.3 100.0% ======= DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: MARKET RISK OF PREMIUM RANGE (D) - ----------------------------------------------- 11.3% 12.3% 13.3% Pro forma theoretical levered beta: 0.377 Assumed % of equity in Pro forma capital structure (b): 49.2% Risk-free rate of return (c): 5.7% Pro forma cost of equity range (at various market risk premiums): 9.9% 10.3% 10.7% === ==== ==== Pro forma assumed tax rate: 35.0% Assumed % of debt in capital structure (b): 50.8% Pro forma estimated cost of debt (e): 8.2% Pro forma estimated after-tax cost of debt: 5.3% 5.3% 5.3% 5.3% --- ---- ---- Pro forma weighted average cost of capital range (f): 7.6% 7.8% 8.0% --- ---- ---- PRO FORMA WEIGHTED AVERAGE COST OF CAPITAL DERIVATION FOR SENIOR SUBORDINATED UNITS ($ IN MILLIONS) ____________________________________________ (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less that 143) adjusted beta relative to the S&P 500 index. (b) Market value of long-term debt is assumed to be equal to the book value; debt includes the market value of pro forma common and GP units; senior equity includes the value of senior sub and sub units. (c) Ten - year Treasury rate on May 15, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. Page 10
=================================================================================================================================== TOTAL IMPLIED TOTAL TOTAL MARKET UNIT TOTAL MARKET DEBT/ DEBT AS % UN- LEVERED VAL. DEBT PRICE AT UNITS VALUE OF TOTAL OF TOTAL LEVERED COMPARABLE COMPANY BETA (A) (BK = MKT) (5/15/98) OUT. (MIL) EQUITY EQUITY CAPITAL BETA - ---------------------------------------------------------------------------------------------------------------------------- AmeriGas Partners, L.P. 0.50 $701.7 $24.688 41.9 $,1,055.2 66.5% 39.9% 0.300 Cornerstone Propane Partners, L.P. 0.40 237.1 21.875 19.8 442.7 53.6% 34.9% 0.260 Ferrellgas Partners, L.P. 0.38 537.2 21.750 31.3 694.5 77.4% 43.6% 0.214 Heritage Propane Partners, L.P. 0.43 176.9 23.000 8.4 196.7 89.9% 47.3% 0.226 National Propane Partners, L.P. 0.34 141.0 19.688 11.2 225.7 62.5% 38.5% 0.209 Star Gas Partners, L.P. 0.29 96.0 21.375 6.2 135.8 70.7% 41.4% 0.170 Suburban Propane Partners, L.P. 0.35 428.2 19.063 28.7 558.8 76.6% 43.4% 0.198 -------------------------------------------------- Pro forma Capitalization-at market (b) Comparable group's average unlevered beta: 0.23 Total debt $558.0 89.0% Pro forma debt-to-equity ratio (b): 805.5% Total equity 69.3 11.0% ------ ----- $627.3 100.0% -------------------------------------------------- Pro forma debt as a percent of total capital (b): 89.0% Comparable group's beta relevered for Pro forma capital structure: 1.406 ===== DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: MARKET RISK PREMIUM RANGE (D) - ---------------------------------------------- -------------------------------------- 11.3% 12.3% 13.3% -------------------------------------- Pro forma theoretical levered beta: 1,406 Assumed % of equity in Pro forma capital structure (b): 11.0% Risk - free rate of return (c): 5.7% pro forma cost of equity range (at various market risk premiums): 21.6% 23.0% 24.4% ===== ===== ===== -------------------------------------- IMPLIED UNIT VALUES Page 11
------------------------------------------------------------------------------------------------------------- 1999 2000 2001 THEREAFTER COST OF EQUITY -------- -------- -------- ------------ ---------------- COMMON UNIT Indicated Distribution $ 2.30 $2.30 $2.30 $2.30 ------------ 10.3% Discount Factor 1.10 1.22 1.34 1.34 10.3% -------- NPV of future distributions $22.32 -------- SENIOR SUBORDINATED UNIT Indicated Distribution $ 2.30 $2.30 $2.30 $2.30 ------------ 10.3% Discount Factor 1.23 1.51 1.86 1.86 23.0% -------- NPV of future distributions $16.63 -------- DPU Indicated Distribution $ 0.00 $0.77 $1.53 $2.30 ------------ 10.3% Discount Factor 1.23 1.51 1.86 1.86 23.0% -------- NPV of future distributions $13.34 -------- EQUITY PURCHASE PRICE CALCULATION IMPLIED EQUITY VALUE OF OIL'S ASSETS WITH REVISED UNIT VALUES (UNITS IN THOUSANDS, $ IN THOUSAND, EXCEPT PER UNIT AMOUNTS) Page 12
================================================================================================================================ Purchase Price of Oil's Equity Purchase Price of Oil's Equity -------------------------------- --------------------------------------------------- Value of Securities Equity Value of Oil's Value of Oil's GP and Event Paid to Oil Shareholders Heating Oil Assets Subordinated Units in Star - --------------------------------- -------------------------------- --------------------------------------------------- Issuance of Senior Subordinated Units to Public Oil Shareholders 2,258 x $16.63 -------------------------------- $37,549 $37,549 - Distribution of General Partner Units to Inside Oil Shareholders 127 x $22.13 -------------------------------- $ 2,810 - $2,810 Distribution of Subordinated Units to Inside Oil Shareholders 524 x $16.63 -------------------------------- $ 8,712 - $8,712 Issuance of General Partner Units to Inside Oil Shareholders 162 x $22.13 -------------------------------- $ 3,584 $ 3,584 - Issuance of Senior Subordinated Units to Inside Oil Shareholders 461 x $16.63 -------------------------------- $ 7,659 $ 7,659 - Issuance of DPUs 909 x $13.34 -------------------------------- $12,126 $12,126 Retire Subordinated Units 1,872 x $16.00 -------------------- ($29,954) $29,954 $30,964 $41,476 ----------- ------------------------- Total including DPUs $72,439 $72,439 - --------------------------------------------------------------------- Divided by 26,563 shares of Oil's Common stock = $2.73 per share - --------------------------------------------------------------------- Total excluding DPUs $60,313 - --------------------------------------------------------------------- Divided by 26,563 shares of Oil's Common stock = $2.27 per share - --------------------------------------------------------------------- EQUITY PURCHASE PRICE CALCULATION IMPLIED EQUITY VALUE OF OIL'S ASSETS WITH REVISED DPU VALUE ONLY (UNITS IN THOUSANDS, $ IN THOUSAND, EXCEPT PER UNIT AMOUNTS) Page 13
=============================================================================================================================== Purchase Price of Oil's Equity Purchase Price of Oil's Equity ------------------------------------ ---------------------------------------------------- Value of Securities Equity Value of Oil's Value of Oil's GP and Event Paid to Oil Shareholders Heating Oil Assets Subordinated Units in Star - ----------------------------------- ------------------------------------ ----------------------- ---------------------------- Issuance of Senior Subordinated Units to Public Oil Shareholders 2,258 x $19.00 $42,900 - ---------------------------- $42,900 Distribution of General Partner Units to Inside Oil Shareholders 127 x $22.13 - $2,810 ---------------------------- $2,810 Distribution of Subordinated Units to Inside Oil Shareholders 524 x $16.00 ---------------------------- - $8,382 $8,382 Issuance of General Partner Units to Inside Oil Shareholders 162 x $22.13 ---------------------------- $3,584 - $3,584 Issuance of Senior Subordinated Units to Inside Oil Shareholders 461 x $19.00 $8,750 - ---------------------------- $8,750 Issuance of DPUs 909 x $13.34 $12,124 ---------------------------- $12,124 Retire Subordinated Units 1,872 x $16.00 ------------------- ($29,954) $29,954 Total including DPUs $37,404 $41,146 --------- ------------------------------- $78,550 $78,550 - ---------------------------------------------------------------------- Divided by 26,563 shares of Oil's Common stock = $2.96 per share - ---------------------------------------------------------------------- Total excluding DPUs $66,426 - ---------------------------------------------------------------------- Divided by 26,563 shares of Oil's Common stock = $2.50 per share - ---------------------------------------------------------------------- SUMMARY OBSERVATIONS ACCRETION/DILUTION [_] A.G. Edwards reviewed the distributable cash flow ANALYSIS per unit and the related accretion, common unit coverage and total unit coverage on a pro forma basis. [_] For the purpose of this analysis, A.G. Edwards had PaineWebber run its pro forma financial model for four scenarios to determine the sensitivity of certain assumptions. ------------------------------------------------------- ACCRETION/DILUTION ANALYSIS Variations in Margin Growth Rates and Acquisition Assumptions ------------------------------------------------------- (a) 1998 estimate assumes no acquisitions for either company, and is adjusted to reflect actual results through 3/31/98. (b) 1998 budgeted. (c) Defined as (DCF + Int)/[((GP units + common units)*MQD) + Int)]
$2.50 PER SHARE OF PETRO ------------------------------------------------------------- GAS $0.005 MARGIN GROWTH $0.00 MARGIN GROWTH STAND-ALONE $30.0MM AT 4.75X ACQUISITIONS $30.0MM AT 5.25X ACQUISITIONS ----------- ----------------------------- ----------------------------- DCF PER UNIT 1998E (a) $1.220 $1.580 $1.580 1998N (b) 1.760 2.420 2.420 1999P 1.900 2.730 2.440 ACCRETION/DILUTION 1999E (a) 29.5% 29.5% 1998N (b) 37.5% 37.5% 1999P 43.7% 28.4% COMMON UNIT COVERAGE 1998E (a) 0.90x 0.94x 0.94x 1998N (b) 1.30 1.44 1.44 1999P 1.34 1.54 1.37 TOTAL UNIT COVERAGE 1998E (a) 0.55x 0.72x 0.72x 1998N (b) 0.80 1.10 1.10 1999P 0.86 1.19 1.06 LEVERAGED UNIT COVERAGE (c) 1998E (a) 0.94x 0.97x 0.97x 1998N (b) 1.15 1.20 1.20 1999P 1.17 1.25 1.17 $2.25 PER SHARE OF PETRO ------------------------------------------------------------------------------ $0.005 MARGIN GROWTH $0.000 MARGIN GROWTH $30.0MM AT 4.75X ACQUISITIONS $30.0MM AT 5.25X ACQUISITIONS -------------------------------- --------------------------------- DCF PER UNIT 1998E (a) $1.620 $1.620 1998N (b) 2.480 2.480 1999P 2.800 2.500 ACCRETION/DILUTION 1999E (a) 32.8% 32.8% 1998N (b) 40.9% 40.9% 1999P 47.4% 31.6% COMMON UNIT COVERAGE 1998E (a) 0.94x 0.94x 1998N (b) 1.44 1.44 1999P 1.54 1.38 TOTAL UNIT COVERAGE 1998E (a) 0.74x 0.74x 1998N (b) 1.13 1.13 1999P 1.22 1.09 LEVERAGED UNIT COVERAGE (c) 1998E (a) 0.97x 0.97x 1998N (b) 1.20 1.20 1999P 1.25 1.17 SUMMARY OBSERVATIONS (continued) PUBLIC COMPANY [_] A.G. Edwards compared certain financial and market ANALYSIS information of Gas on both a stand-alone and pro forma basis to that of certain public master limited partnerships. Page 15
Public Comparable Companies (a) ================================================================================================== Public Public Pro forma Company Company Gas Gas Medians Ranges -------------------------------------------------------------------------------------------------- Yield 10.3% 10.8% 9.5% 8.7% to 10.7% Firm value/LTM EBITDA 12.2x (b) 10.7x (b) 12.3x 9.1x to 18.5x Firm value/1998 normalized EBITDA 8.8x (c) 8.0x (c) 11.0x 10.2x to 13.7x Equity Market Cap/LTM DCF 17.6x (d) 14.0x (d) 16.0x 8.6x to 24.8x Equity Market Cap/1998 normalized DCF 10.4x (e) 7.8x (e) 13.6x 11.6x to 16.6x LTM common unit coverage 0.9x (f) 0.9x (f) 1.4x 0.6x to 1.5x 1998E common unit coverage 1.3x (g) 1.6x (g) 1.4x 0.9x to 1.8x LTM total unit coverage 0.6x (f) 0.7x (f) 0.7x 0.4x to 1.1x 1998E total unit coverage 0.9x (g) 1.2x (g) 0.7x 0.7x to 1.0x 1998E leveraged unit coverage 1.2x (g)(h) 1.3x (g)(h) 1.1x 0.9x to 1.3x -------------------------------------------------------------------------------------------------- (a) Public comparable companies include: APU, CNO, FGP, HPG, CNL and SPH. (b) Firm value/adjusted 1998 budget EBITDA. (c) Firm value/1999 estimated EBITDA. (d) Equity market cap/adjusted 1998 budget EBITDA. (e) Equity market cap/1999 estimated DCF. (f) Adjusted 1998 budget. (g) 1999 estimates. (h) Defined as (DCF + interest)/(((GP units + common units*MQD)+interest). SUMMARY OBSERVATIONS (continued) TRANSACTION MULTIPLE [_] A.G. Edwards calculated the implied transaction ANALYSIS multiple paid for Oil on a firm valuation basis, including costs and certain adjustments associated with the Transaction, and arrived at the following multiples: EBITDA MULTIPLE ------ -------- 1997 Adjusted 8.4x Adjusted 1998 Budget 9.7x 1999 Projected 7.3x [_] A.G. Edwards calculated the implied transaction multiple paid for Oil's existing heating oil business, excluding the valuation attributable to consolidation opportunities, and arrived at the following multiples: EBITDA MULTIPLE ------ -------- 1997 Adjusted 5.7x Adjusted 1998 Budget 6.5x 1999 Projected 4.9x [_] Oil has historically paid EBITDA multiples averaging 4.5x, with a range of 2.7x to 6.5x, for its acquisitions. [_] Oil has historically received EBITDA multiples averaging 9.0x, with a range of 8.0x to 9.8x, for certain of its heating oil businesses. [_] Gas has historically paid EBITDA multiples averaging 7.0x, with a range of 5.1x to 7.3x, for its acquisitions. Page 16 SUMMARY OBSERVATIONS (continued) Transacton Multiple Analysis (continued) Multiples in the Propane Industry [_] Propane - Average Propane Multiple 6-7x - Current Market Multiple of EBITDA 12-13x - Adjusted for Weather 10-11x - Multiple Premium for Large, Multi-State Aggregators 4x [_] Heating Oil - Average Multiple for Heating Oil Companies 4-5x - Multiple Premium for Large, Multi-State Aggregators 4x - Multiple for Heating Oil Aggregator 8-9x Page 17 SUMMARY OBSERVATIONS (continued) DISCOUNTED CASH FLOW [_] A.G. Edwards calculated the implied present value ANALYSIS of estimated unlevered free cash flows for Gas on both a stand-alone and pro forma basis. [_] Key assumptions used in the analysis were: - Oil maintaining a flat 4.1% attrition rate; $0.005 margin improvement; and completing $30 million in acquisitions each year at a 4.75x EBITDA multiple. - A 7.8% weighted average cost of capital for both cases. - A 10.3x terminal EBITDA multiple, representing the current year normalized EBITDA. _______________________________________________ (a) Represents total projected debt less cash as of 9/30/98. (b) Total units include common, subordinated and GP units. (c) Current market value of common units is $81,909. Page 18
DISCOUNTED CASH FLOW ----------------------------------------------------------------------------------------------------------- NET PRESENT ORIGINAL EQUITY VALUE PRESENT CURRENT VALUE COMMON UNITS/ TO ORIGINAL ($ IN THOUSANDS) VALUE NET DEBT (a) OF EQUITY TOTAL UNITS (b) COMMON UNITS (c) ----------------------------------------------------------------------------------------------------------- PRO FORMA $956,846 ($296,133) $660,713 26.6% $175,506 GAS STAND-ALONE $306,529 ($113,629) $192,900 60.3% $116,310 ---------- Increase in value to original common unit holders: $ 59,196 ========== SUMMARY OBSERVATIONS (continued) COMPARATIVE STOCK [_] A.G. Edwards has compared the historical prices of PRICE PERFORMANCE Gas' and Oil's common unit/stock to an index of selected companies. [_] While Gas' unit price has remained relatively flat over the last two years, in line with the comparable index, Oil's stock price has declined significantly over this period. COMPARATIVE STOCK PRICE PERFORMANCE ------------------------------------------------------- (a) Composite index includes the following companies: APU, CNO, HPG, FGP, NPL, SPH. (b) As of 5/15/98 [GRAPH OF GAS APPEARS HERE] [GRAPH OF OIL APPEARS HERE] Page 19
PREMIUM OF CURRENT PRICE TO PRICE ------------------------------------------------------------------------ CURRENT 2 YEARS 1 YEAR 180 DAYS 60 DAYS 30 DAYS PRICE (b) PRIOR PRIOR PRIOR PRIOR PRIOR ---------------------------------------------------------------------------------- Gas 21.38 6.2% 2.4% -2.8% -4.5% -2.8% Oil 1.88 -73.1% -31.6% -38.6% 25.3% 18.2% Composite (a) 21.68 -2.9% 5.4% -3.5% -0.5% 0.2% SUMMARY OBSERVATIONS (continued) EXCHANGE RATIO [_] A.G. Edwards reviewed the historical prices of ANALYSIS Gas' and Oil's common unit/stock and the implied historical exchange ratio. [_] Due to the price decline of Oil's common stock over the past year, the current exchange ratio, based on the current consideration of $2.50 per share and compared to the current unit/share prices of Gas and Oil ($21.375 and $1.875, respectively, as of May 15, 1998), represents a premium of 33.3% to the current market price of Oil. [GRAPH OF EXCHANGE RATIO APPEARS HERE] Factset: Daily (a) Represents the current price of Gas divided by the current price of Oil. (b) Represents the current price of Gas divided by the proposed $2.50 price in current consideration offered for each share of Oil. (c) Represents Gas' average price for the period divided by Oil's average price for the period. Page 20 SUMMARY OBSERVATIONS (continued) PREMIUMS PAID ANALYSIS [_] An analysis of acquisitions of companies whose stock traded under $5.00 per share (pre-merger) versus companies that traded over $10.00 per share (pre-merger) indicates a substantial difference in the premiums paid. [_] Normal premiums for merger of equal transactions is -2.5% to 21.2% and normal premiums for companies whose stock trades below $5.00 per share is 13.5% to 81.0%. Page 21
MEAN LESS ONE MEAN PLUS ONE STANDARD DEVIATION MEAN STANDARD DEVIATION ------------------ --------- ------------------ Merger of Equals -2.5% 9.4% 21.2% Target Stock Price greater than $10.00 10.7% 33.2% 55.8% Target Stock Price less than $5.00 13.5% 47.3% 81.0% ====================================================================================================== Summary Observations (continued) Relative Contribution [_] A.G. Edwards reviewed and compared the relative Analysis EBITDA contribution of Gas and Oil to each firms' share of the implied combined firm value. Other measures of relative contribution analysis were non-meaningful. [_] For Gas' contribution of approximately 34% of the combined entity's EBITDA(a), it will receive approximately 41% of the implied firm value. EBITDA (b) [GRAPH APPEARS HERE] IMPLIED FIRM VALUE SEPTEMBER 30, 1998 [PIE CHART APPEARS HERE] ___________________________________ (a) For purposes of its analysis, A.G. Edwards converted Oil's historical December 31st fiscal year-end to a September 30th fiscal year-end for comparison purposes. Oil's projections are based on a December 31st calendar year end. Other measures of relative contribution analysis are non-meaningful. (b) Includes only heating oil EBITDA for Oil. (c) Implied firm value of only Oil's heating oil assets. Page 22 Updated Report to Gas' Special Committee A.G. Edwards has continued its diligence reviews of Oil and Gas, has exchanged data and views with Oil's advisor, and has further updated its earlier views and opinions of the Proposed Transaction. Certain additional observations since our last meeting include: [_] Oil continues to perform relatively better than Gas. - Additional cost reductions at Oil should add $4.4 million annually to Oil's ongoing EBITDA. - Oil continues to show improvements in its attrition rate and margin growth. YTD through 3/31/98, Oil's attrition rate was 3.3% (4.0% in January, 3.5% in February and 2.8% in March) and its margin growth was 3.7 cents. - Gas continues to experience much slower growth than originally budgeted; management has revised downward its internal growth projections and budget. - Although not yet reflected in the market, Gas is now not --- expecting to earn its $2.20 MQD until possibly 2003. - Upward revisions at Oil and downward revisions at Gas now appear to make the Proposed Transaction more accretive than historically thought; the revisions support a 1999P DCF/share of $2.73, which should easily support the proposed distribution increase from $2.20 to $2.30/unit. [_] Oil's stock price has recently improved while Gas' unit price has declined slightly. - Oil's stock price now trades at $2.0625/share vs. $1.5625/share, an increase of 32.0%. - Gas' common unit price now trades at $21.125/unit vs. $22.125/unit, a decrease of 4.5%. [_] An analysis of premiums paid in acquisitions of companies whose stocks trade under $5.00 per share supports the view that such companies generally receive a larger acquisition premium in this inefficient sector of the market. An analysis of transactions since 1996 indicated an average premium of 47.3% for companies whose stocks trade under $5.00/share (normal range: 13.5% - 81.0%) compared to an average premium of 33.2% for companies whose stocks trade over $10.00/share (normal range: 10.7% - 55.8%). Page 23 Updated Report to Gas' Special Committee (continued) [_] Although A.G. Edwards cannot presently provide any opinion regarding the Proposed Transaction, A.G. Edwards does recommend -------------- that the Special Committee communicate to Oil and Oil's financial advisor that the Committee is willing to move forward with the Proposed Transaction as outlined in the "Proposal to Special Committee, Star Gas Partners, L.P.," attached hereto in Section VI. It is our understanding that Oil respectfully disagrees with selected aspects of the proposal. [_] A.G. Edwards recommends that Joel Swanson, Esq. and Baker & Botts, LLP consult with Oil's attorneys regarding the proposed resolution of the myriad of legal issues involving tax, partnership and corporate compliance and the timing of the documentation of the Transaction in terms of definitive agreements, proxy statements and the like. Page 24 DRAFT 5/21/98 SPECIAL COMMITTEE STAR GAS PARTNERS, L.P. REVISED PROPOSAL After careful consideration of the Proposed Transaction and the views expressed by Petro and PaineWebber, the Special Committee and its advisors recommend that further refinement and evaluation of the Proposed Transaction is appropriate. Subject to further diligence and assuming no material adverse changes in Star or Petro, or in market conditions, the Special Committee proposes that the transaction contain the following safeguards for the benefit of Star's common unitholders: (A) Star Partnership Agreement. Appropriate steps should be initiated to -------------------------- amended the Star Partnership Agreement as of the closing date (assumed to be September 30, 1998) in order to include as a minimum: (A-1) authorizing the creation of new classes of senior subordinated units and deferred partnership units, which shall be junior to all present and future common units; (A-2) prohibiting the payment of any distributions to senior subordinated unitholders and to subordinated unitholders except from net distributable cash flow available from the preceding twelve months after first paying $2.30 per unit to the common unitholders for such period plus any cumulative common unit arrearages from prior period(s); and (A-3) providing a surplus available for common unit distributions equal to $1.10 per new common unit, as part of the Refinancing Transaction (described below). (B) Definitive Transaction Agreement. A draft of the definitive -------------------------------- transaction agreement should be prepared by Petro for Special Committee's careful consideration (and for future submission to the Board of Directors and common unitholders of Star and to the Board of Directors and shareholders of Petro for approval) setting forth at least the following steps: (B-1) At closing of the Transaction, Star shall be obligated to deliver to Petro's common shareholders, subject to reduction by the Revision Amount as defined in (B-4) below, the following: (A) 2,718,000 senior subordinated units of Star; (B) 524,000 subordinated units of Star; the balance must be delivered to Star free and clear for retirement; (C) 289,000 GP units of Star; and (D) 909,000 deferred partnership units of Star, convertible into senior subordinated units at 33 1/3% per annum for each year in which Petro's after-tax income contributes accretion to every Star unit in excess of [$0.50]. (B-2) The Closing shall be contingent upon the successful completion of the following (collectively, the "Refinancing Transaction"): (A) The issuance of no more than 6,588,000 new common units at a price per unit of at least $21 with a gross spread of no greater than 5.0%, and (B) The issuance of $125,000,000 new debt with an interest rate no higher than [8.5%] with a gross spread of no greater than 3.0%. The use of proceeds of the Refinancing Transaction shall be solely to refinance certain of the outstanding indebtedness assumed from Petro. (B-3) Prior to the closing of the Transaction, Petro shall represent, warrant and agree that: (A) Prior to the Refinancing Transaction, Petro shall have a balance of debt and preferred stock (at redemption value), less any cash balance in excess of such amounts required in (B-3) (B) below, of no more than $331,367,000. (B) Petro shall have a minimum cash balance of $500,000, a positive working capital balance, and a total stockholders' deficit on its balance sheet of no greater than [$__ million], all as of the Closing. (C) Petro shall set up appropriate reserves and fund all of the following transactions costs: the gross spread on the issuance of the new debt referred to in (B-2) (B); financial advisory fees and fairness opinions for Petro and Star; legal, accounting and printing fees for Petro and Star; all exchange and solicitation fees related to the retirement or redemption of Petro's debt and preferred stock; all appraisals and environmental reports; all rating agencies and bank fees; and all other out-of-pocket costs and expenses associated with the Transaction. (B-4) In the event Petro is unable or unwilling to represent and warrant each of the matters set forth in (B-3), then a Revision Amount (defined below) will be established. The Revision Amount shall reduce, on a dollar-for-dollar basis, the number of senior subordinated units of Star to be delivered to Petro's common shareholders as set forth in (B-1)(A) with each senior subordinated unit deemed to equal $19/unit. The Revision Amount shall be the difference between the net sum of monies referred to in (B-3) (A), (B) and (C) above that are transferred to Star at Closing compared to the defined or stated amounts in (B-3). If the Revision Amount is negative, then the Revision Amount will be considered to equal zero. In the event the Revision Amount exceeds [$__million], Star shall not be obligated to proceed. (B-5) Prior to the Closing of the Transaction, Petro shall not declare or distribute any cash dividends to its common shareholders.
Round III Appendices to PRELIMINARY REPORT TO THE SPECIAL COMMITTEE OF GAS ANALYSES PERFORMED AT "$2.50 PER SHARE" PLUS ISSUANCE OF DPUS A.G.EDWARDS & SONS, INC. INVESTMENT BANKING May 21, 1998 OVERVIEW OF OIL EBITDA RECONCILIATION: 1997 (a) _________________________________________________________________________ (a) Management's assumptions. Page 1
==================================================================================== OIL --- 1997 Actual EBITDA $36,010 NORMALIZING ADJUSTMENTS: Weather was 3.8% warmer than 30-year normal 3.8% of 1997 budgeted retail gallons 13,482 gallons Gross profit margin $0.4545 Delivery and garage cost savings ($0.0814) ------- Net impact per gallon $0.3731 $ impact 5,030 Insurance reserve 2,000 ------- 1997 Adjusted EBITDA $43,040 ======= OVERVIEW OF OIL EBITDA RECONCILIATION: 1997-1998 (a) (continued) _______________________________________________________________________________ (a) Management's assumptions. (b) Represents the average gross profit per gallon ($.4700 per gallon) offset by $.30 per gallon reduction in operating expenses. (c) Actual gross profit margin increase achieved in first quarter of 1998 was $5.9 million (156 million gallons @ $0.037/gallon). (d) Represents already accomplished reductions as of 12/31/97 in branch, regional and corporate expenses in excess of normal indexing related to volume reductions as well as 1% productivity improvements. Page 2
======================================================================================================= OIL --- 1997 Adjusted EBITDA $43,040 Volume Adjustments for 1998 Sale of TLC Division in 1997 (16,926) gallons Attrition in 1998 (4.1%) (17,375) 1997 Acquisitions 9,828 --------- (24,473) gallons @ $0.1700/gallon (b) (4,159) Gross Profit Margin Increase $0.006 per gallon on 395,086 gallons (c) 2,371 Inflation (3,662) Operating Cost Reductions (d) 5,850 ------- Original 1998 EBITDA Budget $43,440 ======= OVERVIEW OF OIL EBITDA RECONCILIATION: 1998 (a) (continued) - -------------------------------------------------------------------------------- OIL --- Original 1998 EBITDA Budget $43,440 Non-Budgeted Operating Expense Eliminations (b) 2,249 ----- Revised 1998 EBITDA Budget 45,689 Actual Differential between first three months of Fiscal 1998 vs. Budget (10,834) Revised margin improvement based on results from the first three months of Fiscal 1998 2,600 ----- Adjusted 1998 EBITDA Budget $37,455 ====== - ------------------------------------------------------------------------------- (a) Management's assumptions. (b) Represent specific operating expense eliminations that are already accomplished. Page 3 OVERVIEW OF OIL EBITDA RECONCILIATION Non-budgeted Operating Expense Eliminations _______________________________________________________________________ (a) Non-Union and Union wage freeze is incorporated via inflation adjustment in Oil model for 1999 and is not incorporated for 2000 on. Page 4
Base % Applicable 1999 Expense To 1998 1998 Thereafter ------- ------------ ---- ---------- Exton PA Facility Rent $ 500 20% $ 100 $ 500 Corporate Staff Reductions - Salary & Benefits Alex Tyshovnytsky 310 75% 233 310 Allen Levenson 279 75% 209 279 Joe Massoud 310 67% 207 310 Total Staff Reductions 900 649 900 Wage Freeze - Non-Union 2,000 50% 1,000 - (a) Wage Freeze - Union 1,000 50% 500 - ------ ------ ------ Total $4,400 $2,249 $1,400 OVERVIEW OF OIL EBITDA RECONCILIATION: 1998-1999(a) (continued) - -------------------------------------------------------------------------------- OIL --- Original 1998 EBITDA Budget $43,440 $0.01 Margin Increase in 1999 partially offset by Internal Attrition (4.1%) 1,608 Non-Budgeted Operating Expense Eliminations 1,400 Acquisition Growth $30,000 of acquisitions at 4.75x multiple using half-year convention 3,158 ------ 1999 Projection $49,606 ====== - -------------------------------------------------------------------------------- (a) Management's assumptions. Page 5 OVERVIEW OF OIL EBITDA SUMMARY - -------------------------------------------------------------------------------- Page 6
================================================================================ OIL --- 1997 Actual $36,010 1997 Adjusted $43,040 Original 1998 Budget $43,440 Revised 1998 Budget $45,689 Adjusted 1998 Budget $37,455 1999E $49,606 OVERVIEW OF GAS EBITDA RECONCILIATION: 1997(a) ($ IN THOUSANDS) (a) Management's assumptions. (b) Not pro forma for Pearl Gas acquisition. (c) Certain expenses including the exploration of strategic alternatives by Morgan Stanley. (d) Certain cost savings, primarily salary and benefit expenses of certain selling shareholders. Page 7
================================================================================ GAS --- 1997 Actual EDITBA $19,703(b) NORMALIZING ADJUSTMENTS: Weather Residential - 1,125 gallons @ 0.7106 margin 799 Commercial - 277 gallons @ 0.4459 margin 124 Margin Residential - 50,832 gallons @ (0.7106 - 0.6995) (564) Commercial - 19,864 gallons @ (0.4454 - 0.4348) (220) Wholesale - 38,404 gallons @ (0.0975 - 0.0675) (1,152) Compensation (56) Elimination of strategic expense 902(c) Pearl Gas EBITDA 3,012 Pearl Gas acquisition adjustments 273(d) ------ 1997 Adjusted EDITBA $22,821 ====== - -------------------------------------------------------------------------------- Overview of Gas EBITDA Reconciliation: 1997 - 1999(a) ($ in thousands) (continued) ----------------------------------------------------------------- (a) Management's assumptions. Page 8
----------------------------------------------------------------- GAS --- Revised 1998 EBITDA Budget $ 21,730 Approximate Differential between first six months of Fiscal 1998 vs. Budget (3,451) -------- Adjusted 1998 EBITDA Budget $ 18,279 ======== 1998 EBITDA Budget $ 21,730 Acquisition Growth $20 million of acquisitions at 7x multiple completed on 9/30/98 2,857 $10 million of acquisitions at 7x multiple completed on 4/1/99 using half-year convention 712 -------- 1999 EBITDA Projection $ 25,299 ======== SUMMARY OF TRANSACTION PRO FORMA GAS UNITS OUTSTANDING (IN THOUSANDS) TO SIMPLIFY THE [_] There are currently 6,355 Gas units COMPLEXITY OF THE STEPS outstanding comprised of 3,832 common units, IN THE TRANSACTION, 2,396 subordinated units and 127 general A.G. EDWARDS PREPARED partner ("GP") units. The subordinated units A SUMMARY OF ITS and GP units are assets of Oil. UNDERSTANDING. [_] There are currently 26,563 shares of Oil common stock outstanding, comprised of public shareholders and "insiders." The public holds 17,160 Class A shares. The "insiders" hold 9,404 shares which include 6,795 Class A shares, 11 Class B shares and 2,598 Class C shares. [_] Each shareholder of Oil will receive a certain number of units in Gas such that the implied consideration paid for each Oil share is $2.50. Additionally, each shareholder will receive a certain number of deferred partnership units ("DPUs") such that if each unit is converted at the earliest possible time, then each shareholder will receive an additional $0.65 per share in future value. [_] The publicly held 17,160 Class A shares will initially receive .1316 shares of newly created senior subordinated units (2,258 units in total) with an implied value (per PaineWebber) of $19.00/unit. This represents an implied purchase price of $2.50/share for an implied total purchase price of $42.9 million. [_] The "insiders" of Oil, who hold a total of 9,404 shares (comprised of A, B and C shares) will also initially receive an implied purchase price of $2.50/share for a total of $23.5 million. The consideration received by these shareholders will be funded by: - (1) the distribution of existing units of Gas which are currently owned by Oil [_] all of the 127 GP units owned by Oil will be given as consideration at an implied value of $22.13/unit, for a total of $2.8 million. [_] 524 of the 2,396 subordinated units owned by Oil will be given as consideration at an implied value (per PaineWebber) of $16.00/unit, for a total of $8.4 million. - (2) the distribution of newly-created units of Gas [_] to fund the remaining $12.3 million of the $23.5 million due to the Oil "insiders", Gas will issue 461 newly-created senior subordinated units and 162 newly-created GP units. The implied values for these new units are $19.00 and $22.13, respectively. Page 31 SUMMARY OF TRANSACTION PRO FORMA GAS UNITS OUTSTANDING (IN THOUSANDS) (continued) [_] Of the 2,396 subordinated units and 127 GP units owned by Oil, only 1,872 subordinated units will not have been used as consideration paid to the "inside" Oil shareholders. Hence, these 1,872 subordinated units will be retired by Gas. A.G. Edwards has assumed that the implied value of these units are the same as the value PaineWebber is placing on the subordinated units, which is $16.00/unit, for a total retired value of approximately $30.0 million. Page 32 Summary of Gas Units Outstanding Pre-Financing Assumptions ____________________________________ (a) The number of GP units issued reflects the assumption of a 6,588 common unit equity offering to refinance certain of the assumed Oil debt and a 475 common unit equity offering to finance Gas' acquisitions. Hence, the number of GP units reflected in the pro forma column do not equal 2% of the pro forma outstanding units shown above but do equal exactly 2% of the pro forma units outstanding on a post financing basis. Page 11
-------------------------------------------------------------------------------------------------- Distributed to Oil Issued to Oil ---------------------- ------------------- Type of Units Current Public Insiders Public Insiders Retired Pro Forma --------------------- --------- ---------- ---------- -------- ---------- --------- ----------- Common 3,832 - - - - - 3,832 Senior Subordinated - - - 2,258 461 - 2,718 Subordinated 2,396 - 524 - - (1,872) 524 DPUs - - - 587 322 - 909 General Partner (a) 127 - 127 - 162 - 289 --------- ----------- 6,355 8,272 -------------------------------------------------------------------------------------------------- EQUITY PURCHASE PRICE CALCULATION IMPLIED EQUITY VALUE OF OIL'S ASSETS (UNITS IN THOUSANDS, $ IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) - -------------------------------------------------------------------------------- - ------------------------------------------------------ Divided by 26,563 shares of Oil's Common stock= $3.15 per share - ------------------------------------------------------ Total excluding DPUs $66,426 - ------------------------------------------------------ Divided by 26,563 shares of Oil's Common stock= $2.50 per share - ------------------------------------------------------ PAGE 12
PURCHASE PRICE OF OIL'S EQUITY PURCHASE PRICE OF OIL'S EQUITY ------------------------ ------------------------------------------------ VALUE OF SECURITIES EQUITY VALUE OF OIL'S VALUE OF OIL'S GP AND EVENT PAID TO OIL SHAREHOLDERS HEATING OIL ASSETS SUBORDINATED UNITS IN STAR - ----------------------- ------------------------ --------------------- -------------------------- Issuance of Senior Subordinated Units to Public Oil Shareholders 2,258 x $19.00 ---------------- $42,900 $42,900 -- Distribution of General Partner Units to Inside Oil Shareholders 127 x $22.13 ---------------- $2,810 -- $2,810 Distribution of Subordinated Units to Inside Oil Shareholders 524 x $16.00 ---------------- $8,382 -- $8,382 Issuance of General Partner Units to Inside Oil Shareholders 162 x $22.13 ---------------- $3,584 $3,584 -- Issuance of Senior Subordinated Units to Inside Oil Shareholders 461 x $19.00 ---------------- $8,750 $8,750 -- Issuance of DPUs 909 x $19.00 ---------------- $17,271 $17,271 -- Retire Subordinated Units ($29,954) 1,872 x $16.00 -------------- $29,954 $42,551 $41,146 --------------------------- Total including DPUs ---------------- $83,697 $83,697 PRO FORMA WEIGHTED AVERAGE COST OF CAPITAL DERIVATION FOR COMMON UNITS ($ IN MILLIONS) - -----------------------------------------------------------------------------------------------------
- ------ (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of long-term debt is assumed to be equal to the book value. (c) Ten-year Treasury rate on May 15, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on Pro forma current debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). PAGE 13TOTAL TOTAL MARKET TOTAL IMPLIED TOTAL DEBT AS LEVERED VAL. UNIT UNITS MARKET DEBT/ % OF BETA DEBT PRICE AT OUT. VALUE OF TOTAL TOTAL UNLEVERED COMPARABLE COMPANY (A) (BK=MKT) (5/15/98) (MIL) EQUITY EQUITY CAPITAL BETA - ------------------ ------- -------- --------- ----- -------- ------ ------- --------- AmeriGas Partners, L.P. 0.50 $701.7 $24.688 41.9 $1,055.2 66.5% 39.9% 0.300 Cornerstone Propane Partners, L.P. 0.40 237.1 21.875 19.8 442.7 53.6% 34.9% 0.260 Ferrellgas Partners, L.P. 0.38 537.2 21.750 31.3 694.5 77.4% 43.6% 0.214 Heritage Propane Partners, L.P. 0.43 176.9 23.000 8.4 196.7 89.9% 47.3% 0.226 National Propane Partners, L.P. 0.34 141.0 19.688 11.2 225.7 62.5% 38.5% 0.209 Star Gas Partners, L.P. 0.29 96.0 21.375 6.2 135.8 70.7% 41.4% 0.170 Suburban Propane Partners, L.P. 0.35 428.2 19.063 28.7 558.8 76.6% 43.4% 0.198 --------------------------- Comparable group's average unlevered Pro forma capitalization-- beta: 0.23 at market (b) Pro forma debt-to-equity ratio (b): 103.5% Total debt $319.0 50.8% Pro forma debt as a percent of total capital (b): 50.8% Total equity 308.3 49.2% ------ ----- Comparable group's beta relevered for Pro forma capital structure: 0.377 $627.3 100.0% ======= DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: MARKET RISK OF PREMIUM RANGE (D) - ----------------------------------------------- -------------------------------- 11.3% 12.3% 13.3% Pro forma theoretical levered beta: 0.377 Assumed % of equity in Pro forma capital structure (b): 49.2% Risk-free rate of return (c): 5.7% Pro forma cost of equity range (at various market risk premiums): 9.9% 10.3% 10.7% ==== ==== ==== Pro forma assumed tax rate: 35.0% Assumed % of debt in capital structure (b): 50.8% Pro forma estimated cost of debt (e): 8.2% Pro forma estimated after-tax cost of debt: 5.3% 5.3% 5.3% 5.3% -------- ----- ----- Pro forma weighted average cost of capital range (f): 7.6% 7.8% 8.0% -------- ----- ----- PRO FORMA WEIGHTED AVERAGE COST OF CAPITAL DERIVATION FOR SENIOR SUBORDINATED UNITS ($ IN MILLIONS) ___________________________ (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of long-term debt is assumed to be equal to the book value; debt includes the market value of pro forma common and GP units; equity includes the value of senior sub and sub units. (c) Ten - year Treasury rate on May 15, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. Page 14
==================================================================================================================================== Total Implied Total Total Market Unit Total Market Debt/ Debt as % Un- Levered Val. Debt Price at Units Value of Total of Total levered Comparable Company Beta(a) (Bk = Mt) (5/15/98) Out. (Mil) Equity Equity Capital Beta - ------------------------------------------------------------------------------------------------------------------------------------ AmeriGas Partners, L.P. 0.50 $701.7 $24.688 41.9 $1,055.2 66.5% 39.9% 0.300 Cornerstone Propane Partners, L.P. 0.40 237.1 21.875 19.8 422.7 53.6% 34.9% 0.260 Ferrellgas Partners, L.P. 0.38 537.2 21.750 31.3 694.5 77.4% 43.6% 0.214 Heritage Propane Partners, L.P. 0.43 176.9 23.000 8.4 196.7 89.9% 47.3% 0.226 National Propane Partners, L.P. 0.34 141.0 19.688 11.2 225.7 62.5% 38.5% 0.209 Star Gas Partners, L.P. 0.29 96.0 21.375 6.2 135.8 70.7% 41.4% 0.170 Suburban Propane Partners, L.P. 0.35 428.2 19.063 28.7 558.8 76.6% 43.4% 0.198 -------------------------------------------------------- Pro forma capitalization - at market (b) Comparable group's average unlevered beta: 0.23 Total debt $558.0 89.0% Pro forma debt-to-equity ratio (b): 805.5% Total equity 69.3 11.0% ------ ----- Pro forma debt as a percent of total capital (b): 89.0% $627.3 100.0% --------------------------------------------------------- Comparable group's beta relevered for Pro forma capital structure: 1.406 ===== DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: - ----------------------------------------------- Market Risk Premium Range (d) ----------------------------------------------- 11.3% 12.3% 13.3% ----------------------------------------------- Pro forma theoretical levered beta: 1.406 Assumed % of equity in Pro forma capital structure (b): 11.0% Risk-free rate of return (c): 5.7% Pro forma cost of equity range (at various market risk premiums): 21.6% 23.0% 24.4% ==== ==== ==== ----------------------------------------------- IMPLIED UNIT VALUES Page 15
==================================================================================================== 1999 2000 2001 THEREAFTER COST OF EQUITY ------ ------ ------ ---------- ---------------- COMMON UNIT Indicated Distribution $ 2.30 $2.30 $2.30 $ 2.30 ---------- 10.3 % Discount Factor 1.10 1.22 1.34 1.34 10.3% -------- NPV of future distributions $22.32 -------- SENIOR SUBORDINATED UNIT Indicated Distribution $ 2.30 $2.30 $2.30 $ 2.30 ---------- 10.3 % Discount Factor 1.23 1.51 1.86 1.86 23.0% -------- NPV of future distributions $16.63 -------- DPU Indicated Distribution $ 0.00 $0.77 $1.53 $ 2.30 ---------- 10.3 % Discount Factor 1.23 1.51 1.86 1.86 23.0% -------- NPV of future distributions $13.34 -------- EQUITY PURCHASE PRICE CALCULATION IMPLIED EQUITY VALUE OF OIL'S ASSETS WITH REVISED UNIT VALUES (UNITS IN THOUSANDS, $ IN THOUSAND, EXCEPT PER UNIT AMOUNTS) Page 16
=================================================================================================================================== Purchase Price if Oil's Equity Purchase Price of Oil's Equity ------------------------------ ------------------------------------------------------- Value of Securities Equity Value of Oil's Value of Oil's GP and Event Paid to Oil Shareholders Heating Oil Assets Subordinated Units in Star - ---------------------------------- ------------------------------ --------------------- -------------------------- Issuance of Senior Subordinated Units to Public Oil Shareholders 2,258 X $16.63 ------------------------------ $37,549 $37,549 - Distribution of General Partner Units to Inside Oil Shareholders 127 X $22.13 ------------------------------ $ 2,810 - $ 2,810 Distribution of Subordinated Units to Inside Oil Shareholders 524 X $16.63 ------------------------------ $ 8,712 - $ 8,712 Issuance of General Partner Units to Inside Oil Shareholders 162 X $22.13 ------------------------------ $ 3,584 $ 3,584 - Issuance of Senior Subordinated Units to Inside Oil Shareholders 461 X $16.63 ------------------------------ $ 7,659 $ 7,659 - Issuance of DPUs 909 X $13.34 ------------------------------ $12,126 $12,126 Retire Subordinated Units 1,872 X $16.00 -------------------------- ($29,954) $29,954 $30,964 $41,476 ------------- ------------------------------ Total including DPUs $72,439 $72,439 - ------------------------------------------------------------------ Divided by 26,563 shares of Oil's Common stock = $ 2.73 per share - ------------------------------------------------------------------ Total excluding DPUs $60,313 - ------------------------------------------------------------------ Divided by 26,563 shares of Oil's Common stock = $ 2.27 per share - ------------------------------------------------------------------ EQUITY PURCHASE PRICE CALCULATION IMPLIED EQUITY VALUE OF OIL'S ASSETS WITH REVISED DPU VALUE ONLY (UNITS IN THOUSANDS, $ IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) Page 17
- -------------------------------------------------------------------------------------------------------------------------- Purchase Price of Oil's Equity Purchase Price of Oil's Equity ------------------------------ ---------------------------------------------------- Value of Securities Equity Value of Oil's Value of Oil's GP and Event Paid to Oil Shareholders Heating Oil Assets Subordinated Units in Star - ----- ------------------------------ --------------------- -------------------------- Issuance of Senior Subordinated Units to Public Oil Shareholders 2,258 x $19.00 -------------------- $42,900 $42,900 - Distribution of General Partner Units to Inside Oil Shareholders 127 x $22.13 -------------------- $2,810 - $2,810 Distribution of Subordinated Units to Inside Oil Shareholders 524 x $16.00 -------------------- $8,382 - $8,382 Issuance of General Partner Units to Inside Oil Shareholders 162 x $22.13 -------------------- $3,584 $3,584 - Issuance of Senior Subordinated Units to Inside Oil Shareholders 461 x $19.00 -------------------- $8,750 $8,750 - Issuance of DPUs 909 x $13.34 -------------------- $12,124 $12,124 - Retire Subordinated Units 1,872 x $16.00 ------------------ ($29,954) ($29,954) $37,404 $41,146 -------------------- ------------------------------ Total including DPUs $78,550 $78,550 - ----------------------------------------------------------------- Divided by 26,563 shares of Oil's Common stock = $2.96 per share - ----------------------------------------------------------------- Total excluding DPUs $66,426 - ----------------------------------------------------------------- Divided by 26,563 shares of Oil's Common stock = $2.50 per share - ----------------------------------------------------------------- PREMIUM PAID ANALYSIS ________________________________ (a) Updated through May 15, 1998. (b) Includes cost of debt at assumed redemption value, preferred stock at assumed redemption value, net of excess cash. See page 19. (c) Calculated as gross profit minus SG&A expense and direct delivery expense. (d) Excludes restructuring charge, pension curtailment expense, provision for supplemental benefits and corporate identity expenses. (e) As of 12/31/97. Page 18
===================================================================================================================== Dollars Stock Price Premium Analysis (a) in thousands Notes - ------------------------------------------------- ------------ ------------------------------------------------- Equity purchase price of Oil $ 66,426 $2.50 share price x 26,563 shares. Premium to stock price one day prior 33.3% $1.875 close on May 15, 1998. Premium to stock price one month prior 56.9% Premium to stock price three months prior -2.4% Premium to stock price six months prior -18.4% Purchase Price - ------------------------------------------------- Equity purchase price of heating oil assets including DPUs $ 37,404 DPU value revised only. See page 17. Debt assumption value (b) 326,120 -------- Aggregate purchase price of heating oil assets $363,524 ======== Multiples - ------------------------------------------------- ------------- Multiples Notes ------------- ---------------------------------------------- 1997 Revenue $548,141 0.7 x As a multiple of aggregate transaction value. 1997 EBITDA (c) 36,010 10.1 As a multiple of aggregate transaction value. 1997 EBIT (d) 6,264 58.0 As a multiple of aggregate transaction value. 1997 Net loss to common shares (d) (19,338) NM As a multiple of equity value. Equity (c) (177,033) NM As a multiple of equity value. 1997 Adjusted EBITDA (c) 43,040 8.4 x As a multiple of aggregate transaction value. Revised 1998 EBITDA budget (c) 45,689 8.0 As a multiple of aggregate transaction value. Adjusted 1998 EBITDA budget (c) 37,455 9.7 As a multiple of aggregate transaction value. 1999P EBITDA (c) 49,606 7.3 As a multiple of aggregate transaction value. TRANSACTION MULTIPLE ANALYSIS FIRM VALUATION ($ IN THOUSANDS) =============================================================================================================================
(a) Assumes that $500,000 plus an additional surplus of $1.10 per new commom unit issued is funded by Oil and delivered to Gas at closing. Page 19Equity Purchase Price of Heating Oil Assets including DPUs $37,404 Revised DPU Value ------ + Cost of Debt at Redemption Value 290,992 + Cost of Preferred stock at Redemption Value 34,375 326,120 ------- + Off-Balance Sheet Pension and Tax Liability 8,500 - - Cash (a) Required cash on hand (500) Required Additional Surplus (7,247) (7,747) ------ --------- Firm Value $ 363,524 ========= - ----------------------------------------------------------------------------------------------------------------------------- TRANSACTION MULTIPLE ANALYSIS TRANSACTION MULTIPLES FOR FIRM VALUATION ($ IN THOUSANDS) Page 20
============================================================================== EBITDA --------------------------------------- Purchase Price Year Amount Multiple Paid - -------------- -------------- ----------------- -------------- $363,524 1997 Adjusted $43,040 8.4x $363,524 Revised 1998 Budget $45,689 8.0x $363,524 Adjusted 1998 Budget $37,455 9.7x $363,524 1999 Projected $49,606 7.3x TRANSACTION MULTIPLE ANALYSIS DISTRIBUTION OF VALUE
===================================================================================================== OIL 1997 Adjusted EBITDA EBITDA Multiple Purchase Price ------------- --------- -------------- $43,040 8.4x $363,524 (a) A.G. Edwards' estimate of the decline rate of EBITDA based on a 4.1% attribution rate. (b) See page 13. Page 21
ABILITY TO FURTHER CONSOLIDATE HEATING OIL INDUSTRY CORE BUSINESS --------------------------------------------------- ------------- Acquisition EBITDA $ 43,040 EBITDA Multiple Purchase Price EBITDA Decline Rate 7.75% (a) ------------ ----------- -------------- WACC 7.79% (b) $6,316 4.8x $ 30,000 Decline Rate 7.75% (a) WACC 7.79% (b) Perpetuity $ 40,637 Purchase Price $ 30,000 -------------- Net Present Value of the Heating Oil Acq. $ 10,637 Value in perpetuity of Ability to -------------- --------- Consolidate Heating Oil Industry $136,506 Value of Core Business $ 276,925 ============== ========= -------------+----------------------------------- ---------------------------------------------------------------------------- Implied Total Valuation $413,431 % of Valuation attributable to core business 67.0% % of Valuation attributable to consolidation opportunities 33.0% ---------------------------------------------------------------------------- TRANSACTION MULTIPLE ANALYSIS TRANSACTION MULTIPLES FOR EXISTING HEATING OIL BUSINESS ($ IN THOUSANDS) ================================================================================ Revised EBITDA ------------------------------------- Purchase Price(a) Year Amount Multiple Paid - ----------------- -------------------- -------------- --------------- $243,496 1997 Adjusted $43,040 5.7x $243,496 Revised 1998 Budget $45,689 5.3x $243,496 Adjusted 1998 Budget $37,455 6.5x $243,496 1999 Projected $49,606 4.9x ________________________________________________________________________________ (a) Represents A.G. Edwards' estimate of the portion of the $363.5 million price being paid for Oil's heating oil business that can be attributable to its core business. Calculation: $363.5 million X 67.0%. See page 21. Page 22 RELATIVE CONTRIBUTION ANALYSIS(a) ($ IN THOUSANDS) GAS' AVERAGE EBITDA CONTRIBUTION 96-97 35.4% EBITDA(b) 98-99 33.4% [PIE CHART APPEARS HERE] 96-99 34.3% FOR GAS' CONTRIBUTION OF APPROXIMATELY 34% OF IMPLIED FIRM VALUE THE COMBINED ENTITY'S SEPTEMBER 30, 1998 EBITDA, IT WILL RECEIVE APPROXIMATELY 41% OF [PIE CHART APPEARS HERE] THE IMPLIED FIRM VALUE. _______________________________ (a) For purposes of its analysis, A.G. Edwards converted Oil's historical December 31st fiscal year-end to a September 30th fiscal year-end for comparison purposes. Oil's projections are based on a December 31st calendar year end. Other measures of relative contribution analysis are non- meaningful. (b) Includes only heating oil EBITDA for Oil. (c) Implied firm value of only Oil's heating oil assets. Page 23 ACCRETION/DILUTION ANALYSIS VARIATIONS IN MARGIN GROWTH RATES AND ACQUISITION ASSUMPTIONS (a) 1998 estimate assumes no acquisitions for either company, and is adjusted to reflect actual results through 3/31/98. (b) 1998 budgeted. (c) Defined as (DCF + Int)/[((GP units + common units)* MQD) + Int)] Page 24
============================================================================================================= $2.50 PER SHARE OF PETRO --------------------------------------------------------------------- GAS $0.005 MARGIN GROWTH $0.00 MARGIN GROWTH STAND-ALONE $30.0MM AT 4.75X ACQUISITIONS $30.0MM AT 5.25X ACQUISITIONS ----------- ----------------------------- ---------------------------------- DCF PER UNIT 1998E (a) $1.220 $1.580 $1.580 1998N (b) 1.760 2.420 2.420 1999P 1.900 2.730 2.440 ACCRETION/DILUTION 1998E (a) 29.5% 29.5% 1998N (b) 37.5% 37.5% 1999P 43.7% 28.4% COMMON UNIT COVERAGE 1998E (a) 0.90x 0.94x 0.94x 1998N (b) 1.30 1.44 1.44 1999P 1.34 1.54 1.37 TOTAL UNIT COVERAGE 1998E (a) 0.55x 0.72x 0.72x 1998N (b) 0.80 1.10 1.10 1999P 0.86 1.19 1.06 LEVERAGED UNIT COVERAGE (c) 1998E (a) 0.94x 0.97x 0.97x 1998N (b) 1.15 1.20 1.20 1999P 1.17 1.25 1.17 - ------------------------------------------------------------------------------------------------------------- ============================================================================================================= $2.25 PER SHARE OF PETRO --------------------------------------------------------------------- $0.005 MARGIN GROWTH $0.00 MARGIN GROWTH $30.0MM AT 4.75X ACQUISITIONS $30.0MM AT 5.25X ACQUISITIONS --------------------------------- ---------------------------------- DCF PER UNIT 1998E (a) $1.620 $1.620 1998N (b) 2.480 2.480 1999P 2.800 2.500 ACCRETION/DILUTION 1998E (a) 32.8% 32.8% 1998N (b) 40.9% 40.9% 1999P 47.4% 31.6% COMMON UNIT COVERAGE 1998E (a) 0.94x 0.94x 1998N (b) 1.44 1.44 1999P 1.54 1.38 TOTAL UNIT COVERAGE 1998E (a) 0.74x 0.74x 1998N (b) 1.13 1.13 1999P 1.22 1.09 LEVERAGED UNIT COVERAGE (c) 1998E (a) 0.97x 0.97x 1998N (b) 1.20 1.20 1999P 1.25 1.17 - ------------------------------------------------------------------------------------------------------------- PUBLIC COMPANY ANALYSIS [_]A.G. Edwards compared certain financial and market information of Gas on a historical and pro forma basis to that of certain public master limited partnerships which A.G. Edwards deemed relevant for the purposes of this analysis. A.G. Edwards reviewed the trading multiples from a total of 6 public propane master limited partnerships. [_]The selected propane master limited partnerships are as follows: - AmeriGas Partners, L.P. - Heritage Propane Partners, - Cornerstone Propane Partners, L.P. L.P. - National Propane Partners, - Ferrell Gas Partners, L.P. L.P. - Suburban Propane Partners, L.P. [_]No company used in the analysis is identical to Gas. PUBLIC COMPARABLE COMPANIES (a) - ------------------------------------------------------------------------------- - -------- (a) Public comparable companies include: APU, CNO, FGP, HPG, CNL and SPH. (b) Firm value/adjusted 1998 budget EBITDA. (c) Firm value/1999 estimated EBITDA. (d) Equity market cap/adjusted 1998 budget EBITDA. (e) Equity market cap/1999 estimated DCF. (f) Adjusted 1998 budget. (g) 1999 estimates. (h) Defined as (DCF + interest)/(((GP units + common units)*MQD)+interest). Page 25
PUBLIC PUBLIC PRO FORMA COMPANY COMPANY GAS GAS MEDIANS RANGES ----------- ----------- ------- -------------- Yield 10.3% 10.8% 9.5% 8.7% to 10.7% Firm value/LTM EBITDA 12.2x(b) 10.7x(b) 12.3x 9.1x to 18.5x Firm value/1998 normalized EBITDA 8.8x(c) 8.0x(c) 11.0x 10.2x to 13.7x Equity Market Cap/LTM DCF 17.6x(d) 14.0x(d) 16.0x 8.6x to 24.8x Equity Market Cap/1998 normalized DCF 10.4x(e) 7.8x(e) 13.6x 11.6x to 16.6x LTM common unit coverage 0.9x(f) 0.9x(f) 1.4x 0.6x to 1.5x 1998E common unit coverage 1.3x(g) 1.6x(g) 1.4x 0.9x to 1.8x LTM total unit coverage 0.6x(f) 0.7x(f) 0.7x 0.4x to 1.1x 1998E total unit coverage 0.9x(g) 1.2x(g) 0.7x 0.7x to 1.0x 1998E leveraged unit coverage 1.2x(g)(h) 1.3x(g)(h) 1.1x 0.9x to 1.3x PUBLIC COMPANY ANALYSIS ($ IN MILLIONS, EXCEPT PER UNIT DATA) _____________________________________________ 1998 estimates per A.G. Edwards' research, except for Gas, Oil, and Pro Forma. Implied Firm Value equals common, subordinated and GP units, multiplied by the market price of common units plus debt, less cash. (a) Pro forma for the Pearl Gas acquisition and the common unit offering, Fiscal 1997 maintenance capital expenditure used as LTM figure. (b) For Gas and Pro forma only, LTM DCF figures are adjusted 1998 budget DCF estimates. (c) For Gas and Pro forma only, FY98E DCF figures are 1999 DCF estimates. (d) Financial information pro forma for common unit offering. Maintenance capital expenditures assumed to be 8% of EBITDA due of lack of disclosure. (e) Maintenance capital expenditures assumed to be 8% of EBITDA due to lack of disclosure. (f) Financial figures exclude $5.1 million gain from sale of minority interest. (g) 14,425 units x $21.375. (h) $308.3 in equity plus $318.989 pro forma debt, less $13.506 cash and $9.350 in cash collateral. Page 26
- ------------------------------------------------------------------------------------------------------------------------------------ CLOSING IMPLIED IMPLIED COMMON PRICE ON MARKET VALUE FIRM DISTRIBUTION UNITS/ COMPANY TICKER (5/15/98) OF EQUITY VALUE PER UNIT YIELD TOTAL UNITS - ------------------------------------------------------------------------------------------------------------------------------------ Gas (a) $21.375 $ 135.8 $ 223.6 $2.20 10.3% 60.3% AmeriGas Partners, L.P. APU 24.688 1,055.2 1,746.1 2.20 8.9% 52.8% Cornerstone Propane Partners, L.P. (d) CNO 21.875 442.7 673.7 2.16 9.9% 66.7% Ferrellgas Partners, L.P. (e) FGP 21.750 694.5 1,220.2 2.00 9.2% 47.0% Heritage Propane Partners, L.P. HPG 23.000 196.7 370.8 2.00 8.7% 55.8% National Propane Partners, L.P. NPL 19.688 225.7 365.9 2.10 10.7% 59.6% Suburban Propane Partners, L.P. (f) SPH 19.063 558.8 925.1 2.00 10.5% 75.1% - ------------------------------------------------------------------------------------------------------------------------------------ MEAN 9.6% 59.5% MEDIAN 9.5% 57.7% - ------------------------------------------------------------------------------------------------------------------------------------ PRO FORMA $21.375 $ 308.3 (G) $ 604.5 (H) $2.30 10.8% 75.5% - ------------------------------------------------------------------------------------------------------------------------------------ LTM COMMON LTM TOTAL FY98E FY98E COMMON FY98E TOTAL COMPANY UNIT COVERAGE UNIT COVERAGE DCF/UNIT UNIT COVERAGE UNIT COVERAGE - ------------------------------------------------------------------------------------------------------------------------------------ Gas (a) 0.9x (b) 0.6x (b) $1.90 (c) 1.3x (c) 0.9x (c) AmeriGas Partners, L.P. 1.5x 0.8x 1.88 1.6x 0.9x Cornerstone Propane Partners, L.P. (d) 0.8x 0.5x 1.47 1.1x 0.7x Ferrellgas Partners, L.P. (e) 1.4x 0.7x 1.34 1.4x 0.7x Heritage Propane Partners, L.P. 1.3x 0.8x 2.00 1.8x 1.0x National Propane Partners, L.P. 0.6x 0.4x 1.60 1.3x 0.8x Suburban Propane Partners, L.P. (f) 1.5x 1.1x 1.41 0.9x 0.7x - ------------------------------------------------------------------------------------------------------------------------------------ MEAN 1.2x 0.7x 1.4x 0.8x MEDIAN 1.4x 0.7x 1.4x 0.7x - ------------------------------------------------------------------------------------------------------------------------------------ PRO FORMA 0.9x (B) 0.7x (B) 2.73 (C) 1.6x (C) 1.2x (C) PUBLIC COMPANY ANALYSIS _______________________________ EBITDA is defined as net income (loss) before extraordinary items plus interest, income taxes, depreciation and amortization, impairment expense, and other non-recurring and non-operating items. (a) Defined as (DCF + interest)/(((GP units + common units)*MQD)+interest). (b) For Gas and Pro forma only, LTM leveraged unit coverage figures use adjusted 1998 budget estimates. (c) For Gas and Pro forma only, 1998E leveraged unit coverage figures use 1999 estimates. (d) For Gas and Pro forma only, LTM EBITDA figures are adjusted 1998 budget estimates. (e) For Gas and Pro forma only, 1998E EBITDA figures are 1999 estimates. (f) For Gas and Pro forma only, LTM DCF figures are adjusted 1998 budget DCF estimates. (g) For Gas and Pro forma only, 1998E DCF figures are 1999 DCF estimates. Page 27
------------------------------------------------------------------------------------------------------------------------------- LTM 1998E LONG TERM LTM FIRM VALUE/ FIRM VALUE/ LEVERAGED LEVERAGED DEBT/ EBITDA/ LTM 1998E UNIT COVERAGE(A) UNIT COVERAGE(A) FIRM VALUE INT. EXP. EBITDA EBITDA --------------------------------------------------------------------------------------------- GAS 0.9x (b) 1.2x (c) 42.9% 2.3x (d) 12.2x (d) 8.8x (e) AmeriGas Partners, L.P. 1.2x 1.3x 39.8% 2.2x 11.8x 11.3x Cornerstone Propane Partners, L.P. 0.9x 1.0x 34.6% 2.4x 14.7x 13.7x Ferrellgas Partners, L.P. 1.2x 1.1x 40.6% 2.1x 12.8x 12.3x Heritage Propane Partners, L.P. 1.1x 1.3x 46.2% 2.6x 10.9x 10.5x National Propane Partners, L.P. 0.8x 1.1x 37.6% 2.7x 18.5x 10.7x Suburban Propane Partners, L.P. 1.3x 0.9x 46.3% 3.1x 9.1x 10.2x ------------------------------------------------------------------------------------------------------------------------------- MEAN 1.1x 1.1x 40.8% 2.5x 13.0x 11.5x MEDIAN 1.1x 1.1x 40.2% 2.5x 12.3x 11.0x ------------------------------------------------------------------------------------------------------------------------------- PRO FORMA 1.0x (b) 1.3x (c) 52.8% 2.0x (d) 10.7x (d) 8.0x (e) ------------------------------------------------------------------ Equity Equity Market Cap/ Market Cap/ LTM DCF 1998E DCF ----------------------------- GAS 17.6x (f) 10.4x (g) AmeriGas Partners, L.P. 14.8x 13.4x Cornerstone Propane Partners, L.P. 19.5x 16.4x Ferrellgas Partners, L.P. 16.4x 16.6x Heritage Propane Partners, L.P. 15.6x 11.6x National Propane Partners, L.P. 24.8x 12.6x Suburban Propane Partners, L.P. 8.6x 13.8x ------------------------------------------------------------------ MEAN 16.6x 14.1x MEDIAN 16.0x 13.6x ------------------------------------------------------------------ PRO FORMA 14.0x (f) 7.8x (g) DISCOUNTED CASH FLOW ANALYSIS GAS - STAND ALONE ($ in thousands) ______________________________________________________________ (a) Based on management projections. (b) Based on comparable companies' WACC. (C) Gas' current firm value of $223.6 million/$21.730 million normalized 1998 EBITDA = 10.3x, which represents a multiple of current year normalized EBITDA. (d) Discount factor calculated using half-year convention. (e) Terminal value calculated using EBITDA multiple. (f) Represents total projected debt less cash as of 9/30/98 (g) Total units include common, subordinated and GP units. (h) Current market value of common units is 3,832 units *$21.375 unit price = $81,909 Page 28
=========================================================================================================================== INCOME STATEMENT SUMMARY (a): 1998 1999 2000 2001 2002 TERMINAL - ---------------------------- ------ ------- ------- ------- ------- ---------- EBITDA 18,279 25,299 26,728 28,157 29,586 % increase 38.4% 5.6% 5.3% 5.1% Net income (1,321) 2,489 2,396 2,601 2,818 CASH FLOW SUMMARY: - ------------------ After-tax EBI 11,494 12,011 12,696 13,380 Depreciations and amortization 13,780 14,693 15,435 16,182 Maintenance capital expenditures (3,185) (3,242) (3,301) (3,360) Working capital increases (500) (500) (500) (500) ------- ------- ------- ------- Net operating cash flow (free cash flow) 21,589 22,962 24,330 25,702 ---------- WEIGHTED AVERAGE COST OF CAPITAL (b) 7.8% ---------- ---------- TERMINAL EBITDA MULTIPLE (c) 10.3x ---------- Discount factor (d) 0.9630 0.8930 0.8281 0.7679 0.7395 Terminal value (e) $304,736 ---------- PRESENT VALUE $ 306,529 $20,790 $20,505 $20,148 $19,737 $225,350 ---------- ------- ------- ------- ------- -------- Current net debt (f) $(113,629) ---------- NET PRESENT VALUE OF EQUITY $ 192,900 ========== Common units/Total units (g) 60.3% ---------- EQUITY VALUE TO COMMON UNITS (h) $ 116,310 ---------- DISCOUNTED CASH FLOW ANALYSIS GAS - PRO FORMA PAINEWEBBER MODEL (a) ($ in thousands) _____________________________________________________ (a) Scenario assumes 4.1% steady attrition, $0.005 margin improvement, and $30 million in acquisitions at 4.75 multiple. (b) Based on management projections. (c) A.G. Edwards' assumption. (d) Based on comparable companies' WACC. (e) Gas' current firm value of $223.6 million/$21.730 million normalized 1998 EBITDA=10.3x, which represents a multiple of current year normalized EBITDA. (f) Discount factor calculated using half-year convention. (g) Terminal value calculated using EBITDA multiple. (h) Represents total proforma projected debt less cash and cash collateral as of 9/30/98. (i) Total units include common, newly issued common, senior subordinated, subordinated and GP units. (j) Current market value of common units is 3,832 units *$21.375 unit price = $81,909 Page 29
==================================================================================================================================== INCOME STATEMENT SUMMARY (b): 1998 1999 2000 2001 2002 Terminal - ----------------------------- ------- -------- ------- -------- ------- -------- EBITDA 56,234 75,405 80,900 86,317 91,668 % increase 34.1% 7.3% 6.7% 6.2% Net income (13,029) 210 (2,387) (5,180) (8,137) CASH FLOW SUMMARY: - ----------------- After-tax EBI 28,886 28,639 28,306 27,897 Depreciation and amortization 45,995 51,736 57,486 63,245 Maintenance capital expenditures (6,826) (6,956) (7,089) (7,224) Working capital increases (c) (1,000) (1,000) (1,000) (1,000) -------- ------- ------- ------- Net operating cash flow (free cash flow) 67,055 72,419 77,703 82,918 ---------- WEIGHTED AVERAGE COST OF CAPITAL (d) 7.8% ---------- ---------- TERMINAL EBITDA MULTIPLE (e) 10.3x ---------- Discount factor (f) 0.9632 0.8936 0.8290 0.7690 0.7407 Terminal value (g) $944,180 ---------- PRESENT VALUE $956,846 $64,586 $64,710 $64,413 $63,767 $699,370 ----------- ---------- ---------- ---------- ---------- ---------- Less net debt (h) ($296,133) ---------- NET PRESENT VALUE OF EQUITY $660,713 ========== Original common units/Total units (i) 26.6% ---------- EQUITY VALUE TO COMMON UNITS (J) $175,506 ---------- CAPITAL STRUCTURE ANALYSIS GAS - PRO FORMA AS OF 9/30/98 ($ in thousands) Page 30
====================================================================================================== Pro forma Gas Oil Adjustments Gas ---------- ---------- ------------- ----------- Debt: 8.04% First Mortgage Notes $ 85,000 - - $ 85,000 7.25% WC Revolver 7,457 - - 7,457 7.25% Acquisition Facility 10,673 - - 10,673 7.17% First Mortgage Notes 11,000 - - 11,000 11.96% Senior Notes - $ 60,000 ($60,000) - 14.10% Senior Notes - 3,100 (3,100) - 14.10% Subordinated Notes - 3,100 (3,100) - 10.13% Sub Notes & Sr Notes - 50,000 (50,000) - 9.38% Sub Notes & Sr Notes - 75,000 (75,000) - 12.25% Sub Notes & Sr Notes - 81,250 (81,250) - 8.00% Existing Acq Notes Payable - 13,859 - 13,859 8.46% Exchange Debt - - 66,000 66,000 8.50% New Debt - - 125,000 125,000 ---------- ---------- ------------- ----------- TOTAL DEBT: $114,130 $286,309 ($81,450) $318,989 WEIGHTED AVERAGE COST OF DEBT 8.2% PREFERRED STOCK: 14.33% Preferred Stock $ 0 $ 4,167 ($4,167) $ 0 12.88% Preferred Stock - 30,000 (30,000) - ---------- ---------- ------------- ----------- - $ 34,167 ($34,167) - COMMON EQUITY $ 67,041 ($210,015) $115,204 ($27,770) ------------------------------------------------------------------------------------------------------
SPECIAL COMMITTEE DRAFT 5/26/98 STAR GAS PARTNERS, L.P. REVISED PROPOSAL After careful consideration of the Proposed Transaction and the views expressed by Petro and PaineWebber, the Special Committee and its advisors recommend that further refinement and evaluation of the Proposed Transaction is appropriate. Subject to further diligence and assuming no material adverse changes in Star or Petro, or in market conditions, the Special Committee proposes that the transaction contain the following safeguards for the benefits of Star's common unitholders; (A) Star Partnership Agreement. Appropriate steps should be initiated -------------------------- to amend the Star Partnership Agreement as of the closing date (assumed to be September 30, 1998) in order to include as a minimum: (A-1) authorizing the creation of new classes of senior subordinated units and deferred partnership units, which shall be junior to all present and future common units; (A-2) prohibiting the payment of any distributions to senior subordinated unitholders and to subordinated unitholders except from net distributable cash flow available from the preceding twelve months after first paying $2.30 per unit to the common unitholders for such period plus any cumulative common unit arrearages from prior period(s); and (A-3) providing a surplus available for common unit distributions equal to $1.10 per new common unit, as part of the Refinancing Transaction (described below). (B) Definitive Transaction Agreement. A draft of the definitive -------------------------------- transaction agreement should be prepared by Petro for the Special Committee's careful consideration (and for future submission to the Board of Directors and common unitholders of Star and to the Board of Directors and shareholders of Petro for approval) setting forth at least the following steps: (B-1) At closing of the Transaction, Star shall be obligated to deliver to Petro's common shareholders the following: (a) 2,718,000 new senior subordinated units of Star; (b) 524,000 subordinated units of Star; the balance must be delivered to Star free and clear for retirement; (c) 289,000 GP units of Star; and (d) 909,000 new deferred partnership units of Star, convertible into senior subordinated units at 33 1/3% per annum for each year in which Petro's after-tax income contributes accretion to every Star unit in excess of $0.50. (B-2) The Closing shall be contingent upon the successful completion of the following (collectively, the "Refinancing Transaction"): (a) The issuance of no more than 6,588,000 new common units at a price per unit of at least $21 with a gross spread of no greater than 5.0%, and (b) The issuance of $125,000,000 of a new debt with an interest rate no higher than 8.5% with a gross spread of no greater than 3.0%. The use of proceeds of the Refinancing Transaction shall be solely to refinance certain of the outstanding indebtedness assumed from Petro. (B-3) Prior to the closing of the Transaction, Petro shall represent, warrant and agree that: (a) Prior to the Refinancing Transaction, Petro shall have a balance of debt and preferred stock (at redemption value), less any cash balance in excess of such amounts required in (B-3) (b) below, of no more than $331,367,000. (b) Petro shall have a minimum cash balance of $500,000, a positive working capital balance, and a total stockholders' deficit on its balance sheet of no greater than $210,000,000, all as of the Closing (assumed to be September 30, 1998). (c) Petro shall set up appropriate reserves and fund all of the following transactions costs: the gross spread on the issuance of the new debt referred to in (B-2) (b); financial advisory fees and fairness opinions for Petro and Star; legal, accounting and printing fees for Petro and Star; all exchange and solicitation fees related to the retirement or redemption of Petro's debt and preferred stock; all appraisals and environmental reports; all rating agencies and bank fees; and all other out-of-pocket costs and expenses associated with the Transaction. (B-4) Prior to the Closing of the Transaction, Petro shall not declare or distribute any cash dividends to its common shareholders.
SPECIAL COMMITTEE DRAFT 7/28/98 STAR GAS PARTNERS, L.P. REVISED PROPOSAL Subject to further due diligence, and assuming no material adverse changes in Star, Petro or market conditions, the Special Committee of Star proposes that an acquisition of Petro by Star contain the following: (A) Star Partnership Agreement. Appropriate steps should be initiated to -------------------------- amend the Star Partnership Agreements as of the closing date in order to include, as a minimum: (A-1) authorizing the creation of a new class of senior subordinated units, which shall be junior to all present and future common units; (A-2) subordinating the GP units in terms of their distribution rights to equal those of the subordinated units, which in turn shall be junior to all present and future common and senior subordinated units; (A-3) increasing the MQD and actual distribution to $2.30 per unit on an annualized basis; (A-4) prohibiting the payment of any distributions to senior subordinated, subordinated and GP units from anything but Adjusted Operating Surplus (i.e. what is "earned") over the latest twelve months after first paying the MQD per unit to the common unitholders for such period plus any cumulative common units arrearages from prior period(s); and (A-5) an increase in the Operating Surplus basket equal to: $6.0 million New common units ------------ Common units issued in the Outstanding as of Refinancing 7/27/98 x Transaction (B) Definitive Transaction Agreement. A draft of the definitive -------------------------------- transaction agreement should be prepared by Petro for the Special Committee's careful consideration (and for future submission to the Board of Directors and common unitholders of Star and to the Board of Directors and shareholders of Petro for approval) setting forth at least the following steps: (B-1) At closing of the transaction, Star shall be obligated to deliver to Petro's common shareholders the following: (a) 2,809,000 new senior subordinated units of Star; (b) 537,000 subordinated units of Star; the balance must be delivered to Star free and clear for retirement; (c) GP units of Star equaling no greater than 2% of the total units outstanding at closing, and (d) special distribution rights limited to an aggregate of 909,000 senior subordinated units. A special distribution of 303,000 senior subordinated units will be granted to the senior subordinated, subordinated and GP unitholders each time Petro Accretion (to be subsequently defined) exceeds $0.50 per unit for the latest twelve months. The first test will be twelve months after the closing, and such tests will not be more often than once every twelve months. If the tests are not met within four years after the closing, then the right to earn the special distribution will lapse. (B-2) The closing shall be contingent upon the successful completion of the following (collectively, the "Refinancing Transaction"): (a) the issuance of no more than an aggregate of $140 million of new common and/or subordinated units, excluding any overallotment option of no greater than 15% associated with a common unit offering, with a gross spread of no greater than 5.0%; and (b) the issuance of no more than $120 million of new debt with a gross spread of no greater than 3.0%. The use of proceeds of the Refinancing Transaction shall be solely to refinance certain of the outstanding indebtedness assumed from Petro. Further, the cost of capital from the equity and debt raised in the Refinancing Transaction may not exceed $27.5 million on an annual basis. "The cost of capital from the equity and debt raised in the Refinancing Transaction on an annual basis" shall be calculated as follows: (A) the number of new units issued in (B-2)(a) multiplied by $2.30 per unit, plus (B) the amount of new debt issued in (B-2)(b) multiplied by the offering yield of such new debt. (B-3) Prior to the closing of the transaction, Petro shall represent, warrant and agree that: (a) Prior to the Refinancing Transaction, the sum of the pro forma principal amount of Petro debt which is restructured plus the redemption/repurchase price of all debt and preferred stock redeemed in the transaction (including the value of Petro stock issued in connection with the redemption option), less any cash balance in excess of such amounts required in (B-3) (b) below, shall be no greater than $331,367,000. (b) Petro shall have a minium cash balance of $500,000, a positive working capital balance, and a total stockholders' defict on its balance sheet on closing if no greater than Maximum Stockholders' Deficit (to be subsequently defined based on updated projections and anticipated closing dates). (c) Petro shall set up appropriate reserves and fund all of the following transactions costs: the gross spread on the issuance of the new debt referred to in (B-2) (b); financial advisory fees and fairness opinions for Petro and Star; legal, accounting and printing fees for Petro and Star; all exchange and solicitation fees related to the retirement or redemption of Petro's debt and preferred stock; all appraisals and environmental reports; all rating agencies and bank fees; and all other out-of-pocket costs and expenses associated with the transaction. (B-4) Prior to the closing of the transaction, Petro shall not declare or distribute any cash dividends to it common shareholders.
