SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934*
(Amendment No. )
TESORO PETROLEUM CORPORATION
- - -----------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $0.16-2/3 per share
- - -----------------------------------------------------------------------------
(Title of Class of Securities)
000881609101
- - -----------------------------------------------------------------------------
(CUSIP Number)
Philip J. Hempleman
Ardsley Advisory Partners
646 Steamboat Road
Greenwich, CT 06830
(203) 629-0661
- - -----------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
April 4, 1996
- - -----------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and
is filing this schedule because of Rule 13d-1(b)(3) or (4), check the
following box. [X]
Check the following box if a fee is being paid with this statement [x]. (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of less than five percent of such class.
See Rule 13d-7.)
Page 1 of 13 Pages
<PAGE>
_____________________________________________________________________________
(1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO.
OF ABOVE PERSON
Ardsley Advisory Partners
_____________________________________________________________________________
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [ ]
(b) [x]
_____________________________________________________________________________
(3) SEC USE ONLY
_____________________________________________________________________________
(4) SOURCE OF FUNDS
OO
_____________________________________________________________________________
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) OR 2(e) [ ]
_____________________________________________________________________________
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Connecticut
_____________________________________________________________________________
NUMBER OF (7) SOLE VOTING POWER
0
SHARES ______________________________________________________________
BENEFICIALLY (8) SHARED VOTING POWER
2,170,000
OWNED BY ______________________________________________________________
EACH (9) SOLE DISPOSITIVE POWER
0
REPORTING ______________________________________________________________
PERSON WITH (10) SHARED DISPOSITIVE POWER
2,170,000
_____________________________________________________________________________
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
2,170,000
_____________________________________________________________________________
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (9) EXCLUDES CERTAIN SHARES ** [ ]
_____________________________________________________________________________
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (9)
8.43%
_____________________________________________________________________________
(14) TYPE OF REPORTING PERSON **
IA
_____________________________________________________________________________
** SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 2 of 13 Pages
<PAGE>
_____________________________________________________________________________
(1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO.
OF ABOVE PERSON
Ardsley Partners Fund II, L.P.
_____________________________________________________________________________
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [ ]
(b) [x]
_____________________________________________________________________________
(3) SEC USE ONLY
_____________________________________________________________________________
(4) SOURCE OF FUNDS
WC
_____________________________________________________________________________
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) OR 2(e) [ ]
_____________________________________________________________________________
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
_____________________________________________________________________________
NUMBER OF (7) SOLE VOTING POWER
0
SHARES ______________________________________________________________
BENEFICIALLY (8) SHARED VOTING POWER
190,000
OWNED BY ______________________________________________________________
EACH (9) SOLE DISPOSITIVE POWER
0
REPORTING ______________________________________________________________
PERSON WITH (10) SHARED DISPOSITIVE POWER
190,000
_____________________________________________________________________________
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
190,000
_____________________________________________________________________________
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (9) EXCLUDES CERTAIN SHARES ** [ ]
_____________________________________________________________________________
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (9)
0.74%
_____________________________________________________________________________
(14) TYPE OF REPORTING PERSON **
PN
_____________________________________________________________________________
** SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 3 of 13 Pages
<PAGE>
_____________________________________________________________________________
(1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO.
OF ABOVE PERSON
Ardsley Partners Fund I, L.P.
_____________________________________________________________________________
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [ ]
(b) [x]
_____________________________________________________________________________
(3) SEC USE ONLY
_____________________________________________________________________________
(4) SOURCE OF FUNDS
WC
_____________________________________________________________________________
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) OR 2(e) [ ]
_____________________________________________________________________________
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
_____________________________________________________________________________
NUMBER OF (7) SOLE VOTING POWER
0
SHARES ______________________________________________________________
BENEFICIALLY (8) SHARED VOTING POWER
185,000
OWNED BY ______________________________________________________________
EACH (9) SOLE DISPOSITIVE POWER
0
REPORTING ______________________________________________________________
PERSON WITH (10) SHARED DISPOSITIVE POWER
185,000
_____________________________________________________________________________
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
185,000
_____________________________________________________________________________
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (9) EXCLUDES CERTAIN SHARES ** [ ]
_____________________________________________________________________________
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (9)
0.72%
_____________________________________________________________________________
(14) TYPE OF REPORTING PERSON **
PN
_____________________________________________________________________________
** SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 4 of 13 Pages
<PAGE>
_____________________________________________________________________________
(1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO.
OF ABOVE PERSON
Ardsley Partners Institutional Fund, L.P.
_____________________________________________________________________________
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [ ]
(b) [x]
_____________________________________________________________________________
(3) SEC USE ONLY
_____________________________________________________________________________
(4) SOURCE OF FUNDS
WC
_____________________________________________________________________________
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) OR 2(e) [ ]
_____________________________________________________________________________
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
_____________________________________________________________________________
NUMBER OF (7) SOLE VOTING POWER
0
SHARES ______________________________________________________________
BENEFICIALLY (8) SHARED VOTING POWER
95,000
OWNED BY ______________________________________________________________
EACH (9) SOLE DISPOSITIVE POWER
0
REPORTING ______________________________________________________________
PERSON WITH (10) SHARED DISPOSITIVE POWER
95,000
_____________________________________________________________________________
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
95,000
_____________________________________________________________________________
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (9) EXCLUDES CERTAIN SHARES ** [ ]
_____________________________________________________________________________
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (9)
0.37%
_____________________________________________________________________________
(14) TYPE OF REPORTING PERSON **
PN
_____________________________________________________________________________
** SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 5 of 13 Pages
<PAGE>
_____________________________________________________________________________
(1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO.
