SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934*
(Amendment No. 2)
TESORO PETROLEUM CORPORATION
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(Name of Issuer)
Common Stock, par value $0.16-2/3 per share
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(Title of Class of Securities)
0008816091
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(CUSIP Number)
Gerald S. Backman, P.C.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
February 2, 1996
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(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 [ ].
Check the following box if a fee is being paid with this statement [ ]. (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 25
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Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page should be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
NOTE: THIS STATEMENT CONSTITUTES AN ORIGINAL REPORT ON SCHEDULE 13D OF EACH
OF THE REPORTING PERSONS (AS DEFINED IN THE SCHEDULE 13D).
Page 2 of 25
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CUSIP No. 0008816091
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(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos.
of Above Persons
Kevin S. Flannery
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(2) Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [ ]
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(3) SEC Use Only
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(4) Source of Funds
PF, AF
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) [ ]
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(6) Citizenship or Place of Organization
United States/Republic of Ireland
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Number of (7) Sole Voting Power 100 shares
Shares Bene- ___________________________________________________________________
ficially (8) Shared Voting Power 358,972 shares
Owned by ___________________________________________________________________
Each Report- (9) Sole Dispositive Power 100 shares
ing Person ___________________________________________________________________
With (10) Shared Dispositive Power 358,972 shares
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
359,072 shares
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(12) Check if the Aggregate Amount in Row (11) Excludes
Certain Shares [X]
See Item 5
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(13) Percent of Class Represented by Amount in Row (11)
1.5 %
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(14) Type of Reporting Person (See Instructions)
IN
Page 3 of 25
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CUSIP No. 0008816091
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(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos.
of Above Persons
Whelan Management Corp.
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(2) Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [ ]
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(3) SEC Use Only
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(4) Source of Funds
WC, AF
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) [ ]
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(6) Citizenship or Place of Organization
Delaware
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Number of (7) Sole Voting Power 0 shares
Shares Bene- ___________________________________________________________________
ficially (8) Shared Voting Power 340,615 shares
Owned by ___________________________________________________________________
Each Report- (9) Sole Dispositive Power 0 shares
ing Person ___________________________________________________________________
With (10) Shared Dispositive Power 340,615 shares
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
340,615 shares
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(12) Check if the Aggregate Amount in Row (11) Excludes
Certain Shares [ ]
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(13) Percent of Class Represented by Amount in Row (11)
1.4 %
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(14) Type of Reporting Person (See Instructions)
CO
Page 4 of 25
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CUSIP No. 0008816091
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(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos.
of Above Persons
Sean Kenrick Flannery Trust
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(2) Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [ ]
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(3) SEC Use Only
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(4) Source of Funds
WC, AF
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) [ ]
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(6) Citizenship or Place of Organization
New York
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Number of (7) Sole Voting Power 0 shares
Shares Bene- ___________________________________________________________________
ficially (8) Shared Voting Power 18,357 shares
Owned by ___________________________________________________________________
Each Report- (9) Sole Dispositive Power 0 shares
ing Person ___________________________________________________________________
With (10) Shared Dispositive Power 18,357 shares
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
18,357 shares
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(12) Check if the Aggregate Amount in Row (11) Excludes
Certain Shares [ ]
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(13) Percent of Class Represented by Amount in Row (11)
0.1 %
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(14) Type of Reporting Person (See Instructions)
OO
Page 5 of 25
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CUSIP No. 0008816091
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(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos.
of Above Persons
George F. Baker
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(2) Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [ ]
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(3) SEC Use Only
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(4) Source of Funds
PF
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) [ ]
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(6) Citizenship or Place of Organization
United States
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Number of (7) Sole Voting Power 110,000 shares
Shares Bene- ___________________________________________________________________
ficially (8) Shared Voting Power 0 shares
Owned by ___________________________________________________________________
Each Report- (9) Sole Dispositive Power 110,000 shares
ing Person ___________________________________________________________________
With (10) Shared Dispositive Power 0 shares
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
110,000 shares
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(12) Check if the Aggregate Amount in Row (11) Excludes
Certain Shares [ ]
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(13) Percent of Class Represented by Amount in Row (11)
0.4 %
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(14) Type of Reporting Person (See Instructions)
IN
Page 6 of 25
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CUSIP No. 0008816091
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(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos.
of Above Persons
Alan Kaufman
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(2) Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [ ]
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(3) SEC Use Only
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(4) Source of Funds
PF
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) [ ]
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(6) Citizenship or Place of Organization
United States
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Number of (7) Sole Voting Power 581,500 shares
Shares Bene- ___________________________________________________________________
ficially (8) Shared Voting Power 20,000 shares
Owned by ___________________________________________________________________
Each Report- (9) Sole Dispositive Power 581,500 shares
ing Person ___________________________________________________________________
With (10) Shared Dispositive Power 20,000 shares
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
601,500 shares
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(12) Check if the Aggregate Amount in Row (11) Excludes
Certain Shares [X]
See Item 5
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(13) Percent of Class Represented by Amount in Row (11)
2.4 %
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(14) Type of Reporting Person (See Instructions)
IN
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CUSIP No. 0008816091
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(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos.
of Above Persons
Kaufman Children's Trust
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(2) Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [ ]
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(3) SEC Use Only
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(4) Source of Funds
WC, AF
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) [ ]
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(6) Citizenship or Place of Organization
Indiana
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Number of (7) Sole Voting Power 0 shares
Shares Bene- ___________________________________________________________________
ficially (8) Shared Voting Power 20,000 shares
Owned by ___________________________________________________________________
Each Report- (9) Sole Dispositive Power 0 shares
ing Person ___________________________________________________________________
With (10) Shared Dispositive Power 20,000 shares
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
20,000 shares
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(12) Check if the Aggregate Amount in Row (11) Excludes
Certain Shares [ ]
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(13) Percent of Class Represented by Amount in Row (11)
0.1 %
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(14) Type of Reporting Person (See Instructions)
00
Page 8 of 25
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CUSIP No. 0008816091
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(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos.
of Above Persons
James H. Stone
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(2) Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [ ]
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(3) SEC Use Only
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(4) Source of Funds
PF
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) [ ]
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(6) Citizenship or Place of Organization
United States
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Number of (7) Sole Voting Power 146,000 shares
Shares Bene- ___________________________________________________________________
ficially (8) Shared Voting Power 0 shares
Owned by ___________________________________________________________________
Each Report- (9) Sole Dispositive Power 146,000 shares
ing Person ___________________________________________________________________
With (10) Shared Dispositive Power 0 shares
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
146,000 shares
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(12) Check if the Aggregate Amount in Row (11) Excludes
Certain Shares [ ]
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(13) Percent of Class Represented by Amount in Row (11)
0.6 %
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(14) Type of Reporting Person (See Instructions)
IN
Page 9 of 25
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CUSIP No. 0008816091
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(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos.
of Above Persons
Robert S. Washburn
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(2) Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [ ]
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(3) SEC Use Only
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(4) Source of Funds
PF
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) [ ]
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(6) Citizenship or Place of Organization
United States
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Number of (7) Sole Voting Power 0 shares
Shares Bene- ___________________________________________________________________
ficially (8) Shared Voting Power 233,336 shares
Owned by ___________________________________________________________________
Each Report- (9) Sole Dispositive Power 0 shares
ing Person ___________________________________________________________________
With (10) Shared Dispositive Power 233,336 shares
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
233,336 shares
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(12) Check if the Aggregate Amount in Row (11) Excludes
Certain Shares [ ]
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(13) Percent of Class Represented by Amount in Row (11)
0.9 %
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(14) Type of Reporting Person (See Instructions)
IN
Page 10 of 25
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CUSIP No. 0008816091
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(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos.
of Above Persons
Robert S. and Suzanne P. Washburn Revocable Trust
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(2) Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [ ]
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(3) SEC Use Only
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(4) Source of Funds
WC, AF
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) [ ]
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(6) Citizenship or Place of Organization
California
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Number of (7) Sole Voting Power 0 shares
Shares Bene- ___________________________________________________________________
ficially (8) Shared Voting Power 39,545 shares
Owned by ___________________________________________________________________
Each Report- (9) Sole Dispositive Power 0 shares
ing Person ___________________________________________________________________
With (10) Shared Dispositive Power 39,545 shares
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
39,545 shares
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(12) Check if the Aggregate Amount in Row (11) Excludes
Certain Shares [ ]
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(13) Percent of Class Represented by Amount in Row (11)
0.2 %
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(14) Type of Reporting Person (See Instructions)
00
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CUSIP No. 0008816091
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(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos.
of Above Persons
Robert S. Washburn, Trustee for the Robert S. Washburn Money
Purchase, Pension and Profit Sharing Keogh Plan Trusts
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(2) Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [ ]
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(3) SEC Use Only
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(4) Source of Funds
WC, AF
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) [ ]
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(6) Citizenship or Place of Organization
California
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Number of (7) Sole Voting Power 0 shares
Shares Bene- ___________________________________________________________________
ficially (8) Shared Voting Power 193,791 shares
Owned by ___________________________________________________________________
Each Report- (9) Sole Dispositive Power 0 shares
ing Person ___________________________________________________________________
With (10) Shared Dispositive Power 193,791 shares
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
193,791 shares
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(12) Check if the Aggregate Amount in Row (11) Excludes
Certain Shares [ ]
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(13) Percent of Class Represented by Amount in Row (11)
0.9 %
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(14) Type of Reporting Person (See Instructions)
00
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This Amendment No. 2 amends and supplements the Statement on
Schedule 13D, as amended (the "Statement"), filed by the Stockholders' Committee
for New Management of Tesoro Petroleum Corporation relating to the shares of
common stock, $0.16-2/3 par value (the "Shares"), of Tesoro Petroleum
Corporation (the "Company"). Unless otherwise indicated, all capitalized terms
shall have the same meaning as provided in the Statement as previously filed.
ITEM 2. IDENTITY AND BACKGROUND
The first two paragraphs of Item 2 are hereby amended
in their entirety as follows:
(a)-(c), (f). This statement is being filed by (i) Kevin S.
Flannery ("Flannery"), (ii) the Sean Kenrick Flannery Trust, dated December 22,
1977, a trust established under New York law (the "Flannery Trust"), (iii)
Whelan Management Corp., a Delaware corporation ("Whelan"), (iv) George F. Baker
("Baker"), (v) Alan Kaufman ("Kaufman"), (vi) Kaufman Children's Trust, a trust
established under Indiana law ("Kaufman Trust"), (vii) Robert S. Washburn
("Washburn"), (viii) the Robert S. and Suzanne P. Washburn Revocable Trust,
dated April 27, 1988, a trust established under California law ("Washburn
Revocable Trust"), (ix) Robert S. Washburn, trustee for the Robert S. Washburn
Money Purchase, Pension and Profit Sharing Keogh Plan Trusts, trusts established
under California law (the "Washburn Trusts"), and (x) James H. Stone ("Stone").
Flannery, Whelan and the Flannery Trust are sometimes collectively referred to
herein as the "Flannery Entities." Kaufman and the Kaufman Trust are sometimes
collectively referred to herein as the "Kaufman Entities." Washburn, the
Washburn Revocable Trust and the Washburn Trusts are sometimes collectively
referred to herein as the "Washburn Entities." Flannery, Baker, Kaufman, Stone
and Washburn are members of the Committee for New Management of Tesoro Petroleum
Corporation (the "Committee"). The Flannery Entities, Baker, the Kaufman
Entities, the Washburn Entities and Stone are sometimes collectively referred to
herein as the "Reporting Persons."
Flannery's principal occupation or employment is as President
of Whelan and Whelan Securities, Inc. ("Whelan Securities"). Whelan is engaged
in investment advisory services and Whelan Securities is engaged in
broker-dealer services. As of the date hereof, Flannery owns 75% of the common
stock of Whelan. The Flannery Trust is established under New York law and is for
the benefit of Sean Kenrick Flannery, Flannery's son. Bettina F. Flannery (Sean
Kenrick Flannery's mother) and Albert Upshere are the trustees of the Flannery
Trust (collectively, the "Trustees"). The Trustees have delegated sole
investment power in respect of the Flannery Trust to Flannery, as the investment
officer thereof. The principal office of each of the Flannery Entities is P.O.
Box 1970, 8 Holley Street, Lakeville, Connecticut 06039. Flannery is a citizen
of the United States of America and the Republic of Ireland. Information with
respect to each executive officer and director of Whelan (other than Flannery)
is included in Schedule I to this Statement.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Item 3 is hereby amended in its entirety as follows:
As of the date hereof, the Flannery Entities had acquired an
aggregate of 359,072 Shares (including options to purchase an aggregate of
200,000 Shares) for a total consideration of approximately $935,278. Of those
Shares, 140,615 Shares and options to purchase 200,000 Shares were acquired by
Whelan for total consideration of approximately $861,690, and 18,357 Shares were
acquired by the Flannery Trust for total consideration of approximately $72,696.
The source of the funds used by Whelan to acquire such Shares and options was
working capital provided from the personal funds of Flannery. The source of
funds used by the Flannery Trust to acquire such Shares and options was personal
funds of members of the Flannery family. In addition, Page Flannery, the wife of
Flannery, has purchased 2,600 Shares for a total consideration of approximately
$23,625 out of personal funds. Certain of the funds used by the Flannery
Entities may represent the proceeds of margin loans secured by the securities of
the Company pursuant to margin agreements entered into with brokerage firms in
the ordinary course of business. As of January 26, 1996, Whelan and the
Flannery Trust each had outstanding margin indebtedness with Bear, Stearns
Securities Corp. with respect to their respective Shares of $714,774.88 and
$127,157.57, respectively. See items 5 and 6.
As of the date hereof, Baker had acquired 10,000 Shares and
options to purchase 100,000 Shares for a total consideration of $119,000. The
source of the funds used by Baker to acquire such Shares and options was
personal funds.
Page 13 of 25
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As of the date hereof, the Kaufman Entities had acquired an
aggregate of 601,500 Shares for a total consideration of approximately
$5,061,825. Of those Shares, 581,500 Shares were acquired by Kaufman for a total
consideration of approximately $4,942,750 and 20,000 Shares were acquired by the
Kaufman Trust for a total consideration of $119,075. The source of the funds
used by Kaufman to acquire such Shares was personal funds. The source of funds
used by the Kaufman Trust to acquire such Shares was personal funds of Dr.
Kaufman. Certain of the funds used by the Kaufman entities may represent the
proceeds of margin loans secured by the securities of the Company pursuant to
margin agreements entered into by brokerage firms in the ordinary course of
business. As of January 26, 1996, Kaufman had outstanding margin indebtedness
with respect to the Shares of $83,176.06 with the brokerage firm of Bear,
Stearns Securities Corp. In addition, Gloria Kaufman, Kaufman's wife, has
purchased 10,500 Shares for an aggregate consideration of approximately $89,250.
See Item 5.
As of the date hereof, Stone had acquired 46,000 Shares and
options to acquire 100,000 Shares for a total consideration of approximately
$452,843. The source of the funds used by Stone to acquire such Shares and
options was personal funds.
As of the date hereof, the Washburn Entities had acquired an
aggregate of 233,336 Shares for a total consideration of approximately
$1,061,639. Of those Shares, 39,545 Shares were acquired by the
Washburn Revocable Trust for a total consideration of $179,890 and 193,791
Shares were acquired by the Washburn Trusts for a total consideration of
approximately $881,749. The source of funds used by the Washburn Revocable Trust
to acquire such Shares was personal funds of Washburn and the source of funds
used by the Washburn Trusts to acquire such Shares was through funds in the
Washburn Trusts provided by Washburn through allowable contributions to the
Washburn Trusts.
ITEM 4. PURPOSE OF TRANSACTION
Item 4 is hereby amended in its entirety as follows:
Each of the Reporting Persons acquired its respective Shares
and options to purchase Shares in order to obtain an equity position in the
Company. As more fully explained below, the Reporting Persons plan to seek to
acquire control of the Company through the replacement of the Company's current
Board of Directors with the Committee Nominees.
On December 14, 1995, certain of the Reporting Persons formed
the Committee in order to take concerted action to enhance stockholder value for
the stockholders of the Company. The Committee believes that current and recent
trading prices of the Shares do not adequately reflect the value of the
Company's underlying business and assets. The Committee believes that many of
the Company's shareholders share the Committee's disappointment with the
performance of the Company's stock and the Company's Board of Directors.
The Committee has determined to commence a consent solicitation
to remove the existing members of the Board of Directors and replace them with a
slate of nominees (the "Committee Nominees") consisting of Baker, Kaufman,
Stone, Gale L. Galloway ("Galloway") and Douglas Thompson ("Thompson").
The Committee has filed preliminary consent solicitation materials and
amendments thereto with the Securities and Exchange Commission with respect to
the removal of the existing Board, the election of the Committee Nominees and
various related matters. Each Reporting Person intends to execute written
consents supporting the actions proposed by the Committee.
If elected, the Committee Nominees intend to conduct a detailed
review of the Company and its assets, corporate structure, dividend policy,
capitalization, operations, properties, policies and personnel. The Committee
Nominees will consider alternative strategies to enhance stockholder value,
including, among other things, changes in the Company's business policies and
plans or corporate structure, along with sales of certain assets and operations.
Based on the Committee's current knowledge of the Company, the Committee expects
that the Committee Nominees, once elected, will attempt to develop and adopt a
strategic plan to enhance the value of the Company which will include as its
principal element the attempted disposition of the Company's refining business
in order to enable the Company to focus on its core exploration and production
business. There can be no assurance, however, that if elected the
Page 14 of 25
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Committee Nominees will be able to effectuate a divestiture of the refining
business under terms that would be beneficial to the Company and its
stockholders. The ability of the Committee Nominees to effectuate a
divestiture of the refining business under terms that would be beneficial
to the Company and its stockholders is subject to a number of significant
uncertainties, including the then prevailing and prospective levels of the
refining business earnings and cash flow as well as general business
and economic conditions in the petroleum refining and marketing industry.