FAIRNESS OPINION PRESENTATION TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF STAR GAS CORPORATION Confidential A.G.EDWARDS & SONS, INC. INVESTMENT BANKING October 16, 1998
TABLE OF CONTENTS Section ------- Introduction..................................................... I Review of Events to Date......................................... II Summary of the Transaction....................................... III Summary Observations and Conclusions............................. IV Appendices are separately bound: Appendix I Analyses Performed Under 30-Year Weather Scenario Appendix II Analyses Performed Under 15-Year Weather Scenario Introduction TRANSACTION PROPOSAL [_] During 1997, Star Gas Partners Corporation (the "General Partner") and Petroleum Heat and Power Co., Inc. ("Petro") discussed the idea of a possible acquisition of Petro by Star Gas Partners, L.P. ("Star Gas" or the "Partnership"). The overall transaction (the "Transaction") consists of the following four principal parts: - The acquisition of Petro by the Partnership; - Public offerings of debt and equity by the Partnership and the redemption of certain debt and preferred stock of Petro (the "Financings"); - The withdrawal of Star Gas Corporation as the general partner of the Partnership and Star Gas Propane, L.P. (the "Operating Partnership"), and the election of Star Gas LLC as the new general partner; and - Amending the Agreement of Limited Partnership of the Partnership and the Operating Partnership in order to consummate the Transaction. A.G.EDWARDS' [_] By letter engagement, dated March 23, 1998, A.G. ENGAGEMENT Edwards & Sons, Inc. ("A.G. Edwards") was engaged by the Special Committee (the "Special Committee") of the Board of Directors of the General Partner (the "Board") to act as its financial advisor with respect to the Transaction and to issue to the Special Committee an opinion as to the fairness, from a financial point of view, to the public common unitholders of Star (the "Public Common Unitholders"), of the Transaction (the "Fairness Opinion"). [_] The preparation of a fairness opinion is not susceptible to partial analyses or summary. In rendering its Fairness Opinion, A.G. Edwards applied its judgment to a variety of complex analyses and assumptions. A.G. Edwards may have given various analyses more or less weight than other analyses, and may have deemed various assumptions more or less probable than other assumptions. The assumptions made and the judgments applied by A.G. Edwards in rendering its opinion are not readily susceptible to description beyond that set forth in the written text of the Fairness Opinion itself. INTRODUCTION (continued) AS PART OF ITS ENGAGEMENT, [_] A review of the Form S-4 Registration A.G. EDWARDS' ACTIVITIES Statement and exhibits thereto, including the INCLUDED, BUT WERE NOT Agreement and Plan of Merger, the Exchange LIMITED TO, THE FOLLOWING: Agreement, the Amended and Restated Agreement of Limited Partnership and the Conveyance and Contribution Agreements. [_] A review of certain publicly-available Partnership and Petro historical audited financial statements and certain unaudited interim financial statements; [_] A review of certain financial analyses and forecasts of the Partnership prepared by and reviewed with management of the General Partner and the views of management of the General Partner regarding the Partnership's past and current business operations, results thereof, financial condition and future prospects, including the impact of the Transaction, as well as information relating to the retail propane distribution industry and the potential strategic, financial and operational benefits and challenges anticipated from the Transaction; [_] A review of certain financial analyses and forecasts of Petro prepared by and reviewed with management of Petro and the views of management of Petro regarding Petro's past and current business operations, results thereof, financial condition and future prospects, including the impact of the Transaction, as well as information relating to the retail home heating oil distribution industry and the potential strategic, financial and operational benefits and challenges anticipated from the Transaction; [_] A review of the pro forma impact of the Transaction on the Partnership and Petro; [_] A review of the publicly reported historical price and trading activity for the Partnership's Common Units and Petro's Class A Common Stock, including a comparison of certain financial and stock market information for the Partnership with similar publicly available information for certain other companies, the securities of which are publicly traded; INTRODUCTION (continued) [_] A review of the current market environment generally, and the retail propane distribution environment and the retail home heating oil distribution environment in particular; [_] A review of information relating to the financial terms of certain transactions, including selected mergers and acquisition transactions; [_] Conversations with PaineWebber regarding the nature and extent of development of the terms of the Transaction; and [_] A review of such other information, financial studies, analyses and investigations, and financial, economic and market criteria that A.G. Edwards considered relevant. NATURE OF INFORMATION [_] In rendering its Fairness Opinion, A.G. REVIEWED AND PRESENTED Edwards has relied upon and assumed, without independent verification, the completion of the Financings and the Transaction in accordance with the Agreement and Plan of Merger, and the accuracy and completeness of all financial and other information, publicly available, furnished to, or otherwise discussed with A.G. Edwards for the purposes of the Fairness Opinion. With respect to financial projections and other information provided to or otherwise discussed with A.G. Edwards, A.G. Edwards assumed and was advised by the management of the General Partner and Petro, respectively, that such projections and other information were reasonably prepared on a basis that reflects the best currently available estimates and judgments of the management of the General Partner and Petro, respectively. A.G. Edwards did, however, review numerous sets of projections for Petro and analyzed what it believed were certain of the major assumptions embedded within Petro's projections. A.G. Edwards used two sets of projections for Petro to perform its analyses. A.G. Edwards used a set of projections based on 30-year weather and a set of projections based on 15-year weather. The Special Committee did not, however, engage A.G. Edwards to, and therefore A.G. Edwards did not, verify the accuracy or completeness of any such information. A.G. Edwards has relied upon the assurances of the management of the General Partner and Petro that the respective managements are not aware of any facts that would make such information inaccurate or misleading. INTRODUCTION (continued) [ ] In performing its analyses, A.G. Edwards made numerous assumptions with respect to the retail propane distribution industry and the retail home heating oil distribution industry, and general business and economic conditions which are beyond the control of the Partnership and Petro. The analyses performed by A.G. Edwards are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of A.G. Edwards' analysis of the fairness, from a financial point of view, to the Public Common Unitholders of the Transaction. [ ] This presentation is for the private use of the Special Committee and may not be distributed to any other parties without A.G. Edwards' written permission. THE ANALYSES PRESENTED HEREIN RELATE TO THE FAIRNESS OPINION TO BE ISSUED BY A.G. EDWARDS, BUT DO NOT COMPRISE THE FAIRNESS OPINION. [ ] A.G. Edwards' Fairness Opinion, in any event, is limited to the fairness, from a financial point of view, to the Public Common Unitholders of the Transaction. The Fairness Opinion does not constitute a recommendation to any Public Common Unitholders as to how to vote with respect to the Transaction. The Fairness Opinion does not represent tax or legal advice. The summary description of the analysis described herein, is qualified in its entirety by reference to the full text of the Fairness Opinion. [ ] The Fairness Opinion is necessarily based upon financial and other conditions and circumstances existing and disclosed to it as of October 16, 1998. A.G. Edwards has been requested to update its Fairness Opinion to a date prior to the mailing of the Form S-4 Registration Statements by Petro and the Partnership. No assurance can be given that future market conditions will permit A.G. Edwards to deliver an updated Fairness Opinion. ASSUMPTIONS [ ] In rendering it Fairness Opinion, A.G. Edwards has assumed that the Transaction will be consummated on the terms contained in the Form S-4 Registration Statement and exhibits thereto, including the Agreement and Plan of Merger, the Exchange Agreement, the Amended and Restated Agreement of Limited Partnership and the Conveyance and Contribution Agreements, without any waiver of any material terms or conditions by the Partnership or Petro. The assumption that the Financings are consummated in accordance with the closing conditions of the Agreement and Plan of Merger is a material assumption. Page 4 Review of Events to Date FEBRUARY 11 [ ] A.G. Edwards presented its qualifications to the Special Committee and its legal counsel, Baker & Botts. MARCH 23 [ ] Special Committee engaged A.G. Edwards. MARCH 23 [ ] A.G. Edwards met with members of the Partnership's management and Petro's management and submitted a preliminary data request list. [ ] A.G. Edwards began due diligence review with management and other representatives of the Partnership and of Petro. MARCH 30 [ ] A.G. Edwards received data related to its preliminary data request list. APRIL 28 [ ] Special Committee and A.G. Edwards met to discuss the Transaction. MAY 4 [ ] A.G. Edwards submitted a preliminary status report (the "Preliminary Status Report") to the Special Committee. MAY 7 [ ] Special Committee and A.G. Edwards met with Petro's management and PaineWebber to discuss the Transaction and the Preliminary Status Report. MAY 8 [ ] A.G. Edwards continued onsite diligence at Petro. MAY 19 [ ] A.G. Edwards met with PaineWebber and Petro's management to discuss the Transaction. MAY 20 [ ] Special Committee, Baker & Botts and A.G. Edwards met telephonically to discuss the Transaction. MAY 26 [ ] A.G. Edwards, submitted a revised proposal (the "Preliminary Draft Proposal") to the Special Committee, which was subsequently forwarded to Petro at the Committee's request. Page 5 REVIEW OF EVENTS TO DATE (continued) JULY 28 [ ] A.G. Edwards submitted another revised proposal (the "Revised Proposal") on the behalf of the Special Committee to the Board, the Petro Board and PaineWebber. AUGUST 11 [ ] The Special Committee approved the Revised Proposal. AUGUST 13 [ ] The Petro Board approved the Revised Proposal. AUGUST 14 [ ] The Partnership and Petro announced the agreement in principle. AUGUST AND SEPTEMBER [ ] The Special Committee, with assistance from Baker & Botts and A.G. Edwards, negotiated the terms of a definitive Agreement and Plan of Merger and Exchange Agreement with Petro, Andrews & Kurth and PaineWebber. OCTOBER 16 [ ] Special Committee meeting to review documents and consider and act upon the legal agreements necessary to implement the Transaction. - The Committee had the opportunity to review, with Baker & Botts and A.G. Edwards, the following: [ ] Draft dated October 13, 1998 of the Form S-4 Registration Statement [ ] Draft dated October 8, 1998 of the Agreement and Plan of Merger [ ] Draft dated October 6, 1998 of the Amended and Restated Agreement of Limited Partnership [ ] Draft dated October 7, 1998 of the Exchange Agreement [ ] Draft dated October 9, 1998 of the Conveyance and Contribution Agreements Page 6 SUMMARY OF THE TRANSACTION PRO FORMA STAR GAS UNITS OUTSTANDING (in thousands) [ ] There are currently 6,383 Star Gas units outstanding comprised of 3,859 common units, 2,396 subordinated units and 128 implied general partner ("GP") units. The subordinated units and GP units are currently assets of Petro. [ ] There are currently 26,574 shares of Petro common stock outstanding held by public shareholders and "affiliates." The public holds 14,327 Class A shares, 11 Class B shares and 282 Class C shares. The "affiliates" hold 11,953 shares which include 9,638 Class A shares and 2,315 Class C shares. [ ] Each shareholder of Petro will receive a certain number of units in Star Gas such that the implied consideration paid for each Petro share averages $2.43 based on A.G. Edwards' estimates of the value of the units being offered to Petro as consideration. [ ] All of the publicly held 14,327 Class A shares and 282 Class C shares, and a portion of the "affiliate" held Class A shares (5,243) and Class C shares (1,328) will receive .13064 units of newly created senior subordinated units for each share (1,908 units to the public and 859 units to the "affiliates", 2,767 units in total) with an attached Contingent Unit ("CU"). See the following page for a discussion of the Contingent Units. A.G. Edwards estimates an implied value for these units of $18.52/unit. The remaining "affiliates" of Petro not receiving senior subordinated units, who hold a total of 5,382 shares, will receive .15920 units for a total of 857 junior subordinated and GP units, both of which will also include attached CUs. A.G. Edwards estimates an implied value for these units of $15.41/unit. [ ] The 2,396 subordinated units and 128 GP units currently owned by Petro will effectively be retired in the Transaction. Page 7 SUMMARY OF THE TRANSACTION PRO FORMA STAR GAS UNITS OUTSTANDING (in thousands) (continued) DESCRIPTION OF CONTINGENT UNITS [ ] During the five year period, beginning with the first full four quarters following the Merger, the senior subordinated units, junior subordinated units and general partner interests will have the right to receive up to 909,000 senior subordinated units upon Petro meeting a "Contingent Unit Test." Each time the Contingent Unit Test is met, (but not more frequently than once every four quarter period), the senior subordinated units, junior subordinated units and general partner interests will receive an aggregate of 303,000 senior subordinated units, subject to a maximum of 909,000 senior subordinated units. The Contingent Unit Test will be met during any four quarter period when distributable cash flow per unit attributable to Petro exceeds $2.90 which is 32% higher than the current annualized MQD of $2.20 and 26% higher than the proposed MQD of $2.30. Page 8 SUMMARY OF THE TRANSACTION ALLOCATION OF CURRENT PETRO SHARES OUTSTANDING (IN THOUSANDS) Page 9
--------------------------------------------------------------------------- Class A Class B Total ------- ------- -------- Groups Receiving Senior Sub --------------------------- Public 14,327 282 14,609 Affiliates 5,243 1,328 6,572 ------- ------- ------- Total Receiving Senior Sub 19,570 1,610 21,181 Groups Receiving Junior Sub and GP ---------------------------------- Affiliates 4,395 987 5,382 ------- ------- ------- Sub Total 23,965 2,598 26,562 ======= ======= Class B 11 ------- Total Shares including Class B 26,574 ======= SUMMARY OF THE TRANSACTION PRO FORMA STAR GAS UNITS OUTSTANDING PRE-FINANCING ASSUMPTIONS (IN THOUSANDS) Page 10
----------------------------------------------------------------------------------- Issued to Petro ------------------- Type of Units Current Public Affiliates Retired Pro Forma ------------- ------- ------ ---------- ------- --------- Common 3,859 - - - 3,859 Senior Subordinated - 1,908 859 - 2,767 Subordinated 2,396 - - (2,396) - Junior Subordinated & New General Partner - - 857 - 857 Old General Partner 128 - - (128) - ------ --------- 6,383 7,482 SUMMARY OF THE TRANSACTION EQUITY PURCHASE PRICE CALCULATION Implied Equity Value of Petro's Assets (units in thousands, $ in thousands, except per unit amounts) Page 11
- -------------------------------------------------------------------------------- Value of Securities Event Issued to and Retired from Petro - -------------------------------------------------------------------------------- Issuance of Senior Subordinated Units to Public Petro Shareholders 1,908 x $18.52 --------------------- $35,337 Issuance of Senior Subordinated Units to Affiliate Petro Shareholders 859 x $18.52 --------------------- $15,900 Issuance of Junior Subordinated & General Partner Units to Affiliate Petro Shareholders 857 x $15.41 --------------------- $13,203 ------------ PURCHASE PRICE OF PETRO'S EQUITY $64,439 - ------------------------------------------------------------------------------------- Divided by 26,562 shares of Petro's Common stock = $2.43 per share (Excludes 11 Class B Shares) - ------------------------------------------------------------------------------------- Retire Subordinated Units held by Petro (2,396) x $15.41 --------------------- ($36,924) Retire Old General Partner Units held by Petro (128) x $15.41 --------------------- ($1,967) ------------ EQUITY VALUE OF PETRO'S HEATING OIL ASSETS $25,549 SUMMARY OBSERVATIONS AND CONCLUSIONS POTENTIAL STRUCTURAL AND [_] Advantages to Public Common Unitholders QUALITATIVE ADVANTAGES - Increase in cash available for distribution AND DISADVANTAGES TO - Increase in the MQD to $2.30 THE PUBLIC COMMON - Priority in payment of MQD and arrearages UNITHOLDERS. over Senior Subordinated, Junior Subordinated and G.P. unitholders during subordination period - Distributions on Senior Subordinated, Junior Subordinated and General Partner units limited to amount of distributable cash generated during subordination period - Distributions on Senior Subordinated, Junior Subordinated and General Partner Units and conversion of Special Incentive Rights based on actual results versus adjusted for normal weather - Earliest date on which the subordination period would end extended to July 2002 - Acquisition growth opportunities in retail home heating oil distribution industry at historically lower multiples than retail propane distribution industry - Increase in market capitalization with potential for more liquidity - Diversifies geographic customer base [_] Disadvantages to Public Common Unitholders - Petro is several times the Partnership's size, thus changing the nature of the Partnership's business - Petro's history of operational and financial difficulties - Increases seasonality and weather risk - Taxable income will increase at a greater rate - No assurance that Petro can continue improvements (reduce attrition and improve profit margins) while making attractive acquisitions - Potential dilution in the event that the Partnership pro forma for the Transaction fails to meet its projections Page 12 SUMMARY OF OBSERVATIONS AND CONCLUSIONS (continued) IMPLIED UNIT [_] A.G. Edwards calculated a range of values for the Senior VALUE ANALYSIS Subordinated, Junior Subordinated and General Partner units, based on a required rate of return, trading yield, and discount to the common units. (See Appendix D - "Implied Unit Value Analysis") ---------------------------------------------------------- Estimated Unit Prices Summary (a) Represents required rate of return during subordination period, which is assumed for the minimum three years. Thereafter, the rate of return is assumed to equal that of the common units, for a blended required rate of return of 12.4% to 15.3% for the Senior sub and 16.25% to 18.7% for the Junior sub and GP units. (b) Based on a $2.30 annualized MQD. (c) Based on a discount to the common unit's average closing price for the last 20 trading days ended 10/14/98 of $20.26. (d) Represents the middle value of both the range of highs and lows. (e) Implied required rate of return, trading yield and discount to common at a unit price of $18.52 are 28.1% during subordination (14.7% blended), 12.4%, and 8.6%, respectively. (f) Implied required rate of return, trading yield and discount to common at a unit price of $15.41 are 39.4% during subordination (17.6% blended), 14.9%, and 23.9%, respectively. Page 13
Senior Subordinated Units -------------------------------------------------------------------------------- Range ---------------------- Required rate of return (a) 20.0% - 30.0% $17.90 - 22.28 Trading yield (b) 11.5% - 13.5% $17.04 - 20.00 Discount to common units (c) 10.0% - 20.0% $16.21 - 18.23 Range $16.21 - 22.28 Adjusted Range (d) $17.04 - 20.00 ---------------------- Assumed value (e) $18.52 ---------------------- Junior Subordinated and GP Units -------------------------------------------------------------------------------- Range ---------------------- Required rate of return (a) 35.0% - 45.0% $14.52 - 16.84 Trading yield (b) 14.0% - 16.0% $14.38 - 16.43 Discount to common units (c) 25.0% - 35.0% $13.17 - 15.19 Range $13.17 - 16.84 Adjusted Range (d) $14.38 - 16.43 ---------------------- Assumed value (f) $15.41 ---------------------- SUMMARY OBSERVATIONS AND CONCLUSIONS (continued) PRO FORMA MERGER [_] A.G. Edwards analyzed the impact of the Transaction ANALYSIS on the Partnership's distributable cash flow per unit, the related accretion, common unit coverage and total unit coverage on a pro forma basis. (See Appendix E -"Pro Forma Merger Analysis") ----------------------------------------------------- _____________________________________________________ (a) Adjusted to represent normal weather. Page 14
15-Year Weather 30-Year Weather --------------------------- --------------------------- Star Gas Star Gas Stand-alone Pro Forma Stand-alone Pro Forma ----------- ---------- ----------- ---------- DCF per unit 1998 Adjusted for Actual $ 1.27 $ 1.53 $ 1.27 $ 1.53 1998 Normalized (a) 1.62 2.15 1.84 2.40 1999 Projected 1.77 2.31 2.02 2.60 Accretion / Dilution 1998 Adjusted for Actual $ 0.26 $ 0.26 1998 Normalized (a) 0.53 0.56 1999 Projected 0.54 0.58 Common unit coverage 1998 Adjusted for Actual 0.96x 0.89x 0.96x 0.89x 1998 Normalized (a) 1.22 1.25 1.38 1.39 1999 Projected 1.30 1.33 1.51 1.51 Total unit coverage 1998 Adjusted for Actual 0.58x 0.66x 0.58x 0.66x 1998 Normalized (a) 0.74 0.94 0.84 1.05 1999 Projected 0.81 1.00 0.92 1.13 SUMMARY OF OBSERVATIONS AND CONCLUSIONS (continued) MERGER PREMIUMS TO [_] A.G. Edwards analyzed the premium of the MARKET VALUE ANALYSIS consideration to be received by Petro Common Stockholders and compared the premium to Petro's current and historical prices. These premiums were compared to premiums paid in acquisitions of majority or remaining interests announced and completed between January 1, 1996 and October 7, 1998 where the target's share price one week prior to the announcement date was either (i) equal to or less than $5, (ii) greater than $5 and less than $10, or (iii) equal to or greater than $10. (See Appendix F - "Merger Premiums to Market Value Analysis") [_] Premiums were calculated one day, one week, four weeks, three months and one year prior to the announcement of the agreement in principle for each merger. [_] A.G. Edwards observed that the means of transactions equal to or less than $5 were higher than the Petro premiums and higher than a majority of the means of other transactions. [_] The premium to Petro's current stock price ($1.031 as October 14, 1998) was 135.6%. Page 15
=================================================================================================== COMPARISON OF PREMIUMS PAID =================================================================================================== Petro at Mean of Transactions Mean of Transactions Premium to stock price prior $2.43 per Unit Equal to or Greater Than $5 to announcement on August 14th: Offer Price Less Than $5 and Less Than $10 --------------------------------------------------------------------------------------------------- One Day prior: 29.6% 39.7% 34.3% One week prior: 38.9% 48.8% 42.3% Four weeks prior: 17.8% 55.4% 48.5% Three months prior: 52.5% 67.1% 58.0% One year prior: -19.0% 53.8% 45.8% ------------------------------------------------------------------------------- Maximum 52.5% 67.1% 58.0% Minimum -19.0% 39.7% 34.3% =============================================================================== -------------------------------------------------------------- COMPARISON OF PREMIUMS PAID -------------------------------------------------------------- Mean of Transactions Premium to stock price prior Equal to or to announcement on August 14th: Greater Than $10 -------------------------------------------------------------- One Day prior: 28.1% One week prior: 32.7% Four weeks prior: 39.6% Three months prior: 77.9% One year prior: 53.2% ------------------------------------------ Maximum 77.9% Minimum 28.1% ========================================== SUMMARY OF OBSERVATIONS AND CONCLUSIONS (continued) RELATIVE CONTRIBUTION [_] A.G. Edwards analyzed the relative pro forma ANALYSIS contribution of both Star Gas and Petro to the ownership of capital in the pro forma entity based on Star Gas' and Petro's historical results from operations and their respective projections. (See Appendix G - "Relative Contribution Analysis") [_] During 1996 -1997, Star Gas would have contributed approximately 26.7% and 35.4% to the combined entity's gross profit and EBITDA, respectively. [_] On a pro forma basis during 1998-1999, using 30-year weather, Star Gas is projected to contribute approximately 28.8% and 32.8% to the combined entity's gross profit and EBITDA, respectively (or 29.0% and 32.4%, respectively, assuming 15-year weather). [_] For its gross profit and EBITDA contributions, Star Gas is expected to receive approximately 37.1% of the pro forma implied firm value. IMPLIED FIRM VALUE [GRAPH APPEARS HERE] ---------------------------- [_] Petro [_] Star Gas ---------------------------- Page 16 SUMMARY OF OBSERVATIONS AND CONCLUSIONS (continued) DISCOUNTED CASH FLOW [_] A.G. Edwards performed discounted cash flow ANALYSIS analyses for Petro, Star Gas and Star Gas Pro Forma using projected tax-adjusted operating cash flows for 1999 through 2002, terminal values calculated on 2002 EBITDA, and discount rates based on the related weighted average cost of capital. (See Appendix H -"Discounted Cash Flow Analysis") [_] A.G. Edwards noted that the Petro Stand Alone discounted cash flow values were greater than the implied equity value being paid for Petro's heating oil assets of $25.5 million, as calculated on page C-5 of Appendix I. Page 17
================================================================= PETRO STAND ALONE ----------------------------------------------------------------- 15 YEAR TERMINAL VALUE EBITDA MULTIPLE ------------------------------------------------- 6.0x 6.5x 7.0x 7.5x 8.0x ----------------------------------------------------------------- 13.4% $49,406 $65,422 $81,439 $97,455 $113,472 WACC 13.6% 47,103 62,984 78,865 94,746 110,628 13.9% 44,822 60,570 76,317 92,064 107,812 ----------------------------------------------------------------- ----------------------------------------------------------------- 30 YEAR TERMINAL VALUE EBITDA MULTIPLE ------------------------------------------------------- 6.0x 6.5x 7.0x 7.5x 8.0x ----------------------------------------------------------------- 13.4% $64,921 $81,662 $98,403 $115,143 $131,884 WACC 13.6% 62,511 79,110 95,709 112,308 128,908 13.9% 60,124 76,583 93,042 109,502 125,961 ----------------------------------------------------------------- SUMMARY OF OBSERVATIONS AND CONCLUSIONS (continued) [_] A.G. Edwards noted that the Star Gas Pro Forma discounted cash flow values were greater than (1) the Star Gas Stand Alone discounted cash flow values and (2) the current equity market value of Star Gas of $124.9 million as of October 14, 1998. Page 18
DISCOUNTED CASH FLOW STAR GAS STAND ALONE ------------------------------------------------------------------- ANALYSIS (continued) 15 YEAR TERMINAL VALUE EBITDA MULTIPLE ------------------------------------------------- 9.0x 9.5x 10.0x 10.5x 11.0x ------------------------------------------------------------------- 6.8% $92,914 $99,255 $105,597 $111,939 $118,281 WACC 7.0% 91,847 98,141 104,436 110,730 117,024 7.2% 90,790 97,037 103,284 109,532 115,779 ------------------------------------------------------------------- ------------------------------------------------------------------- 30 YEAR TERMINAL VALUE EBITDA MULTIPLE ------------------------------------------------- 9.0x 9.5x 10.0x 10.5x 11.0x ------------------------------------------------------------------- 6.8% $103,675 $110,428 $117,181 $123,935 $130,688 WACC 7.0% 102,537 109,240 115,942 122,645 129,347 7.2% 101,410 108,062 114,714 121,367 128,019 ------------------------------------------------------------------- STAR GAS PRO FORMA ------------------------------------------------------------------- 15 YEAR TERMINAL VALUE EBITDA MULTIPLE ------------------------------------------------- 9.0x 9.5x 10.0x 10.5x 11.0x ------------------------------------------------------------------- 7.3% $128,663 $136,782 $144,902 $153,021 $161,141 WACC 7.5% 127,328 135,389 143,449 151,510 159,570 7.7% 126,006 134,008 142,010 150,012 158,014 ------------------------------------------------------------------- ------------------------------------------------------------------- 30 YEAR TERMINAL VALUE EBITDA MULTIPLE ------------------------------------------------ 9.0x 9.5x 10.0x 10.5x 11.0x ------------------------------------------------------------------- 7.3% $139,743 $148,282 $156,820 $165,358 $173,896 WACC 7.5% 138,338 146,815 155,291 163,767 172,243 7.7% 136,946 145,360 153,775 162,190 170,605 ------------------------------------------------------------------- SUMMARY OF OBSERVATIONS AND CONCLUSIONS (continued) COMPARABLE [_] A.G. Edwards noted that public disclosure TRANSACTIONS ANALYSIS regarding transactions in the retail home heating oil distribution industry was extremely limited. [_] A.G. Edwards analyzed the financial terms related to divestitures by Petro of certain of its retail home heating oil branches and compared them to the implied multiples of the aggregate purchase price of Petro's heating oil assets. [_] Petro has sold three branches for an average EBITDA multiple of 9.0x. ----------------------- [_] A.G. Edwards calculated the purchase price of Petro's heating oil assets and calculated multiples based on Petro's EBITDAs. (See Appendix I - "Comparable Transaction Analysis") ------------------------------------------------------- Purchase Price of Heating Oil Assets ------------------------------------- Multiples -------------------------------------------------------
Equity purchase price of heating oil assets including SIRs $ 25,549 Cost of debt to be Redeemed ($206,250 + $2,844 premium) 209,094 Cost of Debt to be Assumed 69,646 Cost of Preferred stock at Redemption Value 31,767 Consent Fees 2,110 Transaction Fees 19,343 -------- Aggregate purchase price of heating oil assets $357,509 -------- ______________________________________________________ (a) Calculated as gross profit minus SG&A expense and direct delivery expense. Page 19
Notes -------------------------------- 15 - Year 30 - Year ---------------- --------------- 1997 Normalized EBITDA (a) - - 43,040 8.3x As a multiple of aggregate transaction value. Normalized 1998 EBITDA budget (a) 44,749 8.0x 46,900 7.6x As a multiple of aggregate transaction value. 1999 Projected EBITDA (a) 46,463 7.7x 48,706 7.3x As a multiple of aggregate transaction value. SUMMARY OF OBSERVATIONS AND CONCLUSIONS (continued) PUBLIC COMPANY [_] A.G. Edwards compared certain financial and market ANALYSIS information of Star Gas on a historical and pro forma basis to that of certain public propane master limited partnerships which A.G. Edwards deemed relevant for the purposes of this analysis. A.G. Edwards reviewed the trading multiples of a total of six master limited partnerships. (See Appendix J - "Public Company Analysis") [_] The selected propane master limited partnerships are as follows: [_] No partnership used in the analysis is identical to Star Gas.
- AmeriGas Partners, L.P. - Heritage Propane Partners, L.P. - Cornerstone Propane Partners, L.P. - National Propane Partners, L.P. - Ferrellgas Partners, L.P. - Suburban Propane Partners, L.P. (a) Public comparable companies include: APU, CNO, FGP, HPG, NPL and SPH. (b) Firm value/adjusted for actual 1998 budget EBITDA for Star and Pro Forma Star. (c) Equity market cap/adjusted for actual 1998 budget EBITDA for Star and Pro Forma Star. Page 20
======================================================================================================== PUBLIC COMPARABLE COMPANIES (a) ======================================================================================================== Star Pro Forma Star Public Company Public Company ----------------- ------------------ 15-Year 30-Year 15-Year 30-Year Medians Ranges -------------------------------------------------------------------------------------------------------- Yield 11.2% 11.2% 11.8% 11.8% 10.1% 9.1% to 23.3% Firm value/LTM EBITDA (b) 12.5x 12.5x 10.0x 10.0x 11.6x 9.0x to 12.7x Firm value/1999E EBITDA 10.2x 9.6x 8.1x 7.7x 9.2x 8.4x to 11.1x Equity Market Cap/LTM DCF (c) 15.4x 15.4x 12.5x 12.5x 13.4x 8.1x to 15.3x Equity Market Cap/1999E DCF 10.6x 9.6x 8.1x 7.4x 9.8x 4.9x to 12.2x --------------------------------------------------------------------------------------------------------
Appendix I to FAIRNESS OPINION PRESENTATION TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF STAR GAS CORPORATION Analyses performed under 30-year weather scenario CONFIDENTIAL A.G. EDWARDS & SONS, INC. INVESTMENT BANKING October 16, 1998 TABLE OF CONTENTS Section ------- Overview of Petroleum Heat and Power Co., Inc.................... A Overview of Star Gas Partners, L.P............................... B Summary of the Transaction....................................... C Implied Unit Value Analysis...................................... D Pro Forma Merger Analysis........................................ E Merger Premiums to Market Value Analysis......................... F Relative Contribution Analysis................................... G Discounted Cash Flow Analysis.................................... H Comparable Transactions Analysis................................. I Public Company Analysis.......................................... J Pro Forma Model.................................................. K Overview of Petroleum Heat and Power Co., Inc. ("Petro") Selected Financial Data ($ in thousands) - -------------------------------------------------------------------------------- (a) Star Gas operations consolidated into Petro. (b) Weighted shares do not include Class B shares. (c) Calculated as gross profit minus SG&A expense and direct delivery expense. (d) Excludes $867 for early extinguishment of debt. (e) Excludes $655 for early extinguishment of debt. (f) Excludes $1,436 for early extinguishment of debt. (g) Excludes $6,414 for early extinguishment of debt. (h) Excludes $11,400 gain on sale of TLC. (i) Management's estimates. Page A-1
- ------------------------------------------------------------------------------------------------------------------------------------ Historical Years Ended December 31, ------------------------------------------------------------------------------------------------------------- 1993 % 1994(a) % 1995(a) % 1996 % 1997 % - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $538,526 100.0% $546,677 100.0% $609,507 100.0% $608,161 100.0% $548,141 100.0% % Growth 1.5% 11.5% -0.2% -9.9% Cost of sales 366,810 68.1% 362,981 66.4% 387,825 63.6% 427,388 70.3% 379,748 69.3% ------------------ ------------------ ------------------ ------------------ ------------------ Gross profit 171,717 31.9% 183,696 33.6% 221,682 36.4% 180,773 29.7% 168,393 30.7% SG&A expenses 93,379 17.3% 95,314 17.4% 128,295 21.0% 105,601 17.4% 102,377 18.7% Direct delivery expense 29,902 5.6% 32,995 6.0% 36,634 6.0% 33,102 5.4% 30,006 5.5% Restructuring charges - - - 1,150 0.2% 2,850 0.5% Corporate identity expenses - - - 2,659 0.4% 4,136 0.8% Pension curtailment expense - - - 557 0.1% 654 0.1% Amortization of customer lists 23,183 4.3% 19,748 3.6% 20,527 3.4% 18,611 3.1% 17,903 3.3% Depreciation of plant and equipment 5,933 1.1% 6,469 1.2% 12,374 2.0% 6,574 1.1% 7,204 1.3% Amortization of deferred charges 5,548 1.0% 6,177 1.1% 6,142 1.0% 4,760 0.8% 4,639 0.8% Provision for supplemental benefits 264 0.0% 373 0.1% 1,407 0.2% 873 0.1% 565 0.1% ------------------ ------------------ ------------------ ------------------ ------------------ Operating income (loss) 13,509 2.5% 22,619 4.1% 16,303 2.7% 6,886 1.1% (1,941) -0.4% Interest expense, net (20,508) -3.8% (23,766) -4.3% (38,792) -6.4% (32,412) -5.3% (31,668) -5.8% Other income (expense) (165) 0.0% 109 0.0% 218 0.0% 1,842 0.3% 11,445 2.1% ------------------ ------------------ ------------------ ------------------ ------------------ Loss before income taxes, equity interest and extraordinary item (7,164) -1.3% (1,038) -0.2% (22,271) -3.7% (23,684) -3.9% (22,164) -4.0% Income taxes 400 0.1% 600 0.1% 500 0.1% 500 0.1% 500 0.1% ------------------ ------------------ ------------------ ------------------ ------------------ Loss before equity interest and extraordinary item (7,564) -1.4% (1,638) -0.3% (22,771) -3.7% (24,184) -4.0% (22,664) -4.1% Share of income (loss) of Gas - 0.0% (1,973) -0.4% 728 0.1% 2,283 0.4% 235 0.0% ------------------ ------------------ ------------------ ------------------ ------------------ Extraordinary item-loss on early extinguishment of debt (867) -0.2% (655) -0.1% (1,436) -0.2% (6,414) -1.1% - ------------------ ------------------ ------------------ ------------------ ------------------ Net loss (8,431) -1.6% (4,266) -0.8% (23,479) -3.9% (28,315) -4.7% (22,899) -4.2% Preferred stock dividends (3,367) -0.6% (3,510) -0.6% (3,263) -0.5% (2,389) -0.4% (4,644) -0.8% ------------------ ------------------ ------------------ ------------------ ------------------ Net loss to common ($11,798) -2.2% ($7,776) -1.4% ($26,742) -4.4% ($30,704) -5.0% ($27,543) -5.0% ================== ================== ================== ================== ================== Net loss per share ($0.55) ($0.36) ($1.06) ($1.20) ($1.06) ========= ========= ========= ========= ========= Weighted average shares out- standing (b) 21,538 21,745 25,309 25,581 26,039 EBITDA (c) $48,437 9.0% $55,387 10.1% $56,753 9.3% $42,070 6.9% $36,010 6.6% Adjusted net loss to common (10,931) -2.0% (d) (7,121) -1.3% (e) (25,306) -4.2% (f) (22,583) -3.7% (g) (35,439) -6.5% (h) Adjusted net loss per share ($0.51) ($0.33) ($1.00) ($0.88) ($1.36) ========= ========= ========= ========= ========= Acquisition capital expenditures $15,399 $26,411 $26,438 $28,493 $16,252 Maintenance capital expenditures (i) 3,000 3,000 3,000 3,000 3,000 EBITDA/total assets 18.9% 13.9% 15.9% 15.3% 14.5% Distributable cash flow 24,528 28,020 14,461 6,158 842 OVERVIEW OF PETRO EBITDA RECONCILIATION: 1997(a) ($) IN THOUSANDS) (a) Management's assumptions. Page A-2
================================================================================ PETRO ----- 1997 Actual EBITDA $36,010 NORMALIZING ADJUSTMENTS: Weather was 3.8% warmer than 30-year normal 3.8% of 1997 budgeted retail gallons 13,482 gallons Gross profit margin $0.4545 Delivery and garage cost savings ($0.0814) ------ Net impact per gallon $0.3731 $ impact 5,030 Insurance reserve 2,000 ------ 1997 Normalized EBITDA $43,040 ====== - -------------------------------------------------------------------------------- OVERVIEW OF PETRO EBITDA RECONCILIATION: 1997 - 1998 (a) ($ in thousands) (a) Management's assumptions. (b) Represents the average gross profit per gallon ($.4700 per gallon) offset by $.30 per gallon reduction in operating expenses. (c) Actual gross profit margin increase achieved in first quarter of 1998 was $5.9 million (156 million gallons @ $0.037/gallon). (d) Represents already accomplished reductions as of 12/31/97 in branch, regional and corporate expenses in excess of normal indexing related to volume reductions as well as 1% productivity improvements. (e) Represent specific operating expense eliminations that have already been accomplished. Page A - 3
============================================================================================ PETRO ----- 1997 Normalized EBITDA $43,040 Volume Adjustments for 1998 Sale of TLC Division in 1997 (16,926) gallons Attrition in 1998 (4.1%) (17,375) 1997 Acquisitions 9,828 ----- (24,473) gallons @ $0.1700/gallon (b) (4,159) Gross Profit Margin Increase $0.006 per gallon on 395,086 gallons (c) 2,371 Inflation (3,662) Operating Cost Reductions (d) 5,850 Non-Budgeted Operating Expense Eliminations (e) 3,460 ------ Normalized 1998 EBITDA Budget $46,900 ====== - -------------------------------------------------------------------------------------------- OVERVIEW OF PETRO EBITDA RECONCILIATION: NON-BUDGETED OPERATING EXPENSE ELIMINATIONS ($ IN THOUSANDS) Page A-4
BASE EXPENSE ------------ Exton PA Facility Rent $ 500 Corporate Staff Reductions - Salary & Benefits Alex Tyshovnytsky 310 Allen Levenson 279 Joe Massoud 310 Total Staff Reductions 900 Wage Freeze - Non-Union 1,373 Wage Freeze - Union 687 ------------ Total $ 3,460 OVERVIEW OF PETRO EBITDA RECONCILIATION: 1998 (a) ($ in thousands) - --------------------------------------------------------------------- (a) Management's assumptions. Page A-5
===================================================================== PETRO ----- Normalized 1998 EBITDA Budget $46,900 Actual Differential between first seven months of Fiscal 1998 vs. Budget (11,741) Revised margin improvement based on results from the first seven months of Fiscal 1998 2,471 ------- Adjusted for Actual 1998 EBITDA Budget $37,630 ======= OVERVIEW OF PETRO EBITDA RECONCILIATION: 1998-1999 (a) ($ in thousands) _______________________________________________________________ (a) Management's assumptions. (b) A.G. Edwards' assumption. Page A-6
- -------------------------------------------------------------------------------------------------------------- PETRO ----- Normalized 1998 EBITDA Budget $46,900 Attrition (3.8%) and Inflation (3.0%) partially offset by $0.01 Margin Increase in 1999 (1,352) Acquisition Growth $30,000 of acquisitions at 4.75 x multiple using half-year convention (b) 3,158 ------- 1999 Projected $48,706 OVERVIEW OF PETRO EBITDA SUMMARY ($ in thousands) Page A-7
--------------------------------------------------------- PETRO ----- 1997 Actual $36,010 1997 Normalized $43,040 Normalized 1998 Budget $46,900 Adjusted for Actual 1998 Budget $37,630 1999 Projected $48,706 - --------------------------------------------------------------- OVERVIEW OF PETRO EBITDA PROJECTIONS ($ IN THOUSANDS) ----------------------------------------------------------------------------- MAJOR ASSUMPTIONS FOR 1999 - 2002 --------------------------------- [_] 30 Year Weather [_] Flat Attrition. [_] $30 million of acquisitions at 4.75x EBITDA multiple using half-year convention. [_] Increase in gross profit margin of $0.01 in 1999 and $0.005 annually in 2000 to 2002. Page A-8
ADJUSTED FOR ACTUAL NORMALIZED PROJECTED ----------------------------------- 1998 1998 1999 2000 2001 2002 ---------------------------------------------------------------- EBITDA $37,630 $46,900 $48,706 $51,196 $53,390 $55,385 - -------------------------------------------------------------------------------- OVERVIEW OF PETRO ATTRITION ANALYSIS Page A-9
==================================================================================================================== Average Accounts Absolute Account Losses Loss Rate Gains ------------------------------ ---------------------------- --------------- --------------------- Base Business, Base Business, Year Total excl. Acquisitions Total excl. Acquisitions Total Base Accounts % - --------- --------- ------------------ ------- ------------------- ----- ------ ---------- ------- 1993 391,454 352,576 70,127 56,459 17.9% 16.0% 47,090 12.0% 1994 386,235 354,786 57,442 46,386 14.9% 13.1% 35,380 9.2% 1995 381,842 344,342 59,550 46,366 15.6% 13.5% 34,516 9.0% 1996 386,398 354,471 60,084 48,860 15.5% 13.8% 39,192 10.1% 1997 366,421 342,738 60,407 52,581 16.5% 15.3% 39,561 10.8% - -------------------------------------------------------------------------------------------------------------------- Mean 382,470 349,783 61,522 50,130 16.1% 14.3% 39,148 10.2% - -------------------------------------------------------------------------------------------------------------------- 6/98 YTD 342,065 328,112 48,485 43,967 14.2% 13.4% 38,296 10.8% Net Attrition Rate ----------------------------- Base Year Total Business - --------- ----------- -------------- 1993 -5.9% -4.0% 1994 -5.7% -3.9% 1995 -6.6% -4.5% 1996 -5.4% -3.7% 1997 -5.8% -4.5% - -------------------------------------------- Mean -5.9% -4.1% - -------------------------------------------- 6/98 YTD -5.8% -2.6% Overview of Petro Acquisition History ($ in thousands)
Date EBITDA Acquired Cost per Acquired Company Purchase Price EBITDA Multiple Gallonage Gallon - -------- ------- -------------- ------ -------- --------- -------- 1/26/93 Houck Service $663.9 $245.0 2.7x 807.2 $0.823 1/28/93 Harris and Gans 1,607.9 475.0 3.4x 2,599.6 0.619 5/28/93 Goodrich 2,397.7 672.0 3.6x 4,156.0 0.577 6/4/93 Warren 2,965.0 712.0 4.2x 14,448.3 0.205 6/23/93 Savin 1,655.4 403.0 4.1x 2,769.0 0.598 6/25/93 Baylis and Baylis 989.3 251.0 3.9x 1,224.7 0.808 7/28/93 Agway 1,660.6 315.0 5.3x 2,708.5 0.613 9/28/93 Garden State 1,015.2 312.0 3.3x 1,408.0 0.721 9/29/93 Essex 866.3 234.0 3.7x 2,649.4 0.327 --------- ------- ------- --------- ------- 1993 Totals $13,821 $3,619 3.8x 32,771 $0.422 ========= ======= ======= ========= ======= 1/7/94 Petrilla Oil $189.5 $53.4 3.5x 329.0 $0.576 3/8/94 Rettig 1,813.0 466.0 3.9x 4,930.0 0.368 6/30/94 Deblois Oil 15,374.6 2,909.0 5.3x 19,869.0 0.774 7/26/94 Herbert Fuel 5,133.0 882.0 5.8x 6,103.0 0.841 7/28/94 Trico Fuel 3,126.3 930.0 3.4x 4,091.0 0.764 9/1/94 Stickley 1,261.4 355.0 3.6x 1,702.0 0.741 9/13/94 Sinkler 4,880.0 948.0 5.1x 7,433.0 0.657 12/1/94 Ryan 2,954.3 528.0 5.6x 4,804.0 0.615 12/2/94 Fowler 182.8 37.4 4.9x 354.0 0.516 --------- ------- ------- --------- ------- 1994 Totals $34,915 $7,109 4.9x 49,615 $0.704 ========= ======= ======= ========= ======= 3/30/95 Reliable Oil $6,065.6 $1,183.0 5.1x 10,102.2 $0.600 5/24/95 Rosetta (Waldman) 3,413.2 684.0 5.0x 5,153.6 0.662 5/24/95 Rosetta (Price) 789.4 153.0 5.2x 1,309.5 0.603 7/27/95 Slocum 643.8 198.0 3.3x 742.6 0.867 8/23/95 Contex 1,856.8 448.0 4.1x 2,503.2 0.742 8/31/95 Rackliffe 546.2 139.0 3.9x 904.0 0.604 9/1/95 A-One 5,184.2 1,164.0 4.5x 5,900.0 0.879 9/11/95 Reading Merchants 4,260.0 656.0 6.5x 3,613.0 1.179 10/25/95 Franklin Fuel 293.5 76.0 3.9x 445.0 0.660 11/17/95 Home Fuel 2,158.9 430.0 5.0x 6,072.3 0.356 12/19/95 Texaco 3,854.8 1,071.0 3.6x 5,845.1 0.659 --------- ------- ------- --------- ------- 1995 Totals $29,066 $6,202 4.7x 42,590 $0.682 ========= ======= ======= ========= =======
Overview of Petro Acquisition History ($ in thousands) (continued) --------------------------------------------------------------------------------------------------------------- Date EBITDA Acquired Cost per Acquired Company Purchase Price EDITDA Multiple Gallonage Gallon -------- ------- -------------- ------ -------- --------- -------- 1/11/96 Garrison $5,242.5 $1,154.0 4.5x 6,017.0 $0.871 1/19/96 Cibro 4,367.6 1,087.0 4.0x 6,200.0 0.704 2/1/96 Seaman 7,133.7 1,552.0 4.6x 7,522.0 0.948 4/1/96 McDowell 2,723.5 669.0 4.1x 2,675.0 1.018 9/11/96 Flynn 1,038.0 232.0 4.5x 1,316.0 0.789 9/24/96 Farren 263.6 69.0 3.8x 481.0 0.548 10/18/96 Bergen 3,202.5 718.0 4.5x 5,933.0 0.540 10/18/96 Hightstown 233.5 62.0 3.8x 500.0 0.467 10/31/96 Hy-Test 813.4 177.0 4.6x 1,468.0 0.554 12/18/96 Dexter 331.9 99.0 3.4x 796.0 0.417 12/26/96 Sherman 492.5 103.0 4.8x 564.0 0.873 12/27/96 Malco 369.2 97.0 3.8x 988.0 0.374 12/30/96 Grasso 422.9 116.0 3.6x 1,212.0 0.349 -------- -------- -------- -------- -------- 1996 Total $26,635 $6,135 4.3x 35,672 $0.747 ======== ======== ======== ======== ======== 1/15/97 Oils Inc $747.6 $188.0 4.0x 1,189.0 $0.629 4/14/97 Mugullian Fuel 2,801.9 638.0 4.4x 3,000.0 0.934 5/14/97 Alderfer Heating 401.1 111.0 3.6x 787.0 0.510 6/26/97 Bellomo 1,488.8 443.0 3.4x 1,657.0 0.898 7/10/97 Good 521.4 117.0 4.5x 1,200.0 0.434 8/29/97 Oil Burner 2,633.1 603.0 4.4x 3,500.0 0.752 9/10/97 Romary 2,252.5 545.0 4.1x 2,348.0 0.959 9/29/97 T.W. Perry 1,619.3 439.0 3.7x 2,118.0 0.765 10/1/97 Millbrook 527.5 112.0 4.7x 908.0 0.581 11/24/97 Shreve 1,457.0 300.0 4.9x 2,425.0 0.601 12/18/97 Genovese 1,010.8 281.0 3.6x 1,522.0 0.664 ======== ======== ======== ======== ======== 1997 Totals $15,461 $3,777 4.1x 20,654 $0.749 ======== ======== ======== ======== ======== 5 YEAR TOTALS $119,898 $26,842 4.5x 181,302 $0.661 ======== ======== ======== ======== ======== Overview of Petro Divestiture History ($ in thousands) Page A-12
------------------------------------------------------------------------------------------------------- A.G. Edwards noted that Date EBITDA Acquired Cost per public disclosure Divested Branch Purchaser Purchase Price EBITDA Multiple Gallonage Gallon regarding transactions -------- ------ --------- -------------- ------ -------- --------- ------ in the retail home 3/30/95 New Hampshire Bellemore Heating Oil, Inc. $1,477 $150 9.8x 6,060 $0.244 heating oil distribution 6/28/96 Punderson Ultramar Energy, Inc. $4,073 $443 9.2x 6,900 $0.590 industry was extremely 11/4/97 TLC Heating Oil Partners, L.P. $16,100 $2,005 8.0x 23,000 $0.700 limited. A.G. Edwards ---- analyzed the financial terms related to the Mean: 9.0x divestitures by Petro of ---- certain of its retail home heating oil branches. Overview of Petro Margin Analysis (Volume in gallons; gallons and $ in thousands, except margins) - --------------------------------------- (a) Includes protected price ventures
- --------------------------------------------------------------------------------------------------------- Fiscal Years Ended December 31, --------------------------------------------------------------- 1993 1994 1995 1996 1997 ---------- ----------- ---------- ----------- ---------- RETAIL (a) Volume 355,347 360,207 343,759 375,121 338,478 Margin $ 0.4883 $ 0.5030 $ 0.5027 $ 0.4993 $ 0.5196 -------- -------- -------- -------- -------- Gross profit $173,501 $181,202 $172,811 $187,290 $175,867 COMMERCIAL Volume 81,515 79,514 75,476 81,020 71,813 Margin $ 0.2301 $ 0.2416 $ 0.2458 $ 0.2471 $ 0.2452 -------- -------- -------- -------- -------- Gross profit $ 18,755 $ 19,214 $ 18,554 $ 20,018 $ 17,607 PROPANE Volume 6,625 7,435 5,538 -- -- Margin $ 0.5352 $ 0.5730 $ 0.5805 $ 0.0000 $ 0.0000 -------- -------- -------- -------- -------- Gross profit $ 3,546 $ 4,260 $ 3,215 -- -- OTHER PETROLEUM PRODUCTS Volume 36,406 35,709 31,228 32,026 29,855 Margin $ 0.1424 $ 0.1417 $ 0.1481 $ 0.1401 $ 0.1424 -------- -------- -------- -------- -------- Gross profit $ 5,183 $ 5,061 $ 4,624 $ 4,487 $ 4,251 TOTAL PETROLEUM PRODUCTS Volume 479,893 482,865 456,001 488,167 440,146 Margin $ 0.4188 $ 0.4344 $ 0.4368 $ 0.4339 $ 0.4492 -------- -------- -------- -------- -------- Gross profit $200,985 $209,737 $199,204 $211,795 $197,725 -------- -------- -------- -------- -------- DISCOUNTS $ 1,294 $ 1,200 $ 944 $ 1,084 $ 802 -------- -------- -------- -------- -------- Net service loss ($34,243) ($37,941) ($33,822) ($37,386) ($35,184) Net installation income 3,681 4,944 4,364 5,280 5,050 -------- -------- -------- -------- -------- Gross profit (loss) ($30,562) ($32,997) ($29,458) ($32,106) ($30,134) -------- -------- -------- -------- -------- GAS GROSS PROFIT -- $ 5,756 $ 50,992 -- -- Total gross profit $171,717 $183,696 $221,682 $180,773 $168,393 ======== ======== ======== ======== ======== Overview of Petro Discounted Cash Flow Analysis Weighted Average Cost of Capital Derivation ($ in millions) (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Includes preferred stock; not net of cash. (c) Ten - year Treasury rate on October 14, 1998. (d) Bloomberg's reported beta for Petro is .60. (e) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rule. (f) Based on Petro's current debt structure. (g) Calculation based upon use of the Capital Asset Pricing Model (CAPM). Page A-14
- ---------------------------------------------------------------------------------------------------------------------------------- Total Implied Total Total Market Unit Total Market Debt/ Debt as % Un- Levered Val. Debt Price at Units Value of Total of Total levered Comparable Company Beta (a) (Bk = Mkt) (10/14/98) Out (Mil) Equity Equity Capital Beta - ---------------------------------------------------------------------------------------------------------------------------------- AmeriGas Partners, L.P. 0.42 $711.1 $24.125 41.9 $1,031.2 69.0% 40.8% 0.249 Cornerstone Propane Partners, L.P. 0.45 240.9 18.000 19.9 365.2 66.0% 39.8% 0.271 Ferrellgas Partners, L.P. 0.46 504.1 20.000 31.3 638.6 78.9% 44.1% 0.257 Heritage Propane Partners, L.P. 0.42 177.8 20.813 8.5 180.0 98.8% 49.7% 0.211 National Propane Partners, L.P. 0.61 145.5 9.438 11.2 108.2 134.5% 57.4% 0.260 Star Gas Partners, L.P. 0.39 109.8 19.563 6.3 124.9 87.9% 46.8% 0.208 Suburban Propane Partners, L.P. 0.40 427.9 19.625 28.7 575.3 74.4% 42.7% 0.229 Comparable group's average unlevered beta: 0.24 Petro's debt - to - equity ratio: 1123.5% Petro's debt as a percent of total capital: 91.8% Comparable group's beta relevered for Petro's capital structure: 2.945 ====== Petro's capitalization at market Total debt (b) $310.0 91.8% Common equity 27.6 8.2% ------ ------ 100.0% $337.6 Derivation of Weighted Average Cost of Capital: - ----------------------------------------------- Market Risk Premium Range (e) ----------------------------- Petro's theoretical levered beta (d): 2.945 11.3% 12.3% 13.3% Assumed % of equity in Petro's capital structure: 8.2% ----------------------------- Risk - free rate of return (c): 4.6% Petro's cost of equity range (at various market risk premiums): 37.9% 40.8% 43.8% Petro's assumed tax rate: 0.0% ===== ===== ===== Assumed % of debt in capital structure (b): 91.8% Petro's estimated cost of debt (f): 11.2% Petro's estimated after-tax cost of debt: 11.2% 11.2% 11.2% 11.2% ----------------------------- Petro's weighted average cost of capital range (g): 13.4% 13.6% 13.9% - --------------------------------------------------------------- ----------------------------- Overview of Petro Summary of Capital Structure ($ in thousands) Page A-15
------------------------------------------------------------------------------------------------------------------ 6/30/98 10/14/98 Book Value Coupon Market Price Market Value ------------ ---------- -------------- ---------------- Debt: Credit Agreement Working Capital facility $ 0 7.75% NA $ 0 Acquisition facility 0 7.75% NA 0 Notes payable Notes payable for fuel oil dealer purchases, etc. 14,528 8.0%-10.0% NA 14,528 11.85%, 12.17%, 12.18% Senior Notes 60,000 11.96% NA 60,000 14.1% Subordinated and Senior 6,200 14.10% NA 6,200 10.125% Subordinated 50,000 10.13% 92.50% 46,250 9.375% Subordinated Debentures 75,000 9.38% 92.50% 69,375 12.25% Subordinated Debentures 81,250 12.25% 92.50% 76,781 Total debt $ 286,978 $ 273,134 Effective cost of debt 11.0% Preferred Stock: Redeemable preferred stock $ 8,334 14.34% NA 8,334 12.875% Exchangeable preferred stock 30,000 12.88% NA 30,000 Adjustment to balance sheet (1,480) NA (1,480) Total preferred stock $ 36,854 $ 38,854 Effective cost of preferred stock 13.2% Total Debt and Preferred Stock $ 323,832 $309,988 Effective cost of debt and preferred stock 11.2% OVERVIEW OF PETRO SUMMARY OF CAPITAL STRUCTURE ($ IN THOUSANDS EXCEPT PER SHARE) (continued) (a) Market price is calculated as: $17.50+$0.276 (b) Market price is assumed to equal that of the Class A shares, since the Class C shares do not trade. Page A-16
====================================================================================================== 9/30/98 10/14/98 SHARES OUT MARKET PRICE MARKET VALUE ---------- ------------ ------------ EQUITY: Common Stock Class A 23,964,962 $ 1.031 $24,714 Class B 11,228 17.776 (a) 200 Class C 2,597,519 NA (b) 2,679 TOTAL EQUITY $27,592 EFFECTIVE COST OF EQUITY 40.8% TOTAL CAPITALIZATION $337,580 WACC 13.6% Less: Cash 33,223 NET CAPITALIZATION $304,357 NET MARKET MARKET VALUE % OF OWNERSHIP VALUE OF STAR GAS OF INTEREST -------------- ----------------- ------------ LESS: Interest in Star Gas 40.7% $234,147 $95,204 TOTAL CAPITALIZATION OF PETRO WITHOUT INTEREST IN STAR GAS $242,376 OVERVIEW OF PETRO Price and Volume 12/15/95 - 12/31/97 [GRAPH APPEARS HERE] Page A-17 OVERVIEW OF PETRO Price and Volume 1/1/98 - 10/14/98 [GRAPH APPEARS HERE] Page A-18 Overview of Petro Class A Common Stock Trading History -- Volume Distribution 1995-1998(a) - -------------- (a) Through October 14, 1998. (b) Based on 23,964,962 Class A shares outstanding. (c) Based on 9,216,760 Class A shares held by institutional and retail public holders. Page A-19
Market Price Pre-Announcement Price Implied Offer Price ----------------------------------------------------------------------------------------------------------------------------- 1995 1996 1997 1998(a) 1995-1998(a) ------------------ ------------------ ------------------ ------------------- ----------------- Price Per Share Volume % Volume % Volume % Volume % Volume % -------------------- ------------------ ------------------ ------------------ ------------------- ----------------- Greater Than $9.400 9.200 9.400 600 100.00% 600 99.42% 9.000 9.200 0 99.99% 99.42% 8.800 9.000 49,200 99.99% 49,200 99.42% 8.600 8.800 6,800 99.41% 6,800 99.26% 8.400 8.600 67,500 99.33% 67,500 99.24% 8.200 8.400 289,100 98.54% 289,100 99.02% 8.000 8.200 161,500 95.13% 1,600 100.00% 163,100 98.07% 7.800 8.000 873,500 93.22% 47,400 99.96% 920,900 97.54% 7.600 7.800 245,800 82.92% 236,200 98.87% 482,000 94.52% 7.400 7.600 193,300 80.02% 185,000 93.44% 378,300 92.94% 7.200 7.400 1,154,800 77.74% 822,300 89.19% 1,977,100 91.70% 7.000 7.200 5,190,500 64.12% 1,507,100 70.28% 6,697,600 85.23% 6.800 7.000 246,000 2.90% 815,700 35.63% 1,061,700 63.30% 6.600 6.800 498,500 16.88% 498,500 59.82% 6.400 6.600 129,300 5.42% 417,300 100.00% 546,600 58.19% 6.200 6.400 37,600 2.45% 526,900 96.34% 564,500 56.40% 6.000 6.200 44,100 1.58% 417,700 91.72% 461,800 54.55% 5.800 6.000 24,700 0.57% 110,200 88.06% 134,900 53.04% 5.600 5.800 868,000 87.09% 868,000 52.60% 5.400 5.600 143,300 79.48% 143,300 49.76% 5.200 5.400 92,600 78.22% 92,600 49.29% 5.000 5.200 940,500 77.41% 940,500 48.98% 4.800 5.000 142,200 69.16% 142,200 45.90% 4.600 4.800 20,200 67.92% 20,200 45.44% 4.400 4.600 13,900 67.74% 13,900 45.37% 4.200 4.400 - 67.62% - 45.33% 4.000 4.200 - 67.62% - 45.33% 3.800 4.000 117,100 67.62% 117,100 45.33% 3.600 3.800 370,600 66.59% 370,600 44.94% 3.400 3.600 250,900 63.34% 250,900 43.73% 3.200 3.400 1,236,200 61.14% 1,236,200 42.91% 3.000 3.200 1,652,500 50.30% 1,652,500 38.86% 2.800 3.000 2,785,300 35.81% 130,000 100.00% 2,915,300 33.45% 2.600 2.800 788,500 11.39% 249,100 97.94% 1,037,600 23.90% --------------------------------------------------------------------------------------------------------------------- 2.400 2.600 430,100 4.47% 270,800 93.99% 700,900 20.50% --------------------------------------------------------------------------------------------------------------------- 2.200 2.400 79,800 0.70% 964,300 89.70% 1,044,100 18.21% 2.000 2.200 345,000 74.40% 345,000 14.79% --------------------------------------------------------------------------------------------------------------------- 1.800 2.000 1,789,900 68.93% 1,789,900 13.66% --------------------------------------------------------------------------------------------------------------------- 1.600 1.800 804,500 40.55% 804,500 7.80% 1.400 1.600 1,542,400 27.80% 1,542,400 5.16% 1.200 1.400 34,800 3.34% 34,800 0.11% --------------------------------------------------------------------------------------------------------------------- 1.000 1.200 175,900 2.79% 175,900 0.58% --------------------------------------------------------------------------------------------------------------------- Less Than $1.000 --------- --------- ---------- --------- ---------- Total Stock for Period 8,478,600 4,349,500 11,403,800 6,306,700 30,538,600 Cumulative % of Total Traded 27.76% 14.24% 37.34% 20.65% 100.00% % Traded of Current Stock Out.(b) 35.38% 18.15% 47.59% 26.32% 127.43% % Traded of Current Float(c) 91.99% 47.19% 123.73% 68.43% 331.34% Wtd. Average Stock Price $7.31 $7.07 $3.90 $1.90 $4.89 Overview of Petro Shareholder Analysis (a)
- ------------------------------------------------------------------------------------------------------------------------------------ Class A % of Total Institutions (b) Shrs. Held % of Total Voting Power - ---------------------------------- ------------ ------------ ------------ Dimensional Fund Adv. 639,700 2.7% 1.3% CNA Financial Group 360,900 1.5% 0.7% Barclays Bank plc 340,573 1.4% 0.7% Deltec Asset Mgmt. 230,810 1.0% 0.5% Vanguard Group 215,500 0.9% 0.4% Robert Fleming Holdings 200,000 0.8% 0.4% Bear, Stearns & Co. 148,238 0.6% 0.3% Mellon Bank 119,904 0.5% 0.2% Northern Trust 84,611 0.4% 0.2% ANB Investment Mgmt. 51,100 0.2% 0.1% Prudential Insurance 48,200 0.2% 0.1% First Source Bank 40,000 0.2% 0.1% World Asset Management 33,937 0.1% 0.1% IBM Retirement Funds 16,300 0.1% 0.0% DLJ Corp. 4,502 0.0% 0.0% Legg Mason 2,000 0.0% 0.0% ------------ ------------ ------------ All Institutions (c) 2,536,275 10.6% 5.1%
Class A % of Class C % of Total % of Total Directors and Officers (c) Title Shrs. Held Total Shrs. Held Total Voting Power Voting Power - ----------------------------- -------------- ---------- ------ ---------- ------ ------------ ------------ Audrey L. Sevin Director and Secretary of Petro and Star 1,876,863 7.8% 477,716 18.4% 6,654,023 13.3% Irik P. Sevin Chairman, CEO and Director of Petro 740,438 3.1% 201,641 7.8% 2,756,848 5.5% Philip Ean Cohen Director of Petro 679,262 2.8% 113,423 4.4% 1,813,492 3.6% Thomas J. Edelman Director of Petro and Star 653,312 2.7% 129,019 5.0% 1,943,502 3.9% Vincent De Palma VP and GM of New York Region 5,000 0.0% - 0.0% 5,000 0.0% Hanseatic Corporation (d) (e) 1,777,279 7.4% 298,717 11.5% 4,764,449 9.5% Tortosa (d) - 0.0% 298,717 11.5% 2,987,170 6.0% Hubertus Langen (d) 734,473 3.1% 9,038 0.3% 824,853 1.7% Wolfgang Traber (e) Director of Petro and Star - 0.0% 9,038 0.3% 90,380 0.2% Paul Biddelman (e) Director of Petro and Star 2,386 0.0% - 0.0% 2,386 0.0% ----------- ------- ----------- ------- ------------- ------------ Total Directors & Officers Holdings 6,469,013 27.0% 1,537,309 59.2% 21,842,103 43.7%
Class A % of Class C % of Total % of Total 5% Beneficial Owners and Affiliates Shrs. Held Total Shrs. Held Total Voting Power Voting Power - ----------------------------------- ---------- ------ ---------- ------ ------------ ------------ Frank Russell Company (f) 2,611,000 10.9% - 0.0% 2,611,000 5.2% Schneider Capital 2,491,165 10.4% - 0.0% 2,491,165 5.0% Richard O'Connell 1,128,745 4.7% 302,461 11.6% 4,153,355 8.3% Brentwood Corp. 681,873 2.8% 120,985 4.7% 1,891,723 3.8% Barcel Corporation 605,151 2.5% 151,231 5.8% 2,117,461 4.2% Gabes S.A. 597,617 2.5% 124,314 4.8% 1,840,757 3.7% United Capital Corp. 90,000 0.4% - 0.0% 90,000 0.2% Minneford Corp. 73,638 0.3% 12,000 0.5% 193,638 0.4% Fernando Montero - 0.0% 35,287 1.4% 352,870 0.7% M.M. Warburg & Co. - 0.0% 31,808 1.2% 318,080 0.6% ----------- ------- ----------- ------- ------------- ------------ Total 5% Beneficial Holdings 8,279,189 34.5% 778,086 30.0% 16,060,049 32.2% - ------------------------------------------ (a) Based on shares outstanding, most recently available data as of 10/14/98 and does not include options to purchase and Class B shares. (b) Source: Bloomberg and Petro's Proxy. (c) Does not include 5% beneficial ownership institutions. (d) Hanseatic Corporation holds shared voting power in Tortosa. Tortosa is owned and controlled by Mr. Langen. (e) Mr. Traber and Mr. Biddelman are executive officers of Hanseatic Corporation. (f) Frank Russell Company shares beneficial ownership of 1,943,835 Class A with Schneider Capital. (g) AGE has 29,080 Class A shares in its system.
- ------------------------------------------------------------------------------------------------------------------------------------ Summary - ------- % of % of Total % of Total Class A Total Class C Total Voting Power Voting Power ----------- ------ ---------- ------ ------------- ------------- Insider Holdings Directors and Officers as a Group 6,469,013 27.0% 1,537,309 59.2% 21,842,103 43.7% 5% Beneficial Owners and Affiliates 8,279,189 34.5% 778,086 30.0% 16,060,049 32.2% ----------- ------- ----------- ------- ------------- ------------ 14,748,202 61.5% 2,315,395 89.1% 37,902,152 75.9% Public Holdings Institutional 2,536,275 10.6% 2,536,275 5.1% Retail 6,680,485 (g) 27.9% 282,124 10.9% 9,501,725 19.0% ----------- ------- ----------- ------- ------------- ------------ 9,216,760 38.5% 282,124 10.9% 12,038,000 24.1% Total 23,964,962 100.0% 2,597,519 100.0% 49,940,152 100.0% - ------------------------------------------------------------------------------------------------------------------------------------ [CAPTION] Overview of Petro Research Coverage While Petro had decent Research Coverage Date Published Estimates Updated coverage in 1996, it has ----------------- -------------- ----------------- not had much support
----------------------- *Fixed income research. Page A-21in recent months. Published Research Reports Freeman Securities* 8/17/98 -- KDP Investment Advisors* 8/1/98 -- SAMCO Capital Markets* 8/1/98 -- Bear Stearns 9/5/96 10/18/96 DLJ 8/2/96 -- PaineWebber 7/16/96 11/11/97 Additional Research Jefferies - Hold Earnings Estimates Number of Estimates Mean 1998 Mean 1999 ------------------ ------------------- --------- --------- IBES 1 ($1.25) NA Nelson 1 ($1.25) NA Overview of Star Gas Partners, L.P. ("Star Gas") Selected Financial Data ($ in thousands) - ------------------------------------------------------ (a) Proforma for December 16, 1997 common unit offering and the acquisition of Pearl Gas Co. (b) Growth over 1996. (c) Includes $350 in special project expenses. (d) Excludes loss from sale of assets. Page B-1
- ------------------------------------------------------------------------------------------------------------------------- Historical Years Ended September 30, ---------------------------------------------------------------------------- 1996 % 1997 % 1997(a) % - ------------------------------------------------------------------------------------------------------------------------- Sales $119,634 100.0% $135,159 100.0% $149,766 100.0% % growth 17.0% 13.0% 25.2% (b) Cost of sales 58,557 48.9% 72,211 53.4% 80,370 53.7% ------------------- ------------------- -------------------- Gross profit 61,077 51.1% 62,948 46.6% 69,396 46.3% Operating expenses 41,207 34.4% 43,245 32.0% (c) 46,408 31.0% Net (loss) on sales of assets (260) -0.2% (295) -0.2% (265) -0.2% Depreciation and amortization 9,808 8.2% 10,405 7.7% 11,495 7.7% ------------------- ------------------- -------------------- Operating income 9,802 8.2% 9,003 6.7% 11,228 7.5% Interest expense, net 7,124 6.0% 6,966 5.2% 7,766 5.2% ------------------- ------------------- -------------------- Income (loss) before income taxes 2,678 2.2% 2,037 1.5% 3,462 2.3% Income taxes 85 0.1% 25 0.0% 25 0.0% General Partners' interest -- 0.0% 40 0.0% 69 0.0% ------------------- ------------------- -------------------- Net income $ 2,593 2.2% $ 1,972 1.5% $ 3,368 2.2% =================== =================== ==================== Net income per limited partner unit $ 0.49 $ 0.37 $ 0.54 ======== ======== ======== Weighted average L.P. unit outstanding 5,271 5,271 6,228 EBITDA (d) $ 19,870 16.6% $ 19,703 14.6% $ 22,988 15.3% Capital expenditures $ 5,332 $ 5,279 $ 5,579 Maintenance capital expenditures 2,300 3,100 3,400 Distributable cash flow 10,361 9,612 11,797 Distributable cash flow per unit $ 1.97 $ 1.82 $ 1.89 Common distribution coverage 1.8x 1.5x 1.4x Total distribution coverage 0.9x 0.8x 0.8x EBITDA/total assets 12.7% 13.4% 12.8% Overview of Star Gas EBITDA Reconciliation: 1997(a) ($ in thousands) (a) Management's assumptions. (b) Not pro forma for Pearl Gas acquisition. (c) Certain expenses including the exploration of strategic alternatives by Morgan Stanley. (d) Certain cost savings, primarily salary and benefit expenses of certain selling shareholders. Page B-2
------------------------------------------------------------------------------------- Star Gas -------- 1997 Actual EBITDA $19,703(b) NORMALIZING ADJUSTMENTS: Weather Residential - 1,125 gallons @ 0.7106 margin 799 Commercial - 277 gallons @ 0.4459 margin 124 Margin Residential - 50,832 gallons @ (0.7106 - 0.6995) (564) Commercial - 19,864 gallons @ (0.4454 - 0.4348) (220) Wholesale - 38,404 gallons @ (0.0975 - 0.0675) (1,152) Compensation (56) Elimination of strategic expense 902(c) Pearl Gas EBITDA 3,012 Pearl Gas acquisition adjustments 273(d) ------- 1997 Adjusted EBITDA $22,821 ======= ------------------------------------------------------------------------------------- Overview of Star Gas EBITDA Reconciliation: 1997 - 1999(a) ($ in thousands) ------------------------------------------------------------------- Star Gas -------- Normalized 1998 EBITDA Budget $22,135 Approximate Differential between first ten months of Fiscal 1998 vs. Budget (3,354) ------- Adjusted for Actual 1998 EBITDA Budget $18,781 ======= Normalized 1998 EBITDA Budget $22,135 Acquisition Growth 1998 acquisitions 1,585 $10 million of acquisitions at 6.5x multiple completed on 4/1/99 using half-year convention 771 ------- 1999 EBITDA Projected $24,491 ======= -------------------------------------------------------------------- (a) Management's assumptions. Page B-3 Overview of Star Gas EBITDA Projections ($ in thousands) Major Assumptions for 1999 - 2002 --------------------------------- [_] 30 Year Weather [_] No growth in base business. [_] $10 million of acquisitions at 6.5x EBITDA multiple using half-year convention. [_] No increase in gross profit margin. Page B-4
-------------------------------------------------------------------------------------------- Adjusted for Actual Normalized Projected ----------------------------------------------- 1998 1998 1999 2000 2001 2002 -------------------------------------------------------------------------------- EBITDA $18,781 $22,135 $24,491 $26,029 $27,566 $29,104 -------------------------------------------------------------------------------------------- OVERVIEW OF STAR GAS ACQUISITION HISTORY ($ IN THOUSANDS) Page B-5
- ----------------------------------------------------------------------------------------- DATE EBITDA ACQUIRED COST PER ACQUIRED COMPANY PURCHASE PRICE EBITDA MULTIPLE GALLONAGE GALLON -------- ------- ------------- ------ -------- --------- ------ 6/15/94 Loveland $ 700 $ 127 5.5x 433 $1.616 11/24/94 Baystate $ 1,450 $ 209 6.9x 769 $1.886 9/12/95 Debolt $ 950 $ 151 6.3x 852 $1.115 3/22/96 Bob White L.P. Gas/ Mitchell Bottle Gas $ 1,500 $ 263 5.7x 898 $1.671 7/22/96 Fuzzy Moore $ 850 $ 147 5.8x 454 $1.871 10/22/97 Pearl Gas Co. $24,126 $3,288 7.3x 14,000 $1.723 2/20/98 Tri-County Gas $ 550 $ 108 5.1x 320 $1.720 5/28/98 Knowles LP Gas $ 3,000 $ 426 7.0x 1,021 $2.939 5/28/98 Tioga Petroleum $ 1,200 $ 257 4.7x 668 $1.795 7/30/98 Lowe Bros & Dad $ 3,750 $ 602 6.2x 1,965 $1.908 8/11/98 Myers Propane $ 1,200 $ 191 6.3x 572 $2.099 ----------- ------ ------ -------- ------ 4 YEAR TOTALS $39,276 $5,769 6.8x 21,952 $1.789 =========== ====== ====== ======== ====== OVERVIEW OF STAR GAS MARGIN ANALYSIS (volume in gallons, gallons and $ in thousands, except margins) Page B-6
- ------------------------------------------------------------------------------------------------------------------------------------ Fiscal Years Ended September 30, ------------------------------------------------------------------------------------------------------ 1993 1994 1995 1996 1997 1997 1997 ------------ -------- -------- -------- ------------ ------------ ------------ Stand Alone Pro Forma Pro Forma Pearl and Weather Weather Residential Volume 44,590 48,430 45,235 54,336 49,707 50,832 62,630 Margin $ 0.6902 $ 0.6861 $ 0.6677 $ 0.6592 $ 0.7106 $ 0.7106 $ 0.6554 ------------ -------- -------- -------- ------------ ------------ ------------ Gross profit $ 30,777 $ 33,228 $ 30,203 $ 35,818 $ 35,322 $ 36,121 $ 41,049 Commercial Volume 17,617 19,875 18,831 21,194 19,587 19,864 20,936 Margin $ 0.4614 $ 0.4611 $ 0.4271 $ 0.4202 $ 0.4459 $ 0.4459 $ 0.4399 ------------ -------- -------- -------- ------------ ------------ ------------ Gross profit $ 8,129 $ 9,164 $ 8,043 $ 8,906 $ 8,734 $ 8,858 $ 9,209 Argriculture Volume 23,291 16,053 15,080 12,567 17,338 17,338 18,275 Margin $ 0.2349 $ 0.2630 $ 0.2357 $ 0.2556 $ 0.2694 $ 0.2694 $ 0.2678 ------------ -------- -------- -------- ------------ ------------ ------------ Gross profit $ 5,471 $ 4,222 $ 3,554 $ 3,212 $ 4,671 $ 4,671 $ 4,895 Motor Fuel & other Volume 7,581 8,060 8,056 8,197 8,024 8,024 8,391 Margin $ 0.4922 $ 0.5359 $ 0.5271 $ 0.5215 $ 0.5765 $ 0.5765 $ 0.5926 ------------ -------- -------- -------- ------------ ------------ ------------ Gross profit $ 3,731 $ 4,319 $ 4,246 $ 4,275 $ 4,626 $ 4,626 $ 4,973 Wholesale Volume 51,493 45,318 38,941 39,025 38,404 38,404 38,532 Margin $ 0.0619 $ 0.0680 $ 0.0568 $ 0.0704 $ 0.0975 $ 0.0975 $ 0.0972 ------------ -------- -------- -------- ------------ ------------ ------------ Gross profit $ 3,189 $ 3,082 $ 2,212 $ 2,747 $ 3,743 $ 3,743 $ 3,744 Total Propane Volume 144,572 137,736 126,143 135,319 133,060 134,462 148,764 Margin $ 0.3548 $ 0.3922 $ 0.3826 $ 0.4061 $ 0.4291 $ 0.4315 $ 0.4293 ------------ -------- -------- -------- ------------ ------------ ------------ Total propane gross profit $ 51,297 $ 54,015 $ 48,258 $ 54,958 $ 57,096 $ 58,019 $ 63,870 ------------ -------- -------- -------- ------------ ------------ ------------ Appliances/other Revenue $ 9,237 $ 9,454 $ 7,536 $ 8,269 $ 8,043 $ 8,403 $ 8,760 Cost 3,232 3,187 1,935 2,150 2,191 2,191 2,303 ------------ -------- -------- -------- ------------ ------------ ------------ Gross Profit $ 6,005 $ 6,267 $ 5,601 $ 6,119 $ 5,852 $ 5,852 $ 6,457 Total gross profit $ 57,302 $ 60,282 $ 53,859 $ 61,077 $ 62,948 $ 63,871 $ 70,327 ============ ======== ======== ======== ============ ============ ============ OVERVIEW OF STAR GAS DISCOUNTED CASH FLOW ANALYSIS WEIGHTED AVERAGE COST OF CAPITAL DERIVATION ($ IN MILLIONS) - ----------------- (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of debt is assumed to equal book value; debt is not net of cash. (c) Ten-year Treasury rate on October 14, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on Star current debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM).
