<Page>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 2001
REGISTRATION NO. 333-13724
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM F-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------
PREEM HOLDINGS AB (PUBL)
(Exact name of registrant as specified in its charter)
NOT APPLICABLE
(Translation of registrant name into English)
<Table>
KINGDOM OF SWEDEN 2911 NOT APPLICABLE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
SANDHAMNSGATAN 51
P.O. BOX 27800, S-11590
STOCKHOLM, SWEDEN
TELEPHONE: (011-468) 450-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
CT CORPORATION
111 EIGHT STREET
NEW YORK, NEW YORK 10011
TELEPHONE: (212) 894-8940
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
WITH A COPY TO:
<Table>
J. STEPHEN HATFIELD, ESQ. PER BEHM
CARL L. LIEDERMAN, ESQ. PREEM HOLDINGS AB
AKIN, GUMP, STRAUSS, HAUER & FELD SANDHAMNSGATAN 51
ONE ANGEL COURT PO BOX 27800, S-11590
LONDON EC2R 7HJ, ENGLAND STOCKHOLM, SWEDEN
TELEPHONE: (011-44-207) 726-9600 TELEPHONE: (011-468) 450-1000
</Table>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of this Registration Statement.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SECURITY(1) OFFERING PRICE(1)(2) FEE(2)
10 5/8% Senior Secured Notes due 2011 E250,000,000(3) 100% $213,175,000 $53,294(5)
10 5/8% Senior Secured Notes due 2011 E55,000,000(3)(4) 100% $46,898,500 $11,725(5)
10 5/8% Senior Secured Notes due 2011 E1,650,000(4) 100% $1,431,540 $358(5)
</Table>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933, as amended.
(2) The registration fee has been calculated pursuant to Rule 457(f) under the
Securities Act of 1933.
(3) In connection with the filing of registration statement No. 333-13724 on
July 16, 2001, Euro amounts were translated into U.S. Dollars at E1.00 =
$0.8527, which was the noon buying rate in New York City for cable
transfers in Euro as certified for customs purposes by the Federal Reserve
Bank of New York on July 13, 2001.
(4) The E1,650,000 principal amount of Notes registered hereunder accounts for
the 3% premium price at which the E55,000,000 principal amount of Notes was
offered. The E1,650,000 has been translated into U.S. Dollars at E1.00 =
$0.8676, which was the noon buying rate in New York City for cable
transfers in Euro as certified for customs purposes by the Federal Reserve
Bank of New York on July 23, 2001.
(5) Fees of $65,019 and $358 were previously paid in connection with the
filings of registration statement No. 333-13724 on July 16, 2001 and
July 24, 2001, respectively.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Page>
PROSPECTUS
[LOGO]
PREEM HOLDINGS AB (PUBL)
OFFER TO EXCHANGE
E305,000,000
10 5/8% SENIOR SECURED NOTES DUE 2011
FOR
E305,000,000
10 5/8% SENIOR SECURED NOTES DUE 2011
----------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., LONDON TIME, ON OCTOBER 1,
2001, UNLESS EXTENDED BY US (SUCH TIME OR DATE, AS THE SAME MAY BE EXTENDED, THE
EXPIRATION DATE).
We are offering to exchange all of our outstanding 10 5/8% Senior Secured
Notes due 2011, the existing notes, for our registered 10 5/8% Senior Secured
Notes due 2011, the new notes, subject to the terms and conditions set forth in
this prospectus, as it may be supplemented or amended from time to time, and the
related letter of transmittal.
Terms of the exchange offer:
- We will exchange all outstanding existing notes that are validly tendered
and not withdrawn prior to the expiration of the exchange offer.
- You may withdraw tenders of existing notes at any time prior to the
expiration of the exchange offer.
- We will keep the exchange offer open for not less than 20 business days
or longer if required by applicable law after the date notice of the
exchange offer is mailed to holders of the existing notes.
- We believe that the exchange of existing notes for new notes will not be
a taxable exchange for U.S. federal income tax purposes, but we recommend
that you consult your tax advisor.
- We will not receive any proceeds from the exchange offer.
- The terms of the new notes are substantially identical to the existing
notes, except that the new notes have been registered under the
Securities Act of 1933, as amended, and transfer restrictions and
registration rights relating to the existing notes do not apply to the
new notes.
- We intend to list the new notes on the Luxembourg Stock Exchange.
YOU SHOULD CONSIDER THE RISK FACTORS BEGINNING ON PAGE 16 FOR A DISCUSSION
OF THE FACTORS YOU SHOULD CONSIDER BEFORE YOU DECIDE TO PARTICIPATE IN THE
EXCHANGE OFFER.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
YOU SHOULD ONLY RELY ON THE INFORMATION IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THE INFORMATION
CONTAINED IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
--------------------------
The date of this prospectus is August 28, 2001
<Page>
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
--------
Presentation of Certain Information......................... ii
Summary..................................................... 1
Risk Factors................................................ 16
Cautionary Statement Concerning Forward-Looking
Statements................................................ 27
Use of Proceeds............................................. 28
Structure of the Offerings of the Existing Notes............ 28
Exchange Offer and Registration Rights...................... 29
Capitalization.............................................. 38
Selected Consolidated Financial Information................. 40
Unaudited Pro Forma Consolidated Financial Information...... 46
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 51
Industry.................................................... 71
Business.................................................... 78
Management.................................................. 96
Ownership of Common Stock................................... 100
Related Party Transactions.................................. 101
Description of Certain Indebtedness......................... 103
Description of Notes........................................ 105
Book-Entry, Delivery and Form............................... 158
Material Swedish and United States Federal Income Tax
Consequences.............................................. 162
Plan of Distribution........................................ 168
Where You Can Find More Information......................... 169
Legal Matters............................................... 169
Independent Accountants..................................... 169
Listing and General Information............................. 170
Index to Financial Statements............................... F-1
</Table>
i
<Page>
PRESENTATION OF CERTAIN INFORMATION
In the petroleum refining industry, crude oil and refined product amounts
are generally stated in cubic meters ("m(3)") or barrels, each of which is a
unit of volume, or in metric tonnes, a unit of weight, depending on the product
and the reason for which the amount is being measured. These volumes may be
expressed in terms of barrels. A barrel contains 42 U.S. gallons. We have
converted cubic meters to barrels at the rate of 1 cubic meter=6.2898 barrels.
Unless otherwise indicated, all references in this prospectus to "SEK,"
"Krona" or "Kronor" are to the lawful currency of Sweden; all references to "$"
or "Dollar" are to the lawful currency of the United States; and all references
to "E" or "Euro" are to the single currency adopted by the member states of the
European Union participating in the European Union's Economic and Monetary
Union.
We publish our financial statements in Kronor. For your convenience, this
prospectus presents translations into Dollars of certain Krona amounts at the
Swedish Central Bank's exchange rate for the Krona against the Dollar on
June 30, 2001 of $1.00=SEK10.85. The table below sets forth, for the periods and
dates indicated, certain information concerning the exchange rate for the Krona
against the Dollar, based on data provided by the Swedish Central Bank. On
August 17, 2001, the exchange rate for the Krona against the Dollar was
$1.00=SEK10.18, based on data provided by the Swedish Central Bank.
<Table>
<Caption>
YEAR ENDED DECEMBER 31, SIX MONTHS
---------------------------------------------------- ENDED JUNE 30,
1996 1997 1998 1999 2000 2001
-------- -------- -------- -------- -------- --------------
SEK SEK SEK SEK SEK SEK
SEK TO DOLLAR EXCHANGE RATE:
Period end.................................... 6.87 7.87 8.07 8.53 9.54 10.85
Average during period(1)...................... 6.71 7.64 7.95 8.27 9.17 10.07
High during period............................ 6.94 8.09 8.35 8.66 10.33 11.00
Low during period............................. 6.56 6.86 7.59 7.71 8.34 9.27
</Table>
- ------------
(1) Based on monthly averages for the entire year as calculated by the Swedish
Central Bank.
The table below sets forth, for the periods and dates indicated, certain
information concerning the exchange rate for the Krona against the Euro, based
on data provided by the Swedish Central Bank.
<Table>
<Caption>
YEAR ENDED
DECEMBER 31, SIX MONTHS
------------------- ENDED JUNE 30,
1999(1) 2000 2001
-------- -------- --------------
SEK SEK SEK
SEK TO EURO EXCHANGE RATE:
Period end................................................ 8.56 8.86 9.18
Average during period(1).................................. 8.81 8.45 9.06
High during period........................................ 9.54 8.87 9.31
Low during period......................................... 8.55 8.09 8.84
</Table>
- ------------
(1) The Krona to Euro exchange rate was first quoted on January 4, 1999.
(2) Based on monthly averages for the entire year as calculated by the Swedish
Central Bank.
The table below sets forth, for the periods and dates indicated, certain
information concerning the exchange rate for the Dollar against the Euro based
on the noon buying rate in New York City for
ii
<Page>
cable transfers in foreign currencies, as certified for customs purposes by the
Federal Reserve Bank of New York (the "Noon Buying Rate").
<Table>
<Caption>
YEAR ENDED
DECEMBER 31, SIX MONTHS
------------------- ENDED JUNE 30,
1999(1) 2000 2001
-------- -------- --------------
SEK SEK SEK
DOLLAR TO EURO EXCHANGE RATE:
Period end................................................ 1.007 0.939 0.847
Average during period(2).................................. 1.065 0.923 0.885
High during period........................................ 1.181 1.034 0.954
Low during period......................................... 1.002 0.827 0.843
</Table>
- ------------
(1) The Euro Noon Buying Rate was first quoted on January 4, 1999.
(2) The average Noon Buying Rate on the last day of each month during the
applicable period.
We have provided the above-referenced translations and translations
throughout this prospectus solely for your convenience. We make no
representation that any amount of the currencies specified above, or elsewhere
in this prospectus, has been, or could be, converted into the applicable
currency at the rates indicated or any other rate.
iii
<Page>
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS PROSPECTUS CONTAINS A DESCRIPTION OF THE BASIC TERMS OF THE NEW
NOTES THAT WE ARE OFFERING AND THE EXCHANGE OFFER, AS WELL AS INFORMATION ABOUT
OUR BUSINESS AND DETAILED FINANCIAL DATA. YOU SHOULD READ THIS PROSPECTUS IN ITS
ENTIRETY. IN THIS PROSPECTUS, THE "COMPANY," "WE," "US" AND "OUR" REFER TO PREEM
HOLDINGS AB AND ITS CONSOLIDATED SUBSIDIARIES, EXCEPT WHERE OTHERWISE EXPRESSLY
STATED IN THIS PROSPECTUS. NOTWITHSTANDING THE PRECEDING SENTENCE, IN ALL
INSTANCES, SUCH REFERENCES ARE TO PREEM HOLDINGS AB IN THE CASE OF MARCH 31,
2001 BALANCE SHEET DATA. REFERENCES TO THE "NOTES" REFER TO THE EXISTING NOTES
AND THE NEW NOTES, EXCEPT WHERE OTHERWISE EXPRESSLY STATED.
THE EXCHANGE OFFER
On April 10, 2001, we completed the private placement of E250 million
aggregate principal amount of 10 5/8% Senior Secured Notes due 2011. On
July 20, 2001, we completed the private placement of an additional tranche of
E55 million aggregate principal amount of 10 5/8% Senior Secured Notes due 2011,
which notes Deutsche Bank AG London agreed to purchase prior to the date this
registration statement was publicly filed with the Commission. We relied on
exemptions from the registration requirements of the Securities Act and
applicable state securities laws when we issued the existing notes. Other than
the requirements of the U.S. federal and state securities laws, we are not
subject to any other local or foreign regulatory approvals or requirements in
connection with this exchange offer. As a condition to the purchase of the
existing notes by the initial purchasers, we agreed to commence an exchange
offer for the existing notes following the completion of the respective
offerings thereby. The exchange offer will expire at 5:00 p.m., London time, on
October 1, 2001, unless otherwise extended by us in our sole discretion. Set
forth below are some of the questions you, as a holder of the existing notes,
may have and answers to those questions.
Q. WHAT ARE THE NEW NOTES?
A. The new notes are the Preem Holdings AB 10 5/8% Senior Secured Notes due
2011. For a description of the new notes see "Description of Notes"
beginning on page 105.
Q. WHO IS OFFERING TO ACQUIRE THE EXISTING NOTES?
A. Preem Holdings AB, the issuer of the existing notes.
Q. WHEN WILL THE EXCHANGE OFFER EXPIRE?
A. The exchange offer will expire at 5:00 p.m., London time, on October 1,
2001, unless otherwise extended by us in our sole discretion.
Q. WHAT IS PREEM HOLDINGS OFFERING IN EXCHANGE FOR MY EXISTING NOTE?
A. For each tendered existing note, we are offering to exchange a new note in
the same principal amount of your existing note that has terms
substantially identical to those of your existing notes.
Q. IF I TENDER MY EXISTING NOTE, WHAT ACCRUED BUT UNPAID INTEREST WILL I
RECEIVE ON SEPTEMBER 30, 2001?
A. According to the terms of your existing note, you are entitled to receive
semi-annual interest payments on September 30 and March 31. If you tender
your existing note, you will receive one interest payment on September 30,
2001 that has two components. You will receive:
- an amount equal to the interest that has accrued on your tendered
existing note, at a rate of 10 5/8% per year, from the date on which the
first tranche of existing notes were issued (April 10, 2001) through the
date of the exchange of your existing note for a new note; and
1
<Page>
- an amount equal to the interest that has accrued on your new note at the
rate of 10 5/8% per year, from the date of the exchange of your existing
note through September 30, 2001.
If you do not tender your existing note, you will receive an interest
payment on September 30, 2001 equal to the interest that has accrued on your
existing note, at the rate of 10 5/8% per year, from the issue date of the first
tranche of existing notes (April 10, 2001) through September 30, 2001.
Q. WILL I HAVE TO PAY ANY FEES OR COMMISSIONS?
A. If you are the record owner of your existing notes and you tender your
existing notes in the exchange offer, you will not have to pay brokerage
fees or similar expenses. If you own your existing notes through a broker
or other nominee and your broker tenders your existing notes on your
behalf, your broker or nominee may charge you a fee for doing so. We
recommend that you consult your broker or nominee to determine whether any
charges will apply.
Q. HOW WILL I BE NOTIFIED IF THE EXCHANGE OFFER IS EXTENDED?
A. If Preem Holdings extends the exchange offer, it will make a public
announcement of the extension not later than 9:00 a.m., London time, on the
business day after the previously scheduled expiration date. See "Exchange
Offer and Registration Rights--Announcements" on page 33.
Q. HOW DO I TENDER MY EXISTING NOTES?
A. In order for you to validly tender your existing notes, Euroclear and
Clearstream Banking, are appropriate, must receive from you, your broker or
other nominee a properly completed and duly executed letter of transmittal
in accordance with the procedures established by Euroclear and Clearstream
Banking for transfer of book-entry interests through the electronic
transfer systems of Euroclear and Clearstream Banking prior to 5:00 p.m.,
London time, on the expiration date, unless otherwise extended by us in our
sole discretion. In addition, prior to 5:00 p.m., London time, on the
expiration date, either (1) the exchange agent must receive certificates
for tendered existing notes at one of those addresses or (2) tendered
existing notes must be transferred pursuant to the procedures for
book-entry transfer described under "Exchange Offer and Registration
Rights--Procedures for Tendering Existing Notes" on page 29 and the
exchange agent must receive a confirmation of such tender.
Q. UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED EXISTING NOTES AND WHAT
IS THE PROCESS?
A. You may withdraw your previously tendered existing notes at any time prior
to the exchange of the existing notes for new notes. In order to withdraw
your tendered existing notes you must follow the procedures described in
"Exchange Offer and Registration Rights--Withdrawal Rights" on page 31.
Withdrawn existing notes may be retendered in the exchange offer in
accordance with the procedures described under "Exchange Offer and
Registration Rights--Procedures for Tendering Existing Notes" on page 29
prior to the exchange of the existing notes for new notes.
Q. IF I TENDER MY EXISTING NOTES, WHEN WILL I RECEIVE MY NEW NOTES?
A. Upon the terms and subject to the conditions of the exchange offer, we will
accept for exchange all existing notes validly tendered and not properly
withdrawn promptly after the expiration date.
Q. IF I DECIDE NOT TO TENDER MY EXISTING NOTES, HOW WILL THE EXCHANGE OFFER
AFFECT MY EXISTING NOTES?
A. If you do not tender your existing notes, they will remain outstanding. If
the exchange offer is consummated, the market for any outstanding existing
notes is likely to be significantly more limited. See "Exchange Offer and
Registration Rights--Consequences of Exchanging or Failing to Exchange
Existing Notes" on page 34.
2
<Page>
Q. WHERE CAN I OBTAIN FURTHER INFORMATION ABOUT THE EXCHANGE OFFER?
A. You may obtain additional copies of this prospectus and the related letter
of transmittal by contacting the exchange agent at its address and
telephone number set forth under the heading "Exchange Offer and
Registration Rights--Exchange Agent" on page 34. Questions about the
exchange offer should be directed to the exchange agent at its address and
telephone number set forth under the heading "Exchange Offer and
Registration Rights--Exchange Agent" on page 34. Copies of the other
documents incorporated by reference in this prospectus may be obtained as
described under "Where You Can Find More Information" on page 169.
Q. WHAT ARE THE TAX IMPLICATIONS OF THE EXCHANGE OFFER?
A. You should read "Material Swedish and United States Federal Income Tax
Consequences" beginning on page 162 for a discussion of certain Swedish and
United States Federal income tax consequences of the exchange offer whether
or not you decide to tender your existing notes and certain United States
Federal and Swedish income tax consequences of holding and disposing of the
new notes. WE ENCOURAGE YOU TO CONSULT YOUR OWN TAX ADVISORS CONCERNING THE
SWEDISH AND UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF YOUR
PARTICULAR SITUATION AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF
ANY OTHER TAXING JURISDICTION.
3
<Page>
THE EXCHANGE OFFER
<Table>
Securities Offered........................ Preem Holdings AB (publ), a corporation organized under
the laws of the Kingdom of Sweden, is offering up to
E305 million aggregate principal amount of 10 5/8%
Senior Secured Notes due 2011, the new notes, which will
be registered under the Securities Act. The terms of the
new notes are substantially identical to the existing
notes, except that transfer restrictions and
registration rights relating to the existing notes do
not apply to the new notes.
The Exchange Offer........................ We are offering to issue the new notes in exchange for a
like principal amount of the existing notes. The
existing notes were not registered under the Securities
Act. We are offering to issue the new notes to satisfy
our obligations contained in the registration rights
agreements entered into when the existing notes were
sold under Rule 144A and Regulation S of the Securities
Act. You may tender your existing notes by following the
procedures under the heading "Exchange Offer and
Registration Rights" on page 29.
Expiration Date........................... The exchange offer will expire at 5:00 p.m., London
time, on October 1, 2001, unless otherwise extended by
us in our sole discretion.
Tenders; Withdrawal....................... The tender of the existing notes under the exchange
offer may be withdrawn at any time prior to October 1,
2001. If we decide for any reason not to accept any
existing notes for exchange, the existing notes will be
returned without expense to you promptly after the
expiration or termination of the exchange offer.
Conditions to the Exchange Offer.......... The exchange offer is subject to customary conditions,
which we may waive. Please read the section "Exchange
Offer and Registration Rights--Conditions to the
Exchange Offer" on page 32 of this prospectus for more
information regarding conditions to the exchange offer.
U.S. Federal Income Tax Consequences...... We believe that your exchange of existing notes for new
notes in the exchange offer will not result in any gain
or loss to you for U.S. federal income tax purposes.
Please read "Material Swedish and United States Federal
Income Tax Consequences" beginning on page 162 for a
further discussion of tax issues.
Resale of New Notes....................... If you decide to exchange your existing notes for new
notes, you must acknowledge that you are not engaging
in, and do not intend to engage in, a distribution of
the new notes. If you are a broker-dealer and you are
receiving the new notes for existing notes that you
acquired as a result of market-making or trading
activities, you must deliver a prospectus when you
resell new notes.
</Table>
4
<Page>
<Table>
Use of Proceeds........................... We will receive no proceeds from the exchange offer.
Exchange Agent............................ Deutsche Bank AG London is the exchange agent for the
exchange offer. The address and telephone number for the
exchange agent are set forth under the heading "Exchange
Offer and Registration Rights--Exchange Agent" on page
34 of this prospectus.
</Table>
CONSEQUENCES OF NOT EXCHANGING EXISTING NOTES
We will only issue new notes in exchange for existing notes that are
timely and properly tendered. Therefore, you should allow sufficient time to
ensure timely delivery of the existing notes and you should carefully follow the
instructions on how to tender your existing notes. Neither we nor the exchange
agent are required to tell you of any defects or irregularities with respect to
your tender of the existing notes. We do not currently intend to register the
existing notes under the Securities Act. If you do not exchange your existing
notes in the exchange offer, the transfer of existing notes will continue to be
restricted. In general, you may offer or sell your existing notes only if:
- they are registered under the Securities Act and applicable state
securities laws,
- they are offered or sold under an exemption from the Securities Act and
applicable state securities laws, or
- they are offered or sold in a transaction not subject to the Securities
Act and applicable state securities laws.
We do not currently intend to register the existing notes under the
Securities Act. However, if we are unable to consummate the exchange offer
contemplated hereby or if holders of existing notes are not permitted to
participate in the exchange offer under certain circumstances we may be required
to file a shelf registration statement to cover resales of the existing notes.
After the exchange offer is consummated, if you continue to hold any
existing notes, you may have trouble selling them because there will be few
existing notes outstanding. If a market for non-exchanged existing notes exists
after consummation of the exchange offer, the existing notes may trade at a
discount to the price at which they would trade if the transaction contemplated
hereby was not consummated, depending on prevailing interest rates, the market
for similar securities and other factors. In addition, if a large number of
existing notes are not tendered or are tendered improperly, the limited amount
of new notes that would be issued and outstanding after we complete the exchange
offer could lower the market price of such new notes.
5
<Page>
THE NEW NOTES
The terms of the new notes and the existing notes are identical in all
material respects, except that transfer restrictions and registration rights
relating to the existing notes do not apply to the new notes.
<Table>
Securities Offered........................ Preem Holdings AB is offering up to E305,000,000 10 5/8%
Senior Secured Notes due 2011.
Interest.................................. We will pay interest on the new notes on September 30
and March 31 of each year, beginning on September 30,
2001.
Maturity.................................. March 31, 2011.
Ranking................................... The new notes will be senior debt of Preem Holdings AB
secured by a first priority pledge of all outstanding
shares of capital stock of Preem Petroleum AB, our
wholly-owned operating subsidiary, and a first priority
security assignment of a SEK2,277 million subordinated
intercompany loan from us to Preem Petroleum AB. The new
notes will rank senior in right of payment to all of our
existing and future indebtedness that is, by its terms
or by the terms of the agreement or instrument governing
such indebtedness (including the E27 million loan from
Corral Petroleum Holdings AB made in connection with our
offering of existing notes in April 2001), expressly
subordinated in right of payment to the new notes, and
PARI PASSU in right of payment with all of our existing
and future senior indebtedness, including the existing
notes. The new notes will rank junior to all of the
existing and future debt and other liabilities
(including to trade creditors) of Preem Petroleum AB and
each of our other subsidiaries. Assuming that as of
March 31, 2001, we completed both offerings of the
existing notes, as described under "Structure of the
Offerings of the Existing Notes" on page 28, and used
the proceeds of such offerings, then Preem Holdings AB
would have had no senior debt, other than the existing
notes, and its subsidiaries would have had SEK8,682
million of total liabilities to which the new notes
would effectively rank junior.
Optional Redemption....................... On or after March 31, 2006, we may redeem some or all of
the new notes at the redemption prices listed in the
section entitled "Description of Notes--Optional
Redemption" on page 109. Until March 31, 2004, we may
redeem up to 35% of the original principal amount of the
new notes using the proceeds of certain public equity
offerings at the price listed in the section
"Description of Notes--Optional Redemption" on page 109.
We may also redeem all of the new notes, but not just a
portion of them, at any time, upon giving proper notice,
if changes in tax laws impose certain withholding taxes
on amounts payable on the new notes. If we decide to do
this, we must pay you a price equal to the principal
amount of the new notes plus accrued interest and
certain other amounts
</Table>
6
<Page>
<Table>
described in the section "Description of
Notes--Redemption for Taxation Reasons" on page 109.
Change of Control......................... Upon the occurrence of a change of control at any time,
you will have the right to require us to repurchase your
new notes at a price equal to 101% of the principal
amount thereof together with accrued and unpaid interest
and certain other amounts, if any, to the date of
repurchase. See "Description of Notes--Change of
Control" on page 110.
Certain Covenants, Additional Notes....... The Indenture governing the new notes between us and
Bankers Trust Company, as trustee, and Deutsche Bank AG
London, as principal paying agent (the "Indenture"),
will, among other things, restrict, with certain
exceptions, our ability and the ability of our
subsidiaries to:
- borrow money;
- pay dividends on stock, purchase stock or issue
certain types of stock;
- make investments;
- use assets as security in other transactions;
- issue or sell capital stock of subsidiaries;
- engage in sale and leaseback transactions; and
- guarantee other indebtedness.
For more details, see "Description of Notes--Certain
Covenants" on page 113. Additional notes may be issued,
from time to time, under the Indenture and will benefit
from the pledge and security assignment described above
under " -- Ranking."
Trustee................................... Bankers Trust Company
Principal Paying Agent.................... Deutsche Bank AG London
Luxembourg Paying and Transfer Agent...... Deutsche Bank Luxembourg S.A.
Listing................................... We have designated all of the existing notes for trading
on the Luxembourg Stock Exchange. We expect to designate
the new notes for trading on the Luxembourg Stock
Exchange as well.
Currency of Payment....................... The new notes are denominated in Euro. Holders will
receive principal, interest and all other payments in
respect of such notes in Euro.
Use of Proceeds........................... We will not receive any proceeds from the exchange
offer.
</Table>
7
<Page>
PREEM HOLDINGS AB
OVERVIEW
We are one of Europe's largest independent oil refining companies and the
largest Swedish oil company. We refine crude oil and then market and sell
refined products primarily in Sweden and other northern European markets. Our
refineries represent over two-thirds of the refining capacity in Sweden and
approximately one-quarter of the refining capacity in Scandinavia. We sell more
petroleum products in Sweden than any of our competitors. For the year ended
December 31, 2000, we had a leading market share of approximately 38% of the
home-heating gasoil market, 28% of the diesel fuel market and approximately 50%
of the heavy fuel oil market. Moreover, including volumes sold through other oil
companies, we believe that our market share in Sweden would be approximately 40%
in diesel and 28% in gasoline.
We conduct our business through our operating company, Preem Petroleum AB,
which is comprised of three divisions, a Supply and Refining Division, a Swedish
Market Division and an International Division.
REFINING OPERATIONS
Our Supply and Refining Division operates the majority-owned Scanraff
refinery and the wholly-owned Preemraff refinery, as well as an extensive
network of storage depots throughout Sweden. These refineries refined
approximately 23.5 million barrels of crude oil in the first quarter of 2001
compared to 23.8 million barrels in the first quarter of 2000. These refineries
refined approximately 102.9 million barrels of crude oil in 2000, 93.2 million
barrels in 1999 and 92.3 million barrels in 1998. This division sells a full
range of refined products that meet and, in some cases, surpass the highest EU
environmental specifications. Our Supply and Refining Division generated EBITDA
of SEK316 million in the first quarter of 2001 and SEK388 million in the first
quarter of 2000. This Division generated EBITDA of SEK2,047 million in 2000,
SEK1,590 million in 1999 and SEK1,024 million in 1998. For a more detailed
discussion of our refining operations, see "Business--Supply and Refining
Operations" on page 79.
SCANRAFF REFINERY. Scanraff is a complex, large-scale refinery with a
strong market position, producing a full range of refined products. The refinery
operates a single crude distillation unit. The refinery also has visbreaker,
catalytic cracker and mild hydrocracker upgrading units, which are units geared
towards converting a significant portion of the refinery's residual fuel oil to
lighter, higher-margin products under conditions of high temperature and
pressure. "Fuel oil" is a refined product from the lower range of the
distillation process used primarily by industrial customers, like electric
utilities, for steam and power generation. In addition, Scanraff has a storage
capacity of 17 million barrels, which provides it with additional operating
flexibility. Solomon Associates, a recognized oil refinery industry analyst, has
ranked Scanraff in the first quartile of European refineries for operating cost
efficiency and return on investment for each year in which the survey has been
conducted for the past decade. Scanraff has a total refining capacity of
approximately 210,000 barrels per calendar day, representing approximately 50%
of Swedish refining capacity. Scanraff began production in 1975, and is located
on the west coast of Sweden, north of the city of Gothenburg. We own 78.5% of
the refinery with the exception of the catalytic cracker, of which we own 50%.
The remainder is owned by our joint venture partner, Hydro R&M Holding AS, an
affiliate of Norsk Hydro AS. The refining margins at Scanraff were $2.00/barrel
in the first quarter of 2001 and $1.59/barrel in the first quarter of 2000.
Scanraff's refining margins were $2.81/barrel in 2000, $1.29/barrel in 1999 and
$2.58/barrel in 1998. These amounts exceeded the average of the International
Energy Agency's industry indicators for northwest European cracking refineries
by $0.76/barrel, $0.98/barrel and $1.28/barrel, respectively, for each of these
years. "Refining margin" is the gross refining margin less variable refining
costs, which consist of volume-related costs, such as the cost of energy.
8
<Page>
PREEMRAFF REFINERY. Preemraff is one of the most sophisticated
hydroskimming refineries in Europe. Hydroskimming is a process that separates
crude oil into its component parts and further processes these to make finished
products. The refinery produces products that meet and, in some cases, surpass
the highest EU environmental specifications. For example, its highly
sophisticated desulphurization/dearomatization unit permits it to manufacture
virtually sulphur-free (10 parts per million) diesel. "Diesel" is a refined
product from the middle range of the distillation process used primarily as a
fuel source for vehicles. Preemraff has a refining capacity of approximately
125,000 barrels per calendar day, representing from approximately 25% to 30% of
Swedish refining capacity. The refinery is located near the harbor of
Torshamnen, Sweden's largest harbor, in Gothenburg. Preemraff's proximity to
this harbor helps it to maintain low crude oil transportation costs and its
proximity to Gothenburg, the second largest city in Sweden, helps it to minimize
distribution costs. Preemraff also sells surplus heat generated as a result of
the refining process to the city of Gothenburg and to AB Volvo. Preemraff
commenced operations in 1967, and we acquired the refinery from BP in 1991. The
refining margins at Preemraff were $0.97/barrel in the first quarter of 2001 and
$0.57/barrel in the first quarter of 2000. Preemraff's refining margins were
$0.97/barrel in the first quarter of 2001, and $0.57/barrel in the first quarter
of 2000. The refining margins at Preemraff were $1.74/barrel in 2000,
$0.68/barrel in 1999 and $1.44/barrel in 1998. These amounts exceeded the
average of the International Energy Agency's indicators for northwest European
hydroskimming refineries by $1.32/barrel, $1.38/barrel and $0.94/barrel,
respectively, for each of these years.
MARKETING OPERATIONS
Our Swedish Market Division consists of a Home-Heating and
Business-to-Business Segment and a Station and Consumer Segment. This division
sells home-heating gasoil directly to end-users and gasoil, diesel and fuel oil
directly to Swedish companies, using refined products purchased from our Supply
and Refining Division. "Gasoil" is a refined product from the lower range of the
distillation process used as a heating fuel or a fuel for combustion engines in
industrial, residential, agricultural and commercial sectors. We also sell
gasoline, diesel, lubricants, shop merchandise and other products through
approximately 527 Preem-branded service stations. "Gasoline" is a refined
product from the middle range of the distillation process used primarily as a
fuel for vehicles. Our Swedish Market Division generated EBITDA of
SEK80 million in the first quarter of 2001 and SEK73 million in the first
quarter of 2000. This division generated EBITDA of SEK186 million in 2000,
SEK246 million in 1999 and SEK211 million in 1998.
Our International Division sells refined products primarily to wholesale
customers in Poland and, to a lesser extent, in Norway. As a result of the
expansion of our International Division, there are approximately 90 stations in
Poland, most of which were operated under the Preem-brand name, compared to
approximately 50 stations at the end of 1998. Our International Division
generated a negative EBITDA of SEK10 million in the first quarter of 2001 and a
negative EBITDA of SEK5 million in the first quarter of 2000. This division
generated a negative EBITDA of SEK46 million in 2000, a negative EBITDA of
SEK15 million in 1999 and a positive EBITDA of SEK10 million in 1998. For a more
detailed discussion of our marketing operations, see "Business--Marketing
Operations" on page 88.
BUSINESS STRATEGY
Our business strategy is to enhance our operating margins and strengthen
our position in the oil refining industry. We intend to implement this strategy
through the following measures:
- MAINTAIN AND ENHANCE OUR REFINERIES' MARGINS. We intend to maintain our
refining margin advantage and relative competitive position. Our
objective is to maximize the operating margins generated by our
refineries by increasing sales to our marketing operations in Sweden and
Poland, and by exploiting the synergies between our two refineries. We
will continue to
9
<Page>
focus on improving our refining margins and generating cost efficiencies,
and we intend to make disciplined capital investments to accomplish these
objectives.
- LEVERAGE OUR COMPETITIVE ADVANTAGE. We intend to increase sales of, and
develop new markets for, high-margin products, such as middle
distillates, including high value-added products, such as virtually
sulphur-free diesel. We believe that demand will continue to outpace
supply for these high-margin products in the coming years. We believe
this to be the case particularly outside Sweden, as a result of potential
future regulatory changes, tax and other incentives to market and
purchase these products and increased environmental awareness.
- IMPROVE THE MARGINS FROM OUR MARKETING OPERATIONS. In the Home-Heating
and Business-to-Business Segment of our Swedish Market Division, our
objective is to retain and enhance our strong market position by
developing products and service packages to increase customer loyalty. We
intend to reduce costs, including by replacing all of our regional sales
offices with a centralized national call center. In the Station and
Consumer Segment of our Swedish Market Division, we intend to strengthen
our network of service stations by disposing of unprofitable stations,
increasing the number of low-cost unmanned stations, and installing
full-service convenience stores in appropriate locations that have
relatively high throughput. We also intend to increase the number of
franchised stations in Sweden, which will permit us to reduce the amount
of capital employed at these stations. See "Business--Marketing
Operations" on page 88.
- DEVELOP COMPLEMENTARY BUSINESSES AND STRATEGIC RELATIONSHIPS. Our
long-term strategy is to develop complementary businesses that leverage
our core strengths and our Preem brand, while diversifying both the
products we offer and the customers served. We regularly consider
possible joint ventures, partnerships, acquisitions and other alliances
in Sweden and throughout northern Europe as a way to improve throughput,
reduce costs and increase market share, thereby increasing margins and
generating additional cash flow. We also consult with Norsk Hydro AS on a
regular basis to discuss possible improvements to, and other
rearrangements of, our existing relationships.
THE ISSUER
The issuer of the notes is Preem Holdings AB, a Swedish company. We were
originally established in 1980 as Labrador Svenska AB and are registered with
the Swedish Patent and Registration Office under the number 556206-9673. Our
name was changed from Labrador Svenska AB to Swedoil AB in September 1981.
Swedoil AB was a subsidiary of Preem Petroleum AB that had been dormant since
1983. On March 1, 2001, our name was changed from Swedoil AB to Preem Holdings
AB, through an amendment to our Articles of Association and our subsequent
registration with the Swedish Patent and Registration Office. The purpose of
this name change was to accurately reflect our status as a holding company and
our position within our overall corporate structure vis-a-vis Corral Petroleum
Holdings AB, our parent company, and Preem Petroleum AB, our operating company.
Also on March 1, 2001, our status was changed from a private company to a public
company giving us the ability under Swedish law to raise capital through the
issuance of securities. Corral Petroleum Holdings AB, a Swedish company,
contributed all of the issued and outstanding shares of Preem Petroleum AB to
Preem Holdings AB on March 19, 2001. We are wholly-owned by Corral Petroleum
Holdings AB, which is wholly-owned by Moroncha Holdings Company Limited, which
is wholly-owned by Mr. Mohammed Hussein Ali Al-Amoudi. Preem Petroleum AB, a
Swedish company, was originally established in 1960 and its present name was
registered in May 1996. The principal executive offices of both Preem Holdings
AB and Preem Petroleum AB are located at Sandhamnsgatan 51, P.O. Box 27800,
S-11590, Stockholm, Sweden and the telephone number there is +46 (0) 8 450 10
00.
10
<Page>
STRUCTURE OF THE OFFERINGS OF THE EXISTING NOTES
The diagram below depicts, in simplified form, our corporate structure and
certain debt obligations following the closings of both the April and July 2001
offerings of the existing notes.
[FLOW CHART]
- ---------
(1) All outstanding shares of capital stock of Preem Petroleum AB were pledged
in favor of the holders of the notes.
(2) This intercompany loan is a subordinated intercompany loan, pledged in
favor of the holders of the notes and repayable on the same maturity date
as the notes. At the time of the April 2001 offering of existing notes, the
amount of this Krona-denominated loan was equal to E250 million.
(3) Consists of senior credit facilities, of which an aggregate of
SEK4,431 million was outstanding as of March 31, 2001.
On April 10, 2001, Preem Holdings AB issued senior secured notes in an
aggregate principal amount of E250 million. We loaned the proceeds of such
offering of the existing notes (net of the initial purchasers' discounts, the
expenses of the offering and an amount equal to the first interest payment due
on the notes) to our wholly-owned operating subsidiary, Preem Petroleum AB,
pursuant to a SEK2,277 million subordinated intercompany loan. Preem Petroleum
AB used approximately E219 million of the funds received to repay all but
approximately E27 million of an existing SEK2,259 subordinated shareholder loan
it owed to Corral Petroleum Holdings AB, our parent company. The right to
receive the remaining unpaid amount was assigned to us and is evidenced by an
intercompany loan between Preem Petroleum AB and us. See "Structure of the
Offerings of the Existing Notes" on page 28. The remaining amount of proceeds
received by Preem Petroleum AB, approximately E3 million, has been used for
general corporate purposes. The notes are secured by a first priority pledge of
all outstanding shares of capital stock of Preem Petroleum AB and by a first
priority security assignment of the combined intercompany loan referred to
above, the principal amount of which equal the Krona-equivalent, at April 10,
2001, of the gross proceeds of the existing notes offering in April 2001.
On July 20, 2001 we issued an additional tranche of the existing notes in
an aggregate principal amount of approximately E55 million, which notes Deutsche
Bank AG London agreed to purchase prior to the date this registration statement
was publicly filed with the Commission. These existing notes have terms
substantially identical to, and form a single series with, the existing notes
issued in April 2001. We distributed approximately E10 million of these proceeds
to our parent company, Corral Petroleum Holdings AB, promptly following the
closing of the July 2001 offering. This distribution initially took the form of
an interest-free intercompany loan from us to Corral Petroleum Holdings AB. We
intend to use the remaining net proceeds for general corporate purposes of Preem
Holdings AB, and, to the extent permitted by the Indenture, including the
restriction set forth under "Description of Notes--Certain Covenants--Limitation
on Restricted Payments" on page 115, to distribute additional proceeds to our
parent company.
11
<Page>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial data in this section have been derived
from the Consolidated Financial Statements of Preem Petroleum AB, the unaudited
Interim Consolidated Financial Statements of Preem Petroleum AB and the
unaudited Interim Consolidated Financial Statements of Preem Holdings AB
included in this registration statement, which have been prepared in accordance
with Swedish GAAP and, in the case of the Consolidated Financial Statements of
Preem Petroleum AB, audited by KPMG, independent accountants.
The Preem Holdings AB unaudited pro forma consolidated statement of
operations data for the year ended December 31, 2000 are derived from the
audited Preem Petroleum AB Consolidated Financial Statements and the audited
Preem Holdings AB Financial Statements and give effect to the transfer of Preem
Petroleum AB's issued and outstanding shares to Preem Holdings AB, both
offerings of the existing notes and the use of proceeds from such offerings, as
described in this prospectus, as if such transfer and transactions occurred on
January 1, 2000. The Preem Holdings AB unaudited pro forma consolidated
statement of operations data for the three months ended March 31, 2001 are
derived from the unaudited Interim Consolidated Financial Statements of Preem
Petroleum AB and the unaudited Interim Consolidated Financial Statements of
Preem Holdings AB and give effect to the transfer and transactions described
above as if such transfer and transactions had occurred on January 1, 2001.
The Preem Holdings AB unaudited pro forma consolidated balance sheet data
at March 31, 2001 are derived from the unaudited Interim Consolidated Financial
Statements of Preem Holdings AB as of March 31, 2001, and give effect to the
transactions described above (other than the share transfer, which occurred on
March 19, 2001, and is therefore already reflected in such Interim Consolidated
Financial Statements) as if such transactions had occurred on March 31, 2001.
See "Unaudited Pro Forma Consolidated Financial Information" on page 46. The pro
forma data do not purport to represent what Preem Holdings AB's financial
position or results of operations would have been had the transfer and
transactions actually occurred as of such dates or to project the results of
operations of Preem Holdings AB for any future period or the financial condition
of Preem Holdings AB for any future date. The unaudited interim financial
statements contained in this registration statement have been prepared using the
same accounting principles and on the same basis as the audited year-end
financial statements and include all adjustments, consisting of normal recurring
adjustments that management considers necessary for a fair representation of the
financial position and results of operations for the interim period. The results
of operations reported for the three-month period ended March 31, 2001 are not
necessarily indicative of those expected for the entire year ended December 31,
2001.
You should read the data below in conjunction with the audited Preem
Petroleum AB Consolidated Financial Statements and the related notes, the
audited Preem Holdings AB Financial Statements and the related notes, the
unaudited Interim Consolidated Financial Statements of Preem Petroleum AB and
the related notes and the unaudited Interim Consolidated Financial Statements of
Preem Holdings AB and the related notes, in each case, included elsewhere in
this prospectus. Preem Petroleum AB and Preem Holdings AB prepare their
consolidated financial statements in accordance with Swedish GAAP, which differs
in certain significant respects from U.S. GAAP. Reconciliations of net income
(loss) and shareholders' equity reflecting the significant differences between
Swedish GAAP and U.S. GAAP for the year ended December 31, 2000 and the
three-month period ended March 31, 2001 are set forth in the audited Preem
Petroleum AB Consolidated Financial Statements and the unaudited Preem Petroleum
AB Interim Consolidated Financial Statements, respectively. Statement of
operations data for the three months ended March 31, 2001 are presented for
Preem Petroleum AB because, under Swedish GAAP, we elected to account for the
transfer of all the issued and outstanding shares of Preem Petroleum AB to Preem
Holdings AB (which occurred on March 19, 2001) as of
12
<Page>
March 31, 2001. Accordingly, we do not believe that the statement of operations
data for Preem Holdings AB adequately reflects our operations.
<Table>
<Caption>
PREEM
HOLDINGS AB
-------------------
PREEM PETROLEUM AB PRO FORMA
----------------------------------------- -------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
----------------------------------------- -------------------
1998 1999 2000 2000 2000 2000
-------- -------- -------- -------- -------- --------
SEK SEK SEK $(1) SEK $(1)
(IN MILLIONS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
AMOUNTS IN ACCORDANCE WITH SWEDISH GAAP:
Sales revenue(2)........................... 15,758 22,220 39,558 3,646 39,558 3,646
Gross profit............................... 1,396 2,078 2,435 225 2,435 225
Operating income........................... 572 1,221 1,656 153 1,324(3) 123
Income before taxes........................ 311 988 1,284 118 639 69
Net income................................. 124 713 831 77 271 25
AMOUNTS IN ACCORDANCE WITH U.S. GAAP(5):
Sales revenue(2)........................... 15,758 22,220 39,558 3,646 39,558 3,646
Operating income(5)........................ 442 1,097 1,439 133 1,439 133
Net income (loss).......................... (52) 528 637 59 431 40
OTHER FINANCIAL DATA:
SWEDISH GAAP:
EBITDA(7).................................. 1,214 1,871 2,377 219 2,377 219
Depreciation and amortization.............. 642 650 721 66 1,053(7) 97
Capital expenditure........................ 508 590 405 37 405 37
U.S. GAAP:
EBITDA(7).................................. 1,216 1,879 2,292 211 2,292 211
Depreciation and Amortization(9)........... 774 782 853 79 853 79
<Caption>
PREEM
HOLDINGS
AB
PREEM PETROLEUM -------------------
AB PRO FORMA
------------------------------ -------------------
THREE
THREE MONTHS MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
------------------------------ -------------------
2000 2001 2001 2001 2001
-------- -------- -------- -------- --------
SEK SEK $(1) SEK $(1)
(UNAUDITED)
(IN MILLIONS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
AMOUNTS IN ACCORDANCE WITH SWEDISH GAAP:
Sales revenue(2)........................... 8,692 9,303 857 9,303 857
Gross profit............................... 499 559 51 559 51
Operating income........................... 310 350 32 267(3) 24
Income before taxes........................ 240 164 15 3 --
Net income................................. 239 162 15 1 --
AMOUNTS IN ACCORDANCE WITH U.S. GAAP(5):
Sales revenue(2)........................... 8,692 9,303 857 9,303 857
Operating income(5)........................ 278 321 30 321 30
Net income (loss).......................... 140(6) 86(6) 8 35 3
OTHER FINANCIAL DATA:
SWEDISH GAAP:
EBITDA(7).................................. 474 517 48 517 48
Depreciation and amortization.............. 164 167 15 250(8) 23
Capital expenditure........................ 48 98 9 98 9
U.S. GAAP:
EBITDA(7).................................. 475 517 48 517 48
Depreciation and Amortization(9)........... 197 200 18 200 18
</Table>
<Table>
<Caption>
PREEM HOLDINGS
PREEM HOLDINGS AB
AB --------------------
PREEM PETROLEUM AB ------------------- PRO FORMA
----------------------------------------- AS OF --------------------
AS OF DECEMBER 31, MARCH 31, AS OF MARCH 31,
----------------------------------------- ------------------- --------------------
1998 1999 2000 2000 2001 2001 2001 2001
-------- -------- -------- -------- -------- -------- --------- --------
SEK SEK SEK $(1) SEK $(1) SEK $(1)
(UNAUDITED)
(IN MILLIONS, EXCEPT RATIOS)
CONSOLIDATED BALANCE SHEET DATA:
AMOUNTS IN ACCORDANCE WITH SWEDISH GAAP:
Cash and cash equivalents.............. 263 270 370 34 299 28 866(10) 80
Total tangible fixed assets, net....... 5,240 5,322 5,160 476 5,139 474 5,139 474
Total assets........................... 10,936 12,919 14,718 1,356 17,143 1,580 17,928(11) 1,652
Total current debt(12)................. 785 448 1,321 122 1,085 100 1,085 100
Total long-term debt(13)............... 3,201 3,168 2,949 272 3,346 308 6,146 566
Minority interests..................... 117 117 122 11 123 11 123 11
Shareholder loans(14)................ 1,113 1,903 2,259 208 2,259 208 244 22
Shareholders' equity................. 2,709 2,562 2,420 223 5,516(15) 508 5,516(15) 508
Total shareholders' funds.............. 3,822 4,465 4,679 431 7,775 717 5,760 531
AMOUNTS IN ACCORDANCE WITH U.S. GAAP:
Total current debt(12)................. 798 469 1,456 134 1,174 108 1,174 108
Total long-term debt................... 3,188 3,147 2,814 259 3,257 300 3,257 300
Shareholder loans(14).................. 1,113 1,903 2,259 208 2,259 208 244 22
Shareholders' equity(16)............... 4,322 3,825 3,489 322 3,571 329 3,571 329
</Table>
13
<Page>
<Table>
<Caption>
PREEM HOLDINGS
PREEM HOLDINGS AB
AB --------------------
PREEM PETROLEUM AB ------------------- PRO FORMA
----------------------------------------- AS OF --------------------
AS OF DECEMBER 31, MARCH 31, AS OF MARCH 31,
----------------------------------------- ------------------- --------------------
1998 1999 2000 2000 2001 2001 2001 2001
-------- -------- -------- -------- -------- -------- --------- --------
SEK SEK SEK $(1) SEK $(1) SEK $(1)
(UNAUDITED)
(IN MILLIONS, EXCEPT RATIOS)
KEY FINANCIAL INFORMATION:
SWEDISH GAAP:
Net debt(17)........................... 3,723 3,346 3,900 359 4,132 381 6,365 587
Total debt(18)......................... 3,986 3,616 4,270 394 4,431 408 7,231 666
Total capitalization(19)............... 7,808 8,081 8,949 825 12,206 1,125 12,991 1,197
Total debt/total capitalization........ 51.0% 44.8% 47.7% 47.7% 36.3% 36.3% 55.7% 55.7%
Net debt/EBITDA(20).................... 3.1x 1.8x 1.6x 1.6x 1.7x 1.7x 2.6x 2.6x
Total debt/EBITDA(20).................. 3.3x 1.9x 1.8x 1.8x 1.8x 1.8x 3.0x 3.0x
EBITDA/interest expense(21)............ 4.1x 9.0x 8.9x 8.9x 8.8x 8.8x 4.1x 4.1x
U.S. GAAP:
Net debt(17)........................... 3,723 3,346 3,900 359 4,132 381 6,365 587
Total debt(18)......................... 3,986 3,616 4,270 394 4,431 408 7,231 666
Total capitalization(19)............... 9,421 9,344 10,018 923 10,261 946 10,923 1,007
Total debt/total capitalization.......... 42.3% 38.7% 42.6% 42.6% 43.2% 43.2% 66.2% 66.2%
</Table>
- -------------
(1) We have translated Kronor into Dollars at the rate of $1.00=SEK10.85 (the
exchange rate on June 30, 2001). We have provided this translation solely
for your convenience.
(2) Sales revenue is total revenue less excise duties, which are taxes
collected at the point of sale by our Swedish Market Division and remitted
monthly to the Swedish government.
(3) The pro forma operating income information includes the deduction of
amortization of goodwill for the period resulting from the transfer of all
of the issued and outstanding shares of Preem Petroleum AB to Preem
Holdings AB.
(4) No imputed tax impact has been included in the Interim Consolidated
Statements of Operations under Swedish GAAP for the three months ended
March 31, 2001. Accordingly, no imputed tax benefit has been included in
the interim pro forma data under Swedish GAAP.
(5) Operating income under U.S. GAAP reflects differences in the determination
of pension expenses, taxes, goodwill, the amortization of goodwill and
purchase accounting between Swedish GAAP and U.S. GAAP. See "Selected
Consolidated Financial Data--Principal Differences between Swedish GAAP and
U.S. GAAP" on page 44.
(6) Net income in accordance with U.S. GAAP reflects the imputed tax effect,
which is not reflected under Swedish GAAP.
(7) EBITDA represents operating profit, before depreciation and amortization.
EBITDA for 2000 includes SEK89 million of non-cash income that is
non-recurring and that is attributable to a refund from the Swedish
National Pension Fund. EBITDA for the three-month periods ended March 31,
2001 and March 31, 2000 does not include any non-cash income that is
non-recurring. EBITDA is not a GAAP-based measure of liquidity or financial
performance and should not be considered as a substitute for operating
earnings, net income, cash flows from operating activities or other
statements of operations or cash flow data computed in accordance with
Swedish or U.S. GAAP. Funds depicted by this measure may not be available
for management's discretionary use or for service of payment of interest or
principal on the notes. Because all companies do not calculate EBITDA
identically, the presentation of EBITDA may not be comparable for similarly
entitled measures of other companies.
(8) The pro forma depreciation and amortization information includes the
amortization of goodwill resulting from the transfer of all of the issued
and outstanding shares of Preem Petroleum AB to Preem Holdings AB.
(9) Depreciation and amortization information under U.S. GAAP includes the
amortization of goodwill resulting from Corral Petroleum Holdings AB's
acquisition of Preem Petroleum AB. See "Selected Consolidated Financial
Data--Principal Differences between Swedish GAAP and U.S. GAAP" on page 44.
(10) The pro forma cash and cash equivalents information includes an amount
equal to the first interest payment due on the existing notes (including
amounts received for accrued interest), less the Krona-equivalent of
E10 million being distributed to Corral Petroleum Holdings AB. This amount
also includes the Krona-equivalent of approximately E3 million remaining at
Preem Petroleum AB from the proceeds of the April 2001 offering.
(11) The pro forma total assets information includes goodwill resulting from
the transfer of all of the issued and outstanding shares of Preem Petroleum
AB to Preem Holdings AB and capitalization of the costs of both offerings
of the existing notes. The costs of the offerings will be amortized over a
period of ten years, in the case of the existing notes offered in
April 2001, and a period of 9.7 years, in the case of the notes offered in
July 2001.
(12) Total current debt is represented in the audited Preem Petroleum AB
Consolidated Financial Statements and, in respect of the three months ended
March 31, 2001, the Preem Holdings AB unaudited Interim Consolidated
Financial Statements, under current liabilities as "Liabilities to credit
institutions." Under U.S. GAAP, total current debt includes bank overdraft
facilities, which are categorized as long-term debt under Swedish GAAP.
(13) Total long-term debt excludes shareholder loans and the current portion of
long-term debt, but includes amounts under bank overdraft facilities that
are categorized as long-term debt under Swedish GAAP and other long-term
liabilities.
14
<Page>
(14) Shareholder loans are non-interest bearing instruments without fixed
maturity.
(15) The Preem Holdings AB shareholders' equity reflects the shareholders'
contribution at the value reflected on the books of Corral Petroleum
Holdings AB prior to the transfer of all of the issued and outstanding
shares of Preem Petroleum AB to Preem Holdings AB.
(16) Shareholders' equity under U.S. GAAP is increased due to the requirement
that goodwill be pushed down to be reflected on the accounts of
subsidiaries. See "Selected Consolidated Financial Data--Principal
Differences between Swedish GAAP and U.S. GAAP" on page 44.
(17) Net debt is defined as total long-term debt and total current debt less
cash and cash equivalents.
(18) Total debt is defined as total long-term debt and total current debt.
(19) Total capitalization represents total current debt, total long-term debt,
subordinated shareholder loans and total shareholders' equity.
(20) For the purpose of the Preem Holdings AB historical and pro forma Net
debt/EBITDA and Total debt/EBITDA calculations for the three-month period
ended March 31, 2001, the Key Financial Information is calculated on the
basis of the EBITDA of Preem Petroleum AB for the twelve-month period ended
March 31, 2001 and the net debt and total debt of Preem Holdings AB as of
March 31, 2001.
(21) For the purpose of the Preem Holdings AB historical and pro forma
EBITDA/interest expense calculations for the three-month period ended
March 31, 2001, the Key Financial Information is calculated on the basis of
the EBITDA and interest expense of Preem Petroleum AB for the twelve-month
period ended March 31, 2001.
15
<Page>
RISK FACTORS
BEFORE TENDERING YOUR EXISTING NOTES FOR EXCHANGE, YOU SHOULD CAREFULLY
CONSIDER ALL OF THE INFORMATION SET FORTH OR INCORPORATED IN THIS PROSPECTUS, IN
OUR FINANCIAL STATEMENTS AND THE RELATED NOTES, AND, IN PARTICULAR, THE RISKS
DESCRIBED BELOW. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW REPRESENT THE RISKS
THAT OUR MANAGEMENT BELIEVES ARE MATERIAL TO THE EXCHANGE OFFER. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS COULD BE HARMED. IN THAT CASE, YOU COULD LOSE ALL OR PART OF YOUR
INVESTMENT.
RISKS RELATING TO THE NEW NOTES
RESTRICTIONS ON THE ABILITY OF OUR SUBSIDIARIES TO DISTRIBUTE CASH UP TO US
MAY HINDER OUR ABILITY TO MEET OUR DEBT OBLIGATIONS, INCLUDING OUR
OBLIGATIONS UNDER THE NOTES.
Preem Holdings AB is a holding company. As a holding company, to meet our
debt service and other obligations, including our obligations under the notes,
we are dependent upon group contributions, dividends, permitted repayment of
debt and other transfers of funds from Preem Petroleum AB. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 51. Substantially all of our present assets consist of 100% of
the share capital of Preem Petroleum AB and loans to Preem Petroleum AB made in
connection with our offering of the existing notes. Generally, creditors of a
subsidiary will have a claim on the assets and earnings of that subsidiary
superior to that of creditors of its parent company, except to the extent that
the claims of the parent's creditors are guaranteed by the subsidiary. Preem
Petroleum AB did not guarantee the existing notes.
Additionally, the ability of our subsidiaries to pay group contributions,
dividends and make other payments to us may be restricted by, among other
things, applicable corporate and other laws and regulations and by the terms of
agreements to which such subsidiaries may be or may become subject. Furthermore,
the subordinated intercompany loan from Preem Holdings AB to Preem Petroleum AB,
which is subject to a security assignment to the trustee for the benefit of the
holders of the notes as security for the notes, also serves as security for any
additional notes issued under the Indenture. Accordingly, the principal amount
of that loan is currently less than the aggregate principal amount of the
existing notes. See "Description of Notes--Certain Covenants--Limitation on
Restrictions on Distributions from Restricted Subsidiaries" on page 119 and
"Description of Notes--Ranking and Intercreditor Arrangements" on page 106.
THE EXCHANGE OF YOUR EXISTING NOTES FOR NEW NOTES MAY BE A TAXABLE
TRANSACTION UNDER SWEDISH TAX LAWS.
The exchange of existing notes for new notes is treated as a sale and
purchase under Swedish tax law. Due to fluctuations in the market rate of
interest, the existing notes may have increased or decreased in value during the
time since they were issued until the exchange. In addition, the exchange rate
between the Euro and the Swedish Krona may have changed since the date on which
the existing notes were issued. Accordingly, a Swedish resident holding notes
may realize a capital gain or loss when exchanging the notes. Such capital gain
is taxable as income from capital at the rate of 30%. If there is a capital
loss, only 70% of the loss is deductible from other income from capital.
Under Swedish tax law, individuals resident in Sweden will receive
compensation for accrued interest when exchanging the notes for new notes,
because the new notes will carry interest at the same rate and from the same
date as the existing notes. Because no interest is remitted to the individual
upon the exchange, no Swedish tax on interest will be payable at that point in
time. In addition, a legal entity resident in Sweden or having a permanent
establishment in Sweden to which the notes are attributable is taxed for
interest on an accruals basis, which means that the exchange of notes does not
have any impact on the taxation of interest. Non-Swedish Holders will not be
taxed under Swedish tax
16
<Page>
law upon the exchange of notes. See "Material Swedish and United States Federal
Income Tax Consequences" beginning on page 162.
THE PRINCIPAL AMOUNT OF THE INTERCOMPANY LOAN SECURING THE NOTES IS LESS
THAN THE PRINCIPAL AMOUNT OF THE NOTES.
The senior secured notes we issued in April 2001 are secured not only by a
pledge of all of the shares of Preem Petroleum AB, but also by a first priority
security assignment of SEK2,277 million indebtedness owed to us by Preem
Petroleum AB. This indebtedness was, on April 10, 2001, equal to the gross
proceeds of the E250 million principal amount of the existing notes offered in
April 2001. The security assignment of the loan, among other things:
- assigns payment of all amounts payable under the intercompany loan to the
trustee for all amounts due to the holders of the notes; and
- permits the trustee to accelerate payment of the full principal amount of
the indebtedness upon the occurrence of an event of default under the
Indenture.
The security assignment of the SEK2,277 million of indebtedness owed to us
by Preem Petroleum AB will extend to the E55 million aggregate principal amount
of the existing notes we offered in July 2001. The result is an increase to
E305 million aggregate principal amount of the notes to be secured by the same
indebtedness, the principal amount of which indebtedness will not increase. On
maturity or if the trustee, upon the occurrence of an event of default under the
Indenture, accelerates repayment of the indebtedness securing the notes, such
debt repayment under the loan may not fully satisfy our obligation to pay the
aggregate principal amount of the notes. See "Description of Notes--Events of
Default" beginning on page 126.
OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL
AND, IF WE DO NOT HAVE ENOUGH CASH TO SATISFY OUR OBLIGATIONS, WE MAY BE
REQUIRED TO REFINANCE ALL OR PART OF OUR EXISTING DEBT.
We expect to obtain the money to pay our expenses and to pay the principal
and interest on the notes and other debt from the operations of Preem Petroleum
AB and its subsidiaries. Our ability to meet our expenses and service our debt
depends on our future performance, which will be affected by financial,
business, economic and other factors. We will not be able to control many of
these factors, such as economic conditions in the markets in which we operate
and competitive pressures. The money earned from our operations may not be
sufficient to allow us to pay principal and interest on our debt, including the
notes, and meet our other obligations. If we do not have enough money, we may be
required to refinance all or part of our existing debt, including the notes,
sell assets or borrow more money. If such a scenario were to occur, we may not
be able to refinance our debt, sell assets or borrow more money on terms
acceptable to us or at all. In addition, the terms of existing or future debt
agreements, including the Indenture or potential joint venture, partnership or
other alliance agreements, may restrict us from adopting any of these
alternatives.
THE NOTES CONTAIN A NUMBER OF RESTRICTIVE COVENANTS; WE MAY BE UNABLE TO
REPAY OR REPURCHASE THE NOTES.
Our ability to comply with the restrictive covenants set forth in the
Indenture may be affected by events beyond our control, and we may not be able
to meet these obligations. A breach of any of the covenants could result in a
default under the Indenture and, potentially, an acceleration of our obligation
to repay the notes. At maturity, the entire outstanding principal amount of the
notes together with accrued and unpaid interest, will become due and payable. In
addition, if we experience a Change of Control, as defined in "Description of
Notes--Certain Definitions" on page 136, each holder of the notes may require us
to repurchase all or a portion of that holder's notes. At maturity, or if a
Change of Control occurs, we may not have the funds to fulfill these obligations
and may not be
17
<Page>
able to arrange for additional financing. If the maturity date or Change of
Control occurs at a time when other arrangements prohibit us from repaying or
repurchasing the notes, we would try to obtain waivers of such prohibitions from
the lenders under those arrangements, or we could attempt to refinance the
borrowings that contain the restrictions. If we could not obtain the waivers or
refinance these borrowings, we would be unable to repay or repurchase the notes.
Our failure to complete an offer to repurchase the notes would be an event of
default under the Indenture and would, therefore, have a material adverse effect
on us.
WE ARE CONTROLLED BY ONE SHAREHOLDER WHOSE INTERESTS AS THEY RELATE TO US
MAY CONFLICT WITH YOURS.
All of our share capital is owned by Corral Petroleum Holdings AB, all of
the share capital of Corral Petroleum Holdings AB is owned by Moroncha Holdings
Company Limited, and all of the share capital of Moroncha Holdings Company
Limited is owned by Mr. Al-Amoudi. Preem Holdings AB's board of directors
consists of designees of Corral Petroleum Holdings AB, whose board of directors
consists of designees of Moroncha Holdings Company Limited, whose board of
directors consists exclusively of designees of Mr. Al-Amoudi. As a result,
Mr. Al-Amoudi indirectly controls our operations and has the power to approve
any action requiring shareholder approval (including adopting amendments to our
articles of association and approving mergers or sales of all or substantially
all of our assets). It is possible that the interests of Preem Holdings AB,
Corral Petroleum Holdings AB, Moroncha Holdings Company Limited and
Mr. Al-Amoudi may conflict with your interests.
WE WERE A DORMANT SUBSIDIARY OF PREEM PETROLEUM AB AND MAY HAVE PRIOR
EXISTING LIABILITIES, WHICH MAY LIMIT OUR ABILITY TO MAKE PAYMENTS ON THE
NOTES.
Preem Holdings AB was originally established in 1980, and was a subsidiary
of Preem Petroleum AB that had been dormant since 1983. On March 1, 2001, our
name was changed from Swedoil AB to Preem Holdings AB, and our status was
changed from a private company to a public company giving us the ability under
Swedish law to raise capital through the issuance of securities. Preem Holdings
AB then acquired all of the issued and outstanding shares of Preem Petroleum AB
on March 19, 2001.
Since Preem Holdings AB had been a dormant subsidiary of Preem Petroleum
AB, there may be certain prior existing liabilities of which we are unaware.
Timely claims made properly under Swedish law relating to remedial measures, if
material, may limit our ability to make payments on the notes and adversely
affect our results of operations and financial condition. The obligations to
make payments on the notes would not rank senior to these prior existing
liabilities, if any.
IF WE INCUR SUBSTANTIAL OPERATING LOSSES OR A REDUCTION IN THE VALUE OF OUR
ASSETS, WE MAY BE SUBJECT TO LIQUIDATION UNDER SWEDISH LAW, WHICH WOULD
SEVERELY RESTRICT OUR ABILITY TO MEET OUR OBLIGATIONS UNDER THE NOTES.
In light of the several possible risks to our business discussed herein,
we may record losses that will reduce our share capital. To the extent these
reductions are substantial, we would need to take measures to avoid liquidation.
Such measures could include, among other things, raising more equity from
Mr. Al-Amoudi, who is under no obligation to contribute more equity. Losses to
our share capital may lead to our liquidation under Swedish law, which would
constitute an event of default under the Indenture. See "Description of
Notes--Events of Default" beginning on page 126.
Under Swedish law, if losses or a reduction in the value of its assets
reduce the equity of Preem Holdings AB or any of its Swedish subsidiaries, on a
stand-alone rather than a consolidated basis, to an amount less than 50% of its
share capital, the directors of such entity would be obligated by law to convene
a general shareholders' meeting to resolve to liquidate such entity, unless the
directors were able to balance the amount of such equity and share capital by:
- increasing the equity in an amount sufficient to achieve such balance; or
18
<Page>
- reducing the share capital to pay off losses in an amount sufficient to
achieve such balance.
SWEDISH INSOLVENCY LAWS DIFFER FROM U.S. INSOLVENCY LAWS AND YOUR RIGHTS AS
OUR CREDITOR MAY NOT BE AS STRONG UNDER SWEDISH INSOLVENCY LAWS, WHICH, IN
THE EVENT OF OUR INSOLVENCY, MAY RESULT IN YOUR CLAIMS REMAINING
UNSATISFIED.
In any bankruptcy proceedings against Preem Holdings AB, the insolvency
laws of Sweden would apply to Preem Holdings AB. Under Swedish law, there is no
consolidation of bankruptcies of the assets and liabilities of a group of
companies. Each individual company would thus be treated separately by a
bankruptcy administrator appointed by the local district court. The assets of
the subsidiaries of Preem Holdings AB would first be used to satisfy the debts
of each respective subsidiary and only the surplus (if any) remaining of a
subsidiary would benefit the creditors of its parent company. As a result, your
ability to protect your interests as potential creditors of a parent of such
subsidiary may not be as strong under Swedish law as it would be under U.S. law.
THE DISCLOSURE IN THIS REGISTRATION STATEMENT AND FUTURE RELATED AMENDMENTS
MAY DIFFER FROM THE DISCLOSURE IN OUR OFFERING MEMORANDA RELATED TO THE
APRIL AND JULY 2001 OFFERINGS OF EXISTING NOTES AND, IF THESE DIFFERENCES
ARE MATERIAL, THIS MAY HAVE AN ADVERSE EFFECT ON THE MARKET FOR THE NOTES.
In connection with the offer of existing notes issued in April 2001, we
submitted the initial version of this registration statement on a confidential
basis with the Commission in May 2001 to offer holders of those notes the right
to exchange the existing notes for notes registered under the U.S. Securities
Act. This registration statement has been revised to reflect comments made by
the Commission to our confidential submission of the initial version of this
registration statement. Accordingly, neither the offering memoranda for the
April and July 2001 offerings nor prior versions of this registration statement
reflect the revisions made in response to the Commission's comments. The
disclosure in this amended registration statement, thus, is likely to differ
from disclosure set forth in our offering memoranda related to the April and
July 2001 offerings of existing notes. Such disparate disclosure among the
various documents may have an adverse effect on the market for the notes.
IF A PUBLIC MARKET FOR THE NEW NOTES DOES NOT DEVELOP, THE ABILITY OF
HOLDERS OF NEW NOTES TO SELL THEIR NOTES MAY BE IMPAIRED.
There is currently no established market for the new notes, which makes it
difficult to predict the liquidity of any markets that may develop for the new
notes, the ability of the holders of the new notes to sell their new notes, or
the price at which such holders would be able to sell their new notes. If such a
market was to exist, the new notes could trade at prices that may be lower than
the initial market values of such notes depending on many factors, including
prevailing interest rates and our business performance. We intend to list the
new notes on the Luxembourg Stock Exchange.
Historically, the markets for non-investment grade debt such as the new
notes have been subject to disruptions that have caused substantial volatility
in their prices. The market, if any, for the new notes may be subject to similar
disruptions. Any disruptions may have an adverse effect on the holders of the
new notes.
RISKS RELATED TO OUR BUSINESS
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR OPERATIONS OR
FINANCIAL RESULTS AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE
NEW NOTES.
As of March 31, 2001, Preem Petroleum AB had total consolidated
indebtedness (consisting of total long-term debt and total current debt, but
excluding shareholder loans) of SEK4,431 million. Preem Petroleum AB also had
unused commitments of SEK2,690 million. Assuming that as of March 31, 2001,
Preem Holdings AB completed the April and July 2001 offerings of the existing
notes
19
<Page>
and applied the proceeds of such offerings, we would have had total consolidated
indebtedness (consisting of total long-term debt and total current debt, but
excluding shareholder loans) of SEK7,231 million. In addition, subject to
restrictions in the Indenture, we may borrow more money for working capital,
capital expenditures, acquisitions or for other purposes.
Our substantial indebtedness could adversely affect our operations or
financial results and could have important consequences for you. For example, it
could, in and of itself and in light of the restrictive covenants included in
the Indenture:
- make it more difficult for us to fulfill our obligations under the new
notes;
- restrict our ability to borrow money in the future for working capital,
capital expenditures, acquisitions or other purposes;
- expose us to the risk of increased interest rates with respect to the
debt we carry at variable interest rates;
- make us more vulnerable to economic downturns and adverse developments in
our business;
- reduce our flexibility in responding to changing business and economic
conditions, including increased competition in the oil and gas industry;
- limit our ability to take advantage of significant business
opportunities, to respond to competitive pressures and to implement our
business strategies; and
- require us to use a large portion of the money earned from operations to
pay principal and interest on the notes and on other debt, which will
reduce the amount of money available to us to finance our operations and
other business activities.
Certain of Preem Petroleum AB's existing credit facilities contain change
of control provisions, which would be triggered if the trustee, on behalf of the
holders of the notes, exercises its rights under the pledge of the shares of
capital stock of Preem Petroleum AB and effects a change of control. In such
event, certain of these credit facilities require that indebtedness thereunder
be repaid. Additionally, certain of Preem Petroleum AB's credit facilities would
cross-default if the trustee under the Indenture declares the new notes to be
prematurely due and payable, which, in turn, could result in a cross-default
under other credit facilities of Preem Petroleum AB.
WE MAY NOT ALWAYS BE ABLE TO OBTAIN SUFFICIENT CREDIT TO FINANCE OUR SPOT
MARKET CRUDE OIL PURCHASES, WHICH COULD SEVERELY LIMIT OUR ABILITY TO
OBTAIN CRUDE OIL.
We purchase a significant portion of our crude oil on the spot market,
primarily by means of internally generated cash flow and short-term working
capital facilities. Because the price of crude oil on the spot market can be
volatile, access to adequate short-term credit is crucial to our business. If
our working capital facilities were cancelled or restricted or we could not
renew or replace them, our financial condition would be adversely impacted.
Utilizing short-term credit to finance our spot market purchases also makes us
vulnerable to interest rate volatility. Increases in short-term interest rates
also could cause the results of our operations to suffer or limit our ability to
obtain crude oil supplies.
PRICES FOR CRUDE OIL AND REFINED PRODUCTS ARE SUBJECT TO RAPID AND LARGE
FLUCTUATIONS AND OUR MARGINS MAY BE ADVERSELY AFFECTED BY MARKET
CONDITIONS.
Our results of operations from refining are influenced by the relationship
between market prices for crude oil and refined products. We will not generate
operating profit or positive cash flow from our refining operations unless we
are able to buy crude oil and sell refined products at margins sufficient to
cover the fixed and variable costs of our refineries. In recent years, both
crude oil and refined product prices have fluctuated substantially. We hedge
amounts of crude oil and refined products above and
20
<Page>
below optimal inventory levels, which represent the volumes in stock and in
transit within our system, and consequently this volume is fully exposed to
fluctuations in price. Prices of crude oil and refined products depend on
numerous factors, including global and regional demand for, and supply of, crude
oil and refined products, and regulatory, legislative and emergency actions of
national, regional and local agencies and governments. Decreases in the supply
of crude oil or the demand for refined product may adversely affect our
liquidity and capital resources.
Supply and demand of crude oil and refined products depend on a variety of
factors. These factors include:
- changes in national economies;
- political stability in major oil-producing countries;
- actions by OPEC and crude oil production levels;
- the availability of crude oil and refined product imports;
- the availability and suitability of competitive fuels;
- the extent of government regulation, in particular, as it relates to
environmental policy;
- market imperfections caused by regional price differentials;
- local market conditions and the level of operations of other refineries
in Europe;
- the ability of suppliers, transporters and purchasers to perform on a
timely basis or at all under their agreements (including risks associated
with physical delivery);
- expected and actual weather conditions; and
- changes in technology.
These external factors and the volatile nature of the energy markets make
oil refining margins volatile.
Generally, an increase or decrease in the price of crude oil results in a
corresponding increase or decrease in the price of refined products, although
the timing and magnitude of these increases and decreases may not correspond.
During periods of excess inventories of refined products, crude oil prices can
increase significantly without corresponding increases in refined products
prices and, in such a case, refining margins will be adversely affected.
Differentials in the timing and magnitude of movements in crude oil and refined
product prices could have a significant short-term impact on our refining
margins and our business, financial condition and results of operations.
WE ARE FACED WITH OPERATIONAL HAZARDS AND UNINSURED RISKS THAT COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Our operations are subject to all of the risks normally associated with
oil refining that could result in damage to or loss of property, suspension of
operations or injury, or death to personnel or third parties. These risks and
hazards could result in damage or harm to, or destruction of, properties,
production facilities or the environment. Any or all of these hazards could have
a material adverse effect on our financial condition and results of operations.
Our property, business interruption and public and product liability insurance
may not fully cover the consequences of all property damage, business
interruptions and other liabilities. In particular, our business interruption
insurance may not cover blockades, interruption due to political circumstances
in foreign countries, hostilities, or labor strikes. Our property and liability
insurance does not cover gradual environmental and other damage that was not the
result of a sudden, unintended and unexpected insurable accident. Our insurance
coverage of our chartered vessels does not include coverage of liabilities,
costs and expenses related to
21
<Page>
cargo carried on ship. The occurrence of an event that affects operations and is
not fully covered by insurance could have an adverse impact on our business,
financial condition and results of operations.
WE ARE SUBJECT TO GOVERNMENTAL AND ENVIRONMENTAL REGULATIONS, WHICH COULD
EXPOSE US TO FINES OR PENALTIES OR FORCE US TO MODIFY OUR OPERATIONS.
We are subject to various supranational, national, regional and local
environmental laws and regulations relating to emissions standards for, and the
safe storage and transportation of, our products. We also are subject to EU and
Swedish environmental regulations concerning refined products. The European
Union has announced stricter environmental regulations restricting the sulphur
content of gasoline and diesel and the aromatic content of gasoline (to become
effective in 2005) and the sulphur content of gasoil (to become effective in
2008). The final specifications for 2005 are expected to be confirmed later in
2001. We already produce diesel and gasoline in compliance with the EU Year 2005
sulphur specifications, however, we need to make certain investments to meet the
aromatics requirements for gasoline. "Aromatics" are hydrocarbon compounds
produced in the distillation process at our refineries, and regulated by
environmental laws. Additional capital expenditures may be required by us if
these regulations are modified or if future, more stringent standards are
implemented. We may not have sufficient funds to make the necessary capital
expenditures if this occurs. Failure to make these capital expenditures could
negatively impact our business, financial condition and results of operations.
In addition, to enable the total output of diesel from our refineries to meet
the EU Year 2005 sulphur specification, we believe that we would need to export
certain quantities of high-sulphur vacuum gasoil to free up capacity in our
refineries required to desulphurize diesel and/or to downgrade quantities of
diesel into heating oil. "Vacuum gasoil" is a refining feedstock, which is
upgraded for end-user consumption through further processing.
In addition, we are subject to laws and regulations relating to the
discharge, storage, treatment, handling, disposal and remediation of crude oil
and refined petroleum products and certain materials, substances and wastes used
in our operations. Our failure to comply with these requirements would subject
us to fines and penalties or force us to modify our operations. In addition, we
need a variety of permits to conduct our operations. We must comply with and
renew our permits to operate our facilities. Failure to comply with our permits
could subject us to civil penalties, criminal sanctions and closure of our
facilities. The risk also exists that we will be unable to obtain renewals of
our material permits.
