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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1994
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)
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<S> <C>
DELAWARE 95-0862768
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
8700 TESORO DRIVE, SAN ANTONIO, TEXAS 78217
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 210-828-8484
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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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 due New York Stock Exchange
March 15, 2001
13% Exchange Notes due New York Stock Exchange
December 1, 2000
</TABLE>
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 / /
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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. / /
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At March 1, 1995, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was approximately $254,557,348 based upon the
closing price of its shares on the New York Stock Exchange Composite tape. At
March 1, 1995, there were 24,534,430 shares of the registrant's Common Stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENT FORM 10-K PART
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Proxy Statement for 1995 Annual Meeting Part III
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PART I
ITEM 1. BUSINESS
Tesoro Petroleum Corporation, together with its subsidiaries ("Tesoro" or
the "Company"), is a natural resource company engaged in petroleum refining and
marketing, natural gas exploration and production, 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
B of Notes to Consolidated Financial Statements in Item 8.
During 1994, the Company consummated a recapitalization plan and equity
offering whereby a major portion of the Company's outstanding debt was
restructured and all of its preferred stock and dividend arrearages were
eliminated and which, among other matters, deferred $44 million of debt service
requirements, increased stockholders' equity by approximately $82 million and
eliminated $9.2 million of annual preferred dividend requirements. In addition,
the recapitalization enabled the Company to enter into a $125 million corporate
Revolving Credit Facility and obtain $15 million financing for a major addition
to the Company's refinery. For further information concerning the
recapitalization and offering, see Note C of Notes to Consolidated Financial
Statements in Item 8.
REFINING AND MARKETING
OVERVIEW
The Company conducts petroleum refining operations in Alaska and sells
refined products to a wide variety of customers in Alaska, in the area west of
the Rocky Mountains and in certain Far Eastern markets. During 1994, products
from the Company's refinery accounted for approximately 65% of such sales,
including products received on exchange in the U.S. West Coast market, with the
remaining 35% being purchased from other refiners and suppliers.
The Company's 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, heavy
oils and residual product. 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 1994, the refinery
processed approximately 59% ANS crude oil, 32% Cook Inlet crude oil and 9% other
refinery feedstocks, which yielded refined products consisting of approximately
25% gasoline, 43% middle distillates and refinery fuel and 32% of residual
product.
During 1994, the Company continued its operational strategy to improve the
refinery's economics, which included upgrading feedstocks, more closely matching
production with product demand within Alaska and initiating new marketing
efforts within and outside Alaska. These efforts reduced the Company's overall
refinery production in 1994, particularly residual fuel oil. The markets for
residual fuel oil have generally been weak for the past several years due to a
global oversupply of this product. During 1994, the Company reduced its average
daily refinery throughput and production by 7% from the 1993 levels, resulting
in a cumulative reduction from the 1992 levels of 25%. This reduction in
throughput enabled the Company to reduce the percentage of lower-quality ANS
crude oil in the feedstock mix to 59% in 1994, compared with 72% in 1993. By
utilizing a greater percentage of higher-quality feedstocks (which results in
higher-valued production yields), the Company can economically operate the
refinery at reduced throughput levels. Operating the refinery at lower
throughput levels resulted in less production of certain products, particularly
residual product, for which there is no significant market in Alaska.
The Company has installed a vacuum unit, which became operational in
December 1994, that is expected to reduce the refinery's yield of residual
product about 50% by further processing these volumes into higher-valued
products. With the vacuum unit now operational, the Company is pursuing
marketing initiatives to
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increase demand for the refinery's production which would increase the
refinery's capacity utilization and improve efficiencies.
CRUDE OIL SUPPLY
The refinery is designed to process crude oil with up to 1.0% sulphur
content. As such, the refinery can process Cook Inlet, ANS and certain foreign
crude oils.
ANS CRUDE OIL. ANS crude oil is a heavy crude oil which contains an
average of 1.0% sulphur. In 1994, approximately 59% of the refinery's feedstock
was ANS crude oil, of which approximately 28,700 barrels per day were purchased
under a royalty crude oil purchase contract with the State, which expired at the
end of 1994. The Company and the State have extended this contract through 1995.
The agreement between the Company and the State requires the Company to purchase
approximately 40,000 barrels per day at the weighted average net-back price
reported by the three major North Slope producers for ANS crude oil delivered to
the U.S. West Coast. The Company does not currently anticipate increasing the
percentage of ANS crude oil utilized as feedstock at the refinery. Under its
agreement with the State, the Company has the right to sell or to exchange up to
20% of the ANS crude oil to be purchased from the State during 1995. The Company
is currently negotiating with the State for a new three-year contract for the
period January 1, 1996 through December 31, 1998. Based on preliminary
discussions with the State, the Company believes that a new contract will
provide for the purchase of approximately the same volumes of ANS royalty crude
oil as the current contract and believes that such crude oil will be priced at
the weighted average price reported to the State by a major North Slope producer
for ANS crude oil as valued at Pump Station No. 1 on the Trans Alaska Pipeline
System ("TAPS"). All ANS crude oil feedstock is delivered to the refinery by
tanker through the Kenai Pipe Line Company ("KPL") marine terminal. The Company
and KPL have entered into an agreement whereby the Company will purchase KPL,
subject to regulatory approval. The Company expects that this purchase
transaction will be consummated in early 1995.
COOK INLET CRUDE OIL. Cook Inlet crude oil, a lighter crude oil that
contains an average of .1% sulphur, accounted for approximately 32% of the
refinery's feedstock supply in 1994. The Company obtains Cook Inlet crude from
several producers on the Kenai Peninsula under short-term contracts. Cook Inlet
crude oil is delivered by tanker or through an existing pipeline to the
refinery.
OTHER SUPPLY. In 1994, the Company's refinery obtained approximately 9% of
its feedstock supply from other sources. This feedstock supply was primarily
heavy atmospheric gas oil ("HAGO") and was purchased from a local competitor's
refineries and from a U.S. West Coast refinery under short-term contracts. HAGO
is a refinery byproduct which generates various light refined products with no
residual fuel oil.
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 KPL marine terminal.
ANS AGREEMENT. In January 1993, the Company entered into an agreement with
the State ("ANS Agreement") that settled a contractual dispute concerning the
value of ANS royalty crude oil sold to the Company. The ANS Agreement provided
that $97.1 million was owed to the State by the Company. Under the ANS
Agreement, the Company paid the State $10.3 million in January 1993 and is
obligated to make variable monthly payments to the State through December 2001
on a per barrel charge that is currently 16 cents and increases to 33 cents on
the volume of feedstock processed at the Company's refinery. In 1994 and 1993,
the Company's variable payments to the State totaled $2.8 million and $2.6
million, respectively. In January 2002, 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 for 2002 and increasing one cent per barrel annually
thereafter. Variable monthly payments made after December 2001 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 mortgage on the Company's 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 $175 million plus any indebtedness incurred subsequent to the
date of the
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Agreement to improve the Company's refinery. For further information concerning
the Company's settlement with the State, see Note I of Notes to Consolidated
Financial Statements in Item 8.
REFINING AND MARKETING ACTIVITIES
The following table summarizes the Company's refining and marketing
operations for the three years ended December 31, 1994, 1993 and 1992:
<TABLE>
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YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
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<S> <C> <C> <C>
Refinery Throughput (average daily barrels)...................... 46,032 49,753 61,425
====== ====== ======
Refinery Production (average daily barrels):
Gasoline....................................................... 11,728 12,021 14,188
Middle distillates............................................. 18,839 19,441 23,305
Heavy oils and residual product................................ 15,118 17,573 23,444
Refinery fuel.................................................. 1,776 2,046 2,491
------ ------ ------
Total Refinery Production.............................. 47,461 51,081 63,428
====== ====== ======
Product Sales (average daily barrels):
Gasoline....................................................... 23,191 22,466 25,196
Middle distillates............................................. 33,256 29,354 38,313
Heavy oils and residual product................................ 14,228 16,945 23,931
------ ------ ------
Total Product Sales.................................... 70,675 68,765 87,440
====== ====== ======
Product Sales Prices ($/barrel):
Gasoline....................................................... $27.03 27.82 28.89
Middle distillates............................................. $24.47 27.39 26.93
Heavy oils and residual product................................ $10.93 11.19 11.60
</TABLE>
ALASKA MARKETING
GASOLINE. In 1994, the Company distributed virtually all of the gasoline
produced at the refinery to end users in Alaska, either by retail sales through
its 7-Eleven convenience store locations and two other Company operated
locations, by wholesale sales through 88 branded and 24 unbranded dealers and
jobbers and by deliveries to two major oil companies for their retail operations
in Alaska in exchange for gasoline delivered to the Company on the U.S. West
Coast. During 1994, the Company's refinery production of gasoline was
essentially balanced with the Alaskan market demand. The Company holds an
exclusive license agreement for all 7-Eleven convenience stores in Alaska and
operates such stores in 38 locations, 32 of which sell Company-branded gasoline.
During 1994, these convenience stores sold an average of 71,100 gallons of
gasoline per day.
MIDDLE DISTILLATES. The Company is a major supplier of commercial jet fuel
into the Alaskan marketplace, with all of its production being marketed in
Alaska to passenger and cargo airlines. The demand for jet fuel in Alaska
currently exceeds the production of the refiners in Alaska, and several
marketers, including the Company, import jet fuel into Alaska to meet excess
demand. Substantially all of the Company's diesel fuel and other distillate
production is sold on a wholesale basis in Alaska primarily for marine and
industrial purposes. Approximately 6% of the Company's diesel fuel production in
1994 was sold for on-highway use. 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. Generally, the production of diesel fuel by refiners
in Alaska is in balance with demand; however, because of the high variability of
the demand, there are occasions when diesel fuel is imported into or exported
from Alaska.
HEAVY OILS AND RESIDUAL PRODUCT. Since there is no significant demand for
heavy oils and residual product in Alaska, substantially all of the Company's
refinery production of such products is exported from Alaska. During 1994, the
Company sold and transported a substantial volume of its residual product to the
U.S. West Coast, where it was generally used as a refinery feedstock. Prior to
1993, the Company's primary market for residual product was the Far Eastern
bunker fuel markets. Marketing the residual product as a
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feedstock has reduced the Company's exposure to the pricing volatility that
exists in the Far Eastern bunker fuel markets. In addition, the refinery's
reduced throughput and reduction of ANS crude oil as a percentage of total
feedstock during 1994 caused residual product output to decrease from
approximately 17,600 barrels per day in 1993 to approximately 15,100 barrels per
day during 1994. The Company has recently completed the installation of a vacuum
unit at the refinery at a cost of $25 million. The vacuum unit, which uses
residual product as a feedstock, is anticipated to reduce the refinery's yield
of residual product by approximately 50% by further processing these volumes
into light vacuum gas oil (LVGO), heavy vacuum gas oil (HVGO) and vacuum tower
bottoms (VTB). The LVGO is further processed in the refinery's hydrocracker,
where it is converted into gasoline and jet fuel. HVGO is sold to refiners on
the U.S. West Coast, where it is used as a catalytic hydrocracker feedstock,
while the VTBs are generally sold on the U.S. West Coast where they are blended
with light cycle oil to produce bunker fuel.
U.S. WEST COAST MARKETING
The Company conducts domestic wholesale marketing operations, primarily in
California, Oregon and Washington with its principal office located in Long
Beach, California. During 1994, these operations sold approximately 31,400
barrels per day of refined products, of which approximately 30% was received
from major oil companies in exchange for products from the Company's refinery
and 70% was purchased from other suppliers. The Company sells these refined
products in the bulk market and through 27 terminal locations, of which four are
owned by the Company.
TRANSPORTATION
In October 1994, the Company chartered an American flag vessel, the Potomac
Trader, under a charter agreement expiring in September 1996 with two one-year
renewal options. The Potomac Trader is used primarily to transport ANS crude oil
from the TAPS terminal at Valdez, Alaska to the Company's refinery. The Potomac
Trader is smaller and less expensive than the previous vessel utilized by the
Company and better matches the Company's logistical requirements. The Company
also has a charter for another American flag vessel, the Baltimore Trader, under
a one-year agreement expiring in January 1996. The Baltimore Trader is used to
transport residual product to the U.S. West Coast and occasionally to transport
feedstocks to the Company's 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 U.S. West Coast and in the Far East.
The Company operates a common carrier petroleum products pipeline from the
Company's refinery to its terminal in Anchorage. This ten-inch diameter pipeline
has a capacity to transport approximately 40,000 barrels of petroleum products
per day and allows the Company to transport light products to the terminal
throughout the year, regardless of weather conditions. During 1994, the pipeline
transported an average of approximately 23,800 barrels of petroleum products per
day, all of which were transported for the Company. For further information on
transportation in Alaska, see "Government Regulation and Legislation --
Environmental Controls."
EXPLORATION AND PRODUCTION
UNITED STATES
During 1994, the Company concentrated its activities in the Bob West Field,
which is located in the southern part of the Wilcox Trend in Starr and Zapata
Counties, Texas. 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. Pursuant to an agreement with the operator, the
Company has an option with respect to the 50% revenue interest portion of the
field to elect, subject to certain conditions, to assume operations of that
portion of the field. The Wilcox Trend extends from Northern Mexico through
South Texas into Western Louisiana. Multiple pay sands exist within the Wilcox
Trend, where extensive faulting has trapped hydrocarbons in numerous producing
zones. Continued successful development of the Bob West Field, discovered in
1990, has resulted in the Company's net proven natural gas reserves increasing
from 120 billion cubic feet ("Bcf") at December 31, 1993 to 129 Bcf at December
31, 1994, reflecting a replacement of 129% of 1994 production. Two exploratory
and 20 development wells were drilled and
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completed in this field during 1994, bringing the number of producing wells to
46 at December 31, 1994 with an additional two wells being drilled and four
wells awaiting completion at year-end. Of these six additional wells, two were
subsequently completed as producing wells and the remainder are in the
completion phase. Twenty-four additional well locations have been selected for
further development of this 4,000-acre field, most of which are expected to be
drilled during 1995 and 1996, the timing of which is dependent upon, among other
factors, the price the Company receives for its natural gas production. During
December 1994, the Company's net production from the Bob West Field wells
averaged approximately 130 million cubic feet ("Mmcf") per day, which
represented approximately 90% of the Company's year-end 1994 net deliverability.
From time to time, the Company may increase or decrease its natural gas
production in response to market conditions. Due to weakened spot market natural
gas prices, beginning in January 1995, the Company and one of its partners
initiated a voluntary reduction of natural gas production sold in the spot
market. The Company's share of this reduction is estimated to be approximately
34 Mmcf per day, representing 33% of the Company's estimated current net
deliverability of natural gas available for sale in the spot market. This
voluntary reduction has continued through February 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Exploration and Production".
In addition to the continued development of the Bob West Field, during 1994
the Company also participated in the drilling of five exploratory wells and one
unsuccessful development well in other areas of South Texas. One of the
exploratory wells was successful, two were dry holes and two were in progress at
December 31, 1994. One of the wells in progress at year-end was subsequently
abandoned and the other is in the process of being completed.
TENNESSEE GAS CONTRACT. The Company has interests in two 352-acre
producing units in the Bob West Field that are subject to a Gas Purchase and
Sales Agreement (the "Tennessee Gas Contract") with Tennessee Gas Pipeline
Company ("Tennessee Gas") expiring on January 31, 1999. The Tennessee Gas
Contract requires Tennessee Gas to purchase gas from the two producing units at
escalating prices that are substantially above current spot market prices for
natural gas. During 1994, for example, Tennessee Gas purchased approximately 21%
of the Company's net gas production from the Bob West Field under the Tennessee
Gas Contract pursuant to a contract price of $8.01 per thousand cubic feet
("Mcf") which was substantially above the 1994 average spot market price of
$1.64 per Mcf. The Tennessee Gas Contract is presently the subject of litigation
with Tennessee Gas. In June 1992, the trial court returned a verdict in favor of
the Company upholding the terms of the Tennessee Gas Contract. The Court of
Appeals upheld the validity of the Tennessee Gas Contract but remanded the case
for further consideration of legal issues which might limit certain terms of the
Tennessee Gas Contract. The ruling of the Court of Appeals is presently being
reviewed by the Supreme Court of Texas. Pending the decision of the Supreme
Court of Texas, the trial court, pursuant to a bond hearing, ordered that
Tennessee Gas pay for gas at $3.00 per Mmbtu, which approximates $3.00 per Mcf
("Bond Price"), for the period September 17, 1994 through August 1, 1995 and
post a bond which, together with the anticipated sales of natural gas to
Tennessee Gas at the Bond Price, will equal the anticipated value of the
Tennessee Gas Contract during this interim period. The Bond Price is
nonrefundable by the Company, and the Company retains the right to receive the
full contract price for all gas sold to Tennessee Gas. Prior to the bond
hearing, the Company was receiving the contract price from Tennessee Gas for
purchases of gas under the Tennessee Gas Contract. The Company continues to
recognize revenues under the Tennessee Gas Contract based on the contract price.
See Legal Proceedings in Item 3 and Notes L and P of Notes to Consolidated
Financial Statements in Item 8.
GAS PROCESSING, GATHERING AND TRANSPORTATION. The Company owns a 70%
interest in the Bob West Field's central gas processing facility which was
expanded during 1994 to enable a processing capacity of 350 Mmcf per day. The
Company owns a 70% interest in Starr County Gathering System which consists of
two ten-inch diameter and one twenty-inch diameter pipelines that transport
natural gas eight miles from the field to common carrier pipeline facilities.
The Company does not operate either of such facilities. From February 1994 until
May 1994, the pipeline facilities were at capacity and production subject to
spot market prices was being curtailed. In 1994, the Company acquired a 50%
interest in a twenty-inch diameter natural gas pipeline that was constructed
during 1994 and which eliminated the curtailment of natural gas production
subject to spot market sales prices. The Company believes that these expansions
in pipeline capacity,
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gathering systems and processing capacities have minimized the risk of
significant marketing constraints for the foreseeable future.
BOLIVIA
The Company's Bolivian exploration and production operations are located in
southern Bolivia near the border with Argentina, where, since 1976, the Company
has discovered four significant natural gas fields. At December 31, 1994, Tesoro
was the second largest holder of proved natural gas reserves in Bolivia, with
estimated net proved natural gas reserves of 96 Bcf. The Company is the operator
of a joint venture that 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 has drilled five exploratory wells and 12 development wells
within three separate fields in Block XVIII. During 1994, the Company's net
production from these fields averaged 22 Mmcf of gas per day and 733 barrels of
condensate per day, a production level that exceeded that of the average of the
prior three years, primarily due to the inability of another producer during
1994 to satisfy gas supply requirements. 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 and royalties on production, which
are payable in kind. The Company is currently selling all of its natural gas
production from the La Vertiente, Escondido and Taiguati Fields in Block XVIII
to YPFB which in turn sells the natural gas to Yacimientos Petroliferos
Fiscales, S.A.("YPF"), a publicly-held company based in Argentina. The contract
between YPFB and YPF was recently extended through March 31, 1997. The contract
extension maintained approximately the same volumes as their previous contract,
but with a small decrease in price. The Company's contract for the sale of
natural gas to YPFB has expired and is subject to renegotiation. The Company is
currently selling its natural gas production to YPFB based on the pricing terms
in the contract between YPFB and YPF. The Company anticipates that any
renegotiation of its contract with YPFB will result in the Company receiving a
lower price than it received under its previous contract with YPFB. Any
renegotiation may result in a reduction of volumes purchased from the Company
due to new supply sources that commenced production near the end of 1994.
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 and royalties on
production, which are payable in kind. The development of Block XX is currently
limited by a lack of access to major gas-consuming markets. 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 work plan for Block XX that included a three-well
exploratory program was approved by YPFB and the Government of Bolivia. Under
the plan, the Company drilled a well, the Los Suris No. 2, which was completed
in February 1994 and tested gross production potential of approximately 9 Mmcf
of gas per day and approximately 120 barrels of condensate per day from two
producing intervals. The Los Suris No. 2 is also shut-in pending the approval of
a commercialization agreement. The second exploratory well, San Antonio X-1, was
abandoned in September 1994 and Palo Marcado X-3, the third exploratory well,
was spudded in December 1994 and is currently being drilled to a proposed depth
of 3,000 meters. To guarantee the drilling of the second and third exploratory
wells, the Company submitted bank guarantees to YPFB in the aggregate amount of
$4.0 million. Upon abandonment of the San Antonio X-1, YPFB released the Company
from the first $2.0 million guarantee. The Company may 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.
During 1994, feasibility studies proceeded for several pipeline projects to
new markets in Brazil, Chile and Paraguay. In August 1994, the governments of
Brazil and Bolivia announced an extension of their previous agreement to jointly
construct a pipeline from gas fields in Bolivia to the industrial area along the
Atlantic seaboard of Brazil. Both YPFB and Petrobras, the Brazilian state-owned
petroleum company, have selected natural gas transmission industry partners for
their respective portions of this project. A preliminary
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financing proposal has been announced for the Brazilian pipeline project,
although no final decision on the construction or the completion date of this
pipeline has been made.
For further information regarding Tesoro's Bolivian operations, see Notes B
and P 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, 1994, 1993 and 1992. Effective May
1, 1992, the Company sold its Indonesian operations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
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1994 1993 1992
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<S> <C> <C> <C>
Net Natural Gas Production (average daily Mcf):
United States(1)............................................. 83,796 38,767 13,960
Bolivia(2)................................................... 22,082 19,232 19,421
-------- ------ ------
Total................................................ 105,878 57,999 33,381
======== ====== ======
Net Crude Oil Production (average barrels per day):
Bolivia (condensate)......................................... 733 663 660
Indonesia.................................................... -- -- 2,714
-------- ------ ------
Total................................................ 733 663 3,374
======== ====== ======
Average Realized Sales Prices -- Natural Gas (per Mcf):
United States(1)............................................. $ 3.00 3.55 3.68
Bolivia...................................................... $ 1.20 1.22 1.67
Average Realized Sales Prices -- Crude Oil (per barrel):
Bolivia (condensate)......................................... $ 13.28 14.26 17.65
Indonesia.................................................... $ -- -- 18.20
Average Lifting Cost (per net equivalent Mcf):
United States(3)............................................. $ .45 .48 .74
Bolivia...................................................... $ .06 .14 .08
Indonesia.................................................... $ -- -- 1.94
Depletion Rates (per net equivalent Mcf):
United States................................................ $ .79 .78 .95
Indonesia.................................................... $ -- -- .15
Net Exploratory Wells Drilled:
United States --
Net productive wells...................................... 1.53 .38 1.00
Net dry holes............................................. 1.12 .50 .50
Net Development Wells Drilled:
Net productive wells --
United States............................................. 11.09 7.87 3.85
Indonesia................................................. -- -- --
-------- ------ ------
Total................................................ 11.09 7.87 3.85
======== ====== ======
Net dry holes --
United States............................................. .38 -- --
Indonesia................................................. -- -- --
-------- ------ ------
Total................................................ .38 -- --
======== ====== ======
</TABLE>
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(1) See Legal Proceedings in Item 3 and Note L of Notes to Consolidated
Financial Statements in Item 8 regarding litigation concerning the Tennessee
Gas contract.
(2) The Company's natural gas production from Bolivia as presented above
represents the Company's net production before Bolivian taxes.
(3) Average lifting costs for the Company's U.S. operations include such items
as severance taxes, property taxes, insurance, materials and supplies and
transportation of natural gas production through Company-owned pipelines.
Since severance taxes are based upon sales prices of natural gas, the
average lifting costs presented above include the impact of above-market
prices for sales under the Tennessee Gas Contract. Lifting costs per Mcf of
natural gas sold in the spot market were approximately $.38, $.39 and $.63
for 1994, 1993 and 1992, respectively.
8
<PAGE> 9
ACREAGE AND WELLS
The following table sets forth the Company's gross and net acreage and
productive wells at December 31, 1994:
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
ACREAGE ACREAGE
------------- --------------
GROSS NET GROSS NET
----- --- ----- ----
<S> <C> <C> <C> <C>
Acreage (in thousands):
United States................................................ 4 2 8 3
Bolivia...................................................... 38 29 1,210 880
----- --- ----- ----
Total................................................ 42 31 1,218 883
==== === ===== ====
</TABLE>
<TABLE>
<CAPTION>
GROSS NET
----- ----
<S> <C> <C>
Productive Gas Wells:
United States............................................................. 48 26.8
Bolivia................................................................... 15 11.2
----- ----
Total*............................................................ 63 38.0
===== ====
</TABLE>
- ---------------
* Included in total productive wells is 1 gross (.6 net) well in the United
States and 8 gross (6.0 net) wells in Bolivia with multiple completions. At
December 31, 1994, the Company was participating in the drilling of 8 gross
(4.6 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 Notes B and P of Notes to Consolidated Financial Statements in
Item 8.
OIL FIELD SUPPLY AND DISTRIBUTION
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 11 marine terminals in various Texas and
Louisiana locations. 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. Effective March 31, 1994, the
Company discontinued its environmental remediation products and services
operations and recorded charges of $1.9 million during 1994 in connection with
such discontinuance. The Company is continuing its wholesale marketing of fuel
and lubricants.
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. The industry also competes with other
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 the
industry. In addition, unlike the Company, many competitors also produce large
volumes of crude oil that may be used in connection with their refining
operations. The North American Free Trade Agreement has further streamlined and
simplified procedures for the importation and exportation of natural gas among
Mexico, the United States and Canada. These changes are likely to enhance the
ability of Canadian and Mexican producers to export natural gas to the United
States, thereby further increasing competition in the domestic natural gas
market.
The refining and marketing businesses are highly competitive, with price
being the principal factor in competition. In the refining market, the Company's
refinery competes primarily with three other refineries in Alaska and, to a
lesser extent, refineries on the U.S. West Coast. Given the refinery's proximity
to the Alaskan market, the Company believes it enjoys a cost advantage in that
market versus refineries on the U.S. West Coast. However, there is no assurance
that the Company's cost advantage can be maintained. The Company's
9
<PAGE> 10
refining competition in Alaska consists of a refinery situated near Fairbanks
owned by MAPCO, Inc. and two refineries situated near Valdez and Fairbanks,
respectively, owned by Petro Star Inc. The Company estimates that such other
refineries have a combined capacity to process approximately 172,000 barrels per
day of crude oil. ANS crude oil is the only feedstock used in these competing
refineries. After processing the crude oil and removing the lighter-end
products, which represent approximately 30% of each barrel processed, these
refiners are permitted, because of their direct connection to the TAPS, to
return the remainder of the processed crude back into the pipeline system as
"return oil" in consideration for a fee, thereby eliminating their need to
market residual product. The Company's refinery is not directly connected to the
TAPS, and the Company, therefore, cannot return its residual product to the
TAPS. In general, the competing refineries in Alaska do not have the same
downstream capabilities that the Company currently possesses. The Company
estimates that its refinery has the capacity to produce approximately twice the
volume of light products per barrel of ANS crude oil that any of the competing
refineries is currently able to produce.
The Company's marketing business in Alaska is segmented by product line.
The Company believes it is the largest producer and distributor of gasoline in
Alaska, with the largest network of branded and unbranded dealers and jobbers.
The Company is the principal supplier for two major oil companies through
product exchange agreements, whereby gasoline in Alaska is provided in exchange
for gasoline delivered to the Company on the U.S. West Coast. Jet fuel sales are
concentrated in Anchorage, where the Company is one of two principal suppliers
to, and the only supplier with a direct pipeline into, the Anchorage
International Airport, which is a major hub for air cargo traffic to the Far
East. Diesel fuel is sold primarily on a wholesale basis.
The Company's U.S. West Coast marketing business is primarily a
distribution business selling to independent dealers and jobbers outside major
urban areas. The Company competes against independent marketing companies and,
to a lesser extent, integrated oil companies when engaging in these marketing
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.
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 ("NGPA"), the Natural Gas Act ("NGA"), and the
regulations and orders issued by the Federal Energy Regulatory Commission
("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, 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.
10
<PAGE> 11
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 sales efforts. In addition,
numerous petitions seeking judicial review of Orders No. 636, 636A and 636B and
seeking review of the 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 effect, if any, the final rule resulting from Order No.
636 will have on the Company. The Company does not believe that 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, the FERC initiated a proceeding seeking industry-wide
comments about its role in regulating natural gas gathering performed by
interstate pipelines or their affiliates. In 1994, the FERC granted a number of
interstate pipeline applications to abandon certificated gathering facilities to
non-jurisdictional entities. The rates charged by these entities, which may or
may not be affiliated with the interstate pipeline, are no longer regulated by
the FERC. Under the individual orders, gathering services must be continued to
existing customers and be provided in an open-access and non-discriminatory
manner. These orders are now subject to rehearing before the FERC and numerous
parties will likely seek judicial review.
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.
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.
11
<PAGE> 12
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. An example of a federal environmental
law that will 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 will be
required to comply with the new requirements being adopted and promulgated by
the U.S. Environmental Protection Agency (the "EPA") and the states in which the
Company operates. These regulations will necessitate the installation of
additional controls or other modifications or changes in use for certain
emission sources. At this time, the Company can only 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 Company's refinery as well
as some other Company facilities will require submission of an application for a
Clean Air Act Amendment Title V permit during 1995. When issued, although
specifics are still undetermined, the amended permit will involve stricter
monitoring requirements and additional equipment. The Company believes it can
comply with these new requirements without adversely affecting operations.
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 early discontinuance of the program in Fairbanks.
On October 21, 1993, the United States Congress granted the State one additional
year of exemption from requiring the use of oxygenated gasoline. In addition,
the EPA has been directed to conduct additional studies of potential health
effects of oxygenated fuel in Alaska. In the fall of 1994, the State mandated
the use of oxygenated fuels containing ethanol in the Anchorage area, from
January 1, through February 28, 1995. This was a shortened period due to time
constraints faced by gasoline sellers in transporting ethanol to Alaska, and in
making the necessary modifications to terminal facilities for blending of the
products. In following years, the period for use of oxygenated gasoline in
Anchorage will be November 1, through the last day of February of the succeeding
year. No requirements for use of such products in Fairbanks have been issued,
but are expected. Additional federal regulations promulgated on August 21, 1990,
which went 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 was for on-highway
vehicles. The EPA supported the State's position and formalities for obtaining
the exemption were completed on September 27, 1993. The EPA, in a letter to the
State dated September 30, 1993, stated 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 publication of a final
decision, which has not yet occurred. 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 permanent waiver from the federal regulations, the Company
would discontinue 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 1994. While the Company is unable to predict the outcome of these
matters; their ultimate resolution should not have a material impact on its
operations.
OIL SPILL PREVENTION AND RESPONSE. The Federal Oil Pollution Act of 1990
("OPA 90") and related state regulations require most refining, transportation
and oil storage facilities to prepare oil spill prevention contingency plans for
use during an oil spill response. The Company has prepared and submitted these
plans for approval and, in most cases, has received federal and state approvals
necessary to meet various regulations and to avoid the potential of negative
impacts on the operation of its facilities.
The Company currently charters a tanker to transport crude oil from the
Valdez, Alaska, pipeline terminal through Prince William Sound and Cook Inlet to
its refinery. In addition, the Company routinely charters, on a long-term and
spot basis, additional tankers and barges for shipment of crude oil and refined
products through Cook Inlet, as well as other locations. OPA 90 requires, as a
condition of operation, that the Company demonstrate the capability to respond
to the "worst case discharge" to the maximum extent
12
<PAGE> 13
practicable. Alaska law requires the Company to provide spill-response
capability to contain or control, and clean-up within 72 hours, an amount equal
to 50,000 barrels for a tanker carrying fewer than 500,000 barrels of crude oil
or equal to 300,000 barrels for a tanker carrying more than 500,000 barrels. To
meet these requirements, the Company has entered into a contract with Alyeska
Pipeline Service Company ("Alyeska") to provide initial spill response services
in Prince William Sound, with the Company later to assume those responsibilities
after mutual agreement with Alyeska and State and Federal On-Scene Coordinators.
The Company has also entered into an agreement with Cook Inlet Spill Prevention
and Response, Incorporated for oil spill response services in Cook Inlet. The
Company believes these contracts provide for the additional services necessary
to meet spill response requirements established by Alaska and federal law.
Transportation, storage, and refining of crude oil in Alaska result in the
greatest regulatory impact, with respect to oil spill prevention and response.
Oil transportation and terminaling operations at other Company facilities also
result in compliance mandates for oil spill prevention and response. The Company
contracts with various oil spill response cooperatives or local contractors to
provide necessary oil spill response capabilities which may be required on a
location by location basis.
Current State regulations in Alaska require installation of dike liners in
secondary containment systems for petroleum storage tanks by January 1997. This
requirement affects all storage tanks. New storage tanks built after 1992 must
have such liners and older tanks must be retrofitted and have liners installed.
The Company expects the deadline for this work to be extended and possibly
changed to lessen its financial impact. However, if such changes do not occur,
expenditures in the range of $8 million by January 1997 will be required to
bring the Company's tanks into compliance.
UNDERGROUND STORAGE TANKS. 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 Company continues to monitor, test and make physical
improvements in its current operations which result in a cleaner environment.
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 1995
and 1996 and does not expect that such expenditures subsequent to 1996 will have
a material adverse effect on the financial condition of the Company.
ENVIRONMENTAL EXPENDITURES. The Company incurred capital expenditures of
approximately $2.7 million for environmental control purposes during 1994 and
anticipates incurring approximately $2 million for such purposes during 1995,
primarily for the removal and upgrading of underground storage tanks, and
approximately $8 million during 1996 for the installation of dike liners
required under Alaska environmental regulations as discussed above. For further
information regarding environmental matters, see "Legal Proceedings" in Item 3
and "Environmental Controls" and "Underground Storage Tanks" discussed above.
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 currently imposed by Bolivian laws,
regulations and practices will have a material adverse effect upon its Bolivian
operations.
TAXES
UNITED STATES
The Revenue Reconciliation Act of 1993 will impose a tax of 4.3 cents per
gallon on commercial aviation fuel effective October 1, 1995. The Company does
not believe such tax will have a material adverse effect on the Company's future
operations.
13
<PAGE> 14
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 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 December 1994,
Bolivia modified its 1987 tax system, and reintroduced a tax on net income.
Until such time as regulations are issued, it is unclear whether the Company can
treat the 30% gross production taxes as creditable for U.S. tax purposes.
In 1990, the Bolivian Government passed a 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 that may subject it to a higher Bolivian tax rate in the future.
Regulations under this law have not been issued; however, the Company does not
anticipate that this law will have a material adverse effect on the Company's
Bolivian operations.
EMPLOYEES
At December 31, 1994, the Company employed approximately 870 persons, of
which approximately 40 were 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the Company's executive officers, their ages and
their positions with the Company at March 1, 1995.
<TABLE>
<CAPTION>
NAME AGE POSITION POSITION HELD SINCE
- --------------------------------- --- --------------------------------- -------------------
<S> <C> <C> <C>
Michael D. Burke................. 51 President and Chief Executive July 1992
Officer
Gaylon H. Simmons................ 55 Executive Vice President September 1993
Bruce A. Smith................... 51 Executive Vice President and September 1993
Chief Financial Officer
James W. Queen................... 55 Senior Vice President February 1994
James C. Reed, Jr. .............. 50 Senior Vice President, General August 1994
Counsel and Secretary
Don E. Beere..................... 54 Vice President, Controller February 1992
William T. Van Kleef............. 43 Vice President, Treasurer March 1993
Gregory A. Wright................ 45 Vice President, Corporate February 1995
Communications
</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 a successor
shall have been elected or shall have qualified.
14
<PAGE> 15
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> <C>
Michael D. Burke -- President and Chief Executive Officer since July 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 and Group Vice President of Texas Eastern Corporation
from 1986 to 1990.
Gaylon H. Simmons -- Executive Vice President responsible for Refining, Marketing
and Crude Supply Operations since September 1993. Senior Vice
President, Refining, Marketing and Crude Supply from January
1993 to September 1993. President and Chief Executive Officer
of Simmons Sirvey Group, Inc. from 1991 to December 1992.
President and Chief Executive Officer of Permian Corporation
from 1989 to 1991. Vice President, Supply and Marketing for
MAPCO Petroleum, Inc. from 1985 to 1989.
Bruce A. Smith -- Executive Vice President responsible for Exploration and
Production Operations and Chief Financial Officer since
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.
James C. Reed, Jr. -- Senior Vice President, General Counsel and Secretary since
August 1994. Vice President, General Counsel and Secretary from
September 1993 to August 1994. 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.
Don E. Beere -- Vice President, Controller since 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.
William T. Van Kleef -- Vice President, Treasurer since 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.
Gregory A. Wright -- Vice President, Corporate Communications since February 1995.
Vice President, Corporate Communications of Tesoro Petroleum
Companies, Inc. from January 1995 to February 1995. Vice
President, Business Development of Valero Energy Corporation
from 1994 to January 1995. Vice President, Corporate Planning
of Valero Energy Corporation from 1992 to 1994. Vice President,
Investor Relations of Valero Energy Corporation from 1989 to
1992.
</TABLE>
15
<PAGE> 16
ITEM 2. PROPERTIES
See information appearing under Item 1, Business herein and Notes B, F and
P of Notes to Consolidated Financial Statements in Item 8.
ITEM 3. LEGAL PROCEEDINGS
TENNESSEE GAS CONTRACT. The Company is selling a portion of the gas from
its Bob West Field to Tennessee Gas Pipeline Company ("Tennessee Gas") under a
Gas Purchase and Sales Agreement (the "Tennessee Gas Contract") which provides
that the price of gas shall be the maximum price as calculated in accordance
with Section 102(b)(2) ("Contract Price") of the Natural Gas Policy Act of 1978
("NGPA"). Tennessee Gas filed suit against the Company in the District Court of
Bexar County, Texas alleging that the Tennessee Gas Contract is not applicable
to the Company's properties and that the gas sales price should be the price
calculated under the provisions of Section 101 of the NGPA rather than the
Contract Price. During December 1994, the Contract Price was in excess of $8.00
per Mcf, the Section 101 price was $4.81 per Mcf and the average spot market
price was $1.56 per Mcf. Tennessee Gas also claimed that the contract should be
considered an "output contract" under Section 2.306 of the Texas Business and
Commerce Code and that the increases in volumes tendered under the contract
exceeded those allowable for an output contract.
The District Court judge returned a verdict in favor of the Company on all
issues. On appeal by Tennessee Gas, the Court of Appeals for the Fourth Supreme
Judicial District of Texas affirmed the validity of the Tennessee 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 remanded the case to
the trial court based on its determination (i) that the Tennessee Gas Contract
was an output contract and (ii) that a fact issue existed as to whether the
increases in the volumes of gas tendered to Tennessee Gas under the contract
were made in bad faith or were unreasonably disproportionate to prior tenders.
The Company sought review of the appellate court ruling on the output contract
issue in the Supreme Court of Texas. Tennessee Gas also sought review of the
appellate court ruling denying the remaining Tennessee Gas claims in the Supreme
Court of Texas. The Supreme Court of Texas heard arguments in December 1994
regarding the output contract issue and certain of the issues raised by
Tennessee Gas but has not yet issued its opinion.
Although the outcome of any litigation is uncertain, management, based upon
advice from outside legal counsel, is confident that the decision of the trial
and appellate courts will ultimately be upheld as to the validity of the
Tennessee Gas Contract and the Contract Price. If the Supreme Court of Texas
were to affirm the appellate court ruling, the Company believes that the only
issue for trial should be whether the increases in the volumes of gas tendered
to Tennessee Gas from the Company's properties were made in bad faith or were
unreasonably disproportionate. The appellate court decision was the first
reported decision in Texas holding that a take-or-pay contract was an output
contract. As a result, it is not clear what standard the trial court would be
required to apply in determining whether the increases were in bad faith or
unreasonably disproportionate. The appellate court acknowledged in its opinion
that the standards used in evaluating other kinds of output contracts would not
be appropriate in this context. The Company believes that the appropriate
standard would be whether the development of the field was undertaken in a
manner that a prudent operator would have undertaken in the absence of an
above-market sales price. Under that standard, the Company believes that, if
this issue is tried, the development of the Company's 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, 1994, under the Tennessee Gas Contract based on the
Contract Price, which net revenues aggregated $36.9 million more than the
Section 101 prices and $69.5 million in excess of the spot market prices. If
Tennessee Gas were ultimately to prevail in this litigation, the Company could
be required to return to Tennessee Gas $52.5 million, plus interest if awarded
by the court, representing the difference between the spot market price and the
Contract Price received by the Company through September 17, 1994 (the date on
which the Company entered into a bond agreement discussed below). In addition,
the Company's calculation of the standardized measure of discounted future net
cash flows relating to proved reserves in the United States at December 31, 1994
of $127 million was determined in part using the Contract Price as
16
<PAGE> 17
compared with $73 million at spot market prices. An adverse judgment in this
case could have a material adverse effect on the Company.
On August 4, 1994, the trial court rejected a motion by Tennessee Gas to
post a supersedeas bond in the form of monthly payments into the registry of the
court representing the difference between the Contract Price and spot market
price of gas sold to Tennessee Gas pursuant to the Tennessee Gas Contract. The
court advised Tennessee Gas that should it wish to supersede the judgment,
Tennessee Gas had the option to post a bond which would be effective only until
August 1, 1995, in an amount equal to the anticipated value of the Tennessee Gas
Contract during that period. In September 1994, the court ordered that,
effective until August 1, 1995, Tennessee Gas (i) take at least its entire
monthly take-or-pay obligation under the Tennessee Gas Contract, (ii) pay for
gas at $3.00 per Mmbtu, which approximates $3.00 per Mcf ("Bond Price"), and
(iii) post a $120 million bond with the court representing an amount which,
together with anticipated sales of natural gas to Tennessee Gas at the Bond
Price, will equal the anticipated value of the Tennessee Gas Contract during
this interim period. The Bond Price is nonrefundable by the Company, and the
Company retains the right to receive the full Contract Price for all gas sold to
Tennessee Gas. The Company continues to recognize revenues under the Tennessee
Gas Contract based on the Contract Price. At December 31, 1994, the Company had
recognized cumulative revenues in excess of spot market prices (through
September 17, 1994) and in excess of the Bond Price (subsequent to September 17,
1994) totaling $65.7 million. Receivables at December 31, 1994, included $17.7
million from Tennessee Gas, of which $13.2 million represented the difference
between the Contract Price and the Bond Price. For further information regarding
the Tennessee Gas Contract, see Notes L and P of Notes to Consolidated Financial
Statements in Item 8.
MINERAL ESTATE CLAIM. In February 1995, a lawsuit was filed in the U.S.
District Court for the Southern District of Texas, McAllen Division, by the
Heirs of H.P. Guerra, Deceased ("Plaintiffs") against the United States and
Tesoro and other working and overriding royalty interest owners to recover the
oil and gas mineral estate under 2,706.34 acres situated in Starr County, Texas.
The oil and gas mineral estate sought to be recovered underlies lands taken by
the United States in connection with the construction of the Falcon Dam and
Reservoir. In their lawsuit, the Plaintiffs allege that the original taking by
the United States in 1948 was unlawful and void and the refusal of the United
States to revest the mineral estate to H.P. Guerra or his heirs was arbitrary
and capricious and unconstitutional. Plaintiffs seek (i) restoration of their
oil and gas estate; (ii) restitution of all proceeds realized from the sale of
oil and gas from their mineral estate, plus interest on the value thereof; and
(iii) cancellation of all oil and gas leases issued by the United States to
Tesoro and the other working interest owners covering their mineral estate. The
lawsuit covers a significant portion of the mineral estate in the Bob West
Field; however, none of the acreage covered is dedicated to the Tennessee Gas
Contract. The Company cannot predict the ultimate resolution of this matter but,
based upon advice from outside legal counsel, believes the lawsuit is without
merit.
REFUND CLAIM. In July 1994, Simmons Oil Corporation, also known as David
Christopher Corporation, a former customer of the Company ("Customer"), filed
suit against the Company in the United States District Court for the District of
New Mexico for a refund in the amount of approximately $1.2 million, plus
interest of approximately $4.4 million and attorney's fees, related to a
gasoline purchase from the Company in 1979. The Customer also alleges
entitlement to treble damages and punitive damages in the aggregate amount of
$16.8 million. The refund claim is based on allegations that the Company
renegotiated the acquisition price of gasoline sold to the Customer and failed
to pass on the benefit of the renegotiated price to the Customer in violation of
Department of Energy price and allocation controls then in effect. The Company
cannot predict the ultimate resolution of this matter but believes the claim is
without merit.
ENVIRONMENTAL MATTERS. In March 1991, the Company entered into a Consent
Order with the Alaska Department of Environmental Conservation ("ADEC")
substantially similar to 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
17
<PAGE> 18
initiated a subsurface monitoring and interception system designed to identify
the extent of hydrocarbons present in the groundwater and to remove the
hydrocarbons.
In March 1992, the Company received a Compliance Order and Notice of
Violation from the Environmental Protection Agency (the "EPA") alleging
violations by the Company of the New Source Performance Standards under the
Clean Air Act at its Alaska refinery. These allegations include failure to
install, maintain and operate monitoring equipment over a period of
approximately six years, failure to perform accuracy testing on monitoring
equipment, and failure to install certain pollution control equipment. From
March 1992 to July 1993, the EPA and the Company exchanged information relevant
to these allegations. In addition, the EPA conducted an environmental audit of
the Company's refinery in May 1992. As a result of this audit, the EPA is also
alleging violation of certain regulations related to asbestos materials. In
October 1993, the EPA referred these matters to the Department of Justice
("DOJ"). The DOJ contacted the Company to begin negotiating a resolution of
these matters. The DOJ has indicated that it is willing to enter into a judicial
consent decree with the Company and that this decree would include a penalty
assessment. Negotiations on the penalty are in progress. The DOJ has proposed a
penalty assessment of approximately $3.7 million. The Company is continuing to
negotiate with the DOJ but cannot predict the ultimate outcome of the
negotiations.
The Company, along with numerous other parties, 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 Mud
Superfund site in Abbeville, Louisiana. The Company arranged for the disposal of
a minimal amount of materials at this location, but CERCLA imposes joint and
several liability on each PRP. The EPA is seeking reimbursement for its response
costs incurred to date at the site, as well as a commitment from the PRPs either
to conduct future remedial activities or to finance such activities. At this
time, the Company is unable to determine the extent of the Company's liability
related to this site; however, the extent of the Company's allocated financial
contribution to the cleanup of this site is expected to be minimal based on the
number of companies and the volumes of waste involved and the payment by the
Company of a de minimus settlement amount of $2,500 at a similar site in
Louisiana. The Company believes that the aggregate amount of such liability, if
any, would not have a material adverse effect on the Company.
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
The principal markets on which the Company's Common Stock is traded are the
New York Stock Exchange and the Pacific Stock Exchange. The per share market
price ranges for the Company's Common Stock during 1994 and 1993 are summarized
below:
<TABLE>
<CAPTION>
1994 1993
------------ -----------
QUARTERS HIGH LOW HIGH LOW
----------------------------------------------- ---- --- --- ---
<S> <C> <C> <C> <C>
First.......................................... $12 3/8 5 1/4 5 5/8 3
Second......................................... $12 1/8 9 7/8 6 5/8 5
Third.......................................... $11 1/4 8 1/2 7 3/4 5 1/8
Fourth......................................... $ 10 8 1/2 7 1/2 5 1/8
</TABLE>
At March 1, 1995, there were approximately 4,300 holders of record of the
Company's 24,534,430 outstanding shares of Common Stock. The Company did not pay
dividends on its Common Stock for the periods set forth above.
For information regarding restrictions on future dividend payments, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 and Note I of Notes to Consolidated Financial Statements in
Item 8.
18
<PAGE> 19
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,
including the notes thereto, in Item 8.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS YEARS ENDED
DECEMBER 31, ENDED SEPTEMBER 30,
---------------------- DECEMBER 31, ---------------
1994 1993 1992 1991(1) 1991 1990
------ ----- ----- ------------ ------------ ------------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Gross Operating Revenues:
Refining and Marketing................................... $687.0 687.2 810.7 196.8 898.6 860.5
Exploration and Production(2)............................ 106.3 63.1 42.7 12.5 59.2 32.4
Oil Field Supply and Distribution........................ 77.9 80.7 93.5 36.5 134.3 103.7
Intersegment eliminations(3)............................. -- -- (.4) (5.2) (7.1) --
------ ----- ----- ----- ------------ -----
Total Gross Operating Revenues......................... $871.2 831.0 946.5 240.6 1,085.0 996.6
====== ===== ===== ============ ====== =====
Segment Operating Profit (Loss):
Refining and Marketing................................... $ 2.4 15.2 (14.9) 1.7 19.3 48.2
Exploration and Production(2)............................ 64.3 40.7 29.1 7.4 35.6 16.8
Oil Field Supply and Distribution........................ (2.3) (3.6) (4.7) (1.2) (.5) 2.9
------ ----- ----- ----- ------------ -----
Total Segment Operating Profit......................... $ 64.4 52.3 9.5 7.9 54.4 67.9
====== ===== ===== ============ ====== =====
Earnings (Loss) Before Extraordinary Loss and the
Cumulative Effect of Accounting Changes.................. $ 20.5 17.0 (45.3) (.4) 3.9 22.7
Extraordinary Loss on Extinguishment of Debt............... (4.8) -- -- -- -- --
Cumulative Effect of Accounting Changes.................... -- -- (20.6) -- -- --
------ ----- ----- ----- ------------ -----
Net Earnings (Loss)(4)..................................... $ 15.7 17.0 (65.9) (.4) 3.9 22.7
====== ===== ===== ============ ====== =====
Net Earnings (Loss) Applicable to Common Stock(4).......... $ 13.0 7.8 (75.1) (2.7) (5.3) 13.5
====== ===== ===== ============ ====== =====
Earnings (Loss) per Primary and Fully Diluted* Share(4)(5):
Earnings (loss) before extraordinary loss and the
cumulative effect of accounting changes................ $ .77 .54 (3.87) (.19) (.37) .96
Extraordinary loss on extinguishment of debt............. (.21) -- -- -- -- --
Cumulative effect of accounting changes.................. -- -- (1.47) -- -- --
------ ----- ----- ----- ------------ -----
Net earnings (loss)...................................... $ .56 .54 (5.34) (.19) (.37) .96
====== ===== ===== ============ ====== =====
Average Common and Common Equivalent Shares Outstanding(5):
Primary.................................................. 23.2 14.3 14.1 14.1 14.1 14.1
Fully diluted............................................ 24.7 19.1 18.8 18.8 18.8 18.8
CAPITAL EXPENDITURES
Refining and Marketing................................... $ 32.0 7.1 3.7 .8 4.4 6.9
Exploration and Production............................... 65.6 29.3 9.3 3.0 19.3 13.2
Other.................................................... 2.0 1.1 2.4 .1 .8 3.0
------ ----- ----- ----- ------------ -----
Total Capital Expenditures............................. $ 99.6 37.5 15.4 3.9 24.5 23.1
====== ===== ===== ============ ====== =====
BALANCE SHEET AND OTHER DATA
Total Assets............................................... $484.4 434.5 446.7 494.7 496.8 504.9
Working Capital............................................ $ 85.9 124.5 122.6 106.1 95.4 117.9
Long-Term Debt and Other Obligations, Including Current
Portion(5)............................................... $199.6 185.5 201.7 189.4 184.7 168.0
Redeemable Preferred Stock(5).............................. $ -- 78.1 71.7 57.4 57.4 57.4
Common Stock and Other Stockholders' Equity(5)(6).......... $160.7 58.5 50.7 137.0 137.4 141.4
</TABLE>
- ---------------
* Anti-dilutive.
(1) The Company's fiscal year-end was changed from September 30 to December 31,
effective January 1, 1992.
(2) 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 L and P of Notes to Consolidated Financial
Statements in Item 8.
(3) Intersegment eliminations represent sales from Refining and Marketing to Oil
Field Supply and Distribution, at prices which approximate market.
(4) The net loss for 1992 included a charge of $20.6 million for the cumulative
effect of the adoption of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and SFAS No. 109, "Accounting
for Income Taxes". Net earnings for 1994 included a $4.8 million
extraordinary loss related to an early extinguishment of debt in connection
with a recapitalization.
(5) For information on the Company's recapitalization and equity offering in
1994, see Note C of Notes to Consolidated Financial Statements in Item 8.
(6) No dividends were paid on common shares during the periods presented above.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
During 1994, the Company significantly strengthened its short-term and
long-term liquidity and increased its equity capital and financial resources.
These improvements were achieved by consummation of a recapitalization plan and
equity offering whereby a major portion of the Company's outstanding debt was
restructured and all of its preferred stock and dividend arrearages were
eliminated and which, among other matters, deferred $44 million of debt service
requirements, increased stockholders' equity by approximately $82 million and
eliminated $9.2 million of annual preferred dividend requirements (see Note C of
Notes to Consolidated Financial Statements in Item 8). In addition, the Company
entered into a $125 million corporate Revolving Credit Facility and obtained $15
million financing for a major addition to the Company's refinery. These
accomplishments, together with the Company's cash flows from operations, enabled
the Company to invest $99.6 million in capital projects during 1994 and have
better positioned the Company for future profitability and growth.
The Company operates in an environment where markets for crude oil, natural
gas and refined products historically have been volatile and are likely to
continue to be volatile in the future. The Company's operating margins and
liquidity are subject to fluctuation in response to changes in the supply of and
demand for crude oil, natural gas and refined petroleum products, market
uncertainty and a variety of additional factors that are beyond the control of
the Company. These factors include, among others, the level of consumer product
demand, weather conditions, the proximity of the Company's natural gas reserves
to pipelines, the capacities of such pipelines, fluctuations in seasonal demand,
governmental regulations, the price and availability of alternative fuels and
overall economic conditions. The Company cannot predict the future markets and
prices for the Company's natural gas or refined products and the resulting
future impact on earnings and cash flows. Due to the effect of depressed market
conditions (see "Results of Operations" below), the Company's operations will
continue to be adversely affected for so long as these market conditions exist.
The Company's future capital expenditures, borrowings under its credit
arrangements and other sources of capital will be affected by these conditions.
CREDIT ARRANGEMENTS
During April 1994, the Company entered into a three-year, $125 million
corporate Revolving Credit Facility with a consortium of ten banks, replacing
certain interim financing arrangements. The Revolving Credit Facility, which is
subject to a borrowing base, provides for (i) the issuance of letters of credit
up to the full amount of the borrowing base as calculated and (ii) cash
borrowings up to the amount of the borrowing base attributable to domestic oil
and gas reserves. Outstanding obligations under the Revolving Credit Facility
are secured by liens on substantially all of the Company's trade accounts
receivable and product inventory and by mortgages on the Company's refinery and
South Texas natural gas reserves. At December 31, 1994, the borrowing base of
approximately $107 million included a domestic oil and gas reserve component of
$45 million. At December 31, 1994, the Company had outstanding letters of credit
under the Revolving Credit Facility of approximately $48 million with no cash
borrowings outstanding. Although at December 31, 1994 there were no cash
borrowings outstanding under the Revolving Credit Facility, the Company expects
to incur short-term borrowings from time to time in 1995 under the Revolving
Credit Facility to finance working capital requirements and, to a lesser extent,
capital expenditures.