- ------------------------------------------------------------------------------------------------------------------------------------ Total Implied Total Total Market Unit Total Market Debt/ Debt as % Un- Levered Val. Debt Price at Units Value of Total of Total levered Comparable Company Beta (a) (Bk = Mkt) (10/14/98) Ont. (Mil) Equity Equity Capital Beta - ------------------------------------------------------------------------------------------------------------------------------------ AmeriGas Partners, L.P. 0.42 $711.1 $24.125 41.9 $1,031.2 69.0% 40.8% 0.249 Cornerstone Propane Partners, L.P. 0.45 240.9 18.000 19.9 365.2 66.0% 39.8% 0.271 Ferrellgas Partners, L.P. 0.46 504.1 20.000 31.3 638.6 78.9% 44.1% 0.257 Heritage Propane Partners, L.P. 0.42 177.8 20.813 8.5 180.0 98.8% 49.7% 0.211 National Propane Partners, L.P. 0.61 145.5 9.438 11.2 108.2 134.5% 57.4% 0.260 Star Gas Partners, L.P. 0.39 109.8 19.563 6.3 124.9 87.9% 46.8% 0.208 Suburban Propane Partners, L.P. 0.40 427.9 19.625 28.7 575.3 74.4% 42.7% 0.229 Comparable group's average ---------------------------------------------- unlevered beta: 0.24 Star's capitalization-at market (b) Star's debt-to-equity ratio(b): 87.9% Star's debt as a percent of total Total debt $109.8 46.8% capital(b): 46.8% Common 124.9 53.2% Comparable group's beta relevered ------ ------ for Star's capital structure: 0.378 $234.6 100.0% ===== ---------------------------------------------- Derivation of Weighted Average Cost of Capital: Market Risk Premium Range (d) - ---------------------------------------------- ------------------------------------- 11.3% 12.3% 13.3% Star's theoretical levered beta: 0.378 ------------------------------------- Assumed % of equity in Star's capital structure(b): 53.2% Risk-free rate of return(c): 4.6% Star's cost of equity range (at various market risk premiums): 8.9% 9.3% 9.6% ==== ==== ==== Star's assumed tax rate: 35.0% Assumed % of debt in capital structure(b): 46.8% Star's estimated cost of debt(e): 6.9% Star's estimated after-tax cost of debt: 4.5% 4.5% 4.5% 4.5% ------------------------------------- Star's weighted average cost of capital range(f): 6.8% 7.0% 7.2% ------------------------------------- Overview of Star Gas Summary of Capital Structure ($ in thousands) 9/30/98 10/14/98 Book Value Coupon Market Price Market Value ---------- ------ ------------ ------------ Debt: Credit Agreement Working Capital facility $4,785 7.25% Not applicable $4,785 Acquisition facility 9,000 7.25% Not applicable 9,000 Notes payable 8.04% First Mortgage Notes 85,000 8.04% NA 85,000 7.17% First Mortgage Notes 11,000 7.17% NA 11,000 Total debt: $109,785 Effective cost of debt 6.9% After-tax cost of debt 4.5% 9/30/98 10/14/98 Shares Out Market Price Market Value ---------- ------------ ------------ Equity: Common units 3,858,999 $19,563 $75,492 Subordinated units 2,396,078 NA (a) 46,873 General Partner 2,497 (b) Total Equity $124,862 Effective cost of equity 9.3% Total Capitalization $234,647 WACC 7.0% Less: Cash $500 Net Capitalization $234,147 (a) Market price assumed to equal common units. (b) Implied 2% general partner interest. Page B-8 Overview of Star Gas Price and Volume 12/15/95 - 12/31/97 [GRAPH APPEARS HERE] Page B-9 OVERVIEW OF STAR GAS Price and Volume 1/1/98 - 10/14/98 [GRAPH APPEARS HERE] Page B-10 Overview of Star Gas Common Unit Trading History - Volume Distribution 1995 - 1998 (a) - ---------------------------------- (a) Through October 14, 1998. (b) Based on 3,858,999 common units outstanding.
- ------------------------------------------------------------------------------------------------------------------------------------ Dec. 15-31 1995 1996 1997 1998(a) 1995-1998(a) ----------------- -------------------- -------------------- -------------------- -------------------- Price Per Unit Volume % Volume % Volume % Volume % Volume % ----------------------- ----------------- -------------------- -------------------- -------------------- -------------------- Greater Than $24.600 24.400 24.600 32,400 100.00% 32,400 100.00% 24.200 24.400 55,300 99.34% 26,000 100.00% 75,500 99.69% 156,800 99.73% 24.000 24.200 27,200 98.20% 25,800 99.24% - 97.19% 53,000 98.44% 23.800 24.000 436,500 97.65% 38,400 98.49% - 97.19% 474,900 98.00% 23.600 23.800 119,200 88.71% 3,000 97.37% 131,200 97.19% 253,400 94.08% 23.400 23.600 79,500 86.27% 56,900 97.28% 85,600 92.83% 222,000 91.98% 23.200 23.400 105,000 84.64% 194,500 95.62% 173,700 89.99% 473,200 90.15% 23.000 23.200 396,900 82.49% 148,000 89.94% 51,400 84.22% 596,300 86.24% 22.800 23.000 229,200 74.36% 102,100 85.62% 36,200 82.52% 367,500 81.32% 22.600 22.800 96,100 69.67% 184,500 82.64% 42,700 81.32% 323,300 78.28% 22.400 22.600 273,800 67.70% 145,500 77.26% 192,300 79.90% 611,600 75.61% 22.200 22.400 33,400 100.00% 430,500 62.09% 128,000 73.01% 710,900 73.51% 1,302,800 70.56% 22.000 22.200 762,000 95.80% 510,900 53.28% 217,500 69.27% 256,500 49.91% 1,746,900 59.80% 21.800 22.000 400,400 42.82% 411,600 62.92% 395,800 41.40% 1,207,800 45.37% Pre- Announcement ----------------------------------------------------------------------------------------------------------------------------- Price 21.600 21.800 422,600 34.62% 302,200 50.91% 243,600 28.26% 968,400 35.40% ----------------------------------------------------------------------------------------------------------------------------- 21.400 21.600 259,400 25.96% 290,200 42.09% 161,600 20.17% 711,200 27.40% 21.200 21.400 214,300 20.65% 372,800 33.62% 106,200 14.80% 693,300 21.53% 21.000 21.200 388,000 16.26% 499,100 22.74% 151,500 11.28% 1,038,600 15.80% 20.800 21.000 110,900 8.32% 108,000 8.17% 64,700 6.25% 283,600 7.22% 20.600 20.800 137,500 6.05% 34,300 5.01% 33,000 4.10% 204,800 4.88% 20.400 20.600 41,900 3.23% 16,000 4.01% 21,600 3.00% 79,500 3.19% 20.200 20.400 62,800 2.38% 46,500 3.55% 19,000 2.29% 128,300 2.53% 20.000 20.200 53,200 1.09% 22,000 2.19% - 1.66% 75,200 1.47% 19.800 20.000 24,400 1.55% - 1.66% 24,400 0.85% 19.600 19.800 28,600 0.83% - 1.66% 28,600 0.65% Market ----------------------------------------------------------------------------------------------------------------------------- Price 19.400 19.600 - 1.66% - 0.41% ----------------------------------------------------------------------------------------------------------------------------- 19.200 19.400 - 1.66% - 0.41% 19.000 19.200 - 1.66% - 0.41% 18.800 19.000 16,700 1.66% 16,700 0.41% 18.600 18.800 33,200 1.10% 33,200 0.27% 18.400 18.600 9,200 0.31% Less Than 18.400 --------- ----------- ----------- ----------- ------------ Total Units for Period 795,400 4,883,500 3.425,900 3,012,100 12,107,700 Cumulative % of Total Traded 6.57% 40.33% 28.30% 24.88% 100.00% % Traded of Current Units Out. (b) 20.61% 126.55% 88.78% 78.05% 313.75% Wtd. Average Unit Price $22.11 $22.25 $21.89 $22.14 $22.12 OVERVIEW OF STAR GAS SHAREHOLDER ANALYSIS (a) ________________________________________ (a) Based on units outstanding and most recently available data as of 10/14/98. (b) Source: Bloomberg. (c) AGE has 362,910 Common Units in its system. Page B-12
==================================================================================================================================== Common Institutions (b) Units Held % of Total - ---------------- ---------- ---------- Bear, Stearns & Co. 53,200 1.4% Graver Bokhof 28,900 0.7% DLJ Corp. 24,950 0.6% The Vanguard Group 13,800 0.4% Advest Group, Inc. 12,015 0.3% PaineWebber Group 9,870 0.3% Legg Mason Wood Walker 500 0.0% U.S. Trust Co. NY 500 0.0% Cullen/Frost Bankers 300 0.0% ---------- ---------- All Institutions 144,035 3.7% Common Subordinated Directors and Officers Title Units Held % of Total Units Held % of Total - ---------------------- -------------------------------- ---------- ---------- ------------ ---------- Wolfgang Traber Star Director and Petro Director 10,400 0.3% - 0.0% Richard F. Ambury V.P. of Finance 525 0.0% - 0.0% Total Directors & Officers Holdings ---------- ---------- ------------ ---------- 10,925 0.3% - 0.0% General Partner Common Subordinated - --------------- Units Held % of Total Units Held % of Total Petro ---------- ---------- ------------ ---------- 60,727 1.6% 2,396,078 100.0% - ------------------------------------------------------------------------ -------------------------------------------------------- Summary Common Subordinated - ------- Units % of Total Units % of Total ---------- ---------- ------------ ---------- Insider Holdings Directors and Officers as a Group 10,925 0.3% - 0.0% General Partner 60,727 1.6% 2,396,078 100.0% ---------- ---------- ------------ ---------- 71,652 1.9% 2,396,078 100.0% Public Holdings Institutional 144,035 3.7% Retail 3,643,312 (c) 94.4% ---------- ---------- 3,787,347 98.1% Total Units Outstanding 3,858,999 100.0% 2,396,078 100.0% ======================================================================== ================================================================================================================================= OVERVIEW OF STAR GAS RESEARCH COVERAGE Page B-13
Star Gas has ongoing research coverage by two firms. Research Coverage Date Published Estimates Updated ----------------- -------------- ----------------- Published Research Reports A.G. Edwards - Buy 1/5/98 8/25/98 PaineWebber - Attractive 12/30/97 8/3/98 Lehman 2/7/96 11/4/96 Earnings Estimates Number of Estimates Mean 1998 Mean 1999 ------------------ ------------------- --------- --------- IBES 2 NA NA Nelson 2 ($0.14) $0.65 Zacks 2 ($0.19) $0.48 SUMMARY OF THE TRANSACTION PRO FORMA STAR GAS UNITS OUTSTANDING (IN THOUSANDS EXCEPT PER SHARE AND PER UNIT) [_] There are currently 6,383 Star Gas units outstanding comprised of 3,859 common units, 2,396 subordinated units and 128 implied general partner ("GP") units. The subordinated units and GP units are currently assets of Petro. [_] There are currently 26,574 shares of Petro common stock outstanding held by public shareholders and "affiliates." The public holds 14,327 Class A shares, 11 Class B shares and 282 Class C shares. The "affiliates" hold 11,953 shares which include 9,638 Class A shares and 2,315 Class C shares. [_] Each shareholder of Petro will receive a certain number of units in Star Gas such that the implied consideration paid for each Petro share averages $2.43 based on A.G. Edwards' estimates of the value of the units being offered to Petro as consideration. [_] All of the publicly held 14,327 Class A shares and 282 Class C shares, and a portion of the "affiliate" held Class A shares (5,243) and Class C shares (1,328) will receive .13064 units of newly created senior subordinated units for each share (1,908 units to the public and 859 units to the "affiliates", 2,767 units in total) with an attached Contingent Unit ("CU"). See the following page for a discussion of the Contingent Units. A.G. Edwards estimates an implied value for these units of $18.52/unit (see page D-3). The remaining "affiliates" of Petro not receiving senior subordinated units, who hold a total of 5,382 shares, will receive .15920 units for a total of 857 junior subordinated and GP units, both of which will also include attached CUs. A.G. Edwards estimates an implied value for these units of $15.41/unit (see page D-6). [_] The 2,396 subordinated units and 128 GP units currently owned by Petro will effectively be retired in the Transaction. Page C-1 SUMMARY OF THE TRANSACTION PRO FORMA STAR GAS UNITS OUTSTANDING (IN THOUSANDS) (continued) DESCRIPTION OF CONTINGENT UNITS [_] During the five year period, beginning with the first full four quarters following the Merger, the senior subordinated units, junior subordinated units and general partner interests will have the right to receive up to 909,000 senior subordinated units upon Petro meeting a "Contingent Unit Test." Each time the Contingent Unit Test is met, (but not more frequently than once every four quarter period), the senior subordinated units, junior subordinated units and general partner interests will receive an aggregate of 303,000 senior subordinated units, subject to a maximum of 909,000 senior subordinated units. The Contingent Unit Test will be met during any four quarter period when distributable cash flow per unit attributable to Petro exceeds $2.90 which is 32% higher than the current annualized MQD of $2.20 and 26% higher than the proposed MQD of $2.30. Page C-2 SUMMARY OF THE TRANSACTION ALLOCATION OF CURRENT PETRO SHARES OUTSTANDING (IN THOUSANDS) Page C-3
-------------------------------------------------------------------------------- Class A Class C Total ----------- --------- --------- Groups Receiving Senior Sub --------------------------- Public 14,327 282 14,609 Affiliates 5,243 1,328 6,572 ----------- --------- --------- Total Receiving Senior Sub 19,570 1,610 21,181 Groups Receiving Junior Sub and GP ---------------------------------- Affiliates 4,395 987 5,382 ----------- --------- --------- Sub Total 23,965 2,598 26,562 =========== ========= Class B 11 --------- Total Shares including Class B 26,574 ========= SUMMARY OF THE TRANSACTION PRO FORMA STAR GAS UNITS OUTSTANDING PRE-FINANCING ASSUMPTIONS (IN THOUSANDS) ---------------------------------------------------------- Page C-4
Issued to Petro ----------------- Types of Units Current Public Affiliates Retired Pro Forma ----------------------- --------- --------- ------------ --------- ---------- Common 3,859 - - - 3,859 Senior Subordinated - 1,908 859 - 2,767 Subordinated 2,396 - - (2,396) - Junior Subordinated & New General Partner - - 857 - 857 Old General Partner 128 - - (128) - --------- ---------- 6,383 7,482 SUMMARY OF THE TRANSACTION EQUITY PURCHASE PRICE CALCULATION IMPLIED EQUITY VALUE OF PETRO'S ASSETS ($ AND UNITS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) Page C-5
-------------------------------------------------------------------------------------------------- Value of Securities Event Issued to and Retired from Petro -------------------------------------------------------- ------------------------------------- Issuance of Senior Subordinated Units to Public Petro Shareholders 1,908 x $18.52 ------------------------------ $35,337 Issuance of Senior Subordinated Units to Affiliate Petro Shareholders 859 x $18.52 ------------------------------ $15,900 Issuance of Junior Subordinated & General Partner Units to Affiliate Petro Shareholders 857 x $15.41 ------------------------------ $13,203 --------- Purchase Price of Petro's Equity $64,439 ----------------------------------------------------------------------------------------------- Divided by 26,562 shares of Petro's Common stock = $2.43 per share (Excludes 11 Class B Shares) ----------------------------------------------------------------------------------------------- Retire Subordinated Units held by Petro (2,396) x $15.41 ------------------------------ ($36,924) Retire Old General Partner Units held by Petro (128) x $15.41 ------------------------------ ($1,967) --------- Equity Value of Petro's Heating Oil Assets $25,549 SUMMARY OF THE TRANSACTION PRO FORMA CAPITAL STRUCTURE PROJECTED 9/30/98 ($ IN THOUSANDS) (a) Comprised of 3,858 currently outstanding units, 6,879 units to be issued in common unit offering to close concurrent with the Merger, and 104 units issued as a consent fee in the Refinancing Transaction. (b) Includes 2,767 units issued to the Petro shareholders. (c) Current price of Star Gas (10/14/98) $19,563 Page C - 6
--------------------------------------------------------------------------------------------- Pro forma Star Gas Petro Adjustments Star Gas ---------- ------- -------------- ---------- Debt: 8.04% First Mortgage Notes $85,000 - - $85,000 7.25% WC Revolver 4,785 - - 4,785 7.25% Acquisition Facility 9,000 - - 9,000 7.17% First Mortgage Notes 11,000 - - 11,000 11.96% Senior Notes - $60,000 ($60,000) - 14.10% Senior Notes - 3,100 (3,100) - 14.10% Subordinated Notes - 3,100 (3,100) - 10.13% Sub Notes & Sr Notes - 50,000 (50,000) - 9.38% Sub Notes & Sr Notes - 75,000 (75,000) - 12.25% Sub Notes & Sr Notes - 81,250 (81,250) - 8.00% Existing Acq Notes Payable - 14,508 - 14,508 11.5% Exchanged Debt - - 6,520 6,520 9.0% Exchanged Debt - - 63,126 63,126 9.0% New Debt - - 120,000 120,000 ---------- -------- --------- --------- Total Debt $109,785 $286,958 ($82,804) $313,939 Weighted average cost of Debt 8.6% Preferred Stock: 14.33% Preferred Stock $ 0 $4,167 ($4,167) $ 0 12.88% Preferred Stock - 30,000 (30,000) - ----------- --------- ---------- ---------- - $34,167 ($34,167) - Common Equity: $57,206 ($210,486) $115,389 ($37,891) Estimated Equity Value: Pro Forma Estimated Estimated Units Out. Unit Price Market Value ----------- ---------- ------------ Common 10,841 (a) $19.56 (c) $212,086 Senior Subordinated 2,767 (b) 18.52 52,246 Junior Subordinated and GP 857 15.41 13,206 ---------- ----------- 14,466 $276,538 Total Capitalization: $590,477 Less: Cash and Cash Collateral 21,942 ----------- Net Capitalization $568,535 IMPLIED UNIT VALUE ANALYSIS COMMON UNITS [_] A.G. Edwards calculated a range of values for the Senior Subordinated, Junior Subordinated and General Partner units, based on a required rate of return, trading yield, and discount to the common units. (a) Per Cost of Capital analysis on page D-2. (b) Assumes a $2.30 distribution. [_] Certain analysis included in this presentation, including the calculations of the implied value of the senior subordinated, junior subordinated and GP units, require an estimate of the future price of the common units at Closing. To serve as a proxy for this future price, A.G. Edwards used the average common unit closing price for the last 20 trading days ended October 14, 1998. Such price is 10.4% to 17.8% lower than the common units' implied unit value per the above analysis, and 3.6% greater than the common units' most recent closing price on October 14, 1998. Page D-1
===================================================================================================== 1999 2000 2001 2002 Thereafter ------ ------ ------ ------ ------------ COMMON UNIT Indicated Distribution $ 2.30 $2.30 $2.30 $2.30 $2.30 Cost of Equity (a) 9.3% 9.3% 9.3% 9.3% 9.3% ------ NPV of future distributions $24.65 ------ 1999 2000 2001 2002 Thereafter ------ ------ ------ ------ ------------ COMMON UNIT Indicated Distribution $ 2.30 $2.30 $2.30 $2.30 $2.30 Cost of Equity (a) 9.8% 9.8% 9.8% 9.8% 9.8% ------ NPV of future distributions $23.59 ------ 1999 2000 2001 2002 Thereafter ------ ------ ------ ------ ------------ COMMON UNIT Indicated Distribution $ 2.30 $2.30 $2.30 $2.30 $2.30 Cost of Equity (a) 10.2% 10.2% 10.2% 10.2% 10.2% ------ NPV of future distributions $22.62 ------ ---------------------------------------------------- ----------------------------------- AVERAGE PRICE OF LAST 20 TRADING DAYS: $20.26 CURRENT PRICE (10/14/98 $19.56 IMPLIED YIELD (B): 11.4% CURRENT YIELD (B): 11.8% ---------------------------------------------------- ----------------------------------- IMPLIED UNIT VALUE ANALYSIS THEORETICAL PRO FORMA COST OF EQUITY FOR COMMON UNITS ($ in millions) Page D-2
- ------------------------------------------------------------------------------------------------------------------------------------ Total Implied Total Total Market Unit Total Market Debt/ Debt as % Un- Levered Val. Debt Price at Units Value of Total of Total levered Comparable Company Beta (a) (Bk=Mkt) (10/14/98) Out. (Mil) Equity Equity Capital Beta - ------------------------------------------------------------------------------------------------------------------------------------ AmeriGas Partners, L.P. 0.42 $711.1 $24.125 41.9 $1,031.2 69.0% 40.8% 0.249 Cornerstone Propane Partners, L.P. 0.45 240.9 18.000 19.9 365.2 66.0% 39.8% 0.271 Ferrellgas Partners, L.P. 0.46 504.1 20.000 31.3 638.6 78.9% 44.1% 0.257 Heritage Propane Partners, L.P. 0.42 177.8 20.813 8.5 180.0 98.8% 49.7% 0.211 National Propane Partners, L.P. 0.61 145.5 9.438 11.2 108.2 134.5% 57.4% 0.260 Star Gas Partners, L.P. 0.39 109.8 19.563 6.3 124.9 87.9% 46.8% 0.208 Suburban Propane Partners, L.P. 0.40 427.9 19.625 28.7 575.3 74.4% 42.7% 0.229 --------------------------------------------------------- Pro forma capitalization - at market (b) Comparable group's average unlevered beta: 0.24 Total debt $313.9 53.2% Pro forma debt-to-equity ratio (b): 113.5% Total equity 276.5 46.8% ------ ------ Pro forma debt as a percent of total capital (b): 53.2% $590.5 100.0% ========================================================= Comparable group's beta relevered for Pro forma capital structure: 0.418 Derivation of Weighted Average Cost of Capital: Market Risk Premium Range (d) - ----------------------------------------------- --------------------------------- 11.3% 12.3% 13.3% --------------------------------- Pro forma theoretical levered beta: 0.418 Assumed % of equity in Pro forma capital structure (b) 46.8% Risk-free rate of return (c): 4.6% Pro forma cost of equity range (at various market risk premiums): 9.3% 9.8% 10.2% Pro forma assumed tax rate: === === ==== Assumed % of debt in capital structure (b): 35.0% Pro forma estimated cost of debt (e): 53.2% Pro forma estimated after-tax cost of debt: 8.6% 5.6% 5.6% 5.6% 5.6% --------------------------------- Pro forma weighted average cost of capital range (f): 7.3% 7.5% 7.7% --------------------------------- __________________________________________ (a) Source: Bloomberg, 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of debt is assumed to equal book value. See Page C-6 for equity calculation. (c) Ten-year Treasury rate on October 14, 1998. (d) ?????? Associates 1997. Total returns for small company stocks of 17.7% ?????? the risk-free rate. (e) Based on Pro forma debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). IMPLIED UNIT VALUE ANALYSIS SENIOR SUBORDINATED UNITS - ----------------------------------------------------------------------------- Range -------------- Required rate of return (a) 20.0% - 30.0% $17.90 - 22.28 Trading yield (b) 11.5% - 13.5% $17.04 - 20.00 Discount to common units (c) 10.0% - 20.0% $16.21 - 18.23 Range $16.21 - 22.28 Adjusted Range (d) $17.04 - 20.00 -------------- Assumed value (e) $18.52 -------------- (a) Represents required rate of return during subordination period, which is assumed for the minimum three years. Thereafter, the rate of return is assumed to equal that of the common units, for a blended required rate of return of 12.4% to 15.3%. Cost per unit calculations provided on page D-4. (b) Based on a $2.30 annualized MQD. (c) Based on a discount to the common unit's average closing price for the last 20 trading days ended 10/14/98 of $20.26, as referenced on page D-1. (d) Represents the middle values of both the range of highs and lows. (e) Implied required rate of return, trading yield and discount to common at a unit price of $18.52 are 28.1% during subordination (14.7% blended), 12.4%, and 8.6%, respectively. Page D-3 IMPLIED UNIT VALUE ANALYSIS SENIOR SUBORDINATED UNITS REQUIRED RATE OF RETURN =============================================================================== (a) Distributions made after 2001 are discounted at the cost of equity for the Common Units, estimated at 9.8%, due to the end of the Subordination Period. (b) Assumes that the Contingent Units Test is met in each of the first three years. Page D-4
1999 2000 2001 2002(a) Thereafter(a) ------ ------ ------ --------- ------------- Senior Subordinated Unit (without CU) Indicated Distribution $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 Cost of Equity 20.0% 20.0% 20.0% 9.8% 9.8% ------- NPV of future distributions $ 18.50 ------- CONTINGENT UNIT Indicated Distribution (b) $ 0 $ 697 $1,394 $2,091 $ 2,091 Cost of equity 20.0% 20.0% 20.0% 9.8% 9.8% ------- NPV of future distributions $13,699 ------- ------- UNIT VALUE OF SENIOR SUBORDINATED UNIT WITH ATTACHED CU $ 22.28 ------- (Each Unit has claim to 1/3,624 of the Contingent Unit.) 1999 2000 2001 2002(a) Thereafter(a) ------- ------- ------- ------- ------------- SENIOR SUBORDINATED UNIT (WITHOUT CU) Indicated Distribution $ 2.30 $ 2.30 $2.30 $2.30 $2.30 Cost of Equity 30.0% 30.0% 30.0% 9.8% 9.8% --------- NPV of future distributions $ 14.91 --------- CONTINGENT UNIT Indicated Distribution (b) $ 0 $ 697 $1,394 $2,091 $2,091 Cost of Equity 30.0% 30.0% 30.0% 9.8% 9.8% --------- NPV of future distributions $ 10,806 --------- --------- UNIT VALUE OF SENIOR SUBORDINATED UNIT WITH ATTACHED CU $ 17.90 --------- (Each Unit has claim to 1/3,624 of the Contingent Unit.) IMPLIED UNIT VALUE ANALYSIS THEORETICAL PRO FORMA COST OF EQUITY FOR SENIOR SUBORDINATED UNITS ($ in millions) _________________________________________ (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of debt is assumed to equal book value; debt includes the market value of pro forma common units; equity includes the value of senior sub, junior sub units, and GP units. (c) Ten - year Treasury rate on October 14, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. Page D-5
- ------------------------------------------------------------------------------------------------------------------------------------ Total Implied Total Total Market Unit Total Market Debt/ Debt as % Un- Levered Val. Debt Price at Units Value of Total of Total Levered Comparable Company Beta (a) (Bk=Mkt) (10/14/98) Out. (Mil) Equity Equity Capital Beta - ----------------------------------------------------------------------------------------------------------------------------------- AmeriGas Partners, L.P. 0.42 $711.1 $ 24.125 41.9 $1,031.2 69.0% 40.8% 0.249 Cornerstone Propane Partners, L.P. 0.45 240.9 18.000 19.9 365.2 66.0% 39.8% 0.271 Ferrellgas Partners, L.P. 0.46 504.1 20.000 31.3 638.6 78.9% 44.1% 0.257 Heritage Propane Partners, L.P. 0.42 177.8 20.813 8.5 180.0 98.8% 49.7% 0.211 National Propane Partners, L.P. 0.61 145.5 9.438 11.2 108.2 134.5% 57.4% 0.260 Star Gas Partners, L.P. 0.39 109.8 19.563 6.3 124.9 87.9% 46.8% 0.208 Suburban Propane Partners, L.P. 0.40 427.9 19.625 28.7 575.3 74.4% 42.7% 0.229 ----------------------------------------------------------------- Pro forma capitalization - at market (b) Comparable group's average unlevered beta: 0.24 Total debt $526.0 89.1% Pro forma debt - to - equity ratio (b): 816.1% Total equity 64.5 10.9% ------ ------ Pro forma debt as a percent of total capital (b): 89.1% $590.5 100.0% ================================================================= Comparable group's beta relevered for Pro forma 1.518 capital structure: ===== Derivation of Weighted Average Cost of Capital: Market Risk Premium Range (d) - ----------------------------------------------- ------------------------------------ 11.3% 12.3% 13.3% ------------------------------------ Pro forma theoretical levered beta: 1.518 Assumed % of equity in Pro forma capital structure (b): 10.9% Risk-free rate of return (c): 4.6% Pro forma cost of equity range (at various market risk premiums): 21.8% 23.3% 24.8% ===== ===== ===== ------------------------------------ IMPLIED UNIT VALUE ANALYSIS JUNIOR SUBORDINATED AND GP UNITS (a) Represents required rate of return during subordinated period, which is assumed for the minimum three years. Thereafter, the rate of return is assumed to equal that of the common units, for a blended required rate of return of 16.2% to 18.7%. Cost per unit calculations provided on page D-7. (b) Based on a $2.30 annualized MQD. (c) Based on a discount to the common unit's average closing price for the last 20 trading days ended 10/14/98 of $20.26, as referenced on page D-1. (d) Represents the middle values of both the range of highs and lows. (e) Implied required rate of return, trading yield and discount to common at a unit price of $15.41 are 39.4% during subordination (17.6% blended), 14.9%, and 23.9%, respectively. Page D-6
------------------------------------------------------------------------ Range ----------------- Required rate of return (a) 35.0% - 45.0% $14.52 - 16.84 Trading yield (b) 14.0% - 16.0% $14.38 - 16.43 Discount to common units (c) 25.0% - 35.0% $13.17 - 15.19 Range $13.17 - 16.84 Adjusted Range (d) $14.38 - 16.43 ----------------- Assumed value (e) $15.41 ----------------- IMPLIED UNIT VALUE ANALYSIS JUNIOR SUBORDINATED AND GP UNITS REQUIRED RATE OF RETURN - -------------------------------------------------------------------------------- (a) Distributions made after 2001 are discounted at the cost of equity for the Common Units, estimated at 9.8%, due to the end of the Subordination Period. (b) Assumes that the Contingent Units Test is met in each of the first three years. (c) Utilized senior subordinated discount rate as CUs convert to senior subordinated units. Page D-7
1999 2000 2001 2002(A) THEREAFTER(A) -------- ------- ------- -------- -------------- JUNIOR SUBORDINATED AND GP UNITS Indicated Distribution $ 2.30 $2.30 $ 2.30 $2.30 $ 2.30 Cost of Equity 35.0% 35.0% 35.0% 9.8% 9.8% --------- NPV of future distributions $ 13.49 --------- CONTINGENT UNIT Indicated Distribution (b) $ 0 $ 697 $1,394 $2,091 $2,091 Cost of Equity (c) 25.0% 25.0% 25.0% 9.8% 9.8% --------- NPV of future distributions $12,138 --------- --------- UNIT VALUE OF JUNIOR SUBORDINATED AND GP UNIT WITH ATTACHED CU $ 16.84 --------- (Each Unit has claim to 1/3,624 of the Contingent Unit.) 1999 2000 2001 2002(A) THEREAFTER(A) -------- ------- ------- -------- -------------- JUNIOR SUBORDINATED AND GP UNITS Indicated Distribution $ 2.30 $2.30 $ 2.30 $2.30 $ 2.30 Cost of Equity 45.0% 45.0% 45.0% 9.8% 9.8% --------- NPV of future distribution $ 11.17 --------- CONTINGENT UNIT Indicated Distribution (b) $ 0 $ 697 $1,394 $2,091 $2,091 Cost of Equity (c) 25.0% 25.0% 25.0% 9.8% 9.8% --------- NPV of future distribution $12,138 --------- --------- UNIT VALUE OF JUNIOR SUBORDINATED AND GP UNIT WITH ATTACHED CU $ 14.52 --------- (Each Unit has claim to 1/3,624 of the Contingent Unit.) IMPLIED UNIT VALUE ANALYSIS THEORETICAL PRO FORMA COST OF EQUITY FOR JUNIOR SUBORDINATED AND GP UNITS ($ in millions) ____________________________________________ (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of debt is assumed to equal book value; debt includes the market value of common and senior subordinated units; equity includes the value of junior sub and GP units. (c) Ten-year Treasury rate on October 14, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. Page D-8
=================================================================================================================================== TOTAL IMPLIED TOTAL TOTAL MARKET UNIT TOTAL MARKET DEBT/ DEBT AS % UN- LEVERED VAL. DEBT PRICE AT UNITS VALUE OF TOTAL OF TOTAL LEVERED COMPARABLE COMPANY BETA (A) (BK = MKT) (10/14/98) OUT. (MIL) EQUITY EQUITY CAPITAL BETA - ---------------------------------------------------------------------------------------------------------------------------- AmeriGas Partners, L.P. 0.42 $711.1 $24.125 41.9 $ 1,031.2 69.0% 40.8% 0.249 Cornerstone Propane Partners, L.P. 0.45 240.9 18.000 19.9 365.2 66.0% 39.8% 0.271 Ferrellgas Partners, L.P. 0.46 504.1 20.000 31.3 638.6 78.9% 44.1% 0.257 Heritage Propane Partners, L.P. 0.42 177.8 20.813 8.5 180.0 98.8% 49.7% 0.211 National Propane Partners, L.P. 0.61 145.5 9.438 11.2 108.2 134.5% 57.4% 0.260 Star Gas Partners, L.P. 0.39 109.8 19.563 6.3 124.9 87.9% 46.8% 0.208 Suburban Propane Partners, L.P. 0.40 427.9 19.625 28.7 575.3 74.4% 42.7% 0.229 -------------------------------------------------- Pro forma Capitalization-at market (b) Comparable group's average unlevered beta: 0.24 Total debt $577.3 97.8% Pro forma debt-to-equity ratio (b): 4371.2% Total equity 13.2 2.2% ------ ----- $590.5 100.0% -------------------------------------------------- Pro forma debt as a percent of total capital (b): 97.8% Comparable group's beta relevered for Pro forma capital structure: 7.080 ===== DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: MARKET RISK PREMIUM RANGE (D) - ---------------------------------------------- -------------------------------------- 11.3% 12.3% 13.3% -------------------------------------- Pro forma theoretical levered beta: 7.080 Assumed % of equity in Pro forma capital structure (b): 2.2% Risk-free rate of return (c): 4.6% Pro forma cost of equity range (at various market risk premiums): 84.6% 91.7% 98.8% ===== ===== ===== -------------------------------------- PRO FORMA MERGER ANALYSIS [_] A.G. Edwards analyzed the impact of the Transaction on the Partnership's distributable cash flow per unit, the related accretion, common unit coverage and total unit coverage on a pro forma basis. __________________________________________________________________ (a) Projected results are adjusted for the year to date actual performance. (b) Adjusted to represent normal weather. Page E-1
------------------------------------------------------------------ STAR GAS STAR GAS STAND-ALONE PRO FORMA ------------- ----------- DCF PER UNIT 1998 Adjusted for Actual (a) $1.27 $1.53 1998 Normalized (b) 1.84 2.40 1999 Projected 2.02 2.60 ACCRETION/DILUTION 1998 Adjusted for Actual (a) $0.26 1998 Normalized (b) 0.56 1999 Projected 0.58 COMMON UNIT COVERAGE 1998 Adjusted for Actual (a) 0.96x 0.89x 1998 Normalized (b) 1.38 1.39 1999 Projected 1.51 1.51 TOTAL UNIT COVERAGE 1998 Adjusted for Actual (a) 0.58x 0.66x 1998 Normalized (b) 0.84 1.05 1999 Projected 0.92 1.13 Merger Premiums to Market Value Analysis [_] A.G. Edwards analyzed the premium of the consideration to be received by Petro Common Shareholders and compared the premium to Petro's current and historical prices. These premiums were compared to premiums paid in acquisitions of majority or remaining interests announced and completed between January 1, 1996 and October 7, 1998 where the target's share price one week prior to the announcement date was either (i) equal to or less than $5, (ii) greater than $5 and less than $10, or (iii) equal to or greater than $10. [_] Premiums were calculated one day, one week, four weeks, three months and one year prior to the announcement of the agreement in principle for each merger. [_] The premium to Petro's current stock price ($1.031 as of October 14, 1998) was 135.6%. Page F-1
-------------------------------------------------------------------------------------------------------------------- Comparison of Premium Paid -------------------------------------------------------------------------------------------------------------------- Petro at Mean of Transactions Mean of Transactions Mean of Transactions Premium to stock price prior to $2.43 per Unit Equal to or Greater Than $5 Equal to or announcement on August 14th: Offer Price Less Than $5 and Less Than $10 Greater Than $10 -------------------------------------------------------------------------------------------------------------------- One day prior: 29.6% 39.7% 34.3% 28.1% One week prior: 38.9% 48.8% 42.3% 32.7% Four weeks prior: 17.8% 55.4% 48.5% 39.6% Three months prior: 52.5% 67.1% 58.0% 77.9% One year prior: -19.0% 53.8% 45.8% 53.2% ----------------------------------------------------------------------------------- Maximum 52.5% 67.1% 58.0% 77.9% Minimum -19.0% 39.7% 34.3% 28.1% ----------------------------------------------------------------------------------- Merger Premiums to Market Value Analysis Mergers with Target Price Equal to or Less than $5 per Share Announced and Completed 1/1/96-10/9/98 Page F-10
- ------------------------------------------------------------------------------------------------------------------------------------ Date Date Announced Effective Target Name Target Business Description Acquiror Name - ------------------------------------------------------------------------------------------------------------------------------------ 01/10/96 06/26/96 American Resource Corp Gold mining company REA Gold Corp 01/18/96 08/23/96 AMSERV Healthcare Inc Pvd temp nursing employment Star Multi Care Services Inc 01/23/96 05/09/96 Portage Industries Corp Mnfr extruded plastic sheets Spartech Corp 02/05/96 09/30/96 Customedix Corp Mnfr dental, medical products CUS Acquisitions Inc 02/13/96 07/12/96 Medical Innovations Inc Pvd home health care services Horizon/CMS Healthcare Corp 02/15/96 04/29/96 LDI Corp Computer equip leasing svcs NationsBank Corp, Charlotte, NC 02/28/96 07/11/96 Salton/Maxim Housewares Inc Mnfr electric housewares, fans Windmere Corp 03/13/96 09/27/96 DeSoto Inc Mnfr paints and detergents Keystone Consolidated Inds Inc 04/16/96 05/31/96 CIS Technologies Inc Manufacture computers National Data Corp 04/22/96 06/04/96 Cornerstone Natural Gas Co Natural gas distribution svcs El Paso Field Svcs(El Paso) 05/03/96 03/17/98 Homeowners Group Inc Real estate, insurance agency Cross Country Group Inc 05/06/96 09/03/96 Transcisco Industries Inc Mnfr, service railroad equip Trinity Industries Inc 05/07/96 09/03/96 NMR of America Inc Pvd. medical equip leasing svcs Medical Resources Inc 05/13/96 08/30/96 MDT Corp Mnfr sterility assurance equip Getinge Industries AB 05/15/96 09/10/96 Carlisle Plastics Inc Mnfr, whl plastic prods, resins Tyco International Ltd 06/03/96 01/09/97 Bio-Dental Technologies Corp Provide dental research svcs Zila Inc 06/10/96 07/22/96 SysteMed Inc Pvd medical services Merck-Medco Managed Care Inc 06/11/96 09/03/96 Computer Identics Corp Manufacture bar code scanners Robotic Vision Systems Inc 06/17/96 10/07/96 Scanforms Inc Mnfr business forms Big Flower Press Holdings Inc 06/21/96 08/23/96 Computer Petroleum Corp Information retrieval svcs United Communications Group 06/24/96 12/05/96 MEM Co Inc. Manufacture toiletries Renaissance Cosmetics Inc 07/31/96 11/13/96 Calgene Inc Own and operate greenhouse Monsanto Co 08/13/96 02/27/97 LaTex Resources Inc Oil and gas expln, prodn Alliance Resources PLC 09/10/96 01/03/97 GreenStone Industries Corp Manufacture stationery Louisiana-Pacific Corp 09/11/96 03/04/97 Chempower Inc Insulation, asbestos abatement American Eco Corp 09/16/96 12/06/96 Proler International Corp Whl scrap metals & metals Schnitzer Steel Industries Inc 09/26/96 01/24/97 General Physics Corp Provide training services National Patent Development 10/02/96 12/27/96 Software Publishing Corp Develop software Allegro New Media 10/03/96 11/12/97 Pittencrieff Communications Pvd radiotelephone commun svcs Nextel Communications Inc 10/04/96 12/31/96 Pet Food Warehouse Inc Own, op pet food stores Petco Animal Supplies Inc 10/30/96 12/20/96 Pacific Rehab & Sports Med Own, op rehab hospital Horizon/CMS Healthcare Corp 11/05/96 03/14/97 Panatech Research & Development Manufacture semiconductors Harbour Group Ltd 11/25/96 02/28/97 American Studios Inc Pvd photography services PCA International Inc 12/06/96 03/18/97 MaxServ Inc (Sears Roebuck) Pvd technical info support svc Sears Roebuck & Co 12/09/96 02/28/97 Houston Biotechnology Inc Mnfr monoclonal antibodies Medarex Inc 01/24/97 07/02/97 INCSTAR Corp (Sorin Biomedical) Mnfr diagnostic substances American Standard Inc 01/28/97 05/21/97 Calgene Inc (Monsanto Co) Own and operate greenhouse Monsanto Co 01/30/97 08/12/97 AST Research Inc Mnfr computers; dvlp software Samsung Electronic Co Ltd 02/07/97 08/01/97 MS Financial (MS Diversified) Pvd financial credit services Search Financial Services Inc 02/11/97 07/31/97 Serv-Tech Inc Maintenance and cleaning svcs Philip Environmental Inc 03/04/97 06/27/97 Audio King Corp Own, op consumer electn stores Ultimate Electronic Inc 04/15/97 06/30/97 Kurzweil Applied Intelligence Electronic computing equip Lernout & Hauspic Speech 04/30/97 07/25/97 Arden Industrial Products Inc Whl fasteners Park-Ohio Industries Inc 05/01/97 08/01/97 Cryenco Sciences Inc Mnfr liquid gas storage tanks Chart Industries Inc 05/08/97 09/10/97 Imex Medical Systems Inc Mnfr fetal diagnostic instr Nicolet Biomedical Inc 06/16/97 09/30/97 Frederick's of Hollywood, Inc Women's clothing stores Investor Group 06/24/97 07/25/97 Jillians Entertainment Corp Own, op billiard clubs JW Childs Equity Partners LP 07/23/97 12/02/97 Rudy's Restaurant Group Own and operate restaurants Benihana Inc 08/01/97 09/26/97 Community Care of America Inc Own, op nursing homes Integrated Health Services Inc 08/07/97 12/02/97 Magnetic Technologies Corp Manufacture copiers, printers SPS Technologies Inc 08/14/97 12/31/97 Allied Capital Advisers Inc Investment advisory svcs Allied Capital Lending Corp 09/02/97 12/03/97 Ground Round Restaurants Own and operate restaurants GRR Holdings LLC 09/04/97 12/30/97 Cinergi Pictures Entertainment Pvd motion picture prodn svcs Investor Group 09/26/97 09/26/97 Laclede Steel Co Own, operate steel works Birmingham Steel Corp 10/10/97 01/07/98 Puro Water Group Inc Whl bottled water United States Filter Corp 10/13/97 03/19/98 Integrated Brands Inc Produce ice cream Yogen Furz World-Wide Inc 11/03/97 02/25/98 Individual Inc Pvd on-line info retrieval svc Desktop Data Inc 11/04/97 01/12/98 ComputerVision Corp Mnfr computers, peripherals Parametric Technology Corp 11/12/97 03/03/98 PureTec Corp Manufacture plastic products Tekni-Plex Inc 11/24/97 01/07/98 General Host Corp Own, op specialty retail stores Cypress Group LLC 12/02/97 03/17/98 Staodyn Inc Mnfr electromedical equipment Rehabilicare Inc 12/12/97 02/13/98 Impact Systems Inc Paper prodn control systems Voith Sulzer Paper Technology 12/12/97 09/10/98 Timber Lodge Steakhouse Inc Own, op restaurants Santa Barbara Restaurant Group 12/15/97 02/24/98 MetroGolf Inc Own, op golf courses Family Golf Centers Inc 12/22/97 05/20/98 Artistic Greetings Inc Mnfr personalized stationery MDC Communications Corp - ------------------------------------------------------------------------------------------------------------------------------------ Value of Enter- Trans- prise Date Date Acquiror action Value Announced Effective Target Name Business Description ($ mil) ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 01/10/96 06/26/96 American Resource Corp Gold mining company 77.5 76.353 01/18/96 08/23/96 AMSERV Healthcare Inc Pvd home health care services 9.2 7.895 01/23/96 05/09/96 Portage Industries Corp Manufacture plastic products 15.8 17.540 02/05/96 09/30/96 Customedix Corp Investment company 3.6 15.103 02/13/96 07/12/96 Medical Innovations Inc Pvd nursing care services 30.3 41.725 02/15/96 04/29/96 LDI Corp Bank hldg co; pvd finl svcs 28.1 288.893 02/28/96 07/11/96 Salton/Maxim Housewares Inc Mnfr personal care appliances 21.1 53.442 03/13/96 09/27/96 DeSoto Inc Manufacture steel wire 36.1 40.529 04/16/96 05/31/96 CIS Technologies Inc Pvd info, transaction svcs 99.3 112.471 04/22/96 06/04/96 Cornerstone Natural Gas Co Own, op oil and gas pipelines 96.6 97.614 05/03/96 03/17/98 Homeowners Group Inc Pvd homeowner membership svcs 11.4 14.968 05/06/96 09/03/96 Transcisco Industries Inc Mnfr transp equip,parts 44.7 51.126 05/07/96 09/03/96 NMR of America Inc Own,op diagnostic imaging ctrs 40.4 57.369 05/13/96 08/30/96 MDT Corp Mnfr sterilizing equipment 70.3 69.457 05/15/96 09/10/96 Carlisle Plastics Inc Mnfr fire protection systems 122.4 273.282 06/03/96 01/09/97 Bio-Dental Technologies Corp Mnfr,whl pharmaceuticals 40.3 48.477 06/10/96 07/22/96 SysteMed Inc Health insurance company 64.8 60.646 06/11/96 09/03/96 Computer Identics Corp Mnfr 2-D,3-D vision-based sys 42.0 40.881 06/17/96 10/07/96 Scanforms Inc Pvd advertising,marketing svcs 27.5 15.661 06/21/96 08/23/96 Computer Identics Corp Publish newsletters 12.0 11.548 06/24/96 12/05/96 MEM Co Inc Investor group 38.2 29.577 07/31/96 11/13/96 Calgene Inc Mnfr agro chems,manmade fibers 50.0 584.080 08/13/96 02/27/97 LaTex Resources Inc Oilo and gas exploration, prodn 27.1 44.759 09/10/96 01/03/97 GreenStone Industries Corp Mnfr lumber,plywood,pulp 29.2 40.823 09/11/96 03/04/97 Chempower Inc Pvd engineering services 50.0 36.189 09/16/96 12/06/96 Proler International Corp Manufacture steel products 42.5 68.146 09/26/96 01/24/97 General Physics Corp Mnfr contact lenses 261. 70.360 10/02/96 12/27/96 Software Publishing Corp Pvd software services 25.2 8.786 10/03/96 11/12/97 Pittencrieff Communications Pvd cellular telephone svcs 158.4 159.860 10/04/96 12/31/96 Pet Food Warehouse Inc Own and operate pet stores 60.7 55.986 10/30/96 12/20/96 Pacific Rehab & Sports Med Pvd nursing care services 72.7 75.706 11/05/96 03/14/97 Panatech Research & Development Mnfr steel cutting tools 29.2 26.218 11/25/96 02/28/97 American Studios Inc Pvd photo processing services 66.3 67.650 12/06/96 03/18/97 MaxServ Inc (Sears Roebuck) Department stores; finl svcs 46.0 87.263 12/09/96 02/28/97 Houston Biotechnology Inc Manufacture pharmaceuticals 8.6 8.700 01/24/97 07/02/97 INCSTAR Corp (Sorin Biomedical) Transportation, building prod 106.3 102.865 01/28/97 05/21/97 Calgene Inc (Monsanto Co) Mnfr agro chems, manmade fibers 242.6 567.548 01/30/97 08/12/97 AST Research Inc Mnfr consumer electronics 495.8 558.108 02/07/97 08/01/97 MS Financial (MS Diversified) Pvd business credit services 17.2 102.602 02/11/97 07/31/97 Serv-Tech Inc Provide waste management svcs 73.4 54.956 03/04/97 06/27/97 Audio King Corp Own, op radio, TV, electn stores 6.0 12.363 04/15/97 06/30/97 Kurzweil Applied Intelligence Mnfr speech tech products 51.3 50.852 04/30/97 07/25/97 Arden Industrial Products Inc Mnfr forged and machined parts 42.0 44.995 05/01/97 08/01/97 Cryenco Sciences Inc Mnfr process control instmnts 19.2 27.904 05/08/97 09/10/97 Imex Medical Systems Inc Investment company 9.3 10.238 06/16/97 09/30/97 Frederick's of Hollywood, Inc Investor group 69.4 57.007 06/24/97 07/25/97 Jillians Entertainment Corp Investment company 4.7 7.007 07/23/97 12/02/97 Rudy's Restaurant Group Own and operate restaurants 18.8 18.936 08/01/97 09/26/97 Community Care of America Inc Pvd specialty healthcare svcs 94.0 89.996 08/07/97 12/02/97 Magnetic Technologies Corp Mnfr industrial fasteners 16.8 15.984 08/14/97 12/31/97 Allied Capital Advisers Inc Closed-end mgmt investment co 49.5 44.111 09/02/97 12/03/97 Ground Round Restaurants Investment company 17.5 56.945 09/04/97 12/30/97 Cinergi Pictures Entertainment Investor group 16.3 59.794 09/26/97 09/26/97 Laclede Steel Co Manufacture steel, steel prod 15.0 131.767 10/10/97 01/07/98 Puro Water Group Inc Mnfr water treatment equip 25.7 30.186 10/13/97 03/19/98 Integrated Brands Inc Produce frozen yogurt 46.8 51.274 11/03/97 02/25/98 Individual Inc Pvd info retrieval svcs 86.8 79.390 11/04/97 01/12/98 ComputerVision Corp Develop, wholesale software 250.3 460.128 11/12/97 03/03/98 PureTec Corp Mnfr plastic 324.6 281.484 11/24/97 01/07/98 General Host Corp Investment bank 326.2 278.128 12/02/97 03/17/98 Staodyn Inc Mnfr electromedical equip 22.5 22.867 12/12/97 02/13/98 Impact Systems Inc Provide paper tech dvlp svcs 28.6 28.467 12/12/97 09/10/98 Timber Lodge Steakhouse Inc Own, op fast food restaurants 30.4 30.925 12/15/97 02/24/98 MetroGolf Inc Own and operate golf courses 6.6 18.428 12/22/97 05/20/98 Artistic Greetings Inc Provide marketing services 33.6 35.618 - ------------------------------------------------------------------------------------------------------------------------------------ Premium ---------------------------------------------------------------------------------- Date Date 1 Day Prior 1 Week Prior 4 Weeks Prior 3 Months Prior 1 Year Prior Announced Effective Target Name to Annc. Date to Annc. Date to Annc. Date to Annc. Date to Annc. Date - ------------------------------------------------------------------------------------------------------------------------------------ 01/10/96 06/26/96 American Resource Corp 30.77 23.50 27.03 01/18/96 08/23/96 AMSERV Healthcare Inc 14.56 27.29 20.59 -4.67 20.42 01/23/96 05/09/96 Portage Industries Corp 46.67 78.98 78.98 134.67 193.33 02/05/96 09/30/96 Customedix Corp 22.58 26.67 5.56 19.00 -18.98 02/13/96 07/12/96 Medical Innovations Inc 13.85 18.40 5.71 5.71 37.67 02/15/96 04/29/96 LDI Corp 31.20 21.48 49.09 26.15 5.81 02/28/96 07/11/96 Salton/Maxim Housewares Inc -0.19 12.84 3.81 1.65 -9.05 03/13/96 09/27/96 DeSoto Inc 65.41 53.00 80.00 118.57 53.00 04/16/96 05/31/96 CIS Technologies Inc 50.50 30.16 30.16 -5.57 33.78 04/22/96 06/04/96 Cornerstone Natural Gas Co 28.00 29.73 100.00 134.15 182.35 05/03/96 03/17/98 Homeowners Group Inc 22.07 26.77 93.88 135.43 17.71 05/06/96 09/03/96 Transcisco Industries Inc 15.56 36.84 28.40 57.58 271.43 05/07/96 09/03/96 NMR of America Inc 41.43 86.79 90.39 98.08 37.56 05/13/96 08/30/96 MDT Corp 12.82 22.22 4.76 15.79 -6.38 05/15/96 09/10/96 Carlisle Plastics Inc 38.20 38.20 41.83 73.94 31.51 06/03/96 01/09/97 Bio-Dental Technologies Corp 64.99 43.28 109.42 194.49 65.09 06/10/96 07/22/96 SysteMed Inc -4.00 4.35 9.09 -23.81 -56.36 06/11/96 09/03/96 Computer Identics Corp 63.11 54.53 54.53 72.71 19.84 06/17/96 10/07/96 Scanforms Inc 61.40 61.40 58.62 70.37 130.00 06/21/96 08/23/96 Computer Petroleum Corp 28.33 46.67 71.11 105.33 208.00 06/24/96 12/05/96 MEM Co Inc 13.21 81.82 90.48 93.55 114.29 07/31/96 11/13/96 Calgene Inc 64.10 80.28 39.13 31.96 14.29 08/13/96 02/27/97 LaTex Resources Inc 181.14 202.77 181.14 228.00 107.16 09/10/96 01/03/97 GreenStone Industries Corp 33.33 52.73 58.49 42.37 50.00 09/11/96 03/04/97 Chempower Inc 48.06 48.06 45.88 50.30 65.33 09/16/96 12/06/96 Proler International Corp 132.26 125.00 148.28 33.33 9.09 09/26/96 01/24/97 General Physics Corp 16.57 31.61 36.00 23.64 45.71 10/02/96 12/27/96 Software Publishing Corp 14.86 10.90 60.80 -88.09 10/03/96 11/12/97 Pittencrieff Communications 8.95 14.40 30.74 -13.08 29.14 10/04/96 12/31/96 Pet Food Warehouse Inc 22.93 26.00 48.24 48.24 57.50 10/30/96 12/20/96 Pacific Rehab & Sports Med 67.74 62.50 48.57 60.00 6.12 11/05/96 03/14/97 Panatech Research & Development 55.56 55.56 51.35 11/25/96 02/28/97 American Studios Inc 90.48 110.53 166.67 -65.28 -73.33 12/06/96 03/18/97 MaxServ Inc (Sears Roebuck) 19.23 67.57 55.00 67.57 129.63 12/09/96 02/28/97 Houston Biotechnology Inc 52.00 62.13 52.00 -93.01 -92.05 01/24/97 07/02/97 INCSTAR Corp (Sorin Biomedical) 42.93 53.21 68.53 01/28/97 05/21/97 Calgene Inc (Monsanto Co) 62.03 60.00 60.00 60.00 42.22 01/30/97 08/12/97 AST Research Inc 16.76 8.00 20.00 23.43 -31.43 02/07/97 08/01/97 MS Financial (MS Diversified) 20.00 46.67 10.00 1.54 -70.67 02/11/97 07/31/97 Serv-Tech Inc 32.00 60.00 88.57 129.57 12.34 03/04/97 06/27/97 Audio King Corp 60.00 68.00 68.00 68.00 -18.05 04/15/97 06/30/97 Kurzweil Applied Intelligence 83.83 69.69 66.49 84.00 63.56 04/30/97 07/25/97 Arden Industrial Products Inc 41.18 50.00 37.14 20.00 26.32 05/01/97 08/01/97 Cryenco Sciences Inc 69.23 76.00 72.55 41.94 -26.67 05/08/97 09/10/97 Imex Medical Systems Inc 7.90 2.76 2.76 -30.32 -32.50 06/16/97 09/30/97 Frederick's of Hollywood, Inc 48.85 44.47 25.95 93.75 85.07 06/24/97 07/25/97 Jillians Entertainment Corp 14.29 77.78 45.46 220.00 166.67 07/23/97 12/02/97 Rudy's Restaurant Group 50.94 70.21 72.04 60.00 5.26 08/01/97 09/26/97 Community Care of America Inc 23.08 18.52 88.24 68.42 -48.39 08/07/97 12/02/97 Magnetic Technologies Corp 25.00 25.00 33.33 42.86 33.33 08/14/97 12/31/97 Allied Capital Advisers Inc 10.41 4.68 10.41 8.97 -28.00 09/02/97 12/03/97 Ground Round Restaurants 10.00 10.00 -5.71 14.78 -34.00 09/04/97 12/30/97 Cinergi Pictures Entertainment 26.90 24.75 56.60 236.00 26.00 09/26/97 09/26/97 Laclede Steel Co 106.45 106.45 106.45 113.33 88.24 10/10/97 01/07/98 Puro Water Group Inc 33.95 47.69 44.00 44.00 10/13/97 03/19/98 Integrated Brands Inc 69.94 106.35 167.50 501.33 381.07 11/03/97 02/25/98 Individual Inc 0.92 14.93 -7.02 47.71 -6.00 11/04/97 01/12/98 ComputerVision Corp 28.31 69.92 18.63 14.33 -55.09 11/12/97 03/03/98 PureTec Corp 28.74 34.94 31.77 143.48 69.70 11/24/97 01/07/98 General Host Corp 60.00 62.96 79.59 51.72 77.69 12/02/97 03/17/98 Staodyn Inc 47.38 47.38 89.49 100.45 152.95 12/12/97 02/13/98 Impact Systems Inc 57.14 49.15 44.26 69.23 109.52 12/12/97 09/10/98 Timber Lodge Steakhouse Inc 74.13 74.13 81.19 94.32 139.43 12/15/97 02/24/98 MetroGolf Inc 20.00 20.00 -11.11 -25.00 -75.51 12/22/97 05/20/98 Artistic Greetings Inc 28.45 47.10 52.00 47.10 21.60 Merger Premiums to Market Value Analysis Mergers with Target Price Equal to or Less than $5 per Share Announced and Completed 1/1/96-10/9/98 (continued) Source: Securities Data Company, Inc; Three month and one-year premiums calculated using security prices from FactSet Research Systems, Inc. Commercial banks and other similar financial institutions were excluded for the purpose of this analysis. Page F-3
- ------------------------------------------------------------------------------------------------------------------------------------ Date Date Announced Effective Target Name Target Business Description Acquiror Name - ------------------------------------------------------------------------------------------------------------------------------------ 12/23/97 03/20/98 American Paging Inc Pvd wireless messaging svcs Telephone and Data Systems Inc 12/23/97 01/27/98 Hi-Lo Automotive Inc Own, op auto parts stores O'Reilly Automotive Inc 01/13/98 07/31/98 Bird Corp Manufacture building products CertainTeed Corp 01/16/98 02/26/98 Ophthalmic Imaging Systems Inc Mnfr, design, market imaging sys Premier Laser Systems 01/26/98 05/06/98 TransAmerican Waste Industries Pvd waste management services USA Waste Services Inc 02/09/98 06/18/98 American Waste Services Provide waste management svcs USA Waste Services Inc 02/23/98 06/26/98 CompScript Inc Pvd pharmaceutical mgmt svcs Omnicare Inc 03/02/98 04/30/98 First Alert Inc Mnfr fire and burglar alarms Sunbeam Corp 03/31/98 06/29/98 IBAH Inc Mnfr pharmaceutical products Omnicare Inc 04/09/98 07/29/98 Spec's Music Inc Record and video retail stores Camelot Music Holdings 04/10/98 06/26/98 Dataflex Corp Whl microcomputer equipment CompuCom Systems Inc (Safeguard) 04/22/98 06/29/98 AccelGraphics Inc Mnfr graphics accelerators Evans & Sutherland Computer 04/23/98 07/31/98 Morrison Restaurants Inc Own, operate eating places Piccadilly Cafeterias Inc 05/05/98 09/25/98 Allied Digital Technologies Co Mnfr multi media software prod Investor Group 05/07/98 07/31/98 Innovative Tech Systems Inc Dvlp facilities mgmt software Peregine Systems Inc 05/11/98 07/14/98 Micronics Computers Inc Mnfr system boards Diamond Multimedia Systems Inc 05/12/98 08/24/98 Virus Research Institute Inc Mnfr biological products T Cell Sciences Inc 05/20/98 09/15/98 InnoServ Technologies Pvd med equip repair svcs GE Medical Systems 05/22/98 07/22/98 Pete's Brewing Co Produce beer Gambinus Co. 05/29/98 08/17/98 Arch Petroleum Inc Oil, gas mining Pogo Producing Co 06/09/98 06/09/98 Lincoln Snack Co (Noel Group) Produce, whl pre-poped popcorn Brynwood Partners III LP 06/22/98 10/02/98 GT Bicycles Inc Manufacture, wholesale bicycles Schwinn Holdings Corp 07/07/98 09/21/98 Republic Engineered Steels Mnfr cold-finished steel prods Investor Group 07/14/98 09/18/98 DEP Corp Manufacture personal care prod Henkel KGaA 07/20/98 10/01/98 US SerVis Inc Dvp, design, whl software HBO & Co 07/29/98 09/11/98 E-Z Serve Corp Whl and retail gasoline EBC Texas Acquisition Corp - ------------------------------------------------------------------------------------------------------------------------------------ Value of Enter- Trans- prise Date Date Acquiror action Value Announced Effective Target Name Business Description ($ mil) ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 12/23/97 03/20/98 American Paging Inc Pvd telecommunications svcs 9.1 217.941 12/23/97 01/27/98 Hi-Lo Automotive Inc Own, op auto supply stores 42.5 89.690 01/13/98 07/31/98 Bird Corp Mnfr asbestos, fiberglass prods 39.2 27.821 01/16/98 02/26/98 Ophthalmic Imaging Systems Inc Mnfr, whl laser sys alarms 1.3 7.006 01/26/98 05/06/98 TransAmerican Waste Industries Pvd waste disposal services 142.3 156.717 02/09/98 06/18/98 American Waste Services Pvd waste disposal services 122.1 106.919 02/23/98 06/26/98 CompScript Inc Whl, retail pharmaceuticals 68.4 68.415 03/02/98 04/30/98 First Alert Inc Mnfr, whl household appliances 129.2 171.213 03/31/98 06/29/98 IBAH Inc Whl, retail pharmaceuticals 154.3 153.807 04/09/98 07/29/98 Spec's Music Inc Own, op chain record stores 26.8 25.276 04/10/98 06/26/98 Dataflex Corp Manufacture computer equipment 25.2 46.850 04/22/98 06/29/98 AccelGraphics Inc Mnfr computer graphics system 55.9 36.284 04/23/98 07/31/98 Morrison Restaurants Inc Own and operate cafeterias 46.2 05/05/98 09/25/98 Allied Digital Technologies Co Investoer group 69.2 110.009 05/07/98 07/31/98 Innovative Tech Systems Inc Dvlp service desk software 75.7 72.285 05/11/98 07/14/98 Micronics Computers Inc Manufacture multimedia systems 31.7 12.967 05/12/98 08/24/98 Virus Research Institute Inc Mnfr vaccines, related products 62.6 60.225 05/20/98 09/15/98 InnoServ Technologies Mnfr diagnostic imaging equip 13.1 11.596 05/22/98 07/22/98 Pete's Brewing Co Produce, wholesale beer 69.4 51.299 05/29/98 08/17/98 Arch Petroleum Inc Oil and gas exploration, prodn 114.0 100.081 06/09/98 06/09/98 Lincoln Snack Co (Noel Group) Investment firm 7.1 8.981 06/22/98 10/02/98 GT Bicycles Inc Mnfr bicycles; holding company 149.6 170.494 07/07/98 09/21/98 Republic Engineered Steels Investor group 417.8 409.392 07/14/98 09/18/98 DEP Corp Mnfr, whl chemicals, detergents 89.7 90.606 07/20/98 10/01/98 US SerVis Inc Dvlp healthcare software 47.4 29.160 07/29/98 09/11/98 E-Z Serve Corp Investment firm 43.2 107.882 - ------------------------------------------------------------------------------------------------------------------------------------ Premium ---------------------------------------------------------------------------------- Date Date 1 Day Prior 1 Day Prior 4 Weeks Prior 3 Months Prior 1 Year Prior Announced Effective Target Name to Annc. Date to Annc. Date to Annc. Date to Annc. Date to Annc. Date - ------------------------------------------------------------------------------------------------------------------------------------ 12/23/97 03/20/98 American Paging Inc 17.65 33.33 29.03 17.65 (47.37) 12/23/97 01/27/98 Hi-Lo Automotive Inc (14.07) 12.26 24.29 17.97 74.00 01/13/98 07/31/98 Bird Corp 25.71 18.92 29.41 37.50 (8.33) 01/16/98 02/26/98 Ophthalmic Imaging Systems Inc 16.67 27.27 40.00 75.00 (63.16) 01/26/98 05/06/98 TransAmerican Waste Industries 51.42 36.57 78.59 55.02 70.15 02/09/98 06/18/98 American Waste Services 100.00 156.00 166.67 166.67 77.78 02/23/98 06/26/98 CompScript Inc 26.56 67.24 52.70 80.10 (57.69) 03/02/98 04/30/98 First Alert Inc 68.00 90.91 110.00 104.88 71.43 03/31/98 06/29/98 IBAH Inc 12.20 61.40 58.62 53.33 (9.80) 04/09/98 07/29/98 Spec's Music Inc 30.37 65.00 65.00 340.00 230.00 04/10/98 06/26/98 Dataflex Corp 8.43 9.33 23.77 21.48 49.09 04/22/98 06/29/98 AccelGraphics Inc 13.58 22.67 21.05 62.83 (38.67) 04/23/98 07/31/98 Morrison Restaurants Inc 45.56 73.91 81.82 77.78 8.11 05/05/98 09/25/98 Allied Digital Technologies Co 14.29 14.29 37.93 86.05 158.06 05/07/98 07/31/98 Innovative Tech Systems Inc 8.04 10.88 25.78 62.15 301.52 05/11/98 07/14/98 Micronics Computers Inc 37.54 15.29 50.77 30.67 (16.60) 05/12/98 08/24/98 Virus Research Institute Inc 91.64 75.67 81.72 46.44 9.83 05/20/98 09/15/98 InnoServ Technologies 30.77 32.04 41.67 21.43 130.51 05/22/98 07/22/98 Pete's Brewing Co 6.25 39.73 42.66 45.83 6.33 05/29/98 08/17/98 Arch Petroleum Inc 0.13 5.47 (3.53) 4.00 (17.67) 06/09/98 06/09/98 Lincoln Snack Co (Noel Group) 6.67 3.23 3.23 42.22 06/22/98 10/02/98 GT Bicycles Inc 68.42 77.78 36.17 31.96 0.00 07/07/98 09/21/98 Republic Engineered Steels 56.76 68.12 45.00 87.10 427.27 07/14/98 09/18/98 DEP Corp 31.25 93.35 78.72 75.00 236.00 07/20/98 10/01/98 US SerVis Inc 151.62 85.98 151.62 289.09 256.67 07/29/98 09/11/98 E-Z Serve Corp 37.14 20.00 20.00 20.00 (20.00) Mean: 39.7% 48.8% 55.4% 67.1% 53.8% Merger Premiums to Market Value Analysis Mergers with Target Price Between $5 and $10 per Share Announced and Completed 1/1/96-10/9/98 (continued) Page F-4
- ------------------------------------------------------------------------------------------------------------------------------------ Date Date Announced Effective Target Name Target Business Description Acquiror Name - ------------------------------------------------------------------------------------------------------------------------------------ 01/03/96 08/28/96 International Jensen Inc Mnfr radios and televisions Recoton Corp 01/08/96 05/31/96 Medalist Industries Inc Mnfr screws, bolts Illinois Tool Works Inc 01/11/96 07/30/96 Golf Enterprises Inc Own, op golf course, club, shop National Golf Properties Inc 01/16/96 02/26/96 Concord Health Group Pvd healthcare mgmt services Multicare Cos Inc 01/16/96 04/10/96 Orthopedic Technology Inc Manufacture surgical supplies Depuy Inc (Corange Ltd) 01/24/96 03/29/96 TGV Software Inc Develop software Cisco Systems Inc 01/29/96 04/08/96 Varitronic Systems Inc Mnfr typewriters WH Brady Co 02/08/96 07/31/96 Citizens Security Group Inc Insurance holding company Meridian Insurance Group 03/04/96 06/27/96 Storage Properties Inc Own and operate warehouses Public Storage Inc 03/13/96 04/18/96 CAPCO Automotive Products Corp Mnfr automobile parts Eaton Corp 04/03/96 06/17/96 E&B Marine Inc Ret, whl marine accessories West Marine Inc 04/15/96 11/22/96 Multi-Market Radio Inc Own, op radio broadcasting stns SFX Broadcasting Inc 04/22/96 07/18/96 Duplex Products Inc Manufacture business forms Reynolds & Reynolds Co 04/22/96 08/07/96 Ideon Group Inc Operate ret mail order house CUC International Inc 04/25/96 10/01/96 Sterling Chemicals Inc Mnfr commodity chemicals Investor Group 04/29/96 09/09/96 Crocker Realty Trust Inc REIT Highwoods Properties Inc 05/16/96 08/20/96 Professional Sports Care Mngmt Own, op physical therapy clinic HealthSouth Corp 05/20/96 08/29/96 Financing for Science Intl Inc Pvd business credit services Finova Group Inc 05/22/96 08/02/96 Network Express Inc Mnfr telecommunication equip Cabletron Systems Inc 05/24/96 09/04/96 Clinton Gas Systems Inc Oil and gas exploration, prodn Joint Energy Dven Investments 06/10/96 08/23/96 Bailey Corp Manufacture rubber products Venco Acquisition Corp 06/14/96 09/13/96 Bugaboo Creek Steak House Inc Own, op restaurants Longhorn Steaks Inc 06/21/96 09/26/96 Applied Bioscience Intl (IMS) Provide medical testing svcs Phamaceutical Product Dvlp 07/01/96 09/25/96 Brooktree Corp Manufacture semiconductors Rockwell International Corp 07/03/96 09/05/97 Golden Poultry Co Inc Produce, wholesale poultry Gold Kist Inc 07/11/96 10/11/96 Fay's Inc Own and operate drug stores Thrift Drug Inc (JC Penney Co) 07/12/96 10/10/96 ADCO Technologies Inc Mnfr adhesives and sealants Astor Chemicals 07/12/96 10/23/96 Supercuts Inc Operate barber shops Regis Corporation 07/19/96 08/30/96 FluoroScan Imaging Systems Mnfr, whl x-ray imaging device Hologic Designs 08/02/96 11/07/96 Colonial Data Technologies Manufacture telcommun equip US Order Inc 08/26/96 12/20/96 Home Shopping Network (Liberty) Own. op TV broadcasting statn Silver King Communications Inc 09/09/96 09/23/96 Crooker realty Trust Inc REIT Highwoods Properties Inc 09/10/96 12/05/96 Acquitron Medical Inc Manufacture apnca monitors Nellcor Puritan-Bennett 09/11/96 12/02/96 ReadiCare Inc Own and operate HMO's HealthSouth Corp 09/16/96 11/07/97 Centerior Energy Corp Electric utility holding co Ohio Edison Co 09/24/96 01/02/97 Datalogix International Develop business software Oracle Corp 10/01/96 04/25/97 Cosmetic Center Inc Operate cosmetic stores Prestige Fragance & Cosmetics 10/10/96 02/12/97 Knogo North America Inc Mnfr search, navigation equip Video Sentry Corp 10/10/96 11/27/96 WCI Steel Inc (Renco Group Inc) Manufacture steel Renco Group Inc 10/17/96 02/27/97 Triad Systems Corp Develop turnkey computer sys Investor Group 11/06/96 03/07/97 Midland Financial Group Inc Fire, marine, casualty ins co Progressive Corp 11/06/96 12/11 96 Union Switch & Signal Inc Manufacture railroad equip Ansaldo Transporti SpA 11/11/96 03/17/97 AHI Healthcare Systems Inc Pvd physician contracting svcs FPA Medical Management Inc 11/13/96 12/17/96 Edmark Corp Develop educational software IBM Corp 11/18/96 03/27/97 Tyco Toys Inc Manufacture and wholesale toys Mattel Inc 12/10/96 04/01/97 Softdesk Inc Develop, wholesale CAD software Autodesk Inc 12/23/96 05/09/97 StarSight Telecast Inc Pvd cable programming svcs Gemstar International Group 12/26/96 04/16/97 Royce Laboratories Inc Mnfr pharmaceuticals products Watson Pharmaceuticals Inc 01/17/97 04/24/97 American Recreation Centers Own, op bowling, rec centers AMF Bowling Centers (AMF Group) 01/27/97 07/24/97 Cardiometrics Inc Mnfr surgical, medical equip EndoSonics Corp 02/11/97 05/29/97 Fractal Design Corp Develop graphics software MetaTools Inc 02/11/97 03/24/97 Innotech Inc Mnfr electro-medical prods Johnson & Johnson 02/18/97 07/01/98 Contour Medical (Retirement) Mnfr surgical supplies Sun Healthcare Group Inc 02/18/97 07/01/98 Retirement Care Associates Inc Own, operate nursing homes Sun Healthcare Group Inc 03/06/97 07/31/97 Allwaste Inc Pvd asbestos treatment svcs Philip Environmental Inc 03/06/97 08/13/97 Crop Growers Corp Insurance agency Fireman's Fund Insurance Co 03/11/97 04/15/97 TPC Corp Pvd gas transmission svcs PacifiCorp Holdings Inc 03/21/97 06/12/97 CrossComm Corp Mnfr computer networking equip Olicom A/S 03/27/97 03/27/97 Strober Organization Inc Wholesale building materials Hamilton Acquisition LLC 03/31/97 06/03/97 Peak Technologies Group Inc Whl integrated systems Moore Corp Ltd 04/10/97 06/13/97 ERO Inc Manufacture toys Hedstrom Corp (Hedstrom Hldgs) 04/10/97 06/26/97 Microcom Inc Mnfr data comm products Company Computer Corp 04/18/97 07/10/97 LIVE Entertainment Inc Whl, retail recorded music Investor Group 05/30/97 07/09/97 Integrated Living Communities Pvd nursing, personal care svcs Whitehall Street Real Estate 05/30/97 10/16/97 National Picture and Frame Co Mnfr picture, mirror frames Colonnade Capital LLC 06/03/97 09/08/97 Physician Corp of America Own and operate HMO's Humana Inc - ------------------------------------------------------------------------------------------------------------------------------------ Value of Enter- Trans- prise Date Date Acquiror action Value Announced Effective Target Name Business Description ($ mil) ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 01/03/96 08/28/96 International Jensen Inc Mnfr audio, video equipment 109.1 109.595 01/08/96 05/31/96 Medalist Industries Inc Mnfr indl fasteners, tools 55.4 91.567 01/11/96 07/30/96 Golf Enterprises Inc Real estate investment trust 82.9 141.614 10/16/96 02/26/96 Concord Health Group Own, op nursing care facilities 126.9 126.755 01/16/96 04/10/96 Orthopedic Technology Inc Mnfr orthopedic devices 45.2 44.871 01/24/96 03/29/96 TGV Software Inc Mnfr inter-networking systems 92.4 71.54 01/29/96 04/08/96 Varitronic Systems Inc Mnfr indl labeling machines 42.5 43.333 02/08/96 07/31/96 Citizens Security Group Inc Insurance holding company 22.6 26.703 03/04/96 06/27/96 Storage Properties Inc Real estate investment trust 22.8 1,293.505 03/13/86 04/18/96 CAPCO Automotive Products Corp Manufacture automotive parts 128.9 140.935 04/03/96 06/17/96 E&B Marine Inc Own, op boat dealerships 30.6 49.597 04/15/96 11/22/96 Multi-Market Radio Inc Own, op radio bdcstg stations 104.4 89.166 04/22/95 07/18/96 Duplex Products Inc Pvd comp sys bus forms svcs 90.1 85.54 04/22/96 08/07/96 Ideon Group Inc Provide discount club svcs 381.8 382.225 04/25/96 10/01/96 Sterling Chemicals Inc Investor group 798.4 791.162 04/29/96 09/09/96 Crocker Realty Trust Inc Real estate investment trust 537.5 531.94 05/16/96 08/20/96 Professional Sports Care Mngmt Own, op outpatient surgery ctr 64.8 54.952 05/20/96 08/29/96 Financing for Science Inl Inc Pvd financial services 39.2 193.919 05/22/95 08/02/96 Network express Inc Mnfr, whl, install LAN, WAN 118.4 112.039 05/24/96 09/04/96 Clinton Gas Systems Inc Investment firm 38.4 52.887 06/10/96 08/23/96 Bailey Corp Investment holding company 47.8 106.359 06/14/96 09/13/96 Bugaboo Creek Steak House Inc own and operate steakhouses 48.5 55.641 06/21/96 09/26/96 Applied Bioscience Inc (IMS) Pvd comm phy research svcs 491.5 483.418 07/01/96 09/25/96 Brooktree Corp Mnfr aircraft defense systems 261.8 273.377 07/03/96 09/05/97 Golden Poultry Co Inc Produce, wholesale poultry 52.1 209.708 07/11/96 10/11/96 Fay's Inc Own and operate drug stores 277.9 352.368 07/12/96 10/10/96 ADCO Technologies Inc Mnfr specialty chemicals 53.8 54.141 07/12/96 10/23/96 Supercuts Inc Operate hairstyling salons 175.1 174.379 07/19/96 08/30/96 FluoroScan Imaging Systems Mnfr and whl X-ray systems 59.1 53.882 08/02/96 11/07/96 Colonial data Technologies Pvd equip rental, leasing svcs 186.5 176.021 08/26/96 12/20/96 Home Shopping Network (Liberty) Operate television stations 1,216.9 1,069.458 09/09/96 09/23/96 Crooker realty Trust Inc Real estate investment trust 76.1 557.561 09/10/96 12.05/96 Acquitron Medical Inc Mnfr electn patient monitors 56.6 56.176 09/11/96 12/02/96 ReadiCare Inc Own, op outpatient surgery ctr 73.9 70.736 09/16/96 11/07/97 Centerior Energy Corp Electric utility 1,612.6 6,202.925 09/24/96 01/02/97 Datalogix International Develop database software 80.0 63.045 10/01/96 04/25/97 Cosmetic Center Inc Own and op retail stores 32.8 30.68 10/10/96 02/12/97 Knogo North America Inc Provide electrical services 48.8 45.572 10/10/96 11/27/96 WCI Stell Inc (Renco Group Inc) Mnfr steel products 56.5 437.182 10/17/96 02/27/97 Triad Systems Corp Investor group 193.1 225.973 11/06/96 03/07/97 Midland Financial Group Inc Insurance holding company 47.2 72.692 11/06/96 12/11 96 Union Switch & Signal Inc Mnfr train and transp equip 27.1 135.632 11/13/96 03/17/97 All Healthcare Systems Inc Pvd health care mgmt services 117.0 103.179 11/13/96 12/17/96 Edmark Corp Mnfr computers, office equip 123.8 81.322 11/18/96 03/27/97 Tyco Toys Inc Mnfr, whl games, toys 737.4 1,073.147 12/10/96 04/01/97 Softdesk Inc Design drafting software 91.7 88.442 12/23/96 05/05/97 StarSight Telecast Inc Mnfr simplified VCR programmer 273.1 266.569 12/26/96 04/16/97 Royce Laboratories Inc Mnfr pharmaceutical products 84.2 81.639 01/17/96 04/24/97 American Recreation Centers Own, op bowling centers 70.7 63.83 01/27/97 07/24/97 Cardiometrics Inc Mnfr image processing equip 56.8 37.872 02/11/97 05/29/97 Fractal Design Corp Develop software 140.2 136.069 02/11/97 03/24/97 Innotech Inc Mnfr medical equip and prods 135.6 116.561 02/18/97 07/01/98 Contour Medical (Retirement) Pvd long-term healthcare svcs 55.2 72.823 02/18/97 07/01/98 Retirement Care Associates Inc Pvd long-term healthcare svcs 305.9 292.435 03/06/97 07/03/97 Allwaste Inc Provide waste management svcs 506.7 534.883 03/06/97 08/13/97 Crop Growers Corp Insurance company 82.1 89.061 03/11/97 04/15/97 TPC Corp Pvd telephone commun services 408.5 398.392 03/21/97 06/12/97 CrossComm Corp Mnfr communications equipment 84.6 77.829 03/27/97 03/27/97 Strober Organization Inc Investment company 33.4 30.937 03/03/97 06/03/97 Peak Technologies Group Inc Mnfr manifold business forms 169.8 192.09 04/10/97 06/13/97 ERO Inc Manufacture games and toys 203.6 201.739 04/10/97 06/26/97 Microcom Inc Manufacture personal computers 267.6 273.087 04/18/97 07/10/97 LIVe Entertainment Inc Investor group 53.1 98.981 05/30/97 07/09/97 Integrated Living Communities Real estate development finn 79.7 78.553 05/30/97 10/16/97 National Picture and Frame Co Private equity firm 60.3 67.073 06/03/97 09/08/97 Physician Corp of America Own and operate HMO's 405.1 260.352 - ------------------------------------------------------------------------------------------------------------------------------------ Premium ---------------------------------------------------------------------------------- Date Date 1 Day Prior 1 Day Prior 4 Weeks Prior 3 Months Prior 1 Year Prior Announced Effective Target Name to Annc. Date to Annc. Date to Annc. Date to Annc. Date to Annc. Date - ------------------------------------------------------------------------------------------------------------------------------------ 01/03/96 08/28/96 International Jensen Inc 29.41 57.14 49.15 46.67 12.82 01/08/96 05/31/96 Medalist Industries Inc 127.20 136.67 110.37 (43.20) (43.20) 01/11/96 07/30/96 Golf Enterprises Inc 37.14 45.46 45.46 (7.69) 6.67 10/16/96 02/26/96 Concord Health Group 25.11 43.42 58.92 50.77 40.00 01/16/96 04/10/96 Orthopedic Technology Inc 26.45 43.89 49.03 01/24/96 03/29/96 TGV Software Inc 41.55 70.63 73.00 73.00 01/29/96 04/08/96 Varitronic Systems Inc 79.49 79.49 62.79 94.44 89.19 02/08/96 07/31/96 Citizens Security Group Inc 88.68 108.33 117.39 25.00 25.00 03/04/96 06/27/96 Storage Properties Inc 10.94 16.44 15.29 (58.88) (50.59) 03/13/86 04/18/96 CAPCO Automotive Products Corp 66.67 72.41 78.57 24.22 (13.04) 04/03/96 06/17/96 E&B Marine Inc (4.76) 20.00 7.14 100.00 3.45 04/15/96 11/22/96 Multi-Market Radio Inc 11.11 29.87 19.05 28.21 56.25 04/22/95 07/18/96 Duplex Products Inc 1.05 28.86 36.17 48.84 41.18 04/22/96 08/07/96 Ideon Group Inc 38.46 54.29 36.71 38.46 (22.30) 04/25/96 10/01/96 Sterling Chemicals Inc 29.73 47.69 47.69 29.73 (7.69) 04/29/96 09/09/96 Crocker Realty Trust Inc 10.20 11.60 13.03 24.17 05/16/96 08/20/96 Professional Sports Care Mngmt 13.74 29.05 34.21 620.95 (36.92) 05/20/96 08/29/96 Financing for Science Inl Inc 4.49 6.67 12.53 17.70 108.98 05/22/95 08/02/96 Network express Inc (10.64) 19.97 39.01 119.00 (20.36) 05/24/96 09/04/96 Clinton Gas Systems Inc 3.85 14.89 31.71 12.50 80.00 06/10/96 08/23/96 Bailey Corp 5.46 6.06 11.11 55.56 68.67 06/14/96 09/13/96 Bugaboo Creek Steak House Inc 9.19 16.02 10.82 (60.93) (30.62) 06/21/96 09/26/96 Applied Bioscience Inc (IMS) 75.34 82.86 77.78 77.78 204.76 07/01/96 09/25/96 Brooktree Corp 42.86 64.38 16.51 71.43 (13.04) 07/03/96 09/05/97 Golden Poultry Co Inc 52.00 50.00 39.02 29.55 142.55 07/11/96 10/11/96 Fay's Inc 27.50 61.91 61.91 82.14 72.88 07/12/96 10/10/96 ADCO Technologies Inc 28.13 51.85 57.69 368.57 105.00 07/12/96 10/23/96 Supercuts Inc 55.29 53.04 60.00 99.25 50.86 07/19/96 08/30/96 FluoroScan Imaging Systems 116.00 109.35 70.10 134.62 131.63 08/02/96 11/07/96 Colonial data Technologies 20.00 33.33 (6.80) (45.86) 13.68 08/26/96 12/20/96 Home Shopping Network (Liberty) 38.95 62.46 62.46 (6.55) 27.23 09/09/96 09/23/96 Crooker realty Trust Inc 18.80 20.30 21.85 5.02 58.40 09/10/96 12.05/96 Acquitron Medical Inc 18.06 21.53 40.07 23.34 22.43 09/11/96 12/02/96 ReadiCare Inc 66.79 55.42 55.42 66.83 120.65 09/16/96 11/07/97 Centerior Energy Corp 42.82 40.52 42.82 50.21 2.49 09/24/96 01/02/97 Datalogix International 28.00 42.22 56.10 14.19 (55.24) 10/01/96 04/25/97 Cosmetic Center Inc 17.39 45.33 103.47 64.97 (3.11) 10/10/96 02/12/97 Knogo North America Inc (3.38) 13.31 7.45 10/10/96 11/27/96 WCI Steel Inc (Renco Group Inc) 17.65 29.03 77.78 90.48 105.13 10/17/96 02/27/97 Triad Systems Corp 68.18 60.87 89.74 72.09 68.18 11/06/96 03/07/97 Midland Financial Group Inc 30.91 24.14 0 (2.70) (5.26) 11/06/96 12/11 96 Union Switch & Signal Inc 3.57 3.57 0 (6.45) 9.43 11/11/96 03/17/97 AHI Healthcare Systems Inc 10.90 34.00 23.69 34.00 (34.37) 11/13/96 12/17/96 Edmark Corp 35.52 63.16 31.92 5.08 (61.73) 11/18/96 03/27/97 Tyco Toys Inc 73.69 80.12 94.53 (33.82) (26.30) 12/10/96 04/01/97 Softdesk Inc 60.00 66.76 146.67 111.43 (32.73) 12/23/96 05/09/97 StarSight Telecast Inc 17.86 20.84 44.28 16.22 94.60 12/26/96 04/16/97 Royce Laboratories Inc 0.57 22.91 18.52 30.95 (36.21) 01/17/96 04/24/97 American Recreation Centers 15.25 33.33 70.00 58.14 33.33 01/27/97 07/24/97 Cardiometrics Inc 18.28 13.81 47.12 82.79 2.24 02/11/97 05/29/97 Fractal Design Corp 44.97 40.44 0.99 (6.82) (18.25) 02/11/97 03/24/97 Innotech Inc 54.93 64.18 54.93 400.00 (50.95) 02/18/97 07/01/98 Contour Medical (Retirement) 21.43 47.83 58.14 02/18/97 07/01/98 Retirement Care Associates Inc 19.44 14.67 21.13 91.11 3.79 03/06/97 07/03/97 Allwaste Inc 48.22 63.35 95.22 122.44 128.80 03/06/97 08/13/97 Crop Growers Corp 20.59 15.49 41.38 57.69 (2.38) 03/11/97 04/15/97 TPC Corp 52.17 65.05 55.48 652.84 946.63 03/21/97 06/12/97 CrossComm Corp 74.32 70.17 70.17 70.10 (9.57) 03/27/97 03/27/97 Strober Organization Inc 0 3.23 2.13 4.35 37.14 03/03/97 06/03/97 Peak Technologies Group Inc 108.70 97.26 65.52 50.00 (1.37) 04/10/97 06/13/97 ERO Inc 12.50 16.88 30.44 47.54 73.08 04/10/97 06/26/97 Microcom Inc 54.76 91.18 35.42 35.42 (43.48) 04/18/97 07/10/97 LIVE Entertainment Inc 6.67 6.67 50.00 05/30/97 07/09/97 Integrated Living Communities 26.90 21.05 50.82 73.58 05/30/97 10/16/97 National Picture and Frame Co 31.51 28.00 28.00 22.29 18.52 06/03/97 09/08/97 Physician Corp of America 12.00 12.00 23.08 65.93 (45.63) Merger Premiums to Market Value Analysis Mergers with Target Price Between $5 and $10 per Share Announced and Completed 1/1/96-10/9/98 (continued) Source: Securities Data Company, Inc.; Three month and one-year premiums calculated using security prices from FactSet Research Systems, Inc. Commercial banks and other similar financial institutions were excluded for the purpose of this analysis. Page F-5
