<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From -------------- to---------------
Commission File Number 1-3473
TESORO PETROLEUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-0862768
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8700 TESORO DRIVE, SAN ANTONIO, TEXAS 78217
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 210-828-8484
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $.16 2/3 par value New York Stock Exchange
Pacific Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Pacific Stock Exchange
12 3/4% Subordinated Debentures New York Stock Exchange
due March 15, 2001
13% Exchange Notes New York Stock Exchange
due December 1, 2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO .
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. /X/
AT MARCH 1, 1994, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NONAFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $157,902,878 BASED UPON THE
CLOSING PRICE OF ITS SHARES ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE. AT
MARCH 1, 1994, THERE WERE 22,456,055 SHARES OF THE REGISTRANT'S COMMON STOCK
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT FORM 10-K PART
Proxy Statement for 1994 Annual Meeting Part III
<PAGE>
PART I
ITEM 1. BUSINESS
Tesoro Petroleum Corporation, together with its subsidiaries ('Tesoro' or
the 'Company'), is a natural resource company engaged in refining and marketing,
exploration and production of natural gas, and wholesale marketing of fuel and
lubricants. The Company was incorporated in Delaware in 1968 (a successor by
merger to a California corporation incorporated in 1939). For financial
information relating to industry segments, see Management's Discussion and
Analysis of Financial Condition and Results of Operations in Item 7 and Note N
of Notes to Consolidated Financial Statements in Item 8.
RECENT EVENTS
In February 1994, the Company completed a recapitalization plan
('Recapitalization') which was approved by the Board of Directors during 1993.
Among other things, the Recapitalization included the exchange by holders of
$44.1 million principal amount of the Company's 12 3/4% Subordinated Debentures
('Subordinated Debentures') for a like amount of new 13% Exchange Notes and the
approval by holders of the Company's $2.16 Cumulative Convertible Preferred
Stock ('$2.16 Preferred Stock') to reclassify such stock (including accrued and
unpaid dividends thereon of approximately $9.5 million) into an aggregate of
6,465,859 shares of the Company's Common Stock. In addition, the Company also
agreed to issue 131,956 shares of its Common Stock on behalf of the holders of
$2.16 Preferred Stock to pay certain of their legal fees and expenses in
connection with the settlement of the litigation discussed below.
In connection with the Recapitalization, the Company also entered into an
agreement with MetLife Security Insurance Company of Louisiana ('MetLife')
('Amended MetLife Memorandum'), pursuant to which MetLife, the sole holder of
the outstanding shares of the Company's $2.20 Cumulative Convertible Preferred
Stock ('$2.20 Preferred Stock'), agreed, among other things, to waive the annual
$2.20 Preferred Stock mandatory redemption requirements, to consider all accrued
and unpaid dividends on the $2.20 Preferred Stock as of the effective date of
the Recapitalization (aggregating approximately $21.2 million) to have been
paid, to allow the Company to pay future dividends on the $2.20 Preferred Stock
in Common Stock in lieu of cash, to waive or refrain from the exercise of other
rights under the $2.20 Preferred Stock, and to grant the Company a three-year
option to purchase all shares of $2.20 Preferred Stock and Common Stock held by
MetLife as of the effective date of the Recapitalization for an aggregate option
price of $53 million at February 9, 1994, subject to certain adjustments. The
unpaid option price will be increased by 3% on the first day of each calendar
quarter through December 31, 1995 and by 3 1/2% of the unpaid option price on
the first day of each quarter thereafter. Pursuant to the Amended MetLife
Memorandum, the Company agreed to issue MetLife 1,900,075 shares of Common Stock
at the time of the reclassification of the $2.16 Preferred Stock. Upon
shareholders' approval of the Recapitalization, MetLife owned 2,875,000 shares
of $2.20 Preferred Stock and 4,084,160 shares of Common Stock, including the
1,900,075 shares of Common Stock issued to MetLife in connection with the
Recapitalization.
Consummation of the Recapitalization has improved the short-term and
long-term liquidity of the Company and has increased the Company's equity
capital. The exchange of the $44.1 million principal amount of Subordinated
Debentures will satisfy annual sinking fund requirements on the Subordinated
Debentures for approximately four years. The Recapitalization is also intended
to improve the financial condition of the Company and allow the Company to
continue its new strategy of improving its refining and marketing operations and
accelerating its oil and gas exploration and development activities, as
discussed in more detail below. For information on the pro forma effects of the
Recapitalization, see Note B of Notes to Consolidated Financial Statements in
Item 8.
2
<PAGE>
In October 1993, Croyden Associates, a holder of shares of the Company's
$2.16 Preferred Stock, filed a class action suit in Delaware Chancery Court on
behalf of itself and all other holders of the $2.16 Preferred Stock. The suit
alleged that the Company and its directors breached their fiduciary duties to
the holders of the $2.16 Preferred Stock based on the terms of the proposed
recapitalization as described in the Company's Proxy Statement, Prospectus and
Consent Solicitation ('Proxy Statement -- Prospectus') as originally filed with
the Securities and Exchange Commission on September 2, 1993, which provided for
the reclassification of each share of $2.16 Preferred Stock into 3.5 shares of
Common Stock or, at the holder's option, 2.75 shares of Common Stock and .25
share of a new issue of preferred stock. The suit sought, among other things,
monetary damages and to enjoin the recapitalization. After Croyden Associates
filed the lawsuit, representatives of the Company and representatives of Croyden
Associates, including the attorneys for the holders of $2.16 Preferred Stock,
had numerous discussions over a period of four months concerning the possible
settlement of the litigation. During the course of such discussions, various
rates for exchanging the $2.16 Preferred Stock into Common Stock were proposed
by the parties, ranging from four shares to six shares of Common Stock for each
share of $2.16 Preferred Stock. In addition, the parties discussed the
possibility of issuing shares of Common Stock based on the market price for such
shares during a period immediately before or after consummation of the
Recapitalization. During the course of such discussions, Croyden Associates
proposed a fixed rate of five shares of Common Stock per share of $2.16
Preferred Stock and the parties ultimately reached agreement on such rate.
Discussions then took place between attorneys for the Company and the attorneys
for the holders of the $2.16 Preferred Stock with respect to payment of fees and
expenses of the attorneys for the holders of the $2.16 Preferred Stock, which
fees and expenses are the obligations of the holders of the $2.16 Preferred
Stock, the class benefiting from the services of such counsel. As a result of
these discussions, the Company agreed to pay up to $500,000 in cash of the fees
and expenses awarded by the Chancery Court, and the attorneys for the holders of
the $2.16 Preferred Stock agreed to limit their fee application to $500,000 in
cash plus .1 share of Common Stock for each share of $2.16 Preferred Stock. Out
of the five shares of Common Stock the Company agreed to issue for each share of
$2.16 Preferred Stock, the Company agreed to issue .1 share on behalf of the
holders of $2.16 Preferred Stock so that such shares will be available to pay
the fees and expenses of such attorneys if awarded by the Chancery Court. On
February 4, 1994, Croyden Associates and the Company entered into an agreement
seeking court approval of a settlement based upon the terms set forth in the
Proxy Statement -- Prospectus. By order dated February 7, 1994, the Delaware
Chancery Court scheduled a hearing, to be held on April 13, 1994, to determine
whether to approve the terms of the settlement and enter a final judgment
dismissing the action.
In March 1994, the Company's Board of Directors authorized management of the
Company to investigate the feasibility of a future equity offering of additional
shares of the Company's Common Stock together with a future public debt
offering. The proceeds from these offerings would be used to finance the
Company's option to acquire all of the Company's outstanding Common Stock and
$2.20 Preferred Stock held by MetLife and to refinance all or a portion of the
Company's outstanding long-term debt.
The Company transports its crude oil and a substantial portion of its
refinery products over Kenai Pipe Line Company's ('KPL') pipeline and marine
terminal facilities in Nikiski, Alaska. KPL's common carrier pipeline is subject
to rate regulation by the Federal Energy Regulatory Commission ('FERC') and the
Alaska Public Utilities Commission. On March 1, 1994, KPL filed a revised tariff
with the FERC, with a proposed effective date of April 1, 1994, to regulate
certain dock loading services KPL had previously provided pursuant to a private
contract with the Company which KPL has terminated. KPL's proposed FERC rate for
this dock loading service would have increased the Company's annual cost of
transporting products through KPL's facilities from $1.2 million to $11.2
million or an increase of $10 million per year. The Company considered the
proposed KPL rate clearly excessive and on March 21, 1994, filed a motion to
reject or suspend the
3
<PAGE>
rate with the FERC. On March 29, 1994, the FERC rejected KPL's revised tariff;
however, under FERC regulations, KPL has the right to file a new tariff.
The Company has recently initiated discussions with KPL to acquire the
facilities or an interest therein. In connection therewith, KPL has agreed not
to file a new tariff with the FERC for a period of at least 30 days and the
Company has agreed to negotiate a rate with KPL for that period. While the
Company is unable to predict the purchase price for the facility, or an interest
therein, if a purchase with KPL is negotiated, the Company does not believe that
any negotiated purchase price will have a material effect on the Company's
financial condition or liquidity. The Company also cannot predict (i) whether it
will ultimately be able to negotiate the acquisition of the facilities or an
interest therein, (ii) the rate of any new tariff that may be filed by KPL, or
approved by the FERC, if the Company is unable to negotiate an acquisition of
the facilities or an interest therein, and (iii) whether any new rate that may
be filed by KPL or the ultimate resolution of this matter by the FERC if the
Company is unable to negotiate an acquisition of the facilities or an interest
therein will have a material adverse effect upon the financial condition of the
Company.
REFINING AND MARKETING
REFINING AND MARKETING
The Company conducts refining operations in Alaska and sells products to a
wide variety of customers in Alaska, in the area west of the Rocky Mountains and
in certain Far Eastern markets. During 1993, products from the Company's Alaska
refinery accounted for approximately 75% of such sales, including products
received on exchange in the West Coast market, with the remaining 25% being
purchased from other refiners and suppliers.
The refinery, which is located in Kenai, Alaska, has a rated throughput
capacity of 72,000 barrels per day and is capable of producing liquefied
petroleum gas, gasoline, jet fuel, diesel fuel, heating oil and residual fuel
oil. The refinery is designed to process crude oil with a sulphur content of up
to 1%. Alaska North Slope ('ANS') and Cook Inlet crude oils, the primary crude
oils currently used as feedstock for the refinery, are below this limit. To
assure the availability of crude oil to the refinery, the Company has a royalty
crude oil purchase contract with the State of Alaska ('State')(see 'Crude Oil
Supply' discussed below). During the second quarter of 1993, the Company
implemented a market-driven operational strategy for its refining and marketing
operations. This strategy includes reducing refinery throughput and upgrading
the mix of feedstocks, which is intended to enable the Company to match its
refined product yield more closely to the product demand in Alaska, its primary
market, and reduce shipments of refined products to less profitable markets. The
strategy is also intended to reduce the Company's working capital requirements
and reduce the volume of residual fuel oil produced by the Company's Alaska
refinery. Implementation of this strategy has resulted in a decrease in total
refinery production from 60,900 barrels per day in 1992 to 49,000 barrels per
day during 1993, including a decrease in the level of residual fuel oil
production from approximately 23,400 barrels per day in 1992 to approximately
17,600 barrels per day during 1993. The Company's ability to further reduce
production of residual fuel oil, other than by further reducing total refinery
production, is currently limited by the availability of lighter feedstocks and
by the configuration of the refinery hardware. There can be no assurance that
the new strategy will ultimately prove successful. See 'Government Regulation
and Legislation -- Environmental Controls' for a discussion of the effect of
governmental regulations on the production of low sulphur diesel fuel for
on-highway use in Alaska.
In March 1994, the Company's Board of Directors approved the construction of
a vacuum processing unit at the refinery. This unit, estimated to cost
approximately $24 million, will reduce the amount of residual fuel oil by
further processing this product into additional higher-valued products.
4
<PAGE>
During 1993, the refinery processed approximately 72% ANS crude oil, 22%
Cook Inlet crude oil and 6% of other refinery feedstocks, which yielded refined
products consisting of approximately 25% gasoline, 25% jet fuel, 14% diesel fuel
and other distillates and 36% residual fuel oil. Of the refinery production in
1993, the Company distributed approximately 89% of the gasoline to end-users in
the State, either by retail sales through 33 of its 7-Eleven convenience store
locations, by wholesale sales through 68 branded and 25 unbranded dealers and
jobbers or by exchange deliveries to major oil companies, with the remaining 11%
being transported to the West Coast. Virtually all of the jet fuel production is
marketed in Alaska to commercial airlines through sales or exchange deliveries.
Substantially all of the diesel fuel and other distillates production is
marketed through exchange deliveries or sales in Alaska. In recent years, sales
of residual fuel oil have been increasingly unprofitable. During 1993, under its
new marketing strategy, the Company commenced selling and transporting a
substantial volume of its residual fuel oil production to customers on the West
Coast.
In addition to its own refining capacity, the Company estimates the other
refiners in Alaska have the capacity to process approximately 156,000 barrels of
crude oil per day, all of which is ANS crude oil. After processing the crude oil
and removing the lighter-end products, such as gasoline and jet fuel, which
represent approximately 30% of each barrel processed, these refiners are
permitted, by paying a fee and because of their proximity to the Trans Alaska
Pipeline System, to return the remainder of the processed crude back into the
pipeline system as 'return oil.'
During 1993, the production of gasoline by all refiners in Alaska, including
the Company, exceeded the market demand by approximately 1,400 barrels per day.
The excess production was exported from Alaska, generally during the winter
months when the demand for gasoline in Alaska is lowest. The demand for jet fuel
in Alaska currently exceeds the production of the refiners in the State, and
several marketers, including the Company, import jet fuel into the State to meet
this excess demand. The primary market for diesel fuel in Alaska is the
commercial fishing fleet. Generally, the production of diesel fuel by refiners
in Alaska and the demand for such diesel fuel is in balance; however, because of
the high variability of the demand, there are occasions when diesel fuel is
imported into or exported from the State. The Company is the only producer in
Alaska of residual fuel oil for sale. Since there is no current demand for
residual fuel oil in Alaska, the residual fuel oil was exported from the State,
primarily to other refiners on the West Coast during 1993, where it was
generally used as a refinery feedstock.
The Company conducts domestic wholesale marketing operations primarily in
California, Oregon and Washington, with its principal office in Long Beach,
California. During 1993, this operation sold approximately 27,800 barrels per
day of refined products, of which approximately 30% was received from major oil
companies in exchange for refined products from the Company's Alaska refinery,
approximately 5% was received directly from the Company's Alaska refinery and
the balance was purchased from other suppliers. The Company sells these refined
products in the bulk market and through 25 terminal locations, of which four are
owned by the Company.
The Company holds an exclusive license agreement for all 7-Eleven
convenience stores in Alaska and operates such stores in 39 locations, 33 of
which sell Company branded gasoline. During 1993, these convenience stores sold
a total of 63,000 gallons of gasoline per day.
5
<PAGE>
The following table summarizes the Company's refinery throughput and product
sales for the years ended December 31, 1993, December 31, 1992 and September 30,
1991:
1993 1992 1991
(AVERAGE DAILY BARRELS)
Refinery Throughput------------------ 49,753 61,425 68,192
Refining and Marketing Product Sales:
Gasoline------------------------- 22,466 25,196 25,883
Jet fuel------------------------- 11,305 19,060 15,055
Other distillates---------------- 18,049 19,253 20,488
Residual fuel oil---------------- 16,945 23,931 28,729
Total------------------------ 68,765 87,440 90,155
CRUDE OIL SUPPLY
The Company has a contract through 1994 with the State which provides for
the purchase of certain quantities of the State's Prudhoe Bay North Slope
royalty crude oil, based on a percentage of all Prudhoe Bay North Slope royalty
crude oil produced. At current levels of Prudhoe Bay production, this contract
provides for the purchase of approximately 37,500 barrels per day at the
weighted average net-back price of all North Slope producers at Pump Station No.
1. In connection with its anticipated reduction in refinery throughput,
effective January 1, 1993, the Company exercised its right under this contract
to reduce purchases to approximately 27,500 barrels per day.
The Company's present and certain past contracts with the State contained
provisions which would have required the Company to pay the State additional
retroactive amounts if the State prevailed in the ANS ROYALTY LITIGATION against
the producers of North Slope crude oil ('Producers'). The State settled with
each of the Producers, with the last settlement occurring in April 1992. As a
result of the settlements between the State and the Producers, the State claimed
that the crude oil it sold to the Company and others was undervalued to the
extent that the Producers undervalued their oil. The State's claim against the
Company amounted to $141.9 million (including interest), of which $44.8 million
(the 'Chevron Portion') was reimbursable to the Company under a crude oil
purchase/sale agreement with Chevron U.S.A. Inc. ('Chevron').
In January 1993, the Company entered into an agreement with the State ('ANS
Agreement') that settled this contractual dispute. The ANS Agreement provided
that $97.1 million (which did not include the Chevron Portion) was owed to the
State by the Company and that the Company would cooperate with the State in
seeking to recover the Chevron Portion. Under the ANS Agreement, the State
released the Company from liability for the Chevron Portion.
Under the ANS Agreement, the Company paid the State $10.3 million in January
1993 and agreed to make variable monthly payments to the State over the nine
years following the date of the settlement based on a per barrel charge that
increases over the nine-year term from 16 cents to 33 cents on the volume of
feedstock processed at the Company's Alaska refinery. In 1993, the Company's
variable payments to the State totaled $2.6 million. At the end of the nine-year
period, the Company is obligated to pay the State $60 million; provided,
however, that such payment may be deferred indefinitely by continuing the
variable monthly payments to the State beginning at 34 cents per barrel and
increasing one cent per barrel annually thereafter. Variable monthly payments
made after the nine-year period will not reduce the $60 million obligation to
the State. The $60 million obligation is evidenced by a security bond, and the
bond and the variable monthly payments are secured by a second mortgage on the
Alaska refinery. The Company's obligations under the ANS Agreement and the
mortgage may be subordinated to current and future senior debt obligations
(including, without limitation, principal, interest and related expenses) of up
to $175 million, plus any indebtedness incurred in the future to improve the
Alaska refinery. For further information concerning the Company's settlement
with the State, see Note I of Notes to Consolidated Financial Statements in Item
8.
6
<PAGE>
Additional ANS crude oil, other than that which is purchased from the State,
is acquired by the Company through various purchase and exchange agreements with
the Producers. All ANS crude oil is delivered to the refinery by tanker through
the Kenai Pipeline Company marine terminal. In addition, the Company obtains
available Cook Inlet crude oil, which is delivered by tanker or through an
existing pipeline to the refinery. This Cook Inlet crude oil is acquired through
term contracts and spot purchases.
From time to time the Company evaluates the economic viability of processing
foreign crude oil in its Alaska refinery and occasionally purchases spot
quantities to supplement its normal crude oil supply. This foreign crude oil is
also delivered to the refinery by tanker through the Kenai Pipeline Company
marine terminal.
TRANSPORTATION
The Company charters an American flag vessel, the OVERSEAS WASHINGTON, under
an agreement expiring in 1994 with a two-year renewal option. The OVERSEAS
WASHINGTON is used primarily to transport North Slope crude oil from the Trans
Alaska Pipeline System terminal at Valdez, Alaska to the Company's Alaska
refinery. The Company also has a charter for an American flag vessel, the
BALTIMORE TRADER, under a six-month agreement expiring in July 1994 with a
six-month renewal option remaining. The BALTIMORE TRADER is used primarily to
transport residual fuel oil to California and occasionally to transport
feedstocks to the Company's Alaska refinery. From time to time, the Company also
charters tankers and ocean-going barges to transport petroleum products to its
customers within Alaska, on the West Coast and in the Far East.
The Company operates a common carrier petroleum products pipeline from the
Company's Alaska refinery to its terminal in Anchorage. This ten-inch diameter
pipeline removes the uncertainty of transporting light products in the winter
months when icing conditions in the Cook Inlet restrict marine transportation.
During 1993, the pipeline transported an average of approximately 22,300 barrels
of petroleum products per day, all of which were transported for the Company.
The pipeline has a capacity of approximately 40,000 barrels of petroleum
products per day.
For further information on transportation in Alaska, see 'Government
Regulation and Legislation -- Environmental Controls.'
EXPLORATION AND PRODUCTION
UNITED STATES
During 1993, the Company concentrated its activities in the Bob West Field,
which is located in the southern part of the Wilcox Trend, Starr and Zapata
Counties, Texas. Continued successful development of this field, discovered in
1990, has resulted in net proven natural gas reserves increasing from 74 billion
cubic feet at December 31, 1992 to 120 billion cubic feet at December 31, 1993.
Fifteen development wells were drilled and completed in this field during 1993,
bringing the number of producing wells to 25 at December 31, 1993 with an
additional two wells being drilled and one well awaiting completion at year-end.
Thirty-nine additional well locations have been selected for further development
of this 4,000 acre field, of which 25 are expected to be drilled during 1994. At
1993 year-end, net production from the Bob West Field wells averaged 58 million
cubic feet per day. The Company, which does not operate the field, owns an
average 50% revenue interest in approximately two-thirds of the field and a 28%
revenue interest in the remainder. The Company owns a 70% interest in the
central gas processing facility which is currently capable of handling
approximately 120 million cubic feet of production per day. The Company owns a
70% interest in Starr County Gathering System's two ten-inch diameter pipelines
which transport gas eight miles from the field to common carrier pipeline
facilities. In February 1994, the common carrier pipeline facilities were at
capacity and production subject to spot market prices was being curtailed. New
common carrier pipeline facilities are being constructed by Coastal States Gas
Transmission Company which will provide transportation for increased gas
production from the Bob West Field in the second quarter of 1994.
7
<PAGE>
In addition to the continued development of the Bob West Field, during 1993
the Company also participated in the drilling of four exploratory wells in other
areas of South Texas. The first exploratory well was completed as a producing
gas well, the second was a dry hole and, at December 31, 1993, the third was
awaiting completion and has subsequently been evaluated as a gas discovery. The
fourth well was still being drilled at 1993 year-end but was subsequently
evaluated as a dry hole in January 1994. A delineation well, which was drilling
at December 31, 1993 on the acreage where the first exploratory well was
drilled, was evaluated as a dry hole in January 1994.
Two producing acreage units within the Bob West Field, each consisting of
352 acres, are subject to a gas purchase contract expiring in January 1999 with
Tennessee Gas Pipeline Company ('Tennessee Gas') pursuant to which Tennessee Gas
is currently paying in excess of $7.70 per mcf of gas, which is greatly in
excess of the spot market price for natural gas ($2.31 per mcf for the month of
December 1993). The gas purchase contract is presently the subject of litigation
with Tennessee Gas. See Legal Proceedings in Item 3 and Notes K and P of Notes
to Consolidated Financial Statements in Item 8.
BOLIVIA
The Company is the operator of a joint venture which holds two Contracts of
Operation with YPFB, the Bolivian state-owned oil and gas company. The Company
has a 75% interest in a Contract of Operation, which expires in 2007, covering
approximately 93,000 acres in Block XVIII. The Company and its joint venture
participant are entitled to receive a quantity of hydrocarbons equal to 40% of
the total production, net of Bolivian taxes on production. After payment of
taxes on production, YPFB is entitled to the remainder. Under the sales contract
with YPFB covering hydrocarbons produced from the La Vertiente, Escondido and
Taiguati Fields in this block, the Company and its joint venture participant
have contracted to sell approximately 18,000 mcf, after Bolivian taxes, of
natural gas per day to YPFB. At December 31, 1993, the Company was receiving
$1.25 per mcf for gas sold under this contract. This contract, including the
pricing provision, is subject to renegotiation in April 1994 for another
two-year period. During 1993, the condensate produced in association with the
natural gas was sold to YPFB. The Company's natural gas production from Bolivia
as presented in 'Operating Statistics' below represents the Company's net
production before Bolivian taxes.
The Company has a 72.6% interest in a Contract of Operation, which expires
in 2008, covering approximately 1.2 million acres in Block XX. The Company and
its joint venture participant are entitled to receive a quantity of hydrocarbons
equal to 50% of the total production, net of Bolivian taxes on production, with
YPFB receiving the remainder. Prior to 1993, one successful commercial gas
discovery well, the Los Suris No. 1, was drilled on the block and is shut-in
pending the approval by the Government of Bolivia of a commercialization
agreement. A plan of development for Block XX has been approved by YPFB and the
Government of Bolivia. Under the plan of development, the Company drilled a
well, the Los Suris No. 2, which was completed in February 1994 and tested gross
production potential of approximately 9 million cubic feet of gas per day and
approximately 120 barrels of condensate per day from two intervals. The Los
Suris No. 2 is also shut-in pending the approval of the commercialization
agreement. The plan provides that, in order to postpone the relinquishment of
inactive acreage until July 15, 1995, the drilling of a second exploratory well
must be completed by September 30, 1994, and the drilling of a third exploratory
well must be started no later than the fourth quarter of 1994 and completed by
April 30, 1995. The Company may further postpone the relinquishment of inactive
acreage until July 15, 1996, by submitting no later than July 1, 1995, an
additional two-well drilling program that is acceptable to YPFB. To guarantee
the drilling of the first three exploratory wells, in July 1993 the Company
submitted a bank guarantee in the amount of $2 million to YPFB for the drilling
of the first exploratory well and, prior to the January 15, 1994 deadline, the
Company submitted bank guarantees to YPFB in the aggregate amount of $4 million
for the drilling of the second and third wells. Since the Los Suris No. 2 has
now been completed, YPFB has released the first $2 million guarantee.
8
<PAGE>
For further information regarding Tesoro Bolivia, see Note F of Notes to
Consolidated Financial Statements in Item 8.
OPERATING STATISTICS
The following table summarizes the Company's exploration and production
activities for the years ended December 31, 1993, December 31, 1992 and
September 30, 1991. Effective May 1, 1992, the Company sold its Indonesian
operations.
[CAPTION]
1993 1992 1991
[S] [C] [C] [C]
Net Natural Gas Production (average
daily mcf):
United States-------------------- 38,767 13,960 7,435
Bolivia-------------------------- 19,232 19,421 19,322
Total------------------------ 57,999 33,381 26,757
Net Crude Oil Production (average
daily barrels):
Bolivia (condensate)------------- 663 660 663
Indonesia------------------------ -- 2,714 3,315
Total------------------------ 663 3,374 3,978
Average Realized Sales
Prices -- Natural Gas (dollars per
mcf):
United States-------------------- $ 3.55* 3.68* 1.88
Bolivia-------------------------- $ 1.22 1.67 3.06
Average Realized Sales
Prices -- Crude Oil (dollars per
barrel):
Bolivia (condensate)------------- $ 14.26 17.65 21.11
Indonesia------------------------ $ -- 18.20 24.39
Average Production Cost (dollars per
net equivalent mcf):
United States-------------------- $ .48 .74 .44
Bolivia-------------------------- $ .14 .08 .09
Indonesia------------------------ $ -- 1.94 1.35
Depletion Rates (dollars per net
equivalent mcf):
United States-------------------- $ .78 .95 1.06
Indonesia------------------------ $ -- .15 .22
Net Exploratory Wells Drilled:
United States --
Net productive wells------------- .38 1.00 1.46
Net dry holes-------------------- .50 .50 --
Net Development Wells Drilled:
Net productive wells --
United States-------------------- 7.87 3.85 1.43
Indonesia------------------------ -- -- 3.00
Total------------------------ 7.87 3.85 4.43
Net dry holes --
United States-------------------- -- -- 1.00
Indonesia------------------------ -- -- 2.00
Total------------------------ -- -- 3.00
* SEE LEGAL PROCEEDINGS IN ITEM 3 AND NOTE K OF NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS IN ITEM 8 REGARDING LITIGATION CONCERNING THE TENNESSEE
GAS CONTRACT.
9
<PAGE>
ACREAGE AND WELLS
The following table sets forth the Company's gross and net acreage and
productive wells at December 31, 1993:
DEVELOPED UNDEVELOPED
ACREAGE ACREAGE
ACREAGE (IN THOUSANDS) GROSS NET GROSS NET
United States------------------------ 3 2 11 4
Bolivia------------------------------ 38 29 1,210 880
Total---------------------------- 41 31 1,221 884
OIL GAS
GROSS AND NET PRODUCTIVE WELLS GROSS NET GROSS NET
United States------------------------ -- -- 26 14.8
Bolivia------------------------------ -- -- 14 10.5
Total*--------------------------- -- -- 40 25.3
* INCLUDED IN TOTAL PRODUCTIVE WELLS ARE 1 GROSS (.6 NET) WELL IN THE UNITED
STATES AND 8 GROSS (6.0 NET) WELLS IN BOLIVIA WITH MULTIPLE COMPLETIONS. AT
DECEMBER 31, 1993, THE COMPANY WAS PARTICIPATING IN THE DRILLING OF 6 GROSS
(2.3 NET) WELLS IN THE UNITED STATES AND 1 GROSS (.7 NET) WELL IN BOLIVIA.
For further information regarding the Company's exploration and production
activities, see Note P of Notes to Consolidated Financial Statements in Item 8.
OIL FIELD SUPPLY AND DISTRIBUTION
WHOLESALE MARKETING OF FUEL AND LUBRICANTS
The Company sells lubricants, fuels and specialty petroleum products
primarily to onshore and offshore drilling contractors. The Company's products
are sold through six land terminals and 13 marine terminals located in various
cities in Texas and Louisiana. These products are used to power and lubricate
machinery on drilling and production locations. The Company also provides
products for marine, commercial and industrial applications.
ENVIRONMENTAL REMEDIATION PRODUCTS AND SERVICES
The Company's environmental remediation products and services operation
continues to experience losses and is being evaluated as to its long-term
economic viability.
COMPETITION
The oil and gas industry is highly competitive in all phases, including the
refining and marketing of crude oil and petroleum products and the search for
and development of oil and gas reserves. This industry also competes with
industries that supply the energy and fuel requirements of industrial,
commercial, individual and other consumers. The Company competes with a
substantial number of major integrated oil companies and other companies having
materially greater financial and other resources. These competitors have a
greater ability to bear the economic risks inherent in all phases of this
industry. In addition, unlike the Company, many competitors also produce large
volumes of crude oil which may be used in connection with their operations.
OTHER
A portion of the Company's operations are conducted in foreign countries
where the Company is also subject to risks of a political nature and other risks
inherent in foreign operations. The Company's operations outside the United
States in recent years have been, and in the future may be, materially affected
by host governments through increases or variations in taxes, royalty payments,
export taxes and export restrictions and adverse economic conditions in the
foreign countries, the future effects of which the Company is unable to predict.
10
<PAGE>
GOVERNMENT REGULATION AND LEGISLATION
UNITED STATES
NATURAL GAS REGULATIONS
Historically, all domestic natural gas sold in so-called 'first sales' was
subject to federal price regulations under the Natural Gas Policy Act of 1978
(the 'NGPA'), the Natural Gas Act (the 'NGA'), and the regulations and orders
issued by the Federal Energy Regulatory Commission (the 'FERC') in implementing
such Acts. Under the Natural Gas Wellhead Decontrol Act of 1989, all remaining
natural gas wellhead pricing, sales, certificate and abandonment regulation of
first sales by the FERC was terminated on January 1, 1993.
The FERC also regulates interstate natural gas pipeline transportation rates
and service conditions, which affect the marketing of gas produced by the
Company, as well as the revenues received by the Company for sales of such
natural gas. Since the latter part of 1985, through its Order Nos. 436, 500 and
636 rulemakings, the FERC has endeavored to make natural gas transportation more
accessible to gas buyers and sellers on an open and non-discriminatory basis,
and the FERC's efforts have significantly altered the marketing and pricing of
natural gas. A related effort has been made with respect to intrastate pipeline
operations pursuant to the FERC's authority under Section 311 of the NGPA, under
which the FERC establishes rules by which intrastate pipelines may participate
in certain interstate activities without becoming subject to full NGA
jurisdiction. These Orders have gone through various permutations, but have
generally remained intact as promulgated. The FERC considers these changes
necessary to improve the competitive structure of the interstate natural gas
pipeline industry and to create a regulatory framework that will put gas sellers
into more direct contractual relations with gas buyers than has historically
been the case.
The FERC's latest action in this area, Order No. 636, issued April 8, 1992,
reflected the FERC's finding that under the current regulatory structure,
interstate pipelines and other gas merchants, including producers, do not
compete on an equal basis. The FERC asserted that Order No. 636 was designed to
equalize that marketplace. This equalization process is being implemented
through negotiated settlements in individual pipeline service restructuring
proceedings, designed specifically to 'unbundle' those services (e.g.,
gathering, transportation, sales and storage) provided by many interstate
pipelines so that producers of natural gas may secure services from the most
economical source, whether interstate pipelines or other parties. In many
instances, the result of the FERC initiatives has been to substantially reduce
or bring to an end the interstate pipelines' traditional role as wholesalers of
natural gas in favor of providing only gathering, transportation and storage
services for others which will buy and sell natural gas. The FERC has issued
final orders in all of the individual pipeline restructuring proceedings and all
of the interstate pipelines are now operating under new open access tariffs.
Although Order No. 636 does not regulate gas producers, such as the Company,
the FERC has stated that Order No. 636 is intended to foster increased
competition within all phases of the natural gas industry. It is unclear what
impact, if any, increased competition within the natural gas industry under
Order No. 636 will have on the Company and its gas marketing efforts. In
addition, numerous petitions seeking judicial review of Orders Nos. 636, 636A
and 636B and seeking review of FERC's orders approving open access tariffs for
the individual pipelines have already been filed. Because the restructuring
requirements that emerge from this lengthy process may be significantly
different from those of Order No. 636 as originally promulgated, it is not
possible to predict what, if any, effect the final rule resulting from Order No.
636 will have on the Company. The Company does not believe, however, it will be
affected by any action taken with respect to Order No. 636 any differently than
other gas producers and marketers with which it competes.
In late 1993, FERC initiated a proceeding seeking industry-wide comments
about its role in regulating natural gas gathering performed by interstate
pipelines or their affiliates. Numerous written and oral comments have been
received by the FERC concerning whether and how it should
11
<PAGE>
regulate gathering activities, but the Company cannot predict what, if any,
action the FERC may take or whether such action will affect access to markets of
its gas or its own gas gathering facilities and activities.
The oil and gas exploration and production operations of the Company are
subject to various types of regulation at the state and local levels. Such
regulation includes requiring drilling permits and the maintenance of bonds in
order to drill or operate wells; the regulation of the location of wells, the
method of drilling and casing of wells and the surface use and restoration of
properties upon which wells are drilled; and the plugging and abandoning of
wells. The operations of the Company are also subject to various conservation
regulations, including regulation of the size of drilling and spacing units or
proration units, the density of wells that may be drilled in a given area and
the unitization or pooling of oil and gas properties. In this regard, some
states allow the forced pooling or integration of lands and leases. In addition,
state conservation laws establish maximum rates of production from oil and gas
wells, generally prohibit the venting or flaring of gas and impose certain
requirements regarding the ratability of production. The effect of these
regulations is to limit the amounts of crude oil, condensate and natural gas the
Company can produce from its wells and the number of wells or the locations at
which the Company can drill.
More recently, the enactment of the North American Free Trade Agreement has
further streamlined and simplified procedures for the importation and
exportation of gas between and among Mexico, the United States and Canada. These
changes could provide additional opportunities to export gas to Mexico, but will
more likely enhance the ability of Canadian and Mexican producers to export
natural gas to the United States, thereby increasing competition in the domestic
natural gas market.
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. The Company cannot predict when or if any such
proposals might become effective, or their effect, if any, on the Company's
operations. The natural gas industry historically has been very heavily
regulated; therefore, there is no assurance that the less stringent regulatory
approach recently pursued by the FERC and Congress will continue indefinitely
into the future.
ENVIRONMENTAL CONTROLS
Federal, state, area and local laws, regulations and ordinances relating to
the protection of the environment affect all operations of the Company to some
degree. One example of a federal environmental law that would require
operational additions and modifications is the Clean Air Act, which was amended
in 1990. While the Company believes that its facilities generally are in
substantial compliance with current regulatory standards for air emissions, over
the next several years the Company's facilities may be required to comply with
new requirements being adopted and to be promulgated by the U.S. Environmental
Protection Agency (the 'EPA') and the states in which the Company operates.
These regulations may necessitate the installation of additional controls or
other modifications or changes in use for certain emission sources. At this
time, the Company cannot estimate when new standards will be imposed by the EPA
or relevant state agencies or what technologies or changes in processes the
Company may have to install or undertake to achieve compliance with any
applicable new requirements.
The passage of the federal Clean Air Act Amendments of 1990 prompted
adoption of regulations by the State obligating the Company to produce
oxygenated gasoline for delivery to the Anchorage and Fairbanks, Alaska markets
starting on November 1, 1992. Controversies surrounding the potential health
effects in arctic regions of oxygenated gasoline containing methyl tertiary
butyl ether ('MTBE') prompted the early discontinuance of the program in
Fairbanks in December 1992. On October 21, 1993, the United States Congress
granted the State one additional year of exemption from requiring the use of
oxygenated gasoline. However, state and local officials may still require the
use of these fuels at their option. In addition, the EPA has been directed to
conduct additional studies
12
<PAGE>
of potential health effects of oxygenated fuel in Alaska. Additional federal
regulations promulgated on August 21, 1990, and scheduled to go into effect on
October 1, 1993, set limits on the quantity of sulphur in on-highway diesel
fuels which the Company produces. The State filed an application with the
federal government in February 1993 for a waiver from this requirement since
only 5% of the diesel fuel sold in Alaska is for on-highway vehicles. The EPA
supported the State's position and the formalities for obtaining the exemption
were completed on September 27, 1993. The EPA, in a letter to the State dated
September 30, 1993, indicated that the EPA was completing the final
documentation regarding the waiver and that Alaska would have a low priority for
enforcement of the diesel fuel regulations, pending the publication of the final
decision. The Company estimates that substantial capital expenditures would be
required to enable the Company to produce low-sulphur diesel fuel to meet these
federal regulations. If the State is unable to obtain a waiver from the federal
regulations, the Company would discontinue the sales of diesel fuel for
on-highway use. The Company estimates that such sales accounted for less than 1%
of its refined product sales in Alaska during 1993. The Company is unable to
predict the outcome of these matters; however, the Company believes that the
ultimate resolution of these matters will not have a material impact on the
Company's operations.
Regulations promulgated by the EPA on September 23, 1988, require that all
underground storage tanks used for storing gasoline or diesel fuel either be
closed or upgraded not later than December 22, 1998, in accordance with
standards set forth in the regulations. The Company's service stations subject
to the upgrade requirements are limited to locations within the State of Alaska,
the majority of which are located in non-residential areas. Although the Company
continues to monitor, test and make physical improvements in its current
operations which result in a cleaner environment, the Company was not required
to make any material capital expenditures for environmental control purposes
during 1993. The Company may be required to make significant expenditures for
removal or upgrading of underground storage tanks at several of its current and
former service station locations by December 22, 1998; however, the Company does
not expect to make any material capital expenditures for such purposes during
1994 and 1995 and does not expect that such expenditures subsequent to 1995 will
have a material adverse effect on the financial condition of the Company. See
Legal Proceedings, Item 3(e).
The Company currently charters a vessel to transport crude oil from the
Valdez, Alaska pipeline terminal through Prince William Sound and Cook Inlet to
its Alaska refinery. In addition, the Company routinely charters, on a term or
spot basis, additional tankers and barges for the shipment of crude oil and
refined products through Cook Inlet. The Federal Oil Pollution Act of 1990
requires, as a condition of operation, that the Company submit an oil spill
contingency plan for its Alaska refinery terminal facility located on Cook Inlet
that demonstrates the capability to respond to the 'worst case discharge' to the
maximum extent practicable. Alaska law requires a contingency plan for that
terminal providing for containment or control, and cleanup, within 72 hours, of
a spill equal to the volume of the terminal's largest storage tank. With respect
to the charter vessels employed by the Company to transport crude oil through
Prince William Sound and Cook Inlet to the Company's Alaska refinery, federal
and Alaska law both require contingency plans as a condition of navigation. The
Company has obtained State approval for its Cook Inlet Oil Discharge Contingency
Plan and conditional approval, which allows operations pending final State
review, for a Tanker Spill Prevention and Response Plan for Prince William
Sound. The federal plan must demonstrate the capability to respond to the 'worst
case discharge' to the maximum extent practicable, while the Alaska plan must be
based on containment or control, and cleanup, of a 50,000 barrel discharge
within 72 hours. To meet those standards, the Company has entered into a
contract with Alyeska Pipeline Service Company ('Alyeska') to provide the
initial spill response services in Prince William Sound with the Company to
assume those responsibilities after mutual agreement with Alyeska and the State
and Federal On-Scene Spill Response Coordinators. The Alaska legislature passed
legislation in 1992, providing limited immunity for spill response contractors,
which has facilitated access to contract extensions that will not be dependent
on further legislative action. The Company has also entered into an agreement
with Cook Inlet Spill Prevention & Response Inc. for oil spill response services
in
13
<PAGE>
Cook Inlet. The Company believes these contracts provide the additional services
necessary to meet the spill response requirements established by Alaska and
federal law.
For further information regarding environmental matters, see Legal
Proceedings in Item 3.
BOLIVIA
The Company's operations in Bolivia are subject to the Bolivian General Law
of Hydrocarbons and various other laws and regulations. The General Law of
Hydrocarbons imposes certain limitations on the Company's ability to conduct its
operations in Bolivia. In the Company's opinion, neither the General Law of
Hydrocarbons nor other limitations imposed by governmental laws, regulations and
practices will have a material adverse effect upon its Bolivian operations.
TAXES
UNITED STATES
The Revenue Reconciliation Act of 1993 imposed a new 4.3 cents per gallon
'transportation fuels tax' effective October 1, 1993, and a tax on commercial
aviation fuel effective October 1, 1995. The Company does not believe such taxes
will have a material adverse effect on the Company's future operations.
BOLIVIA
The Company is subject to Bolivian taxation at the rate of 30% of the gross
production of hydrocarbons at the wellhead which is retained and paid by YPFB
for the Company's account. In 1987, the Bolivian General Corporate Income Tax
Law was replaced by a tax system, including a Value Added Tax, which is not
imposed on net income. As a result, it is uncertain whether or not the Company
can treat the Bolivian hydrocarbons tax as creditable in the United States for
federal income tax purposes. However, due to the Company's net operating loss
carryforwards, the Company does not now, or in the near future, expect to use
these taxes as credits for federal income tax purposes.
In 1990, the Bolivian Government passed a new General Law of Hydrocarbons
containing provisions designed to ensure the creditability, for United States
federal income tax purposes, of these hydrocarbon taxes if the Company makes an
election which may subject it to a higher Bolivian tax rate in the future.
Regulations under this new law have not been issued; however, the Company does
not anticipate that this new law will have a material effect on the Company's
Bolivian operations.
EMPLOYEES
As of December 31, 1993, the Company employed approximately 900 persons, of
which approximately 40 employees are located in foreign countries. None of the
Company's employees are represented by a union for collective bargaining
purposes. The Company considers its relations with its employees to be
satisfactory.
14
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the Company's executive officers, their ages and
their positions with the Company as of March 1, 1994.
<TABLE>
<CAPTION>
PRESENT POSITION
NAME AGE POSITION HELD SINCE
<S> <C> <C> <C>
Michael D. Burke 50 President and Chief Executive Officer July 1992
Gaylon H. Simmons 54 Executive Vice President September 1993
Bruce A. Smith 50 Executive Vice President and Chief Financial September 1993
Officer
James W. Queen 54 Senior Vice President February 1992
Don E. Beere 53 Vice President, Controller February 1992
James E. Duncan 49 Vice President, Corporate Development March 1993
James C. Reed, Jr. 49 Vice President, General Counsel and Secretary September 1993
William M. Sims 49 Vice President, Environmental Products January 1992
William T. Van Kleef 42 Vice President, Treasurer March 1993
</TABLE>
There are no family relationships among the officers listed, and there are
no arrangements or understandings pursuant to which any of them were elected as
officers. Officers are elected annually by the Board of Directors at its first
meeting following the Annual Meeting of Stockholders, each to hold office until
the corresponding meeting of the Board in the next year or until his successor
shall have been elected or shall have qualified.
All of the Company's executive officers have been employed by the Company or
its subsidiaries in an executive capacity for at least the past five years,
except for those named below who have had the business experience indicated
during that period. Positions, unless otherwise specified, are with the Company.
<TABLE>
<S> <C>
Michael D. Burke -- President and Chief Executive Officer from July 1992. Group Vice
President of Texas Eastern Corporation from 1986 to 1992. President
and Chief Executive Officer of T.E. Products Pipeline Company,
L.P., an affiliate of Texas Eastern Corporation, from 1990 to 1992.
President of Texas Eastern Products Pipeline Company from 1986 to
1990.
Gaylon H. Simmons -- Executive Vice President from September 1993. Senior Vice
President, Refining, Marketing and Crude Supply from January 1993
to September 1993. President and Chief Executive Officer of Simmons
Technology Group, Inc., from 1991 to December 1992. President and
Chief Executive Officer of the Permian Corporation from 1989 to
1991. Vice President, Supply and Marketing for MAPCO Petroleum,
Inc. from 1985 through 1989.
Bruce A. Smith -- Executive Vice President and Chief Financial Officer from September
1993. Vice President and Chief Financial Officer from September
1992 to September 1993. Vice President and Treasurer of Valero
Energy Corporation from 1986 to 1992.
Don E. Beere -- Vice President, Controller from February 1992. Vice President,
Internal Audit and Management Systems of Tesoro Petroleum
Companies, Inc. from 1990 to 1992. Director, Internal Audit and
Management Systems from 1989 to 1990. Director, Internal Audit from
1986 to 1989.
15
<PAGE>
James E. Duncan -- Vice President, Corporate Development from March 1993. Vice Presi-
dent, Treasurer from February 1992 to 1993. Vice President,
Controller of Tesoro Petroleum Companies, Inc., from 1990 to 1992.
Director, Corporate Accounting, from 1985 to 1990.
James C. Reed, Jr. -- Vice President, General Counsel and Secretary from September 1993.
Vice President, Secretary from December 1992 to September 1993.
Vice President, Secretary of Tesoro Petroleum Companies, Inc., from
February 1992 to December 1992. Vice President, Assistant Secretary
of Tesoro Petroleum Companies, Inc., from 1990 to 1992. Assistant
General Counsel and Assistant Secretary from 1982 to 1990.
William T. Van Kleef -- Vice President, Treasurer from March 1993. Financial Consultant
from January 1992 to February 1993. Consultant to Parker & Parsley
(successor to the assets and operations of Damson Oil Corporation
and its affiliates) from February 1991 to December 1991. Vice
President and Chief Financial Officer of Damson Oil Corporation
from 1986 to 1991.
</TABLE>
ITEM 2. PROPERTIES
See information appearing under Item 1, Business herein and Schedules V and
VI of Financial Statement Schedules in Item 14.
ITEM 3. LEGAL PROCEEDINGS
(a) The Company is selling gas from its Bob West Field to Tennessee Gas
under a 1979 Gas Purchase and Sales Agreement ('Gas Contract') which
expires in January 1999. The Gas Contract provides that the price of gas
shall be the maximum price as calculated in accordance with the then
effective Section 102 (b) (2) ('Contract Price') of the NGPA.
In August 1990, Tennessee Gas filed a civil action in the District Court
of Bexar County, Texas against the Company and several other companies,
seeking a Declaratory Judgment that the Gas Contract is not applicable
to the Company's properties. Tennessee Gas claimed, among other things,
that certain leases covered by the Gas Contract had terminated and
therefore were automatically released from the Gas Contract, eliminating
the obligation of Tennessee Gas to purchase gas from the Company.
Tennessee Gas also challenged the quantity of gas which can be sold
under the Gas Contract and contended that the gas sales price was to be
calculated under the provisions of Section 101 of the NGPA rather than
the Contract Price. At December 31, 1993, the Section 101 price of $5.01
per mcf was $2.71 per mcf less than the Contract Price, but $2.75 per
mcf above spot market prices.
On June 24, 1992, the District Court trial judge returned a verdict in
favor of the Company. The District Court's judgment, entered on July 8,
1992, ruled that Tennessee Gas must honor the Gas Contract pursuant to
its terms. Tennessee Gas filed a motion for reconsideration in the
District Court on the issue of the price to be paid for the gas under
the Gas Contract, which was denied by the court. On September 11, 1992,
Tennessee Gas appealed the judgment to the Court of Appeals for the
Fourth Supreme Judicial District of Texas. On August 25, 1993, the Court
of Appeals affirmed the validity of the Gas Contract as to the Company's
properties and held that the price payable by Tennessee Gas for the gas
was the Contract Price. The Court of Appeals determined, however, (i)
that the trial court erred in its summary judgment ruling that the Gas
Contract was not an output contract under the Texas Business and
Commerce Code ('TBCA') and (ii) that a fact issue exists as to whether
the increases in the volumes of gas tendered to Tennessee Gas under the
Gas Contract were made in bad faith or were unreasonably
disproportionate to prior tenders in contravention of the provisions of
Section 2.306 of the TBCA. Accordingly, the Court of Appeals directed
that this issue be remanded to the trial court in Bexar County, Texas.
The Company filed a motion for
16
<PAGE>
rehearing with the appellate court regarding its decision that the Gas
Contract creates an output contract governed by the TBCA. Tennessee Gas
also filed a motion for rehearing with the appellate court regarding the
portions of its decision upholding the judgment of the trial court. On
January 26, 1994, the appellate court rendered its judgment denying all
motions for rehearing in this matter and affirming its earlier ruling.
The Company has appealed the appellate court ruling on the output
contract issue to the Supreme Court of Texas. Tennessee Gas has also
appealed to the Supreme Court of Texas that portion of the appellate
court ruling denying the remaining Tennessee Gas claims. If the Supreme
Court of Texas does not grant the Company's petition for writ of error
and affirms the appellate court ruling, then the only issue for trial
will be whether the increases in the volumes of gas tendered to
Tennessee Gas from the Company's properties may have been made in bad
faith or were unreasonably disproportionate. Management of the Company
believes its tenders were reasonable under the Gas Contract and the
market conditions at the time and will vigorously defend on this issue
if put to trial. The Company continues to receive payment from Tennessee
Gas based on the Contract Price.
Although the outcome of any litigation is uncertain, management believes
that the Tennessee Gas claims are without merit and, based upon advice
from outside legal counsel, is confident that the decision of the trial
court will ultimately be upheld as to the validity of the Gas Contract
and the Contract Price; and that with respect to the output contract
issue, the Company believes that, if this issue is tried, the
development of its gas properties and the resulting increases in volumes
tendered to Tennessee Gas will be found to have been reasonable and in
good faith. Accordingly, the Company has recognized revenues, net of
production taxes and marketing charges, for natural gas sales through
December 31, 1993, under the Gas Contract based on the Contract Price,
which net revenues aggregated $16.8 million more than the Section 101
prices and $31.0 million in excess of the spot market prices. An adverse
judgment in this case could have a material adverse effect on the
Company. If Tennessee Gas ultimately prevails in this litigation, the
Company could be required to return to Tennessee Gas $31.0 million,
excluding any interest that may be awarded by the court, representing
the difference between the spot price for gas and the Contract Price.
(b) In March 1991, the Company entered into a Consent Order with the Alaska
Department of Environmental Conservation ('ADEC'), substantially similar
to the Consent Orders reached with the EPA in September 1989. These
Consent Orders provide for the investigation and cleanup of hydrocarbons
in the soil and groundwater at the Company's Alaska refinery which
resulted from sewer hub seepage associated with the underground
oil/water sewer system. The Consent Orders formalized efforts, which
commenced in 1987, to remedy the presence of hydrocarbons in the soil
and groundwater and provide for the performance of additional future
work. The Company has replaced or rebuilt the drainage hubs and has
initiated a subsurface monitoring and interception system designed to
identify the extent of hydrocarbons present in the groundwater and to
remove the hydrocarbons. The Company estimates that annual expenditures
of approximately $1.5 million will be required in the future to operate
these subsurface monitoring and interception systems, the majority of
which will be covered by insurance through 1995.
(c) In March 1992, the Company received a Compliance Order and Notice of
Violation ('Notice') from the EPA alleging possible violations by the
Company of the New Source Performance Standards under the Clean Air Act
at its Alaska refinery. The Notice alleges that the Company (i) failed
to install a fuel gas combustion monitoring device by October 2, 1991;
(ii) failed to keep documentation on two storage vessels reflecting
quantities of petroleum liquid stored, the period of storage and the
maximum true vapor pressure of the liquid stored; (iii) failed to submit
documentation on two gas turbines (a) verifying the accuracy of the
monitoring system for recording fuel consumption and ratio of fuel to
water being fired in the
17
<PAGE>
turbines and (b) monitoring sulphur and nitrogen content of the fuel
being fired in the turbines; (iv) failed to conduct a monitoring and
repair program under the Standards for Equipment Leaks of Volatile
Organic Compounds with respect to one of the refinery units; and (v)
failed to (a) equip the Company's south bulk gasoline terminal with a
vapor recovery system, (b) assure the loading of liquid products into
tanks with a compatible vapor collection system, and (c) conduct
performance tests and submit subsequent written reports to the EPA to
determine compliance with vapor collection systems installed at the
Company's south bulk terminal. The EPA has the statutory authority to
assess civil penalties for the alleged violations of up to $25,000 per
day for each violation, but the EPA has not assessed a penalty against
the Company for its alleged violations to date. The Company is
continuing in its efforts to resolve these issues with the EPA; however,
no final resolution has been reached. The Company believes that the
ultimate resolution of this matter will not have a material adverse
effect upon the Company's business or financial condition.
(d) The Company has been identified by the EPA as a potentially responsible
party ('PRP') pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act ('CERCLA') for the D.L. Mud, Inc. ('Mud')
and Gulf Coast Vacuum Services ('Gulf Coast') Superfund sites in
Abbeville, Louisiana. These sites are contiguous and at one time were
owned by the same company. Over 100 parties have been identified as PRPs
for these sites. The Company arranged for the disposal of a minimal
amount of materials at these locations. CERCLA imposes joint and several
liability on PRPs; each PRP is therefore responsible for 100% of the
costs of the response actions necessary to remediate the sites in the
event a settlement with the EPA cannot be reached. The EPA is seeking
reimbursement for its response costs incurred to date at each site, as
well as a commitment from PRPs either to conduct future remedial
activities or to finance such activities.
The EPA has completed its investigation of the Gulf Coast site to
determine the type and extent of contamination. The EPA issued the
Record of Decision and sent out notice letters to PRPs. The Company has
entered into a DE MINIMIS settlement with the EPA at the Gulf Coast
site. The Company's total liability under the settlement was $2,500.
One of the larger PRPs in the Mud site has taken the lead in
investigating the site to determine the extent of contamination. Initial
technical reports have been reviewed by the EPA and are undergoing
further preparation; however, the reports are not yet available. At this
time, the Company is unable to determine the extent of the Company's
liability related to the Mud site; however, based on its settlement in
the Gulf Coast site, the Company believes that the aggregate amount of
such liability, if any, would not have a material adverse effect on the
Company.