Under the terms of the Revolving Credit Facility, as amended, the Company
is required to maintain specified levels of working capital, tangible net worth,
consolidated cash flow and refinery cash flow, as defined in the Revolving
Credit Facility. Among other matters, the Revolving Credit Facility has certain
restrictions with respect to (i) capital expenditures, (ii) incurrence of
additional indebtedness, and (iii) dividends on capital stock. The Revolving
Credit Facility contains other covenants customary in credit arrangements of
this kind. During the third and fourth quarters of 1994, the Company did not
satisfy the refinery cash flow requirement which required a waiver and an
amendment to the Revolving Credit Facility. Future compliance with financial
covenants under the amended Revolving Credit Facility is primarily dependent on
the
20
<PAGE> 21
Company's cash flows from operations, capital expenditures, levels of borrowings
under the Revolving Credit Facility and the value of the Company's domestic oil
and gas reserves. Based on current market conditions, including the volatility
in refinery margins and the recent downturn in the price of natural gas,
continued compliance with such covenants is not assured. If the Company is not
able to continue to comply with its financial covenants, it will be required to
seek waivers or amendments from its banks. If such an event occurs, the Company
believes it will be able to negotiate terms and conditions with its banks under
the Revolving Credit Facility which will allow the Company to adequately finance
its operations. For further information concerning such restrictions and
covenants, see Note I of Notes to Consolidated Financial Statements in Item 8.
During May 1994, the National Bank of Alaska and the Alaska Industrial
Development & Export Authority agreed to provide a loan to the Company of up to
$15 million of the cost of the vacuum unit for the Company's refinery (the
"Vacuum Unit Loan"). The Vacuum Unit Loan matures January 1, 2002 and is secured
by a first lien on the refinery. At December 31, 1994, the Company had borrowed
$15 million under the Vacuum Unit Loan. The Vacuum Unit Loan contains covenants
and restrictions similar to those under the Revolving Credit Facility. At
December 31, 1994, the Company satisfied all of its covenants except for an
annual refinery cash flow requirement, as defined in the Vacuum Unit Loan. The
lenders waived this refinery cash flow requirement for the year ended December
31, 1994. For further information on the Vacuum Unit Loan, see Note I of Notes
to Consolidated Financial Statements in Item 8.
DEBT AND OTHER OBLIGATIONS
The Company's funded debt obligations as of December 31, 1994 included
approximately $64.6 million principal amount of 12 3/4% Subordinated Debentures
("Subordinated Debentures"), which bear interest at 12 3/4% per annum and
require sinking fund payments sufficient to annually retire $11.25 million
principal amount of Subordinated Debentures. As part of a recapitalization,
$44.1 million principal amount of Subordinated Debentures was tendered in
exchange for a like principal amount of new 13% Exchange Notes ("Exchange
Notes"). This exchange satisfied the 1994 sinking fund requirement and, except
for $.9 million, will satisfy sinking fund requirements for the Subordinated
Debentures through 1997. The indenture governing the Subordinated Debentures
contains certain covenants, including a restriction that prevents the current
payment of cash dividends on 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% per annum, mature December 1, 2000 and have no
sinking fund requirements. 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 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 of Alaska ("State"), the Company paid the State $10.3 million in
January 1993 and is obligated to make variable monthly payments to the State
through December 2001 based on a per barrel charge that is currently 16 cents
and increases to 33 cents on the volume of feedstock processed at the Company's
refinery. In 1994, the Company's variable payments to the State totaled $2.8
million. In January 2002, 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 for
2002 and increasing one cent per barrel annually thereafter. Variable monthly
payments made after December 2001 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 throughput barrel obligations are secured by a mortgage on the
Company's refinery. The Company's obligations under the agreement with the State
and the mortgage are subordinated to current and future senior debt of up to
$175 million plus any indebtedness incurred subsequent to the date of the
agreement to improve the Company's refinery.
21
<PAGE> 22
CAPITAL EXPENDITURES
Capital spending in 1994 amounted to $99.6 million, compared with $37.5
million in 1993. The Company's cash flows from operating activities of $60
million in 1994, together with existing cash and a $15 million borrowing under
the Vacuum Unit Loan, enabled the Company to invest in significant capital
projects during the year. The Company's exploration and production activities in
South Texas accounted for approximately 66% of the capital expenditures in 1994,
primarily for continued development of the Bob West Field. During 1994, the
Company participated in the drilling of 20 development wells and two exploratory
wells in this field and expanded the field's gas processing facilities and
pipelines. In addition, the Company participated in the drilling of five
exploratory wells and one unsuccessful development well in other areas of South
Texas. Capital projects for the Company's refining and marketing operations for
1994 totaled $32 million, of which $25 million was associated with the
refinery's installation of the vacuum unit. The vacuum unit, which became
operational in December 1994, will reduce the refinery's yield of residual
product about 50% by further processing these volumes into higher-valued
products.
Capital spending for 1995 is expected to be financed through a combination
of cash flows from operations and borrowings under the Revolving Credit
Facility. For 1995, the Company has under consideration total capital
expenditures of approximately $65 million. Capital expenditures for the
continued development of the Bob West Field and exploratory drilling in other
areas of South Texas in 1995 are projected to be $55 million. The amount of such
expenditures for exploration and production activities is dependent upon, among
other factors, the price the Company receives for its natural gas production.
Capital expenditures for 1995 for the refining and marketing segment are
projected to be $10 million, primarily for capital improvements at the refinery
and expansion of the Company's retail locations in Alaska. For information on
litigation related to a natural gas sales contract and the related impact on the
Company's cash flows from operations, see "Tennessee Gas Contract" below and
Notes L and P of Notes to Consolidated Financial Statements in Item 8.
CASH FLOWS FROM OPERATING, INVESTING AND FINANCING ACTIVITIES
Components of the Company's cash flows are set forth below (in millions):
<TABLE>
<CAPTION>
1994 1993 1992
------ ----- -----
<S> <C> <C> <C>
Cash Flows From (Used In):
Operating Activities..................................... $ 60.3 21.8 11.4
Investing Activities..................................... (91.2) (23.4) (21.1)
Financing Activities..................................... 8.3 (8.7) (4.5)
------ ----- -----
Decrease in Cash and Cash Equivalents...................... $(22.6) (10.3) (14.2)
====== ===== =====
</TABLE>
During 1994, net cash from operating activities increased to $60 million,
compared with $22 million in 1993. This increase in cash flows was primarily
related to sales of increased natural gas production from the Bob West Field,
partially offset by lower prices received for such sales of natural gas and
reduced cash flows from the refining and marketing operations. Variable payments
to the State of Alaska totaled $2.8 million in 1994. Net cash used in investing
activities of $91 million during 1994 included capital expenditures of $100
million, an increase of $63 million from the prior year. These uses of cash in
investing activities in 1994 were partially offset by a net decrease of $6
million in short-term investments and cash proceeds of $3 million from sales of
assets. Net cash from financing activities of $8 million during 1994 included
$15 million in borrowings under the Vacuum Unit Loan and $4 million net proceeds
from the equity offering after exercise of an option granted by MetLife
Louisiana (see Note C of Notes to Consolidated Financial Statements in Item 8).
These financing sources of cash during 1994 were partially offset by the
repayment of net borrowings of $5 million under interim financing arrangements
early in 1994 and dividends of $2 million paid on preferred stock. At December
31, 1994, the Company's cash totaled $14 million and working capital amounted to
$86 million.
During 1993, cash and cash equivalents decreased by $10 million and
short-term investments decreased by $14 million. Net cash from operating
activities of $22 million in 1993 was primarily due to net earnings adjusted for
certain noncash charges, partially offset by payments totaling $12.9 million to
the State (under
22
<PAGE> 23
the settlement agreement entered into in January 1993) and increased working
capital requirements. Net cash used in investing activities of $23 million
during 1993 included capital expenditures of $37 million, mainly for exploration
and production activities in the Bob West Field. During 1993, the Company
completed the expansion of a gas processing facility and pipeline and
participated in the drilling of 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 million in
short-term investments. Net cash used in financing activities of $9 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
million under interim financing arrangements. The Company did not pay dividends
on preferred stocks in 1993.
During 1992, cash and cash equivalents decreased by $14 million and
short-term investments increased by $20 million. Cash flows from operating
activities of $11 million included a net loss, offset by certain significant
noncash 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 million in 1992 was mainly due to capital expenditures of $15 million,
primarily for continued exploration and development activities in the Bob West
Field and capital improvements in Alaska, and to the purchase of short-term
investments of $24 million. Partially offsetting cash used in investing
activities in 1992 were net proceeds of $13 million from sales of assets. During
1992, the Company received, before expenses, $6.8 million from the sale of its
Indonesian operations, $3.3 million from the sale of its corporate aircraft and
related assets and $2.1 million from the sale of certain exploration and
production properties outside of the Bob West Field. Cash flows used in
financing activities of $4 million in 1992 included repayment of long-term debt.
The Company deferred payments of dividends on preferred stocks in 1992.
TENNESSEE GAS CONTRACT
The Company is selling a portion of the gas from its Bob West Field to
Tennessee Gas Pipeline Company ("Tennessee Gas") under a Gas Purchase and Sales
Agreement (the "Tennessee Gas Contract") which provides that the price of gas
shall be the maximum price as calculated in accordance with Section 102(b)(2)
("Contract Price") of the Natural Gas Policy Act of 1978 ("NGPA"). Tennessee Gas
filed suit against the Company in the District Court of Bexar County, Texas
alleging that the Tennessee Gas Contract is not applicable to the Company's
properties and that the gas sales price should be the price calculated under the
provisions of Section 101 of the NGPA rather than the Contract Price. During
December 1994, the Contract Price was in excess of $8.00 per Mcf, the Section
101 price was $4.81 per Mcf and the average spot market price was $1.56 per Mcf.
Tennessee Gas also claimed that the contract should be considered an "output
contract" under Section 2.306 of the Texas Business and Commerce Code and that
the increases in volumes tendered under the contract exceeded those allowable
for an output contract.
The District Court judge returned a verdict in favor of the Company on all
issues. On appeal by Tennessee Gas, the Court of Appeals for the Fourth Supreme
Judicial District of Texas affirmed the validity of the Tennessee 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 remanded the case to
the trial court based on its determination (i) that the Tennessee Gas Contract
was an output contract and (ii) that a fact issue existed as to whether the
increases in the volumes of gas tendered to Tennessee Gas under the contract
were made in bad faith or were unreasonably disproportionate to prior tenders.
The Company sought review of the appellate court ruling on the output contract
issue in the Supreme Court of Texas. Tennessee Gas also sought review of the
appellate court ruling denying the remaining Tennessee Gas claims in the Supreme
Court of Texas. The Supreme Court of Texas heard arguments in December 1994
regarding the output contract issue and certain of the issues raised by
Tennessee Gas but has not yet issued its opinion.
Although the outcome of any litigation is uncertain, management, based upon
advice from outside legal counsel, is confident that the decision of the trial
and appellate courts will ultimately be upheld as to the validity of the
Tennessee Gas Contract and the Contract Price. If the Supreme Court of Texas
were to affirm the appellate court ruling, the Company believes that the only
issue for trial should be whether the increases in the volumes of gas tendered
to Tennessee Gas from the Company's properties were made in bad faith or were
23
<PAGE> 24
unreasonably disproportionate. The appellate court decision was the first
reported decision in Texas holding that a take-or-pay contract was an output
contract. As a result, it is not clear what standard the trial court would be
required to apply in determining whether the increases were in bad faith or
unreasonably disproportionate. The appellate court acknowledged in its opinion
that the standards used in evaluating other kinds of output contracts would not
be appropriate in this context. The Company believes that the appropriate
standard would be whether the development of the field was undertaken in a
manner that a prudent operator would have undertaken in the absence of an
above-market sales price. Under that standard, the Company believes that, if
this issue is tried, the development of the Company's 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, 1994, under the Tennessee Gas Contract based on the
Contract Price, which net revenues aggregated $36.9 million more than the
Section 101 prices and $69.5 million in excess of the spot market prices. If
Tennessee Gas were ultimately to prevail in this litigation, the Company could
be required to return to Tennessee Gas $52.5 million, plus interest if awarded
by the court, representing the difference between the spot market price and the
Contract Price received by the Company through September 17, 1994 (the date on
which the Company entered into a bond agreement discussed below). In addition,
the Company's calculation of the standardized measure of discounted future net
cash flows relating to proved reserves in the United States at December 31, 1994
of $127 million was determined in part using the Contract Price as compared with
$73 million at spot market prices. An adverse judgment in this case could have a
material adverse effect on the Company.
On August 4, 1994, the trial court rejected a motion by Tennessee Gas to
post a supersedeas bond in the form of monthly payments into the registry of the
court representing the difference between the Contract Price and spot market
price of gas sold to Tennessee Gas pursuant to the Tennessee Gas Contract. The
court advised Tennessee Gas that should it wish to supersede the judgment,
Tennessee Gas had the option to post a bond which would be effective only until
August 1, 1995, in an amount equal to the anticipated value of the Tennessee Gas
Contract during that period. In September 1994, the court ordered that,
effective until August 1, 1995, Tennessee Gas (i) take at least its entire
monthly take-or-pay obligation under the Tennessee Gas Contract, (ii) pay for
gas at $3.00 per Mmbtu, which approximates $3.00 per Mcf ("Bond Price"), and
(iii) post a $120 million bond with the court representing an amount which,
together with anticipated sales of natural gas to Tennessee Gas at the Bond
Price, will equal the anticipated value of the Tennessee Gas Contract during
this interim period. The Bond Price is nonrefundable by the Company, and the
Company retains the right to receive the full Contract Price for all gas sold to
Tennessee Gas. The Company continues to recognize revenues under the Tennessee
Gas Contract based on the Contract Price. At December 31, 1994, the Company had
recognized cumulative revenues in excess of spot market prices (through
September 17, 1994) and in excess of the Bond Price (subsequent to September 17,
1994) totaling $65.7 million. Receivables at December 31, 1994, included $17.7
million from Tennessee Gas, of which $13.2 million represented the difference
between the Contract Price and the Bond Price. For further information regarding
the Tennessee Gas Contract, see Notes L and P of Notes to Consolidated Financial
Statements in Item 8.
ENVIRONMENTAL AND OTHER MATTERS
The Company is subject to extensive federal, state and local environmental
laws and regulations. These laws, which change frequently, 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 responses and has incurred cleanup
expenditures associated with environmental matters at a number of sites,
including certain of its own properties. In addition, the Company is holding
discussions with the Department of Justice concerning the assessment of
penalties with respect to certain alleged violations of the Clean Air Act. (See
"Legal Proceedings -- Environmental Matters".) At December 31, 1994, the
Company's accruals for environmental matters, including the alleged violations
of the Clean Air Act, amounted to $10.8 million. Based on currently available
information, including the participation of other parties or former owners in
remediation actions, the Company believes these accruals are adequate. In
addition, to comply with environmental laws and
24
<PAGE> 25
regulations, the Company anticipates that it will be required to make capital
improvements in 1995 of approximately $2 million, primarily for the removal and
upgrading of underground storage tanks, and approximately $8 million during 1996
for the installation of dike liners required under Alaska environmental
regulations. Conditions that require additional expenditures may exist for
various Company sites, including, but not limited to, the Company's refinery,
retail gasoline outlets (current and closed locations) and petroleum product
terminals, and for compliance with the Clean Air Act. The amount of such future
expenditures cannot currently be determined by the Company. For further
information on environmental contingencies, see Note L of Notes to Consolidated
Financial Statements in Item 8.
The Company transports its crude oil and a substantial portion of its
refined products utilizing Kenai Pipe Line Company's ("KPL") pipeline and marine
terminal facilities in Kenai, Alaska. In March 1994, KPL filed a revised tariff
with the Federal Energy Regulatory Commission ("FERC") for dock loading
services, which would have increased the Company's annual cost of transporting
products through KPL's facilities from $1.2 million to $11.2 million. Following
FERC's rejection of KPL's tariff filing and the commencement of negotiations for
the purchase by the Company of the dock facilities, KPL filed a temporary tariff
that has increased the Company's annual cost by approximately $1.5 million. The
Company and KPL have entered into an agreement for the purchase by the Company
of KPL, subject to regulatory approval. The Company expects that this purchase
transaction will be consummated in early 1995.
The Company's contract with the State for the purchase of royalty crude oil
expires on December 31, 1995. The Company is currently negotiating with the
State for a new three-year contract for the period January 1, 1996 through
December 31, 1998. Based on preliminary discussions with the State, the Company
believes that a new contract will provide for the purchase of approximately the
same volumes of Alaska North Slope ("ANS") royalty crude oil, the primary
feedstock for the refinery, as the current contract and will be priced at the
weighted average price reported to the State by a major North Slope producer for
ANS crude oil as valued at Pump Station No. 1 on the Trans Alaska Pipeline
System.
As discussed in Note L of Notes to Consolidated Financial Statements in
Item 8, the Company is involved with other litigation and claims, none of which
is expected to have a material adverse effect on the financial condition of the
Company.
RESULTS OF OPERATIONS
Net earnings of $15.7 million ($.56 per share) for 1994 compare with $17.0
million ($.54 per share) in 1993. The comparability between 1994 and 1993 was
impacted by certain significant transactions. The 1994 earnings included a
noncash extraordinary loss of $4.8 million on the extinguishment of debt in
connection with a recapitalization in early 1994. Earnings before the
extraordinary loss were $20.5 million, or $.77 per share, for 1994. Earnings for
1994 were favorably impacted by a refund of $8.5 million received in settlement
of a tariff dispute and a gain of $2.4 million from the sale of assets,
partially offset by net charges of approximately $7 million related to
environmental contingencies and other matters. 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 in 1993 for
the retirement of $11.25 million principal amount of Subordinated Debentures,
which were purchased in January 1993 to satisfy the initial sinking fund
requirement. Excluding these significant transactions from both periods, the
improvement in net earnings of approximately $9 million in 1994 was primarily
attributable to increased natural gas production from the Company's exploration
and production operations in South Texas, partially offset by the impact of
lower spot market prices for sales of natural gas and lower operating results
from the Company's refining and marketing operations.
Net earnings of $17.0 million ($.54 per share) in 1993 compare with a net
loss of $65.9 million ($5.34 per share) in 1992. As described above, earnings in
1993 benefited from the reduction in income taxes and interest expense together
with the gain on early extinguishment of debt. 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 transactions,
25
<PAGE> 26
the improvement in 1993 net earnings compared with 1992 was attributable to
increased gross margins on sales of refined products, increased natural gas
production from the Bob West Field and reduced general and administrative
expenses.
A discussion and analysis of the factors contributing to these results are
presented below. The accompanying consolidated financial statements and related
footnotes, together with the following information, are intended to provide
shareholders and other 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
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
(DOLLARS IN MILLIONS
EXCEPT PER BARREL AMOUNTS)
<S> <C> <C> <C>
GROSS OPERATING REVENUES:
Refined products..................................................................... $ 582.7 590.9 745.6
Other, primarily crude oil resales and merchandise................................... 104.3 96.3 65.1
------- ------ ------
Gross Operating Revenues....................................................... $ 687.0 687.2 810.7
======= ====== ======
OPERATING PROFIT (LOSS):
Gross margin -- refined products..................................................... $ 85.3 89.4 59.0
Gross margin -- other................................................................ 13.1 13.2 12.8
------- ------ ------
Gross margin................................................................... 98.4 102.6 71.8
Operating expenses................................................................... 88.2 76.9 75.3
Depreciation and amortization........................................................ 10.4 10.3 10.2
Other, including gain on asset sales................................................. (2.6) .2 1.2
------- ------ ------
Operating Profit (Loss)........................................................ $ 2.4 15.2 (14.9)
======= ====== ======
PRODUCT SALES (average daily barrels):
Gasoline............................................................................. 23,191 22,466 25,196
Middle distillates................................................................... 33,256 29,354 38,313
Heavy oils and residual product...................................................... 14,228 16,945 23,931
------- ------ ------
Total Product Sales............................................................ 70,675 68,765 87,440
======= ====== ======
PRODUCT SALES PRICES ($/barrel):
Gasoline............................................................................. $ 27.03 27.82 28.89
Middle distillates................................................................... $ 24.47 27.39 26.93
Heavy oils and residual product...................................................... $ 10.93 11.19 11.60
Average Sales Price.................................................................. $ 22.59 23.54 23.30
Average Costs of Sales*.............................................................. 19.67 19.98 21.12
------- ------ ------
Gross Sales Margin................................................................... $ 2.92 3.56 2.18
======= ====== ======
REFINERY THROUGHPUT (average daily barrels)............................................ 46,032 49,753 61,425
======= ====== ======
REFINERY PRODUCTION (average daily barrels):
Gasoline............................................................................. 11,728 12,021 14,188
Middle distillates................................................................... 18,839 19,441 23,305
Heavy oils and residual product...................................................... 15,118 17,573 23,444
Refinery fuel........................................................................ 1,776 2,046 2,491
------- ------ ------
Total Refinery Production...................................................... 47,461 51,081 63,428
======= ====== ======
REFINED PRODUCT SPREAD ($/barrel):
Average yield value of products produced............................................. $ 19.48 20.11 20.66
Cost of raw materials................................................................ 15.65 15.73 17.35
------- ------ ------
Spread......................................................................... $ 3.83 4.38 3.31
======= ====== ======
</TABLE>
- ---------------
* Computations of per barrel average costs of sales in 1994 exclude the benefits
of an $8.5 million tariff refund and $1.5 million in favorable feedstock cost
adjustments. Excluded in the computation for 1992 was a charge of $10.5
million for a settlement with the State. The effects of noncash LIFO
adjustments, most significantly a charge of $3.9 million in 1992, have been
included in the per barrel average costs of sales computations.
26
<PAGE> 27
In addition to products manufactured at the refinery, other sources of
refined products available for sale include existing inventory balances and
products purchased from third parties. Margins on sales of purchased products,
together with the effect of changes in inventories, are included in the gross
sales margin presented above. During 1994, 1993 and 1992, the Company purchased
for resale approximately 27,200, 19,300 and 25,200 average daily barrels of
refined products, respectively. While margins on sales of purchased product
remained relatively steady in 1994 and 1993, these margins were lower in 1992
due to product purchased to satisfy a contract commitment.
1994 COMPARED TO 1993. Throughout most of 1994, the Refining and Marketing
segment was adversely affected by the volatile product market and increased
demand for ANS crude oil. The Company's average sales price for refined products
decreased from $23.54 per barrel in 1993 to $22.59 per barrel in 1994. Although
the Company's average crude costs were lower in 1994, decreased production of
ANS crude oil, combined with an increased demand for ANS crude oil for use as a
feedstock in West Coast refineries, resulted in an increase in the cost of ANS
crude oil supplied to the Company's refinery. As a result, the Company's refined
product margins were severely depressed in 1994 and will continue to be
depressed as long as the cost of ANS crude oil remains high relative to the
price received for the Company's sales of refined products.
The adverse effect of market conditions on the segment's 1994 results,
combined with charges of $6.6 million for environmental contingencies and other
matters, was partially offset by a refund of $8.5 million received in settlement
of a tariff dispute, a gain of $2.4 million from the sale of assets and
favorable feedstock cost adjustments of $1.5 million. Excluding these items, the
segment's operating profit of $2.4 million for 1994 would be reduced to a loss
of $3.4 million, compared with operating profit of $15.2 million in 1993. The
decrease in operating results in 1994 was primarily attributable to lower gross
margins on sales of refined products, which fell to $2.92 per barrel in 1994,
compared with $3.56 per barrel in 1993. Revenues from sales of refined products
in 1994 were lower than 1993 due to lower sales prices. However, these lower
refined product revenues in 1994 were partially offset by crude oil resales of
$72.3 million, compared with $62.1 million in 1993. To optimize the refinery's
feedstock mix and in response to market conditions, the Company at times resells
previously purchased crude oil. The increase in operating expenses of $11.3
million was primarily for environmental matters and, to a lesser extent, higher
advertising and maintenance expenses.
During 1994, the Company continued its operational strategy to improve the
refinery's economics, which included upgrading feedstocks, more closely matching
production with product demand within Alaska and initiating new marketing
efforts within and outside Alaska. These efforts reduced the Company's overall
refinery production in 1994, particularly residual fuel oil. The markets for
residual fuel oil have generally been weak for the past several years due to a
global oversupply of this product. During 1994, the Company reduced its average
daily refinery throughput and production by 7% from the 1993 levels, resulting
in a cumulative reduction from the 1992 levels of 25%. This reduction in
throughput enabled the Company to reduce the percentage of lower-quality ANS
crude oil in the feedstock mix to 59% in 1994, compared with 72% in 1993. By
utilizing a greater percentage of higher-quality feedstocks (which results in
higher-valued production yields), the Company can economically operate the
refinery at reduced throughput levels. Operating the refinery at lower
throughput levels resulted in less production of certain products, particularly
residual fuel oil, for which there is no significant market in Alaska. During
1994, residual fuel oil produced at the refinery was exported from Alaska and
sold into U.S. West Coast and Far Eastern markets. The Company has installed a
vacuum unit, which became operational in December 1994, that is expected to
reduce the refinery's yield of residual product about 50% by further processing
these volumes into higher-valued products. With the vacuum unit now operational,
the Company is pursuing marketing initiatives to increase demand for the
refinery's production which would increase the refinery's capacity utilization
and improve efficiencies.
1993 COMPARED TO 1992. Similar to the reasons discussed above,
implementation of the Company's operational strategy reduced refinery throughput
and production during 1993 by 19%. The decrease in volumes was a significant
factor in the change in revenues when comparing 1993 with 1992. Average sales
prices were essentially unchanged; however, gross margins increased in 1993.
Partially offsetting the decrease in revenues from refined products was a $33.8
million increase in resales 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
27
<PAGE> 28
with the State relating to 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 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.
EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
(DOLLARS IN MILLIONS
EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
UNITED STATES:
Gross operating revenues*..................................... $ 93.1 50.5 18.8
Lifting cost.................................................. 13.8 6.8 3.8
Depreciation, depletion and amortization...................... 24.3 11.1 4.9
Other......................................................... -- .3 1.2
------- ------ ------
Operating Profit -- United States..................... 55.0 32.3 8.9
------- ------ ------
BOLIVIA:
Gross operating revenues...................................... 13.2 12.6 17.9
Lifting cost.................................................. .6 1.2 .7
Other......................................................... 3.3 3.0 4.6
------- ------ ------
Operating Profit -- Bolivia........................... 9.3 8.4 12.6
------- ------ ------
INDONESIA(sold effective May 1, 1992):
Gross operating revenues...................................... -- -- 6.0
Lifting cost.................................................. -- -- 3.7
Depreciation, depletion and amortization...................... -- -- .3
Gain on sales of assets and other............................. -- -- (5.6)
------- ------ ------
Operating Profit -- Indonesia......................... -- -- 7.6
------- ------ ------
TOTAL OPERATING PROFIT -- EXPLORATION AND PRODUCTION............ $ 64.3 40.7 29.1
======= ====== ======
UNITED STATES:
Net natural gas production (average daily Mcf) --
Spot market and other...................................... 65,841 28,168 9,986
Tennessee Gas Contract*.................................... 17,955 10,599 3,974
------- ------ ------
Total Production...................................... 83,796 38,767 13,960
======= ====== ======
Average natural gas sales price per Mcf --
Spot market................................................ $ 1.64 2.03 1.83
Tennessee Gas Contract*.................................... $ 8.01 7.59 4.46
Average.................................................... $ 3.00 3.55 3.68
Average lifting cost per Mcf.................................. $ .45 .48 .74
Depletion per Mcf............................................. $ .79 .78 .95
BOLIVIA:
Net natural gas production (average daily Mcf)................ 22,082 19,232 19,421
Average natural gas sales price per Mcf....................... $ 1.20 1.22 1.67
Net crude oil (condensate) production (average daily
barrels)................................................... 733 663 660
Average crude oil sales price per barrel...................... $ 13.28 14.26 17.65
Average lifting cost per net equivalent Mcf................... $ .06 .14 .08
INDONESIA (sold effective May 1, 1992):
Net crude oil production (average daily barrels).............. -- -- 2,714
Average crude oil sales price per barrel...................... $ -- -- 18.20
Average lifting cost per net equivalent Mcf................... $ -- -- 1.94
</TABLE>
- ---------------
* The Company is involved in litigation with Tennessee Gas relating to a natural
gas sales contract. See "Capital Resources and Liquidity -- Tennessee Gas
Contract" and Notes L and P of Notes to Consolidated Financial Statements in
Item 8.
28
<PAGE> 29
1994 COMPARED TO 1993. The Exploration and Production segment's U.S.
operations, which are concentrated in the Bob West Field in South Texas,
achieved a record level of operating profit in 1994. Successful development
drilling in the Bob West Field increased the number of producing wells in which
the Company has a working interest to 46 at year-end 1994, compared with 25 at
the end of 1993, resulting in a 116% increase in the Company's U.S. natural gas
production. Revenues from the U.S. operations increased by $42.6 million in 1994
primarily due to the increased production. However, revenues were adversely
impacted by a 15% decline in the weighted average sales price, which included a
19% drop in spot market prices. Due to the increase in volumes sold in the spot
market, the percentage contribution of sales at above-market prices under the
Tennessee Gas Contract was reduced. In 1994, approximately 21% of the Company's
net production from the Bob West Field was sold under the Tennessee Gas
Contract, compared with 27% in 1993. Total lifting costs and depreciation,
depletion and amortization were higher in 1994 due to the increased production
level, but were relatively unchanged on a per Mcf basis.
Tennessee Gas may elect, and from time to time has elected, not to take gas
under the Tennessee Gas Contract. The Company recognizes revenues under the
Tennessee Gas Contract based on the quantity of natural gas actually taken by
Tennessee Gas. While Tennessee Gas has the right to elect not to take gas during
any contract year, this right is subject to an obligation to pay, within 60 days
after the end of such contract year, for gas not taken. The contract year ends
on January 31 of each year. Although the failure to take gas could adversely
affect the Company's income and cash flows from operating activities within a
contract year, the Company should recover reduced cash flows shortly after the
end of the contract year under the take-or-pay provisions of the Tennessee Gas
Contract, subject to the provisions of a bond posted by Tennessee Gas which is
discussed in "Capital Resources and Liquidity -- Tennessee Gas Contract" and
Notes L and P of Notes to Consolidated Financial Statements in Item 8.
From time to time, the Company may increase or decrease its natural gas
production in response to market conditions. As a result of weakened spot market
gas prices, beginning in January 1995, the Company and one of its partners
initiated a voluntary reduction of natural gas production sold in the spot
market. The Company's share of this reduction is estimated to be approximately
34 Mmcf per day. Primarily as a result of this voluntary reduction, the
Company's share of spot natural gas production in South Texas averaged 77 Mmcf
per day in January 1995 as compared to 104 Mmcf per day in December 1994. This
voluntary reduction has continued through February 1995.
Results from the Company's Bolivian operations improved by $.9 million in
1994, primarily due to a 15% increase in average daily natural gas production.
The Company was producing gas at higher levels during 1994 due to the inability
of another producer to satisfy gas supply requirements. Natural gas production
volumes in early 1995 have declined to approximately 19,400 average daily Mcf
from the 22,100 average daily Mcf in 1994. The Company's Bolivian natural gas
production is sold to Yacimientos Petroliferos Fiscales Bolivianos ("YPFB"),
which in turn sells the natural gas to Yacimientos Petroliferos Fiscales, S.A.
("YPF"), a publicly-held company based in Argentina. The contract between YPFB
and YPF, which was recently extended through March 31, 1997, maintains
approximately the same volumes as their previous contract, but with a small
decrease in price. The Company's contract for the sale of natural gas to YPFB
has expired and is subject to renegotiation. The Company is currently selling
its natural gas production to YPFB based on the pricing terms in the contract
between YPFB and YPF. The Company anticipates that any renegotiation of its
contract with YPFB will result in the Company receiving a lower price than it
received under the previous contract. Any renegotiation may also result in a
reduction of volumes purchased from the Company due to new supply sources that
commenced production near the end of 1994.
1993 COMPARED TO 1992. The number of producing wells in the United States
in which the Company has an interest increased to 25 at year-end 1993 compared
with ten at the end of 1992. The resulting increase in the Company's U.S.
production levels contributed to higher revenues. However, the increase in
production was partially offset by a decline in average sales prices to $3.55
per Mcf in 1993 from $3.68 per Mcf in 1992. Total lifting costs and
depreciation, depletion and amortization increased in 1993 due to the higher
production volumes; however, the depletion rate decreased due to a 63% increase
in proved reserves.
29
<PAGE> 30
The Bolivian operations experienced a decline in revenues in 1993 primarily
due to reduced contractual sales prices for natural gas production. The 1992
operating results from the Indonesian operations, which were sold effective May
1, 1992, included a $5.8 million gain from the sale.
OIL FIELD SUPPLY AND DISTRIBUTION
<TABLE>
<CAPTION>
1994 1993 1992
------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Gross Operating Revenues........................................... $ 77.9 80.7 93.5
Costs of Sales..................................................... 67.5 68.4 82.4
------ ----- -----
Gross Margin............................................. 10.4 12.3 11.1
Operating Expenses and Other....................................... 12.4 15.5 15.3
Depreciation and Amortization...................................... .3 .4 .5
------ ----- -----
Operating Loss........................................... $( 2.3) (3.6) (4.7)
====== ===== =====
Refined Product Sales (average daily barrels)...................... 7,774 7,368 8,476
====== ===== =====
</TABLE>
1994 COMPARED TO 1993. Although sales volumes of refined products
increased by 6% in 1994, sales prices and gross margins continued to be impacted
by strong competition in an oversupplied market. By consolidating certain of the
Company's terminals and discontinuing the environmental products marketing
operations, operating expenses and other were reduced to $12.4 million in 1994
from $15.5 million in 1993. Included in operating expenses in 1994 were charges
of $1.9 million for discontinuing the Company's environmental products marketing
operations. The Company is continuing its wholesale marketing of fuel and
lubricants.
1993 COMPARED TO 1992. Revenues and costs of sales in this segment
decreased in 1993 due to the discontinuance of a wholesale distribution
operation in Oklahoma during the second quarter of 1992. In addition, the
decrease in crude oil prices during 1993 resulted in a corresponding decrease in
refined product prices. Notwithstanding such decreases, margins 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. Effective at year-end 1992, the
Company acquired the remaining 50% interest in Tesoro-Leevac Petroleum Company,
a joint venture, which allowed the Company to consolidate certain of its marine
terminals; however, this acquisition did not have a material impact on the
revenues and margins of this segment in 1993.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses of $14.7 million in 1994 compare with
$16.7 million in 1993 and $25.9 million in 1992. The Company continues to
closely monitor corporate activities in an effort to minimize costs. These
efforts resulted in a 12% decrease in general and administrative expenses in
1994. The decrease in 1993, compared with 1992, was primarily due to the
inclusion in 1992 of expenses for a cost reduction program and other employee
terminations totaling $9.1 million, of which $1.3 million was charged to the
operating segments. There were no significant comparable charges recorded in
1994 or 1993. The remaining decrease in 1993 was attributable to the effects of
the cost reduction program.
GAIN ON SALES OF ASSETS
During 1994, the Company realized a gain of $2.4 million from the sale of
assets, primarily a terminal facility in Valdez, Alaska. The sale of assets
during 1993 was immaterial, whereas 1992 included a $5.8 million gain from the
sale 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.
30
<PAGE> 31
INTEREST EXPENSE
Interest expense of $18.7 million in 1994 compares with $14.5 million in
1993 and $21.1 million in 1992. The increase in 1994 was primarily due to a
reduction of $5.2 million recorded in 1993 related to the resolution of
outstanding issues with several state taxing authorities, partially offset by
$.9 million capitalized interest in 1994 related to construction of the vacuum
unit. When comparing 1993 with 1992, the change was also due to the reduction
related to the resolution of state tax issues.
INCOME TAXES
Income taxes of $5.6 million in 1994 compare with $1.7 million in 1993 and
$5.4 million in 1992. The increase in 1994, compared with 1993, was primarily
due to a reduction of $3.0 million recorded in 1993 for resolution of
outstanding issues with several state taxing authorities. The decrease in 1993,
compared with 1992, was also due to the reduction related to state tax issues
together with lower foreign income taxes resulting from the Company's reduced
revenues from its Bolivian operations.
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 oil costs. These energy prices,
together with volume levels, also determine the carrying value of crude oil and
refined product inventory.
Likewise, changes in natural gas prices impact revenues and the present
value of estimated future net revenues and cash flows from the Company's
exploration and production operations. The carrying value of oil and gas assets
may also be subject to noncash write-downs based on changes in natural gas
prices and other determining factors.
31
<PAGE> 32
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, 1994 and 1993, and the
related statements of consolidated operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
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 LLP
San Antonio, Texas
February 1, 1995
32
<PAGE> 33
TESORO PETROLEUM CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
REVENUES:
Gross operating revenues................................... $871,211 831,007 946,446
Interest income............................................ 2,522 1,803 3,170
Gain on sales of assets.................................... 2,379 60 4,024
Other...................................................... 1,048 2,040 732
-------- ------- -------
Total Revenues..................................... 877,160 834,910 954,372
-------- ------- -------
COSTS AND EXPENSES:
Costs of sales and operating expenses...................... 775,051 756,764 926,082
General and administrative................................. 14,750 16,712 25,849
Depreciation, depletion and amortization................... 36,016 22,591 16,552
Interest expense, net of capitalized interest.............. 18,749 14,550 21,115
Other...................................................... 6,538 5,640 4,636
-------- ------- -------
Total Costs and Expenses........................... 851,104 816,257 994,234
-------- ------- -------
EARNINGS (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY LOSS ON
EXTINGUISHMENT OF DEBT AND THE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES......................................... 26,056 18,653 (39,862)
Income Tax Provision......................................... 5,573 1,697 5,383
-------- ------- -------
EARNINGS (LOSS) BEFORE EXTRAORDINARY LOSS ON EXTINGUISHMENT
OF DEBT AND THE CUMULATIVE EFFECT OF ACCOUNTING CHANGES.... 20,483 16,956 (45,245)
Extraordinary Loss on Extinguishment of Debt................. (4,752) -- --
Cumulative Effect of Accounting Changes...................... -- -- (20,630)
-------- ------- -------
NET EARNINGS (LOSS).......................................... 15,731 16,956 (65,875)
Dividend Requirements on Preferred Stock..................... 2,680 9,207 9,207
-------- ------- -------
NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCK............... $ 13,051 7,749 (75,082)
======== ======= =======
EARNINGS (LOSS) PER PRIMARY AND FULLY DILUTED* SHARE:
Earnings (Loss) Before Extraordinary Loss on Extinguishment
of Debt and the Cumulative Effect of Accounting
Changes................................................. $ .77 .54 (3.87)
Extraordinary Loss on Extinguishment of Debt............... (.21) -- --
Cumulative Effect of Accounting Changes.................... -- -- (1.47)
-------- ------- -------
Net Earnings (Loss)........................................ $ .56 .54 (5.34)
======== ======= =======
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES......... 23,196 14,290 14,063
======== ======= =======
</TABLE>
- ---------------
* Anti-dilutive
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE> 34
TESORO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (includes restricted cash of $25,420 in
1993).............................................................. $ 14,018 36,596
Short-term investments................................................ -- 5,952
Receivables, net...................................................... 91,140 69,637
Inventories........................................................... 68,302 74,186
Prepaid expenses and other............................................ 8,648 10,136
-------- -------
Total Current Assets.......................................... 182,108 196,507
-------- -------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment......................................... 479,116 385,463
Less accumulated depreciation, depletion and amortization............. 205,782 172,312
-------- -------
Net Property, Plant and Equipment............................. 273,334 213,151
-------- -------
OTHER ASSETS:
Investment in Tesoro Bolivia Petroleum Company........................ 10,295 6,310
Other................................................................. 18,623 18,554
-------- -------
Total Other Assets............................................ 28,918 24,864
-------- -------
Total Assets............................................. $484,360 434,522
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................................... $ 53,573 43,192
Accrued liabilities................................................... 35,266 24,017
Current portion of long-term debt and other obligations............... 7,404 4,805
-------- -------
Total Current Liabilities..................................... 96,243 72,014
-------- -------
OTHER LIABILITIES....................................................... 35,175 45,272
-------- -------
LONG-TERM DEBT AND OTHER OBLIGATIONS,
LESS CURRENT PORTION.................................................. 192,210 180,667
-------- -------
COMMITMENTS AND CONTINGENCIES (Note L)
$2.20 REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK AND ACCRUED
DIVIDENDS; $1 stated value, 2,875,000 shares issued and outstanding in
1993; liquidation and redemption value of $78,056 in 1993............. -- 78,051
-------- -------
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 in 1993; liquidation value
of $42,134 in 1993................................................ -- 1,320
Common stock, par value $.16 2/3; authorized 50,000,000 shares;
24,389,801 shares issued and outstanding (14,089,236 in 1993)...... 4,065 2,348
Additional paid-in capital............................................ 175,514 86,748
Accumulated deficit................................................... (18,847) (31,898)
-------- -------
Total Stockholders' Equity.................................... 160,732 58,518
-------- -------
Total Liabilities and Stockholders' Equity............... $484,360 434,522
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE> 35
TESORO PETROLEUM CORPORATION
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
$2.20 $2.16
CUMULATIVE CUMULATIVE
CONVERTIBLE CONVERTIBLE RETAINED
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
------------------- ------------------ ----------------- PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT)
------ -------- ------ ------- ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1991.............. -- $ -- 1,320 $ 1,320 14,067 $2,344 $ 86,522 $ 46,785
Net loss..................... -- -- -- -- -- -- -- (65,875)
Accrued dividends on
preferred stocks........... -- -- -- -- -- -- -- (20,525)
Stock awards and other....... -- -- -- -- 4 1 125 (32)
------ -------- ------ ------- ------ ------ ---------- ------------
DECEMBER 31, 1992.............. -- -- 1,320 1,320 14,071 2,345 86,647 (39,647)
Net earnings................. -- -- -- -- -- -- -- 16,956
Accrued dividends on
preferred stocks........... -- -- -- -- -- -- -- (9,175)
Stock awards and other....... -- -- -- -- 18 3 101 (32)
------ -------- ------ ------- ------ ------ ---------- ------------
DECEMBER 31, 1993.............. -- -- 1,320 1,320 14,089 2,348 86,748 (31,898)
Net earnings................. -- -- -- -- -- -- -- 15,731
Accrued dividends on
preferred stocks........... -- -- -- -- -- -- -- (2,680)
Reclassification of $2.16
Preferred Stock and accrued
and unpaid dividends
thereon into Common
Stock...................... -- -- (1,320) (1,320) 6,598 1,099 9,670 --
Issuance of Common Stock in
connection with
reclassification of $2.20
Preferred Stock and accrued
dividends thereon into
equity..................... 2,875 57,500 -- -- 1,900 317 20,914 --
Costs of Recapitalization.... -- -- -- -- -- -- (3,327) --
Offering, net................ -- -- -- -- 5,851 975 55,992 --
Exercise of MetLife Louisiana
Option..................... (2,875) (57,500) -- -- (4,084) (681) 5,232 --
Stock awards and other....... -- -- -- -- 36 7 285 --
------ -------- ------ ------- ------ ------ ---------- ------------
DECEMBER 31, 1994.............. -- $ -- -- $ -- 24,390 $4,065 $175,514 $(18,847)
====== ========= ====== ======== ====== ======= ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE> 36
TESORO PETROLEUM CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings (loss)........................................ $ 15,731 16,956 (65,875)
Adjustments to reconcile net earnings (loss) to net cash
from operating activities:
Depreciation, depletion and amortization................ 36,016 22,591 16,552
Loss (gain) on extinguishment of debt................... 4,752 (1,422) --
Cumulative effect of accounting changes................. -- -- 20,630
Gain on sales of assets................................. (2,379) (60) (4,024)
Amortization of deferred charges and other, net......... 2,800 3,323 4,231
Changes in assets and liabilities:
Receivables........................................... (20,503) 7,539 12,320
Inventories........................................... 5,884 325 7,986
Investment in Tesoro Bolivia Petroleum Company........ (3,985) (3,524) 3,908
Other assets.......................................... 2,177 (85) 3,484
Accounts payable and other current liabilities........ 20,567 (12,800) (5,282)
Obligation payments to State of Alaska................ (2,754) (12,910) --
Other liabilities and obligations..................... 1,991 1,901 17,458
-------- ------- -------
Net cash from operating activities................. 60,297 21,834 11,388
-------- ------- -------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures....................................... (99,587) (37,451) (15,446)
Proceeds from sales of assets, net......................... 2,544 194 12,905
Purchases of short-term investments........................ (1,974) (26,245) (23,976)
Sales of short-term investments............................ 7,926 40,314 3,955
Other...................................................... (50) (247) 1,478
-------- ------- -------
Net cash used in investing activities.............. (91,141) (23,435) (21,084)
-------- ------- -------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net................ 56,967 -- --
Repurchase of common and preferred stock................... (52,948) -- --
Repurchase of debentures................................... -- (9,675) --
Payments of long-term debt................................. (11,383) (1,643) (6,468)
Issuance of long-term debt................................. 20,000 5,000 2,024
Dividends on preferred stocks.............................. (1,684) -- --
Costs of Recapitalization and other........................ (2,686) (2,354) (20)
-------- ------- -------
Net cash from (used in) financing activities....... 8,266 (8,672) (4,464)
-------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS........................ (22,578) (10,273) (14,160)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............... 36,596 46,869 61,029
-------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR..................... $ 14,018 36,596 46,869
======== ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid, net of $915 capitalized in 1994............. $ 15,898 19,288 17,805
======== ======= =======
Income taxes paid.......................................... $ 5,361 5,125 6,446
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE> 37
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Tesoro Petroleum Corporation is a natural resource company engaged in
petroleum refining and marketing, natural gas exploration and production, and
wholesale marketing of fuel and lubricants.
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. The preparation of these Consolidated Financial Statements
required the use of management's best estimates and judgment. Certain previously
reported amounts have been reclassified to conform with the 1994 presentation.
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. Short-term debt
securities with original maturities in excess of 90 days are classified as
short-term investments on 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.
HEDGES
The Company, at times, enters into futures and other contracts in its
refining and marketing and natural gas operations to hedge the price risks
associated with inventories and anticipated transactions. The impact of changes
in the market value of these contracts is deferred until the gain or loss is
recognized on the hedged inventory or commitment. At December 31, 1994 and 1993,
deferred gains and losses related to hedge transactions were not material.
Amounts recognized in the Statements of Consolidated Operations related to these
transactions for the years ended December 31, 1994, 1993 and 1992 were not
material.
PROPERTY, PLANT AND EQUIPMENT
The annual provisions for depreciation on the Company's property, plant and
equipment have been computed in accordance with the following ranges of rates:
<TABLE>
<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
</TABLE>
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
37
<PAGE> 38
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 that 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 generally 20% for refinery
assets and 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.
RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company accounts for retiree health care and life insurance benefits 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 extend the life, increase the
capacity, or mitigate or prevent environmental contamination, are capitalized.
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. Such amounts are based on
the estimated timing and extent of remedial actions required by applicable
governing agencies, experience gained from similar sites on which environmental
assessments or remediation has been completed, and the amount of the Company's
anticipated liability considering the proportional liability and financial
abilities of other responsible parties. Estimated liabilities are not discounted
to present value. Generally, the
38
<PAGE> 39
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
timing of these accruals coincides with completion of a feasibility study or the
Company's commitment to a formal plan of action.
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 was the same as
primary earnings (loss) per share since the assumed conversion of preferred
stocks to common shares would be anti-dilutive.
NOTE B -- BUSINESS SEGMENTS
The Company's revenues are derived from three business segments: Refining
and Marketing, Exploration and Production, and Oil Field Supply and
Distribution.
Refining and Marketing includes the operations of the Company's refinery in
Kenai, Alaska, which produces gasoline, jet fuel, diesel fuel, and heavy oils
and residual product. These products, together with other purchased products,
are sold primarily at wholesale through terminal facilities and other locations
in Alaska, California and the Pacific Northwest. In addition, Refining and
Marketing sells gasoline, petroleum products and convenience store items at
retail through a chain of 7-Eleven convenience stores in Alaska. To optimize the
refinery's feedstock mix and in response to market conditions, the Company at
times resells previously purchased crude oil. These crude oil resales amounted
to $72.3 million, $62.1 million and $28.3 million in 1994, 1993 and 1992,
respectively. From time to time, Refining and Marketing exports products to
customers in Far Eastern markets. Revenues from such export sales amounted to
$5.2 million, $20.5 million and $101.0 million in 1994, 1993 and 1992,
respectively.
Exploration and Production is engaged in the exploration, development and
production of natural gas, primarily in the Bob West Field in South Texas. In
addition to natural gas producing activities, Exploration and Production
activities include the transportation of natural gas to processing facilities
and common carrier pipelines in the South Texas area. The Company also holds an
interest in a joint venture agreement to explore for and produce hydrocarbons in
Bolivia. These operations in Bolivia include natural gas and condensate
reserves, the majority of which are shut-in awaiting access to gas-consuming
markets. See Notes L and P for information regarding a natural gas sales
contract that is the subject of litigation.
Oil Field Supply and Distribution is involved with the wholesale marketing
of fuels, lubricants and specialty petroleum products, primarily to onshore and
offshore drilling contractors along the Texas and Louisiana Gulf Coast area.
During 1994, the Company discontinued its environmental remediation products and
services operations formerly associated with this segment.
Segment operating profit is gross operating revenues and gains on asset
sales less applicable segment costs of sales, operating expenses, depreciation,
depletion and other items. Income taxes, interest expense, interest income and
general and administrative expenses are not included in determining operating
profit. In 1992, the Company sold its Indonesian exploration and production
operations, resulting in a $5.8 million gain that is included in operating
profit presented below. Also in 1992, revenues and operating profit from the
South Texas oil and gas producing activities include $5.4 million from a change
in estimate of the Company's revenues from its natural gas production. Operating
profit from the Refining and Marketing segment in 1994 included a gain of $2.4
million from the sale of assets and a refund of $8.5 million for a tariff issue,
partially offset by net charges of approximately $5 million for environmental
contingencies and other matters.
Identifiable assets are those assets utilized by the segment. Corporate
assets are principally cash, investments and other assets that cannot be
directly associated with the operations of a business segment.
39
<PAGE> 40
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
GROSS OPERATING REVENUES:
Refining and Marketing --
Refined products.............................................. $582.7 590.9 745.6
Other, primarily crude oil resales and merchandise............ 104.3 96.3 65.1
Exploration and Production --
U.S. oil and gas.............................................. 91.8 50.2 18.8
Bolivia....................................................... 13.2 12.6 17.9
Other, including U.S. gas transportation...................... 1.3 .3 --
Indonesia..................................................... -- -- 6.0
Oil Field Supply and Distribution................................ 77.9 80.7 93.5
Intersegment Eliminations........................................ -- -- (.4)
------ ----- -----
Total Gross Operating Revenues................................ $871.2 831.0 946.5
====== ===== =====
OPERATING PROFIT (LOSS), INCLUDING GAIN ON SALES OF ASSETS:
Refining and Marketing........................................... $ 2.4 15.2 (14.9)
Exploration and Production --
U.S. oil and gas.............................................. 52.1 31.4 8.9
Bolivia....................................................... 9.3 8.4 12.6
Other, including U.S. gas transportation...................... 2.9 .9 --
Indonesia..................................................... -- -- 7.6
Oil Field Supply and Distribution................................ (2.3) (3.6) (4.7)
------ ----- -----
Total Operating Profit........................................ 64.4 52.3 9.5
Corporate and Unallocated Costs.................................... (38.3) (33.6) (49.4)
------ ----- -----
Earnings (Loss) Before Income Taxes, Extraordinary Loss and the
Cumulative Effect of Accounting Changes.......................... $ 26.1 18.7 (39.9)
====== ===== =====
IDENTIFIABLE ASSETS:
Refining and Marketing........................................... $309.1 281.5 308.0
Exploration and Production --
U.S. oil and gas.............................................. 105.5 65.2 33.1
Bolivia....................................................... 11.1 6.5 2.9
Other, including U.S. gas transportation...................... 8.4 2.0 1.0
Indonesia..................................................... -- -- .3
Oil Field Supply and Distribution................................ 19.8 21.3 23.2
Corporate........................................................ 30.5 58.0 78.2
------ ----- -----
Total Assets.................................................. $484.4 434.5 446.7
====== ===== =====
DEPRECIATION, DEPLETION AND AMORTIZATION:
Refining and Marketing........................................... $ 10.4 10.3 10.2
Exploration and Production --
U.S. oil and gas.............................................. 24.1 11.1 4.9
Other, including U.S. gas transportation...................... .2 -- --
Indonesia..................................................... -- -- .3
Oil Field Supply and Distribution................................ .3 .4 .5
Corporate........................................................ 1.0 .8 .7
------ ----- -----
Total Depreciation, Depletion and Amortization................ $ 36.0 22.6 16.6
====== ===== =====
CAPITAL EXPENDITURES:
Refining and Marketing........................................... $ 32.0 7.1 3.7
Exploration and Production --
U.S. oil and gas.............................................. 60.4 28.6 8.9
Other, including U.S. gas transportation...................... 5.2 .7 --
Indonesia..................................................... -- -- .4
Oil Field Supply and Distribution................................ .2 .3 1.1
Corporate........................................................ 1.8 .8 1.3
------ ----- -----
Total Capital Expenditures.................................... $ 99.6 37.5 15.4
====== ===== =====
</TABLE>
40
<PAGE> 41
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- RECAPITALIZATION AND OFFERING
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 stocks were restructured (the
"Recapitalization"). Significant components of the Recapitalization, together
with the applicable accounting effects, were as follows:
(i) The Company exchanged $44.1 million principal amount of new 13%
Exchange Notes ("Exchange Notes") due December 1, 2000 for a like principal
amount of 12 3/4% Subordinated Debentures ("Subordinated Debentures") due
March 15, 2001. This exchange satisfied the 1994 sinking fund requirement
and, except for $.9 million, will satisfy sinking fund requirements for the
Subordinated Debentures through 1997.
The exchange of the Subordinated Debentures was accounted for as an
early extinguishment of debt in the first quarter of 1994, resulting in a
charge of $4.8 million as an extraordinary loss on this transaction, which
represented 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 was reduced by applicable
unamortized debt issue costs. No tax benefit was available to offset the
extraordinary loss as the Company has provided a 100% valuation allowance
to the extent of its deferred tax assets.
(ii) The 1,319,563 outstanding shares of the Company's $2.16 Cumulative
Convertible Preferred Stock ("$2.16 Preferred Stock"), which had a $25 per
share liquidation preference, plus accrued and unpaid dividends aggregating
$9.5 million at February 9, 1994, were reclassified into 6,465,859 shares
of Common Stock. The Company also issued an additional 132,416 shares of
Common Stock on behalf of the holders of $2.16 Preferred Stock in
connection with the settlement of litigation related to the
reclassification of the $2.16 Preferred Stock. In addition, the Company
paid $.5 million for certain legal fees and expenses in connection with
such litigation. The reclassification of the $2.16 Preferred Stock
eliminated annual preferred dividend requirements of $2.9 million on the
$2.16 Preferred Stock.
