<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1996
REGISTRATION NUMBER 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
TESORO PETROLEUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2911 95-0862768
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
8700 TESORO DRIVE
SAN ANTONIO, TEXAS 78217
(210) 828-8484
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES C. REED, JR., ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
TESORO PETROLEUM CORPORATION
8700 TESORO DRIVE
SAN ANTONIO, TEXAS 78217
(210) 828-8484
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
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JEAN W. GLEASON, ESQ. WALTER M. EPSTEIN, ESQ.
FULBRIGHT & JAWORSKI L.L.P. RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
801 PENNSYLVANIA AVENUE, N.W., SUITE 400 30 ROCKEFELLER PLAZA
WASHINGTON, D.C. 20004-2604 NEW YORK, NEW YORK 10112
(202) 662-0200 (212) 698-7700
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon consummation of the merger described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE FEE(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(3), $.16 2/3 par
value........................... 1,387,744 Not applicable Not applicable $3,735
================================================================================================
</TABLE>
(1) Represents the maximum number of shares of Registrant's Common Stock
issuable pursuant to the terms of the Merger described herein to holders of
common stock of Coastwide Energy Services, Inc. ("Coastwide") and upon
exercise of outstanding employee stock options, Convertible Subordinated
Debentures and Class B Warrants of Coastwide.
(2) Pursuant to Rule 457(c) and Rule 457(f), the registration fee was computed
on the basis of the aggregate market value of the maximum number of shares
of common stock that could be issued pursuant to the terms of the Merger,
which is based on the average of the high and low sale prices of Coastwide
common stock as reported on the NASDAQ National Market System on January 12,
1996. In accordance with Rule 457(b), the registration fee included with
this Registration Statement has been reduced by the $3,985.00 that was
previously paid with the filing of preliminary proxy materials on Schedule
14A (which contained the Proxy Statement/Prospectus included herein) filed
on November 29, 1995 with the Commission. Since the registration fee as
calculated pursuant to Rule 457(c) and 457(f) is less than the fee that was
previously paid, no fee is included with this filing.
(3) Associated with the Common Stock are Preferred Stock Purchase Rights that
will not be exercisable or evidenced separately from the Common Stock prior
to the occurrence of certain events.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
TESORO PETROLEUM CORPORATION
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN THE PROSPECTUS
---------------- --------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus........................... Cover of Registration Statement;
Cross Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page of
Prospectus; Available Information;
Table of Contents; Incorporation
of Certain Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information.................................. Summary; Risk Factors and Recent
Developments; The Merger; Market
Price and Dividend Data; Tesoro
Selected Historical Financial
Data; Coastwide Selected
Historical Financial Data
4. Terms of the Transaction............................. Summary; The Merger; Terms of the
Merger; Comparative Rights of
Stockholders of Tesoro and
Coastwide
5. Pro Forma Financial Information...................... Not Applicable
6. Material Contacts with the Company Being Acquired.... The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters...... Not Applicable
8. Interests of Named Experts and Counsel............... Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants.......... Available Information; Summary;
Information About Tesoro;
Incorporation of Certain
Documents by Reference
11. Incorporation of Certain Information by Reference.... Incorporation of Certain Documents
by Reference
12. Information with Respect to S-2 or S-3 Registrants... Not Applicable
13. Incorporation of Certain Information by Reference.... Not Applicable
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants............................. Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies............ Not Applicable
16. Information with Respect to S-2 or S-3 Companies..... Not Applicable
17. Information with Respect to Companies Other Than S-3
or S-2 Companies................................... Available Information; Summary;
Information About Coastwide;
Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................ Summary; The Special Meeting; The
Merger; Incorporation of Certain
Documents by Reference
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer.... Not Applicable
</TABLE>
<PAGE> 3
COASTWIDE ENERGY SERVICES, INC.
11111 WILCREST GREEN DRIVE
SUITE 300
HOUSTON, TEXAS 77042
JANUARY 20, 1996
Dear Coastwide Stockholder:
You are invited to attend a special meeting of stockholders (the "Special
Meeting") of Coastwide Energy Services, Inc. ("Coastwide"), which is to be held
at 10:00 a.m., Central Standard Time, on February 20, 1996, at the Sheraton
Grand Hotel, 2525 West Loop South, Houston, Texas. Enclosed are a Notice of
Special Meeting of Stockholders, a Proxy Statement/Prospectus and a form of
proxy for the Special Meeting.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve an Agreement and Plan of Merger, dated as of November 20,
1995 (the "Merger Agreement"), that provides for the acquisition of Coastwide by
Tesoro Petroleum Corporation ("Tesoro") through a merger of Coastwide with and
into a subsidiary of Tesoro (the "Merger"). Pursuant to the terms of the Merger
Agreement, each outstanding share of common stock of Coastwide will be converted
into the right to receive $2.55 in cash and .41 share of Tesoro common stock,
$.16 2/3 par value, (and cash in lieu of any fractional share) together with any
associated Preferred Stock Purchase Rights (the "Merger Consideration"), and
each outstanding warrant, option and convertible debenture will be adjusted so
that, upon exercise or conversion, the holder will receive the Merger
Consideration for the number of shares of Coastwide common stock that would have
been issuable upon exercise or conversion immediately prior to the Merger.
The Coastwide Board of Directors has reviewed the terms of the Merger with
Simmons & Company International, an independent firm retained to act as a
financial advisor. Both the Coastwide Board of Directors and Simmons & Company
International have concluded that the Merger is fair to and in the best
interests of Coastwide and its stockholders from a financial point of view. The
Coastwide Board of Directors believes that the proposed Merger will be
beneficial to Coastwide's stockholders by permitting them a partial cash return
on their investment while at the same time providing them with an interest in a
larger and more diversified energy and energy service company. Management
believes that the Merger will strengthen the combined energy service operations
of Coastwide and Tesoro while providing greater resources to achieve a more
competitive position. In addition, given the high volatility of the energy
business, the greater resources and diversity of the combined companies should
lessen, to some degree, the risks to Coastwide stockholders in any continued
negative trends in the energy sector.
Consummation of the Merger is subject to a number of conditions, including
obtaining the approval of the stockholders of Coastwide. Details of the Merger,
certain financial and other information relating to the parties and a copy of
the Merger Agreement are set forth in the accompanying Proxy
Statement/Prospectus, which you should read carefully. You should also consider
the additional information regarding Coastwide and Tesoro contained in the other
documents also set forth or incorporated by reference in the Proxy
Statement/Prospectus.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE MERGER. THE BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF COASTWIDE AND THE STOCKHOLDERS OF COASTWIDE AND RECOMMENDS THAT YOU
VOTE FOR APPROVAL OF THE MERGER.
All stockholders are invited to attend the Special Meeting in person. The
affirmative vote of the holders of a majority of the shares of Coastwide common
stock entitled to vote at the Special Meeting is required for the approval and
adoption of the Merger Agreement and the Merger.
PLEASE DO NOT SEND ANY SHARE CERTIFICATES AT THIS TIME.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING, YOU
ARE URGED TO PROMPTLY COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN
THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
Sincerely,
/s/ DON V. INGRAM
Don V. Ingram
Chairman of the Board
/s/ STEPHEN A. WELLS
Stephen A. Wells
President and Chief Executive Officer
<PAGE> 4
COASTWIDE ENERGY SERVICES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 20, 1996
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders (the
"Special Meeting") of Coastwide Energy Services, Inc. ("Coastwide") will be held
at 10:00 a.m., Central Standard Time, on February 20, 1996, at the Sheraton
Grand Hotel, 2525 West Loop South, Houston, Texas, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of November 20, 1995 (the "Merger Agreement"),
between Tesoro Petroleum Corporation ("Tesoro"), Coastwide, and a wholly-owned
subsidiary of Tesoro, pursuant to which (i) Coastwide will be merged with and
into a subsidiary of Tesoro (the "Merger"), (ii) each outstanding share of
Coastwide common stock, $.01 par value ("Coastwide Common Stock"), will be
converted into the right to receive $2.55 in cash and .41 share of Tesoro common
stock, $.16 2/3 par value, (and cash in lieu of any fractional share) together
with any associated Preferred Stock Purchase Rights (the "Merger Consideration")
and (iii) each outstanding warrant, option and convertible debenture will be
adjusted so that, upon exercise or conversion, the holder will receive the
Merger Consideration for the number of shares of Coastwide Common Stock that
would have been issuable upon exercise or conversion immediately prior to the
Merger.
2. To consider and take action upon any other matter that may properly come
before the Special Meeting or any adjournments thereof.
The affirmative vote of the holders of a majority of the shares of
Coastwide Common Stock entitled to vote at the Special Meeting is required for
the approval and adoption of the Merger Agreement and the Merger.
THE BOARD OF DIRECTORS OF COASTWIDE HAS APPROVED THE MERGER AGREEMENT AND
THE PROPOSED MERGER AND RECOMMENDS THAT COASTWIDE STOCKHOLDERS VOTE FOR THE
MERGER AGREEMENT AND THE MERGER.
The Board of Directors has fixed the close of business on December 22, 1995
as the record date ("Record Date") for determination of stockholders entitled to
notice of the Special Meeting and to vote at the Special Meeting or any
adjournment thereof. Only holders of record of Coastwide Common Stock on the
Record Date are entitled to notice of and to vote at the Special Meeting. A list
of stockholders of record of Coastwide as of the close of business on the Record
Date will be available for inspection during normal business hours for ten days
prior to the Special Meeting at Coastwide's executive office at 11111 Wilcrest
Green, Suite 300, Houston, Texas.
Holders of record of Coastwide Common Stock who comply with the statutory
requirements will be entitled, under Section 262 of the General Corporation Law
of the State of Delaware, to demand appraisal of their shares if the Merger
Agreement is adopted and the Merger is consummated. A summary of the provisions
of Section 262, including a summary of the requirements with which stockholders
demanding such appraisal must comply, is contained in the Proxy
Statement/Prospectus under the heading "The Merger -- Appraisal Rights." The
entire text of Section 262 is attached as Appendix C to the accompanying Proxy
Statement/Prospectus.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. EVEN IF
YOU PLAN TO BE PRESENT, YOU ARE URGED TO MARK, DATE, SIGN AND RETURN THE
ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED SO THAT THE
PRESENCE OF A QUORUM MAY BE ASSURED.
THE GIVING OF SUCH PROXY DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IN
THE EVENT YOU ATTEND THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME
BEFORE IT IS VOTED.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ P. BLAKE DUPUIS
P. Blake Dupuis
Secretary
<PAGE> 5
COASTWIDE ENERGY SERVICES, INC.
PROXY STATEMENT
---------------------
TESORO PETROLEUM CORPORATION
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to stockholders of
Coastwide Energy Services, Inc., a Delaware corporation ("Coastwide"), in
connection with the solicitation of proxies by its Board of Directors (the
"Coastwide Board") for use at the Special Meeting of Stockholders of Coastwide
(the "Special Meeting") to be held on February 20, 1996, at 10:00 a.m., Central
Standard Time, at the Sheraton Grand Hotel, 2525 West Loop South, Houston,
Texas, or any adjournment thereof.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of Coastwide on or about January 20, 1996.
At the Special Meeting, the holders of common stock, $.01 par value, of
Coastwide ("Coastwide Common Stock") as of the close of business on December 22,
1995 (the "Record Date") will be asked to consider and vote upon a proposal to
approve and adopt an Agreement and Plan of Merger, dated as of November 20, 1995
(the "Merger Agreement"), by and between Coastwide, Tesoro Petroleum
Corporation, a Delaware corporation ("Tesoro"), and CNRG Acquisition Corp., a
wholly-owned subsidiary of Tesoro (the "Merger Sub"), as well as the merger of
Coastwide with and into the Merger Sub (the "Merger"). Approval by the Coastwide
stockholders is a condition to consummating the Merger. At the Effective Time
(as hereinafter defined) of the Merger, (i) Coastwide will cease to exist as a
separate corporation, (ii) each issued and outstanding share of Coastwide Common
Stock will be converted into the right to receive $2.55 in cash and .41 share of
the common stock, $.16 2/3 par value, of Tesoro ("Tesoro Common Stock") (and
cash in lieu of any fractional share) together with any associated Preferred
Stock Purchase Rights (the "Merger Consideration") and (iii) each outstanding
warrant, option and convertible debenture will be adjusted so that, upon
exercise or conversion, the holder will receive the Merger Consideration for the
number of shares of Coastwide Common Stock that would have been issuable upon
exercise or conversion immediately prior to the Merger. References herein to
Tesoro Common Stock include any Preferred Stock Purchase Rights attached
thereto. The Effective Time of the Merger is the time at which the Merger takes
effect as set forth in the Certificate of Merger issued by the Secretary of
State of the State of Delaware with respect to the Merger. See "Comparative
Rights of Stockholders of Tesoro and Coastwide -- Stockholder Rights Plan" and
"Terms of the Merger." A copy of the Merger Agreement is attached hereto as
Appendix A.
This Proxy Statement/Prospectus also constitutes the prospectus of Tesoro
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the issuance of up to 1,387,744 shares of Tesoro Common Stock in
connection with the Merger. Outstanding Tesoro Common Stock is, and the shares
offered hereby will be, listed on the New York Stock Exchange ("NYSE") and the
Pacific Stock Exchange ("PSE"). On September 13, 1995, the day before public
announcement of the Tesoro-Coastwide proposed merger, the closing price of
Tesoro Common Stock on the NYSE was $9.375 per share and the closing price of
Coastwide Common Stock on the Nasdaq National Market was $5.125 per share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS AND RECENT DEVELOPMENTS" ON PAGE 11.
---------------------
THE SHARES OF TESORO COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE
MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS .
<PAGE> 6
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY TESORO OR COASTWIDE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
OFFERED BY THIS PROXY STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION. NEITHER THE DELIVERY HEREOF NOR ANY DISTRIBUTION OF SECURITIES
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF TESORO OR COASTWIDE SINCE THE DATE HEREOF
OR THAT THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
Tesoro and Coastwide are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Tesoro and Coastwide with the
Commission can be inspected at the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
the regional offices of the Commission at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, New York, New York 10048. Copies of such material may be obtained from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, with respect to Tesoro, such material can be inspected at the offices
of the NYSE and PSE, where Tesoro Common Stock is listed and, with respect to
Coastwide, whose common stock is quoted on the Nasdaq National Market, such
material can be inspected at the National Association of Securities Dealers,
Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
Tesoro has filed with the Commission a Registration Statement on Form S-4
(herein, together with all amendments and exhibits thereto, referred to as the
"Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Proxy Statement/Prospectus constitutes the
prospectus of Tesoro filed as part of the Registration Statement and does not
contain all the information contained in the Registration Statement, certain
portions of which are omitted as permitted by the rules and regulations of the
Commission. For further information with respect to Tesoro and the securities
offered hereby, reference is made to the Registration Statement, including the
exhibits thereto, which may be inspected at the Commission's offices, without
charge, or copies of which may be obtained from the Commission upon payment of
prescribed fees. Statements contained in this Proxy Statement/Prospectus as to
the contents of any contract or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is hereby made to the copy of such contract or other document filed as
an exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. All information herein with respect to Tesoro
has been furnished by Tesoro, and all information herein with respect to
Coastwide has been furnished by Coastwide.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Tesoro incorporates herein by reference (a) Tesoro's Annual Report on Form
10-K for the year ended December 31, 1994, (b) Tesoro's Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, June 30, and September 30,
1995, (c) Tesoro's current report on Form 8-K, filed October 11, 1995, (d) the
description of Tesoro Common Stock set forth in the Registration Statement on
Form 8-A dated April 21, 1969 (as amended by a Form 8 dated April 23, 1969), and
(e) the description of Tesoro's Preferred Stock Purchase Rights set forth in the
Registration Statement on Form 8-A dated December 3, 1985 (as amended by a Form
8 dated December 12, 1985 and as extended as reported in Form 8-K dated December
15, 1995).
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
RELATING TO TESORO THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES
OF SUCH DOCUMENTS WILL BE PROVIDED WITHOUT CHARGE (EXCLUDING EXHIBITS, UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED THEREIN BY REFERENCE) TO EACH
PERSON, INCLUDING
<PAGE> 7
ANY BENEFICIAL OWNER, TO WHOM A PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON
ORAL OR WRITTEN REQUEST OF ANY SUCH PERSON. REQUESTS SHOULD BE DIRECTED TO
TESORO PETROLEUM CORPORATION, ATTN: CORPORATE COMMUNICATIONS, 8700 TESORO DRIVE,
SAN ANTONIO, TEXAS 78217 (TELEPHONE (800) 837-6768). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE SPECIAL MEETING TO WHICH THIS PROXY
STATEMENT/PROSPECTUS RELATES, ANY SUCH REQUESTS SHOULD BE MADE BY FEBRUARY 12,
1996.
All reports and definitive proxy or information statements filed by Tesoro
pursuant to Section 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to
the date of this Proxy Statement/Prospectus and prior to the termination of the
offering of the Tesoro Common Stock to which this Proxy Statement/Prospectus
relates, shall be deemed to be incorporated by reference into this Proxy
Statement/Prospectus from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Proxy Statement/Prospectus to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed to be
incorporated herein by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
SUMMARY.......................................... 1
Parties to the Merger.......................... 1
Tesoro Petroleum Corporation................. 1
Coastwide Energy Services, Inc. ............. 1
CNRG Acquisition Corp. ...................... 1
The Special Meeting and Vote Required.......... 1
The Merger..................................... 2
The Merger Proposal.......................... 2
Effective Time of the Merger................. 2
Exchange of Coastwide Stock Certificates..... 2
Assumption of Warrants and Convertible
Debt....................................... 2
Appraisal Rights............................. 3
Recommendation of the Coastwide Board;
Reasons for the Merger..................... 3
Opinion of Coastwide Financial Advisor....... 3
Interests of Certain Persons................. 4
Conduct of Business Following Merger......... 4
Conditions to Merger; Termination............ 4
No Solicitation.............................. 5
Payment in the Event of Termination.......... 5
Stock Exchange Listing....................... 5
Regulatory Approvals......................... 5
Certain Federal Income Tax Consequences...... 5
Anticipated Accounting Treatment............. 5
Comparative Rights of Stockholders of Tesoro
and Coastwide.............................. 6
MARKET PRICE AND DIVIDEND DATA................... 6
Tesoro......................................... 6
Coastwide...................................... 6
SELECTED HISTORICAL FINANCIAL DATA............... 7
COMPARATIVE PER SHARE DATA....................... 10
RISK FACTORS AND RECENT DEVELOPMENTS............. 11
Risk Factors with Respect to Tesoro............ 11
Consent Solicitation......................... 11
Possible Adverse Impact of Pending
Litigation................................. 12
Certain Provisions of Tennessee Gas
Contract................................... 13
Concentration of Operations.................. 13
Potential Interruption of Feedstock
Availability............................... 14
Volatility of Prices, Earnings and Cash
Flows...................................... 14
Environmental Regulations and Liabilities.... 14
Uncertainty in Estimating Oil and Gas
Reserves................................... 15
Depletion of Reserves; Risk of Oil and Gas
Operations................................. 15
Possible Limitation on Use of Tax Benefits... 15
Foreign Operations........................... 16
Operating Hazards............................ 16
Competition.................................. 16
Risk Factors with Respect to Coastwide......... 16
Volatility of Oil and Gas Prices and
Markets.................................... 16
Competition.................................. 17
Potential Liability and Insurance............ 17
Environmental Regulation..................... 17
Dependence on Key Personnel.................. 17
Geographic Concentration of Operations....... 17
Compliance with Governmental Regulations..... 17
Control by Principal Stockholders............ 17
Dividend Policy.............................. 18
THE SPECIAL MEETING.............................. 18
Purpose of the Special Meeting................. 18
Date, Time and Place of Special Meeting........ 18
Record Date and Outstanding Shares............. 18
Vote Required.................................. 18
Voting and Revocation of Proxies............... 19
Solicitation of Proxies........................ 19
Other Matters.................................. 19
THE MERGER....................................... 21
General Description of the Merger.............. 21
Background of the Merger....................... 21
Tesoro's Reasons for the Merger................ 22
Coastwide's Reasons for the Merger............. 23
Recommendation of the Coastwide Board of
Directors.................................... 24
Opinion of Financial Advisor................... 24
Exchange Ratio Profile....................... 25
Premium Analysis............................. 26
Relative Contribution Analysis............... 26
Liquidity Analysis........................... 27
Analysis of Selected Publicly-Traded
Comparable Companies....................... 27
Analysis of Selected Comparable
Transactions............................... 27
Financial Advisor.............................. 28
Interests of Certain Persons in the Merger..... 29
Certain U.S. Federal Income Tax Consequences... 30
Accounting Treatment........................... 31
Governmental and Regulatory Approvals.......... 31
Stock Exchange Listing......................... 31
Restrictions on Resales by Affiliates.......... 31
Appraisal Rights............................... 32
TERMS OF THE MERGER.............................. 34
Effective Time of the Merger................... 34
Manner and Basis of Converting Shares of
Coastwide Common Stock....................... 34
Outstanding Warrants and Convertible
Debentures................................... 35
Options and Employee Matters................... 35
Conditions to the Merger....................... 36
Representations and Warranties of Tesoro and
Coastwide.................................... 37
Conduct of Business of Coastwide Prior to
Merger....................................... 38
Conduct of Business Following Merger........... 38
No Solicitation................................ 39
Payment in the Event of Termination............ 39
Termination or Amendment of Merger Agreement... 40
Indemnification................................ 40
COMPARATIVE RIGHTS OF STOCKHOLDERS OF TESORO AND
COASTWIDE...................................... 40
Special Vote Required for Certain
Combinations................................. 40
Amendments to the Certificate of
Incorporation................................ 42
Power to Call Special Meetings of
Stockholders................................. 42
Number of Directors............................ 42
Advance Notice Provisions for Stockholder
Proposals.................................... 42
Consent of Stockholders in Lieu of Meeting..... 43
Preferred Stock................................ 44
Stockholder Rights Plan........................ 44
Limitation on Liability of Directors........... 45
Indemnification of Directors and Officers...... 45
INFORMATION ABOUT TESORO......................... 46
Information Concerning Directors and Executive
Officers..................................... 47
Stock Ownership of Directors and Executive
Officers..................................... 48
Principal Stockholders......................... 50
INFORMATION ABOUT COASTWIDE...................... 52
Coastwide Marine Services, Inc................. 52
Markets and Competition...................... 52
Customers.................................... 53
Operating Risks.............................. 53
Environmental Regulation..................... 53
Employees.................................... 53
Onyx Engineering, Inc.......................... 53
Properties..................................... 54
Legal Proceedings.............................. 54
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 54
Results Of Operations...................... 55
Three Months Ended September 30, 1995
Versus September 30, 1994.............. 55
Nine Months Ended September 30, 1995
Versus September 30, 1994.............. 55
1994 Versus 1993......................... 56
1993 Versus 1992......................... 57
Liquidity And Capital Resources............ 58
Securities Ownership of Principal
Stockholders and Management.............. 59
LEGAL MATTERS.................................... 60
EXPERTS.......................................... 60
COASTWIDE ENERGY SERVICES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..... F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Coastwide Energy Services, Inc.............. F-2
APPENDIX A
Agreement and Plan of Merger................... A-1
APPENDIX B
Opinion of Simmons & Company International..... B-1
APPENDIX C
Section 262 of Delaware General Corporation
Law.......................................... C-1
</TABLE>
i
<PAGE> 9
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. Because this summary is qualified in its
entirety by reference to the more detailed information contained or incorporated
by reference herein, stockholders of Coastwide are urged to review the entire
Proxy Statement/Prospectus and the Exhibits hereto. Certain capitalized terms
used but not defined in this summary are defined elsewhere in this Proxy
Statement/Prospectus.
This Proxy Statement/Prospectus relates to the merger of Coastwide with and
into the Merger Sub, a newly formed, wholly-owned subsidiary of Tesoro. The
Merger will be effected pursuant to the Merger Agreement, a copy of which is
attached to this Proxy Statement/Prospectus as Appendix A. See "The Merger." At
the Effective Time of the Merger, (i) Coastwide will be merged with and into the
Merger Sub, which will survive as a wholly-owned subsidiary of Tesoro,
succeeding to and assuming all the rights and obligations of Coastwide, (ii)
each outstanding share of Coastwide Common Stock will be converted into the
right to receive $2.55 in cash and .41 share of Tesoro Common Stock (and cash in
lieu of any fractional share), together with any associated Preferred Stock
Purchase Rights (the "Merger Consideration") and (iii) each outstanding warrant,
option and convertible debenture will be adjusted so that, upon exercise or
conversion, the holder will receive the Merger Consideration for the number of
shares of Coastwide Common Stock that would have been issuable upon exercise or
conversion immediately prior to the Merger.
PARTIES TO THE MERGER
Tesoro Petroleum Corporation. Tesoro, which was incorporated in Delaware in
1968, is a natural resource company engaged in petroleum refining and marketing,
natural gas exploration and production, and wholesale marketing of fuel and
lubricants. Unless the context indicates otherwise, all references to "Tesoro"
refer to Tesoro Petroleum Corporation and its subsidiaries. For more information
about Tesoro, reference is made to Tesoro's Annual Report on Form 10-K for the
year ended December 31, 1994 and Tesoro's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995, both of which are incorporated by
reference herein. See "Available Information," "Incorporation of Certain
Documents By Reference," "Risk Factors and Recent Developments -- Risk Factors
with Respect to Tesoro," and "Information about Tesoro." Tesoro's principal
executive offices are located at 8700 Tesoro Drive, San Antonio, Texas 78217,
and its telephone number is (210) 828-8484.
Coastwide Energy Services, Inc. Coastwide is a Delaware corporation
incorporated in 1993. Prior to November 1993, Coastwide was a wholly-owned
subsidiary of Grasso Corporation ("Grasso"). In November 1993, 100% of the
outstanding common stock of Coastwide was distributed to Grasso's shareholders
and since that time, Coastwide has been a publicly traded company. Coastwide
provides a broad range of products and logistical support services to the
offshore industries operating in the U.S. Gulf of Mexico. Unless the context
herein indicates otherwise, all references to "Coastwide" refer to Coastwide
Energy Services, Inc. and its subsidiaries. Coastwide operates nine shore bases
located at deepwater harbors along the coast of the Gulf of Mexico and one
inland distribution center. Its customers include companies engaged in oil and
gas exploration and production and companies that provide drilling fluids,
oilwell cementing and marine services. Coastwide also provides engineering
services to the petrochemical and refinery industries. Coastwide's principal
executive offices are located at 11111 Wilcrest Green Drive, Suite 300, Houston,
Texas 77042, and its telephone number is (713) 917-4100. See "Available
Information," "Risk Factors and Recent Developments -- Risk Factors with Respect
to Coastwide," "Information about Coastwide," and "Financial Statements of
Coastwide."
CNRG Acquisition Corp. The Merger Sub is a wholly-owned subsidiary of
Tesoro, incorporated in Delaware on November 20, 1995 for the purpose of
consummating the Merger. It has no operating history. See "Terms of the
Merger -- Conduct of Business Following Merger." The Merger Sub's principal
executive offices are located at 8700 Tesoro Drive, San Antonio, Texas 78217,
and its telephone number is (210) 828-8484.
THE SPECIAL MEETING AND VOTE REQUIRED
The Special Meeting will be held on February 20, 1996, at 10:00 a.m.,
Central Standard Time, at the Sheraton Grand Hotel, 2525 West Loop South,
Houston, Texas. Only holders of record of Coastwide
<PAGE> 10
Common Stock at the close of business on the Record Date are entitled to notice
of and to vote at the Special Meeting. At the Special Meeting, holders of shares
of Coastwide Common Stock will be asked to consider and vote upon a proposal to
approve and adopt the Merger Agreement and the transactions contemplated thereby
and such other matters as may properly be brought before the Special Meeting or
any adjournment or postponements thereof. See "The Special Meeting -- Record
Date and Outstanding Shares" and "The Special Meeting -- Voting and Revocation
of Proxies."
Approval of the Merger Agreement by the holders of Coastwide Common Stock
is a condition to, and requirement for, consummation of the Merger. Holders of
record of Coastwide Common Stock on the Record Date are entitled to one vote per
share on any matter that may properly come before the Special Meeting. The
presence, in person or by proxy, of the holders of a majority of the shares of
Coastwide Common Stock entitled to vote at the Special Meeting is necessary to
constitute a quorum. The affirmative vote at the Special Meeting of a majority
of the total voting power of Coastwide Common Stock is necessary to approve and
adopt the Merger Agreement. At the close of business on the Record Date, there
were 1,825,285 shares of Coastwide Common Stock outstanding and entitled to vote
at the Special Meeting.
As of the Record Date, three members of the Coastwide Board beneficially
owned 991,297 shares of Coastwide Common Stock entitled to vote at the Special
Meeting, representing approximately 54% of the outstanding shares of Coastwide
Common Stock entitled to notice of and to vote at the Special Meeting. These
directors have stated that they intend to vote their shares for the Merger.
The Merger Agreement provides that in the event the Merger Agreement is
terminated because Coastwide stockholders fail to approve the Merger, Coastwide
must pay Tesoro $400,000. See "Terms of the Merger -- Payment in the Event of
Termination."
Under the Delaware General Corporation Law ("Delaware Law"), the approval
of the Merger Agreement by the stockholders of Tesoro is not required.
THE MERGER
The Merger Proposal. Pursuant to the Merger Agreement, at the Effective
Time of the Merger, (i) Coastwide will be merged with and into the Merger Sub,
(ii) each outstanding share of Coastwide Common Stock will be converted into the
right to receive the Merger Consideration, and (iii) each outstanding warrant,
option and convertible debenture will be adjusted so that, upon exercise or
conversion, the holder will receive the Merger Consideration for the number of
shares of Coastwide Common Stock that would have been issuable upon exercise or
conversion immediately prior to the Merger. As a result of the Merger,
Coastwide's corporate existence will terminate and the Merger Sub will survive
as a wholly-owned subsidiary of Tesoro (the "Surviving Corporation"). The terms
of the Merger Agreement are more fully described in "Terms of the Merger." See
"Terms of the Merger -- Conduct of Business Following Merger."
Effective Time of the Merger. The Merger will be consummated at the time
and on the date that the Certificate of Merger is filed with the Delaware
Secretary of State or such later time as is specified in the Certificate of
Merger (the "Effective Time"). It is presently contemplated that the Effective
Time will occur as soon as practicable after the requisite approval of
stockholders of Coastwide has been obtained and other conditions specified in
the Merger Agreement are satisfied. See "Terms of the Merger -- Effective Time
of the Merger."
Exchange of Coastwide Stock Certificates. As soon as reasonably practicable
after the Effective Time, instructions with regard to the surrender of Coastwide
Common Stock certificates, together with transmittal forms to be used for this
purpose, will be furnished to all Coastwide stockholders for use in exchanging
their stock certificates for the Merger Consideration. Stockholders of Coastwide
should not submit their stock certificates for exchange until such instructions
and transmittal forms are received. See "Terms of the Merger -- Manner and Basis
of Converting Shares of Coastwide Common Stock."
Assumption of Warrants and Convertible Debt. On the Record Date, Coastwide
had outstanding Class B Warrants to purchase approximately 360,000 shares of
Coastwide Common Stock for $1.54 per share
2
<PAGE> 11
("Class B Warrants"), subject to the terms and conditions of a Warrant
Agreement, effective as of October 29, 1993, between Coastwide and Chemical
Shareholder Services Group, Inc. as Warrant Agent (the "Warrant Agreement"). The
Class B Warrants expire December 22, 1996. Coastwide also had outstanding
$4,270,000 of 8% Convertible Subordinated Debentures due July 1, 2004,
convertible into Coastwide Common Stock at $4.25 per share ("Convertible
Debentures"). Pursuant to the terms of the Merger Agreement, the Class B
Warrants and Convertible Debentures will be assumed by Tesoro on the same terms
and conditions after the Merger, but the exercise price and the conversion
price, respectively, will be adjusted to reflect the Merger Consideration. See
"Terms of the Merger -- Outstanding Warrants and Convertible Debentures."
Appraisal Rights. Holders of Coastwide Common Stock are entitled to
exercise appraisal rights in connection with, or as a result of, the Merger and
to have their shares of Coastwide Common Stock appraised by a court and to
receive payment of the "fair value" of their shares as determined by the court.
To exercise such rights, a stockholder must not vote in favor of the Merger and
must comply with certain statutory procedures within time periods specified in
the appraisal provisions of the Delaware Law. The value determined in such
appraisal could be more than, the same as, or less than the value of the Merger
Consideration received by holders of Coastwide Common Stock who do not dissent
from the Merger.
For a summary of the provisions of the Delaware Law regarding appraisal
rights, see "The Merger -- Appraisal Rights." A copy of the applicable Delaware
statutory provisions concerning dissenters' rights of appraisal is attached as
Appendix C hereto. Coastwide stockholders are urged to read such statute
carefully and in its entirety. Failure to comply strictly with the statutory
requirements may result in the loss of appraisal rights.
Recommendation of the Coastwide Board; Reasons for the Merger. By written
consent of the Coastwide Board dated November 2, 1995, the Coastwide Board
unanimously approved the Merger Agreement and unanimously concluded that the
Merger is fair and in the best interests of Coastwide's stockholders and
recommended that the stockholders of Coastwide vote FOR approval and adoption of
the Merger Agreement. At a meeting held January 15, 1996, the Coastwide Board
unanimously reaffirmed its approval of the Merger Agreement , its conclusion
that the Merger is fair and in the best interest of Coastwide's stockholders,
and its recommendation that the stockholders of Coastwide vote FOR approval and
adoption of the Merger Agreement. Under the terms of the Merger Agreement,
consummation of the Merger by Coastwide is subject to, among other things, the
receipt of an opinion of Simmons & Company International ("Simmons" or the
"Financial Advisor"), immediately prior to the mailing of the Coastwide Proxy
Statement, to the effect that the Merger Consideration is fair to the holders of
Coastwide Common Stock, Convertible Debentures and Class B Warrants from a
financial point of view.
The Financial Advisor, as part of its line of professional services, is
engaged in the evaluation of businesses and their securities in connection with
mergers and acquisitions and for other purposes. The Financial Advisor was
selected by the Coastwide Board in order to obtain an independent evaluation of
the fairness of the consideration to be received pursuant to the Merger. The
Coastwide Board, not the Financial Advisor, determined the consideration for the
Merger. See "The Merger -- Recommendation of the Coastwide Board of Directors."
Opinion of Coastwide Financial Advisor. Simmons was engaged by Coastwide to
render an opinion as to the fairness, from a financial point of view, of the
Merger Consideration to be received by the holders of shares of Coastwide Common
Stock, Convertible Debentures and Class B Warrants.
On October 23, 1995, the Financial Advisor delivered its oral opinion to
the Coastwide Board to the effect that the consideration to be received in the
Merger is fair, from a financial point of view, to the holders of Coastwide
Common Stock, Convertible Debentures and Class B Warrants. On January 15, 1996,
the Financial Advisor confirmed its oral opinion, and on January , 1996,
delivered a written opinion to such effect. The full text of the written opinion
of the Financial Advisor dated January , 1996, which sets forth the
assumptions made, the matters considered, limitations on, and the scope of the
review undertaken and procedures followed by the Financial Advisor in rendering
its opinion is attached as Appendix B to this Proxy
3
<PAGE> 12
Statement/Prospectus, and is incorporated herein by reference. Coastwide
stockholders are urged to read the Financial Advisor's opinion in its entirety.
See "The Merger -- Opinion of Financial Advisor."
Interests of Certain Persons. Certain members of Coastwide's management and
the Coastwide Board may be deemed to have certain interests in the Merger in
addition to their interests as stockholders of Coastwide generally. Except as
described in this Proxy Statement/Prospectus, (1) there is not presently any
plan or arrangement to cause any officer, director or stockholder of Coastwide
to become an officer or director of Tesoro or of a subsidiary of Tesoro or to
receive an increase in remuneration as a result of the Merger; (2) there are no
material relationships among the executive officers, directors and principal
stockholders of Coastwide, on the one hand, and the executive officers,
directors and principal stockholders of Tesoro, on the other hand; and (3) no
officer or director of Coastwide has any direct or indirect material interest in
the Merger except insofar as the following might be deemed to create an
interest: (i) present ownership of Coastwide Common Stock, Class B Warrants,
Convertible Debentures or employee stock options; and (ii) continued employment
with the Surviving Corporation after the Merger.
Members of the Coastwide Board and executive officers of Coastwide own
certain rights to acquire, and have been granted options to purchase, Coastwide
Common Stock. Exercisability of certain of the options has been accelerated as a
result of the Merger Agreement. The exercise and conversion prices of such
instruments will be adjusted at the Effective Time so that such rights become
rights to acquire the Merger Consideration. Stephen A. Wells, the President and
Chief Executive Officer and a director of Coastwide, will be entering into an
employment and noncompetition agreement with the Surviving Corporation effective
at the Effective Time. None of the foregoing had any material impact on the
Coastwide Board's decision to approve the Merger. See "The Merger -- Interests
of Certain Persons in the Merger."
Conduct of Business Following Merger. Tesoro intends, before the Effective
Time of the Merger, to combine the business of Tesoro's existing oil field
supply and distribution business, operating as a wholly-owned subsidiary of
Tesoro, with the Merger Sub. At the Effective Time, the business of Coastwide
will be merged into the Merger Sub. Tesoro will evaluate whether it will
continue to operate Coastwide's majority-owned subsidiary, Onyx Engineering,
Inc. ("Onyx"). See "Terms of the Merger -- Conduct of Business Following
Merger."
Conditions to Merger; Termination. The Merger Agreement provides that the
obligations of the parties to consummate the Merger are subject to the
satisfaction or waiver of certain conditions, including, among other things: (i)
approval of the Merger Agreement by the requisite vote of Coastwide
stockholders; (ii) receipt of regulatory approvals of, or the expiration or
termination of applicable waiting periods (or any extensions thereof) with
respect to, the Merger; (iii) absence of legal or court restraint on
consummation of the Merger; (iv) receipt by Coastwide and Tesoro, respectively,
of certain customary legal opinions and certifications; and (v) approval for
listing on the NYSE and PSE of the shares of Tesoro Common Stock to be issued as
part of the Merger Consideration. See "Terms of the Merger -- Conditions to the
Merger."
Tesoro's obligation to effect the Merger is, at the option of Tesoro,
further subject to satisfaction or waiver of the following conditions, among
others: that certain employment agreements have been terminated and that an
employment and noncompetition agreement with the Surviving Corporation has been
entered into by the Chief Executive Officer of Coastwide, that the holders of
not more than 5% of the outstanding shares of Coastwide Common Stock have given
notice of their intent to exercise appraisal rights under Delaware Law, receipt
of a tax opinion from its counsel and the absence of any material adverse change
with respect to Coastwide. See "Terms of the Merger -- Conditions to the
Merger."
Coastwide's obligation to effect the Merger is, among other things,
conditioned on receipt of a tax opinion from its counsel and the absence of any
material adverse change with respect to Tesoro. See "Terms of the
Merger -- Conditions to the Merger."
The Merger Agreement provides that the Merger Agreement may be terminated
at any time prior to the Effective Time whether before or after Coastwide
stockholder approval: (i) by mutual written consent of Tesoro and Coastwide;
(ii) by either Tesoro or Coastwide if any court or government authority has
issued a final and nonappealable order or action enjoining or otherwise
prohibiting the Merger or, unless the failure to
4
<PAGE> 13
consummate the Merger is the result of a material breach of the Merger Agreement
by the party seeking to terminate the Merger Agreement, if the Merger has not
been consummated on or before March 1, 1996; (iii) by either Tesoro, on the one
hand, or Coastwide, on the other hand, if the other breaches in any material
respect any of its representations or warranties in, or fails to perform in any
material respect any of its covenants, agreements or obligations under the
Merger Agreement or if there is a material adverse change with respect to
Coastwide or a failure to satisfy conditions precedent where such failure is
material; or (iv) by Tesoro, if the Coastwide Board or any committee thereof
withdraws or modifies, or proposes to withdraw or modify, in a manner adverse to
Tesoro, the approval or recommendation by the Coastwide Board or any committee
thereof, of the Merger Agreement or its recommendation to the Coastwide
stockholders with respect thereto, or takes any action having such effect, or
approves or recommends, or proposes to approve or recommend, any other takeover
proposal. See "Terms of the Merger -- Termination or Amendment of Merger
Agreement."
No Solicitation. Coastwide has agreed in the Merger Agreement, in effect,
that neither Coastwide nor any of its subsidiaries will solicit, initiate or
encourage inquiries or proposals with respect to, or, subject to the fiduciary
duties of the Coastwide Board (as advised by its counsel), participate in any
negotiations or discussions concerning, any acquisition or purchase of a
material amount of its assets, or of a substantial equity interest in it, or any
merger or other business combination with it, other than as contemplated by the
Merger Agreement. See "Terms of the Merger -- No Solicitation."
Payment in the Event of Termination. The Merger Agreement provides that
Coastwide must pay to Tesoro $400,000 if the Coastwide Board withdraws or
modifies its recommendation or approval in a manner adverse to Tesoro, breaches
its agreement not to participate in any Takeover Proposal (as defined herein),
or accepts any Superior Proposal (as defined herein), or if the requisite number
of holders of Coastwide Common Stock do not approve the Merger Agreement. See
"Terms of the Merger -- Payment in the Event of Termination."
The Merger Agreement also provides that each party will bear its own
expenses incurred in connection with the Merger except that Tesoro will pay
certain of Coastwide's expenses if the Agreement is terminated, in effect,
because of a breach by Tesoro, or for some other reason within Tesoro's control.
See "Terms of the Merger -- Payment in the Event of Termination."
Stock Exchange Listing. Tesoro Common Stock is listed on the NYSE and the
PSE. The Merger Agreement provides that Tesoro will use its reasonable efforts
to cause the shares of Tesoro Common Stock to be issued in connection with the
Merger to be approved for listing on the NYSE and PSE, subject to official
notice of issuance, prior to the Effective Time. Such listing is a condition of
the Merger. See "Terms of the Merger -- Conditions to the Merger" and "The
Merger -- Stock Exchange Listing."
Regulatory Approvals. Under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "HSR Act"), certain acquisition transactions (including the
Merger) may not be consummated until specified information has been furnished to
the Antitrust Division of the Department of Justice (the "DOJ") and the U.S.
Federal Trade Commission (the "FTC") and waiting period requirements have been
satisfied. Tesoro and Coastwide made the required filings under the HSR Act on
November 30, 1995. The waiting period expired December 30, 1995. See "The
Merger -- Governmental and Regulatory Approvals."
Certain Federal Income Tax Consequences. The consummation of the Merger is
conditioned upon receipt by Tesoro and Coastwide of opinions from their
respective counsel that the Merger will be treated for federal income tax
purposes as a "reorganization," and that, accordingly, none of Tesoro, the
Merger Sub or Coastwide will recognize any gain or loss as a result of the
Merger. Assuming that the Merger constitutes such a "reorganization," holders of
shares of Coastwide Common Stock who exchange their shares for the Merger
Consideration will recognize gain, if any, in the Merger, but not in excess of
the amount of cash received. No loss will be recognized by Coastwide
stockholders. See "The Merger -- Certain U.S. Federal Income Tax Consequences."
Anticipated Accounting Treatment. The Merger will be treated as a purchase
transaction for accounting and financial reporting purposes whereby the total
value of the Merger Consideration (total cash and total
5
<PAGE> 14
market value of Tesoro Common Stock to be issued to Coastwide security holders
in connection with the Merger) will be allocated to the assets and liabilities
of Coastwide on the basis of the fair market value of such assets and
liabilities. Any excess of the total value of the Merger Consideration over the
fair value of Coastwide's net assets will be recorded as goodwill.
Comparative Rights of Stockholders of Tesoro and Coastwide. The rights of
holders of Coastwide Common Stock are currently governed by Delaware Law, the
Coastwide Certificate of Incorporation and the Coastwide Bylaws. At the
Effective Time, holders of Coastwide Common Stock will become holders of Tesoro
Common Stock, and their rights as holders of Tesoro Common Stock will still be
governed by Delaware Law, but will then be governed by Tesoro's Restated
Certificate of Incorporation and By-laws, as amended. There are various
differences between the rights of Coastwide stockholders and the rights of
Tesoro stockholders, including, among others, the required vote for certain
business combinations. In addition, Tesoro's Restated Certificate of
Incorporation contains certain provisions that may have the effect of deterring
or making more difficult a third party acquisition of control of Tesoro. Tesoro
also has a Preferred Stock Purchase Rights Plan. See "Comparative Rights of
Stockholders of Tesoro and Coastwide."
MARKET PRICE AND DIVIDEND DATA
TESORO. Tesoro Common Stock is listed on the NYSE and the PSE under the
symbol "TSO." The following table sets forth the range of high and low closing
sales prices for Tesoro Common Stock for the periods indicated, as reported on
the NYSE composite tape, as reported by the Dow Jones News/Retrieval Service. As
of January 12, 1996, there were 3,977 holders of record of Tesoro Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1993
First Quarter........................................... $ 5 5/8 $ 3
Second Quarter.......................................... 6 5/8 5
Third Quarter........................................... 7 3/4 5 1/8
Fourth Quarter.......................................... 7 1/2 5 1/8
1994
First Quarter........................................... 12 3/8 5 1/4
Second Quarter.......................................... 12 1/8 9 7/8
Third Quarter........................................... 11 1/4 8 1/2
Fourth Quarter.......................................... 10 8 1/2
1995
First Quarter........................................... 10 5/8 8 3/4
Second Quarter.......................................... 12 9 1/2
Third Quarter........................................... 10 3/8 8
Fourth Quarter.......................................... 9 1/2 7 1/4
1996
First Quarter (through January 12)...................... 9 8 1/2
</TABLE>
Tesoro has not declared or paid cash dividends on Tesoro Common Stock since
1986 and does not anticipate paying cash dividends on Tesoro Common Stock at any
time in the foreseeable future. The terms of Tesoro's credit arrangements with
its banks and its outstanding debt instruments effectively prohibit the current
payment by Tesoro of cash dividends on Tesoro's Common Stock.
COASTWIDE. Coastwide Common Stock is traded in the over-the-counter market
and since February 1995 has been listed on the Nasdaq National Market (the
"Nasdaq/NM") under the symbol "CNRG." Prior to that time, and after November 1,
1993 when trading in the securities began, Coastwide Common Stock was traded on
the Nasdaq Stock Market -- Small Cap System under the symbol "CNRG." The table
below represents bid prices of Coastwide Common Stock from commencement of
trading through mid-February 1995. Bid prices represent prices between dealers
and do not include retail markups, markdowns or
6
<PAGE> 15
commissions and may not represent actual transactions. From mid-February, 1995,
the prices set forth below are high and low sales prices as reported by
Nasdaq/NM.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1993
Fourth Quarter.......................................... $3 1/8 2 1/4
1994
First Quarter........................................... 3 2
Second Quarter.......................................... 4 1/8 2 1/2
Third Quarter........................................... 5 1/4 4
Fourth Quarter.......................................... 6 5
1995
First Quarter (through February 13)..................... 5 3/4 5 1/4
First Quarter (February 14 through March 31)............ 6 1/4 5 1/2
Second Quarter.......................................... 5 5/8 5 1/2
Third Quarter........................................... 6 1/8 5
Fourth Quarter.......................................... 6 7/8 5 1/4
1996
First Quarter (through January 12)...................... 6 1/4 5 3/4
</TABLE>
Coastwide has not paid any cash dividends on Coastwide Common Stock since
its organization, and does not anticipate paying cash dividends on Coastwide
Common Stock in the foreseeable future.
On September 13, 1995, the last trading day prior to the announcement by
Tesoro and Coastwide that they had reached an agreement concerning the Merger,
the closing sales price of Tesoro Common Stock as reported by the NYSE was
$9.375 and the closing sales price of Coastwide Common Stock as reported on the
Nasdaq/NM was $5.125 per share.
On January 12, 1996, the closing sales price of Tesoro Common Stock as
reported by the NYSE was $8.625 per share, and the closing sales price of
Coastwide Common Stock as reported on the Nasdaq/NM was $5.75 per share.
Coastwide stockholders are advised to obtain current market quotations for
Coastwide Common Stock and Tesoro Common Stock. The market price of Tesoro
Common Stock will fluctuate between the date of this Proxy Statement/Prospectus
and the date of the Special Meeting, and between the Special Meeting and the
Effective Time. Fluctuations in the market price of Tesoro Common Stock prior to
the Effective Time could result in an increase or decrease in the market value
as of the Effective Time of the shares of Tesoro Common Stock to be received by
Coastwide stockholders in the Merger. No assurance can be given concerning the
market price of Tesoro Common Stock before or after the Effective Time.
Following the Merger, Tesoro Common Stock will continue to be traded on the
NYSE and the PSE under the symbol "TSO," and Coastwide Common Stock will cease
to be traded.
SELECTED HISTORICAL FINANCIAL DATA
The tables on the following pages set forth on an historical basis selected
financial data for the periods and as of the dates indicated for Tesoro and its
consolidated subsidiaries and for Coastwide and its consolidated subsidiaries.
Tesoro's book value per share, cash dividends per share and earnings per share
for the year ended December 31, 1994 and any interim period since December 31,
1994 and the date of this Proxy Statement/Prospectus would not be materially
affected if such financial statements were presented on a pro forma basis to
reflect the acquisition of Coastwide and hence, no such pro forma presentation
is made herein.
The following information should be read in conjunction with and is
qualified in its entirety by the consolidated financial statements and
accompanying notes of Tesoro and Coastwide included elsewhere in this Proxy
Statement/Prospectus or in the documents described under "Incorporation of
Certain Documents by Reference." Interim results are not necessarily indicative
of the results to be expected for the year ending December 31, 1995.
7
<PAGE> 16
TESORO PETROLEUM CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED NINE MONTHS
YEARS ENDED DEC. YEARS ENDED ENDED
SEPTEMBER 30, 31 DECEMBER 31, SEPTEMBER 30,
----------------- ------ ------------------------ ---------------
1990 1991 1991(1) 1992 1993 1994 1994 1995
------ -------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Gross Operating Revenues:
Refining and Marketing............................. $860.5 $ 898.6 $196.8 $810.7 $687.2 $687.0 $523.6 $588.7
Exploration and Production(2)...................... 32.4 59.2 12.5 42.7 63.1 106.3 69.6 99.4
Oil Field Supply and Distribution.................. 103.7 134.3 36.5 93.5 80.7 77.9 58.4 56.9
Intersegment Eliminations(3)....................... -- (7.1) (5.2) (.4) -- -- -- --
------ -------- ------ ------ ------ ------ ------ ------
Total Gross Operating Revenues..................... $996.6 $1,085.0 $240.6 $946.5 $831.0 $871.2 $651.6 $745.0
====== ======= ====== ====== ====== ====== ====== ======
Segment Operating Profit (Loss), Including
Gain on Sales of Assets(4):
Refining and Marketing............................. $ 48.2 $ 19.3 $ 1.7 $(14.9) $ 15.2 $ 2.4 $ (3.7) $ (4.5)
Exploration and Production(2)(5)................... 16.8 35.6 7.4 29.1 40.7 64.3 42.6 92.3
Oil Field Supply and Distribution.................. 2.9 (.5) (1.2) (4.7) (3.6) (2.3) (1.8) (2.5)
------ -------- ------ ------ ------ ------ ------ ------
Total Segment Operating Profit..................... $ 67.9 $ 54.4 $ 7.9 $ 9.5 $ 52.3 $ 64.4 $ 37.1 $ 85.3
====== ======= ====== ====== ====== ====== ====== ======
Net Earnings (Loss)(5)............................... $ 22.7 $ 3.9 $ (.4) $(65.9) $ 17.0 $ 15.7 $ .4 $ 46.0
====== ======= ====== ====== ====== ====== ====== ======
Net Earnings (Loss) Applicable to Common Stock(5).... $ 13.5 $ (5.3) $ (2.7) $(75.1) $ 7.8 $ 13.0 $ (2.3) $ 46.0
====== ======= ====== ====== ====== ====== ====== ======
Earnings (Loss) per Primary and Fully Diluted*
Share(5)........................................... $ .96 $ (.37) $ (.19) $(5.34) $ .54 $ .56 $ (.10) $ 1.83
====== ======= ====== ====== ====== ====== ====== ======
Average Common and Common
Equivalent Shares Outstanding(6):
Primary............................................ 14.1 14.1 14.1 14.1 14.3 23.2 22.6 25.1
Fully diluted...................................... 18.8 18.8 18.8 18.8 19.1 24.7 24.6 25.1
CAPITAL EXPENDITURES
Refining and Marketing............................... $ 6.9 $ 4.4 $ .8 $ 3.7 $ 7.1 $ 32.0 $ 22.9 $ 7.2
Exploration and Production........................... 13.2 19.3 3.0 9.3 29.3 65.6 48.8 40.8
Oil Field Supply and Distribution.................... 2.5 .4 -- 1.1 .3 .2 .1 .3
Other................................................ .5 .4 .1 1.3 .8 1.8 1.5 .6
------ -------- ------ ------ ------ ------ ------ ------
Total Capital Expenditures........................... $ 23.1 $ 24.5 $ 3.9 $ 15.4 $ 37.5 $ 99.6 $ 73.3 $ 48.9
====== ======= ====== ====== ====== ====== ====== ======
DEPRECIATION, DEPLETION AND AMORTIZATION
Refining and Marketing............................... $ 8.4 $ 9.0 $ 2.4 $ 10.2 $ 10.3 $ 10.4 $ 7.8 $ 8.8
Exploration and Production........................... 1.5 4.6 1.5 5.2 11.1 24.3 15.1 23.0
Oil Field Supply and Distribution 2.0 .5 .1 .5 .4 .3 .3 .2
Other................................................ .9 .9 .2 .7 .8 1.0 .7 .8
------ -------- ------ ------ ------ ------ ------ ------
Total Depreciation, Depletion and Amortization....... $ 12.8 $ 15.0 $ 4.2 $ 16.6 $ 22.6 $ 36.0 $ 23.9 $ 32.8
====== ======= ====== ====== ====== ====== ====== ======
BALANCE SHEET AND OTHER DATA
Total Assets......................................... $504.9 $ 496.8 $494.7 $446.7 $434.5 $484.4 $459.0 $533.7
Working Capital...................................... $117.9 $ 95.4 $106.1 $122.6 $124.5 $ 85.9 $ 82.3 $105.1
Long-Term Debt and Other Obligations, Including
Current Portion(7)................................. $168.0 $ 184.7 $189.4 $201.7 $185.5 $199.6 $198.9 $197.0
Redeemable Preferred Stock........................... $ 57.4 $ 57.4 $ 57.4 $ 71.7 $ 78.1 -- -- --
Common Stock and Other Stockholders' Equity(6)....... $141.4 $ 137.4 $137.0 $ 50.7 $ 58.5 $160.7 $145.4 $207.9
</TABLE>
- ---------------
* Anti-dilutive.
(1) Tesoro's fiscal year-end was changed from September 30 to December 31,
effective January 1, 1992.
(2) Tesoro is involved in litigation related to a natural gas sales contract.
For additional information concerning this dispute, see "Risk Factors and
Recent Developments -- Risk Factors with Respect to Tesoro."
(3) Intersegment eliminations represent sales from Refining and Marketing to Oil
Field Supply and Distribution, at prices which approximate market.
(4) Segment operating profit represents pretax earnings (loss) before certain
corporate expenses, interest income and interest expense.
(5) The net loss for 1992 included a charge of $20.6 million ($1.47 per share)
for the cumulative effect of the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employer's Accounting for
Postretirement Benefits Other Than Pensions" and SFAS No. 109, "Accounting
for Income Taxes." Net earnings for 1994 included a $4.8 million ($.21 per
share) extraordinary loss related to an early extinguishment of debt in
connection with a recapitalization. Net earnings for the nine months ended
September 30, 1995 included a gain of approximately $33 million ($1.34 per
share) from the sale of certain oil and gas interests in the Bob West Field.
(6) No dividends were paid on common shares during the periods presented above.
(7) In December 1995, $34.6 million principal amount of 12% Subordinated
Debentures were redeemed with a portion of the proceeds from the sale of
certain of Tesoro's oil and gas interests in the Bob West Field. Tesoro will
record an extraordinary loss in the fourth quarter of 1995 of approximately
$2.9 million ($.11 per share) for the early retirement of that debt.
8
<PAGE> 17
COASTWIDE ENERGY SERVICES, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- ------------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Product and service
revenues................ $41,169 $34,092 $28,435 $34,449 $41,160 $30,141 $31,315
Direct operating
expenses................ 36,658 31,202 27,073 31,197 35,635 26,125 27,473
------- ------- ------- ------- ------- ------- -------
Gross profit.............. 4,511 2,890 1,362 3,252 5,525 4,016 3,842
General and administrative
expenses................ 2,352 2,823 2,377 2,818 3,531 2,613 2,898
------- ------- ------- ------- ------- ------- -------
Operating income (loss)... $ 2,159 $ 67 $(1,015) $ 434 $ 1,994 $ 1,403 $ 944
======= ======= ======= ======= ======= ======= =======
Income (loss) from
continuing operations,
before extraordinary
items................... $ 894 $ (422) $ (881) $ 292 $ 1,217 $ 826 $ 372
Income (loss) from
discontinued
operations.............. 55 (633) -- -- -- -- --
Extraordinary items....... 274 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income
(loss)........ $ 1,223 $(1,055) $ (881) $ 292 $ 1,217 $ 826 $ 372
======= ======= ======= ======= ======= ======= =======
Earnings per common and
common equivalent share
(primary)............... $ .15 $ .58 $ .40 $ .17
Earnings per common and
common equivalent share
(fully diluted)......... $ .15 $ .51 $ .36 $ .17
PERCENTAGE OF TOTAL
REVENUES:
Diesel fuel sales(1)...... 79.2% 73.3% 67.4% 58.5% 54.3% 53.4% 51.4%
BALANCE SHEET DATA
Total assets.............. $18,278 $16,136 $15,212 $18,412 $22,230 $22,318 $24,164
Long-term debt (including
current portion)........ $ 209 $ 724 $ 737 $ 700 $ 2,455 $ 2,456 $ 1,731
Convertible debentures.... $ -- $ -- $ -- $ -- $ 4,270 $ 4,270 $ 4,270
Stockholders' equity...... $10,658 $ 9,603 $ 8,942 $ 9,504 $10,901 $10,440 $11,310
</TABLE>
- ---------------
(1) No other product or service accounted for more than 15% of total revenues
during any period.
9
<PAGE> 18
COMPARATIVE PER SHARE DATA
The following tables set forth for Tesoro and Coastwide certain historical
and pro forma equivalent per share financial information for the nine months
ended September 30, 1995 and for the year ended December 31, 1994. Equivalent
pro forma earnings per Tesoro share and book value per Tesoro share have been
computed by multiplying Tesoro's historical earnings per share and book value
per share by the exchange ratio so that the equivalent pro forma per Tesoro
share amounts are equated to the respective values of one share of Coastwide
Common Stock. Equivalent pro forma earnings per Coastwide share and book value
per Coastwide share have been computed by dividing Coastwide's historical
earnings per share and book value per share by the exchange ratio so that the
equivalent pro forma per Coastwide share amounts are equated to the respective
values of one share of Tesoro Common Stock. In addition to the shares of Tesoro
Common Stock to be received, Coastwide shareholders will receive $2.55 in cash
per common and common equivalent share of Coastwide. No cash dividends were
declared by Tesoro or Coastwide during the nine months ended September 30, 1995
or for the year ended December 31, 1994.
The following information should be read in conjunction with and is
qualified in its entirety by the consolidated financial statements and
accompanying notes of Tesoro and Coastwide included in the documents described
under "Incorporation of Certain Documents by Reference" and the consolidated
financial statements and accompanying notes of Coastwide set forth elsewhere in
this Proxy Statement/Prospectus.
PER SHARE AND SHARE EQUIVALENT OF TESORO COMMON STOCK TO COASTWIDE SHAREHOLDERS:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------ ------
<S> <C> <C>
Earnings -- fully diluted:
Historical............................................ $ 1.83 $ 0.56
Equivalent pro forma.................................. $ 0.75 $ 0.23
Book value at period end:
Historical............................................ $ 8.47 $ 6.59
Equivalent pro forma.................................. $ 3.47 $ 2.70
</TABLE>
PER SHARE AND SHARE EQUIVALENT OF COASTWIDE COMMON STOCK TO TESORO SHAREHOLDERS:
<TABLE>
<S> <C> <C>
Earnings -- fully diluted:
Historical............................................ $ 0.17 $ 0.51
Equivalent pro forma.................................. $ 0.41 $ 1.23
Book value at period end:
Historical............................................ $ 4.87 $ 4.75
Equivalent pro forma.................................. $11.87 $11.58
</TABLE>
10
<PAGE> 19
RISK FACTORS AND RECENT DEVELOPMENTS
Prior to making a decision regarding the Merger, holders of Coastwide
Common Stock should consider carefully, in addition to the other information
contained in, or incorporated by reference in, this Proxy Statement/Prospectus,
the following risk factors, including recent developments:
RISK FACTORS WITH RESPECT TO TESORO
Consent Solicitation. On December 26, 1995, a group of five holders of
Tesoro's Common Stock, led by Kevin S. Flannery (the "Flannery Group"),
beneficially owning in the aggregate approximately 5.9% of the outstanding
shares of Tesoro Common Stock, filed a Form 13D with the Commission announcing
that they had formed a "group" identified as the "Committee for New Management
of Tesoro Petroleum Corporation" (the "Committee"), to seek to acquire control
of Tesoro through the replacement of the current Tesoro Board with persons
nominated by the Committee. In the Schedule 13D filed by the Flannery Group, the
Flannery Group stated that it would seek to accomplish its goal of replacing the
Tesoro Board by soliciting the written consent of holders of Tesoro Common Stock
through a consent statement.
Delaware Law allows stockholders to act by written consent in the absence
of a meeting of stockholders if the consent of a majority of the outstanding
shares is obtained in writing within a period of 60 days from the date that the
first written consent is delivered to the company. The By-laws of Tesoro set
forth a procedure to be followed in any stockholder consent solicitation. Under
the By-laws, any stockholder of record who wants to seek written consents must
ask the Tesoro Board to fix a record date, which the Tesoro Board must do within
ten days of such request. Only stockholders of record on the record date are
entitled to participate in the consent solicitation. As of the date of this
Prospectus/Proxy Statement, the Flannery Group had not asked the Tesoro Board to
fix a record date for its announced intended consent solicitation.
The Flannery Group has filed preliminary consent solicitation materials
with the Commission. In summary, as reported in the materials filed, the
Flannery Group, which purportedly consists of Kevin S. Flannery, Alan Kaufman,
James H. Stone, Robert S. Washburn and George F. Baker, intends to solicit
consents from Tesoro stockholders to (i) remove, without cause, all of the
current members of the Board of Directors, (ii) elect to the Tesoro Board a
slate comprised of three Committee members plus two additional nominees
designated by the Committee, and (iii) amend the By-laws to facilitate the
removal of the current Tesoro Board and the election of the Committee's
nominees. The Flannery Group indicates in its filings, that if elected, their
nominees would conduct a detailed review of Tesoro and consider alternative
strategies to enhance stockholder value, which they "expect" will include the
prompt disposition of Tesoro's refinery business and perhaps other "non-core"
assets or the Company as a whole. See "Information about Tesoro."
The Flannery Group has also filed a related lawsuit in the U.S. District
Court for the Western District of Texas (the "District Court") against Tesoro
and its President and Chief Executive Officer, Bruce A. Smith, seeking a
judgment (i) declaring that Tesoro's Rights Agreement does not apply to the
efforts of the Flannery Group to solicit consents and that Tesoro's By-laws
permit removal and replacement of the directors through stockholder action by
written consent; (ii) enjoining Tesoro from delaying or otherwise unlawfully
interfering with the efforts of the Flannery Group to solicit consents, and
(iii) declaring that the actions and disclosures of the Flannery Group with
regard to their solicitation are and have been in compliance with the federal
securities laws. On January 8, 1996, Tesoro filed an answer and counterclaims to
the Flannery Group complaint alleging violations of the federal securities laws,
tortious interference with contract and prospective contractual relations
(including interference with the Merger Agreement) and business disparagement.
Among the allegations made by Tesoro is the allegation that Ardsley Advisory
Partners, a beneficial owner of more than five percent of Tesoro's outstanding
Common Stock, is part of the Flannery Group. See "Information About
Tesoro -- Principal Stockholders."
On January 8, 1996, the District Court, at the request of Tesoro, issued a
temporary restraining order restraining the Flannery Group from taking any
action in furtherance of its consent solicitation, including soliciting or
attempting to solicit consents, filing or disseminating to Tesoro stockholders
or the public any Schedule 13D or 14A statements relating to Tesoro, or making
any false or misleading statements regarding Tesoro. In connection with the
request for the restraining order, Tesoro volunteered not to commence any
11
<PAGE> 20
judicial proceedings in any other forum that would require litigation of issues
common to those before the court or to take any action unlawfully to delay or
interfere with the plaintiffs efforts to solicit written consents. In its motion
requesting a temporary restraining order, Tesoro also asked the court to enjoin
the consent solicitation until after Tesoro's 1996 Annual Meeting of
Stockholders.
The Tesoro Board presently intends to contest vigorously the Flannery
Group's consent solicitation by seeking revocation of consents through a
revocation solicitation. There may be developments in this matter before and
after the Special Meeting. Any definitive consent revocation statement or
reports on Form 8-K filed with the Commission by Tesoro after the date of this
Prospectus/Proxy Statement are incorporated by reference into this Registration
Statement. See "Incorporation by Reference." See also "Information About
Tesoro."
Possible Adverse Impact of Pending Litigation. Tesoro is involved in
certain litigation regarding a gas purchase contract (the "Tennessee Gas
Contract") with Tennessee Gas Pipeline Company ("Tennessee Gas"). Two producing
gas units within the Bob West Field in South Texas are subject to the Tennessee
Gas Contract, pursuant to which Tennessee Gas pays prices greatly in excess of
spot market prices. During September 1995, the Contract Price (as defined below)
was in excess of $8.00 per thousand cubic feet ("Mcf") compared to average spot
market prices for natural gas of $1.45 per Mcf during September 1995. During the
nine months ended September 30, 1995, approximately 18% of Tesoro's net domestic
natural gas production was sold under the Tennessee Gas Contract. Through
September 30, 1995, under the Tennessee Gas Contract, Tesoro has recognized
cumulative net revenues in excess of spot market prices (in excess of a $3.00
per Mcf nonrefundable Bond Price (as defined below) from September 18, 1994,
through August 13, 1995) totaling approximately $96.6 million, which Tesoro
anticipates will continue to increase. If Tennessee Gas ultimately prevails in
this litigation, Tesoro could be required to reverse some or all of such
incremental revenue and repay Tennessee Gas all or a portion of $53.9 million
for amounts received above spot market prices, plus interest if awarded by the
court. In addition, the present value of estimated future net revenues on a
pre-tax basis from Tesoro's proved domestic natural gas reserves has been
calculated based in part on the Contract Price (as defined below) at the date of
determination. At September 30, 1995, Tesoro estimates that such present value
was approximately $153 million. If calculated using estimated September 30,
1995, spot market prices instead of the Contract Price, Tesoro estimates that
such present value would have been approximately $92 million.
The litigation with Tennessee Gas involves 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"). In August 1990, Tennessee Gas filed suit against Tesoro in
the District Court of Bexar County, Texas, alleging that the Tennessee Gas
Contract is not applicable to Tesoro'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. Tennessee Gas also claimed that the contract
should be considered an "output contract" under Section 2.306 of the Texas
Uniform Commercial Code ("UCC") 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 Tesoro 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 Tesoro'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 that (i) the Tennessee Gas Contract was
an output contract and (ii) 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. Tesoro 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
appellate court decision was the first decision reported in Texas holding that a
take-or-pay contract was an output contract. The Supreme Court of Texas heard
arguments in December 1994 regarding the output contract issue and certain of
the issues raised by Tennessee Gas. On August 1, 1995, the Supreme Court of
Texas, in a divided opinion, affirmed the decision of the appellate court on all
issues, determined that the Tennessee Gas Contract
12
<PAGE> 21
was an output contract and remanded the case to the trial court for
determination of whether gas volumes tendered by Tesoro to Tennessee Gas were
tendered in good faith and were not unreasonably disproportionate to any normal
or otherwise comparable prior output or stated estimates in accordance with the
UCC. In addition, the Supreme Court of Texas affirmed that the price under the
Tennessee Gas Contract is the Contract Price. Tesoro filed a motion for
rehearing before the Texas Supreme Court on the issue of whether the Tennessee
Gas Contract is an output contract. Tesoro and its outside counsel are
evaluating the impact of various aspects of the Supreme Court decision. Tesoro
believes that, if this issue is tried, the gas volumes tendered to Tennessee Gas
will be found to have been in good faith and otherwise in accordance with the
requirements of the UCC. However, there can be no assurance as to the ultimate
outcome at trial.