On December 26, 1995, the members of the Committee commenced a
lawsuit in the United States District Court for the Western District of Texas,
San Antonio Division, against the Company and its Chief Executive, Bruce A.
Smith (collectively, "Defendants"). The action seeks, among other relief, a
judgment (i) declaring that the Company's Rights Agreement dated December 16,
1985 (the Company's "poison pill") does not apply to the efforts of the
Committee to solicit consents from other stockholders of the Company; (ii)
declaring that the Company's By-laws permit removal of directors through
stockholder action by written consent; (iii) enjoining the Company from
delaying or otherwise unlawfully interfering with the efforts of the
Committee to solicit consents from other stockholders; and (iv) declaring
that the actions and disclosures of the Committee with regard to their effort
to solicit consents are and have been in compliance with the Act. A copy
of the Committee's Complaint is attached as Exhibit 7 hereto.
On December 26, 1995, the Committee issued the press release
attached as Exhibit 8 hereto.
On January 8, 1996, Defendants filed their Answer and
Counterclaim to the Committee's Complaint. Defendants' counterclaim alleges,
inter alia, that the Committee's Schedule 13D, filed on December 26, 1995,
violated Section 13(d) of the Act by (i) not including Ardsley Advisory
Partners as part of the 13D group and not including in the 13D
group certain of the wives and children of members of the Committee who
held shares of Tesoro directly or in trust, (ii) not filing a Schedule 13D
earlier disclosing that a 13D group had already been formed purportedly
in 1994, and (iii) making purported false and misleading statements
in preliminary consent materials filed with the SEC. Defendants'
counterclaim also alleges that the preliminary consent materials
filed with the SEC on December 26, 1995 by the Committee contained purported
false and misleading statements in violation of Section 14(a) of the Act.
On that same day, Defendants filed a motion seeking a temporary restraining
order and preliminary injunction and then sought and obtained an ex parte
temporary restraining order enjoining the Committee from (i) soliciting or
attempting to solicit written consents of the Company's stockholders, (ii)
filing or disseminating to stockholders or the public any Schedule 13D or 14A
Statements regarding the Company or (iii) taking any temporary further steps in
furtherance of their consent solicitation effort. The Answer and Counterclaim is
attached as Exhibit 9 hereto.
Defendants based their application for an ex parte temporary
restraining order and for preliminary injunction upon their allegations (1) that
the draft Consent Solicitation Statement, which had not been disseminated to the
Company's stockholders, was in violation of Section 14(a) of the Act of
1934 in that it contained various false and misleading statements
and omissions that would likely result in "confusion" and misunderstanding
on the part of the Company's stockholders and (2) that the proposed
solicitation was a "midnight raid" which could force the removal of the
Company's present Board of Directors without any opportunity to either rebut the
disclosures in the Consent Solicitation Statement or seek relief from the
Courts.
On January 16, 1996, the Committee members moved to dissolve
the ex parte temporary restraining order alleging, inter alia, that it was in
violation of Rule 65 of the Federal Rules of Civil Procedure, was unprecedented
in scope and contrary to the purposes of the Williams Act. On the next day,
January 17, 1996, the Court denied the Committee members' motion to dissolve the
ex parte temporary restraining order.
Page 15 of 25
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On January 19, 1996, Defendants moved for an order extending
the temporary restraining order, which order was granted on that same day. On
January 24, 1996, the Court scheduled a hearing on Defendants' preliminary
injunction motion for January 31, 1996. On January 31, 1996, a hearing was held
on Defendants' preliminary injunction motion. On February 1, 1996, the Court
signed an Order which was entered on February 2, 1996, and which vacated the
temporary restraining order and denied Defendants' motion for preliminary
injunction. A copy of the Order is attached as Exhibit 10 hereto.
The Reporting Persons intend to review on a continuing basis
their respective investments in the Shares and may, subject to the continuing
evaluation of the factors discussed herein, acquire from time to time additional
Shares in the open market or in privately negotiated transactions. Depending on
the factors discussed herein, the Reporting Persons may, from time to time,
retain or sell all or a portion of their respective holdings of the Shares in
the open market or in privately negotiated transactions. In addition, certain
Reporting Persons may, from time to time, elect to acquire Shares through the
exercise of options. Any open market or privately negotiated purchases or
sales or option exercises may be made at any time without further prior notice.
Each of the Reporting Persons reserves the right to cease his or its
participation in a group with the other Reporting Persons.
Any action that any of the Reporting Persons might undertake
with respect to the Shares, including the exercise of options to purchase Shares
currently held by certain Reporting Persons, will be dependent upon its or his
individual review of numerous factors, including, among other things, the
availability of Shares for purchase and the price levels of such Shares, general
market and economic conditions, ongoing evaluation of the Company's business,
financial condition, operations and prospects, the relative attractiveness of
alternative business and investment opportunities, the actions of the management
and the Board of Directors of the Company, and other future developments.
Although the foregoing reflects activities currently
contemplated by the Reporting Persons with respect to the Company, the foregoing
is subject to change at any time, and there can be no assurance that any of the
Reporting Persons will purchase additional Shares or take any of the other
actions referred to above. Except as set forth above and in Item 6, none of the
Reporting Persons has any present plans or intentions that would result in or
relate to any of the transactions described in subparagraphs (a) through (j) of
Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
Item 5 is hereby amended by (i) with respect to subsection (c),
deleting Schedule II referenced therein and replacing it with Schedule II
attached hereto and (ii) with respect to subsections (a) and (b), deleting the
first paragraph thereof and replacing it with the following:
(a) and (b). As of the date hereof, Whelan directly owned
140,615 Shares and held options to acquire an additional 200,000 Shares that
expire on May 16, 1996. Subject to Flannery's ownership of 75% of the common
stock of Whelan, Whelan has the sole power to vote or direct the vote,
and to dispose or to direct the disposition of, the Shares that it owns
directly. As of the date hereof, the Flannery Trust directly owned 18,357
Shares. Flannery has the sole power to vote or direct the vote, and to dispose
or to direct the disposition of, the Shares that the Flannery Trust owns
directly. Flannery, as the principal executive officer and a 75% common
stockholder of Whelan, may also be deemed to own beneficially the Shares owned
by Whelan and may be deemed to share with Whelan the power to vote or direct
the vote, and to dispose or to direct the disposition of, the Shares owned by
Whelan. The foregoing information does not reflect 2,600 Shares owned by
Flannery's wife as to which Flannery disclaims beneficial ownership. Whelan
Securities, in the ordinary course of its business as a broker-dealer, has
purchased and sold shares of Common Stock for the accounts of its customers.
Flannery has advised the Reporting Persons that all such customer accounts are
non-discretionary and that neither Whelan nor Whelan Securities has any control
over buying, selling or voting shares of Common Stock in such accounts. As a
result, Whelan Securities or its clearing agent may be the record owner of
certain of such shares of Common Stock over which it does not possess beneficial
ownership.
Page 16 of 25
<PAGE>
<PAGE>
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Item 7 is hereby supplemented by the addition of the following:
9. Answer and Counterclaim in the action Kevin S. Flannery,
Alan Kaufman, Robert S. Washburn, James H. Stone and George F. Baker,
individually and as members of the Stockholders' Committee
for New Management of Tesoro Petroleum Corporation vs. Tesoro
Petroleum Corporation and Bruce A. Smith, filed on January 8, 1996, in the
United States District Court for the Western District of Texas, San Antonio.
10. Order of the United States District Court for the Western
District of Texas, San Antonio in the action Kevin S. Flannery, Alan Kaufman,
Robert S. Washburn, James H. Stone and George F. Baker, individually and as
members of the Stockholders' Committee for New Management of Tesoro Petroleum
Corporation vs. Tesoro Petroleum Corporation and Bruce A. Smith, signed on
February 1, 1996, and entered on February 2, 1996.
11. Amended and Restated Joint Filing Agreement among Reporting
Persons regarding Joint Filing of Schedule 13D.
Page 17 of 25
<PAGE>
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of their respective
knowledge and belief, each of the undersigned certifies that the information set
forth in this statement is true, complete and correct as of February 8th, 1996.
WHELAN MANAGEMENT CORP.
SEAN KENRICK FLANNERY TRUST
GEORGE F. BAKER
ALAN KAUFMAN
KAUFMAN CHILDREN'S TRUST
JAMES H. STONE
ROBERT S. WASHBURN
ROBERT S. AND SUZANNE P. WASHBURN
REVOCABLE TRUST
ROBERT S. WASHBURN MONEY
PURCHASE, PENSION AND PROFIT
SHARING KEOGH PLAN TRUSTS
By:/s/ Kevin S. Flannery
-------------------------------
Name: Kevin S. Flannery
Title: Attorney-in-Fact for All
KEVIN S. FLANNERY
/s/ Kevin S. Flannery
-----------------------
Kevin S. Flannery
Page 18 of 25
<PAGE>
<PAGE>
SCHEDULE II
The following tables set forth all transactions in the Shares
arranged in chronological order based on trade dates (or settlement dates where
indicated by a "+") effected by the Reporting Persons since October 16, 1995.
Except as noted, price per share excludes brokerage commission.
<TABLE>
<CAPTION>
I. FLANNERY ENTITIES
A. WHELAN MANAGEMENT CORP.
Number
of Shares Price per Share
Type of Transaction Date or Call Options or Option Contract Location
- ------------------- ---- --------------- ------------------ --------
<S> <C> <C> <C> <C>
Purchase of Option 10/16/95 46 $87 1/2 Exchange
Sale of Option 10/18/95 50 $125 Exchange
Sale of Option 10/20/95 50 $106 1/4 Exchange
Sale 10/20/95 8,000 $8 3/8 Exchange
Sale 10/20/95 42,000 $8 1/4 Exchange
Purchase of Option 10/24/95 120 $112 1/2 Exchange
Purchase 10/24/95 900 $8 3/8 Exchange
Purchase 10/24/95 2,000 $8 1/2 Exchange
Purchase 10/25/95 45,000 $8 1/4 Exchange
Purchase 11/10/95 500 $7 7/8 Exchange
Purchase of Option 11/16/95 400,000 (1) Private
Purchase(2) 11/17/95 12,000 $7 1/2 Exchange
Purchase 11/28/95 1,000 $8 3/8 Exchange
Sale 12/04/95 7,500 $8 1/2 Exchange
Sale 12/05/95 10,500 $8 1/2 Exchange
Sale 12/06/95 13,000 $8 1/2 Exchange
Page 19 of 25
<PAGE>
<PAGE>
Grant of Option 12/14/95 100,000 (3) Private
Grant of Option 12/14/95 100,000 (3) Private
Sale 12/14/95 10,000 $8 3/8 Exchange
Purchase 1/24/96 4,000 $8 1/2 Exchange
Sale 1/24/96 4,000 $8 1/2 Exchange
- -------------------
<FN>
(1) The options are exercisable at a price of $8.25 per Share. The total
purchase price for the options was $36,000.
(2) Through the exercise of expiring options.
(3) The options are exercisable at a price of $8.25 per Share. The total sale
price for the options was $9,000 per 100,000 Shares.
</TABLE>
Page 20 of 25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
B. SEAN KENRICK FLANNERY TRUST
Number
of Shares Price per Share
Type of Transaction Date or Call Options or Option Contract Location
- ------------------- ---- --------------- ------------------ --------
<S> <C> <C> <C> <C>
Purchase 10/24/95 80 $112 1/2 Exchange
Purchase 11/09/95 500 $7 7/8 Exchange
Purchase 11/10/95 500 $7 7/8 Exchange
Sale of Option 11/17/95 80 $50 Exchange
Purchase of Option 11/17/95 80 $100 Exchange
Sale of Option 12/17/95 80 $81 1/4 Exchange
Purchase of Option 12/14/95 80 $118 3/4 Exchange
Sale of Option 01/19/95 40 $93 3/4 Exchange
Purchase (1) 01/19/95 4,000 $7 1/2 Exchange
Sale 01/19/95 4,000 $8 1/2 Exchange
<FN>
- -------------------
(1) Through the exercise of expiring options.
</TABLE>
Page 21 of 25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
C. FLANNERY
Number
of Shares Price per Share
Type of Transaction Date or Call Options or Option Contract Location
- ------------------- ---- --------------- ------------------ --------
<S> <C> <C> <C> <C>
Purchase 12/28/95 100 $8 7/8 Exchange
</TABLE>
<TABLE>
<CAPTION>
II. BAKER
Number
of Shares Price per Share
Type of Transaction Date or Call Options or Option Contract Location
- ------------------- ---- --------------- ------------------ --------
<S> <C> <C> <C> <C>
Purchase of 12/14/95 100,000 (1) Private
Option
- -----------------
<FN>
(1) The options are exercisable at a price of $8.25 per Share. The total
acquisition price for the options was $9,000.
</TABLE>
Page 22 of 25
<PAGE>
<PAGE>
III. KAUFMAN
The following table sets forth all transactions in the shares affected by
Kaufman since October 16, 1995 (prices marked with an * reflect commissions).
<TABLE>
<CAPTION>
Number
of Shares Price per Share
Type of Transaction Date or Call Options or Option Contract Location
- ------------------- ---- --------------- ------------------ --------
<S> <C> <C> <C> <C>
Sale 10/20/95 5,000 $8.06* Exchange
Sale 10/20/95 12,500 $8.125 Exchange
Sale 10/23/95+ 20,000 $8.48* Exchange
Purchase 10/31/95 2,000 $7.875 Exchange
Purchase 11/01/95+ 5,000 $8.05* Exchange
Purchase 11/01/95+ 3,000 $8.00 Exchange
Purchase 11/06/95+ 2,700 $7.94* Exchange
Purchase 11/15/95+ 5,000 $7.80* Exchange
Purchase 11/16/95 4,500 $7.75* Exchange
Purchase 12/04/95+ 2,000 $8.38* Exchange
Purchase 12/06/95 5,000 $8.38* Exchange
</TABLE>
Page 23 of 25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
IV. STONE
Number
of Shares Price per Share or
Type of Transaction Date or Options per Option Customer Location
- ------------------- ---- ---------- ------------------- --------
<S> <C> <C> <C> <C>
Purchase of Options 12/01/95 100 $127.50 Exchange
Purchase of Options 12/14/95 100,000 (1) Private
Purchase (2) 12/16/95 11,000 $8.37 Exchange
Sale of Options 01/18/96 100 $97.50 Exchange
<FN>
- -------------------------
(1) The options are exercisable at a price of $8.25 per Share. The total
acquisition price for the options was $9,000.
(2) Through the exercise of expiring options.
</TABLE>
<TABLE>
<CAPTION>
V. WASHBURN ENTITIES
A. WASHBURN TRUSTS
Number
Type of Transaction Date of Shares Price per Share Location
- ------------------- ---- --------- --------------- --------
<S> <C> <C> <C> <C>
Sale 10/18/95 15,000 $8.375 Exchange
Sale 10/27/95 4,000 $8.375 Exchange
Purchase 12/04/95 3,100 $8.25 Exchange
Purchase 12/07/95 1,900 $8.25 Exchange
</TABLE>
B. WASHBURN REVOCABLE TRUST
None
Page 24 of 25
<PAGE>
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
9 Answer and Counterclaim in the action Kevin S.
Flannery, Alan Kaufman, Robert S. Washburn, James
H. Stone and George F. Baker, individually and as
members of the Stockholders' Committee for New
Management of Tesoro Petroleum Corporation vs.
Tesoro Petroleum Corporation and Bruce A. Smith,
filed on January 8, 1996, in the United States
District Court for the Western District of Texas,
San Antonio.
10 Order of the United States District Court for the
Western District of Texas, San Antonio in the
action Kevin S. Flannery, Alan Kaufman, Robert S.
Washburn, James H. Stone and George F. Baker,
individually and as members of the Stockholders'
Committee for New Management of Tesoro Petroleum
Corporation vs. Tesoro Petroleum Corporation and
Bruce A. Smith, signed on February 1, 1996, and
entered on February 2, 1996.
11 Amended and Restated Joint Filing Agreement among
the Reporting Persons regarding Joint Filing of
Schedule 13D.
Page 25 of 25
NYFS10...:\80\99980\0025\2401\SCH01289.00H
<PAGE>
EXHIBIT 9
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
KEVIN S. FLANNERY, :
ALAN KAUFMAN, :
ROBERT S. WASHBURN, :
JAMES H. STONE, :
and GEORGE F. BAKER, :
individually and as members of :
THE STOCKHOLDERS' COMMITTEE FOR :
NEW MANAGEMENT OF TESORO :
PETROLEUM CORPORATION :
:
Plaintiffs, :
:
vs. :
: C.A. No. SA95CA1298
TESORO PETROLEUM CORPORATION :
and BRUCE A. SMITH, :
:
Defendants, :
:
vs. :
:
WHELAN MANAGEMENT CORP., :
SEAN KENRICK FLANNERY TRUST, :
PAGE FLANNERY, :
DOUGLAS THOMPSON, :
GALE E. GALLOWAY, :
ARDSLEY ADVISORY PARTNERS, :
GLORIA KAUFMAN, :
KAUFMAN CHILDREN'S TRUST, :
SUZANNE P. WASHBURN, :
ROBERT S. AND SUZANNE P. WASHBURN :
REVOCABLE TRUST, :
ROBERT S. WASHBURN MONEY PURCHASE, :
PENSION AND PROFIT SHARING :
KEOGH PLAN TRUSTS, and :
JOHN DOES 1-100, persons and :
entities the identities of which :
are presently not known, :
:
Additional Defendants :
on the Counterclaims. :
<PAGE>
<PAGE>
ANSWER AND COUNTERCLAIMS OF DEFENDANTS
TESORO PETROLEUM CORPORATION AND BRUCE A. SMITH
------------------------------------------------
Defendants Tesoro Petroleum Corporation ("Tesoro") and Bruce
A. Smith ("Smith"), for their answer to the Amended Complaint, state
as follows:
1. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 1 of
the Amended Complaint.