OF ABOVE PERSON
Philip J. Hempleman
_____________________________________________________________________________
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [ ]
(b) [x]
_____________________________________________________________________________
(3) SEC USE ONLY
_____________________________________________________________________________
(4) SOURCE OF FUNDS
OO
_____________________________________________________________________________
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) OR 2(e) [ ]
_____________________________________________________________________________
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Connecticut
_____________________________________________________________________________
NUMBER OF (7) SOLE VOTING POWER
0
SHARES ______________________________________________________________
BENEFICIALLY (8) SHARED VOTING POWER
2,170,000
OWNED BY ______________________________________________________________
EACH (9) SOLE DISPOSITIVE POWER
0
REPORTING ______________________________________________________________
PERSON WITH (10) SHARED DISPOSITIVE POWER
2,170,000
_____________________________________________________________________________
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
2,170,000
_____________________________________________________________________________
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (9) EXCLUDES CERTAIN SHARES ** [ ]
_____________________________________________________________________________
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (9)
8.43%
_____________________________________________________________________________
(14) TYPE OF REPORTING PERSON **
IN
_____________________________________________________________________________
** SEE INSTRUCTIONS BEFORE FILLING OUT
Page 6 of 13 Pages
<PAGE>
ITEM 1. SECURITY AND ISSUER.
This Schedule 13D relates to the shares of common stock, $0.16-2/3
par value (the "Shares"), of Tesoro Petroleum Corporation (the "Company").
Prior to this initial Schedule 13D (the "Schedule"), the ownership of the
Shares subject to this Schedule was reported on Schedule 13G filed by
Philip Hempleman and Ardsley Advisory Partners.
ITEM 2. IDENTITY AND BACKGROUND.
(a) This Schedule is filed on behalf of (i) Ardsley Advisory Partners, a
Connecticut general partnership ("Ardsley"), with respect to (x) Shares owned by
Ardsley Partners Fund II, L.P., Ardsley Partners Fund I, L.P. and Ardsley
Partners Institutional Fund, L.P. (each a "Partnership" and collectively the
"Partnerships"; such Shares being the "Partnership Shares") and (y) Shares held
in other discretionary accounts managed by Ardsley (the "Discretionary Shares")
and (ii) Philip J. Hempleman who, by virtue of his position as managing
partner of Ardsley and general partner of the Partnerships, may be deemed
to have the shared power to vote or direct the vote of, and the shared power
to dispose or direct the disposition of, the Discretionary Shares and the
Partnership Shares and, therefore, Mr. Hempleman may be deemed to be the
beneficial owner of such Shares. Ardsley Partners I, a partnership in
which Mr. Hempleman is a managing partner, is the other general partner of
each Partnership. The Partnerships, Ardsley and Mr. Hempleman may be referred
to herein as the "Reporting Persons".
(b) The address of the principal place of business and principal
office of each Reporting Person is 646 Steamboat Road,
Greenwich, CT 06830.
(c) The principal business of each Partnership is that of a private
investment partnership, engaged in the purchase and sale of securities for
investment for its own account. The principal business of Ardsley is that
of a private investment firm and a registered investment adviser under the
Investment Advisors Act of 1940, as amended, engaging in the purchase and
sale of securities for investment on behalf of discretionary accounts and the
investment funds to which it is the investment advisor. The principal
occupation of Mr. Hempleman is as managing partner of Ardsley and the
Partnerships.
Page 7 of 13 Pages
(d) None of the persons referred to in paragraph (a) above has, during the
last five years, been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors).
(e) None of the persons referred to in paragraph (a) above has, during the
last five years, been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
Federal or state securities laws or finding any violation with respect to such
laws.
(f) Mr. Hempleman is a United States citizen. Ardsley is a general
partnership formed under the laws of the State of Connecticut. Each
Partnership is a limited partnership formed under the laws of Delaware.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The net investment cost (including commissions, if any) of the Shares
beneficially owned by Ardsley (exclusive of the Partnership Shares),
Ardsley Partners Fund II, L.P., Ardsley Partners Fund I, L.P. and
Ardsley Partners Institutional Fund, L.P. is approximately $17,925,640.06,
$1,823,341.30, $1,617,408.50 and $870,973.30, respectively.
The Shares purchased by each of the Partnerships were purchased with the
investment capital of the respective Partnership, and Discretionary Shares
purchased by Ardsley were purchased with the investment capital of the
respective discretionary accounts.
ITEM 4. PURPOSE OF THE TRANSACTION.
On April 4, 1996, Ardsley became a party to a Settlement and Standstill
Agreement (the "Settlement Agreement"), dated April 4, 1996, among Kevin S.
Flannery, Alan Kaufman ("Kaufman"), Robert S. Washburn, James H. Stone,
George F. Baker (each members of the "Committee"), Douglas Thompson,
Gale E. Galloway, Whelan Management Corp (together with the members of the
Committee, the "Solicitation Parties"), Ardsley and the Company. Pursuant to
the Settlement Agreement, (i) the parties thereto agreed to the dismissal of
the lawsuit in the United States District Court for the Western District of
Texas, San Antonio Division and (ii) the Solicitation Parties (which does not
include Ardsley) agreed to terminate a consent solicitation which they began
in December of 1995 to remove the existing members of the Company's Board of
Directors and replace them with the Committee nominees. In addition, each
of the Solicitation Parties severally agreed, among other things, that for a
period beginning as of April 4, 1996 and ending on the earlier of the day
after the Company's 1999 annual meeting or June 30, 1999 (the "Standstill
Period") he or it shall not in any way, directly or indirectly, encourage (1)
any attempt to take control of the Company, (2) any consent solicitation to
remove any member of the Company's Board of Directors, (3) any solicitation of
Page 8 of 13 Pages
<PAGE>
proxies to vote or become a participant in any election contest to remove any
member of the Company's Board of Directors, (4) the nomination or election of
any alternate director or slate of directors proposed from the floor at any
meeting of the Company's stockholders or (5) any offers or indications of
interest with respect to the acquisition or disposition of the Company or any
of its business units.