CHANGES IN LEGISLATION AFFECTING OUR OPERATIONS OR CHANGES TO THE WAY SUCH
LEGISLATION IS INTERPRETED OR ADMINISTERED MAY RESULT IN ADDITIONAL
EXPENSES, CHANGES IN OUR OPERATIONS OR FINES AND PENALTIES.
The oil refining industry is highly regulated and we are subject to
environmental and other laws and regulations in each jurisdiction in which we
operate, including the European Union. In particular, Sweden, where both of our
refiners are located, has among the strictest environmental specifications in
the European Union. Changes in legislation or regulations and actions by Swedish
and other regulators, including changes in administration and enforcement
policies, may from time to time require operational improvements or
modifications at, or possibly the closure of, various locations or the payment
of fines and penalties. Generally, environmental laws and regulations affect our
operations and have become and are becoming increasingly stringent. We cannot
predict the nature, scope or effect of legislation or regulatory requirements
that could be adopted in the future or how existing or future laws or
regulations will be administered or interpreted in the future. Consequently, we
may need to make additional and potentially significant expenditures in the
future to comply with new or amended environmental laws and regulations. See
"--We are subject to governmental and environmental regulations, which could
expose us to fines or penalties or force us to modify our operations" above.
22
<Page>
WE ARE SUBJECT TO OCCUPATIONAL HEALTH AND SAFETY LAWS IN SWEDEN AND
ELSEWHERE, WHICH COULD EXPOSE US TO FINES OR PENALTIES OR FORCE US TO
MODIFY OUR OPERATIONS.
Our oil refining activities also are subject to a wide range of
supranational, national, regional and local occupational health and safety laws
and regulations in each jurisdiction in which we operate. These health and
safety laws change frequently, as do the priorities of those who enforce them.
Our failure to comply with these health and safety laws could lead to criminal
violations, civil fines and changes in the way we operate our facilities, which
could increase the costs of operating our business.
WE MAY BE LIABLE FOR ENVIRONMENTAL DAMAGES, WHICH WOULD REDUCE THE FUNDS
AVAILABLE FOR PAYING INTEREST OR PRINCIPAL ON THE NOTES.
We are subject to risks relating to crude oil or refined product spills,
discharge of hazardous materials into the soil, air and water, and other
environmental damages. In addition, under current law, we may be liable for
environmental damages caused by previous owners of properties that we use or
have used. We believe that the risk of significant environmental liability is
inherent in our business. As a result, we may have to pay substantial
compensation to third parties. Any such payments could reduce or eliminate the
funds available for paying interest or principal on the notes and financing our
normal operations and planned development or result in loss of our properties.
In our industry, there is an ever-present risk of accidental discharges of
hazardous materials and of the assertion of claims by third parties against us
for damages allegedly arising out of any past or future contamination.
We may be liable for decontamination and other remedial costs at the end
of the lease-terms at our storage depots. Our lease on the Finnberget storage
depot expires in September 2001. Our lease agreement has a provision limiting
our liability for any decontamination to a maximum of SEK4 million. We are in a
dispute, however, with the landlord over whether this limitation extends to
third party claims, including claims made by governmental authorities. If we are
unsuccessful in our dispute, we may be liable for all or part of the
decontamination of this site. The total estimated cost of decontamination ranges
from approximately SEK40 million to SEK110 million, depending on the intended
future use of the site. Our lease on the Loudden storage depot may expire in
December 2001. We are currently in negotiations with the landlord with respect
to the lease. Since there are a number of other lessees at the Loudden site and
given that the term of the lease may be extended, we do not have an estimate for
the decontamination and other remedial costs for Loudden.
LEGAL ACTION BY THE SWEDISH COMPETITION AUTHORITY, OTHER EUROPEAN
REGULATORY AUTHORITIES OR ANY RELATED THIRD-PARTY CLAIMS MAY EXPOSE US TO
LIABILITY FOR FINES AND DAMAGES.
On June 29, 2000, the Swedish Competition Authority filed a summons
application to the City Court of Stockholm against Preem Petroleum AB and four
other oil companies operating in Sweden, demanding that the City Court impose
fines on all five oil companies. The Swedish Competition Authority is also
investigating the existence of a possible diesel cartel in the Swedish market
and there is a risk that the Swedish Competition Authority may decide to
initiate legal action against us in connection with this investigation. For
infringements of the Swedish Competition Act, the Swedish courts may impose
fines equal to up to ten percent of the infringing company's turnover.
The Swedish Competition Act also provides the possibility for companies
and private parties to recover damages attributable to infringements of the Act,
in which case the total amount of our liability would be uncertain. If there are
court rulings against us based on either existing or future claims, the fines
imposed or damages awarded could be material, in which case our financial
condition and results of operation would be adversely affected. Given our
leading position in the Swedish oil refining market, and the nature of the
European oil refining industry, we may be subject to future investigations of
our business conduct by European regulatory agencies.
23
<Page>
OUR BUSINESS IS VERY COMPETITIVE AND INCREASED COMPETITION COULD ADVERSELY
AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Increased competition in the oil refining industry could result in a
decrease in our market share, which could adversely affect our financial
condition and results of operations. Competition in the oil refining business is
based on the ability to obtain and process crude oil and other feedstocks at the
lowest cost, refinery efficiency, refinery product mix and product distribution.
Our Supply and Refining Division competes principally with AB Svenska Shell and
Svenska Statoil AB. Our Swedish Market Division, which includes the Station and
Consumer Segment through which we sell gasoline and other refined products to
retail customers, competes primarily with Svenska Statoil AB, OK-Q8 AB, AB
Svenska Shell, Norsk Hydro AS and Conoco Jet Nordic AB. Our Station and Consumer
Segment ranked fifth in market share, based on 2000 sales volumes of retail
gasoline as estimated by the Swedish Petroleum Institute. Our small market
presence in the retail gasoline business has had an adverse effect on the
results and prospects of our Station and Consumer Segment and there is a risk
that this segment will not increase its market share in the future.
WE ARE EXPOSED TO CURRENCY FLUCTUATIONS, WHICH COULD ADVERSELY AFFECT OUR
FINANCIAL RESULTS, LIQUIDITY, AND ABILITY TO PAY INTEREST AND PRINCIPAL DUE
ON THE NOTES.
Our crude oil purchases are primarily denominated in Dollars. Our revenues
are primarily denominated in Dollars and Kronor. We publish our financial
statements in Kronor. As of July 15, 2001, approximately one-third of our debt
was denominated in Dollars and the other two-thirds was denominated in Kronor
and, the existing notes are denominated in Euros. As a result, fluctuations of
these currencies against each other or against other currencies in which we do
business or have indebtedness could have a material adverse effect on our
financial results.
In addition, the subordinated intercompany loan from Preem Holdings AB to
Preem Petroleum AB, which is subject to a security assignment for the benefit of
the holders of the notes, is denominated in Kronor. Accordingly, if the Krona
depreciates against the Euro, the value of this loan for repayment of the
amounts due under the notes, either at maturity or upon exercise of the rights
under the security assignment of this loan, will decline.
We primarily use forward exchange contracts and, to a lesser extent,
currency options and currency swaps to manage our foreign currency risk. We may
hedge the foreign currency risk associated with this Krona-denominated
intercompany loan, but we are not obligated to do so. Present or future
management of foreign exchange risk may not be adequate and exchange rate
fluctuations may have a material adverse effect on our business, financial
condition and results of operations.
WE MAY HAVE DIFFICULTY IMPLEMENTING OR INTEGRATING POTENTIAL FUTURE JOINT
VENTURES, ACQUISITIONS OR RESTRUCTURINGS, WHICH MAY DISRUPT OUR BUSINESS
AND ADVERSELY AFFECT OUR OPERATING RESULTS.
We may enter into joint venture arrangements, partnerships or other
alliances with other companies. These joint ventures, partnerships or other
alliances may not succeed or may not result in the operational efficiencies or
advantages anticipated by management. These arrangements could restrict the
ability of Preem Petroleum AB to make distributions to Preem Holdings AB, which
could adversely affect Preem Holdings AB's ability to make interest and
principal payments on the notes.
We may acquire other businesses or restructure our existing operations in
the future, which may complicate our management tasks. These acquisitions or
restructurings may relate to other businesses that are complementary to our core
business but, may be in areas in which we currently do not compete or in which
we do not have prior management or operating experience. We may need to
integrate entirely new operations and distinct corporate cultures. These
integration efforts may not succeed or may distract our management from
operating our existing business. Our failure to manage future acquisitions or
restructurings successfully could seriously harm our operating results.
24
<Page>
GIVEN THE HIGHLY SPECIALIZED AND TECHNICAL NATURE OF OUR BUSINESS, WE
DEPEND ON KEY PERSONNEL THAT WE MAY NOT BE ABLE TO REPLACE IF THEY LEAVE
OUR COMPANY.
Our industry and our specific operations are highly specialized and
technical and require a management team with industry specific knowledge and
experience. Our continued success is highly dependent on the personal efforts
and abilities of our executive officers, who have trained and worked in the oil
refining industry, and specifically within our company, for many years. See
"Management" on page 96. Our operations and financial condition could be
adversely affected if any of our executive officers become unable to continue in
or devote adequate time to their present roles, or if we are unable to attract
and retain other skilled management personnel.
WE MAY BE EXPOSED TO ECONOMIC DISRUPTIONS IN THE VARIOUS COUNTRIES IN WHICH
WE OPERATE AND IN WHICH OUR SUPPLIERS AND CUSTOMERS ARE LOCATED, WHICH
COULD ADVERSELY AFFECT OUR OPERATIONS, TAX TREATMENT UNDER FOREIGN LAWS AND
OUR FINANCIAL RESULTS.
Although we operate primarily in Sweden, our operations extend beyond
Sweden. Through our Supply and Refining Division, we export refined products to
certain countries in northern Europe. Through our International Division, we
sell refined products primarily to wholesale customers in Poland and, to a
lesser extent, in Norway. Additionally, we purchase the crude oil that we refine
predominantly from the North Sea area, the Middle East and Russia. Accordingly,
we are subject to legal, economic and market risks associated with operating
internationally, purchasing crude oil and supplies from other countries and
selling refined products to them. These risks include:
- interruption of crude oil supply;
- devaluations and fluctuations in currency exchange rates;
- imposition of limitations on conversion of foreign currencies or
remittance of dividends and other payments by our foreign subsidiaries;
- imposition or increase of withholding and other taxes on remittances by
foreign subsidiaries;
- imposition or increase of investment and other restrictions by foreign
governments;
- failure to comply with a wide variety of foreign laws; and
- unexpected changes in regulatory environments and government policies.
OUR EXISTING AND FUTURE OPERATIONS IN POLAND MAY BE UNSUCCESSFUL AND COULD
RESULT IN SUBSTANTIAL EXIT COSTS.
We have commenced operations in Poland, which to date have not been
profitable given the investments required and our limited presence in the Polish
market. Our plans to expand our operations in Poland may not be successful or
such operations may not become profitable. If we are unsuccessful in Poland, we
may decide to exit that market, in which case we may incur significant exit
costs, which could adversely affect our business, financial condition and
results of operations.
IT IS DIFFICULT TO COMPARE OUR RESULTS OF OPERATIONS FROM PERIOD TO PERIOD,
WHICH MAY RESULT IN MISLEADING OR INACCURATE FINANCIAL INDICATORS AND DATA
RELATING TO OUR BUSINESS.
It is difficult to make period-to-period comparisons of our results of
operations as a result of changes in our business, fluctuations in crude oil
prices, which are denominated in Dollars, and fluctuations in our capital
expenditures, which are primarily denominated in Kronor. As a result, our
results of operations from period to period are subject to currency exchange
rate fluctuations, in addition to typical period to period fluctuations. For
these reasons, a period-to-period comparison of our results of operations may
not be meaningful.
25
<Page>
BECAUSE WE ARE A SWEDISH COMPANY IT MAY BE DIFFICULT FOR YOU TO EFFECT
SERVICE OF PROCESS ON OR ENFORCE JUDGMENTS AGAINST US, OUR EXECUTIVE
OFFICERS OR OUR DIRECTORS.
We are a corporation organized under the laws of the Kingdom of Sweden.
Most of our directors and executive officers are non-residents of the United
States, and all or a substantial portion of the assets of such persons are
located outside the United States. As a result, service of process upon such
persons and enforcement against such persons of judgments obtained in U.S.
courts predicated upon the civil liability provisions of the U.S. federal
securities laws may be difficult to obtain within the United States. We have
been advised by our Swedish counsel that there is doubt as to the enforceability
in Sweden, in original actions or in actions for enforcement of judgments of
U.S. courts, of civil liabilities to the extent predicted upon the U.S. federal
securities laws.
26
<Page>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this
prospectus, including, without limitation, statements regarding our future
financial position, risks and uncertainties related to our business and the
notes, strategy, capital expenditures, projected costs and our plans and
objectives of management for future operations, may be deemed to be
forward-looking statements. See "Risk Factors" beginning on page 16. Words such
as "believe," "expect," "may," "intend," "will," "should," "estimate" or
"anticipate" and similar expressions or the negatives of these expressions are
intended to identify forward-looking statements. In addition, from time to time,
we or our representatives have made or may make forward-looking statements
orally or in writing and these forward-looking statements may be included in,
but are not limited to, press releases, filings with the Commission, reports to
shareholders and other communications. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we can give no
assurance that such expectations will prove to be correct. Important factors
that could cause our actual results, performance or achievements to differ
materially from those in the forward-looking statements include, among others:
- volatility in refining margins and in market prices for crude oil and
refined products;
- our future capital needs;
- our ability to hedge against currency, commodity and interest rate risks;
- our ability to comply with existing or newly implemented environmental
regimes in the countries in which we operate;
- our liability for violations, known and unknown, under environmental
laws;
- our ability to remediate contaminated sites within budgeted amounts;
- possible adverse effects of our anticipated growth through joint venture,
acquisition or restructuring, including diversion of management
resources, incurrence of additional debt, the terms and conditions of any
joint venture, failure to integrate acquired businesses and our liability
for known and unknown liabilities of acquired businesses;
- agreements or disagreements among members of OPEC; and
- limitations on our operational flexibility arising under agreements
governing our debt.
All forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by these cautionary statements.
Because of the uncertainties associated with forward-looking statements, you
should not place undue reliance on them.
27
<Page>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes.
The existing notes surrendered in exchange for the new notes will be retired and
cancelled and cannot be reissued. Accordingly, the issuance of the new notes
will not result in any change to our indebtedness.
STRUCTURE OF THE OFFERINGS OF THE EXISTING NOTES
As of March 31, 2001, Preem Petroleum AB owed SEK2,259 million to Corral
Petroleum Holdings AB in the form of an interest-free subordinated shareholder
loan with no maturity date (the "Corral Loan"). We loaned the Krona-equivalent
of the proceeds of the offering of existing notes issued on April 10, 2001 (net
of the initial purchasers' discount, the expenses of that offering and an amount
equal to the first interest payment due on the notes then issued) down to our
wholly-owned operating subsidiary, Preem Petroleum AB, pursuant to a
SEK2,277 million subordinated intercompany loan. Preem Petroleum AB used
approximately E219 million of the funds received to repay all but approximately
E27 million of the Corral Loan. The right to receive this remaining unpaid
amount was assigned by Corral Petroleum to us and is evidenced by an
intercompany loan between Preem Petroleum AB and us. In connection with the
assignment of the right to receive the approximately E27 million portion of the
Corral Loan, we incurred a corresponding subordinated shareholder debt to Corral
Petroleum Holdings AB pursuant to an interest-free shareholder loan with no
maturity date, which is subordinated to the notes.
On July 20, 2001, we closed an additional offering of senior secured
notes, which notes Deutsche Bank AG London agreed to purchase prior to the date
this registration statement was publicly filed with the Commission. The proceeds
of such existing notes (net of the initial purchaser's discount and the expenses
of the offering) were approximately E55 million. We distributed approximately
E10 million of these proceeds to our parent company, Corral Petroleum Holdings
AB, promptly following the closing of the July 2001 offering. This distribution
initially took the form of an interest-free intercompany loan from us to Corral
Petroleum Holdings AB. We intend to use the remaining net proceeds for general
corporate purposes of Preem Holdings AB, and, to the extent permitted by the
Indenture, including the restriction set forth under "Description of
Notes--Certain Covenants--Limitation on Restricted Payments" on page 115 to
distribute additional proceeds to our parent company.
28
<Page>
EXCHANGE OFFER AND REGISTRATION RIGHTS
TERMS OF THE EXCHANGE OFFER, PERIOD FOR TENDERING EXISTING NOTES
Subject to the terms and conditions set forth in this prospectus and the
letter of transmittal, we will accept for exchange existing notes, which are
properly tendered prior to the expiration date and not withdrawn as permitted
below. As used in this prospectus, the term "expiration date" means 5:00 p.m.,
London time, on October 1, 2001 unless otherwise extended by us in our sole
discretion.
As of the date of this prospectus, E305,000,000 aggregate principal amount
of the existing notes are outstanding. This prospectus and the letter of
transmittal are first being sent on or about August 30, 2001, to all holders of
existing notes known to us. Our obligation to accept existing notes for exchange
in the exchange offer is subject to some conditions as set forth below under
"--Conditions to the Exchange Offer" on page 32.
We expressly reserve the right, at any time or from time to time, to
extend the period of time during which the exchange offer is open, and delay
acceptance for exchange of any existing notes, by giving oral or written notice
of such extension to the existing note holders as described below. During any
such extension, all existing notes previously tendered will remain subject to
the exchange offer and may be accepted for exchange by us subject to the
satisfaction of the same conditions applicable to the initial exchange period.
We will return at no expense to the holder, any existing notes not accepted for
exchange as promptly as practicable after the expiration or termination of the
exchange offer.
Existing notes tendered in the exchange offer must be in denominations of
a principal amount of E1,000 and any integral multiple of that amount.
If any of the events specified in "--Conditions to the Exchange Offer" on
page 32 should occur, we expressly reserve the right to amend or terminate the
exchange offer, and not to accept for exchange any existing notes not accepted
for exchange. We will give oral or written notice of any extension, amendment,
non-acceptance or termination to existing note holders as promptly as
practicable. In the case of any extension we will issue a press release or other
public announcement no later than 9:00 a.m., London time, on the next business
day after the previously scheduled expiration date.
PROCEDURES FOR TENDERING EXISTING NOTES
When you tender, and we accept, the existing notes, a binding agreement
will exist between us, and you will be subject to the terms set forth in this
prospectus and letter of transmittal. To tender in the exchange offer, a holder
of existing notes must comply with the procedures established by Euroclear and
Clearstream Banking, as appropriate, for transfer of book-entry interests
through the electronic transfer systems of Euroclear and Clearstream Banking
prior to 5:00 p.m. London time on the expiration date of the exchange offer. For
a tender of existing notes to be effective, book-entry interests in the existing
notes must be transferred through Euroclear and Clearstream Banking.
Confirmation of such book-entry transfer must be received by the exchange agent
prior to the exchange expiration date.
All questions as to the validity, form, eligibility including time or
receipt and acceptance of existing notes tendered for exchange will be
determined by us in our sole discretion. Our determination will be final and
binding. We reserve the absolute right to reject any and all tenders of existing
notes improperly tendered or to not accept any existing notes which acceptance
might, in our judgment or that of our counsel, be unlawful. We also reserve the
absolute right to waive any defects or irregularities of the exchange offer as
to any existing notes either before or after the expiration date including the
right to waive the ineligibility of any holder who seeks to tender existing
notes in the exchange offer. Our interpretation of the terms of the exchange
offer as to any particular existing notes either before or after the expiration
date including the letter of transmittal and the instructions will be
29
<Page>
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of existing notes for exchange must be cured within
such reasonable period of time as we shall determine. Neither we, the exchange
agent nor any other person is under any duty to give notification of any defect
or irregularity with respect to any tender of existing notes for exchange, nor
shall any of us incur any liability for failure to give such notification.
By tendering, each holder represents to us, among other things, that:
- the new notes acquired in the exchange offer are being obtained in the
ordinary course of business of the person receiving such new notes,
whether or not such person is the holder,
- neither the holder nor such other person has any arrangement or
understanding with any person to participate in the distribution of the
new notes,
- it is not a broker-dealer that acquired the existing notes directly from
the Company,
- it is not an "affiliate," as defined in Rule 405 of the Securities Act,
of the Company, and
- it is not acting on behalf of any person who could not truthfully make
the foregoing representations.
If any holder or any such other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company, or is engaged in or intends to
engage in or has an arrangement or understanding with any person to participate
in a distribution of such new notes to be acquired in the exchange offer, such
holder or any such other person could not rely on the applicable interpretations
of the staff of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. In the case of a holder that is not a broker-dealer, each
such holder, by tendering, also represents to us that such holder is not engaged
in, or intends to engage in, a distribution of the new notes. Each broker-dealer
that receives new notes for its own account in exchange for existing notes,
where such existing notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such new notes. See
"Plan of Distribution" on page 168. The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
We are obligated for 180 days after the expiration date to make this
prospectus, as amended or supplemented, available to any broker-dealer for such
use. After that 180-day period, however, we are not under any obligation to
provide this prospectus or maintain the effectiveness of the related
registration statement for use by such broker-dealers. Any broker-dealer that
received new notes for its own account in exchange for existing notes, where
such existing notes were acquired as a result of market-making activities or
other trading activities, will, nonetheless, still be required to deliver a
prospectus in connection with any resale of such new notes. In some
circumstances, we may be required to file a shelf registration to cover resales
of notes, including resales of new notes by broker-dealers as described in this
paragraph. Our obligations to file a shelf registration statement and the
conditions to such obligation are described under "--Registration Rights" on
page 35.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
We will accept, promptly prior to the expiration date, all existing notes
properly tendered and will issue the new notes promptly after the acceptance of
the existing notes. For purposes of the exchange offer, we shall be deemed to
have accepted properly tendered existing notes for exchange when, as and if we
have given oral or written notice to the exchange agent, with written
confirmation of any oral notice to be given promptly afterwards.
30
<Page>
For each existing note accepted for exchange, the existing note holder
will receive a new note having a principal amount at maturity equal to that of
the surrendered existing note. Interest on the new notes will accrue from
April 10, 2001. If the exchange offer is not consummated by November 6, 2001 the
interest rate on the existing notes from and including such date until but
excluding the date of consummation of the exchange offer will increase by 0.50%
per annum. Payments of such interest, if any, on existing notes in exchange for
which new notes were issued will be made to the persons who are registered
holders of such existing notes if such record date occurs prior to such
exchange, or are registered holders of the new notes if such record date occurs
on or after the date of such exchange, even if notes are cancelled after the
record date and on or before the interest payment date. In all cases, issuance
of new notes for existing notes that are accepted for exchange in the exchange
offer will be made only after the exchange agent timely receives the tender and
the blocking of the existing noteholders' account at Euroclear and Clearstream
Banking. If for any reason set forth in the terms and conditions of the exchange
offer we do not accept any tendered existing notes or if existing notes are
submitted for a greater principal amount than the holder desired to exchange, we
will confirm this to the exchange agent so that it can advise Euroclear or
Clearstream Banking, as promptly as practicable after the expiration or
termination of the exchange offer.
BOOK-ENTRY TRANSFER
Existing notes will be deemed to have been accepted as validly tendered
when, as and if we have given oral or written notice thereof to the exchange
agent. The exchange agent will act as agent for the tendering holders of
existing notes for the purposes of receiving new notes and delivering new notes
to such holders. To tender in the exchange offer, a holder of existing notes
must comply with the procedures established by Euroclear and Clearstream
Banking, as appropriate, for the transfer of book-entry interests through the
electronic transfer systems of Euroclear and/or Clearstream Banking prior to
5:00 p.m. London time on the expiration date of the exchange offer. For tender
of existing notes to be effective, book-entry interests in the existing notes
must be transferred through Euroclear and Clearstream Banking. Confirmation of
such book-entry transfer must be received by the exchange agent prior to the
expiration date.
WITHDRAWAL RIGHTS
You may withdraw tenders of existing notes at any time prior to 5:00 p.m.
London time on the expiration date.
For a withdrawal to be effective, you must send a written notice of
withdrawal to Euroclear and Clearstream Banking, which will be forwarded to the
exchange agent "--Exchange Agent" on page 34. Any such notice of withdrawal must
specify the name of the person having tendered the existing notes to be
withdrawn, identify the existing notes to be withdrawn, including the principal
amount of such existing notes, and where certificates for existing notes have
been transmitted, specify the name in which such existing notes are registered,
if different from that of the withdrawing holder. If certificates for existing
notes have been tendered, then, prior to the release of such certificates the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and signed notice of withdrawal unless such holder
is an eligible institution. If existing notes have been tendered under the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at Euroclear or Clearstream Banking
to be credited with the withdrawn existing notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility including time of receipt of such notices will be determined by us.
Our determination will be final and binding on all parties. Any existing notes
so withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the exchange offer. Any existing notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder without cost to such holder or, in the case of existing notes tendered by
book-entry transfer
31
<Page>
into the exchange agent's account at Euroclear or Clearstream Banking under the
book-entry transfer procedures described above, such existing notes will be
credited to an account maintained with Euroclear or Clearstream Banking for the
existing notes as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn existing notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering Existing Notes" above on page 29, at any time on or prior to the
expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue new notes in exchange for, any
existing notes. We may terminate or amend the exchange offer if, at any time
before the acceptance of such existing notes for exchange or the exchange of the
new notes for such existing notes, any of the following events shall occur,
which in our reasonable judgment in any case, and regardless of the
circumstances including any action by us giving rise to any event described
below, makes it inadvisable to proceed with the exchange offer and/or with such
acceptance for exchange or with such exchange:
- if any court, governmental agency or other governmental regulatory or
administrative agency or commission, threatens, institutes or issues any
action, injunction or order of decree seeking to restrain or prohibit the
making or consummation of the exchange offer or any other transaction
contemplated by the exchange offer, or assessing or seeking any damages
as a result of the exchange offer, which results in a material delay in
our ability to accept or exchange some or all of the existing notes in
the exchange offer;
- if any government or governmental authority, agency or court, domestic or
foreign, takes, proposes to take or threatens to take any action, or
seeks, proposes, introduces, enacts, promulgates or deems applicable to
the exchange offer or any of the transactions contemplated by the
exchange offer any statute, rule, regulation, order or injunction that in
our reasonable judgment might directly or indirectly result in any of the
consequences referred to above, or which in our reasonable judgment might
result in new note holders having obligations with respect to resales and
transfers of new notes greater than those described in the Commission's
interpretation referred to in this section under the heading
"--Consequences of Exchanging or Failing to Exchange Existing Notes" on
page 34, or other consequences that otherwise would make it inadvisable
to proceed with the exchange offer;
- if any general suspension of or general limitation on prices for, or
trading in, securities on any national securities exchange or in the
over-the-counter market occurs;
- if any limitation by any governmental agency or authority which may
adversely affect our ability to complete the transactions contemplated by
the exchange offer occurs;
- if a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the extension of
credit occurs;
- if a commencement of war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the time of
the commencement of the exchange offer, a material acceleration or
worsening occurs; or
- if any change or development involving a prospective change occurs or is
threatened to occur in our and our subsidiaries' business, properties,
assets, liabilities, financial condition, operations, results of
operations or prospects taken as a whole that, in our reasonable
judgment, is or may be adverse to us, or we become aware of facts that,
in our reasonable
32
<Page>
judgment, have or may have adverse significance with respect to the value
of the existing notes or the new notes.
The foregoing conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition or we may
waive them in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which we may assert at any time and from time to time.
In addition, we will not accept for exchange any existing notes tendered,
and no new notes will be issued in exchange for any such existing notes, if at
such time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939.
EXTENSION, AMENDMENT AND TERMINATION
We expressly reserve the right, at any time or from time to time, subject
to applicable law to:
- extend the expiration date for the exchange offer; or
- amend the exchange offer in any respect, in each case, by giving written
notice of such extension or amendment to the exchange agent.
In addition, to the extent permitted by law, we reserve the right, at any
time or from time to time, to terminate the exchange offer prior to the exchange
of the existing notes for the new notes. If we terminate the exchange offer
prior to such time we will return the existing notes tendered pursuant to the
exchange offer by giving written notice of such termination to the exchange
agent. We will publicly announce any extension, amendment or termination by
issuing a press release. If the exchange offer is terminated without us having
exchanged any existing notes, we will promptly return the existing notes
tendered.
If we materially change the terms of the exchange offer or the information
concerning the exchange offer, or if we waive a material condition of the
exchange offer, we will extend the offer to the extent required by Rule 14e-1
under the Exchange Act. This rule requires that the minimum period during which
the exchange offer must remain open following material changes in the terms of
the exchange offer or information concerning the exchange (other than a change
in price or in percentage of securities sought) will depend on the relevant
facts and circumstances, including the relative materiality of such changes.
With respect to a change in price or, subject to certain limitations, a change
in the percentage of securities sought, a minimum 10 business day period from
the day of such change is generally required to allow for adequate dissemination
to holders of existing notes. If we withdraw or terminate the exchange offer, we
will give immediate notice to the exchange agent. For purposes of the exchange
offer, a "business day" means any day other than a Saturday, Sunday, or a U.S.
federal or Swedish holiday and consists of the time period from 12:01 a.m.
through 12:00 midnight, New York City time.
ANNOUNCEMENTS
If we are required to make an announcement relating to an extension, of
the exchange offer, we will do so no later than 9:00 a.m., London time, on the
next business day after the previously scheduled expiration date. Such
announcement may state we are extending the exchange offer for a specific time
or on a daily basis.
Without limiting the manner in which we may choose to make a public
announcement of any extension, amendment or termination of the exchange offer
and consent solicitation, we expect to make any public announcement through a
timely release to the Dow Jones News Source.
33
<Page>
EXCHANGE AGENT
Deutsche Bank AG London has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be directed to the
Euroclear and Clearstream Banking for further transmittal to the exchange agent.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the exchange agent addressed as
follows:
<Table>
IN LUXEMBOURG: IN THE UNITED KINGDOM:
Deutsche Bank Luxembourg S.A. Deutsche Bank AG London
2 Boulevard Konrad Adenauer Winchester House
L-1115 Luxembourg 1 Great Winchester Street
Attn: Peter Dickinson London EC2N 2DB
Telephone: +35 2 421 22641 England
Facsimile: +35 2 465 802 Tel: +44 207 547 7406
Fax: +44-207-547-0012
</Table>
LETTERS OF TRANSMITTAL ARE TO BE DELIVERED TO EUROCLEAR AND CLEARSTREAM
BANKING IN ACCORDANCE WITH THEIR NORMAL PROCEDURES. DELIVERY OF THE LETTER OF
TRANSMITTAL OTHER THAN TO EUROCLEAR AND CLEARSTREAM BANKING IN ACCORDANCE WITH
THEIR NORMAL PROCEDURES IS NOT VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer.
We will pay the estimated cash expenses to be incurred in connection with
the exchange offer, including the fees and expenses of the Trustee and legal
fees.
TRANSFER TAXES
Holders who tender their existing notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct us to register new notes in the name of, or request that existing notes
not tendered or not accepted in the exchange offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE EXISTING NOTES
Holders of existing notes who do not exchange their existing notes for new
notes in the exchange offer will continue to be subject to the restrictions on
transferring existing notes set forth in the legend on the existing notes. This
is because the existing notes were issued under exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the existing notes may not be
offered or sold, unless registered under the Securities Act, except under an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. We are not obligated to register existing
notes under the Securities Act other than as set forth in "--Registration
Rights" below on page 35. Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued to third parties, we
believe that new notes issued in the exchange offer in exchange for existing
notes may be offered for resale, resold or otherwise transferred by holders of
existing notes, other than any such holder which is an "affiliate" of ours
within the meaning of Rule 405 under the Securities Act, without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such new notes are acquired in
34
<Page>
the ordinary course of such holders' business and such holders have no
arrangement or understanding with any person to participate in the distribution
of such new notes. However, we do not intend to request the Commission to
consider, and the Commission has not considered, the exchange offer in the
context of a no-action letter and we cannot guarantee that the staff of the
Commission would make a similar determination with respect to the exchange offer
as in such other circumstances. Each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of new notes and has no arrangement or understanding to participate
in a distribution of new notes. If any holder is an affiliate of ours, is
engaged in or intends to engage in or has any arrangement or understanding with
respect to the distribution of the new notes to be acquired in the exchange
offer, such holder:
- could not rely on the applicable interpretations of the staff of the
Commission; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction.
Each broker-dealer that receives new notes for its own account in exchange
for existing notes, where such existing notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes. See "Plan of Distribution" on page 168. In
addition, to comply with state securities laws, the new notes may not be offered
or sold in any state unless they have been registered or qualified for sale in
such state or an exemption from registration or qualification is available and
is complied with. The offer and sale of the new notes to "qualified
institutional buyers" as such term is defined under Rule 144A of the Securities
Act is generally exempt from registration or qualification under the state
securities laws. We currently do not intend to register or qualify the sale of
the new notes in any state where an exemption from registration or qualification
is required and not available.
We intend to list the new notes on the Luxembourg Stock Exchange. The
Luxembourg Stock Exchange will be informed and a notice will be published in a
Luxembourg newspaper in the event of any change in the rate of interest payable
on the notes. Notice will be given to the Luxembourg Stock Exchange and
published in a Luxembourg newspaper announcing the beginning of the exchange
offer and, upon completion of such offer, the results of the exchange offer. We
have appointed Deutsche Bank Luxembourg S.A. to be our Luxembourg exchange
agent, through which all relevant documents with respect to the exchange offer
will be made available and the Luxembourg exchange agent shall perform all
agency functions to be performed by any exchange agent, including providing a
letter of transmittal and other relevant documents to holders of the existing
notes, and accepting such documents on behalf of the Company. The new notes are
expected to be accepted for clearance through Euroclear and Clearstream Banking
and notice will be given to the Luxembourg Stock Exchange and published in a
Luxembourg newspaper announcing the relevant Common Codes and International
Securities Identification Numbers (ISIN) for the new notes.
REGISTRATION RIGHTS
Holders of the new notes are not entitled to any registration rights with
respect to the new notes.
In connection with the April 2001 offering of existing notes, we entered
into a registration rights agreement with Deutsche Bank AG London and UBS AG,
acting through its business group UBS Warburg, as initial purchasers of the such
existing notes, and in connection with the July 2001 offering of existing notes,
we entered into a registration rights agreement with Deutsche Bank AG London, as
the initial purchaser of such existing notes, each registration rights agreement
for the benefit of the holders of such existing notes. Under these registration
rights agreements, we agreed that we will, at our cost by October 5, 2001, use
our best efforts to cause a registration statement to be declared effective
under the Securities Act relating to the exchange of all of the existing notes
for registered
35
<Page>
notes. The registration statement of which this prospectus is a part constitutes
the registration statement for the purposes of each registration rights
agreement. Upon the registration statement being declared effective, we will
offer the new notes in exchange for surrender of the existing notes. We will
keep the exchange offer open for not less than 20 business days or longer if
required by applicable law after the date notice of the exchange offer is mailed
to holders of the existing notes. For each existing note surrendered in the
exchange offer, the holder of such existing note will receive a new note having
a principal amount equal to that of the surrendered existing note. Under
existing Commission interpretations, the new notes would in general be freely
transferable after the exchange offer without further registration under the
Securities Act; provided, however, that in the case of broker-dealers, a
prospectus meeting the requirements of the Securities Act be delivered as
required. We have agreed for a period of 180 days after consummation of the
exchange offer to make available a prospectus meeting the requirements of the
Securities Act to any broker-dealer for use in connection with such resales.
In the event that:
- applicable law or Commission policy does not permit us to effect such an
exchange offer,
- any holder of the existing notes that is a qualified institutional buyer
under Rule 144A of the Securities Act notifies us within 20 business days
prior to the consummation of the exchange offer that:
- applicable law or Commission policy prohibits it from participating in
the exchange offer,
- it may not deliver the new notes without delivering a prospectus, and
this prospectus is not appropriate or available for such resales, or
- it is a broker-dealer and holds existing notes directly acquired from
us or one of our affiliates,
- if for any other reason the exchange offer is not consummated by
November 6, 2001, or
- the exchange offer is completed and in the opinion of counsel for the
initial purchasers a registration statement must be filed and a
prospectus must be delivered by the initial purchasers in connection with
any offering or sale of the existing notes,
we will, at our cost, use our best efforts to:
- file a shelf registration statement covering resales of the existing
notes;
- cause the shelf registration statement to be declared effective under the
Securities Act; and
- use our best efforts to keep effective the shelf registration statement
until two years after April 10, 2001, subject to extension.
If: (i) this registration statement or the shelf registration statement
are not declared effective by the Commission by October 5, 2001; (ii) the
exchange offer is not consummated by November 6, 2001; or (iii) either this
registration statement or the shelf registration statement is filed with and
declared effective by the Commission, but thereafter ceases to be effective or
fails to be usable for its intended purpose at any time prior to the
consummation of the exchange offer and is not succeeded within five business
days by an additional registration statement filed and declared effective,
subject to certain limited exceptions, the rate per annum at which the existing
notes bear interest will increase by 0.50% per annum for the first 90 days
following such dates, and increasing by an additional 0.50% per annum for each
subsequent 90-day period, until:
- this registration statement or the shelf registration statement are
declared effective by the Commission in the case of clause (i) above;
- upon the consummation of the exchange offer in the case of clause (ii)
above; or
36
<Page>
- upon the effectiveness or usability of this registration statement or the
shelf registration statement in the case of clause (iii) above.
The total additional interest payable as a result of any such delay,
however, is limited to 2% per annum of the principal amount of the existing
notes.
The discussion in this prospectus of material provisions of each
registration rights agreement does not purport to be complete. We urge you to
refer to the registration rights agreements for a complete description of the
obligations of the Company thereunder. We have filed a copy of the registration
rights agreements as exhibits to the registration statement of which this
prospectus forms a part.
37
<Page>
CAPITALIZATION
The following table sets out the actual consolidated capitalization and
cash and cash equivalents of Preem Holdings AB and its subsidiaries as of
June 30, 2001, determined in accordance with Swedish GAAP, and, on an adjusted
basis, the pro forma consolidated capitalization of Preem Holdings AB, to give
effect to both offerings of the existing notes and the use of proceeds from such
offerings. The accounts of Preem Holdings AB were prepared and audited on a
stand-alone basis for the year ended December 31, 2000, and, for subsequent
periods, will be prepared and audited on both a consolidated and stand-alone
basis. Except for the offerings of the existing notes, there has been no
material change to the capitalization of Preem Holdings AB and its subsidiaries
since the date of its last unaudited interim accounts as of March 31, 2001. In
connection with its transformation into a public company, Preem Holdings AB
increased its share capital on March 1, 2001, at which time its share capital
consisted of 5,000 authorized shares of common stock with a par value of SEK100
each, of which 5,000 shares were issued and outstanding and fully paid. You
should read this table in conjunction with the unaudited Interim Consolidated
Financial Statements of Preem Holdings AB and the related notes included
elsewhere in this registration statement.
<Table>
<Caption>
AS OF JUNE 30, 2001
-----------------------------------------
AS ADJUSTED FOR
ACTUAL BOTH OFFERINGS
------------------- -------------------
SEK $(1) SEK $(1)
(UNAUDITED)
(AMOUNTS IN MILLIONS)
Total current debt(2)....................................... 1,313 121 1,313 121
Total long-term debt (excluding the notes offered in July
2001)(3).................................................. 5,795 534 5,795 534
Notes offered(4)............................................ -- -- 505 46
Total long-term debt after issuance of notes................ 5,795 534 6,300 580
Subordinated shareholder loans(5)........................... 242 22 242 22
Total shareholders' equity(6)............................... 5,609 517 5,609 517
Total capitalization(7)..................................... 12,959 1,194 13,464 1,241
</Table>
- ------------
(1) We have translated Kronor into Dollars at the rate of $1.00=SEK10.85 (the
exchange rate on June 30, 2001). We have provided this translation solely
for your convenience.
(2) Total current debt is represented in the unaudited Preem Holdings AB
Interim Consolidated Financial Statements under current liabilities as
"Liabilities to credit institutions." None of the total current debt is
secured debt or guaranteed by persons other than Preem Petroleum AB or its
consolidated subsidiaries. This amount includes any indirect or contingent
indebtedness.
(3) Total long-term debt excludes shareholder loans and the current portion of
long-term debt, but includes amounts under bank overdraft facilities that
are categorized as long-term debt under Swedish GAAP and other long-term
liabilities. Of this amount, SEK48 million is debt secured by real estate
mortgages and SEK497 million is guaranteed by persons other than Preem
Holdings AB or its consolidated subsidiaries. This amount includes any
direct or contingent indebtedness.
(4) The exiting notes (?305 million, 10 5/8% interest) are senior debt secured
by a first priority pledge of all outstanding shares of Preem Petroleum AB
and a first priority security assignment of a SEK2,277 million subordinated
intercompany loan from Preem Holdings AB to Preem Petroleum AB. The
principal amount of the existing notes has been translated into Kronor at
the exchange rate on June 30, 2001.
(5) As of June 30, 2001, this indebtedness, which was not secured or
guaranteed and did not accrue interest, was owed to Corral Petroleum
Holdings AB. Approximately ?219 million of this indebtedness was repaid
with a portion of the proceeds of the April 2001 offering. Corral Petroleum
Holdings AB assigned the remaining portion of this indebtedness to Preem
Holdings AB. In return, Preem Holdings AB incurred an equivalent amount of
debt pursuant to an interest-free subordinated shareholder loan with no
maturity date from Corral Petroleum Holdings AB.
(6) Total shareholders' equity reflects the shareholders' contribution at the
value reflected on the books of Corral Petroleum Holdings AB prior to the
transfer of all of the issued and outstanding shares of Preem Petroleum AB
to Preem Holdings AB. As of June 30, 2001, the share capital of Preem
Holdings AB consisted of 5,000 authorized shares of common stock with a par
value of SEK100 each, of which 5,000 shares were issued and outstanding and
fully paid.
38
<Page>
(7) Total capitalization represents total current debt, total long-term debt
(after issuance of the existing notes), subordinated shareholder loans and
total shareholders' equity.
As of December 31, 1999 and 2000, the Company had pledged assets of
SEK103 million and SEK139 million, respectively, and contingent liabilities of
SEK75 million and SEK106 million, respectively.
39
<Page>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial data in this section have been derived
from the Consolidated Financial Statements of Preem Petroleum AB, the unaudited
Interim Consolidated Financial Statements of Preem Petroleum AB and the
unaudited Interim Consolidated Financial Statements of Preem Holdings AB
included in this prospectus, which have been prepared in accordance with Swedish
GAAP and, in the case of the Consolidated Financial Statements of Preem
Petroleum AB, audited by KPMG, independent accountants.
The Preem Holdings AB unaudited pro forma consolidated statement of
operations data for the year ended December 31, 2000 are derived from the
audited Preem Petroleum AB Consolidated Financial Statements and the audited
Preem Holdings AB Financial Statements and give effect to the transfer of Preem
Petroleum AB's issued and outstanding shares to Preem Holdings AB, the April and
July 2001 offerings of the existing notes and the use of proceeds from such
offerings, as described in this prospectus, as if such transfer and transactions
occurred on January 1, 2000. The Preem Holdings AB unaudited pro forma
consolidated statement of operations data for the three months ended March 31,
2001 are derived from the unaudited Interim Consolidated Financial Statements of
Preem Petroleum AB and the unaudited Interim Consolidated Financial Statements
of Preem Holdings AB and give effect to the transfer and transactions described
above as if such transfer and transactions had occurred on January 1, 2001. The
Preem Holdings AB unaudited pro forma consolidated balance sheet data at
March 31, 2001 are derived from the unaudited Interim Consolidated Financial
Statements of Preem Holdings AB as of March 31, 2001, and give effect to the
transactions described above (other than the share transfer, which occurred on
March 19, 2001, and is therefore already reflected in such Interim Consolidated
Financial Statements) as if such transactions had occurred on March 31, 2001.
See "Unaudited Pro Forma Consolidated Financial Information." The pro forma data
do not purport to represent what Preem Holdings AB's financial position or
results of operations would have been had the transfer and transactions actually
occurred as of such dates or to project the results of operations of Preem
Holdings AB for any future period or the financial condition of Preem Holdings
AB for any future date.
The unaudited interim financial statements contained in this prospectus
have been prepared using the same accounting principles and on the same basis as
the audited year-end financial statements and include all adjustments,
consisting of normal recurring adjustments that management considers necessary
for a fair representation of the financial position and results of operations
for the interim period. The results of operations reported for the three-month
period ended March 31, 2001 are not necessarily indicative of those expected for
the entire year ended December 31, 2001.
You should read the data below in conjunction with the audited Preem
Petroleum AB Consolidated Financial Statements and the related notes, the
audited Preem Holdings AB Financial Statements and the related notes, the
unaudited Interim Consolidated Financial Statements of Preem Petroleum AB and
the related notes and the unaudited Interim Consolidated Financial Statements of
Preem Holdings AB and the related notes, in each case, included elsewhere in
this prospectus. Preem Petroleum AB and Preem Holdings AB prepare their
consolidated financial statements in accordance with Swedish GAAP, which differs
in certain significant respects from U.S. GAAP. Reconciliations of net income
(loss) and shareholders' equity reflecting the significant differences between
Swedish GAAP and U.S. GAAP for the year ended December 31, 2000 and the
three-month period ended March 31, 2001 are set forth in the audited Preem
Petroleum AB Consolidated Financial Statements and the unaudited Preem Petroleum
AB Interim Consolidated Financial Statements, respectively. Statement of
operations data for the three months ended March 31, 2001 are presented for
Preem Petroleum AB because, under Swedish GAAP, we elected to account for the
transfer of all the issued and outstanding shares of Preem Petroleum AB to Preem
Holdings AB (which occurred on March 19, 2001) as of
40
<Page>
March 31, 2001. Accordingly, we do not believe that the statement of operations
data for Preem Holdings AB adequately reflects our operations.
<Table>
<Caption>
PREEM
HOLDINGS AB
-------------------
PREEM PETROLEUM AB PRO FORMA
--------------------------------------------------------------- -------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
--------------------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2000 2000
-------- -------- -------- -------- -------- -------- -------- --------
SEK SEK SEK SEK SEK $(1) SEK $(1)
(IN MILLIONS)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
AMOUNTS IN ACCORDANCE WITH SWEDISH
GAAP:
Revenues......................... 24,984 30,226 22,139 28,793 46,195 4,258 46,195 4,258
Excise duties.................... (6,042) (9,167) (6,381) (6,573) (6,637) (612) (6,637) (612)
------- ------- ------- ------- ------- ------ ------- ------
SALES REVENUE.................... 18,942 21,059 15,758 22,220 39,558 3,646 39,558 3,646
Cost of goods sold............... (17,636) (20,177) (14,362) (20,142) (37,123) (3,421) (37,123) (3,421)
------- ------- ------- ------- ------- ------ ------- ------
GROSS PROFIT..................... 1,306 882 1,396 2,078 2,435 225 2,435 225
Selling expenses................. (688) (789) (863) (877) (945) (87) (945) (87)
Administrative Expenses.......... (194) (239) (226) (216) (215) (20) (547)(2) (50)(2)
Other operating income (loss).... (213) 220 265 236 381 35 381 35
------- ------- ------- ------- ------- ------ ------- ------
OPERATING INCOME................. 211 74 572 1,221 1,656 153 1,324(3) 123(3)
Financial income(4).............. 165 67 71 49 76 7 76 7
Interest expense................. (270) (263) (298) (208) (268) (25) (581)(5) (54)(5)
Other financial expense(6)....... (98) (61) (34) (74) (180) (17) (180) (17)
------- ------- ------- ------- ------- ------ ------- ------
INCOME (LOSS) BEFORE TAXES....... 8 (183) 311 988 1,284 118 639 59
Income taxes(7).................. (160) (26) (185) (274) (452) (41) (364) (34)
Minority interests............... (1) (1) (2) (1) (1) -- (1) --
------- ------- ------- ------- ------- ------ ------- ------
NET INCOME (LOSS)................ (153) (210) 124 713 831 77 274 25
Earnings (loss) per share(26).... (251) (344) 203 1,169 1,362 126 54,200 5,000
Weighted number of shares, in
thousands...................... 610 610 610 610 610 610 5 5
AMOUNTS IN ACCORDANCE WITH U.S.
GAAP:
Sales revenue.................... 18,942 21,059 15,758 22,220 39,558 3,646 39,558 3,646
Operating income (loss)(9)....... 74 (66) 442 1,097 1,439 133 1,439 133
Net income (loss)................ (352) (213) (52) 528 637 59 412(1) 38(11)
Earnings (loss) per share(26).... (577) (349) (85) 866 1,044 97 81,800 7,600
Weighted number of shares, in
thousands...................... 610 610 610 610 610 610 5 5
OTHER FINANCIAL DATA:
SWEDISH GAAP:
EBITDA(12)....................... 887 720 1,214 1,871 2,377 219 2,377 219
Depreciation and Amortization.... 676 646 642 650 721 66 1,053(3) 97(3)
Capital expenditure.............. 1,263 550 508 590 405 37 405 37
Cash flows from operating
activities....................... (322) 175 1,938 825 75 7 (196) (18)
Cash flows from (used in) investing
activities....................... (937) (406) (668) (649) (384) (35) (602) (55)
Cash flows from (used in) financing
activities....................... 699 59 (858) (390) 409 38 1,193 110
U.S. GAAP:
EBITDA(12)....................... 882 712 1,216 1,879 2,292 211 2,292 211
Depreciation and
Amortization(13)............... 808 778 774 782 853 79 853 79
Cash flows from operating
activities....................... (322) 175 1,938 825 75 7 (196) (18)
Cash flows from (used in) investing
activities....................... (937) (406) (668) (649) (384) (35) (602) (55)
Cash flows from (used in) financing
activities....................... 699 59 (858) (390) 409 38 1,193 110
<Caption>
PREEM
HOLDINGS AB
PREEM PETROLEUM -------------------
AB PRO FORMA
------------------------------ -------------------
THREE
MONTHS
THREE MONTHS ENDED
ENDED MARCH 31, MARCH 31,
------------------------------ -------------------
2000 2001 2001 2001 2001
-------- -------- -------- -------- --------
SEK SEK SEK SEK $(1)
(UNAUDITED)
(IN MILLIONS)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
AMOUNTS IN ACCORDANCE WITH SWEDISH
GAAP:
Revenues......................... 10,298 11,598 1,069 11,598 1,069
Excise duties.................... (1,606) (2,295) (212) (2,295) (212)
------ ------ ----- ------ -----
SALES REVENUE.................... 8,692 9,303 857 9,303 857
Cost of goods sold............... (8,193) (8,744) (806) (8,744) (806)
------ ------ ----- ------ -----
GROSS PROFIT..................... 499 559 51 559 51
Selling expenses................. (207) (219) (20) (219) (20)
Administrative Expenses.......... (51) (70) (6) (153)(2) (14)(2)
Other operating income (loss).... 69 80 7 80 7
------ ------ ----- ------ -----
OPERATING INCOME................. 310 350 32 267(3) 24
Financial income(4).............. 15 14 1 14 1
Interest expense................. (61) (67) (6) (145)(5) (13)(5)
Other financial expense(6)....... (24) (133) (12) (133) (12)
------ ------ ----- ------ -----
INCOME (LOSS) BEFORE TAXES....... 240 164 15 3 --
Income taxes(7).................. -- (1) -- (1)(8) --
Minority interests............... (1) (1) -- (1) --
------ ------ ----- ------ -----
NET INCOME (LOSS)................ 239 162 15 1 --
Earnings (loss) per share(26).... 392 266 25 200 18
Weighted number of shares, in
thousands...................... 610 610 610 5 5
AMOUNTS IN ACCORDANCE WITH U.S.
GAAP:
Sales revenue.................... 8,692 9,303 857 9,303 857
Operating income (loss)(9)....... 278 321 30 321 30
Net income (loss)................ 140(12) 86(12) 8 30 3
Earnings (loss) per share(26).... 230 141 13 (6,000) (553)
Weighted number of shares, in
thousands...................... 610 610 610 5 5
OTHER FINANCIAL DATA:
SWEDISH GAAP:
EBITDA(12)....................... 474 517 48 517 48
Depreciation and Amortization.... 164 167 15 250(3) 23
Capital expenditure.............. 48 98 9 98 9
Cash flows from operating
activities....................... 213 855 79 787 73
Cash flows from (used in) investing
activities....................... (50) (97) (9) (315) (29)
Cash flows from (used in) financing
activities....................... 231 (829) (76) (44) (4)
U.S. GAAP:
EBITDA(12)....................... 475 517 48 517 48
Depreciation and
Amortization(13)............... 197 200 18 200 18
Cash flows from operating
activities....................... 213 855 79 787 73
Cash flows from (used in) investing
activities....................... (50) (97) (9) (315) (29)
Cash flows from (used in) financing
activities....................... 231 (829) (76) (44) (4)
</Table>
41
<Page>
<Table>
<Caption>
PREEM PETROLEUM AB
---------------------------------------------------------------
AS OF DECEMBER 31,
---------------------------------------------------------------
1996 1997 1998 1999 2000 2000
-------- -------- -------- -------- -------- --------
SEK SEK SEK SEK SEK $(1)
(IN MILLIONS, EXCEPT RATIOS)
CONSOLIDATED BALANCE SHEET DATA:
AMOUNTS IN ACCORDANCE WITH SWEDISH
GAAP:
Cash and cash equivalents.......... 244 72 263 270 370 34
Total tangible fixed assets, net... 5,264 5,230 5,240 5,322 5,160 476
Total assets....................... 12,536 11,695 10,936 12,919 14,718 1,356
Total current debt(160............. 1,559 3,019 785 448 1,321 122
Total long-term debt(17)........... 3,084 1,806 3,201 3,168 2,949 272
Minority interests................. 116 116 117 117 122 11
Shareholder loans(18).............. 550 638 1,113 1,903 2,259 208
Shareholders' equity............... 3,310 3,037 2,709 2,562 2,420 223
Total shareholders' funds.......... 3,860 3,675 3,822 4,465 4,679 431
AMOUNTS IN ACCORDANCE WITH U.S. GAAP:
Total current debt(16)............. 1,707 3,194 798 469 1,456 134
Total long-term debt............... 2,936 1,631 3,188 3,147 2,814 259
Shareholder loans(18).............. 550 638 1,113 1,903 2,259 208
Shareholders' equity(20)........... 5,202 4,826 4,322 3,825 3,489(10) 322
KEY FINANCIAL INFORMATION:
SWEDISH GAAP:
Net debt(21)....................... 4,399 4,753 3,723 3,346 3,900 359
Total debt(22)..................... 4,643 4,825 3,986 3,616 4,270 394
Total capitalization(23)........... 8,503 8,500 7,808 8,081 8,949 825
Total debt/total capitalization.... 54.6% 56.8% 51.0% 44.8% 47.7% 47.7%
Earnings/fixed charges(24)......... 1.0x 0.3x 2.0x 5.7x 5.7x 5.7x
U.S. GAAP:
Net debt(21)....................... 4,399 4,753 3,723 3,346 3,900 359
Total debt(22)..................... 4,643 4,825 3,986 3,616 4,270 394
Total capitalization(23)........... 10,395 10,289 9,421 9,344 10,018 923
Total debt/total capitalization.... 44.7% 46.9% 42.3% 38.7% 42.6% 42.6%
Earnings/fixed charges............. 0.5x -- 1.6x 4.9x 5.0x 5.0x
<Caption>
PREEM
HOLDINGS AB
PREEM -------------------
HOLDINGS AB PRO FORMA
------------------- -------------------
AS OF AS OF
MARCH 31, MARCH 31,
------------------- -------------------
2001 2001 2001 2001
-------- -------- -------- --------
SEK $(1) SEK $(1)
(UNAUDITED)
(IN MILLIONS, EXCEPT RATIOS)
CONSOLIDATED BALANCE SHEET DATA:
AMOUNTS IN ACCORDANCE WITH SWEDISH
GAAP:
Cash and cash equivalents.......... 299 28 866(14) 80
Total tangible fixed assets, net... 5,139 474 5,139 474
Total assets....................... 17,143 1,580 17,928(15) 1,652
Total current debt(160............. 1,085 100 1,085 100
Total long-term debt(17)........... 3,346 308 6,146 566
Minority interests................. 123 11 123 11
Shareholder loans(18).............. 2,259 208 244 22
Shareholders' equity............... 5,516(19) 508 5,516(19) 508
Total shareholders' funds.......... 7,775 717 5,760 531
AMOUNTS IN ACCORDANCE WITH U.S. GAAP:
Total current debt(16)............. 1,174 108 1,174 108
Total long-term debt............... 3,257 300 3,257 300
Shareholder loans(18).............. 2,259 208 244 22
Shareholders' equity(20)........... 3,571 329 3,571 329
KEY FINANCIAL INFORMATION:
SWEDISH GAAP:
Net debt(21)....................... 4,132 381 6,365 587
Total debt(22)..................... 4,431 408 7,231 666
Total capitalization(23)........... 12,206 1,125 12,991 1,197
Total debt/total capitalization.... 36.3% 36.3% 55.7% 55.7%
Earnings/fixed charges(24)......... 5.3x(25) 5.3x 2.0x(25) 2.0x
U.S. GAAP:
Net debt(21)....................... 4,132 381 6,365 587
Total debt(22)..................... 4,431 408 7,231 666
Total capitalization(23)........... 10,261 946 10,923 1,007
Total debt/total capitalization.... 43.2% 43.2% 66.2% 66.2%
Earnings/fixed charges............. 4.0x 4.0x 0.8x 0.8x
</Table>
- -------------
(1) We have translated Kronor into Dollars at the rate of $1.00=SEK10.85 (the
exchange rate on June 30, 2001). We have provided this translation solely
for your convenience.
(2) The pro forma data includes the amortization of goodwill resulting from
the transfer of all of the issued and outstanding shares of Preem Petroleum
AB to Preem Holdings AB.
(3) The pro forma operating income information includes the deduction of
amortization of goodwill resulting from the transfer of all of the issued
and outstanding shares of Preem Petroleum AB to Preem Holdings AB.
(4) Financial income includes interest income and other financial income. The
loan being made by Preem Holdings AB to its parent company, Corral
Petroleum Holdings AB, carries no interest and, accordingly, does not
affect the pro forma calculations.
(5) The pro forma interest expense includes the amortization of capitalized
transaction expenses.
(6) Other financial expense includes exchange rate losses and miscellaneous
expenses.
(7) Income taxes do not generally reflect cash payable or paid, because Preem
Holdings AB and Preem Petroleum AB have the ability to transfer, to a
certain extent, their taxable income to their respective parent company as
a group contribution, which is in the form of a book-entry dividend. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(8) No imputed tax impact has been included in the Interim Consolidated
Statements of Operations under Swedish GAAP for the three months ended
March 31, 2001. Accordingly, no imputed tax benefit has been included in
the interim pro forma data under Swedish GAAP.
(9) Operating income (loss) under U.S. GAAP reflects differences in the
determination of pension, taxes, goodwill, expenses, the amortization of
goodwill and purchase accounting between Swedish GAAP and U.S. GAAP. See
"--Principal Differences between Swedish GAAP and U.S. GAAP."
42
<Page>
(10) Effect on Net Income and Shareholders' Equity
The following table sets forth the principal differences between Swedish
GAAP and U.S. GAAP in the calculation of the pro forma net income and
shareholders' equity.
<Table>
<Caption>
AS OF DECEMBER 31,
---------------------
2000 2000
--------- ---------
SEK $
(IN MILLIONS)
Pro forma net income, Swedish GAAP.......................... 274 25
Pensions.................................................... 4 --
Pension refund.............................................. (89) (7)
Goodwill amortization....................................... 200 18
Income tax effects of U.S. GAAP adjustments................. 23 2
--- --
Pro forma net income, U.S. GAAP............................. 412 38
=== ==
</Table>
<Table>
<Caption>
AS OF MARCH 31,
---------------------
2001 2001
--------- ---------
SEK $
(IN MILLIONS)
Pro forma net income, Swedish GAAP.......................... 1 --
Pensions.................................................... 1 --
Pension refund.............................................. 3 --
Goodwill amortization....................................... 50 5
Income taxes................................................ (24) (2)
Income tax effects of U.S. GAAP adjustments................. (1) --
--- --------
Pro forma net income, U.S. GAAP............................. 30 3
=== ========
</Table>
<Table>
<Caption>
AS OF MARCH 31,
---------------------
2001 2001
--------- ---------
SEK $
(IN MILLIONS)
Pro forma shareholders' equity, Swedish GAAP................ 5,516 508
Difference between the net book value of the Preem Petroleum
AB shares on Corral Petroleum Holdings AB's books and the
net assets of Preem Petroleum AB as of March 31, 2001..... (2,939) (271)
Pensions.................................................... 51 5
Pension refund.............................................. (86) (8)
Goodwill amortization....................................... 1,065 98
Income taxes................................................ (46) (4)
Income tax effects of U.S. GAAP adjustments................. 10 1
------ ----
Pro forma shareholders' equity U.S. GAAP.................... 3,571 329
====== ====
</Table>
We have translated Kronor into Dollars at the rate of $1.00=SEK10.85 (the
exchange rate on June 30, 2001).
(11) Net income in accordance with U.S. GAAP reflects the imputed tax effect,
which is not reflected under Swedish GAAP.
(12) EBITDA represents operating profit or loss, before depreciation and
amortization. EBITDA for 2000 includes SEK89 million of non-cash income
that is non-recurring and that is attributable to a refund from the Swedish
National Pension Fund. EBITDA for the three-month periods ended March 31,
2001 and March 31, 2000 does not include any non-cash income that is
non-recurring. EBITDA is not a GAAP-based measure of liquidity or financial
performance and should not be considered as a substitute for operating
earnings, net income, cash flows from operating activities or other
statements of operations or cash flow data computed in accordance with
Swedish or U.S. GAAP. Funds depicted by this measure may not be available
for management's discretionary use or for service of payment of interest or
principle on the notes. Because all companies do not calculate EBITDA
identically, the presentation of EBITDA may not be comparable to similarly
entitled measures of other companies.
(13) Depreciation and amortization information under U.S. GAAP includes the
amortization of goodwill resulting from Corral Petroleum Holdings AB's
acquisition of Preem Petroleum AB. See "--Principal Differences between
Swedish GAAP and U.S. GAAP."
43
<Page>
(14) The pro forma cash and cash equivalents information includes an amount
equal to the first interest payment due on the existing notes issued in
April 2001 and the net proceeds of the July 2001 offering (including
amounts received for accrued interest), less the Krona-equivalent of
E10 million being distributed to Corral Petroleum Holdings AB. This amount
also includes the Krona-equivalent of approximately E3 million remaining at
Preem Petroleum AB from the proceeds of the April 2001 offering.
(15) The pro forma total assets information includes goodwill resulting from
the transfer of all of the issued and outstanding shares of Preem Petroleum
AB to Preem Holdings AB and capitalization of the costs of both offerings
of the existing notes. The costs of the offerings will be amortized over a
period of ten years, in the case of the existing notes offered in
April 2001, and a period of 9.7 years, in the case of the existing notes
offered in July 2001.
(16) Total current debt is represented in the audited Preem Petroleum AB
Consolidated Financial Statements and, in respect of the three months ended
March 31, 2001, the Preem Holdings AB unaudited Interim Consolidated
Financial Statements, under current liabilities as "Liabilities to credit
institutions." Under U.S. GAAP, total current debt includes bank overdraft
facilities, which are categorized as long-term debt under Swedish GAAP.
(17) Total long-term debt excludes shareholder loans and the current portion of
long-term debt, but includes amounts under bank overdraft facilities that
are categorized as long-term debt under Swedish GAAP and other long-term
liabilities.
(18) Shareholder loans are non-interest bearing instruments without fixed
maturity.
(19) The Preem Holdings AB shareholders' equity reflects the shareholders'
contribution at the value reflected on the books of Corral Petroleum
Holdings AB prior to the transfer of all of the issued and outstanding
shares of Preem Petroleum AB to Preem Holdings AB.
(20) Shareholders' equity under U.S. GAAP is increased due to the requirement
that goodwill be pushed down to be reflected on the accounts of
subsidiaries. See "--Principal Differences between Swedish GAAP and U.S.
GAAP."
(21) Net debt is defined as total long-term debt and total current debt less
cash and cash equivalents.
(22) Total debt is defined as total long-term debt and total current debt.
(23) Total capitalization represents total current debt, total long-term debt,
subordinated shareholder loans and total shareholders' equity.
(24) For purposes of determining the ratio of earnings to fixed charges and the
deficiency of earnings to fixed charges, earnings are defined as income
before income taxes plus fixed charges. Fixed charges include interest
expense and one-third of rental expense on operating leases, representing
that portion of rental expense deemed to be attributable to interest. Preem
Petroleum AB had a deficiency of earnings to fixed charges in 1997 of
SEK(183) million.
(25) For purposes of the Preem Holdings AB historical and pro forma
Earnings/fixed charges calculations for the three-month period ended
March 31, 2001, the Key Financial Information is calculated on the basis of
earnings and fixed charges of Preem Petroleum AB for the twelve-month
period ended March 31, 2001.
(26) Earnings per share is defined as net income (loss) divided by the weighted
average amount of shares outstanding. The amounts are presented in Krona
and Dollars, respectively. Basic and diluted income per share pro forma
data in accordance with Swedish GAAP and U.S. GAAP is presented assuming
the current capitalization of Preem Holdings AB.
PRINCIPAL DIFFERENCES BETWEEN SWEDISH GAAP AND U.S. GAAP
We prepare our financial statements in accordance with Swedish GAAP. For a
reconciliation of certain financial statement information to U.S. GAAP, see
note 8 of the Preem Petroleum AB Interim Consolidated Financial Statements for
the three-month period ended March 31, 2001, note 6 to the Preem Holdings AB
Interim Consolidated Financial Statements for the three-month period ended
March 31, 2001, and note 25 of the Preem Petroleum AB Consolidated Financial
Statements for each of the years in the three-year period ended December 31,
2000. The principal differences pertain to the treatment of pension expense,
taxes, goodwill and purchase accounting.
PENSION EXPENSE
Under U.S. GAAP, the determination of pension expense for defined benefit
pension plans is made pursuant to Statement of Financial Accounting Standard,
"Employers' Accounting for Pensions SFAS No. 87." SFAS 87 requires consideration
of more variables than Swedish GAAP. In particular, U.S. GAAP requires the use
of a specific actuarial method (the projected unit credit method) which
44
<Page>
takes into consideration factors such as future salary increases and interest
rate calculations based upon company-specific borrowing capacity.
TAXES
Under Swedish GAAP, deferred income taxes are generally recognized only to
the extent that it is likely that a tax liability will arise in the foreseeable
future. Deferred tax assets resulting from timing differences are recognized
only to the extent that they can be offset against deferred tax liabilities.
Under U.S. GAAP, deferred tax liabilities must be recognized on all differences
between the book and tax basis of assets and liabilities, regardless of the
likelihood of reversal or realization. Deferred tax assets, including tax loss
carryforwards, are recognized to the extent that it is more probable than not
that such asset will be realized.
Under Swedish GAAP, no imputed tax has been included in the Interim
Consolidated Statements of Operations for the three months ended March 31, 2000
and 2001. Under U.S. GAAP, income taxes for the three months ended March 31,
2000 and 2001 were determined in accordance with Accounting Principles Board
Opinion No. 28, "Interim Financial Reporting."
GOODWILL
U.S. GAAP requires goodwill to be pushed down to be reflected on the
accounts of subsidiaries. Swedish GAAP does not permit this treatment of
goodwill. Accordingly, under Swedish GAAP, shareholders' equity is lower prior
to the transaction and higher following the transaction compared to U.S. GAAP.
PURCHASE ACCOUNTING
Under Swedish GAAP, the transfer of all of the issued and outstanding
shares of Preem Petroleum AB to Preem Holdings AB, which occurred on March 19,
2001, is accounted for as a purchase. Under U.S. GAAP, acquisition accounting
does not apply to transfers of net assets between entities under common control.
Accordingly, the assets and liabilities of Preem Petroleum AB are recorded by
Preem Holdings AB at their cost basis in Preem Petroleum AB in a manner similar
to a pooling of interests, with the financial statements restated to give effect
to the transaction as if Preem Holdings AB and Preem Petroleum AB had been
combined for the periods presented.
EFFECT ON NET INCOME
For the year ended December 31, 2000, our net income under U.S. GAAP was
SEK637 million compared to SEK831 million under Swedish GAAP. For the year ended
December 31, 1999, our net income under U.S. GAAP was SEK528 million compared to
SEK713 million under Swedish GAAP.
45
<Page>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated statement of operations data of Preem
Holdings AB for the year ended December 31, 2000 in this section have been
derived from the audited historical consolidated statement of operations of
Preem Petroleum AB and the audited historical statements of operations of Preem
Holdings AB included elsewhere in this prospectus. The unaudited pro forma
consolidated statement of operations data of Preem Holdings AB for the three
months ended March 31, 2001 in this section have been derived from the unaudited
historical consolidated statements of operations of Preem Petroleum AB and of
Preem Holdings AB included elsewhere in this prospectus. The unaudited pro forma
consolidated balance sheet data of Preem Holdings AB as of March 31, 2001 in
this section have been derived from the unaudited historical consolidated
balance sheet of Preem Holdings AB included elsewhere in this prospectus. The
audited and unaudited historical consolidated statements of operations of Preem
Petroleum AB and of Preem Holdings AB and the unaudited historical consolidated
balance sheets of Preem Holdings AB referred to above have been prepared in
accordance with Swedish GAAP, which differs in certain significant respects from
U.S. GAAP. See "Selected Consolidated Financial Data--Principal Differences
between Swedish GAAP and U.S. GAAP," and see note 25 to the audited Preem
Petroleum AB Consolidated Financial Statements for the three years ended
December 31, 2000, note 6 to the Preem Holdings AB Interim Consolidated
Financial Statements for the three-month period ended March 31, 2001, and
note 8 to the unaudited Preem Petroleum AB Interim Consolidated Financial
Statements for the three-month period ended March 31, 2001, included elsewhere
in this prospectus.
This section provides complete unaudited pro forma consolidated financial
data of Preem Holdings AB. Preem Holdings AB unaudited pro forma consolidated
statements of operations data for the three months ended March 31, 2001 and for
the year ended December 31, 2000 give effect to the transfer of Preem Petroleum
AB's issued and outstanding shares to Preem Holdings AB, both offerings of the
existing notes and the use of proceeds from such offerings, as described in this
prospectus, as if such transfer and transactions had occurred on January 1,
2001, and January 1, 2000, respectively. The Preem Holdings AB unaudited pro
forma consolidated balance sheet data give effect to these transactions (other
than the share transfer, which occurred on March 19, 2001) as if such
transactions had occurred on March 31, 2001. The pro forma adjustments are based
upon available information and certain assumptions that management believes are
reasonable. The unaudited pro forma financial data do not purport to represent
what Preem Holdings AB's results of operations or financial condition would
actually have been had the transfer and related financing transactions and the
offerings in fact occurred on such dates, or to project the results of
operations of Preem Holdings AB for any future period or the financial condition
of Preem Holdings AB for any future date. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the audited Preem
Petroleum AB Consolidated Financial Statements and the related notes, the
audited Preem Holdings AB Financial Statements and the related notes, the
unaudited Interim Consolidated Financial Statements of Preem Petroleum AB and
the related notes and the unaudited Interim Consolidated Financial Statements of
Preem Holdings AB and the related notes, in each case, included elsewhere in
this prospectus.
Under Swedish GAAP, Corral Petroleum Holdings AB's contribution of the
issued and outstanding shares of Preem Petroleum AB to Preem Holdings AB is
accounted for as a purchase. The difference between the net book value of the
Preem Petroleum AB shares on Corral Petroleum Holdings AB's books and the net
assets of Preem Petroleum AB as of March 31, 2001 has been allocated to
goodwill. Under U.S. GAAP, acquisition accounting does not apply to transfers of
net assets between entities under common control. Accordingly, the assets and
liabilities of Preem Petroleum AB are recorded by Preem Holdings AB at their
cost basis in Preem Petroleum AB in a manner similar to a pooling of interests.
The pro forma unaudited financial information is based upon certain assumptions
and estimates, which are subject to change.
46
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2000
----------------------------------------------------------------------
PREEM PRO FORMA PRO FORMA
PREEM PETROLEUM PREEM PREEM
HOLDINGS AB PRO FORMA HOLDINGS AB HOLDINGS AB
AB CONSOLIDATED ADJUSTMENTS(1) CONSOLIDATED CONSOLIDATED
-------- ------------ -------------- ------------ ------------
SEK SEK SEK SEK $(2)
UNAUDITED
(IN MILLIONS)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF
OPERATIONS
AMOUNTS IN ACCORDANCE WITH SWEDISH GAAP:
SALES REVENUE................................. -- 39,558 -- 39,558 3,646
Cost of goods sold............................ -- (37,123) -- (37,123) (3,421)
-------- ------- ---- ------- ------
GROSS PROFIT.................................. -- 2,435 -- 2,435 225
Selling expenses.............................. -- (945) -- (945) (87)
Administrative expenses....................... -- (215) (332)(3) (547) (50)
Other operating income........................ -- 381 -- 381 35
-------- ------- ---- ------- ------
OPERATING INCOME.............................. -- 1,656 (332) 1,324 123
Financial income(4)........................... -- 76 -- 76 7
Interest expense.............................. -- (268) (313)(5) (581) (54)
Other financial expense....................... -- (180) -- (180) (17)
-------- ------- ---- ------- ------
Income (loss) before taxes.................... -- 1,284 (645) 639 59
Income taxes(6)............................... -- (452) 88(7) (364) (34)
Minority interests............................ -- (1) -- (1) --
-------- ------- ---- ------- ------
Net income (loss)............................. -- 831 (557) 274 25
======== ======= ==== ======= ======
AMOUNTS IN ACCORDANCE WITH U.S. GAAP(15):
Sales revenues................................ -- 39,558 -- 39,558 3,646
Net income (loss)............................. -- 637 (225) 412 38
</Table>
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31, 2001
--------------------------------------------------------------------------
PREEM PREEM PRO FORMA PRO FORMA
HOLDINGS PETROLEUM PREEM PREEM
AB AB PRO FORMA HOLDINGS AB HOLDINGS AB
CONSOLIDATED CONSOLIDATED ADJUSTMENTS(1) CONSOLIDATED CONSOLIDATED
------------ ------------ -------------- ------------ ------------
SEK SEK SEK SEK $(2)
UNAUDITED
(IN MILLIONS)
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
AMOUNTS IN ACCORDANCE WITH SWEDISH GAAP:
SALES REVENUE.......................... -- 9,303 -- 9,303 857
Cost of goods sold..................... -- (8,744) -- (8,744) (806)
-------- ------ ----- ------ ----
GROSS PROFIT........................... -- 559 -- 559 51
Selling expenses....................... -- (219) -- (219) (20)
Administrative expenses................ -- (70) (83)(3) (153) (14)
Other operating income................. -- 80 -- 80 7
-------- ------ ----- ------ ----
OPERATING INCOME....................... -- 350 (83) 267 24
Financial income(4).................... -- 14 -- 14 1
Interest expense....................... -- (67) (78)(5) (145) (13)
Other financial expense................ -- (133) -- (133) (12)
-------- ------ ----- ------ ----
Income (loss) before taxes............. -- 164 (161) 3 --
Income taxes(7)........................ -- (1) --(8) (1) --
Minority interests..................... -- (1) 0 (1) --
-------- ------ ----- ------ ----
Net income (loss)...................... -- 162 (161) 1 --
======== ====== ===== ====== ====
AMOUNTS IN ACCORDANCE WITH U.S. GAAP:
Sales revenues......................... -- 9,303 -- 9,303 857
Net income (loss)...................... -- 86 (56) 30 3
</Table>
47
<Page>
<Table>
<Caption>
AS OF MARCH 31, 2001
-----------------------------------------------------------
PREEM PRO FORMA PRO FORMA
HOLDINGS PREEM PREEM
AB PRO FORMA HOLDINGS AB HOLDINGS AB
CONSOLIDATED ADJUSTMENTS(1) CONSOLIDATED CONSOLIDATED
------------ -------------- ------------ ------------
SEK SEK SEK $(2)
UNAUDITED
(IN MILLIONS)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AMOUNTS IN ACCORDANCE WITH SWEDISH GAAP:
ASSETS
FIXED ASSETS:
Total intangible assets.............................. 3,463 -- 3,463 319
Total tangible fixed assets.......................... 5,139 -- 5,139 474
Total financial assets............................... 245 92(9) 337 31
Other deferred costs................................. -- 126(10) 126 11
------ --------- -------- -----
TOTAL FIXED ASSETS................................... 8,847 218 9,065 835
CURRENT ASSETS:
Inventories.......................................... 4,003 -- 4,003 369
Accounts receivable.................................. 3,480 -- 3,480 321
Other current assets................................. 514 -- 514 47
Cash and cash equivalents............................ 299 567(11) 866 80
------ --------- -------- -----
TOTAL CURRENT ASSETS................................. 8,296 567 8,863 817
------ --------- -------- -----
TOTAL ASSETS......................................... 17,143 785 17,928 1,652
TOTAL EQUITY PROVISIONS AND LIABILITIES
SHAREHOLDERS' EQUITY:
Capital and reserves................................. 5,516 -- 5,516 508
MINORITY INTERESTS................................... 123 -- 123 11
PROVISIONS:
Pension provision.................................... 189 -- 189 18
Deferred tax liability............................... 255 -- 255 24
Other provisions..................................... 119 -- 119 11
LONG-TERM LIABILITIES:
Shareholder loans(12)................................ 2,259 (2,015)(13) 244 22
Liabilities to credit institutions................... 3,257 -- 3,257 300
Bank overdraft facility.............................. 89 -- 89 8
Notes................................................ -- 2,800 2,800(14) 258
CURRENT LIABILITIES:
Liabilities to credit institutions................... 1,085 -- 1,085 100
Advanced payments from customers..................... 137 -- 137 13
Accounts payable..................................... 1,425 -- 1,425 131
Other liabilities.................................... 2,689 -- 2,689 248
------ --------- -------- -----
TOTAL LIABILITIES.................................... 11,504 785 12,289 1,133
TOTAL EQUITY PROVISIONS AND LIABILITIES.............. 17,143 785 17,928 1,652
</Table>
- ------------
(1) The pro forma adjustments reflect the reconciliation of the consolidated
statements of operations for the year ended December 31, 2000, and the
reconciliation of the consolidated net shareholders' equity as of the
quarter ended March 31, 2001.