- ------------------------------------------------------------------------------------------------------------------------------------ Date Date Announced Effective Target Name Target Business Description Acquiror Name - ------------------------------------------------------------------------------------------------------------------------------------ 06/05/97 07/14/97 DIGEX Inc Develop Internet software Intermedia Communicaitons Inc 06/20/97 10/23/97 Convest Energy Corp Oil and gas exploration, prodn Forcenergy Inc 07/02/97 10/28/97 Calnetics Corp Manufacture plastic products Summa Industries Inc 07/03/97 09/26/97 Krystal Co Own, op fast food restaurants Port Royal Holdings Inc 07/10/97 11/18/97 Airways Corp Passenger airline AirTran Holdings Inc 07/14/97 10/28/97 Katz Media Group Advertising agency Investor Group 07/24/97 10/28/97 Astrotech International Corp Pvd storage tank maintenance ITEQ Inc 07/25/97 12/01/97 Homegate Hospitality Inc Own and operate hotels Prime Hospitality Corp 07/25/97 08/28/97 Imo Industries Inc Mnfr industrial controls, pumps Constellation Capital Partners 07/31/97 09/29/97 Interactive Group Inc Dvlp, whl comp integrated sys DataWorks Corp 08/04/97 12/31/97 Belmont Homes Inc Mnfr prefabricated Houses Cavalier Homes Inc 08/04/97 11/19/97 Gyncare Inc Pvd biotech prod dvlp services Johnson & Johnson 08/14/97 12/18/97 Technology Service Group Inc. Mnfr cellular telephones Elcotel 08/25/97 10/03/97 BioWhitaker Inc Mnfr, whl medical testing prods Cambrex Corp 08/25/97 01/23/98 PerSeptive Biosystems Inc Mnfr chromatography equipment Perkin-Elmer Corp 09/17/97 12/12/97 Designer Holdings (New Rio LLC) Dvlp, mkt designer sportswear Warnaco Group Inc 09/23/97 01/22/98 El Chico Restaurants Inc Own and operate restaurants Investor Group 09/26/97 02/03/98 Sagebrush Inc Own and operate eating places WSMP Inc 09/26/97 04/28/98 Skyline Chili Inc Operate, franchise restaurants Investor Group 09/29/97 11/26/97 CompuRAD Inc Pvd Healthcare software Lumisys Inc 10/01/97 12/05/97 Alpine Lace Brands Inc Whl dairy products, cheese LandO'Lakes Inc 10/15/97 11/21/97 Thompson PBE Inc Whl automotive paint, supplies FinishMaster Inc (Lacey Distn) 10/20/97 01/29/98 Cruise America Inc Own, op trailer dealership Budget Group Inc 11/07/97 05/28/98 Medicus Systems Corp Develop, whl medical software QuadraMed Corp 11/17/97 03/10/98 Shared Technologies Fairchild Mnfr telecommunications equip Intermedia Communications Inc 11/17/97 03/02/98 Visigenie Software Inc Dvlp database access software Borland International Inc 11/21/97 01/20/98 New Jersey Steel (Von Roll) Mnfr steel reinforcing bars Co-Steel Inc 11/24/97 02/03/98 Communicaitons Central Inc Pvd telecommunications svcs Davel Communications Inc 12/19/97 06/03/98 Eclipse Telecommunicaitons Inc Pvd radiotelecommunication svc IXC Communications Inc 12/29/97 03/17/98 Heartstream Inc Mnfr defibrillators Hewlett-Packard Co 01/06/98 03/02/98 DBA Systems Inc Dvlp digital imaging systems Titan Corp 01/14/98 06/02/98 Meridian Point Realty Trust Real estate investment trust EastGroup Properties 01/15/98 06/11/98 OHM Corp Operate hazardous waste sites International Technology Corp 01/16/98 02/25/98 Checkmate Electronics Inc Mnfr, whl payment systems International Verifact Inc 01/21/98 05/15/98 BKC Semiconductors Inc Mnfr semiconductor devices Microsemi Corp 01/22/98 09/29/98 BT Office Products Intl Inc Whl office stationary, supples Buhrmann NV 01/28/98 03/05/98 Sun Coast Industries Inc Mnfr plastic products Kerr Group Inc 01/29/98 06/05/98 Monroe Inc Mnfr, whl concrete, sand, gravel US Aggregates Inc 01/29/98 05/21/98 ProSource Inc (Onex Corp) Wholesale groceries AmeriServe Food Distribution 02/04/98 06/09/98 TresCom International Inc Pvd communicaitons svcs Primus Telecommunications 02/10/98 06/30/98 Ryan Beck & Co, Livingston, NJ Securities brokerage firm BankAtlantic Bancorp, Florida 02/17/98 08/17/98 Bell Sports Corp Mnfr bicycle equip, accessories HB Acquisition Corp 02/24/98 05/04/98 Somatogen Inc Dvlp human blood substitutes Baxter International Inc 03/02/98 04/30/98 Signature Brands USA Inc Mnfr, whl consumer housewares Sunbean Corp 03/05/98 05/20/98 Intelligent Electronics Inc Whl, ret computer systems Xerox Corp 03/06/98 04/30/98 Proxima Corp Mnfr PC liq crys display prods ASK AS 03/10/98 06/19/98 Corcom Inc Manufacture radio filters Communications Instruments Inc 03/16/98 07/10/98 International Murex Tech Corp Mnfr in-vitro test systems Abbott Laboratories 04/03/98 07/21/98 Bertucci's Inc Own and operate restaurants NE Restaurant Co Inc 04/15/98 05/29/98 Simulation Sciences Inc Dvlp simulation software Siche PLC 04/28/98 07/20/98 Hein-Werner Corp Mnfr automotive service equip Snap-On Inc 04/29/98 09/25/98 Group I Software Inc Develop software COMNET Corp 05/04/98 06/10/98 Farah Inc Mnfr, ret family apparel Tropical Sportswear Intl Corp 05/07/98 06/30/98 InTime Systems International Pvd systems integration svcs Aris Corp 05/29/98 08/06/98 Mid-America Realty Investments Real estate investment trust Bradley Real Estate Inc 06/01/98 08/28/98 PST Vans Inc Trucking company US Xpress Enterprises Inc 06/11/98 07/02/98 Imo Industries Inc Mnfr industrial controls, pumps Constellation Capital Partners 07/28/98 09/10/98 CyberMedia Inc Dvlp, whl support software prod Network Associates Inc 09/14/98 09/14/98 Icon CMT Corp Pvd Internet computer svcs Qwest Commun Int Inc - ------------------------------------------------------------------------------------------------------------------------------------ Value of Enter- Trans- prise Date Date Acquiror action Value Announced Effective Target Name Business Description ($ mil) ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 06/05/97 07/14/97 DIGEX Inc Pvd telecommunications svcs 171.6 166.838 06/20/97 10/23/97 Convest Energy Corp Oil, gas exploration and prodn 102.0 101.521 07/02/97 10/28/97 Calnetics Corp Mnfr plastic conveyor parts 23.4 26.363 07/03/97 09/26/97 Krystal Co Investment company 145.4 145.677 07/10/97 11/18/97 Airways Corp Passenger airline 63.7 75.936 07/14/97 10/28/97 Katz Media Group Investor group 371.9 362.128 07/24/97 10/28/97 Astrotech International Corp Prvd, treatment for liqds, gas 116.7 147.176 07/25/97 12/01/97 Homegate Hospitality Inc Own, operate, franchise hotels 133.2 123.069 07/25/97 08/28/97 Imo Industries Inc Investment company 117.3 430.169 07/31/97 09/29/97 Interactive Group Inc Dvlp computer integrated sys 55.0 59.004 08/04/97 12/31/97 Belmont Homes Inc Manufacture mobile homes 74.0 68.986 08/04/97 11/19/97 Gyncare Inc Mnfr medical equip and prods 70.5 65.68 08/14/97 12/18/97 Technology Service Group Inc. Mnfr public commun products 32.9 35.485 08/25/97 10/03/97 BioWhitaker Inc Mnfr specialty chemicals 130.5 130.017 08/25/97 01/23/98 PerSeptive Biosystems Inc Mnfr analytical instruments 288.1 339.306 09/17/97 12/12/97 Designer Holdings (New Rio LLC) Mnfr women's intimate apparel 353.6 290.492 09/23/97 01/22/98 El Chico Restaurants Inc Investor group 49.2 58.65 09/26/97 02/03/98 Sagebrush Inc Produce prepared sandwiches 39.4 41.395 09/26/97 04/28/98 Skyline Chili Inc Investor group 22.9 26.661 09/29/97 11/26/97 CompuRAD Inc Mnfr medical imaging equipment 25.0 23.321 10/01/97 12/05/97 Alpine Lace Brands Inc Produce butter, milk and meats 48.4 59.309 10/15/97 11/21/97 Thompson PBE Inc Whl automotive paint, coatings 69.3 116.683 10/20/97 01/29/98 Cruise America Inc Pvd passenger car rental svcs 59.3 144.263 11/07/97 05/28/98 Medicus Systems Corp Pvd info sys for healthcare 23.3 46.93 11/17/97 03/10/98 Shared Technologies Fairchild Pvd telecommunications svcs 503.6 585.377 11/17/97 03/02/98 Visigenie Software Inc Develop software 148.4 130.467 11/21/97 01/20/98 New Jersey Steel (Von Roll) Mnfr steel and steel products 173.5 176.789 11/24/97 02/03/98 Communicaitons Central Inc Pvd pay telephone commun svcs 102.4 133.097 12/19/97 06/03/98 Eclipse Telecommunicaitons Inc Pvd long distance tele svcs 122.2 122.055 12/29/97 03/17/98 Heartstream Inc Mnfr computers, testing equip 130.6 110.93 01/06/98 03/02/98 DBA Systems Inc Pvd computer sys design svcs 37.9 28.993 01/14/98 06/02/98 Meridian Point Realty Trust Real estate investment trust 51.7 45.053 01/15/98 06/11/98 OHM Corp Pollution control engineering 326.8 343.15 01/16/98 02/25/98 Checkmate Electronics Inc Mnfr, whl electn payment sys 47.2 46.947 01/21/98 05/15/98 BKC Semiconductors Inc Mnfr semi-conductor products 13.3 15.905 01/22/98 09/29/98 BT Office Products Intl Inc Mnfr folding paperboard boxes 138.1 689.726 01/28/98 03/05/98 Sun Coast Industries Inc Mnfr plastic packaging prods 45.5 63.493 01/29/98 06/05/98 Monroe Inc Manufacture building products 50.3 60.961 01/29/98 05/21/98 ProSource Inc (Onex Corp) Wholesale packaged frozed food 343.3 293.91 02/04/98 06/09/98 TresCom International Inc Pvd telecommunications svcs 134.7 142.626 02/10/98 06/30/98 Ryan Beck & Co, Livingston, NJ Savings and loan 35.9 36.324 02/17/98 08/17/98 Bell Sports Corp Investment firm 165.7 228.365 02/24/98 05/04/98 Somatogen Inc Mnfr health care products 232.9 175.471 03/02/98 04/30/98 Signature Brands USA Inc Mnfr, whl household appliances 81.7 246.68 03/05/98 05/20/98 Intelligent Electronics Inc Mnfr business machine, fin co 341.6 298.084 03/06/98 04/30/98 Proxima Corp Mnfr liquid crystal displays 82.9 70.022 03/10/98 06/19/98 Corcom Inc Mnfr, whl relay systems 51.7 44.47 03/16/98 07/10/98 International Murex Tech Corp Mnfr pharmaceuticals, med equip 232.7 126.361 04/03/98 07/21/98 Bertucci's Inc Own, operate restaurants 96.5 104.175 04/15/98 05/29/98 Simulation Sciences Inc Mnfr aappliance controls 146.5 100.093 04/28/98 07/20/98 Hein-Werner Corp Manufacture tools 37.5 32.296 04/29/98 09/25/98 Group I Software Inc Pvd dat processing svcs 11.8 64.592 05/04/98 06/10/98 Farah Inc Mnfr, whl mens sportswear 93.6 144.521 05/07/98 06/30/98 InTime Systems International Pvd computer related services 44.9 39.672 05/29/98 08/06/98 Mid-America Realty Investments Real estate investment trust 153.2 148.756 06/01/98 08/28/98 PST Vans Inc Trucking company 83.9 88.376 06/11/98 07/02/98 Imo Industries Inc Investment company 9.1 07/28/98 09/10/98 CyberMedia Inc Develop network software 130.1 108.15 09/14/98 09/14/98 Icon CMT Corp Pvd telephone commun svcs 190.6 171.891 - ------------------------------------------------------------------------------------------------------------------------------------ Premium ---------------------------------------------------------------------------------- Date Date 1 Day Prior 1 Day Prior 4 Weeks Prior 3 Months Prior 1 Year Prior Announced Effective Target Name to Annc. Date to Annc. Date to Annc. Date to Annc. Date to Annc. Date - ------------------------------------------------------------------------------------------------------------------------------------ 06/05/97 07/14/97 DIGEX Inc 19.54 35.95 31.65 20.93 06/20/97 10/23/97 Convest Energy Corp 11.06 11.06 18.93 84.20 89.99 07/02/97 10/28/97 Calnetics Corp 30.67 33.64 25.11 20.00 (13.53) 07/03/97 09/26/97 Krystal Co 132.00 169.77 176.19 169.77 182.93 07/10/97 11/18/97 Airways Corp 26.74 29.76 32.93 (7.66) (39.47) 07/14/97 10/28/97 Katz Media Group 44.26 69.23 93.41 225.93 120.00 07/24/97 10/28/97 Astrotech International Corp 45.70 63.40 78.41 96.49 149.83 07/25/97 12/01/97 Homegate Hospitality Inc 30.25 33.77 28.56 83.26 07/25/97 08/28/97 Imo Industries Inc 18.74 20.00 22.61 116.92 44.62 07/31/97 09/29/97 Interactive Group Inc 54.40 44.75 71.56 137.54 131.60 08/04/97 12/31/97 Belmont Homes Inc (17.90) 0.65 9.47 2.30 (42.22) 08/04/97 11/19/97 Gyncare Inc (2.82) 1.66 37.67 37.67 73.89 08/14/97 12/18/97 Technology Service Group Inc. (4.55) 7.14 41.89 23.48 (34.40) 08/25/97 10/03/97 BioWhitaker Inc 17.77 38.87 47.68 8.19 63.23 08/25/97 01/23/98 PerSeptive Biosystems Inc 16.80 24.88 50.42 92.78 68.27 09/17/97 12/12/97 Designer Holdings (New Rio LLC) 17.28 50.36 58.49 7.32 (51.65) 09/23/97 01/22/98 Il Chico Restaurants Inc 64.52 75.86 104.00 39.73 54.55 09/26/97 02/03/98 Sagebrush Inc 15.87 13.38 21.20 09/26/97 04/28/98 Skyline Chili Inc 0 1.89 5.88 8.00 18.68 09/29/97 11/26/97 CompuRAD Inc 1.32 3.43 1.32 3.50 (4.46) 10/01/97 12/05/97 Alpine Lace Brands Inc 15.87 48.98 46.00 60.53 43.22 10/15/97 11/21/97 Thompson PBE Inc 25.49 33.33 42.22 45.45 10.34 10/20/97 01/29/98 Cruise America Inc 17.95 13.70 39.87 36.28 64.67 11/07/97 05/28/98 Medicus Systems Corp 36.36 39.54 25.00 87.50 50.00 11/17/97 03/10/98 Shared Technologies Fairchild 66.67 106.90 163.74 11/17/97 03/02/98 Visigenie Software Inc 92.00 64.00 92.00 19.27 (41.45) 11/21/97 01/20/98 New Jersey Steel (Von Roll) 162.86 170.59 166.67 148.65 411.11 11/24/97 02/03/98 Communicaitons Central Inc 30.23 25.37 12.00 20.00 71.43 12/19/97 06/03/98 Eclipse Telecommunicaitons Inc 18.02 19.92 14.39 (7.10) 16.13 12/29/97 03/17/98 Heartstream Inc (6.71) 18.17 (8.64) 10.80 (13.10) 01/06/98 03/02/98 DBA Systems Inc 38.40 44.29 25.58 5.59 57.77 01/14/98 06/02/98 Meridian Point Realty Trust 38.78 65.85 88.89 01/15/98 06/11/98 OHM Corp 24.21 45.08 26.77 31.36 01/16/98 02/25/98 Checkmate Electronics Inc 4.83 9.37 37.52 10.22 (29.86) 01/21/98 05/15/98 BKC Semiconductors Inc 66.73 59.48 66.73 (58.79) (33.31) 01/22/98 09/29/98 BT Office Products Intl Inc 32.53 78.86 78.86 30.18 44.74 01/28/98 03/05/98 Sun Coast Industries Inc 56.36 62.26 84.95 115.00 244.00 01/29/98 06/05/98 Monroe Inc 5.07 10.46 6.37 (3.19) 74.06 01/29/98 05/21/98 ProSource Inc (Onex Corp) 126.42 106.90 100.00 02/04/98 06/09/98 TresCom International Inc 25.17 30.86 51.52 5.37 39.35 02/10/98 06/30/98 Ryan Beck & Co, Livingston, NJ 23.21 21.29 25.20 38.57 104.21 02/17/98 08/17/98 Bell Sports Corp 13.89 13.10 8.61 15.49 90.70 02/24/98 05/04/98 Somatogen Inc 35.85 39.81 92.00 58.24 (31.43) 03/02/98 04/30/98 Signature Brands USA Inc 57.14 60.98 106.25 73.68 103.08 03/05/98 05/20/98 Intelligent Electronics Inc 5.74 19.22 34.37 44.76 125.19 03/06/98 04/30/98 Proxima Corp 31.34 25.71 23.94 58.56 44.26 03/10/98 06/19/98 Corcom Inc 33.33 31.65 36.84 36.84 62.50 03/16/98 07/10/98 International Murex Tech Corp 21.64 38.21 50.73 (97.44) (96.56) 04/03/98 07/21/98 Bertucci's Inc 35.48 35.48 35.48 58.49 86.67 04/15/98 05/29/98 Simulation Sciences Inc 24.03 16.79 11.11 (26.61) 6.67 04/28/98 07/20/98 Hein-Werner Corp 52.73 65.25 80.00 83.27 96.00 04/29/98 09/25/98 Group I Software Inc 71.60 61.51 71.60 115.37 80.07 05/04/98 06/10/98 Farah Inc 33.33 44.00 39.81 60.00 (10.00) 05/07/98 06/30/98 InTime Systems International 18.80 14.97 28.43 05/29/98 08/06/98 Mid-America Realty Investments 5.00 6.33 2.44 1.20 9.09 06/01/98 08/28/98 PST Vans Inc 32.80 35.82 10.67 24.50 159.83 06/11/98 07/02/98 Imo Industries Inc (1.05) 4.44 2.55 07/28/98 09/10/98 CyberMedia Inc 25.62 38.18 117.14 8.57 (34.48) 09/14/98 09/14/98 Icon CMT Corp 65.52 60.00 (4.00) (25.87) Mean: 34.3% 42.3% 48.5% 58.0% 45.8% Merger Premiums to Market Value Analysis Mergers with Target Price Equal to or Greater than $10 per Share Announced and Completed 1/1/96-10/9/98 Page F-6
- ------------------------------------------------------------------------------------------------------------------------------------ Date Date Announced Effective Target Name Target Business Description Acquiror Name - ------------------------------------------------------------------------------------------------------------------------------------ 01/05/96 07/01/96 Safety Fund Corp Closed-end investment fund CFX Corp, Keene, New Hampshire 01/08/96 04/30/96 Loral Corp Mnfr defense electronics Lockheed Martin Corp 01/08/96 03/04/96 US Delivery Systems Inc. Pvd courier services Corporate Express Inc 01/09/96 04/30/96 Technalysis Corp Develop software CompuWare Corp 01/18/96 07/02/96 Corvita Corp Manufacture medical equipment Pfizer Inc. 01/22/96 04/11/96 Premier Industrial Corp Whl electronic parts and equip Farnell Electronics PLC 01/24/96 08/08/96 National Lodging Corp Own and operate casinos Chartwell Leisure Associates 01/25/96 06/12/96 Dual Drilling (Mosvold Shippg) Oil and gas drilling ENSCO International Inc 01/30/96 05/31/96 Daig Corporation Mnfr pacemakers St Jude Medical Inc 01/31/96 03/04/96 Tivoli Systems Inc Dvlp systems mgmt software IBM Corp 02/01/96 04/12/96 Health Wise of America Inc Own and operate HMO United HealthCare Corp 02/05/96 04/30/96 DiMark Inc. Pvd database marketing svcs Harte-Hanks Inc. 02/07/96 05/07/96 Pyxis Corp Provide med equip leasing svcs Cardinal Health Inc 02/12/96 05/01/96 Duracraft Corp Mnfr electric housewares Honeywell Inc 02/13/96 09/18/96 Citicasters(American Finl Grp) Own, op TV, radio stations Jacor Communications Inc 02/14/96 03/20/96 Helene Curtis Industries Inc Mnfr perfumes, cosmetics Unilever NV 02/15/96 05/14/96 Andros Inc Mnfr infared gas analyzers Genstar Capital Partners II LP 02/16/96 05/30/96 Circle K Corp Operate convenience stores Tosco Corp 02/16/96 06/13/96 Forum Group Inc Own, operate nursing homes Marriott International Inc 02/20/96 07/24/96 Davidson & Associates Inc. Develop educational software CUC International Inc. 02/20/96 07/24/96 Sierra On-Line Inc Develop software for games CUC International Inc 02/23/96 07/01/96 Cray Research Inc Manufacture supercomputers Silicon Graphics Inc 02/26/96 09/16/96 Sterile Concepts Inc Mnfr sterilized surgical trays Maxxim Medical Inc 02/26/96 06/18/96 Tide West Oil Co Oil and gas exploration, prodn HS Resources Inc 02/27/96 05/24/96 Brandon Systems Corp Personnel agency, consulting Interim Services Inc 02/29/96 07/10/96 Big O Tires Inc Own, operate tire stores TBC Corp 03/04/96 04/08/96 Guardsman Products Inc Mnfr coatings, cleaning prod Lilly Industries, Inc 03/07/96 07/03/96 Acme-Cleveland Corp Mnfr metal cutting tools Danaher Corp 03/11/96 08/02/96 Life Partners Group Inc Life insurance holding company Conseco Inc 03/18/96 07/01/96 Athena Neurosciences Inc Manufacture pharmaceuticals Elan Corp PLC 03/18/96 08/30/96 Microtek Medical Inc Mnfr, whl surgical supplies Isolyser Co Inc 03/25/96 07/01/96 InStent Inc Mfr surgical instrumentation Medtronic Inc 03/26/96 08/09/96 DeBartolo Realty Corp Real estate investment trust Simon Property Group Inc. 03/28/96 08/01/96 Stop & Shop Cos Own, op supermarkets Koninklijke Ahold NV 03/29/96 04/26/96 Great American Mgmt & Invt Inc Invt advice and financial svcs Equity Holdings, Chicago, IL 03/29/96 07/02/96 Hayes Wheels International Inc Mnfr motor vehicle parts Motor Wheel Corp 03/29/96 08/07/96 MediSense Inc Mnfr blood monitoring systems Abbot Laboratories 03/29/96 09/03/96 Regional Acceptance Corp Pvd consumer financing svcs Southern Natl, Winston-Salem, NC 04/01/96 04/01/97 Pacific Telesis Group Pvd telecommun svcs; hldg co SBC Communications Inc 04/01/96 07/19/96 US Healthcare Inc Own and operate HMO's Aetna Life & Casualty Co 04/02/96 08/15/96 Teledyne Inc Manufacture aviation products Allegheny Ludlum Corp 04/08/96 08/16/96 Cellular Communications Inc Operate cellular telephone sys AirTouch Communications 04/10/96 10/15/96 Waterhouse Investor Services Discount brokerage holding co Toronto-Dominion Bank 04/17/96 07/31/96 Tucker Drilling Co Inc Oil & gas contract drilling Patterson Energy Inc 04/22/96 07/10/96 StrataCom Inc Manufacture telecommun equip Cisco Systems Inc 04/22/96 06/03/96 Westcott Communicatons Inc Pvd motion picture prodn svcs K-III Communications Corp 04/30/96 08/12/96 UUNet Technologies Inc Internet service provider MFS Communications Co Inc 05/01/96 06/28/96 Quantum Health Resources Inc Provide home health care svcs Olsten Corp 05/01/96 08/21/96 Uniroyal Chemical Co Mnfr pesticides, rubber chems Crompton & Knowles Corp 05/07/96 07/03/96 Guaranty National Corp Insurance company Orion Capital Corp 05/07/96 08/14/96 Kahler Realty Corp Real estate investment trust Tiger Real Estate Fund LP 05/10/96 08/22/96 CyCare Systems Inc Provide accounting services HBO & Co 05/10/96 12/11/96 Transnational Re Corp Property reinsurance company PXRE Corp 05/13/96 08/15/96 MICOM Communications Corp Mnfr communications equipment Northern Telecom Ltd(BCE Inc.) 05/14/96 09/05/96 Caremark International Inc Pvd home health care services MedPartners/Mullikin Inc 05/15/96 08/23/96 Davis Water & Waste Industries Water distn and treatment prod United StatesFilter Corp 05/16/96 11/15/96 A+ Network Inc Pvd paging servics Metrocall Inc 05/20/96 07/23/96 AmeriData Technologies Inc Whl computers, peripherals General Electric Capital Svces 05/20/96 12/30/96 Continental Waste Industries Pvd waste disposal services Republic Industries Inc 05/20/96 10/31/96 Sterling Healthcare Group Inc Own, op doctor's offices. FPA Medical Management Inc 05/24/96 07/02/96 Masland Corp Mnfr motor vehicle parts Lear Corp 05/27/96 02/16/97 SyStemix Inc(Novartis AG) Mnfr, dvlp cellular processes Norvartis AG 05/31/96 12/19/96 Addington Resources Inc Bituminous coal mining Republic Industries Inc 05/31/96 08/30/96 Image Industries Inc. Pvd plastic recycling svcs Maxim Group Inc 06/03/96 08/05/96 Heltel Broadcasting Corp Own, op radio bdcstg stations Clear Channel Communications 06/03/96 09/30/96 Univar Corp Whl chemicals, pesticides Pakhoed Holding NV - ------------------------------------------------------------------------------------------------------------------------------------ Value of Enter- Trans- prise Date Date Acquiror action Value Announced Effective Target Name Business Description ($ mil) ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 01/05/96 07/01/96 Safety Fund Corp Savings and loan 28.30 206.25 01/08/96 04/30/96 Loral Corp Mnfr aerospace systems, prod 8,762.40 8,322.78 01/08/96 03/04/96 US Delivery Systems Inc. Retail office supplies 428.70 456.04 01/09/96 04/30/96 Technalysis Corp Dvlp, whl software systems 32.60 28.79 01/18/96 07/02/96 Corvita Corp Manufacture pharmaceuticals 78.50 78.53 01/22/96 04/11/96 Premier Industrial Corp Mnfr, whl electronic components 2,722.70 2,720.93 01/24/96 08/08/96 National Lodging Corp Own and operate hotels 57.00 21.75 01/25/96 06/12/96 Dual Drilling (Mosvold Shippg) Pvd oil, gas drilling svcs. 224.70 352.22 01/30/96 05/31/96 Daig Corporation Mnfr heart valves, x-ray equip 441.30 419.98 01/31/96 03/04/96 Tivoli Systems Inc Mnfr computers, office equip 709.80 688.03 02/01/96 04/12/96 Health Wise of America Inc Own and operate HMOs 271.10 268.54 02/05/96 04/30/96 DiMark Inc. Pvd direct marketing services 151.80 145.08 02/07/96 05/07/96 Pyxis Corp Whl pharmaceutical products 907.30 870.02 02/12/96 05/01/96 Duracraft Corp Mnfr automation, control sys 286.70 295.83 02/13/96 09/18/96 Citicasters(American Finl Grp) Own, op radio bdcstg stations 767.60 746.54 02/14/96 03/20/96 Helene Curtis Industries Inc Produce foods; holding company 737.40 882.13 02/15/96 05/14/96 Andros Inc Investment firm 92.60 61.21 02/16/96 05/30/96 Circle K Corp Petroleum refining 983.00 951.57 02/16/96 06/13/96 Forum Group Inc Own, op hotels, restaurants 622.30 598.84 02/20/96 07/24/96 Davidson & Associates inc. Provide discount club svcs 1,145.00 1,141.54 02/20/96 07/24/96 Sierra On-Line Inc Provide discount club svcs 911.00 964.42 02/23/96 07/01/96 Cray Research Inc Manufacture computer systems 770.00 776.92 02/26/96 09/16/96 Sterile Concepts Inc Mnfr surgical instruments 140.20 145.64 02/26/96 06/18/96 Tide West Oil Co Oil and gas exploration, prodn 201.30 199.61 02/27/96 05/24/96 Brandon Systems Corp Pvd human resource solutions 165.20 162.70 02/29/96 07/10/96 Big O Tires Inc Whl tires, automobile parts 56.60 69.32 03/04/96 04/08/96 Guardsman Products Inc Mnfr industrial finishings 227.80 247.93 03/07/96 07/03/96 Acme-Cleveland Corp Mnfr tools, control equipment 204.40 193.81 03/11/96 08/02/96 Life Partners Group Inc Insurance holding company 838.80 721.52 03/18/96 07/01/96 Athena Neurosciences Inc Mnfr drug delivery systems 601.30 477.78 03/18/96 08/30/96 Microtek Medical Inc Mnfr surgical supplies 108.60 104.86 03/25/96 07/01/96 InStent Inc Mnfr medical technology prods 233.70 204.11 03/26/96 08/09/96 DeBartolo Realty Corp Real estate investment trust 2,962.10 2,782.11 03/28/96 08/01/96 Stop & Shop Cos Own, operate supermarkets 2,870.80 3,029.71 03/29/96 04/26/96 Great American Mgmt & Invt Inc Investment firm 63.30 746.41 03/29/96 07/02/96 Hayes Wheels International Inc Manufacture automotive parts 563.80 695.07 03/29/96 08/07/96 MediSense Inc Mnfr pharmaceuticals, med equip 821.60 797.41 03/29/96 09/03/96 Regional Acceptance Corp Bank holding company 160.70 261.86 04/01/96 04/01/97 Pacific Telesis Group Provide telecommun services 16,490.00 22,421.02 04/01/96 07/19/96 US Healthcare Inc Insurance Company 8,939.00 7,793.34 04/02/96 08/15/96 Teledyne Inc Mnfr specialty materials, metal 2,097.50 2,442.37 04/08/96 08/16/96 Cellular Communications Inc Pvd telecommunications svcs 1,657.40 2,910.44 04/10/96 10/15/96 Waterhouse Investor Services Bank holding company 526.00 551.24 04/17/96 07/31/96 Tucker Drilling Co Inc Pvd contract drilling services 23.30 15.86 04/22/96 07/10/96 StrataCom Inc Mnfr inter-networking systems 4,833.50 4,728.08 04/22/96 06/03/96 Westport Communicatons Inc Publish magazines 438.90 421.64 04/30/96 08/12/96 UUNet Technologies Inc Pvd telephone communs svcs 2,060.90 2037.02 05/01/96 06/28/96 Quantum Health Resources Inc Pvd temporary personnel svcs 270.20 301.17 05/01/96 08/21/96 Uniroyal Chemical Co Mnfr chemicals, dyes, flavors 1,463.40 1,326.16 05/07/96 07/03/96 Guaranty National Corp Insurance company; holding co 85.10 361.07 05/07/96 08/14/96 Kahler Realty Corp Real estate investment trust 222.70 212.81 05/10/96 08/22/96 CyCare Systems Inc Dvlp healthcare software 277.10 252.05 05/10/96 12/11/96 Transnational Re Corp Reinsurance company 133.10 165.35 05/13/96 08/15/96 MMICOM Communications Corp Mnfr telecommunications equip 138.30 144.31 05/14/96 09/05/96 Caremark Internation Inc Pvd management health services 2,707.80 3,139.10 05/15/96 08/23/96 Davis Water & Waste Industries Mfr water treatment equip 100.80 109.50 05/16/96 11/15/96 A+Network Inc Pvd local paging services 345.10 342.75 05/20/96 07/23/96 AmeriData Technologies Inc Pvd financing services 454.80 734.65 05/20/96 12/30/96 Continental Waste Industries Provide waste disposal svcs 345.40 360.35 05/20/96 10/31/96 Sterling Healthcare Group Inc Pvd health care mgmet services 157.50 172.34 05/24/96 07/02/96 Masland Corp Mnfr automobile seats 413.50 444.87 05/27/96 02/16/97 SyStemix Inc(Novartis AG) Manufacture pharmaceuticals 107.60 401.60 05/31/96 12/19/96 Addington Resources Inc Provide waste disposal svcs 317.80 358.73 05/31/96 08/30/96 Image Industries Inc. Own, op floor covering fran 105.10 152.44 06/03/96 08/05/96 Heltel Broadcasting Corp Own, op TV, radio bdcstg station 315.30 370.10 06/03/96 09/30/96 Univar Corp Pvd freight transp services 331.80 605.30 - ------------------------------------------------------------------------------------------------------------------------------------ Premium ---------------------------------------------------------------------------------- Date Date 1 Day Prior 1 Week Prior 4 Weeks Prior 3 Months Prior 1 Year Prior Announced Effective Target Name to Annc. Date to Annc. Date to Annc. Date to Annc. Date to Annc. Date - ------------------------------------------------------------------------------------------------------------------------------------ 01/05/96 07/01/96 Safety Fund Corp 3.53 10.06 145.06 60.04 01/08/96 04/30/96 Loral Corp 4.83 7.42 8.19 01/08/96 03/04/96 US Delivery Systems Inc. 9.57 8.62 32.63 123.01 30.57 01/09/96 04/30/96 Technalysis Corp 12.00 16.67 16.67 30.23 9.80 01/18/96 07/02/96 Corvita Corp -2.38 2.50 -2.38 148.48 24.24 01/22/96 04/11/96 Premier Industrial Corp 37.17 35.75 34.37 65.64 18.63 01/24/96 08/08/96 National Lodging Corp 34.12 26.67 42.50 46.15 01/25/96 06/12/96 Dual Drilling (Mosvold Shippg) 8.86 13.19 23.65 72.36 51.68 01/30/96 05/31/96 Daig Corporation 20.17 22.72 26.77 01/31/96 03/04/96 Tivoli Systems Inc 25.83 25.00 41.79 49.31 02/01/96 04/12/96 Health Wise of America Inc 8.35 9.07 18.63 15.26 32.13 02/05/96 04/30/96 DiMark Inc. 1.70 1.70 0.84 33.93 16.50 02/07/96 05/07/96 Pyxis Corp 53.27 60.93 66.48 10.35 67.93 02/12/96 05/01/96 Duracraft Corp 58.18 50.00 68.12 16.78 82.20 02/13/96 09/18/96 Citicasters(American Finl Grp) 9.26 15.69 28.26 337.04 349.52 02/14/96 03/20/96 Helene Curtis Industries Inc 18.64 30.23 71.78 02/15/96 05/14/96 Andros Inc 16.13 24.14 35.85 4.35 12.50 02/16/96 05/30/96 Circle K Corp 45.85 42.47 68.82 830.11 548.63 02/16/96 06/13/96 Forum Group Inc 4.00 8.33 44.44 02/20/96 07/24/96 Davidson & Associates inc. 72.30 87.50 67.76 129.77 30.12 02/20/96 07/24/96 Sierra On-Line Inc 69.33 71.70 90.38 160.60 65.51 02/23/96 07/01/96 Cray Research Inc 18.81 21.21 20.60 83.21 34.83 02/26/96 09/16/96 Sterile Concepts Inc 53.85 60.00 55.34 02/26/96 06/18/96 Tide West Oil Co 44.64 44.64 51.52 74.36 27.28 02/27/96 05/24/96 Brandon Systems Corp 32.21 39.41 29.77 758.54 554.88 02/29/96 07/10/96 Big O Tires Inc 5.60 7.32 12.82 22.22 23.36 03/04/96 04/08/96 Guardsman Products Inc 32.37 32.37 57.27 03/07/96 07/03/96 Acme-Cleveland Corp 50.00 55.84 56.86 03/11/96 08/02/96 Life Partners Group Inc 35.48 34.40 55.56 -1.75 69.70 03/18/96 07/01/96 Athena Neurosciences Inc 20.66 16.80 40.39 220.88 73.81 03/18/96 08/30/96 Microtek Medical Inc 37.50 40.63 43.90 201.85 129.19 03/25/96 07/01/96 InStent Inc 1.03 9.14 5.87 228.93 03/26/96 08/09/96 DeBartolo Realty Corp 11.59 16.57 25.54 15.54 23.17 03/28/96 08/01/96 Stop & Shop Cos 25.23 27.01 45.65 03/29/96 04/26/96 Great American Mgmt & Invt Inc 2.56 4.17 3.63 41.34 2.04 03/29/96 07/02/96 Hayes Wheels International Inc 29.29 33.33 43.02 62.03 24.88 03/29/96 08/07/96 MediSense Inc 48.76 48.76 39.00 123.60 42.29 03/29/96 09/03/96 Regional Acceptance Corp 9.33 6.60 25.41 6.60 9.33 04/01/96 04/01/97 Pacific Telesis Group 38.70 36.24 33.88 27.24 14.04 04/01/96 07/19/96 US Healthcare Inc 24.25 21.28 18.75 28.81 23.91 04/02/96 08/15/96 Teledyne Inc 113.55 115.12 108.97 39.31 35.44 04/08/96 08/16/96 Cellular Communications Inc 7.45 7.84 6.28 87.23 94.69 04/10/96 10/15/96 Waterhouse Investor Services 15.15 19.69 65.22 04/17/96 07/31/96 Tucker Drilling Co Inc 4.68 7.13 10.05 71.68 34.13 04/22/96 07/10/96 StrataCom Inc 48.39 59.72 79.69 192.99 57.00 04/22/96 06/03/96 Westport Communicatons Inc 43.33 57.80 56.36 45.15 37.05 04/30/96 08/12/96 UUNet Technologies Inc 27.59 39.91 125.91 58.86 05/01/96 06/28/96 Quantum Health Resources Inc 23.65 29.32 60.18 9.27 54.90 05/01/96 08/21/96 Uniroyal Chemical Co 27.66 44.58 55.84 25.00 64.38 05/07/96 07/03/96 Guaranty National Corp 15.63 15.63 22.31 12.98 26.50 05/07/96 08/14/96 Kahler Realty Corp 9.68 13.33 9.68 88.89 46.24 05/10/96 08/22/96 CyCare Systems Inc 6.33 8.99 61.02 101.69 79.49 05/10/96 12/11/96 Transnational Re Corp 12.47 16.52 8.70 22.75 0.81 05/13/96 08/15/96 MMICOM Communications Corp -14.29 9.09 58.35 74.55 57.38 05/14/96 09/05/96 Caremark Internation Inc 9.95 16.00 18.17 81.93 25.81 05/15/96 08/23/96 Davis Water & Waste Industries 36.18 59.03 62.30 207.74 111.57 05/16/96 11/15/96 A+Network Inc 36.13 40.67 63.88 53.45 72.24 05/20/96 07/23/96 AmeriData Technologies Inc 4.07 25.49 47.13 109.84 62.03 05/20/96 12/30/96 Continental Waste Industries 66.73 62.18 82.04 223.19 117.56 05/20/96 10/31/96 Sterling Healthcare Group Inc -3.07 3.67 13.09 05/24/96 07/02/96 Masland Corp 6.12 18.18 30.00 84.07 77.78 05/27/96 02/16/97 SyStemix Inc(Novartis AG) 4.70 69.57 59.18 59.18 39.29 05/31/96 12/19/96 Addington Resources Inc 24.88 43.93 50.30 58.73 69.84 05/31/96 08/30/96 Image Industries Inc. 17.00 15.84 23.16 06/03/96 08/05/96 Heltel Broadcasting Corp 2.22 4.55 2.22 253.85 162.86 06/03/96 09/30/96 Univar Corp 57.17 54.06 58.78 55.60 80.93 Merger Premiums to Market Value Analysis Mergers with Target Price Equal to or Greater than $10 per Share Announced and Completed 1/1/96-10/9/98 (continued) Page F-7
- ------------------------------------------------------------------------------------------------------------------------------------ Date Date Announced Effective Target Name Target Business Description Acquiror Name - ------------------------------------------------------------------------------------------------------------------------------------ 06/04/96 09/20/96 HomeTown Buffet Inc Own and operate restaurants Buffets Inc. 06/06/96 10/10/96 AT&T Capital Corp (AT&T Corp) Pvd leasing, financing services Investor Group 06/06/96 12/18/96 Bally Entertainment Corp Own, op casino hotels Hilton Hotels Corp 06/06/96 07/09/96 FinishMaster Inc (Maxco Inc) Whl automotive paint, coatings Lacy Distribution Inc (LDI Ltd) 06/10/96 08/23/96 Orbit Semiconductor Inc Manufacture semiconductors DII Group Inc 06/11/96 07/23/96 Community Health Systems Inc Own and operate hospitals Forstmann Little & Co 06/14/96 08/23/96 Brenco Inc Ball and roller bearings Varlen Corp 06/17/96 11/19/96 Penril DataComm Networks Inc Mnfr data communications equip Bay Networks Inc 06/18/96 09/30/96 Builders Warehouse Assn Inc Pvd LAN design services Osicom Technologies Inc 06/20/96 12/31/96 Infinity Broadcasting Corp Own, op radio broadcasting stns Westinghouse Electric Corp 06/20/96 09/16/96 Public Storage Properties X Pvd warehousing, storage svcs Public Storage Inc 06/20/96 09/16/96 Public Storage Properties XII Rent storage space Public Storage Inc 06/24/96 09/03/96 Sanifill Inc Provide waste management svcs USA Waste Services Inc 06/28/96 10/02/96 National Re Corp Fire, casualty insurance co General Re Corp 06/28/96 09/27/96 Salem Corp Whl industrial mach and equip Investor Group 07/01/96 10/04/96 Landmark Graphics Corp Dvlp CAE sys for geoscientists Halliburton Co 07/01/96 03/25/97 Renaissance Commun Corp Own and operate TV stations Tribune Co 07/02/96 08/08/96 Ambar Inc Pvd oil and gas field services Beacon Group Energy Investment 07/17/96 01/22/97 New World Common Grp (Mafco) Operate television stations News Corp Ltd 07/19/96 07/01/97 Portland General Corp Electric utility holding co Enron Corp 07/19/96 08/27/97 Rexene Corp Mnfr petrochemical products Huntsman Corp 07/22/96 10/03/96 Global Natural Resources Inc Oil and gas exploration, prodn Seagull Energy Corp 07/22/96 10/25/96 Telchit Corp Mnfr data transmission equip Cisco Systems Inc 07/22/96 07/29/97 United Cities Gas Co Gas utility Atmos Energy Corp 07/23/96 02/19/97 Osborn Communications Corp Own, op radio and TV stations Capstar Broadcasting Partners 07/24/96 10/11/96 PCI Services Inc Pvd product packaging services Cardinal Health Inc 08/02/96 11/29/96 First Colony Corp Insurance holding company General Electric Capital Corp 08/05/96 04/07/97 EZ Communications Inc Own, operate radio stations American Radio Systems Corp 08/05/96 02/14/97 FHP International Corp Own and operate HMOs PacifiCare Health Systems Inc 08/07/96 10/03/96 Douglas & Lomason Co Wholesale motor vehicles Magna International Inc 08/08/96 09/17/96 Roto-Rooter Inc (Chemed Corp) Provide Plumbing services, prod Chemed Corp 08/09/96 08/06/97 NorAm Energy Corp Oil and gas exploration, prodn Houston Industries Inc 08/12/96 03/02/98 Atlantic Energy (Conoco) Public utility holding co Delmarva Power & Light 08/14/96 11/25/96 American Re Corp Property, casualty insurance co Muenchener Rueckversicherungs 08/14/96 11/07/96 Payco American Corp Credit collection services OSI Holdings Corp 08/14/96 10/24/96 Redman Industries Inc Manufacture mobile homes Champion Enterprises Inc 08/15/96 09/26/96 Orchard Supply Hardware Stores Own, op home improvement ctrs Sears Roebuck & Co 08/19/96 09/20/96 CasTech Aluminum Group Inc Mnfr aluminum sheets Commonwealth Aluminum Corp 08/19/96 12/16/96 Griffin Gaming & Entertainment Own, op gaming facilities Sun International Hotels Ltd 08/22/96 10/29/96 Meta Software Inc Develop software Avant! Corp 08/26/96 12/17/96 American Travellers Corp Insurance company Conseco Inc 08/26/96 12/31/96 Bankers Life Holding (Conseco) Life ins co; holding company Conseco Inc 08/26/96 03/04/97 Capitol American Financial Pvd accident, life ins svcs Conseco Inc 08/26/96 11/14/96 Career Horizons Inc Pvd temporary personnel svcs AccuStaff Inc 08/26/96 12/31/96 MFS Communications Co Inc Pvd telephone communs svcs WorldCom Inc 08/26/96 01/09/97 Spreckels Industries Inc Produce sugar; mnfr indust prod Columbus McKinnon Corp 08/28/96 11/08/96 Red Lions Hotels (Red Lion Inn) Own, op hotels Doubletree Corp 08/29/96 11/14/96 Amtrol Inc Mnfr plumbing, heating systems Cypress Group LLC 09/02/96 03/06/97 Arcadian Corp Mnfr phosphatic fertilizers Potash Corp of Saskatchewan 09/09/96 12/23/96 Big B Inc (Revco DS Inc) Drug, grocery retail stores Revco DS Inc 09/12/96 12/31/96 Duracell International Inc Manufacture alkaline batteries Gillette Co 09/23/96 12/04/96 Diamond Shamrock Inc Mnfr, wholesale petroleum Ultramar Corp 09/24/96 12/09/96 GMIS Inc Develop software HBO & Co 09/26/96 02/28/97 Providence Journal Co Own, op TV broadcasting stns AH Belo Corp 09/26/96 12/23/96 Transport Holdings Insurance holding company Conseco Inc 09/30/96 06/27/97 Belden & Blake Corp Oil and gas exploration, prodn Texas Pacific Group Inc 10/01/96 12/31/96 South West Property Trust Inc Real estate investment trust United Dominion Realty Tr Inc 10/02/96 02/03/97 Baby Superstore Inc Own, op children's wear stores Toys 'R' Us Inc 10/02/96 02/07/97 TSX Corporation Mnfr communications equipment ANTEC Corp 10/03/96 02/13/97 Kinder-Care Learning Centers Operate day care centers Kohlberg Kravis Roberts & Co 10/03/96 12/31/96 LXE (Electromagnetic Sciences) Mnfr microwave components Electromagnetic Sciences Inc 10/07/96 12/11/96 Augat Inc Mnfr electn, hardware prods Thomas & Betts Corp 10/07/96 12/02/96 Cheyenne Software Inc Develop computer software Computer Associates Intl Inc 10/08/96 11/22/96 Super Food Services Inc Wholesale food products Nash Finch Co 10/10/96 01/31/97 Gelman Sciences Inc Mnfr medical filter devices Pall Corp 10/14/96 06/26/98 Pacific Enterprises Inc Natural gas utility Enova Corp - ------------------------------------------------------------------------------------------------------------------------------------ Value of Enter- Trans- prise Date Date Acquiror action Value Announced Effective Target Name Business Description ($ mil) ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 06/04/96 09/20/96 HomeTown Buffet Inc Own and operate restaurants 174.00 195.94 06/06/96 10/10/96 AT&T Capital Corp (AT&T Corp) Investor group 2128.60 9188.70 06/06/96 12/18/96 Bally Entertainment Corp Own, operate hotels 3138.10 3108.89 06/06/96 07/09/96 FinishMaster Inc (Maxco Inc) Whl industrial machinery equip 62.60 111.13 06/10/96 08/23/96 Orbit Semiconductor Inc Mnfr electronic components 118.30 105.05 06/11/96 07/23/96 Community Health Systems Inc Investment company 1080.00 1267.50 06/14/96 08/23/96 Brenco Inc Mnfr custom tubular products 161.40 164.89 06/17/96 11/19/96 Penril DataComm Networks Inc Mnfr, whl data networking prods 117.60 124.14 06/18/96 09/30/96 Builders Warehouse Assn Inc Mnfr communications equipment 69.30 73.34 06/20/96 12/31/96 Infinity Broadcasting Corp Mnfr elec defense electn equip 4737.80 4153.30 06/20/96 09/16/96 Public Storage Properties X Real estate investment trust 50.20 39.48 06/20/96 09/16/96 Public Storage Properties XII Real estate investment trust 55.20 37.66 06/24/96 09/03/96 Sanifill Inc Pvd waste disposal services 1236.90 1604.45 06/28/96 10/02/96 National Re Corp Insurance holding company 904.60 1110.32 06/28/96 09/27/96 Salem Corp Investor group 46.60 31.81 07/01/96 10/04/96 Landmark Graphics Corp Mnfr oil field machinery 586.70 531.76 07/01/96 03/25/97 Renaissance Commun Corp Publish newspaper, cable TV sys 1094.40 1118.68 07/02/96 08/08/96 Ambar Inc Investment firm 66.60 81.36 07/17/96 01/22/97 New World Common Grp (Mafco) Publish newspapers, magazines 2173.00 4241.94 07/19/96 07/01/97 Portland General Corp Own, operate gas pipelines 2901.70 2982.29 07/19/96 08/27/97 Rexene Corp Mnfr petrochemicals 606.80 494.49 07/22/96 10/03/96 Global Natural Resources Inc Own, op gas pipelines 525.60 526.49 07/22/96 10/25/96 Telchit Corp Mnfr inter-networking systems 196.30 196.20 07/22/96 07/29/97 United Cities Gas Co Natural gas distribution svcs 496.50 508.19 07/23/96 02/19/97 Osborn Communications Corp Own, operate radio stations 89.90 110.81 07/24/96 10/11/96 PCI Services Inc Whl pharmaceutical products 208.00 209.59 08/02/96 11/29/96 First Colony Corp Pvd consumer financing svcs 1799.20 2011.94 08/05/96 04/07/97 EZ Communications Inc Own, op radio bdcstg station 687.30 623.19 08/05/96 02/14/97 FHP International Corp Own and operate HMO's 2000.10 2161.89 08/07/96 10/03/96 Douglas & Lomason Co Mnfr auto parts, accessories 134.60 213.95 08/08/96 09/17/96 Roto-Rooter Inc (Chemed Corp) Mnfr chems, janitorial equip 93.60 220.33 08/09/96 08/06/97 NorAm Energy Corp Electric utility holding co 3648.80 3750.59 08/12/96 03/02/98 Atlantic Energy (Conoco) Electric and gas utility 951.10 2155.87 08/14/96 11/25/96 American Re Corp Provide reinsurance services 3967.80 3830.43 08/14/96 11/07/96 Payco American Corp Investment holding firm 161.90 154.65 08/14/96 10/24/96 Redman Industries Inc Mnfr single-family houses 341.90 319.85 08/15/96 09/26/96 Orchard Supply Hardware Stores Department stores; finl svcs 423.70 412.74 08/19/96 09/20/96 CasTech Aluminum Group Inc Manufacture aluminum prods 328.70 322.74 08/19/96 12/16/96 Griffin Gaming & Entertainment Own, operate hotels 309.60 345.20 08/22/96 10/29/96 Meta Software Inc Develop software 139.30 136.90 08/26/96 12/17/96 American Travellers Corp Insurance holding company 868.30 968.71 08/26/96 12/31/96 Bankers Life Holding (Conseco) Insurance holding company 120.80 1534.75 08/26/96 03/04/97 Capitol American Financial Insurance holding company 715.50 695.10 08/26/96 11/14/96 Career Horizons Inc Provide staffing services 1010.30 835.76 08/26/96 12/31/96 MFS Communications Co Inc Pvd telecommunications svcs 13595.70 14885.50 08/26/96 01/09/97 Spreckels Industries Inc Mnfr industrial chains, hoists 259.40 248.37 08/28/96 11/08/96 Red Lions Hotels (Red Lion Inn) Own, operate hotel mgt co 1174.10 1129.01 08/29/96 11/14/96 Amtrol Inc Investment bank 227.20 218.87 09/02/96 03/06/97 Arcadian Corp Manufacture potash 1723.30 1424.49 09/09/96 12/23/96 Big B Inc (Revco DS Inc) Own, operate drug stores 335.40 401.15 09/12/96 12/31/96 Duracell International Inc Mnfr shaving razors and blades 7231.90 7764.78 09/23/96 12/04/96 Diamond Shamrock Inc Mnfr refined petroleum prods 860.90 1807.57 09/24/96 12/09/96 GMIS Inc Dvlp healthcare software 242.60 235.10 09/26/96 02/28/97 Providence Journal Co Newspapers; radio, TV stations 1429.60 1617.14 09/26/96 12/23/96 Transport Holdings Insurance holding company 299.90 242.62 09/30/96 06/27/97 Belden & Blake Corp Investment holding company 405.70 404.19 10/01/96 12/31/96 South West Property Trust Inc Real estate investment trust 547.80 526.41 10/02/96 02/03/97 Baby Superstore Inc Own, op retail toy stores 382.20 501.92 10/02/96 02/07/97 TSX Corporation Mnfr commun network products 254.30 214.63 10/03/96 02/13/97 Kinder-Care Learning Centers Leverage buyout firm 571.00 510.01 10/03/96 12/31/96 LXE (Electromagnetic Sciences) Mnfr microwave components 14.80 81.96 10/07/96 12/11/96 Augat Inc Mnfr electronic connectors 570.10 611.78 10/07/96 12/02/96 Cheyenne Software Inc Develop applications software 1247.60 1199.60 10/08/96 11/22/96 Super Food Services Inc Wholesale groceries 164.20 262.84 10/10/96 01/31/97 Gelman Sciences Inc Mnfr filters, separations equip 297.70 292.22 10/14/96 06/26/98 Pacific Enterprises Inc Electric and gas utility 2870.00 4159.40 - ------------------------------------------------------------------------------------------------------------------------------------ Premium ---------------------------------------------------------------------------------- Date Date 1 Day Prior 1 Day Prior 4 Weeks Prior 3 Months Prior 1 Year Prior Announced Effective Target Name to Annc. Date to Annc. Date to Annc. Date to Annc. Date to Annc. Date - ------------------------------------------------------------------------------------------------------------------------------------ 06/04/96 09/20/96 HomeTown Buffet Inc (3.27) 7.38 2.67 20.66 25.85 06/06/96 10/10/96 AT&T Capital Corp (AT&T Corp) 37.41 38.46 42.29 06/06/96 12/18/96 Bally Entertainment Corp 59.03 74.81 72.18 175.95 81.78 06/06/96 07/09/96 FinishMaster Inc (Maxco Inc) 30.42 27.76 42.27 9.82 42.27 06/10/96 08/23/96 Orbit Semiconductor Inc 37.78 36.10 57.18 (22.50) 69.09 06/11/96 07/23/96 Community Health Systems Inc 20.23 19.89 18.86 49.64 22.35 06/14/96 08/23/96 Brenco Inc 30.96 30.30 20.56 30.67 34.42 06/17/96 11/19/96 Penril DataComm Networks Inc 7.50 2.99 6.17 06/18/96 09/30/96 Builders Warehouse Assn Inc 9.67 15.95 35.32 370.00 37.08 06/20/96 12/31/96 Infinity Broadcasting Corp 12.76 10.82 15.27 33.11 7.01 06/20/96 09/16/96 Public Storage Properties X 13.85 13.08 10.83 20.40 5.26 06/20/96 09/16/96 Public Storage Properties XII 14.56 14.56 15.30 27.66 15.30 06/24/96 09/03/96 Sanifill Inc (1.02) 3.86 1.63 55.38 26.37 06/28/96 10/02/96 National Re Corp 45.21 65.63 60.61 60.61 57.04 06/28/96 09/27/96 Salem Corp 21.95 23.46 11.73 (11.50) 30.72 07/01/96 10/04/96 Landmark Graphics Corp 65.51 77.00 68.80 24.94 93.09 07/01/96 03/25/97 Renaissance Commun Corp 11.63 19.01 20.50 150.43 423.64 07/02/96 08/08/96 Ambar Inc 24.14 17.07 50.00 311.43 73.49 07/17/96 01/22/97 New World Common Grp (Mafco) 67.66 71.68 60.15 28.53 49.06 07/19/96 07/01/97 Portland General Corp 23.13 21.54 19.48 58.43 23.68 07/19/96 08/27/97 Rexene Corp 75.34 60.00 56.10 16.36 19.63 07/22/96 10/03/96 Global Natural Resources Inc 11.23 13.04 13.04 73.80 17.83 07/22/96 10/25/96 Telchit Corp 22.76 22.76 4.71 196.67 101.51 07/22/96 07/29/97 United Cities Gas Co 52.21 64.29 69.67 69.70 56.85 07/23/96 02/19/97 Osborn Communications Corp 28.13 50.00 38.20 108.54 44.75 07/24/96 10/11/96 PCI Services Inc 44.00 42.89 23.84 158.00 16.10 08/02/96 11/29/96 First Colony Corp 37.71 32.66 39.04 45.33 41.07 08/05/96 04/07/97 EZ Communications Inc 45.54 56.36 89.20 162.78 142.56 08/05/96 02/14/97 FHP International Corp 19.37 27.37 19.10 41.20 24.96 08/07/96 10/03/96 Douglas & Lomason Co 39.33 90.77 103.28 121.43 125.45 08/08/96 09/17/96 Roto-Rooter Inc (Chemed Corp) 12.33 12.33 11.19 25.19 20.15 08/09/96 08/06/97 NorAm Energy Corp 35.72 46.52 41.69 143.32 48.23 08/12/96 03/02/98 Atlantic Energy (Conoco) 5.34 3.83 3.09 (0.47) 5.34 08/14/96 11/25/96 American Re Corp 26.21 41.69 44.04 79.93 49.86 08/14/96 11/07/96 Payco American Corp 19.15 17.90 60.00 77.78 64.71 08/14/96 10/24/96 Redman Industries Inc 6.29 11.71 26.39 102.26 21.73 08/15/96 09/26/96 Orchard Supply Hardware Stores 17.65 25.56 28.44 137.29 8.95 08/19/96 09/20/96 CasTech Aluminum Group Inc 37.82 57.69 45.13 3.14 41.38 08/19/96 12/16/96 Griffin Gaming & Entertainment 88.88 88.88 69.28 52.07 52.07 08/22/96 10/29/96 Meta Software Inc 18.00 0.48 1.48 (27.49) 08/26/96 12/17/96 American Travellers Corp 30.09 37.35 81.17 230.54 61.36 08/26/96 12/31/96 Bankers Life Holding (Conseco) 14.94 10.50 11.73 31.58 25.79 08/26/96 03/04/97 Capitol American Financial 50.84 51.60 56.31 65.76 53.14 08/26/96 11/14/96 Career Horizons Inc 34.40 33.80 63.98 145.64 147.63 08/26/96 12/31/96 MFS Communications Co Inc 58.82 59.96 86.96 142.14 66.27 08/26/96 01/09/97 Spreckels Industries Inc 23.87 24.68 29.73 178.26 45.45 08/28/96 11/08/96 Red Lions Hotels (Red Lion Inn) 28.60 33.55 31.38 08/29/96 11/14/96 Amtrol Inc 71.21 56.94 56.94 137.89 09/02/96 03/06/97 Arcadian Corp 24.66 20.99 26.96 36.21 30.18 09/09/96 12/23/96 Big B Inc (Revco DS Inc) 36.63 66.27 58.62 10.40 68.29 09/12/96 12/31/96 Duracell International Inc 19.84 29.75 30.11 37.31 33.80 09/23/96 12/04/96 Diamond Shamrock Inc (3.90) 1.11 5.71 15.70 0.68 09/24/96 12/09/96 GMIS Inc 56.35 57.50 86.26 64.80 125.52 09/26/96 02/28/97 Providence Journal Co 58.38 64.43 65.49 109.89 09/26/96 12/23/96 Transport Holdings 25.80 35.27 32.18 41.52 09/30/96 06/27/97 Belden & Blake Corp 32.52 27.81 31.71 42.11 21.35 10/01/96 12/31/96 South West Property Trust Inc 9.31 9.31 13.39 18.98 12.37 10/02/96 02/03/97 Baby Superstore Inc 17.99 21.82 25.07 (46.86) 43.21 10/02/96 02/07/97 TSX Corporation 10.00 18.63 26.04 3.16 (22.41) 10/03/96 02/13/97 Kinder-Care Learning Centers 17.83 18.75 26.67 34.51 22.58 10/03/96 12/31/96 LXE (Electromagnetic Sciences) 22.09 14.13 19.32 28.10 23.58 10/07/96 12/11/96 Augat Inc 32.83 30.49 45.94 49.89 54.06 10/07/96 12/02/96 Cheyenne Software Inc 32.61 34.81 30.48 10/08/96 11/22/96 Super Food Services Inc 37.78 36.26 29.17 26.53 51.22 10/10/96 01/31/97 Gelman Sciences Inc 80.47 57.91 49.42 58.81 65.43 10/14/96 06/26/98 Pacific Enterprises Inc 7.43 8.72 11.87 98.59 76.24 Merger Premiums to Market Value Analysis Mergers with Target Price Equal to or Greater than $10 per Share Announced and Completed 1/1/96-10/9/98 (continued) Page F-8
- ------------------------------------------------------------------------------------------------------------------------------------ Date Date Announced Effective Target Name Target Business Description Acquiror Name - ------------------------------------------------------------------------------------------------------------------------------------ 10/14/96 12/12/96 Thrifty Payless Holdings Inc Own, op drug store chain Rite Aid Corp 10/15/96 06/03/97 Conrail Inc Own, op freight railroad lines Investor Group 10/15/96 12/23/96 FlightSafety International Mnfr flight simulators Berkshire Hathaway Inc 10/17/96 01/30/97 OrNda HealthCorp Own, operate hospitals Tenet Healthcare Corp 10/21/96 03/31/97 Detroit & Canada Tunnel Corp Pvd tunnel operation services Investor Group 10/23/96 04/16/97 Syratech Corp Manufacture silver flatware Thomas H Lee Equity Fund III 10/28/96 05/07/97 Cooper & Chyan Technology Inc Develop software Cadence Design Systems Inc 10/28/96 01/15/97 Loctite Corp Mnfr adhesives & sealants Henkel KGaA 10/28/96 05/29/97 Wireless Cable of Atlanta Pvd wireless cable commons svc BellSouth Corp 10/30/96 04/08/97 Vons Cos Inc Own and operate supermarkets Safeway Inc 10/31/96 07/01/97 California Jockey Club/Bay Own, op horse racing tracks Patriot American Hospitality 10/31/96 12/18/96 Kash N'Karry Food Stores Inc Own and operate supermarkets Food Lion Inc 11/04/96 02/27/97 Eckerd Corp Operate retail drug stores JC Penney Co 11/11/96 04/30/97 PHH Corp Pvd auto, truck leasing svcs HFS Inc 11/12/96 06/12/97 Leslie's Poolmart Own, op swimming pool stores Investor Group 11/12/96 02/27/97 SQA Inc Whl software Rational Software Corp 11/13/96 01/20/97 Medex Inc Mnfr drug infusion products FCY Inc 11/18/96 01/02/97 Sudbury Inc Mnfr automotive parts Internet Corp 11/25/96 01/09/97 Opal Inc Mnfr special industry equip Applied Materials Inc 11/25/96 06/18/97 PanEnergy Corp. Oil and gas exploration, prodn Duke Power Co 11/26/96 12/30/96 Armor All Products (McKesson) Mnfr cleaners and waxes Clorox Co 11/27/96 03/27/97 Central Tractor Farm & Country Own, op tractor, hardware stores JW Childs Equity Partners LP 11/27/96 12/27/96 Central Tractor Farm & Country Own, op tractor, hardware stores JW Childs Equity Partners LP 11/27/96 01/16/97 Milgray Electronics Inc Whl electronic equip Bell Industries Inc 11/27/96 03/19/97 Owen Healthcare Inc Wholesale pharmaceuticals Cardinal Health Inc 11/29/96 04/30/97 Chicago Dock and Canal Trust Real estate investment trust CityFront Center LLC 11/29/96 01/06/97 ElectroStar Inc Mnfr printed circuit boards Tyco International Ltd 12/02/96 01/30/97 Eastbay Inc Own, operate mail order bus Venator Group Inc 12/02/96 03/03/97 Health Images Inc Provide magnetic imaging svcs HealthSouth Corp 12/05/96 02/26/97 Barefoot Inc Provide lawn care services ServiceMaster LP 12/05/96 03/27/97 Cavco Industries Inc Mnfr mobile homes Centex Corp 12/05/96 04/11/97 Public Storage Properties XIV Real estate investment trust Public Storage Inc 12/05/96 04/11/97 Public Storage Properties XV Real estate investment trust Public Storage Inc 12/05/96 05/05/97 Santa Fe Pacific Gold Corp Gold mining co Newmont Mining Corp 12/05/96 01/10/97 Zycon Corp Mnfr printed circuit boards Hadco Corp 12/11/96 02/21/97 Alexander & Alexander Services Pvd insurance brokerage svcs Aon Corp 12/16/96 01/27/97 Eljer Industries Inc Manufacture plumbing fixtures Zurn Industries Inc 12/16/96 04/16/97 Paragon Group Inc Real estate investment trust Camden Property Trust 12/16/96 05/30/97 Pioneer Financial Services Life, health, accident ins svcs Conseco Inc 12/16/96 01/27/97 Tylan General Inc Mnfr gas measure equipment Millipore Corp 12/17/96 08/01/97 McDonnell Douglas Corp Mnfr aerospace, defense equip Boeing Co 12/19/96 03/25/97 IWC Resources Corp Water utility holding company NIPSCO Industries Inc 12/24/96 04/16/97 Home Beneficial Corp Insurance holding company American General Corp 12/30/96 05/29/98 LILCO Electric utility Brooklyn Union Gas Co 01/07/97 02/25/97 American Medical Response Inc Provide ambulance services MedTrans Inc (Laidlaw Inc) 01/07/97 02/10/97 Bonray Drilling Corp On-shore oil and gas drilling DLB Oil & Gas Inc 01/13/97 04/25/97 OpenVision Technologies Inc Mnfr software, pvd programming Veritas Software Corp 01/13/97 09/02/97 Zurich Reinsurance Centre Insurance agency Zurich Versicherungs GmbH 01/14/97 04/01/97 Oxford Resources Corp Pvd passenger car leasing svcs Barnett Banks, Jacksonville, FL 01/14/97 04/30/97 Tencor Instruments Inc Mnfr test instruments KLA Instruments Corp 01/15/97 08/06/97 Value Health Inc Provide health plan services Columbia/HCA Healthcare Corp 01/16/97 02/28/97 Epic Design Technology Inc Develop CAD software Synposys Inc 01/16/97 05/30/97 Wellsford Residential Ppty Real estate investment trust Equity Residential Pptys Trust 01/17/97 06/17/97 Avemco Corp Fire, marine, casualty ins co HCC Insurance Holdings Inc 01/17/97 04/11/97 Studio Plus Hotels Inc Own, operate hotels, motels Extended Stay America Inc 01/20/97 06/27/97 First USA Inc Pvd credit card svcs BANC ONE Corp, Columbus, Ohio 01/20/97 04/08/97 Target Therapeutics Inc Mnfr, whl mini-surgical devices Boston Scientific Corp 01/21/97 06/26/97 InPhyNet Medical Management Pvd physician management svcs MedPartners Inc 01/21/97 07/09/97 Mafco Consolidated Grp (Mafco) Mnfr cosmetics, beauty products Mafco Holdings Inc 01/22/97 03/05/97 Norand Corp Mnfr electronic info systems Western Atlas Inc 01/23/97 05/19/97 Amphenol Corp Manufactures connectors Kohlberg Kravis Roberts & Co 01/23/97 06/02/98 ESELCO Inc Electric utility Wisconsin Energy Corp 01/27/97 03/07/97 Measure Corp Mnfr process control systems Honeywell Inc 01/27/97 05/30/97 Revco DS Inc Own, operate drug stores CVS Corp 02/03/97 03/10/97 Kysor Industrial Corp Mnfr vehicle components Scotsman Industries Inc 02/05/97 05/31/97 Morgan Stanley Group Inc Investment bank Dean Witter Discover & Co 02/10/97 03/31/97 TheraTx Inc Own, op nursing care facilities Vencor Inc 02/11/97 06/13/97 AMISYS Managed Care Systems Pvd integrated systems svcs HBO & Co - ------------------------------------------------------------------------------------------------------------------------------------ Value of Enter- Trans- prise Date Date Acquiror action Value Announced Effective Target Name Business Description ($ mil) ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 10/14/96 12/12/96 Thrifty Payless Holdings Inc Own, operate drug stores 2,394.00 2,367.73 10/15/96 06/03/97 Conrail Inc Investor group 10,435.90 12,532.43 10/15/96 12/23/96 FlightSafety International Property, casualty insurance co 1,518.10 1,555.16 10/17/96 01/30/97 OrNda HealthCorp Own, op hospitals 3,123.40 2,875.48 10/21/96 03/31/97 Detroit & Canada Tunnel Corp Investor group 36.50 33.33 10/23/96 04/16/97 Syratech Corp Pvd fund mgmt svcs 304.40 335.62 10/28/96 05/07/97 Cooper & Chyan Technology Inc Develop CAD software 474.80 452.04 10/28/96 01/15/97 Loctite Corp Mnfr, whl chemicals, detergents 1,289.10 2,118.28 10/28/96 05/29/97 Wireless Cable of Atlanta Pvd telecommunication svcs 44.70 37.95 10/30/96 04/08/97 Vons Cos Inc Own, op grocery stores 2,251.60 3,092.97 10/31/96 07/01/97 California Jockey Club/Bay Real estate investment trust 199.70 185.79 10/31/96 12/18/96 Kash N'Karry Food Stores Inc Own and operate supermarkets 347.10 342.27 11/04/96 02/27/97 Eckerd Corp Department stores 3,298.50 3,216.53 11/11/96 04/30/97 PHH Corp Own, op hotel franchises 1,809.50 6,273.96 11/12/96 06/12/97 Leslie's Poolmart Investor group 112.80 124.19 11/12/96 02/27/97 SQA Inc Dvlp component-based software 315.80 273.70 11/13/96 01/20/97 Medex Inc Mnfr engineered polymer prods 150.60 147.44 11/18/96 01/02/97 Sudbury Inc Ductile, gray iron castings 155.40 145.12 11/25/96 01/09/97 Opal Inc Mnfr wafer fabrication systems 189.60 146.57 11/25/96 06/18/97 PanEnergy Corp Electric utility 7,666.80 9,955.41 11/26/96 12/30/96 Armor All Products (McKesson) Manufacture household bleach 410.10 355.10 11/27/96 03/27/97 Central Tractor Farm & Country Investment company 56.70 172.74 11/27/96 12/27/96 Central Tractor Farm & Country Investment company 81.00 166.96 11/27/96 01/16/97 Milgray Electronics Inc Mnfr electronic, computer prods 100.00 135.18 11/27/96 03/19/97 Owen Healthcare Inc Whl pharmaceutical products 544.10 481.67 11/29/96 04/30/97 Chicago Dock and Canal Trust Real estate investment trust 177.90 176.49 11/29/96 01/06/97 ElectroStar Inc Mnfr fire protection systems 111.00 119.21 12/02/96 01/30/97 Easthay Inc Own, op variety stores 146.00 142.81 12/02/96 03/03/97 Health Images Inc Own, op outpatient surgery ctr. 263.70 259.67 12/05/96 02/26/97 Barefoot Inc Pvd mgmt svcs 230.90 246.11 12/05/96 03/27/97 Cavco Industries Inc Construct bldgs, RE dvlp firm 76.20 104.85 12/05/96 04/11/97 Public Storage Properties XIV Real estate investment trust 82.40 56.91 12/05/96 04/11/97 Public Storage Properties XV Real estate investment trusts 79.10 54.22 12/05/96 05/05/97 Santa Fe Pacific Gold Corp Gold, coal mining; oil, gas expl 2,505.50 2,862.14 12/05/96 01/10/97 Zycon Corp Mnfr computer circuit boards 211.70 240.90 12/11/96 02/21/97 Alexander & Alexander Services Insurance holding company 1,227.40 1,131.32 12/16/96 01/27/97 Eljer Industries Inc Mnfr environmental equipment 175.60 254.31 12/16/96 04/16/97 Paragon Group Inc Real estate investment trust 624.80 619.15 12/16/96 05/30/97 Pioneer Financial Services Insurance holding company 564.00 531.20 12/16/96 01/27/97 Tylan General Inc Mnfr analytical products 147.70 150.72 12/17/96 08/01/97 McDonnell Douglas Corp Mnfr aircraft, aerospace equip 13,359.00 15,830.06 12/19/96 03/25/97 IWC Resources Corp Electric, gas utility hldg co 290.60 418.56 12/24/96 04/16/97 Home Beneficial Corp Insurance holding company 665.10 12/30/96 05/29/98 LILCO Gas utility 4,725.50 8,325.51 01/07/97 02/25/97 American Medical Response Inc Pvd ambulance svcs 1,011.10 1,179.05 01/07/97 02/10/97 Bonray Drilling Corp Oil and gas exploration, prdn 12.70 13.61 01/13/97 04/25/97 OpenVision Technologies Inc Dvlp bus applications software 365.70 355.21 01/13/97 09/02/97 Zurich Reinsurance Centre Insurance holding company 319.00 932.99 01/14/97 04/01/97 Oxford Resources Corp Commercial bank 561.00 2,075.95 01/14/97 04/30/97 Tencor Instruments Inc Mnfr measuring devices 1,343.60 1,268.04 01/15/97 08/06/97 Value Health Inc Own, operate hospitals 1,132.30 1,007.30 01/16/97 02/28/97 Epic Design Technology Inc Develop automation software 455.40 435.64 01/16/97 05/30/97 Wellsford Residential Ppty Real estate investment trust 995.50 792.15 01/17/97 06/17/97 Avemco Corp Provide insurance services 246.80 295.32 01/17/97 04/11/97 Studio Plus Hotels Inc Own, op hotels 295.90 261.22 01/20/97 06/27/97 First USA Inc Bank holding company 7,304.30 7,972.55 01/20/97 04/08/97 Target Therapeutics Inc Manufacture catheters 1,218.30 1,183.39 01/21/97 06/26/97 InPhyNet Medical Management Pvd medical services to HMO's 369.70 364.33 01/21/97 07/09/97 Mafco Consolidated Grp (Mafco) Mnfr toilet preparations 116.80 980.32 01/22/97 03/05/97 Norand Corp Pvd oil, gas exploration svcs 320.80 316.14 01/23/97 05/19/97 Amphenol Corp Leverage buyout firm 1,390.40 1,385.99 01/23/97 06/02/98 ESELCO Inc Electric, gas utility; hldg co 74.30 95.65 01/27/97 03/07/97 Measurex Corp Mnfr automation, control sys 597.00 587.36 01/27/97 05/30/97 Revco DS Inc Own and operate drug stores 3,911.70 3,969.97 02/03/97 03/10/97 Kysor Industrial Corp Mnfr refrigeration equipment 359.20 385.36 02/05/97 5/31/97 Morgan Stanley Group Inc Securities brokerage firm 10,573.00 51,167.74 02/10/97 03/31/97 TheraTx Inc Provide healthcare services 378.20 539.63 02/11/97 06/13/97 AMISYS Managed Care Systems Dvlp healthcare software 170.60 146.52 - ------------------------------------------------------------------------------------------------------------------------------------ Premium ---------------------------------------------------------------------------------- Date Date 1 Day Prior 1 Day Prior 4 Weeks Prior 3 Months Prior 1 Year Prior Announced Effective Target Name to Annc. Date to Annc. Date to Annc. Date to Annc. Date to Annc. Date - ------------------------------------------------------------------------------------------------------------------------------------ 10/14/96 12/12/96 Thrifty Payless Holdings Inc 26.91 28.66 37.18 62.23 10/15/96 06/03/97 Conrail Inc 61.97 60.28 60.28 61.40 74.24 10/15/96 12/23/96 FlightSafety International 13.96 10.80 10.80 10/17/96 01/30/97 OrNda HealthCorp 9.61 19.48 16.56 57.21 40.56 10/21/96 03/31/97 Detroit & Canada Tunnel Corp 64.89 74.19 54.29 110.73 64.89 10/23/96 04/16/97 Syratech Corp 21.91 28.00 29.29 62.03 31.28 10/28/96 05/07/97 Cooper & Chyan Technology Inc 2.54 1.73 31.84 63.54 10/28/96 01/15/97 Lucite Corp 31.89 36.70 34.81 33.33 41.86 10/28/96 05/29/97 Wireless Cable of Atlanta 89.88 80.83 80.83 83.04 20.57 10/30/96 04/08/97 Vons Cos Inc 26.80 21.52 25.71 115.49 32.96 10/31/96 07/01/97 California Jockey Club/Bay 87.23 88.57 103.08 300.61 268.67 10/31/96 12/18/96 Kash N'Karry Food Stores Inc 9.47 33.33 6.67 13.66 (7.96) 11/04/96 02/27/97 Eckerd Corp 21.21 28.44 29.63 67.66 56.42 11/11/96 04/30/97 PHH Corp 60.98 65.00 69.23 120.00 83.33 11/12/96 06/12/97 Leslie's Poolmart 26.09 31.82 31.82 5.45 13.73 11/12/96 02/27/97 SQA Inc 39.44 28.23 39.44 73.06 11/13/96 01/20/97 Medex Inc 54.10 57.98 66.74 11/18/96 01/02/97 Sudbury Inc 19.05 25.00 9.89 53.85 14.94 11/25/96 01/09/97 Opal Inc 52.58 64.44 105.56 270.00 23.33 11/25/96 06/18/97 PanEnergy 18.34 22.70 30.29 80.18 48.15 11/26/96 12/30/96 Armor All Products (McKesson) 9.09 13.97 13.97 4.60 27.27 11/27/96 03/27/97 Central Tractor Farm & Country 17.53 17.53 18.75 67.65 42.50 11/27/96 12/27/96 Central Tractor Farm & Country 15.46 15.46 16.67 64.71 40.00 11/27/96 01/16/97 Milgray Electronics Inc 8.40 16.99 20.57 11/27/96 03/19/97 Owen Healthcare Inc 64.89 100.86 87.25 11/29/96 04/30/97 Chicago Dock and Canal Trust 22.32 22.70 22.70 150.00 68.07 11/29/96 01/06/97 ElectroStar Inc 7.69 27.27 16.67 40.00 12/02/96 01/30/97 Easthay Inc 26.32 28.00 23.08 12/02/96 03/03/97 Health Images Inc 7.39 27.85 34.24 116.52 57.93 12/05/96 02/26/97 Barefoot Inc 25.49 28.00 42.22 31.96 60.00 12/05/96 03/27/97 Cavco Industries Inc 13.23 20.23 30.49 130.11 39.87 12/05/96 04/11/97 Public Storage Properties XIV 29.19 30.82 31.65 49.64 32.48 12/05/96 04/11/97 Public Storage Properties XV 29.19 28.40 32.48 46.48 34.19 12/05/96 05/05/97 Santa Fe Pacific Gold Corp 59.75 66.77 63.18 50.26 45.92 12/05/96 01/10/97 Zycon Corp 12.50 46.94 94.60 39.81 105.71 12/11/96 02/21/97 Alexander & Alexander Services 6.06 8.53 9.38 (16.67) 8.53 12/16/96 01/27/97 Eljer Industries Inc 77.78 84.62 90.10 146.15 140.00 12/16/96 04/16/97 Paragon Group Inc 9.71 12.25 14.00 7.29 19.61 12/16/96 05/30/97 Pioneer Financial Services 47.37 50.34 63.50 12/16/96 01/27/97 Tylan General Inc 39.13 26.73 26.73 13.27 16.36 12/17/96 08/01/97 McDonnell Douglas Corp 0.62 22.71 20.08 41.33 22.41 12/19/96 03/25/97 IWC Resources Corp 31.96 39.13 45.46 64.10 64.10 12/24/96 04/16/97 Home Beneficial Corp 2.80 39.29 50.00 56.00 56.78 12/30/96 05/29/98 LILCO 32.28 33.14 28.96 56.52 49.66 01/07/97 02/25/97 American Medical Response Inc 21.21 23.08 36.75 33.33 31.15 01/07/97 02/10/97 Bonray Drilling Corp 11.11 11.11 30.44 179.07 105.13 01/13/97 04/25/97 OpenVision Technologies Inc 43.67 46.46 50.86 46.49 01/13/97 09/02/97 Zurich Reinsurance Centre 17.07 18.52 11.63 20.50 18.03 01/14/97 04/01/97 Oxford Resources Corp 10.03 23.53 28.05 76.86 52.37 01/14/97 04/30/97 Tencor Instruments Inc 33.06 42.22 70.21 109.15 113.33 01/15/97 08/06/97 Value Health Inc 1.24 0.61 0 (22.64) 17.14 01/16/97 02/28/97 Epic Design Technology Inc (0.60) 8.52 23.63 23.01 30.09 01/16/97 05/30/97 Wellsford Residential Ppty 7.58 9.21 9.77 01/17/97 06/17/97 Avemco Corp 47.74 55.78 89.26 86.21 80.35 01/17/97 04/11/97 Studio Plus Hotels Inc 54.96 51.12 37.48 40.68 28.79 01/20/97 06/27/97 First USA Inc 43.16 53.05 50.85 126.89 80.64 01/20/97 04/08/97 Target Therapeutics Inc 63.65 65.86 93.68 50.39 76.90 01/21/97 06/26/97 InPhyNet Medical Management (0.80) 12.84 25.38 8.77 43.30 01/21/97 07/09/97 Mafco Consolidated Grp (Mafco) 23.50 23.50 27.62 69.62 36.04 01/22/97 03/05/97 Norand Corp 72.90 87.41 94.20 150.47 74.03 01/23/97 05/19/97 Amphenol Corp 12.43 16.85 26.06 16.85 31.65 01/23/97 06/02/98 ESELCO Inc 50.85 49.58 69.52 01/27/97 03/07/97 Measurex Corp 44.33 42.13 45.83 18.14 37.25 01/27/97 05/30/97 Revco DS Inc 7.57 11.47 17.69 50.79 40.73 02/03/97 03/10/97 Kysor Industrial Corp 16.22 17.01 24.64 79.17 48.28 02/05/97 5/31/97 Morgan Stanley Group Inc 11.08 12.80 13.81 02/10/97 03/31/97 TheraTx Inc 30.29 35.45 59.07 50.33 73.16 02/11/97 06/13/97 AMISYS Managed Care Systems 38.58 44.26 43.09 8.64 62.96 Merger Premiums to Market Value Analysis Mergers with Target Price Equal to or Greater than $10 per Share Announced and Completed 1/1/96-10/9/98 (continued) Page F-9