(e) In September 1990, the Company was identified by the Department of
Environmental Resources of Stanislaus County, California ('DER') as a
responsible party for hydrocarbon contamination present at a service
station location formerly leased and operated by the Company. In
February 1993, the DER demanded that the Company and three other
entities named as responsible parties undertake action to remediate the
contamination. The owner of the location, Briggsmore Plaza Co.
('Briggsmore'), instituted litigation in the California state court
seeking compensation from the Company for damages resulting from the
contamination. Also named as a defendant was a third party which became
the operator of the service station in 1985, and which filed for
protection under the federal bankruptcy laws a short time after the
lawsuit commenced. In November 1993, a settlement agreement was entered
into by the Company and Briggsmore, which provides that the Company will
assume responsibility for the management and expense of remediating the
location in accordance with DER requirements. It is estimated that
remediation to closure will cost the Company $300,000 to $500,000. In
addition, the Company has agreed to pay Briggsmore approximately
$48,000,
18
<PAGE>
representing past-due rent and property taxes. Briggsmore has released
all claims against the Company except the remediation obligations
arising under the settlement agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Common stock market prices are included in Note O of Notes to Consolidated
Financial Statements in Item 8. The principal markets on which the Company's
Common Stock is traded are the New York Stock Exchange and the Pacific Stock
Exchange.
In February 1994, all of the Company's outstanding shares of $2.16 Preferred
Stock were reclassified into 6,465,859 shares of Common Stock and the holder of
the Company's $2.20 Preferred Stock was issued 1,900,075 shares of Common Stock,
all pursuant to the Recapitalization. See Management's Discussion and Analysis
of Financial Condition and Results of Operations in Item 7 and Note B of Notes
to Consolidated Financial Statements in Item 8 for the pro forma effects of the
Recapitalization on Common Stock and Other Stockholders' Equity.
As of March 1, 1994, after the Recapitalization, there were approximately
3,800 holders of record of the Company's 22,456,055 outstanding shares of Common
Stock. The Company discontinued paying dividends on Common Stock at the end of
fiscal 1986.
For information regarding restrictions on future dividend payments, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 and the Company's Consolidated Financial Statements
contained in Item 8.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, DECEMBER 31, YEARS ENDED SEPTEMBER 30,
1993(1) 1992 1991(2) 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Statements of Consolidated Operations
Data:
Gross Operating Revenues(3)------ $ 831.0 946.5 240.6 1,085.0 996.6 762.6
Interest Income------------------ 1.8 3.2 .7 4.2 5.8 9.4
Gain (Loss) on Sales of
Assets------------------------- .1 4.0 -- .1 1.7 (4.9)
Other Income--------------------- 2.0 .7 2.6 1.7 2.4 (.1)
Total Revenues--------------- 834.9 954.4 243.9 1,091.0 1,006.5 767.0
Costs of Sales and Operating
Expenses----------------------- 756.8 926.1 228.6 1,015.9 920.5 718.6
General and Administrative------- 16.7 25.9 2.8 17.0 20.2 33.9
Depreciation, Depletion and
Amortization------------------- 22.6 16.6 4.2 15.0 12.8 21.9
Interest Expense----------------- 14.5 21.1 5.0 18.8 20.8 17.7
Other---------------------------- 5.6 4.6 .7 5.3 5.9 6.1
Income Tax Provision
(Benefit)---------------------- 1.7 5.4 3.0 15.1 3.6 (.7)
Earnings (Loss) Before the
Cumulative Effect of Accounting
Changes------------------------ 17.0 (45.3) (.4) 3.9 22.7 (30.5)
Cumulative Effect of Accounting
Changes------------------------ -- (20.6) -- -- -- --
Net Earnings (Loss)---------- $ 17.0 (65.9) (.4) 3.9 22.7 (30.5)
Earnings (Loss) per Primary and Fully
Diluted* Share(1):
Earnings (loss) before the
cumulative effect of accounting
changes------------------------ $ .54 (3.87) (.19) (.37) .96 (2.83)
Cumulative effect of accounting
changes------------------------ -- (1.47) -- -- -- --
Net earnings (loss)-------------- $ .54 (5.34) (.19) (.37) .96 (2.83)
Other Selected Financial Data:
Capital Expenditures------------- $ 37.5 15.4 3.9 24.5 23.1 13.2
Total Assets--------------------- $ 434.5 446.7 494.7 496.8 504.9 445.3
Working Capital------------------ $ 124.5 122.6 106.1 95.4 117.9 105.1
Long-Term Debt and Other
Obligations, Including Current
Portion(1)--------------------- $ 185.5 201.7 189.4 184.7 168.0 163.2
Redeemable Preferred Stock(1)---- $ 78.1 71.7 57.4 57.4 57.4 57.4
Common Stock and Other
Stockholders' Equity(1)(4)----- $ 58.5 50.7 137.0 137.4 141.4 125.4
* ANTI-DILUTIVE.
(1) FOR PRO FORMA INFORMATION ON THE EFFECTS OF A RECAPITALIZATION WHICH
OCCURRED IN FEBRUARY 1994, SEE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN ITEM 7 AND NOTE B OF
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IN ITEM 8.
(2) THE COMPANY'S FISCAL YEAR-END WAS CHANGED FROM SEPTEMBER 30 TO DECEMBER
31, EFFECTIVE JANUARY 1, 1992.
(3) THE COMPANY IS INVOLVED IN LITIGATION RELATED TO A NATURAL GAS SALES
CONTRACT. FOR ADDITIONAL INFORMATION CONCERNING THIS DISPUTE, SEE LEGAL
PROCEEDINGS IN ITEM 3 AND NOTES K AND P OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS IN ITEM 8.
(4) NO DIVIDENDS WERE PAID ON COMMON SHARES DURING THE PERIODS PRESENTED
ABOVE.
</TABLE>
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
In 1993, the Company achieved significant improvement in profitability
resulting primarily from the implementation of a market-driven operational
strategy along with favorable industry conditions in its refining and marketing
segment; higher natural gas production resulting from concentration on the
development of the Bob West Field; and a reduction of general and administrative
expenses. The improvement in profitability together with the completion of a
recapitalization plan during February 1994, as discussed below, have improved
the Company's liquidity and enhanced its capital resources.
During February 1994, the Company completed a plan of recapitalization (the
'Recapitalization'), the purpose of which was to improve the Company's
short-term and long-term liquidity and increase the Company's equity capital.
The Recapitalization, which deferred $44 million of debt service requirements
and increased stockholders' equity by approximately $80 million, has provided
the Company greater financial flexibility to meet its near-term capital
expenditure programs and finance working capital, which are expected to further
enhance the Company's operating results.
Significant components of the Recapitalization, which will be recorded in
February 1994, are as follows:
* 12 3/4% Subordinated Debentures ('Subordinated Debentures') in the
principal amount of $44.1 million were tendered in exchange for a like
amount of new 13% Exchange Notes ('Exchange Notes'), which will satisfy
approximately four years of sinking fund requirements for the
Subordinated Debentures. The Exchange Notes bear interest at 13% and
will mature on December 1, 2000.
* The 1,319,563 outstanding shares of $2.16 Cumulative Convertible
Preferred Stock ('$2.16 Preferred Stock') of the Company, together with
accrued and unpaid dividends of $9.5 million at February 9, 1994, were
reclassified into 6,465,859 shares of Common Stock of the Company. The
Company also agreed to issue 131,956 shares of Common Stock on behalf of
the holders of $2.16 Preferred Stock to pay certain of their legal fees
and expenses in connection with the settlement of litigation.
* The agreement between the Company and MetLife Security Insurance Company
of Louisiana ('MetLife'), the holder of all the Company's outstanding
$2.20 Cumulative Convertible Preferred Stock ('$2.20 Preferred Stock'),
was amended with regard to such preferred shares to waive all existing
mandatory redemption requirements, to consider all accrued and unpaid
dividends thereon (aggregating approximately $21.2 million as of
February 9, 1994) to have been paid, to allow the Company to pay future
dividends in Common Stock in lieu of cash, to waive or refrain from
exercising other rights of the $2.20 Preferred Stock and to grant to the
Company an option to purchase during the next three years all shares of
the $2.20 Preferred Stock and Common Stock held by MetLife for
approximately $53 million (amount at February 9, 1994, increasing by 12%
to 14% annually), all in consideration for, among other things, the
issuance by the Company to MetLife of 1,900,075 shares of Common Stock.
Such additional shares will be subject to the option granted by MetLife.
The Company will be required to pay dividends when due on the $2.20
Preferred Stock in order for the option to remain outstanding.
21
<PAGE>
The following table presents the capitalization of the Company as of
December 31, 1993 as reported and on a pro forma basis assuming the
Recapitalization had occurred on that date (in millions):
DECEMBER 31, 1993
AS REPORTED PRO FORMA
Long-Term Debt and Other Obligations,
Including Current Portion----------- $ 185.5 189.7
$2.20 Preferred Stock
(Redeemable)----------------------- 78.1 --
Common Stock and Other Stockholders'
Equity----------------------------- 58.5 137.7
Total Capitalization------------- $ 322.1 327.4
Ratio of Long-Term Debt and
Redeemable
Preferred Stock to Total
Capitalization--------------------- 82% 58%
For further information regarding the pro forma effects of the Recapitalization,
refer to Note B of Notes to Consolidated Financial Statements in Item 8.
In March 1994, the Company's Board of Directors authorized management of the
Company to investigate the feasibility of a future equity offering of additional
shares of the Company's Common Stock together with a future public debt
offering. The proceeds from these offerings would be used to finance the
Company's option to acquire all of the Company's outstanding Common Stock and
$2.20 Preferred Stock held by MetLife and to refinance all or a portion of the
Company's outstanding long-term debt.
The Company transports its crude oil and a substantial portion of its
refinery products over Kenai Pipe Line Company's ('KPL') pipeline and marine
terminal facilities in Nikiski, Alaska. KPL's common carrier pipeline is subject
to rate regulation by the Federal Energy Regulatory Commission ('FERC') and the
Alaska Public Utilities Commission. On March 1, 1994, KPL filed a revised tariff
with the FERC, with a proposed effective date of April 1, 1994, to regulate
certain dock loading services KPL had previously provided pursuant to a private
contract with the Company which KPL has terminated. KPL's proposed FERC rate for
this dock loading service would have increased the Company's annual cost of
transporting products through KPL's facilities from $1.2 million to $11.2
million or an increase of $10 million per year. The Company considered the
proposed KPL rate clearly excessive and on March 21, 1994, filed a motion to
reject or suspend the rate with the FERC. On March 29, 1994, the FERC rejected
KPL's revised tariff; however, under FERC regulations, KPL has the right to file
a new tariff.
The Company has recently initiated discussions with KPL to acquire the
facilities or an interest therein. In connection therewith, KPL has agreed not
to file a new tariff with the FERC for a period of at least 30 days and the
Company has agreed to negotiate a rate with KPL for that period. While the
Company is unable to predict the purchase price for the facility, or an interest
therein, if a purchase with KPL is negotiated, the Company does not believe that
any negotiated purchase price will have a material effect on the Company's
financial condition or liquidity. The Company also cannot predict (i) whether it
will ultimately be able to negotiate the acquisition of the facilities or an
interest therein, (ii) the rate of any new tariff that may be filed by KPL, or
approved by the FERC, if the Company is unable to negotiate an acquisition of
the facilities or an interest therein, and (iii) whether any new rate that may
be filed by KPL or the ultimate resolution of this matter by the FERC if the
Company is unable to negotiate an acquisition of the facilities or an interest
therein will have a material adverse effect upon the financial condition of the
Company.
CREDIT ARRANGEMENTS
Letters of credit are issued to obtain crude oil feedstocks for the
Company's refinery and for other operating and corporate needs. The requirements
for letters of credit have been significantly
22
<PAGE>
reduced due to the Company's market-driven operational strategy. On October 29,
1993, the Company elected to terminate its secured Letter of Credit Facility
dated July 27, 1989, which was scheduled to expire in March 1994 and which
provided for the issuance of up to $40 million in letters of credit at the date
of termination. Concurrently, in the latter part of 1993, the Company negotiated
several interim credit arrangements collateralized by either cash or inventory.
With respect to these interim credit arrangements, the Company has entered into
several uncommitted letter of credit facilities which provide for the issuance
of letters of credit on a cash-secured basis. Total availability pursuant to the
uncommitted letter of credit arrangements was in excess of $80 million at March
1, 1994.
In addition, effective September 30, 1993, the Company entered into a waiver
and substitution of collateral agreement ('Substitution Agreement') with the
State of Alaska (the 'State'), the Company's largest supplier of crude oil.
Under the Substitution Agreement, the Company has pledged the capital stock of
Tesoro Alaska Petroleum Company, a subsidiary of the Company, and substantially
all of its crude oil and refined product inventory in Alaska to secure its
purchases of royalty crude oil from the State. The Substitution Agreement has
allowed the Company to reduce its letter of credit requirements to $25 million
as of December 31, 1993. This agreement extends through 1994 and contains
various covenants and restrictions customary to inventory financing
transactions.
Effective October 29, 1993, a subsidiary of the Company, Tesoro Exploration
and Production Company ('Tesoro E&P'), entered into a $30 million reducing
revolving credit facility ('E&P Facility') which is secured by the capital stock
of Tesoro E&P and its natural gas properties in the Bob West Field. The E&P
Facility is subject to a quarterly borrowing base determination which was
initially determined to be $20 million. Since the Company does not have any
immediate requirement for additional borrowing availability, it does not expect
to request an increase in the amount of borrowing capacity under the E&P
Facility. The facility expires December 31, 1996. No borrowings were outstanding
under the E&P Facility at March 1, 1994.
The Company is currently negotiating with several financial institutions
with regard to providing a long-term corporate credit facility which would
replace the cash-secured letter of credit arrangements, the Substitution
Agreement and the E & P Facility. Based on these negotiations, the Company
believes it will be able to consummate a $115 million long-term corporate credit
facility during the first half of 1994 that will provide for the issuance of
letters of credit, cash borrowings based on domestic gas reserves and financing
of up to $15 million for a proposed vacuum unit at the Company's refinery. If
the long-term corporate credit facility is not consummated, the Company may be
required to reduce its working capital requirements or the amount of capital
expenditures proposed for 1994.
DEBT AND OTHER OBLIGATIONS
The Company's funded debt obligations as of December 31, 1993 included
approximately $108.8 million of Subordinated Debentures which bear interest at
12 3/4% and require sinking fund payments sufficient to annually retire $11.25
million principal amount of Subordinated Debentures. Upon completion of the
Recapitalization, $44.1 million of Subordinated Debentures were tendered in
exchange for a like amount of Exchange Notes, which will satisfy approximately
four years of sinking fund requirements for the Subordinated Debentures. The
indenture governing the Subordinated Debentures contains certain covenants,
including a restriction which prevents the current payment of dividends on the
Common Stock and currently limits the Company's ability to purchase or redeem
any shares of its capital stock. The Exchange Notes bear interest at 13% and
mature on December 1, 2000. The limitation on dividend payments included in the
indenture governing the Exchange Notes is less restrictive than the limitation
imposed by the Subordinated Debentures. The Subordinated Debentures and Exchange
Notes are redeemable at the option of the Company at 100% of principal amount
plus accrued interest. For further information on redemption
23
<PAGE>
provisions and restrictions on dividends, see Note I of Notes to Consolidated
Financial Statements in Item 8.
Under an agreement reached in 1993 which settled a contractual dispute with
the State, the Company paid the State $10.3 million in January 1993 and is
obligated to make variable monthly payments to the State over the nine years
following the settlement date based on a per barrel charge that increases from
16 cents to 33 cents on the volume of feedstock processed at the Company's
Alaska refinery. In 1993, the Company's variable payments to the State totaled
$2.6 million. At the end of the nine-year period, the Company is obligated to
pay the State $60 million; provided, however, that such payment may be deferred
indefinitely by continuing the variable monthly payments to the State beginning
at 34 cents per barrel and increasing one cent per barrel annually thereafter.
CAPITAL EXPENDITURES
The Company has under consideration total capital expenditures ranging from
approximately $65 million to $80 million in 1994. The proposal for 1994 includes
capital expenditures of approximately $29 million for the continued development
of the Bob West Field, which could be increased by $10 million to $15 million
based on additional development drilling proposed by the operators. In addition,
the proposal for 1994 includes capital expenditures of $32 million for the
refining and marketing operations, of which $24 million is associated with the
installation of a vacuum unit at the Kenai refinery to allow the Company to
further upgrade residual fuel oil production into higher-valued products. The
aggregate capital expenditures the Company will be able to incur in 1994 will
depend on the Company's ability to generate funds from operations, financings
and other sources. As previously indicated, the Company is negotiating a
long-term corporate credit facility which will include up to $15 million for the
financing of the proposed vacuum unit.
CASH FLOWS FROM OPERATING, INVESTING AND FINANCING ACTIVITIES
During 1993, cash and cash equivalents decreased by $10.3 million and
short-term investments decreased by $14.1 million. At December 31, 1993, the
Company's cash and short-term investments totaled $42.5 million, which included
restricted funds of $25.4 million as collateral for outstanding letters of
credit. Working capital amounted to $124.5 million at December 31, 1993. Net
cash from operating activities of $19.5 million in 1993 was primarily due to net
earnings adjusted for certain non-cash charges, partially offset by payments
totaling $12.9 million to the State under the settlement agreement entered into
in January 1993 and increased working capital requirements. Net cash used in
investing activities of $23.5 million during 1993 included capital expenditures
of $37.5 million, mainly for exploration and development activities in the Bob
West Field. During 1993, the Company completed the expansion of a gas processing
facility and pipeline and drilled 15 development gas wells in this field. In
addition, the Company participated in drilling four exploratory wells and one
development well outside of the Bob West Field in 1993. These uses of cash in
investing activities were partially offset by the net decrease of $14.1 million
in short-term investments. Net cash used in financing activities of $6.3 million
in 1993 included the repurchase of $11.25 million principal amount of
Subordinated Debentures for $9.7 million in cash, partially offset by borrowings
of $5.0 million under the E&P Facility. The Company did not pay dividends on
preferred stocks in 1993 which resulted in total dividend arrearages of $28.7
million at December 31, 1993. Dividend arrearages on preferred stocks have been
satisfied by consummation of the Recapitalization.
During 1992, cash and cash equivalents decreased by $14.2 million and
short-term investments increased by $20.0 million. Cash flows from operating
activities of $11.4 million included a net loss, offset by certain significant
non-cash charges including the cumulative effect of accounting changes,
depreciation, depletion and amortization and the settlement with the State, and
by reduced working capital requirements. Net cash used in investing activities
of $21.1 million in 1992 was mainly due to capital expenditures of $15.4
million, primarily for continued exploration and development activities
24
<PAGE>
in the Bob West Field and capital improvements in Alaska, and to the purchase of
short-term investments of $24.0 million. During 1992, the Company began
investing in short-term debt securities with original maturities in excess of 90
days. These investments are classified as short-term investments on the
Consolidated Balance Sheets. Partially offsetting cash used in investing
activities in 1992 were net proceeds of $12.9 million from sales of assets.
During 1992, the Company received, before expenses, $6.8 million for the sale of
the Company's Indonesian operations, $3.3 million for the sale of the corporate
aircraft and related assets and $2.1 million for the sale of certain exploration
and production properties outside of the Bob West Field. Cash flows used in
financing activities of $4.5 million in 1992 included the repayment of $6.5
million of long-term debt, primarily related to borrowings under a secured
financing agreement for development of natural gas reserves in the Bob West
Field. This financing arrangement, under which the Company borrowed $2.0 million
in 1992, was terminated by the Company in December 1992. The Company deferred
payments of dividends on preferred stocks in 1992.
During 1991, cash and cash equivalents decreased $16.1 million. Cash flows
from operating activities of $17.9 million included net earnings of $3.9
million, partially offset by a $5.2 million payment to the Department of Energy.
Net cash used in investing activities of $24.7 million in 1991 was primarily
comprised of capital expenditures for exploration and development activities in
the Bob West Field and capital improvements in Alaska. Cash flows used in
financing activities of $9.3 million in 1991 were primarily for dividend
payments on preferred stocks for three and one-half quarters which totaled $8.0
million.
RESULTS OF OPERATIONS
Effective January 1, 1992, the Company changed its fiscal year-end from
September 30 to December 31. Accordingly, the information contained herein
addresses the Company's results of operations for the year ended December 31,
1993 compared to the years ended December 31, 1992 and September 30, 1991. The
results of operations for the three-month period from October 1, 1991 to
December 31, 1991 are discussed separately.
Net earnings of $17.0 million ($.54 per share) in 1993 compare to a net loss
of $65.9 million ($5.34 per share) in 1992. Each of the Company's operating
segments, together with reduced corporate expenses, contributed to the
substantial improvement in 1993.
The comparability of 1993 and 1992, however, was impacted by certain
significant transactions. During 1993, the Company's earnings benefited from the
resolution of several state tax issues resulting in a net reduction of $3.0
million in income tax expense and $5.2 million in interest expense. In addition,
a gain of $1.4 million was recognized for the retirement of $11.25 million face
amount of Subordinated Debentures which were purchased in January 1993 for $9.7
million cash to satisfy the initial sinking fund requirement. The 1992 loss
included charges of $20.6 million for the cumulative effect of accounting
changes, $10.5 million for settlement of a contractual dispute with the State,
and $9.1 million for a cost reduction program and other employee terminations,
partially offset by a gain of $5.8 million from the sale of the Company's
Indonesian operations. Excluding these significant transactions for both years,
the improvement in 1993 as compared to 1992 was attributable to increased gross
margins on sales of refined products, increased natural gas production in South
Texas and reduced general and administrative expenses.
The net loss of $65.9 million ($5.34 per share) in 1992 compares to net
earnings of $3.9 million (a loss of $.37 per share after preferred dividend
requirements) in 1991. As described above, several significant transactions
contributed to the net loss in 1992. Excluding these transactions, the decrease
in results of operations in 1992 as compared to 1991 was primarily due to lower
operating results from the Company's refining and marketing operations and
reduced revenues from the Company's Bolivian and Indonesian operations,
partially offset by increased production and sales prices of natural gas from
the Company's South Texas field.
25
<PAGE>
A discussion and analysis of the factors contributing to these results and
the changes in financial condition are presented below. The consolidated
financial statements and related footnotes in Item 8, together with the
following information, are intended to provide shareholders and investors with a
reasonable basis for assessing the Company's operations, but should not serve as
the sole criterion for predicting the future performance of the Company. The
Company conducts its operations in the following business segments: refining and
marketing; exploration and production; and oil field supply and distribution.
REFINING AND MARKETING
1993 1992 1991
(DOLLARS IN MILLIONS EXCEPT AS
INDICATED)
Gross Operating Revenues------------- $ 687.2 810.7 898.6
Costs of Sales----------------------- 584.6 738.9 802.8
Gross Margin--------------------- 102.6 71.8 95.8
Operating Expenses and Other--------- 77.1 76.5 67.5
Depreciation and Amortization-------- 10.3 10.2 9.0
Operating Profit (Loss)---------- $ 15.2 (14.9) 19.3
Refinery Throughput (average daily
barrels)--------------------------- 49,753 61,425 68,192
Sales of Refinery Production:
Sales ($ per barrel)------------- $ 21.91 21.30 24.40
Margin ($ per barrel)------------ $ 4.19 1.18 2.77
Volume (average daily
barrels)----------------------- 49,425 62,218 66,837
Sales of Products Purchased for
Resale:
Sales ($ per barrel)------------- $ 26.15 27.58 31.48
Margin ($ per barrel)------------ $ 1.35 1.09 .37
Volume (average daily
barrels)----------------------- 19,340 25,222 23,318
Sales Volumes (average daily
barrels):
Gasoline------------------------- 22,466 25,196 25,883
Jet fuel------------------------- 11,305 19,060 15,055
Other distillates---------------- 18,049 19,253 20,488
Residual fuel oil---------------- 16,945 23,931 28,729
Total------------------------ 68,765 87,440 90,155
Sales Price ($ per barrel):
Gasoline------------------------- $ 27.64 28.89 30.69
Jet fuel------------------------- $ 28.10 27.76 35.15
Other distillates---------------- $ 26.95 25.78 29.78
Residual fuel oil---------------- $ 11.19 11.60 15.15
1993 COMPARED TO 1992. During 1993, the Company implemented a market-driven
operational strategy which emphasizes the upgrading of refinery feedstocks and
matching production from the Company's Alaska refinery with the refined product
demand within Alaska. This strategy has resulted in a reduction in the Company's
overall refinery production, particularly lower-valued residual fuel oil. The
markets for residual fuel oil have been weak due to the global oversupply of
this product since the Persian Gulf War and current projections indicate that
such markets will continue to be weak in the future.
In implementing the Company's operational strategy, the Company reduced its
daily refinery throughput during 1993 by 19% from the 1992 level. This reduction
in throughput has enabled the Company to reduce the portion of lower quality
crude oil in the feedstock blend. By utilizing a greater percentage of higher
quality feedstocks (which results in production yields with greater margins than
26
<PAGE>
production yields from a higher percentage of lower quality Alaska North Slope
crude oil), the Company can successfully operate the refinery at the reduced
throughput levels. Operating the refinery at lower throughput levels results in
less production of certain products, particularly residual fuel oil, for which
there is no market in Alaska and which therefore must be exported from Alaska
and sold into West Coast and Far Eastern markets. Implementation of this
strategy has resulted in an improvement in the Company's aggregate refinery
gross margin, enabling the Company to operate the refinery more profitably at
the lower throughput level.
The decrease in volumes was a significant factor in the change in revenues
in 1993 as compared to 1992. Average sales prices were essentially unchanged;
however, average margins increased in 1993, particularly with regard to sales of
refinery production. Partially offsetting the decrease in revenues from refined
products was a $33.8 million increase in sales of crude oil. Costs of sales in
1993 decreased due to lower volumes and prices and to the $10.5 million charge
in 1992 for settlement of a contractual dispute with the State for the purchase
of crude oil. The $30.1 million improvement in overall operating profit was
primarily due to the improved margins on refined product sales, part of which
was attributable to the favorable market conditions during the fourth quarter of
1993. While the price of crude oil dropped in the 1993 fourth quarter, the
Company's refined product margins held steady or improved. These market
conditions are not expected to continue during the first quarter of 1994.
1992 COMPARED TO 1991. Revenues from the sales of refined products
decreased 15% in 1992 as compared to 1991. Although volumes decreased only 3%,
average sales prices decreased almost 12%. The $34.2 million decrease in
operating results was primarily due to a further deterioration of gross margins
on refined product sales, particularly residual fuel oil. The recovery of crude
oil costs at the Company's Alaska refinery continued to be adversely impacted by
weak markets for the refinery's output of residual fuel oil, which approximated
40% of the total output of the refinery during 1992 and the prior two years.
During the latter months of 1992, the Company also incurred additional costs to
produce oxygenated gasoline. The market for oxygenated gasoline was such that
the additional costs to produce the oxygenated gasoline could not be entirely
recovered with increased sales prices. In addition to increased operating costs
for environmental issues and reductions in workforce, operating results for 1992
also included higher costs of sales resulting from the settlement of the
contractual dispute with the State for the purchase of crude oil. These
increases in operating costs were partially offset by a transportation rebate
received in 1992.
27
<PAGE>
EXPLORATION AND PRODUCTION
1993 1992 1991
(DOLLARS IN MILLIONS EXCEPT AS
INDICATED)
United States:
Gross operating revenues--------- $ 50.5 18.8 5.2
Production costs----------------- 6.8 3.8 1.2
Depreciation, depletion and
amortization------------------- 11.1 4.9 2.9
Other---------------------------- .3 1.2 .5
Operating Profit -- United
States--------------------- 32.3 8.9 .6
Bolivia:
Gross operating revenues--------- 12.6 17.9 24.5
Production costs----------------- 1.2 .7 .6
Other---------------------------- 3.0 4.6 2.7
Operating Profit --
Bolivia-------------------- 8.4 12.6 21.2
Indonesia:
Gross operating revenues--------- -- 6.0 29.5
Production costs----------------- -- 3.7 9.5
Depreciation, depletion and
amortization------------------- -- .3 1.7
Other---------------------------- -- (5.6) 4.5
Operating Profit --
Indonesia------------------ -- 7.6 13.8
Total Operating Profit--------------- $ 40.7 29.1 35.6
Natural Gas -- United States:
Production (average daily mcf) --
Tennessee Gas contract------- 10,599 3,974 1,300
Spot market and other-------- 28,168 9,986 6,135
Total Production--------- 38,767 13,960 7,435
Average sales price per mcf --
Tennessee Gas contract------- $ 7.59 4.46 --
Spot market------------------ $ 2.03 1.83 1.88
Average---------------------- $ 3.55 3.68 1.88
Average lifting cost per mcf----- $ .48 .74 .44
Depletion per mcf---------------- $ .78 .95 1.06
Proved reserves -- end of period
(bcf)-------------------------- 120.2 73.8 33.1
Natural Gas -- Bolivia:
Production (average daily
mcf)--------------------------- 19,232 19,421 19,322
Average sales price per mcf------ $ 1.22 1.67 3.06
Average lifting cost per net
equivalent mcf----------------- $ .14 .08 .09
Proved reserves -- end of period
(bcf)-------------------------- 99.3 107.0 115.2
Crude Oil -- Indonesia (sold
effective May 1, 1992):
Production (average daily
barrels)----------------------- -- 2,714 3,315
Average sales price per
barrel------------------------- $ -- 18.20 24.39
Average lifting cost per net
equivalent mcf----------------- $ -- 1.94 1.35
Proved reserves -- end of period
(millions of barrels)---------- -- -- 4.5
1993 COMPARED TO 1992. Successful development drilling in the Bob West
Field in South Texas was the primary contributing factor to this segment's
improvement in 1993. The number of producing wells increased to 25 at the 1993
year-end compared to 10 at the end of 1992 resulting in a significant increase
in natural gas production. The increase in revenues was primarily caused by
these higher production levels, partially offset by a slight decline in average
sales prices of $3.55 per mcf in 1993 as compared to $3.68 per mcf in 1992.
Total production costs and depreciation, depletion and
28
<PAGE>
amortization increased in 1993 due to the higher production volumes; however,
the depletion rate decreased due to the 63% increase in proved reserves. See
Legal Proceedings in Item 3 and Notes K and P of Notes to Consolidated Financial
Statements regarding litigation involving the contract for the sale of gas from
the Bob West Field.
In February 1994, the common carrier pipeline facilities transporting gas
from the Bob West Field were at capacity and the Company's production from the
field was curtailed. The curtailment affects only production subject to spot
market prices and the Company will continue to be able to produce and transport
all of its gas in the Bob West Field which is subject to the Tennessee Gas
contract. A new common carrier pipeline, which will provide transportation for
the increased gas production from the Bob West Field, is being constructed by
Coastal States Gas Transmission Company and is expected to be completed in the
second quarter of 1994. Because of the curtailment, the Company estimates that
its share of production from the Bob West Field in the first quarter of 1994
will be reduced to approximately 46 million cubic feet per day as compared to
the 1993 fourth quarter level of approximately 58 million cubic feet per day.
The Company expects that further curtailments will occur prior to June 1, 1994,
the anticipated completion date of the new pipeline.
The Bolivian operations experienced a decline in revenues primarily due to
reduced contractual sales prices for the natural gas production. Under a sales
contract with YPFB (the Bolivian state-owned oil Company), the Company's
Bolivian natural gas production is sold to YPFB, who in turn sells the natural
gas to the Republic of Argentina. The contract, including the pricing provision,
is subject to renegotiation in April 1994 for another two-year period.
The 1992 operating results from the Indonesian operations, which were sold
effective May 1, 1992, included a gain from the sale of $5.8 million.
1992 COMPARED TO 1991. The operating profit decline in this segment during
1992 as compared to 1991 was primarily due to reduced sales prices and
production levels of crude oil from the Company's former Indonesian operations,
which were sold effective May 1, 1992, and contractually reduced sales prices
for the Company's natural gas production in Bolivia, also effective May 1, 1992.
These decreases in 1992 were partially offset by the $5.8 million gain from the
sales of the Indonesian operations and increased natural gas production and
sales prices from the Company's Bob West Field.
OIL FIELD SUPPLY AND DISTRIBUTION
1993 1992 1991
(DOLLARS IN MILLIONS)
Gross Operating Revenues------------- $ 80.7 93.5 134.3
Costs of Sales----------------------- 68.4 82.4 118.7
Gross Margin--------------------- 12.3 11.1 15.6
Operating Expenses and Other--------- 15.5 15.3 15.6
Depreciation and Amortization-------- .4 .5 .5
Operating Loss------------------- $ (3.6) (4.7) (.5)
Refined Product Sales (average daily
barrels)--------------------------- 7,368 8,476 10,470
1993 COMPARED TO 1992. Revenues and costs of sales in this segment during
1993 decreased when compared to 1992 due to the discontinuance of the
operations, in the 1992 second quarter, of a wholesale distribution facility in
Oklahoma. In addition, the decrease in crude oil prices during 1993 resulted in
a correlating decrease in refined product prices. Margins, however, on both
refined product and merchandise sales improved in 1993 due to the consolidation
of certain of the Company's locations and elimination of marginally profitable
locations, including the facility in Oklahoma. Strong competition in an
oversupplied market continues to adversely impact this segment. Effective at the
1992 year-end, the Company acquired the remaining 50% interest in Tesoro-Leevac
Petroleum Company, a joint venture, which allowed the Company to consolidate
certain of its
29
<PAGE>
marine terminals; however, this acquisition did not have a material impact on
the revenues and margins of this segment in 1993.
1992 COMPARED TO 1991. Revenues from the sales of refined products
decreased in 1992 as compared to 1991 primarily as a result of the Company's
discontinuance, in the 1992 second quarter, of the operation of the wholesale
distribution facility in Oklahoma. In addition, refined product sales prices and
margins decreased as a result of a generally weak U.S. economy, continuing
overall depressed drilling activity and an oversupply of refined products
following the Persian Gulf crisis. The operating loss of $4.7 million in 1992
was a further deterioration from the operating loss of $.5 million in 1991. This
overall decrease was mainly attributable to lower margins on refined product
sales.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses of $16.7 million in 1993 compares to
$25.9 million in 1992 and $17.0 million in 1991. The decrease in 1993 was
primarily due to expenses for a cost reduction program and other employee
terminations in 1992 totaling $9.1 million, of which $1.3 million was charged to
the operating segments, with no significant comparable charges recorded in 1993.
The remaining decrease in 1993 was attributable to the savings from this
program. The increase in 1992 as compared to 1991 was mainly due to the cost of
this program in 1992.
INTEREST AND OTHER INCOME
Interest income of $1.8 million in 1993 compares to $3.2 million in 1992 and
$4.2 million in 1991. The decreases in interest income in 1993 and 1992 were due
to lower interest rates on less cash available for investment. During 1993 and
1991, the Company had no major asset sales as compared to 1992 which included a
$5.8 million gain from the sales of the Company's Indonesian
operations partially offset by a $1.8 million loss from the sale of drilling
rigs and costs related to the disposition of the Company's remaining oil field
tool rental assets. Other income increased in 1993 as compared to 1992 due to a
$1.4 million gain from the retirement of $11.25 million principal amount of
Subordinated Debentures in January 1993.
INTEREST EXPENSE
Interest expense of $14.5 million in 1993 compares to $21.1 million in 1992
and $18.8 million in 1991. The decrease in 1993 was mainly due to a reduction of
$5.2 million for resolution of outstanding issues with several state taxing
authorities.
INCOME TAXES
Income taxes of $1.7 million in 1993 compares to $5.4 million in 1992 and
$15.1 million in 1991. The decrease in 1993 included a reduction of $3.0 million
for resolution of outstanding issues with several state taxing authorities. In
addition, foreign income taxes continued to decrease in 1993 and 1992 due to
reduced revenues from the Company's Bolivian and former Indonesian operations.
THREE MONTHS ENDED DECEMBER 31, 1991 COMPARED TO THE THREE MONTHS
ENDED DECEMBER 31, 1990
The Statement of Consolidated Operations and Statement of Consolidated Cash
Flows for the three months ended December 31, 1991 are presented in the
Consolidated Financial Statements included elsewhere herein. For discussion
purposes, results for the three months ended December 31, 1991 are compared to
the unaudited three-month period ended December 31, 1990, as set forth in Note C
of Notes to Consolidated Financial Statements included in Item 8.
The net loss of $.4 million for the three months ended December 31, 1991
(the '1991 quarter') represented a decrease of $5.3 million from the net
earnings of $4.9 million recorded during the three months ended December 31,
1990 (the '1990 quarter'). Total revenues of $243.9 million for the 1991 quarter
decreased $92.3 million, or 27%, from the 1990 quarter, largely due to lower
sales prices for refined products. The 1990 quarter had been impacted by
escalating refined product and crude oil prices during the conflict in the
Persian Gulf. During the 1991 quarter, the Company's exploration
30
<PAGE>
and production operations in Indonesia realized lower sales prices on reduced
crude oil production as compared to the 1990 quarter. Also contributing to the
decrease in total revenues in the 1991 quarter was reduced interest income
resulting from lower interest rates on less cash available for investment.
Partially offsetting these decreases in the 1991 quarter were revenues from the
Company's convenience store operations in Alaska and other income resulting from
settlement of a matter in litigation. Costs of sales and operating expenses
decreased $83.4 million, or 27%, in the 1991 quarter as compared to the 1990
quarter, due primarily to the lower prices of crude oil and refined products,
partially offset by costs from the Company's convenience store operations.
The Refining and Marketing segment's operating profit of $1.7 million in the
1991 quarter was a decrease of $.8 million from the $2.5 million operating
profit recorded in the 1990 quarter. The decrease was primarily due to lower
sales prices for residual fuel oil, which continued to be adversely impacted by
the weak markets for this product.
The Exploration and Production segment's operating profit of $7.4 million in
the 1991 quarter decreased $8.2 million from the $15.6 million operating profit
recorded in the 1990 quarter. The decrease was mainly due to lower crude oil
sales prices on reduced production volumes from the Company's Indonesian
operations. The Company's Indonesian crude oil production decreased by 1,435
barrels per day, with an average sales price of $20.57 per barrel during the
1991 quarter as compared to $29.39 per barrel during the 1990 quarter. The
Company's operations in Bolivia also experienced lower natural gas sales prices
on reduced production volumes in the 1991 quarter. Natural gas production from
the Company's Bolivian operations decreased by 487 mcf per day with an average
sales price of $2.42 per mcf during the 1991 quarter as compared to $2.92 per
mcf in the 1990 quarter. The Company's natural gas production in the Bob West
Field increased during the 1991 quarter; however, revenues from this production
were substantially offset by increased depreciation and depletion, insurance
costs and legal fees associated with these operations.
The Oil Field Supply and Distribution segment's operating loss of $1.2
million in the 1991 quarter was a decrease of $2.8 million from the $1.6 million
operating profit recorded in the 1990 quarter. This decrease in operating
results was primarily attributable to lower margins on refined product sales
caused by the decline in drilling rig activity in the United States. The 1990
quarter included the effect of increased demand experienced during the Persian
Gulf conflict.
General and administrative expenses of $2.8 million for the 1991 quarter
decreased by $1.2 million from the 1990 quarter, primarily due to an insurance
reimbursement during the 1991 quarter for certain costs incurred in defense of
litigation in prior years. Depreciation, depletion and amortization expense of
$4.2 million in the 1991 quarter increased by $1.2 million from the 1990
quarter, due mainly to exploration and production activities in the Bob West
Field. The income tax provision of $3.0 million in the 1991 quarter decreased by
$3.8 million from the 1990 quarter, primarily due to lower foreign taxes
resulting from reduced revenues from the Company's operations in Indonesia.
LITIGATION
The Company is subject to certain commitments and contingencies, including a
contingency relating to a natural gas sales contract dispute with Tennessee Gas
Pipeline Company ('Tennessee Gas'). The Company receives payment from Tennessee
Gas for the purchase of a portion of the natural gas from the Bob West Field at
a contract price substantially greater than spot market prices. Tennessee Gas
filed suit, claiming, among other things, that the contract is not in effect
and, in the alternative, that the contract price has been incorrectly
calculated. The Company prevailed on all issues at the trial court level, and
Tennessee Gas appealed the judgment to the Court of Appeals for the Fourth
Supreme Judicial District of Texas. On August 25, 1993, the Court of Appeals
affirmed the validity of the gas contract as to the Company's properties and
held that the price payable by Tennessee Gas for the gas was the contract price.
The Court of Appeals determined, however, (i) that the trial court erred in its
summary judgment ruling that the gas contract was not an output contract under
the Texas Business and Commerce Code ('TBCA') and (ii) that a fact issue exists
as to whether the increases in the volumes of gas tendered to Tennessee Gas
under the gas contract were made in bad faith or were unreasonably
disproportionate to prior tenders in contravention of the
31
<PAGE>
provisions of Section 2.306 of the TBCA. Accordingly, the Court of Appeals
directed that this issue be remanded to the trial court in Bexar County, Texas.
The Company filed a motion for rehearing with the Appellate Court regarding its
decision that the gas contract creates an output contract governed by the TBCA.
Tennessee Gas also filed a motion for rehearing with the Appellate Court
regarding those portions of its decision upholding the judgment of the trial
court. On January 26, 1994, the appellate court rendered its judgment denying
all motions for rehearing in this matter and affirming its earlier ruling. The
Company has appealed the appellate court ruling on the output contract issue to
the Supreme Court of Texas. Tennessee Gas has also appealed to the Supreme Court
of Texas that portion of the appellate court ruling denying the remaining
Tennessee Gas claims. If the Supreme Court of Texas does not grant the Company's
petition for writ of error and affirms the appellate court ruling, then the only
issue for trial will be whether the increases in the volumes of gas tendered to
Tennessee Gas from the Company's properties may have been made in bad faith or
were unreasonably disproportionate. Management of the Company believes its
tenders were reasonable under the gas contract and the market conditions at the
time and will vigorously defend on this issue if put to trial. The Company
continues to receive payment from Tennessee Gas based upon the contract price.
Although the outcome of any litigation is uncertain, management believes
that the Tennessee Gas claims are without merit and, based upon advice from
outside legal counsel, is confident that the decision of the trial court will
ultimately be upheld as to the validity of the gas contract and the contract
price; and that with respect to the output contract issue, the Company believes
that, if this issue is tried, the development of its gas properties and the
resulting increases in volumes tendered to Tennessee Gas will be found to have
been reasonable and in good faith. If Tennessee Gas ultimately prevails in the
litigation, the impact on the Company's future cash flows and liquidity would be
material. For further information, see Legal Proceedings in Item 3 and Notes K
and P of Notes to Consolidated Financial Statements in Item 8.
ENVIRONMENTAL
The Company is subject to extensive federal, state and local environmental
laws and regulations. These laws, which are constantly changing, regulate the
discharge of materials into the environment and may require the Company to
remove or mitigate the environmental effects of the disposal or release of
petroleum or chemical substances at various sites or install additional controls
or other modifications or changes in use for certain emission sources. The
Company is currently involved in remedial response and has incurred cleanup
expenditures associated with environmental matters at a number of sites,
including certain of its own properties. Although it is difficult to quantify
the potential impact of compliance with environmental protection laws,
management believes that the ultimate overall aggregate cost to the Company of
environmental remediation with regard to these sites will not result in a
material adverse effect on the Company's financial condition. Although the level
of future expenditures for environmental purposes, including cleanup
obligations, is impossible to determine with any degree of probability, it is
management's opinion that, based on current knowledge and the extent of such
expenditures to date, the ultimate aggregate cost of environmental remediation
will not have a material adverse effect on the Company's financial condition.
IMPACT OF CHANGING PRICES
The Company's operating results and cash flows are sensitive to the volatile
changes in energy prices. Major shifts in the cost of crude oil and the price of
refined products can result in a change in gross margin from the refining and
marketing operations as prices received for refined products may or may not keep
pace with changes in crude costs. These energy prices, together with volume
levels, also determine the carrying value of crude oil and refined product
inventory.
Likewise, major changes in natural gas prices impact revenues and the
estimated future cash flows from the Company's exploration and production
operations. The carrying value of oil and gas assets may also be subject to
non-cash write-downs based on changes in natural gas prices and other
determining factors.
32
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Tesoro Petroleum Corporation
We have audited the accompanying consolidated balance sheets of Tesoro
Petroleum Corporation and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, common stock and other
stockholders' equity and cash flows for the years ended December 31, 1993,
December 31, 1992 and September 30, 1991 and for the three-month period ended
December 31, 1991. Our audits also included the consolidated financial statement
schedules listed in the Index at Item 14. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Tesoro Petroleum Corporation
and subsidiaries at December 31, 1993 and 1992, and the results of their
operations and their cash flows for the years ended December 31, 1993, December
31, 1992 and September 30, 1991 and for the three-month period ended December
31, 1991, in conformity with generally accepted accounting principles. Also, in
our opinion, such consolidated financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note A of Notes to Consolidated Financial Statements, in
1992 the Company changed its methods of accounting for postretirement benefits
other than pensions and accounting for income taxes.
DELOITTE & TOUCHE
San Antonio, Texas
February 10, 1994
33
<PAGE>
TESORO PETROLEUM CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1993 1992 1991 1991
<S> <C> <C> <C> <C>
Revenues:
Gross operating revenues--------- $ 831,007 946,446 240,586 1,084,954
Interest income------------------ 1,803 3,170 682 4,209
Gain on sales of assets---------- 60 4,024 9 119
Other---------------------------- 2,040 732 2,596 1,734
Total Revenues--------------- 834,910 954,372 243,873 1,091,016
Costs and Expenses:
Costs of sales and operating
expenses----------------------- 756,764 926,082 228,569 1,015,859
General and administrative------- 16,712 25,849 2,849 17,003
Depreciation, depletion and
amortization------------------- 22,591 16,552 4,225 15,005
Interest expense----------------- 14,550 21,115 4,966 18,804
Other---------------------------- 5,640 4,636 722 5,312
Total Costs and Expenses----- 816,257 994,234 241,331 1,071,983
Earnings (Loss) Before Income Taxes
and the Cumulative Effect of
Accounting Changes----------------- 18,653 (39,862) 2,542 19,033
Income Tax Provision----------------- 1,697 5,383 2,958 15,094
Earnings (Loss) Before the Cumulative
Effect of Accounting Changes------- 16,956 (45,245) (416) 3,939
Cumulative Effect of Accounting
Changes---------------------------- -- (20,630) -- --
Net Earnings (Loss)------------------ $ 16,956 (65,875) (416) 3,939
Net Earnings (Loss) Applicable to
Common Stock----------------------- $ 7,749 (75,082) (2,717) (5,268)
Earnings (Loss) Per Primary and Fully
Diluted* Share:
Earnings (Loss) Before the
Cumulative Effect of Accounting
Changes------------------------ $ .54 (3.87) (.19) (.37)
Cumulative Effect of Accounting
Changes------------------------ -- (1.47) -- --
Net Earnings (Loss)-------------- $ .54 (5.34) (.19) (.37)
* ANTI-DILUTIVE
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
TESORO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
1993 1992
ASSETS
Current Assets:
Cash and cash equivalents
(includes restricted cash of
$25,420 in 1993 as collateral
for letters of credit)--------- $ 36,596 46,869
Short-term investments----------- 5,952 20,021
Receivables, less allowance for
doubtful accounts of $2,487
($2,587 in 1992)--------------- 69,637 77,173
Inventories:
Crude oil, refined products
and merchandise------------ 71,011 70,875
Materials and supplies------- 3,175 3,636
Prepaid expenses and other------- 10,136 9,803
Total Current Assets--------- 196,507 228,377
Property, Plant and Equipment:
Refining and marketing----------- 282,286 275,213
Exploration and production,
full-cost method of accounting:
Properties being
amortized------------------ 74,684 45,182
Properties not yet
evaluated------------------ 1,959 1,482
Oil field supply and
distribution------------------- 15,413 16,365
Corporate------------------------ 11,121 10,431
385,463 348,673
Less accumulated depreciation,
depletion and amortization----- 172,312 150,191
Net Property, Plant and
Equipment------------------ 213,151 198,482
Other Assets:
Investment in Tesoro Bolivia
Petroleum Company-------------- 6,310 2,786
Other---------------------------- 18,554 17,077
Total Other Assets----------- 24,864 19,863
$ 434,522 446,722
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE>
TESORO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
1993 1992
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable----------------- $ 43,192 49,120
Accrued liabilities-------------- 24,017 30,387
Current portion of long-term debt
and other obligations---------- 4,805 26,287
Total Current Liabilities---- 72,014 105,794
Other Liabilities-------------------- 45,272 43,107
Long-Term Debt and Other Obligations,
Less Current Portion--------------- 180,667 175,461
Commitments and Contingencies (Note
K)
$2.20 Redeemable Cumulative
Convertible Preferred Stock and
Accrued Dividends; $1 stated value;
2,875,000 shares issued and
outstanding; redemption and
liquidation value of $78,056
($71,731 in 1992)------------------ 78,051 71,695
Common Stock and Other Stockholders'
Equity:
Preferred stock, no par value;
authorized 5,000,000 shares
including redeemable preferred
shares:
$2.16 Cumulative convertible
preferred stock; $1 stated
value; 1,319,563 shares
issued and outstanding;
liquidation value of
$42,134 ($39,283 in
1992)---------------------- 1,320 1,320
Common stock, par value $.16 2/3;
authorized 50,000,000 shares;
14,089,236 shares issued and
outstanding (14,071,040 in
1992)-------------------------- 2,348 2,345
Additional paid-in capital------- 86,985 86,992
Retained earnings (deficit)------ (31,898) (39,647)
58,755 51,010
Less deferred compensation------- 237 345
58,518 50,665
$ 434,522 446,722
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE>
TESORO PETROLEUM CORPORATION
STATEMENTS OF CONSOLIDATED COMMON STOCK
AND OTHER STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
$2.16 CUMULATIVE
CONVERTIBLE ADDITIONAL RETAINED
PREFERRED STOCK COMMON STOCK PAID-IN EARNINGS DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1990------- 1,319,576 $1,320 14,059,952 $2,343 $ 86,608 $ 51,330 $ (216)
Net earnings--------------------- -- -- -- -- -- 3,939 --
Cash dividends on preferred
stocks------------------------- -- -- -- -- -- (8,028) --
Stock awards--------------------- -- -- 8,213 2 56 -- 51
Other---------------------------- -- -- -- -- -- (32) --
Balances at September 30, 1991------- 1,319,576 1,320 14,068,165 2,345 86,664 47,209 (165)
Net loss------------------------- -- -- -- -- -- (416) --
Stock awards--------------------- -- -- (1,120) (1 ) (6) -- 29
Other---------------------------- -- -- -- -- -- (8) --
Balances at December 31, 1991-------- 1,319,576 1,320 14,067,045 2,344 86,658 46,785 (136)
Net loss------------------------- -- -- -- -- -- (65,875) --
Accrued dividends on preferred
stocks, not declared or
paid--------------------------- -- -- -- -- -- (20,525) --
Conversion of preferred stock to
common stock------------------- (13) -- 22 -- -- -- --
Stock awards--------------------- -- -- 4,095 1 334 -- (209)
Other---------------------------- -- -- (122) -- -- (32) --
Balances at December 31, 1992-------- 1,319,563 1,320 14,071,040 2,345 86,992 (39,647) (345)
Net earnings--------------------- -- -- -- -- -- 16,956 --
Accrued dividends on preferred
stocks, not declared or
paid--------------------------- -- -- -- -- -- (9,175) --
Stock awards--------------------- -- -- 18,196 3 (7) -- 108
Other---------------------------- -- -- -- -- -- (32) --
Balances at December 31, 1993-------- 1,319,563 $1,320 14,089,236 $2,348 $ 86,985 $ (31,898) $ (237)
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
37
<PAGE>
TESORO PETROLEUM CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1993 1992 1991 1991
<S> <C> <C> <C> <C>
Cash Flows From (Used In) Operating
Activities:
Net earnings (loss)-------------- $ 16,956 (65,875) (416) 3,939
Adjustments to reconcile net
earnings (loss) to net cash
from (used in) operating
activities:
Cumulative effect of
accounting changes--------- -- 20,630 -- --
Depreciation, depletion and
amortization--------------- 22,591 16,552 4,225 15,005
Gain on sales of assets------ (60) (4,024) (9) (119)
Other------------------------ 1,901 4,231 599 2,704
Changes in assets and
liabilities:
Receivables-------------- 7,539 12,320 6,524 33,531
Inventories-------------- 325 7,986 (10,620) (20,663)
Investment in Tesoro
Bolivia Petroleum
Company---------------- (3,524) 3,908 8,756 (5,991)
Other assets------------- (2,435) 3,484 (4,748) 2,899
Accounts payable and
other current
liabilities------------ (12,800) (5,282) (3,877) (11,253)
Obligation payments to
State of Alaska-------- (12,910) -- -- --
Other liabilities and
obligations------------ 1,901 17,458 (774) (2,107)
Net cash from (used
in) operating
activities--------- 19,484 11,388 (340) 17,945
Cash Flows From (Used In) Investing
Activities:
Capital expenditures------------- (37,451) (15,446) (3,858) (24,484)
Proceeds from sales of assets,
net of expenses---------------- 194 12,905 35 2,087
Purchases of short-term
investments-------------------- (26,245) (23,976) -- --
Sales of short-term
investments-------------------- 40,314 3,955 -- --
Other---------------------------- (247) 1,478 1 (2,298)
Net cash used in
investing
activities--------- (23,435) (21,084) (3,822) (24,695)
Cash Flows From (Used In) Financing
Activities:
Repurchase of debentures--------- (9,675) -- -- --
Payments of long-term debt------- (1,643) (6,468) (512) (1,272)
Issuance of long-term debt------- 5,000 2,024 3,000 --
Dividends on preferred stocks---- -- -- -- (8,028)
Other---------------------------- (4) (20) (7) (25)
Net cash from (used
in) financing
activities--------- (6,322) (4,464) 2,481 (9,325)
Decrease in Cash and Cash
Equivalents------------------------ (10,273) (14,160) (1,681) (16,075)
Cash and Cash Equivalents at
Beginning of Period---------------- 46,869 61,029 62,710 78,785
Cash and Cash Equivalents at End of
Period----------------------------- $ 36,596 46,869 61,029 62,710
Supplemental Cash Flow Disclosures:
Interest paid-------------------- $ 19,288 17,805 234 17,839
Income taxes paid---------------- $ 5,125 6,446 3,425 13,694
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
38
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The Consolidated Financial Statements include the accounts of Tesoro
Petroleum Corporation and its subsidiaries (collectively the 'Company' or
'Tesoro') after elimination of significant intercompany balances and
transactions. Certain prior period amounts have been reclassified to conform
with the 1993 presentation.