(2) We have translated Kronor into Dollars at the rate of $1.00=SEK10.85 (the
exchange rate on June 30, 2001). We have provided this translation solely
for your convenience.
(3) The pro forma administrative expenses adjustment reflects goodwill
amortization associated with the goodwill established as a result of the
transfer of all of the issued and outstanding shares of Preem Petroleum AB
to Preem Holdings AB. Goodwill is being amortized using the straight-line
method over an original period of 15 years with 9 1/3 years remaining as of
January 1, 2000.
(4) Financial income includes interest income and other financial income. The
loan being made by Preem Holdings AB to its parent company, Corral
Petroleum Holdings AB, carries no interest and, accordingly, does not
affect the pro forma calculations.
48
<Page>
(5) The pro forma interest expense adjustment includes interest expense
associated with the issuances of the existing notes (E305 million, 10 5/8%
interest) and amortization of related transaction costs, which, in the case
of the existing notes offered in April 2001, are being amortized using the
straight-line method, over a period of ten years and, in the case of the
existing notes offered in July 2001, are being amortized over a period of
9.7 years. The shareholder loan from Corral Petroleum Holdings AB to Preem
Holdings AB carries no interest.
(6) Income taxes do not generally reflect cash paid or payable, because Preem
Holdings AB and Preem Petroleum AB have the ability to transfer, to a
certain extent, its taxable income to its parent company as a group
contribution, which is in the form of a book-entry dividend. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(7) The pro forma income tax adjustment reflects the imputed tax effect of the
change in interest expense and financial income at the Swedish corporate
tax rate of 28%. Goodwill is not deductible for tax purposes, thus no tax
impact is included for the impact of the additional goodwill amortization.
(8) No imputed tax impact has been included in the Interim Consolidated
Statements of Operations for the three months ended March 31, 2001 under
Swedish GAAP. Accordingly, no imputed tax benefit has been included in the
interim pro forma data under Swedish GAAP.
(9) The pro forma adjustment to total financial assets reflects the
Krona-equivalent of a E10 million distribution to be made by Preem Holdings
AB to its parent, Corral Petroleum Holdings AB, promptly after the closing
of the July 2001 offering of existing notes. See "Use of Proceeds." This
distribution will initially take the form of an interest-free intercompany
loan from Preem Holdings AB to Corral Petroleum Holdings AB.
(10) The pro forma other deferred costs adjustment reflects capitalized
transaction costs associated with the issuances of the existing notes
which, in the case of the existing notes offered in April 2001, are being
amortized over a period of ten years and, in the case of the existing notes
offered in July 2001 are being amortized over a period of 9.7 years.
(11) The pro forma cash and cash equivalents adjustment includes an amount
equal to the first interest payment due on the existing notes issued in
April 2001 and the net proceeds of the July 2001 offering of existing notes
(including amounts received for accrued interest), less the
Krona-equivalent of E10 million being distributed to Corral Petroleum
Holdings AB. This amount also includes the Krona-equivalent of
approximately E3 million remaining at Preem Petroleum AB from the proceeds
of the April 2001 offering.
(12) Shareholder loans from Corral Petroleum Holdings AB to Preem Holdings AB
are non-interest bearing instruments without fixed maturity.
(13) The pro forma shareholder loans adjustment reflects the net proceeds of
the April 2001 offering that were repaid to Corral Petroleum Holdings AB.
This loan adjustment was converted at the exchange rate on June 30, 2001
($1.00=SEK10.85).
(14) The existing notes, amounting to an aggregate principal amount of
E305 million, are senior debt secured by a first priority pledge of all
outstanding shares of Preem Petroleum AB and a first priority security
assignment of a SEK2,277 million subordinated intercompany loan from Preem
Holdings AB to Preem Petroleum AB.
(15) Effect on Net Income and Shareholders' Equity.
49
<Page>
The following tables sets forth the principal differences between Swedish
GAAP and U.S. GAAP in the calculation of the pro forma net income and
shareholders' equity.
<Table>
<Caption>
AS OF
DECEMBER 31,
-------------------
2000 2000
-------- --------
SEK $
(IN MILLIONS)
Pro forma net income, Swedish GAAP.......................... 274 25
Pensions.................................................... 4 --
Pension refund.............................................. (89) (7)
Goodwill amortization....................................... 200 18
Income tax effects of U.S. GAAP adjustments................. 23 2
------ ----
Pro forma net income, U.S. GAAP............................. 412 38
====== ====
</Table>
<Table>
<Caption>
AS OF MARCH 31,
-------------------
2001 2001
-------- --------
SEK $
(IN MILLIONS)
Pro forma net income, Swedish GAAP.......................... 1 --
Pensions.................................................... 1 --
Pension refund.............................................. 3 --
Goodwill amortization....................................... 50 5
Income taxes................................................ (24) (2)
Income tax effects of U.S. GAAP adjustments................. (1) --
------ ----
Pro forma net income, U.S. GAAP............................. 30 3
====== ====
</Table>
<Table>
<Caption>
AS OF MARCH 31,
-------------------
2001 2001
-------- --------
SEK $
(IN MILLIONS)
Pro forma shareholders' equity, Swedish GAAP................ 5,516 508
Difference between the net book value of the Preem Petroleum
AB shares on Corral Petroleum Holdings AB's books and the
net assets of Preem Petroleum AB as of March 31, 2001..... (2,939) (271)
Pensions.................................................... 51 5
Pension refund.............................................. (86) (8)
Goodwill amortization....................................... 1,065 98
Income taxes................................................ (46) (4)
Income tax effects of U.S. GAAP adjustments................. 10 1
------ ----
Pro forma shareholders' equity U.S. GAAP.................... 3,571 329
====== ====
</Table>
50
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING IS A DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF PREEM PETROLEUM AB FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND
2000, AND THE THREE MONTHS ENDED MARCH 31, 2000 AND 2001. IN THE SECTION BELOW,
THE "COMPANY," "WE," "US" AND "OUR" REFER TO PREEM PETROLEUM AB AND ITS
CONSOLIDATED SUBSIDIARIES, AND NOT TO PREEM HOLDINGS AB. NOTWITHSTANDING THE
PRECEDING SENTENCE, IN ALL INSTANCES, SUCH REFERENCES ARE TO PREEM HOLDINGS AB
IN THE CASE OF MARCH 31, 2001 BALANCE SHEET DATA. BECAUSE THE ISSUER HAD BEEN A
DORMANT COMPANY PRIOR TO 2001, WE BELIEVE THAT THIS APPROACH PROVIDES MORE
RELEVANT DISCLOSURE WITH RESPECT TO OUR ANNUAL RESULTS OF OPERATIONS. BECAUSE OF
THE ACCOUNTING TREATMENT FOR THE TRANSFER OF ALL OF THE ISSUED AND OUTSTANDING
SHARES OF PREEM PETROLEUM AB TO PREEM HOLDINGS AB, THIS APPROACH ALSO PROVIDES
MORE RELEVANT DISCLOSURE WITH RESPECT TO OUR INTERIM RESULTS OF OPERATIONS. YOU
SHOULD READ THIS DISCUSSION IN CONJUNCTION WITH THE PREEM PETROLEUM AB AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES, THE PREEM HOLDINGS AB
AUDITED FINANCIAL STATEMENTS AND THE RELATED NOTES, THE UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS OF PREEM PETROLEUM AB AND THE RELATED NOTES,
AND THE UNAUDITED INTERIM FINANCIAL STATEMENTS OF PREEM HOLDINGS AB AND THE
RELATED NOTES, IN EACH CASE, INCLUDED ELSEWHERE IN THIS PROSPECTUS. WE HAVE
PREPARED THE PREEM PETROLEUM AB AUDITED CONSOLIDATED FINANCIAL STATEMENTS, THE
PREEM HOLDINGS AB AUDITED FINANCIAL STATEMENTS, THE UNAUDITED INTERIM FINANCIAL
STATEMENTS OF PREEM PETROLEUM AB, THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS OF PREEM HOLDINGS AB, AND THE PREEM HOLDINGS AB UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION, IN ACCORDANCE WITH SWEDISH GAAP. THESE
ACCOUNTING PRINCIPLES DIFFER IN CERTAIN SIGNIFICANT RESPECTS FROM U.S. GAAP. SEE
"SELECTED CONSOLIDATED FINANCIAL DATA--PRINCIPAL DIFFERENCES BETWEEN SWEDISH
GAAP AND U.S. GAAP."
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE
ESTIMATES MADE BY OUR MANAGEMENT BASED UPON AVAILABLE INFORMATION AS WELL AS
MANAGEMENT'S INTERPRETATION OF WHAT IT BELIEVES ARE SIGNIFICANT FACTORS
AFFECTING OUR BUSINESS AND THE MARKETS FOR OUR PRODUCTS. THESE FACTORS INCLUDE,
BUT ARE NOT LIMITED TO, THOSE SET OUT UNDER "RISK FACTORS" AND THOSE REFERRED TO
BELOW. WE CANNOT ASSURE YOU THAT THESE ESTIMATES WILL PROVE TO BE CORRECT OR
THAT THE INFORMATION, INTERPRETATIONS AND THE ASSUMPTIONS ON WHICH THEY ARE
BASED WILL PROVE TO BE VALID.
OVERVIEW
Our refineries purchase crude oil from suppliers around the world and
produce refined products for sale. Our Supply and Refining Division sells
refined products wholesale to our Swedish Market Division and International
Division and to third parties, primarily other refined product marketing
companies. Our Swedish Market Division and International Division resell
products to both wholesale and retail customers.
Prices for crude oil and refined products are subject to frequent and
significant fluctuations. As a result, a refinery's sales revenue and cost of
goods sold can vary significantly from period to period, even when the volume of
crude oil purchased and refined products sold remain relatively constant. A
refinery's sales revenue depends on refined product prices, currency
fluctuations and throughput, which is a function of refining capacity and
utilization. The cyclicality of refined product prices results in high
volatility of sales revenue. Consequently, sales revenue, viewed alone, is not
indicative of an oil refining company's results. Earnings and cash flow from
refining are largely driven by gross and net refining margins, and a successful
refinery strives to maintain its profit margins from year to year,
notwithstanding fluctuations in the prices of crude oil and refined products.
REFINING MARGINS
Oil refineries measure the financial performance of their operations by
their margins. "Gross refining margin" is the difference between the sales
revenue received from the sale of refined products
51
<Page>
produced by a refinery and the cost of crude oil and (where relevant) other
intermediate feedstocks processed by it. While crude oil costs in general are a
function of supply and demand, there are many grades of crude oil and their
relative prices vary. Like crude oil, different refined products vary in price.
A refinery's gross refining margin is a measure of both the sophistication of
the plant's design and its crude oil purchasing strategy (its ability to produce
the most valuable refined product mix from the least costly crude oil). Thus, a
refinery with a cracking facility, such as Scanraff, that can produce a higher
percentage of the lighter, higher-value, fractions, will generally have a higher
gross refining margin than a less complex facility, such as Preemraff. Refining
margin measures the ability of a refinery to cover the costs of its refining
process. "Net cash margin" is the refining margin less the refinery's fixed
operating costs, excluding depreciation and other non-cash costs. Net cash
margin indicates the cash generating capability of the refinery. "Net refining
margin" is the net cash margin less depreciation and reflects the overall
profitability of the refinery.
The following tables show the calculation of margins for Scanraff and
Preemraff for the periods covered by the Preem Petroleum AB Consolidated
Financial Statements. In accordance with industry practice, the margins are
expressed in Dollars per barrel. The information for Scanraff shows our share of
the refinery's production for the years indicated.
<Table>
<Caption>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1998 1999 2000 2000 2001
-------- -------- -------- -------- --------
(IN $/BARREL)
SCANRAFF
GROSS REFINING MARGIN............................. $ 2.79 $ 1.52 $ 3.03 $ 1.85 $ 2.19
Variable refining costs........................... (0.21) (0.23) (0.22) (0.26) (0.19)
------ ------ ------ ------ ------
REFINING MARGIN................................... 2.58 1.29 2.81 1.59 2.00
Fixed operating costs (excluding depreciation).... (0.53) (0.53) (0.50) (0.54) (0.55)
------ ------ ------ ------ ------
NET CASH MARGIN................................... 2.05 0.76 2.31 1.05 1.45
Depreciation...................................... (0.39) (0.38) (0.34) (0.37) (0.32)
------ ------ ------ ------ ------
NET REFINING MARGIN............................... $ 1.66 $ 0.38 $ 1.97 $ 0.68 $ 1.13
====== ====== ====== ====== ======
TOTAL PRODUCTION (IN 1,000 BARRELS)............... 54,822 56,648 57,504 14,392 13,820
PREEMRAFF
GROSS REFINING MARGIN............................. $ 1.66 $ 0.94 $ 2.08 $ 1.01 $ 1.15
Variable refining costs........................... (0.22) (0.26) (0.34) (0.44) (0.18)
------ ------ ------ ------ ------
REFINING MARGIN................................... 1.44 0.68 1.74 0.57 0.97
Fixed operating costs (excluding depreciation).... (0.57) (0.63) (0.35) (0.41) (0.35)
------ ------ ------ ------ ------
NET CASH MARGIN................................... 0.87 0.05 1.39 0.16 0.62
Depreciation...................................... (0.53) (0.60) (0.46) (0.54) (0.45)
------ ------ ------ ------ ------
NET REFINING MARGIN............................... $ 0.34 $(0.55) $ 0.93 $(0.38) $ 0.17
====== ====== ====== ====== ======
TOTAL PRODUCTION (IN 1,000 BARRELS)............... 37,161 33,729 42,505 9,829 10,541
</Table>
For the first quarter of 2001, the gross refining margins at Scanraff were
$2.19/barrel, which represents an increase of approximately 18% from the gross
refining margins of $1.85/barrel for the first quarter of 2000. Scanraff's
variable refining costs decreased by approximately 26% during the first quarter
of 2001 compared to the first quarter of 2000. This decrease was attributable to
the strong Dollar, which decreased the Dollar-equivalent of our
Krona-denominated variable refining costs. Scanraff's fixed operating costs
remained relatively constant during the first quarter of 2001 as compared to the
first quarter of 2000.
52
<Page>
For the first quarter of 2001, the gross refining margins at Preemraff
were $1.15/barrel, which represents an increase of approximately 14% from the
gross refining margins of $1.01/barrel for the first quarter of 2000. The
variable refining costs decreased by approximately 59% during the first quarter
of 2001 compared to the first quarter of 2000. This decrease was attributable to
reduced use of natural gas as an energy source at the Preemraff refinery in the
three months ended March 31, 2001 compared to the three months ended March 31,
2000. This reduced use of natural gas is due to period-to-period changes in the
refinery's use of natural gas as opposed to its own fuel oil as an energy
source. Decisions by management to make such reductions are influenced by the
need to control the emissions of nitrogen oxides from the refinery. Fixed
operating costs for Preemraff decreased by approximately 15% during the first
quarter of 2001 compared to the first quarter of 2000 as a result of increased
deliveries of excess heat, the revenues from which we net-off against our fixed
operating costs.
Gross refining margins decreased in 1999 at both of our refineries, while
these margins increased in 2000. We believe the decrease in gross refining
margins in 1999 was industry-wide and was attributable to the following factors:
- steady increases in crude oil prices throughout the year, which
significantly increased feedstock costs, generally at a faster rate than
any increases in refined product prices; and
- high gasoline and heating oil inventories as a result of two mild winters
in northwestern Europe, which increased supply and led to a decrease in
prices for these products.
We believe the increase in gross refining margins in 2000 also was
industry-wide and was attributable to the following factors:
- a robust demand for gasoline in the United States, which caused prices of
refined products to rise relative to crude oil prices;
- the introduction of new product specifications on both sides of the
Atlantic; and
- to a lesser extent, a reduction in product supply due to an unusually
high level of planned and unplanned capacity outages.
Our gross refining margins at both refineries in 2000 were the highest in
our company history, while those for 1999 were among the lowest during the past
decade. Gross refining margins at Scanraff increased from $1.52/barrel in 1999
to $3.03/barrel in 2000, an increase of approximately 99%. This contrasts with a
decrease of approximately 46% in the gross refining margins at Scanraff between
1998 and 1999, from $2.79/barrel in 1998 to $1.52/barrel in 1999. Scanraff's
variable refining costs and fixed operating costs (excluding depreciation)
remained relatively constant during the period from 1998 through 2000.
At Preemraff, the gross refining margins followed the same trend,
increasing approximately 121% in 2000, from $0.94/barrel in 1999 to $2.08/barrel
in 2000. This contrasts with a decrease of approximately 43% in our gross
refining margins at Preemraff between 1998 and 1999, from $1.66/barrel in 1998
to $0.94/barrel in 1999. Preemraff's variable refining costs increased by
approximately 31% from 1999 to 2000 and by approximately 18% from 1998 to 1999.
This increase was largely attributable to the decreased use of fuel oil compared
to natural gas as an energy source at Preemraff. The fixed operating costs
(excluding depreciation) at Preemraff decreased by approximately 44% from 1999
to 2000, while these costs increased by approximately 11% from 1998 to 1999. The
size of the decrease in 2000 was attributable to non-recurring pension and
property tax refunds, as well as to increased production at Preemraff.
53
<Page>
PRICE EFFECT ON INVENTORIES
We hold large inventories of crude oil and refined products and, as a
result, our financial results are impacted by the effects of fluctuations in the
market prices for crude oil and refined products. To the extent that crude oil
and refined product prices rise in tandem, our gross profit would generally be
positively affected, because we compute the gross profit as the excess of sales
revenue (determined at the time of sale at the higher refined product prices)
over the cost of goods sold (determined at the earlier time the crude oil is
purchased at lower prices). Thus, a portion of the gross profit we earn during a
period of rising prices may be attributable solely to the increase in prices
during the period after we buy the crude oil and prior to the time we finish
refining it and sell it. However, during periods of rising crude oil prices, the
cost of replenishing our crude oil inventories and, thus, our working capital
requirements, are similarly rising. Because changes in refined product prices
tend to lag behind changes in crude oil prices, we generally experience the
increased working capital requirements from higher crude oil prices sooner, and
to a greater degree, than the benefits to our gross profit that may arise from
selling products at higher refined product prices. Moreover, depending on the
rate and the duration of the increase, and the degree to which crude oil prices
move more than refined prices, our gross profit margins may actually decline
during periods of rising crude oil prices. During periods of declining crude oil
prices, we believe that we experience the opposite effects.
We believe that, although the price effect on inventories may impact our
results for a given period, over the long-term, the effects of rising and
falling oil prices tend to offset each other. In addition we believe that from a
cash flow perspective, the effects of rising and falling oil prices on gross
profit and working capital tend to offset each other. In comparing our results
from period to period, we believe that it is thus important to note that these
price effects on inventories are unrelated to, and do not reflect, the
underlying efficiency of our refineries.
RESULTS OF OPERATIONS
Our revenues include excise duties, which are Swedish taxes on petroleum
products that our Swedish Market Division collects at the point of sale and
remits monthly to the Swedish government. The continuous collection of excise
duties at the time of sale and the holding of such excise duties until we are
obligated to remit them to the government enables us to use this cash to fund a
significant portion of our working capital needs. Sales revenue represents our
revenues less the excise duties. In this discussion, we have broken out the
sales revenue of our Supply and Refining Division, Swedish Market Division and
International Division. The sales revenue of our Supply and Refining Division
includes intercompany sales to the Swedish Market Division and International
Division, and sales revenue of the two marketing divisions includes the sales
revenue received on the resale of such refined products. We have included
intercompany sales revenue in the total for the Supply and Refining Division.
These sales are made at market rates. Since refined products are commodities,
these sales could have been made to third parties at similar prices. We believe
that the inclusion of these amounts in the sales revenue for our Supply and
Refining Division properly reflects the results of these divisions for purposes
of comparison. To avoid overstating total sales revenue, these intercompany
sales have been eliminated in the Preem Petroleum AB Consolidated Financial
Statements.
Cost of goods sold consists of the cost of our crude oil purchases
(including transportation costs) and direct production costs (including
depreciation of equipment used in the refining process). We have no supply
contracts of more than 13 months in duration and rely primarily on spot market
purchases. We regularly monitor market conditions for various types of crude oil
as well as demand for refined products.
Gross profit is our sales revenue less the cost of goods sold.
Occasionally, due to market forces, the crude oil and/or refined product price
curve is in "contango," meaning that forward prices of crude oil or refined
products exceed current spot market prices. These market conditions existed for
both
54
<Page>
crude oil and refined products for an unusually long period and to an unusually
great degree in 1998. While we do not speculate with inventory, as a result of
our large storage capacity we were able to take advantage of the price curve
being in contango in 1998 by simultaneously entering into current spot market
purchase and future sale agreements. When we take advantage of the price curve
being in contango, our primary expense is that associated with storing the crude
oil or refined products until their time of delivery under the future sale
agreement. So long as our storage costs are less than the profit margin
resulting from the price curve being in contango we are able to lock in a profit
margin. Having locked in our margin, we realized significant profits in 1998 by
utilizing our substantial storage facilities to store crude oil and refined
products at our existing facilities until the delivery date called for by the
sale agreements. In 1999 and 2000, there were occasional contango market
conditions, but they did not result in additional profits comparable to those
realized in 1998.
Selling expenses consist primarily of the costs of sales personnel,
advertising and promotions. Administrative expenses consist primarily of the
costs of administrative personnel.
Other operating income consists of our sales of surplus heat, harbor fees,
commission income, sales of storage certificates to other oil companies for
their EU-imposed compulsory storage obligations, income from the rental of
dealer-operated service stations and several other items none of which is
individually material. Our other operating income is largely attributable to our
non-refining business and, as such, is insulated to a degree from the volatility
of our refining margins and provides us with relatively stable earnings.
Operating income is gross profit net of the foregoing items and net of
non-recurring items, if any. We have itemized the contributions to operating
income of our Supply and Refining Division, Swedish Market Division and
International Division.
Financial income and expenses, net, consist of our share of the non-cash
income (loss) of associated companies, dividends received, interest income and
expense, foreign exchange losses and certain other items.
We are subject to Swedish income tax on our taxable income. We attempt to
minimize the amount of taxes payable by Preem Petroleum AB by transferring, to
the extent possible, our taxable income to our parent company, previously Corral
Petroleum Holdings AB. As a result, the amount included on our statement of
operations as income taxes generally reflects book-entry transfers rather than
cash paid or payable. In particular, we effect a transfer to our parent company,
which we record as a group contribution, which is in the form of a book-entry
dividend, so the amount we can transfer on a year-to-year basis is limited by
the Swedish Companies Act to the lesser of the amount of our unrestricted
shareholders' equity, which includes net income earned during the year, shown on
a consolidated and stand-alone basis. The group contribution is simultaneously
offset by a shareholder loan. The excess of the group contribution, if any, over
a shareholder loan represents a true dividend payable in cash. In 1998, we paid
income taxes of SEK5 million. We received a tax refund of SEK11 million in 1999
and paid income taxes of SEK11 million in 2000.
Minority interests principally reflect the interest of Hydro R&M Holding
AS, an affiliate of Norsk Hydro AS, in Scanraff, the interest of Vattenfall AB
in Preem Gas AB and the interest of Greenergy International Limited in Greenergy
Fuels Limited.
55
<Page>
The following table shows certain items in the Preem Petroleum AB
consolidated statements of operations for the last three years and for the three
months ended March 31, 2000 and 2001.
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- ------------------------------
1998 1999 2000 2000 2001
-------- -------- ------------------- -------- -------------------
SEK SEK SEK $(1) SEK SEK $(1)
(UNAUDITED)
(IN MILLIONS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................. 22,139 28,793 46,195 4,258 10,298 11,598 1,069
Excise duties............................. (6,381) (6,573) (6,637) (612) (1,606) (2,295) (212)
------- ------- ------- ------ ------ ------ -----
SALES REVENUE............................. 15,758 22,220 39,558 3,646 8,692 9,303 857
Cost of goods sold........................ (14,362) (20,142) (37,123) (3,421) (8,193) (8,744) (806)
------- ------- ------- ------ ------ ------ -----
GROSS PROFIT.............................. 1,396 2,078 2,435 225 499 559 51
Selling and administrative expenses....... (1,089) (1,093) (1,160) (107) (207) (289) (26)
Other operating income.................... 265 236 381 35 69 80 7
------- ------- ------- ------ ------ ------ -----
OPERATING INCOME.......................... 572 1,221 1,656 153 310 350 32
Financial expense, net(2)................. (261) (233) (372) (35) (70) (186) (17)
------- ------- ------- ------ ------ ------ -----
INCOME BEFORE TAXES....................... 311 988 1,284 118 240 164 15
Income taxes(3)........................... (185) (274) (452) (41) 0 (1) 0
Minority interests........................ (2) (1) (1) 0 (1) (1) 0
------- ------- ------- ------ ------ ------ -----
NET INCOME................................ 124 713 831 77 239 162 15
======= ======= ======= ====== ====== ====== =====
</Table>
- ------------
(1) We have translated Kronor into Dollars at the rate of $1.00=SEK10.85 (the
exchange rate on June 30, 2001). We have provided this translation solely
for your convenience.
(2) Financial expense, net, consists of Preem Petroleum AB's share of the
non-cash income (loss) of associated companies, dividends received,
interest income and expense, foreign exchange losses and certain other
items.
(3) Income taxes do not generally reflect cash payable or paid, because Preem
Petroleum AB transfers, to the extent possible, its taxable income to its
parent company as a group contribution, which is in the form of a
book-entry dividend.
56
<Page>
The following table shows the sales revenue and operating income of our
three divisions for the last three years and the three months ended March 31,
2000 and 2001.
<Table>
<Caption>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------- ------------------------------
1998 1999 2000 2000 2001
-------- -------- ------------------- -------- -------------------
SEK SEK SEK $(1) SEK SEK $(1)
(UNAUDITED)
(IN MILLIONS)
SALES REVENUE:
Supply and Refining(2).......................... 12,526 18,728 35,477 3,270 7,787 8,207 756
Swedish Market.................................. 6,071 7,040 9,904 913 2,297 2,668 246
International................................... 741 791 1,462 135 214 396 36
TOTAL SALES REVENUE(3)............................ 15,758 22,220 39,558 3,646 8,692 9,303 857
OPERATING INCOME (LOSS):
Supply and Refining............................. 578 1,120 1,540 142 268 197 18
Swedish Market.................................. 48 92 6 1 35 42 4
International................................... (1) (30) (69) (6) (8) (15) (1)
Other non-allocated income (expense)(4)......... (53) 39 179 16 15 126 11
TOTAL OPERATING INCOME............................ 572 1,221 1,656 153 310 350 32
</Table>
- ------------
(1) We have translated Kronor into Dollars at the rate of $1.00=SEK10.85 (the
exchange rate on June 30, 2001). We have provided this translation solely
for your convenience.
(2) Includes sales by our Supply and Refining Division to our Swedish Market
Division and International Division of SEK3,580 million for 1998,
SEK4,339 million for 1999, SEK7,285 million for 2000, SEK1,606 million for
the first quarter of 2000 and SEK1,967 million for the first quarter of
2001. We have included intercompany sales revenue in the total for our
Supply and Refining Division. These sales are made at market rates. Since
refined products are commodities, these sales could have been made to third
parties at similar prices. We believe that including these amounts in
Supply and Refining Division sales revenue properly reflects the results of
these divisions for purposes of comparison. To avoid overstating total
sales revenue, such intercompany sales are eliminated in the Preem
Petroleum AB Consolidated Financial Statements.
(3) Total sales revenue is our total revenue less excise duties, which are
taxes collected at the point of sale by our Swedish Market Division and
remitted monthly to the Swedish government.
(4) Other non-allocated income (expense) includes corporate cost center,
non-recurring items and exchange rate differences, the most significant of
which is exchange rate differences. We only reported a non-recurring item
in 2000 of SEK89 million, which represented a pension refund.
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31,
2000
REVENUES. Our revenues for the three months ended March 31, 2001 were
SEK11,598 million, an increase of SEK1,300 million, or approximately 13%, from
SEK10,298 million for the three months ended March 31, 2000. This increase is
almost entirely attributable to the strong Dollar, which increased by 13%
against the Krona during this period. Because our sales are made principally in
Dollars, a stronger Dollar, when translated into Kronor, will result in an
increase in revenues if all other factors remain constant over time. This
increase in revenues was offset, to a very limited extent, by a slight decrease
in product prices.
SALES REVENUE. Sales revenue for the three months ended March 31, 2001
was SEK9,303 million, an increase of SEK611 million, or approximately 7%, from
SEK8,692 million for the three months ended March 31, 2000, primarily as a
result of, and in the same proportions as, the factors discussed above.
COST OF GOODS SOLD. Cost of goods sold for the three months ended
March 31, 2001 was SEK8,744 million, an increase of SEK551 million, or
approximately 7%, from SEK8,193 million for the
57
<Page>
three months ended March 31, 2000. The increase was attributable to, and in the
same proportions as, the factors discussed above.
GROSS PROFIT. Gross profit for the three months ended March 31, 2001 was
SEK559 million, an increase of SEK60 million, or approximately 12%, from
SEK499 million for the three months ended March 31, 2000, primarily as a result
of, and in the same proportions as, the factors discussed above.
SELLING AND ADMINISTRATIVE EXPENSES. Selling expenses for the three
months ended March 31, 2001 were SEK219 million, an increase of SEK12 million,
or approximately 6%, from SEK207 million for the three months ended March 31,
2000. Approximately half of the increase in selling expenses is attributable to
the repair and maintenance of service stations and approximately half is
attributable to our assuming the operations of formerly franchised service
stations. Although our strategy is to increase our network of franchised service
stations, when franchisees exit our network, our practice is to operate these
formerly franchised service stations to maintain our market presence, even
though this temporarily increases our selling expenses. Administrative expenses
for the three months ended March 31, 2001 were SEK70 million, an increase of
SEK19 million, or approximately 37%, from SEK51 million for the three months
ended March 31, 2000. This increase in administrative expenses is largely a
result of the implementation of an information technology project related to the
business operations at our head office.
OTHER OPERATING INCOME. Other operating income for the three months ended
March 31, 2001 was SEK80 million, an increase of SEK11 million, or approximately
16%, from SEK69 million for the three months ended March 31, 2000. The increase
in other operating income for the three months ended March 31, 2001 is a result
of an increase of SEK7 million in the sale of storage certificates to other oil
companies for their compulsory storage obligations and an increase of
SEK4 million in deliveries of waste heat sold by our Preemraff refinery to the
City of Gothenburg.
OPERATING INCOME (LOSS). Operating income for the three months ended
March 31, 2001 was SEK350 million, an increase of SEK40 million, or
approximately 13%, from SEK310 million for the three months ended March 31,
2000. The operating income of our Supply and Refining Division was
SEK197 million for the three months ended March 31, 2001, a decrease of
SEK71 million, or approximately 26%, from SEK268 million for the three months
ended March 31, 2000. This decrease in operating income is attributable to lower
price gains on inventory in the three months ended March 31, 2001 compared to
the price gains on inventory for the three months ended March 31, 2000. This
decrease was partially offset by higher income resulting from higher refining
margins at both our refineries. Our Swedish Market Division generated operating
income of SEK42 million for the three months ended March 31, 2001, an increase
of SEK7 million, or approximately 20%, compared to an operating income of
SEK35 million for the three months ended March 31, 2000. The increase in the
Swedish Market Division's operating income resulted from higher volumes of
diesel sales in our Station and Consumer Segment as a result of higher gasoline
prices, which increased demand for diesel, a market sector in which we have a
relatively strong presence. The increase in the Swedish Market Division's
operating income also is attributable to improved margins in the Home-Heating
and Business-to-Business Segment. This increase is also the result of our focus
on maintaining product prices in an environment of decreasing crude oil prices.
The operating loss of our International Division was SEK15 million for the three
months ended March 31, 2001, an increased loss of SEK7 million, or approximately
88%, from an operating loss of SEK8 million for the three months ended
March 31, 2000. The increased operating loss was largely attributable to our
International Division's lower sales volumes in the Polish market where higher
gasoline prices have adversely affected demand. The overall decrease in
operating income for these three divisions for the three months ended March 31,
2001 compared to the three months ended March 31, 2000 was more than offset by
an increase of SEK111 million in other non-allocated income. This increase in
other non-allocated income
58
<Page>
resulted primarily from an increase in foreign exchange gains made on our
inventory, which is priced in Dollars.
FINANCIAL EXPENSE, NET. Financial expense, net, for the three months
ended March 31, 2001 was SEK186 million, an increase of SEK116 million, or
approximately 166%, from SEK70 million for the three months ended March 31,
2000. The principal component of this increase was foreign exchange losses on
Dollar-denominated loans that are restated in Kronor, which increased from
SEK20 million for the three months ended March 31, 2000 to SEK134 million for
the three months ended March 31, 2001 as a result of the strengthening of the
Dollar against the Krona.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUES. Our revenues for the year ended December 31, 2000 were
SEK46,195 million, an increase of SEK17,402 million, or approximately 60%, from
SEK28,793 million for the year ended December 31, 1999. Approximately 70% of
this increase was attributable to higher prevailing product prices due to higher
average crude oil prices and, approximately 20% to the strong Dollar and
approximately 10% to a higher sales volume at both refineries.
SALES REVENUE. Sales revenue for the year ended December 31, 2000 was
SEK39,558 million, an increase of SEK17,338 million, or approximately 78%, from
SEK22,220 million for the year ended December 31, 1999, primarily as a result
of, and in the same proportions as, the factors discussed above.
COST OF GOODS SOLD. Cost of goods sold for the year ended December 31,
2000 was SEK37,123 million, an increase of SEK16,981 million, or approximately
84%, from SEK20,142 million for the year ended December 31, 1999. The increase
was attributable almost entirely to higher average crude oil prices. To a lesser
extent, this increase was attributable to higher production at Preemraff, which
increased by approximately 26% from 33.7 million barrels for the year ended
December 31, 1999 to 42.5 million barrels for the year ended December 31, 2000,
and the strong Dollar. Cost of goods sold also increased for the year ended
December 31, 2000 due to a SEK817 million non-cash write-down based on a lower
market value of our inventories relative to their acquisition value.
GROSS PROFIT. Gross profit for the year ended December 31, 2000 was
SEK2,435 million, an increase of SEK357 million, or approximately 17%, from
SEK2,078 million for the year ended December 31, 1999, primarily as a result of,
and in the same proportions as, the factors discussed above.
SELLING AND ADMINISTRATIVE EXPENSES. Selling expenses for the year ended
December 31, 2000 were SEK945 million, an increase of SEK68 million, or
approximately 8%, from SEK877 million for the year ended December 31, 1999.
Administrative expenses for the year ended December 31, 2000 were
SEK215 million, a decrease of SEK1 million, or approximately 0.5%, from
SEK216 million for the year ended December 31, 1999. Selling expenses increased
primarily as a result of the disposal of unprofitable service stations of
SEK10 million, surplus depreciation of service stations of SEK25 million,
write-down of storage depots of SEK26 million and reservations for employee
bonuses, including social costs, of SEK15 million.
OTHER OPERATING INCOME. Other operating income for the year ended
December 31, 2000 was SEK381 million, an increase of SEK145 million, or
approximately 61%, from SEK236 million for the year ended December 31, 1999.
Other operating income for the year ended December 31, 2000 included a
non-recurring refund of approximately SEK115 million from the Swedish National
Pension Fund and increased rental income of approximately SEK30 million from the
sale of storage certificates to other oil companies for their EU-imposed
compulsory storage obligations.
59
<Page>
OPERATING INCOME (LOSS). Operating income for the year ended
December 31, 2000 was SEK1,656 million, an increase of SEK435 million, or
approximately 36%, from SEK1,221 million for the year ended December 31, 1999.
The operating income of our Supply and Refining Division was SEK1,540 million
for the year ended December 31, 2000, an increase of SEK420 million, or
approximately 38%, from SEK1,120 million for the year ended December 31, 1999 as
a result of, and in the same proportions as, the factors discussed above. Our
Swedish Market Division generated operating income of SEK6 million for the year
ended December 31, 2000, a decrease of SEK86 million, compared to an operating
income of SEK92 million for the year ended December 31, 1999. Within this
division, our Home-Heating and Business-to-Business Segment maintained a
relatively stable operating income for the year ended December 31, 2000, in
spite of a decrease in consumption of home-heating gasoil as a result of a mild
winter in Sweden and, to a lesser extent, an increased use of alternate energy
sources due to increased home-heating gasoil prices. The operating income
generated by our Home-Heating and Business-to-Business Segment more than offset
an operating loss in our Station and Consumer Segment for the year ended
December 31, 2000. The operating loss in our Station and Consumer Segment was
attributable to lower volumes sold in 2000 compared to 1999 as a result of
decreased consumption due to higher retail gasoline prices. The operating loss
of our International Division was SEK69 million for the year ended December 31,
2000, an increased loss of SEK39 million from an operating loss of
SEK30 million for the year ended December 31, 1999. The increased operating loss
was largely attributable to lower volumes sold in Poland as a result of
decreased consumption due to higher retail gasoline prices and, to a lesser
extent, reserves for bad debt. We believe that both our Station and Consumer
Segment and our International Division have not been profitable partially as a
result of low market share in their respective markets.
FINANCIAL EXPENSE, NET. Financial expense, net, for the year ended
December 31, 2000 was SEK372 million, an increase of SEK139 million, or
approximately 60%, from SEK233 million for the year ended December 31, 1999. The
principal component of this increase was interest expense, which increased by
approximately SEK60 million, or approximately 29%, from SEK208 million for the
year ended December 31, 1999 to SEK268 million for the year ended December 31,
2000, reflecting in part higher interest rates and in part the higher Krona cost
of Dollar-denominated interest payments. Foreign exchange losses on loans
increased from SEK71 million for the year ended December 31, 1999 to
SEK177 million for the year ended December 31, 2000 as a result of the
strengthening of the Dollar against the Krona. We incur significant amounts of
our borrowings in Dollars to finance our oil inventories, which are also priced
in Dollars. When the Dollar strengthens, we record foreign exchange losses with
respect to such Dollar-denominated loans. However, we also benefit from the
relatively high Dollar price of the underlying inventories so these foreign
exchange losses are effectively offset by an increase in Dollar-denominated
revenues recorded in our Supply and Refining Division to reflect the value of
our inventories.
INCOME TAXES. Income taxes for the year ended December 31, 2000 were
SEK452 million, an increase of SEK178 million, or approximately 65%, from
SEK274 million for the year ended December 31, 1999. The increase is
attributable to higher income due to the higher income before taxes in 2000.
Income taxes do not generally reflect cash paid or payable, because we transfer,
to the extent possible, our taxable income to our parent company as a group
contribution, which is in the form of a book-entry dividend. However, we paid
income taxes in cash for the year ended December 31, 2000 of SEK11 million,
while we received a tax refund of SEK11 million for the year ended December 31,
1999.
MINORITY INTERESTS. Minority interests for the year ended December 31,
2000 remained unchanged from the year ended December 31, 1999. In both years,
minority interests were SEK1 million.
60
<Page>
NET INCOME. Net income for the year ended December 31, 2000 was
SEK831 million, an improvement of SEK118 million or approximately 17% from a net
income of SEK713 million for the year ended December 31, 1999, primarily as a
result of the factors discussed above.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues for the year ended December 31, 1999 were
SEK28,793 million, an increase of SEK6,654 million, or approximately 30%, from
SEK22,139 million for the year ended December 31, 1998. Approximately 85% of
this increase was the result of higher refined product prices due to higher
average crude oil prices in 1999 and approximately 15% was the result of the
strong Dollar.
SALES REVENUE. Sales revenue for the year ended December 31, 1999 was
SEK22,220 million, an increase of SEK6,462 million, or approximately 41%, from
SEK15,758 million for the year ended December 31, 1998, primarily as a result
of, and in the same proportions as, the factors discussed above.
COST OF GOODS SOLD. Cost of goods sold for the year ended December 31,
1999 was SEK20,142 million, an increase of SEK5,780 million, or approximately
40%, from SEK14,362 million for December 31, 1998. This increase was
attributable almost entirely to the higher crude oil prices in 1999 compared to
1998.
GROSS PROFIT. Gross profit for the year ended December 31, 1999 was
SEK2,078 million, an increase of SEK682 million, or approximately 49%, from
SEK1,396 million for the year ended December 31, 1998, primarily as a result of,
and in the same proportions as, the factors discussed above.
SELLING AND ADMINISTRATIVE EXPENSES. Selling expenses for the year ended
December 31, 1999 were SEK877 million, an increase of SEK14 million, or
approximately 2%, from SEK863 million for the year ended December 31, 1998
primarily due to the expansion of our Polish operations. Administrative expenses
for the year ended December 31, 1999 were SEK216 million, a decrease of
SEK10 million, or approximately 4%, from SEK226 million for the year ended
December 31, 1998. This decrease was attributable to lower pension expenses.
OTHER OPERATING INCOME. Other operating income for the year ended
December 31, 1999 was SEK236 million, a decrease of SEK29 million, or
approximately 11%, from SEK265 million for the year ended December 31, 1998.
OPERATING INCOME (LOSS). Operating income for the year ended
December 31, 1999 was SEK1,221 million, an increase of SEK649 million, or
approximately 113%, from SEK572 million for the year ended December 31, 1998.
The operating income of our Supply and Refining Division for the year ended
December 31, 1999 was SEK1,120 million, an increase of SEK542 million, or
approximately 94%, from an operating income of SEK578 million for the year ended
December 31, 1998, primarily as a result of, and in the same proportions as, the
factors discussed above. Our Swedish Market Division generated operating income
of SEK92 million for the year ended December 31, 1999, an increase of
SEK44 million, or approximately 92%, from an operating income of SEK48 million
for the year ended December 31, 1998. Within this division, both our
Home-Heating and Business-to-Business Segment and our Station and Consumer
Segment generated operating income for the year ended December 31, 1999 as a
result of higher refined product prices compared to the same period in 1998. The
operating loss of our International Division was SEK30 million for the year
ended December 31, 1999, an increase of SEK29 million from an operating loss of
SEK1 million for the year ended December 31, 1998. This decrease was primarily
attributable to the expansion of our Polish operations.
61
<Page>
FINANCIAL EXPENSE, NET. Financial expense, net, for the year ended
December 31, 1999 was SEK233 million, a decrease of SEK28 million or
approximately 11% from SEK261 million for the year ended December 31, 1998. The
principal component of this item is interest expense, which decreased
SEK90 million, or approximately 30%, from SEK298 million for the year ended
December 31, 1998 to SEK208 million for the year ended December 31, 1999 as a
result of lower average drawings and lower average interest rates under the
credit facilities.
INCOME TAXES. Income taxes for the year ended December 31, 1999 were
SEK274 million, an increase of SEK89 million or approximately 48% from
SEK185 million for the year ended December 31, 1998. Income taxes do not
generally reflect cash paid or payable, because we transfer, to the extent
possible, our taxable income to our parent company as a group contribution,
which is in the form of a book-entry dividend. We received a tax refund of
SEK11 million for the year ended December 31, 1999, while we paid income taxes
in cash of SEK5 million for the year ended December 31, 1998.
MINORITY INTERESTS. Minority interests for the year ended December 31,
1999 were SEK1 million and SEK2 million for the year ended December 31, 1998.
NET INCOME. Net income for the year ended December 31, 1999 was
SEK713 million, an increase of SEK589 million from SEK124 million for the year
ended December 31, 1998, primarily as a result of, and in the same proportions
as, the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Our primary sources of liquidity are internal cash generation, long-term
debt, short-term working capital financing and short-term use of excise duties
collected. We operate in an environment in which liquidity and capital resources
are impacted by changes in the prices for crude oil and refined products, and a
variety of additional risks, including currency and regulatory risks. In
particular, because we purchase crude oil on the spot market and prices can be
volatile, the availability of cash or short-term credit is crucial to our
business. Historically, our cash and short-term credit have been sufficient to
finance such purchases. For the three months ended March 31, 2001, EBITDA was
SEK517 million, compared to SEK474 million for the three months ended March 31,
2000. For the year ended December 31, 2000, EBITDA was SEK2,377 million,
compared to SEK1,871 million for the year ended December 31, 1999. We believe
the cash flow from operating activities, bank borrowings and other available
sources of funds, will be adequate to enable us to make required payments on our
debt and to fund anticipated expenditures and working capital requirements for
the foreseeable future.
For the year ended December 31, 2000, we declared a group contribution of
SEK1,356 million. Of this amount, we paid SEK900 million (which is reflected on
the March 31, 2001 interim consolidated statements of cash flows), and we expect
to pay another SEK100 million, in 2001, as cash dividends. The remaining
SEK356 million of this group contribution will appear as an increase in
shareholder loans on the December 31, 2001 balance sheet. Generally, group
contributions are paid in the year after declaration. Accordingly, the
SEK900 million payment is reflected on Preem Holdings AB's interim consolidated
statements of cash flows for the three-month period ended March 31, 2001, and
the remaining SEK100 million payment will be reflected on Preem Holdings AB's
consolidated statements of cash flows for the year ended December 31, 2001.
Neither of these payments is restricted by the Indenture.
CASH FLOW
Cash flow from operating activities before changes in working capital was
SEK473 million for the three-month period ended March 31, 2001, an increase of
SEK69 million from SEK404 million for
62
<Page>
the three-month period ended March 31, 2000. This increase reflects the
combination of a decrease in income before taxes, which was more than offset in
our statement of cash flow by the addition of unrealized exchange losses. We
believe that this line-item represents a more informative description of our
underlying cash generation capability since it excludes changes in working
capital, which are primarily driven by differences between product prices and
volumes at period end. Cash flow from operating activities before changes in
working capital is not a GAAP-based measure of liquidity or financial
performance and should not be considered as a substitute for operating earnings,
net income, or other statements of operations data computed in accordance with
Swedish GAAP or U.S. GAAP. Funds depicted by this measure may not be available
for management's discretionary use.
Cash flow from operating activities before changes in working capital was
SEK2,021 million for the year ended December 31, 2000, an increase of
SEK359 million from SEK1,662 million for the year ended December 31, 1999. This
increase occurred as a result of higher refining margins for the year ended
December 31, 2000 compared to the same period for 1999. Cash flow from operating
activities before changes in working capital was SEK1,662 million for the year
ended December 31, 1999, an increase of SEK704 million from SEK958 million for
the year ended December 31, 1998. This increase occurred as a result of higher
crude oil prices, which resulted in price gains on our inventories.
Cash flow from operating activities was SEK855 million for the three-month
period ended March 31, 2001, an increase of SEK642 million from SEK213 million
for the three-month period ended March 31, 2000. This increase occurred as a
result of a release in working capital caused by a decrease in inventory volumes
through sales of previously stocked crude oil and refined products.
Cash flow from operating activities was SEK75 million for the year ended
December 31, 2000, a decrease of SEK750 million from SEK825 million for the year
ended December 31, 1999. This decrease occurred as a result of generally higher
accounts receivable due to higher revenues and higher inventory volumes for the
year ended December 31, 2000 compared to the year ended December 31, 1999. Cash
flow from operating activities was SEK825 million for the year ended
December 31, 1999, a decrease of SEK1,113 million from SEK1,938 million for the
year ended December 31, 1998. This decrease occurred as a result of higher crude
oil prices, which resulted in relatively higher value of our inventories. In
Sweden, we collect government excise duties imposed on petroleum products at the
time of retail sale and subsequently remit them on a monthly basis to the
Swedish government. Excise duties were SEK2,295 million for the three-month
period ended March 31, 2001 compared to SEK1,606 million for the three-month
period ended March 31, 2000. Excise duties were SEK6,637 million for the year
ended December 31, 2000, SEK6,573 million for the year ended December 31, 1999
and SEK6,381 million for the year ended December 31, 1998. The delay between the
time we collect these funds and the time we are required to remit them to the
government enables us to use the cash to finance a significant portion of our
working capital needs.
Cash flow used in investing activities was SEK97 million for the
three-month period ended March 31, 2001 compared to SEK50 million recorded for
the three-month period ended March 31, 2000. This increased use of cash flow in
investing activities is the result of ordinary, variable investments related to
maintenance of the two refineries and day-to-day investments made during the
course of the period.
Cash flow used in investing activities was SEK384 million for the year
ended December 31, 2000. Since we performed the standard turnaround required for
maintenance of our refineries in 1999 for Preemraff and in 1998 for Scanraff,
our cash flow used in investing activities for the year ended December 31, 2000
was lower compared to the SEK649 million recorded for the year ended
December 31, 1999 and the SEK668 million for the year ended December 31, 1998.
We capitalize these turnaround costs and amortize them over the three to four
year maintenance turnaround cycle.
Cash flow from financing activities was SEK409 million for the year ended
December 31, 2000, compared to a negative cash flow from financing activities of
SEK390 million for the year ended
63
<Page>
December 31, 1999 as a result of increased utilization of credit facilities. The
negative cash flow from financing activities was SEK390 million for the year
ended December 31, 1999 compared to SEK858 million for the year ended
December 31, 1998 as a result of decreased utilization of credit facilities. As
a result of group contributions paid in 2001, there was negative cash flow used
in financing activities of SEK829 million for the three-month period ended
March 31, 2001 compared to a positive cash flow from financing activities of
SEK231 million for the three-month period ended March 31, 2000.
CREDIT ARRANGEMENTS, SHAREHOLDER INVESTMENT AND INTERCREDITOR ARRANGEMENTS
As of December 31, 2000, we had total debt of SEK4,270 million and an
additional SEK2,299 million of available unused commitments. As of March 31,
2001, we had total debt of SEK4,431 million and an additional SEK2,690 million
of available unused commitments. Our long-term debt (excluding long-term bank
overdraft facilities and shareholder loans) amounted to SEK3,528 million as of
December 31, 2000, and to SEK3,580 million as of March 31, 2001, the current
portion of which was SEK714 million as of December 31, 2000 and SEK323 million
as of March 31, 2001. As of December 31, 2000 we also had drawings under
long-term bank overdraft facilities of SEK135 million and drawings under
short-term debt of SEK607 million. As of March 31, 2001, we had drawings of
SEK89 million under long-term bank overdraft facilities and drawings under
short-term debt of SEK762 million. These loans and facilities are provided by
various international banks. See "Description of Certain Indebtedness." Our
long-term debt included SEK1,144 million as of December 31, 2000 and
SEK1,142 million as of March 31, 2001 that was incurred to finance the
desulphurization plant at Preemraff that became operational in 1997. This plant
was financed through a sale and leaseback financing that runs through the year
2023. Our indebtedness bore interest at a weighted average rate per year of 6%
as of December 31, 2000, and 6.3% as of March 31, 2001. For disclosure on the
currency denomination and interest rate variability of our credit arrangements,
see "--Quantitative and Qualitative Disclosures about Market Risk--Interest Rate
Risk."
In addition, as of December 31, 2000 and March 31, 2001, we owed
SEK2,259 million to Corral Petroleum Holdings AB in the form of an interest-free
subordinated intercompany loan with no maturity date. We used approximately
E219 million from the proceeds of our April 2001 offering of senior secured
notes to repay a portion of this loan.
Although your notes are referred to as "Senior Secured Notes," they will
be effectively subordinated to our subsidiaries' debt and may be effectively
subordinated to future secured debt. Preem Petroleum AB had total long-term
liabilities and total current liabilities of SEK11,616 million as of
December 31, 2000, and of SEK10,941 million as of March 31, 2001. Assuming that
as of March 31, 2001, Preem Holdings AB acquired the issued and outstanding
shares of Preem Petroleum AB, completed the offering of the E250 million
principal amount of notes issued in the April 2001 offering and the E55 million
principal amount of notes of this offering and used the proceeds of these
offerings as described in this offering memorandum, then Preem Holdings AB would
have had no senior debt, other than such notes, and its subsidiaries would have
had SEK7,231 million of total liabilities to which such notes would effectively
rank junior. See "Description of Notes--Ranking and Intercreditor Arrangements."
CAPITAL EXPENDITURES
We made capital expenditures of SEK405 million for the year ended
December 31, 2000, SEK590 million for the year ended December 31, 1999 and
SEK508 million for the year ended December 31, 1998. These expenditures were
funded from available cash reserves, internally-generated cash flow from
operating activities and long-term debt. We currently anticipate that, over the
next four years, we will have additional capital expenditures of approximately
SEK925 million. We believe that we will require total investments of
approximately SEK225 million at Scanraff, approximately
64
<Page>
SEK175 million of which represents our share, and approximately SEK365 million
at Preemraff to meet the EU Year 2005 aromatic specification for gasoline. These
investments are necessary to upgrade the isomerization units at both refineries
so that all gasoline produced has 35% or less aromatic content. These
investments also will permit the elimination of expensive blending components,
such as MTBE, thereby contributing to higher gross margins at both refineries.
"MTBE" is a high-octane chemical blending component for gasoline. We believe
that these investments will further improve our competitive position in markets
that prohibit the use of MTBE. We intend to finance these investments from
available cash reserves, internally generated cash flow from operating
activities and long-term debt. We have commenced construction of a propene plant
at Scanraff, which we expect to be operative during 2002, to produce propene for
sale to the petrochemical industry. We believe that the total investments
required for this plant will be approximately SEK400 million.
We also are considering an additional investment in a mild-hydrocracker
unit at Scanraff, our share of which would be approximately SEK2,200 million, to
further upgrade the refinery to enhance its margins. However, we have made no
formal decision to make this investment with our joint-venture partner and do
not expect to do so until 2002.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposures are commodity price risk, foreign
currency risk and interest rate risk.
COMMODITY PRICE RISK
Changes in the price of commodities, such as crude oil, can affect our
cost of goods sold and the price of our refined products. Commodity price
changes can trigger a price effect on inventory, which can affect our revenues,
gross profit and operating income. Our inventory management strategies include
the purchase and sale of exchange-traded, oil-related futures and options with a
duration of twelve months or less. To a lesser extent, we also use oil swap
agreements similar to those traded on international exchanges such as the
International Petroleum Exchange, including crack spreads and crude oil options
that, because they contain certain terms, such as point of delivery, customized
to the market in which we sell, are better suited to hedge against the specific
price movements in our markets. The number of barrels of crude oil and refined
products covered by such contracts varies from time to time. We hedge amounts of
crude oil and refined products above and below optimal inventory levels, which
represent the volumes in stock and in transit within our system. These
strategies are designed to minimize, on a short-term basis, our exposure to the
risk of fluctuations in crude oil prices and refined product margins. This
hedging activity is closely managed and subject to internally established risk
standards. The results of these hedging activities are recognized in our
financial statements as adjustments to the refining costs of sales and inventory
costs. We do not engage in speculative derivatives transactions.
Fluctuations in the crude oil price have been significant over the last
three years. The three-year low of the monthly average dated Brent crude oil
price (free on board, Rotterdam) during this period was $9.88/barrel in
December 1998, while the three-year high was $32.77/barrel in September 2000.
Monthly average prices decreased by as much as $4.57 from March to April 2000
and increased by as much as $4.97 between April and May 2000.
65
<Page>
The chart below shows the fluctuations of the monthly average of the daily
closing price for dated Brent crude oil price (free on board, Rotterdam) in
1998, 1999 and 2000, and the three-month period ended March 31, 2001.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DATED BRENT CRUDE OIL PRICE (FREE ON BOARD, SULLOM VOE)
MONTHLY AVERAGES 1998-2001
<Table>
<Caption>
$/BBL.
Dec-97
Jan-98
Feb-98 14.01
Mar-98 13.13
Apr-98 13.51
May-98 14.4
Jun-98 12.15
Jul-98 12.09
Aug-98 11.96
Sep-98 13.41
Oct-98 12.62
Nov-98 10.99
Dec-98 9.88
Jan-99 11.05
Feb-99 10.24
Mar-99 12.53
Apr-99 15.25
May-99 15.26
Jun-99 15.85
Jul-99 19.02
Aug-99 20.29
Sep-99 22.44
Oct-99 21.94
Nov-99 24.61
Dec-99 25.56
Jan-00 25.47
Feb-00 27.82
Mar-00 27.25
Apr-00 22.68
May-00 27.65
Jun-00 29.79
Jul-00 28.44
Aug-00 30.1
Sep-00 32.77
Oct-00 30.91
Nov-00 32.45
Dec-00 24.97
Jan-01 25.46
Feb-01 27.38
Mar-01 24.44
Apr-01 25.69
May-01 28.4
Jun-01 27.77
</Table>
Source: Datastream
Our revenues and cash flows, as well as estimates of future cash flows are
sensitive to changes in energy prices. Major shifts in the cost of crude oil and
the price of refined products can result in significant changes in the operating
margin from refining operations. Energy prices also determine the carrying value
of our inventory.
We enter into commodity derivative contracts from time to time, to manage
our price exposure to our inventory positions and our purchases of foreign crude
oil in the refining process, and to fix margins on certain future production.
The commodity derivative contracts may take the form of futures contracts,
collars or price swaps and are entered into with reputable counter-parties.
Gains and losses on futures contracts, realized and unrealized, are recognized
in cost of goods sold at the time the contract is bought or sold (marked to
market).
- HEDGING ACTIVITIES/HEDGE OF INVENTORY: At December 31, 2000, we had a
short position in derivative contracts of Brent crude oil and oil
products of 5.5 million barrels. This position was a hedge of our large
inventory. The unrealized loss at the year-end was SEK23.5 million
($2.5 million)
- TRADING ACTIVITIES: At December 31, 2000, the following commodity
derivative contract was not treated as a hedge: a long position on the
spread of 22,800 tonnes (170,000 barrels) of gasoil between February and
June 2000. The unrealized profit at the year-end was SEK7.1 million
($0.7 million).
FOREIGN CURRENCY RISK
We publish our financial statements in Kronor. However, our crude oil
purchases are primarily denominated in Dollars, our revenues are denominated in
both Dollars and Kronor, a portion of our
66
<Page>
indebtedness is denominated in Dollars, a portion of our indebtedness is
denominated in Kronor and, following the April and July 2001 offerings, a
portion of our indebtedness is denominated in Euros. Consequently, fluctuations
in the Dollar-Krona and Euro-Krona exchange rates can affect our financial
results. We incur substantial amounts of our borrowings in Dollars to hedge our
expenses to inventories, which are also priced in Dollars. We primarily use
forward exchange contracts and, to a lesser extent, currency options and
currency swaps to manage our foreign currency risk.
In 2000, we estimate that we received 71% of our revenues in Dollars and
29% in Kronor and that we incurred 76% of our costs and expenses in Dollars and
24% in Kronor. In 1999, we estimate that we received 66% of our revenues in
Dollars and 34% in Kronor and that we incurred 69% of our costs and expenses in
Dollars and 31% in Kronor. As of December 31, 2000, our Krona-denominated
fixed-rate indebtedness totaled SEK451 million and our Krona-denominated
variable-rate indebtedness totaled SEK1,838 million. As of December 31, 2000,
our Dollar-denominated fixed-rate indebtedness totaled $50 million and our
Dollar-denominated variable-rate indebtedness totaled $80 million.
The table below presents, as of December 31, 2000 and 1999, a summary of
our financial instruments by functional currency and expected maturity dates,
which are derived from the Preem Petroleum AB Consolidated Financial Statements
and do not include any unaudited pro forma data.
<Table>
<Caption>
2000 2001 2002 2003 2004 2005 THEREAFTER
-------- -------- -------- -------- -------- -------- ----------
SEK SEK SEK SEK SEK SEK SEK
(IN MILLIONS, EXCEPT PERCENTAGES)
KRONA-DENOMINATED INDEBTEDNESS AS
OF DECEMBER 31, 2000:
Fixed rate debt--amount due.... -- 451 -- -- -- -- --
Variable rate debt--amount
due.......................... -- 508 15 16 180 33 1,086
DOLLAR-DENOMINATED INDEBTEDNESS
AS OF DECEMBER 31, 2000:
Fixed rate debt--amount due.... -- -- -- -- -- -- 477
Variable rate debt--amount
due.......................... -- -- -- -- 524 238 --
KRONA-DENOMINATED INDEBTEDNESS AS
OF DECEMBER 31, 1999:
Fixed rate debt--amount due.... -- 451 -- -- -- -- --
Variable rate debt--amount
due.......................... 13 520 15 16 180 33 1,086
DOLLAR-DENOMINATED INDEBTEDNESS
AS OF DECEMBER 31, 1999:
Fixed rate debt--amount due.... -- -- -- -- -- -- 426
Variable rate debt--amount
due.......................... 384 -- -- -- 469 -- --
<Caption>
PERCENTAGE
OF TOTAL
TOTAL LONG-TERM ESTIMATED
VALUE DEBT(1) FAIR VALUE
-------- ---------- ----------
SEK SEK
(IN MILLIONS, EXCEPT PERCENTAGES)
KRONA-DENOMINATED INDEBTEDNESS AS
OF DECEMBER 31, 2000:
Fixed rate debt--amount due.... 451 13 451
Variable rate debt--amount
due.......................... 1,838 52 1,838
DOLLAR-DENOMINATED INDEBTEDNESS
AS OF DECEMBER 31, 2000:
Fixed rate debt--amount due.... 477 13 477
Variable rate debt--amount
due.......................... 762 22 762
KRONA-DENOMINATED INDEBTEDNESS AS
OF DECEMBER 31, 1999:
Fixed rate debt--amount due.... 451 13 451
Variable rate debt--amount
due.......................... 1,863 52 1,863
DOLLAR-DENOMINATED INDEBTEDNESS
AS OF DECEMBER 31, 1999:
Fixed rate debt--amount due.... 426 11 426
Variable rate debt--amount
due.......................... 853 24 853
</Table>
- ------------
(1) Includes current portion.
Preem Petroleum AB and its subsidiaries had, as of December 31, 2000, cash
and cash equivalents in foreign currencies amounting to SEK178 million of which
the equivalent of SEK121 million were denominated in Dollars.
INTEREST RATE RISK
In the normal course of our business, we hold various financial
instruments that expose us to the risk of loss arising from changes in the
market interest rates. We use interest rate swaps to manage our interest rate
risk, but did not have any open position at either December 31, 2000 or
December 31, 1999. As of December 31, 2000, SEK928 million of our indebtedness
required payment at fixed rates and SEK2,600 million required payment at
variable rates. As of December 31, 1999, SEK877 million of
67
<Page>
our indebtedness required payment at fixed rates and SEK2,716 million required
payment at variable rates.
The table below presents, as of December 31, 2000 and 1999, principal cash
flows and related weighted average interest rates by expected maturity dates,
which are derived from the Preem Petroleum AB Consolidated Financial Statements
and do not include any unaudited pro forma data.
<Table>
<Caption>
2000 2001 2002 2003 2004 2005 THEREAFTER
-------- -------- -------- -------- -------- -------- ----------
SEK SEK SEK SEK SEK SEK SEK
(IN MILLIONS, EXCEPT PERCENTAGES)
AS OF DECEMBER 31, 2000:
Fixed rate debt--amount due.... -- 451 -- -- -- -- 477
Weighted average interest
rate......................... -- 7.9% -- -- -- -- 6.3%
Variable rate debt--amount
due.......................... -- 508 15 16 704 271 1,086
Weighted average interest
rate......................... -- 4.5% 4.5% 4.6% 6.2% 6.9% 4.5%
AS OF DECEMBER 31, 1999:
Fixed rate debt--amount due.... -- 451 -- -- -- -- 426
Weighted average interest
rate......................... -- 7.9% -- -- -- -- 6.3%
Variable rate debt--amount
due.......................... 397 520 15 16 649 33 1,086
Weighted average interest
rate......................... 6.4% 4.5% 4.5% 4.6% 6.2% 4.5% 4.6%
<Caption>
PERCENTAGE
OF TOTAL
TOTAL LONG-TERM ESTIMATED
VALUE DEBT(1) FAIR VALUE
-------- ---------- ----------
SEK SEK
(IN MILLIONS, EXCEPT PERCENTAGES)
AS OF DECEMBER 31, 2000:
Fixed rate debt--amount due.... 928 26 928
Weighted average interest
rate......................... 7.1% -- --
Variable rate debt--amount
due.......................... 2,600 74 2,600
Weighted average interest
rate......................... 5.2% -- --
AS OF DECEMBER 31, 1999:
Fixed rate debt--amount due.... 877 24 877
Weighted average interest
rate......................... 7.1% -- --
Variable rate debt--amount
due.......................... 2,716 76 2,716
Weighted average interest
rate......................... 5.2% -- --
</Table>
- ------------
(1) Includes current portion.
INTRODUCTION OF THE EURO
On January 1, 1999, a new single European currency, the "Euro," replaced
the local currencies in eleven of the fifteen member states of the European
Union. The participating members of the European Union established fixed
conversion rates between their sovereign currencies and the Euro. As of
January 1, 2001, a twelfth member state has joined the European Monetary Union.
During an interim period between January 1, 1999 and January 1, 2002, public and
private parties in participating states may use either the Euro or the
respective local currency on a "no compulsion, no prohibition" basis. Beginning
January 1, 2002, the participating members must issue new Euro-denominated bills
and coins for use in cash transactions. No later than July 1, 2002, the
participating members will withdraw all bills and coins denominated in the
respective local currency, so that the local currencies will no longer be legal
tender for any transaction, making the conversion to the Euro complete.
The Swedish Parliament elected not to participate in the European Monetary
Union at its commencement on January 1, 1999, although it has stated that it
will let voters decide whether to participate later through either a referendum
or a general election. If and when Sweden were to participate in the single
currency, the Krona would be replaced by the Euro. We cannot assure you that the
introduction of the Euro will not increase the volatility of the Krona exchange
rates or result in the future appreciation of the Krona.
The introduction of the Euro has not had a material effect on our
operations. Our Swedish operations have been able to conduct business in Euro
since January 1, 1999. This has not involved any material amendments to our
systems software, staff training or other steps. We believe that all necessary
procedures have been taken and tested, and staff trained in the changes to
working practices.
RECENT U.S. ACCOUNTING PRONOUNCEMENT ISSUED BUT NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("Statement 133"),
"Accounting for Derivative Instruments
68
<Page>
and for Hedging Activities." In June 2000, the FASB issued Statement of
Financial Accounting Standards No. 138 ("Statement 138"), "Accounting for
Certain Derivative Instruments and Certain Hedging Activity, an Amendment of
SFAS 133." Statement 133, as amended, requires companies to recognize all
derivatives as either assets or liabilities in the statement of financial
condition and to measure those instruments at fair value. Statement 133, as
amended, also requires that changes in fair value of a derivative be recognized
currently in earnings unless specific hedge accounting criteria are met. We
adopted Statement 133, as amended, on January 1, 2001. The adoption of Statement
133, as amended, will have no material impact on our financial statements.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141 ("Statement 141"), "Business Combinations" and Statement of Financial
Accounting Standards No. 142 ("Statement 142"), "Goodwill and Other Intangible
Assets." Statement 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
Statement 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for impairment at
least annually in accordance with the provisions of Statement 142. Statement 142
will also require that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Statement 142 is required to be adopted by
the Company effective January 1, 2002.
Statement 141 will require upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in Statement 141 for
recognition apart from goodwill. Upon adoption of Statement 142, the Company
will be required to reassess the useful lives and residual values of all
intangible assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the first interim period
after adoption. In addition, to the extent an intangible asset is identified as
having an indefinite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of Statement
142 within the first interim period. Any impairment loss will be measured as of
the date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.
The Company has not yet determined the impact of adopting Statement 141
and Statement 142.
In June 2001, the Financial Accounting Standards Board issued Statement
No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS, which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
standard applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) normal use of the asset.
Statement No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating expense. If the
obligation is settled for other than the carrying amount of the liability, the
Company will recognize a gain or loss on settlement.
The Company is required and plans to adopt the provisions of Statement
No. 143 for the quarter ending March 31, 2003. To accomplish this, the Company
must identify all legal obligations for asset retirement obligations, if any,
and determine the fair value of these obligations on the date of adoption. The
determination of fair value is complex and will require the Company to gather
market
69
<Page>
information and develop cash flow models. Additionally, the Company will be
required to develop processes to track and monitor these obligations. Because of
the effort necessary to comply with the adoption of Statement No. 143, it is
presently not practicable for management to estimate the impact of adopting this
Statement.
70
<Page>
INDUSTRY
THIS BRIEF REVIEW OF THE REFINING INDUSTRY AND THE EUROPEAN REFINING
MARKET HAS BEEN PREPARED AND REVIEWED BY WOOD MACKENZIE, A GLOBAL ENERGY
CONSULTANT, WHICH IS A DIVISION OF DEUTSCHE BANK AG LONDON, FOR INCLUSION IN
THIS PROSPECTUS. WE HAVE INCLUDED THIS REVIEW IN RELIANCE ON WOOD MACKENZIE'S
EXPERTISE AS OIL REFINING INDUSTRY ANALYSTS. YOU SHOULD BE AWARE THAT THIS
REVIEW INCLUDES FORWARD-LOOKING STATEMENTS. BECAUSE OF THE UNCERTAINTIES
ASSOCIATED WITH SUCH FORWARD-LOOKING STATEMENTS, YOU SHOULD NOT PLACE UNDUE
RELIANCE ON THEM. SEE "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS."
OVERVIEW OF THE REFINING PROCESS
An oil refinery is the "factory" in which crude oil, the raw material, is
converted into usable finished products. Refining is the manufacturing phase in
the oil industry. The other phases are:
- exploration and production, in which crude oil is found and extracted
prior to refining;
- shipment, in which crude oil is transported from the production source to
a refinery; and
- distribution and marketing, in which the refined product is delivered to
consumers.
Refineries can be relatively simple, such as Preemraff, which only
extracts the light components from crude oil and disposes of the heavy
components (a process known as hydroskimming). Other refineries, such as
Scanraff, can be very complex and capable not only of separating components
through basic refining, but also of further converting a variety of heavy crude
oils or residues into a range of lighter refined end products (a process known
as cracking).
The methods employed to refine crude oil vary widely from one refinery to
another, depending on the type of refinery (hydroskimming or cracker), the type
of crude oil processed, the nature and location of the refinery's market and
many other factors. On a very simplified basis, however, all refineries receive
deliveries of crude oil, either by oil tanker or pipeline (or a combination of
both), pump the crude oil into storage tanks to be held for a period of time to
clean and desalt the crude oil, and then pump the crude oil through heat
exchangers and a furnace before entering a distillation tower. In general, there
are four basic refining processes:
- FIRST PROCESS. Distillation (or fractionation) is performed on crude oil
at a refinery. Distillation is the method of heating the mixture of
compounds found in crude oil to separate relatively more volatile parts
from relatively less volatile parts. Since it is not generally possible
to separate the complex petroleum mixtures into individual compounds,
these mixtures are segregated into fractions or "cuts," each of which is
produced at a specific boiling range. As a general matter, by heating and
distilling the crude oil, certain types of hydrocarbons, generally
liquefied petroleum gas and naphtha, will rise to the top of the
distillation tower. "Liquefied petroleum gas" is used as a fuel for
heating, cooking and lighting. "Naphtha" is used as a solvent and as an
additive for the manufacture of ethylene and other petrochemicals. At the
same time, diesel and jet fuel will form the cuts in the middle portions
of the tower, and heating oil, heavy fuel oil and bitumen will form the
cuts at the bottom of the tower. "Bitumen" is a residual product of the
distillation process used to make asphalt for roads. Refineries extract
these cuts from the tower and then further process or upgrade them in the
refinery operations.
- SECOND PROCESS. Conversion consists of using chemicals and thermal
processes to convert or transform certain of the CUTS from the
distillation process into products with higher commercial value. Although
there are many different conversion methods, they all consist
fundamentally of altering the molecular structure of the hydrocarbon
components. The net result of the conversion process is the production of
mixtures containing new arrays of hydrocarbons that have a higher value
than the starting materials.
71
<Page>
- THIRD PROCESS. Purification consists of treating the hydrocarbons to
remove unwanted elements, such as sulphur, or convert them to innocuous
compounds, because nearly all of the fractions produced by distillation
and conversion contain certain impure constituents.
- FOURTH PROCESS. Blending of the finished cuts into end products is the
last basic step in the refining process.
The following diagram illustrates the various refined petroleum products,
ordered from light to heavy, that result from the distillation and conversion
processes.
[GRAPHIC]
EUROPEAN REFINING MARKET
The predominant characteristics of the European refining market are as
follows:
- a structural excess of refinery capacity for gasoline;
- an historic undersupply of refinery capacity for middle distillates,
which are refined products like diesel, gasoil and jet/kerosene;
- anticipated future growth in demand for fuel oil as bunker fuel (fuel oil
used as transportation fuel for ships) and middle distillates, but
potential decline in the use of other refined products, including
gasoline, heating oil and inland fuel oil;
- an increasingly tight supply/demand balance driven by refinery closures,
a lack of new refinery construction, more stringent environmental
specifications and higher utilization rates;
- a trend by oil majors to reduce exposure to an historically low return on
capital business; and
- high costs associated with refinery closure.
72
<Page>
HISTORICAL EUROPEAN GROSS REFINING MARGINS
The chart below shows the historical development of European gross
refining margins. The hydroskimming and cracking margins quoted in this review
refer to the indicator gross refinery margins series for benchmark refineries in
Rotterdam developed by industry consultants Wood Mackenzie in order to track
refining economics in northwestern Europe.
NORTHWEST EUROPEAN GROSS REFINING MARGINS--HISTORICAL (1987-2000)
[GRAPHIC]
The Iraqi invasion of Kuwait in 1990 and the subsequent Gulf War in 1991
together had a dramatic impact on European refining economics. European cracking
gross margins reached exceptional levels in early 1991 as crude prices plummeted
once it became clear that oil fields in eastern Saudi Arabia would not be
threatened by the land war. The continued loss of Kuwaiti cracking capacity
bolstered cracking margins worldwide for the remainder of 1991 despite a
deteriorating supply/demand balance in Europe. Conversely, hydroskimming gross
margins declined from pre-war levels to exceptionally low and even negative
margins. This was a result of hydroskimming refineries worldwide increasing
utilization in order to compensate for the lost cracking capacity in Kuwait.
Cracking margins dropped sharply in 1992. Over-investment by refiners in
cracking and octane capacity during the late 1980s and early 1990s, combined
with declines in gasoline demand as economic growth slowed and production
increased, produced a sustained period of low gross margins, so that, in 1995,
cracking gross margins averaged only $1.53/barrel, an eight-year low.
In 1995, a typical cracking refinery, with average costs, would have
experienced a negative net cash margin for the first time since 1987. In fact,
most refiners in Europe would have lost money on an EBIT (earnings before
interest and taxes) basis between 1994 and 1996. Returns for even the best
market participants were relatively low. As a result, discretionary capital
expenditure plans were significantly reduced, some market participants
disinvested and others sought joint initiatives, including joint ventures, to
mitigate the high closure costs.
Between 1996 and 1998, European gross refining margins recovered slowly,
primarily driven by growth in demand, a reduction in refining capacity and a
recovery in the light/heavy crude oil price differential. This partial recovery
in gross margins caused a significant improvement in refining profits, although
returns for all but the best market participants remained below corporate target
levels.