- ------------------------------------------------------------------------------------------------------------------------------------ Date Date Announced Effective Target Name Target Business Description Acquiror Name - ------------------------------------------------------------------------------------------------------------------------------------ 02/13/97 05/20/97 Reflectone Inc Manufacture flight simulators British Aerospace Holdings 02/13/97 06/17/97 USLIFE Corp Life insurance company American General Corp 02/14/97 10/29/97 Horizon/CMS Healthcare Corp Pvd nursing care services HealthSouth Corp 02/14/97 09/17/97 UNC Inc Mnfr aircraft components Greenwich Air Services Inc 02/14/97 06/25/97 Winthrop Resources Corp Provide computer leasing svcs TCF Finl Corp, Minneapolis, MN 02/18/97 06/27/97 Destec Energy Inc Electric utility NGC Corp 02/20/97 12/09/97 NHP Inc (Apartment Investment) Own, op apartment buildings Apartment investment & Mgmt Co 02/24/97 07/01/97 Security-Connecticut Corp Insurance holding company ReliaStar Financial Corp, MN 02/25/97 08/05/98 Fina Inc Mnfr petroleum refined prods Petrofina SA 02/26/97 07/02/97 Petrolite Corp Mnfr fuel additives, waxes Baker Hughes Inc 02/26/97 06/12/97 US Robotics Corp Mnfr common products, systems 3Com Corp 02/27/97 06/13/97 Production Operators Corp Provide oil and gas field svcs Camco International Inc 02/28/97 08/01/97 Healthsource Inc Own and operate HMO's CIGNA Corp 03/03/97 05/30/97 BHC Financial Inc Provide data processing svcs Flserv Inc 03/07/97 08/01/97 Micro Bio-Medics Inc Whl, mnfr medical equip Henry Schein Inc 03/10/97 09/02/97 Greenwich Air Services Inc. Manufacture aircraft engines General Electric Co 03/14/97 06/26/97 Enterprise Systems Inc Develop hospital mgmt software HBO & Co 03/17/97 08/20/97 Heritage Media Corp Own, op radio and TV stations News Corp Ltd 03/19/97 07/11/97 American List Corp Pvd mail advertising svcs Snyder Communications Inc 03/20/97 06/17/97 Falcon Building Products Inc Manufacture air compressors InvestCorp 03/24/97 08/29/97 Community Bankshares, NH Bank holding company CFX Corp, Keene, new Hampshire 03/24/97 04/28/97 MDL Information Systems Pvd scientific info svcs Elsevier Science 03/24/97 08/05/97 OnTrak Systems Inc Mnfrs semiconductor cap equip Lam Research Corp 03/25/97 05/07/97 Foodbrands America Inc Produce sausages, prepared meat IBP Inc (Occidental Petroleum) 03/25/97 07/10/97 Phamis Inc Pvd integrated systems design IDX Systems Corp 03/26/97 09/03/97 Argyle Television Inc Own, op television stations Hearst Broadcasting Group 03/31/97 06/30/97 Cascade Communications Corp Mnfr frame relays Ascend Communications Inc 04/07/97 09/02/97 Alex.Brown Inc Securities brokerage firm Bankers Trust New York Corp 04/07/97 07/30/97 Pure Atria Corp Dvlp custom computer programs Rational Software Corp 04/08/97 06/12/97 Premiere Radio Networks Inc Own, op radio bdcstg stations Jacor Communications Inc 04/09/97 06/24/97 Public Storage Properties XVI Real estate investment trust Public Storage Inc 04/09/97 06/24/97 Public Storage Ppties XVIII Real estate investmeht trust Public Storage Inc 04/09/97 06/24/97 Public Storage Properties XIX Real estate investment trust Public Storage Inc 04/09/97 05/13/97 Stant Corp Mnfr, whl automotive parts Tomkins PLC 03/09/97 97/21/97 Tambrands Inc Mnfr feminine hygiene products Proctor & Gamble Co 04/14/97 11/12/97 APL Ltd Shipping, trucking company Neptune Orient Lines Ltd 04/14/97 09/03/97 United Waste Systems Inc Provide waste management svcs USA Waste Services Inc 04/14/97 01/05/98 Wyndham Hotel Corp Own and operate hotels Patriot Amer Hosp/Wyndham Intl 04/16/97 01/30/98 Steck Vaughn Publishing Corp Publish books, magazines Harcourt General Inc 04/17/97 07/14/97 Drilex International Inc Pvd prod, svcs used in drilling Baker Hughes Inc 04/18/97 04/21/97 Vitalink Pharmacy Services Inc Pvd health and allied svcs Manor Care Inc 04/21/97 05/28/97 Goulds Pumps Inc Mnfr centrifugal pumps ITT Industries Inc 04/21/97 06/10/97 National Education Corp Vocational training services Harcourt General Inc 04/22/97 09/04/97 International Family Ent Inc Provide cable television svcs Fox Kids Worldwide Inc. 04/23/97 06/25/97 VeriFone Inc Electronic funds transfer mach Hewlett-Packard Co 04/30/97 06/03/97 GKN Sinter Metals Inc(GKN PLC) Mnfr automotive, metal parts GKN PLC 05/01/97 07/30/97 David White Inc Mnfr, whl surveying instruments Choucroute Partners 05/05/97 08/13/97 Fort Howard Corp Mnfr sanitary tissue products James River Corp of Virginia 05/05/97 08/01/97 Logicon Inc Pvd computer svcs to military Northrop Grumman Corp 05/05/97 08/19/97 Riser Foods Inc Own, op grocery stores Giant Eagle Inc 05/05/97 06/13/97 Vivra Inc Provide home health care svcs Incentive AB 05/06/97 08/15/97 BBN Corp Mnfr computer integrated sys GTE Corp 05/06/97 07/22/97 BW/IP Inc Mnfr fluid transfer equip Durco International Inc 05/06/97 01/05/98 Physicians Health Services Inc Own and operate HMO's Foundation Health Systems Inc 05/06/97 07/25/97 Varsity Spirit Pvd cheerleading training svcs Riddell Sports Inc 05/07/97 06/03/98 Reliable Life Insurance Co Insurance company Unitrin Inc 05/08/97 11/04/97 Living Centers of America Inc Pvd long-term health care svcs Apollo Management LP 05/12/97 10/16/97 Dynamics Corp of America Mnfr electrical appliances CTS Corp 05/12/97 09/09/97 Smith's Food & Drug Centers Own and operate supermarkets Fred Meyer Inc 05/13/97 08/26/97 Aurum Software Inc Dvlp sales, mktg info software Baan Co NV 05/13/97 08/28/97 Inbrand Corp Mfnr incontinence products Tyco International Ltd 05/14/97 11/18/97 Enron Global Power & Pipelines Pvd gas transmission svcs Enron Corp 05/20/97 09/02/97 Keystone International Inc Mnfr indi flow control prod Tyco International Ltd 05/21/97 08/14/97 Howell Industries Inc Mnfr automotive parts Oxford Automotive Inc 05/21/97 05/04/98 KU Energy Corp Electric utility holding co LG&E Energy Corp 05/22/97 07/31/97 Biopsys Medical Inc Mnfr surgical, medical instr Johnson & Johnson - ------------------------------------------------------------------------------------------------------------------------------------ Value of Enter- Trans- prise Date Date Acquiror action Value Announced Effective Target Name Business Description ($ mil) ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 02/13/97 05/20/97 Reflectone Inc Whl aircraft ircraft, equip 41.10 98.00 02/13/97 06/17/97 USLIFE Corp Insurance holding company 2,374.40 2,353.34 02/14/97 10/29/97 Horizon/CMS Healthcare Corp Own,op outpatient surgery ctr 1,651.30 1,612.88 02/14/97 09/17/97 UNC Inc Manufacture aircraft engines 442.70 752.15 02/14/97 06/25/97 Winthrop Resources Corp Savings and loan 334.70 350.73 02/18/97 06/27/97 Destec Energy Inc Wholesale natural gas products 1,222.40 1,235.07 02/20/97 12/09/97 NHP Inc (Apartment Investment) Real estate investment trust 114.50 370.58 02/24/97 07/01/97 Security-Connecticut Corp Insurance company 545.40 503.52 02/25/97 08/05/98 Fina Inc Produce, whl petroleum 257.00 2,427.11 02/26/97 07/02/97 Petrolite Corp Mnfr oil, gas field machinery 710.90 709.81 02/26/97 06/12/97 US Robotics Corp Pvd network computer svcs 6,510.70 6,596.65 02/27/97 06/13/97 Production Operators Corp Mnfr oil, gas field equipment 609.60 616.80 02/28/97 08/01/97 Healthsource Inc Insurance company 1,652.70 1,545.42 03/03/97 05/30/97 BHC Financial Inc Pvd finl data processing svcs 220.60 247.84 03/07/97 08/01/97 Micro Bio-Medics Inc Whl med supplies 136.10 113.12 03/10/97 09/02/97 Greenwich Air Services Inc. Electrical, construction prod 519.20 789.39 03/14/97 06/26/97 Enterprise Systems Inc Dvlp healthcare software 275.20 254.54 03/17/97 08/20/97 Heritage Media Corp Publish newspapers, magazines 1,351.80 1,348.41 03/19/97 07/11/97 American List Corp Pvd outsources marketing svcs 117.10 117.72 03/20/97 06/17/97 Falcon Building Products Inc Investor group 584.50 496.47 03/24/97 08/29/97 Community Bankshares, NH Savings and loan 101.60 514.34 03/24/97 04/28/97 MDL Information Systems Publish scientific journals 310.70 299.21 03/24/97 08/05/97 OnTrak Systems Inc Mnfr equip to mnfr semiconduct 217.90 200.19 03/25/97 05/07/97 Foodbrands America Inc Produce beef and pork products 657.50 634.74 03/25/97 07/10/97 Phamis Inc Mnfr health care info systems 142.80 140.39 03/26/97 09/03/97 Argyle Television Inc Own, op radio stations 322.20 487.37 03/31/97 06/30/97 Cascade Communications Corp Dvlp comp network solutions 3,529.30 3,445.04 04/07/97 09/02/97 Alex Brown Inc Bank holding company 2,077.40 2,055.27 04/07/97 07/30/97 Pure Atria Corp Dvlp component-based software 958.40 949.50 04/08/97 06/12/97 Premiere Radio Networks Inc Own, op radio bdcstg stations 208.90 155.81 04/09/97 06/24/97 Public Storage Properties XVI Real estate investment trust 84.20 82.14 04/09/97 06/24/97 Public Storage Ppties XVIII Real estate investment trust 78.60 82.66 04/09/97 06/24/97 Public Storage Properties XIX Real estate investment trust 67.90 66.65 04/09/97 05/13/97 Stant Corp Mnfr, whl plumbing fixtures 574.00 593.71 03/09/97 97/21/97 Tambrands Inc Mnfr household prod, oil, coffee 2,003.90 1,978.69 04/14/97 11/12/97 APL Ltd Pvd deep sea oil transp svcs 878.50 1,482.22 04/14/97 09/03/97 United Waste Systems Inc Pvd waste disposal services 1,682.20 1,899.63 04/14/97 01/05/98 Wyndham Hotel Corp Real estate investment trust 773.10 731.68 04/16/97 01/30/98 Steck Vaughn Publishing Corp Own, op movie theaters, stores 40.30 221.36 04/17/97 07/14/97 Drilex Internationsl Inc Mnfr oil, gas field machinery 120.10 133.64 04/18/97 04/21/97 Vitalink Pharmacy Services Inc Own, op nursing homes, hotels 30.00 278.46 04/21/97 05/28/97 Goulds Pumps Inc Mnfr brakes and chassis sys 922.10 913.49 04/21/97 06/10/97 National Education Corp Own, op movie theaters, stores 776.10 874.09 04/22/97 09/04/97 International Family Ent Inc Pvd motion picture prodn svcs 1,862.90 1,903,50 04/23/97 06/25/97 VeriFone Inc Mnfr computers, testing equip 1,245.10 1,142.30 04/30/97 06/03/97 GKN Sinter Metals Inc(GKN PLC) Mnfr, whl auto parts, metals 469.70 523.10 05/01/97 07/30/97 David White Inc Investment company 5.90 7.47 05/05/97 08/13/97 Fort Howard Corp Mnfr paper, paper-related prods 5,682.60 5,734.86 05/05/97 08/01/97 Logicon Inc Aircraft, aerospace products 1,027.50 949.94 05/05/97 08/19/97 Riser Foods inc Whl, retail grocery prods 468.50 415.19 05/05/97 06/13/97 Vivra Inc Mnfr medical instr, ind epuip 1,660.50 1,768.29 05/06/97 08/15/97 BBN Corp Pvd telecommunicatins svcs 713.80 678.34 05/06/97 07/22/97 BW/IP Inc Mnfr machinery, metal castings 530.70 537.88 05/06/97 01/05/98 Physicians Health Services Inc Own, op HMO's; holding company 268.20 231.41 05/06/97 07/25/97 Varsity Spirit Manufacture football equip 91.00 89.64 05/07/97 06/03/98 Reliable Life Insurance Co Insurance company 261.10 145.97 05/08/97 11/04/97 Living Centers of America Inc Investment management services 1,048.20 1,126.82 05/12/97 10/16/97 Dynamics Corp of America Mnfr electronic components 244.60 255.74 05/12/97 09/09/97 Smith's Food & Drug Centers Own, operate department stores 2,018.00 2,074.87 05/13/97 08/26/97 Aurum Software Inc Develop software 259.90 218.70 05/13/97 08/28/97 Inbrand Corp Mnfr fire protction systems 322.80 367.43 05/14/97 11/18/97 Enron Global Power & Pipelines Own, operate gas pipelines 428.00 866.48 05/20/97 09/02/97 Keystone International Inc Mnfr fire protection systems 1,361.50 1,426.76 05/21/97 08/14/97 Howell Industries Inc Mnfr engineered metal prods 23.00 19.05 05/21/97 05/04/98 KU Energy Corp Electric utility 1,539.40 2,112.89 05/22/97 07/31/97 Biopsys Medical Inc Mnfr medical equip and prods 303.50 293.85 - ------------------------------------------------------------------------------------------------------------------------------------ Premium ---------------------------------------------------------------------------------- Date Date 1 Day Prior 1 Day Prior 4 Weeks Prior 3 Months Prior 1 Year Prior Announced Effective Target Name to Annc. Date to Annc. Date to Annc. Date to Annc. Date to Annc. Date - ------------------------------------------------------------------------------------------------------------------------------------ 02/13/97 05/20/97 Reflectone Inc 20.00 18.52 25.49 33.33 28.00 02/13/97 06/17/97 USLIFE Corp 20.96 22.80 43.26 57.30 68.33 02/14/97 10/29/97 Horizon/CMS Healthcare Corp 27.65 40.04 36.08 (0.66) (32.28) 02/14/97 09/17/97 UNC Inc 37.93 41.18 36.36 96.72 66.67 02/14/97 06/25/97 Winthrop Resources Corp 7.65 20.00 23.03 02/18/97 06/27/97 Destec Energy Inc 82.32 80.42 63.40 73.20 37.46 02/20/97 12/09/97 NHP Inc (Apartment Investment) 28.26 25.21 16.86 12.69 16.00 02/24/97 07/01/97 Security-Connecticut Corp 43.65 45.10 36.38 105.22 57.86 02/25/97 08/05/98 Fina Inc 19.70 18.52 21.52 23.39 25.33 02/26/97 07/02/97 Petrolite Corp 62.67 83.46 78.10 128.04 38.64 02/26/97 06/12/97 US Robotics Corp 11.38 13.22 0.37 16.35 (6.80) 02/27/97 06/13/97 Production Operators Corp 22.90 13.02 15.93 79.22 25.65 02/28/97 08/01/97 Healthsource Inc 28.89 32.82 64.15 107.14 150.96 03/03/97 05/30/97 BHC Financial Inc 67.50 60.00 82.31 92.81 112.70 03/07/97 08/01/97 Micro Bio-Medics Inc 12.19 12.19 10.44 14.93 3.94 03/10/97 09/02/97 Greenwich Air Services Inc. 21.57 33.33 34.78 (16.78) 30.53 03/14/97 06/26/97 Enterprise Systems Inc 15.29 13.75 30.00 16.88 51.67 03/17/97 08/20/97 Heritage Media Corp 69.07 72.63 69.07 21.03 45.13 03/19/97 07/11/97 American List Corp 17.32 28.05 8.81 27.27 (0.47) 03/20/97 06/17/97 Falcon Building Products Inc 43.43 49.47 52.69 97.22 24.56 03/24/97 08/29/97 Community Bankshares, NH 63.28 64.11 54.68 121.42 102.05 03/24/97 04/28/97 MDL Information Systems 85.51 43.82 54.22 50.59 79.02 03/24/97 08/05/97 OnTrak Systems Inc -0.85 2.96 13.92 81.49 62.24 03/25/97 05/07/97 Foodbrands America Inc 47.40 50.97 61.38 36.64 71.74 03/25/97 07/10/97 Phamis Inc 18.93 23.00 26.47 30.14 95.22 03/26/97 09/03/97 Argyle Television Inc 15.22 16.48 14.60 22.54 8.16 03/31/97 06/30/97 Cascade Communications Corp 28.28 46.70 21.08 (18.89) (33.97) 04/07/97 09/02/97 Alex.Brown Inc 65.00 50.04 17.70 04/07/97 07/30/97 Pure Atria Corp 18.54 23.31 23.77 (40.10) (23.49) 04/08/97 06/12/97 Premiere Radio Networks Inc 17.37 19.23 19.23 36.58 32.96 04/09/97 06/24/97 Public Storage Properties XVI 6.01 5.32 2.62 17.71 2.62 04/09/97 06/24/97 Public Storage Ppties XVIII 4.97 7.12 2.90 15.00 (0.38) 04/09/97 06/24/97 Public Storage Properties XIX 4.89 3.25 3.25 16.96 (2.82) 04/09/97 05/13/97 Stant Corp 29.32 48.28 49.57 79.17 40.98 03/09/97 97/21/97 Tambrands Inc 8.40 14.94 14.94 4.71 21.95 04/14/97 11/12/97 APL Ltd 55.81 65.43 42.55 43.32 40.31 04/14/97 09/03/97 United Waste Systems Inc 0.71 1.05 (1.25) 53.09 13.95 04/14/97 01/05/98 Wyndham Hotel Corp 48.02 44.52 48.93 29.23 04/16/97 01/30/98 Steck Vaughn Publishing Corp 21.65 32.58 24.21 55.26 27.57 04/17/97 07/14/97 Drilex International Inc 31.44 37.88 59.82 31.44 04/18/97 04/21/97 Vitalink Pharmacy Services In 14.29 8.11 (4.19) (8.05) (17.53) 04/21/97 05/28/97 Goulds Pumps Inc 61.75 57.45 60.87 68.18 51.02 04/21/97 06/10/97 National Education Corp 22.63 54.13 40.00 54.13 48.67 04/22/97 09/04/97 International Family Ent Inc 94.44 95.80 107.41 61.38 15.94 04/23/97 06/25/97 VeriFone Inc 67.64 50.19 43.77 24.69 34.67 04/30/97 06/03/97 GKN Sinter Metals Inc (GKN PLC) 37.04 38.32 32.74 05/01/97 07/30/97 David White Inc 11.63 14.29 18.52 (4.00) 52.38 05/05/97 08/13/97 Fort Howard Corp 16.31 27.92 43.30 92.95 33.18 05/05/97 08/01/97 Logicon Inc 75.68 84.23 102.65 134.48 102.66 05/05/97 08/19/97 Riser Foods inc 11.63 29.23 26.79 115.38 28.24 05/05/97 06/13/97 Vivra Inc 26.09 41.77 35.70 23.90 18.24 05/06/97 08/15/97 BBN Corp 26.09 32.57 64.54 5.45 26.09 05/06/97 07/22/97 BW/IP Inc (5.48) 14.15 18.72 (10.60) 11.58 05/06/97 01/05/98 Physicians Health Services In 23.50 26.97 51.68 8.65 46.75 05/06/97 07/25/97 Varsity Spirit 30.35 28.14 23.93 26.00 26.00 05/07/97 06/03/98 Reliable Life Insurance Co 51.11 51.11 52.06 05/08/97 11/04/97 Living Centers of America Inc 17.82 22.73 41.49 9.46 36.71 05/12/97 10/16/97 Dynamics Corp of America 91.27 94.17 112.70 156.32 107.55 05/12/97 09/09/97 Smith's Food & Drug Centers 9.93 16.48 26.99 63.23 62.85 05/13/97 8/26/97 Aurum Software Inc 32.99 40.38 55.84 9.19 05/13/97 08/28/97 Inbrand Corp 69.98 78.34 107.22 (81.87) (38.18) 05/14/97 11/18/97 Enron Global Power & Pipelin 11.83 13.70 19.74 38.08 12.30 05/20/97 09/02/97 Keystone International Inc 84.19 85.31 102.49 73.73 92.30 05/21/97 08/14/97 Howell Industries Inc 28.70 30.40 32.14 26.50 (21.90) 05/21/97 05/04/98 KU Energy Corp 34.01 31.84 35.69 38.59 32.93 05/22/97 07/31/97 Biopsys Medical Inc 6.99 6.99 22.44 17.23 (6.61) Merger Premiums to Market Value Analysis Mergers with Target Price Equal to or Greater than $10 per Share Announced and Completed 1/1/96-10/9/98 (continued) Page F-10
- ------------------------------------------------------------------------------------------------------------------------------------ Date Date Announced Effective Target Name Target Business Description Acquiror Name - ------------------------------------------------------------------------------------------------------------------------------------ 05/22/97 07/09/98 Chaparral Steel Co (Texas Ind) Mnfr primary steel products Texas Industries Inc 05/22/97 11/20/97 Mail Boxes, Etc Pvd franchised postal services US Office Products Co 05/23/97 10/06/97 Palmer Wireless Inc Pvd telephone services Price Communications Corp 05/27/97 08/08/97 Alamco Inc Oil & gas exploration, prod Columbia Natural Resources Inc 05/27/97 12/18/97 HFS Inc Own, op hotel franchises CUC International Inc 05/28/97 02/10/98 CommNet Cellular Inc Cellular telephone services Blackstone Capital Partners 05/28/97 07/03/97 Fibreboard Corp Mnfr fibreboard, paperboard Owens Corning 06/02/97 07/15/97 Acordia Inc (Anthem Inc) Pvd insurance brokerage svcs Anthem Inc 06/03/97 01/15/98 Faulding Inc (FH Faulding & Co) Mnfr pharmaceuticals FH Faulding & Co Ltd 06/04/97 07/28/97 Maxis Inc Develop education software Electronic Arts Inc 06/06/97 10/14/97 Telco Communications Group Inc Pvd switch-based telecom svcs Excel Communications Inc 06/09/97 10/01/97 American States Financial Corp Fire and marine insurance co SAFECO Corp 06/09/97 09/12/97 Amrion Inc Own, op food stores Whole Foods Market Inc 06/09/97 07/15/97 Prime Service Inc Pvd const equip rental svcs Atlas Copco North America Inc 06/10/97 09/30/97 Numar Corp Mnfr imaging logging equip Halliburton Co 06/11/97 10/31/97 Pacific Greystone Corp Pvd general contracting svcs Lennar Corp 06/12/97 10/01/97 Giddings & Lewis Inc Mnfr automated machine tools Thyssen AG 06/13/97 03/26/97 Bally's Grand Inc Own and operate casino hotels Hilton Hotels Corp 06/16/97 08/29/97 Core Industries Inc Manufacture electronic equip United Dominion Industries Ltd 06/16/97 10/10/97 Multicare Cos Inc Own, op nursing care facilities Genesis Eldercare 06/17/97 07/24/97 McFarland Energy Inc Oil and gas exploration, prodn Monterey Resources Inc 06/17/97 07/25/97 Seda Specialty Packaging Corp Mnfr specialty packaging prods CCL Industries Inc 06/19/97 08/15/97 Advanced Logic Research Inc Mnfr micro computer systems Gateway 2000 Inc 06/20/97 03/30/98 Wheelabrator Technologies Inc Mnfr laboratory, medical equip Waste Management Inc 06/23/97 10/17/97 Integon Corp Insurance holding company General Motors Acceptance (GM) 06/23/97 08/29/97 Tandem Computer Inc Mnfr computers, network systems Compaq Computer Corp 06/24/97 10/14/97 American Exploration Co Oil and gas exploration, prodn Louis Dreyfus Natural Gas 06/24/97 09/29/97 SMT Health Services Inc Operate and outpatient facilities Three Rivers Holding Corp 06/26/97 11/26/97 Rhone-Poulenc Rorer Inc Manufacture pharmaceuticals Rhone-Poulenc SA 06/30/97 10/09/97 Fusion Systems Corp Mnfr curing sys, semiconductors Eaton Corp 06/30/97 12/23/97 Rykoff-Sexton Inc Wholesale grocery products JP Foodservice Inc 09/23/97 American Filtrona Corp Mnfr bonded fiber Bunzl PLC 07/03/97 08/05/97 Duty Free International Inc Own, op duty free shops BAA PLC 07/03/97 08/06/97 Wyle Electronics Whl high tech electronic prods Raab Karcher AG (VEBA AG) 07/07/97 11/06/97 Cairn Energy USA Inc Oil and gas exploration, prodn Meridian Resource Corp 07/07/97 10/21/97 RoTech Medical Corp Pvd home health care svcs Integrated Health Services Inc 07/08/97 10/24/97 Equitable of Iowa Cos Life insurance company ING Groep NV 07/09/97 09/23/97 Control Data Systems Inc Mnfr computers, peripherals CDSI Holding Corp 07/09/97 12/23/97 Seaman Furniture Co Own, op ret furniture stores Investor Group 07/10/97 11/18/97 Kinetic Concepts Inc Mnfr medical treatment tables Investor Group 07/10/97 12/31/97 Reading & Bates Corp Pvd oil, gas drilling services Falcon Drilling Co 07/15/97 10/02/97 DH Technology Inc Mnfr, whl computer printers Axiohn SA 07/15/97 10/28/97 Intl Imaging Materials Mnfr thermal transfer ribbons Paxar Corp 07/15/97 09/04/97 Ply-Gem Industries Inc Manufacture wood products Nortek Inc 07/17/97 10/22/97 Louisiana Land & Exploration Oil and gas exploration, prodn Burlington Resources Inc 07/17/97 09/29/97 Octel Communications Corp Mnfr voice processing systems Lucent Technologies Inc 07/23/97 12/18/97 Alliance Imaging Inc Pvd diagnostic imaging svcs Newport Investment LLC 07/24/97 09/15/97 Nellcor Puritan-Bennett Mnfr electn patient monitors Mallinckrodt Inc 07/28/97 02/02/98 Chips and Technologies Inc Design, with integrated circuit Intel Corp 07/28/97 11/17/97 Cyrix Corp Mnfr PC units, microprocessors National Semiconductor Corp 07/28/97 12/22/97 Freeport-McMoRan Inc Own, op chem, fertilizer mines IMC Global Inc 07/28/97 10/08/97 Regency Health Services Inc Pvd nursing services Sun Healthcare Group Inc 07/30/97 09/18/97 Amdahl Corp Develop computer sys, software Fujitsu Ltd 07/30/97 02/02/98 Plasti-Line Inc Mnfr illuminated outdoor signs PL Holdings Corp 07/31/97 09/24/97 Bucyrus International Inc Mnfr surface mining machinery American Industrial Partners 07/31/97 10/03/97 Delaware Otsego Corp Own and operate railroad Investor Group 07/31/97 10/23/97 Sterling House Corp Own, op nursing homes Alternative Living Services 08/04/97 10/24/97 Columbus Realty Trust Real estate investment trust Post Properties Inc 08/04/97 12/23/97 Perkins Family Restaurant LP Own, op franchised restaurants Restaurant Co 08/04/97 11/12/97 Sullivan Dental Products Inc Wholesale dental products Henry Schein Inc 08/08/97 12/22/97 Titan Holdings Inc Auto, property, casualty ins co USF&G Corp 08/11/97 12/19/97 Amscan Holdings Inc Whl paper, plastic party goods Confetti Acquisition Inc 08/11/97 09/30/97 National Sanitary Supply Co Sanitary maintenance supplies Unisource Worldwide Inc 08/11/97 12/22/97 Vacation Break USA Inc Real estate development firm Fairfield Communities Inc 08/12/97 09/17/97 Isomedix Inc Pvd contract sterilization svc Steris Corp 08/12/97 03/03/98 LIN Television Corp Own, op TV bdcstg stations Hicks Muse Tate & Furst Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Value of Enter- Trans- prise Date Date Acquiror action Value Announced Effective Target Name Business Description ($ mil) ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 05/22/97 07/09/98 Chaparral Steel Co (Texas Inc) Mnfr cement, steel products 72.80 519.31 05/22/97 11/20/97 Mail Boxes, Etc Whl, retail office supplies 354.80 324.21 05/23/97 10/06/97 Palmer Wireless Inc Own, op TV and radio stations 870.40 865.52 05/27/97 08/08/97 Alamco Inc Operate natural gas pipeline 102.80 94.43 05/27/97 12/18/97 HFS Inc Provide discount club svcs 11,342.90 11,759.19 05/28/97 02/10/98 CommNet Cellular Inc Investment bank 631.20 745.35 05/28/97 07/03/97 Fibreboard Corp Mnfr glass fiber products 631.20 478.00 06/02/97 07/15/97 Acordia Inc (Anthem Inc) Insurance company 193.20 633.96 06/03/97 01/15/98 Faulding Inc (FH Faulding & Co) Mnfr, whl drugs, toiletries 77.30 206.01 06/04/97 07/28/97 Maxis Inc Develop, wholesale software 127.50 116.95 06/06/97 10/14/97 Telco Communications Group Inc Pvd telephone commun svcs 1,046.50 1,017.65 06/09/97 10/01/97 American States Financial Corp Provide insurance services 3,127.10 3,110.92 06/09/97 09/12/97 Amrion Inc Own, op natural foods stores 152.60 152.21 06/09/97 07/15/97 Prime Service Inc Mnfr compressors, machinery 1,112.00 1,110.54 06/10/97 09/30/97 Numar Corp Mnfr oil field machinery 341.60 336.54 06/11/97 10/31/97 Pacific Greystone Corp Construct residential bldgs 459.30 452.05 06/12/97 10/01/97 Giddings & Lewis Inc Manufacture malleable iron 703.00 712.16 06/13/97 03/26/97 Bally's Grand Inc Own, operate hotels 42.60 667.81 06/16/97 08/29/97 Core Industries Inc Mnfr structural metal 275.20 317.27 06/16/97 10/10/97 Multicare Cos Inc Own, op geriatric facilities 1,249.10 1,316.49 06/17/97 07/24/97 McFarland Energy Inc Oil and gas exploration, prodn 111.20 103.59 06/17/97 07/25/97 Seda Specialty Packaging Corp Mnfr pvd specialty packaging 182.60 192.18 06/19/97 08/15/97 Advanced Logic Research Inc Mnfr personal computers 206.80 148.06 06/20/97 03/30/98 Wheelabrator Technologies Inc Pvd chemical waste mgmt svcs 869.70 3,191.55 06/23/97 10/17/97 Integon Corp Provide business finance svcs 517.10 668.02 06/23/97 08/29/97 Tandem Computer Inc Manufacture personal computers 2,780.40 2,873.86 06/24/97 10/14/97 American Exploration Co Oil & gas exploration, prodn 275.50 305.83 06/24/97 09/29/97 SMT Health Services Inc Investment company 75.60 83.10 06/26/97 11/26/97 Rhone-Poulenc Rorer Inc Mnfr chemicals and cosmetics 4,831.60 16,358.07 06/30/97 10/09/97 Fusion Systems Corp Manufacture automotive parts 308.60 278.55 06/30/97 12/23/97 Rykoff-Sexton Inc Wholesale groceries 1,435.90 1,172.90 09/23/97 American Filtrona Corp Whl, mnfr paper, constn material 183.50 137.24 07/03/97 08/05/97 Duty Free International Inc Own, op airports, airfields 674.60 751.31 07/03/97 08/06/97 Wyle Electronics Wholesale petroleum products 633.00 751.33 07/07/97 11/06/97 Cairn Energy USA Inc Oil and gas exploration, prodn 233.60 279.72 07/07/97 10/21/97 RoTech Medical Corp Pvd specialty healthcare svcs 918.90 828.27 07/08/97 10/24/97 Equitable of Iowa Cos Insurance Company 2,626.40 2,586.78 07/09/97 09/23/97 Control Data Systems Inc Investment holding company 273.90 176.78 07/09/97 12/23/97 Seaman Furniture Co Investor Group 45.60 130.12 07/10/97 11/18/97 Kinetic Concepts Inc Investor group 776.70 814.20 07/10/97 12/31/97 Reading & Bates Corp Pvd contract drilling svcs 2,587.00 2,680.96 07/15/97 10/02/97 DH Technology Inc Mnfr, whl computer printers 169.50 167.60 07/15/97 10/28/97 Intl Imaging Materials Mnfr label systems 244.40 267.86 07/15/97 09/04/97 Ply-Gem Industries Inc Mnfr AC, building, wood prods 476.30 388.57 07/17/97 10/22/97 Louisiana Land & Exploration Oil and gas exploration, prodn 2,954.30 2,911.54 07/17/97 09/29/97 Octel Communications Corp Mnfr telecom equip, software 1,824.80 1,772.96 07/23/97 12/18/97 Alliance Imaging Inc Investment company 114.20 205.49 07/24/97 09/15/97 Nellcor Puritan-Bennett Mnfr diagnostic products 1,858.40 1,833.05 07/28/97 02/02/98 Chips and Technologies Inc Mnfr, whl microprocessors 422.90 391.35 07/28/97 11/17/97 Cyrix Corp Mnfr semiconductors, circuits 566.40 623.21 07/28/97 12/22/97 Freeport-McMoRan Inc Mnfr phosphate fertilizers 790.70 1,233.54 07/28/97 10/08/97 Regency Health Services Inc Pvd long-term healthcare svcs 587.90 570.89 07/30/97 09/18/97 Amdahl Corp Mnfr semiconductors, computers 924.80 1,563.05 07/30/97 02/02/98 Plasti-Line Inc Investor group formed by mgmt 30.70 62.00 07/31/97 09/24/97 Bucyrus International Inc Pvd fund mgmt & fin adv svcs 193.30 262.15 07/31/97 10/03/97 Delaware Otsego Corp Investor group 53.40 62.54 07/31/97 10/23/97 Sterling House Corp Pvd residential care svcs 170.00 151.79 08/04/97 10/24/97 Columbus Realty Trust Real estate investment trust 600.00 565.32 08/04/97 12/23/97 Perkins Family Restaurant LP Own, operate restaurants 76.30 215.01 08/04/97 11/12/97 Sullivan Dental Products Inc Whl med supplies 312.80 314.55 08/08/97 12/22/97 Titan Holdings Inc Insurance holding company 278.10 277.43 08/11/97 12/19/97 Amscan Holdings Inc Investment company 334.90 390.42 08/11/97 09/30/97 National Sanitary Supply Co Wholesale printing paper 155.90 149.31 08/11/97 12/22/97 Vacation Break USA Inc Construct vacation resorts 178.10 239.94 08/12/97 09/17/97 Isomedix Inc Mnfr sterile processing sys 139.80 136.20 08/12/97 03/03/98 LIN Television Corp Leverage buyout firm 1,960.60 1,988.60 - ------------------------------------------------------------------------------------------------------------------------------------ Premium ---------------------------------------------------------------------------------- Date Date 1 Day Prior 1 Week Prior 4 Weeks Prior 3 Months Prior 1 Year Prior Announced Effective Target Name to Annc. Date to Annc. Date to Annc. Date to Annc. Date to Annc. Date - ------------------------------------------------------------------------------------------------------------------------------------ 05/22/97 07/09/98 Chaparral Steel Co (Texas Ind) 20.39 25.25 29.17 5.08 29.17 05/22/97 11/20/97 Mail Boxes, Etc 39.20 40.99 38.31 52.84 33.27 05/23/97 10/06/97 Palmer Wireless Inc 45.08 55.56 64.71 (15.15) 27.27 05/27/97 08/08/97 Alamco Inc 7.69 11.50 16.67 44.83 11.50 05/27/97 12/18/97 HFS Inc 5.93 2.99 5.23 (3.97) (12.17) 05/28/97 02/10/98 CommNet Cellular Inc 21.78 28.64 39.81 449.62 605.88 05/28/97 07/03/97 Fibreboard Corp 15.79 22.22 49.66 120.00 65.41 06/02/97 07/15/97 Acordia Inc (Anthem Inc) 12.68 11.50 25.98 317.39 207.69 06/03/97 01/15/98 Faulding Inc (FH Faulding & Co) 25.58 22.73 45.95 111.76 56.52 06/04/97 07/28/97 Maxis Inc 2.27 2.27 40.63 (50.55) 18.42 06/06/97 10/14/97 Telco Communications Group Inc 32.91 23.77 26.44 61.32 06/09/97 10/01/97 American States Financial Corp 45.74 48.62 57.32 104.35 41.89 06/09/97 09/12/97 Amrion Inc 8.12 19.22 47.04 68.37 43.69 06/09/97 07/15/97 Prime Service Inc 28.64 29.95 31.28 60.00 06/10/97 09/30/97 Numar Corp 90.94 99.35 95.65 126.40 115.62 06/11/97 10/31/97 Pacific Greystone Corp 75.27 83.30 98.45 110.67 06/12/97 10/01/97 Giddings & Lewis Inc 10.53 9.80 0.60 24.44 46.09 06/13/97 03/26/97 Bally's Grand Inc 27.88 29.85 31.06 32.70 66.14 06/16/97 08/29/97 Core Industries Inc 26.58 37.93 49.25 76.99 60.00 06/16/97 10/10/97 Multicare Cos Inc 9.27 13.71 34.94 38.27 55.56 06/17/97 07/24/97 McFarland Energy Inc 11.58 41.33 44.78 89.04 57.87 06/17/97 07/25/97 Seda Specialty Packaging Corp 31.82 36.47 52.63 40.61 68.12 06/19/97 08/15/97 Advanced Logic Research Inc 29.17 30.53 34.78 87.88 67.57 06/20/97 03/30/98 Wheelabrator Technologies Inc 26.92 28.16 30.69 4.76 15.79 06/23/97 10/17/97 Integon Corp 173.68 92.59 74.79 30.00 73.33 06/23/97 08/29/97 Tandem Computer Inc 49.33 51.86 51.86 113.33 99.11 06/24/97 10/14/97 American Exploration Co 12.99 15.03 21.60 28.97 41.87 06/24/97 09/29/97 SMT Health Services Inc 4.44 2.17 8.05 43.69 44.62 06/26/97 11/26/97 Rhone-Poulenc Rorer Inc 22.11 22.79 29.33 44.51 29.12 06/30/97 10/09/97 Fusion Systems Corp 11.43 9.86 24.30 57.58 50.00 06/30/97 12/23/97 Rykoff-Sexton Inc 24.40 26.00 27.65 69.81 38.50 09/23/97 American Filtrona Corp 8.82 2.24 3.38 53.79 3.38 07/03/97 08/05/97 Duty Free International Inc 39.13 50.00 07/03/97 08/06/97 Wyle Electronics 16.79 38.41 35.14 52.67 49.25 07/07/97 11/06/97 Cairn Energy USA Inc 22.30 28.97 26.67 (5.84) 13.19 07/07/97 10/21/97 RoTech Medical Corp 19.79 12.70 22.22 25.61 15.95 07/08/97 10/24/97 Equitable of Iowa Cos 18.52 20.35 21.70 86.30 38.78 07/09/97 09/23/97 Control Data Systems Inc 29.08 30.65 35.00 28.57 31.71 07/09/97 12/23/97 Seaman Furniture Co 21.46 25.25 21.46 43.14 27.64 07/10/97 11/18/97 Kinetic Concepts Inc 6.94 7.69 9.22 24.19 32.76 07/10/97 12/31/97 Reading & Bates Corp 16.55 14.52 30.47 53.19 69.09 07/15/97 10/02/97 DH Technology Inc 57.48 56.25 57.48 6.38 45.99 07/15/97 10/28/97 Intl Imaging Materials 67.35 60.18 64.89 32.69 69.88 07/15/97 09/04/97 Ply-Gem Industries Inc 20.00 16.42 19.08 30.00 48.57 07/17/97 10/22/97 Louisiana Land & Exploration 20.76 25.47 39.98 17.72 48.08 07/17/97 09/29/97 Octel Communications Corp 15.89 37.40 41.31 54.04 87.88 07/23/97 12/18/97 Alliance Imaging Inc 7.32 3.53 14.29 134.67 44.26 07/24/97 09/15/97 Nellcor Puritan-Bennett 36.12 43.40 57.24 26.67 67.65 07/28/97 02/02/98 Chips and Technologies Inc 25.00 32.08 68.68 77.22 115.38 07/28/97 11/17/97 Cyrix Corp 30.31 29.54 29.54 97.79 34.66 07/28/97 12/22/97 Freeport-McMoRan Inc 14.35 13.55 5.20 (16.77) 5.21 07/28/97 10/08/97 Regency Health Services Inc 34.35 50.43 43.09 104.65 107.06 07/30/97 09/18/97 Amdahl Corp 4.97 22.47 25.57 (49.13) 07/30/97 02/02/98 Plasti-Line Inc 36.47 36.47 30.34 84.13 65.71 07/31/97 09/24/97 Bucyrus International Inc 33.33 46.94 71.43 108.70 94.59 07/31/97 10/03/97 Delaware Otsego Corp 0 15.03 17.33 160.28 32.33 07/31/97 10/23/97 Sterling House Corp 30.36 29.47 40.46 48.69 88.44 08/04/97 10/24/97 Columbus Realty Trust 4.23 4.23 4.51 247.75 191.08 08/04/97 12/23/97 Perkins Family Restaurant LP 28.74 26.55 31.77 17.89 5.66 08/04/97 11/12/97 Sullivan Dental Products Inc 28.85 40.71 66.20 186.70 79.19 08/08/97 12/22/97 Titan Holdings Inc 15.99 19.06 24.85 57.29 30.26 08/11/97 12/19/97 Amscan Holdings Inc 36.08 37.50 46.67 23.36 08/11/97 09/30/97 National Sanitary Supply Co (6.67) 20.00 47.37 08/11/97 12/22/97 Vacation Break USA Inc 41.57 39.09 95.75 80.18 147.75 08/12/97 09/17/97 Isomedix Inc 5.81 15.49 13.89 47.75 38.98 08/12/97 03/03/98 LIN Television Corp 15.85 18.75 18.01 Merger Premiums to Market Value Analysis Mergers with Target Price Equal to or Greater than $10 per Share Announced and Completed 1/1/96-10/9/98 (continued) - --------------------------------------------------------------------------------
Date Date Announced Effective Target Name Target Business Description Acquiror Name - --------------------------------------------------------------------------------------------------------------------------------- 08/14/97 12/13/97 Allied Capital Commercial Corp Real estate investment trusts Allied Capital Lending Corp 08/14/97 12/31/97 Allied Capital Corp Pvd bus, personal fin svcs Allied Capital Lending Corp 08/14/97 09/16/97 American Medserve Corp Wholesale pharmaceuticals Omnicare Inc 08/14/97 09/24/97 Talbert Medical Management Own, op medical, dental clinics MedPartners Inc 08/14/97 12/29/97 Tuesday Morning Corp Own, operate giftware stores Madison Dearborn Partners 08/14/97 12/05/97 Uniforce Services Inc Pvd temporary personnel svcs Comforce Corp 08/18/97 11/04/97 Monterey Resources Inc Oil and gas exploration, prodn Texaco Inc 08/21/97 01/14/98 Boston Technology Inc Mnfr voice processing systems Comverse Technology Inc 08/25/97 10/21/97 ACC Consumer Finance Corp Pvd auto financing services Household International Inc 08/25/97 12/17/97 Mosince Paper Corp Manufacture paper Wausau Paper Mills 08/26/97 12/22/97 Savannah Foods & Industries Produce sugar, sugar by-prod Imperial Holly Corp 08/28/97 12/23/97 Evans Withycombe Residential Real estate investment trust Equity Residential Pptys Trust 08/28/97 02/25/98 Value Property Trust Real estate investment trust Wellsford Real Properties Inc 08/28/97 10/10/97 Versa Technologies Inc Mnfr rubber components, molds Applied Power Inc 08/29/97 12/29/97 Rexel Inc Whl electrical components Rexel SA (Pinault-Printemps) 09/03/97 12/30/97 Zytec Corp Mnfr electric power supplies Computer Products Inc 09/04/97 01/09/98 Hudson Foods Inc Produce poultry products Tyson Foods Inc 09/05/97 11/26/97 Medic Computer Systems Inc Pvd mgmt info sys design svcs Misys PLC 09/05/97 01/16/98 Technology Modeling Assoc Inc Dvlp simulation software Avant! Corp 09/08/97 02/02/98 CompuServe Inc (H&R Block) Internet service provider WorldCom Inc 09/08/97 12/31/97 Fuqua Enterprises Inc Manufacture tanned leather Graham-Field Health Products 09/10/97 11/28/97 Data Documents Inc Manufacture tabulating cards Corporate Express Inc 09/10/97 12/02/97 Tinsley Laboratories Inc Mnfr optical instr, lenses Silicon Valley Group Inc 09/11/97 12/22/97 Fieldcrest Cannon Inc Mnfr broadwoven fabrics Pillowtex Corp 09/12/97 12/09/97 Unison Software Inc Develop network mgmt software Tivoli Systems Inc (IBM Corp) 09/12/97 01/16/98 WHG Resort & Casino Inc Own, op resorts and casino Patriot Amer Hosp/Wyndham Intl 09/12/97 02/25/98 Western National Corp Insurance holding co American General Corp 09/15/97 12/19/97 Beacon Properties Corp Real estate investment trust Equity Office Properties Trust 09/16/97 11/04/97 All American Communications Pvd motion picture & video svc Pearson PLC 09/16/97 02/02/98 Quick & Reilly Group Inc Securities brokerage firm Fleet Financial Group Inc, MA 09/18/97 12/16/97 Guaranty National Corp Insurance company Orion Capital Corp 09/18/97 12/22/97 USLD Communications Corp Pvd long distance commun svcs LCI International Inc 09/19/97 01/16/98 Sterling Electronics Corp Whl electronic components Marshall Industries 09/21/97 12/16/97 Computer Data Systems Inc Design computer program data Affiliated Computer Services 09/22/97 12/05/97 Washington National Corp Insurance company Conseco Inc 09/23/97 01/12/98 Tejas Gas Corp Own, op natural gas lines Shell Oil (Royal Dutch Petro) 09/24/97 11/24/97 Allergan Ligand Retinoid Manufacture pharmaceuticals Ligand Pharmaceuticals Inc 09/24/97 12/12/97 Game Financial Corp Pvd fund access svcs Travelers Express Co (Viad) 09/24/97 11/28/97 Salomon Inc Investment bank, finl advisory Travelers Group Inc 09/25/97 02/19/98 Talley Industries Inc Mnfr guided missiles, space veh Carpenter Technology Corp 09/29/97 12/22/97 Graphic Industries Inc Pvd financial printing svcs Wallace Computer Services Inc 09/29/97 12/23/97 HPR Inc Pvd computer programming svcs HBO & Co 09/29/97 12/01/97 Morningstar Group Inc Produce dairy products Suiza Foods Corp 09/30/97 11/26/97 Arbor Health Care Co Own and operate nursing homes AHC Acquisition Corp 10/01/97 01/29/98 Brooks Fiber Properties Inc Pvd communication installation WorldCom Inc 10/01/97 09/14/98 MCI Communications Corp Pvd telecommunication services WorldCom Inc 10/02/97 04/30/98 Kapson Senior Quarters Corp Provide residential care svcs Prometheus Senior Quarters 10/03/97 12/29/97 Natl Health Enhancement Sys Develop healthcare software HBO & Co 10/06/97 01/28/98 Caliber Systems Inc Trucking holding company FDX Corp 10/06/97 12/19/97 EndoVascular Technologies Inc Mnfr surgical instruments Guidant Corp 10/06/97 03/20/98 Orion Network Systems Inc Pvd Communications svcs Loral Space & Communications 10/08/97 04/07/98 Associates First Capital Corp Pvd finance, leasing services Shareholders 10/09/97 12/23/97 Melamine Chemicals Inc Manufacture melamine crystal Borden Chemical Inc (Borden) 10/10/97 11/19/97 Greenfield Industries Inc Mnfr steel cutting tools Kennametal Inc 10/13/97 01/22/98 Netcom On-Line Communication Internet service provider ICG Communications Inc 10/13/97 12/01/97 Network General Corp Pvd computer sys design svcs McAfee Associates Inc 10/15/97 12/04/97 Viewlogic Systems Inc Dvlp automation software Synopsys Inc 10/16/97 02/12/98 Omni Insurance Group Inc Insurance company Hartford Financial Services 10/17/97 12/29/97 Computational Systems Inc Manufacture measuring devices Emerson Electric Co 10/17/97 11/19/97 Exide Electronics Group Inc Manufacture power supplies BTR PLC 10/17/97 01/02/98 Infinity Financial Technology Dvlp financial software SunGard Data Systems Inc 10/20/97 02/24/98 ITT Corp Own and operate hotels Starwood Hotels & Resorts 10/20/97 03/06/98 Santa Fe Pacific Pipeline Operate petroleum pipelines Kinder Morgan Energy Partners 10/20/97 06/24/98 Ticketmaster Group Inc Own, operate ticket agencies HSN Inc 10/21/97 01/07/98 International Dairy Queen Inc Whl dairy desserts, hamburgers Berkshire Hathaway Inc 10/23/97 12/19/97 Premenos Technology Corp Develop EDT software Harbinger Corp
Value of Enterprise Date Date Acquiror Transaction Value Announced Effective Target Name Business Description ($ mil) ($ mil) - --------------------------------------------------------------------------------------------------------------------------------- 08/14/97 12/13/97 Allied Capital Commercial Corp Closed-end mgmt investment co 381.30 621.24 08/14/97 12/31/97 Allied Capital Corp CLosed-end mgmt investment co 130.00 210.64 08/14/97 09/16/97 American Medserve Corp Whl, retail pharmaceuticals 233.20 240.47 08/14/97 09/24/97 Talbert Medical Management Pvd medical services to HMO's 189.00 08/14/97 12/29/97 Tuesday Morning Corp Investors 298.60 337.36 08/14/97 12/05/97 Uniforce Services Inc Pvd help supply services 140.70 133.72 08/18/97 11/04/97 Monterey Resources Inc Oil and gas exploration, prodn 1,435.30 1,320.89 08/21/97 01/14/98 Boston Technology Inc Mnfr telecommunication equip 873.90 906.34 08/25/97 10/21/97 ACC Consumer Finance Corp Provide financial services 186.90 219.83 08/25/97 12/17/97 Mosince Paper Corp Manufacture, wholesale paper 446.30 512.46 08/26/97 12/22/97 Savannah Foods & Industries Produce sugar 582.90 609.91 08/28/97 12/23/97 Evans Withycombe Residential Real estate investment trust 932.40 1,068.03 08/28/97 02/25/98 Value Property Trust Real estate investment trust 186.60 163.55 08/28/97 10/10/97 Versa Technologies Inc Mnfr tools, equip, consumables 141.90 140.65 08/29/97 12/29/97 Rexel Inc Whl radios, televisions 302.00 647.89 09/03/97 12/30/97 Zytec Corp Design, mnfr electronic prod 412.30 428.02 09/04/97 01/09/98 Hudson foods Inc Poultry, meat processing 648.40 1,021.87 09/05/97 11/26/97 Medic Computer Systems Inc Manufacture computers 915.80 882.60 09/05/97 01/16/98 Technology Modeling Assoc Inc Develop software 144.30 140.54 09/08/97 02/02/98 CompuServe Inc (H&R Block) Pvd telecommunication svcs 1,185.90 1,052.17 09/08/97 12/31/97 Fuqua Enterprises Inc Mnfr medical supply, healthcare 231.00 229.95 09/10/97 11/28/97 Data Documents Inc Retail office supplies 159.40 212.19 09/10/97 12/02/97 Tinsley Laboratories Inc Mnfr semiconductor equipment 40.50 40.89 09/11/97 12/22/97 Fieldcrest Cannon Inc Mnfr, whl home textile products 768.20 787.17 09/12/97 12/09/97 Unison software Inc Dvlp systems mgmt software 183.00 180.26 09/12/97 01/16/98 WHG Resort & Casino Inc Real estate investment trust 266.00 169.94 09/12/97 02/25/98 Western National Corp Insurance holding company 1,215.00 2,340.92 09/15/97 12/19/97 Beacon Properties Corp Real estate investment trust 4,039.40 3,358.85 09/16/97 11/04/97 All American Communications Publish newspapers, periodicals 500.20 498.59 09/16/97 02/02/98 Quick & Reilly Group Inc Bank holding company 1,525.50 1,440.08 09/18/97 12/16/97 Guaranty National Corp Insurance company; holding co 117.20 647.41 09/18/97 12/22/97 USLD Communications Corp Pvd telecommunications svcs 402.80 407.07 09/19/97 01/16/98 Sterling Electronics Corp Whl electronic components 217.60 208.73 09/21/97 12/16/97 Computer Data Systems Inc Pvd date processing services 383.70 389.58 09/22/97 12/05/97 Washington National Corp Insurance holding company 424.00 433.68 09/23/97 01/12/98 Tejas Gas Corp Oil and gas exploration, prodn 2,165.60 2,203.96 09/24/97 11/24/97 Allergan Ligand Retinoid Manufacture diagnostic tests 71.40 39.70 09/24/97 12/12/97 Game Financial Corp Pvd money order issuance svcs 50.60 42.63 09/24/97 11/28/97 Salomon Inc Insurance firm 8,852.10 141,077.45 09/25/97 02/19/98 Talley Industries Inc Mnfr zirconium, steel products 309.40 264.39 09/29/97 12/22/97 Graphic Industries Inc Mnfr manifold business forms 424.50 418.75 09/29/97 12/23/97 HPR Inc Dvlp healthcare software 389.60 376.01 09/29/97 12/01/97 Morningstar Group Inc Produce milk, related prod 972.00 932.58 09/30/97 11/26/97 Arbor Health Care Co Investment holding company 424.20 419.33 10/01/97 01/29/98 Brooks Fiber Properties Inc Pvd telecommunication svcs 2,532.60 3,112.89 10/01/97 09/14/98 MCI Communications Corp Pvd telecommunication svcs 41,906.90 43,588.51 10/02/97 04/30/98 Kapson Senior Quarters Corp Pvd nursing care services 247.40 231.85 10/03/97 12/29/97 Natl Health Enhancement Sys Devlp healthcare software 97.80 96.52 10/06/97 01/28/98 Caliber Systems Inc Provide express delivery svcs 2,471.40 2,681.17 10/06/97 12/19/97 EndoVascular Technologies Inc Mnfr cardiovascular equipment 187.80 190.46 10/06/97 03/20/98 Orion Network Systems Inc Manufacture satellite equip 425.60 1,265.08 10/08/97 04/07/98 Associates First Capital Corp Investor Group 26,624.60 75,189.21 10/09/97 12/23/97 Melamine Chemicals Inc Mnfr formaldehyde, resins 119.70 87.78 10/10/97 11/19/97 Greenfield Industries Inc Mnfr metalworking tools 957.00 1,062.17 10/13/97 01/22/98 Netcom On-Line Communication Pvt telecommunications svcs 269.40 214.02 10/13/97 12/01/97 Network General Corp Develop network software 1,142.50 1,113.34 10/15/97 12/04/97 Viewlogic Systems Inc Develop automation software 530.90 492.99 10/16/97 02/12/98 Omni Insurance Group Inc Provide insurance services 184.70 184.72 10/17/97 12/29/97 Computational Systems Inc Mnfr appliance componments 158.60 160.45 10/17/97 11/19/97 Exide Electronics Group Inc Mnfr plastic, rubber,indl prods 583.20 590.91 10/17/97 01/02/98 Infinity Financial Technology Provide data processing svcs 358.00 347.76 10/20/97 02/24/98 ITT Corp Real estate investment trust 13,748.20 13,534.84 10/20/97 03/06/98 Santa Fe Pacific Pipeline Operate natural gas pipelines 1,473.00 1,352.15 10/20/97 06/24/98 Ticketmaster Group Inc Operate television stations 413.20 845.30 10/21/97 01/07/98 International Dairy Queen Inc Property, casualty insurance co 596.90 558.69 10/23/97 12/19/97 Premenos Technology Corp Dvle elctn commerce software 234.70 211.13
1 Day 1 Week 4 Weeks 3 Months 1 Year Date Date Prior to Prior to Prior to Prior to Prior to Announced Effective Target Business Description Annc. Date Annc. Date Annc. Date Annc. Date Annc. Date - ------------------------------------------------------------------------------------------------------------------------ 08/14/97 12/13/97 Allied Capital Commercial Corp 7.49 7.77 10.64 18.18 8.90 08/14/97 12/31/97 Allied Capital Corp 7.83 7.83 9.10 19.93 23.12 08/14/97 09/16/97 American Medserve Corp 2.49 16.13 25.76 08/14/97 09/24/97 Talbert Medical Management 10.53 18.87 36.96 72.60 08/14/97 12/29/97 Tuesday Morning Corp 22.70 25.79 11.11 197.03 28.21 08/14/97 12/05/97 Uniforce Services Inc 37.56 37.56 52.62 48.23 101.50 08/18/97 11/04/97 Monterey Resources Inc 39.42 39.42 54.13 30.23 08/21/97 01/14/98 Boston Technology Inc (0.32) 16.22 10.37 103.42 15.71 08/25/97 10/21/97 ACC Consumer Finance Corp 35.82 34.75 29.64 125.16 96.69 08/25/97 12/17/97 Mosince Paper Corp 15.62 15.91 5.64 52.89 11.73 08/26/97 12/22/97 Savannah Foods & Industries 8.36 14.89 17.39 65.31 31.71 08/28/97 12/23/97 Evans Withycombe Residential 14.16 21.39 18.88 21.40 22.88 08/28/97 02/25/98 Value Property Trust 24.99 20.90 18.68 32.00 25.59 08/28/97 10/10/97 Versa Technologies Inc 36.81 33.11 31.33 72.84 72.84 08/29/97 12/29/97 Rexel Inc 19.21 26.32 21.62 62.16 23.29 09/03/97 12/30/97 Zytec Corp 45.35 48.22 71.17 283.18 09/04/97 01/09/98 Hudson Foods Inc 23.49 31.63 28.64 51.64 25.81 09/05/97 11/26/97 Medic Computer Systems Inc 7.69 12.00 25.00 17.15 89.19 09/05/97 01/16/98 Technology Modeling Assoc Inc 29.52 52.81 43.16 36.00 09/08/97 02/02/98 CompuServe Inc (H&R Block) 1.39 2.92 8.36 1.39 16.36 09/08/97 12/31/97 Fuqua enterprises Inc 42.32 52.82 78.75 57.24 81.87 09/10/97 11/28/97 Data Documents Inc 10.91 14.87 26.13 53.14 26.12 09/10/97 12/02/97 Tinsley Laboratories Inc 96.36 96.36 96.36 301.64 132.53 09/11/97 12/22/97 Fieldcrest Cannon Inc 1.49 8.58 31.72 86.30 76.62 09/12/97 12/09/97 Unison Software Inc 9.09 25.00 22.45 4.65 100.00 09/12/97 01/16/98 WHG Resort & Casino Inc 35.08 72.35 78.50 117.30 09/12/97 02/25/98 Western National Corp 9.58 7.43 14.41 68.88 13.62 09/15/97 12/19/97 Beacon Properties Corp 28.39 30.62 30.85 69.44 45.80 09/16/97 11/04/97 All American 12.71 41.67 37.84 175.68 100.00 09/16/97 02/02/98 Quick & Reilly Group Inc 18.23 33.10 69.63 103.58 60.91 09/18/97 12/16/97 Guaranty National Corp 10.77 23.87 27.72 125.00 44.00 09/18/97 12/22/97 USLD Communications Corp 18.86 34.13 120.92 40.10 09/19/97 01/16/98 Sterling Electronics Corp 16.26 30.23 57.01 91.74 69.70 09/21/97 12/16/97 Computer Data Systems Inc 42.54 47.63 73.68 129.64 84.54 09/22/97 12/05/97 Washington National Corp 2.70 4.11 12.24 10.37 17.70 09/23/97 01/12/98 Tejas Gas Corp 24.09 22.39 33.70 75.71 50.23 09/24/97 11/24/97 Allergan Ligand Retinoid 13.03 11.59 7.83 09/24/97 12/12/97 Game Financial Corp 4.88 4.88 4.88 10.26 11.69 09/24/97 11/28/97 Salomon Inc 21.43 24.09 34.60 77.50 44.76 09/25/97 02/19/98 Talley Industries Inc 6.67 10.98 34.27 54.84 34.27 09/29/97 12/22/97 Graphic Industries Inc 8.75 19.18 34.88 155.88 65.71 09/29/97 12/23/97 HPR Inc 22.92 24.54 32.38 57.08 30.54 09/29/97 12/01/97 Morningstar Group Inc 14.62 11.48 53.46 09/30/97 11/26/97 Arbor Health Care Co 15.39 19.60 26.76 92.51 39.53 10/01/97 01/29/98 Brooks Fiber Properties Inc 35.71 58.40 83.65 121.34 93.47 10/01/97 09/14/98 MCI Communications Corp 65.17 63.55 58.10 96.15 20.35 10/02/97 04/30/98 Kapson Senior Quarters Corp (0.86) 9.43 1.75 45.00 34.88 10/03/97 12/29/97 Natl Health Enhancement Sys 16.69 41.48 121.93 76.88 85.57 10/06/97 01/28/98 Caliber Systems Inc 13.90 19.72 42.57 284.73 68.28 10/06/97 12/19/97 EndoVascular Technologies Inc 22.14 22.14 73.91 56.86 87.13 10/06/97 03/20/98 Orion Network Systems Inc 20.16 27.94 32.62 91.91 68.16 10/08/97 04/07/98 Associates First Capital Corp 32.67 36.32 31.24 96.48 39.00 10/09/97 12/23/97 Melamine Chemicals Inc 70.83 72.63 70.83 177.97 46.43 10/10/97 11/19/97 Greenfield Industries Inc 19.69 26.67 44.08 35.71 34.22 10/13/97 01/22/98 Netcom On-Line Communication 49.75 70.94 78.52 51.00 64.73 10/13/97 12/01/97 Network General Corp 19.65 25.27 42.72 10/15/97 12/04/97 Viewlogic Systems Inc 24.44 25.14 29.48 215.49 82.11 10/16/97 02/12/98 Omni Insurance Group Inc 78.87 75.78 130.91 252.78 154.00 10/17/97 12/29/97 Computational Systems Inc 45.08 48.25 62.47 91.29 101.02 10/17/97 11/19/97 Exide Electronics Group Inc 125.24 133.17 149.46 146.81 30.34 10/17/97 01/02/98 Infinity Financial Technology 19.00 17.93 17.40 (0.09) 10/20/97 02/24/98 ITT Corp 94.29 98.25 95.40 98.83 34.12 10/20/97 03/06/98 Santa Fe Pacific Pipeline 31.82 33.24 38.56 51.64 34.27 10/20/97 06/24/98 Ticketmaster Group Inc 32.00 28.43 56.32 68.51 10/21/97 01/07/98 International Dairy Queen Inc 11.92 9.09 9.37 35.00 8.54 10/23/97 12/19/97 Premenos Technology Corp 55.20 49.12 27.82 8.63 117.26 Merger Premiums to Market Value Analysis Mergers with Target Price Equal to or Greater than $10 per Share Announced and Completed 1/1/96-10/9/98 (continued) F-12
- ------------------------------------------------------------------------------------------------------------------------------------ Date Date Announced Effective Target Name Target Business Description Acquiror Name - ------------------------------------------------------------------------------------------------------------------------------------ 10/23/97 04/02/98 Universal Outdoor Holdings Inc Pvd outdoor advertising svcs Clear Channel Communications 10/29/97 01/30/98 Carson Pirie Scott & Co Own, op department stores Proffitt's Inc 10/31/97 03/12/98 ILC Technology Inc Mnfr high intensity lamps BEC Group Inc 10/31/97 02.27/98 Xpedite Systems Inc Pvd enhanced fax services Premiere Technologies Inc 11/03/97 03/24/98 Oregon Metallurgical Corp Mnfr, whl titanium Allegheny Teledyne Inc 11/03/97 01/09/98 Sequana Therapeutics Mnfr diagnostic substances Arris Pharmaceuticals Corp 11/04/97 05/20/98 Safety-Kleen Corp (Laidlaw) Pvd vehicular cleaning svcs Laidlaw Environmental Services 11/05/97 01/16/98 Mac Frugal's Bargains Whl, ret general merchandise Consolidated Stores Corp 11/07/97 03/10/98 Quality Food Centers Inc Own and operate supermarkets Fred Meyer Inc 11/11/97 02/11/98 Healthdyne Technologies Inc Mnfr specialized med devices Respironics Inc 11/13/97 03/25/98 Chartwell Leisure Inc Own, op hotels and motels Investor Group 11/13/97 03/11/98 Hugoton Energy Corp Oil and gas exploration prodn Chesapeake Energy Corp 11/17/97 02/26/98 Grantic Financial Inc Pvd business credit services Fidelity National Financial 11/18/97 01/08/98 Jackson Hewitt Pvd tax preparation services Cendant Corp 11/19/97 02/27/98 Amati Communications Corp Mnfr data communications equip Texas Instruments Inc 11/19/97 04/01/98 Renal Treatment Centers Inc Own, op kidney dialysis centers Total Renal Care Holdings Inc 11/19/97 08/12/98 Telemundo Group Inc Own. op Spanish TV stations Investor Group 11/21/97 01/28/98 BDM International Inc Pvd comp info technology svcs TRW Inc 11/24/97 03/30/98 MAPCO Inc Gas utility, petro refining Williams Cos Inc 11/26/97 04/23/98 ACC Corp Pvd telecommunications svcs Teleport Communications Group 11/26/97 02/25/98 Universal Hospital Services Pvd med equip rental services Investor Group 11/28/97 12/30/97 Deflecta-Shield Corp Mnfr truck accessories Lund International Holdings 12/01/97 02/19/98 Raptor Systems Inc Develop security mgmt software AXENT Technologies Inc 12/02/97 06/02/98 Interstate Hotels Co Own, op hotels and motels Patriot Amer Hosp/Wyndam Ind 12/11/97 01/20/98 TriMas Corp Mnfr specialty closures, caps MascoTech Inc 12/12/97 05/29/98 Lukens Inc Mnfr steel plates Bethlehem Steel Corp 12/15/97 03/27/98 Gulf South Medical Supply Inc Wholesale medical supplies Physician Sales & Services Inc 12/15/97 05/01/98 Piper Jaffray Cos Investment bank; holding co U.S. Bancorp, Minneapolis, MN 12/15/97 03/02/98 Sano Corp Mnfr pharmaceuticals Elan Corp PLC 12/16/97 05/08/98 Ambassador Apartments Inc Real estate investment trust Apartment Investment & Mgmt Co 12/16/97 01/30/98 Spine-Tech Inc Mnfr spinal implants Sulzer Medical (Gebrueder Sulzer) 12/17/97 04/08/98 Oasis Residential Inc Real estate investment trust Camden Property Trust 12/17/97 01/23/98 Suburban Ostomy Supply Co Inc Whl medical and hospital equip InvaCare Corporation 12/19/97 03/30/98 ASR Investments Corp Real estate investment trust United Dominion REalty Tr Inc 12/19/97 06/17/98 Chemi-Trol Chemical Co Mnfr steel pressure tanks Harsco Corp 12/19/97 04/20/98 Continental Homes Holding Construct, design homes DR Horton Inc 12/19/97 05/01/98 IPC Information Systems Inc Mnfr telecommunications equip Cable Systems International 12/19/97 06/04/98 Panavision Inc Mnfr camera systems Mafco Holdings Inc 12/19/97 01/20/98 Showboat Inc Own, operate hotel casinos Harrah's Entertainment 12/19/97 01/27/98 Software Artistry Inc Develop help-desk software Tivoli Systems Inc (IBM Corp) 12/19/97 02/03/98 Synmetrics Industries Inc Mnfr communications equip Tel-Save Holdings 12/22/97 05/21/98 Dynatech Corp Mnfr test, analysis products Investor Group 12/22/97 09/30/98 Essex County Gas Gas utility Eastern Enterprises 12/23/97 04/01/98 Union Corp Pvd adjustment collection svcs Outsourcing Solutions Inc 01/01/98 07/31/98 GoodMark Foods Inc Produce meat snacks ConAgra Inc 01/05/98 07/17/98 La Quinta Inns Inc Own, op motor inns Medtrust Acquisition Co 01/06/98 04/01/98 Schult Homes Corp Manufacture mobile homes Oakwood Homes Corp 01/08/98 07/23/98 Teleport Communications Group Pvd telecommunication services AT&T Corp 01/12/98 02/19/98 Computer Language Research Inc Dvlp tax processing software Research Institute of America 01/14/98 06/01/98 Continental Can Co Inc Mnfr metal, plastic cans Suiza Foods Corp 01/14/98 06/19/98 Price REIT Inc Real estate investment trust Kimco Realty Corp 01/19/98 04/24/98 USF&G Corp Insurance holding company St Paul Cos Inc 01/20/98 10/05/98 Buttrey Food and Drug Stores Own, op supermarkets, drug store Albertson's Inc 01/20/98 04/16/98 NACT Telecommunications (GST) Pvd telephone commun svcs World Access Inc 01/20/98 05/27/98 Regal Cinemas Inc Pvd movie exhibition services Investor Group 01/21/98 05/22/98 Thermadyne Holdings Corp Mnfr welding equip, indl mach DLJ Merchant Bkg Partners II 01/23/98 04/13/98 Handy & Harman Mnfr, whl metal wire, cable WHX Corp 01/26/98 06/11/98 Digital Equipment Corp Mnfr computers, equip Compaq Computer Corp 01/27/98 03/03/98 State of the Art Inc Develop financial software Sage Group PLC 02/02/98 03/27/98 BGS Systems Inc Develop utilities software BMC Software Inc 02/02/98 04/20/98 Source Services Corp Provide help supply services Romac International Inc 02/04/98 03/20/98 Industrial Acoustics Inc Mnfr noise reducing products IAC Holdings Corp 02/09/98 03/31/98 Arbor Drugs Inc Own, operate drug stores CVS Corp 02/09/98 06/15/98 Culligan Water Technologies Mnfr, whl purification products United States Filter Corp 02/09/98 04/16/98 Summit Care Corp Provide nursing services Fountain View (Heritage) 02/10/98 06/04/98 Illinois Central Corp Railroad transportation svcs Canadian National Railway Co - ------------------------------------------------------------------------------------------------------------------------------------ Value of Enter- Trans- prise Date Date Acquiror action Value Announced Effective Target Name Business Description ($ mil) ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 10/23/97 04/02/98 Universal Outdoor Holdings Inc Own, op TV, radio bdscstg station 1,627.80 1,729.53 10/29/97 01/30/98 Carson Pirie Scott & Co Own and operate dept stores 867.70 992.38 10/31/97 03/12/98 ILC Technology Inc Mnfr, whl eyeglass lenses, frame 130.80 135.55 10/31/97 02.27/98 Xpedite Systems Inc Pvd computer telephony svcs 496.40 468.79 11/03/97 03/24/98 Oregon Metallurgical Corp Mnfr specialty materials, metal 557.20 566.80 11/03/97 01/09/98 Sequana Therapeutics Manufacture synthetic drugs 169.40 169.97 11/04/97 05/20/98 Safety-Kleen Corp (Laidlaw) Pvd waste removal svcs 1,804.00 2,054.95 11/05/97 01/16/98 Mac Frugal's Bargains General merchandise ret stores 994.10 1,040.90 11/07/97 03/10/98 Quality Food Centers Inc Own, operate department stores 1,703.40 1,671.77 11/11/97 02/11/98 Healthdyne Technologies Inc Mnfr, whl respiratory prod 341.90 344.16 11/13/97 03/25/98 Chartwell Leisure Inc Investor group 240.80 272.75 11/13/97 03/11/98 Hugoton Energy Corp Oil and gas exploration, prodn 377.00 377.46 11/17/97 02/26/98 Grantic Financial Inc Title insurance company 132.40 151.93 11/18/97 01/08/98 Jackson Hewitt Provide discount club svcs 468.20 442.64 11/19/97 02/27/98 Amati Communications Corp Mnfr semiconductors, computers 459.80 463.30 11/19/97 04/01/98 Renal Treatment Centers Inc Pvd kidney dialysis services 1,362.60 1,457.03 11/19/97 08/12/98 Telemundo Group Inc Investor group 521.40 710.48 11/21/97 01/28/98 BDM International Inc Elec equip, credit reporting 888.00 923.01 11/24/97 03/30/98 MAPCO Inc Gas utility 2,634.10 3,405.65 11/26/97 04/23/98 ACC Corp Pvd telecommunication services 906.80 930.23 11/26/97 02/25/98 Universal Hospital Services Investor group 133.00 122.73 11/28/97 12/30/97 Deflecta-Shield Corp Mnfr automobile parts 89.80 87.26 12/01/97 02/19/98 Raptor Systems Inc Develop software 253.70 225.83 12/02/97 06/02/98 Interstate Hotels Co Real estate investment trust 2,055.90 2,095.27 12/11/97 01/20/98 TriMas Corp Mnfr motor vehicle components 911.70 1,384.00 12/12/97 05/29/98 Lukens Inc Manufacture steel products 700.20 751.93 12/15/97 03/27/98 Gulf South Medical Supply Inc Wholesale medical equipment 678.90 629.50 12/15/97 05/01/98 Piper Jaffray Cos Bank holding company 767.80 991.44 12/15/97 03/02/98 Sano Corp Mnfr drug delivery systems 396.80 395.98 12/16/97 05/08/98 Ambassador Apartments Inc real estate investment trust 663.00 620.98 12/16/97 01/30/98 Spine-Tech Inc Mnfr medical implants 621.10 618.51 12/17/97 04/08/98 Oasis Residential Inc Real estate investment trust 395.20 825.51 12/17/97 01/23/98 Suburban Ostomy Supply Co Inc Mnfr surgical, medical supplies 130.80 128.54 12/19/97 03/30/98 ASR Investments Corp real estate investment trust 277.00 264.20 12/19/97 06/17/98 Chemi-Trol Chemical Co Mnfr scaffolding, pipes 46.10 55.83 12/19/97 04/20/98 Continental Homes Holding Construct residential bldgs 590.20 569.49 12/19/97 05/01/98 IPC Information Systems Inc Mnfr telecommun equip 201.70 252.03 12/19/97 06/04/98 Panavision Inc Mnfr toilet preparation 296.60 np 12/19/97 01/20/98 Showboat Inc Own, op hotel casinos 1,147.60 987.48 12/19/97 01/27/98 Software Artistry Inc Dvlp systems mgmt software 201.90 190.51 12/19/97 02/03/98 Synmetrics Industries Inc ,Pvd telecommunications svcs 25.00 31.51 12/22/97 05/21/98 Dynatech Corp Investor group 762.90 783.40 12/22/97 09/30/98 Essex County Gas Gas utility holding company 79.20 117.58 12/23/97 04/01/98 Union Corp Pvd outsourcing svcs 193.00 202.64 01/01/98 07/31/98 GoodMark Foods Inc Produce meats, eggs, cooking oil 217.80 230.60 01/05/98 07/17/98 La Quinta Inns Inc Real estate investment trust 2,907.50 3,040.50 01/06/98 04/01/98 Schult Homes Corp Mnfr, ret factory-built homes 101.40 104.04 01/08/98 07/23/98 Teleport Communications Group Own, op telecommunications sys 11,187.70 4,612.51 01/12/98 02/19/98 Computer Language Research Inc Publish tax law information 325.40 320.43 01/14/98 06/01/98 Continental Can Co Inc Produce milk, related prod 330.50 334.44 01/14/98 06/19/98 Price REIT Inc Real estate investment trust 870.60 804.79 01/19/98 04/24/98 USF&G Corp Insurance holding company 3,782.20 3,382.59 01/20/98 10/05/98 Buttrey Food and Drug Stores Supermarkets, department stores 139.20 175.71 01/20/98 04/16/98 NACT Telecommunications (GST) Pvd telecommunication services 53.10 144.63 01/20/98 05/27/98 Regal Cinemas Inc Investor group 1,462.70 1,408.72 01/21/98 05/22/98 Thermadyne Holdings Corp Merchant banking firm 790.00 742.65 01/23/98 04/13/98 Handy & Harman Mnfr steel and steel prods 625.10 613.20 01/26/98 06/11/98 Digital Equipment Corp Manufacture personal computers 9,123.70 8,620 01/27/98 03/03/98 State of the Art Inc Dvlp, whl accounting software 245.20 244.44 02/02/98 03/27/98 BGS Systems Inc Develop software 306.90 288.51 02/02/98 04/20/98 Source Services Corp Pvd specialty staffing svcs 454.40 431.09 02/04/98 03/20/98 Industrial Acoustics Inc Investment company 25.30 48.96 02/09/98 03/31/98 Arbor Drugs Inc Own and operate drug stores 1,423.30 957.18 02/09/98 06/15/98 Culligan Water Technologies Mnfr water treatment equip 1,474.30 1,927.57 02/09/98 04/16/98 Summit Care Corp Own, op healthcare facilities 275.10 276.92 02/10/98 06/04/98 Illinois Central Corp Pvd railroad services 2,931.00 2,996.58 - ------------------------------------------------------------------------------------------------------------------------------------ Premium ---------------------------------------------------------------------------------- Date Date 1 Day Prior 1 Week Prior 4 Weeks Prior 3 Months Prior 1 Year Prior Announced Effective Target Name to Annc. Date to Annc. Date to Annc. Date to Annc. Date to Annc. Date - ------------------------------------------------------------------------------------------------------------------------------------ 10/23/97 04/02/98 Universal Outdoor Holdings Inc 2.32 5.17 20.46 20.65 21.75 10/29/97 01/30/98 Carson Pirie Scott & Co 38.83 39.30 31.80 109.29 56.87 10/31/97 03/12/98 ILC Technology Inc 108.72 107.62 108.72 125.56 128.19 10/31/97 02.27/98 Xpedite Systems Inc 69.02 73.02 68.05 78.29 73.02 11/03/97 03/24/98 Oregon Metallurgical Corp 45.50 61.66 40.62 9.12 35.05 11/03/97 01/09/98 Sequana Therapeutics 44.00 47.27 23.43 6.23 82.54 11/04/97 05/20/98 Safety-Kleen Corp (Laidlaw) 26.16 38.06 47.32 11/05/97 01/16/98 Mac Frugal's Bargains 2.92 18.49 23.46 62.78 33.31 11/07/97 03/10/98 Quality Food Centers Inc 13.86 23.43 27.96 46.76 42.28 11/11/97 02/11/98 Healthdyne Technologies Inc 44.36 40.15 44.36 166.67 44.36 11/13/97 03/25/98 Chartwell Leisure Inc 11.29 4.55 11.29 25.45 12.20 11/13/97 03/11/98 Hugoton Energy Corp 7.68 11.04 26.91 52.34 12.25 11/17/97 02/26/98 Grantic Financial Inc 89.79 89.79 87.61 155.00 87.59 11/18/97 01/08/98 Jackson Hewitt 26.51 21.70 47.83 1,600.00 156.60 11/19/97 02/27/98 Amati Communications Corp 31.69 44.14 13.48 13.58 26.48 11/19/97 04/01/98 Renal Treatment Centers Inc 8.63 17.04 26.87 64.55 16.63 11/19/97 08/12/98 Telemundo Group Inc 19.66 29.07 24.96 47.72 30.76 11/21/97 01/28/98 BDM International Inc 31.11 43.47 38.01 19.19 13.46 11/24/97 03/30/98 MAPCO Inc 21.05 35.99 43.66 36.24 53.83 11/26/97 04/23/98 ACC Corp 14.94 19.05 84.33 65.29 71.67 11/26/97 02/25/98 Universal Hospital Services 29.17 29.17 25.25 67.57 26.53 11/28/97 12/30/97 Deflecta-Shield Corp 33.33 33.33 77.78 82.86 70.67 12/01/97 02/19/98 Raptor Systems Inc 5.40 20.73 16.49 (24.55) 22.40 12/02/97 06/02/98 Interstate Hotels Co 2.56 8.70 27.39 45.63 30.15 12/11/97 01/20/98 TriMas Corp 12.65 9.96 18.97 42.27 13.58 12/12/97 05/29/98 Lukens Inc 92.00 94.33 69.61 64.38 48.61 12/15/97 03/27/98 Gulf South Medical Supply Inc 38.50 21.97 16.04 36.44 49.07 12/15/97 05/01/98 Piper Jaffray Cos 25.21 24.17 54.01 132.81 44.66 12/15/97 03/02/98 Sano Corp 52.71 42.64 95.13 105.08 71.32 12/16/97 05/08/98 Ambassador Apartments Inc 4.44 5.42 5.42 4.10 (13.30) 12/16/97 01/30/98 Spine-Tech Inc 14.29 52.94 55.81 121.28 16.20 12/17/97 04/08/98 Oasis Residential Inc 9.47 10.72 7.95 12.32 (2.60) 12/17/97 01/23/98 Suburban Ostomy Supply Co Inc 8.05 13.25 13.25 2.17 22.08 12/19/97 03/30/98 ASR Investments Corp 4.38 1.09 2.56 3.76 (5.16) 12/19/97 06/17/98 Chemi-Trol Chemical Co 61.40 61.40 64.29 113.95 75.24 12/19/97 04/20/98 Continental Homes Holding 26.28 27.64 35.97 114.69 61.02 12/19/97 05/01/98 IPC Information Systems Inc 14.29 31.25 14.29 182.35 100.00 12/19/97 06/04/98 Panavision Inc 3.42 19.10 24.71 21.14 12/19/97 01/20/98 Showboat Inc 66.78 62.91 67.35 50.46 12/19/97 01/27/98 Software Artistry Inc 61.98 57.43 237.93 67.52 12/19/97 02/03/98 Synmetrics Industries Inc 36.36 172.73 110.53 114.29 12/22/97 05/21/98 Dynatech Corp 29.93 37.16 29.93 (41.41) (42.38) 12/22/97 09/30/98 Essex County Gas 26.56 55.46 61.17 97.44 74.73 12/23/97 04/01/98 Union Corp 14.55 13.51 23.53 41.57 29.90 01/01/98 07/31/98 GoodMark Foods Inc 54.49 75.88 69.36 73.21 68.12 01/05/98 07/17/98 La Quinta Inns Inc 28.40 35.95 35.95 41.50 47.00 01/06/98 04/01/98 Schult Homes Corp 1.12 10.43 19.21 15.51 25.00 01/08/98 07/23/98 Teleport Communications Group (2.45) 1.72 16.96 76.12 20.38 01/12/98 02/19/98 Computer Language Research Inc 60.71 62.16 69.81 767.47 1,025.00 01/14/98 06/01/98 Continental Can Co Inc 45.83 74.37 71.16 198.35 72.98 01/14/98 06/19/98 Price REIT Inc 13.48 14.33 18.21 26.42 17.50 01/19/98 04/24/98 USF&G Corp 18.19 22.47 14.51 18.55 17.52 01/20/98 10/05/98 Buttrey Food and Drug Stores 44.19 44.19 47.62 89.31 39.33 01/20/98 04/16/98 NACT Telecommunications (GST) 12.00 12.45 16.67 20.69 01/20/98 05/27/98 Regal Cinemas Inc 14.29 10.71 34.78 29.17 19.23 01/21/98 05/22/98 Thermadyne Holdings Corp 19.48 21.05 18.46 30.19 15.72 01/23/98 04/13/98 Handy & Harman 8.67 14.63 1.62 118.60 30.56 01/26/98 06/11/98 Digital Equipment Corp 32.06 50.25 62.45 61.07 25.65 01/27/98 03/03/98 State of the Art Inc 33.33 35.39 35.39 57.14 38.58 02/02/98 03/27/98 BGS Systems Inc 23.29 32.35 42.86 57.89 37.93 02/02/98 04/20/98 Source Services Corp 51.12 56.69 50.24 140.98 59.65 02/04/98 03/20/98 Industrial Acoustics Inc 0 4.76 10.00 2.33 10.00 02/09/98 03/31/98 Arbor Drugs Inc 1.86 14.12 18.13 82.45 30.81 02/09/98 06/15/98 Culligan Water Technologies 57.49 62.89 27.35 56.96 43.47 02/09/98 04/16/98 Summit Care Corp 14.29 31.25 37.71 97.65 27.27 02/10/98 06/04/98 Illinois Central Corp 10.64 20.00 18.86 17.74 8.71 Merger Premiums to Market Value Analysis Mergers with Target Price Equal to or Greater than $10 per Share Announced and Completed 1/1/96-10/9/98 (continued) Page F-13
