<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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NOTE EXCHANGE OFFER ON
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TESORO PETROLEUM CORPORATION
AND OTHER REGISTRANTS
(SEE TABLE OF OTHER REGISTRANTS BELOW)
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
DELAWARE 2911 95-0862768
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
8700 TESORO DRIVE
SAN ANTONIO, TEXAS 78217-6218
(210) 828-8484
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JAMES C. REED, JR., ESQ.
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
8700 TESORO DRIVE
SAN ANTONIO, TEXAS 78217-6218
(210) 828-8484
(Name, address, including zip code and telephone number,
including area code, of agent for service for all registrants)
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Copies to:
MICHAEL CONLON
FULBRIGHT & JAWORSKI L.L.P.
1301 MCKINNEY
SUITE 5100
HOUSTON, TEXAS 77010-3095
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE FEE
<S> <C> <C> <C> <C>
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9% Senior Subordinated Notes due 2008,
Series B............................. $300,000,000 100% $300,000,000 $88,500
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Subsidiary Guarantees of 9% Senior
Subordinated Notes due 2008, Series
B.................................... $300,000,000 None(1) None(1) None(1)
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(1) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee is
payable for the Subsidiary Guarantees.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
TABLE OF OTHER REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF PRIMARY STANDARD
EXACT NAME OF REGISTRANT INCORPORATION OR INDUSTRIAL CLASSIFICATION I.R.S. EMPLOYER
AS SPECIFIED IN ITS CHARTER ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER
--------------------------- ---------------- ------------------------- ---------------------
<S> <C> <C> <C>
Digicomp, Inc............................ Delaware 7379 74-2521015
Interior Fuels Company................... Alaska 5172 74-2471007
Kenai Pipe Line Company.................. Delaware 4613 94-6062891
Tesoro Alaska Petroleum Company.......... Delaware 2911 74-1646130
Tesoro Alaska Pipeline Company........... Delaware 4613 74-1839523
Tesoro Bolivia Petroleum Company......... Texas 1311 74-1799764
Tesoro Exploration and Production
Company................................ Delaware 1311 74-2307903
Tesoro Latin America Company............. Delaware 1311 74-2144598
Tesoro Marine Services Holding Company... Delaware 5171 74-2807425
Tesoro Marine Services, Inc.............. Delaware 5171 74-2766974
Tesoro Natural Gas Company............... Delaware 4922 74-1711669
Tesoro Northstore Company................ Alaska 5541 92-0098209
Tesoro Petroleum Companies, Inc.......... Delaware 7389 74-2385513
Tesoro Refining, Marketing & Supply
Company................................ Delaware 5171 74-2045147
Tesoro Vostok Company.................... Delaware 5172 74-2257610
Tesoro E&P Company, L.P.................. Delaware 1311 74-2705971
Tesoro Pipeline Company, L.P............. Delaware 4922 74-2742860
Tesoro Financial Services Holding
Company................................ Delaware 6719 51-0377202
Tesoro Gas Resources Company, Inc. ...... Delaware 1389 92-0150083
Tesoro Hawaii Corporation................ Hawaii 2911 99-0143882
Tesoro South Pacific Petroleum Company... California 5171 95-3620808
Victory Finance Company.................. Delaware 6719 51-0377203
</TABLE>
<PAGE> 3
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED JULY 24, 1998
PROSPECTUS
TESORO PETROLEUM CORPORATION
OFFER TO EXCHANGE
$1,000 PRINCIPAL AMOUNT OF 9% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
FOR EACH $1,000 PRINCIPAL AMOUNT OF OUTSTANDING
9% SENIOR SUBORDINATED NOTES DUE 2008
($300,000,000 IN AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
---------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
---------------------
Tesoro Petroleum Corporation, a Delaware corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal, to exchange $1,000
principal amount of its 9% Senior Subordinated Notes due 2008, Series B (the
"Exchange Notes"), in a transaction registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement (as
defined herein) of which this Prospectus constitutes a part, for each $1,000
principal amount of the outstanding 9% Senior Subordinated Notes due 2008 (the
"Old Notes"), of which $300,000,000 aggregate principal amount is outstanding
(the "Exchange Offer"). The Exchange Notes and the Old Notes are sometimes
referred to herein collectively as the "Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the date
the Exchange Offer expires, which will be , 1998 unless the Exchange
Offer is extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. However, the Exchange Offer is subject to certain
conditions that may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement (as defined herein). See "The Exchange Offer."
Old Notes may be tendered only in denominations of $1,000 and integral multiples
thereof. The Company has agreed to pay the expenses of the Exchange Offer. There
will be no cash proceeds to the Company from the Exchange Offer. See "Use of
Proceeds."
The Exchange Notes will be obligations of the Company entitled to the
benefits of the indenture relating to the Notes (the "Indenture"). The form and
terms of the Exchange Notes are identical in all material respects to the form
and terms of the Old Notes, except that (i) the offering of the Exchange Notes
has been registered under the Securities Act, (ii) the Exchange Notes will not
be subject to transfer restrictions and (iii) the Exchange Notes will not be
entitled to registration or other rights under the Registration Rights
Agreement, including the provision in the Registration Rights Agreement for
payment of Liquidated Damages (as defined in the Registration Rights Agreement)
upon either the failure by the Company to consummate the Exchange Offer or the
occurrence of certain other events. Following the Exchange Offer, any holders of
Old Notes will continue to be subject to the existing restrictions on transfer
thereof and, as a general matter, the Company will not have any further
obligation to such holders to provide for registration under the Securities Act
of transfers of the Old Notes held by such holders. To the extent that Old Notes
are tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered and tendered but unaccepted Old Notes could be adversely affected.
See "Risk Factors" and "The Exchange Offer -- Purpose and Effect of the Exchange
Offer."
(continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is , 1998.
<PAGE> 4
The Old Notes were sold by the Company on July 2, 1998, to Lehman Brothers
Inc., Bear, Stearns & Co. Inc. and Salomon Brothers Inc. (the "Initial
Purchasers") in transactions not registered under the Securities Act in reliance
upon the exemption provided in Section 4(2) of the Securities Act (the "Notes
Offering"). The Initial Purchasers placed the Old Notes with qualified
institutional buyers (as defined in Rule 144A under the Securities Act)
("Qualified Institutional Buyers" or "QIBs"), each of whom agreed to comply with
certain transfer restrictions and other restrictions. Accordingly, the Old Notes
may not be reoffered, resold or otherwise transferred in the United States
unless such transaction is registered under the Securities Act or an applicable
exemption from the registration requirements of the Securities Act is available.
The Exchange Notes are being offered hereby in order to satisfy the obligations
of the Company under a registration rights agreement among the Company and the
Initial Purchasers relating to the Old Notes (the "Registration Rights
Agreement").
The Exchange Notes will bear interest at a rate of 9% per annum, payable
semiannually on January 1 and July 1 of each year, commencing January 1, 1999.
Holders of Exchange Notes of record on December 15, 1998, will receive on
January 1, 1999, an interest payment in an amount equal to (x) the accrued
interest on such Exchange Notes from the date of issuance thereof to January 1,
1999, plus (y) the accrued interest on the previously held Old Notes from the
date of issuance of such Old Notes (July 2, 1998) to the date of exchange
thereof. The Notes mature on July 1, 2008.
The Old Notes were initially represented by three global Old Notes (the
"Old Global Notes") in registered form, registered in the name of Cede & Co., as
nominee for The Depository Trust Company ("DTC" or the "Depositary"), as
depositary. The Exchange Notes exchanged for Old Notes represented by the Old
Global Notes will be initially represented by two global Exchange Notes (the
"Exchange Global Notes") in registered form, registered in the name of the
Depositary. See "Description of the Notes -- Book-Entry; Delivery and Form."
References herein to "Global Notes" shall be references to the Old Global Notes
and the Exchange Global Notes.
Based on an interpretation of the Securities Act by the staff of the
Securities and Exchange Commission (the "SEC" or "Commission"), Exchange Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than (i)
a broker-dealer who purchased such Old Notes directly from the Company for
resale pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an "affiliate" (within the meaning of
Rule 405 of the Securities Act) of the Company), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such holder is acquiring the Exchange Notes in its ordinary course of
business and is not participating, and has no arrangement or understanding with
any person to participate, in the distribution of the Exchange Notes. Holders of
Old Notes wishing to accept the Exchange Offer must represent to the Company
that such conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must agree that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of one year after
the Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
The Exchange Notes will be a new issue of securities for which there
currently is no market. Although one of the Initial Purchasers has informed the
Company that it currently intends to make a market in the Exchange Notes, it is
not obligated to do so, and any such market making may be discontinued at any
time without notice. As the Old Notes were issued and the Exchange Notes are
being issued to a limited number of institutions who typically hold similar
securities for investment, the Company does not expect that an active public
market for the Exchange Notes will develop. Accordingly, there can be no
assurance as to the
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<PAGE> 5
development, liquidity or maintenance of any market for the Exchange Notes on
any securities exchange or for quotation through the Nasdaq Stock Market. See
"Risk Factors."
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
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<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the detailed information and financial statements and notes
thereto appearing elsewhere in this Prospectus. Prospective investors should
carefully consider the matters discussed under the caption "Risk Factors."
Except as the context otherwise requires, information in this Prospectus assumes
that (i) the Hawaii Acquisition (as defined herein), (ii) the Washington
Acquisition (as defined herein), (iii) the initial borrowings under the Senior
Credit Facility (as defined herein), (iv) the Notes Offering (as defined
herein), (v) the PIES Offering (as defined herein) (vi) the Common Stock
Offering (as defined herein) and (vii) the exercise of the underwriters'
over-allotment options granted in connection with the PIES Offering and Common
Stock Offering (collectively, the "Transactions") have been consummated. All
such transactions have actually been consummated except for the Washington
Acquisition. AS USED IN THIS PROSPECTUS, THE TERM "TESORO" REFERS TO TESORO
PETROLEUM CORPORATION BEFORE THE TRANSACTIONS, AND THE TERM "COMPANY" REFERS TO
TESORO PETROLEUM CORPORATION PRO FORMA FOR THE TRANSACTIONS. The information
contained in this Prospectus with respect to BHP Hawaii (as defined herein) and
Shell Washington (as defined herein) has been supplied to Tesoro by BHP (as
defined herein) and Shell (as defined herein), respectively.
THE COMPANY
OVERVIEW
The Company is a diversified natural resource company with operations in
three business segments: (i) refining crude oil and marketing petroleum products
("Refining and Marketing"), (ii) exploration for, and development and production
of primarily natural gas ("Exploration and Production") and (iii) marketing and
distributing petroleum products and providing logistics services to the marine
and offshore exploration and production industries ("Marine Services"). Tesoro
has demonstrated consistent growth in each of these segments over the past three
years. Tesoro's Normalized EBITDA (as defined herein) has increased from $50.0
million in 1995 to $98.2 million in 1997. Pro forma for the Transactions, the
Company generated Normalized EBITDA of $178.6 million for the year ended
December 31, 1997 (excluding potential cost savings and revenue enhancements
anticipated to result from the Acquisitions), with 65% attributable to Refining
and Marketing, 32% attributable to Exploration and Production and 3%
attributable to Marine Services.
REFINING AND MARKETING
The Company is the second largest independent refiner and marketer of
petroleum products in the Petroleum Administration for Defense District V ("PADD
V"), a federal regional designation encompassing Alaska, Arizona, California,
Hawaii, Nevada, Oregon and Washington. The Company owns and operates three major
West Coast refineries located in: Kenai, Alaska (the "Alaska Refinery"), on the
eastern side of the Cook Inlet; Kapolei, Hawaii (the "Hawaii Refinery"), on the
island of Oahu; and Anacortes, Washington (the "Washington Refinery"), on the
Puget Sound approximately 60 miles north of Seattle. The Alaska Refinery has a
rated capacity of 72,000 barrels per day ("bpd") and is the second largest
refinery in Alaska. The Hawaii Refinery has a rated capacity of 95,000 bpd and
is the largest refinery in Hawaii. The Washington Refinery has a rated capacity
of 108,000 bpd and is the third largest refinery in the Pacific Northwest. The
Company is also a major retailer of gasoline in Alaska and Hawaii and is
continuing to build a retail presence in the Pacific Northwest. As of March 31,
1998, the Company had 160 branded retail stations in Alaska (35 Company owned
and operated), 32 branded retail stations in Hawaii (30 Company owned and
operated) and 33 branded retail stations in the Pacific Northwest.
ALASKA. The Alaskan market is geographically isolated, making
transportation and terminaling costs a significant competitive factor. The
nearest competitive alternative markets to Alaska are Canada and the U.S.
Pacific Northwest. The transportation costs involved to move refined products
between these markets and Alaska are significant, which results in the Company
receiving higher margins on its refined products that are
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<PAGE> 7
sold in the local Alaskan market. During 1997, approximately 70% of the refined
product volumes manufactured at the Alaska Refinery were sold within the local
Alaskan market.
Over the last three years, Tesoro has significantly increased its in-state
sales of refined products in Alaska, which have generated substantial
improvements in its Alaska refining and marketing operating results. Tesoro has
accomplished this goal through a combination of (i) capital improvements and
feedstock alterations at its Alaska Refinery that allow the refinery to
manufacture a product slate that is more in line with local market demands, and
(ii) an expansion of its in-state marketing channels for gasoline, heavy oils
and other refined products. As a result of these and other initiatives, Tesoro's
in-state sales of refined products manufactured at the Alaska Refinery have
increased by over 4,500 bpd from 1995 to 1997. Over this same time period, the
Alaska Refinery's product spread has increased from approximately $3.44 per
barrel to $5.09 per barrel and Tesoro's Alaska refining and marketing Normalized
EBITDA has increased from $13 million to $33 million.
Recent major capital improvements to the Alaska Refinery include the
construction of a vacuum unit in late 1994 for approximately $25 million and the
expansion of the hydrocracker unit in late 1997 for approximately $19 million,
which included the introduction of a jet selective catalyst. As a result of
these two refinery upgrades, the Company has significantly increased its
production of jet fuel, which is currently in short supply in Alaska, and
reduced its production of lower margin residual fuel oil and other heavy oils.
The majority of these heavy oils must be exported to markets outside of Alaska
due to the current level of local demand. Prior to these major capital
improvements, the Alaska Refinery's product mix was approximately 37% middle
distillates (primarily jet fuel and diesel fuel), 24% gasoline, and 39% residual
fuel and other heavy oils on total production of 51,100 bpd in 1993, versus a
product mix during the first quarter of 1998 of 44% middle distillates, 26%
gasoline and 30% residual fuel oil and other heavy oils on total production of
57,700 bpd.
The Company also has expanded and enhanced its Alaska retail gasoline
network by converting third-party stations to "Tesoro Alaska" branded stations,
building and acquiring stations, remodeling existing profitable stations and
closing underperforming stations. In the last three years, the number of branded
stations selling Company gasoline in Alaska has increased from 131 to 160. The
Company plans to add additional branded retail stations in 1998 as a part of its
three-year, $50 million Alaskan retail expansion program. Additionally, Tesoro
improved its product spread by beginning to manufacture and market liquid
asphalt in Alaska in 1996. Due to this change in product slate and the
completion of an asphalt terminal in Anchorage, Alaska, sales of liquid asphalt
sold in-state by Tesoro tripled from 1996 to 1997.
HAWAII. The Company's Alaskan operations and its recently acquired Hawaii
operations have many similar characteristics. Both markets are geographically
isolated, making transportation and terminaling costs a significant competitive
factor. Both markets have a small number of local refiners. The Company operates
one of two major refineries in Alaska and the larger of two refineries in
Hawaii. Both markets have similar supply and demand characteristics for most
refined products. Middle distillates account for the largest percentage of total
refined product demand. In-state demand for middle distillates is currently
higher than in-state production and in-state demand for gasoline and heavy oils
is currently lower than in-state production. With these similar market dynamics,
both the Alaska and Hawaii Refineries are configured to maximize production of
middle distillates. Both refineries process similar grades of crude oil and
yield similar refined product slates. Due to the strong similarities between the
Alaska and Hawaii Refineries and the corresponding local markets, the Company
believes there will be significant opportunities to improve the performance of
the Hawaii Refinery by applying some of the same techniques the Company has used
in Alaska.
WASHINGTON. The Washington Acquisition gives the Company a major refining
presence in the Pacific Northwest, an area in which Tesoro has been an active
marketer of refined products since the 1980s. Tesoro currently markets gasoline
(through 33 dealer-operated branded retail stations and one terminal), bunker
fuels and other heavy oil products in the Pacific Northwest. BHP Hawaii also
currently markets certain excess refined products in the Pacific Northwest.
The Company believes that the Pacific Northwest is one of the most
attractive U.S. refining markets. Washington and Oregon are currently ranked as
the sixth and tenth fastest growing states in the U.S., respectively. Population
growth in Washington and Oregon averaged 11% for the five-year period ending
1995.
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<PAGE> 8
Gasoline production in the Pacific Northwest is currently slightly higher than
local demand. Due to strong projected demand growth, however, the Company
believes that the gasoline market will be in balance or slightly short within
two to three years.
The Washington Refinery is a relatively complex refinery that produces a
large percentage of gasoline and other high value products. During 1997, the
Washington Refinery's product mix was approximately 53% gasoline, 24% middle
distillates and 23% heavy oils and other. Additionally, the Washington Refinery
can produce significant amounts of CARB gasoline, a gasoline formulation
required in the California market which reduces vehicle emissions.
The Company believes that there are significant cost saving and revenue
enhancement opportunities available through integrating its Washington Refinery
with its Alaska and Hawaii Refineries. The Tesoro management team has currently
identified $25 million of potential annual cost saving and revenue enhancing
synergies including improvements to administrative and logistical efficiencies,
further processing of intermediate products and other marketing and operating
benefits. Management expects to begin to realize such synergies in the fourth
quarter of 1998 with the full annual impact to be achieved in the fiscal year
ending December 31, 1999. In addition, the Company believes that there will be
incremental opportunities, which have not yet been identified, from owning three
refineries in PADD V.
EXPLORATION AND PRODUCTION
The Company is engaged in the exploration for and acquisition, development
and exploitation of primarily natural gas properties in Texas, Louisiana and
Bolivia. As of December 31, 1997, the Company had over 517 billion cubic feet
equivalent ("Bcfe") of proved reserves, 93% of which are natural gas, with a
standardized measure of discounted future net cash flows before income taxes
utilizing a 10% discount rate ("Pre-Tax PV10") of approximately $374 million.
Approximately 30% of the Company's proved reserves and 45% of the Company's
Pre-Tax PV10 are attributable to its U.S. properties.
The Company has a demonstrated track record of finding, developing and
producing oil and gas reserves at a relatively low cost. Over the last five
years, the Company has more than doubled worldwide proved reserves at an average
finding and development cost of approximately $0.52 per thousand cubic feet
equivalent ("Mcfe"). The Company has increased production from approximately 62
million cubic feet equivalents ("MMcfe") per day in 1993 to 109 MMcfe per day in
1997 and was producing approximately 130 MMcfe per day during March 1998. During
1997, the Company increased its domestic proved reserves by 28% and its Bolivian
proved reserves by 45% at a worldwide average finding cost of $0.49 per Mcfe.
The Company believes it is well positioned to further increase its proved
reserves and production in both the U.S. and Bolivia.
In the U.S., Tesoro has assembled a substantial inventory of new
exploration and development prospects. In the last year, the Company almost
tripled its net undeveloped acreage to in excess of 130,000 acres. The Company
is positioned in four core areas: the Val Verde Basin in Southwest Texas, the
Wilcox Trend in South Texas, the Frio/Vicksburg Trend along the U.S. Gulf Coast
and the East Texas Basin. During 1997, the Company's U.S. exploration efforts
resulted in commercial discoveries in three of these core areas. As a result of
these new discoveries, the Company has added a significant inventory of lower
risk development drilling opportunities for 1998.
In Bolivia, a significant portion of the Company's proved developed
reserves are currently shut-in due to limited access to markets. However, during
1997, construction began on a 1,900-mile Bolivia-to-Brazil natural gas pipeline
which the Company believes will significantly increase the market for Bolivian
gas production. The pipeline, which is jointly owned by Enron Corp., Shell
International Gas Ltd. and Petroleo Brasileiro S.A. (known as Petrobras, the
Brazilian state oil company), among others, is expected to be completed by early
1999. Upon completion of the pipeline, the Company believes that it will be able
to increase its Bolivian natural gas production. See "Business -- Exploration
and Production -- Overview." Tesoro's Bolivian production during 1997 averaged
37 MMcfe per day (gross), and the Company estimates that it could currently
produce from its existing proved developed reserve base approximately 120 MMcfe
per day (gross) if access to markets were readily available. The Company's 1998
capital budget includes plans to drill three development wells (gross) and two
exploratory wells (gross) which may increase its productive capacity.
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<PAGE> 9
MARINE SERVICES
Tesoro is the largest operator of marine terminals along the Texas and
Louisiana Gulf Coast and is building a presence on the U.S. West Coast. The
Company currently operates 20 marine terminals in Texas and Louisiana and three
terminals on the U.S. West Coast. Through its terminal facilities, the Company
markets and distributes a broad range of products, including diesel fuel,
lubricants, chemicals and supplies, and provides logistical support services to
the marine and offshore exploration and production industries. The marine
terminals are generally deep water and are bulkheaded and dredged to provide
easy access to vessels receiving products for delivery to customers. Products
are also delivered offshore aboard vessels owned or chartered by customers,
which include companies engaged in oil and gas exploration and production,
seismic evaluation, offshore construction and other drilling-related businesses.
The acquisition of Coastwide Energy Services, Inc. ("Coastwide") in 1996
plus recent facility improvements and cost reduction initiatives have
significantly enhanced the Company's competitive position and operating results
in the marine services industry. The Company's Normalized EBITDA attributable to
its Marine Services segment has increased from a negative $3.3 million in 1995
to a positive $8.0 million in 1997. The marine services industry remains
fragmented. The Company believes that there are significant consolidation
opportunities in this sector as well as additional optimization opportunities
relating to its existing operations that will allow it to continue to profitably
grow this business segment.
STRATEGY AND COMPETITIVE STRENGTHS
The Company's strategy is to (i) maximize return on capital employed and
increase the competitiveness of each of its business units by reducing costs,
increasing operating efficiencies and optimizing existing assets and (ii) expand
its overall market presence through a combination of internal growth initiatives
and selective acquisitions which are both accretive to earnings and provide
significant operational synergies.
The Company believes that it is well positioned to execute its strategy as
a result of the following competitive strengths:
STRONG POSITION IN NICHE MARKETS. In Refining and Marketing, the Company
operates the largest refinery in Hawaii, the second largest refinery in Alaska
and will operate the third largest refinery in Washington. The Company is also a
major retailer of gasoline in Alaska and Hawaii and is enhancing its retail
presence in the Pacific Northwest. In Exploration and Production, the Company
has demonstrated a track record of finding, developing and producing oil and gas
reserves at relatively low costs compared to others in the industry. In Marine
Services, the Company is the largest operator of marine terminals along the
Texas and Louisiana Gulf Coast.
DIVERSIFIED CASH FLOW BASE. Pro forma for the Transactions, for the year
ended December 31, 1997, the Company generated approximately 65% of its
Normalized EBITDA from its Refining and Marketing segment, 32% from its
Exploration and Production segment and 3% from its Marine Services segment
(excluding potential cost savings and revenue enhancement opportunities).
Furthermore, pro forma Normalized EBITDA from the Refining and Marketing segment
would be distributed among its three areas of operations. The diversity of the
Company's assets and successful operation of its three business segments reduce
the Company's dependence on any one area of the natural resources industry,
which subsequently reduces the volatility of the Company's earnings and
Normalized EBITDA.
STRONG TRACK RECORD. Over the last four years, Tesoro has made significant
operating improvements in each of its business segments. From 1993 to 1997,
Tesoro's Normalized EBITDA increased from approximately $35 million to $98
million. During this same time period, Tesoro reduced its total debt and
preferred stock outstanding from $264 million to approximately $132 million.
EXPERIENCED MANAGEMENT TEAM. The Company benefits from a strong and
experienced management team at both the corporate and the operating levels.
Tesoro's senior management team has an average 25 years of experience in the oil
and gas industry. The Company's management team has successfully restructured
each of its operating segments and significantly improved its operating and
financial performance over the last five years.
4
<PAGE> 10
THE TRANSACTIONS
THE ACQUISITIONS
THE HAWAII ACQUISITION. On May 29, 1998, Tesoro closed the acquisition (the
"Hawaii Acquisition") of all of the outstanding capital stock of BHP Petroleum
Americas Refining Inc. and BHP Petroleum South Pacific Inc. (together, "BHP
Hawaii"), both of which were affiliates of The Broken Hill Proprietary Company
Limited ("BHP"). BHP Hawaii owned and operated a 95,000 bpd refinery in Kapolei,
Hawaii, on the island of Oahu, approximately 20 miles west of Honolulu, and 32
retail gasoline stations (two of which are dealer-operated) on Oahu, Maui and
Hawaii.
The cash purchase price for the Hawaii Acquisition was $243.5 million. In
addition, Tesoro issued an unsecured, non-interest bearing promissory note (the
"BHP Note") in the amount of $50 million, payable in five equal annual
installments, beginning in 2009. The BHP Note provides for earlier payment based
on the performance of BHP Hawaii. The purchase price is subject to adjustment
after the closing for the amount by which the working capital of BHP Hawaii on
the closing date differs from $68.5 million, the estimated working capital at
closing. See "Description of Other Indebtedness -- Other Indebtedness."
In order to ensure the continuity of crude supply to the Hawaii Refinery,
the Company also entered into a two-year agreement with an affiliate of BHP to
assist Tesoro in acquiring crude oil feedstock sourced outside of North America
and in arranging for transportation of such crude oil to the Hawaii Refinery.
See "Business -- Refining and Marketing -- Crude Oil Supply -- Hawaii."
THE WASHINGTON ACQUISITION. On May 1, 1998, Tesoro entered into an
agreement (the "Washington Agreement") to purchase (the "Washington
Acquisition," and together with the Hawaii Acquisition, the "Acquisitions") all
of the outstanding capital stock of Shell Anacortes Refining Company ("Shell
Washington"), an affiliate of Shell Oil Company ("Shell"). Shell Washington owns
and operates a 108,000 bpd refinery (the "Washington Refinery") located in
Anacortes, Washington (on the Puget Sound, approximately 60 miles north of
Seattle) and related assets.
Under the terms of the Washington Agreement, the Company has agreed to pay
at closing a purchase price of $237 million plus estimated working capital as of
closing. The Company has made a $5 million earnest money deposit and has
escrowed $266.9 million for the purchase price of Shell Washington. Based on the
March 31, 1998 balance sheet, the Company estimates that the working capital to
be acquired is approximately $43 million. The Washington Agreement contains
representations and warranties and other general provisions that are customary
for transactions of this nature.
Shell is selling Shell Washington pursuant to agreements with the U.S.
Federal Trade Commission (the "FTC") and the states of Oregon and Washington
resulting from its western states refining and marketing joint venture with
Texaco. The closing of the Washington Acquisition is contingent upon the
approval of the FTC and the states of Oregon and Washington and other customary
conditions. Tesoro currently anticipates that the Washington Acquisition will
close on or after August 1, 1998.
THE FINANCING
THE INTERIM CREDIT FACILITY. In conjunction with closing the Hawaii
Acquisition, Tesoro refinanced substantially all of its then-existing
indebtedness (the "Refinancing"). The total amount of funds required by Tesoro
to complete the Hawaii Acquisition and the Refinancing, to pay related fees and
expenses and for general corporate purposes was approximately $432 million,
which was financed through a secured credit facility (the "Interim Credit
Facility") provided by Lehman Commercial Paper Inc. ("LCPI"), an affiliate of
Lehman Brothers Inc. The Company refinanced all borrowings under the Interim
Credit Facility with net proceeds from the Offerings (as defined below), and
borrowings under the Senior Credit Facility (as defined below).
THE SENIOR CREDIT FACILITY. On July 2, 1998, and in connection with the
Notes Offering and the Washington Acquisition, the Company entered into a new
senior credit facility (the "Senior Credit Facility") in the amount of $500
million. The Senior Credit Facility is comprised of term loan facilities
aggregating
5
<PAGE> 11
$200 million (two $100 million tranches, the "Tranche A Term Loans" and the
"Tranche B Term Loan") and a $300 million revolving credit facility (the
"Revolver"). The Senior Credit Facility is guaranteed by substantially all of
the Company's active direct and indirect subsidiaries (the "Guarantors") and is
secured by substantially all of the domestic assets of the Company and each of
the Guarantors. See "Description of Other Indebtedness -- Senior Credit
Facility."
THE OFFERINGS. On July 2, 1998, concurrently with the syndication of the
Senior Credit Facility, the Company issued $300 million aggregate principal
amount of the Old Notes (the "Notes Offering"). On July 1, 1998, the Company
issued 9,000,000 PIES (the "PIES Offering"), representing interests in the
Company's Mandatorily Convertible Preferred Stock, with gross proceeds of $143.4
million and 5,000,000 shares of Common Stock, with gross proceeds of $79.7
million (the "Common Stock Offering," and together with the Notes Offering and
the PIES Offering, the "Offerings"). Upon exercise of the over-allotment options
granted to the underwriters of the Common Stock Offering and PIES Offering, the
Company issued 1,350,000 PIES with gross proceeds of $21.5 million and 750,000
shares of Common Stock with gross proceeds of $11.9 million. See "Description of
the Notes" and "Description of Capital Stock."
Borrowings under the Senior Credit Facility, together with the net proceeds
from the Offerings, were used to fund the cash purchase price of the Washington
Acquisition, to refinance the Interim Credit Facility (a portion of which was
used to finance the Hawaii Acquisition), to pay certain fees and expenses
related to the Transactions and for general corporate purposes (including
working capital requirements and capital expenditures).
6
<PAGE> 12
SUMMARY OF TERMS OF EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $300,000,000 aggregate
principal amount of Exchange Notes for up to an equal aggregate principal amount
of Old Notes. The Exchange Notes will be obligations of the Company entitled to
the benefits of the Indenture. The form and terms of the Exchange Notes are
identical in all material respects to the form and terms of the Old Notes,
except that (i) the offering of the Exchange Notes has been registered under the
Securities Act, (ii) the Exchange Notes will not be subject to transfer
restrictions and (iii) the Exchange Notes will not be entitled to registration
or other rights under the Registration Rights Agreement including the provision
in the Registration Rights Agreement for payment of Liquidated Damages upon
failure by the Company to consummate the Exchange Offer or the occurrence of
certain other events. See "Description of the Notes." Capitalized terms followed
by the parenthetical "(as defined)" and not defined herein will have the
meanings given them in the Indenture.
Registration Rights
Agreement.................. The Old Notes were sold by the Company on July 2,
1998 to the Initial Purchasers pursuant to a
Purchase Agreement, dated June 29, 1998 (the
"Purchase Agreement"). Pursuant to the Purchase
Agreement, the Company and the Initial Purchasers
entered into the Registration Rights Agreement
which, among other things, grants the holders of
the Old Notes certain exchange and registration
rights. The Exchange Offer is intended to satisfy
certain obligations of the Company under the
Registration Rights Agreement.
The Exchange Offer......... $1,000 principal amount of Exchange Notes will be
issued in exchange for each $1,000 principal amount
of Old Notes validly tendered and accepted pursuant
to the Exchange Offer. As of the date hereof,
$300,000,000 in aggregate principal amount of Old
Notes are outstanding. The Company will issue the
Exchange Notes to tendering holders of Old Notes
promptly following the Expiration Date. The terms
of the Exchange Notes are identical in all material
respects to the Old Notes except for certain
transfer restrictions and registration rights
relating to the Old Notes.
No federal or state regulatory requirements must be
complied with or approval obtained in connection
with the Exchange Offer, other than the
registration requirements under the Securities Act.
Resale..................... Based on existing interpretations of the Securities
Act by the staff of the SEC set forth in several
no-action letters to third parties, and subject to
the immediately following sentence, the Company
believes that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a
broker-dealer who purchased such Old Notes directly
from the Company for resale pursuant to Rule 144A
or any other available exemption under the
Securities Act or (ii) a person that is an
"affiliate" (within the meaning of Rule 405 of the
Securities Act) of the Company), without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that the
holder is acquiring the Exchange Notes in its
ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate, in
the distribution of the Exchange Notes. However,
any purchaser of Old Notes who is an affiliate of
the Company or who intends to participate in the
Exchange Offer for the purpose of distributing the
Exchange Notes, or any broker-dealer who purchased
the Old Notes from the Company to resell pursuant
to Rule 144A or any other available exemption under
the Securities Act, (i) will not be able
7
<PAGE> 13
to rely on the interpretations by the staff of the
SEC set forth in the above-mentioned no-action
letters, (ii) will not be able to tender its Old
Notes in the Exchange Offer and (iii) must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with any sale or transfer of the Notes unless such
sale or transfer is made pursuant to an exemption
from such requirements. The Company does not intend
to seek its own no-action letter and there is no
assurance that the staff of the SEC would make a
similar determination with respect to the Exchange
Notes as it has in such no-action letters to third
parties. See "The Exchange Offer -- Purpose and
Effect of the Exchange Offer" and "Plan of
Distribution." Each broker-dealer that receives
Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities. The Company
has agreed that, for a period of one year after the
Expiration Date, it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale. See "Plan of
Distribution."
Expiration Date............ 5:00 p.m., New York City time, on ,
1998, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."
Accrued Interest on the
Exchange Notes and the
Old Notes................ The Exchange Notes will bear interest at a rate of
9% per annum, payable semiannually on January 1 and
July 1 of each year, commencing January 1, 1999.
Holders of Exchange Notes of record on December 15,
1998, will receive on January 1, 1999, an interest
payment in an amount equal to (i) the accrued
interest on such Exchange Notes from the date of
issuance thereof to January 1, 1999, plus (ii) the
accrued interest on the previously held Old Notes
from the date of issuance of such Old Notes (July
2, 1998) to the date of exchange thereof. The Notes
mature on July 1, 2008.
Conditions to the Exchange
Offer.................... The Company may terminate the Exchange Offer if it
determines that its ability to proceed with the
Exchange Offer could be materially impaired due to
the occurrence of certain conditions. The Company
does not expect any of such conditions to occur,
although there can be no assurance that such
conditions will not occur. Holders of Old Notes
will have certain rights under the Registration
Rights Agreement should the Company fail to
consummate the Exchange Offer. See "The Exchange
Offer -- Conditions to the Exchange Offer" and
"Description of the Notes -- Registration Rights;
Liquidated Damages."
8
<PAGE> 14
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Old Notes to be exchanged and any other
required documentation, to U.S. Bank Trust National
Association, as Exchange Agent, at the address set
forth herein and therein or effect a tender of Old
Notes pursuant to the procedures for book-entry
transfer as provided for herein and therein. By
executing the Letter of Transmittal, each holder
will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary
course of business of the person receiving such
Exchange Notes, whether or not such person is the
holder, that neither the holder nor any such other
person has any arrangement or understanding with
any person to participate in the distribution of
such Exchange Notes and that neither the holder nor
any such other person is an "affiliate," as defined
in Rule 405 under the Securities Act, of the
Company. See "The Exchange Offer -- Procedures for
Tendering."
Following consummation of the Exchange Offer,
holders of Old Notes not tendered as a general
matter will not have any further registration
rights, and the Old Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the
Old Notes could be adversely affected. See "Risk
Factors -- Absence of Public Market for the Notes"
and "-- Consequences of Exchange and Failure to
Exchange" and "The Exchange Offer -- Consequences
of Failure to Exchange."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender in the Exchange Offer should contact such
registered holder promptly and instruct such
registered holder to tender on his behalf. If such
beneficial owner wishes to tender on his own
behalf, such beneficial owner must, prior to
completing and executing the Letter of Transmittal
and delivering his Old Notes, either (a) make
appropriate arrangements to register ownership of
the Old Notes in such holder's name or (b) obtain a
properly completed bond power from the registered
holder or endorsed certificates representing the
Old Notes to be tendered. The transfer of record
ownership may take considerable time, and
completion of such transfer prior to the Expiration
Date may not be possible. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available, or who cannot deliver their Old Notes
(or complete the procedure for book-entry transfer)
and deliver a properly completed Letter of
Transmittal and any other documents required by the
Letter of Transmittal to the Exchange Agent prior
to the Expiration Date may tender their Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
9
<PAGE> 15
Withdrawal Rights.......... Tenders of Old Notes may be withdrawn at any time
prior to the Expiration Date by furnishing a
written or facsimile transmission notice of
withdrawal to the Exchange Agent containing the
information set forth in "The Exchange
Offer -- Withdrawal of Tenders."
Acceptance of Old Notes and
Delivery of Exchange
Notes.................... Subject to certain conditions (as summarized above
in "Conditions of the Exchange Offer" and described
more fully in "The Exchange Offer -- Expiration
Date; Extensions; Amendments"), the Company will
accept for exchange any and all Old Notes that are
properly tendered in the Exchange Offer prior to
the Expiration Date. See "The Exchange
Offer -- Procedures for Tendering." The Exchange
Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
Exchange Agent............. U.S. Bank Trust National Association, the Trustee
under the Indenture, is serving as exchange agent
(the "Exchange Agent") in connection with the
Exchange Offer. The registered, certified or
overnight mail or courier address of the Exchange
Agent is U.S. Bank Trust N.A., 180 East Fifth
Street, St. Paul, MN 55101, Attention: Specialized
Finance, SPFT0414. The hand delivery address for
the Exchange Agent is U.S. Bank Trust N.A., 4th
Floor Bond Drop Window, 180 East Fifth Street, St.
Paul, MN 55101, and the first class mail address is
U.S. Bank Trust N.A., P.O. Box 64485, St. Paul, MN
55164-9549. For assistance and request for
additional copies of this Prospectus, the Letter of
Transmittal or the Notice of Guaranteed Delivery,
the telephone number for the Exchange Agent is
(651) 244-1197, and the facsimile number for the
Exchange Agent is (612) 244-1537 (Eligible
Institutions only). All communications should be
directed to the attention of Kevin Gorman.
Effect on Holders of Old
Notes.................... Holders of Old Notes who do not tender their Old
Notes in the Exchange Offer will continue to hold
their Old Notes and will be entitled to all the
rights and limitations applicable thereto under the
Indenture. All untendered, and tendered but
unaccepted, Old Notes will continue to be subject
to the restrictions on transfer provided for in the
Old Notes and the Indenture. To the extent that Old
Notes are tendered and accepted in the Exchange
Offer, the trading market, if any, for the Old
Notes could be adversely affected. See "Risk
Factors -- Consequences of Exchange and Failure to
Exchange."
See "The Exchange Offer" for more detailed information concerning the terms of
the Exchange Offer.
10
<PAGE> 16
SUMMARY OF TERMS OF EXCHANGE NOTES
Securities................. $300,000,000 aggregate principal amount of 9%
Senior Subordinated Notes due 2008, Series B.
Maturity................... July 1, 2008
Interest Payment Dates..... Interest on the Notes will be payable semi-annually
in arrears on January 1 and July 1 of each year,
commencing January 1, 1999.
Mandatory Redemption....... Except as set forth below under Special Redemption,
the Company will not be required to make mandatory
redemption or sinking fund payments with respect to
the Exchange Notes.
Optional Redemption........ The Exchange Notes will be redeemable at the option
of the Company, in whole or in part, at any time on
or after July 1, 2003, at the redemption prices set
forth herein, plus accrued and unpaid interest, if
any, thereon to the date of redemption. In
addition, at any time on or prior to July 1, 2001,
the Company may, at its option, redeem up to 35% of
the aggregate principal amount of the Notes
outstanding at a redemption price equal to 109% of
the principal amount thereof, plus accrued and
unpaid interest, if any, thereon, to the date of
redemption, with the net cash proceeds of one or
more Public Equity Offerings (as defined herein);
provided that at least 65% of the aggregate
principal amount of Notes issued in the Notes
Offering remain outstanding immediately after each
such redemption. See "Description of the
Notes -- Optional Redemption."
Special Redemption......... If the Washington Acquisition is not consummated,
or the related acquisition agreement is terminated
before such consummation, on or prior to December
31, 1998, the Company will be required to redeem
50% of the aggregate principal amount of the Notes
issued in the Notes Offering on the earlier of
December 31, 1998 and ten business days following
termination of the acquisition agreement (the
"Special Redemption Date") at a price equal to 101%
of the redeemed principal amount thereof (the
"Special Redemption Price"), plus accrued and
unpaid interest, if any, to the Special Redemption
Date. The Company deposited $266.9 million into an
escrow account created pursuant to the Washington
Agreement to secure payment of the purchase price
for the Washington Acquisition. It is expected that
in the event the Washington Acquisition is not
consummated (without fault of the Company), such
escrowed funds will be available to fund payment of
the Special Redemption Price. See "Use of Proceeds"
and "Description of the Notes -- Special
Redemption."
Change of Control.......... Upon the occurrence of a Change of Control, each
holder of the Exchange Notes will have the right to
require the Company to repurchase all or any part
of such Holder's Exchange Notes at a price equal to
101% of the principal amount thereof, plus accrued
and unpaid interest, if any, thereon to the date of
repurchase. See "Risk Factors -- Potential
Inability to Fund a Change of Control Offer" and
"Description of the Notes -- Repurchase at the
Option of Holders -- Change of Control."
Ranking.................... The Exchange Notes will be general unsecured
obligations of the Company subordinate in right of
payment to all existing and future Senior Debt of
the Company and the Guarantors, including
borrowings under the Senior Credit Facility, and
senior in right of payment to, or pari passu with,
all other present or future indebtedness of the
Company.
11
<PAGE> 17
As of March 31, 1998, after giving pro forma effect
to the Transactions, the Company and the Guarantors
would have had approximately $185.2 million of
Senior Debt outstanding (exclusive of an additional
$350.0 million available under the Senior Credit
Facility, which, if drawn, would be Senior Debt).
The Indenture will permit the Company and its
subsidiaries to incur additional indebtedness,
including additional Senior Debt, subject to
certain conditions. See "Description of the
Notes -- Subordination" and "Capitalization."
Subsidiary Guarantees...... The Company's payment obligations under the
Exchange Notes are jointly and severally guaranteed
on a senior subordinated basis (the "Subsidiary
Guarantees") by the Guarantors, which constitute
substantially all of the Company's active
subsidiaries. The Subsidiary Guarantees will be
subordinate in right of payment to all existing and
future Senior Debt of the Guarantors, including the
Guarantors' guarantees of the Company's obligations
under the Senior Credit Facility. See "Description
of the Notes -- Subsidiary Guarantees."
Certain Covenants.......... The Indenture contains certain covenants that,
among other things, restrict the ability of the
Company and its Restricted Subsidiaries (as defined
herein) to: (i) incur additional indebtedness and
issue preferred stock; (ii) pay dividends or make
certain other restricted payments; (iii) enter into
transactions with affiliates; (iv) make certain
asset dispositions; (v) merge or consolidate with,
or transfer substantially all of its assets to,
another Person (as defined herein); (vi) encumber
assets under certain circumstances; (vii) restrict
dividends and other payments from Restricted
Subsidiaries; (viii) issue Capital Stock (as
defined herein) of Wholly Owned Restricted
Subsidiaries (as defined herein); or (ix) engage in
certain business activities. See "Description of
the Notes -- Certain Covenants." In addition, under
certain circumstances, the Company will be required
to offer to repurchase the Exchange Notes at a
price equal to 100% of the aggregate principal
amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of repurchase, with the
excess proceeds of certain Asset Sales (as defined
herein). See "Description of the
Notes -- Repurchase at the Option of
Holders -- Asset Sales."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE EXCHANGE NOTES, SEE "RISK FACTORS."
12
<PAGE> 18
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables set forth certain summary historical condensed
consolidated financial data for Tesoro and certain historical pro forma
information for the Company. The summary historical financial information
presented below for each of the three years ended December 31, 1997, and for
each of the quarters ended March 31, 1997 and 1998, has been derived from the
financial statements included elsewhere herein. The pro forma statements of
consolidated operations for the year ended December 31, 1997, and the pro forma
statement of consolidated operations for the three months ended March 31, 1998,
give effect to the Transactions as if all had occurred on January 1, 1997. The
pro forma balance sheet gives effect to the Transactions as if all had occurred
on March 31, 1998. The unaudited pro forma information set forth below is not
necessarily indicative of the results that actually would have been achieved had
such Transactions been consummated on January 1, 1997, or that may be achieved
in the future. The unaudited pro forma financial statements do not reflect any
benefits from potential cost savings or revenue enhancements resulting from the
integration of the operations of Tesoro, BHP Hawaii and Shell Washington
(estimated by the Company to be $25 million annually beginning in 1999). The
information should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations, the Selected
Historical Financial Data, the Pro Forma Combined Condensed Statements of
Operations and the Pro Forma Financial Statements of Tesoro, BHP Hawaii and
Shell Washington and the notes thereto included herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------- ---------------------------
1997 1998
1995 1996 1997 PRO FORMA 1997 1998 PRO FORMA
-------- -------- ------ --------- ------ ------ ---------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues(a)......................... $1,002.9 $1,039.8 $943.4 $2,980.4 $234.9 $196.0 $ 607.9
Total segment operating profit(a)(b)...... $ 105.9 $ 144.8 $ 72.7 $ 163.1 $ 15.0 $ 17.9 $ 34.7
Earnings before extraordinary items....... $ 57.5 $ 76.8 $ 30.7 $ 31.9 $ 6.1 $ 6.1 $ 4.9
OTHER DATA:
EBITDA(c):
Refining and marketing.................. $ 12.6 $ 18.5 $ 33.2 $ 148.4 $ 3.2 $ 9.5 $ 32.5
Exploration and production.............. 139.2 159.6 77.2 77.2 22.1 19.0 19.0
Marine services......................... (4.1) 7.3 8.0 8.0 1.3 2.4 2.4
-------- -------- ------ -------- ------ ------ --------
Total segment EBITDA.................. 147.7 185.4 118.4 233.6 26.6 30.9 53.9
Corporate and unallocated............... (22.3) (13.4) (16.2) (55.0) (3.7) (4.1) (11.6)
-------- -------- ------ -------- ------ ------ --------
Total consolidated EBITDA............. $ 125.4 $ 172.0 $102.2 $ 178.6(e) $ 22.9 $ 26.8 $ 42.3(e)
======== ======== ====== ======== ====== ====== ========
Normalized EBITDA(d):
Refining and marketing.................. $ 13.0 $ 19.3 $ 33.2 $ 148.4 $ 3.2 $ 9.5 $ 32.5
Exploration and production.............. 58.8 70.0 73.2 73.2 20.5 19.0 19.0
Marine services......................... (3.3) 7.3 8.0 8.0 1.3 2.4 2.4
-------- -------- ------ -------- ------ ------ --------
Total segment Normalized EBITDA....... 68.5 96.6 114.4 229.6 25.0 30.9 53.9
Corporate and unallocated............... (18.5) (14.7) (16.2) (51.0) (3.7) (4.1) (11.6)
-------- -------- ------ -------- ------ ------ --------
Total consolidated Normalized
EBITDA.............................. $ 50.0 $ 81.9 $ 98.2 $ 178.6(e) $ 21.3 $ 26.8 $ 42.3(e)
======== ======== ====== ======== ====== ====== ========
Total Debt/Normalized EBITDA.............. * 3.03(f)
Normalized EBITDA/Interest Expense(d)..... 3.40 3.17
Normalized EBITDA/Interest plus Preferred
Dividends............................... 2.76 2.60
Capital expenditures
Refining and marketing.................. $ 9.3 $ 11.1 $ 43.9 * $ 2.9 $ 2.0 *
Exploration and production.............. 53.4 66.6 92.9 * 11.0 20.5 *
Marine services......................... 0.4 6.9 9.4 * 2.2 1.2 *
Other................................... 0.8 0.4 1.3 * 0.2 0.1 *
-------- -------- ------ ------ ------
Total capital expenditures........ $ 63.9 $ 85.0 $147.5 * $ 16.3 $ 23.8 *
======== ======== ====== ====== ======
BALANCE SHEET DATA:
Working capital........................... $ 77.5 $ 99.5 $ 74.3 * $104.8 $ 86.7 $ 202.7
Property, plant and equipment, net........ $ 261.7 $ 316.5 $413.8 * $320.7 $424.4 $ 924.4
Total assets.............................. $ 519.2 $ 582.6 $627.8 * $552.0 $635.4 $1,398.9
Total long-term debt and other
obligations............................. $ 164.5 $ 89.3 $132.3 * $ 89.3 $147.7 $ 483.5
Stockholders' equity...................... $ 216.5 $ 304.1 $333.0 * $310.4 $339.4 $ 580.3
</TABLE>
- ---------------
* Not available.
(a) Results for the years 1995 and 1996 include revenues from above-market
pricing provisions of a natural gas contract which was terminated effective
October 1, 1996. Operating profit included $47 million and $25 million in
the years 1995 and 1996, respectively, from the excess of these contract
prices over spot market prices. Upon termination of the contract in 1996,
the Exploration and Production segment also recorded a non-recurring
increase in other income and operating profit of $60 million in connection
with the settlement of the contract. In the year 1995, the Exploration
13
<PAGE> 19
and Production segment recorded other income and operating profit of $33
million from the sale of certain interests in the Bob West Field. See Notes
C and D of Notes to Tesoro's Consolidated Financial Statements.
(b) Segment operating profit equals gross operating revenues, gains and losses
on asset sales and other income less applicable segment costs of sales,
operating expenses, depreciation, depletion and other items. Income taxes,
interest expense and corporate general and administrative expenses are not
included in determining operating profit.
(c) EBITDA represents earnings before extraordinary item, interest expense,
income taxes and depreciation, depletion and amortization. Segment EBITDA
represents operating profit before depreciation, depletion and
amortization. While not purporting to reflect any measure of the Company's
operations or cash flows, EBITDA is presented for additional analysis.
EBITDA is not a calculation based upon generally accepted accounting
principles ("GAAP"); however, the amounts included in the EBITDA
calculation are derived from amounts included in Tesoro's Consolidated
Financial Statements. In addition, EBITDA should not be considered as an
alternative to net earnings or operating profit, as an indication of the
operating performance of the Company or an alternative to operating cash
flow as a measure of liquidity. EBITDA is not necessarily comparable to
similarly titled items of other companies.
(d) Normalized EBITDA is EBITDA, as defined in (c) above, excluding the impact
of the above-market natural gas contract with Tennessee Gas (as defined
herein) and other significant items which affect the comparability between
the periods presented. The following items have been excluded from EBITDA,
as reported, to generate normalized EBITDA for each segment (in millions):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ ------------------------
1997 1998
1995 1996 1997 PRO FORMA 1997 1998 PRO FORMA
----- ----- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Refining and Marketing.......... $(0.4) $(0.8) $-- $ -- $-- $-- $ --
----- ----- ---- ----- ---- ---- ----
Exploration and Production:
Excess of contract prices over
spot market prices.......... 47.1 24.6 -- -- -- -- --
Income from settlement of a
natural gas contract........ -- 60.0 -- -- -- -- --
Gain on sale of asset......... 33.5 -- -- -- -- -- --
Other non-recurring income
(charges), net.............. (0.2) 5.0 4.0 4.0 1.6 -- --
----- ----- ---- ----- ---- ---- ----
Total Exploration and
Production........... 80.4 89.6 4.0 4.0 1.6 -- --
----- ----- ---- ----- ---- ---- ----
Marine Services................. (0.8) -- -- -- -- -- --
----- ----- ---- ----- ---- ---- ----
Corporate and Unallocated....... (3.8) 1.3 -- (4.0)(i) -- -- --
----- ----- ---- ----- ---- ---- ----
Total Adjustments...... $75.4 $90.1 $4.0 $ -- $1.6 $-- $ --
===== ===== ==== ===== ==== ==== ====
</TABLE>
(i) Represents BHP Hawaii employee bonuses of $4 million which were
awarded based upon the performance of BHP operations that are not to
be acquired by Tesoro.
For further information regarding these significant items, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(e) Pro forma EBITDA represents earnings before extraordinary items plus
interest expense, income taxes, depreciation, depletion and amortization,
and amortization of financing costs, all on a pro forma basis.
(f) Normalized EBITDA for the three-month period has been annualized to
calculate this ratio.
14
<PAGE> 20
SUMMARY REFINING AND MARKETING OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEARS(A) ENDED
-------------------------- MARCH 31,
1995 1996 1997 1998
------ ------ ------ ------------
<S> <C> <C> <C> <C>
REFINERY THROUGHPUT (thousands of bpd)
Alaska Refinery.................................. 50.6 47.5 50.2 56.1
Hawaii Refinery.................................. 90.6 86.7 88.7 86.4
Washington Refinery.............................. 104.9 114.5 113.0 114.6
------ ------ ------ ------
Total Throughput......................... 246.1 248.7 251.9 257.1
====== ====== ====== ======
REFINED PRODUCTS MANUFACTURED (thousands of bpd)
Alaska Refinery --
Gasoline and gasoline blendstocks............. 14.3 12.8 12.8 15.2
Middle distillates, including jet fuel and
diesel fuel................................. 20.7 20.0 21.6 25.2
Heavy oils and residual products.............. 14.5 13.7 14.8 15.1
Other......................................... 2.5 2.6 2.3 2.2
------ ------ ------ ------
Total Alaska Refinery.................... 52.0 49.1 51.5 57.7
------ ------ ------ ------
Hawaii Refinery --
Gasoline and gasoline blendstocks............. 22.1 19.0 22.0 19.8
Middle distillates, including jet fuel and
diesel fuel................................. 39.3 39.6 40.4 40.3
Heavy oils and residual products.............. 27.1 25.9 24.3 23.4
Other......................................... 3.2 2.6 2.9 3.5
------ ------ ------ ------
Total Hawaii Refinery.................... 91.7 87.1 89.6 87.0
------ ------ ------ ------
Washington Refinery --
Gasoline and gasoline blendstocks............. 60.3 64.2 62.1 63.2
Middle distillates, including jet fuel and
diesel fuel................................. 24.1 28.9 28.3 29.9
Heavy oils and residual products.............. 14.9 15.3 17.1 16.2
Other......................................... 9.6 10.4 9.9 10.0
------ ------ ------ ------
Total Washington Refinery................ 108.9 118.8 117.4 119.3
------ ------ ------ ------
Total Refined Products Manufactured...... 252.6 255.0 258.5 264.0
====== ====== ====== ======
REFINERY PRODUCT SPREAD ($/barrel)
Alaska Refinery(b)............................... $ 3.44 $ 4.29 $ 5.09 $ 4.75
Hawaii Refinery(c)............................... $ 5.53 $ 5.48 $ 5.45 $ 4.00
Washington Refinery(b)........................... $ 3.63 $ 3.63 $ 2.89 $ 1.07
NUMBER OF STATIONS SELLING THE REFINERIES'
GASOLINE(d)
Alaska --
Company-operated.............................. 32 33 35 35
Branded jobbers and dealers................... 99 126 129 125
Unbranded jobbers and dealers................. 28 29 28 25
Pacific Northwest -- branded jobbers and
dealers....................................... 10 18 30 33
Hawaii -- Company-operated....................... 28 28 28 30
Hawaii -- Dealer-operated........................ 1 2 2 2
------ ------ ------ ------
Total Stations........................... 198 236 252 250
====== ====== ====== ======
</TABLE>
- ---------------
(a) Amounts for Tesoro and Shell Washington are for fiscal years ended December
31. Amounts for BHP Hawaii are for fiscal years ended May 31. Refining and
marketing data for the Hawaii Refinery and Washington Refinery have been
provided by BHP and Shell, respectively.
(b) Refinery product spread for the Alaska Refinery and Washington Refinery is
calculated as the per barrel difference between the average yield value of
refined products manufactured at the Alaska Refinery or
15
<PAGE> 21
Washington Refinery during the periods presented and the average cost to
manufacture these products. Refinery product spread does not take into
account adjustments due to selling a volume and mix of products that is
different than actual volumes manufactured during the periods. Refinery
product spread for the Alaska Refinery also does not take into account
margins on product purchased and resold.
(c) Refinery product spread for the Hawaii Refinery is calculated as the per
barrel difference between net sales of refined products manufactured and
the landed cost of crude oil processed on a FIFO inventory valuation
method. The calculation is based on sales volumes during the periods
presented and does not include manufacturing cost allocations or refined
products purchased and resold.
(d) Branded gasoline stations sell the Alaska Refinery's gasoline under the
"Tesoro Alaska" name in Alaska, Oregon and Washington (191 stations as of
March 31, 1998) and under the "Union 76" name in Southeast Alaska (two
stations as of March 31, 1998). Stations that sell the Company's gasoline
under a different name are considered unbranded. Branded gasoline stations
sell the Hawaii Refinery's gasoline under the "Gas Express" name in Hawaii.
As of March 31, 1998, the Company operated 38 convenience stores located in
Alaska, 35 of which sell gasoline.
16
<PAGE> 22
SUMMARY EXPLORATION AND PRODUCTION
RESERVE AND OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------ MARCH 31,
1995 1996 1997 1998
------ ------ ------ ------------
<S> <C> <C> <C> <C>
NET PROVED RESERVES AT END OF PERIOD (BCFE)+
U.S. ................................................ 106.4 117.8 150.4 *
Bolivia.............................................. 98.0 253.0 366.4 *
------ ------ ------
Total........................................ 204.4 370.8 516.8 *
====== ====== ======
% Natural Gas........................................ 95% 94% 93% *
PRE-TAX PV10 AT END OF PERIOD ($ MILLIONS)
U.S. ................................................ $168.8 $222.7 $167.5 *
Bolivia.............................................. 48.7 133.8 206.5 *
------ ------ ------
Total........................................ $217.5 $356.5 $374.0 *
====== ====== ======
AVERAGE DAILY NET PRODUCTION (MMCFE)+
U.S. ................................................ 114.5 87.8 86.7 100.2
Bolivia.............................................. 22.1 23.8 22.7 27.6
------ ------ ------ ------
Total........................................ 136.6 111.6 109.4 127.8
====== ====== ====== ======
% Natural Gas........................................ 98% 97% 97% 95%
AVERAGE SALES PRICES
Natural gas ($/Mcf):
U.S. --
Spot market(a).................................. $ 1.34 $ 1.95 $ 2.17 $ 2.01
Average(b)...................................... $ 2.57 $ 2.75 $ 2.17 $ 2.01
Bolivia........................................... $ 1.28 $ 1.33 $ 1.15 $ 0.97
Oil and condensate ($/barrel) --
U.S. ............................................. $16.82 $21.99 $18.90 $14.13
Bolivia........................................... $14.39 $17.98 $15.71 $15.78
AVERAGE OPERATING EXPENSES ($/MCFE)+
U.S. ................................................ $ 0.35 $ 0.27 $ 0.30 $ 0.32
Bolivia.............................................. $ 0.48 $ 0.42 $ 0.42 $ 0.40
THREE-YEAR AVERAGE COSTS OF ADDING RESERVES ($/MCFE)(c)
U.S. ................................................ $ 0.70 $ 0.94 $ 0.85 *
Bolivia.............................................. $ 2.86 $ 0.09 $ 0.14 *
Total........................................ $ 0.74 $ 0.53 $ 0.43 *
</TABLE>
- ---------------
* Not available
+ Bcfe, MMcfe and Mcfe are based on the assumption that six Mcf of natural
gas is equal to one barrel of crude oil.
(a) Includes effects of the Company's natural gas commodity price agreements
which amounted to a gain of $0.01 per thousand cubic feet ("Mcf") in the
year 1995 and to losses of $0.11 per Mcf and $0.05 per Mcf in the years
1996 and 1997, respectively (see Note N of Notes to Tesoro's Consolidated
Financial Statements).
(b) Average natural gas sales prices for the years 1995 and 1996 include the
effect of above-market pricing provisions under the contract with Tennessee
Gas that terminated effective October 1, 1996 (see Note D of Notes to
Tesoro's Consolidated Financial Statements).
(c) Represents total capital costs for the three years ended 1995, 1996 and
1997, respectively, divided by total proved reserve additions for the same
periods. Total capital costs include exploration, development and property
acquisition costs. Total reserve additions include extensions, discoveries,
purchases of minerals in place and revisions of previous estimates.
17
<PAGE> 23
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that are "forward-looking"
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and Section 21E of the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"). All statements other than
statements of historical facts included in this Prospectus, including without
limitation statements that use terminology such as "anticipate," "believe,"
"continue," "estimate," "expect," "intend," "may," "plan," "predict," "should,"
"will" and similar expressions, are forward-looking statements. These
forward-looking statements include, among other things, discussions of
anticipated revenue enhancements and cost savings following the Acquisitions,
the Company's business strategy and expectations concerning the Company's market
position, future operations, margins, profitability, liquidity and capital
resources, expenditures for capital projects and attempts to reduce costs.
Although the Company believes that the assumptions upon which the
forward-looking statements contained in this Prospectus are based are
reasonable, any of the assumptions could prove to be inaccurate and, as a
result, the forward-looking statements based on those assumptions also could be
incorrect. All phases of the operations of the Company involve risks and
uncertainties, many of which are outside the control of the Company and any one
of which, or a combination of which, could materially affect the results of the
Company's operations and whether the forward-looking statements ultimately prove
to be correct. Important factors that could cause actual results to differ
materially from the Company's expectations are set forth under the captions
"Summary," "Risk Factors," "Pro Forma Financial Statements," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," and elsewhere in this Prospectus. Actual results and trends in the
future may differ materially depending on a variety of factors including, but
not limited to, the timing and extent of changes in commodity prices and
underlying demand and availability of crude oil and other refinery feedstocks,
refined products, and natural gas; changes in the cost or availability of
third-party vessels, pipelines and other means of transporting feedstocks and
products; execution of planned capital projects; adverse changes in the credit
ratings assigned to the Company's trade credit; future well performance; the
extent of the Company's success in acquiring oil and gas properties and in
discovering, developing and producing reserves; state and federal environmental,
economic, safety and other policies and regulations, any changes therein, and
any legal or regulatory delays or other factors beyond the Company's control;
adverse rulings, judgments, or settlements in litigation or other legal matters,
including unexpected environmental remediation costs in excess of any reserves;
actions of customers and competitors; weather conditions affecting the Company's
operations or the areas in which the Company's products are marketed;
earthquakes or other natural disasters affecting operations; political
developments in foreign countries; and the conditions of the capital markets and
equity markets during the periods covered by the forward-looking statements.
Future results will also be dependent upon the ability of the Company to
integrate the Acquisitions with the Company's other operations. Many of the
factors are described in greater detail in the Company's Annual Report on Form
10-K for the year ended December 31, 1997, and other of the Company's filings
with the Commission. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the foregoing. The Company undertakes no
obligation to publicly release the result of any revisions to any such
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
18
<PAGE> 24
RISK FACTORS
Holders of the Old Notes should carefully review the information contained
elsewhere in this Prospectus and should particularly consider the following
matters before tendering any Old Notes for exchange into Exchange Notes. See
"Forward-Looking Statements." Certain matters set forth below also apply to the
Old Notes and will continue to apply to the Old Notes remaining outstanding
after the Exchange Offer.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
In connection with the Transactions, the Company has incurred substantial
additional indebtedness with significant debt service requirements. Upon
issuance of the Old Notes in the Notes Offering, entering into the Senior Credit
Facility and the application of the estimated net proceeds therefrom, the
Company's pro forma consolidated indebtedness as of March 31, 1998, would have
been $483.5 million (including the Old Notes, but excluding an additional $350.0
million available for borrowings under the Senior Credit Facility). See
"Capitalization." The Company's high degree of leverage may have important
consequences including the following: (i) the ability of the Company to obtain
additional financing for capital expenditures, working capital, acquisitions or
other purposes, if necessary, may be impaired or such financing may not be on
terms favorable to the Company; (ii) a substantial portion of the Company's cash
flow will be used to make debt service payments, which will reduce the funds
that would otherwise be available to the Company for its operations and future
business opportunities; (iii) the Company's flexibility in planning for or
reacting to changes in market conditions may be limited; (iv) the Company may be
more vulnerable to the impact of a downturn in its business or the economy
generally; and (v) to the extent of the Company's outstanding debt under the
Senior Credit Facility, the Company will be vulnerable to the impact of an
increase in interest rates. See "Description of Other Indebtedness" and
"Description of Capital Stock -- Mandatorily Convertible Preferred Stock."
The Company's ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance, its indebtedness (including the Notes), or to
fund planned capital expenditures, will depend upon its future performance,
which, in turn, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond its control. Based
upon current levels of operations, the Company believes that its cash flow from
operations, amounts available under the Senior Credit Facility and available
cash will be adequate to meet its anticipated future requirements for working
capital, capital expenditures, scheduled payments of principal and interest on
its indebtedness, including the Notes, and preferred stock dividend payments.
There can be no assurance, however, that the Company's business will generate
cash flow at or above anticipated levels or that the Company will be able to
borrow funds under the Senior Credit Facility in an amount sufficient to enable
the Company to service its indebtedness, including the Notes, preferred stock
dividend payments or make anticipated capital expenditures. If the Company is
unable to generate sufficient cash flow from operations or to borrow sufficient
funds in the future to service its debt and to make its preferred stock dividend
payments, it may be required to sell assets, reduce capital expenditures,
refinance all or a portion of its existing debt (including the Notes) or obtain
additional financing. There can be no assurance that any such financing could be
obtained, particularly in view of the restrictions on the Company's ability to
incur additional debt under the Senior Credit Facility and the Indenture, and
the fact that substantially all of the Company's domestic assets have been
pledged to secure obligations under the Senior Credit Facility.
SUBORDINATION AND RANKING OF THE NOTES AND SUBSIDIARY GUARANTEES
The Notes and Subsidiary Guarantees are general unsecured obligations of
the Company, subordinate in right of payment to all existing and future Senior
Debt of the Company, including all indebtedness under the Senior Credit
Facility. The Senior Credit Facility is secured by liens upon substantially all
of the domestic assets of the Company and the Guarantors. By reason of such
subordination, in the event of insolvency, liquidation, reorganization,
dissolution or other winding-up of the Company or any Guarantor, the Senior Debt
of such Person must be paid in full before the principal of, and premium, if
any, and interest on the Notes may be paid. In the event of a bankruptcy,
liquidation or reorganization of the Company or any Guarantor, Holders of the
Notes will participate ratably with all holders of subordinated indebtedness of
the Company or any
19
<PAGE> 25
Guarantor that is deemed to be of the same class as the Notes, based upon
respective amounts owed to each holder or creditor, in the remaining assets of
the Company or any Guarantor. If any of the foregoing events should occur, there
can be no assurance that there would be sufficient assets to pay amounts due on
the Notes. In addition, the Indenture provides that no payment with respect to
the Notes may be made in the event of a payment default with respect to Senior
Debt under certain circumstances, and the holders of certain designated Senior
Debt, including indebtedness under the Senior Credit Facility, will be entitled
to preferred payments with respect to the Notes in the event of a nonpayment
default on such designated Senior Debt. The Indenture permits the Company to
incur additional indebtedness under certain conditions. See "Capitalization,"
"Description of Other Indebtedness" and "Description of the Notes -- Certain
Covenants."
HOLDING COMPANY STRUCTURE
The Company is a holding company that conducts substantially all of its
operations through subsidiaries. The Company's only significant assets are the
capital stock of its wholly owned subsidiaries. As a holding company, the
Company is dependent on distributions of funds from its subsidiaries to meet the
Company's debt service, preferred stock dividend and payment and other
obligations, including the payment of principal and interest on the Notes. The
Notes are unsecured senior subordinated obligations of the Company and, as such,
are subordinated to the Company's obligations under the Senior Credit Facility
and all other existing and future Senior Debt of the Company with respect to the
payment of principal, premium, if any, and interest. The holders of the Notes
are effectively subordinated to claims of creditors of the subsidiaries other
than Guarantors, including trade creditors of, and banks and other lenders to,
such subsidiaries. See "Description of the Notes -- Subordination."
CONSEQUENCES OF FAILURE TO CLOSE WASHINGTON ACQUISITION
If the Washington Acquisition is not consummated, or the Washington
Agreement is terminated before such consummation, on or prior to December 31,
1998, the Company will be required to redeem 50% of the aggregate principal
amount of the Notes at the Special Redemption Price, plus accrued and unpaid
interest and Liquidated Damages, if any, to the Special Redemption Date. If the
Washington Acquisition is not consummated, the Company's assets, operations,
capital and expected financial results will be substantially different from
those set forth herein on a pro forma basis. The outstanding indebtedness of the
Company would be reduced as a result of the failure to consummate the Washington
Acquisition and the subsequent special redemption of the Notes. See
"Capitalization," "Pro Forma Financial Statements" and "Description of the
Notes -- Special Redemption."
RESTRICTIVE DEBT COVENANTS
The Indenture contains covenants that restrict, among other things, the
ability of the Company to incur additional indebtedness, pay dividends or make
certain other Restricted Payments, enter into transactions with affiliates, make
certain asset dispositions, merge or consolidate with, or transfer substantially
all of its assets to another Person, encumber assets under certain
circumstances, restrict dividends and other payments from Restricted
Subsidiaries, issue capital stock of Wholly Owned Restricted Subsidiaries,
engage in certain business activities, or engage in certain change of control
transactions. In addition, the Senior Credit Facility contains other and more
restrictive covenants and prohibits the Company from voluntary or optional
prepayments of certain of its indebtedness, including the Notes. Under the
Senior Credit Facility, the Company is also required to comply with specified
financial covenants, including a maximum ratio of total debt to EBITDA and a
minimum interest coverage ratio. The failure by the Company to comply with such
financial covenants or to comply with the restrictions contained in the Senior
Credit Facility or the Indenture could result in a default thereunder, which in
turn could cause such indebtedness (and by reason of cross-default provisions,
other indebtedness) to become immediately due and payable. The Company's ability
to comply with such covenants can be affected by many events beyond its control
and no assurance can be given that the Company's future operating results will
be sufficient to enable compliance with such covenants, or in the event of a
default, to remedy such default. See "Description of Other Indebtedness."
20
<PAGE> 26
FRAUDULENT CONVEYANCE CONSIDERATIONS RELATING TO SUBSIDIARY GUARANTEES
The Company's obligations under the Notes are guaranteed on a general
unsecured basis by the Guarantors. Various preference or fraudulent conveyance
laws have been enacted for the protection of creditors and may be utilized by a
court of competent jurisdiction to subordinate or avoid any Subsidiary Guarantee
issued by a Guarantor. It is also possible that under certain circumstances a
court could hold that the direct obligations of a Guarantor could be superior to
the obligations under the Subsidiary Guarantee. See "Description of the
Notes -- Subsidiary Guarantees."
To the extent that a court were to find that at the time a Guarantor
entered into a Subsidiary Guarantee either (x) the Subsidiary Guarantee was
incurred by a Guarantor with the intent to hinder, delay or defraud any present
or future creditor or that a Guarantor contemplated insolvency with a design to
favor one or more creditors to the exclusion in whole or in part of others or
(y) the Guarantor did not receive fair consideration or reasonably equivalent
value for issuing the Subsidiary Guarantee and, at the time it issued the
Subsidiary Guarantee, the Guarantor (i) was insolvent or rendered insolvent by
reason of the issuance of the Subsidiary Guarantee, (ii) was engaged or about to
engage in a business or transaction for which the remaining assets of the
Guarantor constituted unreasonably small capital or (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, the court could avoid or subordinate the Subsidiary Guarantee in favor
of the Guarantor's other creditors. Among other things, a legal challenge of a
Subsidiary Guarantee issued by a Guarantor on fraudulent conveyance grounds may
focus on the benefits, if any, realized by the Guarantor as a result of the
issuance by the Company of the Old Notes. To the extent a Subsidiary Guarantee
is avoided as a fraudulent conveyance or held unenforceable for any other
reason, the holders of the Notes would cease to have any claim in respect of
such Guarantor and would be creditors solely of the Company.
On the basis of the financial information or other information currently
available to it, the Company believes that the Old Notes and the Subsidiary
Guarantees issued concurrently with the issuance of the Old Notes were incurred
for proper purposes and in good faith and that, after giving effect to
indebtedness incurred in connection with entering into the Senior Credit
Facility, the issuance of the Old Notes and the issuance of the Subsidiary
Guarantees, the Company and the Guarantors are solvent and will continue to be
solvent, will have sufficient capital for carrying on their respective
businesses and will be able to pay their debts as such debts become absolute and
mature. There can be no assurance, however, that a court passing on such
questions would reach the same conclusions.
POTENTIAL INABILITY TO FUND A CHANGE OF CONTROL OFFER
In the event of a Change of Control (as defined in the Indenture), each
Holder will have the right to require the Company to repurchase all or any
portion of its Notes then outstanding at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon, to the date of repurchase. See "Description of the
Notes -- Repurchase at the Option of Holders -- Change of Control."
The events that constitute a Change of Control under the Indenture may also
be events of default under other indebtedness of the Company. Such events may
prohibit the Company from repurchasing the Notes, permit the lenders under such
debt instruments to accelerate the debt and, if the debt is not paid, to enforce
security interests on, or commence litigation that could ultimately result in a
sale of, substantially all the assets of the Company. If the Company is unable
to repay all of such indebtedness or is unable to obtain any necessary consents,
then the Company will be unable to offer to repurchase the Notes and such
failure will constitute an Event of Default under the Indenture. There can be no
assurance that the Company will have sufficient funds available at the time of
any Change of Control to make any debt payment (including repurchases of Notes)
as described above. See "Description of Other Indebtedness."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Old Notes are currently owned by a relatively small number of
beneficial owners. The Old Notes have not been registered under the Securities
Act or any state securities laws and, unless so registered and to
21
<PAGE> 27
the extent not exchanged for the Exchange Notes, may not be offered or sold
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. Any Old Notes tendered and exchanged in the Exchange Offer will reduce the
aggregate principal amount of Old Notes outstanding. Following the consummation
of the Exchange Offer, holders who did not tender their Old Notes generally will
not have any further registration rights under the Registration Rights
Agreement, and such Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for such Old
Notes could be adversely affected. The Old Notes are currently eligible for sale
pursuant to Rule 144A through The Portal Market of the National Association of
Securities Dealers, Inc. ("Portal"). Because the Company anticipates that most
holders will elect to exchange their Old Notes for Exchange Notes due to the
restrictions on the resale of Old Notes under the Securities Act, the Company
anticipates that the liquidity of the market for any Old Notes remaining after
the consummation of the Exchange Offer may be substantially limited.
The Exchange Notes will constitute a new issue of securities for which
there is currently no active trading market. If the Exchange Notes are traded
after their initial issuance, they may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the market for similar
securities and other factors including general economic conditions and the
current financial condition, results of operations and business prospects of the
Company. Although the Exchange Notes will generally be permitted to be resold or
otherwise transferred by non-affiliates of the Company without compliance with
the registration and prospectus delivery requirements of the Securities Act, the
Company does not intend to apply for a listing or quotation of the Exchange
Notes on any securities exchange or stock market. One of the Initial Purchasers
has informed the Company that it currently intends to make a market in the
Exchange Notes. However, such Initial Purchaser is not obligated to do so, and
any such market-making may be discontinued at any time without notice. In
addition, such market-making activity will be subject to the limits imposed
under the Exchange Act. Accordingly, there can be no assurance as to the
development, liquidity or maintenance of any market for the Exchange Notes (or
in the case of non-tendering holders of Old Notes, the trading market for the
Old Notes following the Exchange Offer). If no trading market develops or is
maintained for the Exchange Notes, holders may experience difficulty in
reselling the Exchange Notes or may be unable to sell them.
The liquidity of, and trading market for, the Old Notes or the Exchange
Notes also may be adversely affected by general declines in the market for
similar securities. Such a decline may adversely affect such liquidity and
trading markets independent of the financial performance of, and prospects for,
the Company.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. In addition, upon the
consummation of the Exchange Offer holders of Old Notes which remain outstanding
will not be entitled to any rights to have such Old Notes registered under the
Securities Act or to any similar rights under the Registration Rights Agreement,
subject to certain exceptions. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected.
INTEGRATION OF OPERATIONS; THE ACQUISITIONS
Tesoro does not have an operating history with respect to the Hawaii
Refinery (or any other operations of BHP Hawaii) or the Washington Refinery.
These Acquisitions are expected to triple Tesoro's annual revenues. There is no
assurance that, following the Acquisitions, the combination of entities will be
profitable, or will be able to achieve the potential cost savings, revenue
enhancements and operational improvements
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anticipated by Tesoro or that the projected demand for or prices of refinery
feedstocks and refined products assumed by Tesoro in connection with the
Acquisitions will be realized. Additionally, although Tesoro has conducted a due
diligence investigation in connection with each of the Acquisitions, the scope
of such investigations, particularly in light of the volume of environmental,
litigation and other matters to be investigated, has necessarily been limited.
Both the agreement to purchase BHP Hawaii (the "Hawaii Agreement") and the
Washington Agreement provide for indemnification with respect to breaches of
representations and warranties made therein and for additional indemnification,
subject to certain terms, conditions and limitations, with respect to other
matters. However, there can be no assurance that other material matters, not
identified or fully investigated in due diligence, will not subsequently be
identified or that the matters heretofore identified will not prove to be more
significant than currently expected, or that the indemnification provisions and
monetary limits thereon associated with each of the Acquisitions will be
sufficient to fully compensate the Company for any environmental or other losses
resulting in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Capital Resources and
Liquidity -- Environmental."
While BHP Hawaii and Shell Washington will operate as one or more wholly
owned subsidiaries of the Company, the success of the Acquisitions nevertheless
will depend in part on the ability of management of the Company to integrate the
operations of BHP Hawaii and Shell Washington with those of the Company and to
integrate various departments, systems and procedures. The integration of the
operations of BHP Hawaii and Shell Washington with those of the Company may
require substantial attention of management. The Company anticipates that it
will begin to realize cost savings and revenue enhancements in the fourth
quarter of 1998, with the full impact, which the Company estimates could
approximate $25 million annually, being achieved in the fiscal year ended
December 31, 1999; however, no assurance can be given that such cost savings and
revenue enhancements will be realized according to the anticipated time frame or
in such amount. Any inability of the Company to integrate the operations of BHP
Hawaii and Shell Washington with those of the Company in a timely and efficient
manner would adversely affect the Company's ability to realize its planned
revenue enhancements and cost savings.
HAWAII REFINED PRODUCT MARKET; ECONOMIC CONDITIONS IN HAWAII
In the Hawaiian refined product market, local refined product supply
currently is reasonably balanced to slightly surplus for all finished products
except jet fuel. This could limit the potential future growth in earnings
generated by the Hawaii Refinery. One competing gasoline marketer has begun
importing gasoline for retail sale in Hawaii. In addition, the growth rate in
Hawaii's gross state product from 1991 through 1997 was substantially below the
U.S. average. If these trends continue, they may have an adverse effect on the
business and results of operations of the Company.
HAWAIIAN STATE GOVERNMENT INVESTIGATIONS AND GASOLINE RETAILING RESTRICTIONS
In September 1990, the Attorney General for the State of Hawaii released a
preliminary report pursuant to an investigation under the Hawaii antitrust
statute indicating that the price of gasoline in Hawaii is persistently higher
than on the mainland. The Attorney General has not found any violations of
federal or state antitrust provisions in the investigation. However, the pricing
investigation remains open and all Hawaii gasoline retailers, including the
Company's Hawaii operations, may be subject to further inquiries and
documentation requests relating to their operations, costs and pricing policies.
In 1991 and 1993 at the request of independent gasoline dealers, the Hawaii
legislature enacted a series of two-year moratorium periods during which
refiners and jobbers were prevented or restricted from operating additional
retail stations pending the outcome of legislative studies. In 1995, legislation
was enacted which restricted refiners and jobbers to only one company-operated
station per dealer station opened, subject to a maximum of two company-operated
stations. In 1997, the Hawaii legislature ended the moratorium with the
enactment of a statute that permits refiners and jobbers to acquire or build any
number of retail stations, provided these are situated at least one-eighth of a
mile from any existing dealer station in the urban Honolulu area and at least
one-fourth of a mile from any existing dealer station in the remainder of the
State.
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VOLATILITY OF PRICES; EFFECT ON EARNINGS AND CASH FLOWS
The Company's refining and marketing earnings and cash flow from operations
are dependent upon the margin above fixed and variable expenses (including the
cost of crude oil feedstocks) at which the Company is able to sell refined
products. In recent years, the prices of crude oil and refined products have
fluctuated substantially. These prices depend on numerous factors, including the
demand for crude oil, gasoline and other refined products, which in turn depend
on, among other factors, changes in the economy, the level of foreign and
domestic production of crude oil and refined products, political conditions in
the Middle East, the availability of imports of crude oil and refined products,
the marketing of alternative and competing fuels and the extent of government
regulation. The prices received by the Company for its refined products are also
affected by local factors such as local market conditions and the level of
operations of other refineries in Alaska, Hawaii and Washington.
The price at which the Company can sell its refined products will be
strongly influenced by the commodity price of crude oil. Generally, an increase
or decrease in the price of crude oil results in a corresponding increase or
decrease in the price of gasoline and other refined products and could have a
significant short-term impact on the Company's refining operations and the
earnings and cash flow of the Company as a whole. However, each of the Company's
refineries maintains inventories of crude oil, intermediate products and refined
products, the value of each of which is subject to rapid fluctuations in market
prices. In addition, crude oil supply contracts are generally contracts with
market-responsive pricing provisions.
Any significant decline in the price for natural gas could have a material
adverse effect on the Company's exploration and production operations and the
financial condition of the Company as a whole. Prices for natural gas are
subject to wide fluctuations in response to relatively minor changes in the
supply of and demand for natural gas, market uncertainty and a variety of
additional factors that are beyond the control of the Company. These factors
include the domestic and foreign supply of natural gas, the level of consumer
demand, weather conditions, domestic and foreign government regulations, the
price and availability of alternative fuels and overall economic conditions.
While the Company from time to time enters into agreements with respect to a
portion of its future production in an effort to reduce price risk, including
commodity price contracts and forward sales agreements, there can be no
assurance that such transactions will reduce risk or mitigate the effect of any
substantial or prolonged decline in the price of natural gas.
CRUDE OIL SUPPLY
The Company believes an adequate supply of crude oil will be available to
its three refineries to sustain the Company's refining operations for the
foreseeable future at substantially the levels currently being experienced.
However, there can be no assurance that this situation will continue. If
additional supplemental crude oil becomes necessary at one or more of its
refineries, the Company intends to implement available alternatives that are
most advantageous under then prevailing conditions. Implementation of some
alternatives could require the consent or cooperation of third parties and other
considerations beyond the control of the Company. If the Company is unable to
obtain such supplemental crude oil volumes, or is only able to obtain such
volumes at uneconomic prices, the Company's results from operations could be
materially adversely effected. See "-- Government Regulations and Environmental
Risks."
RISKS ASSOCIATED WITH BOLIVIAN AND OTHER INTERNATIONAL OPERATIONS
The Company's international operations are primarily conducted in Bolivia,
where it has operated for over 20 years and where it currently explores for and
produces hydrocarbons through four contracts with the Bolivian government.
Substantially all of the Company's current Bolivian production is sold under
contract to the Bolivian government for export to Argentina, as there is
currently little internal demand in Bolivia for natural gas. As a result, the
Company's Bolivian operations are heavily dependent on its relations with the
Bolivian government. Moreover, a majority of the Company's Bolivian reserves are
currently shut-in. The Company believes that the completion of a 1,900-mile
pipeline currently under construction from Bolivia to Brazil will provide access
to gas-consuming markets. In addition, upon completion of the pipeline, the
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Company will face intense competition from major and independent natural gas
companies operating in Bolivia for a share of the contractual volumes to be
exported to Brazil. It is anticipated that each producer's share of the
contractual volumes will be allocated by YPFB (as defined herein) according to a
number of factors, including each producer's reserve volumes and production
capacity. Although the Company expects gas deliveries on the pipeline to begin
in early 1999, there can be no assurance that the pipeline will be operational
by such date. With the exception of the volumes currently under contract with
the Bolivian government, the Company cannot be assured of the amount of
additional volumes that will be exported to Brazil upon completion of the
pipeline. Upon completion of the Brazil gas pipeline, the Company's Bolivian gas
production will become dependent to a large extent upon the continued demand for
natural gas in Brazil and the stability of such markets. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Exploration and Production -- Bolivia" and
"Business -- Exploration and Production -- Bolivia."
The future success of the Company's international operations in Bolivia and
elsewhere is subject to political, economic and other uncertainties, including,
among others, risk of war, revolution, border disputes, expropriation,
renegotiation or modification of existing contracts, import, export and
transportation regulations and tariffs, taxation policies, including royalty and
tax increases and retroactive tax claims, exchange controls, currency
fluctuations and other uncertainties arising out of foreign government
sovereignty over the Company's international operations. The Company's
international operations may also be adversely affected by laws and policies of
the United States affecting foreign trade, taxation and investment. Furthermore,
in the event of a dispute arising from its Bolivian or other international
operations, the Company may be subject to the exclusive jurisdiction of foreign
courts or may not be successful in subjecting foreign persons to the
jurisdiction of courts in the United States. The Company believes Bolivia
possesses relatively stable political and economic environments in which to
operate; however, there can be no assurance that political and economic and
other uncertainties will not develop in Bolivia or neighboring countries. Such
uncertainty or instability could result in new governments or the adoption of
new policies that might assume a substantially more hostile attitude toward
foreign investment. In an extreme case, such a change could result in voiding
pre-existing contracts and/or expropriation of foreign-owned assets.
REPLACEMENT OF RESERVES
The future success of the Company's exploration and production operations
depends upon the ability to find, develop or acquire additional oil and gas
reserves that are economically recoverable. The proved reserves of the Company
will generally decline as reserves are depleted, except to the extent that the
Company conducts successful exploration or development activities, acquires
properties containing proved reserves, or both. In order to increase reserves
and production, the Company must continue its development and exploration
drilling and recompletion programs or undertake other replacement activities.
The Company's current strategy includes continuing to exploit its existing
properties, discovering new reserves through exploration and increasing its
reserve base through acquisitions of producing properties. There can be no
assurance, however, that the Company's planned exploration, development and
acquisition activities will result in significant additional reserves or that
the Company will have continuing success drilling productive wells at low
finding and development costs. For a discussion of the Company's reserves, see
"Business -- Exploration and Production -- U.S. -- Reserves" and
"Business -- Exploration and Production -- Bolivia -- Reserves."
DRILLING RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil and
natural gas may involve unprofitable efforts, not only from dry wells, but from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, completing, operating, and other costs. The cost of
drilling, completing and operating wells is often uncertain. The Company's
drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, many of which are beyond the Company's control,
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including title problems, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery of equipment and services.
RELIANCE ON ESTIMATES OF PROVED RESERVES
There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of the Company. The
Company's historical reserve information set forth in this Prospectus represents
estimates based on evaluations audited by Netherland, Sewell & Associates, Inc.,
as of December 31, 1997.
Petroleum engineering is not an exact science. Information relating to the
Company's proved oil and gas reserves is based upon engineering estimates.
Estimates of economically recoverable oil and gas reserves and of future net
cash flows necessarily depend upon a number of variable factors and assumptions,
such as historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs,
severance and excise taxes, development costs and workover and remedial costs,
all of which may in fact vary considerably from actual results. For these
reasons, estimates of the economically recoverable quantities of oil and gas
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net cash flows
expected therefrom prepared by different engineers or by the same engineers at
different times may vary substantially. Actual production, revenues and
expenditures with respect to the Company's reserves will likely vary from
estimates, and such variances may be material. See "Business -- Exploration and
Production -- U.S. -- Reserves" and "Business -- Exploration and
Production -- Bolivia -- Reserves."
The Pre-Tax PV10 referred to in this Prospectus should not be construed as
the current market value of the estimated oil and gas reserves attributable to
the Company's properties. In accordance with applicable requirements of the
Commission, the estimated discounted future net cash flows from proved reserves
are generally based on prices and costs as of the date of the estimate, whereas
actual future prices and costs may be materially higher or lower. Actual future
net cash flows also will be affected by factors such as the amount and timing of
actual production, supply and demand for oil and gas, curtailments or increases
in consumption by gas purchasers and changes in governmental regulations or
taxation. The timing of actual future net cash flows from proved reserves, and
thus their actual present value, will be affected by the timing of both the
production and the incurrence of expenses in connection with development and
production of oil and gas properties. In addition, the 10% discount factor,
which is required by the Commission to be used to calculate discounted future
net cash flows for reporting purposes, is not necessarily the most appropriate
discount factor based on interest rates in effect from time to time and risks
associated with the Company or the oil and gas industry in general.
OPERATING HAZARDS AND UNINSURED RISKS
The Company's operations are subject to hazards and risks inherent in
drilling for, producing and transporting oil and natural gas and refining crude
oil, such as fires, natural disasters, explosions, blowouts, cratering, pipeline
ruptures, and spills, any of which can result in loss of hydrocarbons,
environmental pollution, personal injury claims, and other damage to properties
of the Company and others. As protection against operating hazards, the Company
maintains insurance coverage against some, but not all, potential losses. The
Company's coverages include, but are not limited to, operator's extra expense,
physical damage on certain assets, employer's liability, comprehensive general
liability, automobile, workers' compensation and loss of production income
insurance. The Company believes that its insurance is adequate and customary for
companies of a similar size engaged in operations similar to those of the
Company, but losses could occur for uninsurable or uninsured risks or in amounts
in excess of existing insurance coverage. The occurrence of an event that is not
fully covered by insurance could have an adverse impact on the Company's
financial condition and results of operations.
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CONCENTRATION OF OPERATIONS
A significant portion of the Company's domestic exploration and production
operations are located in the Wilcox Trend along the Texas and Louisiana Gulf
Coast. At December 31, 1997, approximately 39% of the Company's domestic net
proved gas reserves were located in the Bob West Field, which is located in the
Wilcox Trend. Similarly, all of the Company's international exploration and
production activities are located within two production blocks in Bolivia. As a
result, any interruption of the Company's production in the Bob West Field or in
Bolivia due to any one or more of a variety of conditions and events, including
natural disaster, reservoir damage, mechanical difficulties, unavailability of
equipment and supplies, transportation problems, title and contractual
controversies, government regulation or international political uncertainties
could have a material adverse effect on the Company's operations and its ability
to service the Notes. See "Business -- Exploration and
Production -- U.S. -- Reserves" and "Business -- Exploration and
Production -- Bolivia -- Reserves."
The Company's refining activities currently are conducted at its three
refineries in Hawaii, Alaska and Washington. The refineries are three of the
Company's principal operating assets. As a result, the operations of the
Company, and its ability to service the Notes, are subject to significant
interruption if one or more of the refineries were to experience a major
accident, be damaged by severe weather or other natural disaster, or otherwise
be forced to shut down. Although the Company maintains business interruption
insurance against some types of risks in amounts which the Company believes to
be economically prudent, if the refineries were to experience an interruption in
operations, the Company's business could be materially adversely affected. See
"Business -- Refining and Marketing."