During this period, margins for a hydroskimming refinery with typical
costs and no particular locational or operational advantages remained at or
around break-even levels. The exception was in
73
<Page>
1998 when strength in the fuel oil market, stimulated by very low oil prices,
boosted hydroskimming margins at the expense of cracking margins.
In 1999, continually rising crude oil prices severely impacted feedstock
costs, while abnormally high gasoline and heating oil inventories (as a result
of two mild winters and over-production in the second half of 1998) kept product
prices low. The result was a severe compression of gross refining margins to the
lowest levels in a decade.
Refiners reduced throughputs in response to these low gross margins and by
the end of the first quarter of 2000, inventory levels had decreased
significantly. This decrease together with continuing robust demand for gasoline
in the United States, an unusually high level of planned and unplanned capacity
outages and the introduction of new product specifications on both sides of the
Atlantic combined to produce a very strong recovery in cracking gross margins
during 2000. Hydroskimming gross margins also recovered somewhat from 1999
levels but remained poor.
EUROPEAN MARGIN DRIVERS
Key drivers of gross refining margins in Europe include changes in demand,
capacity closures, average capacity utilization rates, crude oil price
differentials and environmental fuel specifications.
- CHANGES IN DEMAND. Europe is a mature refined products market and has
experienced very modest growth in demand during the last 10 years. Diesel
is a high-growth product in Europe that is in short supply and, thus,
prices are relatively high. Most European governments have progressively
raised taxes on gasoline as a price inelastic source of revenues and,
more recently, have begun to discourage its use for environmental
reasons. However, these governments have not raised taxes on diesel to
the same degree. Accordingly, consumers have an incentive to purchase
diesel rather than gasoline-fueled cars, which further adds to diesel
demand. Increasing government support for the use of ultra-low sulphur
diesel throughout much of Europe, evidenced through lower duties on these
fuels, reinforces demand growth for this kind of diesel. Substantial
quantities of fuel oil are still used for power generation in Europe.
- CAPACITY CLOSURES. A total of 11 refineries with a combined capacity of
763,000 barrels per day have been closed since 1992, including the Shell
Haven refinery (UK, closed in 1999) and the Sola refinery (Norway, closed
in 2000). However, the impact of these closures has been largely offset
by the opening of the new Leuna refinery in eastern Germany and by
capacity "creep," which refers to the increase in refining capacity that
arises over time from the optimization of refining processes or refinery
debottlenecking without major investment. This phenomenon is estimated to
have added approximately 1% per year to capacity in recent years.
- AVERAGE CAPACITY UTILIZATION RATES. Average utilization rates in Europe
have risen steadily from 70% in 1987 to 95% in 1998, partly driven by
increases in cracking capacity. However, average utilization rates fell
to 90% in 1999 and remained around that level in 2000 in response to the
adverse hydroskimming margin environment.
- CRUDE OIL PRICE DIFFERENTIALS. The long-term low-sulphur/light to
high-sulphur/heavy price differential is an important driver of cracking
margins because of its impact on a refiner's choice of crude oil. A
widening differential encourages refiners to run more (less expensive)
heavy crude oil, which yields more fuel oil, and less light and middle
distillates. A widening differential therefore has a positive impact on
cracking gross margins.
- ENVIRONMENTAL FUEL SPECIFICATIONS. The European Union has mandated key
specifications, which must be implemented by 2005. The final
specifications are expected to be confirmed later in 2001. These
specifications include limiting sulphur to 50 parts per million for both
74
<Page>
gasoline and diesel and also restrict the aromatic content of gasoline to
35%. This will require most refiners to make capital expenditures in
order to produce refined products that comply with these specifications.
Wood Mackenzie therefore believes that capacity reduction should occur as
some refineries that are not well placed to meet these new specifications
are forced to close. A reduction in the supply of transport fuels
(particularly diesel) is also likely, as some refineries downgrade middle
distillates in order to avoid the cost of compliance. The table below
gives an overview of the various environmental EU specifications that
have been announced for certain refined products to become effective in
2005 and 2008.
EU 2005 AND 2008 ENVIRONMENTAL SPECIFICATIONS
<Table>
YEAR 2005
Gasoline................................... 50 parts per million sulphur content
35% aromatic content
Diesel..................................... 50 parts per million sulphur content
YEAR 2008
Gasoil..................................... 0.1% sulphur content
</Table>
EUROPEAN VERSUS U.S. REFINERIES
As the chart below illustrates, the demand profile for the principal
refined products in the United States differs significantly from that in Europe.
Over time, refiners in the two regions have adapted their output to meet this
demand and, as a result, produce very different product mixes. This section
examines the reasons for this difference in demand profiles and the impact on
refinery product mix and therefore on gross refining margins.
DEMAND PROFILE FOR REFINED PRODUCTS
EUROPE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<Table>
<Caption>
Middle Distillates 50%
Light Distillates 33%
Fuel Oil 17%
</Table>
UNITED STATES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<Table>
<Caption>
Middle Distillates 35%
Light Distillates 58%
Fuel Oil 7%
</Table>
Light distillates are primarily naphtha and gasoline. Middle distillates
are jet fuel, kerosene, home-heating gasoil and diesel. "Kerosene" is a refined
product from the middle range of the distillation process used either as a fuel
for jet engines or as a heating fuel in smaller residential, agricultural and
commercial sectors.
The U.S. refined product market focuses heavily on gasoline. Demand for
fuel oil, which is used mainly for power generation and as bunker fuel for large
ships, is very low. Fuel oil generators produce sulphur by-products, which have
been linked to acid rain. Consequently, U.S. regulations have, indirectly,
severely limited the use of fuel oil in power generation. The diesel market is
substantial, although demand for home-heating oil (gasoil) is largely restricted
to New England, since most of the rest of the country is connected to an
extensive natural gas grid.
In light of the relatively high demand for light distillates in the United
States, a typical U.S. refinery has a high upgrading capacity geared primarily
towards the maximization of gasoline output and the minimization or elimination
of fuel oil output. Upgrading units are complex conversion
75
<Page>
facilities, which are expensive to build and add significantly to a refinery's
operating costs. The most common upgrading units employed in the United States
are catalytic crackers and cokers. Cokers convert heavy residues into a solid
carbon-rich material known as petroleum coke. However, a typical European
refiner has a much lower ratio of upgrading capacity and therefore produces a
significant amount of fuel oil in line with the continuing demand for that
product in Europe. The higher level of sophistication of typical U.S. refineries
results in higher gross margins than typical European refineries but also higher
associated operating costs. In many instances, therefore, a less sophisticated
European refinery can be more profitable on a net cash basis than a more
sophisticated refinery in the United States.
CURRENT EUROPEAN COMPETITIVE STRUCTURE
Wood Mackenzie has estimated the net cash margin, a key indicator of
competitive position, for each refinery in Europe by separately modeling each
refinery using linear programming techniques for 1998 as representative of mid-
cycle refining economics.
MID-CYCLE NET CASH MARGINS
[GRAPHIC]
Although the position of individual refineries on the curve may change in
different pricing environments, as would the break-even position, the general
shape of the curve remains essentially the same. Refineries fall into four broad
categories with regard to their position on the curve.
- LEADERS--Refineries that have sustainable competitive advantage and
consequently make consistent profits, except in the most hostile (and
typically transient) environments.
- NEAR-LEADERS--Refineries that are core to their owner's strategy, but
currently fail to make consistent returns. Owners generally want to
upgrade these refineries into leaders, but have few economic
opportunities.
- OSCILLATORS--Refineries including a mixture of less competitive cracking
refineries and the efficient or better located hydroskimmers. For these
refineries, volatility is a problem and slight changes in the operating
environment can tip them from profit to loss.
- LAGGARDS--Refineries at the bottom of the curve that are not likely to
operate under conventional refinery economics as there may be an element
of cross-subsidy (E.G., marketing, lubricants manufacture or chemicals),
the refining operation is primarily an adjunct to a trading/blending
activity or there may be other hidden subsidies.
76
<Page>
LIMITATION AND UNCERTAINTIES RELATING TO FORECASTS
You should note that, while Wood Mackenzie's forecasts and expectations
are based on sophisticated analyses and detailed databases and reflect Wood
Mackenzie's best judgments and reasonable assumptions about the many variables
that may ultimately impact margins, forecasts are inherently uncertain. As
discussed in "Risk Factors," the refining business and refining margins are
subject to numerous uncertainties, including the price of crude oil and refined
products, all of which can be volatile. Accordingly, you should consider the
foregoing in the context of all the uncertainties and risks discussed in this
prospectus and recognize that it is possible that competitive factors could
change, demand for products could develop differently, technological, political
or economic assumptions could prove wrong, and, as a result, that actual margins
could vary significantly from those assumed, forecast or expected by Wood
Mackenzie.
77
<Page>
BUSINESS
OVERVIEW
We refine crude oil in Sweden and then market and sell refined products
primarily in Sweden and other northern European markets. In the first quarter of
2001, we had sales revenue of SEK9,303 million and EBITDA of SEK517 million
compared to sales revenue of SEK8,692 million and EBITDA of SEK477 million in
the first quarter of 2000. In 2000, we had sales revenue of approximately
SEK39,558 million and EBITDA of SEK2,377 million.
We conduct our business through our wholly-owned operating company, Preem
Petroleum AB, which is comprised of three divisions, a Supply and Refining
Division, a Swedish Market Division and an International Division. Our Swedish
Market Division consists of a Home-Heating and Business-to-Business Segment and
a Station and Consumer Segment. See "--Information Regarding Significant
Subsidiaries."
Our Supply and Refining Division purchases and refines crude oil, and then
sells refined products wholesale to our Swedish Market Division and
International Division, as well as to third parties. We also have an extensive
network of storage depots, which we believe is one of the largest in Sweden in
terms of volume. The Swedish Market Division resells refined products wholesale
and retail in Sweden, while the International Division resells refined products
primarily to wholesale customers in Poland and, to a lesser extent, in Norway.
In 2000, the Supply and Refining Division sold approximately 79% (by value) of
its products to third parties, 20% to our Swedish Market Division and 1% to our
International Division. The following tables show the sales revenue and
operating income of our three divisions for the last three years and for the
three-month periods ended March 31, 2000 and March 31, 2001.
<Table>
<Caption>
PERIOD ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- ------------------------------
1998 1998 2000 1998 2001
-------- -------- ------------------- -------- -------------------
SEK SEK SEK $(1) SEK SEK $(1)
(UNAUDITED)
(IN MILLIONS)
SALES REVENUE:
Supply and Refining(2).................. 12,526 18,728 35,477 3,270 7,787 8,207 756
Swedish Market.......................... 6,071 7,040 9,904 913 2,297 2,668 246
International........................... 741 791 1,462 135 214 396 36
TOTAL SALES REVENUE(3).................. 15,758 22,220 39,558 3,646 8,692 9,303 857
OPERATING INCOME (LOSS)
Supply and Refining..................... 578 1,120 1,540 142 268 197 18
Swedish Market.......................... 48 92 6 1 35 42 4
International........................... (1) (30) (69) (6) (8) (15) (1)
Other Non-allocated Income
(expense)(4).......................... (53) 39 179 16 15 126 11
TOTAL OPERATING INCOME.................. 572 1,221 1,656 153 310 350 32
</Table>
- ------------
(1) We have translated Kronor into Dollars at the rate of $1.00=SEK10.85 (the
exchange rate on June 30, 2001). We have provided this translation solely
for your convenience.
(2) Includes sales by our Supply and Refining Division to our Swedish Market
Division and International Division of SEK3,580 million for 1998,
SEK4,339 million for 1999, SEK7,285 million for 2000 and SEK1,606 million
for the first quarter of 2000 and SEK1,967 million for the first quarter of
2001. We have included intercompany sales revenue in the total for our
Supply and Refining Division. These sales are made at market rates. Since
refined products are commodities, these sales could have been made to third
parties at similar prices. We believe that including these amounts in the
sales revenue of our Supply and Refining Division properly reflects the
results of these divisions for purposes of comparison. To avoid overstating
total sales revenue, such intercompany sales are eliminated in the Preem
Petroleum AB Consolidated Financial Statements and the Interim Consolidated
Financial Statements.
78
<Page>
(3) Total sales revenue is our total revenue less excise duties, which are
taxes collected at the point of sale by our Swedish Market Division and
remitted monthly to the Swedish government.
(4) Other non-allocated income (loss) includes corporate cost center,
non-recurring items and exchange rate differences.
SUPPLY AND REFINING OPERATIONS
Our Supply and Refining Division operates our majority-owned Scanraff
refinery and our wholly-owned Preemraff refinery, with an aggregate capacity of
approximately 335,000 barrels per calendar day. These refineries refined
approximately 23.5 million barrels of crude oil in the three-month period ended
March 31, 2001 as compared to 23.8 million barrels in the three-month period
ended March 31, 2000 and refined approximately 102.9 million barrels of crude
oil in 2000, 93.2 million barrels in 1999 and 923 million barrels in 1998. The
refining margins at Scanraff were $2.00/barrel in the three-month period ended
March 31, 2001 as compared to $1.59/barrel in the three-month period ended
March 31, 2000 and were $2.81/barrel in 2000, $1.29/barrel in 1999 and
$2.58/barrel in 1998. The refining margins at Preemraff were $0.97/barrel in the
three-month period ended March 31, 2001 as compared to $0.57/barrel in the
three-month period ended March 31, 2000 and were $1.74/barrel in 2000,
$0.68/barrel in 1999 and $1.44/barrel in 1998. The refining margins were
particularly volatile on a month-to-month basis in 2000, in line with those of
the industry as a whole, for a variety of reasons, including the extreme
volatility in crude oil prices.
As indicated by the following graphs, we believe that the annual average
refining margins at both refineries have been above the International Energy
Agency's industry indicator for northwest European refineries in their
respective class.
[GRAPHIC]
- ------------
(1) There are no data for September 1998 since Scanraff was performing its
scheduled maintenance turnaround during that month.
(2) International Energy Agency industry indicator, calculated on the basis of
an average northwest European cracking refinery that is running a typical
crude slate.
79
<Page>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<Table>
<Caption>
PREEM IEA HYDROSK
Dec-99 0.41 -1.56
Jan-00 0.01 -0.59
Feb-00 -0.16 -1.71
Mar-00 1.73 0.01
Apr-00 2.96 2.04
May-00 0.63 -1.07
Jun-00 1.3 -0.36
Jul-00 1.84 -0.02
Aug-00 0.86 -0.97
Sep-00 1.46 1.08
Oct-00 3.32 2.37
Nov-00 0.87 -0.69
Dec-00 2.84 1.71
</Table>
- ------------
(1) International Energy Agency industry indicator, calculated on the basis of
an average northwest European hydroskimming refinery that is running a
typical crude slate.
SCANRAFF REFINERY
Scanraff is a complex, large-scale refinery with a strong market position
producing a full-range of refined products. The refinery has visbreaker,
catalytic cracker and mild hydrocracker upgrading units geared towards
converting a significant portion of our residual fuel oil to lighter, higher
value products. Scanraff is the largest oil refinery in Sweden in terms of
capacity, representing approximately 50% of Swedish refining capacity. The
refinery is located on a 470-acre site on the west coast of Sweden, north of the
city of Gothenburg. The refinery is situated on a peninsula providing direct
jetty access to oil tankers for both the import of crude oil and the
distribution of refined products. We own 78.5% of the refinery with the
exception of the fluid catalytic cracker, of which we own 50%. The remainder is
owned by Hydro R&M Holding AS, an affiliate of Norsk Hydro AS. The refinery has
a total refining capacity of approximately 210,000 barrels per calendar day. Our
share of the aggregate production at Scanraff was approximately 56.6 million
barrels in 1999 compared to 57.5 million barrels in 2000, and 14.4 million
barrels in the first quarter of 2000 compared to 13.8 million barrels in the
first quarter of 2001.
Scanraff began production in 1975 and its facilities have been upgraded
several times through large capital investments. As a result of these
improvements, we believe that Scanraff is one of the most sophisticated and
flexible refineries in Europe. Solomon Associates has ranked Scanraff in the
first quartile of European refineries for operating cost efficiency and return
on investment for each
80
<Page>
year in which the survey has been conducted over the past decade. The following
table summarizes upgrades to Scanraff:
<Table>
<Caption>
UPGRADE AT SCANRAFF FUNCTION YEAR
- ------------------- ------------------------------------------------------------ --------
Visbreaker...................... Reduces the viscosity of the fuel oil and increases the 1982
yield of gasoil and gasoline
Catalytic Cracker............... Converts vacuum gasoil, a semi-finished product, into 1984
gasoline, gasoil and fuel oil
Mild Hydrocracker............... Desulphurizes and converts vacuum gasoil into lighter 1988
products and feedstock for the catalytic cracker
Isomerization Unit.............. Converts light naphtha into high octane, low benzene 1991
gasoline components
Desulphurization/Dearomatization
Unit.......................... Converts conventional gasoil or diesel into virtually 1994
sulphur free, low aromatic diesel
Tailgas Treatment Sulphur
Recovery Unit................. Removes hydrogen sulphide and nitrogen oxides from refinery 1994
gases and recovers liquid sulphur
Prefractionater................. Reduces benzene formation in the platformer unit 1999
</Table>
Imported crude oil arrives at Scanraff by way of a single jetty that can
accommodate tankers of up to 500,000 dead weight tons. We estimate that
approximately 100 vessels carrying crude oil arrive at Scanraff each year. Crude
oil can be unloaded at a rate of approximately 113,000 barrels per hour through
steel pipes leading into four underground crude oil storage caverns. These
caverns have been blasted out of solid rock and have an aggregate capacity of
approximately 17 million barrels. They have sophisticated equipment designed to
ensure efficient and environmentally safe storage.
Crude oil is pumped from the underground caverns into three above-ground
crude "day tanks" with a total capacity of approximately 793,000 barrels and
from there into Scanraff's crude distillation unit. On a typical full day of
operations, crude oil from one "day tank" is pumped into the crude distillation
unit, while the depleted tank from the previous day's refining is refilled from
the underground caverns.
Scanraff operates a single crude distillation unit, which is one of the
largest in Europe. During distillation, crude oil is heated until it separates
into different fractions. A fraction is a mixture of liquid hydrocarbons all of
which have approximately the same boiling range. The heaviest fraction,
constituting approximately 30%, is further processed in Scanraff's vacuum
distillation unit to achieve the maximum volume of distillates. After the
distillation, Scanraff further refines, upgrades and processes the distillates
as follows:
- VISBREAKER, CATALYTIC CRACKER AND MILD HYDROCRACKER. Fuel oil can be
upgraded into higher-value products in several ways. Scanraff has
invested in three upgrading units for this purpose. First, in 1982,
Scanraff invested in a visbreaker, which reduces the viscosity of the
fuel oil and increases the yield of gasoil and gasoline. Second, in 1984,
Scanraff added a catalytic cracker that, by means of a catalyst, converts
vacuum gasoil, a semi-finished product, into gasoline, gasoil and fuel
oil. Scanraff obtains a portion of its feedstock requirements for this
upgrading from Preemraff, which, as a less sophisticated refinery,
produces a larger proportion of the heavier fractions. Third, in 1988,
Scanraff invested in a mild hydrocracker, which desulphurizes vacuum
gasoil and converts it into lighter products and feedstock for the
catalytic converter.
- ISOMERIZATION. The naphtha fraction (after desulphurization) is
processed in a reformer unit to increase octane. Since 1991, Scanraff has
operated an isomerization unit in which the lightest part of the naphtha
is processed into high octane and low benzene gasoline components.
"Benzene" is an aromatic compound, the presence of which in refined
products is often regulated by environmental laws.
- DESULPHURIZATION/DEAROMATIZATION. Scanraff has a highly sophisticated
gasoil/diesel desulphurization/dearomatization unit that was completed in
1994. This unit enables Scanraff
81
<Page>
to produce virtually sulphur-free (10 parts per million) diesel fuel with
an aromatic content of 5%, both of which far exceed current EU
specifications of 350 parts per million for sulphur and 11% for
aromatics.
- TAILGAS TREATMENT SULPHUR RECOVERY UNIT. Scanraff has a sulphur recovery
unit combined with a tailgas treating unit that removes hydrogen sulphide
and nitrogen oxides from refining gases.
- PREFRACTIONATER. Scanraff added a prefractionater to its platformer unit
in 1999, which reduces benzene formation in the platformer.
After processing, Scanraff pumps the various refined products to the
refinery's 73 intermediate and finished product tanks and four additional
refined product storage caverns with an aggregate capacity of approximately
6.3 million barrels. From the intermediate tanks, Scanraff pumps components to
one of three blending stations for final product mix, one station for gasoline,
one for diesel and gasoil and one for fuel oil. Scanraff stores the final
products in product tanks. To the extent practicable, intermediate products are
blended "online," as required, and loaded directly onto product tanker vessels,
thus reducing the need for blended product storage. Scanraff has a separate
product jetty with four berths at which tankers dock as many as 1,400 times per
year for loading of refined products. Scanraff distributes approximately 98% of
its products by sea for domestic and international use. The refinery also has a
truck loading rack for supplying diesel and home-heating oil to the local
market. Over the last five years, weather conditions have not caused any
significant delay or disruption in either unloading crude oil or loading refined
products, given the sheltered position of Scanraff's berths.
The following table shows our share of Scanraff's feedstocks and
production for the years 1998, 1999 and 2000 and each of the three-month periods
ending March 31, 2001 and March 31, 2000. At Scanraff, there is a standard
turnaround required for maintenance of the refinery every four years, which
typically lasts four to six weeks. During this maintenance turnaround, the
refinery is completely shut down for inspection of all processing units. The
last maintenance turnaround at Scanraff was in 1998 and the next one is
scheduled for 2002.
<Table>
<Caption>
1998 1999 2000
-------------------------- -------------------------- --------------------------
THOUSAND THOUSAND THOUSAND
BBLS. % BBLS. % BBLS. %
--------------- -------- --------------- -------- --------------- --------
FEEDSTOCKS
Sweet Crude Oil............... 18,397 33% 23,679 41% 23,107 39%
Sour Crude Oil................ 36,839 65 31,667 55 32,736 56
Unfinished and Blend Stocks... 969 2 2,623 4 3,063 5
=============== === =============== === =============== ===
TOTAL FEEDSTOCKS............ 56,205 100% 57,969 100% 58,906 100%
UTILIZATION RATE(1)............. -- 93%(2) -- 96% -- 98%
PRODUCTION
Liquefied Petroleum Gas....... 635 1% 698 1% 711 1%
Gasoline...................... 15,869 29 17,585 31 17,157 30
Diesel........................ 10,686 19 11,075 20 11,346 20
Gasoil........................ 11,127 20 10,887 19 10,409 18
Vacuum Gas Oil................ 6,950 13 6,931 12 6,761 12
Heavy Fuel Oil................ 9,152 17 9,057 16 10,994 19
Other......................... 403 1 415 1 126 --
=============== === =============== === =============== ===
TOTAL PRODUCTION................ 54,822 100% 56,648 100% 57,504 100%
<Caption>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------
2000 2001
-------------------------- --------------------------
THOUSAND THOUSAND
BBLS. % BBLS. %
--------------- -------- --------------- --------
FEEDSTOCKS
Sweet Crude Oil............... 6,792 46% 5,878 42%
Sour Crude Oil................ 7,612 52 7,620 54
Unfinished and Blend Stocks... 310 2 640 4
=============== === =============== ===
TOTAL FEEDSTOCKS............ 14,714 100% 14,138 100%
UTILIZATION RATE(1)............. -- 99% -- 95%
PRODUCTION
Liquefied Petroleum Gas....... 114 1% 126 1%
Gasoline...................... 4,295 30 4,292 31
Diesel........................ 2,833 20 2,177 16
Gasoil........................ 2,866 20 3,115 23
Vacuum Gas Oil................ 1,927 13 1,819 13
Heavy Fuel Oil................ 2,327 16 2,259 16
Other......................... 28 0 32 0
=============== === =============== ===
TOTAL PRODUCTION................ 14,390 100% 13,820 100%
</Table>
- ------------
(1) Total feedstocks expressed as a percentage of our share of the total
refining capacity of 210,000 barrels per calendar day.
(2) 1998 was a maintenance turnaround year at Scanraff.
82
<Page>
As the table above shows, Scanraff's reliance on specific feedstocks
varies from year to year. However, because Scanraff is a highly sophisticated
cracking facility, its production levels for refined products remained
relatively constant across this time period. Over the past three years, Scanraff
has operated at very high utilization rates, which reflects its profitability
even during adverse market conditions. Scanraff uses linear programming
technology to determine the most profitable product mix for its market given the
available crude oil supply. Scanraff is able to process a high proportion of
sour crude oil, which is higher in sulphur and typically lower in price compared
to sweet crude oil.
RELATIONSHIP WITH HYDRO R&M HOLDING AS. Scanraff is operated as a joint
venture with Hydro R&M Holding AS, an affiliate of Norsk Hydro AS. Joint
ventures are often used in the oil refining industry as a means of facilitating
and exploiting capital improvements. We own 78.5% of the Scanraff refinery with
the exception of the fluid catalytic cracker, of which we own 50%. The remainder
is owned by Hydro R&M Holding. Under the terms of our arrangement with Hydro R&M
Holding, each party has the right to purchase and deliver its own crude oil to
the facility for refining. Our crude oil purchasing policy is based on
recommendations made by Scanraff's management using linear programming to
optimize the crude oil mix for the refinery as a whole. Scanraff's linear
program calculates the percentage of each refined product produced that each
partner may take based upon the feedstock purchased by it. Each party pays
Scanraff a processing fee equal to the cost of refining. As a result, the
refinery itself operates at cost with all profit (or loss) realized at the Preem
Petroleum AB or Hydro R&M Holding level. Our relationship with Hydro R&M Holding
has been positive and we work closely to coordinate the purchase of crude oil
and the refining operations of Scanraff, and we cooperate with Hydro R&M Holding
on the sale of liquefied petroleum gas. We also consult with Norsk Hydro AS on a
regular basis to discuss possible improvements to, and other rearrangements of,
our existing relationships.
We have two shareholders' agreements with Hydro R&M Holding, one
pertaining to the company that owns the refinery and one pertaining to the
company that owns the cracker. Scanraff is managed by a board of directors
comprised of six individuals, four of whom are nominated by us, one of whom is
nominated by Hydro R&M Holding and one of whom is the managing director of the
refinery. The company that owns the cracker unit is managed by a board of
directors comprised of five individuals, two of whom are nominated by us, two of
whom are nominated by Hydro R&M Holding. The remaining director is the managing
director of the cracker. Under both shareholders' agreements, the board can take
action only by a majority vote that includes the affirmative vote of at least
one director nominated by us and one nominated by Hydro R&M Holding. Thus,
effectively, each party has the power to veto any action.
Our Scanraff shareholders' agreement with Hydro R&M Holding obligates each
party to contribute expenses on a PRO RATA basis for the replacement and renewal
of equipment that is required to operate the refinery in a safe and efficient
manner. In addition, under the terms of this agreement, each party is also
responsible for making capital contributions on a PRO RATA basis to any refinery
expansion, alteration, addition or improvement. However, either party may opt
out of contributing capital for these improvements, in which case the other
party may proceed to make the modification to Scanraff, provided the party
opting out gives its reasonable consent and provided such party's existing
processing rights are unaffected by the modification. The party who opted out
does not have the right to process oil using the refinery improvement, nor is
that party responsible for the operating costs of the modification, unless that
party chooses to opt into the modification at a later date by, among other
things, contributing a share of the capital expenditure plus interest.
Neither we nor Hydro R&M Holding may sell or transfer any interest in
Scanraff without first providing the other party with a right of first refusal.
Neither party has any put, call, drag-along, tag-along or similar rights.
83
<Page>
PREEMRAFF REFINERY
Preemraff is one of the most sophisticated hydroskimming refineries in
Europe and represents from approximately 25% to 30% of Swedish refining
capacity. The refinery has a highly sophisticated
desulphurization/dearomatization unit, which permits it to manufacture virtually
sulphur-free (10 parts per million) diesel. In addition, the refinery uses its
catalytic reformer and isomerization unit to convert naphtha, a portion of which
is received from Scanraff, into higher-value gasoline. The refinery is located
on a 340-acre site near the harbor of Torshamnen, Sweden's largest harbor, in
Gothenburg. Preemraff's proximity to this harbor helps it to maintain low crude
oil transportation costs and its proximity to Gothenburg, the second largest
city in Sweden, helps it to minimize distribution costs. We own 100% of
Preemraff, which has an annual aggregate capacity of approximately 125,000
barrels per calendar day. Aggregate production at Preemraff was approximately
33.7 million barrels in 1999 compared to 42.5 million barrels in 2000, and
9.8 million barrels for the first quarter of 2000 compared to 10.5 million
barrels for the first quarter of 2001.
Preemraff began production in 1967, and we acquired the refinery from BP
in 1991. Preemraff has been upgraded several times through large capital
investments. As a result of these improvements, we believe that Preemraff is one
of the best performing hydroskimming refineries in Europe. The following chart
summarizes upgrades to Preemraff.
<Table>
<Caption>
UPGRADE AT SCANRAFF FUNCTION YEAR
- ------------------- ------------------------------------------------------------ --------
Isomerization Unit.............. Produces an additional low-benzene gasoline component 1993
Desulphurization/Dearomatization
Unit.......................... Converts conventional gasoil or diesel into virtually 1997
sulphur-free, low aromatic fuel
Heavy Gasoil Upgrading Unit..... Upgrades heavy gasoil into heating oil for commercial use 1997
Sulphur Recovery Units.......... Converts hydrogen sulphide into liquid sulphur 1997
</Table>
Imported crude oil arrives by ship at the harbor of Torshamnen, which is
capable of receiving crude oil carriers in excess of 200,000 dead weight tons,
and is then transported to Preemraff by pipeline. Between 50 and 60 crude oil
carriers arrive at Torshamnen each year. At Preemraff, the crude oil is
discharged into seven above-ground storage tanks and two underground caverns
with a combined storage capacity of approximately 5.6 million barrels.
Preemraff operates two identical crude distillation units. During
distillation, the crude oil is heated until it separates into different
fractions. After distillation, Preemraff further refines, upgrades and processes
the fractions as follows:
- LIQUEFIED PETROLEUM GAS UNIT. In the liquefied petroleum gas unit,
installed in 1967, Preemraff separates the gas fractions (butane and
propane) by distillation from the high-octane component.
- ISOMERIZATION UNIT. The naphtha fraction (after desulphurization) is
processed in a reformer unit to increase octane. In Preemraff's
isomerization unit, completed in 1993, an additional, low-benzene
component for blending gasoline is produced.
- DESULPHURIZATION/DEAROMATIZATION UNIT. Preemraff's highly sophisticated
gasoil/diesel desulphurization/dearomatization unit was completed in
1997. This unit enables Preemraff to produce virtually sulphur-free (10
parts per million) and low aromatic diesel from crude oil with high
sulphur, which is typically lower in price than crude oil with low
sulphur content.
- HEAVY GASOIL UPGRADING UNIT. In 1997, Preemraff installed a heavy gasoil
upgrading unit, which upgrades heavy gasoil into heating oil for
commercial use.
- SULPHUR RECOVERY UNITS. The hydrogen sulphide formed during the various
desulphurization reactions is fed to Preemraff's sulphur recovery units,
which were installed in 1997, and converted to liquid sulphur for resale
as a feedstock to chemical companies.
84
<Page>
After processing, we store refined products in the facility's 45 storage
tanks and three underground caverns with total capacity of approximately
6.9 million barrels. We then pump our products by pipeline from the refinery to
an oil terminal in the harbor of Skarvik, two kilometers south of Preemraff.
From there, we distribute products to the market by ship, rail and truck.
Preemraff has two integrated systems for the utilization of waste or
surplus heat with a total capacity in excess of 100 megawatts. The system
enables us to sell surplus heat, which would otherwise be wasted, corresponding
to approximately 377,000 barrels of fuel oil per year to the district heating
system of the city of Gothenburg and approximately 101,000 barrels to AB Volvo.
We generated additional operating income from these activities of SEK55 million
in 2000 with relatively little cost. In addition, these sales of surplus heat
contribute to Solomon Associates' ranking of Preemraff in the first quartile of
European refineries for energy efficiency for each year in which Preemraff
participated in the survey over the past decade.
The following table shows Preemraff's feedstocks and production for the
years 1998, 1999 and 2000 and the first quarter of 2000 and 2001. At Preemraff,
there is a standard turnaround required for maintenance of the refinery every
four years, which typically lasts four to six weeks. During this turnaround, the
refinery is completely shut down for inspections of all processing units. The
last turnaround at Preemraff was in 1999 and the next one is scheduled for 2003.
Preemraff is able to process up to 100% of sour crude oil, which is higher in
sulphur and typically lower in price compared to sweet crude oil.
<Table>
<Caption>
1998 1999 2000
-------------------------- -------------------------- --------------------------
THOUSAND THOUSAND THOUSAND
BBLS. % BBLS. % BBLS. %
--------------- -------- --------------- -------- --------------- --------
FEEDSTOCKS
Sweet Crude Oil............... 36,724 95% 32,748 93% 40,232 92%
Sour Crude Oil................ 380 1 189 1 35 --
Unfinished and Blend Stocks... 1,592 4 2,233 6 3,683 8
=============== === =============== === =============== ===
TOTAL FEEDSTOCKS............ 38,696 100% 35,170 100% 43,950 100%
UTILIZATION RATE(1)............. -- 94% -- 85%(2) -- 96%
PRODUCTION
Liquefied Petroleum Gas....... 1,151 3% 862 3% 855 2%
Gasoline...................... 10,284 27 9,377 28 12,136 29
Jet Fuel/Kerosene............. 598 2 358 1 188 --
Diesel........................ 8,491 23 9,151 27 9,547 23
Gasoil........................ 6,221 17 4,516 13 7,415 17
Heavy Fuel Oil................ 10,410 28 9,459 28 12,358 29
Other......................... 6 -- 6 -- 6 --
=============== === =============== === =============== ===
TOTAL PRODUCTION............ 37,161 100% 33,729 100% 42,505 100%
<Caption>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------
2000 2001
-------------------------- --------------------------
THOUSAND THOUSAND
BBLS. % BBLS. %
--------------- -------- --------------- --------
FEEDSTOCKS
Sweet Crude Oil............... 9,443 92% 10,101 92%
Sour Crude Oil................ -- -- -- --
Unfinished and Blend Stocks... 797 8 862 8
=============== === =============== ===
TOTAL FEEDSTOCKS............ 10,240 100% 10,963 100%
UTILIZATION RATE(1)............. -- 91% -- 97%
PRODUCTION
Liquefied Petroleum Gas....... 116 1% 139 1%
Gasoline...................... 2,946 30 2,801 27
Jet Fuel/Kerosene............. 45 1 55 1
Diesel........................ 2,600 26 2,728 26
Gasoil........................ 1,241 13 1,723 16
Heavy Fuel Oil................ 2,879 29 3,095 29
Other......................... 2 -- -- --
=============== === =============== ===
TOTAL PRODUCTION............ 9,829 100% 10,541 100%
</Table>
- ------------
(1) Total feedstocks expressed as a percentage of the total refining capacity
of 113,000 barrels per calendar day for 1998 and 1999 and 125,000 barrels
per calendar day for 2000.
(2) 1999 was a maintenance turnaround year at Preemraff. The lower utilization
rate in 1999 at Preemraff also reflects periods of unusually low margins
during the year, which led us to reduce volumes processed for periods
during the year.
We have increased the volume of diesel produced at Preemraff given the
increasing demand for diesel in Europe. See "Industry--European Margin Drivers."
SUPPLY
We purchase crude oil for both refineries from suppliers located in
several different regions around the world. We purchase the majority of our
crude oil from North Sea suppliers (approximately
85
<Page>
65% in 2000 and 64% in 1999). Additionally, we purchase crude oil from Russia
(approximately 8% in 2000 and 14% in 1999), Iran (approximately 10% in 2000 and
12% in 1999) and Saudi Arabia (approximately 5% in 2000 and 7% in 1999). We have
no supply contracts longer than 13 months in duration and have purchased from
45% to 70% of our crude oil on the spot market over the last three years. This
is consistent with industry standards and permits us to take advantage of the
rapid price fluctuations in the crude oil supply market through our crude oil
purchasing strategy. This strategy involves regularly monitoring market
conditions for various types of crude oil as well as demand for refined
products. Our objective is to minimize production costs (cost of crude oil,
transportation and refining) and maximize sales revenue from the sale of the
refined products that are most in demand. We supplement this purchasing strategy
with various hedging instruments and forward sales contracts on refined products
designed to lessen the risk of fluctuations in crude or refined product prices.
PRODUCTS
Our two refineries produce liquefied petroleum gas, gasoline, diesel,
gasoil and heavy fuel oil. In addition, Preemraff produces jet fuel and kerosene
and Scanraff also produces the intermediate product, vacuum gasoil, for its own
use, with excess quantities sold to third parties. Preemraff supplies
approximately 10% of the heavy fuel oil it produces to Scanraff, which satisfies
approximately 80% of Scanraff's heavy fuel oil requirements, as a feedstock for
upgrading units. Scanraff supplies approximately 20% of its naphtha production
to Preemraff for use as a gasoline component, which satisfies approximately 90%
of Preemraff's naphtha requirements.
Investments in environmental initiatives have permitted us to develop and
to market profitably refined products that meet and, in some cases, surpass the
highest EU environmental specifications. We believe that there is increased
demand for these products in those markets in which either more stringent clean
air requirements are imposed by governments and/or tax incentives exist to
encourage their use. Our early investment in desulphurization capability enables
us now to produce products that meet the EU Year 2005 sulphur specification (50
parts per million) for gasoline and diesel at both refineries. Both of our
refineries also produce certain quantities of virtually sulphur-free (10 parts
per million) diesel. These product qualities for diesel and gasoline far exceed
current EU specifications for sulphur content in diesel of 350 parts per million
and EU specifications for sulphur content in gasoline of 150 parts per million.
However, we will need to make certain investments to meet the EU Year 2005
aromatics requirements for gasoline. In addition, to enable the total output of
diesel from our refineries to meet the EU Year 2005 sulphur specification, we
would need to export certain quantities of high-sulphur vacuum gasoil to free up
capacity in our refineries required to desulphurize diesel and/or downgrade
quantities of diesel into heating oil.
To meet the EU Year 2005 aromatic specification for gasoline, we believe
that total investments of approximately SEK225 million at Scanraff,
approximately SEK175 million of which represents our share, and approximately
SEK365 million at Preemraff are required. These investments are necessary to
upgrade the isomerization units at both refineries so that all gasoline produced
has 35% or less aromatic content. These investments will permit the elimination
of expensive blending components, such as MTBE. The European Union has announced
gasoil specifications to become effective in 2008. None of these specifications
is higher than those presently imposed by Sweden, which we currently meet.
SALES
Our Supply and Refining Division exports over one-half of its products
each year (60% in 2000 and 54% in 1999), making us one of Sweden's leading
exporters. Our exports are primarily to northern Europe.
86
<Page>
In 2000, our Supply and Refining Division sold approximately 79% (by
value) of its products to third parties, 20% to our Swedish Market Division and
1% to our International Division. Our third-party customers are predominantly
other oil companies, although we sometimes sell liquefied petroleum gas and
naphtha to petrochemical companies. All third-party sales of gasoline, jet fuel,
diesel and gasoil are sales to other oil companies or traders. Approximately 90%
of our third-party sales of heavy fuel oil are sales to oil companies and
traders, with the remaining 10% sold directly to industrial customers.
DISTRIBUTION
Both Scanraff and Preemraff are well situated for the efficient
distribution of products to market. Transportation costs are a significant cost
component of refined products. Given this, we believe that the location of our
refineries on harbors in western Sweden provides us with a competitive advantage
in our target markets.
REFINERY LOCATIONS
<Table>
[MAP OF SWEDEN]
</Table>
Source: Preem Petroleum AB.
Scanraff ships approximately 98% of its production and Preemraff ships
approximately 75% of its production by sea to domestic and international
markets. Preemraff's location near Gothenburg, Sweden's second largest city,
also provides excellent access to rail and truck transport.
87
<Page>
We have an extensive network of storage depots in Sweden in which we store
refined products from both Scanraff and Preemraff for distribution throughout
the country. In addition, we generate additional revenue from third parties in
the form of depot throughput fees and we cooperate with other oil companies to
optimize depot use and cost.
INVENTORY MANAGEMENT
We employ several strategies to minimize the impact on our profitability
of the volatility in feedstock costs and refined product prices. Our inventory
management strategies include the purchase and sale of exchange-traded,
oil-related futures and options with a duration of twelve months or less. To a
lesser extent, we also use oil swap agreements similar to those traded on
international exchanges such as the International Petroleum Exchange, including
crack spreads and crude oil options that, because they contain certain terms
customized to the market in which we sell such as point of delivery, are better
suited to hedge against the specific price movements in our markets. The number
of barrels of crude oil and refined products covered by such contracts varies
from time to time. We hedge amounts of crude oil and refined products above and
below optimal inventory levels, which represent the volumes in stock and in
transit within our system. These strategies are designed to minimize, on a
short-term basis, our exposure to the risk of fluctuations in crude oil prices
and refined product margins. This hedging activity is closely managed and
subject to internally established risk standards. The results of these hedging
activities are recognized in our financial statements as adjustments to the
refining costs of sales and inventory costs. We do not engage in speculative
derivatives transactions. In addition, our substantial storage capacity enables
us to earn rental income by selling storage certificates to other oil companies
for their EU-imposed compulsory storage obligations.
MARKETING OPERATIONS
Our Swedish Market Division, which consists of a Home-Heating and
Business-to-Business Segment and a Station and Consumer Segment, obtains all of
its refined products from our Supply and Refinery Division. Our Swedish Market
Division sells home-heating gasoil directly to end-users and gasoil, diesel and
fuel oil directly to Swedish companies using refined products purchased from our
Supply and Refining Division. We also sell gasoline, diesel, lubricants, shop
merchandise and other products through approximately 527 Preem-branded service
stations. On a stand-alone basis, none of our customer sales contracts or
customer relationships are material to our business.
All marketing operations benefit from centralized support functions that
provide credit monitoring, invoicing, customer services, information technology
and related functions. Our Swedish Market Division had sales revenue in the
first quarter of 2001 of SEK2,668 million and for the year ended December 31,
2000 sales revenue of SEK9,904 million. The following table shows the volume of
our principal refined products sold by our Swedish Market Division during each
of the last three years and our estimate of our approximate share of the Swedish
market for each product based on data reported by the Swedish Petroleum
Institute.
<Table>
<Caption>
1998 1999 2000
------------------------- ------------------------- -------------------------
ESTIMATED ESTIMATED ESTIMATED
MARKET MARKET MARKET
THOUSAND M(3) SHARE(1) THOUSAND M(3) SHARE(1) THOUSAND M(3) SHARE(1)
------------- --------- ------------- --------- ------------- ---------
Diesel............................. 917 26.5% 986 28.1% 995 28.3%
Heating gasoil..................... 1,119 35.3 1,154 37.5 1,023 38.6
Heavy fuel oil..................... 1,055 53.1 651 44.9 595 49.4
Gasoline........................... 604 11.1 597 10.9 583 10.9
</Table>
- ------------
(1) Swedish Petroleum Institute, based on sales volume, excludes deliveries to
international bunkers.
(2) Includes sales of diesel through our Station and Consumer Segment.
88
<Page>
In August 2000, our Marketing Division began implementing its plans to
restructure our regional sales organization. The restructuring consists of the
eventual replacement of all 25 of our regional sales offices with a centralized
national call center in Stockholm, Sweden. The restructuring involves the
reduction of our current regional sales force by 154 employees on all levels and
the recruiting and training of 70 qualified individuals to staff the centralized
call center. We expect to complete the restructuring by January 2002. We
estimate the total expense of the restructuring to be approximately
SEK25 million, which is mainly comprised of costs associated with recruiting and
training new personnel and with the elimination of redundant positions in the
regional sales offices. Beginning in 2001, we expect this restructuring of our
regional sales offices will result in a decrease in our personnel costs.
HOME-HEATING AND BUSINESS-TO-BUSINESS SEGMENT
Through our Home-Heating and Business-to-Business Segment, we sell refined
products to wholesale and retail customers, including sales of home-heating
gasoil to retail consumers.
We are the largest home-heating gasoil company in Sweden, supplying gasoil
to approximately 85,000 residences in 2000, resulting in an estimated market
share of approximately 38%, based on 2000 sales volumes as estimated by the
Swedish Petroleum Institute. The climate in Sweden requires home-heating for
almost nine months during the year, and a substantial number of Swedish homes
are heated by gasoil as a result of the absence of a natural gas grid in Sweden.
We also are the leading supplier of diesel fuel and heavy fuel oil to the
industrial sector of Sweden. Our customers include Saab Automobile AB, AB Volvo,
Scania CV AB, Electrolux AB, Orrefors Kosta Boda AB, Viking Line AB,
Pharmacia & Upjohn AB and many companies in the Swedish agricultural sector. Our
Home-Heating and Business-to-Business Segment obtains all of its refined
products from our Supply and Refining Division.
STATION AND CONSUMER SEGMENT
Our Station and Consumer Segment, which obtains all of its gasoline and
diesel product needs from our Supply and Refining Division, consists of a
network of Preem-branded service stations throughout Sweden. We had
approximately 11% of the market share in the Swedish gasoline market, based on
2000 sales volumes as estimated by the Swedish Petroleum Institute. As of
July 15, 2001, we operated approximately 527 Preem-branded service stations in
Sweden, 214 of which were owned by us and 313 of which were owned by dealers who
operate under the Preem-brand name. The service stations are located throughout
Sweden, with a concentration in the more heavily populated south and west. As
part of our overall strategy of increasing sales by our Supply and Refining
Division to our captive market, we intend to strengthen our network of service
stations. We also intend to increase the number of franchised stations in
Sweden, which will permit us to reduce the amount of capital employed at these
stations. Our long-term objective is to have a profitable chain of retail
service stations with a higher Swedish market share.
There is a trend in the Swedish retail gasoline market towards
full-service stations, offering a variety of products through integrated
convenience stores aimed at consumers who prefer "one-stop shopping." At the
same time, there is a contrasting trend towards low-cost unmanned self-service
stations that simply sell gasoline at reduced prices for the price-minded
customer. Our strategy is to meet both ends of this demand spectrum by operating
stations with convenience stores (or upgrading existing convenience stores) in
locations that have relatively high throughput as well as unmanned self-service
stations. To implement this strategy, we intend to have stations with
convenience stores positioned as hubs for multiple unmanned stations. We believe
this will help us to both increase sales and encourage brand loyalty. We also
are disposing of unprofitable stations. As of July 15, 2001, we operated 288
manned stations and 239 unmanned stations, as well as two unbranded stand-alone
gasoline pumps. Ten of our 527 Preem-branded stations are boat stations, eight
of which are manned
89
<Page>
and two of which are unmanned. We expanded certain of our manned stations to
include convenience stores in 2001, and virtually all of our manned stations
have convenience stores as of July 15, 2001. In Sweden, we also operate a
network of unmanned diesel stations under the brand name "Saifa." On July 15,
2001, we owned all existing 132 Saifa-branded stations.
In addition, we produce lubricants, which are high margin products,
through a joint venture called Scanlube, with Hydro Texaco Holdings A/S, a
Danish corporation that is an affiliate of Norsk Hydro AS. Scanlube acquires
supplies related to the production of lubricants and produces, packages and
sells lubricants to us, Hydro Texaco Holdings A/S and related subsidiaries. We
and Hydro Texaco Holdings A/S each own 50% of Scanlube.
The Scanlube joint venture is governed by a shareholders' agreement and is
managed by a board of directors comprised of six individuals, three of whom are
nominated by us and three of whom are nominated by Hydro Texaco Holdings A/S.
The managing director of Scanlube is not a director, but has the right to attend
meetings of the board of directors. Under the shareholders' agreement, each
party is responsible for its share of the operations of Scanlube, including
costs for financing and administrative overhead. Each party also shares equally
in equity contributions to Scanlube. Neither party may sell or transfer any
interest in Scanlube without first providing the other party with a right of
first refusal.
INTERNATIONAL DIVISION
Our International Division sells refined products primarily to wholesale
customers in Poland and to a lesser extent in Norway. We began operations in
Poland in 1995 and have invested since then to increase the number of service
stations in that market. As of July 15, 2001, there were approximately 90
service stations in Poland, most of which operated under the Preem-brand name,
compared to 50 stations at the end of 1998. We believe that the investment in
Poland's retail gasoline market will permit us to take advantage of that
country's expanding economy and the growing demand for energy in general and
petroleum products in particular. As part of our strategy of continued
investment in our Polish operations, we have entered into supply and trademark
licensing agreements with independent retailers to expand our network of
Preem-branded stations. Our intention is to increase the number of service
stations in Poland operating under the Preem-brand name. We believe that our
International Division, though relatively small (approximately 4% of sales
revenue in 2000) and currently unprofitable, offers strong growth potential. As
we sell more refined products in Poland through our International Division, we
believe that our results from this division will improve since fixed costs will
be spread over an increased sales volume of refined products.
COMPETITION
SUPPLY AND REFINING DIVISION. Our Supply and Refining Division competes
primarily with Svenska Shell AB, which owns and operates the only other
competing oil refinery in Sweden and, to a lesser degree, with Fortum Oy and
Statoil AS. Outside Sweden, we compete with all of the refineries in
northwestern Europe that can serve our target markets. The principal competitive
factors affecting our refining operations are the price and availability of
crude oil and other feedstock, refinery efficiency, the refined product mix and
product distribution and transportation costs.
MARKETING OPERATIONS. The principal competitor of our Home-Heating and
Business-to-Business Segment is Svenska Shell AB. We have an approximate 38%
market share of the home-heating gasoil market in Sweden, based on 2000 sales
volumes as estimated by the Swedish Petroleum Institute. Shell has a 27% market
share for home-heating gasoil based on these data.
In our Station and Consumer Segment, we compete principally with the two
leading suppliers to the market for retail sales of gasoline, OK-Q8 AB SV with a
26% market share and Svenska Statoil AB with a 23% market share, based on 2000
sales volumes as estimated by the Swedish Petroleum Institute. In terms of
market share, AB Svenska Shell is third with a 14% market share, Norsk Hydro
90
<Page>
AS is fourth with a 12% market share, and we rank fifth with a 11% market share.
The principal competitive factors affecting the success of our retail sales
operations are market volume, station throughput, product price, locations of
service stations and brand identification.
The principal competitors of our International Division in the Polish
retail market are the Polish company PKN Orlen, which operates the largest
country-wide network of stations (approximately 2,000), and Gdanska Rafineria
SA, the next largest competitor in terms of the numbers of stations
(approximately 300), based on data for 2000 from the Polish Organization of Oil
Industry & Trade. In addition, we face significant competition from non-Polish
companies that are in the process of establishing service station networks. The
four largest foreign owned networks in Poland are BP (approximately 130
stations), Statoil (approximately 110 stations), Shell (approximately 110
stations) and Aral (approximately 100 stations), based on data for 2000 from the
Polish Organization of Oil Industry & Trade. We rank fifth, with approximately
90 stations in Poland. In Poland, we believe that we also compete with
approximately 4,000 independent stations.
REGULATION AND ENVIRONMENTAL MATTERS
We are subject to both Swedish and EU regulation on the production,
storage, transportation and sale of petroleum products. Sweden was one of the
first European countries to introduce strict environmental legislation, which
required the Swedish petroleum industry to upgrade existing infrastructure
earlier than other European refiners. Sweden has among the strictest
environmental specifications in the European Union. Current EU regulations allow
a maximum sulphur content of 150 parts per million for gasoline, compared to 50
parts per million in Sweden, and 350 parts per million for diesel, compared to
10-50 parts per million in Sweden. The EU Year 2005 specifications will reduce
the sulphur content for gasoline and diesel to 50 parts per million. The EU Year
2005 specifications also will reduce the aromatic content of gasoline from 42%
to 35%. The final specifications for 2005 are expected to be confirmed later in
2001.
To meet the higher Swedish regulations we have already invested in
desulphurization capabilities at Scanraff and Preemraff. Our early investment in
desulphurization capability enables us now to produce products that meet the EU
Year 2005 sulphur specification for gasoline and diesel at both refineries. Both
of our refineries also produce certain quantities of virtually sulphur-free (10
parts per million) diesel. These product qualities for diesel and gasoline far
exceed current EU specifications for sulphur content in diesel of 350 parts per
million and EU specifications for sulphur content in gasoline of 150 parts per
million. However, we will need to make certain investments to meet the EU Year
2005 aromatics requirements for gasoline. In addition, to enable the total
output of diesel from our refineries to meet the EU Year 2005 sulphur
specification, we would need to export certain quantities of high-sulphur vacuum
gasoil to free up capacity in our refineries required to desulphurize diesel
and/or downgrade quantities of diesel into heating oil.
To meet the EU Year 2005 aromatic specification for gasoline, we believe
that total investments of approximately SEK225 million at Scanraff,
approximately SEK175 million of which represents our share, and approximately
SEK365 million at Preemraff are required. These investments are necessary to
upgrade the isomerization units at both refineries so that all gasoline produced
has 35% or less aromatic content. These investments will permit the elimination
of expensive blending components, such as MTBE.
The European Union has announced gasoil specifications to become effective
in 2008. These specifications are not higher than those presently imposed by
Sweden, which we currently meet.
91
<Page>
The table below shows the minimum investments required at each of our
refineries to enable them to meet future EU environmental specifications for
gasoline, diesel and gasoil. The amount indicated for Scanraff below represents
our share of that capital investment.
<Table>
<Caption>
REQUIRED INVESTMENT
--------------------
SPECIFICATION SCANRAFF PREEMRAFF
- ------------- -------- ---------
(IN MILLIONS OF SEK)
YEAR 2005 GASOLINE
50 parts per million sulphur content...................... 0 0
35% aromatic content...................................... 175 365
YEAR 2005 DIESEL
50 parts per million of sulphur content................... 0 0
YEAR 2008 GASOIL
0.1% sulphur content...................................... 0 0
--- ---
TOTAL....................................................... 175 365
=== ===
</Table>
Although we believe that these relatively minor capital investments would
permit us to meet the EU specifications, our intention is to make additional
investments to further upgrade our refineries. The EU specifications for sulphur
content in gasoline and diesel are set at 50 parts per million for 2005, but we
believe that there is an increased demand for virtually sulphur-free fuels (10
parts per million). Given this, we believe that an additional investment in a
mild-hydrocracker unit at Scanraff, our share of which would be approximately
SEK2,200 million, is economically attractive. However, we have made no formal
decision to make this investment with our joint-venture partner and do not
expect to do so until 2002. If we make this investment, we believe that all of
our production of gasoline and diesel at Scanraff and Preemraff would be
virtually sulphur-free (10 parts per million). In addition, this investment
would permit us to upgrade the excess volumes of vacuum gasoil to diesel,
thereby increasing our overall margins. If we proceed with this investment, we
would expect to expend the majority of the capital required during 2003 and
2004.
We also have cooperated in environmental initiatives with several of our
long-standing customers. In 1996, Preemraff and Goteborgs Energi, the municipal
utility company, developed a system for recycling surplus heat which supplies
approximately 550 gigawatt hours of electricity annually to both the city of
Gothenburg and AB Volvo. The project was completed in September 1997.
Additionally, we cooperate with AB Volvo, Chalmers University of Technology and
the Swedish Environmental Protection Agency to bring about environmental
improvements in Swedish cars.
EMPLOYEES
We employed approximately 2,020 persons as of July 15, 2001, the same
number as of December 31, 2000, 2,052 as of December 31, 1999 and 2,145 as of
December 31, 1998. Almost all of our employees are subject to collective
bargaining arrangements. We believe that our relations with our employees are
good. We have not been involved in any material labor disputes or experienced
any disruptions in production as a result of union activities in the last five
years. As part of our continuing cost-cutting program, we have reduced the
number of our employees from approximately 2,145 in 1998 to approximately 2,010
in 2000 and to approximately 2,020 as of July 15, 2001, largely as a result of
reorganizing our sales staff and in spite of expanding our staff in Poland from
approximately 239 in 1998 to 255 as of July 15, 2001.
INTELLECTUAL PROPERTY
Preem Petroleum AB holds the word and device trademark registrations for
Preem and the Preem-bear logo in Sweden, Norway, Estonia and Latvia. Preem
Petroleum AB holds the combined
92
<Page>
word and device mark for Preem and the Preem-bear logo in the European Union,
Lithuania and Poland. Preem Petroleum AB also holds other Swedish trademark
registrations including "Biomil" and "Minima."
Preem Petroleum AB, directly or indirectly through its subsidiaries also
holds the following domain names: "preem.com," "preem.net," "preem.org,"
"preem.dk" (Denmark), "preem.no" (Norway), "preem.se" (Sweden), "preem.ie"
(Ireland), "preem.co.uk" (UK) and "preem.pl" (Poland).
LEGAL PROCEEDINGS
We are involved in various legal proceedings incidental to the conduct of
our business, including those described below.
ENVIRONMENTAL
We have leased the Finnberget storage depot since 1987, and our lease
agreement terminates in September 2001. Our lease agreement has a provision
limiting our liability for any decontamination to a maximum of SEK4 million. We
are in a dispute, however, with the landlord over whether this limitation
extends to third party claims, including claims made by governmental
authorities. We have filed an application in November 2000 with the Swedish
district court, asking the court to establish that the contractual limitation
extends to third party claims. If the court does not find in our favor, we may
be liable for all or part of the decontamination of this site. The total cost of
decontamination depends on the intended future use of the site. The total
estimated decontamination cost for future industrial use would be approximately
SEK40 million. The total estimated decontamination cost for future housing use
would be approximately SEK75-110 million.
TAX
According to a decision by the tax authorities of November 1998 relating
to the audit of the 1994 tax year, additional VAT and penalties of approximately
SEK64.9 million were charged to us. The case concerns the accounting of VAT
payments on Preem-credit card sales. Although we appealed the decision to the
County Administrative Court of Stockholm, the Court has not yet rendered a final
decision. In November 1998, the tax authorities granted us an extension to pay
the additional VAT and penalties until the appeal has been heard. We have, in
accordance with generally accepted accounting principles, made a reservation for
the additional VAT, namely SEK54 million, in our books. However, we have not
made a reservation for any potential penalties, which could amount to
approximately SEK11.2 million. If we are unsuccessful in our appeal, our VAT
liability may be affected for a total of three years, the probability of which
we believe is unlikely.
COMPETITION
On June 29, 2000, the Swedish Competition Authority filed a summons
application to the City Court of Stockholm against Preem Petroleum AB and four
other oil companies operating in Sweden, demanding that the City Court impose
total fines on all five oil companies of SEK740 million, as a penalty for
alleged infringements of the Swedish Competition Act. Of the SEK740 million in
total fines, the Swedish Competition Authority has demanded that the City Court
impose fines on Preem Petroleum AB of SEK85 million. The Competition Authority
claims that Preem Petroleum AB participated in a cartel on the Swedish market
concerning prices and discounts on petrol during the summer and fall of 1999.
The Swedish Competition Authority is also investigating the existence of a
possible diesel cartel in the Swedish market. In connection with its
investigation, the Competition Authority obtained documents from all five major
oil companies in November 2000, including Preem Petroleum AB. We can offer no
assurance that the Swedish Competition Authority will not initiate legal action
against
93
<Page>
Preem Petroleum AB in connection with this investigation. For infringements of
the Swedish Competition Act, the Swedish courts may impose fines equal to up to
ten percent of the infringing company's turnover.
In addition to the fines imposed by the Swedish courts, the Swedish
Competition Act provides the possibility for companies and private parties to
recover damages attributable to infringements of the Act, in which case the
total amount of our liability would be uncertain. Legal proceedings must be
initiated within five years from the date on which the damage occurred. We
cannot rule out the possibility of lawsuits from private parties or companies.
At present, there is no mechanism under Swedish law to bring a class action or
to impose punitive damages. However, there can be no assurances that this will
remain the case for the next four years.
INSURANCE
Our operations are subject to all of the risks normally associated with
oil refining that could result in damage to or loss of property, suspension of
operations or injury or death to personnel or third parties. We insure our
assets at levels that management believes reflect their current market value.
Such assets include all capital items, such as chartered vessels, major
equipment and land-based property. We own Preem Insurance Company Limited, a
wholly-owned Irish insurance company, through which we insure our property and
crude oil products. Preem Insurance Company Limited then reinsures on the
international reinsurance market. We also carry public and products liability
insurance for legal liability for personal and property damage to third parties.
Our refineries and businesses also are covered by business interruption
insurance.
We also carry insurance against loss of cargo, the destruction of, or
damage to, our chartered vessels and equipment in amounts, generally equal to
replacement value, that we consider adequate. From time to time, however, we may
not be able to obtain insurance against all risks or for equipment located in
some geographic areas. This insurance is subject to deductibles and does not
include liabilities or costs and expenses related to cargo carried on ship. Our
property and liability insurance does not cover gradual environmental and other
damage that was not the result of a sudden, unintended and unexpected insurable
accident.
Our operations are conducted in hazardous environments where accidents
involving catastrophic damage or loss of life could result, and litigation
arising from such an event may result in our being named a defendant in lawsuits
asserting material claims. We insure ourselves for liability arising from our
operations, including loss of or damage to third-party property, death or injury
to third parties, statutory workers compensation protection and pollution caused
by a sudden and accidental occurrence. Although there can be no assurance that
the amount of insurance carried by us is sufficient to protect us fully in all
events, all such insurance is carried at levels of coverage and deductibles that
we consider financially prudent. A successful liability claim for which we are
underinsured or uninsured could have a material adverse effect on us.
PRINCIPAL PROPERTIES
We own the site near Gothenburg on which Preemraff is located and have
easements that ensure Preemraff's access to the harbors of Torshamnen and
Skarvik by way of pipelines. The Scanraff joint venture owns the refinery and
the site on which it is located, as well as the harbors at Lysekil and Skarvik.
Our main storage facilities are also located in Sweden and we own two storage
depots in Poland. All other properties used by us are leased in accordance with
normal market conditions.
ENFORCEMENT OF CIVIL LIABILITIES
We are organized under the laws of Sweden. Certain of our directors,
executive officers and those of our subsidiaries (and the independent
accountants named in this prospectus) are non-residents
94
<Page>
of the United States and substantially all of our assets and the assets of such
persons are located outside the United States. As a result, it may not be
possible for investors to effect service of process within the United States
upon us or such persons or to enforce against any of them judgments of U.S.
courts predicated upon civil liabilities under U.S. federal securities laws.
Although we agreed under the terms of the Indenture to accept service of process
in the United States by an agent designated for such purpose, it may not be
possible for investors to (i) effect service of process within the United States
upon our officers and directors and the independent accountants named herein or
(ii) realize in the United States upon judgments against such persons obtained
in such courts predicated upon civil liabilities of such persons, including any
judgments predicated upon United States federal securities laws, to the extent
such judgments exceed such person's United States assets. We have been advised
by our Swedish counsel, Mannheimer Swartling, that there is also doubt as to the
enforceability in Sweden, in original actions or in actions for enforcement, of
judgments of U.S. courts predicated upon the civil liabilities provisions of the
federal securities laws of the United States.
INFORMATION REGARDING SIGNIFICANT SUBSIDIARIES
The following table sets forth certain information pertaining to certain
subsidiaries of Preem Holdings AB.
<Table>
<Caption>
AFTER TAX
PROFIT (LOSS)
FROM ORDINARY
ACTIVITIES, IN
LAST FINANCIAL
YEAR AMOUNT
PLACE OF % ISSUED CAPITAL RESERVES (SEK OWED ON
COMPANY REGISTRATION ACTIVITY OWNERSHIP (SEK MILLIONS) (SEK MILLIONS) MILLIONS) SHARES HELD
- ---------------------- ------------ ---------- --------- -------------- -------------- -------------- -----------
Preem Petroleum AB.... Stockholm Petroleum 100% 610 1,345 876 0
Refining &
Marketing
Preem Finans AB....... Stockholm Finance 100% 15 254 0 0
Preem Raffinaderi AB.. Gothenburg Petroleum 100% 35 0 0 0
Refining
Skandinaviska Lysekil Petroleum 78.5% 200 0 0 0
Raffinaderi AB Refining
Scanraff............
Preem Polska
Sp.z.o.o............ Poznan Petroleum 100% 150 (130) (94) 0
sales
<Caption>
DIVIDENDS
RECEIVED IN
LAST
FINANCIAL
COMPANY YEAR
- ---------------------- -----------
Preem Petroleum AB.... 0
Preem Finans AB....... 0
Preem Raffinaderi AB.. 0
Skandinaviska 0
Raffinaderi AB
Scanraff............
Preem Polska
Sp.z.o.o............ 0
</Table>
95
<Page>
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of Preem Holdings AB. The second table sets
forth information with respect to the directors and executive officers of our
operating company, Preem Petroleum AB.
PREEM HOLDINGS AB
<Table>
<Caption>
NAME AGE POSITION(S)
- ---- --- -----------
John P. Oswald................................. 42 Director, Chairman of the Board
Richard Ohman.................................. 49 Director
Karim Karaman.................................. 35 Director, President
Lars Nelson.................................... 60 Director
Per Hojgard.................................... 53 Chief Financial Officer
</Table>
All of the directors of Preem Holdings AB have been appointed with effect
as of February 22, 2001. Our board members can be contacted at our registered
offices.
PREEM PETROLEUM AB
<Table>
<Caption>
NAME AGE POSITION(S)
- ---- --- -----------
Lars Nelson.................................... 60 Director, President and CEO
Sven-Eric Zachrisson........................... 51 Director, Chairman of the Board
Rolf Dahlgren.................................. 59 Director
Per-Olof Eriksson.............................. 63 Director
Bengt Gustafsson............................... 67 Director
Ghazi Habib.................................... 51 Director
Jan-Olof Larsson............................... 49 Director
Carl-Johan Aberg............................... 70 Director
John P. Oswald................................. 42 Director
Richard Ohman.................................. 49 Director
Per Hojgard.................................... 53 Chief Financial Officer
Freddie Linder................................. 54 Senior Vice-President, Swedish Market
Gustaf Angervall............................... 50 Senior Vice-President, Supply and
Refining
</Table>
JOHN P. OSWALD has been a director and Chairman of the Board of Preem
Holdings AB since February 2001 and a director of Preem Petroleum AB since 1999.
Mr. Oswald devotes approximately 25% of his time to Preem Holdings AB and Preem
Petroleum AB. Mr. Oswald also has served as a director of Corral Petroleum
Holdings AB since April 1999. Since 1994, he has been a principal shareholder of
the Capital Trust Group, which, through its subsidiaries, provides international
merchant/investment banking services, including services to Corral Petroleum
Holdings AB on a regular basis and to Preem Holdings AB in connection with both
offerings of the existing notes. See "Related Party Transactions." Since 1997,
Mr. Oswald has been a general partner and the chief executive officer of Bridge
East Capital, a private equity fund. Mr. Oswald is a member of the board of
directors of a number of privately held companies.
RICHARD OHMAN has been a director of Preem Holdings AB since
February 2001 and a director of Preem Petroleum AB since 1994. Mr. Ohman has
served as President and Chief Executive Officer of Corral Petroleum Holdings AB
since April 1999 and has been a director of that company since 1994. From 1996
to 1999, he served as President and Chief Executive Officer of Midroc
Scandinavia AB, the holding company of a group of companies active in the field
of industrial construction, repair and
96
<Page>
maintenance, in which Mr. Al-Amoudi has a majority shareholding. Since 1993,
Mr. Ohman. has been Director of Business Development at International
Construction Management Consultants (UK) Limited. From 1991 to 1992, Mr. Ohman
was in charge of Management and Business Development at ABV Rock Group KB, based
in Riyadh. From 1983 to 1991, he was involved in International Project Financing
at ABV AB/NCC AB, Stockholm.
KARIM KARAMAN has been a director and President of Preem Holdings AB since
February 2001. Mr. Karaman also has served as a director of Midroc Scandinavia
AB since 1999. From 1993 to 1999, Mr. Karaman served as Vice-President of
Private Banking for ABN AMRO in Amsterdam, Paris and Geneva, specializing in the
Middle East.
LARS NELSON has been a director of Preem Holdings AB since February 2001
and President, Chief Executive Officer and a director of Preem Petroleum AB
since 1996. From 1981 to 1996, he was the managing director of Scanraff. Preem
Petroleum AB has employed Mr. Nelson in various capacities since 1974. He also
serves as a member of the board of directors of SAMIR, which is majority-owned
by Corral Petroleum Holdings AB, and Midroc Industries AB a subsidiary of Midroc
Scandinavia AB.
PER HOJGARD has been Chief Financial Officer of Preem Holdings AB since
February 2001 and Chief Financial Officer of Preem Petroleum AB since 1990.
Mr. Hojgard has served in similar positions in several public industrial
companies. Before his employment with Preem Petroleum AB, he was partner in a
management consultancy company from 1985 to 1990.
SVEN-ERIK ZACHRISSON has served as Chairman of the Board of Preem
Petroleum AB since 1996. Mr. Zachrisson devotes approximately 15-20% of his time
to Preem Petroleum AB in his position as Chairman of the Board. From 1992 to
1996, Mr. Zachrisson was President and CEO of Preem Petroleum AB. Since 1996, he
also has served as President and CEO of Svenska Petroleum Exploration AB, a
petroleum search and extraction company, which is indirectly wholly-owned by
Mr. Al-Amoudi. From 1987 to 1992, he was Manager of Group Development at Preem
Petroleum AB. Mr. Zachrisson has been active in the petroleum business since
1976.
ROLF DAHLGREN has served as employee representative on the board of Preem
Petroleum AB since 1994. Mr. Dahlgren is an accountant with Preem Petroleum AB.
He joined the company in 1980. Prior to joining Preem Petroleum AB,
Mr. Dahlgren was an accountant with Svenska BP.
PER-OLOF ERIKSSON has been a director of Preem Petroleum AB since 1994. He
also has served as chairman of the boards of the Swedish National Electricity
Grid (Svenska Kraftnat) since 1992, Thermia AB (a manufacturer of household
heating systems) since 1997, and Odlander, Fredrikson & Co AB (the holding
company of trusts specialized in financing biotech start-up companies) since
1996. From 1984 to 1994, he was President and Chief Executive Officer of Sandvik
AB. In addition Mr. Eriksson sits on the board of a number of other companies.
BENGT GUSTAFSSON has been a director of Preem Petroleum AB since 1994.
Mr. Gustafsson was the Supreme Commander of the Swedish Armed Forces from 1986
to 1994 and has since then worked as a consultant. Mr. Gustafsson is also a
member of the board of a number of other companies.
GHAZI HABIB has been a member of the board of directors of Preem Petroleum
AB, since its acquisition by Corral Petroleum Holdings AB in 1994 and has served
as director and managing director of Corral Petroleum Holdings AB since 1994.
From 1992 to 1993, Mr. Habib served as senior vice president of corporate
engineering for Saudi Arabian Marketing and Refining Company. He holds
directorships at SAMIR, Midroc Scandinavia AB and Svenska Petroleum Exploration
AB.
JAN-OLOF LARSSON has served as employee representative on the board of
Preem Petroleum AB since 1994. Mr. Larsson is an industrial worker with Preem
Petroleum AB. He joined the company in 1994. Prior to joining the company,
Mr. Larsson worked at Scanraff since 1976.
97
<Page>
CARL-JOHAN ABERG has been director of Preem Petroleum AB since 1994.
Mr. Aberg also serves as the chairman of the board of the Stockholm School of
Economics to which he was elected in 1991. He served as chairman of the board of
the Stockholm Stock Exchange in 1990. Mr. Aberg was the president and CEO of the
Swedish National Pension Fund from 1991 to 1996. In addition to his membership
on the board of Preem Petroleum AB, he is the vice chairman and the chairman of
the board of a number of other companies.
FREDDIE LINDER has been Division Manager, Swedish Market of Preem
Petroleum AB since 1996. From 1994 to 1996, Mr. Linder served as Manager,
Business Development at Preem Petroleum AB. From 1990 to 1994, Mr. Linder was
managing director of Svenska Petroleum Exploration AB. Prior to this position,
he held various technical positions in the international upstream sector,
including as technical manager for Svenska Petroleum Exploration AB from 1987 to
1990. He has been active in the petroleum business since 1971.
GUSTAF ANGERVALL has been Senior Vice-President, Supply and Refining, of
Preem Petroleum AB since 1996. Prior to this position, Mr. Angervall held
various technical positions at Scanraff, including Project Engineer, Manager of
Operations and, for the 6 years preceding his appointment to Senior Vice-
President, as Director of Maintenance.
BOARD OF DIRECTORS
Preem Holdings AB's board of directors currently has four members. Under
the articles of association of Preem Holdings AB, the company is required to
have a minimum of three directors and at least two directors must be present for
there to be a quorum. Directors are appointed at each annual general
shareholders' meeting and serve until the end of the next annual general
shareholders' meeting, unless they retire or are replaced during that period.
The current directors of Preem Holdings AB were appointed in February 2001 and
will serve until the end of the 2002 annual general shareholders' meeting.
Directors may be removed without cause by a resolution of the shareholders.
Directors of Preem Holdings AB have the power to manage the business of Preem
Holdings AB and to use all of the powers of the company not inconsistent with
the Swedish Companies Act. Preem Holdings AB's board of directors has not
established any board committees as of the date of this prospectus.
Under the Swedish Companies Act, a director may not take part in decisions
relating to agreements between that director and the company, agreements between
the company and third parties if that director has a material interest in the
matter that may conflict with the interest of the company, and agreements
between the company and a legal entity that is represented by that director.
Compensation for directors of Preem Holdings AB is determined at the annual
general shareholders' meeting. Preem Holdings AB also pays for all travel, hotel
and other expenses incurred by its directors in connection with their attendance
at board meetings or otherwise in connection with the discharge of their duties.
EXECUTIVE COMPENSATION
Preem Holdings AB, which had been dormant since 1983, did not pay any
compensation to its directors or executive officers in 2000. Preem Petroleum AB
paid an aggregate amount in compensation of SEK5.9 million, including bonuses of
SEK0.2 million, in 2000 to its executive officers and directors (14 persons).
Bonuses were determined by the board of directors of Preem Petroleum AB pursuant
to provisions of employment agreements between Preem Petroleum AB and the
individual executive officers. See--Employment Agreements below.
98
<Page>
EMPLOYMENT AGREEMENTS
Messrs. Nelson, Hojgard, Linder and Angervall are each party to an
employment agreement with Preem Petroleum AB. Each of these agreements provides
compensation for employment services including fixed annual salary as specified
in the agreement and an annual bonus to be determined by the board of directors
of Preem Petroleum AB, as well as certain pension and insurance benefits. Under
the terms of each agreement, Preem Petroleum AB may terminate the respective
party's employment on 24 months' notice.
Under the terms of their employment agreements, Messrs. Hojgard, Linder
and Angervall are entitled to a termination payment of one annual salary if
Preem Petroleum AB terminates their respective employment. However, if such
termination is based on gross negligence or serious breach of contract on the
part of the respective employee, no termination payment is due. In addition, the
employment agreements of Messrs. Hojgard, Linder and Angervall provide that any
other compensation that each of them may be receiving while they are entitled to
termination payment reduce their respective entitlement to termination payment
by the amount of the compensation received.
Mr. Nelson's employment agreement contains a non-competition clause
according to which Mr. Nelson may not work for a competitor for six months
following the end of his employment with Preem Petroleum AB.
MANAGEMENT'S INTERESTS
None of the directors of Preem Holdings AB or Preem Petroleum AB holds any
shares in either company, and neither company has granted any option rights to
any of its officers, directors or employees. All four of the directors of Preem
Holdings AB are designees of its parent company, Corral Petroleum Holdings AB.
As of the date of this prospectus, neither Preem Holdings AB nor Preem
Petroleum AB had any loans outstanding with its management and, except for
management or employment contracts, neither company has entered into
transactions with its management.
99
<Page>
OWNERSHIP OF COMMON STOCK
As of the date of this prospectus, Preem Petroleum AB is wholly owned by
Preem Holdings AB, which is a wholly-owned subsidiary of Corral Petroleum
Holdings AB, which in turn is a wholly-owned subsidiary of Moroncha Holdings
Company Limited, which is wholly owned by Mr. Al-Amoudi. Mr. Al-Amoudi acquired
all of the outstanding shares of the company, then called OK Petroleum, in 1994,
and its name was changed to Preem Petroleum AB in 1996. Through such ownership,
Mr. Al-Amoudi indirectly has the right to make binding nominations for the
appointment of members of the board of directors for both Preem Holdings AB and
Preem Petroleum AB and to determine the outcome of any action requiring
shareholder approval, including election and removal of their directors,
amendments to their charter, mergers and other extraordinary corporate actions
and the items thereof.