The issuance of the Common Stock in connection with the
reclassification and settlement of litigation that was recorded in 1994
resulted in an increase in Common Stock of approximately $1 million, equal
to the aggregate par value of the Common Stock issued, and an increase in
additional paid-in capital of approximately $9 million.
(iii) The Company and MetLife Security Insurance Company of Louisiana
("MetLife Louisiana"), the holder of all of the Company's outstanding $2.20
Cumulative Convertible Preferred Stock ("$2.20 Preferred Stock"), entered
into an agreement pursuant to which MetLife Louisiana agreed, among other
matters, to waive all existing mandatory redemption requirements, to
consider all accrued and unpaid dividends on the $2.20 Preferred Stock
(aggregating $21.2 million at February 9, 1994) to have been paid, and to
grant to the Company a three-year option (the "MetLife Louisiana Option")
to purchase all of MetLife Louisiana's holdings of $2.20 Preferred Stock
and Common Stock for approximately $53 million prior to June 30, 1994
(after giving effect to the cash dividend on the $2.20 Preferred Stock paid
in May 1994), all in consideration for, among other things, the issuance by
the Company to MetLife Louisiana of 1,900,075 shares of Common Stock. Such
additional shares were also subject to the MetLife Louisiana Option.
These actions 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.
41
<PAGE> 42
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EQUITY OFFERING
In June 1994, the Company completed a public offering (the "Offering") of
5,850,000 shares of its Common Stock for the purpose of raising funds to
exercise the MetLife Louisiana Option. Net proceeds to the Company from the
Offering, after deduction of associated expenses, were approximately $57.0
million. On June 29, 1994, the Company exercised the MetLife Louisiana Option in
full for approximately $53.0 million, acquiring 2,875,000 shares of $2.20
Preferred Stock having a liquidation value of $57.5 million and 4,084,160 shares
of Common Stock having an aggregate market value of $45.9 million (based on a
closing price of $11.25 per share on June 28, 1994). The exercise eliminated
annual preferred dividend requirements of $6.3 million on the $2.20 Preferred
Stock. The Offering and the exercise in full of the MetLife Louisiana Option
resulted in a net increase of 1,765,840 outstanding shares of Common Stock, the
retirement of $57.5 million of the $2.20 Preferred Stock, and increases in
Common Stock of approximately $.3 million, additional paid-in capital of
approximately $61.2 million and cash of approximately $4.0 million in June 1994.
If the Recapitalization and Offering had been completed at the beginning of
the year, the pro forma earnings per share before extraordinary loss would have
increased from $.77 to $.82 on both a primary and fully diluted basis for the
year ended December 31, 1994, reflecting the elimination of all preferred stock
dividend requirements and the issuance of additional shares of Common Stock
associated with the Recapitalization and Offering reduced by shares of Common
Stock acquired and retired upon exercise of the MetLife Louisiana Option.
See Note I for information on the Company's long-term debt, including
restrictions on dividend payments.
NOTE D -- RECEIVABLES
The Company's allowance for doubtful accounts is reflected as a reduction
of receivables in the Consolidated Balance Sheets. The following table
reconciles the change in the Company's allowance for doubtful accounts (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------ ----- ------
<S> <C> <C> <C>
Balance at Beginning of Year...................................... $2,487 2,587 4,068
Charged to Costs and Expenses..................................... 299 667 937
Recoveries of Amounts Previously Written Off and Other............ (4) 71 396
Write-off of Doubtful Accounts.................................... (966) (838) (2,814)
------ ----- ------
Balance at End of Year....................................... $1,816 2,487 2,587
====== ===== ======
</TABLE>
Receivables at December 31, 1994 included $17.7 million relating to sales
under a natural gas sales contract that is the subject of litigation. Of this
amount, $13.2 million represented the difference between the contract price and
the price currently being received by the Company under the terms of a
court-ordered bonding arrangement. For further information on this litigation,
see Notes L and P.
42
<PAGE> 43
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- INVENTORIES
Components of inventories at December 31, 1994 and 1993 were as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------- ------
<S> <C> <C>
Crude Oil and Wholesale Refined Products, at LIFO......................... $58,798 62,959
Merchandise and Retail Refined Products................................... 5,934 8,052
Materials and Supplies.................................................... 3,570 3,175
------- ------
Inventories............................................................. $68,302 74,186
======= ======
</TABLE>
At December 31, 1994, inventories valued using LIFO were lower than
replacement cost by approximately $1.8 million. At December 31, 1993,
inventories valued using LIFO approximated replacement cost.
NOTE F -- PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment at December 31, 1994 and 1993
were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- -------
<S> <C> <C>
Refining and Marketing.................................................. $309,925 282,286
Exploration and Production, Full-Cost Method of Accounting:
Properties being amortized............................................ 131,930 73,345
Properties not yet evaluated.......................................... 3,758 1,959
Other................................................................. 6,543 1,339
Oil Field Supply and Distribution....................................... 14,689 15,413
Corporate............................................................... 12,271 11,121
-------- -------
479,116 385,463
Less Accumulated Depreciation, Depletion and Amortization............... 205,782 172,312
-------- -------
Net Property, Plant and Equipment..................................... $273,334 213,151
======== =======
</TABLE>
NOTE G -- ACCRUED LIABILITIES
The Company's current accrued liabilities as shown in the Consolidated
Balance Sheets included the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------- ------
<S> <C> <C>
Accrued Environmental Costs............................................... $10,829 6,171
Accrued Interest.......................................................... 4,223 5,185
Accrued Employee and Pension Costs........................................ 7,884 4,028
Accrued Product Taxes..................................................... 3,009 749
Other..................................................................... 9,321 7,884
------- ------
Accrued Liabilities..................................................... $35,266 24,017
======= ======
</TABLE>
43
<PAGE> 44
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other liabilities classified as noncurrent in the Consolidated Balance
Sheets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------- ------
<S> <C> <C>
Accrued Postretirement Benefits........................................... $26,131 27,270
Deferred Income Taxes..................................................... 4,582 3,792
Accrued Dividends on $2.16 Preferred Stock................................ -- 9,145
Other..................................................................... 4,462 5,065
------- ------
Other Liabilities....................................................... $35,175 45,272
======= ======
</TABLE>
NOTE H -- INCOME TAXES
The income tax provision included the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------ ------ -----
<S> <C> <C> <C>
Federal:
Current......................................................... $ 700 -- 418
Deferred........................................................ -- -- (454)
Foreign........................................................... 3,588 3,419 5,104
State............................................................. 1,285 (1,722) 315
------ ------ -----
Income Tax Provision............................................ $5,573 1,697 5,383
====== ====== =====
</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):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- -------
<S> <C> <C>
Deferred Tax Assets:
Net operating losses available for utilization through the year
2008............................................................... $ 16,921 24,890
Investment tax and other credits...................................... 8,196 8,196
Settlement with the State of Alaska................................... 21,650 21,583
Accrued postretirement benefits....................................... 8,865 8,359
Settlement with Department of Energy.................................. 4,443 4,443
Other................................................................. 8,994 7,220
-------- -------
Total Deferred Tax Assets..................................... 69,069 74,691
Deferred Tax Liabilities:
Accelerated depreciation and property-related items................... (43,621) (45,965)
-------- -------
Deferred Tax Assets Before Valuation Allowance.......................... 25,448 28,726
Valuation Allowance..................................................... (25,448) (28,726)
State Income and Alternative Minimum Taxes.............................. (4,332) (3,350)
Other................................................................... (250) (442)
-------- -------
Net Deferred Tax Liability............................................ $ (4,582) (3,792)
======== =======
</TABLE>
44
<PAGE> 45
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>
YEARS ENDED DECEMBER 31,
------------------------------
1994 1993 1992
------- ------ -------
<S> <C> <C> <C>
Earnings (Loss) Before Income Taxes, Extraordinary Loss and the
Cumulative Effect of Accounting Changes:
United States............................................. $18,336 10,906 (60,117)
Foreign................................................... 7,720 7,747 20,255
------- ------ -------
$26,056 18,653 (39,862)
======= ====== =======
Income Taxes at Statutory U.S. Corporate Tax Rate.............. $ 9,120 6,529 (13,553)
Effect of:
Foreign income taxes, net of U.S. tax benefit................ 3,588 3,419 5,104
State income taxes (benefit), net of U.S. tax benefit........ 1,285 (1,722) 315
Accounting limitation (recognition) of operating loss
tax benefits.............................................. (9,120) (6,529) 13,553
Other........................................................ 700 -- (36)
------- ------ -------
Income Tax Provision...................................... $ 5,573 1,697 5,383
======= ====== =======
</TABLE>
At December 31, 1994, the Company's net operating loss carryforwards were
approximately $48.3 million for regular tax and approximately $26.2 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, 1994, 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.
NOTE I -- LONG-TERM DEBT AND OTHER OBLIGATIONS
Long-term debt and other obligations consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
12 3/4% Subordinated Debentures due 2001............................... $ 59,146 98,154
13% Exchange Notes due 2000............................................ 44,116 --
Liability to State of Alaska........................................... 61,856 61,666
Vacuum Unit Loan....................................................... 15,000 --
Liability to Department of Energy...................................... 13,194 13,194
Exploration and Production Loan........................................ -- 5,000
Industrial Revenue Bonds............................................... 2,385 2,752
Capital Lease Obligations (interest at 11%)............................ 3,540 3,934
Other.................................................................. 377 772
-------- --------
199,614 185,472
Less Current Portion................................................... 7,404 4,805
-------- --------
$192,210 180,667
======== ========
</TABLE>
Based on closing market prices, at December 31, 1994, the Company estimated
that the fair value of the Subordinated Debentures, exclusive of accrued
interest, was approximately $65.0 million and the fair value of the Exchange
Notes, exclusive of accrued interest, approximated $44.7 million. The carrying
value of the other long-term debt and obligations approximated the Company's
estimate of the fair value of such items.
45
<PAGE> 46
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in Note C, approximately four years of sinking fund
requirements on the Subordinated Debentures were 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, 1994 are as
follows (in thousands):
<TABLE>
<CAPTION>
SINKING
AGGREGATE FUND
MATURITIES REQUIREMENTS TOTAL
---------- ------------ -------
<S> <C> <C> <C>
1995....................................................... $7,404 -- 7,404
1996....................................................... $9,870 -- 9,870
1997....................................................... $9,606 884 10,490
1998....................................................... $9,604 11,250 20,854
1999....................................................... $9,593 11,250 20,843
</TABLE>
REVOLVING CREDIT FACILITY
During April 1994, the Company entered into a three-year, $125 million
corporate revolving credit facility ("Revolving Credit Facility") with a
consortium of ten banks. The Revolving Credit Facility, which is subject to a
borrowing base, provides for (i) the issuance of letters of credit up to the
full amount of the borrowing base as calculated, but not to exceed $125 million,
and (ii) cash borrowings up to the amount of the borrowing base attributable to
domestic oil and gas reserves. The Company currently has $100 million in
available commitments under the Revolving Credit Facility. The Company may at
any time designate all or a portion of the remaining $25 million under the
Revolving Credit Facility as available commitments. Outstanding obligations
under the Revolving Credit Facility are secured by liens on substantially all of
the Company's trade accounts receivable and product inventory and by mortgages
on the Company's refinery and South Texas natural gas reserves.
At December 31, 1994, the borrowing base, which is comprised of eligible
accounts receivable, inventory and domestic oil and gas reserves, was
approximately $107 million. At December 31, 1994, the Company had outstanding
letters of credit under the Revolving Credit Facility of approximately $48
million, with remaining unused available commitments of approximately $52
million. Cash borrowings are limited to the amount of the domestic oil and gas
reserve component of the borrowing base, which has most recently been determined
to be approximately $45 million. Under the terms of the Revolving Credit
Facility, the oil and gas component of the borrowing base is redetermined at
least semi-annually. The lenders or the Company may request additional
redeterminations. Fees on outstanding letters of credit range from 1.25% to
2.25% per annum, depending upon the Company's cash flow coverage ratio, as
defined, while the excess of total available commitments over cash borrowings
and outstanding letters of credit incur fees of .5% per annum. The Company pays
a fee equal to 1/4 of 1% per annum on amounts that have not been designated as
available commitments. Cash borrowings under the Revolving Credit Facility will
reduce the availability of letters of credit on a dollar-for-dollar basis;
however, letter of credit issuances will not reduce cash borrowing availability
unless the aggregate dollar amount of outstanding letters of credit exceeds the
sum of the accounts receivable and inventory components of the borrowing base.
Cash borrowings bear interest at the higher of the prime rate, as defined, or
the federal funds rate, as defined, plus an additional percentage ranging from
one-fourth of 1% to 1.25%, depending upon the Company's cash flow coverage
ratio, as defined. At December 31, 1994, there were no cash borrowings under the
Revolving Credit Facility.
Under the terms of the Revolving Credit Facility, as amended, the Company
is required to maintain specified levels of working capital, tangible net worth,
consolidated cash flow and refinery cash flow, as defined in the Revolving
Credit Facility. Among other matters, the Revolving Credit Facility has certain
restrictions with respect to (i) capital expenditures, (ii) incurrence of
additional indebtedness, and (iii) dividends on capital stock. The Revolving
Credit Facility contains other covenants customary in credit arrangements of
this
46
<PAGE> 47
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
kind. During the third and fourth quarters of 1994, the Company did not satisfy
the refinery cash flow requirement which required a waiver and an amendment to
the Revolving Credit Facility. Future compliance with financial covenants under
the amended Revolving Credit Facility is primarily dependent on the Company's
cash flows from operations, capital expenditures, levels of borrowings under the
Revolving Credit Facility and the value of the Company's domestic oil and gas
reserves. Based on current market conditions, including the volatility in
refinery margins and the recent downturn in the price of natural gas, continued
compliance with such covenants is not assured. If the Company is not able to
continue to comply with its financial covenants, it will be required to seek
waivers or amendments from its banks. If such an event occurs, the Company
believes it will be able to negotiate terms and conditions with its banks under
the Revolving Credit Facility which will allow the Company to adequately finance
its operations.
The Revolving Credit Facility replaced certain interim financing
arrangements that the Company had been using since the termination of its prior
letter of credit facility in October 1993. The interim financing arrangements
that were cancelled in conjunction with the completion of the Revolving Credit
Facility included a waiver and substitution of collateral agreement with the
State of Alaska and a $30 million reducing revolving exploration and production
credit facility. The completion of the Revolving Credit Facility provides the
Company significant flexibility in the investment of excess cash balances, as
the Company is no longer required to maintain minimum cash balances or to secure
letters of credit with cash. At December 31, 1993, the Company had arranged for
the issuance of $25.4 million of outstanding letters of credit which were
secured by restricted cash deposits.
VACUUM UNIT LOAN
During May 1994, the National Bank of Alaska and the Alaska Industrial
Development & Export Authority agreed to provide a loan to the Company of up to
$15 million of the cost of the vacuum unit for the Company's refinery (the
"Vacuum Unit Loan"). The Vacuum Unit Loan matures January 1, 2002, requires 28
equal quarterly payments beginning April 1995 and bears interest at the
unsecured 90-day commercial paper rate, adjusted quarterly, plus 2.6% per annum
(7.8% at December 31, 1994) for two-thirds of the amount borrowed and at the
National Bank of Alaska floating prime rate plus 1/4 of 1% per annum (8.75% at
December 31, 1994) for the remainder. The Vacuum Unit Loan is secured by a first
lien on the Company's refinery. At December 31, 1994, the Company had borrowed
$15 million under the Vacuum Unit Loan. The Vacuum Unit Loan contains covenants
and restrictions similar to those under the Revolving Credit Facility. At
December 31, 1994, the Company satisfied all of its covenants except for an
annual refinery cash flow requirement, as defined in the Vacuum Unit Loan. The
lenders waived this refinery cash flow requirement for the year ended December
31, 1994.
12 3/4% SUBORDINATED DEBENTURES 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 million principal amount of Subordinated Debentures for
Exchange Notes in February 1994 satisfied the 1994 sinking fund requirement and,
except for $.9 million, will satisfy sinking fund requirements for the
Subordinated Debentures through 1997 (see Note C). At December 31, 1994 and
1993, subordinated debt amounted to $59.1 million (net of discount of $5.5
million) and $98.2 million (net of discount of $10.6 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
incurred, as of December 31, 1994 the Company must generate approximately $113
million of future net earnings applicable to common stock or from the issuance
of capital stock before future dividends
47
<PAGE> 48
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
can be paid on common stock or before purchases or redemptions can be made of
common or preferred stocks. The Exchange Notes mature 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 limitations on
dividends that are less restrictive than the limitation under the Subordinated
Debentures.
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 is obligated to make variable monthly payments to the State through
December 2001 based on a per barrel charge that is currently 16 cents and
increases to 33 cents on the volume of feedstock processed at the Company's
refinery. In 1994 and 1993, the Company's variable payments to the State totaled
$2.8 million and $2.6 million, respectively. In January 2002, 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 for 2002 and increasing one cent per
barrel annually thereafter. Variable monthly payments made after December 2001
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 mortgage on the Company's
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 subsequent to the date of the Agreement to improve the
Company's 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. Through December 31, 1994, the Company had paid $42.1 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
The industrial revenue bonds mature in 1997 and require semiannual payments
of approximately $365,000. The bonds bear interest at a variable rate (6 3/8% at
December 31, 1994), which is equal to 75% of the National Bank of Alaska's prime
rate. The bonds are collateralized by the Company's refinery sulphur recovery
unit, which had a carrying value of approximately $6.5 million at December 31,
1994.
48
<PAGE> 49
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CAPITAL LEASE OBLIGATIONS
The Company is the lessee of certain buildings and equipment under capital
leases with remaining lease terms of three to 13 years. These buildings and
equipment are primarily used in the Company's convenience store operations in
Alaska. The assets and liabilities under capital leases are recorded at the
present value of the minimum lease payments. Property, plant and equipment at
December 31, 1994 included assets held under capital leases of $6.2 million with
a net book value of $2.1 million.
NOTE J -- 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 for the
Company's retirement plan are presented below (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Service Costs................................................. $ 1,121 931 717
Interest Cost................................................. 3,351 3,513 3,492
Actual Return on Plan Assets.................................. (217) (5,695) (1,763)
Net Amortization and Deferral................................. (3,408) 1,488 (2,231)
------- ------ ------
Net Pension Expense................................. $ 847 237 215
======= ====== ======
</TABLE>
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):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------- ------
<S> <C> <C>
Actuarial Present Value of Benefit Obligation:
Vested benefit obligation............................................... $35,877 41,200
======= ======
Accumulated benefit obligation.......................................... $38,102 43,694
======= ======
Plan Assets at Fair Value................................................. $38,100 40,718
Projected Benefit Obligation.............................................. 43,650 48,700
------- ------
Plan Assets Less Than Projected Benefit Obligation........................ (5,550) (7,982)
Unrecognized Net Loss..................................................... 9,029 11,997
Unrecognized Prior Service Costs.......................................... (490) (518)
Unrecognized Net Transition Asset......................................... (5,648) (6,883)
------- ------
Accrued Pension Expense Liability....................................... $(2,659) (3,386)
======= ======
</TABLE>
Retirement plan assets are primarily comprised of common stock and bond
funds. Actuarial assumptions used to measure the projected benefit obligations
at December 31, 1994, 1993 and 1992 included a discount rate of 8 1/2%, 7% and
9%, respectively, and a compensation increase rate of 6%, 4 1/2% and 6%,
respectively. The expected long-term rate of return on assets was 9% for 1994,
1993 and 1992.
49
<PAGE> 50
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):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1994 1993 1992
----- ---- ------
<S> <C> <C> <C>
Service Costs...................................................... $ 474 426 293
Interest Cost...................................................... 273 291 353
Actual Return on Plan Assets....................................... (230) (256) (1,004)
Net Amortization and Deferral...................................... 228 295 994
----- ---- ------
Net Pension Expense.............................................. $ 745 756 636
===== ==== ======
</TABLE>
During 1994, 1993 and 1992, the Company incurred additional ESP expense of
$.4 million, $.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):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1993
------ -----
<S> <C> <C>
Actuarial Present Value of Benefit Obligation:
Vested benefit obligation................................................. $3,071 2,394
====== =====
Accumulated benefit obligation............................................ $3,621 2,792
====== =====
Plan Assets at Fair Value................................................... $3,822 3,139
Projected Benefit Obligation................................................ 4,075 3,069
------ -----
Plan Assets in Excess of (Less Than) Projected Benefit Obligation........... (253) 70
Unrecognized Net Loss....................................................... 2,158 1,177
Unrecognized Prior Service Costs............................................ 495 619
Unrecognized Net Transition Obligation...................................... 843 1,110
------ -----
Prepaid Pension Asset..................................................... $3,243 2,976
====== =====
</TABLE>
Assets of the ESP consist of a group annuity contract. Actuarial
assumptions used to measure the projected benefit obligation at December 31,
1994, 1993 and 1992 included a discount rate of 8 1/2%, 7% and 9%, respectively,
and a compensation increase rate of 5%, 4 1/2% and 5%, respectively. The
expected long-term rate of return on assets was 9% for 1994, 1993 and 1992.
RETIREE HEALTH CARE AND LIFE INSURANCE 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 health care plans are contributory, with retiree
contributions adjusted periodically, and contain other cost-sharing features
such as deductibles and coinsurance. The life
50
<PAGE> 51
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
insurance plan is noncontributory. The Company continues to fund the cost of
postretirement health care and life insurance benefits on a pay-as-you-go basis.
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 1994, 1993 and 1992
included the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------ ----- -----
<S> <C> <C> <C>
Health Care:
Service costs.................................................... $ 471 420 400
Interest costs................................................... 1,264 1,396 1,332
------ ----- -----
Net Periodic Postretirement Expense...................... $1,735 1,816 1,732
====== ===== =====
Life Insurance:
Service costs.................................................... $ 198 100 100
Interest costs................................................... 489 492 457
Net amortization................................................. 29 -- --
------ ----- -----
Net Periodic Postretirement Expense...................... $ 716 592 557
====== ===== =====
</TABLE>
The following tables show the status of the plans reconciled with the
amounts in the Company's Consolidated Balance Sheets (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------- ------
<S> <C> <C>
Health Care:
Accumulated Postretirement Benefit Obligation--
Retirees................................................................ $14,066 19,079
Active participants eligible to retire.................................. 1,309 1,566
Other active participants............................................... 3,490 5,824
------- ------
18,865 26,469
Unrecognized net loss................................................... (164) (8,685)
------- ------
Accrued Postretirement Benefit Liability............................. $18,701 17,784
======= ======
Life Insurance:
Accumulated Postretirement Benefit Obligation --
Retirees................................................................ $ 5,321 4,915
Active participants eligible to retire.................................. 421 571
Other active participants............................................... 1,324 1,658
------- ------
7,066 7,144
Unrecognized net loss................................................... (438) (1,044)
------- ------
Accrued Postretirement Benefit Liability............................. $ 6,628 6,100
======= ======
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost
of covered health care benefits was assumed to be 8% for 1995, decreasing
gradually to 6% by the year 2009 and remaining 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 at December 31,
51
<PAGE> 52
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994 by $3.3 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, 1994, 1993 and 1992 included a
discount rate of 8 1/2%, 7% and 8 1/2%, respectively, and a compensation rate
increase of 6%, 4 1/2% and 6%, respectively.
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 $547,000, $482,000 and $474,000 during 1994, 1993 and 1992,
respectively.
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 -- 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 38 years and generally contain multiple renewal
options. Future minimum annual payments for operating leases, existing at
December 31, 1994, were as follows (in thousands):
<TABLE>
<S> <C>
1995............................................................................. $ 18,122
1996............................................................................. 14,829
1997............................................................................. 3,724
1998............................................................................. 3,528
1999............................................................................. 1,217
Thereafter....................................................................... 12,908
--------
Total.......................................................................... $ 54,328
=======
</TABLE>
Total rental expense was approximately $33.6 million, $32.5 million and
$24.3 million for 1994, 1993 and 1992, respectively. Rental expense for 1994,
1993 and 1992 included $24.6 million, $22.9 million and $12.0 million,
respectively, related to the lease of vessels used to transport crude oil and
refined products to and from the Company's refinery. The lease on one vessel
expired in October 1994 and was replaced with a charter agreement for another
vessel. This charter agreement expires in September 1996 and contains two
one-year renewal options. The Company has a charter for another vessel under a
one-year agreement expiring in January 1996.
NOTE L -- COMMITMENTS AND CONTINGENCIES
GAS PURCHASE AND SALES CONTRACT
The Company is selling a portion of the gas from its Bob West Field to
Tennessee Gas Pipeline Company ("Tennessee Gas") under a Gas Purchase and Sales
Agreement (the "Tennessee Gas Contract") which provides that the price of gas
shall be the maximum price as calculated in accordance with Section 102(b)(2)
(the "Contract Price") of the Natural Gas Policy Act of 1978 (the "NGPA").
Tennessee Gas filed suit against the Company in the District Court of Bexar
County, Texas alleging that the Tennessee Gas Contract is not applicable to the
Company's properties and that the gas sales price should be the price calculated
under the provisions of Section 101 of the NGPA rather than the Contract Price.
During December 1994, the
52
<PAGE> 53
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Contract Price was in excess of $8.00 per Mcf, the Section 101 price was $4.81
per Mcf and the average spot market price was $1.56 per Mcf. Tennessee Gas also
claimed that the contract should be considered an "output contract" under
Section 2.306 of the Texas Business and Commerce Code and that the increases in
volumes tendered under the contract exceeded those allowable for an output
contract.
The District Court judge returned a verdict in favor of the Company on all
issues. On appeal by Tennessee Gas, the Court of Appeals for the Fourth Supreme
Judicial District of Texas affirmed the validity of the Tennessee 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 remanded the case to
the trial court based on its determination (i) that the Tennessee Gas Contract
was an output contract and (ii) that a fact issue existed as to whether the
increases in the volumes of gas tendered to Tennessee Gas under the contract
were made in bad faith or were unreasonably disproportionate to prior tenders.
The Company sought review of the appellate court ruling on the output contract
issue in the Supreme Court of Texas. Tennessee Gas also sought review of the
appellate court ruling denying the remaining Tennessee Gas claims in the Supreme
Court of Texas. The Supreme Court of Texas heard arguments in December 1994
regarding the output contract issue and certain of the issues raised by
Tennessee Gas but has not yet issued its opinion.
Although the outcome of any litigation is uncertain, management, based upon
advice from outside legal counsel, is confident that the decision of the trial
and appellate courts will ultimately be upheld as to the validity of the
Tennessee Gas Contract and the Contract Price. If the Supreme Court of Texas
were to affirm the appellate court ruling, the Company believes that the only
issue for trial should be whether the increases in the volumes of gas tendered
to Tennessee Gas from the Company's properties were made in bad faith or were
unreasonably disproportionate. The appellate court decision was the first
reported decision in Texas holding that a take-or-pay contract was an output
contract. As a result, it is not clear what standard the trial court would be
required to apply in determining whether the increases were in bad faith or
unreasonably disproportionate. The appellate court acknowledged in its opinion
that the standards used in evaluating other kinds of output contracts would not
be appropriate in this context. The Company believes that the appropriate
standard would be whether the development of the field was undertaken in a
manner that a prudent operator would have undertaken in the absence of an
above-market sales price. Under that standard, the Company believes that, if
this issue is tried, the development of the Company's 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, 1994, under the Tennessee Gas Contract based on the
Contract Price, which net revenues aggregated $36.9 million more than the
Section 101 prices and $69.5 million in excess of the spot market prices. If
Tennessee Gas were ultimately to prevail in this litigation, the Company could
be required to return to Tennessee Gas $52.5 million, plus interest if awarded
by the court, representing the difference between the spot market price and the
Contract Price received by the Company through September 17, 1994 (the date on
which the Company entered into a bond agreement discussed below). An adverse
judgment in this case could have a material adverse effect on the Company.
On August 4, 1994, the trial court rejected a motion by Tennessee Gas to
post a supersedeas bond in the form of monthly payments into the registry of the
court representing the difference between the Contract Price and spot market
price of gas sold to Tennessee Gas pursuant to the Tennessee Gas Contract. The
court advised Tennessee Gas that should it wish to supersede the judgment,
Tennessee Gas had the option to post a bond which would be effective only until
August 1, 1995, in an amount equal to the anticipated value of the Tennessee Gas
Contract during that period. In September 1994, the court ordered that,
effective until August 1, 1995, Tennessee Gas (i) take at least its entire
monthly take-or-pay obligation under the Tennessee Gas Contract, (ii) pay for
gas at $3.00 per Mmbtu, which approximates $3.00 per Mcf (the "Bond Price"), and
(iii) post a $120 million bond with the court representing an amount which,
together with anticipated sales of natural gas to Tennessee Gas at the Bond
Price, will equal the anticipated value of the Tennessee Gas Contract during
this interim period. The Bond Price is nonrefundable by the Company, and the
Company
53
<PAGE> 54
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
retains the right to receive the full Contract Price for all gas sold to
Tennessee Gas. The Company continues to recognize revenues under the Tennessee
Gas Contract based on the Contract Price. At December 31, 1994, the Company had
recognized cumulative revenues in excess of spot market prices (through
September 17, 1994) and in excess of the Bond Price (subsequent to September 17,
1994) totaling $65.7 million. Receivables at December 31, 1994 included $17.7
million from Tennessee Gas, of which $13.2 million represented the difference
between the Contract Price and the Bond Price. For further information
concerning the effect of the Tennessee Gas Contract on certain of the Company's
revenues and cash flows, see Note P.
ENVIRONMENTAL
The Company is subject to extensive federal, state and local environmental
laws and regulations. These laws, which change frequently, 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 with a waste disposal site 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 the site, the extent of the Company's allocated financial contribution to the
cleanup of this site is expected to be limited based upon the number of
companies and the volumes of waste involved and the payment by the Company of a
de minimus settlement amount of $2,500 at a similar site in Louisiana. The
Company is also involved in remedial responses and has incurred cleanup
expenditures associated with environmental matters at a number of sites,
including certain of its own properties. In addition, the Company is holding
discussions with the Department of Justice ("DOJ") concerning the assessment of
penalties with respect to certain alleged violations of regulations promulgated
under the Clean Air Act as discussed below.
In March 1992, the Company received a Compliance Order and Notice of
Violation from the Environmental Protection Agency (the "EPA") alleging
violations by the Company of the New Source Performance Standards under the
Clean Air Act at its Alaska refinery. These allegations include failure to
install, maintain and operate monitoring equipment over a period of
approximately six years, failure to perform accuracy testing on monitoring
equipment, and failure to install certain pollution control equipment. From
March 1992 to July 1993, the EPA and the Company exchanged information relevant
to these allegations. In addition, the EPA conducted an environmental audit of
the Company's refinery in May 1992. As a result of this audit, the EPA is also
alleging violation of certain regulations related to asbestos materials. In
October 1993, the EPA referred these matters to the DOJ. The DOJ contacted the
Company to begin negotiating a resolution of these matters. The DOJ has
indicated that it is willing to enter into a judicial consent decree with the
Company and that this decree would include a penalty assessment. Negotiations on
the penalty are in progress. The DOJ has proposed a penalty assessment of
approximately $3.7 million. The Company is continuing to negotiate with the DOJ
but cannot predict the ultimate outcome of the negotiations.
At December 31, 1994, the Company's accruals for environmental matters,
including the alleged violations of the Clean Air Act, amounted to $10.8
million. Based on currently available information, including the participation
of other parties or former owners in remediation actions, the Company believes
these accruals are adequate. In addition, to comply with environmental laws and
regulations, the Company anticipates that it will be required to make capital
improvements in 1995 of approximately $2 million, primarily for the removal and
upgrading of underground storage tanks, and approximately $8 million during 1996
for the installation of dike liners required under Alaska environmental
regulations. Conditions that require additional expenditures may exist for
various Company sites, including, but not limited to, the Company's refinery,
retail gasoline outlets (current and closed locations) and petroleum product
terminals, and for compliance with the Clean Air Act. The amount of such future
expenditures cannot currently be determined by the Company.
54
<PAGE> 55
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER
The Company transports its crude oil and a substantial portion of its
refined products utilizing Kenai Pipe Line Company's ("KPL") pipeline and marine
terminal facilities in Kenai, Alaska. In March 1994, KPL filed a revised tariff
with the Federal Energy Regulatory Commission ("FERC") for dock loading
services, which would have increased the Company's annual cost of transporting
products through KPL's facilities from $1.2 million to $11.2 million. Following
FERC's rejection of KPL's tariff filing and the commencement of negotiations for
the purchase by the Company of the dock facilities, KPL filed a temporary tariff
that has increased the Company's annual cost by approximately $1.5 million. The
Company and KPL have entered into an agreement for the purchase by the Company
of KPL, subject to regulatory approval. The Company expects that this purchase
transaction will be consummated in early 1995.
In July 1994, a former customer of the Company ("Customer") filed suit
against the Company in the United States District Court for the District of New
Mexico for a refund in the amount of approximately $1.2 million, plus interest
of approximately $4.4 million and attorney's fees, related to a gasoline
purchase from the Company in 1979. The Customer also alleges entitlement to
treble damages and punitive damages in the aggregate amount of $16.8 million.
The refund claim is based on allegations that the Company renegotiated the
acquisition price of gasoline sold to the Customer and failed to pass on the
benefit of the renegotiated price to the Customer in violation of Department of
Energy price and allocation controls then in effect. The Company cannot predict
the ultimate resolution of this matter but believes the claim is without merit.
In February 1995, a lawsuit was filed in the U.S. District Court for the
Southern District of Texas, McAllen Division, by the Heirs of H.P. Guerra,
Deceased ("Plaintiffs") against the United States and Tesoro and other working
and overriding royalty interest owners to recover the oil and gas mineral estate
under 2,706.34 acres situated in Starr County, Texas. The oil and gas mineral
estate sought to be recovered underlies lands taken by the United States in
connection with the construction of the Falcon Dam and Reservoir. In their
lawsuit, the Plaintiffs allege that the original taking by the United States in
1948 was unlawful and void and the refusal of the United States to revest the
mineral estate to H.P. Guerra or his heirs was arbitrary and capricious and
unconstitutional. Plaintiffs seek (i) restoration of their oil and gas estate;
(ii) restitution of all proceeds realized from the sale of oil and gas from
their mineral estate, plus interest on the value thereof; and (iii) cancellation
of all oil and gas leases issued by the United States to Tesoro and the other
working interest owners covering their mineral estate. The lawsuit covers a
significant portion of the mineral estate in the Bob West Field; however, none
of the acreage covered is dedicated to the Tennessee Gas Contract. The Company
cannot predict the ultimate resolution of this matter but, based upon advice
from outside legal counsel, believes the lawsuit is without merit.
NOTE M -- INCENTIVE STOCK PLANS
The Company has two employee incentive stock plans, the Amended Incentive
Stock Plan of 1982 (the "1982 Plan") and the Executive Long-Term Incentive Plan
(the "1993 Plan") (collectively, the "Plans"). The 1982 Plan expired in 1994 as
to issuance of stock appreciation rights, stock options and stock awards;
however, grants made before the expiration date that have not been fully
exercised remain outstanding pursuant to their terms. The 1993 Plan provides for
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, which provides
for the grant of up to 1,250,000 shares of the Company's Common Stock, will
expire, unless earlier terminated, as to the issuance of awards in the year
2003. At December 31, 1994, the Company had 588,147 shares available for future
grants under the 1993 Plan. Shares of unissued Common Stock reserved for the
Plans totaled 2,381,603 at December 31, 1994, which included 245,903 shares
representing awards granted under the Plans that had not yet been issued.
Stock appreciation rights become exercisable in three to five annual
installments, normally beginning with the first anniversary of the date of the
grant, and expire ten years from the date of grant. Stock
55
<PAGE> 56
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1994, compensation expense
related to stock appreciation rights was approximately $20,000 as a result of
the market price of the related stock exceeding the exercise price of the stock
appreciation rights. During 1993 and 1992, no compensation expense was
recognized since the market value of the Company's Common Stock remained below
the exercise price.
Stock options may be granted at exercise prices equal to the market value
on the date the options are granted. The options granted generally become
exercisable after one year in 20% increments per year and expire ten years from
date of grant. Options granted to certain officers under the 1982 Plan are
subject to accelerated vesting provisions based upon the improvement in the
market price of the Company's Common Stock during a period immediately preceding
their employment anniversary dates.
Stock awards and performance shares granted to officers and key employees
under the Plans amounted to 137,253, 83,015 and 100,000 common shares in 1994,
1993 and 1992, respectively. Compensation expense, representing the excess of
the market value of the Common Stock on the dates of the awards over the
purchase price to be paid by the employee, is charged to earnings over the
periods that the shares are earned and amounted to $1,319,000, $572,000 and
$142,000 in 1994, 1993 and 1992, respectively.
A summary of the activity in the Plans is set forth below:
<TABLE>
<CAPTION>
STOCK OPTIONS
---------------------------
OUTSTANDING EXERCISABLE
----------- -----------
<S> <C> <C>
September 30, 1991.................................................... 221,805 159,623
Granted at $3.925 to $4.840......................................... 600,000 --
Becoming exercisable................................................ -- 34,243
Cancelled or expired................................................ (109,171) (90,786)
----------- -----------
December 31, 1992..................................................... 712,634 103,080
Granted at $2.925 to $5.250......................................... 349,680 --
Becoming exercisable................................................ -- 127,044
Cancelled or expired................................................ (45,444) (44,278)
----------- -----------
December 31, 1993..................................................... 1,016,870 185,846
Granted at $8.938 to $9.500......................................... 524,600 --
Becoming exercisable................................................ -- 312,880
Exercised........................................................... (18,764) (18,764)
Cancelled or expired................................................ (26,413) (1,083)
----------- -----------
December 31, 1994 ($2.925 to $12.625)................................. 1,496,293 478,879
========= ========
</TABLE>
56
<PAGE> 57
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
STOCK APPRECIATION RIGHTS
---------------------------
OUTSTANDING EXERCISABLE
----------- -----------
<S> <C> <C>
September 30, 1991.................................................... 243,864 181,680
Becoming exercisable................................................ -- 34,248
Cancelled or expired................................................ (119,414) (101,030)
----------- -----------
December 31, 1992..................................................... 124,450 114,898
Becoming exercisable................................................ -- 7,042
Cancelled or expired................................................ (54,687) (53,521)
----------- -----------
December 31, 1993..................................................... 69,763 68,419
Becoming exercisable................................................ -- 1,344
Exercised........................................................... (14,921) (14,921)
Cancelled or expired................................................ (3,582) (3,582)
----------- -----------
December 31, 1994 ($8.375 to $12.625)................................. 51,260 51,260
========= ========
</TABLE>
NOTE N -- 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, 1994, there were 24,389,801 rights outstanding, which
will expire in December 1995.
57
<PAGE> 58
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>
1994
Gross Operating Revenues................................ $189.1 210.7 251.8 219.6
Operating Profit........................................ $ 18.3 11.7 7.1 27.3
Net Earnings (Loss) Before Extraordinary Loss........... $ 7.2 1.3 (3.3) 15.3
Extraordinary Loss...................................... 4.8 -- -- --
------ ------ ----- ------
Net Earnings (Loss)..................................... $ 2.4 1.3 (3.3) 15.3
====== ===== ===== =====
Earnings (Loss) Per Primary and Fully Diluted Share:
Earnings (loss) before extraordinary loss............ $ .27 .02 (.13) .61
Extraordinary loss................................... (.24) -- -- --
------ ------ ----- ------
Net earnings (loss).................................. $ .03 .02 (.13) .61
====== ===== ===== =====
1993
Gross Operating Revenues................................ $224.5 185.6 214.5 206.4
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
</TABLE>
The 1994 first quarter included an extraordinary loss of $4.8 million on
the early extinguishment of debt in connection with the Recapitalization (see
Note C) and a gain of $2.8 million from the sale of assets. During the 1994
fourth quarter, a refund of $8.5 million was recognized for settlement of a
tariff dispute, partially offset by charges of approximately $4 million related
to environmental contingencies and other matters. 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 year-end 1993 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.
58
<PAGE> 59
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE P -- OIL AND GAS PRODUCING ACTIVITIES
The information presented below represents the oil and gas producing
activities of the Company's exploration and production segment. Amounts related
to the U.S. natural gas transportation operations, as disclosed in Note B, have
been excluded.
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1993 1992
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Capitalized Costs:
Proved properties............................................ $116,558 60,489 34,050
Unproved properties:
Properties being amortized................................ 15,372 12,856 11,132
Properties not being amortized............................ 3,758 1,959 1,482
-------- ------ ------
135,688 75,304 46,664
Accumulated depreciation, depletion and amortization......... 50,261 26,118 15,006
-------- ------ ------
Net Capitalized Costs..................................... $ 85,427 49,186 31,658
======== ====== ======
</TABLE>
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, 1994:
Property acquisition, unproved...................... $ 438 -- -- 438
Exploration......................................... 8,808 -- -- 8,808
Development......................................... 51,133 -- -- 51,133
------- ----- ------- ------
$60,379 -- -- 60,379
======= ===== ======= ======
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
======= ===== ======= ======
</TABLE>
The Company's investment in oil and gas properties included $3.8 million in
unevaluated properties, which have been excluded from the amortization base as
of December 31, 1994. The Company anticipates that the majority of these costs,
substantially all of which were incurred in 1994, will be included in the
amortization base during 1995.
59
<PAGE> 60
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1994:
Gross revenues -- sales to nonaffiliates........... $91,791 13,211 -- 105,002
Lifting costs...................................... 13,855 619 -- 14,474
Administrative support and other................... 1,692 3,242 -- 4,934
Depreciation, depletion and amortization........... 24,143 -- -- 24,143
------- ------ --------- --------
Pretax results of operations....................... 52,101 9,350 -- 61,451
Income tax expense................................. 19,104 5,605 -- 24,709
------- ------ --------- --------
Results of operations from producing
activities(2)................................... $32,997 3,745 -- 36,742
======= ====== ======= =======
Depletion rate per net equivalent Mcf.............. $ .79 -- --
======= ====== =======
Year Ended December 31, 1993:
Gross revenues -- sales to nonaffiliates........... $50,228 12,594 -- 62,822
Lifting 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 rate per net equivalent Mcf.............. $ .78 -- --
======= ====== =======
Year Ended December 31, 1992:
Gross revenues -- sales to nonaffiliates........... $18,850 17,898 5,975 42,723
Lifting 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 rate per net equivalent Mcf.............. $ .95 -- .15
======= ====== =======
</TABLE>
- ---------------
(1) See Note L regarding litigation involving a natural gas sales contract.
(2) Excludes corporate general and administrative and financing costs.
(3) Represents gain from the sale of the Company's Indonesian operations
effective May 1, 1992.
60
<PAGE> 61
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 L, certain of the Company's U.S. 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. 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, 1994 was $127
million, compared with $73 million at spot market prices.
61
<PAGE> 62
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED
RESERVES (UNAUDITED)
<TABLE>
<CAPTION>
UNITED
STATES(1) BOLIVIA TOTAL
--------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
December 31, 1994:
Future cash inflows....................................... $ 292,620 120,886 413,506
Future production costs................................... (52,534) (30,873) (83,407)
Future development costs.................................. (29,933) (7,258) (37,191)
--------- ------- --------
Future net cash flows before income tax expense........... 210,153 82,755 292,908
Future income tax expense................................. (61,419) (44,537) (105,956)
--------- ------- --------
Future net cash flows..................................... 148,734 38,218 186,952
10% annual discount factor................................ (21,948) (16,229) (38,177)
--------- ------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 126,786 21,989 148,775
======== ======= ========
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
======== ======= ========
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
======== ======= ========
</TABLE>
62
<PAGE> 63
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales and transfers of oil and gas produced, net of
production costs........................................... $(88,751) (52,766) (31,208)
Net changes in prices and production costs................... 12,834 (21,160) (32,397)
Extensions, discoveries and improved recovery................ 54,503 73,792 104,219
Development costs incurred................................... 51,148 25,510 10,012
Revisions of estimated future development costs.............. (34,738) (24,052) (18,666)
Revisions of previous quantity estimates..................... 1,818 31,031 (15,384)
Purchases and sales of minerals in-place..................... -- -- (5,884)
Accretion of discount........................................ 12,919 11,071 8,174
Net changes in income taxes.................................. 9,850 (24,945) 4,863
-------- ------- -------
Net increase................................................. 19,583 18,481 23,729
Beginning of period.......................................... 129,192 110,711 86,982
-------- ------- -------
End of period................................................ $148,775 129,192 110,711
======== ======= =======
</TABLE>
- ---------------
(1) See Note L regarding litigation involving a natural gas sales contract.
63
<PAGE> 64
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESERVE 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
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.
<TABLE>
<CAPTION>
UNITED
STATES(2) BOLIVIA TOTAL
--------- --------- -------
<S> <C> <C> <C>
PROVED GAS RESERVES (millions of cubic feet)(1):
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)
--------- --------- -------
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)
--------- --------- -------
December 31, 1993........................................... 120,198 99,295 219,493
Revisions of previous estimates.......................... 9,881 (9,678) 203
Extensions, discoveries and other additions.............. 29,606 14,199 43,805
Production............................................... (30,586) (8,060) (38,646)
--------- --------- -------
December 31, 1994(3)........................................ 129,099 95,756 224,855
======= ======= =======
PROVED DEVELOPED GAS RESERVES included above (millions of
cubic feet):
December 31, 1991........................................... 21,187 106,036 127,223
December 31, 1992........................................... 34,160 91,376 125,536
December 31, 1993........................................... 65,652 99,295 164,947
December 31, 1994(3)........................................ 110,071 81,558 191,629
</TABLE>
64
<PAGE> 65
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
BOLIVIA INDONESIA TOTAL
--------- --------- -------
<S> <C> <C> <C>
PROVED OIL RESERVES (thousands of barrels)(1):
December 31, 1991........................................... 2,771 5,571 8,342
Revisions of previous estimates.......................... (266) -- (266)
Production............................................... (242) (328) (570)
Sales of minerals in-place............................... -- (5,243) (5,243)
--------- --------- -------
December 31, 1992........................................... 2,263 -- 2,263
Revisions of previous estimates.......................... 152 -- 152
Production............................................... (242) -- (242)
--------- --------- -------
December 31, 1993........................................... 2,173 -- 2,173
Revisions of previous estimates.......................... (280) -- (280)
Extensions, discoveries and other additions.............. 168 -- 168
Production............................................... (268) -- (268)
--------- --------- -------
December 31, 1994(3)........................................ 1,793 -- 1,793
======= ======= =======
PROVED DEVELOPED OIL RESERVES included above (thousands of
barrels):
December 31, 1991........................................... 2,680 5,571 8,251
December 31, 1992........................................... 2,098 -- 2,098
December 31, 1993........................................... 2,173 -- 2,173
December 31, 1994(3)........................................ 1,627 -- 1,627
</TABLE>
- ---------------
(1) The Company was not required to file reserve estimates with federal
authorities or agencies during the periods presented.
(2) See Note L regarding litigation involving a natural gas sales contract.
(3) No major discovery or adverse event has occurred since December 31, 1994
that would cause a significant change in proved reserves.
65
<PAGE> 66
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
1995 Proxy Statement, 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
1995 Proxy Statement, 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
1995 Proxy Statement, incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item will be contained in the Company's
1995 Proxy Statement, 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:
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Independent Auditors' Report......................................................... 32
Statements of Consolidated Operations -- Years Ended December 31, 1994, 1993 and
1992............................................................................... 33
Consolidated Balance Sheets -- December 31, 1994 and 1993............................ 34
Statements of Consolidated Stockholders' Equity -- Years Ended December 31, 1994,
1993 and 1992...................................................................... 35
Statements of Consolidated Cash Flows -- Years Ended December 31, 1994, 1993 and
1992............................................................................... 36
Notes to Consolidated Financial Statements........................................... 37
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
All 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.
66
<PAGE> 67
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<S> <C>
3 Restated Certificate of Incorporation of the Company (incorporated by reference
herein to Exhibit 3 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-3473).
3(a) Bylaws of the Company, as amended through February 23, 1995.
3(b) Amendment to Restated Certificate of Incorporation of the Company adding a new
Article IX limiting Directors' Liability (incorporated by reference herein to
Exhibit 3(b) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-3473).
3(c) Certificate of Designation Establishing a Series of $2.20 Cumulative Convertible
Preferred Stock, dated as of January 26, 1983 (incorporated by reference herein to
Exhibit 3(c) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-3473).
3(d) Certificate of Designation Establishing a Series A Participating Preferred Stock,
dated as of December 16, 1985 (incorporated by reference herein to Exhibit 3(d) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993, File No. 1-3473).
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 (incorporated by reference herein to Exhibit 3(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, File No. 1-3473).
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) Copy of Indenture between the Company and Bankers Trust Company, a Trustee, pursuant
to which the Exchange Notes Due December 1, 2000 were issued (incorporated by
reference herein to Exhibit 2 to the Company's Registration Statement on Form 8-A
filed March 2, 1994).
4(d) 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(e) 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).
4(f) 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(g) 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).
4(h) Credit Agreement (the "Credit Agreement") dated as of April 20, 1994 among the
Company and Texas Commerce Bank National Association ("TCB") as Issuing Bank and as
Agent, and certain other banks named therein (incorporated by reference herein to
Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended March 31,
1994, File No. 1-3473).
4(i) Guaranty Agreement dated as of April 20, 1994 among various subsidiaries of the
Company and TCB, as Issuing Bank and as Agent, and certain other banks named therein
(incorporated by reference herein to Exhibit 10.2 to the Company's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
</TABLE>
67
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<S> <C>
4(j) Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of April 20, 1994 from Tesoro Exploration and Production Company,
entered into in connection with the Credit Agreement (incorporated by reference
herein to Exhibit 10.3 to the Company's report on Form 10-Q for the quarter ended
March 31, 1994, File No. 1-3473).
4(k) Deed of Trust, Security Agreement and Financing Statement dated as of April 20, 1994
among Tesoro Alaska Petroleum Company, TransAlaska Title Insurance Agency, Inc., as
Trustee, and TCB, as Agent, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 10.4 to the Company's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(l) Pledge Agreement dated as of April 20, 1994 by the Company in favor of TCB, entered
into in connection with the Credit Agreement (incorporated by reference herein to
Exhibit 10.5 to the Company's report on Form 10-Q for the quarter ended March 31,
1994, File No. 1-3473).
4(m) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between the
Company and TCB, entered into in connection with the Credit Agreement (incorporated
by reference herein to Exhibit 10.6 to the Company's report on Form 10-Q for the
quarter ended March 31, 1994, File No. 1-3473).
4(n) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between
Tesoro Alaska Petroleum Company and TCB, entered into in connection with the Credit
Agreement (incorporated by reference herein to Exhibit 10.7 to the Company's report
on Form 10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(o) Security Agreement (Accounts) dated as of April 20, 1994 between Tesoro Petroleum
Distributing Company and TCB, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 10.8 to the Company's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(p) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between
Tesoro Exploration and Production Company and TCB, entered into in connection with
the Credit Agreement (incorporated by reference herein to Exhibit 10.9 to the
Company's report on Form 10-Q for the quarter ended March 31, 1994, File No.
1-3473).
4(q) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between
Tesoro Refining, Marketing & Supply Company and TCB, entered into in connection with
the Credit Agreement (incorporated by reference herein to Exhibit 10.10 to the
Company's report on Form 10-Q for the quarter ended March 31, 1994, File No.
1-3473).
4(r) Loan Agreement (the "Loan Agreement") dated as of May 26, 1994 among Tesoro Alaska
Petroleum Company, as Borrower, the Company, as Guarantor, and National Bank of
Alaska ("NBA"), as Lender (incorporated by reference herein to Exhibit 4.30 to
Registration Statement No. 33-53587).
4(s) Guaranty Agreement dated as of May 26, 1994 between the Company and NBA, entered
into in connection with the Loan Agreement (incorporated by reference herein to
Exhibit 4.31 to Registration Statement No. 33-53587).
4(t) $15,000,000 Promissory Note dated as of May 26, 1994 of Tesoro Alaska Petroleum
Company payable to the order of NBA, in connection with the Loan Agreement
(incorporated by reference herein to Exhibit 4.32 to Registration Statement No.
33-53587).
4(u) Construction Loan Agreement dated as of May 26, 1994 between Tesoro Alaska Petroleum
Company and NBA, entered into in connection with the Loan Agreement (incorporated by
reference herein to Exhibit 4.33 to Registration Statement No. 33-53587).
4(v) Deed of Trust dated as of May 26, 1994 from Tesoro Alaska Petroleum Company, entered
into in connection with the Loan Agreement (incorporated by reference herein to
Exhibit 4.34 to Registration Statement No. 33-53587).
4(w) Security Agreement dated as of May 26, 1994 between Tesoro Alaska Petroleum Company
and NBA, entered into in connection with the Loan Agreement (incorporated by
reference herein to Exhibit 4.35 to Registration Statement No. 33-53587).
</TABLE>
68
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<S> <C>
4(x) Consent and Intercreditor Agreement dated as of May 26, 1994 among NBA, TCB, as
Agent, and the Company, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 4.36 to Registration Statement No.
33-53587).
4(y) Copy of Consent and Waiver No. 1 dated October 27, 1994 to the Company's Credit
Agreement dated as of April 20, 1994 (incorporated by reference herein to Exhibit 4
to the Company's report on Form 10-Q for the quarter ended September 30, 1994, File
No. 1-3473).
4(z) Copy of First Amendment to Credit Agreement dated as of January 20, 1995 among the
Company and TCB as Issuing Bank and as Agent, and certain other banks named therein.
4(aa) Copy of First Amendment to the Loan Agreement dated as of January 26, 1995 among
Tesoro Alaska Petroleum Company, Tesoro Petroleum Corporation and NBA.
10(a) Form of Executive Agreement providing for continuity of management between the
Company and James W. Queen 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 James W. Queen
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 James W.
Queen 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).
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) Seventh Amendment to the Company's Amended Executive Security Plan and Eighth
Amendment to the Company's Funded Executive Security Plan, both dated effective
December 8, 1994.
10(g) 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(h) First Amendment and Extension to Employment Agreement between the Company and
Michael D. Burke dated December 14, 1994.
10(i) 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(j) First Amendment and Extension to Employment Agreement between the Company and Bruce
A. Smith dated December 14, 1994.
10(k) 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(l) First Amendment and Extension to Employment Agreement between the Company and Gaylon
H. Simmons dated December 14, 1994.
10(m) Employment Agreement between the Company and James C. Reed, Jr. dated December 14,
1994.
10(n) Employment Agreement between the Company and William T. Van Kleef dated December 14,
1994.
10(o) Management Stability Agreement between the Company and Don E. Beere dated December
14, 1994.
</TABLE>
69
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<S> <C>
10(p) Management Stability Agreement between the Company and Gregory A. Wright dated
February 23, 1995.
10(q) 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(r) 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(s) Copy of the Company's Executive Long-Term Incentive Plan (incorporated by reference
to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-3473).
10(t) Copy of the Company's Non-Employee Director Retirement Plan dated December 8, 1994.
10(u) Copy of the Company's Board of Directors Deferred Compensation Plan dated February
23, 1995.
10(v) Copy of the Company's Board of Directors Deferred Compensation Trust dated February
23, 1995.
10(w) 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(x) Agreement for the Sale and Purchase of State Royalty Oil dated as of September 27,
1994 by and between Tesoro Alaska Petroleum Company and the State of Alaska.