2. Deny the allegations contained in paragraph 2 of the
Amended Complaint.
3. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 3 of
the Amended Complaint, except deny that the slate of directors
proposed by plaintiffs is composed of seasoned, qualified directors
who have the incentive and experience to make the changes necessary to
revitalize Tesoro and enhance its value for its owners.
4. Deny the allegations contained in paragraph 4 of the
Amended Complaint.
5. Deny the allegations contained in paragraph 5 of the
Amended Complaint, except admit that the Amended Complaint purports to
seek the relief contained therein.
6. Deny the allegations contained in the first sentence of
paragraph 6 of the Amended Complaint; deny the
<PAGE>
<PAGE>
allegations contained in subparagraph a. of paragraph 6 of the Amended
Complaint, except admit, upon information and belief, that Flannery is
affiliated with Whelan Management Corporation and is a resident of
Connecticut; deny the allegations contained in subparagraph b. of
paragraph 6 of the Amended Complaint, except admit, upon information
and belief, that Kaufman has been a neurosurgeon and is a resident of
Indiana and a beneficial owner of Tesoro stock; deny the allegations
contained in subparagraph c. of paragraph 6 of the Amended Complaint,
except admit, upon information and belief, that Washburn is a resident
of California; deny the allegations contained in subparagraph d. of
paragraph 6 of the Amended Complaint, except admit, upon information
and belief, that Stone is chairman and chief executive of Stone Energy
Corp. and a resident of Louisiana; deny the allegations contained in
subparagraph e. of paragraph 6 of the Amended Complaint, except admit,
upon information and belief, that Baker is a resident of New York.
7. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 7 of
the Amended Complaint, except deny the second sentence of paragraph 7
and deny that Tesoro's Board and management have been more intent on
entrenching their positions and expanding their compensation benefits
than on improving stockholder returns.
<PAGE>
<PAGE>
8. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 8 of
the Amended Complaint, except admit and aver that plaintiffs and other
persons and entities have joined together in an effort to oust the
current management and Board of Tesoro.
9. Admit the allegations contained in paragraph 9 of the
Amended Complaint.
10. Admit the allegations contained in paragraph 10 of the
Amended Complaint.
11. Admit the allegations contained in paragraph 11 of the
Amended Complaint, except deny the Smith has received substantial
financial benefits from Tesoro and refer the Court to the Company's
most recent proxy statement for a complete and accurate statement of
its contents.
12. Deny the allegations contained in paragraph 12 of the
Amended Complaint, except admit that plaintiffs purport to predicate
jurisdiction on the statutes and principles described therein.
13. Deny the allegations contained in paragraph 13 of the
Amended Complaint, except admit that plaintiffs purport to predicate
venue on the statutes described therein.
14. Admit the allegations contained in paragraph 14 of the
Amended Complaint.
<PAGE>
<PAGE>
15. Deny the allegations contained in paragraph 15 of the
Amended Complaint, except admit that the exploration and production
business has been a strong financial performer for Tesoro and has been
consistently profitable, with exploration and production operating
profits of $64 million in 1994, $41 million in 1993, and $29 million
in 1992.
16. Deny the allegations contained in paragraph 16 of the
Amended Complaint, except admit that in September, 1995, Tesoro sold a
portion of its interest in what is known as the Bob West Field, a
natural gas field located in south Texas.
17. Deny the allegations contained in paragraph 17 of the
Amended Complaint.
18. Deny the allegations contained in paragraph 18 of the
Amended Complaint, except admit that Tesoro was involved in certain
shareholder litigation which was resolved favorably and admit that
Tesoro was involved in litigation with the Republic of Trinidad and
Tobago which was subsequently resolved amicably.
19. Deny the allegations contained in paragraph 19 of the
Amended Complaint, except admit that members of the Whelan Group have
challenged the incumbent Board in each of the past two years.
20. Deny the allegations contained in paragraph 20 of the
Amended Complaint, except admit that at the 1994 Annual
<PAGE>
<PAGE>
Meeting, an alternate slate of directors was nominated from the floor
by the Whelan Group, which slate was defeated.
21. Deny the allegations contained in paragraph 21 of the
Amended Complaint, except admit that at the 1995 Annual Meeting, an
alternate slate of directors was nominated from the floor by the
Whelan Group, which slate was defeated.
22. Deny the allegations contained in paragraph 22 of the
Amended Complaint.
23. Deny the allegations contained in paragraph 23 of the
Amended Complaint, but admit that an article appeared in the San
Antonio Express News on September 12, 1995, and refer to that article
for its complete contents.
24. Deny the allegations contained in paragraph 24 of the
Amended Complaint.
25. Deny the allegations contained in paragraph 25 of the
Amended Complaint, except admit that Tesoro adopted a Rights Agreement
in 1985 and refer to that Agreement, as recently extended, for a
complete and accurate statement of its contents.
26. Deny the allegations contained in paragraph 26 of the
Amended Complaint.
27. Deny the allegations contained in paragraph 27 of the
Amended Complaint, except admit that the Company's most recent proxy
statement reflects the current compensation for the
<PAGE>
<PAGE>
Company's directors and refer to that document for a complete and
accurate statement of its contents.
28. Deny the allegations contained in paragraph 28 of the
Amended Complaint.
29. Deny the allegations contained in paragraph 29 of the
Amended Complaint, except admit, upon information and belief, that on
or about December 26, 1995 plaintiffs filed materials with the SEC and
refer to those materials for a complete and accurate statement of
their contents.
30. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 30 of
the Amended Complaint.
31. Deny the allegations contained in paragraph 31 of the
Amended Complaint.
32. Deny the allegations contained in paragraph 32 of the
Amended Complaint.
33. Deny the allegations contained in paragraph 33 of the
Amended Complaint.
34. Deny the allegations contained in paragraph 34 of the
Amended Complaint.
FIRST CAUSE OF ACTION
---------------------
35. Repeat and reallege their responses to paragraphs 1 to
34 of the Amended Complaint as though fully set forth herein.
<PAGE>
<PAGE>
36. Deny the allegations contained in paragraph 36 of the
Amended Complaint, except admit that on December 15, 1995 the Board
extended the Company's Rights Agreement.
37. Deny the allegations contained in paragraph 37 of the
Amended Complaint, except admit that the Company's Rights Agreement
contains the language quoted therein, and refer to that document for a
complete and accurate statement of its contents.
38. Note that paragraph 38 of the Amended Complaint sets
forth a request for relief as to which no responsive pleading is
required.
SECOND CAUSE OF ACTION
----------------------
39. Repeat and reallege their responses to paragraphs 1 to
38 of the Amended Complaint as though fully set forth herein.
40. Note that paragraph 40 of the Amended Complaint sets
forth a legal conclusion as to which no responsive pleading is
required.
41. Deny the allegations contained in paragraph 41 of the
Amended Complaint, except admit that Tesoro's certificate of
incorporation complies with Delaware law and that its By-laws contain
the language quoted therein, and refer to that document for a complete
and accurate statement of its contents.
<PAGE>
<PAGE>
42. Note that paragraph 42 of the Amended Complaint sets
forth a request for relief as to which no responsive pleading is
required.
THIRD CAUSE OF ACTION
---------------------
43. Repeat and reallege their responses to paragraphs 1 to
42 of the Amended Complaint as though fully set forth herein.
44. Note that paragraph 44 of the Amended Complaint sets
forth a legal conclusion as to which no responsive pleading is
required.
45. Deny the allegations in paragraph 45 of the Amended
Complaint, except admit, upon information and belief that on or about
December 26, 1995 the Committee filed what purports to be a Schedule
13D statement.
46. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 46 of
the Amended Complaint.
47. Deny the allegations contained in paragraph 47 of the
Amended Complaint.
48. Note that paragraph 48 of the Amended Complaint sets
forth a request for relief as to which no responsive pleading is
required.
<PAGE>
<PAGE>
FOURTH CAUSE OF ACTION
----------------------
49. Repeat and reallege their responses to paragraphs 1 to
48 of the Amended Complaint as though fully set forth herein.
50. Note that paragraph 50 of the Amended Complaint sets
forth a legal conclusion as to which no responsive pleading is
required.
51. Deny the allegations contained in paragraph 51 of the
Amended Complaint, except admit, upon information and belief; that on
or about December 26, 1995 the Committee filed with the SEC what
purports to be a preliminary Schedule 14A statement.
52. Deny the allegations contained in paragraph 52 of the
Amended Complaint.
53. Note that paragraph 53 of the Amended Complaint sets
forth a request for relief as to which no responsive pleading is
required.
FIFTH CAUSE OF ACTION
---------------------
54. Repeat and reallege their responses to paragraphs 1 to
53 of the Amended Complaint as though fully set forth herein.
55. Note that the first sentence of paragraph 55 of the
Amended Complaint sets forth a legal conclusion as to which no
responsive pleading is required. Deny the allegations in the balance
of paragraph 55 of the Amended Complaint, except admit
<PAGE>
<PAGE>
that on September 27, 1995 the Tesoro Board of Directors amended its
By-laws in certain respects, and refers to those By-laws for a
complete and accurate statement of their contents.
56. Deny the allegations contained in paragraph 56 of the
Amended Complaint.
57. Note that paragraph 57 of the Amended Complaint sets
forth a request for relief as to which no responsive pleading is
required.
AFFIRMATIVE DEFENSES
--------------------
FIRST AFFIRMATIVE DEFENSE
-------------------------
58. The Amended Complaint, and each and every cause of
action therein, fails to state a claim upon which relief can be
granted.
59. The Amended Complaint, and each and every cause of
action therein, fails to state a justiciable case or controversy for
determination by this Court.
THIRD AFFIRMATIVE DEFENSE
-------------------------
60. The Amended Complaint, and each and every cause of
action therein, fails to state a claim that is ripe for adjudication
at this time.
FOURTH AFFIRMATIVE DEFENSE
--------------------------
61. The equitable relief plaintiffs seek is barred by the
equitable doctrines of unclean hands and laches.
<PAGE>
<PAGE>
COUNTERCLAIMS OF DEFENDANT TESORO PETROLEUM
-------------------------------------------
CORPORATION
-----------
Defendant Tesoro, upon knowledge with respect to itself, and
upon information and belief with respect to all other persons and
matters, for its counterclaims, alleges as follows:
NATURE OF THE COUNTERCLAIMS
---------------------------
1. By these counterclaims, Tesoro seeks preliminary and
permanent injunctive relief and compensatory and punitive damages
against Kevin S. Flannery ("Flannery"), Alan Kaufman ("Kaufman"),
Robert S Washburn ("Washburn"), James H. Stone ("Stone") and George F.
Baker ("Baker"), both individually and as members of The Stockholders'
Committee for New Management of Tesoro Petroleum Corporation
("Stockholders' Committee"), Whelan Management Corporation ("Whelan"),
the Sean Kenrick Flannery Trust, Page Flannery, Douglas Thompson
("Thompson"), Gale E. Galloway ("Galloway"), Gloria Kaufman, the
Kaufman Children's Trust, Ardsley Advisory Partners ("Ardsley"),
Suzanne P. Washburn, the Robert S. and Suzanne P. Washburn Revocable
Trust, the Robert S. Washburn Money Purchase, Pension and Profit
Sharing Keogh Plan Trusts, and John Does 1-100 (collectively
"counterclaim-defendants" or the "Whelan Group") for (a) violations of
the federal securities laws in connection with counterclaim-
defendants' false and misleading filings pursuant to Sections 13(d)
and 14(a) of the Securities and Exchange Act of
<PAGE>
<PAGE>
1934 ("1934 Act") and the rules and regulations promulgated
thereunder; (b) violations of Section 16(b) of the 1934 Act and the
rules and regulations promulgated thereunder; (c) tortious
interference with Tesoro's contractual and prospective contractual and
business relations; and (d) business disparagement. The substantial
violations of the federal securities laws which are detailed below,
have exposed and continue to expose Tesoro and its stockholders to the
prospect of immediate and irreparable injury. In addition to
injunctive relief, Tesoro also seeks compensatory and punitive damages
in connection with various tortious conduct undertaken by various of
the counterclaim-defendants as detailed below.
2. As the following discussion shall demonstrate,
beginning no later than 1994 Flannery and other persons aligned with
Flannery, whose composition has changed from time to time but who at
all relevant times has included Flannery, Kaufman, Stone and Washburn,
among others (the Whelan Group), secretly embarked on a plan and
scheme to seize control of the Board of Directors of Tesoro through a
"midnight raid" disguised as a consent solicitation, in violation of
the federal securities laws and contrary to the best interests of
stockholders. In furtherance of their plan and scheme, members of the
Whelan Group have, among other things,
<PAGE>
<PAGE>
(a) issued numerous press releases containing false and
misleading information regarding Tesoro and omitting
material information about the Whelan Group;
(b) engaged in a series of covert (albeit unsuccessful)
campaigns to take control of the Company, for their own
personal benefit as opposed to the best interest of
stockholders, through the solicitation of proxies in
violation of Sections 13(d) and 14(a) of the Securities
Exchange Act of 1934 ("1934 Act") and the rules and
regulations promulgated thereunder;
(c) without authorization from or knowledge of the Company,
attempted (also unsuccessfully) to solicit interest from
third parties in a potential acquisition of or business
combination with Tesoro, which would have resulted in the
payment to Flannery of a substantial commission or finder's
fee;
(d) caused the Company unnecessarily to expend substantial
sums defending against frivolous claims challenging the
results of the 1995 election of directors, which challenges
were squarely rejected by the inspector of elections and
thereafter by the Delaware Chancery Court following a trial
in August 1995;
(e) continued to buy and sell Tesoro securities without
filing the requisite Form 3s and 4s with the SEC or
accounting to the Company for the short-swing profits
derived from such transactions;
(f) tortiously interfered or attempted to interfere with
Tesoro's contractual and prospective contractual and
business relations with third parties;
(g) intentionally and maliciously disparaged and defamed
Tesoro through the publication of false and misleading
statements regarding the Company's management. Board of
Directors, business plans, strategic objectives, and the
value and marketability of its assets; and
(h) announced their intention to seek to unseat the current
Board and replace management by means of a consent
solicitation in which stockholders are being, or will be,
asked to act on the basis of false and misleading
statements, or omissions of material fact,
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<PAGE>
regarding the background, plans and intentions of the Whelan
Group, as well as the Company's management, Board of
Directors, business plans, strategic objectives, and the
value and profitability of its assets.
The Parties
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3. Tesoro is a Delaware corporation with its principal
place of business in San Antonio, Texas. It is a natural resource
company engaged in petroleum refining and marketing, natural gas
exploration and production, and wholesale marketing of fuel and
lubricants. Its stock is listed and traded on the New York Stock
Exchange and its shares are registered pursuant to Section 12 of the
1934 Act. As of the record date for its 1995 Annual Meeting, Tesoro
had 24,538,167 shares of common stock outstanding and entitled to
vote.
4. Upon information and belief, plaintiff and
counterclaim-defendant Kevin S. Flannery is a resident of the State of
Connecticut. Flannery is president of Whelan and owns 75% of its
common stock. He has never been a director of a publicly held
company. Flannery has no prior experience working in the oil and gas
industry. Indeed, he admitted under oath in July 1995 that "I
[Flannery] don't know anything about the E & P business," the very
business which Flannery claims is the core of Tesoro's business.
According to documents recently filed with the SEC, as of December 26,
1995, Flannery, Whelan and the Sean Kenrick Flannery Trust (the
"Flannery Entities") in the aggregate
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<PAGE>
owned beneficially 166,972 shares of Tesoro common stock and options
to acquire another 200,000 shares granted to Whelan by counterclaim
defendant Ardsley. Flannery claims to share voting control over these
-----
shares (presumably with others). Flannery has for the past two years
been a heavy seller of Tesoro stock. Since February 1994, Flannery
has sold more than 110,000 shares of Tesoro common stock; he purchased
no shares in his own name in 1995. Whelan has also been a net seller
of Tesoro common stock during the same period. According to the
preliminary Schedule 14A materials recently filed with the SEC, during
1995 Whelan sold approximately 136,000 more shares of Tesoro common
stock than it purchased.
5. Upon information and belief, plaintiff and counterclaim
defendant Alan Kaufman is a resident of the State of Indiana. Kaufman
has for many years been a neurosurgeon; he, like Flannery, has never
worked in the oil and gas industry. According to documents recently
filed with the SEC, as of December 26, 1995, Kaufman and the Kaufman
Trust (of which Kaufman is the sole trustee) owned beneficially
581,500 and 20,000 shares, respectively, of Tesoro common stock.