Mr. Al-Amoudi also, directly or indirectly, controls Svenska Petroleum
Exploration AB and has a majority interest in SAMIR and Midroc Scandinavia AB.
Although these related companies currently do not directly compete with Preem
Petroleum AB in its primary markets, we cannot assure you that they will not
compete with Preem Petroleum AB in the future. Some of the directors and
executive officers of Preem Holdings AB, Preem Petroleum AB and Corral Petroleum
Holdings AB also act as directors or executive officers with some of these
related companies. Preem Petroleum AB also has engaged in commercial
transactions with some of these related companies from time to time. If either
Preem Petroleum AB or Preem Holdings AB enters into any such transactions with
any of these related companies, it intends to do so on terms no less favorable
than those it could have obtained from unrelated third parties. Nonetheless,
such transactions could result in conflicting interests.
100
<Page>
RELATED PARTY TRANSACTIONS
CAPITAL TRUST GROUP
Capital Trust SA, through its subsidiaries, provides international
merchant/investment banking services. A wholly-owned subsidiary of Capital Trust
SA acted as our advisor in connection with both offerings of the existing notes.
For these services we paid a fee equal to 1.5% of the gross proceeds from the
April 2001 offering of the existing notes and 1.5% of the gross proceeds from
the July 2001 offering of the existing notes. In addition, Capital Trust SA,
through its subsidiaries, provides certain technical and advisory services to
Corral Petroleum Holdings AB. The existing contract governing these services
expires in September, 2002, will be automatically renewed thereafter on an
annual basis unless terminated by either party, and provides for an annual fee
for services. Mr. John P. Oswald, a director and Chairman of the Board of Preem
Holdings AB, is a principal shareholder of Capital Trust SA. Mr. Oswald also is
a director of Preem Petroleum AB and Corral Petroleum Holdings AB. The foregoing
transactions were entered into on terms no less favorable than those that could
have been obtained from an unrelated third party.
MIDROC SCANDINAVIA AB
Midroc Scandinavia AB, a company in which Mr. Al-Amoudi has a majority
shareholding, has provided and continues to provide maintenance and construction
services, through its subsidiaries, to Preem Petroleum AB. For these services,
we paid SEK78 million in 2000, SEK98 million in 1999 and SEK65 million in 1998.
We expect to pay SEK75 million for these services in 2001. Many of these
services are provided on an as-needed basis. Accordingly, the amounts paid for
these services may vary from year to year depending on the amount of services
provided. The foregoing transactions were entered into on terms no less
favorable than those that could have been obtained from an unrelated third
party.
SHAREHOLDER LOAN
As of March 31, 2001, Preem Petroleum AB owed SEK2,259 million to Corral
Petroleum Holdings AB in the form of an interest-free subordinated shareholder
loan with no maturity date (the "Corral Loan").
Preem Holdings AB loaned the proceeds of the April 2001 offering of the
existing notes (net of the initial purchasers' discount, the expenses of such
offering and an amount equal to the first interest payment due on the notes) to
its wholly-owned operating subsidiary, Preem Petroleum AB, pursuant to a
subordinated intercompany loan denominated in Kronor. Preem Petroleum AB will
used approximately E220 million of the funds received to repay all but
approximately E27 million of the Corral Loan.
In connection with the right to receive the approximately E27 million
portion of the Corral Loan being assigned by Corral Petroleum Holdings AB to
Preem Holdings AB, Preem Holdings AB incurred a corresponding subordinated
shareholder debt to Corral Petroleum Holdings AB pursuant to an interest-free
subordinated shareholder loan with no maturity date. This loan is subordinated
to the notes. The foregoing transactions were entered into on terms no less
favorable than those that could have been obtained from an unrelated third
party.
INTERCOMPANY LOANS
On April 10, 2001, the intercompany loans owed to Preem Holdings AB by
Preem Petroleum AB, which consisted of the approximately E223 million loan of a
portion of the proceeds of the April 2001 offering of the existing notes and the
approximately E27 million remaining balance of the Corral Loan assigned to Preem
Holdings AB, were restructured into a single intercompany loan. The
101
<Page>
SEK2,277 million principal amount of this restructured loan equaled the Krona
equivalent, on April 10, 2001, of the principal amount of the existing notes
issued on such date. The resulting loan is subject to a security assignment to
the trustee, on behalf of the holders of the notes, to secure the notes. The
loan has the same maturity as the notes, will be non-interest-bearing,
subordinated with a 179-day standstill provision, and will default in the event
that indebtedness in excess of SEK150 million in the aggregate under any loan
agreement or other credit facility of Preem Petroleum AB is declared prematurely
due and payable or placed on demand as a result of an event of default. The loan
will be subordinated to the existing and future debt of Preem Petroleum AB, and
certain of Preem Petroleum AB's creditors will be given the right to enforce
this subordination.
On July 20, 2001, Preem Holdings AB distributed a portion of the
July 2001 offering of existing notes equal to E10 million to its parent company,
Corral Petroleum Holdings AB. This distribution initially took the form of an
interest-free loan by Preem Holdings AB to Corral Petroleum Holdings AB. This
interest-free loan was made in accordance with the restricted payments covenant
set forth in the Indenture. See "Description of Notes--Certain
Covenants--Limitation on Restricted Payments." The foregoing transactions were
entered into on terms no less favorable than those that could have been obtained
from an unrelated third party.
SVENSKA PETROLEUM EXPLORATION AB
Preem Petroleum AB performs a cash management function for Svenska
Petroleum Exploration AB. The liability associated with such cash management
services amounted to SEK460 million and SEK168 million as of December 31, 2000
and 1999, respectively and represents the cash balances attributable to Svenska
Petroleum Exploration AB. The liability bears an interest corresponding to the
interest that Preem Petroleum AB receives from the banks where such funds are
deposited. The foregoing transaction was entered into on terms no less favorable
than those that could have been obtained from an unrelated third party.
102
<Page>
DESCRIPTION OF CERTAIN INDEBTEDNESS
As of March 31, 2001, we had total consolidated indebtedness (consisting
of total long-term debt and total current debt, but excluding shareholder loans)
of SEK4,431 million. We also had unused commitments of SEK2,538 million. As of
March 31, 2001, our indebtedness bore interest at a weighted average rate per
year of 6.3%. In addition, in April and July 2001, Preem Holdings AB issued E305
million aggregate principal amount of 10 5/8% Senior Secured Notes.
LONG-TERM DEBT
As of March 31, 2001, we had long-term debt (including SEK323 million of
current portion of long-term debt, but excluding drawings of SEK89 million under
long-term overdraft facilities) of SEK3,580 million, and an additional SEK300
million of available unused commitments. All of this indebtedness is unsecured,
except for SEK48 million secured by real estate mortgages. The following credit
facilities relate to long-term debt incurred to a variety of banks:
- $50 million term loan facility to Preem Petroleum AB (of which $50
million was outstanding as at March 31, 2001). The loan matures on
January 10, 2006.
- SEK48.4 million term loan facility, secured by real estate mortgages, to
Preem Petroleum AB (of which SEK48.4 million was outstanding as at
March 31, 2001). The loan's planned amortization schedule indicates full
amortization on December 15, 2014, but we may repay the loan in
March 2005.
- SEK100 million term loan facility to Preem Finans AB (of which SEK100
million was outstanding as at March 31, 2001). The loan matures on
August 28, 2001.
- SEK200 million term loan facility to Preem Finans AB (of which SEK200
million was outstanding as at March 31, 2001). The loan matured on
June 15, 2001 but the lender has agreed to continue to extend this credit
while we negotiate an extension of this facility.
- $55 million term loan facility to Preem Petroleum AB (of which $55
million was outstanding as at March 31, 2001). The loan matures on
June 28, 2004. (.) SEK320 million term loan facility to Preem Petroleum
AB (of which SEK320 million was outstanding as at March 31, 2001). The
loan matures on October 15, 2001.
- SEK150 million term loan facility to Preem Finans AB (of which SEK150
million was outstanding as at March 31, 2001). The loan matures on
June 30, 2004.
- SEK200 million revolving credit facility to Preem Finans AB (of which no
amount was drawn as at March 31, 2001). This facility is available until
March 1, 2002.
- $25 million revolving credit facility to Preem Finans AB (of which $25
million was drawn as at March 31, 2001). This facility is available until
January 25, 2005.
- $10 million revolving credit facility to Preem Petroleum AB (of which no
amount was drawn as at March 31, 2001).
The following indebtedness reflects loans made by our joint venture
partner, Norsk Hydro, ASA, to our jointly-owned Scanraff refinery, which appear
as long-term indebtedness in our consolidated accounts:
- SEK43 million term loan facility from Norsk Hydro ASA to Skandinaviska
Raffinaderi AB Scanraff (of which SEK43 million was outstanding as at
March 31, 2001). The loan matures on October 30, 2003.
- SEK138.7 million term loan facility from Norsk Hydro ASA to Skandinaviska
Raffinaderi AB Scanraff (of which SEK138.7 million was outstanding as at
March 31, 2001). The loan was due
103
<Page>
to mature on July 1, 2001. However, it has been replaced with a new
SEK129.0 million facility, which matures on June 29, 2006.
- SEK64.5 million term loan facility from Norsk Hydro ASA to Skandinaviska
Raffinaderi AB Scanraff (of which SEK64.5 million was outstanding as at
March 31, 2001). The loan matures on June 30, 2008.
In addition, in December 1997, we entered into a sale and leaseback
transaction pursuant to which Preemraff holds a 25-year lease on the
desulphurization plant at Preemraff. The lease is recorded as a capital lease on
the consolidated balance sheet representing at March 31, 2001, SEK1,142 million
of indebtedness. The desulphurization plant is owned by a partnership in which
Preem Petroleum AB and Preemraff are minority partners and, thus, the
indebtedness of the partnership is not included in our consolidated balance
sheet. The partnership financed its acquisition of the plant by a loan from
Preem Petroleum AB, which was subsequently replaced by a SEK1,200 million term
loan facility, all of which was outstanding at March 31, 2001. Until March 31,
2003, the majority beneficial owner in the partnership has the right to put its
entire interest in the partnership to Preem. Prior to September 2002, this put
right is subject to limited conditions, but is unconditional after that time.
OVERDRAFT
As of March 31, 2001, we had drawings of SEK89 million under overdraft
facilities of SEK360 million. We have SEK271 million of available unused
overdraft facilities.
SHORT-TERM DEBT
As of March 31, 2001, we had short-term debt of SEK762 million, and an
additional SEK2,119 million of available unused commitments under such
short-term debt facilities.
SHAREHOLDER LOANS
As of March 31, 2001, we owed SEK2,259 million to Corral Petroleum
Holdings AB in the form of an interest-free subordinated intercompany loan with
no maturity date. For details regarding the repayment and restructuring of this
loan, see "Related Party Transactions" and "Structure of the Offerings of the
Existing Notes."
104
<Page>
DESCRIPTION OF NOTES
We issued the existing notes under an Indenture by and between us, Bankers
Trust Company, as trustee (the "Trustee"), and Deutsche Bank AG London, as
principal paying agent, dated the Issue Date, as supplemented and amended from
time to time. We have filed a copy of the Indenture as an exhibit to this
registration statement. The terms of the new notes will be identical in all
material respects to the terms of the existing notes, except that the new notes:
- have been registered under the Securities Act;
- will not be subject to transfer restrictions applicable to the existing
notes; and
- will not have the benefit of any covenant regarding registration.
The Indenture does not qualify under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), until the effectiveness of this
registration statement with respect to the exchange of the existing notes for
similar notes, or the effectiveness of a shelf registration statement for the
existing notes. See "Exchange Offer and Registration Rights." The terms of the
existing notes, however, include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act. The Indenture
will be made available for inspection at the principal executive offices of
Preem Holdings AB (publ). References to the "Notes" in this "Description of
Notes" includes the existing notes, the new notes and the Additional Notes, as
defined below, except where otherwise expressly stated.
This description of notes is intended to be a useful overview of the
material provisions of the Notes and the Indenture. You should refer to the
Indenture for a complete description of the obligations of Preem Holdings and
your rights. Preem Holdings will provide you with a copy of the form of the
Indenture upon request.
Since the date of the Indenture, each of Preem Holdings' subsidiaries was
and continues to be a Restricted Subsidiary. However, Preem Holdings will be
able to designate current or future Subsidiaries as Unrestricted Subsidiaries
under certain conditions.
The section entitled "Certain Definitions" includes the definitions of the
capitalized terms used in this section that are necessary for you to review and
understand the material provisions presented in this section of the Notes and
the Indenture.
GENERAL
THE NOTES. The Notes:
- are general secured, senior obligations of Preem Holdings;
- mature on March 31, 2011;
- will be represented by registered Notes in global form, but in certain
circumstances may be represented by Notes in definitive form; see
"Book-Entry, Delivery and Form--Definitive Registered Notes;"
- are limited to a principal amount of E305 million, which may be issued in
respect of the existing notes tendered in the exchange offer and will be
due and payable on maturity;
- will be secured by all of the Capital Stock of Preem Petroleum AB
("Preem") and a subordinated loan in favor of Preem Holdings resulting
from a loan of the net proceeds of the Notes issued on April 10, 2001,
less certain deductions, to Preem;
- will be treated as a single class for all purposes under the Indenture,
including, without limitation, waivers, amendments, redemptions and
offers to purchase;
105
<Page>
- will be issued in denominations of E1,000 and integral multiples of
E1,000; and
- are expected to be listed on the Luxembourg Stock Exchange.
Preem Holdings may issue additional Notes ("Additional Notes") from time
to time subject to the provisions of the Indenture described below under
"--Certain Covenants," including, without limitation, the covenant set forth
under "--Certain Covenants--Limitation on Indebtedness."
INTEREST. Interest on the Notes will:
- accrue at the rate of 10 5/8% per annum;
- accrue from the Issue Date, April 10, 2001, or the most recent interest
payment date (each a "date of accrual");
- be payable in cash semi-annually in arrears on September 30 and
March 31, commencing on September 30, 2001 (each an "interest payment
date");
- be payable to the holders of record on the September 15 and March 15
immediately preceding the related interest payment dates; and
- be computed on the basis of a 360-day year comprised of twelve 30-day
months.
RANKING AND INTERCREDITOR ARRANGEMENTS
The Notes are general obligations of Preem Holdings, secured by a first
priority pledge of the Capital Stock of Preem (the "Stock Pledge") and a first
priority security assignment (the "Loan Assignment," and, collectively with the
Stock Pledge, the "Pledges") of subordinated shareholder debt owed to Preem
Holdings by Preem in a principal amount equal to the Swedish Krona equivalent on
the Issue Date of the aggregate gross proceeds of the existing notes offered on
the Issue Date (the "Preem Pledged Loan"). See "--Security," below.
The Notes rank:
- senior in right of payment to all existing and future Indebtedness of
Preem Holdings that is, by its terms or by the terms of the agreement or
instrument governing such Indebtedness, expressly subordinated in right
of payment to the Notes, including the E27 million loan from Corral
Petroleum Holdings AB made in connection with our offering of existing
notes in April 2001,
- PARI PASSU in right of payment with all of Preem Holdings' existing and
future senior indebtedness, including the E305 million aggregate
principal amount of senior secured existing notes issued by Preem
Holdings; and
- effectively senior to all other unsecured Senior Indebtedness of Preem
Holdings to the extent of the value of the Liens on the Collateral.
In the event of bankruptcy, liquidation, reorganization or other
winding-up of Preem Holdings or upon a default in payment with respect to, or
the acceleration of, any secured Indebtedness benefiting from a security
interest in assets other than those subject to the Pledges, such secured assets
of Preem Holdings will be available to pay obligations on the Notes only after
such secured Indebtedness has been paid in full from such assets. Accordingly,
there may not be sufficient assets remaining to pay amounts due on any or all
the Notes then outstanding.
Preem Holdings invested the proceeds of the existing notes issued on the
Issue Date, less certain deductions, in the Preem Pledged Loan. The proceeds of
the notes offered in July 2001 were used to distribute approximately
E10 million of these proceeds to our parent company, Corral Petroleum Holdings
AB promptly following the closing of July 2001 offering. This distribution
initially took the
106
<Page>
form of an interest-free loan from Preem Holdings to Corral Petroleum Holdings
AB. We intend to use the remaining proceeds, net of the initial purchaser's
discount and the expenses of the offering, for general corporate purposes, and,
to the extent permitted by the Indenture, including the restriction set forth
under "--Certain Covenants--Limitation on Restricted Payments," to distribute
additional proceeds to our parent company.
The Preem Pledged Loan ranks junior in right of payment to all current and
future Indebtedness of Preem, including trade creditors of Preem. As of
March 31, 2001, after giving PRO FORMA effect to the issuances of the existing
notes issued on the Issue Date and on July 20, 2001 and the application of the
estimated net proceeds therefrom, the total consolidated Indebtedness of Preem
that would rank senior in right of payment to the Preem Pledged Loan would have
been approximately SEK4,431 million. The Preem Pledged Loan is a subordinated
shareholder loan made by Preem Holdings to Preem, which is repayable on its
maturity date in an amount equal to the Swedish Krona equivalent on the Issue
Date of the aggregate gross proceeds of the existing notes issued on the Issue
Date. The maturity date of such loan is the same as the maturity date of the
Notes. Such loan does not bear cash interest and is subject to certain
standstill agreements in favor of Preem's existing and future lenders. Certain
events of default by Preem under loan agreements with its lenders will trigger a
cross-default under the Preem Pledged Loan.
Preem Holdings is a holding company with limited assets and operates its
business through Subsidiaries. Any right of Preem Holdings and its creditors,
including holders of the Notes, to participate in the assets of any of Preem
Holdings' Subsidiaries upon any liquidation or administration of any such
Subsidiary will be subject to the prior claims of the creditors of such
Subsidiary, including secured claims. The claims of creditors of Preem Holdings,
including holders of the Notes, will be effectively subordinated to all existing
and future third-party indebtedness and liabilities, including trade payables,
of Preem Holdings' Subsidiaries. At March 31, 2001, Preem Holdings' Subsidiaries
had total liabilities of SEK10,941 million reflected on a combined consolidated
basis. Preem Holdings and its Subsidiaries may incur other debt in the future,
including secured debt.
The Trustee, on behalf of the holders of the Notes, benefits from certain
intercreditor arrangements, which are acknowledged by Preem Holdings and Corral
Petroleum Holdings AB, and pursuant to which Corral Petroleum Holdings AB has
subordinated in right of payment all obligations owing to it from Preem Holdings
on the Issue Date and thereafter, to Preem Holdings' obligations with respect to
the Notes for so long as any obligations on the Notes or under the Indenture
remain outstanding.
SECURITY
The Notes are secured obligations of Preem Holdings. The Issuer has
granted to the Trustee for the benefit of the holders of the Notes a first
priority pledge of the Capital Stock of Preem and a first priority security
assignment of the Preem Pledged Loan.
PAYMENTS ON THE NOTES
- Principal of, premium, if any, interest, Additional Amounts, if any, and
Liquidated Damages, if any, on the Global Notes will be payable, and the
Global Notes may be exchanged or transferred, at the office or agency of
Preem Holdings in London, which initially will be the office of the
principal paying agent in London, except that, at the option of Preem
Holdings, payment of interest, Additional Amounts, if any, and Liquidated
Damages, if any, may be made by check mailed to the address of the
holders of the Notes as such address appears in the Note register.
- Payment of principal of, premium, if any, interest, Additional Amounts,
if any, and Liquidated Damages, if any, on Notes in global form
registered in the name of or held by the common
107
<Page>
depositary for Euroclear Bank S.A./N.V., as operator of the Euroclear
System and Clearstream Banking societe anonyme, or its nominee will be
made in immediately available funds to such common depositary or its
nominee, as the case may be, as the registered holder of such Global
Note.
- Upon the issuance of Definitive Notes, and for so long as the Notes are
listed on the Luxembourg Stock Exchange and the rules of such stock
exchange so require, holders of the Notes will be able to receive
principal, interest, Additional Amounts, if any, and Liquidated Damages,
if any, on the Notes at the Luxembourg office of such paying agent,
subject to the right of Preem Holdings to mail payments in accordance
with the terms of the Indenture.
- Preem Holdings will pay interest on the Notes to Persons who are
registered holders at the close of business on the record date
immediately preceding the interest payment date for such interest.
Holders must surrender Notes to a Paying Agent to collect principal
payments.
- In the case of Definitive Notes, payment of principal, interest, premium,
if any, Additional Amounts, if any, and Liquidated Damages, if any, in
excess of E100,000 to any payee or group of related payees, such payment
will be made, at the option of the holder, by wire transfer of same day
funds to the Paying Agent, who in turn will wire such funds to such
holder or to such other Person as such holder may in writing to the
Paying Agent direct; PROVIDED, that the Paying Agent has received written
wire transfer instructions at least 15 days prior to the date of any such
payment. Payment of principal will be made against surrender of the Notes
at the office of the Paying Agent.
The Notes are not subordinated to any existing debt of Preem Holdings. The
Notes will rank junior to all of the existing and future debt and other
liabilities of Preem and each of Preem Holdings' other subsidiaries.
LISTING
We intend to list the new notes on the Luxembourg Stock Exchange. The
legal notice relating to the issue of the new notes will be registered prior to
listing with the Registrar of the District Court in Luxembourg, where such
document is available for inspection and where copies of such documents can be
obtained upon request. In addition, as long as the new notes are listed on the
Luxembourg Stock Exchange, an agent for making payments on, and transfers of,
new notes will be maintained in Luxembourg. Preem Holdings has designated
Deutsche Bank Luxembourg S.A. as its agent for such purposes.
PAYING AGENT AND REGISTRAR
The Trustee will initially act as Registrar for the Notes. Deutsche Bank
AG London will act as principal paying agent. Preem Holdings may change the
Paying Agent or Registrar for the Notes, and Preem Holdings may act as Paying
Agent or Registrar for the Notes; PROVIDED that, if Definitive Notes are issued,
and for so long as the Notes are listed on the Luxembourg Stock Exchange and the
rules of such stock exchange so require, Preem Holdings has appointed Deutsche
Bank Luxembourg S.A., or such other Person located in Luxembourg and reasonably
acceptable to the Trustee, as an additional paying agent for the Notes. In the
event that a Paying Agent is replaced, Preem Holdings will provide notice
thereof, so long as the Notes are in global form, published in a leading
newspaper having general circulation in New York City, which is expected to be
THE WALL STREET JOURNAL, and, if and so long as the Notes are listed on the
Luxembourg Stock Exchange and the rules of such stock exchange shall so require,
published in a newspaper having a general circulation in Luxembourg, which is
expected to be the LUXEMBURGER WORT, and, in the case of Definitive Notes, in
addition to such publication, mailed by first-class mail to each holder's
registered address.
108
<Page>
OPTIONAL REDEMPTION
Except as described below or under "--Redemption for Taxation Reasons,"
the Notes are not redeemable until March 31, 2006. On and after March 31, 2006,
Preem Holdings may redeem all or a part of the Notes upon not less than 30 nor
more than 60 days' notice, so long as the Notes are in global form, published in
a leading newspaper having general circulation in New York City, which is
expected to be THE WALL STREET JOURNAL, and, if and so long as the Notes are
listed on the Luxembourg Stock Exchange and the rules of such stock exchange
shall so require, published in a newspaper having a general circulation in
Luxembourg, which is expected to be the LUXEMBURGER WORT, and, in the case of
Definitive Notes, in addition to such publication, mailed by first-class mail to
each holder's registered address, at the following redemption prices, expressed
as a percentage of principal amount, plus accrued and unpaid interest, if any,
Additional Amounts, if any, and Liquidated Damages, if any, thereon, to the
applicable redemption date, subject to the right of holders of record on the
relevant record date to receive interest, Additional Amounts, if any, and
Liquidated Damages, if any, due on the relevant interest payment date, if
redeemed during the twelve-month period beginning on March 31 of the years
indicated below:
<Table>
<Caption>
YEAR NOTES
- ---- ---------
2006........................................................ 105.313%
2007........................................................ 103.542%
2008........................................................ 101.771%
2009 and thereafter......................................... 100.00%
</Table>
Prior to March 31, 2004, Preem Holdings may on any one or more occasions
redeem up to 35% of the original principal amount of the Notes with the Net Cash
Proceeds of one or more Public Equity Offerings at a redemption price of
110.625% of the principal amount thereof, plus accrued and unpaid interest, if
any, Additional Amounts, if any, and Liquidated Damages, if any, to the
redemption date, subject to the right of holders of record on the relevant
record date to receive interest, Additional Amounts, if any, and Liquidated
Damages, if any, due on the relevant interest payment date; PROVIDED that:
- at least 65% of the original principal amount of the Notes remains
outstanding after each such redemption; and
- the redemption occurs within 90 days after the closing of such Public
Equity Offering.
In the case of any partial redemption, the Trustee will select the Notes
for redemption on a PRO RATA basis, by lot or by such other method as the
Trustee in its sole discretion will deem to be fair and appropriate, although no
Note of E1,000 in original principal amount or less will be redeemed in part. If
any Note is to be redeemed in part only, the notice of redemption relating to
such Note will state the portion of the principal amount thereof to be redeemed.
Preem Holdings will issue a new Note in principal amount equal to the unredeemed
portion thereof in the name of the holder thereof upon cancellation of the
original Note.
REDEMPTION FOR TAXATION REASONS
Preem Holdings, at its option, may redeem, in whole, but not in part, the
Notes at any time upon giving not less than 30 nor more than 60 days' notice to
the holders of Notes, which notice shall be irrevocable, at a redemption price
equal to the principal amount thereof, together with accrued and unpaid interest
and Liquidated Damages, if any, to the date fixed by Preem Holdings for
redemption (a "Tax Redemption Date") and all Additional Amounts (see
"--Withholding Taxes"), if any, then due
109
<Page>
and which will become due on the Tax Redemption Date as a result of the
redemption or otherwise, if Preem Holdings determines that, as a result of:
- any change in, or amendment to, the laws or treaties, or any regulations
or rulings promulgated thereunder, of the United States, the Kingdom of
Sweden or any jurisdiction in which Preem Holdings or any Successor
Company (as defined in "--Events of Default") is organized or is
otherwise resident for tax purposes or any political subdivision thereof
or any authority having power to tax therein or any jurisdiction from or
through which payment is made (each a "Relevant Taxing Jurisdiction")
affecting taxation which becomes effective on or after the Issue Date, or
- any change in position regarding the application, administration or
interpretation of such laws, treaties, regulations or rulings, including
a holding, judgment or order by a court of competent jurisdiction, which
change, amendment, application or interpretation becomes effective on or
after the Issue Date,
Preem Holdings is, or on the next interest payment date would be, required to
pay Additional Amounts on the Notes, and Preem Holdings determines that such
payment obligation cannot be avoided by Preem Holdings' taking reasonable
measures. Notwithstanding the foregoing, no such notice of redemption shall be
given earlier than 90 days prior to the earliest date on which Preem Holdings
would be obligated to make such payment or withholding if a payment in respect
of such Notes were then due. Prior to the publication or, where relevant,
mailing of any notice of redemption of the Notes pursuant to the foregoing,
Preem Holdings will deliver to the Trustee an opinion of a tax counsel
reasonably satisfactory to the Trustee to the effect that the circumstances
referred to above exist. The Trustee shall accept such opinion as sufficient
evidence of the satisfaction of the conditions precedent described above, in
which event it shall be conclusive and binding on the holders of such Notes.
Notice of such redemption will be given by publishing in a leading
newspaper having general circulation in New York City, which is expected to be
THE WALL STREET JOURNAL, and, if and so long as the Notes are listed on the
Luxembourg Stock Exchange and the rules of such stock exchange shall so require,
in a newspaper having a general circulation in Luxembourg, which is expected to
be the LUXEMBURGER WORT, and, in the case of Definitive Notes, in addition to
such publication, by first-class mailing to each holder's registered address.
CHANGE OF CONTROL
If a Change of Control occurs, each holder of a Note will have the right
to require Preem Holdings to repurchase all or any part, equal to E1,000, or an
integral multiple thereof, of such holder's Notes at a purchase price in cash
equal to 101% of the principal amount of the Notes plus accrued and unpaid
interest, if any, Additional Amounts, if any, and Liquidated Damages, if any, to
the date of purchase, subject to the right of holders of record on the relevant
record date to receive interest, Additional Amounts, if any, and Liquidated
Damages, if any, on the relevant interest payment date.
Within 30 days following any Change of Control, Preem Holdings will mail a
notice (the "Change of Control Offer") to each holder of Notes with a copy to
the Trustee, and such notice shall:
- so long as the Notes are in global form, be published in a leading
newspaper having general circulation in New York City, which is expected
to be THE WALL STREET JOURNAL,
- if and so long as the Notes are listed on the Luxembourg Stock Exchange
and the rules of such stock exchange shall so require, be published in a
newspaper having a general circulation in Luxembourg, which is expected
to be the LUXEMBURGER WORT, and
- in the case of Definitive Notes, in addition to such publication, be
mailed by first-class mail to each holder's registered address,
110
<Page>
stating:
- that a Change of Control has occurred and that such holder has the
right to require Preem Holdings to purchase such holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, Additional Amounts, if any,
and Liquidated Damages, if any, to the date of purchase, subject to the
right of holders of record on a record date to receive interest,
Additional Amounts, if any, and Liquidated Damages, if any, on the
relevant interest payment date (the "Change of Control Payment");
- the repurchase date, which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed ("Change of Control
Payment Date");
- the circumstances and relevant facts regarding such Change of Control;
and
- the procedures determined by Preem Holdings, consistent with the
Indenture, that a holder of Notes must follow in order to have its
Notes repurchased.
On the Change of Control Payment Date, Preem Holdings will, to the extent
lawful:
- accept for payment all Notes or portions thereof, equal to E1,000 or an
integral multiple thereof, properly tendered pursuant to the Change of
Control Offer;
- deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Notes or portions thereof so tendered; and
- deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by Preem Holdings.
The Paying Agent will promptly mail to each holder of Notes so tendered
the Change of Control Payment for such Notes and the Trustee will promptly
authenticate and mail, or cause to be transferred by book-entry, to each holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; PROVIDED that each such new Note will be in a principal
amount of E1,000 or an integral multiple thereof.
If the Change of Control Payment Date is on or after an interest record
date and on or before the related interest payment date, any accrued and unpaid
interest, if any, will be paid to the Person in whose name a Note is registered
at the close of business on such record date, and no additional interest will be
payable to holders who tender pursuant to the Change of Control Offer.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the holders of Notes to require that Preem
Holdings repurchase or redeem such Notes in the event of a takeover,
recapitalization or similar transaction.
Preem Holdings will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by Preem Holdings
and purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Preem Holdings will comply, to the extent applicable, with the
requirements of Section 13(e) and Section 14(e) of the Securities Exchange Act
of 1934, as amended, and any other securities laws or regulations in connection
with the repurchase of Notes pursuant to this covenant, including any securities
laws of the Kingdom of Sweden and Luxembourg and the requirements of the
Luxembourg Stock Exchange or any other securities exchange on which the Notes
are listed. To the extent that the
111
<Page>
provisions of any securities laws or regulations conflict with provisions of the
Indenture, Preem Holdings will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations described in
the Indenture by virtue thereof.
Preem Holdings' ability to repurchase Notes pursuant to a Change of
Control Offer may be limited by a number of factors. Future Senior Indebtedness
of Preem Holdings and its Subsidiaries may contain, and existing Senior
Indebtedness of such Subsidiaries does contain, prohibitions of certain events
that would constitute a Change of Control or require such Senior Indebtedness to
be repurchased upon a Change of Control. Moreover, the exercise by the holders
of their right to require Preem Holdings to repurchase the Notes could cause a
default under such Indebtedness, even if the Change of Control itself does not,
due to the financial effect of such repurchase on Preem Holdings. Finally, Preem
Holdings' ability to pay cash to the holders upon a repurchase may be limited by
Preem Holdings' then existing financial resources. There can be no assurance
that sufficient funds will be available when necessary to make any required
repurchases.
Even if sufficient funds were otherwise available, the terms of other
Senior Indebtedness may prohibit Preem Holdings' prepayment of Notes prior to
their scheduled maturity. Consequently, if Preem Holdings is not able to prepay
other Senior Indebtedness containing such restrictions or obtain requisite
consents, as described above, Preem Holdings will be unable to fulfill its
repurchase obligations if holders of Notes exercise their repurchase rights
following a Change of Control, thereby resulting in a default under the
Indenture.
The Change of Control provisions described above may deter certain
mergers, tender offers and other takeover attempts involving Preem Holdings by
increasing the capital required to effectuate such transactions.
The definition of "Change of Control" includes a disposition of all or
substantially all of the property and assets of Preem Holdings and its
Restricted Subsidiaries, taken as a whole, to any Person other than a Permitted
Holder. Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise, established definition of the phrase
under applicable law. Accordingly, in certain circumstances, there may be a
degree of uncertainty as to whether a particular transaction would involve a
disposition of "all or substantially all" of the property or assets of a Person.
As a result, it may be unclear as to whether a Change of Control has occurred
and whether a holder of Notes may require Preem Holdings to make an offer to
repurchase the Notes as described above.
Preem Holdings will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes a Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by Preem Holdings
and repurchases all Notes validly tendered and not withdrawn under such Change
of Control Offer.
PRESCRIPTION
Claims against Preem Holdings for the payment of principal or interest,
Additional Amounts, if any, or Liquidated Damages, if any, on the Notes will
become void unless presentment for payment is made, where so required in the
Indenture, within, in the case of principal, Additional Amounts, if any, or
Liquidated Damages, if any, a period of ten years, or, in the case of interest,
a period of five years, in each case from the applicable original payment date
therefor.
112
<Page>
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
LIMITATION ON INDEBTEDNESS. (a) Preem Holdings will not, and will not
permit any of its Restricted Subsidiaries to, Incur any Indebtedness; PROVIDED,
HOWEVER, that Preem Holdings or a Restricted Subsidiary may Incur Indebtedness
if on the date thereof:
- the Consolidated Coverage Ratio for Preem Holdings for Preem Holdings'
most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on
which such Indebtedness is Incurred is at least 2.25 to 1.00; and
- no Default or Event of Default will have occurred and be continuing or
would occur as a consequence thereof.
(b) The first paragraph of this covenant will not prohibit the Incurrence
of the following Indebtedness:
- The Incurrence under one or more Credit Facilities, including Credit
Facilities constituting Acquired Debt, by Preem Holdings and any of its
Restricted Subsidiaries of Indebtedness and letters of credit; PROVIDED
that the aggregate principal amount outstanding at the time of Incurrence
under all such Credit Facilities under this clause (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of Preem Holdings and its Restricted Subsidiaries
thereunder) does not exceed the Borrowing Base;
- Indebtedness of Preem Holdings owing to and held by any Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held
by Preem Holdings or another Restricted Subsidiary; PROVIDED, HOWEVER,
that:
- if Preem Holdings is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in full in
cash of all obligations with respect to the Notes and
- (x) any subsequent issuance or transfer of Capital Stock or any other
event that results in any such Indebtedness being beneficially held by
a Person other than Preem Holdings or a Restricted Subsidiary of Preem
Holdings and (y) any sale or other transfer of any such Indebtedness to
a Person that is not either Preem Holdings or a Restricted Subsidiary
of Preem Holdings shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness by Preem Holdings or such Subsidiary,
as the case may be;
- Indebtedness represented by:
- the Notes, including notes issued in exchange for the Notes pursuant to
the Exchange Offer, as defined in "Exchange Offer and Registration
Rights" but excluding Additional Notes,
- any Indebtedness (other than the Indebtedness described in point (b)(1)
or (b)(2)) outstanding on the Issue Date and
- any Refinancing Indebtedness Incurred in respect of any Indebtedness
described in this point (b)(3), point (b)(4), Incurred as Additional
Notes or Incurred pursuant to paragraph (a), above;
- Indebtedness of a Restricted Subsidiary Incurred and outstanding on the
date on which such Restricted Subsidiary was acquired by Preem Holdings,
other than Indebtedness Incurred:
- to provide all or any portion of the funds utilized to consummate the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was otherwise
acquired by Preem Holdings or
113
<Page>
- otherwise in connection with, or in contemplation of, such acquisition;
PROVIDED, HOWEVER, that at the time such Restricted Subsidiary is
acquired by Preem Holdings, Preem Holdings would have been able to
Incur E1.00 of additional Indebtedness pursuant to paragraph (a),
above, after giving effect to the Incurrence of such Indebtedness
pursuant to this point (b)(4);
- Indebtedness under Currency Agreements, Interest Rate Agreements and Oil
Commodities Contracts; PROVIDED, HOWEVER, that such Currency Agreements,
Interest Rate Agreements and Oil Commodities Contracts:
- are entered into for BONA FIDE hedging purposes of Preem Holdings or
its Restricted Subsidiaries, as determined in good faith by the Board
of Directors or senior management of Preem Holdings,
- correspond at the time of Incurrence in terms of notional amount,
duration, currencies and interest rates, as applicable, substantially
to Indebtedness of Preem Holdings or its Restricted Subsidiaries
Incurred without violation of the Indenture or to business transactions
of Preem Holdings or its Restricted Subsidiaries on customary terms
entered into in the ordinary course of business, and
- do not increase Indebtedness of Preem Holdings or any Restricted
Subsidiary outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates, interest rates or
prices of crude oil, other feedstocks and refined petroleum products,
as the case may be;
- Indebtedness represented by Capitalized Lease Obligations, mortgage
financings or purchase money obligations with respect to assets other
than Capital Stock or other Investments, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvements of property used in the business of Preem
Holdings or such Restricted Subsidiary, in an aggregate principal amount
not to exceed E20.0 million at any time outstanding;
- Indebtedness Incurred in respect of workers' compensation claims and
self-insurance obligations provided by Preem Holdings or a Restricted
Subsidiary in the ordinary course of business;
- Indebtedness Incurred in respect of performance, surety, appeal and
similar bonds, bankers' acceptances, letters of credit or bills of
exchange provided by Preem Holdings or a Restricted Subsidiary in the
ordinary course of business and that do not secure other Indebtedness and
that, when added to all other Indebtedness Incurred pursuant to this
point (b)(8) and then outstanding, does not exceed E10.0 million;
- Indebtedness arising from agreements of Preem Holdings or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or Capital Stock of a Restricted
Subsidiary, PROVIDED that the maximum aggregate liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds actually
received by Preem Holdings and its Restricted Subsidiaries in connection
with such disposition;
- Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument, except in the case
of daylight overdrafts, drawn against insufficient funds in the ordinary
course of business, PROVIDED, HOWEVER, that such Indebtedness is
extinguished within five business days of Incurrence;
- Indebtedness of Preem Holdings owing to Corral Petroleum Holdings AB;
PROVIDED, HOWEVER, that such Indebtedness is expressly subordinated to
the prior payment in full in cash of all
114
<Page>
obligations with respect to the Notes pursuant to or on the same terms as
the intercreditor arrangements existing on the Issue Date in respect of
the existing Shareholder Loans, is without maturity, and carries no
interest; and
- Indebtedness of Preem Holdings in an aggregate outstanding principal
amount which, when taken together with the principal amount of all other
Indebtedness Incurred pursuant to this point (b)(12) and then
outstanding, will not exceed E25.0 million.
(c) Preem Holdings will not Incur any Indebtedness under paragraph (b),
above, if the proceeds thereof are used, directly or indirectly, to refinance
any Subordinated Obligations of Preem Holdings unless such Indebtedness will be
subordinated to the Notes to at least the same extent as such Subordinated
Obligations. No Restricted Subsidiary will incur any Indebtedness if the
proceeds thereof are used to refinance Indebtedness of Preem Holdings. Preem
Holdings will not permit any Restricted Subsidiary to issue any Preferred Stock
to any Person other than Preem Holdings or a Wholly-Owned Subsidiary of Preem
Holdings.
(d) For purposes of determining compliance with, and the outstanding
principal amount of any particular Indebtedness Incurred pursuant to and in
compliance with, this covenant:
- in the event that Indebtedness meets the criteria of more than one of the
types of Indebtedness described in paragraph (b), above, Preem Holdings,
in its sole discretion, will designate such item of Indebtedness on the
date of Incurrence, and may, from time to time, redesignate such item of
Indebtedness, and only be required to include the amount and type of such
Indebtedness in one of such clauses; and
- if Indebtedness is issued at a price less than the principal amount
thereof, the amount of such Indebtedness for purposes of the above
limitations shall equal the amount of the liability as determined in
accordance with Swedish GAAP; accrual of interest, accrual of dividends,
the accretion of accreted value and the payment of interest in the form
of additional Indebtedness and the payment of dividends in the form of
additional shares of Preferred Stock will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant.
LIMITATION ON RESTRICTED PAYMENTS. (a) Preem Holdings will not, and will
not permit any of its Restricted Subsidiaries, directly or indirectly, to:
(1) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Obligations (other than
the purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment, mandatory repurchase or final maturity, in each case
due within one year of the date of purchase, repurchase or acquisition) or
make any payment on the Shareholder Loans; or
(2) make any Investment, other than a Permitted Investment, in any
Person;
(any such purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment referred to in clauses (1) or (2) being herein referred
to as a "Restricted Payment"), if at the time Preem Holdings or such Restricted
Subsidiary makes such Restricted Payment:
- a Default shall have occurred and be continuing, or would result
therefrom; or
- Preem Holdings is not able to incur an additional E1.00 of Indebtedness
pursuant to paragraph (a) under "--Limitation on Indebtedness" after
giving effect to such Restricted Payment; or
115
<Page>
- the aggregate amount of such Restricted Payment and all other Restricted
Payments and Restricted Dividends and Distributions (as defined in
"--Events of Default") declared or made subsequent to the Issue Date
would exceed the sum of:
- 50% of Consolidated Net Income during the period, treated as one
accounting period, from the Issue Date to the end of the most recent
fiscal quarter ending prior to the date of such Restricted Payment as
to which internal financial statements are available, or, in case such
Consolidated Net Income is a deficit, minus 100% of such deficit;
- the aggregate Net Cash Proceeds received by Preem Holdings from the
issue or sale of its Capital Stock, other than Disqualified Stock, or
other capital contributions subsequent to the Issue Date, other than
Net Cash Proceeds received from an issuance or sale of such Capital
Stock to a Subsidiary of Preem Holdings or an employee stock ownership
plan or similar trust to the extent such sale to an employee stock
ownership plan or similar trust is financed by loans from or guaranteed
by Preem Holdings or any Restricted Subsidiary unless such loans have
been repaid with cash on or prior to the date of determination;
- the amount by which Indebtedness of Preem Holdings (other than amounts
under the Shareholder Loans) is reduced on Preem Holdings' balance
sheet upon the conversion or exchange (other than by a Subsidiary of
Preem Holdings) subsequent to the Issue Date of any Indebtedness of
Preem Holdings convertible or exchangeable for Capital Stock (other
than Disqualified Stock) of Preem Holdings, less the amount of any
cash, or other property, distributed by Preem Holdings upon such
conversion or exchange;
- the amount equal to the net reduction in Restricted Investments made by
Preem Holdings or any of its Restricted Subsidiaries in any Person
resulting from:
(A) repurchases or redemptions of such Restricted Investments
by such Person, proceeds realized upon the sale of such Restricted
Investment to unaffiliated purchasers, repayments of loans or
advances or other transfers of assets, including by way of dividend
or distribution, by such Person to Preem Holdings or any Restricted
Subsidiary of Preem Holdings, or
(B) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the
definition of "Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by
Preem Holdings or any Restricted Subsidiary in such Unrestricted
Subsidiary, which amount in each case under this clause (iv) was
included in the calculation of the amount of Restricted Payments;
PROVIDED, HOWEVER, that no amount will be included under this
clause (iv) to the extent it is already included in Consolidated Net
Income; and
- the sum of E10.0 million.
(b) The provisions of paragraph (a) will not prohibit:
(1) any purchase or redemption of Capital Stock or Subordinated
Obligations of Preem Holdings made by exchange for, or out of the proceeds
of, the substantially concurrent sale of, Capital Stock of Preem Holdings,
other than Disqualified Stock and other than Capital Stock issued or sold
to a Subsidiary or an employee stock ownership plan or similar trust to the
extent such sale to an employee stock ownership plan or similar trust is
financed by loans from or guaranteed by Preem Holdings or any Restricted
Subsidiary unless such loans have been repaid with cash on or prior to the
date of determination; PROVIDED, HOWEVER, that:
- such purchase or redemption will be excluded in subsequent calculations
of the amount of Restricted Payments and
116
<Page>
- the Net Cash Proceeds from such sale will be excluded from
clause (2)(c)(ii) of the preceding paragraph;
(2) any purchase or redemption of Subordinated Obligations of Preem
Holdings, other than Shareholder Loans, made by exchange for, or out of the
proceeds of, the substantially concurrent sale of, Subordinated Obligations
of Preem Holdings that qualifies as Refinancing Indebtedness permitted to
be incurred pursuant to clause (b)(3) of "--Limitation on Indebtedness;"
provided, however, that such purchase or redemption will be excluded in
subsequent calculations of the amount of Restricted Payments;
(3) so long as no Default or Event of Default has occurred and is
continuing, any purchase or redemption of Subordinated Obligations, other
than Shareholder Loans, from Net Available Cash to the extent permitted
under "--Limitation on Sales of Assets and Subsidiary Stock," below;
PROVIDED, HOWEVER, that such purchase or redemption will be excluded in
subsequent calculations of the amount of Restricted Payments;
(4) dividends paid within 60 days after the date of declaration if
at such date of declaration such dividend would have complied with this
provision and clause (11) under "--Events of Default;" PROVIDED, HOWEVER,
that such dividends will be included in subsequent calculations of the
amount of Restricted Payments and Restricted Dividends and Distributions
except that, with respect to a cash dividend of SEK1,000 million pursuant
to the group contribution declared on February 20, 2001, such dividend will
not be subject to the preceding 60-day requirement nor will it be included
in subsequent calculations of the amount of Restricted Payments;
(5) so long as no Default or Event of Default has occurred and is
continuing, the purchase, redemption or other acquisition, cancellation or
retirement for value of Capital Stock, or options, warrants, equity
appreciation rights or other rights to purchase or acquire Capital Stock of
Preem Holdings or any Restricted Subsidiary of Preem Holdings or any parent
of Preem Holdings held by any existing or former employees or management of
Preem Holdings or any Subsidiary of Preem Holdings or their assigns,
estates or heirs, in each case in connection with the repurchase provisions
under employee stock option or stock purchase agreements or other
agreements to compensate management employees; PROVIDED that such
redemptions or repurchases pursuant to this clause will not exceed
E2.5 million in the aggregate during any calendar year, with unused amounts
in any calendar year being carried over to succeeding calendar years, and
E5.0 million in the aggregate for all such redemptions and repurchases;
PROVIDED, HOWEVER, that the amount of any such repurchase or redemption
will be included in subsequent calculations of the amount of Restricted
Payments;
(6) repurchases of Capital Stock deemed to occur upon the exercise
of stock options if such Capital Stock represents a portion of the exercise
price thereof or withholding taxes paid thereon; PROVIDED, HOWEVER, that
such repurchases will be excluded from subsequent calculations of the
amount of Restricted Payments;
(7) so long as no Default or Event of Default has occurred and is
continuing, the Permitted Preem Loan Payment; PROVIDED, however, that the
Permitted Preem Loan Payment will be excluded from subsequent calculations
of the amount of Restricted Payments; and
(8) so long as no Event of Default has occurred and is continuing,
any non-cash payment recorded in the books of Preem Holdings as paid or
payable to Corral Petroleum Holdings AB or deemed for tax or accounting
purposes to be paid or payable to Corral Petroleum Holdings AB as a result
of the group contribution, which effects a book-entry transfer to Corral
Petroleum Holdings AB recorded as a "group contribution," to effect
consolidation of accounts for Swedish tax purposes, consistent with past
practice between Corral Petroleum
117
<Page>
Holdings AB and Preem, to the extent, but only to the extent, that Corral
Petroleum Holdings AB simultaneously makes a shareholder loan in the same
amount to Preem Holdings on terms similar to those of the Shareholder
Loans, including those in favor of the Trustee on behalf of the holders of
Notes on the Issue Date; PROVIDED, HOWEVER, that such payment or deemed
payment will be excluded in subsequent calculations of the amount of
Restricted Payments.
The amount of all Restricted Payments, other than cash, and in-kind
Restricted Dividends and Distributions shall be the fair market value on the
date of such Restricted Payment of the asset(s) or securities proposed to be
paid, transferred or issued by Preem Holdings or such Restricted Subsidiary, as
the case may be, pursuant to such Restricted Payment. The fair market value of
any cash Restricted Payment shall be its face amount and any non-cash Restricted
Payment and in-kind Restricted Dividends and Distributions shall be determined
conclusively by the Board of Directors of Preem Holdings acting in good faith
whose resolution with respect thereto shall be delivered to the Trustee. Not
later than the date of making any Restricted Payment or Restricted Dividends and
Distributions, Preem Holdings shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment or Restricted Dividends and
Distributions are permitted and setting forth the basis upon which the
calculations required by the covenant "--Limitation on Restricted Payments" were
computed.
LIMITATION ON SHAREHOLDER LOANS. Except as may be permitted by the
covenant "--Limitation on Restricted Payments:"
- neither Preem Holdings nor any Restricted Subsidiary will at any time
repay any principal amount of the Shareholder Loans if, as a result
thereof, the aggregate amount of such Shareholder Loans would be less
than the sum of such Shareholder Loans on the Issue Date or any date
thereafter,
- nor will Preem Holdings at any time amend any Shareholder Loan to provide
for intercreditor arrangements any less favorable to the Trustee, on
behalf of the holders of the Notes than those existing on the Issue Date
in respect of the existing Shareholder Loans, including with respect to
maturity and payment of interest.
LIMITATION ON LIENS. Preem Holdings will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, Incur or suffer
to exist any Lien, other than Permitted Liens, upon any of its property or
assets, including Capital Stock, whether owned on the date of the Indenture or
thereafter acquired, securing any Indebtedness, unless contemporaneously
therewith effective provision is made to secure the Indebtedness due under the
Indenture and the Notes equally and ratably with, or prior to in the case of
Liens with respect to Subordinated Obligations of Preem Holdings, the
Indebtedness secured by such Lien for so long as such Indebtedness is so
secured; PROVIDED that in no event may any portion of the obligations owed under
any Shareholder Loan be secured.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. Preem Holdings will not, and
will not permit any of its Restricted Subsidiaries to, enter into any
Sale/Leaseback Transaction UNLESS:
- Preem Holdings or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Sale/Leaseback Transaction at
least equal to the fair market value, as determined in good faith by, and
evidenced by a resolution of, the Board of Directors of Preem Holdings
delivered to the Trustee, of the property subject to such transaction;
- Preem Holdings or such Restricted Subsidiary with respect thereto could
have Incurred Indebtedness in an amount equal to the Attributable
Indebtedness in respect of such Sale/ Leaseback Transaction pursuant to
the covenant described under "--Limitation on Indebtedness;"
118
<Page>
- Preem Holdings or such Restricted Subsidiary would be permitted to create
a Lien on the property subject to such Sale/Leaseback Transaction without
securing the Notes by the covenant described under "--Limitation on
Liens;" and
- the Sale/Leaseback Transaction is treated as an Asset Disposition and all
of the conditions of the Indenture described under "--Limitation on Sale
of Assets and Subsidiary Stock," including the provisions concerning the
application of Net Available Cash, are satisfied with respect to such
Sale/Leaseback Transaction, treating all of the consideration received in
such Sale/Leaseback Transaction as Net Available Cash for purposes of
such covenant.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. Preem Holdings will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligations owed to Preem Holdings
or any Restricted Subsidiary;
(2) make any loans or advances to Preem Holdings or any Restricted
Subsidiary; or
(3) transfer any of its property or assets to Preem Holdings or any
Restricted Subsidiary.
The preceding provisions will not prohibit:
- any encumbrance or restriction pursuant to an agreement in effect at or
entered into on the date of the Indenture, (including, without
limitation, the Indenture;
- any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by a
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by Preem Holdings, other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the
funds utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by Preem Holdings or in
contemplation thereof, and outstanding on such date;
- any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement effecting a refinancing of Indebtedness Incurred
pursuant to an agreement referred to in the first or second point of this
paragraph or this third point or contained in any amendment to an
agreement referred to in the first or second point of this paragraph or
this third point; PROVIDED, HOWEVER, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any
such agreement or amendment are no more restrictive than those
encumbrances and restrictions contained in such agreements referred to in
the first and second points, above;
- in the case of clause (3), above, any encumbrance or restriction:
- that restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to a lease, license
or similar contract, or the assignment or transfer of any such lease,
license or other contract;
- contained in mortgages, pledges or other security agreements securing
Indebtedness of Preem Holdings or a Restricted Subsidiary to the extent
such encumbrances or restrictions restrict the transfer of the property
subject to such mortgages, pledges or other security agreements;
PROVIDED that such mortgage, pledge or other security agreement is
permitted under the Indenture; or
- pursuant to customary provisions restricting dispositions of real
property interests set forth in any reciprocal easement agreements of
Preem Holdings or any Restricted Subsidiary;
119
<Page>
- purchase money obligations for property acquired in the ordinary course
of business that impose restrictions of the nature described in
clause (3), above, on the property so acquired;
- any restriction with respect to a Restricted Subsidiary, or any of its
property or assets, imposed pursuant to an agreement entered into for the
direct or indirect sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary, or the property or
assets that are subject to such restriction, pending the closing of such
sale or disposition; and
- encumbrances or restrictions arising or existing by reason of applicable
law or any applicable rule, regulation or order.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. Preem Holdings will
not, and will not permit any of its Restricted Subsidiaries to, make any Asset
Disposition unless:
(1) Preem Holdings or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the
fair market value, as determined in good faith by the Board of Directors of
Preem Holdings, including as to the value of all non-cash consideration, of
the shares and assets subject to such Asset Disposition;
(2) at least 75% of the consideration thereof received by Preem
Holdings or such Restricted Subsidiary is in the form of cash or Cash
Equivalents; and
(3) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied, at the election of Preem Holdings, by Preem
Holdings or such Restricted Subsidiary, as the case may be:
- FIRST, to the extent Preem Holdings or any Restricted Subsidiary, as
the case may be, elects, or is required by the terms of any Senior
Indebtedness, to prepay, repay or purchase Senior Indebtedness or
Indebtedness, other than any Preferred Stock lacking rights to
preferential treatment in the event of a bankruptcy, insolvency or
reorganization, of a Restricted Subsidiary, in each case other than
Indebtedness owed to Preem Holdings or an Affiliate of Preem Holdings,
within 360 days from the later of the date of such Asset Disposition or
the receipt of such Net Available Cash; PROVIDED, HOWEVER, that, in
connection with any prepayment, repayment or purchase of Indebtedness
pursuant to this first point, Preem Holdings or such Restricted
Subsidiary will retire such Indebtedness and will cause the related
commitment, if any, to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased; and
- SECOND, to the extent of the balance of such Net Available Cash after
application in accordance with the first point above, to the extent
Preem Holdings or such Restricted Subsidiary elects,
(A) to invest in Additional Assets or
(B) to repay Indebtedness Incurred prior to such Asset
Disposition and used to acquire Additional Assets in contemplation of
such Asset Disposition within 360 days, in the case of either (A) or
(B), above, from the later of the date of such Asset Disposition or
the receipt of such Net Available Cash;
PROVIDED, HOWEVER, that, in no event will Preem Holdings make, or permit any of
its Restricted Subsidiaries to make, any Asset Disposition of all or
substantially all of the property or assets of Preem Raffinaderi AB or
Skandinaviska Raffinaderi AB Scanraff, or all or substantially all of the
Capital Stock of any of such Person, directly or indirectly (including through
the sale of the Capital Stock of any Person which holds such assets), including,
without limitation, any series of related Asset Dispositions that are part of a
common plan, unless, if Preem Holdings or such Restricted Subsidiary chooses to
invest in Additional Assets or repay Indebtedness pursuant to the second point
of subclause
120
<Page>
(3) above, such Additional Assets are located primarily in Sweden or, if such
Additional Assets are shares of Capital Stock of a Restricted Subsidiary, such
Restricted Subsidiary must be based in, and its business must be conducted
primarily in, Sweden.
Any Net Available Cash from Asset Dispositions that is not applied or
invested as provided in the preceding first or second points of subclause will
be deemed to constitute "Excess Proceeds." On the 361st day after an Asset
Disposition, if the aggregate amount of Excess Proceeds exceeds E10.0 million,
Preem Holdings will be required to make an offer ("Asset Sale Offer") to all
holders of Notes and to the extent required by the terms thereof, to all holders
of other Indebtedness, other than Subordinated Obligations, outstanding with
similar provisions requiring Preem Holdings to make an offer to purchase such
Indebtedness with the proceeds from any Asset Disposition ("Pari Passu Notes"),
to purchase the maximum principal amount of Notes and any such Pari Passu Notes
to which the Asset Sale Offer applies that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest, Additional Amounts, if any, and
Liquidated Damages, if any, to the date of purchase, and subject to the right of
holders of record on a record date to receive interest on the relevant interest
payment date, Additional Amounts, if any, and Liquidated Damages, if any, in
respect thereof, in accordance with the procedures set forth in the Indenture or
the agreements governing the Pari Passu Notes, as applicable. To the extent that
the aggregate amount of Notes and Pari Passu Notes so validly tendered and not
properly withdrawn pursuant to an Asset Sale Offer is less than the Excess
Proceeds, Preem Holdings may use any remaining Excess Proceeds for general
corporate purposes, or to repurchase Subordinated Obligations. If the aggregate
principal amount of Notes surrendered by holders thereof and other Pari Passu
Notes surrendered by holders or lenders thereof, collectively, exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes and Pari Passu
Notes to be purchased on a PRO RATA basis on the basis of the aggregate
principal amount of tendered Notes and Pari Passu Notes. Upon completion of such
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Asset Sale Offer will remain open for a period of 20 Business Days
following its commencement, except to the extent that a longer period is
required by applicable law (the "Asset Sale Offer Period"). No later than five
Business Days after the termination of the Asset Sale Offer Period (the "Asset
Sale Purchase Date"), Preem Holdings will purchase the principal amount of Notes
and Pari Passu Notes required to be purchased pursuant to this covenant (the
"Asset Sale Offer Amount") or, if less than the Asset Sale Offer Amount has been
so validly tendered, all Notes and Pari Passu Notes validly tendered in response
to the Asset Sale Offer.
If the Asset Sale Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
will be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest will be payable to
holders who tender Notes pursuant to the Asset Sale Offer.
On or before the Asset Sale Purchase Date, Preem Holdings will, to the
extent lawful, accept for payment, on a PRO RATA basis to the extent necessary,
the Asset Sale Offer Amount of Notes and Pari Passu Notes or portions thereof so
validly tendered and not properly withdrawn pursuant to the Asset Sale Offer, or
if less than the Asset Sale Offer Amount has been validly tendered and not
properly withdrawn, all Notes and Pari Passu Notes so validly tendered and not
properly withdrawn. Preem Holdings will deliver to the Trustee an Officers'
Certificate stating that such Notes or portions thereof were accepted for
payment by Preem Holdings in accordance with the terms of this covenant and, in
addition, Preem Holdings will deliver all certificates and notes required, if
any, by the agreements governing the Pari Passu Notes. Preem Holdings or the
applicable Paying Agent, as the case may be, will promptly, but in any case not
later than five Business Days after the Asset Sale Purchase Date, mail or
deliver to each tendering holder of Notes or holder or lender of Pari Passu
Notes, as the case may be, an amount equal to the purchase price of the Notes or
Pari Passu Notes so validly tendered and not properly withdrawn by such holder
or lender, as the case may be, and accepted by Preem
121
<Page>
Holdings for purchase, and Preem Holdings will promptly issue a new Note, and
the Trustee, upon delivery of an Officers' Certificate from Preem Holdings, will
authenticate and mail or deliver such new Note to such holder, in a principal
amount equal to any unpurchased portion of the Note surrendered. In addition,
Preem Holdings will take any and all other actions required by the agreements
governing the Pari Passu Notes. Any Note not so accepted will be promptly mailed
or delivered by Preem Holdings to the holder thereof.
For the purposes of this covenant, the following will be deemed to be
cash:
- the assumption by the transferee of Indebtedness, other than Subordinated
Obligations, of Preem Holdings or any Restricted Subsidiary of Preem
Holdings and the release of Preem Holdings or such Restricted Subsidiary
from all liability on such Indebtedness in connection with such Asset
Disposition, in which case Preem Holdings will, without further action,
be deemed to have applied such deemed cash to Indebtedness in accordance
with the first point of subclause, above; and
- securities, notes or other obligations received by Preem Holdings or any
Restricted Subsidiary of Preem Holdings from the transferee that are
promptly converted by Preem Holdings or such Restricted Subsidiary into
cash.
Notwithstanding the foregoing, Preem Holdings and its Restricted
Subsidiaries will be permitted to consummate an Asset Disposition without
complying with clauses (2) and (3) of the first paragraph of this "--Limitation
on Sales of Assets and Subsidiary Stock" covenant if at least 75% of the
consideration received by Preem Holdings and its Restricted Subsidiaries from
such Asset Disposition constitutes Related Business Assets, cash and Cash
Equivalents; PROVIDED that:
- any consideration constituting cash or Cash Equivalents received by Preem
Holdings or any of its Restricted Subsidiaries in connection with any
Asset Disposition permitted to be consummated pursuant to this sentence
shall constitute Net Available Cash subject to the provisions of this
covenant, including, without limitation, clause (3) of the first
paragraph hereof and
- if Preem Holdings or one of its Restricted Subsidiaries receives as such
Related Business Assets equity interests in a Person, such Person shall
constitute a Restricted Subsidiary of Preem Holdings and PROVIDED,
FURTHER, HOWEVER, that, in no event will Preem Holdings make, or permit
any of its Restricted Subsidiaries to make, any Asset Disposition of all
or substantially all of the property or assets of Preem Raffinaderi AB or
Skandinaviska Raffinaderi AB Scanraff, or all or substantially all of the
Capital Stock of any of such Person, directly or indirectly (including
through the sale of the Capital Stock of any Person which holds such
assets), including, without limitation, any series of related Asset
Dispositions that are part of a common plan, unless Preem Holdings or
such Restricted Subsidiary receives as consideration therefor either:
- cash which is immediately invested in Additional Assets,
- Additional Assets, or
- a combination thereof, which Additional Assets are located primarily in
Sweden or, if such Additional Assets are shares of Capital Stock of a
Restricted Subsidiary, such Restricted Subsidiary must be based in, and
its business must be conducted primarily in, Sweden.
Preem Holdings will comply, to the extent applicable, with the
requirements of Section 13(e) and Section 14(e) of the Exchange Act and any
other securities laws or regulations in connection with the repurchase of Notes
pursuant to the Indenture. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this covenant, Preem Holdings
will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the Indenture by virtue thereof.
122
<Page>
For the avoidance of doubt, no obligation under a Shareholder Loan may be
repaid with the Net Available Cash from any Asset Disposition under any
circumstances.
LIMITATION ON AFFILIATE TRANSACTIONS. (a) Preem Holdings will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or conduct any transaction or series of related transactions,
including the purchase, sale, lease or exchange of any property or the rendering
of any service, with any Affiliate of Preem Holdings or a Restricted Subsidiary
(an "Affiliate Transaction") unless:
- the terms of such Affiliate Transaction are no less favorable to Preem
Holdings or such Restricted Subsidiary, as the case may be, than those
that could be obtained in a comparable transaction at the time of such
transaction in arms'-length dealings with a Person who is not such an
Affiliate;
- in the event such Affiliate Transaction involves an aggregate amount in
excess of E5.0 million, the terms of such transaction have been approved
by a majority of the members of the Board of Directors of Preem Holdings
and by a majority of the members of such Board having no personal stake
in such transaction, if any, and such majority or majorities, as the case
may be, determines that such Affiliate Transaction satisfies the criteria
in the first point, above; and
- in the event such Affiliate Transaction involves an aggregate amount in
excess of E10.0 million, or an amount in excess of E5.0 million and a
majority of the members of the Board of Directors of Preem Holdings has a
personal interest in such transaction, Preem Holdings has received a
written opinion from a major independent investment banking firm of
internationally recognized standing that such Affiliate Transaction is
fair to Preem Holdings or such Restricted Subsidiary, as the case may be,
from a financial point of view.
(b) The foregoing paragraph (a) will not apply to:
- any Restricted Payment, other than Restricted Investments (excluding
Shareholder Loans made pursuant to and in compliance with clause (b)(8)
under "--Limitation on Restricted Payments") permitted to be made
pursuant to the covenant described under "--Limitation on Restricted
Payments;"
- any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans and other
reasonable fees, compensation, benefits and indemnities paid or entered
into by Preem Holdings or its Restricted Subsidiaries in the ordinary
course of business to or with officers, directors or employees of Preem
Holdings and its Restricted Subsidiaries;
- loans or advances to employees in the ordinary course of business of
Preem Holdings or any of its Restricted Subsidiaries and permitted under
"--Limitation on Restricted Payments;"
- any transaction between Preem Holdings and a Restricted Subsidiary or
between Restricted Subsidiaries;
- any issuance of Capital Stock, other than Disqualified Stock, of Preem
Holdings;
- any Existing Affiliate Agreements;
- the Permitted Preem Loan Payment; and
- arms'-length transactions by a Restricted Subsidiary entered into in the
ordinary course of its business with a minority shareholder of a
Restricted Subsidiary that is not a Permitted Holder or an Affiliate
thereof.
123
<Page>
LIMITATION ON SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. Preem
Holdings will not, and will not permit any Restricted Subsidiary of Preem
Holdings to, transfer, convey, sell, lease or otherwise dispose of any Voting
Stock of any Restricted Subsidiary or to issue any of a Restricted Subsidiary's
Voting Stock, other than, if necessary, shares of its Voting Stock constituting
directors', qualifying shares, to any Person, except:
- to Preem Holdings or a Restricted Subsidiary;
- in compliance with the covenant described under "--Limitation on Sales of
Assets and Subsidiary Stock" and immediately after giving effect to such
issuance or sale, such Restricted Subsidiary either continues to be a
Restricted Subsidiary or if such Restricted Subsidiary would no longer be
a Restricted Subsidiary, then the Investment of Preem Holdings in such
Person, after giving effect to such issuance or sale, would have been
permitted to be made under the "--Limitation on Restricted Payments"
covenant as if made on the date of such issuance or sale; or
- Voting Stock issued to existing shareholders of Restricted Subsidiaries
that are not Wholly-Owned Subsidiaries; PROVIDED that such Voting Stock
is issued PRO RATA on the basis of the number of shares held by such
existing shareholders.
Notwithstanding the foregoing, Preem Holdings may sell all the Voting
Stock of a Subsidiary as long as Preem Holdings is in compliance with the terms
of the covenant described under "--Limitation on Sales of Assets and Subsidiary
Stock."
SEC REPORTS. Notwithstanding that Preem Holdings may not be subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, for so
long as any Notes are outstanding, to the extent permitted by the Exchange Act,
Preem Holdings will file with the Commission, and provide the Trustee and the
holders of the Notes with:
- all annual and quarterly financial information that would be required to
be filed on a Form 20-F and 10-Q, or any successor forms, as if Preem
Holdings were required to file such forms and, with respect to the annual
financial information, a report thereon by Preem Holdings' certified
independent accountants, and
- all information that would be required to be contained in current reports
that would be required to be filed with the Commission on Form 8-K if
Preem Holdings were required to file such reports; PROVIDED, HOWEVER,
that:
(A) quarterly financial information for the first and third
fiscal quarters need not contain any reconciliation to generally
accepted accounting principles in the United States but must be
prepared in accordance with Swedish GAAP,
(B) such quarterly information shall be furnished within
60 days of the end of the fiscal quarter of Preem Holdings and may be
provided in a report on a Form 6-K,
(C) such annual information shall be furnished within
120 days of the end of the fiscal year of Preem Holdings, and
(D) such information that would be required to be contained in
a report of Form 8-K may be provided in a report on Form 6-K but must
be submitted promptly. In addition, whether or not required by the
rules and regulations of the Commission, Preem Holdings will file a
copy of all such information and reports with the Commission for
public availability, unless the Commission will not accept such a
filing.
Preem Holdings will also furnish to the holders of Notes and to
prospective investors, upon the requests of such holders and prospective
investors, any information required to be delivered pursuant
124
<Page>
to Rule 144A(d)(4) under the Securities Act so long as the Notes are not freely
transferable under the Securities Act by Persons not "affiliates" under the
Securities Act.
MERGER AND CONSOLIDATION. As is set forth in more detail under "--Events
of Default," if Preem Holdings consolidates with or merges with or into, or
conveys, transfers or leases all or substantially all its assets to, any Person,
at any time and in any circumstance when the conditions set forth at subclauses
(3)(a) through (3)(f) under "--Events of Default" are not satisfied, then such
transaction shall constitute an Event of Default.
- If any such transaction is consummated without causing an Event of
Default, then the Successor Company, as defined therein, will succeed to,
and be substituted for, and may exercise every right and power of, Preem
Holdings under the Indenture, but, in the case of a lease of all or
substantially all its assets, Preem Holdings will not be released from
the obligation to pay the principal of and interest on the Notes.
- Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the
phrase under the applicable law. Accordingly, in certain circumstances
there may be a degree of uncertainty as to whether a particular
transaction would involve "all or substantially all" of the property or
assets of a Person.
LIMITATION ON LINES OF BUSINESS. Preem Holdings will not, and will not
permit any Restricted Subsidiary to, engage in any business other than a Related
Business, except for any business other than a Related Business, that, if
aggregated together in one legal entity with all other such businesses that are
not Related Businesses, would not cause such entity to constitute or become a
Significant Subsidiary.
IMPAIRMENT OF SECURITY INTEREST. Neither Preem Holdings nor any of its
Subsidiaries will:
- take or omit to take any action which action or omission would have the
result of adversely affecting or impairing the security interest in favor
of the Trustee, on behalf of the holder of the Notes, with respect to the
Collateral, and neither Preem Holdings nor any of its Subsidiaries shall
grant to any Person or suffer any Person, other than Preem Holdings, to
have (other than the Trustee on behalf of the holders of the Notes) any
interest whatsoever in the Collateral other than Liens permitted by the
Security Documents, nor
- enter into any agreement or instrument that by its terms requires the
proceeds received from any sale of Collateral to be applied to repay,
redeem, defease or otherwise acquire or retire any Indebtedness of any
Person, other than pursuant to the Indenture, the Notes and the Security
Documents.
SECURITY INTEREST. Preem Holdings will, and will cause each of its
Restricted Subsidiaries to, undertake to deliver or cause to be delivered to the
Trustee from time to time such other documentation, consents, authorizations,
approvals and orders in form and substance reasonably satisfactory to the
Trustee as the Trustee shall deem necessary or advisable to perfect or maintain
the security interest in the Collateral for the benefit of the Trustee on behalf
of the holders of the Notes until any such Collateral is released in accordance
with the terms of the Indenture.
LIMITATIONS ON THE ISSUER AND PREEM. Notwithstanding anything in the
Indenture to the contrary, including the provisions set forth above under
"--Certain Covenants--Limitation on Indebtedness:"
- for so long as any Shareholder Loan from Corral Petroleum Holdings AB is
outstanding, Preem Holdings shall at all times remain a majority-owned
Subsidiary of Corral Petroleum Holdings AB, and
- Preem Holdings shall not Incur any Indebtedness other than Additional
Notes, other public Indebtedness of a maturity not less than five years,
unsecured Indebtedness pursuant to a
125
<Page>
Credit Facility or Shareholder Loans. If Preem Holdings at any time
sells, transfers or otherwise disposes of 50% or more of the Voting Stock
of Preem, then Preem Holdings will be required to make a Change of
Control Offer to each holder of a Note and otherwise to comply with all
the provisions set forth under "--Change of Control" above, as if such
sale, transfer or disposition was a Change of Control.
LIMITATION ON INVESTMENT COMPANY ACTIVITIES. Preem Holdings will not, and
will not permit any of its Restricted Subsidiaries or controlled Affiliates to,
conduct its business in a fashion that would cause Preem Holdings to become
subject to regulation under the U.S. Investment Company Act of 1940, as amended
(the "Investment Company Act"). For purposes of establishing Preem Holdings'
compliance with this provision, any exemption which is or would become available
under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act will be
disregarded.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Indenture:
(1) a default in any payment of interest or Additional Amounts, if
any, or Liquidated Damages, if any, on any Note under the Indenture when
due, continued for 30 days;
(2) a default in the payment of principal of or premium, if any, on
any Note under the Indenture when due at its Stated Maturity, upon optional
redemption, upon required repurchase, upon declaration or otherwise;
(3) any consolidation of Preem Holdings with, or merger of Preem
Holdings with or into, or any conveyance, transfer or lease by Preem
Holdings of all or substantially all of its assets to any Person, UNLESS:
- the resulting, surviving or transferee Person (the "Successor Company")
is a corporation, partnership, trust or limited liability company
organized and existing under the laws of the Kingdom of Sweden, any
member of the European Union as of the date of the Indenture or any
state of the United States of America or the District of Columbia and
the Successor Company, if not Preem Holdings, expressly assumes, by
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of Preem Holdings
under the Notes and the Indenture;
- immediately after giving effect to such transaction, and treating any
Indebtedness that becomes an obligation of the Successor Company or any
Subsidiary of the Successor Company as a result of such transaction as
having been Incurred by the Successor Company or such Restricted
Subsidiary at the time of such transaction, no other Default or Event
of Default shall have occurred and be continuing;
- immediately after giving effect to such transaction, the Successor
Company is able to Incur at least an additional E1.00 of Indebtedness
pursuant to paragraph (a) of "--Certain Covenants--Limitation on
Indebtedness;"
- Preem Holdings has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger
or transfer and such supplemental indenture, if any, comply with the
Indenture;
- Preem Holdings has delivered to the Trustee opinions of tax counsel
reasonably acceptable to it stating that:
(A) any payment of principal, redemption price or purchase
price of, interest, premium, if any, Additional Amounts, if any, and
Liquidated Damages, if any, on the Notes by the Successor Company to
a holder of Notes, or beneficial owner, if not a
126
<Page>
holder, after the consolidation, merger, conveyance, transfer or
lease of assets will be exempt from the Taxes described and defined
under "--Withholding Taxes," and
(B) no other taxes on income, including taxable capital gains,
will be payable under the laws of the Relevant Taxing Jurisdiction
(as defined in "--Redemption for Taxation Reasons") by a holder of
Notes, or beneficial owner, if not a holder, who is not and is not
deemed to be a resident of the Relevant Taxing Jurisdiction and does
not carry on a trade in the Relevant Taxing Jurisdiction through a
branch, agency or permanent establishment to which the Notes of that
holder are attributable (or, as the case may be, does not carry on
any business activities through a branch, agency or permanent
establishment in such Relevant Taxing Jurisdiction) in respect of the
acquisition, ownership or disposition of Notes, including the receipt
of principal, interest, premium, if any, Additional Amounts, if any,
or Liquidated Damages, if any, pursuant to such Notes; and
- immediately after giving effect to such transaction, the Successor
Company has Consolidated Net Worth in an amount which is not less than
the Consolidated Net Worth of Preem Holdings immediately prior to such
transaction.
For purposes of this clause (3), the sale, lease, conveyance,
assignment, transfer or other disposition of all or substantially all of
the properties and assets of one or more Subsidiaries of Preem Holdings to
a Person other than a Restricted Subsidiary, which properties and assets,
if held by Preem Holdings instead of such Subsidiaries, would constitute
all or substantially all of the properties and assets of Preem Holdings on
a consolidated basis, shall be deemed to be the transfer of all or
substantially all of the properties and assets of Preem Holdings; PROVIDED
that, if any such sale, lease, conveyance, assignment, transfer or other
disposition is made from a Wholly-Owned Subsidiary or a Restricted
Subsidiary to a Restricted Subsidiary that is not a Wholly-Owned
Subsidiary:
- such Restricted Subsidiary shall be subject to the covenant under
"--Certain Covenants--Limitation on Restrictions on Distributions from
Restricted Subsidiaries,"
- Preem Holdings shall have first received a written opinion from a major
independent investment banking firm of internationally recognized
standing that such sale, lease, conveyance, assignment, transfer or
other disposition is fair to Preem Holdings from a financial point of
view, and (iii) such sale, lease, conveyance, assignment, transfer or
other disposition to such Restricted Subsidiary shall not be deemed to
be a transaction subject to each of the six points under clause (3)
above.
Notwithstanding the foregoing third point under clause (3) above:
- any Restricted Subsidiary of Preem Holdings may consolidate with, merge
into or transfer all or part of its properties and assets to Preem
Holdings, and
- Preem Holdings may merge with an Affiliate incorporated solely for the
purpose of reincorporating Preem Holdings in another jurisdiction to
realize tax or other benefits.