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 for
this period is nonrefundable by Tesoro. On August 10, 1995, a hearing was held
before the trial court regarding the extension of the Tennessee Gas bond.
Pursuant to an agreement of the parties, the court ordered that Tennessee Gas,
for the period August 14, 1995, until the earlier of October 16, 1995, or the
date the Supreme Court issues its rulings on motions for rehearings, (i)
continue to take at least its entire take-or-pay volume obligations, (ii) pay
for gas at a price of $3.00 per Mmbtu subject to potential refund of amounts in
excess of market prices if Tennessee Gas should ultimately prevail in the
litigation and (iii) post a $25 million bond in addition to the $120 million
bond presently in place. On November 8, 1995, pursuant to agreement of the
parties, the court ordered that Tennessee Gas will, for the period October 16,
1995, until the earlier of January 31, 1996, or the date the Supreme Court
issues its ruling on motions for rehearing, (i) continue to take at least its
entire take-or-pay volume obligation, (ii) pay for gas at a price of $3.00 per
Mmbtu subject to potential refund of amounts in excess of market prices if
Tennessee Gas should ultimately prevail in the litigation, and (iii) post a $35
million bond in addition to the $145 million bond presently in place. Tennessee
Gas had previously agreed to pay Tesoro the nonrefundable Bond Price until
August 14, 1995. Under the provisions of the bond agreement, Tesoro retains the
right to receive the full Contract Price for all gas sold to Tennessee Gas.
Certain Provisions of Tennessee Gas Contract. Under normal industry
practices, elections to take gas are made on a monthly basis. Under the terms of
the Tennessee Gas Contract, Tennessee Gas is not required to take gas for any
period of a contract year. Tesoro 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, subject to the provisions of the bond
posted by Tennessee Gas. The contract year ends on January 31 of each year.
Although the failure to take gas could adversely affect Tesoro's income and cash
flows from operating activities within a contract year, Tesoro should recover
reduced cash flows shortly after the end of the contract year under the
take-or-pay provisions of the contract, subject to the provisions of the bond
posted by Tennessee Gas. See above under "Possible Adverse Impact of Pending
Litigation."
Concentration of Operations. Tesoro's exploration and production segment
contributed substantially all of Tesoro's operating profit for the year ended
December 31, 1994 and for the nine months ended September 30, 1995. Oil and gas
production is subject to interruption as a result of a variety of conditions and
events, including natural disasters, reservoir damage, mechanical difficulties,
unavailability of equipment and supplies, transportation problems, title and
contractual controversies, governmental regulation and others. Because Tesoro's
domestic oil and gas production is confined to South Texas, primarily to the Bob
West Field, and its international oil and gas operations are confined to two
blocks in Bolivia, the effect of any of such conditions or events on Tesoro
could be more adverse than if Tesoro were more geographically diverse. Any
interruption of oil and gas production in any one or more of Tesoro's areas of
operation could have a material adverse effect on Tesoro.
13
<PAGE> 22
All of Tesoro's refinery operations are conducted at its facility in Kenai,
Alaska (the "Refinery"). As a result, the operations of Tesoro would be subject
to significant interruption if the Refinery or the dock facilities owned by
Tesoro were to experience a major accident or were damaged by severe weather or
other natural disaster. Tesoro maintains business interruption insurance with
respect to its Refinery operations in amounts that the management of Tesoro
believes to be adequate.
Potential Interruption of Feedstock Availability. The Refinery currently
utilizes crude oil that is transported through the Trans Alaska Pipeline System
("TAPS") to Valdez, Alaska and from there to the Refinery by Tesoro's
time-chartered American flag vessel. In connection with an ongoing overhaul of
the electrical systems of the TAPS, numerous electrical code violations have
been discovered. While representatives of the TAPS have indicated that they
believe the overhaul of the electrical system and any action required to remedy
such violations will not cause any significant interruptions in the
transportation of crude oil through the TAPS, there is a possibility that such
interruptions could occur as a result of electrical failure, regulatory action
or other matters related to the overhaul or the violations. In 1994,
approximately 59% of the Refinery's feedstock was Alaska North Slope ("ANS")
crude oil. Tesoro had a contract with the State of Alaska ("State") for the
purchase of ANS royalty crude oil from the State. The contract between Tesoro
and the State, which required Tesoro to purchase approximately 40,000 barrels
per day of ANS crude oil, which equals approximately 80% of Tesoro's total
feedstock requirements during the nine months ended September 30, 1995, expired
on December 31, 1995. In May 1995, Tesoro negotiated a new three-year contract
with the State for the period January 1, 1996 through December 31, 1998. The new
contract also provides for the purchase of approximately 40,000 barrels per day
of ANS royalty crude oil. Tesoro's remaining feedstock requirements are
generally met through short-term contracts and spot market purchases. In the
event of any significant interruption in this supply or transportation system,
Tesoro has access to other sources of feedstocks. However, Tesoro cannot predict
the price or terms on which such alternative feedstock supplies could be
secured, and any such interruption could have a material adverse effect on
Tesoro's operations.
Volatility of Prices, Earnings and Cash Flows. The markets for crude oil
and natural gas and the refined products produced at the Refinery historically
have been volatile and are likely to continue to be volatile in the future. An
increase in crude oil prices could adversely affect Tesoro's operating margins.
Tesoro's operating margins are subject to wide fluctuation in response to
relatively minor changes in the supply of and demand for crude oil and natural
gas and refined petroleum products, market uncertainty and a variety of
additional factors that are beyond the control of Tesoro. These factors include
the level of consumer product demand, weather conditions, domestic and foreign
government regulations, political conditions in other producing countries, the
actions of the Organization of Petroleum Exporting Countries, the supply of
foreign crude oil and natural gas, the proximity of Tesoro's gas reserves to
pipelines, the capacities of such pipelines, fluctuations in seasonal demand,
governmental regulations, the price of foreign imports, the price and
availability of alternative fuels and overall economic conditions. Tesoro cannot
predict the future markets and prices for Tesoro's natural gas or refined
products. The volatility of prices can result in inventory write-downs that can
cause income to fluctuate from quarter to quarter.
Decreases in the prices of natural gas have had, and could have in the
future, an adverse effect on the carrying value of Tesoro's proved reserves and
Tesoro's revenues, profitability and cash flow. Although the prices that Tesoro
currently receives for sales of natural gas in the spot market are higher than
in recent months, such prices have been very volatile over the last three years.
During 1993, 1994 and the nine months ended September 30, 1995, Tesoro's spot
market natural gas prices averaged $2.03, $1.64 and $1.47 per Mcf, respectively.
Environmental Regulations and Liabilities. Tesoro is subject to extensive
federal, state and local laws and regulations governing releases into the
environment and the storage, transportation, disposal and cleanup of hazardous
waste materials. Future environmental regulations could result in increased
capital expenditures and operating costs that may adversely affect Tesoro's
results of operations and financial condition. At present, Tesoro has been
identified by the U.S. Environmental Protection Agency (the "EPA") as a
potentially responsible party pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act for two Superfund sites. In addition,
in March 1992, Tesoro received a Compliance Order and Notice of Violation from
the EPA alleging violations of the New Source Performance Standards of the Clean
Air Act at
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the Refinery. Tesoro is currently negotiating the assessment of penalties with
the DOJ regarding the alleged violations. While Tesoro has from time to time
been, and presently is, the subject of litigation and investigations relating to
environmental and related matters, management of Tesoro believes that such
proceedings will not have a material adverse effect on the results of operations
or competitive position of Tesoro. However, there can be no assurance that
Tesoro will not become involved in further litigation or other proceedings, or
that if Tesoro were to be held responsible for damage in any litigation or
proceedings (including existing litigation or proceedings), such costs would not
be material.
Tesoro currently operates service stations in Alaska, and has in the past
operated service stations in other jurisdictions, that have underground fuel
storage tanks. All such storage tanks are subject to governmental regulation and
legislation. The operation of underground storage tanks poses certain risks
apart from costs associated with regulatory requirements. These risks are
predominately damages associated with underground leaks of petroleum products.
Tesoro currently has leak detection and tank testing programs in effect in
Alaska to mitigate the threat of such risks. In addition, the majority of
Tesoro's operating service stations are in nonresidential locations, further
reducing the risks associated with contamination of residential areas. However,
there can be no assurance that Tesoro will not become liable for damages from
its underground storage tanks at some future date.
Uncertainty in Estimating Oil and Gas Reserves. There are numerous
uncertainties inherent in estimating quantities of proved reserves of oil and
gas and in projecting future rates of production and timing of development
expenditures, including many factors beyond the control of Tesoro. In addition,
the present value of estimated future net revenues from proved reserves of
Tesoro is based upon certain assumptions about future production levels, prices
and costs that may not prove correct over time.
Tesoro periodically reviews the carrying value of its oil and gas
properties under the full-cost accounting rules of the Commission. Under the
full-cost accounting rules, capitalized costs of oil and gas properties may not
exceed the present value of estimated future net cash flows from proved reserves
on an after-tax basis, discounted at 10% per annum, plus the lower of cost or
fair market value of unproved properties. Application of this rule generally
requires pricing future revenues at the unescalated prices in effect as of the
end of each fiscal quarter and requires a write-down if the "ceiling" is
exceeded, even if prices declined for only a short period of time. The risk that
Tesoro will be required to write down the carrying value of its crude oil and
natural gas properties increases when crude oil and natural gas prices are
depressed or unusually volatile.
Depletion of Reserves; Risk of Oil and Gas Operations. Without the
successful drilling of new wells or the acquisition of producing properties,
Tesoro's domestic and foreign production and reserves will decline. To the
extent Tesoro engages in drilling activities, such activities carry the risk
that no commercially viable oil and gas production will be obtained. The cost of
drilling, completing and operating wells is often uncertain. Moreover, drilling
may be curtailed, delayed or canceled as a result of many factors, including
title problems, regulatory delays, weather conditions and shortages or delays in
delivery of equipment, as well as the financial instability of well operators,
major working interests owners and well servicing companies. Tesoro's primary
domestic exploration and production activities are located in South Texas where
its proved natural gas reserves have a relatively short reserve life of
approximately 3.5 years if determined by dividing estimated domestic proved
natural gas reserves at September 30, 1995 by the September 1995 production
volume. However, based on normal declines in future production levels, Tesoro
anticipates the economic life of such reserves to be substantially longer.
Possible Limitation on Use of Tax Benefits. Under Sections 382 and 383 of
the Internal Revenue Code of 1986, as amended (the "Code"), if Tesoro has an
"ownership change" as defined therein, Tesoro's use of its net operating loss
carry forwards and general business credits after the ownership change will be
subject to an annual limit (the "382 Limit"). An ownership change generally
occurs if the ownership by 5-percent shareholders, as defined in Code Section
382, increases by more than 50 percentage points over the lowest percent of
stock owned by such 5-percent shareholders during any three-year period. Tesoro
completed a recapitalization ("Recapitalization") in February 1994 which
resulted in significant changes in the ownership of Tesoro. In addition, Tesoro
completed an offering of 5,850,000 shares of Tesoro Common Stock in June 1994,
the proceeds of which were used to repurchase the capital stock of Tesoro owned
by MetLife Security
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Insurance Company of Louisiana (the "MetLife Redemption"). Finally, there have
been other significant sales and purchases of Tesoro Common Stock during the
last three years. Tesoro has taken the position that an ownership change under
existing law did not occur as a result of the Recapitalization, the MetLife
Redemption or any of the other significant stock transfers that will have taken
place prior to the Merger (the "Prior Transactions"). Further, Tesoro intends to
take the position that consummation of the Merger, combined with the Prior
Transactions, will not constitute an ownership change. Because there are
substantial interpretive questions concerning the application of Code Sections
382 and 383 and because changes in ownership of Tesoro occurring within three
years after the Merger are taken into account in determining whether an
ownership change has occurred, there can be no assurance that an ownership
change has not occurred as a result of the Prior Transactions or will not occur
as a result of the Merger and future events. If an ownership change occurred as
a result of the Recapitalization or the MetLife Redemption, the 382 Limit, based
on the value of Tesoro on February 9, 1994 and June 29, 1994, as determined by
the approximate market value of Tesoro Common Stock as of such dates, could be
as low as approximately $18.9 million and $12.5 million, respectively, per year.
If an ownership change occurs as a result of the Merger, the 382 Limit, based on
the value of Tesoro on January 12, 1996, as determined by the approximate market
value of Tesoro Common Stock as of such date, would be approximately $12.2
million per year. Tesoro's net operating loss carryforwards and general business
credits as of December 31, 1994 were approximately $122.1 million and $8.1
million, respectively.
Foreign Operations. A portion of Tesoro's operations are conducted in
foreign countries, where Tesoro is subject to risks of a political nature and
other risks inherent in foreign operations. Tesoro's operations outside the
United States 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 Tesoro is unable to predict.
Operating Hazards. Tesoro's oil and gas and refining operations are
hazardous due to the combination of individuals and machines operating in
restricted work areas and the highly flammable nature of crude oil, natural gas
and refined products. As a result, Tesoro has experienced personal injury and
property damage incidents in the past and such incidents could occur in the
future. The frequency and severity of such incidents affect Tesoro's operating
costs, insurability and relationships with customers, employees and regulators.
Any significant increase in the frequency or severity of such incidents, or the
general level of compensation awards with respect thereto, could affect the
ability of Tesoro to obtain insurance and could have a material adverse effect
on Tesoro.
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. Tesoro 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 Tesoro, many competitors also produce large
volumes of crude oil, which 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.
RISK FACTORS WITH RESPECT TO COASTWIDE
Volatility of Oil and Gas Prices and Markets. Coastwide's revenues and
profitability are substantially dependent upon prevailing prices for oil and gas
since they directly affect the level of drilling activity. Because of the
location of Coastwide's facilities along the U.S. Gulf Coast, its operations are
particularly sensitive to the prices paid for natural gas. Historically, oil and
gas prices and markets have been volatile and are likely to continue to be
volatile in the future. Prices for oil and gas are subject to wide fluctuations
in response to relatively minor changes in supply of and demand for oil and gas,
market uncertainty and a variety of additional factors that are beyond the
control of Coastwide. These factors include political conditions in the
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Middle East, the domestic and foreign supply of oil and gas, the level of
consumer demand, weather conditions, domestic and foreign governmental
regulations, the price and availability of alternative fuels and overall
economic conditions. In addition, various factors, including the availability
and capacity of gas gathering systems and pipelines, the effect of federal and
state regulations, general economic conditions, changes in supply and changes in
demand may adversely affect prices and thereby Coastwide's ability to market its
services and products.
Competition. The principal competitive factors affecting Coastwide are the
location of its facilities, availability of logistical support services,
experience of personnel and dependability of service. The marketing of
Coastwide's products and services is price sensitive, and Coastwide encounters
price competition from its competitors. Coastwide competes with several
independent operations, and in Harbor Island and Port O'Connor, Texas and
Cameron, Louisiana, with one or more major mud companies who maintain their own
marine terminals.
Potential Liability and Insurance. Performance of Coastwide's services and
the manufacture of its products requires the use of heavy equipment and exposure
to hazardous conditions. In addition, in the ordinary course of its business,
Coastwide handles hazardous materials and waste. As a result, Coastwide may be
subject to fines, penalties or other liabilities arising from its operations.
Coastwide maintains workers' compensation insurance for its employees and
other coverages for normal business risks, including general liability insurance
with an annual aggregate coverage limit of approximately $5 million. Coastwide's
insurance coverage does not cover pollution related claims. Although Coastwide
believes that its insurance coverage is generally consistent with industry
practice, a successful liability claim for which Coastwide is only partially
insured or completely uninsured could have a material adverse effect on
Coastwide. In addition, if Coastwide experiences a significant number of such
claims, increases in Coastwide's insurance premiums could have a material
adverse effect on Coastwide.
Environmental Regulation. Regulations relating to the protection of the
environment have not had a material effect on Coastwide's capital expenditures,
earnings or competitive position and Coastwide does not currently anticipate
making any material capital expenditures for environmental control facilities.
Coastwide's facilities handle materials which are, or may in the future be,
considered hazardous wastes and thus there can be no assurance that significant
expenditures will not be required in the future. Future environmental
regulations could result in increased capital expenditures and operating costs
that may adversely affect Coastwide's results of operations and financial
condition. While Coastwide is not presently involved in any litigation or, to
the best of its knowledge, the subject of any investigations relating to
environmental and related matters, there can be no assurance that Coastwide will
not become involved in litigation or other proceedings, or that if Coastwide
were to be held responsible for damage in any litigation or proceedings such
costs would not be material.
Dependence on Key Personnel. Coastwide's operations are dependent upon a
relatively small group of management and technical personnel. The loss of one or
more of these individuals could have a material adverse effect on Coastwide.
Geographic Concentration of Operations. Virtually all of Coastwide's
operations are located along the U.S. Gulf of Mexico. Because of this
concentration, any regional events that increase costs, reduce availability of
equipment or supplies, reduce demand or limit production by customers will
impact Coastwide more adversely than if Coastwide were more geographically
diversified.
Compliance with Governmental Regulations. Coastwide's operations are
subject to extensive governmental regulation, which may be changed from time to
time in response to economic or political conditions. Coastwide believes that
the trend of more expansive and stricter environmental laws and regulations will
continue. The implementation of new, or the modification of existing,
environmental laws or regulations could have a material adverse impact on
Coastwide.
Control by Principal Stockholders. Coastwide's three principal stockholders
constitute a majority of the Coastwide Board and own more than 50% of the
Coastwide Common Stock. As a result, they are in a position to control Coastwide
through their ability to control the outcome of stockholder votes on the
election of
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directors and other matters. See "Information About Coastwide -- Securities
Ownership of Principal Stockholders and Management."
Dividend Policy. Coastwide has never paid a dividend on Coastwide Common
Stock. Although Coastwide does not presently pay dividends on shares of
Coastwide Common Stock, the Coastwide Board will reviews its dividend policy
from time-to-time.
THE SPECIAL MEETING
This proxy statement is being furnished to holders of Coastwide Common
Stock in connection with the solicitation of proxies by the Coastwide Board for
use at the Special Meeting and any adjournments thereof. This document also
serves as the prospectus of Tesoro with regard to the offer by Tesoro of shares
of Tesoro Common Stock to stockholders of Coastwide in connection with the
Merger for which approval is being sought at the Special Meeting.
All information contained herein with respect to Tesoro has been supplied
by Tesoro and all information contained herein with respect to Coastwide has
been supplied by Coastwide.
This Prospectus/Proxy Statement and the attached Notice and Form of Proxy
are first being mailed to stockholders of Coastwide on or about January 20,
1996.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the holders of Coastwide Common Stock will be asked
to approve the Merger Agreement and the transactions contemplated thereby,
including the Merger, and to act upon such other matters as may properly be
brought before the Special Meeting and at any adjournments or postponements
thereof. A copy of the Merger Agreement is attached as Appendix A hereto.
The Merger Agreement provides that, if the Merger is consummated, Coastwide
will, in effect, become a wholly-owned subsidiary of Tesoro and each Coastwide
stockholder will receive the Merger Consideration, and Coastwide Class B
Warrants, Convertible Debentures and employee stock options will be
appropriately adjusted to substitute the Merger Consideration for Coastwide
Common Stock.
THE COASTWIDE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT COASTWIDE STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
DATE, TIME AND PLACE OF SPECIAL MEETING
The Special Meeting will be held at 10:00 a.m., Central Standard Time, on
February 20, 1996, at the Sheraton Grand Hotel, 2525 West Loop South, Houston,
Texas.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on the
Record Date, which the Coastwide Board has set as December 22, 1995, are
entitled to notice of the Special Meeting and to vote at the Special Meeting, or
any adjournment thereof.
At the close of business on the Record Date, there were approximately 300
holders of Coastwide Common Stock with 1,825,285 shares issued and outstanding.
Each share of Coastwide Common Stock entitles the holder thereof to one vote on
each matter submitted for stockholder approval.
VOTE REQUIRED
Coastwide's Bylaws provide that the presence at the Special Meeting, in
person or by proxy, of the holders of a majority of Coastwide Common Stock
issued and outstanding and entitled to vote at the Special Meeting will
constitute a quorum for the transaction of business. Under Delaware Law,
approval and adoption of the Merger and the Merger Agreement requires the
affirmative vote of the holders of a majority of the shares of Coastwide Common
Stock issued and outstanding on the Record Date, or 912,643 shares.
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At the close of business on the Record Date, the directors and executive
officers of Coastwide and their affiliates, held 1,022,889 shares entitled to
vote, representing approximately 56% of the shares of Coastwide Common Stock
outstanding and entitled to vote at the Special Meeting. Don L. Ingram, L. Mark
Newman and Stephen A. Wells, each of whom is a director of Coastwide, are
entitled to vote an aggregate of 991,297 of such shares, representing 54% of the
shares entitled to vote at the Special Meeting, and have indicated that they
intend to vote for the Merger.
The Merger Agreement provides that in the event the Merger Agreement is
terminated because Coastwide stockholders fail to approve the Merger, Coastwide
must pay Tesoro $400,000. See "Terms of the Merger -- Payment in the Event of
Termination."
As of the Record Date, directors and executive officers of Tesoro and their
affiliates did not own any shares of Coastwide Common Stock. No vote of the
stockholders of Tesoro is required to approve the Merger Agreement or the
Merger.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Special Meeting in accordance with the instructions contained therein. If a
holder of Coastwide Common Stock executes and returns a form of proxy and does
not specify otherwise, the shares represented by such proxy will be voted "for"
approval and adoption of the Merger and the Merger Agreement and otherwise in
the discretion of the proxy holders as to any other matters that may come before
the Special Meeting or any adjournment or postponement thereof.
If any other matters are properly presented at the Special Meeting for
consideration, the persons named in the form of proxy enclosed herewith and
acting thereunder will have discretion to vote on such matters in accordance
with their best judgment, provided, however, that such discretionary authority
will only be exercised to the extent possible under applicable federal and state
securities and corporation laws. As of the date of this Proxy
Statement/Prospectus, Coastwide does not have any knowledge of any matters to be
presented at the Special Meeting other than approval of the Merger Agreement. A
stockholder of Coastwide who has executed and returned a form of proxy may
revoke it at any time before it is voted at the Special Meeting by executing and
returning a form of proxy bearing a later date, by filing written notice of such
revocation with the Secretary of Coastwide, or by attending the Special Meeting
and voting in person.
Checking the abstention box on the proxy card or failing to return the form
of proxy card has the same effect as voting against the proposal. Under
applicable stock exchange rules, brokers will not be permitted to submit proxies
authorizing a vote on the Merger or the Merger Agreement. Broker non-votes will
have the effect of votes against the Merger and the Merger Agreement. Under
Delaware Law, both abstentions and broker non-votes contained on a returned
proxy card will be considered present for purposes of determining the existence
of a quorum at the Special Meeting.
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers and employees
of Coastwide may solicit proxies from stockholders by personal interview,
telephone, facsimile or otherwise. Coastwide will bear the costs of the
solicitation of proxies. Arrangements also will be made with brokerage firms and
other custodians, nominees and fiduciaries who hold the voting securities of
record for the forwarding of solicitation materials to the beneficial owners
thereof. Coastwide will reimburse such brokers, custodians, nominees and
fiduciaries for the reasonable out-of-pocket expenses incurred by them in
connection therewith.
COASTWIDE STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Coastwide Board does
not know of any business to be presented at the Special Meeting other than as
set forth in the notice accompanying this Proxy Statement/Prospectus. If any
other matters should properly come before the Special Meeting, it is intended
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that the shares represented by proxies will be voted with respect to such
matters in accordance with the judgment of the persons voting such proxies.
Representatives of Arthur Andersen LLP, Coastwide's independent public
accountants, are expected to be present at the Special Meeting with the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
APPROVAL OF THE MERGER AGREEMENT AND MERGER REQUIRES THE AFFIRMATIVE VOTES
OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF COASTWIDE COMMON STOCK
ENTITLED TO VOTE AT THE SPECIAL MEETING. BROKER NON-VOTES AND ABSTENTIONS HAVE
THE SAME EFFECT AS VOTES CAST AGAINST THE MERGER.
For the reasons stated herein, the Coastwide Board recommends that the
stockholders vote FOR the Merger Agreement and the Merger.
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THE MERGER
The detailed terms and conditions to the consummation of the Merger are
contained in the Merger Agreement, which is attached as Appendix A to this Proxy
Statement/Prospectus and incorporated herein by reference. The following
discussion sets forth a description of certain material terms and conditions of
the Merger Agreement. The description in this Proxy Statement/Prospectus of the
terms and conditions to the consummation of the Merger is qualified by, and made
subject to, the more complete information set forth in the Merger Agreement,
attached hereto as Appendix A.
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that, subject to the satisfaction or waiver
(where permissible) of certain conditions, receipt of necessary regulatory
approvals, expiration of all waiting periods in respect thereof, and approval of
the Merger Agreement by Coastwide stockholders, at the Effective Time, Coastwide
will be merged with and into the Merger Sub, with the Merger Sub surviving as a
wholly-owned subsidiary of Tesoro, succeeding to and assuming all rights and
obligations of Coastwide as provided by Delaware Law. As a result of the Merger,
the separate corporate existence of Coastwide will cease. Pursuant to the Merger
Agreement, each outstanding share of Coastwide Common Stock will be converted
into the right to receive the Merger Consideration, and outstanding Class B
Warrants, Convertible Debentures and employee stock options to acquire Coastwide
Common Stock will be adjusted to substitute the Merger Consideration for
Coastwide Common Stock. See "Terms of the Merger -- Outstanding Warrants and
Convertible Debentures" and "Terms of the Merger -- Options and Employee
Matters."
If the Merger is consummated, the Merger Sub will survive as the Surviving
Corporation and will continue as a wholly-owned subsidiary of Tesoro under the
name of "Coastwide Marine Services, Inc." Before the Effective Time, Tesoro
intends to merge Tesoro's existing oil field supply and distribution business
into the Merger Sub. See "Terms of the Merger -- Conduct of Business Following
Merger."
On September 13, 1995, the last trading day before public announcement of
the proposed merger, the closing sales price for Tesoro Common Stock on the NYSE
was $9.375 per share. On January 12, 1996, the closing price of Tesoro Common
Stock on the NYSE was $8.625 per share. THE MARKET PRICE OF TESORO COMMON STOCK
AT THE EFFECTIVE TIME MAY BE HIGHER OR LOWER THAN THE MARKET PRICE AT THE TIME
THE MERGER CONSIDERATION WAS FIRST SET, AT THE DATE OF MAILING OF THIS PROXY
STATEMENT/PROSPECTUS, OR AT THE TIME OF THE SPECIAL MEETING. STOCKHOLDERS OF
COASTWIDE ARE NOT ASSURED OF RECEIVING ANY SPECIFIC MARKET VALUE OF TESORO
COMMON STOCK AT OR AFTER THE EFFECTIVE TIME.
For information on historical market prices of Tesoro Common Stock, see
"Market Price and Dividend Data -- Tesoro." Current prices for Tesoro Common
Stock are published in various newspapers, including the Wall Street Journal.
Stockholders should obtain current market price information regarding Tesoro
Common Stock.
The Merger Agreement was negotiated by the managements of Tesoro and
Coastwide on an arms-length basis. See "-- Background of the Merger," and
"-- Interests of Certain Persons in the Merger."
BACKGROUND OF THE MERGER
On several occasions during 1993, 1994 and 1995, representatives of
Coastwide and Tesoro Petroleum Distributing Company ("PEDCO"), a wholly-owned
subsidiary of Tesoro, met to discuss various approaches to combining portions of
the two companies' businesses, including Coastwide's purchase of certain of
PEDCO's Texas assets, PEDCO becoming a fuel supplier to Coastwide and various
structures of a potential joint venture. None of these ideas was ever developed
beyond initial discussions.
During the period between March 30, 1995 and April 11, 1995,
representatives of Coastwide and Tesoro explored the possibility of a joint
venture or other combination between Coastwide and PEDCO. On April 21, 1995,
Coastwide executed a Confidentiality Agreement which was then executed by Tesoro
on April 24, 1995. Simmons was engaged by Coastwide on April 26, 1995, pursuant
to approval from the Coastwide Board at its meeting on April 25, 1995, to assist
Coastwide in exploring a possible combination.
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From May through July 1995, both companies supplied financial and operating
data to Simmons to study the possible combination of the businesses. During
meetings at Simmons' offices held on May 22, July 11 and July 17, 1995,
representatives of Coastwide and Tesoro reviewed and discussed the advantages
and disadvantages of consolidation. On June 19, 1995, management of Tesoro and
Coastwide toured Coastwide and Tesoro locations on the western U.S. Gulf of
Mexico. Discussions regarding the consolidation of the companies continued. As a
result of the meetings, it became apparent that Tesoro, due to its size and
greater financial flexibility, should be the acquiring company.
In August 1995, management of Tesoro and Coastwide met with representatives
of Simmons, representing Coastwide, and representatives of Lehman Brothers,
Inc., representing Tesoro, at Simmons' offices. During this meeting, the terms
of a possible transaction were discussed whereby Tesoro would acquire Coastwide
through a merger using a combination of Tesoro Common Stock and cash.
Subsequent to that meeting, the proposed transaction was discussed
separately by the members of the Coastwide Board and the Tesoro Board. Following
further discussions, a Letter of Intent was negotiated with price terms based on
the closing price of Tesoro Common Stock on the NYSE on September 13, 1995, of
$9.375 per share. The parties agreed upon news releases which were issued prior
to market openings on September 14, 1995. The Letter of Intent provided that it
would be a condition to consummation of the Merger that the price per share of
Tesoro Common Stock be no less than $8.25 or more than $10.50 at the time of
consummation.
On September 20, 1995, Don V. Ingram, Coastwide's Chairman, and Mr. Wells
met with representatives of Simmons to review preliminary analyses for
determination of the fairness of the transaction to Coastwide's stockholders.
On October 23, 1995, in a meeting in New Orleans, Louisiana, the Coastwide
Board heard a formal presentation by representatives of Simmons as to the
fairness of the transaction to Coastwide stockholders. At the Coastwide Board
meeting, a lengthy discussion of the proposed Merger, including the price of
Tesoro's Common Stock, which had declined, was conducted.
Coastwide management met with Tesoro management in late October and early
November 1995 to discuss adjusting the Merger Consideration to reflect the
decline in the price per share of Tesoro Common Stock from $9.375 on the date
the Letter of Intent was signed to approximately $8.00 during the latter part of
October and early November 1995. The parties agreed to go forward with the
execution of the Merger Agreement pursuant to the terms set forth in the Letter
of Intent, except that the parties agreed that they would fix the merger
consideration before mailing of the Proxy Statement/Prospectus, depending to
some extent on the price of Tesoro Common Stock shortly before mailing of this
Proxy Statement/Prospectus. The Merger Agreement provides that if the closing
price of Tesoro Common Stock on the NYSE is not less than $8.25 per share or
more than $10.50 per share two days prior to effectiveness of the registration
statement filed by Tesoro with respect to Tesoro Common Stock to be issued in
the Merger, then the Merger Consideration would be fixed at $2.55 in cash and
.41 share of Tesoro Common Stock per Coastwide share, and if the closing price
of Tesoro Common Stock on the NYSE at that time were outside of that range, then
the parties would make a good faith effort to renegotiate the price. The price
of Tesoro Common Stock on the NYSE on , 1996, two days prior to the
effective date of the registration statement was $ , and thus the final
fixed price was set at the Merger Consideration. The Coastwide Board met on
January 15, 1996, and reaffirmed its approval of the Merger Agreement.
TESORO'S REASONS FOR THE MERGER
The instability of oil and natural gas prices over the last several years
has contributed significantly to the ongoing restructuring in the U.S. oil field
service industry, including the fuel and lubricant distribution business of the
type provided by Tesoro's wholly-owned subsidiary, PEDCO. This instability has
led to lower revenues, increased competition and severe pressure on
profitability in the fuel and lubricant distribution business. These pressures
have resulted in consolidation in the industry, with the objective of
streamlining operations, reducing costs and seeking to take advantage of
synergies that can be created by combining similar and complementary businesses,
particularly service and fuel and lubricant distribution. Tesoro's objective in
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acquiring Coastwide is consistent with these industry trends. Tesoro believes
that the Merger will create a service and distribution business of sufficient
size to be able to achieve significant cost savings and synergisms between
Coastwide's shore-based service business and PEDCO's fuel and lubricant
distribution business, which Tesoro anticipates will improve profitability,
while concentrating the focus of the business on the offshore drilling and
production operations. Tesoro believes it will further benefit from the fact
that Coastwide is a leading supplier of shore-based services, as well as fuel
and lubricants, to the offshore industry in the U.S. Gulf of Mexico. Although
PEDCO has historically provided fuel and lubricant distribution services to both
the onshore and offshore petroleum industry, PEDCO has recently sold four
land-based locations in Texas. PEDCO remains the largest supplier of diesel fuel
and lubricants to the offshore industry in Texas.
Although there can be no assurances, Tesoro believes that, in addition to
realizing cost savings and improved profitability from combining PEDCO and
Coastwide and operating them as Coastwide Marine Services, Inc., the combined
operations would be well-positioned and would have the financial resources to
take advantage of any increase in the market for such fuel and lubricants
distribution and energy services over the next few years and to expand their
operations into market areas beyond their existing operations.
COASTWIDE'S REASONS FOR THE MERGER
The Coastwide Board has reviewed the terms of the Merger with the Financial
Advisor and concluded that the Merger is fair, from a financial point of view,
to and in the best interests of Coastwide and its stockholders. Coastwide
believes that the proposed Merger will be beneficial to its stockholders by
permitting them a partial cash return on their investment while at the same time
providing them with an interest in a larger and more diversified energy and
energy service company. Coastwide's management believes that the Merger will
strengthen the combined oil service operations of Coastwide and PEDCO while
providing greater resources to achieve a more competitive position. In addition,
given the volatility of the energy business, the greater resources and diversity
of the combined companies should to some degree lessen the risks to Coastwide
stockholders with regard to any negative trends within the energy sector.
The Coastwide Board is composed of five persons, three of whom, as of the
Record Date, owned beneficially in the aggregate approximately 54% of the
outstanding Coastwide Common Stock and have indicated that they intend to vote
for the Merger. See "The Special Meeting -- Vote Required."
The decision of the Coastwide Board to approve the Merger Agreement and the
Merger on November 2, 1995, followed extensive negotiations between Coastwide
and Tesoro. The Coastwide Board reviewed in detail Tesoro's business, results of
operations and prospects, as well as information about Tesoro acquired during
the negotiations.
During the course of its deliberations relating to a possible merger with
Tesoro, the Coastwide Board also considered, without assigning relative weights
thereto, the following other material factors:
(i) the terms and conditions of the Merger Agreement, including the
amount and form of the consideration, which the Coastwide Board believed
represented the most favorable transaction possible with Tesoro for
Coastwide's public stockholders;
(ii) the historical and prospective business of Coastwide, including,
among other things, the current financial condition and future prospects of
Coastwide, the strategic direction of Coastwide's business, the current
conditions in, and future prospects of, the energy industry, the
competitive position of Coastwide in that industry, and the historical
business and future prospects of Tesoro and its current financial
condition, which indicated to the Coastwide Board that there is a favorable
strategic fit between the two companies and that the Merger may produce
benefits to Coastwide stockholders by allowing them to participate in a
combined enterprise with greater business and financial resources that is
well positioned to take advantage of new opportunities and to meet
competitive challenges;
(iii) the financial resources offered by Tesoro, which the Coastwide
Board believed would give the combined operations of Coastwide and PEDCO
the opportunity to increase the growth of Coastwide;
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(iv) the potential for improved business opportunities and cost
savings resulting from the synergies from the complementary assets and
combination of complementary businesses of Coastwide and Tesoro, which the
Coastwide Board believed would have a favorable impact on long-term value
for Coastwide stockholders as holders of Tesoro Common Stock after the
Merger;
(v) the opportunity for Coastwide's stockholders to retain a
significant continuing interest in the energy industry through the
acquisition of Tesoro Common Stock, which the Coastwide Board believed
would be favorable to Coastwide's stockholders and consistent with their
investment intent in purchasing shares of Coastwide Common Stock;
(vi) historical data relating to market prices and trading volumes of
Coastwide Common Stock and of Tesoro Common Stock compared to those of
certain other publicly traded companies and the likely effects of the
Merger on Tesoro's operations, the likely reaction of the financial market
to the Merger and its effect on the price of Tesoro Common Stock, which the
Coastwide Board believed indicated that the value of the Tesoro Common
Stock to be received in the Merger was within the range of fair value, from
a financial point of view, to Coastwide stockholders;
(vii) the structure of the Merger, which would permit holders of
Coastwide Common Stock to exchange their shares of Coastwide Common Stock
for the Merger Consideration, a portion of which will be Tesoro Common
Stock, on a tax-free basis; and
(viii) the presentation of the Financial Advisor delivered to the
Coastwide Board at its meeting on October 23, 1995, that the consideration
to be received by Coastwide stockholders in connection with the Merger is
fair to such stockholders from a financial point of view.
RECOMMENDATION OF THE COASTWIDE BOARD OF DIRECTORS
By written consent of the Coastwide Board dated November 2, 1995, the
Coastwide Board unanimously approved the Merger Agreement and unanimously
concluded that the Merger is fair and in the best interests of Coastwide's
stockholders and recommended that the stockholders of Coastwide vote FOR
approval and adoption of the Merger Agreement. Under the terms of the Merger
Agreement, consummation of the Merger by Coastwide was subject, among other
things, to the receipt of an opinion of the Financial Advisor, prior to the
mailing of the Proxy Statement/ Prospectus, to the effect that the Merger
Consideration is fair to the holders of the Coastwide Common Stock from a
financial point of view. On January 15, 1996, the Coastwide Board unanimously
reaffirmed its approval of the Merger Agreement, its conclusion that the Merger
is fair and in the best interests of Coastwide's stockholders, and its
recommendation that the stockholders of Coastwide vote to approve and adopt the
Merger Agreement.
The Financial Advisor, as part of its line of professional services, is
engaged in the evaluation of businesses and their securities in connection with
mergers and acquisitions and for other purposes. The Financial Advisor was
selected by the Coastwide Board in order to obtain an independent evaluation of
the fairness of the consideration to be received pursuant to the Merger. The
Coastwide Board, not the Financial Advisor, determined the consideration for the
Merger.
OPINION OF FINANCIAL ADVISOR
Coastwide has retained Simmons to act as its financial advisor in
connection with the Merger and to render an opinion as to the fairness, from a
financial point of view, of the Merger Consideration to be received by the
holders of shares of Coastwide Common Stock, Convertible Debentures and Class B
Warrants.
On October 23, 1995, Simmons delivered its oral opinion to the Coastwide
Board to the effect that the consideration to be received in the Merger is fair,
from a financial point of view, to the holders of Coastwide Common Stock,
Convertible Debentures and Class B Warrants. On January 15, 1996, Simmons
confirmed its oral opinion to the Coastwide Board, and delivered a written
opinion to such effect on January , 1996. The full text of the written opinion
of Simmons dated January , 1996, which sets forth the assumptions made, the
matters considered, limitations on, and the scope of the review undertaken and
procedures followed by
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Simmons in rendering its opinion is attached as Appendix B to this Proxy
Statement/Prospectus, and is incorporated herein by reference. Coastwide
stockholders are urged to read Simmon's opinion in its entirety.
In connection with its opinion, Simmons has reviewed and analyzed, among
other things, the following: (i) the Letter of Intent between Coastwide and
Tesoro; (ii) the Merger Agreement; (iii) the financial statements and other
information concerning Coastwide, including the Annual Reports on Form 10-K of
Coastwide for each of the years in the two-year period ended December 31, 1994
and the Quarterly Reports on Form 10-Q of Coastwide for the quarterly periods
ended March 31, June 30 and September 30, 1995; (iv) certain other internal
information, primarily financial in nature, concerning the business and
operations of Coastwide furnished by Coastwide for purposes of Simmons'
analysis; (v) certain publicly available information concerning the trading of,
and the trading market for, Coastwide Common Stock; (vi) certain publicly
available information concerning Tesoro, including the Annual Reports on Form
10-K of Tesoro for each of the years in the three-year period ended December 31,
1994 and the Quarterly Reports on Form 10-Q of Tesoro for the quarterly periods
ended March 31, June 30 and September 30, 1995 and the Current Reports on Form
8-K dated October 11, 1995 and December 15, 1995; (vii) certain other internal
information, primarily financial in nature, concerning the business and
operations of Tesoro furnished by Tesoro for purposes of Simmons' analysis;
(viii) certain publicly available information concerning the trading of, and the
trading market for, Tesoro Common Stock; (ix) certain publicly available
information concerning litigation and/or disputes regarding attempts by certain
holders of Tesoro Common Stock to attain effective control of the Tesoro Board;
(x) certain publicly available information with respect to certain other
companies that Simmons considers to be comparable to Coastwide or Tesoro (the
"Comparable Companies") and the trading markets for certain of such other
companies' securities; (xi) certain publicly available information concerning
the estimates of the future operating and financial performance of Coastwide,
Tesoro and the Comparable Companies prepared by industry experts unaffiliated
with either Coastwide or Tesoro; and (xii) certain publicly available
information concerning the nature and terms of certain other transactions
considered relevant to the inquiry. Simmons also has met with certain officers
and employees of Coastwide and Tesoro to discuss the foregoing, as well as other
matters believed relevant to the inquiry.
Additionally, in conducting its analysis and arriving at its opinion as
expressed herein, Simmons has considered such financial and other factors as it
deemed appropriate under the circumstances including, among others, the
following: (i) the historical and current financial position and results of
operations of Coastwide and Tesoro; (ii) the business prospects of Coastwide and
Tesoro; (iii) completed or pending litigation and/or disputes regarding attempts
by certain holders of Tesoro Common Stock to attain effective control of the
Tesoro Board; (iv) the historical and current market for Coastwide Common Stock,
for Tesoro Common Stock and for the equity securities of certain other companies
believed to be comparable to Coastwide or Tesoro; (v) the respective
contributions in terms of various financial measures of Coastwide and Tesoro to
the combined company, and the relative pro forma ownership of Tesoro after the
proposed Merger by the current holders of Coastwide Common Stock and Tesoro
Common Stock; and (vi) the nature and terms of certain other acquisition
transactions that Simmons believes to be relevant. Simmons has also taken into
account its assessment of general economic, market and financial conditions and
its experience in connection with similar transactions and securities'
valuations generally.
In connection with its presentation to the Coastwide Board on October 23,
1995, Simmons advised the Coastwide Board that in evaluating the consideration
to be received in the Merger by Coastwide, Simmons performed a variety of
financial and comparative analyses, including those described below:
Exchange Ratio Profile. Simmons performed an analysis of the ratio of the
market price of Coastwide Common Stock to the market price of Tesoro Common
Stock during the period from November 1, 1993 to September 13, 1995. Simmons
calculated the ratio of the Coastwide Common Stock closing price to the Tesoro
Common Stock closing price for each day during that period. This analysis
implied an exchange ratio ranging from a high of 0.710 shares of Tesoro Common
Stock for each share of Coastwide Common Stock to a low of 0.237 shares of
Tesoro Common Stock for each share of Coastwide Common Stock, with an average
during the period of 0.501 shares of Tesoro Common Stock for each share of
Coastwide Common Stock and an average during the period of January 1, 1995 to
September 13, 1995 of 0.583 shares of Tesoro Common Stock for each share of
Coastwide Common Stock. Simmons also calculated the ratio of the Coastwide
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Common Stock closing price on September 13, 1995 ($5.125 per share) to the
Tesoro Common Stock closing price on such day ($9.375 per share). This implied
an exchange ratio of 0.547 shares of Tesoro Common Stock for each share of
Coastwide Common Stock.
Simmons also analyzed the ratio of the consideration to Coastwide
stockholders to the price of Tesoro Common Stock under a range of prices of
Tesoro Common Stock referred to in the Merger Agreement between Coastwide and
Tesoro. Based on a price of Tesoro Common Stock of $8.25, Coastwide stockholders
would receive the equivalent of $5.93 (0.41 shares of Tesoro Common Stock plus
$2.55 in cash) (the "Lower Implied Consideration") for each share of Coastwide
Common Stock. Based on a price of Tesoro Common Stock of $10.50, Coastwide
stockholders would receive the equivalent of $6.86 (0.41 share of Tesoro Common
Stock plus $2.55 in cash) (the "Higher Implied Consideration") for each share of
Coastwide Common Stock. This implied an exchange ratio of 0.719x based on the
Lower Implied Consideration and an exchange ratio of 0.653x based on the Higher
Implied Consideration.
Premium Analysis. Simmons calculated the premium to holders of Coastwide
Common Stock of the Lower Implied Consideration and the Higher Implied
Consideration to the closing stock price of Coastwide Common Stock on September
13, 1995 and on the dates one month, three months and 12 months prior thereto as
well as to the average closing price for Coastwide Common Stock during the
preceding 12 months and to each of the high and low closing prices for Coastwide
Common Stock since the spin-off from Grasso on October 31, 1993. Based on the
Lower Implied Consideration, Simmons calculated premiums to the holders of
Coastwide Common Stock equal to 15.8 percent of the closing stock price for
Coastwide Common Stock on September 13, 1995; 15.8 percent of the closing stock
price for Coastwide Common Stock one month earlier; negative 6.0 percent of the
closing stock price for Coastwide Common Stock three months earlier; 48.3
percent of the closing stock price for Coastwide Common Stock 12 months earlier;
3.3 percent of the average closing stock price for Coastwide Common Stock during
the 12 months preceding September 13, 1995; and negative 10.5 percent and
positive 163.7 percent of the high and low closing stock prices for Coastwide
Common Stock, respectively, since the spin-off from Grasso.
Based on the Higher Implied Consideration, Simmons calculated premiums to
the holders of Coastwide Common Stock equal to 33.8 percent of the closing stock
price for Coastwide Common Stock on September 13, 1995; 33.8 percent of the
closing stock price for Coastwide Common Stock one month earlier; 8.6 percent of
the closing stock price for Coastwide Common Stock three months earlier; 71.4
percent of the closing stock price for Coastwide Common Stock 12 months earlier;
19.3 percent of the average closing stock price for Coastwide Common Stock
during the 12 months preceding September 13, 1995; and 3.5 percent and 204.7
percent of the high and low closing stock prices for Coastwide Common Stock,
respectively, since the spin-off from Grasso.
Simmons also analyzed average acquisition premiums for acquisitions of
certain comparable public companies in the years 1987 through 1994, and January
through a portion of October 1995. The average premium to last closing price
prior to announcement of such transactions for the transactions occurring during
any year ranged from a low of 13.1 percent to a high of 49.0 percent, with the
weighted average being 26.0 percent. This compares with a premium for the Merger
of 15.8 percent based on the Lower Implied Consideration and a premium for the
Merger of 33.8 percent based on the Higher Implied Consideration.
Relative Contribution Analysis. Simmons analyzed the relative contributions
of Coastwide and Tesoro to, among other things, the combined pro forma
historical revenues, earnings before depreciation and amortization, interest and
taxes ("EBDIT"), earnings before interest and taxes ("EBIT"), net income, cash
flow, total assets, book equity value and projected net income and cash flow.
Simmons also analyzed the relative contributions of Coastwide and Tesoro to
combined total market capitalization and market equity value at September 13,
1995. The analysis makes certain pro forma adjustments for non-recurring and/or
extraordinary items in the historical financial statements of Coastwide and
Tesoro. Based on results for the trailing 12 months ("TTM") ended June 30, 1995,
Simmons calculated contributions by Coastwide of approximately 4.2 percent of
combined revenues, 2.5 percent of combined EBDIT, 2.8 percent of combined EBIT,
3.9 percent of combined net income, 2.6 percent of combined cash flow, 4.5
percent of combined total assets, and 8.3 percent of combined book equity value.
Based on estimates of research analysts unaffiliated
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with either Coastwide or Tesoro, Simmons calculated contributions by Coastwide
of 5.7 percent of projected 1995 net income and 3.1 percent of projected 1995
cash flow. Simmons calculated contributions by Coastwide of 4.6 percent of
combined total market capitalization and 6.7 percent of combined market equity
value based on closing stock prices on September 13, 1995.
Based on the Lower Implied Consideration, Simmons calculated pro forma
contributions by Coastwide of approximately 5.4 percent of combined total market
capitalization and 8.6 percent of combined market equity value. Based on the
Higher Implied Consideration, Simmons calculated pro forma contributions by
Coastwide of approximately 5.4 percent of combined total market capitalization
and 7.9 percent of combined market equity value.
Liquidity Analysis. Simmons examined the average weekly dollar trading
volumes of Coastwide Common Stock, Tesoro Common Stock, and the common stocks of
certain similar publicly-traded oil service companies for the period of January
1, 1995 through October 20, 1995. For the purpose of this analysis, the group of
similar companies was comprised of Ambar, Inc., Evans Systems, Inc., Getty
Petroleum Corp., Maritrans Inc., Matrix Service Company, Offshore Logistics,
Inc., Petroleum Helicopters, Inc., and Serv-Tech, Inc. (collectively the
"Comparable Companies"). Weekly dollar trading volumes of Coastwide Common Stock
averaged approximately $23,000. Weekly dollar trading volumes of Tesoro Common
Stock averaged approximately $4,181,000. Weekly dollar trading volumes of the
Comparable Companies ranged from $53,000 to $3,258,000.
Analysis of Selected Publicly-Traded Comparable Companies. Simmons reviewed
certain publicly available financial, operating and stock market information as
of September 13, 1995 for Coastwide and for the Comparable Companies. Simmons
calculated, among other things, multiples of market stock price to TTM earnings
and cash flow per share and to estimated 1995 earnings and cash flow per share
(derived from estimates of research analysts unaffiliated with either Coastwide
or Tesoro) and multiples of Adjusted Market Value (total market capitalization
less cash in excess of five percent of revenues) to TTM revenues, TTM EBDIT and
Adjusted Book Value (total book capitalization less cash in excess of five
percent of TTM revenues).
An analysis of the multiples of market stock price to TTM earnings per
share and to estimated 1995 earnings per share yielded 19.2x and 14.2x,
respectively, for Coastwide (22.2x and 16.5x, respectively, at the Lower Implied
Consideration and 25.7x and 19.0x, respectively, at the Higher Implied
Consideration) and averages of 18.7x and 16.8x, respectively, for the Comparable
Companies. An analysis of the multiples of market stock price to TTM cash flow
per share and to estimated 1995 cash flow per share yielded 9.2x and 7.5x,
respectively, for Coastwide (10.6x and 9.1x, respectively, at the Implied
Consideration and 12.3x and 10.5x, respectively, at the Higher Implied
Consideration) and averages of 7.5x and 7.5x, respectively, for the Comparable
Companies. An analysis of the multiples of Adjusted Market Value to TTM revenues
yielded 0.5x for Coastwide (0.5x at the Lower Implied Consideration and 0.6x at
the Higher Implied Consideration) and an average of 0.6x for the Comparable
Companies. An analysis of the Adjusted Market Value to TTM EBDIT yielded 8.6x
for Coastwide (9.7x at the Lower Implied Consideration and 11.0x at the Higher
Implied Consideration) and an average of 7.4x for the Comparable Companies. An
analysis of the multiples of Adjusted Market Value to Adjusted Book Value
yielded 1.1x for Coastwide (1.2x at the Lower Implied Consideration and 1.3x at
the Higher Implied Consideration) and an average of 1.1x for the Comparable
Companies.
Analysis of Selected Comparable Transactions. Simmons reviewed several
transactions involving the acquisition of oil service companies. Simmons
calculated multiples of acquisition price, or transaction value, to the
revenues, EBDIT and net income generated in the 12 months prior to acquisition.
These calculations yielded a range of acquisition price to revenues of 0.3x to
2.7x, with an average excluding the high and low value of 1.0x, a range of
acquisition price to EBDIT of 4.7x to 7.5x, with an average excluding the high
and low value of 6.0x, and a range of acquisition price to net income of 8.1x to
20.4x, with an average excluding the high and low value of 11.5x. The average
transaction revenue multiple of 1.0x (excluding the high and low value) compares
to a 0.5x TTM revenue multiple for Coastwide (0.5x at the Lower Implied
Consideration and 0.6x at the Higher Implied Consideration). The average
transaction EBDIT multiple of 6.0x (excluding
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the high and low value) compares to an 8.6x TTM EBDIT multiple for Coastwide
(9.7x at the Lower Implied Consideration and 11.0x at the Higher Implied
Consideration). The average transaction net income multiple of 11.5x (excluding
the high and low value) compares to a 19.2x TTM net income multiple for
Coastwide (22.2x at the Lower Implied Consideration and 25.7x at the Higher
Implied Consideration).
The foregoing summary does not purport to be a complete description of the
analyses performed by Simmons or of its presentations to the Coastwide Board.
The preparation of financial analyses and fairness opinions is a complex process
and is not necessarily susceptible to partial analysis or summary description.
Simmons believes that its analyses (and the summary set forth above) must be
considered as a whole, and that selecting portions of such analyses and of the
factors considered by Simmons, without considering all of such analyses and
factors, could create an incomplete view of the processes underlying the
analyses conducted by Simmons and its opinion. Simmons made no attempt to assign
specific weights to particular analyses. Any estimates contained in Simmons'
analyses are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth therein. Estimates of
values of companies do not purport to be appraisals or necessarily reflect the
prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty, Simmons does not assume responsibility for
their accuracy.
In performing its analysis and arriving at its opinion, Simmons assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided or publicly available and did not independently verify any
of such information. Simmons did not conduct a physical inspection of the
properties, equipment or facilities of Coastwide or Tesoro, nor did it make or
obtain any independent valuations or appraisals of such properties, equipment or
facilities. In rendering its opinion, Simmons assumed that in the course of
obtaining regulatory and government approvals, if any, for the proposed Merger,
no restrictions would be imposed that would have a material adverse effect on
the contemplated benefits of the proposed Merger.
The opinion rendered by Simmons does not constitute an opinion as to the
future value of Tesoro Common Stock upon consummation of the Merger or the price
at which Tesoro Common Stock will trade at any time. In addition, the opinion of
Simmons does not constitute a recommendation to any stockholder as to how such
stockholder should vote at the Special Meeting.
The full text of Simmons' fairness opinion, dated January , 1996, which
sets forth the assumptions made, general procedures followed, matters considered
and limits on the review undertaken, is attached as Appendix B to this Proxy
Statement/Prospectus. Simmons' opinion is directed only to the fairness, from a
financial point of view, of the consideration to be received by the holders of
Coastwide Common Stock, Convertible Debentures and Class B Warrants and does not
constitute a recommendation to any holder of Coastwide Common Stock as to how
such stockholder should vote on the Merger Agreement. THE SUMMARY OF SIMMONS'
OPINION SET FORTH ABOVE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION ATTACHED AS APPENDIX B. STOCKHOLDERS OF COASTWIDE ARE URGED
TO READ THE OPINION IN ITS ENTIRETY.
FINANCIAL ADVISOR
Simmons is a specialized energy-related investment banking firm engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, the management and underwriting of sales of equity and debt to the
public and private placements of equity and debt. Coastwide selected Simmons as
its financial advisor in connection with the Merger because of Simmons'
expertise in the oil and gas service and equipment industry.
As compensation for rendering its fairness opinion and other financial
advisory services, Coastwide has agreed to pay Simmons as its financial advisor
a contingent fee of $450,000, payable at the closing of the transaction, plus
reimbursement of its out-of-pocket expenses. The agreement with Simmons also
provides for indemnification of Simmons by Coastwide against certain
liabilities, including liabilities under federal securities laws. There were no
material relationships between Coastwide and Simmons as its financial advisor
and no compensation was paid by Coastwide to Simmons during the past two years.
Simmons did not negotiate the terms of the transaction between the parties.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Coastwide's management and the Coastwide Board may be
deemed to have certain interests in the Merger in addition to their interests as
Coastwide stockholders generally. Except as described in this Proxy
Statement/Prospectus, (1) there is not presently any plan or arrangement to
cause any officer, director or stockholder of Coastwide to become an officer or
director of Tesoro or of a subsidiary of Tesoro or to receive an increase in
remuneration as a result of the Merger; (2) there are no material relationships
among the executive officers, directors and principal stockholders of Coastwide,
on the one hand, and the executive officers, directors and principal
stockholders of Tesoro, on the other hand; and (3) no officer or director of
Coastwide has any direct or indirect material interest in the Merger except
insofar as the following might be deemed to create an interest: (i) present
ownership of Coastwide Common Stock, Class B Warrants, Convertible Debentures or
stock options, as described below; and (ii) continued employment with the
Surviving Corporation after the Merger.
Don V. Ingram and L. Mark Newman, each a Coastwide Director, beneficially
own 37,293 and 80,100 Class B Warrants, respectively. Messrs. Ingram and Newman
and Stephen A. Wells, also a Coastwide Director and its President, and P. Blake
Dupuis, an executive officer of Coastwide, beneficially own $300,000,
$1,500,000, $375,000 and $50,000, respectively, principal amount of Convertible
Debentures. The exercise and conversion prices of the Class B Warrants and the
Convertible Debentures, respectively, will be adjusted at the Effective Time so
that, based on the Merger Consideration, such holders will, upon exercise or
conversion, as the case may be, receive an amount of shares of Tesoro Common
Stock and cash equivalent to the amount of Coastwide Common Stock they would
have received upon such exercise or conversion. Therefore, Messrs. Ingram and
Newman will be entitled, upon exercise of their Class B Warrants, after payment
of the exercise price of $57,431 and $113,354, respectively, to receive in the
aggregate $95,097 and $204,255 in cash and 15,290 and 32,841 shares of Tesoro
Common Stock, respectively. Similarly, upon conversion of the Convertible
Debentures owned by Messrs. Ingram, Newman, Wells and Dupuis, they will be
entitled to receive in the aggregate $180,000, $900,000, $225,000, and $30,000
in cash and 28,941, 144,705, 36,171, and 4,824 shares of Tesoro Common Stock,
respectively.
Messrs. Ingram, Newman, Wells, and Dupuis have been granted and hold
options to purchase 37,500, 33,750, 100,000 and 10,000 shares of Coastwide
Common Stock, respectively. All of these options are currently vested and
exercisable. To the extent that they were not vested prior to the execution of
the Merger Agreement, the exercisability was accelerated to that date for 6,750
of Mr. Ingram's options, 6,750 of Mr. Newman's options, and 20,000 of Mr. Wells'
options. Each of the accelerated options for Messrs. Ingram and Newman has an
exercise price of $3.73 per share of Coastwide Common Stock and the accelerated
options of Mr. Wells have an exercise price of $3.00 per share of Coastwide
Common Stock. The exercise prices of such options will be adjusted immediately
prior to the Merger so that based on the Merger Consideration such holders will,
upon exercise, receive cash and an amount of shares of Tesoro Common Stock and
cash equivalent to the amount of Coastwide Common Stock they would have received
upon such exercise.
Mr. Wells will be entering into an employment and noncompetition agreement
with the Surviving Corporation effective at the Effective Time, pursuant to
which Mr. Wells will be employed by the Surviving Corporation as President of
the Surviving Corporation until December 31, 1996 and will receive an annual
salary of $165,000 plus a bonus, if any, as determined by the Compensation
Committee of Tesoro's Board and reimbursement for certain travel and living
expenses estimated not to exceed $32,500. In addition, it is anticipated that
Mr. Wells would be granted, subject to the approval of the Compensation
Committee of Tesoro's Board, an option to purchase 35,000 shares of Tesoro
Common Stock at fair market value on the date of grant. Pursuant to the
agreement, Mr. Wells will agree not to compete with the Surviving Corporation or
any affiliate for two years from the Effective Time. If Mr. Wells' employment
agreement is not extended, or if Mr. Wells leaves the employ of the Surviving
Corporation other than for specified reasons, Mr. Wells would be entitled to a
payment of $8,333.33 per month for the remaining term of the noncompetition
agreement. See "Terms of the Merger -- Options and Employee Matters."
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Code. Assuming that the Merger so qualifies,
the principal federal income tax consequences of the Merger will be as follows:
(a) No gain or loss will be recognized by Tesoro, the Merger Sub or
Coastwide as a result of the Merger.
(b) Gain, if any, realized by a Coastwide stockholder upon receipt of
the Merger Consideration in exchange for Coastwide Common Stock will be
equal to the excess of the fair market value of the Tesoro Common Stock
received plus the amount of cash received, including cash received in lieu
of fractional shares, if any, by such Coastwide stockholder, over the cost
or other basis of the Coastwide Common Stock surrendered in such exchange.
Such gain will be recognized, but in an amount not in excess of the amount
of cash received by each Coastwide stockholder as provided in Section
356(a)(1) of the Code. In accordance with Section 356(a)(2) of the Code, if
the exchange does not have the effect of the distribution of a dividend
(determined with the application of Sections 302 and 318(a) of the Code),
such recognized gain will generally be treated as gain from the sale or
exchange of property, resulting in capital gain. Whether the receipt of
cash has the effect of the distribution of a dividend would depend upon a
stockholder's particular circumstances. No loss will be recognized by the
Coastwide stockholders.
(c) The basis of Tesoro Common Stock received by each Coastwide
stockholder will equal the tax basis of such Coastwide stockholder's shares
of Coastwide Common Stock, decreased by the cash received and increased by
the amount of any gain (including any portion of such gain which was
treated as a dividend) such Coastwide stockholder recognized on the
exchange.
(d) The holding period for the shares of the Tesoro Common Stock
received by each Coastwide stockholder will include the holding period for
the shares of Coastwide Common Stock exchanged in the Merger, provided that
the common stock to be exchanged by the Coastwide stockholders is held as a
capital asset at the time of the Merger.
(e) A stockholder that exercises dissenter's rights with respect to
and receives a cash payment for his or her shares generally will recognize
capital gain or loss for federal income tax purposes (if such shares were
held as a capital asset at the time of the Merger) measured by the
difference between the holder's basis in such shares and the amount of cash
received, provided, however, the payment is neither essentially equivalent
to a dividend within the meaning of Section 302 of the Code nor has the
effect of a distribution of a dividend within the meaning of Section
356(a)(2) of the Code. A sale of shares pursuant to an exercise of
dissenter's rights generally will not have the effect of a distribution of
a dividend if, as a result of such exercise, the stockholder exercising
dissenter's rights owns no shares of Tesoro's Common Stock (either actually
or constructively within the meaning of Section 318 of the Code)
immediately after the Merger.
Consummation of the Merger is conditioned upon receipt by Tesoro and
Coastwide of opinions from their respective counsel that the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code. Such opinions will be issued with the
understanding that the relevant facts are as described in this Proxy
Statement/Prospectus and exhibits and appendices hereto, and in rendering such
opinions such counsel will rely upon the accuracy of the factual statements and
representations in the foregoing documents and upon certain representations made
in writing to such counsel by Tesoro and Coastwide and certain of their
stockholders. An opinion of counsel, however, is not binding on the Internal
Revenue Service or the courts. No ruling on the Merger will be sought from the
Internal Revenue Service.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT
DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. IN
ADDITION, THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO PARTICULAR CATEGORIES OF STOCKHOLDERS SUBJECT TO SPECIAL TREATMENT
UNDER CERTAIN FEDERAL INCOME TAX LAWS,
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SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, FOREIGN INDIVIDUALS
AND ENTITIES, REGULATED INVESTMENT COMPANIES, AND STOCKHOLDERS WHO ACQUIRED
COASTWIDE COMMON STOCK PURSUANT TO THE EXERCISE OF COASTWIDE OPTIONS OR
OTHERWISE AS COMPENSATION. THE TAX CONSEQUENCES TO HOLDERS OF COASTWIDE WARRANTS
OR CONVERTIBLE DEBT ARE NOT DISCUSSED. THE DISCUSSION IS BASED ON CURRENTLY
EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS
THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE
FOREGOING ARE SUBJECT TO CHANGE, POSSIBLY WITH RETROACTIVE EFFECT, AND ANY SUCH
CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. EACH STOCKHOLDER
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
STATE, LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase transaction for accounting
and financial reporting purposes whereby the total value of the Merger
Consideration (total cash and total market value of Tesoro Common Stock to be
issued to Coastwide security holders in connection with the Merger) will be
allocated to the assets and liabilities of Coastwide on the basis of the fair
market value of such assets and liabilities. Any excess of the total value of
the Merger Consideration over the fair value of Coastwide's net assets will be
recorded as goodwill.
GOVERNMENTAL AND REGULATORY APPROVALS
Transactions such as the Merger are reviewed by the DOJ and the FTC to
determine whether they comply with applicable antitrust laws. Under the
provisions of the HSR Act, the Merger may not be consummated until such time as
the specified waiting period requirements of the HSR Act have been satisfied.
Tesoro and Coastwide filed notification reports with the DOJ and the FTC under
the HSR Act on November 30, 1995. The required waiting period under the HSR Act
expired on December 30, 1995.
At any time before or after the Effective Time, the DOJ, the FTC or a
private person or entity could seek under the antitrust laws, among other
things, to enjoin the Merger or to cause Tesoro to divest itself, in whole or in
part, of Coastwide or of other businesses conducted by Tesoro. There can be no
assurance that a challenge to the Merger will not be made or that, if such a
challenge is made, Tesoro and Coastwide would prevail.
Tesoro and Coastwide are aware of no other material governmental or
regulatory approvals required for consummation of the Merger, other than
compliance with applicable securities laws of the various states.
STOCK EXCHANGE LISTING
As a condition to the closing of the Merger, the shares of Tesoro Common
Stock to be issued at the Effective Time of the Merger will be approved for
listing on the NYSE and the PSE, subject to official notice of issuance.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Tesoro Common Stock to be received by Coastwide stockholders
in connection with the Merger have been registered under the Securities Act and,
except as set forth below, may be traded without restriction. The shares of
Tesoro Common Stock issued in the Merger and received by persons who are deemed
to be "affiliates" (as that term is defined in Rule 144 under the Securities
Act) of Coastwide prior to the Merger may be resold by them only in transactions
permitted by the resale provisions of Rule 145 under the Securities Act (or, in
the case of such persons who become affiliates of Tesoro, Rule 144 under the
Securities Act) or as otherwise permitted under the Securities Act. The Merger
Agreement provides that, as a condition to consummation of the Merger, Tesoro
will have received a written agreement from each affiliate of
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Coastwide to the effect that such person will not dispose of any shares of
Tesoro Common Stock issued to such persons pursuant to the Merger in violation
of the Securities Act or the rules and regulations promulgated thereunder.
APPRAISAL RIGHTS
Record holders of Tesoro Common Stock are not entitled to appraisal rights
under Section 262 of the Delaware Law.
Record holders of Coastwide Common Stock are entitled to appraisal rights
under Section 262 of the Delaware Law. A holder of Coastwide Class B Warrants,
Convertible Debentures or employee stock options is not entitled to appraisal
rights with respect to these securities except to the extent that the holder
exercises the Warrant, Convertible Debenture or option and becomes a holder of
Coastwide Common Stock prior to the Special Meeting and thereafter follows the
procedures set forth below.
This discussion is not a complete statement of the law pertaining to
appraisal rights under the Delaware Law and is qualified in its entirety by the
full text of Section 262, which is reprinted in its entirety as Appendix C to
this Proxy Statement/Prospectus. A person having a beneficial interest in shares
of Coastwide Common Stock held of record in the name of another person, such as
a broker or nominee, must act promptly to cause the record holder to follow the
steps summarized below properly and in a timely manner to perfect the appraisal
rights provided under Section 262.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the case of the Special Meeting, not less than 20
days prior to the meeting, a constituent corporation must notify each of the
holders of its stock for which appraisal rights are available that such
appraisal rights are available and include in each such notice a copy of Section
262. THIS PROXY STATEMENT/PROSPECTUS SHALL CONSTITUTE SUCH NOTICE TO THE RECORD
HOLDERS OF COASTWIDE COMMON STOCK. ANY SUCH STOCKHOLDER WHO WISHES TO EXERCISE
SUCH APPRAISAL RIGHTS SHOULD REVIEW THE FOLLOWING DISCUSSION AND APPENDIX C
CAREFULLY. FAILURE TO TIMELY AND PROPERLY COMPLY WITH THE PROCEDURES SPECIFIED
WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS UNDER THE DELAWARE LAW.