10(y) 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(z) 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(aa) 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 Information Supporting Earnings (Loss) Per Share Computations.
21 Subsidiaries of the Company.
23(a) Consent of Deloitte & Touche LLP.
23(b) Consent of Netherland, Sewell & Associates, Inc.
27 Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1994.
70
<PAGE> 71
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.
TESORO PETROLEUM CORPORATION
March 16, 1995 By: /s/ MICHAEL D. BURKE
------------------------------------
Michael D. Burke
President and Chief Executive
Officer
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>
Chairman of the Board of March , 1995
- ------------------------------------------ Directors and Director
(Charles Wohlstetter)
/s/ MICHAEL D. BURKE Director, President and Chief March 16, 1995
- ------------------------------------------ Executive Officer (Principal
(Michael D. Burke) Executive Officer)
/s/ BRUCE A. SMITH Executive Vice President and March 16, 1995
- ------------------------------------------ Chief Financial Officer
(Bruce A. Smith) (Principal Financial Officer and
Accounting Officer)
/s/ ROBERT J. CAVERLY Vice Chairman of the Board of March 16, 1995
- ------------------------------------------ Directors and Director
(Robert J. Caverly)
/s/ PETER M. DETWILER Director March 16, 1995
- ------------------------------------------
(Peter M. Detwiler)
/s/ STEVEN H. GRAPSTEIN Director March 16, 1995
- ------------------------------------------
(Steven H. Grapstein)
/s/ RAYMOND K. MASON, SR. Director March 16, 1995
- ------------------------------------------
(Raymond K. Mason, Sr.)
/s/ JOHN J. MCKETTA, JR. Director March 16, 1995
- ------------------------------------------
(John J. McKetta, Jr.)
/s/ MURRAY L. WEIDENBAUM Director March 16, 1995
- ------------------------------------------
(Murray L. Weidenbaum)
Director March , 1995
- ------------------------------------------
(Joel V. Staff)
</TABLE>
71
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<S> <C>
3 Restated Certificate of Incorporation of the Company (incorporated by reference
herein to Exhibit 3 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-3473).
3(a) Bylaws of the Company, as amended through February 23, 1995.
3(b) Amendment to Restated Certificate of Incorporation of the Company adding a new
Article IX limiting Directors' Liability (incorporated by reference herein to
Exhibit 3(b) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-3473).
3(c) Certificate of Designation Establishing a Series of $2.20 Cumulative Convertible
Preferred Stock, dated as of January 26, 1983 (incorporated by reference herein to
Exhibit 3(c) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-3473).
3(d) Certificate of Designation Establishing a Series A Participating Preferred Stock,
dated as of December 16, 1985 (incorporated by reference herein to Exhibit 3(d) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993, File No. 1-3473).
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 (incorporated by reference herein to Exhibit 3(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, File No. 1-3473).
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) Copy of Indenture between the Company and Bankers Trust Company, a Trustee, pursuant
to which the Exchange Notes Due December 1, 2000 were issued (incorporated by
reference herein to Exhibit 2 to the Company's Registration Statement on Form 8-A
filed March 2, 1994).
4(d) 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(e) 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).
4(f) 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(g) 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).
4(h) Credit Agreement (the "Credit Agreement") dated as of April 20, 1994 among the
Company and Texas Commerce Bank National Association ("TCB") as Issuing Bank and as
Agent, and certain other banks named therein (incorporated by reference herein to
Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended March 31,
1994, File No. 1-3473).
4(i) Guaranty Agreement dated as of April 20, 1994 among various subsidiaries of the
Company and TCB, as Issuing Bank and as Agent, and certain other banks named therein
(incorporated by reference herein to Exhibit 10.2 to the Company's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<S> <C>
4(j) Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of April 20, 1994 from Tesoro Exploration and Production Company,
entered into in connection with the Credit Agreement (incorporated by reference
herein to Exhibit 10.3 to the Company's report on Form 10-Q for the quarter ended
March 31, 1994, File No. 1-3473).
4(k) Deed of Trust, Security Agreement and Financing Statement dated as of April 20, 1994
among Tesoro Alaska Petroleum Company, TransAlaska Title Insurance Agency, Inc., as
Trustee, and TCB, as Agent, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 10.4 to the Company's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(l) Pledge Agreement dated as of April 20, 1994 by the Company in favor of TCB, entered
into in connection with the Credit Agreement (incorporated by reference herein to
Exhibit 10.5 to the Company's report on Form 10-Q for the quarter ended March 31,
1994, File No. 1-3473).
4(m) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between the
Company and TCB, entered into in connection with the Credit Agreement (incorporated
by reference herein to Exhibit 10.6 to the Company's report on Form 10-Q for the
quarter ended March 31, 1994, File No. 1-3473).
4(n) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between
Tesoro Alaska Petroleum Company and TCB, entered into in connection with the Credit
Agreement (incorporated by reference herein to Exhibit 10.7 to the Company's report
on Form 10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(o) Security Agreement (Accounts) dated as of April 20, 1994 between Tesoro Petroleum
Distributing Company and TCB, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 10.8 to the Company's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(p) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between
Tesoro Exploration and Production Company and TCB, entered into in connection with
the Credit Agreement (incorporated by reference herein to Exhibit 10.9 to the
Company's report on Form 10-Q for the quarter ended March 31, 1994, File No.
1-3473).
4(q) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between
Tesoro Refining, Marketing & Supply Company and TCB, entered into in connection with
the Credit Agreement (incorporated by reference herein to Exhibit 10.10 to the
Company's report on Form 10-Q for the quarter ended March 31, 1994, File No.
1-3473).
4(r) Loan Agreement (the "Loan Agreement") dated as of May 26, 1994 among Tesoro Alaska
Petroleum Company, as Borrower, the Company, as Guarantor, and National Bank of
Alaska ("NBA"), as Lender (incorporated by reference herein to Exhibit 4.30 to
Registration Statement No. 33-53587).
4(s) Guaranty Agreement dated as of May 26, 1994 between the Company and NBA, entered
into in connection with the Loan Agreement (incorporated by reference herein to
Exhibit 4.31 to Registration Statement No. 33-53587).
4(t) $15,000,000 Promissory Note dated as of May 26, 1994 of Tesoro Alaska Petroleum
Company payable to the order of NBA, in connection with the Loan Agreement
(incorporated by reference herein to Exhibit 4.32 to Registration Statement No.
33-53587).
4(u) Construction Loan Agreement dated as of May 26, 1994 between Tesoro Alaska Petroleum
Company and NBA, entered into in connection with the Loan Agreement (incorporated by
reference herein to Exhibit 4.33 to Registration Statement No. 33-53587).
4(v) Deed of Trust dated as of May 26, 1994 from Tesoro Alaska Petroleum Company, entered
into in connection with the Loan Agreement (incorporated by reference herein to
Exhibit 4.34 to Registration Statement No. 33-53587).
4(w) Security Agreement dated as of May 26, 1994 between Tesoro Alaska Petroleum Company
and NBA, entered into in connection with the Loan Agreement (incorporated by
reference herein to Exhibit 4.35 to Registration Statement No. 33-53587).
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<S> <C>
4(x) Consent and Intercreditor Agreement dated as of May 26, 1994 among NBA, TCB, as
Agent, and the Company, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 4.36 to Registration Statement No.
33-53587).
4(y) Copy of Consent and Waiver No. 1 dated October 27, 1994 to the Company's Credit
Agreement dated as of April 20, 1994 (incorporated by reference herein to Exhibit 4
to the Company's report on Form 10-Q for the quarter ended September 30, 1994, File
No. 1-3473).
4(z) Copy of First Amendment to Credit Agreement dated as of January 20, 1995 among the
Company and TCB as Issuing Bank and as Agent, and certain other banks named therein.
4(aa) Copy of First Amendment to the Loan Agreement dated as of January 26, 1995 among
Tesoro Alaska Petroleum Company, Tesoro Petroleum Corporation and NBA.
10(a) Form of Executive Agreement providing for continuity of management between the
Company and James W. Queen 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 James W. Queen
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 James W.
Queen 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).
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) Seventh Amendment to the Company's Amended Executive Security Plan and Eighth
Amendment to the Company's Funded Executive Security Plan, both dated effective
December 8, 1994.
10(g) 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(h) First Amendment and Extension to Employment Agreement between the Company and
Michael D. Burke dated December 14, 1994.
10(i) 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(j) First Amendment and Extension to Employment Agreement between the Company and Bruce
A. Smith dated December 14, 1994.
10(k) 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(l) First Amendment and Extension to Employment Agreement between the Company and Gaylon
H. Simmons dated December 14, 1994.
10(m) Employment Agreement between the Company and James C. Reed, Jr. dated December 14,
1994.
10(n) Employment Agreement between the Company and William T. Van Kleef dated December 14,
1994.
10(o) Management Stability Agreement between the Company and Don E. Beere dated December
14, 1994.
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<S> <C>
10(p) Management Stability Agreement between the Company and Gregory A. Wright dated
February 23, 1995.
10(q) 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(r) 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(s) Copy of the Company's Executive Long-Term Incentive Plan (incorporated by reference
to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-3473).
10(t) Copy of the Company's Non-Employee Director Retirement Plan dated December 8, 1994.
10(u) Copy of the Company's Board of Directors Deferred Compensation Plan dated February
23, 1995.
10(v) Copy of the Company's Board of Directors Deferred Compensation Trust dated February
23, 1995.
10(w) 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(x) Agreement for the Sale and Purchase of State Royalty Oil dated as of September 27,
1994 by and between Tesoro Alaska Petroleum Company and the State of Alaska.
10(y) 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(z) 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(aa) 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 Information Supporting Earnings (Loss) Per Share Computations.
21 Subsidiaries of the Company.
23(a) Consent of Deloitte & Touche LLP.
23(b) Consent of Netherland, Sewell & Associates, Inc.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
Adopted: September 22, 1971 ITEM 14(a)3, EXHIBIT 3(a)
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
February 23, 1995
_______________________________
BY-LAWS
OF
TESORO PETROLEUM CORPORATION
(As Amended February 23, 1995)
<PAGE> 2
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 Vice 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 Vice
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
Vice 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 Vice 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 Vice 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 Vice 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.
<PAGE> 3
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 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.
- 2 -
<PAGE> 4
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.
Section 2.3 The Chairman and the Vice Chairman of the Board of
Directors. The Board of Directors may appoint a Chairman of the Board of
Directors and a Vice Chairman of the Board of Directors who shall each be a
director but need not be a stockholder of the Corporation. The Chairman and
the Vice Chairman shall not, by reason of said titles, be or be deemed to be an
officer of the Corporation. The Chairman or, in his absence, the Vice Chairman
shall, when present, preside at all meetings of the stockholders and of the
Board of Directors. Each of the Chairman and Vice Chairman may sign, with an
officer thereunto duly authorized, certificates of stock of the Corporation,
the issuance of which shall have been duly authorized (the signatures to which
may be facsimile signatures) 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, the Chairman or, in his absence or at his
direction, the Vice Chairman shall report to the Board of Directors all matters
which to their knowledge the interests of the Corporation may require be
brought to their attention. The Chairman and the Vice Chairman shall perform
such other duties as are given to them by these By-laws or as from time to time
may be assigned to them 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 Vice 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
- 3 -
<PAGE> 5
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 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 Vice 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,
- 4 -
<PAGE> 6
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 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.
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<PAGE> 7
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 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 Vice 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.
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<PAGE> 8
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
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
Chairman of the Board of Directors, the Vice 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
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<PAGE> 9
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
of Directors and the Vice Chairman of the Board of Directors, 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 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
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<PAGE> 10
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
(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.
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<PAGE> 11
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
(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.
- 10 -
<PAGE> 12
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 Vice 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 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.
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<PAGE> 13
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 Vice 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, notwithstanding the transfer of any such stock on the
books of the Corporation after any such record date fixed by the Board of
Directors.
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<PAGE> 14
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.
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<PAGE> 1
ITEM 14(a)3, EXHIBIT 4(z)
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("First Amendment") effective
as of December 31, 1994 (the "First Amendment Effective Date") is made and
entered into by and among TESORO PETROLEUM CORPORATION (the "Company"), a
Delaware corporation, TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("TCB"),
individually, as an Issuing Bank and as Agent (the "Agent") and BANQUE PARIBAS
("BP"), individually, and as an Issuing Bank and as Co-Agent and the other
financial institutions (collectively, with TCB and BP, the "Lenders") parties
to the Credit Agreement (as hereinafter defined) as amended by this First
Amendment.
RECITALS
WHEREAS, the Company, the Agent, the Co-Agent and the Lenders are
parties to a Credit Agreement dated as of April 20, 1994 (the "Credit
Agreement"); and
WHEREAS, the Company, the Agent, the Co-Agent and the Lenders have
agreed, on the terms and conditions herein set forth, that the Credit Agreement
be amended in certain respects;
NOW, THEREFORE, IT IS AGREED:
Section 1. Definitions. Capitalized terms used but not otherwise
defined herein shall have the meaning assigned such terms in the Credit
Agreement.
Section 2. Amendments to the Credit Agreement. On and after the First
Amendment Effective Date, the Credit Agreement shall be amended as follows:
(a) The following new definition is hereby added to Section 1.01
of the Credit Agreement:
"Tesoro Refining and Marketing Group" shall mean Tesoro
Alaska, Tesoro R&M, Tesoro Alaska Pipeline Company, a Delaware
corporation, Tesoro Northstore Company, an Alaska
corporation, and Interior Fuels Company, an Alaska
corporation.
(b) The definition of "Cash Flow" set forth in Section 1.01 of
the Credit Agreement is hereby amended in its entirety to
read as follows:
"Cash Flow" shall mean, as to any Person, the sum of the net
income of such Person after taxes for any period plus, to the
extent deducted from net income, all non-cash items,
including, but not limited to, depreciation, depletion and
impairment, amortization of leasehold and intangibles,
deferred taxes and write-offs of exploration costs and
producing lease abandonments and write-offs of original issue
discount and deferred financing costs on existing Indebtedness
that has been replaced by Indebtedness permitted by Section
5.04(a)(ii), minus, to the extent included in the net income
of Tesoro E&P, revenues attributable to the supersedeas bond
posted pursuant to the Memorandum of Binding Agreement
relating to Tennessee Gas Pipeline Company v. Lenape Resources
Corp., No. 90-CI-12181 (District Court of
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<PAGE> 2
Bexar County, Texas, 57th Judicial District, September 1,
1994), as the same may be amended, supplemented, modified or
replaced from time to time, provided that such revenues may be
included in the net income of Tesoro E&P at such time and to
the extent that Tesoro E&P collects cash on such supersedeas
bond; in each case determined for such period and as to such
Person.
(c) Section 5.02(h)(i) of the Credit Agreement is hereby amended
in its entirety as follows:
(h) Bi-Weekly Borrowing Base Reports.
(i) As soon as available and in any event by
the Thursday following the close of each
two calendar week period, a Borrowing
Base Report dated and reflecting amounts
as of the close of business on Thursday
of the preceding calendar week.
(d) Section 5.03(b) of the Credit Agreement is hereby amended in
its entirety as follows:
(b) Working Capital. Maintain at all times its
Consolidated Working Capital Ratio of as least 1.30 to 1.00.
(e) The first sentence of Section 5.03(c) of the Credit Agreement
is hereby amended to read in its entirety as follows:
Maintain a cash flow coverage ratio for itself and its
Subsidiaries on a consolidated basis as of any Quarterly Date
equal to or greater than (i) 1.05 to 1.00 for the Rolling
Periods ending on December 31, 1994, March 31, 1995 and June
30, 1995 and (ii) 1.10 to 1.00 for the Rolling Period ending
on September 30, 1995 and for each Rolling Period thereafter
ending on the applicable Quarterly Date.
(f) Section 5.03(d) of the Credit Agreement is hereby amended in
its entirety as follows:
(d) Tesoro Refining and Marketing Group EBITDA.
Cause the Tesoro Refining and Marketing Group to maintain the
Tesoro Refining and Marketing Group EBITDA in an amount
equal to or greater than:
<TABLE>
<CAPTION>
For the Rolling Minimum Tesoro Refining
Period Ending and Marketing Group EBITDA
--------------- ---------------------------
<S> <C>
December 31, 1994 $ 5,000,000
March 31, 1995 $ 5,000,000
June 30, 1995 $15,000,000
September 30, 1995 $25,000,000
December 31, 1995 $25,000,000
March 31, 1996 and
thereafter $30,000,000
</TABLE>
As used in this Subsection, Tesoro Refining and Marketing
Group EBITDA shall mean, as to the Tesoro Refining and
Marketing Group, and for any Rolling Period,
2
<PAGE> 3
the amount equal to consolidated net income of the Tesoro
Refining and Marketing Group less any non-cash income
included in such net income, plus, to the extent deducted from
such net income, interest expense, depreciation, depletion and
impairment, amortization of leasehold and intangibles, other
non-cash expenses, and taxes; provided, that, gains or losses
on the disposition of assets shall not be included in Tesoro
Refining and Marketing Group EBITDA.
(g) Section 5.04(e) of the Credit Agreement is hereby amended by
deleting the reference to "and" at the end of clause (ix), by
changing the period at the end of clause (x) to read "; and"
and by adding the following new clause (xi):
(xi) the purchase of 20,000 shares of capital stock of
Kenai Pipe Line Company, a Delaware corporation, pursuant to
the stock purchase agreement dated as of December 29, 1994
among Chevron Pipe Line Company and Atlantic Richfield
Company, as Sellers, and Tesoro Alaska, as Buyer.
(h) Section 5.04(o)(iii) of the Credit Agreement is hereby amended
in its entirety as follows:
(iii) Additional Capital Expenditures.
Notwithstanding the maximum capital expenditure amounts
set forth in clauses (i) and (ii) above, the maximum
amount of capital expenditures for the Company and its
Subsidiaries on a consolidated basis and for Tesoro
Alaska may be increased by a total of $7,000,000 in the
aggregate spread, as the Company may elect, among the
calendar years of 1994, 1995 and 1996; provided that
after giving effect to any such increased capital
expenditures, the Company shall not be in Default.
(i) Annex II to the Credit Agreement is hereby amended to be
identical to Exhibit A attached hereto, being a revised
"Eligible Inventory Valuation".
Section 3. Limitations. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Credit Agreement or any
of the other Financing Documents, or (b) except as expressly set forth herein,
prejudice any right or rights which the Lenders may now have or may have in the
future under or in connection with the Credit Agreement, the Financing
Documents or any of the other documents referred to therein. Except as
expressly modified hereby or by express written amendments thereof, the terms
and provisions of the Credit Agreement, the Notes, and any other Financing
Documents or any other documents or instruments executed in connection with any
of the foregoing are and shall remain in full force and effect. In the event
of a conflict between this First Amendment and any of the foregoing documents,
the terms of this First Amendment shall be controlling.
Section 4. Payment of Expenses. The Company agrees, whether or not
the transactions hereby contemplated shall be consummated, to reimburse and save
the Agent harmless from and against liability for the payment of all reasonable
substantiated out-of-pocket costs and expenses arising in connection with the
preparation, execution, delivery, amendment, modification, waiver and
enforcement of, or the preservation of any rights under this First Amendment,
including, without limitation, the reasonable fees and expenses of any local or
other counsel for the Agent, and all stamp taxes (including interest and
penalties, if any), recording taxes and fees, filing taxes and fees,
3
<PAGE> 4
and other charges which may be payable in respect of, or in respect of any
modification of, the Credit Agreement and the other Financing Documents. The
provisions of this Section shall survive the termination of the Credit
Agreement and the repayment of the Loans.
Section 5. Governing Law. This First Amendment and the rights and
obligations of the parties hereunder and under the Credit Agreement shall be
construed in accordance with and be governed by the laws of the State of Texas
and the United States of America.
Section 6. Descriptive Headings, etc. The descriptive headings of
the several Sections of this First Amendment are inserted for convenience only
and shall not be deemed to affect the meaning or construction of any of the
provisions hereof
Section 7. Entire Agreement. This First Amendment and the
documents referred to herein represent the entire understanding of the parties
hereto regarding the subject matter hereof and supersede all prior and
contemporaneous oral and written agreements of the parties hereto with respect
to the subject matter hereof, including, without limitation, any commitment
letters regarding the transactions contemplated by this First Amendment.
Section 8. Counterparts. This First Amendment may be executed in
any number of counterparts and by different parties on separate counterparts
and all of such counterparts shall together constitute one and the same
instrument.
Section 9. Amended Definitions. As used in the Credit agreement
(including all Exhibits thereto) and all other instruments and documents
executed in connection therewith, on and subsequent to the First Amendment
Effective Date the term "Agreement" shall mean the Credit Agreement as amended
by this First Amendment.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE Section 26.02
THIS FIRST AMENDMENT AND THE OTHER FINANCING DOCUMENTS EXECUTED BY ANY
OF THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION
HEREOF TOGERHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARNES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered by their respective duly authorized
offices as of January 20, 1995, and effective as of the date first above
written.
TESORO PETROLEUM CORPORATION
By: /s/ WILLIAM T. VAN KLEEF
---------------------------
William T. Van Kleef
Vice President, Treasurer
[Signature Page - 1]
<PAGE> 6
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
Individually, as an Issuing Bank
and as Agent
By: /s/ P. STAN BURGE
----------------------------
P. Stan Burge
Vice President
Address for Notices:
712 Main Street
Houston, Texas 77002
Attention: Mr. P. Stan Burge
[Signature Page - 2]
<PAGE> 7
BANQUE PARIBAS
Individually, as an Issuing Bank
and as Co-Agent
By: /s/ BRIAN MALONE
-------------------------------
Name: Brian Malone
Title: Vice President
By: /s/ MEI WAN TONG
------------------------------
Name: Mei Wan Tong
Title: Group Vice President
Address for Notices:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attention: Mr. Brian Malone
[Signature Page - 3]
<PAGE> 8
BANK OF SCOTLAND
By: /s/ CATHERINE M. ONIFFREY
------------------------------
Name: Catherine M. Oniffrey
Title: Vice President
Address for Notices:
380 Madison Avenue
New York, New York 10017
Attention: Ms. Catherine Oniffrey
With Copy To:
1200 Smith Street
1750 Two Allen Center
Houston, Texas 77002
Attention: Ms. Janna Blanter
[Signature Page - 4]
<PAGE> 9
CHRISTIANIA BANK
By: /s/ PETER M. DODGE
---------------------------
Name: Peter M. Dodge
Title: Vice President
By: /s/ CARL P SVENDSEN
---------------------------
Name: Carl P. Svendsen
Title: FVP
Address for Notices:
11 West 42nd Street, 7th Floor
New York, New York 10036
Attention: Mr. Peter Dodge
[Signature Page - 5]
<PAGE> 10
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. ASHBY
------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan
Operations
Address for Notices:
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Attention: Ms. Lauren Bianchi
With Copy To:
1100 Louisiana Street, Suite 3000
Houston, Texas 77002
Attention: Mr. Michael W. Nepveux
[Signature Page - 6]
<PAGE> 11
NBD BANK
By: /s/ RUSSELL H. LIEBETRAU, JR.
--------------------------------
Name: Russell H. Liebetrau, Jr.
Title: Vice President
Address for Notices:
611 Woodward Avenue
Detroit, Michigan 48226
Attention: Mr. Russell H. Liebetrau, Jr.
[Signature Page - 7]
<PAGE> 12
BANK OF AMERICA ILLINOIS
By: /s/ RONALD E. McKAIG
-------------------------------
Name: Ronald E. McKaig
Title: Vice President
Address for Notices:
231 S. LaSalle Street
Chicago, Illinois 60697
Attention: Mr. Ron McKaig
[Signature Page - 8]
<PAGE> 13
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: First Union Corporation of
North Carolina, as Agent
By: /s/ PAUL N. RIDDLE
--------------------------------
Name: Mr. Paul N. Riddle
Title: Vice President
Address for Notices:
1001 Fannin Street, Suite 2255
Houston, Texas 77002
Attention: Mr. Paul N. Riddle
[Signature Page - 9]
<PAGE> 14
NATIONAL BANK OF CANADA
By: /s/ LARRY L. SEERS
-------------------------------
Name: Larry L. Seers
Title: Group Vice President
By: /s/ CHARLES COLLIE
--------------------------------
Name: Charles Collie
Title: Vice President
Address for Notices:
125 West 55th Street
New York, New York 10019-5366
With Copy To:
2121 San Jacinto, Suite 1850
Dallas, Texas 75201
Attention: Mr. David L. Schreiber
[Signature Page - 10]
<PAGE> 15
THE FROST NATIONAL BANK
By: /s/ PHIL DUDLEY
--------------------------
Name: Phil Dudley
Title: Vice President
Address for Notices:
100 W. Houston Street
San Antonio, Texas 78205
Attention: Mr. Phil Dudley
[Signature Page - 11]
<PAGE> 16
EXHIBIT A
REVISED ANNEX II
ELIGIBLE INVENTORY VALUATION
<TABLE>
<S> <C> <C>
1. TESORO ALASKA PETROLEUM COMPANY
Market Price Indicators
-----------------------
A. Crude Oil:
1. East Side Cook Inlet Union's posted price for Kenai plus
$0.17 per barrel.
2. West Side Cook Inlet Union's posted price for Kenai plus
$0.17 per barrel.
3. Alaska North Slope (ANS) The mean posting price for ANS (Cal)
effective on the date of inventory
valuation as published in Platt's
Oilgram Price Report less $1.00 per
barrel.
B. Refined Products Anchorage locations:
-------------------
1. All Gasolines The average of the OPIS prices for
#2 Diesel Fuel each individual product for Texaco,
Jet Fuel (Commercial Jet A) Chevron, Mapco and Tesoro Alaska
Jet B for Anchorage.
Fairbanks location:
------------------
The average of the OPIS prices for
each individual product for Texaco,
Chevron, Mapco and Tesoro Alaska for
Anchorage plus $2.94 per barrel.
Kenai locations:
---------------
The average of the OPIS prices for
each individual product for Texaco,
Chevron, Mapco and Tesoro Alaska for
Anchorage plus $0.609 per barrel.
Valdez locations:
----------------
The average of the OPIS prices for
each individual product for Texaco,
Chevron, Mapco and Tesoro Alaska for
Anchorage plus $2.94 per barrel.
2. Residual Fuel Oil Spot Crude Price Assessments for ANS
(Cal) as posted in Platt's Oilgram
Price Report less $8.00 per barrel.
3. Propane Edmonton Canada average posting for
propane plus $7.45 per barrel.
</TABLE>
Annex II-1
<PAGE> 17
<TABLE>
<S> <C> <C>
4. Butane Edmonton Canada average posting for
propane plus $7.45 per barrel minus
$5.04 per barrel.
5. JP4 (a) 70% of the PADS average of
unleaded gasoline as published in
OPIS plus (b) 30% of the PADS average
of Jet Fuel in Los Angeles, San
Francisco and Seattle as published in
OPIS.
6. HVGO 70% of the average price of the
Platt's West Coast Pipeline (Los
Angeles) for 87 octane unleaded plus
30% of the average price of the
Platt's West Coast Pipeline (Los
Angeles) for low-sulfur No. 2 on the
date of inventory valuations, minus
$7.98 per barrel.
7. VTB Cutter stock The average #2 Diesel Fuel price as
calculated for Kenai locations.
8. VTB 32.5% of the average price of the
Platt's Spot Crude Price Assessments
for ANS (Cal) on the date of
inventory valuations.
9. Industrial Fuel Oil The average posted price as published
in Platt's Bunkerwire Marine Fuel -
Oil Spot Prices for Los Angeles (per
metric ton) plus $5.10 per metric ton
shipping premium. This valuation is
then divided by 6.5 to convert metric
tons to barrels.
C. Unfinished Products/Blendstocks
1. Light straight run 90.3% of the average of the OPIS
prices for Texaco, Chevron, Mapco and
Tesoro Alaska for unleaded gas at
Anchorage minus $0.609 per barrel.
2. Isomerate 97.4% of the average of the OPIS
prices for Texaco, Chevron, Mapco and
Tesoro Alaska for unleaded gas at
Anchorage minus $0.609 per barrel.
3. Naptha 96.04% of the average of the OPIS
prices for Texaco, Chevron, Mapco and
Tesoro Alaska for unleaded gas at
Anchorage minus $0.609 per barrel.
</TABLE>
Annex II-2
<PAGE> 18
<TABLE>
<S> <C> <C>
4. Reformate 107.4% of the average of the OPIS
prices for Texaco, Chevron, Mapco and
Tesoro Alaska for unleaded gas at
Anchorage minus $0.609 per barrel.
5. Gasoil 55% of the average Jet Fuel Prices
plus 50% of the average unleaded
gasoline prices as calculated herein.
6. MTBE Platt's Oilgram Price Report (Gulf
Coast) plus $2.52 per barrel.
7. HAGO The mean posting price for ANS (Cal)
as published in Platt's Oilgram Price
Report less $1.00 per barrel plus
$7.25 per barrel.
8. Ethanol Average posted price for Seattle and
Portland as published in OPIS.
D. Merchandise Weighted average cost (in-house)
<FN>
* Cook Inlet crude oil at the Kenai Refinery will be valued at East Side
Cook Inlet Crude oil market prices per above.
</TABLE>
Annex II-3
<PAGE> 19
II. TESORO REFINING, MARKETING & SUPPLY COMPANY
<TABLE>
<CAPTION>
MARKET
STATE TERMINAL PRODUCTS PRICE INDICATORS
----- -------- -------- -----------------
<S> <C> <C> <C>
California Sacramento Regular Average posted price as
Unleaded published in Oil Price
Unleaded Premium Information Service
Diesel #2
Stockton Regular Average posted price as
Unleaded published in Oil Price
Unleaded Premium Information Service
Diesel #2
Port Hueneme Regular Average posted price as
Unleaded published in Oil Price
Unleaded Premium Information Service
Diesel #2
Washington Vancouver Regular Average posted price as
Unleaded published in Oil Price
Unleaded Premium Information Service
Diesel #2
Oregon Portland Regular Average posted price as
Unleaded published in Oil Price
Unleaded Premium Information Service
Diesel #2
</TABLE>
Annex II-4
<PAGE> 1
ITEM 14(a)3, EXHIBIT 4(aa)
FIRST AMENDMENT TO THE LOAN AGREEMENT DATED MAY 26, 1994.
This Amendment is entered into as of January 26, 1995 among TESORO ALASKA
PETROLEUM COMPANY, a Delaware corporation (the "Borrower") TESORO PETROLEUM
CORPORATION, a Delaware corporation (the "Guarantor"), and NATIONAL BANK OF
ALASKA, a National Banking Association (the "Bank").
The parties to the Loan Agreement dated May 26, 1994, (the "Loan Agreement")
agree to the following changes in the terms and conditions of the Loan
Agreement.
Section 5.4 EBITDA. Requirement for EBITDA of $15,000,000 at 12/31/94 is hereby
waived.
Section 6.2 Capital Expenditures, (iii) Additional Capital Expenditures.
Maximum capital expenditures under this section is reduced to $7,000,000 in the
aggregate spread among the calendar years 1994, 1995, 1996.
Section 6.5 Investments. Add (iv) and except for investment in Kenai Pipe Line
Company as outlined in the Stock Purchase Agreement by and between Chevron Pipe
Line Company and Atlantic Richfield Company (sellers) and Tesoro Alaska
Petroleum Company (buyer) dated December 29, 1994.
ALL OTHER TERMS AND CONDITIONS OF THE LOAN AGREEMENT REMAIN THE SAME. WAIVER
GRANTED HEREIN DOES NOT IMPLY WAIVER OF ANY OTHER TERM OR CONDITION OF THE
AGREEMENT.
BORROWER:
TESORO ALASKA PETROLEUM COMPANY
By: /s/ WILLIAM T. VAN KLEEF
-----------------------------------------
William T. Van Kleef
Its: Vice President and Treasurer
GUARANTOR:
TESORO PETROLEUM COMPANY
By: /s/ WILLIAM T. VAN KLEEF
-----------------------------------------
William T. Van Kleef
Its: Vice President and Treasurer
BANK:
NATIONAL BANK OF ALASKA
By: /s/ PATRICIA JELLEY BENZ
-----------------------------------------
Patricia Jelley Benz
Its: Vice President
<PAGE> 1
ITEM 14(a)3, EXHIBIT 10(f)
SEVENTH AMENDMENT TO
TESORO PETROLEUM CORPORATION
AMENDED EXECUTIVE SECURITY PLAN
W I T N E S S E T H:
WHEREAS, the Company adopted and established, effective December 1,
1984, the "Tesoro Petroleum Corporation Amended Executive Security Plan,"
hereinafter the "Plan," for the benefit of its eligible employees; and
WHEREAS, the Plan provides that it may be amended at any time by the
Board of Directors of the Company; and
WHEREAS, the Board of Directors of the Company has adopted on December
8, 1994, certain resolutions directing that such Plan be amended;
NOW, THEREFORE, the Plan is hereby amended in accordance with such
resolutions as set forth below, effective as of the dates specified below, as
follows:
Effective December 8, 1994, Appendix A to the Plan is hereby amended
by adding the following:
BOARD OF DIRECTORS MEETING
December 8, 1994
RESOLVED, that the definition of "Basic Compensation" under
Section 1.2 of the Amended Executive Security Plan ("Amended
Plan") and the definition of "Compensation" under Section
2.09 of the Funded Executive Security Plan ("Funded Plan")
shall include performance bonuses and incentive
compensation paid after December 1, 1993, in the form of
stock awards of the Company's Common Stock valued based on
the closing price of the Company's Common Stock on the New
York Stock Exchange Composite Tape on the date of grant;
and
FURTHER RESOLVED, that in accordance with Section 6.7 of the Company's
Amended Plan the foregoing resolution shall be added to
Appendix A to the Amended Plan and in accordance with
Section 10.10 of the Company's Funded Plan the foregoing
resolution shall be added to Appendix B to the Funded Plan;
and
1
<PAGE> 2
FURTHER RESOLVED, that the President or any Vice President of the
Company is hereby authorized to take all such actions as may
be necessary or appropriate to effectuate the foregoing
resolution.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing, Tesoro Petroleum Corporation, as directed by the Board of Directors,
has caused its corporate seal to be affixed hereto and these presents to be
fully executed in its name and behalf by its proper officers thereunto
authorized this 9th day of December 1994.
ATTEST: TESORO PETROLEUM CORPORATION
/s/ JAMES C. REED, JR. By: /s/ WILLIAM T. VAN KLEEF
- ---------------------------------------- ----------------------------------
James C. Reed, Jr. William T. Van Kleef
Senior Vice President, General Counsel Vice President, Treasurer
and Secretary
[seal]
2
<PAGE> 3
EIGHTH AMENDMENT TO
TESORO PETROLEUM CORPORATION
FUNDED EXECUTIVE SECURITY PLAN
W I T N E S S E T H :
WHEREAS, the Company adopted and established, effective December 1,
1984, the "Tesoro Petroleum Corporation Funded Executive Security Plan,"
hereinafter called the "Plan," for the benefit of its eligible employees; and
WHEREAS, the Plan provides that it may be amended at any time by the
Board of Directors of the Company; and
WHEREAS, the Board of Directors of the Company has adopted, on
December 8, 1994, certain resolutions directing that such Plan be amended;
NOW, THEREFORE, the Plan is hereby amended in accordance with such
resolutions as set forth below, effective as of the date specified below, as
follows:
Effective December 8, 1994, Appendix B to the Plan is hereby amended
by adding the following:
BOARD OF DIRECTORS MEETING
December 8, 1994
RESOLVED, that the definition of "Basic Compensation" under
Section 1.2 of the Amended Executive Security Plan ("Amended
Plan") and the definition of "Compensation" under Section
2.09 of the Funded Executive Security Plan ("Funded Plan")
shall include performance bonuses and incentive compensation
paid after December 1, 1993, in the form of stock awards of
the Company's Common Stock valued based on the closing
price of the Company's Common Stock on the New York Stock
Exchange Composite Tape on the date of grant; and
FURTHER RESOLVED, that in accordance with Section 6.7 of the
Company's Amended Plan the foregoing resolution shall be
added to Appendix A to the Amended Plan and in accordance
with Section 10.10 of the Company's Funded
-1-
<PAGE> 4
Plan the foregoing resolution shall be added to Appendix B
to the Funded Plan; and
FURTHER RESOLVED, that the President or any Vice President of the
Company is hereby authorized to take all such actions as may
be necessary or appropriate to effectuate the foregoing
resolution.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing, Tesoro Petroleum Corporation, as directed by the Board of Directors,
has caused its corporate seal to be affixed hereto and these presents to be
fully executed in its name and behalf by its proper officers thereunto
authorized this 9th day of December 1994.
ATTEST: TESORO PETROLEUM CORPORATION
/s/ JAMES C. REED, JR. By: /s/ WILLIAM T. VAN KLEEF
- --------------------------------------- ---------------------------------
James C. Reed, Jr. William T. Van Kleef
Senior Vice President, General Counsel Vice President, Treasurer
and Secretary
[seal]
- 2 -
<PAGE> 1
ITEM 14(a)3, EXHIBIT 10(h)
FIRST AMENDMENT AND EXTENSION
TO
EMPLOYMENT AGREEMENT
This First Amendment and Extension to Employment Agreement dated
December 14, 1994, between Tesoro Petroleum Corporation, a Delaware
corporation (the "Company"), and Michael D. Burke ("Employee"), amends and
extends the Employment Agreement dated July 27, 1992 (the "Original
Agreement"), between the Company and the Employee:
The Company and the Employee desire and agree to amend and extend the
Original Agreement as follows:
1. Section 2 of the Original Agreement:
(a) Section 2 is amended by changing "semi-monthly" in
subparagraph (a) to "bi-weekly."
(b) Section 2 is further amended by deleting subparagraph (b)
and redesignating subparagraph (c) through (f) as subparagraphs (b) through (e),
respectively.
(c) Section 2 is further amended to add the following
subparagraphs (f), (g), and (h) and changing the designation of
subparagraph (g) to (i):
(f) Annual Incentive Plan. The Company shall
establish an Annual Incentive Compensation Plan for executive
officers in which the Employee shall be entitled to participate
in a manner consistent with his position with the Company and
the evaluations of his performance by the Board of Directors or
any appropriate Committee thereof.
(g) Stock Options and Restricted Stock Grants. The
Employee shall be entitled to receive stock options and
restricted stock grants under the Company's plans in effect
from time to time, if any, commensurate with his position with
the Company and the evaluations of his performance by the Board
of Directors or any appropriate committee thereof.
(h) Flexible Perquisites Arrangement. The Employee
shall receive a stipulated amount of $25,000 which will be
expended by the Company on behalf of the Employee or paid to
the Employee, at the Employee's
<PAGE> 2
election, to cover various business-related expenses such as
monthly dues for country, luncheon or social clubs, automobile
expenses and financial and tax planning expenses. The Employee
may elect at any time by written notice to the Company to
receive any of such stipulated amount which has not been paid
to or on behalf of the Employee. In addition, the Company will
pay on behalf of the Employee up to $15,000 to pay an
initiation fee or fees for a country, luncheon or social club
or clubs and will pay directly to the Employee an amount equal
to 65 percent of the amount so paid on the Employee's behalf to
offset the applicable income tax expense to the Employee. In
addition, the Company will pay additional initiation fees and
reimburse the Employee for related tax expenses to the extent
the Board of Directors or a duly authorized committee thereof
determines such fees are reasonable and in the best interest
of the Company.
2. Section 5 of the Original Agreement is amended to delete the
phrase "on the third anniversary of the date of this Agreement" and substitute
"on October 27, 1995, therefor and to add the following at the end thereof.
Notwithstanding the foregoing, if the Company shall not have
offered to the Employee the opportunity to enter into a new
employment agreement prior to October 27, 1995, with terms, in
all respects, no less favorable to the Employee than the terms
of this Agreement and with a term lasting until at least
October 27, 1997, the Employee shall have the right to elect
by written notice delivered to the Company prior to November
27, 1995, to terminate his employment and such termination
shall be deemed to have been for Good Reason in accordance with
Section 6 and the Employee shall be entitled to all payments
and benefits as if he had terminated his employment for Good
Reason in accordance with Section 6 on October 26, 1995.
3. Section 6 of the Original Agreement is amended to read in its
entirety as follows:
6. Termination by the Company Without Cause and
Termination by Employee for "Good Reason." The Company may,
by delivering 30 days prior written notice to Employee,
terminate Employee's employment at any time without cause, and
the Employee may, by delivering 30
2
<PAGE> 3
days prior written notice to the Company, terminate Employee's
employment for "Good Reason," as defined below. If such
termination without cause or for Good Reason occurs, Employee
shall be entitled to receive a lump-sum payment equal to the
sum of (a) two times the sum of (i) his Base Salary at the then
current rate and (ii) the sum of the target bonuses under all
of the Company's incentive bonus plans applicable to Employee
for the year in which the termination occurs and (b) if
termination occurs in the fourth quarter of a calendar year,
the sum of the target bonuses under all of the Company's
incentive bonus plans applicable to Employee for the year in
which the termination occurs prorated daily based on the number
of days from the beginning of the calendar year in which the
termination occurs to and including the date of termination.
Employee shall also receive all unpaid bonuses for the year
prior to the year in which the termination occurs and shall
receive (i) for a period of two years continuing coverage and
benefits comparable to all life, health and disability
insurance plans which the Company from time to time makes
available to its management executives and their families, (ii)
a lump-sum payment equal to two times the stipulated flexible
perquisites amount pursuant to Section 2(h), and (iii) two
years additional service credit under the current non-qualified
supplemental pension plans, or successors thereto, of the
Company applicable to the Employee on the date of termination.
All unvested stock options held by Employee on the date of the
termination shall become immediately vested and all
restrictions on Restricted Stock then held by the Employee
shall terminate.
For purposes of this Section 6, "Good Reason" shall
mean the occurrence of any of the following events.
(a) Removal, without the consent of Employee in writing,
from one or more of the offices Employee holds on the
date of this Agreement or a material reduction in
Employee's authority or responsibility, including,
without limitation, involuntary removal from the Board
of Directors, but not including termination of
Employee for "cause," as defined below; or
3
<PAGE> 4
(b) The Company otherwise commits a material breach of this
Agreement.
The Company shall pay any attorney fees incurred by
Employee in reasonably seeking to enforce the terms of this
Section 6.
4. Section 7 of the Original Agreement is deleted in its entirety and
a new Section 7 is added as follows:
Section 7. Termination upon Death or Disability. If
the Employee's employment is terminated because of death or on
account of becoming permanently disabled (as defined in Section
8), the Employee, or his estate, if applicable, shall be
entitled to receive the Employee's Base Salary earned pro rata
to the date of his termination of employment, plus unpaid
bonuses for the year prior to the year in which the termination
occurs. All unvested stock options held by the Employee on the
date of termination shall become immediately vested and all
restrictions on Restricted Stock held by he Employee shall
terminate.
5. Section 8 of the Original Agreement is amended by deleting the
second sentence thereof and substituting the following therefor:
In the event the employment of Employee is terminated
for "cause," Employee shall be entitled only to his Base Salary
earned pro rata to his date of termination with no entitlement
to any base salary continuation payments or benefit
continuation (except as specifically provided by the terms of
an employee benefit plan of the Company).
6. Section 9 of the Original Agreement is hereby amended by deleting
the words "accrued and" in the second sentence thereof adding the following
after the word "bonuses" appearing in such second sentence:
"for the year prior to the year in which the termination
occurs"
7. Section 10 of the Original Agreement is amended as follows:
(a) Subclause (a) is amended in its entirety to read as follows:
4
<PAGE> 5
(a) A lump-sum payment equal to three times the
base salary at the then current rate;
(b) The following is added as a new subclause (b):
(b) A lump-sum payment equal to the sum of (i)
three times the sum of the target bonuses under all of
the Company's incentive bonus plans applicable to the
Employee for the year in which the termination occurs or
the year in which the change of control occurred,
whichever is greater, and (ii) if termination occurs in
the fourth quarter of a calendar year, the sum of the
target bonuses under all of the Company's incentive
bonus plans applicable to Employee for the year in which
the termination occurs prorated daily based on the
number of days from the beginning of the calendar year
in which the termination occurs to and including the
date of termination.
(c) Subclause (b) is redesignated as subclause (c) and the
words "awarded under this Agreement" are deleted therefrom.
(d) The first sentence after subclause lb) is amended to read
in its entirety as follows:
The Company (or its successor) shall also provide (i)
for a period of three years continuing coverage and
benefits comparable to all life, health and disability
plans of the Company in effect at the time a change of
control is deemed to have occured; (ii) a lump-sum
payment equal to three times the stipulated flexible
perquisites amount pursuant to Section 2(h); and (iii)
three years additional service credit under the current
non-qualified supplemental pension plans, or successors
thereto, of the Company applicable to the Employee on
the date of termination.
(e) The second full paragraph relating to "gross up" payments to
cover taxes under Section 280G of the Internal Revenue Code is
deleted in its entirety and the two paragraphs immediately
thereafter are deleted in their entirety and the following is
substituted therefor.
5
<PAGE> 6
For purposes of this Agreement, a "change of control" shall be
deemed to have occurred if (i) there shall be consummated (A) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or
other property, other than a merger of the Company where a majority of
the Board of Directors of the surviving corporation are, and for a
two-year period after the merger continue to be, persons who were
directors of the Company immediately prior to the merger or were
elected as directors, or nominated for election as director, by a vote
of at least two-thirds of the directors then still in office who were
directors of the Company immediately prior to the merger, or (B) any
sale, lease, exchange or transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the
Company, or (ii) the shareholders of the Company shall approve any plan
or proposal for the liquidation or dissolution of the Company, or (iii)
(A) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), other than the Company or a subsidiary thereof or any employee
benefit plan sponsored by the Company or a subsidiary thereof, shall
become the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of securities of the Company representing 20 percent or
more of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, and (B) at any time during
a period of two years thereafter, individuals who immediately prior to
the beginning of such period constituted the Board of Directors of the
Company shall cease for any reason to constitute at least a majority
thereof, unless the election or the nomination by the Board of
Directors for election by the Company's shareholders of each new
director during such period was approved by a vote of at least
two-thirds of the directors then still in office who were directors at
the beginning of such period.
6
<PAGE> 7
For purposes of this Section 10, "good reason upon change of
control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the assignment
to Employee of any duties inconsistent with the employment of Employee
to the positions set forth in Section 1, or a significant diminution of
Employee's positions, duties, responsibilities and status with the
Company from those immediately prior to a change of control or a
diminution in Employee's titles or offices as in effect immediately
prior to a change of control, or any removal of Employee from, or any
failure to reelect Employee to, any of such positions;
(ii) a reduction by the Company in Employee's base salary in
effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any
thrift, stock ownership, pension, life insurance, health, dental and
accident or disability plan in which Employee is participating or is
eligible to participate at the time of the change of control (or plans
providing Employee with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at the time
of any change of control or the taking of any action by the Company
which would adversely affect Employee's participation in or materially
reduce Employee's benefits under any of such plans or deprive Employee
of any material fringe benefits enjoyed by Employee at the time of the
change of control or the failure by the Company to provide the Employee
with the number of paid vacation days to which Employee is entitled in
accordance with the vacation policies of the Company in effect at the
time of a change of control;
(iv) the failure by the Company to continue in effect any
incentive plan or arrangement (including without limitation, the
Company's Incentive Compensation Plan and similar incentive
compensation benefits) in which Employee is participating at the time
of a change of control (or to substitute and continue other plans or
arrangements providing the Employee with substantially similar
benefits), except as otherwise required by the terms of such plans as
in effect at the time of any change of control;
7
<PAGE> 8
(v) the failure by the Company to continue in effect any plan or
arrangement with respect to securities of the Company (including,
without limitation, any plan or arrangement to receive and exercise
stock options, stock appreciation rights, restricted stock or grants
thereof or to acquire stock or other securities of the Company) in
which Employee is participating at the time of a change of control (or
to substitute and continue plans or arrangements providing the Employee
with substantially similar benefits), except as otherwise required by
the terms of such plans as in effect at the time of any change of
control or the taking of any action by the Company which would
adversely affect Employee's participation in or materially reduce
Employee's benefits under any such plan;
(vi) the relocation of the Company's principal executive offices to a
location outside the San Antonio, Texas, area, or the Company's
requiring Employee to be based anywhere other than at the location of
the Company's principal executive offices, except for required travel
on the Company's business to an extent substantially consistent with
Employee's present business travel obligations, or, in the event
Employee consents to any such relocation of the Company's principal
executive or divisional offices, the failure by the Company to pay (or
reimburse Employee for) all reasonable moving expenses incurred by
Employee relating to a change of Employee's principal residence in
connection with such relocation and to indemnify Employee against any
loss (defined as the difference between the actual sale price of such
residence and the fair market value thereof as determined by the
highest of three appraisals from Member Appraisal Institute-approved
real estate appraisers reasonably satisfactory to both Employee and the
Company at the time Employee's principal residence is offered for
sale in connection with any such change of residence);
(vii) any material breach by the Company of any provision of this
Agreement;
(viii) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company; or
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<PAGE> 9
(ix) any purported termination of Employee's employment by the Company
other than termination for cause fully in compliance with this
Agreement and for purposes of this Agreement, no such purported
termination shall be effective.
8. Miscellaneous.
(a) Complete Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
cancels and supersedes all other agreements between the parties which may have
related to the subject matter contained in this Agreement, provided that,
except as expressly modified hereby, the Original Agreement shall remain in
full force and effect.
(b) Modification; Amendment; Waiver. No modification, amendment or
waiver of any provisions of this Agreement shall be effective unless approved in
writing by both parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party thereafter to enforce
each and every provision hereof in accordance with its terms.
(c) Governing Law; Jurisdiction. This Agreement and performance under
it, and all proceedings that may ensue from its breach, shall be construed in
accordance with and under the laws of the State of Texas.
(d) Employee's Representations. Employee represents and warrants that
he is free to enter into this Agreement and to perform each of the terms and
covenants of it. Employee represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
Agreement, and that his execution and performance of this Agreement is not a
violation or breach of any other agreement between Employee and any other
person or entity.
(e) Company's Representations. Company represents and warrants that it
is free to enter into this Agreement and to perform each of the terms and
covenants of it. Company represents and warrants that it is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
Agreement, and that its execution and performance of this Agreement is not a
violation or breach of any other agreement between Company and any other
person or entity. The Company represents and warrants that this Agreement is a
legal, valid and binding agreement of the Company, enforceable in accordance
with its terms.
(f) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law,
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<PAGE> 10
but if any provision of this Agreement shall be held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
(g) Assignment. The rights and obligations of the parties under this
Agreement shall be binding upon and inure to the benefit of their respective
successors, assigns, executors, administrators and heirs, provided, however,
that neither the Company nor Employee may assign any duties under this
Agreement without the prior written consent of the other.
(h) Limitation. This Agreement shall not confer any right or impose
any obligation on the Company to continue the employment of Employee in any
capacity, or limit the right of the Company or Employee to terminate Employee's
employment.
In witness whereof, the parties have executed this Agreement as of the
day and year first above written.
Company: Tesoro Petroleum Corporation
BY /s/ CHARLES WOHLSTETTER
----------------------------------------
Charles Wohlstetter
Chairman of the Board of Directors
Employee: /s/ MICHAEL D. BURKE
---------------------------------
Michael D. Burke
<PAGE> 1
ITEM 14(a)3, EXHIBIT 10(j)
FIRST AMENDMENT AND EXTENSION
TO
EMPLOYMENT AGREEMENT
This First Amendment and Extension to Employment Agreement dated
December 14, 1994, between Tesoro Petroleum Corporation, a Delaware
corporation (the "Company"), and Bruce A. Smith ("Employee"), amends and
extends the Employment Agreement dated September 14, 1992 (the "Original
Agreement"), between the Company and the Employee:
The Company and the Employee desire and agree to amend and extend the
Original Agreement as follows:
1. Section 2 of the Original Agreement:
(a) Section 2 is amended by changing "semi-monthly" in
subparagraph (a) to "bi-weekly."
(b) Section 2 is further amended by deleting subparagraph (b)
and redesignating subparagraph (c) as subparagraph (b).
(c) Section 2 is further amended to add the following
subparagraphs (c), (d), and (e) and changing the designation of subparagraph
(d) to (f):
(c) Annual Incentive Plan. The Company shall establish an
Annual Incentive Compensation Plan for executive officers in which the
Employee shall be entitled to participate in a manner consistent with
his position with the Company and the evaluations of his performance by
the Board of Directors or any appropriate Committee thereof.
(d) Stock Options and Restricted Stock Grants. The Employee
shall be entitled to receive stock options and restricted stock grants
under the Company's plans in effect from time to time, if any,
commensurate with his position with the Company and the evaluations of
his performance by the Board of Directors or any appropriate committee
thereof.
(e) Flexible Perquisites Arrangement. The Employee shall
receive a stipulated amount of $20,000 which will be expended by the
Company on behalf of the Employee or paid to the Employee, at the
Employee's election, to cover various business-related expenses such as
<PAGE> 2
monthly dues for country, luncheon or social clubs, automobile expenses
and financial and tax planning expenses. The Employee may elect at any
time by written notice to the Company to receive any of such stipulated
amount which has not been paid to or on behalf of the Employee. In
addition, the Company will pay on behalf of the Employee up to $15,000
to pay an initiation fee or fees for a country, luncheon or social club
or clubs and will pay directly to the Employee an amount equal to 65
percent of the amount so paid on the Employee's behalf to offset the
applicable income tax expense to the Employee. In addition, the
Company will pay additional initiation fees and reimburse the Employee
for related tax expenses to the extent the Board of Directors or a duly
authorized committee thereof determines such fees are reasonable and
in the best interest of the Company.
2. Section 4 of the Original Agreement is amended to delete the phrase "on
the third anniversary of the date of this Agreement" and substitute "on
December 14, 1995," therefor and to add the following at the end thereof.
Notwithstanding the foregoing, if the Company shall not have offered to
the Employee the opportunity to enter into a new employment agreement
prior to December 14, 1995, with terms, in all respects, no less
favorable to the Employee than the terms of this Agreement and with a
term lasting until at least December 14, 1997, the Employee shall
have the right to elect by written notice delivered to the Company
prior to January 14, 1996, to terminate his employment and such
termination shall be deemed to have been for Good Reason in accordance
with Section 5 and the Employee shall be entitled to all payments and
benefits as if he had terminated his employment for Good Reason
in accordance with Section 5 on December 13, 1995.