6. Upon information and belief, plaintiff and
counterclaim-defendant Robert S. Washburn is a resident of the State
of California. Washburn is a retired investor (who owns no Tesoro
stock personally) whose background is in law, real estate
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<PAGE>
development and investment banking; he, like Flannery and Kaufman, has
never worked in the oil and gas industry. According to documents
recently filed with the SEC, as of December 26, 1995, the Robert S.
and Suzanne P. Washburn Revocable Trust (of which Washburn is co-
trustee) and the Robert S. Washburn Money Purchase, Pension and Profit
Sharing Keogh Plan Trusts (of which Washburn is the sole trustee)
owned beneficially 36,545 and 193,791 shares, respectively, of Tesoro
common stock. The two Washburn trusts, like the Flannery Entities,
have been net sellers of Tesoro stock (in the aggregate amount of
77,700 shares) since April 1, 1994. As noted below, Washburn is a
party to an agreement with Whelan dated as of December 14, 1995,
pursuant to which Washburn is to receive, under certain circumstances,
up to 30% of the net profits realized by Whelan upon the exercise and
sale of options to purchase shares of Tesoro stock which were
purportedly granted to Whelan by counterclaim-defendant Ardsley on or
about November 16, 1995.
7. Upon information and belief, plaintiff and
counterclaim-defendant James H. Stone is a resident of the State of
Louisiana. Stone is the Chairman and Chief Executive Officer of Stone
Energy Company, a company whose stock performance since 1993 has been
lackluster. Upon information and belief, Stone and Kaufman both serve
on the Board of Directors of Newpark Resources, Inc., a company whose
primary business, upon
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<PAGE>
information and belief is in waste disposal not oil and gas. Upon
information and belief, Stone has been a member of at least two (and
perhaps three) 13D filing "groups" relating to Tesoro. From August
1988 to and including August 1992, Stone was a member of a 13D filing
group (the "Stone Group"), along with Pentane Partners, Jess Partners
and James H. Stone Interests, a partnership controlled by Stone, whose
stated goal was to acquire control over Tesoro or arrange its sale to
a third party. In October 1992, the so-called Manocherian Group
(which included Flannery and Kaufman among others) was formed for the
stated purpose of obtaining representation on the Board of Directors
in order to promote a sale of the Company. One of the individuals
nominated by the Manocherian Group for election as a director was
Stone. Following the demise of the Manocherian Group in early 1994,
Stone became a member of the Whelan Group, whose avowed purpose is
essentially the same as that of the Stone and Manocherian Groups.
According to documents recently filed with the SEC, as of December 26,
1995, Stone owned beneficially 46,000 shares of Tesoro common stock
and held purported options to acquire another 110,000 shares
(including an option granted by Whelan to acquire 100,000 shares which
had originally been granted by Ardsley to Whelan and which was "in the
money" at the time of the grant to Stone).
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<PAGE>
8. Upon information and belief, plaintiff and
counterclaim-defendant George F. Baker is a resident of the State of
New York. Baker's principal occupation is as an investment advisor,
having previously worked for a company engaged in the electronics,
aerospace and earth science fields. His experience in the oil and gas
industry appears to be limited to his service as a director (along
with counterclaim-defendant Thompson) of Digicon, Inc., a company
allegedly engaged in interpreting geophysical data. According to
documents recently filed with the SEC, as of December 26, 1995, Baker
owned beneficially 10,000 shares of Tesoro common stock and held a
purported option to acquire another 100,000 shares from Whelan (which
option had originally been granted by Ardsley to Whelan and which was
"in the money" at the time of the grant to Baker).
9. Upon information and belief, counterclaim- defendant
Whelan Management Corp. ("Whelan") is a Delaware corporation with its
principal place of business and which can be served with process at 8
Holley Street, Lakeville, Connecticut 06039. Although Whelan is
described by plaintiffs as an investment advisory firm, it has no
employees other than Flannery and Robert Thomas, Flannery's business
partner and personal lawyer, who owns 25 percent of the common stock
of Whelan. As of mid-1995, Whelan's largest asset by far was its
investment in the common stock of Tesoro, which, upon information and
belief, is
<PAGE>
<PAGE>
held in a margin account at Bear Stearns & Co. As noted above, Whelan
has been a heavy net seller of Tesoro common stock for most of the
past two years. According to documents recently filed with the SEC,
as of December 26, 1995, Whelan owned beneficially 140,615 shares of
Tesoro commons stock and held a purported option to acquire an
additional 200,000 shares granted by Ardsley in November 1995.
10. Upon information and belief, counterclaim- defendant
the Sean Kenrick Flannery Trust (the "Flannery Trust") is a trust for
which Flannery serves as investment officer and can be served with
process at 8 Holley Street, Lakeville, Connecticut 06039. According
to documents recently filed with the SEC, as of December 26, 1995, the
Flannery Trust owned beneficially 18,357 shares and options to
purchase another 8,000 shares of Tesoro common stock.
11. Upon information and belief, counterclaim-defendant
Page Flannery is the wife of Flannery and can be served with process
at 8 Holley Street, Lakeville, Connecticut 06039. According to
documents recently filed with the SEC, as of December 26, 1995, Page
Flannery owned beneficially 2,500 shares of Tesoro common stock which,
although owned by his wife, are effectively controlled by Flannery.
12. Upon information and belief, counterclaim- defendant
Douglas Thompson ("Thompson") is resident of the state
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<PAGE>
of Texas, and can be served with process at 3701 Kirby Drive, Houston,
Texas 77098. He, along with Baker, sits on the board of Digicon, Inc.
Thompson owns no Tesoro stock.
13. Upon information and belief, counterclaim- defendant
Gale L. Galloway is a resident of the State of Texas, and can be
served with process at 400 West 15th Street, Suite 808, Austin, Texas
78701. Galloway owns no Tesoro stock.
14. Upon information and belief, counterclaim- defendant
Ardsley Advisory Partners is a Connecticut partnership engaged in the
investment advisory business with its principal place of business in
the State of Connecticut, and can be served with process at 646
Steamboat Road, Greenwich, Connecticut. Ardsley, the largest
stockholder of the Company, owns in excess of 2,500,000 (or 10.1
percent of the total outstanding) shares of Tesoro common stock.
Ardsley has long been a supporter of the Whelan Group's efforts to
oust the incumbent Board of Directors, having actively supported and
voted in favor of the alternate slate of directors proposed by the
Whelan Group at the 1995 Annual Meeting. Ardsley's close link to the
Whelan Group was openly acknowledged by Flannery during testimony
given in July 1995 in connection with the Whelan Group's efforts to
elect a dissident slate of directors at the 1995 Annual Meeting.
Flannery testified that his "interest is not to spend any more time in
San Antonio than I already have," and that he had no
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<PAGE>
intention of remaining on the Tesoro Board if elected. Rather, he
testified that he had had "discussions with Sandy Prater [a partner of
Ardsley] about resigning my place on the board and having him take my
place." More recently, Ardsley's alliance with the Whelan Group has
become more pronounced and tangible. According to documents recently
filed with the SEC, on or about November 16, 1995, Ardsley granted to
Whelan options to purchase 400,000 shares of Tesoro common stock owned
by Ardsley. The terms of these extraordinary option grants leave no
doubt as to their true purpose -- to provide financial assistance to
the Whelan Group in order to help defray the anticipated costs of a
consent solicitation to unseat the incumbent Board. Thus, for a
purchase price of $.09 per share (or $36,000 in the aggregate),
Ardsley purported to grant Whelan options to purchase for $8.25 per
share (or $.625 lower than the closing market price on January 5,
1996) up to 400,000 shares (enough to push the Whelan Group's holdings
over the 5% threshold for Schedule 13D filing purposes), which if
exercised today would yield in excess of $250,000 in profits. The
options are only exercisable, however, until May 16, 1996 (shortly
after the anticipated date of the 1996 Annual Meeting). The options
are intended to provide plaintiffs with the best of both worlds: in
the event the Whelan Group is unsuccessful in its consent
solicitation, it will be able to use the profits realized upon the
exercise and the
<PAGE>
<PAGE>
subsequent sale of shares to defray the costs of their unsuccessful
solicitation. However, if the consent solicitation succeeds, the
Whelan Group has stated that it intends to seek reimbursement for such
expenses directly from the Company (without stockholder approval
unless mandated by law), in which case there will be no need to
exercise the Ardsley options to defray plaintiffs' costs. Any profits
realized upon exercise and sale in such case would present a windfall
to Whelan. In light of Ardsley's enthusiastic financial and other
support of the Whelan Group's efforts, as well as the extraordinary
terms of the option grant to Whelan, it is obvious that an arrangement
or understanding beyond the mere grant of the options themselves
exists between Ardsley and the other members of the Whelan Group, and
that Ardsley's role extends far beyond the normal role played by a
passive institutional investor.
15. Upon information and belief, Gloria Kaufman is the wife
of Alan Kaufman, is a resident of the State of Indiana and can be
served with process at 550 Hohman Avenue, Suite 2A, Hammond, Indiana
46320. According to documents recently filed with the SEC, as of
December 26, 1995, Gloria Kaufman owned beneficially 10,500 shares of
Tesoro common stock, which, although owned by his wife, are
effectively controlled by Kaufman.
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<PAGE>
16. Upon information and belief, the Kaufman Children's
Trust ("Kaufman Trust") is a trust established under Indiana law for
the benefit of the Kaufman children and can be served with process at
550 Hohman Avenue, Suite 2A, Hammond, Indiana. According to documents
recently filed with the SEC, as of December 26, 1995, the Kaufman
Trust, of which Kaufman is the sole trustee, owned beneficially 20,000
shares of Tesoro common stock.
17. Upon information and belief, counterclaim- defendant
Suzanne P. Washburn is the wife of Robert S. Washburn, is a resident
of the State of California and can be served with process in care of
Whelan Management Group, 8 Holley Street, Lakeville, Connecticut
06039. According to documents recently filed with the SEC, as of
December 26, 1995, Suzanne P. Washburn is a co-trustee of the Robert
S. and Suzanne P. Washburn Revocable Trust and thus shares voting
rights with respect to all Tesoro shares held by the Trust.
18. Upon information and belief, counterclaim-defendant the
Robert S. and Suzanne P. Washburn Revocable Trust ("Washburn Revocable
Trust") is a trust established under California law for the benefit of
Washburn and his wife and can be served with process at its principal
address which is in care of Whelan Management Corporation, 8 Holley
Street, Lakeville, Connecticut 06039. Washburn and his wife are co-
trustees of the
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<PAGE>
Washburn Revocable Trust. According to documents recently filed with
the SEC, as of December 26, 1995, the Washburn Revocable Trust owned
beneficially 39,545 shares of Tesoro common stock.
19. Upon information and belief, counterclaim-defendant the
Robert S. Washburn Money Purchase, Pension and Profit Sharing Keogh
Plan Trusts ("Washburn Trusts") are jointly administered pension and
retirement trusts established under California law for the benefit of
Washburn and his designated beneficiaries, and can be served with
process at its principal address which is in care of Whelan Management
Corporation, 8 Holley Street, Lakeville, Connecticut 06039. Washburn
is the sole trustee of the Washburn Trusts. According to documents
recently filed with the SEC, as of December 26, 1995, the Washburn
Trusts owned beneficially 193,791 shares of Tesoro common stock
20. John Does 1-100 are persons or entities, the identities
of which are currently unknown, who, at various times from 1994 to the
present, have been part of the Whelan Group and have participated in
the unlawful plan and scheme to oust the Tesoro Board of Directors and
replace them with a slate of directors hand-picked by Flannery and
Kaufman. They include, among others, persons who submitted proxies at
the 1995 Tesoro Annual Meeting supporting the dissident slate of
directors proposed by the Whelan Group, and other individuals or
entities
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<PAGE>
who will be added to the caption and joined as counterclaim-defendants
as soon as their identities can be ascertained.
21. Each of the plaintiffs and counterclaim-defendants
(other than Thompson and Galloway, who own no Tesoro stock) are
members of a 13D filing "group" and should have been reported as such
in plaintiffs' recent Schedule 13D filing with the SEC. The failure
to include the Sean Kenrick Flannery Trust, Page Flannery, Gloria
Kaufman, Suzanne P. Washburn and Ardsley Advisory Partners as members
of such group violated Section 13(d) of the 1934 Act and the rules and
regulations thereunder.
22. Each of the plaintiffs and counterclaim-defendants
caused and/or participated in each other's violations of the federal
securities laws and the common law of Texas all as described more
particularly below. As such, they are jointly and severally liable
for each other's conduct and the violations of law described herein.
JURISDICTION
------------
23. These counterclaims arise under Sections 13(d), 14(a)
and 16(b) of the 1934 Act, 15 U.S.C. Section 78m(d), Section 78n(a)
and Section 78p(b), and the rules and regulations promulgated
thereunder, and the common law of Texas.
24. Jurisdiction is conferred on this Court by virtue of
Section 27 of the 1934 Act, 15 U.S.C. Section 78aa, by the
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<PAGE>
provisions of 28 U.S.C. Section 1331, and by the doctrines of pendent,
ancillary and supplemental jurisdiction.
25. The unlawful acts alleged herein were and are being
committed by the plaintiffs and counterclaim-defendants by the use of
the means and instrumentalities of interstate commerce and the mails.
BACKGROUND
----------
26. The current effort by the Whelan Group to seize control
over Tesoro by engaging in a midnight raid in the guise of a consent
solicitation is only the latest effort undertaken by that group to
grab control without engaging in a formal proxy solicitation or
offering to pay a control premium for the privilege of running the
Company. In fact, since at least 1992 (and earlier in the case of
Stone), plaintiffs Flannery, Kaufman, Stone and others have sought to
steal control of the Company no fewer than three times. Recently, the
Whelan Group announced plans to engage in a consent solicitation for
the avowed purpose of (a) replacing the current management and Board
of Directors, (b) removing the Company's "poison pill" and certain by-
law provisions designed to protect stockholders from an unfair an/or
coercive takeover bid from a hostile suitor, and (c) dismantling the
Company through a fire sale of the Company's refining and marketing
business and/or by a sale of the Company as a whole. The Whelan
Group's stated goals, however, are, as demonstrated
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<PAGE>
below, illusory at best, contrary to the best interests of
stockholders and reflects the remarkable naivete about the Company's
business operations and future prospects.
27. Plaintiffs' true purpose in proceeding by the highly
unusual route of a consent solicitation is, in fact, to seize control
of the Company as quickly as possible by deluding stockholders into
backing their slate through the issuance of numerous false and
misleading statements which pervade plaintiffs' solicitation
materials, in the hope that Tesoro will lack the time and ability to
refute these misstatements adequately given the speed and secrecy
under which the consent solicitation will occur. Thus, plaintiffs'
consent solicitation will actually impede stockholder democracy, not
foster it, as plaintiffs claim, since stockholders will be deprived of
the full and complete disclosure necessary to make an informed
decision on critical issues of corporate governance and the future
direction of Tesoro.
28. Under normal circumstances, the Company's 1996 Annual
Meeting would be expected to occur in early May and is currently
scheduled to take place on May 2, 1996, with proxy materials,
including a copy of the Company's 1995 Annual Report containing
audited financial statements for the year ended December 31, 1995,
being sent to stockholders approximately 30 days prior to the meeting.
There is nothing in the Company's By-
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<PAGE>
laws that would prohibit or preclude plaintiffs from proceeding with a
full-blown proxy solicitation in conjunction with such meeting. All
stockholders in such a contest would thus be able to exercise their
right of corporate democracy based upon full disclosure of all
relevant information concerning the Company and the differing
positions of the competing slates. Requiring plaintiffs to make their
case at the annual meeting rather than by means of a surreptitious
consent solicitation campaign, in which stockholders may be rushed
into decisions in reliance on false, misleading or incomplete
information, before the Court has had adequate time to consider and
rule on the claims asserted herein, will not result in any prejudice
to plaintiffs and would be fair to stockholders and the Company, which
stand to be irreparably harmed if the consent solicitation is allowed
to proceed in the current environment.
EARLY EFFORTS TO GAIN CONTROL OF THE TESORO
BOARD AND FLANNERY'S FIRST SECTION 13(D) VIOLATION
--------------------------------------------------
29. Upon information and belief, Stone has been a member of
at least two (and perhaps three) 13D filing "groups." As set forth
above, from August 1988 to and including August 1992, Stone was a
member of the Stone Group, along with Pentane Partners, Jess Partners
and James H. Stone Interests, a partnership controlled by Stone, whose
stated goal was to acquire control over Tesoro or arrange its sale to
a third party. This effort did not, however, succeed.
<PAGE>
<PAGE>
30. The next failed effort to gain control of Tesoro
occurred in 1992, when Flannery and Kaufman, among others, allied
themselves with Fraydan Manocherian (collectively the "Manocherian
Group") in an failed effort to force Tesoro to elect two additional
Board Members from a group of five designated by the Manocherian
Group, which included Flannery, Kaufman, and Stone. Ultimately, this
effort was also unsuccessful.
31. In furtherance of their scheme, the Manocherian Group
filed in October 1992 a Schedule 13D under the name "United Partners."
Flannery, who at the time owned only 1,700 shares of Tesoro common
stock, was nevertheless listed as a member of the group. Flannery
remained a member of the Manocherian Group until February 1994, at
which time he and Kaufman withdrew and the Manocherian Group
disbanded. (It should be noted that the disclose in plaintiffs'
Schedule 14A regarding the timing and circumstances of Flannery's
withdrawal from the Manocherian Group is materially inconsistent with
his sworn testimony in July 1995, when he insisted that he had
withdrawn from the group no later than January 1993.) Until the time
of his formal withdrawal, Flannery as a member of the group remained
bound by the requirements of Section 13(d) of the 1934 Act to disclose
any purchases or sales of Tesoro stock. Despite this requirement, and
despite the fact that, upon information and belief, Flannery purchased
and/or sold substantial amounts of Tesoro stock between
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<PAGE>
October 1992 and February 1994, Flannery did not cause the United
Partners Schedule 13D to be amended to reflect those transactions as
required. His failure to do so constituted a violation of Section
13(d) of the 1934 Act.