Under the Delaware Law, record holders of Coastwide Common Stock who follow
the procedures set forth in Section 262 will be entitled to have their shares of
Coastwide Common Stock appraised by the Delaware Court of Chancery and to
receive payment of the "fair value" of such shares, exclusive of any element of
value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, as determined by such court. A holder of
shares of Coastwide Common Stock wishing to exercise his appraisal rights must
deliver to the Secretary of Coastwide, before the vote on the Merger Agreement
at the Coastwide Special Meeting, a written demand for appraisal of his shares
of Coastwide Common Stock and must not vote for the Merger. In addition, a
holder of shares of Coastwide Common Stock wishing to exercise his appraisal
rights must hold shares of record on the date the written demand for appraisal
is made and must hold such shares continuously through the Effective Time.
Stockholders who hold their shares in brokerage accounts or other nominee forms
and who wish to exercise appraisal rights must take all necessary steps in order
that a demand for appraisal is made by the record holder of such shares and are
urged to consult with their brokers to determine the appropriate procedures for
the making of a demand for appraisal by the record holder.
Within 10 days after the Effective Time of the Merger, the Merger Sub, as
the Surviving Corporation in the Merger, must send a notice as to the
effectiveness of the Merger to each person who has satisfied the appropriate
provisions of Section 262 and who is entitled to appraisal rights under Section
262. Within 120 days after the Effective Time, but not thereafter, Coastwide or
any holder of shares of Coastwide Common Stock who has complied with the
foregoing procedures and who is entitled to appraisal rights under Section 262,
may file a petition in the Delaware Court of Chancery demanding a determination
of the "fair value" of such shares. Coastwide is not under any obligation, and
has no present intention, to file a petition with respect to the appraisal of
the "fair value" of the shares of Coastwide Common Stock. Accordingly, it is the
obligation of the stockholders to initiate all necessary action to perfect their
appraisal rights within the
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time prescribed in Section 262. A holder of shares of Coastwide Common Stock
will fail to perfect, or effectively lose, his right to appraisal if no petition
for appraisal of shares of Coastwide Common Stock is filed within 120 days after
the Effective Time.
If any holder of shares of Coastwide Common Stock who demands appraisal of
his shares under Section 262 fails to perfect, or effectively withdraws or
loses, his right to appraisal, as provided in the Delaware Law, the shares of
Coastwide Common Stock of such stockholder will be deemed to be converted, as of
the Effective Time, into the right to receive the Merger Consideration in
accordance with the Merger Agreement. A holder may withdraw his demand for
appraisal by delivering to Coastwide a written withdrawal of his demand for
appraisal and acceptance of the Merger, except that any such attempt to withdraw
made more than 60 days after the Effective Time will require the written
approval of the Surviving Corporation. Failure to follow the steps required by
Section 262 of the Delaware Law for perfecting appraisal rights may result in
the loss of such rights.
Any holder of shares of Coastwide Common Stock who has duly demanded an
appraisal in compliance with Section 262 will not, after the Effective Time, be
entitled to vote the shares of Coastwide Common Stock subject to such demand for
any purpose or be entitled to the payment of dividends or other distributions on
those shares (except dividends or other distributions payable to holders of
record of shares of Coastwide Common Stock as of a date prior to the Effective
Time). Pursuant to the Merger Agreement, Coastwide shall not, except with the
prior written consent of Tesoro, voluntarily make any payment with respect to
any demands for appraisals of Coastwide Common Stock, offer to settle or settle
any such demands or approve any withdrawal of any such demands.
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TERMS OF THE MERGER
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that the Merger will become effective at the
Effective Time set forth in the certified copy of the Certificate of Merger
issued by the Secretary of State of the State of Delaware with respect to the
Merger. It is anticipated that, if the Merger Agreement is approved at the
Special Meeting and all other conditions to, and approvals for, the Merger have
been satisfied or waived, the Effective Time will occur as soon as practicable
thereafter.
MANNER AND BASIS OF CONVERTING SHARES OF COASTWIDE COMMON STOCK
The Merger Agreement provides that, at the Effective Time, each share of
Coastwide Common Stock issued and outstanding, other than shares held by Tesoro
or any direct or indirect wholly-owned subsidiary of Tesoro (which shares will
be canceled and extinguished at the Effective Time without any conversion
thereof and no payment shall be made with respect thereto) or shares as to which
appraisal rights have been perfected, will be converted into the right to
receive the Merger Consideration.
As soon as practicable following the Effective Time, an exchange agent
selected by Tesoro (the "Exchange Agent") shall mail to each record holder of
Coastwide Common Stock immediately prior to the Effective Time, a letter of
transmittal and other information advising such holder of the consummation of
the Merger and for use in exchanging Coastwide Common Stock certificates for the
Merger Consideration. Letters of transmittal also will be available following
the Effective Time at the offices of the Exchange Agent. SHARE CERTIFICATES
SHOULD NOT BE SURRENDERED FOR EXCHANGE BY STOCKHOLDERS OF COASTWIDE PRIOR TO
APPROVAL OF THE MERGER AND THE RECEIPT OF A LETTER OF TRANSMITTAL.
No fraction of a share of Tesoro Common Stock will be issued in the Merger.
Each stockholder of Coastwide otherwise entitled to a fraction of a share will,
upon surrender of Coastwide Common Stock certificates held by such holder, be
paid an amount in cash equal to the value of such fraction of a share based upon
the closing price of Tesoro Common Stock on the NYSE on the last trading day
prior to the Effective Time. No interest will be paid on such amount and all
shares of Coastwide Common Stock held by a record holder shall be aggregated for
purposes of computing the number of shares of Tesoro Common Stock to be issued
in the Merger.
At or prior to the Effective Time, Tesoro shall deposit, or shall cause to
be deposited, with the Exchange Agent, the cash consideration and certificates
representing the shares of Tesoro Common Stock (and cash in lieu of fractional
shares) to be paid and issued in exchange for outstanding shares of Coastwide
Common Stock.
Until such time as a holder of Coastwide Common Stock surrenders his or her
outstanding stock certificates to the Exchange Agent, together with an
appropriately completed and executed letter of transmittal, the shares of
Coastwide Common Stock represented thereby will be deemed from and after the
Effective Time, for all corporate purposes other than the payment of dividends
and distributions declared prior to the merger, to evidence the ownership of the
number of full shares of Tesoro Common Stock into which such shares may be
converted. Unless and until such outstanding certificates are surrendered, no
dividends or other distributions payable to the holders of Tesoro Common Stock,
as of any time on or after the Effective Time, will be paid to the holders of
such outstanding certificates. Upon surrender of the certificates previously
representing Coastwide Common Stock, the holder thereof will receive
certificates representing the number of shares of Tesoro Common Stock to which
he or she is entitled, the cash portion of the Merger Consideration to which he
or she is entitled, cash in lieu of a fraction of a share and the amount of
dividends or other distributions, if any, payable to holders of Tesoro Common
Stock on or after the Effective Time with respect to such shares, without
interest thereon.
At any time more than six months after the Effective Time, if the Exchange
Agent holds any Merger Consideration or any dividends or other distributions in
respect of Tesoro Common Stock with respect to which the holder of record of the
Coastwide stock certificate has not surrendered such certificate, Tesoro, on
written notice, may direct the Exchange Agent to deliver such Merger
Consideration and all such dividends
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and other distributions to the Surviving Corporation. Upon receipt thereof, the
holder who has not surrendered such certificate shall look solely to the
Surviving Corporation for payment of the Merger Consideration and any applicable
dividends or other distributions.
None of Tesoro, the Surviving Corporation, Coastwide or the Exchange Agent
or any person shall be liable to any former holder of shares of Coastwide Common
Stock or other equity securities for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws. Any
shares of Coastwide Common Stock with respect to which appraisal rights have
been perfected will be purchased in accordance with the procedures described
under "Appraisal Rights" and under Section 262 of the Delaware Law attached
hereto as Appendix C.
OUTSTANDING WARRANTS AND CONVERTIBLE DEBENTURES
As of the Record Date, Coastwide had outstanding Class B Warrants to
purchase approximately 360,000 shares of Coastwide Common Stock for $1.54 per
share, expiring December 22, 1996. The Merger Agreement provides that, subject
to the terms of the Warrant Agreement, Tesoro will enter into an amended Warrant
Agreement with the Warrant Agent, giving each holder of Class B Warrants the
right (prior to the expiration date of the warrants), upon payment of the
warrant price in effect immediately prior to such action, to receive upon
exercise of each Class B Warrant the Merger Consideration that could have been
received at the Effective Time if the Class B Warrant had been exercised
immediately prior thereto. For example, a holder of 10,000 Class B Warrants
would, after the Effective Date, and prior to December 22, 1996, be entitled to
receive, upon payment of the exercise price of $15,400 ($1.54 times 10,000),
$25,500 in cash ($2.55 times 10,000), and 4,100 shares of Tesoro Common Stock
(.41 share of Tesoro Common Stock times 10,000).
As of the Record Date, Coastwide had outstanding $4,270,000 of 8%
Convertible Subordinated Debentures due July 1, 2004, convertible into Coastwide
Common Stock at $4.25 per share. Under the terms of the Merger Agreement, the
Surviving Corporation will assume the Convertible Debentures and from and after
the Effective Time, the holders of the Convertible Debentures will have the
right to convert such Convertible Debentures into the Merger Consideration
received by a holder of the number of shares of Coastwide Common Stock into
which such Convertible Debentures might have been converted immediately prior to
the Merger. Thus, for example, a holder of $42,500 principal amount of the
Convertible Debentures, which prior to the Effective Time would have been
convertible into 10,000 shares of Coastwide Common Stock, would be entitled
after the Merger to convert the Convertible Debentures into 4,100 shares of
Tesoro Common Stock and $25,500 in cash, which is the number of shares of Tesoro
Common Stock and the amount of cash, respectively, that a holder of 10,000
shares of Coastwide Common Stock would have received upon conversion of his
shares in the Merger. The Surviving Corporation will enter into a supplemental
agreement with the Convertible Debenture holders with respect to such
obligations pursuant to the terms of the agreement under which the Convertible
Debentures were issued.
OPTIONS AND EMPLOYEE MATTERS
Upon consummation of the Merger, the stock options outstanding as of the
Record Date under the Coastwide 1993 LongTerm Incentive Plan will become
exercisable for the Merger Consideration rather than for Coastwide Common Stock,
but otherwise on the same terms and conditions. Upon execution of the Merger
Agreement those options that were not vested became fully vested. See "The
Merger -- Interests of Certain Persons in the Merger."
The Surviving Corporation and Mr. Wells will enter into an employment and
noncompetition agreement, effective at the Effective Time, pursuant to the terms
of which Mr. Wells will serve as President of the Surviving Corporation until
December 31, 1996, will be compensated at an annual salary of $165,000 and will
be reimbursed for certain travel and living expenses estimated not to exceed
$32,500, will be entitled to the usual Tesoro benefits, and will be granted,
subject to approval of the Compensation Committee of the Tesoro Board, an option
to purchase 35,000 shares of Tesoro Common Stock at fair market value on the
date of grant. Pursuant to the agreement, Mr. Wells will agree, with certain
limited exceptions, for two years from the Effective Time, not to engage or
participate in any business that provides shore-based services on the Texas or
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Louisiana Gulf Coast or in the sale or delivery of fuel or lubricants offshore
or the sale or delivery of fuel or lubricants within 100 miles inland of the
Texas or Louisiana Gulf Coast. "Shore-based services" for this purpose means all
services and operations conducted by Coastwide or its predecessor, Grasso, or
PEDCO during the three years preceding the date of the agreement, or conducted
by the Surviving Corporation during the term of the agreement. Mr. Wells will
also agree not to solicit customers of the Surviving Corporation or its
affiliates on behalf of anyone other than such persons. If the Surviving
Corporation does not extend the employment agreement beyond December 31, 1996,
or Mr. Wells leaves the employ of the Surviving Corporation for specified
reasons (because of a material reduction in his responsibility or authority, a
requirement that he reside at a different location than his principal residence,
or relocation of the principal executive offices of the Surviving Corporation
outside Houston), the Surviving Corporation must pay Mr. Wells $8,333.33 per
month for the remaining term of the noncompetition agreement. If Mr. Wells is
offered the chance to continue employment on the same terms, but determines not
to for any reason other than those set forth above, or if he is discharged for
cause, then no additional consideration will be paid for the balance of the
noncompetition agreement.
After the Effective Time of the Merger, Coastwide's employee benefit plans
will be phased out and replaced generally by the benefit plans offered to Tesoro
employees.
CONDITIONS TO THE MERGER
The Merger Agreement provides that the respective obligations of Tesoro and
Coastwide to effect the Merger are subject to the satisfaction at or prior to
the Effective Time, of the following conditions: (a) that the Merger Agreement
and the Merger shall have been approved by the requisite vote of the
stockholders of Coastwide; (b) that the waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have expired or have
been terminated (see "The Merger -- Government and Regulatory Approvals"); (c)
that no order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect; (d) that the Registration Statement of which this Proxy
Statement/Prospectus is a part shall have become effective under the Securities
Act and all post-effective amendments filed shall have been declared effective
or shall have been withdrawn, no stop-order suspending the effectiveness thereof
shall have been issued and that no proceedings for that purpose shall have been
initiated or, to the knowledge of the parties, threatened by the Commission; (e)
that Tesoro Common Stock to be issued as Merger Consideration shall have been
approved for listing on the NYSE and PSE; and (f) that there shall have been
obtained all material permits, approvals and consents of securities authorities
of any jurisdiction that are necessary so that consummation of the Merger and
the transactions contemplated thereby will be in compliance with applicable
laws, the failure to comply with which would have a material adverse effect on
Tesoro or the free transferability of the Tesoro Common Stock to be issued.
The Merger Agreement provides that the obligation of Tesoro to effect the
Merger is, at the option of Tesoro, further subject to the satisfaction or
waiver of the following conditions: (a) that all of the agreements and covenants
of the Merger Agreement to be complied with and performed by Coastwide shall
have been duly complied with and performed in all material respects; (b) that
Tesoro shall have received from counsel to Coastwide an opinion as to certain
corporate matters of Coastwide; (c) that the representations and warranties of
Coastwide contained in the Merger Agreement that are qualified as to materiality
shall be true in all respects and those not so qualified shall be true in all
material respects, in each case as though such representations and warranties
had been made at and as of that time (except where any such representation or
warranty is made as of a date specifically set forth therein); (d) that
Coastwide shall have received, and furnished written copies to Tesoro of,
agreements by each person deemed to be an affiliate of Coastwide confirming that
such person will not dispose of any shares of Tesoro Common Stock received
pursuant to the Merger in violation of the Securities Act or the rules and
regulations promulgated thereunder; (e) that Tesoro shall have received from
Fulbright & Jaworski L.L.P., counsel to Tesoro, an opinion to the effect that
the Merger will qualify for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code; (f) that Tesoro shall have
received evidence satisfactory to it that such licenses, consents and similar
approvals by governmental authorities and other third parties as are necessary
in connection with the Merger Agreement and Merger have been obtained; (g) that
there is not pending or threatened by any
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governmental entity any proceeding (or any other person if such proceeding has a
reasonable likelihood of success), challenging in any way the consummation of
the Merger or seeking damages with respect thereto, seeking to limit the
ownership or operation by Coastwide or Tesoro of any material portion of the
business or assets of Coastwide or in other ways seeking to limit Tesoro from
effectively controlling the operations of Coastwide; (h) that the holders of not
more than 5% of the outstanding shares of Coastwide Common Stock shall have
given proper notice of their intent to exercise appraisal rights under Delaware
Law; (i) that the results of due diligence conducted by Tesoro with respect to
Coastwide shall be satisfactory to Tesoro; (j) that there has been no material
adverse change with respect to Coastwide since September 14, 1995; (k) that
Coastwide shall have received the opinion of Simmons, immediately prior to
mailing of this Proxy Statement/Prospectus, to the effect that the terms of the
Merger are fair to the holders of Coastwide Common Stock, Convertible Debentures
and Class B Warrants from a financial point of view; (l) that an employment and
noncompetition agreement between Mr. Wells and the Surviving Corporation shall
have been entered into; (m) that all lenders to Tesoro shall have approved the
consummation of the Merger or shall have waived any objection or right to
object; (n) that all employment and consulting agreements between Coastwide and
Messrs. Ingram and Newman shall have been terminated on terms acceptable to
Tesoro; and (o) that Tesoro shall have received a copy of the "comfort letter"
of the auditors for Coastwide in form and substance reasonably satisfactory to
Tesoro, updated as customary.
The Merger Agreement provides that the obligation of Coastwide to effect
the Merger is, at the option of Coastwide, further subject to the satisfaction
or waiver of the following conditions: (a) that all of the agreements and
covenants of the Merger Agreement to be complied with or performed by Tesoro
shall have been duly complied with and performed in all material respects; (b)
that Coastwide shall have received from counsel to Tesoro an opinion as to
certain corporate matters of Tesoro; (c) that all the representations and
warranties of Tesoro contained in the Merger Agreement that are qualified as to
materiality shall be true in all respects and those not so qualified shall be
true in all material respects as though such representations and warranties had
been made at and as of that time (except where any such representation or
warranty is made as of a date specifically set forth therein); (d) that
Coastwide shall have received from counsel to Coastwide an opinion to the effect
that (i) the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code; (ii) no gain or
loss will be recognized to Coastwide as a result of the Merger; (iii) no
realized gain or loss will be recognized by a Coastwide stockholder upon receipt
of Tesoro Common Stock (although gain or loss will be recognized with respect to
receipt of cash); (iv) the aggregate tax bases of the Tesoro Common Stock
received by the Coastwide stockholders (including any fractional interests
treated as received) will be the same as the aggregate tax bases of the shares
surrendered in exchange therefore decreased by the cash portion of the Merger
Consideration and increased by the gain recognized in the Merger; and (v) that
the holding period of the Tesoro Common Stock received will include the period
during which the Coastwide shares surrendered in exchange therefor were held,
provided the Coastwide shares were held as a capital asset at the Effective
Time; (e) that appropriate adjustments and assumptions have been made with
respect to the outstanding Coastwide employee stock options, Class B Warrants
and Convertible Debentures; (f) that there has been no material adverse change
with respect to Tesoro since September 14, 1995; (g) that Coastwide shall have
received the opinion of Simmons, immediately prior to the mailing of the Proxy
Statement/Prospectus to the effect that the Merger Consideration is fair to the
holders of Coastwide Common Stock, Convertible Debentures and Class B Warrants
from a financial point of view; and (h) that the results of due diligence
conducted by Coastwide with respect to Tesoro shall be satisfactory to
Coastwide.
REPRESENTATIONS AND WARRANTIES OF TESORO AND COASTWIDE
In the Merger Agreement, Tesoro and Coastwide have made various
representations and warranties relating to, among other things, their respective
businesses and financial conditions, the accuracy of their various filings with
the Commission and their financial statements contained therein, the status of
various employee benefit plans and environmental matters, the satisfaction of
certain legal requirements for the Merger and the existence of certain
litigation. The representations and warranties of each of the parties to the
Merger Agreement will expire at the Effective Time.
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CONDUCT OF BUSINESS OF COASTWIDE PRIOR TO MERGER
Pursuant to the Merger Agreement, Coastwide agreed that, prior to the
Effective Time, other than as expressly contemplated by the Merger Agreement,
Coastwide and its subsidiaries shall carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and use all reasonable efforts to preserve current business
organizations, services, customers, suppliers and others having business
dealings with them. Specifically, Coastwide agreed that it will not: (a)
declare, set aside or pay any dividends on, or make any other distributions in
respect of, any of its capital stock, or split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities or
purchase, redeem or otherwise acquire any shares of its capital stock or any
rights, warrants or options to acquire any such shares; (b) issue, deliver,
sell, pledge or otherwise encumber any shares of its capital stock or securities
evidencing a right to acquire any such shares, except for issuance of Coastwide
Common Stock upon exercise of outstanding employee stock options, Class B
Warrants, or Convertible Debentures; (c) amend its organizational documents; (d)
acquire or agree to acquire any business or any assets that would be material to
Coastwide, except purchases of supplies and inventory in the ordinary course of
business consistent with past practice; (e) sell or agree to encumber or dispose
of any of its properties or assets, except for sales of inventory in the
ordinary course of business consistent with past practice; (f) incur any
indebtedness or guarantee any indebtedness of another, or make loans, advances
or capital contributions to or investments in any other person; (g) make or
incur any new capital expenditure not now in the capital budget for fiscal 1995,
in excess of such budget, except for capital expenditures not in excess of
$50,000 as to any single item or $100,000 in the aggregate; (h) make any
election relating to taxes or settle or compromise any tax liability; (i) pay,
discharge or satisfy any claims, liabilities or obligations other than the
payment, discharge, or satisfaction in the ordinary course of business
consistent with past practice or in accordance with their terms, of liabilities
reflected, reserved against in, or contemplated by, the most recent consolidated
financial statements or incurred in the ordinary course of business consistent
with past practice; (j) waive the benefits of, or agree to modify in any manner,
any confidentiality, standstill or similar agreement to which Coastwide is a
party; (k) terminate or amend in any material respect any contract or agreement
material to Coastwide; (l) enter into any collective bargaining agreement; (m)
adopt a plan of liquidation or merger, restructuring or similar plan; (n) change
any material accounting principle used by Coastwide; (o) settle or compromise
any litigation other than where the amount paid in settlement does not exceed
$10,000; (p) except for inventory purchased for resale in the ordinary course of
business, enter into any contracts or commitments in excess of $100,000 or for a
term longer than one year; (q) adopt or amend any employee benefit plan, or
increase compensation other than in the ordinary course of business consistent
with past practice; and (r) grant any new or modified severance or termination
arrangement.
CONDUCT OF BUSINESS FOLLOWING MERGER
Prior to the Effective Time, Tesoro intends to merge its wholly-owned
subsidiary, PEDCO, with and into the Merger Sub so that after the Effective
Time, the operations of Coastwide and PEDCO will be combined in the Surviving
Corporation, which will operate as a wholly-owned subsidiary of Tesoro under the
name of "Coastwide Marine Services, Inc." Coastwide Marine Services, Inc. would
provide shore-based services, as well as fuel and lubricant distribution, to the
offshore petroleum industry in the U.S. Gulf of Mexico, with marine terminals in
Texas and Louisiana. After the Merger is consummated, Tesoro will evaluate
whether it will continue to operate Onyx Engineering, Inc. ("Onyx"), Coastwide's
majority-owned subsidiary which provides engineering, design, project management
and other technical services to petrochemical refineries along the Texas Gulf
Coast. If a determination is made that Onyx's operations are not compatible with
Tesoro's future plans, Tesoro will attempt to dispose of its investment in Onyx
after the Merger, although there can be no assurance that it will be able to do
so.
Directors of the Surviving Corporation are expected to be certain executive
officers of Tesoro. The officers of the Surviving Corporation are expected to
include Mr. Wells as President, with the remaining officers being primarily
current officers of Coastwide. Each director and officer of the Surviving
Corporation will hold office in accordance with the Certificate of Incorporation
and Bylaws of the Surviving Corporation until their respective successors are
duly elected or appointed and qualified.
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NO SOLICITATION
The Merger Agreement provides that Coastwide will not, and will not permit
any of its subsidiaries to, or authorize or permit any of its or their officers,
directors, employees, investment bankers, attorneys or other advisors, agents or
representatives to, directly or indirectly, (a) solicit, initiate or encourage
the submission of, or enter into any agreement (other than confidentiality and
standstill agreements as provided below) with respect to any Takeover Proposal
(as defined below), or (b) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, a Takeover Proposal.
Notwithstanding the foregoing, prior to the vote of the Coastwide stockholders
on the Merger Agreement, Coastwide may, to the extent required by the fiduciary
obligations of the Coastwide Board as determined by a majority of its
disinterested directors, in response to an unsolicited request therefor, furnish
information to a third party pursuant to a confidentiality and standstill
agreement. Any violation of the restrictions set forth above by any officer,
director or employee of Coastwide or any of its subsidiaries or any investment
banker, attorney or other advisor, agent or representative of Coastwide, whether
or not such person is purporting to act on behalf of Coastwide or otherwise,
would be deemed to be a material breach of the Merger Agreement by Coastwide. A
"Takeover Proposal" for these purposes means any proposal or offer (other than
by Tesoro or any of its affiliates) (i) for a merger or business combination
involving Coastwide, (ii) to acquire from Coastwide or any of its affiliates in
any manner an equity interest in Coastwide or any material amount of assets of
Coastwide, or (iii) to acquire from stockholders of Coastwide by tender offer or
otherwise more than 10% of the outstanding shares of Coastwide Common Stock.
The Merger Agreement also provides that neither the Coastwide Board nor any
committee thereof shall withdraw or modify in a manner adverse to Tesoro, its
recommendation or approval of the Merger Agreement, or approve or recommend any
Takeover Proposal. If the Coastwide Board receives a Takeover Proposal that, in
the exercise of its fiduciary obligations (as determined in good faith by a
majority of its disinterested directors, based on the advice of outside
counsel), it determines to be a Superior Proposal (as hereinafter defined), the
Coastwide Board may withdraw or modify its approval or recommendation of the
Merger Agreement and may thereafter terminate the Merger Agreement, in each case
after the fifth business day following Tesoro's receipt of written notice
advising Tesoro that the Coastwide Board has received a Takeover Proposal that
it has determined to be a Superior Proposal; provided that Coastwide may so
terminate the Merger Agreement only if the stockholders of Coastwide have not
yet voted upon the Merger and Coastwide shall have paid to Tesoro $400,000 as
liquidated damages and not as a penalty. A "Superior Proposal" shall mean any
bona fide takeover proposal to acquire, directly or indirectly, all of the
outstanding Coastwide Common Stock or all or substantially all of the assets of
Coastwide, and otherwise on terms that a majority of the disinterested members
of the Coastwide Board determines in its good faith reasonable judgment (based
on the written advice of a financial advisor of nationally recognized
reputation) to be more favorable to Coastwide's stockholders than the Merger.
Notwithstanding the foregoing, Coastwide may take and disclose to its
stockholders a position contemplated by Rule 14e-2(a) of the Exchange Act prior
to the sixth business day following Tesoro's receipt of a notice of Superior
Proposal, provided that Coastwide does not withdraw or modify its position with
respect to the Merger or take any action having such effect or approve or
recommend a Takeover Proposal.
The Merger Agreement provides that Tesoro may terminate the Merger
Agreement if the Coastwide Board, or any committee thereof, withdraws or
modifies, or proposes to withdraw or modify, in a manner adverse to Tesoro the
approval or recommendation of the Coastwide Board, or any such committee, of the
Merger Agreement or the Merger or takes any action having such effect, or
approves or recommends, or proposes to approve or recommend, any Takeover
Proposal.
PAYMENT IN THE EVENT OF TERMINATION
In the event that prior to March 1, 1996, the Merger Agreement is
terminated because the Coastwide Board or any committee thereof withdraws or
modifies, or proposes to withdraw or modify, in a manner adverse to Tesoro, the
approval or recommendation of the Coastwide Board or any committee thereof, of
the Merger Agreement or the Merger, or takes any action having such effect, or
approves or recommends, or
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proposes to approve or recommend any Takeover Proposal (as defined above), or
otherwise violates the no-solicitation restrictions set forth in the Merger
Agreement, Coastwide must pay Tesoro $400,000 as liquidated damages and not as a
penalty. In addition, if the stockholders of Coastwide do not approve the Merger
Agreement at the Special Meeting or any adjournment thereof, Coastwide shall pay
Tesoro $400,000 as liquidated damages and not as a penalty.
In addition, the Merger Agreement provides that Tesoro will pay certain
expenses of Coastwide incurred in connection with the preparation of the tax
opinion to be delivered by Coastwide's counsel, and the preparation and filing
of this Proxy Statement/Prospectus and the HSR filing, if the Merger Agreement
is terminated, in effect, for reasons within Tesoro's control.
TERMINATION OR AMENDMENT OF MERGER AGREEMENT
The Merger Agreement provides that it may be terminated at any time prior
to the Effective Time, whether prior to or after approval by the stockholders of
Coastwide: (a) by mutual consent of Tesoro and Coastwide; (b) by either Tesoro
or Coastwide if the Merger has not been effected on or before March 1, 1996,
unless the failure is the result of a breach by the party seeking to terminate;
(c) by either party if there is a material breach or material adverse change
with respect to failure to satisfy conditions precedent; (d) by either party if
any court of competent jurisdiction or any governmental body shall have entered
an order to restrain, enjoin or otherwise prohibit a consummation of the Merger
Agreement or the transactions contemplated in connection therewith and such
order is final and nonappealable; (e) by either Tesoro or Coastwide if the
required approval of the stockholders of Coastwide for the adoption and approval
of the Merger and the Merger Agreement is not received at the Special Meeting or
any adjournment thereof; or (f) by Tesoro or Coastwide as described above under
"Conditions to the Merger."
The Merger Agreement provides that it may be amended or supplemented by an
instrument in writing signed on behalf of each party thereto, provided that
after the Merger Agreement has been approved and adopted by the stockholders of
Coastwide, it may be amended only as may be permitted by applicable provisions
of Delaware Law.
INDEMNIFICATION
The Merger Agreement provides that all rights to indemnification for acts
and omissions occurring prior to the Effective Time existing in favor of current
or former officers or directors of Coastwide and its subsidiaries as provided in
their respective certificates of incorporation and bylaws, will survive the
Merger.
COMPARATIVE RIGHTS OF STOCKHOLDERS OF TESORO AND COASTWIDE
The rights of holders of Coastwide Common Stock are currently governed by
Delaware Law and Coastwide's Certificate of Incorporation and Bylaws, as
amended. Upon consummation of the Merger, holders of Coastwide Common Stock will
become holders of Tesoro Common Stock, and their rights as holders of Tesoro
Common Stock will still be governed by Delaware Law, but will then be governed
by Tesoro's Restated Certificate of Incorporation and Bylaws, as amended. The
following summary, which does not purport to be a complete statement of the
differences between the rights of the stockholders of Tesoro and Coastwide, sets
forth the principal differences between the Tesoro Restated Certificate of
Incorporation and the Coastwide Certificate of Incorporation and the Tesoro
Bylaws and the Coastwide Bylaws. This summary is qualified in its entirety by
reference to the full text of each of such documents and the Delaware Law. For
information as to how such documents may be obtained, see "Available
Information."
SPECIAL VOTE REQUIRED FOR CERTAIN COMBINATIONS
Section 203 of the Delaware Law prohibits a corporation from engaging in a
"business combination" (as hereinafter defined) with an "interested stockholder"
(defined generally to mean a person who, together with his affiliates, owns, or
if the person is an affiliate of the corporation did own within the last three
years, 15% or more of the outstanding voting stock of the corporation) for a
period of three years after the date of the
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transaction in which the person became an interested stockholder, unless (i)
prior to the date of the business combination, the board of directors of the
corporation approved the business combination or the transaction in which the
stockholder became an interested stockholder; (ii) as a result of the business
combination, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced; or (iii)
on or subsequent to the date of the business combination, the board of directors
and the holders of at least 66 2/3% of the outstanding voting stock not owned by
the interested stockholder approve the business combination. The Delaware Law
defines a "business combination" generally as: (i) a merger or consolidation
with the interested stockholder or with any other corporation if the merger or
consolidation is caused by the interested stockholder; (ii) a sale or other
disposition to or with an interested stockholder of assets with an aggregate
market value greater than or equal to 10% or more of either the aggregate market
value of all assets of the corporation or the aggregate market value of all of
the outstanding stock of the corporation; (iii) with certain exceptions, any
transaction resulting in the issuance or transfer by the corporation or any
majority-owned subsidiary of any stock of the corporation or such subsidiary to
the interested stockholder; (iv) any transaction involving the corporation or a
majority-owned subsidiary that has the effect of increasing the proportionate
share of the stock of the corporation or any such subsidiary owned by the
interested stockholder; or (v) any receipt by the interested stockholder of the
benefit of any loans or other financial benefits provided by the corporation or
any majority-owned subsidiary. The Delaware Law permits a corporation to elect
not to be governed by Section 203. Neither Tesoro nor Coastwide have made such
an election.
Tesoro's Restated Certificate of Incorporation contains provisions that
require a higher percentage of stockholders' votes to approve an "interested
combination" (as defined below) than would otherwise be required by Delaware
Law. Pursuant to these provisions, an "involved stockholder" is defined
generally to mean any person, who at the record date for the determination of
stockholders entitled to vote thereon or consent thereto, or at any time within
the preceding twelve months has been, the beneficial owner of 10% or more of the
outstanding shares of stock of Tesoro entitled to vote in elections of
directors. The holders of not less than 80% of the outstanding shares of capital
stock of Tesoro entitled to vote in the election of directors must approve the
"interested combination" with an "involved stockholder." The term "interested
combination" is defined generally to include any of the following transactions
in which an "involved stockholder" is involved: (i) a merger or consolidation,
(ii) sale or other disposition of all or substantially all the assets, or any
part of such assets having a then fair market value equal to or greater than 50%
of the then fair market value of the total assets of Tesoro, and (iii) the
issuance or transfer by Tesoro of any voting securities of Tesoro in exchange or
payment for the securities or assets of the "involved stockholder."
The special stockholder voting requirement is not applicable to an
"interested combination" involving an "involved stockholder" if the Tesoro Board
by resolution shall have approved a memorandum of understanding with such other
person setting forth the principal terms of such transaction and such
transaction is substantially consistent therewith, provided that a majority of
those members of the Tesoro Board voting in favor of such resolution were duly
elected and acting members of the Tesoro Board prior to the time such "involved
stockholder" became the beneficial owner of 10% or more of the outstanding
shares of Tesoro capital stock entitled to vote in elections of directors.
Tesoro's Restated Certificate of Incorporation also contains a provision
that requires the affirmative vote or consent of the holders of not less than
80% of the outstanding shares of capital stock of Tesoro entitled to vote in the
election of directors to adopt any plan of dissolution of Tesoro if the Tesoro
Board shall have not, by resolution, recommended to the stockholders the
adoption of such plan for dissolution of the Company.
Under certain circumstances, Section 203 of the Delaware Law and Tesoro's
Restated Certificate of Incorporation may make it more difficult for a person
who would be an "interested stockholder" or "involved stockholder" to effect
various business combinations with Tesoro. It is anticipated that the provisions
of Section 203 of the Delaware Law and Tesoro's Restated Certificate of
Incorporation may encourage companies interested in acquiring Tesoro to
negotiate in advance with the Tesoro Board. Notwithstanding the foregoing,
Section 203 of the Delaware Law and the Tesoro Restated Certificate of
Incorporation could have the effect of discouraging a third party from making a
tender or exchange offer for Tesoro, even though such an offer might be
beneficial to Tesoro and its stockholders.
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AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
Under the Delaware Law, an amendment to a corporation's certificate of
incorporation requires the affirmative vote of the holders of a majority of the
outstanding stock of the corporation entitled to vote thereon and a majority of
the outstanding stock of each class entitled to vote thereon as a class, unless
the corporation's certificate of incorporation provides for a higher percentage.
Tesoro's Restated Certificate of Incorporation provides that the affirmative
vote of the holders of at least 80% of the outstanding stock entitled to vote in
the election of directors is required for amendments to the article of Tesoro's
Restated Certificate of Incorporation relating to certain business combinations
with "involved stockholders" and the dissolution of Tesoro. However, in the
event the Tesoro Board shall by resolution unanimously recommend to the
stockholders the adoption of any such amendment, a vote of the stockholders
holding a majority of the outstanding shares of stock of Tesoro entitled to vote
in the elections of directors may amend, modify or repeal any or all of such
provisions.
POWER TO CALL SPECIAL MEETINGS OF STOCKHOLDERS
Under the Delaware Law, special meetings of stockholders may be called by
the board of directors or by such person or persons as may be authorized by the
certificate of incorporation or the bylaws. Under Coastwide's Bylaws, special
meetings of stockholders of Coastwide may be called by the Coastwide Board, the
Chairman of the Board, the President or the Secretary upon the request in
writing of two thirds of the issued and outstanding shares of stock of Coastwide
entitled to vote at such meeting. Tesoro's Bylaws provide that special meetings
of stockholders of Tesoro may be called by the Tesoro Board, the Chairman or
Vice Chairman of the Tesoro Board, the President, or any Vice President and must
be called by the Chairman or Vice Chairman of the Tesoro Board, the President,
or any Vice President whenever stockholders holding shares representing a
majority of the votes of the shares of Tesoro then issued and outstanding shall
make application therefor in writing. Tesoro's Bylaws also provide that a
special meeting of stockholders shall be called by any one of the foregoing for
the purpose of electing one additional member to the Tesoro Board in the event
there should occur three tie votes of the Tesoro Board with respect to any
matter or series of matters or series of meetings within a three-consecutive
month period.
NUMBER OF DIRECTORS
The Tesoro Bylaws provide that the number of directors will be fixed from
time to time by resolution of the Tesoro Board but shall not be less than three.
Coastwide's Bylaws provide that the number of directors will be fixed from time
to time by the vote of a majority of the entire Coastwide Board or by action of
the stockholders of Coastwide.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS
The Coastwide Bylaws establish an advance notice procedure for stockholders
to bring business before an annual meeting of stockholders of Coastwide (the
"Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that, at an annual meeting, only
such business may be conducted as has been brought before the meeting by, or at
the direction of, the Coastwide Board or any stockholder who has given timely
written notice to the Secretary of Coastwide of such stockholder's intention to
bring such business before such meeting. Under the Stockholder Notice Procedure,
to be timely, notice of stockholder proposals to be made at an annual meeting
must be received by Coastwide no less than 60 days nor more than 90 days prior
to the scheduled date of the annual meeting (or, if less than 70 days' notice or
prior public disclosure of the date of the meeting is given, the 10th day
following the earlier of (i) the date such notice was mailed or (ii) the date
such public disclosure was made).
Under the Stockholder Notice Procedure, a stockholder's notice must contain
certain information about each matter the stockholder proposes to bring before
the meeting, including, without limitation, a brief description of the proposal
the stockholder desires to bring before the meeting, the name and address of
such stockholder and any other stockholders known by such stockholder to be
supporting such proposal, the class and number of shares of stock of Coastwide
beneficially owned by such stockholder and any other stockholders known by such
stockholder to be supporting such proposal, and any financial interest of such
stockholder in
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the business so proposed. If the chairman of the annual meeting determines that
a stockholder proposal was not brought before the meeting, in accordance with
the Stockholder Notice Procedure, such proposal will not be acted upon at the
annual meeting.
By requiring advance notice of other proposed business, the Stockholder
Notice Procedure provides a more orderly procedure for conducting annual
meetings of stockholders and, to the extent deemed necessary or desirable by the
Coastwide Board, provides the Coastwide Board with an opportunity to inform
stockholders, prior to such meetings, of any business proposed to be conducted
at such meetings, together with any recommendations as to the Coastwide Board's
position regarding action to be taken with respect to such business, so that
stockholders can better decide whether to attend such a meeting or to grant a
proxy regarding the disposition of any such business.
The Tesoro By-laws also establish an advance notice procedure that must be
followed in order for stockholders to bring business before the annual meeting
of stockholders or to nominate a candidate for director. A Tesoro stockholder of
record at the time of giving notice, who is entitled to vote at the meeting, can
bring a proper subject for stockholder action under Delaware Law before the
meeting or make a nomination for director by giving timely notice to the
Secretary of Tesoro. To be timely, the notice must be delivered not less than 60
days or more than 90 days prior to the first anniversary of the preceding year's
annual meeting. If the date of the annual meeting is advanced by more than 30
days or delayed by more than 60 days from the anniversary date, then the
stockholder's notice will be timely if it is delivered not earlier than the
ninetieth day before the annual meeting and not later than the sixtieth day
prior to the meeting or the tenth day following the first date on which public
announcement of the meeting is made. If the number of directors to be elected is
increased and there is no public announcement so specifying at least 70 days
before the first anniversary of the preceding year's annual meeting, a
stockholder's notice will be timely (with respect to nominees for any of the new
positions created), if delivered not later than the tenth business day after the
public announcement of the increase.
Under the Tesoro By-laws, the stockholder's notice must set forth, as to
any nominee for director, the information about the nominee that would be
required by the federal proxy rules (including consent of the person so
nominated), and as to any business proposed to be brought before the meeting, a
brief description of the business, the reasons for conducting the business and
any material interest in the business of the stockholder or beneficial owner.
The notice must also identify the record and beneficial owner of the stock and
the shares that are owned by such persons.
The business conducted at special meetings of Tesoro stockholders is
limited to those matters described in the notice of the meeting. If an election
of directors is to be held at the special meeting, stockholders may make
nominations if the notice complies with the above and is delivered to the
Secretary not earlier than the ninetieth day prior to the special meeting and
not later than the close of business on the later of the sixtieth day prior to
the special meeting or the tenth day following the public announcement of the
meeting and of the proposed nominees.
CONSENT OF STOCKHOLDERS IN LIEU OF MEETING
The Delaware Law provides that any action that is required to be, or may
be, taken at any annual or special meeting of stockholders can be taken without
a meeting, without prior notice and without a vote if consents in writing are
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary and delivered to the company. Such
consents are effective to take action only if, within 60 days of the earliest
dated consent, consents signed by a sufficient number of holders to take action
are delivered to the company.
Tesoro's By-laws provide that in order to enable the company to determine
the stockholders entitled to consent to corporate action, the Board may fix a
record date, which cannot precede the date of the Tesoro Board's action or be
more than ten days after such date. Any stockholder of record that wants to seek
written consents must ask the Tesoro Board to fix a record date, which the
Tesoro Board must do within ten days of such request. Within three business days
after receipt of the earliest dated consent delivered to the company, Tesoro
must retain independent inspectors of elections for the purpose of reviewing the
validity of consents
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and any revocations thereof. The inspectors are to provide a preliminary report
as to the number of shares represented by valid and unrevoked consents, the
number represented by invalid consents and invalid revocations and the number
entitled to submit consents as of the record date. After an opportunity for
Tesoro and the stockholders to challenge the findings of the inspectors, the
inspectors are to issue a final report.
PREFERRED STOCK
Pursuant to Tesoro's Restated Certificate of Incorporation, the Tesoro
Board is authorized, subject to the limitations prescribed by law, to provide
for the issuance of shares of Tesoro Preferred Stock in one or more series, to
establish the number of shares of each such series, and to fix the designations,
powers, preferences and rights of the shares of each such series, and any
qualifications, limitations or restrictions thereof. Coastwide's Certificate of
Incorporation contains substantially similar provisions relating to Coastwide
Preferred Stock.
Tesoro believes that the ability of the Tesoro Board to issue one or more
series of Tesoro Preferred Stock provides Tesoro with flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs that may arise. The authorized shares of Tesoro Preferred Stock, as well
as shares of Tesoro Common Stock, are available for issuance without further
action by Tesoro's stockholders, unless such action is required by applicable
law or the rules of any stock exchange or automated quotations system on which
Tesoro's securities may be listed or traded. The NYSE currently requires
stockholder approval as a prerequisite to listing shares in several instances,
including where the present or potential issuance of shares could result in an
increase of at least 20% in the number of shares of common stock or in the
amount of voting securities outstanding. If the approval of Tesoro's
stockholders is not required for the issuance of shares of Tesoro Preferred
Stock or Tesoro Common Stock, the Tesoro Board may not seek stockholder
approval.
Although the Tesoro Board has no present intention of doing so, it could
issue a series of Tesoro Preferred Stock that could, depending on the terms of
such series, impede the completion of a merger, tender offer or other takeover
attempt. The Tesoro Board will make any determination to issue such shares based
on its judgement as to the best interests of Tesoro and its stockholders. The
Tesoro Board, in so acting, could issue Tesoro Preferred Stock having terms that
discourage an acquisition attempt through which an acquirer may be able to
change the composition of the Tesoro Board, including a tender offer or other
transaction that some, or a majority, of Tesoro's stockholders might believe to
be in their best interests or in which stockholders might receive a premium for
their stock over the then current market price of such stock.
STOCKHOLDER RIGHTS PLAN
Tesoro has adopted a stockholder rights plan that is designed to protect
Tesoro stockholders from coercive or unfair takeover tactics. To implement the
plan, in November 1985, the Tesoro Board declared a distribution of one
Preferred Stock Purchase Right ("Right") for each outstanding share of Tesoro
Common Stock and authorized the issuance of one Right for each share of Tesoro
Common Stock issued thereafter, but prior to the triggering of the plan. One
Right will be issued with respect to each share of Tesoro Common Stock issued
pursuant to the Merger. Each Right entitles a registered holder to purchase,
upon the occurrence of certain specified events, one one-hundredth of a share of
Participating Preferred Stock at an initial exercise price of $35 for each one
one-hundredth of a share. The description and terms of the Rights are set forth
in the Rights Agreement. In general, pursuant to the Rights Agreement, upon the
occurrence of specified triggering events, such as the acquisition by any person
of Tesoro's capital stock having at least 20% of the general voting power
without approval of the Tesoro Board, Tesoro's stockholders (except those
stockholders whose Rights have been voided under the Rights Agreement as a
result of a triggering event) shall have the right to receive, in lieu of
Participating Preferred Stock, that amount of Tesoro Common Stock (or in certain
circumstances, cash, property or other securities of Tesoro or a reduction in
the purchase price) having a value equal to two times the exercise price of the
Rights. The Rights Agreement further provides that if Tesoro is acquired in a
merger or other business combination which is not approved by the Tesoro Board,
Tesoro stockholders (except those stockholders whose Rights have been voided
under the Rights Agreement as a result of a triggering event) shall have the
right to receive common stock of the acquiring company having a value equal to
two times the exercise price of the Rights. Under certain circumstances, Tesoro
may redeem the Rights, which
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would have otherwise expired on December 16, 1995. The Tesoro Board recently
extended the expiration date of the Rights to July 24, 1996. The effect of the
Rights Agreement may be to render more difficult a change in control of Tesoro.
Coastwide presently has no stockholder rights plan.
LIMITATION ON LIABILITY OF DIRECTORS
The Delaware Law permits a corporation to include a provision in its
certificate of incorporation eliminating or limiting the personal liability of a
director to the corporation or its stockholders for damages for breach of the
director's fiduciary duty, subject to certain limitations. Each of Tesoro's
Restated Certificate of Incorporation and Coastwide's Certificate of
Incorporation includes such a provision, as set forth below, to the maximum
extent permitted by law. Each of the Tesoro Restated Certificate of
Incorporation and Coastwide Certificate of Incorporation provides that a
director will not be personally liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware Law, which concerns unlawful payment of dividends,
stock purchases or redemptions or (iv) for any transaction from which the
director derived an improper personal benefit.
Although these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, they have no effect on the availability of equitable remedies
such as an injunction or recision based on a director's breach of his or her
duty of care. The provisions described above do not apply to officers of the
corporation except if they are acting in their capacity as director.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware Law permits a corporation to indemnify officers, directors,
employees and agents for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interest of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The Delaware Law provides that a
corporation may advance expenses of defense (upon receipt of a written
undertaking to reimburse the corporation if indemnification is not appropriate)
and must reimburse a successful defendant for expenses, including attorney's
fees, actually and reasonably incurred, and permits a corporation to purchase
and maintain liability insurance for its directors and officers. The Delaware
Law provides that indemnification may not be made for any claim, issue or matter
as to which a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the corporation,
unless and only to the extent a court determines that the person is entitled to
indemnity for such expenses as the court deems proper.
The Tesoro Bylaws provide that each person who is made, or threatened to be
made, a party to an action, suit or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that he, his testator or
intestate is or was a director, officer or employee of Tesoro or serves or
served any other enterprise at the request of Tesoro, will be indemnified by
Tesoro to the full extent authorized and permitted by the laws of the State of
Delaware. The Coastwide Certificate of Incorporation and Bylaws contain
substantially similar provisions relating to indemnification.
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INFORMATION ABOUT TESORO
Tesoro is a natural resource company engaged in petroleum refining and
marketing, natural gas exploration and production, and wholesale marketing of
fuel and lubricants. Tesoro was incorporated in Delaware in 1968 (a successor by
merger to a California corporation incorporated in 1939).
Tesoro's Refining and Marketing segment's operations in Alaska include: a
refinery that produces gasoline, jet fuel, diesel fuel, heavy distillates and
residual products; a retail marketing system that sells gasoline through the
company's chain of licensed 7-Eleven stores; a distribution system that
wholesales gasoline to both branded and unbranded dealers and jobbers; and a
wholesale marketing operation that supplies a substantial portion of the
commercial jet fuel and diesel fuel sold in Alaska. In addition, this segment's
marketing operations provide supply, storage and distribution services in
California and the Pacific Northwest and has recently commenced selling gasoline
on a wholesale basis in the Russian Far East and to Tesoro-branded service
stations in the Pacific Northwest.
Tesoro's Exploration and Production segment is primarily focused in the Bob
West Field in South Texas, which was discovered by Tesoro in 1990. During the
third quarter of 1995, Tesoro sold certain interests in its producing and
non-producing properties in the Bob West Field for an adjusted price of
approximately $68 million, resulting in an after-tax gain of approximately $33
million. The interests sold represented approximately 40% of Tesoro's total
proved domestic natural gas reserves. A portion of the consideration received by
Tesoro for the sale of these interests, which is subject to post-closing
adjustments, was used to redeem $34.6 million principal amount of Tesoro's
outstanding 12 3/4% Subordinated Debentures. Tesoro expects that the remainder
of the consideration received will be used to reduce borrowings under Tesoro's
Revolving Credit Facility and improve Tesoro's liquidity. Tesoro does not expect
any final post-closing adjustments to be material. Tesoro also has operations in
southern Bolivia that include significant natural gas reserves, the majority of
which are shut-in awaiting access to gas-consuming markets.
Tesoro's Oil Field Supply and Distribution segment sells lubricants, fuels
and specialty petroleum products, primarily to offshore drilling contractors. In
the third quarter of 1995, Tesoro consolidated certain operations in this
segment by exiting the land-based portion of its petroleum product distribution
business in Texas. Tesoro continues to operate shore-based terminals on the
Texas and Louisiana Gulf Coast. See "Terms of the Merger -- Conduct of Business
Following Merger."
During 1994, Tesoro consummated a recapitalization plan and equity offering
whereby a major portion of its 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 Tesoro to enter into a $125 million Corporate Revolving Credit Facility
and to obtain $15 million financing for a major addition to the Refinery.
Information concerning the business of Tesoro and the results of its
operations for the three most recent fiscal years is contained in Tesoro's
Annual Report on Form 10-K for the year ended December 31, 1994, with updates in
quarterly reports on Form 10-Q for the quarterly periods ended March 31, June 30
and September 30, 1995, as well as Current Reports on Form 8-K dated October 11,
1995 and December 15, 1995, all of which are incorporated by reference to this
Proxy Statement/Prospectus.
46
<PAGE> 55
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
Certain information as to each current duly elected director of Tesoro is
set forth in the table below and in the following paragraphs. Certain of the
information appearing in the table and the notes thereto has been furnished to
Tesoro by the respective directors.
<TABLE>
<CAPTION>
SERVED
AS
DIRECTOR
OF
AGE TESORO
AT OR
DECEMBER PREDECESSOR
31, COMPANIES OTHER POSITIONS AND OFFICES
NAME(1) 1995 FROM WITH TESORO
- ---------------------------------- --- ---- ------------------------------
<S> <C> <C> <C>
Robert J. Caverly................. 77 1992 Chairman of the Board of
Directors(2)(3)(4)
Peter M. Detwiler................. 67 1967 (2)(3)(4)
Steven H. Grapstein............... 37 1992 (5)
Raymond K. Mason, Sr. ............ 68 1983 (4)
John J. McKetta, Jr. ............. 80 1980 (3)(5)
Bruce A. Smith.................... 52 1995 President and Chief Executive
Officer(2)
Murray L. Weidenbaum.............. 68 1992 (2)(3)(5)
</TABLE>
- ---------------
(1) Michael D. Burke, who had been a director since July 1992, resigned as a
director of Tesoro on January 12, 1996.
(2) Member of the Executive Committee (Mr. Caverly, Chairman).
(3) Member of the Compensation Committee (Mr. Detwiler, Chairman).
(4) Member of the Nominating Committee (Mr. Caverly, Chairman).
(5) Member of the Audit Committee (Dr. Weidenbaum, Chairman).
Robert J. Caverly was elected Chairman of the Board of Directors in May
1995. Mr. Caverly was Vice Chairman of the Board of Directors from February 1995
until May 1995. Mr. Caverly is a consultant and investor. For the last five
years he has performed interim management assignments for various real estate
development projects and has been a consultant on real estate matters to
financial institutions and law firms. Mr. Caverly was a director of Contel
Corporation from 1975 to March 1991. From 1972 through 1979, Mr. Caverly served
in the positions of Executive Vice President of Operations, director, and member
of the Executive Committee of Occidental Petroleum Corporation.
Peter M. Detwiler is presently President and Chief Executive Officer of
Pinoak Digital Corporation, a Federal Communication Commission licensed marine
high speed digital communications company. Mr. Detwiler is Chairman of the Board
of Detwiler & Company, Inc., a consulting company. He is the former Vice
Chairman of the Board of Directors of E.F. Hutton & Company Inc. and the E.F.
Hutton Group, New York, New York, a major financial firm, with which he had been
associated since 1961.
Steven H. Grapstein has been a Vice President of Kuo Investment Company and
subsidiaries, an international investment group, since September 1985. He is a
director of several of the Kuo companies. Mr. Grapstein has been a Vice
President of Oakville N.V. since 1989. Mr. Grapstein is also a director of
Baldwin Plc., which is an entertainment and leisure-related entity. See
"Information About Tesoro -- Principal Stockholders" for information regarding
the securities of the Company owned by Oakville N.V.
Raymond K. Mason, Sr., has been Chairman of the Board of Directors of
American Banks of Florida, Inc., since 1978. Mr. Mason has served as Chairman of
the Board of Directors of American Security Life Assurance Company of North
Carolina ("ASLNC") and its parent, American Security Life Assurance Company of
Florida ("ASLF"). During December 1990, ASLNC and ASLF voluntarily consented to
administrative rehabilitation. Pursuant to administrative rehabilitation, Mr.
Mason's authority as Chairman of the Board of Directors of ASLNC and ASLF was
automatically suspended. Both of these companies are
47
<PAGE> 56
presently in liquidation. In connection with the liquidation of ASLNC, Mr. Mason
was named as a co-defendant in a lawsuit alleging violations of federal and RICO
statutes, common law fraud and unfair and deceptive trade practices. The
parties, without admitting liability, have entered into a settlement agreement
which provides for cash payments to the plaintiffs, for the purchase of certain
assets owned by the estate of ASLNC, for dismissal of the litigation with
prejudice and for the delivery of general releases.
John J. McKetta, Jr., is Professor Emeritus of Chemical Engineering at The
University of Texas at Austin. Dr. McKetta has been associated with The
University of Texas since 1946.
Bruce A. Smith was elected President and Chief Executive Officer effective
September 29, 1995. Mr. Smith was Executive Vice President, Chief Financial
Officer and Chief Operating Officer of Tesoro from July 1995 to September 1995;
Executive Vice President responsible for Exploration and Production Operations
and Chief Financial Officer of Tesoro from September 1993 to July 1995; and Vice
President and Chief Financial Officer of Tesoro from September 1992 to September
1993. Mr. Smith was Vice President and Treasurer of Valero Energy Corporation
from 1986 to September 1992.
Murray L. Weidenbaum is an economist and educator and is the Mallinckrodt
Distinguished University Professor at Washington University in St. Louis,
Missouri, where he also serves as Chairman of the University Center for the
Study of American Business. He has been a faculty member at Washington
University since 1964. Dr. Weidenbaum is a director of May Department Stores
Company and Harbour Group, Ltd.
No director of Tesoro has a family relationship with any other director or
executive officer of Tesoro.
The following is a list of Tesoro's executive officers, their ages and
their positions with Tesoro at January 12, 1996.
<TABLE>
<CAPTION>
POSITION HELD
NAME(1) AGE POSITION SINCE
- --------------------------------- --- ----------------------------------- ---------------
<S> <C> <C> <C>
Bruce A. Smith................... 52 President and Chief Executive September 1995
Officer
James C. Reed, Jr................ 50 Executive Vice President, General September 1995
Counsel and Secretary
Gaylon H. Simmons................ 55 Executive Vice President September 1993
William T. Van Kleef............. 44 Senior Vice President and Chief September 1995
Financial Officer
Don E. Beere..................... 55 Vice President, Controller February 1992
Thomas E. Reardon................ 49 Vice President, Human Resources and September 1995
Environmental
Gregory A. Wright................ 46 Vice President, Corporate September 1995
Communications and Treasurer
</TABLE>
- ---------------
(1) Michael D. Burke, who had been President and Chief Executive Officer of
Tesoro since July 1992, terminated his employment effective September 29,
1995.
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 Tesoro Board at its first meeting
following the Annual Meeting of Stockholders, each to hold office until the
corresponding meeting of the Tesoro Board in the next year or until a successor
shall have been elected or shall have qualified.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the beneficial ownership of Tesoro's Common Stock
reported to Tesoro as of December 31, 1995, including shares as to which a right
to acquire ownership exists (for example, through the exercise of stock options
or stock awards) within the meaning of Rule 13d-3(d)(1) under the Exchange Act,
for each director, the Chief Executive Officer, the other four most highly
compensated officers of Tesoro during 1995 and, as a group, such persons and
other executive officers. Unless otherwise indicated, each person
48
<PAGE> 57
or member of the group listed has sole voting and investment power with respect
to the shares of Tesoro Common Stock listed.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
TESORO
COMMON STOCK
ON DECEMBER 31, 1995(1)
-------------------------
PERCENT
OF
SHARES CLASS
----------- ------
<S> <C> <C>
Robert J. Caverly.............................................. 9,000(2) 0.036
Peter M. Detwiler.............................................. 14,715(2) 0.059
Steven H. Grapstein............................................ 1,528,900(2)(3) 6.168
Raymond K. Mason, Sr. ......................................... 23,428(2) 0.095
John J. McKetta, Jr. .......................................... 7,565(2) 0.031
Bruce A. Smith................................................. 94,018(4) 0.378
Murray L. Weidenbaum........................................... 7,000(2) 0.028
Gaylon H. Simmons.............................................. 128,540(5) 0.516
James C. Reed, Jr. ............................................ 30,980(6) 0.125
William T. Van Kleef........................................... 22,645(7) 0.091
Thomas E. Reardon.............................................. 14,163(8) 0.057
All directors and executive officers as a group (14
individuals)................................................. 1,934,196(9) 7.843
</TABLE>
- ---------------
(1) The shares shown do not include 430,367 shares of Tesoro's Common Stock
beneficially owned by Mr. Burke, who resigned as a director on January 12,
1996.
(2) The shares shown for Mr. Caverly, Mr. Grapstein, Mr. Detwiler, Mr. Mason,
Dr. McKetta and Dr. Weidenbaum include 6,000 shares each which such
directors had the right to acquire through the exercise of stock options on
December 31, 1995, or within 60 days thereafter.
(3) The shares shown include 1,522,900 shares of Tesoro's Common Stock owned by
Oakville N.V. Mr. Grapstein is an officer of Oakville N.V. As an officer,
Mr. Grapstein shares voting and investment power with respect to such
shares.
(4) The shares shown include 1,304 shares credited to Mr. Smith's account under
Tesoro's Thrift Plan and 80,866 shares which Mr. Smith had the right to
acquire through the exercise of stock options on December 31, 1995, or
within 60 days thereafter.
(5) The shares shown include 114,200 shares which Mr. Simmons had the right to
acquire through the exercise of stock options on December 31, 1995, or
within 60 days thereafter.
(6) The shares shown include 733 and 88 shares credited to Mr. Reed's account
under Tesoro's Thrift Plan and Employee Stock Ownership Plan, respectively,
and 23,200 shares which Mr. Reed had the right to acquire through the
exercise of stock options or stock awards on December 31, 1995, or within
60 days thereafter.
(7) The shares shown include 728 shares credited to Mr. Van Kleef's account
under Tesoro's Thrift Plan and 14,660 shares which Mr. Van Kleef had the
right to acquire through the exercise of stock options or stock awards on
December 31, 1995, or within 60 days thereafter.
(8) The shares shown include 88 shares credited to Mr. Reardon's account under
Tesoro's Employee Stock Ownership Plan and 12,741 shares which Mr. Reardon
had the right to acquire through the exercise of stock options on December
31, 1995, or within 60 days thereafter.
(9) The shares shown include 3,912 shares and 352 shares credited to the
accounts of executive officers and directors under Tesoro's Thrift Plan and
Employee Stock Ownership Plan, respectively, and 311,384 shares which
directors and executive officers had the right to acquire through the
exercise of stock options or stock awards on December 31, 1995, or within
60 days thereafter. The shares shown also include 3,000 shares acquired in
the name of an executive officer's mother with respect to which such
executive officer has voting and investment power.
49
<PAGE> 58
Information concerning executive compensation and certain relationships and
related transactions is incorporated by reference to "Part III" of Tesoro's
Annual Report on Form 10-K for the year ended December 31, 1994. (Part III of
such report is incorporated by reference from Tesoro's proxy statement for the
annual meeting of stockholders held on May 4, 1995), as well as Tesoro's Form
10-Q for the quarterly period ended June 30, 1995. See "Incorporation of Certain
Documents By Reference."
PRINCIPAL STOCKHOLDERS
The following table sets forth information, to the best of Tesoro's
knowledge, based on filings made with the Commission as to each person or group
who on December 31, 1995, beneficially owned more than 5 percent of the
outstanding shares of Tesoro Common Stock. Tesoro has sued Ardsley Advisory
Partners, claiming that it is a member of the Flannery Group (the Committee for
New Management of Tesoro Petroleum Company) and that the documents filed by the
Flannery Group and by Ardsley with the Commission do not comply with the
requirements of the law and are false and misleading. See "Risk Factors and
Recent Developments -- Risk Factors with Respect to Tesoro."
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
---------------------
NUMBER PERCENT
NAME AND ADDRESS OF BENEFICIAL OF OF
TITLE OF CLASS OWNER SHARES CLASS
- --------------------------------- ---------------------------------- -------- ------
<S> <C> <C> <C>
Common Stock..................... Ardsley Advisory Partners(1) 2,985,000 12.046
646 Steamboat Road
Greenwich, CT 06830
Common Stock..................... Oakville N.V.(2) 1,522,900 6.146
c/o Kuo Investment Company
33rd Floor
767 Third Avenue
New York, NY 10017
Common Stock..................... Committee for New Management 1,467,808 5.923
of Tesoro Petroleum Company(3)
c/o Whelan Management Corp.
8 Holley Street
Lakeville, CT 06039
</TABLE>
- ---------------
(1) According to a Schedule 13G filed with the Commission, Ardsley Advisory
Partners ("Ardsley") is a general partnership organized under the laws of
the state of Connecticut and an investment adviser registered under Section
203 of the Investment Advisers Act of 1940, as amended (the "Act"). In its
Schedule 13G, Ardsley claims that, with respect to the shares of Tesoro
Common Stock held by Ardsley, it acts as investment advisor for the
discretionary accounts of certain clients, including (i) investment
partnerships for which Ardsley serves as the management company and (ii) a
general partnership comprised of the same partners as Ardsley serves as
general partner. By reason of the provisions of Rule 13d-3 under the Act,
Ardsley is deemed to own beneficially the shares owned by the managed
accounts. Each client for whose account Ardsley had purchased Tesoro Common
Stock has the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, such shares purchased for
his account. No such client has any of the foregoing rights with respect to
more than 5 percent of the Tesoro Common Stock. According to its Schedule
13G, Ardsley states that there is no agreement or understanding among such
persons to act together for the purpose of acquiring, holding, voting or
disposing of any such securities. Philip J. Hempleman, a managing partner
of Ardsley, is a citizen of the United States. By virtue of Mr. Hempleman's
position as managing partner of Ardsley, he may be deemed to have the
shared power to vote, or direct the voting of, and the shared power to
dispose, or direct the disposition of, shares of the Tesoro Common Stock
held by the discretionary accounts managed by Ardsley, and therefore, Mr.
Hempleman may be deemed to be beneficial owner of such shares.
50
<PAGE> 59
According to the Schedule 13D filed by the Flannery Group, on November 16,
1995, Whelan Management Corp., a member of the Flannery Group, purchased
from Ardsley options to acquire up to 400,000 shares of Tesoro Common Stock
from Ardsley. The above table does not reflect that transaction or any
other changes to Ardsley's beneficial ownership that may have occurred
since the filing of the Schedule 13G by Ardsley in early 1995.
(2) According to Schedule 13Ds on file with the Commission, Oakville N.V., a
Netherlands Antilles corporation ("Oakville"), is a wholly owned subsidiary
of Kuo Investment Limited, a Cayman Islands corporation ("Kuo"). According
to information provided to Tesoro by Oakville, the following persons are
Oakville's directors and executive officers: (a) Peter Yun Siak Fu,
President and Director of Oakville; Director and officer of Kuo; (b) Peter
Chong Cheng Fu, Director and Secretary of Oakville; Director and officer of
Kuo; (c) Ong Beng Seng, Vice President and Director of Oakville; Director
and officer of Kuo; (d) David Song Long Ban, Treasurer and Director of
Oakville; Director and officer of Kuo; (e) Steven H. Grapstein, Vice
President and Director of Oakville; and (f) Holland Intertrust (Curacao)
N.V., a Netherlands Antilles corporation, a Director of Oakville. Oakville
reports that it has sole voting and dispositive power over its voting
securities.
(3) According to the Schedule 13D filed with the Commission on December 26,
1995 by the Flannery Group, Messrs. Flannery, Baker, Kaufman, Stone and
Washburn and Whelan Management Corp., the Kaufman Children's Trust, the
Robert S. and Suzanne P. Washburn Revocable Trust and Robert S. Washburn,
Trustee for the Robert S. Washburn Money Purchase, Pension and Profit
Sharing Keogh Plan Trusts have formed a group to seek to acquire control of
Tesoro. According to the Schedule 13D, as of the date of the filing, Whelan
Management Corp. owned 140,815 shares of the Tesoro Common Stock and held
options to acquire 200,000 additional shares; Mr. Flannery held through a
trust 18,357 shares of Tesoro Common Stock and held options to acquire
8,000 shares; Mr. Baker owned 10,000 shares of Tesoro Common Stock and held
options to acquire 100,000 shares; Mr. Kaufman owned 581,500 shares of
Tesoro Common Stock either directly or through an individual retirement
account; the Kaufman Children's Trust owned 20,000 shares of Tesoro Common
Stock; Mr. Stone owned 46,000 shares of Tesoro Common Stock and held
options to acquire 110,000 shares; the Robert S. and Suzanne P. Washburn
Revocable Trust owned 39,545 shares of Tesoro Common Stock and the Robert
S. Washburn Money Purchase, Pension and Profit Sharing Keogh Plan Trusts
owned 193,791 shares of Tesoro Common Stock. In addition, Mr. Flannery's
wife owned 2,500 shares of Tesoro Common Stock as to which he disclaimed
beneficial ownership and Mr. Kaufman's wife owned 10,500 shares as to which
Mr. Kaufman disclaimed beneficial ownership. Mr. Flannery has sole power to
vote and direct the disposition of the shares held in the trust for his
benefit, Mr. Kaufman has the sole power to vote and direct the disposition
of the shares held by the Kaufman Children's Trust, Mr. Washburn shares the
power to vote and direct the disposition of the shares held by the Robert
S. and Suzanne P. Washburn Revocable Trust with Suzanne P. Washburn, and
Mr. Washburn has the sole power to vote and direct the disposition of the
shares held by the Robert S. Washburn Money Purchase, Pension and Profit
Sharing Keogh Plan Trusts.