COMPETITION
The petroleum industry is highly competitive in all phases, including the
refining of crude oil and the marketing of refined petroleum products, the
search for and development of oil and natural gas reserves and the marine
services business. The industry also competes with other industries that supply
the energy and fuel requirements of industrial, commercial and individual
consumers. The Company competes with a substantial number of major integrated
oil companies and other companies having materially greater financial and other
resources than the Company. These competitors have a greater ability to bear the
economic risks inherent in all phases of the industry. In addition, unlike the
Company, many of its competitors produce large volumes of crude oil which can
then be used in connection with their refining operations. See
"Business -- Competition and Other."
GOVERNMENT REGULATIONS AND ENVIRONMENTAL RISKS
The Company's operations are subject to a variety of foreign, federal,
state and local environmental laws and regulations governing the discharge of
pollutants into the air, soil, and water and the generation, treatment, storage,
transportation and disposal of solid and hazardous waste and materials.
Environmental laws and regulations that affect the Company's operations,
processes and margins have become and are becoming increasingly stringent.
Examples are the Clean Air Act Amendments of 1990 (the "Clean Air Act
Amendments") and other additional environmental regulations adopted by the
United States Environmental Protection Agency (the "EPA") and state and local
environmental agencies to implement the Clean Air Act Amendments. Although the
Company believes that it conducts its exploration and production, refining and
marketing and marine services operations in substantial compliance with existing
environmental laws and regulations, the Company cannot predict the nature, scope
or effect of legislation or regulatory requirements that could be imposed or how
existing or future laws or regulations will be administered or interpreted with
respect to products or activities to which they have not been previously
applied. Compliance with more stringent laws or regulations, as well as more
vigorous enforcement policies of the regulatory agencies, could adversely affect
the financial position and the results of operations of the Company and could
require substantial expenditures by the Company. See "Business -- Government
Regulation and Legislation."
Under the agreement related to the Washington Acquisition, Shell Refining
Holding Company, a subsidiary of Shell, generally has agreed to indemnify the
Company for environmental liabilities at the
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Washington Refinery arising out of conditions which existed at or prior to the
closing date. However, the Company is responsible for the first $0.5 million in
environmental costs in each year and 50% of environmental costs over $1 million
in each year, subject to a maximum aggregate liability of $5 million. While
Tesoro has done environmental investigations of the Washington and Hawaii
Refineries there is no assurance that the indemnified amounts will be adequate
with respect to future environmental claims or the remediation of existing or
unknown environmental conditions.
The Company's Refining and Marketing segment operates in environmentally
sensitive coastal waters, where tanker and pipeline operations are closely
regulated by local and Federal agencies and monitored by environmental interest
groups. Each of the Company's Refineries imports crude oil feedstocks by tanker.
Transportation of crude oil and refined product by tanker involves inherent risk
and, additionally, subjects the Company to the provisions of the Federal Oil
Pollution Act of 1990 ("OPA 90"), and state laws in Alaska, Hawaii and
Washington, which require the Company to demonstrate its capacity to respond to
a "worst case discharge" to the maximum extent possible. The Company has
contracted with various spill response service companies in the areas in which
the Company transports crude oil and refined product by tanker to meet the
requirements of OPA 90 and state laws. However, there can be no assurance that
there will not be any accidents involving tankers transporting crude oil or
refined product for the Company, or that such response services will respond to
a "worst case discharge" in a manner that will adequately contain such
discharge.
The Company's operations are inherently subject to accidental spills,
discharges or other releases of petroleum or hazardous substances which may give
rise to liability to governmental entities or private parties under foreign,
federal, state or local environmental laws, as well as under common law.
Although the Company has invested substantial resources to prevent future
accidental discharges and to remediate contamination resulting from prior
discharges, there can be no assurance that accidental discharges will not occur
in the future, that future action will not be taken in connection with past
discharges, that governmental agencies will not assess penalties against the
Company in connection with any past or future contamination, or that third
parties will not assert claims against the Company for damages allegedly arising
out of any past or future contamination.
The Company has been identified by the EPA as a potentially responsible
party ("PRP") pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") for the D.L. Mud Superfund site in Abbeville,
Louisiana, but does not believe its liability at such site to be material. See
"Business -- Government Regulation and Legislation." In addition, while the
Company from time to time has been, and presently is, subject to litigation and
investigations with respect to environmental and related matters, the Company
does not believe that such proceedings will have a material adverse effect on
the results of operations or competitive position of the Company. See
"Business -- Legal Proceedings." However, there can be no assurance that the
Company will not become involved in further litigation or other proceedings, or
that if the Company were to be held responsible for damages in any litigation or
proceedings (including existing ones), such costs would not be material.
The Company has in the past operated service stations with underground
storage tanks ("USTs") in various jurisdictions, and currently operates service
stations in Alaska and Hawaii which have USTs. All such storage tanks are
subject to governmental regulation and legislation. See "Business -- Government
Regulation and Legislation." The operation of USTs also poses certain risks
apart from costs associated with regulatory requirements. These risks are
predominantly damages associated with the underground leaks to soil and
groundwater of petroleum products. The Company currently has leak detection and
tank testing programs in effect to mitigate the threat of such risks. However,
there can be no assurance that leaks from USTs at one or more of the Company's
service stations will not occur, or that previously operated service stations do
not have impacted soil or groundwater that could result in fines or civil
liability for the Company.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on July 2, 1998, to the Initial
Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold all of the Old Notes to Qualified Institutional Buyers (as
defined in Rule 144A), each of whom agreed to comply with certain transfer
restrictions and other conditions. As a condition to the purchase of the Old
Notes by the Initial Purchasers, the Company entered into the Registration
Rights Agreement with the Initial Purchasers, which requires, among other
things, that promptly following the issuance and sale of the Old Notes, the
Company file with the SEC the Registration Statement with respect to the
Exchange Notes, use its best efforts to cause the Registration Statement to
become effective under the Securities Act and, upon the effectiveness of the
Registration Statement, offer to the holders of the Old Notes the opportunity to
exchange their Old Notes for a like principal amount of Exchange Notes, which
will be issued without a restrictive legend and may be reoffered and resold by
the holder without restrictions or limitations under the Securities Act subject
to certain exceptions described below. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The term "holder" with respect to the Exchange Offer
means any person in whose name Old Notes are registered on the Company's books
or any other person who has obtained a properly completed bond power from the
registered holder or any person whose Old Notes are held of record by the
Depositary who desires to deliver such Old Notes by book-entry transfer of the
Depositary.
Based on existing interpretations of the Securities Act by the staff of the
SEC set forth in several no-action letters to third parties, and subject to the
immediately following sentence, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who purchased such Old Notes directly from the Company for resale
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is an "affiliate" (within the meaning of Rule 405 of the
Securities Act) of the Company), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holder
is acquiring the Exchange Notes in its ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. However, any purchaser
of Old Notes who is an affiliate of the Company or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes, or any
broker-dealer who purchased the Old Notes from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act, (i) will
not be able to rely on the interpretations by the staff of the SEC set forth in
such no-action letters, (ii) will not be able to tender its Old Notes in the
Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Old Notes unless such sale or transfer is made pursuant to an
exemption from such requirements. Accordingly, any holder who tenders in the
Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. See "Plan of Distribution."
As a result of the filing and effectiveness of the Registration Statement
of which this Prospectus is a part, the Company will not be required to pay an
increased interest rate on the Old Notes. Following the consummation of the
Exchange Offer, holders of Old Notes not tendered will not have any further
registration rights except in certain limited circumstances requiring the filing
of a Shelf Registration Statement (as defined), and the Old Notes will continue
to be subject to certain restrictions on transfer. See "Description of the
Notes -- Registration Rights; Liquidated Damages." Accordingly, the liquidity of
the market for the Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept all Old Notes properly
tendered and not withdrawn prior to 5:00 p.m. New York City
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time, on the Expiration Date. After authentication of the Exchange Notes by the
Trustee or an authenticating agent, the Company will issue and deliver $1,000
principal amount of Exchange Notes in exchange for each $1,000 principal amount
of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some
or all of their Old Notes pursuant to the Exchange Offer in denominations of
$1,000 and integral multiples thereof.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) any Exchange Notes to be received by it were
acquired in the ordinary course of its business and (iii) it has no arrangement
or understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Old Notes, except that (i) the offering of
the Exchange Notes has been registered under the Securities Act, (ii) the
Exchange Notes will not be subject to transfer restrictions and (iii) the
holders of the Exchange Notes will not be entitled to registration or other
rights under the Registration Rights Agreement including the provision for
payment of Liquidated Damages upon failure by the Company to consummate the
Exchange Offer or the occurrence of certain other events. The Exchange Notes
will evidence the same debt as the Old Notes. The Exchange Notes will be issued
under and entitled to the benefits of the Indenture.
As of the date of this Prospectus, $300,000,000 aggregate principal amount
of the Old Notes is outstanding. In connection with the issuance of the Old
Notes, the Company arranged for the Old Notes to be issued and transferable in
book-entry form through the facilities of the Depositary, acting as depositary.
The Exchange Notes will also be issuable and transferable in book-entry form
through the Depositary.
This Prospectus, together with the accompanying Letter of Transmittal, is
initially being sent to all registered holders of the Old Notes as of the close
of business on , 1998. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act, and the rules and regulations of the SEC thereunder, including Rule 14e-1,
to the extent applicable. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered, and holders of the Old
Notes do not have any appraisal or dissenters' rights under the Delaware General
Corporation Law or under the Indenture in connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered Old Notes when, as
and if the Company has given oral or written notice thereof to the Exchange
Agent. See "-- Exchange Agent." The Exchange Agent will act as agent for the
tendering holders for the purpose of receiving Exchange Notes from the Company
and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, at the
Company's cost, to the tendering holder thereof as promptly as practicable after
the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Solicitation of Tenders; Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF
OLD NOTES MUST MAKE THEIR OWN DECISION
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WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE
AMOUNT OF OLD NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF
TRANSMITTAL AND CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN
FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended. The Company may extend the
Exchange Offer at any time and from time to time by giving oral or written
notice to the Exchange Agent and by timely public announcement via the Dow Jones
News Service.
The Company expressly reserves the right, in its sole discretion (i) to
delay acceptance of any Old Notes, to extend the Exchange Offer or to terminate
the Exchange Offer and to refuse to accept Old Notes not previously accepted, if
any of the conditions set forth herein under "-- Conditions to the Exchange
Offer" shall have occurred and shall not have been waived by the Company (if
permitted to be waived by the Company), by giving oral or written notice of such
delay, extension or termination to the Exchange Agent and (ii) to amend the
terms of the Exchange Offer in any manner. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof by the Company to the registered holders of
the Old Notes. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of such
amendment and the Company will extend the Exchange Offer to the extent required
by law.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advise or
otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 9% per annum, payable
semi-annually on January 1 and July 1 of each year, commencing January 1, 1999.
Holders of Exchange Notes of record on December 15, will receive on January 1,
1999, an interest payment in an amount equal to (i) the accrued interest on such
Exchange Notes from the date of issuance thereof to January 1, 1999, plus (ii)
the accrued interest on the previously held Old Notes from the date of issuance
of such Old Notes (July 2, 1998) to the date of exchange thereof. The Notes
mature on July 1, 2008.
PROCEDURES FOR TENDERING OLD NOTES
Each holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such facsimile, together with
the Old Notes to be exchanged and any other required documentation, to U.S. Bank
Trust National Association, as Exchange Agent, at the address set forth herein
and in the Letter of Transmittal or effect a tender of Old Notes pursuant to the
procedures for book-entry transfer as provided for herein and therein. By
executing the Letter of Transmittal, each holder will represent to the Company,
that, among other things, the Exchange Notes acquired pursuant to the Exchange
Offer are being acquired in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is the holder, that
neither the holder nor any such other person has any arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and that neither the holder nor any such other person is an
"affiliate,"as defined in Rule 405 under the Securities Act, of the Company.
Any financial institution that is a participant in the Depositary's
Book-Entry Transfer Facility system may make book-entry delivery of the Old
Notes by causing the Depositary to transfer such Old Notes into the
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<PAGE> 37
Exchange Agent's account in accordance with the Depositary's procedure for such
transfer. Although delivery of Old Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Depositary, the Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
by the Exchange Agent at its address set forth herein under "-- Exchange Agent"
prior to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF
DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. See "-- Book-Entry Transfer."
Only a holder may tender its Old Notes in the Exchange Offer. To tender in
the Exchange Offer, a holder must complete, sign and date the Letter of
Transmittal or a facsimile thereof, have the signatures thereof guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver such Letter
of Transmittal or such facsimile, together with the Old Notes (unless such
tender is being effected pursuant to the procedure for book-entry transfer) and
any other required documents, to the Exchange Agent for receipt, prior to 5:00
p.m., New York City time, on the Expiration Date.
The Tender by a holder will constitute an agreement among such holder, the
Company and the Exchange Agent in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal. If less than all
of the Old Notes are tendered, a tendering holder should fill in the amount of
Old Notes being tendered in the appropriate box on the Letter of Transmittal.
The entire amount of Old Notes delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
THE LETTER OF TRANSMITTAL WILL INCLUDE REPRESENTATIONS TO THE COMPANY THAT,
AMONG OTHER THINGS, (1) THE EXCHANGE NOTES ACQUIRED PURSUANT TO THE EXCHANGE
OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON
RECEIVING SUCH EXCHANGE NOTES (WHETHER OR NOT SUCH PERSON IS THE HOLDER), (2)
NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS ENGAGED IN, INTENDS TO ENGAGE IN
OR HAS ANY ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH EXCHANGE NOTES, (3) NEITHER THE HOLDER NOR ANY SUCH OTHER
PERSON IS AN "AFFILIATE" (AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT), OF
THE COMPANY AND (4) IF THE TENDERING HOLDER IS A BROKER OR DEALER (AS DEFINED IN
THE EXCHANGE ACT) (A) IT ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT
OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND (B) IT HAS NOT
ENTERED INTO ANY ARRANGEMENT OR UNDERSTANDING WITH THE COMPANY OR ANY
"AFFILIATE" THEREOF TO DISTRIBUTE THE EXCHANGE NOTES TO BE RECEIVED IN THE
EXCHANGE OFFER. IN THE CASE OF A BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR
ITS OWN ACCOUNT IN EXCHANGE FOR OLD NOTES WHICH WERE ACQUIRED BY IT AS A RESULT
OF MARKET-MAKING OR OTHER TRADING ACTIVITIES, THE LETTER OF TRANSMITTAL WILL
ALSO INCLUDE AN ACKNOWLEDGMENT THAT THE BROKER-DEALER WILL DELIVER A COPY OF
THIS PROSPECTUS IN CONNECTION WITH THE RESALE BY IT OF EXCHANGE NOTES RECEIVED
PURSUANT TO THE EXCHANGE OFFER; HOWEVER, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH HOLDER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER"
WITHIN THE MEANING OF THE SECURITIES ACT. SEE "PLAN OF DISTRIBUTION."
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
ALSO REQUEST THAT THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES EFFECT SUCH TENDER FOR HOLDERS, IN EACH CASE AS SET FORTH
HEREIN AND IN THE LETTER OF TRANSMITTAL.
Any beneficial owner whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such owner's
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<PAGE> 38
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution"), unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered holder who has
not completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" of the Letter of Transmittal or (ii) for the account of
an Eligible Institution. If the Letter of Transmittal is signed by a person
other than the registered holder listed therein, such Old Notes must be endorsed
or accompanied by appropriate bond powers which authorize such person to tender
the Old Notes on behalf of the registered holder, in either case signed as the
name of the registered holder or holders appears on the Old Notes. If the Letter
of Transmittal or any Old Notes or bond powers are signed or endorsed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive irregularities or conditions of tender as
to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall be
under any duty to give notification of defects or irregularities with respect to
tenders of Old Notes, nor shall any of them incur any liability for failure to
give such notification. Tenders of Old Notes will not be deemed to have been
made until such irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that the Company determines are not properly tendered or
the tender of which is otherwise rejected by the Company, and as to which the
defects or irregularities have not been cured or waived by the Company, will be
returned by the Exchange Agent to the tendering holder, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Company reserves the right in its sole discretion (i) to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date or, as set forth under "-- Conditions to the Exchange
Offer," terminate the Exchange Offer and (ii) to the extent permitted by
applicable law, to purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
may differ from the terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the DTC (the "Book-Entry Transfer Facility") for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing such
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account with respect to the Old Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. ALTHOUGH DELIVERY OF OLD NOTES
MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE EXCHANGE AGENT'S ACCOUNT AT
THE BOOK-ENTRY TRANSFER FACILITY, AN APPROPRIATE LETTER OF TRANSMITTAL PROPERLY
COMPLETED AND DULY EXECUTED WITH ANY REQUIRED SIGNATURE GUARANTEE AND ALL OTHER
REQUIRED DOCUMENTS MUST IN EACH CASE BE TRANSMITTED TO AND RECEIVED OR CONFIRMED
BY THE EXCHANGE AGENT AT
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<PAGE> 39
ITS ADDRESS SET FORTH BELOW ON OR PRIOR TO THE EXPIRATION DATE OR, IF THE
GUARANTEED DELIVERY PROCEDURES DESCRIBED BELOW ARE COMPLIED WITH, WITHIN THE
TIME PERIOD PROVIDED UNDER SUCH PROCEDURES. DELIVERY OF DOCUMENTS TO THE
BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer on
a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmittal, mail or hand delivery)
setting forth the name and address of the holder, the certificate number or
numbers of such holder's Old Notes and the principal amount of such Old
Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within three New York Stock Exchange ("NYSE") trading
days after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing the Old Notes to be
tendered in proper form for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at the Depositary of Old Notes
delivered electronically) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at the Depositary of
Old Notes delivered electronically) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within three NYSE
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes or, in the case of Old Notes transferred by book-entry
transfer, the name and number of the account at the Depositary to be credited),
(iii) be signed by the Depositor in the same manner as the original signature on
the Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantee) or be accompanied by documents of transfer
sufficient to permit the Trustee with respect to the Old Notes to register the
transfer of such Old Notes into the name of the Depositor withdrawing the tender
and (iv) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer, and no Exchange Notes will be
issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes that have been tendered but are not accepted for
exchange will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer.
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<PAGE> 40
Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes if, in the Company's judgment, any of the
following conditions has occurred or exists or has not been satisfied: (i) that
the Exchange Offer, or the making of any exchange by a holder, violates
applicable law or any applicable interpretation of the staff of the SEC, (ii)
that any action or proceeding shall have been instituted or threatened in any
court or by or before any governmental agency or body with respect to the
Exchange Offer, (iii) that there has been adopted or enacted any law, statute,
rule or regulation that can reasonably be expected to impair the ability of the
Company to proceed with the Exchange Offer, (iv) that there has been declared by
United States federal or Texas or New York state authorities a banking
moratorium or (v) that trading on the American Stock Exchange or the NYSE or
generally in the United States over-the-counter market has been suspended by
order of the SEC or any other governmental agency in each of clauses (i) through
(iv) which, in the Company's judgment, would reasonably be expected to impair
the ability of the Company to proceed with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer for any
of the reasons set forth above, the Company may (i) refuse to accept any Old
Notes and return any Old Notes that have been tendered to the holders thereof,
(ii) extend the Exchange Offer and retain all Old Notes tendered prior to the
Expiration Date of the Exchange Offer, subject to the rights of such holders of
tendered Old Notes to withdraw their tendered Old Notes or (iii) waive such
termination event with respect to the Exchange Offer and accept all properly
tendered Old Notes that have not been withdrawn. If such waiver constitutes a
material change in the Exchange Offer, the Company will disclose such change by
means of a supplement to this Prospectus that will be distributed to each
registered holder, and the Company will extend the Exchange Offer for a period
of five to ten business days, depending upon the significance of the waiver and
the manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such period.
EXCHANGE AGENT
U.S. Bank Trust National Association, the Trustee under the Indenture, has
been appointed as Exchange Agent for the Exchange Offer. In such capacity, the
Exchange Agent has no fiduciary duties and will be acting solely on the basis of
directions of the Company. Requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent addressed as follows:
U.S. Bank Trust National Association, Exchange Agent
<TABLE>
<S> <C> <C>
By Registered, Certified, By Hand: By First Class Mail:
or
Overnight Mail or
Courier: U.S. Bank Trust N.A. U.S. Bank Trust N.A.
4th Floor Bond Drop Window P.O. Box 64485
U.S. Bank Trust N.A. 180 East Fifth Street St. Paul, MN 55164-9549
Attn: Specialized Finance St. Paul, MN 55101
SPFT0414
180 East Fifth Street By Facsimile:
St. Paul, MN 55101 (For Eligible Institutions Only):
(651) 244-1537
To Confirm by Telephone
or for Information, Call:
(651) 244-1197
</TABLE>
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DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation pursuant to the Exchange Offer
is being made by mail. Additional solicitations may be made by officers and
regular employees of the Company and its affiliates in person, by telegraph,
telephone or telecopier.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company will, however,
pay the Exchange Agent reasonable and customary fees for its services, reimburse
the Exchange Agent for its reasonable out-of-pocket costs and expenses in
connection therewith and indemnify the Exchange Agent for all losses and claims
incurred by it as a result of the Exchange Offer. The Company may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus,
the Letter of Transmittal and related documents to the beneficial owners of the
Old Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees and printing costs, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed by the Company directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company as a result of the consummation of the Exchange Offer.
The expenses of the Exchange Offer will be amortized by the Company over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions as to what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of the Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights, and subject to the limitations applicable thereto, under the
Indenture and the Registration Rights Agreement, except for any such rights
under the Registration Rights Agreement that by their terms terminate or cease
to have further effect as a result of the making of this Exchange Offer. See
"Description of the Notes." All untendered Old Notes will continue to be subject
to the restrictions on transfer set forth in the Indenture. The Old Notes may
not be offered, resold, pledged or otherwise transferred, prior to the date that
is two years after the later of July 2,
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<PAGE> 42
1998 and the last date on which the Company or any "affiliate" (within the
meaning of Rule 144 of the Securities Act) of the Company was the owner of such
Old Note except (i) to the Company, (ii) pursuant to a registration statement
which has been declared effective under the Securities Act, (iii) to Qualified
Institutional Buyers in reliance upon the exemption from the registration
requirements of the Securities Act provided by Rule 144A, (iv) in a transaction
occurring outside the United States to a foreign person, which transaction meets
the requirements of Rule 904 under the Securities Act, (v) in transactions
complying with the provisions of Regulation S under the Securities Act or (vi)
in accordance with another exemption from the registration requirements under
the Securities Act (and based upon an opinion of counsel if the Company so
requests) and, in each case, in accordance with any applicable securities laws
of any State of the United States or any other applicable jurisdiction. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
liquidity of the trading market for untendered Old Notes could be adversely
affected.
The Company may in the future seek to acquire untendered Old Notes in the
open market or through privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company intends to make any such acquisitions
of Old Notes in accordance with the applicable requirements of the Exchange Act
and the rules and regulations of the SEC thereunder, including Rule 14e-1, to
the extent applicable. The Company has no present plan to acquire any Old Notes
that are not tendered in the Exchange Offer or to file a registration statement
to permit resales of any Old Notes that are not tendered in the Exchange Offer.
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<PAGE> 43
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange Old
Notes in like principal amount. The form and terms of the Exchange Notes are
identical in all material respects to the form and terms of the Old Notes,
except that (i) the offering of the Exchange Notes has been registered under the
Securities Act, (ii) the Exchange Notes will not be subject to transfer
restrictions and (iii) the holders of the Exchange Notes will not be entitled to
registration or other rights under the Registration Rights Agreement including
the payment of Liquidated Damages upon failure by the Company to consummate the
Exchange Offer or the occurrence of certain other events. The Old Notes
surrendered in exchange for Exchange Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the Exchange Notes will not result
in a change in the indebtedness of the Company.
38
<PAGE> 44
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1998 on a (i) historical basis and (ii) as adjusted to
give effect to the Acquisitions, the Offerings giving effect to the exercise of
the over-allotment options granted to the underwriters of PIES and Common Stock
and the initial borrowings under Senior Credit Facility and the application of
the estimated net proceeds therefrom as described under "Use of Proceeds."
This table should be read in conjunction with Tesoro's Consolidated
Financial Statements and the Pro Forma Financial Statements, including the notes
thereto, contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------
ADJUSTMENTS AS ADJUSTED
TESORO FOR THE FOR THE
HISTORICAL TRANSACTIONS TRANSACTIONS
---------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Total debt and other obligations, including current
maturities:
Senior Credit Facility:
Revolver(a)......................................... $ -- $ -- $ --
Tranche A Term Loans(b)............................. -- 50,000 50,000
Tranche B Term Loan................................. -- 100,000 100,000
BHP Note(c)............................................ -- 14,615 14,615
Liability to State of Alaska........................... 61,780 (61,780) --
Other senior debt and obligations...................... 85,938 (65,335) 20,603(d)
The Exchange Notes..................................... -- 298,287 298,287
-------- -------- ----------
Total debt..................................... 147,718 335,787 483,505
Mandatorily Convertible Preferred Stock.................. -- 164,954(e) 164,954
Common stockholders' equity.............................. 339,359 75,937(f) 415,296
-------- -------- ----------
Total capitalization........................... $487,077 $576,678 $1,063,755
======== ======== ==========
</TABLE>
- ---------------
(a) The maximum amount available for the Revolver is $300 million, including
availability of letters of credit.
(b) The Term Loans provide for additional borrowings of up to $50 million in
the aggregate over the first six months following closing of the
Transactions for general corporate purposes (including capital
expenditures).
(c) The amount reflects the scheduled payments of the $50 million, non-interest
bearing BHP Note discounted to present value using a 10% discount rate.
(d) Other debt as adjusted for the Transactions consists primarily of the
Company's obligation to the Department of Energy of approximately $7.9
million and capitalized lease obligations of approximately $9 million for
tugs and barges used in transportation of petroleum products within Hawaii.
The remaining amount consists primarily of obligations of subsidiaries,
none of which are material. See Note I of Notes to Tesoro's Consolidated
Financial Statements.
(e) Includes the impact of the PIES Offering (gross proceeds of $164.9
million).
(f) Includes the impact of the Common Stock Offering (gross proceeds of $91.6
million) and the aftertax charge against earnings for early extinguishment
of debt.
39
<PAGE> 45
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the Transactions including the exercise of the over-allotment
options by the underwriters. The Acquisitions are being accounted for using the
purchase method of accounting. These unaudited pro forma combined condensed
statements have been prepared from, and should be read in conjunction with, the
historical consolidated financial statements and notes thereto, which are
included in or incorporated by reference in this Prospectus.
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to
the Transactions as if each had occurred on March 31, 1998. The Unaudited Pro
Forma Condensed Statements of Operations for the year ended December 31, 1997,
and the quarter ended March 31, 1998, give effect to the Transactions as if each
had occurred on January 1, 1997. BHP Hawaii's results of operations, which are
reported on a fiscal year ending May 31, have been adjusted to Tesoro's
reporting periods. The estimates of the fair value of BHP Hawaii's and Shell
Washington's assets and liabilities are based on valuations that are
preliminary. Such valuations may be updated with respect to the Hawaii
Acquisition and the Washington Acquisition, and may change from the amounts
shown herein; however, the Company does not expect such changes to be material.
The unaudited pro forma combined condensed financial statements are intended for
informational purposes and are not necessarily indicative of the future
financial position or future results of the combined companies or of the
financial position or the results of operations that would have actually
occurred had the Acquisitions been in effect as of the date or for the periods
presented. The Unaudited Pro Forma Combined Condensed Statements of Operations
do not reflect any benefits from potential cost savings or revenue enhancements
resulting from the integration of the operations of Tesoro, BHP Hawaii and Shell
Washington (estimated by the Company to be $25 million annually beginning in
1999). Such cost savings and revenue enhancements are discussed in Note (a) to
the Unaudited Pro Forma Combined Condensed Statements of Operations.
40
<PAGE> 46
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
BHP SHELL PRO FORMA PRO FORMA
TESORO HAWAII WASHINGTON ADJUSTMENTS COMBINED(L)
-------- -------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................. $ 2,274 $ 2,519 $ 25 $ (2,544)(a) $ 4,975
2,701(b)
Receivables........................................... 64,518 84,304 12,600 (42,372)(a) 119,050
Inventories........................................... 97,793 71,050 41,305 10,891(c) 221,039
Prepayments and other................................. 7,984 3,919 4,349 (688)(d) 15,564
-------- -------- -------- --------- ----------
Total Current Assets........................... 172,569 161,792 58,279 (32,012) 360,628
-------- -------- -------- --------- ----------
Property, Plant and Equipment:
Refining and marketing................................ 368,183 209,804 372,768 (82,572)(e) 868,183
Exploration and production............................ 311,872 -- -- 311,872
Marine services....................................... 48,201 -- -- 48,201
Corporate............................................. 13,802 -- -- 13,802
-------- -------- -------- --------- ----------
742,058 209,804 372,768 (82,572) 1,242,058
Less accumulated depreciation, depletion and
amortization...................................... 317,645 -- 188,127 (188,127)(e) 317,645
-------- -------- -------- --------- ----------
Net Property, Plant and Equipment................... 424,413 209,804 184,641 105,555(e) 924,413
-------- -------- -------- --------- ----------
Other Assets............................................ 38,447 3,295 8,774 47,271(f) 113,871
17,819(g)
(1,735)(d)
-------- -------- -------- --------- ----------
Total Assets................................... $635,429 $374,891 $251,694 $ 136,898 $1,398,912
======== ======== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................... $ 44,275 $ 46,831 $ 9,819 $ (3,553)(a) $ 97,372
Accrued liabilities and current income taxes
payable............................................. 30,253 12,901 4,833 9,886(h) 57,873
Current maturities of long-term debt and other
obligations......................................... 11,428 1,003 -- (9,731)(g) 2,700
-------- -------- -------- --------- ----------
Total Current Liabilities...................... 85,956 60,735 14,652 (3,398) 157,945
-------- -------- -------- --------- ----------
Deferred Income Taxes................................... 31,003 -- 25,523 55,065(j) 111,591
-------- -------- -------- --------- ----------
Other Liabilities....................................... 42,821 29,460 14,412 (18,372)(h) 68,321
-------- -------- -------- --------- ----------
Long-Term Debt and Other Obligations, Less Current
Maturities............................................ 136,290 8,433 -- 336,082(g) 480,805
-------- -------- -------- --------- ----------
Notes Payable to Affiliate.............................. -- 145,000 -- (145,000)(a) --
-------- -------- -------- --------- ----------
Stockholders' Equity:
Preferred Stock....................................... -- -- -- 164,954(b) 164,954
Common Stock.......................................... 4,419 8,208 3 958(b) 5,377
(8,211)(k)
Additional paid-in capital............................ 191,000 52,362 181,011 80,540(b) 271,540
(233,373)(k)
Retained earnings..................................... 147,039 70,693 16,093 (86,786)(k) 141,478
(8,178)(g)
2,617(i)
Treasury stock........................................ (3,099) -- -- (3,099)
-------- -------- -------- --------- ----------
Total Stockholders' Equity..................... 339,359 131,263 197,107 (87,479) 580,250
-------- -------- -------- --------- ----------
Total Liabilities and Stockholders' Equity..... $635,429 $374,891 $251,694 $ 136,898 $1,398,912
======== ======== ======== ========= ==========
</TABLE>
41
<PAGE> 47
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1998
(a) Represents an adjustment to exclude assets and liabilities of BHP Hawaii
and Shell Washington that are not acquired by Tesoro.
(b) Represents an adjustment for the issuance of Mandatorily Convertible
Preferred Stock and Common Stock, the proceeds of which were used to
finance the Transactions.
(c) Represents an adjustment of finished goods inventories to net realizable
value, less an allowance for a normal profit margin, and of raw materials
inventories to replacement cost.
(d) Represents an adjustment to conform the accounting policy for refinery
maintenance costs to that of Tesoro.
(e) Represents an adjustment of property, plant and equipment to fair value.
(f) Represents the excess purchase price over the book value of net assets
acquired.
(g) Represents an adjustment to reflect the $50 million non-interest bearing
BHP Note (discounted at 10%) plus aggregate borrowings of $448 million to
finance the Acquisitions, to refinance existing indebtedness of Tesoro and
to pay related fees, expenses and debt issue costs.
(h) Represents an adjustment to liabilities for certain employee benefits and
for environmental matters taking into effect environmental agreements which
provide for certain environmental indemnifications.
(i) Represents an adjustment to reduce income taxes payable for the tax effect
resulting from charges to earnings related to the refinancing of existing
indebtedness.
(j) Represents an adjustment to record the deferred tax obligations for
differences in book and tax basis for the Washington Acquisition.
(k) Represents the elimination of historical equity of BHP Hawaii and Shell
Washington.
(l) The following are pro forma consolidated balance sheet data excluding the
effects of the Washington Acquisition, but including the effects of the
Offerings and the mandatory special redemption of 50% of the aggregate
principal amount of Notes offered in the Notes Offering:
<TABLE>
<S> <C>
Current assets........................................... $ 302,796
Property, plant and equipment, net....................... $ 639,413
Total assets............................................. $1,002,131
Current liabilities...................................... $ 136,010
Long-term debt and other obligations, less current
maturities............................................. $ 201,479
</TABLE>
42
<PAGE> 48
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
BHP SHELL PRO FORMA PRO FORMA
TESORO HAWAII WASHINGTON ADJUSTMENTS(A) COMBINED(L)
-------- ---------- ---------- -------------- -----------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues:
Refining and marketing....... $720,868 $ 946,727 $1,089,918 $ $2,757,513
Exploration and production... 84,798 -- -- 84,798
Marine services.............. 132,251 -- -- 132,251
Other income................. 5,543 211 52 5,806
-------- ---------- ---------- --------- ----------
Total Revenues....... 943,460 946,938 1,089,970 2,980,368
-------- ---------- ---------- --------- ----------
Operating Costs and Expenses:
Refining and marketing....... 687,036 882,104 1,038,085 1,500(b) 2,608,725
Exploration and production... 13,230 -- -- 13,230
Marine services.............. 124,725 -- -- 124,725
Depreciation, depletion and
amortization.............. 45,729 13,762 12,715 (3,543)(c) 70,554
1,891(d)
Refinery assets writedown.... 88,813 -- (88,813)(e) --
Goodwill write-off........... -- 30,351 -- (30,351)(e) --
-------- ---------- ---------- --------- ----------
Total Operating Costs
and Expenses....... 870,720 1,015,030 1,050,800 (119,316) 2,817,234
-------- ---------- ---------- --------- ----------
Operating Profit (Loss)........ 72,740 (68,092) 39,170 119,316 163,134
General and Administrative..... (13,588) (25,054)(f) (14,277) (52,919)
Interest Expense, Net of
Capitalized Interest......... (6,699) (8,227) (252) 14,291(g) (52,579)
(51,692)(h)
Interest Income................ 1,597 -- -- 1,597
Other Expense, Net............. (4,930) -- -- (2,894)(i) (7,824)
-------- ---------- ---------- --------- ----------
Earnings Before Income Taxes... 49,120 (101,373) 24,641 79,021 51,409
Income Tax Provision........... 18,435 (27,032) 8,902 19,230(j) 19,535
-------- ---------- ---------- --------- ----------
Earnings Before Extraordinary
Items........................ 30,685 (74,341) 15,739 59,791 31,874
Preferred Dividend............. -- -- -- (11,959)(k) (11,959)
-------- ---------- ---------- --------- ----------
Earnings Before Extraordinary
Items Available for Common
Shares....................... $ 30,685 $ (74,341) $ 15,739 $ 47,832 $ 19,915
======== ========== ========== ========= ==========
Weighted Average Common
Shares -- Basic.............. 26,410 5,750 32,160
======== ========= ==========
Weighted Average Common Shares
and Potentially Dilutive
Common Shares -- Diluted..... 26,868 5,750 32,618
======== ========= ==========
Earnings Before Extraordinary
Items:
Per Share -- Basic........... $ 1.16 $ 0.62
======== ==========
Per Share -- Diluted......... $ 1.14 $ 0.61
======== ==========
</TABLE>
43
<PAGE> 49
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------
BHP SHELL PRO FORMA PRO FORMA
TESORO HAWAII WASHINGTON ADJUSTMENTS(a) COMBINED(l)
-------- --------- ---------- -------------- -----------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues:
Refining and marketing.......... $140,213 $ 210,447 $201,431 $ $ 552,091
Exploration and production...... 22,222 -- 22,222
Marine services................. 32,818 -- 32,818
Other income.................... 786 (3) 30 813
-------- --------- -------- --------- ---------
Total Revenues.......... 196,039 210,444 201,461 607,944
-------- --------- -------- --------- ---------
Operating Costs and Expenses:
Refining and marketing.......... 130,720 191,642 195,685 1,500(b) 519,547
Exploration and production...... 3,925 -- -- 3,925
Marine services................. 30,597 -- -- 30,597
Depreciation, depletion and
amortization................. 12,944 -- 3,703 2,030(c) 19,150
473(d)
Refinery assets writedown....... -- 125,049 -- (125,049)(e) --
-------- --------- -------- --------- ---------
Total Operating Costs
and Expenses.......... 178,186 316,691 199,388 (121,046) 573,219
-------- --------- -------- --------- ---------
Operating Profit (Loss)........... 17,853 (106,247) 2,073 121,046 34,725
General and Administrative........ (3,372) (5,139) (2,512) (11,023)
Interest Expense, Net of
Capitalized Interest............ (2,665) (2,436) (10) 4,708(g) (13,326)
(12,923)(h)
Interest Income................... 108 -- -- 108
Other Expense, Net................ (1,034) -- -- (703)(i) (1,737)
-------- --------- -------- --------- ---------
Earnings Before Income Taxes...... 10,890 (113,822) (449) 112,128 8,747
Income Tax Provision.............. 4,831 (33,676) (80) 32,774(j) 3,849
-------- --------- -------- --------- ---------
Earnings Before Extraordinary
Items........................... 6,059 (80,146) (369) 79,354 4,898
Preferred Dividend................ -- -- -- (2,990)(k) (2,990)
-------- --------- -------- --------- ---------
Earnings Before Extraordinary
Items Available for Common
Shares.......................... $ 6,059 $ (80,146) $ (369) $ 76,364 $ 1,908
======== ========= ======== ========= =========
Weighted Average Common Shares
Basic........................... 26,309 5,750 32,059
======== ========= =========
Weighted Average Common Shares and
Potentially Dilutive Common
Shares -- Diluted............... 26,789 5,750 32,539
======== ========= =========
Earnings Before Extraordinary
Items:
Per Share -- Basic.............. $ 0.23 $ 0.06
======== =========
Per Share -- Diluted............ $ 0.23 $ 0.06
======== =========
</TABLE>
44
<PAGE> 50
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THREE MONTHS ENDED MARCH 31, 1998
(a) The Unaudited Pro Forma Combined Condensed Statements of Operations do not
give any effect to potential cost savings or revenue enhancements, which
the Company believes will result from integrating the operations of the
companies after the Acquisitions. Management expects to begin to realize
such projected cost savings and revenue enhancements in the fourth quarter
of 1998. The full annual impact of such projected cost savings and revenue
enhancements is expected to be achieved in the fiscal year ending December
31, 1999, and is estimated to be approximately $25 million annually
beginning in 1999.
(b) Represents an adjustment for a Tesoro contract termination.
(c) Represents an adjustment in depreciation expense due to the change in
property, plant and equipment to fair value. Pro forma depreciation is
calculated on the straight-line method over estimated useful lives of 28
years for refineries and five to ten years for machinery, equipment and
buildings.
(d) Represents the amortization of goodwill over 25 years.
(e) Represents elimination of the charge for asset and goodwill impairment
recognized in the BHP Hawaii historical financial statements.
(f) Includes BHP Hawaii employee bonuses of $4 million in the year ended
December 31, 1997, which were awarded based upon the performance of BHP
operations that are not to be acquired by Tesoro.
(g) Represents elimination of interest on BHP Hawaii's obligations that will
not be assumed by Tesoro and the elimination of interest on Tesoro's
obligations that will be refinanced.
(h) Represents additional interest under the Revolver, the Term Loans, the
Notes and accretion of the $50 million non-interest bearing BHP Note. See
"Description of Other Indebtedness -- Other Indebtedness."
(i) Represents the amortization of debt issuance costs related to the Revolver,
the Term Loans and the Notes.
(j) Represents the tax effect of the adjustments above, excluding amortization
of goodwill for the Washington Acquisition.
(k) Represents a 7 1/4% annual dividend rate on the Mandatorily Convertible
Preferred Stock.
(l) The following are pro forma consolidated results of operations excluding
the effects of the Washington Acquisition, but including the effects of the
Offerings and the mandatory special redemption of 50% of the aggregate
principal amount of the Notes offered in the Notes Offering:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
Revenues........................................ $1,890,398 $406,483
Expenses........................................ $1,846,127 $394,239
Earnings before income taxes.................... $ 44,271 $ 12,244
Income tax provision............................ $ 16,216 $ 5,388
Earnings before extraordinary items............. $ 28,055 $ 6,856
</TABLE>
45
<PAGE> 51
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial information for Tesoro based upon its historical financial statements
included in or incorporated by reference in this Prospectus. Separate financial
statements of the subsidiary Guarantors are not included herein because the
subsidiary Guarantors are jointly and severally liable on the Notes and the
aggregate net assets, earnings and equity of such Guarantors are substantially
equivalent to the net assets, earnings and equity of the parent on a
consolidated basis.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- --------- --------- ------- ------- -------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Total revenues................................... $ 830.4 $ 871.9 $ 1,002.9 $ 1,039.8 $ 943.4 $ 234.9 $ 196.0
Total segment operating profit(a)(b)............. $ 52.3 $ 64.4 $ 105.9 $ 144.8 $ 72.7 $ 15.0 $ 17.9
Net earnings..................................... $ 17.0 $ 15.7 $ 54.6 $ 74.5 $ 30.7 $ 6.1 $ 6.1
Net earnings applicable to common stock.......... $ 7.8 $ 13.0 $ 54.6 $ 74.5 $ 30.7 $ 6.1 $ 6.1
Earnings per share -- basic(c)................... $ 0.55 $ 0.58 $ 2.22 $ 2.87 $ 1.16 $ 0.23 $ 0.23
Earnings per share -- diluted(c)................. $ 0.54 $ 0.56 $ 2.18 $ 2.81 $ 1.14 $ 0.23 $ 0.23
OTHER DATA
EBITDA, as reported(d):
Refining and marketing......................... $ 25.5 $ 12.8 $ 12.6 $ 18.5 $ 33.2 $ 3.2 $ 9.5
Exploration and production..................... 51.8 88.6 139.2 159.6 77.2 22.1 19.0
Marine services................................ (3.2) (2.0) (4.1) 7.3 8.0 1.3 2.4
------- ------- --------- --------- ------- ------- -------
Total segment EBITDA..................... 74.1 99.4 147.7 185.4 118.4 26.6 30.9
Corporate and unallocated...................... (18.3) (18.6) (22.3) (13.4) (16.2) (3.7) (4.1)
------- ------- --------- --------- ------- ------- -------
Total consolidated EBITDA................ $ 55.8 $ 80.8 $ 125.4 $ 172.0 $ 102.2 $ 22.9 $ 26.8
======= ======= ========= ========= ======= ======= =======
Normalized EBITDA(e):
Refining and marketing......................... $ 25.5 $ 7.0 $ 13.0 $ 19.3 $ 33.2 $ 3.2 $ 9.5
Exploration and production..................... 32.1 49.7 58.8 70.0 73.2 20.5 19.0
Marine services................................ (3.2) (0.1) (3.3) 7.3 8.0 1.3 2.4
------- ------- --------- --------- ------- ------- -------
Total segment EBITDA..................... 54.4 56.6 68.5 96.6 114.4 25.0 30.9
Corporate and unallocated...................... (19.7) (18.5) (18.5) (14.7) (16.2) ( 3.7) ( 4.1)
------- ------- --------- --------- ------- ------- -------
Total consolidated EBITDA................ $ 34.7 $ 38.1 $ 50.0 $ 81.9 $ 98.2 $ 21.3 $ 26.8
======= ======= ========= ========= ======= ======= =======
Capital expenditures
Refining and marketing......................... $ 7.1 $ 32.0 $ 9.3 $ 11.1 $ 43.9 $ 2.9 $ 2.0
Exploration and production..................... 29.3 65.6 53.4 66.6 92.9 11.0 20.5
Marine services................................ 0.3 0.2 0.4 6.9 9.4 2.2 1.2
Other.......................................... 0.8 1.8 0.8 0.4 1.3 0.2 0.1
------- ------- --------- --------- ------- ------- -------
Total capital expenditures............... $ 37.5 $ 99.6 $ 63.9 $ 85.0 $ 147.5 $ 16.3 $ 23.8
======= ======= ========= ========= ======= ======= =======
BALANCE SHEET DATA
Working capital.................................. $ 124.5 $ 85.9 $ 77.5 $ 99.5 $ 74.3 $ 104.8 $ 86.7
Property, plant and equipment, net............... $ 213.2 $ 273.3 $ 261.7 $ 316.5 $ 413.8 $ 320.7 $ 424.4
Total assets..................................... $ 434.5 $ 484.4 $ 519.2 $ 582.6 $ 627.8 $ 552.0 $ 635.4
Total long-term debt and other obligations(f).... $ 185.5 $ 199.6 $ 164.5 $ 89.3 $ 132.3 $ 89.3 $ 147.7
Redeemable preferred stock(f).................... $ 78.1 $ -- $ -- $ -- $ -- $ -- $ --
Stockholders' equity(f).......................... $ 58.5 $ 160.7 $ 216.5 $ 304.1 $ 333.0 $ 310.4 $ 339.4
</TABLE>
- ---------------
(a) Results for the years 1993, 1994, 1995 and 1996 include revenues from
above-market pricing provisions of a natural gas contract which was
terminated effective October 1, 1996. Operating profit included $20
million, $39 million, $47 million and $25 million in the years 1993, 1994,
1995 and 1996, respectively, from the excess of these contract prices over
spot market prices. Upon termination of the contract in 1996, the
Exploration and Production segment also recorded a non-recurring increase
in other income and operating profit of $60 million in connection with the
settlement of the contract. In the year 1995, the Exploration and
Production segment recorded other income and operating profit of $33
million from the sale of certain interests in the Bob West Field. See Notes
C and D of Notes to Tesoro's Consolidated Financial Statements.
(b) Segment operating profit equals gross operating revenues, gains and losses
on asset sales and other income less applicable segment costs of sales,
operating expenses, depreciation, depletion and other items. Income taxes,
interest expense and corporate general and administrative expenses are not
included in determining operating profit.
(c) Earnings per share amounts for periods prior to the quarter ended December
31, 1997 have been restated, where appropriate, to conform with the
requirements of Statement of Financial Accounting Standard ("SFAS") No.
128. See Note A of Notes to Tesoro's Consolidated Financial Statements.
(d) EBITDA represents earnings before extraordinary item, interest expense,
income taxes and depreciation, depletion and amortization. Segment EBITDA
represents operating profit before depreciation, depletion and
amortization. While not purporting to reflect any measure of the Company's
operations or cash flows, EBITDA is presented for additional analysis.
EBITDA is not a calculation based upon GAAP however, the amounts included
in the EBITDA calculation are derived from amounts included in Tesoro's
46
<PAGE> 52
Consolidated Financial Statements. In addition, EBITDA should not be
considered as an alternative to net earnings or operating profit, as an
indication of the operating performance of the Company or an alternative to
operating cash flow as a measure of liquidity. EBITDA is not necessarily
comparable to similarly titled items of other companies.
(e) Normalized EBITDA is EBITDA, as defined in (d) above, excluding the impact
of the above-market natural gas contract with Tennessee Gas and other
significant items which affect the comparability between the periods
presented. The following items have been excluded from EBITDA, as reported,
to generate normalized EBITDA for each segment (in millions):
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------- ------------
1993 1994 1995 1996 1997 1997 1998
----- ----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Refining and Marketing.................. $ -- $ 5.8 $(0.4) $(0.8) $ -- $-- $--
----- ----- ----- ----- ---- ---- ---
Exploration and Production:
Excess of contract prices over spot
market prices....................... 19.7 38.9 47.1 24.6 -- -- --
Income from settlement of a natural
gas contract........................ -- -- -- 60.0 -- -- --
Gain on sale of asset................. -- -- 33.5 -- -- -- --
Other non-recurring income (charges),
net................................. -- -- (0.2) 5.0 4.0 1.6 --
----- ----- ----- ----- ---- ---- ---
Total Exploration and Production.... 19.7 38.9 80.4 89.6 4.0 1.6 --
----- ----- ----- ----- ---- ---- ---
Marine Services......................... -- (1.9) (0.8) -- -- -- --
----- ----- ----- ----- ---- ---- ---
Corporate and Unallocated............... 1.4 (0.1) (3.8) 1.3 -- -- --
----- ----- ----- ----- ---- ---- ---
Total Adjustments................... $21.1 $42.7 $75.4 $90.1 $4.0 $1.6 $--
===== ===== ===== ===== ==== ==== ===
</TABLE>
For further information regarding these significant items, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(f) In 1994, the Company restructured its outstanding debt and preferred stock
by completing a recapitalization and equity offering.
47
<PAGE> 53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of Tesoro should be read in conjunction with Tesoro's Consolidated Financial
Statements, including the notes thereto, included elsewhere in this Prospectus.
Those statements in the Management's Discussion and Analysis that are not
historical in nature should be deemed forward-looking statements that are
inherently uncertain. See "Forward-Looking Statements" on page 18 for discussion
of the factors which could cause actual results to differ materially from those
projected in such statements.
GENERAL
The Company's strategy is to (i) maximize return on capital employed and
increase the competitiveness of each of its business units by reducing costs,
increasing operating efficiencies and optimizing existing assets and (ii) expand
its overall market presence through a combination of internal growth initiatives
and selective acquisitions which are both accretive to earnings and provide
significant operational synergies. In 1998, the Company plans to further improve
profitability in the Refining and Marketing segment by enhancing processing
capabilities, strengthening marketing channels and improving supply and
transportation functions. In the Exploration and Production segment, the
strategy includes evaluating ways in which the Company can continue to diversify
its oil and gas reserve base through both acquisitions and the drill bit and
enhanced technical capabilities. The Company has made significant progress in
diversifying its U.S. operations to areas other than the Bob West Field and has
taken steps to begin serving emerging markets in South America. Improved
profitability has positioned the Marine Services segment to participate in the
consolidation of the industry by pursuing opportunities for expansion, as well
as optimizing existing operations.
In May 1998, Tesoro acquired the Hawaiian refining and marketing assets of
two subsidiaries of BHP and entered into an agreement to acquire the Washington
Refinery and related refining assets from a subsidiary of Shell. The
Acquisitions are expected to triple Tesoro's annual revenues and significantly
increase the scope of Tesoro's refining and marketing operations. Tesoro expects
that the results of the Acquisitions will be accretive to earnings and cash
flows beginning in 1999. The impact of the Acquisitions on earnings and cash
flow may be neutral in 1998 primarily due to the mid-year timing of the
Acquisitions and a scheduled maintenance turnaround at the Hawaii Refinery to
begin in the summer of 1998. The Company will continue to pursue other
opportunities that are operationally and geographically complementary with its
asset base.
As part of the Company's long-term strategy, growth initiatives are planned
in 1998 with a capital budget of $195 million, excluding amounts required to
fund the Acquisitions and capital expenditures related to the Hawaii and
Washington operations following such acquisitions, which are projected to be
approximately $15 to $20 million in 1998. The $195 million capital budget
represents an increase of 33% over 1997 capital expenditures. Approximately 71%
of the 1998 capital budget is directed toward increased drilling and other
related exploration costs, both in Bolivia and the U.S. Another 25% is planned
for downstream operations, primarily improvements in the Alaska marketing
operations. The remaining 4% of the 1998 capital budget is dedicated to
corporate expenditures, primarily upgrading information systems.
The Company operates in an environment where its results and cash flows are
sensitive to volatile changes in energy prices. Major shifts in the cost of
crude oil used for refinery feedstocks and the price of refined products can
result in a change in margin from the Refining and Marketing operations, as
prices received for refined products may or may not keep pace with changes in
crude oil costs. These energy prices, together with volume levels, also
determine the carrying value of crude oil and refined product inventory. The
Company uses the last-in, first-out method of accounting for inventories of
crude oil and U.S. wholesale refined products in its Refining and Marketing
segment. This method results in inventory carrying amounts that are less likely
to represent current values and in costs of sales which more closely represent
current costs. Similarly, changes in natural gas, condensate and oil prices
impact revenues and the present value of estimated future net revenues and cash
flows from the Company's Exploration and Production operations. Tesoro may
increase or decrease its natural gas production in response to market
conditions. The carrying value of oil and gas assets may be subject to noncash
write-downs based on changes in natural gas prices and other
48
<PAGE> 54
determining factors. Changes in natural gas prices also influence the level of
drilling activity in the Gulf of Mexico. The Company's Marine Services
operation, whose customers include offshore drilling contractors and related
industries, could be impacted by significant fluctuations in natural gas prices.
The Company's Marine Services segment uses the first-in, first-out method of
accounting for inventories of fuels. Changes in fuel prices can significantly
impact inventory valuations and costs of sales in this segment.
RESULTS OF OPERATIONS
This "Results of Operations" section reflects only the results of
operations of Tesoro for periods prior to the consummation of the Transactions
and does not include any financial information concerning BHP Hawaii and Shell
Washington.
SUMMARY
Tesoro's net earnings of $6.1 million, or $0.23 per share, for the three
months ended March 31, 1998 ("1998 Quarter") compare with net earnings of $6.1
million, or $0.23 per share, for the three months ended March 31, 1997 ("1997
Quarter"). Improved refined product margins combined with higher sales volumes
in the Company's Refining and Marketing segment and Marine Services segment
during the 1998 Quarter were offset by lower natural gas prices in the Company's
Exploration and Production segment.
Tesoro's net earnings for the year 1997 were $30.7 million ($1.16 per basic
share, $1.14 per diluted share) compared to $74.5 million ($2.87 per basic
share, $2.81 per diluted share) in the year 1996 and $54.6 million ($2.22 per
basic share, $2.18 per diluted share) in the year 1995. In the years 1996 and
1995, Tesoro incurred noncash aftertax extraordinary losses of $2.3 million and
$2.9 million, respectively, for early extinguishments of debt. Earnings before
extraordinary losses amounted to $76.8 million ($2.96 per basic share, $2.90 per
diluted share) and $57.5 million ($2.34 per basic share, $2.29 per diluted
share) in the years 1996 and 1995, respectively. Results for the years 1996 and
1995 included revenues from sales of natural gas at above-market prices under a
contract with Tennessee Gas Pipeline Company ("Tennessee Gas") which was
terminated effective October 1, 1996. Results of operations in 1997 and future
years no longer benefit from above-market revenues under this contract.
Significant items, including the impact of the Tennessee Gas contract, which
affect the comparability between results of operations are highlighted in the
table below (in millions except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1995 1996 1997 1997 1998
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net Earnings as Reported..................... $ 54.6 $74.5 $30.7 $ 6.1 $ 6.1
Extraordinary Loss on Debt Extinguishments,
Net of Income Tax Benefit.................. 2.9 2.3 -- -- --
------ ----- ----- ----- ------
Earnings Before Extraordinary Item........... 57.5 76.8 30.7 6.1 6.1
------ ----- ----- ----- ------
Significant Items Affecting Comparability,
Pretax:
Income from settlement of a natural gas
contract................................ -- 60.0 -- -- --
Operating profit from excess of contract
prices over spot market prices.......... 47.1 24.6 -- -- --
Other, including gain on sale and other
income and expense items................ 28.3 5.5 4.0 1.6 --
------ ----- ----- ----- ------
Total Significant Items, Pretax......... 75.4 90.1 4.0 1.6 --
Income Tax Effect....................... -- 27.2 1.2 0.5 --
------ ----- ----- ----- ------
Total Significant Items, Aftertax....... 75.4 62.9 2.8 1.1 --
------ ----- ----- ----- ------
Net Earnings (Loss) Excluding Significant
Items and Extraordinary Item............... $(17.9) $13.9 $27.9 $ 5.0 $ 6.1
====== ===== ===== ===== ======
</TABLE>
49
<PAGE> 55
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1995 1996 1997 1997 1998
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Earnings Per Share -- Basic:
As reported................................ $ 2.22 $2.87 $1.16 $0.23 $ 0.23
Extraordinary loss......................... (0.12) (0.09) -- -- --
Impact of contract prices over spot market
prices and settlement income............ 1.92 2.28 -- -- --
Effect of other significant items.......... 1.15 0.15 0.10 0.04 --
------ ----- ----- ----- ------
Excluding significant items and
extraordinary item...................... $(0.73) $0.53 $1.06 $0.19 $ 0.23
====== ===== ===== ===== ======
Earnings Per Share -- Diluted:
As reported................................ $ 2.18 $2.81 $1.14 $0.23 $ 0.23
Extraordinary loss......................... (0.11) (0.09) -- -- --
Impact of contract prices over spot market
prices and settlement income............ 1.88 2.23 -- -- --
Effect of other significant items.......... 1.14 0.14 0.10 0.04 --
------ ----- ----- ----- ------
Excluding significant items and
extraordinary item...................... $(0.73) $0.53 $1.04 $0.19 $ 0.23
====== ===== ===== ===== ======
</TABLE>
As shown above, excluding the significant items affecting comparability,
Tesoro's net earnings would have been $27.9 million ($1.06 per basic share,
$1.04 per diluted share) in the year 1997, as compared to net earnings of $13.9
million ($0.53 per basic and diluted share) in the year 1996 and a net loss of
$17.9 million ($0.73 per basic and diluted share) in the year 1995. The
resulting $14 million increase in net earnings in the year 1997 was primarily
attributable to better refined product margins, higher spot market natural gas
prices and lower corporate interest expense.
When comparing the year 1996 to 1995, after excluding significant items,
the improvement in net earnings of approximately $32 million was primarily
attributable to improvements within Tesoro's Refining and Marketing and Marine
Services segments together with reduced general and administrative expenses and
interest expense. These improvements were partially offset by an increase in
Tesoro's total effective tax rate in the year 1996 as earnings subject to U.S.
taxes exceeded available net operating loss and tax credit carryforwards.
A discussion and analysis of the factors contributing to these results are
presented below. The accompanying consolidated financial statements and related
footnotes, together with the following information, are intended to provide
shareholders and other investors with a reasonable basis for assessing Tesoro's
operations, but should not serve as the sole criterion for predicting the future
performance of Tesoro.
50
<PAGE> 56
REFINING AND MARKETING
The following table summarizes the Refining and Marketing segment's results
of operations for the years ended December 31, 1995, 1996 and 1997 and the three
months ended March 31, 1997 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS EXCEPT PER BARREL AMOUNTS)
<S> <C> <C> <C> <C> <C>
GROSS OPERATING REVENUES
Total refined products..................... $ 664.5 $ 620.8 $ 643.7 $ 155.8 $ 122.7
Other, primarily crude oil resales and
merchandise............................. 106.5 124.6 77.2 18.6 17.5
------- ------- ------- ------- -------
Total Gross Operating Revenues..... $ 771.0 $ 745.4 $ 720.9 $ 174.4 $ 140.2
======= ======= ======= ======= =======
TOTAL OPERATING PROFIT
Gross margin:
Refinery(a)............................. $ 63.5 $ 74.6 $ 93.3 $ 18.3 $ 24.0
Non-refinery(b)......................... 34.1 32.7 36.6 6.4 9.7
------- ------- ------- ------- -------
Total gross margin................. 97.6 107.3 129.9 24.7 33.7
Operating expenses......................... 84.7 87.9 96.0 21.5 24.2
Depreciation and amortization.............. 11.9 12.5 12.7 3.1 3.0
Loss on sales of assets and other.......... 0.3 0.9 0.7 -- --
------- ------- ------- ------- -------
Total Operating Profit............. $ 0.7 $ 6.0 $ 20.5 $ 0.1 $ 6.5
======= ======= ======= ======= =======
CAPITAL EXPENDITURES......................... $ 9.3 $ 11.1 $ 43.9 $ 2.9 $ 2.0
======= ======= ======= ======= =======
REFINERY PRODUCT SPREAD ($/barrel)........... $ 3.44 $ 4.29 $ 5.09 $ 4.13 $ 4.75
======= ======= ======= ======= =======
TOTAL SEGMENT PRODUCT SALES (average bpd)(c)
Gasoline................................... 24,526 17,427 17,393 16,738 14,495
Middle distillates......................... 37,988 29,651 30,576 26,253 32,875
Heavy oils and residual products........... 14,787 15,089 17,929 17,890 18,308
------- ------- ------- ------- -------
Total Product Sales................ 77,301 62,167 65,898 60,881 65,678
======= ======= ======= ======= =======
TOTAL SEGMENT PRODUCT SALES PRICES($/barrel)
Gasoline................................... $ 28.21 $ 32.72 $ 33.71 $ 33.64 $ 28.52
Middle distillates......................... $ 24.40 $ 29.01 $ 28.36 $ 32.09 $ 22.33
Heavy oils and residual products........... $ 13.66 $ 17.61 $ 17.30 $ 18.19 $ 11.32
TOTAL SEGMENT GROSS MARGINS ON PRODUCT SALES
($/barrel)(d)
Average sales price........................ $ 23.55 $ 27.28 $ 26.76 $ 28.43 $ 20.65
Average costs of sales..................... 20.53 23.15 21.92 24.63 15.58
------- ------- ------- ------- -------
Gross Margin....................... $ 3.02 $ 4.13 $ 4.84 $ 3.80 $ 5.07
======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) Represents throughput at the Alaska Refinery times refinery product spread.
(b) Non-refinery margin includes margins on products purchased and resold,
margins on products sold in markets outside of Alaska, intrasegment
pipeline revenues, retail margins, and adjustments due to selling a volume
and mix of products that is different than actual volumes manufactured.
(c) Sources of total product sales include products manufactured at the Alaska
Refinery, products drawn from inventory balances and products purchased
from third parties. Tesoro's purchases of refined products for resale
averaged approximately 25,500, 11,600 and 11,300 bpd in the years 1995,
1996 and
51
<PAGE> 57
1997, respectively, and 11,500 and 11,700 bpd in the three months ended
March 31, 1997 and 1998, respectively.
(d) Gross margins on total product sales include margins on sales of purchased
products, together with the effect of changes in inventories.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
The Refining and Marketing segment's operating profit of $6.5 million in
the 1998 Quarter increased $6.4 million from operating profit of $0.1 million in
the 1997 Quarter. The improvement in results from Refining and Marketing was due
to a combination of factors, including improved refined product yields, higher
throughput volumes at the refinery and increased sales within the segment's core
Alaska market, all of which contributed to improved refinery margins. The 1998
Quarter benefitted from an expansion completed in October 1997 of the Alaska
Refinery's hydrocracker unit, which increased the unit's capacity by
approximately 25% and enables the Company to produce more jet fuel, a product in
short supply in Alaska. The expansion, together with the addition of a new,
high-yield jet fuel hydrocracker catalyst, began to favorably impact this
segment's results in the fourth quarter of 1997.
During the 1998 Quarter, throughput at the Alaska Refinery increased by
7,000 bpd, a 14% increase over the 1997 Quarter. Production of middle
distillates increased by 4,300 bpd (a 21% increase over the 1997 Quarter) and
production of gasoline increased by 2,300 bpd (an 18% increase over the 1997
Quarter). Product sales volumes increased by 8% over the 1997 Quarter, which
included a 15% increase within the core Alaska market. The increase in sales in
Alaska was mainly due to a long-term retail capital spending program, primarily
focused in the Anchorage area, which was initiated in 1997. The improved product
slate and marketing efforts contributed to an increase in the Alaska Refinery's
product spread to $4.75 per barrel in the 1998 Quarter, compared to $4.13 per
barrel in the 1997 Quarter, reflecting a 39% decrease in the Company's per
barrel feedstock cost with a 30% decline in per barrel yield value.
Revenues from sales of refined products in the Refining and Marketing
segment decreased during the 1998 Quarter due to a 27% decline in average sales
prices partly offset by the 8% increase in sales volumes. Other revenues
included crude oil resales of $10.5 million in the 1998 Quarter and $10.7
million in the 1997 Quarter. Costs of sales decreased in the 1998 Quarter due to
lower feedstock prices. Margins from non-refinery activities increased to $9.7
million in the 1998 Quarter due primarily to a 14% increase in retail volumes
and improved margins on products sold outside Alaska. Operating expenses were
higher in the 1998 Quarter due to increased marketing costs.
The Company's initiatives to enhance its product slate and sell more
products within Alaska, as discussed above, have improved the fundamental
earnings potential of this segment. Certain of these initiatives, such as the
hydrocracker expansion, were completed in the fourth quarter of 1997. Future
quarters will continue to benefit from the impact of these initiatives. Future
profitability of this segment, however, will continue to be influenced by market
conditions, particularly as these conditions influence costs of crude oil
relative to prices received for sales in refined products, and other additional
factors that are beyond the control of the Company. As previously discussed, the
revenues and scope of the Refining and Marketing segment will be significantly
increased upon the consummations of the Hawaii Acquisition and Washington
Acquisition.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
The Refining and Marketing segment's operating profit of $20.5 million in
1997 increased $14.5 million from operating profit of $6.0 million in 1996. The
improvement in results from Refining and Marketing has been due in part to
Tesoro's initiatives to enhance its product slate, improve efficiencies and sell
a larger portion of the Alaska Refinery's production within the core Alaska
market. In these regards, in early October 1997, Tesoro completed an expansion
of the Alaska Refinery's hydrocracker unit which began to favorably impact this
segment's results in the fourth quarter of 1997. With respect to crude oil
supply, during 1997, Tesoro negotiated contracts to purchase the remaining Cook
Inlet crude oil production available for sale and, in October 1997, began
purchasing approximately 25,000 bpd of Cook Inlet crude oil in addition to the
approximate 9,000 bpd under previously existing contracts. Substantially all of
the contracts for purchases of
52
<PAGE> 58
Cook Inlet crude oil are for various periods extending through December 1998. As
part of a three-year, $50 million Alaskan retail marketing expansion program
initiated in 1997, Tesoro built two new retail stations, remodeled three
stations, bought two stations and closed two uneconomic stations. At year-end
1997, the total number of retail stations selling Tesoro's gasoline totaled 222
as compared to 206 in 1996. Of these stations, 30 are located in the Pacific
Northwest, compared to 18 at year-end 1996.
During 1997, Tesoro's production of refined products increased in total by
5% due to higher throughput levels at the Alaska Refinery. The operational
changes, previously discussed, resulted in an 8% increase in the production of
middle distillates, primarily jet fuel, while gasoline production remained flat.
Production of heavy oils and residual products increased by 7% in 1997. The
improved product slate, which better matches Tesoro's product supply with demand
in Alaska, reflected the change of a hydrocracker catalyst in late 1996 and the
hydrocracker expansion and catalyst change in late 1997. Tesoro's sales of
refined products within Alaska increased by 6% in 1997 contributing to higher
product margins. The improved product slate and marketing efforts, together with
generally favorable industry conditions, resulted in an increase in Tesoro's
refinery spread to $5.09 per barrel in 1997, compared to $4.29 per barrel in
1996, reflecting a 10% decrease in Tesoro's per barrel feedstock cost with only
a 5% decline in per barrel yield value. Both years included scheduled 30-day
maintenance turnarounds.
Revenues from sales of refined products in Tesoro's Refining and Marketing
segment increased during 1997 due primarily to a 6% increase in sales volumes,
partially offset by slightly lower average sales prices. Total refined product
sales averaged 65,898 bpd in 1997 as compared to 62,167 bpd in 1996. Other
revenues, which included crude oil resales of $44.4 million in 1997 and $93.8
million in 1996, declined due to lower sales volumes and prices. Tesoro had less
crude oil available for resale in 1997 as throughput at the Alaska Refinery
increased by 2,721 bpd, or 6%, from 1996 and fewer spot purchases of crude oil
were made. Export sales of refined products, including sales to the Russian Far
East, amounted to $16.1 million in 1997 compared to $22.0 million in 1996. Costs
of sales decreased in 1997 due to lower spot purchases of crude oil and lower
prices. Margins from non-refinery activities increased to $36.6 million in 1997
due primarily to higher retail sales and improved margins on products sold
outside of Alaska. Operating expenses increased in 1997 due primarily to higher
employee costs, professional fees and marketing expenses.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Results from Tesoro's Refining and Marketing segment improved during 1996
with operating profit of $6.0 million, compared to operating profit of $0.7
million in 1995. This improvement was achieved during a year when the industry
was facing rapidly rising prices in the crude oil market. In addition, Tesoro's
production level at the Alaska Refinery was reduced in September 1996 for a
scheduled 30-day maintenance turnaround. Despite these factors, Tesoro was able
to achieve a refinery product spread of $4.29 per barrel for 1996, compared to
$3.44 per barrel in 1995. Tesoro's results were helped by its initiatives to
control costs, improve the Alaska Refinery's product slate and expand the
marketing program for its refined products. Tesoro's average refined product
yield value per barrel increased by 19% in 1996, while Tesoro's feedstock costs
per barrel increased by 17%.
During 1996, Tesoro's production of refined products declined in total by
6%, which included the impact of the scheduled maintenance period. Of this
decline, gasoline production decreased by 11% and middle distillates decreased
by only 3%. These reductions reflected the change of a hydrocracker catalyst
during the maintenance period, which allows for increased production of jet fuel
and reduced production of gasoline beginning in the fourth quarter of 1996,
which better matches Tesoro's product supply with demand in Alaska.
During 1996, Tesoro's marketing efforts added 31 stations in Alaska and
eight stations in the Pacific Northwest, bringing the total to 188 branded,
unbranded and Company-operated stations in Alaska and 18 branded stations in the
Pacific Northwest at year-end 1996. Two uneconomic stations in these areas were
closed in 1996. In addition, Tesoro began producing and marketing liquid
asphalt, which is a seasonal product in Alaska. Export sales of refined
products, including sales to the Russian Far East, amounted to $22.0 million in
1996 and $18.5 million in 1995.
Revenues from sales of refined products in Tesoro's Refining and Marketing
segment decreased in 1996 due primarily to a 20% decline in sales volumes,
partially offset by a 16% increase in average sales prices. Total
53
<PAGE> 59
refined product sales averaged 62,167 bpd in 1996 as compared to 77,301 bpd in
1995. This decline reflected the lower production volumes and Tesoro's
withdrawal from certain U.S. West Coast markets during 1996, which also reduced
Tesoro's purchases from other refiners and suppliers to 11,600 bpd in 1996 as
compared to 25,500 bpd in 1995. One of the U.S. West Coast facilities was sold
in 1996 resulting in a loss of $0.8 million. Sales of previously purchased crude
oil increased to $93.8 million in 1996, compared to $75.8 million in 1995, due
primarily to higher crude oil prices and in part due to sales of excess crude
supply volumes during the maintenance period. Costs of sales decreased in 1996
due to lower volumes of refined products, partially offset by higher prices for
crude oil and refined products. Operating expenses were higher in 1996 due
primarily to higher environmental and employee costs partially offset by lower
insurance costs.
EXPLORATION AND PRODUCTION
The following table summarizes the Exploration and Production segment's
results of operations for the years ended December 31, 1995, 1996 and 1997 and
the three months ended March 31, 1997 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ------------------
1995 1996 1997 1997 1998
-------- ------- ------- ------- --------
(DOLLARS IN MILLIONS EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
U.S.(a)(b)
Gross operating revenues........................ $ 113.0 $ 93.8 $ 73.6 $ 21.5 $ 19.1
Income from settlement of a natural gas
contract..................................... -- 60.0 -- -- --
Other income, including gain on asset sale in
1995......................................... 33.5 4.8 3.2 1.6 0.6
Production costs................................ 12.0 5.3 7.4 1.7 2.5
Administrative support and other operating
expenses..................................... 3.2 3.8 2.3 0.5 0.4
Depreciation, depletion and amortization........ 29.3 25.6 29.8 7.9 8.9
-------- ------- ------- ------- --------
Total Operating Profit -- U.S........... 102.0 123.9 37.3 13.0 7.9
-------- ------- ------- ------- --------
BOLIVIA
Gross operating revenues........................ 11.7 13.7 11.2 1.9 3.1
Other income related to collection of a
receivable................................... -- -- 2.2 -- --
Production costs................................ 0.6 0.8 0.9 0.2 0.3
Administrative support and other operating
expenses..................................... 3.2 2.8 2.4 0.5 0.6
Depreciation, depletion and amortization........ 0.3 1.3 1.5 0.2 0.5
-------- ------- ------- ------- --------
Total Operating Profit -- Bolivia....... 7.6 8.8 8.6 1.0 1.7
-------- ------- ------- ------- --------
TOTAL OPERATING PROFIT -- EXPLORATION AND
PRODUCTION...................................... $ 109.6 $ 132.7 $ 45.9 $ 14.0 $ 9.6
======== ======= ======= ======= ========
U.S.
Average Daily Net Production:
Natural gas (Mcf)............................ 114,490 87,654 86,052 94,103 99,135
Oil (barrels)................................ 1 27 118 145 173
Total (Mcfe)................................. 114,496 87,816 86,760 94,973 100,173
Average Prices:
Natural gas ($/Mcf) --
Spot market(c)............................. $ 1.34 $ 1.95 $ 2.17 $ 2.34 $ 2.01
Average(b)................................. $ 2.57 $ 2.75 $ 2.17 $ 2.34 $ 2.01
Oil ($/barrel)............................... $ 16.82 $ 21.99 $ 18.90 $ 21.14 $ 14.13
Average Operating Expenses ($/Mcfe):
Lease operating expenses..................... $ 0.11 $ 0.14 $ 0.20 $ 0.16 $ 0.21
Severance taxes.............................. 0.18 0.03 0.03 0.04 0.06
-------- ------- ------- ------- --------
Total production costs.................. 0.29 0.17 0.23 0.20 0.27
Administrative support and other............. 0.06 0.10 0.07 0.05 0.05
-------- ------- ------- ------- --------
Total Operating Expenses................ $ 0.35 $ 0.27 $ 0.30 $ 0.25 $ 0.32
======== ======= ======= ======= ========
Depletion ($/Mcfe).............................. $ 0.69 $ 0.79 $ 0.93 $ 0.91 $ 0.97
Capital Expenditures (including U.S. gas
transportation).............................. $ 49.6 $ 59.7 $ 65.4 $ 7.0 $ 18.2
</TABLE>
54
<PAGE> 60
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ------------------
1995 1996 1997 1997 1998
-------- ------- ------- ------- --------
(DOLLARS IN MILLIONS EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
BOLIVIA
Average Daily Net Production:
Natural gas (Mcf)............................ 18,650 20,251 19,537 10,999 22,769
Condensate (barrels)......................... 567 584 518 316 816
Total (Mcfe)................................. 22,052 23,755 22,645 12,895 27,665
Average Prices:
Natural gas ($/Mcf).......................... $ 1.28 $ 1.33 $ 1.15 $ 1.32 $ 0.97
Condensate ($/barrel)........................ $ 14.39 $ 17.98 $ 15.71 $ 19.28 $ 15.78
Average Operating Expenses ($/Mcfe):
Production costs............................. $ 0.07 $ 0.10 $ 0.11 $ 0.16 $ 0.11
Value-added taxes............................ 0.06 0.05 -- -- --
Administrative support and other............. 0.35 0.27 0.31 0.41 0.29
-------- ------- ------- ------- --------
Total Operating Expenses................ $ 0.48 $ 0.42 $ 0.42 $ 0.57 $ 0.40
======== ======= ======= ======= ========
Depletion ($/Mcfe).............................. $ 0.03 $ 0.15 $ 0.19 $ 0.15 $ 0.21
Capital Expenditures............................ $ 3.8 $ 6.9 $ 27.5 $ 4.0 $ 2.3
</TABLE>
- ---------------
(a) Represents Tesoro's U.S. oil and gas operations combined with gas
transportation activities.
(b) Results for the years 1995 and 1996 included revenues from above-market
pricing provisions of a contract with Tennessee Gas which was terminated
effective October 1, 1996. Operating profit for the years 1995 and 1996
included $47.1 million and $24.6 million, respectively, for the excess of
these contract prices over spot market prices. Net natural gas production
sold under the contract averaged approximately 20 million cubic feet
("MMcf") per day in 1995 and 11 MMcf per day in 1996. Upon termination of
the contract, Tesoro recorded other income and operating profit of $60
million during the fourth quarter of 1996. See Note D of Notes to Tesoro's
Consolidated Financial Statements.
(c) Includes effects of Tesoro's natural gas commodity price agreements which
amounted to a gain of $0.01 per Mcf in the year 1995 and losses of $0.11
per Mcf and $0.05 per Mcf in the years 1996 and 1997 respectively, and a
loss of $0.19 per Mcf for the 1997 Quarter. There were no such agreements
during the 1998 Quarter.
EXPLORATION AND PRODUCTION -- U.S.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Operating profit from the Company's U.S. exploration and production
operations was $7.9 million in the 1998 Quarter compared with $13 million in the
1997 Quarter. While the Company's production increased by 5%, natural gas prices
declined by $0.33 per Mcf, or 14%, to $2.01 per Mcf in the 1998 Quarter compared
to $2.34 per Mcf in the 1997 Quarter. The 1997 Quarter also benefitted from
income of $1.6 million for retroactive severance tax refunds for production in
prior years, with no substantial refunds received in the 1998 Quarter.
The Company's production volumes averaged 100.2 MMcfe per day in the 1998
Quarter compared to 95.0 MMcfe per day in the quarter ended March 31, 1997. This
increase in the Company's production consisted of a 30.4 MMcf per day decline
from the Bob West Field offset by a 35.6 MMcfe per day production increase from
other U.S. fields. The Company's production outside of the Bob West Field rose
to 51% of total production during the 1998 Quarter, as compared to 17% in the
1997 Quarter.
Gross operating revenues from the Company's U.S. operations decreased by
$2.4 million, primarily due to lower spot market prices for sales of natural
gas. Other income was lower in the 1998 Quarter due to fewer refunds of
severance taxes. Production costs were higher by $0.8 million ($0.07 per Mcfe)
primarily due to higher lease operating expenses. Lease operating costs in the
aggregate for the Bob West Field remained relatively flat, while production
volumes have declined, resulting in an increase in per unit lease operating
expenses from $0.13 per Mcf in the 1997 Quarter to $0.22 per Mcf in the 1998
Quarter. Lease operating costs in the aggregate for other fields have doubled,
while production volumes have tripled, resulting in a decrease in
55
<PAGE> 61
per unit lease operating cost from $0.29 per Mcfe to $0.19 per Mcfe.
Depreciation, depletion and amortization increased by $1.0 million, or 13%, due
to a higher depletion rate and increased volumes.
From time to time, the Company enters into commodity price agreements to
reduce the risk caused by fluctuation in the prices of natural gas in the spot
market. During the 1997 Quarter, the Company used such agreements to set the
price of 34% of the natural gas production that it sold in the spot market and
recognized a loss of $1.6 million ($.19 per Mcf) related to these price
agreements. The Company did not have any such transactions during the 1998
Quarter.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Operating profit from Tesoro's U.S. exploration and production operations
was $37.3 million in 1997, compared with $123.9 million in 1996. Comparability
between these years was impacted by several major transactions in 1996,
including the favorable resolution in August 1996 of litigation regarding the
Tennessee Gas contract and the termination of the remainder of the contract
effective October 1, 1996. As provided for in the Tennessee Gas contract, which
was to expire in January 1999, Tesoro was selling a portion of the gas produced
in the Bob West Field pursuant to a contract price, which was substantially
above the average spot market price. In total, during 1996, Tesoro received
approximately $120 million in cash for the resolution of litigation and
termination of the Tennessee Gas contract, with Tesoro's Exploration and
Production segment recording operating profit of $60 million upon termination of
the contract. In 1996 and 1995, the Exploration and Production segment's
operating profit also included $24.6 million and $47.1 million, respectively,
from the excess of Tennessee Gas contract prices over spot market prices. See
Note D of Notes to Tesoro's Consolidated Financial Statements.
Additionally, during 1996, substantially all of Tesoro's proved producing
reserves in the Bob West Field were certified by the Texas Railroad Commission
as high-cost gas from a designated tight formation, eligible for state severance
tax exemptions from the date of first production through August 2001.
Accordingly, no severance tax is recorded on current production from the exempt
wells in the Bob West Field beginning in 1996. In 1997 and 1996, Tesoro
recognized income of $1.8 million and $5.0 million, respectively, for
retroactive severance tax refunds for production in prior years.
Excluding the impact of the incremental contract value and income from the
severance tax refunds, operating profit from Tesoro's U.S. operations would have
been $35.5 million in 1997 compared to $34.3 million in 1996. The resulting
increase of $1.2 million was primarily attributable to higher spot market prices
for sales of natural gas, partially offset by higher depletion and operating
expenses.
Prices realized by Tesoro on its natural gas production sold in the spot
market increased 11% to $2.17 per Mcf in 1997 from $1.95 per Mcf in 1996.
Tesoro's weighted average sales price, which included the above-market pricing
of the Tennessee Gas contract in 1996, decreased in 1997 due to the termination
of the contract. Tesoro's net production averaged 86.8 MMcfe per day in 1997, a
decrease of 1.0 MMcfe per day from 1996. This decrease consisted of a 16.1 MMcf
per day decline from the Bob West Field, partially offset by a 15.1 MMcfe per
day increase from other U.S. fields. Tesoro's U.S. production outside of the Bob
West Field rose to 50% of its total U.S. production by January 1998, as compared
to 7% at 1996 year-end.
Gross operating revenues from Tesoro's U.S. operations, after excluding
amounts related to Tennessee Gas, increased due to the higher spot market
prices. Production costs were higher by $2.1 million ($0.06 per Mcfe) due mainly
to costs at the Bob West Field, including increased compression costs and a
charge for ad valorem taxes in 1997 as well as the impact of lower processing
fees in 1996. Administrative support and other operating expenses decreased by
$1.5 million. Depreciation and depletion increased by $4.2 million, or 16%, due
to a higher depletion rate.
From time to time, Tesoro enters into commodity price agreements to reduce
the risk caused by fluctuations in the prices of natural gas in the spot market.
During 1997, 1996 and 1995, Tesoro used such agreements to set the price of 9%,
30% and 38%, respectively, of the natural gas production that it sold in the
spot market. During 1997 and 1996, Tesoro realized losses of $1.6 million ($0.05
per Mcf) and $3.1 million ($0.11 per Mcf), respectively, from these price
agreements. In 1995, the effects of natural gas price
56
<PAGE> 62
agreements resulted in a gain of $0.3 million ($0.01 per Mcf). Tesoro had no
remaining price agreements outstanding at December 31, 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Operating profit of $123.9 million from Tesoro's U.S. exploration and
production operations in 1996 increased $21.9 million from operating profit of
$102.0 million in 1995. Comparability between these years was impacted by
several major transactions. As discussed above, the 1996 results included the
impact of the incremental value of the Tennessee Gas contract. Operating profit
for 1995 included a gain of $33.5 million from the sale of certain interests in
the Bob West Field (see Note C of Notes to Tesoro's Consolidated Financial
Statements). Excluding the impact of the incremental contract value from both
years and the gain on sale of assets from 1995, operating profit from Tesoro's
U.S. operations for 1996 would have been $34 million compared to $21 million for
1995. The resulting increase was primarily due to higher spot market prices for
sales of natural gas as industry demand increased due to unusually cold weather
combined with below-normal storage levels.
Prices realized by Tesoro on its natural gas production sold in the spot
market increased 46% to $1.95 per Mcf in 1996 from $1.34 per Mcf in 1995.
Excluding 24,500 Mcf per day related to the sold interests from 1995, Tesoro's
spot production increased by 6,600 Mcf per day during 1996. Tesoro's exploration
and acquisition programs outside of the Bob West Field contributed 3,800 Mcf per
day of the increase in spot production with the remaining increase attributable
to sales to Tennessee Gas at spot prices effective October 1, 1996. Tesoro's
weighted average sales price increased 7% to $2.75 per Mcf in 1996 as compared
to $2.57 per Mcf in 1995. The Bob West Field production declined by 6,100 Mcf
per day after excluding amounts related to sold interests in 1995.
Gross operating revenues from Tesoro's U.S. operations, after excluding
$11.7 million related to the sold interests from 1995, decreased by $7.5 million
due primarily to the decline in volumes sold under the Tennessee Gas contract,
and losses under commodity price agreements discussed above, partially offset by
increases in spot market sales prices and production. The decline in production
costs of $6.7 million, or $0.12 per Mcfe, was mainly attributable to the
severance tax exemptions in the Bob West Field. Total depreciation, depletion
and amortization was lower in 1996 due to lower production volumes, partially
offset by a higher depletion rate.
EXPLORATION AND PRODUCTION -- BOLIVIA
Tesoro's Bolivian natural gas production is sold to Yacimientos
Petroliferos Fiscales Bolivianos ("YPFB"), a Bolivian governmental agency, which
in turn sells the natural gas to Yacimientos Petroliferos Fiscales, SA ("YPF"),
a publicly-held company based in Argentina. Currently, Tesoro's sales of natural
gas production are based on the volume and pricing terms in a contract between
YPFB and YPF, which was extended in April 1997 for an additional two years to
March 31, 1999, with an option to extend the contract a maximum of one
additional year if a pipeline being constructed from Bolivia to Brazil is not
complete. In the contract extension, YPF negotiated an 11% reduction in the
minimum contract volume that it is required to import from Bolivia, which in
turn resulted in a corresponding 11% reduction of Tesoro's minimum contract
volume to 36.9 MMcf per day gross (26.2 net). The contract gas prices fluctuate
since they are linked to a monthly average fuel oil price posted in the New York
spot market.
A lack of market access has constrained natural gas production in Bolivia.
Tesoro believes that the completion of a 1,900-mile pipeline from Bolivia to
Brazil will provide access to larger gas-consuming markets. Upon completion of
this pipeline, Tesoro will face intense competition from major and independent
natural gas companies operating in Bolivia for a share of the contractual
volumes to be exported to Brazil. It is anticipated that each producer's share
of the contractual volumes will be allocated by YPFB according to a number of
factors, including each producer's reserve volumes and production capacity.
Although Tesoro expects gas deliveries on the pipeline to begin in early 1999,
there can be no assurance that the pipeline will be operational by such date.
With the exception of the volumes currently under contract with the Bolivian
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<PAGE> 63
government, Tesoro cannot be assured of the amount of additional volumes that
will be exported to Brazil upon completion of the pipeline.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Operating profit from the Company's Bolivian operations increased to $1.7
million in the 1998 Quarter, from $1.0 million operating profit in the 1997
Quarter. Although Bolivian natural gas prices fell to $0.97 per Mcf from $1.32
per Mcf realized in the 1997 Quarter, net production volumes more than doubled
to 27.7 Mmcfe per day from 12.9 Mmcfe per day in the 1997 Quarter. Production in
the 1997 Quarter was affected by lower contractual purchases made to balance
prior over-production in 1996 and also by constraints from repairs to a
non-Company-owned pipeline that transports gas from Bolivia to Argentina.
Additionally, production in the 1998 Quarter reflects an increase resulting from
the Company's purchase of interests held by its former joint venture participant
in July 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Operating profit from Tesoro's Bolivian operations decreased to $8.6
million in 1997, from $8.8 million operating profit in 1996. Results for 1997
benefitted from income of $2.2 million related to the collection of a receivable
for prior years' production. Without this income, operating profit would have
decreased by $2.4 million in 1997 due to declines in natural gas and condensate
production and prices. With Tesoro's purchase of interests held by its former
joint venture participant in July 1997, Tesoro's share of production from
Bolivia increased by approximately 33% beginning in the 1997 third quarter (see
Note C of Notes to Tesoro's Consolidated Financial Statements). However, earlier
in the year, Tesoro's Bolivian natural gas production was lower due to a
reduction in minimum takes under the new contract between YPFB and YPF and also
due to constraints arising from repairs to a third-party pipeline that
transports gas from Bolivia to Argentina. In addition, during 1996, production
was higher due to requests from YPFB for additional production from Tesoro to
meet export specifications. Natural gas prices fell 14% to $1.15 per Mcf in
1997, compared to $1.33 per Mcf in 1996. Condensate prices fell 13% to $15.71
per barrel in 1997, compared to $17.98 per barrel in 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Operating profit from Tesoro's Bolivian operations increased to $8.8
million in 1996, from the $7.6 million operating profit in 1995. This
improvement was primarily due to a 9% increase in production of natural gas,
primarily due to increased demand from YPFB during the second and third quarters
of 1996, together with higher prices received for both natural gas and
condensate. Operating expenses declined by 12% on a per unit basis reflecting a
6% decrease in costs combined with the increase in volumes. Partially offsetting
these improvements was an increase in depreciation, depletion and amortization
of $1.0 million.
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MARINE SERVICES
The following table summarizes the Marine Services segment's results of
operations for the years ended December 31, 1995, 1996 and 1997 and the three
months ended March 31, 1997 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------
1995 1996 1997 1997 1998
------ ------ ------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Gross Operating Revenues
Fuels............................................... $61.9 $98.9 $104.5 $28.2 $25.8
Lubricants and other................................ 12.0 14.9 16.4 4.3 4.1
Services............................................ 0.6 8.7 11.3 3.0 2.9
----- ----- ------ ----- -----
Gross Operating Revenues.................... 74.5 122.5 132.2 35.5 32.8
Costs of Sales........................................ 64.9 93.0 96.7 27.3 23.6
----- ----- ------ ----- -----
Gross Profit................................ 9.6 29.5 35.5 8.2 9.2
Operating Expenses and Other.......................... 13.7 22.2 27.5 6.9 6.8
Depreciation and Amortization......................... 0.3 1.2 1.7 0.4 0.6
----- ----- ------ ----- -----
Operating Profit (Loss)..................... $(4.4) $ 6.1 $ 6.3 $ 0.9 $ 1.8
===== ===== ====== ===== =====
Capital Expenditures.................................. $ 0.4 $ 6.9 $ 9.4 $ 2.2 $ 1.2
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Gross operating revenues declined by $2.7 million during the 1998 Quarter
due primarily to lower fuel sales prices partly offset by increased volumes.
Cost of sales decreased by $3.7 million, which also reflects the lower fuel
prices. In total, operating profit improved by $0.9 million largely due to
increased margins.