Effective January 1, 1992, the Company changed its fiscal year-end from
September 30 to December 31. Unless otherwise indicated, the information
contained herein addresses the Company's results of operations for the year
ended December 31, 1993, compared to the year ended December 31, 1992 and the
year ended September 30, 1991 and its financial condition as of December 31,
1993 and December 31, 1992. The results of operations for the three-month period
ended December 31, 1991 are discussed separately.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. During 1992, the
Company began investing in short-term debt securities with original maturities
in excess of 90 days. These investments are classified as short-term investments
in the Company's Consolidated Balance Sheets. Cash equivalents and short-term
investments are stated at cost, which approximates market value. For information
regarding restricted cash, see Note I.
INVENTORIES
The Company follows the lower of cost (last-in, first-out basis -- LIFO) or
market method for valuing inventories of crude oil and wholesale refined
products. All other inventories are valued principally at the lower of cost
(generally on a first-in, first-out or weighted average basis) or market.
FUTURES AND OPTIONS HEDGE CONTRACTS
The Company uses commodity futures and options contracts primarily to hedge
the impact of price fluctuations on anticipated purchases of crude oil. Gains
and losses on commodity futures and options hedge contracts are deferred until
recognized in income when the related crude oil is charged to costs of sales.
PROPERTY, PLANT AND EQUIPMENT
The Company uses the full-cost method of accounting for oil and gas
properties. Under this method, all costs associated with property acquisition
and exploration and development activities are capitalized into cost centers
that are established on a country-by-country basis. For each cost center, the
capitalized costs are subject to a limitation so as not to exceed the present
value of future net revenues from estimated production of proved oil and gas
reserves net of income tax effect plus the lower of cost or estimated fair value
of unproved properties included in the cost center. Capitalized costs within a
cost center, together with estimates of costs for future development,
dismantlement and abandonment, are amortized on a unit-of-production method
using the proved oil and gas reserves for each cost center. The Company's
investment in certain oil and gas properties is excluded from the amortization
base until the properties are evaluated. No gain or loss is recognized on the
sale of oil and gas properties except in the case of the sale of properties
involving significant remaining reserves. Proceeds from the sale of
insignificant reserves and undeveloped properties are applied to reduce the
costs in the cost centers.
39
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Assets recorded under capital leases have been capitalized in accordance
with promulgations from the Financial Accounting Standards Board. Amortization
of such assets is recorded over the shorter of lease terms or useful lives under
methods which are consistent with the Company's depreciation policy for owned
assets.
Depreciation of other property is provided using primarily the straight-line
method with rates based on the estimated useful lives of the properties and with
an estimated salvage value of 20% for refinery assets and generally 10% for
other assets. Amortization of leasehold improvements is provided using the
straight-line method over the term of the respective lease or the useful life of
the asset, whichever period is less.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company accounts for postretirement benefits other than pensions in
accordance with Statement of Financial Accounting Standards No. 106, 'Employers'
Accounting for Postretirement Benefits Other Than Pensions' ('SFAS No. 106').
The projected future cost of providing postretirement benefits other than
pensions, such as health care and life insurance, are expensed as employees
render service instead of when benefits are paid. Prior to the adoption of SFAS
No. 106, the Company had expensed these benefits on a pay-as-you-go basis. The
adoption of SFAS No. 106, effective January 1, 1992, resulted in a net charge of
$21.6 million, or $1.54 per share, for the cumulative effect of the change in
accounting principle for periods prior to 1992, which were not restated. In
addition, the adoption of SFAS No. 106 resulted in an increase of $1.2 million,
or $.09 per share, in the 1992 net loss before cumulative effect of accounting
changes.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes' ('SFAS No.
109'). Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Measurement of deferred tax assets and liabilities is based on enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The Company
adopted SFAS No. 109 effective January 1, 1992 by recognizing a net benefit of
$1.0 million, or $.07 per share, for the cumulative effect of the accounting
change. Periods prior to 1992 were not restated. The adoption of SFAS No. 109
did not have a significant effect on 1992 results of operations.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the cost can be reasonably
estimated. Generally, the timing of these accruals coincides with completion of
a feasibility study or the Company's commitment to a formal plan of action.
DEFERRED COMPENSATION
Deferred compensation represents the excess of market value over the sales
price of restricted common stock awarded to certain employees of the Company.
The deferred compensation is being amortized over the period from the date of
award to the dates the shares become unrestricted (the period for which the
payment for services is being made).
40
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is calculated on net earnings (loss) after
deducting dividend requirements on preferred stocks and is based on the weighted
average number of common and common equivalent shares outstanding during the
period. Fully diluted earnings (loss) per share is the same as primary earnings
(loss) per share since the assumed conversion of preferred stocks to common
shares would be anti-dilutive.
NOTE B -- SUBSEQUENT EVENT -- RECAPITALIZATION
In February 1994, the Company consummated exchange offers and adopted
amendments to its Restated Certificate of Incorporation pursuant to which the
Company's outstanding debt and preferred stock were restructured (the
'Recapitalization'). The objectives of the Recapitalization were to improve the
Company's financial condition, facilitate the development of long-term financing
and allow the Company to execute its strategy for further improving its refining
and marketing operations and accelerating the development of its South Texas
natural gas field.
The significant components of the Recapitalization, together with the
applicable accounting effects, are as follows:
* The Company offered to exchange up to $54.5 million aggregate principal
amount of new 13% Exchange Notes ('Exchange Notes') due December 1, 2000
for a like amount of 12 3/4% Subordinated Debentures ('Subordinated
Debentures') due March 15, 2001. Holders of $44.1 million principal
amount of Subordinated Debentures accepted this offer resulting in the
issuance of $44.1 million of Exchange Notes. This exchange will satisfy
approximately four years of sinking fund requirements of the
Subordinated Debentures.
The exchange of the Subordinated Debentures will be accounted for as an
early extinguishment of debt in the first quarter of 1994 and the
Company will recognize a charge of $4.8 million as an extraordinary loss
on this transaction, representing the excess of the estimated market
value of the Exchange Notes over the carrying value of the Subordinated
Debentures. The carrying value of the Subordinated Debentures exchanged
has been reduced by applicable unamortized debt issue costs. No tax
benefit is available to offset the extraordinary loss as the Company has
provided a 100% valuation allowance to the extent of its deferred tax
assets.
* Each outstanding share of the Company's $2.16 Cumulative Convertible
Preferred Stock ('$2.16 Preferred Stock'), which has a $25 per share
liquidation preference plus accrued and unpaid dividends aggregating
$9.5 million at February 9, 1994, was reclassified into 4.9 shares of
the Company's Common Stock resulting in the issuance of 6,465,859 of the
Company's Common Stock in 1994. In addition, the Company agreed to issue
.1 share of Common Stock for each share of $2.16 Preferred Stock, or an
aggregate of 131,956 shares of Common Stock, on behalf of the holders of
$2.16 Preferred Stock to pay certain of their legal fees and expenses in
connection with the settlement of litigation.
The issuance of the Common Stock in connection with the reclassification
and settlement of litigation will be recorded in 1994 as an increase of
approximately $1 million in Common Stock equal to the aggregate par
value of the Common Stock to be issued and an increase in Additional
Paid-In Capital of approximately $9 million.
* The agreement between the Company and MetLife Security Insurance Company
of Louisiana ('MetLife'), the holder of the Company's outstanding $2.20
Cumulative Convertible Preferred Stock ('$2.20 Preferred Stock'), was
amended with regard to the $2.20 Preferred Stock to waive all existing
mandatory redemption requirements, to consider all accrued and unpaid
dividends thereon (aggregating $21.2 million at February 9, 1994) to
have been paid, to allow
41
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
the Company to pay future dividends on such Preferred Stock in Common
Stock in lieu of cash, to waive or refrain from exercising other rights
of the $2.20 Preferred Stock, and to grant to the Company an option to
purchase, during the next three years, all shares of the $2.20 Preferred
Stock and Common Stock held by MetLife for approximately $53 million
(amount at February 9, 1994, increasing by 12% to 14% annually), all in
consideration for, among other things, the issuance by the Company to
MetLife of 1,900,075 shares of Common Stock. Such additional shares will
be subject to the option granted by MetLife. These actions have resulted
in the reclassification of the $2.20 Preferred Stock into equity capital
at its aggregate liquidation preference of $57.5 million and the
recording of an increase in Additional Paid-In Capital of approximately
$21 million in February 1994.
The following table presents the capitalization of the Company as of
December 31, 1993 as reported and on a pro forma basis assuming the
Recapitalization had occurred on that date (in millions):
DECEMBER 31, 1993
AS REPORTED PRO FORMA
(UNAUDITED)
Long-Term Debt and Other Obligations,
Including Current Portion:
Subordinated Debentures---------- $ 98.2 58.3
Exchange Notes------------------- -- 44.1
Liability to State of Alaska----- 61.7 61.7
Liability to Department of
Energy------------------------- 13.2 13.2
Other---------------------------- 12.4 12.4
Total Long-Term Debt and
Other Obligations---------- 185.5 189.7
$2.20 Preferred Stock
(Redeemable)----------------------- 78.1 --
Common Stock and Other Stockholders'
Equity:
$2.20 Preferred Stock------------ -- 57.5
$2.16 Preferred Stock------------ 1.3 --
Common Stock--------------------- 2.3 3.7
Additional Paid-In Capital------- 87.0 113.4
Accumulated Deficit-------------- (31.9) (36.7)
Deferred Compensation------------ (.2) (.2)
Total Common Stock and Other
Stockholders' Equity------- 58.5 137.7
Total Capitalization------------- $ 322.1 327.4
Ratio of Long-Term Debt and
Redeemable Preferred Stock to Total
Capitalization--------------------- 82% 58%
42
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The pro forma effects of the Recapitalization on the Company's results of
operations assuming the Recapitalization had occurred on January 1, 1993, are as
follows (in millions except per share amounts):
YEAR ENDED
DECEMBER 31, 1993
AS REPORTED PRO FORMA
(UNAUDITED)
Total Revenues----------------------- $ 834.9 834.9
Earnings Before Extraordinary
Loss------------------------------- $ 17.0 16.9
Extraordinary Loss------------------- -- 4.8
Net Earnings------------------------- 17.0 12.1
Preferred Stock Dividend
Requirements----------------------- 9.2 6.3
Net Earnings Applicable to Common
Stock------------------------------ $ 7.8 5.8
Earnings (Loss) Per Primary and Fully
Diluted* Share:
Earnings Before Extraordinary
Loss--------------------------- $ .54 .46
Extraordinary Loss--------------- -- (.21)
Net Earnings--------------------- $ .54 .25
Average Common and Common Equivalent
Shares Outstanding:
Primary-------------------------- 14,290 22,788
Fully Diluted-------------------- 19,065 25,288
* ANTI-DILUTIVE
See Notes I, L and M for further information on the Company's long-term debt
and equity, including restrictions on dividend payments.
43
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE C -- CHANGE IN FISCAL YEAR-END
The Company changed its fiscal year-end from September 30 to December 31,
effective January 1, 1992. The Statement of Consolidated Operations and the
Statement of Consolidated Cash Flows for the three months ended December 31,
1991 are presented in the accompanying Consolidated Financial Statements.
Comparative financial information is presented below (in thousands except per
share amounts):
STATEMENTS OF CONSOLIDATED OPERATIONS
THREE MONTHS ENDED
DECEMBER 31,
1991 1990
(UNAUDITED)
Revenues:
Gross operating revenues--------- $ 240,586 334,098
Interest income------------------ 682 1,410
Gain on sales of assets---------- 9 177
Other---------------------------- 2,596 499
Total Revenues--------------- 243,873 336,184
Costs and Expenses:
Costs of sales and operating
expenses----------------------- 228,569 312,047
General and administrative------- 2,849 4,033
Depreciation, depletion and
amortization------------------- 4,225 3,058
Interest expense----------------- 4,966 4,639
Other---------------------------- 722 761
Total Costs and Expenses----- 241,331 324,538
Earnings before Income Taxes--------- 2,542 11,646
Income Tax Provision----------------- 2,958 6,793
Net Earnings (Loss)------------------ $ (416) 4,853
Net Earnings (Loss) Applicable to
Common Stock----------------------- $ (2,717) 2,552
Earnings (Loss) Per Primary and Fully
Diluted* Share--------------------- $ (.19) .18
* ANTI-DILUTIVE
44
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
STATEMENTS OF CONSOLIDATED CASH FLOWS
THREE MONTHS ENDED
DECEMBER 31,
1991 1990
(UNAUDITED)
Cash Flows From (Used In) Operating
Activities:
Net earnings (loss)-------------- $ (416) 4,853
Adjustments to reconcile net
earnings (loss) to net cash
used in operating activities:
Depreciation, depletion and
amortization--------------- 4,225 3,058
Gain on sales of assets------ (9) (177)
Other------------------------ 599 836
Changes in assets and
liabilities:
Receivables-------------- 6,524 14,313
Inventories-------------- (10,620) (24,687)
Investment in Tesoro
Bolivia Petroleum
Company---------------- 8,756 (4,383)
Other assets------------- (4,748) (3,325)
Accounts payable and
other current
liabilities------------ (3,877) (8,307)
Other liabilities and
obligations------------ (774) 1,105
Net cash used in
operating
activities------------- (340) (16,714)
Cash Flows From (Used In) Investing
Activities:
Capital expenditures------------- (3,858) (6,136)
Proceeds from sales of assets---- 35 692
Other---------------------------- 1 (829)
Net cash used in
investing
activities------------- (3,822) (6,273)
Cash Flows From (Used In) Financing
Activities:
Payments of long-term debt------- (512) (409)
Issuance of long-term debt------- 3,000 --
Dividends on preferred stocks---- -- (2,294)
Other---------------------------- (7) 2
Net cash from (used in)
financing
activities------------- 2,481 (2,701)
Decrease in Cash and Cash
Equivalents------------------------ (1,681) (25,688)
Cash and Cash Equivalents at
Beginning of Period---------------- 62,710 78,785
Cash and Cash Equivalents at End of
Period----------------------------- $ 61,029 53,097
Supplemental Cash Flow Disclosures:
Interest paid-------------------- $ 234 218
Income taxes paid---------------- $ 3,425 2,663
NOTE D -- INVENTORIES
Inventories valued by the LIFO method amounted to approximately $63.0
million and $63.7 million at December 31, 1993 and 1992, respectively. At
December 31, 1993, inventories valued using LIFO approximated replacement cost.
At December 31, 1992 inventories valued using LIFO were lower than replacement
cost by approximately $9.6 million.
NOTE E -- PROPERTY, PLANT AND EQUIPMENT
Effective May 1, 1992, the Company's subsidiaries, Tesoro Indonesia
Petroleum Company and Tesoro Tarakan Petroleum Company (collectively 'Tesoro
Indonesia'), sold their 100% interest in
45
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
two separate contracts of operations with Pertamina, the state-owned petroleum
company of Indonesia. The sales included all of Tesoro Indonesia's interests in
fixtures, wells, pipelines, tanks, compressors, rigs and other equipment in the
contract areas, and inventories of crude oil and materials and supplies. The
consideration received by Tesoro Indonesia totaled $6.6 million in cash and the
assumption by the purchaser of liabilities of approximately $6.3 million and all
remaining expenditure commitments. During 1992, these sales transactions
resulted in pretax net gains to the Company of approximately $5.8 million after
related expenses.
In 1992, the Company sold its corporate airplane and related assets for $3.3
million in cash with no significant pretax gain to the Company. The Company also
sold certain oil and gas properties in South Texas for $2.1 million in cash,
which proceeds reduced the carrying value of the Company's oil and gas
properties and no gain or loss was recognized. In addition, the Company sold its
remaining drilling rigs for cash proceeds of $1.6 million resulting in a pretax
loss of $1.1 million during 1992.
NOTE F -- INVESTMENT IN TESORO BOLIVIA PETROLEUM COMPANY
The Company's subsidiary, Tesoro Bolivia Petroleum Company ('Tesoro
Bolivia'), holds an interest in a joint venture agreement to explore for and
produce hydrocarbons in Bolivia. The joint venture has an agreement with the
Bolivian Government and YPFB, the Bolivian state-owned oil company, for
collection of receivables for sales of natural gas and condensate to YPFB, which
in turn sells the natural gas to the Republic of Argentina. The agreement
provided, among other things, that receipts from natural gas sales subsequent to
December 31, 1987 would be placed in a restricted bank account ('Restricted
Account') from which only payments for investments and expenses in Bolivia could
be made until April 1992, or until cumulative deposits to the Restricted Account
equal $90.0 million. Cumulative deposits to the Restricted Account have totaled
$90.0 million and receipts for natural gas sales are now free of restrictions to
the joint venture. The increase in the book value of this investment during 1993
represented earnings and cash invested in Tesoro Bolivia reduced by cash
received free of restrictions.
NOTE G -- ACCRUED LIABILITIES
The Company's current accrued liabilities as shown in the Consolidated
Balance Sheets include the following (in thousands):
DECEMBER 31,
1993 1992
Accrued Interest--------------------- $ 5,185 14,401
Accrued Environmental Costs---------- 6,171 4,632
Other-------------------------------- 12,661 11,354
Accrued Liabilities-------------- $ 24,017 30,387
Other liabilities classified as noncurrent in the Consolidated Balance
Sheets consist of the following (in thousands):
DECEMBER 31,
1993 1992
Accrued Postretirement Benefits------ $ 27,270 25,088
Accrued Dividends on $2.16 Preferred
Stock------------------------------ 9,145 6,294
Deferred Income Taxes---------------- 3,792 7,402
Other-------------------------------- 5,065 4,323
Other Liabilities---------------- $ 45,272 43,107
46
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE H -- INCOME TAXES
The income tax provision includes the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1993 1992 1991 1991
<S> <C> <C> <C> <C>
Federal:
Current-------------------------- $ -- 418 -- 455
Deferred------------------------- -- (454) 80 (201)
Foreign------------------------------ 3,419 5,104 2,826 14,661
State-------------------------------- (1,722) 315 52 179
$ 1,697 5,383 2,958 15,094
</TABLE>
During 1993, the Company resolved several outstanding issues with state
taxing authorities resulting in a reduction of $3.0 million in state income tax
expense and $5.2 million in related interest expense.
Deferred income taxes and benefits are provided for differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Temporary differences and the resulting deferred tax
assets and liabilities are summarized as follows (in thousands):
DECEMBER 31,
1993 1992
Deferred Tax Assets:
Net operating losses available
for utilization through the
year 2008---------------------- $ 24,890 21,501
Settlement with the State of
Alaska------------------------- 21,583 24,476
Accrued postretirement
benefits----------------------- 8,359 6,947
Settlement with Department of
Energy------------------------- 4,443 4,616
Other---------------------------- 7,220 12,137
Total Deferred Tax Assets---- 66,495 69,677
Deferred Tax Liabilities:
Accelerated depreciation and
property-related items--------- (45,965) (42,475)
Deferred Tax Assets Before Valuation
Allowance-------------------------- 20,530 27,202
Valuation Allowance------------------ (20,530) (27,202)
Other-------------------------------- (442) (6,660)
State Income and Alternative Minimum
Taxes------------------------------ (3,350) (742)
Net Deferred Tax Liability------- $ (3,792) (7,402)
47
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table sets forth the components of the Company's results of
operations and a reconciliation of the normal statutory federal income tax with
the provision for income taxes (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1993 1992 1991 1991
<S> <C> <C> <C> <C>
Earnings (Loss) Before Income Taxes
and the Cumulative Effect of
Accounting Changes:
United States-------------------- $ 10,906 (60,117) (4,493) (15,581)
Foreign-------------------------- 7,747 20,255 7,035 34,614
$ 18,653 (39,862) 2,542 19,033
Income Taxes at Statutory U.S.
Corporate Tax Rate----------------- $ 6,529 (13,553) 864 6,471
Effect of:
Foreign income taxes, net of U.S.
tax
benefit------------------------ 3,419 5,104 2,826 14,661
State income taxes (benefit), net
of U.S. tax benefit------------ (1,722) 315 52 179
Accounting limitation
(recognition) of an operating
loss tax benefit--------------- (6,529) 13,553 -- --
Utilization of net operating loss
carry-forwards----------------- -- -- (864) (6,471)
Alternative minimum tax---------- -- -- -- 455
Other---------------------------- -- (36) 80 (201)
Income Tax Provision--------- $ 1,697 5,383 2,958 15,094
</TABLE>
At December 31, 1993, the Company's net operating loss carryforwards were
approximately $71.1 million for regular tax and approximately $56.1 million for
alternative minimum tax. These tax loss carryforwards are available for future
years and, if not used, will begin to expire in the year 2004. Also at December
31, 1993, the Company had approximately $8.2 million of investment tax credits
and employee stock ownership credits available for carryover to subsequent
years. These credits, if not used, will begin to expire in the year 2001.
If the Company has an 'ownership change' as defined by the Internal Revenue
Code of 1986, the Company's use of its net operating loss carryforwards and
general business credits after such ownership change will be subject to an
annual limit. Under certain interpretations of existing Internal Revenue Service
(IRS) regulations, the Recapitalization, as discussed in Note B, will result in
an ownership change. The Company intends to take the position that an ownership
change under existing law did not occur prior to the Recapitalization and did
not occur as a result thereof. Because there are substantial interpretive
questions concerning such IRS regulations and there is uncertainty as to events
which may occur after the Recapitalization, there can be no assurance that an
ownership change did not occur as a result of the Recapitalization or will not
occur as a result of future events. If an ownership change is ultimately deemed
to have occurred at the time of the Recapitalization, the Company's use of its
net operating loss carryforwards and general business credits would be limited
to approximately $14.5 million per year.
48
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE I -- LONG-TERM DEBT AND OTHER OBLIGATIONS
Long-term debt and other obligations consist of the following (in
thousands):
DECEMBER 31,
1993 1992
12 3/4% Subordinated Debentures due
2001-------------------------------- $ 98,154 107,510
Liability to State of Alaska--------- 61,666 71,989
Liability to Department of Energy---- 13,194 13,194
Exploration and Production Loan------ 5,000 --
Industrial Revenue Bonds------------- 2,752 3,483
Capital Lease Obligations (interest
at 11%)---------------------------- 3,934 4,368
Other-------------------------------- 772 1,204
185,472 201,748
Less Current Portion----------------- 4,805 26,287
$ 180,667 175,461
Based on the closing market price, the fair value of the Subordinated
Debentures, exclusive of accrued interest, was approximately $108.3 million at
December 31, 1993. The carrying value of the other long-term debt and
obligations approximated the Company's estimate of the fair value of such items.
As discussed in Note B, approximately four years of sinking fund
requirements on the Subordinated Debentures will be satisfied by the exchange
offer included in the Recapitalization. After giving effect to the
Recapitalization, sinking fund requirements and aggregate maturities of
long-term debt and obligations for each of the five years following December 31,
1993 are as follows (in thousands):
<TABLE>
<CAPTION>
SINKING
AGGREGATE FUND
MATURITIES REQUIREMENTS TOTAL
<S> <C> <C> <C>
1994--------------------------------- $ 4,805 -- 4,805
1995--------------------------------- $ 5,750 -- 5,750
1996--------------------------------- $ 12,279 -- 12,279
1997--------------------------------- $ 7,412 884 8,296
1998--------------------------------- $ 7,395 11,250 18,645
</TABLE>
LETTER OF CREDIT REQUIREMENTS
On October 29, 1993, the Company elected to terminate its secured Letter of
Credit Facility Agreement ('Credit Facility') dated July 27, 1989, which was
scheduled to expire in March 1994 and which provided for the issuance of up to
$40 million in letters of credit at the date of termination. In the latter half
of 1993, the Company negotiated several interim credit arrangements
collateralized by either cash or inventory to permit the Company to secure the
purchases of crude oil feedstocks and to meet other operating and corporate
credit requirements. With respect to these interim credit arrangements, the
Company has entered into several uncommitted letter of credit facilities which
provide for the issuance of letters of credit on a cash-secured basis. Total
availability pursuant to the uncommitted letter of credit arrangements was in
excess of $80 million.
At December 31, 1993, the Company had arranged for the issuance of $25
million of outstanding letters of credit which were secured by restricted cash
deposits. At 1992 year-end, under the terms of the previous Credit Facility, the
Company was required to maintain a minimum $30 million cash balance and
specified levels of equity and working capital.
49
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In addition, effective September 30, 1993, the Company entered into a waiver
and substitution of collateral agreement ('Substitution Agreement') with the
State of Alaska, the Company's largest supplier of crude oil. Under the
Substitution Agreement, the Company has pledged the capital stock of Tesoro
Alaska Petroleum Company ('Tesoro Alaska'), a wholly-owned subsidiary of the
Company, and substantially all of its crude oil and refined product inventory in
Alaska to secure its purchases of royalty crude oil. The Substitution Agreement
has allowed the Company to reduce its letter of credit requirements to $25
million as of December 31, 1993. This agreement extends through January 1, 1995
and contains various covenants and restrictions customary to inventory financing
transactions.
EXPLORATION AND PRODUCTION FINANCING
Effective October 29, 1993, Tesoro Exploration and Production Company
('Tesoro E&P'), a wholly-owned subsidiary of the Company, entered into a $30
million reducing revolving credit facility ('E&P Facility') secured by the
capital stock of Tesoro E&P and its natural gas properties in the Bob West Field
in South Texas. At December 31, 1993, $5.0 million was outstanding under this
facility.
The E&P Facility, which expires December 31, 1996, is guaranteed by the
Company, contains certain financial covenants that must be maintained by Tesoro
E&P and bears interest at prime plus 1% or, at Tesoro E&P's option, Libor plus
2.5%. The E&P Facility contains restrictions that prohibit borrowings under the
facility to be used by Tesoro E&P or the Company for debt service, including
interest and principal on the Company's 12 3/4% Subordinated Debentures, or for
payment of common or preferred dividends.
12 3/4% SUBORDINATED DEBT AND 13% EXCHANGE NOTES
In 1983, the Company issued $120 million of 12 3/4% Subordinated Debentures
at a price of 84.559% of the principal amount, due March 15, 2001. The
debentures are redeemable at the option of the Company at 100% of principal
amount plus accrued interest. Sinking fund payments sufficient to retire $11.25
million principal amount of debentures annually commenced on March 15, 1993. The
Company satisfied the initial sinking fund requirement by purchasing $11.25
million principal amount of debentures at market value on January 26, 1993. The
exchange of $44.1 principal amount of Subordinated Debentures for Exchange Notes
in February 1994 will satisfy nearly four years of sinking fund requirements
(see Note B). At December 31, 1993 and 1992, subordinated debt amounted to $98.2
million (net of discount of $10.6 million) and $107.5 million (net of discount
of $12.5 million), respectively. The indenture contains restrictions on payment
of dividends on the Company's common stock and purchases or redemptions of
common or preferred stocks. Due to losses which have been incurred, the Company
must generate approximately $131 million of future net earnings applicable to
common stock or from the issuance of capital stock before future dividends can
be paid on common stock or before purchases or redemptions can be made of common
or preferred stocks.
As part of the Recapitalization discussed in Note B, in February 1994,
Subordinated Debentures in the principal amount of $44.1 million were exchanged
for a like amount of new 13% Exchange Notes. The Exchange Notes mature on
December 1, 2000, and have no sinking fund requirements. The Exchange Notes are
redeemable at the option of the Company at 100% of principal amount plus accrued
interest except that no optional redemption may be made unless an equal
principal amount of, or all the outstanding, Subordinated Debentures, are
concurrently redeemed. The Exchange Notes rank PARI PASSU with the other senior
debt of the Company and with the Subordinated Debentures, and senior in right of
payment of the obligation to the State of Alaska (discussed below) and all other
subordinated indebtedness of the Company. The indenture governing the Exchange
Notes contains
50
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
limitations on dividends which are less restrictive than the limitation under
the Subordinated Debentures. For information on the pro forma effects of the
exchange, see Note B.
STATE OF ALASKA
In January 1993, the Company and its subsidiary, Tesoro Alaska Petroleum
Company ('Tesoro Alaska'), entered into an agreement ('Agreement') with the
State of Alaska ('State') that settled Tesoro Alaska's contractual dispute with
the State. In addition to $62 million accrued through September 30, 1992, a
charge of $10.5 million for the settlement was included in the Company's
operations during the fourth quarter of 1992.
Under the Agreement, Tesoro Alaska paid the State $10.3 million in January
1993 and agreed to make variable monthly payments to the State over the next
nine years following the date of the settlement based on a per barrel charge
that increases over the nine-year term from 16 cents to 33 cents on the volume
of feedstock processed at the Company's Alaska refinery. In 1993, the Company's
variable payments to the State totaled $2.6 million. At the end of the nine-year
period, Tesoro Alaska is obligated to pay the State $60 million; provided,
however, that such payment may be deferred indefinitely by continuing the
variable monthly payments to the State beginning at 34 cents per barrel and
increasing one cent per barrel annually thereafter. Variable monthly payments
made after the nine-year period will not reduce the $60 million obligation to
the State. The imputed rate of interest used by the Company on the $60 million
obligation was 13%. The $60 million obligation is evidenced by a security bond,
and the bond and the throughput barrel obligations are secured by a second
mortgage on the Company's Alaska refinery. Tesoro Alaska's obligations under the
Agreement and the mortgage are subordinated to current and future senior debt of
up to $175 million plus any indebtedness incurred in the future to improve the
Company's Alaska refinery.
The State's claim against Tesoro Alaska arose out of certain provisions in
present and past contracts with the State that required Tesoro Alaska to pay the
State additional retroactive amounts if the State prevailed in litigation
against the producers of North Slope crude oil ('Producers'). As a result of
settlements between the State and the Producers, the State claimed that the
royalty oil it sold Tesoro Alaska and others was undervalued to the extent that
the Producers undervalued their oil.
DEPARTMENT OF ENERGY
A Consent Order entered into by the Company with the Department of Energy
('DOE') in 1989 settled all issues relating to the Company's compliance with
federal petroleum price and allocation regulations from 1973 through decontrol
in 1981. The Company has paid $41.3 million to the DOE since 1989. The Company's
remaining obligation is to pay $13.2 million, exclusive of interest at 6%, over
the next eight years.
INDUSTRIAL REVENUE BONDS AND OTHER
The industrial revenue bonds mature in 1998 and require semiannual payments
of approximately $365,000. The bonds bear interest at a variable rate (4 1/2% at
December 31, 1993) which is equal to 75% of the National Bank of Alaska's prime
rate. The bonds are collateralized by the Company's Alaska refinery sulphur
recovery unit which had a carrying value of approximately $6.9 million at
December 31, 1993.
CAPITAL LEASE OBLIGATIONS
The Company is the lessee of certain buildings and equipment under capital
leases with remaining lease terms of 4 to 25 years. These buildings and
equipment are used in the Company's convenience store operations in Alaska. The
assets and liabilities under capital leases are recorded at
51
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
the present value of the minimum lease payments. Property, plant and equipment
at December 31, 1993 included assets held under capital leases of $6.0 million
with a net book value of $2.6 million.
NOTE J -- EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN
For all eligible employees, the Company provides a qualified noncontributory
retirement plan. Plan benefits are based on years of service and compensation.
It is the Company's policy to fund costs accrued to the extent such costs are
tax deductible. The components of net pension expense (income) for the Company's
retirement plan are presented below (in thousands):
YEARS ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30,
1993 1992 1991
Service Costs------------------------ $ 931 717 762
Interest Cost------------------------ 3,513 3,492 3,482
Actual Return on Plan Assets--------- (5,695) (1,763) (7,646)
Net Amortization and Deferral-------- 1,488 (2,231) 3,167
Net Pension Expense (Income)----- $ 237 215 (235)
For the three months ended December 31, 1991, net pension expense for the
Company's retirement plan totaled $90,000.
In addition to the retirement plan pension expense above, during 1992 the
Company recognized a curtailment gain of $1.0 million for employee terminations
in conjunction with a cost reduction program.
The funded status of the Company's retirement plan and amounts included in
the Company's Consolidated Balance Sheets are set forth in the following table
(in thousands):
DECEMBER 31, SEPTEMBER 30,
1993 1992 1991
Actuarial Present Value of Benefit
Obligation:
Vested benefit obligation-------- $ 41,200 34,806 33,959
Accumulated benefit
obligation--------------------- $ 43,694 36,460 35,556
Plan Assets at Fair Value------------ $ 40,718 39,326 39,772
Projected Benefit Obligation--------- 48,700 40,989 40,305
Plan Assets Less Than Projected
Benefit Obligation----------------- (7,982) (1,663) (533)
Unrecognized Net Loss---------------- 11,997 7,222 5,889
Unrecognized Prior Service Costs----- (518) (588) (779)
Unrecognized Net Transition Asset---- (6,883) (8,120) (9,664)
Accrued Pension Expense
Liability---------------------- $ (3,386) (3,149) (5,087)
Retirement plan assets are primarily comprised of common stock and bond
funds. Actuarial assumptions used to measure the projected benefit obligation at
December 31, 1993 included a discount rate of 7% and a compensation increase
rate of 4 1/2%. At December 31, 1992, the discount rate used was 9% and the
compensation increase rate used was 6%. The expected long-term rate of return on
assets was 9% for 1993 and 1992.
52
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
EXECUTIVE SECURITY PLAN
The Company's executive security plan ('ESP') provides executive officers
and other key personnel with supplemental death or retirement benefits in
addition to those benefits available under the Company's group life insurance
and retirement plans. These supplemental retirement benefits are provided by a
nonqualified, noncontributory plan and are based on years of service and
compensation. Funding is provided based upon the estimated requirements of the
plan. The components of net pension expense for the ESP are presented below (in
thousands):
YEARS ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30,
1993 1992 1991
Service Costs------------------------ $ 426 293 581
Interest Cost------------------------ 291 353 546
Actual Return on Plan Assets--------- (256) (1,004) (628)
Net Amortization and Deferral-------- 295 994 590
Net Pension Expense-------------- $ 756 636 1,089
For the three months ended December 31, 1991, net pension expense for the
ESP totaled $242,000.
During 1993 and 1992, the Company incurred additional ESP expense of $.5
million and $3.5 million, respectively, for settlement losses and other benefits
resulting from a cost reduction program, other employee terminations and sales
of assets.
The funded status of the ESP and amounts included in the Company's
Consolidated Balance Sheets are set forth in the following table (in thousands):
DECEMBER 31, SEPTEMBER 30,
1993 1992 1991
Actuarial Present Value of Benefit
Obligation:
Vested benefit obligation-------- $ 2,394 2,410 6,368
Accumulated benefit
obligation--------------------- $ 2,792 2,464 6,420
Plan Assets at Fair Value------------ $ 3,139 2,924 6,658
Projected Benefit Obligation--------- 3,069 2,738 6,420
Plan Assets in Excess of Projected
Benefit Obligation----------------- 70 186 238
Unrecognized Net Loss---------------- 1,177 1,409 2,147
Unrecognized Prior Service Costs----- 619 679 1,287
Unrecognized Net Transition
Obligation------------------------- 1,110 1,254 2,412
Prepaid Pension Asset------------ $ 2,976 3,528 6,084
Assets of the ESP consist of a group annuity contract. Actuarial assumptions
used to measure the projected benefit obligation at December 31, 1993 included a
discount rate of 7% and a compensation rate increase of 4 1/2%. At December 31,
1992, the discount rate used was 9% and the compensation rate increase used was
5%. The expected long-term rate of return on assets was 9% for 1993 and 1992.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company provides health care
and life insurance benefits to retirees and eligible dependents who were
participating in the Company's group insurance program at retirement. These
benefits are provided through unfunded defined benefit plans. The
53
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
health care plans are contributory, with retiree contributions adjusted
periodically, and contain other cost-sharing features such as deductibles and
coinsurance. The life insurance plan is noncontributory.
As discussed in Note A, the Company adopted SFAS No. 106 effective January
1, 1992 and incurred a net charge of $21.6 million ($16.1 million for health
care benefits and $5.5 million for life insurance benefits) for the cumulative
effect of the change in accounting principle. The components of net periodic
postretirement benefits expense, other than pensions, for 1993 and 1992 included
the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1992
HEALTH LIFE HEALTH LIFE
CARE INSURANCE CARE INSURANCE
<S> <C> <C> <C> <C>
Service Costs------------------------ $ 420 100 400 100
Interest Costs----------------------- 1,396 492 1,332 457
Net Periodic Postretirement
Expense------------------------ $ 1,816 592 1,732 557
</TABLE>
Prior to 1992, the costs of providing health care and life insurance
benefits to retired employees were expensed as claims were paid. In 1991, the
costs of providing retirees with health care benefits amounted to $751,000 and
life insurance benefits amounted to $299,000. For the three months ended
December 31, 1991, retiree health care and life insurance benefits totaled
$191,000 and $59,000, respectively.
The Company continues to fund the cost of postretirement health care and
life insurance benefits on a pay-as-you-go basis. The following table shows the
status of the plans reconciled with the amounts in the Company's Consolidated
Balance Sheets (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
HEALTH LIFE HEALTH LIFE
CARE INSURANCE CARE INSURANCE
<S> <C> <C> <C> <C>
Accumulated Postretirement Benefit
Obligation:
Retirees------------------------- $ 19,079 4,915 12,183 4,038
Active participants eligible to
retire------------------------- 1,566 571 625 615
Other active participants-------- 5,824 1,658 4,144 1,154
26,469 7,144 16,952 5,807
Unrecognized Net Loss---------------- (8,685) (1,044) (820) --
Accrued Postretirement Benefit
Liability---------------------- $ 17,784 6,100 16,132 5,807
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost
of covered health care benefits was assumed to be 12% for 1994 decreasing
gradually to 7% by the year 2010 and remains at that level thereafter. This
health care cost trend rate assumption has a significant effect on the amount of
the obligation and periodic cost reported. For example, an increase in the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement obligation as of December 31, 1993 by
$2.9 million and the aggregate of service cost and interest cost components of
net periodic postretirement benefits for the year then ended by $.4 million.
Actuarial assumptions used to measure the accumulated postretirement benefit
obligation at December 31, 1993 included a discount rate of 7% and a
compensation rate increase of 4 1/2%. At December 31, 1992, the discount rate
was 8 1/2% and the compensation rate increase was 6%.
54
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
THRIFT PLAN
The Company's employee thrift plan provides for contributions by eligible
employees into designated investment funds with a matching contribution by the
Company of 50% of the employee's basic contribution. The Company's contributions
amounted to $482,000, $474,000 and $439,000 during 1993, 1992 and 1991,
respectively. For the three months ended December 31, 1991, the Company's
contributions amounted to $107,000.
COST REDUCTION PROGRAM AND OTHER EMPLOYEE TERMINATIONS
In addition to the ESP settlement losses and other benefits and the
retirement plan curtailment gain discussed above, during 1992 the Company
incurred charges of $6.6 million for expenses to implement a cost reduction
program and other employee terminations.
NOTE K -- COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has various noncancellable operating leases related to
convenience stores, equipment, property, vessels and other facilities. Lease
terms range from one year to 40 years and generally contain multiple renewal
options. Future minimum annual payments for operating leases, as of December 31,
1993, are as follows (in thousands):
1994--------------------------------- $ 17,157
1995--------------------------------- 4,946
1996--------------------------------- 3,860
1997--------------------------------- 3,265
1998--------------------------------- 3,125
Thereafter--------------------------- 13,885
Total---------------------------- $ 46,238
Total rental expense was approximately $32.5 million, $24.3 million and
$19.9 million for 1993, 1992 and 1991, respectively. Rental expense for 1993,
1992 and 1991 included $22.9 million, $12.0 million and $9.9 million,
respectively, related to the lease of vessels used to transport crude oil to or
refined products from the Company's Alaska refinery. The lease for one of these
vessels extends through October 1994 with a renewal option available through
October 1996. The lease for the second vessel extends through July 1994 with a
renewal option available through January 1995. For the three months ended
December 31, 1991, rental expense amounted to $6.0 million, of which $2.9
million related to the lease of a vessel.
GAS PURCHASE AND SALES CONTRACT
The Company is selling gas from its Bob West Field to Tennessee Gas Pipeline
Company ('Tennessee Gas') under a 1979 Gas Purchase and Sales Agreement ('Gas
Contract') which expires in January 1999. The Gas Contract provides that the
price of gas shall be the maximum price as calculated in accordance with the
then effective Section 102(b)(2) ('Contract Price') of the Natural Gas Policy
Act of 1978 ('NGPA').
In August 1990, Tennessee Gas filed a civil action in the District Court of
Bexar County, Texas against the Company and several other companies, seeking a
Declaratory Judgment that the Gas Contract is not applicable to the Company's
properties. Tennessee Gas claimed, among other things, that certain leases
covered by the Gas Contract terminated and therefore were automatically released
from the Gas Contract, eliminating the obligation of Tennessee Gas to purchase
gas from the
55
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Company. Tennessee Gas also challenged the quantity of gas which can be sold
under the Gas Contract and contended that the gas sales price was to be
calculated under the provisions of Section 101 of the NGPA rather than the
Contract Price. At December 31, 1993, the Section 101 price of $5.01 per mcf was
$2.71 per mcf less than the Contract Price, but $2.75 per mcf above spot market
prices.
On June 24, 1992, the District Court trial judge returned a verdict in favor
of the Company. The District Court's judgment, entered on July 8, 1992, ruled
that Tennessee Gas must honor the Gas Contract pursuant to its terms. Tennessee
Gas filed a motion for reconsideration in the District Court on the issue of the
price to be paid for the gas under the Gas Contract, which was denied by the
court. On September 11, 1992, Tennessee Gas appealed the judgment to the Court
of Appeals for the Fourth Supreme Judicial District of Texas. On August 25,
1993, the Court of Appeals affirmed the validity of the Gas Contract as to the
Company's properties and held that the price payable by Tennessee Gas for the
gas was the Contract Price. The Court of Appeals determined, however, (i) that
the trial court erred in its summary judgment ruling that the Gas Contract was
not an output contract under the Texas Business and Commerce Code ('TBCA') and
(ii) that a fact issue exists as to whether the increases in the volumes of gas
tendered to Tennessee Gas under the Gas Contract were made in bad faith or were
unreasonably disproportionate to prior tenders in contravention of the
provisions of Section 2.306 of the TBCA. Accordingly, the Court of Appeals
directed that this issue be remanded to the trial court in Bexar County, Texas.
The Company filed a motion for rehearing with the appellate court regarding its
decision that the Gas Contract creates an output contract governed by the TBCA.
Tennessee Gas also filed a motion for rehearing with the appellate court
regarding the portions of its decision upholding the judgment of the trial
court. On January 26, 1994, the appellate court rendered its judgment denying
all motions for rehearing in this matter and affirming its earlier ruling. The
Company has appealed the appellate court ruling on the output contract issue to
the Supreme Court of Texas. Tennessee Gas has also appealed to the Supreme Court
of Texas that portion of the appellate court ruling denying the remaining
Tennessee Gas claims. If the Supreme Court of Texas does not grant the Company's
petition for writ of error and affirms the appellate court ruling, then the only
issue for trial will be whether the increases in the volumes of gas tendered to
Tennessee Gas from the Company's properties may have been made in bad faith or
were unreasonably disproportionate. Management of the Company believes its
tenders were reasonable under the Gas Contract and the market conditions at the
time and will vigorously defend on this issue if put to trial. The Company
continues to receive payment from Tennessee Gas based on the Contract Price.
Although the outcome of any litigation is uncertain, management believes
that the Tennessee Gas claims are without merit and, based upon advice from
outside legal counsel, is confident that the decision of the trial court will
ultimately be upheld as to the validity of the Gas Contract and the Contract
Price; and that with respect to the output contract issue, the Company believes
that, if this issue is tried, the development of its gas properties and the
resulting increases in volumes tendered to Tennessee Gas will be found to have
been reasonable and in good faith. Accordingly, the Company has recognized
revenues, net of production taxes and marketing charges, for natural gas sales
through December 31, 1993, under the Gas Contract based on the Contract Price,
which net revenues aggregated $16.8 million more than the Section 101 prices and
$31.0 million in excess of the spot market prices. An adverse judgment in this
case could have a material adverse effect on the Company. If Tennessee Gas
ultimately prevails in this litigation, the Company could be required to return
to Tennessee Gas $31.0 million, excluding any interest that may be awarded by
the court, representing the difference between the spot price for gas and the
Contract Price. For further information concerning the effect of the Gas
Contract on certain of the Company's revenues and cash flows, see Note P.
56
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
OTHER
In March 1992, the Company received a Compliance Order and Notice of
Violation from the U.S. Environmental Protection Agency ('EPA') alleging
possible violations by the Company of the New Source Performance Standards under
the Clean Air Act at its Alaska refinery. The Company is continuing in its
efforts to resolve these issues with the EPA; however, no final resolution has
been reached. The Company believes that the ultimate resolution of this matter
will not have a material adverse effect upon the Company's business or financial
condition.
The Company is subject to extensive federal, state and local environmental
laws and regulations. These laws, which are constantly changing, regulate the
discharge of materials into the environment and may require the Company to
remove or mitigate the environmental effects of the disposal or release of
petroleum or chemical substances at various sites. The Company is currently
involved with two waste disposal sites in Louisiana at which it has been named a
potentially responsible party under the Federal Superfund law. Although this law
might impose joint and several liability upon each party at any site, the extent
of the Company's allocated financial contribution to the cleanup of these sites
is expected to be limited based on the number of companies and the volumes of
waste involved. At each site, a number of large companies have also been named
as potentially responsible parties and are expected to cooperate in the cleanup.
The Company is also involved in remedial response and has incurred cleanup
expenditures associated with environmental matters at a number of other sites
including certain of its own properties.
At December 31, 1993, the Company had accrued $6.2 million for environmental
costs. Based on currently available information, including the participation of
other parties or former owners in remediation actions, the Company believes
these accruals are adequate. Conditions which require additional expenditures
may exist for various Company sites, including, but not limited to, the
Company's refinery, service stations (current and closed locations) and
petroleum product terminals, and for compliance with the Clean Air Act. The
amount of such future expenditures cannot presently be determined by the
Company.
NOTE L -- REDEEMABLE PREFERRED STOCK
In March 1983, the Company sold 2,875,000 shares of a series of redeemable
preferred stock at $20 per share. The stock is held by MetLife which is a
subsidiary of Metropolitan Life Insurance Company. The class of stock, of which
there were 2,875,000 shares authorized, issued and outstanding at December 31,
1993 and 1992, has been designated the $2.20 Cumulative Convertible Preferred
Stock ('$2.20 Preferred Stock'). This series has one vote per share, is
convertible into .8696 shares of Common Stock for each share of Preferred Stock,
has a stated value of $1 per share and a liquidation price of $20 per share plus
accrued dividends. The $2.20 Preferred Stock ranks in parity with the $2.16
Cumulative Convertible Preferred Stock as to liquidation and dividends.
The redeemable preferred stock was recorded at fair value on the date of
issuance less issue costs. The excess of the redemption value over the carrying
value is being accreted by periodic charges to retained earnings over the life
of the issue. During 1993 and 1992, the carrying value of the redeemable
preferred stock was increased for mandatorily redeemable accumulated dividends,
not declared or paid, by charges to retained earnings. As of December 31, 1993,
dividends in arrears on the $2.20 Preferred Stock amounted to approximately
$19.8 million, or $6.87 1/2 per share.
As discussed in Note B, in February 1994, the agreement between the Company
and MetLife was amended with regard to such preferred shares to waive all
existing mandatory redemption requirements, to consider all accrued and unpaid
dividends (aggregating $21.2 million at February 9, 1994) to have been paid, to
allow the Company to pay future dividends in Common Stock in lieu of cash, to
waive or refrain from exercising other rights of the $2.20 Preferred Stock and
to grant to the
57
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Company an option to purchase, during the next three years, all shares of the
$2.20 Preferred Stock and Common Stock held by MetLife for approximately $53
million (amount at February 9, 1994, increasing by 12% to 14% annually) subject
to certain conditions, in consideration for, among other things, the issuance by
the Company to MetLife of 1,900,075 shares of Common Stock. Such additional
shares will be subject to the option granted by MetLife. After giving effect to
the Recapitalization, MetLife's Common and Preferred Stock holdings approximated
27% of the Company's voting securities. For information on the pro forma effects
of these amendments, see Note B.
NOTE M -- COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
For information regarding the effects of the Recapitalization on the
Company's Common Stock and Other Stockholders' Equity, refer to Note B.
$2.16 CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Company has designated a class of preferred stock, of which there were
1,319,563 shares outstanding at December 31, 1993 and 1992 and 200,000 shares
reserved for the granting of options under a stock option plan of the Company.
This class, designated the $2.16 Cumulative Convertible Preferred Stock ('$2.16
Preferred Stock'), has voting rights, is convertible into Common Stock at the
rate of 1.7241 shares of Common Stock for each share of Preferred Stock, has a
stated value of $1 per share and a liquidation value of $25 per share, and is
repurchasable at the option of the Company at liquidation value plus accrued
dividends. The $2.16 Preferred Stock ranks in parity with the $2.20 Preferred
Stock as to liquidation and dividends.
During 1993 and 1992, the liability for accumulated dividends, not declared
or paid, on the $2.16 Preferred Stock was accrued by charges to retained
earnings. As of December 31, 1993, dividends in arrears on the $2.16 Preferred
Stock amounted to approximately $8.9 million, or $6.75 per share.
As discussed in Note B, in February 1994, the outstanding shares of the
Company's $2.16 Preferred Stock, plus accrued and unpaid dividends thereon
(aggregating $9.5 million at February 9, 1994), were reclassified into shares of
the Company's Common Stock.
AMENDED INCENTIVE STOCK PLAN OF 1982 ('1982 PLAN')
The Company's 1982 Plan provides for the granting of stock incentives in the
form of stock options, stock appreciation rights and stock awards to officers
and key employees. The stock options are exercisable in accordance with the
option plans and expire no later than ten years from the date of grant.
Stock appreciation rights are exercisable in three to five annual
installments, normally beginning with the first anniversary date of the grant,
and expire ten years from the date of grant. The stock appreciation rights
entitle the employee to receive, without payment to the Company, the incremental
increase in market value of the related stock from date of grant to date of
exercise, payable in cash. Related compensation expense is charged to earnings
over periods earned. During 1993, 1992 and 1991 and the three months ended
December 31, 1991, no compensation expense was recognized since the market value
of the Company's Common Stock remained below the exercise price.
Stock awards totaling 83,015 common shares, 100,000 common shares and 12,000
common shares were granted at par value to certain employees of the Company in
1993, 1992 and 1991, respectively. Related compensation expense is charged to
earnings over the periods that the shares are earned and amounted to $572,000,
$142,000, $135,000 and $28,000 for 1993, 1992 and 1991 and the three months
ended December 31, 1991, respectively.
58
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
At December 31, 1993 and 1992 and September 30, 1991, the Company had
60,002, 392,566 and 852,381 unoptioned shares, respectively, available for
granting of options, rights and awards under the 1982 Plan and 6,064,809,
6,084,809 and 6,093,231 shares of unissued Common Stock, respectively, reserved
for conversion of preferred stock and the 1982 Plan. During 1988, an amendment
to the 1982 Plan was approved which increased the number of shares of Common
Stock which may be granted or transferred from 1,500,000 to 2,000,000. The
additional shares will be registered with the Securities and Exchange Commission
in 1994. The 1982 Plan expires on February 24, 1994 as to issuance of options,
rights and awards; however, grants made before such date that have not been
fully exercised will remain outstanding pursuant to their terms.
A summary of activity in the 1982 Plan and a prior plan is set forth below:
<TABLE>
<CAPTION>
TOTAL STOCK OPTIONS STOCK APPRECIATION RIGHTS
RESERVED OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1990------- 1,355,257 226,296 124,430 275,863 173,449
Becoming exercisable------------- -- -- 39,684 -- 40,230
Cancelled or expired------------- (25,207) (4,491) (4,491) (31,999) (31,999)
Stock awards--------------------- (12,000) -- -- -- --
Balances at September 30, 1991------- 1,318,050 221,805 159,623 243,864 181,680
Granted at $4.837 to $4.840------ -- 600,000 -- -- --
Becoming exercisable------------- -- -- 34,243 -- 34,248
Cancelled or expired------------- -- (109,171) (90,786) (119,414) (101,030)
Stock awards--------------------- (8,400) -- -- -- --
Balances at December 31, 1992-------- 1,309,650 712,634 103,080 124,450 114,898
Granted at $2.925 to $5.250------ -- 349,680 -- -- --
Becoming exercisable------------- -- -- 127,044 -- 7,042
Cancelled or expired------------- -- (45,444) (44,278) (54,687) (53,521)
Stock awards--------------------- (20,000) -- -- -- --
Balances at December 31, 1993-------- 1,289,650 1,016,870 185,846 69,763 68,419
Price per share or right------------- $2.925 to $12.625 $8.375 to $14.000
</TABLE>
EXECUTIVE LONG-TERM INCENTIVE PLAN (THE '1993 PLAN')
On February 9, 1994, the Company's shareholders approved the 1993 Plan which
permits the issuance of awards in a variety of forms, including restricted
stock, incentive stock options, nonqualified stock options, stock appreciation
rights and performance share and performance unit awards. The 1993 Plan provides
for the grant of up to 1,250,000 shares of the Company's Common Stock and,
unless earlier terminated, will expire as to the issuance of awards on September
15, 2003. No grants have been made pursuant to the 1993 Plan.
PREFERRED STOCK PURCHASE RIGHTS
In November 1985, the Company's Board of Directors declared a distribution
of one preferred stock purchase right for each share of the Company's Common
Stock. Each right will entitle the holder to buy 1/100 of a share of a newly
authorized Series A Participating Preferred Stock at an exercise price of $35
per right. The rights become exercisable on the tenth day after public
announcement that a person or group has acquired 20% or more of the Company's
Common Stock. The rights may be redeemed by the Company prior to becoming
exercisable by action of the Board of Directors at a redemption price of $.05
per right. If the Company is acquired by any person after the rights become
exercisable, each right will entitle its holder to purchase stock of the
acquiring company having a market value of twice the exercise price of each
right. At December 31, 1993, there were 14,089,236 rights outstanding which will
expire in December 1995. In conjunction with the Recapitalization in 1994
discussed in Note B, the Company issued an additional 8,365,934 rights.
59
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE N -- FINANCIAL INFORMATION BY BUSINESS SEGMENT
Tesoro is primarily engaged in three business segments: crude oil refining
and marketing of refined petroleum products; the exploration and production of
natural gas; and oil field supply and distribution of fuels and lubricants.