- ------------------------------------------------------------------------------------------------------------------------------------ Date Date Announced Effective Target Name Target Business Description Acquiror Name - ------------------------------------------------------------------------------------------------------------------------------------ 02/11/98 06/10/98 MTL Inc Pvd tank truck carrier svcs Sombrero Acquisition Corp 02/11/98 05/20/98 Waverly Inc Publish books, periodicals Wotlers Kluwer NV 02/16/98 08/04/98 Coherent Communications Sys Mnfr voice enhancement prods Tellabs Inc 02/17/98 05/27/98 Devon Group Inc Pvd graphic arts services Applied Graphics Technologies 02/17/98 06/11/98 Zurn Industries Inc Mnfr environmental equipment US Industries Inc 02/18/98 06/27/98 Republic Automotive Parts Inc Mnfr, who automotive parts Keystone Automotive Inds Inc 02/19/98 04/21/98 Mastering Inc Provide computer training svcs PLATINUM Technology Inc 02/23/98 06/30/98 Money Store Inc. Provide mtg svcs, loans First Union Corp, Charlotte, NC 02/23/98 04/28/98 Trusted Information Systems Develop security software Network Associates Inc 02/24/98 04/06/98 Wonderware Corp Dvlp process control software Siehe PLC 02/26/98 09/30/98 Dresser Industries Inc Mnfr oil & gas field machinery Halliburton Co 03/02/98 08/03/98 Benchmarq Microelectronics Inc Mnfr microprocessors Unitrode Corp 03/02/98 08/17/98 DeepTech International Oil and gas exploration, prodn El Paso Natural Gas Co 03/02/98 05/19/98 Scopus Technology Inc Dvlp Client/server software Siebel Systems Inc 03/03/98 05/27/98 EVI Weatherford Inc Provide oil field services EVI Inc 03/05/98 05/20/98 XL Connect Solutions Inc Pvd integrated sys design svcs Xerox Corp 03/06/98 07/31/98 Alumax Inc Mnfr aluminum products Aluminum Co of America (Alcoa) 03/09/98 06/05/98 LCI International Inc Pvd telecommunications svcs Qwest Communications Corp 03/09/98 06/25/98 PriCellular Corp Pvd cellular telephone svcs American Cellular Corp 03/10/98 06/05/98 Portec Inc Mnfr railroad track components J Richard Industries Inc 03/11/98 07/16/98 Waste Management Inc Pvd chemical waste mgmt svcs USA Waste Services Inc 03/12/98 04/20/98 Metromail Corp Pvd direct-mail advg svcs Great Universal Stores PLC 03/13/98 07/31/98 MedCath Inc Pvd cardiology related svcs Investor Group 03/16/98 08/03/98 American General Hospitality Real estate investment trust CapStar Hotel Co 03/16/98 05/28/98 Logic Works Inc Develop client/server software PLATINUM Technology Inc 03/16/98 07/01/98 360 Communications Co Pvd telecommunication svcs ALLTEL Corp 03/17/98 07/31/98 BET Holdings Inc Own and operate TV stations Investor Group 03/17/98 05/27/98 ForeFront Group Inc Develop software CBT Group PLC 03/18/98 06/30/98 Medusa Corp Manufacture cement Southdown Inc 03/24/98 08/17/98 Insilco Corp Mnfr auto, elec, & electn parts DLJ Merchant Bkg Partners II 03/24/98 06/24/98 Walsh International Inc Provide programming svcs Cognizant Corp 03/27/98 07/01/98 Grand Prix Assoc Of Long Beach Own, op motorsport facilities Dover Downs Entertainment Inc 03/27/98 07/15/98 Intl Specialty Prods Mnfr speciality chemicals ISP Holdings Inc 03/30/98 05/11/98 Children's Discovery Centers Operate child care centers Knowledge Beginnings Inc 04/02/98 06/30/98 Security Capital Atlantic Inc Real estate investment trust Security Capital Pacific Trust 04/06/98 07/10/98 MoneyGram Payment Systems Inc Pvd money wire transfer svcs Viad Corp 04/06/98 07/31/98 Zero Corp Manufacture metal encasements Applied Power Inc 04/07/98 06/30/98 Beneficial Corp Pvd consumer financing svcs Household International Inc. 04/07/98 06/30/98 Green Tree Financial Corp Pvd consumer, coml finance svcs Conseco Inc 04/08/98 05/19/98 Blessings Corp Mnfr plastic film products Huntsman Packaging Corp 04/09/98 07/27/98 Claremont Technology Group Inc Pvd comp integrated sys svc Complete Business Solutions 04/09/98 05/15/98 Dart Group Corp Own, operate auto part stores Richfood Holdings Inc 04/13/98 07/31/98 Mariner Health Group Inc Provide sub-acute care svcs Paragon Health Network Inc 04/15/98 08/11/98 Harborside Healthcare Corp Pvd long-term med services Investcorp 04/16/98 09/28/98 Award Software International Develop software Phoenix Technologies Ltd 04/17/98 07/21/98 XcelleNet Inc Dvlp remote computing software Sterling Commerce Inc 04/20/98 09/15/98 Atria Communities Inc Provide residential care svcs Kapson Senior Quarters Corp 04/21/98 08/25/98 PCA International Inc Pvd photo processing services Investor Group 04/21/98 06/24/98 Tracor Inc Mnfr defense electronics General Electric Co PLC 04/27/98 07/09/98 Fluke Corp Mnfr electronic test equipment Danaher Corp 04/27/98 08/30/98 Vitalink Pharmacy Services Inc Pvd health and allied svcs Genesis Health Ventures Inc 04/27/98 06/01/98 Yuric Systems Inc Mnfr communications equip Lucent Technologies Inc 04/29/98 08/14/98 Neurex Corp Mnfr, whl biopharmaceuticals Elan Corp PLC 05/04/98 07/09/98 Echlin Inc Mnfr, whl automotive parts Dana Corp 05/04/98 06/29/98 Union Texas Petroleum Holdings Oil and gas exploration, prodn ARCO 05/06/98 08/06/98 Mountbatten Inc Surety insurance company Fidelity & Deposit Co of MD 05/08/98 06/15/98 Authentic Specialty Foods Inc Whl, mnfr Mexican foods Agrobios (Desc SA de CV) 05/13/98 06/26/98 Sage Laboratories Inc Mnfr electronic components Filtronic Comick PLC 05/14/98 09/25/98 New Plan Realty Trust Real estate investment trust Excel Realty Trust Inc 05/18/98 08/19/98 Mercantile Stores Co Inc Own, op department stores Dillard's Inc 05/18/98 08/07/98 RP Scherer Corp Mnfr soft gelatin capsules Cardinal Health Inc 05/18/98 08/26/98 Viking Office Products Inc Whl. retail office products Office Depot Inc. 05/25/98 10/01/98 US Surgical Corp Manufacture surgical staples Tyco International Ltd 05/26/98 08/24/98 Hyperion Software Corp Develop software Arbor Software Corp 05/27/98 09/17/98 May & Speh Inc Pvd computer-based direct mktg Acxioin Corp 05/28/98 07/07/98 Donnelley Enterprise Solutions Pvd info management services Bowne & Co Inc - ------------------------------------------------------------------------------------------------------------------------------------ Value of Enter- Trans- prise Date Date Acquiror action Value Announced Effective Target Name Business Description ($ mil) ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 02/11/98 06/10/98 MTL Inc Investment company 250.10 250.36 02/11/98 05/20/98 Waverly Inc Publish newspapers,books 375.60 390.05 02/16/98 08/04/98 Coherent Communications Sys Mnfr voice data transport sys 664.30 514.18 02/17/98 05/27/98 Devon Group Inc Pvd digital prepress services 474.40 25.32 02/17/98 06/11/98 Zurn Industries Inc Mfnr consumer building prods 790.80 699.54 02/18/98 06/27/98 Republic Automotive Parts Inc Whl auto parts and supplies 62.80 85.90 02/19/98 04/21/98 Mastering Inc Develop integrated software 198.70 180.54 02/23/98 06/30/98 Money Store Inc. Commercial bank holding co 2,215.20 3,631.37 02/23/98 04/28/98 Trusted Information Systems Develop network software 322.10 255.45 02/24/98 04/06/98 Wonderware Corp Mnfr appliance controls 362.70 343.26 02/26/98 09/30/98 Dresser Industries Inc Mnfr oil field machinery 7,783.20 8,429.13 03/02/98 08/03/98 Benchmarq Microelectronics Inc Mnfr semiconductors, capacitors 150.60 145.10 03/02/98 08/17/98 DeepTech International Oil and gas exploration, prodn 375.40 526.65 03/02/98 05/19/98 Scopus Technology Inc Dvlp sales automation software 490.70 455.88 03/03/98 05/27/98 EVI Weatherford Inc Mnfr oil field products 2,670.70 2,826.43 03/05/98 05/20/98 XL Connect Solutions Inc Mnfr business machine; fin co 88.00 348.57 03/06/98 07/31/98 Alumax Inc manufacture aluminum products 3,944.20 3,698.41 03/09/98 06/05/98 LCI International Inc Pvd telephone commun svcs 4,401.40 4,808.21 03/09/98 06/25/98 PriCellular Corp Pvd cellular common services 1,385.20 1,070.55 03/10/98 06/05/98 Portec Inc Investment firm 76.50 79.77 03/11/98 07/16/98 Waste Management Inc Pvd waste disposal services 13,313.60 19,980.86 03/12/98 04/20/98 Metromail Corp Own, op mail order house 837.90 830.34 03/13/98 07/31/98 MedCath Inc Investor group 227.80 354.05 03/16/98 08/03/98 American General Hospitality Own, operate hotels 1,211.80 979.19 03/16/98 05/28/98 Logic Works Inc Develop integrated software 212.90 190.35 03/16/98 07/01/98 360 Communications Co Pvd telecommunication svcs 5,948.60 6,021.37 03/17/98 07/31/98 BET Holdings Inc Investor group 462.30 768.07 03/17/98 05/27/98 ForeFront Group Inc Dev educational software 147.50 127.13 03/18/98 06/30/98 Medusa Corp Mnfr cement; limestone mining 1,052.50 1,084.12 03/24/98 08/17/98 Insilco Corp Merchant banking firm 425.30 446.51 03/24/98 06/24/98 Walsh International Inc pvd information services 176.80 179.22 03/27/98 07/01/98 Grand Prix Assoc Of Long Beach Own, op race track, casinos 91.00 114.96 03/27/98 07/15/98 Intl Specialty Prods Mnfr industrial chemicals 324.50 2,125.81 03/30/98 05/11/98 Children's Discovery Centers Own, operate child care centers 89.10 98.06 04/02/98 06/30/98 Security Capital Atlantic Inc Real estate investment trust 1,681.40 1,688.36 04/06/98 07/10/98 MoneyGram Payment Systems Inc Provide food catering services 293.60 268.95 04/06/98 07/31/98 Zero Corp Mnfr tools, equip, consumables 431.60 456.24 04/07/98 06/30/98 Beneficial Corp Provide financial services 8,703.80 21,875.73 04/07/98 06/30/98 Green Tree Financial Corp Insurance holding company 7,358.80 8,515.19 04/08/98 05/19/98 Blessings Corp Prod printed, laminated films 269.70 244.61 04/09/98 07/27/98 Claremont Technology Group Inc Pvd computer programming svcs 282.50 278.53 04/09/98 05/15/98 Dart Group Corp Wholesale groceries 193.30 565.17 04/13/98 07/31/98 Mariner Health Group Inc Own, op nursing care facilities 622.30 1,089.72 04/15/98 08/11/98 Harborside Healthcare Corp Investment firm 263.20 280.42 04/16/98 09/28/98 Award Software International Develop systems software 129.50 101.81 04/17/98 07/21/98 XcelleNet Inc Dvlp electn commerce software 214.30 196.34 04/20/98 09/15/98 Atria Communities Inc Provide residential care svcs 238.90 501.89 04/21/98 08/25/98 PCA International Inc Investor group 210.40 268.01 04/21/98 06/24/98 Tracor Inc Mnfr radios and televisions 1,323.50 1,377.62 04/27/98 07/09/98 Fluke Corp Mnfr tools, control equipment 718.90 657.51 04/27/98 08/30/98 Vitalink Pharmacy Services Inc Own, op geriatric facilities 678.40 680.28 04/27/98 06/01/98 Yuric Systems Inc Mnfr telecom equip, software 1,044.10 1,002.06 04/29/98 08/14/98 Neurex Corp Mnfr drug delivery systems 824.50 800.83 05/04/98 07/09/98 Echlin Inc Mnfr motor vehicle products 4,124.80 4,345.06 05/04/98 06/29/98 Union Texas Petroleum Holdings Oil and gas exploration, prodn 2,741.40 3,124.56 05/06/98 08/06/98 Mountbatten Inc Surety insurance co 43.40 41.43 05/08/98 06/15/98 Authentic Specialty Foods Inc Mnfr, whl foods products 141.90 148.06 05/13/98 06/26/98 Sage Laboratories Inc Mnfr mobile telephone devices 20.20 16.61 05/14/98 09/25/98 New Plan Realty Trust Real estate investment trust 1,715.30 2,270.33 05/18/98 08/19/98 Mercantile Stores Co Inc Own, op department stores 2,943.10 3,022.02 05/18/98 08/07/98 RP Scherer Corp Whl pharmaceutical products 2,541.60 2,518.70 05/18/98 08/26/98 Viking Office Products Inc. Own. op stationerly stores 3,082.20 3,049.42 05/25/98 10/01/98 US Surgical Corp Mnfr fire protection systems 3,394.20 3.969.78 05/26/98 08/24/98 Hyperion Software Corp Dvlp software 837.30 751.40 05/27/98 09/17/98 May & Speh Inc Provide on-line database svcs 502.50 526.15 05/28/98 07/07/98 Donnelley Enterprise Solutions Pvd printing svcs 105.20 114.54 - ------------------------------------------------------------------------------------------------------------------------------------ Premium ---------------------------------------------------------------------------------- Date Date 1 Day Prior 1 Week Prior 4 Weeks Prior 3 Months Prior 1 Year Prior Announced Effective Target Name to Annc. Date to Annc. Date to Annc. Date to Annc. Date to Annc. Date - ------------------------------------------------------------------------------------------------------------------------------------ 02/11/98 06/10/98 MTL Inc 37.93 38.53 56.10 79.78 46.79 02/11/98 05/20/98 Waverly Inc 42.47 50.73 50.73 77.27 -3.11 02/16/98 08/04/98 Coherent Communications Sys 30.36 43.23 81.37 104.76 40.24 02/17/98 05/27/98 Devon Group Inc 29.19 32.03 37.91 108.07 52.10 02/17/98 06/11/98 Zurn Industries Inc 19.53 22.00 36.05 80.82 28.17 02/18/98 06/27/98 Republic Automotive Parts Inc 33.03 33.33 28.57 9.09 20.00 02/19/98 04/21/98 Mastering Inc 31.58 25.00 33.33 -1.96 36.99 02/23/98 06/30/98 Money Store Inc. 37.26 28.50 87.43 25.81 34.20 02/23/98 04/28/98 Trusted Information Systems 59.92 84.59 92.29 25.21 119.76 02/24/98 04/06/98 Wonderware Corp 50.00 59.34 79.44 125.88 32.41 02/26/98 09/30/98 Dresser Industries Inc 13.73 15.03 18.32 43.09 17.73 03/02/98 08/03/98 Benchmarq Microelectronics Inc 15.77 14.02 67.22 5.97 4.86 03/02/98 08/17/98 DeepTech International 8.74 9.80 15.46 138.30 30.23 03/02/98 05/19/98 Scopus Technology Inc 58.51 93.64 100.13 2.35 84.66 03/03/98 05/27/98 EVI Weatherford Inc 39.85 59.59 41.33 74.50 6.18 03/05/98 05/20/98 XL Connect Solutions Inc -11.11 15.11 22.14 180.70 19.40 03/06/98 07/31/98 Alumax Inc 35.08 33.26 36.25 30.83 52.85 03/09/98 06/05/98 LCI International Inc 22.18 24.21 54.84 133.33 55.20 03/09/98 06/25/98 PriCellular Corp 7.69 16.67 16.06 58.87 23.76 03/10/98 06/05/98 Portec Inc 8.48 13.78 10.35 43.82 13.27 03/11/98 07/16/98 Waste Management Inc 12.62 15.78 15.78 -12.03 5.07 03/12/98 04/20/98 Metromail Corp 32.69 28.37 30.19 117.32 77.49 03/13/98 07/31/98 MedCath Inc 15.15 10.95 34.51 26.67 26.67 03/16/98 08/03/98 American General Hospitality 56.60 58.43 52.01 27.67 37.49 03/16/98 05/28/98 Logic Works Inc 12.96 36.18 57.13 131.25 70.22 03/16/98 07/01/98 360 Communications Co 15.41 30.39 49.84 84.49 68.97 03/17/98 07/31/98 BET Holdings Inc 53.66 58.49 58.24 109.13 17.76 03/17/98 05/27/98 ForeFront Group Inc 17.27 29.36 48.50 258.63 81.91 03/18/98 06/30/98 Medusa Corp 17.16 24.29 35.28 60.58 53.29 03/24/98 08/17/98 Insilco Corp 4.65 11.11 12.85 03/24/98 06/24/98 Walsh International Inc 36.84 53.33 105.29 59.10 03/27/98 07/01/98 Grand Prix Assoc Of Long Beach 11.81 22.06 21.55 42.21 31.37 03/27/98 07/15/98 Intl Specialty Prods 4.29 1.74 14.51 43.14 22.18 03/30/98 05/11/98 Children's Discovery Centers 20.99 16.67 25.64 139.02 28.95 04/02/98 06/30/98 Security Capital Atlantic Inc 14.88 14.88 14.20 10.31 12.56 04/06/98 07/10/98 MoneyGram Payment Systems Inc 11.49 15.67 42.36 87.57 61.40 04/06/98 07/31/98 Zero Corp 16.46 17.99 33.18 84.27 24.56 04/07/98 06/30/98 Beneficial Corp 82.38 82.10 86.06 131.23 84.34 04/07/98 06/30/98 Green Tree Financial Corp 82.51 86.12 94.23 60.39 110.14 04/08/98 05/19/98 Blessings Corp 18.73 18.31 34.94 118.18 41.77 04/09/98 07/27/98 Claremont Technology Group Inc 21.35 77.05 118.18 21.35 60.00 04/09/98 05/15/98 Dart Group Corp 14.29 11.89 19.40 71.81 46.79 04/13/98 07/31/98 Mariner Health Group Inc 6.04 10.88 28.98 139.39 27.42 04/15/98 08/11/98 Harborside Healthcare Corp 18.34 22.70 5.82 117.39 35.59 04/16/98 09/28/98 Award Software International 12.83 21.34 53.12 44.54 96.40 04/17/98 07/21/98 XcelleNet Inc 6.11 12.55 7.73 04/20/98 09/15/98 Atria Communities Inc 2.53 7.29 -0.31 82.02 16.13 04/21/98 08/25/98 PCA International Inc 23.26 17.78 20.46 80.43 19.10 04/21/98 06/24/98 Tracor Inc 9.97 16.79 25.00 100.00 33.89 04/27/98 07/09/98 Fluke Corp 61.73 61.29 57.90 64.38 64.84 04/27/98 08/30/98 Vitalink Pharmacy Services Inc 13.57 12.15 6.51 23.29 6.51 04/27/98 06/01/98 Yuric Systems Inc 11.11 17.40 49.73 268.42 62.55 04/29/98 08/14/98 Neurex Corp 65.56 46.75 41.40 197.27 88.20 05/04/98 07/09/98 Echlin Inc 41.48 42.86 52.78 67.94 49.41 05/04/98 06/29/98 Union Texas Petroleum Holdings 41.46 46.84 36.47 53.64 49.68 05/06/98 08/06/98 Mountbatten Inc 2.46 6.18 4.29 66.86 24.26 05/08/98 06/15/98 Authentic Specialty Foods Inc 6.25 13.33 37.37 20.35 05/13/98 06/26/98 Sage Laboratories Inc 37.26 34.62 35.92 29.63 38.61 05/14/98 09/25/98 New Plan Realty Trust 13.43 15.44 14.29 29.55 11.49 05/18/98 08/19/98 Mercantile Stores Co Inc 9.12 9.59 15.42 56.48 19.40 05/18/98 08/07/98 RP Scherer Corp 17.47 23.34 30.06 83.76 51.76 05/18/98 08/26/98 Viking Office Products Inc 43.86 42.38 44.24 107.16 49.74 05/25/98 10/01/98 US Surgical Corp 7.91 25.73 39.73 35.01 51.62 05/26/98 08/24/98 Hyperion Software Corp 4.97 3.78 -3.57 114.87 -1.79 05/27/98 09/17/98 May & Speh Inc 2.65 12.58 20.35 58.64 34.23 05/28/98 07/07/98 Donnelley Enterprise Solutions 60.77 61.54 83.61 102.41 118.18 Merger Premiums to Market Value Analysis Mergers with Target Price Equal to or Greater than $10 per Share Announced and Completed 1/1/96-10/9/98 (continued) Source: Securities Data Company, Inc.; Three month and one-year premiums calculated using security prices from FactSet Research Systems, Inc. Commercial banks and other similar financial institutions were excluded for the purpose of this analysis. Page F-14
- ------------------------------------------------------------------------------------------------------------------------------------ Date Date Announced Effective Target Name Target Business Description Acquiror Name - ------------------------------------------------------------------------------------------------------------------------------------ 06/04/98 09/08/98 DSC Communications Corp Dvlp, mnfr digital telecom sys Alcatel Alsthom CGE 06/04/98 07/20/98 Pollo Tropical Inc Own and operate restaurants Carrols Corp 06/10/98 08/18/98 Ceanic Corp Pvd subsea services, products Stolt Comex Seaway SA 06/10/98 09/25/98 Manor Care Inc Own, op nursing homes, hotels Health Care and Retirement 06/12/98 07/21/98 Triangle Pacific Corp Mnfr, whl wood cabinets Armstrong World Industries Inc 06/15/98 08/31/98 Bay Networks Inc Mnfr, whl data networking prods Northern Telecom Ltd (BCE Inc) 06/16/98 08/31/98 Personnel Management Inc Employment agency Linsalata Capital Partners 06/17/98 09/24/98 Intersolv Inc. Develop software products Micro Focus Group PLC 06/17/98 09/08/98 Nimbus CD International Inc Mnfr compact discs Carlton Communications PLC 06/18/98 07/28/98 ARCO Chemical Co (ARCO) Mnfr, whl intermediate chems Lyondell Petrochemical Co 06/18/98 09/24/98 PMT Services Inc Pvd credit card services NOVA Corp 06/19/98 08/31/98 Camco International Inc Mnfr oil, gas field equipment Schlumberger Technology Corp 06/22/98 08/31/98 Broderbund Software Inc Dvlp, whl educational software Learning Co Inc 06/24/98 10/05/98 Penederm Inc Mnfr pharmaceutical products Mylan Laboratories Inc 06/29/98 09/22/98 Dawson Production Services Inc Oil and gas exploration, prodn Key Energy Group Inc 06/29/98 09/30/98 Physio-Control International Mnfr, whl cardiac defibrilator Medtronic Inc 07/01/98 08/20/98 Leeg Inc Provide management services Metzler Group Inc 07/03/98 09/18/98 Saks Holdings (Investcorp Bk) Own and operate dept stores Proffitt's Inc 07/17/98 09/02/98 DeCrane Aircraft Holdings Inc Mnfr avionics components DLJ Merchant Banking Inc 07/20/98 10/06/98 General Signal Corp Mnfr electric control equip SPX Corp 09/29/98 10/07/98 Newmont Gold Co Gold mining Newmont Mining Corp - ------------------------------------------------------------------------------------------------------------------------------------ Value of Enter- Trans- prise Date Date Acquiror action Value Announced Effective Target Name Business Description ($ mil) ($ mil) - ------------------------------------------------------------------------------------------------------------------------------------ 06/04/98 09/08/98 DSC Communications Corp Mnfr telephone, common equip 4685.30 5084.93 06/04/98 07/20/98 Pollo Tropical Inc Own and operate restaurants 94.60 93.28 06/10/98 08/18/98 Ceanic Corp Pvd oil/gas contracting svcs 222.80 247.21 06/10/98 09/25/98 Manor Care Inc Own, operate nursing homes 2474.40 2986.16 06/12/98 07/21/98 Triangle Pacific Corp Mnfr interior furnishings 1124.30 1124.59 06/15/98 08/31/98 Bay Networks Inc Mnfr telecommunications equip 9268.60 9008.96 06/16/98 08/31/98 Personnel Management Inc Investment firm 34.90 37.50 06/17/98 09/24/98 Intersolv Inc. Manufacture lenses, computers 532.00 511.38 06/17/98 09/08/98 Nimbus CD International Inc Pvd motion picture prodn svcs 264.90 288.46 06/18/98 07/28/98 ARCO Chemical Co (ARCO) Mnfr petrochems, polyolefins 5645.70 6512.54 06/18/98 09/24/98 PMT Services Inc Pvd information retrieval svcs 1266.60 1238.70 06/19/98 08/31/98 Camco International Inc Develop software 3376.30 3307.25 06/22/98 08/31/98 Broderbund Software Inc Pvd serv dev consumer software 424.30 287.22 06/24/98 10/05/98 Penederm Inc Mnfr, whl pharmaceuticals 193.10 190.48 06/29/98 09/22/98 Dawson Production Services Inc Pvd oil well services 348.80 309.40 06/29/98 09/30/98 Physio-Control International Mnfr medical technology prods 529.10 543.04 07/01/98 08/20/98 Leeg Inc Pvd business consulting svcs 294.40 272.58 07/03/98 09/18/98 Saks Holdings (Investcorp Bk) Own and operate dept stores 3282.30 3381.20 07/17/98 09/02/98 DeCrane Aircraft Holdings Inc Merchant banking firm 181.50 174.11 07/20/98 10/06/98 General Signal Corp Mnfr engine components, tools 2318.70 2309.41 09/29/98 10/07/98 Newmont Gold Co Gold, coal mining, oil, gas expl 264.80 4235.41 - ------------------------------------------------------------------------------------------------------------------------------------ Premium ---------------------------------------------------------------------------------- Date Date 1 Day Prior 1 Week Prior 4 Weeks Prior 3 Months Prior 1 Year Prior Announced Effective Target Name to Annc. Date to Annc. Date to Annc. Date to Annc. Date to Annc. Date - ------------------------------------------------------------------------------------------------------------------------------------ 06/04/98 09/08/98 DSC Communications Corp 81.64 111.91 98.67 46.71 105.08 06/04/98 07/20/98 Pollo Tropical Inc 10.00 7.32 18.12 66.04 37.50 06/10/98 08/18/98 Ceanic Corp 29.56 34.45 79.78 52.38 06/10/98 09/25/98 Manor Care Inc 21.77 25.31 17.97 21.29 (1.47) 06/12/98 07/21/98 Triangle Pacific Corp 26.14 26.50 24.02 06/15/98 08/31/98 Bay Networks Inc 34.97 18.49 44.88 61.74 59.21 06/16/98 08/31/98 Personnel Management Inc 25.49 23.08 23.08 66.23 21.90 06/17/98 09/24/98 Intersolv Inc. 56.16 41.05 52.09 161.01 24.91 06/17/98 09/08/98 Nimbus CD International Inc 6.98 5.75 10.84 8.24 12.20 06/18/98 07/28/98 ARCO Chemical Co (ARCO) 14.22 12.27 3.36 23.20 18.92 06/18/98 09/24/98 PMT Services Inc 21.98 35.54 31.98 57.25 53.65 06/19/98 08/31/98 Camco International Inc 32.57 39.88 19.50 51.78 36.41 06/22/98 08/31/98 Broderbund Software Inc 21.21 16.36 18.96 (19.60) (16.23) 06/24/98 10/05/98 Penederm Inc 38.97 39.52 88.28 76.89 75.12 06/29/98 09/22/98 Dawson Production Services In 40.70 50.54 66.67 29.63 38.61 06/29/98 09/30/98 Physio-Control International 19.57 31.74 31.34 86.44 57.14 07/01/98 08/20/98 Leeg Inc 46.50 48.98 41.77 69.08 07/03/98 09/18/98 Saks Holdings (Investcorp Bk) 34.46 39.02 40.85 39.55 (12.07) 07/17/98 09/02/98 DeCrane Aircraft Holdings Inc 30.50 28.67 33.82 33.33 31.90 07/20/98 10/06/98 General Signal Corp 19.60 22.66 19.40 (13.46) 0.28 09/29/98 10/07/98 Newmont Gold Co (5.16) 20.81 62.37 (44.55) 4.35 Mean: 28.1% 32.7% 39.6% 77.9% 53.2% RELATIVE CONTRIBUTION ANALYSIS (a) ($ IN THOUSANDS) STAR GAS' AVERAGE GROSS PROFIT CONTRIBUTION 96-97 26.7% 98-99 28.8% 96-99 27.8% STAR GAS' AVERAGE EBITDA CONTRIBUTION 96-97 35.4% 98-99 32.8% 96-99 34.0% [_] A.G. Edwards analyzed the relative pro forma contribution of both Star Gas and Petro to the ownership of capital in the pro forma entity based on Star Gas' and Petro's historical results from operations and their respective projections. [GROSS PROFIT CHART APPEARS HERE] [EBITDA (c) CHART APPEARS HERE] ______________________________________ (a) For purposes of its analysis, A.G. Edwards converted Petro's historical December 31st fiscal year-end to a September 30th fiscal year-end for comparison purposes. Petro's projections are based on a December 31st calendar year end. Other measures of relative contribution analysis are non-meaningful. (b) Assumes normalized weather. (c) Includes only heating oil EBITDA for Petro. Page G-1 RELATIVE CONTRIBUTION ANALYSIS ($ IN THOUSANDS) (continued) FOR STAR GAS' CONTRIBUTION IMPLIED FIRM VALUE OF APPROXIMATELY 27.8% OF THE COMBINED ENTITY'S GROSS [PIE CHART APPEARS HERE] PROFIT AND 34.0% OF THE COMBINED ENTITY'S EBITDA, IT WILL RECEIVE APPROXIMATELY 37.1% OF THE IMPLIED FIRM VALUE. Page G-2 DISCOUNTED CASH FLOW ANALYSIS [_] A.G. Edwards performed discounted cash flow analyses for Petro, Star Gas and Star Gas Pro Forma using projected tax-adjusted operating cash flows for 1999 through 2002, terminal values calculated on 2002 EBITDA, and discount rates based on the related weighted average cost of capital. Assumptions: [_] Weighted average cost of capital ("WACC") - Petro Stand Alone of 13.4% to 13.9% (calculated WACC of 13.6%) - Star Gas Stand Alone of 6.8% to 7.2% (calculated WACC of 7.0%) - Star Gas Pro Forma of 7.3% to 7.7% (calculated WACC of 7.5%) [_] Terminal value EBITDA multiple - Petro Stand Alone of 6.0x to 8.0x (calculated normalized 1998 EBITDA multiple of 6.5x) - Star Gas Stand Alone and Star Gas Pro Forma of 9.0x to 11.0x (calculated normalized 1998 EBITDA multiple of 10.6x) Page H-1 Discounted Cash Flow Analysis (continued) Petro Stand Alone ------------------------------------------------------------ Terminal Value EBITDA Multiple 30 Year ------------------------------------------------- 6.0x 6.5x 7.0x 7.5x 8.0x ------------------------------------------------------------ 13.4% $ 64,921 $ 81,662 $ 98,403 $ 115,143 $ 131,884 WACC 13.6% 62,511 79,110 95,709 112,308 128,908 13.9% 60,124 76,583 93,042 109,502 125,961 ------------------------------------------------------------ Star Gas Stand Alone ------------------------------------------------------------ Terminal Value EBITDA Multiple 30 Year ------------------------------------------------- 9.0x 9.5x 10.0x 10.5x 11.0x ------------------------------------------------------------ 6.8% $103,675 $110,428 $117,181 $ 123,935 $ 130,688 WACC 7.0% 102,537 109,240 115,942 122,645 129,347 7.2% 101,410 108,062 114,714 121,367 128,019 ------------------------------------------------------------ Star Gas Pro Forma ------------------------------------------------------------ Terminal Value EBITDA Multiple 30 Year ------------------------------------------------- 9.0x 9.5x 10.0x 10.5x 11.0x ------------------------------------------------------------ 7.3% $139,743 $148,282 $156,820 $ 165,358 $ 173,896 WACC 7.5% 138,338 146,815 155,291 163,767 172,243 7.7% 136,946 145,360 153,775 162,190 170,605 ------------------------------------------------------------ Page H-2 DISCOUNTED CASH FLOW ANALYSIS PETRO -- STAND ALONE EXCLUDING DISTRIBUTIONS FROM STAR GAS ($ IN THOUSANDS) ___________________________________________________________ (a) Based on management projections. (b) A.G. Edwards' estimate. (c) Based on comparable companies' WACC. (d) Petro's current firm value of $304.4 million/$46.9 million normalized 1998 EBITDA = 6.5x, which represents a multiple of current year normalized EBITDA. (e) Terminal value calculated using EBITDA multiple. (f) Net of $33.2 million of cash. Market value of debt used. Page H-3
==================================================================================================================================== NORMALIZED CASH FLOW SUMMARY (a): 1998 1999 2000 2001 2002 TERMINAL - ---------------------- ------------ ------ ------ ------ ------ ---------- EBITDA $46,900 $48,706 $51,196 $53,390 $55,385 Taxes (500) (500) (500) (500) (500) Maintenance capital expenditures (3,000) (3,060) (3,121) (3,184) Working capital increases (b) (500) (500) (500) (500) ------- ------- ------- ------- Net operating cash flow (free cash flow) 44,706 47,136 49,269 51,201 -------------- WEIGHTED AVERAGE COST OF CAPITAL (C) 13.6% -------------- -------------- Terminal EBITDA multiple (d) 6.5x -------------- Discount factor 0.8799 0.7742 0.6812 0.5994 0.5994 Terminal value (e) $360,003 -------------- PRESENT VALUE $355,875 $39,337 $36,494 $33,564 $30,691 $215,791 -------------- ------- ------- ------- ------- -------- Current net debt and preferred stock (f) ($276,765) -------------- -------------- NET PRESENT VALUE OF EQUITY $ 79,110 -------------- DISCOUNTED CASH FLOW ANALYSIS PETRO - STAND ALONE USING STAR GAS' PRO FORMA WACC EXCLUDING DISTRIBUTIONS FROM STAR GAS ($ in thousands) (a) Based on management projections. (b) A.G. Edwards' estimate. (c) Based on comparable companies' WACC. (d) Petro's current term value of $304.4 million/$46.9 million normalized 1998 EBITDA = 6.5x, which represents a multiple of current year normalized EBITDA. (e) Terminal value calculated using EBITDA multiple. (f) Net of $33.2 million of cash. Market value of debt used. Page H - 4
==================================================================================================================================== NORMALIZED CASH FLOW SUMMARY (a): 1998 1999 2000 2001 2002 TERMINAL - ----------------- ---------- ---------- ---------- ---------- ---------- ---------- EBITDA $46,900 $48,706 $51,196 $53,390 $55,385 Taxes (500) (500) (500) (500) (500) Maintenance capital expenditures (3,000) (3,060) (3,121) (3,184) Working capital increases (b) (500) (500) (500) (500) ---------- ---------- ---------- ---------- Net operating cash flow (free cash flow) 44,706 47,136 49,269 51,201 ----------------- WEIGHTED AVERAGE COST OF CAPITAL (c) 7.5% ----------------- ----------------- TERMINAL EBITDA MULTIPLE (d) 6.5x ----------------- Discount factor 0.9299 0.8647 0.8041 0.7477 0.7477 Terminal value (e) $360,003 ----------------- PRESENT VALUE $429,392 $41,571 $40,758 $39,615 $38,282 $269,166 ----------------- ---------- ---------- ---------- ---------- ---------- Current net debt and preferred stock (f) ($276,765) ----------------- ================= NET PRESENT VALUE OF EQUITY $152,627 ================= - ------------------------------------------------------------------------------------------------------------------------------------ DISCOUNTED CASH FLOW ANALYSIS STAR GAS - STAND ALONE ($ IN THOUSANDS) (a) Based on management projections. (b) A.G. Edwards' estimate. (c) Based on comparable companies' WACC. (d) Star's current firm value of $234.1 million $22.1 million normalized 1998 EBITDA = 10.6x, which represents a multiple of current year normalized EBITDA. (e) Terminal value calculated using EBITDA multiple. (f) Represents total projected 9/30/98 debt less cash. (g) Total units include common, subordinated and GP units. (h) Current market value of common units is 3,858 units* $19.563 unit price = $75,472 Page H-5
========================================================================================================================== NORMALIZED INCOME STATEMENT SUMMARY (a): 1998 1999 2000 2001 2002 TERMINAL - ---------------------------- ---- ---- ---- ---- ---- -------- EBITDA 22,135 24,491 26,029 27,566 29,104 % increase 10.6% 6.3% 5.9% 5.6% Net income 2,799 3,297 3,281 3,439 3,761 CASH FLOW SUMMARY: - ----------------- After-tax EBI 12,108 12,658 13,317 14,141 Depreciation and amortization 12,358 13,346 14,224 14,938 Maintenance capital expenditures (2,632) (2,679) (2,728) (2,777) Working capital increases (b) (500) (500) (500) (500) ------- ------- ------- ------- Net operating cash flow (free cash flow) 21,334 22,825 24,313 25,802 ------------- WEIGHTED AVERAGE COST OF CAPITAL (c) 7.0% ------------- ------------- TERMINAL EBITDA MULTIPLE (d) 10.6x ------------- Discount factor 0.9342 0.8728 0.8154 0.7618 0.7618 Terminal value (e) $308,502 ------------- PRESENT VALUE $314,355 $19,931 $19,922 $19,825 $19,656 $235,020 ------------- ------- ------- ------- ------- -------- Current net debt (f) ($109,285) ------------- NET PRESENT VALUE OF EQUITY $205,070 ============= Common units/Total units (g) 60.5% ============= EQUITY VALUE TO COMMON UNITS (h) $123,985 ============= - -------------------------------------------------------------------------------- Discounted Cash Flow Analysis Star Gas - Pro Forma ($ in thousands) (a) Based on management projections. See Appendix K for model. (b) A.G. Edwards' estimate. (c) Based on comparable companies' WACC. (d) Star's current firm value of $234.1 million/$22.1 million normalized 1998 EBITDA = 10.6x, which represents a multiple of current year normalized EBITDA. (e) Terminal value calculated using EBITDA multiple. (f) Represents total proforma projected 9/30/98 debt less cash and cash collateral. (g) Total units include common, newly issued common, senior subordinated, subordinated and GP units. (h) Current market value of common units is 3,858 units *$19.563 unit price = $75,472. Page H-6
- ------------------------------------------------------------------------------------------------------------------------------------ Normalized Income Statement Summary (a): 1998 1999 2000 2001 2002 Terminal - ------------------------ ---------- -------- -------- --------- ---------- ------------ EBITDA 69,535 73,697 77,725 81,456 84,989 % increase 6.0% 5.5% 4.8% 4.3% Net income (102) (456) (4,315) (7,751) (10,944) Cash Flow Summary: - ------------------ After-tax EBI 29,012 27,234 25,266 23,258 Depreciation and amortization 43,661 49,466 55,166 60,705 Maintenance capital expenditures (5,632) (5,739) (5,849) (5,961) Working capital increases (b) (1,000) (1,000) (1,000) (1,000) -------- -------- --------- ---------- Net operating cash flow (free cash flow) 66,041 69,961 73,583 77,002 ---------------- Weighted average cost of capital (c) 7.5% ---------------- ---------------- Terminal EBITDA multiple (d) 10.6 ---------------- Discount factor 0.9299 0.8647 0.8041 0.7477 0.7477 Terminal value (e) $900,883 ---------------- Present value $912,213 $61,410 $60,494 $59,165 $57,573 $673,571 ---------------- ------- ------- ------- ------- -------- Less net debt (f) ($291,997) ---------------- Net present value of equity $620,216 ================ Original common units/Total units (g) 26.7% ---------------- Equity value to common units (h) $165,462 ---------------- - ------------------------------------------------------------------------------------------------------------------------------------ DISCOUNTED CASH FLOW ANALYSIS PETRO - STAND ALONE WEIGHTED AVERAGE COST OF CAPITAL DERIVATION ($ in millions) ================================================================================ _______________________________________________ (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Includes preferred stock; not net of cash. (c) Ten - year Treasury rate on October 14, 1998. (d) Bloomberg's reported beta for Petro is .60. (e) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (f) Based on Petro's current debt structure. (g) Calculation based upon use of the capital Asset Pricing Model (CAPM). Page H-7
TOTAL IMPLIED TOTAL TOTAL MARKET UNIT TOTAL MARKET DEBT/ DEBT AS % UN- LEVERED VAL. DEBT PRICE AT UNITS VALUE OF TOTAL OF TOTAL LEVERED COMPARABLE COMPANY BETA (a) (BK = MKT) (10/14/98) OUT. (MIL) EQUITY EQUITY CAPITAL BETA - ------------------------------------------------------------------------------------------------------------------------------------ AmeriGas Partners, L.P. 0.42 $711.1 $24.125 41.9 $1,031.2 69.0% 40.8% 0.249 Cornerstone Propane Partners, L.P. 0.45 240.9 18.000 19.9 365.2 66.0% 39.8% 0.271 Ferrellgas Partners, L.P. 0.46 504.1 20.000 31.3 638.6 78.9% 44.1% 0.257 Heritage Propane Partners, L.P. 0.42 177.8 20.813 8.5 180.0 98.8% 49.7% 0.211 National Propane Partners, L.P. 0.61 145.5 9.438 11.2 108.2 134.5% 57.4% 0.260 Star Gas Partners, L.P. 0.39 109.8 19.563 6.3 124.9 87.9% 46.8% 0.208 Suburban Propane Partners, L.P. 0.40 427.9 19.625 28.7 575.3 74.4% 42.7% 0.229 ---------------------------------------------------------- Petro's capitalization - at market Comparable group's average unlevered beta: 0.24 Total debt (b) $310.0 91.8% Petro's debt - to - equity ratio: 1123.5% Common equity 27.6 8.2% ------ ----- Petro's debt as a percent of total capital: 91.8% $337.6 100.0% ---------------------------------------------------------- Comparable group's beta relevered for Petro's capital structure: 2.945% ===== DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: - ---------------------------------------------- MARKET RISK PREMIUM RANGE (e) --------------------------------- 11.3% 12.3% 13.3% --------------------------------- Petro's theoretical levered beta (d): 2.945 Assumed % of equity in Petro's capital structure: 8.2% Risk - free rate of return (c): 4.6% Petro's cost of equity range (at various market risk premiums): 37.9% 40.8% 43.8% ==== ==== ==== Petro's assumed tax rate: 0.0% Assumed % of debt in capital structure (b): 91.8% Petro's estimated cost of debt (f): 11.2% Petro's estimated after - tax cost of debt: 11.2% 11.2% 11.2% 11.2% --------------------------------- Petro's weighted average cost of capital range (g): 13.4% 13.6% 13.9% --------------------------------- - ---------------------------------------- (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 Index. (b) Market value of debt is assumed to equal book value; debt is not net of cash. (c) Ten-year Treasury rate on October 14, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on Star current debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). Page H-8
Discounted Cash Flow Analysis Star Gas -- Stand Alone Weighted Average Cost of Capital Derivation ($ in millions) - ------------------------------------------------------------------------------------------------------------------------------------ Total Implied Total Total Market Unit Total Market Debt/ Debt as % Un- Levered Val. Debt Price at Units Value of Total of Total levered Comparable Company Beta (a) (Bk=Mkt) (10/14/98) Out. (Mil) Equity Equity Capital Beta - ------------------------------------------------------------------------------------------------------------------------------------ AmeriGas Partners, L.P. 0.42 $711.1 $24.125 41.9 $1,031.2 69.0% 40.8% 0.249 Cornerstone Propane Partners, L.P. 0.45 240.9 18.000 19.9 365.2 66.0% 39.8% 0.271 Ferrellgas Partners, L.P. 0.46 504.1 20.000 31.3 638.6 78.9% 44.1% 0.257 Heritage Propane Partners, L.P. 0.42 177.8 20.813 8.5 180.0 98.8% 49.7% 0.211 National Propane Partners, L.P. 0.61 145.5 9.438 11.2 108.2 134.5% 57.4% 0.260 Star Gas Partners, L.P. 0.39 109.8 19.563 6.3 124.9 87.9% 46.8% 0.208 Suburban Propane Partners, L.P. 0.40 427.9 19.625 28.7 575.3 74.4% 42.7% 0.229 Star's capitalization - at market (b) Comparable group's average unlevered beta: 0.24 Total debt $109.8 46.8% Star's debt-to-equity ratio (b): 87.9% Common equity 124.9 53.2% Star's debt as a percent of total capital (b): 46.8% --------- ----- Comparable group's beta relevered for Star's capital structure 0.378% $234.6 100.0% ===== Derivation of Weighted Average Cost of Capital: Market Risk Premium Range (d) - ---------------------------------------------- -------------------------------------- 11.3% 12.3% 13.3% -------------------------------------- Star's theoretical levered beta: 0.378 Assumed % of equity in Star's capital structure (b): 53.2% Risk-free rate of return (c): 4.6% Star's cost of equity range (at various market risk premiums): 8.9% 9.3% 9.6% Star's assumed tax rate: 35.0% ==== ==== ==== Assumed % of debt in capital structure (b): 46.8% Star's estimated cost of debt (e): 6.9% Star's estimated after-tax cost of debt: 4.5% 4.5% 4.5% 4.5% -------------------------------------- Star's weighted average cost of capital range (f): 6.8% 7.0% 7.2% Discounted Cash Flow Analysis Star Gas - Pro Forma Pro Forma Weighted Average Cost of Capital Derivation ($ in millions)
- ---------------------------------------------------------------------------------------------------------------------------------- Total Implied Total Total Market Unit Total Market Debt/ Debt as % Un- Levered Val. Debt Price at Units Value of Total of Total levered Comparable Company Beta (a) (Bk = Mkt) (10/14/98) Out. (Mil) Equity Equity Capital Beta - ---------------------------------------------------------------------------------------------------------------------------------- AmeriGas Partners, L.P. 0.42 $711.1 $24.125 41.9 $1,031.2 69.0% 40.8% 0.249 Cornerstone Propane Partners, L.P. 0.45 240.9 18.000 19.9 365.2 66.0% 39.8% 0.271 Ferrellgas Partners, L.P. 0.46 504.1 20.000 31.3 638.6 78.9% 44.1% 0.257 Heritage Propane Partners, L.P. 0.42 177.8 20.813 8.5 180.0 98.8% 49.7% 0.211 National Propane Partners, L.P. 0.61 145.5 9.438 11.2 108.2 134.5% 57.4% 0.260 Star Gas Partners, L.P. 0.39 109.8 19.563 6.3 124.9 87.9% 46.8% 0.208 Suburban Propane Partners, L.P. 0.40 427.9 19.625 28.7 575.3 74.4% 42.7% 0.229 Comparable group's average unlevered beta: 0.24 ------------------------------------------- Pro forma debt - to - equity ratio (b): 113.5% Pro forma capitalization - at market (b) Pro forma debt as a percent of total Total debt $313.9 53.2% capital (b): 53.2% Total equity 276.5 46.8% Comparable group's beta relevered for ------ ----- Pro Forma capital structure 0.418 $590.5 100.0% ====== -------------------------------------------- (a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the number of weeks available, which may be less than 143) adjusted beta relative to the S&P 500 index. (b) Market value of debt is assumed to equal book value. See page C-6 for equity calculation. (c) Ten-Year Treasury rate on October 14, 1998. (d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7% minus the risk-free rate. (e) Based on Pro forma debt structure. (f) Calculation based upon use of the Capital Asset Pricing Model (CAPM). Page H-9
Derivation of Weighted Average Cost of Capital: Market Risk Premium Range (d) - ----------------------------------------------- ----------------------------- Pro forma theoretical levered beta: 0.418 11.3% 12.3% 13.3% Assumed % of equity in Pro forma capital ----------------------------- structure (b): 46.8% Risk - free rate of return (c): 4.6% Pro forma cost of equity range (at various market risk premiums): 9.3% 9.8% 10.2% Pro forma assumed tax rate: 35.0% ===== ===== ===== Assumed % of debt in capital structure (b): 53.2% Pro forma estimated cost of debt (e): 8.6% Pro forma estimated after - tax cost of debt: 5.6% 5.6% 5.6% 5.6% ----------------------------- Pro forma weighted average cost of capital range (f): 7.3% 7.5% 7.7% - --------------------------------------------------------------- ----------------------------- COMPARABLE TRANSACTIONS ANALYSIS FIRM VALUATION [_] A.G. Edwards noted that public disclosure regarding transactions in the retail home heating oil distribution industry was extremely limited. [_] A.G. Edwards analyzed the financial terms related to divestitures by Petro of certain of its retail home heating oil branches and compared them to the implied multiples of the aggregate purchase price of Petro's heating oil assets. [_] Petro has sold three branches for an average EBITDA multiple of 9.0x. [_] A.G. Edwards calculated the purchase price of Petro's heating oil assets and calculated multiples based on Petro's EBITDAs. ======================================================================== PURCHASE PRICE OF HEATING OIL ASSETS ------------------------------------ Equity purchase price of heating oil assets including CUs (see page C-5) $25,549 Cost of Debt to be Redeemed ($206,250 + $2,844 premium) 209,094 Cost of Debt to be Assumed 69,646 Cost of Preferred stock at Redemption Value 31,767 Consent Fees 2,110 Transaction Fees 19,343 --------- Aggregate purchase price of heating oil assets $ 357,509 ========= _______________________________________ (a) Calculated as gross profit minus SG&A expense and direct delivery expense. Page I-1
Multiples ---------------------------------- Multiples Notes -------------- ---------------------------------------- 1997 Normalized EBITDA (a) 43,040 8.3 x As a multiple of aggregate transaction value Normalized 1998 EBITDA budget (a) 46,900 7.6 x As a multiple of aggregate transaction value 1999 Projected EBITDA (a) 48,706 7.3 x As a multiple of aggregate transaction value -------------- PUBLIC COMPANY ANALYSIS [__] A.G. Edwards compared certain financial and market information of Star Gas on a historical and pro forma basis to that of certain public propane master limited partnerships which A.G. Edwards deemed relevant for the purposes of this analysis. In addition to Star Gas, A.G. Edwards reviewed the trading multiples from a total of six master limited partnerships. [__] The selected propane master limited partnerships are as follows: - AmeriGas Partners, L.P. - Heritage Propane Partners, L.P. - Cornerstone Propane Partners, L.P. - National Propane Partners, L.P. - Ferrellgas Partners, L.P. - Suburban Propane Partners, L.P. [__] No company used in the analysis is identical to Star Gas. (a) Public comparable companies include: APU, CNO, FGP,HPG, NPL AND SPH. (b) Firm value/adjusted for actual 1998 budget EBITDA. (c) Equity market cap/adjusted for actual 1998 budget EBITDA. (d) Adjusted for actual 1998 budget. Page J-1
---------------------------------------------------------------------------------------------------- PUBLIC COMPARABLE COMPANIES (a) ---------------------------------------------------------------------------------------------------- PUBLIC PUBLIC PRO FORMA COMPANY COMPANY STAR STAR MEDIANS RANGES ---------------------------------------------------------------------------------------------------- Yield 11.2% 11.8% 10.1% 9.1% to 22.3% Firm value/LTM EBITDA 12.5x (b) 10.0x (b) 11.6x 9.0x to 12.7x Firm value/1999E EBITDA 9.6x 7.7x 9.2x 8.4x to 11.1x Equity Market Cap/LTM DCF 15.4x (c) 12.5x (c) 13.4x 8.1x to 15.3x Equity Market Cap/1999E DCF 9.6x 7.4x 9.8x 4.9x to 12.2x LTM common unit coverage 1.0x (d) 0.9x (d) 1.5x 0.6x to 1.6x 1999E common unit coverage 1.5x 1.5x 2.1x 1.1x to 2.3x LTM total unit coverage 0.6x (d) 0.7x (d) 0.7x 0.4x to 1.2x 1999E total unit coverage 0.9x 1.1x 1.0x 0.7x to 1.2x --------------------------------------------------------------------------------------------------- Public Company Analysis ($ in millions, except per unit data) - ------------------------------------------------------- 1999 estimates per A.G. Edwards' research, except for Star and Pro Forma. 1999 estimates for National Propane from Merrill Lynch research report dated July 29, 1998. Implied Firm Value equals common, subordinated and GP units multiplied by the market price of common units plus debt, less cash. (a) Pro Forma for the Pearl Gas acquisition and the common unit offering. (b) For Star and Pro Forma only, LTM DCF figures are adjusted for actual 1998 budget DCF estimates. (c) Financial information pro forma for common unit offering. Maintenance capital expenditures assumed to be 8% of EBITDA due to lack of disclosure. (d) Maintenance capital expenditures assumed to be 8% of EBITDA due to lack of disclosure. (e) Financial figures exclude $5.1 million gain from sale of minority interest. (f) Calculated as: (10,841 common units X $19,563)+(2,767 senior subordinated units X $18.52)+ (857 junior subordinated and GP units X $15.41). (g) $276.5 in equity plus $313.9 pro forma debt, less $21.9 cash and cash collateral. Page J-2
- ------------------------------------------------------------------------------------------------------------------------ Closing Implied Price Market Implied Common on Value Firm Distribution Units/ Company Ticker (10/14/98) of Equity Value per Unit Yield Total Units - ------------------------------------------------------------------------------------------------------------------------ Star Gas Partners, L.P. (a) SGU $19.563 $ 124.9 $ 234.1 $2.20 11.2% 60.5% AmeriGas Partners, L.P. APU 24.125 1,031.2 1,739.4 2.20 9.1% 52.8% Cornerstone Propane Partners, L.P. (c) CNO 18.000 365.2 596.7 2.16 12.0% 66.8% Ferrellgas Partners, L.P. (d) FGP 20.000 638.6 1,131.2 2.00 10.0% 47.0% Heritage Propane Partners, L.P. HPG 20.813 180.0 354.6 2.00 9.6% 56.3% National Propane Partners, L.P. NPL 9.438 108.2 250.9 2.10 22.3% 59.6% Suburban Propane Partners, L.P. (c) SPH 19.625 575.3 922.5 2.00 10.2% 75.1% - ------------------------------------------------------------------------------------------------------------------------ Mean 12.2% 59.6% Median 10.1% 58.0% - ------------------------------------------------------------------------------------------------------------------------ Pro Forma $19.563 $276.5 (f) $568.5 (g) $2.30 11.8% 74.9% LTM Common LTM Total FY99E FY99E Common FY99E Total Company Unit Coverage Unit Coverage DCF/Unit Unit Coverage Unit Coverage - -------------------------------------------------------------------------------------------------------------------------------- Star Gas Partners, L.P. 1.0x (b) 0.6x (h) $2.02 1.5x 0.9x AmeriGas Partners, L.P. 1.4x 0.8x 2.39 2.1x 1.1x Cornerstone Propane Partners, L.P. 0.8x 0.6x 1.51 1.1x 0.7x Ferrellgas Partners, L.P. 1.5x 0.7x 2.15 2.3x 1.1x Heritage Propane Partners, L.P. 1.5x 0.8x 2.38 2.2x 1.2x National Propane Partners, L.P. 0.6x 0.4x 1.87 NA 0.9x Suburban Propane Partners, L.P. 1.6x 1.2x 1.98 1.3x 1.0x - -------------------------------------------------------------------------------------------------------------------------------- Mean 1.3x 0.7x 1.8x 1.0x Median 1.5x 0.7x 2.1x 1.0x - -------------------------------------------------------------------------------------------------------------------------------- Pro Forma 0.9x (b) 0.7x (b) 2.60 1.5x 1.1x PUBLIC COMPANY ANALYSIS ($ IN MILLIONS, EXCEPT PER UNIT DATA) (continued) ______________________________________________________________________________ EBITDA is defined as net income (loss) before extraordinary items plus interest, income taxes, depreciation and amortization, impairment expense, and other non-recurring and non-operating items. (a) For Star and Pro forma only, LTM figures use adjusted for actual 1998 budget estimates. Page J-3
- -------------------------------------------------------------------------------- LONG TERM LTM FIRM VALUE/ FIRM VALUE/ EQUITY EQUITY DEBT/ EBITDA/ LTM 1999E MARKET CAP/ MARKET CAP/ FIRM VALUE INT. EXP. EBITDA EBITDA LTM DCF 1999E DCF ------------------------------------------------------------------------------------------- STAR GAS PARTNERS, L.P. 44.8% 2.4x (a) 12.5x (a) 9.6x 15.4x (a) 9.6x AmeriGas Partners, L.P. 39.9% 2.2x 11.8x 9.9x 14.8x 10.4x Cornerstone Propane Partners, L.P. 39.7% 2.4x 12.7x 11.1x 15.3x 12.2x Ferrellgas Partners, L.P. 44.1% 2.1x 11.4x 9.0x 14.2x 9.5x Heritage Propane Partners, L.P. 49.8% 2.6x 9.7x 9.0x 12.6x 8.8x National Propane Partners, L.P. 55.2% 2.6x 12.7x 9.3x 12.0x 4.9x Suburban Propane Partners, L.P. 46.4% 3.3x 9.0x 8.4x 8.1x 10.1x - --------------------------------------------------------------------------------------------------------------------------- MEAN 45.8% 2.6x 11.2x 9.5x 12.9x 9.3x MEDIAN 45.2% 2.5x 11.6x 9.2x 13.4x 9.8x - --------------------------------------------------------------------------------------------------------------------------- PRO FORMA 55.2% 2.0x (a) 10.0x (a) 7.7x 12.5x (a) 7.4x PUBLIC COMPANY DESCRIPTIONS AMERIGAS PARTNERS, L.P. AmeriGas Partners operates the largest retail propane distribution business in the U.S., serving approximately 968,000 residential, commercial, industrial, agricultural, and motor-fuel customers in 45 states. AmeriGas Partners also sells propane-related supplies and equipment, including home appliances. The company owns or leases a fleet of about 385 transport trucks, 680 railroad tank cars, and 2,300 bobtail and rack trucks. It also owns or leases propane-storage facilities in Arizona and Rhode Island. AmeriGas Propane, a wholly owned subsidiary of UGI Corp., owns 58% of AmeriGas Partners. [GRAPH APPEARS HERE] CORNERSTONE PROPANE Cornerstone Propane Partners, L.P. distributes PARTNERS, L.P. propane for residential, commercial, industrial, agricultural and other retail uses; markets and distributes propane and natural gas liquids; services propane heating systems and appliances; and sells propane-related supplies, appliances and other equipment. It is the fifth largest retail marketer of propane in the U.S. in terms of volume. The partnership's operations are concentrated in the east coast, south-central and west coast regions of the U.S. [GRAPH APPEARS HERE] Page J-4 PUBLIC COMPANY DESCRIPTIONS (continued) FERRELLGAS PARTNERS, L.P. Ferrellgas is the second largest U.S. distributor of propane serving more than 800,000 residential and commercial customers. The company also engages in propane/natural gas trading, wholesale propane marketing, and chemical feedstock marketing. It markets its products primarily in the Midwest, the Great Lakes area, and the Southeast. With a delivery fleet of approximately 4,000 vehicles, Ferrellgas sells almost 700 million gallons of fuel annually to its retail customers, which represents about 8% of all retail propane bought in the U.S. The company has acquired more than 100 companies in 11 years. [GRAPH APPEARS HERE] HERITAGE PROPANE Heritage Propane Partners distributes propane PARTNERS, L.P. to more than 220,000 residential, commercial, industrial, and agricultural customers. The propane is used primarily for heating, drying, cooking, as fuel for engines, as a cutting gas for mining operations, and for curing tobacco. The company's retail operations distribute propane to customers in 23 states in the western, southeastern, and northeastern U.S. The company also distributes wholesale propane and sells, installs, and repairs propane-related equipment. Heritage has acquired 40 retail propane operations since 1989, bringing annual propane sales to over 125 million gallons. [GRAPH APPEARS HERE] Page J-5 PUBLIC COMPANY DESCRIPTIONS (continued) NATIONAL PROPANE PARTNERS, L.P. National Propane L.P. markets propane on a retail basis to residential, commercial, industrial and agricultural customers and dealers in 25 states; and also sells propane-related supplies and equipment, including home and commercial appliances. It is the sixth largest retail marketer of propane in the U.S. in terms of volume, supplying approximately 250,000 active retail and wholesale customers in 25 states through 166 service centers located in 24 states. Operations are concentrated in the Midwest, Northeast, Southeast and Southwest regions of the U.S. [GRAPH APPEARS HERE] SUBURBAN PROPANE PARTNERS, L.P. Suburban Propane Partners markets and distributes propane to residential, commercial, industrial and agricultural customers through a retail distribution network consisting of 352 district locations in 41 states. The company, the third largest retail marketer of propane in the U.S., serves over 730,000 active customers primarily located in the east and west coast regions of the country. Suburban Propane also sells, installs and services equipment related to its propane distribution business, including heating and cooking appliances and, at some locations, propane fuel systems. [GRAPH APPEARS HERE] Page J-6 TRANSACTIONS SUMMARY AND ASSUMPTIONS (In thousands except per share and per unit data)
- ------------------------------------------------------------------------------------------------------------------------------------ SUMMARY CASH FLOW AND COVERAGE ANALYSIS - ------------------------------------------------------------------------------------------------------------------------------------ ($ on per Unit basis) Estimated Normalized Projected ------------------------------------------------------------ 1998 1998 1999 2000 2001 2002 ----------- ------------ ----------- ------------ ----------- ------------ STAR STAND ALONE EBITDA $ 18,781 $ 22,135 $ 24,491 $ 26,029 $ 27,566 $ 29,104 Interest Expense (7,922) (7,662) (8,811) (9,377) (9,878) (10,380) Maintenance CapEx (2,710) (2,710) (2,632) (2,679) (2,728) (2,777) Other (25) (25) (25) (25) (25) (25) ----------- ------------ ----------- ------------ ----------- ------------ Distributable Cash Flow $ 8,124 $ 11,738 $ 13,023 $ 13,948 $ 14,935 $ 15,922 =========== ============ =========== ============ =========== ============ DCF per Common Unit $ 2.11 $ 3.04 $ 3.32 $ 3.42 $ 3.51 $ 3.62 DCF / Common Unit MQD 0.96 x 1.38 x 1.51 x 1.55 x 1.60 x 1.65 x DCF per Total Unit $ 1.27 $ 1.84 $ 2.02 $ 2.11 $ 2.20 $ 2.30 DCF / Total MQD 0.58 x 0.84 x 0.92 x 0.96 x 1.00 x 1.04 x Indicated Distribution per Common Unit $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 STAR PRO FORMA EBITDA ------ Star $ 18,781 $ 22,135 $ 24,491 $ 26,029 $ 27,566 $ 29,104 Petro 37,650 46,900 48,706 51,196 53,390 55,385 Synergies 500 500 500 500 500 500 ----------- ------------ ----------- ------------ ----------- ------------ Total 56,911 69,535 73,697 77,725 81,456 84,989 ----------- ------------ ----------- ------------ ----------- ------------ Interest Expense (28,307) (28,253) (29,468) (31,549) (33,017) (34,202) Maintenance CapEx (5,486) (5,486) (5,632) (5,739) (5,849) (5,961) Other (1,025) (1,025) (1,025) (1,025) (1,025) (1,025) ----------- ------------ ----------- ------------ ----------- ------------ Distributable Cash Flow 22,093 34,771 37,572 39,412 41,565 43,801 =========== ============ =========== ============ =========== ============ DCF per Common Unit $ 2.04 $ 3.21 $ 3.47 $ 3.54 $ 3.51 $ 3.45 DCF per Sr. Sub & Common Unit $ 1.62 $ 2.56 $ 2.76 $ 2.78 $ 2.73 $ 2.73 DCF per Total Unit $ 1.53 $ 2.40 $ 2.60 $ 2.62 $ 2.59 $ 2.59 Indicated Distribution per Common $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 Unit - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ACCRETION/DILUTION - ------------------------------------------------------------------------------------------------------------------------------------ DCF per Unit - Star Stand Alone $ 1.27 $ 1.84 $ 2.02 $ 2.11 $ 2.20 $ 2.30 DCF per Unit - Pro Forma $ 1.53 $ 2.40 $ 2.60 $ 2.62 $ 2.59 $ 2.59 - ------------------------------------------------------------------------------------------------------------------------------------ Accretive ($/Unit) $ 0.25 $ 0.56 $ 0.58 $ 0.51 $ 0.39 $ 0.29 Accretive (%) 20.0% 30.7% 28.6% 24.1% 17.5% 12.6% - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma Heating Oil DCF per Unit $ 3.06 $ 3.02 $ 2.87 $ 2.79 DPUs Issued as Sr Sub Units at Beg of Year - - - 303 303 - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma Credit Analysis - ------------------------------------------------------------------------------------------------------------------------------------ EBITDA/Interest 2.01 x 2.46 x 2.50 x 2.46 x 2.47 x 2.48 x LT Debt/EBITDA 5.43 4.45 4.68 4.73 4.72 4.71 LT Debt/EBITDA (Pro Forma for Full-Year Acquisitions) 5.27 4.32 4.44 4.50 4.50 4.50 # of Units Issued to Meet Debt Covenant - - - 574 846 874 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma Coverage Ratios - ------------------------------------------------------------------------------------------------------------------------------------ MQD Coverage ------------ Common Unit 0.89 x 1.39 x 1.51 x 1.54 x 1.53 x 1.50 x Senior Subordinated Units 0.71 1.11 1.20 1.21 1.19 1.18 Total Unit 0.66 1.05 1.13 1.14 1.12 1.12 Indicated Distribution Coverage ------------------------------- Common Unit 0.89 x 1.39 x 1.51 x 1.54 x 1.53 x 1.50 x Senior Subordinated Unit 0.71 1.11 1.20 1.21 1.19 1.18 Total Unit 0.66 1.05 1.13 1.14 1.12 1.12 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------- CURRENT MODEL ASSUMPTIONS - -------------------------------------------------------------------------------------------------------------
Scenario Version 30-yrs, $30mm @ 4.75x mid-year, $.01 '99, $.005 '00-'01, flat att. Petro Acqs/yr $30,000 Star Acqs/yr $10,000 G.P. Interest Subordinate Price per Petro Share $ 2.42 - -------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------- EQUITY RESTRUCTURING - ------------------------------------------------------------------------------------------------------------- PETRO -------------------------------------- PUBLIC INSIDERS -------- ---------- Securities Offered Sr Sub Sub & GP Insentive Rights 76% 24% Value Offered $ 2.42 $ 2.45 Current Market $ 1.31 $ 1.31 Premium to Market 84.1% 86.7% Implied Value of Security Offered $18.52 $15.41 Security Offered per Share 0.13064 0.15920 Total Shares 14,609 11,953 Insiders to Receive Sr. Sub 6,572 (6,572) Shares to Be Converted 21,181 5,382 Units Offered 2,767 857 DPUs Offered 909 Implied Value of GP/Unit $15.41 - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- SOURCES AND USES OF FUNDS - -------------------------------------------------------------------------------------------------------------
Sources: Uses: Excess Cash on Hand $841 Repay Debt Principal $206,250 New Sar Debt 120,000 Redeem Preferred 31,767 New MLP Equity 139,363 Premium on Redemption/ New MLP E Equity - Exchange/Defeasance 2,844 Equity for Contest Fees 2,110 Consent Fees 2,110 Cash Balance 0 Transaction Fees 19,343 --------- --------- $262,314 $262,314 ========= ========= - -------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------- FINANCING SUMMARY - ------------------------------------------------------------------------------------------------------------- AMOUNT RATE UNIT PRICE --------- ---------- ---------- New Common Raised $139,363 $20.26 New Debt Raised 120,000 9.00% - ------------------------------------------------------------------------------------------------------------- Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 1 of 19
- ------------------------------------------------------------------------------------------------------------- UNITS OUTSTANDING - ------------------------------------------------------------------------------------------------------------- CURRENT PRO FORMA ----------------------------- ----------------------------- UNITS % UNITS % ------------- ------------- ------------- ------------- Existing Common 3,858 60.5% 3,858 26.7% New Common 0 0.0% 6,983 48.5% New Common for Acquisitions 0 0.0% 0 0.0% Common to Petro Shareholders 0 0.0% 0 0.0% Sr Sub (Petro S/Hs) 0 0.0% 2,767 19.1% Existing Sub 2,395 37.5% 567 3.9% Implied GP 128 2.0% 289 2.0% ------------- ------------- ------------- ------------- Total Units 6,382 100.0% 14,465 100.0% ============= ============= ============= ============= - ------------------------------------------------------------------------------------------------------------- TRANSACTION SUMMARY AND ASSUMPTIONS (in thousands except per share and per unit data) 30-yr.; $30mm @ 4.75x mid-year; $.01 '99, $.005 '00-'01 flat att. $10,000 Star Acqs/yr $30,000 Petro Acqs/yr G.P. Interest Subordinate $2.42 /Petro Share OPERATING ASSUMPTIONS - --------------------- PETRO STAR STAR NORMAL ----- ---- ----------- Normalized Maintenance CapEx $2,776 $2,710 $2,710 Maintenance CapEx Life 15 yrs 15 yrs Growth CapEx Life 6.5 yrs 15 yrs Marginal Tax Rate 33.0% 33.0% Deferred Tax Percent 0.0% Required Cash at Beginning for Initial Distribution 7,956 Minimum Star Stand Alone Cash Balance $500 Minimum Star Pro Forma Cash Balance $10,142 Consolidation Savings $500 Annual Bank Fees $692 $222 Last 20 Days Average Stock Price @ 10/14 $1.31 $20.26 Annual Transaction/Deal Expenses $450 Debt/EBITDA Bank Covenant Ratio 4.5x Issue Equity to Meet Bank Debt Covenants (Y/N)? yes DEBT RESTRUCTURING - ------------------ PROJECTED 12/31/97 PRIVATES: % TENDERED PRINCIPAL STRATEGY PRICE ---------- --------- -------- ----- 11.96% Sr Notes 100.0% 60,000 Exchange 105.2% 14.10% Sr Notes 100.0% 3,100 Exchange 105.2% 14.10% Sub Notes 100.0% 3,100 Exchange 105.2% 14.33% Pfd Stock 100.0% 4,167 Neg. Tender 100.0% PUBLICS: 10.13% Sub Notes & Sr Notes 100.0% 50,000 Neg. Tender 100.0% 9.38% Sub Notes & Sr Notes 100.0% 75,000 Tender 100.0% 12.25% Sub Notes & Sr Notes 100.0% 81,250 Tender 103.5% 12.88% Pfd Stock 100.0% 30,000 Tender 92.0% NEW SECURITY ASSUMPTIONS - ------------------------ New MLP Equity - -------------- Gross Proceeds $139,363 Common Units for Consent Fee 2,110 Common Units to Enron -- -------- Total New Equity Value $141,473 Common Units to Public 6,983 units New Star Debt ------------- Gross Proceeds 120,000 Gross Spread % 5.0% Gross Spread % 3.0% Gross Spread $ $6,968 Gross Spread $ $3,600 Offering Price/Share (current market price) $20.26 Coupon 9.00% Main Model Oct-7 Rev 1 with new Star & AGE 30 yr Petro Projections and tax effect ACQUISITION ASSUMPTIONS - ----------------------- (1) Includes 2.0% G.P. Interest. TRANSACTION COSTS SUMMARY - ------------------------- New MLP Equity $6,968 New Star Debt 3,600 Fairness Opinion 1,000 Financial Advisory 1,500 Exchange Fees on Public Petro Debt/Preferred 1,375 Legal Fees 2,500 Printing 1,000 Accounting Fees 250 Other: - ------ Environmental 350 Rating Agencies 100 Roadshow 200 Asset Appraisal 250 Solicitation expenses 100 Other Bank Fees 150 ------- $19,343 ======= HEATING OIL DPU TRIGGER - ----------------------- DCF/Unit: % Convert $2.90 33.3% CONSENT FEE CALCULATION - ----------------------- % of Petro Stock 3.0% New Petro Shares 797 Exchange Ratio 7.65x ------ New Common Units 104 Common Unit Price $20.26 ------ Implied Value $2,110 ====== Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 2 of 19
Petro Multiple 1998 1999 2000 2001 2002 - ----- -------- ------ ------ ------ ------ ------ Amount 4.75x $0 $30,000 $30,000 $30,000 $30,000 Timing End Mid Mid Mid Mid % EBITDA 0.0% 50.0% 50.0% 50.0% 50.0% Amount 4.75x $0 Timing Beg % EBITDA in Initial Yr. 100.0% Units Issued at: Common $22.00 Sr Sub $18.52 Star Stand-Alone - ---------------- Weather 30 year Amount 6.50x $10,000 $10,000 $10,000 $10,000 $10,000 Timing End Mid Mid Mid Mid % EBITDA in Initial Year 0.0% 50.0% 50.0% 50.0% 50.0% Amount Financed with Equity $600 $2,948 $4,127 $3,521 $2,853 New Units @: 27 134 188 160 130 Units Issued at Price of: $22.00 $22.00 $22.00 $22.00 $22.00 Amount 6.50x $0 Timing Beg % EBITDA in Initial Year 100.0% EXCHANGE ASSUMPTIONS - -------------------- GETS NEW UNITS OF: EXISTING -------------------------------------------------- SHAREHOLDERS OF: SHARES COMMON SR SUB JNR SUB G.P. DPUs(1) - ---------------- ---------- ------ ------ ------- ------ ------- Public Class A Shareholders 14,609 0 1,909 0 0 479 Insider Class B Shares 11 0 0 0 0 Insider Class C Shareholders 0 Class A & C Shares to Receive Jr Sub & GP 5,382 0 0 567 289 215 Class A Shares to Receive Sr Sub 6,572 0 859 0 0 215 ------- --- ----- --- --- --- 26,574 0 2,767 567 289 909 E Sr. Sub -- -- ----- --- Total 2,767 909 ===== === - ------------ (1) Reflects distributions for respective Unitholder class. All DPUs are issued as Senior Subordinated Units but are distributed pro rata to all Petro shareholders. Consequently, the Subordinated Unitholder class includes DPUs which have been issued as Senior Subordinated Units. Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 3 of 19
------------------------------------------------------------------------- Summary 30-yr; $30mm @ 4.75x mid year; $.01 `99, $.005 `00-`01, flat std. Distributions $10,000 Star Acqs/yr $30,000 Petro Acqs/yr G.P. Interest Subordinate $2.42 / Petro Share ------------------------------------------------------------------------- Projected --------------------------------------------------------------- Unitholder Class (1) 1998 1999 2000 2001 2002 ------------- --------------- -------------- -------------- -------------- Common Unitholders MQD $24,936 $25,596 $27,229 $29,207 Incentive Distributions - - - - --------------- -------------- -------------- -------------- Total $24,936 $25,596 $27,229 $29,207 E Capital Existing Sr. Sub Units - - - - Number of DPUs Issued as Sr Sub Units - - - - New Sr. Sub Units - - - - --------------- -------------- -------------- -------------- Total Sr. Sub Units - - - - Existing Common - - - - New Common - - - - --------------- -------------- -------------- -------------- Total Common - - - - Common MQD - - - - Common Incentive Distributions - - - - Sr. Sub MQD - - - - Sr. Sub Incentive Distributions - - - - --------------- -------------- -------------- -------------- Total Distributions Senior Subordinated Unitholders (1) - 237 237 - Number of DPUs Issued on Sr. Sub Units Base MQD $ 6,364 $ 6,378 $ 6,392 $ 6,392 Incremental MQD from DPUs Issued as Sr. Sub Units - 545 1,089 1,089 Incentive Distributions - - - - Incremental Incentive Distributions from DPUs Issued as Sr. Sub Units - - - - --------------- -------------- -------------- -------------- Total $ 6,364 $ 6,923 $ 7,481 $ 7,481 Subordinated Unitholders (1) Number of DPUs Issued as Sr. Sub Units - 60 60 - Base MQD $1,305 $ 1,305 $ 1,305 $ 1,305 Incremental MQD from DPUs Issued as Sr. Sub Units - 138 277 277 Incentive Distributions - - - - Incremental Incentive Distributions from DPUs Issued as Sr. Sub Units - - - - --------------- -------------- -------------- -------------- Total $1,305 $ 1,443 $ 1,582 $ 1,582 General Partner Number of DPUs Issued on Sr. Sub Units - - - - Base MQD $665 $651 $638 $638 Incremental MQD from DPUs Issued as Sr. Sub Units - 14 28 28 Incentive Distributions - - - - Incremental Incentive Distributions from DPUs Issued as Sr. Sub Units - - - - --------------- -------------- -------------- -------------- Total $665 $665 $665 $665 Unitholder Class Total Common Unitholders $24,936 $25,596 $27,279 $29,207 Senior Subordinated Unitholders $ 6,364 $ 6,923 $ 7,481 $ 7,481 Subordinated Unitholders 1,305 1,443 1,582 1,582 General Partner 665 665 665 665 --------------- -------------- -------------- -------------- Total $33,270 $34,628 $36,957 $38,935 Distributions to DPUs converted to Senior Subordinated Units MQD $ 0 $ 697 $ 1,394 $ 1,394 Incentive Distributions - - - - --------------- -------------- -------------- -------------- Total - 697 1,394 1,394 check - - - - STAR STAND ALONE DISTRIBUTION ASSUMPTIONS - -----------------------------------------------------------------------------
TRANSACTION SUMMARY AND ASSUMPTIONS (in thousands except per share and per unit data) 30-yr; $30mm @ 4.75x mid-year;$.01 '99,$.005 '00-'O1, flat att. RECAPITALIZATION ASSUMPTIONS - ------------------------------------------------------------------------------------------------------------------------------------ (D)EFEASE (T)ENDER (R)EDEEM PRINCIPAL LOCKUP (E)XCHANGE AS OF MATURITY PERIOD COUPON/ SINKING FUND PAYMENT % RED/ --------------- -------------------- PETRO INSTRUMENTS: PREMIUM (N)OTHING 9/30/98 M/D YR DIVIDEND PAYMENT YEAR START EXCHANGED - ------------------ ------- ---------- ---------- --------------- -------- -------------------- --------- 11.96% Sr Notes e $ 60,000 v 1-Oct 0 11.960% $ 0 0 100.0% 14.10% Sr Notes e 3,100 v 15-Jan 2001 14.100% - 1997 100.0% 14.10% Sub Notes e 3,100 v 15-Jan 2001 14.100% - 1997 100.0% 10.13% Sub Notes & Sr Notes 0.0% t 50,000 v 1-Apr 2003 10.130% - 100.0% 9.38% Sub Notes & Sr Notes 0.0% t 75,000 v 1-Feb 2006 9.375% - 100.0% 12.25% Sub Notes & Sr Notes 0.0% t 81,250 v 1-Feb 2005 12.250% - 100.0% 8.00% Acq. & Other Notes Pay n 14,508 v 0 8.000% - 0 0.0% 8.25% Existing Credit Facility n 0 v 1998 8.250% - 0.0% 0.00% Other Notes n 0 v NA NA 0.000% 0 NA 0.0% -------- $286,958 PFRD STOCK: - ----------- 14.33% Pfd Stock t 4,167 v 1-Aug 1999 14.330% 4,167 1997 100.0% 12.88% Pfd Stock 0.0% t 30,000 v 15-Feb 2009 12.875% 0 100.0% 0.00% n 0 0.000% -------- $ 34,167 -------- Total Petro $321,125 -------- STAR INSTRUMENTS: - ------------------ 8.04% 1st Mortgage Notes 0.07 n 85,000 v NA NA 8.040% - 0 0.0% 7.25% WC Revolver 0.00 n 4,785 NA NA 7.250% - NA 0.0% 7.25% Acquisition Facility 0.01 n 9,000 v NA NA 7.250% - NA 0.0% 9.00% New Debt n 120,000 v NA NA 9.000% 0 NA 0.0% 7.17% Pearl Notes 0.01 n 11,000 NA NA 7.170% 0 NA 0.0% -------- 8.21% $218,785 -------- Total Combined $539,910 ======== RED/EXCHG DEFEASANCE RED/EXCHG/DEFEASE EXCHANGED ------------------------- PETRO INSTRUMENTS: PRICE PRICE VALUE PREMIUM INT RATE SECURITY TYPE - ------------------ --------- ---------- ----------- --------- --------- ------------- 11.96% Sr Notes 105.2% $63,126 $ 0 9.0% Sr Notes 14.10% Sr Notes 105.2% 3,260 - 11.5% Sr Notes 14.10% Sub Notes 105.2% 3,260 - 11.5% Sub Notes 10.13% Sub Notes & Sr Notes 100.0% 106.2% 50,000 - Sub Notes & Sr Notes 9.38% Sub Notes & Sr Notes 100.0% 108.2% 75,000 - Sub Notes & Sr Notes 12.25% Sub Notes & Sr Notes 103.5% 116.2% 84,094 2,844 Sub Notes & Sr Notes 8.00% Acq. & Other Notes Pay 100.0% - - Acq. & Other Notes Pay 8.25% Existing Credit Facility 100.0% - - Existing Credit Facility 0.00% Other Notes 0.0% - - 11.0% Other Notes ---------- $ 2,844 PFRD STOCK: - ----------- 14.33% Pfd Stock 100.0% 4,167 - Pfd Stock 12.88% Pfd Stock 92.0% 27,600 - Pfd Stock 0.00% - - ---------- $ 0 Total Petro ---------- $ 2,844 ---------- STAR INSTRUMENTS: - ------------------ 8.04% 1st Mortgage Notes 0.0% - - 1st Mortgage Notes 7.25% WC Revolver 0.0% - - WC Revolver 7.25% Acquisition Facility 0.0% - - Acquisition Facility 9.00% New Debt 0.0% - - New Notes 7.17% Pearl Notes 0.0% - - Pearl Notes ---------- $ 0 ---------- Total Combined $ 2,844 ---------- 2,843.75
Distribution ------------ Minimum Quarterly Distribution $ 2.20 First Target Distribution $ 2.42 Second Target Distribution $ 2.84 Third Target Distribution $ 3.70 Thereafter NM Target Distribution Level $ 2.20 Annual Distribution Increase $ 0.00 ------------ Standard Distributions Structure ("S") or Target ("T") t ------------ Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 4 of 19
STAR PRO FORMA DISTRIBUTION ASSUMPTIONS - ------------------------------------------------------------- Distribution ------------ Minimum Quarterly Distribution $ 2.30 First Target Distribution $ 2.42 Second Target Distribution $ 2.84 Third Target Distribution $ 3.70 Thereafter NM ---------------------------------------------------- 1998 1999 2000 2001 2002 Thereafter --------- -------- -------- -------- -------- Annual Indicated Distribution Increase $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 Target Indicated Distribution Level $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 ----------- Standard Distribution Structure ("S") or Target ("T") t ----------- - ---------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Pro Forma Opening Balance Sheet (In thousands except per share and per unit data) Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 5 of 19