The Marine Services business is largely dependent upon the volume of oil
and gas drilling, workover, construction and seismic activity in the Gulf of
Mexico.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Gross operating revenues increased by $9.7 million, which included a $7.1
million increase in fuels and lubricant revenues and a $2.6 million increase in
service revenues. The increase in fuels and lubricant revenues was primarily due
to a 10% increase in sales volumes, partially offset by lower prices. The
service revenue increase of 30% was due in part to increased rig activity in the
Gulf of Mexico and Tesoro's focus to serve these customers. Additional terminal
locations stemming from an acquisition consummated in February 1996 together
with internal growth initiatives have enabled Tesoro to increase its sales
activity. Costs of sales increased in 1997 due to the higher volumes. The
improvement of $6.0 million in gross profit was offset by higher operating and
other expenses associated with the increased activity together with upgrades to
facilities and services.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
In February 1996, Tesoro acquired Coastwide Energy Services, Inc.
("Coastwide") and combined these operations with Tesoro's marine petroleum
products distribution business, forming a Marine Services segment. Operating
results from Coastwide have been included in Tesoro's Marine Services segment
since the date of acquisition. See Note C of Notes to Tesoro's Consolidated
Financial Statements.
The Marine Services segment consisted of 20 terminals at year-end 1996,
compared to 14 at the prior year-end. The increase of $39.9 million in fuels and
lubricants revenues was primarily due to the added locations and associated
volumes combined with higher fuel prices. In addition, revenues from services
grew by $8.1 million. These increases in revenues together with improved margins
during 1996 were partially offset by higher operating and other expenses
associated with the increased activity. Depreciation and amortization increased
during 1996 due to capital additions during the year. In total, operating profit
of $6.1 million in 1996 reflected a turnaround from the losses incurred in the
prior year.
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<PAGE> 65
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased from $3.0 million for the
1997 Quarter to $3.4 million for the 1998 Quarter. General and administrative
expenses were $13.6 million in the year 1997, compared with $12.7 million in the
year 1996 and $16.4 million in the year 1995. The increase in the year 1997 was
primarily due to higher employee costs partially offset by lower professional
fees and insurance costs. When comparing the year 1996 to the year 1995, the
decrease was primarily due to lower employee and labor costs resulting from cost
reduction measures implemented by Tesoro in late 1995.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense of $2.7 million for the 1998 Quarter increased from the
$1.6 million in the 1997 Quarter primarily due to higher borrowings under
Tesoro's credit facility to fund net working capital requirements, arising
primarily from higher crude oil levels at the Alaska Refinery and to fund
capital expenditures. Interest expense totaled $6.7 million in the year 1997,
compared with $15.4 million in the year 1996 and $20.9 million in the year 1995.
Tesoro's redemption of public debt of $74.1 million in November 1996 and $34.6
million in December 1995 contributed to these interest savings.
Interest income was $1.6 million in the year 1997, compared with $8.4
million in the year 1996 and $1.8 million in the year 1995. The fluctuation in
the year 1996 included interest of approximately $7 million received from
Tennessee Gas in conjunction with the collection of a receivable which resulted
from underpayment for natural gas sold in prior periods (see Note D of Notes to
Tesoro's Consolidated Financial Statements).
OTHER EXPENSE, NET
Other expense was $4.9 million in the year 1997, compared with $10 million
in the year 1996 and $8.5 million in the year 1995. In the year 1996, Tesoro
incurred costs of $2.3 million to resolve a shareholder consent solicitation,
together with a write-off of deferred financing costs and increased expenses
related to Tesoro's former operations. There were no material comparable costs
recorded in the year 1997. When comparing the year 1996 to the year 1995, the
increase in other expense was due to the costs recorded in the year 1996,
partially offset by lower employee termination and restructuring costs.
INCOME TAX PROVISION
The income tax provision for the 1998 Quarter was $4.8 million (44%
effective tax rate) compared with $3.5 million (36% effective tax rate) for the
1997 Quarter. The increase in effective tax rate primarily reflects an increase
in foreign taxes related to Tesoro's Bolivian revenues. The income tax provision
was $18.4 million in the year 1997, compared with $38.3 million in the year 1996
and $4.4 million in the year 1995. Effective income tax rates were 7%, 33% and
37% in the years 1995, 1996 and 1997, respectively (see Note H of Notes to
Tesoro's Consolidated Financial Statements). The decrease in the income tax
provision in the year 1997 was primarily attributable to lower earnings,
partially offset by a higher effective rate due to Bolivian taxes. When
comparing the year 1996 to the year 1995, the income tax provision increased due
to earnings subject to U.S. taxes exceeding available net operating loss and tax
credit carryforwards.
CAPITAL RESOURCES AND LIQUIDITY
OVERVIEW
The Company's primary sources of liquidity are its cash and cash
equivalents, internal cash generation and external financing. The Company
operates in an environment in which its liquidity and capital resources are
impacted by changes in the supply of and demand for crude oil, natural gas and
refined petroleum products, market uncertainty and a variety of additional risks
that are beyond the control of the Company. These risks include, among others,
the level of consumer product demand, weather conditions, the proximity of the
Company's natural gas reserves to pipelines, the capacities of such pipelines,
fluctuations in seasonal demand, governmental regulations, the price and
availability of alternative fuels and overall market and
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<PAGE> 66
economic conditions. The Company's future capital expenditures as well as
borrowings under its credit arrangements and other sources of capital will be
affected by these conditions.
CREDIT ARRANGEMENTS
Upon issuance of the Old Notes in the Notes Offering, entering into the
Senior Credit Facility and the application of the estimated net proceeds
therefrom, the Company's pro forma indebtedness as of March 31, 1998 would have
been approximately $483.5 million (including the Notes, but excluding an
additional $350.0 million available under the Senior Credit Facility). The
Company's primary capital requirements are expected to include capital
expenditures, working capital and debt service. The primary sources of capital
are expected to be cash flow from operations and borrowings under the Senior
Credit Facility, which incurs interest at variable rates. Based upon current and
anticipated future operations and anticipated future cost savings, the Company
believes that available capital resources will be adequate to meet anticipated
future capital requirements. There can be no assurance, however, that the
Company's business will generate sufficient cash flow that, together with other
sources of capital, will enable the Company to service its indebtedness,
preferred stock dividend payments or make anticipated capital expenditures. If
the Company is unable to generate sufficient cash flow from operations or to
borrow sufficient funds in the future to service its debt, it may be required to
sell assets, reduce capital expenditures, refinance all or a portion of its
existing indebtedness, or obtain additional financing. See "Risk
Factors -- Substantial Leverage and Debt Service."
The Senior Credit Facility, the Notes and PIES and other debt instruments
of the Company, impose various restrictions and covenants on the Company that
could potentially limit the Company's ability to respond to market conditions,
to provide for unanticipated capital investments, to raise additional debt or
equity capital or to take advantage of business opportunities. See "Description
of Other Indebtedness," "Description of the Notes" and "Description of Capital
Stock."
CAPITAL SPENDING
Capital spending in 1997 totaled $147 million which was funded from
available cash reserves, internally-generated cash flows from operations and
external financing. Capital expenditures for the Exploration and Production
segment were approximately $93 million, including $65 million for U.S.
operations and $28 million for Bolivia operations. In the U.S., capital
expenditures were principally for participation in the drilling of 11
development wells (nine completed), 12 exploratory wells (eight completed), the
purchase of 33 Bcfe of proved reserves and 82,000 net undeveloped lease acres
and seismic activity. In Bolivia, capital expenditures included the purchase of
contract interests from its former joint venture participant (see Note C of
Notes to Tesoro's Consolidated Financial Statements), exploratory drilling,
seismic activity and workovers. Capital projects for the Refining and Marketing
segment in 1997 totaled $44 million, primarily for costs related to the
hydrocracker expansion and the commencement of a long-term capital program to
improve marketing operations. In the Marine Services segment, capital spending
totaled $9 million during 1997, primarily for expansion and improvement of
operations along the Gulf of Mexico.
For 1998, the Company has a total capital budget of approximately $195
million, excluding amounts required to fund the Acquisitions and capital
expenditures of $15 to $20 million in 1998 related to the Hawaii and Washington
operations following the Acquisitions. Through the quarter ended March 31, 1998,
the Company's capital spending totaled $24 million. The Exploration and
Production segment accounts for $139 million, or 71%, of the budget with $82
million planned for U.S. activities and $57 million for Bolivia. Planned U.S.
expenditures include $25 million for acquisitions, $21 million for development
drilling (participation in 30 gross wells), $17 million for leasehold,
geological and geophysical, and $17 million for exploratory drilling
(participation in 20 gross wells). In Bolivia, the drilling program is budgeted
at $14 million for development drilling (three wells) and $12 million for
exploratory drilling (two gross wells), with the remainder planned for upgrading
a gas processing plant, laying gathering lines to shut-in wells, workovers and
three-dimensional seismic activity. Capital spending, other than capital
expenditures related to the Hawaii and Washington operations, for the Refining
and Marketing segment is planned at approximately $39 million, which includes
$20 million towards the retail marketing expansion program in Alaska started in
1997, $8 million for environmental and $8 million for improvements to the Alaska
Refinery. The Marine Services
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<PAGE> 67
capital budget is $9 million, primarily directed towards equipment and facility
upgrades together with potential acquisitions. The Company also expects to spend
$7 million for corporate capital projects, including upgrades to information
systems. Capital expenditures for 1998 are expected to be financed through a
combination of cash flows from operations, available cash reserves and
additional borrowings under the Senior Credit Facility. Actual capital
expenditures may vary from these projections due to a number of factors,
including the timing of drilling projects and the extent to which properties are
acquired.
CASH FLOW SUMMARY
Components of Tesoro's cash flows are set forth below (in millions):
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------
1995 1996 1997 1997 1998
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Cash Flows From (Used In):
Operating Activities................... $ 35.4 $178.9 $ 95.6 $ 23.8 $ 6.4
Investing Activities................... 2.4 (94.2) (151.5) (16.8) (29.5)
Financing Activities................... (37.8) (75.9) 41.5 1.6 17.0
------ ------ ------- ------ ------
Increase (Decrease) in Cash and Cash
Equivalents............................ $ -- $ 8.8 $ (14.4) $ 8.6 $ (6.1)
====== ====== ======= ====== ======
</TABLE>
Net cash from operating activities during the 1998 Quarter totaled $6
million, compared to $24 million in the 1997 Quarter. Although the level of
earnings during both quarters was relatively the same, working capital
components were higher during the 1998 Quarter. Net cash used in investing
activities of $29 million during the 1998 Quarter included capital expenditures
of $24 million, primarily in the Company's exploration and production segment,
and an escrow deposit of $5 million for the Hawaii Acquisition. Net cash from
financing activities of $17 million during the 1998 Quarter included additional
borrowings of $23 million under the Company's credit facility, partially offset
by payments of other long-term debt, including repayment and termination of a
marine services loan. During the 1998 Quarter, gross borrowings under revolving
credit lines were $110 million, with $92 million of repayments. At March 31,
1998, the Company's outstanding borrowings under its current credit facility
were $51 million and net working capital totaled $87 million, which included
cash and cash equivalents of $2.3 million.
During the year 1997, net cash from operating activities totaled $96
million, compared with $179 million in 1996. Operating cash flows in 1997
included a $57 million decrease in receivables due in part to collections
related to product and crude oil sales volumes at 1996 year-end, Bolivian
production sold in prior years and retroactive severance taxes, partially offset
by income tax and other payments. The 1996 operating cash flows included the
impact of receipts from Tennessee Gas. Net cash used in investing activities of
$151 million in 1997 included capital expenditures of $93 million for Tesoro's
Exploration and Production activities, $44 million for Refining and Marketing
activities and $9 million for Marine Services. Net cash from financing
activities of $41 million in 1997 included net borrowings of $28 million under
the former credit facility and receipt of $16 million under a loan for the
hydrocracker expansion, partially offset by payments of other long-term debt and
repurchases of Common Stock. During 1997, gross borrowings under Tesoro's former
credit facility were $150 million, with $122 million of repayments. At December
31, 1997, Tesoro's net working capital totaled $74 million, which included cash
and cash equivalents of $8 million.
During the year 1996, net cash from operating activities totaled $179
million, compared with $35 million in 1995. This increase in operating cash
flows in 1996 was primarily due to the receipt of $120 million from Tennessee
Gas for the favorable resolution of litigation in August 1996 and termination of
the natural gas purchase and sales contract effective October 1, 1996. In
addition, improved profitability plus noncash items, such as depreciation,
depletion and amortization and deferred income taxes, contributed to higher cash
flows from operations. Partially offsetting these increases were higher net
working capital balances, particularly receivables which increased primarily due
to higher year-end sales volumes together with higher prices. Net cash used in
investing activities of $94 million in 1996 included capital expenditures of $85
million and cash consideration of nearly $8 million for the acquisition of
Coastwide. Net cash used in financing activities of
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<PAGE> 68
$76 million during 1996 was primarily due to the redemption of public debt
aggregating $74 million together with payments of other long-term debt. During
1996, Tesoro's gross borrowings and repayments under its corporate revolving
credit line amounted to $165 million.
During the year 1995, net cash from operating activities totaled $35
million. Although natural gas production from Tesoro's South Texas operations
increased during 1995, lower cash receipts for sales of natural gas adversely
affected Tesoro's cash flows from operations. Net cash from investing activities
of $2 million in 1995 included proceeds of $70 million from sales of assets,
primarily certain interests in the Bob West Field, partially offset by $64
million of capital expenditures and $3 million for acquisition of the Kenai Pipe
Line Company ("KPL"). Net cash used in financing activities of $38 million in
1995 was primarily related to the redemption of $34.6 million of public debt and
payments of other long-term debt. Tesoro's gross borrowings and repayments under
the former credit facility totaled $262 million during 1995.
OTHER
On May 12, 1998, employee incentive payments were triggered when the high
and low trading price of the Company's Common Stock averaged $20 per share over
a 20 consecutive trading day period under an incentive strategy approved by the
Company's Board of Directors in June 1996. The triggering of those awards
reflects an aggregate increase of more than $250 million in the market value of
the Company's Common Stock since June 1996. The triggering of the incentive
program will result in a pretax charge of approximately $20 million (of which
approximately $10 million is non-cash) during the second quarter of 1998. On an
aftertax basis, the charge will be approximately $13 million ($0.50 per share)
which represents approximately 5% of the increase in Tesoro's market value since
June 1996. For further information related to the incentive strategy, see Note K
of Tesoro's Notes to Condensed Consolidated Financial Statements.
The second quarter of 1998 will also reflect receipt of approximately $21
million pretax ($14 million aftertax) from an operator in the Bob West Field,
representing funds that are no longer needed as a contingency reserve for
litigation. These proceeds were used to reduce debt levels.
ENVIRONMENTAL
In connection with the Hawaii Acquisition, the Company and certain
subsidiaries of BHP (the "BHP Sellers") have executed an environmental agreement
in which the BHP Sellers have agreed to indemnify the Company for environmental
costs arising out of conditions at the Hawaii Refinery, terminals and retail
stations previously operated by BHP Hawaii which existed at or prior to May 31,
1998, the effective closing date of the Hawaii Acquisition, subject to a maximum
limit of $9.5 million. Under the environmental agreement, the first $5 million
of environmental costs are the responsibility of the BHP Sellers and the next $6
million are to be shared on the basis of 75% by the BHP Sellers and 25% by the
Company. The BHP Sellers' environmental indemnification will survive for a
ten-year period. Certain environmental claims arising out of prior operations of
the BHP Sellers are not subject to the $9.5 million limit or ten-year time limit
for claims made.
Under the agreement related to the Washington Acquisition, Shell Refining
Holding Company, a subsidiary of Shell, generally has agreed to indemnify the
Company for environmental liabilities at the Washington Refinery arising out of
conditions which existed at or prior to the closing date. However, the Company
is responsible for the first $0.5 million in environmental costs in each year
and 50% of environmental costs over $1 million in each year, subject to a
maximum aggregate liability of $5 million.
To comply with environmental laws and regulations, the Company anticipates
that it will make capital improvements of approximately $7 million in 1998 and
$2 million in 1999. In addition, capital expenditures for alternate secondary
containment systems for existing storage tank facilities are estimated to be $2
million in 1998 and $2 million in 1999 with a remaining $5 million to be spent
by 2002. At the Hawaii Refinery, the Company expects to make capital
improvements, including improvements to sulphur emission controls and new tank
roof seals, of $4 million in 1998 and $1 million in 1999. At the Washington
Refinery, the Company anticipates that it will make capital improvements of
approximately $2 million in 1998 and $1 million in 1999,
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primarily for replacing certain storage tank seals and increasing the hydraulic
capacity of the facility storm water conveyance system.
The Company is subject to extensive foreign, federal, state and local
environmental laws and regulations. These laws, which change frequently,
regulate the discharge of materials into the environment and may require the
Company to remove or mitigate the environmental effects of the disposal or
release of petroleum or chemical substances at various sites or install
additional controls or other modifications or changes in use for certain
emission sources. The Company is currently involved in remediation response and
has incurred cleanup expenditures associated with environmental matters at a
number of sites, including certain of its current and prior-owned properties. At
March 31, 1998, Tesoro's accruals for environmental expenses amounted to $8.7
million, which included a noncurrent liability of $2.5 million for remediation
of KPL's properties that has been funded by the former owners of KPL through a
restricted escrow deposit.
Conditions that require additional expenditures may exist for various
Company sites, including, but not limited to, the Alaska Refinery, the Hawaii
Refinery, the Washington Refinery, retail stations (current and closed
locations) and petroleum product terminals, and for compliance with the Clean
Air Act, and other mandated programs. The amount of such future expenditures
cannot currently be determined by the Company. For further information on
environmental contingencies, see Note L of Notes to Tesoro's Consolidated
Financial Statements.
YEAR 2000 COMPLIANCE
The efficient operation of Tesoro's business is dependent on its computer
hardware, operating systems and software programs (collectively, "Systems and
Programs"). These Systems and Programs are used in several key areas of Tesoro's
business operating systems and controls, including information management
services and financial reporting, as well as in various administrative
functions. Tesoro has been evaluating its Systems and Programs to identify
potential year 2000 compliance problems, as well as manual processes, external
interfaces with customers and services supplied by vendors. The year 2000
problem refers to the limitations of the programming code in certain existing
hardware and software programs to recognize date sensitive information for the
year 2000 and beyond. Unless replaced or modified prior to the year 2000, such
hardware and systems may not properly recognize such information and could
generate erroneous data or cause a system to fail to operate properly.
Based on current information, Tesoro expects to attain year 2000 compliance
and institute appropriate testing of its modifications and replacements in a
timely fashion and in advance of the year 2000 date change. It is anticipated
that modification or replacement of Tesoro's Systems and Programs will be
performed in-house by company personnel. Tesoro believes that, with hardware
replacement and modifications to existing software or conversions to new
software, the year 2000 date change will not pose a significant operational
problem for Tesoro. It is possible that non-compliant third party computer
systems or programs may not interface properly with Tesoro's computer systems.
Tesoro has requested assurance from third parties that their computers, systems
or programs be year 2000 compliant. Tesoro could, however, be adversely affected
by the year 2000 problem if it or unrelated parties fail to successfully address
this issue. Management of Tesoro currently anticipates that the expenses and
capital expenditures associated with its year 2000 compliance project will not
have a material effect on its financial position or results of operations.
Tesoro has recently undertaken a review of the year 2000 compliance status
of BHP Hawaii and Shell Washington, and is currently unable to determine whether
it has exposure to contingencies related to the year 2000 issue in connection
with the Acquisitions.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
reporting information about operating segments in annual financial statements
and requires that selected information about operating segments be included in
interim financial reports issued to shareholders. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS No. 131 becomes
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effective for the Company's 1998 year-end and need not be applied to interim
financial information until 1999. In February 1998, the FASB issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits,"
which standardizes the disclosures related to pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets and eliminates certain
disclosures previously required. SFAS No. 132 becomes effective for the Company
in 1998. Both statements contain provisions for restatement of prior period
information. The Company is evaluating the effects that these new statements
will have on its financial reporting and disclosures. The new statements will
have no effect on the Company's results of operations, financial position or
cash flows.
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BUSINESS
GENERAL
The Company is a diversified natural resource company engaged in petroleum
refining, distributing and marketing of petroleum products, marine logistics
services and the exploration and production of natural gas and oil. These
operations are conducted through three business segments: Refining and
Marketing, Exploration and Production, and Marine Services.
The Company is the second largest independent refiner and the fifth largest
refiner overall in PADD V. The Company's Refining and Marketing segment operates
petroleum refineries at Kenai, Alaska; Kapolei, Hawaii; and Anacortes,
Washington. The Company currently sells gasoline through a large network of
branded stations in Alaska and Hawaii and is expanding its retail gasoline
marketing presence in the Pacific Northwest. This segment is also a major
supplier of jet fuel to the Anchorage, Honolulu and the Seattle/Tacoma airports
and diesel fuel to Alaska, Hawaii and Washington's fishing and marine
industries. The Company's Marine Services segment operates through a network of
23 marine terminals located in Louisiana and Texas and on the U.S. West Coast,
distributing petroleum products and providing logistics services to the offshore
drilling industry and other customers. Upstream, the Company's Exploration and
Production segment focuses on exploration, development and production of natural
gas and oil onshore in Texas, Louisiana and Bolivia. The Company's net proved
worldwide reserves totaled 517 Bcfe of natural gas at year-end 1997.
The Company's strategy is to (i) maximize return on capital employed and
increase the competitiveness of each of its business units by reducing costs,
increasing operating efficiencies and optimizing existing assets and (ii) expand
its overall market presence through a combination of internal growth initiatives
and selective acquisitions which are both accretive to earnings and provide
significant operational synergies.
Tesoro was incorporated in Delaware in 1968 (a successor by merger to a
California corporation incorporated in 1939). Its principal executive offices
are located at 8700 Tesoro Drive, San Antonio, Texas 78217-6218 and its
telephone number is (800) 837-6768.
REFINING AND MARKETING
OVERVIEW
The Company conducts petroleum refining operations in Alaska, Washington
and Hawaii and sells refined products to a wide variety of customers in Alaska
and Hawaii, along the U.S. West Coast, primarily in the Pacific Northwest,
American Samoa, Tahiti and in certain Far Eastern markets, including Russia,
Japan and Korea.
REFINERIES
ALASKA
The Alaska Refinery has a rated throughput capacity of 72,000 bpd and is
capable of producing liquefied petroleum gas, gasoline, jet fuel, diesel fuel,
heating oil, liquid asphalt, heavy oils and residual products. Alaska North
Slope ("ANS") and Cook Inlet crude oils are the primary feedstocks for the
Alaska Refinery. To assure the availability of crude oil to the Alaska Refinery,
the Company has a royalty crude oil purchase contract with the State of Alaska
and contracts with various Cook Inlet producers (see "-- Crude Oil Supply"
discussed below). During 1997, these crude oils were processed to yield refined
products consisting of approximately 25% gasoline, 42% middle distillates, 29%
heavy oils and residual products and 4% other products. Throughput at the Alaska
Refinery was reduced during both 1997 and 1996 for scheduled 30-day maintenance
turnarounds.
In early October 1997, the Company completed an expansion of the Alaska
Refinery's hydrocracker unit, which increased the unit's capacity by
approximately 25% to 12,500 bpd and enables the Company to produce more jet
fuel, a product currently in short supply in Alaska. The expansion, together
with the addition of a
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new, high-yield jet fuel hydrocracker catalyst, cost approximately $19 million
and has a projected payback period of two years. The expansion, together with
increased shipments of Cook Inlet crude oil beginning in October 1997, began to
improve the Alaska Refinery's product slate during the fourth quarter of 1997.
HAWAII
The Hawaii Refinery, located 22 miles west of Honolulu, Hawaii, has a rated
throughput capacity of 95,000 bpd and is the largest refinery in the state. It
is capable of producing liquefied petroleum gas, gasoline, jet fuel, diesel
fuel, fuel oil for ships and electrical power plants and liquid asphalt.
ANS and crude oil from Australia and Southeast Asia are the primary
feedstocks for the Hawaii Refinery. During 1997, these crude oils were processed
to yield refined products consisting of approximately 45% middle distillates,
28% gasoline, naphtha and liquefied petroleum gases, and 27% residual fuel oil.
Crude throughput at the Hawaii Refinery was reduced by 20% in June and July of
1997 to allow a scheduled maintenance turnaround on the marine mooring facility.
Planned shutdowns were taken in January 1996 and March 1997 on the catalytic
reformer unit to allow regeneration of catalyst, and the Hawaii Refinery is
scheduled to shut down for 30 days beginning in late June 1998 for a routine
maintenance turnaround.
In addition to crude and vacuum distillation, refining operations include
catalytic reforming, hydrocracking, hydrogen generation, visbreaking, light ends
recovery and liquid asphalt production.
WASHINGTON
The Washington Refinery has a rated throughput capacity of 108,000 bpd and
is the third largest refinery in the Pacific Northwest. The Washington Refinery
is located approximately 60 miles north of Seattle near Anacortes, Washington.
Approximately 35% of the refinery's crude oil feedstock is ANS with the
remaining sources primarily from Canada. Crude oil feedstock is received via
ship across the Company's dock in the Puget Sound and via pipeline. During 1997,
the Washington Refinery yielded a product slate comprised of approximately 53%
gasoline, 24% middle distillates and 23% residual fuel oil and other heavy oil
products. Although Shell incorporated Shell Washington on January 4, 1996, Shell
Washington commenced operations on May 1, 1996.
CRUDE OIL SUPPLY
ALASKA
The Alaska Refinery is designed to process crude oil with up to 1.0%
sulphur content. As such, the Alaska Refinery can process Cook Inlet, ANS and
certain other foreign and domestic crude oils. Historically, the Company's
Alaska Refinery has processed primarily ANS crude oil. Beginning in the fourth
quarter of 1997, Cook Inlet crude became a major feedstock for the Alaska
Refinery and the Company anticipates that Cook Inlet will be a major feedstock
for 1998.
Cook Inlet Crude Oil. Cook Inlet crude oil, a lighter crude oil that
contains an average of 0.1% sulphur, accounted for 26% of the Alaska Refinery's
feedstock in 1997. In the first nine months of 1997, the Company processed
approximately 9,300 bpd of Cook Inlet crude oil, or 19% of the Alaska Refinery's
throughput, which was obtained from several producers on the Kenai peninsula
under short-term contracts. During October 1997, the Company began purchasing
all of the approximately 34,000 bpd of Cook Inlet production from various
producers under contracts that extend through December 1998. A contract to
purchase 4,500 bpd, of the 34,000 bpd, has been extended through March 31, 2001.
During the fourth quarter of 1997, the Company processed approximately 24,900
bpd of Cook Inlet crude oil, or approximately 44% of the Alaska Refinery's
throughput. During 1998, the Company expects that Cook Inlet crude oil will be a
major feedstock for the Alaska Refinery.
Cook Inlet crude oil is delivered by tanker through KPL's marine terminal
or by pipeline to the Alaska Refinery.
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ANS Crude Oil. ANS crude oil, a heavy crude oil which has a sulphur content
of approximately 1.0%, accounted for 71% of the Alaska Refinery's feedstock in
1997. The Company purchased approximately 35,700 bpd of ANS crude oil during
1997 under the royalty crude oil purchase contract with the state of Alaska.
This contract, which covers the period January 1, 1996, through December 31,
1998, provides for the purchase of 30% of the state of Alaska ANS royalty crude
oil produced from the Prudhoe Bay Unit at prices based on royalty values
computed by the state of Alaska. The contract contains provisions that, under
certain conditions, allow the Company to temporarily or permanently reduce its
purchase obligation. Under the contract, the Company is required to utilize in
its Alaska Refinery operations volumes equal to at least 80% of the ANS crude
oil purchased from the state of Alaska. The Company is presently in discussions
with the state of Alaska in regard to extending this contract for an additional
year.
Tesoro also purchases approximately 6,000 bpd of ANS crude oil from a
producer under a contract with a term of one year which began January 1, 1998.
ANS crude oil feedstock is delivered to the Alaska Refinery by a
Tesoro-chartered tanker through the KPL marine terminal, which is owned and
operated by the Company.
For information related to a settlement of a contractual dispute with the
state of Alaska, see Note I of Notes to Tesoro's Consolidated Financial
Statements.
Other Supply. In 1997, the Alaska Refinery obtained 3% of its feedstock
supply from other sources. The other supply primarily consisted of spot
purchases of crude oil which were delivered to the Alaska Refinery by tanker
through KPL's marine terminal. The Company evaluates the economic viability of
processing various types of foreign and domestic crude oils in the Alaska
Refinery and will occasionally purchase spot quantities to supplement its normal
crude oil supply.
HAWAII
The Hawaii Refinery has the ability to process a wide range of crudes and
is located geographically such that it is economic to transport and receive
crudes from several parts of the world. The Hawaii Refinery is designed to
process crude with a sulphur content as high as 1.0% and also has the capability
to process combinations of crudes with naphtha/gasoline content as high as 35%
and residual fuel oil content as high as 30%. The Hawaii Refinery has processed
crude oil from Alaska, Australia, Malaysia, Indonesia and occasionally from
other countries. The Company evaluates the economics of a wide range of crudes
on a regular basis and is able to respond to movements in regional trading
markets by changing crude selection. The Company currently purchases 10,000 bpd
of Indonesian Duri crude oil from two suppliers under three one-year contracts
and 20,000 bpd of ANS crude oil from a producer under a 90-day contract with an
evergreen clause. All other crude oil is purchased on a spot basis. In
connection with the Hawaii Acquisition, the Company and an affiliate of BHP
entered into a crude supply agreement pursuant to which the BHP affiliate will
assist the Company in acquiring crude oil feedstock sourced outside of North
America and arrange for transportation of such crude oil to the Hawaii Refinery.
The crude supply agreement is for a period of two years and provides for annual
payments of $1.4 million by the Company to the BHP affiliate for such services.
WASHINGTON
Waterborne cargos, primarily ANS, are received over the refinery ship dock
and Canadian crude is received via Transmountain Pipeline. Either facility has
the capability to provide almost 100% of the Washington Refinery's needs.
Historically, approximately 60% of the Washington Refinery's crude supply has
been sweet Canadian crude received from the pipeline. However, after the
expansion of the sulphur plant anticipated to be completed in September 1998,
the Washington Refinery will be able to receive and process heavy Canadian crude
which has a higher sulphur content. Butanes are received through the Washington
Refinery's rail car rack. Small volumes of miscellaneous feedstocks are received
by barge. Both the ANS and Canadian crudes are purchased from a variety of
producers under multiple contracts.
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MARKETING
ALASKA
Gasoline. The Company distributes gasoline to end users in Alaska, either
by retail sales through 35 Company-operated stations, by wholesale sales through
125 branded and 25 unbranded dealers and jobbers (as of March 31, 1998) or by
deliveries to major oil companies for their retail operations in Alaska in
exchange for gasoline delivered to the Company on the U.S. West Coast. During
1997, the Company-operated retail stations sold an aggregate of 93,000 gallons
of gasoline per day.
In 1997, the Company initiated a three-year, $50 million retail marketing
expansion program focused primarily in Anchorage, Alaska, the state's largest
motor fuel market. During the year, two new retail stations were built, three
stations were remodeled and two uneconomic stations were closed. In addition, in
late 1997, the Company purchased the Union 76 marketing assets in Alaska, which
included three retail stations located in Southeast Alaska and the rights to use
the Union 76 trademark within Alaska.
Gasoline produced in excess of Alaska's market demand is shipped to the
U.S. West Coast or exported to the Far East by chartered vessel.
Middle Distillates. The Company is a major supplier of commercial jet fuel
into the Alaskan marketplace, with a majority of its production being marketed
to passenger and cargo airlines. The demand for jet fuel in Alaska is growing
and currently exceeds the production of all refiners in Alaska. Several
marketers, including the Company, import jet fuel into Alaska to meet excess
demand. The expansion of the Alaska Refinery's hydrocracker unit has increased
the Company's jet fuel production to help meet this growing market.
Substantially all of the Company's diesel fuel production is sold on a
wholesale basis in Alaska primarily for marine, transportation and industrial
purposes. As part of the purchase of the Union 76 marketing assets discussed
above, the Company acquired a terminal with a 110,000-barrel capacity in
Ketchikan, Alaska. Diesel fuel will be supplied to this terminal from the Alaska
Refinery and the U.S. West Coast. The product will be delivered to the terminal
by marine barge. Generally, the production of diesel fuel by refiners in Alaska
is in balance with demand; however, because of the variability of the demand,
there are occasions when diesel fuel is imported into or exported from Alaska.
See "-- Government Regulation and Legislation -- Environmental Controls" for a
discussion of the effect of governmental regulations on the production of
low-sulphur diesel fuel for on-highway use in Alaska.
Heavy Oils and Residual Products. The Alaska Refinery's vacuum unit uses
crude tower bottoms as a feedstock and further processes these volumes into
light vacuum gas oil ("LVGO"), heavy vacuum gas oil ("HVGO") and vacuum tower
bottoms ("VTBs"). The LVGO is further processed in the Alaska Refinery's
hydrocracker where it is converted into gasoline and jet fuel. HVGO is sold to
refiners on the U.S. West Coast where it is used as fluid catalytic cracker
feedstock. The VTBs are used to produce liquid asphalt or they are sold on the
U.S. West Coast. The Company sells its liquid asphalt, which is used in the
manufacturing of highway paving materials, primarily in Alaska where the demand
is seasonal because mild weather conditions are needed for highway construction.
During 1997, the Company opened an asphalt marketing facility in Anchorage,
which helped increase sales of this product in Alaska.
HAWAII
Petroleum products manufactured at the Hawaii Refinery are sold under
various contracts on a term basis or on a spot basis principally in Hawaii, the
Far East, the Pacific Islands and, to a lesser extent, the U.S. West Coast.
Gasoline. The Company distributes gasoline to end users in Hawaii by retail
sales through 30 Company-operated stations and by wholesale sales through two
dealer-operated stations or by deliveries to major oil companies for their
retail operations in Hawaii. During 1997, the Company-operated retail stations
sold an average of 120,500 gallons of gasoline and diesel per day.
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In 1994, BHP Hawaii initiated a three-year, $26 million retail gas station
and convenience store upgrade program. Since 1994, three new retail facilities
were built, two were purchased, five stations were rebuilt and 18 stations and
three car washes were remodeled.
Middle Distillates. The Company is the major supplier of commercial jet
fuel into the Hawaiian marketplace with a majority of its production being
marketed to passenger airlines. The demand for jet fuel currently exceeds the
production of both refiners in Hawaii. Several marketers, including BHP Hawaii,
import jet fuel into Hawaii to meet demand.
Substantially all of the Company's diesel fuel production is sold on a
wholesale basis in Hawaii primarily for marine, transportation, utility and
military purposes. Generally, the production of diesel by refiners in Hawaii is
in balance with demand. However, because of the variability of demand, there are
occasions when diesel fuel is imported into or exported from Hawaii.
Heavy Oils and Residual Products. The Hawaii Refinery's vacuum unit uses
crude tower bottoms as feedstock and further processes these volumes into medium
vacuum gas oil ("MVGO"), HVGO and VTBs. The MVGO is further processed in the
Hawaii Refinery's hydrocracker where it is converted into naphtha, jet fuel and
diesel. The HVGO is primarily used within the Hawaii Refinery for fuel oil
blending and occasionally sold to other refiners for use as fluid catalytic
cracker feedstock when inventories and economics are favorable. The VTBs are
used to produce liquid asphalt or are visbroken and blended to produce bunker
fuel or low sulphur fuel for use by utility power producers in Hawaii.
PACIFIC NORTHWEST
The Washington Refinery produces a variety of products including gasoline,
CARB gasoline, diesel, jet fuel, residual fuel and liquefied petroleum gases. Up
to 35% of the gasoline production will be sold to Shell through an off-take
agreement, approximately 30% is sold in the spot market and Chevron receives
approximately 30% in exchange for products in California. Jet fuel is sold
primarily to the Seattle/Tacoma Airport via pipeline. Diesel is sold to barging
companies and via truck rack. Heavy oil and residual products are currently sold
to another refiner and, locally, as bunker fuel. Upon completion of an asphalt
facility, a portion of the bottoms will be marketed as liquid asphalt. Combined
with the Alaska Refinery's production of heavy oil, the Company will be the
largest marketer of bunker fuels in the Pacific Northwest.
The Company conducts wholesale marketing operations along the U.S. West
Coast, primarily in Oregon and Washington, selling refined products in the bulk
market and through eight terminal facilities, including three operated by the
Company. In 1997, these operations sold approximately 10,300 bpd of refined
products, primarily gasoline and diesel fuel, of which approximately 25% was
received from major oil companies in exchange for products from the Alaska
Refinery, approximately 24% was received directly from the Alaska Refinery and
51% was purchased from other suppliers. In January 1998, operations of the three
Company-operated facilities on the U.S. West Coast were transferred to the
Company's Marine Services segment.
The Company's retail presence in Oregon and Washington was expanded during
1997 by adding 12 branded stations, bringing the number of "Tesoro Alaska"
branded gasoline stations in the Pacific Northwest to 30 at year-end. The
Washington Acquisition will not include any retail outlets.
FAR EAST
From time to time, the Company exports refined products from the Alaska
Refinery to certain markets in the Far East, including Russia. These exported
products, primarily gasoline, are transported to the Far East by a chartered
Russian flag vessel, described below, or at times by spot charters. Gasoline
blendstocks (reformate and naphtha) produced in excess of Hawaii's market is
exported to the Far East.
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TRANSPORTATION
ALASKA
The Company charters two American flag vessels, the Potomac Trader and the
Chesapeake Trader. These vessels are used to transport ANS crude oil from the
Trans Alaska Pipeline System ("TAPS") terminal at Valdez, Alaska, and Cook Inlet
crude oil from the Drift River terminal to the Alaska Refinery. The vessels are
also used to transport heavy oils and residual products to the U.S. West Coast
and occasionally to transport other feedstocks or products to the Alaska
Refinery. The Potomac Trader and the Chesapeake Trader are chartered under
five-year agreements expiring in 2000. The Company charters a Russian flag
vessel, the Igrim, to primarily transport refined products from the Alaska
Refinery to the Far East. The Igrim is chartered under an agreement expiring in
June 1999, which may be extended at the Company's option through June 2000. The
Company plans to continue marketing its products in the Far East and is
evaluating transportation alternatives. From time to time, the Company also
charters tankers and ocean-going barges to transport petroleum products to its
customers within Alaska, on the U.S. West Coast and in the Far East.
The Company operates a common carrier petroleum products pipeline from the
Alaska Refinery to its terminal in Anchorage. This ten-inch diameter pipeline
has a capacity to transport approximately 40,000 barrels of petroleum products
per day and allows the Company to transport light products to the terminal
throughout the year regardless of weather conditions. During 1997, the Company
transported for its own account an average of approximately 24,100 barrels of
petroleum products per day through this pipeline. The Company also owns and
operates KPL, a common carrier pipeline and marine dock facility, which assures
the Company of uninterrupted use of the dock and pipeline for unloading crude
oil feedstocks and loading product inventory on tankers and barges. During 1997,
the Company transported for its own account approximately 49,700 barrels of
crude oil per day and 37,300 barrels of refined products per day through the KPL
facilities.
For further information on transportation in Alaska, see "-- Government
Regulation and Legislation -- Environmental Controls."
HAWAII
Crude oil is transported to Hawaii by tankers and discharged through a
single point mooring terminal ("SPM") about 1.5 miles offshore from the Hawaii
Refinery. The Company charters barges and tugs to transport petroleum products
to its customers in the Hawaiian Islands and a foreign flag vessel, the Carla
Hills, to transport diesel fuel, jet fuel and gasoline to customers in American
Samoa, and fuel oil to a customer in Tahiti. The Carla Hills is also used to
transport product imports and exports between Hawaii and the Far East. The
Company also is a party to two Contracts of Affreightment with independent
parties to charter vessels to meet its transportation requirements for crude oil
and clean products.
Three underwater pipelines connect the SPM to the Hawaii Refinery to allow
crude oil and products to be transferred to the Hawaii Refinery and to load
products from the Hawaii Refinery to ships and barges. Refined products are
distributed to customers on the island of Oahu through a pipeline system with
connections to the military at several locations, to commercial customers via
terminals at Honolulu International Airport and Honolulu Harbor, and by barge to
facilities on the outer islands of Maui, Kauai and Hawaii. Four product
pipelines connect the Hawaii Refinery to Barbers Point Harbor which is 2.5 miles
away. The Barbers Point Harbor is able to accommodate barges and product tankers
up to 800 feet in length and helps relieve traffic at the SPM.
WASHINGTON
Crude oils from Canada are received through the 24-inch Transmountain
Pipeline which originates in Edmonton, Canada. Other crudes, including ANS, are
received through the Washington Refinery's ship dock. Both the pipeline and the
ship dock are each capable of providing almost 100% of the Washington Refinery's
feedstock needs.
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Over 90% of the Washington Refinery's clean products (gasoline, jet fuel
and diesel) leave via Olympic Pipeline. Olympic serves the Seattle area with
16-inch and 20-inch lines and continues to Portland with a 14-inch line. Over
20% of the Washington Refinery's clean product is delivered (via Olympic) to
Chevron, for which Shell receives products in California. A small amount of
Shell branded gasoline is delivered over the neighboring Texaco Washington
Refinery's truck rack and jet fuel is occasionally shipped by barge. The
Washington Refinery has the capability to move significant volumes of all clean
products over the ship dock. All of the fuel oil production is shipped by water.
Propane is shipped by both truck and rail.
REFINING AND MARKETING STATISTICS
The following table summarizes the Company's refining and marketing
operations for the fiscal years indicated and three months ended March 31, 1998:
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEARS(a) ENDED
------------------------ MARCH 31,
1995 1996 1997 1998
------ ------ ------ ------------
<S> <C> <C> <C> <C>
REFINERY THROUGHPUT (thousands of bpd)
Alaska Refinery.................................. 50.6 47.5 50.2 56.1
Hawaii Refinery.................................. 90.6 86.7 88.7 86.4
Washington Refinery.............................. 104.9 114.5 113.0 114.6
REFINED PRODUCTS MANUFACTURED (thousands of bpd)
Alaska Refinery --
Gasoline and gasoline blendstocks.............. 14.3 12.8 12.8 15.2
Middle distillates, including jet fuel and
diesel fuel................................. 20.7 20.0 21.6 25.2
Heavy oils and residual products............... 14.5 13.7 14.8 15.1
Other.......................................... 2.5 2.6 2.3 2.2
------ ------ ------ ------
Total Alaska Refinery..................... 52.0 49.1 51.5 57.7
------ ------ ------ ------
Hawaii Refinery --
Gasoline and gasoline blendstocks.............. 22.1 19.0 22.0 19.8
Middle distillates, including jet fuel and
diesel fuel................................. 39.3 39.6 40.4 40.3
Heavy oils and residual products............... 27.1 25.9 24.3 23.4
Other.......................................... 3.2 2.6 2.9 3.5
------ ------ ------ ------
Total Hawaii Refinery..................... 91.7 87.1 89.6 87.0
------ ------ ------ ------
Washington Refinery --
Gasoline and gasoline blendstocks.............. 60.3 64.2 62.1 63.2
Middle distillates, including jet fuel and
diesel fuel................................. 24.1 28.9 28.3 29.9
Heavy oils and residual products............... 14.9 15.3 17.1 16.2
Other.......................................... 9.6 10.4 9.9 10.0
------ ------ ------ ------
Total Washington Refinery................. 108.9 118.8 117.4 119.3
------ ------ ------ ------
Total Refined Products Manufactured....... 252.6 255.0 258.5 264.0
====== ====== ====== ======
NUMBER OF STATIONS SELLING THE REFINERIES'
GASOLINE(b)
Alaska --
Company-operated............................... 32 33 35 35
Branded jobbers and dealers.................... 99 126 129 125
Unbranded jobbers and dealers.................. 28 29 28 25
Pacific Northwest -- branded jobbers and
dealers........................................ 10 18 30 33
Hawaii -- Company-operated....................... 28 28 28 30
Hawaii -- Dealer-operated........................ 1 2 2 2
------ ------ ------ ------
Total Stations............................ 198 236 252 250
====== ====== ====== ======
</TABLE>
72
<PAGE> 78
- ---------------
(a) Amounts for Tesoro and Shell Washington are for fiscal years ended December
31. Amounts for BHP Hawaii are for fiscal years ended May 31.
(b) Branded gasoline stations sell the Alaska Refinery's gasoline under the
"Tesoro Alaska" name in Alaska, Oregon and Washington (191 stations as of
March 31, 1998) and under the "Union 76" name in Southeast Alaska (two
stations as of March 31, 1998). Stations that sell the Company's gasoline
under a different name are considered unbranded. Branded Gasoline stations
sell the Hawaii Refinery's gasoline under the "Gas Express" name in Hawaii.
As of March 31, 1998 the Company operated 38 convenience stores located in
Alaska, 35 of which sell gasoline.
EXPLORATION AND PRODUCTION
OVERVIEW
The Company's Exploration and Production segment is engaged in the
exploration for, and development and production of, natural gas and oil onshore
in Texas, Louisiana and Bolivia. This segment also includes the transportation
of natural gas, including the Company's production, to common carrier pipelines
in South Texas. During 1997, the Company increased its worldwide net proved
reserves by 39% to 517 Bcfe of natural gas. Worldwide net production of natural
gas and oil averaged 109 MMcfe per day during 1997 and increased to
approximately 130 MMcfe per day in March 1998.
In the U.S., the Company has made significant progress in diversifying its
operations to areas other than the Bob West Field in South Texas. The Company's
U.S. production from fields other than the Bob West Field rose to 50% of its
total U.S. production in January 1998, as compared to 7% at year-end 1996.
During the past two years, the Company has acquired approximately 120,000 net
undeveloped acres in the U.S., bringing its total to approximately 133,000 net
undeveloped U.S. acres at December 31, 1997. During 1996 and 1997, the
Exploration and Production segment purchased interests in the Frio/Vicksburg
Trend and the Wilcox Trend in South Texas, in the Val Verde Basin in Southwest
Texas and in the East Texas Basin. By January 1998, the Company served as
operator of 44% of its U.S. net production, compared to 5% at year-end 1996.
During 1997, the Company's U.S. net proved reserve volumes increased 27% to 150
Bcfe and net production averaged 87 MMcfe per day. The Company participated in
the completion of nine gross development wells and eight gross exploratory wells
in 1997, with seven gross wells drilling at year-end.
In Bolivia, the Company operates under four contracts with the Bolivian
government to explore for and produce hydrocarbons. The Company's Bolivian
natural gas production is sold under contract to the Bolivian government for
export to Argentina. The majority of the Company's natural gas and oil reserves
in Bolivia are shut-in awaiting access to gas-consuming markets which is
expected to be provided by a 1,900-mile pipeline from Bolivia to Brazil.
Pipeline construction began in 1997 and first gas deliveries are expected in
early 1999. Upon completion of the pipeline, the Company will face intense
competition from major and independent natural gas companies operating in
Bolivia for an additional share of the contractual volumes to be exported to
Brazil. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Exploration and Production -- Bolivia." In July 1997,
the Company acquired the interests of its former joint venture participant,
increasing its net proved reserve volumes in Bolivia by 35%. During 1997, the
Company's Bolivian net proved reserve volumes increased in total by 45% to 366
Bcfe and net production averaged 23 MMcfe per day.
WORLDWIDE RESERVE REPLACEMENT AND COSTS OF ADDING RESERVES
In 1997, the Company's worldwide net proved reserve additions included 156
Bcfe from discoveries, extensions and purchases of proved properties (89 Bcfe in
Bolivia and 67 Bcfe domestically) and 30 Bcfe from upward revisions of previous
estimates. Excluding revisions, 156 Bcfe were added for a 390% replacement of 40
Bcfe of production. Additions were realized with a 74% drilling success rate
during 1997, reflecting an 82% success rate on 11 development wells and a 67%
success rate on 12 exploratory wells. The Company's three-year worldwide average
cost of adding these reserves was $0.43 per Mcfe. Domestically, 67 Bcfe were
added through discoveries, extensions and acquisitions for a 209% replacement of
32 Bcfe of production. In Bolivia, 89 Bcfe were added through an acquisition, a
more than tenfold replacement of eight Bcfe of production. The
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<PAGE> 79
three-year average cost of adding reserves was $0.85 per Mcfe in the U.S. and
$0.14 per Mcfe in Bolivia. See Note N of Notes to Tesoro's Consolidated
Financial Statements.
UNITED STATES
RESERVES
The following table shows the estimated net proved reserves, based on
evaluations audited by Netherland, Sewell & Associates, Inc., and gross
producing wells for each of the Company's U.S. fields:
<TABLE>
<CAPTION>
DECEMBER 31,
DECEMBER 31, 1997 1996
------------------------------------------ -------------
NET PROVED NET PROVED
PRESENT VALUE GROSS GAS RESERVES GAS RESERVES
OF PROVED PRODUCTIVE ------------- -------------
FIELD LOCATION TREND RESERVES(a) WELLS BCFE % BCFE %
----- -------- ----- ------------- ---------- ------ ---- ------ ----
($ THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bob West South Texas Wilcox $ 74,659 63 59.0 39% 88.0 75%
Los Indios South Texas Frio/Vicksburg 11,751 26 15.3 10 16.8 14
Vinegarone East Southwest Texas Val Verde 16,457 4 14.3 10 -- --
Kent Bayou South Louisiana Frio/Vicksburg 13,749 1 10.5 7 -- --
Oak Hill East Texas East Texas Basin 5,389 5 9.9 7 -- --
Berry R. Cox South Texas Wilcox 14,426 5 8.6 6 2.9 3
La Reforma South Texas Frio/Vicksburg 8,558 18 7.7 5 2.8 2
Woodlawn East Texas East Texas Basin 3,883 2 6.5 4 -- --
Carthage East Texas East Texas Basin 2,740 -- 4.7 3 -- --
Other Various Various 15,883 54 13.9 9 7.4 6
-------- --- ----- --- ----- ---
$167,495 178 150.4 100% 117.9 100%
======== === ===== === ===== ===
</TABLE>
- ---------------
(a) Represents the discounted future net cash flows before income taxes. See
Note N of Notes to Tesoro's Consolidated Financial Statements for
additional information regarding the Company's proved reserves and
standardized measure.
Wilcox Trend. The Company has 23,088 net acres, including 17,147 net
undeveloped acres, under lease in the Wilcox Trend. Approximately 52% (78.4
Bcfe) of the Company's U.S. net proved reserve volumes are located in 11
producing fields in this trend, including the Bob West Field, the Company's
largest U.S. field. The Wilcox Trend extends from Northern Mexico through South
Texas into the other Gulf Coast states. Multiple pay sands exist within the
Wilcox Trend, where extensive faulting has trapped hydrocarbons in numerous
producing zones.
Frio/Vicksburg Trend. The Company has 7,667 net acres, including 2,897 net
undeveloped acres, under lease in the Frio/Vicksburg Trend. Approximately 24%
(36.5 Bcfe) of the Company's U.S. net proved reserve volumes are located in
eight producing fields in this trend, primarily the Los Indios, La Reforma and
Kent Bayou Fields. The Frio/Vicksburg Trend lies between the Gulf Coast
shoreline and the Wilcox Trend.
East Texas Basin. The Company has 16,988 net acres, including 14,064 net
undeveloped acres, under lease in the East Texas Basin. The undeveloped acreage
is located on prospects in the Cotton Valley Pinnacle Reef play and on prospects
targeting various Cretaceous aged objectives. The Company is currently acquiring
3-D seismic surveys to evaluate its acreage holdings. Approximately 14% (21.3
Bcfe) of the Company's U.S. net proved reserve volumes are in this basin, which
is located in the northeastern part of Texas.
Val Verde Basin. The Company has 94,761 net acres, primarily undeveloped,
under lease in the Val Verde Basin in Edwards and Val Verde Counties, Texas. As
of December 31, 1997, approximately 10% (14.3 Bcfe) of the Company's U.S. net
proved reserve volumes are in this basin, which is located in the southwestern
part of Texas. In April 1998, the Company completed a new well which
significantly increased proved reserves and production in this basin.
74
<PAGE> 80
GAS GATHERING AND TRANSPORTATION
The Company owns a 70% interest in the Starr County Gathering System, which
consists of two 10-inch diameter pipelines and one 20-inch diameter pipeline
that transport natural gas eight miles from the Bob West Field in South Texas to
common carrier pipeline facilities. In addition, the Company owns a 50% interest
in the 20-inch diameter Starr-Zapata Pipe Line, which transports natural gas 26
miles from the Starr County Gathering System to a market hub at Fandango, Texas.
The Company does not operate either pipeline. During 1997, gross throughput
averaged 169 MMcf per day for both the Starr County Gathering System and the
Starr-Zapata Pipe Line, with approximately 50% of the throughput consisting of
the Company's working interest of Bob West Field production. The Starr County
Gathering System receives a transportation fee of $0.06 per Mcf and the
Starr-Zapata Pipe Line receives a fee of $0.07 per Mcf for volumes transported.
MARKETING
The Company's U.S. natural gas production is sold on the spot market and
under short-term contracts with a variety of purchasers, including intrastate
and interstate pipelines, their marketing affiliates, independent marketing
companies and other purchasers who have the ability to move the gas under firm
transportation or interruptible agreements. Prices for the Company's natural gas
production are subject to regional discounts or premiums tied to regional spot
market prices.
U.S. ACREAGE AND PRODUCTIVE WELLS
The Company holds its U.S. acreage through oil and natural gas leases and
lease options. The leases have a variety of primary terms and may require delay
rentals to continue the primary term if not productive. The leases may be
surrendered by the operator at any time for various reasons, which may include
cessation of production, fulfillment of commitments, or failure to make timely
payment of delay rentals. The following tables set forth the Company's U.S.
gross and net acreage and productive wells at December 31, 1997:
<TABLE>
<CAPTION>
UNDEVELOPED ACREAGE DEVELOPED ACREAGE
------------------- -----------------
LOCATION GROSS NET GROSS NET
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
Val Verde Basin, Southwest Texas................. 98,466 94,401 480 360
East Texas Basin, East Texas..................... 56,278 14,064 3,303 2,924
Wilcox Trend, South Texas........................ 37,986 17,147 19,349 5,941
Frio/Vicksburg Trend, South Texas................ 4,034 2,017 10,556 4,538
Frio/Vicksburg Trend, South Louisiana............ 880 880 315 232
------- ------- ------ ------
Total Leased Acres..................... 197,644 128,509 34,003 13,995
Fee Acres, Various Locations..................... 15,838 4,352 338 325
------- ------- ------ ------
Total Acres............................ 213,482 132,861 34,341 14,320
======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
GAS WELLS OIL WELLS
------------ -----------
GROSS NET GROSS NET
----- ---- ----- ---
<S> <C> <C> <C> <C>
Productive Wells(a)........................................ 168 86.9 10 5.4
</TABLE>
- ---------------
(a) Includes three gross (1.6 net) gas wells and two gross (1.0 net) oil wells
with multiple completions. At December 31, 1997, the Company was
participating in the drilling of seven gross (6.3 net) wells.
75
<PAGE> 81
U.S. OPERATING STATISTICS
The following table summarizes the Company's U.S. exploration and
production activities for the years ended December 31, 1995, 1996 and 1997 and
three months ended March 31, 1998:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS
--------------------------- ENDED MARCH 31,
1995 1996 1997 1998
------- ------ ------ ---------------
<S> <C> <C> <C> <C>
Average Daily Net Production:
Natural gas (Mcf)..................... 114,490 87,654 86,052 99,135
Oil (barrels)......................... 1 27 118 173
Total (Mcfe).......................... 114,496 87,816 86,760 100,173
Exploratory Wells Drilled(a):
Productive -- gross................... 5.0 4.0 8.0 3.0
Productive -- net..................... 1.5 1.7 6.3 2.5
Dry holes -- gross.................... 4.0 2.0 4.0 4.0
Dry holes -- net...................... 2.1 1.0 2.9 3.3
Development Wells Drilled(a):
Productive -- gross................... 17.0 15.0 9.0 3.0
Productive -- net..................... 9.7 6.3 5.1 2.3
Dry holes -- gross.................... -- 1.0 2.0 --
Dry holes -- net...................... -- 0.5 1.0 --
</TABLE>
- ---------------
(a) All of the Company's drilling is performed by independent drilling
contractors.
For further information regarding the Company's U.S. exploration and
production operations, see Notes B, C and N of Notes to Tesoro's Consolidated
Financial Statements.
BOLIVIA
The Company's Bolivian exploration, development and production operations
are located in the Chaco Basin in southern Bolivia near the border of Argentina.
The Company has discovered six fields in Bolivia since 1976, five of which have
currently estimated proved reserves totaling 366 Bcfe at December 31, 1997. The
Company intends to complete additional seismic studies and appraisal wells
before assigning proved reserves to the sixth field. With production of 37 MMcfe
per day (gross) in 1997, the Company is one of the largest operators in Bolivia.
The Company estimates that it currently could produce from its existing proved
developed producing reserve base approximately 120 MMcfe per day (gross) if
ready markets were available. The Company holds four shared risk contracts with
YPFB, the Bolivian governmental agency responsible for administration of these
contracts, covering a total of 879,938 gross acres in Block 18 and Block 20.
ACQUISITION
In July 1997, the Company purchased the interests held by its former joint
venture participant in the then existing two contract blocks, consisting of a
25% interest in Block 18 and a 27.4% interest in Block 20. Upon completion of
this purchase, the Company held a 100% interest in both blocks, subject to a
farmout agreement discussed below. The purchase price was approximately $20
million, which included working capital and assumption of certain liabilities.
The Company's net proved Bolivian reserve volumes increased by approximately 35%
as a result of this acquisition.
BOLIVIAN HYDROCARBONS LAW
In 1996, a new Hydrocarbons Law was passed by the Bolivian government that
significantly impacts the Company's operations in Bolivia. The new law, among
other matters, granted the Company the option to convert its Contracts of
Operation to new shared risk contracts. On November 6, 1997, the Company
completed the conversion of its Contracts of Operation into four shared risk
contracts. The new contracts, which have an effective date of July 29, 1996,
extend the Company's term of operation, provide more
76
<PAGE> 82
favorable acreage relinquishment terms and provide for a more favorable fiscal
regime of royalties and taxes. The new contract for Block 18 is extended to the
year 2017. The new contracts for Block 20 are extended to the year 2018 for
Block 20-Los Suris, which is in the development phase, and to the year 2029 for
Block 20-West and Block 20-East, which are in the exploration phase.
FARMOUT AGREEMENT
A farmout agreement executed June 19, 1997, between the Company and Total
Exploration Production Bolivie S.A. ("Total"), an affiliate of Total S.A.,
covers a portion of Block 20-West. Pursuant to the farmout agreement, Total
established a financial guarantee to the Bolivian government to guarantee the
performance of exploration work on Block 20-West. Total has the right to drill,
at its sole cost, two exploratory wells to earn a 75% interest in the farmout
area which consists of 315,000 acres of Block 20-West. If Total drills only one
well, Total will earn a 37.5% interest in the farmout area. On December 31,
1997, the Company assigned a 75% interest and operatorship in the farmout area
to Total, subject to reversion if Total does not drill two wells.
YPF AND YPFB CONTRACT
The Company is currently selling all of its natural gas production from
Block 18 to YPFB, which in turn sells the natural gas to YPF, a publicly-held
company based in Argentina. Currently, the Company's sales of natural gas are
based on the volume and pricing terms in the contract between YPFB and YPF. The
Company has historically provided approximately 20% of the contract volumes
required by YPF. The contract to sell gas to YPF expired March 31, 1997, and a
contract extension was signed effective April 1, 1997, extending the contract
term two years to March 31, 1999, with an option to extend the contract a
maximum of one additional year if the pipeline being constructed from Bolivia to
Brazil is not complete. In the contract extension, YPF negotiated an 11%
reduction in the minimum contract volume that it is required to import from
Bolivia, which in turn resulted in a corresponding 11% reduction of the
Company's minimum contract volume to 36.9 MMcf per day gross (26.2 net). The
contract gas prices fluctuate because they are linked to a monthly average fuel
oil price posted in the New York spot market.
ACCESS TO NEW MARKETS
A lack of market access has constrained natural gas production in Bolivia.
With little internal gas demand, all of the Company's Bolivian natural gas
production is sold under contract to the Bolivian government for export to
Argentina. Major developments in South America indicate that new markets will
open for the Company's production. Construction of a new 1,900-mile pipeline
that will link Bolivia's extensive gas reserves with markets in Brazil commenced
in 1997 and is expected to be operational in early 1999. The owners of the new
pipeline include Petroleo Brasileiro S.A. (the Brazilian state oil company),
other Brazilian investors, Enron Corp., Shell International Gas Ltd., British
Gas PLC, El Paso Energy Corp., BHP, and Bolivian pension funds. When completed,
the new pipeline will have a capacity of approximately one billion cubic feet
("Bcf") per day. It is anticipated that each producer's share of the contractual
volumes will be allocated by YPFB according to a number of factors, including
each producer's reserve volumes and production capacity. The Company's 1998
capital budget includes plans to drill three development wells (gross) and two
exploratory wells (gross) which may increase its productive capacity.
77
<PAGE> 83
RESERVES
The table below shows the estimated proved reserves, based on evaluations
prepared by Netherland, Sewell & Associates, Inc., and productive wells for each
of the Company's Bolivian fields. Each of the following fields is operated by
the Company:
<TABLE>
<CAPTION>
DECEMBER 31,
DECEMBER 31, 1997 1996
-------------------------------------------------------------------- -----------------
NET PROVED RESERVES
-----------------------------------
OIL
PRODUCTIVE (MILLIONS OF GAS TOTAL PV-10 AFTER PV-10 AFTER
FIELD BLOCK WELLS BARRELS) (BCF) (BCFE) % BOLIVIAN TAXES(a) BOLIVIAN TAXES(a)
----- ----- ---------- ------------ ----- ------ --- ----------------- -----------------
($ THOUSANDS) ($ THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Palo Marcado......... 20 2 2.0 140.1 152.1 42% $ 38,871 $24,667
Los Suris............ 20 2 1.1 97.6 104.2 28 32,685 13,135
Escondido............ 18 4 1.6 78.0 87.6 24 23,926 23,330
La Vertiente......... 18 4 0.5 19.0 22.0 6 5,971 3,090
Taiguati............. 18 1 -- 0.4 0.4 -- -- 221
-- --- ----- ----- --- -------- -------
13 5.2 335.1 366.3 100% $101,453 $64,443
== === ===== ===== === ======== =======
</TABLE>
- ---------------
(a) Represents the discounted future net cash flows after Bolivian taxes. See
Note N of Notes to Tesoro's Consolidated Financial Statements for additional
information regarding the Company's proved reserves and standardized
measure.
BOLIVIAN ACREAGE AND PRODUCTIVE WELLS
The following table sets forth the Company's Bolivian gross and net acreage
and productive wells at December 31, 1997:
<TABLE>
<CAPTION>
GROSS NET
------- -------
<S> <C> <C>
Acreage:
Developed................................................. 92,625 92,625
Undeveloped............................................... 787,313 551,063
Productive Gas Wells(a)................................... 13 13
</TABLE>
- ---------------
(a) Included in productive gas wells are five gross (five net) wells with
multiple completions. The Company has no producing oil wells in Bolivia.
BOLIVIA OPERATING STATISTICS
The following table summarizes the Company's Bolivian exploration and
production activities for the years ended December 31, 1995, 1996 and 1997 and
the three months ended March 31, 1998:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS
------------------------ ENDED MARCH 31,
1995 1996 1997 1998
------ ------ ------ ---------------
<S> <C> <C> <C> <C>
Average Daily Net Production:
Natural gas (Mcf)......................... 18,650 20,251 19,537 22,769
Condensate (barrels)...................... 567 584 518 816
Total (Mcfe).............................. 22,052 23,755 22,645 27,665
Exploratory Wells Drilled:
Productive -- gross....................... 1.0 2.0 -- --
Productive -- net......................... 0.7 1.5 -- --
Dry holes -- gross........................ -- -- -- --
Dry holes -- net.......................... -- -- -- --
</TABLE>
78
<PAGE> 84
For further information regarding the Company's Bolivian operations, see
Notes B, C and N of Notes to Tesoro's Consolidated Financial Statements.
MARINE SERVICES
OVERVIEW
The Company's Marine Services segment markets and distributes a broad range
of products, including diesel fuel, lubricants, chemicals and supplies, and
provides logistical support services to the marine and offshore exploration and
production industries operating in the Gulf of Mexico. These operations were
conducted in 1997 through a network of 18 marine and two land terminals located
on the Texas Gulf Coast in Galveston, Freeport, Harbor Island, Port O'Connor,
Sabine Pass, Channelview and Houston and along the Louisiana Gulf Coast in
Cameron, Intracoastal City, Berwick, Venice, Port Fourchon, Amelia and Harahan.
The marine terminals are generally deep water and are bulkheaded and dredged to
provide easy access to vessels receiving products for delivery to customers.
Products are delivered offshore aboard vessels owned or chartered by customers,
which include companies engaged in oil and gas exploration and production,
seismic evaluation, offshore construction and other drilling-related businesses.
In January 1998, the Marine Services operations were expanded to include the
operations of three terminals located on the U.S. West Coast, previously
operated by the Company's Refining and Marketing segment (see
"-- Marketing -- Pacific Northwest" discussed above).
FUELS AND LUBRICANTS
Fuels and lubricants, which are used by operations such as offshore
drilling rigs, offshore production and transmission platforms and various ships
and equipment engaged in seismic surveys, are marketed and distributed from the
Company's terminals. These terminals and a fleet of seven tugboats (including
four owned by the Company) and 14 barges (including 12 owned by the Company)
serve offshore workboats, tugboats and barges using the Intracoastal Canal
System, as well as ships entering the ports of Houston, New Orleans, Lake
Charles, Corpus Christi and Port Arthur. The Company obtains its supply of fuel
from refiners in the Gulf Coast area. Total gallons of fuel, primarily diesel
fuel, sold by Marine Services amounted to 112.5 million, 142.7 million and 156.4
million in the years 1995, 1996 and 1997, respectively. During the three months
ended March 31, 1997 and 1998, total gallons of fuel sold by Marine Services
were approximately 39.6 million and 47.9 million, respectively.
The Company is a distributor of major brands of marine lubricants and
greases, offering a full spectrum of grades. Lubricants are delivered to
customers by trucks or tugs and barges. Total gallons of lubricants sold by
Marine Services amounted to 2.5 million, 2.3 million and 2.7 million for the
years ended December 31 1995, 1996 and 1997, respectively. For the three months
ended March 31, 1997 and 1998, total gallons of lubricants were 0.7 and 1.7
million, respectively.
LOGISTICAL SERVICES
Through many of its terminals, the Company provides full-service
shore-based support for offshore drilling rigs and production platforms. These
quayside services provide cranes, forklifts and loading docks for supply boats
serving the offshore exploration and production industry. In addition, the
Company provides long-term parking for offshore workers, helicopter landing pads
and office space with living quarters. The Company's terminals also serve as
delivery points for drilling products, primarily mud, by providing warehousing,
blending, inventory control and delivery services. In the years 1995, 1996 and
1997, revenues from these logistical services were $0.6 million, $8.7 million
and $11.3 million, respectively. In the three months ended March 31, 1997 and
1998, revenues from logistical services were $3.0 million and $2.9 million,
respectively.
79
<PAGE> 85
COMPETITION AND OTHER
The petroleum industry is highly competitive in all phases, including the
refining of crude oil, the marketing of refined petroleum products, the search
for and development of oil and gas reserves and the marine services business.
The industry also competes with other industries that supply the energy and fuel
requirements of industrial, commercial and individual consumers. The Company
competes with a substantial number of major integrated oil companies and other
companies having materially greater financial and other resources than the
Company. These competitors have a greater ability to bear the economic risks
inherent in all phases of the industry. In addition, unlike the Company, many of
its competitors produce large volumes of crude oil which can then be used in
connection with their refining operations. The North American Free Trade
Agreement has further streamlined and simplified procedures for the importation
and exportation of natural gas among Mexico, the United States and Canada. These
changes are likely to enhance the ability of Canadian and Mexican producers to
export natural gas and other products to the United States, thereby further
increasing competition for domestic sales.
The refining and marketing businesses are highly competitive, with price
being the principal factor in competition. In the refining industry, the Alaska
Refinery competes primarily with other refineries in Alaska and on the U.S. West
Coast. The Company's refining competition in Alaska includes two refineries
situated near Fairbanks and one refinery situated near Valdez. The Company
estimates that such other refineries have a combined capacity to process
approximately 184,000 bpd of crude oil. The Company believes that ANS crude oil
is the only feedstock used in these competing refineries. After processing the
crude oil and removing the lighter-end products, which the Company believes
represent approximately 30% of each barrel processed, these refiners are
permitted, because of their direct connection to the TAPS, to return the
remainder of the processed crude back into the pipeline system as "return oil"
in consideration for a fee, thereby eliminating their need to market residual
products. The Alaska Refinery is not directly connected to the TAPS, and the
Company, therefore, cannot return its residual products to the TAPS. The
Company's refining competition from the U.S. West Coast includes many large,
integrated oil companies that do business in Alaska and have materially greater
financial and other resources. The Hawaii Refinery competes primarily with one
other refinery in Hawaii which is also located at Kapolei and which has a rated
capacity of 55,000 bpd of crude oil. Historically, the other refinery in Hawaii
produced lower volumes of jet fuel than BHP Hawaii. The Washington Refinery
competes with several refineries on the U.S. West Coast, including refineries
which are larger than the Washington Refinery and which are owned by companies
substantially larger than the Company.
The Company is a major producer and distributor of gasoline in Alaska and
Hawaii through a large network of Company-operated stations and branded and
unbranded dealers and jobbers. The Company is also a supplier to a major oil
company through a product exchange agreement, whereby gasoline in Alaska is
provided in exchange for gasoline delivered to the Company on the U.S. West
Coast. In addition, the Company is a supplier to a major oil company in Hawaii
through a gasoline sales agreement. Competitive factors affecting the marketing
of gasoline in Alaska and Hawaii include such factors as product price, location
and quality together with station appearance and brand-name identification. The
Company competes with other petroleum companies, distributors and other
developers for new locations. The Company believes it is in a position to
compete effectively as a marketer of gasoline in Alaska and Hawaii because of
its strong presence in these markets.
The Company's jet fuel sales in Alaska are concentrated in Anchorage, where
it is one of the principal suppliers to the Anchorage International Airport,
which is a major hub for air cargo traffic between manufacturing regions in the
Far East and consuming regions in the United States and Europe. In Hawaii, jet
fuel sales are concentrated in Honolulu, where the Company is the principal
supplier to the Honolulu Airport. The Company also serves four airports on other
islands in Hawaii. The Company sells its diesel fuel primarily on a wholesale
basis. Refined products from foreign sources also compete for distillate markets
in the Company's Alaskan market area.
The Company's Pacific Northwest marketing business is primarily a
distribution business selling to independent dealers and jobbers. In addition,
the Company sells its gasoline through 30 branded gasoline
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stations in the Pacific Northwest. The Company competes against independent
marketing companies and integrated oil companies when engaging in these
marketing operations.
The exploration for and production of natural gas and oil is highly
competitive in both the United States and in South America. In seeking to
acquire producing properties, new leases, concessions and exploration prospects,
the Company faces competition from both major and independent oil and natural
gas companies. Many of these competitors have financial and other resources
substantially in excess of those available to the Company and, therefore, may be
better positioned to acquire and develop prospects, hire personnel and market
production. The larger competitors may also be able to better respond to factors
that influence the market for oil and natural gas production, such as changes in
worldwide prices and governmental regulations. Such factors are beyond the
control of the Company.
The Company's natural gas production in Bolivia is sold under contract to
YPFB, which in turn exports the natural gas to Argentina, as the internal demand
for natural gas in Bolivia is limited. The Company believes that the completion
of a 1,900-mile pipeline from Bolivia to Brazil will provide access to larger
gas-consuming markets. Upon completion of this pipeline, the Company will face
intense competition from major and independent natural gas companies operating
in Bolivia for a share of the contractual volumes to be exported to Brazil. It
is anticipated that each producer's share of the contractual volumes will be
allocated by YPFB according to a number of factors, including each producer's
reserve volumes and production capacity. Although the Company expects gas
deliveries on the pipeline to begin in early 1999, there can be no assurance
that the pipeline will be operational by such date. With the exception of the
volumes currently under contract with the Bolivian government, the Company
cannot be assured of the amount of additional volumes that will be exported to
Brazil upon completion of the pipeline.
Demand for services and products offered by the Company's Marine Services
segment is closely related to the level of oil and gas exploration, development
and production in the Gulf of Mexico. Various factors, including general
economic conditions, demand for and prices of natural gas, availability of
equipment and materials and government regulations and energy policies cause
exploration and development activity to fluctuate and directly impact the
revenues of the Marine Services segment. Management believes that the principal
competitive factors affecting the Marine Services operations are location of
facilities, availability of logistical support services, experience of personnel
and dependability of service. The market for the Marine Services segment's
products and services, particularly diesel fuel, is price sensitive. The Company
competes with several independent operations, and in certain locations with one
or more major mud companies who maintain their own marine terminals.
A portion of the Company's operations are conducted in foreign countries
where the Company is also subject to risks of a political nature and other risks
inherent in foreign operations. The Company's operations outside the United
States in recent years have been, and in the future may be, materially affected
by host governments through increases or variations in taxes, royalty payments,
export taxes and export restrictions and adverse economic conditions in the
foreign countries, the future effects of which the Company is unable to predict.
GOVERNMENT REGULATION AND LEGISLATION
UNITED STATES
Natural Gas and Oil Regulations. Historically, all domestic natural gas
sold in so-called "first sales" was subject to federal price regulations under
the Natural Gas Policy Act of 1978 ("NGPA"), the Natural Gas Act ("NGA") and the
regulations and orders issued by the Federal Energy Regulatory Commission
("FERC") in implementing such Acts. Under the Natural Gas Wellhead Decontrol Act
of 1989, all remaining federal natural gas wellhead pricing and sales regulation
was terminated on January 1, 1993.
The FERC also regulates interstate natural gas pipeline transportation
rates and service conditions, which affect the marketing of gas produced by the
Company, as well as the revenues received by the Company for sales of such gas.
Since the latter part of 1985, through a series of orders, the FERC has
endeavored to make natural gas transportation more accessible to gas buyers and
sellers on an open and non-discriminatory basis,
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and the FERC's efforts have significantly altered the marketing and pricing of
natural gas. These orders have gone through various permutations, but have
generally remained intact as promulgated. The FERC considers these changes
necessary to improve the competitive structure of the interstate natural gas
pipeline industry and to create a regulatory framework that will put gas sellers
into more direct contractual relations with gas buyers than has historically
been the case. The result of the changes has brought to an end the interstate
pipelines' traditional role as wholesalers of natural gas in favor of providing
only gathering, transportation and storage services for others which will buy
and sell natural gas. Although these orders do not directly regulate gas
producers, such as the Company, they are intended to foster increased
competition within all phases of the natural gas industry. It is unclear what
impact, if any, increased competition within the natural gas industry will have
on the Company and its gas sales efforts. Several aspects of these orders are
still being reviewed by the courts and the FERC. It is not possible to predict
what, if any, effect these proceedings will have on the Company. The Company
does not believe, however, that it will be affected any differently than other
gas producers or marketers with which it competes.
The oil and gas exploration and production operations of the Company are
subject to various types of regulation at the state and local levels. Such
regulation includes requiring drilling permits and the maintenance of bonds in
order to drill or operate wells, the regulation of the location of wells, the
method of drilling and casing of wells and the surface use and restoration of
properties upon which wells are drilled, and the plugging and abandoning of
wells. The operations of the Company are also subject to various conservation
regulations, including regulation of the size of drilling and spacing units or
proration units, the density of wells that may be drilled in a given area and
the unitization or pooling of oil and gas properties. In this regard, some
states allow the forced pooling or integration of lands and leases. In addition,
state conservation laws establish maximum rates of production from oil and gas
wells, generally prohibit the venting or flaring of gas and impose certain
requirements regarding the ratability of production. The effect of these
regulations is to limit the amounts of crude oil, condensate and natural gas the
Company can produce from its wells and the number of wells or the locations at
which the Company can drill.
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. The Company cannot predict when or if any such
proposals might become effective, or their effect, if any, on the Company's
operations.
Environmental Controls. Federal, state, area and local laws, regulations
and ordinances relating to the protection of the environment affect all
operations of the Company to some degree. An example of a federal environmental
law that will require operational additions and modifications is the Clean Air
Act, which was amended in 1990. While the Company believes that its facilities
generally are in substantial compliance with current regulatory standards for
air emissions, over the next several years the Company's facilities will be
required to comply with the new requirements being adopted and promulgated by
the EPA and the states in which the Company operates. These regulations will
necessitate the installation of additional controls or other modifications or
changes in use for certain emission sources at the Alaska, Hawaii and Washington
Refineries. Specifics as to the cost of these requirements, and the necessity
for changes at other Company facilities, are still being determined. As part of
these requirements, the Alaska, Hawaii and Washington Refineries, as well as
some other Company facilities submitted applications for Clean Air Act Amendment
Title V permits. Each application has been deemed complete by their respective
states and will undergo technical review in 1998. The Company believes it can
comply with these new requirements, and in some cases already has done so,
without adversely affecting operations.
The passage of the Federal Clean Air Act Amendments of 1990 prompted
adoption of regulations by the state of Alaska obligating the Company to produce
oxygenated gasoline for delivery to the Anchorage and Fairbanks, Alaska markets
starting on November 1, 1992. Controversies surrounding the potential health
effects in Arctic regions of oxygenated gasoline containing methyl tertiary
butyl ether ("MTBE") prompted early discontinuance of the program in Fairbanks.
The EPA has been directed to conduct studies of potential health effects of
oxygenated fuel in Alaska. The state of Alaska mandated the use of oxygenated
fuels containing ethanol in the Anchorage area. No requirements for use of such
products in Fairbanks have been issued, but are expected. Additional federal
regulations promulgated on August 21, 1990, which went into effect on October 1,
1993, set limits on the quantity of sulphur in on-highway diesel fuels which the
Company
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produces. The state filed an application with the federal government in February
1993 for a waiver from this requirement since only 5% of the diesel fuel sold in
Alaska was for on-highway vehicles. On March 14, 1994, the EPA granted the State
of Alaska a waiver from the requirements of the EPA's low sulphur diesel fuel
program, permanently exempting Alaska's remote areas and providing a temporary
exemption for areas served by the Federal Aid Highway System until October 1,
1996. On August 19, 1996, the EPA extended the temporary exemption until October
1, 1998. The Company estimates that substantial capital expenditures would be
required to enable the Company to produce low-sulphur diesel fuel to meet these
federal regulations. If the state of Alaska is unable to obtain a permanent
waiver from the federal regulations, the Company would discontinue sales of
diesel fuel for on-highway use after October 1, 1998. The Company estimates that
such sales accounted for less than 1% of its refined product sales in Alaska
during 1997. While the Company is unable to predict the outcome of these
matters, their ultimate resolution should not have a material impact on its
operations.
Underground Storage Tanks. Regulations promulgated by the EPA on September
23, 1988, require that all underground storage tanks used for storing gasoline
or diesel fuels either be closed or upgraded not later than December 22, 1998,
in accordance with specified regulatory standards. The Company's gasoline retail
stations which are subject to upgrading requirements are limited to sites in
Alaska and Hawaii. The Company is expected to incur a total cost of
approximately $1 million by December 22, 1998 for the removal, replacement or
upgrading of underground storage tanks at current and former service stations in
Alaska and Hawaii. In Hawaii, all but two gasoline retail stations have been
brought into compliance with the 1998 regulatory requirements. Of the two
remaining, one station is scheduled to be demolished and completely rebuilt to
comply with regulatory requirements. Pending resolution of a dispute over the
lease to the other station, the Company has not to date scheduled nor committed
to complete upgrades until its interests to the property are resolved. If the
Company commits to remain at the site, then the necessary upgrades will be
completed prior to the regulatory deadline.
Total Environmental Expenditures. Tesoro's total capital expenditures for
environmental control purposes were $2.2 million during 1997. Capital
expenditures for the alternate secondary containment systems in Alaska,
discussed above, are estimated to be $2 million in 1998 and $2 million in 1999
with the remaining $5 million to be spent by 2002. Capital expenditures for
other Alaska environmental control purposes are estimated to be $7 million in
1998 and $2 million in 1999. Capital expenditures for Hawaii environmental
controls are expected to be $4 million in 1998 and $1 million in 1999, the
majority of which are to install specific sulphur emission control devices at
the Hawaii Refinery. Capital expenditures for the Washington Refinery are
expected to be $2 million in 1998 and $1 million in 1999, primarily for new
storage tank roof seals and improving drainage controls. For further information
regarding environmental matters, see "-- Legal Proceedings" and
"-- Environmental Controls," "-- Oil Spill Prevention and Response" and
"-- Underground Storage Tanks."
Oil Spill Prevention and Response. The Federal Oil Pollution Act of 1990
("OPA 90") and related state regulations require most refining, transportation
and oil storage facilities to prepare oil spill prevention contingency plans for
use during an oil spill response. The Company has prepared and submitted these
plans for approval and, in most cases, has received federal and state approvals
necessary to meet various regulations and to avoid the potential of negative
impacts on the operation of its facilities.
The Company currently charters tankers to transport crude oil from the
Valdez, Alaska, pipeline terminal through Prince William Sound and Cook Inlet to
the Alaska Refinery. In addition, the Company routinely charters, on a long-term
and short-term basis, additional tankers and barges for shipment of crude oil
and refined products through Alaska, Pacific Northwest and Hawaii waters. OPA 90
requires, as a condition of operation, that the Company demonstrate the
capability to respond to the "worst case discharge" to the maximum extent
practicable. Alaska law requires the Company to provide spill-response
capability to contain or control, and cleanup within 72 hours, an amount equal
to (i) 50,000 barrels for a tanker carrying fewer than 500,000 barrels of crude
oil or (ii) 300,000 barrels for a tanker carrying more than 500,000 barrels. To
meet these requirements, the Company has entered into a contract with Alyeska
Pipeline Service Company ("Alyeska") to provide initial spill response services
in Prince William Sound, with the Company later to assume those responsibilities
after mutual agreement with Alyeska and State and Federal On-Scene
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<PAGE> 89
Coordinators. The Company has also entered into an agreement with Cook Inlet
Spill Prevention and Response, Incorporated for oil spill response services in
Cook Inlet. Similarly, the Company has entered into contracts with the Clean
Islands Council in Hawaii, Clean Sound Cooperative, Inc. in the State of
Washington and the Marine Spill Response Corporation in Hawaii, Washington and
the Texas-Louisiana Gulf Coast, for spill response services. The Company
believes these contracts provide for the additional services necessary to meet
spill response requirements established by state and federal law.
Transportation, storage and refining of crude oil results in the greatest
regulatory impact with respect to oil spill prevention and response. Oil
transportation and terminalling operations at other Company facilities also
result in compliance mandates for oil spill prevention and response. The Company
contracts with various oil spill response cooperatives or local contractors to
provide necessary oil spill response capabilities which may be required on a
location by location basis.
Regulations promulgated by the Alaska Department of Environmental
Conservation ("ADEC") would have required the installation of dike liners in
secondary containment systems for petroleum storage tanks by January 1997.
However, on December 18, 1996, ADEC approved the Company's alternative
compliance schedule which allows the Company until the year 2002 to implement
alternative secondary containment systems for all of the Company's existing
petroleum storage tank facilities. The total estimated cost of these
improvements is approximately $9 million, which is expected to be spent over a
five-year period beginning in 1998.
BOLIVIA
The Company's operations in Bolivia are subject to the Bolivian
Hydrocarbons Law and various other laws and regulations. In the Company's
opinion, neither the Hydrocarbons Law nor other requirements currently imposed
by Bolivian laws, regulations and practices will have a material adverse effect
upon its Bolivian operations. For information on the Bolivian Hydrocarbons Law
and Bolivian taxation, see " -- Exploration and Production -- Bolivia" discussed
above.
EMPLOYEES
At December 31, 1997, Tesoro employed approximately 1,100 persons, of whom
approximately 40 were located in foreign countries, BHP Hawaii employed
approximately 800 persons and Shell Washington employed approximately 300
persons. Approximately 180 employees at the Washington Refinery are covered by a
collective bargaining agreement. The Company considers its relations with its
employees to be satisfactory.
LEGAL PROCEEDINGS
The Company, along with numerous other parties, has been identified by the
EPA as a potentially responsible party ("PRP") pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") for the D.L.
Mud Superfund site in Abbeville, Louisiana (the "Site"). The Company arranged
for the disposal of a minimal amount of materials at the Site, but CERCLA might
impose joint and several liability on each PRP at the Site. The EPA is seeking
reimbursement for its response costs incurred to date at the Site, as well as a
commitment from the PRPs either to conduct future remedial activities or to
finance such activities. The extent of the Company's allocated financial
contributions to the cleanup of the Site is expected to be limited based upon
the number of companies, volumes of waste involved, and an estimated total cost
of approximately $500,000 among all of the parties to close the Site. The
Company is currently involved in settlement discussions with the EPA and other
PRPs involved at the Site. The Company expects, based on these discussions, that
its liability at the Site will not exceed $25,000.
The Hawaii Department of Health ("HDOH"), under authority of the Hawaii
Environmental Response Law, has undertaken an investigation of environmental
conditions within a portion of the Honolulu Harbor area, which has been
designated the Iwilei Unit, to determine the extent of hydrocarbon
contamination. A group of owners and operators at the Iwilei Unit, including BHP
Hawaii, have entered into a voluntary agreement with the HDOH to undertake an
initial phase of environmental site investigation within the Iwilei
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unit in exchange for certain commitments from the HDOH, including the
notification of additional potentially responsible parties to participate in
this activity. The costs associated with this proceeding cannot be determined at
this early stage. BHP Hawaii owned and operated facilities in the Iwilei unit,
including, but not limited to the Pier 29 terminal facilities (which were
returned, upon expiration of the lease term, to the state of Hawaii Department
of Transportation) and the Pier 34 terminal facilities (which are now owned and
operated by the Company under a lease with the same agency). Under the indemnity
provisions of the environmental agreement between the BHP Sellers and the
Company, the Company is fully indemnified for claims arising out of this
proceeding as it relates to the Iwilei Unit by affiliates of BHP and this
indemnity is not subject to the $9.5 million cap or ten-year claim period. See
discussion in "-- Government Regulation and Legislation" above.
The EPA issued a Notice of Violation ("NOV") on June 24, 1997, against the
Hawaii Refinery alleging violations of the Clean Water Act associated with the
content and implementation of the Refinery's Spill Prevention, Control and
Countermeasures ("SPCC") Plan, and further alleging violations based on a series
of oil releases. The Company and the EPA remain engaged in settlement
discussions with remaining issues limited to alleged deficiencies in the content
of the refinery Spill Prevention, Control and Countermeasures Plan. This
proceeding is subject to the indemnity provision of the environmental agreement
between BHP Sellers and the Company.
Also on June 24, 1997, a NOV was issued against BHP Companies pursuant to
Section 103 of CERCLA and Section 304 of the Emergency Planning and Community
Right to Know Act ("EPCRA") regarding past releases of reportable quantities of
regulated substances and oil. This matter remains subject to EPA review and
penalty amounts have not been assessed to date. This proceeding is subject to
the indemnity provisions of the environmental agreement between BHP Sellers and
the Company.
On August 5, 1996, the EPA issued a Finding of Violation ("FOV") against
BHP Hawaii pursuant to disclosures made by BHP Hawaii pursuant to a permit
application for compliance with Title V of the Clean Air Act. The parties have
engaged in settlement negotiations and no penalty amount has been assessed. This
proceeding is subject to the indemnity provision of the environmental agreement
between affiliates of BHP and the Company. See discussion in "-- Government
Regulation and Legislation" above.
The EPA issued a NOV on May 19, 1998, against the Alaska Refinery alleging
violations of the Resource Conservation and Recovery Act ("RCRA") associated
with the failure to maintain closure of certain containers of hazardous waste
when not in use and the failure to retain on-site certain records of land
disposal restriction notifications. The Company has initiated an investigation
into these allegations, but does not believe that the resolution thereof will
have a material effect on the Company.
The EPA has notified Shell that it is a PRP at the Swinomish dump site in
Washington State. In the environmental agreement between Shell Washington and
the Company, Shell has fully indemnified the Company for environmental
liabilities arising from wastes delivered to the Swinomish dump site prior to
the closing of the Washington Acquisition. The Company does not currently plan
to utilize this site following the closing of the Washington Acquisition.
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MANAGEMENT
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following is a list of Tesoro's executive officers, their ages and
their positions with the Company at July 1, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION POSITION HELD SINCE
- ---- --- -------- -------------------
<S> <C> <C> <C>
Bruce A. Smith.................... 54 Chairman of the Board of June 1996
Directors, President and Chief
Executive Officer
William T. Van Kleef.............. 46 Executive Vice President, September 1996
Operations
James C. Reed, Jr................. 53 Executive Vice President, General September 1995
Counsel and Secretary
Thomas E. Reardon................. 52 Senior Vice President, Corporate May 1998
Resources
Donald A. Nyberg.................. 46 President, Tesoro Marine Services, November 1996
Inc.
Robert W. Oliver.................. 44 President, Tesoro Exploration and September 1995
Production Company
Stephen L. Wormington............. 53 President, Tesoro Alaska Petroleum May 1998
Company, and Executive Vice
President and Chief Operating
Officer of Tesoro Refining,
Marketing & Supply Company
Don E. Beere...................... 57 Vice President, Information May 1998
Technology Projects
Don M. Heep....................... 49 Vice President, Controller May 1998
Gregory A. Wright................. 48 Vice President, Finance and May 1998
Treasurer
</TABLE>
There are no family relationships among the officers listed, and there are
no arrangements or understandings pursuant to which any of them were elected as
officers. Officers are elected annually by the Board of Directors at its first
meeting following the Annual Meeting of Stockholders, each to hold office until
the corresponding meeting of the Board in the next year or until a successor
shall have been elected or shall have qualified.
All of the Company's executive officers have been employed by the Company
or its subsidiaries in an executive capacity for at least the past five years,
except for those named below who have had the business experience indicated
during that period. Positions, unless otherwise specified, are with the Company.
William T. Van Kleef....... Executive Vice President, Operations since
September 1996. Senior Vice President and Chief
Financial Officer from September 1995 to September
1996. Vice President, Treasurer from March 1993 to
September 1995. Independent financial consultant
from January 1992 to February 1993.
Thomas E. Reardon.......... Senior Vice President, Corporate Resources since
May 1998. Vice President, Human Resources and
Environmental, from September 1995 to May 1998.
Vice President, Human Resources and Environmental
Services, of Tesoro Petroleum Companies, Inc., a
subsidiary of the Company, from October 1994 to
September 1995. Vice President, Human Resources, of
Tesoro Petroleum Companies, Inc. from February 1990
to October 1994.