Geographically, the refining and marketing operations are concentrated in Alaska
and on the West Coast, the exploration and production operations are located in
South Texas and Bolivia, and the wholesale marketing of fuel and lubricants is
conducted along the Texas and Louisiana Gulf Coast area. The Company sold its
Indonesian exploration and production operations in May 1992. Income taxes,
interest, general and administrative expenses and certain other corporate items
are not allocated to the operating segments.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1993 1992 1991 1991
(IN MILLIONS)
<S> <C> <C> <C> <C>
Gross Operating Revenues:
Refining and Marketing(1)-------- $ 687.2 810.7 196.8 898.6
Exploration and Production:
United States(2)------------- 50.5 18.8 2.4 5.2
Bolivia---------------------- 12.6 17.9 4.6 24.5
Indonesia-------------------- -- 6.0 5.5 29.5
Oil Field Supply and
Distribution------------------- 80.7 93.5 36.5 134.3
Intersegment Eliminations(3)----- -- (.4) (5.2) (7.1)
Total------------------------ $ 831.0 946.5 240.6 1,085.0
Operating Profit (Loss), Including
Gain on Sales of Assets(4):
Refining and Marketing----------- $ 15.2 (14.9) 1.7 19.3
Exploration and Production:
United States(2)------------- 32.3 8.9 .3 .6
Bolivia---------------------- 8.4 12.6 5.3 21.2
Indonesia-------------------- -- 7.6 1.8 13.8
Oil Field Supply and
Distribution------------------- (3.6) (4.7) (1.2) (.5)
Total Operating Profit------- 52.3 9.5 7.9 54.4
Corporate and Unallocated Costs------ (33.6) (49.4) (5.4) (35.4)
Earnings (Loss) Before Income Taxes
and the
Cumulative Effect of Accounting
Changes---------------------------- $ 18.7 (39.9) 2.5 19.0
Total Assets:
Refining and Marketing----------- $ 281.5 308.0 328.5 322.7
Exploration and Production:
United States---------------- 67.2 34.1 33.0 32.3
Bolivia---------------------- 6.5 2.9 6.8 15.6
Indonesia-------------------- -- .3 10.7 11.8
Oil Field Supply and
Distribution------------------- 21.3 23.2 27.6 32.2
Corporate------------------------ 58.0 78.2 88.1 82.2
Total Assets----------------- $ 434.5 446.7 494.7 496.8
</TABLE>
60
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1993 1992 1991 1991
(IN MILLIONS)
<S> <C> <C> <C> <C>
Depreciation, Depletion and
Amortization:
Refining and Marketing----------- $ 10.3 10.2 2.4 9.0
Exploration and Production:
United States---------------- 11.1 4.9 .9 2.9
Indonesia-------------------- -- .3 .6 1.7
Oil Field Supply and
Distribution------------------- .4 .5 .1 .5
Corporate------------------------ .8 .7 .2 .9
Total------------------------ $ 22.6 16.6 4.2 15.0
Capital Expenditures:
Refining and Marketing----------- $ 7.1 3.7 .8 4.4
Exploration and Production:
United States---------------- 29.3 8.9 2.9 17.8
Indonesia-------------------- -- .4 .1 1.5
Oil Field Supply and
Distribution------------------- .3 1.1 -- .4
Corporate------------------------ .8 1.3 .1 .4
Total------------------------ $ 37.5 15.4 3.9 24.5
(1) INCLUDES REVENUES OF $20.5 MILLION, $101.0 MILLION AND $165.9 MILLION IN
1993, 1992 AND 1991, RESPECTIVELY, DERIVED FROM EXPORT SALES TO CUSTOMERS
IN FAR EASTERN MARKETS.
(2) INCLUDES REVENUES AND OPERATING PROFIT OF $5.4 MILLION IN 1992 RESULTING
FROM A CHANGE IN ESTIMATE OF THE COMPANY'S REVENUES FROM NATURAL GAS
PRODUCTION IN SOUTH TEXAS (SEE NOTE K).
(3) REPRESENTS INTERSEGMENT ELIMINATIONS, PRIMARILY SALES FROM REFINING AND
MARKETING TO OIL FIELD SUPPLY AND DISTRIBUTION, AT PRICES WHICH
APPROXIMATE MARKET.
(4) OPERATING PROFIT REPRESENTS PRETAX EARNINGS (LOSS) BEFORE CERTAIN
CORPORATE EXPENSES, INTEREST INCOME AND INTEREST EXPENSE. TOTAL OPERATING
PROFIT HAS BEEN RECONCILED TO EARNINGS (LOSS) BEFORE INCOME TAXES AND THE
CUMULATIVE EFFECT OF ACCOUNTING CHANGES. AS DISCUSSED IN NOTE E, OPERATING
PROFIT FROM THE EXPLORATION AND PRODUCTION SEGMENT IN 1992 INCLUDES A $5.8
MILLION GAIN FROM THE SALES OF THE COMPANY'S INDONESIAN OPERATIONS.
</TABLE>
61
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE O -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS
FIRST SECOND THIRD FOURTH
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1993
Total Revenues------------------- $ 226.5 186.2 215.2 207.0
Operating Profit----------------- $ 6.0 8.9 13.1 24.3
Net Earnings (Loss)-------------- $ (2.9) 1.5 1.7 16.7
Earnings (Loss) Per Share:
Primary---------------------- $ (.37) (.06) (.04) 1.00
Fully Diluted---------------- $ (.37) (.06) (.04) .87
Market Price Per Common Share:
High------------------------- $ 5 5/8 6 5/8 7 3/4 7 1/2
Low-------------------------- $ 3 5 5 1/8 5 1/8
1992
Total Revenues------------------- $ 223.2 251.2 244.5 235.5
Operating Profit----------------- $ 2.7 5.6 7.6 (6.4)
Net Loss------------------------- $ (32.0) (5.5) (3.5) (24.9)
Loss Per Primary and Fully
Diluted Share------------------ $ (2.44) (.56) (.41) (1.93)
Market Price Per Common Share:
High------------------------- $ 6 5/8 5 3/8 5 1/2 3 5/8
Low-------------------------- $ 4 5/8 4 1/4 3 2 1/2
</TABLE>
The 1993 second and fourth quarters included benefits of $3.0 million and
$5.2 million, respectively, for resolution of several state tax issues. A $5.0
million charge for an inventory erosion was recorded in the 1993 third quarter.
Included in the 1993 fourth quarter, however, was a $5.7 million offset to the
inventory adjustment taken earlier in the year. Inventory levels at the 1993
year-end were greater than projected earlier in the year due to changing market
conditions. The 1993 fourth quarter benefited from the decline in crude oil
prices, while the Company's refined product margins held steady or improved.
The 1992 first quarter included charges of $20.6 million for the cumulative
effect of accounting changes, $2.4 million for a cost reduction program and $1.0
million for asset write-downs. The 1992 third quarter included a $5.8 million
gain from the sales of the Company's Indonesian operations. The fourth quarter
of 1992 included revenues and operating profit of $5.4 million ($.38 per share)
resulting from a change in estimate of the Company's revenues from natural gas
production in the South Texas field (see Note K) and additional charges of $10.5
million for the settlement with the State of Alaska and $5.6 million for the
cost reduction program and other employee terminations.
62
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE P -- OIL AND GAS PRODUCING ACTIVITIES
The following information regarding the Company's exploration and production
activities should be read in conjunction with Notes E and K.
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
DECEMBER 31, SEPTEMBER 30,
1993 1992 1991
(IN THOUSANDS)
Capitalized Costs:
Proved properties---------------- $ 60,489 34,050 29,100
Unproved properties:
Properties being
amortized------------------ 12,856 11,132 8,511
Properties not being
amortized------------------ 1,959 1,482 8,242
75,304 46,664 45,853
Accumulated depreciation,
depletion and amortization----- 26,118 15,006 15,713
Net Capitalized Costs-------- $ 49,186 31,658 30,140
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES
<TABLE>
<CAPTION>
UNITED
STATES BOLIVIA INDONESIA TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year Ended December 31, 1993:
Property acquisition,
unproved----------------------- $ 887 -- -- 887
Exploration---------------------- 2,257 -- -- 2,257
Development---------------------- 25,496 -- -- 25,496
$ 28,640 -- -- 28,640
Year Ended December 31, 1992:
Property acquisition,
unproved----------------------- $ 9 -- -- 9
Exploration---------------------- 977 6 333 1,316
Development---------------------- 7,922 -- 109 8,031
$ 8,908 6 442 9,356
Three Months Ended December 31, 1991:
Property acquisition,
unproved----------------------- $ (7) -- -- (7)
Exploration---------------------- 1,037 15 24 1,076
Development---------------------- 1,881 -- 60 1,941
$ 2,911 15 84 3,010
Year Ended September 30, 1991:
Property acquisition,
unproved----------------------- $ 582 -- 3 585
Exploration---------------------- 9,975 45 9 10,029
Development---------------------- 7,226 -- 1,476 8,702
$ 17,783 45 1,488 19,316
</TABLE>
The Company's investment in oil and gas properties included $2.0 million in
unevaluated properties which have been excluded from the amortization base as of
December 31, 1993. The
63
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Company anticipates that the majority of these costs, substantially all of which
were incurred in 1993, will be included in the amortization base during 1994.
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
The following table sets forth the results of operations for oil and gas
producing activities, in the aggregate by geographic area, with income tax
expense computed using the statutory tax rate for the period adjusted for
permanent differences, tax credits and allowances.
<TABLE>
<CAPTION>
UNITED
STATES(1) BOLIVIA INDONESIA TOTAL
(IN THOUSANDS EXCEPT AS INDICATED)
<S> <C> <C> <C> <C>
Year Ended December 31, 1993:
Gross revenues -- sales to
nonaffiliates------------------ $ 50,228 12,594 -- 62,822
Production costs----------------- 6,763 1,152 -- 7,915
Administrative support and
other-------------------------- 939 3,046 -- 3,985
Depreciation, depletion and
amortization------------------- 11,111 -- -- 11,111
Pretax results of operations----- 31,415 8,396 -- 39,811
Income tax expense--------------- 6,647 5,160 -- 11,807
Results of operations from
producing activities(2)-------- $ 24,768 3,236 -- 28,004
Depletion rates per net
equivalent mcf----------------- $ .78 -- --
Year Ended December 31, 1992:
Gross revenues -- sales to
nonaffiliates------------------ $ 18,850 17,898 5,975 42,723
Production costs----------------- 3,796 688 3,698 8,182
Administrative support and
other-------------------------- 1,216 4,635 107 5,958
Gain (loss) on sales of
assets------------------------- (3) -- 5,750(3) 5,747
Depreciation, depletion and
amortization------------------- 4,862 -- 336 5,198
Pretax results of operations----- 8,973 12,575 7,584 29,132
Income tax expense--------------- 305 7,108 3,066 10,479
Results of operations from
producing activities(2)-------- $ 8,668 5,467 4,518 18,653
Depletion rates per net
equivalent mcf----------------- $ .95 -- .15
Three Months Ended December 31, 1991:
Gross revenues -- sales to
nonaffiliates------------------ $ 2,426 4,634 5,474 12,534
Production costs----------------- 1,071 122 2,915 4,108
Administrative support and
other-------------------------- 242 (765)(5) 107 (416)
Depreciation, depletion and
amortization------------------- 848 -- 606 1,454
Pretax results of operations----- 265 5,277 1,846 7,388
Income tax expense--------------- 9 2,744 1,413 4,166
Results of operations from
producing activities(2)-------- $ 256 2,533 433 3,222
Depletion rates per net
equivalent mcf----------------- $ .94 -- .31
Year Ended September 30, 1991:
Gross revenues -- sales to
nonaffiliates------------------ $ 5,179 24,557 29,507 59,243
Production costs----------------- 1,218 650 9,467 11,335
Administrative support and
other-------------------------- 424 2,710 4,497(4) 7,631
Depreciation, depletion and
amortization------------------- 2,920 -- 1,712 4,632
Pretax results of operations----- 617 21,197 13,831 35,645
Income tax expense--------------- 12 12,015 8,766 20,793
Results of operations from
producing activities(2)-------- $ 605 9,182 5,065 14,852
Depletion rates per net
equivalent mcf----------------- $ 1.06 -- .22
</TABLE>
(1) SEE NOTE K REGARDING LITIGATION INVOLVING A NATURAL GAS SALES CONTRACT.
(2) EXCLUDES CORPORATE GENERAL AND ADMINISTRATIVE AND FINANCING COSTS.
(3) REPRESENTS GAIN FROM THE SALES OF THE COMPANY'S INDONESIAN OPERATIONS
EFFECTIVE MAY 1, 1992.
(4) INCLUDES A $2.0 MILLION CHARGE FOR AN ARBITRATION AWARD INVOLVING A
ROYALTY DISPUTE ON INDONESIAN CRUDE OIL PRODUCTION.
(5) INCLUDES A $1.3 MILLION CREDIT FOR BOLIVIAN TRANSACTION TAXES.
64
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED
RESERVES
(UNAUDITED)
The following table sets forth the computation of the standardized measure
of discounted future net cash flows relating to proved reserves and the changes
in such cash flows in accordance with Statement of Financial Accounting
Standards No. 69 ('SFAS No. 69'). The standardized measure is the estimated
excess future cash inflows from proved reserves less estimated future production
and development costs, estimated future income taxes and a discount factor.
Future cash inflows represent expected revenues from production of year-end
quantities of proved reserves based on year-end prices and any fixed and
determinable future escalation provided by contractual arrangements in existence
at year-end. Escalation based on inflation, federal regulatory changes and
supply and demand are not considered. Estimated future production costs related
to year-end reserves are based on year-end costs. Such costs include, but are
not limited to, production taxes and direct operating costs. Inflation and other
anticipatory costs are not considered until the actual cost change takes effect.
Estimated future income tax expenses are computed using the appropriate year-end
statutory tax rates. Consideration is given for the effects of permanent
differences, tax credits and allowances. A discount rate of 10% is applied to
the annual future net cash flows after income taxes.
The methodology and assumptions used in calculating the standardized measure
are those required by SFAS No. 69. The standardized measure is not intended to
be representative of the fair market value of the Company's proved reserves. The
calculations of revenues and costs do not necessarily represent the amounts to
be received or expended by the Company.
As indicated in Note K, certain of the Company's South Texas production
activities are involved in litigation pertaining to a natural gas sales contract
with Tennessee Gas. Although the outcome of any litigation is uncertain, based
upon advice from outside legal counsel, management believes that the Company
will ultimately prevail in this dispute. Accordingly, the Company has based its
calculation of the standardized measure of discounted future net cash flows on
the Contract Price which it is currently receiving. However, if Tennessee Gas
were to prevail, the impact on the Company's future revenues and cash flows
would be significant. Based on the Contract Price, the standardized measure of
discounted future net cash flows relating to proved reserves in the United
States at December 31, 1993 was $103 million compared to $59 million at spot
market prices.
<TABLE>
<CAPTION>
UNITED
STATES(1) BOLIVIA INDONESIA TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C>
As of December 31, 1993:
Future cash inflows-------------- $ 315,788 133,363 -- 449,151
Future production costs---------- (59,398) (31,092) -- (90,490)
Future development costs--------- (48,020) (2,981) -- (51,001)
Future net cash flows before
income tax expense------------- 208,370 99,290 -- 307,660
Future income tax expense-------- (76,500) (52,334) -- (128,834)
Future net cash flows------------ 131,870 46,956 -- 178,826
10% annual discount factor------- (29,118) (20,516) -- (49,634)
Standardized measure of
discounted future net cash
flows-------------------------- $ 102,752 26,440 -- 129,192
</TABLE>
65
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
UNITED
STATES(1) BOLIVIA INDONESIA TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C>
As of December 31, 1992:
Future cash inflows-------------- $ 215,172 146,555 -- 361,727
Future production costs---------- (33,162) (40,374) -- (73,536)
Future development costs--------- (30,294) (9,248) -- (39,542)
Future net cash flows before
income tax expense------------- 151,716 96,933 -- 248,649
Future income tax expense-------- (42,884) (56,682) -- (99,566)
Future net cash flows------------ 108,832 40,251 -- 149,083
10% annual discount factor------- (21,744) (16,628) -- (38,372)
Standardized measure of
discounted future net cash
flows-------------------------- $ 87,088 23,623 -- 110,711
As of December 31, 1991:
Future cash inflows-------------- $ 69,405 289,143 113,877 472,425
Future production costs---------- (10,167) (52,667) (87,913) (150,747)
Future development costs--------- (13,334) (11,760) (8,545) (33,639)
Future net cash flows before
income tax expense------------- 45,904 224,716 17,419 288,039
Future income tax expense-------- (4,179) (127,824) (12,178) (144,181)
Future net cash flows------------ 41,725 96,892 5,241 143,858
10% annual discount factor------- (10,853) (46,023) -- (56,876)
Standardized measure of
discounted future net cash
flows-------------------------- $ 30,872 50,869 5,241 86,982
As of September 30, 1991:
Future cash inflows-------------- $ 67,514 302,022 88,234 457,770
Future production costs---------- (11,184) (53,482) (68,400) (133,066)
Future development costs--------- (13,370) (11,760) (8,260) (33,390)
Future net cash flows before
income tax expense------------- 42,960 236,780 11,574 291,314
Future income tax expense-------- (5,457) (136,543) (6,352) (148,352)
Future net cash flows------------ 37,503 100,237 5,222 142,962
10% annual discount factor------- (7,147) (45,955) (814) (53,916)
Standardized measure of
discounted future net cash
flows-------------------------- $ 30,356 54,282 4,408 89,046
</TABLE>
(1) SEE NOTE K REGARDING LITIGATION INVOLVING A NATURAL GAS SALES CONTRACT.
66
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1993 1992 1991 1991
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales and transfers of oil and gas
produced, net of production
costs------------------------------ $ (52,766) (31,208) (8,713) (45,005)
Net changes in prices and production
costs------------------------------ (21,160) (32,397) 222 (29,828)
Extensions, discoveries and
improved recovery------------------ 73,792 104,219 1,802 19,998
Development costs incurred----------- 25,510 10,012 2,289 9,544
Revisions of estimated future
development costs------------------ (24,052) (18,666) (2,316) (12,633)
Revisions of previous quantity
estimates-------------------------- 31,031 (15,384) 4,565 (37,392)
Purchases and sales of minerals
in-place--------------------------- -- (5,884) -- 47,418
Accretion of discount---------------- 11,071 8,174 2,226 10,251
Net changes in income taxes---------- (24,945) 4,863 (2,139) 24,197
Net increase (decrease)-------------- 18,481 23,729 (2,064) (13,450)
Beginning of period------------------ 110,711 86,982 89,046 102,496
End of period------------------------ $ 129,192 110,711 86,982 89,046
</TABLE>
67
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
RESERVE QUANTITY INFORMATION (UNAUDITED)
The following estimates of the Company's proved oil and gas reserves are
based on evaluations prepared by Netherland, Sewell & Associates, Inc. (except
for estimates of reserves at December 31, 1991 for properties in Bolivia and for
all periods for properties in Indonesia, which estimates were prepared by the
Company's in-house engineers). Reserves were estimated in accordance with
guidelines established by the Securities and Exchange Commission and Financial
Accounting Standards Board, which require that reserve estimates be prepared
under existing economic and operating conditions with no provision for price and
cost escalations except by contractual arrangements.
UNITED
STATES(2) BOLIVIA TOTAL
Proved Gas Reserves (millions of
cubic feet)(1):
At September 30, 1990------------ 11,118 85,040 96,158
Revisions of previous
estimates---------------------- (1,217) 696 (521)
Purchase of minerals in-place---- -- 36,545 36,545
Extensions, discoveries and other
additions---------------------- 25,950 -- 25,950
Production----------------------- (2,710) (7,052) (9,762)
At September 30, 1991------------ 33,141 115,229 148,370
Revisions of previous
estimates---------------------- 1,054 (35) 1,019
Extensions, discoveries and other
additions---------------------- 3,585 -- 3,585
Production----------------------- (896) (1,729) (2,625)
At December 31, 1991------------- 36,884 113,465 150,349
Revisions of previous
estimates---------------------- (9,601) 651 (8,950)
Extensions, discoveries and other
additions---------------------- 53,952 -- 53,952
Production----------------------- (5,110) (7,108) (12,218)
Sales of minerals in-place------- (2,372) -- (2,372)
At December 31, 1992------------- 73,753 107,008 180,761
Revisions of previous
estimates---------------------- 16,304 (693) 15,611
Extensions, discoveries and other
additions---------------------- 44,291 -- 44,291
Production----------------------- (14,150) (7,020) (21,170)
At December 31, 1993(3)---------- 120,198 99,295 219,493
Proved Developed Gas Reserves
included above
(millions of cubic feet):
At September 30, 1990------------ 5,046 79,623 84,669
At September 30, 1991------------ 18,011 107,765 125,776
At December 31, 1991------------- 21,187 106,036 127,223
At December 31, 1992------------- 34,160 91,376 125,536
At December 31, 1993(3)---------- 65,652 99,295 164,947
68
<PAGE>
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
UNITED
STATES BOLIVIA INDONESIA TOTAL
<S> <C> <C> <C> <C>
Proved Oil Reserves (thousands of
barrels)(1):
At September 30, 1990------------ 4 2,058 11,226 13,288
Revisions of previous
estimates---------------------- 2 59 (5,513) (5,452)
Purchase of minerals in-place---- -- 953 -- 953
Extensions, discoveries and other
additions---------------------- 3 -- -- 3
Production----------------------- (4) (242) (1,209) (1,455)
At September 30, 1991------------ 5 2,828 4,504 7,337
Revisions of previous
estimates---------------------- -- 1 1,333 1,334
Production----------------------- (1) (58) (266) (325)
At December 31, 1991------------- 4 2,771 5,571 8,346
Revisions of previous
estimates---------------------- 1 (266) -- (265)
Production----------------------- (1) (242) (328) (571)
Sales of minerals in-place------- (4) -- (5,243) (5,247)
At December 31, 1992------------- -- 2,263 -- 2,263
Revisions of previous
estimates---------------------- -- 152 -- 152
Production----------------------- -- (242) -- (242)
At December 31, 1993(3)---------- -- 2,173 -- 2,173
Proved Developed Oil Reserves
included above (thousands of
barrels):
At September 30, 1990------------ 4 1,987 11,226 13,217
At September 30, 1991------------ 5 2,738 4,504 7,247
At December 31, 1991------------- 4 2,680 5,571 8,255
At December 31, 1992------------- -- 2,098 -- 2,098
At December 31, 1993(3)---------- -- 2,173 -- 2,173
</TABLE>
(1) THE COMPANY WAS NOT REQUIRED TO FILE RESERVE ESTIMATES WITH FEDERAL
AUTHORITIES OR AGENCIES DURING THE PERIODS PRESENTED.
(2) SEE NOTE K REGARDING LITIGATION INVOLVING A NATURAL GAS SALES CONTRACT.
(3) NO MAJOR DISCOVERY OR ADVERSE EVENT HAS OCCURRED SINCE DECEMBER 31, 1993
THAT WOULD CAUSE A SIGNIFICANT CHANGE IN PROVED RESERVES.
69
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this Item will be contained in the Company's 1994
Proxy Statement which is incorporated herein by reference.
See also Executive Officers of the Registrant under Business in Item 1.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item will be contained in the Company's 1994
Proxy Statement which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information required under this Item will be contained in the Company's 1994
Proxy Statement which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item will be contained in the Company's 1994
Proxy Statement which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements of Tesoro
Petroleum Corporation and its subsidiaries are included in Part II,
Item 8 of this Form 10-K:
PAGE
Independent Auditors'
Report----------------------- 33
Statements of Consolidated
Operations -- Years Ended
December 31, 1993, December
31, 1992 and September 30,
1991 and Three Months Ended
December 31, 1991------------ 34
Consolidated Balance
Sheets -- December 31, 1993
and December 31, 1992-------- 35
Statements of Consolidated
Common Stock and Other
Stockholders' Equity -- Years
Ended December 31, 1993,
December 31, 1992 and
September 30, 1991 and Three
Months Ended December 31,
1991------------------------- 37
Statements of Consolidated
Cash Flows -- Years Ended
December 31, 1993, December
31, 1992 and September 30,
1991 and Three Months Ended
December 31, 1991------------ 38
Notes to Consolidated
Financial Statements--------- 39
70
<PAGE>
2. FINANCIAL STATEMENT SCHEDULES
[CAPTION]
PAGE
Schedule II -- Amounts
Receivable From Related
Parties and Underwriters,
Promoters and Employees
Other Than Related
Parties -- Years Ended
December 31, 1993,
December 31, 1992 and
September 30, 1991 and
Three Months Ended
December 31, 1991-------- 75
Schedule V -- Consolidated
Property, Plant and
Equipment -- Years Ended
December 31, 1993,
December 31, 1992 and
September 30, 1991 and
Three Months Ended
December 31, 1991-------- 76
Schedule VI -- Consolidated
Accumulated Depreciation,
Depletion and
Amortization of Property,
Plant and
Equipment -- Years Ended
December 31, 1993,
December 31, 1992 and
September 30, 1991 and
Three Months Ended
December 31, 1991-------- 77
Schedule
VIII -- Consolidated
Valuation and Qualifying
Accounts and
Reserves -- Years Ended
December 31, 1993,
December 31, 1992 and
September 30, 1991 and
Three Months Ended
December 31, 1991-------- 78
All other schedules are
omitted because of the
absence of the conditions
under which they are required
or because the required
information is included in
the Consolidated Financial
Statements or notes thereto.
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<C> <S> <C>
3 Restated Certificate of Incorporation of the Company.
3(a) By-Laws of the Company, as amended through February 9, 1994.
3(b) Amendment to Restated Certificate of Incorporation of the Company adding a new
Article IX limiting Directors' Liability.
3(c) Certificate of Designation Establishing a Series of $2.20 Cumulative Convertible
Preferred Stock, dated as of January 26, 1983.
3(d) Certificate of Designation Establishing a Series A Participating Preferred Stock,
dated as of December 16, 1985.
3(e) Certificate of Amendment, dated as of February 9, 1994, to Restated Certificate of
Incorporation of the Company amending Article IV, Article V, Article VII and
Article VIII.
4(a) 12 3/4% Subordinated Debentures due March 15, 2001, Form of Indenture, dated March
15, 1983 (incorporated by reference herein to Exhibit 4(b) to Registration
Statement No. 2-81960).
4(b) 13% Exchange Notes due December 1, 2000, Indenture dated February 8, 1994
(incorporated by reference herein to Exhibit 2 to the Company's Registration
Statement on Form 8-A filed March 2, 1994).
4(c) Rights Agreement dated December 16, 1985 between the Company and Chemical Bank,
N.A., successor to Interfirst Bank Fort Worth, N.A. (incorporated by reference
herein to Exhibit 4(i) to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1985, File No. 1-3473).
4(d) Amendment to Rights Agreement dated December 16, 1985 between the Company and
Chemical Bank, N.A. (incorporated by reference herein to Exhibit 4(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-3473).
71
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
4(e) Copy of Forbearance Agreement dated as of March 24, 1993 between the Company and
MetLife Security Insurance Company of Louisiana (incorporated by reference herein
to Exhibit 4(n) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, File No. 1-3473).
4(f) Copy of Amendment to the Forbearance Agreement dated as of November 12, 1993
between the Company and MetLife Security Insurance Company of Louisiana
(incorporated by reference herein to Exhibit 4(o) of the Company's Registration
Statement No. 33-68282 on Form
S-4).
4(g) Copy of Memorandum of Understanding dated as of August 31, 1993 between the Company
and MetLife Security Insurance Company of Louisiana (incorporated by reference
herein to Exhibit 10(q) of the Company's Registration Statement No. 33-68282 on
Form S-4).
4(h) Copy of Amended Memorandum of Understanding dated as of December 14, 1993 between
the Company and MetLife Security Insurance Company of Louisiana. (incorporated by
reference herein to Exhibit 4(p) of the Company's Registration Statement No.
33-68282 on Form
S-4).
4(i) Stock Purchase Agreement dated as of February 9, 1994 between the Company and
MetLife Security Insurance Company of Louisiana.
4(j) Registration Rights Agreement dated February 9, 1994 between the Company and
MetLife Security Insurance Company of Louisiana.
4(k) Call Option Agreement dated February 9, 1994 between the Company and MetLife
Security Insurance Company of Louisiana.
4(l) Copy of Tesoro Exploration and Production Company's Loan Agreement dated as of
October 29, 1993 (incorporated by reference herein to Exhibit 4(b) to the Company's
report on Form 10-Q for the quarter ended September 30, 1993, File No. 1-3473).
4(m) Copy of Agreement for Waiver and Substitution of Collateral dated as of September
30, 1993 by and between Tesoro Alaska Petroleum Company and the State of Alaska
(incorporated by reference herein to Exhibit 4(c) to the Company's report on Form
10-Q for the quarter ended September 30, 1993, File No. 1-3473).
10(a) Form of Executive Agreement providing for continuity of management between the
Company and its senior officers dated June 28, 1984 (incorporated by reference
herein to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1984, File No. 1-3473).
10(b) Form of Amendment to Executive Agreements between the Company and its senior
officers dated September 30, 1987 (incorporated by reference herein to Exhibit
10(c) to the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1987, File No. 1-3473).
10(c) Form of Second Amendment to Executive Agreements between the Company and its senior
officers dated February 28, 1990 (incorporated by reference herein to Exhibit 10(e)
to the Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1990, File No.
1-3473).
72
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
10(d) The Company's Amended Executive Security Plan, as amended through November 13,
1989, and Funded Executive Security Plan, as amended through February 28, 1990, for
executive officers and key personnel (incorporated by reference herein to Exhibit
10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1990, File No. 1-3473).
10(e) Sixth Amendment to the Company's Amended Executive Security Plan and Seventh
Amendment to the Company's Funded Executive Security Plan, both dated effective
March 6, 1991 (incorporated by reference herein to Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1991, File No.
1-3473).
10(f) Employment Agreement between the Company and Michael D. Burke dated July 27, 1992
(incorporated by reference herein to Exhibit 10(j) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(g) Employment Agreement between the Company and Bruce A. Smith dated September 14,
1992 (incorporated by reference herein to Exhibit 10(k) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(h) Employment Agreement between the Company and Gaylon H. Simmons dated January 4,
1993 (incorporated by reference herein to Exhibit 10(l) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(i) The Company's Amended Incentive Stock Plan of 1982, as amended through February 24,
1988 (incorporated by reference herein to Exhibit 10(t) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1988, File No. 1-3473).
10(j) Resolution approved by the Company's stockholders on April 30, 1992 extending the
term of the Company's Amended Incentive Stock Plan of 1982 to February 24, 1994
(incorporated by reference herein to Exhibit 10(o) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(k) Copy of the Company's Executive Long-Term Incentive Plan.
10(l) Agreement for the Sale and Purchase of Royalty Oil between Tesoro Alaska Petroleum
Company and the State of Alaska (for the sale of Prudhoe Bay Royalty Oil), dated
February 26, 1982 (incorporated by reference herein to Exhibit 10(p) to the
Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1984,
File No.
1-3473).
10(m) Copy of Settlement Agreement dated effective January 19, 1993, between Tesoro
Petroleum Corporation, Tesoro Alaska Petroleum Company and the State of Alaska
(incorporated by reference herein to Exhibit 10(q) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(n) Form of Indemnification Agreement between the Company and its officers and
directors (incorporated by reference herein to Exhibit B to the Company's Proxy
Statement for the Annual Meeting of Stockholders held on February 25, 1987, File
No. 1-3473).
10(o) Gas Purchase and Sales Agreement dated January 16, 1979 (incorporated by reference
herein to Exhibit 10(p) of the Company's Registration Statement No. 33-68282 on
Form S-4).
11 Statement of computation of earnings (loss) per share.
73
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
22 Subsidiaries of the Company.
24(a) Consent of Deloitte & Touche.
24(b) Consent of Netherland, Sewell & Associates, Inc.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1993.
</TABLE>
74
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM
RELATED PARTIES AND UNDERWRITERS, PROMOTERS
AND EMPLOYEES OTHER THAN RELATED PARTIES
(DOLLARS IN THOUSANDS)
BALANCE AT BALANCE AT
BEGINNING CLOSE
NAME OF DEBTOR OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
<S> <C> <C> <C> <C>
Tesoro-Leevac Petroleum Company(1):
Year Ended September 30, 1991-------- $ -- 5,134 -- 5,134
Three Months Ended December 31,
1991------------------------------- $ 5,134 -- 335 4,799
Year Ended December 31, 1992--------- $ 4,799 -- 4,799 --
Year Ended December 31, 1993--------- $ -- -- -- --
(1) RECEIVABLE REPRESENTED WORKING CAPITAL FINANCING PROVIDED TO TESORO-LEEVAC
PETROLEUM COMPANY, A JOINT VENTURE FORMERLY 50%-OWNED BY THE COMPANY. A
PORTION OF THIS RECEIVABLE WAS REPRESENTED BY A NOTE RECEIVABLE WITH
INTEREST PAID MONTHLY AT THE PRIME RATE. THE BALANCE REPRESENTED
SHORT-TERM FINANCING FOR PRODUCT PURCHASES PAYABLE UNDER NORMAL SALES
TERMS. EFFECTIVE DECEMBER 31, 1992, THE COMPANY ACQUIRED THE REMAINING 50%
INTEREST IN THIS JOINT VENTURE AND TRANSFERRED THESE OPERATIONS TO ITS
SUBSIDIARY, TESORO PETROLEUM DISTRIBUTING COMPANY.
</TABLE>
75
<PAGE>
SCHEDULE V
<TABLE>
<CAPTION>
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
SCHEDULE V -- CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT
(DOLLARS IN THOUSANDS)
BALANCE
AT BALANCE AT
BEGINNING ADDITIONS SALES OR OTHER CHANGES(2) CLOSE
OF PERIOD AT COST RETIREMENTS(1) DEBITS CREDITS OF PERIOD
<S> <C> <C> <C> <C> <C> <C>
Year Ended September 30, 1991:
Refining and Marketing------------- $ 257,855 4,418 536 9,626(3) -- 271,363
Exploration and Production--------- 26,573 19,316 -- -- 36 45,853
Oil Field Supply and
Distribution---------------------- 15,933 422 480 240 -- 16,115
Corporate-------------------------- 15,737 328 82 44 -- 16,027
$ 316,098 24,484 1,098 9,910 36 349,358
Three Months Ended December 31, 1991:
Refining and Marketing------------- $ 271,363 745 3 9 -- 272,114
Exploration and Production--------- 45,853 3,010 -- 1 -- 48,864
Oil Field Supply and
Distribution---------------------- 16,115 13 25 -- -- 16,103
Corporate-------------------------- 16,027 90 -- 1 -- 16,118
$ 349,358 3,858 28 11 -- 353,199
Year Ended December 31, 1992:
Refining and Marketing------------- $ 272,114 3,678 767 188 -- 275,213
Exploration and Production--------- 48,864 9,356 11,512 -- 44 46,664
Oil Field Supply and
Distribution---------------------- 16,103 1,129 370 -- 497 16,365
Corporate-------------------------- 16,118 1,283 7,199 229 -- 10,431
$ 353,199 15,446 19,848 417 541 348,673
Year Ended December 31, 1993:
Refining and Marketing------------- $ 275,213 7,103 420 390 -- 282,286
Exploration and Production--------- 46,664 29,306 -- 673 -- 76,643
Oil Field Supply and
Distribution---------------------- 16,365 250 179 -- 1,023 15,413
Corporate-------------------------- 10,431 792 102 -- -- 11,121
$ 348,673 37,451 701 1,063 1,023 385,463
(1) FOR FURTHER INFORMATION REGARDING DISPOSITION OF ASSETS, SEE NOTE E OF
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IN
ITEM 8.
(2) RECLASSIFICATIONS AND TRANSFERS TO OR FROM OTHER BALANCE SHEET ACCOUNTS.
(3) INCLUDES THE ACQUISITION OF THE REMAINING INTEREST IN A CONVENIENCE STORE
OPERATION.
</TABLE>
76
<PAGE>
SCHEDULE VI
<TABLE>
<CAPTION>
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
SCHEDULE VI -- CONSOLIDATED ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
(DOLLARS IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO OTHER CHANGES(3) BALANCE AT
BEGINNING COSTS AND SALES OR CLOSE
OF PERIOD EXPENSES(1) RETIREMENTS(2) DEBITS CREDITS OF PERIOD
<S> <C> <C> <C> <C> <C> <C>
Year Ended September 30, 1991:
Refining and Marketing------------- $ 92,805 9,019 41 -- 3,192 (4) 104,975
Exploration and Production--------- 11,081 4,632 -- -- -- 15,713
Oil Field Supply and
Distribution---------------------- 10,070 507 430 2 -- 10,145
Corporate-------------------------- 10,095 847 73 -- 155 11,024
$ 124,051 15,005 544 2 3,347 141,857
Three Months Ended
December 31, 1991:
Refining and Marketing------------- $ 104,975 2,441 3 14 -- 107,399
Exploration and Production--------- 15,713 1,454 -- -- -- 17,167
Oil Field Supply and
Distribution---------------------- 10,145 120 22 -- 1 10,244
Corporate-------------------------- 11,024 210 -- -- 1 11,235
$ 141,857 4,225 25 14 2 146,045
Year Ended December 31, 1992:
Refining and Marketing------------- $ 107,399 10,191 212 94 -- 117,284
Exploration and Production--------- 17,167 5,198 7,359 -- -- 15,006
Oil Field Supply and
Distribution---------------------- 10,244 464 324 -- 8 10,392
Corporate-------------------------- 11,235 699 4,425 -- -- 7,509
$ 146,045 16,552 12,320 94 8 150,191
Year Ended December 31, 1993:
Refining and Marketing------------- $ 117,284 10,263 227 -- 494 127,814
Exploration and Production--------- 15,006 11,143 -- -- 49 26,198
Oil Field Supply and
Distribution---------------------- 10,392 392 149 579 -- 10,056
Corporate-------------------------- 7,509 793 87 -- 29 8,244
$ 150,191 22,591 463 579 572 172,312
(1) THE ANNUAL PROVISIONS FOR DEPRECIATION (GENERALLY STRAIGHT-LINE METHOD)
HAVE BEEN COMPUTED PRINCIPALLY IN ACCORDANCE WITH THE FOLLOWING RANGES OF
RATES:
<S> <C>
REFINING AND MARKETING--------------- 3 YEARS TO 34 YEARS
EXPLORATION AND PRODUCTION----------- 3 YEARS TO 20 YEARS
OIL FIELD SUPPLY AND DISTRIBUTION---- 3 YEARS TO 45 YEARS
CORPORATE---------------------------- 3 YEARS TO 20 YEARS
THE ANNUAL PROVISION FOR DEPLETION FOR EXPLORATION AND PRODUCTION ASSETS
HAS BEEN COMPUTED ON A UNIT-OF-PRODUCTION METHOD BASED UPON PRODUCTION OF
OIL AND GAS RESERVES. LEASEHOLD IMPROVEMENTS ARE BEING AMORTIZED OVER THE
TERM OF THE LEASE OR ESTIMATED USEFUL LIFE OF THE IMPROVEMENT, WHICHEVER
PERIOD IS LESS. DEPRECIATION AND AMORTIZATION ARE PROVIDED NET OF SALVAGE
VALUE (GENERALLY 10% EXCEPT FOR THE ALASKA REFINERY WHICH IS 20%) OF THE
ASSETS.
(2) FOR FURTHER INFORMATION REGARDING THE DISPOSITION OF ASSETS, SEE NOTE E OF
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IN ITEM 8.
(3) RECLASSIFICATIONS AND TRANSFERS TO OR FROM OTHER BALANCE SHEET ACCOUNTS.
(4) INCLUDES THE ACQUISITION OF THE REMAINING INTEREST IN A CONVENIENCE STORE
OPERATION.
</TABLE>
77
<PAGE>
SCHEDULE VIII
<TABLE>
<CAPTION>
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM CLOSE
OF PERIOD EXPENSES ACCOUNTS(1) RESERVE(2) OF PERIOD
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
(deducted from current receivables
in the balance sheet):
Year Ended September 30, 1991---- $ 5,957 3,508 538 3,934 6,069
Three Months Ended December 31,
1991--------------------------- $ 6,069 305 -- 2,306 4,068
Year Ended December 31, 1992----- $ 4,068 937 396 2,814 2,587
Year Ended December 31, 1993----- $ 2,587 667 71 838 2,487
(1) RECOVERIES OF ACCOUNTS RECEIVABLE PREVIOUSLY WRITTEN OFF.
(2) WRITE-OFF OF DOUBTFUL ACCOUNTS.
</TABLE>
78
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
TESORO PETROLEUM CORPORATION
March 30, 1994 By: /s/ MICHAEL D. BURKE
Michael D. Burke
President and Chief Executive Officer
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
<C> <S> <C>
/s/ CHARLES WOHLSTETTER Chairman of the Board of Directors March 30, 1994
(Charles Wohlstetter) and Director
/s/ MICHAEL D. BURKE Director, President and Chief March 30, 1994
(Michael D. Burke) Executive Officer (Principal
Executive Officer)
/s/ BRUCE A. SMITH Executive Vice President and Chief March 30, 1994
(Bruce A. Smith) Financial Officer (Principal
Financial Officer and Accounting
Officer)
/s/ RAY C. ADAM Director March 30, 1994
(Ray C. Adam)
/s/ ROBERT J. CAVERLY Director March 30, 1994
(Robert J. Caverly
Director March , 1994
(Peter M. Detwiler)
/s/ STEVEN H. GRAPSTEIN Director March 30, 1994
(Steven H. Grapstein)
/s/ CHARLES F. LUCE Director March 30, 1994
(Charles F. Luce)
/s/ RAYMOND K. MASON, SR. Director March 30, 1994
(Raymond K. Mason, Sr.)
/s/ JOHN J. McKETTA, JR. Director March 30, 1994
(John J. McKetta, Jr.)
/s/ STEWART G. NAGLER Director March 30, 1994
(Stewart G. Nagler)
/s/ JAMES Q. RIORDAN Director March 30, 1994
(James Q. Riordan)
/s/ WILLIAM S. SNEATH Director March 30, 1994
(William S. Sneath)
/s/ ARTHUR SPITZER Director March 30, 1994
(Arthur Spitzer)
Director March , 1994
(M. Richard Stewart)
/s/ MURRAY L. WEIDENBAUM Director March 30, 1994
(Murray L. Weidenbaum)
</TABLE>
79
<PAGE>
EXHIBIT 3
RESTATED CERTIFICATE OF INCORPORATION
OF
TESORO PETROLEUM CORPORATION
The undersigned, having filed its original Certificate of Incorporation,
under the name of TSO Corp., with the Secretary of State of the State of
Delaware on December 26, 1968, thereby forming a corporation under and pursuant
to the provisions of the General Corporation Law of the State of Delaware, does
hereby restate its Certificate of Incorporation and certify as follows:
ARTICLE I
The name of the Corporation is Tesoro Petroleum Corporation (hereinafter
called the 'Corporation').
ARTICLE II
The registered office of the Corporation in the State of Delaware is located
at No. 100 West 10th Street, in the City of Wilmington, County of New Castle.
The name and address of the Corporation's registered agent is The Corporation
Trust Company, No. 100 West 10th Street, Wilmington, Delaware.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is Fifty-Five Million (55,000,000) shares,
consisting of
Fifty Million (50,000,000) shares of the par value of $.16 2/3 per share;
and
Five Million (5,000,000) shares with no par value.
(A) DESIGNATION OF EACH CLASS OF SHARES.
(1) The Fifty Million (50,000,000) authorized shares of a par value of
$.16 2/3 per share and an aggregate par value of $8,333,333.33 shall be
designated Common Stock; and
(2) The Five Million (5,000,000) authorized shares with no par value
shall be designated Preferred Stock.
(B) STATEMENT OF PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS IN RESPECT OF
SHARES OF PREFERRED STOCK AND AUTHORITY OF BOARD OF DIRECTORS TO FIX
DESIGNATIONS, POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS THEREOF NOT FIXED HEREBY.
Shares of Preferred Stock may be issued from time to time in one or more
series, as may be determined from time to time by the Board of Directors, each
of said series to be distinctly designated. All shares of any one series of
Preferred Stock shall be alike in every particular. The Board of Directors is
hereby authorized to fix or alter the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price or prices, and the liquidation
preferences of any wholly unissued series of preferred shares, and the number of
shares constituting any such series and the designation thereof, or any of them;
and to increase or decrease the number of shares of any series subsequent to the
issue of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of
1
<PAGE>
any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
INITIAL SERIES OF PREFERRED STOCK DESIGNATED
'8% CONVERTIBLE PREFERRED STOCK'
1. DESIGNATION OF SERIES AND NUMBER OF SHARES.
The initial series of preferred stock is designated '8% Convertible
Preferred Stock' (hereinafter referred to as '8% Preferred Stock'), and the
number of shares which shall constitute such series shall be 40,000 shares of a
stated value of $100 per share, which number may be increased or decreased (but
not below the number thereof then outstanding) from time to time by the Board of
Directors.
2. DIVIDENDS.
Holders of 8% Preferred Stock shall be entitled to receive, as and when
declared by the Board of Directors and out of assets of the Corporation which
are by law available for payment of dividends, cash dividends at, but not
exceeding, the rate of $8.00 per share per annum, payable quarterly on April 1,
July 1, October 1 and January 1 in each year, accruing from the date on which
respective shares of 8% Preferred Stock shall be issued. Dividends upon 8%
Preferred Stock shall be cumulative quarterly, so that no dividend whatsoever
shall be declared or paid upon or set apart for any class of stock or series
thereof ranking junior to 8% Preferred Stock in the payment of dividends nor
shall any shares of any class of stock or series thereof ranking junior to 8%
Preferred Stock in payment of dividends be redeemed or purchased by the
Corporation or any subsidiary thereof nor shall any moneys be paid to or made
available for a sinking fund for redemption or purchase of any shares of any
class of stock or series thereof ranking junior to 8% Preferred Stock in payment
of dividends, unless in each instance dividends on all outstanding shares of 8%
Preferred Stock for all past dividend periods shall have been paid and the
dividend on all outstanding shares of 8% Preferred Stock for the then current
quarterly dividend period shall have been paid or declared and sufficient funds
set aside for payment thereof. Accumulations of dividends on any shares of 8%
Preferred Stock shall not bear interest.
No dividend shall be declared on any shares of any other class of stock or
series thereof ranking on a parity with 8% Preferred Stock in respect of payment
of dividends for any dividend period unless there shall have been declared on
all shares then outstanding of 8% Preferred Stock, for the same dividend period,
or for the dividend period of 8% Preferred Stock terminating within the dividend
period of said parity stock, dividends in proportion to the respective dividend
rates fixed for 8% Preferred Stock and said parity stock.
3. LIQUIDATION.
In the event of voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, holders of 8% Preferred Stock shall be entitled to
receive $100 per share, together with accrued and unpaid dividends thereon,
before any distribution of assets shall be made to holders of common stock or
any other class of stock or series thereof ranking junior to 8% Preferred Stock
with respect to distribution of assets. Holders of 8% Preferred Stock shall be
entitled to no further participation in any such distribution. If, upon any such
liquidation, dissolution or winding up of the Corporation, assets of the
Corporation available for distribution to holders of 8% Preferred Stock shall be
insufficient to permit payment in full to such holders of the preferential
amounts aforesaid, then all such assets of the Corporation shall be distributed
ratably among holders of 8% Preferred Stock and any other ranking on a parity
therewith then outstanding, in proportion to the full preferential amounts to
which they shall be entitled respectively. Neither merger nor consolidation of
the Corporation into or with any other corporation, nor the merger or
consolidation of any other corporation into or with the Corporation, nor a sale,
transfer or lease of all or any part of the assets of
2
<PAGE>
the Corporation, shall be deemed to be a liquidation, dissolution or winding up
of the Corporation within the meaning of this paragraph 3.
No payment on account of such dissolution, liquidation or winding up of the
Corporation shall be made to holders of any other class or series of stock
ranking on a parity with 8% Preferred Stock with respect to preferential
distribution of assets unless a payment on account of such dissolution,
liquidation or winding up shall be made at the same time to holders of 8%
Preferred Stock in proportion to the full distributive amounts to which they and
holders of such parity stock are respectively entitled.
Written notice of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, stating the payment date and the
place where the distributable amounts shall be payable and containing a
reference to the conversion right set forth in paragraph 5 below, shall be given
by mail, postage prepaid, not less than 30 days prior to the payment date stated
therein, to the holders of record of 8% Preferred Stock at their respective
addresses as the same shall appear on the books of the Corporation.
4. REDEMPTION.
The Corporation at its option may, at any time or from time to time, after
February 1, 1978, redeem the whole or any part of this issue of 8% Preferred
Stock at the applicable redemption price plus in each case accrued and unpaid
dividends thereon to the date fixed for redemption.
The applicable redemption prices for the 8% Preferred Stock shall be as
follows:
IF REDEEMED DURING
12 MONTHS BEGINNING REDEMPTION
FEBRUARY 1 PRICE PER SHARE
1978--------------------------- $ 108.00
1979--------------------------- 106.40
1980--------------------------- 104.80
1981--------------------------- 103.20
1982--------------------------- 101.60
and thereafter at $100 per share.
In the event the Corporation shall determine to redeem less than the entire
issue of 8% Preferred Stock then outstanding, (i) the shares to be redeemed
shall be selected pro rata (as nearly as may be) so that the number of shares
redeemed from each holder shall be the same proportion of all the shares to be
redeemed that the total number of shares then held by such holder bears to the
total number of shares then outstanding or (ii) the shares shall be selected by
lot, as the Board of Directors of the Corporation may determine.
Notice of every such redemption shall be mailed, first class postage
prepaid, not less than 30 nor more than 50 days prior to the date fixed for
redemption ('redemption date'), to each holder of record of shares to be
redeemed, at his address as it appears on the books of the Corporation. Each
such notice shall state the redemption date; the number of shares of 8%
Preferred Stock to be redeemed, and, if less than all shares of 8% Preferred
Stock held by such holder are to be redeemed, the number of such shares to be
redeemed from him; the redemption price applicable to the shares to be redeemed;
the place or places where such shares are to be surrendered; that dividends on
shares to be redeemed will cease to accrue on the redemption date; and that
shares to be redeemed may be converted on or before the redemption date in
accordance with paragraph 5 below.
Notice having been mailed, from and after the redemption date (unless the
Corporation defaults in providing money for the payment of the redemption price)
the right to receive dividends on shares called for redemption shall cease to
accrue, said shares shall no longer be deemed to be outstanding, all rights of
holders thereof as shareholders of the Corporation (except the right to receive
the redemption price) shall terminate, and, upon surrender in accordance with
said notice of the
3
<PAGE>
certificates for any such shares (properly endorsed or assigned for transfer, if
the Board of Directors of the Corporation shall so require) such shares shall be
redeemed by the Corporation at the applicable redemption price; provided,
however, that the Corporation may include in such notice a statement that the
money required for the payment of the redemption price will be deposited on a
specified date, prior to the redemption date, with a specified bank or trust
company (which shall have an office in the City of New York) in trust for the
benefit of holders of shares called for redemption, and, notice having been
given, from and after such deposit shares called for redemption shall no longer
be deemed to be outstanding, all rights with respect to shares of 8% Preferred
Stock shall forthwith upon such deposit cease and terminate, except only the
right of the holders thereof to convert such shares in accordance with the
provisions of paragraph 5 below at any time prior to the close of business on
the redemption date, and holders of such shares shall look for payment of the
redemption price only to funds so deposited and in no event to the Corporation
unless said funds shall be repaid to the Corporation as hereinafter provided.
Holders of such shares shall not be entitled to any interest allowed by such
depositary on money so deposited, but any such interest shall be paid to the
Corporation. Any moneys deposited as aforesaid for redemption of any shares and
remaining unclaimed for four years after the date of such deposit shall then be
repaid to the Corporation upon its request, and holders of such shares shall
thereafter look only to the Corporation for payment.
Any shares of 8% Preferred Stock so redeemed or purchased shall be
permanently retired, shall no longer be deemed outstanding, and shall not under
any circumstances be reissued and the Corporation may from time to time take
such appropriate corporate action as may be necessary to reduce the number of
authorized 8% Preferred Stock accordingly.
5. CONVERSION.
Shares of 8% Preferred Stock shall be deemed to have a conversion value of
$100 per share and may be converted at the option of the holder thereof at any
time prior to the close of business on the date fixed for redemption of such
shares pursuant to paragraph 4 above into shares of fully paid and nonassessable
common stock of the Corporation at a price equivalent to $25.00 (the 'conversion
price') for one whole share of common stock as now constituted, subject to the
following provisions:
(A) The conversion price shall be subject to adjustment from time to
time as follows:
(1) In case the Corporation shall (i) pay a dividend or make a
distribution in shares of its capital stock (whether shares of common
stock or of capital stock of any other class), (ii) subdivide its
outstanding shares of common stock, (iii) combine its outstanding shares
of common stock into a smaller number of shares, or (iv) issue by
reclassification of its shares of common stock any shares of capital
stock of the Corporation, the conversion privilege and the conversion
price in effect immediately prior to such action shall be adjusted so
that the holder of any share of 8% Preferred Stock thereafter surrendered
for conversion shall be entitled to receive the number of shares of
capital stock of the Corporation which he would have owned immediately
following such action had such share of 8% Preferred Stock been converted
immediately prior thereto. An adjustment made pursuant to this
subparagraph (1) shall become effective immediately after the record date
in the case of a dividend and shall become effective immediately after
the effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this
subparagraph (1), the holder of any shares of 8% Preferred Stock
thereafter surrendered for conversion shall become entitled to receive
shares of two or more classes of capital stock of the Corporation, the
Board of Directors (whose determination shall be conclusive) shall
determine the allocation of the adjusted conversion price between or
among shares of such classes of capital stock.
(2) In case the Corporation shall hereafter issue rights or warrants
to all holders of its common stock entitling them (for a period expiring
within forty-five days after the record date mentioned below) to
subscribe for or purchase shares of common stock at a price per
4
<PAGE>
share less than the current market price per share (as determined
pursuant to subparagraph (4) below) on the record date mentioned below,
the conversion price of the common stock shall be adjusted so that the
same shall equal the price determined by multiplying the conversion price
in effect immediately prior to the date of issuance of such rights or
warrants by a fraction of which the numerator shall be the number of
shares of common stock outstanding (excluding treasury shares) on the
date of issuance of such rights or warrants plus the number of shares
which the aggregate offering price of the total number of shares
purchased pursuant to such offer would purchase at such current market
price, and of which the denominator shall be the number of shares of
common stock outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of common stock so
purchased pursuant to such offer for subscription or purchase.
(3) In case the Corporation shall distribute to all holders of its
common stock evidences of its indebtedness or assets (excluding any cash
dividend) or rights to subscribe (excluding those referred to in
subparagraph (2) above), then in each such case the conversion price
shall be adjusted so that the same shall equal the price determined by
multiplying the conversion price in effect immediately prior to the date
of such distribution by a fraction of which the numerator shall be the
current market price per share (determined as provided in subparagraph
(4) below) of the common stock on the record date mentioned below less
the then fair market value (as determined by the Board of Directors,
whose determination shall be conclusive) of the portion of the assets or
evidences of indebtedness so distributed or of such subscription rights
applicable to one share of common stock, and the denominator shall be
such current market price per share of common stock. Such adjustment
shall become effective immediately after the record date for
determination of stockholders entitled to receive such distribution.
(4) For the purpose of any computation under subparagraphs (2) and
(3) above, the current market price per share of common stock on any date
shall be deemed to be the average of daily closing prices for thirty
consecutive business days commencing forty-five business days before the
day in question. The closing price for each day shall be the last
reported sale price regular way or, in case no such reported sale takes
place on such day, the average of the reported closing bid and asked
prices regular way, in either case on the American Stock Exchange or, if
the common stock is not listed or admitted to trading on such Exchange,
on the principal national securities exchange on which the common stock
is listed or admitted to trading or, if not listed or admitted to trading
on any national securities exchange, the average of the closing bid and
asked prices as furnished by any New York Stock Exchange firm selected
from time to time by the Corporation for that purpose.