32. The demise of the Manocherian Group coincided with the
election on February 9, 1994 of Manocherian to the Tesoro Board and
his resignation five days later. Manocherian advised the Company that
he did not have sufficient time to devote to the duties of Board
membership, and he advised the Company that he believed that
shareholder interests were well represented by the existing members of
the Board of Directors.
The Whelan Group's 1994 Failed
Attempt to Unseat the Tesoro Board
----------------------------------
33. Also in February 1994, the Company, with Stockholder
approval, consummated a recapitalization and restructuring of its
outstanding debt and preferred stock ("Recapitalization"). The
Recapitalization, certain aspects of which have been criticized by
Flannery and other members of the Whelan Group, provided substantial
benefits for the Company and its stockholders. The primary purposes
of the Recapitalization were to improve the short-term and long-term
liquidity of the Company and increase the Company's equity capital,
thereby allowing the Company to pursue its strategy of improving its
refining and marketing operations and accelerating the growth of its
oil and gas exploration and production activities, with the
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<PAGE>
goal of returning the Company to profitability. In essence, the
Recapitalization caused (1) the exchange of Tesoro's outstanding 12
3/4 percent Subordinated Debentures due 2001 for new 13% Exchange
Notes due 2000, (2) the reclassification of a class of Tesoro's
preferred stock into common stock, and (3) the satisfaction of accrued
and unpaid dividends on a different class of Tesoro preferred stock.
34. The Company held its Annual Meeting of Stockholders on
February 9, 1994, at which the stockholders of Tesoro approved the
Recapitalization. At the Annual Meeting of Stockholders, which was
held in May 1994, plaintiffs Flannery, Washburn and Kaufman voiced
their objections to the Recapitalization, stating that they had
concluded that the Recapitalization was contrary to the best interests
of the stockholders.
35. As noted above, at some point in early 1994, the
Manocherian Group disbanded and Flannery, Kaufman and others formed
their own group -- the Whelan Group -- with the same avowed purpose,
namely to acquire control over Tesoro's Board of Directors in order to
effect a sale or breakup of the Company. The Whelan Group's first
unsuccessful effort to seat their designees on the Tesoro Board
occurred in 1994. At Tesoro's 1994 Annual Meeting held on May 26,
1994, Flannery nominated, with no advance notice to Tesoro or its
stockholders, an alternate slate
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<PAGE>
of directors consisting of himself, Kaufman, Washburn, Baker and R.
Michael Still ("Still") (who was hand-picked by Kaufman). The Whelan
Group did not succeed in seating any member of this alternate slate,
which was defeated by a wide margin.
The Whelan Group's 1995 Failed
Attempt to Unseat the Tesoro Board
----------------------------------
36. Early in 1995, the Whelan Group continued its efforts
to seize control of Tesoro's Board of Directors.
37. Specifically, in or before February 1995, Flannery,
Kaufman and Washburn agreed to propose an alternate slate of directors
for election at the 1995 Annual Meeting. Flannery and Kaufman
considered but decided against engaging in a full-blown proxy contest
and embarked instead on a different strategy, relying on the element
of secrecy and surprise to win this election, since, as conceded by
Flannery's partner and personal lawyer, Robert Thomas, during his
deposition taken in July 1995, the Whelan Group did not believe they
could garner the support of an absolute majority of Tesoro's
stockholders.
38. Consistent with their covert scheme, Flannery set out
to solicit votes in March and April 1995 from a small group of
institutional stockholders who it was believed were or would likely be
sympathetic to his group. Upon information and belief, Kaufman
separately set out to solicit votes from a different group of
stockholders. Flannery was advised by counsel to limit his
solicitation efforts to fewer than ten stockholders to avoid
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<PAGE>
triggering federal proxy requirements; however, when aggregated with
Kaufman's contacts, the number of stockholders actually solicited
exceeded the minimum number allowed in order to be exempt from
complying with the federal proxy rules.
39. In furtherance of the Whelan Group's secret
solicitation efforts, in or about April 1995 Flannery prepared a
document on Whelan's letterhead entitled "Specific Goals for New Board
of Directors" (the "Whelan Goals Memo"), which was disseminated prior
to the Annual Meeting to a small group of institutional stockholders
he was soliciting. This document contained numerous false and
misleading statements and omissions of material fact, including,
without limitation, the following:
(a) The Whelan Goals Memo falsely asserted that Tesoro's gas
reserves were significantly higher than stated in its public
filings. The Whelan Group provided no substantiation for
this claim either in that document or subsequently. In
fact, Tesoro's published reserve levels are evaluated twice
each year by Netherland, Sewell & Associates, one of the
industry's most respected independent engineering firms.
Whelan's counsel, Thomas, admitted under oath that the
Whelan Group had no basis for calling into question that
firm's independence. At his deposition, Flannery displayed
a lack of understanding regarding the
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<PAGE>
reporting of reserve levels and the difference between
proved, probable and possible reserves. Whelan, in this
press release failed to note that the reserve levels
reported by Tesoro were proved reserves only, not probable
------
and possible reserves, which Tesoro is precluded from
including in its public filings with the SEC.
(b) One of the stated goals in the Whelan Goals Memo was (and
remains) the disposition or sale of Tesoro's refining and
marketing assets. Tesoro's management has been engaged in
an ongoing effort to evaluate various options in order to
enhance the return from these assets, including a possible
joint venture, strategic alliance or business combination.
Since 1993, Tesoro had held discussions with at least six
companies regarding the evaluation of such possible
transactions; none of those discussions resulted in a
transaction. Tesoro has also considered a possible sale,
although that is not achievable in today's market.
(c) Another stated goal of the Whelan Group was (and remains)
the sale or dismantling of Tesoro Petroleum Distributing
Company (PEDCO), the Company's diesel fuel and lubricants
distribution business. Before this document was ever
circulated, the Company began
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restructuring its PEDCO operations including the closure or
sale of its land-based operations which were unprofitable.
With regard to the shore-based operations of PEDCO, which
lacked critical mass and which were largely unmarketable due
to environmental and other concerns, Tesoro's management
decided to pursue a different strategy, in order to
strengthen the performance and value of the business, by
negotiating an acquisition of or joint venture with
Coastwide Energy Services, Inc. ("Coastwide"), a primary
competitor providing support services to the offshore
industries operating in the Gulf of Mexico. That strategy
has proven to be a wise choice. In September 1995 the
Company announced that it had reached an agreement to
acquire Coastwide in a transaction that is expected to vault
PEDCO into a leadership role in the shore-based business and
generate significant profits in 1996 and ensuing years.
(d) The memorandum also listed as one of Whelan's "goals" the
refinancing or retiring of the Company's public debt,
although it provided no specifics on how that goal could be
achieved. Even if such a goal were achievable -- a big "if"
-- it would not be prudent, in the view of Management, to
undertake such an initiative
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<PAGE>
prior to the resolution of the Tennessee Gas litigation and
would not result in any short-term savings given the
significant cost of any refinancing, additional restrictions
that would be required, and the Company's current credit
rating which continues to be adversely affected by the
Tennessee Gas litigation which does not permit the Company
to take advantage of the current favorable interest rate
environment. Management believes that a final resolution of
the Tennessee Gas litigation, whether by settlement or
otherwise, combined with the existing favorable interest
rate environment, will create a much more favorable
environment for refinancing the Company's outstanding debt
in 1996 than was the case last year.
(e) The Whelan Goals Memo also criticized Tesoro's staffing
levels as too high, ignoring the fact that the then-current
staffing level was less than half the level that had existed
three years earlier and that productivity, as measured by
operating income per employee, had increased significantly
over the previous two years.
(f) The Whelan Goals Memo, noticeably short on specifics,
further stated that the Whelan Group intended to take steps
with regard to Tesoro's Bolivia operations to
<PAGE>
<PAGE>
maximize the full potential of Bolivia. In fact, as Whelan
knew or should have known, the Bolivian operation is
constrained not by the Company's capabilities, but by a lack
of accessible natural gas markets. In spite of the limited
market for natural gas, the Bolivian operations have been
extremely profitable, and reported operating profit of $9.3
million during 1994 and $6.2 million for the 9 months ended
September 30, 1995. The full potential of the Bolivian
operations cannot be realized until the pipeline
infrastructure in South America is constructed, which will
open new natural gas markets for these operations.
40. In the weeks before the 1995 Annual Meeting the efforts
of the Whelan Group to elect their alternate slate intensified.
Private meetings were held with various institutional investors, a
number of which (including in particular Ardsley) agreed to side with
the dissidents. Proxies and powers of attorney running in favor of
Flannery and the Kaufmans were sought and obtained -- in all more than
50 proxies and/or powers of attorney were issued in favor of the
dissidents. On the night before the Annual Meeting, Flannery hosted a
party for the members of his group. At the Annual Meeting, Flannery
caused to be distributed a biographical sketch of each member of
<PAGE>
<PAGE>
the dissident slate, which was comprised of Flannery, Baker and
Kaufman, as well as John M. O'Mara (whose company, Global Natural
Resources, was a failing company), James A. Rooney (a college
classmate and close personal friend of Flannery's for 30 years) and
Still, hand-picked designees of the Whelan Group. He failed to
disclose, however, that one of their hand-picked candidates, Still,
had just resigned as Chief Executive Officer, President and Director
of Struthers Industries, Inc., a loss-plagued chemical-dye concern,
after only one year of service. According to a May 4, 1995 Wall
----
Street Journal account of Still's resignation, the Struthers' Board
--------------
was not satisfied with the level of communication between it and Mr.
Still, which apparently was a contributing factor in his decision.
41. Notwithstanding the behind-the-scenes effort to
engineer a secret coup, the Whelan Group was unsuccessful in its
efforts to elect any of its designees. After the announcement of the
results, Flannery requested the opportunity to review the proxies and
ballots voted at the Annual Meeting. He thereafter formally
challenged the results, claiming that the inspector of elections
should have disregarded the master ballot cast by management
reflecting the vote of the vast majority of Tesoro's stockholders.
42. In a May 15, 1995 press release issued by Flannery,
Flannery falsely asserted that "[i]t is inconceivable
<PAGE>
<PAGE>
that the hold-over [incumbent] directors could have received the
percentage vote they assert, given the size of our vote, the votes we
believe were cast 'against' management this year, and historical
Tesoro voting patterns." In point of fact, both the election
inspectors and the Delaware Chancery Court confirmed that the
incumbent Board was elected by the amounts called into question by
Flannery. In addition, the press release falsely impugned the
integrity of Chemical Bank as inspector of elections. Finally, the
May 15 press release announced that "the entire institutional
shareholder group that voted for his [Flannery's] slate will pursue
aggressively full realization of shareholder value" and that the group
(which included Ardsley as its largest member) would not rule out a
"full-blown proxy contest."
43. On June 1, 1995, Whelan issued a press release entitled
"DISSIDENTS APPARENTLY VICTORIOUS IN UNSEATING TESORO PETROLEUM
BOARD," falsely proclaiming that the alternate slate of directors
nominated by the dissidents at the 1995 Annual Meeting had been
elected. This press release went on to falsely accuse employees of
Chemical Bank, who had acted as inspectors of election, of having
accepted a ballot submitted more than a week after the polls had
closed -- an accusation the Delaware Chancery Court found to be
without merit. The press release claimed that 11 million of the votes
cast in favor of the Board were
<PAGE>
<PAGE>
improperly counted -- another claim the Delaware Chancery Court
rejected. In essence, Flannery asked the inspectors to "count the
dissidents ballots only and forget about the will of the majority of
stockholders." The press release further alleged that the Company had
closed the polls quickly and that in the process it had
disenfranchised a "number of individual shareholders who were
struggling to fill out" their ballot and that Flannery was "prepared
to produce affidavits to that effect." However, in the litigation
that followed, Flannery failed to produce any affidavit or other proof
to substantiate this charge. In short, there was very little, if any,
truth contained in the June 1 press release.
44. In a June 9, 1995 press release, the Whelan Group
continued its campaign of deception by falsely stating that Tesoro had
"ineptly" failed to cast a ballot at the Annual Meeting, and that an
officer of Chemical had "confirmed in front of at least six witnesses,
including attorneys for Tesoro and Chemical, that the disputed 11
million share ballot had been submitted a week late." Moreover,
Flannery suggested that Chemical Bank had somehow improperly favored
Tesoro and that Tesoro had placed pressure on Chemical to do so.
Flannery failed to provide any substantiation for these claims, none
of which were ever upheld by the Delaware Chancery Court. Whelan
repeated
<PAGE>
<PAGE>
many of the same false accusations in a June 23, 1995 press release.
45. The June 1 and subsequent press releases caused
confusion in the marketplace and adversely affected the Company's
business, which is precisely what the Whelan Group intended. One of
the more significant effects the issuance of the June 1 and later
press releases had, upon information and belief, is that they led to a
suspension in negotiations that had been under way for over one year
to settle the Tennessee Gas litigation, which at the time were at a
critical phase. Only days before the issuance of the June 1 press
release, Tesoro's Board of Directors had approved a resolution
authorizing a settlement within certain defined parameters which were
believed by management to be achievable. However, when management
attempted to conclude the negotiation with Tennessee Gas, they were
told that, due to the uncertainty that appeared to exist as a result
of the claimed victory of the dissident group, Tennessee Gas felt it
had no choice but to suspend the discussions until the uncertainty was
resolved, which did not occur until August 7, 1995, when the Delaware
Chancery Court entered judgment after trial dismissing Whelan's suit.
By then, however, it was too late, for on August 1, 1995 the Texas
Supreme Court issued its long-awaited decision in the Tennessee Gas
litigation, which in part was unfavorable to Tesoro. The opportunity
to settle on favorable terms, which had
<PAGE>
<PAGE>
previously existed was suddenly no longer available, and Tesoro now
faces a potential exposure that could be substantial and that, but for
the Whelan Group's meddling, reasonably could have been avoided.
46. On July 13, 1995 Whelan issued yet another press
release which mischaracterized Tesoro's announcement of increased
proved reserve volumes in the Bob West Field and inaccurately
suggested that Tesoro's announcement was "prodded by the dissidents"
and "confirmed" what the dissidents had been saying about Tesoro's gas
reserves. In fact, that mid-year reserve report was not prompted by
any actions on the part of Flannery, but, rather, was required under
the Company's credit agreement. The increase in proved reserves
resulted from a number of factors, including field extensions and
discoveries that exceeded production; successful application of state
severance tax exemptions to certain wells producing in reservoirs
designed as tight sands; and revised production-decline rates based
upon well performance, all of which were totally unrelated to any
pressure from the Whelan Group. The press release went on to state
that Flannery believed that Tesoro's then-projected reserve levels for
the Bob West Field "still only represent about 60% of Tesoro's true
reserves in the field" and that "Tesoro has deliberately understated
its reserves in the Bob West Field in order to prevent a hostile
takeover of the Company, and thereby preserve
<PAGE>
<PAGE>
management and current board members in their positions." Once again,
Flannery had no basis for such belief. Furthermore, the claim that
underreporting reserves might act as an entrenching device is, in a
word, absurd. In addition, the purported comparison in that release
of the 1994 and 1995 present net value of proved reserves was
misleading, as it compared the December 1994 after-tax value of $126.8
-----
million with the June 1995 pre-tax value of $198 million, thereby
---
improperly exaggerating the difference between the 1994 and mid-1995
estimates. In fact, the June 1995 after tax net present value of
proved reserves was $179 million, not $198 million. Finally, the July
13 release falsely stated that Flannery "was confident that Tesoro
would prevail in its litigation with Tennessee Gas," which, if
successful, "could add another $150 million in value to the company."
If Flannery truly believe this statement, he would not have
undertaken, as he did around that time, to meet with Tennessee Gas in
secret in an effort to convince Tennessee Gas to settle the litigation
-------------
by acquiring Tesoro.
47. Flannery has also falsely disparaged the sale of the C,
D & E portions of the Bob West Field, which were sold in September
1995 for $74 million. This was an opportune sale, because drilling the
remaining well sites on these units would be riskier and more
expensive. Moreover, the sale has allowed Tesoro to significantly
approve its capital structure by reducing
<PAGE>
<PAGE>
indebtedness by $34.6 million and will allow the redeployment of
capital into other exploration projects that are expected to generate
higher returns. At the 1995 Annual Meeting Flannery openly criticized
management's decision to sell the C, D & E units; once the terms of
the transaction were announced, however, he appeared to change his
tune. According to a San Antonio Express News article published on
------------------------
September 7, 1995, a spokesman for the Whelan Group, Bob Thomas, is
reported to have said that the sale announcement was welcome news:
"This sale vindicates our position because Tesoro is finally doing
some of the things we have been urging for the last year and a half."
Flannery's Unsuccessful Efforts To Sell All Or Part of
Tesoro And His Conflict of Interest
------------------------------------------------------
48. Scheming in secret to unseat the incumbent Board of
Directors was only part of Flannery's behind-the-scenes effort to
cause fundamental change at Tesoro contrary to the best interests of
stockholders. During deposition testimony given by Flannery during
his legal challenge to the 1995 election of directors, Flannery
admitted that he had, without the knowledge or approval of Tesoro,
solicited numerous entities regarding a possible business combination
or purchase of Tesoro. The entities Flannery solicited included, for
example, Coastal Corporation and Tennessee Gas Pipeline Company
("Tennessee Gas"), companies which, because of their involvement in
the Bob West
<PAGE>
<PAGE>
Field, were viewed by Flannery as likely suitors. Flannery testified
that he had approached "[e]verybody that I could think of," including
"just about everybody in the industry that would have an interest in
natural gas production" and that he had "zero success," in attracting
any interest.