The Company agreed, among other things, to expand its Board of
Directors to include nine members. Pursuant to the Settlement Agreement, the
three new members of the Company's Board of Directors will be (1) Kaufman
(beginning on or before April 12, 1996), (2) an individual who is independent
of each of the Company, the Solicitation Parties and Ardsley Advisory Partners
(beginning no later than July 31, 1996) and (3) an employee of Ardsley Advisory
Partners (beginning on or before April 12, 1996). Ardsley currently anticipates
that its designee shall be Mr. Sanford B. Prater. Further, each of these
persons will remain members of the Company's Board of Directors throughout the
Standstill Period. In the event that Kaufman dies, resigns or is removed
pursuant to the terms of the Settlement Agreement, he shall not be replaced.
Ardsley agreed to vote all Shares owned by Ardsley or with respect to
which it or its affiliates have voting discretion in favor of the entire
slate of candidates proposed for election at Tesoro's annual meeting,
provided it includes the individuals selected pursuant to the Settlement
Agreement. Ardsley also agreed that the person designated by it shall not
disclose, without the consent of Tesoro, any non-public information or trade
secrets of Tesoro obtained in his capacity as a director of Tesoro to any
unauthorized person (the "Confidentiality Agreement"). In the event that
there is a breach of the Confidentiality Agreement, or if (a) the total
common stock holdings of Ardsley shall at any time be reduced to 50 percent
or less of the number of shares held as of April 4, 1996, or (b) Ardsley
agrees to or takes action in support of a change in control of the Company,
the person designated by Ardsley shall resign from the Board of Directors of
the Company.
The foregoing description of certain of the terms of the Settlement
Agreement is qualified in its entirety by reference to the Settlement Agreement,
which is incorporated herein as Exhibit 1 hereto.
The purpose of the acquisition of the Shares by each of the Reporting
Persons was, and remains, for investment. Each may make further purchases of
Shares from time to time and may dispose of any or all of the Shares held by
it or him at any time.
Other than as set forth above, none of the Reporting Persons has any
plans or proposals which relate to, or could result in, any of the matters
referred to in paragraphs (b) through (j), inclusive, of Item 4 of Schedule 13D.
Such entities and persons may, at any time and from time to time, review or
reconsider their position with respect to any of such matters, but have no
present intention of doing so.
Page 9 of 13 Pages
<PAGE>
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) The approximate aggregate percentage of Shares reported
beneficially owned by each person herein is based on the number of
outstanding Shares as of February 24, 1996, as reflected in the Schedule
14A of the Company filed with the Securities and Exchange Commission
by the Company on March 4, 1996, equal to 25,733,241.
As of the close of business on April 11, 1996:
(i) Mr. Hempleman owns directly no Shares. By reason of Rule
13d-3 of the Securities Exchange Act of 1934, as amended (the "Act"),
Mr. Hempleman may be deemed to own beneficially the 1,700,000 Discretionary
Shares (constituting approximately 6.60% of the Shares outstanding),
and the 470,000 Partnership Shares (constituting approximately 1.83% of the
Shares outstanding and, together with the Discretionary Shares, 8.43%).
(ii) Ardsley owns directly no Shares. By reason of the
provisions of Rule 13d-3 of the Act, Ardsley may be deemed to
own beneficially 1,700,000 Discretionary Shares (constituting approximately
6.60% of the Shares outstanding), and the 470,000 Shares owned by the
Funds (constituting approximately 1.83% of the Shares outstanding and,
together with the Discretionary Shares, 8.43%).
(iii) Ardsley Partners Fund II, L.P. owns beneficially 190,000
Shares, constituting approximately 0.74% of the Shares outstanding.
(iv) Ardsley Partners Fund I, L.P. owns beneficially 185,000
Shares, constituting approximately 0.72% of the Shares outstanding.
(iv) Ardsley Partners Institutional Fund, L.P. owns beneficially
95,000 Shares, constituting approximately 0.37% of the Shares outstanding.
(b) Mr. Hempleman has the shared power to vote 2,170,000
Shares, the sole power to vote no Shares, the shared power to dispose
of 2,170,000 Shares and the sole power to dispose of no Shares. Each
Partnership has the power to vote and dispose of the Share owned by it, which
power may be exercised by the general partner or investment manager of
each such Partnership.
(c) The trading dates, number of shares of Common Stock
purchased or sold and price per share for all transactions in the Shares
from the 60th day prior to April 11, 1996 until April 11, 1996 by
Ardsley on behalf of discretionary accounts other than the Partnerships
are set forth on Schedule A. All such transactions were effected
through the New York Stock Exchange. During such period, none
of the Partnerships entered into any transactions in the Shares.