(5) In any case in which this paragraph 5 shall require that an
adjustment be made immediately following a record date, the Corporation
may elect to defer (but only until five business days following the
filing by the Corporation of the statement required by subparagraph (7)
below) issuing to the holder of any share of 8% Preferred Stock converted
after such record date shares of common stock and other capital stock of
the Corporation issuable upon such conversion over and above the number
of shares of common stock and other capital stock of the Corporation
issuable upon such conversion as computed on the basis of the conversion
price prior to adjustment.
(6) No adjustment in the conversion price shall be required unless
such adjustment would require an increase or decrease of at least one
percent in such price; provided, however, that any adjustments which by
reason of this subparagraph are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this paragraph 5 shall be made to the nearest cent or
to the nearest one-hundredth of a share, as the case may be.
5
<PAGE>
(7) Whenever the conversion price is adjusted as herein provided,
the Corporation shall (i) file at its principal office and with each
conversion agent for 8% Preferred Stock and each transfer agent for such
common stock a statement, signed by the President or one of the
Vice-Presidents of the Corporation and by its Treasurer or one of its
Assistant Treasurers, stating the adjusted conversion price and the
resulting number of shares of common stock purchasable on conversion of
one share of 8% Preferred Stock and setting forth the method of
calculation and the facts requiring such adjustment and upon which such
calculation is based, and (ii) mail or cause to be mailed a copy of such
statement setting forth the adjusted conversion price to each person who
is a registered holder of 8% Preferred Stock at such person's last
address as the same appears on the books of the Corporation. Each
adjustment shall remain in effect until a subsequent adjustment is
required hereunder.
(8) For the purposes of this paragraph 5, the term 'common stock'
shall mean (i) the Corporation's common stock, $.16 2/3 par value per
share, or (ii) any other class of stock resulting from successive changes
or reclassifications of such common stock consisting solely of changes in
par value, or from par value to no par value, or from no par value to par
value. In the event that at any time as a result of an adjustment made
pursuant to subparagraph (1) above, the holder of any share of 8%
Preferred Stock thereafter surrendered for conversion shall become
entitled to receive any stock of the Corporation other than shares of its
common stock, thereafter the conversion price of such other shares so
receivable upon conversion of any share of 8% Preferred Stock shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to common
stock contained in this paragraph 5.
(B) In case of a merger or consolidation of the Corporation with or
into another corporation, or the sale of the Corporation's property or
assets as, or substantially as, an entirety, to another corporation, or the
reclassification of the Corporation's common stock (other than through a
subdivision or combination thereof, or change in par value), holders of
shares of 8% Preferred Stock shall thereafter have the right to convert each
of such shares into the kind and amount of shares of stock and other
securities and property receivable upon such merger, consolidation, sale or
reclassification by a holder of the number of shares of common stock
(whether whole or fractional) of the Corporation into which such shares of
8% Preferred Stock might have been converted immediately prior to such a
merger, consolidation, sale or reclassification, and shall have no other
conversion rights under these provisions; and effective provision shall be
made in the charter of the resulting or surviving corporation or otherwise,
so that the provisions set forth herein for the protection of conversion
rights of 8% Preferred Stock shall thereafter be applicable, as nearly as
reasonably may be, to any such other shares of stock and other securities
and property deliverable upon conversion of 8% Preferred Stock remaining
outstanding or other convertible preferred stock received by the holders in
place therof. Any such resulting or surviving corporation shall expressly
assume the obligation to deliver, upon the exercise of the conversion
privilege, such shares, securities or property as holders of 8% Preferred
Stock remaining outstanding, or other convertible preferred stock received
by such holders in place thereof, shall be entitled to receive pursuant to
the provisions hereof, and to make provision for protection of conversion
rights as above provided.
(C) If, at any time while shares of 8% Preferred Stock are outstanding,
the Corporation shall (i) declare a dividend (or any other distribution) on
its common stock, other than in cash out of earned surplus; or (ii)
authorize the issuance to all holders of its common stock of rights or
warrants to subscribe for or purchase shares of its common stock or of any
other subscription rights or warrants; or (iii) reclassify its common stock
(other than through a subdivision or combination thereof) or become a party
to any consolidation or merger for which approval of any stockholders of the
Corporation is required, or sell or transfer all or substantially all of the
assets of the Corporation; then the Corporation shall cause to be mailed to
registered holders of 8% Preferred Stock, at their last addresses as they
shall appear upon the Corporation's stock transfer
6
<PAGE>
record, at least ten days prior to the applicable record date hereinafter
specified, a notice stating (i) the date on which a record is to be taken
for the purpose of such dividend, distribution, rights or warrants, or, if a
record is not to be taken, the date as of which holders of common stock of
record to be entitled to such dividend, distribution rights or warrants are
to be determined, or (ii) the date on which any such reclassification,
consolidation, merger, sale or transfer is expected to become effective, and
the date as of which it is expected that holders of common stock of record
shall be entitled to exchange their common stock for securities or other
property, if any, deliverable upon such reclassification, consolidation,
merger, sale or transfer. Failure to give or receive the notice required by
this subparagraph (C) or any defect therein shall not affect the legality or
validity of any such dividend, distribution, right or warrant or other
action.
(D) The holder of any shares of 8% Preferred Stock may exercise his
option to convert such shares into shares of common stock only by
surrendering for such purpose to the Corporation at the principal office of
the Corporation certificates representing the shares to be converted,
accompanied by written notice that such holder elects to convert such shares
in accordance with this paragraph 5. Said notice shall also state the name
or names (with addresses) in which the certificate or certificates for
shares of common stock which shall be issuable on such conversion shall be
issued. Each certificate or certificates surrendered for conversion shall,
unless the shares issuable on conversion are to be issued in the same name
as that in which such certificate or certificates are registered, be
accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or his duly authorized attorney.
Each conversion shall be deemed to have been effected on the date on which
such certificate or certificates shall have been surrendered and such notice
received by the Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of common stock
shall be issuable upon such conversion shall be deemed to have become on
said date the holder or holders of record of the shares represented thereby
notwithstanding that the transfer books of the Corporation may then be
closed or that certificates representing such shares of common stock shall
not then be actually delivered to such person.
(E) Upon any such conversion of shares of 8% Preferred Stock, no
allowance, adjustment or payment shall be made with respect to dividends
upon either class of stock.
(F) In connection with the conversion of shares of 8% Preferred Stock
into common stock, no fractions of shares of 8% Preferred Stock or of common
stock shall be issued, but the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to the market value
of such fractional interest. In such event, the market value of a share of
common stock shall be the last recorded sale price of such a share on the
American Stock Exchange on the business day immediately preceding the date
upon which such shares of 8% Preferred Stock are deemed to have been
converted, or, if there be no such recorded sale price on such day, the last
quoted bid price per share of common stock on such exchange at the close of
trading on such business day. If the common stock shall not at the time be
listed or admitted to trading on the American Stock Exchange, such market
value shall be the average of the reported closing bid-and-asked prices
regular way on such day on the principal national securities exchange on
which the common stock is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, the average of the
closing bid-and-asked prices on such day as furnished by any New York Stock
Exchange firm selected from time to time by the Corporation for that
purpose. The issue of stock certificates on conversions of shares of 8%
Preferred Stock shall be made without charge to converting holders of shares
of 8% Preferred Stock for any tax in respect of the issue thereof. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect of any registration of transfer involved in the issue and
delivery of stock in any name other than that of the holder of any shares
of 8% Preferred Stock converted, and the Corporation shall not be required
to so issue or deliver any stock certificate unless and until the person or
persons requesting the registration or transfer shall
7
<PAGE>
have paid to the Corporation the amount of such tax or shall have
established to the satisfaction of the Corporation that such tax has been
paid.
(G) The Corporation shall at all times reserve and keep available out
of its authorized common stock the full number of shares of common stock
deliverable upon the conversion of all outstanding shares of 8% Preferred
Stock.
(H) Shares of 8% Preferred Stock converted shall be cancelled and shall
not be reissued.
6. VOTING RIGHTS.
(A) Holders of 8% Preferred Stock shall be entitled to two votes per share,
voting with the holders of any other class of stock entitled to vote, without
regard to class, on all matters to be voted on by stockholders of the
Corporation, in addition to their rights set forth in subparagraphs (B) and (C)
below and otherwise provided by law. Every provision in the Certificate of
Incorporation and By-Laws of the Corporation which requires the affirmative
vote, consent, presence, request or other action of a majority or other
proportion of the stock of the Corporation, or any class of such stock or series
thereof, or which refers to a majority or other proposition of such stock, class
or series, shall be deemed to require or refer to such majority or other
proportion of the votes of such stock, class or series.
(B) If the Corporation shall be in default in the payment of dividends on
8% Preferred Stock of an amount equivalent to or exceeding eight full quarterly
dividends (whether or not consecutive), the number of directors constituting the
Board of Directors shall be increased by one and holders of 8% Preferred Stock,
voting separately as one class, shall be entitled at the next annual meeting of
stockholders or the next special meeting of stockholders, or at a special
meeting of holders of 8% Preferred Stock called as hereinafter provided,
to fill such newly created directorship, and in addition thereto,
such holders shall be entitled to participate with holders of
common stock and holders, if any, of any other capital stock of the
Corporation entitled to vote for the election of directors in the election of
any other directors; provided, however, that when all arrears in dividends on 8%
Preferred Stock then outstanding shall have been paid and dividends thereon for
the current quarterly period shall have been paid or declared and a sum
sufficient for the payment thereof set aside, then (i) the right of holders of
8% Preferred Stock to participate in the election of one director shall cease
but subject always to the same provisions for vesting of such voting rights in
the case of any similar future arrearages in dividends; (ii) the term of the
director then in office elected by holders of 8% Preferred Stock as a class
shall terminate; and (iii) the number of directors constituting the Board of
Directors shall be reduced by one.
Whenever such voting right shall vest, it may be exercised initially either
at a special meeting of holders of 8% Preferred Stock or at any annual or
special stockholders' meeting, but thereafter it shall be exercised only at
annual stockholders' meetings. A special meeting for the exercise of such right
shall be called by the Secretary of the Corporation within ten days after
receipt of a written request signed by the holders of record of at least 10% of
the outstanding shares of 8% Preferred Stock; however, no such special meeting
shall be held during the 90-day period preceding the date fixed for the annual
meeting of stockholders.
Any director who shall have been elected by holders of 8% Preferred Stock as
a class shall hold office for a term expiring (subject to the earlier payment of
arrears in dividends) at the next annual meeting of stockholders, and during
such term may be removed at any time, either for or without cause only by the
affirmative votes of holders of record of a majority of the outstanding shares
of 8% Preferred Stock given at a special meeting of such stockholders called for
the purpose. Any vacancy created by such removal may also be filled at such
meeting. A meeting for the removal of a director elected by holders of 8%
Preferred Stock as a class and the filling of the vacancy created thereby shall
be called by the Secretary of the Corporation within ten days after receipt of a
request therefor, signed by holders of not less than 25% of the then outstanding
shares of 8% Preferred Stock. Such meeting shall be held at the earliest
practicable date thereafter.
8
<PAGE>
Any vacancy caused by the death or resignation of a director who shall have
been elected by holders of 8% Preferred Stock as a class may be filled only by
holders of 8% Preferred Stock at a meeting called for such purpose. Such meeting
of holders of 8% Preferred Stock shall be called by the Secretary of the
Corporation at the earliest practicable date after any such death or resignation
and in any event within ten days after receipt of a written request signed by
the holders of record of at least 10% of the outstanding shares of 8% Preferred
Stock.
If any meeting of holders of 8% Preferred Stock required by this
subparagraph (B) to be called shall not have been called within ten days after
personal service of a written request therefor upon the Secretary of the
Corporation or within 15 days after mailing the same within the United States of
America by registered mail addressed to the Secretary of the Corporation at its
principal office, then holders of record of at least 10% of the outstanding
shares of 8% Preferred Stock may designate in writing one of their number to
call such a meeting at the expense of the Corporation and such meeting may be
called by such person so designated upon the notice required for annual meetings
of stockholders. Any holder of 8% Preferred Stock so designated shall have
access to the stock books of the Corporation for the purpose of causing meetings
of stockholders to be called pursuant to these provisions.
Any meeting of holders of 8% Preferred Stock to vote as a class for the
election or removal of directors shall be held at the place for the holding of
the annual meeting of stockholders of the Corporation. At such meeting, the
presence in person or by proxy of holders of a majority of the outstanding
shares of 8% Preferred Stock shall be required to constitute a quorum; in the
absence of a quorum, a majority of the holders present in person or by proxy
shall have power to adjourn the meeting from time to time without notice, other
than announcement at the meeting, until a quorum shall be present.
(C) So long as any shares of 8% Preferred Stock are outstanding, the
Corporation shall not, without the written consent or the affirmative vote at a
meeting called for that purpose of holders of at least two-thirds of the total
number of shares of 8% Preferred Stock then outstanding, in any manner, whether
by amendment to the Certificate of Incorporation or By-Laws of the Corporation,
by merger (whether or not the Corporation is a surviving corporation in such
merger), by consolidation, or otherwise:
(1) change or abolish the relative rights, preferences or limitations of
the 8% Preferred Stock; or
(2) authorize, or increase the authorized amount of, any class or series
of stock ranking prior to the 8% Preferred Stock in the payment of dividends
or the preferential distribution of assets;
and so long as any shares of 8% Preferred Stock are outstanding, the Corporation
shall not, without the written consent or the affirmative vote at meeting called
for that purpose of holders of at least a majority of the total number of shares
of 8% Preferred Stock then outstanding in any such manner as aforesaid:
(3) increase the amount of the Preferred Stock authorized by the
provisions of Article IV of the Certificate of Incorporation of the
Corporation; or
(4) authorize, or increase the authorized amount of, any class or series
of stock ranking on a parity with 8% Preferred Stock in the payment of
dividends or the preferential distribution of assets other than any series
of Preferred Stock which may be issued from time to time pursuant to the
authorization contained in Article IV of the Certificate of Incorporation of
the Corporation;
PROVIDED, HOWEVER, that the foregoing shall not require the consent or vote of
holders of 8% Preferred Stock for the authorization, or an increase in the
authorized amount of, any class or series of stock except to the extent
specifically provided in sections (2), (3) and (4) of this subparagraph (C); AND
PROVIDED FURTHER, that, except as otherwise required by law, no such consent or
vote shall be required for any merger or consolidation:
9
<PAGE>
(5) in which (i) the Corporation is the surviving corporation; (ii) no
change is made in the rights, preferences or limitations of 8% Preferred
Stock; and (iii) no authorization is granted for any class or series of
stock, or any increase in the authorized amount of any class or series of
stock, if such consent or vote would have been required for such
authorization, or increase in authorized amount, immediately prior to such
merger or consolidation; or
(6) in which (i) the Corporation is a party but is not the surviving
corporation; (ii) the surviving corporation shall, in connection with and at
the same time as such merger or consolidation, issue in exchange for each
share of 8% Preferred Stock then outstanding a share of preferred stock of
the surviving corporation with the same rights, preferences and limitations
as the 8% Preferred Stock; and (iii) the authorized capital stock of the
surviving corporation immediately after such merger or consolidation shall
include only classes or series of stock for which no such consent or vote
would have been required if such class or series had been authorized by the
Corporation immediately prior to such merger or consolidation or which have
the same rights, preferences and limitations and authorized amount as a
class or series of stock of the Corporation authorized (with such consent or
vote) prior to such merger or consolidation and continuing as an authorized
class or series at the time thereof.
SECOND SERIES OF PREFERRED STOCK DESIGNATED
'$2.16 CUMULATIVE CONVERTIBLE PREFERRED STOCK'
1. DESIGNATION OF SERIES AND NUMBER OF SHARES.
The series of Preferred Stock is designated '$2.16 Cumulative Convertible
Preferred Stock' (hereinafter referred to as '$2.16 Preferred Stock'), and the
number of shares which shall constitute such series shall be 4,600,000 shares of
a stated value of $1.00 per share, which number may be increased or decreased
(but not below the number thereof then outstanding) from time to time by the
Board of Directors.
2. DIVIDENDS.
Shares of $2.16 Preferred Stock shall rank on a parity as to dividends with
shares of 8% Convertible Preferred Stock of the Corporation (hereinafter
referred to as '8% Preferred Stock'). The holders of $2.16 Preferred Stock shall
be entitled to receive, as and when declared by the Board of Directors and out
of assets of the Corporation which are by law available for payment of
dividends, cumulative preferential cash dividends, at, but not exceeding, the
rate of $2.16 per share per annum, payable quarterly on March 15, June 15,
September 15 and December 15 in each year, accruing from the date on which
respective shares of $2.16 Preferred Stock shall be issued. So long as any $2.16
Preferred Stock shall remain outstanding, no dividend whatsoever shall be
declared or paid upon or set apart for any class of stock or series thereof
ranking junior to $2.16 Preferred Stock in the payment of dividends nor shall
any shares of any class of stock or series thereof ranking junior to or on a
parity with $2.16 Preferred Stock in payment of dividends be redeemed or
purchased by the Corporation or any subsidiary thereof nor shall any moneys be
paid to or made available for a sinking fund for redemption or purchase of any
shares of any class of stock or series thereof ranking junior to or on a parity
with $2.16 Preferred Stock in payment of dividends, unless in each instance full
dividends on all outstanding shares of $2.16 Preferred Stock for all past
dividend periods shall have been paid at the rate fixed therefor and the
dividends on all outstanding shares of $2.16 Preferred Stock for the then
current quarterly dividend period shall have been paid or declared and
sufficient funds set aside for payment thereof. Accumulations of dividends on
any shares of $2.16 Preferred Stock shall not bear interest.
No dividend shall be paid upon or declared or set apart for (a) any share of
$2.16 Preferred Stock for any dividend period unless at the same time (i) a like
proportionate dividend for the same dividend period shall be paid upon or
declared or set apart for all shares of $2.16 Preferred Stock then outstanding
and entitled to receive such dividend and (ii) there shall have been paid upon
10
<PAGE>
or declared or set aside for all shares of 8% Preferred Stock and for all shares
of Preferred Stock of all other series or of any other class of stock or series
thereof, if any, then outstanding and ranking on a parity with $2.16 Preferred
Stock in respect of payment of dividends, for the same dividend period as the
dividend period of the $2.16 Preferred Stock, or for the respective dividend
periods of the 8% Preferred Stock and said parity stock terminating within the
dividend period of the $2.16 Preferred Stock, dividends in proportion to the
respective dividend rates fixed for the 8% Preferred Stock and said parity
stock; and (b) any shares of 8% Preferred Stock or other series of Preferred
Stock or other class of stock or series thereof, if any, ranking on a parity
with $2.16 Preferred Stock in respect of payment of dividends for any dividend
period unless there shall have been paid upon or declared or set apart for all
shares then outstanding of $2.16 Preferred Stock, for the same dividend period,
or for the dividend period of the $2.16 Preferred Stock terminating within the
dividend period of said parity stock, dividends in proportion to the respective
dividend rates fixed for $2.16 Preferred Stock and said parity stock.
3. LIQUIDATION.
Shares of $2.16 Preferred Stock shall rank on a parity with shares of 8%
Preferred Stock as to distribution of assets in the event of any liquidation,
dissolution or winding up of the affairs of the Corporation. In the event of any
such liquidation, dissolution or winding up, after payment or provision for
payment of the debts and other liabilities of the Corporation, the holders of
$2.16 Preferred Stock shall be entitled to receive, out of the net assets of the
Corporation, (i) if such liquidation, dissolution or winding up is voluntary,
the applicable redemption price per share determined as provided in paragraph 4
below, or (ii) if such liquidation, dissolution or winding up is involuntary,
$25 per share plus, in either case, an amount equal to all dividends accrued and
unpaid on each share of $2.16 Preferred Stock to the date fixed for
distribution, and no more, before any distribution of assets shall be made to
the holders of Common Stock or any other class of stock or series thereof
ranking junior to $2.16 Preferred Stock with respect to the distribution of
assets; provided, however, that no distribution as aforesaid shall be made to
the holders of $2.16 Preferred Stock unless at the same time a like
proportionate distribution shall be made, ratably in proportion to the
respective amounts payable upon liquidation, dissolution or winding up of the
affairs of the Corporation, to the holders of all shares of 8% Preferred Stock
and Preferred Stock of all other series or of any other class of stock or series
thereof, if any, then outstanding and ranking as to distribution of assets on a
parity with $2.16 Preferred Stock.
Nothing herein contained shall be deemed to prevent redemption of $2.16
Preferred Stock by the Corporation in the manner provided in paragraph 4 below.
Neither the merger or consolidation of the Corporation into or with any other
corporation, nor the merger or consolidation of any other corporation into or
with the Corporation, nor a sale, transfer or lease of all or any part of the
assets of the Corporation, shall be deemed to be a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this
paragraph 3.
No payment on account of such liquidation, dissolution or winding up of the
affairs of the Corporation shall be made to the holders of any other class or
series of stock ranking on a parity with $2.16 Preferred Stock with respect to
preferential distribution of assets unless a payment on account of such
liquidation, dissolution or winding up shall be made at the same time to the
holders of $2.16 Preferred Stock in proportion to the full distributive amounts
to which they and the holders of such parity stock are respectively entitled.
Written notice of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, stating the payment date and the
place where the distributable amounts shall be payable and containing a
statement of or reference to the conversion right set forth in paragraph 5
below, shall be given by mail, postage prepaid, not less than 30 days prior to
the payment date stated therein, to the holders of record of $2.16 Preferred
Stock at their respective addresses as the same shall appear on the books of the
Corporation.
11
<PAGE>
4. REDEMPTION.
The Corporation at its option may, at any time or from time to time, on or
after January 1, 1980, redeem the whole or any part of this issue of $2.16
Preferred Stock at the applicable redemption price plus in each case accrued and
unpaid dividends thereon to the date fixed for redemption.
The applicable redemption prices for the $2.16 Preferred Stock shall be as
follows:
IF REDEEMED DURING 12 MONTHS REDEMPTION PRICE
BEGINNING JANUARY 1 PER SHARE
1980------------------------- $ 27.50
1981------------------------- 27.00
1982------------------------- 26.50
1983------------------------- 26.00
1984------------------------- 25.50
and thereafter at $25 per share.
In the event the Corporation shall determine to redeem less than the entire
issue of $2.16 Preferred Stock then outstanding, (i) the shares to be redeemed
shall be selected pro rata (as nearly as may be) so that the number of shares
redeemed from each holder shall be the same proportion of all the shares to be
redeemed that the total number of shares then held by such holder bears to the
total number of shares then outstanding or (ii) the shares shall be selected by
lot, as the Board of Directors of the Corporation may determine.
Notice of every such redemption shall be mailed, first class postage
prepaid, not less than 45 nor more than 60 days prior to the date fixed for
redemption ('redemption date'), to each holder of record of shares to be
redeemed, at his address as it appears on the books of the Corporation. Each
such notice shall state the redemption date; the number of shares of $2.16
Preferred Stock to be redeemed, and, if less than all shares of $2.16 Preferred
Stock held by such holder are to be redeemed, the number of such shares to be
redeemed from him; the redemption price applicable to the shares to be redeemed;
the place or places where such shares are to be surrendered; that dividends on
shares to be redeemed will cease to accrue on the redemption date; and that
shares to be redeemed may be converted at any time prior to the close of
business on the business day next preceding the redemption date in accordance
with paragraph 5 below.
Notice having been mailed, from and after the redemption date (unless the
Corporation defaults in providing money for the payment of the redemption price)
the right to receive dividends on shares called for redemption shall cease to
accrue, said shares shall no longer be deemed to be outstanding, all rights of
holders thereof as shareholders of the Corporation (except the right to receive
the redemption price thereof, but without interest) shall terminate, and, upon
surrender, in accordance with said notice, of the certificates for any such
shares (properly endorsed or assigned for transfer, if the Board of Directors of
the Corporation shall so require), such shares shall be redeemed by the
Corporation at the applicable redemption price; provided, however, that the
Corporation may include in such notice a statement that the money required for
the payment of the redemption price will be deposited on a specified date, prior
to the redemption date, with a specified bank or trust company (which shall have
an office in The City of New York) in trust for the benefit of holders of shares
called for redemption, and, notice having been given, from and after such
deposit shares called for redemption shall no longer be deemed to be
outstanding, all rights with respect to shares of $2.16 Preferred Stock shall
forthwith upon such deposit cease and terminate, except only the right of the
holders thereof to convert such shares in accordance with the provisions of
paragraph 5 below at any time prior to the close of business on the business day
next preceding the redemption date, and holders of such shares shall look for
payment of the redemption price only to funds so deposited and in no event to
the Corporation unless said funds shall be repaid to the Corporation as
hereinafter provided. Holders of such shares shall not be entitled to any
interest allowed by such depositary on money so deposited but any such interest
shall be paid to the Corporation. Any moneys deposited as
12
<PAGE>
aforesaid for redemption of any shares and remaining unclaimed for four years
after the date of such deposit shall then be repaid to the Corporation upon its
request, and the holders of such shares shall thereafter look only to the
Corporation for payment of the redemption price thereof, but without interest.
Any provision of this paragraph 4 to the contrary notwithstanding, in the
event that any quarterly dividend due on $2.16 Preferred Stock shall be in
default, and until all such defaults shall have been cured, the Corporation
shall not redeem any shares of $2.16 Preferred Stock unless all outstanding
shares of $2.16 Preferred Stock are simultaneously redeemed and shall not
purchase or otherwise acquire any shares of $2.16 Preferred Stock except in
accordance with a purchase offer made by the Corporation on the same terms to
all holders of record of $2.16 Preferred Stock.
Any shares of $2.16 Preferred Stock redeemed or otherwise purchased or
acquired by the Corporation shall be retired, shall no longer be deemed
outstanding, and shall assume the status of authorized but unissued Preferred
Stock, with no par value, undesignated as to series, subject to reissuance by
the Corporation as shares of Preferred Stock of any one or more series, as may
be determined from time to time by the Board of Directors.
5. CONVERSION.
Shares of $2.16 Preferred Stock may be converted at the option of the holder
thereof, at any time prior to the close of business on the date fixed for
redemption of such shares pursuant to paragraph 4 above, into shares of fully
paid and non-assessable shares of Common Stock of the Corporation at the rate of
1.7241 shares of Common Stock as now constituted for each share of $2.16
Preferred Stock surrendered for conversion (the 'conversion rate'), subject to
the following provisions:
(A) The conversion rate shall be subject to adjustment from time to
time as follows:
(1) In case the Corporation shall (i) pay a dividend, or make a
distribution, to all holders of its Common Stock in shares of its capital
stock (whether shares of Common Stock or of capital stock of any other
class), (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares, or (iv) issue by reclassification
of its shares of Common Stock any shares of capital stock of the
Corporation, the conversion rate in effect immediately prior to such
action shall be adjusted so that the holder of any share of $2.16
Preferred Stock thereafter surrendered for conversion shall be entitled
to receive the number of shares of capital stock of the Corporation which
he would have owned immediately following such action had such share of
$2.16 Preferred Stock been converted immediately prior thereto. An
adjustment made pursuant to this subparagraph (1) shall become effective
immediately after the record date in the case of a dividend and shall
become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an
adjustment made pursuant to this subparagraph (1), the holder of any
shares of $2.16 Preferred Stock thereafter surrendered for conversion
shall become entitled to receive shares of two or more classes of capital
stock of the Corporation, the Board of Directors (whose determination
shall be conclusive) shall determine the allocation of the conversion
price of the $2.16 Preferred Stock (determined by dividing the adjusted
conversion rate into $25) between or among shares of such classes of
capital stock.
(2) In case the Corporation shall hereafter issue rights or warrants
to all holders of its Common Stock entitling them (for a period expiring
within 45 days after the record date mentioned below) to subscribe for or
purchase shares of Common Stock at a price per share less than the
current market price per share of Common Stock (as determined pursuant to
subparagraph (4) below) on the record date mentioned below, the
conversion rate shall be adjusted effective immediately after the
expiration date of such rights or warrants so that the same shall equal
the rate determined by multiplying the conversion rate in effect
immediately prior to the date of issuance of such rights or warrants by a
fraction of which the
13
<PAGE>
numerator shall be the number of shares of Common Stock outstanding
(excluding treasury shares) on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock purchased
pursuant to such offer for subscription or purchase and of which the
denominator shall be the number of shares of Common Stock outstanding
(excluding treasury shares) on the date of issuance of such rights or
warrants plus the number of shares of Common Stock which the aggregate
subscription or purchase price of the total number of shares so purchased
would purchase at such current market price (determined as provided in
subparagraph (4) below).
(3) In case the Corporation shall distribute to all holders of its
Common Stock evidences of its indebtedness or assets (excluding cash
distributions made out of current or retained earnings) or rights to
subscribe (excluding those referred to in subparagraph (2) above), then
in each such case the conversion rate shall be adjusted so that the same
shall equal the rate determined by multiplying the conversion rate in
effect immediately prior to the date of such distribution by a fraction
of which the numerator shall be the current market price per share of
Common Stock (determined as provided in subparagraph (4) below) at the
record date mentioned below, and the denominator of which shall be such
current market price per share of the Common Stock, less the then fair
market value (as determined by the Board of Directors of the Corporation,
whose determination shall be conclusive) of the portion of the assets or
evidences of indebtedness so distributed or of such subscription rights
applicable to one share of Common Stock. Such adjustment shall become
effective immediately after the record date for determination of
stockholders entitled to receive such distribution.
(4) For the purpose of any computation under subparagraphs (2) and
(3) above, the current market price per share of Common Stock on any date
shall be deemed to be the average of the daily closing prices for 30
consecutive business days commencing 45 business days before the day in
question. The closing price for each day shall be the last reported sale
price regular way or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices regular
way, in either case on the New York Stock Exchange or, if the Common
Stock is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or admitted to trading on
any national securities exchange, the average of the closing bid and
asked prices as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation for that purpose.
(5) In any case in which this paragraph 5 shall require that an
adjustment be made immediately following a record date, the Corporation
may elect to defer (but only until five business days following the
filing by the Corporation of the statement required by subparagraph (7)
below) issuing to the holder of any share of $2.16 Preferred Stock
converted after such record date shares of Common Stock and other capital
stock of the Corporation issuable upon such conversion over and above the
number of shares of Common Stock and other capital stock of the
Corporation issuable upon such conversion as computed on the basis of
the conversion rate prior to adjustment.
(6) All calculations under this paragraph 5 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may
be.
(7) Whenever the conversion rate is adjusted as herein provided, the
Corporation shall (i) file at the office or agency in the Borough of
Manhattan in The City of New York maintained by the Corporation pursuant
to subparagraph (D) of this paragraph 5 and with each transfer agent for
its Common Stock a statement, signed by the Chairman of the Board of
Directors, the President or one of the Vice Presidents of the Corporation
and by its Treasurer or one of its Assistant Treasurers, stating the
adjusted conversion rate determined as provided herein and setting forth
the method of calculation and the facts requiring such
14
<PAGE>
adjustment and upon which such calculation is based, and (ii) mail or
cause to be mailed a copy of such statement setting forth the adjusted
conversion rate to each person who is a registered holder of $2.16
Preferred Stock at such person's last address as the same appears on the
books of the Corporation. Each adjustment shall remain in effect until a
subsequent adjustment is required hereunder.
(B) In case of a merger or consolidation of the Corporation with or
into another corporation, or the sale of the Corporation's property or
assets as, or substantially as, an entirety, to another corporation, or the
reclassification of the Corporation's Common Stock (other than through a
subdivision or combination thereof, or change in par value), holders of
shares of $2.16 Preferred Stock shall thereafter have the right to convert
each of such shares into the kind and amount of shares of stock and other
securities and property receivable upon such merger, consolidation, sale or
reclassification by a holder of the number of shares of Common Stock
(whether whole or fractional) of the Corporation into which such shares of
$2.16 Preferred Stock might have been converted immediately prior to such a
merger, consolidation, sale or reclassification, and shall have no other
conversion rights under these provisions; and effective provision shall be
made in the charter of the resulting or surviving corporation or otherwise,
so that the provisions set forth herein for the protection of conversion
rights of $2.16 Preferred Stock shall thereafter be applicable, as nearly as
reasonably may be, to any such other shares of stock and other securities
and property deliverable upon conversion of $2.16 Preferred Stock remaining
outstanding or other convertible preferred stock received by the holders in
place thereof. Any such resulting or surviving corporation shall expressly
assume the obligation to deliver, upon the exercise of the conversion right,
such shares, securities or property as holders of $2.16 Preferred Stock
remaining outstanding, or other convertible preferred stock received by such
holders in place thereof, shall be entitled to receive pursuant to the
provisions hereof, and to make provision for protection of conversion rights
as above provided.
(C) If, at any time while shares of $2.16 Preferred Stock are
outstanding, the Corporation shall (i) declare a dividend (or any other
distribution) on its Common Stock, other than in cash out of current or
retained earnings; or (ii) authorize the issuance to all holders of its
Common Stock of rights or warrants to subscribe for or purchase shares of
its Common Stock or of any other subscription rights or warrants; or (iii)
reclassify its Common Stock (other than through a subdivision or combination
thereof) or become a party to any consolidation or merger for which approval
of the holders of its Common Stock is required, or sell or transfer all or
substantially all of the assets of the Corporation; then the Corporation
shall cause to be mailed to registered holders of $2.16 Preferred Stock, at
their last addresses as they shall appear upon the Corporation's stock
transfer record, at least ten days prior to the applicable record date
hereinafter specified, a notice stating (i) the date on which a record is to
be taken for the purpose of such dividend, distribution, rights or warrants,
or, if a record is not to be taken, the date as of which holders of Common
Stock of record to be entitled to such dividend, distribution, rights or
warrants are to be determined, or (ii) the date on which any such
reclassification, consolidation, merger, sale or transfer is expected to
become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common Stock for
securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, sale or transfer. Failure to give
or receive the notice required by this subparagraph (C) or any defect
therein shall not affect the legality or validity of any such dividend,
distribution, right or warrant or other action.
(D) The holder of any shares of $2.16 Preferred Stock may exercise his
option to convert such shares into shares of Common Stock only by
surrendering for such purpose to the Corporation at the office or agency in
the Borough of Manhattan in The City of New York maintained by the
Corporation for that purpose certificates representing the shares to be
converted, accompanied by written notice that such holder elects to convert
such shares in accordance with the provisions of this paragraph 5. Said
notice shall also state the name or names (with addresses) in
15
<PAGE>
which the certificate or certificates for shares of Common Stock which shall
be issuable on such conversion shall be issued. Each certificate or
certificates surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the same name as that in which such
certificate or certificates are registered, be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
holder or his duly authorized attorney. Each conversion shall be deemed to
have been effected on the date on which such certificate or certificates
shall have been surrendered and such notice received by the Corporation as
aforesaid, and the person or persons in whose name or names any certificate
or certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become on said date the holder or holders
of record of the shares represented thereby notwithstanding that the
transfer books of the Corporation may then be closed or that certificates
representing such shares of Common Stock shall not then be actually
delivered to such person.
(E) Upon any such conversion of shares of $2.16 Preferred Stock, no
allowance, adjustment or payment shall be made with respect to dividends
upon either class of stock.
(F) In connection with the conversion of shares of $2.16 Preferred
Stock into Common Stock, no fractions of shares of $2.16 Preferred Stock or
of Common Stock shall be issued, but the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to the
market value of such fractional interest. In such event, the market value of
a share of Common Stock shall be the last recorded sale price of such a
share on the New York Stock Exchange on the business day immediately
preceding the date upon which such shares of $2.16 Preferred Stock are
deemed to have been converted, or, if there be no such recorded sale price
on such day, the last quoted bid price per share of Common Stock on such
exchange at the close of trading on such business day. If the Common Stock
shall not at the time be listed or admitted to trading on the New York Stock
Exchange, such market value shall be the average of the reported closing bid
and asked prices regular way on such day on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices on such day as
furnished by any New York Stock Exchange member firm selected from time to
time by the Corporation for that purpose. The issue of stock certificates on
conversions of shares of $2.16 Preferred Stock shall be made without charge
to converting holders of shares of $2.16 Preferred Stock for any tax in
respect of the issue thereof. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any registration
of transfer involved in the issue and delivery of stock in any name other
than that of the holder of any shares of $2.16 Preferred Stock converted,
and the Corporation shall not be required to so issue or deliver any stock
certificate unless and until the person or persons requesting the
registration of transfer shall have paid to the Corporation the amount of
such tax or shall have established to the satisfaction of the Corporation
that such tax has been paid.
(G) The Corporation shall at all times reserve and keep available out
of its authorized Common Stock the full number of shares of Common Stock
deliverable upon the conversion of all outstanding shares of $2.16 Preferred
Stock.
(H) Any shares of $2.16 Preferred Stock converted shall no longer be
deemed outstanding and shall assume the status of authorized but unissued
shares of Preferred Stock, with no par value, undesignated as to series,
subject to reissuance by the Corporation as shares of Preferred Stock of any
one or more series, as may be determined from time to time by the Board of
Directors.
(I) For purposes of this paragraph (5):
(1) 'business day' shall mean a day on which the New York Stock
Exchange (or a successor or an equivalent or substitute organization or
facility) is open for the trading of securities in the Borough of
Manhattan in The City of New York; and
16
<PAGE>
(2) 'Common Stock' shall mean (a) the Corporation's Common Stock,
$.16 2/3 par value per share, or (b) any other class of stock resulting
from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value; provided, however, that in the
event that at any time as a result of an adjustment made pursuant to
subparagraph (A) (1) above, the holder of any share of $2.16 Preferred
Stock thereafter surrendered for conversion would become entitled to
receive any stock of the Corporation other than shares of its Common
Stock, thereafter the conversion rate with respect to such other shares
so receivable upon conversion of any share of $2.16 Preferred Stock shall
be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to Common
Stock contained in this paragraph 5.
6. VOTING RIGHTS.
(A) The holders of $2.16 Preferred Stock shall be entitled to one vote per
share, voting together as one class with the holders of Common Stock and 8%
Preferred Stock and any other series of Preferred Stock entitled to vote, on all
matters to be voted by stockholders of the Corporation, in addition to their
rights set forth in subparagraphs (B) and (C) below and otherwise provided by
law.
(B) If at any time the Corporation shall be in default in the payment of
dividends on the $2.16 Preferred Stock of an amount equivalent to or exceeding
six full quarterly dividends (whether or not consecutive), the number of
directors constituting the Board of Directors of the Corporation shall be
increased by two, and the holders of $2.16 Preferred Stock, voting as a separate
class together with the holders of all other series of Preferred Stock
outstanding (other than 8% Preferred Stock) having similar voting rights (such
other series of Preferred Stock and the $2.16 Preferred Stock being hereinafter
collectively referred to as 'Special Preferred Stock'), whether or not the
payment of quarterly dividends shall be in default on all Special Preferred
Stock outstanding, shall be entitled at the next annual meeting of stockholders
or the next special meeting of stockholders, or at a special meeting of holders
of Special Preferred Stock called as hereinafter provided, to elect two
directors to fill such newly created directorships, and in addition thereto,
such holders shall be entitled to participate with holders of Common Stock and
holders, if any, of any other capital stock of the Corporation entitled to vote
for the election of directors in the election of any other directors; provided,
however, that when all arrears in dividends on Special Preferred Stock then
outstanding shall have been paid and dividends thereon for the current quarterly
period shall have been paid or declared and a sum sufficient for the payment
thereof set aside, then (i) the right of holders of Special Preferred Stock to
participate in the election of two directors shall cease but subject always to
the same provisions for vesting of such voting rights in the case of any similar
future arrearages in dividends; (ii) the term of the directors then in office
elected by holders of Special Preferred Stock as a class shall terminate; and
(iii) the number of directors constituting the Board of Directors shall be
reduced by two.
Whenever such voting right shall vest, it may be exercised initially either
at a special meeting of holders of Special Preferred Stock or at any annual or
special stockholders' meeting, but thereafter it shall be exercised only at
annual stockholders' meetings. A special meeting for the exercise of such right
shall be called by the Secretary of the Corporation within ten days after
receipt of a written request therefor, signed by the holders of record of at
least 10% of the votes of the then outstanding shares of Special Preferred
Stock; however, no such special meeting shall be held during the 90-day period
preceding the date fixed for the annual meeting of stockholders.
Any director who shall have been elected by holders of Special Preferred
Stock as a class pursuant to this subparagraph (B) shall hold office for a term
expiring (subject to the earlier termination of the default in dividends) at the
next annual meeting of stockholders, and during such term may be removed at any
time, either for or without cause, only by the affirmative votes of holders of
record of a majority of the votes of the then outstanding shares of Special
Preferred Stock given at a special meeting of such stockholders called for the
purpose. Any vacancy created by such removal may also
17
<PAGE>
be filled at such meeting. A meeting for the removal of a director elected by
holders of Special Preferred Stock as a class and the filling of the vacancy
created thereby shall be called by the Secretary of the Corporation within ten
days after receipt of a written request therefor, signed by the holders of not
less than 25% of the votes of the then outstanding shares of Special Preferred
Stock. Such meeting shall be held at the earliest practicable date thereafter.
Any vacancy caused by the death or resignation of a director who shall have
been elected by the holders of Special Preferred Stock as a class pursuant to
this subparagraph (B) may be filled only by the holders of Special Preferred
Stock at a meeting called for such purpose. Such meeting of the holders of
Special Preferred Stock shall be called by the Secretary of the Corporation at
the earliest practicable date after any such death or resignation and in any
event within ten days after receipt of a written request therefor, signed by the
holders of record of at least 10% of the votes of the then outstanding shares of
Special Preferred Stock.
If any meeting of the holders of Special Preferred Stock required by this
subparagraph (B) to be called shall not have been called within ten days after
personal service of a written request therefor upon the Secretary of the
Corporation or within 15 days after mailing the same within the United States of
America by registered mail addressed to the Secretary of the Corporation at its
principal office, then holders of record of at least 10% of the votes of the
then outstanding shares of Special Preferred Stock may designate in writing one
of their number to call such a meeting at the expense of the Corporation and
such meeting may be called by such person so designated upon the notice required
for annual meetings of stockholders. Any holder of Special Preferred Stock so
designated shall have access to the stock books of the Corporation for the
purpose of causing meetings of stockholders to be called pursuant to these
provisions.
Any meeting of holders of Special Preferred Stock to vote as a class for the
election or removal of directors shall be held at the place for the holding of
the annual meeting of stockholders of the Corporation. At such meeting, the
presence in person or by proxy of holders of a majority of the votes of the then
outstanding shares of Special Preferred Stock shall be required to constitute a
quorum; in the absence of a quorum, a majority of the holders present in person
or by proxy shall have power to adjourn the meeting from time to time without
notice, other than announcement at the meeting, until a quorum shall be present.
(C) So long as any shares of $2.16 Preferred Stock are outstanding, the
Corporation shall not, in any manner, whether by amendment to the Certificate of
Incorporation or By-Laws of the Corporation, by merger (whether or not the
Corporation is a surviving corporation in such merger), by consolidation, or
otherwise:
(1) without the written consent or the affirmative vote at a meeting
called for that purpose of the holders of a least two-thirds of the votes of
the shares of $2.16 Preferred Stock then outstanding, voting separately as a
class, (a) amend, alter or repeal any of the provisions of Article IV of the
Certificate of Incorporation of the Corporation, or of any resolution or
resolutions establishing the $2.16 Preferred Stock, so as to affect
adversely the powers, preferences or special rights of the $2.16 Preferred
Stock; or (b) authorize or increase the authorized amount of, or authorize
any obligation or security convertible into or evidencing the right to
purchase shares of, any additional class or series of stock ranking prior to
the $2.16 Preferred Stock in the payment of dividends or the preferential
distribution of assets; or
(2) without the written consent or the affirmative vote at a meeting
called for that purpose of the holders of at least a majority of the
aggregate number of the votes of the shares of Preferred Stock of all series
(including $2.16 Preferred Stock) then outstanding, voting separately as a
class, (a) increase the number of shares of Preferred Stock authorized by
the provisions of Article IV of the Certificate of Incorporation; or (b)
authorize or increase the authorized amount of, or authorize any obligation
or security convertible into or evidencing the right to purchase shares of,
any additional class of stock ranking on a parity with the $2.16 Preferred
Stock in the payment of dividends or the preferential distribution of
assets;
18
<PAGE>
PROVIDED, HOWEVER, that the foregoing provisions of this subparagraph (C) shall
not require the consent or vote of the holders of $2.16 Preferred Stock or
Preferred Stock for the authorization or an increase in the authorized amount of
any class or series of stock, or for the authorization of any obligation or
security convertible into or evidencing the right to purchase shares of any
class or series of stock, except to the extent specifically provided in sections
(1)(b), (2)(a) and (2)(b) of this subparagraph (C); and PROVIDED further, that,
except as otherwise required by law, no such consent or vote shall be required
for any merger or consolidation:
(i) in which (x) the Corporation is the surviving corporation; (y) no
adverse change is made in the powers, preferences or special rights of the
$2.16 Preferred Stock; and (z) no additional class or series of stock is
authorized or the authorized amount thereof increased, and no obligation or
security convertible into or evidencing the right to purchase shares of any
additional class or series of stock is authorized, if such consent or vote
would have been required for any such authorization, or increase in
authorized amount, immediately prior to such merger or consolidation; or
(ii) in which (x) the Corporation is a party but is not the surviving
corporation; (y) the surviving corporation shall, in connection with and at
the same time as such merger or consolidation, issue in exchange for each
share of $2.16 Preferred Stock then outstanding a share of preferred stock
of the surviving corporation with the same powers, preferences and special
rights as the $2.16 Preferred Stock; and (z) immediately after such merger
or consolidation only classes or series of stock of the surviving
corporation and obligations or securities convertible into or evidencing the
right to purchase shares of a class or series of stock of the surviving
corporation shall be authorized or outstanding, for which no such consent or
vote would have been required if such classes or series of stock and
obligations or securities had been authorized by the Corporation immediately
prior to such merger or consolidation, or which have, or are convertible
into or evidence the right to purchase shares of a class or series of stock
of the surviving corporation which have, the same powers, preferences and
special rights and authorized amount as a class or series of stock of the
Corporation which was authorized (with such consent or vote) prior to such
merger or consolidation and is continuing as an authorized class or series
of stock at the time thereof.
(C) STATEMENT OF LIMITATIONS, RELATIVE RIGHTS AND POWERS IN RESPECT TO COMMON
STOCK.
Subject to any rights and privileges granted to the holders of Preferred
Stock by resolution of the Board of Directors pursuant to the provisions of
Section (B) of this Article IV, the holders of Common Stock shall exercise one
vote in respect to each share of stock held by them on all matters voted upon by
the stockholders; shall be entitled to receive such dividends as may be declared
from time to time by the Board of Directors; shall be entitled, upon liquidation
or dissolution, to receive all the remaining assets of the Corporation, tangible
and intangible, of whatever kind available for distribution ratably in
proportion to the number of shares of Common Stock held by them; and shall have
such other rights and privileges as may be allowed to them by the laws of the
State of Delaware.
(D) INCREASE OR DECREASE OF AUTHORIZED STOCK.
The amount of the authorized stock of the Corporation of any class or
classes may be increased or decreased by the affirmative vote of the holders of
a majority of the stock of the Corporation entitled to vote.
ARTICLE V
The Board of Directors shall be divided into three classes as nearly equal
in number as possible, with the term of office of one class expiring each year.
At the annual meeting of stockholders in 1970, directors of the first class
shall be elected to hold office for a term expiring at the next succeeding
annual meeting, directors of the second class shall be elected to hold office
for a term expiring at the second succeeding annual meeting and directors of the
third class shall be elected to hold office for a
19
<PAGE>
term expiring at the third succeeding annual meeting. During the intervals
between annual meetings of stockholders, any vacancy occurring in the Board of
Directors caused by resignation, removal, death or other incapacity and any
newly created directorships resulting from an increase in the number of
directors shall be filled by a majority vote of the directors then in office,
whether or not a quorum. Each director chosen to fill a vacancy shall hold
office for the unexpired term in respect of which such vacancy occurred. Each
director chosen to fill a newly created directorship shall hold office until the
next election of the class for which such director shall have been chosen. When
the number of directors is changed, any newly created directorships or any
decrease in directorships shall be so apportioned among the classes as to make
all classes as nearly equal in number as possible.
Any director may be removed from office at any time, for cause, by the
affirmative vote of stockholders of record holding a majority of the outstanding
shares of stock of the Corporation entitled to vote in elections of directors
given at a meeting of the stockholders called for that purpose.
Election of directors need not be by ballot unless the By-Laws of the
Corporation shall so provide.
ARTICLE VI
In furtherance and not in limitation of the power conferred upon the Board
of Directors by law, the Board of Directors shall have the power to make, adopt,
alter, amend and repeal from time to time By-Laws of the Corporation, subject to
the right of the stockholders entitled to vote with respect thereto to alter and
repeal By-Laws made by the Board of Directors.
ARTICLE VII
(A) Except as set forth in paragraph (B) of this Article, the affirmative
vote or consent of the holders of not less than four-fifths of the outstanding
shares of stock of the Corporation entitled to vote in elections of directors,
voting for the purposes of this Article as one class, shall be required:
(1) to adopt any agreement for the merger or consolidation of the
Corporation or any subsidiary (as hereinafter defined) with or into any
other person (as hereinafter defined),
(2) to authorize any sale, lease, transfer, exchange, mortgage, pledge
or other disposition to any other person of all or substantially all of the
assets of the Corporation or any subsidiary, or any part of such assets
having a then fair market value equal to or greater than 50 per cent of the
then fair market value of the total assets of the Corporation or such
subsidiary, or
(3) to authorize the issuance or transfer by the Corporation or any
subsidiary of any voting securities of the Corporation or any subsidiary in
exchange or payment for the securities or assets of any other person,
if, in any such case, as of the record date for the determination of
stockholders entitled to notice thereof and to vote thereon, or consent thereto,
such other person is, or at any time within the preceding twelve months has
been, the beneficial owner (as hereinafter defined) of 10 per cent or more of
the outstanding shares of stock of the Corporation entitled to vote in elections
of directors.
(B) The provisions of paragraph (A) of this Article shall not apply to any
transaction described therein if the Board of Directors by resolution shall have
approved a memorandum of understanding with such other person setting forth the
principal terms of such transaction and such transaction is substantially
consistent therewith, PROVIDED that a majority of those members of the Board of
Directors voting in favor of such resolution were duly elected and acting
members of the Board of Directors prior to the time such other person became the
beneficial owner of 10 per cent or more of the outstanding shares of stock of
the Corporation entitled to vote in elections of directors.
(C) The affirmative vote or consent of the holders of not less than
four-fifths of the outstanding shares of stock of the Corporation entitled to
vote in elections of directors, voting for purposes of this Article as one
class, shall be required for the adoption of any plan for the dissolution of
the
20
<PAGE>
Corporation if the Board of Directors shall not have, by resolution, recommended
to the stockholders the adoption of such plan for dissolution of the Company.
(D) For purposes of this Article,
(1) any specified person shall be deemed to be the 'beneficial owner' of
shares of stock of the Corporation (a) which such specified person or any of
its affiliates or associates (as such terms are hereinafter defined) owns,
directly or indirectly, whether of record or not, (b) which such specified
person or any of its affiliates or associates has the right to acquire
pursuant to any agreement, upon exercise of conversion rights, warrants or
options, or otherwise, or (c) which are beneficially owned, directly or
indirectly (including shares deemed owned through application of clauses (a)
and (b) above), by any other person with which such specified person or any
of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of
stock of the Corporation;
(2) a 'subsidiary' is any corporation more than 49 per cent of the
voting securities of which are owned, directly or indirectly, by the
Corporation;
(3) a 'person' is any individual, corporation or other entity;
(4) an 'affiliate' of a specified person is any person that directly, or
indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, the specified person; and
(5) an 'associate' of a specified person is (a) any person of which such
specified person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 per cent or more of any class of equity securities,
(b) any trust or other estate in which such specified person has a
substantial beneficial interest or as to which such specified person serves
as trustee or in a similar fiduciary capacity, or (c) any relative or spouse
of such specified person, or any relative of such spouse, who has the same
home as such specified person or who is a director or officer of such
specified person or any corporation which controls or is controlled by such
specified person.
(E) For purposes of determining whether a person owns beneficially 10 per
cent or more of the outstanding shares of stock of the Corporation entitled to
vote in elections of directors, the outstanding shares of stock of the
Corporation shall include shares deemed owned through application of clause (a),
(b) or (c) of paragraph (D)(1) above but shall not include any other shares
which may be issuable pursuant to any agreement or upon exercise of conversion
rights, warrants or options, or otherwise.
(F) The Board of Directors shall have the power and duty to determine, for
purposes of this Article, on the basis of information known to such Board,
(1) the fair market value of any assets of the Corporation or any
subsidiary proposed to be disposed of in a transaction of the character
referred to in paragraph (A)(2) of this Article, and the fair market value
of the total assets of the Corporation or such subsidiary;
(2) whether any person referred to in paragraph (A) of this Article owns
beneficially 10 per cent or more of the outstanding shares of stock of the
Corporation entitled to vote in elections of directors; and
(3) whether a proposed transaction is substantially consistent with any
memorandum of understanding of the character referred to in paragraph (B) of
this Article.
Any such determination shall be conclusive and binding for all purposes of this
Article.
ARTICLE VIII
Notwithstanding the provisions of Article VI of this Certificate of
Incorporation and any provisions of the By-Laws of the Corporation, no amendment
to this Certificate of Incorporation or to the By-Laws shall amend, modify or
repeal any or all of the provisions of Article V, Article VII or
21
<PAGE>
this Article VIII of this Certificate of Incorporation or Section 2.1 of the
By-Laws of the Corporation unless adopted by the affirmative vote or consent of
the holders of not less than four-fifths of the outstanding shares of stock of
the Corporation entitled to vote in elections of directors, considered for
purposes of this Article as a class; PROVIDED, HOWEVER, that in the event the
Board of Directors of the Corporation shall by resolution unanimously recommend
to the stockholders the adoption of any such amendment, the stockholders of
record holding a majority of the outstanding shares of stock of the Corporation
entitled to vote in elections of directors may amend, modify or repeal any or
all of such provisions.
This restated Certificate of Incorporation was duly adopted by the directors
of the Corporation in accordance with the provisions of Section 245 of the
General Corporation Law of the State of Delaware. It only restates and
integrates and does not further amend the provisions of the Corporation's
Certificate of Incorporation as heretofore amended or supplemented. There is no
discrepency between those provisions and the provisions of this restated
Certificate of Incorporation.
IN WITNESS WHEREOF, Tesoro Petroleum Corporation has caused this restated
Certificate of Incorporation to be signed in its corporate name by its Chairman
of the Board of Directors and its corporate seal to be affixed hereto and
attested by its Secretary this 23rd day of June, 1978.