49. Flannery also testified that it was his expectation
that he would be paid a sizeable fee in the event he was able to
broker a sale of Tesoro, equal to 3% of the first $50 million, 2% of
the next $50 million and 1% of any proceeds above $100 million; he
claimed, however that he never disclosed such efforts or his
expectation of a fee to other members of his hand-picked slate. Upon
information and belief, it is still Flannery's undisclosed goal to
realize such a fee, which, in part, explains why Flannery is not
himself currently a candidate for the Tesoro Board.
50. As noted above, Flannery's unauthorized solicitation of
Tennessee Gas came amidst negotiations between Tesoro and Tennessee
Gas to settle major litigation. By late May 1995, management had
negotiated a preliminary understanding with Tennessee Gas to settle
the litigation on terms which could have added up to substantial value
to the Company, and the parties were in the process of drafting a
formal settlement agreement. The Tesoro Board had been advised of the
terms of the settlement,
<PAGE>
<PAGE>
and had adopted a resolution authorizing management to accept a
settlement in accordance with the negotiated terms.
51. At the same time Tesoro was negotiating to settle that
litigation, however, Flannery was undertaking his own secret efforts
to achieve a resolution of the Tennessee Gas litigation on terms
agreeable to Flannery. In addition to placing numerous telephone
calls, on at least two occasions he secretly met with Tennessee Gas
representatives in an effort to persuade them to acquire Tesoro. This
would have ended the litigation and resulted in a substantial fee for
Flannery. Publicly, however, Flannery was singing a different tune.
As noted above, in a July 13, 1995 press release, Flannery said that
he was "confident that Tesoro would prevail" in its litigation against
Tennessee Gas, and he placed a value on the outcome if successful
which was substantially less than Tesoro privately expected to achieve
----
in a settlement. Upon information and belief, as a direct consequence
of Flannery's tortious conduct, including in particular the issuance
of false and misleading press releases proclaiming that the dissident
group had prevailed at the 1995 Board elections, Tennessee Gas
suspended settlement negotiations with Tesoro, thus closing the window
of opportunity that existed. The resulting damage to Tesoro was
substantial.
<PAGE>
<PAGE>
The Current Scheme To Install A New Board
-----------------------------------------
52. Upon information and belief, following their defeat at
the 1995 Annual Meeting and in the Delaware Chancery Court, Flannery,
Kaufman, Washburn, Stone and other members of the Whelan Group
continued to plan and scheme in secret to acquire control of the Board
of Directors, this time by means of a consent solicitation first
announced on December 26, 1995. In the course of their secret
planning, it was decided that Flannery, who has a reputation for being
hot-tempered and whose candidacy could have had a negative impact on
the outcome of the solicitation (not to mention his desire to be paid
a commission upon the sale of the Company), should not be included as
one of the director nominees, and that certain other members of the
slate proposed at the 1995 annual meeting should be replaced. The
five member slate now being proposed includes Kaufman, 68, a
neurosurgeon with little or no relevant background or experience in
the oil and gas industry; Stone, 70, the Chairman and Chief Executive
Officer of Stone Energy Company, a company that once sought to acquire
control over Tesoro, whose stock performance has been lackluster over
the past several years; Baker, 56, and Thompson, 46 (who owns no
Tesoro stock), whose combined experience in oil and gas, according to
the preliminary proxy materials filed with the SEC, appears to be
limited to their service as directors of Digicon, Inc., a company
allegedly
<PAGE>
<PAGE>
engaged in interpreting geophysical data; and Galloway, 65, an
independent oil and gas producer who owns no Tesoro stock and has no
prior relationship with the Company.
53. These individuals have no basis for believing that they
will be more successful in developing and implementing a strategic
business plan for the Company than the current management and Board of
Directors. Significantly, the Whelan Group concedes that it has no
specific plans for maximizing stockholder value, and needs time (after
reimbursing themselves out of the corporate treasury for their
expenses in waging the current consent solicitation) to conduct "a
detailed review of the Company and its assets, corporate structure,
dividend policy, capitalization, operations, properties, policies and
personnel" in order to develop "alternative strategies to enhance
stockholder value." What it "expects" is that the new Board will
develop a plan "for the prompt disposition of the Company's refining
business." The Whelan Group fails to disclose how the new Board plans
to go about "disposing" of the Company's refining business "promptly."
As discussed further below, this is an empty promise which the Whelan
Group knows, or in the exercise of reasonable care should know, it
cannot keep.
54. This latest effort by the Whelan Group to oust the
Tesoro Board and install a Board composed of its members and nominees
coincides with Tesoro's efforts at consummating its
<PAGE>
<PAGE>
acquisition of Coastwide. A signed agreement between Coastwide and
Tesoro is in place. Furthermore, the parties have received Hart-Scott-
Rodino clearance from the Antitrust Division of the Department of
Justice.
55. Tesoro's acquisition of Coastwide is consistent with
the industry trend of consolidation and is in the best interest of
shareholders. Tesoro believes that the acquisition will create a
service and distribution business of sufficient size to be able to
achieve significant cost savings and synergies between Coastwide's
shore-based service business and Tesoro'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 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. Tesoro believes that, in addition
to realizing cost savings and improved profitability from combining
parts of Tesoro with Coastwide, the combined operations will be well
positioned and will 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. Tesoro
projects annual operating profits of between $5 million
<PAGE>
<PAGE>
and $6 million for PEDCO in 1996 as a result of the Coastwide
acquisition. The Coastwide acquisition will thus benefit stockholders
by taking an unprofitable operation of Tesoro and transforming it
overnight into a profitable business.
56. Plaintiffs have falsely criticized the Coastwide
transaction on the purported grounds that it will be dilutive to the
Company's existing stockholders. In point of fact, as was stated to
stockholders in press releases issued by the Company on September 14
and November 21, 1995, the Coastwide transaction is expected to be
anti-dilutive to existing stockholders, i.e., it is expected that
- -
earnings per share will be positively rather than negatively affected
by the acquisition. In addition, the Whelan Group has indicated in its
Schedule 14A statement that it will proceed with the disposition of
assets unrelated to Tesoro's core E & P business, which would include
the assets acquired through the Coastwide transaction. The timing of
the Whelan Group's actions and the nature of their plans and specific
criticism of the Coastwide transaction, taken together, strongly
suggest an intent on the part of the Whelan Group to disrupt and
interfere with Tesoro's ability to consummate this transaction.
<PAGE>
<PAGE>
The Whelan Group's False and
Misleading Schedules 13D and 14A
--------------------------------
57. Pursuant to the Whelan Group's scheme, on or about
December 26, 1995, the Whelan Stockholders' Committee filed with the
SEC a Schedule 13D statement, purportedly pursuant to Section 13(d) of
the 1934 Act, and subsequently, the Stockholders' Committee filed
Schedule 13D/A (Amendment No. 1)(collectively "Schedule 13D").
58. Also in furtherance of this plan, on or about December
26, 1995, the Stockholders' Committee filed, purported pursuant to
Section 14(a) of the 1934 Act and the rules and regulations
thereunder, a preliminary Schedule 14A Consent Statement for the
purpose of soliciting consents from Tesoro's stockholders with respect
to, inter alia, the replacement of the current Tesoro Board with hand
----- ----
-picked cronies of Flannery.
59. As discussed further below, those Schedule 13D and 14A
statements contain numerous false and misleading statements, and omit
to state material facts necessary to make the statements made in light
of the circumstances in which they were made not misleading.
Accordingly, they violate Sections 13(d) and 14(a) of the 1934 Act,
and the rules and regulations promulgated thereunder.
<PAGE>
<PAGE>
Irreparable Injury to Tesoro and Its Stockholders
-------------------------------------------------
60. Tesoro, its stockholders and the investing public are
being irreparably harmed by the Whelan Group's unlawful scheme and
conduct as follows:
(a) Tesoro's stockholders are being asked to make
investment decisions concerning their Tesoro Stock without the
benefit of material information that the Whelan Group is required
by law to provide;
(b) The Whelan Group's unlawful conduct has resulted
or is likely to result in confusion and misunderstanding on the
part of Tesoro's stockholders and the general investing public as
to the true intentions of the Whelan Group with regard to Tesoro;
and
(c) The widespread confusion and uncertainty created
by the Whelan Group's false and misleading statements and
omissions are causing, and will continue to cause, serious
dislocations in the market for Tesoro stock and the operation of
Tesoro's business.
61. On the other hand, plaintiffs, if enjoined from
conducting their extraordinary and illegal consent solicitation, will
not be harmed, as they will have a full and complete opportunity to
present their views to stockholders and seek the corporate change they
recommend in connection with Tesoro's 1996 Annual Meeting.
<PAGE>
<PAGE>
FIRST COUNTERCLAIM
------------------
(Violation of Section 13(d) of the 1934 Act)
(Against all plaintiffs and counterclaim-
----------------------------------------
defendants other than Thompson and Galloway)
-------------------------------------------
62. Tesoro repeats and reallege each and every allegation
contained in paragraphs 1 through 60 inclusive as if fully set forth
herein.
63. Section 13(d)(1) of the 1934 Act provides in pertinent
part that:
Any person who, after acquiring directly or indirectly
the beneficial ownership of any equity security of a
class which is registered pursuant to section 12 of
this title... is directly or indirectly the beneficial
owner of more than 5 per centrum of such class shall,
within ten days after such acquisition, send to the
issuer of the security. . . a statement containing such
of the following information, and such additional
information, as the Commission may by rules and
regulations prescribe as necessary or appropriate in
the public interest or for the protection of investors
-
(A) the background, and identity, residence, and
citizenship of, and the nature of such beneficial ownership by,
such person and all other persons by whom or on whose behalf the
purchases have been or are to be effected;
* * *
(C) if the purpose of the purchases or prospective
purchases is to acquire control of the business of the issuer of
the securities, any plans or proposals which such persons may
have to liquidate such issuer, to sell its assets to or merge it
with any other persons, or to make any other major change in its
business or corporate structure;
* * *
(E) information as to any contracts, arrangements, or
understandings with any person with respect to any securities of
the issuer, including but not limited to . . . the giving or
withholding of proxies, naming the
<PAGE>
<PAGE>
persons with whom such contracts, arrangements, or understandings
have been entered into, and giving the details thereof.
64. The SEC, pursuant to the grant of rulemaking power
provided in Section 13(d)(1) of the 1934 Act, has promulgated
Regulation 13D and Rule 13d-1 which requires any person or group
subject to Section 13(d)(1) to send to the issuer, and file with the
Commission and each exchange where the security is traded, the
information required by Schedule 13D, within 10 days after the
acquisition by such person or group of beneficial ownership of more
than 5 per cent of any class of equity securities outstanding. Rule
13d-3(a) further provides that a beneficial owner of a security
includes any person who directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise has or shares
voting power (i.e., whether by means of a proxy, power of attorney or
other arrangement or device). Rule 13d-5(b)(1) goes on to provide
that a 13D "group" exists whenever two or more persons agree to act
together for the purpose of acquiring, holding, voting or disposing of
------
equity securities of an issuer.
65. Upon information and belief, a "group" within the
meaning of Section 13(d) and Rule 13d-5, led by Flannery, Kaufman,
Washburn and Stone has existed since no later than 1994, and perhaps
sooner. In addition to Flannery and Kaufman, the "group" has included
at various times persons or entities who
<PAGE>
<PAGE>
provided proxies and/or powers of attorney to Flannery or Kaufman in
connection with the 1995 annual meeting of Tesoro and/or in connection
with the present consent solicitation. At the very latest, a Section
13(d) group existed as of November 16, 1995, the date of the
understanding, arrangement or agreement reached between members of the
Whelan Group and Ardsley.
66. Notwithstanding the existence of a 13D "group," no
steps have been or were taken by Flannery, Kaufman or any other member
of the Whelan Group, prior to the filing of a Schedule 13D on or about
December 26, 1995, to comply with the requirements of Section 13(d)
and the rules and regulations thereunder. On the contrary, as
described above, the Whelan Group consciously set out to avoid
complying with such requirements for as long as possible by conducting
a secret solicitation of a select group of stockholders with whom an
understanding, upon information and belief, was reached regarding the
voting of their shares. Thus, for example, by the time they arrived
at the 1995 annual meeting. Flannery, Kaufman and other members of
the Whelan Group had obtained more than 50 proxies and or powers of
attorney from various beneficial owners of Tesoro common stock which
in the aggregate represented approximately 7.6 million shares, or
approximately 31 per cent of the total outstanding. Each of these
beneficial owners, upon information and belief, had been provided in
advance of the meeting a copy of the Whelan Goals
<PAGE>
<PAGE>
Memo, which set out the common goals, plans and objectives of the
Whelan Group which formed the basis of the understanding reached with
respect to their vote. This document, however, was never provided by
any member of the Whelan Group to the Company or filed with the SEC or
any exchange, as required by applicable law. Nor was it made available
to the vast majority of stockholders (whose interests the Whelan Group
now claims to be protecting). Accordingly, the failure to file a
Schedule 13D statement until December 26, 1995 represents a violation
of Section 13(d).
67. Upon information and belief, prior to November 16, 1995
Ardsley - as an investment company or advisor and as holder of more
than five percent of Tesoro's outstanding stock which acquired such
stock in the ordinary course of business, and not with the purpose or
with the effect of changing or influencing the control of the issuer -
has pursuant to Rule 13d-1(b)(1) filed Schedule 13G statements in lieu
of filing Schedule 13D statements. However, upon becoming a member of
the Whelan Group, whose avowed purpose is to influence control of
Tesoro, Ardsley could no longer file Schedule 13G - which requires far
less disclosure than Schedule 13D. Upon information and belief,
Ardsley has failed to file a Schedule 13D in connection with its
ownership of Tesoro stock, and, thus, is in violation of Schedule
13(d) of the 1934 Act.
<PAGE>
<PAGE>
68. In addition to being untimely, upon information and
belief, the recently filed Schedule 13D Statement does not, as
required under Section 13(d), identify all members of the group and
thus violates Section 13(d). Specifically, the Schedule 13D should
have disclosed that the Sean Kenrick Flannery Trust, Page Flannery,
Gloria Kaufman, Suzanne P. Washburn and Ardsley Advisory Partners are
members of the "group." With regard to Ardsley, the Schedule 13D
statement indicates that Whelan acquired options to purchase 400,000
shares from Ardsley at the cost of $.09 per share, with an option
price of $8.25. Such monetary consideration, in and of itself, is
clearly inadequate consideration for the grant of such an option.
Accordingly, on information and belief, additional undertakings by and
between Whelan and Ardsley have been exchanged, although not
disclosed. On information and belief, Ardsley has agreed, among other
things, to execute a written consent in favor of the Whelan Group.
Ardsley had previously supported Whelan's efforts to unseat the
incumbent directors by agreeing to vote for the Whelan slate at the
1995 annual meeting, and Flannery had discussed with Sandy Prater of
Ardsley the possibility of his taking Flannery's place on the Tesoro
Board.
69. Furthermore, the Schedule 13D statement filed by the
Stockholders' Committee on December 26, 1995 is false and misleading,
and omits to state material facts necessary to make
<PAGE>
<PAGE>
the statements made, in light of the circumstances in which they were
made, not misleading in that, inter alia, it
----------
(a) falsely and misleadingly disparages the
stewardship of Tesoro's management and Board of Directors despite
counterclaim-defendants' admission in the Schedule 13D statement that
they themselves lack sufficient information to make a decision as to
the future direction of Tesoro. (See Schedule 13D Statement, p. 14.
---
("If elected, the Committee Nominees intend to conduct a detailed
review of the Company and its assets, corporate structure, dividend
policy, capitalization, operations, properties, policies and
personnel.")). In light of their admitted lack of experience,
knowledge and information regarding Tesoro's business, any criticism
of Tesoro's Board and its decisions is clearly improper and intended
to mislead Tesoro's stockholders;
(b) falsely states that "the Committee expects that
the Committee Nominees, once elected, will adopt a strategic plan to
enhance the value of the company which will include as a principal
element the prompt disposition of the Company's refinery business...."
-----------------------------------------------------
(Schedule 13D Statement, p. 14, emphasis added). As the Whelan Group
members well know, or through the exercise of reasonable care should
know, this statement is false and misleading as it represents a
promise on which the Whelan Group simply cannot deliver. Market
conditions on the West Coast
<PAGE>
<PAGE>
are such that the refinery cannot "promptly" be sold; numerous other
refineries are known to be on the market at this time for which there
are no buyers. Nor is it likely at the present time that the refinery
could be sold at a commercially reasonable price, let alone anywhere
near the price fantasized by the Whelan Group. It is unlikely that a
sale of the refinery would cover the approximately $90 million in debt
associated with the refinery, let alone cover the additional
environmental costs or leave excess funds available for refinancing or
repayment of other debt;
(c) states that the Committee Nominees will consider,
among other things, the sale of the entire Company (Schedule 13D
Statement, p. 14), yet falls to disclose, in light of those
statements, the fact that Flannery has already unsuccessfully
attempted to solicit everyone he could think of who would be a logical
candidate to acquire the Company, including other companies involved
in the Bob West Field and has achieved "zero success" in attracting
any bids;
(d) fails to disclose the conflict of interest
presented by Flannery's participation as a member of the Stockholders'
Committee soliciting consents for his designated board which may sell
all or part of Tesoro, and his prior testimony in which Flannery
stated that he expects to receive a substantial commission or finders
fee in the event he can arrange
<PAGE>
<PAGE>
such a sale, which, upon information and belief, is still Flannery's
goal;
(e) fails to disclose the full extent of any
agreements or understandings between the Committee and Ardsley;
(f) states that during the last five years, no
Reporting Person has been found to have violated any provision of the
securities law, but fails to disclose the fact that Flannery, although
not formally charged with violating the federal securities laws,
violated Section 13(d) of the 1934 Act when he failed to amend the
Schedule 13D statement filed by the United Partners in 1992 to reflect
his sales and purchases of Tesoro stock while he was formally a member
of that group; and
(g) fails to disclose that, upon information and
belief, one of the true purposes of the formation of the Stockholders'
Committee and consent solicitation is to block the transaction between
Tesoro and Coastwide, which is the subject of a signed merger
agreement and which has recently received federal antitrust clearance.