51
<PAGE> 60
INFORMATION ABOUT COASTWIDE
Coastwide is the parent of two operating subsidiaries, Coastwide Marine
Services, Inc. ("CMSI") (formerly Grasso Marine Service Centers, Inc.) and Onyx
(80% owned). Coastwide's principal business is providing services to the
offshore oil and gas exploitation industry in the U.S. Gulf of Mexico. Onyx
provides engineering, design, project management and other technical services to
petrochemical refineries along the Texas Gulf Coast. Prior to October 31, 1993,
Coastwide was a wholly-owned subsidiary of Grasso. In November 1993, 100% of the
outstanding common stock of Coastwide was spun off to the stockholders of
Grasso. The following information was prepared assuming that the spinoff had
been effected for all periods presented.
COASTWIDE MARINE SERVICES, INC.
CMSI sells products, including diesel fuel, lubricants, chemicals and oil
field supplies and provides a wide range of logistical support services to the
offshore oil and gas exploitation industry from deep water marine terminals
("shore bases") located on the Texas Gulf Coast at Sabine Pass, Galveston,
Freeport, Port O'Connor and Harbor Island. CMSI also operates in the eastern
U.S. Gulf of Mexico through its facility in Cameron, Louisiana. CMSI's shore
bases are bulkheaded and dredged to provide easy access to vessels receiving
products for delivery to customers. CMSI's products are delivered offshore
aboard vessels owned or chartered by CMSI's customers.
Diesel fuel and lubricants are used in the operation of offshore drilling
rigs, offshore production and transmission platforms, and various ships and
equipment engaged in seismic surveys and in the continuing service of rigs,
platforms, and pipelines. Other products, including glycol, methanol and other
chemicals used primarily to operate and maintain oil and gas production
equipment are also sold from CMSI's shore bases.
Since 1986, CMSI has obtained its diesel fuel inventory from Fina Oil and
Chemical Company ("Fina") on a consignment basis. CMSI pays Fina the quoted
market price for diesel fuel quantities disposed of through sales to third
parties or internal usage. In 1994, 1993 and 1992, diesel fuel sales revenue was
$22,379,700, $20,151,800 and $19,156,200, respectively. The variances in diesel
fuel sales revenue reflect both changes in offshore drilling activity and in
diesel fuel prices.
Logistical support services provided by CMSI include storing and handling
tubular goods, loading and unloading bulk materials, providing facilities from
which major and independent oil companies can communicate with and control
offshore operations, selling potable water and leasing dockside facilities to
companies which provide complementary products and services such as drilling
fluids and cementing services. CMSI is compensated for its logistical support
services through a variety of fee, commission, lease, rent and other
arrangements. In 1994, 1993 and 1992, total service fee revenue was $8,005,700,
$5,954,800 and $3,808,100, respectively.
CMSI's shore bases are used as warehousing and delivery points for drilling
fluid ("mud") products. CMSI provides warehousing, inventory control and
delivery services to M-I Drilling Fluids LLC, Baker Hughes Inteq, Baroid
Drilling Fluids, Chemrich and other mud companies. CMSI earns fees which are
based upon a percentage of the sales value of the drilling fluid products
delivered from its shore bases.
Markets and Competition. The services and products offered by CMSI are
marketed directly to customers by CMSI employees. Demand for such services and
products is closely related to the level of oil and gas exploration, development
and production in the Western Gulf of Mexico along the Texas coast, and to a
lesser extent the Central Gulf of Mexico. A decline in the prices of crude oil
and natural gas that occurred during 1991 caused a significant decline in
activities in the Gulf of Mexico that continued through 1992. Activity increased
during 1993 and 1994 as product prices improved from their 1992 lows.
Various factors, such as U.S tax and energy policies, world economic
events, budgets of exploration companies, availability of additional offshore
lease acreage, expiration dates of existing offshore leases, price and
availability of competing fuels and demand for oil and natural gas cause
exploration and development activity to fluctuate and directly impact the
revenues of CMSI. Management believes that the principal competitive factors
affecting CMSI's market share are location of its facilities, availability of
logistical support
52
<PAGE> 61
services, experience of personnel and dependability of service. The market for
CMSI's products and services, especially diesel fuel, is price sensitive, and
CMSI encounters price competition from time to time. CMSI competes with several
independent operations, and in Harbor Island and Port O'Connor, Texas and
Cameron, Louisiana with one or more major mud companies who maintain their own
marine terminals.
Customers. CMSI's customers are primarily oil and gas exploration and
production companies, seismic companies, drilling mud companies and offshore
construction companies operating in the U.S. Gulf of Mexico.
Operating Risks. CMSI's operations are subject to various hazards,
including damage to property and injury to persons caused by fire, vehicular
accidents, hurricanes and other acts of nature. CMSI maintains general
liability, automobile and physical damage insurance which management believes to
be adequate.
Environmental Regulation. Regulations relating to the protection of the
environment have not had a material effect on CMSI's capital expenditures,
earnings or competitive position. To date CMSI has not made any material capital
expenditures for environmental control facilities and does not currently
anticipate making any such material capital expenditures in fiscal 1996.
Employees. As of December 31, 1995, CMSI employed approximately 130 people,
of which 5 were executive and supervisory personnel and the remainder were
production, service and administrative personnel. None of CMSI's employees
belong to a union or are covered by a collective bargaining agreement. Coastwide
believes its relations with employees are satisfactory.
ONYX ENGINEERING, INC.
Onyx is based in Corpus Christi, Texas and was formed in July 1992 to
provide engineering, design, project management and other technical services to
the petrochemical and refinery industries along the Texas Gulf Coast. At that
time, these refineries were entering an expansion period during which many
refineries initiated projects involving process modifications, upgrades and
other related technical projects. Onyx was created to service this expanding
market.
As of December 31, 1995, Onyx employed approximately 130 people, of which 7
were executive and administrative, 9 were clerical and the rest were technical
with expertise in various disciplines. None of the Onyx employees belong to a
union or are covered by a collective bargaining agreement. Coastwide management
believes its employee relations are satisfactory. See "Terms of the
Merger -- Conduct of Business Following Merger."
53
<PAGE> 62
PROPERTIES
<TABLE>
<CAPTION>
LOCATION TYPE OF FACILITY APPROXIMATE SIZE LEASED/OWNED
-------- ---------------- ---------------- ------------
<S> <C> <C> <C>
SHORE BASES:
Galveston, TX................. Dock Facilities 52 acres Owned
Offices/Warehouse 40,500 sq. ft. Owned
Fuel Storage Tanks 85,000 bbls. Owned
Galveston, TX................. Dock Facilities 12 acres Leased
Offices/Warehouses 5,000 sq. ft. Leased
Galveston, TX................. Dock Facilities 8 acres Leased
Offices/Warehouses 25,000 sq. ft. Leased
Freeport, TX.................. Dock Facilities 8 acres Owned
Dock Facilities 4 acres Leased
Offices/Warehouses 10,000 sq. ft. Owned
Offices/Warehouses 1,250 sq. ft. Leased
Fuel Storage Tanks 4,500 bbls. Owned
Freeport, TX.................. Dock Facilities 5 acres Leased
Offices/Warehouses 5,000 sq. ft. Leased
Sabine Pass, TX............... Dock Facilities 15 acres Leased
Dock Facilities 2 acres Owned
Offices/Warehouses 14,000 sq. ft. Owned
Fuel Storage Tanks 46,000 bbls. Owned
Port O'Connor, TX............. Dock Facilities 23 acres Leased
Offices/Warehouses 7,800 sq. ft. Leased
Fuel Storage Tanks 5,000 bbls. Leased
Port O'Connor, TX............. Dock Facilities 5 acres Leased
Offices/Warehouses 5,000 sq. ft. Leased
Harbor Island, TX............. Dock Facilities 26 acres Owned
Dock Facilities 7 acres Leased
Offices/Warehouses 26,000 sq. ft. Owned
Fuel Storage Tanks 8,000 bbls. Leased
Cameron, LA................... Dock Facilities 28 acres Leased
Offices/Warehouses 39,000 sq. ft. Owned
Fuel Storage Tanks 22,000 bbls. Owned
OTHER:
Houston, TX................... Executive Office 8,000 sq. ft. Leased
Lafayette, LA................. Sales Office 200 sq. ft. Leased
Corpus Christi, TX............ Onyx Office 17,000 sq. ft. Leased
Belle Chase, LA............... Distribution Center 3,000 sq. ft. Leased
</TABLE>
LEGAL PROCEEDINGS
Coastwide is involved in certain litigation and claims arising from the
normal course of its business operations. Coastwide management believes the
ultimate disposition of such matters will not, individually or in the aggregate,
have a material adverse effect upon the consolidated operations or financial
position of Coastwide.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Prior to October 31, 1993, Coastwide was a wholly-owned subsidiary of
Grasso. On October 31, 1993, Coastwide was spun off to the stockholders of
Grasso. The following information was prepared assuming that the spinoff had
been effected for all periods presented.
54
<PAGE> 63
Until November 1992, CMSI owned an 80% interest in Harbor Island Terminal,
Inc. ("HITI"), which operated a deep water terminal at Port Aransas, Texas, with
the remaining 20% interest in HITI owned by Baroid Drilling Fluids, Inc.
("Baroid"). In November 1992, CMSI acquired Baroid's 20% interest in HITI. HITI
was merged into CMSI effective December 31, 1992.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS SEPTEMBER 30, 1994
Consolidated revenue for the three month period ended September 30, 1995
was $12,197,600, 12.6% higher than the $10,830,500 reported for 1994.
Consolidated gross profit percentage was 11.6% in 1995 compared to 12.7% in
1994. Income before provision for federal income taxes was $368,400 in 1995
compared to $317,600 in 1994.
Operating Income for the three month periods ended September 30, 1995 and
1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 CHANGE
----------- ----------- ----------
<S> <C> <C> <C>
Revenue:
Product Sales.............................. $ 8,067,100 $ 7,693,300 $ 373,800
Service Fees:
Shore Base.............................. 2,308,500 2,108,700 199,800
Engineering............................. 1,822,000 1,028,500 793,500
----------- ----------- ----------
Total Revenue...................... $12,197,600 $10,830,500 $1,367,100
=========== =========== ==========
Direct Operating Expense..................... $10,787,500 $ 9,454,500 $1,333,000
=========== =========== ==========
Selling, General & Administrative Expense.... $ 885,700 $ 932,500 $ (46,800)
=========== =========== ==========
Operating Income............................. $ 524,400 $ 443,500 $ 80,900
=========== =========== ==========
</TABLE>
Coastwide's operations are directly dependent on the volume of oil and gas
drilling, workover, construction and seismic activity in the U.S. Gulf of
Mexico, particularly the activity level in Texas waters as all but one of
Coastwide's shore bases are located on the Texas coast. During the third quarter
of 1995, the Baker Hughes weekly count of rigs drilling in waters offshore the
Texas coast averaged 11 rigs versus 17 rigs in the third quarter of 1994, a 55%
decrease in indicated activity level. Although drilling activity was lower,
Coastwide's consolidated revenue increased mainly due to the growth in revenue
from Engineering Service Fees and the terminal additions discussed in Note 4 to
the Consolidated Financial Statements.
The increase in Direct Operating Expense was due to higher cost of products
sold resulting from higher sales volume and increased direct expenses at Onyx
due to higher staff levels. The decrease in Selling, General and Administrative
Expense was due primarily to cost containment efforts by the Company.
NINE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS SEPTEMBER 30, 1994
Consolidated revenue for the nine month period ended September 30, 1995 was
$31,315,300, 3.9% higher than the $30,141,000 reported for 1994. Consolidated
gross profit percentage was 12.3% in 1995 compared to 13.3% in 1994. Income
before provision for federal income taxes was $541,600 in 1995 compared to
$1,036,300 in 1994.
55
<PAGE> 64
Operating Income for the nine month periods ended September 30, 1995 and
1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 CHANGE
----------- ----------- ----------
<S> <C> <C> <C>
Revenue:
Product Sales.............................. $20,909,700 $21,335,500 $ (425,800)
Service Fees:
Shore Base.............................. 6,194,300 5,950,200 244,100
Engineering............................. 4,211,300 2,855,300 1,356,000
----------- ----------- ----------
Total Revenue...................... $31,315,300 $30,141,000 $1,174,300
=========== =========== ==========
Direct Operating Expense..................... $27,472,800 $26,125,100 $1,347,700
=========== =========== ==========
Selling, General & Administrative Expense.... $ 2,898,200 $ 2,613,100 $ 285,100
=========== =========== ==========
Operating Income............................. $ 944,300 $ 1,402,800 $ (458,500)
=========== =========== ==========
</TABLE>
For the nine month periods ended September 30, 1995 and 1994, the Baker
Hughes weekly average count of rigs drilling in waters offshore the Texas coast
decreased from 15 in 1994 to 12 in 1995. The principal components of the
increase in consolidated revenues in 1995 was the increase in Engineering
Service Fees due to the growth in Onyx's business.
Direct Operating Expense was higher on a year-to-year comparison due to
increased direct expenses at Onyx due to higher staff levels. Direct Operating
Expense was also affected by the elimination of $1,106,000 of book reserves for
unasserted potential claims offset by $500,000 of additional expense recorded as
a result of plans to consolidate Coastwide's Galveston, Texas operations. The
increase in Selling, General and Administrative Expense was due to additional
costs resulting from the termination in September, 1994 of certain
administrative cost sharing agreements between Coastwide and its former parent,
Grasso and additional doubtful accounts expense of $150,000.
Production from the Texas waters of the Gulf of Mexico is primarily gas;
therefore, offshore activity in that area is greatly influenced by the current
and projected price of natural gas. Although it is not possible to predict
future natural gas prices or future offshore activity with any precision, a
significant and prolonged decline in natural gas prices would likely result in a
further decline in the level of offshore activity and could adversely affect
Coastwide's business.
1994 VERSUS 1993
Consolidated revenues for the year ended December 31, 1994 were
$41,160,200, 19.5% higher than the $34,449,000 reported for 1993. Consolidated
gross profit percentage was 13.4% in 1994 compared to 9.4% in 1993. Income from
operations before income taxes was $1,517,000 in 1994 compared to $297,100 in
1993.
Results for the full year ended December 31, 1994 and 1993 operations are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 CHANGE
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Product Sales.............................. $29,368,400 $25,967,100 $3,401,300
Service Fees:
Shore Base.............................. 8,005,700 5,954,800 2,050,900
Engineering............................. 3,786,100 2,527,100 1,259,000
----------- ----------- ----------
Total Revenue...................... $41,160,200 $34,449,000 $6,711,200
=========== =========== ==========
Direct Operating Expenses.................... $35,634,800 $31,196,900 $4,437,900
=========== =========== ==========
General & Administrative Expenses............ $ 3,530,900 $ 2,817,700 $ 713,200
=========== =========== ==========
Income (Loss) From Operations................ $ 1,994,500 $ 434,400 $1,560,100
=========== =========== ==========
</TABLE>
56
<PAGE> 65
Coastwide's operations are directly dependent on the volume of oil and gas
drilling, workover, construction and seismic activity in the Gulf of Mexico,
particularly the activity level in Texas waters as all but one of Coastwide's
shore bases are located on the Texas coast. The weekly average count of rigs
drilling oil or gas wells in the Texas waters of the Gulf of Mexico increased
from 12 in 1993 to 16 in 1994. The increase in the number of rigs drilling wells
was mainly responsible for the increases in Product Sales revenue and CMSI
Service Fee revenue. The principal components of the increase in consolidated
revenues in 1994 were a 13.3% increase in diesel fuel sales, a 7.9% increase in
the sales of other products such as lubricants, greases, oils, and chemicals,
and an 34.4% increase in CMSI Service Fees. CMSI Service Fee revenues earn
higher margins than Product Sale Revenues, therefore, Coastwide's gross profit
percentage increased. The increase in Onyx Service Fees is due to the growth in
Onyx's business. Onyx began operating in the last half of 1992.
The increase in Direct Operating Expense was due to increases in cost of
products sold resulting from increased sales volume and to the costs resulting
from the expansion of Onyx's operations. The increase in general and
administrative expense was due primarily to additional costs resulting from
Coastwide's status as a stand alone entity subsequent to the spin-off from
Grasso as certain costs which had been shared are now borne solely by Coastwide.
Production from the Texas waters of the Gulf of Mexico is primarily gas;
therefore, offshore activity in that area is greatly influenced by the current
and projected price of natural gas. Although it is not possible to predict
future natural gas prices or future offshore activity with any precision, a
significant and prolonged decline in natural gas prices would likely result in a
decline in the level of offshore activity and could adversely affect Coastwide's
business.
1993 VERSUS 1992
Consolidated revenues for the year ended December 31, 1993 were
$34,449,000, 21.2% higher than the $28,434,500 reported for 1992. Consolidated
gross profit percentage was 9.4% in 1993 compared to 4.8% in 1992. Income (loss)
from operations before income taxes was $297,100 in 1993 compared to
$(1,334,800) in 1992.
Results for full years ended December 31, 1993 and 1992 operations are
summarized as follows:
<TABLE>
<CAPTION>
1993 1992 CHANGE
---------- ---------- ---------
<S> <C> <C> <C>
Revenues:
Product Sales.............................. $25,967,100 $ 24,350,100 $1,617,000
Service Fees:
Shore Base.............................. 5,954,800 3,808,100 2,146,700
Engineering............................. 2,527,100 276,300 2,250,800
----------- ------------ ----------
Total Revenue...................... $34,449,000 $ 28,434,500 $6,014,500
=========== ============ ==========
Direct Operating Expenses.................... $31,196,900 $ 27,072,700 $4,124,200
=========== ============ ==========
General & Administrative Expenses............ $ 2,817,700 $ 2,376,800 $ 440,900
=========== ============ ==========
Income (Loss) From Operations................ $ 434,400 $(1,015,000) $1,449,400
=========== ============ ==========
</TABLE>
Coastwide's operations are directly dependent on the volume of oil and gas
drilling activity in the Gulf of Mexico, particularly the activity level in
Texas waters as all but one of Coastwide's shore bases are located on the Texas
coast. The weekly average drilling rig count in the Texas waters of the Gulf of
Mexico increased from 6 in 1992 to 12 during 1993. The increase in the number of
rigs drilling wells was mainly responsible for the increase in Product Sales
revenue and CMSI Service Fee revenue. The principal components of the increase
in consolidated revenues in 1993 were a 5.2% increase in revenues from diesel
fuel sales, a 12% increase in the sales of other products such as lubricants,
greases, oils, and chemicals, and a 56.4% increase in CMSI Service Fees. The
increase in other service fees is due to the growth in Onyx's business. Onyx
began operating in the last half of 1992.
57
<PAGE> 66
The increase in operating expenses was due primarily to the effect of
Onyx's operation. The increase in general and administrative expense was due
primarily to an increase in personnel.
LIQUIDITY AND CAPITAL RESOURCES
Coastwide utilizes borrowings under a revolving line of credit facility
(Revolver) with a bank to handle its short term financing needs. The Revolver
allows Coastwide to borrow the maximum indebtedness of $4.5 million (including
letters of credit up to $500,000) or 75% of eligible accounts receivable,
whichever is less. Advances under the Revolver bear interest at the bank's prime
rate plus 3/4%. The interest is payable monthly. Substantially all of
Coastwide's assets are pledged as collateral. The principal outstanding on the
Revolver at September 30, 1995 was $2,000,000.
During the month of June 1994, Coastwide closed on the sale of $4,270,000
of 8% Convertible Subordinated Debentures. The debentures were sold by private
placement. On June 22, 1994, Coastwide borrowed $2,000,000 pursuant to a term
loan facility provided by a bank. The combined proceeds from these two
transactions were used to acquire a 24 acre terminal facility located in
Galveston, Texas for $1,700,000; repay a $1,600,000 note payable incurred in
connection with the 1993 acquisition of the land underlying Coastwide's terminal
facility located in Aransas Pass, Texas; and repay the $2,383,000 outstanding
balance of a revolving loan from Congress Financial Corporation ("Congress").
Coinciding with its repayment of the Congress loan, Coastwide elected to
terminate the revolving loan agreement with Congress then in effect between the
two parties. Coastwide paid Congress an early termination fee of $120,000.
Cash provided by (used in) operating activities was $(278,500), $(985,500)
and $451,900 for the years ended 1994, 1993 and 1992, respectively. In 1994 and
1993, cash used in operating activities resulted primarily from growth in
accounts receivable due to increased revenues. In 1992, cash provided by
operating activities primarily resulted from decreases in accounts receivable
associated with declining revenues.
Cash used in investing activities mainly consisted of capital expenditures
of $2,764,800, $1,611,400 and $765,900 for the years ended 1994, 1993 and 1992,
respectively. Partially offsetting these uses were reductions of restricted
certificates of deposit in 1994, 1993 and 1992 which were used to secure letters
of credit. In 1992, $459,700 of proceeds were received from the sale of E&S
Machinery Co.
Cash provided by (used in) financing activities was $3,112,700, $2,461,500
and $(487,800) for the years ended 1994, 1993 and 1992, respectively, and
primarily consisted of borrowings under various debt agreements. In 1992, the
minority interest of a subsidiary was purchased for $500,000.
Working capital was $5,535,900, $890,500 and $3,744,300 at December 31,
1994, 1993 and 1992, respectively. Additional information relative to sources
and uses of cash is presented in the financial statements included in this
report.
Coastwide's requirements for receivable and inventory growth and sustaining
capital expenditures will be funded with existing available net working capital
($3,914,900 as of September 30, 1995), cash provided by operations and future
borrowings on the Revolver. Cash provided by operations was $658,900 for the
nine-month period ended September 30, 1995.
58
<PAGE> 67
SECURITIES OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth as of December 31, 1995, certain information
known to Coastwide concerning beneficial ownership (as that term is defined in
the rules and regulations of the Commission), of the Coastwide Common Stock by
(a) each person who is known by Coastwide to be the beneficial owner of more
than five percent (5%) of the shares of Coastwide Common Stock outstanding, (b)
each director of Coastwide beneficially owning Coastwide Common Stock, (c) each
named executive officer, and (d) all directors and officers of Coastwide as a
group:
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP(1) CLASS
---------------- ------------ ----------
<S> <C> <C>
Don V. Ingram(2)............................................. 545,236 27.7%
2200 Ross Avenue
Suite 4300B, LB 170
Dallas, Texas 75201
L. Mark Newman(3)............................................ 908,151 39.7%
P.O. Box 5685
Incline Village, Nevada 89450
Stephen A. Wells(4).......................................... 365,008 17.2%
11111 Wilcrest Green Drive
Suite 300
Houston, Texas 77042
John L. Ferris(5)............................................ 249,470 12.7%
3110 Beverly Drive
Dallas, Texas 75205
All officers and directors as a group (6 persons)(6)......... 1,845,160 69%
</TABLE>
- ---------------
(1) Unless otherwise specified, each of the persons listed holds sole voting and
investment power with respect to the shares of Coastwide Common Stock
reported. Beneficial ownership has been determined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, as amended.
(2) Includes (i) 271,704 shares, Class B Warrants for 5,379 shares and 70,588
shares which may be acquired upon conversion of the Convertible Debentures
of which Mr. Ingram has direct ownership; (ii) 300 shares and Class B
Warrants for 75 shares owned by a revocable trust for Mr. Ingram's niece and
nephew of which Mr. Ingram is trustee; (iii) 26,292 shares and Class B
Warrants for 6,573 shares owned by a trust for Mr. Ingram's daughter, as to
which Mr. Ingram disclaims beneficial ownership; (iv) 101,460 shares and
Class B Warrants for 25,365 shares owned by Summit Partners Management Co.,
of which Mr. Ingram is president and Chief Executive Officer, and (v) 37,500
shares that may be acquired by Mr. Ingram upon exercise of currently
exercisable stock options.
(3) Includes (i) 441,360 shares, Class B Warrants for 80,100 shares and 352,941
shares which may be acquired upon conversion of the Convertible Debentures
owned by Atalanta Selective Fund Number Six Limited Partnership, of which
Mr. Newman is the general partner and has a 70% equity interest; and (ii)
33,750 shares that may be acquired by Mr. Newman upon exercise of currently
exercisable stock options.
(4) Includes (i) 116,773 shares and 11,765 shares which may be acquired upon
conversion of the Convertible Debentures of which Mr. Wells has direct
ownership; (ii) 3,000 shares and 11,765 shares which may be acquired upon
conversion of the Convertible Debentures owned by the Dan Kirkland Wells
Foundation, of which Mr. Wells is President; (iii) 1,000 shares and 5,882
shares which may be acquired upon conversion of Convertible Debentures owned
by the spouse of Mr. Wells; (iv) 53,000 shares and 47,059 shares which may
be acquired upon conversion of the Convertible Debentures owned by Wells
Resources, Inc. of which Mr. Wells is President and has controlling
ownership; (v) 5,882 shares which may be acquired upon conversion of the
Convertible Debentures owned by Mr. Wells' daughter; (vi) 3,000 shares and
5,882 shares which may be acquired upon conversion of the Convertible
Subordinated owned by the
59
<PAGE> 68
Stephen A. Wells Profit Sharing Plan; (vii) 100,000 shares which may be
acquired upon exercise of currently exercisable options.
(5) Includes 113,928 shares, Class B Warrants for 64,954 shares and 70,588
shares which may be acquired upon conversion of Convertible Debentures.
(6) Includes (i) 1,022,889 shares and Class B Warrants for 117,492 shares owned
by the officers and directors; (ii) 181,250 shares that may be acquired by
the officers and directors upon exercise of currently exercisable stock
options; and (iii) 523,529 shares which may be acquired upon conversion of
the Convertible Debentures.
LEGAL MATTERS
The validity of the shares of Tesoro Common Stock to be issued in
connection with the Merger will be passed upon by Fulbright & Jaworski L.L.P.
Certain tax consequences of the Merger will be passed upon for Coastwide by
Rubin Baum Levin Constant & Friedman and for Tesoro by Fulbright & Jaworski
L.L.P.
EXPERTS
The consolidated financial statements incorporated by reference in this
Proxy Statement/Prospectus from Tesoro's Annual Report on Form 10-K for the year
ended December 31, 1994 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated by reference and have
been so incorporated in reliance upon the report of said firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of Coastwide included in this Proxy
Statement/Prospectus and elsewhere in the Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included in this Proxy
Statement/Prospectus in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
60
<PAGE> 69
COASTWIDE ENERGY SERVICES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets at December 31, 1994 and 1993............................. F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1993 and
1992................................................................................ F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994,
1993 and 1992....................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and
1992................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
Consolidated Balance Sheets as of September 30, 1995 (unaudited) and December 31,
1994................................................................................ F-16
Consolidated Statements of Operations (unaudited) for the Three Months Ended September
30, 1995 and 1994 and the Nine Months Ended September 30, 1995 and 1994............. F-17
Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September
30, 1995 and 1994................................................................... F-18
Notes to Consolidated Financial Statements............................................ F-19
</TABLE>
F-1
<PAGE> 70
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Coastwide Energy Services, Inc.:
We have audited the accompanying consolidated balance sheets of Coastwide
Energy Services, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1994 and 1993, and the related consolidated statements of 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Coastwide Energy Services,
Inc., and subsidiaries as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 7, 1995
F-2
<PAGE> 71
COASTWIDE ENERGY SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1994 1993
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................... $ 216,600 $ 15,000
Restricted Certificate of Deposit.................................. 150,000 214,800
Accounts Receivable, net of allowance for doubtful accounts of
$158,600 and $160,800 for 1994 and 1993, respectively............ 7,688,800 6,041,400
Inventories........................................................ 1,330,900 1,251,400
Prepaid Expenses................................................... 436,000 177,500
----------- -----------
Total Current Assets..................................... 9,822,300 7,700,100
----------- -----------
PROPERTY AND EQUIPMENT:
Land............................................................... 5,051,900 3,538,700
Buildings and Improvements......................................... 7,728,100 7,429,400
Equipment.......................................................... 6,431,900 5,729,500
----------- -----------
Total Property and Equipment................................ 19,211,900 16,697,600
Less: Accumulated Depreciation..................................... (7,987,400) (7,120,100)
----------- -----------
Net Property and Equipment.................................. 11,224,500 9,577,500
OTHER ASSETS....................................................... 58,300 3,700
NOTES RECEIVABLE................................................... 1,124,500 1,130,800
----------- -----------
Total Assets............................................. $22,229,600 $18,412,100
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt............................... $ 901,200 $ 352,100
Note Payable....................................................... -- 1,600,000
Short-Term Borrowings.............................................. 800,000 2,229,000
Accounts Payable................................................... 1,836,600 2,217,200
Accrued Liabilities................................................ 748,600 411,300
---------- ----------
Total Current Liabilities................................ 4,286,400 6,809,600
---------- ----------
LONG-TERM DEBT..................................................... 1,554,000 347,400
CONVERTIBLE SUBORDINATED DEBENTURES................................ 4,270,000 --
OTHER NON-CURRENT LIABILITIES...................................... 1,217,800 1,751,600
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 5,000,000 shares authorized, none
issued and outstanding........................................... -- --
Common Stock, $.01 par value, 15,000,000 shares authorized,
1,795,865 in 1994 and 1,680,011 in 1993 shares issued and
outstanding...................................................... 18,000 16,800
Additional Paid-in Capital......................................... 668,900 489,200
Retained Earnings.................................................. 10,214,500 8,997,500
----------- -----------
Total Stockholders' Equity.................................. 10,901,400 9,503,500
----------- -----------
Total Liabilities and Stockholders' Equity............... $22,229,600 $18,412,100
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 72
COASTWIDE ENERGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Sales of Products................................... $29,368,400 $25,967,100 $24,350,100
Service Fees........................................ 11,791,800 8,481,900 4,084,400
----------- ----------- -----------
41,160,200 34,449,000 28,434,500
DIRECT OPERATING EXPENSES:
Cost of Products Sold............................... 24,470,800 22,226,100 21,347,000
Operating Expenses.................................. 11,164,000 8,970,800 5,725,700
----------- ----------- -----------
35,634,800 31,196,900 27,072,700
----------- ----------- -----------
GROSS PROFIT.......................................... 5,525,400 3,252,100 1,361,800
GENERAL AND ADMINISTRATIVE EXPENSES................... 3,530,900 2,817,700 2,376,800
----------- ----------- -----------
OPERATING INCOME (LOSS)............................... 1,994,500 434,400 (1,015,000)
INTEREST EXPENSE...................................... 456,000 322,500 377,500
OTHER (INCOME) EXPENSE................................ 21,500 (185,200) (57,700)
----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME
TAXES............................................... 1,517,000 297,100 (1,334,800)
PROVISION (BENEFIT) FOR INCOME TAXES.................. 300,000 5,000 (453,800)
----------- ----------- -----------
NET INCOME (LOSS)..................................... $ 1,217,000 $ 292,100 $ (881,000)
=========== ========== ===========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(PRIMARY)........................................... $ 0.58 $ 0.15(1)
========== ==========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE (FULLY
DILUTED)............................................ $ 0.51 $ 0.15(1)
========== ==========
</TABLE>
- ---------------
(1) Pro Forma (as if spin-off discussed in Note 1 occurred on January 1, 1993).
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 73
COASTWIDE ENERGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1991......... 1,680,011 $ 16,800 $ -- $ 9,586,400 $ 9,603,200
Capital contribution............... -- -- 219,600 -- 219,600
Net loss........................... -- -- -- (881,000) (881,000)
--------- -------- -------- ----------- -----------
BALANCE, December 31, 1992......... 1,680,011 16,800 219,600 8,705,400 8,941,800
Capital contribution............... -- -- 269,600 -- 269,600
Net income......................... -- -- -- 292,100 292,100
--------- -------- -------- ----------- -----------
BALANCE, December 31, 1993......... 1,680,011 16,800 489,200 8,997,500 9,503,500
Exercise of options................ 99,250 1,000 89,500 -- 90,500
Exercise of warrants............... 16,604 200 25,400 -- 25,600
Income tax benefit from exercise of
options.......................... -- -- 64,800 -- 64,800
Net income......................... -- -- -- 1,217,000 1,217,000
--------- -------- -------- ----------- -----------
BALANCE, December 31, 1994......... 1,795,865 $ 18,000 $ 668,900 $10,214,500 $10,901,400
========= ========= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 74
COASTWIDE ENERGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................... $1,217,000 $ 292,100 $ (881,000)
Adjustments to reconcile net income (loss) from
operations to net cash provided by (used in)
operating activities:
Depreciation and amortization..................... 940,900 810,500 796,300
(Gain) loss from asset dispositions............... 116,900 (88,700) 3,600
(Increase) decrease in accounts receivable, net... (1,582,500) (1,366,100) 368,900
Increase in inventories........................... (79,500) (35,300) (135,700)
(Increase) decrease in prepaid expenses and other
assets......................................... (314,200) (8,300) 29,400
Increase (decrease) in accounts payable and
accrued liabilities............................ (43,300) (138,200) 161,000
Increase (decrease) in non-current liabilities.... (533,800) (451,500) 284,500
Net cash flows from discontinued operations....... -- -- (175,100)
---------- ---------- ----------
Net cash provided by (used in) operating
activities..................................... (278,500) (985,500) 451,900
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................ (2,764,800) (1,611,400) (765,900)
Proceeds from sale of assets........................ 67,400 24,300 --
Net proceeds from sale of net
assets -- discontinued
operations........................................ -- -- 459,700
Decrease in restricted certificates of deposit...... 64,800 85,200 100,000
---------- ---------- ----------
Net cash used in investing activities..... (2,632,600) (1,501,900) (206,200)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt.......................... (660,200) (166,600) (237,800)
Borrowings (payments) under working capital
revolver, net..................................... (1,429,000) 2,229,000 (219,600)
Proceeds from issuance of long-term debt............ 2,415,800 129,500 250,000
Proceeds from debenture offering.................... 4,270,000 -- --
Repayment of short-term note........................ (1,600,000) -- --
Proceeds from issuance of common stock.............. 116,100 -- --
Capital contributions from Grasso................... -- 269,600 219,600
Purchase of minority interest....................... -- -- (500,000)
---------- ---------- ----------
Net cash provided by (used in) financing
activities.............................. 3,112,700 2,461,500 (487,800)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH..................... 201,600 (25,900) (242,100)
CASH BEGINNING OF PERIOD............................ 15,000 40,900 283,000
----------- ----------- ----------
CASH END OF PERIOD.................................. $ 216,600 $ 15,000 $ 40,900
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash transactions:
Note receivable obtained from sale of discontinued
operation...................................... $ -- $ -- $1,025,000
Note payable issued for land...................... $ -- $1,600,000 $ --
Note receivable obtained from sale of property.... $ -- $ 110,000 $ --
Cash paid for interest.............................. $ 456,000 $ 324,800 $ 377,500
Cash paid for taxes................................. $ 207,500 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 75
COASTWIDE ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS ACTIVITIES
Coastwide Energy Services, Inc. ("Coastwide" or "the Company") is the
parent company of Coastwide Marine Services, Inc. ("CMSI") (formerly Grasso
Marine Service Centers, Inc.) and Onyx Engineering, Inc. ("Onyx") ("the
Companies"). The Company's principal business is providing services to the
offshore oil and gas exploitation industry in the Gulf of Mexico. Prior to
October 31, 1993, the Company was a wholly-owned subsidiary of Grasso
Corporation ("Grasso"). On October 31, 1993, the Company was spun off to the
stockholders of Grasso Corporation. The accompanying consolidated financial
statements were prepared assuming that the transfer had been effected for all
periods. Earnings per share amounts for 1993 are presented on a pro forma basis
by dividing net income by the weighted average number of shares assuming that
1,680,011 shares of the Company's stock were issued as of January 1, 1993. Also,
common stock equivalents are included if the impact of their assumed conversion
is dilutive.
Until November 1992, CMSI owned an 80% interest in Harbor Island Terminal,
Inc. ("HITI"), which operated a deep water terminal at Port Aransas, Texas. The
remaining 20% interest in HITI was owned by Baroid Drilling Fluids, Inc.
("Baroid"). In November 1992, CMSI acquired Baroid's 20% interest in HITI. HITI
was merged into CMSI effective December 31, 1992.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Other Matters
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and balances
have been eliminated.
Inventories
Inventories primarily consist of diesel fuel, oilfield supplies and
lubrication oils, principally from outside purchases, and are valued at the
lower of average cost or market. Cost is determined using the average cost
method, and market is based on the lower of replacement cost or estimated
realizable value.
Property and Equipment
Property and equipment are stated at cost. Major renewals and betterments
are capitalized, while maintenance and repairs are expensed as incurred.
Depreciation is computed over the estimated useful lives of depreciable assets
using primarily the straight-line method for financial reporting purposes and
accelerated methods for tax reporting purposes. The cost and related accumulated
depreciation of property and equipment sold, retired or otherwise disposed of
are removed from the accounts and any gains or losses are reflected in the
consolidated statements of operations.
Depreciable lives for the various asset groups are as follows:
<TABLE>
<S> <C>
Buildings and improvements............................ 15-30 years
Equipment............................................. 3-20 years
</TABLE>
Recognition of Revenues
Service fee revenues consist of fees for engineering services and
commissions and fees related to logistical support services provided to
customers and are recognized as the services are performed. Revenues from sales
of products are recognized as the products are delivered to customers.
F-7
<PAGE> 76
COASTWIDE ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Restricted Certificates of Deposit
Certificates of deposit of $150,000 at December 31, 1994 and 1993, are
pledged to secure payment of diesel fuel purchases. At December 31, 1993, a
certificate of deposit for $64,800 was pledged pursuant to a letter of credit
issued to the Company's worker's compensation insurance carrier. The
certificates of deposit have original maturities of less than three months.
Other Non-current Liabilities
Other non-current liabilities consist primarily of reserves for potential
refunds to third parties related to certain transactions arising in the ordinary
course of business. Management anticipates that these matters will be settled
with no material adverse impact upon the Company.
Certain Reclassifications
Certain reclassifications have been made to the 1993 and 1992 consolidated
financial statements contained herein to conform to the classifications
presented in 1994.
(3) NOTES RECEIVABLE
On May 15, 1992, the Company's former parent, Grasso, sold all of the
assets of its subsidiary, E&S Machinery Co. ("E&S") to a new company formed by
the former president of E&S. The consideration included a ten year promissory
note in the amount of $1,025,000. The ten year promissory note is carried as an
asset by the Company and bears interest at eight percent per annum, with
interest only payable for the first three years and the principal balance
payable in 84 monthly payments of $15,975 each (including interest), commencing
in June 1995.
(4) SHORT-TERM BORROWINGS
Prior to June 1994, the Company had a revolving line of credit ("Revolver")
with Congress Financial Corporation ("Congress") that was used for general
working capital requirements of the Company. All subsidiaries had jointly and
severally guaranteed repayment of all principal and interest due to Congress
under the Revolver. Furthermore, substantially all of the Company's non-real
estate assets were pledged to Congress as collateral for the amounts due under
the Revolver.
In June 1994, the Company paid off its outstanding balance with Congress
and paid Congress an early termination fee of $120,000 which has been reflected
as other expense in the Consolidated Statement of Operations. The Company then
entered into a Loan Agreement with a bank which provides for the following:
a) Revolving credit advances up to a maximum of $4,500,000 or 75% of
eligible accounts receivable, whichever is less (including letters of
credit up to $500,000). Interest accrues at the bank's prime rate plus
3/4% and is payable monthly. As of December 31, 1994, $800,000 in advances
was outstanding.
b) Term loan of $2,000,000 (see Note 5).
The Loan Agreement is collateralized by substantially all assets of the
Company. The terms of the Loan Agreement require the Company to maintain certain
affirmative and negative covenants and financial covenants relating to working
capital, net worth and coverage of fixed charges. The Company was in compliance
with all such covenants at December 31, 1994.
F-8
<PAGE> 77
COASTWIDE ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1993, is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
---------- ---------
<S> <C> <C>
8% Convertible Subordinated Debentures, $4.27 million
face amount, due in 2004............................ $4,270,000 $ --
Term loan from bank of $2,000,000 payable in monthly
installments of principal and interest, maturing
July 1, 1998, interest rate of prime plus 1.25%,
collateralized by substantially all assets of the
Company............................................. 1,791,700 --
Notes, mortgages and equipment loans, interest from 5%
to 13.5%, due 1995-1999, secured by related
assets.............................................. 663,500 699,500
Less -- Current portion............................... (901,200) (352,100)
---------- ---------
Total long-term debt.................................. $5,824,000 $ 347,400
========== =========
</TABLE>
In June 1994, the Company completed a private placement of $4,270,000 of 8%
Convertible Subordinated Debentures due July 1, 2004 (the "Debentures"). The
Debentures are convertible into Coastwide common stock at $4.25 per share, and
are redeemable at the option of the Company on certain terms and conditions. The
Debentures are subordinated as to right of payment to all existing and future
indebtedness, as defined, of the Company. Interest on the Debentures is payable
quarterly in arrears. The Debentures are convertible into approximately
1,004,706 shares of Coastwide common stock.
The schedule of principal payments on long-term debt, other than the
Debentures which are due in full in 2004, is as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
------------- ---------
<S> <C>
1995................................ $ 901,200
1996................................ 628,800
1997................................ 567,500
1998................................ 344,500
1999................................ 13,100
----------
$2,455,100
==========
</TABLE>
(6) INCOME TAXES
Prior to October 29, 1993, the Company was included in a consolidated
federal income tax return with its former parent, Grasso. Income tax amounts
included in the accompanying consolidated financial statements were computed as
if the Company had filed a separate return for periods prior to October 29,
1993; however, benefits were recognized to the extent that net losses generated
by the Company were available to offset taxable income generated by other
members of the Grasso consolidated group. The Company is no longer included in
the consolidated return of Grasso for periods subsequent to October 29, 1993.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). SFAS No. 109 requires a change from the deferred method of accounting
for income taxes of APB Opinion No. 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the
F-9
<PAGE> 78
COASTWIDE ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial statement carrying values of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
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.
Pursuant to the deferred method under APB Opinion No. 11, which was applied
in 1992 and prior years, deferred income taxes were recognized for income and
expense items that were reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year of
the calculation. Under the deferred method, deferred taxes were not adjusted for
subsequent changes in tax rates.
The Company adopted SFAS No. 109 as of January 1, 1993. The cumulative
effect of this change in the method of accounting for income taxes was not
material. Prior year statements have not been restated; therefore, the
presentations made herein are made separately as there are different accounting
standards and disclosure requirements in effect for the year ended December 31,
1992, versus SFAS No. 109 presentation that was required for the years ended
December 31, 1994 and 1993.
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
--------- -------- ---------
<S> <C> <C> <C>
Current:
State income tax........................... $ 3,000 $ 5,000 $ --
Federal income taxes....................... 432,200 20,600 (453,800)
Utilization of net operating loss
carryforwards............................ (123,600) (20,600) --
Utilization of AMT credit carryforward..... (11,600) -- --
--------- -------- ---------
Provision (benefit) for income taxes....... $ 300,000 $ 5,000 $(453,800)
========= ======== =========
</TABLE>
Below is a reconciliation of income taxes at the federal statutory rate
with the income taxes (benefit) recorded by the Company:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
--------- -------- ---------
<S> <C> <C> <C>
Computed taxes at statutory rate........... $ 515,800 $ 99,300 $(453,800)
Decrease in valuation allowance............ (218,800) (99,300) --
State income taxes......................... 3,000 5,000 --
--------- -------- ---------
Provision (benefit) for income taxes....... $ 300,000 $ 5,000 $(453,800)
========= ======== =========
</TABLE>
F-10
<PAGE> 79
COASTWIDE ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and their changes during the year ended
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
JANUARY 1, DEFERRED DECEMBER 31,
1994 (EXPENSE) 1994
BALANCE BENEFIT BALANCE
---------- ---------- ------------
<S> <C> <C> <C>
Allowance for bad debts.................. $ 32,500 $ 21,400 $ 53,900
Inventory uniform capitalization
adjustments............................ 119,000 4,500 123,500
Depreciation............................. 354,400 3,000 357,400
Accrued reserves......................... 625,500 (138,600) 486,900
Alternative minimum tax credit........... 43,000 (11,600) 31,400
Deferred gain............................ -- 26,100 26,100
Net operating loss carryforwards......... 202,000 (123,600) 78,400
---------- --------- -----------
Total gross deferred tax
assets....................... 1,376,400 (218,800) 1,157,600
Less valuation allowance................. (1,376,400) 218,800 (1,157,600)
---------- --------- -----------
Net deferred tax assets.................. $ -- $ -- $ --
========== ========= ===========
</TABLE>
Under SFAS No. 109, a valuation allowance is provided when it is more
likely than not that some portion of the deferred tax assets will not be
realized. The Company has established a valuation allowance for those items that
would require the use of future taxable income since the Company's recent
earnings history does not enable management to conclude that the utilization of
a significant portion of these tax benefits is more likely than not to occur.
At December 31, 1994, The Company had the following income tax
carryforwards available for tax purposes:
<TABLE>
<CAPTION>
EXPIRATION
DATE AMOUNT
---------- --------
<S> <C> <C>
Federal net operating loss tax carryforwards.......... 2001-2008 $230,600
</TABLE>
The use of certain tax loss carryforwards by the Company was limited under
Internal Revenue Service Code Section 382 to approximately $81,800 per year due
to a change in ownership in 1989.
(7) STOCKHOLDERS' EQUITY
DESCRIPTION OF THE CAPITAL STOCK
The Company's authorized capital stock consists of 15,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock,
par value $.01 per share.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the Stockholders. Subject to
dividend preferences that may be applicable to any outstanding Preferred Stock,
holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share pro rata in all assets remaining after
payment of liabilities and the liquidation preferences of outstanding Preferred
Stock, if any. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. All of the
outstanding shares of Common Stock are fully paid and nonassessable.
F-11
<PAGE> 80
COASTWIDE ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREFERRED STOCK
The authorized Preferred Stock consists of 5,000,000 shares, par value $.01
per share, of which no shares are issued and outstanding. The Company's Board of
Directors may, without further action by the Company's stockholders, issue one
or more series of Preferred Stock (up to an aggregate of 5,000,000 shares), fix
the voting rights, dividend rate, conversion rights, rights and terms of
redemption (including sinking fund provisions), redemption prices, liquidation
preferences and other terms of any wholly unissued series of Preferred Stock and
determine the designation of and (subject to the aggregate limit of 5,000,000
shares) the number of shares constituting any such unissued series. No Preferred
Stock of the Company is currently outstanding nor has the Company's Board of
Directors fixed the terms of any series of Preferred Stock to be issued in the
future. Any such issuance, however, could be used by the Company's Board of
Directors to dilute the voting and ownership interests of persons seeking to
gain control of the Company.
WARRANTS
In October 1993, the Company issued to stockholders of the Company 400,001
Class B Warrants for the purchase of approximately 400,001 shares of the
Company's Common Stock. The Class B Warrants, which are not redeemable by the
Company, are exercisable at anytime on or before December 22, 1996 at an
exercise price of $1.54 per share of the Company's Common Stock. As of December
31, 1994, 383,397 warrants were outstanding and exercisable. The Company has
reserved for issuance a sufficient number of shares of the Company's Common
Stock to provide for the exercise of the Class B Warrants.
STOCK OPTIONS
The Company has adopted the 1993 Long-Term Incentive Plan ("the Long-Term
Incentive Plan"). Pursuant to the Long-Term Incentive Plan, the Company can
issue options to purchase 300,000 shares of the Company's Common Stock. During
1993, the Company granted options for 162,500 common shares which were
outstanding and exercisable on December 31, 1993. The exercise price of 41,250
options is $1.07 per share and of 121,250 options is $.90 per share. During
1994, the Company granted options for the remaining 137,500 shares at prices
ranging from $3.00 to $3.73 per share. Such amounts approximated fair market
value of the shares on the date of grant. Of these shares granted in 1994,
70,000 became exercisable on the grant date with the remaining 67,500 shares
becoming exercisable at the rate of 20-25% each year after grant. The options
terminate ten years from the date of grant. Any vested option not exercised by a
person no longer employed by the Company will expire if not exercised within six
months thereafter.
F-12
<PAGE> 81
COASTWIDE ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the stock option transactions under the 1993 plan:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE($)
--------- ------------
<S> <C> <C>
Options outstanding at January 1, 1993
Granted............................................. 162,500 0.90-1.07
Exercised........................................... -- --
Surrendered......................................... -- --
------- ---------
Options outstanding at December 31, 1993.............. 162,500 0.90-1.07
=========
Granted............................................. 137,500 3.00-3.73
Exercised........................................... (99,250) 0.90-1.07
Surrendered......................................... -- --
------- ---------
Options outstanding at December 31, 1994.............. 200,750 0.90-3.73
======= =========
Options exercisable at December 31:
1994................................................ 133,250 0.90-3.00
1993................................................ 162,500 0.90-1.07
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
Lease Commitments
The future minimum lease payments for noncancelable operating leases as of
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
--------------------------------------- ----------
<S> <C>
1995................................... $ 703,900
1996................................... 647,500
1997................................... 451,800
1998................................... 390,200
1999................................... 185,600
2000 and thereafter.................... 477,000
----------
$2,856,000
==========
</TABLE>
Lease expense under all leases amounted to approximately $1,782,300,
$1,679,000 and $1,583,100 for the years ended December 31, 1994, 1993 and 1992,
respectively.
SUBSEQUENT EVENT (UNAUDITED)
During March 1995, the Company renewed a lease agreement for one of its
terminals. Pursuant to the renewal, the Company agreed to make capital
improvements to the leased premises having an aggregate cost of $500,000 during
the period from March 1, 1995 through February 28, 1997.
OTHER
The Company is involved in certain litigation and claims arising from the
normal course of its business operations. Management and legal counsel of the
Company believe the ultimate disposition of such matters will not, individually
or in the aggregate, have a material adverse effect upon the consolidated
operations or financial position of the Company.
F-13
<PAGE> 82
COASTWIDE ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in Note 3, on May 15, 1992 the assets of E&S were sold in
exchange for cash, notes and assumption of all liabilities. The Company is a
guarantor for certain financing leases due to third parties that were assumed by
the buyer and are secured by the specific equipment acquired pursuant to each
lease. The Company has not been advised of any delinquencies on these lease
obligations. Furthermore, management of the Company believes that the current
market value of the equipment exceeds the principal balance of $50,000 due on
the lease obligations at December 31, 1994. Therefore, it is management's
opinion that the Company will not be required to perform under the terms of the
guarantees or incur any liability as a result of this contingency.
In December 1992, CMSI renegotiated the terms of a lease agreement it had
with M-I Drilling Fluids Inc. ("M-I", formerly Magcobar North America, a
division of Dresser Industries, Inc.) on approximately 23 acres of land owned by
CMSI in Galveston, Texas. Under the terms of the revised agreement, M-I agreed
to sell its leasehold improvements on the property in exchange for a cash down
payment of $100,000 plus a deferred monthly payment based on a small percentage
of new sales activities that CMSI generates on the property. There is no
commitment by CMSI to pay any additional amounts to M-I pursuant to the revised
agreement unless CMSI is successful in generating such new sales activities.
The Company provides health insurance to its employees through a partially
self-funded plan. Under the terms of the plan, the Company is responsible for
annual claims up to $25,000 individually and approximately $400,000 in the
aggregate. Under its general liability insurance policies, the Company generally
has annual self-insured retention limits ranging from $1,000 to $50,000 and has
obtained fully insured layers of coverage above such self-retention limits.
The Company provides worker's compensation coverage for its employees
through membership in the Signal Mutual Indemnity Association Ltd. ("Signal"),
an association of companies who are subject to the United States Longshore and
Harbor Workers' Compensation Act. Through member contributions, Signal pays for
all claims up to a maximum of $500,000 per claim. Individual claims exceeding
$500,000 are fully insured. In the event that aggregate claims incurred and paid
by Signal exceed $52.5 million, Signal members could be required to contribute
additional amounts to cover such claims; however, in the past five years, no
such additional contributions have been required.
The Company has acquired director and officer liability insurance in the
amount of $3,000,000. The Company is responsible to indemnify officers and
directors named in certain legal proceedings. Management is not aware of any
pending or unasserted claims against any directors or officers of the Company.
As of December 31, 1994 the Company was committed under the terms of two
bank letters of credit. One, in the amount of $150,000, is secured by
certificates of deposit. The other, in the amount of $59,004, is secured
pursuant to the terms of the Company's Loan Agreement (discussed in Note 4).
(9) TRANSACTIONS WITH RELATED PARTIES
Commencing October 31, 1993, the Company entered into a consulting
agreement with Don V. Ingram, Chairman of the Board of Directors, for services
to the Company at the rate of $5,000 per month.
The Company provided services and products to Grasso in the amount of
$442,500 and $275,200 during 1994 and 1993, respectively. The Company provided
no services or products to Grasso in 1992. The Company believes that the pricing
for all products and services charged to Grasso by Coastwide was representative
of the fair market value for such products and services.
Until August 31, 1994, the Company had arrangements whereby it shared
certain employees and facilities with Grasso. Stephen A. Wells is the President
and Chief Executive Officer of the Company. Until that time, he was also
Chairman of the Board, President and Chief Executive Officer of Grasso. Mr.
Wells was compensated by the Company pursuant to a consulting arrangement
whereby he charged the Company only
F-14
<PAGE> 83
COASTWIDE ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for time spent directly for the Company's affairs. He charged Grasso in a
similar manner for time spent on Grasso matters. The Company and Grasso also
shared the expenses associated with the services of Mr. Douglas Johnston, who
served as General Counsel and Corporate Secretary for both the Company and
Grasso during 1993. Effective September 1, 1994, Mr. Wells resigned as Chairman
of the Board, President and Chief Executive Officer of Grasso. At this time, the
consulting arrangement between Mr. Wells, Grasso and the Company was terminated.
Mr. Wells now devotes two-thirds of his time to his duties at the Company and
has no continuing involvement with Grasso.
The Company also shared office space with Grasso based on each company's
relative needs for space. Grasso paid the entire amount of the lease and was
reimbursed by the Company for its share of the expenses. Such expenses amounted
to $52,300 in 1994 and $55,600 in 1993. Effective September 1, 1994, the Company
and Grasso entered into separate lease agreements with their landlord for office
space.
Convertible Subordinated Debentures in the amount of $2,275,000 (see Note
5) were purchased by certain officers and directors and relatives of each.
(10) EMPLOYEE BENEFIT PLAN
The Company has a defined contribution retirement plan (the "Benefit
Plan"). A determination letter has been received from the Internal Revenue
Service regarding the Benefit Plan's qualified status under Section 401(a) of
the Code. The Benefit Plan does not require contributions by the Company and no
contributions were made for 1994, 1993 or 1992. The Company does not provide
post-retirement health benefits to its employees.
(11) SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
COSTS AND EXPENSES
Depreciation expense for the years ended 1994, 1993 and 1992 was $933,500,
$810,500 and $796,300, respectively.
Maintenance and repairs expense for 1994, 1993 and 1992 was $621,200,
$312,800 and $216,800, respectively.
SIGNIFICANT CUSTOMERS
In 1994, 1993 and 1992 no single customer accounted for 10 percent or more
of the Company's consolidated revenues.
F-15
<PAGE> 84
COASTWIDE ENERGY SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................................. $ 175,200 $ 216,600
Restricted certificates of deposit................................ -- 150,000
Accounts receivable, net of allowance for doubtful accounts of
$228,000 and $158,600 for 1995 and 1994, respectively........... 8,841,300 7,688,800
Inventories....................................................... 1,287,500 1,330,900
Prepaid expenses.................................................. 279,800 436,000
------------ -----------
Total current assets.................................... 10,583,800 9,822,300
------------ -----------
PROPERTY AND EQUIPMENT:
Land.............................................................. 5,051,900 5,051,900
Buildings and improvements........................................ 8,952,900 7,728,100
Equipment......................................................... 7,339,100 6,431,900
------------ -----------
21,343,900 19,211,900
Less -- Accumulated depreciation.................................. (8,929,600) (7,987,400)
------------ -----------
Net property and equipment........................................ 12,414,300 11,224,500
------------ -----------
OTHER ASSETS...................................................... 46,600 58,300
NOTES RECEIVABLE.................................................. 1,119,400 1,124,500
------------ -----------
Total Assets............................................ $ 24,164,100 $22,229,600
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.............................. $ 637,000 $ 901,200
Short-term borrowings............................................. 2,000,000 800,000
Accounts payable.................................................. 2,775,000 1,836,600
Accrued liabilities............................................... 1,256,900 748,600
------------ -----------
Total current liabilities............................... 6,668,900 4,286,400
------------ -----------
LONG-TERM DEBT.................................................... 1,094,300 1,554,000
CONVERTIBLE SUBORDINATED DEBENTURES............................... 4,270,000 4,270,000
DEFERRED CREDIT................................................... 821,000 --
OTHER NON-CURRENT LIABILITIES..................................... -- 1,217,800
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 5,000,000 shares authorized; none
issued and outstanding.......................................... -- --
Common Stock, $.01 par value; 15,000,000 shares authorized;
1,820,447 and 1,795,865 shares issued and outstanding in 1995
and 1994, respectively.......................................... 18,200 18,000
Additional paid-in capital........................................ 705,000 668,900
Retained earnings................................................. 10,586,700 10,214,500
------------ -----------
Total stockholders' equity.............................. 11,309,900 10,901,400
------------ -----------
Total liabilities and stockholders' equity.............. $ 24,164,100 $22,229,600
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE> 85
COASTWIDE ENERGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Sales of products..................... $ 8,067,100 $ 7,693,300 $20,909,700 $21,335,500
Service fees.......................... 4,130,500 3,137,200 10,405,600 8,805,500
----------- ----------- ----------- -----------
12,197,600 10,830,500 31,315,300 30,141,000
----------- ----------- ----------- -----------
DIRECT OPERATING EXPENSE:
Cost of products sold................. 7,002,000 6,420,500 18,104,100 17,764,100
Operating expenses.................... 3,785,500 3,034,000 9,368,700 8,361,000
----------- ----------- ----------- -----------
10,787,500 9,454,500 27,472,800 26,125,100
GROSS PROFIT............................ 1,410,100 1,376,000 3,842,500 4,015,900
GENERAL AND ADMINISTRATIVE EXPENSE...... 885,700 932,500 2,898,200 2,613,100
----------- ----------- ----------- -----------
OPERATING INCOME........................ 524,400 443,500 944,300 1,402,800
INTEREST EXPENSE........................ 183,800 141,200 512,700 303,900
MINORITY INTEREST....................... -- 3,300 -- 11,500
OTHER (INCOME) EXPENSE.................. (27,800) (18,600) (110,000) 51,100
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME
TAXES................................. 368,400 317,600 541,600 1,036,300
INCOME TAX PROVISION.................... 113,200 -- 169,400 210,000
----------- ----------- ----------- -----------
NET INCOME.............................. $ 255,200 $ 317,600 $ 372,200 $ 826,300
=========== =========== =========== ===========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE (PRIMARY)............ $ 0.12 $ 0.15 $ 0.17 $ 0.40
=========== =========== =========== ===========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE (FULLY DILUTED)...... $ 0.10 $ 0.12 $ 0.17 $ 0.36
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE> 86
COASTWIDE ENERGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 372,200 $ 826,300
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization................................... 1,027,300 712,300
(Gain) loss from asset dispositions............................. (9,800) 82,100
Increase in accounts receivable, net............................ (1,152,600) (1,112,600)
(Increase) decrease in inventories.............................. 43,500 (110,000)
(Increase) decrease in prepaid expenses and other assets........ 149,400 (156,000)
Increase in accounts payable and accrued liabilities............ 1,446,700 274,600
Decrease in non-current liabilities............................. (1,217,800) (1,500)
---------- ----------
Net cash provided by operations......................... 658,900 515,200
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................ (1,448,200) (2,532,800)
Proceeds from sale of assets.................................... 113,400 67,400
Decrease in restricted certificates of deposit.................. 150,000 64,800
---------- ----------
Net cash used by investing activities................... (1,184,800) (2,400,600)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt.................................... (755,000) (419,100)
Repayment of short-term note.................................... -- (1,600,000)
Borrowings under revolving line of credit, net.................. 1,200,000 (1,729,000)
Proceeds from convertible debenture offering.................... -- 4,270,000
Proceeds from issuance of long-term debt........................ 3,200 2,175,100
Proceeds from issuance of common stock.......................... 36,300 109,900
---------- ----------
Net cash provided by financing activities............... 484,500 2,806,900
---------- ----------
NET INCREASE (DECREASE) IN CASH................................... (41,400) 921,500
CASH AT BEGINNING OF PERIOD....................................... 216,600 15,000
---------- ----------
CASH AT END OF PERIOD............................................. $ 175,200 $ 936,500
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.......................................... $ 512,700 $ 303,900
Cash paid for income taxes...................................... $ -- $ 130,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE> 87
COASTWIDE ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period or the nine-month
period ended September 30, 1995 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1995. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1994.
(2) EARNINGS PER SHARE
Primary and fully diluted earnings per common and common equivalent share
is computed based on the following information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding................... 1,811,401 1,788,991 1,804,933 1,745,536
Net dilutive effect of stock options and
warrants................................... 369,929 320,658 384,884 302,266
--------- --------- --------- ---------
Totals............................. 2,181,330 2,109,649 2,189,817 2,047,802
========= ========= ========= =========
Net income................................... $ 255,200 $ 317,600 $ 372,200 $ 826,300
========= ========= ========= =========
Per share amount............................. $ 0.12 $ 0.15 $ 0.17 $ 0.40
========= ========= ========= =========
Fully diluted:
Average shares outstanding................... 1,811,401 1,788,991 1,804,933 1,745,536
Net dilutive effect of stock options,
warrants and convertible debentures........ 1,374,635 1,387,110 1,389,590 747,319
--------- --------- --------- ---------
Totals............................. 3,186,036 3,176,101 3,194,523 2,492,855
========= ========= ========= =========
Net income................................... $ 255,200 $ 317,600 $ 372,200 $ 826,300
Plus: Interest expense on debentures......... 56,400 59,700 169,100 61,600
--------- --------- --------- ---------
$ 311,600 $ 377,300 $ 541,300 $ 887,900
========= ========= ========= =========
Per share amount............................. $ 0.10 $ 0.12 $ 0.17 $ 0.36
========= ========= ========= =========
</TABLE>
(3) OTHER LONG TERM LIABILITIES
In the first quarter of 1995, management of the Company determined that
certain book reserves for expired unasserted potential claims by third parties
were no longer necessary. Accordingly, reserves in the amount of $1,106,000 were
eliminated by reducing operating expenses for the period and $112,000 was
reclassified to accrued liabilities.
(4) TERMINAL ADDITIONS
On April 10, 1995, the Company announced that it added three additional
facilities to its network of marine supply and support terminals. The three
facilities are located at Harbor Island (Port Aransas), Port
F-19
<PAGE> 88
COASTWIDE ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
O'Connor and Freeport, Texas. The terminals were previously operated by M-I
Drilling Fluids LLC (M-I). M-I's drilling fluid products will continue to be
available from these three facilities as well as from the Company's facility in
Galveston, Texas.
The newly acquired terminal at Harbor Island is adjacent to and will be
combined with the Company's present terminal. The terminals acquired at Port
O'Connor and Freeport will continue to be operated as separate terminals in
those ports. Upon completion of certain contractual obligations, the agreement
with M-I contemplates further consolidation of M-I and the Company's operations
in Sabine Pass, Texas where M-I utilizes a competitors' terminal to conduct its
operations.
As consideration for the acquisition of the terminals, the Company agreed
to cancel a long-term lease obligation from M-I. The acquired assets were
recorded at an amount equal to the net present value of the foregone lease
payments and a deferred credit was recorded at the same amount. The acquired
assets will be depreciated over their remaining useful lives and the deferred
credit will be amortized over the remaining term of the cancelled lease.
(5) OTHER
In the first quarter of 1995, management of the Company finalized plans to
consolidate operations at two of its Galveston, Texas leased facilities into its
owned facility in that port. The Company recorded additional depreciation
expense of $300,000 related to the net book value of the fixed assets which will
revert to the landlord upon termination of the leases. Additional operating
expense of $200,000 was accrued for the estimated cost of moving inventory and
equipment that will be incurred by the Company. The Company estimates that the
consolidation will be completed by the end of the year.
During the first quarter, the Company recorded additional doubtful accounts
expense of $150,000 related to management's assessment of the realizable value
of certain receivables.
(6) TESORO MERGER
On September 14, 1995, the Company announced it had entered into a Letter
of Intent with Tesoro Petroleum Corporation (NYSE Symbol "TSO") providing for a
merger of Coastwide with Tesoro.
Under the proposed merger terms, for each Coastwide share, Coastwide's
shareholders would receive consideration of $2.55 payable in cash and the
balance payable by the issuance of 0.41 shares of Tesoro common stock. It is
intended that the merger qualify as a tax-free exchange with respect to the
Tesoro common stock to be issued.
Completion of the proposed merger is subject to satisfying a number of
conditions, including the execution of a definitive merger agreement, approval
of the merger by Coastwide's Board of Directors and shareholders, receipt of
satisfactory fairness and tax opinions and compliance with applicable regulatory
requirements.
F-20
<PAGE> 89
APPENDIX A
AGREEMENT AND PLAN OF MERGER
<PAGE> 90
EXHIBIT 2(a)
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TESORO PETROLEUM CORPORATION
CNRG ACQUISITION CORP.
AND
COASTWIDE ENERGY SERVICES, INC.