***************************************
* * TESORO PETROLEUM CORPORATION
* TESORO PETROLEUM CORPORATION *
* Incorporated Dec. 26, 1968 * By /s/ ROBERT V. WEST, JR.
* Delaware * Chairman of the Board of Directors
* *
***************************************
ATTEST:
By /s/ CHARLES R. ROBERTS
Secretary
TESORO PETROLEUM CORPORATION
INCORPORATED DEC. 26, 1968
DELAWARE
22
<PAGE>
EXHIBIT 3(a)
Adopted: September 22, 1971
Amended: May 31, 1973
November 20, 1974
November 1, 1975
September 29, 1976
September 29, 1979
August 27, 1980
November 22, 1988
April 14, 1989
June 28, 1989
January 2, 1992
September 29, 1992
February 9, 1994
BY-LAWS
OF
TESORO PETROLEUM CORPORATION
(As Amended February 9, 1994)
<PAGE>
ARTICLE I
MEETING OF STOCKHOLDERS
Section 1.1 ANNUAL MEETINGS. The annual meeting of the
stockholders for the election of directors and for the transaction of
such other business as properly may come before such meeting shall be
held on such date, and at such time and place within or without the
State of Delaware, as may be designated by the Board of Directors.
Section 1.2 SPECIAL MEETINGS. Special meetings of the
stockholders for any proper purpose or purposes may be called at any
time by the Board of Directors, the Chairman of the Board of
Directors, the President or any Vice President, to be held on such
date, and at such time and place within or without the State of
Delaware, as the Board of Directors, the Chairman of the Board of
Directors, the President, or a Vice President, whichever has called
the meeting, shall direct. A special meeting of the stockholders
shall be called by the Chairman of the Board of Directors, the
President, or any Vice President whenever stockholders holding shares
representing a majority of the votes of the shares of the Corporation
then issued and outstanding and entitled to vote on matters to be
submitted to stockholders of the Corporation shall make application
therefor in writing. Any such written request shall state a proper
purpose or purposes of the meeting and shall be delivered to the
Chairman of the Board of Directors, the President, or any Vice
President. A special meeting of the stockholders shall be called by
the Chairman of the Board of Directors, the President or any Vice
President, for the purpose of electing one additional member to the
Board of Directors in the event there should occur three tie votes of
the Board of Directors with respect to any matter or series of matters
at any meeting or series of meetings within a three consecutive month
period.
Section 1.3 NOTICE OF MEETING. Written notice, signed by the
Chairman of the Board of Directors, the President, any Vice President,
the Secretary or an Assistant Secretary, of every meeting of
stockholders (other than an adjourned meeting unless otherwise
required by statute) stating the purpose or purposes for which the
meeting is called, and the date and time when, and the place where, it
is to be held shall be either delivered personally or mailed to each
stockholder entitled to vote at such meeting not less than ten nor
more than sixty days before the meeting, except as otherwise provided
by statute. If mailed, such notice shall be directed to a stockholder
at his address as it shall appear on the stock books of the
Corporation, unless he shall have filed with the Secretary a written
request that notices intended for him be mailed to some other address,
in which case it shall be mailed to the address designated in such
request, and shall be given when deposited in the United States mail,
postage prepaid.
Section 1.4 QUORUM. The presence at any meeting, in person or by
proxy, of the holders of record of shares representing a majority of
the votes of the shares then issued and outstanding and entitled to
vote shall be necessary and sufficient to constitute a quorum for the
transaction of business, except where otherwise provided by statute.
Section 1.5 ADJOURNMENTS. In the absence of a quorum, a majority
of the votes of the stockholders entitled to vote, present in person
or by proxy, or, if no stockholder entitled
<PAGE>
to vote is present in person or by proxy, any officer entitled to
preside at or act as secretary of such meeting, may adjourn the
meeting from time to time until a quorum shall be present.
Section 1.6 VOTING. Directors shall be chosen by a plurality of
the votes cast at the election, and, except where otherwise provided
by statute, or the Certificate of Incorporation, all other questions
shall be determined by a majority of the votes cast on such question.
Section 1.7 PROXIES. Any stockholders entitled to vote may vote
by proxy, provided that the instrument authorizing such proxy to act
shall have been executed in writing (which shall include telegraphing
or cabling) by the stockholder himself or by his duly authorized
attorney.
Section 1.8 JUDGES OF ELECTION. The Board of Directors may
appoint judges of election to serve at any election of directors and
at balloting on any other matter that may properly come before a
meeting of stockholders. If no such appointment shall be made, or if
any of the judges so appointed shall fail to attend, or refuse or be
unable to serve, then such appointment may be made by the presiding
officers at the meeting.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 NUMBER, ELECTION AND TERM OF OFFICE. The number of
directors which shall constitute the whole Board of Directors shall be
fixed from time to time by resolution of the Board of Directors but
shall not be less than three. The directors shall be elected at the
annual meeting of stockholders, except as provided in Section 2.2, and
each director elected at an annual meeting of stockholders, and
directors elected in the interim to fill vacancies and newly created
directorships shall hold office until the next annual meeting of
stockholders or until their successors are duly elected and qualified
or until their earlier resignation or removal. A director need not be
a stockholder.
Section 2.2 VACANCIES AND ADDITIONAL DIRECTORSHIPS. Unless
otherwise provided in the Certificate of Incorporation or these By-laws:
(1) vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled
by a majority of the directors then in office, although less than a
quorum; (2) whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the
Certificate of Incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a
majority of the directors elected by such class or classes or series
thereof then in office.
-2-
<PAGE>
Section 2.3 THE CHAIRMAN OF THE BOARD OF DIRECTORS. The Board of
Directors may appoint a Chairman of the Board of Directors who shall
be a director but need not be a stockholder of the Corporation. The
Chairman shall not by reason of said title, be or be deemed to be an
officer of the Corporation. The Chairman of the Board shall, when
present, preside at all meetings of the stockholders and of the Board
of Directors. He may sign, with an officer thereunto duly authorized,
certificates of stock of the Corporation, the issuance of which shall
have been duly authorized (the signature to which may be a facsimile
signature), and may sign and execute in the name of the Corporation
other instruments which the Board of Directors has authorized to be
executed. From time to time, he shall report to the Board of
Directors all matters within his knowledge which the interests of the
Corporation may require to be brought to their attention. He shall
perform such other duties as are given to him by these By-laws or as
from time to time may be assigned to him by the Board of Directors.
Section 2.4 MEETINGS. A meeting of the Board of Directors shall
be held for organization, for the election of officers and for the
transaction of such other business as may properly come before the
meeting, within thirty days after each annual election of directors.
The Board of Directors by resolution may provide for the holding
of regular meetings and may fix the times and places at which such
meetings shall be held. Notice of regular meetings shall not be
required to be given, provided that whenever the time or place of
regular meetings shall be fixed or changed, notice of such action
shall be mailed promptly to each director who shall not have been
present at the meeting at which such action was taken, addressed to
him at his residence or usual place of business.
Special meetings of the Board of Directors may be called by the
Chairman of the Board of Directors, the President, any Vice President
or any two directors. Except as otherwise required by statute, notice
of each special meeting shall be mailed to each director, addressed to
him at his residence or usual place of business, or shall be sent to
him at such place by telegram, radio or cable, or telephoned or
delivered to him personally, not later than two days before the day on
which the meeting is to be held. Such notice shall state the time and
place of such meeting, but unless otherwise required by statute, the
Certificate of Incorporation of the Corporation or these By-laws need
not state the purposes thereof.
Notice of any meeting need not be given to any director who shall
attend such meeting in person or who shall waive notice thereof,
before or after such meeting, in writing or by telegram, radio or
cable.
Section 2.5 QUORUM. One-third of the total number of members of
the Board of Directors as constituted from time to time, but not less
than two, shall be necessary and sufficient to constitute a quorum for
the transaction of business. In the absence of a quorum, a majority
of those present at the time and place of any meeting may adjourn the
meeting from time to time until a quorum shall be present, and the
meeting may be held
-3-
<PAGE>
as adjourned without further notice of waiver. A majority of those
present at any meeting at which a quorum is present may decide any
question brought before such meeting, except as otherwise provided by
law, the Certificate of Incorporation or these By-laws.
Section 2.6 RESIGNATION OF DIRECTORS. Any director may resign at
any time by giving written notice of such resignation to the Board of
Directors, the Chairman of the Board of Directors, the President, any
Vice President or the Secretary. Any such resignation shall take
effect at the time specified therein, or, if no time be specified,
upon receipt thereof by the Board of Directors or one of the
above-named officers; and, unless specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 2.7 REMOVAL OF DIRECTORS. At any special meeting of the
stockholders, duly called for the purpose of removing a director or
directors as provided in these By-laws, any director or directors may,
by the affirmative vote of the holders of shares representing a
majority of the votes of all the shares of stock outstanding and
entitled to vote for the election of directors, be removed from
office, either for or without cause. Such vacancy shall be filled by
the directors as provided in Section 2.2.
Section 2.8 COMPENSATION OF DIRECTORS. Directors shall receive
such reasonable compensation for their service as such, whether in the
form of salary or a fixed fee for attendance at meetings, with
expenses, if any, as the Board of Directors may from time to time
determine. Nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 2.9 INDEMNIFICATION. The Corporation shall indemnify to
the full extent authorized or permitted by the laws of the State of
Delaware any person who is made, or threatened to be made, a party to
an action, suit or proceeding (whether civil, criminal, administrative
or investigative) by reason of the fact that he, his testator or
intestate is or was a director, officer or employee of the Corporation
or serves or served any other enterprise at the request of the
Corporation.
ARTICLE III
COMMITTEES OF THE BOARD
Section 3.1 DESIGNATION, POWER, ALTERNATE MEMBERS AND TERM OF
OFFICE. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees
including an Executive Committee, each committee to consist of one or
more of the directors of the Corporation. Any such committee, to the
extent provided in such resolution or in these By-laws, shall have and
may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers
which may require
-4-
<PAGE>
it; but no such committee shall have the power or authority in
reference to amending the Certificate of Incorporation, adopting an
agreement of merger of consolidation, recommending to the stockholders
the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or
amending the By-laws of the Corporation or, unless the resolution of
the Board of Directors establishing any such committee shall expressly
so provide or these By-laws shall expressly so provide, declaring a
dividend on the Corporation's capital stock or authorizing the
issuance of the Corporation's capital stock. The Board may designate
one or more directors as alternate members of any committee who, in
the order specified by the Board, may replace any absent or
disqualified member at any meeting of the committee. If at a meeting
of any committee one or more of the members thereof should be absent
or disqualified, and if either the Board of Directors has not so
designated any alternate member or members, or the number of absent or
disqualified members exceeds the number of alternate members who are
present at such meeting, then the member or members of such committee
(including alternates) present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may
unanimously appoint another director to act at the meeting in the
place of any such absent or disqualified member. The term of office
of the members of each committee shall be as fixed from time to time
by the Board, subject to these By-laws; PROVIDED, however, that any
committee member who ceases to be a member of the Board shall IPSO
FACTO cease to be a committee member. Each committee shall appoint a
secretary, who may be the Secretary of the Corporation or an Assistant
Secretary thereof.
Section 3.2 MEETINGS, NOTICES AND RECORDS. Each committee may
provide for the holding of regular meetings, with or without notice,
and may fix the time and place at which such meetings shall be held.
Special meetings of each committee shall be held upon call by or at
the direction of its chairman or, if there be no chairman, by or at
the direction of any two of its members, at the time and place
specified in the respective notices or waivers of notice thereof.
Notice of each special meeting of a committee shall be mailed to each
member of such committee, addressed to him at his residence or usual
place of business, at least two days before the day on which the
meeting is to be held, or shall be sent by telegram, radio or cable,
addressed to him at such place, or telephoned or delivered to him
personally not later than the day before the day on which the meeting
is to be held. Notice of any meeting of a committee need not be given
to any member thereof who shall attend the meeting in person or who
shall waive notice thereof, before or after such meeting, in writing
or by telegram, radio or cable. Notice of any adjourned meeting need
not be given. Each committee shall keep a record of its proceedings.
Section 3.3 QUORUM AND MANNER OF ACTING. At each meeting of any
committee the presence of one-third but not less than two of its
members then in office shall be necessary and sufficient to constitute
a quorum for the transaction of business, and the act of a majority of
the members present at any meeting at which a quorum is present shall
be the act of such committee. In the absence of a quorum, a majority
of the members present at the time and place of any meeting may
adjourn the meeting from time to time until a
-5-
<PAGE>
quorum shall be present. Subject to the foregoing and other
provisions of these By-laws and except as otherwise determined by the
Board of Directors, each committee may make rules for the conduct of
its business. Any determination made in writing and signed by all the
members of such committee shall be as effective as if made by such
committee at a meeting.
Section 3.4 RESIGNATIONS. Any member of a committee may resign
at any time by giving written notice of such resignation to the Board
of Directors, the Chairman of the Board of Directors, the President,
any Vice President or the Secretary. Any such resignation shall take
effect at the time specified therein, or if no time be specified, upon
receipt thereof by the Board of Directors or one of the above-named
officers; and, unless specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 3.5 REMOVAL. Any member of any committee may be removed
at any time by the Board of Directors with or without cause.
Section 3.6 VACANCIES. If any vacancy shall occur in any
committee by reason of death, resignation, disqualification, removal
or otherwise, the remaining members of such committee, though less
than a quorum, shall continue to act until such vacancy is filled by a
resolution passed by a majority of the whole Board of Directors.
Section 3.7 COMPENSATION. Committee members shall receive such
reasonable compensation for their services as such, whether in the
form of salary or a fixed fee for attendance at meetings, with
expenses, if any, as the Board of Directors may from time to time
determine. Nothing herein contained shall be construed to preclude
any committee member from serving the Corporation in any other
capacity and receiving compensation therefor.
ARTICLE IV
OFFICERS
Section 4.1 OFFICERS. The officers of the Corporation shall be a
President, one or more Vice Presidents (which may include Executive
Vice Presidents, Group Vice Presidents, Senior Vice Presidents and
other categories of Vice Presidents), a Secretary, a Treasurer, and
such other officers as may be appointed in accordance with the
provisions of Section 4.3).
Section 4.2 ELECTION, TERM OF OFFICE AND QUALIFICATIONS. Each
officer (except such officers as may be appointed in accordance with
the provisions of Section 4.3) shall be elected by the Board of
Directors. Each such officer (whether elected at the first meeting of
the Board of Directors after the annual meeting of stockholders or to
fill a vacancy otherwise) shall hold his office until the first
meeting of the Board of Directors after the
-6-
<PAGE>
next annual meeting of stockholders and until his successor shall have
been elected, or until his death, or until he shall have resigned in
the manner provided in Section 4.4 or shall have been removed in the
manner provided in Section 4.5.
Section 4.3 SUBORDINATE OFFICERS AND AGENTS. The Board of
Directors from time to time may appoint other officers or agents
(including one or more Assistant Vice Presidents, one or more
Assistant Secretaries and one or more Assistant Treasurers), to hold
office for such period, have such authority and perform such duties as
are provided in these By-laws or as may be provided in the resolutions
appointing them. The Board of Directors may delegate to any officer
or agent the power to appoint any such subordinate officers or agents
and to prescribe their respective terms of office, authorities and
duties.
Section 4.4 RESIGNATIONS. Any officer may resign at any time by
giving written notice of such resignation to the Board of Directors,
the President, any Vice President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if no
time be specified, upon receipt thereof by the Board of Directors or
one of the above-named officers; and, unless specified therein, the
acceptance of such resignation shall not be necessary to make it
effective.
Section 4.5 REMOVAL. Any officer specifically designated in
Section 4.1 may be removed at any time, either with or without cause,
at any meeting of the Board of Directors by the vote of a majority of
all the Directors then in office. Any officer or agent appointed in
accordance with the provisions of Section 4.3 may be removed, either
with or without cause, by the Board of Directors at any meeting, by
the vote of a majority of the Directors present at such meeting, or by
any superior officer or agent upon whom such power of removal shall
have been conferred by the Board of Directors.
Section 4.6 VACANCIES. A vacancy in any office by reason of
death, resignation, removal, disqualification or any other cause shall
be filled for the unexpired portion of the term in the manner
prescribed by these By-laws for regular election or appointment to
such office.
Section 4.7 THE PRESIDENT. The President shall be the Chief
Executive Officer of the Corporation. Subject to the direction of the
Board of Directors, he shall have general charge of the business,
affairs and property of the Corporation and general supervision over
the officers and agents of the Corporation. He shall see that all
orders and resolutions of the Board of Directors are carried into
effect. In the absence of the Chairman of the Board, he shall preside
at all meetings of stockholders. He may sign, with any other officer
thereunto duly authorized, certificates of stock of the Corporation
the issuance of which shall have been duly authorized (the signature
to which may be a facsimile signature), and may sign and execute in
the name of the Corporation, deeds, mortgages, bonds, contracts,
agreements or other instruments duly authorized by the Board of
Directors except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors or by statute
to some other officer or agent. He shall perform such other duties
-7-
<PAGE>
as are given to him by these By-laws or as from time to time may be
assigned to him by the Board of Directors.
Section 4.8 THE VICE PRESIDENTS. In the event of the absence or
disability of the President, any Vice President designated by the
President (or in the absence of such designation, the Vice President
designated by the Board of Directors) shall perform all the duties of
the President and, when so acting, shall have all the powers of and be
subject to all restrictions upon the President. Any Vice President
may also sign, with any other officer thereunto duly authorized,
certificates of stock of the Corporation the issuance of which shall
have been duly authorized (the signature to which may be a facsimile
signature), and may sign and execute in the name of the Corporation,
deeds, mortgages, bonds and other instruments duly authorized by the
Board of Directors, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by
statute to some other officer or agent. Each Vice President shall
perform such other duties as are given to him by these By-laws or as
from time to time may be assigned to him by the Board of Directors or
the President.
Section 4.9 THE SECRETARY. The Secretary shall
(a) record all the proceedings of the meetings of the
stockholders, the Board of Directors, and any committees in a
book or books to be kept for that purpose;
(b) cause all notices to be duly given in accordance with
the provisions of these By-laws and as required by statute;
(c) whenever any committee shall be appointed in pursuance
of a resolution of the Board of Directors, furnish the chairman
of such committee with a copy of such resolution;
(d) be custodian of the records and of the seal of the
Corporation, and cause such seal to be affixed to all
certificates representing stock of the Corporation prior to the
issuance thereof and to all instruments the execution of which on
behalf of the Corporation under its seal shall have been duly
authorized;
(e) see that the lists, books, reports, statements,
certificates and other documents and records required by statute
are properly kept and filed;
(f) have charge of the stock and transfer books of the
Corporation, and exhibit such stock book at all reasonable times
to such persons as are entitled by statute to have access
thereto;
(g) sign (unless the Treasurer or an Assistant Secretary or
an Assistant Treasurer shall sign) certificates representing
stock of the Corporation the issuance of which shall have been
duly authorized (the signature to which may be a facsimile
signature); and
-8-
<PAGE>
(h) in general, perform all duties incident to the office of
Secretary and such other duties as are given to him by these
By-laws or as from time to time may be assigned to him by the
Board of Directors or the President.
Section 4.10 ASSISTANT SECRETARIES. At the request of the
Secretary or in his absence or disability, the Assistant Secretary
designated by him (or in the absence of such designation, the
Assistant Secretary designated by the Board of Directors or the
President) shall perform all the duties of the Secretary and, when so
acting, shall have all the powers of and be subject to all
restrictions upon the Secretary. The Assistant Secretaries shall
perform such other duties as from time to time may be assigned to them
by the Board of Directors, the President or the Secretary.
Section 4.11 THE TREASURER. The Treasurer shall
(a) have charge of and supervision over and be responsible
for the funds, securities, receipts and disbursements of the
Corporation;
(b) cause the monies and other valuable effects of the
Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers
or other depositaries as shall be selected in accordance with
Section 5.3 of these By-laws or to be otherwise dealt with in
such manner as the Board of Directors may direct;
(c) cause the funds of the Corporation to be disbursed by
checks or drafts upon the authorized depositaries of the
Corporation, and cause to be taken and preserved proper vouchers
for all monies disbursed;
(d) render to the Board of Directors or the President,
whenever requested, a statement of the financial condition of the
Corporation and of all his transactions as Treasurer;
(e) cause to be kept at the Corporation's principal office
correct books of account of all its business and transactions and
such duplicate books of account as he shall determine and upon
application cause such books or duplicates thereof to be
exhibited to any director;
(f) be empowered, from time to time, to require from the
officers or agents of the Corporation reports or statements
giving such information as he may desire with respect to any and
all financial transactions of the Corporation;
(g) sign (unless the Secretary or an Assistant Secretary or
an Assistant Treasurer shall sign) certificates representing
stock of the Corporation the issuance of which shall have been
duly authorized (the signature to which may be a facsimile
signature); and
-9-
<PAGE>
(h) in general, perform all duties incident to the office of
Treasurer and such other duties as are given to him by these
By-laws or as from time to time may be assigned to him by the
Board of Directors or the President.
Section 4.12 ASSISTANT TREASURERS. At the request of the
Treasurer or in his absence or disability, the Assistant Treasurer
designated by him (or in the absence of such designation, the
Assistant Treasurer designated by the Board of Directors or the
President) shall perform all the duties of the Treasurer, and, when so
acting, shall have all the powers of and be subject to all
restrictions upon the Treasurer. The Assistant Treasurers shall
perform such other duties as from time to time may be assigned to them
by the Board of Directors, the President or the Treasurer.
Section 4.13 SALARIES. The salaries of the officers of the
Corporation shall be fixed from time to time by the Board of
Directors, except that the Board of Directors may delegate to any
person the power to fix the salaries or other compensation of any
officers or agents appointed in accordance with the provisions of
Section 4.3. No officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the Corporation.
Section 4.14 SURETY BONDS. If the Board of Directors shall so
require, any officer or agent of the Corporation shall execute to the
Corporation a bond in such sum and with such surety or sureties as the
Board of Directors may direct, conditioned upon the faithful discharge
of his duties, including responsibilities for negligence and for the
accounting for all property, funds or securities of the Corporation
which may come into his hands.
ARTICLE V
EXECUTION OF INSTRUMENTS AND
DEPOSIT OF CORPORATE FUNDS
Section 5.1 EXECUTION OF INSTRUMENTS GENERALLY. The Chairman of
the Board of Directors, the President, any Vice President, the
Secretary or the Treasurer, subject to the approval of the Board of
Directors, may enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation. The Board of
Directors may authorize any officer or officers, or agent or agents,
to enter into any contract or execute and deliver any instrument in
the name and on behalf of the Corporation, and such authorization may
be general or confined to specific instances.
Section 5.2 BORROWING. No loans or advances shall be obtained or
contracted for, by or on behalf of the Corporation and no negotiable
paper shall be issued in its name, unless and except as authorized by
the Board of Directors. Such authorization may be general or confined
to specific instances. Any officer or agent of the Corporation
thereunto so
-10-
<PAGE>
authorized may obtain loans and advances for the Corporation, and for
such loans and advances may make, execute and deliver promissory
notes, bonds, or other evidences of indebtedness of the Corporation.
Any officer or agent of the Corporation thereunto so authorized may
pledge, hypothecate or transfer as security for the payment of any and
all loans, advances, indebtedness and liabilities of the Corporation,
any and all stocks, bonds, other securities and other personal
property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same and so every act and thing
necessary or proper in connection therewith.
Section 5.3 DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to its credit in such
banks or trust companies or with such bankers or other depositaries as
the Board of Directors may select, or as may be selected by any
officer or officers or agent or agents authorized so to do by the
Board of Directors. Endorsements for deposit to the credit of the
Corporation in any of its duly authorized depositaries shall be made
in such manner as the Board of Directors from time to time may
determine.
Section 5.4 CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for the payment of money, and all notes or other evidences of
indebtedness issued in the name of the Corporation, shall be signed by
such officer or officers or agent or agents of the Corporation, and in
such manner, as from time to time shall be determined by the Board of
Directors.
Section 5.5 PROXIES. Proxies to vote with respect to shares of
stock of other corporations owned by or standing in the name of the
Corporation may be executed and delivered from time to time on behalf
of the Corporation by the Chairman of the Board of Directors, the
President or a Vice President or by any other person or persons
thereunto authorized by the Board of Directors.
ARTICLE VI
RECORD DATES
Section 6.1. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change,
conversation or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record
date, which shall be not more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other
action. Only those stockholders of record on the date so fixed shall
be entitled to any of the foregoing rights,
-11-
<PAGE>
notwithstanding the transfer of any such stock on the books of the
Corporation after any such record date fixed by the Board of
Directors.
ARTICLE VII
CORPORATE SEAL
Section 7.1. The corporate seal shall be circular in form and
shall bear the name of the Corporation and words and figures denoting
its organization under the laws of the State of Delaware and the year
thereof and otherwise shall be in such form as shall be approved from
time to time by the Board of Directors.
ARTICLE VIII
FISCAL YEAR
Section 8.1. The fiscal year of the Corporation shall begin on
the 1st day of January in each year and shall end on the 31st day of
December in the same year.
ARTICLE IX
AMENDMENTS
Section 9.1. Except as otherwise provided in Article VII of the
Certificate of Incorporation, all By-laws of the Corporation may be
amended, altered or repealed, and new By-laws may be made, by the
affirmative vote of the holders of record of shares representing a
majority of the votes of the outstanding shares of stock of the
Corporation entitled to vote cast at any annual or special meeting, or
by the affirmative vote of a majority of the Directors cast at any
regular or special meeting at which a quorum is present.
-12-
<PAGE>
EXHIBIT 3(b)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
TESORO PETROLEUM CORPORATION
TESORO PETROLEUM CORPORATION, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (hereinafter
called the 'Corporation') DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation, a
resolution was duly adopted declaring it advisable that the Corporation's
Restated Certificate of Incorporation be amended by adding a new Article IX
thereto and directing that the proposed amendment be considered at the next
annual meeting of stockholders of the Corporation. The resolution set forth the
proposed amendment as follows:
'ARTICLE IX
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from
which the director derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is amended
hereafter to authorize the further elimination or limitation of the
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent authorized by the
General Corporation Law of the State of Delaware, as so amended.
Any repeal or modification of this Article shall not adversely affect
any right or protection of a director of the Corporation existing hereunder
with respect to any act or omission occurring prior to or at the time of
such repeal or modification.'
SECOND: That pursuant to the resolutions of its Board of Directors, an
annual meeting of the stockholders of the Corporation was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware, at which meeting the necessary number of shares as required
by statute were voted in favor of said amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
1
<PAGE>
IN WITNESS WHEREOF, TESORO PETROLEUM CORPORATION has caused its corporate
seal to be hereunto affixed and this certificate to be signed by Dennis F.
Juren, its President, and attested by James C. Reed, Jr., its Assistant
Secretary, this 31st day of March, 1987.
TESORO PETROLEUM CORPORATION
By: /s/ DENNIS F. JUREN
President
TESORO PETROLEUM CORPORATION
INCORPORATED DEC. 26, 1968
DELAWARE
ATTEST:
By: /s/ JAMES C. REED, JR.
Assistant Secretary
2
<PAGE>
EXHIBIT 3(c)
TESORO PETROLEUM CORPORATION
CERTIFICATE OF DESIGNATION
ESTABLISHING A SERIES OF
$2.20 CUMULATIVE CONVERTIBLE PREFERRED STOCK
Tesoro Petroleum Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware, pursuant to the requirements
of Section 151(g) of said General Corporation Law, DOES HEREBY CERTIFY:
FIRST: That, pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation (as amended) of said corporation, and pursuant
to the provisions of Section 151(g) of the General Corporation Law, said Board
of Directors, at a meeting duly held on January 26, 1983, adopted a resolution
providing for the voting powers, designations, preferences and relative,
participating, optional or other special rights of the $2.20 Cumulative
Convertible Preferred Stock, which resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of Preferred Stock of the Corporation
is hereby created, such series of Preferred Stock to be designated the $2.20
Convertible Preferred Stock, to consist of 2,875,000 shares of the stated
value of one dollar ($1.00) each, of which the voting powers, designations,
preferences and relative, participating, optional or other special rights,
and the qualifications, limitations or restrictions thereof, shall be as
follows:
1. DESIGNATION OF SERIES AND NUMBER OF SHARES.
This series of Preferred Stock is designated '$2.20 Cumulative
Convertible Preferred Stock' (hereinafter referred to as '$2.20 Preferred
Stock'), and the number of shares which shall constitute such series shall
be 2,875,000 shares of a stated value of $1.00 per share, which number may
not be increased but may be decreased (but not below the number thereof then
outstanding) from time to time by the Board of Directors.
2. DIVIDENDS.
Shares of $2.20 Preferred Stock shall rank on a parity as to dividends
with shares of 8% Convertible Preferred Stock of the Corporation
(hereinafter referred to as '8% Preferred Stock') and shares of $2.16
Cumulative Convertible Preferred Stock (hereinafter referred to as '$2.16
Preferred Stock'). The holders of $2.20 Preferred Stock shall be entitled to
receive, as and when declared by the Board of Directors and out of assets of
the Corporation which are by law available for payment of dividends,
cumulative preferential cash dividends, at, but not exceeding, the rate of
$2.20 per share per annum, payable quarterly on May 15, August 15, November
15, and February 15, in each year, accruing from the date on which
respective shares of $2.20 Preferred Stock shall be issued. So long as any
$2.20 Preferred Stock shall remain outstanding, no dividend whatsoever shall
be declared or paid upon or set apart for any class of stock or series
thereof ranking junior to $2.20 Preferred Stock in the payment of dividends
nor shall any shares of any class of stock or series thereof ranking junior
to or on a parity with $2.20 Preferred Stock in payment of dividends be
redeemed or purchased by the Corporation or any subsidiary thereof nor shall
any moneys be paid to or made available for a sinking fund for redemption or
purchase of any shares of any class of stock or series thereof ranking
junior to or on a parity with $2.20 Preferred Stock in payment of dividends,
unless in each instance full dividends on all outstanding shares of $2.20
Preferred Stock for all past dividend periods shall have been paid at the
rate fixed therefor and the dividends on all outstanding shares of $2.20
Preferred Stock for the then current quarterly dividend period shall have
been paid or declared
1
<PAGE>
and sufficient funds set aside for payment thereof. Accumulations of
dividends on any shares of $2.20 Preferred Stock shall not bear interest.
No dividend shall be paid upon or declared or set apart for (a) any
share of $2.20 Preferred Stock for any dividend period unless at the same
time (i) a like proportionate dividend for the same dividend period shall be
paid upon or declared or set apart for all shares of $2.20 Preferred Stock
then outstanding and entitled to receive such dividend and (ii) there shall
have been paid upon or declared or set aside for all shares of 8% Preferred
Stock, $2.16 Preferred Stock and for all shares of Preferred Stock of all
other series or of any other class of stock or series thereof, if any, then
outstanding and ranking on a parity with $2.20 Preferred Stock in respect of
payment of dividends, for the same dividend period as the dividend period of
the $2.20 Preferred Stock, or for the respective dividend periods of 8%
Preferred Stock, $2.16 Preferred Stock and said parity stock terminating
within the dividend period of the $2.20 Preferred Stock, dividends in
proportion to the respective dividend rates fixed for the 8% Preferred
Stock, $2.16 Preferred Stock and said parity stock; and (b) any shares of 8%
Preferred Stock, $2.16 Preferred Stock or other series of Preferred Stock or
other class of stock or series thereof, if any, ranking on a parity with
$2.20 Preferred Stock in respect of payment of dividends for any dividend
period unless there shall have been paid upon or declared or set apart for
all shares then outstanding of $2.20 Preferred Stock, for the same dividend
period, or for the dividend period of the $2.20 Preferred Stock terminating
within the dividend period of said parity stock, dividends in proportion to
the respective dividend rates fixed for $2.20 Preferred Stock and said
parity stock.
3. LIQUIDATION.
Shares of $2.20 Preferred Stock shall rank on a parity with shares of 8%
Preferred Stock and $2.16 Preferred Stock as to distribution of assets in
the event of any liquidation, dissolution or winding up of the affairs of
the Corporation. In the event of any such liquidation, dissolution or
winding up, after payment or provision for payment of the debts and other
liabilities of the Corporation, the holders of $2.20 Preferred Stock shall
be entitled to receive, out of the net assets of the Corporation, (i) if
such liquidation, dissolution or winding up is voluntary, the applicable
redemption price per share determined as provided in paragraph 4 below, or
(ii) if such liquidation, dissolution or winding up is involuntary, $20 per
share plus, in either case, an amount equal to all dividends accrued and
unpaid on each share of $2.20 Preferred Stock to the date fixed for
distribution, and no more, before any distribution of assets shall be made
to the holders of Common Stock or any other class of stock or series thereof
ranking junior to $2.20 Preferred Stock with respect to the distribution of
assets; provided, however, that no distribution as aforesaid shall be made
to the holders of $2.20 Preferred Stock unless at the same time a like
proportionate distribution shall be made, ratably in proportion to the
respective amounts payable upon liquidation, dissolution or winding up of
the affairs of the Corporation, to the holders of all shares of 8% Preferred
Stock, $2.16 Preferred Stock and Preferred Stock of all other series or any
other class of stock or series thereof, if any, then outstanding and ranking
as to distribution of assets on a parity with $2.20 Preferred Stock.
Nothing herein contained shall be deemed to prevent redemption of $2.20
Preferred Stock by the Corporation in the manner provided in paragraph 4
below. Neither the merger or consolidation of the Corporation into or with
any other corporation, nor the merger or consolidation of any other
corporation into or with the Corporation, nor a sale, transfer or lease of
all or any part of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the affairs of the Corporation
within the meaning of this paragraph 3.
No payment on account of such liquidation, dissolution or winding up of
the affairs of the Corporation shall be made to the holders of any other
class or series of stock ranking on a parity with $2.20 Preferred Stock with
respect to preferential distribution of assets unless a payment on account
of such liquidation, dissolution or winding up shall be made at the same
time to the
2
<PAGE>
holders of $2.20 Preferred Stock in proportion to the full distributive
amounts to which they and the holders of such parity stock are respectively
entitled.
Written notice of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation, stating the payment date
and the place where the distributable amounts shall be payable and
containing a statement of or reference to the conversion right set forth in
paragraph 5 below, shall be given by mail, postage prepaid, not less than 30
days prior to the payment date stated therein, to the holders of record of
$2.20 Preferred Stock at their respective addresses as the same shall appear
on the books of the Corporation.
4. REDEMPTION.
The Corporation at its option may, at any time or from time to time, on
or after February 15, 1988, redeem the whole or any part of this issue of
$2.20 Preferred Stock at the applicable redemption price plus in each case
accrued and unpaid dividends thereon to the date fixed for redemption.
The applicable redemption prices for the $2.20 Preferred Stock shall be
as follows:
IF REDEEMED DURING REDEMPTION PRICE
12 MONTHS BEGINNING PER SHARE
1988--------------------------- $ 21.00
1989--------------------------- 20.80
1990--------------------------- 20.60
1991--------------------------- 20.40
1992--------------------------- 20.20
and thereafter at $20 per share.
The Corporation shall on each February 15, beginning with February 15,
1994, so long as any shares of $2.20 Preferred Stock are outstanding, set
aside, out of funds legally available therefor, an amount sufficient to
effect the redemption, at the applicable redemption price provided above,
plus accrued and unpaid dividends thereon, if any, of the number of shares
of $2.20 Preferred Stock equal to 6 2/3% of the total number of shares of
$2.20 Preferred Stock outstanding on February 15, 1994, less the number of
shares for which the Corporation may receive credit, as hereinafter
provided, and the Corporation shall call for redemption such number of
shares on such date. The Corporation may credit against any redemption
required by this paragraph 4 the number of shares of $2.20 Preferred Stock
which have been redeemed by the Corporation after February 15, 1994
(including shares called for redemption if the redemption price thereof has
been deposited with a bond or trust company as hereinafter provided in this
paragraph 4) or which have been presented for conversion to the Corporation
after February 15, 1994, and which have not been theretofor (i) used to
satisfy the Corporation's obligation to redeem shares of $2.20 Preferred
Stock pursuant to this paragraph 4 or (ii) used as a basis for a reduction
in the number of shares of $2.20 Preferred Stock to be redeemed pursuant to
this paragraph 4. The redemptions required of the Corporation by this
paragraph 4 shall be cumulative, so that if the Corporation shall fail, for
any reason whatsoever, to set aside funds and call for redemption shares of
$2.20 Preferred Stock on the date set forth above, as required by this
paragraph 4, the obligation to redeem such shares shall continue, and shall,
until satisfied, increase the obligation of the Corporation to redeem shares
in each subsequent year. If, at any time, the Corporation shall have failed
to set aside funds and call for redemption shares of $2.20 Preferred Stock
on the date set forth above, no dividend whatsoever shall be declared or
paid upon or set apart and no asset shall be distributed for any class of
stock or series thereof ranking junior to or on a parity with $2.20
Preferred Stock in the payment of dividends (except the $2.16 Preferred) nor
shall any shares of any class of stock or series thereof ranking junior to
or on a parity with $2.20 Preferred Stock in payment of dividends be
redeemed or purchased by the Corporation or any subsidiary thereof.
3
<PAGE>
If at any time the Corporation shall be in default in the payment of
dividends on the $2.20 Preferred Stock of an amount equivalent to or
exceeding twelve full quarterly dividends (whether or not consecutive) or
shall have failed to make the mandatory redemptions of $2.20 Preferred Stock
required by the preceding paragraph of a number of shares equivalent to or
exceeding the number of shares to be redeemed pursuant to such paragraph in
any three year period, and all of the outstanding shares of $2.20 Preferred
Stock are held by the person to which such shares were originally issued or
by any affiliate or affiliates of such person, the Corporation shall redeem,
at the option of such original holder or any such affiliates, out of funds
legally available therefor, within 60 days of the occurrence thereof, each
outstanding share of $2.20 Preferred Stock, at the applicable redemption
price hereinabove set forth plus accrued and unpaid dividends to the date
fixed for redemption.
At or prior to the time of each redemption pursuant to this paragraph 4,
the Corporation shall pay or make provision for payment of all accrued and
unpaid dividends on all shares of $2.20 Preferred Stock, 8% Preferred Stock,
$2.16 Preferred Stock and all shares of Preferred Stock of all other series
or of any other class of stock or series thereof, if any, then outstanding
and ranking on a parity with or prior to the $2.20 Preferred Stock in
respect of payment of dividends.
In the event the Corporation shall determine or shall be required to
redeem less than the entire issue of $2.20 Preferred Stock then outstanding,
(i) the shares to be redeemed shall be selected pro rata (as nearly as may
be) so that the number of shares redeemed from each holder shall be the same
proportion of all the shares to be redeemed that the total number of shares
then held by such holder bears to the total number of shares then
outstanding or (ii) if the number of holders of $2.20 Preferred Stock
exceeds 250, and the Board of Directors so determines, the shares shall be
selected by lot.
Notice of every such redemption shall be mailed, first class postage
prepaid, not less than 30 nor more than 45 days prior to the date fixed for
redemption ('redemption date'), to each holder of record of shares to be
redeemed, at his address as it appears on the books of the Corporation. Each
such notice shall state the redemption date; the number of shares of $2.20
Preferred Stock to be redeemed, and, if less than all shares of $2.20
Preferred Stock held by such holder are to be redeemed, the number of such
shares to be redeemed from him; the redemption price applicable to the
shares to be redeemed; the place or places where such shares are to be
surrendered; that dividends on shares to be redeemed will cease to accrue on
the redemption date; and that shares to be redeemed may be converted at any
time prior to the close of business on the business day next preceding the
redemption date in accordance with paragraph 5 below.
Notice having been mailed, from and after the redemption date (unless
the Corporation defaults in providing money for the payment of the
redemption price) the right to receive dividends on shares called for
redemption shall cease to accrue, said shares shall no longer be deemed to
be outstanding, all rights of holders thereof as shareholders of the
Corporation (except the right to receive the redemption price thereof, but
without interest) shall terminate, and, upon surrender, in accordance with
said notice, of the certificates for any such shares (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require), such shares shall be redeemed by the Corporation at the applicable
redemption price; provided, however, that the Corporation may include in
such notice a statement that the money required for the payment of the
redemption price, plus accrued and unpaid dividends, if any, will be
deposited on a specified date, prior to the redemption date, with a
specified bank or trust company (which shall have an office in The City of
New York and which shall have a combined capital and surplus of not less
than $50,000,000) in trust for the benefit of holders of shares called for
redemption, and, notice having been given, from and after such deposit
shares called for redemption shall no longer be deemed to be outstanding,
all rights with respect to shares of $2.20 Preferred Stock shall forthwith
upon such deposit cease and terminate, except only the right of
4
<PAGE>
the holders thereof to convert such shares in accordance with the provisions
of paragraph 5 below at any time prior to the close of business on the
business day next preceding the redemption date, and holders of such shares
shall look for payment of the redemption price only to funds so deposited
and in no event to the Corporation unless said funds shall be repaid to the
Corporation as hereinafter provided. Holders of such shares shall not be
entitled to any interest allowed by such depositary on money so deposited
but any such interest shall be paid to the Corporation. Any moneys deposited
as aforesaid for redemption of any shares and remaining unclaimed for four
years after the date of such deposit shall then be repaid to the Corporation
upon its request, and the holders of such shares shall thereafter look only
to the Corporation for payment of the redemption price thereof, but without
interest.
Any provision of this paragraph 4 to the contrary notwithstanding, in
the event that any quarterly dividend due on $2.20 Preferred Stock shall be
in default, and until all such defaults shall have been cured, the
Corporation shall not redeem any shares of $2.20 Preferred Stock unless all
outstanding shares of $2.20 Preferred Stock are simultaneously redeemed and
shall not purchase or otherwise acquire any shares of $2.20 Preferred Stock
except in accordance with a purchase offer made by the Corporation on the
same terms to all holders of record of $2.20 Preferred Stock.
Any shares of $2.20 Preferred Stock redeemed or otherwise purchased or
acquired by the Corporation shall be retired, shall no longer be deemed
outstanding, and shall assume the status of authorized but unissued
Preferred Stock, with no par value, undesignated as to series, subject to
reissuance by the Corporation as shares of Preferred Stock of any one or
more series, as may be determined from time to time by the Board of
Directors, except that such shares may not be reissued as additional shares
of $2.20 Preferred Stock.
5. CONVERSION.
Shares of $2.20 Preferred stock may be converted at the option of the
holder thereof, at any time prior to the close of business on the business
day next preceeding the date fixed for redemption of such shares pursuant to
paragraph 4 above, into fully paid and non-assessable shares of Common Stock
of the Corporation at the rate of 0.8696 shares of Common Stock as now
constituted for each share of $2.20 Preferred Stock surrendered for
conversion (the 'conversion rate'), subject to the following provisions:
(A) The conversion rate shall be subject to adjustment from time to
time as follows:
(1) In case the Corporation shall (i) pay a dividend, or make a
distribution, to all holders of its Common Stock in shares of its
capital stock (whether shares of Common Stock or of capital stock of
any other class), (ii) subdivide its outstanding shares of Common
Stock into a greater number of shares, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, or (iv) issue
by reclassification of its shares of Common Stock any shares of
capital stock of the Corporation, the conversion rate in effect
immediately prior to such action shall be adjusted so that the holder
of any share of $2.20 Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of
capital stock of the Corporation which he would have owned
immediately following such action had such share of $2.20 Preferred
Stock been converted immediately prior thereto. An adjustment made
pursuant to this subparagraph (1) shall become effective immediately
after the record date in the case of a dividend and shall become
effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of any
adjustment made pursuant to this subparagraph (1), the holder of any
shares of $2.20 Preferred Stock thereafter surrendered for conversion
shall become entitled to receive shares of two or
5
<PAGE>
more classes of capital stock of the Corporation, the Board of
Directors (whose determination shall be conclusive) shall determine,
in good faith, the allocation of the conversion price of the $2.20
Preferred Stock (determined by dividing the adjusted conversion rate
into $20) between or among shares of such classes of capital stock.
(2) In case the Corporation shall hereafter issue rights or
warrants to all holders of its Common Stock entitling them (for a
period expiring within 45 days after the record date mentioned below)
to subscribe for or purchase shares of Common Stock at a price per
share less than the current market price per share of Common Stock
(as determined pursuant to subparagraph (4) below) on the record date
mentioned below, the conversion rate shall be adjusted effective
immediately after the expiration date of such rights or warrants so
that the same shall equal the rate determined by multiplying the
conversion rate in effect immediately prior to the date of issuance
of such rights or warrants by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding (excluding
treasury shares) on the date of issuance such rights or warrants plus
the number of additional shares of Common Stock purchased pursuant to
such offer for subscription or purchase and of which the denominator
shall be the number of shares of Common Stock outstanding (excluding
treasury shares) on the date of issuance of such rights or warrants
plus the number of shares of Common Stock which the aggregate
subscription or purchase price of the total number of shares so
purchased would purchase at such current market price (determined as
provided in subparagraph (4) below).
(3) In case the Corporation shall distribute to all holders of
its Common Stock evidences of its indebtedness or assets (excluding
cash distributions made out of current or retained earnings) or
rights to subscribe (excluding those referred to in subparagraph (2)
above), then in each such case the conversion rate shall be adjusted
so that the same shall equal the rate determined by multiplying the
conversion rate in effect immediately prior to the date of such
distribution by a fraction of which the numerator shall be the
current market price per share of Common Stock (determined as
provided in subparagraph (4) below) at the record date mentioned
below, and the denominator of which shall be such current market
price per share of Common Stock, less the then fair market value (as
determined, in good faith, by the Board of Directors of the
Corporation, whose determination shall be conclusive) of the portion
of the assets or evidences of indebtedness so distributed or of such
subscription rights applicable to one share of Common Stock. Such
adjustment shall become effective immediately after the record date
for determination of stockholders entitled to receive such
distribution.
(4) For the purpose of any computation under subparagraphs (2)
and (3) above, the current market price per share of Common Stock on
any date shall be deemed to be the average of the daily closing
prices for 30 consecutive business days commencing 45 business days
before the day in question. The closing price for each day shall be
the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the New York Stock
Exchange or, if the Common Stock is not listed or admitted to trading
on such Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange,
the average of the closing bid and asked prices as furnished by any
New York Stock Exchange member firm selected from time to time by the
Corporation for that purpose.
(5) In any case in which this paragraph 5 shall require that an
adjustment be made immediately following a record date, the
Corporation may elect to defer (but only until five business days
following the filing by the Corporation of the statement required by
6
<PAGE>
subparagraph (7) below) issuing to the holder of any share of $2.20
Preferred Stock converted after such record date shares of Common
Stock and other capital stock of the Corporation issuable upon such
conversion over and above the number of shares of Common Stock and
other capital stock of the Corporation issuable upon such conversion
as computed on the basis of the conversion rate prior to adjustment.
(6) All calculations under this paragraph 5 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case
may be.
(7) Whenever the conversion rate is adjusted as herein provided,
the Corporation shall (i) file at the office or agency in the Borough
of Manhattan in the City of New York maintained by the Corporation
pursuant to subparagraph (D) of this paragraph 5 and with each
transfer agent for its Common Stock a statement, signed by the
Chairman of the Board of Directors, the President or one of the Vice
Presidents of the Corporation and by its Treasurer or one of its
Assistant Treasurers, stating the adjusted conversion rate determined
as provided herein and setting forth the method of calculation and
the facts requiring such adjustment and upon which such calculation
is based, and (ii) mail or cause to be mailed a copy of such
statement setting forth the adjusted conversion rate to each person
who is a registered holder of $2.20 Preferred Stock at such person's
last address as the same appears on the books of the Corporation.
Each adjustment shall remain in effect until a subsequent adjustment
is required hereunder.
(B) In the case of a merger or consolidation of the Corporation with
or into another corporation, or the sale of the Corporation's property or
assets as, or substantially as, an entirety, to another corporation, or
the reclassification of the Corporation's Common Stock (other than
through a subdivision or combination thereof, or change in par value),
holders of shares of $2.20 Preferred Stock shall thereafter have the
right to convert each of such shares into the kind and amount of shares
of stock and other securities and property receivable upon such merger,
consolidation, sale or reclassification by a holder of the number of
shares of Common Stock (whether whole or fractional) of the Corporation
into which shares of $2.20 Preferred Stock might have been converted
immediately prior to such a merger, consolidation, sales or
reclassification, and shall have no other conversion rights under these
provisions; and effective provision shall be made in the charter of the
resulting or surviving corporation or otherwise, so that the provisions
set forth herein for the protection of conversion rights of $2.20
Preferred Stock shall thereafter be applicable, as nearly as reasonably
may be, to any such other shares of stock and other securities and
property deliverable upon conversion of $2.20 Preferred Stock remaining
outstanding or other convertible preferred stock received by the holders
in place thereof. Any such resulting or surviving corporation shall
expressly assume the obligation to deliver, upon the exercise of the
conversion right, such shares, securities or property as holders of $2.20
Preferred Stock remaining outstanding, or other convertible preferred
stock received by such holders in place thereof, shall be entitled to
receive pursuant to the provisions hereof, and to make provision for
protection of conversion rights as above provided.
(C) If, at any time while shares of $2.20 Preferred Stock are
outstanding, the Corporation shall (i) declare a dividend (or any other
distribution) on its Common Stock, other than in cash out of current or
retained earnings; or (ii) authorize the issuance to all holders of its
Common Stock of rights or warrants to subscribe for or purchase shares of
its Common Stock or of any other subscription rights or warrants; or
(iii) reclassify its Common Stock (other than through a subdivision or
combination thereof) or become a party to any consolidation or merger for
which approval of the holders of its Common Stock is required, or sell or
transfer all or substantially all of the assets of the Corporation; then
the Corporation shall cause to be mailed to registered holders of $2.20
Preferred Stock, at their last addresses as they shall appear upon the
Corporation's stock transfer record, at least ten days
7
<PAGE>
prior to the applicable record date hereinafter specified, a notice
stating (i) the date on which a record is to be taken for the purpose of
such dividend, distribution, rights or warrants, or, if a record is not
to be taken, the date as of which holders of Common Stock of record to be
entitled to such dividend, distribution, rights or warrants are to be
determined, or (ii) the date on which any such reclassification,
consolidation, merger, sale or transfer is expected to become effective,
and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their Common Stock for securities or
other property, if any, deliverable upon such reclassification,
consolidation, merger, sale or transfer. Failure to give or receive the
notice required by this subparagraph (C) or any defect therein shall not
affect the legality or validity of any such dividend, distribution, right
or warrant or other action.
(D) The holder of any shares of $2.20 Preferred Stock may exercise
his option to convert such shares into shares of Common Stock only by
surrendering for such purpose to the Corporation at the office or agency
in the Borough of Manhattan in The City of New York maintained by the
Corporation for that purpose certificates representing the shares to be
converted, accompanied by written notice that such holder elects to
convert such shares in accordance with the provisions of this paragraph
5. Said notice shall also state the name or names (with addresses) in
which the certificate or certificates for shares of Common Stock which
shall be issuable on such conversion shall be issued. Each certificate or
certificates surrendered for conversion shall, unless the shares issuable
on conversion are to be issued in the same name as that in which such
certificate or certificates are registered, be accompanied by instruments
of transfer, in form satisfactory to the Corporation, duly executed by
the holder or by his duly authorized attorney. Each conversion shall be
deemed to have been effected on the date on which such certificate or
certificates shall have been surrendered and such notice received by the
Corporation as aforesaid, and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become on said date
the holder or holders of record of the shares represented thereby
notwithstanding that the transfer books of the Corporation may then be
closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to such person.
(E) Upon any such conversion of shares of $2.20 Preferred Stock, no
allowance, adjustment or payment shall be made with respect to dividends
upon either the shares of $2.20 Preferred Stock surrendered for
conversion or the shares of Common Stock issuable upon conversion.
(F) In connection with the conversion of shares of $2.20 Preferred
Stock into Common Stock, no fractions of shares of $2.20 Preferred Stock
or of Common Stock shall be issued, but the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to
the market value of such fractional interest. In such event, the market
value of a share of Common Stock shall be the last recorded sale price of
such a share on the New York Stock Exchange on the business day
immediately preceding the date upon which such shares of $2.20 Preferred
Stock are deemed to have been converted, or, if there be no such recorded
sale price on such day, the last quoted bid price per share of Common
Stock on such exchange at the close of trading on such business day. If
the Common Stock shall not at the time be listed or admitted to trading
on the New York Stock Exchange, such market value shall be the average of
the reported closing bid and asked prices regular way on such day on the
principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or admitted to trading on
any national securities exchange, the average of the closing bid and
asked prices on such day as furnished by any New York Stock Exchange
member firm selected from time to time by the Corporation for that
purpose. The issue of stock certificates on conversions of shares of
$2.20 Preferred Stock shall be made without charge to converting holders
of shares of $2.20 Preferred Stock
8
<PAGE>
for any tax in respect of the issue thereof. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of
any registration of transfer involved in the issue and delivery of stock
in any name other than that of the holder of any shares of $2.20
Preferred Stock converted, and the Corporation shall not be required to
so issue or deliver any stock certificate unless and until the person or
persons requesting the registration of transfer shall have paid to the
Corporation the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
(G) The Corporation shall at all times reserve and keep available
out of its authorized Common Stock the full number of shares of Common
Stock deliverable upon the conversion of all outstanding shares of $2.20
Preferred Stock.
(H) Any shares of $2.20 Preferred Stock converted shall no longer be
deemed outstanding and shall assume the status of authorized but unissued
shares of Preferred Stock, with no par value, undesignated as to series,
subject to reissuance by the Corporation as shares of Preferred Stock of
any one or more series, as may be determined from time to time by the
Board of Directors, except, that such shares may not be reissued as
additional shares of $2.20 Preferred Stock.
(I) For purposes of this paragraph (5):
(1) 'business day' shall mean a day on which the New York Stock
Exchange (or a successor or an equivalent or substitute organization
or facility) is open for the trading of securities in the Borough of
Manhattan in The City of New York; and
(2) 'Common Stock' shall mean (a) the Corporation's Common Stock,
$.16 2/3 par value per share, or (b) any other class of stock
resulting from successive changes or reclassifications of such Common
Stock consisting solely of changes in par value, or from par value to
no par value, or from no par value to par value; provided, however,
that in the event that at any time as a result of an adjustment made
pursuant to subparagraph (A)(1) above, the holder of any share of
$2.20 Preferred Stock thereafter surrendered for conversion would
become entitled to receive any stock of the Corporation other than
shares of its Common Stock, thereafter the conversion rate with
respect to such other shares so receivable upon conversion of any
share of $2.20 Preferred Stock shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained
in this paragraph 5.
6. VOTING RIGHTS.
(A) The holders of $2.20 Preferred Stock shall be entitled to one vote
per share, voting together as one class with the holders of Common Stock, 8%
Preferred Stock, and $2.16 Preferred Stock and any other series of Preferred
Stock entitled to vote, on all matters to be voted by stockholders of the
Corporation, in addition to their rights set forth in subparagraphs (B), (C)
and (D) below and otherwise provided by law.