Page 10 of 13 Pages
<PAGE>
(d) No person other than each respective record owner referred
to herein of shares of Common Stock is known to have the right to receive or
the power to direct the receipt of dividends from or the proceeds of sale of
such shares of Common Stock.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
The information regarding the Settlement Agreement set forth in
Item 4 of this Schedule is incorporated herein by reference. In addition,
each Partnership and Ardsley Offshore Fund, Ltd. entered into an option
agreement with Whelan Management Corp. ("Whelan"). Each option agreement
grants Whelan the option to purchase Shares at a strike price of $8.25 per
Share, and each option expires on May 16, 1996. A form of the option
agreements is incorporated herein and annexed hereto as Exhibit 2. Set
forth below are the number of Shares with respect to each option agreement:
Ardsley Offshore Fund:
Number of Shares - 160,000
Ardsley Partners Fund I, L.P.:
Number of Shares - 90,000
Ardsley Partners Fund II, L.P.:
Number of Shares - 100,000
Ardsley Partners Institutional Fund, L.P.:
Number of Shares - 50,000
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
1. Exhibit 1 - Settlement Agreement
2. Exhibit 2 - Form of option agreement
3. Exhibit 3 - Joint Acquisition Statement
Page 11 of 13 Pages
<PAGE>
After reasonable inquiry and to the best of their knowledge and
belief, the undersigned certify that the information set forth in this
statement is true, complete and correct.
April 11, 1996
/s/ PHILIP J. HEMPLEMAN
Philip J. Hempleman, as
Managing Partner of
Ardsley Advisory Partners
/s/ PHILIP J. HEMPLEMAN
Philip J. Hempleman, as
General Partner of
Ardsley Partners Fund II, L.P.
/s/ PHILIP J. HEMPLEMAN
Philip J. Hempleman, as
General Partner of
Ardsley Partners Fund I, L.P.
/s/ PHILIP J. HEMPLEMAN
Philip J. Hempleman, as
General Partner of
Ardsley Partners Institutional Fund, L.P.
/s/ PHILIP J. HEMPLEMAN
Philip J. Hempleman
Page 12 of 13 Pages
<PAGE>
Schedule A
Date of Purchase(P)/ Number of Price per
Transaction Sale(S) Shares Share
2/5/96 S 35,000.00 8.625
2/7/96 S 15,000.00 8.500
2/7/96 S 10,000.00 8.500
3/11/96 S 80,000.00 8.125
3/12/96 S 40,000.00 8.125
3/12/96 S 50,000.00 8.125
3/12/96 S 23,500.00 8.125
3/13/96 S 7,400.00 8.125
3/27/96 S 19,100.00 8.750
3/27/96 S 50,000.00 8.750
3/27/96 S 15,000.00 8.750
3/27/96 S 3,000.00 8.750
3/27/96 S 2,000.00 8.750
3/27/96 S 40,000.00 8.750
Page 13 of 13 Pages
<PAGE>
EXHIBIT 1
SETTLEMENT AND STANDSTILL AGREEMENT
-----------------------------------
This Agreement, dated as of April 4, 1996, is among Kevin S.
Flannery, Alan Kaufman, Robert S. Washburn, James H. Stone, George F. Baker,
Douglas Thompson, Gale E. Galloway, and Whelan Management Corp. (together, the
"Solicitation Parties"), Ardsley Advisory Partners ("Ardsley"), and Tesoro
Petroleum Corporation ("Tesoro").
WHEREAS, on or about December 26, 1995, The Stockholders
Committee for New Management of Tesoro Petroleum Corporation, comprised of
Messrs. Flannery, Kaufman, Washburn, Stone and Baker (the "Committee), announced
its intention to engage in a solicitation (the "Solicitation") of written
consents for the purpose, inter alia, of removing the current members of the
Board of Directors of Tesoro and replacing them with a new Board comprised of
Messrs. Kaufman, Stone, Baker, Thompson and Galloway, and in connection
therewith filed with the Securities and Exchange Commission ("SEC") Schedule 13D
and preliminary Schedule 14A statements relating thereto; and
WHEREAS, on or about December 26, 1995, the Committee commenced
an action in the United States District Court for the Western District of Texas
(C.A. No. SA-95-CA- 1298) (the "Pending Action") against Tesoro and its Chief
Executive Officer Bruce A. Smith; and
WHEREAS, on or about January 8, 1996, defendants in the Pending
Action filed their answer to the amended complaint, and defendant Tesoro
asserted various counterclaims against the Solicitation Parties and others
relating, inter alia, to the Solicitation; and
----- ----
WHEREAS, on or about March 1, 1996, the Committee filed a
definitive Schedule 14A (the "Committee Schedule") with the SEC, and thereafter
commenced the Solicitation pursuant thereto; and
WHEREAS, the parties hereto have agreed to the terms of a
proposed settlement that would result in the dismissal of the Pending Action and
termination of the Solicitation substantially in accord with the terms set forth
below;
NOW, THEREFORE, in order to effectuate the settlement, and
for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. The parties shall execute and file with the Court as soon
as practicable a stipulation of dismissal without prejudice or costs to
either side, encompassing all claims and counterclaims in the Pending
Action. All discovery and other proceedings in the Pending Action shall
be suspended in the interim.
<PAGE>
2. The Solicitation Parties hereby agree to terminate the
Solicitation by, among other things, (a) promptly filing an amended Schedule 13D
Statement announcing the termination of the Solicitation, (b) promptly issuing,
or causing to be issued, with Tesoro a joint press release announcing the
settlement and termination of the Solicitation, and (c) executing such other
documents as may be necessary or appropriate to accomplish the settlement set
forth herein. In addition, by executing this Agreement Kevin S. Flannery hereby
revokes all notices to Tesoro of his intention to submit a slate of candidates
at the Company's 1996 annual meeting.