NOVEMBER 20, 1995
<PAGE> 91
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
THE MERGER........................................................................... A-1
SECTION 1.1 The Merger........................................................ A-1
SECTION 1.2 Effective Time.................................................... A-1
SECTION 1.3 Effects of the Merger............................................. A-1
SECTION 1.4 Certificate of Incorporation and By-laws.......................... A-2
SECTION 1.5 Directors......................................................... A-2
SECTION 1.6 Officers.......................................................... A-2
SECTION 1.7 Vacancies......................................................... A-2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE
OF CERTIFICATES.................................................................... A-2
SECTION 2.1 Effect on Capital Stock........................................... A-2
(a) Capital Stock of Sub..................................................... A-2
(b) Cancellation of Company and Parent Owned Stock and Rights................ A-2
(c) Conversion of Shares..................................................... A-2
(d) No Fractional Shares..................................................... A-3
(e) Shares of Dissenting Stockholders........................................ A-3
SECTION 2.2 Exchange of Certificates
(a) Exchange Agent........................................................... A-3
(b) Payment of Merger Consideration.......................................... A-3
(c) Exchange Procedure....................................................... A-3
(d) Distributions with Respect to Unexchanged Shares......................... A-4
(e) No Further Ownership Rights in Shares.................................... A-4
(f) Merger Consideration for Unexchanged Shares.............................. A-4
(g) Options Under Option Plans............................................... A-5
(h) Convertible Debentures................................................... A-5
(i) Warrants................................................................. A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES....................................................... A-5
SECTION 3.1 Representations and Warranties of the Company..................... A-5
(a) Organization, Standing and Power......................................... A-5
(b) Subsidiaries............................................................. A-6
(c) Capital Structure........................................................ A-6
(d) Authority; Non-contravention............................................. A-6
(e) SEC Documents............................................................ A-7
(f) Information Supplied..................................................... A-8
(g) Absence of Certain Changes or Events..................................... A-8
(h) Absence of Super majority Provision...................................... A-8
(i) Brokers.................................................................. A-9
(j) Litigation............................................................... A-9
(k) Absence of Changes in Benefit Plans...................................... A-9
</TABLE>
i
<PAGE> 92
<TABLE>
<CAPTION>
PAGE
--
<S> <C>
(l) ERISA Compliance......................................................... A- 9
(m) Taxes.................................................................... A-11
(n) No Excess Parachute Payments............................................. A-11
(o) Environmental Matters.................................................... A-12
(p) Compliance with Laws..................................................... A-14
(q) Material Contracts and Agreements........................................ A-15
(r) Insurance................................................................ A-15
(s) Title to Properties, etc................................................. A-15
(t) Intellectual Property.................................................... A-15
(u) Labor Matters............................................................ A-16
(v) Undisclosed Liabilities.................................................. A-16
(w) Transactions with Affiliates............................................. A-16
SECTION 3.2 Representations and Warranties of Parent and Sub.................. A-16
(a) Organization; Standing and Power......................................... A-16
(b) Authority; Non-contravention............................................. A-16
(c) Authorization for Parent Common Stock.................................... A-17
(d) SEC Documents............................................................ A-17
(e) Information Supplied..................................................... A-17
(f) Litigation............................................................... A-18
(g) Undisclosed Liabilities.................................................. A-18
(h) Brokers.................................................................. A-18
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS............................................ A-18
SECTION 4.1 Conduct of Business............................................... A-18
(a) Ordinary Course.......................................................... A-18
(b) Changes in Employment Arrangements....................................... A-20
(c) Severance................................................................ A-20
SECTION 4.2 Other Actions..................................................... A-20
SECTION 4.3 Advice of Changes................................................. A-20
ARTICLE V
ADDITIONAL AGREEMENTS................................................................ A-20
SECTION 5.1 Stockholder Approval; Preparation of Proxy Statement; Preparation
of Registration Statement...................................................... A-20
SECTION 5.2 Letter of the Company's Accountants............................... A-21
SECTION 5.3 Letter of Parent's Accountants.................................... A-21
SECTION 5.4 Access to Information............................................. A-21
SECTION 5.5 Reasonable Efforts; Notification.................................. A-22
SECTION 5.6 Stock Options..................................................... A-23
SECTION 5.7 Indemnification................................................... A-23
SECTION 5.8 Fees and Expenses................................................. A-23
SECTION 5.9 Public Announcements.............................................. A-23
SECTION 5.10 Stockholder Litigation............................................ A-23
</TABLE>
ii
<PAGE> 93
<TABLE>
<CAPTION>
PAGE
--
<S> <C>
ARTICLE VI
CONDITIONS PRECEDENT................................................................. A-24
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger........ A-24
(a) Company Stockholder Approval............................................. A-24
(b) HSR Act.................................................................. A-24
(c) No Injunctions or Restraints............................................. A-24
(d) Registration Statement Effectiveness..................................... A-24
(e) Exchange Listing......................................................... A-24
(f) Blue Sky Filings......................................................... A-24
SECTION 6.2 Conditions of Parent and Sub...................................... A-24
(a) Compliance............................................................... A-24
(b) Certifications and Opinion............................................... A-24
(c) Representations and Warranties True...................................... A-25
(d) Affiliate Letters........................................................ A-25
(e) Tax Opinion.............................................................. A-26
(f) Consents, etc............................................................ A-26
(g) No Litigation............................................................ A-26
(h) Dissenting Stockholders.................................................. A-26
(i) Satisfactory Due Diligence............................................... A-26
(j) No Material Adverse Change............................................... A-26
(k) Opinion of Financial Advisor............................................. A-26
(l) Employment Agreement..................................................... A-26
(m) Non-Competition Agreement................................................ A-26
(n) Lender Approval.......................................................... A-27
(o) Termination of Certain Agreements........................................ A-27
SECTION 6.3 Conditions of the Company......................................... A-27
(a) Compliance............................................................... A-27
(b) Certifications and Opinion............................................... A-27
(c) Representations and Warranties True...................................... A-27
(d) Tax Opinion.............................................................. A-28
(e) Assumption............................................................... A-28
(f) No Material Adverse Change............................................... A-28
(g) Opinion of Financial Advisor............................................. A-28
(h) Satisfactory Due Diligence............................................... A-28
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER.................................................... A-28
SECTION 7.1 Termination....................................................... A-28
ARTICLE VIII
SPECIAL PROVISIONS AS TO CERTAIN MATTERS............................................. A-29
SECTION 8.1 No Solicitation................................................... A-29
SECTION 8.2 Expense Reimbursements............................................ A-30
</TABLE>
iii
<PAGE> 94
<TABLE>
<CAPTION>
PAGE
--
<S> <C>
ARTICLE IX
GENERAL PROVISIONS................................................................... A-31
SECTION 9.1 Nonsurvival of Representations and Warranties..................... A-31
SECTION 9.2 Notices........................................................... A-31
SECTION 9.3 Definitions....................................................... A-32
SECTION 9.4 Interpretation.................................................... A-32
SECTION 9.5 Counterparts...................................................... A-32
SECTION 9.6 Entire Agreement: No Third-Party Beneficiaries.................... A-32
SECTION 9.7 Governing Law..................................................... A-32
SECTION 9.8 Assignment........................................................ A-32
SECTION 9.9 Enforcement of the Agreement...................................... A-32
SECTION 9.10 Severability...................................................... A-33
</TABLE>
iv
<PAGE> 95
AGREEMENT AND PLAN OF MERGER dated as of November 20, 1995 (the
"Agreement"), by and among TESORO PETROLEUM CORPORATION, a Delaware corporation
("Parent"), CNRG ACQUISITION CORP., a Delaware corporation ("Sub") and a wholly
owned subsidiary of Parent, and COASTWIDE ENERGY SERVICES, INC., a Delaware
corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the acquisition of the Company by Parent on the terms and subject
to the conditions of this Agreement;
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the merger of the Company with and into Sub (the "Merger"), upon
the terms and subject to the conditions of this Agreement, whereby each issued
and outstanding share (a "Share") of the Company's Common Stock, $.01 par value
("Common Stock"), not owned by the Company, Parent, Sub or any wholly-owned
subsidiary of the Company, Parent or Sub will be converted into the right to
receive .41 share of common stock, $.16 2/3 par value, of Parent, together with
any associated Preferred Stock Purchase Rights (the "Parent Shares") and cash in
lieu of any fraction thereof and $2.55 in cash; and
WHEREAS, for federal tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
hereof and in accordance with the Delaware General Corporation Law (the "DGCL"),
the Company shall be merged with and into Sub at the Effective Time of the
Merger (as hereinafter defined). At the election of Parent, any direct
wholly-owned subsidiary (as defined in Section 9.3) of Parent may be substituted
for Sub as a constituent corporation in the Merger. In such event, the parties
agree to execute an appropriate amendment to this Agreement in order to reflect
the foregoing. Following the Merger, the separate corporate existence of the
Company shall cease and Sub shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of the Company in accordance with the DGCL.
SECTION 1.2 Effective Time. As soon as practicable following the
satisfaction or, to the extent permitted hereunder, waiver of the conditions set
forth in Article VI, the Surviving Corporation shall file the certificate of
merger (the "Certificate of Merger") required by the DGCL with respect to the
Merger and other appropriate documents (the "Articles of Merger") executed in
accordance with the relevant provisions of the DGCL. The Merger shall become
effective at such time as the Certificate of Merger is duly filed with the
Delaware Secretary of State, or at such other time as Sub and the Company shall
agree should be specified in the Articles of Merger and the Certificate of
Merger (the time the Merger becomes effective being the "Effective Time of the
Merger"). The closing of the Merger (the "Closing") shall take place at the
offices of Fulbright & Jaworski L.L.P., in Houston, Texas, on the date of the
meeting of stockholders of the Company contemplated by this Agreement to approve
the Merger (the "Stockholders Meeting"), or, if any of the conditions set forth
in Article VI have not been satisfied, then as soon as practicable thereafter,
or at such other time and place or such other date as Parent and the Company
shall agree (the "Closing Date").
SECTION 1.3 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. If at any time after the Effective Time of the Merger, the
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or otherwise are necessary or desirable to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation, all rights, title
and interests in all real estate and other property and all privileges, powers
and franchises of the Company and Sub, the Surviving Corporation and its proper
officers and directors, in the name and on behalf of the Company and Sub, shall
execute and deliver all
A-1
<PAGE> 96
such proper deeds, assignments and assurances in law and do all things necessary
and proper to vest, perfect or confirm title to such property or rights in the
Surviving Corporation and otherwise to carry out the purpose of this Agreement,
and the proper officers and directors of the Surviving Corporation are fully
authorized in the name of the Company and Sub or otherwise to take any and all
such action.
SECTION 1.4 Certificate of Incorporation and By-laws. (a) The Certificate
of Incorporation of the Sub as in effect immediately prior to the Effective Time
of the Merger shall be amended as of the Effective Time of the Merger so that
Article First of Sub's Certificate of Incorporation reads in its entirety: "The
name of the corporation is Coastwide Marine Services, Inc." and, as so amended,
such Certificate of Incorporation shall be the Certificate of Incorporation of
the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
(b) The By-laws of Sub as in effect immediately prior to the Effective Time
of the Merger shall be the By-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
SECTION 1.5 Directors. The directors of Sub immediately prior to the
Effective Time of the Merger shall be the directors of the Surviving Corporation
and shall hold office in accordance with the Certificate of Incorporation and
By-laws of the Surviving Corporation from the Effective Time of the Merger until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
SECTION 1.6 Officers. The officers of the Sub immediately prior to the
Effective Time of the Merger shall be the officers of the Surviving Corporation
and shall hold office in accordance with the Certificate of Incorporation and
By-laws of the Surviving Corporation from the Effective Time of the Merger until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
SECTION 1.7 Vacancies. If at the Effective Time of the Merger a vacancy
shall exist in the Board of Directors or in any of the offices of the Surviving
Corporation, such vacancy may thereafter be filled in the manner provided by the
DGCL and the Certificate of Incorporation and By-laws of the Surviving
Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock. As of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the holder
of any Shares:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Company and Parent Owned Stock and Rights. All
Shares and any rights (including the Class B Warrants and the Convertible
Debt as hereinafter defined) that are held in treasury by the Company or
are owned by any wholly-owned subsidiary of the Company and any Shares and
any rights (including the Class B Warrants and the Convertible Debt) to
acquire Shares owned by Parent, Sub or any other wholly-owned subsidiary of
Parent or Sub shall be canceled and no consideration shall be delivered in
exchange therefor.
(c) Conversion of Shares. Subject to Sections 2.1(b), (d) and (e),
each issued and outstanding Share shall be converted into the right to
receive $2.55 in cash plus .41 Parent Share, together with any associated
Preferred Stock Purchase Rights (and cash in lieu of fractional shares as
provided in Section 2.1(d)) upon the surrender of the certificate formerly
representing such Share pursuant to Section 2.2 (the "Merger
Consideration"). If the closing price of Parent Shares on the date
("Determination Date") which is two trading days prior to the effective
date of the Registration Statement (as
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defined in Section 5.1(b)) is no less than $8.25 per Parent Share nor no
more than $10.50 per Parent Share, the Merger Consideration shall be fixed
as stated in the preceding sentence. If the closing price on the
Determination Date is less than $8.25 per Parent Share or more than $10.50
per Parent Share the parties shall endeavor in good faith to negotiate
revised terms for the Merger Consideration, recognizing that there is no
obligation on the part of either party to reach agreement, and, if
successful, shall fix the adjusted Merger Consideration as of the
Determination Date. For purposes of this Agreement the term "Merger
Consideration" shall include any adjustment made thereto under this Section
2.1(c).
(d) No Fractional Shares. No fractional Parent Shares shall be issued
in the Merger. All fractional Parent Shares that a holder of Shares would
otherwise be entitled to receive as a result of the Merger shall be
aggregated and if a fractional Parent Share results from such aggregation,
such holder shall be entitled to receive, in lieu thereof, an amount in
cash determined by multiplying the average of the daily closing sale price
per Parent Share on the New York Stock Exchange for the ten trading days
next preceding the Effective Time of the Merger by the fraction of a Parent
Share to which such holder would otherwise have been entitled. No interest
shall be paid on such amount. Alternatively, Parent and Sub shall have the
option of instructing the Exchange Agent (as defined in Section 2.2(a)) to
aggregate all fractional Parent Shares, sell such Parent Shares in the
public market and distribute to holders of fractional Parent Shares a pro
rata portion of the proceeds of such sale. No such cash in lieu of
fractional Parent Shares shall be paid to any holder of fractional Parent
Shares until Certificates (as defined in Section 2.2(c)) representing such
Parent Shares are surrendered and exchanged in accordance with Section
2.2(c). None of Parent, Sub, the Company, the Surviving Corporation or
their transfer agents shall be liable to a holder of the Shares for any
amount paid to a public official pursuant to applicable property, escheat
or similar laws.
(e) Shares of Dissenting Stockholders. Notwithstanding anything in
this Agreement to the contrary, any holder of Shares outstanding
immediately prior to the Effective Time of the Merger who is entitled to
demand and elects to demand appraisal rights under sec. 262 of the DGCL and
who has fully complied with the provisions thereof and who has not
effectively withdrawn or lost such right (a "Dissenting Stockholder"),
shall not receive the Merger Consideration, but shall be entitled to
receive from the Surviving Corporation such consideration as may be
determined to be due to such Dissenting Stockholder in consideration for
such Dissenting Stockholder's Shares pursuant to sec. 262 of the DGCL;
provided, however, that each Share outstanding immediately prior to the
Effective Time of the Merger and held by a Dissenting Stockholder who,
after the Effective Time of the Merger, withdraws his demand for appraisal
under sec. 262 of the DGCL, in writing delivered to the Surviving
Corporation (subject to the written approval of the Surviving Corporation
to the extent required by sec. 262 of the DGCL) or otherwise loses his
right of appraisal, in either case pursuant to the DGCL, shall be deemed to
be converted, as of the Effective Time of the Merger, into the right to
receive the Merger Consideration and any cash in lieu of fractional shares
issuable and payable with respect to his Shares. The Company shall give
Parent (i) prompt notice of any written demands for appraisal received by
the Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to any such demands. The Company shall not,
without the prior written consent of Parent, voluntarily make any payment
with respect to, or settle, offer to settle or otherwise negotiate, any
such demands.
SECTION 2.2 Exchange of Certificates. (a) Exchange Agent. Prior to the
Effective Time of the Merger, Parent shall select a bank or trust company to act
as exchange agent (the "Exchange Agent") for the issue of the Merger
Consideration upon surrender of certificates representing Shares.
(b) Payment of Merger Consideration. Parent shall take all steps
necessary to enable and cause there to be provided to the Exchange Agent on
a timely basis, as and when needed after the Effective Time of the Merger,
certificates for the Parent Shares to be issued upon the conversion of the
Shares pursuant to Section 2.1. Parent or the Surviving Corporation shall
timely make available to the Exchange Agent the cash component of the
Merger Consideration.
(c) Exchange Procedure. As soon as reasonably practicable after the
Effective Time of the Merger, the Exchange Agent shall mail to each holder
of record of a certificate or certificates that
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immediately prior to the Effective Time of the Merger represented
outstanding Shares (the "Certificates"), other than the Company, Parent,
Sub and any wholly owned subsidiary of the Company, Parent or Sub, (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in a form
and have such other provisions as Parent and Sub may reasonably specify)
and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by the Surviving Corporation, together with
such letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration, and the Certificate so surrendered shall forthwith be
canceled. If the Merger Consideration is to be issued to a person other
than the person in whose name the Certificate so surrendered is registered,
it shall be a condition of exchange that such Certificate shall be properly
endorsed or otherwise in proper form for transfer and that the person
requesting such exchange shall pay any transfer or other taxes required by
reason of the exchange to a person other than the registered holder of such
Certificate or establish to the satisfaction of the Surviving Corporation
that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any
time after the Effective Time of the Merger to represent only the right to
receive upon such surrender the Merger Consideration into which the Shares
theretofore represented by such Certificate shall have been converted
pursuant to Section 2.1. The Exchange Agent shall not be entitled to vote
or exercise any rights of ownership with respect to the Parent Shares held
by it from time to time hereunder, except that it shall receive and hold
all dividends or other distributions paid or distributed with respect
thereto for the account of persons entitled thereto.
(d) Distributions with Respect to Unexchanged Shares. None of the
Merger Consideration and no dividends or other distributions declared or
made after the Effective Time of the Merger with respect to the Parent
Shares with a record date after the Effective Time of the Merger shall be
paid to the holder of any Certificate with respect to the Parent Shares
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the
record holder of the Certificates representing the Parent Shares issued in
exchange therefor, without interest, (i) at the time of such surrender, the
Merger Consideration with respect to such Parent Share and the amount of
dividends or other distributions, if any, with a record date after the
Effective Time of the Merger theretofore paid with respect to such whole
Parent Shares, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective
Time of the Merger but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole Parent Shares.
(e) No Further Ownership Rights in Shares. All Parent Shares issued
upon the surrender of Certificates in accordance with the terms of this
Article II, together with any dividends payable thereon to the extent
contemplated by this Section 2.2, shall be deemed to have been exchanged
and paid in full satisfaction of all rights pertaining to the Shares
theretofore represented by such Certificates and, at the Effective Time of
the Merger, there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the Shares that were
outstanding immediately prior to the Effective Time of the Merger. If,
after the Effective Time of the Merger, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article II.
(f) Merger Consideration for Unexchanged Shares. At any time more than
six months after the Effective Time, if the Exchange Agent holds any Merger
Consideration or any dividends or other distributions in respect of Parent
Shares with respect to which the holder of record of the Certificate
therefor has not surrendered such Certificate, the Surviving Company, on
written notice, may direct the Exchange Agent to deliver such Merger
Consideration and all such dividends and other distributions to the
Surviving Company. Upon receipt thereof, the Surviving Company shall have
no obligations to segregate any cash so received and the holder who has not
surrendered such Certificate shall look solely
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to the Surviving Company for payment of the Merger Consideration and any
applicable dividends or other distributions.
(g) Options Under Option Plans. At the Effective Time, each option
granted by the Company to purchase shares of Common Stock under the Option
Plans, as hereinafter defined, which is outstanding and unexercised
immediately prior thereto, shall be converted automatically into an option
to purchase the shares of Parent Shares in an amount and at an exercise
price determined as provided below (and otherwise having the same duration
and other terms as the original option):
(1) the number of shares of Parent Shares to be subject to the new
option shall be equal to the product of the number of shares of Common
Stock subject to the original option and .41, provided that any
fractional shares of Parent Shares resulting from such multiplication
shall be rounded to the nearest whole share; and
(2) the exercise price per share of Parent Shares to be subject to
the new option shall be equal to (i) the exercise price of the number of
shares of Common Stock under the original option divided by .41 minus
(ii) $6.2195 (rounded to the nearest cent), provided, that if such
amount is less than $0, the holder of such option shall, upon exercise,
receive, in cash, the amount by which such amount is less than $0.
(3) if the Merger Consideration is adjusted pursuant to Section
2.1(c), the terms of subsections (1) and (2) hereof shall be adjusted
accordingly to reflect the change in the fractional Parent Share and the
cash consideration comprising the Merger Consideration as adjusted.
(h) Convertible Debentures. The Coastwide 8% Convertible Subordinated
Debentures due July 1, 2004 (the "Convertible Debentures"), outstanding at
the Effective Time shall be assumed by Sub and remain outstanding
thereafter, and from and after the Effective Time, the holders of the
Convertible Debentures shall have the right to convert such Convertible
Debentures into such number of shares of Parent Shares and such amount of
cash received by a holder of the number of shares of Company Shares into
which such Convertible Debentures might have been converted immediately
prior to the Merger.
(i) Warrants. With regard to the Class B Warrants to purchase shares
of Common Stock ("Class B Warrants"), subject to the terms of the Warrant
Agreement dated as of September 30, 1993, by and between the Company and
Chemical Shareholder Services Group, Inc. (the "Warrant Agent"), Parent
shall enter into an amended Warrant Agreement with the Warrant Agent,
giving each holder of Class B Warrants, the right (prior to the expiration
date of the warrants), upon payment of the warrant price in effect
immediately prior to such action, to purchase upon exercise of each warrant
the number of shares of Parent Shares and cash that he would have been
entitled to receive at the Effective Date if the warrant had been exercised
immediately prior thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, Parent and Sub as follows:
(a) Organization, Standing and Power. Each of the Company and each of
its subsidiaries is a corporation duly organized, validly existing and in
good standing under the law of the jurisdiction in which it is incorporated
and has the requisite corporate power and authority to carry on its
business as now being conducted. Each of the Company and each of its
subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed to do business (individually or in the
aggregate) would not have a material adverse effect on the Company. The
Company has delivered to Parent complete and correct copies of its
Certificate of Incorporation and By-laws and the articles or certificates
of incorporation, by-laws or other similar organizational and governing
documents of its subsidiaries.
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(b) Subsidiaries. Section 3.1(b) of the Disclosure Schedule lists each
direct or indirect subsidiary of the Company. Each of the Company's
subsidiaries that is not a corporation is duly organized under the laws of
its jurisdiction of organization and has all requisite power and authority
to carry on its business as it is now being conducted, and to own, operate
and lease the assets that it now owns, operates or holds under lease. All
the outstanding shares of capital stock of the Company's subsidiaries that
are corporations have been duly authorized and validly issued and are fully
paid and non-assessable and were not issued in violation of any preemptive
rights or other preferential rights of subscription or purchase of any
person. All of the Company's direct or indirect ownership interests in the
Company's subsidiaries that are not corporations have been duly authorized
and validly issued or vested, were not issued in violation of any
preemptive rights or other preferential rights of subscription or purchase
of any person, are fully paid and, except as set forth in Section 3.1(b) of
the Disclosure Schedule, are non-assessable. Except as set forth in Section
3.1 (c) of the Disclosure Schedule, all such stock and ownership interests
are owned of record and beneficially by the Company or the Company's
subsidiary identified on such schedule as owning such interest, free and
clear of all liens, pledges, security interests, charges, claims and other
encumbrances of any kind or nature ("Liens"). Except as set forth in
Section 3.1(b) of the Disclosure Schedule no person other than the Company
or a subsidiary of the Company holds any equity interest of any kind in a
subsidiary of the Company. Except for the capital stock of its subsidiaries
and except for the ownership interests set forth in Section 3.1 (b) of the
Disclosure Schedule, the Company does not own, directly or indirectly, any
capital stock, equity interest or other ownership interest in any
corporation, partnership, association, joint venture, limited liability
company or other entity.
(c) Capital Structure. The authorized capital stock of the Company
consists of 15,000,000 Shares and 5,000,000 shares of Preferred Stock, $.01
par value ("Preferred Stock"). At the close of business on November 14,
1995, there were no shares of Preferred Stock Outstanding and (i) 1,821,648
Shares were issued and outstanding, (ii) 198,250 Shares were reserved for
issuance pursuant to options granted and currently outstanding under stock
option plans ("Option Plans") set forth in Section 3.1(c) of the Disclosure
Schedule, (iii) 360,137 Shares were reserved for issuance upon exercise of
the Class B Warrants and (iv) 1,004,706 Shares were reserved for issuance
upon conversion of the Subordinated Debenture. Except as set forth above or
as a result of exercises under the Option Plans, Class B Warrants, or
Convertible Debenture outstanding on November 14, 1995, no shares of
capital stock or other equity or voting securities of the Company are
reserved for issuance or are outstanding. All outstanding shares of capital
stock of the Company are, and all such shares issuable upon exercise under
the Option Plans, Class B Warrants and Convertible Debenture will, if and
when issued in accordance with the terms of their respective governing
agreements, be, validly issued, fully paid and nonassessable and not
subject to preemptive rights. No capital stock has been issued by the
Company since September 30, 1995, other than shares of Common Stock issued
under the Option Plans, Class B Warrants and Convertible Debenture, in
accordance with their terms at such date. Except for Option Plan options,
the Class B Warrants, and the Convertible Debenture outstanding as of
September 30, 1995, there were no outstanding or authorized securities,
options, warrants, calls, rights, commitments, preemptive rights,
agreements, arrangements or undertakings of any kind to which the Company
or any of its subsidiaries is a party, or by which any of them is bound,
obligating the Company or any of its subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, any shares of capital stock
or other equity or voting securities of the Company or of any of its
subsidiaries or obligating the Company or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. Neither the
Company nor any of its subsidiaries are parties to, and to the best
knowledge of the Company no other person is party to, any voting trust,
voting agreement, or similar voting agreement or arrangement relating to
any equity security of the Company or any subsidiary.
(d) Authority; Non-contravention. The Company has all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to Stockholder
Approval (as defined in Section 3.1(h)). This Agreement has
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been duly and validly executed and delivered by the Company and constitutes
a valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, fraudulent transfer or similar laws
affecting the enforcement of creditors' rights generally and pursuant to
general equitable principles. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby and
compliance with the provisions hereof will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of or "put" right with respect to any obligation or to loss of
a material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any of its subsidiaries under, any provision of (i) the
Certificate of Incorporation or By-Laws of the Company or any provision of
the comparable organizational documents of its subsidiaries, (ii) except as
set forth in Section 3.1(d) of the Disclosure Schedule, any loan or credit
agreement, note, bond, mortgage, indenture, lease, municipal contract or
other agreement, instrument, permit, concession, franchise or license
applicable to the Company or any of its subsidiaries or their respective
properties or assets or (iii) subject to governmental filing and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation or arbitration award applicable
to the Company or any of its subsidiaries or their respective properties or
assets, other than, in the case of clause (ii), any such conflicts,
violations, defaults, rights or liens, security interests, charges or
encumbrances that individually or in the aggregate would not have a
material adverse effect on the Company and would not materially impair the
ability of the Company to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or agency, domestic or foreign, including local authorities (a
"Governmental Entity"), is required by or with respect to the Company or
any of its subsidiaries in connection with the execution and delivery of
this Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except for (i) the filing of a premerger
notification and report form by the Company under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) the filing with
the Securities and Exchange Commission (the "SEC") of (A) a proxy or
information statement relating to the Stockholder Approval (such proxy or
information statement as amended or supplemented from time to time, the
"Proxy Statement"), and (B) such reports under Section 13(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be
required in connection with this Agreement and the transactions
contemplated hereby, (iii) the filing of the Certificate of Merger with the
Delaware Secretary of State with respect to the Merger as provided in the
DGCL and appropriate documents with the relevant authorities of other
states in which the Company is qualified to do business and (iv) such other
consents, approvals, orders, authorizations, registrations, declarations,
filings and notices as are set forth in Section 3.1(d) of the Disclosure
Schedule.
(e) SEC Documents. The Company has timely filed all required reports,
schedules, forms, statements and other documents with the SEC since October
31, 1993 and the Company has delivered or made available to Parent all
reports, schedules, forms, statements and other documents filed with the
SEC since such date (such documents, together with all exhibits and
schedules thereto and documents incorporated by reference therein,
collectively referred to herein as the "SEC Documents"). As of their
respective dates, the SEC Documents as they may have been amended complied
in all material respects with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that the foregoing representation and
warranty does not relate to any written information received from Parent or
any of its subsidiaries specifically for inclusion in the SEC Documents).
The consolidated financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto, accurately reflect the books and records of the
Company, have been
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prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments and other
adjustments described therein). All material contracts of the Company and
its subsidiaries had been included in the SEC Documents, except for those
contracts not required to be filed pursuant to the rules and regulations of
the SEC.
(f) Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i)
the Registration Statement (as defined in Section 5.1 (b)) will, at the
time the Registration Statement is filed with the SEC, and at any time it
is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and (ii) the Proxy Statement will,
at the date the Proxy Statement is first mailed to the Company's
stockholders and at the time of the Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations thereunder. For purposes of this Agreement, the parties agree
that the statements made and information in the Registration Statement and
the Proxy Statement (other than information provided by Parent or any
subsidiary of Parent in each case concerning Parent or such subsidiary
expressly for inclusion therein) relating to the Federal income tax
consequences of the transactions contemplated hereby to the holders of
Shares shall be deemed to be supplied by the Company and not by Parent or
Sub.
(g) Absence of Certain Changes or Events. Except as disclosed in the
SEC Documents or in Section 3.1(g) of the Disclosure Schedule, since
December 31, 1994, the Company has conducted its business only in the
ordinary course consistent with past practice, and there has not been (i)
any material adverse change with respect to the Company, (ii) any
declaration, setting aside or payment of any dividend (whether in cash,
stock or property) with respect to any of the Company's capital stock,
(iii) (A) any granting by the Company or any of its subsidiaries to any
executive officer of the Company or any of its subsidiaries of any increase
in compensation, (B) any granting by the Company or any of its subsidiaries
to any such executive officer of any increase in severance or termination
pay, or (C) any entry by the Company or any of its subsidiaries into any
employment, severance or termination agreement with any such executive
officer, (iv) any damage, destruction or loss, whether or not covered by
insurance, that has or could reasonably be expected to have a material
adverse effect on the Company, (v) any change in accounting methods,
principles or practices by the Company materially affecting its assets,
liabilities or business, except insofar as may have been required by a
change in generally accepted accounting principles, (vi) any condition,
event or occurrence which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the Company or
give rise to a material adverse change with respect to the Company, (vii)
any event which, if it had taken place following the execution of this
Agreement, would not have been permitted by Article 4, or (viii) any
condition, event or occurrence which, individually or in the aggregate,
could reasonably be expected to prevent, hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement.
(h) Absence of Super Majority Provision. Except for the approval of
the Merger by the holders of a majority of the outstanding Shares
("Stockholder Approval"), no other stockholder action on the part of the
Company is required for approval of the Merger and the transactions
contemplated hereby. No provision of the Company's Certificate of
Incorporation or By-laws or other governing instruments of its subsidiaries
or the terms of any rights plan or other takeover defense mechanism of the
Company would, directly or indirectly, restrict or impair the ability of
Parent to vote, or otherwise to exercise the rights of a stockholder with
respect to, securities of the Company and its subsidiaries that may be
acquired or
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controlled by Parent or permit any stockholder to acquire securities of the
Company on a basis not available to Parent in the event that Parent were to
acquire securities of the Company.
(i) Brokers. Except for a fee of $450,000 payable to Simmons & Company
International for the opinion referred to in Section 6.3(g), whose fees are
to be paid by the Company or the Surviving Corporation pursuant to the fee
agreement previously provided to Parent, no broker, investment banker or
other person is entitled to receive from the Company or any of its
subsidiaries any investment banking, brokerage or finder's fees in
connection with this Agreement or the transactions contemplated hereby.
(j) Litigation. Except as disclosed in the SEC Documents, there is no
suit, action, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company or any of
its subsidiaries or any of their respective properties or employee benefit
plans or fiduciaries thereof that could reasonably be expected to have a
material adverse effect on the Company or prevent, hinder or materially
delay the ability of the Company to consummate the transactions
contemplated by this Agreement (and the Company is not aware of any basis
for any such suit, action, proceeding or investigation), nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company or any of its subsidiaries or
any of their respective properties or employee benefit plans or fiduciaries
thereof having, or which, insofar as reasonably can be foreseen, in the
future could have, any such effect.
(k) Absence of Changes in Benefit Plans. Except as disclosed in
Section 3.1(k) of the Disclosure Schedule, since December 31, 1994, there
has not been any adoption or amendment in any respect by the Company or any
of its subsidiaries of any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical
dependent care, cafeteria, employee assistance, scholarship program or
other plan arrangement or understanding (whether or not legally binding)
providing benefits to any current or former employee or director of the
Company or any of its subsidiaries (collectively, "Benefit Plans").
Except as disclosed in Section 3.1(k) of the Disclosure Schedule, there
exist no employment, consulting, severance, termination or indemnification
agreements, arrangements or understandings between the Company or any of
its subsidiaries and any officer, director or employee of the Company or
any of its subsidiaries.
(l) ERISA Compliance.
(i) Section 3.1(l) of the Disclosure Schedule contains a list and
brief description of all "employee pension benefit plans" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (sometimes referred to herein as "Pension Plans"),
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA)
and all other Benefit Plans maintained, or contributed to, by the
Company or any of its subsidiaries for the benefit of any present or
former directors, officers or employees of the Company or any of its
subsidiaries under common control or affiliated pursuant to Sections
414(b), (c), (m) and (o) of the Code. The Company has delivered to
Parent true, complete and correct copies of (A) each Benefit Plan (or,
in the case of any unwritten Benefit Plans, descriptions thereof), (B)
the most recent two annual reports on Form 5500 filed with the United
States Internal Revenue Service (the "IRS") with respect to each Benefit
Plan, (if any such report was required), (C) the most recent IRS
determination letter and all rulings or determinations requested
subsequent to the date of that letter, (D) the most recent actuarial
report for each Benefit Plan for which an actuarial report is required,
(E) the most recent summary plan description for each Benefit Plan for
which such summary plan description is required and each summary of
material modifications prepared after the last summary plan description,
(F) each trust agreement and group annuity contract relating to any
Benefit Plan and (G) all material correspondence for the last three
years with the IRS or Department of Labor relating to plan
qualification, filing of required forms, or pending, contemplated and
announced plan audits.
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(ii) Except as disclosed in Section 3.1(l) of the Disclosure
Schedule, all Pension Plans which are intended to qualify under Section
401(A) of the Code have been submitted to, and approved as qualifying by
the IRS or the applicable remedial amendments period will not have ended
by the Closing Date. In addition, no facts have occurred which if known
by the IRS, could cause disqualification of those Pension Plans. The
Company has paid all premiums (including any applicable interest,
charges and penalties for late payment) due the Pension Benefit Guaranty
Corporation (the "PBGC") with respect to each Pension Plan for which
premiums are required. No Pension Plan maintained by the Company has
been terminated under circumstances which would result in liability to
the PBGC.
(iii) All Benefit Plans which have been or are sponsored by,
participated in by or contributed to by the Company or any of its
subsidiaries: (A) is in substantial compliance with all reporting and
disclosure requirements of Part 1 of Subtitle B of Title I of ERISA,
including compliance with the timely filing of all financial statements
and reports (B) has had the appropriate Form 5500 filed, timely, for
each year of its existence, (C) has at all times complied with the
bonding requirements of Section 412 of ERISA and (D) has no issue
pending (other than the payment of benefits in the normal course) nor
any issue resolved adversely to the Company or any of its subsidiaries
which may subject the Company or any of its subsidiaries to the payment
of a material penalty, interest, tax or other obligation and (E) can be
unilaterally terminated or amended on no more than ninety (90) days'
notice.
(iv) All voluntary employee benefit associations have been
submitted to and approved as exempt from Federal income tax under
Section 501(c)(9) of the Code by the IRS or the applicable submission
period will not have ended by the Closing Date.
(v) Except as disclosed in Section 3.1(l) of the Disclosure
Schedule, the execution of this Agreement or the consummation of the
transactions contemplated by this Agreement will not give rise to any,
or trigger any, change of control, severance or other similar provision
in any Benefit Plan.
(vi) Neither the Company nor any of its subsidiaries provides
director or employee post-retirement medical or health coverage or
contributes to or maintains any employee welfare benefit plan which
provides for health benefit coverage following termination of employment
except as is required by Section 4980B(f) of the Code or other
applicable statute, nor has it made any representations, agreements,
covenants or commitments to provide that coverage.
(vii) No Pension Plan that the Company or any of its subsidiaries
maintains, or to which the Company or any of its subsidiaries is
obligated to contribute, other than any Pension Plan that is a
"multiemployer plan" (as such term is defined in Section 4001 (a)(3) of
ERISA, collectively, the "Multiemployer Pension Plans"), had, as of the
respective annual valuation date for each such Pension Plan, an
"unfunded benefit liability" (as such term is defined in Section
4001(a)(18) of ERISA), based on actuarial assumptions which have been
furnished to Parent. None of the Pension Plans has an "accumulated
funding deficiency" (as such term is defined in Section 302 of ERISA or
Section 412 of the Code), whether or not waived. To the best of the
Company's knowledge, none of the Company, any of its subsidiaries, any
director or officer of the Company or any of its subsidiaries or any of
the Benefit Plans which are subject to ERISA, including the Pension
Plans, or any trusts created thereunder, or any trustee or administrator
thereof, has engaged in a "prohibited transaction" (as such term is
defined in Section 406, 407 or 408 of ERISA or Section 4975 of the Code)
(unless exempt under Section 408 of ERISA or Section 4975 of the Code)
or any other breach of fiduciary responsibility that could subject the
Company, any of its subsidiaries or any director or officer of the
Company or any of its subsidiaries to the tax or penalty on prohibited
transactions imposed by such Section 4975 or to any liability under
Section 502(i) or (1) of ERISA which would have a material adverse
effect on the Company. Neither any of such Benefit Plans nor any of such
trusts have been terminated, nor has there been any "reportable event"
(as that term is defined in Section 4043 of ERISA) with respect to which
the 30-day notice requirement has not been waived and the Company is not
aware of any other reportable events with respect thereto during the
last five
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years. Neither the Company nor any of its subsidiaries has ceased
operations at a facility so as to become subject to the provisions of
Section 4062(e) of ERISA, withdrawn as a substantial employer so as to
become subject to the provisions of Section 4063 of ERISA or ceased
making contributions on or before the Closing Date to a Pension Plan
subject to Section 4064(a) of ERISA to which the Company made
contributions at any time during the six years prior to the Closing
Date. Neither the Company nor any of its subsidiaries has suffered or
otherwise caused a "complete withdrawal" or a "partial withdrawal" (as
such terms are defined in Section 4203 and Section 4205, respectively,
of ERISA) since the effective date of such Sections 4203 and 4205 with
respect to any of the Multiemployer Pension Plans.
(viii) With respect to any Benefit Plan that is an employee welfare
benefit plan, except as disclosed in Section 3.1(l) of the Disclosure
Schedule, (A) no such Benefit Plan is unfunded or funded through a
welfare benefits fund, as such term is defined in Section 419(e) of the
Code, (B) each such Benefit Plan that is a group health plan, as such
term is defined in Section 5000(b)(1) of the Code, complies in all
material respects with the applicable requirements of Section 4980B(f)
of the Code and (C) each such Benefit Plan (including any such Benefit
Plan covering retirees or other former directors or employees) may be
amended or terminated without material liability to the Company or any
of its subsidiaries on or at any time after the consummation of the
Merger.
(m) Taxes. Except as set forth in Section 3.1 (m) of the Disclosure
Schedule, each of the Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax (as defined
below) purposes of which the Company or any of its subsidiaries is or has
been a member, has timely filed all Tax Returns (as defined below) required
to be filed by it and has timely paid (or the Company has paid on its
behalf) all Taxes which are due (whether or not shown on a Tax Return).
Each of the Tax Returns filed by the Company or any of its subsidiaries is
accurate and complete in all material respects. The most recent
consolidated financial statements of the Company contained in the SEC
Documents reflect an adequate reserve for all Taxes payable by the Company
and its subsidiaries for all taxable periods and portions thereof through
the date of such financial statements and through the Closing Date whether
or not shown as being due on any Tax Returns. The consummation of the
Merger will not cause the Company to recognize any gain or income,
including, without limitation, recognition of income or gain resulting from
an excess loss account, deferred intercompany transaction or similar
transactions. Except as described in Section 3.1 (m) of the Disclosure
Schedule, no deficiencies for any Taxes have been proposed, asserted or
assessed against the Company or any of its subsidiaries, and no requests
for waivers of the time to assess any such Taxes have been granted or are
pending. None of the Federal income Tax Returns of the Company and its
subsidiaries consolidated in such Tax Returns have been examined by the
IRS. The applicable statute of limitations has run for all taxable years of
the Company ending on or before December 31, 1991, subject to the exception
that future uses of net operating losses may subject previously filed tax
returns to review. Except as set forth in Section 3.1(m) of the Disclosure
Schedule, there are no current examinations of any Tax Return of the
Company or any of its subsidiaries being conducted and there are no
settlements or any prior examinations which could adversely affect any
taxable period for which the statute of limitations has not run. As used
herein, "Tax" or "Taxes" shall mean all taxes of any kind, including,
without limitation, those on or measured by or referred to as income, gross
receipts, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, value
added, property or windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any
Governmental Entity, domestic or foreign. As used herein, "Tax Return"
shall mean any return, report or statement required to be filed with any
governmental authority with respect to Taxes.
(n) No Excess Parachute Payments. Any amount that could be received
(whether in cash or property or the vesting of property) as a result of any
of the transactions contemplated by this Agreement by any employee, officer
or director of the Company or any of its affiliates who is a "disqualified
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individual" (as such term is defined in Section 280(G)(c) of the Code)
under any employment, severance or termination agreement, other
compensation arrangement or Benefit Plan currently in effect would not be
characterized as an "excess parachute payment" (as such term is defined in
Section 280G(b)(1) of the Code).
(o) Environmental Matters.
(i) As used in this Section 3.1(o):
(A) "Contaminated Site List" means any list, registry, or other
compilation established by any Governmental Entity of sites that
require or potentially require investigation, removal actions,
remedial actions, or any other response under any Environmental Laws
or treaty covering environmental matters, as the result of the
Release or threatened Release of any Hazardous Materials.
(B) "Environmental Laws" means all laws, rules, regulations,
statutes, ordinances or orders of any Governmental Entity relating to
(1) the control of any potential pollutant or protection of the air,
water or land, (2) solid, gaseous or liquid waste generation,
handling, treatment, storage, disposal or transportation, and (3)
exposure to hazardous, toxic or other substances alleged to be
harmful, and includes without limitation, (x) the terms and
conditions of any license, permit, approval, or other authorization
by any Governmental Entity, and (y) judicial, administrative, or
other regulatory decrees, judgments, and orders of any Governmental
Entity. The term "Environmental Laws" shall include, but not be
limited to, the Clean Air Act, 42 U.S.C. sec. 7401 et seq., the Clean
Water Act, 33 U.S.C. sec. 1251 et seq., the Resource Conservation
Recovery Act ("RCRA"), 42 U.S.C. sec. 6901 et seq., the Superfund
Amendments and Reauthorization Act, 42 U.S.C. sec. 11011 et seq., the
Toxic Substances Control Act, 15 U.S.C. sec. 2601 et seq., the Water
Pollution Control Act, 33 U.S.C. sec. 1251, et seq., the Oil
Pollution Act of 1990, 33 U.S.C. sec. 2701, et. seq., the Safe
Drinking Water Act, 42 U.S.C. sec. 300f et seq., and the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), 42 U.S.C. sec. 9601 et seq., Subtitle B of the Texas
Health and Safety Code, V.T.C.A., Health & Safety Code sec. 361, et
seq., and Subtitle D of the Texas Water Code, V.T.C.A., Water Code
sec. 26, et. seq.
(C) "Environmental Liabilities" shall mean any and all
liabilities, responsibilities, claims, suits, losses, costs
(including remediation, removal, response, abatement, clean-up,
investigative, and/or monitoring costs and any other related costs
and expenses), other causes of action recognized now or at any later
time, damages, settlements, expenses, charges, assessments, liens,
penalties, fines, prejudgment and post-judgment interest, expert
fees, attorney fees and other legal fees (1) pursuant to any
agreement, order, notice, or responsibility, directive (including
directives embodied in Environmental Laws), injunction, judgment, or
similar documents (including settlements), or (2) pursuant to any
claim by a Governmental Entity or other person for personal injury,
property damage, damage to natural resources, remediation, or similar
costs or expenses incurred by such Governmental Entity or person
pursuant to common law or statute.
(D) "Environmental Remediation Costs" means all costs and
expenses of actions or activities to (1) cleanup or remove Hazardous
Materials from the environment, (2) to prevent or minimize the
further movement, leaching, or migration of Hazardous Materials in
the environment, (3) prevent, minimize or mitigate the Release or
threatened Release of Hazardous Materials into the environment, or
injury or damage from such Release, and (4) comply with the
requirements of any Environmental Laws. Environmental Remediation
Costs include, without limitation, costs and expenses payable in
connection with the foregoing for legal, engineering or other
consultant services, for investigation, testing, sampling, and
monitoring, for boring, excavation, and construction, for removal,
modification or replacement of equipment or facilities, for labor and
material, and for proper storage, treatment, and disposal of
Hazardous Materials.
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(E) "Hazardous Materials" means any toxic or hazardous materials
or substances, or solid wastes, including asbestos, buried
contaminants, chemicals, flammable or explosive materials,
radioactive materials, petroleum and petroleum products, and any
other chemical, pollutant, contaminant, substance, product or waste
that is regulated by any Governmental Entity under any Environmental
Law.
(F) "Material" or "Material Adverse Effect" shall mean any
matter, response action, remediation, or other item calling for the
payment or expenditure by the Company or any subsidiary thereof of
funds in excess of $50,000 per occurrence, or $250,000 in the
aggregate.
(G) "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching,
dumping, or disposing into the environment of any Hazardous
Materials.
(ii) Except as disclosed in Section 3.1(o) of the Disclosure
Schedule:
(A) With respect to permits and licenses, (1) all licenses,
permits, consents, or other approvals required under Environmental
Laws that are necessary to the operations of the Company or any of
its subsidiaries have been obtained and are in full force and effect
and the Company is unaware of any basis for revocation or suspension
of any such licenses, permits, consents or other approvals, (2) no
permit will expire before, nor within sixty days after, the Closing
Date, for which an application for extension or renewal has not been
filed, (3) no declaration, environmental impact statement, or other
filing or notice to any Governmental Entity is required under
Environmental Laws as a condition to or in connection with the
transactions contemplated by this Agreement, and (4) no Environmental
Laws impose any obligation upon the Company or any of its
subsidiaries, as a result of any transaction contemplated hereby,
requiring prior notification to any Governmental Entity of the
transfer of any permit, license, consent, or other approval.
(B) No Governmental Entity has given notice to the Company or
any of its subsidiaries of any intent to encumber or place a lien
under any Environmental Laws upon any property owned or operated by
the Company or any of its subsidiaries. No notice or restriction has
been, or is required to be placed in any deed or other public real
property record pursuant to any Environmental Laws with respect to
any properties owned or operated by the Company or any of its
subsidiaries.
(C) Except as would not have a Material Adverse Effect, (1) no
oral or written notification of any Release of any Hazardous
Materials has been given to any Governmental Entity by or on behalf
of the Company or any of its subsidiaries, (2) no property currently
or previously owned or operated by the Company or any of its
subsidiaries (or their respective predecessors with respect to
property owned or operated during or prior to the Company's or the
subsidiary's ownership or operation thereof) is listed on (nor has
the Company or any of its subsidiaries received any notice from any
Governmental Entity that such property is being considered or
proposed for listing on) any Contaminated Site List, (3) no property
currently owned or operated by the Company, nor previously owned or
operated by the Company or any of its subsidiaries (or their
respective predecessors with respect to property owned or operated
during or prior to the Company's or the subsidiary's ownership or
operation thereof) is the subject of any judgment, decree or order of
any Governmental Entity requiring any investigation, removal,
remediation or similar action, or other response under any
Environmental Laws, (4) neither the Company nor any of its
subsidiaries has received any notice that it is liable or
responsible, or potentially liable or responsible, in any respect for
any removal, remedial, or other similar type action under any
Environmental Laws as the result of the Release or threatened Release
of Hazardous Materials at any location and (5) no notice of claim,
complaint, investigation, litigation, or administrative proceeding
has been received or threatened before any Governmental Entity (and
neither the Company nor any of its subsidiaries know of any
threatened claim, complaint, investigation, litigation, or
administrative
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proceeding) in which it is asserted by any Governmental Entity or any
other person that the Company or any of its subsidiaries (x) has
violated or is not in compliance with any Environmental Laws, (y) is
liable for or should be ordered or compelled to undertake any
removal, remediation, or other response action as the result of the
Release or threatened Release of any Hazardous Materials at any
location or (z) is liable for damages (including without limitation,
damages to natural resources), fines, penalties, or other relief as
the result of the violation or noncompliance of any Environmental
Laws or as the result of the Release or threatened Release of any
Hazardous Materials at or from any property currently or previously
owned or operated by the Company or any of its subsidiaries, or at
any other location.
(D) With respect to Environmental Remediation Costs, the Company
has reserved funds for all Material Environmental Remediation Costs
of which it is aware or has notice in connection with which the
Company and any of its subsidiaries reasonably anticipates payment or
accrual.
(E) Except where the failure to have such permits and
authorizations would not have a Material Adverse Effect, all
Hazardous Materials, garbage, refuse, and similar waste materials
have been transported by the Company and each of its subsidiaries
(and their respective predecessors during or prior to the Company's
or the subsidiary's ownership thereof) only to sites which have
proper permits or other authorization from Governmental Entities for
the disposal of such materials. The Company has received no notice
that any site to which Hazardous Materials, garbage, refuse, or
similar waste materials have been transported for disposal by the
Company or any subsidiary (or their respective predecessors during or
prior to the Company's or the subsidiary's ownership thereof) is on
any Contaminated Site List or requires the expenditure of any
Environmental Remediation Costs nor, has been placed on such a list
or the requirement that such costs be incurred been threatened.
(F) Except as would not have a Material Adverse Effect, all
operations of the Company and its subsidiaries, and the properties
owned or operated by the Company or any of its subsidiaries, are in
compliance with all permits and Environmental Laws, including without
limitation compliance with Subtitle D of RCRA and all regulations
promulgated thereunder as if it were in effect on the date hereof.
(G) Except as would not have a Material Adverse Effect, to the
best of the Company's knowledge, no facts or circumstances exist
which could reasonably be expected to result in any Environmental
Liabilities to the Company, or any of the Company's directors,
officers, stockholders or controlling persons, including Parent
following the Merger, which have not been otherwise disclosed herein
or in Section 3.1(o) of the Disclosure Schedule or in the SEC
Documents, with respect to (1) any properties currently or previously
owned or operated by the Company or any subsidiary (or their
respective predecessors with respect to property owned or operated
during or prior to the Company's or the subsidiary's ownership or
operation thereof) thereof, or (2) the current or past business or
operations of the Company or any of its subsidiaries.
(iii) The Company and its subsidiaries do not own, lease or
otherwise operate any disposal sites.
(iv) The Company has previously provided to Parent a schedule which
sets forth to the best knowledge of the Company all disposal sites
(including dumps, landfills and other disposal facilities) utilized by
the Company, any of its subsidiaries or any of their respective
predecessors, which schedule identified (A) the name and address of such
disposal site and (B) the type or types of Hazardous Materials delivered
to such site and the approximate date thereof.
(p) Compliance with Laws. The Company and its subsidiaries hold all
required, necessary or applicable permits, licenses, variances, exemptions,
orders, franchises and approvals of all Governmental Entities to own, lease
and operate all of their properties and assets and to conduct their
business as now
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being conducted, except where the failure to so hold would not have a
material adverse effect on the Company (the "Company Permits"). The Company
and its subsidiaries are in compliance with the terms of the Company
Permits except where the failure to so comply would not have a material
adverse effect on the Company. Neither the Company nor any of its
subsidiaries has violated or failed to comply with any statute, law,
ordinance, regulation, rule, permit or order of any Federal, state or local
government, domestic or foreign, or any Governmental Entity, any
arbitration award or any judgment, decree or order of any court or other
Governmental Entity, applicable to the Company or any of its subsidiaries
or their respective businesses, assets or operations, except for violations
and failures to comply that could not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the Company.
(q) Material Contracts and Agreements. The Company has provided or
made available to Parent copies, and has provided a true and correct list
to Parent, of all contracts and agreements with Governmental Entities and
of all other material contracts, agreements, commitments, arrangements,
leases, policies or other instruments to which it or any of its
subsidiaries is a party or by which it or any such subsidiary is bound
("Material Contracts"). Neither the Company nor any of its subsidiaries is,
or has received any notice or has any knowledge that any other party is, in
default in any respect under any such Material Contract, and there has not
occurred any event that with the lapse of time or the giving of notice or
both would constitute such a default, except for those defaults which could
not, individually or in the aggregate, reasonably be expected to have a
material adverse effect with respect to the Company.
(r) Insurance. Section 3.1(r) of the Disclosure Schedule sets forth
all policies of insurance currently in effect relating to the business,
operations, properties or assets of the Company and its subsidiaries.
(s) Title to Properties, etc.
(i) Each of the Company and each of its subsidiaries has good and
indefeasible title to, or valid leasehold interests in, all its
properties and assets except for such as are no longer used or useful in
the conduct of its businesses or as have been disposed of in the
ordinary course of business and except for minor defects in title,
easements, restrictive covenants and similar encumbrances or impediments
that, in the aggregate, do not and will not materially interfere with
its ability to conduct its business as currently conducted or as
reasonably expected to be conducted. All such assets and properties,
other than assets and properties in which the Company or any of the
subsidiaries has leasehold interests, are free and clear of all Liens,
other than those set forth in Section 3.1(s) of the Disclosure Schedule
and except for minor liens, that, in the aggregate, do not and will not
materially interfere with the ability of the Company or any of its
subsidiaries to conduct business as currently conducted or as reasonably
expected to be conducted. The Company has delivered to Parent true and
correct copies of all title insurance policies and surveys in its or one
of its subsidiaries' possession or otherwise available to any of them
covering real property owned by the Company.
(ii) Except as set forth in Section 3.1(s) of the Disclosure
Schedule, each of the Company and each of its subsidiaries has complied
in all material respects with the terms of all leases to which it is a
party and under which it is in occupancy, and all such leases are in
full force and effect. Each of the Company and each of its subsidiaries
enjoys peaceful and undisturbed possession under all such leases.
(t) Intellectual Property. The Company and its subsidiaries own, or
are licensed or otherwise have the right to use, all patents, patent
rights, trademarks, trademark rights, trade names, trade name rights,
service marks, service mark rights, copyrights, software rights and
licenses technology, know how, processes and other proprietary intellectual
property rights and computer programs which are material to the condition
(financial or otherwise) or conduct of the business and operations of the
Company and its subsidiaries taken as a whole. To the best of the Company's
knowledge, (i) the use of such patents, patent rights, trademarks,
trademark rights, service marks, service mark rights, trade names,
copyrights, technology, know-how, processes and other proprietary
intellectual property rights and computer programs by the Company and its
subsidiaries does not infringe on the rights of any person, subject to
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such claims and infringements as do not, in the aggregate, give rise to any
liability on the part of the Company and its subsidiaries with respect to
any such patents, patent rights, trademarks, trademark rights, service
marks, service mark rights, trade names, copyrights, technology, know-how,
processes and other proprietary intellectual property rights and computer
programs. No claims are pending or, to the best of the Company's knowledge,
threatened that the Company or any of its subsidiaries is infringing or
otherwise adversely affecting the rights of any person with regard to any
patent, license, trademark, trade name, service mark, copyright or other
intellectual property right.
(u) Labor Matters. Except as set forth in Section 3.1(u) of the
Disclosure Schedule, there are no collective bargaining agreements or other
labor union agreements or understandings to which the Company or any of its
subsidiaries is a party or by which any of them is bound, nor is it or any
of its subsidiaries the subject of any proceeding asserting that it or any
subsidiary has committed an unfair labor practice or seeking to compel it
to bargain with any labor organization as to wages or conditions. Except as
set forth in Section 3.1(u) of the Disclosure Schedule, since October 31,
1993, neither the Company nor any of its subsidiaries has encountered any
labor union organizing activity, or had any actual or threatened employee
strikes, work stoppages, slowdowns or lockouts and no such actions are
threatened at present.
(v) Undisclosed Liabilities. Except as set forth in the SEC
Documents, neither the Company nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) or which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the Company;
except those incurred in the ordinary course of business since September
30, 1995, consistent with past operations and not related to the borrowing
of money.
(w) Transactions with Affiliates. Except for compensation and
employee benefit arrangements, or as set forth in Section 3.1(w) of the
Disclosure Schedule, no affiliate, officer or director of the Company has
had or has any interest in any person which has had transactions with the
Company or a subsidiary within the past three years.
SECTION 3.2 Representations and Warranties of Parent and Sub. Parent and
Sub represent and warrant to, and agree with, the Company as follows:
(a) Organization; Standing and Power. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being
conducted. Each of Parent and each of its subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed to do
business (individually or in the aggregate) would not have a material
adverse effect on Parent.
(b) Authority; Non-contravention. Each of Parent and Sub has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Parent and Sub and the consummation by Parent and Sub
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Parent and Sub, except as
enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer or similar laws affecting the enforcement of creditors' rights
generally and pursuant to general equitable principles. This Agreement has
been duly executed and delivered by Parent and Sub and constitutes a valid
and binding obligation of Parent and Sub, enforceable against Parent and
Sub in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated
hereby and compliance with the provisions hereof will not, conflict with,
or result in any violation of, or default (with or without notice or lapse
of time, or both) under, (i) any provision of the Certificate of
Incorporation or By-laws of Sub or the Certificate of Incorporation or By-
laws of Parent, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Parent or Sub or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in
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the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation or arbitration account applicable to Parent
or Sub or their respective properties or assets, other than, in the case of
clause (ii), any such conflicts, violations or defaults that individually
or in the aggregate would not materially impair the ability of Parent and
Sub to perform their respective obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to Parent or
Sub in connection with the execution and delivery of this Agreement by
Parent and Sub or the consummation by Parent and Sub of the transactions
contemplated hereby, except for (i) the filing by Parent of a premerger
notification and report form under the HSR Act, (ii) the filing with the
SEC of such reports under Section 13(a) of the Exchange Act as may be
required in connection with this Agreement and the transactions
contemplated hereby, (iii) the filing and effectiveness of the Registration
Statement under the Securities Act and (iv) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under the "takeover" or "blue sky" laws of various states.
(c) Authorization for Parent Common Stock. Prior to the Effective
Time of the Merger, Parent shall have taken all necessary action to permit
it to issue the number of Parent Shares required to be issued pursuant to
terms of this Agreement. The Parent Shares issued pursuant to the terms of
this Agreement will, when issued, be validly issued, fully paid and
nonassessable and not subject to preemptive rights. Such Parent Shares
will, when issued, be registered under the Securities Act and the Exchange
Act.
(d) SEC Documents. Parent has timely filed all required reports,
schedules, forms, statements and other documents with the SEC since October
31, 1993 and Parent has delivered or made available to the Company all
reports, schedules, forms, statements and other documents filed by it with
the SEC since such date (such documents, together with all exhibits and
schedules thereto and documents incorporated by reference therein,
collectively referred to herein as the "Parent SEC Documents"). As of their
respective dates, the Parent SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Parent SEC Documents, and none of the Parent
SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements
of Parent included in the Parent SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared
in accordance with generally accepted accounting principles (except, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated
financial position of Parent and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments and other adjustments
described therein).
(e) Information Supplied. None of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement is
filed with the SEC, and at any time it is amended or supplemented or at the
time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and (ii) the Proxy Statement will, at the date the Proxy
Statement is first mailed to the Company's stockholders and at the time of
the Stockholders Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. For purposes of
this Agreement, the parties agree that the statements made and information
in the Registration Statement and the Proxy Statement (other than
information provided by Parent or any subsidiary of Parent in each case
concerning Parent or such subsidiary expressly for inclusion therein)
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relating to the Federal income tax consequences of the transactions
contemplated hereby to the holders of Shares shall be deemed to be supplied
by the Company and not by Parent or Sub.
(f) Litigation. Except as disclosed in the Parent SEC Documents,
there is no suit, action, proceeding or investigation pending or, to the
knowledge of Parent, threatened against or affecting Parent or any of its
subsidiaries that could reasonably be expected to have a material adverse
effect on Parent or prevent, hinder or materially delay the ability of
Parent to consummate the transactions contemplated by this Agreement (and
Parent is not aware of any basis for any such suit, action, proceeding or
investigation), nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against Parent
or any of its subsidiaries having, or which, insofar as reasonably can be
foreseen, in the future could have, any such effect.
(g) Undisclosed Liabilities. Except as set forth in the Parent SEC
Documents and prior to the date of this Agreement, at the date of the most
recent audited financial statements of Parent included in the Parent SEC
Documents, neither Parent nor any of its subsidiaries had, and since such
date neither Parent nor any of such subsidiaries has incurred, any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise), required by generally accepted accounting
principles to be set forth on a financial statement or in the notes thereto
or which, individually or in the aggregate, could reasonably be expected to
have a material adverse effect on Parent.
(h) Brokers. Except for a $250,000 fee to be paid to Lehman Brothers,
Inc. by Parent, no broker, investment banker or other person is entitled to
any broker's, finder's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Sub.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business.
(a) Ordinary Course. During the period from the date of this
Agreement to the Effective Time of the Merger (except as otherwise
specifically required by the terms of this Agreement), the Company shall
and shall cause its subsidiaries to carry on their respective businesses in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use all
reasonable efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and
preserve their relationships with customers, Governmental Entities,
suppliers, insurers, licensors, licensees, distributors and others having
business dealings with them, in each case consistent with past practice, to
the end that their goodwill and ongoing businesses shall be unimpaired to
the fullest extent reasonably possible at the Effective Time of the Merger.
Without limiting the generality of the foregoing, and except as otherwise
expressly set forth in this Agreement, during such period, the Company
shall not, and shall not permit any of its subsidiaries to:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than
dividends and distributions by any direct or indirect wholly owned
subsidiary of the Company to the Company or a wholly-owned subsidiary of
the Company, (B) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock or (C)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its subsidiaries or any other securities thereof or
any rights, warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities
convertible into any such shares; or issue, deliver, sell or grant any
rights, warrants or options to acquire any such shares, voting
securities or convertible securities; or issue, deliver, sell or grant
any stock appreciation rights, phantom stock or similar rights or enter
into
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any agreement to do any of the foregoing, except for the issuance of
Shares upon the exercise of Option Plan options or the Class B Warrants,
or the conversion of the Convertible Debt, all as outstanding on the
date of this Agreement in accordance with their current terms;
(iii) amend its Certificate of Incorporation, By-laws or other
comparable charter or organizational document;
(iv) acquire or agree to acquire (A) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of,
or by any other manner, any business or any corporation, partnership,
association, joint venture, limited liability company or other entity or
division thereof or (B) any assets that would be material, individually
or in the aggregate, to the Company and its subsidiaries taken as a
whole, except purchases of supplies and inventory in the ordinary course
of business consistent with past practice;
(v) sell, lease, mortgage, pledge, grant a Lien on or otherwise
encumber or otherwise dispose of any of its properties or assets, except
sales of inventory in the ordinary course of business consistent with
past practice;
(vi) (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities
or warrants or other rights to acquire any debt securities of the
Company or any of its subsidiaries, guarantee any debt securities of
another person, or (B) make any loans, advances or capital contributions
to, or investments in, any other person, other than to the Company or
any direct or indirect wholly owned subsidiary of the Company;
(vii) make or incur any new capital expenditure or expenditures not
set forth in the Company's capital budget for fiscal 1995, or in an
amount in excess of that set forth for any such item in such capital
budgets (a true and correct copy of which budget has been previously
furnished to Parent), except for capital expenditures not in excess of
$50,000 as to any single item and $100,000 in the aggregate;
(viii) make any election relating to Taxes or settle or compromise
any Tax liability;
(ix) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved
against in, or contemplated by, the most recent consolidated financial
statements (or the notes thereto) of the Company included in the SEC
Documents or incurred in the ordinary course of business consistent with
past practice;
(x) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or
any of its subsidiaries is a party;
(xi) terminate or amend in any material respect any contract or
agreement material to the Company;
(xii) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization;
(xiii) except as expressly permitted by this Agreement, enter into
any new collective bargaining agreement or any successor collective
bargaining agreement to any collective bargaining agreement disclosed in
Section 3.1(u) of the Disclosure Schedule;
(xiv) change any material accounting principle used by it, except
insofar as any such change is required by generally accepted accounting
principles or by the rules and regulations of the SEC;
(xv) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement) other than settlements or
compromises: (A) of litigation where the amount paid in
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settlement or compromise does not exceed $10,000, or (B) in consultation
and cooperation with Parent, and, with respect to any such settlement,
with the prior written consent of Parent;
(xvi) authorize any of, or commit or agree to take any of, the
foregoing actions; or
(xvii) excluding inventory purchased for resale in the ordinary
course of business, the company will not enter into any contracts or
other material business obligations or commitments in excess of
$100,000, or for a term longer than one year.
(b) Changes in Employment Arrangements. Except as set forth in Section
4.1(b) of the Disclosure Schedule, neither the Company nor any of its
subsidiaries shall (except as may be required in order to give effect to
the requirements of Section 5.6) adopt or amend (except as may be required
by law, rule or regulation) any bonus, profit sharing, compensation, stock
option, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, fund or other arrangement
(including any Benefit Plan) for the benefit or welfare of any employee,
director or former director or employee or, other than increases for
individuals (other than officers and directors) in the ordinary course of
business consistent with past practice, increase the compensation or fringe
benefits of any director, employee or former director or employee or pay
any benefit not required by any existing plan, arrangement or agreement by
more than $10,000 for any individual and $50,000 in the aggregate for all
such individuals. The Company will maintain the employment of its chief
executive officer, Stephen A. Wells and its chief financial officer, Blake
Dupuis through the Closing Date.
(c) Severance. Except as reflected in Section 4.1(b) of the Disclosure
Schedule, neither the Company nor any of its subsidiaries shall grant any
new or modified severance or termination arrangement or increase or
accelerate any benefits payable under its severance or termination pay
policies in effect on the date hereof.
SECTION 4.2 Other Actions. The Company shall not, and shall not permit any
of its subsidiaries to, take any action that would, or that could reasonably be
expected to, result in any of the representations and warranties of the Company
set forth in this Agreement that are qualified as to materiality becoming untrue
or inaccurate in any respect or in any of the representations and warranties set
forth in this Agreement that are not so qualified becoming untrue in any
material respect.
SECTION 4.3 Advice of Changes. The Company shall promptly advise Parent
orally and in writing of any change or event having, or which, insofar as can
reasonably be foreseen, could have, a material adverse effect on the Company.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Stockholder Approval; Preparation of Proxy Statement;
Preparation of Registration Statement. (a) The Company shall, as soon as
practicable following the execution and delivery of this Agreement on a date to
be agreed upon between Parent and the Company, which date shall be set taking
into account the status of pending regulatory matters pertaining to the
transactions contemplated hereby, duly call, give notice of, convene and hold
the Stockholders Meeting for the purpose of approving the Merger and the
transactions contemplated thereby. The Company will, through its Board of
Directors, recommend to its stockholders the approval and adoption of the
Merger.
(b) Promptly following the date of this Agreement, the Company and Parent
shall prepare and file with the SEC the Proxy Statement, and Parent shall
prepare and file with the SEC a registration statement on Form S-4 (the
"Registration Statement"), in which the Proxy Statement will be included as a
prospectus. Each of the Company and Parent shall use its reasonable efforts to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing, subject to the setting of the date
for the Stockholders Meeting as provided in Section 5.1(a). The Company will use
its reasonable efforts to cause the Proxy Statement to be mailed to the
Company's stockholders as promptly as practicable after the Registration
Statement is declared effective under the Securities Act. Parent shall also take
such reasonable
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actions (other than qualifying to do business in any jurisdiction in which it is
not now so qualified) as may be required to be taken under any applicable state
securities laws in connection with the issuance of Parent Shares in the Merger,
and the Company shall furnish all information concerning the Company and the
holders of the Shares and rights to acquire Shares pursuant to the Option Plans
as may be reasonably requested in connection with any such action. The Company
will notify Parent promptly of the receipt of any written or oral comments from
the SEC or its staff and of any request by the SEC or its staff for amendments
or supplements to the Proxy Statement or for additional information and will
supply Parent with copies of all correspondence between the Company or any of
its representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to the Proxy Statement or the Merger. Parent will notify the
Company promptly of the receipt of any written or oral comments from the SEC or
its staff and of any request by the SEC or its staff for amendments or
supplements to the Registration Statement or for additional information and will
supply the Company with copies of all correspondence between Parent or any of
its representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to the Registration Statement or the Merger.
(c) The Company will cause its transfer agent to make stock transfer
records relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.
SECTION 5.2 Letter of the Company's Accountants. The Company shall use its
best efforts to cause to be delivered to Parent a letter of Arthur Andersen LLP,
the Company's independent public accountants, dated a date within two business
days before the date on which the Registration Statement shall become effective
and addressed to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement. In connection with the
Company's efforts to obtain such letter, if requested by Arthur Andersen LLP,
Parent shall provide a representation letter to Arthur Andersen LLP, complying
with Statements on Auditing Standards ("SAS") 72 and 76, if then required.
SECTION 5.3 Letter of Parent's Accountants. Parent shall use its best
efforts to cause to be delivered to the Company a letter of Deloitte & Touche
LLP, Parent's independent public accountants, dated a date within two business
days before the date on which the Registration Statement shall become effective
and addressed to the Company and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement. In connection with Parent's
efforts to obtain such letter, if requested by Deloitte & Touche LLP, the
Company shall provide a representation letter to Deloitte & Touche LLP complying
with SAS 72 and 76, if then required.
SECTION 5.4 Access to Information.
(a) The Company shall, and shall cause each of its subsidiaries, officers,
employees, counsel, financial advisors and other representatives to, afford to
Parent, and to Parent's accountants, counsel, financial advisors and other
representatives, reasonable access during the period from the date hereof to the
Effective Time of the Merger to the Company's and its subsidiaries' respective
officers, employees, representatives, properties, books, contracts, commitments
and records and, during such period, the Company shall, and shall cause each of
its subsidiaries, officers, employees, counsel, financial advisors and other
representatives to, furnish promptly to Parent (i) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of Federal or state securities laws and (ii)
all other information concerning its business, properties, financial condition,
operations and personnel as such party may from time to time reasonably request.
The Company agrees to advise Parent of all material developments with respect to
the Company, its subsidiaries and their respective assets and liabilities from
the date hereof to the Effective Time of the Merger.
(b) Parent agrees to advise the Company of all material developments with
respect to Parent, its assets and liabilities during the period from the date
hereof to the Effective Time of the Merger.