(B) If at any time the Corporation shall have failed to make the
mandatory redemptions of $2.20 Preferred Stock required by the third
subparagraph of paragraph 4 of a number of shares equivalent to or exceeding
the number of shares to be redeemed pursuant to such paragraph on any two
redemption dates as specified in such paragraph, and if the default in
dividends specified in subparagraph (C) of this paragraph 6 (the 'Dividend
Default') is not then in effect, the number of directors constituting the
Board of Directors of the Corporation shall be increased by two, and the
holders of $2.20 Preferred Stock, voting as a separate series shall be
entitled at the next annual meeting of stockholders or the next special
meeting of stockholders, or at a special meeting of holders of $2.20
Preferred Stock called as hereinafter provided, to elect two directors to
fill such newly created directorships, and in addition thereto, such holders
shall be entitled to participate with holders of Common Stock and holders,
if any, of any other capital stock of the
9
<PAGE>
Corporation entitled to vote for the election of directors in the election
of any other directors; provided, however, that when all arrears in such
redemptions of the $2.20 Preferred Stock shall have been made or if a
Dividend Default shall occur, then (i) the right of holders of $2.20
Preferred Stock to participate in the election of two directors shall cease
but subject always to the same provisions for vesting of such voting rights
in the case of any similar future arrearages in redemptions at a time when a
Dividend Default is not in effect; (ii) the term of the directors then in
office elected by holders of $2.20 Preferred Stock as a class shall
terminate; and (iii) the number of directors constituting the Board of
Directors shall be reduced by two (except that upon a Default in Dividends
the number of directors shall then be increased in accordance with
subparagraph (C) of this paragraph 6).
Whenever such voting right shall vest, it may be exercised initially
either at a special meeting of holders of $2.20 Preferred Stock or at any
annual or special stockholders' meeting, but thereafter it shall be
exercised only at annual stockholders' meetings. A special meeting for the
exercise of such right shall be called by the Secretary of the Corporation
within ten days after receipt of a written request therefor, signed by the
holders of record of at least 10% of the votes of the then outstanding
shares of $2.20 Preferred Stock; however, no such special meeting shall be
held during the 90-day period preceding the date fixed for the annual
meeting of stockholders.
Any director who shall have been elected by holders of $2.20 Preferred
Stock as a series pursuant to this subparagraph (B) shall hold office for a
term expiring (subject to the earlier termination of the default in
redemptions or the occurrence of a Dividend Default) at the next annual
meeting of stockholders, and during such term may be removed at any time,
either for or without cause, only by the affirmative votes of holders of
record of a majority of the votes of the then outstanding shares of $2.20
Preferred Stock given at a special meeting of such stockholders called for
the purpose. Any vacancy created by such removal may also be filled at such
meeting. A meeting for the removal of a director elected by holders of $2.20
Preferred Stock as a series and the filling of the vacancy created thereby
shall be called by the Secretary of the Corporation within ten days after
receipt of a written request therefor, signed by the holders of not less
than 25% of the votes of the then outstanding shares of $2.20 Preferred
Stock. Such meeting shall be held at the earliest practicable date
thereafter.
Any vacancy caused by the death, resignation, or expiration of term
(except upon a termination of the default in redemptions or the occurrence
of a Dividend Default) of a director who shall have been elected by the
holders of $2.20 Preferred Stock as a series pursuant to this subparagraph
(B) may be filled only by the holders of $2.20 Preferred Stock at a meeting
called for such purpose. Such meeting of the holders of $2.20 Preferred
Stock shall be called by the Secretary of the Corporation at the earliest
practicable date after any such death or resignation and in any event within
ten days after receipt of a written request therefor, signed by the holders
of record of at least 10% of the votes of the then outstanding shares of
$2.20 Preferred Stock.
If any meeting of the holders of $2.20 Preferred Stock required by this
subparagraph (B) to be called shall not have been called within ten days
after personal service of a written request therefor upon the Secretary of
the Corporation or within 15 days after mailing the same within the United
States of America by registered mail addressed to the Secretary of the
Corporation at its principal office, then holders of record of at least 10%
of the votes of the then outstanding shares of $2.20 Preferred Stock may
designate in writing one of their number to call such a meeting at the
expense of the Corporation and such meeting may be called by such person so
designated upon the notice required for annual meetings of stockholders. Any
holder of $2.20 Preferred Stock so designated shall have access to the stock
books of the Corporation for the purpose of causing meetings of stockholders
to be called pursuant to these provisions.
Any meeting of holders of $2.20 Preferred Stock to vote as a series for
the election or removal of directors shall be held at the place for the
holding of the annual meeting of stockholders of the Corporation. At such
meeting, the presence in person or by proxy of holders
10
<PAGE>
of a majority of the votes of the then outstanding shares of $2.20 Preferred
Stock shall be required to constitute a quorum; in the absence of a quorum,
a majority of the holders present in person or by proxy shall have power to
adjourn the meeting from time to time without notice, other than
announcement at the meeting, until a quorum shall be present.
(C) If at any time the Corporation shall be in default in the payment
of dividends on the $2.20 Preferred Stock of an amount equivalent to or
exceeding six full quarterly dividends (whether or not consecutive), the
number of directors constituting the Board of Directors of the Corporation
shall be increased by two, and the holders of $2.20 Preferred Stock, voting
as a separate class together with the holders of all other series of
Preferred Stock outstanding (other than 8% Preferred Stock) having similar
voting rights (such other series of Preferred Stock and the $2.20 Preferred
Stock being hereinafter collectively referred to as 'Special Preferred
Stock'), whether or not the payment of quarterly dividends shall be in
default on all Special Preferred Stock outstanding shall be entitled at the
next annual meeting of stockholders, or at a special meeting of holders of
Special Preferred Stock called as hereinafter provided, to elect two
directors to fill such newly created directorships, and in addition thereto,
such holders shall be entitled to participate with holders of Common Stock
and holders, if any, of any other capital stock of the Corporation entitled
to vote for the election of directors in the election of any other
directors; provided, however, that when all arrears in dividends on Special
Preferred Stock then outstanding shall have been paid and dividends thereon
for the current quarterly period shall have been paid or declared and a sum
sufficient for the payment thereof set aside, then (i) the right of holders
of Special Preferred Stock to participate in the election of two directors
shall cease but subject always to the same provisions for vesting of such
voting rights in the case of any similar future arrearages in dividends;
(ii) the term of the directors then in office elected by holders of Special
Preferred Stock as a class shall terminate; and (iii) the number of
directors constituting the Board of Directors shall be reduced by two.
Whenever such voting right shall vest, it may be exercised initially
either at a special meeting of holders of Special Preferred Stock or at any
annual or special stockholders' meeting, but thereafter it shall be
exercised only at annual stockholders' meetings. A special meeting for the
exercise of such right shall be called by the Secretary of the Corporation
within ten days after receipt of a written request therefor, signed by the
holders of record of at least 10% of the votes of the then outstanding
shares of Special Preferred Stock; however, no such special meeting shall be
held during the 90-day period preceding the date fixed for the annual
meeting of stockholders.
Any director who shall have been elected by holders of Special Preferred
Stock as a class pursuant to this subparagraph (C) shall hold office for a
term expiring (subject to the earlier termination of the default in
dividends) at the next annual meeting of stockholders, and during such term
may be removed at any time, either for or without cause, only by the
affirmative votes of holders of record of a majority of the votes of the
then outstanding shares of Special Preferred Stock given at a special
meeting of such stockholders called for the purpose. Any vacancy created by
such removal may also be filled at such meeting. A meeting for the removal
of a director elected by holders of Special Preferred Stock as a class and
the filling of the vacancy created thereby shall be called by the Secretary
of the Corporation within ten days after receipt of a written request
therefor, signed by the holders of not less than 25% of the votes of the
then outstanding shares of Special Preferred Stock. Such meeting shall be
held at the earliest practicable date thereafter.
Any vacancy caused by the death, resignation, or expiration of term
(except upon a termination of the default in dividends) of a director who
shall have been elected by the holders of Special Preferred Stock as a class
pursuant to this subparagraph (C) may be filled only by the holders of
Special Preferred Stock at a meeting called for such purpose. Such meeting
of the holders of Special Preferred Stock shall be called by the Secretary
of the Corporation at the earliest practicable date after any such death or
resignation and in any event within ten days after
11
<PAGE>
receipt of a written request therefor, signed by the holders of record of at
least 10% of the votes of the then outstanding shares of Special Preferred
Stock.
If any meeting of the holders of Special Preferred Stock required by
this subparagraph (C) to be called shall not have been called within ten
days after personal service of a written request therefor upon the Secretary
of the Corporation or within 15 days after mailing the same within the
United States of America by registered mail addressed to the Secretary of
the Corporation at its principal office, then holders of record of at least
10% of the votes of the then outstanding shares of Special Preferred Stock
may designate in writing one of their number to call such a meeting at the
expense of the Corporation and such meeting may be called by such person so
designated upon the notice required for annual meetings of stockholders. Any
holder of Special Preferred Stock so designated shall have access to the
stock books of the Corporation for the purpose of causing meetings of
stockholders to be called pursuant to these provisions.
Any meeting of holders of Special Preferred Stock to vote as a class for
the election or removal of directors shall be held at the place for the
holding of the annual meeting of stockholders of the Corporation. At such
meeting, the presence in person or by proxy of holders of a majority of the
votes of the then outstanding shares of Special Preferred Stock shall be
required to constitute a quorum; in the absence of a quorum, a majority of
the holders present in person or by proxy shall have power to adjourn the
meeting from time to time without notice, other than announcement at the
meeting, until a quorum shall be present.
(D) So long as any shares of $2.20 Preferred Stock are outstanding, the
Corporation shall not, in any manner, whether by amendment to the
Certificate of Incorporation or By-Laws of the Corporation, by merger
(whether or not the Corporation is a surviving corporation in such merger),
by consolidation, or otherwise:
(1) without the written consent or the affirmative vote at a meeting
called for that purpose of the holders of at least two-thirds of the
votes of the shares of $2.20 Preferred Stock then outstanding, voting
separately as a class, (a) amend, alter or repeal any of the provisions
of Article IV of the Certificate of Incorporation of the Corporation, or
of any resolution or resolutions establishing the $2.20 Preferred Stock,
so as to affect adversely the powers, preferences or special rights of
the $2.20 Preferred Stock; or (b) authorize or increase the authorized
amount of, or authorize any obligation or security convertible into or
evidencing the right to purchase shares of, any additional class or
series of stock ranking prior to the $2.20 Preferred Stock in the payment
of dividends or the preferential distribution of assets; or (c) authorize
or increase the authorized amount of, or authorize any obligation or
security convertible into or evidencing the right to purchase shares of,
any shares of Preferred Stock of any series having more than one vote per
share of such Preferred Stock or amend, alter or repeal any of the
provisions of Article IV of the Certificate of Incorporation of the
Corporation, or of any resolution or resolutions establishing any series
of the Preferred Stock, so as to provide any share of Preferred Stock
with more than one vote per share of Preferred Stock; or
(2) without the written consent or the affirmative vote at a meeting
called for that purpose of the holders of at least a majority of the
aggregate number of the votes of the shares of Preferred Stock of all
series (including $2.20 Preferred Stock) then outstanding, voting
separately as a class, (a) increase the number of shares of Preferred
Stock authorized by the provisions of Article IV of the Certificate of
Incorporation; or (b) authorize or increase the authorized amount of, or
authorize any obligation or security convertible into or evidencing the
right to purchase shares of, any additional class of stock ranking on a
parity with the $2.20 Preferred Stock in the payment of dividends or the
preferential distribution of assets;
PROVIDED, HOWEVER, that the foregoing provisions of this subparagraph (D)
shall not require the consent or vote of the holders of $2.20 Preferred Stock or
any Preferred Stock for the authorization or
12
<PAGE>
an increase in the authorized amount of any class or series of stock, or for the
authorization of any obligation or security convertible into or evidencing the
right to purchase shares of any class or series of stock, except to the extent
specifically provided in sections (1) (b), (2) (a) and (2) (b) of this
subparagraph (D); and PROVIDED further, that, except as otherwise required by
law, no such consent or vote shall be required for any merger or consolidation:
(i) in which (x) the Corporation is the surviving corporation; (y) no
adverse change is made in the powers, preferences or special rights of the
$2.20 Preferred Stock; and (z) no additional class or series of stock is
authorized or the authorized amount thereof increased, and no obligation or
security convertible into or evidencing the right to purchase shares of any
additional class or series of stock is authorized, if no such consent or
vote would have been required for any such authorization, or increase in
authorized amount, immediately prior to such merger or consolidation; or
(ii) in which (x) the Corporation is a party but is not the surviving
corporation; (y) the surviving corporation shall, in connection with and at
the same time as such merger or consolidation, issue in exchange for each
share of $2.20 Preferred Stock then outstanding a share of preferred stock
of the surviving corporation with the same powers, preferences and special
rights as the $2.20 Preferred Stock; and (z) immediately after such merger
or consolidation only classes or series of stock of the surviving
corporation and obligations or securities convertible into or evidencing the
right to purchase shares of a class or series of stock of the surviving
corporation shall be authorized or outstanding, for which no such consent or
vote would have been required if such classes or series of stock and
obligations or securities had been authorized by the Corporation immediately
prior to such merger or consolidation, or which have, or are convertible
into or evidence the right to purchase shares of a class or series of stock
of the surviving corporation which have, the same powers, preferences and
special rights and authorized amount as a class or series of stock of the
Corporation which was authorized (with such consent or vote) prior to such
merger or consolidation and is continuing as an authorized class or series
of stock at the time thereof.
SECOND: That the number of shares of $2.20 Cumulative Convertible Preferred
Stock is 2,875,000.
IN WITNESS WHEREOF, said Tesoro Petroleum Corporation has caused this
certificate to be signed by Robert V. West, Jr., its Chairman of the Board of
Directors, and attested by M. Richard Stewart, its Secretary, this 26th day of
January, 1983.
By /s/ ROBERT V. WEST, JR.
Chairman of the
Board of Directors
ATTEST:
By /s/ M. RICHARD STEWART
Secretary
13
<PAGE>
EXHIBIT 3(d)
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF SERIES A
PARTICIPATING PREFERRED STOCK
OF
TESORO PETROLEUM CORPORATION
PURSUANT TO SECTION 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
We, Robert V. West, Jr., Chairman of the Board and Chief Executive Officer,
and John H. Whitworth, Jr., Assistant Secretary, of Tesoro Petroleum
Corporation, a corporation organized and existing under the General Corporation
Law of the State of Delaware, in accordance with the provisions of Section 103
thereof DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of said Corporation, the said Board of Directors on
November 27, 1985 adopted the following resolutions creating a series of 250,000
shares of the Preferred Stock without par value classified as Series A
Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors of
this Corporation in accordance with the provisions of its Certificate of
Incorporation, a series of Preferred Stock of the Corporation be and is hereby
created, and that the designation and amount thereof and the voting powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
thereof are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as 'Series A Participating Preferred Stock' (the 'Series A Preferred
Stock') and the number of shares constituting such series shall be 250,000.
Section 2. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of Series A
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a 'Quarterly
Dividend Payment Date'), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock, par value $.16 2/3 per share, of
the Corporation (the 'Common Stock') since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Preferred Stock. If on any Quarterly Dividend Payment Date the Corporation's
Certificate of Incorporation shall limit the amount of dividends which may be
paid on the Series A Preferred Stock to an amount less than that provided above,
such dividends will be paid in the maximum permissible amount and the shortfall
from the amount provided above shall be a cumulative dividend requirement and be
carried forward to subsequent Quarterly Dividend Payment Dates.
In the event the Corporation shall at any time declare or pay any dividend
on Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
1
<PAGE>
such case the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under the second preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
When, as and if the Corporation shall declare a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common Stock), the
Corporation shall at the same time declare a dividend or distribution on the
Series A Preferred Stock as provided in this paragraph (A); provided that, in
the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the
Series A Preferred Stock shall nevertheless be payable, when, as and if declared
by the Board of Directors, on such subsequent Quarterly Dividend Payment Date.
Dividends shall begin to accrue and be cumulative on outstanding shares of
Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding
the date of issue of such shares of Series A Preferred Stock, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or if the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 60 days prior to the relevant
Quarterly Dividend Payment Date.
Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time (i) declare or
pay any dividend on Common Stock payable in shares of Common Stock, (ii)
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock or (iii) increase by 20% or more, other than through
the methods referred to in subclauses (i) and (ii) above, the shares of
Common Stock outstanding as compared with the shares of Common Stock
outstanding on the date hereof, then in each such case the number of votes
per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock, the holders of shares of Common Stock
and the holders of any other capital stock of the Corporation at the time
entitled thereto shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation and notwithstanding that the
holders of Series A Preferred Stock, voting as a class, may be entitled to
elect two directors as hereinafter
2
<PAGE>
provided, they shall be entitled to participate with the Common Stock (or
any other capital stock as aforesaid), in the election of any other
directors.
(C) In case at any time six or more full quarterly dividends (whether
consecutive or not) on the Series A Preferred Stock shall be in arrears,
then during the period (hereinafter in this Section 3(C) called the 'Voting
Period') commencing with such time and ending with the time when all arrears
in dividends on the Series A Preferred Stock shall have been paid and the
full dividend on the Series A Preferred Stock for the then current quarterly
dividend period shall have been declared and paid or set aside for payment,
at any meeting of the stockholders of the Corporation held for the election
of directors during the Voting Period, the holders of Series A Preferred
Stock present in person or represented by proxy at said meeting, shall be
entitled, as a class, to the exclusion of the holders of all other classes
of stock of the Corporation, to elect two directors of the Corporation, each
share of Series A Preferred Stock entitling the holder to one vote.
Any director who shall have been elected by holders of Series A
Preferred Stock or by any director so elected as herein contemplated, may be
removed at any time during a Voting Period, either for or without cause, by,
and only by, the affirmative votes of the holders of record of a majority of
the outstanding shares of Series A Preferred Stock given at a special
meeting of such stockholders called for the purpose, and any vacancy thereby
created may be filled during such Voting Period by the holders of Series A
Preferred Stock present in person or represented by proxy at such meeting.
Any director to be elected by the Board of Directors of the Corporation to
replace a director elected by holders of Series A Preferred Stock or elected
by a director as in this sentence provided shall be elected by the remaining
director theretofore elected by the holders of Series A Preferred Stock. At
the end of the Voting Period the holders of Series A Preferred Stock shall
be automatically divested of all voting power vested in them under this
Section 3(C) but subject always to the subsequent vesting hereunder of
voting power in the holders of Series A Preferred Stock in the event of any
similar default or defaults thereafter.
(D) Except as set forth herein, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock
or holders of any other class of capital stock as set forth herein) for
taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, except dividends paid ratably on the
Series A Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in
3
<PAGE>
accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes, provided
that the Corporation may at any time purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred
Stock.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire shares at such time and in such
manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued
shares of preferred stock and may be reissued as part of a new series of
preferred stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any voluntary
liquidation, dissolution or winding up of the Corporation, no distribution
shall be made (1) to the holders of shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of
Series A Preferred Stock shall have received an aggregate amount equal to
(a) $35.00 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such
payment plus (b) an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to
be distributed per share to holders of Common Stock, or (2) to the holders
of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock and all other
such parity stock in proportion to the total amounts to which the holders of
all such shares are entitled upon such liquidation, dissolution or winding
up, disregarding for this purpose the amounts referred to in clause (b) of
the preceding sentence. In the event the Corporation shall at any time
declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case proper
provision shall be made so that the shares of Series A Preferred Stock shall
at the same time be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. The Company shall not
consummate any such consolidation, merger, combination or other transaction
unless prior thereto the Company
4
<PAGE>
and the other party or parties to such transaction shall have so provided in
any agreement relating thereto. In the event the Corporation shall at any
time declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of
shares of Series A Preferred Stock shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 8. NO REDEMPTION. The shares of Series A Preferred Stock shall
not be redeemable.
Section 9. RANKING. The Series A Preferred Stock shall rank on a
parity with all other series of the Corporation's preferred stock
outstanding as of December 16, 1985, as to the payment of dividends and the
distribution of assets.
Section 10. AMENDMENT. The Restated Certificate of Incorporation of
the Corporation shall not be amended in any manner which would alter or
change the powers, preferences or special rights of the Series A Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of two-thirds or more of the outstanding shares of Series A
Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and
do affirm the foregoing as true under the penalties of perjury this 16th day
of December 1985.
/s/ ROBERT V. WEST, JR.
Robert V. West, Jr., Chairman
and Chief Executive Officer
Attest:
/s/ JOHN H. WHITWORTH, JR.
John H. Whitworth, Jr.,
Assistant Secretary
5
<PAGE>
EXHIBIT 3(e)
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
TESORO PETROLEUM CORPORATION
Tesoro Petroleum Corporation, a corporation organized and
existing under and by virtue of the General Corporation Law of the
State of Delaware (the "Corporation"), does hereby certify:
FIRST: That at a meeting of the Board of Directors of the
Corporation resolutions were duly adopted setting forth proposed
amendments to the Restated Certificate of Incorporation of the
Corporation (the "Restated Certificate of Incorporation"), declaring
said amendments to be advisable and calling a meeting of the
stockholders of the Corporation for consideration thereof. The
amendments adopted provide a follows:
Article IV of the Restated Certificate of Incorporation shall be
amended by adding a new paragraph (E) reading in its entirety as
follows:
(E) Provisions Necessary to Effect the Reclassification of $2.16
Preferred Stock.
(l) Upon the filing of this Certificate of Amendment in the
Office of the Secretary of State of the State of Delaware (the
"Effective Date"), each share of $2.16 Preferred Stock issued and
outstanding immediately prior to the Effective Date shall
automatically and without any action on the part of the holder
thereof be reclassified and changed into 4.9 shares of Common
Stock of the Corporation, and all powers, preferences,
privileges, voting and other special or relative rights and
qualifications of $2.16 Preferred Stock, including priorities
with respect to dividends and liquidation and rights in respect
of accumulated dividends existing on the Effective Date, shall
terminate and be of no further force and effect.
(2) Each holder of a certificate or certificates which
immediately prior to the Effective Date represented outstanding
shares of $2.16 Preferred Stock (the "Old Certificates", whether
one or more) shall be entitled to receive upon surrender of the
Old Certificates to the Corporation's transfer agent for
cancellation, a certificate or certificates (the "New
Certificates", whether one or more) representing the number of
shares of Common Stock into which the shares of $2.16 Preferred
Stock, formerly represented by the Old Certificates so
surrendered, are reclassified and converted under the terms
hereof.
(3) No certificates or scrip representing fractional share
interests in Common Stock will be issued, and no such fractional
share interest will entitle the holder thereof to vote or to any
rights of a stockholder of the Corporation. A holder of Old
Certificates shall receive, in lieu of any fractions of a share
of Common Stock
<PAGE>
to which the holder would otherwise be entitled, such number of
shares rounded to the next higher whole number.
(4) From and after the Effective Date, certificates
representing shares of $2.16 Preferred Stock shall be deemed to
represent only the right to receive shares of Common Stock.
That the Restated Certificate of Incorporation shall be amended
by deleting the first two paragraphs of Article V in their entirety
such that Article V as amended will read in its entirety as follows:
Election of directors need not be by ballot unless the By-laws
of the Corporation shall so provide.
That Article VII of the Restated Certificate of Incorporation
shall be amended by adding new paragraphs (G) and (H) reading in their
entirety as follows:
(G) No amendment to this Restated Certificate of
Incorporation or to the By-Laws shall amend, modify or repeal any
or all of the provisions of this Article VII unless adopted by
the affirmative vote or consent of the holders of not less than
80% of the outstanding shares of stock of the Corporation
entitled to vote in elections of directors, voting for the
purposes of this Article as a single class; PROVIDED, HOWEVER,
that in the event the Board of Directors of the Corporation shall
by resolution unanimously recommend to the stockholders the
adoption of any such amendment, the stockholders of record
holding a majority of the outstanding shares of stock of the
Corporation entitled to vote in elections of directors may amend,
modify or repeal any or all of such provisions.
(H) Notwithstanding the foregoing provisions of this
Article, this Article shall become null, void and of no further
force or effect upon the expiration of the option granted by
MetLife Security Insurance Company of Louisiana ("MetLife
Louisiana") to the Corporation to acquire shares of capital stock
of the Corporation held by MetLife Louisiana as set forth in the
Call Option Agreement dated February 9, 1994, between MetLife
Louisiana and the Corporation, other than upon the expiration
thereof on account of such option having been exercised in full.
That the Restated Certificate of Incorporation shall be amended
by deleting the whole of Article VIII thereof in its entirety and
replacing in lieu and instead of such article a new Article VIII,
reading in its entirety as follows:
"Notwithstanding the provisions of this Restated Certificate
of Incorporation and any provision of the By-Laws of the
Corporation, in the absence of approval by 66-2/3% of the
independent directors of the Corporation, voting at a meeting
duly called for such purpose, of an amendment to the Amended and
Restated
-2-
<PAGE>
Memorandum of Understanding dated December 14, 1993 or the Call
Option Agreement dated February 9, 1994, each between MetLife
Security Insurance Company of Louisiana ("MetLife Louisiana") and
the Corporation, which would be adverse to the Corporation, no
such amendment shall be approved, agreed to or executed by the
Corporation unless approved by the affirmative vote or consent of
the holders of not less than 80% of the outstanding shares of
capital stock of the Corporation entitled to vote in elections of
directors, voting for the purposes of this Article as a single
class. For purposes hereof, an independent director shall be any
director other than Ray C. Adam, Charles F. Luce, Stewart G.
Nagler, James Q. Riordan, William S. Sneath or any person who is
an affiliate (within the meaning set forth in Article VII hereof)
of MetLife Louisiana."
SECOND: That said amendments were duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
THIRD: This Certificate of Amendment shall become effective upon
the filing hereof in the Office of the Secretary of State of the State
of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate
of Amendment to be duly executed by its Executive Vice President and
Chief Financial Officer and attested to by its Secretary, as of
February 9, 1994.
ATTEST: TESORO PETROLEUM CORPORATION
By: /S/ JAMES C. REED, JR. By: /S/ BRUCE A. SMITH
Name: James C. Reed, Jr. Name: Bruce A. Smith
Title: Secretary Title: Executive Vice
President and Chief
Financial Officer
-3-
<PAGE>
EXHIBIT 4(i)
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is dated as of February 9, 1994,
between Tesoro Petroleum Corporation ("Tesoro") and MetLife Security
Insurance Company of Louisiana ("MetLife Louisiana").
WHEREAS, Tesoro and MetLife Louisiana have entered into an
Amended and Restated Memorandum of Understanding dated as of
December 14, 1993 (the "Amended Memorandum of Understanding"), which
contemplates, among other things that all dividend arrearages accrued
on Tesoro's $2.20 Cumulative Convertible Preferred Stock (the
"Preferred Stock") would be satisfied and that Tesoro would issue to
MetLife Louisiana 1,900,075 shares (the "Shares") of Common Stock of
Tesoro;
WHEREAS, to facilitate the consummation of certain transactions
contemplated by the Amended Memorandum of Understanding, Tesoro and
MetLife Louisiana desire to enter into this Agreement;
NOW, THEREFORE, it is agreed as follows:
1. Upon and subject to the terms and conditions contained
herein, MetLife Louisiana agrees to purchase from Tesoro the Shares
for an aggregate purchase price of $21,243,750.
2. Tesoro represents to MetLife Louisiana that at the time of
issuance of the Shares, the Shares will be duly authorized, validly
issued, fully paid and non-assessable and will be listed for trading
on the New York Stock Exchange.
3. Tesoro represents that its Board of Directors has declared
the payment of all accrued and unpaid dividends on the Preferred Stock
through February 15, 1994, payable on February 15, 1994, in an amount
equal to $21,346,875.
4. Tesoro shall issue the Shares to MetLife Louisiana on
February 9, 1994. MetLife Louisiana shall pay for the purchase price
for the Shares by assigning to Tesoro MetLife Louisiana's right to
receive $21,243,750 of the dividend on the Preferred Stock payable to
MetLife Louisiana on February 15, 1994.
METLIFE SECURITY INSURANCE TESORO PETROLEUM
COMPANY OF LOUISIANA CORPORATION
By /S/ JAMES S. RUSSELL By /S/ BRUCE A. SMITH
James S. Russell
Vice-President and Treasurer
<PAGE>
EXHIBIT 4(j)
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is entered into this 9th day
of February 1994, between METLIFE SECURITY INSURANCE COMPANY OF
LOUISIANA ("MetLife Louisiana") and TESORO PETROLEUM CORPORATION
("Tesoro").
W I T N E S S E T H:
WHEREAS, there has been consummated on the date hereof a
recapitalization of Tesoro on the terms contemplated by the proxy
statement/prospectus/consent solicitation dated January 3, 1994;
WHEREAS, as a result of such recapitalization there may be issued
in the future in exchange for the $2.20 Cumulative Convertible
Preferred Stock of Tesoro held by MetLife Louisiana a new series of
$2.20 Cumulative Preferred Stock of Tesoro ("Preferred Stock"), and
there has also been issued to MetLife Louisiana an additional
1,900,075 shares of Common Stock, par value $.16 2/3 per share, of
Tesoro ("Common Stock");
WHEREAS, MetLife Louisiana and Tesoro have entered into an
Amended and Restated Memorandum of Understanding dated December 14,
1993 (the "Memorandum of Understanding"), which contemplates the
granting by Tesoro of certain registration rights with respect to the
shares of Preferred Stock MetLife Louisiana which may be issued in the
future and the shares of Common Stock owned on the date hereof, giving
effect to the recapitalization, and shares of Common Stock
subsequently acquired by MetLife Louisiana (such shares of Preferred
Stock and Common Stock collectively referred to as the "Stock"), and
MetLife Louisiana and Tesoro further desire to establish certain
obligations and conditions with respect to such registration rights;
NOW, THEREFORE, Tesoro and MetLife Louisiana agree as follows:
1. REGISTRATION RIGHTS. MetLife Louisiana shall have the
registration rights specified below:
(a) PRIMARY REGISTRATION RIGHTS. From the date of the
issuance of the Preferred Stock to December 31, 2009, MetLife
Louisiana shall have the right, subject to the conditions hereinafter
set forth, exercisable by written request (a "Request"), to cause
Tesoro to register for offering and sale under the Securities Act of
1933, as amended, or any successor statute (the "Act"), all or part of
the Stock. A Request shall specify the amount of Stock to be included
in the registration, the proposed manner in which such Stock is to be
sold, and, if the offering is to be underwritten, the identity of an
underwriter, if any, who will conduct the sale of such Stock in
conjunction with the co-managing or co-principal underwriters chosen
by Tesoro, such co-managing or co-principal underwriters to share any
management fee on an equal basis. For the purposes of this Agreement,
an underwritten offering includes both "best efforts" and "firm
commitment" underwritten offerings.
<PAGE>
Upon receipt of a Request, Tesoro will, as promptly as is
reasonably possible, (i) notify MetLife Louisiana of the co-managing
or co-principal underwriter which Tesoro has selected to participate
in the offering, if such offering is to be underwritten, and (ii)
prepare, file and use best efforts to cause to become effective a
registration statement on any form promulgated by the Securities and
Exchange Commission (the "Commission") and selected by Tesoro which is
then available for use by Tesoro and which adequately causes the offer
and sale of the Stock, or the portion thereof requested to be
registered, to become registered under the Act.
(b) SECONDARY REGISTRATION RIGHTS. If at any time from the
date of the issuance of the Preferred Stock to December 31, 2009, and
from time to time, Tesoro shall decide to register securities for its
own account or if Tesoro shall be requested to register securities by
any of its securityholders, other than MetLife Louisiana, who hold or
are subsequently granted primary registration rights (the
"Securityholders") and any such offering is to be underwritten, it
will notify MetLife Louisiana in writing of such proposed underwriting
and registration at least ten (10) days prior to the filing of the
registration statement covering such securities. MetLife Louisiana
shall have the right, subject to the conditions hereinafter set forth,
and if the registration is being made at the request of any of the
Securityholders, to the rights of such Securityholders, upon written
notification (the "Notification") given within five (5) days after
receipt of Tesoro's written notification referred to in the preceding
sentence, to have the Stock, or the portion thereof so designated in
its written response, included in the underwriting and, in connection
therewith, in the registration statement to be filed with respect
thereto, and Tesoro will use reasonable efforts to cause the Stock or
the portion thereof so designated, to be so included; PROVIDED,
HOWEVER, that MetLife Louisiana may only request the inclusion of
Stock in such underwriting and registration statement to the extent
that the aggregate market value of such Stock on the date of the
Notification is equal to or less than the aggregate market value of
all securities to be registered, determined on the date of the
Notification, without taking into account any Stock. Tesoro
represents and warrants that no Securityholder, other than the
Securityholders disclosed in writing to MetLife Louisiana prior to the
execution of this Agreement, has been granted the right to prevent the
inclusion of Stock in any registration of Tesoro securities initiated
by such Securityholder (other than the exclusion of Stock in
accordance with the provisions of Section 3(c) of this Agreement) and
agrees that it will not grant any such right in any agreement which it
subsequently enters into.
2. REGARDING OFFERINGS INITIATED BY METLIFE LOUISIANA. If
MetLife Louisiana elects to have the Stock or a portion thereof
registered pursuant to Section 1(a) hereof in an underwritten
offering, Tesoro and any other Securityholders shall be permitted to
include in such underwriting, and in connection therewith, in the
registration statement to be filed with respect thereto, Tesoro
securities to be sold for their account. If, however, Tesoro or any
other Securityholder requests the inclusion of Tesoro securities in
such underwriting for their own account, and the lead co-managing or
lead co-principal underwriter selected by MetLife Louisiana shall
advise MetLife Louisiana that in its good
-2-
<PAGE>
faith judgment the inclusion of any Tesoro securities other than the
Stock, or the portion thereof which MetLife Louisiana has requested to
be registered, would make it impracticable to conduct an underwritten
offering at the price at which the Stock could be sold without such
inclusion, Tesoro and, subject to contract rights existing on the date
hereof, the Securityholders shall not be permitted to include in such
registration such Tesoro securities; PROVIDED, HOWEVER, that if the
managing or principal underwriter selected by MetLife Louisiana shall
advise MetLife Louisiana that in its good faith judgment a portion of
Tesoro securities requested to be included by Tesoro or such other
Securityholders could be included in the underwriting without making
it impracticable to conduct the underwritten offering at the price at
which the Stock could be sold without such inclusion, Tesoro and,
subject to contract rights existing on the date hereof, the
Securityholders, shall be permitted to include such Tesoro securities
in such underwriting pro rata to the extent so designated by such
underwriter.
3. GENERAL CONDITIONS TO TESORO'S OBLIGATIONS. The obligations
of Tesoro to register or to cause the registration of the Stock, as
set forth in Section 1 hereof, shall be subject to the following
conditions:
(a) PRIMARY REGISTRATION EXEMPTIONS. Tesoro shall not be
required to file any registration statement pursuant to Section 1(a)
hereof if:
(i) it has previously filed two registration statements
pursuant to Section 1(a) which have become effective;
(ii) there has previously become effective a registration
statement pursuant to Section 1(a) hereof during the twelve
calendar months preceding the calendar month in which MetLife
Louisiana makes a Request; or
(iii) the Act or any rules and regulations promulgated
thereunder by the Commission would require Tesoro to include
audited financial statements in such registration statement as of
a date subsequent to Tesoro's most recent annual audit, unless
MetLife Louisiana shall agree to pay any and all expenses which
Tesoro may incur in conducting any additional audit.
(b) SECONDARY REGISTRATION EXEMPTIONS. Tesoro shall not be
required to register the Stock or any portion thereof pursuant to
Section 1(b) hereof if Tesoro shall prepare and file a registration
statement (i) relating solely to securities to be issued by Tesoro in
connection with the acquisition of the stock or assets of another
corporation, or the merger or consolidation of another corporation by
or with Tesoro or any of its subsidiaries; (ii) relating solely to
securities to be issued upon the exercise of warrants or conversion of
convertible securities or which relate to employee benefit or stock
purchase plans; or (iii) on Form S-4 or any other form promulgated by
the Commission which at the time of such registration cannot be used
by Tesoro for the general registration of securities to be sold for
cash.
-3-
<PAGE>
(c) REGARDING OFFERINGS NOT INITIATED BY METLIFE LOUISIANA.
If MetLife Louisiana elects to have the Stock or a portion thereof
included in an underwriting referred to in Section 1(b) hereof, and
the lead managing or lead principal underwriter selected by Tesoro or
a Securityholder, as the case may be, shall advise Tesoro that in its
good faith judgment the inclusion of the Stock, or the portion thereof
which MetLife Louisiana has requested to be included, would make it
impracticable to conduct an underwritten offering at the price at
which the securities proposed to be sold in such underwriting other
than the Stock could be sold without such inclusion, Tesoro shall not
be required to use reasonable efforts to include or cause to be
included in such underwriting the Stock, or the portion thereof
requested to be included by MetLife Louisiana. If, however, the lead
managing or lead principal underwriter shall advise Tesoro that in its
good faith judgment a portion of the Stock or a portion of the portion
thereof requested to be included, could be included in the
underwriting without making it impracticable to conduct the
underwritten offering at the price at which the securities proposed to
be sold in such underwriting other than the Stock could be sold
without such inclusion, Tesoro shall use reasonable efforts to include
or cause to be included in such underwriting that portion of the Stock
or that portion of the portion thereof requested to be included by
MetLife Louisiana.
If, however, several Securityholders and MetLife Louisiana shall
request that Tesoro securities be included in an underwriting referred
to in Section 1(b) hereof and the lead managing or lead principal
underwriter selected by Tesoro or a Securityholder , as the case may
be, shall advise Tesoro that in its good faith judgment the inclusion
of all such securities requested to be registered by the
Securityholders and MetLife Louisiana would make it impracticable to
conduct an underwritten offering at the price at which the securities
proposed to be sold in such underwriting other than the securities re-
quested to be included by the Securityholders and MetLife Louisiana
could be sold without such inclusion, but the inclusion of a portion
of such securities would not make it so impracticable to conduct such
underwritten offering, Tesoro shall, subject to contract rights
existing on the date hereof, use its reasonable efforts to include or
cause to be included in such underwriting a portion of the Stock, or a
portion of the portion thereof requested to be included by MetLife
Louisiana, pro rata with all other securities requested to be included
in the underwriting by the Securityholders.
(d) LACK OF INFORMATION. Tesoro shall not be required to
register or cause the registration of the Stock or any portion thereof
pursuant to Section 1 hereof if MetLife Louisiana shall not promptly
supply Tesoro with any information which Tesoro may reasonably request
in order to permit the preparation, filing and effectiveness of a
registration statement in accordance with the Act and any rules and
regulation promulgated by the Commission thereunder.
4. BLUE SKY QUALIFICATIONS. In the event that any registration
statement relating to the Stock or any portion thereof is filed
pursuant to Section 1 hereof, Tesoro will use best efforts to qualify
the Stock or the portion thereof so registered for sale under the laws
of
-4-
<PAGE>
such jurisdictions as MetLife Louisiana may reasonably request and
will comply to the best of its ability with such laws so as to permit
such sales. Tesoro shall not be obligated, however, to qualify as a
foreign corporation or to file any general consent to service of
process under the laws of any such jurisdiction, except solely as to
matters related to the sale of the Stock, or subject itself to
taxation as doing business in any such jurisdiction. In addition,
Tesoro shall not be required to qualify the Stock or any portion
thereof in any jurisdiction where the Stock does not meet the
requirements of such jurisdiction.
5. UNDERWRITING AGREEMENTS. If MetLife Louisiana shall cause
Tesoro to file a registration statement pursuant to Section 1(a)
hereof in connection with an underwritten offering, Tesoro agrees to
negotiate in good faith its becoming a party to an underwriting
agreement, in a form reasonably satisfactory to Tesoro not
inconsistent with the provisions of this Agreement, with the
co-managing or co-principal underwriters selected by MetLife Louisiana or
Tesoro, it being understood that such co-managing or co-principal
underwriters will share any management fee on an equal basis.
If MetLife Louisiana shall elect to register the Stock, or any
portion thereof, pursuant to Section 1(b) hereof, MetLife Louisiana
agrees to utilize the services of the lead managing or lead principal
underwriter, selected by Tesoro or the Securityholders as the case may
be, and be bound by the underwriting discount as previously arranged
by Tesoro or the Securityholders, as the case may be, and to negotiate
in good faith its becoming a party to an underwriting agreement, in a
form reasonably satisfactory to the Securityholders not inconsistent
with the provisions of this Agreement, with the lead managing or lead
principal underwriter selected by Tesoro or the Securityholders, as
the case may be. If, however, the aggregate market value of the Stock
to be included by MetLife Louisiana in such underwriting is at least
one-third of the aggregate market value of all Tesoro securities to be
offered in such underwriting (in each case such market values to be
determined as of the date MetLife Louisiana notifies Tesoro that it
has elected to have such Stock included in such registration), MetLife
Louisiana shall have the right to appoint its own co-managing or
co-principal underwriter to participate in such underwriting along with
the lead managing or lead principal underwriter selected by Tesoro or
the Securityholders, as the case may be, it being understood that such
co-managing or co-principal underwriters will share any management fee
on an equal basis; PROVIDED that such appointment does not violate any
existing rights of such Securityholders or conflict with the
underwriting agreement between Tesoro or such Securityholders, as the
case may be, and the lead managing or lead principal underwriter
selected by Tesoro or such Securityholders, as the case may be.
6. EXPENSES. Tesoro shall bear all fees and expenses (including
MetLife Louisiana's reasonable counsel fees but excluding any
underwriting discounts and commissions and brokerage commissions
applicable to the Stock being sold by MetLife Louisiana, all of which
shall be paid by MetLife Louisiana, and excluding fees and expenses
customarily paid by underwriters) relating to two registration
statements, including amendments and supplements thereto, filed
pursuant to Section 1(a) hereof,
-5-
<PAGE>
which shall become effective, including, without limitation, all
federal and state registration and filing fees, printing expenses, and
fees and expenses of Tesoro's counsel. In addition, Tesoro shall bear
all increased fees and expenses of MetLife Louisiana (except any
underwriting discounts and commissions and brokerage fees applicable
to the Stock being sold by MetLife Louisiana, all of which shall be
paid by MetLife Louisiana) which result from any (i) delay request by
Tesoro pursuant to Section 7 hereof or any request by Tesoro that a
registration statement not become effective or (ii) suspension of an
offering pursuant to Section 8 hereof; provided that this shall not
apply to any loss or any expense incurred as a result of a reduction
in the price per share during such period. If MetLife Louisiana elects
to have the Stock or any portion thereof registered pursuant to
Section 1(b) hereof, it shall bear a pro rata portion of all
underwriting discounts and commissions and brokerage commissions which
relate to the Stock or the portion thereof so registered and no other
expenses.
7. DELAY OF REGISTRATION REQUEST. Notwithstanding Section 1
hereof and despite a Request, Tesoro shall not be required to file any
registration statement if at the time MetLife Louisiana makes a
Request, (i) Tesoro is making an offering pursuant to an effective
registration statement or is contemplating and diligently pursuing the
filing of a registration statement relating to securities to be
offered for its own account (other than any registration statement
which relates solely to shares of common stock issuable upon the
exercise of warrants or upon conversion of convertible securities or
which relates to employee benefit or stock purchase plans); PROVIDED,
HOWEVER, no such delay occasioned under this Section 7(i) shall exceed
90 days after the effective date of Tesoro's registration statement
(or 60 days after the effective date of Tesoro's registration
statement if Tesoro's offering shall be of debt securities with no
equity feature), or (ii) Tesoro shall furnish to MetLife Louisiana a
certificate signed by the chief executive officer of Tesoro stating
that, in the good faith judgment of the Board of Directors of Tesoro,
it would be detrimental to Tesoro for a registration statement to be
filed or to become effective as requested; PROVIDED, HOWEVER, no such
delay occasioned under this Section 7(ii) shall exceed 60 days.
8. PERIOD OF REGISTRATION. Tesoro shall use reasonable efforts
to keep any registration statement which becomes effective under the
provisions of Section 1(a) hereof effective for a period not exceeding
90 days if such registration statement was filed in connection with an
underwritten offering or 45 days if such registration statement was
filed in connection with a non-underwritten offering (after which
period Tesoro may withdraw such registration statement), and from time
to time during such period shall amend the registration statement or
amend or supplement the prospectus used in connection therewith to the
extent necessary in order to correct any untrue statement of a
material fact, or any omission to state a material fact necessary to
make statements therein, in the light of the circumstances existing
when such prospectus is delivered to a purchaser not misleading, or to
otherwise comply with application law so that statements contained in
such prospectus, as so amended or supplemented will not, in the light
of the circumstances then existing, be misleading, or so that such
prospectus will comply with
-6-
<PAGE>
such law. If, however, Tesoro shall take any action with respect to
the acquisition of the stock or assets of any business entity which
would require Tesoro to amend any prospectus included in a
registration statement which became effective under the provisions of
Section 1 hereof by including therein financial statements which
conform to the requirements of Regulation S-X promulgated by the
Commission, and if Tesoro believes, in the exercise of its reasonable
business judgment, that it is advisable that Tesoro proceed with such
acquisition prior to the completion of MetLife Louisiana's offering or
sale of the Stock, MetLife Louisiana agrees to suspend the offering or
sale of the Stock or any portion thereof for a period not to exceed 60
days so that Tesoro may prepare, at Tesoro's cost, such financial
statements; PROVIDED that, Tesoro uses its best efforts to prepare
such financial statements as promptly as possible; and FURTHER
PROVIDED that the 90 or 45 day period referred to in the first
sentence of this Section 8 shall be extended for a period equivalent
to such delay.
Tesoro shall furnish MetLife Louisiana with a draft of Part I of
any registration statement sufficiently in advance of its filing with
the Commission to provide MetLife Louisiana with a reasonable
opportunity for review and comment, which draft shall not be
materially different in content from Part I of the registration
statement as filed. Tesoro shall consider in good faith the comments
of MetLife Louisiana on Part I of any such registration statement. In
addition, Tesoro shall furnish to MetLife Louisiana, promptly after
the filing thereof, a copy of any registration statement as filed with
the Commission and any amendments thereto, including, if requested,
copies of any exhibits and consents filed therewith and of any
exhibits incorporated therein by reference. Tesoro shall also furnish
MetLife Louisiana with as many copies of any prospectuses (and of any
preliminary, amended or supplemented prospectuses) in connection with
such registration as MetLife Louisiana may reasonably request.
9. INDEMNIFICATION. Tesoro and MetLife Louisiana agree to
indemnify each other on the terms and condition set forth below:
(a) INDEMNIFICATION BY TESORO. Tesoro will indemnify and
hold harmless MetLife Louisiana and each underwriter involved in any
underwriting pursuant to this Agreement (including any broker or
dealer through whom the Stock may be sold) and each person, if any,
who controls MetLife Louisiana or such underwriter within the meaning
of Section 15 of the Act, from and against any and all losses, claims,
damages, expenses or liabilities, joint or several, to which they or
any of them may be subject under the Act or under any other statute or
at common law or otherwise, including the Blue Sky Laws of the various
jurisdictions, and except as hereinafter provided, will reimburse
MetLife Louisiana and each of such underwriters and each such
controlling person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or
defending any actions whether or not resulting in any liability
insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any alleged untrue statement of
a material fact, or the alleged omission to state a material fact
required to be stated therein or necessary in order to make the
statements
-7-
<PAGE>
therein not misleading, contained in any registration statement,
preliminary or amended preliminary prospectus or any prospectus (or
any registration statement or prospectus as from time to time amended
or supplemented by Tesoro) which Tesoro shall file pursuant to Section
1 hereof, unless such alleged untrue statement or omission was made in
such registration statement, preliminary or amended preliminary
prospectus (or any registration statement or prospectus as from time
to time amended or supplemented by Tesoro) in reliance upon and in
conformity with information furnished in writing to Tesoro by MetLife
Louisiana or any such underwriter. Promptly after receipt by MetLife
Louisiana or any such underwriter or any person controlling MetLife
Louisiana or such underwriter of notice of the commencement of any
such action (but in no event later than ten (10) days prior to time
any notice of appearance or any response thereto is required) in
respect of which indemnity may be sought against Tesoro, MetLife
Louisiana or such underwriter or such controlling person, as the case
may be, shall notify Tesoro in writing of the commencement thereof,
and, subject to the provisions hereinafter stated, Tesoro shall assume
the defense of such action (including the employment of counsel)
insofar as such action shall relate to any alleged liability in
respect of which indemnity may be sought against Tesoro. MetLife
Louisiana or any underwriter or any such controlling person shall have
the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel shall not be at the expense of Tesoro unless the employment of
such counsel has been specifically authorized by it (which
authorization shall not be unreasonably withheld). Tesoro shall not be
liable to indemnify any person, as required by this Section 9(a), for
any settlement of any such action effected without its consent, nor
shall it be liable to indemnify any person for any losses, claims,
damages, expenses or liabilities whatsoever unless it shall be
notified of the commencement of any action within the time limits and
in the manner as set forth above.
(b) INDEMNIFICATION BY METLIFE LOUISIANA. MetLife Louisiana
will indemnify and hold harmless Tesoro, each of its directors and
officers who have signed the registration statement, each underwriter
involved in any underwriting pursuant to this Agreement (including any
broker or dealer through whom the Stock may be sold) and each person,
if any, who controls Tesoro or any such underwriter within the meaning
or Section 15 of the Act, from and against any and all losses, claims,
damages, expenses or liabilities, joint or several, to which they or
any of them may become subject under the Act or under any other
statute or at common law or otherwise, including the Blue Sky Laws of
the various jurisdictions, and, except as hereinafter provided, will
reimburse Tesoro, each such underwriter and each such director,
officer or controlling person for any legal or other expenses
reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any alleged
untrue statement of a material fact, or an alleged omission to state
therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, contained in any
registration statement, any preliminary or amended preliminary
prospectus or in any prospectus (or any registration statement
-8-
<PAGE>
or prospectus as from time to time amended or supplemented by Tesoro)
which Tesoro shall file pursuant to Section 1 hereof, but only insofar
as any such alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to Tesoro by
MetLife Louisiana or any person who controls MetLife Louisiana within
Section 15 of the Act. Promptly after receipt of notice of the
commencement of any action in respect of which indemnity may be sought
against MetLife Louisiana (but in no event later than ten (10) days
prior to the time any notice of appearance or any response thereto is
required), Tesoro, such underwriter or such officer, director or
controlling person, shall notify MetLife Louisiana in writing of the
commencement thereof, and MetLife Louisiana shall, subject to the
provisions hereinafter stated, assume the defense of such action
(including the employment of counsel) insofar as such action shall
relate to any alleged liability in respect of which indemnity may be
sought against MetLife Louisiana. Tesoro and each such director,
officer or controlling person shall have the right to employ separate
counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense
of MetLife Louisiana unless the employment of such counsel has been
specifically authorized by it (which authorization shall not be
unreasonably withheld). MetLife Louisiana shall not be liable to
indemnify any person, as required by this Section 9(b), for any
settlement of any such action effected without MetLife Louisiana's
consent, nor shall it be liable to indemnify any person for any
losses, claims, damages, expenses or liabilities whatsoever unless it
shall be notified of the commencement of any action within the time
limits and in the manner set forth above.
(c) CONTRIBUTION. If the indemnification provided for in
this Section is unavailable to or insufficient to hold harmless an
indemnified party under subsection (a) or (b) above in respect of any
losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of
such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative
fault of Tesoro on the one hand and MetLife Louisiana on the other in
connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact
relates to information supplied by Tesoro on the one hand or MetLife
Louisiana on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. Tesoro and MetLife Louisiana agree that it
would not be just and equitable if contributions pursuant to this
Subsection (c) were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this Subsection (c). The amount
paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof)
referred to above in this Subsection (c) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. No person guilty of fraudulent
-9-
<PAGE>
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
10. TERMINATION, AMENDMENTS, ASSIGNMENTS, NOTICES AND LISTING.
(a) TERMINATION. Any other provision of this Agreement
notwithstanding, this Agreement shall terminate in the event that the
shares of Stock become freely tradeable by MetLife Louisiana pursuant
to Rule 144(k) of the rules and regulations of the Commission under
the Act.
(b) AMENDMENTS. This Agreement may be amended only by a
written instrument signed by the parties hereto.
(c) ASSIGNMENT. The rights and obligations of MetLife
Louisiana under this Agreement shall be assignable to any person to
whom Stock has been transferred in accordance with the provisions of
Section 6 of the Memorandum of Understanding; PROVIDED, HOWEVER, that
each assignee shall execute and deliver to Tesoro an instrument,
reasonably satisfactory to Tesoro, by which such assignee assumes the
obligations of MetLife Louisiana under this Agreement with respect to
the Stock being transferred to such assignee. Upon such assignment,
MetLife Louisiana shall automatically be relieved of such obligations
so assumed by the assignee. If the rights and obligations of MetLife
Louisiana under this Agreement are assigned only in part, MetLife
Louisiana shall act as agent for the purposes of giving and receiving
notices with respect to the rights and obligations existing hereunder
for so long as MetLife Louisiana holds any Stock, and if MetLife
Louisiana no longer holds any Stock, such agent shall be the largest
holder of Stock as appearing on the books and records of Tesoro.
Tesoro shall be required to look only to MetLife Louisiana or such
other agent for the purpose of giving and receiving notices with
respect to such rights and obligations. Each assignee shall be liable
under Section 9(b) or any other provision of this Agreement only for
its own actions or omissions, and not for any actions or omissions by
any other assignee or MetLife Louisiana. Notwithstanding the number of
persons who shall be assignees, Tesoro shall in no case be required to
file more than the number of registration statements pursuant to
Section 1(a) thereof that is specified in Section 3(a)(i) hereof.
Subject to the foregoing, the respective rights under this Agreement
shall inure to the benefit of, and the respective obligations
hereunder shall become obligations of, the legal representatives,
successors and assignees of the parties hereto.
(d) NOTICES. Any notice to be given hereunder shall be
deemed sufficiently given when in writing and delivered to an officer
of Tesoro or MetLife Louisiana, transmitted by telecopier, or
deposited in the United States mail, postage prepaid and registered or
certified and addressed as set forth below in this Section 10(d) or to
such other address for a party as may be specified in a notice. Tested
telecopier notices shall be effective upon transmission and notices
delivered personally to an officer of MetLife
-10-
<PAGE>
Louisiana or Tesoro shall be effective upon receipt or upon rejection
by the party to whom addressed:
To Tesoro:
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
Attn: Chairman of the Board
To MetLife Louisiana:
MetLife Security Insurance Company of Louisiana
70 Eagle Rock Avenue
Eagle Rock Executive Offices
Second Floor
East Hanover, New Jersey 07936
Attn: Chairman of the Board
and
Metropolitan Life Insurance Company
200 Park Avenue
21st Floor
New York, NY 10166
Attn: Mr. Larry Galie
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attn: Seth A. Kaplan
(e) LISTING. If, at any time, MetLife Louisiana shall
request, pursuant to Section 1(a) or 1(b) hereof, the registration of
any shares of Preferred Stock, Tesoro shall promptly prepare, file and
use reasonable efforts to cause to be approved an application for the
listing of such shares of Preferred Stock for trading on the New York
Stock Exchange, Inc.