The Stockholders' Committee has publicly stated its opposition to this
transaction, although such disclosure is not made in the Schedule 13D
Statement.
70. The above-stated misrepresentations and omissions are
material to any evaluation by Tesoro stockholders and members of the
investing public with respect to their investment decisions concerning
the retention, sale or purchase of Tesoro
<PAGE>
<PAGE>
stock, and with regard to the anticipated consent solicitation by the
Whelan Group.
71. By reason of the foregoing, counterclaim-defendants
have violated and are continuing to violate Section 13(d) of the 1934
Act and the rules and regulations promulgated thereunder.
72. Tesoro has no adequate remedy at law.
SECOND COUNTERCLAIM
-------------------
(Violation of Section 14(a) of the 1934 Act)
(Against all plaintiffs and counterclaim defendants)
73. Tesoro repeats and realleges each and every allegation
contained in paragraphs 1 through 72 inclusive as if fully set forth
herein.
74. The SEC, pursuant to the grant of rulemaking power
provided in Section 14(a) of the 1934 Act, has promulgated Regulation
14A and Rules 14a-2 and 14a-3, which require any person or entity
which seeks to solicit ten or more members of any security of a
Company to concurrently furnish to all holders of such security a
publicly flied preliminary or definitive written proxy statement
containing the information specified in Schedule 14A (Rule 240.14a-
101). Rule l4a-3(a) provides that
[N]o solicitation subject to this regulation shall be made
unless each person solicited is concurrently furnished or has
previously been furnished with a publicly filed preliminary or
definitive written proxy statement containing the information
specified in Schedule 14A (Rule 14a-101) or with a preliminary or
definitive written proxy statement
<PAGE>
<PAGE>
included in a registration statement filed under the Securities
Act of 1933 on Form S-4 or F-4 or Form N-14 and containing the
information specified in such Form.
Under Rule 14a-2(a), the requirement that a Schedule 14A be
furnished to security holders is made applicable to "every
solicitation of a proxy with respect to securities registered
pursuant to Section 12 of the [1934] Act (15 U.S.C. Section 781)"
unless the solicitation falls into an exempt category, including,
inter alia, "[a]ny solicitation made otherwise than on behalf of
----------
the registrant where the total number of persons solicited is not
more than ten." Rule 14a-2(b)((2). Since the Whelan group
purports to solicit consent of all Tesoro's Stockholders, this
exemption does not apply to the current solicitation (nor did it
apply to the 1995 secret solicitation made in connection with
Tesoro's Annual Meeting).
75. The information required to be disclosed in Schedule
14A includes, inter alia, the following:
----- ----
information regarding date, time and place of action, including,
if action is to be taken by written consent, the date by which
consents are to be submitted if state law requires that such a
date be specified or if the person soliciting intends to set a
date and the approximate date on which the proxy statement is
first sent or given to security holders;
information regarding revocability of proxies (or consents),
including whether or not the person giving the proxy has the
power to revoke;
information regarding the persons making the solicitation,
including any participants in the solicitation (which
<PAGE>
<PAGE>
includes any committee or group or person who finances or joins
with another to finance the solicitation); if the solicitation is
to be made by specially engaged employees or paid solicitors, the
material features of any contract or arrangements with such
participants, including the cost thereof; the names of the
persons by whom the cost of solicitation has been or will be
borne;
information regarding the interest of certain persons in the
matters to be acted upon, including any substantial interest,
direct or indirect, by security holdings or otherwise, of each
participant in any matter to be acted upon, including the name
and business address of the participant;
information regarding the voting securities of the company,
including the number of outstanding shares and number of votes of
each class of security; the record date, if any, of the
solicitation or the criteria for determining security holders
entitled to give consent;
information regarding the nominees for election as directors;
information regarding the acquisition or disposition of property;
information regarding matters not required to be submitted to a
vote of security holders, including the nature of such the matter
and the reasons for submitting it to a vote;
information regarding any action to be taken on any matter not
specifically referred to in Schedule 14A, including the substance
of each such matter; and
information regarding voting procedures, including the votes
required for election and the method by which votes will be
counted
76. Under Regulation 14 and Rule 240.14a-9, the Schedule
14A may not contain "any statement which, at the time and in light of
the circumstances under which it is made, is false or misleading with
respect to any material fact, or which
<PAGE>
<PAGE>
omits to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any
statement in an earlier communication with respect to the solicitation
of a proxy for the same meeting or subject matter which has become
false or misleading."
77. Upon information and belief, the Whelan Group violated
Section 14(a) and the rules and regulations promulgated thereunder in
connection with their 1995 solicitation efforts because of their
failure to file a Schedule 14A statement in connection with these
efforts.
78. Upon information and belief, the preliminary Schedule
14A filed by the Stockholders' Committee on December 26, 1995 is false
and misleading in numerous respects, and omits to state material facts
necessary to make the statements made in light of the circumstances in
which they were made not misleading, in that, inter alia, it:
----- ----
(a) falsely and misleadingly states that "The
Committee has not had discussions with potential acquirors of the
Refining Business, any of the Company's other assets or the
Company as a whole" (Schedule 14A Statement, p. 14), when, in
fact, as Flannery has himself admitted under oath, Flannery has
personally contacted virtually every company in the oil and gas
industry he views as a potential acquiror
<PAGE>
<PAGE>
regarding a possible transaction involving Tesoro and has had
"zero success" in eliciting any interest;
(b) fails to disclose the conflict of interest created
by Flannery's expectation regarding payment of a substantial
commission or fee in the event he can arrange a sale of Tesoro;
(c) falsely and misleadingly states that the five
individuals the Whelan Group proposes to elect to the Tesoro
Board are "independent," when, in fact, they are surrogates of
Flannery with close business and/or personal links to Flannery,
Kaufman and Stone as well as to each other and thus cannot be
expected to exercise "independent" business judgment free from
the influence of Flannery and each other;
(d) falsely and misleadingly states that the Whelan
Group's designees will be able to refinance Tesoro's outstanding
debt on a basis that would be economically attractive; this
statement fails to disclose the material fact that Tesoro has
taken steps to reduce debt service by redeeming $34.6 million of
12-3/4% Subordinated Debentures effected December 1, 1995, thus
satisfying the balance of Tesoro's sinking fund requirements.
Tesoro management has considered other possible restructuring
scenarios, but believes, as it has advised the public in its
March 31, 1995 First Quarter report, that it would not be prudent
to
<PAGE>
<PAGE>
undertake refinancing prior to resolution of the Tennessee Gas
litigation, since it would not result in any short-term savings
given the significant cost of any refinancing, additional
restrictions that would be required and the Company's credit
rating, which continues to be adversely affected by the Tennessee
Gas litigation. It further fails to disclose how the Whelan
Group proposes to effect such refinancing or on what terms.
Although the Whelan Group states that a divestiture of the
refining business, if it took the form of a sale, would produce
proceeds that "could be used to reduce the Company's high-cost
debt," this statement lacks any credible basis. As discussed
above, a "fire sale" of Tesoro's refinery business, which is what
the Whelan Group says it expects to attempt, would at current
market prices actually destroy shareholder value, by wiping out
-------
any value gained by strategic improvements in refinery operations
-- improvements that will become readily apparent to all
(including potential buyers) when the Company's initiatives are
fully implemented and industry conditions improve. The Whelan
Group also fails to disclose that opportunities exist in today's
depressed industry environment, such as by consolidating the
Company's refining and marketing assets with other existing
operations, thereby creating operating synergies and enhancing
the
<PAGE>
<PAGE>
attractiveness of that segment of the Company's business to (and
the price that could be realized from) a prospective purchaser.
As far as paying down high-cost debt with sales proceeds is
concerned, what the Whelan Group fails to disclose is that, as
discussed above, the proceeds from a sale in today's market, net
of environmental costs and other liabilities related to the
refinery, would be virtually non-existent, and that Tesoro's
current credit agreement would, in all likelihood, preclude such
a sale;
(e) falsely and misleadingly criticizes Tesoro's
management and Board of Directors for lacking any strategic
direction, while admitting that Whelan nominees (1) are less
knowledgeable about the Company than the present managers and (2)
lack sufficient information at this time to make a decision as to
the future direction of the Company;
(f) falsely states that "[d]irectors and officers may
be profiting from the Company, but we believe that stockholders
certainly are not," thus implying that the Company's financial
results have failed to improve under the present management and
Board. In point of fact, since 1992, when essentially the
current board installed new management, Tesoro's stock price has
increased approximately 300% from $3/share at year-end 1992,
operating profits have soared from $10 million in 1992 to in
excess of $100 million this
<PAGE>
<PAGE>
year, the best showing since 1982; debt-to-capitalization is
projected to be less than 45 percent at the end of 1995, down
from 84 percent in 1992; total debt (including redeemable
preferred stock) has been cut from $273 million to $164 million
from 1992 to 1995.
(g) falsely states that the infusion of $32 million of
capital expenditures in the refining business during 1994 appears
to have had "little positive impact since the operating loss for
the first nine months of 1995 exceeded the loss for all of 1994
(excluding non-recurring items)," when in point of fact Flannery
and other members of the Whelan Group know, or in the exercise of
reasonable care should know, that the refinery's vacuum unit --
which went on line in December 1994 and represented the vast
majority of the capital expenditures made ($25 million) -- has
had a very positive impact on the refining business, as was
--------
explained at the 1995 Annual Meeting and in subsequent
stockholder reports (by providing a benefit of about $4 million
per quarter), and that the lack of improvement in the Company's
--- -------
performance for the first six months of 1995 was attributable to
some of the worst industry-wide conditions affecting the
downstream operations in the past decade. During the second half
of the year, conditions began to improve and margins trended
upwards, to the point
<PAGE>
<PAGE>
where refining and marketing operations generated positive free
cash flow. The Company expects that its recent initiatives will
generate solid operating profits in 1996 and in the future.
(h) falsely states that the Company's recent by-law
amendments, which require notice to the Company in connection
with any consent solicitation so that the Company can set the
record date for determining the validity of consents, were
adopted for entrenchment purposes in order to make a consent
solicitation more difficult and expensive; in fact, the by-law
amendments, which have been adopted by many Delaware corporations
and have repeatedly been upheld by the Delaware courts, are
purely ministerial in nature, were not adopted for entrenchment
purposes and do not "seriously impair" the ability of
stockholders to engage in a consent solicitation;
(i) falsely states that the recent action extending
the Company's Rights Agreement (or "Poison Pill" as referred to
by plaintiffs) was taken for entrenchment purposes; in fact,
stockholder rights plans similar to the one adopted by the
Company have long been recognized as serving a valuable corporate
purpose in deterring inadequate coercive takeover bids by hostile
acquirors (and thus serves to enhance the economic welfare of
stockholders); the
<PAGE>
<PAGE>
Company's plan does not act as a deterrent to a proxy contest or
consent solicitation and thus has no impact on the Whelan Group's
current or any future proxy solicitation effort;
(j) falsely states that one of the credit agreements
with the Company's banks makes a "change of control" an event of
default, with "change of control" including an election of
directors; no such trigger with respect to an election of
directors exists in any of the Company's credit agreements;
(k) falsely states that the market price of the
Company's Common Stock has "been declining since the election
loss by the dissidents at the 1995 Annual Meeting, reaching a low
for the year of $7 3/8 on October 5, 1995;" in fact, the stock
price has not reflected a steady decline, as the Schedule 14A
implies, and has shown strength since October 5, rising to $9 per
share the week prior to the dissidents' Schedule 13D and 14A
filings; and
(l) falsely states that "no agreement or understanding
was reached" among Flannery, Kaufman, Stone, Washburn and Baker
until December 14, 1995, when in fact, upon information and
belief, the members of the Whelan Group have had an interest and
agreement since 1994, and perhaps
<PAGE>
<PAGE>
sooner, to attempt to effect a change in the control of the
Tesoro Board of Directors.
79. The above-stated misrepresentations and omissions are
material to any evaluation by Tesoro stockholders and members of the
investing public with respect to their investment decisions concerning
the retention, sale or purchase of Tesoro stock, and with regard to
the consent solicitation being made by the Whelan Group.
80. By reason of the foregoing, counterclaim-defendants
have violated and are continuing to violate Section 14(a) of the 1934
Act and the rules and regulations promulgated thereunder.
81. Tesoro has no adequate remedy at law.
THIRD COUNTERCLAIM
------------------
(Tortious Interference With Contract And With
Prospective Contract and Business Relations)
(Against all plaintiffs and counterclaim-defendants)
82. Tesoro repeats and realleges each and every allegation
contained in paragraphs 1 through 81 inclusive as if fully set forth
herein.
83. The Whelan Group has maliciously and intentionally
attempted to interfere with Tesoro's contractual relations with
Coastwide and with the Company's prospective contractual relations
with Tennessee Gas in connection with the possible settlement of the
Tennessee Gas litigation.
<PAGE>
<PAGE>
84. As noted above, Tesoro and Coastwide have entered into
an agreement pursuant to which Tesoro has agreed to acquire Coastwide.
The transaction has been given federal Hart-Scott-Rodino antitrust
clearance. Thus, all of the pieces are in place for the consummation
of the Coastwide transaction, and, prior to the actions of the Whelan
Group, it was virtually a certainty that the Coastwide transaction
would be consummated.
85. The Whelan Group was aware, prior to filing their
Schedule 13D and 14A statements and this lawsuit, that the
consummation of the Coastwide transaction was imminent. The Whelan
Group's actions in criticizing the transaction, including, on the
false grounds that it will be dilative to the Company's existing
stockholders, and announcing their consent solicitation, together with
a business plan that envisions as its cornerstone the prompt sale of
the Company's refinery business and any business or asset other than
those related to E & P (which would include the business and assets
acquired from Coastwide), was, upon information and belief,
consciously timed and intentionally, recklessly and maliciously
designed to interfere with Tesoro's agreement with Coastwide and
thereby harm Tesoro.
86. But for the actions of the Whelan Group, the Coastwide
transaction would be consummated. In the event the Coastwide
transaction is not completed, Tesoro will suffer damages in an
undetermined amount, because the substantial
<PAGE>
<PAGE>
benefits of the Coastwide transaction will not be realized by Tesoro
and its stockholders.
87. This is not the first time a member of the Whelan Group
has attempted to interfere with Tesoro's contractual relations. As
noted above, Flannery's unauthorized solicitation of Tennessee Gas in
an effort to convince Tennessee Gas to settle the Tennessee Gas case
by acquiring Tesoro, coupled with his publication of the false
statement that he "was confident that Tesoro would prevail in its
litigation with Tennessee Gas" -- at the same time that Tesoro was
attempting to negotiate a settlement -- as well as his false and
misleading public proclamation of victory at the 1995 Annual Meeting,
interfered with Tesoro's efforts to settle that suit against Tennessee
Gas. At the time of Flannery's actions, Tesoro was nearing an
agreement in principle with Tennessee Gas, the Tesoro Board had
authorized management to formalize that agreement, and the parties
were preparing formal settlement papers. But for Flannery's
solicitation and false statements, which Flannery was not justified or
privileged to make, it is reasonably probable that such a settlement
would have been reached on terms more favorable than the result
reached by the Texas Supreme Court. Accordingly, Tesoro has been
damaged in an amount to be determined at trial.
<PAGE>
<PAGE>
FOURTH COUNTERCLAIM
-------------------
(Business Disparagement)
(Against all plaintiffs and counterclaim defendants)
88. Tesoro repeats and realleges each and every allegation
contained in paragraphs 1 through 87 inclusive as if fully set forth
herein.
89. In furtherance of its plan to gain control of Tesoro
from the incumbent Board and install its own designees, the Whelan
Group has engaged in a campaign to smear, disparage and defame Tesoro
and its management and Board of Directors. In so doing, the Whelan
Group has intentionally and maliciously damaged Tesoro's business and
reputation through the publication of false and misleading information
regarding the Company's management, Board of Directors, business
plans, strategic objectives, and the value and marketability of its
assets.
90. As detailed above, the Whelan Group has distributed
numerous press releases and other materials containing statements
which the Whelan Group knew or should have reasonably known were
false. For example, the Whelan Goals Memo, distributed to certain
Tesoro stockholders prior to and at the 1995 Tesoro Annual Meeting,
contained numerous false statements as described above, including, for
example, the false statement charging underreporting of Tesoro's
proved reserves in the Bob West Field; the false statement that
Tesoro's Alaska refinery could be sold at a reasonable price; the
false promise that
<PAGE>
<PAGE>
Tesoro's debt can be restructured on an economical basis; and the
false criticism of Tesoro's staffing levels, which ignored reductions
in staffing level implemented by management, as well as productivity
gains. Press releases issued by the Whelan Group echo many of these
false and disparaging statements, and included additional false
statements such as, for example, improper statements regarding the
outcome of the 1995 election of Tesoro directors and the conduct of
Tesoro in that election.