(c) Except as required by law, each of the Company and Parent shall hold,
and cause its respective directors, officers, employees, accountants, counsel,
financial advisors and representatives and affiliates to hold, any nonpublic
information in confidence. Any investigation by any party of the assets and
business of the other party and its subsidiaries shall not affect any
representations and warranties hereunder.
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(d) The Company agrees to permit members of Parent's audit team to review
and examine the work papers of Arthur Andersen LLP with respect to the Company
and its subsidiaries.
(e) The Company shall also promptly notify Parent of any notices from or
investigations of which the Company is aware by Governmental Entities that could
materially affect the Company's business or assets. Parent will promptly notify
the Company of any notices from or investigations by Governmental Entities that
could materially affect the consummation of the Merger. In the event of the
termination of this Agreement, each party promptly will deliver to the other
party (and destroy all electronic data reflecting the same) all documents, work
papers and other material (and any reproductions or extracts thereof and any
notes or summaries thereto) obtained by such party or on its behalf from such
other party or its subsidiaries as a result of this Agreement or in connection
therewith so obtained before or after the execution hereof.
SECTION 5.5 Reasonable Efforts; Notification. (a) Upon the terms and
subject to the conditions set forth in this Agreement, except to the extent
otherwise provided in this Section 5.5, each of the parties agrees to use
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger, and the other transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings (including
filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed and (iv)
the execution and delivery of any additional instruments (including any required
supplemental indentures) necessary to consummate the transactions contemplated
by this Agreement. In connection with and without limiting the foregoing, the
Company and its Board of Directors shall (i) take all action necessary to ensure
that no state takeover statute or similar statute or regulation is or becomes
applicable to the Merger, (ii) if any state takeover statute or similar statute
or regulation becomes applicable to the Merger, take all action necessary to
ensure that the Merger may be consummated as promptly as practicable on the
terms contemplated by this Agreement and otherwise to minimize the effect of
such statute or regulation on the Merger and (iii) cooperate with Parent and Sub
in the arrangements for refinancing any indebtedness of, or obtaining any
necessary new financing for, the Company and the Surviving Corporation, it being
understood that the failure to obtain any such financing or refinancing shall
not be a basis for terminating this Agreement.
(b) The Company shall give prompt notice to Parent, and Parent or Sub shall
give prompt notice to the Company, of (i) any representation or warranty made by
it contained in this Agreement that is qualified as to materiality becoming
untrue or inaccurate in any respect or any such representation or warranty that
is not so qualified becoming untrue or inaccurate in any material respect or
(ii) the failure by it to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, that no such notification shall affect the
representations or warranties or covenants or agreements of the parties or the
conditions to the obligations of the parties hereunder.
(c) (i) The Company and Parent shall file a premerger notification and
report form under the HSR Act with respect to the Merger as promptly as
reasonably possible following execution and delivery of this Agreement. Each of
the parties agrees to use reasonable efforts to promptly respond to any request
for additional information pursuant to Section (e)(1) of the HSR Act. The cost
of such filings shall be borne by Parent.
(ii) The Company will furnish to Parent and Sub copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) between the Company, or any of its respective
representatives, on the one hand, and any Governmental Entity, or members of the
staff of such agency or authority, on the other hand, with respect to this
Agreement or the Merger; Parent and Sub will furnish to the
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Company copies of all correspondence, filings or communications (or memoranda
setting forth the substance thereof) between Parent, Sub or any of their
respective representatives, on the one hand, and any governmental agency or
authority, on the other hand, with respect to this Agreement or the Merger.
(iii) At the election of Parent, the Company and Parent shall, at Parent's
expense, use reasonable efforts to defend all litigation under the Federal or
state antitrust laws of the United States which if adversely determined would,
in the reasonable opinion of Parent (based on the advice of outside counsel), be
likely to result in the condition set forth in Section 6.2(g) not being
satisfied, and to appeal any order, judgment or decree, which if not reversed,
would result in such failure. Notwithstanding the foregoing, nothing contained
in this Agreement shall be construed to require Parent, Sub or the Company, or
any of their respective subsidiaries or affiliates, to sell, license, dispose
of, or hold separate, or to operate in any specified manner, any assets or
businesses of Parent, Sub, the Company or the Surviving Corporation (or to
require Parent, Sub, the Company or any of their respective subsidiaries or
affiliates to agree to any of the foregoing). The obligations of each party
under Section 5.5(a) to use reasonable efforts with respect to antitrust matters
shall be limited to compliance with the reporting provisions of the HSR Act and
with its obligations under this Section 5.5(c).
SECTION 5.6 Stock Options. (a) As soon as practicable following the date
of this Agreement, the Board of Directors of the Company (or, if appropriate,
any committee thereof) shall adopt such resolutions or take such other actions
as are required, if any, to adjust the terms of all outstanding employee stock
options to purchase Shares ("Employee Stock Options") heretofore granted, to
provide that each Employee Stock Option outstanding shall at the Effective Time
of the Merger represents the right to purchase the Merger Consideration for each
Share previously purchasable thereunder at a price equal to the price per whole
Share under the Option Plans.
(b) The Company shall use reasonable efforts to obtain all consents of the
holders of the Employee Stock Options as shall be necessary to effectuate the
foregoing.
(c) Except as provided herein or as otherwise agreed to by the parties, the
Stock Plans and any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any subsidiary shall terminate as of the Effective Time of the
Merger, and the Company shall ensure that following the Effective Time of the
Merger no holder of an Employee Stock Option or any participant in any Option
Plan or other Benefit Plan shall have any right thereunder to acquire any
capital stock of the Company or the Surviving Corporation.
SECTION 5.7 Indemnification. Parent and Sub agree that all rights to
indemnification for acts or omissions occurring prior to the Effective Time of
the Merger now existing in favor of the current or former directors or officers
of the Company and its subsidiaries as provided in their respective Certificate
of Incorporation or By-laws, as in effect on the date hereof, shall survive the
Merger.
SECTION 5.8 Fees and Expenses. Except as provided in Article VIII, all
fees and expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees
or expenses, whether or not the Merger is consummated, provided, however, that
nothing herein contained shall relieve any party hereto for any liability for
breach of this Agreement.
SECTION 5.9 Public Announcements. Parent and Sub, on the one hand, and
the Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except
that each party may respond to questions from stockholders and Parent may
respond to inquiries from financial analysts and media representatives in a
manner consistent with its past practice and each party may make such disclosure
as may be required by applicable law or by obligations pursuant to any listing
agreement with any national securities exchange or association without prior
consultation to the extent such consultation is not reasonably practicable. The
parties agree that the initial press release or releases to be issued in
connection with the execution of this Agreement shall be mutually agreed upon
prior to the issuance thereof.
SECTION 5.10 Stockholder Litigation. The Company shall give Parent the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to the
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transactions contemplated by this Agreement until the Effective Time of the
Merger, and thereafter, the Surviving Corporation shall give Parent the
opportunity to direct the defense of such litigation and, if Parent so chooses
to direct such litigation, Parent shall give the directors of the Company an
opportunity to participate in such litigation; provided, however, that no
settlement of litigation under which Parent or the Surviving Corporation shall
have any liability shall be agreed to without Parent's consent, which shall not
be unreasonably withheld.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver by each party on or prior to the Closing Date of
the following conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval
shall have been obtained.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; provided, however, that
the parties hereto shall, subject to Section 5.5, use reasonable efforts to
have any such injunction, order, restraint or prohibition vacated.
(d) Registration Statement Effectiveness. The Registration Statement
shall be effective under the Securities Act on the Closing Date, and all
post-effective amendments filed shall have been declared effective or shall
have been withdrawn; and no stop-order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
initiated or, to the knowledge of the parties, threatened by the SEC.
(e) Exchange Listing. The Parent Shares to be issued as Merger
Consideration shall have been approved for listing on the New York Stock
Exchange and the Pacific Stock Exchange.
(f) Blue Sky Filings. There shall have been obtained any and all
material permits, approvals and consents of securities or "blue sky"
authorities of any jurisdiction that are necessary so that the consummation
of the Merger and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which would
have a material adverse effect on Parent or the free transferability of the
Shares (other than Shares of holders who were "affiliates", within the
meaning of Rules 144 and 145(c) under the Securities Act, of the Company or
who are "affiliates" of Parent).
SECTION 6.2 Conditions of Parent and Sub. Subject to waiver by the Parent
and Sub, the obligation of Parent and Sub to consummate the Merger are further
subject to the satisfaction at the Effective Time of the Merger, of the
following conditions:
(a) Compliance. The agreements and covenants of the Company to be
complied with or performed on or before the Closing Date pursuant to the
terms hereof shall have been duly complied with or performed in all
material respects and Parent shall have received a certificate dated the
Closing Date and executed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect.
(b) Certifications and Opinion. The Company shall have furnished
Parent with:
(i) a certified copy of a resolution or resolutions duly adopted by
the Board of Directors of the Company approving this Agreement and
consummation of the Merger and the transactions
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contemplated hereby and directing the submission of the Merger to a vote
of the stockholders of the Company;
(ii) a certified copy of a resolution or resolutions duly adopted
by the holders of a majority of the outstanding Shares approving the
Merger and the transactions contemplated hereby;
(iii) a favorable opinion dated the Closing Date, in customary form
and substance, of Rubin Baum Levin Constant & Friedman, counsel for the
Company, dated the Closing Date to the effect that:
(A) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has corporate power to own its properties and assets and to carry
on its business as presently conducted and as described in the Proxy
Statement;
(B) The Company has the requisite corporate power to effect the
Merger as contemplated by this Agreement; the execution and delivery
of this Agreement did not, and the consummation of the Merger will
not, violate any provision of the Company's Articles of Incorporation
or By-Laws; and upon the filing by the Surviving Corporation of the
Articles of Merger, the Merger shall become effective;
(C) Each of the Company's subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation, and has corporate power to own its
properties and assets and to carry on its business as presently
conducted and all of the outstanding capital stock of each subsidiary
is owned of record and, to the best of such counsel's knowledge,
beneficially by the Company and/or another subsidiary, free and clear
of all liens, security interests and other encumbrances; and
(D) The Board of Directors of the Company has taken all action
required by the DGCL and its Articles of Incorporation or its By-Laws
to approve the Merger and to authorize the execution and delivery of
this Agreement and the transactions contemplated thereby; the Board
of Directors and the stockholders of the Company have taken all
action required by the DGCL and its Articles of Incorporation and
By-Laws to authorize the Merger in accordance with the terms of this
Agreement; and this Agreement is a valid and binding Agreement of the
Company enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer or similar laws affecting the enforcement of creditors'
rights generally and pursuant to general equitable principles.
(c) Representations and Warranties True. The representations and
warranties of the Company contained in this Agreement (other than any
representations and warranties made as of a specific date) that are
qualified as to materiality shall be true in all respects and the
representations and warranties of the Company contained in this Agreement
(other than any representations and warranties made as of a specific date)
that are not so qualified shall be true in all material respects, in each
case on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, the
representations and warranties of the Company contained in the Agreement
made as of a specific date shall remain true as of such date, and Parent
shall have received a certificate to that effect dated the Closing Date and
executed on behalf of the Company by the chief executive officer and the
chief financial officer of the Company.
(d) Affiliate Letters. Parent shall have received from the Company a
list of such persons, if any, as counsel for the Company state may be
"affiliates" of the Company, within the meaning of Rules 144 and 145(c)
under the Securities Act, and shall have received from such persons
undertakings in writing to the effect that no disposition will be made by
such persons of any Shares received or to be received pursuant to the
Merger except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder. Parent shall not
be required to maintain the effectiveness of the Registration Statement for
the purpose of resale by stockholders of the Company who may be
"affiliates" pursuant to Rule 145 under the Securities Act and Parent may
require that the certificate for any Parent Shares to be received by such
affiliates as Merger Consideration contain a legend that such Parent Shares
may not be
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transferred except in compliance with such undertaking. Such affiliates
shall also furnish to the Parent a letter that they have no present
intention to dispose of any shares of Parent Stock received by them as
Merger Consideration.
(e) Tax Opinion. Parent shall have received an opinion of Fulbright &
Jaworski in form and substance satisfactory to Parent, to the effect that,
for federal income tax purposes and conditioned upon certain
representations of managements of the Company and Parent as to certain
customary facts and circumstances regarding the Merger, the Merger will
qualify as a "reorganization" within the meaning of Section 368(a) of the
Code.
(f) Consents, etc. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits,
consents, approvals, authorizations, qualifications and orders of
governmental authorities and other third parties as are necessary in
connection with the transactions contemplated hereby have been obtained,
except such licenses, permits, consents, approvals, authorizations,
qualifications and orders which are not, individually or in the aggregate,
material to Parent or the Company or the failure of which to have received
would not (as compared to the situation in which such license, permit,
consent, approval, authorization, qualification or order had been obtained)
materially detract from the aggregate benefits to Parent of the
transactions reasonably contemplated hereby.
(g) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (or by any other person
any suit, action or proceeding which has a reasonable likelihood of
success) (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
this Agreement or seeking to obtain from Parent or any of its subsidiaries
any damages that are material in relation to Parent and its subsidiaries
taken as a whole, (ii) seeking to prohibit or limit the ownership or
operation by the Company, Parent or any of their respective subsidiaries of
any material portion of the business or assets of the Company, Parent or
any of their respective subsidiaries, to dispose of or hold separate any
material portion of the business or assets of the Company, Parent or any of
their respective subsidiaries, as a result of the Merger or any of the
other transactions contemplated by this Agreement, (iii) seeking to impose
limitations on the ability of Parent or Sub to acquire or hold, or exercise
full rights of ownership as to any shares of Common Stock of the Surviving
Corporation, including, without limitation, the right to vote the Common
Stock of the Surviving Corporation on all matters properly presented to the
stockholders of the Surviving Corporation or (iv) seeking to prohibit
Parent or any of its subsidiaries from effectively controlling in any
material respect the business or operations of the Company or its
subsidiaries.
(h) Dissenting Stockholders. The holders of not more than 5% of the
outstanding Shares shall have given proper notice of their intent to
exercise appraisal rights to require the purchase of their Shares as
contemplated by Section 2.1(e) (in calculating the foregoing, holders of
Shares who give notice but subsequently waive their rights in accordance
with sec. 262 of the DGCL to require purchase of their Shares, shall not be
included).
(i) Satisfactory Due Diligence. The results of due diligence conducted
by Parent with respect to the Company shall be satisfactory to Parent.
(j) No Material Adverse Change. There shall not have occurred any
material adverse change with respect to the Company since September 14,
1995.
(k) Opinion of Financial Advisor. Company shall have received the
opinion of Simmons & Company International, prior to the mailing of the
Proxy Statement, to the effect that the terms of the Merger are fair to the
holders of the Company Shares from a financial point of view.
(l) Employment Agreement. An employment agreement between the
Surviving Corporation and Stephen A. Wells, satisfactory to Parent and
effective on the Closing Date shall have been executed by all parties
thereto.
(m) Non-Competition Agreement. A non-competition agreement with
Stephen A. Wells, effective on the Closing Date shall have been executed
and delivered requiring that he will not, for a period of
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three (3) years after the Closing Date, conduct any business now being
conducted by Tesoro Petroleum Distributing Company or by the Coastwide
Marine Services, Inc. subsidiary of the Company in the Texas and Louisiana
Gulf Coast, including but not limited to, shore base support services, the
purchase or sale of diesel fuels, oil, lubricants or the brokerage of such
products.
(n) Lender Approval. All lenders to Parent shall have approved the
consummation of the Merger or shall have waived any objection or right to
object with respect thereto.
(o) Termination of Certain Agreements. All employment or consulting
agreements between the Company and Mr. Ingram and Mr. Newman, respectively,
shall have been terminated effective as of the Closing Date on terms
acceptable to Parent.
SECTION 6.3 Conditions of the Company. Subject to waiver by the Company,
the obligations of the Company to consummate the Merger are further subject to
the satisfaction at the Effective Time of the Merger of the following
conditions:
(a) Compliance. The agreements and covenants of Parent to be complied
with or performed on or before the Closing Date pursuant to the terms
hereof shall have been duly complied with or performed in all material
respects and the Company shall have received a certificate dated the
Closing Date on behalf of Parent by the President, any Vice President or
the Treasurer of Parent to such effect.
(b) Certifications and Opinion. Parent shall have furnished the
Company with:
(i) a certified copy of a resolution or resolutions duly adopted by
the Board of Directors or a duly authorized committee thereof of Parent
approving this Agreement and consummation of the Merger and the
transactions contemplated hereby, including the issuance, listing and
delivery of the Parent Shares pursuant hereto;
(ii) a favorable opinion, dated the Closing Date, in customary form
and substance, of Fulbright & Jaworski L.L.P., counsel for Parent to the
effect that:
(A) Parent and the Sub are corporations duly organized, validly
existing and in good standing under the laws of the State of Delaware
and have corporate power to own their properties and assets and to
carry on their business as presently conducted and as described in
the Proxy Statement. Sub has the requisite corporate power to merge
with the Company as contemplated by this Agreement and Parent has the
requisite corporate power to carry out its obligations under this
Agreement. The execution and delivery of this Agreement did not, and
the consummation of the Merger will not, violate any provision of
Parent's or Sub's Certificate of Incorporation or By-Laws;
(B) Parent and Sub have taken all action required by the DGCL,
their Certificates of Incorporation or their By-Laws to authorize
such execution and delivery and the transactions contemplated by this
Agreement, including the Merger in accordance with the terms of this
Agreement; and this Agreement is a valid and binding agreement of
Parent and Sub enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer or similar laws affecting the enforcement of creditors'
rights generally or pursuant to general equitable principles; and
(C) The Parent Shares to be issued pursuant to the Merger have
been duly authorized and, when issued and delivered as contemplated
hereby, will have been legally and validly issued and will be fully
paid and non-assessable and no stockholder of Parent will have any
preemptive right of subscription or purchase in respect thereof under
Delaware law or Parent's Certificate of Incorporation or By-laws.
(c) Representations and Warranties True. The representations and
warranties of Parent contained in this Agreement (other than any
representations and warranties made as of a specific date) that are
qualified as to materiality shall be true in all respects and the
representations and warranties of Parent contained in this Agreement (other
than any representations and warranties made as of a specific date)
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that are not so qualified shall be true in all material respects, in each
case on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, except
as contemplated or permitted by this Agreement, and the Company shall have
received a certificate to that effect dated the Closing Date and executed
on behalf of Parent by the President, any Vice President or the Treasurer
of Parent.
(d) Tax Opinion. The Company shall have received an opinion of Rubin
Baum Levin Constant & Friedman in form and substance satisfactory to the
Company, to the effect that for federal income tax purposes and conditioned
upon certain representations of managements of the Company and Parent as to
certain customary facts and circumstances regarding the Merger; (i) the
Merger will qualify as a "reorganization" within the meaning of Section
368(a) of the Code; (ii) no gain or loss will be recognized by the Company
as a result of the Merger; (iii) no realized loss will be recognized by a
stockholder of the Company upon the receipt by them of the Merger
Consideration in exchange for their Shares pursuant to the Merger; (iv) any
realized gain will be recognized by a stockholder of the Company to the
extent of the cash portion of the Merger Consideration received pursuant to
the Merger; (v) the aggregate tax bases of Parent Shares received by the
stockholders of the Company (including any fractional share interests
treated as received) will be the same as the aggregate tax bases of the
Shares surrendered in exchange therefor decreased by the cash portion of
the Merger Consideration and increased by the gain recognized on the
Merger; and (vi) the holding period of Parent Shares received by the
stockholders of the Company (including any fractional share interests
treated as received) will include the period during which the Shares
surrendered in exchange therefor were held, provided the Parent Shares were
held as a capital asset at the Effective Time of the Merger.
(e) Assumption. Parent shall have executed all documents required to
evidence its assumption of the Employee Stock Options, the Class B Warrants
and the Convertible Debt outstanding at the Closing (other than those owned
by the Company, Parent, Sub or any wholly-owned subsidiary of the Company,
Parent or Sub).
(f) No Material Adverse Change. There shall not have occurred any
material adverse change with respect to Parent since September 14, 1995.
(g) Opinion of Financial Advisor. The Company shall have received the
opinion of Simmons & Company International, immediately prior to the
mailing of the Proxy Statement, to the effect that the Merger Consideration
is fair to the holders of the Shares (other than Parent) from a financial
point of view, a signed copy of which opinion shall have been delivered to
Parent.
(h) Satisfactory Due Diligence. The results of due diligence conducted
by the Company with respect to Parent shall be satisfactory to the Company.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time of the Merger, whether before or after approval of
matters presented in connection with the Merger by the stockholders of the
Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if the stockholders of the Company fail to give any required
approval of the Merger and the transactions contemplated hereby upon a
vote at a duly held meeting of stockholders of the Company or at any
adjournment thereof;
(ii) if any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have issued
an order, decree or ruling or taken any other action
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permanently enjoining, restraining or otherwise prohibiting the Merger
and such order, decree, ruling or other action shall have become final
and nonappealable; or
(iii) if the Merger shall not have been consummated on or before
March 1, 1996 unless the failure to consummate the Merger is the result
of a material breach of this Agreement by the party seeking to terminate
this Agreement;
(iv) by Parent or the Company, as the case may be based upon the
material breach of any representation, warranty, covenant or agreement
contained in the Agreement by the other party; a material adverse change
with respect to the Company or the failure to satisfy all conditions
precedent unless such failure is waived by the party whose performance
is conditioned thereon;
(c) by the Company pursuant to a sale submitted under Article VIII
hereof; or
(d) by the Parent pursuant to Section 8.1(c).
ARTICLE VIII
SPECIAL PROVISIONS AS TO CERTAIN MATTERS
SECTION 8.1 No Solicitation. (a) The Company shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of or any investment banker, attorney or other advisor,
agent or representative of the Company or any of its subsidiaries to, directly
or indirectly, (i) solicit, initiate or encourage the submission of any takeover
proposal, (ii) enter into any agreement (other than confidentiality and
standstill agreements in accordance with the immediately following proviso) with
respect to any takeover proposal, or (iii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
takeover proposal; provided, however, in the case of this clause (iii), that
prior to the vote of stockholders of the Company for approval of the Merger (and
not thereafter if the Merger is approved thereby) to the extent required by the
fiduciary obligations of the Board of Directors of the Company, determined in
good faith by a majority of the disinterested members thereof based on the
advice of outside counsel, the Company may, in response to an unsolicited
request therefor, furnish information to any person or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) pursuant to a confidentiality
and standstill agreement reasonably satisfactory to Parent. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any officer, director or employee of the Company or
any of its subsidiaries or any investment banker, attorney or other advisor,
agent or representative of the Company, whether or not such person is purporting
to act on behalf of the Company or otherwise, shall be deemed to be a material
breach of this Agreement by the Company. For purposes of this Agreement,
"takeover proposal" means (i) any proposal, other than a proposal by Parent or
any of its affiliates, for a merger or other business combination involving the
Company, (ii) any proposal or offer, other than a proposal or offer by Parent or
any of its affiliates, to acquire from the Company or any of its affiliates in
any manner, directly or indirectly, an equity interest in the Company or any
subsidiary, any voting securities of the Company or any subsidiary or a material
amount of the assets of the Company and its subsidiaries, taken as a whole, or
(iii) any proposal or offer, other than a proposal or offer by Parent or any of
its affiliates, to acquire from the stockholders of the Company by tender offer,
exchange offer or otherwise more than 10% of the outstanding Shares.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent or Sub the approval or recommendation by the Board of
Directors of the Company or any such committee of this Agreement or the Merger
or take any action having such effect or (ii) approve or recommend, or propose
to approve or recommend, any takeover proposal. Notwithstanding the foregoing,
in the event the Board of Directors of the Company receives a takeover proposal
that, in the exercise of its fiduciary obligations (as determined in good faith
by a majority of the disinterested members thereof based on the advice of
outside counsel), it determines to be a superior proposal, the Board of
Directors may withdraw or modify its approval or recommendation of this
Agreement or the Merger and may (subject to the following sentence) terminate
this Agreement, in each
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case at any time after the fifth business day following Parent's receipt of
written notice (a "Notice of Superior Proposal") advising Parent that the Board
of Directors has received a takeover proposal which it has determined to be a
superior proposal, specifying the material terms and conditions of such superior
proposal (including the proposed financing for such proposal and a copy of any
documents conveying such proposal) and identifying the person making such
superior proposal. The Company may terminate this Agreement pursuant to the
preceding sentence only if the stockholders of the Company shall not yet have
voted upon the Merger and the Company shall have paid the amounts provided for
in Section 8.2(a). Nothing contained herein shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) prior to the sixth business day following Parent's receipt of a Notice
of Superior Proposal provided that the Company does not withdraw or modify its
position with respect to the Merger or take any action having such effect or
approve or recommend a takeover proposal.
(c) In the event that the Board of Directors of the Company or any
committee thereof shall in full compliance with Sections 8.1(a) and (b), (i)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Parent or Sub, the approval or recommendation by the Board of Directors of the
Company or any such committee of this Agreement or the Merger or take any action
having such effect or (ii) approve or recommend, or propose to approve or
recommend, any takeover proposal, Parent may terminate this Agreement.
(d) For purposes of this Agreement, a "superior proposal" means any bona
fide takeover proposal to acquire, directly or indirectly, all of the Shares
then outstanding or all or substantially all the assets of the Company, and
otherwise on terms which a majority of the disinterested members of the Board of
Directors of the Company determines in its good faith reasonable judgment (based
on the written advice of a financial advisor of nationally recognized
reputation, a copy of which shall be provided to Parent) to be more favorable to
the Company's stockholders than the Merger.
(e) In addition to the obligations of the Company set forth in paragraph
(b), the Company shall promptly advise Parent orally and in writing of any
takeover proposal or any inquiry with respect to or which could lead to any
takeover proposal, the material terms and conditions of such inquiry or takeover
proposal (including the financing for such proposal and a copy of such documents
conveying such proposal), and the identity of the person making any such
takeover proposal or inquiry. The Company will keep Parent fully informed of the
status and details of any such takeover proposal or inquiry.
SECTION 8.2 Expense Reimbursements.
(a) In the event this Agreement is terminated by the failure of the
Company's stockholders to approve the Merger after the Merger Consideration has
been fixed as provided in Section 2.1(c) or in the event that this Agreement is
terminated pursuant to Section 7.1(c) or 7.1(d), the Company shall pay to Parent
the sum of $400,000 as liquidated damages and not as a penalty.
(b) In the event that this Agreement is terminated by the Company or
Parent, other than (i) by reason of failure of the Company's stockholders to
approve the Merger after the Merger Consideration has been fixed as provided in
Section 2.1(c), (ii) as a result of a breach of this Agreement by the Company,
(iii) pursuant to Section 7.1(c) or 7.1(d), (iv) by reason of failure to fix the
Merger Consideration as provided in Section 2.1(c), (v) by reason of Section
7.1(b)(ii) hereof (unless such order or injunction results from an action
brought by stockholders of Parent), or (vi) by reason of Section 7.1(b)(iii)
hereof, Parent shall assume and pay, or reimburse the Company for, all
reasonable fees and expenses incurred by the Company solely with respect to the
issuance of a tax opinion by Rubin Baum Levin Constant & Friedman, compliance
with the HSR Act and the preparation and filing of the combined proxy statement
of the Company and Registration Statement. Such expenses shall include
reasonable fees and reasonable expenses of its counsel and accountants, but only
insofar as they were incurred directly in connection with the above.
Notwithstanding the foregoing, in the event that the parties are unable to fix
the Merger Consideration as provided in Section 2.1 (c) and (i) the Parent is
unwilling to use as a basis for fixing the Merger Consideration the closing
price of Tesoro Common Stock on the second trading day preceding the date on
which the Registration Statement could have been declared effective and (ii)
such price is less than $8.25, Parent shall pay the above fees, but only to the
extent of $75,000.
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(c) Except as set forth in this Section 8.2, neither Parent nor the Company
shall have any obligation or liability to the other as a result of the
termination of this Agreement pursuant to Section 7.1, except that (i) the
provisions of Section 5.4(c), 5.8, 5.9 and 8.2 shall survive termination and
(ii) nothing herein and no termination pursuant to Article VII shall relieve any
party from liability for breach of this Agreement.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
by the Company or Parent or Sub pursuant to this Agreement shall survive the
Effective Time of the Merger. This Section 9.1 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time of the Merger.
SECTION 9.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by facsimile
or sent by overnight courier to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
Telephone: (210) 283-2997
Facsimile: (210) 283-2833
Confirm: (210) 828-8484
Attention: William T. Van Kleef, Senior Vice President and
Chief Financial Officer
James C. Reed, Jr., Executive Vice President,
General Counsel and Secretary
with copies (which shall not constitute notice) to:
Fulbright & Jaworski L.L.P.
Market Square
801 Pennsylvania Avenue, N.W.
Washington, DC 20004-2604
Telephone: (202) 662-4660
Facsimile: (202) 662-4643
Confirm: (202) 662-4239
Attention: Michael Conlon, Esq.
(b) if to the Company, to
Coastwide Energy Services, Inc.
11111 Wilcrest Green Drive
Suite 350
Houston, Texas 77042
Telephone: (713) 917-4100
Facsimile: (713) 735-6928
Confirm: (713) 917-4100
Attention: Stephen A. Wells, President
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with a copy (which shall not constitute notice) to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 698-7700
Facsimile: (212) 698-7825
Confirm: (212) 698-7758
Attention: Walter M. Epstein, Esq.
SECTION 9.3 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by
or is under common control with, such first person;
(b) "material adverse effect" or "material adverse change" means, when
used in connection with any person, any change or effect (or any
development that, insofar as can reasonably be foreseen, could reasonably
be expected to result in any change or effect) that is materially adverse
to the business, properties, assets, condition (financial or otherwise),
results of operations or prospects of that person and its subsidiaries,
taken as a whole;
(c) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization or other entity;
(d) a "subsidiary" of any person means any corporation, partnership,
association, joint venture, limited liability company or other entity in
which such person has an ownership interest.
SECTION 9.4 Interpretation. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 9.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.6 Entire Agreement: No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (b) except for the provisions of Section 5.7, is not
intended to confer upon any person other than the parties any rights or remedies
hereunder.
SECTION 9.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Sub may
assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect wholly
owned subsidiary of Parent, but no such assignment shall relieve Sub of any of
its obligations hereunder. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
SECTION 9.9 Enforcement of the Agreement. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific
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terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States located in the State of Texas or in any other Texas
state court, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto agrees
that it will not bring any action relating to this Agreement in any court other
than a Federal or state court sitting in the Southern District of Texas.
SECTION 9.10 Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
TESORO PETROLEUM CORPORATION
By: /s/ BRUCE A. SMITH
------------------------------------
Name: Bruce A. Smith
Title: President and Chief Executive
Officer
CNRG ACQUISITION CORP.
By: /s/ BRUCE A. SMITH
------------------------------------
Name: Bruce A. Smith
Title: President and Chief Executive
Officer
COASTWIDE ENERGY SERVICES, INC.
By: /s/ STEPHEN A. WELLS
------------------------------------
Name: Stephen A. Wells
Title: President
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APPENDIX B
OPINION OF SIMMONS & COMPANY INTERNATIONAL
B-1
<PAGE> 129
Letterhead of
Simmons & Company
International
Appendix B-1
January __, 1996
Board of Directors
Coastwide Energy Services, Inc.
11111 Wilcrest Green Drive, suite 400
Houston, Texas 77042
Members of the Board:
You have requested the opinion of Simmons & Company International ("Simmons")
as investment bankers as to the fairness, from a financial point of view, to
the holders of shares of common stock, par value $$0.01 per share (the "Company
Common Stock"), the holders of 8% Convertible Subordinated Debentures due July
1, 2004 (the "Convertible Debentures") and the holders of Class B Warrants (the
"Class B Warrants"), of Coastwide Energy Services, Inc. (the "Company") of the
consideration to be received by such holders in the proposed merger of the
Company with CNRG Acquisition Corp. (the "Sub"), a wholly-owned subsidiary of
Tesoro Petroleum Corporation ("Tesoro"), pursuant to the Agreement and Plan of
Merger (the "Agreement") to be executed by Tesoro, the Sub and the Company (the
"Proposed Merger").
As more specifically set forth in the Agreement, in the Proposed Merger each
issued and outstanding share of the Company Common Stock will be converted into
$2.55 in cash plus 0.41 of a share of common stock, par value $0.16 2/3 per
share, of Tesoro (the "Tesoro Common Stock") together with any associated
Preferred Stock Purchase Rights. Issued and outstanding Convertible Debentures
and Class B Warrants will remain outstanding, and holders of such securities
will retain the right to convert or exchange such securities on similar terms
as would have been received had such holders converted or exchanged such
securities prior to the Proposed Merger.
Simmons, as a specialized energy-related investment banking firm, is engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, the management and underwriting of sales of equity and debt to the
public, and private placements of equity and debt. In addition, in the ordinary
course of business, Simmons may actively trade the securities of the Company and
Tesoro for its own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
In connection with rendering its opinion, Simmons has reviewed and analyzed,
among other things, the following: (i) the Letter of Intent between Tesoro and
the Company dated September 14, 1995; (ii) the Agreement; (iii) the financial
statements and other information concerning the Company, including the Annual
Reports on Form 10-K of the Company for each of the years in the two-year
period ended December 31, 1994 and the Quarterly Reports on Form 10-Q of the
Company for the quarters ended March 31, 1995, June 30, 1995 and September 30,
1995; (iv) certain other internal information, primarily financial in nature,
concerning the business and operations of the Company furnished by the Company
for purposes of Simmons' analysis; (v) certain publicly available information
concerning the trading of, and the trading market for, the Company Common
Stock; (vi) certain publicly
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Board of Directors
Coastwide Energy Services, Inc.
January __, 1996
Page 2
available information concerning Tesoro, including the Annual Reports on Form
10-K of Tesoro for each of the years in the three-year period ended December 31,
1994, the Quarterly Reports on Form 10-Q of Tesoro for the quarters ended March
31, 1995, June 30, 1995 and September 30, 1995, and the Current Reports on Form
8-K dated September 26, 1995 and December 15, 1995; (vii) certain other internal
information, primarily financial in nature, concerning the business and
operations of Tesoro furnished by Tesoro for purposes of Simmons' analysis;
(viii) certain publicly available information concerning the trading of, and the
trading market for, Tesoro Common Stock; (ix) certain publicly available
information concerning litigation and/or disputes regarding attempts by certain
holders of Tesoro Common Stock to attain effective control of the Board of
Directors of Tesoro; (x) certain publicly available information with respect to
certain other companies that Simmons considers to be comparable to the Company
or Tesoro (the "Comparable Companies") and the trading markets for certain of
such other companies' securities; (xi) certain publicly available information
concerning the estimates of the future operating and financial performance of
the Company, Tesoro and the Comparable Companies prepared by industry experts
unaffiliated with either the Company or Tesoro; and (xii) certain publicly
available information concerning the nature and terms of certain other
transactions considered relevant to the inquiry. Simmons has also met with
certain officers and employees of the Company and Tesoro to discuss the
foregoing, as well as other matters believed relevant to the inquiry.
In arriving at its opinion, Simmons has assumed and relied upon the accuracy
and completeness of all of the financial and other information provided by the
Company and Tesoro, or publicly available, including, without limitation,
information with respect to asset conditions, liability reserves and insurance
coverages, and has not attempted independently to verify any of such
information. Simmons has not conducted a physical inspection of any of the
assets, properties or facilities of the Company or Tesoro, nor has Simmons made
or obtained any independent evaluations or appraisals of any of such assets,
properties or facilities.
In conducting its analysis and arriving at its opinion as expressed herein,
Simmons has considered such financial and other factors as it deemed
appropriate under the circumstances, including, among others, the following:
(i) the historical and current financial position and results of operations of
the Company and Tesoro; (ii) the business prospects of the Company and Tesoro;
(iii) completed or pending litigation and/or disputes regarding attempts by
certain holders of Tesoro Common Stock to attain effective control of the Board
of Directors of Tesoro; (iv) the historical and current market for the Company
Common Stock, for Tesoro Common Stock and for the equity securities of certain
other companies believed to be comparable to the Company or Tesoro; (v) the
respective contributions in terms of various financial measures of the Company
and Tesoro to the combined company, and the relative pro forma ownership of
Tesoro after the Proposed Merger by the current holders of the Company Common
Stock and Tesoro Common Stock; and (vi) the nature and terms of certain other
acquisition transactions that Simmons believes to be relevant. Simmons has
also taken into account its assessment of general economic, market and
financial conditions and its experience in connection with similar transactions
and securities' valuation generally. Simmons' opinion necessarily is based
upon conditions as they exist and can be evaluated on, and on the information
made available at, the date hereof. The opinion rendered by Simmons does not
constitute an opinion as to the future value of Tesoro Common Stock upon
consummation of the Proposed Merger or the price at which Tesoro Common Stock
will trade at any time.
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Board of Directors
Coastwide Energy Services, Inc.
January __, 1996
Page 3
Simmons is acting as financial advisor to the Company in this transaction and
will receive a customary fee for its services.
Based upon and subject to the foregoing, Simmons is of the opinion, as
investment bankers, that the consideration to be received by the holders of the
Company Common Stock, Convertible Debentures and Class B Warrants in the
Proposed Merger is fair to such holders from a financial point of view.
Sincerely,
SIMMONS & COMPANY INTERNATIONAL, INC.
Nicholas L. Swyka
Managing Director
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APPENDIX C
SECTION 262 OF DELAWARE GENERAL CORPORATION LAW
SEC. 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to sec. 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of his shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and include
what is ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation; and the words "depository
receipt" mean a receipt or other instrument issued by a depository representing
an interest in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251, sec. 252, sec. 254, sec. 257, sec. 258, sec. 263
or sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient it if reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreement as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the
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surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General corporation Law empowers Tesoro to, and
the By-laws of Tesoro provide that it shall, indemnify to the full extent
authorized or permitted by the laws of the State of Delaware any person who is
made, or threatened to be made, a party to an action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
Tesoro, respectively, or serves or served any other enterprise at the request of
Tesoro.
ITEM 21. EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGISTRATION S-K)
(a) Exhibits
The following exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
2(a) -- Agreement and Plan of Merger dated as of November 20, 1995, between Tesoro,
Coastwide Energy Services, Inc. and CNRG Acquisition Corp.
2(b) -- Copy of the Purchase and Sale Agreement by and between Tesoro E&P Company,
L.P., as Seller, and Coastal Oil & Gas of Texas, L.P., as Purchaser
(incorporated by reference herein to Exhibit 2 to Tesoro's report on Form 8-K
dated October 11, 1995, File No. 1-3473).
3 -- Restated Certificate of Incorporation of Tesoro (incorporated by reference
herein to Exhibit 3 to Tesoro's Annual Report on Form 10-K for fiscal year
ended December 31, 1993. File No. 1-3473).
3(a) -- By-laws of Tesoro, as amended through September 27, 1995 (incorporated by
reference herein to Exhibit 3 to Tesoro's report on Form 10-Q for the quarter
ended September 30, 1995, File No. 1-3473).
3(b) -- Amendment to Restated Certificate of Incorporation of Tesoro adding a new
Article IX limiting Directors' Liability (incorporated by reference herein to
Exhibit 3(b) to Tesoro'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 Tesoro'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 Tesoro'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 Tesoro amending Article IV, Article V, Article VII and
Article VIII (incorporated by reference herein to Exhibit 3(e) to Tesoro'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 Tesoro's Registration
Statement on Form 8-A filed March 2, 1994).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
4(c) -- Copy of Indenture between Tesoro and Bankers Trust Company, as Trustee,
pursuant to which the Exchange Notes Due December 1, 2000 were issued
(incorporated by reference herein to Exhibit 2 to Tesoro's Registration
Statement on Form 8-A filed March 2, 1994).
4(d) -- Rights Agreement dated December 16, 1985 between Tesoro and Chemical Bank,
N.A., successor to InterFirst Bank Fort Worth, N.A. (incorporated by reference
herein to Exhibit 4(i) to Tesoro'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 Tesoro and
Chemical Bank, N.A. (incorporated by reference herein to Exhibit 4(c) to
Tesoro's Annual Report on Form 10-K for the fiscal year ended December 31,
1992, File No. 1-3473).
4(f) -- Copy of resolution of Tesoro's Board of Directors extending the Expiration Date
relating to the Tesoro Preferred Stock Purchase Rights (incorporated by
referenced herein to Tesoro's report on Form 8-K dated December 15, 1995, File
No. 1-3473).
4(g) -- Tesoro Exploration and Production Company's Loan Agreement dated as of October
29, 1993 (incorporated by reference herein to Exhibit 4(b) to Tesoro's report
on Form 10-Q for the quarter ended September 30, 1993, File No. 1-3473).
4(h) -- 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 Tesoro's report on Form
10-Q for the quarter ended September 30, 1993, File No. 1-3473).
4(i) -- Credit Agreement (the "Credit Agreement") dated as of April 20, 1994 among
Tesoro 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 Tesoro's report on Form 10-Q for the quarter ended
March 31, 1994, File No. 1-3473).
4(j) -- Guaranty Agreement dated as of April 20, 1994 among various subsidiaries of
Tesoro and TCB, as Issuing Bank and as Agent, and certain other banks named
therein (incorporated by reference herein to Exhibit 10.2 to Tesoro's report on
Form 10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(k) -- 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 Tesoro's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(l) -- 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 Tesoro's report
on Form 10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(m) -- 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 Tesoro'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 and TCB, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 10.6 to Tesoro's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
4(o) -- 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 Tesoro's
report on Form 10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(p) -- 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 Tesoro'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 Exploration and Production Company and TCB, entered into in connection
with the Credit Agreement (incorporated by reference herein to Exhibit 10.9 to
Tesoro's report on Form 10-Q for the quarter ended March 31, 1994, File No.
1-3473).
4(r) -- 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
Tesoro's report on Form 10-Q for the quarter ended March 31, 1994, File No.
1-3473).
4(s) -- Loan Agreement (the "Loan Agreement") dated as of May 26, 1994 among Tesoro
Alaska Petroleum Company, as Borrower, Tesoro, 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(t) -- Guaranty Agreement dated as of May 26, 1994 between Tesoro 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(u) -- $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.
33-535587).
4(v) -- 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(w) -- 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(x) -- 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).
4(y) -- Consent and Intercreditor Agreement dated as of May 26, 1994 among NBA, TCB, as
Agent, and Tesoro, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 4.36 to Registration Statement No.
33-53587).
4(z) -- Copy of Consent and Waiver No. 1 dated October 27, 1994 to Tesoro's Credit
Agreement dated as of April 20, 1994 (incorporated by reference herein to
Exhibit 4 to Tesoro's report on Form 10-Q for the quarter ended September 30,
1994, File No. 1-3473).
4(aa) -- Copy of First Amendment to Credit Agreement dated as of January 20, 1995 among
Tesoro and TCB as Issuing Bank and as Agent, and certain other banks named
therein (incorporated by reference herein to Exhibit 4(z) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, File No.
1-3473).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
4(bb) -- Copy of First Amendment to the Loan Agreement dated as of January 26, 1995
among Tesoro Alaska Petroleum Company, Tesoro and NBA (incorporated by
reference herein to Exhibit 4(aa) to Tesoro's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, File No. 1-3473).
4(cc) -- Copy of Consent and Waiver No. 2 dated as of July 31, 1995 to Tesoro's Credit
Agreement dated as of April 20, 1994 (incorporated by reference herein to
Exhibit 4 to Tesoro's Report on Form 10-Q for the quarter ended June 30, 1995,
File No. 1-3473).
4(dd) -- Copy of Second Amendment and Supplement to Credit Agreement effective as of
September 1, 1995 among Tesoro and TCB as Issuing Bank and as Agent, and
certain other banks named therein (incorporated by reference herein to Exhibit
4.1 to Tesoro's report on Form 10-Q for the quarter ended September 30, 1995,
File No. 1-3473).
4(ee) -- Copy of Third Amendment to Credit Agreement effective as of October 24, 1995
among Tesoro and TCB as Issuing Bank and as Agent, and certain other banks
named therein (incorporated by reference herein to Exhibit 4.2 to Tesoro's
report on Form 10-Q for the quarter ended September 30, 1995, File No. 1-3473).
5 -- Opinion of Fulbright & Jaworski L.L.P. regarding legality.
8 -- Opinion of Rubin Baum Levin Constant & Friedman regarding tax matters.
10(a) -- Form of Executive Agreement providing for continuity of management between
Tesoro and James W. Queen dated June 28, 1984 (incorporated by reference herein
to Exhibit 10(b) to Tesoro'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 Agreement between Tesoro and James W. Queen
dated September 30, 1987 (incorporated by reference herein to Exhibit 10(c) to
Tesoro's Annual Report on Form 10-K for the fiscal year ended September 30,
1987, File No. 1-3437).
10(c) -- Form of Second Amendment to Executive Agreement between Tesoro and James W.
Queen dated February 28, 1990 (incorporated by reference herein to Exhibit
10(e) to Tesoro's Annual Report on Form 10-K for the fiscal year ended
September 30, 1990, File No. 1-3473).
10(d) -- Tesoro'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 Tesoro's Annual Report on Form 10-K for the fiscal year ended
September 30, 1990, File No. 1-3473).
10(e) -- Sixth Amendment to Tesoro's Amended Executive Security Plan and Seventh
Amendment to Tesoro's Funded Executive Security Plan, both dated effective
March 6, 1991 (incorporated by reference herein to Exhibit 10(g) to Tesoro's
Annual Report on Form 10-K for the fiscal year ended September 30, 1991, File
No. 1-3473).
10(f) -- Seventh Amendment to Tesoro's Amended Executive Security Plan and Eighth
Amendment to Tesoro's Funded Executive Security Plan, both dated effective
December 8, 1994 (incorporated by reference herein to Exhibit 10(f) to Tesoro's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994, File
No. 1-3473).
10(g) -- Employment Agreement between Tesoro and Michael D. Burke dated July 27, 1992
(incorporated by reference herein to Exhibit 10(j) to Tesoro'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 Tesoro and
Michael D. Burke dated December 14, 1994 (incorporated by reference herein to
Exhibit 10(h) to Tesoro's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-3473).
10(i) -- Termination Agreement between Tesoro and Michael D. Burke dated September 26,
1995.
</TABLE>
II-4
<PAGE> 139
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
10(j) -- Consulting Agreement between Tesoro and M.D. Burke & Company (formerly M.D.
Burke Enterprises, Inc.) dated September 26, 1995.
10(k) -- Employment Agreement between Tesoro and Bruce A. Smith dated September 14, 1992
(incorporated by reference herein to Exhibit 10(k) to Tesoro'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 Tesoro and Bruce
A. Smith dated December 14, 1994 (incorporated by reference herein to Exhibit
10(j) to Tesoro's Annual Report on Form 10-K for the fiscal year ended December
31, 1994, File No. 1-3473).
10(m) -- Second Amendment to Employment Agreement between Tesoro and Bruce A. Smith
dated September 29, 1995.
10(n) -- Letter Agreement extending the term of the Employment Agreement, as amended,
between Tesoro and Bruce A. Smith dated December 14, 1995.
10(o) -- Employment Agreement between Tesoro and Gaylon H. Simmons dated January 4, 1993
(incorporated by reference herein to Exhibit 10(l) to Tesoro's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(p) -- First Amendment and Extension to Employment Agreement between Tesoro and Gaylon
H. Simmons dated December 14, 1994 (incorporated by reference herein to Exhibit
10(l) to Tesoro's Annual Report on Form 10-K for the fiscal year ended December
31, 1994, File No. 1-3473).
10(q) -- Employment Agreement between Tesoro and James C. Reed, Jr. dated December 14,
1994 (incorporated by reference herein to Exhibit 10(m) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, File No.
1-3473).
10(r) -- First Amendment to Employment Agreement between Tesoro and James C. Reed, Jr.,
dated as of September 27, 1995.
10(s) -- Employment Agreement between Tesoro and William T. Van Kleef dated December 14,
1994 (incorporated by reference herein to Exhibit 10(n) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, File No.
1-3473).
10(t) -- First Amendment to Employment Agreement between Tesoro and William T. Van Kleef
dated as of September 27, 1995.
10(u) -- Management Stability Agreement between Tesoro and Don E. Beere dated December
14, 1994 (incorporated by reference herein to Exhibit 10(o) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, File No.
1-3473).
10(v) -- Management Stability Agreement between Tesoro and Gregory A. Wright dated
February 23, 1995 (incorporated by reference herein to Exhibit 10(p) to
Tesoro's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, File No. 1-3473).
10(w) -- Management Stability Agreement between Tesoro and Thomas Reardon dated December
14, 1994.
10(x) -- Tesoro's Amended Incentive Stock Plan of 1982, as amended through February 24,
1988 (incorporated by reference herein to Exhibit 10(t) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended September 30, 1988, File No.
1-3473).
10(y) -- Resolution approved by Tesoro's stockholders on April 30, 1992 extending the
term of Tesoro's Amended Incentive Stock Plan of 1982 to February 24, 1994
(incorporated by reference herein to Exhibit 10(o) to Tesoro's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(z) -- Copy of Tesoro's Executive Long-Term Incentive Plan (incorporated by reference
to Exhibit 10(k) to Tesoro's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-3473).
</TABLE>
II-5
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
10(aa) -- Copy of Tesoro's Non-Employee Director Retirement Plan dated December 8, 1994
(incorporated by reference herein to Exhibit 10(t) to Tesoro's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, File No. 1-3473).
10(bb) -- Copy of Tesoro's Board of Directors Deferred Compensation Plan dated February
23, 1995 (incorporated by reference herein to Exhibit 10(u) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, File No.
1-3473).
10(cc) -- Copy of Tesoro's Board of Directors Deferred Compensation Trust dated February
23, 1995 (incorporated by reference herein to Exhibit 10(v) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, File No.
1-3473).
10(dd) -- 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 Tesoro's Annual Report on Form 10-K for the fiscal year ended
September 30, 1984, File No. 1-3473).
10(ee) -- 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
(incorporated by reference herein to Exhibit 10(x) to Tesoro's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, File No. 1-3473).
10(ff) -- 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 Tesoro's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(gg) -- Form of Indemnification Agreement between Tesoro and its officers and directors
(incorporated by reference herein to Exhibit B to Tesoro's Proxy Statement for
the Annual Meeting of Stockholders held on February 25, 1987, File No. 1-3473).
10(hh) -- Gas Purchase and Sales Agreement dated January 16, 1979 (incorporated by
reference herein to Exhibit 10(p) of Tesoro's Registration Statement No.
33-68282 on Form S-4).
10(ii) -- Agreement and Purchase of State Royalty Oil dated as of April 21, 1995 by and
between Tesoro Alaska Petroleum Company and the State of Alaska (incorporated
by reference herein to Exhibit 10 to Tesoro's Report on Form 10-Q for the
quarter ended June 30, 1995).
11 -- Information regarding Earnings (Loss) Per Share Computations of Coastwide.
21 -- Subsidiaries of Tesoro, Incorporated or Organized, and Percentage of Voting
Securities Owned
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%
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.
23(a) -- Consent of Deloitte & Touche LLP.
23(b) -- Consent of Arthur Andersen LLP.
23(c) -- Consent of Simmons & Company International.
</TABLE>
II-6
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
23(d) -- Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 5).
23(e) -- Consent of Rubin Baum Levin Constant & Friedman (contained in Exhibit 8).
24 -- Power of Attorney (included in signature page).
99 -- Form of Coastwide Proxy Card.
</TABLE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) Prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form; and
(2) Every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act, and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Antonio, State of
Texas, on January 16, 1996.
TESORO PETROLEUM CORPORATION
By /s/ BRUCE A. SMITH
------------------------
Bruce A. Smith
President and
Chief Executive Officer
POWER OF ATTORNEY
We the undersigned directors and officers of Tesoro Petroleum Corporation,
do hereby constitute and appoint Bruce A. Smith and James C. Reed, Jr. and each
of them, our true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution in each of them, to do any and all acts and
things in our respective names and on our respective behalves in the capacities
indicated below that either of them may deem necessary or advisable to enable
Tesoro Petroleum Corporation to comply with the Securities Act of 1933 and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, the power and authority to sign for us and any of us in our
respective names in the capacities indicated below any and all amendments
(including post-effective amendments) hereto and filed the same, with all
exhibits thereto and other documents therewith, with the Securities and Exchange
Commission; and we do hereby ratify and confirm all that Bruce A. Smith and
James C. Reed, Jr., or either of them, shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ BRUCE A. SMITH President and Chief Executive January 16, 1996
-------------------------- Officer and Director
Bruce A. Smith (Principal Executive Officer)
/s/ WILLIAM T. VAN KLEEF Senior Vice President and January 16, 1996
-------------------------- Chief Financial Officer
William T. Van Kleef (Principal Financial Officer
and Principal Accounting
Officer)
/s/ ROBERT J. CAVERLY Chairman of the Board and January 16, 1996
-------------------------- Director
Robert J. Caverly
/s/ PETER M. DETWILER Director January 16, 1996
--------------------------
Peter M. Detwiler
/S/ STEVEN H. GRAPSTEIN Director January 16, 1996
---------------------------
Steven H. Grapstein
Director , 1996
---------------------------
Raymond K. Mason, Sr.
/s/ JOHN J. MCKETTA, JR. Director January 16, 1996
--------------------------
John J. McKetta, Jr.
/s/ MURRY L. WEIDENBAUM Director January 16, 1996
--------------------------
Murry L. Weidenbaum
</TABLE>
II-8
<PAGE> 143
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
2(a) -- Agreement and Plan of Merger dated as of November 20, 1995, between Tesoro,
Coastwide Energy Services, Inc. and CNRG Acquisition Corp.
2(b) -- Copy of the Purchase and Sale Agreement by and between Tesoro E&P Company,
L.P., as Seller, and Coastal Oil & Gas of Texas, L.P., as Purchaser
(incorporated by reference herein to Exhibit 2 to Tesoro's report on Form 8-K
dated October 11, 1995, File No. 1-3473).
3 -- Restated Certificate of Incorporation of Tesoro (incorporated by reference
herein to Exhibit 3 to Tesoro's Annual Report on Form 10-K for fiscal year
ended December 31, 1993. File No. 1-3473).
3(a) -- By-laws of Tesoro, as amended through September 27, 1995 (incorporated by
reference herein to Exhibit 3 to Tesoro's report on Form 10-Q for the quarter
ended September 30, 1995, File No. 1-3473).
3(b) -- Amendment to Restated Certificate of Incorporation of Tesoro adding a new
Article IX limiting Directors' Liability (incorporated by reference herein to
Exhibit 3(b) to Tesoro'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 Tesoro'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 Tesoro'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 Tesoro amending Article IV, Article V, Article VII and
Article VIII (incorporated by reference herein to Exhibit 3(e) to Tesoro'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 Tesoro's Registration
Statement on Form 8-A filed March 2, 1994).
4(c) -- Copy of Indenture between Tesoro and Bankers Trust Company, as Trustee,
pursuant to which the Exchange Notes Due December 1, 2000 were issued
(incorporated by reference herein to Exhibit 2 to Tesoro's Registration
Statement on Form 8-A filed March 2, 1994).
4(d) -- Rights Agreement dated December 16, 1985 between Tesoro and Chemical Bank,
N.A., successor to InterFirst Bank Fort Worth, N.A. (incorporated by reference
herein to Exhibit 4(i) to Tesoro'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 Tesoro and
Chemical Bank, N.A. (incorporated by reference herein to Exhibit 4(c) to
Tesoro's Annual Report on Form 10-K for the fiscal year ended December 31,
1992, File No. 1-3473).
4(f) -- Copy of resolution of Tesoro's Board of Directors extending the Expiration Date
relating to the Tesoro Preferred Stock Purchase Rights (incorporated by
referenced herein to Tesoro's report on Form 8-K dated December 15, 1995, File
No. 1-3473).
</TABLE>
<PAGE> 144
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
4(g) -- Tesoro Exploration and Production Company's Loan Agreement dated as of October
29, 1993 (incorporated by reference herein to Exhibit 4(b) to Tesoro's report
on Form 10-Q for the quarter ended September 30, 1993, File No. 1-3473).
4(h) -- 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 Tesoro's report on Form
10-Q for the quarter ended September 30, 1993, File No. 1-3473).
4(i) -- Credit Agreement (the "Credit Agreement") dated as of April 20, 1994 among
Tesoro 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 Tesoro's report on Form 10-Q for the quarter ended
March 31, 1994, File No. 1-3473).
4(j) -- Guaranty Agreement dated as of April 20, 1994 among various subsidiaries of
Tesoro and TCB, as Issuing Bank and as Agent, and certain other banks named
therein (incorporated by reference herein to Exhibit 10.2 to Tesoro's report on
Form 10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(k) -- 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 Tesoro's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(l) -- 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 Tesoro's report
on Form 10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(m) -- 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 Tesoro'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 and TCB, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 10.6 to Tesoro's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(o) -- 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 Tesoro's
report on Form 10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(p) -- 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 Tesoro'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 Exploration and Production Company and TCB, entered into in connection
with the Credit Agreement (incorporated by reference herein to Exhibit 10.9 to
Tesoro's report on Form 10-Q for the quarter ended March 31, 1994, File No.
1-3473).
4(r) -- 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
Tesoro's report on Form 10-Q for the quarter ended March 31, 1994, File No.
1-3473).
</TABLE>
<PAGE> 145
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
4(s) -- Loan Agreement (the "Loan Agreement") dated as of May 26, 1994 among Tesoro
Alaska Petroleum Company, as Borrower, Tesoro, 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(t) -- Guaranty Agreement dated as of May 26, 1994 between Tesoro 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(u) -- $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.
33-535587).
4(v) -- 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(w) -- 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(x) -- 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).
4(y) -- Consent and Intercreditor Agreement dated as of May 26, 1994 among NBA, TCB, as
Agent, and Tesoro, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 4.36 to Registration Statement No.
33-53587).
4(z) -- Copy of Consent and Waiver No. 1 dated October 27, 1994 to Tesoro's Credit
Agreement dated as of April 20, 1994 (incorporated by reference herein to
Exhibit 4 to Tesoro's report on Form 10-Q for the quarter ended September 30,
1994, File No. 1-3473).
4(aa) -- Copy of First Amendment to Credit Agreement dated as of January 20, 1995 among
Tesoro and TCB as Issuing Bank and as Agent, and certain other banks named
therein (incorporated by reference herein to Exhibit 4(z) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, File No.
1-3473).
4(bb) -- Copy of First Amendment to the Loan Agreement dated as of January 26, 1995
among Tesoro Alaska Petroleum Company, Tesoro and NBA (incorporated by
reference herein to Exhibit 4(aa) to Tesoro's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, File No. 1-3473).
4(cc) -- Copy of Consent and Waiver No. 2 dated as of July 31, 1995 to Tesoro's Credit
Agreement dated as of April 20, 1994 (incorporated by reference herein to
Exhibit 4 to Tesoro's Report on Form 10-Q for the quarter ended June 30, 1995,
File No. 1-3473).
4(dd) -- Copy of Second Amendment and Supplement to Credit Agreement effective as of
September 1, 1995 among Tesoro and TCB as Issuing Bank and as Agent, and
certain other banks named therein (incorporated by reference herein to Exhibit
4.1 to Tesoro's report on Form 10-Q for the quarter ended September 30, 1995,
File No. 1-3473).
4(ee) -- Copy of Third Amendment to Credit Agreement effective as of October 24, 1995
among Tesoro and TCB as Issuing Bank and as Agent, and certain other banks
named therein (incorporated by reference herein to Exhibit 4.2 to Tesoro's
report on Form 10-Q for the quarter ended September 30, 1995, File No. 1-3473).
5 -- Opinion of Fulbright & Jaworski L.L.P. regarding legality.
8 -- Opinion of Rubin Baum Levin Constant & Friedman regarding tax matters.
</TABLE>
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10(a) -- Form of Executive Agreement providing for continuity of management between
Tesoro and James W. Queen dated June 28, 1984 (incorporated by reference herein
to Exhibit 10(b) to Tesoro'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 Agreement between Tesoro and James W. Queen
dated September 30, 1987 (incorporated by reference herein to Exhibit 10(c) to
Tesoro's Annual Report on Form 10-K for the fiscal year ended September 30,
1987, File No. 1-3437).
10(c) -- Form of Second Amendment to Executive Agreement between Tesoro and James W.
Queen dated February 28, 1990 (incorporated by reference herein to Exhibit
10(e) to Tesoro's Annual Report on Form 10-K for the fiscal year ended
September 30, 1990, File No. 1-3473).
10(d) -- Tesoro'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 Tesoro's Annual Report on Form 10-K for the fiscal year ended
September 30, 1990, File No. 1-3473).
10(e) -- Sixth Amendment to Tesoro's Amended Executive Security Plan and Seventh
Amendment to Tesoro's Funded Executive Security Plan, both dated effective
March 6, 1991 (incorporated by reference herein to Exhibit 10(g) to Tesoro's
Annual Report on Form 10-K for the fiscal year ended September 30, 1991, File
No. 1-3473).
10(f) -- Seventh Amendment to Tesoro's Amended Executive Security Plan and Eighth
Amendment to Tesoro's Funded Executive Security Plan, both dated effective
December 8, 1994 (incorporated by reference herein to Exhibit 10(f) to Tesoro's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994, File
No. 1-3473).
10(g) -- Employment Agreement between Tesoro and Michael D. Burke dated July 27, 1992
(incorporated by reference herein to Exhibit 10(j) to Tesoro'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 Tesoro and
Michael D. Burke dated December 14, 1994 (incorporated by reference herein to
Exhibit 10(h) to Tesoro's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-3473).
10(i) -- Termination Agreement between Tesoro and Michael D. Burke dated September 26,
1995.
10(j) -- Consulting Agreement between Tesoro and M.D. Burke & Company (formerly M.D.
Burke Enterprises, Inc.) dated September 26, 1995.
10(k) -- Employment Agreement between Tesoro and Bruce A. Smith dated September 14, 1992
(incorporated by reference herein to Exhibit 10(k) to Tesoro'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 Tesoro and Bruce
A. Smith dated December 14, 1994 (incorporated by reference herein to Exhibit
10(j) to Tesoro's Annual Report on Form 10-K for the fiscal year ended December
31, 1994, File No. 1-3473).
10(m) -- Second Amendment to Employment Agreement between Tesoro and Bruce A. Smith
dated September 29, 1995.
10(n) -- Letter Agreement extending the term of the Employment Agreement, as amended,
between Tesoro and Bruce A. Smith dated December 14, 1995.
10(o) -- Employment Agreement between Tesoro and Gaylon H. Simmons dated January 4, 1993
(incorporated by reference herein to Exhibit 10(l) to Tesoro's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
</TABLE>
<PAGE> 147
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NO. DESCRIPTION
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10(p) -- First Amendment and Extension to Employment Agreement between Tesoro and Gaylon
H. Simmons dated December 14, 1994 (incorporated by reference herein to Exhibit
10(l) to Tesoro's Annual Report on Form 10-K for the fiscal year ended December
31, 1994, File No. 1-3473).
10(q) -- Employment Agreement between Tesoro and James C. Reed, Jr. dated December 14,
1994 (incorporated by reference herein to Exhibit 10(m) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, File No.
1-3473).
10(r) -- First Amendment to Employment Agreement between Tesoro and James C. Reed, Jr.,
dated as of September 27, 1995.
10(s) -- Employment Agreement between Tesoro and William T. Van Kleef dated December 14,
1994 (incorporated by reference herein to Exhibit 10(n) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, File No.
1-3473).
10(t) -- First Amendment to Employment Agreement between Tesoro and William T. Van Kleef
dated as of September 27, 1995.
10(u) -- Management Stability Agreement between Tesoro and Don E. Beere dated December
14, 1994 (incorporated by reference herein to Exhibit 10(o) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, File No.
1-3473).
10(v) -- Management Stability Agreement between Tesoro and Gregory A. Wright dated
February 23, 1995 (incorporated by reference herein to Exhibit 10(p) to
Tesoro's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, File No. 1-3473).
10(w) -- Management Stability Agreement between Tesoro and Thomas Reardon dated December
14, 1994.
10(x) -- Tesoro's Amended Incentive Stock Plan of 1982, as amended through February 24,
1988 (incorporated by reference herein to Exhibit 10(t) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended September 30, 1988, File No.
1-3473).
10(y) -- Resolution approved by Tesoro's stockholders on April 30, 1992 extending the
term of Tesoro's Amended Incentive Stock Plan of 1982 to February 24, 1994
(incorporated by reference herein to Exhibit 10(o) to Tesoro's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(z) -- Copy of Tesoro's Executive Long-Term Incentive Plan (incorporated by reference
to Exhibit 10(k) to Tesoro's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-3473).
10(aa) -- Copy of Tesoro's Non-Employee Director Retirement Plan dated December 8, 1994
(incorporated by reference herein to Exhibit 10(t) to Tesoro's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, File No. 1-3473).
10(bb) -- Copy of Tesoro's Board of Directors Deferred Compensation Plan dated February
23, 1995 (incorporated by reference herein to Exhibit 10(u) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, File No.
1-3473).
10(cc) -- Copy of Tesoro's Board of Directors Deferred Compensation Trust dated February
23, 1995 (incorporated by reference herein to Exhibit 10(v) to Tesoro's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, File No.
1-3473).
10(dd) -- 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 Tesoro's Annual Report on Form 10-K for the fiscal year ended
September 30, 1984, File No. 1-3473).
</TABLE>
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NO. DESCRIPTION
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10(ee) -- 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
(incorporated by reference herein to Exhibit 10(x) to Tesoro's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, File No. 1-3473).
10(ff) -- 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 Tesoro's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(gg) -- Form of Indemnification Agreement between Tesoro and its officers and directors
(incorporated by reference herein to Exhibit B to Tesoro's Proxy Statement for
the Annual Meeting of Stockholders held on February 25, 1987, File No. 1-3473).
10(hh) -- Gas Purchase and Sales Agreement dated January 16, 1979 (incorporated by
reference herein to Exhibit 10(p) of Tesoro's Registration Statement No.
33-68282 on Form S-4).
10(ii) -- Agreement and Purchase of State Royalty Oil dated as of April 21, 1995 by and
between Tesoro Alaska Petroleum Company and the State of Alaska (incorporated
by reference herein to Exhibit 10 to Tesoro's Report on Form 10-Q for the
quarter ended June 30, 1995).
11 -- Information regarding Earnings (Loss) Per Share Computations of Coastwide.
21 -- Subsidiaries of Tesoro, Incorporated or Organized, and Percentage of Voting
Securities Owned
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%
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.
23(a) -- Consent of Deloitte & Touche LLP.
23(b) -- Consent of Arthur Andersen LLP.
23(c) -- Consent of Simmons & Company International.
23(d) -- Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 5).
23(e) -- Consent of Rubin Baum Levin Constant & Friedman (contained in Exhibit 8).
24 -- Power of Attorney (included in signature page).
99 -- Form of Coastwide Proxy Card.
</TABLE>
<PAGE> 1
EXHIBIT 2(a)
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TESORO PETROLEUM CORPORATION
CNRG ACQUISITION CORP.
AND
COASTWIDE ENERGY SERVICES, INC.