3. Section 5 of the Original Agreement is amended to read in its
entirety as follows:
5. Termination by the Company Without Cause and Termination by
Employee for "Good Reason." The Company may, by delivering 30 days
prior written notice to Employee, terminate Employee's employment at
any time without cause, and the Employee may, by delivering 30 days
prior written notice to the Company, terminate
2
<PAGE> 3
Employee's employment for "Good Reason," as defined below. If such
termination without cause or for Good Reason occurs, Employee shall be
entitled to receive a lump-sum payment equal to the sum of (a) two
times the sum of (i) his Base Salary at the then current rate and (ii)
the sum of the target bonuses under all of the Company's incentive
bonus plans applicable to Employee for the year in which the
termination occurs and (b) if termination occurs in the fourth quarter
of a calendar year, the sum of the target bonuses under all of the
Company's incentive bonus plans applicable to Employee for the year in
which the termination occurs prorated daily based on the number of days
from the beginning of the calendar year in which the termination occurs
to and including the date of termination. Employee shall also receive
all unpaid bonuses for the year prior to the year in which the
termination occurs and shall receive (i) for a period of two years
continuing coverage and benefits comparable to all life, health and
disability insurance plans which the Company from time to time makes
available to its management executives and their families, (ii) a
lump-sum payment equal to two times the stipulated flexible perquisites
amount pursuant to Section 2(e), and (iii) two years additional service
credit under the current non-qualified supplemental pension plans, or
successors thereto, of the Company applicable to the Employee on the
date of termination. All unvested stock options held by Employee on
the date of the termination shall become immediately vested and all
restrictions on Restricted Stock then held by the Employee shall
terminate.
For purposes of this Section 5, "Good Reason" shall mean the
occurrence of any of the following events.
(a) Removal, without the consent of Employee in writing, from
one or more of the offices Employee holds on the date of this Agreement
or a material reduction in Employee's authority or responsibility but
not termination of Employee for "cause," as defined below; or
(b) The Company otherwise commits a material breach of this
Agreement.
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<PAGE> 4
The Company shall pay any attorney fees incurred by Employee in
reasonably seeking to enforce the terms of this Section 5.
4. Section 6 of the Original Agreement Is deleted in its entirety and a
new Section 6 is added as follows:
Section 6. Termination upon Death or Disability. If the
Employee's employment is terminated because of death or on account of
becoming permanently disabled (as defined in Section 7), the Employee,
or his estate, if applicable, shall be entitled to receive the
Employee's Base Salary earned pro rata to the date of his termination
of employment, plus unpaid bonuses for the year prior to the year in
which the termination occurs. All unvested stock options held by the
Employee on the date of termination shall become immediately vested and
all restrictions on Restricted Stock held by the Employee shall
terminate.
5. Section 7 of the Original Agreement is amended by deleting the
second sentence thereof and substituting the following therefor:
In the event the employment of Employee is terminated for
"cause," Employee shall be entitled only to his Base Salary earned pro
rata to his date of termination with no entitlement to any base salary
continuation payments or benefit continuation (except as specifically
provided by the terms of an employee benefit plan of the Company).
6. Section 8 of the Original Agreement is hereby amended by deleting the
words "accrued and" in the second sentence thereof adding the following after
the word "bonuses" appearing in such second sentence:
"for the year prior to the year in which the termination occurs"
7. Section 9 of the Original Agreement is amended as follows:
(a) Subclause (a) is amended in its entirety to read as follows:
(a) A lump-sum payment equal to three times the base salary at
the then current rate;
4
<PAGE> 5
(b) The following is added as a new subclause (b):
(b) A lump-sum payment equal to the sum of (i) three times
the sum of the target bonuses under all of the Company's
incentive bonus plans applicable to the Employee for the
year in which the termination occurs or the year in which
the change of control occurred, whichever is greater, and
(ii) if termination occurs in the fourth quarter of a
calendar year, the sum of the target bonuses under all of
the Company's incentive bonus plans applicable to Employee
for the year in which the termination occurs prorated daily
based on the number of days from the beginning of the
calendar year in which the termination occurs to and
including the date of termination.
(c) Subclause (b) is redesignated as subclause (c) and the words
"awarded under this Agreement" are deleted therefrom.
(d) The first sentence after subclause (b) is amended to read in
its entirety as follows:
The Company (or its successor) shall also provide (i)
for a period of three years continuing coverage and
benefits comparable to all life, health and disability plans
of the Company in effect at the time a change of control is
deemed to have occurred; (ii) a lump-sum payment equal three
times the stipulated flexible perquisites amount pursuant to
Section 2(e); and (iii) three years additional service
credit under the current non-qualified supplemental pension
plans, or successors thereto, of the Company applicable to
the Employee on the date of termination.
(e) The second full paragraph relating to "gross up" payments
to cover taxes under Section 28OG of the Internal Revenue Code is
deleted in its entirety and the two paragraphs immediately thereafter
are deleted in their entirety and the following is substituted
therefor.
For purposes of this Agreement, a "change of control" shall be
deemed to have occurred if (i) there shall be consummated (A) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
5
<PAGE> 6
Company's Common Stock would be converted into cash, securities or
other property, other than a merger of the Company where a majority of
the Board of Directors of the surviving corporation are, and for a
two-year period after the merger continue to be, persons who were
directors of the Company immediately prior to the merger or were
elected as directors, or nominated for election as director, by a vote
of at least two-thirds of the directors then still in office who were
directors of the Company immediately prior to the merger, or (B) any
sale, lease, exchange or transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the
Company, or (ii) the shareholders of the Company shall approve any plan
or proposal for the liquidation or dissolution of the Company, or (iii)
(A) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), other than the Company or a subsidiary thereof or any employee
benefit plan sponsored by the Company or a subsidiary thereof, shall
become the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of securities of the Company representing 20 percent
or more of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, and (B) at any time during
a period of two years thereafter, individuals who immediately prior to
the beginning of such period constituted the Board of Directors of the
Company shall cease for any reason to constitute at least a majority
thereof, unless the election or the nomination by the Board of
Directors for election by the Company's shareholders of each new
director during such period was approved by a vote of at least two-
thirds of the directors then still in office who were directors at the
beginning of such period.
For purposes of this Section 9, "good reason upon change of
control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the assignment to
Employee of any duties inconsistent with the employment of Employee to
the positions set forth in
6
<PAGE> 7
Section 1, or a significant diminution of Employee's positions, duties,
responsibilities and status with the Company from those immediately
prior to a change of control or a diminution in Employee's titles or
offices as in effect immediately prior to a change of control, or any
removal of Employee from, or any failure to reelect Employee to, any
of such positions;
(ii) a reduction by the Company in Employee's base salary in
effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any thrift,
stock ownership, pension, life insurance, health, dental and accident
or disability plan in which Employee is participating or is eligible to
participate at the time of the change of control (or plans providing
Employee with substantially similar benefits), except as otherwise
required by the terms of such plans as in effect at the time of any
change of control or the taking of any action by the Company which
would adversely affect Employee's participation in or materially reduce
Employee's benefits under any of such plans or deprive Employee of any
material fringe benefits enjoyed by Employee at the time of the change
of control or the failure by the Company to provide the Employee with
the number of paid vacation days to which Employee is entitled in
accordance with the vacation policies of the Company in effect at the
time of a change of control;
(iv) the failure by the Company to continue in effect any incentive
plan or arrangement (including without limitation, the Company's
Incentive Compensation Plan and similar incentive compensation
benefits) in which Employee is participating at the time of a change of
control (or to substitute and continue other plans or arrangements
providing the Employee with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at the time
of any change of control;
(v) the failure by the Company to continue in effect any plan or
arrangement with respect to securities of the Company (including,
without limitation, any plan or arrangement to receive and exercise
stock options, stock appreciation rights, restricted stock or grants
thereof or to
7
<PAGE> 8
acquire stock or other securities of the Company) in which Employee is
participating at the time of a change of control (or to substitute and
continue plans or arrangements providing the Employee with
substantially similar benefits), except as otherwise required by the
terms of such plans as in effect at the time of any change of control
or the taking of any action by the Company which would adversely affect
Employee's participation in or materially reduce Employee's benefits
under any such plan;
(vi) the relocation of the Company's principal executive offices to a
location outside the San Antonio, Texas, area, or the Company's
requiring Employee to be based anywhere other than at the location of
the Company's principal executive offices, except for required travel
on the Company's business to an extent substantially consistent with
Employee's present business travel obligations, or, in the event
Employee consents to any such relocation of the Company's principal
executive or divisional offices, the failure by the Company to pay (or
reimburse Employee for) all reasonable moving expenses incurred by
Employee relating to a change of Employee's principal residence in
connection with such relocation and to indemnify Employee against any
loss (defined as the difference between the actual sale price of such
residence and the fair market value thereof as determined by the
highest of three appraisals from Member Appraisal Institute-approved
real estate appraisers reasonably satisfactory to both Employee and the
Company at the time Employee's principal residence is offered for sale
in connection with any such change of residence);
(vii) any material breach by the Company of any provision of this
Agreement;
(viii) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company; or
(ix) any purported termination of Employee's employment by the Company
other than termination for cause fully in compliance with this
Agreement and for purposes of this Agreement, no such purported
termination shall be effective.
8
<PAGE> 9
8. Miscellaneous.
(a) Complete Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
cancels and supersedes all other agreements between the-parties which may have
related to the subject matter contained in this Agreement, provided that,
except as expressly modified hereby, the Original Agreement shall remain in
full force and effect.
(b) Modification; Amendment; Waiver. No modification, amendment or
waiver of any provisions of this Agreement shall be effective unless approved
in writing by both parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party thereafter to enforce
each and every provision hereof in accordance with its terms.
(c) Governing Law; Jurisdiction. This Agreement and performance under
it, and all proceedings that may ensue from its breach, shall be construed in
accordance with and under the laws of the State of Texas.
(d) Employee's Representations. Employee represents and warrants that
he is free to enter into this Agreement and to perform each of the
terms and covenants of it. Employee represents and warrants that he is not
restricted or prohibited, contractually or otherwise, from entering into and
performing this Agreement, and that his execution and performance of this
Agreement is not a violation or breach of any other agreement between Employee
and any other person or entity.
(e) Company's Representations. Company represents and warrants that it
is free to enter into this Agreement and to perform each of the terms and
covenants of it. Company represents and warrants that it is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
Agreement, and that its execution and performance of this Agreement is not a
violation or breach of any other agreement between Company and any other person
or entity. The Company represents and warrants that this Agreement is a legal,
valid and binding agreement of the Company, enforceable in accordance with its
terms.
(f) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
9
<PAGE> 10
(g) Assignment. The rights and obligations of the parties under this
Agreement shall be binding upon and inure to the benefit of their respective
successors, assigns, executors, administrators and heirs; provided, however,
that neither the Company nor Employee may assign any duties under this
Agreement without the prior written consent of the other.
(h) Limitation. This Agreement shall not confer any right or impose
any obligation on the Company to continue the employment of Employee in any
capacity, or limit the right of the Company or Employee to terminate Employee's
employment,
In witness whereof, the parties have executed this Agreement as of the
day and year first above written.
Company: Tesoro Petroleum Corporation
By /s/ MICHAEL D. BURKE
------------------------------------------
Michael D. Burke
President and Chief Executive Officer
Employee: /s/ BRUCE A. SMITH
---------------------------------------
Bruce A. Smith
10
<PAGE> 11
I hereby agree to the removal of Management Information Systems from reporting
directly to me, and I hereby stipulate that such action shall not be considered
to be "Good Reason" under Section 5 of the Employment Agreement between Tesoro
Petroleum Corporation and Bruce A. Smith dated September 14, 1992, as amended
by First Amendment and Extension thereto dated December 14, 1994.
/s/ BRUCE A. SMITH
--------------------------
Bruce A.Smith
<PAGE> 1
ITEM 14(a)3, EXHIBIT 10(l)
FIRST AMENDMENT AND EXTENSION
TO
EMPLOYMENT AGREEMENT
This First Amendment and Extension to Employment Agreement dated
December 14, 1994, between Tesoro Petroleum Corporation, a Delaware
corporation (the "Company"), and Gaylon H. Simmons ("Employee"), amends and
extends the Employment Agreement dated January 4, 1993 (the "Original
Agreement"), between the Company and the Employee:
The Company and the Employee desire and agree to amend and extend the
Original Agreement as follows:
1. Section 2 of the Original Agreement:
(a) Section 2 is amended by changing "semi-monthly" in subparagraph (a)
to "bi-weekly."
(b) Section 2 is further amended by deleting subparagraph (b) and
redesignating subparagraph (c) as subparagraph (b).
(c) Section 2 is further amended to add the following subparagraphs
(c), (d), and (e) and changing the designation of subparagraph (d) to (f):
(c) Annual Incentive Plan. The Company shall establish an
Annual Incentive Compensation Plan for executive officers in which the
Employee shall be entitled to participate in a manner consistent with
his position with the Company and the evaluations of his performance by
the Board of Directors or any appropriate Committee thereof.
(d) Stock Options and Restricted Stock Grants. The Employee
shall be entitled to receive stock options and restricted stock grants
under the Company's plans in effect from time to time, if any,
commensurate with his position with the Company and the evaluations of
his performance by the Board of Directors or any appropriate committee
thereof.
(e) Flexible Perquisites Arrangement. The Employee
shall receive a stipulated amount of $20,000 which will be expended by
the Company on behalf of the Employee or paid to the Employee, at the
Employee's election, to cover various business-related expenses such as
<PAGE> 2
monthly dues for country, luncheon or social clubs, automobile expenses
and financial and tax planning expenses. The Employee may elect at any
time by written notice to the Company to receive any of such stipulated
amount which has not been paid to or on behalf of the Employee. In
addition, the Company will pay on behalf of the Employee up to $15,000
to pay an initiation fee or fees for a country, luncheon or social club
or clubs and will pay directly to the Employee an amount equal to 65
percent of the amount so paid on the Employee's behalf to offset the
applicable income tax expense to the Employee. In addition, the
Company will pay additional initiation fees and reimburse the Employee
for related tax expenses to the extent the Board of Directors or a duly
authorized committee thereof determines such fees are reasonable and in
the best interest of the Company.
2. Section 4 of the Original Agreement is amended to delete the phrase
"on the third anniversary of the date of this Agreement" and substitute "on
April 4, 1996," therefor and to add the following at the end thereof.
Notwithstanding the foregoing, if the Company shall not have offered to
the Employee the opportunity to enter into a new employment agreement
prior to April 4, 1996, with terms, in all respects, no less favorable
to the Employee than the terms of this Agreement and with a term
lasting until at least April 4, 1998, the Employee shall have the
right to elect by written notice delivered to the Company prior to May
4, 1996, to terminate his employment and such termination shall be
deemed to have been for Good Reason in accordance with Section 5 and
the Employee shall be entitled to all payments and benefits as if he
had terminated his employment for Good Reason in accordance with
Section 5 on April 3, 1996.
3. Section 5 of the Original Agreement is amended to read in its
entirety as follows:
5. Termination by the Company Without Cause and Termination by
Employee for "Good Reason." The Company may, by delivering 30 days
prior written notice to Employee, terminate Employee's employment at
any time without cause, and the Employee may, by delivering 30 days
prior written notice to the Company, terminate
2
<PAGE> 3
Employee's employment for "Good Reason," as defined below. If such
termination without cause or for Good Reason occurs, Employee shall be
entitled to receive a lump-sum payment equal to the sum of (a) two
times the sum of (i) his Base Salary at the then current rate and (ii)
the sum of the target bonuses under all of the Company's incentive
bonus plans applicable to Employee for the year in which the
termination occurs and (b) if termination occurs in the fourth quarter
of a calendar year, the sum of the target bonuses under all of the
Company's incentive bonus plans applicable to Employee for the year in
which the termination occurs prorated daily based on the number of days
from the beginning of the calendar year in which the termination occurs
to and including the date of termination. Employee shall also receive
all unpaid bonuses for the year prior to the year in which the
termination occurs and shall receive (i) for a period of two years
continuing coverage and benefits comparable to all life, health and
disability insurance plans which the Company from time to time makes
available to its management executives and their families, (ii) a
lump-sum payment equal to two times the stipulated flexible perquisites
amount pursuant to Section 2(e), and (iii) two years additional service
credit under the current non-qualified supplemental pension plans, or
successors thereto, of the Company applicable to the Employee on the
date of termination. All unvested stock options held by Employee on
the date of the termination shall become immediately vested and all
restrictions on Restricted Stock then held by the Employee shall
terminate.
For purposes of this Section 5, "Good Reason" shall mean the
occurrence of any of the following events.
(a) Removal, without the consent of Employee in writing,
from one or more of the offices Employee holds on the date of this
Agreement or a material reduction in Employee's authority or
responsibility but not termination of Employee for "cause," as defined
below; or
(b) The Company otherwise commits a material breach of this
Agreement.
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<PAGE> 4
The Company shall pay any attorney fees incurred by Employee in
reasonably seeking to enforce the terms of this Section 5.
4. Section 6 of the Original Agreement is deleted in its entirety and a
new Section 6 is added as follows:
Section 6. Termination upon Death or Disability. If the
Employee's employment is terminated because of death or on account of
becoming permanently disabled (as defined in Section 7), the Employee,
or his estate, if applicable, shall be entitled to receive the
Employee's Base Salary earned pro rata to the date of his termination
of employment, plus unpaid bonuses for the year prior to the year in
which the termination occurs. All unvested stock options held by the
Employee on the date of termination shall become immediately vested and
all restrictions on Restricted Stock held by the Employee shall
terminate.
5. Section 7 of the Original Agreement is amended by deleting the
second sentence thereof and substituting the following therefor:
In the event the employment of Employee is terminated for
"cause," Employee shall be entitled only to his Base Salary earned pro
rata to his date of termination with no entitlement to any base salary
continuation payments or benefit continuation (except as specifically
provided by the terms of an employee benefit plan of the Company).
6. Section 8 of the Original Agreement is hereby amended by deleting
the words "accrued and" in the second sentence thereof adding the following
after the word "bonuses" appearing in such second sentence:
"for the year prior to the year in which the termination occurs"
7. Section 9 of the Original Agreement is amended as follows:
(a) Subclause (a) is amended in its entirety to read as
follows:
(a) A lump-sum payment equal to three times the base
salary at the then current rate;
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<PAGE> 5
(b) The following is added as a new subclause (b):
(b) A lump-sum payment equal to the sum of (i) three
times the sum of the target bonuses under all of the
Company's incentive bonus plans applicable to the
Employee for the year in which the termination occurs
or the year in which the change of control occurred,
whichever is greater, and (ii) if termination occurs
in the fourth quarter of a calendar year, the sum of
the target bonuses under all of the Company's
incentive bonus plans applicable to Employee for the
year in which the termination occurs prorated daily
based on the number of days from the beginning of the
calendar year in which the termination occurs to and
including the date of termination.
(c) Subclause (b) is redesignated as subclause (c) and the
words "awarded under this Agreement" are deleted therefrom.
(d) The first sentence after subclause (b) is amended to read
in its entirety as follows:
The Company (or its successor) shall also provide (i)
for a period of three years continuing coverage and
benefits comparable to all life, health and
disability plans of the Company in effect at the time
a change of control is deemed to have occurred; (ii)
a lump-sum payment equal to three times the
stipulated flexible perquisites amount pursuant to
Section 2(e); and (iii) three years additional
service credit under the current non-qualified
supplemental pension plans, or successors thereto, of
the Company applicable to the Employee on the date of
termination.
(e) The second full paragraph relating to "gross up" payments
to cover taxes under Section 280G of the Internal Revenue Code
is deleted in its entirety and the two paragraphs immediately
thereafter are deleted in their entirety and the following is
substituted therefor.
For purposes of this Agreement, a "change of control"
shall be deemed to have occurred if (i) there shall be
consummated (A) any consolidation or merger of the Company in
which the Company is not the continuing or
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surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash,
securities or other property, other than a merger of the
Company where a majority of the Board of Directors of the
surviving corporation are, and for a two-year period after
the merger continue to be, persons who were directors of the
Company immediately prior to the merger or were elected as
directors, or nominated for election as director, by a vote of
at least two-thirds of the directors then still in office who
were directors of the Company immediately prior to the merger,
or (B) any sale, lease, exchange or transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of the Company, or (ii) the
shareholders of the Company shall approve any plan or proposal
for the liquidation or dissolution of the Company, or (iii)
(A) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than the Company or a subsidiary
thereof or any employee benefit plan sponsored by the Company
or a subsidiary thereof, shall become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company representing 20 percent or more of
the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in the
election of directors, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases
or otherwise, and (B) at any time during a period of two years
thereafter, individuals who immediately prior to the beginning
of such period constituted the Board of Directors of the
Company shall cease for any reason to constitute at least a
majority thereof, unless the election or the nomination by the
Board of Directors for election by the Company's shareholders
of each new director during such period was approved by a vote
of at least two-thirds of the directors then still in office
who were directors at the beginning of such period.
For purposes of this Section 9, "good reason upon
change of control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the
assignment to Employee of any duties inconsistent with the
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employment of Employee to the positions set forth in Section
1, or a significant diminution of Employee's positions,
duties, responsibilities and status with the Company from
those immediately prior to a change of control or a diminution
in Employee's titles or offices as in effect immediately prior
to a change of control, or any removal of Employee from, or
any failure to reelect Employee to, any of such positions;
(ii) a reduction by the Company in Employee's base salary
in effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any
thrift, stock ownership, pension, life insurance, health,
dental and accident or disability plan in which Employee is
participating or is eligible to participate at the time of the
change of control (or plans providing Employee with
substantially similar benefits), except as otherwise required
by the terms of such plans as in effect at the time of any
change of control or the taking of any action by the Company
which would adversely affect Employee's participation in or
materially reduce Employee's benefits under any of such plans
or deprive Employee of any material fringe benefits enjoyed by
Employee at the time of the change of control or the failure
by the Company to provide the Employee with the number of paid
vacation days to which Employee is entitled in accordance with
the vacation policies of the Company in effect at the time of
a change of control;
(iv) the failure by the Company to continue in effect any
incentive plan or arrangement (including without limitation,
the Company's Incentive Compensation Plan and similar
incentive compensation benefits) in which Employee is
participating at the time of a change of control (or to
substitute and continue other plans or arrangements providing
the Employee with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at
the time of any change of control;
(v) the failure by the Company to continue in effect any
plan or arrangement with respect to securities of the Company
(including, without limitation, any plan or arrangement to
receive and exercise stock options, stock
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<PAGE> 8
appreciation rights, restricted stock or grants thereof or to
acquire stock or other securities of the Company) in which
Employee is participating at the time of a change of control
(or to substitute and continue plans or arrangements providing
the Employee with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at
the time of any change of control or the taking of any action
by the Company which would adversely affect Employee's
participation in or materially reduce Employee's benefits
under any such plan;
(vi) the relocation of the Company's principal executive
offices to a location outside the San Antonio, Texas, area, or
the Company's requiring Employee to be based anywhere other
than at the location of the Company's principal executive
offices, except for required travel on the Company's business
to an extent substantially consistent with Employee's present
business travel obligations, or, in the event Employee
consents to any such relocation of the Company's principal
executive or divisional offices, the failure by the Company to
pay (or reimburse Employee for) all reasonable moving expenses
incurred by Employee relating to a change of Employee's
principal residence in connection with such relocation and to
indemnify Employee against any loss (defined as the difference
between the actual sale price of such residence and the fair
market value thereof as determined by the highest of three
appraisals from Member Appraisal Institute-approved real
estate appraisers reasonably satisfactory to both Employee and
the Company at the time Employee's principal residence is
offered for sale in connection with any such change of
residence);
(vii) any material breach by the Company of any provision
of this Agreement;
(viii) any failure by the Company to obtain the assumption
of this Agreement by any successor or assign of the Company;
or
(ix) any purported termination of Employee's employment by
the Company other than termination for cause fully in
compliance with this Agreement and for purposes of this
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Agreement, no such purported termination shall be effective.
8. Miscellaneous.
(a) Complete Agreement. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and cancels and supersedes all other agreements between the parties which may
have related to the subject matter contained in this Agreement, provided that,
except as expressly modified hereby, the Original Agreement shall remain in
full force and effect.
(b) Modification; Amendment; Waiver. No modification,
amendment or waiver of any provisions of this Agreement shall be effective
unless approved in writing by both parties. The failure at any time to enforce
any of the provisions of this Agreement shall in no way be construed as a
waiver of such provisions and shall not affect the right of either party
thereafter to enforce each and every provision hereof in accordance with its
terms.
(c) Governing Law; Jurisdiction. This Agreement and
performance under it, and all proceedings that may ensue from its breach, shall
be construed in accordance with and under the laws of the State of Texas.
(d) Employee's Representations. Employee represents and
warrants that he is free to enter into this Agreement and to perform each of
the terms and covenants of it. Employee represents and warrants that he is not
restricted or prohibited, contractually or otherwise, from entering into and
performing this Agreement, and that his execution and performance of this
Agreement is not a violation or breach of any other agreement between Employee
and any other person or entity.
(e) Company's Representations. Company represents and
warrants that it is free to enter into this Agreement and to perform each of
the terms and covenants of it. Company represents and warrants that it is not
restricted or prohibited, contractually or otherwise, from entering into and
performing this Agreement, and that its execution and performance of this
Agreement is not a violation or breach of any other agreement between Company
and any other person or entity. The Company represents and warrants that this
Agreement is a legal, valid and binding agreement of the Company, enforceable
in accordance with its terms.
(f) Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be held to
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such
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<PAGE> 10
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
(g) Assignment. The rights and obligations of the
parties under this Agreement shall be binding upon and inure to the benefit of
their respective successors, assigns, executors, administrators and heirs,
provided, however, that neither the Company nor Employee may assign any duties
under this Agreement without the prior written consent of the other.
(h) Limitation. This Agreement shall not confer any
right or impose any obligation on the Company to continue the employment of
Employee in any capacity, or limit the right of the Company or Employee to
terminate Employee's employment.
In witness whereof, the parties have executed this Agreement as of the
day and year first above written.
Company: Tesoro Petroleum Corporation
By: /s/ MICHAEL D. BURKE
-------------------------------------
Michael D. Burke
President and Chief Executive Officer
Employee: /s/ GAYLON H. SIMMONS
-------------------------------------
Gaylon H. Simmons
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<PAGE> 1
ITEM 14(a)3, EXHIBIT 10(m)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
December 14, 1994, by and between James C. Reed, Jr. ("Employee"), and Tesoro
Petroleum Corporation, a Delaware corporation (the "Company").
Recitals:
A. The Company wishes to continue the employment of Employee as
its Senior Vice President, General Counsel and Secretary; as such, Employee
shall have certain responsibilities and shall receive certain compensation and
benefits.
B. Employee and the Company wish to formalize this employment
relationship in a written agreement and to set forth certain additional
agreements between Employee and the Company.
THE PARTIES AGREE AS FOLLOWS:
1. Employment and Duties.
During the term of this Agreement, the Company agrees to employ
Employee as Senior Vice President, General Counsel and Secretary, and Employee
agrees to serve the Company in such capacity on the terms and subject to the
conditions set forth in this Agreement. Employee shall devote substantially
all of his business time, energy and skill to the affairs of the Company as the
Company, acting through its Board of Directors or its Chief Executive Officer,
shall reasonably deem necessary to discharge Employee's duties in such
capacity. Employee may participate in social, civic, charitable, religious,
business, educational or professional associations, so long as such
participation would not materially detract from Employee's ability to perform
his duties under this Agreement. Employee shall not engage in any other
business activity during the term of this Agreement without the prior written
consent of the Company, other than the passive management of Employee's
personal investments or activities which would not materially detract from
Employee's ability to perform his duties under this Agreement.
2. Compensation.
(a) Salary. Withholding. During the term of this Agreement, the
Company shall pay Employee a base salary of $175,000 per year, payable in
arrears in equal bi-weekly installments. The parties shall comply with all
applicable withholding requirements in connection with all compensation payable
to Employee. The Company's Board of Directors may, in its sole discretion,
review and adjust upward Employee's base salary from time to time, but no
downward adjustment in Employee's base salary may be made during the term of
this Agreement.
<PAGE> 2
(b) Annual Incentive Plan. The Company shall establish an Annual
Incentive Compensation Plan for executive officers in which the Employee shall
be entitled to participate in a manner consistent with his position with the
Company and the evaluations of his performance by the Board of Directors or any
appropriate committee thereof.
(c) Stock Options and Restricted Stock Grants. The Employee shall
be entitled to receive stock options and restricted stock grants under the
Company's plans in effect from time to time, if any, commensurate with his
position with the Company and the evaluations of his performance by the Board
of Directors or any appropriate committee thereof.
(d) Flexible Perquisites Arrangement. The Employee shall receive
annually a stipulated amount of $20,000 which will be expended by the Company
on behalf of the Employee or paid to the Employee, at the Employee's election,
to cover various business-related expenses such as monthly dues for country,
luncheon or social clubs, automobile expenses and financial and tax planning
expenses. The Employee may elect at any time by written notice to the Company
to receive any of such stipulated amount which has not been paid to or on
behalf of the Employee. In addition, the Company will pay on behalf of the
Employee up to $15,000 to pay an initiation fee or fees for a country, luncheon
or social club or clubs and will pay directly to the Employee an amount equal
to 65 percent of the amount so paid on the Employee's behalf to offset the
applicable income tax expense to the Employee. In addition, the Company will
pay additional initiation fees and reimburse the Employee for related tax
expenses to the extent the Board of Directors or a duly authorized committee
thereof determines such fees are reasonable and in the best interest of the
Company.
(e) Other Benefits. Employee shall be eligible to participate in
and have the benefits under the terms of all life, accident, disability and
health insurance plans, pension, profit sharing, incentive compensation and
savings plans and all other similar Plans and benefits which the Company from
time to time makes available to its management executives, including, without
limitation, those listed on Exhibit A, in the same manner and at least at the
same participation level as other senior management executives.
3. Business Expenses.
The Company shall promptly reimburse Employee for all appropriately
documented, reasonable business expenses incurred by Employee in accordance
with Company policies.
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4. Term.
This Agreement shall commence effective as of December 14, 1994, and
if not terminated earlier as herein provided, shall terminate on December 31,
1996. Notwithstanding the foregoing, if the Company shall not have offered to
the Employee the opportunity to enter into a new employment agreement prior to
December 31, 1996, with terms, in all respects, no less favorable to the
Employee than the terms of this Agreement and with a term lasting until at
least December 31, 1998, the Employee shall have the right to elect by written
notice delivered to the Company prior to January 31, 1997, to terminate his
employment and such termination shall be deemed to have been for Good Reason in
accordance with Section 5 and the Employee shall be entitled to all payments
and benefits as if he had terminated his employment for Good Reason in
accordance with Section 5 on December 30, 1996.
5. Termination by the Company Without Cause, Termination by
Employee for "Good Reason" or Failure to Extend Employment
Contract.
The Company may, by delivering 30 days prior written notice to
Employee, terminate Employee's employment at any time without cause, and the
Employee may, by delivering 30 days prior written notice to the Company,
terminate Employee's employment for "good reason," as defined below. If such
termination without cause or for good reason occurs or if the Company fails to
offer to the Employee a new employment contract prior to December 31, 1996,
with terms, in all respects, no less favorable to the employee than the terms
of this Agreement, Employee shall be entitled to receive a lump-sum payment
equal to the sum of (a) two times the sum of (i) his Base Salary at the then
current rate and (ii) the sum of the target bonuses under all of the Company's
incentive bonus plans applicable to Employee for the year in which the
termination occurs and (b) if termination occurs in the fourth quarter of a
calendar year, the sum of the target bonuses under all of the Company's
incentive bonus plans applicable to Employee for the year in which the
termination occurs prorated daily based on the number of days from the
beginning of the calendar year in which the termination occurs to and including
the date of termination. Employee shall also receive all unpaid bonuses for
the year prior to the year in which the termination occurs and shall receive
(i) for a period of two years continuing coverage and benefits comparable to
all life, health and disability insurance plans which the Company from time to
time makes available to its management executives and their families, (ii) a
lump-sum payment equal to two times the stipulated flexible perquisites amount
pursuant to Section 2(d), and (iii) two years additional service credit under
the current non-qualified supplemental pension plans, or successors thereto, of
the Company applicable to the Employee on the date of termination. All
unvested stock options held by Employee on the date of the termination shall
become immediately vested and all restrictions on Restricted Stock then held by
the Employee shall terminate.
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<PAGE> 4
For purposes of this Section 5, "good reason" shall mean the
occurrence of any of the following events:
(a) Removal, without the consent of Employee in writing, from one
or more of the offices Employee holds on the date of this Agreement or a
material reduction in Employee's authority or responsibility but not
termination of Employee for "cause," as defined below; or
(b) The Company otherwise commits a material breach of this
Agreement.
The Company shall pay any attorney fees incurred by Employee in
reasonably seeking to enforce the terms of this Paragraph 5.
6. Termination upon Death or Disability.
If the Employee's employment is terminated because of death or on
account of his becoming permanently disabled (as defined in Section 7), the
Employee, or his estate, if applicable, shall be entitled to receive the
Employee's Base Salary earned pro rata to the date of his termination of
employment, plus unpaid bonuses for the year prior to the year in which the
termination occurs. All unvested stock options held by the Employee on the
date of termination shall become immediately vested and all restrictions on
Restricted Stock held by the Employee shall terminate.
7. Termination by the Company for Cause.
The Company may terminate this Agreement at any time if such
termination is for "cause," as defined below, by delivering to Employee written
notice describing the cause of termination 30 days before the effective date of
such termination and by granting Employee at least 30 days to cure the cause.
In the event the employment of Employee is terminated for "cause," Employee
shall be entitled only to his Base Salary earned pro rata to his date of
termination with no entitlement to any base salary continuation payments or
benefit continuation (except as specifically provided by the terms of an
employee benefit plan of the Company). Except as otherwise provided in this
Agreement, the determination of whether Employee is terminated for "cause"
shall be made by the Board of Directors of the Company, in the reasonable
exercise of its business judgment, and shall be limited to the occurrence of
the following events:
(a) Conviction of or a plea of nolo contendere, to the charge of a
felony (which, through lapse of time or otherwise, is not subject to appeal);
(b) Willful refusal without proper legal cause to perform, or
gross negligence in performing, Employee's duties and responsibilities;
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<PAGE> 5
(c) Material breach of fiduciary duty to the Company through the
misappropriation of Company funds or property; or
(d) The unauthorized absence of Employee from work (other than for
sick leave or disability) for a period of 30 working days or more during a
period of 45 working days.
For purposes of this Agreement, Employee shall be deemed to be
"permanently disabled" if Employee shall be considered to be permanently and
totally disabled in accordance with the Company's Long-Term Disability Income
Plan. If there should be a dispute between the Company and Employee as to
Employee's physical or mental disability for purposes of this Agreement, the
question shall be settled by the opinion of an impartial reputable physician or
psychiatrist agreed upon by the parties or their representatives, or if the
parties cannot agree within ten calendar days after a request for designation
of such party, then a physician or psychiatrist shall be designated by the San
Antonio, Texas Medical Association. The parties agree to be bound by the final
decision of such physician or psychiatrist.
8. Voluntary Termination by Employee.
Employee may terminate this Agreement at any time upon delivering 30
days written notice to the Company. In the event of such voluntary termination
other than for "good reason," as defined above, Employee shall be entitled to
his base salary earned pro rata to the date of his resignation, plus unpaid
bonuses for the year prior to the year in which the termination occurs, but no
base salary continuation payments or benefits continuation (except as
specifically provided by the terms of an employee benefit plan of the Company).
On or after the date the Company receives notice of Employee's resignation, the
Company may, at its option, pay Employee his base salary through the effective
date of his resignation and terminate his employment immediately.
9. Termination Following Change of Control.
Notwithstanding anything to the contrary contained herein, should
Employee at any time within two years of a change of control cease to be an
employee of the Company (or its successor), by reason of (i) involuntary
termination by the Company (or its successor) other than for "cause" (following
a change of control, "cause" shall be limited to the conviction of or a plea of
nolo contendere to the charge of a felony (which, through lapse of time or
otherwise, is not subject to appeal), or a material breach of fiduciary duty to
the Company through the misappropriation of Company funds or property), or (ii)
voluntary termination by Employee for "good reason upon change of control" (as
defined below), the Company (or its successor) shall pay to Employee within ten
days of such termination the following severance payments and benefits:
5
<PAGE> 6
(a) A lump-sum payment equal to three times the base salary of the
Employee at the then current rate;
(b) A lump-sum payment equal to the sum of (i) three times the sum
of the target bonuses under all of the Company's incentive bonus plans
applicable to the Employee for the year in which the termination occurs or the
year in which the change of control occurred, whichever is greater, and (ii) if
termination occurs in the fourth quarter of a calendar year, the sum of the
target bonuses under all of the Company's incentive bonus plans applicable to
Employee for the year in which the termination occurs prorated daily based on
the number of days from the beginning of the calendar year in which the
termination occurs to and including the date of termination.
(c) A lump-sum payment equal to the amount of any unpaid bonuses
to which the Employee is entitled under any incentive bonus plan.
The Company (or its successor) shall also provide to Employee (i) for
a period of three years continuing coverage and benefits comparable to all
life, health and disability plans of the Company in effect at the time a change
of control is deemed to have occurred; (ii) a lump-sum payment equal to three
times the stipulated flexible perquisites amount pursuant to Section 2(d); and
(iii) three years additional service credit under the current non-qualified
supplemental pension plans, or successors thereto, of the Company applicable to
the Employee on the date of termination.
For purposes of this Agreement, a "change of control"
shall be deemed to have occurred if (i) there shall be
consummated (A) any consolidation or merger of the Company in
which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's
Common Stock would be converted into cash, securities or other
property, other than a merger of the Company where a majority
of the Board of Directors of the surviving corporation are,
and for a two year period after the merger continue to be,
persons who were directors of the Company immediately prior to
the merger or were elected as directors, or nominated for
election as director, by a vote of at least two-thirds of the
directors then still in office who were directors of the
Company immediately prior to the merger, or (B) any sale,
lease, exchange or transfer (in one transaction or a series of
related transactions) of all or substantially all of the
assets of the Company, or (ii) the shareholders of the Company
shall approve any plan or proposal for the liquidation or
dissolution of the Company, or (iii) (A) any "person" (as such
term is used in
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<PAGE> 7
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), other than the Company
or a subsidiary thereof or any employee benefit plan sponsored
by the Company or a subsidiary thereof, shall become the
beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of securities of the Company representing 20
percent or more of the combined voting power of the Company's
then outstanding securities ordinarily (and apart from rights
accruing in special circumstances) having the right to vote in
the election of directors, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases
or otherwise, and (B) at any time during a period of two years
thereafter, individuals who immediately prior to the beginning
of such period constituted the Board of Directors of the
Company shall cease for any reason to constitute at least a
majority thereof, unless the election or the nomination by the
Board of Directors for election by the Company's shareholders
of each new director during such period was approved by a vote
of at least two-thirds of the directors then still in office
who were directors at the beginning of such period.
For purposes of this Section 9, "good reason upon change of
control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the
assignment to Employee of any duties inconsistent with the
employment of Employee to the positions set forth in Section
1, or a significant diminution of Employee's positions,
duties, responsibilities and status with the Company from
those immediately prior to a change of control or a diminution
in Employee's titles or offices as in effect immediately prior
to a change of control, or any removal of Employee from, or
any failure to reelect Employee to, any of such positions;
(ii) a reduction by the Company in Employee's base salary
in effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any
thrift, stock ownership, pension, life insurance, health,
dental and accident or disability plan in which Employee is
participating or is eligible to participate at the time of the
7
<PAGE> 8
change of control (or plans providing Employee with
substantially similar benefits), except as otherwise required
by the terms of such plans as in effect at the time of any
change of control or the taking of any action by the Company
which would adversely affect Employee's participation in or
materially reduce Employee's benefits under any of such plans
or deprive Employee of any material fringe benefits enjoyed by
Employee at the time of the change of control or the failure
by the Company to provide the Employee with the number of paid
vacation days to which Employee is entitled in accordance with
the vacation policies of the Company in effect at the time of
a change of control;
(iv) the failure by the Company to continue in effect any
incentive plan or arrangement (including without limitation,
the Company's Incentive Compensation Plan and similar
incentive compensation benefits) in which Employee is
participating at the time of a change of control (or to
substitute and continue other plans or arrangements providing
the Employee with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at
the time of any change of control;
(v) the failure by the Company to continue in effect any
plan or arrangement with respect to securities of the Company
(including, without limitation, any plan or arrangement to
receive and exercise stock options, stock appreciation rights,
restricted stock or grants thereof or to acquire stock or
other securities of the Company) in which Employee is
participating at the time of a change of control (or to
substitute and continue plans or arrangements providing the
Employee with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at
the time of any change of control or the taking of any action
by the Company which would adversely affect Employee's
participation in or materially reduce Employee's benefits
under any such plan;
(vi) the relocation of the Company's principal executive
offices to a location outside the San Antonio, Texas, area, or
the Company's requiring Employee to be based anywhere other
than at the location of the Company's principal executive
offices, except for required travel on the
8
<PAGE> 9
Company's business to an extent substantially consistent with
Employee's present business travel obligations, or, in the
event Employee consents to any such relocation of the
Company's principal executive or divisional offices, the
failure by the Company to pay (or reimburse Employee for) all
reasonable moving expenses incurred by Employee relating to a
change of Employee's principal residence in connection with
such relocation and to indemnify Employee against any loss
(defined as the difference between the actual sale price of
such residence and the fair market value thereof as determined
by the highest of three appraisals from Member Appraisal
Institute-approved real estate appraisers reasonably
satisfactory to both Employee and the Company at the time the
Employee's principal residence is offered for sale in
connection with any such change of residence);
(vii) any material breach by the Company of any provision
of this Agreement;
(viii) any failure by the Company to obtain the assumption
of this Agreement by any successor or assign of the Company;
or
(ix) any purported termination of Employee's employment by
the Company other than termination for cause fully in
compliance with this Agreement and for purposes of this
Agreement, no such purported termination shall be effective.
In the event of a change of control as "change of control" is defined
in any stock option plan or stock option agreement pursuant to which the
Employee holds options to purchase common stock of the Company, Employee shall
retain the rights to all accelerated vesting and other benefits under the terms
of such plans and agreements.
The Company shall pay any attorney fees incurred by Employee in
reasonably seeking to enforce the terms of this paragraph 9.
10. Exclusivity of Termination Provisions.
The termination provisions of this Agreement regarding the parties'
respective obligations in the event Employee's employment is terminated are
intended to be exclusive and in lieu of any other rights or remedies to which
Employee or the
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Company may otherwise be entitled at law, in equity, or otherwise. It is also
agreed that, although the personnel policies and fringe benefit programs of the
Company may be unilaterally modified from time to time, the termination
provisions of this Agreement are not subject to modification, whether orally,
impliedly or in writing, unless any such modification is mutually agreed upon
and signed by the parties.
11. Vacation.
Employee shall be entitled to four weeks vacation annually in
accordance with Company policy as in effect from time to time. In the event
Employee does not use his entire vacation time in any year, Employee shall be
entitled to carry over unused vacation into the following year until his
accrued vacation reaches six weeks or such greater period as may be permitted
under the Company's vacation policy for management executives.
12. Nondisclosure.
During the term of this Agreement and thereafter, Employee shall not,
without the prior written consent of the Board of Directors, disclose or use
for any purpose (except in the course of his employment under this Agreement
and in furtherance of the business of the Company) confidential information or
proprietary data of the Company (or any of its subsidiaries), except as
required by applicable law or legal process; provided, however, that
confidential information shall not include any information known generally to
the public or ascertainable from public or published information (other than as
a result of unauthorized disclosure by Employee) or any information of a type
not otherwise considered confidential by persons engaged in the same business
or a business similar to that conducted by the Company (or any of its
subsidiaries.
13. Noncompetition.
The Company and Employee agree that the services rendered by Employee
hereunder are unique. Employee hereby agrees that, during the term of this
Agreement and for a period of one year thereafter, he shall not (except in the
course of his employment under this Agreement and in furtherance of the
business of the Company (or any of its subsidiaries)) (i) engage in as
principal, consultant or employee in any segment of a business of a company,
partnership or firm ("Business Segment") that is directly competitive with any
significant business of the Company in one of its major commercial or
geographic markets or (ii) hold an interest (except as a holder of a less than
5 percent interest in a publicly traded firm or mutual fund, or as a minority
stockholder or unitholder in a firm not publicly traded) in a company,
partnership, or firm with a Business Segment that is directly competitive,
without prior written consent of the Company.
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14. Remedies.
Employee acknowledges that irreparable damage would result to the
company if the provisions of paragraphs 12 or 13 above are not specifically
enforced and agrees that the Company shall be entitled to any appropriate
legal, equitable or other remedy, including injunctive relief, in respect of
any failure to comply with such provisions.
15. Miscellaneous.
(a) Complete Agreement. This Agreement constitutes the entire
agreement between the parties and cancels and supersedes all other agreements
between the parties which may have related to the subject matter contained in
this Agreement.
(b) Modification; Amendment; Waiver. No modification, amendment
or waiver of any provisions of this Agreement shall be effective unless
approved in writing by both parties. The failure at any time to enforce any of
the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of either party thereafter to
enforce each and every provision hereof in accordance with its terms.
(c) Governing Law; Jurisdiction. This Agreement and performance
under it, and all proceedings that may ensue from its breach, shall be
construed in accordance with and under the laws of the State of Texas.
(d) Employee's Representations. Employee represents and warrants
that he is free to enter into this Agreement and to perform each of the terms
and covenants of it. Employee represents and warrants that he is not restricted
or prohibited, contractually or otherwise, from entering into and performing
this Agreement, and that his execution and performance of this Agreement is not
a violation or breach of any other agreement between Employee and any other
person or entity.
(e) Company's Representations. Company represents and warrants
that it is free to enter into this Agreement and to perform each of the terms
and covenants of it. Company represents and warrants that it is not restricted
or prohibited, contractually or otherwise, from entering into and performing
this Agreement, and that its execution and performance of this Agreement is not
a violation or breach of any other agreement between Company and any other
person or entity. The Company represents and warrants that this Agreement is a
legal, valid and binding agreement of the Company, enforceable in accordance
with its terms.
(f) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be held to
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such
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<PAGE> 12
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
(g) Assignment. The rights and obligations of the parties under
this Agreement shall be binding upon and inure to the benefit of their
respective successors, assigns, executors, administrators and heirs, provided,
however, that neither the Company nor Employee may assign any duties under this
Agreement without the prior written consent of the other.
(h) Limitation. This Agreement shall not confer any right or
impose any obligation on the Company to continue the employment of Employee in
any capacity, or limit the right of the Company or Employee to terminate
Employee's employment.
(i) Notices. All notices and other communications under this
Agreement shall be in writing and shall be given in person or by telegraph,
facsimile or first-class mail, certified or registered with return receipt
requested, and shall be deemed to have been duly given when delivered
personally or three days after mailing or one day after transmission of a
telegram or facsimile, as the case may be, to the representative persons named
below.
If to the Company: Corporate Secretary
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
If to the Employee: James C. Reed, Jr.
9050 Bat Cave Loop
San Antonio, Texas 78266
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<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
COMPANY: TESORO PETROLEUM CORPORATION
By /s/ MICHAEL D. BURKE
-------------------------------------
Michael D. Burke
President and Chief Executive Officer
EMPLOYEE: /s/ JAMES C. REED, JR.
-------------------------------------
James C. Reed, Jr.
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<PAGE> 14
EXHIBIT A
BENEFITS LISTING
1. Group Health Plan
2. Group Life and Accidental Death & Dismemberment Plan
3. Short Term Disability Income Plan
4. Long Term Disability Income Plan
5. Business Travel Accident Insurance Plan
6. Tesoro Petroleum Corporation Thrift/401K Plan
7. Tesoro Petroleum Corporation Retirement Plan
8. Tesoro Petroleum Corporation Amended Executive Security Plan
9. Tesoro Petroleum Corporation Funded Executive Security Plan
10. Tax Preparation and Financial Planning
<PAGE> 1
ITEM 14(a)3, EXHIBIT 10(n)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
December 14, 1994, by and between William T. Van Kleef ("Employee") and Tesoro
Petroleum Corporation, a Delaware corporation (the "Company").
Recitals:
A. The Company wishes to continue the employment of Employee as
its Vice President, Treasurer; as such, Employee shall have certain
responsibilities and shall receive certain compensation and benefits.
B. Employee and the Company wish to formalize this employment
relationship in a written agreement and to set forth certain additional
agreements between Employee and the Company.
THE PARTIES AGREE AS FOLLOWS:
1. Employment and Duties.
During the term of this Agreement, the Company agrees to employ
Employee as Vice President, Treasurer, and Employee agrees to serve the Company
in such capacity on the terms and subject to the conditions set forth in this
Agreement. Employee shall devote substantially all of his business time,
energy and skill to the affairs of the Company as the Company, acting through
its Board of Directors or its Chief Executive Officer, shall reasonably deem
necessary to discharge Employee's duties in such capacity. Employee may
participate in social, civic, charitable, religious, business, educational or
professional associations, so long as such participation would not materially
detract from Employee's ability to perform his duties under this Agreement.
Employee shall not engage in any other business activity during the term of
this Agreement without the prior written consent of the Company, other than the
passive management of Employee's personal investments or activities which would
not materially detract from Employee's ability to perform his duties under this
Agreement.
2. Compensation.
(a) Salary; Withholding. During the term of this Agreement, the
Company shall pay Employee a base salary of $150,000 per year, payable in
arrears in equal biweekly installments. The parties shall comply with all
applicable withholding requirements in connection with all compensation payable
to Employee. The Company's Board of Directors may, in its sole discretion,
review and adjust upward Employee's base salary from time to time, but no
downward adjustment in Employee's base salary may be made during the term of
this Agreement.
<PAGE> 2
(b) Annual Incentive Plan. The Company shall establish an Annual
Incentive Compensation Plan for executive officers in which the Employee shall
be entitled to participate in a manner consistent with his position with the
Company and the evaluations of his performance by the Board of Directors or any
appropriate committee thereof.
(c) Stock Options and Restricted Stock Grants. The Employee
shall be entitled to receive stock options and restricted stock grants under
the Company's plans in effect from time to time, if any, commensurate with his
position with the Company and the evaluations of his performance by the Board
of Directors or any appropriate committee thereof.
(d) Flexible Perquisites Arrangement. The Employee shall receive
annually a stipulated amount of $20,000 which will be expended by the Company
on behalf of the Employee or paid to the Employee, at the Employee's election,
to cover various business-related expenses such as monthly dues for country,
luncheon or social clubs, automobile expenses and financial and tax planning
expenses. The Employee may elect at any time by written notice to the Company
to receive any of such stipulated amount which has not been paid to or on
behalf of the Employee. In addition, the Company will pay on behalf of the
Employee up to $15,000 to pay an initiation fee or fees for a country, luncheon
or social club or clubs and will pay directly to the Employee an amount equal
to 65 percent of the amount so paid on the Employee's behalf to offset the
applicable income tax expense to the Employee. In addition, the Company will
pay additional initiation fees and reimburse the Employee for related tax
expenses to the extent the Board of Directors or a duly authorized committee
thereof determines such fees are reasonable and in the best interest of the
Company.
(e) Other Benefits. Employee shall be eligible to participate in
and have the benefits under the terms of all life, accident, disability and
health insurance plans, pension, profit sharing, incentive compensation and
savings plans and all other similar plans and benefits which the Company from
time to time makes available to its management executives, including, without
limitation, those listed on Exhibit A, in the same manner and at least at the
same participation level as other senior management executives.
3. Business Expenses.
The Company shall promptly reimburse Employee for all appropriately
documented, reasonable business expenses incurred by Employee in accordance
with Company policies.
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<PAGE> 3
4. Term.
This Agreement shall commence effective as of December 14, 1994, and
if not terminated earlier as herein provided, shall terminate on December 31,
1996. Notwithstanding the foregoing, if the Company shall not have offered to
the Employee the opportunity to enter into a new employment agreement prior to
December 31, 1996, with terms, in all respects, no less favorable to the
Employee than the terms of this Agreement and with a term lasting until at
least December 31, 1998, the Employee shall have the right to elect by written
notice delivered to the Company prior to January 31, 1997, to terminate his
employment and such termination shall be deemed to have been for Good Reason in
accordance with Section 5 and the Employee shall be entitled to all payments
and benefits as if he had terminated his employment for Good Reason in
accordance with Section 5 on December 30, 1996.
5. Termination by the Company Without Cause, Termination by
Employee for "Good Reason" or Failure to Extend Employment
Contract.
The Company may, by delivering 30 days prior written notice to
Employee, terminate Employee's employment at any time without cause, and the
Employee may, by delivering 30 days prior written notice to the Company,
terminate Employee's employment for "good reason," as defined below. If such
termination without cause or for good reason occurs or if the Company falls to
offer to the Employee a new employment contract prior to December 31, 1996,
with terms, in all respects, no less favorable to the employee than the terms
of this Agreement, Employee shall be entitled to receive a lump-sum payment
equal to the sum of (a) two times the sum of (i) his Base Salary at the then
current rate and (ii) the sum of the target bonuses under all of the Company's
incentive bonus plans applicable to Employee for the year in which the
termination occurs and (b) if termination occurs in the fourth quarter of a
calendar year, the sum of the target bonuses under all of the Company's
incentive bonus plans applicable to Employee for the year in which the
termination occurs prorated daily based on the number of days from the
beginning of the calendar year in which the termination occurs to and including
the date of termination. Employee shall also receive all unpaid bonuses for
the year prior to the year in which the termination occurs and shall receive
(i) for a period of two years continuing coverage and benefits comparable to
all life, health and disability insurance plans which the Company from time to
time makes available to its management executives and their families, (ii) a
lump-sum payment equal to two times the stipulated flexible perquisites amount
pursuant to Section 2(d), and (iii) two years additional service credit under
the current non-qualified supplemental pension plans, or successors thereto, of
the Company applicable to the Employee on the date of termination. All
unvested stock options held by Employee on the date of the termination shall
become immediately vested and all restrictions on Restricted Stock then held by
the Employee shall terminate.
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<PAGE> 4
For purposes of this Section 5, "good reason" shall mean the
occurrence of any of the following events:
(a) Removal, without the consent of Employee in writing, from one
or more of the offices Employee holds on the date of this Agreement or a
material reduction in Employee's authority or responsibility but not
termination of Employee for "cause," as defined below; or
(b) The Company otherwise commits a material breach of this
Agreement.
The Company shall pay any attorney fees incurred by Employee in
reasonably seeking to enforce the terms of this Paragraph 5.
6. Termination upon Death or Disability.
If the Employee's employment is terminated because of death or on
account of his becoming permanently disabled (as defined in Section 7), the
Employee, or his estate, if applicable, shall be entitled to receive the
Employee's Base Salary earned pro rata to the date of his termination of
employment, plus unpaid bonuses for the year prior to the year in which the
termination occurs. All unvested stock options held by the Employee on the
date of termination shall become immediately vested and all restrictions on
Restricted Stock held by the Employee shall terminate.
7. Termination by the Company for Cause.
The Company may terminate this Agreement at any time if such
termination is for "cause," as defined below, by delivering to Employee written
notice describing the cause of termination 30 days before the effective date of
such termination and by granting Employee at least 30 days to cure the cause.
In the event the employment of Employee is terminated for "cause," Employee
shall be entitled only to his Base Salary earned pro rata to his date of
termination with no entitlement to any base salary continuation payments or
benefit continuation (except as specifically provided by the terms of an
employee benefit plan of the Company). Except as otherwise provided in this
Agreement, the determination of whether Employee is terminated for "cause"
shall be made by the Board of Directors of the Company, in the reasonable
exercise of its business judgment, and shall be limited to the occurrence of
the following events:
(a) Conviction of or a plea of nolo contendere to the charge of a
felony (which, through lapse of time or otherwise, is not subject to appeal);
(b) Willful refusal without proper legal cause to perform, or
gross negligence in performing, Employee's duties and responsibilities;
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<PAGE> 5
(c) Material breach of fiduciary duty to the Company through the
misappropriation of Company funds or property; or
(d) The unauthorized absence of Employee from work (other than for
sick leave or disability) for a period of 30 working days or more during a
period of 45 working days.