(4) failure by Preem Holdings to comply for 30 days after receiving
the notice referred to below with any of its obligations under the
covenants described under "--Change of Control," above, or under covenants
described under "--Certain Covenants," above, as the case may be, in each
case, other than a failure to purchase Notes which will constitute an Event
of Default under clause (2), above;
(5) the failure by Preem Holdings to comply for 60 days after
receiving the notice referred to below with its other agreements contained
in the Indenture;
127
<Page>
(6) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Preem Holdings or any of its Restricted
Subsidiaries, or the payment of which is guaranteed by Preem Holdings or
any of its Restricted Subsidiaries, other than Indebtedness owed to Preem
Holdings or a Restricted Subsidiary, whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, which default:
- is caused by a failure to pay principal of or premium, if any, on such
Indebtedness prior to the expiration of the grace period provided in
such Indebtedness ("payment default"); or
- results in the acceleration of such Indebtedness prior to its maturity
(the "cross acceleration provision");
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a payment default or the maturity of which has been so
accelerated, aggregates E10.0 million or more;
(7) certain events of bankruptcy, insolvency or reorganization of
Preem Holdings or a Significant Subsidiary or group of Restricted
Subsidiaries that, taken together, as of the latest audited consolidated
financial statements for Preem Holdings and its Restricted Subsidiaries,
would constitute a Significant Subsidiary (the "bankruptcy provisions");
(8) failure by Preem Holdings or any Significant Subsidiary or group
of Restricted Subsidiaries that, taken together, as of the latest audited
consolidated financial statements for Preem Holdings and its Restricted
Subsidiaries, would constitute a Significant Subsidiary to pay final
judgments aggregating in excess of E15.0 million, net of any amounts with
respect to which a reputable and creditworthy insurance company has
acknowledged liability in writing, which judgments are not paid, discharged
or stayed for a period of 60 days (the "judgment default provision");
(9) any of the Security Documents ceases to be in full force and
effect, other than in accordance with their respective terms or the terms
of the Indenture, or any of the Security Documents ceases to give the
Trustee the Liens purported to be created thereby or any Security Document
is declared null or void;
(10) a default under the Preem Pledged Loan; or
(11) the declaration or payment by Preem Holdings or any Restricted
Subsidiary of any dividend or the making of any distribution on or in
respect of its Capital Stock, either in cash or other property, including
any payment in connection with any merger or consolidation involving Preem
Holdings or any of its Restricted Subsidiaries, except:
- dividends or distributions payable in its Capital Stock, other than
Disqualified Stock, or in options, warrants or other rights to purchase
such Capital Stock, provided that such dividends or distributions are
not convertible into Indebtedness; and
- dividends or distributions payable to Preem Holdings or a Restricted
Subsidiary of Preem Holdings, and, if such Restricted Subsidiary is not
a Wholly-Owned Subsidiary, to its other holders of Capital Stock on a
PRO RATA basis;
or the purchase, redemption, retirement or other acquisition for value of any
Capital Stock of Preem Holdings or any direct or indirect parent of Preem
Holdings held by Persons other than Preem Holdings or a Restricted Subsidiary of
Preem Holdings, other than in exchange for its Capital Stock (other than
Disqualified Stock);
at any time and in any circumstance when any such dividend, distribution
purchase, redemption, retirement or other acquisition for value (together,
"Restricted Dividends and Distributions") would
128
<Page>
not be permitted under the covenant described under "--Certain
Covenants--Limitation on Restricted Payments" if each such Restricted Dividend
and Distribution constituted a Restricted Payment.
However, a default under clauses (4) and (5) will not constitute an Event
of Default under the Indenture until the Trustee or the holders of 25% in
principal amount of the outstanding Notes notify Preem Holdings of the default
and Preem Holdings does not cure such default within the time specified in
clauses (4) and (5) hereof after receipt of such notice.
If an Event of Default, other than an Event of Default described in
clause (7), above, occurs and is continuing under the Indenture, the Trustee, by
notice to Preem Holdings, or the holders of at least 25% in principal amount of
the outstanding Notes, by notice to Preem Holdings and the Trustee, may, and the
Trustee at the request of such holders shall, declare the principal of, premium,
if any, accrued and unpaid interest, if any, Additional Amounts, if any, and
Liquidated Damages, if any, on all the Notes to be due and payable. Upon such a
declaration, such principal, premium, accrued and unpaid interest, Additional
Amounts and Liquidated Damages will be due and payable immediately.
In the event of a declaration of acceleration of the Notes under an
Indenture because an Event of Default described in clause (6) under "--Events of
Default" has occurred and is continuing, the declaration of acceleration of such
Notes shall be automatically annulled if the event of default or payment default
triggering such Event of Default pursuant to clause (6) shall be remedied or
cured by Preem Holdings or a Restricted Subsidiary of Preem Holdings or waived
by the holders of the relevant Indebtedness within 20 days after the declaration
of acceleration with respect thereto and if:
- the annulment of the acceleration of such Notes would not conflict with
any judgment or decree of a court of competent jurisdiction, and
- all existing Events of Default, except nonpayment of principal, premium,
interest, Additional Amounts or Liquidated Damages on the Notes that
became due solely because of the acceleration of the Notes, have been
cured or waived.
If an Event of Default described in clause (7) occurs and is continuing
under the Indenture, the principal of, premium, if any, accrued and unpaid
interest, Additional Amounts, if any, and Liquidated Damages, if any, on all the
Notes will become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holders of Notes.
The holders of a majority in principal amount of the outstanding Notes
under the Indenture may waive all past defaults, except with respect to
nonpayment of principal, premium, interest, Additional Amounts or Liquidated
Damages, and rescind any such acceleration with respect to such Notes and its
consequences if:
- rescission would not conflict with any judgment or decree of a court of
competent jurisdiction, and
- all existing Events of Default, other than the nonpayment of the
principal of, premium, if any, interest, Additional Amounts, if any, and
Liquidated Damages, if any, on the Notes that have become due solely by
such declaration of acceleration, have been cured or waived.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing under the Indenture,
the Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the holders of Notes
unless such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium, if any, interest, Additional Amounts, if any, or
Liquidated Damages, if any, when due, no holder of Notes may pursue any remedy
with respect to the Indenture or the Notes unless:
- such holder has previously given the Trustee notice that an Event of
Default is continuing;
129
<Page>
- holders of at least 25% in principal amount of the outstanding Notes
under the Indenture have requested the Trustee to pursue the remedy;
- such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
- the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity; and
- the holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction that, in the opinion of the
Trustee, is inconsistent with such request within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder under the Indenture or that would involve the Trustee in
personal liability. Prior to taking any action under the Indenture, the Trustee
will be entitled to indemnification satisfactory to it in its sole discretion
against all losses and expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of Notes notice of
the Default within 90 days after it occurs. Except in the case of a Default in
the payment of principal of, premium, if any, interest, Additional Amounts, if
any, or Liquidated Damages, if any, on any Note, the Trustee may withhold notice
if and so long as the Trustee in good faith determines that withholding notice
is in the interests of such holders of Notes. In addition, Preem Holdings is
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. Upon becoming aware of, and as of such
time as Preem Holdings should reasonably have become aware of, certain Defaults,
Preem Holdings also is required to deliver to the Trustee, within 30 days
thereafter, written notice of any events which would constitute certain
Defaults, their status and what action Preem Holdings is taking or proposes to
take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding, including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, Notes, and, subject to
certain exceptions, any past default or compliance with any provisions may be
waived with the consent of the holders of a majority in principal amount of the
Notes then outstanding, including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, such
Notes,. However, without the consent of each holder of an outstanding Note
affected, no amendment may, among other things:
- reduce the amount of Notes whose holders must consent to an amendment;
- reduce the stated rate of or extend the stated time for payment of
interest on any such Note;
- reduce the principal of or extend the Stated Maturity of any such Note;
- reduce the premium payable upon the redemption or repurchase of any such
Note or change the time at which any such Note may be redeemed or
repurchased as described under "--Optional Redemption," "--Change of
Control," "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" or any similar provision;
130
<Page>
- make any such Note payable in money other than that stated in such Note;
- impair the right of any holder of such Note to receive payment of
principal of, premium, if any, interest, Additional Amounts, if any, and
Liquidated Damages, if any, on such holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on
or with respect to such holder's Notes;
- make any change in the amendment provisions which require each holder's
consent or in the waiver provisions;
- make any change in the provisions of the Indenture described under
"--Withholding Taxes" that adversely affects the rights of any holder of
the Notes or amends the terms of such Notes in the Indenture in a way
that would result in a loss of an exemption from any of the Taxes
described thereunder or an exemption from any obligation to withhold or
deduct Taxes so described thereunder unless Preem Holdings agrees to pay
Additional Amounts, if any, in respect thereof; or
- directly or indirectly release the Pledges except as permitted by the
Security Documents.
Preem Holdings and the Trustee may amend the Indenture, without the
consent of any holder of Notes, to:
- cure any ambiguity, omission, defect or inconsistency;
- provide for the assumption by a successor corporation, partnership, trust
or limited liability company of the obligations of Preem Holdings under
and pursuant to the Indenture;
- provide for uncertificated Notes in addition to or in place of
certificated Notes, PROVIDED that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the United States
Internal Revenue Code of 1986, as amended, or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the United
States Internal Revenue Code of 1986, as amended;
- add Guarantees with respect to the Notes;
- grant additional security for the Notes;
- add to the covenants of Preem Holdings for the benefit of the holders or
to surrender any right or power conferred upon Preem Holdings;
- make any change that does not adversely affect the rights of any holder
of Notes under the Indenture;
- evidence and provide for the acceptance and appointment under the
Indenture by the successor trustee; or
- comply with any requirement of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act.
The consent of the holders of Notes is not necessary to approve the
particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment. After an amendment to the
Indenture becomes effective, Preem Holdings is required to mail to the holders a
notice briefly describing such amendment. However, the failure to give such
notice to all the holders of Notes, or any defect therein, will not impair or
affect the validity of the amendment.
131
<Page>
DEFEASANCE
Preem Holdings at any time may terminate all its obligations under the
Notes and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes.
Preem Holdings at any time may terminate its obligations under covenants
described under "--Certain Covenants," the operation of the cross-default upon a
payment default and cross acceleration provisions, the bankruptcy provisions
with respect to Significant Subsidiaries, the judgment default provision
described under "--Events of Default," above, and the default provision
contained in clauses (3) under "--Events of Default" but only in respect of the
third and sixth points thereof ("covenant defeasance").
Preem Holdings may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option. If Preem Holdings
exercises its legal defeasance option, payment of the Notes may not be
accelerated because of an Event of Default with respect thereto. If Preem
Holdings exercises its covenant defeasance option, payment of the Notes may not
be accelerated because of an Event of Default specified in clause (4), (5), (6),
(7) (with respect only to Significant Subsidiaries) or (8) under "--Events of
Default," above, or because of the failure of Preem Holdings to comply with the
third point and the sixth point under clause (3) of "--Events of Default" above.
In order to exercise either legal defeasance or covenant defeasance under
the Indenture:
- Preem Holdings must irrevocably deposit with the Trustee, in trust, for
the benefit of the holders of Notes cash in Euro in such amounts as will
be sufficient, in the opinion of an internationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
interest, Liquidated Damages, if any, and Additional Amounts, if any, on
the Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
- in the case of legal defeasance, Preem Holdings shall have delivered to
the Trustee:
- an Opinion of Counsel in the United States reasonably acceptable to the
Trustee confirming that:
(A) Preem Holdings has received from, or there has been
published by, the Internal Revenue Service a ruling; or
(B) since the date of the Indenture, there has been a change
in the applicable United States federal income tax law, in either
case, to the effect that, and based thereon such Opinion of Counsel
shall confirm that, the holders of the Notes will not recognize
income, gain or loss for United States federal income tax purposes as
a result of such legal defeasance and will be subject to United
States federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such legal
defeasance had not occurred, and
- an Opinion of Counsel in the Kingdom of Sweden reasonably acceptable to
the Trustee to the effect that:
(A) holders of the Notes will not recognize income, gain or
loss for Swedish income tax purposes as a result of such legal
defeasance and will be subject to Swedish income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such legal defeasance had not occurred, and
(B) payments from the defeasance trust will be free and exempt
from any and all withholding and other income taxes of whatever
nature imposed or levied by or on behalf
132
<Page>
of the Kingdom of Sweden or any political subdivision thereof or
therein having the power to tax;
- in the case of covenant defeasance, Preem Holdings shall have delivered
to the Trustee:
- an Opinion of Counsel in the United States reasonably acceptable to the
Trustee confirming that the holders of the Notes will not recognize
income, gain or loss for United States federal income tax purposes as a
result of such covenant defeasance and will be subject to United States
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had
not occurred, and
- an Opinion of Counsel in the Kingdom of Sweden reasonably acceptable to
the Trustee to the effect that:
(A) holders of such Notes will not recognize income, gain or
loss for Swedish income tax purposes as a result of such covenant
defeasance and will be subject to Swedish income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred, and
(B) payments from the defeasance trust will be free and exempt
from any and all withholding and other income taxes of whatever
nature imposed or levied by or on behalf of the Kingdom of Sweden or
any political subdivision thereof or therein having the power to tax;
- no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on
the 91st day after the date of deposit;
- such legal defeasance or covenant defeasance shall not result in a breach
or violation of, or constitute a default under the Indenture or any other
material agreement or instrument to which Preem Holdings or any of its
Restricted Subsidiaries is a party or by which Preem Holdings or any of
its Restricted Subsidiaries is bound;
- Preem Holdings shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by Preem Holdings with
the intent of preferring the holders of the Notes over any other
creditors of Preem Holdings or with the intent of defeating, hindering,
delaying or defrauding any other creditors of Preem Holdings or others;
- Preem Holdings shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the legal defeasance or the
covenant defeasance have been complied with;
- Preem Holdings shall have delivered to the Trustee an Opinion of Counsel
in the United States, subject to customary exceptions, to the effect
that:
- the trust funds will not be subject to any rights of holders of
Indebtedness, including, without limitation, those arising under the
Indenture, and
- after the 181st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally
under any applicable Swedish or United States federal or state law and
that the Trustee has a perfected security interest in such trust funds
for the ratable benefit of the holders of the Notes; and
- certain other customary conditions precedent are satisfied.
133
<Page>
Notwithstanding the foregoing, the Opinion of Counsel required by the
second point, above, with respect to a legal defeasance need not be delivered if
all the Notes not therefore delivered to the Trustee for cancellation:
- have become due and payable, or
- will become due and payable on the maturity date within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of Preem
Holdings.
WITHHOLDING TAXES
All payments made by Preem Holdings on the Notes, whether or not in the
form of Definitive Notes, will be made without withholding or deduction for, or
on account of, any present or future taxes, duties, assessments or governmental
charges of whatever nature (collectively, "Taxes") imposed or levied by or on
behalf of any Relevant Taxing Jurisdiction, unless the withholding or deduction
of Taxes is then required by law. If any deduction or withholding for, or on
account of, any Taxes of any Relevant Taxing Jurisdiction shall at any time be
required on any payments made by Preem Holdings with respect to the Notes,
including payments of principal, redemption price, Liquidated Damages, interest
or premium, Preem Holdings will pay such additional amounts (the "Additional
Amounts") as may be necessary in order that the net amounts received in respect
of such payments by the holders of the Notes or the Trustee, as the case may be,
after such withholding or deduction, equal the respective amounts which would
have been received in respect of such payments in the absence of such
withholding or deduction; except that no Additional Amounts will be payable with
respect to:
- any Taxes that would not have been imposed but for the holder or
beneficial owner having some connection with the Relevant Taxing
Jurisdiction, including being a citizen or resident or national of, or
carrying on a business or maintaining a permanent establishment in, or
being physically present in, the Relevant Taxing Jurisdiction, other than
by the mere holding of such Note or enforcement of rights thereunder or
the receipt of payments in respect thereof;
- any Taxes that are imposed or withheld by reason of the failure of the
holder or beneficial owner of the Note to comply with a request of Preem
Holdings addressed to the holder to provide information concerning the
nationality, residence or identity of such holder or beneficial owner or
to make any declaration or similar claim or satisfy any information or
reporting requirement, which is required or imposed by a statute, treaty,
regulation, protocol, or administrative practice of the Relevant Taxing
Jurisdiction as a precondition to exemption from all or part of such
Taxes;
- except in the case of the winding up of Preem Holdings, any Note
presented for payment, where presentation is required, in the Relevant
Taxing Jurisdiction, unless by reason of Preem Holdings' actions
presentment could not have been made elsewhere and except to the extent
that the holder would have been entitled to Additional Amounts had the
Notes not been so presented;
- any Note presented for payment, where presentation is required, more than
30 days after the relevant payment is first made available for payment to
the holder, except to the extent that the holder would have been entitled
to Additional Amounts had the Note been presented on the last day of such
30 day period;
- any Note where withholding taxes or any other deductions are imposed on a
payment to an individual and are required to be made pursuant to any
European Union Directive on the taxation of savings implementing the
conclusions of the ECOFIN Council meeting of November 26-27, 2000 or any
law implementing or complying with, or introduced in order to conform to,
such directive; or
134
<Page>
- any Note presented for payment by or on behalf of a holder of the Notes
who would have been able to avoid such withholding taxes or any other
deductions by presenting the relevant Note to another Paying Agent in a
member state of the European Union.
Such Additional Amounts will also not be payable where, had the beneficial
owner of the Note been the holder of the Note, it would not have been entitled
to payment of Additional Amounts by reason of the six points, above.
Upon request, Preem Holdings will provide the Trustee with documentation
satisfactory to the Trustee evidencing the payment of Additional Amounts. Copies
of such documentation will be made available to the holders upon request.
Preem Holdings will pay any present or future stamp, court or documentary
taxes, or any other excise or property taxes, charges or similar levies which
arise in any jurisdiction from the execution, delivery or registration of the
Notes or any other document or instrument referred to therein, or the receipt of
any payments with respect to the Notes, excluding any such taxes, charges or
similar levies imposed by any jurisdiction outside the Kingdom of Sweden, the
United States of America or any jurisdiction in which a Paying Agent is located,
other than those resulting from, or required to be paid in connection with, the
enforcement of the Notes or any other such document or instrument following the
occurrence of any Event of Default with respect to the Notes.
The foregoing obligations shall survive any termination, defeasance or
discharge of the Indenture.
CONCERNING THE TRUSTEE
Bankers Trust Company of New York is the Trustee under the Indenture and
has been appointed by Preem Holdings as Registrar and, in the case of Definitive
Notes, Paying Agent with regard to each of such Notes. The Indenture provides
that, except during the continuance of an Event of Default thereunder, the
Trustee thereunder will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default under the
Indenture, the Trustee will exercise such rights and powers vested in it under
the Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of Preem Holdings, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claim as security or otherwise. The Trustee is permitted to engage in other
transactions with Preem Holdings or any Affiliate of Preem Holdings; PROVIDED,
that if the Trustee acquires any conflicting interest, as defined in the
Indenture or in the Trust Indenture Act, it must eliminate such conflict or
resign.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Preem
Holdings, as such, shall have any liability for any obligations of Preem
Holdings under the Notes, the Security Documents or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each holder of
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such a waiver is against public policy.
135
<Page>
CURRENCY INDEMNITY
The Euro is the sole currency of account and payment for all sums payable
under the notes. Any amount received or recovered in currency other than in
Euros, whether as a result of, or of the enforcement of, a judgment or order of
a court of any jurisdiction, in the winding up or dissolution of Preem Holdings
or otherwise, by the holder in respect of any sum expressed to be due to it from
Preem Holdings shall only constitute a discharge of Preem Holdings only to the
extent of the Euro amount, which the recipient is able to purchase with the
amount so received or recovered in the other currency on the date of that
receipt or recovery, or, if it is not possible to make that purchase on that
date, on the first date on which it is possible to do so. If that Euro amount is
less than the Euro amount expressed to be due to the recipient under any note,
Preem Holdings shall indemnify the recipient against the cost of making any such
purchase. For the purposes of this paragraph, it will be sufficient for the
holder to certify that it would have suffered a loss had an actual purchase of
Euros been made with the amount so received in that other currency on the date
of receipt or recovery, or, if a purchase of Euros on such date had not been
possible, on the first date on which it would have been possible. These
indemnities, to the extent permitted by law:
- constitute a separate and independent obligation from the other
obligations of Preem Holdings;
- shall give rise to a separate and independent case of action;
- shall apply irrespective of any waiver granted by any holder; and
- shall continue in full force and effect despite any other judgment,
order, claim or proof for a liquidated amount in respect of any sum due
under any note or any other judgment or order.
GOVERNING LAW
The Indenture and the Notes and the rights and duties of the parties
thereunder shall be governed by, and construed in accordance with, the law of
the State of New York.
CERTAIN DEFINITIONS
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged, consolidated, amalgamated or otherwise combined with or
into, or becomes a Subsidiary of such specified Person, whether or not such
Indebtedness is incurred in connection with, or in contemplation of, such
other Person merging, consolidating, amalgamating or combining with or
into, or becoming a Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Additional Assets" means:
(1) any property or assets, other than Indebtedness and Capital
Stock, to be used by Preem Holdings or a Restricted Subsidiary in a Related
Business;
(2) the Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock by Preem
Holdings or a Restricted Subsidiary of Preem Holdings; or
(3) Capital Stock constituting a minority interest in any Person
that at such time is a Restricted Subsidiary of Preem Holdings;
136
<Page>
PROVIDED, HOWEVER, that, in the case of clauses (2) and (3), such Restricted
Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing;
PROVIDED that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Asset Disposition" means any direct or indirect sale, lease, other than
an operating lease entered into in the ordinary course of business, transfer,
issuance or other disposition, or a series of related sales, leases, transfers,
issuances or dispositions that are part of a common plan, of shares of Capital
Stock of a Subsidiary, other than directors' qualifying shares, property or
other assets (each referred to for the purposes of this definition as a
"disposition") by Preem Holdings or any of its Restricted Subsidiaries,
including any disposition by means of a merger, consolidation or similar
transaction.
Notwithstanding the preceding, the following items shall not be deemed to
be Asset Dispositions:
(1) a disposition by a Restricted Subsidiary to Preem Holdings or by
Preem Holdings or a Restricted Subsidiary to a Wholly-Owned Subsidiary of
either thereof;
(2) the sale of Cash Equivalents in the ordinary course of business;
(3) a disposition of inventory in the ordinary course of business;
(4) a disposition of obsolete or worn out equipment or equipment
that is no longer useful in the conduct of the business of Preem Holdings
and its Restricted Subsidiaries and that is disposed of in each case in the
ordinary course of business;
(5) consolidations, mergers, conveyances, transfers or leases that
do not constitute a Default under clause (3) of "--Events of Default,"
above;
(6) for purposes of "--Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock" only, the making of a Permitted Investment or
a disposition subject to "--Certain Covenants--Limitation on Restricted
Payments;"
(7) an issuance of Capital Stock by a Restricted Subsidiary of Preem
Holdings to Preem Holdings or a Wholly-Owned Subsidiary;
(8) dispositions of assets with an aggregate fair market value since
the Issue Date of less than E10.0 million; and
(9) dispositions in connection with Permitted Liens.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value, discounted at the
interest rate borne by the Notes, compounded semi-annually, of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction, including any period for
which such lease has been extended.
137
<Page>
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of such Indebtedness or redemption or similar payment with respect to such
Preferred Stock or Indebtedness multiplied by the amount of such payment,
by
(2) the sum of all such payments.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof or any equivalent governing
body charged under the laws of the jurisdiction of such Person with equivalent
powers and responsibilities to supervise and direct the affairs of such person.
"Borrowing Base" means, as of the date of determination, an amount equal
to:
(1) 90% of the book value of all accounts receivable owned by Preem
Holdings and its Restricted Subsidiaries that are not more than 90 days
past due; plus
(2) 90% of the book value of all inventory owned by Preem Holdings
and its Restricted Subsidiaries, or scheduled for delivery against letters
of credit issued under Credit Facilities,
in each case determined in accordance with Swedish GAAP, consistent with past
practice, except to the extent of changes in Swedish GAAP. To the extent that
information is not available as to the amount of accounts receivable or
inventory as of a specific date, Preem Holdings may rely on the most recent
available management accounts, unless Preem Holdings has reason to believe that
such management accounts overstate the amount of accounts receivable or
inventory as of the date of determination, in which case the amounts shall be
such lesser amounts as Preem Holdings determines do not overstate such items.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in, however designated, equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with Swedish GAAP, and the amount of Indebtedness
represented by such obligation will be the capitalized amount of such obligation
at the time any determination thereof is to be made determined in accordance
with Swedish GAAP, and the Stated Maturity thereof will be the date of the last
payment of rent or any other amount due under such lease prior to the first date
such lease may be terminated without penalty.
"Cash Equivalents" means:
(1) securities issued or directly and fully guaranteed or insured by
the United States Government or the Kingdom of Sweden or any agency or
instrumentality thereof, having maturities of not more than one year from
the date of acquisition;
(2) marketable general obligations issued by any state of the United
States of America or province of the Kingdom of Sweden or any political
subdivision of any such state or any public instrumentality thereof
maturing within one year from the date of acquisition thereof and, at the
time of acquisition thereof, having a credit rating of "A" or better from
either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.;
(3) certificates of deposit, time deposits, Eurocurrency time
deposits, overnight bank deposits, or bankers' acceptances having
maturities of not more than one year from the date of
138
<Page>
acquisition thereof issued by any commercial bank having combined capital
and surplus in excess of $560.0 million;
(4) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (1), (2) and
(3) entered into with any bank meeting the qualifications specified in
clause (3), above;
(5) commercial paper rated at the time of acquisition thereof at
least "A-1" or the equivalent thereof by Standard & Poor's Rating Group or
"P-1" or the equivalent thereof by Moody's Investors Service, Inc., or
carrying an equivalent rating by a nationally recognized rating agency in
the United States, if both of the two named rating agencies cease
publishing ratings of investments, and in either case maturing within one
year after the date of acquisition thereof; and
(6) interests in any money market fund that invests solely in
instruments of the type specified in clauses (1) through (5), above.
"Change of Control" means:
(1) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner, as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, directly or indirectly, of more than 35% of the total voting
power of the Voting Stock of Preem Holdings, or its successor by merger,
consolidation or purchase of all or substantially all of its assets; and
the Permitted Holders "beneficially own" (for purposes of Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of Preem
Holdings, or its successor by merger, consolidation or purchase of all or
substantially all of its assets, than such other person and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of Preem
Holdings or such successor, as the case may be (for the purposes of this
clause, a person shall be deemed to beneficially own any voting Capital
Stock of a specified entity held by an entity, if such other person
beneficially owns (for purposes of Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, more than 35% of the voting power of the
voting Capital Stock of such entity and no other person beneficially owns
(for purposes of Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, in the aggregate a greater percentage of the voting power of
the voting Capital Stock of such entity or has the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of such parent entity); PROVIDED that, a
Change of Control shall not be deemed to have occurred under the Indenture
if, upon and after the death of Mohammed Hussein Al-Amoudi,
(A) beneficial ownership of his Voting Stock of Preem Holdings
is transferred to his spouse or any of his descendants, including any
trust controlled by and maintained for the sole benefit of such
spouse or descendant, or the estate of any of the foregoing, and
(B) individuals who at the time of his death constituted the
Board of Directors of Preem Holdings continue to constitute a
majority thereof, and individuals who at the time of his death
constituted the Board of Directors of Corral Petroleum Holdings AB
continue to constitute a majority thereof, subject to clause (a) and
not clause (b) of the parenthetical set forth in paragraph (2) below;
or
(2) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of Preem
Holdings (together with any new directors (a) whose election by such Board
of Directors or whose nomination for election by the shareholders of Preem
Holdings, as the case may be, was approved by a vote of at least a majority
of the directors of Preem Holdings then still in office who were either
directors at the
139
<Page>
beginning of such period or whose election or nomination for election was
previously so approved and (b) who are designees of the Permitted Holders
or were nominated or elected by such Permitted Holders or any of their
designees) cease for any reason to constitute a majority of the Board of
Directors of Preem Holdings then in office; or
(3) the sale, lease, transfer, conveyance or other disposition,
other than by way of merger or consolidation, in one or a series of related
transactions, of all or substantially all of the assets of Preem Holdings
and its Restricted Subsidiaries taken as a whole to any "person," as such
term is used in Sections 13(d) and 14(d) of the Exchange Act, other than a
Permitted Holder; or
(4) the adoption by the stockholders or Board of Directors of Preem
Holdings, as the case may be, of a plan or proposal for the liquidation or
dissolution of Preem Holdings.
"Collateral" means the collateral that secures the obligations under the
Notes pursuant to the Security Documents.
"Consolidated Coverage Ratio" means as of any date of determination with
respect to any Person, the ratio of (i) the aggregate amount of Consolidated
EBITDA of such Person for the period of the most recent four consecutive fiscal
quarters ending prior to the date of such determination for which internal
financial statements are in existence to (ii) Consolidated Interest Expense for
such four fiscal quarters (it being agreed and understood that until the fiscal
quarter ending on March 31, 2002, such ratio shall be calculated on a PRO FORMA
basis, to the extent necessary, as if Preem Holdings had acquired the Capital
Stock of Preem on the first day of the first quarter necessary for making such
calculation); PROVIDED, HOWEVER, that:
(1) if Preem Holdings or any Restricted Subsidiary:
(a) has Incurred any Indebtedness since the beginning of such
period that remains outstanding on such date of determination or if
the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDA
and Consolidated Interest Expense for such period will be calculated
after giving effect on a PRO FORMA basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of such period
(except that in making such computation, the amount of Indebtedness
under any revolving credit facility outstanding on the date of such
calculation will be computed based on:
(x) the average daily balance of such Indebtedness
during such four fiscal quarters or such shorter period for
which such facility was outstanding, or
(y) if such facility was created after the end of such
four fiscal quarters, the average daily balance of such
Indebtedness during the period from the date of creation of
such facility to the date of such calculation) and the
discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day
of such period; or
(b) has repaid, repurchased, defeased or otherwise discharged
any Indebtedness since the beginning of the period or if the
transaction giving rise to the need to calculate the Consolidated
Coverage Ratio involves a discharge of Indebtedness, in each case
other than Indebtedness incurred under any revolving credit facility
unless such Indebtedness has been permanently repaid and the related
commitment terminated, Consolidated EBITDA and Consolidated Interest
Expense for such period will be calculated after giving effect on a
PRO FORMA basis to such discharge of such Indebtedness, including
with
140
<Page>
the proceeds of such new Indebtedness, as if such discharge had
occurred on the first day of such period;
(2) if since the beginning of such period Preem Holdings or any
Restricted Subsidiary has made any Asset Disposition or if the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio is an
Asset Disposition, the Consolidated EBITDA for such period will be reduced
by an amount equal to the Consolidated EBITDA, if positive, directly
attributable to the assets which are the subject of such Asset Disposition
for such period or increased by an amount equal to the Consolidated EBITDA,
if negative, directly attributable thereto for such period and Consolidated
Interest Expense for such period will be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
Preem Holdings or any Restricted Subsidiary repaid, repurchased, defeased
or otherwise discharged with respect to Preem Holdings and its continuing
Restricted Subsidiaries, including the assumption of such Indebtedness by
the transferee, in connection with such Asset Disposition for such period,
or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent Preem Holdings and
its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale;
(3) if since the beginning of such period Preem Holdings or any
Restricted Subsidiary, by merger or otherwise, will have made an Investment
in any Restricted Subsidiary, or any Person which becomes a Restricted
Subsidiary or is merged with or into Preem Holdings, or an acquisition of
assets, including any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, which constitutes
all or substantially all of an operating unit, division or line of
business, Consolidated EBITDA and Consolidated Interest Expense for such
period will be calculated after giving PRO FORMA effect thereto, including
the Incurrence of any Indebtedness and including PRO FORMA expense and cost
reductions calculated on a basis consistent with Regulation S-X under the
Securities Act, as if such Investment or acquisition occurred on the first
day of such period; and
(4) if since the beginning of such period any Person that
subsequently became a Restricted Subsidiary or was merged with or into
Preem Holdings or any Restricted Subsidiary since the beginning of such
period will have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (2) or (3) above, if made by Preem Holdings or a Restricted
Subsidiary during such period, Consolidated EBITDA and Consolidated
Interest Expense for such period will be calculated after giving PRO FORMA
effect thereto as if such Asset Disposition or Investment occurred on the
first day of such period.
For purposes of this definition, whenever PRO FORMA effect is to be given
to an Investment or acquisition of assets and the amount of income or earnings
relating thereto and the amount of Consolidated Interest Expense associated with
any Indebtedness Incurred in connection therewith, the PRO FORMA calculations
will be determined in good faith by a responsible financial or accounting
officer of Preem Holdings, including giving PRO FORMA effect to cost reductions
that would be permitted by the Commission to be reflected in PRO FORMA financial
statements included in a registration statement filed with the Commission. If
any Indebtedness bears a floating rate of interest and is being given PRO FORMA
effect, the interest expense on such Indebtedness will be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period, taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months.
141
<Page>
"Consolidated EBITDA" for any period means, without duplication, the
Consolidated Net Income for such period, plus the following, to the extent
deducted in calculating such Consolidated Net Income:
(1) Consolidated Income Taxes;
(2) Consolidated Interest Expense;
(3) consolidated depreciation expense;
(4) consolidated amortization of intangibles; and
(5) other non-cash charges reducing Consolidated Net Income,
including, without limitation, non-cash charges arising from:
(A) period end remeasurement of the Indebtedness evidenced by
the Notes, and
(B) minority interests, but excluding any non-cash charge to
the extent it represents an accrual of or reserve for cash charges in
any future period or amortization of a prepaid cash expense that was
paid in a prior period not included in the calculation.
Notwithstanding the foregoing, clause (1) and clauses (3) through
(5) relating to amounts of a Restricted Subsidiary of a Person will be added to
Consolidated Net Income to compute Consolidated EBITDA of such Person only to
the extent, and in the same proportion, that the net income of such Subsidiary
was included in calculating the Consolidated Net Income of such Person and only
if a corresponding amount would be permitted at the date of determination to be
dividended to Preem Holdings by such Restricted Subsidiary without prior
approval that has not been obtained, pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Income Taxes" means, with respect to any Person for any
period, taxes imposed upon such Person or other payments required to be made by
such Person by any governmental authority which taxes or other payments are
calculated by reference to the income or profits of such Person or such Person
and its Restricted Subsidiaries, to the extent such income or profits were
included in computing Consolidated Net Income for such period, regardless of
whether such taxes or payments are required to be remitted to any governmental
authority.
"Consolidated Interest Expense" means, for any period, without
duplication, the total interest expense of Preem Holdings and its consolidated
Restricted Subsidiaries, whether paid or accrued plus, to the extent not
included in such interest expense:
(1) interest expense attributable to Capitalized Lease Obligations
and the interest portion of rent expense associated with Attributable
Indebtedness in respect of the relevant lease giving rise thereto,
determined as if such lease were a capitalized lease in accordance with
Swedish GAAP and the interest component of any deferred payment
obligations;
(2) amortization of debt discount;
(3) accrued interest;
(4) non-cash interest expense;
(5) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing;
(6) interest paid on any Indebtedness of any other Person as a
result of such Indebtedness being Guaranteed by Preem Holdings or any
Restricted Subsidiary;
(7) net costs associated with Hedging Obligations, including
amortization of fees;
142
<Page>
(8) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period;
(9) all dividend payments, whether or not in cash (other than any
such non-cash dividend in the form of Capital Stock which does not provide
for the payment of cash dividends prior to any stated maturity of the
principal of the Notes), on any series of Disqualified Stock of such Person
or on Preferred Stock of its Restricted Subsidiaries payable to a party
other than Preem Holdings or a Wholly-Owned Subsidiary; and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person, other than Preem Holdings, in
connection with Indebtedness Incurred by such plan or trust; PROVIDED,
HOWEVER, that there will be excluded therefrom any such interest expense of
any Unrestricted Subsidiary to the extent the related Indebtedness is not
Guaranteed or paid by Preem Holdings or any Restricted Subsidiary.
For purposes of the foregoing, total interest expense will be determined
after giving effect to any net payments made or received by Preem Holdings and
its Subsidiaries with respect to Interest Rate Agreements.
Notwithstanding the foregoing, for as long as interest on the Shareholder
Loans is subordinated to the prior payment in full of all amounts payable with
respect to the Notes, the amount of such interest shall not be included in
Consolidated Interest Expense.
"Consolidated Net Income" means, for any period, the net income (loss) of
Preem Holdings and its consolidated Restricted Subsidiaries, determined in
accordance with Swedish GAAP; PROVIDED, HOWEVER, that there will not be included
in such Consolidated Net Income:
(1) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that:
(a) subject to the limitations contained in (4), (5) and
(6) below, Preem Holdings' equity in the net income of any such
Person for such period will be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by
such Person during such period to Preem Holdings or a Restricted
Subsidiary as a dividend or other distribution, subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to
the limitations contained in clause (3), below; and
(b) Preem Holdings' equity in a net loss of any such Person,
other than an Unrestricted Subsidiary, for such period will be
included in determining such Consolidated Net Income to the extent
such loss has been funded with cash from Preem Holdings or a
Restricted Subsidiary;
(2) any net income (loss) of any Person acquired by Preem Holdings
or a Subsidiary in a pooling of interests transaction for any period prior
to the date of such acquisition;
(3) any net income of any Restricted Subsidiary if such Subsidiary
is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to Preem Holdings, except that:
(a) subject to the limitations contained in (4), (5) and (6),
below, Preem Holdings' equity in the net income of any such
Restricted Subsidiary for such period will be included in such
Consolidated Net Income up to the aggregate amount of cash that could
have been distributed by such Restricted Subsidiary during such
period to Preem Holdings or another Restricted Subsidiary as a
dividend, subject, in the case of a dividend to another Restricted
Subsidiary, to the limitation contained in this clause; and
143
<Page>
(b) Preem Holdings' equity in a net loss of any such
Restricted Subsidiary for such period will be included in determining
such Consolidated Net Income;
(4) any gain (loss) realized upon the sale or other disposition of
any property, plant or equipment of Preem Holdings or its consolidated
Restricted Subsidiaries, including pursuant to any Sale/Leaseback
Transaction, which is not sold or otherwise disposed of in the ordinary
course of business and any gain (loss) realized upon the sale or other
disposition of any Capital Stock of any Person;
(5) any extraordinary gain or loss;
(6) the cumulative effect of a change in accounting principles;
(7) the tax effect of any of the items described in clauses
(1) through (6), above; and
(8) any non-cash amount attributable to income tax which is deducted
from such net income on Preem Holdings' consolidated statement of
operations in accordance with Swedish GAAP, other than amounts attributable
to deferred taxes, and which does not reflect taxes imposed on and legally
payable by Preem Holdings; PROVIDED that such deduction shall not exceed
the product of:
(A) Preem Holdings' taxable income, and
(B) the applicable Swedish tax rate.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of Preem Holdings and the Restricted Subsidiaries, determined on a
consolidated basis and in accordance with Swedish GAAP, as of the end of the
most recent fiscal quarter of Preem Holdings ending at least 45 days prior to
the taking of any action for the purpose of which the determination is being
made, as (i) the par or stated value of all outstanding Capital Stock of Preem
Holdings plus (ii) paid-in capital or capital surplus relating to such Capital
Stock plus (iii) any retained earnings or earned surplus, less (A) any
accumulated deficit and (B) any amounts attributable to Disqualified Stock.
"Credit Facility" means one or more credit facilities, including Existing
Credit Facilities, with one or more banks, providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time, and whether or not with the original administrative
agent and lenders or another administrative agent or agents or other lenders.
"Currency Agreement" means, in respect of a Person, any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which by its terms, or by the terms of any security into which it
is convertible or for which it is exchangeable, or upon the happening of any
event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable for Indebtedness or Disqualified
Stock, excluding Capital Stock which is convertible or exchangeable solely
at the option of Preem Holdings or a Restricted Subsidiary; or
144
<Page>
(3) is redeemable at the option of the holder thereof, in whole or
in part, in each case on or prior to the Stated Maturity of the Notes;
in each case on or prior to the date that is 91 days after the date:
(a) on which the Notes mature, or
(b) on which there are no Notes outstanding;
- PROVIDED, that only the portion of Capital Stock that so matures or is
mandatorily redeemable, is so convertible or exchangeable or is so
redeemable at the option of the holder thereof prior to such Stated
Maturity will be deemed to be Disqualified Stock; and
- PROVIDED, FURTHER, that any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to
require Preem Holdings to repurchase such Capital Stock upon the
occurrence of a change of control or asset sale, each defined in a
substantially identical manner to the corresponding definitions in the
Indenture, shall not constitute Disqualified Stock if the terms of such
Capital Stock (and all such securities into which it is convertible or
for which it is ratable or exchangeable) provide that Preem Holdings may
not repurchase or redeem any such Capital Stock (and all such securities
into which it is convertible or for which it is ratable or exchangeable)
pursuant to such provision prior to compliance by Preem Holdings with the
provisions of the Indenture described under the captions "--Change of
Control" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" and such repurchase or redemption complies with
"--Certain Covenants--Limitation on Restricted Payments."
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
"Existing Affiliate Agreements" means the following agreements:
(1) the payment of a fee to Capital Trust SA or one of its
wholly-owned subsidiaries equal to 1.5% of the gross proceeds of the
April 2001 offering of the existing notes;
(2) the Framework Co-Operation Agreement between Preem Raffinaderi
AB Preemraff and Midroc Engineering AB, dated October 5, 2000 and
October 16, 2000, and the existing agreements thereunder in effect on the
Issue Date;
(3) the Framework Co-Operation Agreement between Preem Raffinaderi
AB Preemraff and Metalock Engineering AB, dated November 30, 2000, and the
existing agreements thereunder in effect on the Issue Date;
(4) the Framework Co-Operation Agreement between Preem Raffinaderi
AB Preemraff and Midroc Electro AB, dated January 23, 2001 and January 26,
2001, and the existing agreements thereunder in effect on the Issue Date;
(5) the Prolongation Agreement between Skandinaviska Raffinaderi AB
Scanraff and Rodoverken AB, related to Agreement No. I-260, dated
February 18, 2000, and the existing agreements thereunder in effect on the
Issue Date;
(6) the Framework Agreement, No. 276 between Skandinaviska
Raffinaderi AB Scanraff and GP Stallningar AB, dated June 13, 2000 and
June 19, 2000, and the existing agreements thereunder in effect on the
Issue Date;
(7) the Framework Agreement, No. 253 between Skandinaviska
Raffinaderi AB Scanraff and Midroc Engineering AB, dated September 3, 2000
and September 14, 2000, and the existing agreements thereunder in effect on
the Issue Date;
145
<Page>
(8) the Short-Term Credit Facility Agreement between Preem Petroleum
AB and Svenska Petroleum Exploration AB, dated August 29, 1997; and
(9) the Short-Term Credit Facility Agreement between Preem Petroleum
AB and Svenska Petroleum Exploration AB, dated December 1, 2000.
"Existing Credit Facility" means one or more Credit Facilities of Preem in
existence on the date of the Indenture, as the same may be amended from time to
time on terms that are not, taken as a whole, adverse to the Holders of the
Notes.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay, or advance or supply funds for the purchase
or payment of, such Indebtedness of such other Person, whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise; or
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof, in whole or in part;
PROVIDED, HOWEVER, that the term "Guarantee" will not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Currency Agreement or Oil Commodities
Contract.
"Incur" means issue, create, assume, Guarantee, incur or otherwise become,
contingently or otherwise, liable for; provided, however, that any Indebtedness
of a Person existing at the time such Person becomes a Restricted Subsidiary,
whether by merger, consolidation, acquisition or otherwise, will be deemed to be
incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary; and the terms "Incurred" and "Incurrence" have meanings correlative
to the foregoing. Indebtedness Incurred by Preem Holdings or a Restricted
Subsidiary and a Guarantee in respect thereof, in each case otherwise permitted
by the Indenture to be Incurred by Preem Holdings or a Restricted Subsidiary,
shall not constitute separate Incurrences of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination, without duplication:
(1) the principal of and premium, if any, in respect of indebtedness
of such Person for borrowed money;
(2) the principal of and premium, if any, in respect of obligations
of such Person evidenced by bonds, debentures, notes or other similar
instruments, excluding trade payables;
(3) the principal component of all obligations of such Person in
respect of letters of credit, bankers' acceptances or other similar
instruments (including reimbursement obligations with respect thereto),
excluding letters of credit or similar instruments supporting trade
payables in the ordinary course of business that are not overdue by
90 days or more or are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted;
(4) the principal component of all obligations of such Person to pay
the deferred and unpaid purchase price of property or services, except
trade payables, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title
thereto or the completion of such services;
146
<Page>
(5) all Capitalized Lease Obligations and all Attributable
Indebtedness of such Person;
(6) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary, any Preferred Stock, but excluding, in each
case, any accrued dividends;
(7) the principal component of all Indebtedness of other Persons
secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided, however, that the amount
of such Indebtedness will be the lesser of (a) the fair market value of
such asset at such date of determination and (b) the amount of such
Indebtedness of such other Persons;
(8) the principal component of all Indebtedness of other Persons to
the extent Guaranteed by such Person; and
(9) to the extent not otherwise included in this definition, net
obligations of such Person under Currency Agreements, Interest Rate
Agreements and Oil Commodities Contracts, the amount of any such
obligations to be equal at any time to the termination value of such
agreement or arrangement giving rise to such obligation that would be
payable by such Person at such time.
The amount of Indebtedness of any Person at any date will be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date. For purposes
of the preceding sentence, the maximum fixed repurchase price of any redeemable
stock or Preferred Stock of a Subsidiary that does not have a fixed repurchase
price shall be calculated in accordance with the terms of such redeemable stock
or Preferred Stock as if such redeemable stock or Preferred Stock were
repurchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture.
In addition, "Indebtedness" of any Person shall include Indebtedness
described in the foregoing paragraph that would not appear as a liability on the
balance sheet of such Person if:
(1) such Indebtedness is the obligation of a partnership or joint
venture that is not a Restricted Subsidiary (a "Joint Venture");
(2) such Person or a Restricted Subsidiary is a general partner of
the Joint Venture (a "General Partner"); and
(3) there is recourse, by contract or operation of law, with respect
to the payment of such Indebtedness to property or assets of such Person or
a Restricted Subsidiary of such Person; and such Indebtedness shall be
included in an amount not to exceed:
(a) the greater of
(x) the net assets of the General Partner and
(y) the amount of such obligations to the extent that
there is recourse, by contract or operation of law, to the
property or assets of such Person or a Restricted Subsidiary of
such Person, other than the General Partner, or
(b) if less than the amount determined pursuant to clause (a)
immediately above, the actual amount of such Indebtedness that is
recourse to such Person, if the Indebtedness is evidenced by a
writing and is for a determinable amount and the related interest
expense shall be included in Consolidated Interest Expense to the
extent paid by Preem Holdings or its Restricted Subsidiaries.
147
<Page>
"Interest Rate Agreement" means, with respect to any Person, any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" means, with respect to any Person, all investments by such
Person in other Persons, including Affiliates, in the form of any direct or
indirect advance, loan (other than advances to customers in the ordinary course
of business) or other extension of credit (including by way of Guarantee or
similar arrangement, but excluding any debt or extension of credit represented
by a bank deposit other than a time deposit), or capital contribution to (by
means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, Indebtedness or other similar instruments issued
by, such Person and all other items that are or would be classified as
investments on a balance sheet prepared in accordance with Swedish GAAP;
PROVIDED that the following shall not be deemed to be an Investment:
(1) Hedging Obligations entered into in the ordinary course of
business and in compliance with the Indenture;
(2) endorsements of negotiable instruments and documents in the
ordinary course of business; and
(3) an acquisition of assets, Capital Stock or other securities by
Preem Holdings for consideration consisting exclusively of common equity
securities of Preem Holdings.
For purposes of the "--Limitation on Restricted Payments" covenant:
(1) "Investment" will include the portion, proportionate to Preem
Holdings' equity interest in a Restricted Subsidiary to be designated as an
Unrestricted Subsidiary, of the fair market value of the net assets of such
Restricted Subsidiary of Preem Holdings at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary,
Preem Holdings will be deemed to continue to have a permanent "Investment"
in an Unrestricted Subsidiary in an amount, if positive, equal to
(a) Preem Holdings' "Investment" in such Subsidiary at the time of such
redesignation less (b) the portion (proportionate to Preem Holdings' equity
interest in such Subsidiary) of the fair market value of the net assets of
such Subsidiary at the time that such Subsidiary is so re-designated a
Restricted Subsidiary; and
(2) any property transferred to or from an Unrestricted Subsidiary
will be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the Board of Directors of Preem
Holdings. If Preem Holdings or any Restricted Subsidiary of Preem Holdings
sells or otherwise disposes of any Capital Stock of any Restricted
Subsidiary of Preem Holdings such that, after giving effect to any such
sale or disposition, such entity is no longer a Subsidiary of Preem
Holdings, Preem Holdings shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Capital Stock of such Subsidiary not sold or disposed of.
"Issue Date" means April 10, 2001, the date on which the existing notes
were originally issued under the Indenture.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including any conditional sale or other title retention
agreement or lease in the nature thereof.
"Liquidated Damages" has the meaning set forth in that certain
Registration Rights Agreement, dated the date of the Indenture, between Preem
Holdings and the Trustee.
148
<Page>
"Net Available Cash" from an Asset Disposition means cash payments
received, including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form, therefrom, in each case net of:
(1) all legal, accounting, investment banking, title and recording
tax expenses, commissions and other fees and expenses incurred, and all
Federal, state, provincial, foreign and local taxes required to be paid or
accrued as a liability under Swedish GAAP, after taking into account any
available tax credits or deductions and any tax sharing arrangements, as a
consequence of such Asset Disposition;
(2) all payments made with respect to any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with
the terms of any Lien upon such assets, or which must by its terms, or in
order to obtain a necessary consent to such Asset Disposition, or by
applicable law be repaid out of the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition; and
(4) appropriate amounts to be provided by the seller as a reserve,
in accordance with Swedish GAAP, against any liabilities associated with
the assets disposed of in such Asset Disposition and retained by Preem
Holdings or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale, after taking into account any available tax
credits or deductions and any tax sharing arrangements.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Preem Holdings nor any Restricted
Subsidiary:
(a) provides any guarantee or credit support of any kind,
including any undertaking, guarantee, indemnity, agreement or
instrument that would constitute Indebtedness, or
(b) is directly or indirectly liable, as a guarantor or
otherwise;
(2) no default with respect to which, including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary, would permit, upon notice, lapse of time or both, any holder of
any other Indebtedness of Preem Holdings or any Restricted Subsidiary to
declare a default under such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity; and
(3) the explicit terms of which provide there is no recourse against
any of the assets of Preem Holdings or its Restricted Subsidiaries.
"Officer" means the Chairman of the Board, the President, any Vice
President, any Vice Chairman, the Chief Financial Officer or the Finance
Director of Preem Holdings.
"Officers' Certificate" means a certificate signed by two Officers or by
an Officer and either an Assistant Treasurer or an Assistant Secretary of Preem
Holdings.
149
<Page>
"Oil Commodities Contract" means, in respect of a Person, any option,
futures or forward hedging contract, derivative instrument or other similar
agreement designed to protect such Person against fluctuations in the price of
crude oil, other feedstocks and refined petroleum products, as the case may be.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be outside counsel to Preem Holdings.
"Permitted Holders" means Mohammed Hussein Al-Amoudi or any Related Party
thereof.
"Permitted Investment" means an Investment by Preem Holdings or any
Restricted Subsidiary in:
(1) Preem Holdings, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Restricted Subsidiary
is a Related Business;
(2) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, Preem Holdings or a Restricted
Subsidiary; PROVIDED, HOWEVER, that such Person's primary business is a
Related Business;
(3) cash and Cash Equivalents;
(4) receivables owing to Preem Holdings or any Restricted Subsidiary
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees made in the ordinary course of
business, consistent with past practices of Preem Holdings or such
Restricted Subsidiary and in an aggregate amount not to exceed
E5.0 million at any time outstanding;
(7) loans or advances to employees the proceeds of which are used to
purchase Capital Stock of Preem Holdings, in an aggregate amount not in
excess of E2.0 million at any one time outstanding;
(8) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to Preem Holdings or
any Restricted Subsidiary or in satisfaction of judgments or pursuant to
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of a debtor or upon foreclosure actions in favor of Preem
Holdings or a Restricted Subsidiary;
(9) Investments made as a result of the receipt of non-cash
consideration from an Asset Disposition that was made pursuant to and in
compliance with the covenant described under "--Limitation on Sales of
Assets and Subsidiary Stock;"
(10) Investments in existence on the Issue Date;
(11) Investments by Preem Holdings or any of its Restricted
Subsidiaries in an aggregate amount not to exceed E20.0 million outstanding
at any one time, plus, to the extent not previously reinvested, any return
of capital not previously realized made pursuant to this clause (11);
150
<Page>
(12) Currency Agreements, Interest Rate Agreements, Oil Commodities
Contracts and related Hedging Obligations, which transactions or
obligations are Incurred in compliance with "Certain Covenants--Limitation
on Indebtedness;" and
(13) prepaid expenses, negotiable instruments held for collection,
and lease, utility, workers' compensation, performance and similar
deposits, in each case, in the ordinary course of business.
"Permitted Liens" means, with respect to any Person:
(1) pledges or deposits by such Person under workmen's compensation
laws, unemployment insurance laws or similar legislation, or in connection
with bids, tenders, contracts, other than for the payment of Indebtedness,
or leases to which such Person is a party, or to secure public or statutory
obligations of such Person or deposits or cash or United States or Swedish
government bonds to secure bid, surety or appeal bonds to which such Person
is a party, or for contested taxes or import or custom duties or for the
payment of rent, in each case Incurred in the ordinary course of business;
(2) Liens imposed by law, including carriers', warehousemen's,
mechanics' suppliers', materialmen and repairmen Liens and Liens in favor
of customs authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods, in each case
for sums not yet due or being contested in good faith by appropriate
proceedings, if a reserve or other appropriate provision, if any, as shall
be required by Swedish GAAP shall have been made in respect thereof;
(3) Liens for taxes, assessments or other governmental charges not
yet subject to penalties for non-payment or which are being contested in
good faith by appropriate proceedings provided reserves required pursuant
to Swedish GAAP have been taken on the books of Preem Holdings or its
Restricted Subsidiaries;
(4) Liens in favor of issuers of bid, surety or performance bonds or
bankers' acceptances or letters of credit issued pursuant to the request of
and for the account of such Person in the ordinary course of its business;
PROVIDED, HOWEVER, that such letters of credit do not constitute
Indebtedness;
(5) encumbrances, easements or reservations of, or rights of others
for, licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions
as to the use of real properties or liens incidental to the conduct of the
business of such Person or to the ownership of its properties that were not
Incurred in connection with Indebtedness and that do not in the aggregate
materially adversely affect the value of said properties or materially
impair their use in the operation of the business of such Person;
(6) Liens securing a Hedging Obligation, so long as the related
Indebtedness is, and is permitted to be under the Indenture, secured by a
Lien on the same property securing the Interest Rate Protection Agreement,
Currency Agreement or Oil Commodities Contract, as the case may be;
(7) leases and subleases of real property and equipment appurtenant
thereto which do not materially interfere with the ordinary conduct of the
business of Preem Holdings or any of its Restricted Subsidiaries;
(8) judgement Liens not giving rise to an Event of Default so long
as such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment have not
been finally terminated or the period within which such proceedings may be
initiated has not expired;
151
<Page>
(9) Liens for the purpose of securing the payment, or the
refinancing of the payment, of all or a part of the purchase price of, or
Capitalized Lease Obligations with respect to, assets or property acquired
or constructed in the ordinary course of business provided that:
(x) the aggregate principal amount of Indebtedness secured by
such Liens is otherwise permitted to be Incurred under the Indenture
and does not exceed the cost of the assets or property so acquired or
constructed, and
(y) such Liens are created within 90 days of construction or
acquisition of such assets or property and do not encumber any other
assets or property of Preem Holdings or any Restricted Subsidiary
other than such assets or property and assets affixed or appurtenant
thereto;
(10) Liens arising solely by virtue of any statutory or common law
provision relating to banker's Liens, rights of set-off or similar rights
and remedies as to deposit accounts or other funds maintained with a
depository institution; PROVIDEDthat:
(x) such deposit account is not a pledged cash collateral
account, and
(y) such deposit account is not intended by Preem Holdings or
any Restricted Subsidiary to provide collateral to the depository
institution;
(11) Liens arising from filings or other methods of protection of
interests regarding operating leases entered into by Preem Holdings and its
Restricted Subsidiaries in the ordinary course of business;
(12) Liens existing on the Issue Date;
(13) Liens on property or shares of stock of a Person at the time
such Person becomes a Subsidiary; PROVIDED, HOWEVER, that such Liens are
not created, incurred or assumed in connection with, or in contemplation
of, such other Person becoming a Subsidiary; PROVIDED FURTHER, HOWEVER,
that any such Lien may not extend to any other property owned by Preem
Holdings or any Restricted Subsidiary;
(14) Liens on property at the time Preem Holdings or a Subsidiary
acquired the property, including any acquisition by means of a merger or
consolidation with or into Preem Holdings or any Restricted Subsidiary;
PROVIDED, HOWEVER, that, such Liens may not extend to any other property
owned by Preem Holdings or any Restricted Subsidiary;
(15) Liens securing Indebtedness or other obligations of a
Subsidiary owing to Preem Holdings or a Restricted Subsidiary;
(16) Liens securing the Notes;
(17) Liens securing Refinancing Indebtedness permitted under the
Indenture incurred to Refinance Indebtedness that was previously so
secured, PROVIDED that:
(a) such Liens are not more restrictive than the Liens in
respect of the Indebtedness being Refinanced, and
(b) any such Lien is limited to all or part of the same
property or assets, plus improvements, accessions, proceeds or
dividends or distributions in respect thereof, that secured (or,
under the written arrangements under which the original Lien arose,
could secure) the obligations to which such Liens relate;
(18) To the extent that the principal amount of any Sale/Leaseback
Indebtedness is permanently repaid and the Liens securing such Indebtedness
are released, then new Liens may be incurred on assets of a Restricted
Subsidiary to secure Indebtedness of Preem Holdings or a
152
<Page>
Restricted Subsidiary under Credit Facilities, PROVIDED that the principal
amount of such Indebtedness does not exceed the amount of Sale/Leaseback
Indebtedness so permanently repaid, and PROVIDED FURTHER that such
Indebtedness is permitted to be Incurred under "--Limitation on
Indebtedness;"
(19) Liens arising out of consignment or similar arrangements for
the sale of goods entered into by Preem Holdings or any Restricted
Subsidiary in the ordinary course of business;
(20) Liens on accounts receivable, inventory and related working
capital assets of Preem Holdings or any Restricted Subsidiary, in each case
securing Indebtedness Incurred under Credit Facilities pursuant to
clause (1) in paragraph (b) of the covenant under "--Certain Covenants--
Limitation on Indebtedness;" or
(21) Liens securing Indebtedness, when taken together with all other
Liens made pursuant to this clause (21) that are at the time outstanding,
not in excess of E2.0 million.
"Permitted Preem Loan Payment" means the payment or payments made to
Corral Petroleum Holdings AB not to exceed E236 million, PROVIDED, HOWEVER, that
unless Preem Holdings furnishes the Trustee with an Officers' Certificate
confirming that Preem Holdings has, and on the first interest payment date will
have, funds available to satisfy the payments due on the Notes on such date,
together with an Opinion of Counsel confirming Preem Holdings' ability to pay
such amount to Holders out of legally available funds on such date, then prior
to making such payment, Preem Holdings may only make a Permitted Preem Loan
Payment up to E223 million.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company, government or any agency or political subdivision hereof or
any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes, however designated, that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Public Equity Offering" means an underwritten primary public offering of
ordinary shares of either of Preem Holdings or Corral Petroleum Holdings AB
pursuant to:
(i) an effective registration statement under the
Securities Act, other than public offerings on Forms S-4, F-4
or S-8, or
(ii) a placement outside the United States and/or
pursuant to Rule 144A under the Securities Act involving the
distribution of an offering circular to at least 100 bona fide
prospective purchasers and listing of such ordinary shares on a
Recognized Stock Exchange.
"Recognized Stock Exchange" means the Stockholm Stock Exchange, EASDAQ,
the Luxembourg Stock Exchange or a national securities exchange in the United
States.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew or repay, including pursuant to any defeasance or
discharge mechanism (collectively, "refinance," "refinances," and "refinanced"
shall have a correlative meaning) any Indebtedness Incurred in compliance with
the Indenture, including Indebtedness of Preem Holdings that refinances
Indebtedness of any Restricted Subsidiary, including Indebtedness that
refinances Refinancing Indebtedness, PROVIDED, HOWEVER, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the Indebtedness being refinanced;
153
<Page>
(2) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than
the Average Life of the Indebtedness being refinanced;
(3) such Refinancing Indebtedness is Incurred in an aggregate
principal amount, or if issued with original issue discount, an aggregate
issue price, that is equal to or less than the sum of the aggregate
principal amount (or if issued with original issue discount, the aggregate
accreted value) then outstanding, plus accrued interest, fees and expenses,
including the costs of refinancing and any premium and defeasance costs, of
the Indebtedness being refinanced;
(4) if the Indebtedness being refinanced, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Refinancing
Indebtedness is subordinated in right of payment to the Notes to at least
the same extent, and in the same manner, as the Indebtedness being
refinanced, renewed, replaced, defeased or refunded; and
(5) in no case shall Refinancing Indebtedness include any
Indebtedness that is Incurred to refinance a Shareholder Loan.
"Related Business" means, with respect to Preem Holdings and its
Restricted Subsidiaries:
(i) the business of the acquisition, processing,
marketing, refining, storage and/or transportation of
hydrocarbons and royalty or other interests in crude oil or
associated products,
(ii) the acquisition, operation, improvement, leasing
and other use of retail service stations and attached or
appurtenant convenience stores and other similar retail sales
operations in connection therewith, and
(iii) any business that is the same as or reasonably
related to any of the businesses of Preem Holdings and its
Restricted Subsidiaries on the date of the Indenture or
reasonable extensions, developments or expansions thereof
except such extensions, developments or expansions of
businesses other than those described in clauses (i) and (ii),
above;
- PROVIDED that, it is expressly agreed and understood that the term
"Related Business" shall include an expansion into other areas of the
energy sector such as the transmission, marketing and sale of
electricity; and,
- PROVIDED, FURTHER, that the term "Related Business" shall not include
"upstream" exploration and production of crude oil or associated
products except to the extent, and only to the extent, that Preem
Holdings or one of its Restricted Subsidiaries engages in such
exploration and production on the Issue Date without any extension,
development or expansion thereof.
"Related Business Assets" means assets used or useful in a Related
Business.
"Related Party" with respect to any Permitted Holder means:
(A) any Subsidiary of such Permitted Holder, or
(B) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding a majority controlling interest of which consist of such
Permitted Holder and/or such other Persons referred to in the
immediately preceding clause (A).
"Restricted Investment" means any Investment that is not a Permitted
Investment.
154
<Page>
"Restricted Subsidiary" means any Subsidiary of Preem Holdings other than
an Unrestricted Subsidiary.
"Sale/Leaseback Indebtedness" means Indebtedness in an amount not to
exceed SEK1,200,000,000 under the Term Loan Facility for Syrhola Handelsbolag
arranged by Enskilda Debt Capital Markets, dated February 3, 1998, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time, and whether or not with the original agent, arranger and
lenders or other agents, arrangers or lenders.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Preem Holdings or a Restricted Subsidiary
transfers such property to a Person and Preem Holdings or a Subsidiary leases it
from such Person.
"Securities Act" means the United States Securities Act of 1933, as
amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
"Security Documents" means, collectively, the Indenture, the Shareholder
Loans, including the intercreditor arrangements in respect thereof, and all
security agreements, mortgages, deeds of trust, collateral assignments and other
instruments evidencing or creating any security interest in favor of the Trustee
in all or any portion of the Collateral, in each case, as amended, supplemented
or modified from time to time in accordance with their terms and the terms of
the Indenture.
"Senior Indebtedness" means all Indebtedness other than Subordinated
Obligations.
"Shareholder Loan" means the Loan Agreement, dated as of December 31,
2000, between Preem and Corral Petroleum Holdings AB, as restructured in
connection with issuance of the Notes as Shareholder Loan No. 2, dated as of the
date of the Indenture, and providing for obligations from Preem Holdings to
Corral Petroleum Holdings AB, and any future similar agreement (including any
shareholder loan made pursuant to and in accordance with clause (b)(8) of the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments") or any amendment to any of the foregoing.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of Preem Holdings within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, not taking into account any contingent obligations
to repay, redeem, or repurchase any such principal prior to the date originally
scheduled for the payment thereof.
"Subordinated Obligation" means any Indebtedness of Preem Holdings,
whether outstanding on the Issue Date or thereafter Incurred, which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests, including partnership interests,
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by:
(1) such Person,
(2) such Person and one or more Subsidiaries of such Person, or
(3) one or more Subsidiaries of such Person; provided that,
Skandinaviska Kracker AB Scancracker and Goteborgs Smorjmedelsfabrik
(Scanlube) AB shall each be deemed a
155
<Page>
"Subsidiary" of Preem Holdings for purposes of the Notes. Unless otherwise
specified herein, each reference to a Subsidiary will refer to a Subsidiary
of Preem Holdings.
"Swedish GAAP" means generally accepted accounting principles in the
Kingdom of Sweden as in effect as of the date of the Indenture; provided,
however, that all reports and other financial information provided by Preem
Holdings to the holders, the Trustee and/or the Commission shall be prepared in
accordance with Swedish GAAP, as in effect on the date of such report or other
financial information. All ratios and computations based on Swedish GAAP
contained in the Indenture will be computed in conformity with Swedish GAAP.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of Preem Holdings that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board
of Directors of Preem Holdings in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors of Preem Holdings may designate any Subsidiary of
Preem Holdings, including any newly acquired or newly formed Subsidiary or a
Person becoming a Subsidiary through merger or consolidation or Investment
therein, to be an Unrestricted Subsidiary only if:
(1) such Subsidiary does not own any Capital Stock of, or own or
hold any Lien on any property of, any other Subsidiary of Preem Holdings
which is not a Subsidiary of the Subsidiary to be so designated or
otherwise an Unrestricted Subsidiary;
(2) all the Indebtedness of such Subsidiary and its Subsidiaries
shall, at the date of designation, and will at all times thereafter,
consist of Non-Recourse Debt;
(3) Preem Holdings certifies that such designation complies with the
limitations of the "--Certain Covenants--Limitation on Restricted Payments"
covenant;
(4) such Subsidiary, either alone or in the aggregate with all other
Unrestricted Subsidiaries, does not operate, directly or indirectly, all or
substantially all of the business of Preem Holdings and its Subsidiaries;
(5) such Subsidiary does not, directly or indirectly, own any
Indebtedness of or Capital Stock of, and has no investments in, Preem
Holdings or any Restricted Subsidiary; and
(6) such Subsidiary is a Person with respect to which neither Preem
Holdings nor any of its Restricted Subsidiaries has any direct or indirect
obligation (a) to subscribe for additional Capital Stock of such Person or
(b) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results.
Any such designation by the Board of Directors of Preem Holdings shall be
evidenced to the Trustee by filing with the Trustee a resolution of the Board of
Directors of Preem Holdings giving effect to such designation and an Officers'
certificate certifying that such designation complied with the foregoing
conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be Incurred as of such date.
The Board of Directors of Preem Holdings may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that immediately after giving
effect to such designation, no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof and Preem Holdings
could incur at least E1.00 of additional Indebtedness under paragraph (a) of the
"--Limitation on Indebtedness" covenant on a pro forma basis taking into account
such designation.
156
<Page>
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of Preem Holdings,
all of the Capital Stock of which, other than directors' qualifying shares, is
owned by Preem Holdings or another Wholly-Owned Subsidiary.
157
<Page>
BOOK-ENTRY, DELIVERY AND FORM
GLOBAL NOTES
The new notes will be represented by one or more global certificates in
definitive, permanent and fully registered form (each a "Definitive Registered
Note"). The new global note will be deposited with the common depositary for
Euroclear and Clearstream Banking and registered in the name of BT Globenet
Nominees Limited, as nominee for the common depositary.
Except as set forth below, the new global notes may be transferred, in
whole and not in part, solely to another nominee of Euroclear or Clearstream
Banking or to a successor of Euroclear or Clearstream Banking or its nominee.
Except as set forth below, beneficial interests in the new global notes may not
be exchanged for new notes in physical, certificated form.
All interests in the new global notes may be subject to the procedures and
requirements of Euroclear and Clearstream Banking.
The laws of some states require that persons take physical delivery in
definitive form of securities that they own and that security interest in
negotiable instruments can only be perfected by delivery of certificates
representing the instruments. Consequently, the ability to transfer new notes or
to pledge the new notes as collateral will be limited to such extent.
So long as Euroclear or Clearstream Banking or their nominees are the
registered owner of any of the global notes, Euroclear or Clearstream Banking or
such nominee, as the case may be, will be considered the sole owner or holder of
the new notes represented by such new global notes for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in the new
global notes will not be entitled to have new notes represented by such new
global notes registered in their names, will not receive or be entitled to
receive physical delivery of certificated securities, and will not be considered
the owners or holders under the Indenture for any purpose, including with
respect to giving of any directions, instruction or approval to the Trustee. As
a result, the ability of a person having a beneficial interest in new notes
represented by the new global notes to pledge or transfer such interest to
persons or entities that do not participate in Euroclear's or Clearstream
Banking's system or to otherwise take action with respect to such interest, may
be affected by the lack of physical certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in the new global
notes must rely on the procedures of Euroclear or Clearstream Banking and, if
such holder is not a participant or an indirect participant, on the procedures
of the participant through which such holder owns its interest, to exercise any
rights of a holder of new notes under the Indenture or such new global notes. We
understand that under existing industry practice, in the event we request any
action of holders of new notes or a holder that is an owner of a beneficial
interest in a new global note desires to take any action that Euroclear or
Clearstream Banking as the holder of such new global notes, is entitled to take,
Euroclear or Clearstream Banking would authorize the participants to take such
action and the participant would authorize holders owning through such
participants to take such action or would otherwise act upon the instruction of
such holders. Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of new notes by Euroclear or Clearstream Banking, or for maintaining,
supervising or reviewing any records of Euroclear or Clearstream Banking
relating to such new notes.
REDEMPTION OF THE GLOBAL NOTES
In the event any note in global form (or any portion of such note) is
redeemed, the common depositary will redeem an equal amount of the Book-Entry
Interests in such note from the amount received by it in respect of the
redemption of such note. The redemption price payable in connection with the
redemption of these Book-Entry Interests will be equal to the amount received by
the
158
<Page>
common depositary in connection with the redemption of such note in global form
(or any portion of such note). We understand that under existing practices of
Euroclear and Clearstream Banking, if fewer than all of the notes are to be
redeemed at any time, Euroclear and Clearstream Banking will credit their
respective participants' accounts on a proportionate basis (with adjustments to
prevent fractions) or by lot or on any other basis as they deem fair and
appropriate; provided, however, that no Book-Entry Interest in notes of less
than E1,000 principal amount may be redeemed in part.
PAYMENTS ON GLOBAL NOTES
Payments of any amounts owing in respect of the Global Notes (including
principal, premium, if any, interest, Additional Amounts (as defined in
"Description of Notes--Certain Definitions"), if any, and Liquidated Damages, if
any) will be made by us in Euros, to the principal paying agent. The principal
paying agent will, in turn, make such payments to the common depositary for
Euroclear and Clearstream Banking, or its nominee, which will distribute such
payments to participants in accordance with their procedures.
Under the terms of the Indenture, we, the Trustee and the principal paying
agent will treat the registered holder of the Global Notes (e.g., the common
depositary for Euroclear and Clearstream Banking (or its nominee)) as the owner
of such Global Notes for the purposes of receiving payments and for all other
purposes. Consequently, none of Preem Holdings, the Trustee or any agent of
Preem Holdings or the Trustee has or will have any responsibility or liability
for:
(1) any aspect of the records of Euroclear or Clearstream Banking or any
participant or indirect participant relating to, or payments made on
account of, a Book-Entry Interest or for maintaining, supervising or
reviewing any of the records of Euroclear or Clearstream Banking or any
participant or indirect participant relating to, or payments made on
account of, a Book-Entry Interest; or
(2) Euroclear or Clearstream Banking or any participant or indirect
participant.
Payments by participants to owners of Book-Entry Interests in the Global
Notes held through these participants are the responsibility of such
participants, as is now the case with securities held for the accounts of
customers registered in "street name."
ACTION BY OWNERS OF BOOK-ENTRY INTERESTS
Euroclear and Clearstream Banking have advised us that they will take any
action permitted to be taken by a holder of notes (including the presentation of
notes for exchange as described above) only at the direction of one or more
participants to whose account the Book-Entry Interests in any of the notes are
credited and only in respect of such portion of the aggregate principal amount
of notes as to which the participant or participants has or have given such
direction. The common depositary for Euroclear and Clearstream Banking will not
exercise any discretion in the granting of consents, waivers or the taking of
any other action in respect of the notes. However, if there is an Event of
Default under the Indenture each of Euroclear and Clearstream Banking reserves
the right to exchange the Global Notes for notes in definitive registered form
and to distribute these notes in definitive registered form to its participants.
TRANSFERS
Transfers between participants in Euroclear or Clearstream Banking will be
effected in accordance with Euroclear or Clearstream Banking rules and will be
settled in immediately available funds. If a holder requires physical delivery
of Definitive Registered Notes for any reason, including to sell notes to
persons in states which require physical delivery of such securities or to
pledge such securities, such holder must transfer its interest in the Global
Notes in accordance with the normal
159
<Page>
procedures of Euroclear or Clearstream Banking and in accordance with the
procedures set forth in the Indenture.
DEFINITIVE REGISTERED NOTES
Owners of Book-Entry Interests will be able to obtain Definitive
Registered Notes only in the following circumstances:
(1) if either Euroclear or Clearstream Banking notifies Preem Holdings that it
has ceased to act as a clearing agency and a successor is not appointed by
Preem Holdings within 120 days;
(2) if Euroclear or Clearstream Banking so request, following an Event of
Default under the Indenture;
(3) in whole (but not in part) at any time if Preem Holdings in its sole
discretion determines that the Global Notes should be exchanged for
Definitive Registered Notes; or
(4) if the owner of a Book-Entry Interest requests such exchange in writing
delivered through either Euroclear or Clearstream Banking following an
Event of Default under the Indenture.
Euroclear has advised Preem Holdings that, upon receipt of any request by
an owner of a Book-Entry Interest described in clause (4) above, its current
practice is to request that Preem Holdings issue or cause to be issued
Definitive Registered Notes to all owners of Book-Entry Interests. In such an
event, the applicable registrar or agent will issue Definitive Registered Notes
registered in the name or names and issued in any approved denominations,
requested by or on behalf of Euroclear and/or Clearstream Banking (in accordance
with their respective customary procedures and based upon directions received
from participants reflecting the beneficial ownership of Book-Entry Interests),
and bearing a restrictive legend, unless such legend is not required by the
Indenture or applicable law.
Preem Holdings shall not be required to register the transfer or exchange
of Definitive Registered Notes for a period of 15 calendar days preceding
(a) the record date for any payment of interest on the notes, (b) any date fixed
for redemption of the notes or (c) the date fixed for selection of the notes to
be redeemed in part. Also, Preem Holdings is not required to register the
transfer or exchange of any notes selected for redemption. In the event of the
transfer of any Definitive Registered Notes, the relevant Trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents as described in the Indenture. Preem Holdings may require a holder to
pay any taxes and fees required by law and permitted by the Indenture and the
notes. Payments of principal (which will be made against presentation and
surrender of the Definitive Registered Notes), any repurchase price, any
premium, and interest (which will be made against presentation of the Definitive
Registered Notes) on the Definitive Registered Notes will be payable by check at
the Company's office or agency in New York or at the offices of the Paying Agent
in Luxembourg. If Definitive Registered Notes are issued and a holder thereof
claims that such notes have been lost, destroyed or wrongfully taken or if such
notes are mutilated and surrendered to the Registrar or at the office of a
Transfer Agent, the Company shall issue and the relevant Trustee shall
authenticate a replacement note in definitive registered form if the relevant
Trustee's and the Company's requirements are met. The relevant Trustee or the
Company may require a holder requesting replacement of a note in definitive
registered form to furnish an indemnity bond sufficient in the judgment of both
to protect the Company, the relevant Trustee or any Paying Agent appointed
pursuant to the Indenture from any loss which any of them may suffer if a
Definitive Registered Notes is replaced. Preem Holdings will maintain a transfer
agent in Luxembourg for as long as the notes are listed on the Luxembourg Stock
Exchange. Preem Holdings may charge for its expenses in replacing a Definitive
Registered Note.