NOVEMBER 20, 1995
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ARTICLE I
THE MERGER........................................................................... A-1
SECTION 1.1 The Merger........................................................ A-1
SECTION 1.2 Effective Time.................................................... A-1
SECTION 1.3 Effects of the Merger............................................. A-1
SECTION 1.4 Certificate of Incorporation and By-laws.......................... A-2
SECTION 1.5 Directors......................................................... A-2
SECTION 1.6 Officers.......................................................... A-2
SECTION 1.7 Vacancies......................................................... A-2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE
OF CERTIFICATES.................................................................... A-2
SECTION 2.1 Effect on Capital Stock........................................... A-2
(a) Capital Stock of Sub..................................................... A-2
(b) Cancellation of Company and Parent Owned Stock and Rights................ A-2
(c) Conversion of Shares..................................................... A-2
(d) No Fractional Shares..................................................... A-3
(e) Shares of Dissenting Stockholders........................................ A-3
SECTION 2.2 Exchange of Certificates
(a) Exchange Agent........................................................... A-3
(b) Payment of Merger Consideration.......................................... A-3
(c) Exchange Procedure....................................................... A-3
(d) Distributions with Respect to Unexchanged Shares......................... A-4
(e) No Further Ownership Rights in Shares.................................... A-4
(f) Merger Consideration for Unexchanged Shares.............................. A-4
(g) Options Under Option Plans............................................... A-5
(h) Convertible Debentures................................................... A-5
(i) Warrants................................................................. A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES....................................................... A-5
SECTION 3.1 Representations and Warranties of the Company..................... A-5
(a) Organization, Standing and Power......................................... A-5
(b) Subsidiaries............................................................. A-6
(c) Capital Structure........................................................ A-6
(d) Authority; Non-contravention............................................. A-6
(e) SEC Documents............................................................ A-7
(f) Information Supplied..................................................... A-8
(g) Absence of Certain Changes or Events..................................... A-8
(h) Absence of Super majority Provision...................................... A-8
(i) Brokers.................................................................. A-9
(j) Litigation............................................................... A-9
(k) Absence of Changes in Benefit Plans...................................... A-9
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(l) ERISA Compliance......................................................... A- 9
(m) Taxes.................................................................... A-11
(n) No Excess Parachute Payments............................................. A-11
(o) Environmental Matters.................................................... A-12
(p) Compliance with Laws..................................................... A-14
(q) Material Contracts and Agreements........................................ A-15
(r) Insurance................................................................ A-15
(s) Title to Properties, etc................................................. A-15
(t) Intellectual Property.................................................... A-15
(u) Labor Matters............................................................ A-16
(v) Undisclosed Liabilities.................................................. A-16
(w) Transactions with Affiliates............................................. A-16
SECTION 3.2 Representations and Warranties of Parent and Sub.................. A-16
(a) Organization; Standing and Power......................................... A-16
(b) Authority; Non-contravention............................................. A-16
(c) Authorization for Parent Common Stock.................................... A-17
(d) SEC Documents............................................................ A-17
(e) Information Supplied..................................................... A-17
(f) Litigation............................................................... A-18
(g) Undisclosed Liabilities.................................................. A-18
(h) Brokers.................................................................. A-18
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS............................................ A-18
SECTION 4.1 Conduct of Business............................................... A-18
(a) Ordinary Course.......................................................... A-18
(b) Changes in Employment Arrangements....................................... A-20
(c) Severance................................................................ A-20
SECTION 4.2 Other Actions..................................................... A-20
SECTION 4.3 Advice of Changes................................................. A-20
ARTICLE V
ADDITIONAL AGREEMENTS................................................................ A-20
SECTION 5.1 Stockholder Approval; Preparation of Proxy Statement; Preparation
of Registration Statement...................................................... A-20
SECTION 5.2 Letter of the Company's Accountants............................... A-21
SECTION 5.3 Letter of Parent's Accountants.................................... A-21
SECTION 5.4 Access to Information............................................. A-21
SECTION 5.5 Reasonable Efforts; Notification.................................. A-22
SECTION 5.6 Stock Options..................................................... A-23
SECTION 5.7 Indemnification................................................... A-23
SECTION 5.8 Fees and Expenses................................................. A-23
SECTION 5.9 Public Announcements.............................................. A-23
SECTION 5.10 Stockholder Litigation............................................ A-23
</TABLE>
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ARTICLE VI
CONDITIONS PRECEDENT................................................................. A-24
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger........ A-24
(a) Company Stockholder Approval............................................. A-24
(b) HSR Act.................................................................. A-24
(c) No Injunctions or Restraints............................................. A-24
(d) Registration Statement Effectiveness..................................... A-24
(e) Exchange Listing......................................................... A-24
(f) Blue Sky Filings......................................................... A-24
SECTION 6.2 Conditions of Parent and Sub...................................... A-24
(a) Compliance............................................................... A-24
(b) Certifications and Opinion............................................... A-24
(c) Representations and Warranties True...................................... A-25
(d) Affiliate Letters........................................................ A-25
(e) Tax Opinion.............................................................. A-26
(f) Consents, etc............................................................ A-26
(g) No Litigation............................................................ A-26
(h) Dissenting Stockholders.................................................. A-26
(i) Satisfactory Due Diligence............................................... A-26
(j) No Material Adverse Change............................................... A-26
(k) Opinion of Financial Advisor............................................. A-26
(l) Employment Agreement..................................................... A-26
(m) Non-Competition Agreement................................................ A-26
(n) Lender Approval.......................................................... A-27
(o) Termination of Certain Agreements........................................ A-27
SECTION 6.3 Conditions of the Company......................................... A-27
(a) Compliance............................................................... A-27
(b) Certifications and Opinion............................................... A-27
(c) Representations and Warranties True...................................... A-27
(d) Tax Opinion.............................................................. A-28
(e) Assumption............................................................... A-28
(f) No Material Adverse Change............................................... A-28
(g) Opinion of Financial Advisor............................................. A-28
(h) Satisfactory Due Diligence............................................... A-28
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER.................................................... A-28
SECTION 7.1 Termination....................................................... A-28
ARTICLE VIII
SPECIAL PROVISIONS AS TO CERTAIN MATTERS............................................. A-29
SECTION 8.1 No Solicitation................................................... A-29
SECTION 8.2 Expense Reimbursements............................................ A-30
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ARTICLE IX
GENERAL PROVISIONS................................................................... A-31
SECTION 9.1 Nonsurvival of Representations and Warranties..................... A-31
SECTION 9.2 Notices........................................................... A-31
SECTION 9.3 Definitions....................................................... A-32
SECTION 9.4 Interpretation.................................................... A-32
SECTION 9.5 Counterparts...................................................... A-32
SECTION 9.6 Entire Agreement: No Third-Party Beneficiaries.................... A-32
SECTION 9.7 Governing Law..................................................... A-32
SECTION 9.8 Assignment........................................................ A-32
SECTION 9.9 Enforcement of the Agreement...................................... A-32
SECTION 9.10 Severability...................................................... A-33
</TABLE>
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AGREEMENT AND PLAN OF MERGER dated as of November 20, 1995 (the
"Agreement"), by and among TESORO PETROLEUM CORPORATION, a Delaware corporation
("Parent"), CNRG ACQUISITION CORP., a Delaware corporation ("Sub") and a wholly
owned subsidiary of Parent, and COASTWIDE ENERGY SERVICES, INC., a Delaware
corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the acquisition of the Company by Parent on the terms and subject
to the conditions of this Agreement;
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the merger of the Company with and into Sub (the "Merger"), upon
the terms and subject to the conditions of this Agreement, whereby each issued
and outstanding share (a "Share") of the Company's Common Stock, $.01 par value
("Common Stock"), not owned by the Company, Parent, Sub or any wholly-owned
subsidiary of the Company, Parent or Sub will be converted into the right to
receive .41 share of common stock, $.16 2/3 par value, of Parent, together with
any associated Preferred Stock Purchase Rights (the "Parent Shares") and cash in
lieu of any fraction thereof and $2.55 in cash; and
WHEREAS, for federal tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
hereof and in accordance with the Delaware General Corporation Law (the "DGCL"),
the Company shall be merged with and into Sub at the Effective Time of the
Merger (as hereinafter defined). At the election of Parent, any direct
wholly-owned subsidiary (as defined in Section 9.3) of Parent may be substituted
for Sub as a constituent corporation in the Merger. In such event, the parties
agree to execute an appropriate amendment to this Agreement in order to reflect
the foregoing. Following the Merger, the separate corporate existence of the
Company shall cease and Sub shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of the Company in accordance with the DGCL.
SECTION 1.2 Effective Time. As soon as practicable following the
satisfaction or, to the extent permitted hereunder, waiver of the conditions set
forth in Article VI, the Surviving Corporation shall file the certificate of
merger (the "Certificate of Merger") required by the DGCL with respect to the
Merger and other appropriate documents (the "Articles of Merger") executed in
accordance with the relevant provisions of the DGCL. The Merger shall become
effective at such time as the Certificate of Merger is duly filed with the
Delaware Secretary of State, or at such other time as Sub and the Company shall
agree should be specified in the Articles of Merger and the Certificate of
Merger (the time the Merger becomes effective being the "Effective Time of the
Merger"). The closing of the Merger (the "Closing") shall take place at the
offices of Fulbright & Jaworski L.L.P., in Houston, Texas, on the date of the
meeting of stockholders of the Company contemplated by this Agreement to approve
the Merger (the "Stockholders Meeting"), or, if any of the conditions set forth
in Article VI have not been satisfied, then as soon as practicable thereafter,
or at such other time and place or such other date as Parent and the Company
shall agree (the "Closing Date").
SECTION 1.3 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. If at any time after the Effective Time of the Merger, the
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or otherwise are necessary or desirable to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation, all rights, title
and interests in all real estate and other property and all privileges, powers
and franchises of the Company and Sub, the Surviving Corporation and its proper
officers and directors, in the name and on behalf of the Company and Sub, shall
execute and deliver all
A-1
<PAGE> 7
such proper deeds, assignments and assurances in law and do all things necessary
and proper to vest, perfect or confirm title to such property or rights in the
Surviving Corporation and otherwise to carry out the purpose of this Agreement,
and the proper officers and directors of the Surviving Corporation are fully
authorized in the name of the Company and Sub or otherwise to take any and all
such action.
SECTION 1.4 Certificate of Incorporation and By-laws. (a) The Certificate
of Incorporation of the Sub as in effect immediately prior to the Effective Time
of the Merger shall be amended as of the Effective Time of the Merger so that
Article First of Sub's Certificate of Incorporation reads in its entirety: "The
name of the corporation is Coastwide Marine Services, Inc." and, as so amended,
such Certificate of Incorporation shall be the Certificate of Incorporation of
the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
(b) The By-laws of Sub as in effect immediately prior to the Effective Time
of the Merger shall be the By-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
SECTION 1.5 Directors. The directors of Sub immediately prior to the
Effective Time of the Merger shall be the directors of the Surviving Corporation
and shall hold office in accordance with the Certificate of Incorporation and
By-laws of the Surviving Corporation from the Effective Time of the Merger until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
SECTION 1.6 Officers. The officers of the Sub immediately prior to the
Effective Time of the Merger shall be the officers of the Surviving Corporation
and shall hold office in accordance with the Certificate of Incorporation and
By-laws of the Surviving Corporation from the Effective Time of the Merger until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
SECTION 1.7 Vacancies. If at the Effective Time of the Merger a vacancy
shall exist in the Board of Directors or in any of the offices of the Surviving
Corporation, such vacancy may thereafter be filled in the manner provided by the
DGCL and the Certificate of Incorporation and By-laws of the Surviving
Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock. As of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the holder
of any Shares:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Company and Parent Owned Stock and Rights. All
Shares and any rights (including the Class B Warrants and the Convertible
Debt as hereinafter defined) that are held in treasury by the Company or
are owned by any wholly-owned subsidiary of the Company and any Shares and
any rights (including the Class B Warrants and the Convertible Debt) to
acquire Shares owned by Parent, Sub or any other wholly-owned subsidiary of
Parent or Sub shall be canceled and no consideration shall be delivered in
exchange therefor.
(c) Conversion of Shares. Subject to Sections 2.1(b), (d) and (e),
each issued and outstanding Share shall be converted into the right to
receive $2.55 in cash plus .41 Parent Share, together with any associated
Preferred Stock Purchase Rights (and cash in lieu of fractional shares as
provided in Section 2.1(d)) upon the surrender of the certificate formerly
representing such Share pursuant to Section 2.2 (the "Merger
Consideration"). If the closing price of Parent Shares on the date
("Determination Date") which is two trading days prior to the effective
date of the Registration Statement (as
A-2
<PAGE> 8
defined in Section 5.1(b)) is no less than $8.25 per Parent Share nor no
more than $10.50 per Parent Share, the Merger Consideration shall be fixed
as stated in the preceding sentence. If the closing price on the
Determination Date is less than $8.25 per Parent Share or more than $10.50
per Parent Share the parties shall endeavor in good faith to negotiate
revised terms for the Merger Consideration, recognizing that there is no
obligation on the part of either party to reach agreement, and, if
successful, shall fix the adjusted Merger Consideration as of the
Determination Date. For purposes of this Agreement the term "Merger
Consideration" shall include any adjustment made thereto under this Section
2.1(c).
(d) No Fractional Shares. No fractional Parent Shares shall be issued
in the Merger. All fractional Parent Shares that a holder of Shares would
otherwise be entitled to receive as a result of the Merger shall be
aggregated and if a fractional Parent Share results from such aggregation,
such holder shall be entitled to receive, in lieu thereof, an amount in
cash determined by multiplying the average of the daily closing sale price
per Parent Share on the New York Stock Exchange for the ten trading days
next preceding the Effective Time of the Merger by the fraction of a Parent
Share to which such holder would otherwise have been entitled. No interest
shall be paid on such amount. Alternatively, Parent and Sub shall have the
option of instructing the Exchange Agent (as defined in Section 2.2(a)) to
aggregate all fractional Parent Shares, sell such Parent Shares in the
public market and distribute to holders of fractional Parent Shares a pro
rata portion of the proceeds of such sale. No such cash in lieu of
fractional Parent Shares shall be paid to any holder of fractional Parent
Shares until Certificates (as defined in Section 2.2(c)) representing such
Parent Shares are surrendered and exchanged in accordance with Section
2.2(c). None of Parent, Sub, the Company, the Surviving Corporation or
their transfer agents shall be liable to a holder of the Shares for any
amount paid to a public official pursuant to applicable property, escheat
or similar laws.
(e) Shares of Dissenting Stockholders. Notwithstanding anything in
this Agreement to the contrary, any holder of Shares outstanding
immediately prior to the Effective Time of the Merger who is entitled to
demand and elects to demand appraisal rights under sec. 262 of the DGCL and
who has fully complied with the provisions thereof and who has not
effectively withdrawn or lost such right (a "Dissenting Stockholder"),
shall not receive the Merger Consideration, but shall be entitled to
receive from the Surviving Corporation such consideration as may be
determined to be due to such Dissenting Stockholder in consideration for
such Dissenting Stockholder's Shares pursuant to sec. 262 of the DGCL;
provided, however, that each Share outstanding immediately prior to the
Effective Time of the Merger and held by a Dissenting Stockholder who,
after the Effective Time of the Merger, withdraws his demand for appraisal
under sec. 262 of the DGCL, in writing delivered to the Surviving
Corporation (subject to the written approval of the Surviving Corporation
to the extent required by sec. 262 of the DGCL) or otherwise loses his
right of appraisal, in either case pursuant to the DGCL, shall be deemed to
be converted, as of the Effective Time of the Merger, into the right to
receive the Merger Consideration and any cash in lieu of fractional shares
issuable and payable with respect to his Shares. The Company shall give
Parent (i) prompt notice of any written demands for appraisal received by
the Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to any such demands. The Company shall not,
without the prior written consent of Parent, voluntarily make any payment
with respect to, or settle, offer to settle or otherwise negotiate, any
such demands.
SECTION 2.2 Exchange of Certificates. (a) Exchange Agent. Prior to the
Effective Time of the Merger, Parent shall select a bank or trust company to act
as exchange agent (the "Exchange Agent") for the issue of the Merger
Consideration upon surrender of certificates representing Shares.
(b) Payment of Merger Consideration. Parent shall take all steps
necessary to enable and cause there to be provided to the Exchange Agent on
a timely basis, as and when needed after the Effective Time of the Merger,
certificates for the Parent Shares to be issued upon the conversion of the
Shares pursuant to Section 2.1. Parent or the Surviving Corporation shall
timely make available to the Exchange Agent the cash component of the
Merger Consideration.
(c) Exchange Procedure. As soon as reasonably practicable after the
Effective Time of the Merger, the Exchange Agent shall mail to each holder
of record of a certificate or certificates that
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immediately prior to the Effective Time of the Merger represented
outstanding Shares (the "Certificates"), other than the Company, Parent,
Sub and any wholly owned subsidiary of the Company, Parent or Sub, (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in a form
and have such other provisions as Parent and Sub may reasonably specify)
and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by the Surviving Corporation, together with
such letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration, and the Certificate so surrendered shall forthwith be
canceled. If the Merger Consideration is to be issued to a person other
than the person in whose name the Certificate so surrendered is registered,
it shall be a condition of exchange that such Certificate shall be properly
endorsed or otherwise in proper form for transfer and that the person
requesting such exchange shall pay any transfer or other taxes required by
reason of the exchange to a person other than the registered holder of such
Certificate or establish to the satisfaction of the Surviving Corporation
that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any
time after the Effective Time of the Merger to represent only the right to
receive upon such surrender the Merger Consideration into which the Shares
theretofore represented by such Certificate shall have been converted
pursuant to Section 2.1. The Exchange Agent shall not be entitled to vote
or exercise any rights of ownership with respect to the Parent Shares held
by it from time to time hereunder, except that it shall receive and hold
all dividends or other distributions paid or distributed with respect
thereto for the account of persons entitled thereto.
(d) Distributions with Respect to Unexchanged Shares. None of the
Merger Consideration and no dividends or other distributions declared or
made after the Effective Time of the Merger with respect to the Parent
Shares with a record date after the Effective Time of the Merger shall be
paid to the holder of any Certificate with respect to the Parent Shares
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the
record holder of the Certificates representing the Parent Shares issued in
exchange therefor, without interest, (i) at the time of such surrender, the
Merger Consideration with respect to such Parent Share and the amount of
dividends or other distributions, if any, with a record date after the
Effective Time of the Merger theretofore paid with respect to such whole
Parent Shares, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective
Time of the Merger but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole Parent Shares.
(e) No Further Ownership Rights in Shares. All Parent Shares issued
upon the surrender of Certificates in accordance with the terms of this
Article II, together with any dividends payable thereon to the extent
contemplated by this Section 2.2, shall be deemed to have been exchanged
and paid in full satisfaction of all rights pertaining to the Shares
theretofore represented by such Certificates and, at the Effective Time of
the Merger, there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the Shares that were
outstanding immediately prior to the Effective Time of the Merger. If,
after the Effective Time of the Merger, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article II.
(f) Merger Consideration for Unexchanged Shares. At any time more than
six months after the Effective Time, if the Exchange Agent holds any Merger
Consideration or any dividends or other distributions in respect of Parent
Shares with respect to which the holder of record of the Certificate
therefor has not surrendered such Certificate, the Surviving Company, on
written notice, may direct the Exchange Agent to deliver such Merger
Consideration and all such dividends and other distributions to the
Surviving Company. Upon receipt thereof, the Surviving Company shall have
no obligations to segregate any cash so received and the holder who has not
surrendered such Certificate shall look solely
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to the Surviving Company for payment of the Merger Consideration and any
applicable dividends or other distributions.
(g) Options Under Option Plans. At the Effective Time, each option
granted by the Company to purchase shares of Common Stock under the Option
Plans, as hereinafter defined, which is outstanding and unexercised
immediately prior thereto, shall be converted automatically into an option
to purchase the shares of Parent Shares in an amount and at an exercise
price determined as provided below (and otherwise having the same duration
and other terms as the original option):
(1) the number of shares of Parent Shares to be subject to the new
option shall be equal to the product of the number of shares of Common
Stock subject to the original option and .41, provided that any
fractional shares of Parent Shares resulting from such multiplication
shall be rounded to the nearest whole share; and
(2) the exercise price per share of Parent Shares to be subject to
the new option shall be equal to (i) the exercise price of the number of
shares of Common Stock under the original option divided by .41 minus
(ii) $6.2195 (rounded to the nearest cent), provided, that if such
amount is less than $0, the holder of such option shall, upon exercise,
receive, in cash, the amount by which such amount is less than $0.
(3) if the Merger Consideration is adjusted pursuant to Section
2.1(c), the terms of subsections (1) and (2) hereof shall be adjusted
accordingly to reflect the change in the fractional Parent Share and the
cash consideration comprising the Merger Consideration as adjusted.
(h) Convertible Debentures. The Coastwide 8% Convertible Subordinated
Debentures due July 1, 2004 (the "Convertible Debentures"), outstanding at
the Effective Time shall be assumed by Sub and remain outstanding
thereafter, and from and after the Effective Time, the holders of the
Convertible Debentures shall have the right to convert such Convertible
Debentures into such number of shares of Parent Shares and such amount of
cash received by a holder of the number of shares of Company Shares into
which such Convertible Debentures might have been converted immediately
prior to the Merger.
(i) Warrants. With regard to the Class B Warrants to purchase shares
of Common Stock ("Class B Warrants"), subject to the terms of the Warrant
Agreement dated as of September 30, 1993, by and between the Company and
Chemical Shareholder Services Group, Inc. (the "Warrant Agent"), Parent
shall enter into an amended Warrant Agreement with the Warrant Agent,
giving each holder of Class B Warrants, the right (prior to the expiration
date of the warrants), upon payment of the warrant price in effect
immediately prior to such action, to purchase upon exercise of each warrant
the number of shares of Parent Shares and cash that he would have been
entitled to receive at the Effective Date if the warrant had been exercised
immediately prior thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, Parent and Sub as follows:
(a) Organization, Standing and Power. Each of the Company and each of
its subsidiaries is a corporation duly organized, validly existing and in
good standing under the law of the jurisdiction in which it is incorporated
and has the requisite corporate power and authority to carry on its
business as now being conducted. Each of the Company and each of its
subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed to do business (individually or in the
aggregate) would not have a material adverse effect on the Company. The
Company has delivered to Parent complete and correct copies of its
Certificate of Incorporation and By-laws and the articles or certificates
of incorporation, by-laws or other similar organizational and governing
documents of its subsidiaries.
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(b) Subsidiaries. Section 3.1(b) of the Disclosure Schedule lists each
direct or indirect subsidiary of the Company. Each of the Company's
subsidiaries that is not a corporation is duly organized under the laws of
its jurisdiction of organization and has all requisite power and authority
to carry on its business as it is now being conducted, and to own, operate
and lease the assets that it now owns, operates or holds under lease. All
the outstanding shares of capital stock of the Company's subsidiaries that
are corporations have been duly authorized and validly issued and are fully
paid and non-assessable and were not issued in violation of any preemptive
rights or other preferential rights of subscription or purchase of any
person. All of the Company's direct or indirect ownership interests in the
Company's subsidiaries that are not corporations have been duly authorized
and validly issued or vested, were not issued in violation of any
preemptive rights or other preferential rights of subscription or purchase
of any person, are fully paid and, except as set forth in Section 3.1(b) of
the Disclosure Schedule, are non-assessable. Except as set forth in Section
3.1 (c) of the Disclosure Schedule, all such stock and ownership interests
are owned of record and beneficially by the Company or the Company's
subsidiary identified on such schedule as owning such interest, free and
clear of all liens, pledges, security interests, charges, claims and other
encumbrances of any kind or nature ("Liens"). Except as set forth in
Section 3.1(b) of the Disclosure Schedule no person other than the Company
or a subsidiary of the Company holds any equity interest of any kind in a
subsidiary of the Company. Except for the capital stock of its subsidiaries
and except for the ownership interests set forth in Section 3.1 (b) of the
Disclosure Schedule, the Company does not own, directly or indirectly, any
capital stock, equity interest or other ownership interest in any
corporation, partnership, association, joint venture, limited liability
company or other entity.
(c) Capital Structure. The authorized capital stock of the Company
consists of 15,000,000 Shares and 5,000,000 shares of Preferred Stock, $.01
par value ("Preferred Stock"). At the close of business on November 14,
1995, there were no shares of Preferred Stock Outstanding and (i) 1,821,648
Shares were issued and outstanding, (ii) 198,250 Shares were reserved for
issuance pursuant to options granted and currently outstanding under stock
option plans ("Option Plans") set forth in Section 3.1(c) of the Disclosure
Schedule, (iii) 360,137 Shares were reserved for issuance upon exercise of
the Class B Warrants and (iv) 1,004,706 Shares were reserved for issuance
upon conversion of the Subordinated Debenture. Except as set forth above or
as a result of exercises under the Option Plans, Class B Warrants, or
Convertible Debenture outstanding on November 14, 1995, no shares of
capital stock or other equity or voting securities of the Company are
reserved for issuance or are outstanding. All outstanding shares of capital
stock of the Company are, and all such shares issuable upon exercise under
the Option Plans, Class B Warrants and Convertible Debenture will, if and
when issued in accordance with the terms of their respective governing
agreements, be, validly issued, fully paid and nonassessable and not
subject to preemptive rights. No capital stock has been issued by the
Company since September 30, 1995, other than shares of Common Stock issued
under the Option Plans, Class B Warrants and Convertible Debenture, in
accordance with their terms at such date. Except for Option Plan options,
the Class B Warrants, and the Convertible Debenture outstanding as of
September 30, 1995, there were no outstanding or authorized securities,
options, warrants, calls, rights, commitments, preemptive rights,
agreements, arrangements or undertakings of any kind to which the Company
or any of its subsidiaries is a party, or by which any of them is bound,
obligating the Company or any of its subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, any shares of capital stock
or other equity or voting securities of the Company or of any of its
subsidiaries or obligating the Company or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. Neither the
Company nor any of its subsidiaries are parties to, and to the best
knowledge of the Company no other person is party to, any voting trust,
voting agreement, or similar voting agreement or arrangement relating to
any equity security of the Company or any subsidiary.
(d) Authority; Non-contravention. The Company has all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to Stockholder
Approval (as defined in Section 3.1(h)). This Agreement has
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been duly and validly executed and delivered by the Company and constitutes
a valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, fraudulent transfer or similar laws
affecting the enforcement of creditors' rights generally and pursuant to
general equitable principles. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby and
compliance with the provisions hereof will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of or "put" right with respect to any obligation or to loss of
a material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any of its subsidiaries under, any provision of (i) the
Certificate of Incorporation or By-Laws of the Company or any provision of
the comparable organizational documents of its subsidiaries, (ii) except as
set forth in Section 3.1(d) of the Disclosure Schedule, any loan or credit
agreement, note, bond, mortgage, indenture, lease, municipal contract or
other agreement, instrument, permit, concession, franchise or license
applicable to the Company or any of its subsidiaries or their respective
properties or assets or (iii) subject to governmental filing and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation or arbitration award applicable
to the Company or any of its subsidiaries or their respective properties or
assets, other than, in the case of clause (ii), any such conflicts,
violations, defaults, rights or liens, security interests, charges or
encumbrances that individually or in the aggregate would not have a
material adverse effect on the Company and would not materially impair the
ability of the Company to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or agency, domestic or foreign, including local authorities (a
"Governmental Entity"), is required by or with respect to the Company or
any of its subsidiaries in connection with the execution and delivery of
this Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except for (i) the filing of a premerger
notification and report form by the Company under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) the filing with
the Securities and Exchange Commission (the "SEC") of (A) a proxy or
information statement relating to the Stockholder Approval (such proxy or
information statement as amended or supplemented from time to time, the
"Proxy Statement"), and (B) such reports under Section 13(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be
required in connection with this Agreement and the transactions
contemplated hereby, (iii) the filing of the Certificate of Merger with the
Delaware Secretary of State with respect to the Merger as provided in the
DGCL and appropriate documents with the relevant authorities of other
states in which the Company is qualified to do business and (iv) such other
consents, approvals, orders, authorizations, registrations, declarations,
filings and notices as are set forth in Section 3.1(d) of the Disclosure
Schedule.
(e) SEC Documents. The Company has timely filed all required reports,
schedules, forms, statements and other documents with the SEC since October
31, 1993 and the Company has delivered or made available to Parent all
reports, schedules, forms, statements and other documents filed with the
SEC since such date (such documents, together with all exhibits and
schedules thereto and documents incorporated by reference therein,
collectively referred to herein as the "SEC Documents"). As of their
respective dates, the SEC Documents as they may have been amended complied
in all material respects with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that the foregoing representation and
warranty does not relate to any written information received from Parent or
any of its subsidiaries specifically for inclusion in the SEC Documents).
The consolidated financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto, accurately reflect the books and records of the
Company, have been
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prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments and other
adjustments described therein). All material contracts of the Company and
its subsidiaries had been included in the SEC Documents, except for those
contracts not required to be filed pursuant to the rules and regulations of
the SEC.
(f) Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i)
the Registration Statement (as defined in Section 5.1 (b)) will, at the
time the Registration Statement is filed with the SEC, and at any time it
is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and (ii) the Proxy Statement will,
at the date the Proxy Statement is first mailed to the Company's
stockholders and at the time of the Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations thereunder. For purposes of this Agreement, the parties agree
that the statements made and information in the Registration Statement and
the Proxy Statement (other than information provided by Parent or any
subsidiary of Parent in each case concerning Parent or such subsidiary
expressly for inclusion therein) relating to the Federal income tax
consequences of the transactions contemplated hereby to the holders of
Shares shall be deemed to be supplied by the Company and not by Parent or
Sub.
(g) Absence of Certain Changes or Events. Except as disclosed in the
SEC Documents or in Section 3.1(g) of the Disclosure Schedule, since
December 31, 1994, the Company has conducted its business only in the
ordinary course consistent with past practice, and there has not been (i)
any material adverse change with respect to the Company, (ii) any
declaration, setting aside or payment of any dividend (whether in cash,
stock or property) with respect to any of the Company's capital stock,
(iii) (A) any granting by the Company or any of its subsidiaries to any
executive officer of the Company or any of its subsidiaries of any increase
in compensation, (B) any granting by the Company or any of its subsidiaries
to any such executive officer of any increase in severance or termination
pay, or (C) any entry by the Company or any of its subsidiaries into any
employment, severance or termination agreement with any such executive
officer, (iv) any damage, destruction or loss, whether or not covered by
insurance, that has or could reasonably be expected to have a material
adverse effect on the Company, (v) any change in accounting methods,
principles or practices by the Company materially affecting its assets,
liabilities or business, except insofar as may have been required by a
change in generally accepted accounting principles, (vi) any condition,
event or occurrence which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the Company or
give rise to a material adverse change with respect to the Company, (vii)
any event which, if it had taken place following the execution of this
Agreement, would not have been permitted by Article 4, or (viii) any
condition, event or occurrence which, individually or in the aggregate,
could reasonably be expected to prevent, hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement.
(h) Absence of Super Majority Provision. Except for the approval of
the Merger by the holders of a majority of the outstanding Shares
("Stockholder Approval"), no other stockholder action on the part of the
Company is required for approval of the Merger and the transactions
contemplated hereby. No provision of the Company's Certificate of
Incorporation or By-laws or other governing instruments of its subsidiaries
or the terms of any rights plan or other takeover defense mechanism of the
Company would, directly or indirectly, restrict or impair the ability of
Parent to vote, or otherwise to exercise the rights of a stockholder with
respect to, securities of the Company and its subsidiaries that may be
acquired or
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controlled by Parent or permit any stockholder to acquire securities of the
Company on a basis not available to Parent in the event that Parent were to
acquire securities of the Company.
(i) Brokers. Except for a fee of $450,000 payable to Simmons & Company
International for the opinion referred to in Section 6.3(g), whose fees are
to be paid by the Company or the Surviving Corporation pursuant to the fee
agreement previously provided to Parent, no broker, investment banker or
other person is entitled to receive from the Company or any of its
subsidiaries any investment banking, brokerage or finder's fees in
connection with this Agreement or the transactions contemplated hereby.
(j) Litigation. Except as disclosed in the SEC Documents, there is no
suit, action, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company or any of
its subsidiaries or any of their respective properties or employee benefit
plans or fiduciaries thereof that could reasonably be expected to have a
material adverse effect on the Company or prevent, hinder or materially
delay the ability of the Company to consummate the transactions
contemplated by this Agreement (and the Company is not aware of any basis
for any such suit, action, proceeding or investigation), nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company or any of its subsidiaries or
any of their respective properties or employee benefit plans or fiduciaries
thereof having, or which, insofar as reasonably can be foreseen, in the
future could have, any such effect.
(k) Absence of Changes in Benefit Plans. Except as disclosed in
Section 3.1(k) of the Disclosure Schedule, since December 31, 1994, there
has not been any adoption or amendment in any respect by the Company or any
of its subsidiaries of any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical
dependent care, cafeteria, employee assistance, scholarship program or
other plan arrangement or understanding (whether or not legally binding)
providing benefits to any current or former employee or director of the
Company or any of its subsidiaries (collectively, "Benefit Plans").
Except as disclosed in Section 3.1(k) of the Disclosure Schedule, there
exist no employment, consulting, severance, termination or indemnification
agreements, arrangements or understandings between the Company or any of
its subsidiaries and any officer, director or employee of the Company or
any of its subsidiaries.
(l) ERISA Compliance.
(i) Section 3.1(l) of the Disclosure Schedule contains a list and
brief description of all "employee pension benefit plans" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (sometimes referred to herein as "Pension Plans"),
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA)
and all other Benefit Plans maintained, or contributed to, by the
Company or any of its subsidiaries for the benefit of any present or
former directors, officers or employees of the Company or any of its
subsidiaries under common control or affiliated pursuant to Sections
414(b), (c), (m) and (o) of the Code. The Company has delivered to
Parent true, complete and correct copies of (A) each Benefit Plan (or,
in the case of any unwritten Benefit Plans, descriptions thereof), (B)
the most recent two annual reports on Form 5500 filed with the United
States Internal Revenue Service (the "IRS") with respect to each Benefit
Plan, (if any such report was required), (C) the most recent IRS
determination letter and all rulings or determinations requested
subsequent to the date of that letter, (D) the most recent actuarial
report for each Benefit Plan for which an actuarial report is required,
(E) the most recent summary plan description for each Benefit Plan for
which such summary plan description is required and each summary of
material modifications prepared after the last summary plan description,
(F) each trust agreement and group annuity contract relating to any
Benefit Plan and (G) all material correspondence for the last three
years with the IRS or Department of Labor relating to plan
qualification, filing of required forms, or pending, contemplated and
announced plan audits.
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(ii) Except as disclosed in Section 3.1(l) of the Disclosure
Schedule, all Pension Plans which are intended to qualify under Section
401(A) of the Code have been submitted to, and approved as qualifying by
the IRS or the applicable remedial amendments period will not have ended
by the Closing Date. In addition, no facts have occurred which if known
by the IRS, could cause disqualification of those Pension Plans. The
Company has paid all premiums (including any applicable interest,
charges and penalties for late payment) due the Pension Benefit Guaranty
Corporation (the "PBGC") with respect to each Pension Plan for which
premiums are required. No Pension Plan maintained by the Company has
been terminated under circumstances which would result in liability to
the PBGC.
(iii) All Benefit Plans which have been or are sponsored by,
participated in by or contributed to by the Company or any of its
subsidiaries: (A) is in substantial compliance with all reporting and
disclosure requirements of Part 1 of Subtitle B of Title I of ERISA,
including compliance with the timely filing of all financial statements
and reports (B) has had the appropriate Form 5500 filed, timely, for
each year of its existence, (C) has at all times complied with the
bonding requirements of Section 412 of ERISA and (D) has no issue
pending (other than the payment of benefits in the normal course) nor
any issue resolved adversely to the Company or any of its subsidiaries
which may subject the Company or any of its subsidiaries to the payment
of a material penalty, interest, tax or other obligation and (E) can be
unilaterally terminated or amended on no more than ninety (90) days'
notice.
(iv) All voluntary employee benefit associations have been
submitted to and approved as exempt from Federal income tax under
Section 501(c)(9) of the Code by the IRS or the applicable submission
period will not have ended by the Closing Date.
(v) Except as disclosed in Section 3.1(l) of the Disclosure
Schedule, the execution of this Agreement or the consummation of the
transactions contemplated by this Agreement will not give rise to any,
or trigger any, change of control, severance or other similar provision
in any Benefit Plan.
(vi) Neither the Company nor any of its subsidiaries provides
director or employee post-retirement medical or health coverage or
contributes to or maintains any employee welfare benefit plan which
provides for health benefit coverage following termination of employment
except as is required by Section 4980B(f) of the Code or other
applicable statute, nor has it made any representations, agreements,
covenants or commitments to provide that coverage.
(vii) No Pension Plan that the Company or any of its subsidiaries
maintains, or to which the Company or any of its subsidiaries is
obligated to contribute, other than any Pension Plan that is a
"multiemployer plan" (as such term is defined in Section 4001 (a)(3) of
ERISA, collectively, the "Multiemployer Pension Plans"), had, as of the
respective annual valuation date for each such Pension Plan, an
"unfunded benefit liability" (as such term is defined in Section
4001(a)(18) of ERISA), based on actuarial assumptions which have been
furnished to Parent. None of the Pension Plans has an "accumulated
funding deficiency" (as such term is defined in Section 302 of ERISA or
Section 412 of the Code), whether or not waived. To the best of the
Company's knowledge, none of the Company, any of its subsidiaries, any
director or officer of the Company or any of its subsidiaries or any of
the Benefit Plans which are subject to ERISA, including the Pension
Plans, or any trusts created thereunder, or any trustee or administrator
thereof, has engaged in a "prohibited transaction" (as such term is
defined in Section 406, 407 or 408 of ERISA or Section 4975 of the Code)
(unless exempt under Section 408 of ERISA or Section 4975 of the Code)
or any other breach of fiduciary responsibility that could subject the
Company, any of its subsidiaries or any director or officer of the
Company or any of its subsidiaries to the tax or penalty on prohibited
transactions imposed by such Section 4975 or to any liability under
Section 502(i) or (1) of ERISA which would have a material adverse
effect on the Company. Neither any of such Benefit Plans nor any of such
trusts have been terminated, nor has there been any "reportable event"
(as that term is defined in Section 4043 of ERISA) with respect to which
the 30-day notice requirement has not been waived and the Company is not
aware of any other reportable events with respect thereto during the
last five
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years. Neither the Company nor any of its subsidiaries has ceased
operations at a facility so as to become subject to the provisions of
Section 4062(e) of ERISA, withdrawn as a substantial employer so as to
become subject to the provisions of Section 4063 of ERISA or ceased
making contributions on or before the Closing Date to a Pension Plan
subject to Section 4064(a) of ERISA to which the Company made
contributions at any time during the six years prior to the Closing
Date. Neither the Company nor any of its subsidiaries has suffered or
otherwise caused a "complete withdrawal" or a "partial withdrawal" (as
such terms are defined in Section 4203 and Section 4205, respectively,
of ERISA) since the effective date of such Sections 4203 and 4205 with
respect to any of the Multiemployer Pension Plans.
(viii) With respect to any Benefit Plan that is an employee welfare
benefit plan, except as disclosed in Section 3.1(l) of the Disclosure
Schedule, (A) no such Benefit Plan is unfunded or funded through a
welfare benefits fund, as such term is defined in Section 419(e) of the
Code, (B) each such Benefit Plan that is a group health plan, as such
term is defined in Section 5000(b)(1) of the Code, complies in all
material respects with the applicable requirements of Section 4980B(f)
of the Code and (C) each such Benefit Plan (including any such Benefit
Plan covering retirees or other former directors or employees) may be
amended or terminated without material liability to the Company or any
of its subsidiaries on or at any time after the consummation of the
Merger.
(m) Taxes. Except as set forth in Section 3.1 (m) of the Disclosure
Schedule, each of the Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax (as defined
below) purposes of which the Company or any of its subsidiaries is or has
been a member, has timely filed all Tax Returns (as defined below) required
to be filed by it and has timely paid (or the Company has paid on its
behalf) all Taxes which are due (whether or not shown on a Tax Return).
Each of the Tax Returns filed by the Company or any of its subsidiaries is
accurate and complete in all material respects. The most recent
consolidated financial statements of the Company contained in the SEC
Documents reflect an adequate reserve for all Taxes payable by the Company
and its subsidiaries for all taxable periods and portions thereof through
the date of such financial statements and through the Closing Date whether
or not shown as being due on any Tax Returns. The consummation of the
Merger will not cause the Company to recognize any gain or income,
including, without limitation, recognition of income or gain resulting from
an excess loss account, deferred intercompany transaction or similar
transactions. Except as described in Section 3.1 (m) of the Disclosure
Schedule, no deficiencies for any Taxes have been proposed, asserted or
assessed against the Company or any of its subsidiaries, and no requests
for waivers of the time to assess any such Taxes have been granted or are
pending. None of the Federal income Tax Returns of the Company and its
subsidiaries consolidated in such Tax Returns have been examined by the
IRS. The applicable statute of limitations has run for all taxable years of
the Company ending on or before December 31, 1991, subject to the exception
that future uses of net operating losses may subject previously filed tax
returns to review. Except as set forth in Section 3.1(m) of the Disclosure
Schedule, there are no current examinations of any Tax Return of the
Company or any of its subsidiaries being conducted and there are no
settlements or any prior examinations which could adversely affect any
taxable period for which the statute of limitations has not run. As used
herein, "Tax" or "Taxes" shall mean all taxes of any kind, including,
without limitation, those on or measured by or referred to as income, gross
receipts, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, value
added, property or windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any
Governmental Entity, domestic or foreign. As used herein, "Tax Return"
shall mean any return, report or statement required to be filed with any
governmental authority with respect to Taxes.
(n) No Excess Parachute Payments. Any amount that could be received
(whether in cash or property or the vesting of property) as a result of any
of the transactions contemplated by this Agreement by any employee, officer
or director of the Company or any of its affiliates who is a "disqualified
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individual" (as such term is defined in Section 280(G)(c) of the Code)
under any employment, severance or termination agreement, other
compensation arrangement or Benefit Plan currently in effect would not be
characterized as an "excess parachute payment" (as such term is defined in
Section 280G(b)(1) of the Code).
(o) Environmental Matters.
(i) As used in this Section 3.1(o):
(A) "Contaminated Site List" means any list, registry, or other
compilation established by any Governmental Entity of sites that
require or potentially require investigation, removal actions,
remedial actions, or any other response under any Environmental Laws
or treaty covering environmental matters, as the result of the
Release or threatened Release of any Hazardous Materials.
(B) "Environmental Laws" means all laws, rules, regulations,
statutes, ordinances or orders of any Governmental Entity relating to
(1) the control of any potential pollutant or protection of the air,
water or land, (2) solid, gaseous or liquid waste generation,
handling, treatment, storage, disposal or transportation, and (3)
exposure to hazardous, toxic or other substances alleged to be
harmful, and includes without limitation, (x) the terms and
conditions of any license, permit, approval, or other authorization
by any Governmental Entity, and (y) judicial, administrative, or
other regulatory decrees, judgments, and orders of any Governmental
Entity. The term "Environmental Laws" shall include, but not be
limited to, the Clean Air Act, 42 U.S.C. sec. 7401 et seq., the Clean
Water Act, 33 U.S.C. sec. 1251 et seq., the Resource Conservation
Recovery Act ("RCRA"), 42 U.S.C. sec. 6901 et seq., the Superfund
Amendments and Reauthorization Act, 42 U.S.C. sec. 11011 et seq., the
Toxic Substances Control Act, 15 U.S.C. sec. 2601 et seq., the Water
Pollution Control Act, 33 U.S.C. sec. 1251, et seq., the Oil
Pollution Act of 1990, 33 U.S.C. sec. 2701, et. seq., the Safe
Drinking Water Act, 42 U.S.C. sec. 300f et seq., and the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), 42 U.S.C. sec. 9601 et seq., Subtitle B of the Texas
Health and Safety Code, V.T.C.A., Health & Safety Code sec. 361, et
seq., and Subtitle D of the Texas Water Code, V.T.C.A., Water Code
sec. 26, et. seq.
(C) "Environmental Liabilities" shall mean any and all
liabilities, responsibilities, claims, suits, losses, costs
(including remediation, removal, response, abatement, clean-up,
investigative, and/or monitoring costs and any other related costs
and expenses), other causes of action recognized now or at any later
time, damages, settlements, expenses, charges, assessments, liens,
penalties, fines, prejudgment and post-judgment interest, expert
fees, attorney fees and other legal fees (1) pursuant to any
agreement, order, notice, or responsibility, directive (including
directives embodied in Environmental Laws), injunction, judgment, or
similar documents (including settlements), or (2) pursuant to any
claim by a Governmental Entity or other person for personal injury,
property damage, damage to natural resources, remediation, or similar
costs or expenses incurred by such Governmental Entity or person
pursuant to common law or statute.
(D) "Environmental Remediation Costs" means all costs and
expenses of actions or activities to (1) cleanup or remove Hazardous
Materials from the environment, (2) to prevent or minimize the
further movement, leaching, or migration of Hazardous Materials in
the environment, (3) prevent, minimize or mitigate the Release or
threatened Release of Hazardous Materials into the environment, or
injury or damage from such Release, and (4) comply with the
requirements of any Environmental Laws. Environmental Remediation
Costs include, without limitation, costs and expenses payable in
connection with the foregoing for legal, engineering or other
consultant services, for investigation, testing, sampling, and
monitoring, for boring, excavation, and construction, for removal,
modification or replacement of equipment or facilities, for labor and
material, and for proper storage, treatment, and disposal of
Hazardous Materials.
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(E) "Hazardous Materials" means any toxic or hazardous materials
or substances, or solid wastes, including asbestos, buried
contaminants, chemicals, flammable or explosive materials,
radioactive materials, petroleum and petroleum products, and any
other chemical, pollutant, contaminant, substance, product or waste
that is regulated by any Governmental Entity under any Environmental
Law.
(F) "Material" or "Material Adverse Effect" shall mean any
matter, response action, remediation, or other item calling for the
payment or expenditure by the Company or any subsidiary thereof of
funds in excess of $50,000 per occurrence, or $250,000 in the
aggregate.
(G) "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching,
dumping, or disposing into the environment of any Hazardous
Materials.
(ii) Except as disclosed in Section 3.1(o) of the Disclosure
Schedule:
(A) With respect to permits and licenses, (1) all licenses,
permits, consents, or other approvals required under Environmental
Laws that are necessary to the operations of the Company or any of
its subsidiaries have been obtained and are in full force and effect
and the Company is unaware of any basis for revocation or suspension
of any such licenses, permits, consents or other approvals, (2) no
permit will expire before, nor within sixty days after, the Closing
Date, for which an application for extension or renewal has not been
filed, (3) no declaration, environmental impact statement, or other
filing or notice to any Governmental Entity is required under
Environmental Laws as a condition to or in connection with the
transactions contemplated by this Agreement, and (4) no Environmental
Laws impose any obligation upon the Company or any of its
subsidiaries, as a result of any transaction contemplated hereby,
requiring prior notification to any Governmental Entity of the
transfer of any permit, license, consent, or other approval.
(B) No Governmental Entity has given notice to the Company or
any of its subsidiaries of any intent to encumber or place a lien
under any Environmental Laws upon any property owned or operated by
the Company or any of its subsidiaries. No notice or restriction has
been, or is required to be placed in any deed or other public real
property record pursuant to any Environmental Laws with respect to
any properties owned or operated by the Company or any of its
subsidiaries.
(C) Except as would not have a Material Adverse Effect, (1) no
oral or written notification of any Release of any Hazardous
Materials has been given to any Governmental Entity by or on behalf
of the Company or any of its subsidiaries, (2) no property currently
or previously owned or operated by the Company or any of its
subsidiaries (or their respective predecessors with respect to
property owned or operated during or prior to the Company's or the
subsidiary's ownership or operation thereof) is listed on (nor has
the Company or any of its subsidiaries received any notice from any
Governmental Entity that such property is being considered or
proposed for listing on) any Contaminated Site List, (3) no property
currently owned or operated by the Company, nor previously owned or
operated by the Company or any of its subsidiaries (or their
respective predecessors with respect to property owned or operated
during or prior to the Company's or the subsidiary's ownership or
operation thereof) is the subject of any judgment, decree or order of
any Governmental Entity requiring any investigation, removal,
remediation or similar action, or other response under any
Environmental Laws, (4) neither the Company nor any of its
subsidiaries has received any notice that it is liable or
responsible, or potentially liable or responsible, in any respect for
any removal, remedial, or other similar type action under any
Environmental Laws as the result of the Release or threatened Release
of Hazardous Materials at any location and (5) no notice of claim,
complaint, investigation, litigation, or administrative proceeding
has been received or threatened before any Governmental Entity (and
neither the Company nor any of its subsidiaries know of any
threatened claim, complaint, investigation, litigation, or
administrative
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proceeding) in which it is asserted by any Governmental Entity or any
other person that the Company or any of its subsidiaries (x) has
violated or is not in compliance with any Environmental Laws, (y) is
liable for or should be ordered or compelled to undertake any
removal, remediation, or other response action as the result of the
Release or threatened Release of any Hazardous Materials at any
location or (z) is liable for damages (including without limitation,
damages to natural resources), fines, penalties, or other relief as
the result of the violation or noncompliance of any Environmental
Laws or as the result of the Release or threatened Release of any
Hazardous Materials at or from any property currently or previously
owned or operated by the Company or any of its subsidiaries, or at
any other location.
(D) With respect to Environmental Remediation Costs, the Company
has reserved funds for all Material Environmental Remediation Costs
of which it is aware or has notice in connection with which the
Company and any of its subsidiaries reasonably anticipates payment or
accrual.
(E) Except where the failure to have such permits and
authorizations would not have a Material Adverse Effect, all
Hazardous Materials, garbage, refuse, and similar waste materials
have been transported by the Company and each of its subsidiaries
(and their respective predecessors during or prior to the Company's
or the subsidiary's ownership thereof) only to sites which have
proper permits or other authorization from Governmental Entities for
the disposal of such materials. The Company has received no notice
that any site to which Hazardous Materials, garbage, refuse, or
similar waste materials have been transported for disposal by the
Company or any subsidiary (or their respective predecessors during or
prior to the Company's or the subsidiary's ownership thereof) is on
any Contaminated Site List or requires the expenditure of any
Environmental Remediation Costs nor, has been placed on such a list
or the requirement that such costs be incurred been threatened.
(F) Except as would not have a Material Adverse Effect, all
operations of the Company and its subsidiaries, and the properties
owned or operated by the Company or any of its subsidiaries, are in
compliance with all permits and Environmental Laws, including without
limitation compliance with Subtitle D of RCRA and all regulations
promulgated thereunder as if it were in effect on the date hereof.
(G) Except as would not have a Material Adverse Effect, to the
best of the Company's knowledge, no facts or circumstances exist
which could reasonably be expected to result in any Environmental
Liabilities to the Company, or any of the Company's directors,
officers, stockholders or controlling persons, including Parent
following the Merger, which have not been otherwise disclosed herein
or in Section 3.1(o) of the Disclosure Schedule or in the SEC
Documents, with respect to (1) any properties currently or previously
owned or operated by the Company or any subsidiary (or their
respective predecessors with respect to property owned or operated
during or prior to the Company's or the subsidiary's ownership or
operation thereof) thereof, or (2) the current or past business or
operations of the Company or any of its subsidiaries.
(iii) The Company and its subsidiaries do not own, lease or
otherwise operate any disposal sites.
(iv) The Company has previously provided to Parent a schedule which
sets forth to the best knowledge of the Company all disposal sites
(including dumps, landfills and other disposal facilities) utilized by
the Company, any of its subsidiaries or any of their respective
predecessors, which schedule identified (A) the name and address of such
disposal site and (B) the type or types of Hazardous Materials delivered
to such site and the approximate date thereof.
(p) Compliance with Laws. The Company and its subsidiaries hold all
required, necessary or applicable permits, licenses, variances, exemptions,
orders, franchises and approvals of all Governmental Entities to own, lease
and operate all of their properties and assets and to conduct their
business as now
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being conducted, except where the failure to so hold would not have a
material adverse effect on the Company (the "Company Permits"). The Company
and its subsidiaries are in compliance with the terms of the Company
Permits except where the failure to so comply would not have a material
adverse effect on the Company. Neither the Company nor any of its
subsidiaries has violated or failed to comply with any statute, law,
ordinance, regulation, rule, permit or order of any Federal, state or local
government, domestic or foreign, or any Governmental Entity, any
arbitration award or any judgment, decree or order of any court or other
Governmental Entity, applicable to the Company or any of its subsidiaries
or their respective businesses, assets or operations, except for violations
and failures to comply that could not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the Company.
(q) Material Contracts and Agreements. The Company has provided or
made available to Parent copies, and has provided a true and correct list
to Parent, of all contracts and agreements with Governmental Entities and
of all other material contracts, agreements, commitments, arrangements,
leases, policies or other instruments to which it or any of its
subsidiaries is a party or by which it or any such subsidiary is bound
("Material Contracts"). Neither the Company nor any of its subsidiaries is,
or has received any notice or has any knowledge that any other party is, in
default in any respect under any such Material Contract, and there has not
occurred any event that with the lapse of time or the giving of notice or
both would constitute such a default, except for those defaults which could
not, individually or in the aggregate, reasonably be expected to have a
material adverse effect with respect to the Company.
(r) Insurance. Section 3.1(r) of the Disclosure Schedule sets forth
all policies of insurance currently in effect relating to the business,
operations, properties or assets of the Company and its subsidiaries.
(s) Title to Properties, etc.
(i) Each of the Company and each of its subsidiaries has good and
indefeasible title to, or valid leasehold interests in, all its
properties and assets except for such as are no longer used or useful in
the conduct of its businesses or as have been disposed of in the
ordinary course of business and except for minor defects in title,
easements, restrictive covenants and similar encumbrances or impediments
that, in the aggregate, do not and will not materially interfere with
its ability to conduct its business as currently conducted or as
reasonably expected to be conducted. All such assets and properties,
other than assets and properties in which the Company or any of the
subsidiaries has leasehold interests, are free and clear of all Liens,
other than those set forth in Section 3.1(s) of the Disclosure Schedule
and except for minor liens, that, in the aggregate, do not and will not
materially interfere with the ability of the Company or any of its
subsidiaries to conduct business as currently conducted or as reasonably
expected to be conducted. The Company has delivered to Parent true and
correct copies of all title insurance policies and surveys in its or one
of its subsidiaries' possession or otherwise available to any of them
covering real property owned by the Company.
(ii) Except as set forth in Section 3.1(s) of the Disclosure
Schedule, each of the Company and each of its subsidiaries has complied
in all material respects with the terms of all leases to which it is a
party and under which it is in occupancy, and all such leases are in
full force and effect. Each of the Company and each of its subsidiaries
enjoys peaceful and undisturbed possession under all such leases.
(t) Intellectual Property. The Company and its subsidiaries own, or
are licensed or otherwise have the right to use, all patents, patent
rights, trademarks, trademark rights, trade names, trade name rights,
service marks, service mark rights, copyrights, software rights and
licenses technology, know how, processes and other proprietary intellectual
property rights and computer programs which are material to the condition
(financial or otherwise) or conduct of the business and operations of the
Company and its subsidiaries taken as a whole. To the best of the Company's
knowledge, (i) the use of such patents, patent rights, trademarks,
trademark rights, service marks, service mark rights, trade names,
copyrights, technology, know-how, processes and other proprietary
intellectual property rights and computer programs by the Company and its
subsidiaries does not infringe on the rights of any person, subject to
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such claims and infringements as do not, in the aggregate, give rise to any
liability on the part of the Company and its subsidiaries with respect to
any such patents, patent rights, trademarks, trademark rights, service
marks, service mark rights, trade names, copyrights, technology, know-how,
processes and other proprietary intellectual property rights and computer
programs. No claims are pending or, to the best of the Company's knowledge,
threatened that the Company or any of its subsidiaries is infringing or
otherwise adversely affecting the rights of any person with regard to any
patent, license, trademark, trade name, service mark, copyright or other
intellectual property right.
(u) Labor Matters. Except as set forth in Section 3.1(u) of the
Disclosure Schedule, there are no collective bargaining agreements or other
labor union agreements or understandings to which the Company or any of its
subsidiaries is a party or by which any of them is bound, nor is it or any
of its subsidiaries the subject of any proceeding asserting that it or any
subsidiary has committed an unfair labor practice or seeking to compel it
to bargain with any labor organization as to wages or conditions. Except as
set forth in Section 3.1(u) of the Disclosure Schedule, since October 31,
1993, neither the Company nor any of its subsidiaries has encountered any
labor union organizing activity, or had any actual or threatened employee
strikes, work stoppages, slowdowns or lockouts and no such actions are
threatened at present.
(v) Undisclosed Liabilities. Except as set forth in the SEC
Documents, neither the Company nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) or which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the Company;
except those incurred in the ordinary course of business since September
30, 1995, consistent with past operations and not related to the borrowing
of money.
(w) Transactions with Affiliates. Except for compensation and
employee benefit arrangements, or as set forth in Section 3.1(w) of the
Disclosure Schedule, no affiliate, officer or director of the Company has
had or has any interest in any person which has had transactions with the
Company or a subsidiary within the past three years.
SECTION 3.2 Representations and Warranties of Parent and Sub. Parent and
Sub represent and warrant to, and agree with, the Company as follows:
(a) Organization; Standing and Power. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being
conducted. Each of Parent and each of its subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed to do
business (individually or in the aggregate) would not have a material
adverse effect on Parent.
(b) Authority; Non-contravention. Each of Parent and Sub has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Parent and Sub and the consummation by Parent and Sub
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Parent and Sub, except as
enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer or similar laws affecting the enforcement of creditors' rights
generally and pursuant to general equitable principles. This Agreement has
been duly executed and delivered by Parent and Sub and constitutes a valid
and binding obligation of Parent and Sub, enforceable against Parent and
Sub in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated
hereby and compliance with the provisions hereof will not, conflict with,
or result in any violation of, or default (with or without notice or lapse
of time, or both) under, (i) any provision of the Certificate of
Incorporation or By-laws of Sub or the Certificate of Incorporation or By-
laws of Parent, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Parent or Sub or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in
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the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation or arbitration account applicable to Parent
or Sub or their respective properties or assets, other than, in the case of
clause (ii), any such conflicts, violations or defaults that individually
or in the aggregate would not materially impair the ability of Parent and
Sub to perform their respective obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to Parent or
Sub in connection with the execution and delivery of this Agreement by
Parent and Sub or the consummation by Parent and Sub of the transactions
contemplated hereby, except for (i) the filing by Parent of a premerger
notification and report form under the HSR Act, (ii) the filing with the
SEC of such reports under Section 13(a) of the Exchange Act as may be
required in connection with this Agreement and the transactions
contemplated hereby, (iii) the filing and effectiveness of the Registration
Statement under the Securities Act and (iv) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under the "takeover" or "blue sky" laws of various states.
(c) Authorization for Parent Common Stock. Prior to the Effective
Time of the Merger, Parent shall have taken all necessary action to permit
it to issue the number of Parent Shares required to be issued pursuant to
terms of this Agreement. The Parent Shares issued pursuant to the terms of
this Agreement will, when issued, be validly issued, fully paid and
nonassessable and not subject to preemptive rights. Such Parent Shares
will, when issued, be registered under the Securities Act and the Exchange
Act.
(d) SEC Documents. Parent has timely filed all required reports,
schedules, forms, statements and other documents with the SEC since October
31, 1993 and Parent has delivered or made available to the Company all
reports, schedules, forms, statements and other documents filed by it with
the SEC since such date (such documents, together with all exhibits and
schedules thereto and documents incorporated by reference therein,
collectively referred to herein as the "Parent SEC Documents"). As of their
respective dates, the Parent SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Parent SEC Documents, and none of the Parent
SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements
of Parent included in the Parent SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared
in accordance with generally accepted accounting principles (except, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated
financial position of Parent and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments and other adjustments
described therein).
(e) Information Supplied. None of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement is
filed with the SEC, and at any time it is amended or supplemented or at the
time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and (ii) the Proxy Statement will, at the date the Proxy
Statement is first mailed to the Company's stockholders and at the time of
the Stockholders Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. For purposes of
this Agreement, the parties agree that the statements made and information
in the Registration Statement and the Proxy Statement (other than
information provided by Parent or any subsidiary of Parent in each case
concerning Parent or such subsidiary expressly for inclusion therein)
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relating to the Federal income tax consequences of the transactions
contemplated hereby to the holders of Shares shall be deemed to be supplied
by the Company and not by Parent or Sub.
(f) Litigation. Except as disclosed in the Parent SEC Documents,
there is no suit, action, proceeding or investigation pending or, to the
knowledge of Parent, threatened against or affecting Parent or any of its
subsidiaries that could reasonably be expected to have a material adverse
effect on Parent or prevent, hinder or materially delay the ability of
Parent to consummate the transactions contemplated by this Agreement (and
Parent is not aware of any basis for any such suit, action, proceeding or
investigation), nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against Parent
or any of its subsidiaries having, or which, insofar as reasonably can be
foreseen, in the future could have, any such effect.
(g) Undisclosed Liabilities. Except as set forth in the Parent SEC
Documents and prior to the date of this Agreement, at the date of the most
recent audited financial statements of Parent included in the Parent SEC
Documents, neither Parent nor any of its subsidiaries had, and since such
date neither Parent nor any of such subsidiaries has incurred, any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise), required by generally accepted accounting
principles to be set forth on a financial statement or in the notes thereto
or which, individually or in the aggregate, could reasonably be expected to
have a material adverse effect on Parent.
(h) Brokers. Except for a $250,000 fee to be paid to Lehman Brothers,
Inc. by Parent, no broker, investment banker or other person is entitled to
any broker's, finder's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Sub.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business.
(a) Ordinary Course. During the period from the date of this
Agreement to the Effective Time of the Merger (except as otherwise
specifically required by the terms of this Agreement), the Company shall
and shall cause its subsidiaries to carry on their respective businesses in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use all
reasonable efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and
preserve their relationships with customers, Governmental Entities,
suppliers, insurers, licensors, licensees, distributors and others having
business dealings with them, in each case consistent with past practice, to
the end that their goodwill and ongoing businesses shall be unimpaired to
the fullest extent reasonably possible at the Effective Time of the Merger.
Without limiting the generality of the foregoing, and except as otherwise
expressly set forth in this Agreement, during such period, the Company
shall not, and shall not permit any of its subsidiaries to:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than
dividends and distributions by any direct or indirect wholly owned
subsidiary of the Company to the Company or a wholly-owned subsidiary of
the Company, (B) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock or (C)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its subsidiaries or any other securities thereof or
any rights, warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities
convertible into any such shares; or issue, deliver, sell or grant any
rights, warrants or options to acquire any such shares, voting
securities or convertible securities; or issue, deliver, sell or grant
any stock appreciation rights, phantom stock or similar rights or enter
into
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any agreement to do any of the foregoing, except for the issuance of
Shares upon the exercise of Option Plan options or the Class B Warrants,
or the conversion of the Convertible Debt, all as outstanding on the
date of this Agreement in accordance with their current terms;
(iii) amend its Certificate of Incorporation, By-laws or other
comparable charter or organizational document;
(iv) acquire or agree to acquire (A) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of,
or by any other manner, any business or any corporation, partnership,
association, joint venture, limited liability company or other entity or
division thereof or (B) any assets that would be material, individually
or in the aggregate, to the Company and its subsidiaries taken as a
whole, except purchases of supplies and inventory in the ordinary course
of business consistent with past practice;
(v) sell, lease, mortgage, pledge, grant a Lien on or otherwise
encumber or otherwise dispose of any of its properties or assets, except
sales of inventory in the ordinary course of business consistent with
past practice;
(vi) (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities
or warrants or other rights to acquire any debt securities of the
Company or any of its subsidiaries, guarantee any debt securities of
another person, or (B) make any loans, advances or capital contributions
to, or investments in, any other person, other than to the Company or
any direct or indirect wholly owned subsidiary of the Company;
(vii) make or incur any new capital expenditure or expenditures not
set forth in the Company's capital budget for fiscal 1995, or in an
amount in excess of that set forth for any such item in such capital
budgets (a true and correct copy of which budget has been previously
furnished to Parent), except for capital expenditures not in excess of
$50,000 as to any single item and $100,000 in the aggregate;
(viii) make any election relating to Taxes or settle or compromise
any Tax liability;
(ix) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved
against in, or contemplated by, the most recent consolidated financial
statements (or the notes thereto) of the Company included in the SEC
Documents or incurred in the ordinary course of business consistent with
past practice;
(x) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or
any of its subsidiaries is a party;
(xi) terminate or amend in any material respect any contract or
agreement material to the Company;
(xii) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization;
(xiii) except as expressly permitted by this Agreement, enter into
any new collective bargaining agreement or any successor collective
bargaining agreement to any collective bargaining agreement disclosed in
Section 3.1(u) of the Disclosure Schedule;
(xiv) change any material accounting principle used by it, except
insofar as any such change is required by generally accepted accounting
principles or by the rules and regulations of the SEC;
(xv) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement) other than settlements or
compromises: (A) of litigation where the amount paid in
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settlement or compromise does not exceed $10,000, or (B) in consultation
and cooperation with Parent, and, with respect to any such settlement,
with the prior written consent of Parent;
(xvi) authorize any of, or commit or agree to take any of, the
foregoing actions; or
(xvii) excluding inventory purchased for resale in the ordinary
course of business, the company will not enter into any contracts or
other material business obligations or commitments in excess of
$100,000, or for a term longer than one year.
(b) Changes in Employment Arrangements. Except as set forth in Section
4.1(b) of the Disclosure Schedule, neither the Company nor any of its
subsidiaries shall (except as may be required in order to give effect to
the requirements of Section 5.6) adopt or amend (except as may be required
by law, rule or regulation) any bonus, profit sharing, compensation, stock
option, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, fund or other arrangement
(including any Benefit Plan) for the benefit or welfare of any employee,
director or former director or employee or, other than increases for
individuals (other than officers and directors) in the ordinary course of
business consistent with past practice, increase the compensation or fringe
benefits of any director, employee or former director or employee or pay
any benefit not required by any existing plan, arrangement or agreement by
more than $10,000 for any individual and $50,000 in the aggregate for all
such individuals. The Company will maintain the employment of its chief
executive officer, Stephen A. Wells and its chief financial officer, Blake
Dupuis through the Closing Date.
(c) Severance. Except as reflected in Section 4.1(b) of the Disclosure
Schedule, neither the Company nor any of its subsidiaries shall grant any
new or modified severance or termination arrangement or increase or
accelerate any benefits payable under its severance or termination pay
policies in effect on the date hereof.
SECTION 4.2 Other Actions. The Company shall not, and shall not permit any
of its subsidiaries to, take any action that would, or that could reasonably be
expected to, result in any of the representations and warranties of the Company
set forth in this Agreement that are qualified as to materiality becoming untrue
or inaccurate in any respect or in any of the representations and warranties set
forth in this Agreement that are not so qualified becoming untrue in any
material respect.
SECTION 4.3 Advice of Changes. The Company shall promptly advise Parent
orally and in writing of any change or event having, or which, insofar as can
reasonably be foreseen, could have, a material adverse effect on the Company.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Stockholder Approval; Preparation of Proxy Statement;
Preparation of Registration Statement. (a) The Company shall, as soon as
practicable following the execution and delivery of this Agreement on a date to
be agreed upon between Parent and the Company, which date shall be set taking
into account the status of pending regulatory matters pertaining to the
transactions contemplated hereby, duly call, give notice of, convene and hold
the Stockholders Meeting for the purpose of approving the Merger and the
transactions contemplated thereby. The Company will, through its Board of
Directors, recommend to its stockholders the approval and adoption of the
Merger.
(b) Promptly following the date of this Agreement, the Company and Parent
shall prepare and file with the SEC the Proxy Statement, and Parent shall
prepare and file with the SEC a registration statement on Form S-4 (the
"Registration Statement"), in which the Proxy Statement will be included as a
prospectus. Each of the Company and Parent shall use its reasonable efforts to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing, subject to the setting of the date
for the Stockholders Meeting as provided in Section 5.1(a). The Company will use
its reasonable efforts to cause the Proxy Statement to be mailed to the
Company's stockholders as promptly as practicable after the Registration
Statement is declared effective under the Securities Act. Parent shall also take
such reasonable
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actions (other than qualifying to do business in any jurisdiction in which it is
not now so qualified) as may be required to be taken under any applicable state
securities laws in connection with the issuance of Parent Shares in the Merger,
and the Company shall furnish all information concerning the Company and the
holders of the Shares and rights to acquire Shares pursuant to the Option Plans
as may be reasonably requested in connection with any such action. The Company
will notify Parent promptly of the receipt of any written or oral comments from
the SEC or its staff and of any request by the SEC or its staff for amendments
or supplements to the Proxy Statement or for additional information and will
supply Parent with copies of all correspondence between the Company or any of
its representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to the Proxy Statement or the Merger. Parent will notify the
Company promptly of the receipt of any written or oral comments from the SEC or
its staff and of any request by the SEC or its staff for amendments or
supplements to the Registration Statement or for additional information and will
supply the Company with copies of all correspondence between Parent or any of
its representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to the Registration Statement or the Merger.
(c) The Company will cause its transfer agent to make stock transfer
records relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.