3. For a period beginning on the date hereof and ending on the
earlier of the day after Tesoro's 1999 annual meeting or June 30, 1999 (the
"Standstill Period"), each of the Solicitation Parties severally agrees on
behalf of himself or itself and his or its affiliates, agents, representatives,
or any person or entity controlled or under common control with any such member,
that he or it shall not, directly or indirectly, (a) make, or in any way
participate or assist in, or otherwise encourage any attempt to take control of
Tesoro, without the approval of the Board, whether through the acquisition of
shares of capital stock during a tender offer for the common stock of Tesoro,
exercising voting rights with respect to shares of capital stock or otherwise,
provided, however, that this provision shall not preclude any of the
Solicitation Parties from tendering shares in response to a tender offer for
Tesoro shares that is made without the participation, assistance or
encouragement of any of the Solicitation Parties; (b) solicit any consent or
participate or assist in any way or otherwise encourage any consent solicitation
seeking, without the approval of the Board, to remove any member of the Tesoro
Board of Directors and/or to elect one or more new directors or to take any
other action which would have
2
<PAGE>
the effect of removing any member of the Tesoro Board of Directors; (c)
commence, support (including without limitation by giving a proxy or voting) or
otherwise encourage any "solicitation" of "proxies" to vote (as such terms are
defined in Rule 14a-1 of the Securities Exchange Act of 1934) or become a
"participant" in any "election contest" (as such terms are defined in Rule
14a-11 of the Securities Exchange Act of 1934) in connection with any annual or
special meeting of stockholders seeking, without the approval of the Board, to
remove any member of the Tesoro Board of Directors and/or to elect one or more
new directors not nominated for election by the Tesoro Board of Directors; (d)
nominate, support (including without limitation by giving a proxy or voting) or
otherwise encourage the nomination or election of any alternate director or
slate of directors proposed from the floor at any annual or special meeting of
Tesoro stockholders; or (e) without the approval of the Board, solicit, support
or otherwise encourage any offers or indications of interest with respect to the
acquisition or disposition of Tesoro or any of its business units.
4. Tesoro's Board of Directors shall be expanded to include nine
members. Dr. Alan Kaufman shall be added to the Tesoro Board of Directors on or
before April 12, 1996. Tesoro further agrees that Dr. Kaufman shall be nominated
for election as part of the Board of Directors' recommended slate throughout the
Standstill Period unless he dies, resigns or is removed pursuant to paragraph 9
below. Dr. Kaufman agrees to serve as a director, if elected by the requisite
vote of shareholders, throughout the Standstill Period unless he dies, resigns
or is removed pursuant to paragraph 9 below.
5. Tesoro also agrees to add to its Board of Directors
throughout the Standstill Period another independant director with no
prior relationship or connection to Tesoro, Ardsley or any of the
Solicitation Parties, who shall be selected by the Board of Directors
in accordance with governance procedures that have been adopted by
the Board. Tesoro agrees that the individual selected pursuant to
this paragraph shall be proposed for election as soon as possible
but in no event later than July 31, 1996. In the event that the
independent director selected pursuant to this paragraph shall at
any time during theStandstill Period die, resign or be removed from
the Board of Directors (for any reason other than the failure to
receive the requisite vote of shareholders), Tesoro agrees to replace
3
<PAGE>
such director with another independent director selected in accordance with the
Company' By-laws and governance procedures then in effect.
6. Tesoro also agrees to provide Ardsley during the Standstill
Period with the right to designate one of its employees (who shall not include
any of the Solicitation Parties or any affiliate, agent or representative of, or
other person or entity controlled by or under common control with, any of the
Solicitation Parties) as a nominee for election to Tesoro's Board of Directors,
subject to a normal background check. Tesoro agrees that the person designated
by Ardsley pursuant to this paragraph will be added to the Tesoro Board on or
before April 12, 1996. Tesoro further agrees that the employee designated by
Ardsley pursuant to this paragraph shall be nominated for election as part of
the Board's recommended slate throughout the Standstill Period unless he dies,
resigns or is removed pursuant to paragraph 10 below. If such employee dies or
resigns, Ardsley shall be entitled to designate another employee to become a
director, subject to a normal background check.
7. Dr. Kaufman hereby agrees not to disclose without the consent
of Tesoro any non-public information or trade secrets of Tesoro obtained in his
capacity as a director of Tesoro to any unauthorized person including without
limitation any of the Solicitation Parties, except as may be required by law.
8. Ardsley hereby agrees that the person designated pursuant to
paragraph 6 above shall not disclose without the consent of Tesoro any
non-public information or trade secrets of Tesoro obtained in his capacity as a
director of Tesoro to any unauthorized person including without limitation any
of the Solicitation Parties, except as may be required by law.
9. In the event of a breach of the provisions set forth in
paragraphs 2, 3, 7, 12 or 13 of this Agreement by any of the Solicitation
Parties, or in the event that the total common stock holdings of Dr. Kaufman
shall at any time during the Standstill Period be reduced to less than 400,000
shares, or in the event that Dr. Kaufman shall, at any time during the
Standstill Period, while he is a member of Tesoro's Board of Directors, announce
his intention to vote or vote his shares of Tesoro common stock for any
candidate other than the nominees for election to the Board of Directors of
Tesoro proposed by a majority of Tesoro's
4
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Board, Dr. Kaufman shall immediately tender his resignation and, at the option
of Tesoro, be removed from the Tesoro Board. The death, resignation or removal
pursuant to the terms of this Agreement of Dr. Alan Kaufman from the Tesoro
Board shall not relieve any of the Solicitation Parties from their obligations
hereunder, which shall continue and remain in effect until the conclusion of the
Standstill Period.