For purposes of this Agreement, Employee shall be deemed to be
"permanently disabled" if Employee shall be considered to be permanently and
totally disabled in accordance with the Company's Long-Term Disability Income
Plan. If there should be a dispute between the Company and Employee as to
Employee's physical or mental disability for purposes of this Agreement, the
question shall be settled by the opinion of an impartial reputable physician or
psychiatrist agreed upon by the parties or their representatives, or if the
parties cannot agree within ten calendar days after a request for designation
of such party, then a physician or psychiatrist shall be designated by the San
Antonio, Texas Medical Association. The parties agree to be bound by the final
decision of such physician or psychiatrist.
8. Voluntary Termination by Employee.
Employee may terminate this Agreement at any time upon delivering 30
days written notice to the Company. In the event of such voluntary termination
other than for "good reason," as defined above, Employee shall be entitled to
his base salary earned pro rata to the date of his resignation, plus unpaid
bonuses for the year prior to the year in which the termination occurs, but no
base salary continuation payments or benefits continuation (except as
specifically provided by the terms of an employee benefit plan of the Company).
On or after the date the Company receives notice of Employee's resignation, the
Company may, at its option, pay Employee his base salary through the effective
date of his resignation and terminate his employment immediately.
9. Termination Following Change of Control.
Notwithstanding anything to the contrary contained herein, should
Employee at any time within two years of a change of control cease to be an
employee of the Company (or its successor), by reason of (i) involuntary
termination by the Company (or its successor) other than for "cause" (following
a change of control, "cause" shall be limited to the conviction of or a plea of
nolo contendere to the charge of a felony (which, through lapse of time or
otherwise, is not subject to appeal), or a material breach of fiduciary duty to
the Company through the misappropriation of Company funds or property), or (ii)
voluntary termination by Employee for "good reason upon change of control" (as
defined below), the Company (or its successor) shall pay to Employee within ten
days of such termination the following severance payments and benefits:
5
<PAGE> 6
(a) A lump-sum payment equal to three times the base salary of the
Employee at the then current rate;
(b) A lump-sum payment equal to the sum of (i) three times the sum
of the target bonuses under all of the Company's incentive bonus plans
applicable to the Employee for the year in which the termination occurs or the
year in which the change of control occurred, whichever is greater, and (ii) if
termination occurs in the fourth quarter of a calendar year, the sum of the
target bonuses under all of the Company's incentive bonus plans applicable to
Employee for the year in which the termination occurs prorated daily based on
the number of days from the beginning of the calendar year in which the
termination occurs to and including the date of termination.
(c) A lump-sum payment equal to the amount of any unpaid bonuses
to which the Employee is entitled under any incentive bonus plan.
The Company (or its successor) shall also provide to Employee (i) for
a period of three years continuing coverage and benefits comparable to all
life, health and disability plans of the Company in effect at the time a change
of control is deemed to have occurred; (ii) a lump-sum payment equal to three
times the stipulated flexible perquisites amount pursuant to Section 2(d); and
(iii) three years additional service credit under the current non-qualified
supplemental pension plans, or successors thereto, of the Company applicable to
the Employee on the date of termination.
For purposes of this Agreement, a "change of control"
shall be deemed to have occurred if (i) there shall be
consummated (A) any consolidation or merger of the Company in
which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's
Common Stock would be converted into cash, securities or other
property, other than a merger of the Company where a majority
of the Board of Directors of the surviving corporation are,
and for a two year period after the merger continue to be,
persons who were directors of the Company immediately prior to
the merger or were elected as directors, or nominated for
election as director, by a vote of at least two-thirds of the
directors then still in office who were directors of the
Company immediately prior to the merger, or (B) any sale,
lease, exchange or transfer (in one transaction or a series of
related transactions) of all or substantially all of the
assets of the Company, or (ii) the shareholders of the Company
shall approve any plan or proposal for the liquidation or
dissolution of the Company, or (iii) (A) any "person" (as
such term is used in
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<PAGE> 7
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), other than the Company
or a subsidiary thereof or any employee benefit plan sponsored
by the Company or a subsidiary thereof, shall become the
beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of securities of the Company representing 20
percent or more of the combined voting power of the Company's
then outstanding securities ordinarily (and apart from rights
accruing in special circumstances) having the right to vote in
the election of directors, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases
or otherwise, and (B) at any time during a period of two years
thereafter, individuals who immediately prior to the beginning
of such period constituted the Board of Directors of the
Company shall cease for any reason to constitute at least a
majority thereof, unless the election or the nomination by the
Board of Directors for election by the Company's shareholders
of each new director during such period was approved by a vote
of at least two-thirds of the directors then still in office
who were directors at the beginning of such period.
For purposes of this Section 9, "good reason upon change of
control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the
assignment to Employee of any duties inconsistent with the
employment of Employee to the positions set forth in Section
1, or a significant diminution of Employee's positions,
duties, responsibilities and status with the Company from
those immediately prior to a change of control or a diminution
in Employee's titles or offices as in effect immediately prior
to a change of control, or any removal of Employee from, or
any failure to reelect Employee to, any of such positions;
(ii) a reduction by the Company in Employee's base salary
in effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any
thrift, stock ownership, pension, life insurance, health,
dental and accident or disability plan in which Employee is
participating or is eligible to participate at the time of the
7
<PAGE> 8
change of control (or plans providing Employee with
substantially similar benefits), except as otherwise required
by the terms of such plans as in effect at the time of any
change of control or the taking of any action by the Company
which would adversely affect Employee's participation in or
materially reduce Employee's benefits under any of such plans
or deprive Employee of any material fringe benefits enjoyed by
Employee at the time of the change of control or the failure
by the Company to provide the Employee with the number of paid
vacation days to which Employee is entitled in accordance with
the vacation policies of the Company in effect at the time of
a change of control;
(iv) the failure by the Company to continue in effect any
incentive plan or arrangement (including without limitation,
the Company's Incentive Compensation Plan and similar
incentive compensation benefits) in which Employee is
participating at the time of a change of control (or to
substitute and continue other plans or arrangements providing
the Employee with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at
the time of any change of control;
(v) the failure by the Company to continue in effect any
plan or arrangement with respect to securities of the Company
(including, without limitation, any plan or arrangement to
receive and exercise stock options, stock appreciation rights,
restricted stock or grants thereof or to acquire stock or
other securities of the Company) in which Employee is
participating at the time of a change of control (or to
substitute and continue plans or arrangements providing the
Employee with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at
the time of any change of control or the taking of any action
by the Company which would adversely affect Employee's
participation in or materially reduce Employee's benefits
under any such plan;
(vi) the relocation of the Company's principal executive
offices to a location outside the San Antonio, Texas, area, or
the Company's requiring Employee to be based anywhere other
than at the location of the Company's principal executive
offices, except for required travel on the
8
<PAGE> 9
Company's business to an extent substantially consistent with
Employee's present business travel obligations, or, in the
event Employee consents to any such relocation of the
Company's principal executive or divisional offices, the
failure by the Company to pay (or reimburse Employee for) all
reasonable moving expenses incurred by Employee relating to a
change of Employee's principal residence in connection with
such relocation and to indemnify Employee against any loss
(defined as the difference between the actual sale price of
such residence and the fair market value thereof as determined
by the highest of three appraisals from Membership Appraisal
Institute-approved real estate appraisers reasonably
satisfactory to both Employee and the Company at the time the
Employee's principal residence is offered for sale in
connection with any such change of residence);
(vii) any material breach by the Company of any provision
of this Agreement;
(viii) any failure by the Company to obtain the assumption
of this Agreement by any successor or assign of the Company;
or
(ix) any purported termination of Employee's employment by
the Company other than termination for cause fully in
compliance with this Agreement and for purposes of this
Agreement, no such purported termination shall be effective.
In the event of a change of control as "change of control" is defined
in any stock option plan or stock option agreement pursuant to which the
Employee holds options to purchase common stock of the Company, Employee shall
retain the rights to all accelerated vesting and other benefits under the terms
of such plans and agreements.
The Company shall pay any attorney fees incurred by Employee in
reasonably seeking to enforce the terms of this paragraph 9.
10. Exclusivity of Termination Provisions.
The termination provisions of this Agreement regarding the parties'
respective obligations in the event Employee's employment is terminated are
intended to be exclusive and in lieu of any other rights or remedies to which
Employee or the
9
<PAGE> 10
Company may otherwise be entitled at law, in equity, or otherwise. It is also
agreed that, although the personnel policies and fringe benefit programs of the
Company may be unilaterally modified from time to time, the termination
provisions of this Agreement are not subject to modification, whether orally,
impliedly or in writing, unless any such modification is mutually agreed upon
and signed by the parties.
11. Vacation.
Employee shall be entitled to four weeks vacation annually in
accordance with Company policy as in effect from time to time. In the event
Employee does not use his entire vacation time in any year, Employee shall be
entitled to carry over unused vacation into the following year until his
accrued vacation reaches six weeks or such greater period as may be permitted
under the Company's vacation policy for management executives.
12. Nondisclosure.
During the term of this Agreement and thereafter, Employee shall not,
without the prior written consent of the Board of Directors, disclose or use
for any purpose (except in the course of his employment under this Agreement
and in furtherance of the business of the Company) confidential information or
proprietary data of the Company (or any of its subsidiaries), except as
required by applicable law or legal process; provided, however, that
confidential information shall not include any information known generally to
the public or ascertainable from public or published information (other than as
a result of unauthorized disclosure by Employee) or any information of a type
not otherwise considered confidential by persons engaged in the same business
or a business similar to that conducted by the Company (or any of its
subsidiaries.
13. Noncompetition.
The Company and Employee agree that the services rendered by Employee
hereunder are unique. Employee hereby agrees that, during the term of this
Agreement and for a period of one year thereafter, he shall not (except in the
course of his employment under this Agreement and in furtherance of the
business of the Company (or any of its subsidiaries)) (i) engage in as
principal, consultant or employee in any segment of a business of a company,
partnership or firm ("Business Segment") that is directly competitive with any
significant business of the Company in one of its major commercial or
geographic markets or (ii) hold an interest (except as a holder of a less than
5 percent interest in a publicly traded firm or mutual fund, or as a minority
stockholder or unitholder in a firm not publicly traded) in a company,
partnership, or firm with a Business Segment that is directly competitive,
without prior written consent of the Company.
10
<PAGE> 11
14. Remedies.
Employee acknowledges that irreparable damage would result to the
company if the provisions of paragraphs 12 or 13 above are not specifically
enforced and agrees that the Company shall be entitled to any appropriate
legal, equitable or other remedy, including injunctive relief, in respect of
any failure to comply with such provisions.
15. Miscellaneous.
(a) Complete Agreement. This Agreement constitutes the entire
agreement between the parties and cancels and supersedes all other agreements
between the parties which may have related to the subject matter contained in
this Agreement.
(b) Modification; Amendment; Waiver. No modification, amendment
or waiver of any provisions of this Agreement shall be effective unless
approved in writing by both parties. The failure at any time to enforce any of
the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of either party thereafter to
enforce each and every provision hereof in accordance with its terms.
(c) Governing Law; Jurisdiction. This Agreement and performance
under it, and all proceedings that may ensue from its breach, shall be
construed in accordance with and under the laws of the State of Texas.
(d) Employee's Representations. Employee represents and warrants
that he is free to enter into this Agreement and to perform each of the terms
and covenants of it. Employee represents and warrants that he is not restricted
or prohibited, contractually or otherwise, from entering into and performing
this Agreement, and that his execution and performance of this Agreement is not
a violation or breach of any other agreement between Employee and any other
person or entity.
(e) Company's Representations. Company represents and warrants
that it is free to enter into this Agreement and to perform each of the terms
and covenants of it. Company represents and warrants that it is not restricted
or prohibited, contractually or otherwise, from entering into and performing
this Agreement, and that its execution and performance of this Agreement is not
a violation or breach of any other agreement between Company and any other
person or entity. The Company represents and warrants that this Agreement is a
legal, valid and binding agreement of the Company, enforceable in accordance
with its terms.
(f) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be held to
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such
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<PAGE> 12
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
(g) Assignment. The rights and obligations of the parties under
this Agreement shall be binding upon and inure to the benefit of their
respective successors, assigns, executors, administrators and heirs, provided,
however, that neither the Company nor Employee may assign any duties under this
Agreement without the prior written consent of the other.
(h) Limitation. This Agreement shall not confer any right or
impose any obligation on the Company to continue the employment of Employee in
any capacity, or limit the right of the Company or Employee to terminate
Employee's employment.
(i) Notices. All notices and other communications under this
Agreement shall be in writing and shall be given in person or by telegraph,
facsimile or first-class mail, certified or registered with return receipt
requested, and shall be deemed to have been duly given when delivered
personally or three days after mailing or one day after transmission of a
telegram or facsimile, as the case may be, to the representative persons named
below.
If to the Company: Corporate Secretary
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
If to the Employee: William T. Van Kleef
4351 F.M. 2673
Canyon Lake, Texas 78133
12
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
COMPANY: TESORO PETROLEUM CORPORATION
By /s/ MICHAEL D. BURKE
Michael D. Burke
President and Chief Executive Officer
EMPLOYEE: /s/ WILLIAM T. VAN KLEEF
William T. Van Kleef
13
<PAGE> 14
EXHIBIT A
BENEFITS LISTING
1. Group Health Plan
2. Group Life and Accidental Death & Dismemberment Plan
3. Short Term Disability Income Plan
4. Long Term Disability Income Plan
5. Business Travel Accident Insurance Plan
6. Tesoro Petroleum Corporation Thrift/401K Plan
7. Tesoro Petroleum Corporation Retirement Plan
8. Tesoro Petroleum Corporation Amended Executive Security Plan
9. Tesoro Petroleum Corporation Funded Executive Security Plan
10. Tax Preparation and Financial Planning
<PAGE> 1
ITEM 14(a)3, EXHIBIT 10(o)
MANAGEMENT STABILITY AGREEMENT
This Management Stability Agreement is dated December 14, 1994,
between Tesoro Petroleum Corporation, a Delaware corporation (the "Company"),
and Don E. Beere ("Employee").
Recitals:
WHEREAS, the Board of Directors of the Company has determined that it
is in the best interest of the Company to reduce uncertainty to certain key
employees of the Company in the event of certain fundamental events involving
the control or existence of the Company;
WHEREAS, the Board of Directors of the Company has determined that an
agreement protecting certain interests of key employees of the Company in the
event of certain fundamental events involving the control or existence of the
Company is in the best interest of the Company because it will assist the
Company in attracting and retaining key employees such as this Employee; and
WHEREAS, the Employee is relying on this Agreement and the obligations
of the Company hereunder in continuing to work for the Company.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Termination Following Change of Control.
Should Employee at any time within two years of a change of control
cease to be an employee of the Company (or its successor), by reason of (i)
involuntary termination by the Company (or its successor) other than for
"cause" (following a change of control), "cause" shall be limited to the
conviction of or a plea of nolo contendere to the charge of a felony (which,
through lapse of time or otherwise, is not subject to appeal), a material
breach of fiduciary duty to the Company through the misappropriation of Company
funds or property) or (ii) voluntary termination by Employee for "good reason
upon change of control" (as defined below), the Company (or its successor)
shall pay to Employee within ten days of such termination the following
severance payments and benefits:
(a) A lump-sum payment equal to two times the base salary
of the Employee at the then current rate; and
(b) A lump-sum payment equal to (i) two times the sum of
the target bonuses under all of the Company's incentive bonus
plans applicable to the Employee for the year in which the
termination occurs or the year in which the change of control
occurred,
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whichever is greater, and (ii) if termination occurs in the
fourth quarter of a calendar year, the sum of the target
bonuses under all of the Company's incentive bonus plans
applicable to Employee for the year in which the termination
occurs prorated daily based on the number of days from the
beginning of the calendar year in which the termination occurs
to and including the date of termination.
The Company (or its successor) shall also provide continuing coverage and
benefits comparable to all life, health and disability plans of the Company for
a period of 24 months from the date of termination and shall receive two years
additional service credit under the current non-qualified supplemental pension
plans, or successors thereto, of the Company applicable to the Employee on the
date of termination.
For purposes of this Agreement, a "change of control"
shall be deemed to have occurred if (i) there shall be
consummated (A) any consolidation or merger of the Company in
which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's
Common Stock would be converted into cash, securities or other
property, other than a merger of the Company where a majority
of the Board of Directors of the surviving corporation are,
and for a two year period after the merger continue to be,
persons who were directors of the Company immediately prior to
the merger or were elected as directors, or nominated for
election as directors, by a vote of at least two-thirds of the
directors then still in office who were directors of the
Company immediately prior to the merger, or (B) any sale,
lease, exchange or transfer (in one transaction or a series of
related transactions) of all or substantially all of the
assets of the Company, or (ii) the shareholders of the Company
shall approve any plan or proposal for the liquidation or
dissolution of the Company, or (iii) (A) any "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), other
than the Company or a subsidiary thereof or any employee
benefit plan sponsored by the Company or a subsidiary thereof,
shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of securities of the Company
representing 20 percent or more of the combined voting power
of the Company's then outstanding securities ordinarily (and
apart from rights accruing in special circumstances) having
the right to vote in the election of
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directors, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise,
and (B) at any time during a period of one year thereafter,
individuals who immediately prior to the beginning of such
period constituted the Board of Directors of the Company shall
cease for any reason to constitute at least a majority
thereof, unless the election or the nomination by the Board of
Directors for election by the Company's shareholders of each
new director during such period was approved by a vote of at
least two-thirds of the directors then still in office who
were directors at the beginning of such period.
For purposes of this Section 1, "good reason upon change of
control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the
assignment to Employee of any duties inconsistent with the
employment of Employee immediately prior to the change of
control, or a significant diminution of Employee's positions,
duties, responsibilities and status with the Company from
those immediately prior to a change of control or a diminution
in Employee's titles or offices as in effect immediately prior
to a change of control, or any removal of Employee from, or
any failure to reelect Employee to, any of such positions;
(ii) a reduction by the Company in Employee's base salary
in effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any
thrift, stock ownership, pension, life insurance, health,
dental and accident or disability plan in which Employee is
participating or is eligible to participate at the time of the
change of control (or plans providing Employee with
substantially similar benefits), except as otherwise required
by the terms of such plans as in effect at the time of any
change of control or the taking of any action by the Company
which would adversely affect Employee's participation in or
materially reduce Employee's benefits under any of such plans
or deprive Employee of any material fringe benefits enjoyed by
Employee at the time of the change of control or the failure
by the Company to provide the Employee with the number of paid
vacation
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days to which Employee is entitled in accordance with the
vacation policies of the Company in effect at the time of a
change of control;
(iv) the failure by the Company to continue in effect any
incentive plan or arrangement (including without limitation,
the Company's Incentive Compensation Plan and similar
incentive compensation benefits) in which Employee is
participating at the time of a change of control (or to
substitute and continue other plans or arrangements providing
the Employee with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at
the time of any change of control;
(v) the failure by the Company to continue in effect any
plan or arrangement with respect to securities of the Company
(including, without limitation, any plan or arrangement to
receive and exercise stock options, stock appreciation rights,
restricted stock or grants thereof or to acquire stock or
other securities of the Company) in which Employee is
participating at the time of a change of control (or to
substitute and continue plans or arrangements providing the
Employee with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at
the time of any change of control or the taking of any action
by the Company which would adversely affect Employee's
participation in or materially reduce Employee's benefits
under any such plan;
(vi) the relocation of the Company's principal executive
offices to a location outside the San Antonio, Texas, area, or
the Company's requiring Employee to be based anywhere other
than at the location of the Company's principal executive
offices, except for required travel on the Company's business
to an extent substantially consistent with Employee's present
business travel obligations, or, in the event Employee
consents to any such relocation of the Company's principal
executive or divisional offices, the failure by the Company to
pay (or reimburse Employee for) all reasonable moving expenses
incurred by Employee relating to a change of Employee's
principal residence in connection with such relocation and to
indemnify Employee against any loss (defined as the difference
between the actual sale price of such residence and the higher
of
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(a) Employee's aggregate investment in such residence or (b)
the fair market value thereof as determined by a real estate
appraiser reasonably satisfactory to both Employee and the
Company at the time the Employee's principal residence is
offered for sale in connection with any such change of
residence;
(vii) any failure by the Company to obtain the assumption
of this Agreement by any successor or assign of the Company;
In the event of a change of control as "change of control" is defined
in any stock option plan or stock option agreement pursuant to which the
Employee holds options to purchase common stock of the Company, Employee shall
retain the rights to all accelerated vesting and other benefits under the terms
thereof.
The Company shall pay any attorney fees incurred by Employee in
reasonably seeking to enforce the terms of this Paragraph 1.
2. Complete Agreement.
This Agreement constitutes the entire agreement between the parties
and cancels and supersedes all other agreements between the parties which may
have related to the subject matter contained in this Agreement.
3. Modification; Amendment; Waiver.
No modification, amendment or waiver of any provisions of this
Agreement shall be effective unless approved in writing by both parties. The
failure at any time to enforce any of the provisions of this Agreement shall in
no way be construed as a waiver of such provisions and shall not affect the
right of either party thereafter to enforce each and every provision hereof in
accordance with its terms.
4. Governing Law; Jurisdiction.
This Agreement and performance under it, and all proceedings that may
ensue from its breach, shall be construed in accordance with and under the laws
of the State of Texas.
5. Severability.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be held to be prohibited by or
invalid under applicable law, such
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provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
6. Assignment.
The rights and obligations of the parties under this Agreement shall
be binding upon and inure to the benefit of their respective successors,
assigns, executors, administrators and heirs, provided, however, that the
Company may not assign any duties under this Agreement without the prior
written consent of the Employee.
7. Limitation.
This Agreement shall not confer any right or impose any obligation on
the Company to continue the employment of Employee in any capacity, or limit
the right of the Company or Employee to terminate Employee's employment.
8. Notices.
All notices and other communications under this Agreement shall be in
writing and shall be given in person or by telegraph, facsimile or first class
mail, certified or registered with return receipt requested, and shall be
deemed to have been duly given when delivered personally or three days after
mailing or one day after transmission of a telegram or facsimile, as the case
may be, to the representative persons named below:
If to the Company: Corporate Secretary
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
If to the Employee: Don E. Beere
15203 Eaglebrook
San Antonio, Texas 78232
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
COMPANY: TESORO PETROLEUM CORPORATION
By /s/ MICHAEL D. BURKE
Michael D. Burke
President and Chief Executive Officer
EMPLOYEE: /s/ DON E. BEERE
Don E. Beere
7
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ITEM 14(a)3, EXHIBIT 10(p)
MANAGEMENT STABILITY AGREEMENT
This Management Stability Agreement is dated February 23, 1995,
between Tesoro Petroleum Corporation, a Delaware corporation (the "Company"),
and Gregory A. Wright ("Employee").
Recitals:
WHEREAS, the Board of Directors of the Company has determined that it
is in the best interest of the Company to reduce uncertainty to certain key
employees of the Company in the event of certain fundamental events involving
the control or existence of the Company;
WHEREAS, the Board of Directors of the Company has determined that an
agreement protecting certain interests of key employees of the Company in the
event of certain fundamental events involving the control or existence of the
Company is in the best interest of the Company because it will assist the
Company in attracting and retaining key employees such as this Employee; and
WHEREAS, the Employee is relying on this Agreement and the obligations
of the Company hereunder in continuing to work for the Company.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Termination Following Change of Control.
Should Employee at any time within two years of a change of control
cease to be an employee of the Company (or its successor), by reason of (i)
involuntary termination by the Company (or its successor) other than for
"cause" (following a change of control), "cause" shall be limited to the
conviction of or a plea of nolo contendere to the charge of a felony (which,
through lapse of time or otherwise, is not subject to appeal), a material
breach of fiduciary duty to the Company through the misappropriation of Company
funds or property) or (ii) voluntary termination by Employee for "good reason
upon change of control" (as defined below), the Company (or its successor)
shall pay to Employee within ten days of such termination the following
severance payments and benefits:
(a) A lump-sum payment equal to two times the base salary
of the Employee at the then current rate; and
(b) A lump-sum payment equal to (i) two times the sum of
the target bonuses under all of the Company's incentive bonus
plans applicable to the Employee for the year in which the
termination occurs or the year in which the change of control
occurred,
<PAGE> 2
whichever is greater, and (ii) if termination occurs in the
fourth quarter of a calendar year, the sum of the target
bonuses under all of the Company's incentive bonus plans
applicable to Employee for the year in which the termination
occurs prorated daily based on the number of days from the
beginning of the calendar year in which the termination occurs
to and including the date of termination.
The Company (or its successor) shall also provide continuing coverage and
benefits comparable to all life, health and disability plans of the Company for
a period of 24 months from the date of termination.
For purposes of this Agreement, a "change of control"
shall be deemed to have occurred if (i) there shall be
consummated (A) any consolidation or merger of the Company in
which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's
Common Stock would be converted into cash, securities or other
property, other than a merger of the Company where a majority
of the Board of Directors of the surviving corporation are,
and for a two year period after the merger continue to be,
persons who were directors of the Company immediately prior to
the merger or were elected as directors, or nominated for
election as directors, by a vote of at least two-thirds of the
directors then still in office who were directors of the
Company immediately prior to the merger, or (B) any sale,
lease, exchange or transfer (in one transaction or a series of
related transactions) of all or substantially all of the
assets of the Company, or (ii) the shareholders of the Company
shall approve any plan or proposal for the liquidation or
dissolution of the Company, or (iii) (A) any "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), other
than the Company or a subsidiary thereof or any employee
benefit plan sponsored by the Company or a subsidiary thereof,
shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of securities of the Company
representing 20 percent or more of the combined voting power
of the Company's then outstanding securities ordinarily (and
apart from rights accruing in special circumstances) having
the right to vote in the election of directors, as a result of
a tender or exchange offer, open market purchases, privately
negotiated purchases or
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<PAGE> 3
otherwise, and (B) at any time during a period of one year
thereafter, individuals who immediately prior to the beginning
of such period constituted the Board of Directors of the
Company shall cease for any reason to constitute at least a
majority thereof, unless the election or the nomination by the
Board of Directors for election by the Company's shareholders
of each new director during such period was approved by a vote
of at least two-thirds of the directors then still in office
who were directors at the beginning of such period.
For purposes of this Section 1, "good reason upon change of
control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the
assignment to Employee of any duties inconsistent with the
employment of Employee immediately prior to the change of
control, or a significant diminution of Employee's positions,
duties, responsibilities and status with the Company from
those immediately prior to a change of control or a diminution
in Employee's titles or offices as in effect immediately prior
to a change of control, or any removal of Employee from, or
any failure to reelect Employee to, any of such positions;
(ii) a reduction by the Company in Employee's base salary
in effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any
thrift, stock ownership, pension, life insurance, health,
dental and accident or disability plan in which Employee is
participating or is eligible to participate at the time of the
change of control (or plans providing Employee with
substantially similar benefits), except as otherwise required
by the terms of such plans as in effect at the time of any
change of control or the taking of any action by the Company
which would adversely affect Employee's participation in or
materially reduce Employee's benefits under any of such plans
or deprive Employee of any material fringe benefits enjoyed by
Employee at the time of the change of control or the failure
by the Company to provide the Employee with the number of paid
vacation days to which Employee is entitled in accordance with
the
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vacation policies of the Company in effect at the time of a
change of control;
(iv) the failure by the Company to continue in effect any
incentive plan or arrangement (including without limitation,
the Company's Incentive Compensation Plan and similar
incentive compensation benefits) in which Employee is
participating at the time of a change of control (or to
substitute and continue other plans or arrangements providing
the Employee with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at
the time of any change of control;
(v) the failure by the Company to continue in effect any
plan or arrangement with respect to securities of the Company
(including, without limitation, any plan or arrangement to
receive and exercise stock options, stock appreciation rights,
restricted stock or grants thereof or to acquire stock or
other securities of the Company) in which Employee is
participating at the time of a change of control (or to
substitute and continue plans or arrangements providing the
Employee with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at
the time of any change of control or the taking of any action
by the Company which would adversely affect Employee's
participation in or materially reduce Employee's benefits
under any such plan;
(vi) the relocation of the Company's principal executive
offices to a location outside the San Antonio, Texas, area, or
the Company's requiring Employee to be based anywhere other
than at the location of the Company's principal executive
offices, except for required travel on the Company's business
to an extent substantially consistent with Employee's present
business travel obligations, or, in the event Employee
consents to any such relocation of the Company's principal
executive or divisional offices, the failure by the Company to
pay (or reimburse Employee for) all reasonable moving expenses
incurred by Employee relating to a change of Employee's
principal residence in connection with such relocation and to
indemnify Employee against any loss (defined as the difference
between the actual sale price of such residence and the higher
of (a) Employee's aggregate investment in such residence or
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(b) the fair market value thereof as determined by a real
estate appraiser reasonably satisfactory to both Employee and
the Company at the time the Employee's principal residence is
offered for sale in connection with any such change of
residence;
(vii) any failure by the Company to obtain the assumption
of this Agreement by any successor or assign of the Company;
In the event of a change of control as "change of control" is defined
in any stock option plan or stock option agreement pursuant to which the
Employee holds options to purchase common stock of the Company, Employee shall
retain the rights to all accelerated vesting and other benefits under the terms
thereof.
The Company shall pay any attorney fees incurred by Employee in
reasonably seeking to enforce the terms of this Paragraph 1.
2. Complete Agreement.
This Agreement constitutes the entire agreement between the parties
and cancels and supersedes all other agreements between the parties which may
have related to the subject matter contained in this Agreement.
3. Modification; Amendment; Waiver.
No modification, amendment or waiver of any provisions of this
Agreement shall be effective unless approved in writing by both parties. The
failure at any time to enforce any of the provisions of this Agreement shall in
no way be construed as a waiver of such provisions and shall not affect the
right of either party thereafter to enforce each and every provision hereof in
accordance with its terms.
4. Governing Law; Jurisdiction.
This Agreement and performance under it, and all proceedings that may
ensue from its breach, shall be construed in accordance with and under the laws
of the State of Texas.
5. Severability.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity,
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without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
6. Assignment.
The rights and obligations of the parties under this Agreement shall
be binding upon and inure to the benefit of their respective successors,
assigns, executors administrators and heirs, provided, however, that the
Company may not assign any duties under this Agreement without the prior
written consent of the Employee.
7. Limitation.
This Agreement shall not confer any right or impose any obligation on
the Company to continue the employment of Employee in any capacity, or limit
the right of the Company or Employee to terminate Employee's employment.
8. Notices.
All notices and other communications under this Agreement shall be in
writing and shall be given in person or by telegraph, facsimile or first class
mail, certified or registered with return receipt requested, and shall be
deemed to have been duly given when delivered personally or three days after
mailing or one day after transmission of a telegram or facsimile, as the case
may be, to the representative persons named below:
If to the Company: Corporate Secretary
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
If to the Employee: Gregory A. Wright
403 Arch Bluff
San Antonio, Texas 78216
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
COMPANY: TESORO PETROLEUM CORPORATION
By /s/ MICHAEL D. BURKE
-------------------------------------
Michael D. Burke
President and Chief Executive Officer
EMPLOYEE: /s/ GREGORY A. WRIGHT
----------------------------------------
Gregory A. Wright
7
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ITEM 14(a)3, EXHIBIT 10(t)
TESORO PETROLEUM CORPORATION
Non-Employee Director Retirement Plan
(Effective December 8, 1994)
To promote the interest of Tesoro Petroleum Corporation (the
"Company") and to assist the Company in obtaining and retaining qualified
persons to act as directors of the Company, the Company has adopted the
following Non-Employee Director Retirement Plan (the "Plan").
1. ADMINISTRATION. The Plan shall be administered by the Company's Board
of Directors or by a committee consisting of directors of the Company
appointed by the Board of Directors (the "Committee"). The Committee
shall make all determinations which may be necessary or advisable for
the administration of the Plan and is granted all powers and
discretion granted in Section 7.3 and 7.4 of the Tesoro Petroleum
Corporation Board of Directors Deferred Compensation Plan.
2. ELIGIBILITY. Each person, other than full-time employees of the
Company, serving, on or after the Effective Date of this Plan, as a
director subject to reelection by the holders of capital stock of the
Company entitled to vote in the elections of directors shall be
entitled to elect to participate in this Plan. Each director electing
to participate shall be entitled to benefits or the terms and
conditions set forth below.
3. RETIREMENT BENEFIT. Any eligible director who elects to participate
in this Plan and has served on the Board of Directors of the Company
for at least an aggregate of three full years (excluding service while
a full-time employee of the Company) shall be entitled to a retirement
payment beginning the later of the director's sixty-fifth birthday or
such later date that the individual's service as a director ends (the
"Retirement Date"), as provided herein. Subject to Sections 4 and 5
below, the Company shall pay to the director annually a sum (the
"Retirement Amount") equal to the base annual director retainer fee
paid at the time the person ends service as a director of the Company.
The base annual director retainer fee shall not include fees paid for
attendance at meetings or other purposes. After a director's
Retirement Date, the Retirement Amount shall be paid in monthly
installments beginning on the first day of the month following the
director's Retirement Date. The obligations of the Company under this
Plan shall be subject to such provisions as it may deem appropriate
for the withholding of any taxes which the Company determines is
required to be withheld in connection with any payment under this
Plan.
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Page 2
4. TERMINATION OF PAYMENT. The Company shall pay the Retirement Amount
annually for a period equal to the aggregate length of time (the
"Benefit Period") the director served on the Board of Directors
(excluding any period during which the director was a full-time
employee of the Company), such period to be rounded up to the next
full year; provided that the Company's obligation to pay the
Retirement Amount shall terminate upon the death of the director.
Notwithstanding the preceding sentence, in the event of death of a
director after age 65, the Company shall pay an amount equal to 50
percent of the Retirement Amount to such director's spouse for the
shorter of the remaining term of the Benefit Period or until the date
of death of such spouse. In the event of death of a director during a
year, the amount paid the surviving spouse shall be prorated based on
the director's date of death. If a director does not have a spouse at
the time of his death, no further benefits shall be paid.
5. SPECIAL RETIREMENT PAYMENT. In addition to the benefit provided in
Section 3 above, if an electing director was the Chairman of the Board
or the Chairman of any committee of the Company's Board (the "Board")
at the time the director's service ends, the Company shall pay such
person a one-time payment equal to the fee paid the prior calendar
year by the Company for such individual's service as Chairman of the
Board and/or Chairman of any committee of the Board. This payment is
to be made within 30 days of the date the director's service ends. In
the event of death of a director while serving as Chairman of the
Board or Chairman of any committee of the Board, this payment shall be
made to such director's spouse if living, otherwise to his estate.
6. CONSULTATION. At any time payments are being made to a person
pursuant to this Plan, such person agrees to be available to consult
with and advise the Board of Directors of the Company from time to
time upon reasonable notice; provided that the Company shall pay all
out-of-pocket expenses of such person, such person shall not be
obligated to travel and such consultations shall not require more of
such person's time than that required when he served as a director.
7. MEDIATION-ARBITRATION. A director and the Company will attempt in
good faith to resolve any controversy or claim arising out of or
relating to this agreement by mediation in accordance with the Center
for Public Resources Model Procedure for Mediation of Business
Disputes.
If the matter has not been resolved pursuant to the aforesaid
mediation procedure within 60 days of the commencement of such
procedure (which period may be extended by mutual agreement), or if
either party will not participate in a mediation, the controversy
shall be settled by arbitration in accordance with the Center for
Public Resources Rules for Non-Administered
<PAGE> 3
Page 3
Arbitration of Business Disputes, by a sole arbitrator. The
arbitration shall be governed by the United States Arbitration Act, 9
U.S.C. Section 1-16, and judgment upon the award rendered by the
Arbitrator(s) may be entered by any court having jurisdiction thereof.
The place of arbitration shall be San Antonio, Texas. The arbitrators
are not empowered to award damages in excess of actual damages,
including punitive damages.
8. EFFECTIVE DATE. This Plan shall be effective on December 8, 1994, and
shall remain in effect until termination by a resolution of the Board
of Directors of the Company. Upon termination of this Plan, no person
who has not retired shall be entitled to any benefits hereunder.
However, the benefits payable to all then-retired directors shall
continue in accordance with this Plan.
9. AMENDMENT OR TERMINATION OF THE PLAN. The members of the Board of
Directors may amend or terminate this Plan at any time by an
instrument in writing. Neither Plan termination nor amendment will
affect the rights of any director to the benefits which would then be
payable if such individual were then age 65 and ended his service
immediately before such amendment or termination. Any such benefits
shall be based upon the director fee schedule then in place.
10. PAYMENTS UNDER THIS AGREEMENT ARE THE OBLIGATIONS OF COMPANY. Company
will pay the benefits due under this Plan from the general assets of
the Company.
11. LIMITATION OF RIGHTS. Nothing in this Plan will be construed:
(a) To give any member of the Board of Directors any right to be
designated a participant in the Plan;
(b) To limit in any way the right of Company to remove an
individual from the Board of Directors at any time; or
(c) To evidence any agreement or understanding, expressed or
implied, that Company will retain an individual as a member of
the Board of Directors for any particular remuneration or any
terms of years.
12. DISTRIBUTIONS TO INCOMPETENTS. Should a director or spouse of a
deceased director become incompetent, the Committee is authorized to
pay the funds due directly to the incompetent or to apply those funds
for the benefit of the incompetent in any manner the Committee
determines in its sole discretion.
13. NONALIENATION OF BENEFITS. No right or benefit provided in this Plan
will be transferable by the individual. No right or benefit under
this Plan will be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance or charge,
<PAGE> 4
Page 4
and any attempt to anticipate, alienate, sell, assign, pledge,
encumber, or charge the same will be void. No right or benefit under
this Plan will in any manner be liable for or subject to any debts,
contracts, liabilities or torts of the person entitled to such
benefits. If any director or spouse of a deceased director becomes
bankrupt or attempts to anticipate, alienate, sell, assign, pledge,
encumber or charge any right or benefit under this Plan, that right or
benefit will, in the discretion of the Committee, cease. In that
event, the Committee may have Company hold or apply the right or
benefit or any part of it to the benefit of such individual or his or
her spouse in any manner the Committee believes to be proper in its
sole and absolute discretion, but is not required to do so.
14. SEVERABILITY. If any term, provision, covenant or condition of the
Plan is held to be invalid, void or otherwise unenforceable, the rest
of the Plan will remain in full force and effect and will in no way be
affected, impaired or invalidated.
15. NOTICE. Any notice or filing required or permitted to be given to the
Committee or a director or spouse of a deceased director will be
sufficient if in writing and hand delivered or sent by U.S. mail to
the principal office of Company or to the last known residential
mailing address of such individual. Notice will be deemed to be given
as of the date of hand delivery or if delivery is by mail, as of the
date shown on the postmark.
16. GENDER AND NUMBER. Words used in this Plan of one gender are to be
construed as though they were also used in another gender in all cases
where they would so apply and likewise words in the singular or plural
are to be construed as though they also included the other in all
cases where they would so apply.
17. GOVERNING LAW. The Plan will be construed, administered and governed
in all respects by the laws of the state of Texas.
IN WITNESS WHEREOF, the Company has executed this document effective
the 8th day of December 1994.
TESORO PETROLEUM CORPORATION
By /s/ WILLIAM T. VAN KLEEF
William T. Van Kleef
Vice President, Treasurer
<PAGE> 1
ITEM 14(a)3, EXHIBIT 10(u)
TESORO PETROLEUM CORPORATION
BOARD OF DIRECTORS DEFERRED COMPENSATION PLAN
WHEREAS, Tesoro Petroleum Corporation seeks to establish the Tesoro
Petroleum Corporation Board of Directors Deferred Compensation Plan effective
April 1, 1995, to provide certain members of the Board of Directors with a
deferred compensation plan whereby a portion of their director's fees may be
deferred by election prior to its being earned by the director;
NOW, THEREFORE, Tesoro Petroleum Corporation adopts the Tesoro
Petroleum Corporation Board of Directors Deferred Compensation Plan as follows:
ARTICLE I
DEFINITIONS
1.1 ACCOUNT. "Account" means a Participant's Account in the Deferred
Compensation Ledger maintained by the Committee which reflects the
benefits a Participant is entitled to under this Plan.
1.2 BENEFICIARY. "Beneficiary" means a person or entity designated by the
Participant under the terms of this Plan to receive any amounts
distributed under the Plan upon the death of the Participant.
1.3 BOARD OF DIRECTORS. "Board of Directors" means the Board of Directors
of Tesoro Petroleum Corporation.
1.4 CHANGE OF CONTROL. For purposes of this Agreement, a "change of
control" shall be deemed to have occurred if (i) there shall be
consummated (A) any consolidation or merger of Corporation in which
Corporation is not the continuing or surviving corporation or pursuant
to which shares of Corporation's Common Stock would be converted into
cash, securities or other property, other than a merger of Corporation
where a majority of the Board of Directors of the surviving
corporation are, and for a two-year period after the merger continue
to be, persons who were directors of Corporation immediately prior to
the merger or were elected as directors, or nominated for election as
director, by a vote of at least two-thirds of the directors then still
in office who were directors of Corporation immediately prior to the
merger, or (B) any sale, lease, exchange or transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of Corporation, or (ii) the
shareholders of Corporation shall approve any plan or proposal for the
liquidation or dissolution of Corporation, or (iii) (A) any "person"
(as such term
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is used in Sections 13(d) and 14(d)(2) of the Securities Act), other
than Corporation or a subsidiary thereof or any employee benefit plan
sponsored by Corporation or a subsidiary thereof, shall become the
beneficial owner (within the meaning of Rule 13d-3 under the
Securities Act) of securities of Corporation representing 20 percent
or more of the combined voting power of Corporation's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, and (B) at any time
during a period of two years thereafter, individuals who immediately
prior to the beginning of such period constituted the Board of
Directors of Corporation shall cease for any reason to constitute at
least a majority thereof, unless the election or the nomination by the
Board of Directors for election by Corporation's shareholders of each
new director during such period was approved by a vote of at least
two-thirds of the directors then still in office who were directors
at the beginning of such period.
1.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
1.6 COMMITTEE. "Committee" means the persons who are from time to time
serving as President, Secretary and Treasurer of Corporation. These
persons shall constitute the members of the committee administering
this Plan.
1.7 CORPORATION. "Corporation" means Tesoro Petroleum Corporation.
1.8 DEFERRED COMPENSATION LEDGER. "Deferred Compensation Ledger" means
the ledger maintained by the Committee for each Participant which
reflects the amount of compensation deferred by the Participant under
this Plan and the amount of interest credited to his Account.
1.9 DISABILITY. "Disability" means a physical or mental condition which,
in the judgment of the Committee, totally and presumably permanently
prevents the Participant from engaging in any substantial gainful
employment. A determination that Disability exists shall be based
upon competent medical evidence satisfactory to the Committee.
1.10 PARTICIPANT. "Participant" means a member of the Board of Directors
of Corporation who is not otherwise employed by Corporation or a
subsidiary of Corporation.
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1.11 PLAN. "Plan" means the Tesoro Petroleum Corporation Board of
Directors Deferred Compensation Plan set forth in this document, as
amended from time to time.
1.12 PLAN YEAR. "Plan Year" means the nine-month period beginning April 1,
1995, and ending December 31, 1995, and for all future years the
calendar year.
1.13 RETIREMENT. "Retirement" means the retirement of a Participant from
the Board of Directors of Corporation at or after age 65.
1.14 SECURITIES ACT. "Securities Act" means the Securities Exchange Act of
1934, as amended from time to time.
1.15 TRUST. "Trust" means the Tesoro Petroleum Corporation Board of
Directors Deferred Compensation Trust created by separate agreement.
ARTICLE II
ELIGIBILITY
All members of the Board of Directors who are not otherwise employed
by Corporation or a subsidiary of Corporation will be eligible to participate
in this Plan.
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ARTICLE III
DEFERRAL
3.1 DEFERRAL ELECTION. A new Participant may elect not later than 30 days
following election to the Board what, if any, percentage of his
director's fee earned during the ensuing Plan Year is to be deferred
under this Plan. All other Participants may elect prior to the
beginning of any Plan Year what, if any, percentage of his director's
fee earned during the ensuing Plan Year is to be deferred under this
Plan. Once an election has been made as to the percentage to be
deferred it becomes irrevocable for that Plan Year. The election to
participate in the Plan for a given Plan Year will be effective only
upon receipt by the Committee of the Participant's percentage deferral
election on such form and at such time as will be determined by the
Committee from time to time. If the Committee fails to receive a
Participant's election prior to the beginning of a Plan Year, that
Participant will be deemed to have elected to defer his director's
fees for that Plan Year on the same basis as his most recent election.
3.2 DEFERRAL AMOUNT. A Participant who elects to defer a percentage of
his director's fees for the ensuing year may defer a minimum of 20
percent and a maximum of 100 percent, or any percentage amount
between the minimum and the maximum in increments of 10 percent.
ARTICLE IV
ACCOUNT
4.1 ESTABLISHING A PARTICIPANT'S ACCOUNT. The Committee will establish an
Account for each Participant in a special Deferred Compensation Ledger
which will be maintained by Corporation. The Account will reflect the
amount of Corporation's obligation to the Participant at any given
time.
4.2 CREDIT OF THE PARTICIPANT'S DEFERRAL. The Committee will credit the
amount of a Participant's deferral to the Participant's Account in the
Deferred Compensation Ledger as it would have been paid during the
Plan Year but for the deferral which was elected. Each Account shall
be adjusted as of the end of each calendar year quarter (the
"Valuation Date") for amounts deferred during such calendar year
quarter plus interest as set forth in Section 4.3 on the Account
balance as of the beginning of such quarter. In the event of a
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Change of Control, interest will not be credited after the most recent
Valuation Date preceding the Change of Control.
4.3 CREDITING OF INTEREST. Interest will be credited on a Participant's
Account at the rate established by Section 4.4 compounded quarterly.
A full quarter's interest shall be credited for any partial month at
the end of the period for which it is calculated.
4.4 INTEREST RATE. Interest will be applied to each quarter's deferral at
the prime rate published in The Wall Street Journal (Southwest
Edition) on the last business day of such quarter plus two percentage
points. Except as provided above, interest will continue to be
credited until distribution is made in the case of a lump sum or until
distribution has commenced in the case of an installment distribution
when the rate calculated under Section 4.5 becomes applicable.
4.5 PROCEDURE TO CREDIT INTEREST AFTER DISTRIBUTION HAS BEGUN. For
purposes of crediting interest to a Participant's Account once the
Participant has qualified for and is receiving an installment
distribution, the interest rate to be applied to the declining balance
beginning immediately after the first installment is due will be that
rate determined by taking a quarterly average of the rate calculated
under Section 4.4 for the last calendar year prior to the month in
which the first installment becomes due. This rate, once established,
will be used until the distribution is complete, and interest will be
compounded annually.
ARTICLE V
VESTING
All deferrals of directors' fees will be 100 percent vested at all
times. The applicable interest accumulated on those deferrals will be 100
percent vested.
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ARTICLE VI
DISTRIBUTIONS
6.1 DEATH/BENEFICIARY DESIGNATION. Upon the death of a Participant, the
Participant's Beneficiary or Beneficiaries will receive the balance
then credited to the Participant's Account in the Deferred
Compensation Ledger in one lump sum payment of principal and interest.
The payment will be made within 90 days after the Participant's death.
Each Participant, at the time of making his initial deferral election,
must file with the Committee a designation of one or more
Beneficiaries to whom distributions otherwise due the Participant will
be made in the event of his death prior to the complete distribution
of the amount credited to his Account in the Deferred Compensation
Ledger. The designation will be effective upon receipt by the
Committee of a properly executed form which the Committee has approved
for that purpose. The Participant may from time to time revoke or
change any designation of Beneficiary by filing another approved
Beneficiary designation form with the Committee. If there is no valid
designation of Beneficiary on file with the Committee at the time of
the Participant's death, or if all of the Beneficiaries designated in
the last Beneficiary designation have predeceased the Participant or
otherwise ceased to exist, the Beneficiary will be the Participant's
spouse, if the spouse survives the Participant, or otherwise the
Participant's estate. A Beneficiary must survive the Participant by
60 days in order to be considered to be living on the date of the
Participant's death. If any Beneficiary survives the Participant but
dies or otherwise ceases to exist before receiving all amounts due the
Beneficiary from the Participant's Account, the balance of the amount
which would have been paid to that Beneficiary will, unless the
Participant's designation provides otherwise, be distributed to the
individual deceased Beneficiary's estate or to the Participant's
estate in the case of a Beneficiary which is not an individual.
6.2 DISABILITY. Upon the disability of a Participant, the Participant
will receive the entire amount credited to the Participant's Account
in the Deferred Compensation Ledger in 10 equal annual installments of
principal and interest. The first installment will be made on January
1 after the Participant becomes disabled and each succeeding
installment will be made on the same day of each succeeding year
thereafter. The Committee, in its sole discretion, may distribute
such amount over such shorter period as it may determine including a
lump sum.
6.3 RETIREMENT. Upon the Retirement of a Participant, the Participant
will receive the entire amount credited to his Account in the Deferred
Compensation
<PAGE> 7
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Ledger in 10 equal annual installments of principal and interest. The
first installment will be made on January 1 after the Participant's
Retirement and each succeeding installment will be made on the same
day of each succeeding year thereafter. The Committee, in its sole
discretion, may distribute such amount over such shorter period
as it may determine including a lump sum.
6.4 REMOVAL OR RESIGNATION PRIOR TO DEATH, DISABILITY OR RETIREMENT. Upon
a participant's removal or resignation from the Board of Directors
prior to death, Disability or Retirement, the Participant will receive
the amount credited to his Account in the Deferred Compensation Ledger
in 10 equal annual installments of principal and interest. The first
installment will be made on January 1 after the Participant's removal
or resignation from the Board of Directors. The Committee, in its
sole discretion, may distribute such amount over such shorter period
as it may determine including a lump sum.
6.5 HARDSHIP WITHDRAWALS. Any Participant who is in pay status may
request a hardship withdrawal. No hardship withdrawal can exceed the
lesser of the amount credited to the Participant's Account or the
amount reasonably needed to satisfy the emergency need. Whether a
hardship exists and the amount reasonably needed to satisfy the
emergency need will be determined by the Committee based upon the
evidence presented by the Participant and the rules established in
this section. If a hardship withdrawal is approved by the Committee
it will be paid within 10 days of the Committee's determination. For
purposes of this section, hardship shall mean any financial emergency
or extreme hardship affecting the personal or family affairs of the
Participant and having a significant financial effect. The Committee
may find that financial emergency or extreme hardship exists in
situations in which a distribution is necessary for purposes such as,
but not limited to, the following: (i) for the purpose of enabling a
Participant to meet financial requirements of an illness or disability
of the Participant or a member of his family; (ii) for the purpose of
purchasing a principal home or preserving a principal home in which
the Participant lives or will live; (iii) for the purpose of providing
for the education of a Participant's children; and (iv) for the
purpose of defraying major legal expenses and liability assessments or
judgments arising out of legal proceedings involving the Participant
or a member of his family. The decision of the Committee regarding
the existence or nonexistence of a hardship of a Participant shall be
final and binding. The Committee shall have the authority to require
a participant to provide such proof as it deems necessary to establish
the existence and significant nature of the Participant's hardship.
6.6 RESPONSIBILITY FOR DISTRIBUTIONS AND WITHHOLDING OF TAXES. The
Committee will furnish information to Corporation concerning the
amount and form of distribution to any Participant entitled to a
distribution so that Corporation may
<PAGE> 8
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make or cause the Trust to make the distribution required. The
Committee will also calculate the deductions from the amount of the
benefit paid under the Plan for any taxes required to be withheld by
federal, state or local government and will cause them to be
withheld.
6.7 CHANGE OF CONTROL. Notwithstanding the above, in the event of a
Change of Control, all accounts shall be adjusted as provided in
Article IV, and all Participant Accounts shall be distributed as a
lump sum within 30 days after the date of the Change of Control.
ARTICLE VII
ADMINISTRATION
7.1 COMMITTEE APPOINTMENT. The Committee will be comprised of the
President, the Secretary and the Treasurer of Corporation.
7.2 COMMITTEE ORGANIZATION AND VOTING. The Committee will select from
among its members a chairman who will preside at all of its meetings
and will elect a secretary without regard to whether that person is a
member of the Committee. The secretary will keep all records,
documents and data pertaining to the Committee's supervision and
administration of the Plan. A majority of the members of the
Committee will constitute a quorum for the transaction of business and
the vote of a majority of the members present at any meeting will
decide any question brought before the meeting. In addition, the
Committee may decide any question by vote, taken without a meeting, of
a majority of its members. A member of the Committee who is also a
participant will not vote or act on any matter relating solely to
himself.
7.3 POWERS OF THE COMMITTEE. The Committee will have the exclusive
responsibility for the general administration of the Plan according to
the terms and provisions of the Plan and will have all powers
necessary to accomplish those purposes, including but not by way of
limitation the final authority, right and power:
(a) To make rules and regulations for the administration of the
Plan;
(b) To construe all terms, provisions, conditions and limitations
of the Plan;
(c) To correct any defect, supply any omission or reconcile any
inconsistency that may appear in the Plan in the manner and to
the
<PAGE> 9
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extent it deems expedient to carry the Plan into effect
for the greatest benefit of all parties at interest;
(d) To designate the persons eligible to become Participants;
(e) To determine all controversies relating to the administration
of the Plan, including but not limited to:
(1) Differences of opinion arising between Corporation
and a Participant except when the difference of
opinion relates to the entitlement to, the amount of
or the method or timing of payment of a benefit
affected by a Change of Control; and
(2) Any question it deems advisable to determine in order
to promote the uniform administration of the Plan for
the benefit of all parties at interest; and
(f) To delegate those clerical and recordation duties of the
Committee, as it deems necessary or advisable for the proper
and efficient administration of the Plan.
7.4 COMMITTEE DISCRETION. The Committee in exercising any power or
authority granted under this Plan or in making any determination under
this Plan shall perform, or refrain from performing, those acts using
its sole discretion and judgment. Any decision made by the Committee
or any refraining to act or any act taken by the Committee in good
faith shall be final and binding on all parties. The Committee's
decision shall never be subject to de novo review.
7.5 COMMITTEE DISCRETION ON CHANGE OF CONTROL. Notwithstanding the
foregoing, the Committee's decisions, refraining to act or acting is
to be subject to judicial review for those incidents occurring during
the Plan Year in which a Change of Control occurs.
7.6 ANNUAL STATEMENTS. The Committee will cause each Participant to
receive an annual statement as soon as administratively practicable
after the conclusion of each Plan Year containing the amounts deferred
through that Plan Year and the interest applicable to the deferred
amounts.
7.7 REIMBURSEMENT OF EXPENSES. The Committee will serve without
compensation for their services but will be reimbursed by Corporation
for all expenses properly and actually incurred in the performance of
their duties under the Plan.