91. The latest examples of the Whelan Group's knowingly
false and misleading statements regarding Tesoro and its management
and Board of Directors are contained in the Schedule 13D and Schedule
14A statements discussed in detail above. Such statements were made by
the Whelan Group knowingly, recklessly and/or negligently. They
include, for example, the false statement that members of the Whelan
Group had not contacted anyone regarding a possible purchase of Tesoro
prior to December 26, 1995; the false promise that the Alaska refinery
can be sold promptly and at a profit; the false promise that the
Whelan Group's designees will be able economically to refinance
Tesoro's outstanding debt; the false conclusion that the stockholders
are not profiting from the company; the false statement that infusion
of $32 million in capital expenditures in the refining business during
1994 appears to have had "little positive impact since the operating
loss for the first nine
<PAGE>
<PAGE>
months of 1995 exceeded the loss for all of 1994 (excluding non-
recurring items)"; and the false statement that Tesoro's By-law
amendments and Rights Agreement had been adopted for entrenchment
purposes in order to make a consent solicitation more difficult and
expensive.
92. The Whelan Group lacked privilege or justification to
make such false or misleading statements.
93. As a result of these intentional and malicious
statements by the Whelan Group, Tesoro's business reputation has been
damaged in an as of yet undetermined amount.
FIFTH COUNTERCLAIM
------------------
(Violation of Section 16(b) of the 1934 Act)
(Against Whelan, Baker, Stone, Washburn and the Washburn Trusts)
94. Tesoro repeats and realleges each and every allegation
contained in paragraphs 1 through 93 inclusive as if fully set forth
herein.
95. Under Section 16(b) of the 1934 Act, 15 U.S.C. Section
78p(a), and the rules and regulations promulgated thereunder, every
person who is directly or indirectly the beneficial owner of more than
ten percent of any class of equity of a company must file, within ten
days of becoming such a beneficial owner, a Form 3 with the SEC
indicating the amount of such ownership. In addition, if the amount
of holdings changes during any month, the beneficial owner must,
within 10 days of
<PAGE>
<PAGE>
the end of that month, file a Form 4 with the SEC indicating such
change.
96. For the purpose of determining status as a ten percent
holder, Rule 16a-1(a)(1) promulgated by the SEC pursuant to its
rulemaking authority, provides that
Solely for the purposes of determining whether a person is a
beneficial owner of more than ten percent of any class of
equity securities registered pursuant to section 12 of the
[1934] Act, the term "beneficial owner" shall mean any
person who is deemed a beneficial owner Pursuant to section
13(d) of the [1934] Act. . . .
97. Once direct or indirect beneficial ownership of ten
percent of a company's stock is attained, the beneficial owner becomes
an "insider" subject to the short-swing profit provisions of Section
16(b), which provides in relevant Part as follows:
(b) For the purpose of preventing the unfair use of
information which may have been obtained by such beneficial
owner, director or officer by reason of his relationship to
the issuer, any profit realized by him from any purchase and
sale, or any sale and purchase, of any equity security of
such issuer (other than an exempted security) within any
period of less than six months, unless such security was
acquired in good faith in connection with a debt previously
contracted, shall inure to and be recoverable by the issuer,
irrespective of any intention on the part of such beneficial
owner, director or officer in entering into such transaction
of holding the security purchased or of not repurchasing the
security sold for a period exceeding six months.
Under Section 16(b), a direct or indirect beneficial owner of more
than ten percent of a company's stock must account to the
<PAGE>
<PAGE>
company for all profits realized by that beneficial owner on sales and
or purchases of the company's stock during the six months after the
beneficial owner attains ten percent. Such profits are recoverable by
the issuer in an action at law or equity.
98. At the latest by November 16, 1995, or earlier, Ardsley
reached an agreement, arrangement or understanding with the other
members of the Whelan Group pursuant to which it agreed, among other
things, to consent to the Whelan Group's solicitation of shareholders.
As of that date, the Whelan Group directly or indirectly was the
beneficial owner for purposes of Section 16(b) of more than ten
percent of the total outstanding shares of Tesoro stock. Therefore,
as of that date, each member of the Whelan Group, including Whelan,
became subject to the reporting and short-swing profit requirements of
Section 16(b) of the 1934 Act. Ardsley also agreed on that day to
grant an option to Whelan to purchase up to 400,000 shares of Tesoro
stock at $8.25 per share, for which Whelan paid $.09 per share
($36,000 total).
99. Despite the Whelan Group's direct or indirect
beneficial ownership of ten percent of Tesoro's common Stock as of, at
the latest, November 16, 1995, the Whelan Group has failed to notify
the SEC as required under Section 16(a) of such
<PAGE>
<PAGE>
ownership. Thus, the Whelan Group is in violation of Section 16(a) of
the 1934 Act.
100. Despite the fact that members of the Whelan Group are
beneficial owners of more than ten percent of Tesoro stock, they have
each failed to file Form 3s with the SEC. Moreover, although certain
members of the Whelan Group have had changes in ownership of shares,
i.e., sales and/or purchases since November 16, 1995, they have failed
to file Form 4s with the SEC on or before the 10th day after the end
of the month in which such sales and/or purchases took place, an
additional violation of Section 16(a) of the 1934 Act.
101. Upon information and belief, subsequent to November
16, 1995, Whelan engaged in sales and purchases of Tesoro stock,
including the grant of options by Ardley on 400,000 shares of Tesoro
common stock, from which Whelan has profited or will profit in the
future. Specifically, Whelan entered into the following transactions
involving Tesoro common stock after November 16, 1995:
Date Purchase or Sale Number of Shares Price
---- ---------------- ---------------- -----
11/16/95 Purchase of option 400,000 $ 8.25
12/14/95 Grant of Option 100,000 Received
$100,000
12/14/95 Grant of Option 100,000 Received
$100,000
12/14/95 Sale of 30% 100,000 Received
interest in profits $100,000
<PAGE>
<PAGE>
Date Purchase or Sale Number of Shares Price
---- ---------------- ---------------- -----
12/01/95 Purchase 1,000 $ 8 3/8
12/07/95 Sale 7,500 $ 8 1/2
12/08/95 Sale 10,500 $ 8 1/2
12/11/95 Sale 13,000 $ 8 1/2
Accordingly, Whelan has achieved profits, based upon sales, purchases,
and the grant and regrant of the Ardsley option, of over $300,000 as
of this date.
102. Pursuant to Section 16(b), Whelan and the members of
the Whelan Group are accountable or will be accountable to Tesoro for
all the profits realized in connection with purchase and sale of
Tesoro stock Since November 16, 1995, and during earlier periods to
the extent Ardsley was a member of the Whelan Group prior to November
16, 1995.
WHEREFORE, defendant-counterclaimant Tesoro demands
judgment as follows:
(a) dismissing the Amended Complaint with prejudice;
(b) enjoining, preliminarily and permanently,
plaintiffs and counterclaim-defendants, their directors,
officers, employees, agents, and all other persons acting in
concert or on behalf of plaintiffs and counterclaim defendants
from
(1) soliciting or attempting to solicit written
consents with respect to Tesoro common stock from any
<PAGE>
<PAGE>
record or beneficial owner of Tesoro common stock prior to the 1996
Annual Meeting;
(2) filing or disseminating to the stockholders
or the public any false or misleading Schedule 13D and Schedule 14A
statements or other documents related to Tesoro or making any false or
misleading statement regarding Teaoro;
(3) violating in any other way Section 13(d) or
Section 14(a) of the 1934 Act and the rules and regulations
promulgated thereunder;
(4) taking or attempting to take any other steps
in furtherance of their unlawful scheme.
(c) invalidating any consents received in violation of
Sections 13(d) and 14(a) of the 1934 Act, and the rules and
regulations promulgated thereunder;
(d) alternatively, in the event plaintiffs and
counterclaims defendants are permitted to proceed with a consent
solicitation prior to the 1995 Annual Meeting, directing
plaintiffs and counterclaim-defendants to comply with the
requirements of Sections 13(d) and 14(a) of the 1934 Act and the
rules and regulations promulgated thereunder and to file complete
and truthful Schedules 13D and 14A statements;
<PAGE>
<PAGE>
(e) with regard to the third and fourth counterclaims,
awarding Tesoro compensatory damages in an amount to be
determined at trial;
(f) with regard to the third and fourth counterclaims,
awarding Tesoro punitive damages in an amount to be determined at
trial;
(g) with regard to the fifth counterclaim, an
accounting to Tesoro by The Whelan Group of all the profits
gained by members of the Whelan Group through purchases and sales
of Tesoro stock since at least November 16, 1995;
(h) with regard to the fifth counterclaim, directing
plaintiffs and counterclaim-defendants to file form 4S reflecting
sales and/or purchases of Tesoro stock since November 16, 1995;
(i) awarding Tesoro its attorneys' fees and costs of
this action; and
<PAGE>
<PAGE>
(j) awarding Tesoro such other and further relief as
the Court may deem just and proper.
Dated: January 8, 1996
------------------------------
Roy R. Barrera, Sr.
State Bar No. 01808000
NICHOLAS & BARRERA
424 E. Nueva & La Villita St.
San Antonio, Texas 78205
Telephone: (210) 224-5811
Telecopier: (210) 224-5890
Attorneys for Defendants Tesoro
Petroleum Corporation and
Bruce A. Smith
OF COUNSEL:
Layne E. Kruse
State Bar No. 11742550
FULBRIGHT & JAWORSKI L.L.P.
1301 McKinney, 45th Floor
Houston, Texas 77010-3095
Telephone: (713) 651-5151
Telecopier: (713) 651-5246
Richard W. Reinthaler
Lawrence Brocchini
DEWEY BALLANTINE
1301 Avenue of the Americas
New York, New York 10019-6092
Telephone: (212) 259-8000
Telecopier: (212) 259-6333
<PAGE>
<PAGE>
CERTIFICATE OF SERVICE
----------------------
This pleading was served in compliance with Rule 5 of the Federal
Rules of Civil Procedure on , 1996, on the following:
-------
R. Paul Yetter Federal Express
---------------
Baker & Botta, L.L.P.
910 Louisiana Street
Houston, Texas 77002
James L. Branton Hand Delivery
-------------
Branton & Hall, P.C.
711 Navarro Street
San Antonio, Texas 78205
--------------------------------
Roy R. Barrera, Sr.
EXHIBIT 10
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
KEVIN S. FLANNERY, et al., *
**
Plaintiffs, *
*
v. *
*
* CIVIL NO. SA-95-CA-1298
TESORO PETROLEUM CORP., et al., *
*
Defendants. *
*
v. *
*
WHELAN MANAGEMENT CORP., et al., *
ORDER DENYING PRELIMINARY INJUNCTION
------------------------------------
Plaintiffs are part of a dissident group of Tesoro
shareholders that have formed the Stockholder Committee to solicit
written consents of Tesoro shareholders in an effort to remove and
replace the current Board of Directors and management of Tesoro.
Plaintiffs initiated this lawsuit alleging mismanagement of Tesoro by
its corporate officers and directors, and seek judicial assistance in
their attempt to take control of Tesoro. Plaintiffs filed a
preliminary Consent Statement with the Securities Exchange Commission
on December 26, 1995, the same day they initiated this lawsuit.
Defendant Tesoro Petroleum Corporation ("Tesoro") seeks to
enjoin plaintiffs from proceeding with their consent
<PAGE>
<PAGE>
solicitation effort which allegedly violates Sections 13(d) and 14(a)
of the Securities Exchange Act of 1934 (the "Exchange Act") and
Securities and Exchange Commission ("SEC") rules, due to numerous
inaccuracies contained in the preliminary consent solicitation
materials. Tesoro seeks a preliminary injunction to prevent
plaintiffs from proceeding with the consent solicitation purportedly
to allow adequate time for both sides to present their respective
arguments to the stockholders of Tesoro.
Plaintiffs have presented to the Court and counsel an
amended Consent Statement which purportedly satisfies the objections
Tesoro had with the preliminary Consent Statement. Plaintiffs contend
that the use of the amended Consent Statement to solicit written
consents would not violate any securities laws. On January 31, 1996,
the Court held the preliminary injunction hearing and took the matter
under advisement. The Court has fully considered the arguments and
legal authorities presented by counsel. Upon consideration, the Court
will not issue a preliminary injunction.
DISCUSSION
Tesoro has the burden of proving that it is entitled to a
preliminary injunction. Tesoro must prove the four elements which
would entitle it to such relief. First, Tesoro must show that there
is a substantial likelihood that it will succeed on the merits.
Second, there must be a substantial threat that
<PAGE>
<PAGE>
Tesoro will suffer irreparable harm if the Court does not grant the
requested injunction. Third, the threatened harm to Tesoro must
outweigh the threatened harm to plaintiffs. Fourth, the imposition of
a preliminary injunction in this case must not disserve public
interest. Sierra Club v. F.D.I.C, 992 F.2d 545, 551(5th Cir.1993),
----------------------
citing Canal Authority of Florida v. Calloway, 489 F.2d 567, 572 (5th
--------------------------------------
Cir.1974). A preliminary injunction is an extraordinary remedy and
should only be granted if the moving party has fully satisfied the
burden of proof. Mississippi Power & Light v. United Gas Pipe Line
-------------------------------------------------
Co., 760 F.2d 618 (5th Cir.1985) Merely establishing a risk of
---
irreparable harm is not enough. Rather, the moving party has the
burden of proving a substantial likelihood of irreparable harm. Canal
-----
Authority of Florida, 489 F.2d at 572.
--------------------
Tesoro attempted to satisfy its burden of proof by
substantiating its claims that by filing the preliminary Consent
Statement with the SEC, plaintiffs have violated the disclosure
requirements of the Exchange Act. Affidavits filed by Tesoro explain
why certain statements in the preliminary Consent Statement are
materially false and misleading. Plaintiffs contend that there has
been no violation of the disclosure requirements because there has
been no solicitation. Plaintiffs filed the preliminary Consent
Statement with the SEC, but have not mailed it to any stockholders.
Plaintiffs cite Ferro v.
<PAGE>
<PAGE>
Blankenship, Case No. EP-95-CA-4-DB (W.D. Tex.-El Paso Division, March
17, 1995), in support of their argument. In Ferro, Judge Briones
-----
examined the language in Section 14(a) and the rules promulgated
thereunder which prohibit solicitation of proxies in violation of SEC
rules. Judge Briones found that in order to state a claim under
Section 14(a) and SEC Rule 14a-9, 17 C.F.R. Section 240, it must be
alleged that proxies had actually been solicited. Tesoro attempted to
distinguish Ferro, but did not cite any legal authority which
-----
contradicts Ferro. The Court considers the opinion of Judge Briones
-----
well reasoned and similarly finds that an actual solicitation must be
made before plaintiffs can be accused of making an improper
solicitation. Therefore, all arguments made by Tesoro in support of a
preliminary injunction which are premised upon the accusation that
plaintiffs have already violated disclosure requirements with the
filing of the preliminary Consent Statement with the SEC are
meritless.
The Court must then look forward to determine if plaintiffs
will be violating any disclosure requirements in the immediate future.
Plaintiffs filed with the Court their proposed amended Consent
Statement and, if not enjoined by the Court, plaintiffs intend to
solicit proxies with the amended Consent Statement, subject to the
approval of the SEC. The amended Consent Statement purportedly
addresses all the objections Tesoro
<PAGE>
<PAGE>
raised against the preliminary Consent Statement, thereby undermining
or rendering moot all of Tesoro's claims that plaintiffs are
attempting to solicit consents with materials that violate the
disclosure requirements of various securities laws. Plaintiffs expect
to receive further comments from the SEC after filing the amended
Consent Statement, which will necessitate further revisions.
Plaintiffs argue that Tesoro has not proven that it is entitled to an
injunction, and that an injunction would only be appropriate if the
final draft of the consent solicitation materials contain materially
false and misleading statements.
The Court finds that Tesoro has not shown that the amended
Consent Statement contains materially false and misleading statements
which, if actually used to solicit proxies, would violate any
disclosure requirements. Tesoro's responsive arguments highlight its
need to conduct discovery to determine whether the curative
disclosures in the amended Consent Statement are sufficient. Tesoro
simply cannot prove that the solicitation materials in their current
or future state will likely violate disclosure agreements. Therefore,
Tesoro has not proved that it is entitled to a preliminary injunction.
<PAGE>
<PAGE>
Accordingly, Tesoro's request for a preliminary injunction
is denied, and the Temporary Restraining Order is hereby dissolved.
SIGNED the 1st day of February, 1996 at 3:30 p.m
---
-----------------------------------
H. F. Garcia
United States District Judge
NYFS10...:\80\99980\0025\2502\SCH2066C.EDG
EXHIBIT 11
AMENDED AND RESTATED JOINT FILING AGREEMENT
In accordance with Rule 13d-1(f) under the Securities
Exchange Act of 1934, the persons named below agree to the joint filing on
behalf of each of them of a Statement on Schedule 13D (including amendments
thereto) with regard to the securities of Tesoro Petroleum Corporation, and
further agree that this Amended and Restated Joint Filing Agreement be included
as an Exhibit to such joint filings. In evidence thereof the undersigned, being
duly authorized, hereby execute this Amended Restated Joint Filing Agreement
this 7th day of February, 1996.
WHELAN MANAGEMENT CORP.
SEAN KENRICK FLANNERY TRUST
GEORGE F. BAKER
ALAN KAUFMAN
KAUFMAN CHILDREN'S TRUST
JAMES H. STONE
ROBERT S. WASHBURN
ROBERT S. AND SUZANNE P. WASHBURN
REVOCABLE TRUST
ROBERT S. WASHBURN MONEY
PURCHASE, PENSION AND PROFIT
SHARING KEOGH PLAN TRUSTS
By:/s/ Kevin S. Flannery
-----------------------------
Name: Kevin S. Flannery
Title: Attorney-in-Fact for All
KEVIN S. FLANNERY
/s/ Kevin S. Flannery
--------------------------------
Kevin S. Flannery
NYFS10...:\80\99980\0025\2401\SCH01289.00H