(f) COUNTERPARTS. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be
deemed an original.
-11-
<PAGE>
(g) 1983 AGREEMENT. The parties hereto acknowledge that the
Registration Rights Agreement dated January 26, 1983 between Charter
Security Life Insurance Company, a New Jersey corporation, and Charter
Securities Life Insurance Company (New York), a New York corporation
(collectively, "Charter"), is still in full force and effect (it being
understood that the rights granted thereunder with respect to the
Preferred Stock are subject to the provisions of Section 6 of the
Memorandum of Understanding), MetLife Louisiana having all of the
rights of Charter thereunder, and shall survive until, and shall
expire upon, the issuance of the Preferred Stock.
11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of
Delaware, without giving effect to the conflicts or choice of law
provisions of Delaware or any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
METLIFE SECURITY INSURANCE COMPANY OF LOUISIANA
By: /S/ JAMES S. RUSSELL
James S. Russell, Vice-President
and Treasurer
TESORO PETROLEUM CORPORATION
By: /S/ BRUCE A. SMITH
-12-
<PAGE>
EXHIBIT 4(k)
CALL OPTION AGREEMENT
Call Option Agreement dated February 9, 1994 between Tesoro
Petroleum Corporation ("Tesoro") and MetLife Security Insurance
Company of Louisiana ("MetLife Louisiana").
WHEREAS, there has been consummated on the date hereof a
recapitalization of Tesoro on the terms contemplated by the proxy
statement/prospectus/consent solicitation dated January 3, 1994;
WHEREAS, MetLife Louisiana is now the holder of 2,875,000 shares
of $2.20 Cumulative Convertible Preferred Stock ("Preferred Stock") of
Tesoro and 4,084,160 shares of Common Stock $.16 2/3 par value
("Common Stock") of Tesoro;
WHEREAS, the parties hereto wish to provide Tesoro with an option
to acquire the shares of Preferred Stock and shares of Common Stock
now held by MetLife Louisiana, as well as any additional shares of
Common Stock which may be issued by Tesoro to MetLife Louisiana to pay
dividends on the shares of Preferred Stock pursuant to Section 1 of
the Amended and Restated Memorandum of Understanding dated
December 14, 1993 (the "Memorandum of Understanding");
NOW, THEREFORE Tesoro and MetLife Louisiana desire to set forth
their understanding in this Agreement as follows:
1. CALL OPTION. Subject to the terms and conditions of this
Section 1, Tesoro shall have the option (the "Option") to acquire at
any time between the date hereof and the third anniversary of the date
hereof (the "Option Term") all shares of the Preferred Stock and
Common Stock owned by MetLife Louisiana on the date hereof and any
shares of Common Stock used to pay dividends on the Preferred Stock
issued to MetLife Louisiana by Tesoro pursuant to Section 1 of the
Memorandum of Understanding. References to Common Stock in Sections 1
and 2 hereof shall mean the Common Stock owned by MetLife Louisiana on
the date hereof and any shares of Common Stock used to pay dividends
on the Preferred Stock issued to MetLife Louisiana by Tesoro pursuant
to Section 1 of the Memorandum of Understanding.
(a) AGGREGATE OPTION PRICE. The aggregate price
payable in cash by Tesoro to exercise the Option in full
(the "Aggregate Option Price") at any time during the Option
Term shall be equal to the Base Option Price plus the
Accreted Amount. The "Base Option Price" at any date shall
be equal to (i) $53,045,000 less (ii) the sum of (x) all
cash dividends paid on shares of Preferred Stock owned by
MetLife Louisiana before such date, (y) the aggregate Sales
Amount with respect to all sales of Common Stock by MetLife
Louisiana after the date hereof and on or before the date of
such exercise and (z) the aggregate amounts paid upon prior
partial exercises of the Option. The "Sales Amount" with
respect to any sale of Common Stock shall be the cash amount
actually received by MetLife Louisiana upon such sale;
PROVIDED THAT, if Tesoro exercises the Option with respect
to all shares
<PAGE>
subject thereto which have not theretofore been disposed of
by MetLife Louisiana, the Sales Amount shall be increased,
if MetLife Louisiana has theretofore effected any sale of
Common Stock other than in a transaction effected on the New
York Stock Exchange or such other exchange upon which the
Common Stock is then primarily traded or such other system
on which the Common Stock is then primarily quoted (a
"Private Sale") at a price per share (the "Private Sale
Price") which is less than 70% of the Current Market Price
(as defined below) at the date the agreement for sale is
entered into (the "Private Sale Date") (70% of the then
Current Market Price being referred to herein as the "Base
Price"), by an amount, if positive (the "Deficit Amount"),
equal to the sum of (A) the difference between the Private
Sale Price and the Base Price, multiplied by the number of
shares sold in such Private Sale (the "Deficit Sales
Amount"); PROVIDED FURTHER THAT the Deficit Amount shall be
reduced if MetLife Louisiana has at any time theretofore
effected any sale of Common Stock in a Private Sale at a
Private Sale Price which is greater than the Base Price, by
an amount equal to the difference between the Private Sale
Price and the Base Price, multiplied by the number of shares
sold in such Private Sale (the "Surplus Sales Amount") and
(B) the amount by which the Accreted Amount has been
increased as a result of the Base Option Price not being
reduced by the Deficit Sales Amount at the time a Private
Sale giving rise thereto occurred. The "Current Market
Price" means the average of the closing prices for the
Common Stock on the New York Stock Exchange or such other
exchange upon which the Common Stock is then primarily
traded or such other system on which the Common Stock is
then primarily quoted for the 10 trading days immediately
preceding the Private Sale Date. The "Accreted Amount" at
any date shall equal the sum of the Quarterly Accreted
Amounts for all calendar quarters beginning on or after
January 1, 1994 and ending on or before the date of
determination of the Accreted Amount. The "Quarterly
Accreted Amount" for any calendar quarter shall be the
product of (l) the Base Option Price at the end of the
immediately preceding calendar quarter plus the Accreted
Amount for all prior periods and (2) the Quarterly
Percentage for such quarter. The "Quarterly Percentage"
shall be (a) for any calendar quarter beginning on or after
January 1, 1994 through and including the calendar quarter
ending December 31, 1995, 3%, or (b) for any calendar
quarter thereafter, 3.5%.
(b) EXERCISE. The Option may be exercised in part at
any time during the Option Term, provided that the aggregate
exercise price payable upon such partial exercise shall be
at least $5,000,000. Upon any exercise, MetLife Louisiana
shall deliver to Tesoro (A) a number of shares of Preferred
Stock equal to the product of (1) the number of shares of
Preferred Stock held by MetLife Louisiana on the date hereof
and (2) the Exercise Fraction and (B) a number of shares of
Common Stock equal to the product of (1) the sum (the
"Subject Number of Common Shares") of the number of shares
of Common Stock owned by MetLife Louisiana on the date
hereof and any shares of Common Stock used to pay dividends
on the Preferred Stock pursuant to
-2-
<PAGE>
Section 1 of the Memorandum of Understanding prior to the
date of such exercise and (2) the Exercise Fraction. The
"Exercise Fraction" for any partial exercise shall be the
quotient obtained by dividing (a) the aggregate amount to be
paid upon such partial exercise by (b) $53,045,000 plus the
Accreted Amount less all cash dividends paid on shares of
Preferred Stock owned by MetLife Louisiana before such date
but after the date hereof, each determined as of the date of
exercise. In the event that the number of shares of Common
Stock to be delivered pursuant to the last two preceding
sentences exceeds the number of Common Shares then held by
MetLife Louisiana, then MetLife Louisiana shall deliver such
number of Common Shares as it then owns and the amount to be
paid by Tesoro upon such partial exercise shall be reduced
by the lowest aggregate Sales Amount which MetLife Louisiana
has received for a number of shares of Common Stock equal to
the number it would have been required to deliver pursuant
to such partial exercise but is unable to deliver because it
no longer owns such number of Common Shares. If the Option
is exercised in full, MetLife Louisiana will request that
Messrs. Ray C. Adam, Charles F. Luce, Steward G. Nagler,
James Q. Riordan and William S. Sneath resign from the Board
of Directors of Tesoro.
(c) MINIMUM PARTIAL EXERCISE TO CONTINUE OPTION.
Subject to the last sentence of this subparagraph (c), the
Option shall expire if prior to January 1, 1995, Tesoro has
not exercised the Option in an aggregate amount which is
equal to or greater than the 1995 Minimum Amount. In
addition, subject to the last sentence of this subparagraph
(c), the Option shall expire if prior to January 1, 1996,
Tesoro has not exercised the Option in a cumulative
aggregate amount which is equal to or greater than the 1996
Minimum Amount. The "1995 Minimum Amount" means $5,304,500
plus 10% of the Accreted Amount at the date of exercise.
The "1996 Minimum Amount" means $15,913,500 plus the
Accreted Amount at the date of exercise with respect to such
$15,913,500 minus the Accreted Amount which would have
accrued on the amount of any previous partial exercise from
the date of such exercise until the exercise which satisfies
the $15,913,500 requirement. Notwithstanding the foregoing
provisions of this subparagraph (c), the Option shall not
expire and shall remain in effect, if Tesoro pays all
regular quarterly dividends which become due and payable
after the date hereof in cash on the regular payment date in
February, May, August and November of each year.
(d) METHOD OF EXERCISING THE OPTION. Tesoro shall
exercise the Option in whole or in part by delivering
written notice to MetLife Louisiana at 70 Eagle Rock Avenue,
Eagle Rock Executive Offices, Second Floor, East Hanover,
New Jersey 07936, Attn: Chairman of the Board, or such
other address as MetLife Louisiana shall specify to Tesoro
in a writing stating that such writing is intended to change
the address for notice pursuant to this Section 1(d).
Notice may be given by hand delivery, transmission of a
facsimile or by deposit in the United States mail, postage
prepaid registered
-3-
<PAGE>
mail. Notice deposited in the United States mail shall be
deemed delivered five days after being so deposited. The
written notice of exercise shall specify (1) the dollar
amount being paid, (2) whether the Option is being exercised
in full or in part, (3) if the Option is being exercised in
part, a calculation of the Exercise Fraction based on the
information then available to Tesoro, and (4) a date and
time, which shall be no less than 10 days and no more than
30 days after the date of the notice, for the transfer of
the shares of Preferred Stock and Common Stock to be
delivered to Tesoro by MetLife Louisiana and the transfer of
the exercise price from Tesoro to MetLife Louisiana.
MetLife Louisiana shall deliver the certificates
representing the shares of Preferred Stock or Common Stock
to a place in New York City designated by Tesoro, or shall
cause such shares to be transferred to Tesoro by book entry.
Tesoro shall transfer the exercise price to MetLife
Louisiana by wire transfer to a bank in the United States
designated by MetLife Louisiana. If MetLife Louisiana fails
to make such a designation in writing to Tesoro at least
three days prior to the transfer date set forth in the
notice, then Tesoro shall pay the exercise price by
delivering a check payable to MetLife Louisiana at the place
in New York City designated by Tesoro for delivery of the
shares. At least three days prior the date for transfer of
the shares, MetLife Louisiana shall provide to Tesoro an
affidavit signed by the President, Chief Financial Officer,
Chief Accounting Officer or any Vice President of MetLife
Louisiana setting forth information with regard to each sale
of Common Stock by MetLife Louisiana on or after the later
of (i) the date of this Agreement and (ii) the date of the
last such affidavit previously delivered to Tesoro,
including the date and manner of sale and the cash amount
actually received by MetLife Louisiana. In the event such
information differs from the information used by Tesoro to
calculate the Exercise Fraction or the exercise price
required to exercise the Option in full, the Exercise
Fraction or exercise price shall be adjusted appropriately.
Nothing herein shall deprive Tesoro of any right to claims
in the event that the information provided did not
accurately reflect the timing, proceeds and notice of any
sale of Common Stock by MetLife Louisiana.
(e) MetLife Louisiana agrees to advise Tesoro in
writing addressed to Tesoro at Tesoro Petroleum Corporation,
8700 Tesoro Drive, San Antonio, Texas 78217, to the
attention of its President, with a copy addressed to its
Secretary, of the date and public or private nature of, and
proceeds from, any sale of Common Stock within 10 days after
such date.
2. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the substantive law of the State of
Delaware, without giving effect to the conflicts or choice of law
provisions of Delaware or any other jurisdiction.
3. COUNTERPARTS. This Agreement may be executed by the
parties hereto individually or in any combination, in one or more
counterparts (including by means of
-4-
<PAGE>
signature pages sent by telecopier), each of which shall be an
original, and all of which shall together constitute one and the same
agreement.
4. COMPLETE AGREEMENT. This document contains the complete
agreement between the parties relating to the subject matter hereof
and supersedes any prior understandings, agreements or representations
by or between the parties, written or oral, which may have related to
the subject matter hereof in any way, including, without limitation,
Sections 4 and 13 of the Memorandum of Understanding.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
METLIFE SECURITY INSURANCE TESORO PETROLEUM CORPORATION
COMPANY OF LOUISIANA
By: /S/ JAMES S. RUSSELL By: /S/ Bruce A. Smith
Name: James S. Russell Name:
Title: Vice-President Title:
and Treasurer
-5-
<PAGE>
EXHIBIT 10(k)
TESORO PETROLEUM CORPORATION
EXECUTIVE LONG-TERM INCENTIVE PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Tesoro Petroleum Corporation, a
Delaware corporation (hereinafter referred to as the "Company"),
hereby establishes an incentive compensation plan to be known as
the "Tesoro Petroleum Corporation Executive Long-Term Incentive
Plan" (hereinafter referred to as the "Plan"), as set forth in
this document. The Plan permits the grant of Nonqualified Stock
Options, Incentive Stock Options, SARs, Restricted Stock,
Performance Units, and Performance Shares.
Subject to ratification by an affirmative vote of a majority of
Shares, the Plan shall become effective as of September 15, 1993
(the "Effective Date"), and shall remain in effect as provided in
Section 1.3 herein.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the
success and enhance the value of the Company by linking the
personal interests of Participants to those of Company
shareholders, and by providing Participants with an incentive for
outstanding performance.
The Plan is further intended to provide flexibility to the
Company in its ability to motivate, attract, and retain the
services of Participants upon whose judgment, interest, and
special effort the successful conduct of its operation largely is
dependent.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective
Date, as described in Section 1.1 herein, and shall remain in
effect, subject to the right of the Board of Directors to
terminate the Plan at any time pursuant to Article 14 herein,
until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. However, in no event
may an Award be granted under the Plan on or after September 15,
2003.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter
of the word is capitalized:
(a) "Affiliated SAR" means a SAR that is granted in connection with a
related Option, and which will be deemed to automatically be
exercised simultaneous with the exercise of the related Option.
(b) "Award" means, individually or collectively, a grant under this
Plan of Nonqualified Stock Options, Incentive Stock Options,
SARs, Restricted Stock, Performance Units, or Performance Shares.
1
<PAGE>
(c) "Award Agreement" means an agreement entered into by each
Participant and the Company, setting forth the terms and
provisions applicable to Awards granted to Participants under
this Plan.
(d) "Beneficial Owner" shall have the meaning ascribed to such term
in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act.
(e) "Board" or "Board of Directors" means the Board of Directors of
the Company.
(f) "Cause" means: (i) willful misconduct on the part of a
Participant that is materially detrimental to the Company; or
(ii) the commission by a Participant of one or more acts which
constitute an indictable crime under United States Federal,
state, or local law. "Cause" under either (i) or (ii) shall be
determined in good faith by the Committee.
(g) "Change in Control" of the Company shall be deemed to have
occurred if:
(i) Any Person other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or
a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of stock or the Company is or
becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing fifty percent (50%)
or more of the combined voting power of the Company's then
outstanding voting securities;
(ii) A majority of the Board at any time shall cease to be made
up of Qualified Directors. For purposes hereof a Qualified
Director is a director who meets any of the following
criteria: (1) Was a director immediately after the
effective date of the Reclassification (as defined in the
Company's Registration Statement on S-4, relating to the
1993 Annual Meeting of Stockholders), including the three
new directors elected in connection therewith; (2) Was a
director immediately after the Company's 1994 Annual Meeting
of Stockholders; (3) Any director nominated for election as
a director or elected to the Board by the directors to fill
a vacancy by a vote of directors, and at the time of such
nomination or election at least a majority of the directors
were qualified directors.
(iii) The shareholders of the Company approve a merger or
consolidation of the Company, with any other
corporation, other than a merger or consolidation which
would result in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving
entity) at least fifty percent (50%) of the combined
voting power of the voting securities of the Company or
such surviving entity outstanding immediately after
such merger or consolidation, or the shareholders of
the Company approve a plan of complete liquidation of
the Company, or an agreement for
2
<PAGE>
the sale or disposition by the Company of all or
substantially all of the Company's assets.
However, in no event shall a "Change in Control" be deemed to
have occurred with respect to a Participant, if the Participant
is part of a purchasing group which consummates the Change-in-
Control transaction. A Participant shall be deemed "part of a
purchasing group" for purposes of the preceding sentence if the
Participant is an equity participant in the purchasing company or
group (except for (i) passive ownership of less than three
percent (3%) of the stock of the purchasing company; or
(ii) ownership of equity participation in the purchasing company
or group which is otherwise not significant, as determined prior
to the Change in Control by a majority of the nonemployee
continuing Directors).
(h) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(i) "Committee" means the committee, as specified in Article 3,
appointed by the Board to administer the Plan with respect to
grants of Awards.
(j) "Company" means Tesoro Petroleum Corporation, a Delaware
corporation, or any successor thereto as provided in Article 17
herein.
(k) "Director" means any individual who is a member of the Board of
Directors of the Company.
(l) "Disability" means a permanent and total disability, within the
meaning of Code Section 22(e)(3), as determined by the Committee
in good faith, upon receipt of sufficient competent medical
advice from one or more individuals, selected by the Committee,
who are qualified to give professional medical advice.
(m) "Employee" means any full-time, nonunion employee of the Company
or of the Company's Subsidiaries. Directors who are not
otherwise employed by the Company shall not be considered
Employees under this Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor Act thereto.
(o) "Fair Market Value" shall mean the average of the highest and
lowest quoted selling prices for Shares on the relevant date, or
(if there were no sales on such date) the weighted average of the
means between the highest and lowest quoted selling prices on the
nearest day before and the nearest day after the relevant date,
as determined by the Committee.
(p) "Freestanding SAR" means a SAR that is granted independently of
any Options.
(q) "Incentive Stock Option" or "ISO" means an option to purchase
Shares, granted under Article 6 herein, which is designated as an
Incentive Stock Option and is intended to meet the requirements
of Section 422 of the Code.
3
<PAGE>
(r) "Insider" shall mean an Employee who is, on the relevant date, an
officer, director, or ten percent (10%) beneficial owner of the
Company, as defined under Section 16 of the Exchange Act.
(s) "Nonqualified Stock Option" or "NQSO" means an option to purchase
Shares, granted under Article 6 herein, which is not intended to
be an Incentive Stock Option.
(t) "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
(u) "Option Price" means the price at which a Share may be purchased
by a Participant pursuant to an Option, as determined by the
Committee.
(v) "Participant" means an Employee of the Company who has
outstanding an Award granted under the Plan.
(w) "Performance Unit" means an Award granted to an Employee, as
described in Article 9 herein.
(x) "Performance Share" means an Award granted to an Employee, as
described in Article 9 herein.
(y) "Period of Restriction" means the period during which the
transfer of Shares of Restricted Stock is limited in some way
(based on the passage of time, the achievement of performance
goals, or upon the occurrence of other events as determined by
the Committee, at its discretion), and the Shares are subject to
a substantial risk of forfeiture, as provided in Article 8
herein.
(z) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in
Section 13(d).
(aa) "Restricted Stock" means an Award granted to a Participant
pursuant to Article 8 herein.
(ab) "Retirement" shall have the meaning ascribed to it in the
tax-qualified pension plan of the Company.
(ac) "Shares" means the shares of common stock of the Company.
(ad) "Subsidiary" means any corporation in which the Company owns
directly, or indirectly through subsidiaries, at least fifty
percent (50%) of the total combined voting power of all classes
of stock, or any other entity (including, but not limited to,
partnerships and joint ventures) in which the Company owns at
least fifty percent (50%) of the combined equity thereof.
4
<PAGE>
(ae) "Stock Appreciation Right" or "SAR" means an Award, granted alone
or in connection with a related Option, designated as a SAR,
pursuant to the terms of Article 7 herein.
(af) "Tandem SAR" means a SAR that is granted in connection with a
related Option, the exercise of which shall require forfeiture of
the right to purchase a Share under the related Option (and when
a Share is purchased under the Option, the Tandem SAR shall
similarly be canceled).
(ag) "Window Period" means the period beginning on the third business
day following the date of public release of the Company's
quarterly sales and earnings information, and ending on the
twelfth business day following such date.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Executive
Long-Term Compensation Committee of the Board, or by any other
Committee appointed by the Board consisting of all Directors who
are not Employees (the "Committee"). The members of the
Committee shall be appointed from time to time by, and shall
serve at the discretion of, the Board of Directors.
The Committee shall be comprised solely of Directors who are
eligible to administer the Plan pursuant to Rule 16b-3(c)(2)
under the Exchange Act. However, if for any reason the Committee
does not qualify to administer the Plan, as contemplated by
Rule 16b-3(c)(2) of the Exchange Act, the Board of Directors may
appoint a new Committee so as to comply with Rule 16b-3(c)(2).
3.2 AUTHORITY OF THE COMMITTEE. The Committee shall have full power
except as limited by law or by the Articles of Incorporation or
Bylaws of the Company, and subject to the provisions herein, to
determine the size and types of Awards; to determine the terms
and conditions of such Awards in a manner consistent with the
Plan; to construe and interpret the Plan and any agreement or
instrument entered into under the Plan; to establish, amend, or
waive rules and regulations for the Plan's administration; and
(subject to the provisions of Article 14 herein) to amend the
terms and conditions of any outstanding Award to the extent such
terms and conditions are within the discretion of the Committee
as provided in the Plan. Further, the Committee shall make all
other determinations which may be necessary or advisable for the
administration of the Plan. As permitted by law, the Committee
may delegate its authorities as identified hereunder.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related
orders or resolutions of the Board of Directors shall be final,
conclusive, and binding on all persons, including the Company,
its stockholders, Employees, Participants, and their estates and
beneficiaries.
5
<PAGE>
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in
Section 4.3 herein, the total number of Shares available for
grant under the Plan may not exceed 1,250,000. These Shares may
be either authorized but unissued or reacquired Shares.
The following rules will apply for purposes of the determination
of the number of Shares available for grant under the Plan:
(a) While an Award is outstanding, it shall be counted against
the authorized pool of Shares, regardless of its vested
status.
(b) The grant of an Option or Restricted Stock shall reduce the
Shares available for grant under the Plan by the number of
Shares subject to such Award.
(c) The grant of a Tandem SAR shall reduce the number of Shares
available for grant by the number of Shares subject to the
related Option (i.e., there is no double counting of Options
and their related Tandem SARs).
(d) The grant of an Affiliated SAR shall reduce the number of
Shares available for grant by the number of Shares subject
to the SAR, in addition to the number of Shares subject to
the related Option.
(e) The grant of a Freestanding SAR shall reduce the number of
Shares available for grant by the number of Freestanding
SARs granted.
(f) The Committee shall in each case determine the appropriate
number of Shares to deduct from the authorized pool in
connection with the grant of Performance Units and/or
Performance Shares.
4.2 LAPSED AWARDS. If any Award granted under this Plan is canceled,
terminates, expires, or lapses for any reason (with the exception
of the termination of a Tandem SAR upon exercise of the related
Option or the termination of a related Option upon exercise of
the corresponding Tandem SAR), any Shares subject to such Award
again shall be available for the grant of an Award under the
Plan. However, in the event that prior to the Award's
cancellation, termination, expiration, or lapse, the holder of
the Award at any time received one or more "benefits of
ownership" pursuant to such Award (as defined by the Securities
and Exchange Commission, pursuant to any rule or interpretation
promulgated under Section 16 of the Exchange Act), the Shares
subject to such Award shall not be made available for regrant
under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, or
other change in the corporate structure of the Company affecting
the Shares, such adjustment shall be made in the number and class
of Shares which may be delivered under the Plan, and in the
number and class of and/or price of Shares
6
<PAGE>
subject to outstanding Awards granted under the Plan, as may be
determined to be appropriate and equitable by the Committee, in
its sole discretion, to prevent dilution or enlargement of
rights; and provided that the number of Shares subject to any
Award shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan
include all full-time, active Employees of the Company and its
Subsidiaries, as determined by the Committee, including Employees
who are members of the Board, but excluding Directors who are not
Employees.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible
Employees, those to whom Awards shall be granted and shall
determine the nature and amount of each Award.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the
Plan, Options may be granted to Employees at any time and from
time to time as shall be determined by the Committee. The
Committee shall have discretion in determining the number of
Shares subject to Options granted to each Participant. The
Committee may grant ISOs, NQSOs, or a combination thereof.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an
Award Agreement that shall specify the Option Price, the duration
of the Option, the number of Shares to which the Option pertains,
and such other provisions as the Committee shall determine. The
Option Agreement also shall specify whether the Option is
intended to be an ISO within the meaning of Section 422 of the
Code, or a NQSO whose grant is intended not to fall under the
Code provisions of Section 422.
6.3 OPTION PRICE. The Option Price for each grant of an Option shall
be determined by the Committee; provided that the Option Price
shall not be less than the Fair Market Value of a Share on the
date the Option is granted unless such Option is granted in
connection with a deferral election pursuant to Article XI
herein.
6.4 DURATION OF OPTIONS. Each Option shall expire at such time as
the Committee shall determine at the time of grant; provided,
however, that no Option shall be exercisable later than the tenth
(10th) anniversary date of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve, which
need not be the same for each grant or for each Participant.
However, in no event may any Option granted under this Plan
become exercisable prior to six (6) months following the date of
its grant.
7
<PAGE>
6.6 PAYMENT. Options shall be exercised by the delivery of a written
notice of exercise to the Company, setting forth the number of
Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to
the Company in full either: (a) in cash or its equivalent, or
(b) by tendering previously acquired Shares having an aggregate
Fair Market Value at the time of exercise equal to the total
Option Price (provided that the Shares which are tendered must
have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price), or (c) by a
combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under
Federal Reserve Board's Regulation T, subject to applicable
securities law restrictions, or by any other means which the
Committee determines to be consistent with the Plan's purpose and
applicable law.
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the
Participant, in the Participant's name, Share certificates in an
appropriate amount based upon the number of Shares purchased
under the Option(s).
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise
of an Option under the Plan as it may deem advisable, including,
without limitation, restrictions under applicable Federal
securities laws, under the requirements of any stock exchange or
market upon which such Shares are then listed and/or traded, and
under any blue sky or state securities laws applicable to such
Shares.
6.8 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT.
(a) TERMINATION BY DEATH. In the event the employment of a
Participant is terminated by reason of death, all
outstanding Options which are exercisable as of the date of
death shall remain exercisable at any time prior to their
expiration date, or for one (1) year after the date of
death, whichever period is shorter, by such person or
persons as shall have been named as the Participant's
beneficiary, or by such persons that have acquired the
Participant's rights under the Option by will or by the laws
of descent and distribution.
Options which are not exercisable as of the date of death
shall be forfeited and returned to the Company; provided,
however, that the Committee may, at its sole discretion,
provide for accelerated vesting of unvested Options upon
such terms as the Committee deems advisable.
(b) TERMINATION BY DISABILITY. In the event the employment of a
Participant is terminated by reason of Disability, all
outstanding Options which are exercisable as of the date the
Committee determines the definition of
8
<PAGE>
Disability to have been satisfied shall remain exercisable
at any time prior to their expiration date, or for one (1)
year after the date that the Committee determines the
definition of Disability to have been satisfied, whichever
period is shorter.
Options which are not exercisable as of the date the
Committee determines the definition of Disability to have
been satisfied shall be forfeited and returned to the
Company; provided, however, that the Committee may, at its
sole discretion, provide for accelerated vesting of unvested
Options upon such terms as the Committee deems advisable.
(c) TERMINATION BY RETIREMENT. In the event the employment of a
Participant is terminated by reason of Retirement, all
outstanding Options which are exercisable as of the date of
Retirement shall remain exercisable at any time prior to
their expiration date, or for three (3) years after the
effective date of Retirement, whichever period is shorter.
Options which are not exercisable as of the date of
Retirement shall be forfeited and return to the Company;
provided, however, that the Committee may, at its sole
discretion, provide for accelerated vesting of unvested
Options upon such terms as the Committee deems advisable.
(d) EMPLOYMENT TERMINATION FOLLOWED BY DEATH. In the event that
a Participant's employment terminates by reason of
Disability or Retirement, and within the exercise period
following such termination the Participant dies, then the
remaining exercise period under outstanding vested Options
shall equal the longer of (i) one (1) year following death;
or (ii) the remaining portion of the exercise period which
was triggered by the employment termination. Such Options
shall be exercisable by such person or persons who shall
have been named as the Participant's beneficiary, or by such
persons who have acquired the Participant's rights under the
Option by will or by the laws of descent and distribution.
(e) EXERCISE LIMITATIONS ON ISOs. In the case of ISOs, the tax
treatment prescribed under Section 422 of the Internal
Revenue Code of 1986, as amended, may not be available if
the Options are not exercised within the Section 422
prescribed time periods after each of the various types of
employment termination.
6.9 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment
of a Participant shall terminate for any reason other than the
reasons set forth in Section 6.8 (and other than for Cause), all
Options held by the Participant which are not vested as of the
effective date of employment termination immediately shall be
forfeited to the Company (and shall once again become available
for grant under the Plan). However, the Committee, in its sole
discretion, shall have the right to immediately vest all or any
portion of such Options, subject to such terms as the Committee,
in its sole discretion, deems appropriate.
9
<PAGE>
Options which are vested as of the effective date of employment
termination may be exercised by the Participant within the period
beginning on the effective date of employment termination, and
ending three (3) months after such date.
If the employment of a Participant shall be terminated by the
Company for Cause, all outstanding Options held by the
Participant immediately shall be forfeited to the Company and no
additional exercise period shall be allowed, regardless of the
vested status of the Options.
6.10 NONTRANSFERABILITY OF OPTIONS. No Option granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of
descent and distribution. Further, all Options granted to a
Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARs. Subject to the terms and conditions of the Plan,
a SAR may be granted to an Employee at any time and from time to
time as shall be determined by the Committee. The Committee may
grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any
combination of these forms of SARs.
The Committee shall have complete discretion in determining the
number of SARs granted to each Participant (subject to Article 4
herein) and, consistent with the provisions of the Plan, in
determining the terms and conditions pertaining to such SARs.
However, the grant price of a Freestanding SAR shall be at least
equal to the Fair Market Value of a Share on the date of grant of
the SAR. The grant price of Tandem SARs and Affiliated SARs
shall equal the Option Price of the related Option. In no event
shall any SAR granted hereunder become exercisable within the
first six (6) months of its grant.
7.2 EXERCISE OF TANDEM SARs. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the
surrender of the right to exercise the equivalent portion of the
related Option. A Tandem SAR may be exercised only with respect
to the Shares for which its related Option is then exercisable.
Notwithstanding any other provision of this Plan to the contrary,
with respect to a Tandem SAR granted in connection with an ISO:
(i) the Tandem SAR will expire no later than the expiration of
the underlying ISO; (ii) the value of the payout with respect to
the Tandem SAR may be for no more than one hundred percent (100%)
of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying
ISO at the time the Tandem SAR is exercised; and (iii) the Tandem
SAR may be exercised only when the Fair Market Value of the
Shares subject to the ISO exceeds the Option Price of the ISO.
10
<PAGE>
7.3 EXERCISE OF AFFILIATED SARs. Affiliated SARs shall be deemed to
be exercised upon the exercise of the related Options. The
deemed exercise of Affiliated SARs shall not necessitate a
reduction in the number of related options.
7.4 EXERCISE OF FREESTANDING SARs. Freestanding SARs may be
exercised upon whatever terms and conditions the Committee, in
its sole discretion, imposes upon them.
7.5 SAR AGREEMENT. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the grant price, the term of the
SAR, and such other provisions as the Committee shall determine.
7.6 TERM OF SARs. The term of a SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided,
however, that such term shall not exceed ten (10) years.
7.7 PAYMENT OF SAR AMOUNT. Upon exercise of a SAR, a Participant
shall be entitled to receive payment from the Company in an
amount determined by multiplying:
(a) The difference between the Fair Market Value of a Share on
the date of exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is
exercised.
At the discretion of the Committee, the payment upon SAR exercise
may be in cash, in Shares of equivalent value, or in some
combination thereof.
7.8 RULE 16b-3 REQUIREMENTS. Notwithstanding any other provision of
the Plan, the Committee may impose such conditions on exercise of
a SAR (including, without limitation, the right of the Committee
to limit the time of exercise to specified periods) as may be
required to satisfy the requirements of Section 16 (or any
successor rule) of the Exchange Act.
For example, if the Participant is an Insider, the ability of the
Participant to exercise SARs for cash will be limited to Window
Periods. However, if the Committee determines that the
Participant is not an Insider, or if the securities laws change
to permit greater freedom of exercise of SARs, then the Committee
may permit exercise at any point in time, to the extent the SARs
are otherwise exercisable under the Plan.
7.9 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT.
(a) TERMINATION BY DEATH. In the event the employment of a
Participant is terminated by reason of death, all
outstanding SARs which are exercisable as of the date of
death shall remain exercisable at any time prior to their
expiration date, or for one (1) year after the date of
death, whichever period is shorter, by such person or
persons as shall have been named as the Participant's
beneficiary, or by such persons that have acquired the
11
<PAGE>
Participant's rights under the SAR by will or by the laws of
descent and distribution.
SARs which are not exercisable as of the date of death shall
be forfeited and returned to the Company; provided, however,
that the Committee may, at its sole discretion, provide for
accelerated vesting of unvested SARs upon such terms as the
Committee deems advisable.
(b) TERMINATION BY DISABILITY. In the event the employment of a
Participant is terminated by reason of Disability, all
outstanding SARs which are exercisable as of the date the
Committee determines the definition of Disability to have
been satisfied shall remain exercisable at any time prior to
their expiration date, or for one (1) year after the date
that the Committee determines the definition of Disability
to have been satisfied, whichever period is shorter.
SARs which are not exercisable as of the date the Committee
determines the definition of Disability to have been
satisfied shall be forfeited and returned to the Company;
provided, however, that the Committee may, at its sole
discretion, provide for accelerated vesting of unvested SARs
upon such terms as the Committee deems advisable.
(c) TERMINATION BY RETIREMENT. ln the event the employment of a
Participant is terminated by reason of Retirement, all
outstanding SARs which are exercisable as of the date of
Retirement shall remain exercisable at any time prior to
their expiration date, or for three (3) years after the
effective date of Retirement, whichever period is shorter.
SARs which are not exercisable as of the date of Retirement
shall be forfeited and returned to the Company; provided,
however, that the Committee may, at its sole discretion,
provide for accelerated vesting of unvested SARs upon such
terms as the Committee deems advisable.
(d) EMPLOYMENT TERMINATION FOLLOWED BY DEATH. In the event that
a Participant's employment terminates by reason of
Disability or Retirement, and within the exercise period
following such termination the Participant dies, then the
remaining exercise period under outstanding vested SARs
shall equal the longer of: (i) one (1) year following death;
or (ii) the remaining portion of the exercise period which
was triggered by the employment termination. Such SARs
shall be exercisable by such person or persons who shall
have been named as the Participant's beneficiary, or by such
persons who have acquired the Participant's rights under the
SAR by will or by the laws of descent and distribution.
7.10 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment
of a Participant shall terminate for any reason other than the
reasons set forth in Section 7.9 (and other than for Cause), all
SARs held by the Participant which are not vested as of the
effective date of employment termination immediately shall be
forfeited to the
12
<PAGE>
Company (and shall once again become available for grant under
the Plan). However, the Committee, in its sole discretion, shall
have the right to immediately vest all or any portion of such
SARs, subject to such terms as the Committee, in its sole
discretion, deems appropriate.
SARs which are vested as of the effective date of employment
termination may be exercised by the Participant within the period
beginning on the effective date of employment termination, and
ending three (3) months after such date.
If the employment of a Participant shall be terminated by the
Company for Cause, all outstanding SARs held by the Participant
immediately shall be forfeited to the Company and no additional
exercise period shall be allowed, regardless of the vested status
of the SARs.
7.11 NONTRANSFERABILITY OF SARs. No SAR granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, all SARs granted to a Participant under
the Plan shall be exercisable during his or her lifetime only by
such Participant.
ARTICLE 8. RESTRICTED STOCK
8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions
of the Plan, the Committee, at any time and from time to time,
may grant Shares of Restricted Stock to eligible Employees in
such amounts as the Committee shall determine.
8.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement that shall specify the
Period of Restriction, or Periods, the number of Restricted Stock
Shares granted, and such other provisions as the Committee shall
determine.
8.3 TRANSFERABILITY. Except as provided in this Article 8, the
Shares of Restricted Stock granted herein may not be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the
Restricted Stock Agreement, or upon earlier satisfaction of any
other conditions, as specified by the Committee in its sole
discretion and set forth in the Restricted Stock Agreement.
However, in no event may any Restricted Stock granted under the
Plan become vested in a Participant prior to six (6) months
following the date of its grant. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be
available during his or her lifetime only to such Participant.
8.4 OTHER RESTRICTIONS. The Committee shall impose such other
conditions and/or restrictions on any Shares of Restricted Stock
granted pursuant to the Plan as it may deem advisable including,
without limitation, a requirement that Participants pay a
stipulated purchase price for each Share of Restricted Stock,
restrictions based upon the achievement of specific performance
goals (Companywide, divisional, and/or
13
<PAGE>
individual), and/or restrictions under applicable Federal or
state securities laws; and may legend the certificates
representing Restricted Stock to give appropriate notice of such
restrictions.
8.5 CERTIFICATE LEGEND. In addition to any legends placed on
certificates pursuant to Section 8.4 herein, each certificate
representing Shares of Restricted Stock granted pursuant to the
Plan may bear the following legend:
"The sale or other transfer of the Shares of stock
represented by this certificate, whether
voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer as set
forth in the Tesoro Petroleum Corporation
Executive Long-Term Incentive Plan, and in a
Restricted Stock Agreement. A copy of the Plan
and such Restricted Stock Agreement may be
obtained from Tesoro Petroleum Corporation."
The Company shall have the right to retain the certificates
representing Shares of Restricted Stock in the Company's
possession until such time as all conditions and/or restrictions
applicable to such Shares have been satisfied.
8.6 REMOVAL OF RESTRICTIONS. Except as otherwise provided in this
Article 8, Shares of Restricted Stock covered by each Restricted
Stock grant made under the Plan shall become freely transferable
by the Participant after the last day of the Period of
Restriction. Once the Shares are released from the restrictions,
the Participant shall be entitled to have the legend required by
Section 8.5 removed from his or her share certificate.
8.7 VOTING RIGHTS. During the Period of Restriction, Participants
holding Shares of Restricted Stock granted hereunder may exercise
full voting rights with respect to those Shares.
8.8 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Participants holding Shares of Restricted Stock
granted hereunder shall be entitled to receive all dividends and
other distributions paid with respect to those Shares while they
are so held. If any such dividends or distributions are paid in
Shares, the Shares shall be subject to the same restrictions on
transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
In the event that any dividend constitutes a "derivative
security" or an "equity security" pursuant to Rule 16(a) under
the Exchange Act, such dividend shall be subject to a vesting
period equal to the longer of: (i) the remaining vesting period
of the Shares of Restricted Stock with respect to which the
dividend is paid; or (ii) six months. The Committee shall
establish procedures for the application of this provision.
8.9 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT. In the event the employment of a Participant is
terminated by reason of death, Disability, or
14
<PAGE>
Retirement, all unvested Shares of Restricted Stock shall
immediately be forfeited by the Participant; provided, however,
that the Committee, in its sole discretion, shall have the right
to provide for accelerated vesting of some or all unvested Shares
of Restricted Stock, upon such terms as the Committee deems
advisable. The holder of the certificates of Restricted Stock
shall be entitled to have any nontransferability legends required
under Sections 8.4 and 8.5 of this Plan removed from the Share
certificates.
8.10 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment
of a Participant shall terminate for any reason other than those
specifically set forth in Section 8.9 herein, all Shares of
Restricted Stock held by the Participant which are not vested as
of the effective date of employment termination immediately shall
be forfeited (and, subject to Section 4.2 herein, shall once
again become available for grant under the Plan).
With the exception of a termination of employment for Cause, the
Committee, in its sole discretion, shall have the right to
provide for lapsing of the restrictions on Restricted Stock
following employment termination, upon such terms and provisions
as it deems appropriate.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of the
Plan, Performance Units and Performance Shares may be granted to
eligible Employees at any time and from time to time, as shall be
determined by the Committee. The Committee shall have complete
discretion in determining the number of Performance Units and
Performance Shares granted to each Participant.
9.2 VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall
have an initial value that is established by the Committee at the
time of grant. Each Performance Share shall have an initial
value equal to the Fair Market Value of a Share on the date of
grant. The Committee shall set performance goals in its
discretion which, depending on the extent to which they are met,
will determine the number and/or value of Performance
Units/Shares that will be paid out to the Participants. The time
period during which the performance goals must be met shall be
called a "Performance Period." Performance Periods shall, in all
cases, exceed six (6) months in length.
9.3 EARNING OF PERFORMANCE UNITS/SHARES. After the applicable
Performance Period has ended, the holder of Performance
Units/Shares shall be entitled to receive payout on the number of
Performance Units/Shares earned by the Participant over the
Performance Period, to be determined as a function of the extent
to which the corresponding performance goals have been achieved.
9.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES. Payment
of each Performance Units/Shares shall be made in a single lump
sum, within forty-five (45) calendar days following the close of
the applicable Performance Period. The
15
<PAGE>
Committee, in its sole discretion, may pay earned Performance
Units/Shares in the form of cash or in Shares (or in a
combination thereof), which have an aggregate Fair Market Value
equal to the value of the earned Performance Units/Shares at the
close of the applicable Performance Period.
Prior to the beginning of each Performance Period, Participants
may elect to defer the receipt of Performance Unit/Share payout
upon such terms as the Committee deems appropriate.
9.5 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, RETIREMENT,
OR INVOLUNTARY TERMINATION (WITHOUT CAUSE). In the event the
employment of a Participant is terminated by reason of death,
Disability, Retirement, or involuntary termination without Cause
during a Performance Period, the Participant shall receive a
prorated payout of the Performance Units/Shares. The prorated
payout shall be determined by the Committee, in its sole
discretion, and shall be based upon the length of time that the
Participant held the Performance Units/Shares during the
Performance Period, and shall further be adjusted based on the
achievement of the preestablished performance goals.
Payment of earned Performance Units/Shares shall be made at the
same time payments are made to Participants who did not terminate
employment during the applicable Performance Period. However,
the Committee, in its sole discretion, shall have the right to
accelerate the timing of this payout, upon such terms and
provisions as it deems appropriate.
9.6 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant's employment terminates for any reason other than
those reasons set forth in Section 9.5 herein, all Performance
Units/Shares shall be forfeited by the Participant to the
Company, and shall once again be available for grant under the
Plan. However, the Committee, in its sole discretion, may
provide a payout on any or all Performance Units/Shares, upon
such times and provisions as it deems appropriate.
9.7 NONTRANSFERABILITY. Performance Units/Shares may not be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further a Participant's rights under the Plan
shall be exercisable during the Participant's lifetime only by
the Participant or the Participant's legal representative.
ARTICLE 10. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in case
of his or her death before he or she receives any or all of such
benefit. Each such designation shall revoke all prior designations by
the same Participant, shall be in a form prescribed by the Company,
and will be effective only when filed by the Participant in writing
with the Company during the Participant's lifetime. In the absence
16
<PAGE>
of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 11. DEFERRALS
The Committee may permit a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would
otherwise be due to such Participant by virtue of the exercise of an
Option or SAR, the lapse or waiver of restrictions with respect to
Restricted Stock, or the satisfaction of any requirements or goals
with respect to Performance Units/Shares. If any such deferral
election is required or permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals.
ARTICLE 12. RIGHTS OF EMPLOYEES
12.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Participant's
employment at any time, nor confer upon any Participant any right
to continue in the employ of the Company.
For purposes of the Plan, transfer of employment of a Participant
between the Company and any one of its Subsidiaries (or between
Subsidiaries) shall not be deemed a termination of employment.
12.2 PARTICIPATION. No Employee shall have the right to be selected
to receive an Award under this Plan, or having been so selected,
to be selected to receive a future Award.
ARTICLE 13. CHANGE IN CONTROL
Upon the occurrence of a Change in Control, unless otherwise
specifically prohibited by the terms of Section 18 herein:
(a) Any and all Options and SARs granted hereunder shall become
immediately exercisable;
(b) Any restriction periods and restrictions imposed on Restricted
Shares shall lapse, and within ten (10) business days after the
occurrence of a Change in Control, the stock certificates
representing Shares of Restricted Stock, without any restrictions
or legend thereon, shall be delivered to the applicable
Participants;
(c) The target payout opportunity attainable under all outstanding
Performance Units and Performance Shares shall be deemed to have
been earned for the portion of the Performance Period(s) that
passed as of the effective date of the Change in Control. This
pro rata value shall be paid out in cash to Participants within
thirty (30) days following the effective date of the Change in
Control. However, regardless of the above, Performance Units or
Performance Shares that were granted less than six (6) months
prior to the effective date of the Change in Control shall be
forfeited in their entirety, and receive no accelerated payout.
17
<PAGE>
(d) Subject to Article 14 herein, the Committee shall have the
authority to make any modifications to the Awards as determined
by the Committee to be appropriate before the effective date of
the Change in Control.
(e) In the event that following the Change in Control the Shares are
no longer traded over a national public securities exchange,
Participants holding Options shall have the right to require the
Company to make a cash payment to them in exchange for their
Options. Such cash payment shall be contingent upon the Option
holder surrendering his or her Option. The amount of the cash
payment shall be determined by adding the total "spread" on all
outstanding Options. For this purpose, the total "spread" shall
equal the sum of the differences between: (i) the Fair Market
Value of a Share on the date the Option is surrendered by the
Participant; and (ii) the Option Price applicable to each Share
held under Option.
ARTICLE 14. AMENDMENT, MODIFICATION, AND TERMINATION
14.1 AMENDMENT, MODIFICATION, AND TERMINATION. At any time and from
time to time, the Board may terminate, amend, or modify the Plan.
However, without the approval of the stockholders of the Company
(as may be required by the Code, by the insider trading rules of
Section 16 of the Exchange Act, by any national securities
exchange or system on which the Shares are then listed or
reported, or by a regulatory body having jurisdiction with
respect hereto), no such termination, amendment, or modification
may:
(a) Materially increase the total number of Shares which may be
issued under this Plan, except as provided in Section 4.3
herein; or
(b) Materially modify the eligibility requirements; or
(c) Materially increase the benefits accruing under the Plan.
14.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material
way any Award previously granted under the Plan, without the
written consent of the Participant holding such Award.
ARTICLE 15. WITHHOLDING
15.1 TAX WITHHOLDING. The Company shall have the power and the right
to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy Federal, state, and
local taxes (including the Participant's FICA obligation)
required by law to be withheld with respect to any taxable event
arising or as a result of this Plan.
15.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on
Restricted Stock, or upon any other taxable event hereunder,
Participants may elect, subject to the approval of the Committee,
to satisfy the withholding requirement, in whole or in part, by
having the
18
<PAGE>
Company withhold Shares having a Fair Market Value on the date
the tax is to be determined equal to the minimum statutory total
tax which could be imposed on the transaction. All elections
shall be irrevocable, made in writing, signed by the Participant,
and elections by Insiders shall additionally comply with the
applicable requirement set forth in (a) or (b) of this
Section 15.2.
(a) AWARDS HAVING EXERCISE TIMING WITHIN PARTICIPANTS'
DISCRETION. The Insider must either:
(i) Deliver written notice of the stock withholding
election to the Committee at least six (6) months prior
to the date specified by the Insider on which the
exercise of the Award is to occur, or
(ii) Make the stock withholding election in connection with
an exercise of an Award which occurs during a Window
Period.
(b) AWARDS HAVING A FIXED EXERCISE/PAYOUT SCHEDULE WHICH IS
OUTSIDE INSIDER'S CONTROL. The Insider must either.
(i) Deliver written notice of the stock withholding
election to the Committee at least six (6) months prior
to the date on which the taxable event (e.g., exercise
or payout) relating to the Award is scheduled to occur;
or
(ii) Make the stock withholding election during a Window
Period which occurs prior to the scheduled taxable
event relating to the Award (for this purpose, an
election may be made prior to such a Window Period,
provided that it becomes effective during a Window
Period occurring prior to the applicable taxable
event).
ARTICLE 16. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified and held harmless by the Company
against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with
or resulting from any claim, action, suit, or proceeding to which he
or she may be a party or in which he or she may be involved by reason
of any action taken or failure to act under the Plan and against and
from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of
any judgment in any such action, suit, or proceeding against him or
her, provided he or she shall give the Company an opportunity, at its
own expense, to handle and defend the same before he or she undertakes
to handle and defend it on his or her own behalf.
The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled
under the Company's Articles of Incorporation or Bylaws, as a matter
of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
19
<PAGE>
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company.
ARTICLE 18. LEGAL CONSTRUCTION
18.1 GENDER AND NUMBER. Except where otherwise indicated by the
context any masculine term used herein also shall include the
feminine; the plural shall include the singular and the singular
shall include the plural.
18.2 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.
18.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental
agencies or national securities exchanges as may be required.
Notwithstanding any other provision set forth in the Plan, if
required by the then-current Section 16 of the Exchange Act, any
"derivative security" or "equity security" offered pursuant to
the Plan to any Insider may not be sold or transferred for at
least six (6) months after the date of grant of such Award. The
terms "equity security" and "derivative security" shall have the
meanings ascribed to them in the then-current Rule 16(a) under
the Exchange Act.
18.4 SECURITIES LAW COMPLIANCE. With respect to Insiders,
transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the
1934 Act. To the extent any provision of the plan or action by
the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the
Committee.
18.5 GOVERNING LAW. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Texas.
20
<PAGE>
ITEM 14(A)3, EXHIBIT 11
<TABLE>
<CAPTION>
TESORO PETROLEUM CORPORATION
INFORMATION SUPPORTING EARNINGS (LOSS) PER SHARE COMPUTATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE
MONTHS
ENDED YEARS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1989 1990 1991 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C>
Earnings (Loss) Before the Cumulative
Effect of Accounting Changes------- $ (30,520) 22,702 3,939 (416) (45,245) 16,956
Cumulative Effect of Accounting
Changes---------------------------- -- -- -- -- (20,630) --
Net Earnings (Loss)------------------ (30,520) 22,702 3,939 (416) (65,875) 16,956
Preferred Stock Dividend
Requirements----------------------- 9,204 9,207 9,207 2,301 9,207 9,207
Net Earnings (Loss) Applicable to
Common Stock----------------------- $ (39,724) 13,495 (5,268) (2,717) (75,082) 7,749
Primary Earnings (Loss) Per Share
Computation:
Average common shares
outstanding---------------------- 14,042 14,061 14,069 14,067 14,063 14,070
Common stock
equivalents -- dilutive
options-------------------------- -- 5 -- -- -- 220
Average Outstanding Common and
Common Equivalent Shares------- 14,042 14,066 14,069 14,067 14,063 14,290
Primary Earnings (Loss) Per Share:
Earnings (loss) before the
cumulative effect of accounting
changes------------------------ $ (2.83) .96 (.37) (.19) (3.87) .54
Cumulative effect of accounting
changes------------------------ -- -- -- -- (1.47) --
Net earnings (loss)-------------- $ (2.83) .96 (.37) (.19) (5.34) .54
Fully Diluted Earnings (Loss) Per
Share Computation:
Net earnings (loss) applicable to
common stock--------------------- $ (39,724) 13,495 (5,268) (2,717) (75,082) 7,749
Add: Preferred stock dividend
requirements------------------- 9,204 9,207 9,207 2,301 9,207 9,207
Interest and amortization of debt
discount on convertible
debentures -- net of federal,
state and other income taxes--- 35 -- -- -- -- --
Net Earnings (Loss)
Applicable to Common Stock
-- Fully Diluted---------- $ (30,485) 22,702 3,939 (416) (65,875) 16,956
Average outstanding common and
common equivalent
shares--------------------------- 14,042 14,066 14,069 14,067 14,063 14,290
Shares issuable on conversion of
preferred shares----------------- 4,777 4,775 4,775 4,775 4,775 4,775
Shares issuable on conversion of
debentures----------------------- 46 -- -- -- -- --
Other------------------------------ 27 -- -- -- -- --
18,892 18,841 18,844 18,842 18,838 19,065
Fully Diluted Earnings (Loss) Per
Share --
Anti-dilutive---------------------- $ (2.83) .96 (.37) (.19) (5.34) .54
80
</TABLE>
<PAGE>
ITEM 14(A)3, EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
PERCENT OF
VOTING
SECURITIES
INCORPORATED OWNED
NAME OF COMPANY UNDER LAWS OF BY TESORO
Tesoro Alaska Petroleum Company------ Delaware 100%
Tesoro Alaska Pipeline Company------- Delaware 100%
Tesoro Bolivia Petroleum Company----- Texas 100%
Tesoro Exploration and Production
Company---------------------------- Delaware 100%
Tesoro Northstore Company------------ Alaska 100%
Tesoro Petroleum Companies, Inc.----- Delaware 100%
Tesoro Petroleum Distributing
Company---------------------------- Louisiana 100%
Tesoro Refining, Marketing & Supply
Company---------------------------- Delaware 100%
Small or inactive subsidiaries are omitted from the above list. Such omitted
subsidiaries, considered in the aggregate as a single subsidiary, would not
constitute a 'significant subsidiary' as of the end of the year covered by this
annual report.
81
<PAGE>
ITEM 14(a)3, EXHIBIT 24(a)
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Stockholders
Tesoro Petroleum Corporation
We consent to the incorporation by reference in Registration Statement
No. 33-2338 of Tesoro Petroleum Corporation on Form S-8 of our report dated
February 10, 1994, appearing in this Annual Report on Form 10-K of Tesoro
Petroleum Corporation for the year ended December 31, 1993.
DELOITTE & TOUCHE
San Antonio, Texas
March 30, 1994
<PAGE>
ITEM 14(a)3, EXHIBIT 24(b)
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the references to our firm in the Annual Report of
Tesoro Petroleum Corporation on Form 10-K for the fiscal year ended
December 31, 1993, filed with the Securities and Exchange Commission in
Washington, D.C. pursuant to the Securities Exchange Act of 1934.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ Frederic D. Sewell
Frederic D. Sewell, President
Dallas, Texas
March 30, 1994