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Donald A. Nyberg........... President of Tesoro Marine Services, Inc., a
subsidiary of the Company, since November 1996.
Vice President, Strategic Planning, of MAPCO Inc.
from January 1996 to November 1996. President and
Chief Executive Officer of Marya Resources from
August 1994 to January 1996. President and Chief
Executive Officer of BP Pipelines Inc. and Vice
President, BP Exploration, of The British Petroleum
Group, Ltd., from 1991 to 1994.
Robert W. Oliver........... President of Tesoro Exploration and Production
Company, a subsidiary of the Company, since
September 1995. Independent consultant from
November 1994 to September 1995. Vice President,
Exploration/Acquisitions, of Bridge Oil (USA) Inc.
from December 1988 to November 1994.
Stephen L. Wormington...... President of Tesoro Alaska Petroleum Company, a
subsidiary of the Company, since September 1995,
and Executive Vice President and Chief Operating
Officer of Tesoro Refining, Marketing & Supply
Company, a subsidiary of the Company, since May
1998. Vice President, Supply and Operations
Coordination, of Tesoro Alaska Petroleum Company
from April 1995 to September 1995. General Manager,
Strategic Projects, from January 1995 to April
1995. Executive Vice President, Special Projects,
of MG Refining & Marketing, Inc. from January 1994
to January 1995. Executive Vice President of MG
Natural Gas Corp. from May 1992 to January 1994.
Don M. Heep................ Vice President, Controller since May 1998. Senior
Vice President, Administration for Tesoro Alaska
Petroleum Company, a subsidiary of the Company,
from November 1996 to May 1998. Senior Vice
President and Chief Financial Officer of Valero
Energy Corporation from 1994 to 1996. Vice
President and Chief Accounting Officer of Valero
Energy Corporation from 1992 to 1994.
Gregory A. Wright.......... Vice President, Finance and Treasurer since May
1998. Vice President and Treasurer from September
1995 until May 1998. Vice President, Corporate
Communications, from February 1995 to September
1995. Vice President, Corporate Communications, of
Tesoro Petroleum Companies, Inc., a subsidiary of
the Company, from January 1995 to February 1995.
Vice President, Business Development, of Valero
Energy Corporation from 1994 to January 1995. Vice
President, Corporate Planning, of Valero Energy
Corporation from 1992 to 1994.
INFORMATION CONCERNING DIRECTORS
Certain information as to each director is set forth in the table below and
in the following paragraphs. Certain of the information appearing in the table
and the notes thereto has been furnished to the Company by the respective
directors.
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR OF
AGE AT THE COMPANY
JULY 1, OR PREDECESSOR OTHER POSITIONS AND OFFICES
NAME 1998 COMPANIES FROM WITH THE COMPANY
---- ------- -------------- ---------------------------
<S> <C> <C> <C>
Steven H. Grapstein................ 40 1992 Vice Chairman of the Board of
Directors(a)(b)(c)
William J. Johnson................. 63 1996 (b)(d)
Alan J. Kaufman.................... 60 1996 (b)(d)
</TABLE>
(Table continued on next page)
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<PAGE> 93
(Table continued from previous page)
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR OF
AGE AT THE COMPANY
JULY 1, OR PREDECESSOR OTHER POSITIONS AND OFFICES
NAME 1998 COMPANIES FROM WITH THE COMPANY
---- ------- -------------- ---------------------------
<S> <C> <C> <C>
Raymond K. Mason, Sr............... 71 1983 (a)(d)
Bruce A. Smith..................... 54 1995 Chairman of the Board of Directors,
President and Chief Executive
Officer(a)
Patrick J. Ward.................... 67 1996 (c)(d)
Murray L. Weidenbaum............... 71 1992 (a)(c)
</TABLE>
- ---------------
(a) Member of the Executive Committee (Mr. Smith, Chairman).
(b) Member of the Audit Committee (Mr. Grapstein, Chairman).
(c) Member of the Governance Committee (Dr. Weidenbaum, Chairman).
(d) Member of the Compensation Committee (Mr. Mason, Chairman).
Steven H. Grapstein has been Chief Executive Officer of Kuo Investment
Company and subsidiaries ("Kuo"), an international investment group, since
January 1997. From September 1985 to January 1997, Mr. Grapstein was a Vice
President of Kuo. He is also a director of several of the Kuo companies. Mr.
Grapstein has been a Vice President of Oakville N.V. since 1989. Mr. Grapstein
is also a director of Baldwin Plc., which is an entertainment and
leisure-related entity.
William J. Johnson has been a petroleum consultant and investor since 1994.
From 1990 through 1994, Mr. Johnson served as President, Chief Operating Officer
and a director of Apache Corporation, a large independent oil and gas company.
Mr. Johnson is on the Board of Directors of Camco International, Inc., an oil
field equipment and services company; Snyder Oil Corporation, an exploration and
production company; and J. Ray McDermott, S.A., an engineering and construction
company.
Alan J. Kaufman, M.D., is an investor in a number of companies and a
retired neurosurgeon. Since 1987, he has been a director of Newpark Resources,
Inc., a company engaged primarily in providing oil field services.
Raymond K. Mason, Sr., has been Chairman of the Board of Directors of
American Banks of Florida, Inc. since 1978.
Bruce A. Smith has been Chairman of the Board of Directors, President and
Chief Executive Officer of the Company since June 1996. He has been a director
of the Company since July 1995. Mr. Smith was President and Chief Executive
Officer of the Company from September 1995 to June 1996; Executive Vice
President, Chief Financial Officer and Chief Operating Officer of the Company
from July 1995 to September 1995; Executive Vice President responsible for
Exploration and Production and Chief Financial Officer of the Company from
September 1993 to July 1995; and Vice President and Chief Financial Officer of
the Company from September 1992 to September 1993.
Patrick J. Ward has 47 years of experience in international energy
operations with Caltex Petroleum Corporation, a 50/50 joint venture of Chevron
Corp. and Texaco, Inc., engaged in the business of refining and marketing. Prior
to his retirement in August 1995, he was Chairman, President and Chief Executive
Officer of Caltex, positions he held since 1990.
Murray L. Weidenbaum, an economist and educator, has been the Mallinckrodt
Distinguished University Professor and Chairman of the Center for the Study of
American Business at Washington University in St. Louis, Missouri, since 1975.
Dr. Weidenbaum is a director of May Department Stores Company.
No director of the Company has a family relationship with any other
director or executive officer of the Company.
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DESCRIPTION OF OTHER INDEBTEDNESS
In conjunction with the closing of the Hawaii Acquisition, Tesoro
refinanced substantially all of its existing indebtedness. The total amount of
funds required by Tesoro to complete the Hawaii Acquisition and the Refinancing,
to pay related fees and expenses and for general corporate purposes was
approximately $432 million, which was financed through the Interim Credit
Facility provided by LCPI. All borrowings under the Interim Credit Facility were
refinanced with net proceeds from the Offerings and borrowings under the Senior
Credit Facility described below.
SENIOR CREDIT FACILITY
On July 2, 1998, the Interim Credit Facility was amended and restated as
the Senior Credit Facility. The following is a summary of the material terms and
conditions of the Senior Credit Facility and the various related documents
entered into a connection therewith.
Loans, Interest Rates. The Senior Credit Facility is comprised of term loan
facilities aggregating not more than $200 million of Term Loans and a $300
million Revolver, which was implemented in conjunction with the closing of the
Offerings. The Term Loans consist of Tranche A Term Loans ($50 million of which
was initially funded) and a $100 million Tranche B Term Loan. In addition, the
Company may borrow up to $50 million under the Tranche A Term Loans, in up to
five draws, for a period of up to six months following the closing of the Senior
Credit Facility. The Revolver is available on a revolving basis during the
period commencing on the date of the closing of the Senior Credit Facility and
ending on the date that is three years after the date of the closing of the
Senior Credit Facility. The Revolver and the Tranche A Term Loans will bear
interest, at the Company's election, at either the Base Rate (as defined in the
Senior Credit Facility) plus a margin ranging from 0.00% to 0.625% or the
Eurodollar Rate (as defined in the Senior Credit Facility) plus a margin ranging
from 1.125% to 2.125%. The Tranche B Term Loan will bear interest, at the
Company's election, at either the Base Rate plus a margin ranging from 0.50% to
0.625% or the Eurodollar Rate plus a margin ranging from 2.00% to 2.125%.
Repayment. The principal amount of the Tranche A Loans and the Tranche B
Loan is repayable in quarterly installments during their respective terms in the
following approximate aggregate annual amounts:
<TABLE>
<CAPTION>
TRANCHE A LOANS(a) TRANCHE B LOAN
- ------------------------------------- -------------------------------------
YEAR AMOUNT YEAR AMOUNT
---- ----------- ---- -----------
<S> <C> <C> <C>
1...................... $ 0 1...................... $ 1,000,000
2...................... 20,000,000 2...................... 1,000,000
3...................... 25,000,000 3...................... 1,000,000
4...................... 25,000,000 4...................... 1,000,000
5...................... 30,000,000 5...................... 1,000,000
5 1/2.................. 95,000,000
</TABLE>
- ---------------
(a) Assuming the $50 million of additional borrowing capacity under the Tranche
A Term Loans is fully utilized.
Security. The obligations under the Senior Credit Facility and the related
documents are secured by a first priority lien upon all material domestic real
and personal property of the Company and its subsidiaries, including its
refineries and domestic oil and gas reserves, and a pledge of all of the capital
stock of the Company's active subsidiaries (provided that no lien has been
granted on the assets of foreign subsidiaries and no capital stock of foreign
subsidiaries has been pledged to the extent that the granting of such lien or
the making of such pledge would result in materially adverse United States
Federal income tax consequences to the Company or would violate applicable law).
Guarantees. The obligations of the Company under the Senior Credit Facility
are guaranteed by all of the Company's active subsidiaries (provided that no
guarantee by a foreign subsidiary has been made if such guarantee would result
in materially adverse United States federal income tax consequences to the
Company or would violate applicable law).
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Prepayment. The Company is required to make prepayments to the Tranche A
Term Loans and Tranche B Term Loan, with customary exceptions, in an amount
equal to 100% of the net proceeds of certain incurred indebtedness, 100% of the
net proceeds received by the Company and its subsidiaries (other than certain
net proceeds reinvested in the business of the Company or its subsidiaries) from
the disposition of any assets, including proceeds from the sale of stock of any
of the Company's subsidiaries and a percentage of excess cash flow, depending on
certain credit statistics.
Conditions and Covenants. The obligations of the lenders under the Senior
Credit Facility are subject to the satisfaction of certain conditions precedent
customary in similar credit facilities or otherwise appropriate under the
circumstances. The Company and each of its subsidiaries is subject to certain
negative covenants contained in the Senior Credit Facility, including, without
limitation, covenants that restrict, subject to specified exceptions: (i) the
incurrence of additional indebtedness and other obligations and the granting of
additional liens; (ii) mergers, acquisitions, investments and acquisitions and
dispositions of assets; (iii) investments, loans and advances; (iv) dividends,
stock repurchases and redemptions; (v) prepayment or repurchase of other
indebtedness and amendments to certain agreements governing indebtedness,
including the Indenture and the Notes; (vi) engaging in transactions with
affiliates; (vii) sales and leasebacks; (viii) changes in fiscal periods; (ix)
changes of lines of business; and (x) entering into agreements which prohibit
the creation of liens or limit the Company's subsidiaries' ability to pay
dividends. The Senior Credit Facility also contains customary affirmative
covenants, including compliance with environmental laws, maintenance of
corporate existence and rights, maintenance of insurance, property and interest
rate protection, financial reporting, inspection of property, books and records
and agreements to cause Shell Washington and its subsidiaries, if any, to become
Guarantors and to create security interests in their assets. In addition, the
Senior Credit Facility requires the Company to maintain compliance with certain
specified financial covenants including a maximum ratio of total debt to EBITDA
and a minimum interest coverage ratio. Certain of these financial, negative and
affirmative covenants are more restrictive than those set forth in the
Indenture.
Events of Default. The Senior Credit Facility also includes events of
default that are typical for senior credit facilities and appropriate in the
context of the Transactions, including, without limitation, nonpayment of
principal, interest, fees or reimbursement obligations with respect to letters
of credit, violation of covenants, inaccuracy of representations and warranties
in any material respect, cross default to certain other indebtedness and
agreements, bankruptcy and insolvency events, material judgments and
liabilities, defaults or judgments under ERISA and change of control. The
occurrence of any of such events of default could result in acceleration of the
Company's obligations under the Senior Credit Facility and foreclosure on the
collateral securing such obligations, which could have material adverse results
to holders of the Notes.
Failure to Close Washington Acquisition. In the event that the Washington
Acquisition does not close on or prior to December 31, 1998, the difference
between the amount of proceeds used to fund the Special Redemption ($151.5
million) and the amount held in escrow for the Washington Acquisition ($266.9
million) will be used first to prepay the Tranche B Term Loan with any remainder
to prepay outstanding Tranche A Term Loans. Simultaneously with such prepayment,
(i) the Revolver will be reduced to $250 million, (ii) the portion of the
Revolver available for letters of credit will be reduced to $150 million and
(iii) the undrawn commitments under the Tranche A Term Loans will be reduced by
an amount equal to the outstanding principal amount of the Tranche A Term Loans
after giving effect to the foregoing prepayment.
OTHER INDEBTEDNESS
After consummation of the Transactions, the Company will have other
indebtedness outstanding consisting primarily of an obligation to the Department
of Energy ("DOE"). See Note I to Tesoro's Consolidated Financial Statements. At
December 31, 1997, the Company's remaining obligation was to pay the DOE $9.2
million, exclusive of interest at 6%, over the next five years. In February
1998, the Company paid the DOE $1.3 million of this amount. The remaining amount
of outstanding indebtedness consists primarily of obligations of subsidiaries
for various equipment and properties, none of which is material to the
consolidated indebtedness of the Company. The Company also has capitalized lease
obligations of approximately $9 million for tugs and barges used in
transportation of petroleum products within Hawaii.
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In connection with the Hawaii Acquisition, the Company issued the BHP Note,
an unsecured, non-interest bearing promissory note in the amount of $50 million
payable in five equal annual installments of $10 million each beginning in May
2009. The BHP Note provides for earlier payment to the extent of one-half of the
amount by which earnings from the acquired assets, before interest expense,
income taxes and depreciation, depletion and amortization, as specified in the
BHP Note, exceed $50 million in any calendar year. Upon acceleration due to an
event of default, the amount outstanding to be paid under the BHP Note will be
reduced to present value using a discount rate of 9%.
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<PAGE> 97
DESCRIPTION OF THE NOTES
GENERAL
The Exchange Notes will be issued, and the Old Notes were issued, pursuant
to an Indenture (the "Indenture") among the Company, the Guarantors and the
Exchange Agent, U.S. Bank Trust National Association, as trustee (the
"Trustee"). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(the "Trust Indenture Act"). The Notes are subject to all such terms, and
Holders of Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of the provisions of the Indenture does
not purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. Copies
of the Indenture and Registration Rights Agreement are available as set forth
below under "-- Additional Information." The definitions of certain terms used
in the following summary are set forth below under "-- Certain Definitions." For
purposes of this summary, the term "Company" refers only to Tesoro Petroleum
Corporation and not to any of its Subsidiaries.
The Exchange Notes will be issued in increments of $1,000 solely in
exchange for an equal principal amount of Old Notes pursuant to the Exchange
Offer. The form and terms of the Exchange Notes will be identical in all
material respects to the form and terms of the Old Notes except that the
offering of the Exchange Notes has been registered under the Securities Act, and
the Exchange Notes will therefore not be subject to transfer restrictions,
registration rights and certain provisions relating to the payment of Liquidated
Damages under certain circumstances. See "-- Registration Rights; Liquidated
Damages." The Notes are subject to the terms stated in the Indenture, a copy of
which has been filed as an exhibit to the Registration Statement, and holders of
the Notes are referred thereto for a statement of those terms.
The Old Notes and the Exchange Notes will constitute a single series of
debt securities under the Indenture. If the Exchange Offer is consummated,
holders of Old Notes who do not exchange their Old Notes for Exchange Notes will
vote together with holders of the Exchange Notes for all relevant purposes under
the Indenture. In that regard, the Indenture requires that certain actions by
the holders thereunder (including following an Event of Default) must be taken,
and certain rights must be exercised, by specified minimum percentages of the
aggregate principal amount of the outstanding Notes issued under the Indenture.
In determining whether holders of the requisite percentage in principal amount
have given any notice, consent or waiver or taken any other action permitted
under the Indenture, any Old Notes that remain outstanding after the Exchange
Offer will be aggregated with the Exchange Notes, and the holders of such Old
Notes and the Exchange Notes will vote together as a single class for all such
purposes. Accordingly, all references herein to specified percentages in
aggregate principal amount of the outstanding Notes shall be deemed to mean, at
any time after the Exchange Offer is consummated, such percentages in aggregate
principal amount of the Old Notes and the Exchange Notes then outstanding.
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all current and future Senior Debt of the
Company, including borrowings under the Senior Credit Facility. All Indebtedness
incurred by the Company under the Senior Credit Facility will be secured by
substantially all of the Company's domestic assets and the Capital Stock of all
of the Company's existing and future active Subsidiaries (other than a minority
interest in foreign Subsidiaries), and will be guaranteed by substantially all
of the active Subsidiaries, which guarantees will be secured by substantially
all of such Subsidiaries' assets. The Notes will be guaranteed by all of the
Company's existing and future Subsidiaries that guarantee any Indebtedness of
the Company. The Notes will rank pari passu in right of payment with all other
senior subordinated Indebtedness of the Company issued in the future, if any,
and senior in the right of payment to all other subordinated Indebtedness of the
Company issued in the future, if any. As of March 31, 1998, on a pro forma basis
giving effect to the Transactions, the Company and its Subsidiaries would have
had approximately $185.2 million of Senior Debt outstanding (exclusive of an
additional approximately $350.0 million available under the Senior Credit
Facility, which if drawn would also be Senior Debt). The Indenture limits,
subject to certain financial tests and exceptions, the amount of additional
Indebtedness, including Senior Debt, that the Company and its Restricted
Subsidiaries may incur. See "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock."
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<PAGE> 98
As of the Issue Date, all of the Company's Subsidiaries will be Restricted
Subsidiaries. Under certain circumstances, the Company will be able to designate
current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to any of the restrictive covenants set forth
in the Indenture. See "-- Certain Covenants -- Restricted Payments."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $350 million,
$300 million of which were issued in the Notes Offering, and mature on July 1,
2008. Additional amounts may be issued after the Issue Date in one or more
series from time to time subject to the limitations set forth under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock" and restrictions contained in the Senior Credit Facility and any other
agreement to which the Company is a party at the time of such issuance. The
Company has agreed not to offer, issue or sell any notes, bonds or other amounts
under the Indenture other than the Notes for a period of 180 days from the Issue
Date without the prior written consent of Lehman Brothers. Interest on the Notes
will accrue at the rate of 9% per annum and will be payable semi-annually in
arrears on January 1 and July 1, commencing on January 1, 1999, to Holders of
record on the immediately preceding December 15 and June 15. Interest on the
Notes will accrue from the most recent date to which interest and Liquidated
Damages, if any, has been paid or, if no interest has been paid, from the date
of original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal of, and, premium, if any, and
interest and Liquidated Damages, if any, on, the Notes will be payable at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, payment of interest and
Liquidated Damages, if any, may be made by check mailed to the Holders of the
Notes at their respective addresses set forth in the register of Holders of
Notes; provided that all payments with respect to Notes the Holders of which
have given wire transfer instructions to the Company will be required to be made
by wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's office
or agency in New York will be the office of the Trustee maintained for such
purpose. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.
SUBORDINATION
The payment of principal of, and premium, if any, and interest and
Liquidated Damages, if any, on the Notes is subordinated in right of payment, as
set forth in the Indenture, to the prior payment in full, in cash, of all Senior
Debt of the Company, whether outstanding on the Issue Date or thereafter
incurred, assumed or guaranteed.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, in
an assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt of the Company will be
entitled to receive payment in full, in cash, of all Obligations due in respect
of such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt (whether or not
an allowable claim)) before the Holders of Notes will be entitled to receive any
payment with respect to the Notes, and until all Obligations with respect to
such Senior Debt are paid in full, in cash, pursuant to such liquidation or
dissolution, any such distribution to which the Holders of Notes would be
entitled shall be made to the holders of such Senior Debt (except that Holders
of Notes may receive and retain (i) Permitted Junior Securities, (ii) payments
made from the trust described under "-- Legal Defeasance and Covenant
Defeasance" or "-- Satisfaction and Discharge"; provided that at the time of its
creation such trust does not violate the Senior Credit Facility and (iii)
payments from funds released to the Company or the Trustee from escrow under the
Washington Agreement for payment of the Special Redemption Price as described
under "-- Special Redemption.")
The Company also may not make any payment upon or in respect of the Notes
(except (i) in Permitted Junior Securities, (ii) from the trust described under
"-- Legal Defeasance and Covenant Defeasance" or "-- Satisfaction and
Discharge"; provided that at the time of its creation such trust does not
violate the Senior Credit Facility or (iii) payments from funds released to the
Company or the Trustee from escrow under the Washington Agreement for payment of
the Special Redemption Price as described under "-- Special
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<PAGE> 99
Redemption") if (i) a default in the payment, when due, of the principal of, or
premium, if any, or interest on, Designated Senior Debt occurs and is continuing
beyond any applicable period of grace (a "Payment Default") or (ii) any other
default occurs and is continuing with respect to Designated Senior Debt that
permits holders of the Designated Senior Debt as to which such default relates
to accelerate its maturity without further notice or the expiration of any
applicable grace periods (a "Nonpayment Default") and the Trustee receives (and
the Company receives, if not sent by the Company) a notice of such default (a
"Payment Blockage Notice") from the Representative of the holders of any
Designated Senior Debt specifying an election to effect a payment blockage for
the period specified in the next sentence. Payments on the Notes may and shall
be resumed (a) in the case of a Payment Default, upon the date on which such
default is cured or waived or any acceleration is rescinded, as applicable and
(b) in case of a Nonpayment Default, the earlier of the date on which such
Nonpayment Default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated and not thereafter rescinded,
provided, in each case, the Company may pay the Notes without regard to the
foregoing if it and the Trustee receive written notice approving same from
Representatives of each Designated Senior Debt. No new period of payment
blockage may be commenced unless and until (i) 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal of, and, premium, if any, and interest and
Liquidated Damages, if any, on, the Notes that have come due have been paid in
full in cash. No Nonpayment Default that existed or was continuing on the date
of delivery of any Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such default shall
have been cured or waived for a period of not less than 90 days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of its Senior Debt or holders of debt
of the Company which is pari passu with the Notes but not expressly subordinated
to such Senior Debt. On a pro forma basis, after giving effect to the
Transactions, the Company and the Guarantors would have had approximately $185.2
million of Senior Debt outstanding at March 31, 1998 (exclusive of an additional
$350.0 million available under the Senior Credit Facility, which, if drawn,
would be Senior Debt). The Indenture limits, subject to certain financial tests,
the amount of additional Indebtedness, including Senior Debt, that the Company
and its Restricted Subsidiaries can incur. See "-- Certain Covenants --
Incurrence of Indebtedness and Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes are jointly and severally
guaranteed on a senior subordinated basis by the Guarantors. Any Subsidiary of
the Company that guarantees any Indebtedness of the Company shall be required to
execute Subsidiary Guarantees and become a Guarantor under the Indenture. The
Subsidiary Guarantee of each Guarantor is subordinated to the prior payment in
full of all Senior Debt of such Guarantor, and the amounts for which the
Guarantors are liable under its guarantees issued from time to time with respect
to Senior Debt of the Company, in each case to the same extent as the
Obligations of the Company with respect to the Notes are subordinated to Senior
Debt of the Company. An aggregate amount of $12.7 million of Senior Debt of all
Guarantors (excluding guarantees of Senior Debt of the Company) was outstanding
on a pro forma basis after giving effect to the Transactions as of March 31,
1998. The obligations of each Guarantor under its Subsidiary Guarantee are
limited to the maximum amount the Guarantors are permitted to guarantee under
applicable law without creating a "fraudulent conveyance." See "Risk
Factors -- Fraudulent Conveyance Considerations Relating to Subsidiary
Guarantees."
The Indenture provides that, subject to the provisions of the following
paragraph, no Guarantor may consolidate with or merge with or into (whether or
not such Guarantor is the surviving Person), another Person whether or not
affiliated with such Guarantor unless (i) the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the
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Notes and the Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; (iii) such Guarantor, or any
Person formed by or surviving any such consolidation or merger, would have
Consolidated Net Worth (immediately after giving effect to such transaction)
equal to or greater than the Consolidated Net Worth of such Guarantor
immediately preceding the transaction; and (iv) the Company would be permitted
by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately
after giving effect to such transaction, to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
covenant described above under the caption "-- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Preferred Stock."
Notwithstanding the foregoing paragraph, (i) any Guarantor may consolidate
with, merge into or transfer all or a part of its properties and assets to the
Company or any other Guarantor, (ii) any Guarantor may consolidate with, merge
into or transfer all or a part of its properties and assets to a Wholly Owned
Restricted Subsidiary of the Company that has no significant assets or
liabilities and was incorporated, organized or formed solely for purpose of
reincorporating or otherwise reorganizing such Guarantor in another State of the
United States; provided that such successor, resultant or transferee Person
continues to be a Guarantor and (iii) the Indenture provides that in certain
circumstances involving the disposition (including by way of merger,
consolidation or otherwise) of all or substantially all assets or all Capital
Stock of any Guarantor, and subject to related conditions, such transaction may
be so consummated and such Guarantor will be released from its Subsidiary
Guarantee and any resultant, surviving or transferee Person shall not be
required to assume such obligations upon the conditions described under the
caption "-- Certain Covenants -- Additional Subsidiary Guarantees."
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to July 1,
2003. Thereafter, the Notes will be subject to redemption at any time or from
time to time at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on July 1, of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003................................................... 104.5%
2004................................................... 103.0
2005................................................... 101.5
2006 and thereafter.................................... 100.0
</TABLE>
Notwithstanding the foregoing, at any time or from time to time on or
before July 1, 2001, the Company may on any one or more occasions redeem up to
35% of the aggregate principal amount of Notes outstanding at a redemption price
of 109% of the principal amount thereof, plus accrued and unpaid interest, if
any, and Liquidated Damages, if any, thereon, to the redemption date, with the
net cash proceeds of any one or more Public Equity Offerings; provided that at
least 65% of the aggregate principal amount of Notes outstanding on the Issue
Date remains outstanding immediately after each occurrence of such redemption;
and provided, further, that each such redemption shall occur within 90 days of
the date of the closing of such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption, other than a redemption described under the caption "Special
Redemption," shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at its
registered address. Notices of redemption may not be conditional. If any Note is
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<PAGE> 101
to be redeemed in part only, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in principal amount equal to the unredeemed portion thereof will be issued
in the name of the Holder thereof upon cancellation of the original Note. Notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest and Liquidated Damages, if any, cease to accrue on
Notes or portions of them called for redemption.
SPECIAL REDEMPTION
A portion of the Notes are subject to mandatory redemption if the
Washington Acquisition is not consummated by the Company, or the Washington
Agreement is terminated without consummation of the Washington Acquisition, on
or prior to December 31, 1998. In such event, the Company will be required to
redeem 50% of the aggregate principal amount of the Notes offered hereby (i.e.,
$150 million aggregate principal amount) at a redemption price equal to 101% of
the redeemed principal amount thereof (the "Special Redemption Price"), plus
accrued interest and Liquidated Damages, if any, to the date of redemption. The
date for such redemption (the "Special Redemption Date") is the earlier of
December 31, 1998 and ten business days following the date of termination of the
Washington Agreement without consummation of the Washington Acquisition.
Selection of Notes for special redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed, or, if the Notes are not so listed, on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no Notes of $1,000 or less shall be redeemed in part.
Pursuant to the Washington Agreement, the Company deposited into an escrow
account established by agreement with the seller and the Company $266.9 million
to be paid in respect of the Washington Acquisition. The escrow account was
established and funded contemporaneously with the issuance, authentication and
delivery of the Old Notes. The Indenture required the Company to deposit net
proceeds received by the Company from the offer and sale of the Old Notes and,
if additional funds become necessary, from other available cash or borrowings,
in an amount required to be deposited into escrow under the Washington
Agreement. The Company granted a security interest in its interest in the
Washington Acquisition escrow agreement to the Trustee to secure payment of the
Special Redemption Price. The Company also granted a security interest in favor
of the lenders under the Senior Credit Facility to secure the Senior Credit
Facility in respect of any escrow proceeds in excess of the aggregate Special
Redemption Price. The escrow arrangement provides that, in the event the
Washington Acquisition is not consummated prior to December 31, 1998 (or an
earlier date agreed to by the Company and the seller), or the Washington
Agreement is terminated prior to such date without such consummation (without
fault of the Company), the funds held in escrow will be released to the Company
together with any interest or investment proceeds earned thereon. To the extent
funds are released from escrow without consummation of the Washington Agreement,
an amount equal to the aggregate Special Redemption Price will be paid to the
Trustee for payment of the Special Redemption Price in partial redemption of the
Notes as described above. The remainder of funds released from escrow will be
applied to prepay amounts outstanding under the Senior Credit Facility.
The Indenture provides that the Trustee and the Holders of Notes will cease
to have any interest in the Washington Acquisition escrow agreement, or the
right to receive released funds thereunder, upon the delivery of an Officer's
Certificate to the Trustee certifying to the effect that the Washington
Acquisition has been consummated by the Company prior to December 31, 1998. The
escrow arrangements with the seller in the Washington Acquisition permit the
investment of escrowed funds in certain Cash Equivalents having a maturity no
later than the Special Redemption Date and otherwise in accordance with
applicable law as directed by the Company and any investment proceeds thereon
will be available to the Company upon release of the escrow.
MANDATORY REDEMPTION
Except as set forth above under "-- Special Redemption" or below under
"-- Repurchase at the Option of Holders," the Company is not required to make
mandatory redemption or sinking fund payments with respect to the Notes.
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<PAGE> 102
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. Upon the occurrence of a Change of Control, each Holder
of Notes will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, thereon, to the date
of purchase (the "Change of Control Payment"). Within 30 days following any
Change of Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture provides that,
prior to complying with the provisions of this covenant, but in any event within
90 days following a Change of Control, the Company will either repay all of its
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing such outstanding Senior Debt to permit the repurchase of
Notes required by this covenant. The Company will publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable, except as set forth
under the captions "-- Legal Defeasance and Covenant Defeasance" and
"-- Satisfaction and Discharge." Except as described above with respect to a
Change of Control, the Indenture does not contain provisions that permit the
Holders of the Notes to require that the Company repurchase or redeem the Notes
in the event of a takeover, recapitalization or similar transaction. The
definition of Change of Control includes a phrase relating to the sale, lease,
transfer, conveyance or other disposition of "all or substantially all" of the
assets of the Company. There is little case law interpreting the phrase "all or
substantially all" in the context of an indenture. Because there is no precise
established definition of this phrase, the ability of a holder of Notes to
require the Company to repurchase such Notes as a result of a sale, lease,
exchange or other transfer of all or substantially all of the Company's assets
to a Person or a Group may be uncertain.
The Senior Credit Facility limits the ability of the Company to purchase
any Notes and also provides that certain change of control events with respect
to the Company constitute a default thereunder. Any future Credit Facilities or
other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing Notes,
the Company could seek the consent of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would, in turn, constitute a default under the Senior Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Notes.
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The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Asset Sales. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i)
the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (which shall be determined in good faith by the Company's Board of
Directors) of the assets or Equity Interests issued or sold or otherwise
disposed of and (ii) at least 75% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of, or any combination of,
(A) cash or Cash Equivalents, (B) the assumption of any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or any Restricted Subsidiary of the Company (other than liabilities that
are by their terms subordinated to the Notes or any Subsidiary Guarantee) by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Restricted Subsidiary from further liability and
(C) any securities, notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are converted by the
Company or such Restricted Subsidiary into cash or Cash Equivalents within 30
days following their receipt (to the extent of cash or Cash Equivalents
received); provided, that any Asset Sale pursuant to a condemnation,
appropriation or other similar taking, including by deed in lieu of
condemnation, or pursuant to the foreclosure or other enforcement of a Lien
incurred not in violation of the covenant described under the caption "-- Liens"
or exercise by the related lienholder of rights with respect thereto, including
by deed or assignment in lieu of foreclosure shall not be required to satisfy
the conditions set forth in clauses (i) and (ii) of this paragraph.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or such Restricted Subsidiary, as the case may be, may apply such
Net Proceeds, at its option, (a) to permanently repay term loans that constitute
Senior Debt, and if no term Senior Debt is outstanding at such time, to repay
outstanding revolving borrowings that constitute Senior Debt, (b) to acquire a
controlling interest in another business or all or substantially all of the
assets of a business, in each case engaged in a Permitted Business, (c) to
acquire other non-current assets to be used in a Permitted Business, including,
without limitation, assets or Investments of the nature or type described in
clause (m) of the definition of "Permitted Investments," provided, that the
Company or such Restricted Subsidiary will have complied with clause (b) or (c)
if, within 365 days of such Asset Sale, the Company or such Restricted
Subsidiary shall have commenced and not completed or abandoned an expenditure or
Investment, or a binding agreement with respect to an expenditure or Investment,
in compliance with clause (b) or (c) and such expenditure or Investment is
substantially completed within a date one year and six months after the date of
such Asset Sale. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce Indebtedness under any Credit Facility or
otherwise expend or invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph shall be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $10 million, the Company shall be required to make an offer to
all Holders of Notes and holders of each other Indebtedness that ranks by its
terms pari passu in right of payment with the Notes and the terms of which
contain substantially similar requirements with respect to the application of
net proceeds from asset sales as are contained in the Indenture (an "Asset Sale
Offer") to purchase on a pro rata basis (with the Excess Proceeds prorated
between the Holders and such holders of pari passu Indebtedness based upon
outstanding aggregate principal amounts) the maximum principal amount of the
Notes, that is an integral multiple of $1,000, that may be purchased out of such
prorated Excess Proceeds, at an offer price in cash in an amount equal to 100%
of the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes and other such Indebtedness tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds, the Company and its Restricted Subsidiaries may
use any remaining Excess Proceeds for general corporate purposes and any other
purpose not prohibited by the Indenture. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the
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amount of such prorated Excess Proceeds, the Trustee shall select the Notes to
be purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
the Company) or to the direct or indirect holders of the Company's or any of its
Restricted Subsidiaries' Equity Interests in their capacity as such, in each
case other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company or declared or paid to the Company or
any of its Restricted Subsidiaries; (ii) purchase, redeem or otherwise acquire
or retire for value (including without limitation, in connection with any merger
or consolidation involving the Company) any Equity Interests of the Company
(other than any such Equity Interests owned by a Wholly Owned Restricted
Subsidiary of the Company); (iii) make any payment to purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is subordinated
to the Notes, except a payment of interest or principal at its Stated Maturity;
or (iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock";
and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company or any of its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted
by clauses (ii), (iii), (iv), (v), (vi), (viii), or (ix) of the next
succeeding paragraph), is less than the sum of (i) 50% of the Consolidated
Net Income of the Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing immediately
following the Issue Date to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income for
such period is a loss, less 100% of such loss), plus (ii) 100% of the
aggregate net cash proceeds, or the Fair Market Value of assets or property
other than cash, received by the Company from the issue or sale, in either
case, since the Issue Date of (A) Equity Interests of the Company (other
than Disqualified Stock), or (B) Disqualified Stock or debt securities of
the Company that have been converted into, or exchanged for, such Equity
Interests, together with the aggregate cash received at the time of such
conversion or exchange, or received by the Company from any such conversion
or exchange of such debt securities sold or issued prior to the Issue Date
other than Equity Interests (or Disqualified Stock or convertible or
exchangeable debt securities) sold to a Restricted Subsidiary of the
Company and other than Disqualified Stock or debt securities that have been
converted or exchanged into Disqualified Stock, plus (iii) in case any
Unrestricted Subsidiary has been redesignated a Restricted Subsidiary
pursuant to the terms of the Indenture or has been merged, consolidated or
amalgamated with or into, or transfers or conveys assets to or is
liquidated into, the Company or a Restricted Subsidiary and provided that
no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof, the lesser of (A) the book value
(determined in accordance with GAAP) at the date of such redesignation,
combination or transfer of the aggregate Investments made by the Company
and its Restricted Subsidiaries in such Unrestricted Subsidiary (or of the
assets transferred or conveyed, as applicable) and (B) the fair market
value of such Investment in such Unrestricted Subsidiary at the time of
such redesignation, combination or transfer (or of the assets transferred
or conveyed, as applicable), in each case as determined in good faith by
the Board of
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Directors of the Company, whose determination shall be conclusive and
evidenced by a resolution of such Board and, in each case, after deducting
any Indebtedness of the Unrestricted Subsidiary so designated or combined
or with the assets so transferred or conveyed, plus (iv) to the extent not
already included in Consolidated Net Income for such period, (A) if any
Restricted Investment that was made by the Company or any Restricted
Subsidiary after the Issue Date is sold for cash or otherwise liquidated or
repaid for cash, the cash return of capital with respect to such Restricted
Investment resulting from such sale or disposition (less the cost of
disposition, if any) and (B)with respect to any Restricted Investment that
was made by the Company or any Restricted Subsidiary after the Issue Date,
the net reduction in such Restricted Investment resulting from payments of
interest, dividends, principal repayments and other transfers and
distributions of cash, assets or property, in an amount not to exceed the
aggregate amount of such Restricted Investment, plus (v) $50 million.
The foregoing provisions shall not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture, including the immediately preceding paragraph; (ii) the redemption,
repurchase, retirement, defeasance or other acquisition, prior to its Stated
Maturity, of any (y) Indebtedness (or portion thereof) which is subordinated to
the Notes, or the making of any principal payment thereon, or (z) Equity
Interests of the Company or any Restricted Subsidiary, in each case in exchange
for, or out of the net cash proceeds of the substantially concurrent sale or
issuance (other than to a Restricted Subsidiary of the Company) of, Equity
Interests of the Company (other than any Disqualified Stock), provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition, or payments, shall be
excluded from clause (c)(ii) of the preceding paragraph; (iii) the making of any
principal payment on, or the defeasance, redemption, repurchase or other
acquisition of, prior to its Stated Maturity, Indebtedness which is subordinated
to the Notes with the net cash proceeds from an incurrence of, or in exchange
for the issuance of, Permitted Refinancing Indebtedness; (iv) the payment of any
dividend or distribution by a Restricted Subsidiary of the Company to the
holders of its common Equity Interests on a pro rata basis; (v) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of the Company or any Restricted Subsidiary of the Company held by any current
or former officer, employee or director of the Company (or any of its
Subsidiaries) pursuant to the terms of agreements (including employment
agreements) and plans approved by the Company's Board of Directors, including
any management equity plan or stock option plan or any other management or
employee benefit plan, agreement or trust, provided, however, that the aggregate
price paid for all such repurchased, redeemed, acquired or retired Equity
Interests pursuant to this clause (v) shall not exceed the sum of (y) $1 million
in any twelve-month period and (z) the aggregate net proceeds received by the
Company during such 12-month period from issuance of such Equity Interests
pursuant to such agreements or plans; (vi) repurchases of Equity Interests
deemed to occur upon the cashless exercise of stock options; (vii) the purchase,
redemption, defeasance or retirement, in each case prior to its Stated Maturity,
of any Indebtedness that is subordinated to the Notes in right of payment by
payments out of Excess Proceeds remaining after completion of an Asset Sale
Offer, provided that (x) any payments made or value given for such purchase,
redemption, defeasance or retirement shall be made out of, or shall not be in
excess of, any Excess Proceeds remaining after completion of an Asset Sale Offer
(but for the provision of the last sentence under the caption "-- Repurchase at
the Option of Holders -- Asset Sales") and (y) the Company would, at the time of
such payment and after giving pro forma effect thereto as if such payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption "-- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Preferred Stock"; (viii) reasonable and
customary directors' fees to the members of the Company's Board of Directors,
provided that such fees are consistent with past practice or current
requirements; and (ix) cash dividends declared or paid in respect of shares of
Mandatorily Convertible Preferred Stock of the Company issued on or prior the
Issue Date (together with any additional shares issued in respect of any
underwriters' over-allotment option in effect on the Issue Date); provided,
further, that, with respect to clauses (ii), (iii), (v), (vi), (vii), (viii) and
(ix) above, no Default or Event of Default shall have occurred and be
continuing.
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In determining whether any Restricted Payment is permitted by the foregoing
covenant, the Company may allocate or reallocate all or any portion of such
Restricted Payment among the clauses (i) through (ix) of the preceding paragraph
or among such clauses and the first paragraph of this covenant including clauses
(a), (b) and (c), provided that at the time of such allocation or reallocation,
all such Restricted Payments, or allocated portions thereof, would be permitted
under the various provisions of the foregoing covenant.
The amount of all Restricted Payments (other than cash) shall be the Fair
Market Value (as determined by the Board of Directors of the Company and as
evidenced by a resolution of the Board of Directors of the Company set forth in
an Officers' Certificate delivered to the Trustee) on the date of the transfer,
incurrence or issuance of such non-cash Restricted Payment. Not later than (i)
the end of any calendar quarter in which any Restricted Payment is made or (ii)
the making of a Restricted Payment which, when added to the sum of all previous
Restricted Payments made in a calendar quarter, would cause the aggregate of all
Restricted Payments made in such quarter to exceed $10 million, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payments were permitted and setting forth the basis upon which the
calculations required by this covenant were computed, which calculations may be
based upon the Company's latest available financial statements.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if (i) immediately after giving effect to such
designation, the Company could incur $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test under the first paragraph of the
covenant described below under the caption "-- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Preferred Stock", (ii) immediately before and
immediately after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing and (iii) the Company certifies
that such designation complies with this covenant. Any such designation by the
Board of Directors shall be evidenced by the Company promptly filing with the
Trustee a copy of the resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
The Board of Directors may designate any Subsidiary of the Company to be an
Unrestricted Subsidiary under the circumstances and pursuant to the requirements
described in the definition of "Unrestricted Subsidiary," which requirements
include that such designation will be made in compliance with this covenant. For
purposes of making the determination as to whether such designation would be
made in compliance with this covenant, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greatest of (i) the net book value (determined in accordance with GAAP) of such
Investments at the time of such designation, (ii) the Fair Market Value of such
Investments at the time of such designation and (iii) the original Fair Market
Value of such Investments at the time they were made.
Incurrence of Indebtedness and Issuance of Preferred Stock. The Indenture
provides that the Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), other than Permitted Debt, and the Company shall not issue any
Disqualified Stock and shall not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock other than Permitted Debt; provided,
however, that the Company or any Guarantor may incur Indebtedness (including
Acquired Debt) or the Company may issue shares of Disqualified Stock if the
Company's Fixed Charge Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.00 to 1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
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The provisions of the first paragraph of this covenant shall not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Notes, the Exchange Notes and the Subsidiary Guarantees;
(ii) the incurrence by the Company or any Guarantor of Indebtedness
and letters of credit pursuant to the Senior Credit Facility (with letters
of credit being deemed to have a principal amount equal to the maximum
potential liability of the Company or its Restricted Subsidiaries for
reimbursement obligations thereunder) in an aggregate principal amount not
to exceed $500 million at any one time outstanding, less the aggregate
amount of all proceeds of Assets Sales that have been applied since the
Issue Date to permanently reduce the outstanding amount of such
Indebtedness pursuant to the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales";
(iii) the incurrence by the Company or any of its Restricted
Subsidiaries of Existing Indebtedness;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by the Indenture to be
incurred;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that (i) if the
Company is the obligor, or any Guarantor is the obligor and the Company is
not the obligee, on such Indebtedness, such Indebtedness is expressly
subordinate to the payment in full of all Obligations with respect to the
Notes and (ii) (A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Restricted Subsidiary and (B) any sale or other transfer of
any such Indebtedness to a Person that is not either the Company or a
Restricted Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in the
Permitted Business (including, without limitation, oil and gas properties)
of the Company or a Restricted Subsidiary or incurred to extend, refinance,
renew, replace, defease or refund any such purchase price or cost of
construction or improvement, in each case in an aggregate principal amount
not to exceed $50 million at any time outstanding, provided that, in each
case, such Indebtedness is incurred within 30 days of the later of the date
of purchase or the date of completion of such construction or improvement;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness incurred in the ordinary course of business
under (A) documentary letters of credit, or surety bonds or insurance
contracts, which are to be repaid in full not more than one year after the
date on which such Indebtedness is originally incurred to finance the
purchase of goods by the Company or a Restricted Subsidiary of the Company,
provided that the amount of such Indebtedness shall not exceed $20 million
at any time outstanding, (B) standby letters of credit, surety bonds or
insurance contracts issued for the purpose of supporting (1) workers'
compensation or similar liabilities of the Company or any of its Restricted
Subsidiaries, or (2) performance, payment, deposit or surety obligations of
the Company or any of its Restricted Subsidiaries and (C) bid, advance
payment and performance bonds and surety bonds, or similar insurance
contracts, for the Company and its Restricted Subsidiaries, and
refinancings thereof;
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness consisting of (A) Financial Hedging
Obligations that are either (1) incurred for the purpose of fixing or
hedging interest rate risk related to Indebtedness permitted to be incurred
by the Company or its Restricted Subsidiaries pursuant to the Indenture,
but only to the extent that the stated aggregate notional amounts
thereunder do not exceed 105% of the aggregate principal amount of the
Indebtedness to which such obligations relate or (2) incurred in the
ordinary course of business for the purpose of
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limiting or managing currency exchange risks, and (B) Commodity Hedging
Obligations in connection with the conduct of a Permitted Business, and, in
the case of each of clauses (A) and (B) hereof, not for speculative
purposes;
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of in-kind obligations relating to overproduced gas balancing
positions arising in the ordinary course of business;
(x) Indebtedness arising from agreements of the Company or any of its
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred in connection with the
disposition or acquisition of any business, assets or a Restricted
Subsidiary of the Company or any of its Restricted Subsidiaries, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Restricted Subsidiary of the Company
or any of its Restricted Subsidiaries for the purposes of financing such
acquisition; provided, however, that (A) such Indebtedness is not reflected
on the balance sheet of the Company or any of its Restricted Subsidiaries
(contingent obligations referred to in a footnote to financial statements
and not otherwise reflected on the balance sheet will not be deemed to be
reflected on such balance sheet for purposes of this clause (A)) and (B)
the maximum liability in respect of all such Indebtedness shall at no time
exceed the gross proceeds including noncash proceeds (the Fair Market Value
of such noncash proceeds being measured at the time received and without
giving effect to any subsequent changes in value) actually received by the
Company and its Restricted Subsidiaries in connection with such
disposition;
(xi) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that
was permitted to be incurred by any provision of this covenant other than
this clause (xi); provided, that the guarantee of any Indebtedness of a
Restricted Subsidiary of the Company that ceases to be such a Restricted
Subsidiary shall be deemed a Restricted Investment at the time such
Restricted Subsidiary's status terminates in an amount equal to the maximum
principal amount so guaranteed, for so long as, and to the extent that,
such guarantee remains outstanding;
(xii) the issuance by a Restricted Subsidiary of the Company of
preferred stock to the Company or to any of its Wholly Owned Restricted
Subsidiaries; provided, however, that any subsequent event or issuance or
transfer of any Equity Interests that results in the owner of such
preferred stock ceasing to be the Company or any of its Wholly Owned
Restricted Subsidiaries or any subsequent transfer of such preferred stock
to a Person, other than the Company or one of its Restricted Subsidiaries,
shall be deemed to be an issuance of preferred stock by such Subsidiary
that was not permitted by this clause (xii); and
(xiii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any
other clause of this paragraph) in an aggregate principal amount (or
accreted value, as applicable) at any time outstanding not to exceed $50
million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described above or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Company will, in its sole
discretion, classify such item of Indebtedness in any manner that complies with
this covenant and such item of Indebtedness or a portion thereof may be
classified as having been incurred under more than one of the applicable clauses
or pursuant to the first paragraph hereof. Accrual of interest, the accretion of
accreted value and the payment of interest in the form of additional
Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes
of this covenant.
Liens. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien that secures obligations under any
Indebtedness which is pari passu with or subordinated to the Notes, unless the
Notes are equally and ratably secured with the obligations so secured or until
such time as such obligations are no longer secured by a Lien.
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Dividend and Other Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company or the Company to (i)(x) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (y) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries or
(iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) the Indenture, the Notes, Existing Indebtedness and
the Senior Credit Facility as in effect on the Issue Date, any other Credit
Facility hereafter in effect provided to the extent its provisions are no more
restrictive than those in the Senior Credit Facility as it is in effect on the
Issue Date and any future Liens that may be permitted to be granted under, or
incurred not in violation of, any other provisions of the Indenture, (b)
applicable law, (c) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except with respect to Indebtedness
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person or such Person's subsidiaries, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (d) restrictions of the nature described in clause (iii) above by
reason of customary non-assignment provisions in contracts, agreements, and
leases entered into in the ordinary course of business and consistent with
customary provisions for the sale of property, (e) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (f) any restriction with respect to a Restricted Subsidiary of the
Company imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition, (g)
agreements relating to secured Indebtedness otherwise permitted to be incurred
pursuant to the covenant described under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock," and not in violation of the
covenant described under caption "-- Liens," that limit the right of the debtor
to dispose of assets securing such Indebtedness and (h) Permitted Refinancing
Indebtedness in respect of Indebtedness referred to in clause (a), (c), (e) and
(g) of this paragraph, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
Merger, Consolidation, or Sale of Assets. The Indenture provides that the
Company will not consolidate or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the properties
or assets in one or more related transactions, to another Person unless (i) the
Company is the resulting, transferee or surviving Person or the resultant,
transferee or surviving Person (if other than the Company) shall be a
corporation organized or existing under the laws of the United States, any state
thereof or the District of Columbia; (ii) the resulting transferee or surviving
Person (if other than the Company) assumes all the obligations and covenants of
the Company under the Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
before and after such transaction no Default or Event of Default shall have
occurred and be continuing; and (iv) except in the case of a merger of the
Company with or into a Wholly Owned Restricted Subsidiary, the Company or the
resultant, transferee or surviving Person (if other than the Company) (A) will
have Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company immediately preceding the
transaction and (B) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock."
Upon any transaction or series of transactions that are of the type
described in, and are effected in accordance with, the foregoing paragraph, the
surviving Person (if other than the Company) shall succeed to,
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and be substituted for, and may exercise every right and power of, the Company
under the Indenture and the Notes with the same effect as if such surviving
Person had been named as the Company in the Indenture; and when a surviving
Person duly assumes all of the obligations and covenants of the Company pursuant
to the Indenture and the Notes, except in the case of a lease of all or
substantially all of the properties or assets in one or more related
transactions, the predecessor Person shall be relieved of all such obligations.
Additional Subsidiary Guarantees. The Indenture provides that (i) if any
Subsidiary of the Company guarantees any Indebtedness of the Company, then such
Subsidiary shall (a) execute a supplemental indenture in form and substance
satisfactory to the Trustee providing that such Subsidiary shall become a
Guarantor under the Indenture and (b) deliver an opinion of counsel to the
effect that such supplemental indenture has been duly authorized and executed by
such Subsidiary and (ii) upon (x) the release by the lenders of all guarantees
of a Guarantor guaranteeing, and all Liens on the property and assets of such
Guarantor securing, Indebtedness of the Company, or (y) a sale or other
disposition, whether in one or a series of related transactions, of all or
substantially all of the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition, whether in one or a
series of related transactions, of all of the Capital Stock of any Guarantor in
compliance with the Indenture to any entity that is not the Company or a
Subsidiary, then such Guarantor and such acquiring, resulting, surviving or
transferee Person will be released and relieved of any obligations under any
Subsidiary Guarantee; provided, however, that any such termination shall occur
only to the extent that all obligations of such Guarantor under such
Indebtedness and all of its guarantees of, and under all of its pledges of
assets or other security interests which secure, Indebtedness of the Company
shall also terminate upon such release, sale or transfer and, in the event of
any sale or other disposition, delivery of an officer's certificate to the
Trustee that the Net Proceeds of such sale or other disposition will be applied
in accordance with the applicable provisions of the Indenture. See
"-- Repurchase at the Option of Holders -- Asset Sales."
Transactions with Affiliates. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, make any payment to, or sell, lease, transfer or otherwise dispose
of any properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate of any
such Person (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that could have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of at least $1 million, an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above, (b) with respect to any Affiliate Transaction or series of related
Affiliate Transaction involving aggregate consideration in excess of $10
million, a resolution of its Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of its Board of Directors and (c) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10 million and for which there are no
disinterested members of its Board of Directors, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an Independent Financial Advisor; provided that none of the following
shall be deemed to be Affiliate Transactions: (1) Affiliate Transactions
involving the purchase or sale of crude oil, natural gas and other hydrocarbons,
and refined products therefrom, in the ordinary course of any Permitted
Business, so long as such transactions are priced in line with industry accepted
benchmark prices and the pricing of such transactions are equivalent to the
pricing of comparable transactions with unrelated third parties, (2) any
employment agreement or other employee compensation plan or arrangement entered
into by the Company or any of its Restricted Subsidiaries in the ordinary course
of business, (3) transactions between or among (A) the Company and its
Restricted Subsidiaries and (B) the Restricted Subsidiaries, (4) fees and
compensation paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company and of its Restricted Subsidiaries in
their capacity as such, to the extent such fees and compensation are reasonable
and customary, (5) loans or advances to officers, directors and employees for
moving, entertainment and travel expenses, drawing accounts and similar
expenditures and other purposes, in each
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case in the ordinary course of business, (6) maintenance in the ordinary course
of business of customary benefit programs or arrangements for employees,
officers or directors, including vacation plans, health and life insurance
plans, deferred compensation plans and retirement or savings plans and similar
plans, and (7) fees and compensation paid to, and indemnity provided on behalf
of, officers, directors or employees of the Company or any of its Restricted
Subsidiaries, as determined by the Board of Directors of the Company or of any
such Restricted Subsidiary, to the extent such fees and compensation are
reasonable and customary as determined by the Board of Directors of the Company
or such Restricted Subsidiary.
No Senior Subordinated Debt. The Indenture provides that, notwithstanding
any other provision thereof, (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable directly or indirectly for any
Indebtedness (including Acquired Debt) that is expressly subordinate or junior
in right of payment to any Senior Debt of the Company and senior in any respect
in right of payment to the Notes and (ii) no Guarantor will incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness
(including Acquired Debt) that is expressly subordinate or junior in right of
payment to any Senior Debt of a Guarantor and senior in any respect in right of
payment to the Subsidiary Guarantees, it being understood that Indebtedness will
not be considered senior to other Indebtedness solely by reason of being
secured.
Limitation on Issuances and Sales of Capital Stock of Subsidiaries. The
Indenture provides that the Company (i) will not, and will not permit any Wholly
Owned Restricted Subsidiary of the Company to, transfer, convey, sell or
otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary
of the Company to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company), unless (a) such transfer, conveyance,
sale, lease or other disposition is of all the Capital Stock of such Restricted
Subsidiary and (b) the net proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant described above
under the caption "-- Repurchase at the Option of Holders -- Asset Sales," and
(ii) will not permit any Wholly Owned Restricted Subsidiary of the Company to
issue any of its Equity Interests to any Person other than to the Company or a
Wholly Owned Restricted Subsidiary of the Company, subject to dispositions and
issuances permitted by clauses (i) and (ii) of the definition of "Wholly Owned
Restricted Subsidiary."
Business Activities. The Indenture provides that the Company will not, and
the Company will not permit any of its Restricted Subsidiaries to, engage in any
business other than a Permitted Business, except to such extent as would not be
material to the Company and its Restricted Subsidiaries taken as a whole.
Payments for Consent. The Indenture provides that the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture or the
Notes unless such consideration is offered to be paid or agreed to be paid to
all Holders of the Notes that consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
Reports. The Indenture provides that whether or not the Company is required
by the rules and regulations of the Commission, so long as any Notes are
outstanding, the Company will furnish to each of the Holders of Notes (i) all
quarterly and annual financial information with respect to the Company and its
Subsidiaries that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's independent public accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. All such information and
reports shall be mailed or otherwise delivered to the Holders of Notes within 15
days after the dates on which such filings would have been required to be made
had the Company been subject to the rules and regulations of the Commission. In
addition, whether or not required by the rules and regulations of the
Commission, the Company shall file a copy of all such information and reports
with the Commission for public availability within the time periods specified in
the Commission's rules and regulations (unless the Commission will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request.
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EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes, (ii) default in payment when due
of the principal of, or premium, if any, on the Notes; (iii) failure by the
Company or any of its Restricted Subsidiaries to comply with the provisions
described under the captions "-- Certain Covenants -- Merger, Consolidation or
Sale of Assets," "-- Special Redemption," "-- Repurchase at the Option of
Holders -- Asset Sales," and "Repurchase at the Option of Holders -- Change of
Control"; (iv) failure by the Company or any of its Restricted Subsidiaries for
60 days after written notice of such failure from the Trustee or the Holders of
at least 25% in aggregate principal amount of outstanding Notes to comply with
any of its other agreements in the Indenture or the Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists, or is created after the Issue Date, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates without
duplication $15 million or more, and such default shall not have been cured or
waived or any such acceleration rescinded within ten business days after the
running of such grace period or the occurrence of such acceleration; (vi)
failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $15 million (excluding amounts covered by
insurance), which judgments are not paid, discharged or stayed for a period of
60 days; (vii) certain events of bankruptcy or insolvency with respect to the
Company, or any group of Subsidiaries that when taken together, would constitute
a Significant Subsidiary or any Significant Subsidiary upon the occurrence of
such events; and (viii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any such Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee (other than by reason
of the termination of the Indenture or the release of any such Subsidiary
Guarantee in accordance with the Indenture).
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest or Liquidated Damages) if it determines that withholding
notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes (i) waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest and Liquidated Damages, if any, on, or the principal of, the
Notes and (ii) rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default (except nonpayment of principal, interest or Liquidated Damages that has
become due solely because of the acceleration) have been cured or waived.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR, MEMBERS,
PARTNERS AND STOCKHOLDERS
No director, officer, employee, incorporator, member, partner or
stockholder or other owner of Capital Stock of the Company or any of its
Subsidiaries, as such, has or shall have any liability for any obligations of
the Company or any Guarantor under the Notes, the Subsidiary Guarantees or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Old Notes by accepting an Old Note
waived and released all such liability. The waiver and release were part of the
consideration for issuance of the Old Notes. Each holder of Exchange Notes by
accepting an Exchange Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Exchange Notes.
Such waivers may not be effective to waive liabilities under the federal
securities laws, and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, and premium, if any, and
interest and Liquidated Damages, if any, on such Notes when such payments are
due from the trust referred to below, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, and premium, if any, and interest and Liquidated
Damages, if any, on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the Issue Date,
there has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall confirm
that, the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the incurrence of
Indebtedness or the grant of Liens securing such Indebtedness, all or a portion
of the proceeds of which will be used to defease the Notes pursuant to Article
VIII of the Indenture concurrently with such incurrence or within 30 days
thereof) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such deposit will not result in a breach or violation of, or
constitute a default under any material
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agreement or instrument (other than the Indenture) to which the Company or any
of its Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound, or if such breach, violation or default would
occur, which is not waived as of, and for all purposes, on and after, the date
of such deposit; (vi) the Company must have delivered to the Trustee an opinion
of counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Notes issued thereunder, when (a) either (i) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has heretofore been
deposited in trust and thereafter repaid to the Company) have been delivered to
the Trustee for cancellation; or (ii) all such Notes not theretofore delivered
to such Trustee for cancellation have become due and payable by reason of the
making of a notice of redemption or otherwise or will become due and payable
within one year and the Company has irrevocably deposited or caused to be
deposited with such Trustee as trust funds in trust solely for the benefit of
the Holders, cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient without consideration
of any reinvestment of interest, to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Trustee for cancellation for
principal, premium, if any, and accrued interest to the date of maturity or
redemption; (b) no Default or Event of Default with respect to the Indenture or
the Notes shall have occurred and be continuing on the date of such deposit or
shall occur as a result of such deposit and such deposit will not result in a
breach or violation of, or constitute a default under, any other material
instrument to which the Company is a party or by which the Company is bound; (c)
the Company has paid or caused to be paid all sums due and payable by it under
the Indenture; and (d) the Company has delivered irrevocable instructions to the
Trustee under the Indenture to apply the deposited money toward the payment of
such Notes at maturity or the redemption date, as the case may be. In addition,
the Company must deliver an Officers' Certificate and an opinion of counsel to
the Trustee stating that all conditions precedent to satisfaction and discharge
have been satisfied.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Notes or the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the Holders of a majority in principal amount
of the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for Notes).
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Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change
the time for payment of interest or Liquidated Damages on any Note, (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest or Liquidated Damages, if any, on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration), (v) make any Note payable in money other than that
stated in the Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or premium, if any, or interest or Liquidated
Damages, if any, on the Notes, (vii) waive a redemption payment with respect to
any Note (other than a payment required by one of the covenants described above
under the caption "-- Repurchase at the Option of Holders") or (viii) make any
change in the foregoing amendment and waiver provisions. In addition, any
amendment to certain provisions of the Indenture which relate to subordination
will require the consent of the Holders of at least 75% in aggregate principal
amount of the Notes then outstanding if such amendment would adversely affect
the rights of Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture, the Notes or
the Subsidiary Guarantees to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of Notes or that does
not adversely affect the legal rights under the Indenture of any such Holder, or
to comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or to add any
additional Guarantor or to release any Guarantor form its Subsidiary Guarantee,
in each case, as provided in the Indenture.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder of Notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Tesoro Petroleum Corporation, 8700 Tesoro Drive,
San Antonio, Texas 78217-6218, Attention: Vice President, Finance and Treasurer.
BOOK-ENTRY, DELIVERY AND FORM
The Old Notes offered and sold to qualified institutional buyers
("Qualified Institutional Buyers" or "QIBs") are represented by one or more
global notes in registered, global form without interest coupons (collectively,
the "Rule 144A Global Note"). The Rule 144A Global Note was initially deposited
upon
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issuance with the Trustee as custodian for the Depositary, in New York, New
York, and registered in the name of the Depositary or its nominee, in each case
for credit to an account of a direct or indirect participant as described below.
The Old Notes offered and sold in offshore transactions in reliance on
Regulation S under the Securities Act initially are represented by one or more
temporary global notes in registered, global form without interest coupons
(collectively, the "Regulation S Temporary Global Note"). The Regulation S
Temporary Global Note was registered in the name of a nominee of the Depositary
for credit to the subscribers' respective accounts at the Euroclear System
("Euroclear") and Cedel Bank, S.A. ("CEDEL"). Beneficial interests in the
Regulation S Temporary Global Note may be held only through Euroclear or CEDEL.
Within a reasonable time period after the expiration of the period of 40
days commencing on the latest of the commencement of the Notes Offering and the
Issue Date of the Indenture of the Old Notes (such period through and including
such 40th day, the "Restricted Period"), the Regulation S Temporary Global Note
will be exchanged for one or more permanent global notes (collectively, the
"Regulation S Permanent Global Note" and, together with the Regulation S
Temporary Global Note, the "Regulation S Global Note" (the Regulation S Global
Note and the Rule 144A Global Note collectively being the "Global Old Notes"))
upon delivery to the Depositary of certification of compliance with the transfer
restrictions applicable to the Notes pursuant to Regulation S as provided in the
Indenture. During the Restricted Period, beneficial interests in the Regulation
S Temporary Global Note may be held only through Euroclear or CEDEL (as indirect
participants in the Depository). See "-- Depositary Procedures -- Exchanges
between Regulation S Notes and the Rule 144A Global Note." Beneficial interests
in the Rule 144A Global Note may not be exchanged for beneficial interests in
the Regulation S Global Note at any time except in the limited circumstances
described below. See "-- Depositary Procedures -- Exchanges between Regulation S
Notes and the Rule 144A Global Note."
The Exchange Notes also will be issued in the form of one or more Global
Notes (the "Global Exchange Notes" and, together with the Global Old Notes, the
"Global Notes"). The Global Exchange Notes will be deposited on the original
date of issuance of the Exchange Notes with, or on behalf of, DTC and registered
in the name of a nominee of the Depositary.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of the Depositary or to a successor of
the Depositary or its nominee. Beneficial interests in the Global Notes may not
be exchanged for Notes in certificated form except in the limited circumstances
described below. See "-- Depositary Procedures -- Exchange of Book-Entry Notes
for Certificated Notes."
The Rule 144A Global Note (including beneficial interests in the Rule 144A
Global Note) is subject to certain restrictions on transfer and bears a
restrictive legend as described under "Notice to Investors." In addition,
transfer of beneficial interests in the Global Notes will be subject to the
applicable rules and procedures of the Depositary and its direct or indirect
participants (including, if applicable, those of Euroclear and CEDEL), which may
change from time to time.
The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITARY PROCEDURES
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to the Depositary's system is also available to other entities such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only through
the Participants or Indirect Participants. The ownership interest
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and transfer of ownership interest of each actual purchaser of each security
held by or on behalf of the Depositary are recorded on the records of the
Participants and Indirect Participants.
The Depositary has also advised the Company that pursuant to procedures
established by it, (i) upon deposit of the Global Notes, the Depositary will
credit the accounts of Participants designated by the Initial Purchasers with
portions of the principal amount of Global Notes and (ii) ownership of such
interests in the Global Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to Participants) or by Participants and the Indirect Participants
(with respect to other owners of beneficial interests in the Global Notes).
Investors in the Rule 144A Global Note may hold their interests therein
directly through the Depositary, if they are Participants in such system, or
indirectly through organizations (including Euroclear and CEDEL) that are
Participants in such system. Investors in the Regulation S Global Note must
initially hold their interests therein through Euroclear or CEDEL, if they are
Participants in such systems, or indirectly through organizations that are
Participants in such systems. After the expiration of the Restricted Period (but
not earlier), investors may also hold interests in the Regulation S Global Note
through organizations other than Euroclear and CEDEL that are Participants in
the Depositary system. Euroclear and CEDEL will hold interests in the Regulation
S Global Note on behalf of their Participants through customers' securities
accounts in their respective names on the books of their respective
depositories, which are Morgan Guaranty Trust Company of New York, Brussels
office, as operator of Euroclear, and Citibank, N.A. as operator of CEDEL. The
depositories, in turn, will hold such interests in the Regulations S Global Note
in customers' securities accounts in the depositories' names on the books of the
Depositary. All interests in a Global Note, including those held through
Euroclear or CEDEL, may be subject to the procedures and requirements of the
Depositary. Those interests held by Euroclear or CEDEL may also be subject to
the procedures and requirements of such system.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interest in a Global Note to such persons may be limited to
that extent. Because the Depositary can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having a beneficial interest in a Global Note to pledge such
interest to persons or entities that do not participate in the Depositary
system, or otherwise take actions in respect of such interests, may be affected
by the lack of physical certificate evidencing such interest. For certain other
restrictions on the transferability of the Notes, see "-- Exchange of Book-Entry
Notes for Certificated Notes" and "-- Exchanges between Regulation S Notes and
the Rule 144A Global Note."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS, OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal and premium and Liquidated Damages, if
any, and interest on a Global Note registered in the name of the Depositary or
its nominee will be payable by the Trustee to the Depositary or its nominee in
its capacity as the registered Holder under the Indenture. Under the terms of
the Indenture, the Company and the Trustee will treat the persons in whose names
the Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Company, the Trustee nor any agent of the
Company or the Trustee has or will have any responsibility or liability for (i)
any aspect of the Depositary's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Notes, or for maintaining, supervising or
reviewing any of the Depositary's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes or (ii) any other matter relating to the actions and practices of
the Depositary or any of its Participants or Indirect Participants.
The Depositary has advised the Company that its current practices, upon
receipt of any payment in respect of securities such as the Notes (including
principal and interest and Liquidated Damages, if any), is to credit the
accounts of the relevant Participants with the payment on the payment date, in
amounts
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proportionate to their respective holdings in principal amount of beneficial
interests in the relevant security such as the Global Notes as shown on the
records of the Depositary. Payments by Participants and the Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practices and will not be the responsibility of the
Depositary, the Trustee or the Company. Neither the Company nor the Trustee will
be liable for any delay by the Depositary or its Participants in identifying the
beneficial owners of the Notes, and the Company and the Trustee may conclusively
rely on and will be protected in relying on instructions from the Depositary or
its nominee as the registered owner of the Notes for all purposes.
Except for trades involving only Euroclear and CEDEL Participants,
interests in the Global Notes will trade in the Depositary's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of the Depositary and its Participants.
Transfers between Participants in the Depositary will be effective in
accordance with the Depositary's procedures, and will be settled in same-day
funds. Transfers between Participants in Euroclear and CEDEL will be effected in
the ordinary way in accordance with their respective rules and operating
procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes described herein, cross-market transfers between Participants in the
Depositary, on the one hand, and Euroclear or CEDEL Participants, on the other
hand, will be effected through the Depositary in accordance with the
depository's rules on behalf of Euroclear or CEDEL, as the case may be, by its
respective depository; however, such cross-market transactions will require
delivery of instructions to Euroclear or CEDEL, as the case may be, by the
counterparty in such system in accordance with the rules and procedures and
within the established deadlines (Brussels time) of such system. Euroclear or
CEDEL, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depository to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant Global Note in the Depositary, and making or receiving payment in
accordance with normal procedures for same-day fund settlement applicable to the
Depositary. Euroclear Participants and CEDEL Participants may not deliver
instructions directly to the depositories for Euroclear or CEDEL.
Due to time zone differences, the securities accounts of a Euroclear or
CEDEL Participant purchasing an interest in a Global Note from a Participant in
the Depositary will be credited, and any such crediting will be reported to the
relevant Euroclear or CEDEL Participant, during the securities settlement
processing day (which must be a business day for Euroclear or CEDEL) immediately
following the settlement date of the Depositary. Cash received in Euroclear or
CEDEL as a result of sales of interests in a Global Note by or through a
Euroclear or CEDEL Participant to a Participant in the Depositary will be
received with value on the settlement date of the Depositary but will be
available in the relevant Euroclear or CEDEL cash account only as of the
business day for Euroclear or CEDEL following the Depositary's settlement date.
The Depositary has advised the Company that it will take any action
permitted to be taken by a Holder of Notes only at the direction of one or more
Participants to whose account the Depositary interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the Notes as to which such Participant or Participants has or have given
direction. However, if there is an Event of Default under the Notes, the
Depositary reserves the right to exchange Global Notes for legend Notes in
certificated form, and to distribute such Notes to its Participants.
The information in this section concerning the Depositary, Euroclear and
CEDEL and their book-entry systems has been obtained from sources that the
Company believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
Although the Depositary, Euroclear and CEDEL have agreed to the foregoing
procedures to facilitate transfers of interests in the Regulation S Global Note
and in the Rule 144A Global Note among Participants in the Depositary, Euroclear
and CEDEL, they are under no obligation to perform or to continue to perform
such procedures, and such procedures may be discontinued at any time. None of
the Company, the Initial Purchasers or the Trustee will have any responsibility
for the performance by the Depositary, Euroclear or
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CEDEL or their respective Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
Exchange of Book-Entry Notes for Certificated Notes. A Global Note is
exchangeable for definitive Notes in registered certificated form if (i) the
Depositary (A) notifies the Company that it is unwilling or unable to continue
as depository for the Global Note and the Company thereupon fails to appoint a
successor depository or (B) has ceased to be a clearing agency registered under
the Exchange Act or (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause issuance of the Notes in certificated form. In
addition, beneficial interests in a Global Note may be exchanged for
certificated Notes upon request but only upon at least 20 days prior written
notice given to the Trustee by or on behalf of the Depositary in accordance with
customary procedures. In all cases, certificated Notes delivered in exchange for
any Global Note or beneficial interest therein will be registered in names, and
issued in any approved denominations, requested by or on behalf of the
Depositary (in accordance with its customary procedures) and will bear, in the
case of the Rule 144A Global Note, the restrictive legend referred to in "Notice
to Investors" and, in the case of the Regulation S Global Note, the legend set
forth in bold type on the cover of this Offering Memorandum, in each case,
unless the Company determines otherwise in compliance with applicable law.
Exchanges between Regulation S Notes and the Rule 144A Global Note. Prior
to the expiration of the Restricted Period, a beneficial interest in a
Regulation S Global Note may not be transferred to a U.S. person. Thereafter,
such transfers will be permitted on the terms specified in the Indenture.
Beneficial interests in Rule 144A Global Notes may be transferred to a
person who takes delivery in the form of an interest in Regulation S Global
Notes, whether before or after the expiration of the Restricted Period, only if
the transferor first delivers to the Trustee a written certificate to the effect
that such transfer is being made in accordance with Rule 903 or 904 of
Regulation S and that, if such transfer occurs prior to the expiration of the
Restricted Period, the interest transferred will be held immediately thereafter
through Euroclear and CEDEL.
Any beneficial interest in one of the Old Global Notes that is transferred
to a person who takes delivery in the form of an interest in another Old Global
Note will, upon transfer, cease to be an interest in such Old Global Note and
become an interest in such other Old Global Note, and accordingly, will
thereafter be subject to all transfer restrictions and other procedures
applicable to beneficial interests in such other Old Global Note for as long as
it remains such an interest.
Transfers involving an exchange of a beneficial interest in the Regulation
S Global Note for a beneficial interest in the Rule 144A Global Note or vice
versa will be effected by the Depositary by means of an instruction originated
by the Trustee through the Depositary/Deposit Withdraw at Custodian system.
Accordingly, in connection with such transfer, appropriate adjustments will be
made to reflect a decrease in the principal amount of the Regulation S Global
Note and a corresponding increase in the principal amount of the Rule 144A
Global Note or vice versa, as applicable.
Certificated Notes. Subject to certain conditions, any person having a
beneficial interest in the Global Note may, upon request to the Trustee,
exchange such beneficial interest for Notes in the form of certificated Notes.
Upon any such issuance, the Trustee is required to register such certificated
Notes in the name of, and cause the same to be delivered to, such person or
persons (or the nominee of any thereof). All such certificated Notes would be
subject to the legend requirements described herein under "Notice to Investors."
In addition, if (i) the Company notifies the Trustee in writing that the
Depositary is no longer willing or able to act as a depository and the Company
is unable to locate a qualified successor within 90 days or (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause the issuance
of Notes in the form of certificated Notes under the Indenture, then, upon
surrender by the Global Note Holder of its Global Note, Notes in such form will
be issued to each person that the Global Note Holder and the Depositary identify
as being the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively
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rely on, and will be protected in relying on, instructions from the Global Note
Holder or the Depositary for all purposes.
Same Day Settlement and Payment. The Indenture will require that payments
in respect of the Notes represented by the Global Note (including principal,
premium, if any, interest and Liquidated Damages, if any) be made by wire
transfer of immediately available funds to the accounts specified by the Global
Note Holder. With respect to certificated Notes, the Company will make all
payments of principal, premium, if any, interest and Liquidated Damages, if any,
by wire transfer of immediately available funds to the accounts specified by the
Holders thereof or, if no such account is specified, by mailing a check to each
such Holder's registered address. The Company expects that secondary trading in
the certificated Notes will also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement, the Company has agreed to
file with the Commission this Exchange Offer Registration Statement under the
Securities Act with respect to the Exchange Notes. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company will offer pursuant to the
Exchange Offer to the Holders of Transfer Restricted Securities who are able to
make certain representations the opportunity to exchange their Transfer
Restricted Securities for Exchange Notes. If (i) the Company is not required to
file the Exchange Offer Registration Statement or permitted to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law or
Commission policy or (ii) any Holder of Transfer Restricted Securities notifies
the Company within 20 business days following consummation of the Exchange Offer
that (A) it is prohibited by law or Commission policy from participating in the
Exchange Offer or (B) it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales or (C) that it is a broker-dealer and owns Notes
acquired directly from the Company or an affiliate of the Company, the Company
will file with the Commission a Shelf Registration Statement to cover resales of
the Notes by the Holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
The Company will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each Note
until (i) the date on which such Note has been exchanged by a person other than
a broker-dealer for a Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Note for a Exchange Note,
the date on which such Exchange Note is sold to a purchaser who receives from
such broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Note has been effectively registered under the Securities Act and disposed
of in accordance with the Shelf Registration Statement or (iv) the date on which
such Note is distributed to the public pursuant to Rule 144 under the Securities
Act.
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 60
days after the Closing Date, (ii) the Company will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 120 days after the Closing Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company will
commence the Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Exchange Offer Registration Statement
was declared effective by the Commission, Exchange Notes in exchange for all
Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file
the Shelf Registration Statement, the Company will use its best efforts to file
the Shelf Registration Statement with the Commission on or prior to 60 days
after such filing obligation arises (and in any event within 120 days after the
Closing Date) and to cause the Shelf Registration to be declared effective by
the Commission on or prior to 60 days after the date upon which the Company is
obligated to make such filing. If (a) the Company fails to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), or (c) the
Company fails to
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consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder of Notes, with respect to the first 90-day
period immediately following the occurrence of such Registration Default in an
amount equal to $0.05 per week per $1,000 principal amount of Notes held by such
Holder. The amount of the Liquidated Damages will increase by an additional
$0.05 per week per $1,000 principal amount of Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $0.50 per week per $1,000 principal
amount of Notes. All accrued Liquidated Damages will be paid by the Company on
each Damages Payment Date to the Global Note Holder by wire transfer of
immediately available funds or by federal funds check and to Holders of
Certificated Securities by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
Holders of the 10 1/4% Notes will not be entitled to certain rights under
the Registration Rights Agreement following the consummation of the Exchange
Offer. The rights that will terminate are the right (i) to have the Company file
with the Commission and use its best efforts to have declared effective a shelf
registration statement to cover resales of the Old Notes by the holders thereof
and (ii) to receive additional interest if the registration statement of which
this Prospectus is a part or the shelf registration statement are not filed
with, or declared effective by, the Commission within certain specified time
periods or the Exchange Offer is not consummated within a specified time period.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that, for
purposes of the covenant described under the caption "-- Certain
Covenants -- Transactions with Affiliates" and the use of the term "Affiliates"
thereunder, beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business (provided that the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of the Company and
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its Restricted Subsidiaries taken as a whole will be governed by the covenants
described above under the captions "-- Repurchase at the Option of
Holders -- Change of Control" and "-- Certain Covenants -- Merger,
Consolidation, or Sale of Assets" and not by the provisions of the covenant
described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales"), and (ii) the issue or sale by the Company or any of
its Restricted Subsidiaries of Equity Interests of any of the Company's
Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions, (a) that have a Fair
Market Value in excess of $2 million or (b) for Net Proceeds in excess of $2
million; provided that the following will not be deemed to be Asset Sales: (i)
any transfer, conveyance, sale, lease or other disposition of assets or rights
securing the Senior Credit Facility or other Senior Debt in connection with the
enforcement of the Liens therein; (ii) any sale or exchange of production of
crude oil, natural gas and natural gas liquids, or refined products or residual
hydrocarbons, or any other asset or right constituting inventory, made in the
ordinary course of the Permitted Business; (iii) any disposition of assets in
trade or exchange for assets of comparable Fair Market Value used or usable in
any Permitted Business (including, without limitation, the trade or exchange for
a controlling interest in another business or all or substantially all of the
assets of a business, in each case engaged in a Permitted Business or for other
non-current assets to be used in a Permitted Business, including, without
limitation, assets or Investments of the nature or type described in clause (m)
of the definition of "Permitted Investments"), provided that (x) except for
trades or exchanges of oil and gas properties and interests therein for other
oil and gas properties and interests therein, if the Fair Market Value of the
assets so disposed of, in a single transaction or in a series of related
transactions, is in excess of $20 million, the Company shall obtain an opinion
or report from a Independent Financial Advisor confirming that the assets
received by the Company and the Restricted Subsidiaries in such trade or
exchange have a fair market value of at least the fair market value of the
assets so disposed and (y) any cash or Cash Equivalent received by the Company
or a Restricted Subsidiary in connection with such trade or exchange (net of any
transaction costs of the type deducted under the definition of "Net Proceeds")
shall be treated as Net Proceeds of an Asset Sale and shall be applied in the
manner set forth in the covenant described under the caption "-- Repurchase at
the Option of Holders -- Asset Sales"; (iv) a transfer of assets by the Company
to a Restricted Subsidiary of the Company or by a Restricted Subsidiary of the
Company to the Company or to a Restricted Subsidiary of the Company; (v) an
issuance or sale of Equity Interests by a Restricted Subsidiary of the Company
to the Company or to another Restricted Subsidiary of the Company; (vii) (A) a
Permitted Investment or (B) a Restricted Payment that is permitted by the
covenant described above under the caption "Certain Covenants -- Restricted
Payments"; (viii) the trade, sale or exchange of Cash Equivalents; (ix) the
sale, exchange or other disposition of obsolete assets not integral to any
Permitted Business; (x) the abandonment or relinquishment of assets or property
in the ordinary course of business, including without limitation the
abandonment, relinquishment or farm-out of oil and gas leases, concessions or
drilling or exploration rights or interests therein; (xi) any lease of assets
entered into in the ordinary course of business and with respect to which the
Company or any Restricted Subsidiary of the Company is the lessor and the lessee
has no option to purchase such assets for less than fair market value at any
time the right to acquire such asset occurs; (x) the disposition of assets
received in settlement of debts accrued in the ordinary course of business; and
(xi) any Production Payment created, incurred, issued, assumed or guaranteed in
connection with the financing of, and within 30 days after the acquisition of,
the oil and gas property that is subject thereto.
"BHP Note" means that certain unsecured, non-interest bearing promissory
note dated May 29, 1998 issued by the Company in the principal amount of $50
million to BHP Hawaii Inc.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participation, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership
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interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and Eurodollar
time deposits with maturities of not more than one year from the date of
acquisition, bankers' acceptances with maturities of not more than one year from
the date of acquisition and overnight bank deposits, in each case with any
domestic commercial bank having capital and surplus in excess of $500.0 million
and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above and (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Rating Group with maturities of not more than
one year from the date of acquisition.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group") together with any Affiliates thereof (whether or
not otherwise in compliance with the provisions of the Indenture) unless
immediately following such sale, lease, exchange or other transfer in compliance
with the Indenture such assets are owned, directly or indirectly, by the Company
or a Wholly Owned Subsidiary of the Company; (ii) the approval by the holders of
Capital Stock of the Company of any plan or proposal for the liquidation or
dissolution of the Company; (iii) the acquisition in one or more transactions,
of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act) of Voting Securities of the Company by any Person or Group that either (A)
beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, at least 50% of the Company's then outstanding voting
securities entitled to vote on a regular basis for the board of directors of the
Company, or (B) otherwise has the ability to elect, directly or indirectly, a
majority of the members of the Company's board of directors, including, without
limitation, by the acquisition of revocable proxies for the election of
directors; or (iv) during any period of two consecutive years, individuals who
at the beginning of such period constituted the board of directors of the
Company (together with any new directors whose election by such board of
directors or whose nomination for election by the shareholders (or members, as
applicable) of the Company was approved by a vote of 66 2/3% of the directors of
the Company then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the board of
directors then in office.
"Commodity Hedging Agreements" means agreements or arrangements designed to
protect such Person against fluctuations in the price of (i) crude oil, natural
gas, or other hydrocarbons, including refined hydrocarbon products or (ii)
electricity and other sources of energy or power used in the Company's refining,
processing or exploration and production operations, in either case in
connection with the conduct of its business and not for speculative purposes.
"Commodity Hedging Obligations" means, with respect to any Person, the net
payment Obligations of such Person under Commodity Hedge Agreements.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary, unusual or non-recurring expenses or losses
(including, whether or not otherwise includable as a separate item in the
statement of Consolidated Net Income for such period, losses on sales of assets
outside of the ordinary course of business) plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted in
computing such Consolidated Net Income), plus (ii) provision for taxes based on
income or profits of such Person and its Restricted Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
and whether or not capitalized (including, without limitation, amortization of
debt issuance costs and original issue discount, non-cash
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interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income, plus (iv) depreciation
and amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation and amortization were deducted in computing such
Consolidated Net Income, minus (v) non-cash items increasing such Consolidated
Net Income for such period, in each case, on a consolidated basis and determined
in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes
on the income or profits of, and the depreciation and amortization and other
non-cash charges of, a Restricted Subsidiary of the referent Person shall be
added to Consolidated Net Income to compute Consolidated Cash Flow only to the
extent (and in same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
(for such period, on a consolidated basis, determined in accordance with GAAP);
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and (v)
any ceiling limitation writedowns under Securities and Exchange Commission
guidelines shall be treated as capitalized costs, as if such writedown had not
occurred.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, all of the foregoing determined in
accordance with GAAP.
"Credit Facility" means, with respect to the Company or any Restricted
Subsidiary, one or more debt facilities (including, without limitation, the
Senior Credit Facility) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, other borrowings
(including term loans), receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, extended, refunded, replaced or refinanced
(in each case, without limitation as to amount) in whole or in part from time to
time.
"Default" means any event that is or with the passage of time or the giving
of notice (or both) would be an Event of Default.
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"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Senior Credit Facility and (ii) any other Senior Debt permitted hereunder the
principal amount of which is $25 million or more and that has been designated by
the Company as "Designated Senior Debt."
"Disqualified Stock" means, with respect to any Person, any Capital Stock
to the extent that by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event, it matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the Holder thereof,
in whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature, except such Capital Stock that is solely redeemable
with, or solely exchangeable for, any Capital Stock of such Person that is not
Disqualified Stock.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Notes" means notes designated as "Series B" in the Indenture and
registered under the Securities Act that are issued under the Indenture in
exchange for the Notes initially issued under the Indenture pursuant to the
Exchange Offer or in replacement of any such initially issued Notes pursuant to
the Shelf Registration Statement.
"Existing Indebtedness" means the BHP Note and up to an additional $25
million in aggregate amount of principal, letters of credit reimbursement
obligations or Capital Lease Obligation, of Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Senior Credit
Facility and the Notes) in existence on the Issue Date.
"Fair Market Value" means, with respect to consideration received or to be
received, or given or to be given, pursuant to any transaction by the Company or
any Restricted Subsidiary, the fair market value of such consideration as
determined in good faith by the Board of Directors of the Company.
"Financial Hedging Obligations" means, with respect to any Person, the net
payment Obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates in connection with the conduct of
its business and not for speculative purposes.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation or duplication, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the
consolidated interest of such Person and its Restricted Subsidiaries that was
capitalized during such period, (iii) any interest expense on Indebtedness of
another Person that is guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such guarantee or Lien is called upon),
and (iv) the product of (a) all dividend payments, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company (other than Disqualified Stock), times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP; provided that interest attributable to
Dollar-Denominated Production Payments shall be excluded from Fixed Charges.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period.
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In the event that the Company or any of its Restricted Subsidiaries incurs,
assumes, guarantees or redeems any Indebtedness (other than revolving credit
borrowings under any Credit Facility) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but on or prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the definition
of Consolidated Net Income, (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, the statements and pronouncements of
the Financial Accounting Standards Board and such other statements by such other
entities as have been approved by a significant segment of the accounting
profession, which are applicable at the date of determination.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantees
or obligations the full faith and credit of the United States is pledged.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof or pledging assets to secure), of
all or any part of any Indebtedness.
"Guarantors" means (i) each of Tesoro Petroleum Companies, Inc., Digicomp
Inc., Tesoro Financial Services Holding Company, Victory Finance Company, Tesoro
Alaska Petroleum Company, Interior Fuels Company, Kenai Pipe Line Company,
Tesoro Alaska Pipeline Company, Tesoro Northstore Company, Tesoro Refining,
Marketing & Supply Company, Tesoro Vostok Company, Tesoro Exploration and
Production Company, Tesoro Gas Resources Company, Inc., Tesoro E&P Company,
L.P., Tesoro Natural Gas Company, Tesoro Pipeline Company, L.P., Tesoro Bolivia
Petroleum Company, Tesoro Latin America Company, Tesoro Marine Services Holding
Company, Tesoro Marine Services, Inc., Tesoro Hawaii Corporation (formerly known
as BHP Petroleum Americas Refining Inc.), and Tesoro South Pacific Petroleum
Company (formerly known as BHP Petroleum South Pacific Inc.) (ii) each of the
Company's Restricted Subsidiaries that becomes a guarantor of the Notes pursuant
to the covenant described above under "-- Certain Covenants -- Additional
Subsidiary Guarantees" and (iii) each of the Company's Restricted Subsidiaries
executing a supplemental indenture in which such Restricted Subsidiary agrees to
be bound by the terms of the Indenture; provided that any Person constituting a
Guarantor as described above shall cease to constitute a Guarantor when its
respective Subsidiary Guarantee is released in accordance with the terms
thereof.
"Hedging Obligations" means, with respect to any Person, collectively, the
Commodity Hedging Obligations of such Person and the Financial Hedging
Obligations of such Person.
"Indebtedness" means, with respect to any Person, without duplication, (i)
(A) the principal of and premium, if any, with respect to indebtedness of such
Person for borrowed money or evidenced by bonds, notes, debentures or similar
instruments, (B) reimbursement obligations of such Person for letters of credit
or
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banker's acceptances, (C) Capital Lease Obligations of such Person, (D)
obligations of such Person for the payment of the balance deferred and unpaid of
the purchase price of any property except any such balance that constitutes an
accrued expense or trade payable or (E) Hedging Obligations, in each case of the
foregoing subclauses (A) through (E) if and to the extent any of the foregoing
obligations or indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (ii) obligations or indebtedness of others of
the type referred to in the subclauses (A) through (E) of the foregoing clause
(i) that are secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person), but in an amount not to exceed the
lesser of the amount of such other Person's obligation or indebtedness or the
Fair Market Value of such asset, (iii) to the extent not otherwise included, the
guarantee by such Person of any obligations or indebtedness of others of the
type referred to in the subclauses (A) through (E) of the foregoing clause (i),
whether or not such guarantee is contingent, and whether or not such guarantee
appears on the balance sheet of such Person and (iv) with respect to any
Production Payment, any warranties or guarantees of production or payment by
such Person with respect to such Production Payment, but excluding other
contractual obligations of such Person with respect to any Production Payment.
The amount of any Indebtedness outstanding as of any date shall be (a) the
accreted value thereof, in the case of any Indebtedness that does not require
current payments of interest, and (b) the principal amount thereof in the case
of any other Indebtedness.