In case any such mutilated, destroyed, lost or stolen Definitive
Registered Notes has become or is about to become due and payable, or is about
to be redeemed or purchased by the Company
160
<Page>
pursuant to the provisions of the Indenture, the Company in its discretion may,
instead of issuing a new Definitive Registered Note, pay, redeem or purchase
such Definitive Registered Note, as the case may be.
Definitive Registered Notes may be transferred and exchanged for
Book-Entry Interests in a Global Note only in accordance with the Indenture.
Upon any such issuance, the Trustee is required to register such
Definitive Registered Notes in the name of such person or persons or the nominee
of any person and cause the same to be delivered thereto. In the event that
Definitive Registered Notes are issued, such Definitive Registered Notes shall
be available to holders at the offices of each of the paying agents, including
the office for the paying agent in Luxembourg.
INFORMATION CONCERNING EUROCLEAR AND CLEARSTREAM BANKING
Preem Holdings understands as follows with respect to Euroclear and
Clearstream Banking:
Euroclear and Clearstream Banking hold securities for participating
organizations and facilitate the clearance and settlement of securities
transactions between their respective participants through electronic book-entry
changes in accounts of these participants. Euroclear and Clearstream Banking
provide to their participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Euroclear and Clearstream Banking
interface with domestic securities markets. Euroclear and Clearstream Banking
participants are financial institutions including underwriters, securities
brokers and dealers, banks, trust companies and certain other organizations.
Indirect access to Euroclear or Clearstream Banking is also available to others
including banks, brokers, dealers and trust companies that clear through or
maintain a custodian relationship with a Euroclear or Clearstream Banking
participant, either directly or indirectly.
GLOBAL CLEARANCE AND SETTLEMENT UNDER THE BOOK-ENTRY SYSTEM
Book-Entry Interests owned through Euroclear or Clearstream Banking
accounts will follow the settlement procedures applicable to conventional
eurobonds in registered form. Book-Entry Interests will be credited to the
securities custody accounts of Euroclear and Clearstream Banking holders on the
business day following the settlement date against payment for value on the
settlement date.
The Book-Entry Interests will trade through participants of Euroclear or
Clearstream Banking and will settle in same-day funds.
Since the purchase determines the place of delivery, it is important to
establish at the time of trading of any Book-Entry Interests where both the
purchaser's and seller's accounts are located to ensure that settlement can be
made on the desired value date.
161
<Page>
MATERIAL SWEDISH AND UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes material Swedish income, wealth,
inheritance and gift tax consequences and United States federal income tax
consequences of the exchange of the existing notes for the new notes pursuant to
the exchange offer and the ownership and disposition of the new notes as of the
date hereof. Although the following discussion does not purport to describe all
of the tax considerations that may be relevant to a holder of the new notes,
such discussion (i) summarizes the material Swedish tax consequences that apply
to Non-Swedish Holders (as defined below), and (ii) summarizes the material
United States federal income tax consequences that apply to United States
Holders (as defined below) that exchange existing notes for new notes.
As used herein, a "Non- Swedish Holder" means a holder that is:
- an individual who is not a resident of Sweden and that has no connection
to Sweden under Swedish law other than his/her investment in the notes;
or
- an entity not organized under the laws of Sweden.
As used herein, a "United States Holder" means a beneficial owner of a
note that is:
- an individual citizen or resident of the United States;
- a corporation created or organized in or under the laws of the United
States or any political subdivision thereof;
- an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust that is subject to the supervision of a court within the United
States and the control of one or more United States persons.
The statements regarding United States and Swedish tax laws and practices
set forth below are based on the laws in force and as applied in practice on the
date of this prospectus, and are subject to changes to those laws and practices,
and any relevant judicial decision, subsequent to the date of this prospectus,
which changes may be retroactive.
This summary does not address all aspects of United States and Swedish
taxation that may be applicable to you in light of your particular
circumstances. We recommend that you consult with your own tax advisors as to
the United States, Swedish or other tax consequences of the exchange of your
existing notes for the new notes pursuant to the exchange offer and the
ownership and disposition of new notes, including the effect of any state or
local tax laws or the laws of any other country.
SWEDEN
The following is a summary of certain principal Swedish income,
inheritance and gift tax considerations for Non-Swedish Holders of the new
notes. The purpose of the summary is to generally outline material Swedish tax
consequences to Non- Swedish Holders of new notes. This summary does not discuss
all aspects of Swedish income, wealth, inheritance and gift taxation which may
be applicable to particular investors because of their individual investment
circumstances. In addition, this summary does not discuss any foreign tax
considerations.
Under Swedish law, payments of any principal, interest, Liquidated
Damages, premium, redemption price or Additional Amounts to a Non-Swedish Holder
of any new note will not be subject to Swedish income tax unless such Non-
Swedish Holder carries on a trade or business in Sweden to which the payments of
principal or interest are attributable. In addition, none of the new notes nor
any
162
<Page>
Non-Swedish Holder of such new notes will be subject to Swedish inheritance or
gift tax unless such Non-Swedish Holder:
- at the time of his death or at the time of the gift, as the case may be,
was a resident of Sweden; or
- was a Swedish citizen or married to a Swedish citizen and had been a
resident of Sweden at any time within the ten years preceding his death
or the gift, as the case may be; or
- was holding the notes in a trade or business that was carried on in
Sweden by the deceased or the donor, as the case may be.
Sweden does not levy any inheritance tax on the estate as such. None of
the new notes nor any Non-Swedish Holder of such new notes will be subject to
Swedish wealth tax.
Swedish law does not impose withholding tax on payments of principal,
interest, Liquidated Damages, premium, redemption price or Additional Amounts to
a Non-Swedish Holder of any new note.
Under Swedish law, capital gains on selling new notes will not be subject
to Swedish income tax unless a Non-Swedish Holder carries on a trade or business
in Sweden to which the capital gains are attributable.
The European Union is currently considering proposals for a new directive
regarding the taxation of savings income. Subject to a number of important
conditions being met, it is proposed that member states will be required to
provide to the tax authorities of another member state details of payments of
interest or other similar income paid by a person within its jurisdiction to an
individual resident in that other member state, subject to the right of certain
member states to opt instead for a withholding system of a transitional period
in relation to such payments. It is expected that Sweden will agree to supply
the relevant information to other member states. Consequently, we may be
required, upon the adoption of the proposals, to submit information regarding
savings income payable with respect to the new notes to individuals, which are
resident, for tax purposes, within the European Community, to tax authorities in
other member states.
NEW NOTES
The new notes will accrue interest at the same rate as the existing notes.
Individuals are normally taxed on a remittance basis. Because no interest is
remitted to the individual upon the exchange, no Swedish tax on interest will be
payable at that point in time.
The exchange of existing notes for new notes is treated as a sale and
purchase under Swedish tax law. Due to fluctuations in the market rate of
interest, the existing notes may have increased or decreased in value from the
date of issuance to the date of the exchange. In addition, the exchange rate
between the Euro and the Krona may have changed since the date on which the
existing notes were issued. Accordingly, a Swedish resident holding notes may
realize a capital gain or loss when exchanging the notes. Such capital gain is
taxable as income from capital at the rate of 30%. If there is a capital loss,
only 70% of the loss is deductible from other income from capital. If there is a
deficit in the capital income category, this deficit would qualify within
certain limits for a reduction of tax from employment income.
A legal entity resident in Sweden, or having a permanent establishment in
Sweden to which the notes are attributable, is taxed for interest on an accruals
basis, which means that the exchange of notes does not have any impact on the
taxation of interest. A capital gain on the exchange of notes is included in the
tax base of the entity and taxed at a rate of 28%. A capital loss is fully
deductible from other income.
163
<Page>
Non-Swedish Holders will not be taxed under Swedish tax law upon the
exchange of the notes.
UNITED STATES
The following summary deals only with new notes that will be held as
capital assets within the meaning of Section 1221 of the United States Internal
Revenue Code of 1986, as amended (the "Code"), by United States Holders, and
does not deal with persons that are subject to special tax rules, such as
dealers in securities or currencies, financial institutions, insurance
companies, tax-exempt entities, persons holding existing notes or new notes as a
part of a constructive sale, straddle, hedging, or conversion transaction or
other integrated transaction, traders in securities that elect to use a
mark-to-market method of accounting for their securities holdings, persons that
own (or are deemed for United States tax purposes to own) 10% or more of the
total combined voting power of all classes of voting stock of Preem Holdings,
persons that have a principal place of business or "tax home" outside the United
States or persons whose "functional currency" is not the Dollar. The discussion
below is based upon the provisions of the Code, and regulations, rulings and
judicial decisions thereunder as of the date hereof; any such authority may be
repealed, revoked or modified, perhaps with retroactive effect, so as to result
in United States federal income tax consequences different from those discussed
below.
If a partnership holds the new notes, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If the United States Holder is a partner of a partnership holding
the new notes, we urge such holder to consult their tax advisors.
EXCHANGE OFFER
A United States Holder will not recognize gain or loss upon an exchange of
the existing notes for new notes pursuant to the exchange offer. A United States
Holder's tax basis in the new notes received pursuant to the exchange offer will
be the same as such United States Holder's basis in the existing notes exchanged
therefor, and a United States Holder's holding period for new notes received
pursuant to the exchange offer will include such United States Holder's holding
period for the existing notes.
A U.S. Holder of an existing note may have acquired it at a "market
discount." For this purpose, "market discount" is the excess (if any) of the
Euro principal amount over the holder's Euro acquisition price, subject to a
statutory DE MINIMIS exception. While accrued market discount generally must be
recognized to the extent of gain realized on the disposition of a market
discount debt instrument, an exchange pursuant the exchange offer will not cause
any exchanging holder of an existing note that acquired it at a market discount
to recognize any accrued market discount as income. Instead, any accrued market
discount on an existing note that is exchanged for a new note will attach to the
new note. In addition, unaccrued market discount on such existing note will
carry over to the new note and will accrue over the term of the new note. See
"--Market Discount" below.
If a U.S. Holder's Euro acquisition price of an existing note exceeded the
Euro principal amount of such existing note, such excess constituted amortizable
bond premium which the U.S. Holder may have elected to amortize under a constant
yield method under Section 171 of the Code. If such an electing holder exchanges
an existing note for a new note, the remaining bond premium on the existing note
will carry over to and become bond premium on the new note and would be
amortizable over the term of the new note. See "--Amortizable Bond Premium"
below.
PAYMENT OF INTEREST
Interest on a new note will be taxable to a United States Holder as
ordinary income at the time that such interest accrues or is received, in
accordance with the United States Holder's regular method of accounting for
federal income tax purposes.
164
<Page>
A United States Holder that uses the cash method of accounting for United
States Federal income tax purposes will be required to include in income the
Dollar value of the amount of the interest payment (determined on the date such
payment is received) regardless of whether the payment is in fact converted to
Dollars at that time.
A United States Holder that uses the accrual method of accounting for
United States Federal income tax purposes, or who otherwise is required to
accrue interest prior to receipt, will be required to include in income the
Dollar value of the amount of interest income that has accrued and is otherwise
required to be taken into account with respect to the new notes during an
accrual period. The Dollar value of such accrued income will be determined by
translating such income at the average rate of exchange for the accrual period
or, with respect to an accrual period that spans two taxable years, at the
average rate for the partial period within the taxable year. A United States
Holder may elect, however, to translate such accrued interest income using the
rate of exchange on the last day of the accrual period or, with respect to an
accrual period that spans two taxable years, using the rate of exchange on the
last day of the taxable year. If the last day of an accrual period is within
five business days of the date of receipt of the accrued interest, a United
States Holder may translate such interest using the rate of exchange on the date
of receipt. The above election will apply to other debt obligations held by the
United States Holder and may not be changed without the consent of the Internal
Revenue Service. We encourage a United States Holder to consult a tax advisor
before making the above election.
A United States Holder will recognize exchange gain or loss (which will be
treated as ordinary income or loss) with respect to accrued interest income on
the date such income is received. The amount of ordinary income or loss
recognized will equal the difference, if any, between the Dollar value of the
interest payment received (determined on the date such payment is received) in
respect of such accrual period and the Dollar value of interest income that has
accrued during such accrual period (as determined above).
AMORTIZABLE BOND PREMIUM
If a new note has carry-over bond premium (as described in "--Exchange
Offer"), a United States Holder may elect to treat the excess (exclusive of any
amount attributable to pre-issuance accrued interest) as amortizable bond
premium. If a United States Holder makes this election, the United States Holder
will reduce the amount of interest required to be included in income each year
on the note by the amount of amortizable bond premium allocable to that year,
based on the note's yield to maturity. However, if the note was purchased at a
time when the note may be optionally redeemed for an amount in excess of its
principal amount, special rules would apply that could result in a deferral of a
portion of the amortization of bond premium until later in the term of the note.
The amortizable bond premium will be computed in the units of foreign currency
in which the note is denominated, and the amortizable bond premium will reduce
interest income in units of foreign currency. Gain or loss recognized that is
attributable to changes in exchange rates between the time the amortized bond
premium offsets interest income and the time the United States Holder acquired
the note is generally taxable as ordinary income or loss. If the United States
Holder makes an election to amortize bond premium, it will apply to all debt
instruments, other than debt instruments the interest on which is excludable
from gross income, that the United States Holder holds at the beginning of the
first taxable year to which the election applies or that the United States
Holder thereafter acquires, and this election may not be revoked without the
consent of the Internal Revenue Service.
MARKET DISCOUNT
If a new note has carry-over market discount (as described in "--Exchange
Offer"), a U.S. Holder will be required to treat any gain on the sale, exchange,
retirement or other disposition of such note as ordinary income to the extent of
the lessor of (i) the amount of such payment, and (ii) market
165
<Page>
discount which has not previously been included in income and is treated as
having accrued on such note at the time of such payment or disposition. If a
U.S. Holder makes a gift of a new note, accrued market discount, if any, will be
recognized as if such U.S. Holder has sold such new note for a price equal to
its fair market value. In addition, a U.S. Holder may be required to defer,
until the maturity of the note or its earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the note, unless the U.S.
Holder elects to accrue market discount on a constant interest method. Market
discount must be accrued in units of foreign currency, and translated into
Dollars at the spot rate on the date the note is disposed of. No part of such
accrued market interest will result in exchange gain or loss. A U.S. Holder may
elect to include market discount in income currently as it accrues (on either a
ratable or constant interest method), in which case the rules described above
regarding the treatment of gain as ordinary income upon the disposition of a
note and the deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first taxable year to which the
election applies and may not be revoked without the consent of the Internal
Revenue Service. If this election is made, market discount included in income
will generally be treated as interest, and the rules for translating interest
denominated in a foreign currency into Dollars will apply. See "--Payment of
Interest" above.
SALE, EXCHANGE OR RETIREMENT OF THE NEW NOTES
A United States Holder generally will recognize gain or loss on the sale,
exchange or retirement of a new note in an amount equal to the difference
between the amount realized on the sale, exchange or retirement (excluding
amounts received in respect of accrued interest, which will be taxable as such)
and the adjusted tax basis of the new note. If a United States Holder receives
foreign currency on such a sale, exchange or retirement, the amount realized
will be based on the Dollar value of the foreign currency on the date the
payment is received or the new note is disposed of (or deemed disposed of as a
result of a material change in the terms of the new note). Assuming the new note
is traded on an established securities market, a cash basis United States Holder
(or, upon election, an accrual basis United States Holder) will determine the
Dollar value of the amount realized by translating the foreign currency payment
at the spot rate of exchange on the settlement date of the sale. A United States
Holder's tax basis in a new note generally will be the adjusted tax basis of the
existing note surrendered in exchange therefor. The amount of any subsequent
adjustments to such United States Holder's tax basis will be the Dollar value of
the foreign currency amount of the adjustment, determined on the date of such
purchase or adjustment.
Except as discussed below for foreign currency gain or loss, gain or loss
recognized by a United States Holder on the sale, exchange or retirement of a
new note generally will be long-term capital gain or loss if the United States
Holder has held the new note (including the holding period of the existing note)
for more than one year at the time of disposition. The deductibility of capital
losses is subject to limitations.
Gain or loss realized upon the sale, exchange or retirement of a new note
that is attributable to fluctuations in currency exchange rates will be ordinary
income or loss, which will not be treated as interest income or expense. Gain or
loss attributable to fluctuations in exchange rates will equal the difference
between the Dollar value of the foreign currency principal amount of the new
note, determined on the date such payment is received or the new note is
disposed of, and the Dollar value of the foreign currency principal amount of
the new note, determined on the date the United States Holder acquired the note.
For these purposes, the foreign currency principal amount of a new note will be
the United States Holder's foreign currency purchase price for the existing note
exchanged therefor.
166
<Page>
Such foreign currency gain or loss will be recognized only to the extent of the
total gain or loss realized by the United States Holder on the sale, exchange or
retirement of the new note.
EXCHANGE OF FOREIGN CURRENCIES
A United States Holder will have a tax basis in any foreign currency
received as interest or on the sale, exchange or retirement of a new note equal
to the Dollar value of such foreign currency, determined at the time the
interest is received or at the time of the sale, exchange or retirement. Any
gain or loss realized by a United States Holder on a sale or other disposition
of foreign currency (including its exchange for Dollars or its use to purchase
new notes) will be ordinary income or loss.
FOREIGN TAX CREDIT
For United States foreign tax credit purposes, interest on a new note
generally will be treated as foreign-source income and as passive income,
subject to the separate foreign tax credit limitation (basket) for passive
income.
Gain or loss realized by a United States Holder on the sale or other
disposition of a new note generally will be treated as a United States-source
gain or loss. United States Holders are encouraged to consult their own tax
advisors regarding the application of the sourcing rules for foreign tax credit
purposes as it relates to their own circumstances.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal and interest on a new note and to the proceeds of the sale
of a new note made to United States Holders other than certain exempt recipients
(such as corporations). Backup withholding at a 31% rate will apply to such
payments if the United States Holder fails to provide its taxpayer
identification number or, in the case of interest payments, fails either to
report in full dividend and interest income or to make certain certifications.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against the United States Holder's United States federal
income tax liability provided the required information is furnished to the
Internal Revenue Service.
167
<Page>
PLAN OF DISTRIBUTION
Based on positions taken by the staff of the Commission set forth in
no-action letters issued to Exxon Capital Holdings Corp. and Morgan Stanley &
Co. Inc., among others, we believe that the new notes issued in the exchange
offer in exchange for the existing notes may be offered for resale, resold and
otherwise transferred by holders of such notes, other than any holder which is:
- an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act;
- a broker-dealer who acquired notes directly from the Company; or
- broker-dealers who acquired notes as a result of market-making or other
trading activities,
without compliance with the registration and prospectus delivery provisions for
the Securities Act, as long as:
- the new notes are acquired in the ordinary course of such holders'
business; and
- such holders are not engaged in, and do not intend to engage in, and have
no arrangement or understanding with any person to participate in, a
distribution of such new notes, provided that broker-dealers receiving
new notes in the exchange offer will be subject to a prospectus delivery
requirement with respect to resales of such new notes.
To date, the staff of the Commission has taken the position that
participating broker-dealers may fulfill their prospectus delivery requirements
for transactions involving an exchange of securities such as the exchange in the
exchange offer, other than a resale of an unsold allotment from the sale of the
existing notes to the initial purchasers, with this prospectus. Under the
registration rights agreements, we agreed to permit participating broker-dealers
and other persons, if any, subject to similar prospectus delivery requirements
to use this prospectus in connection with the resale of such new notes. We have
agreed that, for a period of 180 days after the exchange offer has been
consummated, we will make this prospectus, and any amendment or supplement,
available to any broker-dealer that requests such documents in the letter of
transmittal.
Each holder of existing notes who wishes to exchange its existing notes
for new notes in the exchange offer will be required to make certain
representations to us as set forth in "Exchange Offer and Registration Rights."
In addition, each holder who is a broker-dealer and who receives new notes for
its own account in exchange for existing notes that were acquired by it as a
result of market-making activities or other trading activities, will be required
to acknowledge that it will deliver a prospectus in connection with any resale
by it of such new notes.
Holders who tender existing notes in the exchange offer with the intention
to participate in a distribution of the new notes may not rely upon the Exxon
Capital Holdings Corp., the Morgan Stanley & Co. Inc. or similar no-action
letters.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account in
the exchange offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or at negotiated prices. Any such resale may be made directly to
purchasers, or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such new notes. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
We have agreed to pay all expenses incidental to the exchange offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the existing notes, including any
168
<Page>
broker-dealers, against certain liabilities, including liabilities under the
Securities Act, as set forth in the registration rights agreements.
WHERE YOU CAN FIND MORE INFORMATION
You will find additional information about us and the new notes in the
registration statement of which this prospectus forms a part. For more
information about statements in this prospectus about legal documents, we refer
you to copies of the documents that are filed as exhibits to the registration
statement.
You may read and copy the registration statement, the exhibits to the
registration statement and the reports and other information filed by us or to
be filed by us in accordance with the Exchange Act, at the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of such materials may also be obtained by mail from the Public Reference
Room of the Commission at prescribed rates. To obtain further information on the
operation of the Public Reference Room of the Commission, please call
+1-800-SEC-0330. Our filings will also be available to the public from
commercial document retrieval services and at the web site maintained by the
Commission at http://www.sec.gov.
We are currently not subject to the periodic reporting and other
informational requirements under the Exchange Act. Upon the effectiveness of the
registration statement, we will become subject to the informational requirements
of the Exchange Act and we will be required to file reports and other
information with the Commission. Following the consummation of the exchange
offer and the issuance of the new notes, we will file with the trustee under the
Indenture, within 15 days after we are required to file with the Commission,
copies of our annual reports specified in Sections 13 and 15(d) of the Exchange
Act. In addition, while any new notes remain outstanding, we will make available
upon request of any beneficial owner or any prospective purchaser of new notes
the information required by Rule 144A(d)(4) under the Securities Act during any
period in which Preem Holdings is not subject to Section 13 or 15(d) of the
Exchange Act. For so long as the new notes are listed on the Luxembourg Stock
Exchange, we will make available at the offices of the paying agent in
Luxembourg, the reports and other information required to be filed under the
Exchange Act or under Rule 144(d)(4) of the Securities Act.
As a foreign issuer, we will be exempt from certain periodic reporting
requirements under the Exchange Act and certain rules under the Exchange Act
relating to short swing profits reporting and liability and prescribing the
furnishing and content of proxy statements.
You should rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from the
information contained in this prospectus or incorporated by reference in this
prospectus.
LEGAL MATTERS
The validity of the new notes offered hereby will be passed upon for us by
Akin, Gump, Strauss, Hauer & Feld (Solicitors & Registered Foreign Lawyers),
London, England, as to matters of U.S. law, and by Mannheimer Swartling,
Stockholm, Sweden, as to matters of Swedish law.
INDEPENDENT ACCOUNTANTS
The Consolidated Financial Statements of Preem Petroleum AB and the
Financial Statements of Preem Holdings AB as of December 31, 2000, 1999 and 1998
and for each of the years in the three-year period ended December 31, 2000
included in this prospectus have been so included in reliance on the reports of
KPMG, Stockholm, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
169
<Page>
LISTING AND GENERAL INFORMATION
1. Our address is Sandhamnsgatan 51, P.O. Box 27800, S-11590, Stockholm,
Sweden.
2. We expect to list the new notes on the Luxembourg Stock Exchange. So
long as any of the new notes are listed on the Luxembourg Stock Exchange and the
rules and regulations governing the listing of the new notes on such exchange
shall so require, we will maintain a paying agent and a transfer agent in
Luxembourg. We have appointed Deutsche Bank Luxembourg S.A. to act as our paying
agent and transfer agent in Luxembourg. We reserve the right to vary such
appointment and shall publish notice of such change of appointment in a
newspaper having a general circulation in Luxembourg (which is expected to be
the LUXEMBURGER WORT). The paying agent in Luxembourg will act as intermediary
between the holders of the notes and us.
3. So long as the notes are listed on the Luxembourg Stock Exchange and
the rules of such stock exchange shall so require, copies of the following
documents will be available at the office of Deutsche Bank Luxembourg S.A., 2,
boulevard Konrad Adenauer, L-1115 Luxembourg during normal business hours on any
weekday: (i) the Articles of Association of Preem Holdings AB and the Indenture;
(ii) copies of the financial statements of Preem Holdings AB and Preem Petroleum
AB and any and all future annual and quarterly reports of Preem Holdings AB and
Preem Petroleum AB; and (iii) all other material documents referenced herein
that are entered into in connection with both offerings of the notes. The
accounts of Preem Holdings AB were prepared and audited on a stand-alone basis
for the year ended December 31, 2000, and, for subsequent years, will be
prepared and audited on a consolidated and stand-alone basis. The accounts of
Preem Petroleum AB have been, and will continue to be, prepared and audited on a
consolidated and stand-alone basis. Copies of Preem Petroleum AB's consolidated
and stand-alone accounts will be included in the financial information that will
be available at the office of Deutsche Bank Luxembourg S.A.
4. We were originally incorporated under the laws of Sweden in 1980 and
were a subsidiary of Preem Petroleum AB that had been dormant since 1983. We are
registered with the Swedish Patent and Registration Office under number
556206-9673. On March 1, 2001, our name was changed from Swedoil AB to Preem
Holdings AB, and our status was changed from a private company into a public
company with the power to raise capital through the issuance of securities. The
creation and issuances of the existing notes in April and July 2001 were
authorized on behalf of Preem Holdings AB by resolutions adopted by our Board of
Directors on March 1, 2001 and July 2, 2001, respectively.
5. We accept responsibility for the information contained in this
prospectus. To our best knowledge, except as otherwise noted, the information
contained in this prospectus is in accordance with the facts and does not omit
anything likely to affect the import of this prospectus.
6. There has been no material adverse change in the financial position of
either Preem Holdings AB or of Preem Petroleum AB since March 31, 2001.
7. Neither Preem Holdings AB nor Preem Petroleum AB is a party to any
litigation that, in Preem Holdings AB's judgment, could be material in the
context of the issue or exchange of the notes, except as disclosed herein.
8. Preem Holdings AB's auditors are KPMG, Stockholm, which have audited
the Consolidated Financial Statements of Preem Petroleum AB for the years ended
December 31, 2000, 1999 and 1998.
9. Holders of Global Notes will be able to hold their notes through
Euroclear and Clearstream. The Global Note has a Common Code number of 012962967
and an ISIN of XS0129629670.
------------------------
You should rely only on the information provided in this prospectus or any
prospectus supplement. We have not authorized anyone else to provide you with
different information. We are not making any offer of these securities in any
state where the offer is not permitted.
170
<Page>
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
DEUTSCHE BANK AG LONDON
<Table>
IN LUXEMBOURG: IN THE UNITED KINGDOM:
Deutsche Bank Luxembourg S.A. Deutsche Bank AG London
2 Boulevard Konrad Adenauer Winchester House
L-1115 Luxembourg 1 Great Winchester Street
Attn: Peter Dickinson London EC2N 2DB
Telephone: +35 2 421 22641 England
Facsimile: +35 2 465 802 Tel: +44 207 547 7406
Fax: +44-207-547-0012
</Table>
Any questions or requests for assistance or additional copies of this
prospectus and the letter of transmittal may be directed to the exchange agent
at its telephone number and address set forth above. You may also contact your
broker, dealer, commercial banker or trust company or other nominee for
assistance concerning the exchange offer.
171
<Page>
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
INTERIM FINANCIAL STATEMENTS (UNAUDITED)--PREEM HOLDINGS AB
Interim Consolidated Statements of Operations for the
three-month periods ended March 31, 2000 and March 31,
2001...................................................... F-2
Interim Consolidated Balance Sheet as of March 31, 2001..... F-3
Interim Consolidated Statements of Cash Flows for the
three-month periods ended March 31, 2000 and March 31,
2001...................................................... F-5
Notes to the Interim Consolidated Condensed Financial
Statements................................................ F-6
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--PREEM
PETROLEUM AB
Interim Consolidated Statements of Operations for the
three-month periods ended March 31, 2000 and March 31,
2001...................................................... F-10
Interim Consolidated Balance Sheet as of March 31, 2001..... F-11
Interim Consolidated Statements of Cash Flows for the
three-month periods ended March 31, 2000 and March 31,
2001...................................................... F-13
Notes to the Interim Consolidated Financial Statements...... F-14
FINANCIAL STATEMENTS--PREEM HOLDINGS AB
Report of independent accountants........................... F-18
Statements of Operations for each of the years in the
three-year period ended December 31, 2000................. F-19
Balance Sheets as of December, 31 1999 and 2000............. F-20
Statements of Cash Flows for each of the years in the
three-year period ended December 31, 2000................. F-21
Notes to the Financial Statements........................... F-22
CONSOLIDATED FINANCIAL STATEMENTS--PREEM PETROLEUM AB
Report of independent accountants........................... F-25
Consolidated Statements of Operations for each of the years
in the three-year period ended December 31, 2000.......... F-26
Consolidated Balance Sheets as of December 31, 1999 and
2000...................................................... F-27
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 31, 2000.......... F-29
Notes to the Consolidated Financial Statements.............. F-31
</Table>
F-1
<Page>
PREEM HOLDINGS AB AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
<Table>
<Caption>
THREE-MONTH PERIOD ENDED
MARCH 31,
------------------------------
2000 2001
-------- -------------------
SEK SEK $
(IN MILLIONS)
Revenues.................................................... -- -- --
Excise duties............................................... -- -- --
------- ------- -------
SALES REVENUE............................................... -- -- --
------- ------- -------
Cost of goods sold.......................................... -- -- --
GROSS PROFIT................................................ -- -- --
Selling expenses............................................ -- -- --
Administrative expenses..................................... -- -- --
Other operating income...................................... -- -- --
------- ------- -------
OPERATING INCOME............................................ -- -- --
Interest income............................................. -- -- --
Other financial income...................................... -- -- --
Interest expense............................................ -- -- --
Other financial expenses.................................... -- -- --
------- ------- -------
INCOME BEFORE TAXES......................................... -- -- --
Income taxes................................................ -- -- --
Minority interests.......................................... -- -- --
------- ------- -------
NET INCOME.................................................. -- -- --
======= ======= =======
</Table>
The accompanying notes form an integral part of these Interim Consolidated
Financial Statements.
F-2
<Page>
PREEM HOLDINGS AB AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MARCH 31, 2001
<Table>
<Caption>
AS OF
DECEMBER 31, AS OF MARCH 31,
------------ -------------------
2000 2001
------------ -------------------
SEK SEK $
(IN MILLIONS)
ASSETS
FIXED ASSETS
INTANGIBLE FIXED ASSETS
Capitalized turnaround cost, net............................ -- 128 12
Goodwill, net............................................... -- 3,335 307
------ ------ ------
TOTAL INTANGIBLE ASSETS..................................... -- 3,463 319
TANGIBLE ASSETS
Land and building, net...................................... -- 859 79
Plant and machinery, net.................................... -- 3,407 314
Equipment, tools fixtures and fittings, net................. -- 651 60
Construction in progress.................................... -- 222 20
------ ------ ------
TOTAL TANGIBLE FIXED ASSETS................................. -- 5,139 473
FINANCIAL ASSETS
Participations in associated companies...................... -- 190 18
Other securities held as fixed assets....................... -- 2 --
Other long-term receivables................................. -- 53 5
------ ------ ------
TOTAL FINANCIAL ASSETS...................................... 0 245 23
TOTAL FIXED ASSETS.......................................... 0 8,847 815
CURRENT ASSETS
Inventories (Note 2)........................................ -- 4,003 369
Accounts receivable......................................... -- 3,480 321
Receivables from associated companies....................... -- 29 3
Other receivables........................................... -- 343 31
Prepaid expenses and accrued income......................... -- 142 13
------ ------ ------
-- 7,997 737
Cash and cash equivalents................................... -- 299 28
------ ------ ------
TOTAL CURRENT ASSETS........................................ -- 8,296 765
------ ------ ------
TOTAL ASSETS................................................ 0 17,143 1,580
====== ====== ======
</Table>
The accompanying notes form an integral part of these Interim Consolidated
Financial Statements.
F-3
<Page>
PREEM HOLDINGS AB AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MARCH 31, 2001
<Table>
<Caption>
AS OF
DECEMBER 31, AS OF MARCH 31,
------------ -------------------
2000 2001
------------ -------------------
SEK SEK $
(IN MILLIONS)
SHAREHOLDERS' EQUITY, PROVISIONS AND LIABILITIES
SHAREHOLDERS' EQUITY (NOTE 3)
RESTRICTED EQUITY
Share capital............................................... 0 0 0
Restricted reserves......................................... -- -- --
------ ------ ------
NON-RESTRICTED EQUITY
Profit brought forward...................................... -- 5,516 508
Profit for the period....................................... -- -- --
------ ------ ------
-- 5,516 508
TOTAL SHAREHOLDERS' EQUITY.................................. 0 5,516 508
====== ====== ======
Minority interests.......................................... -- 123 11
PROVISIONS
Pension provision........................................... -- 189 17
Deferred tax liability...................................... -- 255 24
Other provisions............................................ -- 119 11
------ ------ ------
TOTAL PROVISIONS............................................ -- 563 52
LIABILITIES
LONG-TERM LIABILITIES
Shareholder loans........................................... -- 2,259 209
Liabilities to credit institutions (Note 4)................. -- 3,257 300
Bank overdraft facility..................................... -- 89 8
------ ------ ------
TOTAL LONG-TERM LIABILITIES................................. -- 5,605 517
------ ------ ------
CURRENT LIABILITIES
Liabilities to credit institutions (Note 5)................. -- 1,085 100
Advanced payment from customers............................. -- 137 13
Accounts payable............................................ -- 1,425 131
Liabilities to parent company............................... -- 99 9
Liabilities to associated companies......................... -- 24 2
Income tax payable.......................................... -- 244 23
Other liabilities........................................... -- 1,714 158
Accrued expenses and prepaid income......................... -- 608 56
------ ------ ------
TOTAL CURRENT LIABILITIES................................... -- 5,336 492
------ ------ ------
TOTAL SHAREHOLDERS' EQUITY, PROVISION AND LIABILITIES....... 0 17,143 1,580
====== ====== ======
</Table>
The accompanying notes form an integral part of these Interim Consolidated
Financial Statements.
F-4
<Page>
PREEM HOLDINGS AB AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
<Table>
<Caption>
THREE-MONTH PERIOD
ENDED MARCH 31,
------------------------------
2000 2001 2001
-------- -------- --------
SEK SEK $
(IN THOUSANDS)
CASH FLOW FROM OPERATIONS
Net income (loss)........................................... -- -- --
---- ---- ----
TOTAL CASH FLOW FROM OPERATIONS............................. -- -- --
---- ---- ----
INVESTING ACTIVITIES........................................ -- -- --
---- ---- ----
TOTAL CASH FLOW USED IN INVESTING ACTIVITIES................ -- -- --
---- ---- ----
FINANCING ACTIVITIES
TOTAL CASH FLOW PROVIDED BY (USED IN) FINANCING
ACTIVITIES)............................................... -- -- --
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... -- -- --
---- ---- ----
Beginning balances of cash and cash equivalents............. -- -- --
==== ==== ====
ENDING BALANCE OF CASH AND CASH EQUIVALENTS................. -- -- --
Interest paid............................................... -- -- --
---- ---- ----
Taxes paid.................................................. -- -- --
---- ---- ----
</Table>
The accompanying notes form an integral part of these Interim Consolidated
Financial Statements.
F-5
<Page>
PREEM HOLDINGS AB AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Amounts in millions of SEK unless otherwise specified.
GENERAL ACCOUNTING PRINCIPLES
The accompanying Interim Consolidated Financial Statements present the
financial position and results of operations of the Company and have been
prepared in accordance with Swedish GAAP. These accounting principles differ in
certain significant respects from U.S. GAAP. See note 6 for a discussion of the
principal differences between Swedish GAAP and U.S. GAAP affecting the
consolidated net income and shareholders' equity of the Company.
Preem Holdings AB was originally established in 1980 as Labrador Svenska
AB and is registered with the Swedish Patent and Registration Office under the
number 556206-9673. Swedoil AB was a subsidiary of Preem Petroleum AB that had
been dormant since 1983. The name was changed from Labrador Svenska AB to
Swedoil AB in September 1981. On March 1, 2001, its name was changed from
Swedoil AB to Preem Holdings AB, and its status was changed from a private
company to a public company with the power to raise capital through the issuance
of securities. Following its transformation into a public company, the share
capital of Preem Holdings AB consisted of 5,000 authorized shares of common
stock with a par value of SEK100 each, of which 5,000 shares were issued and
outstanding and fully paid. Corral Petroleum Holdings AB, a Swedish company,
contributed all of the issued and outstanding shares of Preem Petroleum AB to
Preem Holdings AB on March 19, 2001. Preem Holdings AB is wholly-owned by Corral
Petroleum Holdings AB, which is wholly-owned by Moroncha Holdings Company
Limited, which is wholly-owned by Mr. Mohammed Hussein Ali Al-Amoudi.
Under Swedish GAAP, Corral Petroleum Holdings AB's contribution of the
issued and outstanding shares of Preem Petroleum AB to Preem Holdings AB is
accounted for as a purchase. The difference between the net book value on Corral
Petroleum Holdings AB's books of the Preem Petroleum AB shares and the net
assets of Preem Petroleum AB as of March 31, 2001 has been allocated to
goodwill. Under U.S. GAAP, acquisition accounting does not apply to transfers of
net assets between entities under common control. Accordingly, the assets and
liabilities of Preem Petroleum AB are recorded at their historical cost basis in
Preem Petroleum AB in a manner similar to a pooling of interest.
The Company has not performed any operations during the financial years in
the three-month periods ended March 31, 2000 and 2001.
The interim financial information included in the Interim Consolidated
Financial Statements is unaudited but reflects all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results for the interim periods
presented. Interim results for the three months ended March 31, 2001 are not
necessarily indicative of the results to be expected for the full year.
Solely for the convenience of the reader, the financial statements have
been translated from Swedish Kronor (SEK) into U.S. Dollar ($) using the
June 30, 2001, exchange rate of $1.00 = SEK10.85.
F-6
<Page>
PREEM HOLDINGS AB AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
NOTE 2. INVENTORIES
<Table>
<Caption>
AS OF
------------------------
DECEMBER 31, MARCH 31,
2000 2001
------------ ---------
Raw material and supplies................................... -- 1,797
Finished products........................................... -- 2,206
----- -----
-- 4,003
===== =====
</Table>
NOTE 3. SHAREHOLDERS' EQUITY
The Company's share capital include 5,000 shares with a par value of
SEK100 each.
<Table>
<Caption>
TOTAL
SHARE RESTRICTED UNRESTRICTED SHAREHOLDERS'
CAPITAL RESERVES RESERVES EQUITY
-------- ---------- ------------ -------------
SEK SEK SEK SEK
(IN THOUSANDS)
BALANCE AT JANUARY 1, 1998.......................... 50 50 -- 100
Net income for the year............................. -- -- -- --
Transfer between reserves........................... 50 (50) -- --
--- --- --------- ---------
BALANCE AT DECEMBER 31, 1998........................ 100 -- -- 100
--- --- --------- ---------
Net loss for the year............................... -- -- -- --
Transfer between reserves........................... -- -- -- --
--- --- --------- ---------
BALANCE AT DECEMBER 31, 1999........................ 100 -- -- 100
--- --- --------- ---------
Net income for the year............................. -- -- -- --
BALANCE AT DECEMBER 31, 2000........................ 100 -- -- 100
=== === ========= =========
Shareholder contribution............................ -- -- 5,516,000 5,516,000
--- --- --------- ---------
New issuance of shares.............................. 400 -- -- 400
--- --- --------- ---------
BALANCE AT MARCH 31, 2001........................... 500 -- 5,516,000 5,516,500
=== === ========= =========
</Table>
The company issued 4,000 new shares with a par value SEK100 each during
the first quarter 2001. The company's share capital amounts to SEK500 thousands
thereafter.
NOTE 4. LONG-TERM LIABILITIES TO CREDIT INSTITUTIONS
The Company has, as of March 31, 2001, debt of SEK48 million secured by
real estate mortgages and SEK497 million of debt that is quarantined by a
financial institution.
F-7
<Page>
PREEM HOLDINGS AB AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
NOTE 5. CURRENT LIABILITIES TO CREDIT INSTITUTIONS
<Table>
<Caption>
AS OF
------------------------
DECEMBER 31, MARCH 31,
2000 2001
------------ ---------
Short-term portion of long-term debt........................ -- 323
Other loans................................................. -- 762
----- -----
-- 1,085
===== =====
</Table>
NOTE 6. U.S. GAAP INFORMATION
The following is a summary of the most significant differences between
Preem Holdings AB's accounts in accordance with Swedish and U.S. GAAP.
<Table>
<Caption>
THREE MONTHS
ENDED MARCH 31,
-------------------
2000 2001
-------- --------
Net income for the period according to Swedish GAAP......... -- --
Adjustments in accordance with U.S. GAAP:
Net income in Preem Petroleum AB and Subsidiaries
according to Swedish GAAP................................. 239 162
Pensions.................................................. 1 1
Pension refund............................................ -- 3
Goodwill amortization..................................... (33) (33)
Income taxes.............................................. (67) (46)
Income tax effects of U.S. GAAP adjustment................ -- (1)
------ ------
Net income according to U.S. GAAP........................... 140 86
====== ======
Basic and diluted income per share in accordance with U.S.
GAAP(A)................................................... 28,000 17,200
====== ======
Weighted-average number of shares outstanding (in
thousands)(A)............................................. 5 5
====== ======
</Table>
- ------------
(A) Basic and diluted income per share data in accordance with U.S. GAAP is
presented assuming the current capitalization of Preem Holdings AB for all
periods.
<Table>
<Caption>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MARCH 31,
2000 2001
------------ ------------
Shareholder's equity according to Swedish GAAP.............. -- 5,516
Adjustments in accordance with U.S. GAAP:
Shareholder's equity of Preem Petroleum AB according to
Swedish GAAP.............................................. 2,420 --
Difference between the net book value of the Preem
Petroleum AB shares on Corral Petroleum Holdings AB's
books and the net assets of Preem Petroleum AB as of March
31, 2001 (allocated to goodwill).......................... -- (2,939)
Pensions.................................................. 50 51
Pension refund............................................ (89) (86)
Goodwill.................................................. 1,098 1,065
Income taxes.............................................. -- (46)
</Table>
F-8
<Page>
PREEM HOLDINGS AB AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
NOTE 6. U.S. GAAP INFORMATION (CONTINUED)
<Table>
<Caption>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MARCH 31,
2000 2001
------------ ------------
Accumulated income tax effects............................ 10 10
----- ------
According to U.S. GAAP...................................... 3,489 3,571
===== ======
</Table>
Under Swedish GAAP, Corral Petroleum Holdings AB's contribution of all of
the issued and outstanding shares of Preem Petroleum AB to Preem Holdings AB is
accounted for as a purchase. The difference between the net book value of the
Preem Petroleum AB shares on Corral Petroleum Holdings AB's books and the net
assets of Preem Petroleum AB as of March 31, 2001 has been allocated to
goodwill. Under U.S. GAAP, acquisition accounting does not apply to transfers of
net assets between entities under common control. Accordingly, the assets and
liabilities of Preem Petroleum AB are recorded by Preem Holdings AB at their
cost basis in Preem Petroleum AB in a manner similar to a pooling of interests,
with the financial statements restated to give effect to the transaction as if
Preem Holdings AB and Preem Petroleum AB had been combined for the periods
presented.
A description of differences between Swedish GAAP and U.S. GAAP, which
significantly affect the determination of net income and shareholders' equity of
Preem Petroleum AB is set forth in note 8 to the Interim Consolidated Financial
Statements of Preem Petroleum AB and note 25 to the Consolidated Financial
Statements of Preem Petroleum AB, included elsewhere in this prospectus.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards
for the reporting and presentation of comprehensive income and its components in
a full set of financial statements. Comprehensive income generally encompasses
all changes in shareholders' equity (except those arising from transactions with
the owners) and includes net income (loss), net unrealized capital gains or
losses on marketable securities and foreign currency translation adjustments.
Comprehensive income in accordance with U.S. GAAP for the three-month periods
ended March 31, 2000 and 2001 was SEK127 million and SEK81 million,
respectively.
NOTE 7. SUBSEQUENT EVENTS
On April 10, 2001, Preem Holdings AB issued senior secured notes in an
aggregate amount of E250 million. These notes are senior debt secured by a first
priority pledge of all outstanding shares of capital stock of Preem Petroleum AB
and a first priority security assignment of a subordinated intercompany loan
from Preem Holdings AB to Preem Petroleum AB.
F-9
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
<Table>
<Caption>
THREE-MONTH PERIOD
ENDED MARCH 31,
------------------------------
2000 2001
-------- -------------------
SEK SEK $
(IN MILLIONS)
Revenues.................................................... 10,298 11,598 1,069
Excise duties............................................... (1,606) (2,295) (212)
------ ------ -----
SALES REVENUE (NOTE 2)...................................... 8,692 9,303 857
Cost of goods sold.......................................... (8,193) (8,744) (806)
------ ------ -----
GROSS PROFIT................................................ 499 559 51
Selling expenses............................................ (207) (219) (20)
Administrative expenses..................................... (51) (70) (6)
Other operating income...................................... 69 80 7
------ ------ -----
OPERATING INCOME (NOTE 3)................................... 310 350 32
Interest income............................................. 11 15 1
Other financial income...................................... 4 (1) --
Interest expense............................................ (61) (67) (6)
Other financial expenses.................................... (24) (133) (12)
------ ------ -----
INCOME BEFORE TAXES......................................... 240 164 15
Income taxes(1)............................................. -- (1) --
Minority interests.......................................... (1) (1) --
------ ------ -----
NET INCOME.................................................. 239 162 15
====== ====== =====
</Table>
- ------------
(1) Income taxes do not generally reflect cash payable or paid, because Preem
Petroleum AB transfers, to the extent possible, its taxable income to its
parent company as a group contribution, which is in the form of a
book-entry dividend as per the year-end.
The accompanying notes form an integral part of these Interim Consolidated
Financial Statements.
F-10
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MARCH 31, 2001
<Table>
<Caption>
AS OF
DECEMBER 31, AS OF MARCH 31,
------------ -------------------
2000 2001
------------ -------------------
SEK SEK $
(IN MILLIONS)
ASSETS
FIXED ASSETS
INTANGIBLE FIXED ASSETS
Capitalized turnaround cost, net............................ 145 128 12
Goodwill, net............................................... 420 396 36
------ ------ ------
TOTAL INTANGIBLE ASSETS..................................... 565 524 48
TANGIBLE ASSETS
Land and building, net...................................... 837 859 79
Plant and machinery, net.................................... 3,480 3,407 314
Equipment, tools fixtures and fittings, net................. 657 651 60
Construction in progress.................................... 186 222 20
------ ------ ------
TOTAL TANGIBLE FIXED ASSETS................................. 5,160 5,139 473
FINANCIAL ASSETS
Participations in associated companies...................... 190 190 18
Other securities held as fixed assets....................... 2 2 --
Other long-term receivables................................. 56 53 5
------ ------ ------
TOTAL FINANCIAL ASSETS...................................... 248 245 23
------ ------ ------
TOTAL FIXED ASSETS.......................................... 5,973 5,908 544
CURRENT ASSETS
Inventories (Note 4)........................................ 4,495 4,003 40
Accounts receivable......................................... 3,398 3,480 321
Receivables from associated companies....................... 60 29 3
Other receivables........................................... 302 343 32
Prepaid expenses and accrued income......................... 120 142 13
------ ------ ------
8,375 7,997 737
Cash and cash equivalents................................... 370 299 28
------ ------ ------
TOTAL CURRENT ASSETS........................................ 8,745 8,296 765
------ ------ ------
TOTAL ASSETS................................................ 14,718 14,204 1,309
====== ====== ======
</Table>
The accompanying notes form an integral part of these Interim Consolidated
Financial Statements.
F-11
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MARCH 31, 2001
<Table>
<Caption>
AS OF
DECEMBER 31, AS OF MARCH 31,
------------ -------------------
2000 2001
------------ -------------------
SEK SEK $
(IN MILLIONS)
SHAREHOLDERS' EQUITY, PROVISIONS AND LIABILITIES
SHAREHOLDERS' EQUITY (NOTE 5)
RESTRICTED EQUITY
Share capital............................................... 610 610 56
Restricted reserves......................................... 1,797 1,797 165
------ ------ ------
NON-RESTRICTED EQUITY
Loss/profit brought forward................................. (818) 8 1
Profit for the period....................................... 831 162 15
------ ------ ------
13 170 16
TOTAL SHAREHOLDERS' EQUITY.................................. 2,420 2,577 237
====== ====== ======
Minority interests.......................................... 122 123 11
PROVISIONS
Pension provision........................................... 188 189 17
Deferred tax liability...................................... 254 255 24
Other provisions............................................ 118 119 11
------ ------ ------
TOTAL PROVISIONS............................................ 560 563 52
LIABILITIES
LONG-TERM LIABILITIES
Shareholder loans........................................... 2,259 2,259 209
Liabilities to credit institutions (Note 6)................. 2,814 3,257 300
Bank overdraft facility..................................... 135 89 8
------ ------ ------
TOTAL LONG-TERM LIABILITIES................................. 5,208 5,605 517
------ ------ ------
CURRENT LIABILITIES
Liabilities to credit institutions (Note 7)................. 1,321 1,085 100
Advanced payment from customers............................. 134 137 13
Accounts payable............................................ 1,082 1,425 131
Liabilities to parent company............................... 1,001 99 9
Liabilities to associated companies......................... 53 24 2
Income tax payable.......................................... 58 244 23
Other liabilities........................................... 1,748 1,714 158
Accrued expenses and prepaid income......................... 1,011 608 56
------ ------ ------
TOTAL CURRENT LIABILITIES................................... 6,408 5,336 492
------ ------ ------
TOTAL SHAREHOLDERS' EQUITY, PROVISION AND LIABILITIES....... 14,718 14,204 1,309
====== ====== ======
</Table>
The accompanying notes form an integral part of these Interim Consolidated
Financial Statements.
F-12
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
<Table>
<Caption>
THREE-MONTH PERIOD
ENDED MARCH 31,
------------------------------
2000 2001
-------- -------------------
SEK SEK $
(IN MILLIONS)
INCOME FROM OPERATION
INCOME AFTER FINANCIAL ITEMS................................ 240 164 15
ADJUSTMENTS FOR NON-CASH ITEMS
DEPRECIATION AND AMORTIZATION............................. 164 167 15
UNREALIZED EXCHANGE LOSSES................................ -- 142 13
------ ------ -----
808 473 43
TAXES PAID.................................................. -- -- --
CASH FLOW FROM OPERATING ACTIVITIES BEFORE CHANGES IN
WORKING CAPITAL........................................... 404 473 43
CASH FLOWS WORKING CAPITAL
Decrease (Increase) in inventories.......................... (505) 492 46
Decrease (Increase) in current receivables.................. (58) (114) (10)
Increase in liabilities..................................... 372 4 --
------ ------ -----
CASH FLOW FROM OPERATING ACTIVITIES......................... 213 855 79
INVESTMENT ACTIVITIES
Investment in intangible fixed assets....................... -- (2) --
Investment in tangible fixed assets......................... (48) (98) (9)
Sale of tangible fixed assets............................... -- 3 --
Increase on long-term receivables........................... (2) -- --
------ ------ -----
CASH FLOW USED IN INVESTMENT ACTIVITIES..................... (50) (97) (9)
FINANCING OPERATION
New loans from credit institutions.......................... 231 199 19
Payment of loans from credit institutions................... -- (128) (12)
Group contributions paid.................................... -- (900) (83)
------ ------ -----
CASH FLOW FROM/USED IN FINANCING ACTIVITIES................. 231 (829) (76)
------ ------ -----
CASH FLOW OF THE PERIOD..................................... 394 (71) (6)
Cash and cash equivalents at the beginning of the period.... 270 370 34
------ ------ -----
Cash and cash equivalents at the end of the period.......... 664 299 28
====== ====== =====
</Table>
The accompanying notes form an integral part of these Interim Consolidated
Financial Statements.
F-13
<Page>
PREEM PETROLEUM AB AND CONSOLIDATED SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
NOTE 1. BASIS OF PREPARATION
The accompanying Interim Consolidated Financial Statements present the
financial position and results of operations of the Company and have been
prepared in accordance with Swedish GAAP. These accounting principles differ in
certain significant respects from U.S. GAAP. See Note 8 for a discussion of the
principal differences between Swedish GAAP and U.S. GAAP affecting the
consolidated net income and shareholder's equity of the Company.
The interim financial information included in the Interim Consolidated
Financial Statements is unaudited but reflects all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results for the interim periods
presented. Interim results for the three months ended March 31, 2001 are not
necessarily indicative of the results to be expected for the full year.
Solely for the convenience of the reader, the financial statement for all
periods have been translated into U.S. Dollar ($) using the June 30, 2001 rate
of $1.00 = SEK10.85.
NOTE 2. SALES REVENUE
<Table>
<Caption>
THREE MONTHS
ENDING
MARCH 31,
-------------------
2000 2001
-------- --------
Supply and Refining......................................... 7,787 8,207
Swedish Market.............................................. 2,297 2,668
International............................................... 214 396
----- -----
8,692 9,303
===== =====
</Table>
NOTE 3. OPERATING INCOME
<Table>
<Caption>
THREE MONTHS
ENDING
MARCH 31,
----------------------
2000 2001
-------- --------
Supply and Refining......................................... 268 197
Swedish Market.............................................. 35 42
International............................................... (8) (15)
Other Non-allocated Income (expense), net................... 15 126
--- ---
310 350
=== ===
</Table>
F-14
<Page>
PREEM PETROLEUM AB AND CONSOLIDATED SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
NOTE 4. INVENTORIES
<Table>
<Caption>
AS OF
------------------------
DECEMBER 31, MARCH 31,
2000 2001
------------ ---------
Raw materials and supplies.................................. 2,008 1,797
Finished products........................................... 2,487 2,206
----- -----
TOTAL....................................................... 4,495 4,003
===== =====
</Table>
NOTE 5. SHAREHOLDERS' EQUITY
Restricted reserves include both untaxed reserves (net of deferred taxes)
and legal reserves. The legal reserves of SEK1,266 million are not available for
distribution as they are required to be held to meet statutory requirements in
Sweden and other countries where group companies operate.
The changes in shareholder's equity for the period December 31, 2000 to
March 31, 2001 are as follows:
<Table>
<Caption>
TOTAL
SHARE RESTRICTED UNRESTRICTED SHAREHOLDERS'
CAPITAL RESERVES RESERVES EQUITY
-------- ---------- ------------ -------------
(SEK IN MILLIONS)
Balance at December 31, 2000........................ 610 1,797 13 2,420
Foreign currency translation adjustments............ -- -- (5) (5)
Net income.......................................... -- -- 162 162
--- ----- --- -----
Balance at March 31, 2001........................... 610 1,797 170 2,577
=== ===== === =====
</Table>
NOTE 6. LONG-TERM LIABILITIES TO CREDIT INSTITUTIONS
The Company has as of March 31, 2001 debt of SEK49 million secured by real
estate mortgages and SEK497 million of debt that is guaranteed by a financial
institution.
NOTE 7. CURRENT LIABILITIES TO CREDIT INSTITUTIONS
<Table>
<Caption>
AS OF
------------------------
DECEMBER 31, MARCH 31,
2000 2001
------------ ---------
Short-term portion of long-term debt........................ 714 323
Other loans................................................. 607 762
----- -----
1,321 1,085
===== =====
</Table>
F-15
<Page>
PREEM PETROLEUM AB AND CONSOLIDATED SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
NOTE 8. U.S. GAAP INFORMATION
The following is a summary of the most significant differences between the
Preem Group's accounts in accordance with Swedish and U.S. GAAP, respectively.
<Table>
<Caption>
THREE MONTHS
ENDED
MARCH 31,
----------------------
2000 2001
-------- --------
Net income for the period according to Swedish GAAP......... 239 162
Adjustments in accordance with U.S. GAAP:
Pensions.................................................. 1 1
Pension refund............................................ -- 3
Goodwill amortization..................................... (33) (33)
Income taxes(A)........................................... (67) (46)
Income tax effects of U.S. GAAP adjustment................ -- (1)
--- ---
Net income according to U.S. GAAP........................... 140 86
=== ===
Basic and diluted income per share in accordance with U.S.
GAAP...................................................... 231 141
=== ===
Weighted-average number of shares outstanding (thousands)... 610 610
=== ===
</Table>
<Table>
<Caption>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MARCH 31,
------------ ------------
2000 2001
------------ ------------
Shareholder's equity
According to Swedish GAAP................................... 2,420 2,577
Adjustments in accordance with U.S. GAAP:
Pensions.................................................. 50 51
Pension refund............................................ (89) (86)
Goodwill.................................................. 1,098 1,065
Income taxes(A)........................................... -- (46)
Accumulated income tax effects............................ 10 10
----- -----
According to U.S. GAAP...................................... 3,489 3,571
===== =====
</Table>
- ------------
(A) Under Swedish GAAP, no imputed tax has been included in the Interim
Consolidated Statements of Operations for the three months ended March 31,
2000 and 2001. Under U.S. GAAP, income taxes for the three months ended
March 31, 2000 and 2001, were determined in accordance with Accounting
Principles Board Opinion No. 28, "Interim Financial Reporting."
(B) Basic and diluted income per share data in accordance with U.S. GAAP is
presented assuming the current capitalization of Preem Holdings AB for all
periods.
A description of differences between Swedish GAAP and U.S. GAAP, which
significantly affect the determination of net income and shareholders' equity of
the Company is set forth in note 25 to the Consolidated Financial Statements
included elsewhere in this offering memorandum.
F-16
<Page>
PREEM PETROLEUM AB AND CONSOLIDATED SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
NOTE 8. U.S. GAAP INFORMATION (CONTINUED)
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards
for the reporting and presentation of comprehensive income and its components in
a full set of financial statements.
Comprehensive income generally encompasses all changes in shareholders'
equity (except those arising from transactions with the owners) and includes net
income (loss), net unrealized capital gains or losses on marketable securities
and foreign currency translation adjustments.
Comprehensive income in accordance with U.S. GAAP for the three-month
periods ended March 31, 2000 and 2001 was SEK127 million and SEK81 million,
respectively.
NOTE 9. INTERIM SEGMENT INFORMATION
Financial information by segment is as follows:
<Table>
<Caption>
PERIOD ENDED
MARCH 31,
-------------------
2000 2001
-------- --------
(SEK IN MILLIONS)
SALES REVENUE:
Supply and refining......................................... 7,787 8,207
Swedish market.............................................. 2,297 2,668
International............................................... 214 396
------ ------
Segment sales revenue....................................... 10,298 11,271
Intersegment sales revenue.................................. (1,606) (1,968)
------ ------
Sales revenues.............................................. 8,692 9,303
------ ------
SEGMENT OPERATING PROFIT:
Supply and refining......................................... 268 197
Swedish market.............................................. 35 42
International............................................... (8) (15)
------ ------
Segment operating profit.................................... 295 224
Other non-allocated income (expense)(1)..................... 15 126
Income from operations...................................... 310 350
Non-allocated items(2)...................................... (71) (187)
------ ------
Income before income taxes.................................. 239 163
------ ------
</Table>
- ------------
(1) Other non-allocated income (expense) includes the corporate cost center,
non-recurring items and exchange rate differences.
(2) Non-allocated items consist of interest income and expenses, other
financial income and expense and minority interest.
F-17
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Preem Holdings AB
We have audited the balance sheets of Preem Holdings AB (formerly Swedoil AB) as
of December 31, 1999 and 2000, and the related statements of operations and cash
flows for each of the years in the three-year period ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Sweden and in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Preem Holdings AB (formerly
Swedoil AB) as of December 31, 1999 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with generally accepted accounting
principles in Sweden and in the United States of America.
Stockholm, Sweden
February 20, 2001
<Table>
<Caption>
/s/ Roland Nilsson /s/ Cronie Wallquist
Authorized Public Accountant Authorized Public Accountant
KPMG KPMG
</Table>
F-18
<Page>
PREEM HOLDINGS AB
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
2000
(UNAUDITED--
1998 1999 2000 NOTE 1)
-------- -------- --------- ------------
SEK SEK SEK E
(IN THOUSANDS)
Net sales.......................................... -- -- -- --
Cost of goods sold................................. -- -- -- --
------- ------- ------- ------
GROSS PROFIT....................................... -- -- -- --
Interest income.................................... -- -- -- --
PROFIT AFTER FINANCIAL ITEMS....................... -- -- --
Taxes.............................................. -- -- -- --
------- ------- ------- ------
NET PROFIT FOR THE YEAR............................ -- -- -- --
======= ======= ======= ======
</Table>
The accompanying notes form an integral part of these Financial Statements
F-19
<Page>
PREEM HOLDINGS AB
BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 2000
<Table>
<Caption>
AS OF DECEMBER 31,
-----------------------------------
2000
(UNAUDITED--
1999 2000 NOTE 1)
-------- --------- ------------
SEK SEK $
(IN THOUSANDS)
ASSETS
FINANCIAL ASSETS
Long-term receivable on Preem Petroleum AB................. 100 100 9
------ ------ -----
100 100 9
------ ------ -----
TOTAL ASSETS............................................... 100 100 9
====== ====== =====
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY (NOTE 2)
RESTRICTED EQUITY
Share capital.............................................. 100 100 9
Restricted reserves........................................ -- -- --
------ ------ -----
100 100 9
NON-RESTRICTED EQUITY
Loss/profit brought forward................................ -- -- --
Profit for the year........................................ -- -- --
TOTAL SHAREHOLDERS' EQUITY................................. 100 100 9
====== ====== =====
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES................. 100 100 9
====== ====== =====
</Table>
The accompanying notes form an integral part of these Financial Statements
F-20
<Page>
PREEM HOLDINGS AB
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------
2000
(UNAUDITED
1998 1999 2000 NOTE 1)
-------- -------- -------- ----------
SEK SEK SEK $
(IN THOUSANDS)
CASH FLOW FROM OPERATIONS
Net income (loss)........................................... -- -- -- --
--- --- --- ---
TOTAL CASH FLOW FROM OPERATIONS............................. -- -- -- --
--- --- --- ---
INVESTING ACTIVITIES
Increase in long-term receivables, Preem Petroleum AB....... (50) -- --
--- --- --- ---
TOTAL CASH FLOW USED IN INVESTING ACTIVITIES................ (50) -- -- --
--- --- --- ---
FINANCING ACTIVITIES
TOTAL CASH FLOW PROVIDED BY (USED IN) FINANCING
ACTIVITIES................................................ -- -- -- --
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... (50) -- -- --
Beginning balances of cash and cash equivalents............. (50) -- -- --
--- --- --- ---
ENDING BALANCE OF CASH AND CASH EQUIVALENTS................. -- -- -- --
=== === === ===
Interest paid............................................... -- -- -- --
Taxes paid.................................................. -- -- -- --
</Table>
The accompanying notes form an integral part of these Financial Statements
F-21
<Page>
PREEM HOLDINGS AB
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Amounts in thousands of SEK unless otherwise specified.
GENERAL ACCOUNTING PRINCIPLES
The Company applies the Annual Accounts Act and complies with the
recommendations of the Swedish Accounting Standards Board and the Swedish
Financial Accounting Standards Council. No changes of accounting principles have
been made.
Preem Holdings AB (publ) (formerly Swedoil AB) is a 100% owned subsidiary
of Preem Petroleum AB, Sweden, which is a 100% owned subsidiary of Corral
Petroleum Holdings AB, Sweden, which is a 100% owned subsidiary of Moroncha
Holdings Co. Ltd, a company incorporated in Cyprus.
The Company has not performed any operations during the financial years in
the three-year period ended December 31, 2000.
Solely for the convenience of the reader, the 2000 financial statements
have been translated from Swedish Kronor (SEK) into U.S. Dollars ($) using the
June 30, 2001, exchange rate of $1.00=SEK10.85.
ESTIMATES AND CONCENTRATIONS
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash or cash equivalents.
RECEIVABLES
Receivables are reported at the amount they are expected to be paid.
Provisions for doubtful accounts are made as considered necessary.
F-22
<Page>
PREEM HOLDINGS AB
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 2. SHAREHOLDERS' EQUITY
The Company's share capital include 1,000 shares with a par value of
SEK100 each.
<Table>
<Caption>
TOTAL
SHARE RESTRICTED UNRESTRICTED SHAREHOLDERS'
CAPITAL RESERVES RESERVES EQUITY
-------- ---------- ------------ -------------
(SEK IN THOUSANDS)
BALANCE AT JANUARY 1, 1998.......................... 50 50 -- 100
Net income for the year............................. -- -- -- --
Transfer between reserves........................... 50 (50) -- --
---- ---- ---- ----
BALANCE AT DECEMBER 31, 1998........................ 100 -- -- 100
---- ---- ---- ----
Net loss for the year............................... -- -- -- --
Transfer between reserves........................... -- -- -- --
---- ---- ---- ----
BALANCE AT DECEMBER 31, 1999........................ 100 -- -- 100
---- ---- ---- ----
Net income for the year............................. -- -- -- --
---- ---- ---- ----
BALANCE AT DECEMBER 31, 2000........................ 100 -- -- 100
==== ==== ==== ====
</Table>
NOTE 3. U.S. GAAP INFORMATION
The following is a summary of the most significant differences between
Preem Petroleum Holdings AB's accounts in accordance with Swedish and U.S. GAAP,
respectively.
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
-------------------
1999 2000
-------- --------
Shareholders equity
According to Swedish GAAP................................... 100 100
Reclassification of receivable on Preem Petroleum AB (A).... (100) (100)
---- ----
According to U.S. GAAP...................................... -- --
==== ====
</Table>
- ------------
(A) Under Swedish GAAP, Parent Company receivables are classified as long-term
receivables in dormant companies because they will not get paid unless
there are plans to commence business of the subsidiary and there is a
decision made to repay such receivables. Under U.S. GAAP, such receivables
are classified as part of shareholders' equity.
NOTE 4. SUBSEQUENT EVENTS (UNAUDITED)
Preem Holdings AB was originally established in 1980 as Labrador Svenska AB
and is registered with the Swedish Patent and Registration Office under the
number 556206-9673. Swedoil AB was a subsidiary of Preem Petroleum AB that had
been dormant since 1983. The name was changed from Labrador Svenska AB to
Swedoil AB in September 1981. On March 1, 2001, its name was changed from
Swedoil AB to Preem Holdings AB, and its status was changed from a private
company to a public company, through amendments to its Articles of Association
and its subsequent registration with the Swedish Patent and Registration Office.
Following its transformation into a public company, the share capital of Preem
Holdings AB consisted of 5,000 authorized shares of common stock with a par
value of SEK100 each, of which 5,000 shares were issued and outstanding and
fully paid. Corral
F-23
<Page>
PREEM HOLDINGS AB
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 4. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
Petroleum Holdings AB, a Swedish company, contributed all of the issued and
outstanding shares of Preem Petroleum AB to Preem Holdings AB on March 19, 2001.
Preem Holdings AB is wholly-owned by Corral Petroleum Holdings AB, which is
wholly-owned by Moroncha Holdings Company Limited, which is wholly-owned by
Mr. Mohammed Hussein Ali Al-Amoudi.
On April 10, 2001, Preem Holdings AB issued senior secured notes in an
aggregate amount of E250 million. These notes are senior debt secured by a first
priority pledge of all outstanding shares of capital stock of Preem Petroleum AB
and a first priority security assignment of a subordinated intercompany loan
from Preem Holdings AB to Preem Petroleum AB.
F-24
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Preem Petroleum AB
We have audited the consolidated balance sheets of Preem Petroleum AB and
subsidiaries as of December 31, 1999 and 2000, and the related consolidated
statements of operations and cash flows for each of the years in the three-year
period ended December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Sweden and in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Preem Petroleum AB
and subsidiaries as of December 31, 1999 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with generally accepted accounting
principles in Sweden.
Generally accepted accounting principles in Sweden vary in certain significant
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States would have affected net income for each of the years in the two-year
period ended December 31, 2000 and shareholders' equity as of December 31, 1999
and 2000 to the extent summarized in Note 25 to the consolidated financial
statements.
Stockholm, Sweden
February 20, 2001
/s/ Roland Nilsson
Authorized Public Accountant
KPMG
F-25
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
2000
(UNAUDITED--
1998 1999 2000 NOTE 1)
-------- -------- --------- ------------
SEK SEK SEK $
(IN THOUSANDS)
Revenues (Note 2).................................. 22,139 28,793 46,195 4,258
Excise duties...................................... (6,381) (6,573) (6,637) (612)
------- ------- ------- ------
SALES REVENUE (Note 2)............................. 15,758 22,220 39,558 3,646
Cost of goods sold (Note 3)........................ (14,362) (20,142) (37,123) (3,421)
------- ------- ------- ------
GROSS PROFIT....................................... 1,396 2,078 2,435 225
Selling expenses................................... (863) (877) (945) (87)
Administrative expenses............................ (226) (216) (215) (20)
Other operating income (Note 5).................... 265 236 381 35
------- ------- ------- ------
OPERATING INCOME (Notes 4 and 20).................. 572 1,221 1,656 153
Interest income.................................... 65 44 63 6
Other financial income (Note 6).................... 6 5 13 1
Interest expense................................... (298) (208) (268) (25)
Other financial expenses (Note 6).................. (34) (74) (180) (17)
------- ------- ------- ------
INCOME BEFORE TAXES................................ 311 988 1,284 118
Income taxes (Note 7).............................. (185) (274) (452) (41)
Minority interests................................. (2) (1) (1) --
------- ------- ------- ------
NET INCOME......................................... 124 713 831 77
======= ======= ======= ======
</Table>
The accompanying notes form an integral part of these Consolidated Financial
Statements.
F-26
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 2000
<Table>
<Caption>
AS OF DECEMBER 31,
-----------------------------------
2000
(UNAUDITED--
1999 2000 NOTE 1)
-------- --------- ------------
SEK SEK $
(IN THOUSANDS)
ASSETS
FIXED ASSETS
INTANGIBLE FIXED ASSETS (Note 9)
Capitalized turnaround cost, net........................... 216 145 13
Goodwill, net.............................................. 523 420 39
------ ------ -----
TOTAL INTANGIBLE ASSETS.................................... 739 565 52
TANGIBLE ASSETS (Note 10)
Land and building, net..................................... 787 837 77
Plant and machinery, net................................... 3,620 3,480 321
Equipment, tools fixtures and fittings, net................ 678 657 61
Construction in progress................................... 237 186 17
------ ------ -----
TOTAL TANGIBLE FIXED ASSETS................................ 5,322 5,160 476
FINANCIAL ASSETS
Participations in associated companies (Note 12)........... 190 190 18
Receivables from associated companies...................... 18 -- --
Other securities held as fixed assets (Note 13)............ 2 2 --
Other long-term receivables................................ 19 56 5
------ ------ -----
TOTAL FINANCIAL ASSETS..................................... 229 248 23
TOTAL FIXED ASSETS......................................... 6,290 5,973 551
CURRENT ASSETS
Inventories (Note 14)...................................... 3,101 4,495 414
Accounts receivable........................................ 2,872 3,398 313
Receivables from associated companies...................... 16 60 6
Other receivables.......................................... 209 302 28
Prepaid expenses and accrued income........................ 161 120 11
------ ------ -----
6,359 8,375 772
Cash and cash equivalents.................................. 270 370 34
TOTAL CURRENT ASSETS....................................... 6,629 8,745 806
------ ------ -----
TOTAL ASSETS............................................... 12,919 14,718 1,357
====== ====== =====
</Table>
The accompanying notes form an integral part of these Consolidated Financial
Statements.
F-27
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 2000
<Table>
<Caption>
AS OF DECEMBER 31,
----------------------------------
2000
(UNAUDITED--
1999 2000 NOTE 1)
-------- -------- ------------
SEK SEK $
(IN THOUSANDS)
SHAREHOLDERS' EQUITY, PROVISIONS AND LIABILITIES
SHAREHOLDERS' EQUITY (NOTE 15)
RESTRICTED EQUITY
Share capital............................................... 610 610 56
Restricted reserves......................................... 1,730 1,797 165
------ ------ ------
2,340 2,407 221
NON-RESTRICTED EQUITY
Loss brought forward........................................ (491) (818) (75)
Profit for the year......................................... 713 831 77
------ ------ ------
222 13 2
TOTAL SHAREHOLDERS' EQUITY.................................. 2,562 2,420 223
====== ====== ======
Minority interests.......................................... 117 122 11
PROVISIONS
Pension provision........................................... 192 188 17
Deferred tax liability (Note 16)............................ 243 254 29
Other provisions............................................ 119 118 11
------ ------ ------
TOTAL PROVISIONS............................................ 554 560 52
LIABILITIES
LONG-TERM LIABILITIES
Shareholder loans (Note 17)................................. 1,903 2,259 208
Liabilities to credit institutions (Note 17)................ 3,145 2,814 259
Bank overdraft facility (Note 17)........................... 21 135 13
Other long-term liabilities................................. 2 -- --
------ ------ ------
TOTAL LONG-TERM LIABILITIES................................. 5,071 5,208 480
------ ------ ------
CURRENT LIABILITIES
Liabilities to credit institutions (Note 18)................ 448 1,321 122
Advanced payment from customers............................. 146 134 13
Accounts payable............................................ 907 1,082 100
Liabilities to parent company............................... 399 1,001 92
Liabilities to associated companies......................... 16 53 5
Income tax payable.......................................... 9 58 5
Other liabilities (Note 19)................................. 1,341 1,748 161
Accrued expenses and prepaid income (Note 19)............... 1,349 1,011 93
------ ------ ------
TOTAL CURRENT LIABILITIES................................... 4,615 6,408 591
------ ------ ------
TOTAL SHAREHOLDERS' EQUITY, PROVISIONS AND LIABILITIES...... 12,919 14,718 1,357
====== ====== ======
</Table>
The accompanying notes form an integral part of these Consolidated Financial
Statements.
F-28
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------
2000
(UNAUDITED--
1998 1999 2000 NOTE 1)
-------- -------- -------- ------------
SEK SEK SEK $
(IN THOUSANDS)
INCOME FROM OPERATION
Income after financial items............................. 311 988 1,284 118
Adjustments for non-cash items
Depreciation and amortization............................ 642 650 721 66
Non-cash pension refund.................................. -- -- (89) (8)
Unrealized exchange losses............................... 11 25 128 12
Provisions............................................... -- -- (5) --
Gain on sale of fixed assets............................. (1) (12) (7) (1)
------ ------ ------ ----
963 1,651 2,032 187
Taxes paid............................................... (5) 11 (11) (1)
------ ------ ------ ----
CASH FLOW FROM OPERATING ACTIVITIES BEFORE CHANGES IN
WORKING CAPITAL........................................ 958 1,662 2,021 186
CASH FLOW IN WORKING CAPITAL
Decrease (Increase) in inventories....................... 448 (1,270) (1,394) (128)
Decrease (Increase) in current receivables............... 749 (919) (533) (49)
(Decrease) Increase in liabilities....................... (217) 1,352 (19) (2)
------ ------ ------ ----
CASH FLOW FROM OPERATING ACTIVITIES...................... 1,938 825 75 7
INVESTMENT ACTIVITIES
Investment in intangible fixed assets.................... (163) (98) (3) --
Investment in tangible fixed assets...................... (508) (590) (405) (37)
Sale of tangible fixed assets............................ 8 41 43 4
Increase in long-term receivables........................ (5) (2) (19) (2)
------ ------ ------ ----
CASH FLOW USED IN INVESTMENT ACTIVITIES.................. (668) (649) (384) (35)
FINANCING OPERATION
New loans from credit institutions....................... 1,277 593 1,219 112
Payment of loans from credit institutions................ (2,135) (828) (410) (38)
Group contributions paid................................. -- (155) (400) (37)
------ ------ ------ ----
CASH FLOW USED IN FINANCING ACTIVITIES................... (858) (390) 409 37
CASH FLOW OF THE YEAR.................................... 412 (214) 100 9
Cash and cash equivalents at the beginning of the year... 72 484 270 25
------ ------ ------ ----
Cash and cash equivalents at the end of the year......... 484 270 370 34
====== ====== ====== ====
</Table>
The accompanying notes form an integral part of these Consolidated Financial
Statements.