SECTION 5.2 Letter of the Company's Accountants. The Company shall use its
best efforts to cause to be delivered to Parent a letter of Arthur Andersen LLP,
the Company's independent public accountants, dated a date within two business
days before the date on which the Registration Statement shall become effective
and addressed to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement. In connection with the
Company's efforts to obtain such letter, if requested by Arthur Andersen LLP,
Parent shall provide a representation letter to Arthur Andersen LLP, complying
with Statements on Auditing Standards ("SAS") 72 and 76, if then required.
SECTION 5.3 Letter of Parent's Accountants. Parent shall use its best
efforts to cause to be delivered to the Company a letter of Deloitte & Touche
LLP, Parent's independent public accountants, dated a date within two business
days before the date on which the Registration Statement shall become effective
and addressed to the Company and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement. In connection with Parent's
efforts to obtain such letter, if requested by Deloitte & Touche LLP, the
Company shall provide a representation letter to Deloitte & Touche LLP complying
with SAS 72 and 76, if then required.
SECTION 5.4 Access to Information.
(a) The Company shall, and shall cause each of its subsidiaries, officers,
employees, counsel, financial advisors and other representatives to, afford to
Parent, and to Parent's accountants, counsel, financial advisors and other
representatives, reasonable access during the period from the date hereof to the
Effective Time of the Merger to the Company's and its subsidiaries' respective
officers, employees, representatives, properties, books, contracts, commitments
and records and, during such period, the Company shall, and shall cause each of
its subsidiaries, officers, employees, counsel, financial advisors and other
representatives to, furnish promptly to Parent (i) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of Federal or state securities laws and (ii)
all other information concerning its business, properties, financial condition,
operations and personnel as such party may from time to time reasonably request.
The Company agrees to advise Parent of all material developments with respect to
the Company, its subsidiaries and their respective assets and liabilities from
the date hereof to the Effective Time of the Merger.
(b) Parent agrees to advise the Company of all material developments with
respect to Parent, its assets and liabilities during the period from the date
hereof to the Effective Time of the Merger.
(c) Except as required by law, each of the Company and Parent shall hold,
and cause its respective directors, officers, employees, accountants, counsel,
financial advisors and representatives and affiliates to hold, any nonpublic
information in confidence. Any investigation by any party of the assets and
business of the other party and its subsidiaries shall not affect any
representations and warranties hereunder.
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(d) The Company agrees to permit members of Parent's audit team to review
and examine the work papers of Arthur Andersen LLP with respect to the Company
and its subsidiaries.
(e) The Company shall also promptly notify Parent of any notices from or
investigations of which the Company is aware by Governmental Entities that could
materially affect the Company's business or assets. Parent will promptly notify
the Company of any notices from or investigations by Governmental Entities that
could materially affect the consummation of the Merger. In the event of the
termination of this Agreement, each party promptly will deliver to the other
party (and destroy all electronic data reflecting the same) all documents, work
papers and other material (and any reproductions or extracts thereof and any
notes or summaries thereto) obtained by such party or on its behalf from such
other party or its subsidiaries as a result of this Agreement or in connection
therewith so obtained before or after the execution hereof.
SECTION 5.5 Reasonable Efforts; Notification. (a) Upon the terms and
subject to the conditions set forth in this Agreement, except to the extent
otherwise provided in this Section 5.5, each of the parties agrees to use
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger, and the other transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings (including
filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed and (iv)
the execution and delivery of any additional instruments (including any required
supplemental indentures) necessary to consummate the transactions contemplated
by this Agreement. In connection with and without limiting the foregoing, the
Company and its Board of Directors shall (i) take all action necessary to ensure
that no state takeover statute or similar statute or regulation is or becomes
applicable to the Merger, (ii) if any state takeover statute or similar statute
or regulation becomes applicable to the Merger, take all action necessary to
ensure that the Merger may be consummated as promptly as practicable on the
terms contemplated by this Agreement and otherwise to minimize the effect of
such statute or regulation on the Merger and (iii) cooperate with Parent and Sub
in the arrangements for refinancing any indebtedness of, or obtaining any
necessary new financing for, the Company and the Surviving Corporation, it being
understood that the failure to obtain any such financing or refinancing shall
not be a basis for terminating this Agreement.
(b) The Company shall give prompt notice to Parent, and Parent or Sub shall
give prompt notice to the Company, of (i) any representation or warranty made by
it contained in this Agreement that is qualified as to materiality becoming
untrue or inaccurate in any respect or any such representation or warranty that
is not so qualified becoming untrue or inaccurate in any material respect or
(ii) the failure by it to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, that no such notification shall affect the
representations or warranties or covenants or agreements of the parties or the
conditions to the obligations of the parties hereunder.
(c) (i) The Company and Parent shall file a premerger notification and
report form under the HSR Act with respect to the Merger as promptly as
reasonably possible following execution and delivery of this Agreement. Each of
the parties agrees to use reasonable efforts to promptly respond to any request
for additional information pursuant to Section (e)(1) of the HSR Act. The cost
of such filings shall be borne by Parent.
(ii) The Company will furnish to Parent and Sub copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) between the Company, or any of its respective
representatives, on the one hand, and any Governmental Entity, or members of the
staff of such agency or authority, on the other hand, with respect to this
Agreement or the Merger; Parent and Sub will furnish to the
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Company copies of all correspondence, filings or communications (or memoranda
setting forth the substance thereof) between Parent, Sub or any of their
respective representatives, on the one hand, and any governmental agency or
authority, on the other hand, with respect to this Agreement or the Merger.
(iii) At the election of Parent, the Company and Parent shall, at Parent's
expense, use reasonable efforts to defend all litigation under the Federal or
state antitrust laws of the United States which if adversely determined would,
in the reasonable opinion of Parent (based on the advice of outside counsel), be
likely to result in the condition set forth in Section 6.2(g) not being
satisfied, and to appeal any order, judgment or decree, which if not reversed,
would result in such failure. Notwithstanding the foregoing, nothing contained
in this Agreement shall be construed to require Parent, Sub or the Company, or
any of their respective subsidiaries or affiliates, to sell, license, dispose
of, or hold separate, or to operate in any specified manner, any assets or
businesses of Parent, Sub, the Company or the Surviving Corporation (or to
require Parent, Sub, the Company or any of their respective subsidiaries or
affiliates to agree to any of the foregoing). The obligations of each party
under Section 5.5(a) to use reasonable efforts with respect to antitrust matters
shall be limited to compliance with the reporting provisions of the HSR Act and
with its obligations under this Section 5.5(c).
SECTION 5.6 Stock Options. (a) As soon as practicable following the date
of this Agreement, the Board of Directors of the Company (or, if appropriate,
any committee thereof) shall adopt such resolutions or take such other actions
as are required, if any, to adjust the terms of all outstanding employee stock
options to purchase Shares ("Employee Stock Options") heretofore granted, to
provide that each Employee Stock Option outstanding shall at the Effective Time
of the Merger represents the right to purchase the Merger Consideration for each
Share previously purchasable thereunder at a price equal to the price per whole
Share under the Option Plans.
(b) The Company shall use reasonable efforts to obtain all consents of the
holders of the Employee Stock Options as shall be necessary to effectuate the
foregoing.
(c) Except as provided herein or as otherwise agreed to by the parties, the
Stock Plans and any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any subsidiary shall terminate as of the Effective Time of the
Merger, and the Company shall ensure that following the Effective Time of the
Merger no holder of an Employee Stock Option or any participant in any Option
Plan or other Benefit Plan shall have any right thereunder to acquire any
capital stock of the Company or the Surviving Corporation.
SECTION 5.7 Indemnification. Parent and Sub agree that all rights to
indemnification for acts or omissions occurring prior to the Effective Time of
the Merger now existing in favor of the current or former directors or officers
of the Company and its subsidiaries as provided in their respective Certificate
of Incorporation or By-laws, as in effect on the date hereof, shall survive the
Merger.
SECTION 5.8 Fees and Expenses. Except as provided in Article VIII, all
fees and expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees
or expenses, whether or not the Merger is consummated, provided, however, that
nothing herein contained shall relieve any party hereto for any liability for
breach of this Agreement.
SECTION 5.9 Public Announcements. Parent and Sub, on the one hand, and
the Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except
that each party may respond to questions from stockholders and Parent may
respond to inquiries from financial analysts and media representatives in a
manner consistent with its past practice and each party may make such disclosure
as may be required by applicable law or by obligations pursuant to any listing
agreement with any national securities exchange or association without prior
consultation to the extent such consultation is not reasonably practicable. The
parties agree that the initial press release or releases to be issued in
connection with the execution of this Agreement shall be mutually agreed upon
prior to the issuance thereof.
SECTION 5.10 Stockholder Litigation. The Company shall give Parent the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to the
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transactions contemplated by this Agreement until the Effective Time of the
Merger, and thereafter, the Surviving Corporation shall give Parent the
opportunity to direct the defense of such litigation and, if Parent so chooses
to direct such litigation, Parent shall give the directors of the Company an
opportunity to participate in such litigation; provided, however, that no
settlement of litigation under which Parent or the Surviving Corporation shall
have any liability shall be agreed to without Parent's consent, which shall not
be unreasonably withheld.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver by each party on or prior to the Closing Date of
the following conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval
shall have been obtained.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; provided, however, that
the parties hereto shall, subject to Section 5.5, use reasonable efforts to
have any such injunction, order, restraint or prohibition vacated.
(d) Registration Statement Effectiveness. The Registration Statement
shall be effective under the Securities Act on the Closing Date, and all
post-effective amendments filed shall have been declared effective or shall
have been withdrawn; and no stop-order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
initiated or, to the knowledge of the parties, threatened by the SEC.
(e) Exchange Listing. The Parent Shares to be issued as Merger
Consideration shall have been approved for listing on the New York Stock
Exchange and the Pacific Stock Exchange.
(f) Blue Sky Filings. There shall have been obtained any and all
material permits, approvals and consents of securities or "blue sky"
authorities of any jurisdiction that are necessary so that the consummation
of the Merger and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which would
have a material adverse effect on Parent or the free transferability of the
Shares (other than Shares of holders who were "affiliates", within the
meaning of Rules 144 and 145(c) under the Securities Act, of the Company or
who are "affiliates" of Parent).
SECTION 6.2 Conditions of Parent and Sub. Subject to waiver by the Parent
and Sub, the obligation of Parent and Sub to consummate the Merger are further
subject to the satisfaction at the Effective Time of the Merger, of the
following conditions:
(a) Compliance. The agreements and covenants of the Company to be
complied with or performed on or before the Closing Date pursuant to the
terms hereof shall have been duly complied with or performed in all
material respects and Parent shall have received a certificate dated the
Closing Date and executed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect.
(b) Certifications and Opinion. The Company shall have furnished
Parent with:
(i) a certified copy of a resolution or resolutions duly adopted by
the Board of Directors of the Company approving this Agreement and
consummation of the Merger and the transactions
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contemplated hereby and directing the submission of the Merger to a vote
of the stockholders of the Company;
(ii) a certified copy of a resolution or resolutions duly adopted
by the holders of a majority of the outstanding Shares approving the
Merger and the transactions contemplated hereby;
(iii) a favorable opinion dated the Closing Date, in customary form
and substance, of Rubin Baum Levin Constant & Friedman, counsel for the
Company, dated the Closing Date to the effect that:
(A) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has corporate power to own its properties and assets and to carry
on its business as presently conducted and as described in the Proxy
Statement;
(B) The Company has the requisite corporate power to effect the
Merger as contemplated by this Agreement; the execution and delivery
of this Agreement did not, and the consummation of the Merger will
not, violate any provision of the Company's Articles of Incorporation
or By-Laws; and upon the filing by the Surviving Corporation of the
Articles of Merger, the Merger shall become effective;
(C) Each of the Company's subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation, and has corporate power to own its
properties and assets and to carry on its business as presently
conducted and all of the outstanding capital stock of each subsidiary
is owned of record and, to the best of such counsel's knowledge,
beneficially by the Company and/or another subsidiary, free and clear
of all liens, security interests and other encumbrances; and
(D) The Board of Directors of the Company has taken all action
required by the DGCL and its Articles of Incorporation or its By-Laws
to approve the Merger and to authorize the execution and delivery of
this Agreement and the transactions contemplated thereby; the Board
of Directors and the stockholders of the Company have taken all
action required by the DGCL and its Articles of Incorporation and
By-Laws to authorize the Merger in accordance with the terms of this
Agreement; and this Agreement is a valid and binding Agreement of the
Company enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer or similar laws affecting the enforcement of creditors'
rights generally and pursuant to general equitable principles.
(c) Representations and Warranties True. The representations and
warranties of the Company contained in this Agreement (other than any
representations and warranties made as of a specific date) that are
qualified as to materiality shall be true in all respects and the
representations and warranties of the Company contained in this Agreement
(other than any representations and warranties made as of a specific date)
that are not so qualified shall be true in all material respects, in each
case on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, the
representations and warranties of the Company contained in the Agreement
made as of a specific date shall remain true as of such date, and Parent
shall have received a certificate to that effect dated the Closing Date and
executed on behalf of the Company by the chief executive officer and the
chief financial officer of the Company.
(d) Affiliate Letters. Parent shall have received from the Company a
list of such persons, if any, as counsel for the Company state may be
"affiliates" of the Company, within the meaning of Rules 144 and 145(c)
under the Securities Act, and shall have received from such persons
undertakings in writing to the effect that no disposition will be made by
such persons of any Shares received or to be received pursuant to the
Merger except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder. Parent shall not
be required to maintain the effectiveness of the Registration Statement for
the purpose of resale by stockholders of the Company who may be
"affiliates" pursuant to Rule 145 under the Securities Act and Parent may
require that the certificate for any Parent Shares to be received by such
affiliates as Merger Consideration contain a legend that such Parent Shares
may not be
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transferred except in compliance with such undertaking. Such affiliates
shall also furnish to the Parent a letter that they have no present
intention to dispose of any shares of Parent Stock received by them as
Merger Consideration.
(e) Tax Opinion. Parent shall have received an opinion of Fulbright &
Jaworski in form and substance satisfactory to Parent, to the effect that,
for federal income tax purposes and conditioned upon certain
representations of managements of the Company and Parent as to certain
customary facts and circumstances regarding the Merger, the Merger will
qualify as a "reorganization" within the meaning of Section 368(a) of the
Code.
(f) Consents, etc. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits,
consents, approvals, authorizations, qualifications and orders of
governmental authorities and other third parties as are necessary in
connection with the transactions contemplated hereby have been obtained,
except such licenses, permits, consents, approvals, authorizations,
qualifications and orders which are not, individually or in the aggregate,
material to Parent or the Company or the failure of which to have received
would not (as compared to the situation in which such license, permit,
consent, approval, authorization, qualification or order had been obtained)
materially detract from the aggregate benefits to Parent of the
transactions reasonably contemplated hereby.
(g) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (or by any other person
any suit, action or proceeding which has a reasonable likelihood of
success) (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
this Agreement or seeking to obtain from Parent or any of its subsidiaries
any damages that are material in relation to Parent and its subsidiaries
taken as a whole, (ii) seeking to prohibit or limit the ownership or
operation by the Company, Parent or any of their respective subsidiaries of
any material portion of the business or assets of the Company, Parent or
any of their respective subsidiaries, to dispose of or hold separate any
material portion of the business or assets of the Company, Parent or any of
their respective subsidiaries, as a result of the Merger or any of the
other transactions contemplated by this Agreement, (iii) seeking to impose
limitations on the ability of Parent or Sub to acquire or hold, or exercise
full rights of ownership as to any shares of Common Stock of the Surviving
Corporation, including, without limitation, the right to vote the Common
Stock of the Surviving Corporation on all matters properly presented to the
stockholders of the Surviving Corporation or (iv) seeking to prohibit
Parent or any of its subsidiaries from effectively controlling in any
material respect the business or operations of the Company or its
subsidiaries.
(h) Dissenting Stockholders. The holders of not more than 5% of the
outstanding Shares shall have given proper notice of their intent to
exercise appraisal rights to require the purchase of their Shares as
contemplated by Section 2.1(e) (in calculating the foregoing, holders of
Shares who give notice but subsequently waive their rights in accordance
with sec. 262 of the DGCL to require purchase of their Shares, shall not be
included).
(i) Satisfactory Due Diligence. The results of due diligence conducted
by Parent with respect to the Company shall be satisfactory to Parent.
(j) No Material Adverse Change. There shall not have occurred any
material adverse change with respect to the Company since September 14,
1995.
(k) Opinion of Financial Advisor. Company shall have received the
opinion of Simmons & Company International, prior to the mailing of the
Proxy Statement, to the effect that the terms of the Merger are fair to the
holders of the Company Shares from a financial point of view.
(l) Employment Agreement. An employment agreement between the
Surviving Corporation and Stephen A. Wells, satisfactory to Parent and
effective on the Closing Date shall have been executed by all parties
thereto.
(m) Non-Competition Agreement. A non-competition agreement with
Stephen A. Wells, effective on the Closing Date shall have been executed
and delivered requiring that he will not, for a period of
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three (3) years after the Closing Date, conduct any business now being
conducted by Tesoro Petroleum Distributing Company or by the Coastwide
Marine Services, Inc. subsidiary of the Company in the Texas and Louisiana
Gulf Coast, including but not limited to, shore base support services, the
purchase or sale of diesel fuels, oil, lubricants or the brokerage of such
products.
(n) Lender Approval. All lenders to Parent shall have approved the
consummation of the Merger or shall have waived any objection or right to
object with respect thereto.
(o) Termination of Certain Agreements. All employment or consulting
agreements between the Company and Mr. Ingram and Mr. Newman, respectively,
shall have been terminated effective as of the Closing Date on terms
acceptable to Parent.
SECTION 6.3 Conditions of the Company. Subject to waiver by the Company,
the obligations of the Company to consummate the Merger are further subject to
the satisfaction at the Effective Time of the Merger of the following
conditions:
(a) Compliance. The agreements and covenants of Parent to be complied
with or performed on or before the Closing Date pursuant to the terms
hereof shall have been duly complied with or performed in all material
respects and the Company shall have received a certificate dated the
Closing Date on behalf of Parent by the President, any Vice President or
the Treasurer of Parent to such effect.
(b) Certifications and Opinion. Parent shall have furnished the
Company with:
(i) a certified copy of a resolution or resolutions duly adopted by
the Board of Directors or a duly authorized committee thereof of Parent
approving this Agreement and consummation of the Merger and the
transactions contemplated hereby, including the issuance, listing and
delivery of the Parent Shares pursuant hereto;
(ii) a favorable opinion, dated the Closing Date, in customary form
and substance, of Fulbright & Jaworski L.L.P., counsel for Parent to the
effect that:
(A) Parent and the Sub are corporations duly organized, validly
existing and in good standing under the laws of the State of Delaware
and have corporate power to own their properties and assets and to
carry on their business as presently conducted and as described in
the Proxy Statement. Sub has the requisite corporate power to merge
with the Company as contemplated by this Agreement and Parent has the
requisite corporate power to carry out its obligations under this
Agreement. The execution and delivery of this Agreement did not, and
the consummation of the Merger will not, violate any provision of
Parent's or Sub's Certificate of Incorporation or By-Laws;
(B) Parent and Sub have taken all action required by the DGCL,
their Certificates of Incorporation or their By-Laws to authorize
such execution and delivery and the transactions contemplated by this
Agreement, including the Merger in accordance with the terms of this
Agreement; and this Agreement is a valid and binding agreement of
Parent and Sub enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer or similar laws affecting the enforcement of creditors'
rights generally or pursuant to general equitable principles; and
(C) The Parent Shares to be issued pursuant to the Merger have
been duly authorized and, when issued and delivered as contemplated
hereby, will have been legally and validly issued and will be fully
paid and non-assessable and no stockholder of Parent will have any
preemptive right of subscription or purchase in respect thereof under
Delaware law or Parent's Certificate of Incorporation or By-laws.
(c) Representations and Warranties True. The representations and
warranties of Parent contained in this Agreement (other than any
representations and warranties made as of a specific date) that are
qualified as to materiality shall be true in all respects and the
representations and warranties of Parent contained in this Agreement (other
than any representations and warranties made as of a specific date)
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that are not so qualified shall be true in all material respects, in each
case on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, except
as contemplated or permitted by this Agreement, and the Company shall have
received a certificate to that effect dated the Closing Date and executed
on behalf of Parent by the President, any Vice President or the Treasurer
of Parent.
(d) Tax Opinion. The Company shall have received an opinion of Rubin
Baum Levin Constant & Friedman in form and substance satisfactory to the
Company, to the effect that for federal income tax purposes and conditioned
upon certain representations of managements of the Company and Parent as to
certain customary facts and circumstances regarding the Merger; (i) the
Merger will qualify as a "reorganization" within the meaning of Section
368(a) of the Code; (ii) no gain or loss will be recognized by the Company
as a result of the Merger; (iii) no realized loss will be recognized by a
stockholder of the Company upon the receipt by them of the Merger
Consideration in exchange for their Shares pursuant to the Merger; (iv) any
realized gain will be recognized by a stockholder of the Company to the
extent of the cash portion of the Merger Consideration received pursuant to
the Merger; (v) the aggregate tax bases of Parent Shares received by the
stockholders of the Company (including any fractional share interests
treated as received) will be the same as the aggregate tax bases of the
Shares surrendered in exchange therefor decreased by the cash portion of
the Merger Consideration and increased by the gain recognized on the
Merger; and (vi) the holding period of Parent Shares received by the
stockholders of the Company (including any fractional share interests
treated as received) will include the period during which the Shares
surrendered in exchange therefor were held, provided the Parent Shares were
held as a capital asset at the Effective Time of the Merger.
(e) Assumption. Parent shall have executed all documents required to
evidence its assumption of the Employee Stock Options, the Class B Warrants
and the Convertible Debt outstanding at the Closing (other than those owned
by the Company, Parent, Sub or any wholly-owned subsidiary of the Company,
Parent or Sub).
(f) No Material Adverse Change. There shall not have occurred any
material adverse change with respect to Parent since September 14, 1995.
(g) Opinion of Financial Advisor. The Company shall have received the
opinion of Simmons & Company International, immediately prior to the
mailing of the Proxy Statement, to the effect that the Merger Consideration
is fair to the holders of the Shares (other than Parent) from a financial
point of view, a signed copy of which opinion shall have been delivered to
Parent.
(h) Satisfactory Due Diligence. The results of due diligence conducted
by the Company with respect to Parent shall be satisfactory to the Company.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time of the Merger, whether before or after approval of
matters presented in connection with the Merger by the stockholders of the
Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if the stockholders of the Company fail to give any required
approval of the Merger and the transactions contemplated hereby upon a
vote at a duly held meeting of stockholders of the Company or at any
adjournment thereof;
(ii) if any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have issued
an order, decree or ruling or taken any other action
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<PAGE> 34
permanently enjoining, restraining or otherwise prohibiting the Merger
and such order, decree, ruling or other action shall have become final
and nonappealable; or
(iii) if the Merger shall not have been consummated on or before
March 1, 1996 unless the failure to consummate the Merger is the result
of a material breach of this Agreement by the party seeking to terminate
this Agreement;
(iv) by Parent or the Company, as the case may be based upon the
material breach of any representation, warranty, covenant or agreement
contained in the Agreement by the other party; a material adverse change
with respect to the Company or the failure to satisfy all conditions
precedent unless such failure is waived by the party whose performance
is conditioned thereon;
(c) by the Company pursuant to a sale submitted under Article VIII
hereof; or
(d) by the Parent pursuant to Section 8.1(c).
ARTICLE VIII
SPECIAL PROVISIONS AS TO CERTAIN MATTERS
SECTION 8.1 No Solicitation. (a) The Company shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of or any investment banker, attorney or other advisor,
agent or representative of the Company or any of its subsidiaries to, directly
or indirectly, (i) solicit, initiate or encourage the submission of any takeover
proposal, (ii) enter into any agreement (other than confidentiality and
standstill agreements in accordance with the immediately following proviso) with
respect to any takeover proposal, or (iii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
takeover proposal; provided, however, in the case of this clause (iii), that
prior to the vote of stockholders of the Company for approval of the Merger (and
not thereafter if the Merger is approved thereby) to the extent required by the
fiduciary obligations of the Board of Directors of the Company, determined in
good faith by a majority of the disinterested members thereof based on the
advice of outside counsel, the Company may, in response to an unsolicited
request therefor, furnish information to any person or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) pursuant to a confidentiality
and standstill agreement reasonably satisfactory to Parent. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any officer, director or employee of the Company or
any of its subsidiaries or any investment banker, attorney or other advisor,
agent or representative of the Company, whether or not such person is purporting
to act on behalf of the Company or otherwise, shall be deemed to be a material
breach of this Agreement by the Company. For purposes of this Agreement,
"takeover proposal" means (i) any proposal, other than a proposal by Parent or
any of its affiliates, for a merger or other business combination involving the
Company, (ii) any proposal or offer, other than a proposal or offer by Parent or
any of its affiliates, to acquire from the Company or any of its affiliates in
any manner, directly or indirectly, an equity interest in the Company or any
subsidiary, any voting securities of the Company or any subsidiary or a material
amount of the assets of the Company and its subsidiaries, taken as a whole, or
(iii) any proposal or offer, other than a proposal or offer by Parent or any of
its affiliates, to acquire from the stockholders of the Company by tender offer,
exchange offer or otherwise more than 10% of the outstanding Shares.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent or Sub the approval or recommendation by the Board of
Directors of the Company or any such committee of this Agreement or the Merger
or take any action having such effect or (ii) approve or recommend, or propose
to approve or recommend, any takeover proposal. Notwithstanding the foregoing,
in the event the Board of Directors of the Company receives a takeover proposal
that, in the exercise of its fiduciary obligations (as determined in good faith
by a majority of the disinterested members thereof based on the advice of
outside counsel), it determines to be a superior proposal, the Board of
Directors may withdraw or modify its approval or recommendation of this
Agreement or the Merger and may (subject to the following sentence) terminate
this Agreement, in each
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case at any time after the fifth business day following Parent's receipt of
written notice (a "Notice of Superior Proposal") advising Parent that the Board
of Directors has received a takeover proposal which it has determined to be a
superior proposal, specifying the material terms and conditions of such superior
proposal (including the proposed financing for such proposal and a copy of any
documents conveying such proposal) and identifying the person making such
superior proposal. The Company may terminate this Agreement pursuant to the
preceding sentence only if the stockholders of the Company shall not yet have
voted upon the Merger and the Company shall have paid the amounts provided for
in Section 8.2(a). Nothing contained herein shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) prior to the sixth business day following Parent's receipt of a Notice
of Superior Proposal provided that the Company does not withdraw or modify its
position with respect to the Merger or take any action having such effect or
approve or recommend a takeover proposal.
(c) In the event that the Board of Directors of the Company or any
committee thereof shall in full compliance with Sections 8.1(a) and (b), (i)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Parent or Sub, the approval or recommendation by the Board of Directors of the
Company or any such committee of this Agreement or the Merger or take any action
having such effect or (ii) approve or recommend, or propose to approve or
recommend, any takeover proposal, Parent may terminate this Agreement.
(d) For purposes of this Agreement, a "superior proposal" means any bona
fide takeover proposal to acquire, directly or indirectly, all of the Shares
then outstanding or all or substantially all the assets of the Company, and
otherwise on terms which a majority of the disinterested members of the Board of
Directors of the Company determines in its good faith reasonable judgment (based
on the written advice of a financial advisor of nationally recognized
reputation, a copy of which shall be provided to Parent) to be more favorable to
the Company's stockholders than the Merger.
(e) In addition to the obligations of the Company set forth in paragraph
(b), the Company shall promptly advise Parent orally and in writing of any
takeover proposal or any inquiry with respect to or which could lead to any
takeover proposal, the material terms and conditions of such inquiry or takeover
proposal (including the financing for such proposal and a copy of such documents
conveying such proposal), and the identity of the person making any such
takeover proposal or inquiry. The Company will keep Parent fully informed of the
status and details of any such takeover proposal or inquiry.
SECTION 8.2 Expense Reimbursements.
(a) In the event this Agreement is terminated by the failure of the
Company's stockholders to approve the Merger after the Merger Consideration has
been fixed as provided in Section 2.1(c) or in the event that this Agreement is
terminated pursuant to Section 7.1(c) or 7.1(d), the Company shall pay to Parent
the sum of $400,000 as liquidated damages and not as a penalty.
(b) In the event that this Agreement is terminated by the Company or
Parent, other than (i) by reason of failure of the Company's stockholders to
approve the Merger after the Merger Consideration has been fixed as provided in
Section 2.1(c), (ii) as a result of a breach of this Agreement by the Company,
(iii) pursuant to Section 7.1(c) or 7.1(d), (iv) by reason of failure to fix the
Merger Consideration as provided in Section 2.1(c), (v) by reason of Section
7.1(b)(ii) hereof (unless such order or injunction results from an action
brought by stockholders of Parent), or (vi) by reason of Section 7.1(b)(iii)
hereof, Parent shall assume and pay, or reimburse the Company for, all
reasonable fees and expenses incurred by the Company solely with respect to the
issuance of a tax opinion by Rubin Baum Levin Constant & Friedman, compliance
with the HSR Act and the preparation and filing of the combined proxy statement
of the Company and Registration Statement. Such expenses shall include
reasonable fees and reasonable expenses of its counsel and accountants, but only
insofar as they were incurred directly in connection with the above.
Notwithstanding the foregoing, in the event that the parties are unable to fix
the Merger Consideration as provided in Section 2.1 (c) and (i) the Parent is
unwilling to use as a basis for fixing the Merger Consideration the closing
price of Tesoro Common Stock on the second trading day preceding the date on
which the Registration Statement could have been declared effective and (ii)
such price is less than $8.25, Parent shall pay the above fees, but only to the
extent of $75,000.
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(c) Except as set forth in this Section 8.2, neither Parent nor the Company
shall have any obligation or liability to the other as a result of the
termination of this Agreement pursuant to Section 7.1, except that (i) the
provisions of Section 5.4(c), 5.8, 5.9 and 8.2 shall survive termination and
(ii) nothing herein and no termination pursuant to Article VII shall relieve any
party from liability for breach of this Agreement.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
by the Company or Parent or Sub pursuant to this Agreement shall survive the
Effective Time of the Merger. This Section 9.1 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time of the Merger.
SECTION 9.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by facsimile
or sent by overnight courier to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
Telephone: (210) 283-2997
Facsimile: (210) 283-2833
Confirm: (210) 828-8484
Attention: William T. Van Kleef, Senior Vice President and
Chief Financial Officer
James C. Reed, Jr., Executive Vice President,
General Counsel and Secretary
with copies (which shall not constitute notice) to:
Fulbright & Jaworski L.L.P.
Market Square
801 Pennsylvania Avenue, N.W.
Washington, DC 20004-2604
Telephone: (202) 662-4660
Facsimile: (202) 662-4643
Confirm: (202) 662-4239
Attention: Michael Conlon, Esq.
(b) if to the Company, to
Coastwide Energy Services, Inc.
11111 Wilcrest Green Drive
Suite 350
Houston, Texas 77042
Telephone: (713) 917-4100
Facsimile: (713) 735-6928
Confirm: (713) 917-4100
Attention: Stephen A. Wells, President
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with a copy (which shall not constitute notice) to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 698-7700
Facsimile: (212) 698-7825
Confirm: (212) 698-7758
Attention: Walter M. Epstein, Esq.
SECTION 9.3 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by
or is under common control with, such first person;
(b) "material adverse effect" or "material adverse change" means, when
used in connection with any person, any change or effect (or any
development that, insofar as can reasonably be foreseen, could reasonably
be expected to result in any change or effect) that is materially adverse
to the business, properties, assets, condition (financial or otherwise),
results of operations or prospects of that person and its subsidiaries,
taken as a whole;
(c) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization or other entity;
(d) a "subsidiary" of any person means any corporation, partnership,
association, joint venture, limited liability company or other entity in
which such person has an ownership interest.
SECTION 9.4 Interpretation. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 9.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.6 Entire Agreement: No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (b) except for the provisions of Section 5.7, is not
intended to confer upon any person other than the parties any rights or remedies
hereunder.
SECTION 9.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Sub may
assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect wholly
owned subsidiary of Parent, but no such assignment shall relieve Sub of any of
its obligations hereunder. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
SECTION 9.9 Enforcement of the Agreement. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific
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terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States located in the State of Texas or in any other Texas
state court, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto agrees
that it will not bring any action relating to this Agreement in any court other
than a Federal or state court sitting in the Southern District of Texas.
SECTION 9.10 Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
TESORO PETROLEUM CORPORATION
By: /s/ BRUCE A. SMITH
------------------------------------
Name: Bruce A. Smith
Title: President and Chief Executive
Officer
CNRG ACQUISITION CORP.
By: /s/ BRUCE A. SMITH
------------------------------------
Name: Bruce A. Smith
Title: President and Chief Executive
Officer
COASTWIDE ENERGY SERVICES, INC.
By: /s/ STEPHEN A. WELLS
------------------------------------
Name: Stephen A. Wells
Title: President
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<PAGE> 1
EXHIBIT 5
[FULBRIGHT & JAWORSKI LETTERHEAD]
January 16, 1996
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
Dear Sirs:
We have acted as counsel for Tesoro Petroleum Corporation, a
Delaware corporation (the "Company"), in connection with the proposed offer by
the Company of up to 1,387,744 shares of Common Stock, $.16 2/3 par value
("Common Stock"), of the Company (the "Securities") in connection with the
proposed merger of Coastwide Energy Services, Inc. with and into a
wholly-owned subsidiary of the Company.
In connection with such matters, we have examined, among other
things, the Certificate of Incorporation and the Bylaws of the Company, the
corporate proceedings with respect to the offer and issuance of the Securities
and the Registration Statement on Form S-4 as filed by the Company on the date
of this letter with the Securities and Exchange Commission, for the
registration of the Securities under the Securities Act of 1933, as amended
(the "Securities Act") (the Registration Statement, as amended at the time it
becomes effective, being herein referred to as the "Registration Statement").
Based on the foregoing, and having regard for such legal
considerations as we have deemed relevant, we are of the opinion that the
Securities have been duly authorized for issuance and when issued, delivered,
sold and paid for in the manner described in the Registration Statement, will
be legally issued, fully paid and nonassessable.
The opinions expressed herein are limited exclusively to the
General Corporation Law of the State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to us under "Legal Matters" in
the Proxy Statement/Prospectus forming a part of the Registration Statement.
In giving this consent we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act or
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
FULBRIGHT & JAWORSKI L.L.P.
<PAGE> 1
EXHIBIT 8
[LETTERHEAD OF RUBIN BAUM LEVIN CONSTANT & FRIEDMAN]
January 16, 1996
Coastwide Energy Services, Inc.
11111 Wilcrest Green Drive
Suite 300
Houston, Texas 77042
Ladies and Gentlemen:
You have requested our opinion as to whether the proposed merger of
Coastwide Energy Services, Inc., a Delaware corporation ("Coastwide"), with and
into CNRG Acquisition Corp., a Delaware corporation ("CNRG"), which is a
wholly-owned subsidiary of Tesoro Petroleum Corporation, a Delaware
corporation ("Tesoro"), with CNRG being the surviving corporation from such
merger (the "Coastwide Merger") will constitute a reorganization for United
States federal income tax purposes within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
In reaching the opinions expressed below, we have reviewed and relied solely on
(i) the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
November 30, 1995, by and among Tesoro, CNRG and Coastwide, (ii) the Joint
Proxy Statement/Prospectus, which was filed with the Securities and Exchange
Commission by Tesoro and Coastwide on January 16, 1996 (the "Joint Proxy
Statement"), (iii) the representation letters, dated the date hereof, addressed
to us in connection with the opinion set forth below from Tesoro and Coastwide,
and (iv) such other information and materials as we have deemed appropriate.
We have assumed that the Merger Agreement has been duly executed by each
of the parties thereto and constitutes the valid, enforceable and legally
binding obligation of such parties, that the Merger Agreement has not been
amended or modified, that the parties to the Merger Agreement will act in
accordance therewith, and that there are no other agreements or understandings
among the parties in connection with the subject matter thereof.
Based upon and subject to the foregoing, it is our opinion that the
Coastwide Merger will constitute a reorganization for United States federal
income tax purposes within the meaning of Section 368(a) of the Code.
<PAGE> 2
Coastwide Energy Services, Inc.
January 16, 1996
Page 2
We express no opinion concerning any United States, state, local or
foreign tax matter relating to the Coastwide Merger and the other transactions
described in the Merger Agreement and the Joint Proxy Statement, except as
expressly set forth above.
The above opinion is based on the current provisions of the Code and the
regulations thereunder, and on current interpretations of the Code and such
regulations. The Code, the regulations and the interpretations described above
are subject to change at any time, possibly with retroactive effect. Any such
change could affect the continuing validity of the opinion set forth above. In
rendering the above opinion we do not undertake to assume any obligation to
advise you of any changes in laws which may occur after the date hereof or of
any changes in facts which are brought to our attention after the date hereof.
This letter is furnished by us solely for your benefit and the benefit of
holders of issued and outstanding shares of Coastwide common stock as of the
date hereof and may not be relied on in any manner or for any purpose by any
other person or entity without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the Joint
Proxy Statement, to the use of our name as your counsel with respect to the
Joint Proxy Statement and to all references made to us therein.
Very truly yours,
/s/ RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
<PAGE> 1
EXHIBIT 10(i)
TERMINATION AGREEMENT
TERMINATION AGREEMENT (the "Termination Agreement"), dated
September 26, 1995, among TESORO PETROLEUM CORPORATION, a Delaware corporation
(the "Company"), and MICHAEL D. BURKE (the "Executive").
WHEREAS, the Company and the Executive are parties to an
employment agreement, dated July 27, 1992, as amended on December 14, 1994 (the
"Employment Agreement");
WHEREAS, effective as of September 29, 1995 (the "Termination
Date"), the Executive's employment with the Company shall terminate, which
termination shall constitute a termination by the Company "without cause" under
the Employment Agreement;
WHEREAS, the parties wish to settle their mutual rights and
obligations arising from such termination under the Employment Agreement;
WHEREAS, the parties have entered into a Consulting Agreement,
dated as of the date hereof (the "Consulting Agreement"), pursuant to which the
Executive has agreed to perform consulting services for the Company following
the Termination Date and the Company has agreed to compensate the Executive for
such services;
NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein and in the Consulting Agreement, and other good and
valuable consideration, the receipt of which are hereby acknowledged, the
Company and the Executive hereby agree as follows:
Section 1. Termination Payment. The Company agrees to pay
the Executive, within five business days of the date hereof, the net amount of
$970,966, after withholding $407,761 in accordance with federal and state tax
withholding laws, in immediately available funds by wire transfer to the
account of the Executive specified by him to the Company. Such amount
represents the full settlement of all the Executive's rights with respect to
(i) the severance payment provided under Section 6 of the Employment Agreement,
(ii) a pro-rata 1995 target bonus, (iii) accrued but unpaid base salary and
accrued but unused vacation days to the Termination Date, minus (iv) the amount
deducted from the foregoing payments in accordance with applicable federal and
state tax withholding laws. The amount of payments to be made pursuant to the
Consulting Agreement shall be in addition to the foregoing. The calculation of
the dollar amount specified above is set forth in Exhibit A hereto. Such
amount is in
<PAGE> 2
full settlement of the lump-sum cash amounts that may otherwise be required
under Section 6 of the Employment Agreement. The Company further agrees to
reimburse the Executive for his reasonable attorney's fees and costs incurred
in connection with this Termination Agreement, up to a maximum amount of
$10,000.
Section 2. Supplemental Retirement Benefit. The Executive is
currently a participant in the Company's Funded Executive Security Plan (the
"Security Plan"). In accordance with Section 6 of the Employment Agreement,
effective as of the Termination Date, the Executive will receive two years of
service credit for purposes of determining the amount of the supplemental
retirement benefit that would otherwise be paid to him under the Security Plan,
in addition to those periods of service credited to the Executive under the
Security Plan through the Termination Date. The calculation of the Executive's
supplemental retirement benefit shall otherwise be made by reference to the
terms of the Security Plan as in effect on the Termination Date, it being
specifically understood that the pro-rata 1995 target bonus referred to in
Section 1 hereof shall be included as compensation taken into account for
purposes of determining the supplemental retirement benefit hereunder. Such
calculation results in a net payment of $581,530, after withholding $404,950 in
accordance with federal and state tax withholding laws, to be made within five
business days of the date hereof by wire transfer as specified above. The
Executive acknowledges that he is not entitled to additional benefits under the
Company's unfunded Executive Security Plan and the Company's retirement plan.
Section 3. Continued Welfare Benefits. In accordance with
Section 6 of the Employment Agreement, the Executive shall, for a period of two
years following the Termination Date, be entitled to 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.
Section 4. Stock Options and Restricted Stock. In accordance
with Section 6 of the Employment Agreement, effective as of the Termination
Date, (i) each outstanding stock option to purchase shares of the Company's
common stock held by the Executive that is not vested on the Termination Date
shall become immediately vested and exercisable and shall remain exercisable
until the expiration of three months following the Termination Date, and (ii)
all shares of the Company's common stock which the Executive has the right to
acquire as restricted stock on the Termination Date shall become fully vested
and all restrictions thereon relating to continued employment shall immediately
lapse. Except as set forth in this Section 4, such stock options and
restricted
2
<PAGE> 3
stock shall continue to be subject to the terms and conditions of the
applicable plans and agreements pursuant to which such rights were awarded to
the Executive. On or within five business days following the Termination Date,
the Executive shall satisfy his obligations with respect to payment of the cash
purchase price and tax withholding on shares of restricted stock that become
fully vested hereunder and, as soon as practicable but not later than 15 days
following the satisfaction of such obligations, the Company will deliver to the
Executive certificates representing all such shares of restricted stock. The
numbers of shares of common stock subject to stock options and restricted stock
held by the Executive on the Termination Date are set forth in Exhibit A
hereto. With respect to the Executive's stock options, the Company agrees to
use its best efforts to (i) maintain in full force and effect a Form S-8
registration statement covering the shares of the Company's common stock
issuable under such options and (ii) to assist the Executive in arranging for
the "cashless exercise" of such stock options at the request of the Executive.
The Company hereby represents that all shares of restricted stock previously
issued to the Executive were covered by a valid Form S-8 registration
statement.
Section 5. Indemnification. The Company shall continue to
indemnify the Executive and hold him harmless for any acts or decisions made by
him as and to the extent provided under the Company's By-laws and the
Indemnification Agreement dated December 2, 1992 by and between Executive and
the Company, which Indemnification Agreement shall remain in full force and
effect as and to the extent provided therein. The Executive shall continue to
be covered for such acts and decisions under directors and officers liability
insurance policies as and to the extent that the Company maintains such
policies in effect from time to time on behalf of its directors and officers
generally.
Section 6. Other Rights and Benefits. Except as specifically
provided herein, this Termination Agreement shall have no effect on the rights
of the Executive to payments or other benefits due to the Executive pursuant to
the terms of any employee benefit plan, fringe benefit policy or payroll
practice of the Company, including, without limitation, rights in respect of
coverage under welfare benefit plans for periods through the Termination Date
and reimbursement for any reasonable business expenses incurred through the
Termination Date in accordance with Company policy. The Executive shall submit
appropriate expense reports and vouchers for business expenses to be reimbursed
by the Company within 30 days after the Termination Date.
Section 7. Conditions of Benefits. The Company shall provide
to the Executive the rights, payments and benefits set forth in Sections 1
through 5 hereof and shall
3
<PAGE> 4
execute and honor a release of claims and covenant not to sue in favor of the
Executive (in the form attached hereto as Exhibit C) as consideration for and
contingent upon (i) the Executive's execution, non-revocation and honoring of a
release of claims and covenant not to sue in favor of the Company in the form
attached hereto as Exhibit B and (ii) the Executive's continued compliance with
the restrictive covenants set forth in Section 8 hereof.
Section 8. Restrictive Covenants.
A. Nondisclosure. The Executive hereby agrees that
he shall not, at any time following the Termination Date, disclose or use for
any purpose 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 the
Executive) 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).
B. Noncompetition. The Executive hereby agrees that, for a
period of one year following the Termination Date, he shall not (i) become a
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 less than a
5% interest in (a) a publicly traded firm or mutual fund, or (b) 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 with
the Company, without the prior written consent of the Company. The Executive
hereby also agrees that, for a period of two years following the Termination
Date, he will not (x) acquire or hold direct or indirect beneficial ownership
of more than 1,000,000 shares of Common Stock of the Company, or (y) seek to
influence or control the management or the policies of the Company or obtain
representation on the Board of Directors of the Company (other than in his
individual capacity as a member of the Board of Directors) or solicit,
participate in the solicitation of, or counsel or assist others in the
solicitation of, any proxies or consents with respect to any securities of the
Company.
C. Remedies. The Executive acknowledges and agrees that the
Company will suffer irreparable injury in the event of any material breach of
this Section 8, that damages
4
<PAGE> 5
resulting from such injury will be incapable of being precisely measured, and
that the Company will not have an adequate remedy at law to redress the harm
which such violation shall cause. Therefore, the Executive agrees that the
Company shall have the rights and remedies of specific performance and
injunctive relief, in addition to any other rights or remedies that may be
available at law or in equity or under this Agreement, in respect of any
failure, or threatened failure, on the part of the Executive to comply with the
provisions of this Section 8, including, but not limited to, temporary
restraining orders and temporary injunctions to restrain any violation or
threatened violation of this Section 8 by the Executive. The parties agree
that if the Company brings an action in any court to enforce the provisions of
this Section 8, the attorney's fees and costs incurred by the prevailing party
shall be borne by the losing party.
Section 9. Return of Company Property. The Executive
acknowledges that all records, files, documents and equipment, all information
relating to employees, customers and suppliers, and any other materials that in
any way relate to the business of the Company which the Executive has
accumulated during his employment by the Company are the property of the
Company and that all such property shall be returned to the sole possession of
the Company on or before the Termination Date. On the Termination Date, the
Executive shall provide the Company with a written list of all such documents
or information that he has retained duplicates or copies of (the contents of
such list being subject to the approval of the Company) or, in the absence
thereof, a written representation that no such duplicates or copies have been
retained.
Section 10. Business Goodwill. At all times following the
date hereof, the Executive will make only positive comments about the Company,
its affiliates, directors, officers, employees and agents, and shall make no
comments or take any other actions, direct or indirect, that will reflect
adversely on any of the foregoing or adversely affect their business reputation
or goodwill. At all times following the date hereof, the Board of Directors of
the Company will make only positive comments about the Executive, and shall
make no comments or take any other actions, direct or indirect, that will
reflect adversely on any of the foregoing or adversely affect his business
reputation or goodwill. The Executive hereby agrees that, for a period of two
years following the Termination Date, he shall reasonably cooperate with the
Company in providing information that the Company reasonably requests and in
taking such other action as the Company may reasonably request. The Executive
further agrees to reasonably assist the Company at any time in the future, with
respect to all reasonable requests to testify in
5
<PAGE> 6
connection with any legal proceeding or matter relating to the Company,
including but not limited to any federal, state or local audit, proceeding or
investigation, other than proceedings relating to the enforcement of this
Termination Agreement or other proceedings in which the Executive is a named
party whose interests are adverse to those of the Company.
Section 11. Miscellaneous.
A. Complete Agreement. This Termination Agreement
constitutes the entire agreement between the parties and cancels and supersedes
all other agreements and understandings, whether written or oral, between the
parties which may have related to the subject matter contained in this
Termination Agreement. Except to the extent specifically provided under this
Termination Agreement, effective as of the Termination Date, the Employment
Agreement shall be terminated and be of no further force or effect and, upon
the Termination Date, the parties release one another from all obligations
under the Employment Agreement.
B. Modification; Amendment; Waiver. No modification,
amendment or waiver of any provisions of this Termination Agreement shall be
effective unless approved in writing by both parties. The failure at any time
to enforce any of the provisions of this Termination 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 Termination
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, and the parties submit to the jurisdiction of the courts of the State
of Texas for purposes of any actions or proceedings that may be required to
enforce this Termination Agreement.
D. Severability. Whenever possible, each provision
of this Termination Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Termination 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 Termination Agreement.
E. Assignment. The rights and obligations of the
parties under this Termination Agreement shall be binding upon and inure to the
benefit of their respective successors, assigns, executors, administrators and
heirs; provided,
6
<PAGE> 7
however, that neither the Company nor the Executive may assign any duties under
this Termination Agreement without the prior written consent of the other.
F. Notices. All notices and other communications
under this Termination Agreement shall be in writing and shall be given in
person or by telegraph, telefax 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 telefax, as the case may be, to the respective persons named
below:
If to the Company: Corporate Secretary
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
If to the Executive: Michael D. Burke
829 College Boulevard
San Antonio, Texas 78209
IN WITNESS WHEREOF, the parties have executed this Termination
Agreement as of the day and year first above written.
COMPANY: Tesoro Petroleum Corporation
By /S/ Bruce A. Smith
------------------------
Chief Operating
Officer and Executive
Its Vice President
EXECUTIVE: /S/ Michael D. Burke
------------------------
7
<PAGE> 8
EXHIBIT A
Section 1. Termination Payment
<TABLE>
<S> <C>
Severance Payment $1,120,000
1995 Pro-Rata Bonus 184,438
1995 Base Salary and Accrued Vacation 74,289
Tax Withholding (407,761)
-----------
Total $ 970,966
Consulting Payments $ 325,000
- -------------------
</TABLE>
Section 2. Supplemental Retirement Benefit
<TABLE>
<S> <C>
Executive Security Plan $ 986,480
Tax Withholding (404,950)
-----------
Total $ 581,530
</TABLE>
Section 4. Stock Awards
A. Stock Options
500,000 shares; Granted 07/27/92; $4.84 option price
209,000 shares; Granted 12/14/94; $9.50 option price
B. Restricted Stock
20,000 shares - Cost $.16-2/3 per share
8
<PAGE> 9
EXHIBIT B
RELEASE OF CLAIMS AND COVENANT NOT TO SUE
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE (the "Release")
is executed and delivered by MICHAEL D. BURKE (the "Executive") to TESORO
PETROLEUM CORPORATION (the "Company").
In consideration of the agreement by the Company to provide
the Executive with the rights, payments and benefits under the Termination
Agreement between the Executive and the Company dated September 26, 1995 (the
"Termination Agreement"), the Executive hereby agrees as follows:
Section 1. Release and Covenant. The Executive, of his own
free will, voluntarily releases and forever discharges the Company, its
subsidiaries, affiliates, their directors, officers, employees, agents,
stockholders, successors and assigns (both individually and in their official
capacities with the Company) from, and covenants not to sue or proceed against
any of the foregoing on the basis of, any and all past or present causes of
action, suits, agreements or other claims which the Executive, his dependents,
relatives, heirs, executors, administrators, successors and assigns has or have
against the Company upon or by reason of any matter, cause or thing whatsoever,
including, but not limited to, any matters arising out of his employment by the
Company and the cessation of said employment, and including, but not limited
to, any alleged violation of the Civil Rights Acts of 1964 and 1991, the Equal
Pay Act of 1963, the Age Discrimination in Employment Act of 1967, the
Rehabilitation Act of 1973, the Older Workers Benefit Protection Act of 1990,
the Americans with Disabilities Act of 1990, the Family and Medical Leave Act
of 1993, the Texas Commission on Human Rights Act and any other federal or
state law, regulation or ordinance, or public policy, contract or tort law
having any bearing whatsoever on the terms and conditions of employment or
termination of employment. This Release shall not, however, constitute a
waiver of any of the Executive's rights under the Termination Agreement.
Section 2. Due Care. The Executive acknowledges that he has
received a copy of this Release prior to its execution and has been advised
hereby of his opportunity to review and consider this Release for 21 days prior
to its execution. The Executive further acknowledges that he has been advised
hereby to consult with an attorney prior to executing this Release. The
Executive enters into this Release having freely and knowingly elected, after
due consideration, to execute this Release and to fulfill the
<PAGE> 10
promises set forth herein. This Release shall be revocable by the Executive
during the 7-day period following its execution, and shall not become effective
or enforceable until the expiration of such 7-day period. In the event of such
a revocation, the Executive shall not be entitled to the consideration for this
Release set forth above.
Section 3. Reliance by Executive. The Executive acknowledges
that, in his decision to enter into this Release, he has not relied on any
representations, promises or agreements of any kind, including oral statements
by representatives of the Company, except as set forth in this Release.
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE is executed by
the Executive and delivered to the Company on September 26, 1995.
EXECUTIVE:
/S/ Michael D. Burke
------------------------
Michael D. Burke
B-2
<PAGE> 11
EXHIBIT C
RELEASE OF CLAIMS AND COVENANT NOT TO SUE
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE is executed and
delivered by TESORO PETROLEUM CORPORATION (the "Company") to MICHAEL D. BURKE
(the "Executive").
In consideration of the agreement by the Executive to enter
into the Termination Agreement between the Executive and the Company, dated
September __, 1995 (the "Termination Agreement"), the Company hereby agrees as
follows:
The Company releases and forever discharges the Executive
from, and covenants not to sue or proceed against the Executive on the basis
of, any and all past or present causes of action, suits, agreements or other
claims which the Company has against the Executive upon or by reason of any
matter, cause or thing whatsoever, including, but not limited to, any matters
arising out of his employment by the Company and the cessation of said
employment. This release shall not, however, constitute a waiver of any of the
Company's rights under the Termination Agreement. The Company hereby covenants
that it has not transferred or assigned to any person or entity any of the
claims that are subject to this release and covenant.
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE is executed by
the Company and delivered to the Executive on September 26, 1995.
TESORO PETROLEUM CORPORATION
By: /S/ Bruce A. Smith
---------------------------
Name: Bruce A. Smith
Title: Chief Operating
Officer and Executive
Vice President
<PAGE> 1
EXHIBIT 10(j)
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") dated September
26 , 1995, by and between TESORO PETROLEUM CORPORATION, a Delaware corporation
(the "Company") and M.D. BURKE ENTERPRISES, INC. ("Enterprises"), a Texas
corporation solely owned by Michael D. Burke ("Burke").
WHEREAS, the Company and Burke have entered into a Termination
Agreement, dated as of the date hereof (the "Termination Agreement"), pursuant
to which the parties have made mutual promises and agreements in connection
with Burke's termination of employment with the Company;
WHEREAS, the Company desires to engage Enterprises to assist
in the Company's business operations, and Enterprises desires to provide
consulting services to aid the Company in connection with its business
operations;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the Termination
Agreement, the parties hereby covenant and agree as follows:
1. Engagement.
The Company hereby engages Enterprises to provide consulting
services to the Company, and Enterprises hereby accepts such engagement.
During the time that Enterprises is performing services for the Company under
this Agreement, and for all purposes hereunder, the status of Burke and
Enterprises shall be that of an independent contractor of the Company and Burke
shall not have the benefits, rights and privileges ordinarily accorded to an
employee of the Company.
Enterprises shall make Burke available to advise and counsel
the Company and consult with its employees, representatives, agents or
contractors at such times as the Company and Enterprises may reasonably agree,
not to exceed five (5) hours per week (or such greater number of hours as
shall be mutually agreed upon by the Company and Enterprises from time to
time), by telephone, letter or in person, wherever Burke may be. Although
Burke shall not be required to perform the services required hereunder at the
offices of the Company, he may make periodic visits as he and the Company deem
advisable to the offices of the Company in the discharge of his duties
hereunder.
<PAGE> 2
2. Term. The period of engagement of Enterprises hereunder
shall commence on October 1, 1995 and shall terminate on December 31, 1996,
unless sooner terminated as hereinafter provided. During the term of this
Agreement as provided herein, Enterprises and Burke may engage in any business
and perform any service for their own account, provided that such business or
service shall not violate any provision of the Termination Agreement.
3. Consulting Fees. For the services rendered hereunder,
Enterprises shall be entitled to receive from the Company an aggregate sum of
$325,000, payable as follows: (i) a lump-sum payment in the amount of $75,000
to be made on October 2, 1995; and (ii) a lump-sum payment in the amount of
$250,000 to be made on January 2, 1996.
4. Termination of Consulting Engagement. Notwithstanding any
other provision of this Agreement to the contrary, the engagement of
Enterprises hereunder may be terminated, at the option of the Company, only in
the event of: (i) Enterprises' willful failure or refusal to perform the
consulting services required by Section 1 hereof upon 30 days advance notice
from the Company and provided that Enterprises shall have a reasonable
opportunity to cure such failure or refusal within such 30 days; or (ii)
willful fraud or material dishonesty in connection with Enterprises'
performance hereunder.
Upon the termination of this engagement for any of the foregoing reasons,
Enterprises shall be entitled to receive, on the scheduled payment dates, any
accrued but unpaid consulting fees through the date of such termination.
5. Expenses. During the term of this Agreement, Enterprises
may be required to incur business expenses in connection with the performance
of its duties hereunder. All such business expenses must be previously
authorized by the Company in writing, and the Company shall reimburse
Enterprises for all such expenses that are reasonable and are appropriately
documented in accordance with the Company's policies.
6. Miscellaneous.
A. Complete Agreement. This Agreement constitutes
the entire agreement between the parties and cancels and supersedes all other
agreements and understandings, whether written or oral, between the parties and
between the Company and Enterprises which may have related to the subject
matter contained in this Agreement, it being expressly understood that this
Agreement does not cancel or supersede any provision of the Termination
Agreement.
2
<PAGE> 3
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, and
the parties submit to the jurisdiction of the courts of the State of Texas for
purposes of any actions or proceedings that may be required to enforce this
Agreement.
D. 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.
E. 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 Enterprises may assign any
duties under this Agreement without the prior written consent of the other.
F. Notices. All notices and other communications
under this Agreement shall be in writing and shall be given in person or by
telegraph, telefax 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 telefax, as the case may be, to the respective persons named below:
If to the Company: Corporate Secretary
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
If to the Enterprises: M.D. Burke Enterprises, Inc.
829 College Boulevard
San Antonio, Texas 78209
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
COMPANY: Tesoro Petroleum Corporation
By /S/ Bruce A. Smith
---------------------------------
Chief Operating Officer and
Its Executive Vice President
ENTERPRISES: M.D. Burke Enterprises, Inc.
By /S/ Michael D. Burke
--------------------------------
Its President
--------------------------------
4
<PAGE> 1
EXHIBIT 10(m)
SECOND AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement dated as of September
29, 1995 (this "Second Amendment"), between Tesoro Petroleum Corporation, a
Delaware corporation (the "Company"), and Bruce A. Smith ("Employee"), amends
the Employment Agreement dated September 14, 1992 (the "Original Agreement"),
between the Company and Employee, as amended by the First Amendment and
Extension to Employment Agreement, dated December 14, 1994 (the "First
Amendment"), between the Company and Employee. The Original Agreement as so
amended by the First Amendment shall be referred to herein as the "Amended
Agreement."
The Company and Employee desire and agree to amend the Amended
Agreement as follows:
1. Section 1 of the Original Agreement is hereby amended by
replacing the words "Chief Financial Officer" with the words "President and
Chief Executive Officer."
2. Section 2 of the Original Agreement is hereby amended by
replacing the number "$200,000" with the number "$500,000."
Except as expressly modified hereby, the Amended Agreement shall
remain in full force and effect.
In witness whereof, the parties have executed this Second Amendment as
of the day and year first above written.
Company: Tesoro Petroleum Corporation
By /S/ James C. Reed, Jr.
---------------------------------------
James C. Reed, Jr.
Executive Vice President, General
Counsel and Secretary
Employee: /S/ Bruce A. Smith
---------------------------------------
Bruce A. Smith
<PAGE> 1
EXHIBIT 10(n)
December 14, 1995
Mr. Bruce A. Smith
301 Morningside
San Antonio, Texas 78298
Dear Bruce:
The purpose of this letter agreement is to extend the term of the
Employment Agreement made as of September 14, 1992, between you and Tesoro
Petroleum Corporation, as subsequently amended by instruments dated December
14, 1994, and September 29, 1995 (the "Employment Agreement").
The current expiration date of the term of the Employment Agreement is
December 14, 1995. By our mutual agreement, the term of the Employment
Agreement is hereby extended and shall continue through January 31, 1996.
Accordingly, Section 4 of the Employment Agreement is hereby amended as
follows:
4. Term. This Agreement shall commence
effective as of September 14, 1992, and if not terminated
earlier as herein provided, shall terminate on January 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 January 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 January 31, 1998, the Employee shall have the right to
elect, by written notice delivered to the Company prior to
March 1, 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
January 30, 1996.
<PAGE> 2
All other terms of the Employment Agreement shall continue in full
force and effect as provided therein until January 31, 1996.
If the foregoing correctly sets forth our understanding of the subject
of this letter, please indicate your acceptance by signing below.
Very truly yours,
TESORO PETROLEUM CORPORATION
By /S/ James C. Reed, Jr.
-----------------------------------
James C. Reed, Jr.
Executive Vice President, General
Counsel and Secretary
Accepted and agreed to effective the 14th day of December 1995.
/S/ Bruce A. Smith
-------------------------------------
Bruce A. Smith
<PAGE> 1
EXHIBIT 10(r)
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement dated as of September 27,
1995 (this "First Amendment"), between Tesoro Petroleum Corporation, a Delaware
corporation (the "Company"), and James C. Reed, Jr. ("Employee"), amends the
Employment Agreement dated December 14, 1994 (the "Original Agreement"),
between the Company and Employee.
The Company and Employee desire and agree to amend the Original
Agreement as follows:
1. Section 1 of the Original Agreement is hereby amended by
replacing the words "Senior Vice President, General Counsel and Secretary" with
the words "Executive Vice President, General Counsel and Secretary."
2. Section 2 of the Original Agreement is hereby amended by
replacing the number "$175,000" with the number "$230,000."
Except as expressly modified hereby, the Original Agreement shall
remain in full force and effect.
In witness whereof, the parties have executed this First Amendment as
of the day and year first above written.
Company: Tesoro Petroleum Corporation
By /S/ Bruce A. Smith
-----------------------------------
Bruce A. Smith
Chief Operating Officer
Employee: /S/ James C. Reed, Jr.
--------------------------------------
James C. Reed, Jr.
<PAGE> 1
EXHIBIT 10(t)
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement dated as of September 27,
1995 (this "First Amendment"), between Tesoro Petroleum Corporation, a Delaware
corporation (the "Company"), and William T. Van Kleef ("Employee"), amends the
Employment Agreement dated December 14, 1994 (the "Original Agreement"),
between the Company and Employee.
The Company and Employee desire and agree to amend the Original
Agreement as follows:
1. Section 1 of the Original Agreement is hereby amended by
replacing the words "Vice President, Treasurer" with the words "Senior Vice
President and Chief Financial Officer."
2. Section 2 of the Original Agreement is hereby amended by
replacing the number "$150,000" with the number "$215,000."
Except as expressly modified hereby, the Original Agreement shall
remain in full force and effect.
In witness whereof, the parties have executed this First Amendment as
of the day and year first above written.
Company: Tesoro Petroleum Corporation
By /S/ Bruce A. Smith
----------------------------------
Bruce A. Smith
Chief Operating Officer
Employee: /S/ William T. Van Kleef
------------------------------------
William T. Van Kleef
<PAGE> 1
EXHIBIT 10(w)
MANAGEMENT STABILITY AGREEMENT
This Management Stability Agreement is dated December 14, 1994,
between Tesoro Petroleum Corporation, a Delaware corporation (the "Company"),
and Thomas E. Reardon ("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 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
2
<PAGE> 3
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
3
<PAGE> 4
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
4
<PAGE> 5
(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
5
<PAGE> 6
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: Thomas E. Reardon
13727 Oak Pebble
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/ Thomas E. Reardon
-------------------------------------
7
<PAGE> 1
Exhibit 11
COASTWIDE ENERGY SERVICES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended
December 31,
1994 1993
----------- -----------
<S> <C> <C>
Primary:
Average shares outstanding 1,757,572 1,680,011
Net dilutive effect of stock options and warrants 334,860 306,080(1)
----------- -----------
Totals 2,092,432 1,986,091
=========== ===========
Net income $ 1,217,000 $ 292,100
=========== ===========
Per share amount $ 0.58 $ 0.15(2)
=========== ===========
Fully Diluted:
Average shares outstanding 1,757,572 1,680,011
Net dilutive effect of stock options and warrants 924,260 306,808(1)
----------- -----------
Totals 2,681,832 1,986,091
=========== ===========
Net income $ 1,217,000 $ 292,100
=========== ===========
Plus: Interest expense on debentures 138,800 --
----------- -----------
$ 1,355,800 $ 292,100
Per share amount $ 0.51 $ 0.51(2)
=========== ===========
</TABLE>
(1) Common stock equivalents are considered outstanding the entire year.
(2) Pro Forma (as if the spin-off discussed in Note 1 to the Consolidated
Financial Statements occurred on January 1, 1993)
<PAGE> 1
Exhibit 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Tesoro Petroleum Corporation on Form S-4 our report dated February 1, 1995,
appearing in the Annual Report on Form 10-K of Tesoro Petroleum Corporation for
the year ended December 31, 1994 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
- ----------------------------
Deloitte & Touche LLP
San Antonio, Texas
January 16, 1996
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSON LLP
Houston, Texas
January 16, 1995
<PAGE> 1
Exhibit 23(c)
CONSENT OF SIMMONS & COMPANY INTERNATIONAL
Houston, Texas
January 15, 1996
We hereby consent to: (i) the inclusion as an Appendix to the Registration
Statement related to the merger of a wholly owned subsidiary of Tesoro
Petroleum Corporation with Coastwide Energy Services, Inc. ("Coastwide") on
form S-4 (the "Tesoro S-4") of our opinion as to the fairness, from a financial
point of view, to the holders of shares of Common Stock, Convertible Debentures
and Class B Warrants of Coastwide of the consideration to be received by such
holders; and (ii) the use of certain information from such opinion in the
Tesoro S-4.
SIMMONS & COMPANY INTERNATIONAL
/s/ NICHOLAS L. SWYKA
- ------------------------
Nicholas L. Swyka
Managing Director
<PAGE> 1
Exhibit 99
- --------------------------------------------------------------------------------
COASTWIDE ENERGY SERVICES, INC.
11111 WILCREST GREEN DRIVE
SUITE 300
HOUSTON, TEXAS 77042
Proxy for the Special Meeting of Stockholders to be held on February 20, 1996
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Stephen A. Wells and P. Blake Dupuis, and
each of them, as proxies, with full power of substitution in each of them, in
the name, place and stead of the undersigned, to vote at the Special Meeting of
Stockholders (the "Special Meeting") of Coastwide Energy Services, Inc., a
Delaware corporation (the "Company"), on February 20, 1996 at 10:00 a.m.,
Central Standard Time or at any adjournment or adjournments thereof, in the
manner designated below, all of the shares of common stock $.01 par value per
share ("Common Stock") of the Company that the undersigned would be entitled to
vote if personally present.
THIS PROXY, WHEN PROPERLY EXECUTED AND DATED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSAL 1 AND IN THE DISCRETION OF THE PROXIES WITH
RESPECT TO ANY OTHER MATTER THAT IS PROPERLY BROUGHT BEFORE THE SPECIAL MEETING.
1. Proposal to approve and adopt the Agreement and Plan of Merger dated as of
November 20, 1995 among Coastwide Energy Services, Inc., Tesoro Petroleum
Corporation and CNRG Acquisition Corp.:
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, the Proxies are to vote upon such other business as may
properly come before the meeting or any and all adjournments thereof.
(CONTINUED AND TO BE SIGNED AND DATED ON OTHER SIDE)
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
The undersigned hereby revokes any proxy or proxies heretofore given and
ratifies and confirms all that the proxies appointed hereby, or any of them, or
their substitutes, may lawfully do or cause to be done by virtue thereof. A
majority of said proxies or their substitutes who shall be present and act at
the Special Meeting, or if only one is present and acts, then that one shall
have and may exercise all of the powers hereby granted to such proxies. The
undersigned hereby acknowledges receipt of a copy of the Notice of Special
Meeting and Proxy Statement, both dated , 1996.
Dated: , 1996
----------------------
, (L.S.)
---------------------------
, (L.S.)
---------------------------
Signature(s)
NOTE: Your signature must appear the same as your name appears herein. In
signing as attorney, executor, administrator, trustee or guardian, please
indicate the capacity in which signing. When signing as joint tenants, all
parties in the joint tenancy must sign. When a proxy is given by a corporation,
it should be signed by an authorized officer and the corporate seal afforded.
- --------------------------------------------------------------------------------