"Independent Financial Advisor" means a nationally recognized accounting,
appraisal or investment banking firm that is, in the reasonable judgment of the
Board of Directors, qualified to perform the task for which such firm has been
engaged hereunder and disinterested and independent with respect to the Company
and its Affiliates; provided, that providing accounting, appraisal or investment
banking services to the Company or any of its Affiliates or having an employee,
officer or other representative serving as a member of the Board of Directors of
the Company or any of its Affiliates will not disqualify any firm from being an
Independent Financial Advisor.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other Obligations),
advances or capital contributions (excluding commission, travel and
entertainment, moving, and similar advances to officers and employees made in
the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If the Company or any of its Restricted
Subsidiaries sells or otherwise disposes of any Equity Interests of any direct
or indirect Restricted Subsidiary of the Company such that, after giving effect
to any such sale or disposition, such Person is no longer a direct or indirect
Restricted Subsidiary of the Company, the Company, or such Restricted
Subsidiary, as the case may be, shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the Fair Market Value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of in an
amount determined as provided in the fourth paragraph of the covenant described
above under the caption "-- Certain Covenants -- Restricted Payments."
"Issue Date" means the first date on which the Notes are issued,
authenticated and delivered under the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), or (b)
the disposition of any securities by such Person or any of its Restricted
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Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale), net
of the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting, investment banking and brokers fees, sales and underwriting
commissions and other reasonable costs incurred in preparing such asset for
sale) and any relocation expenses incurred as a result thereof, taxes paid or
reserved as payable as a result thereof (after taking into account any available
tax credits or deductions and any tax sharing arrangements), amounts required to
be applied to the repayment of Indebtedness (other than Indebtedness under any
Credit Facility) secured by a Lien on the asset or assets that were the subject
of such Asset Sale and any reserve for adjustment (whether or not placed in
escrow) in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Indebtedness" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries, (a) provides any guarantee or
credit support of any kind (including any undertaking, guarantee, indemnity,
agreement or instrument that would constitute Indebtedness) or (b) is directly
or indirectly liable (as a guarantor or otherwise), (ii) the incurrence of which
will not result in any recourse against any of the assets of the Company or its
Restricted Subsidiaries, and (iii) no default with respect to which would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare pursuant to the express
terms governing such Indebtedness a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its Stated Maturity.
"Obligations" means any principal, premium (if any), interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or its Restricted Subsidiaries whether or
not a claim for post-filing interest is allowed in such proceeding), penalties,
fees, charges, expenses, indemnifications, reimbursement obligations, damages
(including Liquidated Damages), guarantees (including the Subsidiary Guarantees)
and other liabilities or amounts payable under the documentation governing any
Indebtedness or in respect thereof.
"Permitted Business" means, with respect to the Company and its Restricted
Subsidiaries, the businesses of (i) the acquisition, exploration, development,
operation and disposition of interests in oil, gas and other hydrocarbon
properties, (ii) the acquisition, gathering, treating, processing, storage,
transportation of production from such interests or properties, (iii) the
acquisition, processing, marketing, refining, distilling, storage and/or
transportation of hydrocarbons and/or royalty or other interests in crude oil or
refined or associated products related thereto, (iv) the acquisition, operation,
improvement, leasing and other use of convenience stores, retail service
stations, truck stops and other public accommodations in connection therewith,
(v) the marketing and distribution of petroleum and marine products and the
provision of logistical services to marine and offshore exploration and
production industries, (vi) any business currently engaged in by the Company or
its Restricted Subsidiaries and (vii) any activity or business that is a
reasonable extension, development or expansion of, or reasonably related to, any
of the foregoing.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents or
deposit accounts maintained in the ordinary course of business consistent with
past practices; (c) any Investment by the Company or any Restricted Subsidiary
of the Company in a Person, if as a result of such Investment (i) such Person
becomes a Restricted Subsidiary of the Company or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys all or
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company; (d) any security or other Investment
received or Investment made as a result of the receipt of non-cash consideration
from (i) an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales" or (ii) a disposition of assets that do not constitute
an Asset Sale; (e) any acquisition of assets solely in exchange for
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the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(f) any Investment received in settlement of debts, claims or disputes owed to
the Company or any Restricted Subsidiary of the Company that arose out of
transactions in the ordinary course of business; (g) any Investment received in
connection with or as a result of a bankruptcy, workout or reorganization of any
Person; (h) advances and extensions of credit in the nature of accounts
receivable arising from the sale or lease of goods or services or the licensing
of property in the ordinary course of business; (i) relocation allowances for,
and advances and loans to, employees, officers and directors, approved by the
Board of Directors (or authorized officer) (including, without limitation, loans
and advances the net cash proceeds of which are used solely to purchase Equity
Interests of the Company in connection with restricted stock or employee stock
purchase plans, or to exercise stock received pursuant thereto or other
incentive plans in a principal amount not to exceed the aggregate exercise or
purchase price), or loans to refinance principal and accrued interest on any
such loans, provided that the aggregate principal amount of such loans, advances
and allowances shall not exceed at any time $10 million; (j) other Investments
by the Company or any Restricted Subsidiary of the Company in any Person having
an aggregate Fair Market Value (measured as of the date each such Investment is
made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (j) (net of
returns of capital, dividends and interest paid on Investments and sales,
liquidations and redemptions of Investments), not in excess of the greater of
$50 million and 15% of the Consolidated Net Worth of the Company; (k)
Investments in the form of intercompany Indebtedness or Guarantees of
Indebtedness of a Restricted Subsidiary of the Company permitted under clauses
(v) and (xii) of the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock;" (l)
Investments arising in connection with Hedging Obligations that are incurred in
the ordinary course of business for the purpose of fixing or hedging currency,
commodity or interest rate risk in connection with the conduct of the business
of the Company and its Subsidiaries and not for speculative purposes; (m)
Investments in the form of, or pursuant to, operating agreements, joint
ventures, partnership agreements, working interests, royalty interests, mineral
leases, processing agreements, farm-out agreements, contracts for the sale,
transportation or exchange of oil and natural gas, unitization agreements,
pooling agreements, area of mutual interests agreements, production sharing
agreements or other or other similar or customary agreements, transactions,
properties, interests or arrangements, and Investments and expenditures in
connection therewith or pursuant thereto, in each case made or entered into the
ordinary course of the business described in clauses (i) and (ii) of the
definition of "Permitted Business" excluding, however, investments in
corporations; and (n) Investments pursuant to agreements and obligations of the
Company and any Restricted Subsidiary in effect on the Issue Date.
"Permitted Junior Securities" means (i) Equity Interests in the Company or
any Guarantor which, to the extent received by any Holder in connection with any
bankruptcy, reorganization, insolvency or similar proceeding in which any Equity
Interests are also exchanged for or distributed in respect of Senior Debt, are
either common equity securities or are subordinated to all such Equity Interests
so exchanged or distributed to substantially the same extent as, or to a greater
extent than, the Notes are subordinated to Senior Debt pursuant to the
Indenture, and (ii) debt securities that are subordinated to all Senior Debt
(and any debt securities issued in exchange for Senior Debt) to substantially
the same extent as, or to a greater extent than, the Notes are subordinated to
Senior Debt pursuant to the Indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness), including Indebtedness that extends,
refinances, renews, replaces, defeases or refunds Permitted Refinancing
Indebtedness, provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus accrued and unpaid
interest on, the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus fees and expenses incurred in connection therewith,
including any premium or defeasance cost); (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or
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refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and is subordinated in right of payment to, the Notes on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or a Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, limited liability company,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Production Payment" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
"Public Equity Offering" means any public underwritten offering of the
Voting Stock (other than Disqualified Stock) of the Company pursuant to
registration under the Securities Act of 1933, as amended, made pursuant to an
underwriting or similar agreement executed and delivered after the Issue Date.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Representative" means the administrative agent under the Senior Credit
Facility or its successor thereunder or any other agent or representative on
behalf of the holders of Designated Senior Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referenced
Person that is not an Unrestricted Subsidiary or a direct or indirect Subsidiary
of an Unrestricted Subsidiary; provided that, on the Issue Date, all
Subsidiaries of the Company shall be Restricted Subsidiaries of the Company.
"Senior Credit Facility" means that certain Third Amended and Restated
Credit Agreement, dated as of the Issue Date, by and among the Company, Lehman
Brothers Inc., as Arranger, Lehman Commercial Paper Inc., as Syndication Agent,
and certain other lenders and agents, providing for up to $200 million of term
loan borrowings and $300 million of revolving credit borrowings and letters of
credit in each case, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith and in
each case as amended, modified, renewed, restated, refunded, replaced or
refinanced (in each case, without limitation as to amount), in whole or in part,
from time to time and any agreements (and related documents) governing
Indebtedness incurred to refund or refinance credit extensions and commitments
then outstanding or permitted to be outstanding under such Senior Credit
Facility, whether by the same or any other lender or group of lenders. The
Company shall promptly notify the Trustee of any other lender or group of
lenders. The Company shall promptly notify the Trustee of any such refunding or
refinancing of the existing Senior Credit Facility.
"Senior Debt" means (i) Indebtedness of the Company or any Guarantor for
money borrowed and all obligations of such Person under, or with respect to, the
Senior Credit Facility or any other Credit Facility, whether direct or indirect,
under guarantees, letters of credit, foreign currency or interest rate swaps,
foreign exchange contracts, caps, collars, options, hedges or other agreements
or arrangements designed to protect against fluctuations in currency values or
interest rates, other extensions of credit, expenses, fees, reimbursements,
indemnities and all other amounts (including interest at the contract rate
accruing on or after the filing of any petition in bankruptcy or reorganization
relating to the Company or any Guarantor whether or not a claim for post-filing
interest is allowed in such proceeding), (ii) the principal of and premium, if
any, and accrued and unpaid interest, whether existing on the date hereof or
hereafter incurred, in respect of (A) indebtedness of the Company or any
Guarantor for money borrowed, (B) guarantees by the Company or any Guarantor of
indebtedness for money borrowed by any other Person, (C) indebtedness evidenced
by notes, debentures, bonds, or other instruments for the payment of which the
Company or any Guarantor is responsible or liable, by guarantees or otherwise,
(D) obligations of the Company or any Guarantor for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction, (E) obligations of the Company or any Guarantor under any agreement
to lease, or any lease of, any real or
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personal property which, in accordance with GAAP, is classified on the Company's
or any Guarantor's consolidated balance sheet as a liability, and (F)
obligations of the Company or any Guarantor under interest rate swaps, caps,
collars, options and similar arrangements and commodity or foreign currency
hedges and (iii) modifications, renewals, extensions, replacements, refinancings
and refundings of any such indebtedness, obligations or guarantees, unless, in
the instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is expressly provided that such indebtedness, obligations or
guarantees, or such modifications, renewals, extensions, replacements,
refinancings or refundings thereof, are not superior in right of payment to the
Notes; provided that Senior Debt will not be deemed to include (a) Indebtedness
represented by preferred stock, (b) any obligation of the Company or any
Guarantor to any Subsidiary or other Affiliate, (c) any liability for federal,
state, local or other taxes owed or owing by the Company or any Guarantor, (d)
any accounts payable or other liability to trade creditors, (e) any
Indebtedness, guarantee or obligation of the Company or any Guarantor which is
expressly subordinate or junior by its terms in right of payment to any other
Indebtedness, guarantee or obligation of the Company or any Guarantor, (f) that
portion of any Indebtedness incurred in violation of the covenant described
above under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock" (other than Indebtedness incurred under a Credit
Facility if prior to the incurrence thereof or, in the case of contingent
obligations such as letters of credit pursuant to which such Indebtedness is
incurred, prior to the issuance thereof or agreement to extend credit in respect
thereof, the Company has certified to the lenders under such Credit Facility
that the such incurrence or extension of credit does not violate such covenant)
or (g) Indebtedness of the Company or any Guarantor which is classified as
non-recourse in accordance with GAAP or any unsecured claim arising in respect
thereof by reason of the application of section 1111(b)(1) of the Bankruptcy
Code.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the Issue
Date.
"Stated Maturity" means, with respect to any installment of interest or
principal, or sinking fund or mandatory redemption of principal, on any series
of Indebtedness, the date on which such payment of interest or principal was
scheduled to be paid or made, as applicable, in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or an entity described in clause (i) and
related to such Person or (b) the only general partners of which are such Person
or of one or more entities described in clause (i) and related to such Person
(or any combination thereof).
"Subsidiary Guarantee" means the guarantee of the Notes and the Exchange
Notes by each of the Guarantors pursuant to the Indenture and in the form of
guarantee endorsed on the form of Note attached as Exhibit A-1 or A-2 to the
Indenture and any additional guarantee of the Notes and the Exchange Notes to be
executed by any Subsidiary of the Company pursuant to the covenant described
above under the caption "-- Certain Covenants -- Additional Subsidiary
Guarantees."
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary of the Company) that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
resolution of the Board of Directors as certified in an Officers' Certificate
delivered to the Trustee and (ii) each Subsidiary of an Unrestricted Subsidiary,
whenever it shall become such a Subsidiary. The Board of Directors may designate
any Subsidiary of the Company to become an Unrestricted Subsidiary if it (a) has
no Indebtedness other than Non-Recourse Indebtedness; (b) is not party to any
agreement, contract, arrangement or understanding with the Company or any
Restricted Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less
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favorable to the Company or such Restricted Subsidiary than those that might be
obtained, in light of all the circumstances, at the time from Persons who are
not Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Persons' financial condition or to cause such Persons to
achieve any specified levels of operating results; (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; (e) does not own any Capital
Stock of or own or hold any Lien on any property of, the Company or any
Restricted Subsidiary of the Company; and (f) would constitute an Investment
which the Company could make in compliance with the covenant under the caption
"-- Certain Covenants -- Restricted Payments." Notwithstanding the foregoing,
if, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred as of such date.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of a Person means a Restricted
Subsidiary of such Person to the extent (i) all of the outstanding Capital Stock
and other Equity Interests of which (other than director's qualifying shares)
shall be directly or indirectly owned by such Person or (ii) such Restricted
Subsidiary is organized in a foreign jurisdiction and is required by the
applicable laws and regulations of such jurisdiction to be partially owned by
the government of such foreign jurisdiction or individual or corporate citizens
of such foreign jurisdiction or another foreign jurisdiction in order for such
Restricted Subsidiary to transact business in such foreign jurisdiction,
provided that such Person, directly or indirectly, owns the remaining Capital
Stock or ownership interests in such Restricted Subsidiary and, by contract or
otherwise, derives the economic benefits of ownership of such Restricted
Subsidiary to substantially the same extent as if such Restricted Subsidiary
were a wholly owned Restricted Subsidiary.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company's Restated Certificate of Incorporation, as amended, currently
authorizes the Company to issue up to 50,000,000 shares of Common Stock. The
holders of Common Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of stockholders. Subject to preferences that
may be applicable to any outstanding Preferred Stock (as defined herein),
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors of the Company out of funds legally available
therefor. In the event of a liquidation, dissolution, or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and liquidation preference of any
outstanding Preferred Stock. Holders of Common Stock have no preemptive rights
and have no rights to convert their Common Stock into any other securities.
There are no redemption provisions with respect to any shares of Common Stock.
All of the outstanding shares of Common Stock are, and the Common Stock offered
hereby will be, upon issuance against full payment of the purchase price
therefor, fully paid and nonassessable. As of July 8, 1998 there were issued and
outstanding 32,311,918 shares of Common Stock.
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services L.L.C.
PREFERRED STOCK
The Company's authorized capital stock includes 5,000,000 shares of
preferred stock, no par value per share (the "Preferred Stock"). The Preferred
Stock may be issued in series, and shares of each series will have such rights
and preferences as are fixed by the Board of Directors in resolutions
authorizing the issuance of that particular series. In designating any series of
Preferred Stock, the Board of Directors may, without further action by the
holders of the Common Stock, fix the number of shares constituting that series
and fix the dividend rights, dividend rate, conversion rights, voting rights
(which may be greater or lesser than the voting rights of the Common Stock),
rights and terms of redemption (including any sinking fund provisions), and the
liquidation preferences of such series of Preferred Stock. Holders of any series
of Preferred Stock, when and if issued, may have priority claims to dividends
and to any distributions upon liquidation of the Company, and other preferences
over the holders of the Common Stock. As of July 8, 1998, there were issued and
outstanding 103,500 shares of Preferred Stock.
MANDATORILY CONVERTIBLE PREFERRED STOCK
Pursuant to the PIES Offering, the Company issued PIES, each representing
one one-hundredth of a share of Mandatorily Convertible Preferred Stock
deposited under a Deposit Agreement (the "Deposit Agreement"), among the
Company, The Bank of New York as depositary (the "Depositary"), and the holders
from time to time of depositary receipts executed and delivered thereunder (the
"Depositary Receipts").
Dividends. Holders of the PIES are entitled to receive, through the
Depositary, when, as and if declared on the Mandatorily Convertible Preferred
Stock represented thereby by the Board of Directors, cash dividends out of funds
legally available therefor from the date of initial issuance of the PIES (which
issuance will be evidenced by the initial issuance of the Depositary Receipts)
at the rate of 7 1/4% per annum or 1.8125% per quarter. Dividends will cease to
become payable by the Company to the Depositary for distribution to the holders
of the PIES when dividends cease to accrue on the Mandatorily Convertible
Preferred Stock represented thereby on the Mandatory Conversion Date or on the
date of the earlier conversion of the PIES at the option of the holder.
Dividends will be paid out of funds legally available therefor.
Mandatory Conversion of PIES. Unless voluntarily converted into Common
Stock prior thereto, on July 1, 2001 (the "Mandatory Conversion Date"), each
PIES will automatically convert into a number of shares of Common Stock at the
Conversion Rate (as defined below) and the holder thereof will have the right to
receive cash in an amount equal to the accrued and unpaid dividends on the
Mandatorily Convertible Preferred Stock represented by such PIES to the
Mandatory Conversion Date (other than previously declared dividends deliverable
to a holder of record of the Depositary Receipt evidencing such PIES as of a
prior date), whether or not declared, out of funds legally available for the
payment of dividends, subject to any applicable requirements of other Preferred
Stock. The "Conversion Rate" is equal to (a) if the Conversion Price (as
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defined below) is greater than or equal to $18.85 (the "Threshold Appreciation
Price"), 0.8455 shares of Common Stock per PIES, (b) if the Conversion Price is
less than the Threshold Appreciation Price but is greater than $15.9375 (the
"Initial Price"), a fraction, equal to the Initial Price divided by the
Conversion Price, of one share of Common Stock per PIES and (c) if the
Conversion Price is less than or equal to the Initial Price, one share of Common
Stock per PIES. The Conversion Rate, the Threshold Appreciation Price and the
Initial Price are each subject to adjustment in certain circumstances, including
if the Company shall (a) pay a stock dividend or make a distribution with
respect to its Common Stock in shares of Common Stock, (b) subdivide or split
its outstanding Common Stock, (c) combine its outstanding Common Stock into a
smaller number of shares, (d) issue by reclassification of its shares of Common
Stock any shares of Common Stock, (e) issue rights or warrants to all holders of
its Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Current Market Price (as defined in the
Certificate of Designation) of the Common Stock on the record date for the
determination of stockholders entitled to receive such rights or warrants, or
(f) pay certain dividends or distribute to all holders of its Common Stock
evidences of its indebtedness, cash or other assets or issue rights or warrants
(other than those referred to in clause (e) above) to all holders of its Common
Stock entitling them to subscribe for or purchase any of its securities.
The "Conversion Price" is the average Closing Price per share of Common
Stock for the 20 trading days immediately prior to (but not including) the
Mandatory Conversion Date; provided, however, that, if there are not 20 trading
days for the Common Stock occurring later than the 60th calendar day immediately
prior to, but not including, the Mandatory Conversion Date, the "Conversion
Price" will be the market value per share of Common Stock as of the Mandatory
Conversion Date as determined by a nationally recognized investment banking firm
retained for such purpose by the Company. The Conversion Price is subject to
adjustment in certain circumstances.
Conversion at the Option of the Holder. The PIES are convertible, in whole
but not in part, at the option of the holders thereof, at any time after July
26, 1998 and prior to the Mandatory Conversion Date, into shares of Common Stock
at a rate of 0.8455 shares of Common Stock for each PIES (the "Optional
Conversion Rate"), equivalent, for each PIES, to a conversion price of $18.85
per share of Common Stock (the "Optional Conversion Price"), subject to
adjustment in the circumstances described above with respect to the Conversion
Rate.
Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, and subject to the rights
of holders of any other series of Preferred Stock, the holders of PIES will be
entitled to receive an amount equal to the per share price to the public of the
PIES plus accrued and unpaid dividends on the Mandatorily Convertible Preferred
Stock represented thereby, out of the assets of the Company available for
distribution to stockholders, before any distribution of assets is made to
holders of junior ranking stock upon liquidation, dissolution or winding up.
Voting Rights. The holders of shares of Mandatorily Convertible Preferred
Stock (including shares of Mandatorily Convertible Preferred Stock represented
by PIES) are not entitled to any voting rights, except as required by applicable
state law and as described below.
In the event that dividends on the Mandatorily Convertible Preferred Stock
(including shares of Mandatorily Convertible Preferred Stock represented by
PIES) or any other series of Preferred Stock are in arrears and unpaid for six
quarterly dividend periods, or if any other series of Preferred Stock shall be
entitled for any other reason to exercise voting rights, separate from the
Common Stock to elect any Directors of the Company ("Preferred Stock
Directors"), the holders of the shares of Mandatorily Convertible Preferred
Stock (voting separately as a class with holders of all other series of
Preferred Stock which do not have a separate class vote and upon which like
voting rights have been conferred and are exercisable), will be entitled to vote
for the election of two Preferred Stock Directors, such Directors to be in
addition to the number of Directors constituting the Board of Directors
immediately prior to the accrual of such right.
The Company will not, without the approval of the holders of at least
66 2/3% of all the shares of Mandatorily Convertible Preferred Stock then
outstanding: (i) amend, alter or repeal any of the provisions of the Restated
Certificate of Incorporation or the Bylaws of the Company so as to affect
adversely the powers, preferences or rights of the holders of the shares of
Mandatorily Convertible Preferred Stock then outstanding
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or reduce the minimum time required for any notice to which only the holders of
the shares of Mandatorily Convertible Preferred Stock then outstanding may be
entitled; (ii) create any series of Preferred Stock ranking prior to the shares
of Mandatorily Convertible Preferred Stock as to payment of dividends or the
distribution of assets upon liquidation; or (iii) authorize or create, or
increase the authorized amount of, any capital stock, or any security
convertible into capital stock, of any class ranking prior to the shares of
Mandatorily Convertible Preferred Stock as to payment of dividends or the
distribution of assets upon liquidation.
Holders of PIES and Mandatorily Convertible Preferred Stock have no
preemptive rights.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences of the Exchange Offer and the purchase, ownership and disposition
of Exchange Notes relevant to initial purchasers of the Old Notes. This summary
is based on currently existing provisions of the Code, existing and temporary
Treasury regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change, possibly with retroactive effect, or different
interpretations. This discussion does not address the tax consequences to
subsequent purchasers of Exchange Notes and is limited to initial purchasers of
Old Notes who hold the Old Notes and Exchange Notes as capital assets, within
the meaning of section 1221 of the Code. Moreover, this discussion is for
general information only and does not address all of the tax consequences that
may be relevant to particular initial purchasers of Old Notes in light of their
personal circumstances or to certain types of initial purchasers of Old Notes
(such as certain financial institutions, insurance companies, tax-exempt
entities, dealers in securities, or persons who have hedged the risk of owning
an Old Note or Exchange Note) or the effect of any applicable state, local or
foreign tax law.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE EXCHANGE OFFER AND OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE EXCHANGE NOTES, INCLUDING THE
APPLICABILITY OF ANY FEDERAL TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND ANY CHANGES (OR PROPOSED CHANGES) IN APPLICABLE TAX LAWS OR INTERPRETATIONS
THEREOF.
As used herein, the term "U.S. Holder" means an individual who is a citizen
or resident of the United States (including certain former citizens and former
long-term residents), a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, an estate, the income of which is subject to United States federal
income taxation regardless of its source, or a trust if (i) a U.S. court is able
to exercise primary supervision over the administration of the trust and (ii)
one or more U.S. persons have authority to control all substantial decisions of
the trust. A "Non-U.S. Holder" is a holder who is not a U.S. Holder.
Exchange of Notes
The exchange of an Old Note by a U.S. Holder for an Exchange Note pursuant
to the Exchange Offer should not constitute a taxable exchange for United States
federal income tax purposes. Accordingly, there should be no United States
federal income tax consequences to holders who exchange Old Notes for Exchange
Notes pursuant to the Exchange Offer, and any such holder should have the same
adjusted tax basis and holding period in the Exchange Notes as it had in the Old
Notes immediately before the exchange.
Payment of Interest on Exchange Notes
Interest paid or payable on an Exchange Note will be taxable to a U.S.
Holder as ordinary interest income, generally at the time it is received or
accrued, in accordance with such U.S. Holder's regular method of accounting for
United States federal income tax purposes.
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Sale, Exchange or Retirement of the Exchange Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of an Exchange Note, the U.S. Holder generally will recognize
taxable gain or loss equal to the difference between the sum of cash plus the
fair market value of all other property received on such disposition (except to
the extent such cash or property is attributable to accrued but unpaid interest,
which will be taxable as ordinary income) and such U.S. Holder's adjusted tax
basis in the Exchange Note. A U.S. Holder's adjusted tax basis in an Exchange
Note generally will equal the U.S. Holder's adjusted basis for the Old Note
exchanged therefor, less any principal payments received by such U.S. Holder.
Gain or loss recognized by a U.S. Holder on the disposition of an Exchange
Note generally will be capital gain or loss and will be long-term capital gain
or loss if, at the time of such disposition, the U.S. Holder's holding period
for the Exchange Note is more than one year. The deduction of capital losses is
subject to certain limitations. U.S. Holders of Exchange Notes should consult
tax advisors regarding the treatment of capital gains and losses.
Backup Withholding and Information Reporting
Backup withholding and information reporting requirements may apply to
certain payments ("reportable payments') of principal, premium, if any, and
interest on an Exchange Note to a U.S. Holder, and to proceeds paid to a U.S.
Holder from the sale or redemption of an Exchange Note before maturity. The
Company, its agent, a broker, the Trustee or any paying agent, as the case may
be, will be required to withhold from any reportable payment that is subject to
backup withholding a tax equal to 31% of such payment if a U.S. Holder fails to
furnish his taxpayer identification number (social security or employer
identification number), certify that such number is correct, certify that such
holder is not subject to backup withholding or otherwise comply with the
applicable requirements of the backup withholding rules. Certain holders,
including all corporations, are not subject to backup withholding and reporting
requirements. Any amounts withheld under the backup withholding rules from a
reportable payment to a U.S. Holder will be allowed as a credit against such
U.S. Holder's United States federal income tax and may entitle the U.S. Holder
to a refund, provided that the required information is furnished to the Internal
Revenue Service.
The amount of any reportable payments, including interest, made to the
record U.S. Holders of Exchange Notes (other than to holders which are exempt
recipients) and the amount of tax withheld, if any, with respect to such
payments will be reported to such U.S. Holders and to the IRS for each calendar
year.
NON-U.S. HOLDERS
The following discussion is a summary of certain United States federal
income tax and estate tax consequences to a Non-U.S. Holder that holds an
Exchange Note. No United States federal withholding tax will be imposed with
respect to the payment by the Company or its paying agent of principal, premium,
if any, or interest on an Exchange Note owned by a Non-U.S. Holder (the
"Portfolio Interest Exception"), provided that (i) the Non-U.S. Holder does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote and is not a controlled
foreign corporation with respect to the United States that is related to the
Company actually or constructively through stock ownership and (ii) the Company,
its paying agent or the person who would otherwise be required to withhold tax
receives either (A) a statement, which may be provided on a Form W-8 or
substitute form (an "Owner's Statement") signed under penalties of perjury by
the beneficial owner of the Exchange Note in which the owner certifies that the
owner is not a United States person, or, in the case of an individual, that he
is neither a citizen nor a resident of the United States, and which provides the
owner's name and address, or (B) a statement signed under penalties of perjury
by the Financial Institution holding the Exchange Note on behalf of the
beneficial owner, together with a copy of the Owner's Statement. As used herein,
the term "Financial Institution" means a securities clearing organization, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business that holds an Exchange Note on behalf of the
owner of the Exchange Note. A Non-U.S. Holder who does not qualify for the
Portfolio Interest Exception, would, under current law, generally be subject to
U.S. federal withholding tax at a flat rate of 30% (or lower
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applicable treaty rate) on interest payments. However, a Non-U.S. Holder will
not be subject to the 30% withholding tax if such Non-U.S. Holder provides the
Company with an IRS Form 4224 (or substitute form) stating that the interest
paid on the Exchange Notes is not subject to withholding tax because it is
effectively connected with the beneficial owner's conduct of a trade or business
in the United States.
In general, gain recognized by a Non-U.S. Holder upon the redemption,
retirement, sale, exchange or other disposition of an Exchange Note will not be
subject to United States federal income tax unless such gain or loss is
effectively connected with a trade or business in the United States. However, a
Non-U.S. Holder may be subject to United States federal income tax at a flat
rate of 30% (unless exempt by an applicable treaty) on any such gain if the
Non-U.S. Holder is an individual present in the United States for 183 days or
more during the taxable year of the disposition of the Exchange Note and certain
other requirements are met.
Backup withholding and information reporting requirements do not apply to
payments of interest made by the Company or a paying agent to a Non-U.S. Holder
if the Owner's Statement described above is received, provided that the payor
does not have actual knowledge that the holder is a U.S. Holder. If any payments
of principal and interest are made to the beneficial owner of an Exchange Note
by or through the foreign office of a foreign custodian, foreign nominee or
other foreign agent of such beneficial owner, or if the foreign office of a
foreign "broker" (as defined in applicable Treasury regulations) pays the
proceeds of the sale of an Exchange Note to the seller thereof, backup
withholding and information reporting will not apply. Information reporting
requirements (but not backup withholding) will apply, however, to a payment by a
foreign office of a broker that is (i) a United States person, (ii) a foreign
person that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States or (iii) a "controlled
foreign corporation" (generally, a foreign corporation controlled by certain
United States shareholders) with respect to the United States unless the broker
has no documentary evidence in its records that the holder is a Non-U.S. Holder
and certain other conditions are met or the holder otherwise establishes an
exemption. Payment by a United States office of a broker is subject to both
backup withholding at a rate of 31% and information reporting unless the holder
certifies under penalties of perjury that it is a Non-U.S. Holder or otherwise
establishes an exemption.
Recently issued Treasury regulations modify certain of the certification
requirements described above. These modifications will become generally
effective for interest payments made beginning January 1, 2000. The Company or
its paying agent may request new withholding exemption forms from holders in
order to qualify for continued exemption from withholding under the Treasury
regulations when they become effective. For example, under recently issued
Treasury regulations, a Non-U.S. Holder will be required to provide a Form W-8
(or substitute form) to the withholding agent on which such holder provides its
name, address and taxpayer identification number and states, under penalty of
perjury, that the interest paid on an Exchange Note and the gain on the sale,
exchange or other disposition of an Exchange Note is not effectively connected
with such holder's United States trade or business in order to obtain an
exemption from withholding tax on payments made beginning January 1, 2000.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and if interest on an Exchange Note is effectively connected with the conduct of
such trade or business, the Non-U.S. Holder, although exempt from United States
federal withholding tax as discussed above, will be subject to United States
federal income tax on such interest and on gain realized on the sale, exchange
or other disposition of an Exchange Note on a net income basis in the same
manner as if the holder were a U.S. Holder. In addition, if such holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30%, or
applicable lower tax treaty rate, of its effectively connected earnings and
profits for the taxable year, subject to adjustments. For this purpose, interest
and gain on an Exchange Note will be included in such foreign corporation's
effectively connected earnings and profits.
Subject to applicable estate tax treaty provisions, Exchange Notes held at
the time of death (or Exchange Notes transferred before death but subject to
certain retained rights or powers) by an individual who at the time of death is
a Non-U.S. Holder will not be included in such Non-U.S. Holder's gross estate
for United States federal estate tax purposes provided that the individual does
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote or hold the
Exchange Notes in connection with a United States trade or business.
132
<PAGE> 138
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by any
such person may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter," within the meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer, other than commissions or concessions
of any broker-dealer, and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes will be passed
upon for the Company by Fulbright & Jaworski L.L.P., Houston, Texas.
EXPERTS
The Tesoro Consolidated Financial Statements as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997,
included in this Prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and have been
so included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
The combined balance sheets of BHP Petroleum Americas Refining Inc. and BHP
Petroleum South Pacific Inc. as of May 31, 1997 and 1996, and the related
combined statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended May 31, 1997 included in this Prospectus,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
The financial statements of Shell Anacortes Refining Company as of December
31, 1997 and 1996 and for the period from inception (January 4, 1996) through
December 31, 1996 and for the year ended December 31, 1997 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on authority of said
firm as experts in auditing and accounting.
133
<PAGE> 139
The information for the year ended December 31, 1997 relating to estimated
proved reserves of oil and gas and the related estimates of future net cash
flows and present values thereof as of December 31, 1995, December 31, 1996 and
December 31, 1997, included in this Prospectus have been prepared by Netherland,
Sewell & Associates, Inc., independent petroleum engineers, and are included
herein upon the authority of such firm as an expert in petroleum engineering.
AVAILABLE INFORMATION
The Company has filed with the SEC a registration statement (the
"Registration Statement") under the Securities Act on Form S-4 with respect to
the Exchange Notes offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the SEC. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved. The Registration Statement and
any amendments thereto, including exhibits filed or incorporated by reference as
a part thereof, are available for inspection and copying at the SEC's offices as
described below.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048; and Northwestern Atrium, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material also may be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Such material also
may be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov. The Common Stock is listed for trading on the
NYSE and the Pacific Stock Exchange (the "PSE") under the trading symbol "TSO,"
and the Premium Income Equity Securities are listed on the NYSE under the
trading symbol "TSOprA." Reports, proxy statements and other information
concerning the Company may be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005, and at the offices of the PSE, 301 Pine
Street, San Francisco, California 94104.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission by the Company
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended on Form 10-K/A, filed April 30, 1998.
2. The Company's Report on Form 10-Q for the quarterly period ended
March 31, 1998.
3. The Company's Current Report on Form 8-K, dated as of May 13, 1998.
4. The Company's Current Report on Form 8-K, dated as of June 5, 1998.
5. The Company's Current Report on Form 8-K, dated as of July 1, 1998.
6. The description of the Premium Income Equity Securities included in
the Company's Registration Statement on Form 8-A dated June 25, 1998.
7. The description of the Common Stock included in the Company's
Registration Statement on Form 8-A dated April 21, 1969, as amended by a
Form 8 dated April 23, 1969.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Exchange Notes
134
<PAGE> 140
offered hereby shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained therein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of a Note, to whom a copy of this Prospectus is delivered, upon
written or oral request of such person, a copy of any or all documents
incorporated by reference in this Prospectus (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
such documents). Requests for such copies should be directed to Tesoro Petroleum
Corporation, 8700 Tesoro Drive, San Antonio, Texas 78217-6218, Attention: Vice
President, Finance and Treasurer (telephone: (800) 837-6768).
Separate financial statements of the subsidiary Guarantors are not included
because the subsidiary Guarantors are jointly and severally liable and that the
aggregate net assets, earnings and equity of such Guarantors are substantially
equivalent to the net assets, earnings and equity of the parent on a
consolidated basis.
135
<PAGE> 141
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF TESORO PETROLEUM
CORPORATION
Independent Auditors' Report................................ F-2
Statements of Consolidated Operations -- Years Ended
December 31, 1995, 1996 and 1997 and Three Months Ended
March 31, 1997 and 1998................................... F-3
Consolidated Balance Sheets -- December 31, 1996 and 1997
and March 31, 1998........................................ F-4
Statements of Consolidated Stockholders' Equity -- Years
Ended December 31, 1995, 1996 and 1997 and Three Months
Ended March 31, 1998...................................... F-5
Statements of Consolidated Cash Flows -- Years Ended
December 31, 1995, 1996 and 1997 and Three Months Ended
March 31, 1997 and 1998................................... F-6
Notes to Consolidated Financial Statements.................. F-7
AUDITED COMBINED FINANCIAL STATEMENTS OF BHP PETROLEUM
AMERICAS REFINING INC. AND BHP PETROLEUM SOUTH PACIFIC
INC.
Report of Independent Public Accountants.................... F-37
Combined Statements of Operations -- Years Ended May 31,
1995, 1996 and 1997....................................... F-38
Combined Balance Sheets -- May 31, 1996 and 1997............ F-39
Combined Statements of Stockholders' Equity -- Years Ended
May 31, 1995, 1996 and 1997............................... F-40
Combined Statements of Cash Flows -- Years Ended May 31,
1995, 1996 and 1997....................................... F-41
Notes to Combined Financial Statements...................... F-42
UNAUDITED COMBINED FINANCIAL STATEMENTS OF BHP PETROLEUM
AMERICAS REFINING INC. AND BHP PETROLEUM SOUTH PACIFIC
INC.
Combined Statements of Operations -- Seven Months Ended
December 31, 1996 and 1997................................ F-54
Combined Balance Sheets -- December 31, 1996 and 1997....... F-55
Combined Statements of Cash Flows -- Seven Months Ended
December 31, 1996 and 1997................................ F-56
Notes to Combined Financial Statements...................... F-57
UNAUDITED COMBINED FINANCIAL STATEMENTS OF BHP PETROLEUM
AMERICAS REFINING INC. AND BHP PETROLEUM SOUTH PACIFIC
INC.
Combined Statements of Operations -- Ten Months Ended March
31, 1997 and 1998......................................... F-61
Combined Balance Sheets -- March 31, 1997 and 1998.......... F-62
Combined Statements of Cash Flows -- Ten Months Ended March
31, 1997 and 1998......................................... F-63
Notes to Combined Financial Statements...................... F-64
FINANCIAL STATEMENTS OF SHELL ANACORTES REFINING COMPANY
Report of Independent Accountants........................... F-68
Statement of Income -- Period from inception (January 4,
1996) through December 31, 1996 and the year ended
December 31, 1997 and the three months ended March 31,
1997 and 1998............................................. F-69
Consolidated Balance Sheet -- December 31, 1996 and 1997 and
March 31, 1998............................................ F-70
Statement of Shareholder's Equity -- Period from inception
(January 4, 1996) through December 31, 1996 and the year
ended December 31, 1997 and the three months ended March
31, 1998.................................................. F-71
Statement of Cash Flows -- Period from inception (January 4,
1996) through December 31, 1996 and the year ended
December 31, 1997 and the three months ended March 31,
1997 and 1998............................................. F-72
Notes to Financial Statements............................... F-73
</TABLE>
F-1
<PAGE> 142
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Tesoro Petroleum Corporation
We have audited the accompanying consolidated balance sheets of Tesoro
Petroleum Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related statements of consolidated operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Tesoro Petroleum Corporation
and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
San Antonio, Texas
January 28, 1998
F-2
<PAGE> 143
TESORO PETROLEUM CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- -------------------
1995 1996 1997 1997 1998
---------- ---------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Refining and marketing........................ $ 771,035 $ 745,413 $720,868 $174,400 $140,213
Exploration and production.................... 124,670 107,415 84,798 23,358 22,222
Marine services............................... 74,467 122,533 132,251 35,495 32,818
Income from settlement of a natural gas
contract.................................... -- 60,000 -- -- --
Gain on sale of assets and other income....... 32,711 4,417 5,543 1,599 786
---------- ---------- -------- -------- --------
Total Revenues......................... 1,002,883 1,039,778 943,460 234,852 196,039
---------- ---------- -------- -------- --------
OPERATING COSTS AND EXPENSES
Refining and marketing........................ 758,329 726,029 687,036 171,154 130,720
Exploration and production.................... 19,055 12,968 13,230 2,845 3,925
Marine services............................... 77,803 115,314 124,725 34,216 30,597
Depreciation, depletion and amortization...... 41,776 40,627 45,729 11,597 12,944
---------- ---------- -------- -------- --------
Total Operating Costs and Expenses..... 896,963 894,938 870,720 219,812 178,186
---------- ---------- -------- -------- --------
OPERATING PROFIT................................ 105,920 144,840 72,740 15,040 17,853
General and Administrative...................... (16,453) (12,733) (13,588) (3,038) (3,372)
Interest Expense, Net of Capitalized Interest in
1997.......................................... (20,902) (15,382) (6,699) (1,570) (2,665)
Interest Income................................. 1,845 8,423 1,597 434 108
Other Expense, Net.............................. (8,542) (10,001) (4,930) (1,291) (1,034)
---------- ---------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY
ITEM.......................................... 61,868 115,147 49,120 9,575 10,890
Income Tax Provision............................ 4,379 38,347 18,435 3,444 4,831
---------- ---------- -------- -------- --------
EARNINGS BEFORE EXTRAORDINARY ITEM.............. 57,489 76,800 30,685 6,131 6,059
Extraordinary Loss on Extinguishments of Debt
(Net of Income Tax Benefit of $886 in 1996)... (2,857) (2,290) -- -- --
---------- ---------- -------- -------- --------
NET EARNINGS.................................... $ 54,632 $ 74,510 $ 30,685 $ 6,131 $ 6,059
========== ========== ======== ======== ========
NET EARNINGS PER SHARE -- BASIC................. $ 2.22 $ 2.87 $ 1.16 $ 0.23 $ 0.23
========== ========== ======== ======== ========
NET EARNINGS PER SHARE -- DILUTED............... $ 2.18 $ 2.81 $ 1.14 $ 0.23 $ 0.23
========== ========== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES -- BASIC......... 24,557 25,999 26,410 26,430 26,309
========== ========== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES AND POTENTIALLY
DILUTIVE COMMON SHARES -- DILUTED............. 25,107 26,499 26,868 26,829 26,789
========== ========== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 144
TESORO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 22,796 $ 8,352 $ 2,274
Receivables, less allowance for doubtful accounts......... 128,013 76,282 64,518
Inventories............................................... 74,488 87,359 97,793
Prepayments and other..................................... 12,046 9,842 7,984
-------- -------- --------
Total Current Assets............................... 237,343 181,835 172,569
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT
Refining and marketing.................................... 328,522 370,174 368,183
Exploration and production, full-cost method of
accounting:
Properties being amortized.............................. 179,433 251,604 275,512
Properties not yet evaluated............................ 12,344 31,918 28,556
Gas transportation...................................... 6,703 7,889 7,804
Marine services........................................... 33,820 43,072 48,201
Corporate................................................. 12,531 13,689 13,802
-------- -------- --------
573,353 718,346 742,058
Less accumulated depreciation, depletion and
amortization.......................................... 256,842 304,523 317,645
-------- -------- --------
Net Property, Plant and Equipment.................. 316,511 413,823 424,413
-------- -------- --------
OTHER ASSETS................................................ 28,733 32,150 38,447
-------- -------- --------
Total Assets....................................... $582,587 $627,808 $635,429
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 80,747 $ 58,767 $ 44,275
Accrued liabilities....................................... 33,256 31,372 28,626
Current income taxes payable.............................. 13,822 354 1,627
Current maturities of long-term debt and other
obligations............................................. 10,043 17,002 11,428
-------- -------- --------
Total Current Liabilities.......................... 137,868 107,495 85,956
-------- -------- --------
DEFERRED INCOME TAXES....................................... 19,151 28,824 31,003
-------- -------- --------
OTHER LIABILITIES........................................... 42,243 43,211 42,821
-------- -------- --------
LONG-TERM DEBT AND OTHER OBLIGATIONS, LESS CURRENT
MATURITIES................................................ 79,260 115,314 136,290
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Notes K and L)
STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized 5,000,000 shares
including redeemable preferred shares; none issued or
outstanding
Common stock, par value $0.16 2/3; authorized 50,000,000
shares; 26,414,134, 26,506,601 and 26,515,868 shares
issued and outstanding, respectively.................... 4,402 4,418 4,419
Additional paid-in capital................................ 189,368 190,925 191,000
Retained earnings......................................... 110,295 140,980 147,039
Treasury stock, 200,198 common shares in 1998, at cost
(216,453 in 1997)....................................... -- (3,359) (3,099)
-------- -------- --------
Total Stockholders' Equity.............................. 304,065 332,964 339,359
-------- -------- --------
Total Liabilities and Stockholders' Equity......... $582,587 $627,808 $635,429
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 145
TESORO PETROLEUM CORPORATION
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(INFORMATION FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1998 IS UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TREASURY STOCK
---------------- PAID-IN (ACCUMULATED ----------------
SHARES AMOUNT CAPITAL DEFICIT) SHARES AMOUNT
------- ------ ---------- ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994............... 24,390 $4,065 $175,514 $(18,847) -- $ --
Net earnings............................. -- -- -- 54,632 -- --
Shares issued pursuant to exercise of
stock options and stock awards........ 390 65 1,085 -- -- --
------- ------ -------- -------- ---- -------
BALANCE AT DECEMBER 31, 1995............... 24,780 4,130 176,599 35,785 -- --
Net earnings............................. -- -- -- 74,510 -- --
Issuance of Common Stock................. 1,308 218 11,054 -- -- --
Shares issued pursuant to exercise of
stock options and stock awards........ 326 54 1,715 -- -- --
------- ------ -------- -------- ---- -------
BALANCE AT DECEMBER 31, 1996............... 26,414 4,402 189,368 110,295 -- --
Net earnings............................. -- -- -- 30,685 -- --
Shares repurchased....................... -- -- -- -- (236) (3,701)
Shares issued pursuant to exercise of
stock options and stock awards and
employee benefit plans................ 45 7 440 -- 20 342
Other.................................... 48 9 1,117 -- -- --
------- ------ -------- -------- ---- -------
BALANCE AT DECEMBER 31, 1997............... 26,507 4,418 190,925 140,980 (216) (3,359)
Net earnings (unaudited)................. -- -- -- 6,059 -- --
Shares issued pursuant to exercise of
stock options and employee benefit
plans (unaudited)..................... 9 1 75 -- 16 260
------- ------ -------- -------- ---- -------
BALANCE AT MARCH 31, 1998 (unaudited)...... 26,516 $4,419 $191,000 $147,039 (200) $(3,099)
======= ====== ======== ======== ==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 146
TESORO PETROLEUM CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------- --------------------
1995 1996 1997 1997 1998
-------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings..................................... $ 54,632 $ 74,510 $ 30,685 $ 6,131 $ 6,059
Adjustments to reconcile net earnings to net cash
from operating activities:
Depreciation, depletion and amortization....... 42,620 41,459 46,363 11,747 13,154
Loss (gain) on sales of assets................. (32,659) 835 523 (18) (59)
Amortization of deferred charges and other..... 1,556 1,601 951 69 5
Extraordinary loss on extinguishments of debt,
net of income tax benefit.................... 2,857 2,290 -- -- --
Changes in operating assets and liabilities:
Receivables.................................. 9,746 (42,542) 56,785 43,533 11,764
Receivable from Tennessee Gas Pipeline
Company................................... (37,456) 50,680 -- -- --
Inventories.................................. (11,599) 7,210 (11,517) (3,089) (10,434)
Other assets................................. (3,573) (3,521) 296 3,487 1,691
Accounts payable and accrued liabilities..... 4,605 28,165 (37,854) (40,741) (15,980)
Deferred income taxes........................ 807 14,649 9,673 1,426 2,179
Obligation payments to State of Alaska....... (2,892) (4,047) (4,401) (1,064) (1,412)
Other liabilities and obligations............ 6,769 7,673 4,131 2,276 (530)
-------- -------- --------- -------- --------
Net cash from operating activities........ 35,413 178,962 95,635 23,757 6,437
-------- -------- --------- -------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures............................. (63,930) (84,957) (147,498) (16,300) (23,761)
Proceeds from sales of assets.................... 69,786 2,569 112 69 46
Deposits and other acquisition costs (Note C).... (3,029) (7,720) (5,086) -- (5,976)
Other............................................ (423) (4,092) 927 (548) 201
-------- -------- --------- -------- --------
Net cash from (used in) investing
activities.............................. 2,404 (94,200) (151,545) (16,779) (29,490)
-------- -------- --------- -------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Payments of long-term debt....................... (2,979) (3,838) (4,095) (764) (732)
Net borrowings under revolving credit
facilities..................................... -- 883 32,728 2,182 17,689
Issuance of long-term debt....................... -- -- 16,200 -- --
Repurchase of common stock....................... -- -- (3,701) -- --
Repurchase of debentures and notes............... (34,634) (74,116) -- -- --
Other............................................ (281) 1,164 334 171 18
-------- -------- --------- -------- --------
Net cash from (used in) financing
activities.............................. (37,894) (75,907) 41,466 1,589 16,975
-------- -------- --------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (77) 8,855 (14,444) 8,567 (6,078)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..... 14,018 13,941 22,796 22,796 8,352
-------- -------- --------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD........... $ 13,941 $ 22,796 $ 8,352 $ 31,363 $ 2,274
======== ======== ========= ======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid, net of $419 capitalized in the
year 1997...................................... $ 18,132 $ 12,450 $ 2,127 $ 1,010 $ 1,706
======== ======== ========= ======== ========
Income taxes paid................................ $ 4,046 $ 6,285 $ 22,412 $ 14,245 $ 1,379
======== ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 147
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of
Tesoro Petroleum Corporation and its subsidiaries (collectively, the "Company"
or "Tesoro"). All significant intercompany accounts and transactions have been
eliminated. Tesoro is a natural resource company engaged in petroleum refining,
distributing and marketing of petroleum products, marine logistics services and
the exploration and production of natural gas and oil.
Use of Estimates and Presentation
The preparation of the Company's Consolidated Financial Statements in
conformity with generally accepted accounting principles required the use of
management's best estimates and judgment that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the periods. Actual results could differ from those estimates.
Interim Reporting
The interim consolidated financial statements are unaudited but, in the
opinion of management, incorporate all adjustments necessary for a fair
presentation of the Company's financial position and results of operations for
such interim periods. Such adjustments are of a normal recurring nature. The
results of operations for any interim period are not necessarily indicative of
results for the full year.
Cash and Cash Equivalents
Cash equivalents consist of highly-liquid debt instruments such as
commercial paper and certificates of deposit purchased with an original maturity
date of three months or less. Cash equivalents are stated at cost, which
approximates market value. The Company's policy is to invest cash in
conservative, highly-rated instruments and to invest in various institutions to
limit the amount of credit exposure in any one institution. The Company performs
ongoing evaluations of the credit standing of these financial institutions.
Inventories
Inventories are stated at the lower of cost or market. The last-in,
first-out ("LIFO") method was used to determine the cost of the Company's
refining and marketing inventories of crude oil and U.S. wholesale refined
products. The cost of remaining refined product inventories, including fuel at
the Company's marine service terminals, was determined principally on the
first-in, first-out ("FIFO") method. Merchandise and materials and supplies are
valued at average cost, not in excess of market value. See Note F.
Property, Plant and Equipment
Additions to property, plant and equipment and major improvements and
modifications are capitalized at cost. Maintenance and repairs are charged to
operations when incurred. Depletion of oil and gas producing properties is
determined principally by the unit-of-production method and is based on
estimated recoverable reserves. Depreciation of other property, plant and
equipment is generally computed on the straight-line method based upon the
estimated useful life of each asset. The weighted average lives range from 12 to
30 years for refining, marketing and pipeline assets, 11 to 16 years for service
equipment and marine fleets, and five to seven years for corporate and other
assets.
F-7
<PAGE> 148
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Oil and gas properties are accounted for using the full-cost method of
accounting. Under this method, all costs associated with property acquisition
and exploration and development activities are capitalized into cost centers
that are established on a country-by-country basis. For each cost center, the
capitalized costs are subject to a limitation so as not to exceed the present
value of future net revenues from estimated production of proved oil and gas
reserves, net of income tax effect, plus the lower of cost or estimated fair
value of unproved properties included in the cost center. Capitalized costs
within a cost center, together with estimates of costs for future development,
dismantlement and abandonment, are amortized on a unit-of-production method
using the proved oil and gas reserves for each cost center. The Company's
investment in certain oil and gas properties is excluded from the amortization
base until the properties are evaluated. Gain or loss is recognized only on the
sale of oil and gas properties involving significant reserves. Proceeds from the
sale of insignificant reserves and undeveloped properties are applied to reduce
the costs in the cost centers.
Income Taxes
Deferred tax assets and liabilities are recognized for future income tax
consequences attributable to differences between financial statement carrying
amounts of assets and liabilities and their respective tax bases. Measurement of
deferred tax assets and liabilities is based on enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that includes
the enactment date.
Environmental Expenditures
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that extend the life, increase the
capacity, or mitigate or prevent environmental contamination, are capitalized.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable and the cost can be reasonably estimated. Such amounts are based on
the estimated timing and extent of remedial actions required by applicable
governing agencies, experience gained from similar sites on which environmental
assessments or remediation has been completed, and the amount of the Company's
anticipated liability considering the proportional liability and financial
abilities of other responsible parties. Generally, the timing of these accruals
coincides with completion of a feasibility study or the Company's commitment to
a formal plan of action. Estimated liabilities are not discounted to present
value.
Financial Instruments
The carrying amount of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and certain accrued
liabilities approximates fair value because of the short maturity of these
instruments. The carrying amount of the Company's long-term debt and other
obligations approximated the Company's estimates of the fair value of such
items.
F-8
<PAGE> 149
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share
Earnings per share have been determined in accordance with Statement of
Financial Accounting Standard ("SFAS") No. 128 which establishes standards for
computing and presenting basic and diluted earnings per share calculations.
Basic earnings per share is determined by dividing net earnings by the weighted
average number of common shares outstanding during the period. The Company's
calculation of diluted earnings per share takes into account the effect of
potentially dilutive shares, principally stock options, outstanding during the
period. Prior period amounts have been restated to conform with the requirements
of SFAS No. 128. Earnings per share calculations are presented below (in
thousands except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Earnings Applicable to Common
Shareholders (Basic and Diluted
Numerator):
Earnings before extraordinary item..... $57,489 $76,800 $30,685 $ 6,131 $ 6,059
Extraordinary loss on extinguishments
of debt, aftertax................... (2,857) (2,290) -- -- --
------- ------- ------- ------- -------
Net earnings........................ $54,632 $74,510 $30,685 $ 6,131 $ 6,059
======= ======= ======= ======= =======
Basic:
Weighted average common shares (Basic
denominator)........................ 24,557 25,999 26,410 26,430 26,309
======= ======= ======= ======= =======
Basic earnings per share --
Before extraordinary item........... $ 2.34 $ 2.96 $ 1.16 $ 0.23 $ 0.23
Extraordinary loss, aftertax........ (0.12) (0.09) -- -- --
------- ------- ------- ------- -------
Net................................. $ 2.22 $ 2.87 $ 1.16 $ 0.23 $ 0.23
======= ======= ======= ======= =======
Diluted:
Weighted average common shares......... 24,557 25,999 26,410 26,430 26,309
Incremental shares from assumed
conversion of stock options and
other............................... 550 500 458 399 480
------- ------- ------- ------- -------
Total diluted shares (Diluted
denominator).. 25,107 26,499 26,868 26,829 26,789
======= ======= ======= ======= =======
Diluted earnings per share --
Before extraordinary item........... $ 2.29 $ 2.90 $ 1.14 $ 0.23 $ 0.23
Extraordinary loss, aftertax........ (0.11) (0.09) -- -- --
------- ------- ------- ------- -------
Net................................. $ 2.18 $ 2.81 $ 1.14 $ 0.23 $ 0.23
======= ======= ======= ======= =======
</TABLE>
In accordance with SFAS No. 128, restricted Common Stock awards totaling
350,000 shares and options to purchase 340,000 shares of Common Stock under the
Company's special incentive compensation strategy (see Note K) were not included
in the computations of earnings per share in the years ended December 31, 1995,
1996 and 1997 and the three months ended March 31, 1997 and 1998. No shares were
issuable under this strategy during those periods since the attainment of a
specified market price of the Company's Common Stock had not been reached during
the periods presented. These awards and options remained outstanding at December
31, 1997 and March 31, 1998. See Note K regarding information related to the
vesting of these awards and options subsequent to March 31, 1998.
F-9
<PAGE> 150
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's Common Stock at the date of grant over the
amount an employee must pay to acquire the stock. The Company has adopted the
disclosure requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation," as included in Note K.
New Accounting Standards
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
reporting information about operating segments in annual financial statements
and requires that selected information about operating segments be included in
interim financial reports issued to shareholders. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS No. 131 becomes effective for the Company's 1998
year-end and need not be applied to interim financial information until 1999. In
February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which standardizes the disclosures
related to pensions and other postretirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations and fair
values of plan assets and eliminates certain disclosures previously required.
SFAS No. 132 becomes effective for the Company in 1998. Both statements contain
provisions for restatement of prior period information. The Company is
evaluating the effects that these new statements will have on its financial
reporting and disclosures. The new statements will have no effect on the
Company's results of operations, financial position or cash flows.
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and display of comprehensive income
effective January 1, 1998. There are no material differences between net
earnings and comprehensive income for all periods presented.
NOTE B -- BUSINESS SEGMENTS
The Company's revenues are derived from three business segments: Refining
and Marketing, Exploration and Production, and Marine Services.
Refining and Marketing operates a petroleum refinery at Kenai, Alaska,
which manufactures gasoline, jet fuel, diesel fuel, heavy oils and residual
products. These products, together with products purchased from third parties,
are sold at wholesale through terminal facilities and other locations in Alaska
and the Pacific Northwest. In addition, Refining and Marketing markets gasoline,
other petroleum products and convenience store items at retail through 35
Company-operated stations in Alaska. Refining and Marketing also markets
petroleum products through 129 branded and 28 unbranded stations located in
Alaska and the Pacific Northwest. Revenues from export sales, primarily to Far
East markets, amounted to $18.5 million, $22.0 million and $16.1 million in the
year ended December 31, 1995, 1996 and 1997, respectively, and $6.7 million and
$5.9 million in the three months ended March 31, 1997 and 1998, respectively.
The Company at times resells previously purchased crude oil, sales of which
amounted to $75.8 million, $93.8 million and $44.4 million in the years ended
December 31, 1995, 1996 and 1997, respectively, and $10.7 million and $10.5
million in the three months ended March 31, 1997 and 1998, respectively.
The Exploration and Production segment is engaged in the exploration,
production and development of natural gas and oil onshore in Texas, Louisiana
and Bolivia. This segment also includes the transportation of natural gas,
including the Company's production, to common carrier pipelines in South Texas.
In Bolivia, the Company operates under four contracts with the Bolivian
government to explore for and produce hydrocar-
F-10
<PAGE> 151
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
bons. The Company's Bolivian natural gas production is sold under contract to
the Bolivian government for export to Argentina. The majority of the Company's
Bolivian natural gas and oil reserves are shut-in awaiting access to
gas-consuming markets. Major developments in South America indicate that new
markets may open for the Company's production in the near future. Construction
of a new 1,900-mile pipeline that will link Bolivia's gas reserves with markets
in Brazil commenced in 1997 and is expected to be operational in early 1999.
Marine Services markets and distributes petroleum products and provides
logistics services, primarily to the marine and offshore exploration and
production industries operating in the Gulf of Mexico. This segment currently
operates through 20 terminals along the Texas and Louisiana Gulf Coast and three
terminals on the U.S. West Coast.
Segment operating profit is gross operating revenues, gains and losses on
asset sales and other income less applicable segment costs of sales, operating
expenses, depreciation, depletion and other items. Income taxes, interest
expense, interest income and corporate general and administrative expenses are
not included in determining operating profit. In the Exploration and Production
segment, operating profit in the year ended December 31, 1997 included income of
$1.8 million for severance tax refunds and $2.2 million related to the
collection of a receivable for prior years Bolivian production. Operating profit
in the Exploration and Production segment in the year ended December 31, 1996
included $60 million of income from termination of a natural gas contract and $5
million for retroactive severance tax refunds, and the year ended December 31,
1995 included a gain of $33 million from the sale of certain interests in the
Bob West Field. In the years ended December 31, 1995 and 1996, the Exploration
and Production segment's operating profit included $47.1 million and $24.6
million, respectively, from the excess of natural gas contract prices over spot
market prices (see Note D).
Identifiable assets are those assets utilized by the segment. Corporate
assets are principally cash, investments and other assets that cannot be
directly associated with the operations of a business segment. Segment
information is as follows (in millions):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- ---------------
1995 1996 1997 1997 1998
-------- -------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Gross operating revenues:
Refining and Marketing --
Refined products............................ $ 664.5 $ 620.8 $643.7 $155.8 $122.7
Other, primarily crude oil resales and
merchandise.............................. 106.5 124.6 77.2 18.6 17.5
Exploration and Production --
U.S., including gas transportation.......... 113.0 93.8 73.6 21.5 19.1
Bolivia..................................... 11.7 13.7 11.2 1.9 3.1
Marine Services............................... 74.5 122.5 132.2 35.5 32.8
-------- -------- ------ ------ ------
Total Gross Operating Revenues.............. 970.2 975.4 937.9 233.3 195.2
Income from settlement of a natural gas contract
and other..................................... 32.7 64.4 5.5 1.6 0.8
-------- -------- ------ ------ ------
Total Revenues........................... $1,002.9 $1,039.8 $943.4 $234.9 $196.0
======== ======== ====== ====== ======
</TABLE>
F-11
<PAGE> 152
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- ---------------
1995 1996 1997 1997 1998
-------- -------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING PROFIT (LOSS)
Refining and Marketing.......................... $ 0.7 $ 6.0 $ 20.5 $ 0.1 $ 6.5
Exploration and Production --
U.S., including gas transportation............ 102.0 123.9 37.3 13.0 7.9
Bolivia....................................... 7.6 8.8 8.6 1.0 1.7
Marine Services................................. (4.4) 6.1 6.3 0.9 1.8
-------- -------- ------ ------ ------
Total Operating Profit................... 105.9 144.8 72.7 15.0 17.9
Corporate and Unallocated Costs................. (44.0) (29.7) (23.6) (5.4) (7.0)
-------- -------- ------ ------ ------
Earnings Before Income Taxes and Extraordinary
Item.......................................... $ 61.9 $ 115.1 $ 49.1 $ 9.6 $ 10.9
======== ======== ====== ====== ======
IDENTIFIABLE ASSETS
Refining and Marketing.......................... $ 313.3 $ 317.0 $337.4 $298.6 $333.2
Exploration and Production --
U.S., including gas transportation............ 136.7 143.6 158.2 121.2 165.6
Bolivia....................................... 17.8 27.0 50.8 28.2 51.4
Marine Services................................. 18.0 56.0 59.3 55.9 60.6
Corporate....................................... 33.4 39.0 22.1 48.1 24.6
-------- -------- ------ ------ ------
Total Assets............................. $ 519.2 $ 582.6 $627.8 $552.0 $635.4
======== ======== ====== ====== ======
DEPRECIATION, DEPLETION AND AMORTIZATION
Refining and Marketing.......................... $ 11.9 $ 12.5 $ 12.7 $ 3.1 $ 3.0
Exploration and Production --
U.S., including gas transportation............ 29.3 25.6 29.8 7.9 8.9
Bolivia....................................... 0.3 1.3 1.5 0.2 0.5
Marine Services................................. 0.3 1.2 1.7 0.4 0.6
Corporate....................................... 0.8 0.9 0.7 0.1 0.2
-------- -------- ------ ------ ------
Total Depreciation, Depletion and
Amortization........................... $ 42.6 $ 41.5 $ 46.4 $ 11.7 $ 13.2
======== ======== ====== ====== ======
CAPITAL EXPENDITURES
Refining and Marketing.......................... $ 9.3 $ 11.1 $ 43.9 $ 2.9 $ 2.0
Exploration and Production --
U.S., including gas transportation............ 49.6 59.7 65.4 7.0 18.2
Bolivia....................................... 3.8 6.9 27.5 4.0 2.3
Marine Services................................. 0.4 6.9 9.4 2.2 1.2
Corporate....................................... 0.8 0.4 1.3 0.2 0.1
-------- -------- ------ ------ ------
Total Capital Expenditures............... $ 63.9 $ 85.0 $147.5 $ 16.3 $ 23.8
======== ======== ====== ====== ======
</TABLE>
NOTE C -- ACQUISITIONS, EXPANSIONS AND DIVESTITURES
Hawaii Refinery Acquisition
On March 18, 1998, the Company entered into a stock sale agreement ("Hawaii
Stock Sale Agreement") with BHP Hawaii Inc. and BHP Petroleum Pacific Islands
Inc. (collectively, the "Sellers"), subsidiaries of The Broken Hill Proprietary
Company Limited ("BHP"), whereby Tesoro purchased (the "Hawaii Acquisition") all
of the outstanding stock of BHP Petroleum Americas Refining Inc. ("BHP
Refining") and BHP Petroleum South Pacific Inc. ("BHP South Pacific"). The
primary assets of BHP Refining and BHP South Pacific include a 95,000-barrel per
day refinery and 32 retail gasoline stations located
F-12
<PAGE> 153
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in Hawaii. In addition, Tesoro and a BHP affiliate entered into a two-year crude
supply agreement pursuant to which the BHP affiliate will assist Tesoro in
acquiring crude oil feedstock sourced outside of North America and arrange for
the transportation of such crude oil to the Hawaii refinery.
The Hawaii Acquisition closed effective May 31, 1998. Tesoro paid $243.5
million in cash for the Hawaii Acquisition, including $5 million that was
deposited into an escrow account in March 1998 and $68.5 million for estimated
net working capital. The cash purchase price is subject to post-closing
adjustments. In addition, Tesoro issued an unsecured, non-interest bearing,
promissory note for the purchase in the amount of $50 million, payable in five
equal annual installments of $10 million each, beginning in 2009. The note
provides for early payment to the extent of one-half of the amount by which
earnings from the acquired assets, before interest expense, income taxes and
depreciation, depletion and amortization, as specified in the note, exceed $50
million in any calendar year. The Hawaii Acquisition will be accounted for as a
purchase whereby the purchase price will be allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the date of
acquisition.
Washington State Refinery Acquisition
On May 1, 1998, the Company entered into a stock purchase agreement
("Anacortes Stock Purchase Agreement") with Shell Refining Holding Company
("Seller") and Shell Anacortes Refining Company ("SARC"), both subsidiaries of
Shell Oil Company ("Shell"), whereby Tesoro will purchase (the "Washington
Acquisition") all of the outstanding stock of SARC. SARC owns and operates a
108,000-barrel per day refinery in Anacortes, Washington ("Washington
Refinery"). The Washington Acquisition, which is subject to approval by the
Federal Trade Commission and the offices of the attorneys general of the States
of Oregon and Washington as well as of other customary conditions, is
anticipated to close in mid to late summer. Under the terms of the Anacortes
Stock Purchase Agreement, the Company paid a $5 million deposit in May 1998 and
has subsequently escrowed $266.9 million for the purchase price.
At closing, the Company will pay the Seller a cash purchase price of $237
million, less the deposit and any escrowed amounts, for the stock of SARC, and
will also pay an additional amount for net working capital of SARC which has
historically averaged approximately $60 million.
See Note I for information related to financings of the Hawaii Acquisition
and proposed Washington Acquisition (collectively, the "Acquisitions") and Note
L for related environmental matters.
Alaska Refining and Marketing
In October 1997, the Company completed an expansion of its refinery
hydrocracker unit which enables the Company to increase its jet fuel production.
The expansion, together with the addition of a new, high-yield jet fuel
hydrocracker catalyst, was completed at a cost of approximately $19 million. For
information on financing of this expansion, see Note I.
In December 1997, the Refining and Marketing segment purchased the Union 76
marketing assets in Southeast Alaska, consisting of one terminal, two retail
stations and the rights to use the Union 76 trademark within Alaska. The Company
also expanded its Alaskan retail operations throughout the year with
construction of two new facilities and remodeling of three existing stations.
Two uneconomic outlets in Alaska were closed in the year ended December 31,
1997.
Exploration and Production
In July 1997, the Company purchased the interests held by its former joint
venture participant in the then existing two contract blocks in southern
Bolivia, consisting of a 25% interest in Block 18 and a 27.4% interest in Block
20. The purchase price was approximately $20 million, which included $11.9
million for proved
F-13
<PAGE> 154
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reserves and $3.4 million for undeveloped acreage with the remainder for working
capital and assumption of certain liabilities.
In the U.S., the Exploration and Production segment purchased proved and
unproved properties totaling $22 million during the year ended December 31,
1997. These purchases included the acquisition of interests in the Kent Bayou
Field in Terrebonne Parish in southern Louisiana for $5 million and interests in
the La Blanca, San Salvador and San Carlos Fields in the Frio/Vicksburg Trend of
Hildago County in South Texas for $3.1 million during November 1997. Also
included was the acquisition of interests in three natural gas fields in East
Texas, including the Carthage Field in Panola County, the Woodlawn Field in
Harrison County and the Oak Hill Field in Rusk County, for $5.1 million in
December 1997.
During the year ended December 31, 1996, the Company's Exploration and
Production segment recorded acquisitions of proved and unproved properties
totaling $25.7 million. The most significant of these was the purchase in
December 1996 of interests in the Los Indios and La Reforma Fields, located in
Hidalgo and Starr counties of South Texas, for $15 million. These two fields are
in the Frio/Vicksburg Trend, which lies immediately adjacent to the Wilcox
Trend. Other acquisitions in the year ended December 31, 1996 included the
purchase of interests in the Berry R. Cox and the West Goliad Fields, both
located in the Wilcox Trend, for $5.4 million and the purchase of acreage in
East Texas for $5.3 million.
In September 1995, the Company sold, effective April 1, 1995, certain
interests in its producing and non-producing oil and gas properties located in
the Bob West Field in South Texas. The interests sold included the Company's
approximate 55% net revenue interest and 70% working interest in Units C, D and
E and a convertible override in Unit F of the Bob West Field. Excluded from the
sale were the Company's interests in the State Park and Sanchez-O'Brien leases
and the Ramirez USA E-6 well within the Bob West Field. In total, the sale
included interests in 14 gross producing wells amounting to 77 Bcf, or 40%, of
the Company's total net proved domestic reserves at the time of the sale (see
Note N). For the year ended December 31, 1995, natural gas production from the
interests sold had contributed approximately $11.7 million to revenues and $4
million to operating profit in the Company's Exploration and Production segment.
Consideration for the sale was $74 million, which was adjusted for production,
capital expenditures and certain other items after the effective date to
approximately $68 million in cash received at closing, resulting in a gain of
approximately $33 million in the 1995 third quarter. The consideration received
by the Company was used to redeem $34.6 million of the Company's outstanding
12 3/4% Subordinated Debentures in the year ended December 31, 1995, reduce
borrowings under the Company's revolving credit facility and improve corporate
liquidity (see Note I).
For further information related to exploration and production activities,
see Note N.
Marine Services
In February 1996, the Company purchased 100% of the capital stock of
Coastwide Energy Services, Inc. ("Coastwide"). The consideration included
approximately 1.4 million shares of Tesoro's Common Stock and $7.7 million in
cash. The market price of Tesoro's Common Stock was $9.00 per share at closing
of this transaction. In addition, Tesoro repaid approximately $4.5 million of
Coastwide's outstanding debt. Coastwide was primarily a provider of logistical
support services and a distributor of petroleum products to the offshore oil and
gas industry in the Gulf of Mexico. The Company combined the Coastwide operation
with its marine petroleum distribution operations, forming a Marine Services
segment. The acquisition was accounted for as a purchase whereby the purchase
price was allocated to the assets acquired and liabilities assumed based upon
their estimated fair values.
F-14
<PAGE> 155
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- GAS PURCHASE AND SALES CONTRACT
Resolution of Litigation in 1996
On August 16, 1996, the Supreme Court of Texas issued a mandate that denied
a motion for rehearing by Tennessee Gas Pipeline Company ("Tennessee Gas") and
upheld all aspects of a Gas Purchase and Sales Agreement ("Tennessee Gas
Contract") which had been the subject of litigation since 1990. As provided for
in the Tennessee Gas Contract, the Company was selling a portion of the gas
produced from the Bob West Field to Tennessee Gas at a maximum price as
calculated in accordance with Section 102(b)(2) ("Contract Price") of the
Natural Gas Policy Act of 1978. Subsequent to the mandate, the Company received
cash of $67.7 million from Tennessee Gas, which included collection of a $59.6
million bonded receivable for underpayment for natural gas sold in prior
periods. The remaining $8.1 million received was for interest and reimbursement
of legal fees and court costs, which resulted in income during the 1996 third
quarter. Tennessee Gas resumed paying the Contract Price to the Company for gas
taken beginning with May 1996 volumes up until termination of the Tennessee Gas
Contract discussed below.
Settlement and Termination of Contract in 1996
On December 24, 1996, the Company settled all other claims and disputes
with Tennessee Gas, including litigation in Zapata County, Texas filed by
Tennessee Gas, and agreed to terminate the Tennessee Gas Contract effective
October 1, 1996. The Tennessee Gas Contract would have extended through January
1999. Under the settlement, the Company received $51.8 million and the right to
recover severance taxes paid by Tennessee Gas of approximately $8.2 million,
which resulted in income of $60 million to the Company during the 1996 fourth
quarter. The severance taxes were subsequently collected in the year ended
December 31, 1997.
NOTE E -- RECEIVABLES
Concentrations of credit risk with respect to accounts receivable are
limited, due to the large number of customers comprising the Company's customer
base and their dispersion across the Company's industry segments and geographic
areas of operations. The Company performs ongoing credit evaluations of its
customers' financial condition and in certain circumstances requires letters of
credit or other collateral arrangements. The Company's allowance for doubtful
accounts is reflected as a reduction of receivables in the Consolidated Balance
Sheets. The following table reconciles the change in the Company's allowance for
doubtful accounts (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------ MARCH 31,
1995 1996 1997 1998
------ ------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at Beginning of Year................... $1,816 $1,842 $1,515 $1,373
Charged to Costs and Expenses.................. 300 589 23 10
Recoveries of Amounts Previously Written Off
and Other.................................... 122 (44) 189 37
Write-off of Doubtful Accounts................. (396) (872) (354) (128)
------ ------ ------ ------
Balance at End of Year....................... $1,842 $1,515 $1,373 $1,292
====== ====== ====== ======
</TABLE>
F-15
<PAGE> 156
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- INVENTORIES
Components of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Crude Oil and Wholesale Refined Products, at LIFO... $55,858 $68,227 $75,983
Merchandise and Other Refined Products.............. 13,539 13,377 14,424
Materials and Supplies.............................. 5,091 5,755 7,386
------- ------- -------
Total Inventories................................. $74,488 $87,359 $97,793
======= ======= =======
</TABLE>
At December 31, 1996 and 1997, inventories valued using LIFO were lower
than replacement cost by approximately $17.7 million and $4.4 million,
respectively.
NOTE G -- ACCRUED LIABILITIES
The Company's current accrued liabilities and noncurrent other liabilities
as shown in the Consolidated Balance Sheets included the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued Liabilities -- Current:
Accrued environmental costs....................... $ 5,367 $ 5,817 $ 6,199
Accrued employee costs............................ 7,759 12,406 9,014
Accrued taxes other than income taxes............. 5,988 4,137 2,783
Accrued interest.................................. 1,155 1,349 1,126
Other............................................. 12,987 7,663 9,504
------- ------- -------
Total Accrued Liabilities -- Current........... $33,256 $31,372 $28,626
======= ======= =======
Other Liabilities -- Noncurrent:
Accrued postretirement benefits................... $30,508 $32,206 $32,695
Accrued environmental costs....................... 3,496 2,659 2,489
Other............................................. 8,239 8,346 7,637
------- ------- -------
Total Other Liabilities -- Noncurrent.......... $42,243 $43,211 $42,821
======= ======= =======
</TABLE>
NOTE H -- INCOME TAXES
The income tax provision included the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal -- Current................. $ 708 $16,206 $ 3,413 $1,197 $1,209
Federal -- Deferred................ -- 17,405 9,421 1,254 1,569
Foreign............................ 3,183 3,654 4,920 744 1,378
State.............................. 488 1,082 681 249 675
------- ------- ------- ------ ------
Income Tax Provision............. $ 4,379 $38,347 $18,435 $3,444 $4,831
======= ======= ======= ====== ======
</TABLE>
F-16
<PAGE> 157
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes and benefits are provided for differences between
financial statement carrying amounts of assets and liabilities and their
respective tax bases. Temporary differences and the resulting deferred tax
assets and liabilities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred Federal Tax Assets:
Investment tax and other credits.................. $ 11,962 $ 9,639 $ 9,039
Accrued postretirement benefits................... 9,941 10,480 10,688
Settlement with Department of Energy.............. 3,694 3,233 2,771
Environmental reserve............................. 3,335 3,048 2,901
Other............................................. 1,523 5,265 5,523
-------- -------- --------
Total Deferred Federal Tax Assets.............. 30,455 31,665 30,922
Deferred Federal Tax Liabilities:
Accelerated depreciation and property-related
items.......................................... 47,147 57,778 58,604
-------- -------- --------
Net Deferred Federal Liability...................... 16,692 26,113 27,682
State Income and Other Taxes........................ 2,459 2,711 3,321
-------- -------- --------
Net Deferred Tax Liability........................ $ 19,151 $ 28,824 $ 31,003
======== ======== ========
</TABLE>
The following tables set forth the components of the Company's results of
operations (in thousands) and a reconciliation of the normal statutory federal
income tax rate with the Company's effective tax rate:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ----------------
1995 1996 1997 1997 1998
-------- -------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Earnings Before Income Taxes and
Extraordinary Item:
U.S............................... $ 55,221 $106,675 $40,200 $8,804 $ 8,669
Foreign........................... 6,647 8,472 8,920 771 2,221
-------- -------- ------- ------ -------
Total Earnings Before Income
Taxes and Extraordinary
Item......................... $ 61,868 $115,147 $49,120 $9,575 $10,890
======== ======== ======= ====== =======
Statutory U.S. Corporate Tax Rate... 35% 35% 35% 35% 35%
Effect of:
Foreign income taxes, net of tax
benefit........................ 5 2 5 3 6
State income taxes, net of tax
benefit........................ 1 1 1 3 4
Accounting recognition of
operating loss tax benefits.... (33) (4) -- -- --
Other............................. (1) (1) (4) (5) (1)
-------- -------- ------- ------ -------
Effective Income Tax Rate........... 7% 33% 37% 36% 44%
======== ======== ======= ====== =======
</TABLE>
At December 31, 1997, the Company had approximately $6.9 million of
investment tax credits and employee stock ownership credits available for
carryover to subsequent years, which, if not used, will expire in the years 1999
through 2006. Additionally, at December 31, 1997, the Company had approximately
$2.7 million of alternative minimum tax credit carryforwards, with no expiration
dates, to offset future regular tax liabilities.
F-17
<PAGE> 158
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- LONG-TERM DEBT AND OTHER OBLIGATIONS
Long-term debt and other obligations consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Liability to State of Alaska.......................... $62,079 $ 62,016 $ 61,780
Corporate Revolving Credit Facility................... -- 28,000 51,300
Marine Services Loan Facility......................... 883 5,611 --
Hydrocracker Loan..................................... -- 16,200 16,200
Vacuum Unit Loan...................................... 11,250 9,107 8,572
Liability to Department of Energy..................... 10,555 9,235 7,916
Other................................................. 4,536 2,147 1,950
------- -------- --------
89,303 132,316 147,718
Less Current Maturities............................... 10,043 17,002 11,428
------- -------- --------
$79,260 $115,314 $136,290
======= ======== ========
</TABLE>
Aggregate maturities of long-term debt and obligations for each of the five
years following December 31, 1997 are as follows: 1998 -- $17.0 million;
1999 -- $11.9 million; 2000 -- $40.1 million; 2001 -- $13.6 million; and
2002 -- $5.6 million.
On May 4, 1998, the Company filed a universal shelf registration statement
("Registration Statement") with the Securities and Exchange Commission ("SEC")
for $600 million of debt or equity securities for acquisitions or general
corporate purposes. The Registration Statement was declared effective by the SEC
on May 14, 1998. The Company offered Common Stock and Premium Income Equity
Securities ("PIES") from the Registration Statement to provide partial funding
for the Acquisitions discussed in Note C. In July 1998, the Company issued
5,750,000 shares of Common Stock with gross proceeds of approximately $91.6
million and $10,350,000 PIES, representing fractional interests in shares of
Mandatorily Convertible Preferred Stock, with gross proceeds of approximately
$164.9 million. The PIES will pay a cash dividend and are mandatorily
convertible into shares of Common Stock based upon a formula dependent upon the
market price of Common Stock.
In addition to the offerings of Common Stock and PIES, on July 2, 1998, the
Company issued $300 million in notes ("Senior Subordinated Notes") through a
private offering eligible for Rule 144A. The Senior Subordinated Notes have a
ten-year maturity without sinking fund requirements and are subject to optional
redemption by the Company after five years at declining premiums.
In conjunction with closing the Hawaii Acquisition (see Note C), on May 29,
1998, the Company refinanced substantially all of its existing indebtedness (the
"Refinancing") using revolving credit and term loans through an amended and
restated credit facility (the "Interim Credit Facility") provided by Lehman
Commercial Paper, Inc. ("LCPI"). The total amount of funds required by Tesoro to
complete the Hawaii Acquisition and the Refinancing, to pay related fees and
expenses, and for general corporate purposes was approximately $432 million.
Subsequent to June 30, 1998, the Company refinanced all borrowings under the
Interim Credit Facility with net proceeds from offerings of Common Stock and
PIES and borrowings under a new senior secured credit facility ("Senior Credit
Facility"). The Company entered into the Senior Credit Facility with a group of
lenders led by LCPI on July 2, 1998. The Senior Credit Facility is in the total
amount of $500 million, comprised of term loan facilities aggregating $200
million (two $100 million tranches) and a $300 million revolving credit
facility. The Senior Credit Facility is guaranteed by substantially all of the
Company's active direct and indirect subsidiaries (the "Guarantors") and is
secured by substantially all of the domestic assets of the Company and each of
the Guarantors. The Senior Credit Facility replaces the Interim Credit Facility.
In addition to funding the cash consideration of the Acquisitions and
Refinancing, the Senior
F-18
<PAGE> 159
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Credit Facility will provide the Company with increased letter of credit
capacity and funds for future working capital needs and general corporate
purposes, including the Company's 1998 capital budget. The Company will record
an extraordinary loss on early extinguishment of debt of approximately $5
million, net of income tax benefit, for the Refinancing during the second
quarter of 1998.
Former Corporate Revolving Credit Facility
Prior to May 29, 1998, the Company's amended and restated corporate
revolving credit agreement ("Former Credit Facility"), which was replaced by the
Interim Facility and Senior Credit Facility, provided total commitments of $150
million from a consortium of nine banks. The Company, at its option, had
activated $100 million of these commitments. The Credit Facility provided for
the issuance of letters of credit, and for cash borrowings up to $100 million,
with the aggregate subject to a borrowing base (which amount exceeded total
commitments at December 31, 1997). Outstanding obligations under the Credit
Facility were collateralized by first liens on substantially all of the
Company's trade receivables, product inventories and South Texas natural gas
reserves and by a third lien on the Company's refinery.
At December 31, 1997, the Company had outstanding cash borrowings of $28
million under the Former Credit Facility. During 1997, gross borrowings under
the Former Credit Facility were $150 million, with $122 million of repayments.
During 1995 and 1996, the Company's gross borrowings equaled repayments under
the Credit Facility and totaled $262 million and $165 million, respectively.
These cash borrowings were generally used on a short-term basis to finance
working capital requirements and capital expenditures. Under the Former Credit
Facility, at December 31, 1997, the Company had outstanding letters of credit of
$34 million, primarily for royalty crude oil purchases from the State of Alaska.
Unused availability, including unactivated commitments, under the Former Credit
Facility at December 31, 1997 for additional borrowings and letters of credit
totaled $88 million. The Company was also permitted to utilize unsecured letters
of credit outside of the Former Credit Facility up to $40 million (none
outstanding at December 31, 1997).
Cash borrowings under the Former Credit Facility incurred interest at (i)
the London Interbank Offered Rate ("LIBOR") plus 1.0% per annum or (ii) the
prime rate per annum, at the Company's option. Fees on outstanding letters of
credit under the Credit Facility were 1.0% per annum.
State of Alaska
In 1993, the Company entered into an agreement ("Agreement") with the State
of Alaska ("State") that settled a contractual dispute with the State. Under the
Agreement, the Company was obligated to make variable monthly payments to the
State through December 2001 based on a per barrel charge on the volume of
feedstock processed through the Company's Alaska refinery crude unit. In the
year ended December 31, 1995, based on a per barrel throughput charge of 16
cents, the Company's variable payments to the State totaled $2.9 million. In the
years ended December 31, 1996 and 1997, based on a per barrel throughput charge
of 24 cents, the Company's variable payments to the State totaled $4.0 million
and $4.4 million, respectively. In the three months ended March 31, 1998, based
on a per barrel throughput charge of 30 cents, the Company's variable payments
to the State totaled $1.4 million. The per barrel charge increased to 30 cents
in 1998 with one cent annual incremental increases thereafter through 2001. The
Agreement obligated the Company to pay the State $60 million in January 2002;
provided, however, that such payment could be deferred indefinitely, at the
Company's option, by continuing the variable monthly payments to the State
beginning at 34 cents per barrel for 2002 and increasing one cent per barrel
annually thereafter. Under the Agreement, variable monthly payments made after
January 2002 would not reduce the $60 million obligation to the State. The
imputed rate of interest used by the Company on the $60 million obligation was
13%.
On May 29, 1998, the State released the Company from all payment
obligations, and all mortgages, liens and security interests in connection
therewith, under the Agreement in exchange for a payment of $66.1 million. The
Company is only obligated to continue payment of the per barrel throughput
charge
F-19
<PAGE> 160
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
through 2001 with respect to barrels of feedstock processed at the refinery
which exceed 50,000 barrels per day on a monthly basis, subject to a credit for
an amount by which the barrels of feedstock processed after June 1, 1998 average
less than 50,000 barrels per day on a monthly basis.
Marine Services Loan Facility
In January 1998, the Company terminated a $10 million loan facility which
had provided a three-year line of credit to the Marine Services segment at the
bank's prime rate. The outstanding balance of $5.6 million at December 31, 1997
was repaid and terminated in January 1998.
Hydrocracker Loan
In October 1997, the National Bank of Alaska ("NBA") and the Alaska
Industrial Development and Export Authority ("AIDEA"), under a loan agreement
("Hydrocracker Loan") entered into between the Company and NBA, provided a $16.2
million loan to the Company towards the cost of its refinery hydrocracker
expansion (see Note C). One-half of the loan was funded by NBA and the other
half was funded by AIDEA. The Hydrocracker Loan which was to mature on or before
April 1, 2005 and required 28 equal quarterly principal payments beginning April
1998 together with interest at the unsecured 90-day commercial paper rate (5.55%
at December 31, 1997) adjusted quarterly plus (i) 2.6% per annum on 50% of the
amount borrowed and (ii) 2.35% per annum on the other 50% borrowed. The
Hydrocracker Loan was collateralized by a second lien on the refinery. As
discussed above, the Hydrocracker Loan was repaid and terminated on May 29,
1998.
Vacuum Unit Loan
In 1994, the NBA and the AIDEA provided a $15 million loan to the Company
towards the cost of the Company's refinery vacuum unit ("Vacuum Unit Loan"). The
Vacuum Unit Loan which was to mature on January 1, 2002, required equal
quarterly payments of approximately $536,000 and incurred interest at the
unsecured 90-day commercial paper rate, adjusted quarterly, plus 2.6% per annum
(8.11% at December 31, 1997) for two-thirds of the amount borrowed and at the
National Bank of Alaska floating prime rate plus one-fourth of 1% per annum
(8.75% at December 31, 1997) for the remainder. The Vacuum Unit Loan was
collateralized by a first lien on the Company's refinery. As discussed above,
the Vacuum Unit Loan was repaid and terminated on May 29, 1998.
Department of Energy
A Consent Order entered into by the Company with the Department of Energy
("DOE") in 1989 settled all issues relating to the Company's compliance with
federal petroleum price and allocation regulations from 1973 through decontrol
in 1981. At March 31, 1998, the Company's remaining obligation is to pay the DOE
$7.9 million, exclusive of interest at 6%, over the next four years.
Repurchase of Debentures and Notes
In November 1996, the Company fully redeemed its two public debt issues,
totaling approximately $74 million, at a price equal to 100% of the principal
amount, plus accrued interest to the redemption date. The redemption of debt was
comprised of $44.1 million of outstanding 13% Exchange Notes and $30 million of
outstanding 12 3/4% Subordinated Debentures ("Subordinated Debentures"). The
redemption was accounted for as an early extinguishment of debt in the 1996
third quarter, resulting in a pretax charge of $3.2 million ($2.3 million
aftertax) which represented a write-off of unamortized bond discount and issue
costs. The extraordinary loss on debt extinguishments of $2.9 million in 1995
related to the redemption of $34.6 million principal amount of Subordinated
Debentures in December 1995.
F-20
<PAGE> 161
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- BENEFIT PLANS
Retirement Plan
For all eligible employees, the Company provides a qualified
noncontributory retirement plan. Plan benefits are based on years of service and
compensation. The Company's funding policy is to make contributions at a minimum
in accordance with the requirements of applicable laws and regulations, but no
more than the amount deductible for income tax purposes. The components of net
pension expense for the Company's retirement plan are presented below (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Service Costs......................................... $ 1,147 $ 1,306 $ 1,502
Interest Cost......................................... 3,549 3,536 3,696
Actual Return on Plan Assets.......................... (8,299) (6,212) (8,817)
Net Amortization and Deferral......................... 4,288 1,687 4,105
------- ------- -------
Net Pension Expense................................. $ 685 $ 317 $ 486
======= ======= =======
</TABLE>
For the three months ended March 31, 1997 and 1998, net pension expense for
the Company's retirement plan totaled $89,000 and $47,000, respectively.
The funded status of the Company's retirement plan and amounts included in
the Company's Consolidated Balance Sheets are set forth in the following table
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Actuarial Present Value of Benefit Obligation:
Vested benefit obligation................................. $40,539 $41,601
======= =======
Accumulated benefit obligation............................ $43,404 $44,877
======= =======
Plan Assets at Fair Value................................... $46,356 $50,982
Projected Benefit Obligation................................ 50,163 52,685
------- -------
Plan Assets Less Than Projected Benefit Obligation.......... 3,807 1,703
Unrecognized Net Loss....................................... (5,903) (2,003)
Unrecognized Prior Service Costs............................ 341 267
Unrecognized Net Transition Asset........................... 3,176 1,940
------- -------
Accrued Pension Liability................................. $ 1,421 $ 1,907
======= =======
</TABLE>
Retirement plan assets are primarily comprised of common stock and bond
funds. Actuarial assumptions used to measure the projected benefit obligations
included a discount rate of 7 1/2% and a compensation increase rate of 5% for
December 31, 1995, 1996 and 1997. The expected long-term rate of return on
assets was 8 1/2% for 1995, 1996 and 1997.