10. In the event of a breach of the provisions set forth in
paragraph 8 above, or in the event that at any time during the Standstill Period
(a) the total common stock holdings of Ardsley shall at any time be reduced to
50 percent or less of the number of shares held as of the date hereof, or
(b) Ardsley agrees or takes any action to support a change in control of
Tesoro or the election to the Tesoro Board of any person other than a Board
nominee, the director designated by Ardsley pursuant to paragraph 6 above
shall immediately tender his resignation and, at the option of Tesoro, be
removed from the Tesoro Board. Ardsley agrees to vote all shares of common
stock of Tesoro owned by Ardsley or with respect to which it or its affiliates
have voting discretion in favor of the entire slate of candidates proposed
for election at Tesoro's annual meeting, provided it includes the individuals
selected pursuant to paragraphs 4 and 6 above. For purposes of this paragraph,
Ardsley shall be deemed the owner as of the date hereof of all shares covered
by the option granted to Whelan Management Corp. on November 18, 1995, unless
the option is exercised, in whole or in part, by Whelan or any other of the
Solicitation Parties, in which case Ardsley shall not be deemed the owner as
of the date hereof of any shares acquired pursuant to the exercise of such
option.
11. In consideration of the above and in order to eliminate
future legal fees and expenses associated with continued protracted litigation
and the Solicitation, Tesoro agrees to pay the Solicitation Parties each of
their reasonable out-of-pocket costs (including reasonable attorneys' fees)
actually incurred in connection with the Pending Action and/or the Solicitation,
up to a maximum of $700,000. Tesoro also agrees to pay Ardsley its reasonable
out-of-pocket costs (including reasonable attorneys' fees) actually incurred in
connection with the Pending Action, up to a maximum of $200,000. Tesoro hereby
agrees to pay $500,000 to the Solicitation Parties and $140,000 to Ardsley upon
execution of this Agreement and issuance of the joint press release required by
paragraph 2 of this Agreement, with the balance to be paid within 15 days of
receipt of the
5
<PAGE>
documentation required by the succeeding sentence. Tesoro shall have the right
to examine all invoices and other documentation necessary to substantiate the
amount and reasonableness of any fees and expenses incurred. In the event of any
dispute regarding the amount of expenses to be reimbursed pursuant to this
paragraph, the parties agree to submit the dispute to binding arbitration. The
arbitrator shall be Dean John Feerick of Fordham Law School or, if he declines
or is unable to serve, a mutually agreeable person of similar standing in the
legal community. The decision of the arbitrator shall be rendered within 90 days
from the date submitted to the arbitrator and the decision shall be final,
conclusive and not subject to appeal. In any such arbitration, the prevailing
party (i.e., the party to whom the arbitrator awards the largest portion of the
amount in dispute) shall recover his or its reasonable attorneys' fees in
connection therewith.
12. Each of the Solicitation Parties, Ardsley and Tesoro
severally agrees that during the Standstill Period neither he nor it nor any
affiliate shall make any statement or take any action that is critical or
disparaging of each other or the management or performance of Tesoro. Each of
the Solicitation Parties and Ardsley further severally agrees that throughout
the Standstill Period neither he nor it nor any of his or its affiliates will
issue any press release, knowingly make any statements to the press or other
news media, or make any critical or disparaging statement to any securities
analyst or institutional investor regarding the management or performance of
Tesoro.
13. Each of the Solicitation Parties has delivered herewith a
Revocation of Consent (the "Revocation"), revoking all consents previously
executed by such member or his affiliates, agents, representatives, or any
person or entity controlled by or under common control with such member, if any,
and such member represents and warrants to such effect to Tesoro. Each of such
members, on behalf of himself or itself and his or its affiliates, agents,
representatives, and any person controlled by or under common control with him,
agrees to the following:
A. Except as contemplated by paragraph C of this Section 13,
neither he nor it nor any of his or its affiliates, agents,
representatives, or any person or entity controlled by or under common
control with such member, will sign or deliver any consents relating
to any of the matters (the "Matters") as to which consents
6
<PAGE>
are, were or are proposed to be solicited pursuant to the Committee
Schedule.
B. Neither he nor it nor any of his or its affiliates, agents,
any person or entity controlled by or under common
control with such member, will take any action to revoke the
Revocation.
C. Neither he nor it nor any of his or its affiliates, agents,
representatives, or any person or entity controlled by or under common
control with such member, will deliver to Tesoro any consents relating
to any of the Matters, except the consent dated April 1, 1996,
relating to 100 shares of common stock of Tesoro held in the name of
Kevin S. Flannery, which consent is covered and revoked by the
Revocation.
D. He and it and his and its affiliates, agents, representatives,
and any person or entity controlled by or under common control with
such member, will immediately cease soliciting consents relating to
the Matters, will not encourage, and, in response to any inquiry will
specifically discourage, all other persons with respect to the
delivery to Tesoro of consents relating to any of the Matters.
14. The parties hereto agree that any breach of the this
Agreement shall constitute irreparable harm and entitle any party to obtain
immediate injunctive relief to enforce compliance with the terms hereof. The
failure of any party to seek or obtain immediate relief shall not constitute a
waiver of, and shall not relieve any party from, his or its obligations
hereunder.
15. In the event that Tesoro or the Board of Directors of Tesoro
shall breach the provisions of paragraphs 4, 5, 6 or 12 of this Agreement, the
Solicitation Parties shall be relieved of their obligations pursuant to
paragraphs 3 and 12 of this Agreement for the balance of the Standstill Period.
In the event any of the Solicitation Parties shall breach the provisions of
paragraphs 2, 3, 7, 12 or 13, Tesoro shall be relieved of its obligations
pursuant to paragraphs 4, 5 and 12 of this Agreement. In the event that Tesoro
or the Board of Directors of Tesoro shall breach the provisions of paragraphs 6
or 12 of this Agreement, Ardsley shall be relieved of its obligations pursuant
to paragraphs 10 and 12 of this Agreement for the balance of the Standstill
Period. In the event that Ardsley
7
<PAGE>
shall breach the provisions of paragraphs 8, 10 or 12, Tesoro shall be relieved
of its obligations pursuant to paragraphs 6 and 12 of this Agreement.