<PAGE> 10
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ARTICLE VIII
AMENDMENT AND/OR TERMINATION
8.1 AMENDMENT OR TERMINATION OF THE PLAN. The members of the Board of
Directors who are not eligible to participate may amend or terminate
this Plan at any time by an instrument in writing.
8.2 NO RETROACTIVE EFFECT ON ACCOUNT. No amendment will affect the rights
of any participant to the amounts then standing to his credit in his
Account in the Deferred Compensation Ledger, to change the method of
calculating the rate of interest already accrued or to accrue in the
future on amounts deferred by him prior to the date of the amendment
or to change a participant's right under any provision relating to a
Change of Control after a Change of Control has occurred without the
Participant's consent. However, the members of the Board of Directors
who are not eligible to participate shall retain the right at any time
to change in any manner the method of calculating the rate of interest
on all amounts deferred by a Participant after the date of the
amendment if it has been announced to the Participants.
8.3 EFFECT OF TERMINATION. If the Plan is terminated, all amounts
deferred by participants and credited to a participant's Account
remain vested under Article V, and interest will be applied to the
Account in accordance with Section 4.4 as if the Participant were
entitled to and did retire on the date the Plan terminated.
Distribution would commence in accordance with Section 6.3 as soon as
conveniently practicable, and interest during the distribution period
would be calculated and credited in accordance with Section 4.5. In
the event of a Change of Control following Plan termination, all
Accounts shall be distributed as provided in Section 6.7.
<PAGE> 11
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ARTICLE IX
FUNDING
9.1 PAYMENTS UNDER THIS AGREEMENT ARE THE OBLIGATION OF CORPORATION.
Corporation will pay the benefits due the Participants under this
Plan; however should it fail to do so when a benefit is due, the
benefit will be paid by the trustee of the Trust entered into
contemporaneously with this agreement, by and between Corporation and
Frost National Bank. In any event, if the Trust fails to pay for any
reason, Corporation remains liable for the payment of all benefits
provided by this Plan.
9.2 AGREEMENT MAY BE FUNDED THROUGH RABBI TRUST. It is specifically
recognized by both Corporation and the Participants that Corporation
may, but is not required to, contribute any amount it finds desirable
to a so- called "Rabbi Trust," established to accumulate assets
sufficient to fund the obligations of Corporation under this Plan.
However, under all circumstances, the rights of the Participants to
the assets held in the Trust will be no greater than the rights
expressed in this agreement. Nothing contained in any trust agreement
which creates any funding trust or trusts will constitute a guarantee
by Corporation that assets of Corporation transferred to that trust or
those trusts will be sufficient to pay any benefits under this Plan or
would place the participant in a secured position ahead of general
creditors should Corporation become insolvent or bankrupt. Any trust
agreement prepared to fund Corporation's obligations under this
agreement must specifically set out these principles so it is clear in
that trust agreement that the Participants in this Plan are only
unsecured general creditors of Corporation in relation to their
benefits under this Plan.
9.3 REVERSION OF EXCESS ASSETS. Corporation may at any time request the
actuary, who last performed the annual actuarial valuation of the
Corporation Retirement Plan, to determine the present value of the
accrued benefit, as of the month end coincident with or next following
the request, of all Participants and Beneficiaries of deceased
Participants for which Corporation is or will be obligated to make
payments under this Plan. If the fair market value of the assets held
in the Trust, as determined by the trustee as of that same date,
exceeds the total of the accrued benefits of all Participants and
Beneficiaries by 25 percent, Corporation may direct the trustee to
return to it all of the excess funds.
9.4 PARTICIPANTS MUST RELY ONLY ON GENERAL CREDIT OF CORPORATION. It is
also specifically recognized by both Corporation and the participants
that this Plan is only a general corporate commitment and that each
participant must rely
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upon the general credit of Corporation for the fulfillment of its
obligations hereunder. Under all circumstances the rights of
Participants to any asset held by Corporation will be no greater than
the rights expressed in this agreement. Nothing contained in this
agreement will constitute a guarantee by Corporation that the assets
of Corporation will be sufficient to pay any benefits under this Plan
or would place the Participant in a secured position ahead of general
creditors of Corporation. Though Corporation has established and may
fund a Rabbi Trust, as indicated in Section 9.2, to accumulate assets
to fulfill its obligations, the Plan and any such trust will not
create any lien, claim, encumbrance, right, title or other interest of
any kind whatsoever in any participant in any asset held by
Corporation, contributed to any such trust or otherwise designated to
be used for payment of any of its obligations created in this
agreement. No specific assets of Corporation have been or will be set
aside, or will in any way be transferred to any trust or will be
pledged in any way for the performance of Corporation's obligations
under this Plan which would remove such assets from being subject to
the general creditors of Corporation.
ARTICLE X
MEDIATION--ARBITRATION
The Participants and Corporation will attempt in good faith to resolve
any controversy or claim arising out of or relating to this agreement by
mediation in accordance with the Center for Public Resources Model Procedure
for Mediation of Business Disputes.
If the matter has not been resolved pursuant to the aforesaid
mediation procedure within 60 days of the commencement of such procedure (which
period may be extended by mutual agreement), or if either party will not
participate in a mediation, the controversy shall be settled by arbitration in
accordance with the Center for Public Resources Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator. The arbitration shall
be governed by the United States Arbitration Act, 9 U.S.C. Section 1-16, and
judgment upon the award rendered by the Arbitrator(s) may be entered by any
court having jurisdiction thereof. The place of arbitration shall be San
Antonio, Texas. The arbitrator(s) are not empowered to award damages in excess
of actual damages, including punitive damages.
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ARTICLE XI
MISCELLANEOUS
11.1 LIMITATION OF RIGHTS. Nothing in this Plan will be construed:
(a) To give any member of the Board of Directors any right to be
designated a Participant in the Plan;
(b) To give a Participant any right with respect to the fee or
compensation deferred or the interest credited in the Deferred
Compensation Ledger, except in accordance with the terms of
this Plan;
(c) To limit in any way the right of Corporation to remove a
Participant from the Board of Directors at any time;
(d) To evidence any agreement or understanding, expressed or
implied, that Corporation will retain a participant as a
member of the Board of Directors for any particular
remuneration; or
(e) To give a participant or any other person claiming through him
any interest or right under this Plan other than that of any
unsecured general creditor of Corporation.
11.2 DISTRIBUTIONS TO INCOMPETENTS OR MINORS. Should a Participant become
incompetent or should a Participant designate a Beneficiary who is a
minor or incompetent, the Committee is authorized to pay the funds due
to the parent of the minor or to the guardian of the minor or
incompetent or directly to the minor or to apply those funds for the
benefit of the minor or incompetent in any manner the Committee
determines in its sole discretion.
11.3 NONALIENATION OF BENEFITS. No right or benefit provided in this Plan
will be transferable by the Participant except, upon his death, to a
named Beneficiary as provided in this Plan. No right or benefit under
this Plan will be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance or charge, and any attempt to
anticipate, alienate, sell, assign, pledge, encumber, or charge the
same will be void. No right or benefit under this Plan will in any
manner be liable for or subject to any debts, contracts, liabilities
or torts of the person entitled to such benefits. If any Participant
or any Beneficiary becomes bankrupt or attempts to anticipate,
alienate, sell, assign, pledge, encumber or charge any right or
benefit under this Plan, that right or benefit will, in the discretion
of the Committee, cease. In that event, the Committee may have
Corporation hold or apply the right or benefit or any part of it to
the benefit of
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the Participant or Beneficiary, his or her spouse, children or other
dependents or any of them in any manner and in any proportion the
Committee believes to be proper in its sole and absolute
discretion, but is not required to do so.
11.4 RELIANCE UPON INFORMATION. The Committee will not be liable for any
decision or action taken in good faith in connection with the
administration of this Plan. Without limiting the generality of the
foregoing, any decision or action taken by the Committee when it
relies upon information supplied it by any officer of Corporation,
Corporation's legal counsel, Corporation's independent accountants or
other advisors in connection with the administration of this Plan will
be deemed to have been taken in good faith.
11.5 SEVERABILITY. If any term, provision, covenant or condition of the
Plan is held to be invalid, void or otherwise unenforceable, the rest
of the Plan will remain in full force and effect and will in no way be
affected, impaired or invalidated.
11.6 NOTICE. Any notice or filing required or permitted to be given to the
Committee or a Participant will be sufficient if in writing and hand
delivered or sent by U.S. mail to the principal office of Corporation
or to the last known residential mailing address of the Participant.
Notice will be deemed to be given as of the date of hand delivery or
if delivery is by mail, as of the date shown on the postmark.
11.7 GENDER AND NUMBER. Words used in this Plan of one gender are to be
construed as though they were also used in another gender in all cases
where they would so apply and likewise words in the singular or plural
are to be construed as though they also included the other in all
cases where they would so apply.
11.8 GOVERNING LAW. The Plan will be construed, administered and governed
in all respects by the laws of the state of Texas.
11.9 EFFECTIVE DATE. This Plan will be operative and effective on April 1,
1995.
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IN WITNESS WHEREOF, Corporation has executed this document on
this 23rd day of February 1995.
TESORO PETROLEUM CORPORATION
By /s/ WILLIAM T. VAN KLEEF
___________________________________
William T. Van Kleef
Vice President, Treasurer
<PAGE> 1
ITEM 14(a)3, EXHIBIT 10(v)
TESORO PETROLEUM CORPORATION
BOARD OF DIRECTORS DEFERRED COMPENSATION TRUST
This agreement made and entered into by and between Tesoro Petroleum
Corporation and Frost National Bank, a banking corporation, located in San
Antonio, Bexar County, Texas, as Trustee.
WHEREAS, Tesoro Petroleum Corporation adopted the Tesoro Petroleum
Corporation Board of Directors Deferred Compensation Plan effective April 1,
1995, and approved the establishment of this Trust for the Payment of benefits
from that Plan;
NOW, THEREFORE, in consideration of the mutual undertakings of each of
the parties, the parties agree to the establishment of this Tesoro Petroleum
Corporation Board of Directors Deferred Compensation Trust to read as follows:
ARTICLE I
DEFINITIONS
1.1 BOARD OF DIRECTORS. "Board of Directors" means the Board of Directors
of Corporation.
1.2 CHANGE OF CONTROL. For purposes of this Agreement, a "change of
control" shall be deemed to have occurred if (i) there shall be
consummated (A) any consolidation or merger of Corporation in which
Corporation is not the continuing or surviving corporation or pursuant
to which shares of Corporation's Common Stock would be converted into
cash, securities or other property, other than a merger of Corporation
where a majority of the Board of Directors of the surviving
corporation are, and for a two-year period after the merger continue
to be, persons who were directors of Corporation immediately prior to
the merger or were elected as directors, or nominated for election as
director, by a vote of at least two-thirds of the directors then still
in office who were directors of Corporation immediately prior to the
merger, or (B) any sale, lease, exchange or transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of Corporation, or (ii) the
shareholders of Corporation shall approve any plan or proposal for the
liquidation or dissolution of Corporation, or (iii) (A) any "person"
(as such term is used in Sections 13(d) and 14(d)(2) of the Securities
Act), other than Corporation or a subsidiary thereof or any employee
benefit plan sponsored by Corporation or a subsidiary thereof, shall
become the beneficial owner (within the meaning of Rule 13d-3 under
the Securities Act) of securities of
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Corporation representing 20 percent or more of the combined voting
power of Corporation's then outstanding securities ordinarily (and
apart from rights accruing in special circumstances) having the right
to vote in the election of directors, as a result of a tender or
exchange offer, open market purchases, privately negotiated purchases
or otherwise, and (B) at any time during a period of two years
thereafter, individuals who immediately prior to the beginning of such
period constituted the Board of Directors of Corporation shall cease
for any reason to constitute at least a majority thereof, unless the
election or the nomination by the Board of Directors for
election by Corporation's shareholders of each new director during
such period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of
such period.
1.3 CODE. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
1.4 COMMITTEE. "Committee" means the persons who are from time to time
serving as members of the committee administering the Plan.
1.5 CORPORATION. "Corporation" means Tesoro Petroleum Corporation.
1.6 PARTICIPANT. "Participant" means a member of the Board of Directors
of Corporation who is not otherwise employed by Corporation or a
subsidiary of Corporation.
1.7 PLAN. "Plan" means the Tesoro Petroleum Corporation Board of
Directors Deferred Compensation Plan, as amended from time to time.
1.8 PLAN YEAR. "Plan Year" means the calendar year.
1.9 SECURITIES ACT. "Securities Act" means the Securities Exchange Act of
1934, as amended from time to time.
1.10 TRUST. "Trust" means the Corporation Board of Directors Deferred
Compensation Trust created by this agreement.
1.11 TRUSTEE. "Trustee" means Frost National Bank which is serving as
trustee under this agreement or any successor or successors as shall
be appointed pursuant to this agreement upon the resignation or
removal of the previous person or entity serving as trustee under this
agreement.
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ARTICLE II
ESTABLISHMENT OF TRUST
2.1 PURPOSE. This Trust is hereby established by Corporation and the
Trustee for the sole purpose of creating a fund to provide for the
payment of deferred compensation to the Plan Participants.
2.2 IRREVOCABLE SUBJECT TO CERTAIN EXCEPTIONS. Subject only to the
exceptions in this section all contributions to, all assets held in,
and all earnings of this Trust are solely and irrevocably dedicated to
the payment of (a) the deferred compensation described in the Plan for
the benefit of the Participants and (b) the reasonable expenses of
administering the Trust until the Plan has been satisfied in full, at
which time the Trust will terminate as provided in Section 10.3.
Provided, however, the assets held in the Trust will be subject to
judgment creditors of Corporation and will be subject to the general
creditors of Corporation if Corporation becomes insolvent. To that
end if the Trustee receives notice from Corporation pursuant to
Section 5.3, the Trustee will suspend payment of all benefits under
the Trust, and will hold all assets of the Trust for the benefit of
Corporation's judgment creditors and/or general creditors as the case
may be. Further, if the Trustee receives written allegations of
Corporation's insolvency from any other source, the Trustee will
suspend the payment of all benefits under the Trust, and will hold all
of the Trust's assets for the benefit of Corporation's general
creditors, and must determine within 30 days whether Corporation is
solvent. However, the Trustee will resume payments, including any
benefits suspended, if it determines Corporation is solvent. In the
case of the Trustee's actual knowledge of a levy on the assets of the
Trust by a judgment creditor or the Trustee's actual knowledge of or
determination of Corporation's insolvency, the Trustee will deliver
the assets of the Trust as directed by a court of competent
jurisdiction.
ARTICLE III
CONTRIBUTIONS AND PLAN ADMINISTRATION
3.1 CONTRIBUTIONS. Corporation may contribute in cash or assets to the
Trust established for it the cost of providing benefits under the Plan
for the Participants at such time or times and in the manner
determined by Corporation.
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3.2 ESTABLISHING CONTRIBUTION ACCOUNTS FOR PARTICIPANTS. Corporation
will, at the time of its contribution, notify the Committee as to the
Participant for which the contribution is made so that the Committee
may maintain separate records for the accounts of the Participants who
are being funded by the Trust.
3.3 VALUATION OF TRUST; ALLOCATION OF GAINS AND LOSSES TO PARTICIPANTS'
ACCOUNTS. The Trustee will provide to the Committee, at intervals
agreed upon by them, but no less often than once each Plan Year, a
statement of the value of the Trust assets and the Trust income and
losses.
3.4 RETURN OF EXCESS ASSETS TO COMPANY. Corporation may at any time
request the plan consultant who administers the plan (or in the case
of a Change of Control, administered it just prior to the Change of
Control) to determine the present value of the Accounts as determined
under the Plan. If the fair market value of the assets held in the
Trust, as determined by the Trustee as of that same date, exceeds the
total of the Accounts of all Participants and Beneficiaries by 25
percent, Corporation may direct the Trustee to return to it all of the
excess funds.
ARTICLE IV
POWERS, DUTIES AND RESPONSIBILITIES OF THE TRUSTEE
4.1 GENERAL RESPONSIBILITIES. The Trustee, has the exclusive
responsibility for all of the Trust funds and all the powers necessary
to receive, hold, preserve, protect, conserve, manage and invest the
Trust funds as provided generally in this agreement and to pay all
costs and expenses. The Trustee will be responsible only for the sums
actually received by it as Trustee and will not be responsible for
determining the amount necessary to fund the Trust or for collecting
any contributions from Corporation.
4.2 INVESTMENT RESPONSIBILITY OF TRUSTEE. Except as set forth in the
following paragraphs of this section, the Trustee is required to
invest the Trust assets solely in U.S. Treasury obligations which
mature in three years or less unless and until the Committee (a)
issues a different investment direction, (b) directs the Trustee to
assume full investment responsibilities for the Trust or (c) directs
the Trustee to accept the direction of one or more investment managers
appointed by the Committee. If the Committee issues an investment
direction, permits the Trustee to assume full investment
responsibility or appoints one or more investment managers to direct
the investment of a portion of the Trust assets, the Trustee is
authorized and
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empowered to hold any asset, whether or not productive of income or
whether consisting of wasting assets, and to invest in any assets of
any kind or nature, whether real, personal or mixed, whether tangible
or intangible, in any rights or interests in property, or in any
evidence or indicia of property, including but not limited to the
following types of properties or interests therein, or anything of a
similar character, kind or class: insurance contracts, fees,
beneficial interests, leaseholds, bonds, whether taxable or
non-taxable, mutual funds, mortgages, leases, notes, whether secured
or not, obligations, savings accounts, certificates of deposit or like
investments with the commercial department of any bank, including any
bank acting as Trustee, common, pooled or collective trust funds which
any corporate trustee or any other corporation may now have or in the
future may adopt, or options, rights or warrants which entitle the
Trustee to subscribe to or purchase securities, so long as the
investments are made in accordance with the laws of the state of the
situs of the Trust and the terms of this agreement.
When the Trustee receives funds to be invested or determines that
assets in the Trust fund should be sold and the proceeds held for a
period of time pending reinvestment or other purpose, the funds may be
held uninvested in cash or invested in short-term investments such as
certificates of deposit with the Trustee, U.S. Treasury bills, savings
accounts with the Trustee, commercial paper or other similar assets
which may be offered by the Trustee and as may be determined by the
Trustee in its sole discretion.
Notwithstanding the first paragraph of this section, if there is a
Change of Control, all funds deposited prior to the Change of Control
are to be invested solely in U.S. Treasury obligations which mature in
three years or less unless there have been insurance policies
contributed to or purchased by the Trust prior to the Change of
Control in which event they shall be transferred to Corporation for a
corporation contribution in the amount of their terminal reserve value
plus cash surrender value, if any, and if Corporation elects not to
purchase said policies, the policies shall be distributed to the
insured Participant.
4.3 INVESTMENT POWERS OF TRUSTEE. The Trustee has, subject to the
requirements of Sections 4.1 and 4.2, the following powers, duties and
obligations relating to the receipt, preservation, conservation,
protection, management, investment and reinvestment of both principal
and income and disposition of the Trust created by this agreement, as
the Trust may be composed from time to time, in addition to all of the
powers, duties and obligations of the Trustee under common law and the
Texas Trust Code until the situs of the Trust is removed to another
state in which event the laws of the state of the situs of the Trust
will then govern:
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(a) To keep any and all securities and other property in its name
provided that its fiduciary capacity is disclosed;
(b) To vote, either in person or by proxy, any share of stock held
as a part of the assets of the Trust fund;
(c) To collect the principal and income of the Trust fund as the
same may become due and payable and to give binding receipt
therefor;
(d) To take any action, whether by legal proceeding, compromise,
or otherwise, as the Trustee in its sole discretion deems to
be in the best interest of the Trust if there is a default in
the payment of any principal or income of the Trust at any
time;
(e) To invest, sell and reinvest Trust assets in any assets it
selects within the limits described in Sections 4.1 and 4.2;
(f) To borrow from or loan such sums as the Trustee considers
necessary or desirable, and for that purpose to mortgage or
pledge all or any part of the property of the Trust;
(g) To substitute insureds on any policy held by the Trust; and
(h) To employ such accountants, lawyers, brokers, or other agents
as the Trustee deems advisable in administering the Trust
funds.
The Trustee will not be required to take any legal action to collect,
preserve or maintain any Trust property unless it has been indemnified
either by the Trust involved, or by Corporation with respect to any
expenses or losses to which it may be subjected by taking that action.
Any property acquired by the Trustee through the enforcement or
compromise of any claim or claims it has as Trustee will become a part
of the Trust fund.
4.4 PAYMENT AND DISTRIBUTION POWERS OF TRUSTEE. The Trustee has the
following powers relating to payments and distributions to be made
from the Trust funds.
(a) Pursuant to the terms of the Plan to pay, distribute and
deliver to a Participant any amounts due to him under the
terms of the Plan;
(b) Pursuant to the terms of Sections 2.2 and 5.3 to pay,
distribute and deliver to any judgment creditor and/or general
creditor, as the case may
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be, who qualified for it those sums determined to be due by
the appropriate authority;
(c) To pay out of the Trust fund all taxes of any nature levied,
assessed or imposed upon the Trust fund, all reasonable
expenses, including but not limited to, counsel fees, and the
Trustee's compensation; and
(d) Pursuant to the terms of Article III, upon receipt of a
certification by the actuary that excess funds are held in the
Trust, to return those excess funds to Corporation.
4.5 RELIANCE UPON REPRESENTATIONS OF TRUSTEE. All persons dealing with
the Trustee are entitled to rely upon the representations of the
Trustee as to its authority and are released from any duty to inquire
into its authority for taking or omitting any action or to verify that
any money paid or other property delivered to the Trustee is used by
the Trustee for trust purposes. Any action of the Trustee under the
Trust created by this agreement will be conclusive evidence of the
facts recited in it. All persons will be fully protected when acting
or relying upon any notice, resolution, instruction, direction, order,
certificate, opinion, letter, telegram or other document believed by
those persons to be genuine, to have been signed by the Trustee, and
to be the act of the Trustee.
4.6 DETERMINATION OF TRUSTEE'S OBLIGATIONS UNDER AGREEMENT; EMPLOYMENT OF
COUNSEL. The Trustee may engage and consult with legal counsel of its
choice, who may be counsel for Corporation or Trustee's own general
counsel, with respect to the meaning or construction of this agreement
or the Trustee's obligations or duties under this agreement.
4.7 WAIVER OF BOND, INVENTORY, RETURN AND REPORT TO COURT. The Trustee
will not be required to give bond or other security for the faithful
performance of its duties unless required by a law which cannot be
waived; and the Trustee will not be required to make any inventory,
return, or report to any court unless required by a law which cannot
be waived.
4.8 NEGATION OF TRUSTEE ENGAGING IN BUSINESS ENTERPRISE. Without regard
to any other provision of this agreement and any powers given to the
Trustee in this agreement, the Trustee will have no power to start,
enter into, or otherwise engage in a business enterprise if the
activities would constitute the carrying on of a trade or business
within the meaning of Treasury Regulation Section 301.7701.
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ARTICLE V
NOTICES AND DIRECTIONS
5.1 PROPER NOTICE TO TRUSTEE. The Trustee will not be bound by any
certificate, notice, resolution, consent, order, information or other
communication unless and until it has been received at a location
which is mutually agreeable to the parties and is in writing, signed
by a person designated pursuant to Section 5.2.
5.2 TRUSTEE'S RELIANCE ON NOTICE BY COMMITTEE AND CORPORATION. The
Trustee, in all matters pertaining to its management, investment and
distribution of the Trust, when it acts in good faith, may rely upon
any such notice, resolution, instruction, direction, order,
certificate, opinion, letter, telegram or other document believed by
the Trustee to be genuine, to have been signed by a proper
representative of the Committee or other party permitted to issue a
direction to it. In this connection, Corporation and the Committee
shall furnish to the Trustee the name and signature of the person or
persons who are entitled to act on behalf of Corporation when
communicating with or directing the Trustee on matters relating to the
Trust.
5.3 NOTICE TO TRUSTEE OF CORPORATION'S INSOLVENCY. In the event of a levy
by a judgment creditor or in the event of Corporation's insolvency
during the term of the Trust, Corporation's Board of Directors and
chief executive officer must give written notice to the Trustee within
a reasonable time not to exceed three days of the levy or of a finding
of insolvency, as the case may be. For this purpose "insolvency"
means the earlier of: becoming subject to proceedings as a debtor
under the federal Bankruptcy Code, the general assignment by
Corporation to or for the benefit of its creditors, or the inability
of Corporation to pay its debts as they mature.
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ARTICLE VI
TRUSTEE'S FEE AND EXPENSE
The Trustee will receive such compensation for services rendered as is
agreed upon from time to time between the Trustee and Corporation. Likewise,
the Trustee will be reimbursed for expenses properly and actually incurred in
the performance of its duties under this agreement. The Trustee's compensation
and the expenses of the Trust will be paid by Corporation, but should it fail
to do so, the Trustee is authorized to charge such compensation and expenses to
the Trust.
ARTICLE VII
LIABILITY OF THE TRUSTEE
7.1 TRUSTEE GENERALLY NOT LIABLE WHEN ACTING IN GOOD FAITH. The Trustee
will not be liable to the Trust or to any person having a beneficial
interest in the Trust for any losses or decline in value which may be
incurred upon any investment of the Trust fund, or for failure of the
fund to produce any or greater earnings, interest, or profits, so long
as the Trustee acts in good faith.
7.2 TRUSTEE GENERALLY NOT LIABLE FOR ACT OR OMISSION AT DIRECTION OF
COMMITTEE. The Trustee will not be liable for any act or omission by
it because of a direction of the Committee, Corporation or agent
appointed by either of them except to the extent required by any
applicable state or federal law, which liability cannot be waived.
When the Trustee has made any payment out of the Trust fund at the
direction of the Committee, Corporation or any agent appointed by
either of them, it will not be responsible for the correctness of the
amount of the payment to the recipient, or the method by which it is
paid. The Trustee is also protected in relying upon any certificate,
notice, resolution, consent, order, or other communication purporting
to have been signed on behalf of the Committee, Corporation or an
agent appointed by either of them which it believes to be genuine,
without any obligation on the part of the Trustee to ascertain whether
or not the provisions of this agreement are being fulfilled.
7.3 INDEMNIFICATION OF TRUSTEE. The Trustee shall be indemnified and held
harmless from any loss, liability, claim cost or expense (including
attorney fees, court costs, and other costs in defending a lawsuit)
arising out of its acting as Trustee of the Trust except for bad faith
or gross negligence. The Trustee
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shall not be liable for the actions of any other fiduciary or the
failure of any other fiduciary to take action in a given situation.
7.4 TRUSTEE'S POWER TO WITHHOLD FOR PAYMENT OF TAXES. The Trustee may, in
its sole discretion, withhold from distribution all or any part of the
fund which the Trustee considers necessary and proper for the payment
of taxes under present or future laws, which the Trustee is obligated
to pay or withhold.
7.5 TRUSTEE NOT REQUIRED TO PREPARE RETURNS OR REPORTS. The Trustee will
not be required to prepare, file, or distribute any tax return or
other report required by a governmental agency under state or federal
law. All such returns or reports shall be the obligation of
Corporation.
7.6 WHEN DETERMINING COURSE OF ACTION TRUSTEE MAY RELY UPON COMMITTEE. If
at any time the Trustee is in doubt concerning the course which it
should follow in connection with any matter relating to the
administration of the Trust, it may request the advice of the
Committee and be protected in relying upon the written advice or
direction given by the Committee except during any four-year period
beginning on the day a Change of Control occurs. During any such
period the Trustee may not request and rely on the advice of the
Committee.
ARTICLE VIII
SETTLEMENT OF THE ACCOUNTS OF THE TRUSTEE
8.1 TRUSTEE'S MAINTENANCE OF RECORDS. The Trustee will keep all records
necessary in the conduct of the Trust. The Trustee's books and
records of the Trust fund are open to inspection by the Committee,
Corporation and/or the Participants at all reasonable times during
business hours of the Trustee.
8.2 TRUSTEE'S RENDERING OF ACCOUNTING TO COMMITTEE. Within 60 days after
the close of each Plan Year, or such other times as requested by the
Committee and as of the date of the removal or resignation of the
Trustee, the Trustee must render to the Committee an accounting and
report of the Trust fund for the Plan Year or other period that is
applicable since the previous accounting. The report is to reflect
the transactions for the period covered, the cost of assets and
investments, the fair market value of the assets held in the Trust and
the amount held for the funding of Corporation's obligation to the
Participants as of the end of the Plan Year or such other date as is
applicable. The report is to be open for inspection for 90 days after
its receipt by the Committee, and if objections are not filed within
that period of time, it is
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assumed that the report is approved. That approval will constitute a
full and complete discharge and release to the Trustee by Corporation,
all of the Participants and all other persons having or claiming any
interest in any of the Trust fund.
ARTICLE IX
ACTION, RESIGNATION, REMOVAL AND SUBSTITUTION OF TRUSTEE
9.1 APPOINTMENT OF TRUSTEE AND OPERATION IF MULTIPLE TRUSTEES. One or
more entities or one or more individuals will serve as Trustee, as
determined from time to time by the members of the Board of Directors
who are not eligible to participate in the Plan. When more than one
entity and/or individual serves as Trustee, any action by the Trustees
will be determined by the majority of the Trustees. Those actions
will be binding upon all parties at interest. The entities and/or
individuals who collectively act as Trustee may act by vote at a
meeting or by a written consent without a meeting. Any act of more
than one individual or entity serving as Trustee will be sufficiently
evidenced if certified to by one of the individuals or entities
serving as Trustee. Also, if there is more than one individual and/or
entity serving as Trustee, one of the Trustees may be given authority
to perform all administrative and ministerial duties. Any individual
who serves as Trustee may be an employee of Corporation. Each Trustee
will serve until a successor Trustee is named by the members of the
Board of Directors who are authorized to appoint the Trustee or until
his death or incapacity or his or its resignation or removal, in which
event the members of the Board of Directors who are authorized to
appoint the Trustee will name a successor Trustee.
9.2 RESIGNATION OF TRUSTEE. The Trustee or any successor Trustee may
resign as Trustee at any time by filing with Corporation its or his
written resignation. No resignation will take effect until 60 days
from the date of notice unless prior to that time a successor Trustee
has been appointed and he or it has accepted the office.
9.3 REMOVAL OF TRUSTEE. The Trustee or any successor Trustee may be
removed by Corporation at any time. No removal will take effect until
60 days from the date of notice unless prior to that time a successor
Trustee has been appointed and he or it has accepted the office and
the Trustee consents to the earlier date.
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9.4 NO VACANCY IN OFFICE OF TRUSTEE. Any vacancy in the office of Trustee
created by the resignation or removal of the Trustee will not
terminate the Trust. Upon removal or resignation of the Trustee, the
members of the Board of Directors who are authorized to appoint the
Trustee must appoint a successor Trustee.
9.5 APPOINTMENT OF SUCCESSOR TRUSTEE. The appointment of a successor
Trustee will be accomplished by the delivery to the resigning or
removed Trustee, as the case may be, of a written appointment of the
successor Trustee by the members of the Board of Directors who are
authorized to appoint the Trustee and the written acceptance of the
appointment by the successor Trustee. Any successor Trustee must be
one or more individuals (who may be employees of Corporation) or an
entity authorized and empowered to conduct a trust business in the
state of the situs of the Trust. This agreement will then be
applicable to each successor Trustee.
9.6 APPOINTMENT OF SUCCESSOR TRUSTEE AFTER A CHANGE OF CONTROL. If a
Trustee dies, becomes incapacitated, resigns or is removed
contemporaneously with or following a Change of Control,
notwithstanding anything to the contrary in this agreement, the
members of the Board of Directors who are authorized to appoint the
Trustee must receive the consent of a majority in interest of the
Participants for whose account assets are held under the terms of this
agreement in order to appoint a successor Trustee. If the members of
the Board of Directors who are authorized to appoint the Trustee
cannot obtain the consent of a majority in interest of the
Participants to any Trustee acceptable to them, then an arbitrator
will be appointed to select the new Trustee which will be appointed by
the members of the Board of Directors who are authorized to appoint
the Trustee. The arbitrator will be selected by permitting each of
Corporation and the Participants (by a vote of the majority in
interest) to strike one name each from a panel of three names obtained
from the American Arbitrator Association. The person whose name is
remaining will be the arbitrator.
9.7 VESTING OF RIGHTS, TITLES, POWERS IN SUCCESSOR TRUSTEE. Any successor
Trustee, after acknowledging acceptance of this agreement, the Trust
assets and the accounting of the retiring Trustee, will be vested with
all the estates, titles, rights, powers, duties, and discretions
granted to the retiring Trustee. The retiring Trustee must execute
and deliver all assignments or other instruments necessary or
advisable for the transfer of all Trust assets as are reasonably
required by the successor Trustee.
9.8 CONTINUANCE OF CORPORATE TRUSTEE THROUGH MERGER. Any corporation into
which any corporate Trustee or any successor corporate Trustee may be
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merged or consolidated, or any corporation resulting from any merger
or consolidation to which any corporate Trustee or any successor
corporate Trustee may be a party, or any corporation to which all or
substantially all of the trust business of any corporate Trustee or
any successor corporate Trustee may be transferred, will be a
successor of such Trustee under this agreement without the filing of
any instrument or the performance of any other act.
ARTICLE X
AMENDMENT AND TERMINATION
10.1 CORPORATION'S RIGHT TO AMEND. The members of the Board of Directors
who are not eligible to participate in the Plan will have the sole
right to amend this agreement. An amendment must be made by an
executed written agreement setting forth the nature of the amendment
and its effective date. No amendment will make this agreement nor the
Trust created by this agreement revocable or will divert the funds
held in the Trust created by this agreement from the purposes set out
in Section 2.2. No amendment will change a Participant's rights under
any provision of this Trust after a Change of Control has occurred,
without the affected Participant's consent, as to assets contributed
to the Trust before the Change of Control and as to the accumulation
of income and appreciation applicable to those assets. No amendment
will increase the duties of the Trustee without its written consent.
10.2 AMENDMENTS NECESSARY TO COMPLY WITH STATE OR FEDERAL STATUTES.
Corporation agrees to make any amendment to this agreement as may be
necessary to maintain compliance with the various federal and state
laws and any amendment may be made retroactively.
10.3 TERMINATION OF TRUST BY CORPORATION. The members of the Board of
Directors who are not eligible to participate in the Plan may
terminate the Trust only after all benefits to the extent funded by
the Trust have been paid to the Participants who are funded by it,
pursuant to the Plan, by executing and delivering to the Trustee a
notice of termination which specifies the date on which the Trust will
terminate. Upon termination, the Trustee will distribute to the
Participants the assets certified to it by the Committee to be
sufficient to fulfill all of the obligations of Corporation under the
Plan at the time and in the form provided in it, and afterward, any
Trust assets remaining will be allocated among the Participants in the
ratio of each Participant's Account to the total value of all
Participant Accounts. The Trust created under this agreement will
automatically terminate upon a determination of the insolvency of
Corporation.
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In that event, the Trustee shall deliver the Trust assets as directed
by a court of competent jurisdiction. The Trust may also be
terminated by Corporation, with the written consent of all of the
Participants whose benefits are funded by it, if a tax, labor or other
federal statute or regulation causes this Trust to become taxable,
before distribution, to the Participant or to become unlawful. In
that event, the Trustee will return the assets to the Corporation.
10.4 CONTINUANCE OF TRUST WHEN CORPORATION CONSOLIDATES, MERGES OR
SELLS SUBSTANTIALLY ALL OF ITS ASSETS. The Trust created by this
agreement will not terminate in the event Corporation consolidates or
merges and is not the surviving corporation, sells substantially all
of its assets, is a party to a reorganization in which its employees
and substantially all of its assets are transferred to another entity,
liquidates or dissolves if there is a successor corporation. Instead,
the Trust will continue until it has fulfilled the obligations to its
Participants as set forth in Section 2.2, at which time it will
automatically terminate.
ARTICLE XI
MISCELLANEOUS
11.1 NO EMPLOYMENT COMMITMENT. The adoption and maintenance of the Trust
created under this agreement will not be deemed to be a contract
between Corporation and the Participants which gives the Participants
the right to be retained on the Board of Directors of Corporation, to
interfere with the rights of Corporation to remove the Participants,
or to interfere with the Participants' rights to terminate their
membership on the Board of Directors at any time.
11.2 NON-ALIENATION OF BENEFITS. No benefits payable or to become payable
from the Trust will be subject to anticipation or assignment by the
Participants or other persons entitled to receive benefits under the
Trust; to attachment by, interference with, or control of any
creditors of the Participants or other persons entitled to receive
benefits under the Trust; or to being taken or reached by any legal or
equitable process in satisfaction of any debt or liability of the
Participants prior to their actual receipt by the Participants or
other persons entitled to receive benefits under the Trust. Any
attempted conveyance, transfer, assignment, mortgage, pledge, or
encumbrance of the Trust, any part of it, or any interest in it by a
Participant, or any person entitled to secure benefits under the
Trust, prior to distribution will be void, whether that conveyance,
transfer, assignment, mortgage, pledge or encumbrance is intended to
take place or become effective before or after any distribution of
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Trust assets or the termination of the Trust fund itself. The Trustee
will never under any circumstances be required to recognize any
conveyance, transfer, assignment, mortgage, pledge or encumbrance by a
Participant, or other person entitled to receive benefits under the
Trust created under this agreement, of a Trust fund created under this
agreement, any part of it, or any interest in it, or to pay any money
or thing of value to any creditor or assignee of a Participant, or
other person entitled to receive benefits under the Trust, for any
cause whatsoever.
11.3 GENDER AND NUMBER OF WORDS. Whenever the context requires it, words
of the masculine, feminine or neuter gender will include one or both
of the others; and words used in either the singular or the plural
number will include the other.
11.4 TEXAS LAW APPLICABLE. The provisions of this agreement shall be
construed, according to the laws of the state of Texas.
11.5 SEVERABILITY OF AGREEMENT. Each provision of this agreement is
severable, and if any provision is found to be void or against public
policy, it will not affect the validity of any other provision hereof.
11.6 DEFINITIONS. Any word not otherwise defined in this agreement shall
have the meaning as defined in the Plan.
IN WITNESS WHEREOF, Corporation and the Trustee have executed this
agreement on this 23rd day of February 1995.
TESORO PETROLEUM CORPORATION
By /s/ WILLIAM T. VAN KLEEF
___________________________________
William T. Van Kleef
Vice President, Treasurer
FROST NATIONAL BANK
By ___________________________________
Trust Officer
<PAGE> 1
ITEM 14(a)3, EXHIBIT 10(x)
AGREEMENT FOR THE SALE AND PURCHASE
OF
STATE ROYALTY OIL
to
TESORO ALASKA PETROLEUM COMPANY
THE STATE OF ALASKA
Department of Natural Resources
Dated as of September 27, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS ...................................................................... 1
1.1 Commissioner ......................................................... 1
1.2 Daily Royalty Oil .................................................... 1
1.3 Day .................................................................. 1
1.4 Effective Date ....................................................... 1
1.5 Field Cost Agreement ................................................. 1
1.6 Leases ............................................................... 1
1.7 Lessee ............................................................... 2
1.8 Month ................................................................ 2
1.9 Oil .................................................................. 2
1.10 Point of Delivery .................................................... 2
1.11 Royalty Oil .......................................................... 2
1.12 Royalty Settlement Agreements ........................................ 2
1.13 Royalty Value ........................................................ 2
1.14 TAPS ................................................................. 2
1.15 Unit Agreement ....................................................... 3
ARTICLE II
SALE OF ROYALTY OIL .............................................................. 3
2.1 Quantity ............................................................. 3
2.2 Quality .............................................................. 4
2.3 Price of the Royalty Oil ............................................. 5
2.4 Purchase Price Reopener .............................................. 5
2.5 No Third-Party Intervention .......................................... 6
2.6 Point and Time of Delivery ........................................... 6
2.7 Passage of Title and Risk of Loss .................................... 7
2.8 Tesoro's Responsibility .............................................. 7
2.9 Transportation Arrangements .......................................... 7
2.10 Absolute Obligations ................................................. 8
2.11 Date of First Delivery ............................................... 8
2.12 Performance Guaranty and Reservation Fee ............................. 8
2.13 In-State Processing .................................................. 8
ARTICLE III
REPRESENTATION AND OBLIGATIONS OF TESORO ......................................... 9
3.1 Good Standing and Due Authorization ................................... 9
3.2 Financial Condition ................................................... 10
3.3 Financial Statements .................................................. 10
</TABLE>
ii
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<TABLE>
<S> <C> <C>
ARTICLE IV
MEASUREMENTS AND TESTS ............................................................ 11
ARTICLE V
PAYMENTS AND ACCOUNTING ........................................................... 11
5.1 Initial Billing ........................................................ 11
5.2 Initial Adjustment ..................................................... 12
5.3 Subsequent Adjustments ................................................. 12
5.4 Payment ................................................................ 12
5.5 Interest ............................................................... 13
5.6 Late Payment Penalty ................................................... 15
5.7 Payment to Lessee ...................................................... 15
5.8 Payment to Third Parties ............................................... 15
ARTICLE VI
TERM .............................................................................. 16
ARTICLE VII
DEFAULT OR TERMINATION ............................................................ 16
7.1 Default ................................................................ 16
7.2 Failure to Pay Debts ................................................... 18
7.3 State's Remedies ....................................................... 18
7.4 Tesoro's Exclusive Remedies ............................................ 19
ARTICLE VIII
DISPOSITION OF OIL ................................................................ 20
8.1 Disposition of Oil Upon Default or Termination ......................... 20
8.2 Inability to Receive Oil ............................................... 20
8.3 No Right to Storage or Underlift ....................................... 21
ARTICLE IX
WAIVER ............................................................................ 21
ARTICLE X
VALIDITY .......................................................................... 21
ARTICLE XI
FORCE MAJEURE AND CHANGE IN CONDITION ............................................. 22
11.1 Effect of Force Majeure ................................................ 22
11.2 Responsibility ......................................................... 22
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE XII
NOTICES ........................................................................... 23
12.1 Method ................................................................. 23
12.2 Change of Address ...................................................... 23
ARTICLE XIII
RULES AND REGULATIONS ............................................................. 24
ARTICLE XIV
SOVEREIGN POWER OF THE STATE ...................................................... 24
ARTICLE XV
SECURITY .......................................................................... 24
ARTICLE XVI
PREFERENTIAL HIRING AND NON-DISCRIMINATION ........................................ 26
ARTICLE XVII
APPLICABLE LAW .................................................................... 27
17.1 Alaska Law ............................................................. 27
17.2 Submission to Jurisdiction ............................................. 27
ARTICLE XVIII
WARRANTIES ........................................................................ 27
ARTICLE XIX
AMENDMENT ......................................................................... 27
ARTICLE XX
SUCCESSORS AND ASSIGNS ............................................................ 28
ARTICLE XXI
HEADINGS .......................................................................... 28
ARTICLE XXII
RECORDS ........................................................................... 28
22.1 Preservation of Records ................................................ 28
22.2 Inspection of Records of Parties ....................................... 29
ARTICLE XXIII
INTERPRETATION OF TERMS AND CONDITIONS ............................................ 29
ARTICLE XXIV
COUNTERPARTS ...................................................................... 30
</TABLE>
iv
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<TABLE>
<S> <C>
SIGNATURES ............................................................................. 30
ACKNOWLEDGEMENT ........................................................................ 31
EXHIBT A ............................................................................... 33
</TABLE>
v
<PAGE> 6
AGREEMENT FOR THE SALE AND
PURCHASE OF ROYALTY OIL
THIS AGREEMENT is effective as of September 27, 1994 by and between the
State of Alaska (State) and Tesoro Alaska Petroleum Company (Tesoro), a Delaware
corporation with its principal offices located at 3230 C Street, Anchorage,
Alaska 99503.
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
1.1 "Commissioner" means the Commissioner of the Alaska Department of
Natural Resources or his designee.
1.2 "Daily Royalty Oil" means the quantity of Royalty Oil produced by the
Lessees from the Prudhoe Bay Unit Area in a Day except as provided in Section
2.1(b).
1.3 "Day" means a period of twenty-four (24) consecutive hours,
beginning at 12:01 a.m., Alaska Standard Time.
1.4 "Effective Date" shall have the meaning set out in Article VI.
1.5 "Field Cost Agreement" means the Prudhoe Bay Royalty Settlement
Agreement effective April 1, 1980.
1.6 "Leases" means the Oil and Gas leases which are subject to the
terms of the Prudhoe Bay Unit Agreement.
1
<PAGE> 7
1.7 "Lessee" means any person owning a working interest in any
of the Leases.
1.8 "Month" means the period beginning at 12:01 a.m., Alaska
Standard Time, on the first Day of the calendar Month and ending at the same
time on the first Day of the next succeeding calendar Month.
1.9 "Oil" shall have the same meaning as the word "oil" under the
Leases and the Unit Agreement, except where inconsistent with Sections 2.1(b)
and 2.2 of this Agreement, in which case Sections 2.1(b) and 2.2 shall
control. For purposes of this Agreement, "Oil" shall also include natural gas
liquids ("NGLs").
1.10 "Point of Delivery" shall have the meaning set out in Section
2.6.
1.11 "Royalty Oil" means the Oil which the State may take in-kind (in
amount) as its royalty under the Leases whether or not the State has elected to
take or is taking that royalty in-kind except as provided in Section 2.1(b).
1.12 "Royalty Settlement Agreements" means the written royalty
settlement agreements between the State and BP Exploration (Alaska) Inc. ("BP")
dated December 31, 1991; the State and Atlantic Richfield Company and ARCO
Alaska, Inc., ("ARCO") dated September 12, 1990; and the State and Exxon
Corporation ("Exxon") dated December 31, 1991.
1.13 "Royalty Value" means the royalty value of all liquid
hydrocarbons from the Prudhoe Bay Unit calculated in accordance with the
Royalty Settlement Agreements for West Coast placements as explained in Section
2.3.
1.14 "TAPS" means the Trans Alaska Pipeline System.
2
<PAGE> 8
1.15 "Unit Agreement" means the Prudhoe Bay Unit Agreement effective
April 1, 1977, by and between the Lessees and the State, as amended from time to
time.
ARTICLE II
SALE OF ROYALTY OIL
2.1 Quantity.
2.1(a) Prudhoe Bay Unit Quantity. The State agrees to sell to
Tesoro and Tesoro agrees to buy from the State that amount of Oil equal to
27.2% of the Daily Royalty Oil (Maximum Quantity).
Subject to the limitations below, Tesoro may at any time decrease or
increase the amount of Oil to be tendered but not the Maximum Quantity provided
above. To increase or decrease the amount of Oil to be tendered, Tesoro must
give the State at least six Months and ten Days written notice. If, however,
the increase or decrease is less than ten percent of Tesoro's then current
in-kind nomination, Tesoro must give at least one hundred Days written notice.
In addition, the new tendering will take effect on the first Day of the Month
after the applicable notice period expires.
It is understood and agreed that the volume of Daily Royalty Oil
available to the State will vary and may be interrupted from time to time, and
depends upon a variety of factors, including the rate of production from the
Leases. The State disclaims and Tesoro waives any representation, covenant or
warranty, expressed or implied, as to the specific quantity or the total or
daily, monthly, average, or aggregate volume of Royalty Oil to be sold or
tendered under this Agreement. The State warrants that it has good title to the
Oil tendered under this Agreement.
3
<PAGE> 9
If the State underlifts or stores Royalty Oil at the Prudhoe Bay Unit, or if
the State recovers underlifted or stored Royalty Oil, the quantity of Oil
tendered under this Agreement shall be calculated as if no Royalty Oil was
underlifted or stored or recovered.
2.1(b) Initial Participating Areas Quantity. It is understood and
agreed that the State may choose, in its sole discretion, to sell Tesoro, and
Tesoro agrees to buy from the state, oil that is produced solely from the
Initial Participating Area of the Prudhoe Bay Unit rather than from al1
participating areas and Leases within the Prudhoe Bay Unit Agreement. If the
State so elects, the Maximum Quantity of Oil shall equal 30.5% of the Royalty
Oil produced from the Initial Participating Areas in a Day. If the State so
elects, the Terms Daily Royalty Oil, Oil, and Royalty Oil shall have the same
meaning set forth in Article I as limited in this section.
2.2 Quality. The Oil sold shall be the same quality as the Royalty
Oil delivered by the Lessees to the State at the Point of Delivery from the
Prudhoe Bay Unit Area. It is understood and agreed that the quality of the Oil
sold may vary from time to time. The State disclaims, and Tesoro waives, any
guarantee, representation, or warranty, either expressed or implied, of
merchantability, fitness for use, or suitability for any particular use or
purpose, or otherwise, of any of the Oil delivered under this Agreement or as
to any specific, average, or overall quantity or characteristic of Oil to be
sold or tendered under this Agreement. Tesoro expressly waives any claim that
any liquid hydrocarbons made available to the State by the Lessees, including
such substances as crude oil, condensate, natural gas liquids, or return oil
from the Prudhoe Bay Unit Crude Oil Topping Plant, that may be blended with
crude by the Lessees before the Point of Delivery and tendered as a common
stream by the Lessees to the State as Royalty Oil are not Oil, for purposes of
this Agreement.
4
<PAGE> 10
2.3 Price of the Royalty Oil. The price each Month for Oil purchased
under this Agreement shall be the average Royalty Value (weighted by
production volume) for that Month of Oil delivered to the West Coast by ARCO,
BP, and Exxon from the Prudhoe Bay Unit production for which the Royalty Value
is determined by the Royalty Settlement Agreements. For ARCO, the Royalty Value
shall be determined according to the Royalty Value Formula stated in Section
III.A. of its Royalty Settlement Agreement without any field costs or
processing fees deduction. For Exxon, the Royalty Value shall be determined
according to the Royalty Value calculation stated in Section 3.1 c) of its
Royalty Settlement Agreement, except that the Average Valdez Netback shall be
the West Coast Valdez Netback. For BP, the Royalty Value shall be determined
according to the Royalty Value stated in Section 3.2 c) of its Royalty
Settlement Agreement, except that the Average Valdez Netback shall be the West
Coast Valdez Netback. Exhibit A is an illustrative calculation of the Monthly
Price.
If any applicable law of the United States of America or any rule or
regulation promulgated by a federal agency will, in the judgment of the State,
operate to prohibit or prevent the State from receiving the full amount due
under the above provision, Tesoro's obligation to pay the amount of the
purchase price in excess of the amount permitted will be suspended or adjusted
to the minimum extent required for the State to comply with that law, rule or
regulation.
2.4 Purchase Price Reopener. Neither the State nor Tesoro shall have
the right to reopen this Agreement. Further, due to potential unpredictable
increased costs to Tesoro posed by any changes to Article III of the BP or
Exxon Royalty. Settlement Agreements or Paragraph III.A. of the ARCO Royalty
Settlement Agreement and/or any changes made under the Reopener procedures of
Article IV of the BP or Exxon Royalty Settlement Agreements or
5
<PAGE> 11
Paragraph III.B. of the ARCO Royalty Settlement, the State shall give Tesoro
notice of such changes or a Notice of Reopener initiated by either BP, Exxon,
ARCO, or the State. Such notice shall include information on the nature of such
changes and/or the Reopener, the requested effective date of any such changes
or proposed changes, and the position taken by BP, Exxon, or ARCO and the
State. Any changes and/or Reopener action under the Royalty Settlement
Agreements will give Tesoro the right to terminate this contract upon six
Months and ten Days written notice to the State.
2.5 No Third-Party Intervention. Tesoro shall not intervene or
otherwise participate in any way regarding litigation, styled ANS Royalty
Litigation, Case No. 1-JU-77-847, any future royalty settlement agreements with
the Lessees, or reopeners or other discussions under or pertaining to royalty
settlement agreements. Any judgment resulting from the ANS Royalty Litigation,
any future royalty settlement agreements, or any reopener under any of the
Royalty Settlement Agreements shall be conclusively binding upon Tesoro whether
or not Tesoro agrees with or consents to the terms of any such judgment,
settlement, or reopener. Furthermore, Tesoro has no independent right to invoke
any of the provisions of the Royalty Settlement Agreements. If the Royalty
Value is modified in the future as a result of a modification of any of the
Royalty Settlement Agreements, a corresponding retroactive modification will be
made to the price term of this Agreement and interest will apply to the
modification, whether resulting in an overpayment or underpayment, as set forth
in Section 5.6. Tesoro agrees to be conclusively bound by any such modification
agreed to by the State and BP, Exxon, or ARCO.
2.6 Point and Time of Delivery. Simultaneously with receipt of its
Royalty Oil from its Lessees, the State shall tender the Oil to Tesoro where
the State receives the Royalty
6
<PAGE> 12
Oil from its Lessees. That point presently agreed to by the State and its
Lessees in Article 2.3 of the Field Cost Agreement is the TAPS Pump Station No.
1 Prudhoe Bay Custody Transfer meter ("Transfer Meter").
2.7 Passage of Title and Risk of Loss. Title and risk of loss to the
Oil sold under this Agreement shall pass from the State to Tesoro for all
purposes when the State tenders the Oil at the Point of Delivery.
2.8 Tesoro's Responsibility. Tesoro shall be responsible for the Oil
after passage of title. Tesoro will indemnify and hold the State harmless from
and against any and all claims, costs, damages (including reasonably
foreseeable consequential damages), expenses, or causes of action arising from
or in connection with any transaction or event which relates to the Oil after
title has passed to Tesoro.
2.9 Transportation Arrangements. Tesoro shall make all
necessary arrangements for transporting the Oil sold under this Agreement from
the Point of Delivery, including satisfaction of line fill obligations and
storage tank bottom requirements of the TAPS, if any. If requested by the
State, Tesoro shall submit specific information concerning its arrangement for
transportation of the Oil sold under this Agreement through and away from the
TAPS and for the resale or other disposal of the Oil. Such information may
include the specific tenders of Oil made to the TAPS and identification of
tankers, if any, which will transport the Oil. In addition, Tesoro will
provide the State, if requested by the State, with satisfactory evidence or
reasonable assurance of the existence and continuing validity of adequate
arrangements for the transportation or disposal of the Oil subject to this
Agreement. Failure to
7
<PAGE> 13
provide information, evidence, or assurances requested will, at the State's
election by notice to Tesoro, be a material default under this Agreement.
2.10 Absolute Obligations. The obligations of Tesoro to accept, pay
for, and arrange for the transportation of the Oil tendered or sold under this
Agreement are absolute and will not be excused or discharged by the operation
of any disability of Tesoro, event of force majeure, impracticability or
performance, change in conditions, or any other reason or cause.
2.11 Date of First Delivery. The date of First Delivery will be the
first Day of January 1, 1995.
2.12 Performance Guaranty and Reservation Fee. If, at any time,
Tesoro does not take the Maximum Quantity, Tesoro shall pay to the State, in
addition to the purchase price on the actual quantity taken, an amount equal to
.75% of the purchase price per barrel per Day on the difference between the
Maximum Quantity and the actual quantity tendered to and accepted by Tesoro for
each Day Tesoro does not take the Maximum Quantity.