F-21
<PAGE> 162
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Executive Security Plan
The Company's executive security plan ("ESP") provides executive officers
and other key personnel with supplemental death or retirement benefits in
addition to those benefits available under the Company's group life insurance
and retirement plans. These supplemental retirement benefits are provided by a
nonqualified, noncontributory plan and are based on years of service and
compensation. Contributions are made by the Company based upon the estimated
requirements of the plan. The components of net pension expense for the ESP are
presented below (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------ ----- ------
<S> <C> <C> <C>
Service Costs............................................. $ 364 $ 354 $ 521
Interest Cost............................................. 205 204 363
Actual Return on Plan Assets.............................. (325) (439) (596)
Net Amortization and Deferral............................. 471 751 1,196
------ ----- ------
Net Pension Expense..................................... $ 715 $ 870 $1,484
====== ===== ======
</TABLE>
For the three months ended March 31, 1997 and 1998, net pension expense for
the ESP totaled $419,000 and $497,000, respectively.
During the years ended December 31, 1995, 1996 and 1997, the Company
incurred additional ESP expense of $1.5 million, $0.9 million and $1.2 million,
respectively, for settlements, curtailments and other benefits resulting from
employee terminations.
The funded status of the ESP and amounts included in the Company's
Consolidated Balance Sheets are set forth in the following table (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Actuarial Present Value of Benefit Obligation:
Vested benefit obligation................................. $3,300 $4,885
====== ======
Accumulated benefit obligation............................ $4,434 $5,585
====== ======
Plan Assets at Fair Value................................... $7,139 $7,732
Projected Benefit Obligation................................ 6,467 8,683
------ ------
Plan Assets in Excess of (Less Than) Projected Benefit
Obligation................................................ 672 (951)
Unrecognized Net Loss....................................... 4,532 6,442
Unrecognized Prior Service Costs............................ 537 895
Unrecognized Net Transition Obligation...................... 417 314
------ ------
Prepaid Pension Asset..................................... $6,158 $6,700
====== ======
</TABLE>
Assets of the ESP consist of a group annuity contract. Actuarial
assumptions used to measure the projected benefit obligation at December 31,
1995, 1996 and 1997 included a discount rate of 7 1/2% and a compensation
increase rate of 5%. The expected long-term rate of return on assets was 8% for
1995 and 1996 and 7% for 1997.
Retiree Health Care and Life Insurance Benefits
The Company provides health care and life insurance benefits to retirees
who were participating in the Company's group insurance program at retirement.
Health care is also provided to qualified dependents of participating retirees.
These benefits are provided through unfunded, defined benefit plans. The health
care
F-22
<PAGE> 163
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plans are contributory, with retiree contributions adjusted periodically, and
contain other cost-sharing features such as deductibles and coinsurance. The
life insurance plan is noncontributory. The Company funds its share of the cost
of postretirement health care and life insurance benefits on a pay-as-you-go
basis. The components of net periodic postretirement benefits expense, other
than pensions, included the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Health Care:
Service costs.......................................... $ 447 $ 558 $ 676
Interest costs......................................... 1,399 1,294 1,304
------ ------ ------
Net Periodic Postretirement Expense................. $1,846 $1,852 $1,980
====== ====== ======
Life Insurance:
Service costs.......................................... $ 174 $ 158 $ 190
Interest costs......................................... 584 548 580
------ ------ ------
Net Periodic Postretirement Expense................. $ 758 $ 706 $ 770
====== ====== ======
</TABLE>
For the three months ended March 31, 1997 and 1998, retiree health care
benefits totaled $472,000 and $508,000, respectively, and retiree life insurance
benefits totaled $200,000 and $199,000, respectively.
The following tables show the status of the plans reconciled with the
amounts in the Company's Consolidated Balance Sheets (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Health Care:
Accumulated Postretirement Benefit Obligation --
Retirees.................................................. $12,549 $12,591
Active participants eligible to retire.................... 1,203 1,638
Other active participants................................. 4,181 4,584
------- -------
17,933 18,813
Unrecognized Net Gain....................................... 2,621 3,211
------- -------
Accrued Postretirement Benefit Liability............... $20,554 $22,024
======= =======
Life Insurance:
Accumulated Postretirement Benefit Obligation --
Retirees.................................................. $ 6,274 $ 6,393
Active participants eligible to retire.................... 484 608
Other active participants................................. 1,205 1,299
------- -------
7,963 8,300
Unrecognized Net Loss....................................... (115) (380)
------- -------
Accrued Postretirement Benefit Liability............... $ 7,848 $ 7,920
======= =======
</TABLE>
The weighted average annual rate of increase in the per capita cost of
covered health care benefits is assumed to be 8% for 1998, decreasing gradually
to 6% by the year 2005 and remaining at that level thereafter. This health care
cost trend rate assumption has a significant effect on the amount of the
obligation and periodic cost reported. For example, an increase in the assumed
health care cost trend rates by one percentage point in each year would increase
the accumulated postretirement obligation at December 31, 1997 by $3.8 million
and the aggregate of service cost and interest cost components of net periodic
postretirement benefits for the year then ended by $0.5 million. Actuarial
assumptions used to measure the accumulated
F-23
<PAGE> 164
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
postretirement benefit obligation at December 31, 1995, 1996 and 1997 included a
discount rate of 7 1/2% and a compensation rate increase of 5%.
Thrift Plan
The Company sponsors an employee thrift plan which provides for
contributions by eligible employees into designated investment funds with a
matching contribution by the Company. Employees may contribute up to 10% of
their compensation, subject to certain limitations, and may elect tax deferred
treatment in accordance with the provisions of Section 401(k) of the Internal
Revenue Code. Effective October 1, 1996, the thrift plan was amended to change
the Company's matching contribution from 50% (of up to 6% of the employee's
eligible contribution) to 100% (of up to 4% of the employee's eligible
contributions), with at least 50% of the Company's match invested in Common
Stock of the Company. The Company's contributions amounted to $0.4 million, $0.8
million and $1.2 million during the year ended December 31, 1995, 1996 and 1997,
respectively. For the three months ended March 31, 1997 and 1998, the Company's
contributions amounted to $0.3 million and $0.4 million, respectively.
Non-Employee Director Retirement Plan and Phantom Stock Plan
The Company had previously established an unfunded Non-Employee Director
Retirement Plan ("Director Retirement Plan"), which provided that any eligible
non-employee director who had served on the Company's Board of Directors for at
least three full years would be entitled to a retirement payment in cash
beginning the later of the director's sixty-fifth birthday or such later date
that the individual's service as a director ended. However, to more closely
align director compensation with shareholders' interests, in March 1997, the
Board of Directors amended the Director Retirement Plan to freeze the plan and
convert all of the accrued benefits of the current directors under the plan to a
lump-sum present value which was transferred to and became the initial account
balance of the directors in the Tesoro Petroleum Corporation Board of Directors
Deferred Phantom Stock Plan ("Phantom Stock Plan"). After the amendment and
transfer, only those retired directors or beneficiaries who had begun receiving
benefits remained participants in the Director Retirement Plan. At December 31,
1996 and 1997, the projected benefit obligation and present value of the vested
and accumulated benefit obligations, discounted at 7 1/2%, of the Director
Retirement Plan were estimated to be $0.8 million and $0.4 million,
respectively. The Company's Consolidated Balance Sheets at December 31, 1996 and
1997 and March 31, 1998, included $0.7 million, $0.4 million and $0.4 million,
respectively, in other liabilities related to the Director Retirement Plan.
Upon establishment of the Phantom Stock Plan, the lump-sum accrued benefit
of each of the current non-employee directors was transferred from the Director
Retirement Plan into an account ("Account") in the Phantom Stock Plan. Under the
Phantom Stock Plan, a yearly credit of $7,250 (prorated to $6,042 for 1997) is
made to the Account of each director in units, based upon the closing market
price of the Company's Common Stock on the date of credit. In addition, a
director may elect to have the value of his cash retainer fee deposited
quarterly into the Account in units. The value of each Account balance, which is
a function of the amount, if any, by which the market value of the Company's
Common Stock changes, is payable in cash at retirement, death, disability or
termination, if vested. In the year ended December 31, 1997 and the three months
ended March 31, 1998, the Company incurred expenses of approximately $127,000
and $84,000, respectively, related to the Phantom Stock Plan due to the increase
in the market price of the Company's Common Stock.
NOTE K -- STOCKHOLDERS' EQUITY
For information related to a universal shelf registration and related
offerings of Common Stock and PIES, see Note I.
F-24
<PAGE> 165
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Repurchase Program
On May 7, 1997, the Company's Board of Directors authorized the repurchase
of up to 3 million shares (approximately 11% of outstanding shares) of Tesoro
Common Stock in a buyback program that was scheduled to conclude at the end of
1998. Under the program, subject to certain conditions, the Company repurchased
from time to time Tesoro Common Stock in the open market and through privately
negotiated transactions. Purchases depended on price, market conditions and
other factors and were made primarily from cash flows. The repurchased Common
Stock is accounted for as treasury stock and may be used for employee benefit
plan requirements and other corporate purposes. During the year ended December
31, 1997, the Company used cash flows of $3.7 million to repurchase 236,800
shares of Common Stock, of which 20,347 shares have been reissued for an
employee benefit plan. In connection with filing the Registration Statement
discussed in Note I, the Company's Board of Directors approved terminating the
repurchase of Tesoro's Common Stock since it is inconsistent with the shelf
registration and the Company's growth strategy (see Note I).
Stock Plans and Incentive Compensation Strategy
The Company has two employee incentive stock plans, the Amended and
Restated Executive Long-Term Incentive Plan ("1993 Plan") and Amended Incentive
Stock Plan of 1982 ("1982 Plan"), and the 1995 Non-Employee Director Stock
Option Plan ("1995 Plan") (collectively, the "Plans"). Shares of unissued Common
Stock reserved for the Plans were 2,717,611 at December 31, 1997.
The 1993 Plan provides for the grant of up to 2,650,000 shares of the
Company's Common Stock in a variety of forms, including restricted stock,
incentive stock options, nonqualified stock options, stock appreciation rights
and performance share and performance unit awards. Stock options may be granted
at exercise prices not less than the fair market value on the date the options
are granted. The options granted generally become exercisable after one year in
20%, 25% or 33% increments per year and expire ten years from date of grant. The
1993 Plan will expire, unless earlier terminated, as to the issuance of awards
in the year 2003. At December 31, 1997, the Company had 66,420 shares available
for future grants under the 1993 Plan.
In the year ended December 31, 1997, the Compensation Committee of the
Board of Directors granted 175,000 phantom stock options to an executive officer
of the Company. These phantom stock options, which were granted at 100% of the
fair market value of the Company's Common Stock on the grant date, vest in 15%
increments in each of the first three years and the remaining 55% increment
vests in the fourth year. Upon exercise, the executive officer would be entitled
to receive in cash the difference between the fair market value of the Common
Stock on the date of the phantom stock option grant and the fair market value of
Common Stock on the date of exercise. At the discretion of the Compensation
Committee, these phantom stock options may be converted to traditional stock
options upon sufficient shares becoming available under the 1993 Plan.
The 1982 Plan expired in 1994 as to issuance of stock appreciation rights,
stock options and stock awards; however, grants made before the expiration date
that have not been fully exercised remain outstanding pursuant to their terms.
The 1995 Plan provides for the grant of up to an aggregate of 150,000
nonqualified stock options to eligible non-employee directors of the Company.
The option price per share is equal to the fair market value per share of the
Company's Common Stock on the date of grant. The term of each option is ten
years, and an option first becomes exercisable six months after the date of
grant. Under the 1995 Plan, each person serving as a non-employee director on
February 23, 1995 or elected thereafter, initially received an option to
purchase 5,000 shares of Common Stock. Thereafter, each non-employee director,
while the 1995 Plan is in effect and shares are available to grant, will be
granted an option to purchase 1,000 shares of Common Stock on the next day after
each annual meeting of the Company's stockholders but not later than June 1, if
no annual meeting
F-25
<PAGE> 166
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
is held. At December 31, 1997, the Company had 68,000 options outstanding and
77,000 shares available for future grants under the 1995 Plan.
In June 1996, the Company's Board of Directors unanimously approved a
special incentive compensation strategy in order to encourage a longer-term
focus for all employees to perform at an outstanding level. The strategy
provides eligible employees with incentives to achieve a significant increase in
the market price of the Company's Common Stock. Under the strategy, awards would
be earned only if the market price of the Company's Common Stock reaches an
average price per share of $20 or higher over any 20 consecutive trading days
after June 30, 1997 and before December 31, 1998 (the "Performance Target"). In
connection with this strategy, non-executive employees will be able to earn cash
bonuses equal to 25% of their individual payroll amounts for the previous twelve
complete months and certain executives have been granted, from the 1993 Plan, a
total of 340,000 stock options at an exercise price of $11.375 per share, the
fair market value (as defined in the 1993 Plan) of a share of the Company's
Common Stock on the date of grant, and 350,000 shares of restricted Common
Stock, all of which vest only upon achieving the Performance Target.
On May 12, 1998, the Performance Target was achieved which will result in a
pretax charge of approximately $20 million ($10 million in cash and $10 million
related to the vesting of restricted stock awards and stock options) in the
second quarter of 1998. On an aftertax basis, the charge will be approximately
$13 million, representing 5% of the total aggregate increase in shareholder
value since approval of the special incentive strategy in 1996.
A summary of stock option activity in the Plans is set forth below:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE
----------- ----------------
<S> <C> <C>
Outstanding December 31, 1994............................ 1,496,293 $ 6.37
Granted................................................ 450,000 8.34
Exercised.............................................. (507,467) 4.85
Forfeited and expired.................................. (266,745) 9.10
---------
Outstanding December 31, 1995............................ 1,172,081 7.16
Granted................................................ 1,095,500 13.45
Exercised.............................................. (315,664) 5.67
Forfeited and expired.................................. (95,171) 8.50
---------
Outstanding December 31, 1996............................ 1,856,746 11.05
Granted................................................ 431,000 16.73
Exercised.............................................. (43,800) 8.45
Forfeited and expired.................................. (36,013) 8.40
---------
Outstanding December 31, 1997............................ 2,207,933 12.26
=========
</TABLE>
At December 31, 1995, 1996 and 1997, exercisable stock options totaled 0.4
million, 0.4 million and 0.7 million, respectively.
F-26
<PAGE> 167
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
under the Plans at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED-AVERAGE ------------------------------
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 3.92 to $ 7.19 179,740 5.2 years $ 4.52 159,272 $ 4.42
$ 7.20 to $10.45 551,100 7.5 years 8.65 279,300 8.84
$10.46 to $13.72 398,593 8.4 years 11.41 31,593 11.68
$13.73 to $16.98 1,078,500 9.2 years 15.72 210,173 14.94
--------- ---------
$ 3.92 to $16.98 2,207,933 8.3 years 12.26 680,338 9.82
========= =========
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting
for its stock plans. Accordingly, no compensation expense has been recognized
for stock option transactions or the incentive compensation strategy discussed
above. Had compensation cost for the Plans been determined based on the fair
value at the grant dates for awards (granted after January 1, 1995) in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's pro forma net earnings in the years ended December 31, 1995, 1996 and
1997 would have been approximately $53.8 million ($2.19 per basic share, $2.15
per diluted share), $72.6 million ($2.79 per basic share, $2.74 per diluted
share), and $28.5 million ($1.08 per basic share, $1.06 per diluted share),
respectively. The fair value of each option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions: expected volatility of 45%, 30% and 32%; risk free interest
rates of 6.1%, 6.6% and 6.7%; expected lives of seven years; and no dividend
yields for the years 1995, 1996 and 1997, respectively. The estimated fair value
per share of options granted during the years 1995, 1996 and 1997 were $3.65,
$4.26 and $5.96, respectively, and the fair value per share of restricted stock
awards in the year 1996 was $0.95 per share.
NOTE L -- COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has various noncancellable operating leases related to
buildings, equipment, property and other facilities. These long-term leases have
remaining primary terms generally up to ten years, with terms of certain
rights-of-way extending up to 34 years, and generally contain multiple renewal
options. Future minimum annual lease payments as of December 31, 1997, for
operating leases having initial or remaining noncancelable lease terms in excess
of one year, excluding marine charters, were as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 6,135
1999........................................................ 3,378
2000........................................................ 2,907
2001........................................................ 2,514
2002........................................................ 2,272
Remainder................................................... 13,962
-------
Total Minimum Lease Payments.............................. $31,168
=======
</TABLE>
In addition to the long-term lease commitments above, the Company has
leases for two vessels that are primarily used to transport crude oil and
refined products to and from the Company's refinery. At December 31, 1997,
future minimum annual lease payments remaining for these two vessels, which
include operating costs, are approximately $28 million for each of the years
1998 and 1999 and $16 million for the year 2000. Operating costs related to
these vessels, which may vary from year to year, comprised approximately
F-27
<PAGE> 168
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
30% of the total minimum payments during 1997. The Company also enters into
various month-to-month and other short-term rentals, including a charter of a
vessel primarily used to transport refined products from the Company's refinery
to the Far East.
Total rental expense for short-term and long-term leases, excluding marine
charters, amounted to approximately $10 million, $12 million, $11 million, $4
million and $4 million for the years ended December 31, 1995, 1996 and 1997 and
three months ended March 31, 1997 and 1998, respectively. In addition, expenses
related to charters of marine vessels were approximately $26 million, $30
million, $34 million, $8 million and $8 million for the years ended December 31,
1995, 1996 and 1997 and three months ended March 31, 1997 and 1998,
respectively.
Environmental
The Company is subject to extensive federal, state and local environmental
laws and regulations. These laws, which change frequently, regulate the
discharge of materials into the environment and may require the Company to
remove or mitigate the environmental effects of the disposal or release of
petroleum or chemical substances at various sites or install additional controls
or other modifications or changes in use for certain emission sources. The
Company is currently involved with a waste disposal site near Abbeville,
Louisiana, at which it has been named a potentially responsible party under the
Federal Superfund law. Although this law might impose joint and several
liability upon each party at the site, the extent of the Company's allocated
financial contributions to the cleanup of the site is expected to be limited
based upon the number of companies, volumes of waste involved, and an estimated
total cost of approximately $500,000 among all of the parties to close the site.
The Company is currently involved in settlement discussions with the
Environmental Protection Agency ("EPA") and other potentially responsible
parties at the Abbeville, Louisiana site. The Company expects, based on these
discussions, that its liability will not exceed $25,000. The Company is also
involved in remedial responses and has incurred cleanup expenditures associated
with environmental matters at a number of sites, including certain of its own
properties.
At December 31, 1997 and March 31, 1998, the Company's accruals for
environmental expenses amounted to $8.5 million and $8.7 million, respectively,
which included a noncurrent liability of $2.7 million and $2.5 million,
respectively, for remediation of the Kenai Pipe Line Company's ("KPL")
properties that has been funded by the former owners of KPL through a restricted
escrow deposit. Based on currently available information, including the
participation of other parties or former owners in remediation actions, the
Company believes these accruals are adequate.
To comply with environmental laws and regulations, the Company anticipates
that it will make capital improvements of approximately $7 million in the year
1998 and $2 million in the year 1999. In addition, capital expenditures for
alternate secondary containment systems for existing storage tank facilities are
estimated to be $2 million in the year 1998 and $2 million in the year 1999 with
a remaining $5 million to be spent by 2002.
Conditions that require additional expenditures may exist for various
Company sites, including, but not limited to, the Company's refinery, retail
gasoline stations (current and closed locations) and petroleum product
terminals, and for compliance with the Clean Air Act. The amount of such future
expenditures cannot currently be determined by the Company.
Crude Oil Purchase Contracts and Other
The Company has a contract with the State of Alaska for the purchase of
royalty crude oil covering the period January 1, 1996 through December 31, 1998.
The contract provides for the purchase of 30% of the State's ANS royalty crude
oil produced from the Prudhoe Bay Unit at prices based on royalty values
computed by the State. During the year ended December 31, 1997, the Company
purchased approximately
F-28
<PAGE> 169
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
35,700 barrels per day of ANS crude oil under this contract. The contract
contains provisions that, under certain conditions, allow the Company to
temporarily or permanently reduce its purchase obligations. Under this contract,
the Company is required to utilize in its refinery operations volumes equal to
at least 80% of the ANS crude oil purchased from the State. The Company is
presently in discussions with the State in regard to extending this contract for
an additional year.
The Company also purchases approximately 6,000 barrels per day of ANS crude
oil from a producer under a contract with a term of one year beginning January
1, 1998.
During October 1997, the Company began purchasing all of the approximately
34,000 barrels per day of Cook Inlet crude oil production from various producers
under contracts extending through December 1998. A contract to purchase 4,500
barrels per day, of the 34,000 barrels per day, has been extended through March
31, 2001.
The second quarter of 1998 will reflect receipt of approximately $21
million pretax ($14 million aftertax) from an operator in the Bob West Field,
representing funds that are no longer needed as a contingency reserve for
litigation.
NOTE M -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS
--------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH YEAR
------ ------ ------ ------ --------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1996
Revenues:
Gross operating revenues............ $238.6 $233.8 $262.8 $240.2 $ 975.4
Income from settlement of natural
gas contract...................... -- -- -- 60.0 60.0
Other income........................ 5.0 0.1 (0.7) -- 4.4
------ ------ ------ ------ --------
Total Revenues................. $243.6 $233.9 $262.1 $300.2 $1,039.8
====== ====== ====== ====== ========
Operating Profit....................... $ 20.7 $ 27.6 $ 25.2 $ 71.3 $ 144.8
====== ====== ====== ====== ========
Earnings Before Extraordinary Item..... $ 6.0 $ 12.0 $ 16.2 $ 42.6 $ 76.8
Extraordinary Loss on Debt
Extinguishments, Net................ -- -- (2.3) -- (2.3)
------ ------ ------ ------ --------
Net Earnings................... $ 6.0 $ 12.0 $ 13.9 $ 42.6 $ 74.5
====== ====== ====== ====== ========
Net Earnings Per Share -- Basic........ $ 0.24 $ 0.46 $ 0.53 $ 1.62 $ 2.87
Net Earnings Per Share -- Diluted...... $ 0.23 $ 0.45 $ 0.52 $ 1.59 $ 2.81
Market Price Per Common Share:
High................................ $ 9 1/8 $ 11 5/8 $ 13 1/2 $ 15 1/2
Low................................. $ 8 $ 8 1/4 $ 10 1/2 $ 12 7/8
1997
Revenues:
Gross operating revenues............ $233.3 $210.7 $251.0 $242.9 $ 937.9
Other income........................ 1.6 2.6 0.4 0.9 5.5
------ ------ ------ ------ --------
Total Revenues................. $234.9 $213.3 $251.4 $243.8 $ 943.4
====== ====== ====== ====== ========
Operating Profit....................... $ 15.0 $ 19.9 $ 19.4 $ 18.4 $ 72.7
====== ====== ====== ====== ========
Net Earnings........................... $ 6.1 $ 9.7 $ 8.0 $ 6.9 $ 30.7
====== ====== ====== ====== ========
Net Earnings Per Share -- Basic........ $ 0.23 $ 0.36 $ 0.30 $ 0.26 $ 1.16
Net Earnings Per Share -- Diluted...... $ 0.23 $ 0.36 $ 0.30 $ 0.26 $ 1.14
</TABLE>
F-29
<PAGE> 170
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
QUARTERS
--------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH YEAR
------ ------ ------ ------ --------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Market Price per Common Share:
High................................ $ 14 1/2 $ 15 $ 18 3/16 $ 18 3/16
Low................................. $ 10 3/8 $ 10 1/4 $ 14 3/4 $ 15
</TABLE>
During the three months ended March 31, 1998, the Company's quarterly
financial data was as follows: gross operating revenues of $195.2 million; other
income of $0.8 million; operating profit of $17.9 million; net earnings of $6.1
million; earnings per share, basic and diluted, of $0.23 per share; and high and
low Common Stock market prices per share of $17 7/8 and $14 13/16, respectively.
The 1996 first quarter included pretax other income of $5 million related
to retroactive severance tax refunds. The 1996 third quarter included pretax
income of $8 million for interest and reimbursement of costs from Tennessee Gas
(see Note D) and an aftertax extraordinary loss of $2.3 million for the early
extinguishment of debt (see Note I). The contract with Tennessee Gas was
terminated during the 1996 fourth quarter resulting in pretax income of $60
million (see Note D). Operating profit included approximately $8 million pretax
in each of the first, second and third quarters of 1996 from the excess of
natural gas contract prices over spot market prices.
Pretax other income related to severance tax refunds of $1.6 million and
$0.2 million were recorded in the 1997 first and second quarters, respectively.
Pretax other income of $2.2 million related to the collection of a Bolivian
receivable for prior years production was recorded in the 1997 second quarter.
NOTE N -- OIL AND GAS PRODUCING ACTIVITIES
The information presented below represents the oil and gas producing
activities of the Company's Exploration and Production segment, excluding
amounts related to its U.S. natural gas transportation operations. Other
information pertinent to the Exploration and Production segment is contained in
Notes B, C and D.
Capitalized Costs Relating to Oil and Gas Producing Activities
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Capitalized Costs:
Proved properties................................ $119,836 $179,433 $251,604
Unproved properties not being amortized.......... 5,118 12,344 31,918
-------- -------- --------
124,954 191,777 283,522
Accumulated depreciation, depletion and
amortization.................................. 51,549 78,222 112,562
-------- -------- --------
Net Capitalized Costs......................... $ 73,405 $113,555 $170,960
======== ======== ========
</TABLE>
The Company's investment in oil and gas properties included $31.9 million
in unevaluated properties, primarily undeveloped leasehold costs and seismic
costs, which have been excluded from the amortization base at December 31, 1997.
Of this amount, $5.6 million and $26.3 million of such costs were incurred in
the years ended December 31, 1996 and 1997, respectively. The Company
anticipates that the majority of these costs will be included in the
amortization base during the next two years.
F-30
<PAGE> 171
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Costs Incurred in Oil and Gas Property Acquisition, Exploration and
Development Activities
<TABLE>
<CAPTION>
U.S. BOLIVIA TOTAL
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Property acquisition, unproved...................... $ 1,432 $ -- $ 1,432
Exploration......................................... 10,011 2,994 13,005
Development......................................... 38,003 792 38,795
------- ------- -------
$49,446 $ 3,786 $53,232
======= ======= =======
YEAR ENDED DECEMBER 31, 1996
Property acquisitions --
Proved........................................... $20,454 $ -- $20,454
Unproved......................................... 5,216 -- 5,216
Exploration......................................... 11,830 6,704 18,534
Development......................................... 22,228 149 22,377
------- ------- -------
$59,728 $ 6,853 $66,581
======= ======= =======
YEAR ENDED DECEMBER 31, 1997
Property acquisitions --
Proved........................................... $14,723 $11,892 $26,615
Unproved......................................... 7,127 3,370 10,497
Exploration......................................... 24,584 10,972 35,556
Development......................................... 17,798 1,279 19,077
------- ------- -------
$64,232 $27,513 $91,745
======= ======= =======
</TABLE>
Results of Operations from Oil and Gas Producing Activities
The following table sets forth the results of operations for oil and gas
producing activities, in the aggregate by geographic area, with income tax
expense computed using the statutory tax rate for the period adjusted for
permanent differences, tax credits and allowances.
<TABLE>
<CAPTION>
U.S. BOLIVIA TOTAL
---- -------- -----
(IN THOUSANDS EXCEPT AS INDICATED)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Gross revenues -- sales to unaffiliates(a)........ $107,276 $11,707 $118,983
Production costs.................................. 12,005 600 12,605
Administrative support and other.................. 2,842 3,289 6,131
Gain on sales of assets(e)........................ 33,532 -- 33,532
Depreciation, depletion and amortization.......... 29,004 250 29,254
-------- ------- --------
Pretax results of operations...................... 96,957 7,568 104,525
Income tax expense................................ 33,935 4,718 38,653
-------- ------- --------
Results of operations from producing
activities(c).................................. $ 63,022 $ 2,850 $ 65,872
======== ======= ========
Depletion per Mcfe................................ $ 0.69 $ 0.03
======== =======
</TABLE>
F-31
<PAGE> 172
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
U.S. BOLIVIA TOTAL
---- -------- -----
(IN THOUSANDS EXCEPT AS INDICATED)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Gross revenues -- sales to unaffiliates(a)........ $ 88,358 $13,701 $102,059
Production costs.................................. 5,326 837 6,163
Administrative support and other.................. 3,649 2,830 6,479
Depreciation, depletion and amortization.......... 25,235 1,279 26,514
Income from settlement of a natural gas
contract(d).................................... 60,000 -- 60,000
Income from severance tax refunds................. 5,000 -- 5,000
-------- ------- --------
Pretax results of operations...................... 119,148 8,755 127,903
Income tax expense................................ 41,702 5,439 47,141
-------- ------- --------
Results of operations from producing
activities(c).................................. $ 77,446 $ 3,316 $ 80,762
======== ======= ========
Depletion per Mcfe................................ $ 0.79 $ 0.15
======== =======
YEAR ENDED DECEMBER 31, 1997
Gross revenues -- sales to unaffiliates(a)........ $ 68,843 $11,189 $ 80,032
Production costs.................................. 7,424 932 8,356
Administrative support and other.................. 2,217 2,321 4,538
Depreciation, depletion and amortization.......... 29,350 1,538 30,888
Other income(b)................................... 3,238 2,184 5,422
-------- ------- --------
Pretax results of operations...................... 33,090 8,582 41,672
Income tax expense................................ 11,582 4,915 16,497
-------- ------- --------
Results of operations from producing
activities(c).................................. $ 21,508 $ 3,667 $ 25,175
======== ======= ========
Depletion per net equivalent thousand cubic feet
("Mcfe")....................................... $ 0.93 $ 0.19
======== =======
</TABLE>
- ---------------
(a) Revenues included the effects of natural gas commodity price agreements
which amounted to a gain of $0.3 million ($0.01 per thousand cubic feet
("Mcf")) in the year ended December 31, 1995 and losses of $3.1 million
($0.11 per Mcf) and $1.6 million ($0.05 per Mcf) in the years ended
December 31, 1996 and 1997, respectively. The Company had entered into
these agreements to reduce risks caused by fluctuations in the prices of
natural gas in the spot market. During the years ended December 31, 1995,
1996 and 1997, the Company used such agreements to set the price of 38%,
30% and 9%, respectively, of the natural gas that it sold in the spot
market. The Company has no remaining natural gas price agreements
outstanding at December 31, 1997 or March 31, 1998.
(b) Primarily represents income from retroactive severance tax refunds in the
U.S. operations and income related to a collection of a receivable in
Bolivian operations.
(c) Excludes corporate general and administrative expenses and financing costs.
(d) See Note D.
(e) Represents gain on sale of certain interests in the Bob West Field (see
Note C).
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Reserves (Unaudited)
The following table sets forth the computation of the standardized measure
of discounted future net cash flows relating to proved reserves and the changes
in such cash flows in accordance with SFAS No. 69. The standardized measure is
the estimated excess future cash inflows from proved reserves less estimated
future production and development costs, estimated future income taxes and a
discount factor. Future cash inflows represent expected revenues from production
of year-end quantities of proved reserves based on year-end
F-32
<PAGE> 173
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prices and any fixed and determinable future escalation provided by contractual
arrangements in existence at year-end. Escalation based on inflation, federal
regulatory changes and supply and demand are not considered. Estimated future
production costs related to year-end reserves are based on year-end costs. Such
costs include, but are not limited to, production taxes and direct operating
costs. Inflation and other anticipatory costs are not considered until the
actual cost change takes effect. Estimated future income tax expenses are
computed using the appropriate year-end statutory tax rates. Consideration is
given for the effects of permanent differences, tax credits and allowances. A
discount rate of 10% is applied to the annual future net cash flows.
The methodology and assumptions used in calculating the standardized
measure are those required by SFAS No. 69. The standardized measure is not
intended to be representative of the fair market value of the Company's proved
reserves. The calculations of revenues and costs do not necessarily represent
the amounts to be received or expended by the Company.
<TABLE>
<CAPTION>
U.S. BOLIVIA TOTAL
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
DECEMBER 31, 1995
Future cash inflows.............................. $265,379 $120,510 $385,889
Future production costs.......................... 53,095 32,005 85,100
Future development costs......................... 8,625 7,548 16,173
-------- -------- --------
Future net cash flows before income tax
expense....................................... 203,659 80,957 284,616
10% annual discount factor....................... 34,920 32,231 67,151
-------- -------- --------
Discounted future net cash flows before income
taxes......................................... 168,739 48,726 217,465
Discounted future income tax expense(a).......... 45,939 25,897 71,836
-------- -------- --------
Standardized measure of discounted future net
cash flows.................................... $122,800 $ 22,829 $145,629
======== ======== ========
DECEMBER 31, 1996
Future cash inflows.............................. $376,103 $368,119 $744,222
Future production costs.......................... 66,524 72,766 139,290
Future development costs......................... 13,156 30,632 43,788
-------- -------- --------
Future net cash flows before income tax
expense....................................... 296,423 264,721 561,144
10% annual discount factor....................... 73,687 130,915 204,602
-------- -------- --------
Discounted future net cash flows before income
taxes......................................... 222,736 133,806 356,542
Discounted future income tax expense (a)......... 70,251 80,102 150,353
-------- -------- --------
Standardized measure of discounted future net
cash flows.................................... $152,485 $ 53,704 $206,189
======== ======== ========
DECEMBER 31, 1997
Future cash inflows.............................. $347,904 $490,337 $838,241
Future production costs.......................... 81,011 86,546 167,557
Future development costs......................... 29,362 48,860 78,222
-------- -------- --------
Future net cash flows before income tax
expense....................................... 237,531 354,931 592,462
10% annual discount factor....................... 70,036 148,461 218,497
-------- -------- --------
Discounted future net cash flows before income
taxes......................................... 167,495 206,470 373,965
Discounted future income tax expense(a).......... 32,284 107,318 139,602
-------- -------- --------
Standardized measure of discounted future net
cash flows(b)................................. $135,211 $ 99,152 $234,363
======== ======== ========
</TABLE>
F-33
<PAGE> 174
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------
(a) For Bolivia, the discounted future income tax expense includes Bolivian
taxes of $21.6 million, $69.4 million and $105.0 million as of December 31,
1995, 1996 and 1997, respectively, and U.S. income taxes of $4.3 million,
$10.7 million and $2.3 million at December 31, 1995, 1996 and 1997,
respectively.
(b) Gross rates for the Company's Bolivian production were increased from 40
million cubic feet ("MMcf") per day to 120 MMcf per day in the year 2000
due to the anticipated completion of the Bolivia-Brazil pipeline during
early 1999 as discussed in Note B. This increase accounted for
approximately $57 million of the standardized measure of discounted future
net cash flows for Bolivia at December 31, 1997.
Changes in Standardized Measure of Discounted Future Net Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
1995 1996 1997
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales of oil and gas produced, net of production
costs............................................. $(106,378) $(93,275) $(69,567)
Net changes in prices and production costs.......... (32,931) 39,409 (88,473)
Extensions, discoveries and improved recovery....... 83,045 81,201 42,191
Changes in future development costs................. 19,221 (17,704) (7,495)
Revisions of previous quantity estimates............ 60,800 (7,244) 15,819
Purchases (sales) of minerals in-place.............. (48,698) 55,484 79,024
Changes in timing of Bolivian production............ -- -- 10,271
Extension of Bolivian contract terms................ -- 26,564 --
Other changes in Bolivian Hydrocarbons Law.......... -- 32,894 --
Accretion of discount............................... 14,878 14,563 20,619
Net changes in income taxes......................... 6,917 (71,332) 25,785
--------- -------- --------
Net increase (decrease)............................. (3,146) 60,560 28,174
Beginning of period................................. 148,775 145,629 206,189
--------- -------- --------
End of period....................................... $ 145,629 $206,189 $234,363
========= ======== ========
</TABLE>
F-34
<PAGE> 175
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reserve Information (Unaudited)
The following estimates of the Company's net proved oil and gas reserves
are based on evaluations prepared by Netherland, Sewell & Associates, Inc.,
except for U.S. net reserves at December 31, 1997 which were prepared by
in-house engineers and audited by Netherland, Sewell & Associates, Inc. Reserves
were estimated in accordance with guidelines established by the Securities and
Exchange Commission and Financial Accounting Standards Board, which require that
reserve estimates be prepared under existing economic and operating conditions
with no provision for price and cost escalations except by contractual
arrangements.
<TABLE>
<CAPTION>
U.S. BOLIVIA TOTAL
------- ------- -------
<S> <C> <C> <C>
NET PROVED GAS RESERVES (millions of cubic feet)(a)
December 31, 1994......................................... 129,099 95,756 224,855
Revisions of previous estimates........................ 46,239 (553) 45,686
Extensions, discoveries and other additions............ 50,201 -- 50,201
Production............................................. (41,789) (6,807) (48,596)
Sales of minerals in-place............................. (77,373) -- (77,373)
------- ------- -------
December 31, 1995......................................... 106,377 88,396 194,773
Extension of Bolivian contract terms(b)................ -- 32,998 32,998
Other changes in Bolivian Hydrocarbons Law(b).......... -- 56,704 56,704
Revisions of previous estimates........................ (4,792) (149) (4,941)
Extensions, discoveries and other additions............ 22,977 59,964 82,941
Production............................................. (32,081) (7,412) (39,493)
Purchases of minerals in-place......................... 24,309 -- 24,309
------- ------- -------
December 31, 1996......................................... 116,790 230,501 347,291
Revisions of previous estimates........................ (3,063) 30,567 27,504
Extensions and discoveries............................. 33,648 -- 33,648
Production............................................. (31,409) (7,131) (38,540)
Purchases of minerals in-place......................... 30,527 81,229 111,756
------- ------- -------
December 31, 1997 (c)..................................... 146,493 335,166 481,659
======= ======= =======
NET PROVED DEVELOPED GAS RESERVES (millions of cubic feet)
December 31, 1994......................................... 110,071 81,558 191,629
December 31, 1995......................................... 95,930 72,500 168,430
December 31, 1996......................................... 107,509 123,154 230,663
December 31, 1997 (c)..................................... 112,385 181,402 293,787
</TABLE>
F-35
<PAGE> 176
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
U.S. BOLIVIA TOTAL
------- ------- -------
<S> <C> <C> <C>
NET PROVED OIL RESERVES (thousands of barrels)(a)
December 31, 1994......................................... -- 1,793 1,793
Revisions of previous estimates........................ 1 10 11
Extensions, discoveries and other additions............ 8 -- 8
Production............................................. (1) (207) (208)
------- ------- -------
December 31, 1995......................................... 8 1,596 1,604
Extension of Bolivian contract terms(b)................ -- 459 459
Other changes in Bolivian Hydrocarbons Law(b).......... -- 913 913
Revisions of previous estimates........................ (4) 150 146
Extensions, discoveries and other additions............ -- 840 840
Production............................................. (10) (214) (224)
Purchases of minerals in-place......................... 188 -- 188
------- ------- -------
December 31, 1996......................................... 182 3,744 3,926
Revisions of previous estimates........................ (5) 349 344
Extensions and discoveries............................. 87 -- 87
Production............................................. (43) (189) (232)
Purchases of minerals in-place......................... 430 1,301 1,731
------- ------- -------
December 31, 1997 (c)..................................... 651 5,205 5,856
======= ======= =======
NET PROVED DEVELOPED OIL RESERVES (thousands of barrels)
December 31, 1994......................................... -- 1,627 1,627
December 31, 1995......................................... 4 1,407 1,411
December 31, 1996......................................... 126 2,291 2,417
December 31, 1997 (c)..................................... 296 3,137 3,433
</TABLE>
- ---------------
(a) The Company is required to file annual estimates of its proved reserves with
the Department of Energy. Such filings have been consistent with the
information presented herein.
(b) Under a new Hydrocarbons Law passed by the Bolivian government in 1996, the
Company converted its Contracts of Operation for Block 18 and Block 20 into
four Shared Risk Contracts, which, among other matters, extend the Company's
term of operation, provide more favorable acreage relinquishment terms and
provide for a more favorable royalty and tax structure.
(c) No major discovery or adverse event has occurred since December 31, 1997
that would cause a significant change in net proved reserve volumes.
* * * * * *
F-36
<PAGE> 177
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of BHP Petroleum Americas Refining Inc.
and BHP Petroleum South Pacific Inc.:
We have audited the accompanying combined balance sheets of BHP Petroleum
Americas Refining Inc. and BHP Petroleum South Pacific Inc. (the Company) as of
May 31, 1997 and 1996, and the related combined statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended May 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of BHP Petroleum
Americas Refining Inc. and BHP Petroleum South Pacific Inc. as of May 31, 1997
and 1996, and the combined results of their operations and their cash flows for
each of the three years in the period ended May 31, 1997, in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Honolulu, Hawaii
March 31, 1998
F-37
<PAGE> 178
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Sales and other revenue -- trade....................... $ 752,044 $ 741,631 $ 886,380
Sales and other revenue -- affiliates.................. 79,908 72,992 111,258
Other income........................................... 750 905 211
---------- ---------- ----------
Total Revenue.................................. 832,702 815,528 997,849
---------- ---------- ----------
OPERATING COSTS AND EXPENSES
Cost of sales.......................................... 720,597 711,131 881,991
Operating and selling.................................. 42,148 43,661 43,363
Depreciation and amortization.......................... 27,745 29,507 30,596
Refinery assets write-down to fair value (Note 5)...... -- -- 88,813
Goodwill write-off (Notes 2 and 5)..................... -- -- 30,351
---------- ---------- ----------
Total Operating Costs and Expenses............. 790,490 784,299 1,075,114
---------- ---------- ----------
OPERATING INCOME (LOSS).................................. 42,212 31,229 (77,265)
General and administrative............................. (22,319) (21,238) (24,731)
Interest............................................... (11,274) (9,887) (9,976)
Capitalized interest................................... 857 765 1,269
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES........................ 9,476 869 (110,703)
Income tax benefit (provision)........................... (4,673) (1,474) 30,125
---------- ---------- ----------
NET INCOME (LOSS)........................................ $ 4,803 $ (605) $ (80,578)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-38
<PAGE> 179
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MAY 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 1,043 $ 1,420
Accounts receivable, net.................................. 43,913 47,675
Due from affiliates -- trade.............................. 10,742 9,906
Due from affiliates -- other.............................. 22,369 22,115
Inventories............................................... 52,354 83,864
Other current assets...................................... 5,712 4,802
-------- --------
Total current assets.............................. 136,133 169,782
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization (Note 5).................... 378,235 303,442
-------- --------
NON-CURRENT ASSETS
Goodwill, net of accumulated amortization (Note 5)........ 32,931 --
Other..................................................... 7,653 4,220
-------- --------
Total non-current assets.......................... 40,584 4,220
-------- --------
Total Assets...................................... $554,952 $477,444
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft............................................ $ 6,668 $ 6,840
Accounts payable.......................................... 7,557 12,287
Due to affiliates -- trade................................ 4,587 29,933
Capital lease obligations, current portion................ 685 1,055
Accrued liabilities....................................... 13,213 20,782
-------- --------
Total current liabilities......................... 32,710 70,897
-------- --------
NOTES PAYABLE TO AFFILIATE -- noncurrent.................... 145,000 145,000
CAPITAL LEASE OBLIGATIONS, net of current portion........... 5,917 9,361
DEFERRED INCOME TAXES....................................... 66,014 30,659
OTHER LIABILITIES........................................... 31,746 28,540
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS' EQUITY
Common stock, no par value, 1,000,500 shares authorized,
issued and outstanding................................. 8,208 8,208
Additional paid-in capital................................ 52,362 52,362
Retained earnings:
BHP Petroleum Americas Refining Inc.................... 204,205 122,378
BHP Petroleum South Pacific Inc........................ 8,790 10,039
-------- --------
Total stockholders' equity........................ 273,565 192,987
-------- --------
Total Liabilities and Stockholders' Equity........ $554,952 $477,444
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-39
<PAGE> 180
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance May 31, 1994
BHP Petroleum Americas Refining
Inc............................... 500 $ 8,008 $ 42,000 $200,219 $250,227
BHP Petroleum South Pacific Inc...... 1,000,000 200 10,362 8,578 19,140
--------- ------- -------- -------- --------
Total........................ 1,000,500 8,208 52,362 208,797 269,367
Net income........................... -- -- -- 4,803 4,803
--------- ------- -------- -------- --------
Balance May 31, 1995................... 1,000,500 8,208 52,362 213,600 274,170
Net loss............................. -- -- -- (605) (605)
--------- ------- -------- -------- --------
Balance May 31, 1996................... 1,000,500 8,208 52,362 212,995 273,565
Net loss............................. -- -- -- (80,578) (80,578)
--------- ------- -------- -------- --------
Balance, May 31, 1997.................. 1,000,500 $ 8,208 $ 52,362 $132,417 $192,987
========= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-40
<PAGE> 181
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ 4,803 $ (605) $(80,578)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Refinery assets write-down to fair value.................. -- -- 88,813
Goodwill write-off........................................ -- -- 30,351
Depreciation and amortization............................. 27,745 29,507 30,596
Deferred income taxes..................................... (6,067) 285 (35,355)
Changes in:
Accounts receivable, net............................... (44,397) 7,767 (3,762)
Due from affiliates, trade and other................... 29,368 (786) 1,090
Inventories............................................ (6,803) 18,916 (31,510)
Other assets........................................... 2,569 (8,903) 4,343
Accounts payable and accrued liabilities............... 13,644 (4,343) 12,471
Due to affiliates, trade............................... (1,274) (15,106) 25,346
Other liabilities...................................... 4,499 4,008 (3,206)
-------- -------- --------
Net cash provided by operating activities................. 24,087 30,740 38,599
CASH FLOWS FROM INVESTING ACTIVITIES --
Additions to property plant and equipment................. (23,461) (29,568) (37,467)
CASH FLOWS FROM FINANCING ACTIVITIES --
Repayment of principal on capital leases.................. (527) (654) (755)
-------- -------- --------
Net increase in cash........................................ 99 518 377
Cash, beginning of period................................... 426 525 1,043
-------- -------- --------
Cash, end of period......................................... $ 525 $ 1,043 $ 1,420
======== ======== ========
Supplemental disclosures:
Acquisition of equipment under capital lease.............. $ -- $ 1,900 $ 4,569
Fixed assets from parent company, at book value........... $ -- $ 7,540 $ --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-41
<PAGE> 182
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION
BHP Petroleum Americas Refining Inc. (BHPPAR), a Hawaii corporation, and
BHP Petroleum South Pacific Inc. (BHPPSP), a California corporation,
collectively referred to as "the Company," are affiliated companies and
wholly-owned indirect subsidiaries of The Broken Hill Proprietary Company
Limited (BHP), an Australian company. All capital and financing requirements of
the Company are provided for by BHP, except for capital and operating leases.
BHPPAR operates an oil refinery, product storage and distribution
facilities, and retail gasoline stations in the state of Hawaii. Crude oil is
purchased through other BHP affiliates and shipped to Hawaii by tanker. Refined
product exports usually are sold through other BHP affiliates. BHPPSP is a
petroleum products marketer in American Samoa, and operates the government-owned
product storage and distribution facilities. BHPPSP purchases most of its
refined products from BHPPAR.
The Companies were part of a consolidated group, Pacific Resources, Inc.
and Subsidiaries (PRI), purchased by BHP in March 1989. The purchase price was
allocated to assets and liabilities based on fair values at the acquisition
date. The purchase price in excess of fair values was reported as goodwill until
May 1997 when the refinery assets were written down to estimated fair value and
the unamortized goodwill was written off (see Note 5).
There have been changes in the former PRI group since 1989: certain
subsidiaries were liquidated, others were merged or became subsidiaries of other
BHP affiliates. In 1995 two affiliates, BHP Petroleum Americas Terminals Inc.
(Terminals), and BHP Petroleum Americas Gas Express Inc. (Gas Express), were
merged into BHPPAR. In connection with this reorganization, all employees of
Terminals, Gas Express and parent company, BHP Hawaii Inc., became employees of
BHPPAR. The 1995 financial statements reflect the results of operations of these
combined entities, consistent with the presentation in 1996 and 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
Combined Financial Statements -- The combined financial statements include
the accounts of BHPPAR and BHPPSP. These companies are combined to present the
financial position and results of operations of BHP's downstream petroleum
refining and marketing business. The combined financial statements have been
prepared using the historical costs and results of operations of the affiliated
entities. There were no significant differences in accounting methods or their
application among the combining entities. All significant intercompany balances
and transactions between the combined entities are eliminated.
Use of Estimates and Presentation -- Preparation of the combined financial
statements, in conformity with generally accepted accounting principles,
requires management to make estimates and assumptions which affect the amounts
of assets and liabilities, and disclosure of contingencies at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from these estimates.
Financial Instruments -- The carrying amounts of financial instruments,
including cash, accounts receivable, accounts payable, and certain other current
liabilities, approximate fair value because of the short maturity of these
instruments. The carrying amounts of the Company's long-term notes payable and
other obligations approximate the Company's estimate of fair values of such
items.
Hedging Activities -- The Company periodically enters into hedging
arrangements through BHP affiliates to manage petroleum price risks and not for
speculative purposes. Gains and losses from hedging are recognized in income
when the hedged transaction occurs. Historically, gains and losses from hedging
transactions have not been material.
F-42
<PAGE> 183
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories -- Crude oil and refined products are valued at the lower of
cost or market (net realizable value). Cost is determined primarily on the
last-in, first-out (LIFO) basis. Other inventories held for sale, materials and
supplies are stated at the lower of average cost, not in excess of market.
Property, Plant and Equipment -- Property, plant and equipment is stated at
cost. Major replacements, renewals and improvements are capitalized.
Maintenance, repairs and replacements, which do not improve or extend the lives
of assets, are charged to expense. Depreciation and amortization, including
amortization of assets under capital leases, are computed using the
straight-line method over estimated useful lives or lease terms, if shorter.
Estimated useful lives range up to 20 years for buildings and up to 25 years for
plant and equipment.
Refinery Maintenance Turnaround Costs -- The costs of refinery unit
shutdown and maintenance turnaround costs are included in other assets and
amortized over the estimated period of benefit, generally one to three years,
depending on the process unit.
Goodwill -- Goodwill represents BHP's purchase price in excess of the fair
values of net BHPPAR assets acquired in March 1989, after providing noncurrent
deferred tax liabilities on the difference between the assets' fair values and
their income tax basis. Goodwill was amortized on a straight-line, 20 year rate
until the goodwill was determined to be without further value and was written
off in May 1997 (see Note 5).
Income Taxes -- Deferred tax assets and liabilities are recognized for
future income tax effects of temporary differences between financial statement
carrying amounts and the related income tax bases of assets and liabilities.
Deferred income tax assets and liabilities measurements are based on enacted tax
rates expected to apply when the temporary differences are expected to be
settled. The effect of tax rate changes on deferred tax assets and liabilities
is recognized when rate changes are enacted.
Income taxes are computed and recorded as if each company were filing
separate tax returns, although BHPPAR and BHPPSP are included in different
federal and state consolidated income tax returns which include other BHP
companies in the affiliated groups. Current income tax liabilities or refunds
are settled with BHP through intercompany accounts.
Environmental Expenditures -- Environmental expenditures for current
operations are expensed or capitalized, as appropriate. Expenditures are
capitalized if they extend the useful lives of assets, increase capacity, or
mitigate or prevent environmental contamination. Expenditures are expensed if
they are for existing conditions caused by past operations, and if the
expenditures will not contribute to future revenue generation. Liabilities are
recorded when environmental assessments and/or remedial efforts are probable and
when costs can be estimated reasonably. Such amounts are based on the estimated
timing and extent of remedial actions required by regulatory agencies,
experience gained from other sites where assessments and remediation have been
completed, and the amount of the Company's estimated liability, considering
proportional liability and financial abilities of other responsible parties.
Adjustments to accrued liabilities are made as changes in conditions and
estimated costs become known.
Pension Plans and Other Post-Employment Benefits -- Pension costs are
accounted for in conformity with Statements of Financial Accounting Standards
No. 87 and 88. Funding is based on required contributions under the Employee
Retirement Income Security Act of 1974. Other post-employment benefits,
primarily medical insurance, are accounted for in conformity with Statement of
Financial Accounting Standards No. 106.
3. RECEIVABLES
The Company operates in a single industry, marketing refined petroleum
products in a limited geographic area, primarily Hawaii and American Samoa. The
markets are subject to economic and industry changes,
F-43
<PAGE> 184
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
including changes in market prices and sources of supply. Concentration of
credit risk in trade receivables is limited by the numbers and variety of
customers. In October 1997, BHP sold a Hawaii gas services subsidiary (the Gas
Company) to an unrelated company. The Gas Company continues to purchase naphtha
and propane (LPG) from the refinery. Receivables from the Gas Company amounted
to $3,243 and $3,886 at May 31, 1996 and 1997, respectively.
BHPPSP operates the government-owned fuel storage facilities and markets to
a wide range of customers in American Samoa. The facilities management contract
expired in 1997 and was awarded to a competitor. BHPPSP has contested the award,
but there is no assurance that the company will be able to continue as the
facilities operator and/or as a marketer in American Samoa. Transfer of
operations to a competitor could increase the collection risk of receivables in
that market. BHPPSP's receivables, net of allowance for doubtful accounts,
amounted to $3,331 and $4,273 at May 31, 1996 and 1997, respectively.
The company performs on-going credit evaluations of its customers financial
condition, and in some circumstances requires prepayment or letters of credit.
The allowance for doubtful accounts is included in the combined balance sheets
as a reduction of receivables. The allowance for doubtful accounts as of May 31,
1995, 1996 and 1997, was $1,561, $734 and $698, respectively.
4. INVENTORIES
Inventories at May 31 consisted of:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Crude oil and refined products.............................. $42,107 $73,601
Merchandise and packaged petroleum products................. 896 1,243
Materials and supplies...................................... 9,351 9,020
------- -------
Total inventories........................................... $52,354 $83,864
======= =======
</TABLE>
At May 31, 1996 and 1997, crude oil and product inventories at LIFO cost
amounting to $41.0 million and $71.5 million, respectively, were below current
cost by approximately $10.7 million and $7.0 million, respectively.
5. PROPERTY, PLANT AND EQUIPMENT, GOODWILL, AND RELATED WRITE-DOWNS
Principal assets include the oil refinery, its buildings and its property
site on the island of Oahu. The Company owns pipelines connecting the refinery
to an off-shore, single-point mooring, to a barge harbor near the refinery, and
to Honolulu International Airport and Honolulu Harbor. Marketing facilities
include product storage and distribution terminals on the islands of Maui and
Hawaii, as well as retail gas stations.
In 1997 BHP developed a plan to sell the Company, engaged an investment
advisor, completed an appraisal of assets, and began discussions with potential
buyers. Management determined that net book value of refinery assets had been
impaired based in part on the appraisal. The refinery property, plant and
equipment were written down to estimated fair value in May 1997, based on an
evaluation of these assets, related operating results, and in accordance with
provisions of Statement of Financial Accounting Standards No. 121. The
write-down, net of accumulated depreciation, amounted to $88.8 million ($54.2
million after a $34.6 million reduction in deferred income taxes), as summarized
below. BHP reached an agreement in March 1998 to sell the Company, and as a
result of the sale, the Company anticipates recognizing an estimated loss of
approximately $120-125 million, in addition to the loss recognized in May 1997
(see
F-44
<PAGE> 185
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Note 15). Substantially all of the loss is expected to be allocated to a further
reduction in the fair value of the property, plant and equipment.
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Land and buildings.......................................... $ 67,708 $ 70,451
Plant and equipment, including capital leases............... 548,067 582,076
--------- ---------
Total before revaluation write-down......................... 615,775 652,527
Accumulated depreciation and amortization................... (237,540) (260,272)
--------- ---------
Property, plant and equipment, net before write-down........ 378,235 392,255
--------- ---------
Less write-down to estimated fair value:
Land and buildings........................................ -- (23,451)
Plant and equipment....................................... -- (325,634)
Accumulated depreciation and amortization................. -- 260,272
--------- ---------
Net write-down to estimated fair value............ -- (88,813)
--------- ---------
Property, plant and equipment, net.......................... $ 378,235 $ 303,442
========= =========
</TABLE>
In connection with management's determination that the carrying amount of
refinery assets had become impaired, it was also determined that goodwill had no
continuing value. Therefore, the remaining net goodwill of $30,351 ($51,636, net
of accumulated amortization of $21,285) was also written off in May 1997. Annual
goodwill amortization expense included in statements of operations was $2,580
for each of the three years ended May 31, 1997.
6. LEASES
The company leases equipment and some properties under various lease
agreements covering periods through 2024. Properties include the pipeline
corridor from the refinery to Honolulu International Airport and Honolulu
Harbor, as well as land underlying terminal facilities and most of the gas
stations. The Company also uses product terminals owned by others, including
deliveries at Honolulu Harbor, Honolulu International Airport, and all sales in
American Samoa. Rent, through-put fees, and storage fees are paid for use of
these facilities. Certain operating leases contain provisions for renegotiation
or escalation of rents based on operating costs or usage. Rent expense for
operating leases, including leases with terms of a month or less, was $13,696 in
1995, $13,125 in 1996 and $13,330 in 1997.
Capital leases are for tugs and barges used in transportation of petroleum
products within Hawaii. Cost and accumulated amortization of capitalized leased
assets at May 31 amounted to:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Capitalized leases -- cost.................................. $12,204 $15,023
Accumulated amortization.................................... (5,965) (5,123)
------- -------
Capitalized leases included in property -- net.............. $ 6,239 $ 9,900
======= =======
</TABLE>
F-45
<PAGE> 186
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum lease commitments under non-cancelable leases (excluding leases
with terms of one year or less) at May 31, 1997 are summarized below:
<TABLE>
<CAPTION>
FISCAL OPERATING CAPITAL
YEAR LEASES LEASES
- ------------------------------------------------------------ --------- -------
<S> <C> <C>
1998........................................................ $ 12,186 $ 2,005
1999........................................................ 10,763 1,884
2000........................................................ 9,394 1,677
2001........................................................ 9,441 1,634
2002........................................................ 8,221 1,468
Thereafter.................................................. 96,027 6,659
-------- -------
Total minimum lease payments................................ $146,032 15,327
========
Less amount representing interest........................... (4,911)
-------
Present value of net minimum lease payments................. 10,416
Less current portion........................................ (1,055)
-------
Noncurrent portion.......................................... $ 9,361
=======
</TABLE>
7. ACCRUED LIABILITIES
Accrued current liabilities at May 31 included the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Environmental costs......................................... $ 3,190 $ 3,950
Accrued employee compensation............................... 5,502 10,768
Taxes, other than income taxes.............................. 4,239 5,908
Other accrued liabilities................................... 282 156
------- -------
Total accrued liabilities, current.......................... $13,213 $20,782
======= =======
</TABLE>
8. NOTES PAYABLE TO AFFILIATE
Noncurrent debt consists of two unsecured promissory notes totaling $145
million, payable to BHPPAR's parent company, BHP Hawaii Inc. The notes are
payable 395 days from demand, and interest is payable at the monthly average
short-term Applicable Federal Rate, as determined under Internal Revenue Code
Sec. 1274(d). Interest rates ranged from 5.56% to 7.43% in 1995, 5.05% to 6.37%
in 1996, and 5.63% to 6.23% in 1997. The rates for May 1996 and 1997 were 5.76%
and 6.23%, respectively. Interest is paid as accrued through settlement of
inter-company accounts. Interest expense on the notes was $9,415 in 1995, $8,364
in 1996, and $8,734 in 1997.
9. INCOME TAXES
The income tax provision (benefit) for the three years ended May 31, 1997,
included:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ --------
<S> <C> <C> <C>
Current income tax provision.......................... $10,738 $1,990 $ 5,285
Deferred tax benefit.................................. (6,065) (516) (35,410)
------- ------ --------
Total income tax provision (benefit).................. $ 4,673 $1,474 $(30,125)
======= ====== ========
</TABLE>
F-46
<PAGE> 187
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred income tax benefit in 1997 includes the deferred tax effect of
the fair value write-down of refinery property, plant and equipment.
The following table reconciles taxes on income at the normal 35% Federal
income tax rate with the effective tax rate:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ---------
<S> <C> <C> <C>
Earnings (loss) before income taxes................... $9,476 $ 869 $(110,703)
------ ------ ---------
Tax provision (benefit) at U.S. corporate tax rate.... $3,317 $ 304 $ (38,746)
Effect of:
Write-off / amortization of goodwill................ 900 903 11,526
State income taxes, net of Federal tax effects...... 470 149 (3,027)
Other............................................... (14) 118 122
------ ------ ---------
Income tax provision (benefit)........................ $4,673 $1,474 $ (30,125)
====== ====== =========
Effective combined income tax rate.................... 49.3% 169.6% 27.2%
====== ====== =========
</TABLE>
The effective tax rates are significantly different than "normal" because
of the amortization and write-off of goodwill related to BHP's 1989 acquisition
of BHPPAR.
Deferred income tax liabilities and assets, resulting from timing
differences, as of May 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred Federal tax assets:
Accrued vacation pay, incentive compensation.............. $ 1,824 $ 692
Accrued retirement benefits............................... 4,376 4,417
Environmental provisions.................................. 7,862 7,236
Other..................................................... 895 995
------- -------
Total deferred tax assets......................... 14,957 13,340
Deferred Federal tax liabilities:
Accelerated depreciation and other property items......... 71,844 39,410
Refinery turn-around costs................................ 2,011 976
Other..................................................... 525 525
------- -------
Total deferred tax liabilities.................... 74,380 40,911
------- -------
Net Federal deferred tax liability.......................... 59,423 27,571
Net State deferred tax liability............................ 6,591 3,088
------- -------
Deferred income tax liability -- net........................ $66,014 $30,659
======= =======
</TABLE>
10. RETIREMENT PLANS
Employees are covered by a qualified noncontributory defined benefit
pension plan. BHPPAR and BHPPSP participate with many other BHP affiliates in
the BHP (USA) Pension Plan, and the plan's actuary allocates assets and
liabilities to the participating entities, as well as determining annual costs
and recommended contributions. The plan's benefit formula is a final-pay
formula. The plan funding policy is to fund a contribution of at least the
minimum funding requirement, but no more than the maximum tax-deductible
contribution.
The following plan information covers all the employees of the Company, as
well as certain employees and retirees of affiliates which were merged into
BHPPAR or disposed of during the three years ended
F-47
<PAGE> 188
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
May 31, 1997. Plan assets exceeded projected benefit obligations, with respect
to BHPPAR and BHPPSP, at May 31, 1996 and 1997. The following tables present
pension expense, funded status and major actuarial assumptions used to determine
amounts.
<TABLE>
<CAPTION>
NET PERIODIC PENSION COST 1995 1996 1997
------------------------- ------- ------- -------
<S> <C> <C> <C>
Service cost.......................................... $ 1,330 $ 1,530 $ 1,550
Interest cost......................................... 1,420 1,470 1,660
Actual return on plan assets.......................... (2,600) (3,000) (4,920)
Net amortization and deferral......................... 1,381 1,521 3,061
------- ------- -------
Net periodic pension cost............................. $ 1,531 $ 1,521 $ 1,351
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FUNDED STATUS OF PENSION PLANS AS OF MAY 31 1996 1997
------------------------------------------- ------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested.................................................... $13,670 $14,380
Total..................................................... $16,490 $17,610
------- -------
Projected benefit obligation................................ $22,060 $24,420
Plan assets at fair value................................... 22,540 27,120
------- -------
Plan assets in excess of projected benefit obligation....... 480 2,700
Unrecognized net gain....................................... (2,590) (4,800)
Unrecognized prior service cost............................. 1,093 1,002
------- -------
Accrued net pension liability............................... $(1,017) $(1,098)
======= =======
</TABLE>
The accrued net pension liability is included in other liabilities
(noncurrent) in the accompanying balance sheets.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 8.00% 7.75% 7.75%
Rate of increase in future compensation levels.............. 5.00 5.00 5.00
Expected long-term rate of return on plan assets............ 8.50 8.50 8.50
</TABLE>
In addition to the defined benefit plan, the Company is a participating
sponsor in a defined contribution plan. The BHP Retirement Savings Plan (RSP) is
a deferred compensation plan which covers employees of the Company and other BHP
entities in the U.S. The Company matches and contributes an amount equal to each
employee's contribution up to 6 percent of the employee's salary and incentive
compensation. Plan contributions charged to expense amounted to $1,071, $1,222
and $1,421 in 1995, 1996 and 1997, respectively.
Liabilities also are accrued for supplemental retirement benefits for
executives. The unfunded liabilities and expense are actuarially determined.
Payments are made for vested benefits after retirement.
11. OTHER RETIREMENT BENEFITS
Certain medical and life insurance benefits are provided for qualified
retirees and their qualified dependents. Employees who retire at ages 55-61 with
at least 15 years of continuous service, or who retire at age 62, or later, with
at least 10 years of continuous service, become eligible for these benefits. The
health care plan is contributory with retiree contributions adjusted
periodically. The life insurance plan is noncontributory. Plan expense and
liabilities are accrued as actuarially determined and funded on a pay-as-you-go
basis. The
F-48
<PAGE> 189
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
following tables present the composition of post-retirement benefit expense and
the accumulated post-retirement benefit obligation.
<TABLE>
<CAPTION>
COMPONENTS OF NET PERIODIC POST-RETIREMENT BENEFIT COST 1995 1996 1997
------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $108 $100 $ 83
Interest cost on accumulated benefit obligation............. 601 528 424
Amortization of unrecognized net transition asset........... (48) (48) (48)
Amortization of unrecognized (gain) loss.................... 8 -- (78)
---- ---- ----
Net periodic post-retirement benefit cost................... $669 $580 $381
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
ACCRUED POST-RETIREMENT BENEFIT OBLIGATION AS OF MAY 31 1996 1997
------------------------------------------------------- ------ ------
<S> <C> <C>
Retirees and beneficiaries.................................. $4,742 $4,553
Active participants eligible to retire...................... 264 282
Other active participants................................... 733 873
------ ------
Total post-retirement benefit obligation.................... 5,739 5,708
Unrecognized transition asset............................... 776 728
Unrecognized gain........................................... 1,614 1,441
------ ------
Accrued post-retirement benefit obligation.................. $8,129 $7,877
====== ======
</TABLE>
The accrued obligation is included in other liabilities (noncurrent) in the
accompanying balance sheets. Amounts to be paid during the next twelve months
are included in current liabilities.
The weighted average rate of increase in the per capita cost of covered
health care benefits was assumed to be 8% for 1997, decreasing by 1/2% per year
to 5.5% in 2002 and thereafter. A 1% increase in the health care cost trend rate
would increase the accumulated post-retirement benefit obligation by $149 at May
31, 1997, and the net periodic service and interest cost by $13 for the year.
Actuarial assumptions used to measure the accrued post-retirement obligation at
May 31, 1995, 1996 and 1997 included a discount rate of 7.75% and a compensation
rate increase of 6%.
12. RELATED PARTY BALANCES AND TRANSACTIONS
The Company enters into transactions with BHP-affiliated companies
primarily for petroleum operations and general financing activities. Crude oil
is purchased through BHP Petroleum affiliates in the U.S., Australia and
Singapore. Crude oil transportation costs are either included in the purchase
price or paid to an affiliated BHP Transport company. Export products are sold
through BHP Petroleum affiliates. Amounts due to and from BHP-affiliated
companies as of May 31 were:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Due from affiliates:
Current -- trade receivables.............................. $ 10,742 $ 9,906
Current -- other.......................................... 22,369 22,115
Due to affiliates:
Current -- trade payables................................. 4,587 29,933
Noncurrent notes payable, interest at variable rate......... 145,000 145,000
</TABLE>
F-49
<PAGE> 190
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions with BHP-affiliated companies for the three years ended May
31, 1997 were:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Sales and other revenue............................ $ 79,908 $ 72,992 $111,258
Operating Costs and Expenses:
Petroleum purchases, including freight............. 575,175 584,714 614,076
Guarantee fees, included in operating costs........ 1,213 1,539 617
Interest on noncurrent promissory notes............ 9,415 8,364 8,734
Securitization fees, included in interest.......... 1,287 -- --
</TABLE>
Sales of refined products to BHP affiliates are negotiated with reference
to current published market prices. Sales include export cargoes marketed
primarily in Asia. Also, naphtha and LPG are sold to a Hawaii gas utility
affiliate (the Gas Company) under term contracts. BHP sold the Gas Company to an
unrelated company effective October 31, 1997 (see Note 15).
Domestic (Alaskan North Slope) crude oil is purchased from a BHP Petroleum
affiliate at their cost, net of their price hedging transactions. BHPPAR also
imports crude oil, primarily from Australia and Asia, under term agreements with
BHP Petroleum affiliates, and purchase prices are determined by a formula using
current published market prices.
13. FUTURES CONTRACTS
BHPPAR has a term agreement with a third-party customer for the sale of
physical product in exchange for futures contracts (plus a cash location/quality
differential), which are settled through a BHP Petroleum affiliate. The futures
contracts are sold ratably over each month, and proceeds from selling the
futures contracts at current market prices (plus the cash differential)
determine the sales value of product delivered during the month. Futures
contracts at May 31, 1996 and 1997, are summarized below (amounts in 000's):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Contract barrels............................................ 250 240
Contract amounts............................................ $ 5,597 $ 5,645
Unrealized gains (losses)................................... $ (257) $ (19)
Maturity dates.............................................. June 1996 June 1997
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
The Company is party to litigation and claims in the normal course of
business. The outcome of individual matters is not predictable. However,
management believes that the ultimate resolution of all of these matters, after
considering insurance coverages, is not likely to have a material adverse effect
on the Company's combined financial statements.
Environmental
The Company's operations are subject to various Federal and state
environmental laws and regulations. The Company has received notices of
violation or potential liability from the U.S. Environmental Protection Agency
(EPA), the State of Hawaii Department of Health (HDOH) and private parties
relating to various environmental matters associated with the Company's
ownership and/or operations of its assets. Generally, the timing of liability
accruals corresponds with the completion of remedial investigations or
feasibility studies, and are adjusted as necessary. Although the amount of
future environmental expenditures cannot be
F-50
<PAGE> 191
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
determined with certainty, Company management believe that compliance with
present laws will not have a material adverse effect on its financial
statements. Environmental provisions as of May 31 were as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Accrued liabilities -- current.............................. $ 3,190 $ 3,950
Other liabilities -- noncurrent............................. 19,785 16,724
------- -------
Total....................................................... $22,975 $20,674
======= =======
</TABLE>
Total environmental expense, including provisions, charged to cost of sales
and operating expense, amounted to $9,003, $7,198 and $4,936 in 1995, 1996, and
1997, respectively.
Refinery -- Based on an inspection conducted by a U.S. EPA consultant, the
EPA issued a Notice of Violation (NOV) in June 1997 against BHP Hawaii and
BHPPAR pursuant to Section 311 of the Clean Water Act (CWA). The NOV alleged
violations of the Spill Prevention, Control and Countermeasures (SPCC)
regulations of the CWA. The Company has submitted information in response to EPA
requests. The EPA has subsequently dropped its allegations relating to the oil
releases and the parties remain engaged in settlement discussions over issues
relating to the refinery's SPCC plan.
In 1993, BHPPAR settled an administrative complaint filed by the EPA in May
1991. The complaint alleged various Resource Conservation and Recovery Act
(RCRA) violations at the refinery involving surface impoundment closure and
groundwater monitoring requirements. The settlement, embodied in a Consent
Agreement/Final Order (dated July 1993) required BHPPAR to pay a fine (which was
satisfied); conduct certain groundwater monitoring tasks and closure of the
surface impoundments (which have been done and for which final EPA approval was
received in January 1996); complete a supplemental environmental project (which
has been done); and investigate and, if required, implement Corrective Action
under RCRA in and about the refinery site (which is in progress). A report of
the investigation results, dated March 1997, was submitted to the EPA. The
majority of the costs related to the closure plans have been expended. At May
31, 1997, $1.9 million remained in other liabilities to provide for estimated
post-closure monitoring costs over a 30 year period.
Under authority of the Emergency Planning and Community Right-to-Know Act
(EPCRA), the EPA issued a Request for Information relating to past releases of
reportable quantities of regulated EPCRA substances and oil. Pertinent data and
documentation were transmitted to the EPA. A Notice of Violation (NOV) was
issued in June 1997 against BHP Hawaii and BHPPAR, alleging eight violations.
The Company has submitted further information in response. The matter remains
subject to EPA review. No penalty amounts have been assessed to date.
Under a permit application and required compliance certification submitted
by BHPPAR pursuant to Title V of the Clean Air Act (CAA), BHPPAR noted several
regulatory requirements that were not being met at the time of submission, and
included a schedule for addressing or correcting these in accordance with
application regulations. BHPPAR has implemented corrective measures to address
the foregoing items in accordance with its proposed compliance schedule. Under
authority of the CAA, the EPA asked for additional information relating to such
past non-compliance matters. BHPPAR provided the information and documents
requested. In 1996 the EPA issued a Finding of Violation (FOV) against BHP
Hawaii and BHPPAR. The parties have engaged in settlement negotiations and no
penalty amount has been assessed. It is not anticipated that any penalty imposed
or settlement concluded will have a material adverse effect on the Company's
financial condition.
Honolulu Harbor -- Properties adjacent to Honolulu Harbor have been
impacted by the conduct of a variety of industrial activities since the
beginning of this century. The HDOH, under the authority of the
F-51
<PAGE> 192
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Hawaii Environmental Response Law, requested information from various owners and
operators in the area surrounding the harbor to determine the extent of
hydrocarbon contamination. A group of owners and operators, including BHP Hawaii
Inc., on behalf of the Company, have entered into a voluntary agreement with the
HDOH to undertake an initial phase of environmental site investigation in
exchange for certain commitments from the HDOH, including the notification of
additional potentially responsible parties to participate in this activity. A
provision of $600 was accrued for the estimated costs of this initial phase. An
additional $2.8 million was accrued to perform hydrogeological studies and
groundwater monitoring in the vicinity of Pier 29 which was formerly leased and
operated by the Company.
Honolulu International Airport -- As a result of environmental site
assessments commissioned by the State of Hawaii Department of Transportation
(HDOT) in conjunction with the proposed development of properties in the
vicinity of the airport, the HDOT requested that costs be shared among certain
facility owners and operators to remedy an alleged hydrocarbon condition in the
area. At the time of the site assessment, BHPPAR operated certain aboveground
fuel tanks located near the development area. The HDOT subsequently deferred its
development plans indefinitely. BHPPAR sold its interests in the fuel tank
facilities and underlying real property to an adjacent tank farm operator which
continues to operate the facilities. To date no claims or demands have been made
against BHPPAR. The Company has accrued $1.6 million for estimated hydrocarbon
recovery and clean-up costs.
Gas Express Retail Gas Stations -- The Company has sixteen stations which
have been subject to known petroleum product releases. Of these, eight have
received "no further action" determinations from the HDOH, and one has a "no
further action" request pending. Of the remaining stations, one site has been
scheduled for demolition and the reconstruction of a new gas station facility.
Contaminated soil is to be removed at the time of demolition. Another station
has been completely reconstructed and a request for "no further action" status
is in the process of being submitted. Five remaining stations are currently
still being investigated and/or remediated in accordance with regulatory
requirements. The Company is responsible to assure proper closure of the
underground storage tank systems in compliance with regulatory requirements when
each of its stations is eventually taken out of service. As closures occur, the
Company incurs costs for the excavation of soils, the removal and disposal of
tanks, environmental site assessments and media remediation, if necessary, as
well as costs to buy-out unexpired lease commitments and write-off any
unamortized improvements. The Company has prepared cost estimates for the
closure of each site. As of May 31, 1997, total closure costs were estimated to
be $14.3 million, of which $7.7 million has been provided for. Of this amount,
$2.7 million was provided for stations with known or suspected product leakage.
The remainder of the estimated closure costs are being accrued over the
remaining terms of stations' respective leases.
Capital Expenditure Commitments
The Company had capital projects in progress at May 31, 1997, which were
expected to require an additional $11.6 million to complete.
15. SUBSEQUENT EVENTS
Sale of Company to Tesoro Petroleum Corporation -- March 1998
On March 18, 1998, the Company's stockholders entered into a stock sale
agreement with Tesoro Petroleum Corporation (Tesoro), whereby Tesoro will
purchase all of the outstanding common stock of BHPPAR and BHPPSP. The sale is
expected to close by the end of May 1998, subject to regulatory review and other
customary conditions. The price to be paid at closing amounts to $275 million in
cash (including a $5 million escrow deposit). After closing, the cash price will
be increased by the amount that net working capital sold exceeds $100 million,
or reduced by the amount that net working capital is less than $100 million. In
addition, Tesoro will issue an unsecured, non-interest bearing, promissory note
for $50 million payable in
F-52
<PAGE> 193
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
five equal annual installments of $10 million each, beginning in 2009. The note
will provide for earlier payment, depending on earnings performance of the
acquired assets.
The parties will execute a separate environmental agreement at closing,
whereby the selling stockholders will indemnify Tesoro and the Company for
environmental costs arising out of conditions which exist at, or existed prior
to, closing subject to a maximum limit of $9.5 million. The environmental
indemnity will survive for a ten-year period. Certain environmental liabilities
of the Companies will be retained by BHP and are not subject to the $9.5 million
indemnity.
As a result of the sale, the Company anticipates recognizing an estimated
loss of approximately $120-125 million. This estimated loss will increase or
decrease based on results of operations and changes in noncurrent assets and
liabilities through the closing date. Substantially all of the loss is expected
to be allocated to a further reduction in the fair value of the property, plant
and equipment.
Sale of the Gas Company -- October 1997
An affiliated Hawaii company, Gasco, Inc. (the Gas Company), was sold
effective October 31, 1997. The Gas Company provides public utility gas service
and non-utility propane (LPG) to residential and commercial customers throughout
Hawaii. The Gas Company continues to purchase naphtha, for the manufacture of
synthetic natural gas, and liquefied petroleum gas from BHPPAR under term
contracts. Sales to the Gas Company are included in sales to affiliates in the
accompanying statements of operations and in related-party information (see Note
12). Sales to the Gas Company amounted to $21.3 million in 1995, $21.4 million
in 1996, and $21.8 million in 1997.
* * * * * *
F-53
<PAGE> 194
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
REVENUES
Sales and other revenue -- trade.......................... $520,483 $456,817
Sales and other revenue -- affiliates..................... 61,929 74,684
Other income.............................................. 3 3
-------- --------
Total Revenue..................................... 582,415 531,504
-------- --------
OPERATING COSTS AND EXPENSES
Cost of sales............................................. 504,913 460,310
Operating and selling..................................... 24,190 25,543
Depreciation and amortization (Note 4).................... 16,834 --
-------- --------
Total Operating Costs and Expenses................ 545,937 485,853
-------- --------
OPERATING INCOME............................................ 36,478 45,651
General and administrative................................ (10,325) (10,648)
Interest.................................................. (5,934) (5,802)
Capitalized interest...................................... 749 1,097
-------- --------
INCOME BEFORE INCOME TAXES.................................. 20,968 30,298
Income tax provision........................................ (8,783) (11,876)
-------- --------
NET INCOME.................................................. $ 12,185 $ 18,422
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-54
<PAGE> 195
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
COMBINED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 3,978 $ 2,704
Accounts receivable, net.................................. 59,865 45,044
Due from affiliates -- trade.............................. 7,742 7,096
Due from affiliates -- other.............................. 42,333 4,513
Inventories............................................... 63,682 84,331
Other current assets...................................... 3,700 3,539
-------- --------
Total current assets.............................. 181,300 147,227
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization............................. 382,101 331,247
-------- --------
NON-CURRENT ASSETS
Goodwill, net of accumulated amortization (Note 4)........ 31,426 --
Other..................................................... 7,570 3,350
-------- --------
Total non-current assets.......................... 38,996 3,350
-------- --------
Total Assets...................................... $602,397 $481,824
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft............................................ $ 8,485 $ 4,842
Accounts payable.......................................... 18,610 10,545
Due to affiliates -- trade................................ 29,799 20,485
Capital lease obligations, current portion................ 685 1,007
Accrued liabilities....................................... 12,842 12,667
-------- --------
Total current liabilities......................... 70,421 49,546
-------- --------
NOTES PAYABLE TO AFFILIATE -- noncurrent.................... 145,000 145,000
CAPITAL LEASE OBLIGATIONS, net of current portion........... 5,496 8,751
DEFERRED INCOME TAXES....................................... 62,839 36,086
OTHER LIABILITIES........................................... 32,891 31,032
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY
Common stock, no par value, 1,000,500 shares authorized,
issued and outstanding................................. 8,208 8,208
Additional paid-in capital................................ 52,362 52,362
Retained earnings:
BHP Petroleum Americas Refining Inc.................... 216,490 140,517
BHP Petroleum South Pacific Inc........................ 8,690 10,322
-------- --------
Total stockholders' equity........................ 285,750 211,409
-------- --------
Total Liabilities and Stockholders' Equity........ $602,397 $481,824
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-55
<PAGE> 196
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 12,185 $ 18,422
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 16,834 --
Deferred income taxes..................................... (3,175) 5,427
Changes in:
Accounts receivable, net............................... (15,952) 2,631
Due from affiliates, trade and other................... (16,964) 20,412
Inventories............................................ (11,328) (467)
Other assets........................................... 2,095 2,133
Accounts payable and accrued liabilities............... 12,499 (11,855)
Due to affiliates, trade............................... 25,212 (9,448)
Other liabilities...................................... 1,145 2,492
-------- --------
Net cash provided by operating activities................. 22,551 29,747
CASH FLOWS FROM INVESTING ACTIVITIES --
Additions to property plant and equipment................. (19,195) (27,805)
CASH FLOWS FROM FINANCING ACTIVITIES --
Repayment of principal on capital leases.................. (421) (658)
-------- --------
Net increase in cash........................................ 2,935 1,284
Cash, beginning of period................................... 1,043 1,420
-------- --------
Cash, end of period......................................... $ 3,978 $ 2,704
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-56
<PAGE> 197
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION
BHP Petroleum Americas Refining Inc. (BHPPAR), a Hawaii corporation, and
BHP Petroleum South Pacific Inc. (BHPPSP), a California corporation,
collectively referred to as "the Company," are affiliated companies and
wholly-owned indirect subsidiaries of The Broken Hill Proprietary Company
Limited (BHP), an Australian company. All capital and financing requirements of
the Company are provided for by BHP, except for capital and operating leases.
BHPPAR operates an oil refinery, product storage and distribution
facilities, and retail gasoline stations in the state of Hawaii. Crude oil is
purchased through other BHP affiliates and shipped to Hawaii by tanker. Refined
product exports usually are sold through other BHP affiliates. BHPPSP is a
petroleum products marketer in American Samoa, and operates the government-owned
product storage and distribution facilities. BHPPSP purchases most of its
refined products from BHPPAR.
The Companies were part of a consolidated group, Pacific Resources, Inc.
and Subsidiaries (PRI), purchased by BHP in March 1989. The purchase price was
allocated to assets and liabilities based on fair values at the acquisition
date. The purchase price in excess of fair values was reported as goodwill until
May 1997 when the refinery assets were written down to estimated fair value and
the unamortized goodwill was written off.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The Company's interim combined financial statements and notes thereto have
been prepared by management without audit. Accordingly, the accompanying
financial statements reflect all adjustments that, in the opinion of management,
are necessary for a fair presentation of results for the periods presented. Such
adjustments are of a normal recurring nature. Certain information and notes
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. However,
management believes that the disclosures presented herein are adequate to make
the information not misleading.
Combined Financial Statements -- The combined financial statements include
the accounts of BHPPAR and BHPPSP. These companies are combined to present the
financial position and results of operations of BHP's downstream petroleum
refining and marketing business. The combined financial statements have been
prepared using the historical costs and results of operations of the affiliated
entities. There were no significant differences in accounting methods or their
application among the combining entities. All significant intercompany balances
and transactions between the combined entities are eliminated.
Use of Estimates and Presentation -- Preparation of the combined financial
statements, in conformity with generally accepted accounting principles,
requires management to make estimates and assumptions which affect the amounts
of assets and liabilities, and disclosure of contingencies at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from these estimates.
Financial Instruments -- The carrying amounts of financial instruments,
including cash, accounts receivable, accounts payable, and certain other current
liabilities, approximate fair value because of the short maturity of these
instruments. The carrying amounts of the Company's long-term notes payable and
other obligations approximate the Company's estimate of fair values of such
items.
Hedging Activities -- The Company periodically enters into hedging
arrangements through BHP affiliates to manage petroleum price risks and not for
speculative purposes. Gains and losses from hedging are
F-57
<PAGE> 198
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
recognized in income when the hedged transaction occurs. Historically, gains and
losses from hedging transactions have not been material.
Inventories -- Crude oil and refined products are valued at the lower of
cost or market (net realizable value). Cost is determined primarily on the
last-in, first-out (LIFO) basis. Other inventories held for sale, materials and
supplies are stated at the lower of average cost, not in excess of market.
Property, Plant and Equipment -- Property, plant and equipment is stated at
cost. Major replacements, renewals and improvements are capitalized.
Maintenance, repairs and replacements, which do not improve or extend the lives
of assets, are charged to expense. In accordance with provisions of Statement of
Financial Accounting Standards No. 121, no depreciation or amortization has been
recorded since May 1997. In previous years, depreciation and amortization,
including amortization of assets under capital leases, were computed using the
straight-line method over estimated useful lives or lease terms, if shorter.
Estimated useful lives range up to 20 years for buildings and up to 25 years for
plant and equipment.
Refinery Maintenance Turnaround Costs -- The costs of refinery unit
shutdown and maintenance turnaround costs are included in other assets and
amortized over the estimated period of benefit, generally one to three years,
depending on the process unit.
Goodwill -- Goodwill represents BHP's purchase price in excess of the fair
values of net BHPPAR assets acquired in March 1989, after providing noncurrent
deferred tax liabilities on the difference between the assets' fair values and
their income tax basis. Goodwill was amortized on a straight-line, 20 year rate
until the goodwill was determined to be without further value and was written
off in May 1997.
Income Taxes -- Deferred tax assets and liabilities are recognized for
future income tax effects of temporary differences between financial statement
carrying amounts and the related income tax bases of assets and liabilities.
Deferred income tax assets and liabilities measurements are based on enacted tax
rates expected to apply when the temporary differences are expected to be
settled. The effect of tax rate changes on deferred tax assets and liabilities
is recognized when rate changes are enacted.
Income taxes are computed and recorded as if each company were filing
separate tax returns, although BHPPAR and BHPPSP are included in different
federal and state consolidated income tax returns which include other BHP
companies in the affiliated groups. Current income tax liabilities or refunds
are settled with BHP through intercompany accounts.
Environmental Expenditures -- Environmental expenditures for current
operations are expensed or capitalized, as appropriate. Expenditures are
capitalized if they extend the useful lives of assets, increase capacity, or
mitigate or prevent environmental contamination. Expenditures are expensed if
they are for existing conditions caused by past operations, and if the
expenditures will not contribute to future revenue generation. Liabilities are
recorded when environmental assessments and/or remedial efforts are probable and
when costs can be estimated reasonably. Such amounts are based on the estimated
timing and extent of remedial actions required by regulatory agencies,
experience gained from other sites where assessments and remediation have been
completed, and the amount of the Company's estimated liability, considering
proportional liability and financial abilities of other responsible parties.
Adjustments to accrued liabilities are made as changes in conditions and
estimated costs become known.
Pension Plans and Other Post-Employment Benefits -- Pension costs are
accounted for in conformity with Statements of Financial Accounting Standards
No. 87 and 88. Funding is based on required contributions under the Employee
Retirement Income Security Act of 1974. Other post-employment benefits,
primarily medical insurance, are accounted for in conformity with Statement of
Financial Accounting Standards No. 106.
F-58
<PAGE> 199
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories at December 31 consisted of:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Crude oil and refined products.............................. $53,977 $75,366
Merchandise and packaged petroleum products................. 868 1,189
Materials and supplies...................................... 8,837 7,776
------- -------
Total inventories........................................... $63,682 $84,331
======= =======
</TABLE>
At December 31, 1996 and 1997, crude oil and product inventories at LIFO
cost were below current cost by approximately $16.3 million and $7.8 million,
respectively.
4. PROPERTY, PLANT AND EQUIPMENT, GOODWILL, RELATED WRITE-DOWNS, AND CHANGE IN
DEPRECIATION METHOD
In 1997 BHP developed a plan to sell the Company, engaged an investment
advisor, completed an appraisal of assets, and began discussions with potential
buyers. Management determined that net book value of refinery assets had been
impaired based in part on the appraisal. The refinery property, plant and
equipment were written down to estimated fair value in May 1997, based on an
evaluation of these assets, related operating results, and in accordance with
provisions of Statement of Financial Accounting Standards (SFAS) No. 121. The
write-down, net of accumulated depreciation, amounted to $88.8 million ($54.2
million after a $34.6 million reduction in deferred income taxes). In accordance
with SFAS No. 121, no depreciation and amortization expense has been included in
the financial statements since May 1997. BHP reached an agreement in March 1998
to sell the Company, and as a result of the sale, the Company anticipates
recognizing an estimated loss of approximately $120-125 million, in addition to
the loss recognized in May 1997 (see Note 8). Substantially all of the loss is
expected to be allocated to a further reduction in the fair value of the
property, plant and equipment.
In connection with management's determination that the carrying amount of
refinery assets had become impaired, it was also determined that goodwill had no
continuing value. Therefore, the remaining net goodwill of $30,351 ($51,636, net
of accumulated amortization of $21,285) was also written off in May 1997.
Goodwill amortization expense included in statements of operations was $1,505
for the seven months ended December 31, 1996.
5. INCOME TAXES
The income tax provisions were 42% and 39% of income before income taxes
for the seven months ended December 31, 1996 and 1997, respectively. The
effective income tax rates differed from the normal 35% Federal income tax rate
because of state income taxes and the effects of permanent differences between
book and tax income, primarily the amortization of goodwill in 1996.
6. RELATED PARTY BALANCES AND TRANSACTIONS
The Company enters into transactions with BHP-affiliated companies
primarily for petroleum operations and general financing activities. Crude oil
is purchased through BHP Petroleum affiliates in the U.S., Australia and
Singapore. Crude oil transportation costs are either included in the purchase
price or paid to an affiliated BHP Transport company. Export products are sold
through BHP Petroleum affiliates.
Sales of refined products to BHP affiliates are negotiated with reference
to current published market prices. Sales include export cargoes marketed
primarily in Asia. Also, naphtha and LPG were sold to a Hawaii
F-59
<PAGE> 200
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
gas utility affiliate (the Gas Company) under term contracts. BHP sold the Gas
Company to an unrelated company effective October 31, 1997, and continues to
sell products to the Gas Company.