16. Immediately following the end of the Standstill Period,
provided that the parties shall have complied with the provisions of this
Agreement in all material respects, the parties hereto shall exchange mutual
general releases with respect to all claims or counterclaims which have or could
have been asserted, or which arise out of any of the acts, transactions or
events alleged, in the Pending Action (the "Released Claims"). Tesoro hereby
covenants not to sue any or each of the Solicitation Parties or Ardsley during
the Standstill Period with respect to any Released Claim provided that such
Solicitation Party or Ardsley, as the case may be, complies with his or its
respective obligations pursuant to paragraphs 2, 3, 7, 12 and 13 above. Each of
the Solicitation Parties hereby covenants not to sue Tesoro during the
Standstill Period with respect to any Released Claim provided that Tesoro
complies with its obligations pursuant to paragraphs 4, 5, 6 and 12 above. Each
of the parties hereto hereby agrees to toll the running of the applicable
statutes of limitations with respect to the Released Claims until the conclusion
of the Standstill Period. The provisions of this paragraph shall not operate as
a bar to an action to enforce the terms of this Agreement.
17. Except as otherwise provided herein, this Agreement shall
remain in full force and effect throughout the Standstill Period, unless all
of the parties hereto agree in writing to terminate this Agreement prior to
the conclusion of the Standstill Period.
18. No modification, amendment or waiver of the terms of this
Agreement shall be enforceable against any party hereto absent a written
agreement signed by Tesoro and such other party.
19. If for any reason the settlement period for herein is not
consummated, all negotiations and proceedings relating to the settlement
shall be without prejudice to the rights of the parties hereto, who shall be
restored to the status quo existing as of the date of this agreement.
20. Neither this Agreement, nor the fact of its existence nor any
of the terms hereof, nor any negotiations or proceedings relating thereto, shall
be offered or
8
<PAGE>
received in evidence in the Pending Action or in any other action or proceeding,
other than an action to enforce the terms hereof, nor shall they be deemed to
constitute any evidence or admission of liability or wrongdoing on the part of
any party to the Pending Action, all of which is expressly denied, it being
understood that the parties have agreed to enter into this Agreement and the
settlement contemplated hereunder solely to avoid the expense, distraction and
inconvenience of further protracted litigation and other proceedings.
21. This Agreement shall inure to the benefit of and is binding
upon the parties and their respective officers, directors, employees, partners,
heirs, executors, successors, representatives, agents and assigns.
22. This Agreement shall be governed by the laws of the State of
New York, exclusive of the law on conflicts of laws.
9
<PAGE>
23. This Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original. The executed
signature pages from each actual or telecopied counterpart may be joined
together and attached to such original and shall constitute one and the same
instrument.
Whelan Management Corp. /s/ Kevin S. Flannery
--------------------------
Kevin S. Flannery
By: /s/ Kevin S. Flannery /s/ Alan Kaufman
------------------------------- ---------------------------
Title: President Alan Kaufman
Ardsley Advisory Partners /s/ Robert S. Washburn
---------------------------
Robert S. Washburn
By: /s/ Sanford B. Prater /s/ James H. Stone
------------------------------- ---------------------------
Title: Partner James H. Stone
Tesoro Petroleum Corp. /s/ George F. Baker
---------------------------
George F. Baker
By: /s/ Bruce A. Smith /s/ Douglas Thompson
------------------------------- ---------------------------
Title: President and Douglas Thompson
Chief Executive
Officer
/s/ Gale E. Galloway
---------------------------
Gale E. Galloway
10
EXHIBIT 2
TRANSACTION
The purpose of this letter agreement (this "Confirmation") is to set forth
the terms and conditions of the Option Transaction entered into between
Ardsley Offshore Fund, Ltd. and Whelan Management Corp. on the Trade
Date specified below (the "Option").
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swaps & Derivatives Association, Inc.,
("ISDA")) (the "Definitions") are incorporated into this Confirmation. In
the event of any inconsistency between the Definitions and provisions of
this Confirmation, this Confirmation will govern.
Each party is hereby advised, and each such party acknowledges, that the
other party has engaged in (or refrained from engaging in) substantial
financial transactions and has taken other material actions in reliance upon
the parties' entry into the Option to which this Confirmation relates on the
terms and conditions set forth below.
This Confirmation will be governed by and construed in accordance with
the laws of the State of New York, without reference to choice of law
doctrine. The parties hereto irrevocably submit to the non-exclusive
jurisdiction of the courts of the State of New York and the United States
Court for the Southern District of New York in connection with all matters
relating hereto, and waive any objection to the laying of venue in, and any
claim of inconvenient forum with respect to, these courts.
The terms of the Option to which this Confirmation relates are as follows:
General Terms:
Effective Date:-November 16, 1995
Trade Date:-November 16, 1995
Option Style:-American
Option Type:-Call
Seller:-Ardsley Offshore Fund, Ltd.
Buyer:-Whelan Management Corp.
Underlying Stock:-Tesoro Petroleum Corporation Common Stock
Number of Shares:-_________
Number of Option units:-________
Strike Price:-USD $_____ per share
Premium:-USD $
<PAGE>
Premium Payment Date:-November 22, 1995
Business Day:-Any day (i) on which commercial banks are open for business
(including dealings in foreign exchange and foreign currency deposits) in
New York and (ii) which is a scheduled trading day on the New York Stock
Exchange, the Chicago Board Options Exchange and the Chicago Mercantile
Exchange, other than a day on which trading on any such exchange is scheduled
to close prior to its regular weekday closing time.
Exchanges:-New York Stock Exchange, American Stock Exchange and NASDAQ.