2.13 In-State Processing. Tesoro agrees to use best efforts to insure
that any and all of the Royalty Oil tendered under this Agreement will be
processed through Tesoro's refinery near Nikiski, Alaska, or will be exchanged
for other crude oil which shall be processed at that refinery. "Process" means
the manufacture of refined petroleum products. In no event, however, shall the
quantity of Royalty Oil, which must be processed, be less than 80% of the
volume of Royalty Oil tendered under this Agreement. "Exchange" means: (1)
direct trades of equal volumes of crude oil; (2) trades of crude oil involving
either cash or volume adjustments, or both, provided that those adjustments
relate solely to quality or location differences; (3) sequential transactions
in which Tesoro receives back crude oil from a party other than the party which
8
<PAGE> 14
receives the Royalty Oil in a trade from Tesoro; or (4) matching purchases and
sales of crude oil. The terms under which Tesoro receives crude oil in any
exchange shall not differ in any significant term from the terms under which
Tesoro delivered Royalty Oil except for terms which adjust for differences in
quality and location. Tesoro agrees that any trade or exchange shall not reduce
the price to be paid to the State and that trades or exchanges shall be at
no cost or expense to the State.
Tesoro's obligation to process Royalty Oil or exchanged oil in-State
may only be suspended or excused under the provisions of Articles VIII and XI.
The State may, at its option, waive the in-State processing
requirement in whole or in part, if State is satisfied that Tesoro is using its
best efforts to process the Royalty Oil tendered or the oil exchanged for
Royalty Oil tendered under this Agreement at Tesoro's Alaska refinery and that
the waiver would not be contrary to the underlying intent of the other
provisions of this Agreement.
ARTICLE IV
REPRESENTATION AND OBLIGATIONS OF TESORO
Tesoro warrants, represents, and agrees:
3.1 Good Standing and Due Authorization. Tesoro is, and at all times
during the operation of this Agreement shall remain, a corporation organized
and existing under and by virtue of the laws of the United States or of any
State, territory or the District of Columbia, and qualified to do business in,
and in good standing with, the State of Alaska. Tesoro has all necessary
corporate power to enter into this Agreement and to perform the covenants and
9
<PAGE> 15
obligation under this Agreement. All necessary corporate action has been taken
to authorize Tesoro to enter into this Agreement and perform its covenants and
obligations under this Agreement.
3.2 Financial Condition. The financial information submitted to the
State is complete and correct and fairly presents Tesoro's financial condition
when the information was submitted to the State. The financial information was
prepared in accordance with generally accepted accounting principles
consistently applied. Since the date the information was submitted, the
condition, business, and properties of Tesoro have not been materially
adversely affected in any way. Tesoro agrees to inform the State immediately if
there is any material adverse change in its condition, business, or properties
which may have an appreciable adverse effect on its ability to perform under
this Agreement. Tesoro, in addition, will immediately inform the State of any
significant change in ownership of Tesoro, affiliates, parent company, and of
any change in Tesoro's operations or Agreements, which may appreciably affect
Tesoro's performance under this Agreement.
3.3 Financial Statements. As soon as possible after the end of the
fiscal year of Tesoro, and in any event within one hundred twenty Days
thereafter, Tesoro will furnish to the State, at Tesoro's sole cost and
expense, a report or a complete copy of a report in a form to be prescribed
from time to time by the State which will include Tesoro's balance sheet as of
the close of the fiscal year and the income statement for that year, prepared
in each case in accordance with generally accepted accounting principles
consistently applied by certified public accountants of recognized standing.
For purposes of complying with this article, Tesoro may submit, and the State
will accept, the annual report of its parent, Tesoro Petroleum Corporation,
10
<PAGE> 16
filed with the United States Securities and Exchange Commission pursuant to
Sec. 13 or 15 (d) of the Security Exchange Act of 1934.
ARTICLE IV
MEASUREMENTS AND TESTS
The quantity and quality of Oil sold under this Agreement shall be
determined at the Point of Delivery. Procedures and methods for measuring and
metering the Oil sold under this Ageement shall be in accordance with the
practices then in effect in the Prudhoe Bay Unit.
ARTICLE V
PAYMENTS AND ACCOUNTING
5.1 Initial Billing. The State will send to Tesoro, on or before
the tenth business Day of each Month after delivery of Oil, an invoice
statement of account of all Oil estimated to have been measured at the Transfer
Meter and tendered to Tesoro under this Agreement during the immediately
preceding Month according to the best information available to the State, the
estimated purchase prices applicable to those deliveries, and the total amount
due (Initial Billing Invoice). The estimates will be made by the State
according to the best information reasonably available to the State. The State
may render its Initial Billing Invoice to Tesoro based in part upon information
reported by the Lessees to the State, information published by the U.S.
Government, and information published in Platt's Oilgram Price Report or any
other publicly available report. The State shall thereafter adjust its Initial
Billing Invoice under this
11
<PAGE> 17
Article as soon as more accurate information concerning the quantity and
purchase price of Oil delivered each month is available. The State, however,
shall not be required to adjust the Initial Billing Invoice before the sending
of the next Month's invoice statement of account.
5.2 Initial Adjustment. After the Initial Billing Invoice under
Section 5.1, the next Monthly invoice will also state the State's initial
adjustments, plus interest, to be made, if any, to the Initial Billing Invoice
rendered in the immediately preceding Month, in accordance with any additional
or more accurate information which may have become available to the State
("Initial Adjustment Invoice"). Whether or not initial adjustments are made,
however, subsequent adjustments may be made under Section 5.5.
5.3 Subsequent Adjustments. Tesoro acknowledges that after the
Initial Billing and Initial Adjustment Invoices, more accurate information
concerning the quantity of or purchase price for Royalty Oil tendered may
become available to the State. If any such information should later become
available to the State, it shall furnish a corrected invoice statement of
account to Tesoro ("Subsequent Adjustment Invoice") and the State will adjust
the amount previously billed; and Tesoro will pay, or the State will credit or
Refund, the amount of any Subsequent Adjustment Invoice plus interest. If the
state should render a Subsequent Adjustment Invoice to Tesoro, any amount to be
credited or refunded from the State to Tesoro or paid by Tesoro to the State
will be refunded or paid within thirty Days after the date of the Subsequent
Adjustment Invoice. The parties recognize that subsequent adjustments may be
necessary after December 31, 1995, and, accordingly, the provisions of Article
V will survive any termination of this Agreement.
5.4 Payment. Tesoro will make payment on the Initial Billing Invoice
and the Initial Adjustment Invoice within ten Days of the date of the
respective invoice and on any
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Subsequent Adjustment Invoice within 30 days of the date of the invoice.
Payment shall be made without any deduction, set off, or withholding, by wire
transfer of immediately available funds to the State's account at the following
address:
State Street Bank & Trust Company
Boston, Massachusetts
ABA #011000028
For credit to the State of Alaska
General Investment Fund, AYO1
Account #00657189
Attn: Kim Chan, Public Funds
Payment may be made in such other manner or to such other address as
the State may specify in the invoice statement of account or by other written
notice. All other payments to be made under this Agreement shall be paid in the
same manner. If payment is due on a Saturday, Sunday, or legal holiday of the
place where payment is to be received, payment shall be made on the next
following business Day. It is recognized that the State may bill, and that
Tesoro will pay, amounts that are based upon confidential information held or
received by the State. If confidential information is used as the basis for a
billing, then the State will furnish Tesoro, upon its request, with the
certified statement of the Commissioner that the amounts billed are correct
based upon the best information available to the State. If a dispute concerning
a bill arises, Tesoro agrees to pay the full amount billed by the State, except
for obvious clerical mistakes, pending final resolution of the dispute.
5.5 Interest. The Amount of all sums, which are not paid when due
under this Agreement or which are later determined to be due as an adjustment,
shall bear interest from the date accrued until paid in full at the rate as
provided in AS 38.05.135(d) or as that statutory provision may later be
amended. Currently, that interest rate in a calendar quarter is at the rate
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of five percentage points above the annual rate charged member banks for
advances by the 12th Federal Reserve District as of the first Day of that
calendar quarter, or at the annual rate of 11 percent, whichever is greater,
compounded quarterly as of the last Day of that quarter. The term "date
accrued" means the date of the "Initial Billing plus ten Days." Interest shall
apply to both adjustments for overpayments and underpayments.
The following illustrates from what date interest will run:
January 1 -- 31, 1995 -- Tesoro takes 1995 January production;
February 10, 1995 -- State sends Tesoro the Initial Billing Invoice
for 1995 January production;
February 20, 1995 (initial Billing plus ten Days) -- Tesoro must pay
the Initial Billing Invoice for January 1995 production. If it
does not pay on this day, the Initial Billing Invoice bears
interest from this date plus a late payment penalty;
March 10, 1995 -- State sends Tesoro the Initial Adjustment Invoice
for January 1995 production; Tesoro owes the State an
additional sum;
March 20, 1995 -- Tesoro must pay the Initial Adjustment Invoice plus
interest from February 20, 1995.
January 11, 1996 -- State sends Tesoro a Subsequent Adjustment
Invoice for January 1995 production; Tesoro is entitled to a
credit;
February 11, 1996 -- State must credit or refund the amount of the
Subsequent Adjustment Invoice plus interest from February 20,
1995.
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<PAGE> 20
April 15, 2000 -- State sends Tesoro another Subsequent Adjustment
Invoice for January 1995 production; Tesoro owes the State an
additional sum;
May 15, 2000 -- Tesoro must pay the Subsequent Adjustment Invoice for
January 1995 production plus interest from February 20, 1995.
If Tesoro does not pay the Subsequent Adjustment Invoice on
this date, it must also pay a late payment penalty.
5.6 Late Payment Penalty. If Tesoro fails to make a full payment
within ten Days of the date of either an Initial Billing Invoice or Initial
Adjustment Invoice, or within thirty Days of the date of any Subsequent
Adjustment Invoice, then in addition to the amount due plus interest from the
date accrued until the date of actual payment, Tesoro will pay an amount equal
to five percent of the principal payment due as a late payment penalty.
5.7 Payment to Lessee. At the request of the State in the invoice
statement of account or otherwise in writing, Tesoro shall pay all or any
portion designated by the State of that payment required to be made to one or
more of the Lessees at an address or addresses and in the manner designated by
the State. The payment will be made within the time limit specified in Section
5.3. The State may authorize and designate a third party to make the request
and designate the amount, manner and place of payment under this provision.
Unless otherwise specified, the balance of the payment due, if any, and payment
for subsequent Months, shall be made in accordance with Section 5.3.
5.8 Payment to Third Parties. The State may direct that Tesoro pay
any amount due or which may become due directly to a third party in a manner
and time as may be
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directed by the State in written notice to Tesoro if, in the State's sole
discretion, the payment to the third party will assist the State in
monitoring or enforcing this Agreement.
ARTICLE VI
TERM
This Agreement shall become effective upon execution by the parties.
The State's obligation to sell and Tesoro's obligation to buy Royalty Oil
becomes effective immediately, Deliveries under this Agreement shall begin on
January 1, 1995, and shall end December 31, 1995. The provisions of Article V
shall survive the termination of this Agreement.
ARTICLE VII
DEFAULT OR TERMINATION
7.1 Default. If any one or more of the following events ("Events of
Default") occur, then the State, at the its sole option, may terminate or
suspend its obligation to tender and sell Oil and exercise any one or more of
the rights and remedies provided in this Agreement:
(i) At any time, Tesoro (a) repudiates any of its covenants or
obligations under this Agreement, or (b) fails, within five Days,
after written request from the State to provide the State with
written affirmation of this Agreement and of Tesoro's intention
to perform under this Agreement (together with evidence or
assurances of transportation arrangement pursuant to Section 2.9
reasonably satisfactory to the State);
16
<PAGE> 22
(ii) Tesoro does not pay in full any sum owed under this Agreement
at the time when payment is due;
(iii) Tesoro fails to observe or perform any of its other covenants
and obligations under Article II;
(iv) Tesoro does not perform any act required or contemplated under
this Agreement and: (a) the non-performance cannot be
cured; (b) the nonperformance continues for more than thirty
Days after the State has notified Tesoro of its
nonperformance; or (c) Tesoro has failed to perform the same
or any other act required or contemplated under this Agreement;
(v) There is a material adverse change in Tesoro's condition,
business, or property which may appreciably affect its
ability to perform any of its obligations under this Agreement
and Tesoro is unable or unwilling to give the State adequate
assurance of continued performance either within five Days of
a request for such an assurance or within such other shorter
time period as the State may request under the circumstances;
(vi) Any representation or warranty made by Tesoro in this
Agreement was materially false or incorrect when made; or
(vii) Tesoro's failure or inability for any reason (including
reasons beyond Tesoro's control) to maintain the Security
described in Article XV, notwithstanding Tesoro's continuing
willingness and
17
<PAGE> 23
ability to perform its other obligations and covenants under
the Agreement.
7.2 Failure to Pay Debts. If Tesoro becomes unable to pay any of
its debts when due, or should otherwise become insolvent (regardless how that
insolvency may be evidenced), Tesoro will immediately give notice of that fact
to the State. Whether that notice is given, if Tesoro becomes unable to pay any
of its debts when due or should otherwise become insolvent, the State's
obligation to tender and sell Oil will automatically and immediately terminate
without any requirement of notice or other action by the State; however, Tesoro
will nevertheless be and remain liable for payment and performance of all of
its obligations and covenants under this Agreement regarding Oil actually
tendered by the State to and after any such termination. Within thirty Days
after receipt of Tesoro's notice or, if no notice is given, after the State
otherwise becomes aware (as determined in the State's sole discretion) of
Tesoro's insolvency, the State will have the right, upon written notice to
Tesoro, to reinstate all of the State's and Tesoro's obligations under this
Agreement retroactively to the date of termination.
7.3 State's Remedies. If any Event of Default occurs or if the
State's obligation to tender and sell Oil under this Agreement is terminated or
suspended, all of Tesoro's obligations accrued but not otherwise due and
payable under this Agreement will immediately be due and payable in full. In
addition, Tesoro will indemnify and hold the State harmless from and against
all other liability, damages (including reasonably foreseeable consequential
damages), costs, losses and expenses (including reasonable attorney's fees and
disbursements) incurred by the State and arising out of the Event of Default,
termination, or suspension. The State shall have the right cumulatively to
exercise any and all other rights and remedies and to obtain all
18
<PAGE> 24
other relief available under applicable law or at equity, including mandatory
injunction and specific performance.
Additionally, in its sole discretion, the State, upon occurrence of
any Event of Default: (1) may dispose to third parties Royalty Oil to be
tendered and sold under this Agreement and (2) may release Tesoro from the
in-state processing obligations set forth in Article 2.13 until the Event of
Default no longer exists or the obligation of Tesoro to take Oil under this
Agreement expires. If the State disposes Oil to third parties, or if Tesoro is
released from Article 2.13, whether or not this Agreement is terminated, Tesoro
will nevertheless remain liable for the difference between the purchase price
for that Oil under this Agreement and the price received by the State by
disposition, including al1 of the expenses (including reasonable attorneys'
fees and costs), and losses incurred by the State arising out of the Event of
Default or disposition.
7.4 Tesoro's Exclusive Remedies. Upon any breach of, or default in
performance of any of the State's covenants or obligations under this
Agreement, Tesoro agrees that its remedies will not include a temporary
restraining order or preliminary injunction preventing the State from taking
any action regarding the Royalty Oil which is the subject of this Agreement.
19
<PAGE> 25
ARTICLE VIII
DISPOSITION OF OIL
8.1 Disposition of Oil Upon Default or Termination. Tesoro
recognizes that the State may be required to give six Months notice under the
BP Royalty Settlement Agreement (or ninety Days if the amount of increase or
decrease is less than ten percent of the then current nominations) to increase
or decrease the amount of Daily Royalty Oil to be taken in-kind. Tesoro agrees
that the State's electing to invoke its rights to return to taking its Royalty
Oil in-value on less than six Month's prior notice, or to attempt to secure a
waiver of any condition or requirement, is at the State's sole discretion.
Notwithstanding termination of this Agreement for any reason, Tesoro shall
continue to take and purchase the State's Royalty Oil in the amount and for the
price set forth in this Agreement for up to six Months following termination if
the State, in its sole discretion, so requires.
8.2 Inability to Receive Oil. If for any reason, Tesoro is unable
or refuses to accept or receive any Oil tendered under this Agreement, Tesoro
shall nevertheless be and remain responsible for the disposal of that Oil and
for paying the State for the Oil as though it had been received and accepted by
Tesoro unless the State, in its sole discretion, elects to waive this
requirement. To secure the Tesoro's obligations under Section 8.2 and Section
2.10, Tesoro shall, if the State requests, assign to the State all right, title
and interest of Tesoro under any nominations, Leases, agreements, contracts,
charter parties and other arrangements for the transportation of the Oil sold
under this Agreement through and away from the TAPS; provided, that the State
shall not have any liability or obligations under any such nominations, Leases,
agreements, contracts, charter parties or other arrangement unless, and to the
extent that, the State
20
<PAGE> 26
shall actually exercise its rights to succeed to Tesoro's interest under them
and shall obtain the benefits of them.
8.3 No Right to Storage or Underlift. Tesoro waives and disclaims
any interest or right that it may assert to storage of Royalty Oil, including
by underlift or other means, to which the State is or may become to be
entitled under the Leases or any other agreement.
ARTICLE IX
WAIVER
The failure of either party to insist upon strict performance of any
provision of this Agreement shall not constitute a waiver of, or estoppel
against, asserting the right to require that performance in the future. A
waiver or estoppel in any one instance shall not constitute a waiver or
estoppel with respect to a later breach of a similar nature or otherwise. A
course of performance established by a party shall also not estop the other
party from complaining of a later breach similar in nature.
ARTICLE X
VALIDITY
If any provision or clause of this Agreement or application of this
Agreement is held invalid, that invalidity shall not affect other provisions or
application of this Agreement which can be given effect without the invalid
provision or application. If, however, an invalidity should operate to impair
any material right or remedy of a party to this Agreement, that party may
terminate this Agreement by notice to the other.
21
<PAGE> 27
ARTICLE XI
FORCE MAJEURE AND CHANGE IN CONDITION
11.1 Effect of Force Majeure. Except for Tesoro's obligations to
pay for Oil tendered and to accept and dispose of Royalty Oil, neither party
shall be liable for any failure to perform when performance is prevented, in
whole or in substantial part, by force majeure after good faith efforts to
perform. The term 'force majeure" shall mean an event or condition not within
the reasonable control of the party claiming the benefit of this excuse. If,
however, any material obligation of Tesoro is excused or suspended by a force
majeure for sixty successive Days or more, the State will have the right to
terminate this Agreement. Before the State exercises its right to terminate,
the State and Tesoro shall in good faith negotiate to restore the benefits and
obligations of the force majeure condition.
11.2 Responsibility. If a party believes that force majeure has
occurred, the party shall immediately notify the other party of its claim of
force majeure. If force majeure occurs, that occurrence shall, so far as
possible, be remedied with reasonable diligence. Except for Tesoro's
obligations to pay for Oil tendered and to accept and dispose of Oil, the
disabled party's obligations to perform that are affected by the force majeure
shall be suspended from the time that notification occurs until the disability
should have been remedied with reasonable diligence, and for no longer.
22
<PAGE> 28
ARTICLE XII
NOTICES
12.1 Method. All notices, requests, demands or statements shall be
in writing, and may be delivered personally, telecopied, or sent by registered
or certified United States mail, postage prepaid, with a return receipt
requested, to the party to be notified. Notice deposited in the mail in this
manner shall be effective upon the expiration of seven Days after it is so
deposited or upon the date of receipt, whichever is earlier. Notice given in
any other manner shall be effective only if and when received by the addressee.
For the purposes of notice, the address of the parties shall be as follows:
If to the State: State of Alaska
Commissioner of Natural Resources
400 Willoughby Avenue
Juneau, Alaska 99801
and
Director, Division of Oil and Gas
P.O. Box 107034
Anchorage, Alaska 99510-0734
Telecopy Number: (907)562-3852
If to Tesoro:
Gaylon H. Simmons
Tesoro Alaska Petroleum Company
8700 Tesoro Drive
San Antonio, Texas 78217
Telecopy Number: (210) 283-2031
12.2 Change of Address. Each party may change its address for
notice by giving written notice of the change.
23
<PAGE> 29
ARTICLE XIII
RULES AND REGULATIONS
This Agreement is subject to all present and future valid laws,
orders, rules and regulations of the United States, the State of Alaska, and
any duly constituted agency of the State of Alaska.
ARTICLE XIV
SOVEREIGN POWER OF THE STATE
This Agreement shall not be interpreted as a limit on the State of
Alaska's exercise of any of its sovereign or regulatory powers, whether
conferred by constitution, statute or regulation, including, but not limited
to, its regulatory power over the Leases. Its exercise of any sovereign or
regulatory power will not operate or be deemed to enlarge any rights of Tesoro
or to limit or impair any obligations or liability of Tesoro under this
Agreement.
ARTICLE XV
SECURITY
Sixty Days before the Date of First Delivery, Tesoro shall cause to be
issued and delivered to the State an irrevocable stand-by letter of credit,
with an effective date no later than the Date of First Delivery, issued for the
benefit of the State by a State or national banking institution of the United
States ("Issuer"), which is insured by the Federal Deposit Insurance
Corporation and has an aggregate capital and surplus of not less than One
Hundred Million Dollars ($100,000,000), or other banking institution acceptable
to the State in its sole discretion.
24
<PAGE> 30
The principal face amount of such letter of credit shall be a sum estimated by
the Commissioner, in his sole discretion, to be equal to the aggregate purchase
price for the approximate total amount of Oil to be tendered by the State to
Tesoro during the first sixty Days following the Date of First Delivery. The
letter of credit shall be in a form satisfactory to the Commissioner, but in
any event shall not require any documents to be submitted in support of drafts
drawn against this letter of credit other than the certified statement of the
Commissioner or his designee and the Attorney General of the State of Alaska or
his designee that Tesoro is liable to the State for a sum equal to the amount
of such draft, and that sum is due and payable in full and has not been timely
paid. The letter of credit must be renewed sixty Days before its expiration so
that a letter of credit is continuously valid for sixty Days after the date of
the last delivery of Royalty Oil. If a replacement letter of credit, in a form
satisfactory to the Commissioner in his sole discretion, is not received sixty
Days before the expiration of the existing letter of credit, then Tesoro shall
be deemed to have materially breached this Agreement, there shall have occurred
an event of default under Article 7.1, and all obligations of Tesoro accrued,
but not otherwise due and payable under this Agreement, will immediately become
due and payable in full.
If the State has reasonable grounds for asserting any claims against
Tesoro and does assert those claims in an aggregate amount in excess of the
aggregate principal face amount of the letter of credit then in effect, Tesoro
shall, upon the State's request (whether or not Tesoro may deny, reject or
otherwise resist such claims), cause the principal face amount to be increased
by an amount equal to the excess. Tesoro shall also automatically increase the
principal face amount, without request from the State, whenever the face amount
is less than the expected purchase price of sixty Days of Oil tenders, to an
amount equal to the expected purchase price
25
<PAGE> 31
of sixty Days of Oil tenders. Upon approval of the State in its sole
discretion, Tesoro may decrease the principal face amount if the face amount is
more than the expected purchase price of sixty Days of Oil tenders to an amount
equal to the expected purchase price of sixty Days of Oil tenders.
The letter of credit must allow drafts to be drawn and presented to
the Issuer up to and including the 60th Day after the last delivery of Royalty
Oil to Tesoro under this Agreement. The Commissioner may accept such other or
additional security as he, in his sole discretion, considers adequate to
protect the State.
ARTICLE XVI
PREFERENTIAL HIRING AND NON-DISCRIMINATION
Tesoro agrees to employ Alaska residents and Alaska companies to the
extent they are available, willing and qualified for all work performed in
Alaska in connection with the Agreement. "Alaska resident" means an individual
who has resided in Alaska for one year at the time of employment and "Alaska
companies" means companies incorporated in Alaska or whose principal place of
business is in Alaska.
If this provision is determined to be unconstitutional, then Tesoro
agrees to employ Alaska residents and Alaska companies to the extent such
preferential hiring is determined to be constitutional.
26
<PAGE> 32
ARTICLE XVII
APPLICABLE LAW
17.1 Alaska Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Alaska.
17.2 Submission to Jurisdiction. Any legal action or proceeding
arising out of or relating to this Agreement or for the enforcement of the
covenants or obligations of either party must be instituted in a State court of
general jurisdiction sitting in the State of Alaska, and Tesoro hereby
irrevocably submits to the jurisdiction of that court in any such action or
proceeding.
ARTICLE XVIII
WARRANTIES
The purchase and sale of Royalty Oil are subject only to the
warranties of the State expressly set forth in this Agreement and the State
disclaims and Tesoro waives all other warranties, express or implied in law,
whatsoever.
ARTICLE XIX
AMENDMENT
This Agreement may be supplemented, amended, or modified only by
written instrument duly executed by the parties.
27
<PAGE> 33
ARTICLE XX
SUCCESSORS AND ASSIGNS
No assignment, pledge, or encumbrance of this Agreement shall be made
by either party without the written consent of the other party. The
Commissioner or the Commissioner's designee may grant or deny such consent.
Subject to the above requirements in this Article, this Agreement will be
binding upon and inure to the benefit of each of the parties and its successors
and permitted assignees.
ARTICLE XXI
HEADINGS
Headings used in this Agreement are for convenience only and
shall not affect its construction.
ARTICLE XXII
RECORDS
22.1 Preservation of Records. Tesoro will preserve and maintain all
books, accounts, and records relating to or arising out of the performance of
this Agreement including, but not limited to, the purchase or sale of Royalty
Oil and its refined products, for a period of no less than six years from the
date of transaction or last adjustment relating to the transaction. Tesoro will
also maintain and preserve all similar books, accounts, and records of which
it has possession belonging to those third parties with whom it contracts for
the performance of various parts of this Agreement. Neither Tesoro nor the
State shall be required to retain any records for
28
<PAGE> 34
more than six years unless retention of such records is specifically required
by applicable law or regulation, or this Agreement. Tesoro shall either
maintain its records within the State of Alaska or make such records available
to the State at Tesoro's principal office in the State of Alaska within thirty
Days after written request by the State.
22.2 Inspection of Records of Parties. Tesoro and the State will
accord to each other and to their authorized agents, attorneys, and auditors
during reasonable business hours access to any and all property, records,
books, documents, and indices directly related to Tesoro's or the State's
performance of this Agreement and which are under the control of the party from
which access is desired so that the other party may inspect, photograph and
make copies of that property, records, books, documents and indices. The State
shall not be required to disclose any information, data, or records which are
required to be held confidential by State or federal law or regulation, or by
agreement. If the information obtained by the State may be held confidential
under State or federal law or regulation, Tesoro may request that information
be held confidential by the State and the State will keep this information
confidential.
ARTICLE XXIII
INTERPRETATION OF TERMS AND CONDITIONS
Any disagreement about the meaning or application of a word, term, or
condition in this Agreement will be decided according to the dispute resolution
procedure set forth in this Article. Either party may give the other written
notice of a disagreement. Within 60 days after written notice, Tesoro must
present any argument and evidence supporting its view in writing to the
Commissioner for consideration. Tesoro shall not have the right to civil
litigation-type
29
<PAGE> 35
discovery or a civil litigation-type trial with the right to call or
cross-examine witnesses unless granted by the Commissioner in his sole
discretion. The Commissioner will subsequently issue a finding on the meaning
or application of the disputed word, term, or condition, setting forth the
basis for the conclusions. Tesoro agrees to accept findings by the Commissioner
under this Article which are supported by substantial evidence.
ARTICLE XXIV
COUNTERPARTS
This Agreement may be executed in multiple counterparts, the parties
need not sign the same counterpart. Each counterpart shall be deemed to be an
original and all of which taken together shall be one and the same instrument.
SIGNATURES
the State: THE STATE OF ALASKA
/s/ HARRY A. NOAH
------------------------------------
Commissioner
Department of Natural Resources
Date: 9/20/94
TESORO ALASKA PETROLEUM COMPANY
Tesoro Alaska Petroleum Company: By: /s/ GAYLON H. SIMMONS
--------------------------------
Its: Executive Vice President
Date: 9/27/94
30
<PAGE> 36
ACKNOWLEDGEMENT
State of Alaska )
) SS.
Third Judicial District )
THIS IS TO CERTIFY that on the 20th day of September, 1994, before me,
appeared Harry A. Noah, the commissioner, Department of Natural Resources,
State of Alaska; that Harry A. Noah executed that document under legal
authority and with knowledge of its contents; and that this act was performed
freely and voluntarily upon the premises and for the purposes stated in the
document.
Witness my hand and official seal the day and year in this agreement
first above written.
/s/ Barbara G. Hamilton
-------------------------------------
Notary Public in and for Alaska
My commission expires: 8/19/97
31
<PAGE> 37
ACKNOWLEDGEMENT
State of Alaska )
) SS.
Third Judicial District )
THIS IS TO CERTIFY that on the 27th day of September, 1994, before me,
appeared Gaylon H. Simmons of Tesoro Alaska Petroleum Company, San Antonio,
Texas; that he executed that document under legal authority and with knowledge
of its contents; and that this act was performed freely and voluntarily upon
the premises and for the purposes stated in the document.
Witness my hand and official seal the day and year in this agreement
first above written.
/s/ Ronald G. McNeal
-------------------------------------
My commission expires: 1/17/97
32
<PAGE> 38
EXHIBIT A
CALCULATION OF MONTHLY PRICE
This exhibit shows the mechanics of the price calculation and data sources.
Royalty Value and production volumes for the Prudhoe Bay Unit lessees are taken
from the Royalty Reports filed by those lessees. Royalty Value currently is
taken from Column H of these reports; Royalty Volume currently is taken from
Column C. An example calculation using the information for February 1994 is
shown below. Attached are the Royalty Report Summaries for the Prudhoe Bay
I.P.A.
<TABLE>
<CAPTION>
Production Royalty Value
Volume from from Column H
Column C of the from the Lessees'
Lessees' Monthly Monthly Royalty Product of Volume
Producer Royalty Report Report Times Royalty Value
-------- ---------------- ---------------- -------------------
<S> <C> <C> <C>
LISBURNE PRODUCTION
CENTER
ARCO 1,188,773.05 $8.76015 $ 10,413,826.00
BP Exploration 944,154.55 $8.38000 $ 7,912,015.13
Exxon 1,377,278.40 $8.38000 $ 11,541,592.99
PRUDHOE BAY I.P.A.
ARCO 8,016,404.50 $8.98000 $ 71,987,312.41
BP Exploration 12,825,315.80 $8.61000 $110,425,969.04
Exxon 8,015,830.90 $8.61000 $ 69,016,304.05
------------- ---------------
TOTALS 32,367,757.20 $281,297,019.62
</TABLE>
Monthly Price = Total Production Volumes Times Royalty Values / Total
Production Volume
or
$281,297,019.62 / 32,267,757.20 = $8.69066
Only BP's royalty value, calculated from the volume-weighted average of the
prices reported for each market, may be made public. The per barrel price
listed here is not BP's actual West Coast value. For purposes of this example,
it is assumed that BP's West Coast value is its reported Royalty Value plus
$0.75
Should Article 2.1(b) apply, the Monthly Price will be calculated using the
Royalty Values and production volumes for only the Initial Participating Areas.
33
<PAGE> 39
CALCULATION OF INTEREST
Numbers in these examples are illustrative. They do not represent accurate
values that may have existed in the past or are forecasted for any time in the
future.
Mechanics of the calculations include:
1. The annual interest rate specified in legislation is converted to a
daily rate for calculations.
2. Credits are applied to the next monthly payment. Payment for an
underpayment is due (a) within 10 days of the time the bill is
sent for Initial Billings and initial adjustment or (b) within 30
days of the time the bill is sent for subsequent adjustments.
Interest on underpayments stops accruing on the date of the
invoice.
EXAMPLE 1: INITIAL BILLING
Assumptions:
1. Month is February.
2. Royalty Oil delivered to Tesoro in January = 1,240,000 barrels.
3. Monthly Price for January, as determined by the methodology of
Exhibit A, = $8.00000.
4. Bill sent to Tesoro on February 10th; Payment due to State by
February 20th.
Method for calculating Tesoro's initial invoice for February deliveries:
Volume x Price = Interim Billing
1,240,000 x $8.00000 = $9,920,000.00
Note:
The lessees are required to submit their royalty reports to the State for
January's production by February 28th. For this reason the State will bill
Tesoro for January production based on the December Monthly Price. This is an
interim value and is subject to revision, since the Agreement requires that
Tesoro pay the Monthly Price for the same production month. The revised price
is incorporated in the invoice submitted the following month (March).
34
<PAGE> 40
EXAMPLE 2: INITIAL ADJUSTMENT
Assumptions:
1. Month is March.
2. Royalty Oil delivered to Tesoro in January = 1,240,000 barrels.
3. Revised Monthly Price for January = $7.950000.
4. Annual interest rate charged member banks for advances by 12th
Federal Reserve District as of January 1st is three percent.
Annual rate for contract = 11 percent.
5. Tesoro receives notice of credit on March 3rd.
Method for calculating Tesoro's revised invoice for January deliveries:
Volume x Price = Revised Billing
1,240,000 x $7.95000 = $9,858,000.00
Amount Paid by Tesoro for January deliveries (calculated in Example 1):
$9,920,000.00
-------------
Overpayment for January: ($62,000.00)
Difference between date when Tesoro notified of credit (March 3rd) and original
accrual date (February 20th) = 12 days.
Interest due = $62,000.00 x (11%/365) x 12 = ($224.22)
-----------
Credit due Tesoro for next month's billing = ($62,224.22)
35
<PAGE> 41
EXAMPLE 3: SUBSEQUENT ADJUSTMENT
This adjustment is assumed to occur after true-up of BP transportation costs, a
reopener for one of the Royalty Settlement Agreements, or for some other
reason. It is assumed to occur June 5th.
Assumptions:
1. Month is June.
2. Royalty Oil delivered to Tesoro in January = 1,240,000 barrels.
3. Adjusted Monthly Price for January = $8.15000.
4. Annual interest rate charged member banks for advances by 12th
Federal Reserve District as of January 1 assumed to be three percent;
as of April 1 and through the third quarter, seven percent. Annual
interest rate for contract = 11 percent for the first quarter;
12 percent for the second and third quarter.
5. Tesoro is sent notice of underpayment on June 5th.
6. Tesoro's payment is received on July 5th.
Method for calculating Tesoro's revised invoice for January deliveries:
<TABLE>
<S> <C> <C> <C> <C>
Volume x Price = Revised Billing
1,240,000 x $8.15000 = $10,106,000.00
</TABLE>
Amount Paid by Tesoro for January deliveries (calculated in Example 2):
<TABLE>
<S> <C>
$9,858,000.00
-------------
Underpayment for January deliveries: $248,000.00
Days of interest in first quarter (Feb. 20th through March 31st) = 40
Days of interest in second quarter (April 1 through June 30th) = 91
Days of interest in third quarter (July 1 through July 5) = 5
Interest for first quarter = $248,000.00 x (11%/365) x 40 = $2,989.59
Interest for second quarter = ($248,000.00 + $2,989.59) x (12%/365) x 91 = $7,509.06
Interest for third quarter = ($248,000.00 + $2,989.59 + $7,509.06) x (12%/365) x 5 = $424.93
-----------
Payment from Tesoro due to the State within 30 days of invoice date = $258,923.58
</TABLE>
If payment in full not received by or on July 5th then additional interest will
accrue from July 6th through the payment receipt date, plus a late payment
penalty will be assessed.
36
<PAGE> 42
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
OIL ROY RPT SUM STATE OF ALASKA PAGE 1
REVISED 1/86 DEPARTMENT OF NATURAL RESOURCES UNIT PRUDHOE BAY UNIT
DO&G # 3-86 OIL OR GAS ROYALTY REPORT SUMMARY FIELD
DNR 10-4030 ZONE
LEASE
COMPANY NAME ARCO Alaska, Inc. REPORT FOR MONTH OF Feb 1994
ADDRESS P.O. Box 100360 REVISION NUMBER
CITY, STATE, ZIP Anchorage, AK 99510 DATE OF REVISION
<CAPTION>
(a) (b) (c) (d) (e) (f)
- ------------------------------------------------------------------------------------------------------------------------
Product Gross unit or Working (a) x (b) Royalty (c) x (d) Royalty
Description Lease Production Interest (Bbls) or Rate (Bbls) or In-Kind
(Bbls) or (MCF) Ownership % (MCF) (%) (MCF) (Bbls) or
(MCF)
- ------------------------------------------------------------------------------------------------------------------------
CRUDE 28,495,074.00 25,64316% 7,307,036.03 12.50000% 913,379.50 322,942.37
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS 28,495,074.00 7,307,036.03 913,379.50 322,942.37
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(g) (h) (i) (j) (k)
- ------------------------------------------------------------------------------------------------------------------------
Product Royalty Royalty Field Costs (h) - (i) (g) X (j)
Description In-Value Value per Bbl Reported Royalty
(e) - (f) $ per Bbl or MCF Royalty per In-Value
(Bbls) or (MCF) or MCF Bbl or MCF Dollars
- ------------------------------------------------------------------------------------------------------------------------
CRUDE 590,437.13 $8.98000 $0.790 $8.19000 $4,835,680.09
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS 590,437.13 $4,835,680.09
- ------------------------------------------------------------------------------------------------------------------------
*WEIGHTED AVERAGE VALUE
I declare that I have examined this report, including accompanying (03) COTP $3,624.51
schedules and statements, and to the best of my knowledge and (04) Less field cost for RIK ($255,124.47)
belief it is true, correct, and complete. Lease/Split Costs for RIK $0.00
(05) Interest to Revision (120.68)
SIGNED /s/ BARBARA B. AVE (06) Revisions (Attach ($6,908.00)
Reconciliations or
TITLE Authorized Representative TYPED NAME Barbara B. Ave amended returns) -------------
(07) Amount Due $4,577,272.13
PHONE NO. (907) 263-4965 =============
DATE 3/25/94
GAS ROYALTY: ATTACH FORM 10-422 Mail With Applicable Statements to: State of Alaska
OIL ROYALTY: ATTACH FORM 10-405 Department of Natural Resources
OIL AND/OR Division of Oil and Gas
GAS ROYALTY: VERIFICATION OF WIRE TRANSFER AMOUNTS OR A Royalty Accounting Section
COPY OF THE CHECK MADE IN PAYMENT OF ITEM (5) P.O. Box 7034
MUST BE ATTACHED. Anchorage, Alaska 99510-7034
RECEIVED
MAR 31 1994
DIVISION OF OIL & GAS
</TABLE>
<PAGE> 43
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
OIL ROY RPT SUM STATE OF ALASKA PAGE 3
REVISED 1/86 DEPARTMENT OF NATURAL RESOURCES UNIT PRUDHOE BAY UNIT
DO&G # 3-86 OIL OR GAS ROYALTY REPORT SUMMARY FIELD
DNR 10-4030 ZONE
LEASE
COMPANY NAME ARCO Alaska. Inc. REPORT FOR MONTH OF Feb 1994
ADDRESS P.O. Box 100360 REVISION NUMBER
CITY, STATE, ZIP Anchorge, AK 99510 DATE OF REVISION
<CAPTION>
(a) (b) (c) (d) (e) (f)
- ------------------------------------------------------------------------------------------------------------------------
Product Gross unit or Working (a) x (b) Royalty (c) x (d) Royalty
Description Lease Production Interest (Bbls) or Rate (Bbls) or In-Kind
(Bbls) or (MCF) Ownership % (MCF) (%) (MCF) (Bbls) or
(MCF)
- ------------------------------------------------------------------------------------------------------------------------
NGL 1,782,693.00 39,79196% 709,368.50 12.50000% 88,671.07 31,478.23
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS 1,782,693.00 709,368.50 88,671.07 31,478.23
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(g) (h) (i) (j) (k)
- ------------------------------------------------------------------------------------------------------------------------
Product Royalty Royalty Field Costs (h) - (i) (g) x (j)
Description In-Value Value per Bbl Reported Royalty
(e) - (f) $ per Bbl or MCF Royalty per In-Value
(Bbls) or (MCF) or (MCF) Bbl of MCF Dollars
- ------------------------------------------------------------------------------------------------------------------------
NGL 57,192.84 $8.98000 $3.400 $5.58000 $319,136.05
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS 57,192.84 $319,136.05
- ------------------------------------------------------------------------------------------------------------------------
*WEIGHTED AVERAGE VALUE
I declare that I have examined this report, including accompanying (03) COTP $ 0.00
shedules and statements, and to the best of my knowledge and (04) Less field costs for RIK $ 0.00
belief it is true, correct, and complete. Lease/Split Costs for RIK ($107,025.98)
(05) Revisions (attach ($644.39)
SIGNED /s/ BARBARA B. AVE reconciliations or
amended returns) -------------
TITLE Authorized Representative TYPED NAME Barbara B. Ave (06) Amount Due $ 211,476.94
=============
PHONE NO. (907) 263-4965
DATE 3/25/94
GAS ROYALTY: ATTACH FORM 10-422 Mail With Applicable Attachments To: State of Alaska
OIL ROYALTY: ATTACH FORM 10-405 Department of Natural Resources
OIL AND/OR Division of Oil and Gas
GAS ROYALTY: VERIFICATION OF WIRE TRANSFER AMOUNTS OR A Royalty Accounting Section
COPY OF THE CHECK MADE IN PAYMENT OF ITEM (5) P.O. Box 7034
MUST BE ATTACHED. Anchorage, Alaska 99510-7034
RECEIVED
MAR 31 1994
DIVISION OF OIL & GAS
</TABLE>
<PAGE> 44
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ARS550P 00 PROD STATE OF ALASKA 03/29/94
ARS550M 00 OIL ROYALTY REPORT SUMMARY 11:50:12
STATE OF ALASKA AMENDMENT: 00
DEPT. OF NATURAL RESOURCES ROYALTY PAYER: BP EXPLORATION (ALASKA)
DIVISION OF OIL AND GAS P.O. BOX 196612
ROYALTY ACCOUNTING SECTION ANCHORAGE, AK 99519-6612
P.O. BOX 107034
ANCHORAGE, AK 99510-7034
FIELD, POOL OR LEASE: PRUDHOE BAY UNIT
PRODUCTION MONTH: FREBRUARY 1994
FILING DATE: 03/31/94
PAGE: 1
<CAPTION>
(a) (b) (c) (d) (e) (f)
- ------------------------------------------------------------------------------------------------------------------------
Product Gross unit or Working (a) x (b) Royalty (c) x (d) Royalty
Description Lease Production Interest (Bbls) Rate (Bbls) In-Kind
(Bbls) Ownership % (Bbls)
- ------------------------------------------------------------------------------------------------------------------------
NGLCN 1,782,693.00 18.7525446 334,300.30 12.500 41,787.54 14,834.60
OILCN 28,435,515.00 43.4290721 12,491,018.60 12.500 1,561,377.33 554,347.00
OILTP 40,559.00
OILTR
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS 30,277,767.00 12,825,318.90 1,603,144.87 569,181.60
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(g) (h) (i) (j) (k)
- ------------------------------------------------------------------------------------------------------------------------
Product (e) - (f) Royalty Field Costs (h) - (i) (g) X (j)
Description Royalty Value $/Bbl Reported Royalty
In-Value $/Bbl Royalty In-Value
(Bbls) $/Bbl Dollars
- ------------------------------------------------------------------------------------------------------------------------
NGLCN 26,952.94 7.8600 5.4500 2.4100 64,956.59
OILCN 1,007,030.33 7.8600 0.7900 7.0700 7,119,704.43
OILTP
OILTR
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS 1,033,983.27 (2) 7,184,661.02
- ------------------------------------------------------------------------------------------------------------------------
I declare that I have examined this report, including accompanying (3) Topping plant 7,184,661.02
schedules and statements, and to the best of my knowledge and $ 5,820,78
belief it is true, correct, and complete. (4) Less fields costs RIK-oil $ -437,934.13
processing fees RIK-Nols $ -60,848.57
(5) Revisions (attach amended
returns or reconciliations) $ 254,908.19
SIGNED: /s/ HAROLD S. WESSELLS (6) Amount due ($) $6,928,607.29
TITLE: ROYALTY OFFICER
DATE: 3/31/94
OIL ROYALTY: ATTACH FORM 10-405
VERIFICATION OF WIRE TRANSFER AMOUNTS OR A COPY OF THE CHECK MADE IN
PAYMENT OF ITEM (6) MUST BE ATTACHED. MAIL APPLICABLE ATTACHMENTS
TO DEPARTMENT OF NATURAL RESOURCES AT ABOVE ADDRESS.
NOTES:
COLUMN 5 INCLUDES AMOUNT FOR AMENDED REPORTS FOR RECEIVED
JULY 1993 THROUGH DECEMBER 1993 AS REQUIRED PER MAR 31 1994
THE ANS SETTLEMENT AGREEMENT DIVISION OF OIL & GAS
</TABLE>
<PAGE> 45
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
OIL RO RPT SUM Page 1 of 2
REVISED 1/86 STATE OF ALASKA UNIT: PRUDHOE BAY
DO&G #3-86 OIL ROYALTY REPORT SUMMARY FIELD: PRUDHOE BAY
DNR 10-4030 STATE OF ALASKA - DEPARTMENT OF NATURAL RESOURCES ZONE: PRUDHOE BAY
ROYALTY ADDRESS: EXXON CORPORATION REPORT FOR FEBRUARY 1994
P.O. BOX 4496 REVISION NUMBER 0.00
HOUSTON, TEXAS 77210-4496 REVISION DATE
<CAPTION>
(A) (B) (C) (D) (E) (F)
- ------------------------------------------------------------------------------------------------------------------------
Gross unit Working Total Royalty
Product Production Interest Working Interest Royalty Royalty In-Kind
Description (Bbls) Ownership % Bbls Rate Bbls Bbls
- ------------------------------------------------------------------------------------------------------------------------
CRUDE 28,495,074.00 0.25641196 7,306,477.80 0.125000 913,309.73 322,917.60
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(G) (H) (I) (J) (K)
- ------------------------------------------------------------------------------------------------------------------------
Royalty Royalty Reported Royalty
Product In-Value Value Field Costs Royalty In-Value
Description Bbls $ per Bbl per Bbl per Bbl Dollars
- ------------------------------------------------------------------------------------------------------------------------
CRUDE 590,392.10 8.610 0.790 7.820 4,616,666.22
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS * * (2) 4,616,666.22
- ------------------------------------------------------------------------------------------------------------------------
*WEIGHTED AVERAGE VALUE
<CAPTION>
---------------------------------------------------
PRINCIPAL (1)INTEREST (M)TOTAL
- ------------------------------------------------------------------------------------------------
(3) COTP GRAVITY ADJUSTMENT 3,624.25 N/A 3,624.25
- ------------------------------------------------------------------------------------------------
(4) LESS FIELD COSTS FOR RJK (255,104.90) N/A (255,104.90)
- ------------------------------------------------------------------------------------------------
(5) OTHER (EXPL. INCENTIVE CREDIT) 0.00 N/A 0.00
- ------------------------------------------------------------------------------------------------
(6) SUBTOTAL ((2) THRU (5)) 4,365,385.57 0.00 4,365,385.57
- ------------------------------------------------------------------------------------------------
(7) REVISIONS 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------
(8) TOTAL AMOUNT DUE ((6)+(7)) 4,365,385.57 0.00 4,365,385.57
- ------------------------------------------------------------------------------------------------
I declare that I have examined this report, including accompanying
schedules and statements, and to the best of my knowledge and
belief it is true, correct, and complete.
SIGNED BY /s/ HYMES E. PERLIN for DCS
PRINTED NAME DAVID C. SHAMPANG
TITLE STATE ROYALTY UNIT SUPERVISOR RECEIVED
PHONE NUMBER (713) 658-8649 MAR 31 1994
DATE 29-MAR-94 DIVISION OF OIL & GAS
PREPARED BY JEANNE USIE (713) 658-6691
</TABLE>
<PAGE> 46
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
OIL ROYRPTSUM PAGE 1 OR 7
REVISED 1/88 STATE OF ALASKA UNIT: PRUDHOE BAY
DO&G #3-86 OIL ROYALTY REPORT SUMMARY FIELD: PRUDHOE BAY
DNR 10-4030 STATE OF ALASKA - DEPARTMENT OF NATURAL RESOURCES ZONE: PRUDHOE BAY
LEASE: PRUDHOE BAY
ROYALTY ADRESS: EXXON CORPORATION REPORT FOR FEBRUARY 1994
P.O. BOX 4498 REVISION NUMBER 0.00
HOUSTON, TEXAS 77210-4496 REVISION DATE
<CAPTION>
(A) (B) (C) (D) (E) (F)
- ------------------------------------------------------------------------------------------------------------------------
Product Gross unit Working Working Interest Royalty Total Royalty
Description Production Interest Bbls Rate Royalty In-Kind
(Bbls) Ownership % (%) Bbls (Bbls)
- ------------------------------------------------------------------------------------------------------------------------
NGLS 1,782,693.00 0.39791097 709,353.10 0.125000 88,669.14 31,477.50
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(G) (H) (I) (J) (K)
- ------------------------------------------------------------------------------------------------------------------------
Product Royalty Royalty Field Costs Reported Royalty
Description In-Value Value $ per Bbl Royalty $ per In-Value
(Bbls) $ per Bbl Bbl Dollars
- ------------------------------------------------------------------------------------------------------------------------
NGLS 57,191.60 8.610 1.628 6.952 399,311.75
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS * * (2) 399,311.75
- ------------------------------------------------------------------------------------------------------------------------
*WEIGHTED AVERAGE VALUE
<CAPTION>
---------------------------------------------------
PRINCIPAL (1) INTEREST (M)TOTAL
- ------------------------------------------------------------------------------------------------
(3) COTP GRAVITY ADJUSTMENT 0.00 N/A 0.00
- ------------------------------------------------------------------------------------------------
(4) LESS FIELD COST FOR RIK (51,243.37) N/A (51,245.37)
- ------------------------------------------------------------------------------------------------
(5) OTHER (EXPL. INCENTIVE CREDIT) 0.00 N/A 0.00
- ------------------------------------------------------------------------------------------------
(6) SUBTOTAL ((2) THRU (5)) 346,066.38 0.00 346,066.38
- ------------------------------------------------------------------------------------------------
(7) REVISIONS 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------
(8) TOTAL AMOUNT DUE ((6)+(7)) 346,066.38 0.00 346,066.38
- ------------------------------------------------------------------------------------------------
I declare that I have examined this report, including accompanying
schedules and statements, and to the best of my knowledge and
belief it is true, correct, and complete.
SIGNED /s/ HYMES E. PERLIN for DCS
PRINTED NAME: DAVID C. SHAMPANG
TITLE: STATE ROYALTY UNIT SUPERVISOR RECEIVED
PHONE NUMBER (713) 658-8549 MAR 31 1994
DATE 29-MAR-94 DIVISION OF OIL & GAS
PREPARED BY JEANNE USIE (713) 658-6691
</TABLE>
<PAGE> 1
ITEM 14(A)3, EXHIBIT 11
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
INFORMATION SUPPORTING EARNINGS (LOSS) PER SHARE COMPUTATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE COMPUTATION:
Earnings (loss) before extraordinary loss on extinguishment
of debt and the cumulative effect of accounting
changes.................................................. $20,483 16,956 (45,245)
Extraordinary loss on extinguishment of debt................ (4,752) -- --
Cumulative effect of accounting changes..................... -- -- (20,630)
------- ------- -------
Net earnings (loss)......................................... 15,731 16,956 (65,875)
Dividend requirements on preferred stock.................... 2,680 9,207 9,207
------- ------- -------
Net earnings (loss) applicable to common stock.............. $13,051 7,749 (75,082)
======= ======= =======
Average outstanding common shares............................. 22,552 14,070 14,063
Average outstanding common equivalent shares.................. 644 220 --
------- ------- -------
Average outstanding common and common equivalent shares..... 23,196 14,290 14,063
======= ======= =======
Primary Earnings (Loss) Per Share:
Earnings (loss) before extraordinary loss on extinguishment
of debt and the cumulative effect of accounting
changes.................................................. $ .77 .54 (3.87)
Extraordinary loss on extinguishment of debt................ (.21) -- --
Cumulative effect of accounting changes..................... -- -- (1.47)
------- ------- -------
Net earnings (loss)......................................... $ .56 .54 (5.34)
======= ======= =======
FULLY DILUTED EARNINGS (LOSS) PER SHARE COMPUTATION:
Net earnings (loss) applicable to common stock.............. $13,051 7,749 (75,082)
Add: Dividend requirements on preferred stock............... 2,680 9,207 9,207
------- ------- -------
Net earnings (loss) applicable to common stock -- fully
diluted.................................................. $15,731 16,956 (65,875)
======= ======= =======
Average outstanding common and common equivalent shares....... 23,196 14,290 14,063
Shares issuable on conversion of preferred shares............. 1,476 4,775 4,775
------- ------- -------
24,672 19,065 18,838
======= ======= =======
Fully Diluted Earnings (Loss) Per Share -- Anti-dilutive*..... $ .56 .54 (5.34)
======= ======= =======
</TABLE>
- ---------------
* This calculation is submitted in accordance with paragraph 601(b)(11) of
Regulation S-K, although it is not required by APB Opinion No. 15 because it
produces an anti-dilutive result.
<PAGE> 1
ITEM 14(A)3, EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
PERCENT
OF
INCORPORATED VOTING
OR SECURITIES
ORGANIZED OWNED
UNDER BY
NAME OF COMPANY LAWS OF TESORO
- ----------------------------------------------------------------- -------- ----
<S> <C> <C>
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 Gas Resources Company, Inc................................ Delaware 100%
Tesoro Natural Gas 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%
</TABLE>
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" at the end of the year covered by this
annual report.
<PAGE> 1
ITEM 14(a) 3, EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Stockholders
Tesoro Petroleum Corporation
We consent to the incorporation by reference in Registration Statement No.
33-53293 of Tesoro Petroleum Corporation on Form S-8 of our report dated
February 1, 1995, appearing in this Annual Report on Form 10-K of Tesoro
Petroleum Corporation for the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
San Antonio, Texas
March 15, 1995
<PAGE> 1
ITEM 14(a)3, Exhibit 23(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, 1994,
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 16, 1995
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TESORO
PETROLEUM CORPORATION'S FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 14,018
<SECURITIES> 0
<RECEIVABLES> 92,956
<ALLOWANCES> 1,816
<INVENTORY> 68,302
<CURRENT-ASSETS> 182,108
<PP&E> 479,116
<DEPRECIATION> 205,782
<TOTAL-ASSETS> 484,360
<CURRENT-LIABILITIES> 96,243
<BONDS> 192,210
0
0
<COMMON> 4,065
<OTHER-SE> 156,667
<TOTAL-LIABILITY-AND-EQUITY> 484,360
<SALES> 871,211
<TOTAL-REVENUES> 874,638
<CGS> 775,051
<TOTAL-COSTS> 775,051
<OTHER-EXPENSES> 36,016
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,749
<INCOME-PRETAX> 26,056
<INCOME-TAX> 5,573
<INCOME-CONTINUING> 20,483
<DISCONTINUED> 0
<EXTRAORDINARY> (4,752)
<CHANGES> 0
<NET-INCOME> 15,731
<EPS-PRIMARY> .56<F1>
<EPS-DILUTED> .56<F1>
<FN>
<F1> Earnings per share is after an extraordinary loss of $4.8 million
($.21 loss per share) on extinguishment of debt.
</FN>
</TABLE>