Domestic (Alaskan North Slope) crude oil is purchased from a BHP Petroleum
affiliate at their cost, net of their price hedging transactions. BHPPAR also
imports crude oil, primarily from Australia and Asia, under term agreements with
BHP Petroleum affiliates, and purchase prices are determined by a formula using
current published market prices.
7. COMMITMENTS AND CONTINGENCIES
The Company is party to litigation and claims in the normal course of
business. The outcome of individual matters is not predictable. However,
management believes that the ultimate resolution of all of these matters, after
considering insurance coverages, is not likely to have a material adverse effect
on the Company's combined financial statements.
Environmental
The Company's operations are subject to various Federal and state
environmental laws and regulations. The Company has received notices of
violation or potential liability from the U.S. Environmental Protection Agency
(EPA), the State of Hawaii Department of Health (HDOH) and private parties
relating to various environmental matters associated with the Company's
ownership and/or operations of its assets. There have been no significant
changes in environmental matters disclosed in the audited financial statements
for the fiscal year ended May 31, 1997.
8. SUBSEQUENT EVENT
On March 18, 1998, the Company's stockholders entered into a stock sale
agreement with Tesoro Petroleum Corporation (Tesoro), whereby Tesoro will
purchase all of the outstanding common stock of BHPPAR and BHPPSP. The sale is
expected to close by the end of May 1998, subject to regulatory review and other
customary conditions. The price to be paid at closing amounts to $275 million in
cash (including a $5 million escrow deposit). After closing, the cash price will
be increased by the amount that net working capital sold exceeds $100 million,
or reduced by the amount that net working capital is less than $100 million. In
addition, Tesoro will issue an unsecured, non-interest bearing, promissory note
for $50 million payable in five equal annual installments of $10 million each,
beginning in 2009. The note will provide for earlier payment, depending on
earnings performance of the acquired assets.
The parties will execute a separate environmental agreement at closing,
whereby the selling stockholders will indemnify Tesoro and the Company for
environmental costs arising out of conditions which exist at, or existed prior
to, closing subject to a maximum limit of $9.5 million. The environmental
indemnity will survive for a ten-year period. Certain environmental liabilities
of the Companies will be retained by BHP and are not subject to the $9.5 million
indemnity.
As a result of the sale, the Company anticipates recognizing an estimated
loss of approximately $120-125 million. This estimated loss will increase or
decrease based on results of operations and changes in noncurrent assets and
liabilities through the closing date. Substantially all of the loss is expected
to be allocated to a further reduction in the fair value of the property, plant
and equipment.
* * * * * *
F-60
<PAGE> 201
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS ENDED
MARCH 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
REVENUES
Sales and other revenue -- trade.......................... $763,454 $651,585
Sales and other revenue -- affiliates..................... 94,322 90,363
-------- --------
Total Revenue..................................... 857,776 741,948
-------- --------
OPERATING COSTS AND EXPENSES
Cost of sales............................................. 759,555 640,699
Operating and selling..................................... 36,807 36,796
Depreciation and amortization (Note 5).................... 24,288 --
Refinery assets write-down to fair value (Note 5)......... -- 125,049
-------- --------
Total Operating Costs and Expenses................ 820,650 802,544
-------- --------
OPERATING INCOME (LOSS)..................................... 37,126 (60,596)
General and administrative................................ (14,363) (15,787)
Interest.................................................. (8,491) (8,309)
Capitalized interest...................................... 1,130 1,168
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES........................... 15,402 (83,524)
Income tax benefit (provision).............................. (6,908) 21,800
-------- --------
NET INCOME (LOSS)........................................... $ 8,494 $(61,724)
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-61
<PAGE> 202
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
COMBINED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AS OF MARCH 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 2,066 $ 2,519
Accounts receivable, net.................................. 69,655 53,245
Due from affiliates -- trade.............................. 15,193 --
Due from affiliates -- other.............................. 16,723 31,059
Inventories............................................... 79,353 71,050
Other current assets...................................... 2,969 3,919
-------- --------
Total current assets.............................. 185,959 161,792
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization............................. 383,734 209,804
-------- --------
NON-CURRENT ASSETS
Goodwill, net of accumulated amortization (Notes 2 & 5)... 30,781 --
Other..................................................... 7,314 3,295
-------- --------
Total non-current assets.......................... 38,095 3,295
-------- --------
Total Assets...................................... $607,788 $374,891
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft............................................ $ 6,953 $ 5,130
Accounts payable.......................................... 32,181 11,959
Due to affiliates -- trade................................ 22,923 29,742
Capital lease obligations, current portion................ 685 1,003
Accrued liabilities....................................... 12,340 12,901
-------- --------
Total current liabilities......................... 75,082 60,735
-------- --------
NOTES PAYABLE TO AFFILIATE -- noncurrent.................... 145,000 145,000
CAPITAL LEASE OBLIGATIONS, net of current portion........... 5,350 8,433
DEFERRED INCOME TAXES....................................... 67,794 --
OTHER LIABILITIES........................................... 32,503 29,460
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY
Common stock, no par value, 1,000,500 shares authorized,
issued and outstanding................................. 8,208 8,208
Additional paid-in capital................................ 52,362 52,362
Retained earnings:
BHP Petroleum Americas Refining Inc.................... 212,325 60,762
BHP Petroleum South Pacific Inc........................ 9,164 9,931
-------- --------
Total stockholders' equity........................ 282,059 131,263
-------- --------
Total Liabilities and Stockholders' Equity........ $607,788 $374,891
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-62
<PAGE> 203
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS ENDED
MARCH 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ 8,494 $(61,724)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Refinery assets write-down to fair value.................. -- 125,049
Depreciation and amortization............................. 24,288 --
Deferred income taxes..................................... 1,780 (30,659)
Changes in:
Accounts receivable, net............................... (25,742) (5,570)
Due from affiliates, trade and other................... 1,195 962
Inventories............................................ (26,999) 12,814
Other assets........................................... 3,082 1,808
Accounts payable and accrued liabilities............... 24,036 (9,919)
Due to affiliates, trade............................... 18,336 (191)
Other liabilities...................................... 757 920
-------- --------
Net cash provided by operating activities......... 29,227 33,490
CASH FLOWS FROM INVESTING ACTIVITIES --
Additions to property plant and equipment................. (27,637) (31,411)
CASH FLOWS FROM FINANCING ACTIVITIES --
Repayment of principal on capital leases.................. (567) (980)
-------- --------
Net increase in cash........................................ 1,023 1,099
Cash, beginning of period................................... 1,043 1,420
-------- --------
Cash, end of period......................................... $ 2,066 $ 2,519
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-63
<PAGE> 204
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION
BHP Petroleum Americas Refining Inc. (BHPPAR), a Hawaii corporation, and
BHP Petroleum South Pacific Inc. (BHPPSP), a California corporation,
collectively referred to as "the Company," are affiliated companies and
wholly-owned indirect subsidiaries of The Broken Hill Proprietary Company
Limited (BHP), an Australian company. All capital and financing requirements of
the Company are provided for by BHP, except for capital and operating leases.
BHPPAR operates an oil refinery, product storage and distribution
facilities, and retail gasoline stations in the state of Hawaii. Crude oil is
purchased through other BHP affiliates and shipped to Hawaii by tanker. Refined
product exports usually are sold through other BHP affiliates. BHPPSP is a
petroleum products marketer in American Samoa, and operates the government-owned
product storage and distribution facilities. BHPPSP purchases most of its
refined products from BHPPAR.
The Companies were part of a consolidated group, Pacific Resources, Inc.
and Subsidiaries (PRI), purchased by BHP in March 1989. The purchase price was
allocated to assets and liabilities based on fair values at the acquisition
date. The purchase price in excess of fair values was reported as goodwill until
May 1997 when the refinery assets were written down to estimated fair value and
the unamortized goodwill was written off.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The Company's interim combined financial statements and notes thereto have
been prepared by management without audit. Accordingly, the accompanying
financial statements reflect all adjustments that, in the opinion of management,
are necessary for a fair presentation of results for the periods presented. Such
adjustments are of a normal recurring nature. Certain information and notes
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. However,
management believes that the disclosures presented herein are adequate to make
the information not misleading.
Combined Financial Statements -- The combined financial statements include
the accounts of BHPPAR and BHPPSP. These companies are combined to present the
financial position and results of operations of BHP's downstream petroleum
refining and marketing business. The combined financial statements have been
prepared using the historical costs and results of operations of the affiliated
entities. There were no significant differences in accounting methods or their
application among the combining entities. All significant intercompany balances
and transactions between the combined entities are eliminated.
Use of Estimates and Presentation -- Preparation of the combined financial
statements, in conformity with generally accepted accounting principles,
requires management to make estimates and assumptions which affect the amounts
of assets and liabilities, and disclosure of contingencies at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from these estimates.
Financial Instruments -- The carrying amounts of financial instruments,
including cash, accounts receivable, accounts payable, and certain other current
liabilities, approximate fair value because of the short maturity of these
instruments. The carrying amounts of the Company's long-term notes payable and
other obligations approximate the Company's estimate of fair values of such
items.
Hedging Activities -- The Company periodically enters into hedging
arrangements through BHP affiliates to manage petroleum price risks and not for
speculative purposes. Gains and losses from hedging are
F-64
<PAGE> 205
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
recognized in income when the hedged transaction occurs. Historically, gains and
losses from hedging transactions have not been material.
Inventories -- Crude oil and refined products are valued at the lower of
cost or market (net realizable value). Cost is determined primarily on the
last-in, first-out (LIFO) basis. Other inventories held for sale, materials and
supplies are stated at the lower of average cost, not in excess of market.
Property, Plant and Equipment -- Property, plant and equipment is stated at
cost. Major replacements, renewals and improvements are capitalized.
Maintenance, repairs and replacements, which do not improve or extend the lives
of assets, are charged to expense. The assets of the Company are held for sale
and, in accordance with provisions of Statement of Financial Accounting
Standards No. 121, the fixed assets have been written down to fair value, and no
depreciation or amortization has been recorded since May 1997. In previous
years, depreciation and amortization, including amortization of assets under
capital leases, were computed using the straight-line method over estimated
useful lives or lease terms, if shorter. Estimated useful lives range up to 20
years for buildings and up to 25 years for plant and equipment.
Refinery Maintenance Turnaround Costs -- The costs of refinery unit
shutdown and maintenance turnaround costs are included in other assets and
amortized over the estimated period of benefit, generally one to three years,
depending on the process unit.
Goodwill -- Goodwill represents BHP's purchase price in excess of the fair
values of net BHPPAR assets acquired in March 1989, after providing noncurrent
deferred tax liabilities on the difference between the assets' fair values and
their income tax basis. Goodwill was amortized on a straight-line, 20 year rate
until the goodwill was determined to be without further value and was written
off in May 1997.
Income Taxes -- Deferred tax assets and liabilities are recognized for
future income tax effects of temporary differences between financial statement
carrying amounts and the related income tax bases of assets and liabilities.
Deferred income tax assets and liabilities measurements are based on enacted tax
rates expected to apply when the temporary differences are expected to be
settled. The effect of tax rate changes on deferred tax assets and liabilities
is recognized when rate changes are enacted.
Income taxes are computed and recorded as if each company were filing
separate tax returns, although BHPPAR and BHPPSP are included in different
federal and state consolidated income tax returns which include other BHP
companies in the affiliated groups. Current income tax liabilities or refunds
are settled with BHP through intercompany accounts.
Environmental Expenditures -- Environmental expenditures for current
operations are expensed or capitalized, as appropriate. Expenditures are
capitalized if they extend the useful lives of assets, increase capacity, or
mitigate or prevent environmental contamination. Expenditures are expensed if
they are for existing conditions caused by past operations, and if the
expenditures will not contribute to future revenue generation. Liabilities are
recorded when environmental assessments and/or remedial efforts are probable and
when costs can be estimated reasonably. Such amounts are based on the estimated
timing and extent of remedial actions required by regulatory agencies,
experience gained from other sites where assessments and remediation have been
completed, and the amount of the Company's estimated liability, considering
proportional liability and financial abilities of other responsible parties.
Adjustments to accrued liabilities are made as changes in conditions and
estimated costs become known.
Pension Plans and Other Post-Employment Benefits -- Pension costs are
accounted for in conformity with Statements of Financial Accounting Standards
No. 87 and 88. Funding is based on required contributions under the Employee
Retirement Income Security Act of 1974. Other post-employment benefits,
primarily medical insurance, are accounted for in conformity with Statement of
Financial Accounting Standards No. 106.
F-65
<PAGE> 206
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. SALE OF THE COMPANY TO TESORO PETROLEUM CORPORATION
On March 18, 1998, the Company's stockholders entered into a stock sale
agreement with Tesoro Petroleum Corporation (Tesoro), whereby Tesoro will
purchase all of the outstanding common stock of BHPPAR and BHPPSP. The sale is
expected to close by the end of May 1998, subject to regulatory review and other
customary conditions. The price to be paid at closing amounts to $275 million in
cash (including a $5 million escrow deposit). After closing, the cash price will
be increased by the amount that net working capital sold exceeds $100 million,
or reduced by the amount that net working capital is less than $100 million. In
addition, Tesoro will issue an unsecured, non-interest bearing, promissory note
for $50 million payable in five equal annual installments of $10 million each,
beginning in 2009. The note will provide for earlier payment, depending on
earnings performance of the acquired assets.
The parties will execute a separate environmental agreement at closing ,
whereby the selling stockholders will indemnify Tesoro and the Company for
environmental costs arising out of conditions which exist at, or existed prior
to, closing subject to a maximum limit of $9.5 million. The environmental
indemnity will survive for a ten-year period. Certain environmental liabilities
of the Companies will be retained by BHP and are not subject to the $9.5 million
indemnity.
4. INVENTORIES
Inventories at March 31 consisted of:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Crude oil and refined products.............................. $69,366 $62,519
Merchandise and packaged petroleum products................. 954 1,139
Materials and supplies...................................... 9,033 7,392
------- -------
Total inventories................................. $79,353 $71,050
======= =======
</TABLE>
At March 31, 1997 crude oil and product inventories at LIFO cost were below
current cost by approximately $4.9 million. At March 31, 1998 crude oil and
product inventories were stated at estimated net realizable value which was $7.8
million less than LIFO cost.
5. PROPERTY, PLANT AND EQUIPMENT, GOODWILL, RELATED WRITE-DOWNS, AND CHANGE IN
DEPRECIATION METHOD
In 1997 BHP developed a plan to sell the Company, engaged an investment
advisor, completed an appraisal of assets, and began discussions with potential
buyers. Management determined that net book value of refinery assets had been
impaired based in part on the appraisal. The refinery property, plant and
equipment were written down to estimated fair value in May 1997, based on an
evaluation of these assets, related operating results, and in accordance with
provisions of Statement of Financial Accounting Standards (SFAS) No. 121. The
write-down, net of accumulated depreciation, amounted to $88.8 million. As
described in Note 3, BHP reached an agreement to sell the Company to Tesoro in
March 1998. Based on the provisions of the agreement, assets were written down
an additional $125.0 million. In accordance with SFAS No. 121, no depreciation
and amortization expense has been included in the financial statements since May
1997.
In connection with management's determination that the carrying amount of
refinery assets had become impaired, it was also determined that goodwill had no
continuing value. Therefore, the remaining net goodwill of $30,351 ($51,636, net
of accumulated amortization of $21,285) was also written off in May 1997.
Goodwill amortization expense included in statements of operations was $2,150
for the ten months ended March 31, 1997.
F-66
<PAGE> 207
BHP PETROLEUM AMERICAS REFINING INC.
BHP PETROLEUM SOUTH PACIFIC INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The income tax provision (benefit) was 45% and (26)% of income (loss)
before income taxes for the ten months ended March 31, 1997 and 1998,
respectively. The effective income tax rates differed from the normal 35%
Federal income tax rate because of state income taxes and the effects of
permanent differences between book and tax income, primarily the amortization of
goodwill in 1997. In 1998 the effective income tax benefit was reduced by a
valuation allowance of $10.6 million for all net deferred tax assets as of March
31, 1998. Management believes that it is more likely than not that the net
deferred tax assets will not be realized, in part due to the pending sale of the
Company.
7. RELATED PARTY BALANCES AND TRANSACTIONS
The Company enters into transactions with BHP-affiliated companies
primarily for petroleum operations and general financing activities. Crude oil
is purchased through BHP Petroleum affiliates in the U.S., Australia and
Singapore. Crude oil transportation costs are either included in the purchase
price or paid to an affiliated BHP Transport company. Export products are sold
through BHP Petroleum affiliates.
Sales of refined products to BHP affiliates are negotiated with reference
to current published market prices. Sales include export cargoes marketed
primarily in Asia. Also, naphtha and LPG were sold to a Hawaii gas utility
affiliate (the Gas Company) under term contracts. BHP sold the Gas Company to an
unrelated company effective October 31, 1997, and continues to sell products to
the Gas Company.
Domestic (Alaskan North Slope) crude oil is purchased from a BHP Petroleum
affiliate at their cost, net of their price hedging transactions. BHPPAR also
imports crude oil, primarily from Australia and Asia, under term agreements with
BHP Petroleum affiliates, and purchase prices are determined by a formula using
current published market prices.
8. COMMITMENTS AND CONTINGENCIES
The Company is party to litigation and claims in the normal course of
business. The outcome of individual matters is not predictable. However,
management believes that the ultimate resolution of all of these matters, after
considering insurance coverages, is not likely to have a material adverse effect
on the Company's combined financial statements.
The Company's operations are subject to various Federal and state
environmental laws and regulations. The Company has received notices of
violation or potential liability from the U.S. Environmental Protection Agency
(EPA), the State of Hawaii Department of Health (HDOH) and private parties
relating to various environmental matters associated with the Company's
ownership and/or operations of its assets. There have been no significant
changes in environmental matters disclosed in the audited financial statements
for the fiscal year ended May 31, 1997.
* * * * * *
F-67
<PAGE> 208
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholder of Shell Anacortes Refining Company
In our opinion, the accompanying balance sheet and the related statements of
income and shareholder's equity and of cash flows present fairly, in all
material respects, the financial position of Shell Anacortes Refining Company at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the year ended December 31, 1997 and for the period from inception (January
4, 1996) through December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Houston, Texas
May 29, 1998
F-68
<PAGE> 209
SHELL ANACORTES REFINING COMPANY
STATEMENT OF INCOME
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE THREE MONTHS ENDED
(JANUARY 4, 1996) YEAR ENDED MARCH 31,
THROUGH DECEMBER 31, --------------------
DECEMBER 31, 1996 1997 1997 1998
----------------- ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Sales
Third Parties......................... $296,168 $ 544,295 $130,553 $127,513
Related Parties....................... 525,120 545,623 160,662 73,918
Interest and other income................ 732 52 120 30
-------- ---------- -------- --------
Total Revenues........................... 822,020 1,089,970 291,335 201,461
-------- ---------- -------- --------
COSTS AND EXPENSES:
Purchases of raw materials
Third Parties......................... 542,949 888,057 260,887 161,142
Related Parties....................... 153,848 61,557 11,442 19,475
Other operating expenses................. 58,352 68,750 3,000 11,025
Depreciation and amortization............ 8,607 12,715 3,101 3,703
Operating taxes.......................... 11,458 18,584 5,043 3,752
Selling, general and administrative...... 7,547 14,277 3,042 2,512
Research and development................. 1,083 1,137 357 291
Interest expense on advances............. 9 252 37 10
-------- ---------- -------- --------
783,853 1,065,329 286,909 201,910
-------- ---------- -------- --------
Income (loss) before income taxes........ 38,167 24,641 4,426 (449)
Income tax............................... 13,444 8,902 1,636 (80)
-------- ---------- -------- --------
Net income (loss)........................ $ 24,723 $ 15,739 $ 2,790 $ (369)
======== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-69
<PAGE> 210
SHELL ANACORTES REFINING COMPANY
BALANCE SHEET
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................. $ 25 $ 25 $ 25
Advances to Shell Oil Company......................... -- 6,470 --
Owing by related parties.............................. 45,991 17,512 11,313
Other receivables..................................... 1,486 363 1,287
Inventories of product and crude...................... 4,987 25,321 37,398
Inventories of materials and supplies................. 3,676 3,774 3,907
Other current assets.................................. 1,777 1,789 4,349
-------- -------- --------
Total Current Assets.......................... 57,942 55,254 58,279
Property, Plant and Equipment at cost, less
accumulated depreciation and amortization.......... 188,876 184,424 184,641
Other Noncurrent Assets............................... 7,524 8,093 8,774
-------- -------- --------
TOTAL ASSETS.................................. $254,342 $247,771 $251,694
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable...................................... $ 5,601 $ 5,030 $ 6,266
Advances from Shell Oil Company....................... 5,656 -- --
Income, operating, and consumer taxes................. 4,557 1,290 952
Owing to related parties.............................. 637 380 3,553
Other current liabilities............................. 3,855 3,753 3,881
-------- -------- --------
Total Current Liabilities..................... 20,306 10,453 14,652
Long-Term Liabilities................................. 13,240 14,149 14,412
Deferred Income Taxes................................. 24,059 25,693 25,523
-------- -------- --------
Total Liabilities............................. 57,605 50,295 54,587
-------- -------- --------
Shareholder's Equity:
Common Stock:
3,000 shares authorized, issued and outstanding at
$1.00 par value.................................. 3 3 3
Additional Paid in Capital......................... 181,011 181,011 181,011
Retained Earnings.................................. 15,723 16,462 16,093
-------- -------- --------
Total Shareholder's Equity.................... 196,737 197,476 197,107
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.... $254,342 $247,771 $251,694
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-70
<PAGE> 211
SHELL ANACORTES REFINING COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- --------
<S> <C> <C> <C> <C>
Initial Capital Contribution........................ $-- $ 1 $ -- $ 1
Contribution of Anacortes refinery net assets....... 3 181,010 -- 181,013
Net income.......................................... -- -- 24,723 24,723
Dividends........................................... -- -- (9,000) (9,000)
--- -------- -------- --------
Balance at December 31, 1996........................ 3 181,011 15,723 196,737
Net income.......................................... -- -- 15,739 15,739
Dividends........................................... -- -- (15,000) (15,000)
--- -------- -------- --------
Balance at December 31, 1997........................ 3 181,011 16,462 197,476
Net income (loss) (unaudited)....................... -- -- (369) (369)
--- -------- -------- --------
Balance at March 31, 1998 (unaudited)............... $ 3 $181,011 $ 16,093 $197,107
=== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-71
<PAGE> 212
SHELL ANACORTES REFINING COMPANY
STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FROM INCEPTION THREE MONTHS ENDED
(JANUARY 4, 1996) FOR THE MARCH 31,
THROUGH YEAR ENDED --------------------
DECEMBER 31, 1996 DECEMBER 31, 1997 1997 1998
----------------- ----------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flow Provided by Operating Activities:
Net income (loss).............................. $ 24,723 $ 15,739 $ 2,790 $ (369)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.............. 8,607 12,715 3,101 3,703
Deferred income taxes...................... 2,620 1,634 1,019 (170)
(Increases) decreases in working capital:
Owing by related parties................ (33,525) 28,479 45,990 6,199
Other receivables....................... (1,419) 1,123 (22,169) (924)
Inventories of product and crude........ 1,013 (20,334) (19,170) (12,077)
Inventories of materials and supplies... 1,252 (98) (48) (133)
Other current assets.................... (447) (12) 88 (2,560)
Accounts payable........................ 2,240 (571) (1,896) 1,236
Income, operating and consumer taxes.... 3,642 (3,267) 1,462 (338)
Owing to related parties................ (1,750) (257) 6,572 3,173
Other current liabilities............... 122 (102) (594) 128
Other noncurrent items..................... 1,450 340 141 (418)
-------- -------- -------- --------
Net Cash Provided by Operating Activities...... 8,528 35,389 17,286 (2,550)
-------- -------- -------- --------
Cash Flow Used for Investing Activities:
Capital expenditures........................... (4,892) (8,157) (2,625) (3,456)
Proceeds from property sales and salvage, net
of removal costs............................. (293) (106) 20 (464)
Advances to Shell Oil Company.................. -- (6,470) (5,275) 6,470
-------- -------- -------- --------
Net Cash Used for Investing Activities......... (5,185) (14,733) (7,880) 2,550
-------- -------- -------- --------
Cash Flow Used for Financing Activities:
Proceeds from issuance of common stock......... 1 -- -- --
Dividends to shareholder....................... (9,000) (15,000) (3,750) --
Advances from Shell Oil Company................ 5,656 (5,656) (5,656) --
-------- -------- -------- --------
Net Cash Used for Financing Activities......... (3,343) (20,656) (9,406) --
-------- -------- -------- --------
Net increase in cash and cash equivalents........ $ -- $ -- $ -- $ --
======== ======== ======== ========
Cash and cash equivalents
Balance at Beginning of period................. $ 25 $ 25 $ 25 $ 25
Increase in cash and cash equivalents...... -- -- -- --
-------- -------- -------- --------
Balance at End of period....................... $ 25 $ 25 $ 25 $ 25
======== ======== ======== ========
Interest Paid.................................... $ 9 $ 252 $ 37 $ 9
======== ======== ======== ========
Income taxes paid................................ $ 28,355 $ 7,700 $ -- $ 1,000
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-72
<PAGE> 213
SHELL ANACORTES REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Shell Anacortes Refining Company ("the Company") was incorporated in the
state of Delaware on January 4, 1996. The total number of authorized shares for
the Company is 3,000 shares of common stock with a par value of $1 per share. On
April 1, 1996, Shell Oil Products Company ("SOPC"), a subsidiary of Shell Oil
Company ("Shell"), acquired 100 shares of common stock of the Company for
$1,000. On April 30, 1996, through a series of transactions amongst Shell
subsidiaries, the 100 shares of the Company's stock, which were previously owned
by SOPC, were transferred to Shell Refining Holdings Company ("SRHC") in
exchange for their stock.
On May 1, 1996, a series of transactions were executed amongst Shell and
certain subsidiaries of Shell which culminated in SRHC contributing the assets
and property described in the Subscription Agreement as Anacortes Refinery
Assets, comprised of property, plant and equipment, crude and product inventory,
store stock, catalysts and deferred taxes on property, plant and equipment, to
the Company in exchange for 2,900 shares of the Company's stock. Prior to May 1,
1996, the Anacortes Refinery Assets were owned by Shell. Therefore, refinery
operations for the Company effectively began on May 1, 1996 upon contribution of
the assets to the Company. The Company recorded the contributed assets at the
predecessor's book value of approximately $181,013 thousand as the assets were
contributed and ultimately held by entities under control.
On May 1, 1996, simultaneously with the contribution of the Anacortes
Refinery Assets, the Company assumed certain Shell net liabilities, as follows,
in exchange for an equal amount of cash to settle these net liabilities (in
thousands):
<TABLE>
<S> <C>
Net Working Capital Deficits................................ $ 7,066
Deferred Tax Assets......................................... (497)
Prepaid Qualified Pension Plan.............................. (7,000)
Unqualified Pension Plan Liabilities........................ 500
Other Postretirement Employee Benefits Liabilities.......... 11,900
Deferred Tax on Postretirement Liabilities.................. (1,890)
-------
Cash Received............................................... $10,079
=======
</TABLE>
The cash payment was accounted for as a component of the Revolver (See Note
3).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Uses of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash Equivalents -- Cash equivalents consist of all highly liquid
investments that are readily convertible to cash and have a maturity of three
months or less at date of acquisition.
Inventories -- Inventories of crude oil and products are valued at the
lower of cost, predominantly on a last-in, first-out (LIFO) basis, or market,
and include certain costs directly related to the production process. Materials
and supplies are carried at average cost or less.
Depreciation and Amortization -- Properties, plant and equipment are
depreciated on a straight-line basis over their estimated useful lives which
range between four and twenty years. Gains and losses are not recognized for
normal retirements of properties, plant and equipment subject to composite group
amortization or depreciation. Gains or losses from abnormal retirements or sales
are recognized currently in income. Expenditures for maintenance and repairs are
expensed as incurred.
F-73
<PAGE> 214
SHELL ANACORTES REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes -- The Company follows Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No. 109
prescribes an asset and liability approach in accounting for income taxes. It
requires that deferred tax assets and liabilities be determined using enacted
tax laws for the estimated future tax effects attributable to temporary
differences and carryforwards; the effects of future tax laws or rates are not
anticipated. Under this method, future financial results will be impacted by the
effect of future changes in income tax rates on cumulative deferred income tax
balances.
Fair Value of Financial Instruments -- The reported amounts of financial
instruments such as cash equivalents, advances to Shell Oil Company and owing by
related parties, approximate fair value because of their short maturities.
Concentration of risk -- All of the Company's trade receivables are from
Shell. Although collection of these receivables could be influenced by economic
factors affecting the petroleum industry, the risk of significant loss is
considered remote.
Impairment of Long-Lived Assets -- Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" requires that long-lived assets and
certain identifiable intangibles to be held and used be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
affected assets may not be recoverable. Long-lived assets were tested for
impairment by comparing carrying amounts with estimated future cash flows
expected from use of the assets and from their disposition. Estimates of future
cash flows were developed utilizing internal estimates of future costs, product
prices, capital costs and salvage values. At December 31, 1996 and December 31,
1997, no impairment write-down of reported balances was necessary.
Interim Financial Data -- The interim financial data for the three months
ended March 31, 1998 and March 31, 1997 is unaudited; however, in the opinion of
the Company, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
the interim period.
NOTE 3 -- TRANSACTIONS WITH RELATED PARTIES
The Company has entered into transactions with related parties including
Shell and certain of its subsidiaries. Such transactions were in the ordinary
course of business and include the purchase, sale and transportation of crude
oil and refined products, as well as charges for certain general, administrative
and other functions performed by Shell and its affiliates for the Company. The
aggregate amounts of related party transactions during 1997 and 1996 were (in
thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JANUARY 4, 1996)
THROUGH
1997 DECEMBER 31, 1996
-------- -----------------
<S> <C> <C>
Sales and other operating revenue......................... $545,623 $525,120
Purchases and transportation.............................. 61,557 153,848
Selling, general, and administrative...................... 12,952 6,553
Research and development.................................. 1,137 1,083
Interest income on Revolver............................... 35 732
Interest expense on Revolver.............................. 252 9
</TABLE>
Purchases, Sales and Receivables
Under various agreements between Shell and the Company, Shell arranges on
behalf of the Company feedstock purchases in the Company's name from third
parties and refined product sales in the Company's name to third parties. For
feedstock purchases, Shell remits payments to the suppliers and charges the
F-74
<PAGE> 215
SHELL ANACORTES REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company for the cost via intercompany accounts. Pursuant to an agreement with
Shell for sales to third parties, the Company records an intercompany receivable
from Shell and Shell collects the payments from the customers on behalf of the
Company and credits the Company through the intercompany account. As a result of
this agreement, the Company has sales and purchases with third parties yet cash
on these transactions is settled via the Company's owing by/to related parties
account with Shell. Since the legal right of offset exists with Shell, trade
receivables and trade payables are reflected as a net amount within the owing
by/to related parties balance. The Company also has entered into transactions
with related parties for the purchase of feedstocks and the sale of refined
products. The related trade payables and trade receivables are also included in
the owing by/to related parties balance.
At December 31, 1997 and 1996, trade receivables and trade payables,
including the reconciliation to owing by related were as follows (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Trade receivables........................................... $86,502 $111,367
Trade payables.............................................. 67,914 83,708
------- --------
Net owing by related parties balance for trade receivables
and payables.............................................. 18,588 27,659
Receivable for overpayment of taxes (see below)............. -- 17,872
Other owing by related parties, net......................... (1,076) 460
------- --------
Owing by related parties.................................... $17,512 $ 45,991
======= ========
</TABLE>
Advances with Shell
The Company is party to a Revolving Credit and Cash Management Agreement
(the "Revolver") with Shell. Under the Agreement, the Company will advance its
excess cash (including net cash resulting from the proceeds of the refining
business) to Shell, and Shell will pay the Company interest on such advances at
a rate equal to the prime rate established from time to time by The Chase
Manhattan Bank (N.A.), less one percent. In addition, under the Agreement, Shell
has irrevocably committed to make a line of credit available to the Company in
an aggregate principal amount not exceeding $40 million. The Company may draw on
this line of credit on demand. Funds advanced by Shell to the Company under this
line of credit will bear interest at the prime rate established from time to
time by The Chase Manhattan Bank (N.A.).
The funds maintained in the Revolver are liquid and available for use at
the Company's discretion. Funds advanced to Shell under the Revolver as of
December 31, 1997 amounted to $6.5 million and the interest rate on the amount
outstanding at December 31, 1997 was 7.5%. As of December 31, 1996, funds
advanced to the Company by Shell amounted to $5.7 million and the interest rate
on the amount outstanding at December 31, 1996 was 8.25%. Under the Revolver
there were amounts advanced to Shell and amounts due to Shell at various times
throughout the period from the date of commencement of the Revolver (April 1,
1996) to December 31, 1997. Interest income earned on the funds advanced to
Shell for the year ended December 31, 1997 and the period from inception
(January 4, 1996) to December 31, 1996 amounted to $35 thousand and $732
thousand, respectively. Interest expense incurred on the funds advanced from
Shell for the year ended December 31, 1997 and the period from inception
(January 4, 1996) to December 31, 1996 amounted to $252 thousand and $9
thousand, respectively.
Cost Sharing and other charges
Under the Cost Sharing Agreement between Shell and the Company, research,
development, and technology service costs related to the refining of crude oil
and other raw materials are allocated to the
F-75
<PAGE> 216
SHELL ANACORTES REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company based upon a percentage equal to the Company's equivalent distillation
capacity as compared to the combined capacity for all refineries participating
under the agreement. The Company is required under the agreement to pay Shell
its share of estimated research, development, and technology service costs on a
monthly basis. The Company is also charged for certain overhead administrative
expenses at rates which have been agreed upon by the Company and Shell.
Receivable for overpayment of taxes
The Company files a separate tax return; however, for the period from
inception (January 4, 1996) through December 31, 1996, the Company paid their
estimated tax liability to SRHC which then remitted the taxes for itself and
certain of its subsidiaries, including the Company, to the Internal Revenue
Service. The amount submitted by the Company exceeded their tax liability by
approximately $17 million due to estimates of the tax liability differing from
actual results. The amount due for the overpayment is recorded in the owing by
related parties balance.
NOTE 4 -- INVENTORIES OF CRUDE OILS AND REFINED PRODUCTS
Inventories are carried on a LIFO basis which was lower than current cost
by $1.6 million at December 31, 1997 and $12.3 million at December 31, 1996.
A portion of Shell's inventory was held on consignment by the Company. The
title to and ownership of such inventory is intended to remain with Shell until
purchased by the refining company in accordance with the Feedstock Consignment
Agreement. For the year ended December 31, 1997 and the period from inception
(January 4, 1996) through December 31, 1996, $13,395 thousand and $14,690
thousand, respectively, of crude and refined products were purchased from
consignment. As of December 31, 1997, all the consigned crude inventory had been
purchased by the Company with some product inventory remaining on consignment.
During the period from May 1, 1996, the date of contribution of the
Anacortes Refinery Assets, to December 31, 1996 inventory quantities were
reduced. This reduction resulted in a liquidation of LIFO inventory quantities
carried at lower costs prevailing in prior years, as the inventory was
contributed at book value, as compared with the 1996 purchases for the period
from May 1, 1996 to December 31, 1996, the effect of which decreased operating
expenses by approximately $2,825 thousand.
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Investments in property, plant and equipment as of December 31, 1997 and
1996, respectively, are reported at historical cost as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
COST RESERVE* NET COST RESERVE* NET
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Land.................. $ 2,808 $ 2,808 $ 2,808 $ 2,808
Manufacturing
assets.............. 342,844 $161,228 181,616 334,693 $148,625 186,068
-------- -------- -------- -------- -------- --------
Total....... $345,652 $161,228 $184,424 $337,501 $148,625 $188,876
======== ======== ======== ======== ======== ========
</TABLE>
* Accumulated depreciation and amortization.
F-76
<PAGE> 217
SHELL ANACORTES REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- TAXES
Operating and income taxes incurred by the Company in 1997 and 1996 were as
follows (in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JANUARY 4, 1996)
THROUGH
DECEMBER 31,
1997 1996
------- -----------------
<S> <C> <C>
Operating Taxes
- ------------------------------------------------------------
Hazardous substance....................................... $ 8,092 $ 3,978
Business and occupation................................... 5,745 4,980
Real and personal property................................ 2,089 1,192
Payroll................................................... 1,377 657
Other..................................................... 1,281 651
------- -------
$18,584 $11,458
======= =======
Federal and Other Incomes Taxes
- ------------------------------------------------------------
Current:
Federal................................................ $ 6,758 $10,484
State.................................................. 510 340
Deferred:
Federal................................................ 1,634 2,620
------- -------
$ 8,902 $13,444
======= =======
</TABLE>
Total income tax expense for 1997 and 1996 was equivalent to an effective
tax rate of 36% and 35%, respectively. Reconciliation to the expected tax at the
U.S. statutory rate of 35% is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JANUARY 4, 1996)
THROUGH
DECEMBER 31,
1997 1996
------ -----------------
<S> <C> <C>
Expected tax at statutory rate.............................. $8,624 $13,358
State tax................................................... 332 221
Other....................................................... (54) (135)
------ -------
$8,902 $13,444
====== =======
</TABLE>
F-77
<PAGE> 218
SHELL ANACORTES REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes are provided for the temporary differences between
the tax basis of the Company's assets and liabilities and the amounts reported
in the financial statements. Significant components of deferred tax liabilities
and assets as of December 31, 1997 and December 31, 1996 are as follows (in
millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
- ------------------------------------------------------------
Depreciation of properties, plant, and equipment.......... $30 $27
Other..................................................... 2 1
--- ---
Total deferred tax liabilities.................... 32 28
--- ---
Deferred tax assets:
- ------------------------------------------------------------
Other postretirement liabilities.......................... 4 4
Other..................................................... 2 --
--- ---
Total deferred tax assets......................... 6 4
--- ---
Net deferred tax liabilities...................... $26 $24
=== ===
</TABLE>
The Company has assessed the need for establishing a valuation allowance
for its deferred tax assets and has determined that such an allowance is
unnecessary.
NOTE 7 -- POSTRETIREMENT BENEFITS
The employees associated with fuels operations of the refinery became
employees of the refinery subsidiary on April 1, 1996. In participation with
Shell, the Company currently provides health care benefits for retired employees
and their dependents. Eligibility for such benefits requires retirement from the
Company with entitlement to an immediate pension generally upon the earlier of
the attainment of age 50, when such age plus years of service equals 80, or the
attainment of age 65. Other postretirement benefits provided to the employees
include life insurance benefits. These life insurance benefits are primarily
funded by employees; as a result, the cost of such benefits to the Company is
not material.
The health care benefits for retired employees and their dependents are
provided by Shell's unfunded defined benefit plans. The benefit is defined as
the Company's contributions to such plans. Annually, retirees are advised of the
amount of the Company's monthly contribution to the plans for the following year
and the monthly amount such retirees must pay for the particular coverage
desired. Retiree health care costs allocated from Shell amounted to $503
thousand in 1997 and $364 thousand in 1996. Other long-term liabilities include
$11.9 million in connection with retiree health care cost allocations as of both
December 31, 1997 and 1996.
As of May 1, 1996, the pre-existing liabilities of the refinery
subsidiaries for post-retirement benefits of $11.9 million were conveyed to the
Company in addition to an equal amount of cash to settle the net liabilities,
based on actuarial data.
F-78
<PAGE> 219
SHELL ANACORTES REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- PENSION PLAN AND PROVIDENT FUND
The Company participates with Shell in the Shell Pension Plan (Plan), the
Benefit Restoration Plan, the Senior Staff Plan, and the Shell Provident Fund.
The Plan covers substantially all of the Company's employees. Benefits are based
on years of service and the employee's average final compensation. The prepaid
cost (accrued liability) conveyed to the Company on May 1, 1996 in addition to
an equal amount of cash to settle the net liability, based on actuarial data was
as follows (in millions):
<TABLE>
<CAPTION>
MAY 1,
1996
------
<S> <C>
Qualified Pension Plan
Employees................................................. $ 3
Pensioners and deferred vested............................ 4
----
$ 7
====
Non-qualified Pension Plan
Employees................................................. $(.3)
Pensioners and deferred vested............................ (.2)
----
$(.5)
====
</TABLE>
There were no contributions to the Shell Pension Trust since May 1, 1996
due to the full-funding limitation of the applicable law. The Benefits
Restoration Plan generally provides for payments of amounts in excess of limits
imposed by federal tax law on benefit payments under the Shell Pension Plan. The
Senior Staff Plan provides for defined monthly supplemental pension payments to
members of the senior staff (consisting of certain officers and other high
ranking employees). Both of these plans are unfunded. The Shell Provident Fund
covers employees of the Company after stated periods of service, and provides
for contributions by the employing company based on a stated percentage of the
employees' salaries and wages. Employees may also contribute amounts up to a
stated percentage. The Company's portion of the total cost of the Shell
Provident Plan and the Shell Pension Plan was $1,306 thousand and $523 thousand,
respectively, in 1997, and was $774 thousand and $540 thousand, respectively, in
1996.
NOTE 9 -- CONTINGENCIES AND OTHER MATTERS
The Company and related Shell subsidiaries are named defendants in certain
lawsuits and named parties in certain governmental proceedings arising in the
ordinary course of business. While the outcome of such contingencies, lawsuits
or other proceedings against the Company cannot be predicted with certainty,
management expects that such liability, to the extent not provided for through
insurance or otherwise, will not have material adverse effect on the financial
statements of the Company.
In connection with the commencement of operations of the Company, Shell
agreed to retain liability for, and indemnify the Company for all other
liabilities and costs arising as the result of governmental or private claims,
suits or enforcement actions, either threatened or asserted prior to May 1, 1996
or arising out of acts or incidents occurring prior to May 1, 1996, except for
environmental claims, suits or actions. As to environmental claims, suits or
actions, either private or governmental, and all other environmental costs and
expenses, Shell has agreed to indemnify the Company for all liabilities and
costs (including those for claims, suits or actions) in any year which exceed
the budgeted environmental expenditures for such year.
F-79
<PAGE> 220
SHELL ANACORTES REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- SUBSEQUENT EVENTS
On January 15, 1998, Shell Oil and Texaco Inc. ("Texaco") reached an
agreement on the formation and operational start up of Equilon Enterprises LLC
("Equilon"). Equilon is a joint venture which combines major elements of both
companies' western and midwestern United States refining and marketing
businesses and both companies' nationwide trading, transportation and lubricants
businesses.
The Company will be sold as part of a settlement agreement with the Federal
Trade Commission involving the joint venture with Texaco. Beginning in December
1997, the Company must be held separate from all other operations within Shell
and Texaco. On May 1, 1998, Shell Oil Company entered into an agreement to sell
the stock of the Company to Tesoro Petroleum Corporation ("Tesoro"). Tesoro will
acquire the Company for $237 million plus an additional payment for net working
capital at the time of closing. The Federal Trade Commission and the states of
Oregon and Washington will have final approval of the transaction and Tesoro as
the buyer.
Also as part of Federal Trade Commission agreement, effective January 1,
1998, the Company acquired all the third parties contracts in the state of
Oregon previously held by Shell and purchased the associated inventory in the
state of Oregon.
F-80
<PAGE> 221
------------------------------------------------------------
------------------------------------------------------------
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
By Registered, Certified, or
Overnight Mail or Courier:
U.S. BANK TRUST N.A.
Attn: Specialized Finance
SPFT0414
180 East Fifth Street
St. Paul, MN 55101
By Hand:
U.S. BANK TRUST N.A.
4th Floor Bond Drop Window
180 East Fifth Street
St. Paul, MN 55101
By Facsimile:
(For Eligible Institutions Only):
(651) 244-1537
By First Class Mail:
U.S. BANK TRUST N.A.
P.O. Box 64485
St. Paul, MN 55164-9549
To Confirm by Telephone
or for Information, Call:
(651) 244-1197
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight delivery, or registered or certified mail.)
---------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE INITIAL PURCHASERS OR ANY OF THEIR
RESPECTIVE AFFILIATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION TO BUY, THE NOTES IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
$300,000,000
EXCHANGE OFFER
TESORO PETROLEUM
CORPORATION
9% SENIOR SUBORDINATED NOTES
DUE 2008, SERIES B
------------------------
PROSPECTUS
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Prospectus Summary.......................... 1
Forward-Looking Statements.................. 18
Risk Factors................................ 19
The Exchange Offer.......................... 29
Use of Proceeds............................. 38
Capitalization.............................. 39
Pro Forma Financial Statements.............. 40
Selected Historical Financial Data.......... 46
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 48
Business.................................... 66
Management.................................. 86
Description of Other Indebtedness........... 89
Description of the Notes.................... 92
Description of Capital Stock................ 128
Certain Federal Income Tax Consequences..... 130
Plan of Distribution........................ 133
Legal Matters............................... 133
Experts..................................... 133
Available Information....................... 134
Incorporation of Certain Documents by
Reference................................. 134
Index to Financial Statements............... F-1
</TABLE>
, 1998
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 222
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement in connection with specified actions, rules, or
proceedings, whether civil, criminal, administrative, or investigative (other
than action by or in the right of the corporation -- a "derivative action"), if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, by-laws,
disinterested director vote, stockholder vote, agreement, or otherwise.
Article II, Section 2.9 of the Company's By-laws requires indemnification
to the full extent authorized or permitted by the laws of the State of Delaware
of any person who is made, or threatened to be made, a party to an action, suit
or proceeding (whether civil, criminal, administrative or investigative) by
reason of the fact that he, his testator or intestate is or was a director,
officer, or employee of the Company or serves or served any other enterprise at
the request of the Company.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
payment of unlawful dividends or unlawful stock purchases or redemptions, or
(iv) any transaction from which the director derived an improper personal
benefit.
Article Ninth of the Company's Restated Certificate of Incorporation, as
amended, provides that a director will not be personally liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, which
concerns unlawful payment of dividends, stock purchases or redemptions or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Company maintains directors' and officers' liability insurance which
provides for payment, on behalf of the directors and officers of the Company and
its subsidiaries, of certain losses of such persons (other than matters
uninsurable under law) arising from claims, including claims arising under the
Securities Act, for acts or omissions by such persons while acting as directors
or officers of the Company and/or its subsidiaries, as the case may be.
The Company has entered into indemnification agreements with its directors
and certain of its officers.
Reference is made to Exhibits 1.1, 1.2, 1.3 and 10.1 hereto, respectively,
which contain provisions for indemnification of the Company, and its directors,
officers, and any controlling persons, against certain liabilities for
information furnished by the underwriters and/or agents, as applicable,
expressly for use in the Prospectus.
II-1
<PAGE> 223
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
*1.1 -- Purchase Agreement, dated June 29, 1998, among Tesoro
Petroleum Corporation, Lehman Brothers Inc., Bear,
Stearns & Co. Inc. and Salomon Smith Barney.
1.2 -- Underwriting Agreement regarding Premium Income Equity
Securities, dated June 25, 1998, among the Company,
Lehman Brothers and Howard, Weil, Labouisse, Friedrichs
Incorporated (incorporated by reference to Exhibit 1.1 to
the Company's Current Report on Form 8-K filed on July 1,
1998, File No. 1-3473).
1.3 -- Underwriting Agreement regarding Common Stock, dated June
25, 1998, among the Company, Lehman Brothers, CIBC
Oppenheimer, Credit Suisse First Boston, Merrill Lynch &
Co. and Salomon Smith Barney.
2.1 -- Agreement and Plan of Merger dated as of November 20,
1995, between the Company, Coastwide Energy Services,
Inc. and CNRG Acquisition Corp. (incorporated by
reference herein to Registration Statement No.
333-00229).
2.2 -- First Amendment to Agreement and Plan of Merger dated
effective February 19, 1996 between the Company,
Coastwide Energy Services, Inc. and CNRG Acquisition
Corp. (incorporated by reference herein to Exhibit 2(b)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, File No. 1-3473).
2.3 -- Stock Sale Agreement, dated March 18, 1998, among the
Company, BHP Hawaii Inc. and BHP Petroleum Pacific
Islands Inc. (incorporated by reference herein to Exhibit
2.1 to Registration Statement No. 333-51789).
2.4 -- Stock Sale Agreement, dated May 1, 1998, among Shell
Refining Holding Company, Shell Anacortes Refining
Company and the Company (incorporated by reference herein
to the Company's Form 10-Q for the period ended March 31,
1998).
3.1 -- Restated Certificate of Incorporation of the Company
(incorporated by reference herein to Exhibit 3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-3473.
3.2 -- By-Laws of the Company, as amended through June 6, 1996
(incorporated by reference herein to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, File No. 1-3473).
3.3 -- Amendment to Restated Certificate of Incorporation of the
Company adding a new Article IX limiting Directors'
Liability (incorporated by reference herein to Exhibit
3(b) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, File No. 1-3473).
3.4 -- Certificate of Designation Establishing a Series of $2.20
Cumulative Convertible Preferred Stock, dated as of
January 26, 1983 (incorporated by reference herein to
Exhibit 3(c) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, File No.
1-3473).
3.5 -- Certificate of Designation Establishing a Series A
Participating Preferred Stock, dated as of December 16,
1985 (incorporated by reference herein to Exhibit 3(d) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, File No. 1-3473).
3.6 -- Certificate of Amendment, dated as of February 9, 1994,
to Restated Certificate of Incorporation of the Company
amending Article IV, Article V, Article VII and Article
VIII (incorporated by reference herein to Exhibit 3(e) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, File No. 1-3473).
</TABLE>
II-2
<PAGE> 224
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
3.7 -- Certificate of Designation of 7.25% Mandatorily
Convertible Preferred Stock (incorporated by reference
herein to Exhibit 4.1 to the Company's Current Report on
Form 8-K filed on July 1, 1998, File No. 1-3473).
4.1 -- Form of Coastwide Energy Services Inc. 8% Convertible
Subordinated Debenture (incorporated by reference herein
to Exhibit 4.3 to Post-Effective Amendment No. 1 to
Registration No. 333-00229).
4.2 -- Debenture Assumption and Conversion Agreement dated as of
February 20, 1996, between the Company, Coastwide Energy
Services, Inc. and CNRG Acquisition Corp. (incorporated
by reference herein to Exhibit 4.4 to Post-Effective
Amendment No. 1 to Registration No. 333-00229).
4.3 -- Form of Cancellation/Substitution Agreement by and
between the Company, Coastwide Energy Services, Inc. and
Optionee (incorporated by reference herein to Exhibit 4.6
to Post-Effective Amendment No. 1 to Registration No.
333-00229).
*4.4 -- Indenture, dated as of July 2, 1998, between Tesoro
Petroleum Corporation and U.S. Bank Trust National
Association, as Trustee.
*4.5 -- Form of 9% Senior Subordinated Notes due 2008 and 9%
Senior Subordinated Notes due 2008, Series B (filed as
part of Exhibit 4.4 hereof).
*4.6 -- Third Amended and Restated Credit Agreement ("Credit
Agreement"), dated as of July 2, 1998, among Tesoro
Petroleum Corporation, the Lenders parties thereto,
Lehman Brothers Inc., as Arranger, Lehman Commercial
Paper Inc., as Syndication Agent, the First National Bank
of Chicago, as Co-Administrative Agent and as General
Administrative Agent, Paribas, as Co-Administrative Agent
and as Collateral Agent and The Bank of Nova Scotia, as
Documentation Agent.
*4.7 -- Consent and Confirmation, dated as of July 2, 1998, with
respect to the Credit Agreement, dated as of July 2,
1998.
4.8 -- Deposit Agreement among the Company, The Bank of New York
and the holders from time to time of depository receipts
executed and delivered thereunder (incorporated by
reference to Exhibit 4.2 to the Company's Current Report
on Form 8-K filed on July 1, 1998, File No. 1-3473).
4.9 -- Form of depository receipt evidencing ownership of
Premium Income Equity Securities (filed as a part of
Exhibit 4.8 hereof).
*5.1 -- Opinion of Fulbright & Jaworski L.L.P.
*10.1 -- Registration Rights Agreement, dated as of July 2, 1998,
among Tesoro Petroleum Corporation, Lehman Brothers Inc.,
Bear, Stearns & Co. Inc. and Salomon Smith Barney.
10.2 -- The Company's Amended Executive Security Plan, as amended
through November 13, 1989, and Funded Executive Security
Plan, as amended through February 28, 1990, for executive
officers and key personnel (incorporated by reference
herein to Exhibit 10(f) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1990,
File No. 1-3473).
10.3 -- Sixth Amendment to the Company's Amended Executive
Security Plan and Seventh Amendment to the Company's
Funded Executive Security Plan, both dated effective
March 6, 1991 (incorporated by reference herein to
Exhibit 10(g) to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1991, File No.
1-3473).
</TABLE>
II-3
<PAGE> 225
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.4 -- Seventh Amendment to the Company's Amended Executive
Security Plan and Eighth Amendment to the Company's
Funded Executive Security Plan, both dated effective
December 8, 1994 (incorporated by reference herein to
Exhibit 10(f) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, File No.
1-3473).
10.5 -- Amended and Restated Employment Agreement between the
Company and Bruce A. Smith dated November 1, 1997
(incorporated by reference herein to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 1-3473).
10.6 -- Amended and Restated Employment Agreement between the
Company and William T. Van Kleef dated as of December 12,
1996 (incorporated by reference herein to Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, File No. 1-3473).
10.7 -- Amended and Restated Employment Agreement between the
Company and James C. Reed, Jr. dated as of December 12,
1996 (incorporated by reference herein to Exhibit 10.5 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, File No. 1-3473).
10.8 -- Management Stability Agreement between the Company and
Donald A. Nyberg dated December 12, 1996 (incorporated by
reference herein to Exhibit 10.7 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1997, File No. 1-3473).
10.9 -- Management Stability Agreement between the Company and
Robert W. Oliver dated September 27, 1995 (incorporated
by reference herein to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, File No. 1-3473).
10.10 -- Management Stability Agreement between the Company and
Steve Wormington dated September 27, 1995 (incorporated
by reference herein to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, File No. 1-3473).
10.11 -- Management Stability Agreement between the Company and
Don E. Beere dated December 14, 1994 (incorporated by
reference herein to Exhibit 10(o) to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1994, File No. 1-3473).
10.12 -- Management Stability Agreement between the Company and
Thomas E. Reardon dated December 14, 1994 (incorporated
by reference herein to Exhibit 10(w) to Registration
Statement No. 333-00229).
10.13 -- Management Stability Agreement between the Company and
Gregory A. Wright dated February 23, 1995 (incorporated
by reference herein to Exhibit 10(p) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, File No. 1-3473).
10.14 -- The Company's Amended Incentive Stock Plan of 1982, as
amended through February 24, 1988 (incorporated by
reference herein to Exhibit 10(t) to the Company's Annual
Report on Form 10-K for the fiscal year ended September
30, 1988, File No. 1-3473).
10.15 -- Resolution approved by the Company's stockholders on
April 30, 1992 extending the term of the Company's
Amended Incentive Stock Plan of 1982 to February 24, 1994
(incorporated by reference herein to Exhibit 10(o) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, File No. 1-3473).
</TABLE>
II-4
<PAGE> 226
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.16 -- Copy of the Company's Amended and Restated Executive
Long-Term Incentive Plan, as amended through June 6, 1996
(incorporated by reference herein to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, File No. 1-3473).
10.17 -- Copy of the Company's Non-Employee Director Retirement
Plan dated December 8, 1994 (incorporated by reference
herein to Exhibit 10(t) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994,
File No. 1-3473).
10.18 -- Copy of the Company's Board of Directors Deferred
Compensation Plan dated February 23, 1995 (incorporated
by reference herein to Exhibit 10(u) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, File No. 1-3473).
10.19 -- Copy of the Company's Board of Directors Deferred
Compensation Trust dated February 23, 1995 (incorporated
by reference herein to Exhibit 10(v) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, File No. 1-3473).
10.20 -- Copy of the Company's Board of Directors Deferred Phantom
Stock Plan (incorporated by reference herein to Exhibit
10 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, File No. 1-3473).
10.21 -- Phantom Stock Option Agreement between the Company and
Bruce A. Smith dated effective October 29, 1997
(incorporated by reference herein to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 1-3473).
10.22 -- Agreement for the Sale and Purchase of State Royalty Oil
dated as of April 21, 1995 by and between Tesoro Alaska
Petroleum Company and the State of Alaska (incorporated
by reference herein to Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1995, File No. 1-3473).
10.23 -- Copy of Settlement Agreement dated effective January 19,
1993, between Tesoro Petroleum Corporation, Tesoro Alaska
Petroleum Company and the State of Alaska (incorporated
by reference herein to Exhibit 10(q) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-3473).
10.24 -- Form of Indemnification Agreement between the Company and
its officers and directors (incorporated by reference
herein to Exhibit B to the Company's Proxy Statement for
the Annual Meeting of Stockholders held on February 25,
1987, File No. 1-3473).
10.25 -- Settlement and Standstill Agreement, dated as of April 4,
1996, among Kevin S. Flannery, Alan Kaufman, Robert S.
Washburn, James H. Stone, George F. Baker, Douglas
Thompson, Gales E. Galloway, Whelan Management Corp.,
Ardsley Advisory Partners and Tesoro Petroleum
Corporation (incorporated by reference herein to Exhibit
99 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, File No. 1-3473).
10.26 -- Settlement Agreement and Release, entered into and
effective as of October 1, 1996, by and between Tesoro
E&P Company, L.P., acting through its General Partner,
Tesoro Exploration and Production Company, Coastal Oil &
Gas Corporation and Coastal Oil & Gas USA, L.P., and
Tennessee Gas Pipeline Company (incorporated by reference
herein to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996,
File No. 1-3473).
</TABLE>
II-5
<PAGE> 227
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.27 -- Termination Agreement, entered into and effective as of
October 1, 1996, by and between Tesoro E&P Company, L.P.,
acting through its General Partner, Tesoro Exploration
and Production Company, Coastal Oil & Gas Corporation and
Coastal Oil & Gas USA, L.P., and Tennessee Gas Pipeline
Company (incorporated by reference herein to Exhibit
10.21 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, File No. 1-3473).
*12.1 -- Statement re Computation of Ratios of Earnings to Fixed
Charges.
*21 -- Subsidiaries of the Company.
*23.1 -- Consent of Deloitte & Touche LLP.
*23.2 -- Consent of PricewaterhouseCoopers LLP.
*23.3 -- Consent of Arthur Andersen LLP.
*23.4 -- Consent of Netherland, Sewell & Associates, Inc.
*23.5 -- Consents of Fulbright & Jaworski L.L.P. (included in
their opinion filed as Exhibit 5.1).
*24.1 -- Powers of Attorney of certain officers and directors of
Tesoro Petroleum Corporation and other Registrants
(included on the signature page).
*25.1 -- Form T-1, Statement of Eligibility under the Trust
Indenture Act of 1939 of U.S. Bank Trust National
Association.
*99.1 -- Form of Letter of Transmittal and Consent.
*99.2 -- Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* Filed herewith.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
II-6
<PAGE> 228
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE> 229
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
set forth below has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Antonio, State of Texas, on July 24, 1998.
TESORO PETROLEUM CORPORATION
By: /s/ JAMES C. REED, JR.
----------------------------------
James C. Reed, Jr.
Executive Vice President,
General Counsel and Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James C. Reed, Jr. and Bruce A. Smith and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign, execute and file this registration statement under
the Securities Act and any and all amendments (including, without limitation,
post-effective amendments and any amendment or amendments or additional
registration statement filed pursuant to Rule 462 under the Securities Act
increasing the amount of securities for which registration is being sought) to
this registration statement, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and
Exchange Commission, to sign any and all applications, registration statements,
notices or other documents necessary or advisable to comply with the applicable
state security laws, and to file the same, together with other documents in
connection therewith, with the appropriate state securities authorities,
granting unto said attorney-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intends and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BRUCE A. SMITH Chairman of the Board of July 24, 1998
- ----------------------------------------------------- Directors, President and Chief
(Bruce A. Smith) Executive Officer and Director
(Principal Executive Officer)
/s/ GREGORY A. WRIGHT Vice President, Finance and July 24, 1998
- ----------------------------------------------------- Treasurer (Principal Financial
(Gregory A. Wright) Officer)
/s/ DON M. HEEP Vice President, Controller July 24, 1998
- ----------------------------------------------------- (Principal Accounting Officer)
(Don M. Heep)
/s/ STEVEN H. GRAPSTEIN Vice Chairman of the Board of July 24, 1998
- ----------------------------------------------------- Directors and Director
(Steven H. Grapstein)
/s/ WILLIAM J. JOHNSON Director July 24, 1998
- -----------------------------------------------------
(William J. Johnson)
Director
- -----------------------------------------------------
(Alan J. Kaufman)
</TABLE>
II-8
<PAGE> 230
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RAYMOND K. MASON, SR. Director July 24, 1998
- -----------------------------------------------------
(Raymond K. Mason, Sr.)
/s/ PATRICK J. WARD Director July 24, 1998
- -----------------------------------------------------
(Patrick J. Ward)
/s/ MURRAY L. WEIDENBAUM Director July 24, 1998
- -----------------------------------------------------
(Murray L. Weidenbaum)
</TABLE>
II-9
<PAGE> 231
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
set forth below have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the City of San
Antonio, State of Texas, on July 24, 1998.
DIGICOMP, INC.
INTERIOR FUELS COMPANY
KENAI PIPE LINE COMPANY
TESORO ALASKA PETROLEUM COMPANY
TESORO ALASKA PIPELINE COMPANY
TESORO BOLIVIA PETROLEUM COMPANY
TESORO EXPLORATION AND
PRODUCTION COMPANY
TESORO HAWAII CORPORATION
TESORO LATIN AMERICA COMPANY
TESORO MARINE SERVICES HOLDING
COMPANY
TESORO MARINE SERVICES, INC.
TESORO NATURAL GAS COMPANY
TESORO NORTHSTORE COMPANY
TESORO PETROLEUM COMPANIES, INC.
TESORO REFINING, MARKETING &
SUPPLY COMPANY
TESORO SOUTH PACIFIC PETROLEUM
COMPANY
TESORO VOSTOK COMPANY
By: /s/ JAMES C. REED, JR.
----------------------------------
James C. Reed, Jr.
Executive Vice President
TESORO E&P COMPANY, L.P.
By: Tesoro Exploration and
Production Company
as General Partner
By: /s/ JAMES C. REED, JR.
----------------------------------
James C. Reed, Jr.
Executive Vice President
TESORO PIPELINE COMPANY, L.P.
By: Tesoro Natural Gas Company
as General Partner
By: /s/ JAMES C. REED, JR.
----------------------------------
James C. Reed, Jr.
Executive Vice President
II-10
<PAGE> 232
TESORO FINANCIAL SERVICES
HOLDING COMPANY
TESORO GAS RESOURCES COMPANY,
INC.
By: /s/ JEFFERY B. FABIAN
----------------------------------
Jeffery B. Fabian
President
VICTORY FINANCE COMPANY
By: /s/ JEFFERY B. FABIAN
----------------------------------
Jeffery B. Fabian
Secretary
II-11
<PAGE> 233
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James C. Reed, Jr. and Bruce A. Smith and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign, execute and file this registration statement under
the Securities Act and any and all amendments (including, without limitation,
post-effective amendments and any amendment or amendments or additional
registration statement filed pursuant to Rule 462 under the Securities Act
increasing the amount of securities for which registration is being sought) to
this registration statement, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and
Exchange Commission, to sign any and all applications, registration statements,
notices or other documents necessary or advisable to comply with the applicable
state security laws, and to file the same, together with other documents in
connection therewith, with the appropriate state securities authorities,
granting unto said attorney-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intends and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates as indicated.
DIGICOMP, INC.
INTERIOR FUELS COMPANY
KENAI PIPE LINE COMPANY
TESORO ALASKA PETROLEUM COMPANY
TESORO ALASKA PIPELINE COMPANY
TESORO BOLIVIA PETROLEUM COMPANY
TESORO EXPLORATION AND PRODUCTION COMPANY
TESORO LATIN AMERICA COMPANY
TESORO NATURAL GAS COMPANY
TESORO NORTHSTORE COMPANY
TESORO PETROLEUM COMPANIES, INC.
TESORO REFINING, MARKETING & SUPPLY COMPANY
TESORO SOUTH PACIFIC PETROLEUM COMPANY
TESORO VOSTOK COMPANY
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES C. REED, JR. Director July 24, 1998
- -----------------------------------------------------
(James C. Reed, Jr.)
/s/ BRUCE A. SMITH Director July 24, 1998
- -----------------------------------------------------
(Bruce A. Smith)
/s/ WILLIAM T. VAN KLEEF Director July 24, 1998
- -----------------------------------------------------
(William T. Van Kleef)
</TABLE>
II-12
<PAGE> 234
TESORO MARINE SERVICES HOLDING COMPANY
TESORO MARINE SERVICES, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES C. REED, JR. Director July 24, 1998
- -----------------------------------------------------
(James C. Reed, Jr.)
/s/ BRUCE A. SMITH Director July 24, 1998
- -----------------------------------------------------
(Bruce A. Smith)
Director
- -----------------------------------------------------
(Donald A. Nyberg)
/s/ WILLIAM T. VAN KLEEF Director July 24, 1998
- -----------------------------------------------------
(William T. Van Kleef)
</TABLE>
TESORO E&P COMPANY, L.P.
By: Tesoro Exploration and Production Company
as General Partner
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES C. REED, JR. Director July 24, 1998
- -----------------------------------------------------
(James C. Reed, Jr.)
/s/ BRUCE A. SMITH Director July 24, 1998
- -----------------------------------------------------
(Bruce A. Smith)
/s/ WILLIAM T. VAN KLEEF Director July 24, 1998
- -----------------------------------------------------
(William T. Van Kleef)
</TABLE>
TESORO PIPELINE COMPANY, L.P.
By: Tesoro Natural Gas Company
as General Partner
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES C. REED, JR. Director July 24, 1998
- -----------------------------------------------------
(James C. Reed, Jr.)
/s/ BRUCE A. SMITH Director July 24, 1998
- -----------------------------------------------------
(Bruce A. Smith)
/s/ WILLIAM T. VAN KLEEF Director July 24, 1998
- -----------------------------------------------------
(William T. Van Kleef)
</TABLE>
II-13
<PAGE> 235
TESORO HAWAII CORPORATION
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES C. REED, JR. Director July 24, 1998
- -----------------------------------------------------
(James C. Reed, Jr.)
/s/ BRUCE A. SMITH Director July 24, 1998
- -----------------------------------------------------
(Bruce A. Smith)
/s/ WILLIAM T. VAN KLEEF Director July 24, 1998
- -----------------------------------------------------
(William T. Van Kleef)
/s/ FAYE W. KURREN Director July 24, 1998
- -----------------------------------------------------
(Faye W. Kurren)
</TABLE>
VICTORY FINANCE COMPANY
TESORO FINANCIAL SERVICES
HOLDING COMPANY
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JEFFERY B. FABIAN Director July 24, 1998
- -----------------------------------------------------
(Jeffery B. Fabian)
/s/ KAREN B. THOMAS Director July 24, 1998
- -----------------------------------------------------
(Karen B. Thomas)
</TABLE>
TESORO GAS RESOURCES COMPANY, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ EDWARD J. JONES Director July 24, 1998
- -----------------------------------------------------
(Edward J. Jones)
/s/ DARRYL E. SMITH Director July 24, 1998
- -----------------------------------------------------
(Darryl E. Smith)
</TABLE>
II-14
<PAGE> 236
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
*1.1 -- Purchase Agreement, dated June 29, 1998, among Tesoro
Petroleum Corporation, Lehman Brothers Inc., Bear,
Stearns & Co. Inc. and Salomon Smith Barney.
1.2 -- Underwriting Agreement regarding Premium Income Equity
Securities, dated June 25, 1998, among the Company,
Lehman Brothers and Howard, Weil, Labouisse, Friedrichs
Incorporated (incorporated by reference to Exhibit 1.1 to
the Company's Current Report on Form 8-K filed on July 1,
1998, File No. 1-3473).
1.3 -- Underwriting Agreement regarding Common Stock, dated June
25, 1998, among the Company, Lehman Brothers, CIBC
Oppenheimer, Credit Suisse First Boston, Merrill Lynch &
Co. and Salomon Smith Barney.
2.1 -- Agreement and Plan of Merger dated as of November 20,
1995, between the Company, Coastwide Energy Services,
Inc. and CNRG Acquisition Corp. (incorporated by
reference herein to Registration Statement No.
333-00229).
2.2 -- First Amendment to Agreement and Plan of Merger dated
effective February 19, 1996 between the Company,
Coastwide Energy Services, Inc. and CNRG Acquisition
Corp. (incorporated by reference herein to Exhibit 2(b)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, File No. 1-3473).
2.3 -- Stock Sale Agreement, dated March 18, 1998, among the
Company, BHP Hawaii Inc. and BHP Petroleum Pacific
Islands Inc. (incorporated by reference herein to Exhibit
2.1 to Registration Statement No. 333-51789).
2.4 -- Stock Sale Agreement, dated May 1, 1998, among Shell
Refining Holding Company, Shell Anacortes Refining
Company and the Company (incorporated by reference herein
to the Company's Form 10-Q for the period ended March 31,
1998).
3.1 -- Restated Certificate of Incorporation of the Company
(incorporated by reference herein to Exhibit 3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-3473.
3.2 -- By-Laws of the Company, as amended through June 6, 1996
(incorporated by reference herein to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, File No. 1-3473).
3.3 -- Amendment to Restated Certificate of Incorporation of the
Company adding a new Article IX limiting Directors'
Liability (incorporated by reference herein to Exhibit
3(b) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, File No. 1-3473).
3.4 -- Certificate of Designation Establishing a Series of $2.20
Cumulative Convertible Preferred Stock, dated as of
January 26, 1983 (incorporated by reference herein to
Exhibit 3(c) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, File No.
1-3473).
3.5 -- Certificate of Designation Establishing a Series A
Participating Preferred Stock, dated as of December 16,
1985 (incorporated by reference herein to Exhibit 3(d) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, File No. 1-3473).
3.6 -- Certificate of Amendment, dated as of February 9, 1994,
to Restated Certificate of Incorporation of the Company
amending Article IV, Article V, Article VII and Article
VIII (incorporated by reference herein to Exhibit 3(e) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, File No. 1-3473).
</TABLE>
<PAGE> 237
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
3.7 -- Certificate of Designation of 7.25% Mandatorily
Convertible Preferred Stock (incorporated by reference
herein to Exhibit 4.1 to the Company's Current Report on
Form 8-K filed on July 1, 1998, File No. 1-3473).
4.1 -- Form of Coastwide Energy Services Inc. 8% Convertible
Subordinated Debenture (incorporated by reference herein
to Exhibit 4.3 to Post-Effective Amendment No. 1 to
Registration No. 333-00229).
4.2 -- Debenture Assumption and Conversion Agreement dated as of
February 20, 1996, between the Company, Coastwide Energy
Services, Inc. and CNRG Acquisition Corp. (incorporated
by reference herein to Exhibit 4.4 to Post-Effective
Amendment No. 1 to Registration No. 333-00229).
4.3 -- Form of Cancellation/Substitution Agreement by and
between the Company, Coastwide Energy Services, Inc. and
Optionee (incorporated by reference herein to Exhibit 4.6
to Post-Effective Amendment No. 1 to Registration No.
333-00229).
*4.4 -- Indenture, dated as of July 2, 1998, between Tesoro
Petroleum Corporation and U.S. Bank Trust National
Association, as Trustee.
*4.5 -- Form of 9% Senior Subordinated Notes due 2008 and 9%
Senior Subordinated Notes due 2008, Series B (filed as
part of Exhibit 4.4 hereof).
*4.6 -- Third Amended and Restated Credit Agreement ("Credit
Agreement"), dated as of July 2, 1998, among Tesoro
Petroleum Corporation, the Lenders parties thereto,
Lehman Brothers Inc., as Arranger, Lehman Commercial
Paper Inc., as Syndication Agent, the First National Bank
of Chicago, as Co-Administrative Agent and as General
Administrative Agent, Paribas, as Co-Administrative Agent
and as Collateral Agent and The Bank of Nova Scotia, as
Documentation Agent.
*4.7 -- Consent and Confirmation, dated as of July 2, 1998, with
respect to the Credit Agreement, dated as of July 2,
1998.
4.8 -- Deposit Agreement among the Company, The Bank of New York
and the holders from time to time of depository receipts
executed and delivered thereunder (incorporated by
reference to Exhibit 4.2 to the Company's Current Report
on Form 8-K filed on July 1, 1998, File No. 1-3473).
4.9 -- Form of depository receipt evidencing ownership of
Premium Income Equity Securities (filed as a part of
Exhibit 4.8 hereof).
*5.1 -- Opinion of Fulbright & Jaworski L.L.P.
*10.1 -- Registration Rights Agreement, dated as of July 2, 1998,
among Tesoro Petroleum Corporation, Lehman Brothers Inc.,
Bear, Stearns & Co. Inc. and Salomon Smith Barney.
10.2 -- The Company's Amended Executive Security Plan, as amended
through November 13, 1989, and Funded Executive Security
Plan, as amended through February 28, 1990, for executive
officers and key personnel (incorporated by reference
herein to Exhibit 10(f) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1990,
File No. 1-3473).
10.3 -- Sixth Amendment to the Company's Amended Executive
Security Plan and Seventh Amendment to the Company's
Funded Executive Security Plan, both dated effective
March 6, 1991 (incorporated by reference herein to
Exhibit 10(g) to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1991, File No.
1-3473).
10.4 -- Seventh Amendment to the Company's Amended Executive
Security Plan and Eighth Amendment to the Company's
Funded Executive Security Plan, both dated effective
December 8, 1994 (incorporated by reference herein to
Exhibit 10(f) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, File No.
1-3473).
</TABLE>
<PAGE> 238
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.5 -- Amended and Restated Employment Agreement between the
Company and Bruce A. Smith dated November 1, 1997
(incorporated by reference herein to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 1-3473).
10.6 -- Amended and Restated Employment Agreement between the
Company and William T. Van Kleef dated as of December 12,
1996 (incorporated by reference herein to Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, File No. 1-3473).
10.7 -- Amended and Restated Employment Agreement between the
Company and James C. Reed, Jr. dated as of December 12,
1996 (incorporated by reference herein to Exhibit 10.5 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, File No. 1-3473).
10.8 -- Management Stability Agreement between the Company and
Donald A. Nyberg dated December 12, 1996 (incorporated by
reference herein to Exhibit 10.7 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1997, File No. 1-3473).
10.9 -- Management Stability Agreement between the Company and
Robert W. Oliver dated September 27, 1995 (incorporated
by reference herein to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, File No. 1-3473).
10.10 -- Management Stability Agreement between the Company and
Steve Wormington dated September 27, 1995 (incorporated
by reference herein to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, File No. 1-3473).
10.11 -- Management Stability Agreement between the Company and
Don E. Beere dated December 14, 1994 (incorporated by
reference herein to Exhibit 10(o) to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1994, File No. 1-3473).
10.12 -- Management Stability Agreement between the Company and
Thomas E. Reardon dated December 14, 1994 (incorporated
by reference herein to Exhibit 10(w) to Registration
Statement No. 333-00229).
10.13 -- Management Stability Agreement between the Company and
Gregory A. Wright dated February 23, 1995 (incorporated
by reference herein to Exhibit 10(p) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, File No. 1-3473).
10.14 -- The Company's Amended Incentive Stock Plan of 1982, as
amended through February 24, 1988 (incorporated by
reference herein to Exhibit 10(t) to the Company's Annual
Report on Form 10-K for the fiscal year ended September
30, 1988, File No. 1-3473).
10.15 -- Resolution approved by the Company's stockholders on
April 30, 1992 extending the term of the Company's
Amended Incentive Stock Plan of 1982 to February 24, 1994
(incorporated by reference herein to Exhibit 10(o) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, File No. 1-3473).
10.16 -- Copy of the Company's Amended and Restated Executive
Long-Term Incentive Plan, as amended through June 6, 1996
(incorporated by reference herein to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, File No. 1-3473).
</TABLE>
<PAGE> 239
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
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<C> <S>
10.17 -- Copy of the Company's Non-Employee Director Retirement
Plan dated December 8, 1994 (incorporated by reference
herein to Exhibit 10(t) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994,
File No. 1-3473).
10.18 -- Copy of the Company's Board of Directors Deferred
Compensation Plan dated February 23, 1995 (incorporated
by reference herein to Exhibit 10(u) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, File No. 1-3473).
10.19 -- Copy of the Company's Board of Directors Deferred
Compensation Trust dated February 23, 1995 (incorporated
by reference herein to Exhibit 10(v) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, File No. 1-3473).
10.20 -- Copy of the Company's Board of Directors Deferred Phantom
Stock Plan (incorporated by reference herein to Exhibit
10 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, File No. 1-3473).
10.21 -- Phantom Stock Option Agreement between the Company and
Bruce A. Smith dated effective October 29, 1997
(incorporated by reference herein to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 1-3473).
10.22 -- Agreement for the Sale and Purchase of State Royalty Oil
dated as of April 21, 1995 by and between Tesoro Alaska
Petroleum Company and the State of Alaska (incorporated
by reference herein to Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1995, File No. 1-3473).
10.23 -- Copy of Settlement Agreement dated effective January 19,
1993, between Tesoro Petroleum Corporation, Tesoro Alaska
Petroleum Company and the State of Alaska (incorporated
by reference herein to Exhibit 10(q) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-3473).
10.24 -- Form of Indemnification Agreement between the Company and
its officers and directors (incorporated by reference
herein to Exhibit B to the Company's Proxy Statement for
the Annual Meeting of Stockholders held on February 25,
1987, File No. 1-3473).
10.25 -- Settlement and Standstill Agreement, dated as of April 4,
1996, among Kevin S. Flannery, Alan Kaufman, Robert S.
Washburn, James H. Stone, George F. Baker, Douglas
Thompson, Gales E. Galloway, Whelan Management Corp.,
Ardsley Advisory Partners and Tesoro Petroleum
Corporation (incorporated by reference herein to Exhibit
99 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, File No. 1-3473).
10.26 -- Settlement Agreement and Release, entered into and
effective as of October 1, 1996, by and between Tesoro
E&P Company, L.P., acting through its General Partner,
Tesoro Exploration and Production Company, Coastal Oil &
Gas Corporation and Coastal Oil & Gas USA, L.P., and
Tennessee Gas Pipeline Company (incorporated by reference
herein to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996,
File No. 1-3473).
10.27 -- Termination Agreement, entered into and effective as of
October 1, 1996, by and between Tesoro E&P Company, L.P.,
acting through its General Partner, Tesoro Exploration
and Production Company, Coastal Oil & Gas Corporation and
Coastal Oil & Gas USA, L.P., and Tennessee Gas Pipeline
Company (incorporated by reference herein to Exhibit
10.21 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, File No. 1-3473).
</TABLE>
<PAGE> 240
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
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<C> <S>
*12.1 -- Statement re Computation of Ratios of Earnings to Fixed
Charges.
*21 -- Subsidiaries of the Company.
*23.1 -- Consent of Deloitte & Touche LLP.
*23.2 -- Consent of PricewaterhouseCoopers LLP.
*23.3 -- Consent of Arthur Andersen LLP.
*23.4 -- Consent of Netherland, Sewell & Associates, Inc.
*23.5 -- Consents of Fulbright & Jaworski L.L.P. (included in
their opinion filed as Exhibit 5.1).
*24.1 -- Powers of Attorney of certain officers and directors of
Tesoro Petroleum Corporation and other Registrants
(included on the signature page).
*25.1 -- Form T-1, Statement of Eligibility under the Trust
Indenture Act of 1939 of U.S. Bank Trust National
Association.
*99.1 -- Form of Letter of Transmittal and Consent.
*99.2 -- Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
$300,000,000
TESORO PETROLEUM CORPORATION
9% SENIOR SUBORDINATED NOTES DUE 2008
PURCHASE AGREEMENT
June 29, 1998
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO. INC.
SALOMON SMITH BARNEY
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
Tesoro Petroleum Corporation, a Delaware corporation (the "Company"),
proposes to sell to you (the "Initial Purchasers") $300,000,000 aggregate
principal amount of 9% Senior Subordinated Notes due 2008 (the "Notes"). The
Initial Purchasers, acting severally and not jointly, propose to purchase the
respective principal amounts of Notes set forth on Schedule A hereto. The Notes
will be issued pursuant to an Indenture to be dated as of July 2, 1998 (the
"Indenture"), between the Company and U.S. Bank Trust, National Association, as
trustee (the "Trustee"). This is to confirm the agreement concerning the
purchase of the Notes from the Company by the Initial Purchasers.
As used herein, the term "Subsidiary" shall include each entity listed
on Schedule III hereto. The Notes will be guaranteed (the "Subsidiary
Guarantees") by each of the entities listed on Schedule II hereto (each as
"Guarantor" and collectively the "Guarantors").
The Notes are being issued and sold (the "Notes Offering") in
connection with the acquisition (the "Hawaii Acquisition") of BHP Petroleum
Americas Refining Inc. and BHP Petroleum South Pacific Inc. (together, "BHP
Hawaii") and the acquisition (the "Washington Acquisition," and together with
the Hawaii Acquisition, the "Acquisitions") of Shell Anacortes Refining Company
("Shell Washington") by the Company. The Company is also offering 9,000,000
Premium Income Equity SecuritiesSM (the "PIESSM") representing interests in the
Company's 7 1/4% Mandatorily Convertible Preferred Stock (the "Mandatorily
Convertible Preferred Stock"), with gross proceeds of $143.4 million, and
5,000,000 shares of the Company's Common Stock par value $0.162/3 per share (the
"Common Stock"), with gross proceeds of $79.7 million (excluding any proceeds
from the exercise of over-allotment options granted to the underwriters of the
PIES and the Common Stock). The closing of the Notes Offering is conditioned
upon the closings of the offerings of PIES
<PAGE> 2
(the "PIES Offering") and Common Stock (the "Common Stock Offering" and together
with the Notes Offering and PIES Offering, the "Offerings"), but none of the
Offerings are conditioned upon the closing of the Washington Acquisition. The
net proceeds from the Offerings, together with borrowing under the Company's
Third Amended and Restated Credit Facility (the "Senior Credit Facility") will
be used to fund the cash purchase price of the Washington Acquisition, to
refinance the Company's Second Amended and Restated Credit Facility (the
"Interim Credit Facility") (a portion of which was used to finance the cash
purchase price of the Hawaii Acquisition), to pay certain fees and expenses
related to the Transactions (as defined below) and, to the extent not used, for
general corporate purposes (including working capital requirements and capital
expenditures).
Under the terms of the stock purchase agreement relating to the
Washington Acquisition (the "Washington Agreement"), the Company will enter into
an escrow agreement (the "Escrow Agreement") to deposit into escrow the balance
of purchase price owed by the Company with respect to the Washington
Acquisition.
The Senior Subordinated Notes will be offered and sold to the Initial
Purchasers without being registered under the Securities Act of 1933, as amended
(the "Securities Act"), in reliance on one or more exemptions therefrom. The
Company and the Guarantors have prepared a preliminary offering memorandum,
dated June 5, 1998 (the "Preliminary Offering Memorandum"), and will prepare a
final offering memorandum (the "Offering Memorandum"), relating to the Notes and
the Subsidiary Guarantees. Any references herein to the Preliminary Offering
Memorandum and the Offering Memorandum shall be deemed to include all documents
incorporated therein by reference. Copies of the Preliminary Offering Memorandum
have been, and copies of the Offering Memorandum will be, delivered by the
Company to the Initial Purchasers pursuant to the terms of this Agreement. The
Company hereby confirms that it has authorized the use of the Preliminary
Offering Memorandum and the Offering Memorandum in connection with the offering
and resale of the Notes by the Initial Purchasers in accordance with Section 3
hereof.
On the Closing Date (as defined herein), and as a condition to the
obligations of the Initial Purchasers hereunder, the Company and each of the
Initial Purchasers will enter into a Registration Rights Agreement (the
"Registration Rights Agreement"), substantially in the form attached hereto as
Exhibit A. Pursuant to the Registration Rights Agreement, the Company and the
Guarantors will agree, among other things, to file with, and cause to be
declared effective by, the Securities and Exchange Commission (the "Commission")
a registration statement with respect to a registered exchange offer under the
Securities Act, relating to the offer to exchange the Notes for like respective
principal amount of debt securities of the Company (the "Exchange Notes")
identical in all material respects to the Notes (the "Exchange Offer").
This Agreement, the Indenture, the Notes, the Subsidiary Guarantees and
the Registration Rights Agreement are hereinafter sometimes referred to
collectively as the "Operative Documents." The Washington Agreement, the Escrow
Agreement and the Senior Credit Facility are hereinafter sometimes referred to
collectively as the "Transaction Documents." The Offerings, the Acquisitions
2
<PAGE> 3
and the closing of the Senior Credit Facility are hereinafter sometimes referred
to collectively as the "Transactions."
SECTION 1. Representations, Warranties and Agreements of the Company and
the Guarantors.
The Company and each of the Guarantors represents and warrants to, and
agrees with, the Initial Purchasers that as of the date hereof:
(a) The Preliminary Offering Memorandum, as of its date, and
the Offering Memorandum as of the date hereof does not, and at the Closing Date
will not, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties set forth
in this Section l(a) do not apply to statements or omissions in the Preliminary
Offering Memorandum or the Offering Memorandum made in reliance on and in
conformity with information furnished to the Company in writing by or on behalf
of the Initial Purchasers expressly for use therein.
(b) Assuming the Notes are issued, sold and delivered under
the circumstances contemplated by the Offering Memorandum and in this Agreement,
(i) the registration under the Securities Act of the Notes or the Subsidiary
Guarantees or the qualification of the Indenture in respect of the Notes under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), is not
required in connection with the offer and sale of the Notes to the Initial
Purchasers in the manner contemplated by the Offering Memorandum or this
Agreement and (ii) the initial resales of the Notes by the Initial Purchasers on
the terms and in the manner set forth in the Offering Memorandum and Section 3
hereof are exempt from the registration requirements of the Securities Act.
(c) The documents incorporated by reference in the Preliminary
Offering Memorandum and the Offering Memorandum when they became effective or
were filed with the Commission, conformed in all material respects to the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, and none of
such documents, when read together with the other information in the Offering
Memorandum, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and any further documents so filed and incorporated by
reference in the Offering Memorandum when such documents became effective or are
filed with the Commission, as the case may be, will conform in all material
respects to requirements of the Exchange Act and the rules and regulations of
the Commission thereunder, and none of such documents, when read together with
the other information in the Offering Memorandum, will contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3
<PAGE> 4
(d) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Offering Memorandum, and is duly
qualified and registered as a foreign corporation for the transaction of
business and is in good standing in each jurisdiction in which the character of
the business conducted by it or the location of the properties owned or leased
by it make such qualification or registration necessary (except where the
failure to so qualify or register would not have a Material Adverse Effect (as
defined below)). The Company has an authorized capitalization as set forth under
the caption "Capitalization" in the Offering Memorandum. On the date hereof and
on the Closing Date all of the issued and outstanding shares of capital stock of
the Company (including the shares of common stock to be issued in the Common
Stock Offering and upon conversion of the Company's 7 1/4% Mandatorily
Convertible Preferred Stock) have been duly authorized and will be validly
issued and fully paid and nonassessable and will conform to the description
thereof contained in or incorporated by reference in the Offering Memorandum. As
used herein, "Material Adverse Effect" means a material adverse effect on the
condition (financial or otherwise), results of operations, business, earnings or
prospects of the Company and the Subsidiaries (as defined below), taken as a
whole.
(e) Schedule III hereto is a complete and accurate schedule of
the names of all corporations, partnerships and joint ventures (the
"Subsidiaries") which constitute "subsidiaries," as such term is defined in Rule
405 of the rules and regulations of the Commission under the Securities Act
(collectively with the rules and regulations of the Commission under the
Exchange Act, the "Rules and Regulations"). Other than the Subsidiaries listed
on Schedule III, no corporation, partnership or other entity in which the
Company has an equity interest constitutes a "subsidiary" as defined in Rule 405
of the Rules and Regulations. Each Guarantor and each Subsidiary is duly
organized, validly existing and in good standing in the jurisdiction of its
incorporation or formation, as the case may be, with full corporate or other
power and authority to own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum. Each Subsidiary is duly
qualified and registered as a foreign corporation or limited partnership, as the
case may be, for the transaction of business and is in good standing in each
jurisdiction in which the character of the business conducted by it or the
location of the properties owned or leased by it make such qualification or
registration unnecessary, save where the failure to so qualify or be in good
standing as a foreign corporation or limited partnership, as the case may be,
would not have a Material Adverse Effect.
(f) All of the issued and outstanding shares of capital stock
of each of the Guarantors and each of the Subsidiaries that is a corporation
have been duly authorized and validly issued, are fully paid and nonassessable,
and are owned by the Company directly or indirectly, free and clear of any lien,
adverse claim, security interest or other encumbrance (a "Lien"), except as
arising from the Interim Credit Facility and, as of the Closing Date, the Senior
Credit Facility or as described in the Offering Memorandum. All outstanding
equity interests in each Guarantor and each Subsidiary that is not a corporation
have been duly authorized and validly issued and are owned by the Company
directly or indirectly, free and clear of any Lien, except as arising from the
Interim Credit Facility and, as of the Closing Date, Senior Credit Facility or
as described in the Offering
4
<PAGE> 5
Memorandum. Except as disclosed in the Offering Memorandum and as outstanding
under employee benefit plans of the Company, there are no outstanding
subscriptions, rights (preemptive or other), warrants, calls, commitments of
sale or options to acquire, or instruments convertible into or exchangeable for,
nor any restriction on the voting or transfer of, any capital stock or other
equity interest of the Company, any Guarantor or any Subsidiary.
(g) The Company and the Guarantors have all requisite power
and authority to execute, deliver and perform their respective obligations under
this Agreement, each of the other Operative Documents and each of the
Transaction Documents to which they may be a party and to consummate the
transactions contemplated hereby and thereby, including, without limitation, the
power and authority to issue, sell and deliver the Notes and the Subsidiary
Guarantees as provided herein and therein and to consummate the Transactions.
(h) This Agreement has been duly and validly authorized,
executed and delivered by the Company and each of the Guarantors and constitutes
a valid and binding agreement of the Company and each of the Guarantors,
enforceable against the Company and each of the Guarantors in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and subject to the applicability of general
principles of equity, and except as rights to indemnity and contribution
hereunder and thereunder may be limited by Federal or state securities laws or
principles of public policy.