F-29
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------
2000
(UNAUDITED--
1998 1999 2000 NOTE 1)
-------- -------- -------- ------------
SEK SEK SEK $
(IN THOUSANDS)
SUPPLEMENTARY DISCLOSURES
Cash flow interest and dividend received
Interest received.......................................... 76 43 63 6
Interest paid.............................................. (321) (187) (262) (24)
Cash and cash equivalents
Items included in cash and cash equivalents
Cash and bank balances..................................... 263 270 370 34
Short-term investment...................................... 221 -- -- --
----- ----- ----- ----
TOTAL CASH AND CASH EQUIVALENTS............................ 484 270 370 34
===== ===== ===== ====
</Table>
The accompanying notes form an integral part of these Consolidated Financial
Statements.
F-30
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Amounts are expressed in millions of Swedish Kronor ("MSEK") unless
otherwise specified.
GENERAL ACCOUNTING PRINCIPLES
Preem Petroleum AB applies the Swedish Annual Accounts Act and complies
with the recommendations of the Swedish Accounting Standards Board and the
Swedish Financial Accounting Standards Council. Certain reclassifications of
cost items in the income statement for 1998 have been made. No changes of
accounting principles have been made.
For the periods reported Preem Petroleum AB was a wholly-owned subsidiary
of Corral Petroleum Holdings AB, Sweden, which is a wholly-owned subsidiary of
Moroncha Holdings Company Limited, a company incorporated in Cyprus.
The accompanying Consolidated Financial Statements present the financial
position and results of operations of Preem Petroleum AB and its consolidated
subsidiaries (jointly the "Company" or "Preem Group") and have been prepared in
accordance with generally accepted accounting principles in Sweden (Swedish
GAAP). These accounting principles differ in certain significant respects from
accounting principles generally accepted in the United States of America (U.S.
GAAP). See Note 25 for a discussion of the principal differences between Swedish
GAAP and U.S. GAAP that affect the Company's consolidated net income and
shareholders' equity.
Solely for the convenience of the reader, the 2000 financial statements
have been translated from Swedish Kronor (SEK) into U.S. Dollars ($) at the
exchange rate of $1.00 = SEK10.85 (the exchange rate on June 30, 2001).
BASIS OF CONSOLIDATION AND TRANSLATION
The consolidated accounts include Preem Petroleum AB and all companies in
which the Preem Petroleum AB directly or indirectly holds more than 50% of the
voting capital. Intercompany transactions are eliminated in consolidation.
Assets and liabilities of foreign subsidiaries are translated at year end
exchange rates. The income statements of foreign subsidiaries are translated at
an average exchange rate for the year. Exchange differences arising out of the
translation of the financial statements of foreign subsidiaries are recorded
directly to the cumulative translation adjustment component of shareholders'
equity.
When foreign subsidiaries and associated companies are divested or
liquidated, the accumulated translation difference relating to the divested
entity is reported as a realized gain (loss) in the consolidated income
statement.
ASSOCIATED COMPANY ACCOUNTS
The equity accounting method is used for those companies in which the
Company has significant influence and/or owns between 20% and 50% of the voting
capital (the "Associated Companies"). In the Consolidated Balance Sheet,
Associated Companies are reported at the original purchase price together with
the Company's share of income (loss) earned after the acquisition. Dividends
received are recorded as a reduction of the recorded investment. The Company's
share in net income (loss) of Associated Companies included in financial income
and expenses.
F-31
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
The companies in which the Company owns less than 20% are recorded at
cost. Dividends received from these companies are recorded in the Consolidated
Statement of Operations as financial income.
THE ACQUISITION METHOD
The Consolidated Financial Statements have been prepared in accordance
with the acquisition accounting method. This method means that assets and
liabilities acquired are recorded at fair value at the date when control has
passed to the company. The difference between the purchase price and the
estimated fair value of the net assets acquired is recorded as goodwill. The net
income (loss) of companies acquired during the year are included in the
Company's Consolidated Statement of Operations from the date of acquisition and
the net income (loss) of companies sold during the year is included through the
date of disposal.
FIXED ASSETS
Fixed assets are valued at the acquisition cost with a deduction for
accumulated additional depreciation. The acquisition cost includes the cost of
value-enhancing improvements. Depreciation according to plan is based on the
original acquisition values and estimated average economic life. A write-down is
made in the event of a permanent reduction in value. Repair and maintenance
costs are expensed as incurred.
Interest is capitalized for assets constructed for the Company's use based
on the average amount of accumulated expenditures during the construction period
using the Company's current available rate of borrowing for the applicable
project. Capitalized interest on such assets is then depreciated over the
estimated useful life of the respective asset.
INVENTORIES
Inventories are valued at the lower of cost and net realizable value,
whereby cost is calculated according to the FIFO (First-In-First-Out) principle.
Inventory purchases of petroleum products in Dollars are accounted for at the
exchange rate applicable on the date of the bill of lading.
Changes in oil prices throughout the financial year are reflected in cost
of goods sold.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash or cash equivalents.
RECEIVABLES
Receivables are reported at the amount at which they are expected to be
paid. Provisions for doubtful accounts are made as considered necessary.
F-32
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
RECEIVABLES AND LIABILITIES IN FOREIGN CURRENCIES
All receivables and liabilities denominated in foreign currencies are
translated into Swedish Kronor at year end exchange rates unless the Company has
entered into matching forward foreign exchange contracts, in which case the rate
specified in the contract is used. The premium or discount arising on these
forward exchange contracts is recorded as interest expense or income over the
duration of these contracts. All exchange rate gains and losses are reported as
part of income from operations except for gains and losses relating to debt
which are reported as a component of financial income (expense), net.
TAXES
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. Provision for deferred taxes is
made to the extent that it is more likely than not that a liability or asset
will crystallize in the foreseeable future. Tax legislation in Sweden allows
companies to defer their current tax liability by making tax-deductible
allocations to untaxed reserves. The deferred tax on these reserves is
classified as a long-term liability, while the remaining portion is included
within restricted reserves in shareholders' equity.
DEPRECIATION
Depreciation is calculated on the basis of the historic acquisition cost
and the straight-line method of depreciation is used for all assets. The rates
of depreciation are based on the economic useful life of the assets as follows:
<Table>
<Caption>
Intangible assets........................................... 3-5 years
Goodwill.................................................... 5-15 years
Machinery and equipment..................................... 3-20 years
Buildings................................................... 20-50 years
Land improvements........................................... 20 years
</Table>
GOODWILL
Goodwill is amortized over the periods estimated to be benefited using the
straight-line method. Preem Petroleum AB's acquisition of the Swedish business
of Texaco (in 1989) and BP (in 1991) are judged to have long-term earnings
potential and strategic value and are amortized over 15 years. Goodwill is
tested for recoverability along with the underlying assets acquired based on
expected future cash flows.
SALE/LEASE-BACK
Profits and losses on the sale of assets that are leased-back under a
finance lease are recorded over the duration of the lease.
F-33
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
INTEREST BEARING RECEIVABLES AND LIABILITIES
Interest income and interest expenses are recorded in accordance with the
interest rate that the receivable or liability bears on the closing date. The
effect on profit of interest instruments designed to hedge a future interest
flow, is recorded over the same duration as the underlying receivable or
liability.
FINANCIAL INSTRUMENTS
The Company uses various financial instruments to manage financial
exposure. The Company classifies these instruments as hedges for accounting
purposes when the following criteria are met:
CURRENCY DERIVATIVE INSTRUMENTS
- The instrument must relate to foreign currency assets, liabilities, firm
commitments or anticipated probable future transactions for which the
terms have been identified. Forward exchange contracts cannot be used to
hedge anticipated probable future transactions.
- The instrument must be in the same currency as the hedged balance sheet
item or transaction, and
- must reduce the risk to which the Company is exposed with regard to
changes in foreign exchange rates.
OIL INSTRUMENTS
- The instrument must relate to firm commitments or anticipated probable
future transactions for which the terms have been identified, and
- must correlate with the future transactions so that the Company's
exposure to change in crude oil prices is effectively reduced.
HEDGING FUTURE CASH FLOWS
The Company hedges certain expected future cash flows arising from firm
commitments or anticipated transactions, primarily using forward foreign
exchange contracts. Unrealized gains and losses on financial instruments that
are designated as a hedge of such firmly committed future cash flows or
anticipated transactions are realized when the underlying transaction occurs.
FINANCIAL INSTRUMENT
Unrealized gains and losses are included in the income statement when the
underlying transaction actually occurs if the financial instrument is designated
and effective as a hedge for such underlying transaction. The Company reviews
the correlation and effectiveness of its financial instruments on a periodic
basis. Financial instruments that do not meet the criteria for hedge accounting
treatment are marked-to-market with the resulting unrealized gain or loss
recorded as foreign exchange gain or loss in the Consolidated Statement of
Operations.
F-34
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Realized gains and losses that result from the early termination of
financial instruments used for hedging purposes are deferred and are included in
(i) the determination of the carrying value of the underlying asset or liability
in the consolidated balance sheet, or (ii) the Consolidated Statement of
Operations when the anticipated transaction actually occurs. If any underlying
asset or liability is sold or settled, any related financial instrument is
marked-to-market and the resulting unrealized gain or loss is recorded as part
of the gain or loss on the sale or settlement of the underlying item.
Premiums paid for the purchase of foreign currency and interest rate
options are recorded as a prepaid expense in the Consolidated Balance Sheet and
are amortized as an adjustment of the underlying revenue or expense item over
the duration of the option contract.
FOREIGN EXCHANGE RISK MANAGEMENT
Forward foreign exchange contracts that are designated as a hedge of
foreign currency balances are marked-to-market with the resulting unrealized
gain or loss recorded in the statement of operations to offset the corresponding
gain or loss on the related underlying exposure. Unrealized gains and losses on
forward foreign exchange contracts that are designated as a hedge of a firm
commitment or anticipated transaction are deferred and are recognized as an
adjustment of the measurement of the transaction when it actually occurs.
FORWARD OIL CONTRACTS RISK MANAGEMENT
Forward oil contracts are designated as a hedge of oil transaction
balances and marked-to-market with the resulting unrealized gain or loss
recorded in the Consolidated Statement of Operations to offset the corresponding
gain or loss on the related underlying exposure.
Unrealized gains or losses on options that are used to hedge anticipated
oil transactions are marked-to-market.
CAPITALIZED TURNAROUND COSTS
A turnaround is a standard procedure periodically required for maintenance
of a refinery that involves the shutdown and inspection of major processing
units and generally occurs approximately every three to four years. Turnaround
costs, which are included in intangible assets, are capitalized when incurred
and are amortized over the period to the next scheduled turnaround, beginning
the month following completion of each turnaround.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
ENVIRONMENTAL COSTS
Environmental expenditures are expended or capitalized based upon their
future economic benefit. Costs, which improve a property's pre-existing
condition, and costs that prevent future contamination are capitalized. Costs
related to environmental damage resulting from operating
F-35
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
activities subsequent to acquisition are expensed. Liabilities for these
expenditures are recorded when it is probable that obligations have been
incurred and the amount can be reasonably estimated.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets used in the business on an annual
basis for impairment, or whenever events or changes in circumstances indicate
that the carrying amount of an asset or a group of assets may not be
recoverable. An impaired asset is written down to its estimated fair market
value based on the best information available. Long-lived assets for which
management, have the authority to approve the action, has committed to dispose
of the asset, whether by sale or abandonment are reported at the lower of
carrying amount or fair value less cost to sell.
CURRENCY POLICY
The Company's operations are in principle Dollar-based. Purchases of
petroleum products and a large percentage of the Company's sales are made in
this currency. This implies that the Company has a long-position in Dollars.
This exposure is balanced by loans raised in Dollars. The reporting currency of
the Company is Swedish Kronor.
ESTIMATES AND CONCENTRATIONS
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from management's
estimates.
REVENUE RECOGNITION
A large majority of the Company's revenues is derived from supply and
refining of oil products together with the retail market. Revenue is recognized
in the period products are delivered.
FORWARD CONTRACTS, OPTIONS AND SWAP AGREEMENTS FOR OIL PRODUCTS
Outstanding forward contracts, options and swap agreements for petroleum
oil products have been valued at the market price at year end. The difference
between the acquisition price and the market price at year end affects income
and balance sheet.
RECEIVABLES AND LIABILITIES IN FOREIGN CURRENCIES
Valuation of receivables and liabilities in foreign currencies is carried
out at year end exchange rates in accordance with recommendation No. 8 of the
Swedish Financial Accounting Council. Forward contracts that are identified to
hedge an identified economic commitment are deferred and included in the
measurement of the related foreign currency transaction. Foreign exchange
differences concerning financial receivables and liabilities are accounted for
as Financial income/Financial expenses. Other exchange differences are included
in the operating profit.
F-36
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
SHORT-TERM INVESTMENTS
Financial instruments included under short-term investments are valued
collectively for each type of instrument at the lower of the acquisition value
and the market value. Investments in bonds and other interest bearing
instruments with a maturity date less than one year are reported as short-term
investments. Certificates of Deposits are reported under the heading of cash and
cash equivalents. Investments that are anticipated to be retained until their
maturity date are recorded at the acquisition cost plus accrued interest.
ADVANCE PAYMENTS FROM CUSTOMERS
Advance payments from customers are accounted for as a current liability
until the goods are delivered or the services rendered.
NOTE 2. REVENUES
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Revenues in Sweden.......................................... 14,948 16,411 22,061
Revenues abroad............................................. 7,191 12,382 24,134
------ ------ ------
TOTAL....................................................... 22,139 28,793 46,195
====== ====== ======
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
SALES REVENUE -------- -------- --------
Supply and refining......................................... 12,526 18,728 35,477
Swedish market.............................................. 6,071 7,040 9,904
International............................................... 741 791 1,462
Group eliminations.......................................... (3,580) (4,339) (7,285)
------ ------ ------
TOTAL....................................................... 15,758 22,220 39,558
====== ====== ======
</Table>
NOTE 3. COST OF GOODS SOLD--FOREIGN EXCHANGE DIFFERENCES
Includes net foreign exchange differences of SEK22 million SEK(45) million
and SEK(100) million for the years 1998, 1999 and 2000, respectively.
F-37
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 4. DEPRECIATION AND AMORTIZATION
DISTRIBUTION OF DEPRECIATION AND AMORTIZATION
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Capitalized turnaround costs................................ 60 71 73
Goodwill.................................................... 114 103 106
Land and buildings.......................................... 42 49 74
Plant and machinery......................................... 352 307 315
Equipment tools, fittings and fixtures...................... 74 120 153
--- --- ---
TOTAL....................................................... 642 650 721
=== === ===
</Table>
DISTRIBUTION OF FUNCTION
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Cost of goods sold.......................................... 469 488 526
Selling expenses............................................ 170 157 190
Administrative expenses..................................... 3 5 5
--- --- ---
TOTAL....................................................... 642 650 721
=== === ===
Write-downs of impaired assets included in the above
amounts:
Selling expenses............................................ -- -- 51
</Table>
The Company recorded a charge of SEK51 million during the year ended
December 31, 2000, for the write-down of certain fixed-assets. The write-down
includes surplus depreciation of service stations of SEK25 million (included in
Swedish market) and write-down of storage depots of SEK26 million (included in
Supply and refining). After careful assessment of various factors relevant to
these assets, including significant declines in revenues generated from these
assets, management determined it was appropriate to write down the value of
these assets and, accordingly, such assets were written-down to estimated fair
value based on estimated discounted future cash flows.
F-38
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 5. OTHER OPERATING INCOME
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Surplus heat supplies....................................... 41 40 55
Rental income............................................... 60 53 59
Harbor fees................................................. 57 57 57
Storage certificates........................................ 21 20 54
Commission income........................................... 13 6 5
Pension refund.............................................. -- -- 115
Miscellaneous............................................... 73 60 36
--- --- ---
TOTAL....................................................... 265 236 381
=== === ===
</Table>
NOTE 6. FINANCIAL INCOME AND EXPENSES
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
FINANCIAL INCOME
Interest income, group companies............................ 8 -- --
Exchange rate gain.......................................... (2) 5 13
--- -- ---
TOTAL....................................................... 6 5 13
=== == ===
FINANCIAL EXPENSES
Exchange rate loss.......................................... 30 71 177
Miscellaneous financial expenses............................ 4 3 3
--- -- ---
TOTAL....................................................... 34 74 180
=== == ===
</Table>
NOTE 7. INCOME TAXES
Income (loss) before income taxes on a geographic basis is as follows:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Sweden...................................................... 294 1,028 1,380
Other....................................................... 17 (40) (96)
--- ----- -----
TOTAL....................................................... 311 988 1,284
=== ===== =====
</Table>
F-39
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 7. INCOME TAXES (CONTINUED)
Income tax expenses include the following:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
CURRENT
Sweden...................................................... (178) (320) (441)
Other....................................................... (3) (2) --
---- ---- ----
(181) (322) (441)
DEFERRED
Sweden...................................................... (4) 48 (11)
---- ---- ----
(4) 48 (11)
---- ---- ----
TOTAL....................................................... (185) (274) (452)
==== ==== ====
</Table>
The current tax expenses include the following:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Tax on group contributions.................................. 177 333 380
Taxes paid.................................................. 5 (11) 11
Increase (decrease) in income tax liability................. (1) -- 49
Other....................................................... -- -- 1
--- --- ---
TOTAL....................................................... 181 322 441
=== === ===
</Table>
F-40
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 7. INCOME TAXES (CONTINUED)
The principal reasons for the difference between income tax expense
(benefit) computed by applying the Swedish statutory tax rate of 28% to income
(loss) before income taxes and the actual tax expense (benefit) are set forth
below:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Income before taxes......................................... 311 988 1,284
Statutory tax rate.......................................... 28% 28% 28%
---- ---- -----
Income tax expense at statutory rates....................... (87) (277) (360)
Differences in foreign tax rates............................ 2 2 --
Amortization of goodwill.................................... (7) (7) (7)
Losses not currently recognized............................. (37) (34) (46)
Expenses not deductible..................................... (58) (18) (40)
Utilization of tax loss carryforwards....................... -- 59 --
Nontaxable income........................................... 2 1 1
---- ---- -----
EFFECTIVE INCOME TAX........................................ (185) (274) (452)
==== ==== =====
EFFECTIVE INCOME TAX RATE................................... 59% 28% 35%
==== ==== =====
</Table>
The Company is subject to Swedish income tax on its taxable income in
Sweden. The Company attempts to minimize the amount of taxes payable by
transferring, to the extent possible, its taxable income to its parent company,
Corral Petroleum Holdings AB. As a result, the amount included in the
Consolidated Statement of Operations as income taxes generally reflects book
entry transfers rather than cash paid or payable. In particular, the Company
effects a transfer to its parent company, which is recorded as a "group
contribution," which is in the form of a book-entry dividend, so the amount that
is transferable on a year-to-year basis is limited by the Swedish Companies Act
to the lesser of the amount of the unrestricted shareholders' equity, which
includes net income earned during the year, shown on a consolidated and
stand-alone basis. The group contribution is simultaneously offset by a
shareholder loan. The excess of the group contribution, if any, over a
shareholder loan represents a true dividend payable in cash. In 1998, the
Company paid income taxes of SEK5 million, received a tax credit of
SEK11 million in 1999 and paid income taxes of SEK11 million in 2000.
NOTE 8. EARNINGS PER SHARE
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Net income.................................................. 124 713 831
=== ===== =====
Average number of shares (thousands)........................ 610 610 610
=== ===== =====
Income per share (SEK)...................................... 203 1,169 1,362
=== ===== =====
</Table>
F-41
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 9. INTANGIBLE ASSETS
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
-------------------
1999 2000
-------- --------
CAPITALIZED TURNAROUND COST--AT COST
As of beginning of year..................................... 281 378
Acquisitions................................................ 97 2
----- -----
As of year end.............................................. 378 380
CAPITALIZED TURNAROUND COST--ACCUMULATED AMORTIZATION
As of beginning of year..................................... 91 162
Amortization for the year................................... 71 73
----- -----
As of year end.............................................. 162 235
Net book value.............................................. 216 145
===== =====
GOODWILL
As of beginning of year..................................... 1,244 1,244
Acquisitions................................................ -- 3
----- -----
As of year end.............................................. 1,244 1,247
GOODWILL -- ACCUMULATED AMORTIZATION
As of beginning of year..................................... 618 721
Amortization for the year................................... 103 106
----- -----
As of year end.............................................. 721 827
Net book value.............................................. 523 420
===== =====
</Table>
F-42
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 10. TANGIBLE ASSETS
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
-------------------
1999 2000
-------- --------
LAND AND BUILDINGS--AT COST
As of beginning of year..................................... 1,346 1,391
Acquisitions/Company acquisitions........................... 40 40
Divestment/Disposals........................................ (10) (15)
Reclassifications........................................... 21 90
Exchange rate differences................................... (6) 7
----- -----
As of year end.............................................. 1,391 1,513
LAND AND BUILDINGS--ACCUMULATED DEPRECIATION
As of beginning of year..................................... 560 604
Divestment/Disposals........................................ (4) (4)
Depreciation for the year................................... 49 56
Write-down of the year...................................... -- 18
Exchange rate differences................................... (1) 2
----- -----
As of year end.............................................. 604 676
===== =====
Net book value.............................................. 787 837
----- -----
PLANT AND MACHINERY--AT COST
As of beginning of year..................................... 6,720 7,000
Acquisitions/Company acquisitions........................... 163 70
Divestment/Disposals........................................ (32) (43)
Reclassifications........................................... 149 109
----- -----
As of year end.............................................. 7,000 7,136
PLANT AND MACHINERY--ACCUMULATED DEPRECIATION
As of beginning of year..................................... 3,099 3,380
Divestment/Disposals........................................ (26) (39)
Depreciation for the year................................... 307 315
----- -----
As of year end.............................................. 3,380 3,656
===== =====
Net book value.............................................. 3,620 3,480
----- -----
EQUIPMENT, TOOLS, FIXTURES AND FITTINGS--AT COST
As of beginning of year..................................... 1,387 1,424
Acquisitions/Company acquisitions........................... 122 78
Divestment/Disposals........................................ (110) (82)
Reclassifications........................................... 28 76
Exchange rate differences................................... (3) 4
----- -----
As of year end.............................................. 1,424 1,500
===== =====
</Table>
F-43
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 10. TANGIBLE ASSETS (CONTINUED)
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
-------------------
1999 2000
-------- --------
As of beginning of year..................................... 725 746
Divestment/Disposals........................................ (98) (58)
Depreciation for the year................................... 120 120
Write-down of the year...................................... -- 33
Exchange rate differences................................... (1) 2
----- -----
As of year end.............................................. 746 843
===== =====
Net book value.............................................. 678 657
----- -----
CONSTRUCTION IN PROGRESS
As of beginning of year..................................... 173 237
Acquisitions................................................ 265 218
Reclassifications........................................... (198) (273)
Exchange rate differences................................... (3) 4
----- -----
As of year end.............................................. 237 186
===== =====
TAX ASSESSMENT VALUES
Buildings................................................... 846 1,313
Land........................................................ 243 246
Plant and machinery......................................... 1,797 1,192
----- -----
As of year end.............................................. 2,886 2,751
===== =====
</Table>
Capital Leases are included above as follows:
<Table>
<Caption>
AS OF DECEMBER 31,
---------------------------------------------------------------------------
1999 2000
------------------------------------ ------------------------------------
ACCUMULATED ACCUMULATED
AT COST DEPRECIATION BOOK VALUE AT COST DEPRECIATION BOOK VALUE
-------- ------------ ---------- -------- ------------ ----------
Land buildings........................... 2 -- 2 2 -- 2
Plant and machinery...................... 1,225 (195) 1,030 1,225 (262) 963
----- ---- ----- ----- ---- ---
TOTAL.................................... 1,227 (195) 1,032 1,227 (262) 965
===== ==== ===== ===== ==== ===
</Table>
F-44
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 11. LEASES
Rental income and expense from operating leases were as follows:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Income before taxes......................................... 311 988 1,284
Rental income............................................... 60 53 59
Rental expense.............................................. 10 9 12
</Table>
Rental income is recorded as other operating income and rental expense is
recorded as selling or administrative expenses.
The Company leases buildings and machinery and equipment under operating
leases. The gross amount of assets under capital leases amounted to
SEK1,227 million as of December 31, 1999 and 2000. The accumulated depreciation
related to these capital leases amounted to SEK195 million and SEK262 million as
of December 31, 1999 and 2000, respectively. The capital lease amortization
expense was SEK67 million for each of the years 1998, 1999 and 2000.
As of December 31, 2000 the future minimum lease commitments under
noncancellable operating leases and capital leases were as follows:
<Table>
<Caption>
OPERATING CAPITAL
LEASES LEASES TOTAL
--------- -------- --------
2001........................................................ 11 62 73
2002........................................................ 7 62 69
2003........................................................ 6 62 68
2004........................................................ 3 62 65
2005........................................................ -- 62 62
2006 and thereafter......................................... -- 1,054 1,054
-- ----- -----
TOTAL MINIMUM LEASE COMMITMENTS............................. 27 1,364 1,391
== ===== =====
Less imputed interest....................................... (220)
Present value of net minimum lease payments................. 1,144
Less current portion of capitalized lease obligation........ (12)
=====
Noncurrent portion of capitalized lease obligation.......... 1,132
=====
</Table>
F-45
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 12. PARTICIPATIONS IN ASSOCIATED COMPANIES
<Table>
<Caption>
NUMBER PAR VALUE BOOK VALUE
ORGANIZATION REGISTERED OF OWNERSHIP (SEK (SEK
COMPANY NUMBER OFFICE SHARES % THOUSANDS) THOUSANDS)
- ------- ------------ ----------- -------- --------- ---------- ----------
HELD BY PREEM PETROLEUM AB
AB Djurgardsberg.................. 556077-3714 Stockholm 366 37 37 18
Goteborgs Smorjmedelsfabrik
(Scanlube) AB................... 556287-6481 Gothenburg 25,000 50 2,500 2,500
Skandinaviska Kracker AB.......... 556019-9878 Lysekil 875,000 50 87,500 187,500
=======
TOTAL............................. 190,081
=======
</Table>
NOTE 13. OTHER SECURITIES HELD AS FIXED ASSETS
<Table>
<Caption>
BOOK VALUE
ORGANIZATION REGISTERED NUMBER OF OWNERSHIP PAR VALUE (SEK (SEK
COMPANY NUMBER OFFICE SHARES % THOUSANDS) THOUSANDS)
- ------- ------------ ---------- --------- --------- -------------- ----------
HELD BY PREEM PETROLEUM AB
NGI Naturgasinvest AB.......... 556387-9260 Stockholm 1,667 17 167 198
SPIMFAB--SPI Miljosaneringsfond
AB........................... 556539-4888 Stockholm 1 1 2 2
Slackmedelscentralen--SMC AB... 556488-8583 Stockholm 259 26 52 52
SSH Svensk Servicehandel....... 3 -- 1 1
Gotene E.D.F.
Elforeningen,ek.for.......... 100 -- 10 10
Syrhola Handelsbolag........... 0
Tenant-owner association
Berget....................... 0
Tenant-owner association
Ekerum....................... 945
Tenant-owner association
Solhylla..................... 425
Other.......................... 30
=====
TOTAL.......................... 1,663
=====
</Table>
In the normal course of business the Company enters into transactions with
some of its Associated Companies. Amounts due from Associated Companies amounted
to SEK16 million and SEK60 million at December 31, 1999 and 2000, respectively.
Amounts due to Associated Companies were SEK16 million and SEK53 million at
December 31, 1999 and 2000, respectively. Purchases from these affiliates were
SEK198 million, SEK199 million and SEK197 million for the years 1998, 1999 and
2000, respectively.
F-46
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 13. OTHER SECURITIES HELD AS FIXED ASSETS (CONTINUED)
The following represents combined information for the Associated Companies
owned during the respective years:
<Table>
<Caption>
YEARS ENDED
DECEMBER 31,
------------------------------
INCOME STATEMENT DATA 1998 1999 2000
- --------------------- -------- -------- --------
Sales....................................................... 459 452 473
Income before taxes......................................... 2 -- --
Taxes....................................................... -- -- --
--- --- ---
NET INCOME.................................................. 2 -- --
=== === ===
</Table>
<Table>
<Caption>
AS OF
DECEMBER 31,
-------------------
BALANCE SHEET DATA 1999 2000
- ------------------ -------- --------
Current assets.............................................. 102 173
Property, plant and equipment--net.......................... 415 415
Other assets................................................ 31 20
---- ----
TOTAL ASSETS................................................ 548 608
==== ====
Liabilities................................................. 310 370
Shareholders' equity........................................ 238 238
---- ----
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 548 608
==== ====
</Table>
NOTE 14. INVENTORIES
The valuation of inventories has been carried out at the lower of the
acquisition value and the actual value. The actual value for finished products
is the net sales value, and for crude oil it is the replacement costs of year
end. At December 31, 2000 the actual value of inventories was SEK817 million
lower than the acquisition value. There is a general practice within the Swedish
oil industry to lend and borrow products to/from other oil companies. The
lending portion of inventories volume is included in the inventories value in an
amount of SEK156 million. Borrowed inventories volume correspond to an inventory
value of SEK138 million, which is not included in the inventory value.
<Table>
<Caption>
AS OF
DECEMBER 31,
-------------------
1999 2000
-------- --------
Raw materials and supplies.................................. 1,443 2,008
Finished products........................................... 1,658 2,487
----- -----
TOTAL....................................................... 3,101 4,495
===== =====
</Table>
F-47
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 15. SHAREHOLDERS' EQUITY
The Company's share capital include 610,258 shares with a par value of
SEK1,000 each.
<Table>
<Caption>
TOTAL
SHARE RESTRICTED UNRESTRICTED SHAREHOLDERS'
CAPITAL RESERVES RESERVES EQUITY
---------- ---------- ------------ -------------
BALANCE AT JANUARY 1, 1998..................... 610 2,012 416 3,038
Net income for the year........................ -- -- 124 124
Group contribution............................. -- -- (631) (631)
Tax effect of group contribution............... -- -- 177 177
Transfer between reserves...................... -- (84) 84 --
Translation differences........................ -- -- 1 1
--- ----- ------ ------
BALANCE AT DECEMBER 31, 1998................... 610 1,928 171 2,709
=== ===== ====== ======
Net income for the year........................ -- -- 713 713
Group contribution............................. -- -- (1,190) (1,190)
Tax effect of group contribution............... -- -- 333 333
Transfer between reserves...................... -- (195) 195 --
Translation differences........................ -- (3) -- (3)
--- ----- ------ ------
BALANCE AT DECEMBER 31, 1999................... 610 1,730 222 2,562
=== ===== ====== ======
Net income for the year........................ -- -- 831 831
Group contribution............................. -- -- (1,356) (1,356)
Tax effect of group contribution............... -- -- 380 380
Transfer between reserves...................... -- 67 (67) --
Translation differences........................ -- -- 3 3
--- ----- ------ ------
BALANCE AT DECEMBER 31, 2000................... 610 1,797 13 2,420
=== ===== ====== ======
</Table>
In accordance with the Swedish Companies Act, distribution of dividends is
limited to the lesser of the unrestricted shareholders' equity including net
income for the year shown in the Consolidated Balance Sheet of the Parent
Company and its subsidiaries and that of the Parent Company on a stand-alone
basis, in each case, after proposed appropriations to restricted equity.
Unrestricted equity in the Parent Company was SEK79 million as of December 31,
2000. As shown in the Consolidated Balance Sheet at December 31, 2000,
unrestricted equity amounted to SEK13 million. Of this amount none is estimated
to be appropriated to restricted equity. Restricted reserves include both
untaxed reserves (net of applicable deferred taxes) and legal reserves. The
legal reserves of SEK1,797 million are not available for distribution as they
are required to be held to meet statutory requirements in Sweden. The untaxed
reserves may be distributed as dividends upon payment of the related taxes.
Transfers between restricted and unrestricted reserves mainly include
establishment of new untaxed reserves or dissolution of untaxed reserves.
Group contributions are paid in the year after the allocation is made.
F-48
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 16. DEFERRED INCOME TAXES
<Table>
<Caption>
AS OF
DECEMBER 31,
----------------------
1999 2000
-------- --------
DEFERRED TAX LIABILITY
Untaxed reserves............................................ 243 254
--- ---
TOTAL....................................................... 243 254
=== ===
</Table>
<Table>
<Caption>
AS OF
DECEMBER 31,
----------------------
1999 2000
-------- --------
DEFERRED TAX RECEIVABLE
Tax loss carry-forwards..................................... 16 42
Provisions.................................................. 3 2
--- ---
Less: valuation allowance................................... (16) (42)
--- ---
TOTAL....................................................... 3 2
=== ===
</Table>
Deferred tax assets are included in other receivables.
The Company is providing a valuation allowance on its tax loss
carry-forwards because it has not been deemed more likely than not that the tax
loss carry-forwards will be utilized in the near future.
The Company has tax loss carry-forwards of approximately SEK56 million and
SEK150 million as of December 31, 1999 and 2000, respectively. The tax loss
carry-forwards are all from the Polish operations. Under current law, tax losses
in Poland can be used against profits during a five year period, but only up to
50% of current year's tax expense. The tax losses expire between 2004-2006.
NOTE 17. LONG-TERM LIABILITIES
LIABILITIES TO CREDIT INSTITUTIONS
<Table>
<Caption>
AS OF DECEMBER 31,
-----------------------------------------
1999 2000
------------------- -------------------
Loans in SEK................................................ 1,158 1,145
Loans in $.................................................. 1,279 1,239
Less repayments due within 1 year........................... (437) 2,000 (702) 1,682
----- -----
Lease obligation............................................ 1,156 1,144
Less current portion........................................ (11) 1,145 (12) 1,132
===== ===== ===== =====
TOTAL....................................................... 3,145 2,814
===== =====
</Table>
F-49
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 17. LONG-TERM LIABILITIES (CONTINUED)
AMORTIZATION PLAN
<Table>
<Caption>
2001 2002 2003 2004 2005 2006
-------- -------- -------- -------- -------- --------
Loans.................................................... 702 3 46 678 241 714
Capital lease obligation................................. 12 13 14 24 30 1,051
--- -- -- --- --- -----
TOTAL.................................................... 714 16 60 702 271 1,765
=== == == === === =====
</Table>
INTEREST BEARING LIABILITIES
<Table>
<Caption>
AS OF DECEMBER 31,
-----------------------------------------
MATURITY INTEREST RATE 1999 1999% 2000 2000%
--------- ------------- -------- -------- -------- --------
Fixed rate SEK................................. 2001/2008 5.8-8.45% 451 12.5 451 12.8
Variable rate SEK.............................. 2001/2005 variable 707 19.7 694 19.7
Variable rate SEK*............................. 2022 variable 1,156 32.2 1,144 32.4
Fixed rate $................................... 2006 5.55% 426 11.9 477 13.5
Variable rate $................................ 2004/2005.. variable 853 23.7 762 21.6
----- ----- ----- -----
TOTAL.......................................... 3,593 100.0 3,528 100.0
===== ===== ===== =====
Less: Current portion.......................... (448) (714)
----- -----
TOTAL.......................................... 3,145 2,814
===== =====
</Table>
- ------------
* Represents capital lease obligation
The average interest rate on short-term debt was 5.1% during 1999 and 6.0%
during 2000.
<Table>
<Caption>
AS OF
DECEMBER 31,
-------------------
1999 2000
-------- --------
Shareholder loans........................................... 1,903 2,259
===== =====
</Table>
Shareholder loans, which are subordinate to other liabilities, are not
subject to interest or amortization.
The Company has overdraft facilities of SEK584 million of which
SEK135 million was utilized as of December 31, 2000. At December 31, 2000, the
Company also has other unutilized facilities amounting to SEK 1,850 million.
The Company has as of December 31, 2000, debt of SEK49 million secured by
real estate mortgages and SEK477 million of debt that is guaranteed by a
financial institution.
F-50
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 18. LIABILITIES TO CREDIT INSTITUTIONS
<Table>
<Caption>
AS OF
DECEMBER 31,
-------------------
1999 2000
-------- --------
Short-term portion of Long-term debt........................ 448 714
Other loans................................................. -- 607
--- -----
448 1,321
=== =====
</Table>
NOTE 19. OTHER LIABILITIES AND ACCRUED EXPENSES AND PREPAID INCOME
OTHER LIABILITIES
<Table>
<Caption>
AS OF
DECEMBER 31,
-------------------
1999 2000
-------- --------
VAT......................................................... 380 439
Excise duties............................................... 677 677
Liability to Svenska Petroleum Exploration AB, related
party..................................................... 168 460
Other....................................................... 116 172
----- -----
TOTAL....................................................... 1,341 1,748
===== =====
</Table>
ACCRUED EXPENSES AND PREPAID INCOME
<Table>
<Caption>
AS OF
DECEMBER 31,
-------------------
1999 2000
-------- --------
Crude oil................................................... 992 628
Accrued salaries and social costs........................... 54 67
Accrued interest expenses................................... 27 29
Other....................................................... 276 287
----- -----
TOTAL....................................................... 1,349 1,011
===== =====
</Table>
F-51
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 20. AVERAGE NUMBER OF EMPLOYEES
<Table>
<Caption>
1998 1999 2000
-------------------- -------------------- --------------------
NO. OF NO. OF NO. OF
EMPLOYEES % MEN EMPLOYEES % MEN EMPLOYEES % MEN
--------- -------- --------- -------- --------- --------
(ACTUAL, NOT IN MILLIONS)
PREEM PETROLEUM AB
Sweden.................................... 924 62 911 59 751 53
GROUP COMPANIES
Sweden.................................... 961 87 950 86 1,003 86
Norway.................................... 3 33 4 50 4 50
Poland.................................... 238 76 272 74 272 71
----- -- ----- -- ----- --
Total group companies..................... 1,202 85 1,226 83 1,279 83
----- -- ----- -- ----- --
Total group............................... 2,126 75 2,137 73 2,030 72
===== == ===== == ===== ==
</Table>
SALARIES, OTHER REMUNERATION AND PAYROLL OVERHEADS
<Table>
<Caption>
1998 1999 2000
--------------------------- --------------------------- ---------------------------
PAYROLL PAYROLL PAYROLL
OVERHEADS OVERHEADS OVERHEADS
(OF WHICH (OF WHICH (OF WHICH
SALARIES, OTHER PENSION SALARIES, OTHER PENSION SALARIES, OTHER PENSION
REMUNERATION EXPENSES) REMUNERATION EXPENSES) REMUNERATION EXPENSES)
--------------- --------- --------------- --------- --------------- ---------
Preem Petroleum AB......... 267.5 115.0 262.2 112.8 249.5 100.6
(22.6)* (22.9)* (15.1)*
Group companies............ 277.0 119.4 280.3 108.0 318.2 130.2
(19.7)** (9.8)** (16.4)**
----- ----- ----- ----- ----- -----
Group total................ 544.5 234.4 542.5 220.8 567.7 230.8
===== ===== ===== ===== ===== =====
(42.3) (32.7) (31.5)
===== ===== =====
</Table>
- ------------
* Of the Preem Petroleum AB's pension expenses, SEK0.8 million,
SEK1.3 million and SEK1.7 million for the year 1998, 1999 and 2000,
respectively, relates to the Board and President of the group.
** Of the group's pension expenses, SEK1.7 million, SEK2.2 million and
SEK2.2 million for the year 1998, 1999 and 2000, respectively, relates to
the Board and President of the group.
F-52
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 20. AVERAGE NUMBER OF EMPLOYEES (CONTINUED)
BREAK-DOWN OF SALARIES AND OTHER REMUNERATION ACCORDING TO COUNTRY AND BETWEEN
BOARD MEMBERS AND EMPLOYEES.
<Table>
<Caption>
1998 1999 2000
--------------------- --------------------- ---------------------
BOARD AND OTHER BOARD AND OTHER BOARD AND OTHER
PRESIDENT EMPLOYEES PRESIDENT EMPLOYEES PRESIDENT EMPLOYEES
--------- --------- --------- --------- --------- ---------
Preem Petroleum AB................ 2.1 265.4 2.3 259.9 2.3 247.2
(of which bonus).................. (--) (--) (--)
Group companies in Sweden......... 4.2 253.7 4.1 254.7 4.3 291.3
(of which bonus).................. (--) (--) (--)
Group companies abroad
Norway............................ 0.9 0.6 0.9 1.0 0.9 1.2
Poland............................ 2.5 15.1 0.9 18.7 0.6 19.9
--------- ----- --------- ----- --------- -----
Total for group companies......... 7.6 269.4 5.9 274.4 5.8 312.4
--------- ----- --------- ----- --------- -----
Group total....................... 9.7 534.8 8.2 534.3 8.1 559.6
(of which bonus).................. (--) (--) (--)
</Table>
Agreement has been reached with the president regarding a two-year period
of notice. The president is entitled to pension from the age of 60 to 65 years,
equivalent to 70% of the fixed salary at the time of retirement.
NOTE 21. AUDITORS' FEE
<Table>
<Caption>
YEAR ENDED
DECEMBER
31,
-------------------
1999 2000
-------- --------
KPMG
Auditing.................................................... 2.3 1.7
Other assignments........................................... 1.4 1.0
SET
Auditing.................................................... 0.2 0.1
Other assignments........................................... -- --
Other auditors
Auditing.................................................... 0.1 --
Other assignments........................................... -- --
</Table>
F-53
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 22. PLEDGED ASSETS AND CONTINGENT LIABILITIES
<Table>
<Caption>
YEAR ENDED
DECEMBER
31,
-------------------
1999 2000
-------- --------
ASSETS PLEDGED
Property mortgages.......................................... 53 51
Floating charges............................................ 43 5
Deposits.................................................... 7 83
--- ---
TOTAL PLEDGED ASSETS........................................ 103 139
=== ===
CONTINGENT LIABILITIES
Guarantee................................................... 19 39
Liability for partnership................................... 56 67
--- ---
TOTAL CONTINGENT LIABILITIES................................ 75 106
=== ===
</Table>
Guarantees are when the Company has guaranteed a third party's transaction
with another party, mainly loans. The liability for partnership represents the
Company's proportionate share of the partnership's total liabilities, which is
less than 1%. According to a decision by the tax authorities of November 1998
relating to the audit of the 1994 tax year, additional VAT and penalties of
approximately SEK64.9 million were charged to the Company. The case concerns the
accounting of VAT payments on Preem-credit card sales. Although we appealed the
decision to the County Administrative Court of Stockholm, the Court has not yet
rendered a final decision. In November 1998, the tax authorities granted the
Company an extension to pay the additional VAT and penalties until the appeal
has been heard. The Company has, in accordance with generally accepted
accounting principles, made a reservation for the additional VAT, namely
SEK54 million, in its books. However, the Company has not made a reservation for
any potential penalties, which could amount to approximately SEK11.2 million. If
the Company is unsuccessful in its appeal, its VAT liability may be affected for
a total of three years, the probability of which the Company believes is
unlikely.
The Swedish Competition Authority has filed a summons application to the
City Court of Stockholm against the Company and four other oil companies
operating in Sweden, demanding that the City Court impose fines on the Company
of SEK85 million, as a penalty for alleged infringements of the Swedish
Competition Act. The Swedish Competition Authority has demanded total fines of
SEK740 million for all five oil companies. The Competition Authority claims that
the Company participated in a cartel on the Swedish market concerning prices and
discounts on petrol during the summer and fall of 1999.
The Swedish Competition Authority is also investigating the existence of a
possible diesel cartel in the Swedish market. In connection with its
investigation, the Competition Authority obtained documents from all five major
oil companies in November 2000, including Preem Petroleum AB. The Company can
offer no assurance that the Swedish Competition Authority will not initiate
legal action against its in connection with this investigation. For
infringements of the Swedish Competition Act, the Swedish courts may impose
fines equal to up to ten percent of the infringing company's turnover.
F-54
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 22. PLEDGED ASSETS AND CONTINGENT LIABILITIES (CONTINUED)
In addition to the fines imposed by the Swedish courts, the Swedish
Competition Act provides the possibility for companies and private parties to
recover damages attributable to infringements of such Act, in which case the
total amount of the Company's liability would be uncertain. Legal proceedings
must be initiated within five years from the date on which the damage occurred.
The Company can not rule out the possibility of lawsuits from private parties or
companies. At present, there is no mechanism under Swedish law to bring a class
action or to impose punitive damages. However, there can be no assurances that
this will remain the case for the next four years.
NOTE 23. SELECTED INDUSTRY SEGMENT INFORMATION
The Company operates mainly in the oil and gas industry and has three
reportable segments: the Supply and Refining Division, the Swedish Market
Division and the International Division. The three segments were determined
based upon the types of services and products that are provided to the
customers. The Supply and Refining Division operates the majority-owned Scanraff
refinery located on the west coast of Sweden, north of Gothenburg and the
wholly-owned Preemraff refinery located near the harbour of Torshamnen in
Gothenburg as well as storage depots throughout Sweden. The Supply and Refining
Division sells a full range of refined products in Sweden and abroad. The
Swedish Market Division sells home-heating gasoil directly to end-users, and
gasoil, diesel and fuel oil directly to Swedish companies using refined products
purchased from the Supply and Refining Division. The Swedish Market Division
also sells gasoline, diesel, lubricants, shop merchandise and other products
through its Preem-branded service stations. The International Division sells
refined products primarily to wholesale customers operated under the
Preem-branded name in Poland. Performance of the segments is evaluated based
upon operating profit (loss) before income taxes and excluding interest income
and expenses, and minority interest. Segment information has been prepared in
accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Accounting policies of the segments are the same as those
described in the summary of significant accounting policies. Intersegment sales
were made at market rates. It is impracticable to provide the information
required by paragraph 37 of SFAS 131. The Company does not have information
available regarding revenues from external customers for individual products or
similar products and services.
F-55
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 23. SELECTED INDUSTRY SEGMENT INFORMATION (CONTINUED)
Financial information by segment is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
SEK SEK SEK
Sales revenue:
Supply and refining(1)...................................... 12,526 18,728 35,477
Swedish market.............................................. 6,071 7,040 9,904
International............................................... 741 791 1,462
------ ------ ------
Segment sales revenue....................................... 19,338 26,559 46,843
Intersegment sales revenue.................................. (3,580) (4,339) (7,285)
====== ====== ======
Sales revenues.............................................. 15,758 22,220 39,558
------ ------ ------
Segment operating profit:
Supply and refining......................................... 578 1,120 1,540
Swedish market.............................................. 48 92 6
International............................................... (1) (30) (69)
------ ------ ------
Segment operating profit.................................... 625 1,182 1,477
Other non-allocated income (expense)(2)..................... (53) 39 179
Income from operations...................................... 572 1,221 1,656
Non-allocated items(3)...................................... (263) (234) (373)
------ ------ ------
INCOME BEFORE INCOME TAXES.................................. 309 987 1,283
====== ====== ======
</Table>
- ------------
(1) Includes sales by the Supply and Refining Division to the Swedish Market
Division and International Division of SEK3,580 million for 1998,
SEK4,339 million for 1999, SEK7,285 million for 2000.
(2) Other non-allocated income (expense) includes the corporate cost center,
non-recurring items and exchange rate differences.
(3) Non-allocated items consist of interest income and expenses, other
financial income and expense and minority interest.
DEPRECIATION AND AMORTIZATION:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Supply and refining......................................... 446 470 507
International............................................... 11 15 23
Swedish market.............................................. 163 154 180
--- --- ---
Segment depreciation and amortization....................... 620 639 710
Other....................................................... 22 11 11
--- --- ---
TOTAL....................................................... 642 650 721
=== === ===
</Table>
F-56
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 23. SELECTED INDUSTRY SEGMENT INFORMATION (CONTINUED)
CAPITAL EXPENDITURES:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Supply and refining......................................... 341 424 203
International............................................... 43 40 64
Swedish market.............................................. 119 119 130
--- --- ---
Segment capital expenditures................................ 503 583 397
Other....................................................... 5 7 8
--- --- ---
TOTAL....................................................... 508 590 405
=== === ===
</Table>
Geographic information
SALES REVENUES:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Swedish market.............................................. 8,567 9,838 15,764
Norway...................................................... 790 2,857 7,695
United Kingdom.............................................. 750 1,779 3,556
Denmark..................................................... 1,429 1,680 3,502
Other....................................................... 4,222 6,072 9,041
------ ------ ------
TOTAL....................................................... 15,758 22,220 39,558
====== ====== ======
</Table>
The largest portion of the Company's sales in other markets is comprised
of sales to the Northern European market.
LONG-LIVED ASSETS:
<Table>
<Caption>
AS OF
DECEMBER 31,
-------------------
1999 2000
-------- --------
Sweden...................................................... 6,182 5,804
Other....................................................... 108 169
----- -----
TOTAL....................................................... 6,290 5,973
===== =====
</Table>
F-57
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company has operations and assets in Sweden and Poland. Consequently,
the Company's profits and revenues are affected, when measured in Swedish
Kronor, by fluctuations of currency exchange rates. In addition the Company is
exposed to fluctuations of the Dollar due to the fact that most of its goods are
priced in Dollars. When the Swedish Kronor appreciates against other currencies,
the Company's profits from foreign operations, reported in Swedish Kronor, may
decrease. Likewise, when the Swedish Kronor declines against other currencies,
the Company's profits from foreign operations reported in Swedish Kronor may
increase. The Company also has exposure to market risks from changes in interest
rates and price fluctuations in oil. Certain financial instruments are used by
the Company to manage these foreign currency, interest rate and oil risks as
summarized below.
NOTIONAL AMOUNTS AND CREDIT EXPOSURE
The notional amounts of off-balance-sheet financial instruments presented
in this Note represent face or contractual amounts and thus are not a measure of
the exposure of the Company through its use of such financial instruments. The
actual amounts exchanged are calculated on the basis of the notional amounts and
the other terms of the financial instruments, which relate to interest rates,
exchange rates, and bunker oil prices.
The Company is exposed to credit related losses in the event that
counterparties to the off-balance-sheet financial instruments do not perform
according to the terms of the contract. In the opinion of management, the
counterparties to the financial instruments are creditworthy financial
institutions and other parties and the Company does not expect any significant
loss to result from non-performance. The Company, in the normal course of
business, does not demand collateral. The credit exposure of interest rate and
foreign exchange contracts is represented by the fair value of contracts with a
positive fair value at the end of each period, reduced by the effects of master
netting arrangements. Initial margin requirements and daily calls are met in
cash.
INTEREST RATE RISK MANAGEMENT
The Company uses interest swaps to manage its interest rate risk, but did
not have any open position either at December 31, 1999 or 2000.
FOREIGN CURRENCY RISK MANAGEMENT
The Company is exposed to foreign currency exchange rate risk, due to the
international nature and scope of its operations. A substantial portion of the
Company's revenues and expenses are denominated in foreign currency. The
Company's foreign currency risk exposure arises from (i) fluctuations in
exchange rates in relation to the value of the Company's sales and purchases in
foreign currencies and certain financial assets and liabilities (transaction
exposure). The Company's policy is to hedge its transaction risk primarily on
its net exposures. Management regularly reviews the Company's assets and
liabilities that are denominated in foreign currency and determines the net
amount that is subject to risk of foreign currency fluctuations. The Company
primarily uses forward exchange contracts and, to a lesser extent, purchases
currency options and currency swaps to manage its foreign currency risk.
F-58
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
The following table presents the notional amounts and credit exposure of
financial instruments used for foreign currency risk management as of
December 31 for each year:
<Table>
<Caption>
AS OF DECEMBER 31,
-----------------------------------------
1999 2000
------------------- -------------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT EXPOSURE AMOUNT EXPOSURE
-------- -------- -------- --------
Forward exchange contracts............................... -- -- 46 --
-------- -------- -- --------
-- -- 46 --
======== ======== == ========
</Table>
The following table summarizes the contractual amounts of the Company's
forward exchange and option contracts by major currency in Swedish Kronor.
Foreign currency amounts are translated at rates current at the reporting date.
The "buy" amounts represent Swedish Kronor equivalent of commitments or options
to purchase foreign currencies, and the "sell" amounts represent the Swedish
Kronor equivalent of commitments or options to sell foreign currencies. The
Company uses forward exchange contracts, which typically expire within one year,
to hedge anticipated and firmly committed payments and receipts of foreign
currencies related to sales, product costs, interest and sale and purchase of
fixed assets.
<Table>
<Caption>
1999 2000
------------------- -------------------
BUY SELL BUY SELL
-------- -------- -------- --------
Polish Zloty................................................ -- -- -- 46
-------- -------- -------- --
Total....................................................... -- -- -- 46
======== ======== ======== ==
</Table>
OIL RISK MANAGEMENT
As with currency risks, Preem makes assumptions regarding future changes
in the price of bunker and prices are hedged on the basis of this assessment.
The risk permitted within the frame for the financial policy totals a norm
position 1,580,000 cubic meters (+200,000/-250,000 cubic meters) any given
instance, which, assuming current price levels, means that approximately none of
the Group's consumption must be hedged, if at norm position.
Preem uses swaps and futures to fix its price levels. The marked to marked
value of these instruments amounts to SEK52 million and SEK81 million as of
December 31, 1999 and 2000, respectively. The difference between the acquisition
price and the market price at year end affects
F-59
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
income and balance sheet. The total notional amount of the outstanding contracts
was SEK2,576 million and SEK4,395 million as of December 31, 1999 and 2000.
<Table>
<Caption>
1999 2000
---------------------- -----------------------
NOTIONAL LENGTH OF NOTIONAL LENGTH OF
AMOUNT CONTRACT AMOUNT CONTRACT
-------- ----------- -------- ------------
Oil Swaps........................................ 2,122 Jan-Dec -00 2,736 Jan-Dec -01
Oil Futures...................................... 454 Jan-Dec -00 1,559 Jan-June -01
----- -----
2,576 4,395
===== =====
</Table>
ENVIRONMENTAL COST
The Company accrues for environmental costs as indicated in Note 1.
Numerous local, state and federal laws, rules and regulations relating to the
environment are applicable to the Company's operations. As a result, the Company
falls under the jurisdiction of numerous state and federal agencies and is
exposed to the possibility of judicial or administrative actions for remediation
and/or penalties brought by those agencies.
The Company has been and will be responsible for costs related to
compliance with, or remediation resulting from, environmental regulations.
The Company has leased the Finnberget depot since 1987, and its lease
agreement terminates in September 2001. The lease agreement has a provision
limiting the Company's liability for any decontamination to a maximum of
SEK4 million. The Company is in a dispute, however, with the landlord over
whether this limitation extends to third party claims, including claims made by
governmental authorities. The Company has filed an application in November 2000
with the Swedish district court, asking the court to establish that the
contractual limitation extends to third party claims. If the court does not find
in the Company's favor, the Company may be liable for all or part of the
decontamination of this site. The total cost of decontamination depends on the
intended future use of the site. Management estimate the total decontamination
cost for future industrial use would be approximately SEK40 million. Management
estimate the total decontamination cost for future housing use would be
approximately SEK75-110 million; the Company has accrued an amount of
SEK4 million, which is represented by a contractual obligation.
There are currently no other identified environmental remediation projects
of which the costs can be reasonably estimated. However, the continuation of the
present investigative process, other more extensive investigation over time or
changes in regulatory requirements could result in future liabilities. The
Company's operations are conducted in hazardous environments where accidents
involving catastrophic damage or loss of life could result, and litigation
arising from such an event may result in the Company being named a defendant in
lawsuits asserting material claims. The Company insures itself for liability
arising from its operations, including loss of or damage to third-party
property, death or injury to third parties, statutory workers compensation
protection and pollution caused by a sudden and accidental occurrence. Although
there can be no assurance that the amount of insurance carried by the Company is
sufficient to protect the Company fully in all events, all such insurance is
carried at levels of coverage and deductibles that the Company consider
financially prudent. A successful liability claim for which the Company are
underinsured or uninsured could have a material adverse effect on us.
F-60
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 25. U.S. GAAP INFORMATION
The following is a summary of the most significant differences between the
Preem Group's accounts in accordance with Swedish and U.S. GAAP, respectively.
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
-------------------
1999 2000
-------- --------
Net income for the year according to Swedish GAAP........... 713 831
Adjustments in accordance with U.S. GAAP:
Pensions (A).............................................. 8 4
Pension refund (B)........................................ -- (89)
Goodwill amortization (C)................................. (132) (132)
Income taxes (D).......................................... (59) --
Income tax effects of U.S. GAAP adjustment................ (2) 23
---- -----
According to U.S. GAAP...................................... 528 637
==== =====
Basic and diluted income per share in accordance with U.S.
GAAP...................................................... 866 1,044
==== =====
Weighted number of shares outstanding (thousands)........... 610 610
==== =====
</Table>
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
-------------------
1999 2000
-------- --------
Shareholder's equity according to Swedish GAAP.............. 2,562 2,420
Adjustments in accordance with U.S. GAAP:
Pensions (A).............................................. 46 50
Pension refund (B)........................................ -- (89)
Goodwill (C).............................................. 1,230 1,098
Accumulated income tax effects............................ (13) 10
----- -----
According to U.S. GAAP...................................... 3,825 3,489
===== =====
</Table>
- ------------
(A) Pensions--The Group companies have various pension schemes in accordance
with local conditions and practices in the countries in which they operate.
Most of these schemes are defined benefit pension schemes with retirement,
disability, death and termination income benefits. The retirement income
benefits are generally a function of years of employment and final salary
with the Company and are generally coordinated with local national pension
schemes. The Group companies' schemes are generally funded through payments
to insurance companies or to trustee-administered funds as determined by
periodic actuarial calculations. The Group policy for funding its defined
benefit plans is to satisfy local statutory funding requirements for tax
deductible contributions. The Company contributes at least an amount equal
to the minimum funding requirements for the countries in which it maintains
pension schemes. The Company also participates in some multi-employer
pension arrangements and defined contribution pension arrangements.
Under U.S. GAAP, the determination of pension expense for defined benefit
pension plans is made pursuant to Statement of Financial Accounting
Standard, "Employers' Accounting for Pensions SFAS No. 87." SFAS 87 is more
prescriptive than Swedish GAAP in that it requires the use of specific
actuarial method (the projected unit credit method). SFAS 87 requires,
under certain circumstances, a minimum liability may be recorded with a
corresponding intangible asset and/or reduction of shareholders' equity for
plans that are underfunded.
F-61
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 25. U.S. GAAP INFORMATION (CONTINUED)
(B) Pension refund--The Swedish National Pension Fund decided during late 1999
to repay some of its excess funds to the contributors to the plan. The
amount to be received is split into two parts i) 20% in cash during
September 2000; and ii) 80% of future required payments. Swedish GAAP
allows the Companies to account for this refund in income during 2000 using
a present value calculation of future payments. Under U.S. GAAP the
non-cash portion of the refund will be recognized as an offset to future
contributions. Total amount recognized in Swedish GAAP amounts to
SEK115 million.
(C) Goodwill--U.S. GAAP requires goodwill to be pushed down to the subsidiary
that was acquired in the subsidiary's stand-alone financial statements. For
U.S. GAAP purposes the goodwill associated with Corral Petroleum Holdings
AB's acquisition of Preem Petroleum AB (SEK1,997 millions) was recognized
as an asset and amortized over an estimated useful life of 15 years.
Swedish GAAP does not permit this treatment of goodwill.
(D) Taxes--Under Swedish GAAP, deferred income taxes are generally recognized
on timing differences only to the extent that it is likely that a tax
liability will arise in the foreseeable future. Deferred tax assets
resulting from timing differences are recognized only to the extent that
they can be offset against deferred tax liabilities. Under U.S. GAAP,
deferred tax liabilities are required to be recognized on all differences
between book and tax basis of assets and liabilities, regardless of the
likelihood of reversal or crystallization. Deferred tax assets, including
tax loss carry-forwards, are recognized to the extent that it is more
probable than not that such asset will be realized.
OTHER U.S. GAAP DISCLOSURES
FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," requires the disclosure of estimated fair values for all financial
instruments, both on- and off-balance-sheet, for which it is practicable to
estimate fair value. The Company's estimates show that there are no material
variation between market value and book value for its long-lived assets and
liabilities, except for long-term debt as presented below, as at December 31,
1999 and 2000. For certain instruments, including cash and cash equivalents, and
accounts payable and accruals, it was assumed that the carrying amount
approximated fair value due to the short maturity of those instruments.
The estimated fair value of the Company's long-term debt are based on
present value of future payments based on the difference in interest rates.
<Table>
<Caption>
AS OF DECEMBER 31,
---------------------------------------------------------
1999 2000
--------------------------- ---------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
LIABILITIES
Long-term liabilities to credit institutions... 3,145 3,136 2,814 2,785
</Table>
F-62
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 25. U.S. GAAP INFORMATION (CONTINUED)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Schedule of movements in allowance for doubtful accounts in the Preem
Group for the years ended December 31, 1998, 1999 and 2000:
<Table>
<Caption>
BALANCE AT CHARGED
BEGINNING OF CHARGED TO COSTS (CREDITED) TO ADDITIONS OR BALANCE AT END
YEAR PERIOD AND EXPENSES OTHER ACCOUNTS DEDUCTIONS (A) OF PERIOD
- ---- ------------ ---------------- -------------- --------------- --------------
1998........................ 34 (1) (1) (6) 26
1999........................ 26 1 (1) 2 28
2000........................ 28 8 (1) 11 46
</Table>
- ------------
(A) Primary write-offs of bad debts.
COMPREHENSIVE INCOME
Comprehensive Income--The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
establishes standards for the reporting and presentation of comprehensive income
and its components in a full set of financial statements. Comprehensive income
generally encompasses all changes in shareholders equity (except those arising
from transactions with the owners) and includes net income (loss), net
unrealized capital gains or losses on available for sale securities and Foreign
currency translation adjustments. Comprehensive income (loss) in accordance with
Swedish GAAP were as follows:
<Table>
<Caption>
ACCUMULATED OTHER
COMPREHENSIVE COMPREHENSIVE INCOME
------------- --------------------
BALANCE OF JANUARY 1, 1998..................................
Net income.................................................. 124 --
Foreign currency translation adjustment..................... (1) (1)
----
123
Comprehensive income 1998
----
BALANCE OF DECEMBER 31, 1998................................ (1)
====
Net income.................................................. 713
Foreign currency translation adjustment..................... (3) (3)
----
Comprehensive income 1999................................... 710
----
BALANCE OF DECEMBER 31, 1999................................ (4)
====
Net income.................................................. 831
Foreign currency translation adjustment..................... 3 3
----
Comprehensive income 2000................................... 834
----
BALANCE OF DECEMBER 31, 2000................................ (1)
====
</Table>
F-63
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 26. RECENT U.S. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("Statement 133")
"Accounting for Derivative Instruments and for Hedging Activities." In
June 2000, the FASB issued Statement of Financial Accounting Standards No. 138
("Statement 138"), "Accounting for Certain Derivative Instruments and Certain
Hedging Activity, an Amendment of SFAS 133." Statement 133, as amended, requires
companies to recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value. It
also requires that changes in fair value of a derivative be recognized currently
in earnings unless specific hedge accounting criteria are met. The Company
adopted Statement 133, as amended on January 1, 2001. The adoption of Statement
133, will have no impact on the Company's financial statements.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141 ("Statement 141"), "Business Combinations" and Statement of Financial
Accounting Standards No. 142 ("Statement 142"), "Goodwill and Other Intangible
Assets." Statement 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
Statement 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for impairment at
least annually in accordance with the provisions of Statement 142. Statement 142
will also require that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Statement 142 is required to be adopted by
the Company effective January 1, 2002.
Statement 141 will require upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in Statement 141 for
recognition apart from goodwill. Upon adoption of Statement 142, the Company
will be required to reassess the useful lives and residual values of all
intangible assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the first interim period
after adoption. In addition, to the extent an intangible asset is identified as
having an indefinite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of Statement
142 within the first interim period. Any impairment loss will be measured as of
the date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.
The Company has not yet determined the impact of adopting Statement 141
and Statement 142.
In June 2001, the Financial Accounting Standards Board issued Statement
No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS, which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
standard applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) normal use of the asset.
F-64
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 26. RECENT U.S. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED
(CONTINUED)
Statement No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating expense. If the
obligation is settled for other than the carrying amount of the liability, the
Company will recognize a gain or loss on settlement.
The Company is required and plans to adopt the provisions of Statement
No. 143 for the quarter ending March 31, 2003. To accomplish this, the Company
must identify all legal obligations for asset retirement obligations, if any,
and determine the fair value of these obligations on the date of adoption. The
determination of fair value is complex and will require the Company to gather
market information and develop cash flow models. Additionally, the Company will
be required to develop processes to track and monitor these obligations. Because
of the effort necessary to comply with the adoption of Statement No. 143, it is
presently not practicable for management to estimate the impact of adopting this
Statement.
NOTE 27. PENSION INFORMATION
The Group has certain Swedish pension arrangements that are not
multiemployer or non-participating insurance arrangements that are funded
through payments to a separate pension foundation. For Swedish GAAP purposes,
pension expense for defined benefit pension plans is based on actuarial
computation. The net periodic pension expense and the vested benefit obligation
have also been determined for U.S. GAAP purposes on the basis that would result
if all employees are separated immediately. The accounting for pension plans in
accordance with Swedish GAAP is different from the accounting and disclosure
requirements of SFAS No. 87 "Employers Accounting for Pensions" and SFAS
No. 132 "Employers Disclosure about Pensions and Other Post-retirement
Benefits." The Company adopted SFAS 87 in January 1, 1996, and the transition
amount was SEK17 million, which is amortized over a period of 15 years.
Pension cost, on the defined benefit plans, calculated in accordance with
U.S. GAAP includes the following:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Service cost................................................ 2 -- --
Interest cost............................................... 9 6 6
Net amortization and deferral............................... (2) (2) --
-- -------- --------
NET PERIODIC PENSION COST................................... 9 4 6
== ======== ========
</Table>
The cash amount received in 2000 of SEK26 million of pension refund is not
reflected in the net periodic pension cost above.
F-65
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 27. PENSION INFORMATION (CONTINUED)
The change in benefit obligation are as follows:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
-------------------
CHANGE IN BENEFIT OBLIGATION 1999 2000
- ---------------------------- -------- --------
Benefit obligation at beginning of year..................... 126 137
Interest cost............................................... 6 6
Actuarial gain (loss)....................................... 21 5
Benefit paid................................................ (16) (15)
---- ----
Benefit obligation at end of year........................... 137 133
==== ====
Funded status............................................... (137) (133)
==== ====
Amounts recognized in the consolidated balance sheets
consist of accrued pension liability...................... 137 133
==== ====
</Table>
Assumptions used in the calculation of pension obligations are as follows:
<Table>
<Caption>
1999 2000
-------- --------
SWEDEN SWEDEN
-------- --------
Weighted discount rate...................................... 5.0% 5.0%
Rates of increase in compensation levels.................... 2.5% 2.5%
</Table>
The projected benefit obligation and accumulated benefit obligation for
pension plans with accumulated benefit obligations in excess of plan assets was
SEK137 million and SEK137 million, respectively, as of December 31, 1999 and
SEK133 million and SEK133 million, respectively, as of December 31, 2000.
NOTE 28. RELATED PARTY TRANSACTIONS
The Company has entered into various transactions with affiliated
companies, which were entered into on terms no less favorable than those that
could have been obtained from an unrelated third party. The significant
transactions between the Company and its affiliates are described below.
Midroc Scandinavia AB, a company in which Mr. Al-Amoudi has a majority
shareholding, has provided and continues to provide maintenance and construction
services, through its subsidiaries, to Preem Petroleum AB. For these services,
the Company paid SEK78 million in 2000, SEK98 million in 1999 and SEK65 million
in 1998. Many of these services are provided on an as-needed basis. Accordingly,
the amounts paid for these services may vary from year to year depending on the
amount of services provided.
Capital Trust SA, through its subsidiaries, provides international
merchant/investment banking services. A wholly-owned subsidiary of Capital Trust
SA has acted as the Company's advisor in connection with the April 2001 offering
of the notes. For these services, the Company paid a fee equal to 1.5% of the
gross proceeds from the April 2001 offering of the notes. In addition, Capital
Trust SA, through its subsidiaries, provides certain technical and advisory
services to Corral Petroleum Holdings AB. The existing contract governing these
services expires in September, 2002, will be automatically
F-66
<Page>
PREEM PETROLEUM AB AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
NOTE 28. RELATED PARTY TRANSACTIONS (CONTINUED)
renewed thereafter on an annual basis unless terminated by either party, and
provides for an annual fee for services. Mr. John P. Oswald, a director and
Chairman of the Board of Preem Holdings AB, is a principal shareholder of
Capital Trust SA. Mr. Oswald also is a director of Preem Petroleum AB and Corral
Petroleum Holdings AB.
Preem Petroleum AB performs a cash management function for Svenska
Petroleum Exploration AB. The liability associated with such cash management
services amounted to SEK460 million and SEK168 million as of December 31, 2000
and 1999, respectively and represents the cash balances attributable to Svenska
Petroleum Exploration AB. The liability bears an interest corresponding to the
interest that Preem Petroleum AB receives from the banks where such funds are
deposited.
NOTE 29. SUBSEQUENT EVENTS (UNAUDITED)
Preem Holdings AB was originally established in 1980 as Labrador Svenska
AB and is registered with the Swedish Patent and Registration Office under the
number 556206-9673. Swedoil AB was a subsidiary of Preem Petroleum AB that had
been dormant since 1983. The name was changed from Labrador Svenska AB to
Swedoil AB in September 1981. On March 1, 2001, its name was changed from
Swedoil AB to Preem Holdings AB, and its status was changed from a private
company to a public company through amendments to its Articles of Association
and its subsequent registration with the Swedish Patent and Registration Office.
Corral Petroleum Holdings AB, a Swedish company, contributed all of the issued
and outstanding shares of Preem Petroleum AB to Preem Holdings AB on March 19,
2001. Preem Holdings AB is wholly-owned by Corral Petroleum Holdings AB, which
is wholly-owned by Moroncha Holdings Company Limited, which is wholly-owned by
Mr. Mohammed Hussein Ali Al-Amoudi.
F-67
<Page>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNTIL NOVEMBER 26, 2001, WHICH IS 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, IF
YOU ARE A DEALER EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT YOU ARE
PARTICIPATING IN THE EXCHANGE OFFER, YOU MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS OBLIGATION IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PREEM HOLDINGS AB (PUBL)
OFFER TO EXCHANGE
E305,000,000 10 5/8% SENIOR SECURED NOTES DUE 2011
FOR
E305,000,000 10 5/8% SENIOR SECURED NOTES DUE 2011
---------------
PROSPECTUS
----------------------
DEUTSCHE BANK AG LONDON
---------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES OR OUR SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY
JURISDICTION WHERE THAT WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS
SHALL CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS
OF PREEM HOLDINGS HAVE NOT CHANGED SINCE THE DATE HEREOF.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Page>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Neither Swedish law nor the Articles of Association of the registrant
contain provisions under which any officer or director of the registrant is
indemnified in any manner against any liability which it may incur in its
capacity as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
3.1 Articles of Association of Preem Holdings AB (publ)
4.1 Purchase Agreement, dated as of April 3, 2001, by and among
Preem Holdings AB (publ), Deutsche Bank AG London, and UBS
AG
4.2 Indenture, dated as of April 10, 2001, by and among Preem
Holdings AB (publ), Bankers Trust Company, and Deutsche Bank
AG London
4.3 Form of 10 5/8% Senior Secured Notes due 2011
4.4 Registration Rights Agreement, dated as of April 10, 2001,
by and among Preem Holdings AB (publ), Deutsche Bank AG
London, and UBS AG
4.5 Purchase Agreement, dated as of July 13, 2001, between Preem
Holdings AB (publ) and Deutsche Bank AG London
4.6 Registration Rights Agreement, dated as of July 20, 2001,
between Preem Holdings AB (publ) and Deutsche Bank AG London
5.1 Opinion of Akin, Gump, Strauss, Hauer & Feld
10.1 Shareholder Loan Agreement No. 1A, dated as of April 10,
2001, between Preem Holdings AB (publ) and Preem Petroleum
AB
10.2 Shareholder Loan Agreement No. 1B, dated as of April 10,
2001, between Preem Holdings AB (publ) and Preem Petroleum
AB
10.3 Shareholder Loan Agreement No. 2, dated as of April 10,
2001, between Preem Holdings AB (publ) and Corral Petroleum
Holdings AB (publ)
10.4 Debt Restructuring Agreement, dated as of April 10, 2001, by
and among Preem Holdings AB (publ), Corral Petroleum
Holdings AB (publ), and Preem Petroleum AB
10.5 Security Assignment Agreement, dated as of April 10, 2001,
between Preem Holdings AB (publ) and Bankers Trust Company
10.6 Share Pledge Agreement, dated as of April 10, 2001, between
Preem Holdings AB (publ) and Bankers Trust Company
10.7 Scanraff Shareholders' Agreement, dated as of May 20, 1999,
by and between Preem Petroleum AB, Hydro R&M Holding AS and
Skandinaviska Raffinaderi Aktiebolaget Scanraff
</Table>
II-1
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
10.8 Scankracker Shareholders' Agreement, dated as of June 30,
1996, by and between Preem Petroleum AB (formerly OK
Petroleum AB), Norsk Hydro AS and OK Kracker AB
10.9 Scanlube Shareholders' Agreement, dated as of November 22,
1995, by and between Preem Petroleum AB (formerly OK
Petroleum AB) and Hydro Texaco Holdings A/S
10.10 Amendment to Scanlube Shareholders' Agreement, dated as of
August 19, 1997, by and between Preem Petroleum AB, Hydro
Texaco Holdings A/S and Goteborgs Smormedelsfabrik
(Scanlube) AB
21.1 Subsidiaries of Preem Holdings AB (publ)
23.1 Consent of Akin, Gump, Strauss, Hauer & Feld (included as
part of Exhibit 5.1)
23.2 Consent of KPMG
23.3 Consent of Solomon Associates Limited
23.4 Consent of Wood Mackenzie
23.5 Consent of Mannheimer Swartling Advokatbyra
24.1* Power of Attorney
25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of Bankers Trust Company, as trustee
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Instruction to Registered Holder from Beneficial
Owner of 10 5/8% Senior Secured Notes due 2011
</Table>
- ------------
* Incorporated by reference to our Registration Statement on Form F-4,
registration No. 333-13724, filed with the Commission on July 16, 2001.
(b) FINANCIAL STATEMENT SCHEDULES
(1) Financial Statements
The financial statements filed as part of this registration statement are
listed in the Index to Financial Statements on page F-1.
(2) Schedules
None.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or
II-2
<Page>
decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(1) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(2) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(3) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Item 8.A. of Form 20-F at the start
of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by
Section 10(a)(3) of the Act need not be furnished, PROVIDED, that the
registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to Rule 512(a)(4)
and other information necessary to ensure that all other information
in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need
not be filed to include financial statements and information required
by Section 10(a)(3) of the Act or Rule 3-19 of Regulation S-X if such
financial statements and information are contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the Form F-3.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the
II-3
<Page>
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes (i) to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of Forms F-3 and F-4 within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means and (ii) to
arrange or provide for a facility in the U.S. for the purpose of responding
to such requests. The undertaking in subparagraph (i) above include
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Preem Holdings AB has duly caused this Registration Statement on Form F-4, to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Stockholm, Sweden on August 28, 2001.
<Table>
PREEM HOLDINGS AB (PUBL)
By: /S/ JOHN P. OSWALD
-----------------------------------------
John P. Oswald
CHAIRMAN OF THE BOARD
By: /S/ RICHARD OHMAN
-----------------------------------------
Richard Ohman
DIRECTOR
</Table>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form F-4, has been signed by the following
persons in the capacities and on the dates indicated.
<Table>
<Caption>
NAME TITLE DATE
---- ----- ----
/S/ JOHN P. OSWALD
------------------------------------------- Chairman of the Board August 28, 2001
John P. Oswald
/S/ RICHARD OHMAN
------------------------------------------- Director and President August 28, 2001
Karim Karaman*
/S/ RICHARD OHMAN
------------------------------------------- Director August 28, 2001
Richard Ohman
/S/ RICHARD OHMAN
------------------------------------------- Director August 28, 2001
Lars Nelson*
/S/ RICHARD OHMAN Chief Financial Officer
------------------------------------------- (principal accounting August 28, 2001
Per Hojgard* officer)
</Table>
*Signed by Richard Ohman as attorney-in-fact pursuant to a power of
attorney filed with, and incorporated herein by reference to, our Registration
Statement on Form F-4, filed with the Commission on July 16, 2001.
II-5
<Page>
SIGNATURE OF AUTHORIZED REPRESENTATIVE
Pursuant to the Securities Act of 1933, as amended, the undersigned, the
duly authorized representative in the United States of Preem Holdings AB has
signed this registration statement or amendment thereto, as the case may be, in
the City of Fairfax, Virginia, on August 28, 2001.
<Table>
By: /S/ JOHN P. OSWALD
-----------------------------------------
John P. Oswald
CHAIRMAN OF THE BOARD
</Table>
II-6