Calculation Agent:-A third party acceptable to Buyer and Seller, whose
determinations and calculations shall be binding in the absence of manifest
error.
Procedure for Exercise:-
Exercise Notice:-In order to exercise all or part of the Option, an Exercise
Notice in the form set forth below as Appendix "A" shall be sent by facsimile
transmission, telex, hand or overnight delivery to the Seller. The Seller
will then sign, date and time the Exercise Notice and return it to the Buyer
to confirm the Exercise.
Exercise Period:-Any Business Day up to and including the Expiration
Date between 9:00 am and 4:15 pm local time in New York.
Expiration Date:-_____________ or, if that date is not a Business
Day, the first following day that is a Business Day.
Partial Exercise:-Allowed. After the Exercise Period, any unexercised
Option Units will be deemed expired worthless and no longer subject to
the terms of this Confirmation. If only a part of the Option is exercised,
the Seller's confirmation(s) of the Exercise Notice will include a "Remaining
Number of Shares". This quantity shall be considered to be the new Number
of Shares for the Option until the next Partial Exercise or the Expiration Date,
whichever comes first. Any confirmed Exercise Notice for partial exercises
will become an addendum to the Confirmation to support changes to the
Number of Shares.
Sellers' Telephone and Facsimile Number for the purpose of Giving Notice:-
Telephone:_______; Facsimile____________:
<PAGE>
Market Disruption Event:-The occurrence or existence on any Business Day
during the one-half hour period that ends at the close of trading on the
Exchange on any Business Day of any suspension of or limitation imposed
on trading (by reason of movements in price exceeding limits permitted by
the relevant exchange or otherwise) on (i) the Exchange in the Underlying
Stock or (ii) in options contracts on the Underlying Stock, if, in the
determination of the Calculation Agent, such suspension or limitation is
material. The Calculation Agent shall as soon as reasonably practicable under
the circumstances notify the other party of the existence or occurrence of a
Market Disruption Event for the purpose of addressing and or recomputing
any necessary adjustments to the Underlying Stock.
Adjustments to The Option:
During the life of the option, if any adjustment is made by The Options
Clearing Corporation or its successors ("OCC") in the terms of
outstanding OCC-issued options ("OCC Options") on the Underlying
Stock, an equivalent adjustment shall be made in the terms of the
Option. If any time during the life of the Option there shall be no
outstanding OCC Options on the Underlying Stock, and an event
shall occur for which an adjustment might otherwise be made under
the By-Laws, Rules, and stated policies of OCC applicable to the
adjustment of OCC Options (the "OCC Adjustment Rules"), then
adjustment shall be made in the terms of the Option applying the
principles set forth in the OCC Adjustment Rules. In addition to the
foregoing sentence, adjustment shall also be made (by applying the
principles set forth in the OCC Adjustment Rules) in the terms of the
Option for any and all cash dividends, stock dividends, stock distributions
and stock splits on the Underlying Stock, and distributions of property
other than additional Underlying Stock during the life of the Option,
regardless of the size or amount thereof and regardless of whether
adjustment is made by OCC in respect thereof.
Settlement Terms:
Physical Delivery: The share quantity of (Number of Option Units
Exercised * 100) will be delivered via the Depository Trust Co. to the
custodian or custodians to be named by the Buyer.
Physical Delivery Date: 3 Business Days after Valuation Date.
<PAGE>
Default:
If the Buyer fails to make, when due, any payment or delivery required
to be made by it under this Confirmation or under any other transaction
with the Seller within five Business Days (or such shorter grace period
provided in such other transaction) of notice of such failure being given to
the Buyer, the Seller may, by notice to the Buyer, terminate the Option
evidenced by this Confirmation.
Counterparty Representation:
Counterparty hereby represents that it has entered into this contract in
order to offset in whole or in part earnings it expects from assets it has
acquired or anticipates acquiring or liabilities it has incurred or
anticipates incurring.
Transfer:
This Transaction may be assigned or transferred by either party, the
transferring party having given three (3) day's prior notice of such
transfer or assignment.
Please confirm your acceptance and agreement with the foregoing by
immediately executing the copy of this Confirmation enclosed for that
purpose and returning it to
Yours sincerely,
By: Ardsley Partners
By:
Name: Kevin M. McCormack
Title: Partner
Accepted and agreed as of the date first above written:
By:
By:
Name:
Title:
<PAGE>
EXHIBIT 3
JOINT ACQUISITION STATEMENT
PURSUANT TO RULE 13D-1(F)1
The undersigned acknowledge and agree that the foregoing statement on
Schedule 13D, as amended, is filed on behalf of each of the undersigned
and that all subsequent amendments to this statement on Schedule 13D, as
amended, shall be filed on behalf of each of the undersigned without the
necessity of filing additional joint acquisition statements. The
undersigned acknowledge that each shall be responsible for the timely
filing of such amendments, and for the completeness and accuracy of the
information concerning him or it contained therein, but shall not be
responsible for the completeness and accuracy of the information concerning
the other, except to the extent that he or it knows or has reason to believe
that such information is inaccurate.
/s/ PHILIP J. HEMPLEMAN
Philip J. Hempleman, as
Managing Partner of
Ardsley Advisory Partners
/s/ PHILIP J. HEMPLEMAN
Philip J. Hempleman, as
General Partner of
Ardsley Partners Fund II, L.P.
/s/ PHILIP J. HEMPLEMAN
Philip J. Hempleman, as
General Partner of
Ardsley Partners Fund I, L.P.
/s/ PHILIP J. HEMPLEMAN
Philip J. Hempleman, as
General Partner of
Ardsley Partners Institutional Fund, L.P.
/s/ PHILIP J. HEMPLEMAN
Philip J. Hempleman
<END>