Opening Balance Sheet Star Gas Petro Pro Forma -------- ----- ---------- ---------- Merger Star Gas 9/30/98 9/30/98 Adjustments 9/30/98 ---------- ---------- ----------- -------- Assets Cash $ 500 $ 9,642 $ 0 $ 10,142 Other Current Assets 15,376 71,498 - 86,874 -------- --------- -------- -------- Total Current Assets 15,876 81,140 - 97,016 PP&E and Intangibles, Net 161,292 106,695 - 267,987 Investments in Unconsolidated Affiliates - 1,582 (1,582) - Other Assets - 12,802 - 12,802 -------- --------- -------- -------- Total Assets 177,168 202,219 (1,582) 377,805 ======== ========= ======== Liabilities Current Liabilities 10,101 80,870 - 90,971 8.25% Existing Credit Facility 4,785 - - 4,785 Long Term Debt 105,000 286,958 (82,804) 309,154 Total Preferred Stock - 34,167 (34,167) - Other Liabilities 76 10,710 - 10,786 -------- --------- -------- -------- Total Liabilities 119,962 412,705 (116,971) 415,696 Common Shareholder's/Partner's Equity 57,206 (210,486) 115,389 (37,891) -------- --------- -------- -------- Total Liabilities and Equity Check $177,168 $202,219 ($ 1,582) $377,805 ======== ========= ======== 0 - PRO FORMA CAPITAL STRUCTURE Star Gas Petro -------- ----- ---------- ---------- % Not Merger Star Gas 9/30/98 9/30/98 Tendered Adjustments 9/30/98 ---------- ---------- -------- ----------- -------- DEBT: 8.04% 1st Mortgage Notes $ 85,000 $0 $ 0 $85,000 7.25% WC Revolver 4,785 - - 4,785 7.25% Acquisition Facility 9,000 - - 9,000 7.17% Pearl Notes 11,000 - - 11,000 11.96% Sr Notes - 60,000 100.0% (60,000) - 14.10% Sr Notes - 3,100 100.0% (3,100) - 14.10% Sub Notes - 3,100 100.0% (3,100) - 10.13% Sub Notes & Sr Notes - 50,000 100.0% (50,000) - 9.38% Sub Notes & Sr Notes - 75,000 100.0% (75,000) - 12.25% Sub Notes & Sr Notes - 81,250 100.0% (81,250) - 0.00% Other Notes - 0 - - 8.00% Acq. & Other Notes Pay - 14,508 - 14,508 8.25% Existing Credit Facility - 0 - - 9.00% Exchange Debt - - 63,126 65,126 11.50% Exchanged Debt 6,520 6,520 9.00% New Debt - - 120,000 120,000 -------- --------- -------- -------- Total L.T. Debt 109,785 286,958 (82,804) 313,939 -------- --------- -------- Preferred Stock 14.33% Pfd. Stock - 4,167 - (4,167) - 12.88% Pfd. Stock - 30,000 (30,000) - -------- --------- -------- -------- Total Preferred - 34,167 (34,167) - -------- --------- -------- Common Equity 57,206 (210,486) 115,389 (37,891) -------- --------- -------- Total Capital $166,991 $ 110,639 $276,048 ======== ========= ======== STAR GAS STAND ALONE INCOME STATEMENT (In thousands except per share and per unit data) Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 6 of 19
Estimated Normalized Projected --------------------------------------- 1998 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- ------- EBITDA $18,781 $22,133 $24,491 $26,029 $27,566 $29,104 Depreciation and Amortization 11,927 11,649 12,358 13,346 14,224 14,938 ------- ------- ------- ------- ------- ------- EBIT 6,854 10,486 12,133 12,683 13,342 14,166 Interest Expense (7,922) (7,662) (8,811) (9,377) (9,878) (10,380) Interest Income - - - - - - Other Income - - - - - - ------- ------- ------- ------- ------- ------- Income Before Taxes (1,068) 2,824 3,322 3,306 3,464 3,786 Current Income Taxes (25) (25) (25) (25) (25) (25) Deferred Income Taxes - - - - - - ------- ------- ------- ------- ------- ------- Net income Available to Common ($1,093) $ 2,799 $ 3,297 $ 3,281 $ 3,439 $ 3,761 ======= ======= ======= ======= ======= ======= STAR GAS STAND ALONE UNITS OUTSTANDING Common Units Beginning Balance 3,832 3,832 3,858 3,990 4,174 4,330 Issuance 27 27 131 184 157 127 Buyback 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Ending Balance 3,858 3,858 3,990 4,174 4,330 4,458 ------- ------- ------- ------- ------- ------- Average Common Units Outstanding 3,858 3,858 3,924 4,082 4,252 4,394 Subordinated Units Beginning Balance 2,396 2,396 2,396 2,396 2,396 2,396 Issuance 0 0 0 0 0 0 Buyback 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Ending Balance 2,396 2,396 2,396 2,396 2,396 2,396 ------- ------- ------- ------- ------- ------- Average Subordinated Units Outstanding 2,396 2,396 2,396 2,396 2,396 2,396 GP Implied Units Beginning Balance 127 127 128 130 134 137 Issuance 1 1 3 4 3 3 Buyback 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Ending Balance 128 128 130 134 137 140 ------- ------- ------- ------- ------- ------- Average Implied GP Units Outstanding 128 128 129 132 136 139 Total Units 6,382 6,382 6,516 6,704 6,864 6,993 ======= ======= ======= ======= ======= ======= Average Units Outstanding 6,382 6,382 6,449 6,610 6,784 6,929 ======= ======= ======= ======= ======= ======= Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 7 of 19
(In thousands except per share and per unit data) Estimated Projected ------------------------------------------- Star Gas Stand Alone Balance Sheet 1998 1999 2000 2001 2002 --------- -------- -------- -------- -------- Assets: Cash $ 500 $ 500 $ 500 $ 500 $ 500 Other Current Assets 15,376 18,447 19,274 20,101 20,928 -------- -------- -------- -------- -------- Total Current Assets 15,876 18,947 19,774 20,601 21,428 PP&E and Intangibles, Net 161,292 162,016 161,799 160,753 159,042 Other Assets - - - - - -------- -------- -------- -------- -------- Total Assets 177,168 180,963 181,573 181,354 180,470 ======== ======== ======== ======== ======== Liabilities: Current Liabilities - Excluding Working Capital Borrowing 10,101 13,172 13,999 14,826 15,653 Total Debt 109,785 118,453 125,370 132,288 139,207 Other Liabilities 76 76 76 76 76 -------- -------- -------- -------- -------- Total Liabilities 119,962 131,701 139,445 147,190 154,936 Partner's Equity 57,206 49,262 42,128 34,164 25,534 ======== -------- -------- -------- -------- Total Liabilities and Equity $177,168 $180,963 $181,573 $181,354 $180,470 ======== ======== ======== ======== ======== Check 0 0 0 0 0 Star Gas Stand Alone Cash Flow Statement Net Income $ 3,297 $ 3,281 $ 3,439 $ 3,761 Depreciation and Amortization 12,358 13,346 14,224 14,938 Deferred Taxes - - - - Other Income - - - - Other Assets/Liabilities - - - - Change in Working Capital 0 - (0) 0 -------- -------- -------- -------- Cash from Operations 15,655 16,627 17,663 18,699 -------- -------- -------- -------- Maintenance CapEx (2,632) (2,679) (2,728) (2,777) Internal Growth CapEx - - - - External Growth CapEx (10,000) (10,000) (10,000) (10,000) -------- -------- -------- -------- Cash from Investments (12,632) (12,679) (12,728) (12,777) -------- -------- -------- -------- Acquisition Borrowing 7,052 5,873 6,479 7,147 Remaining Distributions to Repay Debt (0) (0) (11) (678) Amortization of Mortgage Notes - - - - Borrowing to Repay Exisitng Debt - - - - Borrowing for Changes in WC (0) - 0 (0) Borrowing to Pay Full MQD 1,166 594 - - Change in Equity 2,949 4,127 3,521 2,853 Transaction/Deal Expenses (450) (450) (450) (450) Distributions (14,188) (14,542) (14,924) (15,243) -------- -------- -------- -------- Cash from Financing (3,473) (4,398) (5,385) (6,372) -------- -------- -------- -------- Net Cash Flow (450) (450) (450) (450) Initial Cash Balance 500 500 500 500 -------- -------- -------- -------- Cash Available for Paydown on WC Revolver and Acq. Facility 50 50 50 50 Minimum Cash Balance 500 500 500 500 Borrowing/(Paydown) on WC Revolver and Acq. Facility 450 450 450 450 -------- -------- -------- -------- Net Change in Cash - - - - -------- -------- -------- -------- Ending Cash Balance $ 500 $ 500 $ 500 $ 500 ======== ======== ======== ======== Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 8 of 19
(In thousands except per share and per unit data) Estimated Normalized Projected ---------------------------------- 1998 1998 1999 2000 2001 2002 --------- ---------- ---- ---- ---- ---- STAR GAS STAND ALONE EBITDA CALCULATION (See Tab 3: Cases) - ------------------------------------------------------------------------------------------------------------------------------- Year 1 Year 2 Year 3 Year 4 Year 5 EBITDA Growth Rate 17.9% 10.6% 6.3% 5.9% 5.6% - ------------------------------------------------------------------------------------------------------------------------------- Base EBITDA: Timing ------ End 1998 Mid 1999 Mid 2000 Mid 2001 Mid 2002 Mid 2003 Mid 2004 Mid 2005 ------- ------- ------- ------- ------- ------- Total EBITDA $18,781 $22,135 $24,491 $26,029 $27,566 $29,104 ======= ======= ======= ======= ======= ======= Pro Forma Full-Year EBITDA for Debt Covenant Analysis 18,781 22,135 25,260 26,798 28,335 29,873 STAR GAS STAND ALONE DEPRECIATION CALCULATION Existing Depreciation $11,927 $11,649 $11,649 $11,649 $11,649 $11,649 1998 Normal 2,710 Maintenance CapEx: 1998 2,710 $ 0 $ 0 $ 181 $ 181 $ 181 $ 181 Annual Growth 1.8% 1999 2,632 88 175 175 175 2000 2,679 89 179 179 2001 2,728 91 182 2002 2,777 93 Internal Growth CapEx 1998 0 - - - - - - Annual Growth: 0.0% 1999 0 - - - - 2000 0 - 0 0 2001 0 - 0 2002 0 - 2003 0 2004 0 2005 0 External Growth CapEx: 1998 10,000 - - 667 667 667 667 Annual Growth: 0.00/6 1999 10,000 333 667 667 667 2000 10,000 333 667 667 2001 10,000 333 667 2002 10,000 333 2003 10,000 2004 10,000 2005 10,000 ------- ------- ------- ------- ------- ------- Total Depreciation: $11,927 $11,649 $12,358 $13,346 $14,224 $14,938 ======= ======= ======= ======= ======= ======= Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 9 of 19
Star Gas Stand Alone Schedule (In thousands except per share and per unit share) Estimated Normalized Projected ---------------------------------------------------- 1998 1998 1999 2000 2001 2002 ---------- ------------ ------------ --------- -------- --------- 8.04% 1st Mortgage Notes Beginning Balance $ 85,000 $85,000 $ 85,000 $ 85,000 $85,000 $ 85,000 Borrowing 0 0 0 0 0 0 Amortization 0 0 0 0 0 0 ---------- ------------ ------------ --------- -------- --------- Ending Balance 85,000 85,000 85,000 85,000 85,000 85,000 Interest Payment 8.04% 6,834 6,834 6,834 6,834 6,834 6,834 Make-Whole Payment 0 0 0 0 0 0 7.17% Pearl Notes Beginning Balance $ 0 $ 0 $ 11,000 S11,000 $11,000 S11,000 Borrowing 11,000 11,000 0 0 0 0 Amortization 0 0 0 0 0 0 ---------- ------------ ------------ --------- -------- --------- Ending Balance 11,000 11,000 11,000 11,000 11,000 11,000 Interest Payment 7.17% 613 613 789 789 789 789 % of year Pearl Notes Outstanding 77.7% 77.7% 0 0 0 0 7.25% WC Revolver Beginning Balance - - $ 4,785 $ 4,785 $ 4,785 $ 4,785 Borrowing for Change in WC - - (0) 0 (0) Borrowing/(Payment) 4,785 4,785 0 0 0 0 ---------- ------------ ------------ --------- -------- --------- Ending Balance 4,785 4,785 4,785 4,785 4,785 4,795 Effective Avg WC Balance 3,490 (97) 0 14 0 14 Interest Payment 7.25% 253 (7) 0 1 0 1 7.25% Acquisition Facility Beginning Balance - $ 9,000 $ 17,668 $24,585 $ 31,503 External Acquisitions 9,400 9,400 7,052 5,873 6,479 7,147 External Acquisitions at Beginning of 1999 - - - - - - Internal Acquisitions (400) (400) - - - - Borrowing to Pay Full MQD - - 1,166 594 - - Borrowings to Repay - - - - - - Existing Debt - - - - - - Borrowings/(Payment) - - 450 450 450 450 Remaining Distributions to Repay Debt - - (0) (0) (11) (678) ---------- ------------ ------------ --------- -------- --------- Ending Balance 9,000 9,000 17,668 24,585 31,503 38,422 Interest Payment 7.25% 0 0 967 1,532 2,033 2,535 Total Debt Beginning Balance $ 85,000 $85,000 $109,785 $118,453 $125,370 $132,288 Amortization of Mortgage Notes - - - - - - Borrowing for Pearl Notes 11,000 11,000 - - - - Borrowing for Changes in WC - - (0) - 0 (0) Borrowing to Pay Full MQD - - 1,166 594 - - Acquisition Borrowing 9,000 9,000 7,052 5,873 6,479 7,147 Borrowing to Repay Existing Debt - - - - - - Remaining Distributions to Repay Debt - - (0) (0) (11) (678) Borrowing/(Payment) on WC Revolver and Acq. Facility 4,785 4,785 450 450 450 450 ---------- ------------ ------------ --------- -------- --------- Ending Balance $109,785 $109,785 $118,453 $125,370 $132,288 $139,207 ========== ============ ============ ========= ======== ========= Interest Expense Interest Expense $ 7,700 $ 7,440 $ 8,589 $ 9,155 $ 9,656 $ 10,158 Bank Fee 222 222 222 222 222 222 ---------- ------------ ------------ --------- -------- --------- Total Interest Payment $ 7,922 $ 7,662 $ 8,811 $ 9,377 $ 9,878 $ 10,380 ========== ============ ============ ========= ======== ========= Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 10 of 19
Star Gas Stand Alone Schedule of Actual Distributions (In thousands except per share and per unit data) Estimated Normalized Projected ------------------------------------------------ ASSUMES REVISED TARGET DISTRIBUTION STRUCTURE 1998 1998 1999 2000 2001 2002 --------- -------- ---------- --------- -------- -------- Distributable Cash - ------------------ Cash from Operations $10,834 $14,448 $15,655 $16,627 $17,663 $18,699 Maintenance CapEx (2,710) (2,710) (2,632) (2,679) (2,728) (2,777) Other 0 0 0 0 0 0 --------- -------- ---------- --------- -------- -------- Total MLP Distributable Cash Flow 8,124 11,738 13,023 13,948 14,935 15,922 Distributable Cash Flow / Unit $ 1.27 $ 1.84 $ 2.02 $ 2.11 $ 2.20 $ 2.30 Average Units for Calculating Annual - ------------------------------------ Distributions 2 2 2 2 ------------- Common Units 3,858 3,858 3,924 4,082 4,252 4,394 Subordinated Units 2,396 2,396 2,396 2,396 2,396 2,396 General Partner Interest Unit Equivalent 128 128 129 132 136 139 --------- -------- ---------- --------- -------- -------- Total Units Outstanding 6,382 6,382 6,449 6,610 6,784 6,929 Distribution Levels - ------------------- MQD $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 First Target $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 Second Target $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 Third Target $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 Indicated Cash Distribution $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 Distribution of MQD - ------------------- Cash Available 8,124 11,738 13,023 13,948 14,935 15,922 Cash Borrowed to Pay Full MQD, 5,917 2,303 1,166 594 0 0 Allocation to: Common Units 8,489 8,489 8,633 8,980 9,354 9,667 Subordinated Units 5,271 5,271 5,271 5,271 5,271 5,271 General Partner Interest 281 281 284 291 298 305 First Target Distribution - ------------------------- Cash Available 0 0 0 0 11 678 Cash Required for Target Distribution 0 0 0 0 1,492 1,524 Cash Required for Indicated Distribution 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 Allocation to: Common units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Second Target Distribution - -------------------------- Cash Available 0 0 0 0 0 0 Cash Required for Target Distribution 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Incentive Distribution 0 0 0 0 0 0 Third Target Distribution - ------------------------- Cash Available 0 0 0 0 0 0 Cash Required for Target Distribution 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Incentive Distribution 0 0 0 0 0 0 Star Gas Stand Alone Schedule of Actual Distributions (cont'd) (In thousands except per share and per unit data) Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 11 of 19
Estimated Normalized Projected ---------------------------------------------------- 1998 1998 1999 2000 2001 2002 ----------- ----------- ------------ --------- ---------- -------- Remaining Distributions - ----------------------- Cash Available 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Incentive Distribution 0 0 0 0 0 0 Repay Indebtedness (0) (0) 0 0 11 678 Total Distributions - ------------------- Common Units 8,489 8,489 8,633 8,980 9,354 9,667 Subordinated Units 5,271 5,271 5,271 5,271 5,271 5,271 General Partner Interest 281 281 284 291 298 305 Incentive Distribution 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Total Distributions $14,041 $14,041 $14,188 $14,542 $14,924 $15,243 ======= ======= ======= ======= ======= ======= Total Distributions Per Unit - ---------------------------- Common Unit $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 Subordinated Unit 2.20 2.20 2.20 2.20 2.20 2.20 GP Unit 2.20 2.20 2.20 2.20 2.20 2.20 (In thousands except per share and per unit data) Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 12 of 19
Petro EBITDA Calculation Estimated Normalized Projected ---------------------------------------------------- 1998 1998 1999 2000 2001 2002 ----------- ----------- ------------ --------- ---------- -------- - ------------------------------------------------------------------------------------------------------------------------------------ Year 1 Year 2 Year 3 Year 4 Year 5 EBITDA Growth Rate - ------------------------------------------------------------------------------------------------------------------------------------ Base EBITDA: Timing ------ Acquisitions: End 1998 $ 0 Mid 1999 30,000 Mid 2000 30,000 Mid 2001 30,000 Mid 2002 30,000 Mid 2003 30,000 Mid 2004 30,000 Mid 2005 30,000 ------- ------- ------- ------- ------- ------- Total EBITDA. $37,630 $46,900 $48,706 $51,196 $53,390 $55,385 ======= ======= ======= ======= ======= ======= Pro Forma Full-Year EBITDA for Debt Covenent Analysis 37,630 46,900 51,864 54,354 56,548 58,543 Petro Depreciation Calculation Existing Depreciation $28,710 $28,710 $28,710 $28,710 $28,710 $28,710 Maintenance CapEx: 1998 $ 2,776 - - 185 185 185 185 Annual Growth: 2.0% 1999 3,000 100 200 200 200 2000 3,060 102 204 204 2001 3,121 104 208 2002 3,184 106 2003 3,247 2004 3,312 2005 3,378 Internal Growth CapEx: 1998 $ 0 - - - - - - Annual Growth: 0.0% 1999 0 - - - - 2000 0 - - - 2001 0 - - 2002 0 - 2003 0 2004 0 2005 0 External Growth CapEx: 1998 $ 0 - - 0 0 0 0 Annual Growth: 0.0% 1999 30,000 2,308 4,615 4,615 4,615 2000 30,000 2,308 4,615 4,615 2001 30,000 2,308 4,615 2002 30,000 2,308 2003 30,000 2004 30,000 2005 30,000 ------- ------- ------- ------- ------- ------- Total Depreciation: 28,710 28,710 31,303 36,120 40,942 45,767 ======= ======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------------------------ (in thousands except per share and per unit data) STAR PRO FORMA INCOME STATEMENT PROJECTED ESTIMATED NORMALIZED ----------------------------------------- 1998 1998 1999 2000 2001 2002 -------- ---------- -------- -------- -------- -------- Combined EBITDA $ 56,411 $ 69,035 $ 73,197 $ 77,225 $ 80,956 $ 84,489 Consolidated Savings 500 500 500 500 500 500 -------- ---------- -------- -------- -------- -------- Pro Forma EBITDA 56,911 69,535 73,697 77,725 81,456 84,989 Depreciation and Amortization 40,637 40,359 43,661 49,466 55,166 60,705 -------- ---------- -------- -------- -------- -------- EBIT 16,274 29,176 30,036 28,259 26,290 24,284 Interest Expense (28,307) (28,253) (29,468) (31,549) (33,017) (34,202) Interest Income - - - - - - Other Income - - - - - - EBT (12,033) 923 569 (3,290) (6,726) (9,919) -------- ---------- -------- -------- -------- -------- Current Income Taxes (1,025) (1,025) (1,025) (1,025) (1,025) (1,025) Deferred Income Taxes - - - - - - -------- ---------- -------- -------- -------- -------- Net Income Available to Common $(13,058) $ (102) $ (456) $ (4,315) $ (7,751) $(10,944) ======== ========== ======== ======== ======== ======== Pro Forma Full-Year EBITDA for Debt Covenant Analysis 56,911 69,535 77,624 81,652 85,383 88,916 STAR PRO FORMA UNITS OUTSTANDING Common Units Beginning Balance 10,842 10,842 10,842 11,416 12,261 Issuance - - - - - Issued to Meet Debt Covenant Ratio - - 574 846 874 Issued to E - - - - - Buyback - - - - - -------- ---------- -------- -------- -------- -------- Ending Balance 10,842 10,842 10,842 11,416 12,261 13,136 -------- ---------- -------- -------- -------- -------- Average Common Units Outstanding 10,842 10,842 10,842 11,129 11,839 12,699 Deferred Participation Units - Beginning Balance - - 909 909 606 303 DPUs Issued at Beginning of Year - - - (303) (303) - -------- ---------- -------- -------- -------- -------- Ending Balance - - 909 606 303 303 SR Subordinated Units Beginning Balance - Sr Sub Units 2,767 2,767 2,767 3,070 3,373 DPUs Issued - - 303 303 - Sr. Sub Issuance - - - - - Sr. Sub to E - - - - - Sr. Sub Converted to G.P. Interest - - - - - -------- ---------- -------- -------- -------- -------- Ending Balance 2,767 2,767 2,767 3,070 3,373 3,373 -------- ---------- -------- -------- -------- -------- Average Sr Subordinated Units Outstanding 2,767 2,767 2,767 3,070 3,373 3,373 Subordinated Units Beginning Balance 567 567 567 567 567 Issuance - - - - - Buyback - - - - - -------- ---------- -------- -------- -------- -------- Ending Balance 567 567 567 567 567 567 -------- ---------- -------- -------- -------- -------- Average Subordinated Units Outstanding 567 567 567 567 567 567 GP Implied Units Beginning Balance 289 289 289 289 289 Issued in conjunction with DPUs - - - - - Issued to Meet Debt Covenant Ratio - - - - - Issued in conjunction with E Equity - - - - - Buyback - - - - - -------- ---------- -------- -------- -------- -------- 289 289 289 289 289 289 -------- ---------- -------- -------- -------- -------- Average Implied GP Units Outstanding 289 289 289 289 289 289 Total Units Outstanding 14,465 14,465 14,465 15,343 16,491 17,366 -------- ---------- -------- -------- -------- -------- Average Total Units Outstanding 14,465 14,465 14,465 15,055 16,068 16,928 ======== ========== ======== ======== ======== ======== Pro Forma Heating Oil Units Used for DPU Issue Calculation 8,016 8,446 9,285 10,000 (In thousands except per share and per unit data} Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 14 of 19
STAR PRO FORMA BALANCE SHEET Estimated Projected -------------------------------------------------- 1998 1999 2000 2001 2002 --------- --------- --------- --------- --------- ASSETS Cash $ 10,142 $ 10,142 $ 10,142 $ 10,142 $ 10,142 Other Current Assets 86,874 92,319 97,589 102,470 107,092 --------- --------- --------- --------- --------- Total Current Assets 97,016 102,461 107,731 112,612 117,354 PP&E and Intangibles, Net 267,987 269,958 266,231 256,915 242,170 Other Assets 12,802 12,802 12,802 12,802 12,802 --------- --------- --------- --------- --------- Total Assets 377,805 385,221 386,764 382,329 372,206 ========= ========= ========= ========= ========= LIABILITIES Current Liabilities 90,978 96,416 101,686 106,567 111,189 8.25% Existing Credit Facility 4,785 4,785 4,785 4,785 4,785 Total LT Debt 309,154 344,852 367,434 384,224 400,122 Other Liabilities 10,786 10,786 10,786 10,786 10,786 --------- --------- --------- --------- --------- Total Liabilities 415,696 456,839 484,691 506,361 $ 526,882 PREFERRED STOCK - - - - - Common Shareholder's Equity (37,891) (71,618) (97,927) (124,033) (154,676) --------- --------- --------- --------- --------- Total Liabilities and Equity $ 377,805 $ 385,221 $ 386,764 $ 382,329 $ 372,206 ========= ========= ========= ========= ========= Check - - 0 (0) (0) STAR PRO FORMA CASH FLOW STATEMENT Net Income ($456) ($4,315) ($7,751) (10,944) Depreciation and Amortization 43,661 49,466 55,366 60,705 Deferred Taxes - - - - Other Assets/Liab - - - - --------- --------- --------- --------- Change in Non-Cash Working Capital - - - - Cash from Operations 43,204 45,151 47,414 49,762 Maintenance CapEx (5,632) (5,739) (5,849) (5,961) Internal Growth CapEx - - - - External Growth CapEx (40,000) (40,000) (40,000) (40,000) --------- --------- --------- --------- Cash from Investments (45,632) (45,739) (45,849) (45,961) Acquisition Borrowing 40,000 40,000 40,000 40,000 Remaining Distributions to Repay Debt (4,302) (4,785) (4,608) (4,866) Amortization of Existing Debt (6,127) (8,141) (60) (60) Borrowing to Repay Existing Debt 6,127 8,141 60 60 Borrowing for Changes in WC - - - - Change in Common Equity & GP Interest - 12,634 18,603 19,236 Repayment of Preferred Stock - - - - Distributions (33,270) (34,628) (36,957) (38,935) --------- --------- --------- --------- Cash from Financing 2,428 13,221 17,038 15,435 Net Cash Flow 0 12,634 18,603 19,236 Initial Cash Balance 10,142 10,142 10,142 10,142 --------- --------- --------- --------- Cash Available for Paydown on WC Revolver and Acq. Facility 10,142 22,776 28,745 29,378 Minimum Cash Balance 10,142 10,142 10,142 10,142 Borrowing (Paydown) on WC Revolver and Acq. Facility 0 (12,634) (18,603) (19,236) --------- --------- --------- --------- Ending Cash Balance 10,142 10,142 10,142 10,142 Net Change in Cash $ 0 $ 0 $ 0 $ 0 ========= ========= ========= ========= Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 15 of 19
(In thousands except per share and per unit data) Estimated Normalized Projected Star Pro Forma Debt Schedule ------------------------------------------------ 1998 1998 1999 2000 2001 2002 ---------- ------------ ---------- ---------- ---------- ---------- 8.04% 1 st Mortgage Notes Beginning Balance $85,000 $85,000 85,000 $85,000 $85,000 $85,000 Borrowing - - - - - - Amortization - - - - - - ---------- ------------ ---------- ---------- ---------- ---------- Ending Balance 85,000 85,000 85,000 85,000 85,000 85,000 Interest Payment 8.04% 6,834 6,834 6,834 6,834 6,834 6,834 7.17% Pearl Notes Beginning Balance 11,000 11,000 11,000 11,000 11,000 11,000 Borrowing - - - - - - Amortization - - - - - - ---------- ------------ ---------- ---------- ---------- ---------- Ending Balance 11,000 11,000 11,000 11,000 11,000 11,000 Interest Payment 7.17% 613 613 789 789 789 789 % of year Pearl Notes Outstanding 77.7% 77.7% 10.13% Sub Notes & Sr Notes Beginning Balance 50,000 50,000 - - - - Borrowing - - - - - - Amortization (50,000) (50,000) - - - - ---------- ------------ ----------- ---------- ---------- ---------- Ending Balance - - - - - - Interest Payment 10.13% - - - - - - 9.38% Sub Notes & Sr Notes Beginning Balance 75,000 75,000 - - - - Borrowing - - - - - - Amortization (75,000) (75,000) - - - - ----------- ------------ ----------- ---------- ---------- ----------- Ending Balance - - - - - - Interest Payment 9.38% - - - - - - 12.25% Sub Notes & Sr Notes Beginning Balance 81,250 81,250 - - - - Borrowing - - - - - - Amortization (81,250) (81,250) - - - - ----------- ------------ ----------- ---------- ---------- ---------- Ending Balance - - - - - - Interest Payment 12.25% - - - - - - 9.00% New Debt Beginning Balance - - 120,000 126,127 134,268 134,328 Borrowing 120,000 120,000 6,127 8,141 60 60 Amortization - - - - - - ----------- ------------ ----------- ---------- ---------- ---------- Ending Balance 120,000 120,000 126,127 134,268 134,328 134,388 Interest Payment 9.00% 10,800 10,800 11,076 11,718 12,087 12,092 Exchange of 11.96% Senior Notes Beginning Balance - - 63,126 63,126 63,126 63,126 Borrowing 63,126 63,126 - - - - Amortization - - - - - - ----------- ------------ ----------- ---------- ---------- ---------- Ending Balance 63,126 63,126 63,126 63,126 63,126 63,126 Interest Payment 9.00% 5,681 5,681 5,681 5,681 5,681 5,681 8.00% Acq. & Other Notes Pay Beginning Balance 16,507 16,507 14,508 8,381 240 180 Borrowing - - - - - - Amortization (1,999) (1,999) (6,127) (8,141) (60) (60) ----------- ------------ ----------- ---------- ---------- ---------- Ending Balance 14,508 14,508 8,381 240 180 120 Interest Payment 8.00% 1,241 1,241 916 345 17 12 - ------------------------------------------------------------------------------- (In thousands except per share and per unit data) Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 16 of 19
Estimated Normalized Projected --------------------------------------------------- Star Pro Forma Debt Schedule (cont'd) 1998 1998 1999 2000 2001 2002 -------- --------- ---- ---- ---- ---- Exchange of 14.10% Senior Notes Beginning Balance - - 6,520 6,520 6,520 6,520 Borrowing 6,520 6,520 - - - - Amortization - - - - - - --------- --------- -------- -------- -------- -------- Ending Balance 6,520 6,520 6,520 6,520 6,520 6,520 Interest Payment 11.50% 750 750 750 750 750 750 7.25% WC Revolver Beginning Balance - - 4,785 4,785 4,785 4,785 Borrowing for Change in WC - - - - - - Borrowing to Pay Full MQD - - - - - - Borrowing (Payment) 4,785 4,785 - - - - --------- --------- -------- -------- -------- -------- Ending Balance 4,785 4,785 4,785 4,785 4,785 4,785 Effective Avg WC Balance 23,600 23,600 10,814 9,393 9,393 9,393 Interest Payment 7.25% 1,711 1,711 784 681 681 681 7.25% Acquisition Facility Beginning Balance - - 9,000 44,698 67,280 84,069 External Acquisitions 9,400 9,400 40,000 40,000 40,000 40,000 External Acquisitions at Beginning of 1999 - - - - - - Internal Growth CapEx (400) (400) - - - - Payment - - (0) (12,634) (18,603) (19,236) Remaining Distributions to Repay Debt - (1,501) (4,302) (4,785) (4,608) (4,866) --------- --------- -------- -------- -------- -------- Ending Balance 9,000 7,499 44,698 67,280 84,069 99,968 Interest Payment 7.25% ($15) ($69) $ 1,947 $ 4,059 $ 5,486 $ 6,671 Total Pro Forma Debt Beginning Balance $ 318,757 $ 318,757 $313,939 $349,637 $372,219 $389,009 Amortization of Existing Debt (208,249) (208,249) (6,127) (8,141) (60) (60) Exchange of Notes 69,646 69,646 - - - - Borrowing for Changes in WC - - - - - - Acquisition Borrowing 9,000 9,000 40,000 40,000 40,000 40,000 Borrowing to Pay Full MQD - - - - - - Borrowing to Repay Existing Debt 120,000 120,000 6,127 8,141 60 60 Remaining Distributions to Repay Debt - (1,501) (4,302) (4,785) (4,608) (4,866) Borrowing (Payments) on WC Revolver and Acq. Facility 4,785 4,785 (0) (12,634) (18,603) (19,236) --------- --------- -------- -------- -------- -------- Ending Balance 313,939 312,439 349,637 372,219 389,009 404,907 Preferred Stock Beginning Balance 34,167 34,167 - - - - Repayments (34,167) (34,167) - - - - --------- --------- -------- -------- -------- -------- Ending Balance - - - - - - Dividend Payment 14.33% - - - - - - Interest Expense/Dividends 27,615 27,561 28,776 30,857 32,325 33,510 Chase Fees 692 692 692 692 692 692 --------- --------- -------- -------- -------- -------- Total Interest Payment/Dividends $ 28,307 $ 28,253 $ 29,468 $ 31,549 $ 33,017 $ 34,202 ========= ========= ======== ======== ======== ======== STAR PRO FORMA DISTRIBUTION SCHEDULE OF ACTUAL DISTRIBUTIONS (In thousands except per share and per unit data) Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 17 of 19
Estimated Normalized Projected ---------------------------------------------------- 1998 1998 1999 2000 2001 2002 --------- ---------- ---------- ---------- --------- ---------- Distributable Cash - ------------------ Cash from Operations (excl chg in WC) 27,579 40,257 $ 43,204 $ 45,151 $ 47,414 $49,762 Maintenance CapEx (5,486) (5,486) (5,632) (5,739) (5,849) (5,961) Other - - - - - --------- ---------- ---------- ---------- --------- ---------- Total MLP Distributable Cash Flow 22,093 34,771 37,572 39,412 41,565 43,801 Distributable Cash Flow Unit $ 1.53 $ 2.40 $ 2.60 $ 2.62 $ 2.59 $ 2.59 Distributable Cash Flow / Unit Pro Forma for DPU Conversion Average Units for Calculating Annual - ------------------------------------ Distribution - ------------- Common Units 10,842 10,842 10,842 11,129 11,839 12,699 SR Subordinated Units 2,767 2,767 2,767 3,070 3,373 3,373 Subordinated Units 567 567 567 567 567 567 General Partner Interest Unit Equivalent 289 289 289 289 289 289 --------- ---------- ---------- ---------- --------- ---------- Total Units Outstanding 14,465 14,465 14,465 15,055 16,068 16,928 Distribution Levels $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 - ------------------- MQD $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 First Target $ 2.42 $ 2.42 $2.42 $ 2.42 $ 2.42 2.42 Second Target $ 2.84 $ 2.84 $2.84 $ 2,84 $ 2.84 2.84 Third Target $ 3.70 $ 3.70 $ 170 $ 3.70 $ 3.70 $ 3.70 Indicated Cash Distribution $ 2.30 $ 2.30 $2.30 $ 2.30 $ 2.30 $ 2.30 Distribution of MQD - ------------------- Cash Available 22,093 34,771 37,572 39,412 41,565 43,801 Allocation to: Common Units 22,093 24,936 24,936 25,596 27,229 29,207 SR Subordinated Units 0 6,364 6,364 7,061 7,758 7,758 Subordinated Units 0 1,305 1,305 1,305 1,305 1,305 General Partner Interest 0 665 665 665 665 665 First Target Distribution - ------------------------- Cash Available 0 1,501 4,302 4,785 4,608 4,866 Cash Required for Target Distribution 0 1,736 1,736 1,808 1,932 2,037 Cash Required for Indicated Distribution 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 SR Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Total Distributions to: Common Units 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 STAR GAS PRO FORMA SCHEDULE OF ACTUAL DISTRIBUTIONS (CONT'D) (In thousands except per share and per unit data) Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. Page 18 of 19
Estimated Normalized Projected ----------------------------------------------------- 1998 1998 1999 2000 2001 2002 --------- ---------- ----------- --------- ---------- ----------- Second Target Distribution - -------------------------- Cash Available 0 0 0 0 0 0 Cash Required for Target Distribution 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 SR Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Incentive Right 0 0 0 0 0 0 Incentive Right to GP Interest 0 0 0 0 0 0 Incentive Right to Sub Units 0 0 0 0 0 0 Incentive Right to Sr. Sub Units 0 0 0 0 0 0 Total Distributions to: Common Units 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Third Target Distribution - ------------------------- Cash Available 0 0 0 0 0 0 Cash Required for Target Distribution 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Incentive Right 0 0 0 0 0 0 Incentive Right to GP Interest 0 0 0 0 0 0 Incentive Right to Sub Units 0 0 0 0 0 0 Incentive Right to Sr. Sub Units 0 0 0 0 0 0 Total Distributions to: Common Units 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Remaining Distribution - ---------------------- Cash Available 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Incentive Right 0 0 0 0 0 0 Incentive Right to GP Interest 0 0 0 0 0 0 Incentive Right to Sub Units 0 0 0 0 0 0 Incentive Right to Sr. Sub Units 0 0 0 0 0 0 Repay Indebtedness 0 1,501 4,302 4,785 4,608 4,866 Total Distributions to: Common Units 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 STAR GAS PRO FORMA SCHEDULE OF ACTUAL DISTRIBUTIONS (CONT,D) (In thousands except per share and per unit data) Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 19 of 19
Estimated Normalized Projected ---------------------------------------------------------------- 1998 1998 1999 2000 20O1 2002 ---------- ---------- ----------- ------------ ----------- ----------- Total Distributions - ------------------- Common units $22,093 $24,936 $24,936 $25,596 $27,229 $29,207 SR Subordinated Units 0 6,364 6,364 7,061 7,758 7,758 Subordinated Units 0 1,305 1,305 1,305 1,305 1,305 General Partner Interest 0 665 665 665 665 665 ---------- --------- ----------- ------------ ---------- ----------- Total Distributions $22,093 $33,270 $33,270 $34,628 $36,957 $38,935 ========== ========= =========== ============ ========== =========== 14,041 14,041 14,188 14,542 14,924 15,243 Total Distributions Per Units - ----------------------------- Common Units $ 2.04 $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 SR Subordinated Units 0.00 2.30 2.30 2.30 2.30 2.30 Subordinated & GP Units 0.00 2.30 2.30 2.30 2.30 2.30 PETRO PRO FORMA, WORKING CAPITAL REQUIREMENTS (IN 000S, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------------------------------- ASSUMPTIONS - ------------------------------------------------------------------------------------------------------- DEBT ATTRIBUTED TO PETRO: 9/30/98 Pro Forma Interest Annual Balance Rate Interest ---------- --------- -------- 8.00 % Acquisition & Other Notes Pay $ 14,508 8.00% $ 1,161 9.00 % Exchanged Debt 63,126 9.00% 5,681 11.50% Exchanged Debt 6,520 11.50% 750 9.25% New Debt (a) 120,000 9.25% 11,100 -------- $18,692
NEW COMMON UNITS TO REFINANCE OLD DEBT & CONSENT FEE: Price Per Number Annual Amount to be Raised Share of Units MQD Distribution - ---------------------------------------------------------- ---------- -------- --------------- $141,473 $20.259 6,983 $2.30 $16,061 INCREASE IN MQD ON OLD COMMON UNITS Number Increase in Annual of Units MQD Distribution ---------- ----------- -------------- Old Common Units 3,832 $0.10 $ 383 OPERATING WORKING CAPITAL REQUIRE $ 500 Tax Liability: $ 5,000 (a) AGE assumed rate of 9.25% - -------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------- REQUIREMENT CALCULATION - ------------------------------------------------------------------------------------------------- Closing Date ---------------------------------------- Jan 31 Feb 28 Mar 31 1999 1999 1999 ------------ ---------- ----------- Interest on Debt Attributed to Petro: $ 17,134 $ 15,576 $14,019 MQD on New Common Units 16,061 16,061 16,061 Increase in MQD on old Common Units 383 383 383 Operating Working Capital Requirement 500 500 500 Tax Liability 5,000 5,000 5,000 --------- -------- ------- Sub Total $ 39,078 $ 37,521 $35,963 Petro EBITDA Historical Quarter Ended: 6/30/98 ($6,355) ($6,355) ($ 6,355) 9/30/97 (20,908) (20,908) (20,908) 12/31/97 16,716 16,716 16,716 ------- Projected Month Ended: 2/28/99 20,434 3/31/99 13,281 13,281 --------- -------- Sub Total $ 23,168 $ 2,734 ($10,547) TOTAL $ 15,910 $ 34,787 $46,510 - ------------------------------------------------------------------------------------------------- WORKING CAPITAL REQUIREMENT 18,000 35,000 46,500 - ------------------------------------------------------------------------------------------------- Projected Month Ended Working Capital: Standard Calculation $ 20,670 $ 36,836 $47,341 Excess Cash Assuming a March 31 Close $ 841
Appendix II to FAIRNESS OPINION PRESENTATION TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF STAR GAS CORPORATION Analyses performed under 15-year weather scenario Changed Pages Only CONFIDENTIAL A,G. EDWARDS & SONS, INC. INVESTMENT BANKING October 16, 1998 TABLE OF CONTENTS Please note: Appendix II follows the same page numbering format as Appendix I and contains only those pages that changed as a result of performing the analyses under the 15-year weather scenario. Appendix II should be read in conjunction with Appendix I. Section ------- Overview of Petroleum Heat and Power Co., Inc............... A Overview of Star Gas Partners, L.P.......................... B Pro Forma Merger Analysis................................... E Relative Contribution Analysis.............................. G Discounted Cash Flow Analysis............................... H Comparable Transactions Analysis............................ I Public Company Analysis..................................... J Pro Forma Model............................................. K Overview of Petro EBITDA Projections ($ in thousands) Major Assumptions for 1999 - 2002 - --------------------------------- [_] 15 Year Weather [_] Flat Attrition. [_] $30 million of acquisitions at 4.75x EBITDA multiple using half-year convention. [_] Increase in gross profit margin of $0.01 in 1999 and $0.005 in 2000 to 2002. Page A - 8
- ------------------------------------------------------------------------------------------------------------------ Adjusted for Actual Normalized Projected ------------------------------------------------------------------------ 1998 1998 1999 2000 2001 2002 ----------------------------------------------------------------------------------------------------- EBITDA $37,630 $44,749 $46,463 $48,897 $51,040 $52,989 - ------------------------------------------------------------------------------------------------------------------- Overview of Star Gas EBITDA Projections ($ in thousands) Major Assumptions for 1999 - 2002 - --------------------------------- [_] 15 Year Weather [_] No growth in base business. [_] $10 million of acquisitions at 6.5x EBITDA multiple using half-year convention. [_] No increase in gross profit margin. Page B - 4
- -------------------------------------------------------------------------------------------------------------------------- Adjusted for Actual Normalized Projected --------------------------------------------------------------------------- 1998 1998 1999 2000 2001 2002 ------------------------------------------------------------------------------------------------------------ EBITDA $18,781 $20,731 $23,032 $24,465 $25,898 $27,331 - -------------------------------------------------------------------------------------------------------------------------- PRO FORMA MERGER ANALYSIS [_] A.G. Edwards analyzed the impact of the Transaction on the Partnership's distributable cash flow per unit, the related accretion, common unit coverage and total unit coverage on a pro forma basis. --------------------------------------------------------- STAR GAS STAR GAS STAND-ALONE PRO FORMA ------------- ----------- DCF PER UNIT 1998 Adjusted for Actual (a) $1.27 $1.53 1998 Normalized (b) 1.62 2.15 1999 Projected 1.77 2.31 ACCRETION / DILUTION 1998 Adjusted for Actual (a) $0.26 1998 Normalized (b) 0.53 1999 Projected 0.54 COMMON UNIT COVERAGE 1998 Adjusted for Actual (a) 0.96x 0.89x 1998 Normalized (b) 1.22 1.25 1999 Projected 1.30 1.33 TOTAL UNIT COVERAGE 1998 Adjusted for Actual (a) 0.58x 0.66x 1998 Normalized (b) 0.74 0.94 1999 Projected 0.81 1.00 -------------------------------------------------------------- (a) Projected results are adjusted for year to date actual performance. (b) Adjusted to represent normal weather. Page E-1 RELATIVE CONTRIBUTION ANALYSIS (a) ($ in thousands) [_] A.G. Edwards analyzed the relative pro forma contribution of both Star Gas and Petro to the ownership of capital in the pro forma entity based on Star Gas' and Petro's historical results from operations and their respective projections. Star Gas' Average Gross Profit GROSS PROFIT Contribution [GRAPH APPEARS HERE] 96-97 26.7% 98-99 29.0% 96-99 27.8% Star Gas'Average EBITDA (c) EBITDA Contribution [GRAPH APPEARS HERE] 96-97 35.4% 98-99 32.4% 96-99 33.8% -------------------------- (a) For purposes of its analysis, A.G. Edwards converted Petro's historical December 31 st fiscal year-end to a September 30th fiscal year-end for comparison purposes. Petro's projections are based on a December 31st calendar year end. Other measures of relative contribution analysis are non-meaningful. (b) Assumes normalized weather. (c) Includes only heating oil EBITDA for Petro. Page G - 1 RELATIVE CONTRIBUTION ANALYSIS ($ IN THOUSANDS) (continued) FOR STAR GAS' IMPLIED FIRM VALUE CONTRIBUTION OF APPROXIMATELY 27.8% OF THE COMBINED ENTITY'S GROSS PROFIT AND 33.8% OF THE COMBINED ENTITY'S EBITDA, IT WILL RECEIVE [PIE CHART APPEARS HERE] APPROXIMATELY 37.1% OF THE IMPLIED FIRM VALUE. Page G-2 DISCOUNTED CASH FLOW ANALYSIS [_] A.G. Edwards performed discounted cash flow analyses for Petro, Star Gas and Star Gas Pro Forma using projected tax-adjusted operating cash flows for 1999 through 2002, terminal values calculated on 2002 EBITDA, and discount rates based on the related weighted average cost of capital. Assumptions: [_] Weighted average cost of capital ("WACC") - Petro Stand Alone of 13.4% to 13.9% (calculated WACC of 13.6%) - Star Gas Stand Alone of 6.8% to 7.2% (calculated WACC of 7.0%) - Star Gas Pro Forma of 7.3% to 7.7% (calculated WACC of 7.5%) [_] Terminal value EB1TDA multiple - Petro Stand Alone of 6.0x to 8.0x (calculated normalized 1998 EBITDA multiple of 6.5x) - Star Gas Stand Alone and Star Gas Pro Forma of 9.0x to 11.0x (calculated normalized 1998 EBITDA multiple of 10.6x) Page H - 1 DISCOUNTED CASH FLOW ANALYSIS (continued)
PETRO STAND ALONE - ------------------------------------------------------------------------------ 15 Year Terminal Value EBITDA Multiple -------------------------------------------------------------- 6.0x 6.5x 7.0x 7.5x 8.0x - ------------------------------------------------------------------------------ 13.4% $49,406 $65,422 $81,439 $97,455 $113,472 WACC 13.6% 47,103 62,984 78,865 94,746 110,628 13.9% 44,822 60,570 76,317 92,064 107,812 - ------------------------------------------------------------------------------
STAR GAS STAND ALONE - ------------------------------------------------------------------------------ 15 Year Terminal Value EBITDA Multiple -------------------------------------------------------------- 9.0x 9.5x 10.0x 10.5x 11.0x - ------------------------------------------------------------------------------ 6.8% $92,914 $99,255 $105,597 $111,939 $118,281 WACC 7.0% 91,847 98,141 104,436 110,730 117,024 7.2% 90,790 97,037 103,284 109,532 115,779 - ------------------------------------------------------------------------------ Page H - 2
STAR GAS PRO FORMA - ------------------------------------------------------------------------------ 15 Year Terminal Value EBITDA Multiple -------------------------------------------------------------- 9.0x 9.5x 10.0x 10.5x 11.0x - ------------------------------------------------------------------------------ 7.3% $128,663 $136,782 $144,902 $153,021 $161,141 WACC 7.5% 127,328 135,389 143,449 151,510 159,570 7.7% 126,006 134,008 142,010 150,012 158,014 - ------------------------------------------------------------------------------ DISCOUNTED CASH FLOW ANALYSIS PETRO - STAND ALONE EXCLUDING DISTRIBUTIONS FROM STAR GAS ($ IN THOUSANDS) - -------------------------------------------------------------------------------- (a) Based on management projections. (b) A.G. Edwards' estimate. (c) Based on comparable companies' WACC. (d) Petro's current firm value of $304.4 million/$46.9 million normalized 30- year weather 1998 EBITDA = 6.5x, which represents a multiple of current year normalized EBITDA. (e) Terminal value calculated using EBITDA multiple. (f) Net of $33.2 million of cash. Market value of debt used. Page H-3
- ---------------------------------------------------------------------------------------------------------------------------------- Normalized Cash Flow Summary (a): 1998 1999 2000 2001 2002 Terminal - ----------------- ---------- -------- -------- -------- -------- ---------- EBITDA $44,749 $46,463 $ 48,897 $51,040 $52,989 Taxes (500) (500) (500) (500) Maintenance capital expenditures (3,000) (3,060) (3,121) (3,184) Working capital increases (b) (500) (500) (500) (500) -------- -------- -------- -------- Net operating cash flow (free cash flow) 42,463 44,837 46,919 48,805 ---------------- Weighted average cost of capital (c) 13.6% ---------------- ---------------- Terminal EBITDA multiple (d) 6.5x ---------------- Discount factor 0.8799 0.7742 0.6812 0.5994 0.5994 Terminal value (e) $344,429 ----------------- Present value $339,749 $37,363 $34,714 $31,963 $29,254 $206,455 ----------------- -------- -------- -------- -------- ---------- Current net debt and preferred stock (f) ($276,765) ----------------- ----------------- Net present value of equity $62,984 ----------------- DISCOUNTED CASH FLOW ANALYSIS PETRO - STAND ALONE USING STAR GAS' PRO FORMA WACC EXCLUDING DISTRIBUTIONS FROM STAR GAS ($ IN THOUSANDS) (a) Based on management projections. (b) A.G. Edwards' estimate. (c) Based on comparable companies' WACC. (d) Petro's current firm value of $304.4 million/$46.9 million normalized 30-year weather 1998 EBITDA = 6.5x, which represents a multiple of current year normalized EBITDA. (e) Terminal value calculated using EBITDA multiple. (f) Net of $33.2 million of cash. Market value of debt used. Page H-4
- ------------------------------------------------------------------------------------------------------------------------------------ Normalized Cash Flow Summary (a): 1998 1999 2000 2001 2002 Terminal - --------------------- ---------- ---------- ---------- ---------- ---------- ---------- EBITDA $ 44,749 $ 46,463 $ 48,897 $ 51,040 $ 52,989 Taxes (500) (500) (500) (500) Maintenance capital expenditures (3,000) (3,060) (3,121) (3,184) Working capital increases (b) (500) (500) (500) (500) ---------- ---------- ---------- ---------- Net operating cash flow (free cash flow) 42,463 44,837 46,919 48,805 Weighted average cost of capital (c) 7.5% --------- Terminal EBITDA multiple (d) 6.5x --------- Discount factor 0.9299 0.8647 0.8041 0.7477 0.7477 Terminal value (e) $ 344,429 Present value $ 409,993 $ 39,486 $ 38,770 $ 37,725 $ 36,490 $ 257,522 ---------- ---------- ---------- ---------- ---------- ---------- Current net debt and preferred stock (f) $(276,765) ---------- Net present value of equity $ 133,228 ---------- - ------------------------------------------------------------------------------------------------------------------------------------ Discounted Cash Flow Analysis Star Gas - Stand Alone ($ in thousands) - ------------------------------------------ (a) Based on management projections. (b) A.G. Edwards' estimate. (c) Based on comparable companies' WACC. (d) Star's current firm value of $234.1 million/$22.1 million normalized 30-year weather 1998 EBITDA=10.6x, which represents a multiple of current year normalized EBITDA. (e) Terminal value calculated using EBTIDA multiple. (f) Represents total projected 9/30/98 debt less cash. (g) Total units include common, subordinated and GP units. (h) Current nearest value of common units is 3,858 units * $19.563 unit price=$75,472. Page H-5
- ------------------------------------------------------------------------------------------------------------------------------ Normalized Income Statement Summary (a): 1998 1999 2000 2001 2002 Terminal - ---------------------------- ---------- ---------- ---------- --------- ---------- ----------- EBITDA 20,731 23,032 24,465 25,898 27,331 % increase 11.1% 6.2% 5.9% 5.5% Net income 1,395 2,075 2,213 2,305 2,560 Cash Flow Summary: - ----------------- After-tax EBI 10,649 11,097 11,656 12,379 Depreciation and amortization 12,358 13,343 14,217 14,927 Maintenance capital expenditures (2,657) (2,705) (2,753) (2,803) Working capital increases (b) (500) (500) (500) (500) --------- --------- --------- --------- Net operating cash flow (free cash flow) 19,850 21,235 22,620 24,003 Weighted average cost of capital (c) [ 7.0%] Terminal EBITDA multiple (d) [ 10.6x] Discount factor 0.9342 0.8728 0.8154 0.7618 0.7618 Terminal value (e) $289,709 Present value [$294,513] $18,545 $18,534 $18,445 $18,286 $220,703 --------- --------- --------- --------- --------- Current net debt (f) ($109,285) Net present value of equity $185,228 ========== Common units/Total units (g) 60.5% Equity value to common units (h) [$111,989] DISCOUNTED CASH FLOW ANALYSIS STAR GAS - PRO FORMA ($ IN THOUSANDS) (a) Based on management projections. See Appendix K for model. (b) A.G. Edwards' estimate (c) Based on comparable companies' WACC. (d) Star's current firm value of $234.1 million/$22.1 million normalized 30-year weather 1998 EBITDA = 10.6x, which represents a multiple of current year normalized EBITDA. (e) Terminal value calculated using EBITDA multiple. (f) Represents total proforma projected 9/30/98 debt less cash and cash collateral. (g) Total units include common, newly issued common, senior subordinated, subordinated and GP units. (h) Current market value of common units is 3,858 units* $19.563 unit price = $75,472. Page H - 6
- -------------------------------------------------------------------------------------------------------------------------- NORMALIZED INCOME STATEMENTS SUMMARY (a): 1998 1999 2000 2001 2002 TERMINAL - ------------------------ ---------- -------- -------- -------- -------- ------------ EBITDA 65,980 69,995 73,862 77,438 80,820 % increase 6.1% 5.5% 4.8% 4.4% Net income (3,711) (3,694) (7,056) (10,430) (13,719) Cash Flow Summary: - ------------------ After-tax EBI 25,310 23,373 21,255 19,101 Depreciation and amortization 43,661 49,463 55,159 60,694 Maintenance capital expenditures (5,657) (5,765) (5,874) (5,987) Working capital increases (b) (1,000) (1,000) (1,000) (1,000) -------- -------- -------- -------- Net operating cash flow (free cash flow) 62,314 66,071 69,540 72,808 Weighted average cost of capital (c) 7.5% ---------- Terminal EBITDA multiple (d) 10.6x ---------- Discount factor 0.9299 0.8647 0.8041 0.7477 0.7477 Terminal value (e) $856,692 Present value $865,956 $57,945 $57,131 $55,914 $54,437 $640,530 ---------- -------- -------- -------- -------- ------------ Less net debt (f) ($291,997) ---------- Net present value of equity $573,959 ========== Original common units/Total units (g) 26.7% Equity value to common units (h) $153,122 ---------- - -------------------------------------------------------------------------------------------------------------------------- COMPARABLE TRANSACTIONS ANALYSIS FIRM VALUATION [_] A.G. Edwards noted that public disclosure regarding transactions in the retail home heating oil distribution industry was extremely limited. [_] A.G. Edwards analyzed the financial terms related to divestitures by Petro of certain of its retail home heating oil branches and compared them to the implied multiples of the aggregate purchase price of Petro's heating oil assets. [_] Petro has sold three branches for an average EBITDA multiple of 9.0x. [_] A.G. Edwards calculated the purchase price of Petro's heating oil assets and calculated multiples based on Petro's EBITDAs. ___________________________________________________________________ (a) Calculated as gross profit minus SG&A expense and direct delivery expense. Page I - 1
--------------------------------------------------------------------------------------------------- Purchase Price of Heating Oil Assets ------------------------------------------- Equity purchase price of heating oil assets including CUs $ 25,549 Cost of Debt to be Redeemed ($206,250 + $2,844 premium) 209,094 Cost of Debt to be Assumed 69,646 Cost of Preferred stock at Redemption Value 31,767 Consent Fees 2,110 Transaction Fees 19,343 --------- Aggregate purchase price of heating oil assets $ 357,509 ========= Multiples ----------------------------------------- ----------- Multiples Notes ----------- --------------------------- Normalized 1998 EBITDA budget (a) 44,749 8.0 X As a multiple of aggregate 1999 Projected EBITDA (a) 46,463 7.7 x transaction value. ----------- As a multiple of aggregate transaction value. PUBLIC COMPANY ANALYSIS [_] A.G. Edwards compared certain financial and market information of Star Gas on a historical and pro forma basis to that of certain public propane master limited partnerships which A.G. Edwards deemed relevant for the purposes of this analysis. A.G. Edwards reviewed the trading multiples from a total of six master limited partnerships. [_] The selected propane master limited partnerships are as follows: - AmeriGas Partners, L.P. - Heritage Propane Partners, L.P. - Cornerstone Propane Partners, L.P. - National Propane Partners, L.P. - Ferrellgas Partners, L.P. - Suburban Propane Partners, L.P. [_] No company used in the analysis is identical to Star Gas. (a) Public comparable companies include APU, CNO, FGP, HPG, NPL and SPH. (b) Firm value/adjusted for actual 1998 budget EBITDA. (c) Equity market cap/adjusted for actual 1998 budget EBITDA. (d) Adjusted for actual 1998 budget. Page J-1
=========================================================================================================== PUBLIC COMPARABLES COMPANIES (a) =========================================================================================================== Public Public Pro forma Company Company Star Star Medians Ranges ----------------------------------------------------------------------------------------------------------- Yield 11.2% 11.8% 10.1% 9.1% to 22.3% Firm value/LTM EBITDA 12.5x (b) 10.0x (b) 11.6x 9.0x to 12.7x Firm value/1999E EBITDA 10.2x 8.1x 9.2x 8.4x to 11.7x Equity Market Cap/LTM DCF 15.4x (c) 12.5x (c) 13.4x 8.1x to 15.3x Equity Market Cap/1999E DCF 10.6x 8.1x 9.8x 4.9X to 12.2x LTM common unit coverage 1.0x (d) 0.9x (d) 1.5x 0.6x to 1.6x 1999E common unit coverage 1.3x 1.3x 2.1x 1.1x to 2.3x LTM total unit coverage 0.6x (d) 0.7x (d) 0.7x 0.4x to 1.2x 1999E total unit coverage 0.8x 1.0x 1.0x 0.7x to 1.2x ----------------------------------------------------------------------------------------------------------- PUBLIC COMPANY ANALYSIS ($ IN MILLIONS, EXCEPT PER UNIT DATA) ______________________________________ 1999 estimates per A. G. Edwards' research, except for Star and Pro Forma. 1999 estimates for National Propane from Merril Lynch research report dated July 29,1998. Implied Firm Value equals common, subordinated and GP units, multiplied by the market price of common units plus debt, less cash. (a) Pro forma for the Pearl Gas acquisition and the common unit offering. (b) For Star and Pro Forma only, LTM DCF figures are adjusted for actual 1998 budget DCF estimates. (c) Financial information pro forma for common unit offering. Maintenance capital expenditures assumed to be 8% of EBITDA due to lack of disclosure. (d) Maintenance capital expenditures assumed to be 8% of EBITDA due to lack of disclosure. (e) Financial figures exclude $5.1 million gain from sale of minority interest. (f) Calculated as: (10,841 common units x $19.563) + (2,767 senior subordinated units x $18.52) + (857 junior subordinated and GP units x $15.41). (g) $276.5 in equity plus $313.9 pro forma debt, less $21.9 in cash and cash collateral. Page J - 2
==================================================================================================================================== Closing Implied Implied Common Price on Market Value Firm Distribution Units/ Company Ticker (10/14/98) of Equity Value per unit Yield Total Units - ------------------------------------------------------------------------------------------------------------------------------------ Star Gas Partners, L.P. (a) SGU $19.563 $ 124.9 $ 234.1 $2.20 11.2% 60.5% AmeriGas Partners, L.P. APU 24.125 1,031.2 1,739.4 2.20 9.1% 52.8% Cornerstone Propane Partners, L.P. (c) CNO 18.000 365.2 596.7 2.16 12.0% 66.8% Ferrellgas Partners, L.P. (d) FGP 20.000 638.6 1,131.2 2.00 10.0% 47.0% Heritage Propane Partners, L.P. HPG 20.813 180.0 354.6 2.00 9.6% 56.3% National Propane Partners, L.P. NPL 9.438 108.2 250.9 2.10 22.3% 59.6% Suburban Propane Partners, L.P. (e) SPH 19.625 575.3 922.5 2.00 10.2% 75.1% - ------------------------------------------------------------------------------------------------------------------------------------ Mean 12.2% 59.6% Median 10.1% 58.0% ==================================================================================================================================== Pro Forma $19.563 $ 276.5(f) $ 568.5(g) $2.30 11.8% 74.9% ==================================================================================================================================== LTM Common LTM Total FY99E FY99E Common FY99E Total Unit Coverage Unit Coverage DCF/Unit Unit Coverage Unit Coverage - ------------------------------------------------------------------------------------------------------------------------------------ Star Gas Partners, L.P. (a) 1.0x (b) 0.6x (b) $1.77 1.3x 0.8x AmeriGas Partners, L.P. l.4x 0.8x 2.39 2.1x 1.1x Cornerstone Propane Partners, L.P. (c) 0.8x 0.6x 1.51 1.1x 0.7x Ferrellgas Partners, L.P. (d) 1.5x 0.7x 2.15 2.3x 1.1x Heritage Propane Partners, L.P. 1.5x 0.8x 2.38 2.2x 1.2x National Propane Partners, L.P. 0.6x 0.4x 1.87 NA 0.9x Suburban Propane Partners, L.P. (e) 1.6x 1.2x 1.98 1.3x 1.0x - ------------------------------------------------------------------------------------------------------------------------------------ Mean 1.3x 0.7x 1.8x 1.0x Median 1.5x 0.7x 2.lx 1.0x =================================================================================================================================== Pro Forma 0.9X(b) 0.7x(b) 2.31 1.3x 1.0x PUBLIC COMPANY ANALYSIS ($ IN MILLIONS, EXCEPT PER UNIT DATA) (continued) ______________________________________________ EBITDA is defined as net income (loss) before extraordinary items plus interest, income taxes, depreciation and amortization, impairment expense, and other non-recurring and non-operating items. (a) For Star and Pro forma only, LTM figures use adjusted for actual 1998 budget estimates. Page J-3
- ------------------------------------------------------------------------------------------------------------------------------------ Long Term LTM Firm Value/ Firm Value/ Equity Equity Debt/ EBITDA/ LTM 1999E Market Cap/ Market Cap/ Firm Value Int. Exp. EBITDA EBITDA LTM DCF 1999E DCF ------------------------------------------------------------------------------------------- Star Gas Partners, L.P. 44.8% 2.4x (a) 12.5x (a) 10.2x 15.4x (a) 10.6x AmeriGas Partners, L.P. 39.9% 2.2x 11.8X 9.9X 14.8x 10.4x Cornerstone Propane Partners, L.P. 39.7% 2.4x 12.7x 11.1X 15.3x 12.2x Ferrellgas Partners, L.P. 44.1% 2.1x 11.4x 9.0X 14.2x 9.5x Heritage Propane Partners, L.P. 49.8% 2.6x 9.7x 9.0x 12.6x 8.8x National Propane Partners, L.P. 55.2% 2.6x 12.7x 9.3x 12.0x 4.9x Suburban Propane Partners, L.P. 46.4% 3.3x 9.0x 8.4x 8.1x 10.1x - ------------------------------------------------------------------------------------------------------------------------------------ Mean 45.8% 2.6x 11.2x 9.5x 12.9x 9.3x Median 45.2% 2.5x 11.6x 9.2x 13.4x 9.8X - ------------------------------------------------------------------------------------------------------------------------------------ Pro Forma 55.2% 2.0x (a) 10.0x (a) 8.1x 12.5x (a) 8.1x
==================================================================================================================================== TRANSACTION SUMMARY AND ASSUMPTIONS (in thousands except per share and per unit data) - ------------------------------------------------------------------------------------------------------------------------------------ SUMMARY CASH FLOW AND COVERAGE ANALYSIS - ------------------------------------------------------------------------------------------------------------------------------------ ($ on per Unit basis) ESTIMATED NORMALIZED PROJECTED ----------------------------------------------------- 1998 1998 1999 2000 2001 2002 --------- ---------- --------- ---------- ---------- --------- STAR STAND ALONE EBITDA $ 18,781 $ 20,731 $ 23,032 $ 24,465 $ 25,898 $27,331 Interest Expense (7,922) (7,662) (8,574) (8,884) (9,351) (9,819) Maintenance CapEx (2,710) (2,710) (2,657) (2,705) (2,753) (2,803) Other (25) (25) (25) (25) (25) (25) --------- ---------- --------- ---------- ---------- --------- Distributable Cash Flow $ 8,124 $ 10,334 $ 11,776 $ 12,851 $ 13,769 $ 14,684 ========= ========== ========= ========== ========== ========= DCF per Common Unit $ 2.11 $ 2.68 $ 2.87 $ 2.85 $ 2.87 $ 2.90 DCF / Common Unit MQD 0.96 x 1.22 x 1.30 x 1.30 x 1.31 x 1.32 x DCF per Total Unit $ 1.27 $ 1.62 $ 1.77 $ 1.83 $ 1.88 $ 1.93 DCF / Total MQD 0.58 x 0.74 x 0.81 x 0.83 x 0.85 x 0.88 x Indicated Distribution per Common Unit $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 STAR PRO FORMA EBITDA ------ Star $ 18,781 $ 20,731 $ 23,032 $ 24,465 $ 25,898 $ 27,331 Petro 37,630 44,749 46,463 48,897 51,040 52,989 Synergies 500 500 500 500 500 500 --------- ---------- --------- ---------- ---------- --------- Total 56,911 65,980 69,995 73,862 77,438 80,820 --------- ---------- --------- ---------- ---------- --------- Interest Expense (28,307) (28,307) (29,004) (30,429) (31,685) (32,820) Maintenance CapEx (5,486) (5,486) (5,657) (5,765) (5,874) (5,987) Other (1,025) (1,025) (1,025) (1,025) (1,025) (1,025) --------- ---------- --------- ---------- ---------- --------- Distributable Cash Flow 22,093 31,162 34,309 36,643 38,854 40,988 ========= ========== ========= ========== ========== ========= DCF per Common Unit $ 2.04 $ 2.87 $ 3.06 $ 3.02 $ 2.95 $ 2.87 DCF per Sr. Sub & Common Unit $ 1.62 $ 2.29 $ 2.45 $ 2.46 $ 2.44 $ 2.41 DCF per Total Unit $ 1.53 $ 2.15 $ 2.31 $ 2.33 $ 2.32 $ 2.29 Indicated Distribution per Common Unit $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ACCRETION/DILUTION - ------------------------------------------------------------------------------------------------------------------------------------ DCF per Unit - Star Stand Alone $ 1.27 $ 1.62 $ 1.77 $ 1.83 $ 1.88 $ 1.93 DCF per Unit - Pro Forma $ 1.53 $ 2.15 $ 2.31 $ 2.33 $ 2.32 $ 2.29 - ------------------------------------------------------------------------------------------------------------------------------------ ACCRETIVE ($/UNIT) $ 0.25 $ 0.54 $ 0.54 $ 0.50 $ 0.44 $ 0.36 Accretive (%) 20.0% 33.0% 30.2% 27.5% 23.4% 18.9% - ------------------------------------------------------------------------------------------------------------------------------------ PRO FORMA HEATING OIL DCF PER UNIT $ 2.74 $ 2.73 $ 2.66 $ 2.56 DPUs ISSUED AS Sr SUB UNITS AT BEG OF YEAR - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ PRO FORMA CREDIT ANALYSIS - ------------------------------------------------------------------------------------------------------------------------------------ EBITDA/Interest 2.01 x 2.33 x 2.41 x 2.43 x 2.44 x 2.46 x LT Debt/EBITDA 5.43 4.69 4.74 4.73 4.72 4.71 LT Debt/EBITDA (Pro Forma for Full-Year Acquisitions) 5.27 4.55 4.50 4.50 4.50 4.50 # of Units Issued to Meet Debt Covenant - - 772 1,007 1,075 1,126 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ PRO FORMA COVERAGE RATIOS - ------------------------------------------------------------------------------------------------------------------------------------ MQD Coverage ------------ Common Unit 0.89 x 1.25 x 1.33 x 1.31 x 1.28 x 1.25 x Senior Subordinated Unit 0.71 1.00 1.07 1.07 1.06 1.05 Total Unit 0.66 0.94 1.00 1.01 1.01 1.00 Indicated Distribution Coverage ------------------------------- Common Unit 0.89 x 1.25 x 1.33 x 1.31 x 1.28 x 1.25 x Senior Subordinated Unit 0.71 1.00 1.07 1.07 1.06 1.05 Total Unit 0.66 0.94 1.00 1.01 1.01 1.00 - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ CURRENT MODEL ASSUMPTIONS - ------------------------------------------------------------------------------------------------------------------------------------ Scenario Version: 15-yr; $30mm @ 4.75x mid-year; $.01 '99, $.005 '00-'01, flat att. Petro Acqs/yr $30,000 Star Acqs/yr $10,000 G.P. Interest Subordinate Price per Petro Share $ 2.42 - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ EQUITY RESTRUCTURING - ------------------------------------------------------------------------------------------------------------------------------------ PETRO ------------------------------------------------ PUBLIC INSIDERS ---------------- ---------------- Securities Offered Sr Sub Sub & GP Incentive Rights 76% 24% Value Offered $ 2.42 $ 2.45 Current Market $ 1.31 $ 1.31 Premium to Market 84.1% 86.7% Implied Value of Security Offered $ 18.52 $ 15.41 Security Offered per Share 0.13064 0.15920 Total Shares 14,609 11,953 Insiders to Receive Sr. Sub 6,572 (6,572) Shares to Be Converted 21,181 5,382 Units Offered 2,767 857 DPUs Offered 909 Implied Value of GP/Unit $ 15.41 - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ SOURCES AND USES OF FUNDS - ------------------------------------------------------------------------------------------------------------------------------------ SOURCES: USES: Excess Cash on Hand $ 841 Repay Debt Principal $206,250 New Star Debt 120,O00 Redeem Preferred 31,767 New MLP Equity 139,363 Premium on Redemption/ New MLP E Equity - Exchange/Defeasance 2,844 Equity for Consent Fees 2,110 Consent Fees 2,110 Cash Balance 0 Transaction Fees 19,343 --------- ---------- $262,314 $262,314 ========= ========== - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCING SUMMARY - ------------------------------------------------------------------------------------------------------------------------------------ AMOUNT RATE UNIT PRICE ----------- ----------- ---------------- New Common Raised $ 139,363 $ 20.26 New Debt Raised 120,000 9.00% - ------------------------------------------------------------------------------------------------------------------------------------ Main Model Oct-7 Rev I with new Star & AGE 30 yr Petro Projections and tax effect. For discussion purposes only. 1 of 19
- ------------------------------------------------------------------------------------------------------------------------------------ UNITS OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------------------ CURRENT PRO FORMA ----------------------- ------------------------------ UNITS % UNITS % ----------- --------- ----------- ----------- Existing Common 3,858 60.5% 3,858 26.7% New Common 0 0.0% 6,983 48.3% New Common for Acquisitions 0 0.0% 0 0.0% Common to Petro Shareholders 0 0.0% 0 0.0% Sr Sub (Petro S/H's) 0 0.0% 2,767 19.1% Existing Sub 2,396 37.5% 567 3.9% Implied GP 128 2.0% 289 2.0% ----------- --------- ----------- ----------- Total Units 6,382 100.0% 14,465 100.0% =========== ========= =========== =========== - ------------------------------------------------------------------------------------------------------------------------------------
================================================================================ TRANSACTION SUMMARY AND ASSUMPTIONS ------------------------------------------------------------------------- (in thousands except per share and per unit data) 15-yr;$30mm @ 4.75x mid-year; $.01 '99,$.005 '00-'01, flat att. $10,000 Star Acqs/yr $30,000 Petro Acqs/yr G.P. Interest Subordinate $2.42 / Petro Share ------------------------------------------------------------------------- OPERATING ASSUMPTIONS - ---------------------------------------------------------------------------- PETRO STAR STAR NORMAL --------- -------- -------------- Normalized Maintenance CapEx $2,776 $ 2,710 $2,710 Maintenance CapEx Life 15 yrs 15 yrs Growth CapEx Life 6.5 yrs 15 yrs Marginal Tax Rate 33.0% 33.0% Deferred Tax Percent 0.0% Required Cash at Beginning for Initial Distribution 7,956 Minimum Star Stand Alone Cash Balance $ 500 Minimum Star Pro Forma Cash Balance $10,142 Consolidation Savings $ 500 Annual Bank Fees $ 692 $ 222 Last 20 Days Average Stock Price @ 10/14 $ 1.31 $ 20.26 Annual Transaction/Deal Expenses $ 450 Debt/EBITDA Bank Covenant Ratio 4.5x Issue Equity to Meet Bank Debt Covenants (Y/N)? yes
DEBT RESTRUCTURING - --------------------------------------------------------------------------------------------------------------- PROJECTED 12/31/97 PRIVATES: % TENDERED PRINCIPAL STRATEGY PRICE ------------- --------------- ----------------- ---------------- 11.96% Sr Notes 100.0% 60,000 Exchange 105.2% 14.10% Sr Notes 100.0% 3,100 Exchange 105.2% 14.10% Sub Notes 100.0% 3,100 Exchange 105.2% 14.33% Pfd Stock 100.0% 4,167 Neg. Tender 100.0% PUBLICS: 10.13% Sub Notes & Sr Notes 100.0% 50,000 Neg. Tender 100.0% 9.38% Sub Notes & Sr Notes 100.0% 75,000 Tender 100.0% 12.25% Sub Notes & Sr Notes 100.0% 81,250 Tender 103.5% 12.88% Pfd Stock 100.0% 30,000 Tender 92.0%
NEW SECURITY ASSUMPTIONS - ------------------------------------------------------ NEW MLP EQUITY - -------------- Gross Proceeds $139,363 Common Units for Consent Fee 2,110 Common Units to Enron - Total New Equity Value -------- Common Units to Public $141,473 6,983 units
NEW STAR DEBT ------------- Gross Proceeds 120,000 Gross Spread % 5.0% Gross Spread % 3.0% Gross Spread $ $6,968 Gross Spread $ $ 3,600 Offering Price/Share (current market price) $20.26 Coupon 9.00%
ACQUISITION ASSUMPTIONS - ------------------------------------------------------------------------------------ PETRO MULTIPLE 1998 1999 2000 2001 2002 - ----- ------------ ------------- ------------ ------------ ------------- -------------- Amount 4.75x $ 0 $ 30,000 $ 30,000 $ 30,000 $ 30,000 Timing End Mid Mid Mid Mid % EBITDA 0.0% 50.0% 50.0% 50.0% 50.0% Amount 4.75x $ 0 Timing Beg % EBITDA in Initial Year 100.0% Units Issued at: Common $ 22.00 Sr. Sub. $ 18.52 STAR STAND-ALONE - ---------------- Weather 15 Year Amount 6.50x $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 Timing End Mid Mid Mid Mid % EBITDA in Initial Year 0.0% 50.0% 50.0% 50.0% 50.0% Amount Financed with Equity $ 600 $ 11,169 $ 6,641 $ 6,375 $ 6,082 New Units @: 27 508 302 290 276 Units Issued at Price of: $ 22.00 $ 22.00 $ 22.00 $ 22.00 $ 22.00 Amount 6.50x $ 0 Timing Beg % EBITDA in Initial Year 100.0% (1) Includes 2.0% G.P. Interest.
EXCHANGE ASSUMPTIONS - ------------------------------------------------------------------------------------ EXISTING GETS NEW UNITS OF: --------------------------------------------------------------- SHAREHOLDERS OF: SHARES COMMON SR SUB JNR SUB G.P. DPUs (1) - ----------------------------------------------------------- ------------ ------------ ---------- ---------- ------------ Public Class A Shareholders 14,609 0 1,909 0 0 479 Insider Class B Shares 11 0 0 0 0 Insider Class C Shareholders 0 Class A & C Shares to Receive Jr Sub & GP 5,382 0 0 567 289 215 Class A Shares to Receive Sr Sub 6,572 0 859 0 0 215 -------- ----------- ----------- --------- --------- ---------- 26,574 0 2,767 567 289 909 E Sr. Sub - - ----------- ---------- Total 2,767 909 =========== ==========
TRANSACTION COSTS SUMMARY -------------------------------------------------------------- New MLP Equity $ 6,968 New Star Debt 3,600 Fairness Opinion 1,000 Financial Advisory 1,500 Exchange Fees on Public Petro Debt/Preferred 1,375 Legal Fees 2,500 Printing 1,000 Account Fees 250 Other: ----- Environmental 350 Rating Agencies 100 Roadshow 200 Asset Appraisal 250 Solicitation expenses 100 Other Bank Fees 150 -------- $19,343 ========
HEATING OIL DPU TRIGGER ---------------------- DCF/Unit % Convert $2.90 33.3% Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 2 of 19
CONSENT FEE CALCULATION - --------------------------------------------- % of Petro Stock 3.0% New Petro Shares 797 Exchange Ratio 7.65x -------- New Common Units 104 Common Unit Price $20.26 -------- Implied Value $2,110 ======== ________________________ (1) Reflects distributions for respective Unitholder class. All DPUs are issued as Senior Subordinated Units but are distributed pro rata to all Petro shareholders. Consequently, the Subordinated Unitholder class includes DPUs which have been issued as Senior Subordinated Units. Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 3 of 19
- ------------------------------------------------------------------------------------------------------------------------------------ SUMMARY DISTRIBUTIONS ------------------------------------------------------------------------- (in thousands except per share and per unit data) 15-yr; $30mm @ 4.75x mid-year; $.01 '99, $.005'00-'01, flat att. $10,000 Star Acqs/yr $30,000 Petro Acqs/yr G.P. Interest Subordinate $2.42 / Petro Share ------------------------------------------------------------------------- PROJECTED ----------------------------------------- UNITHOLDER CLASS (1) 1998 1999 2000 2001 2002 -------- -------- -------- -------- -------- COMMON UNITHOLDERS MQD $25,823 $27,869 $30,264 $32,796 Incentive Distributions - - - - -------- -------- -------- -------- Total $25,823 $27,869 $30,264 $32,796 CAPITAL Existing Sr. Sub Units - - - - Number of DPUs Issued as Sr Sub Units - - - - New Sr. Sub Units - - - - -------- -------- -------- -------- Total Sr. Sub Units - - - - Existing Common - - - - New Common - - - - -------- -------- -------- -------- Total Common - - - - Common MQD - - - - Common Incentive Distributions - - - - Sr. Sub MQD - - - - Sr. Sub. Incentive Distributions - - - - -------- -------- -------- -------- Total Distributions - - - - SENIOR SUBORDINATED UNITHOLDERS (1) Number of DPUs Issued as Sr Sub Units - - - - Base MQD $ 6,364 $ 6,364 $ 6,364 $ 6,364 Incremental MQD from DPUs Issued as Sr. Sub Units - - - - Incentive Distributions - - - - Incremental Incentive Distributions from DPUs Issued as Sr. Sub Units - - - - -------- -------- -------- -------- Total $ 6,364 $ 6,364 $ 6,364 $ 6,364 SUBORDINATED UNITHOLDERS (1) Numbers of DPUs Issued as Sr Sub Units - - - - Base MQD $ 1,305 $ 1,305 $ 1,305 $ 1,211 Incremental MQD from DPUs Issued as Sr. Sub Units - - - - Incentive Distributions - - - - Incremental Incentive Distributions from DPUs Issued as Sr. Sub Units - - - - -------- -------- -------- -------- Total $ 1,305 $ 1,305 $ 1,305 $ 1,211 GENERAL PARTNER Numbers of DPUs Issued as Sr Sub Units - - - - Base MQD $ 665 $ 665 $ 665 $ 617 Incremental MQD from DPUs Issued as Sr. Sub Units - - - - Incentive Distributions - - - - Incremental Incentive Distributions from DPUs Issued as Sr. Sub Units - - - - -------- -------- -------- -------- Total $ 665 $ 665 $ 665 $ 617 UNITHOLDER CLASS TOTAL Common Unitholders $25,823 $27,869 $30,264 $32,796 Senior Subordinated Unitholders 6,364 6,364 6,364 6,364 Subordinated Unitholders 1,305 1,305 1,305 1,211 General Partner 665 665 665 617 -------- -------- -------- -------- Total $34,158 $36,204 $38,599 $40,988 DISTRIBUTIONS TO DPUS CONVERTED TO SENIOR SUBORDINATED UNITS MQD $ 0 $ 0 $ 0 $ 0 Incentive Distributions - - - - -------- -------- -------- -------- Total - - - - check - - - - STAR STAND ALONE DISTRIBUTION ASSUMPTIONS - -----------------------------------------------------------------------------
======================================================================================================================= TRANSACTION SUMMARY AND ASSUMPTIONS (in thousands per share and per unit data) 15-yr; $30mm @ 4.75x mid-year; $.01'99, $.005 00-'01, flat att. RECAPITALIZATION ASSUMPTIONS - ------------------------------------------------------------------------------------------------------------------------ (D)EFEASE (T)ENDER (R)EDEEM PRINCIPAL LOCKUP (E)XCHANGE AS OF MATURITY PERIOD COUPON/ SINKING FUND PAYMENT ----------------- ---------------------- PETRO INSTRUMENTS: PREMIUM (N)OTHING 9/30/98 M/D YR DIVIDEND PAYMENT YEAR START - -------------------------------- -------------------- --------- --- -- -------- ------- ---------- 11.96% Sr Notes e $ 60,000 v 1-Oct 0 11.960% $ 0 0 14.10% Sr Notes e 3,100 v 15-Jan 2001 14.100% - 1997 14.10% Sub Notes e 3,100 v 15-Jan 2001 14.100% - 1997 10.13% Sub Notes & Sr Notes 0.0% t 50,000 v 1-Apr 2003 10.130% - 9.38% Sub Notes & Sr Notes 0.0% t 75,000 v 1-Feb 2006 9.375% - 12.25% Sub Notes & Sr Notes 0.0% t 81,250 v 1-Feb 2005 12.250% - 8.00% Acq. & Other Notes Pay n 14,508 v 0 8.000% - 0 8.25% Existing Credit Facility n 0 v 1998 8.250% - 0.00% Other Notes n 0 v NA NA 0.000% 0 NA -------- $286,958 PFRD STOCK: - ---------- 14.33% Pfd Stock t 4,167 v 1-Aug 1999 14.330% 4,167 1997 12.88% Pfd Stock 0.0% t 30,000 v 15-Feb 2009 12.875% 0 0.00% n 0 0.000% -------- $ 34,167 -------- Total Petro $321,125 -------- STAR INSTRUMENTS: - -------------------------------- 8.04% 1st Mortgage Notes 0.07 n 85,000 v NA NA 8.040% - 0 7.25% WC Revolver 0.00 n 4,785 NA NA 7.250% - NA 7.25% Acquisition Facility 0.01 n 9,000 v NA NA 7.250% - NA 9.00% New Debt n 120,000 v NA NA 9.000% 0 NA 7.17% Pearl Notes 0.01 n 11,000 NA NA 7.170% 0 NA -------- 8.21% $218,785 -------- Total Combined $539,910 ======== % RED./ RED/EXCHG DEFEASANCE RED/EXCHG/DEFEASE EXCHNAGED PETRO INSTRUMENTS: EXCHANGED PRICE PRICE ----------------- --------- - ----------------- --------- --------- ---------- VALUE PREMIUM INT RATE SECURITY TYPE ------ ------- -------- ------------- 11.96% Sr Notes 100.0% 105.2% $63,126 $ 0 9.0% Sr Notes 14.10% Sr Notes 100.0% 105.2% 3,260 - 11.5% Sr Notes 14.10% Sub Notes 100.0% 105.2% 3,260 - 11.5% Sub Notes 10.13% Sub Notes & Sr Notes 100.0% 100.0% 106.2% 50,000 - Sub Notes & Sr Notes 9.38% Sub Notes & Sr Notes 100.0% 100.0% 108.2% 75,000 - Sub Notes & Sr Notes 12.25% Sub Notes & Sr Notes 100.0% 103.5% 116.2% 84,094 2,844 Sub Notes & Sr Notes 8.00% Acq. & Other Notes Pay 0.0% 100.0% - - Acq. & Other Notes Pay 8.25% Existing Credit Facility 0.0% 100.0% - - Existing Credit Facility 0.00% Other Notes 0.0% 0.0% - - 11.0% Other Notes -------- $ 2,844 PFRD STOCK: - ---------- 14.33% Pfd Stock 100.0% 100.0% 4,167 - Pfd Stock 12.88% Pfd Stock 100.0% 92.0% 27,600 - Pfd Stock 0.00% - - -------- $ 0 -------- Total Petro $ 2,844 -------- STAR INSTRUMENTS: - -------------------------------- 8.04% 1st Mortgage Notes 0.0% 0.0% - - 1st Mortgage Notes 7.25% WC Revolver 0.0% 0.0% - - WC Revolver 7.25% Acquisition Facility 0.0% 0.0% - - Acquisition Facility 9.00% New Debt 0.0% 0.0% - - New Debt 7.17% Pearl Notes 0.0% 0.0% - - Pearl Notes -------- $ 0 -------- Total Combined $ 2,844 -------- 2,843.75 STAR PRO FORMA DISTRIBUTION ASSUMPTIONS - --------------------------------------------------------------------------------
Distribution ------------ Minimum Quarterly Distributions $2.20 First Target Distribution $2.42 Second Target Distribution $2.84 Third Target Distribution $3.70 Thereafter NM Target Distribution Level $2.20 Annual Distribution Increase $0.00 ------ Standard Distribution Structure ("S") or Target ("T") t ------ - ----------------------------------------------------------------------------------- Main Model Oct.8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 4 of 19
Distribution ------------ Minimum Quarterly Distribution $2.30 First Target Distribution $2.42 Second Target Distribution $2.84 Third Target Distribution $3.70 Thereafter NM 1998 1999 2000 2001 2002 Thereafter ---- ---- ---- ---- ---- Annual Indicated Distribution Increase $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Target Indicated Distribution Level $2.30 $2.30 $2.30 $2.30 $2.30 ------------- Standard Distribution Structure ("S") or Target ("T") t -------------- - -------------------------------------------------------------------------------- Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 5 of 19
================================================================================================================================ PRO FORMA OPENING BALANCE SHEET (in thousands except per share and per unit data) 15-yr; $30mm @ 4.75x mid-year; $0.1 '99, $.005 '00-'01, flat att. OPENING BALANCE SHEET STAR GAS PETRO PRO FORMA ------------ ---------- ------------ ---------- MERGER STAR GAS 9/30/98 9/30/98 ADJUSTMENTS 9/30/98 ------------ ---------- ----------- ---------- ASSETS: ----------- Cash $500 $9,642 $0 $10,142 ----------- Other Current Assets 15,376 71,498 - 86,874 ------------ ---------- ----------- ---------- Total Current Assets 15,876 81,140 - 97,016 PP&E and Intangibles, Net 161,292 106,695 - 267,987 Investments in Unconsolidated Affiliates - 1,582 (1,582) - Other Assets - 12,802 - 12,802 ------------ ---------- ----------- ---------- Total Assets 177,168 202,219 (1,582) 377,805 ============ ========== ========== LIABILITIES: Current Liabilities 10,101 80,870 - 90,971 8.25% Existing Credit Facility 4,785 - - 4,785 Long Term Debt 105,000 286,958 (82,804) 309,154 Total Preferred Stock - 34,167 (34,167) - Other Liabilities 76 10,710 - 10,786 ------------ ---------- ----------- ---------- Total Liabilities 119,962 412,705 (116,971) 415,696 Common Shareholder's/Partner's Equity 57,206 (210,486) 115,389 (37,891) ------------ ---------- ----------- ---------- Total Liabilities and Equity $177,168 $202,219 ($1,582) $377,805 ============ ========== =========== ========== check 0 - - - PRO FORMA CAPITAL STRUCTURE STAR GAS PETRO ------------ ---------- ------------ ---------- % NOT MERGER STAR GAS 9/30/98 9/30/98 TENDERED ADJUSTMENTS 9/30/98 ------------ ---------- ---------- ----------- -------- DEBT: 8.04% 1st Mortgage Notes $85,000 $0 $0 $85,000 7.25% WC Revolver 4,785 - - 4,785 7.25% Acquisition Facility 9,000 - - 9,000 7.17% Pearl Notes 11,000 - - 11,000 11.96% Sr Notes - 60,000 100.0% (60,000) - 14.10% Sr Notes - 3,100 100.0% (3,100) - 14.10% Sub Notes - 3,100 100.0% (3,100) - 10.13% Sub Notes & Sr Notes - 50,000 100.0% (50,000) - 9.38% Sub Notes & Sr Notes - 75,000 100.0% (75,000) - 12.25% Sub Notes & Sr Notes - 81,250 100.0% (81,250) - 0.00% Other Notes - 0 - - 8.00% Acq. & Other Notes Pay - 14,508 - 14,508 8.25% Existing Credit Facility - 0 - - 9.00% Exchanged Debt - - 63,126 63,126 11.50% Exchanged Debt 6,520 6,520 9.00% New Debt - - 120,000 120,000 Total L.T. Debt ------------ ---------- ----------- -------- 109,785 286,958 (82,804) 313,939 ------------ ---------- -------- PREFERRED STOCK: 14.33% Pfd Stock - 4,167 (4,167) - 12.88% Pfd Stock - 30,000 (30,000) - ------------ ---------- ----------- -------- Total Preferred - 34,167 (34,167) - ------------ ---------- -------- Common Equity 57,206 (210,486) 115,389 (37,891) ------------ ---------- -------- $166,991 $ 110,639 $276,048 ============ ========== ======== Total Capital================================================================================ (in thousands except per share and per unit data) Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 6 of 19
15-yr; $30mm @ 4.75x mid-year; $.01 '99, $.005 '00-01, flat att. STAR GAS STAND ALONE INCOME STATEMENT ESTIMATED NORMALIZED PROJECTED ---------------------------------------------- 1998 1998 1999 2000 2001 2002 -------------------------------------------------------------------------------- EBITDA $18,781 $20,731 $23,032 $24,465 $25,898 $27,331 Depreciation and Amortization 11,927 11,649 12,358 13,343 14,217 14,927 ------- ------- ------- ------- ------- ------- EBIT 6,854 9,082 10,674 11,122 11,681 12,404 Interest Expense (7,922) (7,662) (8,574) (8,884) (9,351) (9,819) Interest Income - - - - - - Other Income - - - - - - ------- ------- ------- ------- ------- ------- Income Before Taxes (1,068) 1,420 2,100 2,238 2,330 2,585 Current Income Taxes (25) (25) (25) (25) (25) (25) Deferred Income Taxes - - - - - - ------- ------- ------- ------- ------- ------- Net Income Available to Common ($1,093) $ 1,395 $ 2,075 $ 2,213 $ 2,305 $ 2,560 ======= ======= ======= ======= ======= ======= STAR GAS STAND ALONE UNITS OUTSTANDING Common Units Beginning Balance 3,832 3,832 3,858 4,356 4,652 4,936 Issuance 27 27 498 296 284 271 Buyback 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Ending Balance 3,858 3,858 4,356 4,652 4,936 5,207 ------- ------- ------- ------- ------- ------- Average Common Units Outstanding 3,858 3,858 4,107 4,504 4,794 5,071 Subordinated Units Beginning Balance 2,396 2,396 2,396 2,396 2,396 2,396 Issuance 0 0 0 0 0 0 Buyback 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Ending Balance 2,396 2,396 2,396 2,396 2,396 2,396 ------- ------- ------- ------- ------- ------- Average Subordinated Units Outstanding 2,396 2,396 2,396 2,396 2,396 2,396 GP Implied Units Beginning Balance 127 127 128 138 144 150 Issuance 1 1 10 6 6 6 Buyback 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Ending Balance 128 128 138 144 150 155 ------- ------- ------- ------- ------- ------- Average Implied GP Units Outstanding 128 128 133 141 147 152 Total Units 6,382 6,382 6,890 7,192 7,481 7,758 ======= ======= ======= ======= ======= ======= Average Units Outstanding 6,382 6,382 6,636 7,041 7,337 7,620 ======= ======= ======= ======= ======= ======= Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 7 of 19
==================================================================================================================================== (in thousands except per share and per unit data) 15-yr; $30mm @ 4.75x mid-year; $.01 '99, $.005'00-'01, flat att. ESTIMATED PROJECTED ----------------------------------------- STAR GAS STAND ALONE BALANCE SHEET 1998 1999 2000 2001 2002 --------- -------- -------- -------- -------- ASSETS: Cash Other Current Assets $ 500 $ 500 $ 500 $ 500 $ 500 Total Current Assets 15,376 17,662 18,433 19,204 19,974 --------- -------- -------- -------- -------- 15,876 18,162 18,933 19,704 20,474 PP&E and Intangibles, Net 161,292 162,041 161,853 160,839 159,165 Other Assets - - - - - --------- -------- -------- -------- -------- Total Assets 177,168 180,203 180,786 180,543 179,639 ========= ======== ======== ======== ======== LIABILITIES: Current Liabilities - Excluding Working Capital Borrowings 10,101 12,387 13,158 13,929 14,699 Total Debt 109,785 111,890 118,337 124,783 131,231 Other Liabilities 76 76 76 76 76 --------- -------- -------- -------- -------- Total Liabilities 119,962 124,353 131,571 138,788 146,007 Partner's Equity 57,206 55,850 49,215 41,755 33,633 --------- -------- -------- -------- -------- Total Liabilities and Equity $ 177,168 $180,203 $180,786 $180,543 $179,639 ========= ======== ======== ======== ======== Check 0 0 0 0 0 STAR GAS STAND ALONE CASH FLOW STATEMENT Net Income $ 2,075 $ 2,213 $ 2,305 $ 2,560 Depreciation and Amortization 12,358 13,343 14,217 14,927 Deferred Taxes - - - - Other Income - - - - Other Assets/Liabilities - - - - Change in Working Capital (0) 0 - - -------- -------- -------- -------- Cash from Operations 14,433 15,556 16,522 17,487 -------- -------- -------- -------- Maintenance CapEx (2,657) (2,705) (2,753) (2,803) Internal Growth CapEx - - - - External Growth CapEx (10,000) (10,000) (10,000) (10,000) -------- -------- -------- -------- Cash from Investments (12,657) (12,705) (12,753) (12,803) -------- -------- -------- -------- Acquisition Borrowing (1,169) 3,359 3,625 3,918 Remaining Distributions to Repay Debt 0 (0) 0 (0) Amortization of Mortgage Notes - - - - Borrowing to Repay Existing Debt - - - - Borrowing for Changes in WC 0 (0) - - Borrowing to Pay Full MQD 2,824 2,638 2,371 2,080 Change in Equity 11,169 6,641 6,375 6,082 Transaction/Deal Expenses (450) (450) (450) (450) Distributions (14,599) (15,490) (16,141) (16,763) -------- -------- -------- -------- Cash from Financing (2,226) (3,301) (4,219) (5,134) -------- -------- -------- -------- Net Cash Flow (450) (450) (450) (450) Initial Cash Balance 500 500 500 500 -------- -------- -------- -------- Cash Available for Paydown on WC Revolver and Acq. Facility 50 50 50 50 Minimum Cash Balance 500 500 500 500 Borrowing/(Paydown) on WC Revolver and Acq. Facility 450 450 450 450 -------- -------- -------- -------- Net Change in Cash - - - - -------- -------- -------- -------- Ending Cash Balance $ 500 $ 500 $ 500 $ 500 ======== ======== ======== ======== Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 8 of 19
=============================================================================================================================== (in thousands except per share and per unit data) 15-yr; $30mm @ 4.75x mid-year; $.01 '99, $.005 '00-'01, flat att. ESTIMATED NORMALIZED PROJECTED ------------------------------------------ 1998 1998 1999 2000 2001 2002 --------- ---------- -------- -------- --------- -------- STAR GAS STAND ALONE EBITDA CALCULATION (See Tab 3: Cases) - ------------------------------------------------------------------------------------------------------------------------------- Year 1 Year 2 Year 3 Year 4 Year 5 EBITDA Growth Rate 10.4% 11.1% 6.2% 5.9% 5.5% - ------------------------------------------------------------------------------------------------------------------------------- Base EBITDA: Timing ------ End 1998 Mid 1999 Mid 2000 Mid 2001 Mid 2002 Mid 2003 Mid 2004 Mid 2005 --------- --------- -------- -------- --------- -------- Total EBITDA $18,781 $20,731 $23,032 $24,465 $25,898 $27,331 ========= ========= ======== ======== ========= ======== Pro Forma Full-Year EBITDA for Debt Covenant Analysis 18,781 20,731 23,748 25,181 26,614 28,047 STAR GAS STAND ALONE DEPRECIATION CALCULATION Existing Depreciation $11,927 $11,649 $11,649 $11,649 $11,649 $11,649 1998 Normal 2,710 Maintenance CapEx: 1998 2,710 $ 0 $ 0 $ 181 $ 181 $ 181 $ 181 Annual Growth: 1.8% 1999 2,657 89 177 177 177 2000 2,705 90 180 180 2001 2,753 92 184 2002 2,803 93 Internal Growth CapEx: 1998 0 - - - - - - Annual Growth: 0.0% 1999 0 - - - - 2000 0 - 0 0 2001 0 - 0 2002 0 - 2003 0 2004 0 2005 0 External Growth CapEx: 1998 10,000 - - 667 667 667 667 Annual Growth: 0.0% 1999 10,000 333 667 667 667 2000 10,000 333 667 667 2001 10,000 333 667 2002 10,000 333 2003 10,000 2004 10,000 2005 10,000 --------- --------- -------- -------- --------- -------- Total Depreciation: $11,927 $11,649 $12,358 $13,343 $14,217 $14,927 ========= ========= ======== ======== ========= ======== Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 9 of 19
================================================================================================================================= STAR GAS STAND ALONE DEBT SCHEDULE (in thousands except per share and per unit data) 15-yr; $30mm @ 4.75x mid-year; $.01 '99, $.005 '00-'01, flat att. ESTIMATED NORMALIZED PROJECTED -------------------------------------------------- 1998 1998 1999 2000 2001 2002 --------- ---------- -------- -------- -------- -------- 8.04% 1st Mortgage Notes Beginning Balance $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 Borrowing 0 0 0 0 0 0 Amortization 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- Ending Balance 85,000 85,000 85,000 85,000 85,000 85,000 Interest Payment 8.04% 6,834 6,834 6,834 6,834 6,834 6,834 Make-Whole Payment 0 0 0 0 0 0 7.17% Pearl Notes Beginning Balance $ 0 $ 0 $ 11,000 $ 11,000 $ 11,000 $ 11,000 Borrowing 11,000 11,000 0 0 0 0 Amortization 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- Ending Balance 11,000 11,000 11,000 11,000 11,000 11,000 Interest Payment 7.17% 613 613 789 789 789 789 % of year Pearl Notes Outstanding 77.7% 77.7% 0 0 0 0 7.25% WC Revolver Beginning Balance - - $ 4,785 $ 4,785 $ 4,785 $ 4,785 Borrowing for Change in WC - - 0 (0) - - Borrowing/(Payment) 4,785 4,785 0 0 0 0 -------- -------- -------- -------- -------- -------- Ending Balance 4,785 4,785 4,785 4,785 4,785 4,785 Effective Avg WC Balance 3,490 (97) 14 0 0 14 Interest Payment 7.25% 253 (7) 1 0 0 1 7.25% Acquisition Facility Beginning Balance - - $ 9,000 $ 11,105 $ 17,552 $ 23,998 External Acquisitions 9,400 9,400 (1,169) 3,359 3,625 3,918 External Acquisitions at Beginning of 1999 - - - - - - Internal Acquisitions (400) (400) - - - - Borrowing to Pay Full MQD - - 2,824 2,638 2,371 2,080 Borrowings to Repay Existing Debt - - - - - - Borrowings/(Payment) - - 450 450 450 450 Remaining Distributions to Repay Debt - - 0 (0) 0 (0) -------- -------- -------- -------- -------- -------- Ending Balance 9,000 9,000 11,105 17,552 23,998 30,446 Interest Payment 7.25% 0 0 729 1,039 1,506 1,974 TOTAL DEBT Beginning Balance $ 85,000 $ 85,000 $109,785 $111,890 $118,337 $124,783 Amortization of Mortgage Notes - - - - - - Borrowing for Pearl Notes 11,000 11,000 - - - - Borrowing for Changes in WC - - 0 (0) - - Borrowing to Pay Full MQD - - 2,824 2,638 2,371 2,080 Acquisition Borrowing 9,000 9,000 (1,169) 3,359 3,625 3,918 Borrowing to Repay Existing Debt - - - - - - Remaining Distributions to Repay Debt - - 0 (0) 0 (0) Borrowing/Payment on WC Revolver and Acq. Facility 4,785 4,785 450 450 450 450 -------- -------- -------- -------- -------- -------- Ending Balance $109,785 $109,785 $111,890 $118,337 $124,783 $131,231 ======== ======== ======== ======== ======== ======== INTEREST EXPENSE Interest Expense $ 7,700 $ 7,440 $ 8,352 $ 8,662 $ 9,129 $ 9,597 Bank Fee 222 222 222 222 222 222 -------- -------- -------- -------- -------- -------- Total Interest Payment $ 7,922 $ 7,662 $ 8,574 $ 8,884 $ 9,351 $ 9,819 ======== ======== ======== ======== ======== ======== Main Model Oct-8 rev 2 with new Star & AGE 15yr Petro Projections and tax effect. For discussion purposes only. 10 of 19
- ------------------------------------------------------------------------------------------------------------------------------------ STAR GAS STAND ALONE SCHEDULE OF ACTUAL DISTRIBUTIONS 15-yr; $30mm @ 4.75x mid-year; $.01 '99, $.005 '00-'01, flat att. (in thousands except per share and per unit data) ESTIMATED NORMALIZED PROJECTED ----------------------------------------- ASSUMES REVISED TARGET DISTRIBUTIONS STRUCTURE 1998 1998 1999 2000 2001 2002 -------- --------- -------- -------- -------- -------- Distributable Cash - ------------------ Cash from Operations $ 10,834 $ 13,044 $ 14,433 $ 15,556 $ 16,522 $ 17,487 Maintenance CapEx (2,710) (2,710) (2,657) (2,705) (2,753) (2,803) Other 0 0 0 0 0 0 -------- --------- -------- -------- -------- -------- Total MLP Distributable Cash Flow 8,124 10,334 11,776 12,851 13,769 14,684 Distributable Cash Flow/Unit $ 1.27 $ 1.62 $ 1.77 $ 1.83 $ 1.88 $ 1.93 Average Units for Calculating Annual Distributions 2 2 2 2 - -------------------------------------------------- Common Units 3,858 3,858 4,107 4,504 4,794 5,071 Subordinated Units 2,396 2,396 2,396 2,396 2,396 2,396 General Partner Interest Unit Equivalent 128 128 133 141 147 152 -------- --------- -------- -------- -------- -------- Total Units Outstanding 6,382 6,382 6,636 7,041 7,337 7,620 Distribution Levels - ------------------- MQD $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 First Target $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 Second Target $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 Third Target $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 Indicated Cash Distribution $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 Distribution of MQD - ------------------- Cash Available 8,124 10,334 11,776 12,851 13,769 14,684 Cash Borrowed to Pay Full MQD 5,917 3,707 2,824 2,638 2,371 2,080 Allocation to: Common Units 8,489 8,489 9,036 9,909 10,546 11,157 Subordinated Units 5,271 5,271 5,271 5,271 5,271 5,271 General Partner Interest 281 281 292 310 323 335 First Target Distribution - ------------------------- Cash Available 0 0 0 0 0 0 Cash Required for Target Distribution 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Second Target Distribution - -------------------------- Cash Available 0 0 0 0 0 0 Cash Required for Target Distribution 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Incentive Distribution 0 0 0 0 0 0 Main Model Oct-8 Rev 2 with new Star & AGE 15yr Petro Projections and tax effect. For discussion purposes only. 11 of 19
- ---------------------------------------------------------------------------------------------------------------------------------- STAR GAS STAND ALONE SCHEDULE OF ACTUAL DISTRIBUTIONS (CONT'D) 15-yr; 30 mm @ 4.75x mid-year ; $ 0.1 '99, $.005 '00.01, flat att (in thousands except per share and per unit data) ESTIMATED NORMALIZED PROJECTED ------------------------------------------- 1998 1998 1999 2000 2001 2002 ------------ ---------- ------------ -------- --------- --------- REMAINING DISTRIBUTION - ---------------------- Cash Available 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Incentive Distribution 0 0 0 0 0 0 Repay Indebtedness (0) (0) (0) 0 (0) 0 TOTAL DISTRIBUTIONS - ------------------- Common Units 8,489 8,489 9,036 9,909 10,546 11,157 Subordinated Units 5,271 5,271 5,271 5,271 5,271 5,271 General Partner Interest 281 281 292 310 323 335 Incentive Distribution 0 0 0 0 0 0 ------------ ---------- ------------ -------- --------- ---------- Total Distributions $14,041 $14,041 $14,599 $15,490 $16,141 $16,763 ============ ========== ============ ======== ========= ========== TOTAL DISTRIBITION PER UNIT - --------------------------- Common Unit $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 Subordinated Unit 2.20 2.20 2.20 2.20 2.20 2.20 GP Unit 2.20 2.20 2.20 2.20 2.20 2.20 Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 12 of 19
==================================================================================================================================== (in thousands except per share and per unit data) 15-yr; $30mm @ 4.75x mid-year; $.01 '99, $.005 '00-'01, flat att. Estimated Normalized Projected ------------------------------------------------- 1998 1998 1999 2000 2001 2002 --------- ---------- ------- --------- ---------- ----------- PETRO EBITDA CALCULATION - ------------------------------------------------------------------------------------------------------------------------------------ Year 1 Year 2 Year 3 Year 4 Year 5 EBITDA Growth Rate - ------------------------------------------------------------------------------------------------------------------------------------ Base EBITDA: Timing ------ Acquisitions: End 1998 $ 0 Mid 1999 30,000 Mid 2000 30,000 Mid 2001 30,000 Mid 2002 30,000 Mid 2003 30,000 Mid 2004 30,000 Mid 2005 30,000 -------- -------- -------- -------- -------- -------- Total EBITDA $ 37,630 $ 44,749 $ 46,463 $ 48,897 $ 51,040 $ 52,989 ======== ======== ======== ======== ======== ======== Pro Forma Full-Year EBITDA for Debt Covenent Analysis 37,630 44,749 49,534 51,968 54,111 56,060 PETRO DEPRECIATION CALCULATION Existing Depreciation $ 28,710 $ 28,710 $ 28,710 $ 28,710 $ 28,710 $ 28,710 Maintenance CapEx: 1998 $ 2,776 - - 185 185 185 185 Annual Growth: 2.0% 1999 3,000 100 200 200 200 2000 3,060 102 204 204 2001 3,121 104 208 2002 3,184 108 2003 3,247 2004 3,312 2005 3,378 Internal Growth CapEx: 1998 $ 0 - - - - - - Annual Growth: 0.0% 1999 0 - - - - 2000 0 - - - 2001 0 - - 2002 0 - 2003 0 2004 0 2005 0 External Growth CapEx: 1998 $ 0 - - 0 0 0 0 Annual Growth: 0.0% 1999 30,000 2,308 4,615 4,615 4,615 2000 30,000 2,308 4,615 4,615 2001 30,000 2,308 4,615 2002 30,000 2,308 2003 30,000 2004 30,000 2005 30,000 -------- -------- -------- -------- -------- -------- Total Depreciation 28,710 28,710 31,303 36,120 40,942 45,767 ======== ======== ======== ======== ======== ======== Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 13 of 19
========================================================================================================================== (in thousands except per share and per unit data) 15-YR; $30MM @ 4.75X MID-YEAR; $.01 '99, $.005 '00-'01, FLAT ATT. STAR PRO FORMA INCOME STATEMENT ESTIMATED NORMALIZED PROJECTED ------------------------------------------ 1998 1998 1999 2000 2001 2002 --------- ---------- -------- -------- --------- -------- Combined EBITDA $56,411 $65,480 $69,495 $73,362 $76,938 $80,320 Consolidated Savings 500 500 500 500 500 500 --------- ---------- -------- -------- --------- -------- Pro Forma EBITDA 56,911 65,980 69,995 73,862 77,438 80,820 Depreciation and Amortization 40,637 40,359 43,661 49,463 55,159 60,694 --------- ---------- -------- -------- --------- -------- EBIT 16,274 25,621 26,334 24,399 22,279 20,126 Interest Expense (28,307) (28,307) (29,004) (30,429) (31,685) (32,820) Interest Income - - - - - - Other Income - - - - - - EBT (12,033) (2,686) (2,669) (6,031) (9,045) (12,694) --------- ---------- -------- -------- --------- -------- Current Income Taxes (1,025) (1,025) (1,025) (1,025) (1,025) (1,025) Deferred Income Taxes - - - - - - --------- ---------- -------- -------- --------- -------- Net Income Available to Common ($13,058) ($3,711) ($3,694) ($7,056) ($10,430) ($13,719) ========= ========== ======== ======== ========= ======== Pro Forma Full-Year EBITDA for Debt Covenant Analysis 56,911 65,980 73,782 77,649 81,225 84,607 STAR PRO FORMA UNITS OUTSTANDING Common Units - - Beginning Balance 10,842 10,842 11,614 12,621 13,696 Issuance - - - - - Issued to Meet Debt Covenant Ratio - 772 1,007 1,075 1,126 Issued to E - - - - - Buyback - - - - - --------- ---------- -------- -------- --------- -------- Ending Balance 10,842 10,842 11,614 12,621 13,696 14,822 --------- ---------- -------- -------- --------- -------- Average Common Units Outstanding 10,842 10,842 11,228 12,117 13,158 14,259 Deferred Participation Units - Beginning Balance - - 909 909 909 909 DPUs Issued at Beginning of Year - - - - - - --------- ---------- -------- -------- --------- -------- Ending Balance - - 909 909 909 909 SR Subordinated Units Beginning Balances - Sr Sub Units 2,767 2,767 2,767 2,767 2,767 DPUs Issued - - - - - Sr Sub Issuance - - - - - Sr Sub to E - - - - - Sr Sub Converted to G.P. Interest - - - - - --------- ---------- -------- -------- --------- -------- Ending Balance 2,767 2,767 2,767 2,767 2,767 2,767 --------- ---------- -------- -------- --------- -------- Average Sr Subordinated Units Outstanding 2,767 2,767 2,767 2,767 2,767 2,767 Subordinated Units Beginning Balance 567 567 567 567 567 Issuance - - - - - Buyback - - - - - --------- ---------- -------- -------- --------- -------- Ending Balance 567 567 567 567 567 567 --------- ---------- -------- -------- --------- -------- Average Subordinated Units Outstanding 567 567 567 567 567 567 GP Implied Units Beginning Balance 289 289 289 289 289 Issued in conjuction with DPUs - - - - - Issued to Meet Debt Covenant Ratio - - - - - Issued in conjuction with E Equity - - - - - Buyback - - - - - --------- ---------- -------- -------- --------- -------- 289 289 289 289 289 289 --------- ---------- -------- -------- --------- -------- Average Implied GP Units Outstanding 289 289 289 289 289 289 Total Units Outstanding 14,465 14,465 15,237 16,245 17,320 18,446 --------- ---------- -------- -------- --------- -------- Average Total Units Outstanding 14,465 14,465 14,851 15,741 16,782 17,883 ========= ========== ======== ======== ========= ======== Pro Forma Heating Oil Units Used for DPU Issue Calculation 8,215 8,700 9,446 10,263 Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 14 of 19
================================================================================ (in thousands except per share and per unit data) 15-yr; $30mm @ 4.75x mid-year; $.01 '99, $.005 '00-'01, flat att. ESTIMATED PROJECTED ------------------------------------------------------ STAR PRO FORMA BALANCE SHEET 1998 1999 2000 2001 2002 ----------- ------------ ------------ ------------ ------------ ASSETS: Cash $ 10,142 $ 10,142 $ 10,142 $ 10,142 $ 10,142 Other Current Assets 86,874 92,410 97,741 102,672 107,335 ----------- ------------ ------------ ------------ ------------ Total Current Assets 97,016 102,552 107,883 112,814 117,477 PP&E and Intangibles, Net 267,987 269,983 266,285 257,001 242,293 Other Assets 12,802 12,802 12,802 12,802 12,802 ----------- ------------ ------------ ------------ ------------ Total Assets 377,805 385,337 386,971 382,617 372,572 =========== ============ ============ ============ ============ LIABILITIES: Current Liabilities 90,971 96,507 101,838 106,769 111,432 8.25% Existing Credit Facility 4,785 4,785 4,785 4,785 4,785 Total LT Debt 309,154 332,019 349,421 365,513 380,732 Other Liabilities 10,786 10,786 10,786 10,786 10,786 ----------- ------------ ------------ ------------ ------------ Total Liabilities 415,696 444,097 466,830 487,852 507,734 Preferred Stock - - - - - Common Shareholder's Equity (37,891) (58,760) (79,859) (105,236) (135,162) ----------- ------------ ------------ ------------ ------------ Total Liabilities and Equity $377,805 $385,337 $386,971 $ 382,617 $ 372,572 =========== ============ ============ ============ ============ Check - - - 0 0 STAR PRO FORMA CASH FLOW STATEMENT Net Income ($3,694) ($7,056) ($10,430) ($13,719) Depreciation and Amortization 43,661 49,463 55,159 60,694 Deferred Taxes - - - - Other Assets/Liab - - - - Change in Non-Cash Working Capital - - - - ------------ ------------ ------------ ------------ Cash from Operations 39,966 42,408 44,728 46,975 Maintenance CapEx (5,657) (5,765) (5,874) (5,987) Internal Growth CapEx - - - - External Growth CapEx (40,000) (40,000) (40,000) (40,000) ------------ ------------ ------------ ------------ Cash from Investments (45,657) (45,765) (45,874) (45,987) Acquisition Borrowing 40,000 40,000 40,000 40,000 Remaining Distributions to Repay Debt (151) (438) (255) (0) Amortization of Existing Debt (6,127) (8,141) (60) (60) Borrowing to Repay Existing Debt 6,127 8,141 60 60 Borrowing for Changes in WC - - - - Change in Common Equity & GP Interest 16,984 22,160 23,653 24,781 Repayment of Preferred Stock - - - - Distributions (34,158) (36,204) (38,599) (40,988) ------------ ------------ ------------ ------------ Cash from Financing 22,675 25,518 24,799 23,793 Net Cash Flow 16,984 22,160 23,653 24,781 Initial Cash Balance 10,142 10,142 10,142 10,142 ------------ ------------ ------------ ------------ Cash Available for Paydown on WC Revolver and Acq. Facility 27,126 32,302 33,795 34,923 Minimum Cash Balance 10,142 10,142 10,142 10,142 Borrowing/(Paydown) on WC Revolver and Acq. Facility (16,984) (22,160) (23,653) (24,781) ------------ ------------ ------------ ------------ Ending Cash Balance 10,142 10,142 10,142 10,142 Net Change in Cash $ 0 ($0) ($0) $ 0 ============ ============ ============ ============ Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 15 of 19
==================================================================================================================================== (in thousands except per share and per unit data) 15-YR; $30MM @ 4.75X MID-YEAR; $.01 '99, $.005 '00-'01, FLAT ATT. ESTIMATED NORMALIZED PROJECTED ---------------------------------------------- STAR PRO FORMA DEBT SCHEDULE 1998 1998 1999 2000 2001 2002 --------- --------- --------- --------- --------- -------- 8.04% 1st Mortgage Notes Beginning Balance $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 Borrowing - - - - - - Amortization - - - - - - --------- --------- --------- --------- --------- -------- Ending Balance 85,000 85,000 85,000 85,000 85,000 85,000 Interest Payment 8.04% 6,834 6,834 6,834 6,834 6,834 6,834 7.17% Pearl Notes Beginning Balance 11,000 11,000 11,000 11,000 11,000 11,000 Borrowing - - - - - - Amortization - - - - - - --------- --------- --------- --------- --------- -------- Ending Balance 11,000 11,000 11,000 11,000 11,000 11,000 Interest Payment 7.17% 613 613 789 789 789 789 % of year Pearl Notes Outstanding 77.7% 77.7% 10.13% Sub Notes & Sr Notes Beginning Balance 50,000 50,000 - - - - Borrowing - - - - - - Amortization (50,000) (50,000) - - - - --------- --------- --------- --------- --------- -------- Ending Balance - - - - - - Interest Payment 10.13% - - - - - - 9.38% Sub Notes $ Sr Notes Beginning Balance 75,000 75,000 - - - - Borrowing - - - - - - Amortization (75,000) (75,000) - - - - --------- --------- --------- --------- --------- -------- Ending Balance - - - - - - Interest Payment 9.38% - - - - - - 12.25% Sub Notes & Sr Notes Beginning Balance 81,250 81,250 - - - - Borrowing - - - - - - Amortization (81,250) (81,250) - - - - --------- --------- --------- --------- --------- -------- Ending Balance - - - - - - Interest Payment 12.25% - - - - - - 9.00% New Debt Beginning Balance - - 120,000 126,127 134,268 134,328 Borrowing 120,000 120,000 6,127 8,141 60 60 Amortization - - - - - - --------- --------- --------- --------- --------- -------- Ending Balance 120,000 120,000 126,127 134,268 134,328 134,388 Interest Payment 9.00% 10,800 10,800 11,076 11,718 12,087 12,092 Exchange of 11.96% Senior Notes Beginning Balance - - 63,126 63,126 63,126 63,126 Borrowing 63,126 63,126 - - - - Amortization - - - - - - --------- --------- --------- --------- --------- -------- Ending Balance 63,126 63,126 63,126 63,126 63,126 63,126 Interest Payment 9.00% 5,681 5,681 5,681 5,681 5,681 5,681 8.00% Acq. & Other Notes Pay Beginning Balance 16,507 16,507 14,508 8,381 240 180 Borrowing - - - - - - Amortization (1,999) (1,999) (6,127) (8,141) (60) (60) --------- --------- --------- --------- --------- -------- Ending Balance 14,508 14,508 8,381 240 180 120 Interest Payment 8.00% 1,241 1,241 916 345 17 12 Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 16 of 19
================================================================================================================================= (in thousands except per share and per unit data) 15-yr; $30mm @ 4.75x mid-year; $.01 '99, $.005 '00-'01, flat att. ESTIMATED NORMALIZED PROJECTED ------------------------------------------- STAR PRO FORMA DEBT SCHEDULE (CONT'D) 1998 1998 1999 2000 2001 2002 --------- ---------- --------- --------- --------- --------- Exchange of 14.10% Senior Notes Beginning Balance - - 6,520 6,520 6,520 6,520 Borrowing 6,520 6,520 - - - - Amortization - - - - - - --------- ---------- --------- --------- --------- --------- Ending Balance 6,520 6,520 6,520 6,520 6,520 6,520 Interest Payment 11.50% 750 750 750 750 750 750 7.25% WC Revolver Beginning Balance - - 4,785 4,785 4,785 4,785 Borrowing for Change in WC - - - - - - Borrowing to Pay full MQD - - - - - - Borrowing/(Payment) 4,785 4,785 - - - - --------- ---------- --------- --------- --------- --------- Ending Balance 4,785 4,785 4,785 4,785 4,785 4,785 Effective Avg WC Balance 23,600 23,600 10,828 9,379 9,379 9,379 Interest Payment 7.25% 1,711 1,711 785 680 680 680 7.25% Acquisition Facility Beginning Balance - - 9,000 31,865 49,266 65,358 External Acquisitions 9,400 9,400 40,000 40,000 40,000 40,000 External Acquisitions at Beginning of 1999 - - - - - - Internal Growth CapEx (400) (400) - - - - Payment - - (16,984) (22,160) (23,653) (24,781) Remaining Distributions to Repay Debt - - (151) (438) (255) (0) --------- ---------- --------- --------- --------- --------- Ending Balance 9,000 9,000 31,865 49,266 65,358 80,577 Interest Payment 7.25% ($15) ($15) $ 1,481 $ 2,941 $ 4,155 $ 5,290 Total Pro Forma Debt Beginning Balance $ 318,757 $ 318,757 $ 313,939 $ 336,804 $ 354,206 $ 370,298 Amortization of Existing Debt (208,249) (208,249) (6,127) (8,141) (60) (60) Exchange of Notes 69,646 69,646 - - - - Borrowing for Changes in WC - - - - - - Acquisition Borrowing 9,000 9,000 40,000 40,000 40,000 40,000 Borrowing to Pay Full MQD - - - - - - Borrowing to Repay Existing Debt 120,000 120,000 6,127 8,141 60 60 Remaining Distribution to Repay Debt - - (151) (438) (255) (0) Borrowing/(Payment) on WC Revolver and Acq. Facility 4,785 4,785 (16,984) (22,160) (23,653) (24,781) --------- ---------- --------- --------- --------- --------- Ending Balance 313,939 313,939 336,804 354,206 370,298 385,517 Preferred Stock Beginning Balance 34,167 34,167 - - - - Repayment (34,167) (34,167) - - - - --------- ---------- --------- --------- --------- --------- Ending Balance - - - - - - Dividend Payment 14.33% - - - - - - Interest Expense/Dividends 27,615 27,615 28,312 29,737 30,993 32,128 Chase Fees 692 692 692 692 692 692 --------- ---------- --------- --------- --------- --------- Total Interest Payment/Dividends $ 28,307 $ 28,307 $ 29,004 $ 30,429 $ 31,685 $ 32,820 ========= ========== ========= ========= ========= ========= Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect . For discussion purposes only. 17 of 19
- -------------------------------------------------------------------------------- (in thousands except per share and per unit data) 15-yr $30mm @ 4.75x mid-year; $.01 '99, $.005 '00-'01, flat att. STAR PRO FORMA DISTRIBUTION SCHEDULE OF ACTUAL DISTRIBUTIONS Estimated Normalized Projected ------------------------------------------- 1998 1998 1999 2000 2001 2002 --------- ---------- --------- -------- ---------- ---------- Distributable Cash - ------------------ Cash from Operations (excl chg in WC) 27,579 36,648 $39,966 $42,408 $44,728 $46,975 Maintenance CapEx (5,486) (5,486) (5,657) (5,765) (5,874) (5,987) Other - - - - - - -------- ------- ------- ------- ------- ------- Total MLP Distributable Cash Flow 22,093 31,162 34,309 36,643 38,854 40,988 Distributable Cash Flow / Unit $ 1.53 $ 2.15 $ 2.31 $ 2.33 $ 2.32 $ 2.29 Distributable Cash Flow / Unit Pro Forma for DPU Conversion Average Units for Calculating Annual Distributions - -------------------------------------------------- Common Units 10,842 10,842 11,228 12,117 13,158 14,259 SR Subordinated Units 2,767 2,767 2,767 2,767 2,767 2,767 Subordinated Units 567 567 567 567 567 567 General Partner Interest Unit Equivalent 289 289 289 289 289 289 -------- ------- ------- ------- ------- ------- Total Units Outstanding 14,465 14,465 14,851 15,741 16,782 17,883 Distribution Levels $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 - ------------------- MQD $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 First Target $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 Second Target $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 Third Target $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 Indicated Cash Distribution $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 Distribution of MQD - ------------------- Cash Available 22,093 31,162 34,309 36,643 38,854 40,988 Allocation to: Common Units 22,093 24,936 25,823 27,869 30,264 32,796 SR Subordinated Units 0 6,226 6,364 6,364 6,364 6,364 Subordinated Units 0 0 1,305 1,305 1,305 1,211 General Partner Interest 0 0 665 665 665 617 First Target Distribution - ------------------------- Cash Available 0 0 151 438 255 0 Cash Required for Target Distribution 0 0 1,783 1,892 2,020 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 SR Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Total Distributions to: Common Units 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 ================================================================================ (in thousands except per share and per unit data) Main Model Oct-8 Rev 2 with new Star & AGE 15 yr Petro Projections and tax effect. For discussion purposes only. 18 of 19
STAR GAS PRO FORMA SCHEDULE OF ACTUAL DISTRIBUTIONS (CONT'D) 15-yr; $30mm @ 4.75x mid-year; $.01 '99, $.005 '00-'01, flat att ESTIMATED NORMALIZED PROJECTED ------------------------------------------------------- 1998 1998 1999 2000 2001 2002 --------- ---------- ----------- -------- --------- ----------- Second Target Distribution - -------------------------- Cash Available 0 0 0 0 0 0 Cash Required for Target Distribution 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 SR Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Incentive Right 0 0 0 0 0 0 Incentive Right to GP Interest 0 0 0 0 0 0 Incentive Right to Sub Units 0 0 0 0 0 0 Incentive Right to Sr. Sub Units 0 0 0 0 0 0 Total Distributions to: Common Units 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Third Target Distribution - ------------------------- Cash Available 0 0 0 0 0 0 Cash Required for Target Distribution 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Incentive Right 0 0 0 0 0 0 Incentive Right to GP Interest 0 0 0 0 0 0 Incentive Right to Sub Units 0 0 0 0 0 0 Incentive Right to Sr. Sub Units 0 0 0 0 0 0 Total Distributions to: Common Units 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Remaining Distribution - ---------------------- Cash Available 0 0 0 0 0 0 Cash Required for Indicated Distribution 0 0 0 0 0 0 Actual Cash Distributed 0 0 0 0 0 0 Allocation to: Common Units 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Incentive Right 0 0 0 0 0 0 Incentive Right to GP Interest 0 0 0 0 0 0 Incentive Right to Sub Units 0 0 0 0 0 0 Incentive Right to Sr. Sub Units 0 0 0 0 0 0 Repay Indebtedness 0 0 151 438 255 0 Total Distributions to: Common Units 0 0 0 0 0 0 Sr. Subordinated Units 0 0 0 0 0 0 Subordinated Units 0 0 0 0 0 0 General Partner Interest 0 0 0 0 0 0 Main Model Oct-8 Rev 2 with new Star & AGB 15 yr Petra Projections and tax effect. For discussion purposes only. 19 of 19
==================================================================================================================================== (in thousands except per share and per unit data) STAR GAS PRO FORMA SCHEDULE OF ACTUAL DISTRIBUTIONS (CONT'D) 15-yr; $30mm @ 4.75x mid-year; $.01 '99, $.005 '00-'01, flat att. Estimated Normalized Projected ------------------------------------------------- 1998 1998 1999 2000 2001 2002 ----------- ----------- ----------- ---------- ---------- ---------- Total Distributions - ------------------- Common Units $ 22,093 $ 24,936 $ 25,823 $ 27,869 $ 30,264 $ 32,796 SR Subordinated Units 0 6,226 6,364 6,364 6,364 6,364 Subordinated Units 0 0 1,305 1,305 1,305 1,211 General Partner Interest 0 0 665 665 665 617 --------- --------- --------- --------- --------- --------- Total Distributions $ 22,093 $ 31,162 $ 34,158 $ 36,204 $ 38,599 $ 40,988 ========= ========= ========= ========= ========= ========= 14,041 14,041 14,599 15,490 16,141 16,763 Total Distributions Per Unit - ---------------------------- Common Units $ 2.04 $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30 SR Subordinated Units 0.00 2.25 2.30 2.30 2.30 2.30 Subordinated & GP Units 0.00 0.00 2.30 2.30 2.30 2.13 PETRO PRO FORMA WORKING CAPITAL REQUIREMENTS (IN 000S, EXCEPT PER SHARE AMOUNTS) - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------- ASSUMPTIONS - ----------------------------------------------------------------------------------------------------------------- DEBT ATTRIBUTED TO PETRO: 9/30/98 Pro Forma Interest Annual Balance Rate Interest --------- ---------- ----------- 8.00 % Acquisition & Other Notes Pay $ 14,508 8.00% $ 1,161 9.00 % Exchanged Debt 63,126 9.00% 5,681 11.50 % Exchanged Debt 6,520 11.50% 750 9.25 % New Debt (a) 120,000 9.25% 11,100 ----------- $18,692 NEW COMMON UNITS TO REFINANCE OLD DEBT & CONSENT FEE: Price Per Number Annual Amount to be Raised Share of Units MQD Distribution - --------------------------------------------------- ---------- ----------- ------------------- $141,473 $20.259 6,983 $2.30 $16,061 INCREASE IN MDQ ON OLD COMMON UNITS Number Increase in Annual of Units MDQ Distribution ---------- ----------- ------------------- Old Common Units 3,832 $0.10 $383 OPERATING WORKING CAPITAL REQUIRE $ 500 TAX LIABILITY: $ 5,000 (a) AGE assumed rate of 9.25% - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------- REQUIREMENT CALCULATION - ----------------------------------------------------------------------------------------------------------------- Closing Date -------------------------------------------------- Jan 31 Feb 28 Mar 31 1999 1999 1999 -------------- ------------- -------------- Interest on Debt Attributed to Petro: $17,134 $15,576 $14,019 MDQ on New Common Units 16,061 16,061 16,061 Increase in MDQ on old Common Units 383 383 383 Operating Working Capital Requirement 500 500 500 Tax Liability 5,000 5,000 5,000 ----- ----- ----- Sub Total $39,078 $37,521 $35,963 Petro EBITDA Historical Quarter Ended: 6/30/98 ($6,355) ($6,355) ($6,355) 9/30/97 (20,908) (20,908) (20,908) 12/31/97 16,716 16,716 16,716 ------ Projected Month Ended: 2/28/99 20,434 3/31/99 13,281 13,281 ------ ------ Sub Total $23,168 $ 2,734 ($10,547) TOTAL $15,910 $34,787 $46,510 - ----------------------------------------------------------------------------------------------------------------- WORKING CAPITAL REQUIREMENT 18,000 35,000 46,500 - ----------------------------------------------------------------------------------------------------------------- Projected Month Ended Working Capital: Standard Calculation $20,670 $36,836 $47,341 Excess Cash Assuming a March 31 Close $ 841
CONTACT: Star Gas: Richard F. Ambury Vice President-Finance 203-328-7313 Robert L. Rinderman David C. Collins Jaffoni & Collins Incorporated 212/835-8500 or rinderman@jcir.com ------------------ Petro: George Leibowitz Treasurer 203/325-5470 Jim Bottiglieri Vice President and Controller 203/325-5460 FOR IMMEDIATE RELEASE STAR GAS PARTNERS, L.P. AND PETROLEUM HEAT AND POWER CO., INC. ANNOUNCE AGREEMENT IN PRINCIPLE TO COMBINE STAMFORD, CT (August 14, 1998) - Star Gas Partners, L.P., ("Star" or the "Partnership") (NYSE:SGU) and Petroleum Heat and Power Co., Inc. ("Petro" or the "Company") (NASDAQ:HEAT), jointly announced today that they have reached an agreement in principle to enter into a strategic business combination in which Petro would become a wholly-owned subsidiary of Star. This transaction would be effected through Petro shareholders exchanging their approximately 26.6 million shares of Petro Common Stock for approximately 3.6 million Star master limited partnership units which will be subordinated to the existing Star Common Units. Star Gas currently distributes to its partners, on a quarterly basis, all of its Available Cash, which is generally all of the cash receipts of the Partnership less all cash disbursements, with a targeted Minimum Quarterly Distribution ("MQD") of $0.55 per Unit, or $2.20 per Unit on an annualized basis. In connection with the Petro transaction, the Partnership will increase the MQD to $.575 per unit or $2.30 per Unit on an annualized basis. This increase in the MQD reflects the expectation that the transaction will be accretive to the Partnership. The increase in the MQD will also serve to raise the threshold needed to end the subordination period. Of the 3.6 million subordinated Partnership units anticipated to be distributed to Petro shareholders, 2.8 million will be Senior Subordinated Units and approximately 857,000 will be Junior Subordinated Units and General Partnership Interests. The Senior Subordinated Units will be publicly registered and tradable (they are expected to be listed on the NYSE) and will be subordinated in distributions to Star's Common Units. The Junior Subordinated Units and General Partnership Interests will not be registered nor publicly tradable and will be subordinated to both the Common Units and the Senior Subordinated Units. The Senior Subordinated Units will be exchanged with holders of Petro's publicly traded Class A common stock and the Junior Subordinated Units and General Partnership Interests will be exchanged with individuals that currently own Petro's Class C common stock. Certain holders of the Company's Class C Common Stock will also exchange their shares of Senior Subordinated Units. It is currently contemplated that 21,177,000 shares of Petro Common Stock will be exchanged for 2,767,000 Star Senior Subordinated Units. 5,386,000 shares of Petro common stock, held by certain individuals who currently own Petro Class C common stock, including Irik P. Sevin, Chairman of Petro and Star and other members of a group that currently controls Petro, will be exchanged for 579,000 Junior Subordinated Units and General Partnership Interests which are economically equivalent to 279,000 Junior Subordinated Units. Under the partnership subordination provision, distributions on Star Senior Subordinated Units may be made only after distributions of Available Cash on Common Units meet the MQD requirement. Distributions on Star Junior Subordinated Units and to the General Partner may be made only after distributions of Available Cash on Common Units and Senior Subordinated Units meet the MQD requirement. The Subordination Period will extend until the Partnership earns and pays its MQD for three years. In any event, as a condition of this transaction, the Partnership agreement will be amended so that no distribution will be paid on the Senior Subordinated Units, Junior Subordinated Units, or to the General Partner except to the extent Available Cash is earned from operations. Like many other publicly traded master limited partnerships, the Partnerships contains a provision which provides the General Partner with incentive distributions in excess of certain targeted amounts. This provision will be modified so that should there be any such incentive distributions, they will be made pro rata to the Senior Subordinated Units and Junior Subordinated Units as well as to the General Partner. In connection with the Transaction, the Senior Subordinated Units, Junior Subordinated Units and General Partnership Interests can earn, pro rata, 303,000 additional Senior Subordinated Units each year that Petro provides $.50 per unit accretion to Star to a maximum of 909,000 additional Senior Subordinated Units. -2- In connection with the transaction, Star intends to raise approximately $140 million through a public offering of Common Units and $120 million through a public or private offering of debt securities. The net proceeds from these offerings will be used primarily to redeem approximately $240 million in Petro public and private debt and preferred stock. Any such offering will be made only by means of a prospectus or in transactions not requiring registration under securities laws. This announcement does not constitute an offer to sell any securities. As part of this recapitalization, Petro also intends to restructure $66.2 million of privately held notes. Petro has reached an agreement with institutional holders of an aggregate of $149 million or 63.1% of such public debt and preferred stock to permit there redemption of such securities at the closing of the Star Gas/Petro Transaction. This agreement allows Petro to redeem its 9 3/8% Subordinated Debentures, 10 1/8% Subordinated Notes and 12 1/4% Subordinated Debentures at 100%, 100% and 103.5% of principal amount, respectively, and to redeem its 12 7/8% Preferred Stock at $23 per share. In consideration for this early redemption right, Petro has agreed to issue to such holders 3.37 shares of newly issued Petro Junior Convertible Preferred Stock for each $1,000 in principal amount or liquidation preference of such securities. Each share of Petro Junior Convertible Preferred Stock will be exchangeable into .13 of a Star common Unit at the conclusion of this transaction representing a maximum 104,000 MLP units. Should the transaction not be consummated, the Junior Preferred Stock will be converted into a like number of shares of Class A Common Stock. Petro will offer to the remaining holders of it's publicly traded debt and preferred stock the same right of early redemption under the same terms and conditions as agreed to by the consenting holders. This proposal will be made through an exchange offer that is expected to commence shortly. This transaction and the associated Petro recapitalization are subject to receiving an agreement to the early redemption from at least 90% of the outstanding publicly traded debt and preferred stock. Petro currently has a 40.7% equity interest in the Partnership and a subsidiary of Petro is its general partner. After completion of the transaction, the Petro shareholders will own approximately 26% of Star's equity through Subordinated Units and General Partnership Interests. The holders of the Partnership's Common Units (including an estimated 6.4 million Common Units that will be sold in the Partnerships $140 million public offering) will own an aggregate approximately 74% equity interest in the Partnership following the completion of the transaction. The General Partner of the Partnership will be a newly organized Delaware limited liability company that will be owned by members of Petro's current group. -3- In commenting on the proposed transaction, Joseph Cavanaugh, President of Star, "We believe that this strategic combination will have a number of benefits for the Partnership. Firstly, we are pleased with having achieved our goal of structuring a transaction which we believe will be immediately accretive, enabling us to increase the Partnership's MQD to $2.30 annually. Secondly, we believe this strategic combination will provide an additional source of attractive acquisition opportunities. Petro is the largest retail heating oil company in the country and the primary consolidator of that highly fragmented industry. Over the past nineteen years Petro has acquired 189 distributorships. As such, we believe this combination should provide the Partnership with a platform to increase its acquisition activities. Thirdly, over the past two and one-half years, in an effort to take advantage of its size, Petro has regionalized its operations, accessed developments in computer an and communication technology, and entered into cross-marketing partnerships. These programs have provided attractive productivity, operational and marketing results which should continue to benefit the Partnership. Finally, this combination significantly increases the size and market capitalization of the Partnership." Irik P. Sevin, CEO of Petro stated, "We believe the proposed transaction will enable Petro to achieve its stated objective of accessing equity to recapitalize and delever. This should permit us to continue our historically active acquisition program and facilitate the funding of our operational and marketing initiatives. In addition, the MLP structure should provide a better valuation format for Petro which is cash flow oriented and which has been the only publicly traded company in its industry. The transaction should provide our shareholders with the resumption of annual cash distributions which Petro had historically made." The Board of Directors of Star has appointed an independent committee of directors to represent Star Gas in this matter. This committee has retained A.G. Edwards & Sons, Inc. to act as it financial advisor and to determine the fairness of this transaction to the Star Common Unit holders. The Board of Directors of Petro has retained PaineWebber Incorporated as its financial advisor and Dain Rauscher Wessels to render an opinion as to the fairness to Petro of this transaction. The completion of the Transaction is subject to the negotiation and execution of definitive agreements, the receipt of regulatory approvals, the approval of Star's nonaffiliated common unit holders and Petro's nonaffiliated common shareholders, other necessary partnership and corporate approvals, fairness opinions from A.G. Edwards & Sons, Inc. and Dain Rauscher Wessels, and the agreement to early redemption by the holders of 90% of Petro's -4- publicly traded debt and preferred stock. Petro and Star will continue to operate as separate business units and this transaction will not have an impact on the day-to-day operations of either entity. There will be no reduction in the number of employees as a result of this transaction. Petroleum Heat and Power Co., Inc. is the largest retail distributor of home heating oil in the nation, serving approximately 350,000 customers in the Northeast and Mid-Atlantic states, including the metropolitan areas of New York, Boston, Washington, D.C., Baltimore, and Providence. Star Gas Partners L.P., the eighth largest retail propane distributor serves more than 166,000 customers throughout 74 locations in the Northeast, from Maine to Southern New Jersey. Star operates under several trademarks and trade names, including: Star Gas Service, Silgas, Blue Flame L.P. Gas, Maingas, Arrow Gas, Mid-Hudson Valley Propane, Coleman Gas Service, H&S Gas, Wilhoyte L.P. Gas, Rural Natural Gas, Pearl Gas, Bay State-Arrow Gas, Knowles L.P. Gas and Lowe Bros. & Dad. This Press Release includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which represent Petro and Star's expectations or beliefs concerning future events that involve risks and uncertainties. Although Petro and Star Gas believe that the expectations reflected in such forward-looking statements are reasonable, Petro and Star Gas can give no assurance that such expectations will prove to have been correct. Investors and prospective investors should read this Press Release in conjunction with Petro and Star Gas' Forms 10-K and 10-Q which include additional information that could affect Petro and Star Gas' financial results. -5-