(i) The Indenture has been duly authorized by the Company and
each of the Guarantors and, on the Closing Date, will have been validly executed
and delivered by the Company and each of the Guarantors. When the Indenture has
been validly executed and delivered by the Company and each of the Guarantors,
assuming due authorization, delivery and performance by the Trustee, the
Indenture will constitute a valid and binding agreement of the Company and each
of the Guarantors, enforceable against the Company and each of the Guarantors in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and general equity principles. On the
Closing Date, the Indenture will conform in all material respects to the
requirements of the Trust Indenture Act, and the rules and regulations of the
Commission applicable to an indenture which is qualified thereunder. The
Offering Memorandum contains an accurate summary, in all material respects, of
the terms of the Indenture.
(j) The Notes have been duly authorized for issuance and sale
to the Initial Purchasers by the Company pursuant to this Agreement and, on the
Closing Date, will have been validly executed and delivered by the Company. When
the Notes have been issued, executed and authenticated in accordance with the
terms of the Indenture and delivered against payment therefor in accordance with
the terms hereof and thereof, the Notes will constitute valid and binding
obligations of the Company, enforceable against it in accordance with their
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and general equity principles, and entitled to the benefits
5
<PAGE> 6
of the Indenture. The Offering Memorandum contains an accurate summary, in all
material respects, of the terms of the Notes.
(k) The Subsidiary Guarantees to be endorsed on the Notes and
the Exchange Notes by each Guarantor have been duly authorized by each Guarantor
and, on the Closing Date, will have been validly executed and delivered by each
such Guarantor. When the Notes have been issued, executed and authenticated in
accordance with the Indenture and delivered against payment therefor in
accordance with the terms hereof and thereof, the Subsidiary Guarantees of each
Guarantor endorsed thereon will constitute valid and binding obligations of such
Guarantor, enforceable against such Guarantor in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and general equity principles, and entitled to the benefits of
the Indenture. The Offering Memorandum contains an accurate summary, in all
material respects, of the terms of the Subsidiary Guarantees to be endorsed on
the Notes and the Exchange Notes.
(l) The Registration Rights Agreement has been duly authorized
by the Company and each of the Guarantors and, on the Closing Date, will have
been validly executed and delivered by the Company and each of the Guarantors.
When the Registration Rights Agreement has been duly executed and delivered by
the Company and each of the Guarantors, the Registration Rights Agreement will
constitute a valid and binding agreement of the Company and each of the
Guarantors, enforceable against the Company and each Guarantor in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and general equity principles and except as rights
to indemnity and contribution may be limited by Federal or state securities laws
or principles of public policy. The Offering Memorandum contains an accurate
summary, in all material respects, of the terms of the Registration Rights
Agreement.
(m) The Washington Agreement and the Escrow Agreement have
been duly authorized by the Company, and the Washington Agreement has been, and
on the Closing Date the Escrow Agreement will have been, validly executed and
delivered by the Company. The Washington Agreement constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and general equity principles. When the Escrow
Agreement has been duly executed and delivered by the Company, the Escrow
Agreement will constitute a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and
general equity principles.
(n) The Senior Credit Facility has been duly authorized by the
Company and, on the Closing Date, will have been validly executed and delivered
by the Company and the Guarantors. When the Senior Credit Facility has been duly
executed and delivered by the Company, the Senior Credit Facility will
constitute a valid and binding agreement of the Company, enforceable against the
6
<PAGE> 7
Company in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and general equity
principles. The Offering Memorandum contains an accurate summary, in all
material respects, of the terms of the Senior Credit Facility.
(o) The execution, delivery and performance of this Agreement,
the other Operative Documents and the Transaction Documents by the Company and
each of the Guarantors, compliance by the Company and each of the Guarantors
with all the provisions hereof and thereof, the issuance and sale of the Notes
by the Company, the issuance of the Subsidiary Guarantees by the Guarantors and
the consummation by the Company and the Guarantors of the transactions
contemplated hereby and thereby, including the Transactions and as described in
the Offering Memorandum under the caption "Use of Proceeds," (i) will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company, any
Guarantor or any Subsidiary is a party or by which the Company, any Guarantor or
any Subsidiary is bound or to which any of the properties or assets of the
Company, any Guarantor or any Subsidiary is subject, (ii) will not result in any
violation of the provisions of the charter, by-laws or other organizational
documents of the Company, any Guarantor or any Subsidiary or (iii) will not
result in any violation of the provisions of any law or statute or any order,
rule, regulation, judgment or decree of any court or governmental agency or body
having jurisdiction over the Company, any Guarantor or any Subsidiary or any of
their respective properties or assets, or (iv) result in the imposition or
creation of (or the obligation to create or impose) a Lien under any agreement
or instrument to which the Company, any Guarantor or any Subsidiary is a party
or by which the Company, any Guarantor or any Subsidiary or their respective
properties or assets is bound, except in the case of clauses (i), (iii) and (iv)
for such conflicts, breaches, defaults, violations or Liens which individually
or in the aggregate would not result in a Material Adverse Effect. Except for
such consents, approvals, authorizations, other orders, filings, qualifications
or registrations (i) as have been obtained, (ii) as may be required under
applicable state securities or Blue Sky laws of various jurisdictions in
connection with the purchase and distribution of the Notes by the Initial
Purchasers, (iii) as set forth in the Registration Rights Agreement, (iv) as may
be required under the Trust Indenture Act, (v) may be required in connection
with the Washington Acquisition, (vi) as may be required in the perfection of
liens in connection with the consummation of the Transactions and (vii) which,
the failure to obtain would not result in a Material Adverse Effect, no consent,
approval, authorization, or order of or filing, qualification or registration
with, any such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement, the other Operative
Documents or the Transaction Documents by the Company and each of the
Guarantors, compliance by the Company and each of the Guarantors with all the
provisions hereof and thereof, the issuance and sale of the Notes by the
Company, the issuance of the Subsidiary Guarantees by the Guarantors and the
consummation of the transactions contemplated hereby and thereby, including the
Transactions and as described in the Offering Memorandum under the caption "Use
of Proceeds."
(p) Neither the Company, the Guarantors nor any Subsidiaries
has sustained, since the date of the latest quarterly financial statements
included in the Offering Memorandum, any
7
<PAGE> 8
material loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise than as set forth in
the Offering Memorandum, except losses or interferences which do not,
individually or in the aggregate, have a Material Adverse Effect; since such
date, there has not been any material change in the capital stock or other
equity interest or long-term debt or short-term debt of the Company, the
Guarantors or any Subsidiaries or any change having a Material Adverse Effect,
or any development involving a prospective material adverse change, in or
affecting the general affairs, management, consolidated financial position,
stockholders' equity or results of operations of the Company, the Guarantors and
the Subsidiaries, otherwise than as set forth or contemplated in the Offering
Memorandum; and since such date, except as otherwise disclosed in the Offering
Memorandum, the Company has not (i) issued or granted any securities, other than
pursuant to Company employee benefit plans or (ii) declared or paid any dividend
on its capital stock.
(q) The historical consolidated financial statements
(including the related notes and supporting schedules) of the Company, and to
the Company's knowledge, BHP Hawaii and Shell Washington which appear in the
Preliminary Offering Memorandum and the Offering Memorandum comply as to form in
all material respects with the applicable accounting requirements of Securities
Act, the Exchange Act, and the Rules and Regulations, present fairly in all
material respects the consolidated financial position and results of operations
of the entities purported to be shown thereby, at the dates and for the periods
indicated, and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved except as noted therein. The pro forma financial statements included in
the Preliminary Offering Memorandum and the Offering Memorandum present fairly
in all material respects the historical and proposed transactions contemplated
by this Agreement and Offering Memorandum; and such pro forma financial
statements comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, the Exchange Act and the Rules
and Regulations, have been prepared on a basis consistent with the historical
consolidated financial statements of the Company, and to the Company's
knowledge, BHP Hawaii and Shell Washington, give effect to assumptions used in
the preparation thereof on a reasonable basis. The other financial and
statistical information and operating data of the Company, and to the Company's
knowledge, BHP Hawaii and Shell Washington included in the Preliminary Offering
Memorandum and the Offering Memorandum, historical and pro forma, is in all
material respects accurately presented and prepared on a basis consistent with
the financial statements included in the Preliminary Offering Memorandum and the
Offering Memorandum and the books and records of the Company, and to the
Company's knowledge, the books and records of BHP Hawaii and Shell Washington.
(r) Except for the Registration Rights Agreement, there are no
contracts, agreements or understandings between the Company or any Guarantor and
any person granting such person the right to require the Company or such
Guarantor to file a registration statement under the Securities Act with respect
to any securities of the Company or of such Guarantor, owned or to be owned by
such person or to require the Company or such Guarantor to include such
securities with any securities being registered pursuant to any registration
statement filed by the Company under the Securities Act.
8
<PAGE> 9
(s) Deloitte & Touche LLP, and to the Company's knowledge,
Arthur Andersen LLP and Price Waterhouse LLP, who have certified certain
financial statements of the Company and its Subsidiaries, BHP Hawaii and Shell
Washington, respectively, whose reports are included or incorporated by
reference in the Offering Memorandum and who have delivered the initial letters
referred to in Section 7(c) hereof, are independent public accountants as
required by the Securities Act and the Rules and Regulations.
(t) Other than as set forth in the Offering Memorandum, there
are no legal or governmental proceedings pending to which the Company, any
Guarantor or any Subsidiary is a party or to which any of their respective
properties or assets is subject which (i) could reasonable be expected to have a
Material Adverse Effect or (ii) could materially and adversely affect the
consummation by the Company and each of the Guarantors of their obligations
pursuant to this Agreement, the other Operative Documents or the Transaction
Documents; and to the Company's and each of the Guarantors' knowledge, no such
proceedings are threatened or contemplated by government authorities or
threatened by others.
(u) When the Notes are issued and delivered pursuant to this
Agreement, the Notes will not be of the same class (within the meaning of Rule
144A(d)(3) under the Securities Act) as any security of the Company listed on
any national securities exchange registered under Section 6 of the Exchange Act
or quoted on an automated inter-dealer quotation system.
(v) Neither the Company nor any of the Guarantors or
Subsidiaries or any of its or their respective affiliates (as defined in Rule
501(b) of Regulation D under the Securities Act, an "Affiliate") has directly,
or through any agent, (i) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any security (as defined in the Securities
Act) which is or will be integrated with the sale of the Notes in a manner that
would require the registration under the Securities Act of the Notes or (ii)
engaged in any form of general solicitation or general advertising in connection
with the offering of the Notes (as those terms are used in Regulation D under
the Securities Act), or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act; provided, however, no
representation is made as to the Initial Purchasers or any person acting on
their behalf. No securities of the same class as the Notes have been issued and
sold by the Company within the six-month period immediately prior to the date
hereof.
(w) Neither the Company nor any of the Guarantors or
Subsidiaries or any of its or their respective affiliates or any person acting
on its or their behalf has engaged or will engage in any "directed selling
efforts" within the meaning of Regulation S under the Securities Act with
respect to the Notes. The Company and each of the Guarantors and Subsidiaries,
each of their affiliates and any person acting on its or their behalf (other
than the Initial Purchasers, as to whom the Company makes no representation) has
complied and will comply with the offering restrictions requirement of
Regulation S. To the Company's knowledge, the sale of the Notes pursuant to
Regulation S is not part of a plan or scheme to evade the registration
provisions of the Securities Act.
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(x) The Company and each of the Guarantors and the
Subsidiaries has such permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("permits") as are necessary to own its
respective properties and to conduct its business in the manner described in the
Offering Memorandum, subject in each case to such qualifications as may be set
forth in the Offering Memorandum and except where the failure to have such
permits would not have a Material Adverse Effect; each of the Company, the
Guarantors and the Subsidiaries has fulfilled and performed in all material
respects all of its current obligations with respect to such permits and no
event has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material impairment of
the rights of the holder of any such permits, subject in each case to such
qualifications as may be set forth in the Offering Memorandum and except where
the failure so to fulfill or perform or the occurrence of such an event would
not have a Material Adverse Effect; and, except as described in the Offering
Memorandum, none of such permits contains any restriction that is materially
burdensome to the Company and the Subsidiaries, taken as a whole.
(y) The Company and each of the Guarantors and Subsidiaries
owns or possesses adequate rights to use all material patents, patent
applications, trademarks, service marks, trade names, trademark registrations,
service mark registrations, copyrights and licenses necessary for the conduct of
their respective businesses, except where the failure to have such permits would
not have a Material Adverse Effect, and have no reason to believe that the
conduct of their respective businesses will conflict with, and have not received
any notice of any claim of conflict with, any such rights of others.
(z) With the exception of producing oil and gas properties and
gas gathering properties (the "Oil and Gas Properties"), the Company and each of
the Guarantors and Subsidiaries has good and indefeasible title in fee simple to
all real property and good and defensible title to all personal property owned
by them, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Offering Memorandum or such as do not
materially adversely affect the value of such property or interfere with the use
made and proposed to be made of such property by the Company, the Guarantors and
the Subsidiaries; and with the exception of the Oil and Gas Properties, all real
property, buildings and vessels held under lease by the Company, the Guarantors
and the Subsidiaries are held by them under valid, subsisting and enforceable
leases, with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property, buildings and vessels by the
Company, the Guarantors and the Subsidiaries.
(aa) The Company and each of the Guarantors and Subsidiaries
has good and defensible title to its Oil and Gas Properties, free and clear of
all liens, encumbrances and defects, except (a) those described in the
Preliminary Offering Memorandum and the Offering Memorandum, (b) liens securing
taxes and other governmental charges, or claims of materialmen, mechanics and
similar persons, not yet due and payable, (c) liens and encumbrances under
operating agreements, unitization and pooling agreements, and gas sales
contracts, securing payment of amounts not yet due and payable and of a scope
and nature customary in the oil and gas industry and (d) liens, encumbrances and
defects that do not in the aggregate materially affect the value of such Oil and
Gas Properties or materially interfere with the use made or proposed to be made
of such properties by the
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<PAGE> 11
Company or any of the Guarantors or Subsidiaries. Except to the extent described
in the Preliminary Offering Memorandum and the Offering Memorandum, the oil, gas
and mineral leases, coal methane leases, options to lease, drilling concessions
or other property interests therein held by the Company and each of the
Guarantors and Subsidiaries reflects in all material respects the right of the
Company and its Subsidiaries, as the case may be, to explore or receive
production from the undeveloped properties described in the Preliminary Offering
Memorandum and the Offering Memorandum, and the Company and each of the
Guarantors and Subsidiaries have exercised reasonable diligence with respect to
acquiring or otherwise procuring such leases, options to lease, drilling
concessions and other property interests.
(bb) No labor disturbance by the employees of the Company or
any of the Guarantors or Subsidiaries exists or, to the knowledge of the
Company, is imminent which might be expected to have a Material Adverse Effect;
except as disclosed in the Offering Memorandum, neither the Company nor any of
the Guarantors or Subsidiaries is party to a collective bargaining agreement;
and there are no significant unfair labor practice complaints pending against
the Company or any of the Guarantors or Subsidiaries or, to the best of the
Company's knowledge, threatened against any of them.
(cc) The Company and each of the Guarantors and Subsidiaries
is in compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company or any of the
Guarantors or Subsidiaries would have any liability; neither the Company nor any
of the Guarantors or Subsidiaries has incurred and neither do any of them expect
to incur liability under (i) title IV of ERISA with respect to termination of,
or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue code of 1985, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan" for
which the Company or any Guarantor or Subsidiary would have any liability that
is intended to be qualified under Section 401(a) of the Code is so qualified in
all material respects and nothing has occurred, whether by action or by failure
to act, which would cause the loss of such qualification.
(dd) The Company and each of the Guarantors and Subsidiaries
has filed, and as of the Closing Date will have filed, all federal, state, local
and foreign income and franchise tax returns required to be filed through the
date hereof and has paid all taxes due thereon, and no tax deficiency has been
determined adversely to the Company or any of the Guarantors or Subsidiaries
which has had (nor does the Company have any knowledge of any tax deficiency
which, if determined adversely to the Company or any of the Guarantors or
Subsidiaries, might have) a Material Adverse Effect.
(ee) The Company and each of the Guarantors and Subsidiaries
(i) makes and keeps accurate books and records and (ii) maintains internal
accounting controls which provide reasonable assurance that (A) transactions are
executed in accordance with management's authorization, (B)
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<PAGE> 12
transactions are recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C) access to its
assets is permitted only in accordance with management's authorization and (D)
the reported accountability for its assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
difference.
(ff) Except as described in the Preliminary Offering
Memorandum and the Offering Memorandum and except such matters as would not,
singly or in the aggregate, result in a Material Adverse Effect, (A) neither the
Company nor any of Guarantors or Subsidiaries is in violation of any federal,
state, local or foreign statute, law, rule, regulation, ordinance, code, policy
or rule of common law or any judicial or administrative order, consent, decree
or judgment thereof, including any judicial or administrative order, consent,
decree or judgment relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened release
of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and each of the Guarantors and
Subsidiaries has all permits, authorizations and approvals required under any
applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or, to the knowledge of the Company,
threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or any of the Guarantors or Subsidiaries and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an order
for clean-up or remediation, or an action, suit or proceeding by any private
party or governmental body or agency, against or affecting the Company or any of
the Guarantors or Subsidiaries relating to Hazardous Materials or Environmental
Laws.
(gg) The Company is not, and upon the issuance and sale of the
Notes as herein contemplated and the application of the net proceeds therefrom
as described under the caption "Use of Proceeds" in the Offering Memorandum will
not be an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder.
(hh) As of the Closing Date, the closing of each of the Common
Stock Offering and the PIES Offering shall have previously occurred, and the
Senior Credit Facility shall be in effect and available for borrowing.
(ii) The statements set forth in the Offering Memorandum under
the captions "Offering Memorandum Summary--The Transactions--The Acquisitions,"
"Business--Government Regulation and Legislation," "Description of Other
Indebtedness," "Description of the Notes," "Description of Capital Stock" and
"Certain Federal Income Tax Considerations" insofar as such statements purport
to summarize the provisions of the documents or agreements referred to therein,
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<PAGE> 13
matters of law or legal conclusions or federal statute, laws or regulations, are
accurate and fairly present the information required to be shown.
(jj) The information supplied by the Company to the
independent petroleum engineering consultants for the Company for purposes of
preparing the reserve reports and estimates of such consultants incorporated by
reference in the Preliminary Offering Memorandum and the Offering Memorandum,
including, without limitation, production, costs of operation and development,
current prices for production, agreements relating to current and future
operations and sales of production, was true and correct in all material
respects on the date supplied and was prepared in accordance with customary
industry practices; and Netherland, Sewell & Associates, Inc., independent
petroleum engineers, who prepared estimates of the extent and value of proved
oil and natural gas reserves of the Company are independent with respect to the
Company.
(kk) None of the Company, the Guarantors or the Subsidiaries
has taken, nor will any of them take, directly or indirectly, any action
prohibited by Regulation M under the Securities Act.
(ll) No "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Securities Act (i) has imposed (or has informed the Company or any Guarantor
that it is considering imposing) any condition (financial or otherwise) on the
Company's or any Guarantor's retaining any rating assigned as of the date hereof
to the Company, any Guarantor or any securities of the Company or any Guarantor
or (ii) has indicated to the Company or any Guarantor that it is considering (A)
the downgrading, suspension or withdrawal of, or any review for a possible
change that does not indicate the direction of the possible change in, any
rating so assigned or (B) any change in the outlook for any rating of the
Company or any Guarantor.
(mm) None of the Company, the Guarantors or the Subsidiaries
nor any agent thereof acting on the behalf of them has taken, and none of them
will take, any action that might cause this Agreement or the issuance or sale of
the Notes or the Transactions to violate Regulation T (12 C.F.R. Part 220),
Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the
Board of Governors of the Federal Reserve System.
(nn) The Company and each of the Guarantors and Subsidiaries
has complied with, and is and will be in compliance with, the provisions of that
certain Florida act relating to disclosure of doing business with Cuba, codified
as Section 517.075 of the Florida statutes, and the rules and regulations
thereunder or is exempt therefrom.
The Company acknowledges that the Initial Purchasers and, for purposes
of the opinions to be delivered to the Initial Purchasers pursuant to Section 7
hereof, counsel to the Company and the Guarantors and counsel to the Initial
Purchasers, will rely upon the accuracy and truth of the foregoing
representations and hereby consents to such reliance. Each certificate signed by
any officer of the Company or any Guarantor and delivered to the Initial
Purchasers or counsel for the Initial
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<PAGE> 14
Purchasers shall be deemed to be a representation and warranty by the Company or
such Guarantor to the Initial Purchasers as to the matters covered thereby.
SECTION 2. Purchase of the Notes by the Initial Purchasers.
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the Company
agrees to sell to each Initial Purchaser, severally and not jointly, and each
Initial Purchaser, severally and not jointly, agrees to purchase from the
Company, the aggregate principal amount of the Notes set forth on Schedule I
opposite the name of such Initial Purchaser, plus any additional principal
amount of Notes which such Initial Purchaser may become obligated to purchase
pursuant to the provisions of Section 9 hereof at a purchase price equal to
99.429% of the principal amount of such Notes.
(b) The Company shall not be obligated to deliver any of the
Notes, except upon payment for all of the Notes to be purchased as hereinafter
provided.
SECTION 3. Sale and Resale of the Notes by the Initial Purchasers.
(a) You have advised the Company that you propose to offer the
Notes for resale upon the terms and conditions set forth in this Agreement and
in the Offering Memorandum. You hereby represent and warrant to, and agree with,
the Company that you (i) are purchasing the Notes pursuant to a private sale
exempt from registration under the Securities Act, (ii) will not solicit offers
for, or offer or sell, the Notes by means of any form of general solicitation or
general advertising or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act, and (iii) will solicit offers for
the Notes only from, and will offer, sell or deliver the Notes, as part of their
initial offering, only to (A) in the case of offers inside the United States,
persons whom you reasonably believe to be qualified institutional buyers
("Qualified Institutional Buyers") as defined in Rule 144A under the Securities
Act, as such rule may be amended from time to time ("Rule 144A") or, if any such
person is buying for one or more institutional accounts for which such person is
acting as fiduciary or agent, only when such person has represented to you that
each such account is a Qualified Institutional Buyer, to whom notice has been
given that such sale or delivery is being made in reliance on Rule 144A and (B)
in the case of offers outside the United States, persons other than U.S. persons
(as defined in Regulation S) in accordance with Rule 903 of Regulation S.
(b) In connection with the transactions described in
subsection (a)(iii)(B) of this Section 3, you have offered and sold the Notes,
and will offer and sell the Notes, (i) as part of your distribution at any time
and (ii) otherwise until 40 days after the later of the commencement of the
offering and the Closing Date (the "Distribution Compliance Period"), only in
accordance with Rule 903 of Regulation S. Accordingly, the Initial Purchasers
represent and agree that, with respect to the transactions described in
subsection (a)(iii)(B) of this Section 3, neither they, nor any of their
Affiliates, nor any person acting on their behalf has engaged or will engage in
any directed selling efforts with respect to the Notes, and that it and they
have complied and will comply with the offering restrictions requirements of
Regulation S. They agree that, at or prior to the confirmation of sale of
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<PAGE> 15
the Notes pursuant to subsection (a)(iii)(B) of this Section 3, they shall have
sent to each distributor, dealer or person receiving a selling concession, fee
or other remuneration that purchases Notes from the Initial Purchasers during
the Distribution Compliance Period a confirmation or notice to substantially the
following effect:
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act") and may not be offered or sold
within the United States or to, or for the account or benefit of U.S. Persons
(i) as part of their distribution at any time or (ii) otherwise until 40 days
after the later of the commencement of the offering and the time of delivery of
the Securities, except in either case in accordance with Regulation S or Rule
144A under the Securities Act. The terms used above have the meaning given to
them by Regulation S."
SECTION 4. Delivery of and Payment for the Notes.
(a) Payment of the purchase price for, and delivery of, the
Notes shall be made at the offices of Andrews & Kurth L.L.P., 600 Travis Street,
Houston, Texas 77002 or at such other place as shall be agreed upon by the
Company and you, at 8:30 a.m. (Houston time), on July 2, 1998 or at such other
time or date as you and the Company shall determine (such date and time of
payment and delivery being herein called the "Closing Date").
(b) On the Closing Date, payment shall be made to the Company
in immediately available funds by wire transfer to such account or accounts as
the Company shall specify prior to the Closing Date or by such means as the
parties hereto shall agree prior to the Closing Date against delivery to you of
the certificates evidencing the Notes. Upon delivery, the Notes shall be
registered in such names and in such denominations as the Initial Purchasers
shall request in writing not less than two full business days prior to the
Closing Date. For the purpose of expediting the checking and packaging of
certificates evidencing the Notes, the Company agrees to make such certificates
available for inspection not later than 2:00 P.M. on the business day at least
24 hours prior to the Closing Date.
SECTION 5. Further Agreements of the Company and the Guarantors.
The Company and each of the Guarantors further agrees:
(a) To furnish to you, without charge, during the period
referred to in paragraph (c) below, as many copies of the Preliminary Offering
Memorandum and the Offering Memorandum and any supplements and amendments
thereto as you may reasonably request.
(b) Prior to making any amendment or supplement to the
Offering Memorandum, the Company shall furnish a copy thereof to the Initial
Purchasers and counsel to the Initial Purchasers and will not effect any such
amendment or supplement to which the Initial Purchasers shall reasonably object
by notice to the Company after a reasonable period to review, which shall not in
any case be longer than three business days after receipt of such copy.
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<PAGE> 16
(c) If, at any time prior to completion of the distribution of
the Notes by you to purchasers, any event shall occur or condition exist as a
result of which it is necessary, in the opinion of counsel for you or counsel
for the Company, to amend or supplement the Offering Memorandum in order that
the Offering Memorandum will not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein not misleading in light of the circumstances existing at the time it is
delivered to a purchaser, or if it is necessary to amend or supplement the
Offering Memorandum to comply with applicable law, to promptly prepare such
amendment or supplement as may be necessary to correct such untrue statement or
omission or so that the Offering Memorandum, as so amended or supplemented, will
comply with applicable law and to furnish you without charge such number of
copies as you may reasonably request.
(d) So long as the Notes are outstanding and are "Restricted
Securities" within the meaning of Rule 144(a)(3) under the Securities Act during
any period in which it is not subject to and in compliance with Section 13 or
15(d) of the Exchange Act, to furnish to holders of the Notes and prospective
purchasers of Notes designated by such holders, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
(e) For a period of five years following the date of the
Offering Memorandum, to furnish to the Initial Purchasers copies of all
materials furnished by the Company to its stockholders and all public reports
and all reports and financial statements furnished by the Company to the
principal national securities exchange upon which the Notes may be listed
pursuant to requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or regulation of the
Commission thereunder.
(f) Promptly from time to time to take such action as the
Initial Purchasers may reasonably request to qualify the Notes for offering and
sale (or obtain an exemption from registration) under the securities laws of
such jurisdictions as the Initial Purchasers may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Notes; provided, however, that the Company shall not be required to qualify
as a foreign corporation or a dealer in securities or to execute a general
consent to service of process in any jurisdiction in any action other than one
arising out of the offering or sale of the Notes.
(g) For a period of 90 days from the Closing Date, not to,
directly of indirectly, (A) offer, sell, contract to sell or otherwise dispose
of any additional securities of the Company substantially similar to the Notes
or any securities convertible into or exchangeable for or that represent the
right to receive any such similar securities, or (B) enter into any swap or
derivatives transaction that transfers to another, in whole or in part, any of
the economic benefits or risks of ownership of such securities, whether any such
transaction described in clause (A) or (B) above is to be settled by delivery of
Notes, or other securities, in cash or otherwise, in each case, without the
prior written consent of Lehman Brothers Inc.
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(h) To use its best efforts to permit the Notes to be
designated Private Offerings, Resales and Trading through Automated Linkages
Market ("PORTAL") securities in accordance with the rules and regulations
adopted by the National Association of Securities Dealers, Inc. relating to
trading in the PORTAL Market and to permit the Notes to be eligible for
clearance and settlement through The Depository Trust Company (the "DTC").
(i) Except following the effectiveness of the Registration
Statement (as defined in the Registration Rights Agreement), not to, and to
cause its affiliates (as defined in Rule 501(b) under the Act) not to, solicit
any offer to buy or offer to sell the Notes by means of any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Securities Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act.
(j) Not to, and to cause its affiliates not to, sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) in a transaction that could be
integrated with the sale of the Notes in a manner that would require the
registration under the Securities Act of the Notes.
(k) To take such steps as shall be necessary to ensure that
neither the Company nor any Subsidiary of the Company shall become an
"investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended, and the rules and regulations of the Commission
thereunder.
(l) To comply with the agreements in the Indenture, the
Registration Rights Agreement and the other Operative Documents.
(m) To apply the net proceeds from the sale of the Notes as
set forth under the caption "Use of Proceeds" in the Offering Memorandum.
(n) To do all things required or necessary to be done or
performed under this Agreement prior to the Closing Date by such date and to
satisfy the closing conditions set forth in Section 7 hereof.
SECTION 6. Expenses.
Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, the Company and the Guarantors
agree to pay or cause to be paid all reasonable expenses incident to the
performance of the obligations of the Company and the Guarantors under this
Agreement, including: (i) the fees, disbursements and expenses of counsel to the
Company and the Guarantors and accountants of the Company and the Guarantors in
connection with the sale and delivery of the Notes to the Initial Purchasers and
pursuant to the resales thereof by the Initial Purchasers, and all other fees or
expenses in connection with the preparation, printing, filing and distribution
of the Preliminary Offering Memorandum, the Offering Memorandum and all
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<PAGE> 18
amendments and supplements to any of the foregoing (including financial
statements), including the mailing and delivering of copies thereof to the
Initial Purchasers and persons designated by them in the quantities specified;
(ii) all costs and expenses related to the delivery of the Notes to the Initial
Purchasers and pursuant to the resales thereof by the Initial Purchasers; (iii)
all expenses in connection with the registration or qualification of the Notes
and the Subsidiary Guarantees for offer and sale under the securities or Blue
Sky laws of the several states and all costs of producing any Blue Sky
memorandum in connection therewith (including the filing fees and reasonable
fees and disbursements of counsel for the Initial Purchasers in connection with
such registration or qualification and memorandum relating thereto); (iv) the
cost of printing certificates representing the Notes and the Subsidiary
Guarantees, (v) all expenses and listing fees in connection with the application
for quotation of the Notes on PORTAL; (vi) the fees and expenses of the Trustee
and the Trustee's counsel in connection with the Indenture, the Notes and the
Subsidiary Guarantees; (vii) the costs and expenses of any transfer agent,
registrar and/or depositary (including DTC); (viii) any fees charged by rating
agencies for the rating of the Notes; (ix) all costs and expenses of the
Exchange Offer and any Registration Statement, as set forth in the Registration
Rights Agreement; and (x) all other costs and expenses incident to the
performance of the obligations of the Company and the Guarantors hereunder for
which provision is not otherwise made in this Section; provided, however, that
except as provided in this Section 6 and in Section 11, the Underwriters shall
pay their own costs and expenses, including the costs and expenses of their own
counsel, any transfer taxes or other taxes payable thereon, and the expenses of
advertising any offering of the Notes made by the Initial Purchasers.
SECTION 7. Conditions to the Initial Purchasers' Obligations.
The obligations of the Initial Purchasers hereunder are subject to the
accuracy, when made and on the Closing Date, of the representations and
warranties of the Company and the Guarantors contained herein, to the
performance by the Company and the Guarantors of their respective obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Initial Purchasers shall not have discovered and
disclosed to the Company on or prior to the Closing Date that the Preliminary
Offering Memorandum or any amendment or supplement thereto contains any untrue
statement of a fact which, in the opinion of Andrew & Kurth L.L.P., counsel for
the Initial Purchasers, is material or omits to state any fact which, in the
opinion of such counsel, is material and is required to be stated therein or is
necessary to make the statements therein not misleading.
(b) The Offering Memorandum shall have been printed and copies
distributed to the Initial Purchasers not later than 10:00 a.m., New York City
time, on the day following the date of this Agreement or at such later date and
time as to which the Initial Purchasers may agree.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of the Operative Documents, and all
other legal matters relating to this Agreement and the transactions contemplated
hereby shall be reasonable satisfactory in all material respects to
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<PAGE> 19
counsel for the Initial Purchasers, and the Company shall have furnished to such
counsel all documents and information that they may reasonably request to enable
them to pass upon such matters.
(d) The Initial Purchasers shall have received from Fulbright
& Jaworski L.L.P. their written opinion, as counsel to the Company, addressed to
the Initial Purchasers and dated the Closing Date, in form and substance
reasonably satisfactory to the Initial Purchasers, to the effect set forth in
Exhibit B hereto and to such further effect as counsel to the Initial Purchasers
may reasonably request.
(e) The Initial Purchasers shall have received from James C.
Reed, Jr., general counsel of the Company, written opinion, as counsel to the
Company, addressed to the Initial Purchasers and dated the Closing Date, in form
and substance reasonably satisfactory to the Initial Purchasers, to the effect
set forth in Exhibit C hereto and to such further effect as counsel to the
Initial Purchasers may reasonably request.
(f) The Initial Purchasers shall have received a letter
addressed to the Initial Purchasers and dated the Closing Date to the effect
that the Initial Purchasers may rely on the opinion delivered by such firm
pursuant to the Senior Credit Facility to the same extent as if it were
originally addressed to the Initial Purchasers. The Initial Purchasers shall
also receive the opinion delivered by Fulbright & Jaworski L.L.P. pursuant to
the Senior Credit Facility.
(g) At the time of execution of this Agreement, the Initial
Purchasers shall have received from each of Deloitte & Touche LLP, Arthur
Andersen LLP and Price Waterhouse LLP a letter, in form and substance
satisfactory to the Initial Purchasers, addressed to the Initial Purchasers and
dated the date hereof, (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are in compliance with
the applicable requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date
hereof (or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in the
Offering Memorandum, as of a date not more than five business days prior to the
date hereof), the conclusions and findings of such firm with respect to the
financial information, operating data and other matters ordinarily covered by
accountants' "comfort letters" to underwriters, including the financial
information contained or incorporated by reference in the Offering Memorandum as
identified by you.
(h) With respect to the letters of Deloitte & Touche LLP,
Arthur Andersen LLP and Price Waterhouse LLP referred to in the preceding
paragraph and delivered to the Initial Purchasers concurrently with the
execution of this Agreement (the "initial letters"), the Company shall have
furnished to the Initial Purchasers letters (the "bring-down letters") of such
accountants, addressed to the Initial Purchasers and dated the Closing Date, (i)
confirming that they are independent public accountants within the meaning of
the Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of Regulation S-X
of the Commission, (ii) stating, as of the date of the bring-down letters (or,
with
19
<PAGE> 20
respect to matters involving changes or developments since the respective dates
as of which specified financial information is given in the Offering Memorandum,
as of a date not more than five business days prior to the date of the
respective bring-down letter), the conclusions and findings of such firm with
respect to the financial information, operating data and other matters covered
by the respective initial letter and (iii) confirming in all material respects
the conclusions and findings set forth in the respective initial letter.
(i) (A) At the time of execution of this Agreement, the
Initial Purchasers shall have received from Netherland, Sewell and Associates,
Inc., independent petroleum engineers for the Company, a letter dated as of such
date, in form and substance satisfactory to the Initial Purchasers; and (B) on
the Closing Date, the Initial Purchasers shall have received from Netherland,
Sewell and Associates, Inc., independent petroleum engineers for the Company, a
letter dated as of the Closing Date, to the effect that they reaffirm the
statements made in the letter referred to in clause (i)(A) above.
(j) The Company shall have furnished to the Initial Purchasers
a certificate, dated the Closing Date, of (i) the Executive Vice President,
General Counsel and Secretary of the Company and (ii) the Vice President,
Finance and Treasurer of the Company stating that:
(i) The representations, warranties and agreements of
the Company and the Guarantors in Section 1 are true and correct as of
the Closing Date and the Company and the Guarantors have complied with
all its agreements contained herein;
(ii) (A) Neither the Company nor any of the
Guarantors or Subsidiaries has sustained since the date of the latest
quarterly financial statements included or incorporated by reference in
the Preliminary Offering Memorandum or the Offering Memorandum any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Preliminary Offering
Memorandum or the Offering Memorandum and (B) since such date there has
not been any material change in the capital stock, long-term debt or
short-term debt of the Company or any of the Guarantors or Subsidiaries
or any material change, or any development involving a prospective
material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity, results of
operations or prospects of the Company and the Subsidiaries, taken as a
whole, otherwise than as set forth or contemplated in the Preliminary
Offering Memorandum or the Offering Memorandum; and
(iii) They have carefully examined the Preliminary
Offering Memorandum or the Offering Memorandum and, in their opinion
(A) the Preliminary Offering Memorandum or the Offering Memorandum, as
of their respective dates, did not include any untrue statement of a
material fact and did not omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under
which they were made, not
20
<PAGE> 21
misleading, and (B) since the date of the Offering Memorandum, no event
has occurred which should have been set forth in a supplement or
amendment to the Offering Memorandum.
(k) (i) Neither the Company nor any of its Subsidiaries shall
have sustained since the date of the latest audited financial statements
included or incorporated by reference in the Offering Memorandum any material
loss or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth or
contemplated in the Offering Memorandum and (ii) since such date there shall not
have been any material change in the capital stock, long-term debt or short-term
debt of the Company or any of its Subsidiaries or any material change, or any
development involving a prospective material change, in or affecting the general
affairs, management, consolidated financial position, stockholders' equity or
results of operations of the Company and its Subsidiaries taken as a whole,
otherwise than as set forth or contemplated in the Offering Memorandum, the
effect of which, in any such case described in clause (i) or (ii), is, in the
judgment of the Initial Purchasers, so material and adverse as to make it
impracticable or inadvisable to proceed with the offering or the delivery of the
Notes on the terms and in the manner contemplated in the Offering Memorandum.
(l) The closings of the Common Stock Offering and the PIES
Offering shall have previously occurred, Company shall have entered into the
Escrow Agreement and the Senior Credit Facility shall be in effect and available
for borrowing.
(m) Subsequent to the execution and delivery of this Agreement
(i) no downgrading shall have occurred in the rating accorded the Company or any
Guarantor or the securities of any Company or any Guarantor by any "nationally
recognized statistical rating organization," as that term is defined by the
Commission for purposes of Rule 436(g)(2) of the Rules and Regulations and (ii)
no such organization shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of any
of the Notes.
(n) The Company, the Guarantors and the Trustee shall have
entered into the Indenture and the Initial Purchasers shall have received
counterparts thereof.
(o) The Company, the Guarantors and the Initial Purchasers
shall have entered into the Registration Rights Agreement and the Initial
Purchasers shall have received counterparts thereof.
(p) The Initial Purchasers shall have received from Andrew &
Kurth L.L.P., counsel for the Initial Purchasers, their opinion, dated the
Closing Date, with respect to such matters as the Initial Purchasers may
reasonably require, and the Company shall have furnished to such counsel such
documents and information as they may reasonably request for the purpose of
enabling them to pass upon such matters.
21
<PAGE> 22
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchasers.
SECTION 8. Indemnification and Contribution.
(a) The Company and each Guarantor, jointly and severally,
shall indemnify and hold harmless each Initial Purchaser, its officers and
employees and each person, if any, who controls any Initial Purchaser within the
meaning of the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including, but
not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Notes), to which that Initial Purchaser, officer,
employee or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Offering Memorandum, the Offering
Memorandum or in any amendment or supplement thereto, or (B) in any Blue Sky
application or other document prepared or executed by the Company (or based upon
any written information furnished by the Company) specifically for the purpose
of qualifying any or all of the Notes under the securities laws of any state or
other jurisdiction (any such application, document or information being
hereinafter called a "Blue Sky Application"), (ii) the omission or alleged
omission to state in any Preliminary Offering Memorandum, the Offering
Memorandum or in any amendment or supplement thereto, or in any Blue Sky
Application, any material fact required to be stated therein or necessary to
make the statements therein not misleading or (iii) any act or failure to act,
or any alleged act or failure to act, by any Initial Purchaser in connection
with, or relating in any manner to, the Notes or the offering contemplated
hereby, and which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon matters covered by
clause (i) or (ii) above (provided that the Company and the Guarantors shall not
be liable in the case of any matter covered by this clause (iii) to the extent
that it is determined in a final judgment by a court of competent jurisdiction
that such loss, claim, damage, liability or action resulted directly from any
such act or failure to act undertaken or omitted to be taken by such Initial
Purchaser through its gross negligence or willful misconduct), and shall
reimburse each Initial Purchaser and each officer, employee and controlling
person promptly upon demand for any legal or other expenses reasonably incurred
by that Initial Purchaser, officer, employee or controlling person in connection
with investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that the Company and the Guarantors shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or action arises
out of, or is based upon, any untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Offering Memorandum, the
Offering Memorandum or in any such amendment or supplement, or in any Blue Sky
Application in reliance upon and in conformity with the written information
furnished to the Company by or on behalf of any Initial Purchaser specifically
for inclusion therein and described in Section 8(e); provided, further, that
with respect to any such untrue statement or omission made in the Preliminary
Offering Memorandum, the indemnity agreement contained in this Section 8(a)
shall not enure to the benefit of the Initial Purchaser from whom the person
asserting any such losses,
22
<PAGE> 23
claims, damages or liabilities purchased the Securities concerned if, to the
extent that such sale was an initial sale by such Underwriter and any such loss
claim, damage or liability of such Underwriter is a result of the fact that both
(A) a copy of the Offering Memorandum was not sent or given to such person at or
prior to written confirmation of the sale of such Notes to such person and (B)
the untrue statement or omission in the Preliminary Offering Memorandum was
corrected in the Offering Memorandum unless, in either case, such failure to
deliver the Offering Memorandum was a result of noncompliance by the Company
with Section 5(c) hereof. The foregoing indemnity agreement is in addition to
any liability which the Company or any of the Guarantors may otherwise have to
any Initial Purchaser or to any officer, employee or controlling person of any
Initial Purchaser.
(b) Each Initial Purchaser, severally and not jointly, shall
indemnify and hold harmless the Company and the Guarantors, and their respective
directors, officers and employees and the Trustee, and each person, if any, who
controls the Company within the meaning of the Securities Act, from and against
any loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Company, any such director, officer or employee, or any
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in any Preliminary Offering Memorandum, the Offering
Memorandum or in any amendment or supplement thereto, or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to state in any Preliminary
Offering Memorandum, the Offering Memorandum or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each
case only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
the written information furnished to the Company by or on behalf of such Initial
Purchaser specifically for inclusion therein and described in Section 8(e), and
shall reimburse the Company and the Guarantors and any such director, officer or
employee, or any such controlling person, for any legal or other expenses
reasonably incurred by the Company and the Guarantors or any such director,
officer or employee, or any controlling person in connection with investigating
or defending or preparing to defend against any such loss, claim, damage,
liability or action as such expenses are incurred. The foregoing indemnity
agreement is in addition to any liability which any Initial Purchaser may
otherwise have to the Company and the Guarantors or any such director, officer
or employee, or any controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the
23
<PAGE> 24
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel satisfactory to the indemnified party.
After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation; provided,
however, that the indemnified party shall have the right to employ counsel to
represent all indemnified parties who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the indemnified parties
against the indemnifying party under this Section 8 if, (i) the employment of
such counsel shall have been authorized by the indemnifying party in connection
with the defense of such action, (ii) the indemnifying party shall not have
engaged counsel reasonably promptly to take charge of the defense of such action
or (iii) counsel for any of the indemnified parties shall have reasonably
concluded that there may be defenses available to the indemnified parties that
are in addition to or in conflict with those available to the indemnifying
party, and, in that event, the fees and expenses of such separate counsel shall
be paid by the indemnifying party; provided, further, that in connection with
any proceedings or related proceedings in the same jurisdiction, the
indemnifying party shall not be liable for the legal fees and expenses of more
than one separate firm of attorneys (in addition to any local counsel). No
indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld), settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a final
judgment of the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss of
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a) or 8(b) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Guarantors, on the one hand, and the Initial
Purchasers, on the other, from the offering of the Notes or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Guarantors, on the one hand, and the Initial Purchasers on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
24
<PAGE> 25
Guarantors, on the one hand, and the Initial Purchasers on the other, with
respect to such offering shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Notes purchased under this Agreement
(before deducting expenses) received by the Company and the Guarantors, on the
one hand, and the total underwriting discounts and commissions received by the
Initial Purchasers with respect to the Notes purchased under this Agreement, on
the other hand, bear to the total gross proceeds from the offering of the Notes
under this Agreement, in each case as set forth in the table on the cover page
of the Offering Memorandum. The relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact relates to information supplied by
the Company and the Guarantors, on the one hand, or the Initial Purchasers, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Guarantors and the Initial Purchasers agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were to be determined
by pro rata allocation (even if the Initial Purchasers were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim, damage
or liability, or action in respect thereof, referred to above in this Section
8(d) shall be deemed to include, for purposes of this Section 8(d), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), the Initial Purchasers shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Notes sold and distributed by it was offered to the purchasers exceeds the
amount of any damages which the Initial Purchasers have otherwise paid or become
liable to pay by reason of any untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The Initial Purchasers severally confirm and the Company
and the Guarantors acknowledge that the statements with respect to the offering
of the Notes set forth in the bottom paragraph on the cover page of, the legend
concerning stabilization and overallotment on page iii, and the ninth, tenth and
eleventh paragraphs under the caption "Plan of Distribution" relating to
stabilization and over-allotment in, the Offering Memorandum are correct and
constitute the only information furnished in writing to the Company by or on
behalf of the Initial Purchasers specifically for inclusion in the Offering
Memorandum.
SECTION 9. Default by One or More of the Initial Purchasers.
If one or more of the Initial Purchasers shall fail at the Closing Time
to purchase the Notes which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the remaining Initial Purchasers shall
have the right, within 24 hours thereafter, to make arrangements for one or more
of the non-defaulting Initial Purchasers, or any other Initial Purchasers, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon
25
<PAGE> 26
the terms herein set forth: if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the aggregate principal amount of the Notes to be purchased hereunder, each
of the non-defaulting Initial Purchasers shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Initial Purchasers; provided, however, that no
non-defaulting Initial Purchaser shall be obligated by this provision to
purchase more than 110% of the principal amount of Notes that it agreed to
purchase pursuant to the terms of Section 2, or
(b) if the number of Defaulted Securities exceeds 10% of the
aggregate principal amount of the Notes to be purchased hereunder, this
Agreement shall terminate without liability on the part of any non-defaulting
Initial Purchaser.
No action taken pursuant to this Section shall relieve any defaulting
Initial Purchaser from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Initial Purchasers or the Company shall have the
right to postpone the Closing Time for a period not exceeding seven days in
order to effect any required changes in the Offering Memorandum or in any other
documents or arrangements. As used herein, the term "Initial Purchaser" includes
any person substituted for an Initial Purchaser under this Section 9.
SECTION 10. Termination.
The obligations of the Initial Purchasers hereunder may be terminated
by them by notice given to and received by the Company prior to delivery of and
payment for the Notes if, prior to that time, (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or in
the over-the-counter market, or trading in any securities of the Company on any
exchange or in the over-the-counter market, shall have been suspended or minimum
prices shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have been
declared by Federal or New York State authorities, (iii) the United States shall
have become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a declaration
of a national emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the financial
markets in the United States shall be such); provided, however, in the case
(iii) and (iv), as to make it, in the judgment of the Initial Purchasers,
impracticable or inadvisable to proceed with the offering or delivery of the
Notes on the terms and in the manner contemplated in the Offering Memorandum.
26
<PAGE> 27
SECTION 11. Reimbursement of Initial Purchasers' Expenses.
If the sale of Notes provided for herein is not consummated because any
condition to the obligations of the Initial Purchasers set forth in Section 7
hereof is not satisfied, because of any termination pursuant to Section 10
hereof or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof
other than by reason of a default by the Initial Purchasers, the Company shall
reimburse the Initial Purchasers for the reasonable fees and expenses of its
counsel and for such other out-of-pocket expenses as shall have been incurred by
it in connection with this Agreement and the proposed purchase of the Notes, and
upon demand the Company shall pay the full amount thereof to the Initial
Purchasers.
SECTION 12. Notices, etc.
All statements, requests, notices and agreements hereunder shall be in
writing, and:
(a) if to the Initial Purchasers, shall be delivered or sent
by mail, telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate Department
(Fax: 212-528-8822);
(b) if to the Company shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set forth in the
Offering Memorandum, Attention: Vice President, Finance and Treasurer
(Facsimile: 210-828-8600).
Any such statements, requests, notices or agreements shall take effect at the
time of receipt thereof.
SECTION 13. Persons Entitled to Benefit of Agreement.
This Agreement shall inure to the benefit of and be binding upon the
Initial Purchasers, the Company, the Guarantors and their respective successors.
This Agreement and the terms and provisions hereof are for the sole benefit of
only those persons, except that (x) the representations, warranties, indemnities
and agreements of the Company contained in this Agreement shall also be deemed
to be for the benefit of the officers and employees of the Initial Purchasers
and the person or persons, if any, who control the Initial Purchasers within the
meaning of Section 15 of the Securities Act and (y) the indemnity agreement of
the Initial Purchasers contained in Section 8(b) of this Agreement shall be
deemed to be for the benefit of directors, officers and employees of the Company
and any person controlling the Company within the meaning of Section 15 of the
Securities Act. Nothing in this Agreement is intended or shall be construed to
give any person, other than the persons referred to in this Section 13, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
27
<PAGE> 28
SECTION 14. Survival.
The respective indemnities, representations, warranties and agreements
of the Company and the Initial Purchasers contained in this Agreement or made by
or on behalf of them, respectively, pursuant to this Agreement, shall survive
the delivery of and payment for the Notes and shall remain in full force and
effect, regardless of any investigation made by or on behalf of any of them or
any person controlling any of them.
SECTION 15. Definition of "Business Day."
For purposes of this Agreement, "business day" means any day on which
the New York Stock Exchange, Inc. is open for trading.
SECTION 16. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF NEW YORK.
SECTION 17. Counterparts.
This Agreement may be executed in one or more counterparts and, if
executed in more than one counterpart, the executed counterparts shall each be
deemed to be an original but all such counterparts shall together constitute one
and the same instrument.
SECTION 18. Headings.
The headings herein are inserted for convenience of reference only and
are not intended to be part of, or to affect the meaning or interpretation of,
this Agreement.
* * * * *
28
<PAGE> 29
If the foregoing correctly sets forth the agreement between the Company
and the Initial Purchasers, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
TESORO PETROLEUM CORPORATION
By: /s/ Gregory A. Wright
-------------------------------------
Gregory A. Wright
Vice President, Finance and Treasurer
DIGICOMP, INC.
INTERIOR FUELS COMPANY
KENAI PIPE LINE COMPANY
TESORO ALASKA PETROLEUM COMPANY
TESORO ALASKA PIPELINE COMPANY
TESORO BOLIVIA PETROLEUM COMPANY
TESORO EXPLORATION AND
PRODUCTION COMPANY
TESORO HAWAII CORPORATION
TESORO LATIN AMERICA COMPANY
TESORO MARINE SERVICES HOLDING
COMPANY
TESORO MARINE SERVICES, INC.
TESORO NATURAL GAS COMPANY
TESORO NORTHSTORE COMPANY
TESORO PETROLEUM COMPANIES, INC.
TESORO REFINING, MARKETING &
SUPPLY COMPANY
TESORO SOUTH PACIFIC PETROLEUM
COMPANY
TESORO VOSTOK COMPANY
By: /s/ Gregory A. Wright
-------------------------------------
Gregory A. Wright
Vice President
29
<PAGE> 30
TESORO FINANCIAL SERVICES HOLDING
COMPANY
TESORO GAS RESOURCES COMPANY, INC.
By: /s/ Jeffrey B. Fabian
-------------------------------------
Jeffrey B. Fabian
President
VICTORY FINANCE COMPANY
By: /s/ Jeffrey B. Fabian
-------------------------------------
Jeffrey B. Fabian
President
TESORO E&P COMPANY, L.P.
By: Tesoro Exploration and Production
Company as General Partner
By: /s/ Gregory A. Wright
-------------------------------------
Gregory A. Wright
Vice President
TESORO PIPELINE COMPANY, L.P.
By: Tesoro Natural Gas Company
as General Partner
By: /s/ Gregory A. Wright
-------------------------------------
Gregory A. Wright
Vice President
Accepted:
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO. INC.
SALOMON SMITH BARNEY
By: LEHMAN BROTHERS INC.
By: /s/ H.E. McGee III
-----------------------------
(Authorized Representative)
30
<PAGE> 31
SCHEDULE I
<TABLE>
<CAPTION>
Principal Amount
Name of Initial Purchaser of Securities
------------------------- ----------------
<S> <C>
Lehman Brothers Inc .................................. $225,000,000
Bear, Stearns & Co. Inc. ............................. 37,500,000
Salomon Brothers Inc. ................................ 37,500,000
Total ................................................ $300,000,000
============
</TABLE>
<PAGE> 32
SCHEDULE II
List of Guarantors
1. Digicomp, Inc.
2. Interior Fuels Company
3. Kenai Pipe Line Company
4. Tesoro Alaska Petroleum Company
5. Tesoro Alaska Pipeline Company
6. Tesoro Bolivia Petroleum Company
7. Tesoro E&P Company, L.P.
8. Tesoro Exploration and Production Company
9. Tesoro Financial Services Holding Company
10. Tesoro Gas Resources Company, Inc.
11. Tesoro Hawaii Corporation
12. Tesoro Latin America Company
13. Tesoro Marine Services Holding Company
14. Tesoro Marine Services, Inc.
15. Tesoro Natural Gas Company
16. Tesoro Northstore Company
17. Tesoro Petroleum Companies, Inc.
18. Tesoro Pipeline Company, L.P.
19. Tesoro Refining, Marketing & Supply Company
20. Tesoro South Pacific Petroleum Corporation
21. Tesoro Vostok Company
22. Victory Finance Company
A-2
<PAGE> 33
SCHEDULE III
List of Subsidiaries*
1. Coastwide Marine Services, Inc.
2. Digicomp, Inc.
3. Interior Fuels Company
4. Kenai Pipe Line Company
5. Tesoro Alaska Petroleum Company
6. Tesoro Alaska Pipeline Company
7. Tesoro Bolivia Petroleum Company
8. Tesoro Crude Oil Company
9. Tesoro E&P Company, L.P.
10. Tesoro Environmental Products Company
11. Tesoro Environmental Resources Company
12. Tesoro Equipment Company
13. Tesoro Exploration and Production Company
14. Tesoro Financial Services Holding Company
15. Tesoro Gas Resources Company, Inc.
16. Tesoro Gasoline Marketing Company
17. Tesoro Hawaii Corporation
18. Tesoro Indonesia Petroleum Company
19. Tesoro Latin America Company
20. Tesoro Marine Services Holding Company
21. Tesoro Marine Services, Inc.
22. Tesoro Natural Gas Company
23. Tesoro Northstore Company
24. Tesoro Petroleum Companies, Inc.
25. Tesoro Petroleum (Singapore) Pte. Ltd.
26. Tesoro Pipeline Company, L.P.
27. Tesoro Pump & Valve Company
28. Tesoro Refining, Marketing & Supply Company
29. Tesoro South Pacific Petroleum Corporation
30. Tesoro Technology Partners Company
31. Tesoro Vostok Company
32. Victory Finance Company
- ----------------------------------------
*Subsidiaries listed in italics are not Guarantors of the Notes
A-3
<PAGE> 34
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
A-1
<PAGE> 35
B-1
<PAGE> 1
================================================================================
TESORO PETROLEUM CORPORATION
Issuer
and
CERTAIN SUBSIDIARY GUARANTORS
9% SENIOR SUBORDINATED NOTES DUE 2008
INDENTURE
Dated as of July 2, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
Trustee
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE(1)
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06, 7.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06, 12.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
</TABLE>
N.A. means not applicable.
TABLE OF CONTENTS
- ------------------
This Cross-Reference Table is not part of this Indenture.
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<S> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 1.03 Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 1.04 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE II
THE NOTES
SECTION 2.01 Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.02 Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.03 Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.04 Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.05 Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.06 Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.07 Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 2.08 Outstanding Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 2.09 Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 2.10 Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 2.11 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 2.12 Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 2.13 CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE III
REDEMPTION AND PREPAYMENT
SECTION 3.01 Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 3.02 Selection of Notes to be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 3.03 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 3.04 Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 3.05 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 3.06 Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 3.07 Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 3.08 Mandatory Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 3.09 Offer to Purchase by Application of Excess Proceeds . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 3.10 Special Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
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<TABLE>
<S> <C>
ARTICLE IV
COVENANTS
SECTION 4.01 Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 4.02 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 4.03 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 4.04 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 4.05 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 4.06 Waiver of Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 4.07 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . . . . . . 59
SECTION 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock . . . . . . . . . . . . . . . . . . . 60
SECTION 4.10 Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 4.11 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 4.12 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 4.13 Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 4.14 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 4.15 Offer to Repurchase upon Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 4.16 No Senior Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 4.17 Limitation on Issuances and Sales of Capital Stock of Subsidiaries . . . . . . . . . . . . . . . 65
SECTION 4.18 Additional Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 4.19 Payments for Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 4.20 Collateral for Special Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE V
SUCCESSORS
SECTION 5.01 Merger, Consolidation, or Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 5.02 Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 6.02 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 6.03 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 6.04 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 6.05 Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 6.06 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
</TABLE>
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<S> <C>
SECTION 6.07 Rights of Holders of Notes to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 6.08 Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 6.09 Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 6.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 6.11 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE VII
TRUSTEE
SECTION 7.01 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 7.02 Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 7.03 Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 7.04 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 7.05 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 7.06 Reports by Trustee to Holders of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 7.07 Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 7.08 Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 7.09 Successor Trustee by Merger, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 7.10 Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 7.11 Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE VIII
SATISFACTION AND DISCHARGE; DEFEASANCE
SECTION 8.01 Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 8.02 Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 8.03 Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . 82
SECTION 8.04 Legal Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 8.05 Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 8.06 Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 8.07 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 8.08 Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 8.09 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
</TABLE>
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<S> <C>
ARTICLE IX
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01 Without Consent of Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 9.02 With Consent of Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
SECTION 9.03 Compliance with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 9.04 Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 9.05 Notation on or Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 9.06 Trustee to Sign Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
ARTICLE X
SUBORDINATION
SECTION 10.01 Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 10.02 Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 10.03 Default on Designated Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 10.04 Acceleration of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 10.05 Notice by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 10.06 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 10.07 Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 10.08 Subordination May Not Be Impaired by Company . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 10.09 Distribution or Notice to Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 10.10 Rights of Trustee and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 10.11 Authorization to Effect Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 10.12 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 10.13 Continued Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 10.14 Cumulative Rights; No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 10.15 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
ARTICLE XI
GUARANTEES
SECTION 11.01 Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 11.02 Execution and Delivery of Additional Subsidiary Guarantee or Supplemental Indenture;
Notation of Subsidiary Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 11.03 Guarantors May Consolidate, Etc., on Certain Terms . . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 11.04 Releases Following Release Under All Indebtedness or Sale of Assets . . . . . . . . . . . . . . . 98
SECTION 11.05 Limitation on Guarantor Liability; Contribution . . . . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 11.06 Trustee to Include Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
SECTION 11.07 Subordination of Subsidiary Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C>
ARTICLE XII
MISCELLANEOUS
SECTION 12.01 Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
SECTION 12.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
SECTION 12.03 Communication by Holders of Notes with Other Holders of Notes . . . . . . . . . . . . . . . . . . 101
SECTION 12.04 Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . 101
SECTION 12.05 Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . 101
SECTION 12.06 Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 12.07 No Personal Liability of Directors, Officers, Employees and Stockholders . . . . . . . . . . . . 102
SECTION 12.08 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 12.09 No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 12.10 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 12.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 12.12 Counterpart Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SECTION 12.13 Table of Contents, Headings, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
EXHIBIT A-1 (Face of Note) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A1-1
EXHIBIT A-2 (Face of Regulation S Temporary Global Note) . . . . . . . . . . . . . . . . . . . . . . . . . A2-1
EXHIBIT B Form of Certificate of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C Form of Certificate of Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
EXHIBIT D Form of Certificate from Acquiring Institutional Accredited Investor . . . . . . . . . . . . . . D-1
EXHIBIT E Form of Supplemental Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
EXHIBIT F Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
vi
<PAGE> 8
INDENTURE dated as of July 2, 1998 among Tesoro Petroleum Corporation,
a Delaware corporation (the "Company"), the subsidiaries of the Company listed
on the signature pages hereof (the "Guarantors") and U. S. Bank Trust National
Association, as trustee (the "Trustee").
The Company, the Guarantors and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the 9% Senior Subordinated Notes due 2008 (the"Initial Notes") and the 9%
Senior Subordinated Notes due 2008, Series B issued in exchange for any
Initial Notes in an Exchange Offer or upon transfer pursuant to a Shelf
Registration Statement (the "Exchange Notes" and, together with the Initial
Notes, the "Notes"):
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Adjusted Net Assets" of a Guarantor at any date means the lesser of
the amount by which (i) the fair value of the property of such Guarantor
exceeds the total amount of liabilities, including contingent liabilities
(after giving effect to all other fixed and contingent liabilities incurred or
assumed on such date), but excluding liabilities under its Subsidiary
Guarantee, of such Guarantor at such date and (ii) the present fair salable
value of the assets of such Guarantor at such date exceeds the amount that will
be required to pay the probable liability of such Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date and after giving effect to any collection from any Subsidiary of
such Guarantor in respect of the obligations of such Subsidiary under such
Subsidiary Guarantee), excluding debt in respect of such Subsidiary Guarantee,
as they become absolute and matured.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that, for
purposes of Section 4.11 hereof and the use of the term "Affiliates"
<PAGE> 9
thereunder, beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or Authenticating Agent.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and CEDEL that apply to such transfer
or exchange.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than in the ordinary course of business (provided
that the sale, lease, conveyance or other disposition of all or substantially
all of the assets of the Company and its Restricted Subsidiaries taken as a
whole will be governed by the covenants described in Sections 4.15 and 5.01
hereof and not by the provisions of Section 4.10 hereof), and (ii) the issue or
sale by the Company or any of its Restricted Subsidiaries of Equity Interests
of any of the Company's Restricted Subsidiaries, in the case of either clause
(i) or (ii), whether in a single transaction or a series of related
transactions,(a) that have a Fair Market Value in excess of $2,000,000 or (b)
for Net Proceeds in excess of $2,000,000; provided that the following will not
be deemed to be Asset Sales: (i) any transfer, conveyance, sale, lease or other
disposition of assets or rights securing the Senior Credit Facility or other
Senior Debt in connection with the enforcement of the Liens therein; (ii) any
sale or exchange of production of crude oil, natural gas and natural gas
liquids, or refined products or residual hydrocarbons, or any other asset or
right constituting inventory, made in the ordinary course of the Permitted
Business; (iii) any disposition of assets in trade or exchange for assets of
comparable Fair Market Value used or usable in any Permitted Business
(including, without limitation, the trade or exchange for a controlling
interest in another business or all or substantially all of the assets of a
business, in each case engaged in a Permitted Business or for other non-current
assets to be used in a Permitted Business, including, without limitation,
assets or Investments of the nature or type described in clause (m) of the
definition of "Permitted Investments"), provided that (x) except for trades or
exchanges of oil and gas properties and interests therein for other oil and gas
properties and interests therein, if the Fair Market Value of the assets so
disposed of, in a single transaction or in a series of related transactions, is
in excess of $20,000,000, the Company shall obtain an opinion or report from an
Independent Financial Advisor confirming that the assets received by the
Company and the Restricted Subsidiaries in such trade or exchange have a fair
market value of at least the fair market value of the assets so disposed and
(y) any cash or Cash Equivalent received by the Company or a Restricted
Subsidiary in connection with such trade or exchange (net of any transaction
costs of the type deducted under the definition of "Net Proceeds") shall be
treated as Net Proceeds of an Asset Sale and shall be applied in the manner set
forth in Section 4.10 hereof; (iv) a transfer of assets by the Company to a
Restricted Subsidiary of the Company or by a Restricted Subsidiary of the
Company to the Company or to a Restricted Subsidiary of the Company; (v) an
issuance or sale of Equity Interests by a Restricted Subsidiary of the Company
to the Company or to another Restricted Subsidiary of the Company; (vii) (A) a
Permitted Investment or (B) a Restricted Payment that is permitted by Section
4.07; (viii) the trade, sale or exchange of Cash Equivalents; (ix) the sale,
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<PAGE> 10
exchange or other disposition of obsolete assets not integral to any Permitted
Business; (x) the abandonment or relinquishment of assets or property in the
ordinary course of business, including, without limitation, the abandonment,
relinquishment or farm-out of oil and gas leases, concessions or drilling or
exploration rights or interests therein; (xi) any lease of assets entered into
in the ordinary course of business and with respect to which the Company or any
Restricted Subsidiary of the Company is the lessor and the lessee has no option
to purchase such assets for less than fair market value at any time the right
to acquire such asset occurs; (x) the disposition of assets received in
settlement of debts accrued in the ordinary course of business; and (xi) any
Production Payment created, incurred, issued, assumed or guaranteed in
connection with the financing of, and within 30 days after the acquisition of,
the oil and gas property that is subject thereto.
"BHP Note" means that certain unsecured, non-interest bearing
promissory note dated May 29, 1998 issued by the Company in the principal
amount of $50,000,000 to BHP Hawaii Inc.
"Bankruptcy Code" means Title 11, U.S. Code, as amended, or any
similar federal or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance sheet
in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participation, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
and Eurodollar time deposits with maturities of not more than one year from the
date of acquisition, bankers' acceptances with maturities of not more than one
year from the date of acquisition and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of
$500,000,000 and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from
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<PAGE> 11
Moody's Investors Service, Inc. or Standard & Poor's Rating Group with
maturities of not more than one year from the date of acquisition.
"CEDEL" means Cedel Bank, societe anonyme.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group") together with any
Affiliates thereof (whether or not otherwise in compliance with the provisions
of the Indenture), unless immediately following such sale, lease, exchange or
other transfer in compliance with the Indenture such assets are owned, directly
or indirectly, by the Company or a Wholly Owned Restricted Subsidiary of the
Company; (ii) the approval by the holders of Capital Stock of the Company of
any plan or proposal for the liquidation or dissolution of the Company; (iii)
the acquisition in one or more transactions, of beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of Voting Securities of the
Company by any Person or Group that either (A) beneficially owns (within the
meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, at least
50% of the Company's then outstanding voting securities entitled to vote on a
regular basis for the board of directors of the Company, or (B) otherwise has
the ability to elect, directly or indirectly, a majority of the members of the
Company's board of directors, including, without limitation, by the acquisition
of revocable proxies for the election of directors; or (iv) during any period
of two consecutive years, individuals who at the beginning of such period
constituted the board of directors of the Company (together with any new
directors whose election by such board of directors or whose nomination for
election by the shareholders (or members, as applicable) of the Company was
approved by a vote of 66 2/3% of the directors of the Company then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the board of directors then in office.
"Collateral" means (i) all rights, titles and interests of the Company
in and to the Escrow Agreement, (ii) the Collateral Account that may be
established pursuant to Section 4.20 hereof and all other cash or Cash
Equivalents deposited in the Collateral Account from time to time pursuant to
Section 4.20 hereof, (iii) all rights and privileges of the Company with
respect to the Collateral Account and such cash and Cash Equivalents, (iv) all
dividends, interest and other payments and distributions made on or with
respect to (a) the Company's rights, titles or interests in the Escrow
Agreement, (b) any such Cash Equivalents on deposit in the Collateral Account
or (c) the Collateral Account and (v) all proceeds of any of the foregoing, in
all cases limited to an aggregate amount not in excess of the Special
Redemption Amount.
"Commodity Hedging Agreements" means agreements or arrangements
designed to protect such Person against fluctuations in the price of (i) crude
oil, natural gas, or other hydrocarbons, including refined hydrocarbon products
or (ii) electricity and other sources of energy or power used in the Company's
refining, processing or exploration and production operations, in either case
in connection with the conduct of its business and not for speculative
purposes.
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<PAGE> 12
"Commodity Hedging Obligations" means, with respect to any Person, the
net payment Obligations of such Person under Commodity Hedge Agreements.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary, unusual or non-recurring expenses or losses
(including, whether or not otherwise includable as a separate item in the
statement of Consolidated Net Income for such period, losses on sales of assets
outside of the ordinary course of business) plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted in
computing such Consolidated Net Income), plus (ii) provision for taxes based on
income or profits of such Person and its Restricted Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
and whether or not capitalized (including, without limitation, amortization of
debt issuance costs and original issue discount, non- cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation and amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such
depreciation and amortization were deducted in computing such Consolidated Net
Income, minus (v) non-cash items increasing such Consolidated Net Income for
such period, in each case, on a consolidated basis and determined in accordance
with GAAP. Notwithstanding the foregoing, the provision for taxes on the
income or profits of, and the depreciation and amortization and other non-cash
charges of, a Restricted Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in same proportion) that the Net Income of such Restricted Subsidiary was
included in calculating the Consolidated Net Income of such Person and only if
a corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries (for such period, on a consolidated basis, determined in
accordance with GAAP); provided that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid in cash to the referent Person or a
Restricted Subsidiary, (ii) the Net Income of any Restricted Subsidiary shall
be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any
5
<PAGE> 13
prior governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, and (iv) the
cumulative effect of a change in accounting principles shall be excluded and
(v) any ceiling limitation writedowns under SEC guidelines shall be treated as
capitalized costs, as if such writedown had not occurred.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, all of the
foregoing determined in accordance with GAAP.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Facility" means, with respect to the Company or any Restricted
Subsidiary, one or more debt facilities (including, without limitation, the
Senior Credit Facility), commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, other borrowings
(including term loans), receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow
from such lenders against such receivables) or letters of credit, in each case,
as amended, restated, modified, renewed, extended, refunded, replaced or
refinanced (in each case, without limitation as to amount) in whole or in part
from time to time.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequester or similar official under the Bankruptcy Code.
"Default" means any event that is or with the passage of time or the
giving of notice (or both) would be an Event of Default.
"Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof, in the
form of Exhibit A-1 hereto except that such Note shall not bear the Global Note
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and
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<PAGE> 14
any and all successors thereto appointed as depositary hereunder and having
become such pursuant to the applicable provision of this Indenture.
"Designated Senior Debt" means (i) any Indebtedness outstanding under
the Senior Credit Facility and (ii) any other Senior Debt permitted hereunder
the principal amount of which is $25,000,000 or more and that has been
designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means, with respect to any Person, any Capital
Stock to the extent that by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable) or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature, except to the extent that such Capital Stock is solely
redeemable with, or solely exchangeable for, any Capital Stock of such Person
that is not Disqualified Stock.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Escrow Agreement" means that certain Escrow Agreement dated as of
July 2, 1998 by and among Shell Refining Holding Company, the Company and U.S.
Bank Trust National Association, as escrow agent, as may be modified or amended
from time to time.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" has the meaning set forth in the preamble of this
Indenture.
"Exchange Offer" has the meaning set forth in a corresponding
Registration Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in a
corresponding Registration Rights Agreement.
"Existing Indebtedness" means the BHP Note and up to an additional
$25,000,000 in aggregate amount of principal, letters of credit reimbursement
obligations or Capital Lease
7
<PAGE> 15
Obligations, of Indebtedness of the Company and its Restricted Subsidiaries
(other than Indebtedness under the Senior Credit Facility and the Notes) in
existence on the Issue Date.
"Fair Market Value" means, with respect to consideration received or
to be received, or given or to be given, pursuant to any transaction by the
Company or any Restricted Subsidiary, the fair market value of such
consideration as determined in good faith by the Board of Directors of the
Company.
"Financial Hedging Obligations" means, with respect to any Person, the
net payment Obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates incurred or entered into in the
ordinary course of its business and not for speculative purposes.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation or duplication, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), (ii) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period, (iii) any interest
expense on Indebtedness of another Person that is guaranteed by such Person or
one of its Restricted Subsidiaries or secured by a Lien on assets of such
Person or one of its Restricted Subsidiaries (whether or not such guarantee or
Lien is called upon) and (iv) the product of (a) all dividend payments, whether
or not in cash, on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of the Company (other than Disqualified
Stock), times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP; provided that interest
attributable to Dollar-Denominated Production Payments shall be excluded from
Fixed Charges.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings under any
Credit Facility) or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation
Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, guarantee or redemption of
Indebtedness, or such issuance or redemption of preferred stock, as if the same
had occurred at the beginning of the applicable four-quarter
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<PAGE> 16
reference period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, (ii) the Consolidated
Cash Flow attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the Calculation
Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, the statements and pronouncements of
the Financial Accounting Standards Board and such other statements by such
other entities as have been approved by a significant segment of the accounting
profession, which are applicable at the date of determination.
"Global Note Legend" means the legend set forth in Section 2.06(g)(ii)
hereof, which is required to be placed on all Global Notes issued under this
Indenture.
"Global Notes" means, individually and collectively, each of the Notes
(which may be either Restricted Global Notes or Unrestricted Global Notes)
issued or issuable in the global form of Exhibit A-1 (or in the case of
Regulation S Temporary Global Notes, Exhibit A-2) hereto issued in accordance
with Section 2.01, 2.06(b)(iv), 2.06(d)(iv) or 2.06(f) hereof.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantees
or obligations the full faith and credit of the United States is pledged.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof or pledging assets to secure), of
all or any part of any Indebtedness.
"Guarantors" means (i) each of Tesoro Petroleum Companies, Inc.,
Digicomp Inc., Tesoro Financial Services Holding Company, Victory Finance
Company, Tesoro Alaska Petroleum Company, Interior Fuels Company, Kenai Pipe
Line Company, Tesoro Alaska Pipeline Company, Tesoro Northstore Company, Tesoro
Refining, Marketing & Supply Company, Tesoro Vostok Company, Tesoro Exploration
and Production Company, Tesoro Gas Resources Company, Inc., Tesoro E&P Company,
L.P., Tesoro Natural Gas Company, Tesoro Pipeline Company, L.P., Tesoro
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<PAGE> 17
Bolivia Petroleum Company, Tesoro Latin America Company, Tesoro Marine Services
Holding Company, Tesoro Marine Services, Inc., Tesoro Hawaii Corporation
(formerly known as BHP Petroleum Americas Refining Inc.) and Tesoro Petroleum
South Pacific Petroleum Company (formerly known as BHP Petroleum South Pacific
Inc.), (ii) each of the Company's Restricted Subsidiaries that becomes a
guarantor of the Notes pursuant to Section 4.18 hereof and (iii) each of the
Company's Restricted Subsidiaries executing a supplemental indenture in which
such Restricted Subsidiary agrees to be bound by the terms of the Indenture;
provided that any Person constituting a Guarantor as described above shall
cease to constitute a Guarantor when its respective Subsidiary Guarantee is
released in accordance with the terms thereof.
"Hedging Obligations" means, with respect to any Person, collectively,
the Commodity Hedging Obligations of such Person and the Financial Hedging
Obligations of such Person.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, without duplication,
(i) (A) the principal of and premium, if any, with respect to indebtedness of
such Person for borrowed money or evidenced by bonds, notes, debentures or
similar instruments, (B) reimbursement obligations of such Person for letters
of credit or banker's acceptances, (C) Capital Lease Obligations of such
Person, (D) obligations of such Person for the payment of the balance deferred
and unpaid of the purchase price of any property except any such balance that
constitutes an accrued expense or trade payable or (E) Hedging Obligations, in
each case of the foregoing subclauses (A) through (E) if and to the extent any
of the foregoing obligations or indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, (ii) obligations or indebtedness of
others of the type referred to in the subclauses (A) through (E) of the
foregoing clause (i) that are secured by a Lien on any asset of such Person
(whether or not such Indebtedness is assumed by such Person), but in an amount
not to exceed the lesser of the amount of such other Person's obligation or
indebtedness or the Fair Market Value of such asset, (iii) to the extent not
otherwise included, the guarantee by such Person of any obligations or
indebtedness of others of the type referred to in the subclauses (A) through
(E) of the foregoing clause (i), whether or not such guarantee is contingent,
and whether or not such guarantee appears on the balance sheet of such Person
and (iv) with respect to any such Production Payment, any warranties or
guarantees of production or payment by such Person with respect to such
Production Payment but excluding other contractual obligations of such Person
with respect to any Production Payment. The amount of any Indebtedness
outstanding as of any date shall be (a) the accreted value thereof, in the case
of any Indebtedness that does not require current payments of interest, and (b)
the principal amount thereof in the case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Independent Financial Advisor" means a nationally recognized
accounting, appraisal or investment banking firm that is, in the reasonable
judgment of the Board of Directors, qualified to perform the task for which
such firm has been engaged hereunder and disinterested and independent
10
<PAGE> 18
with respect to the Company and its Affiliates; provided, that providing
accounting, appraisal or investment banking services to the Company or any of
its Affiliates or having an employee, officer or other representative serving
as a member of the Board of Directors of the Company or any of its Affiliates
will not disqualify any firm from being an Independent Financial Advisor.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act.
"Initial Purchasers" has the meaning set forth in the Purchase
Agreement.
"Initial Notes" has the meaning set forth in the preamble of this
Indenture.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other Obligations),
advances or capital contributions (excluding commission, travel and
entertainment, moving, and similar advances to officers and employees made in
the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP. If the Company or any of its
Restricted Subsidiaries sells or otherwise disposes of any Equity Interests of
any direct or indirect Restricted Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
direct or indirect Restricted Subsidiary of the Company, the Company, or such
Restricted Subsidiary, as the case may be, shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the Fair Market
Value of the Equity Interests of such Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the fourth paragraph of
Section 4.07 hereof.
"Issue Date" means the first date on which the Notes are issued,
authenticated and delivered under the Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of Initial Notes for use by such
Holders in connection with an Exchange Offer.
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<PAGE> 19
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain
(but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale),
net of the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting, investment banking and brokers' fees, sales and
underwriting commission and other reasonable costs incurred in preparing such
asset for sale) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available
tax credits or deductions and any tax sharing arrangements), amounts required
to be applied to the repayment of Indebtedness (other than Indebtedness under
any Credit Facility) secured by a Lien on the asset or assets that were the
subject of such Asset Sale and any reserve for adjustment (whether or not
placed in escrow) in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Non-Recourse Indebtedness" means Indebtedness (i) as to which neither
the Company nor any of its Restricted Subsidiaries, (a) provides any guarantee
or credit support of any kind (including any undertaking, guarantee, indemnity,
agreement or instrument that would constitute Indebtedness) or (b) is directly
or indirectly liable (as a guarantor or otherwise), (ii) the incurrence of
which will not result in any recourse against any of the assets of the Company
or its Restricted Subsidiaries, and (iii) no default with respect to which
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company or any of its Restricted Subsidiaries to declare
pursuant to the express terms governing such Indebtedness a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its Stated Maturity.
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<PAGE> 20
"Non-U.S. Person" means a person who is not a U.S. Person.
"Note Custodian" means the Trustee, as custodian for the Depositary
with respect to the Notes in global form, or any successor entity thereto.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Obligations" means any principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company or its Restricted
Subsidiaries whether or not a claim for post-filing interest is allowed in such
proceeding), penalties, fees, charges, expenses, indemnifications,
reimbursement obligations, damages (including Liquidated Damages), guarantees
(including the Subsidiary Guarantees) and other liabilities or amounts payable
under the documentation governing any Indebtedness or in respect thereof.
"Offering" means the offering of the Original Notes by the Company on
the Issue Date.
"Offering Memorandum" means the Offering Memorandum of the Company
dated June 29, 1998 with respect to the Offering.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Participant" means, with respect to DTC, Euroclear or CEDEL, a Person
who has an account with DTC, Euroclear or CEDEL, respectively (and, with
respect to DTC, shall include Euroclear and CEDEL).
"Participating Broker-Dealer" has the meaning set forth in a
Registration Rights Agreement.
"Permitted Business" means, with respect to the Company and its
Restricted Subsidiaries, the businesses of (i) the acquisition, exploration,
development, operation and disposition of interests in oil, gas and other
hydrocarbon properties, (ii) the acquisition, gathering, treating, processing,
storage, transportation of production from such interests or properties, (iii)
the acquisition,
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<PAGE> 21
processing, marketing, refining, distilling, storage and/or transportation of
hydrocarbons and/or royalty or other interests in crude oil or refined or
associated products related thereto, (iv) the acquisition, operation,
improvement, leasing and other use of convenience stores, retail service
stations, truck stops and other public accommodations in connection therewith,
(v) the marketing and distribution of petroleum and marine products and the
provision of logistical services to marine and offshore exploration and
production industries, (vi) any business currently engaged in by the Company or
its Restricted Subsidiaries and (vii) any activity or business that is a
reasonable extension, development or expansion of, or reasonably related to,
any of the foregoing.
"Permitted Debt" means (i) the incurrence by the Company and the
Guarantors of Indebtedness represented by the Original Notes, any Exchange
Notes and the Subsidiary Guarantees; (ii) the incurrence by the Company or any
Guarantor of Indebtedness and letters of credit pursuant to the Senior Credit
Facility (with letters of credit being deemed to have a principal amount equal
to the maximum potential liability of the Company or its Restricted
Subsidiaries for reimbursement obligations thereunder) in an aggregate
principal amount not to exceed $500,000,000 at any one time outstanding, less
the aggregate amount of all proceeds of Assets Sales that have been applied
since the Issue Date to permanently reduce the outstanding amount of such
Indebtedness pursuant to Section 4.10 hereof; (iii) the incurrence by the
Company or any of its Restricted Subsidiaries of Existing Indebtedness; (iv)
the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred; (v) the
incurrence by the Company or any of its Restricted Subsidiaries of intercompany
Indebtedness between or among the Company and any of its Restricted
Subsidiaries; provided, however, that (A) if the Company is the obligor, or any
Guarantor is the obligor and the Company is not the obligee, on such
Indebtedness, such Indebtedness is expressly subordinate to the payment in full
of all Obligations with respect to the Notes and (B) (1) any subsequent
issuance or transfer of Equity Interests that results in any such Indebtedness
being held by a Person other than the Company or a Restricted Subsidiary and
(2) any sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Restricted Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be; (vi) the incurrence by the Company or any of
its Restricted Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligations, in each case
incurred for the purpose of financing all or any part of the purchase price or
cost of construction or improvement of property, plant or equipment used in the
Permitted Business (including, without limitation, oil and gas properties) of
the Company or a Restricted Subsidiary or incurred to extend, refinance, renew,
replace, defease or refund any such purchase price or cost of construction or
improvement, in each case in an aggregate principal amount not to exceed
$50,000,000 at any time outstanding, provided that, in each case, such
Indebtedness is incurred within 30 days of the later of the date of purchase or
the date of completion of such construction or improvement; (vii) the
incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness
incurred in the ordinary course of business under (A) documentary letters of
credit, or surety bonds or insurance contracts, which are to be repaid in full
not more than one year after the date on which such Indebtedness is originally
incurred to finance the purchase of goods by the
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<PAGE> 22
Company or a Restricted Subsidiary of the Company, provided that the amount of
such Indebtedness shall not exceed $20,000,000 at any time outstanding; (B)
standby letters of credit, surety bonds or insurance contracts, issued for the
purpose of supporting (1) workers' compensation or similar liabilities of the
Company or any of its Restricted Subsidiaries, or (2) performance, payment,
deposit or surety obligations of the Company or any of its Restricted
Subsidiaries; and (C) bid, advance payment and performance bonds, and surety
bonds, or similar insurance contracts, of the Company and its Restricted
Subsidiaries, and refinancings thereof; (viii) the incurrence by the Company or
any of its Restricted Subsidiaries of Indebtedness consisting of (A) Financial
Hedging Obligations that are either (1) incurred for the purpose of fixing or
hedging interest rate risk related to Indebtedness permitted to be incurred by
the Company or its Restricted Subsidiaries pursuant to the Indenture, but only
to the extent that the stated aggregate notional amounts thereunder do not
exceed 105% of the aggregate principal amount of the Indebtedness to which such
obligations relate or (2) incurred in the ordinary course of business for the
purpose of limiting or managing currency exchange risks, and (B) Commodity
Hedging Obligations in connection with the conduct of a Permitted Business and,
in the case of each of clauses (A) and (B) hereof, not for speculative
purposes; (ix) the incurrence by the Company or any of its Restricted
Subsidiaries of in-kind obligations relating to overproduced gas balancing
positions arising in the ordinary course of business; (x) Indebtedness arising
from agreements of the Company or any of its Restricted Subsidiaries providing
for indemnification, adjustment of purchase price or similar obligations, in
each case, incurred in connection with the disposition or acquisition of any
business, assets or a Restricted Subsidiary of the Company or any of its
Restricted Subsidiaries, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or a Restricted
Subsidiary of the Company or any of its Restricted Subsidiaries for the
purposes of financing such acquisition; provided, however, that (A) such
Indebtedness is not reflected on the balance sheet of the Company or any of its
Restricted Subsidiaries (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet will not
be deemed to be reflected on such balance sheet for purposes of this clause
(A)) and (B) the maximum liability in respect of all such Indebtedness shall at
no time exceed the gross proceeds including noncash proceeds (the Fair Market
Value of such noncash proceeds being measured at the time received and without
giving effect to any subsequent changes in value) actually received by the
Company and its Restricted Subsidiaries in connection with such disposition;
(xi) the guarantee by the Company or any of the Guarantors of Indebtedness of
the Company or a Restricted Subsidiary of the Company that was permitted to be
incurred by Section 4.09 hereof (other than pursuant to this clause (xi));
provided, that the guarantee of any Indebtedness by a Restricted Subsidiary of
the Company that ceases to be such a Restricted Subsidiary shall be deemed a
Restricted Investment at the time such Restricted Subsidiary's status
terminates in an amount equal to the maximum principal amount so guaranteed,
for so long as, and to the extent that, such guarantee remains outstanding;
(xii) the issuance by a Restricted Subsidiary of the Company of preferred stock
to the Company or to any of its Wholly Owned Restricted Subsidiaries; provided,
however, that any subsequent event or issuance or transfer of any Equity
Interests that results in the owner of such preferred stock ceasing to be the
Company or any of its Wholly Owned Restricted Subsidiaries or any subsequent
transfer of such preferred stock to a Person, other than the Company or one of
its Restricted Subsidiaries, shall be deemed to be an issuance of preferred
stock by such Subsidiary that was not permitted by this clause (xii); and
(xiii)
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<PAGE> 23
the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of this
paragraph) in an aggregate principal amount (or accreted value, as applicable)
at any time outstanding not to exceed $50,000,000.
"Permitted Investments" means (a) any Investment in the Company or in
a Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents
or deposit accounts maintained in the ordinary course of business consistent
with past practices; (c) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person, if as a result of such Investment (i)
such Person becomes a Restricted Subsidiary of the Company or (ii) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company; (d) any security or other Investment
received or Investment made as a result of the receipt of non-cash
consideration from (i) an Asset Sale that was made pursuant to and in
compliance with the covenant described in Section 4.10 hereof or (ii) a
disposition of assets that do not constitute an Asset Sale; (e) any acquisition
of assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company; (f) any Investment received in settlement
of debts, claims or disputes owed to the Company or any Restricted Subsidiary
of the Company that arose out of transactions in the ordinary course of
business; (g) any Investment received in connection with or as a result of a
bankruptcy, workout or reorganization of any Person; (h) advances and
extensions of credit in the nature of accounts receivable arising from the sale
or lease of goods or services or the licensing of property in the ordinary
course of business; (i) relocation allowances for, and advances and loans to,
employees, officers and directors, approved by the Board of Directors (or
authorized officer) (including, without limitation, loans and advances the net
cash proceeds of which are used solely to purchase Equity Interests of the
Company in connection with restricted stock or employee stock purchase plans,
or to exercise stock received pursuant thereto or other incentive plans in a
principal amount not to exceed the aggregate exercise or purchase price), or
loans to refinance principal and accrued interest on any such loans, provided
that the aggregate principal amount of such loans, advances and allowances
shall not exceed at any time $10,000,000; (j) other Investments by the Company
or any Restricted Subsidiary of the Company in any Person having an aggregate
Fair Market Value (measured as of the date each such Investment is made and
without giving effect to subsequent changes in value), when taken together with
all other Investments made pursuant to this clause (j) (net of returns of
capital, dividends and interest paid on Investments and sales, liquidations and
redemptions of Investments), not in excess of the greater of $50,000,000 and
15% of the Consolidated Net Worth of the Company; (k) Investments in the form
of intercompany Indebtedness or Guarantees of Indebtedness of a Restricted
Subsidiary of the Company permitted under clauses (v) and (xii) of the
definition of "Permitted Debt"; (l) Investments arising in connection with
Hedging Obligations that are incurred in the ordinary course of business for
the purpose of fixing or hedging currency, commodity or interest rate risk in
connection with the conduct of the business of the Company and its Subsidiaries
and not for speculative purposes; (m) Investments in the form of, or pursuant
to, operating agreements, joint ventures, partnership agreements, working
interests, royalty interests, mineral leases, processing agreements, farm-out
agreements, contracts for the sale, transportation or exchange of oil and
natural gas, unitization agreements, pooling agreements, area of mutual
interests agreements, production sharing agreements or other similar or
customary
16
<PAGE> 24
agreements, transactions, properties, interests or arrangements, and
Investments and expenditures in connection therewith or pursuant thereto, in
each case made or entered into in the ordinary course of the business described
in clauses (i) and (ii) of the definition of "Permitted Business" excluding,
however, investments in corporations; and (n) Investments pursuant to
agreements and obligations of the Company and any Restricted Subsidiary in
effect on the Issue Date.
"Permitted Junior Securities" means (i) Equity Interests in the
Company or any Guarantor which, to the extent received by any Holder in
connection with any bankruptcy, reorganization, insolvency or similar
proceeding in which any Equity Interests are also exchanged for or distributed
in respect of Senior Debt, are either common equity securities or are
subordinated to all such Equity Interests so exchanged or distributed to
substantially the same extent as, or to a greater extent than, the Notes are
subordinated to Senior Debt pursuant to the Indenture, and (ii) debt securities
that are subordinated to all Senior Debt (and any debt securities issued in
exchange for Senior Debt) to substantially the same extent as, or to a greater
extent than, the Notes are subordinated to Senior Debt pursuant to the
Indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness), including Indebtedness that extends,
refinances, renews, replaces, defeases or refunds Permitted Refinancing
Indebtedness; provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus accrued and unpaid
interest on, the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus fees and expenses incurred in connection therewith,
including any premium or defeasance cost); (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or a Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, limited liability company,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
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<PAGE> 25
"preferred stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the
holders of the other Capital Stock issued by such Person.
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) hereof to be placed on all Notes issued under this Indenture except
where otherwise permitted by the provisions of this Indenture.
"Production Payment" means, collectively, Dollar-Denominated
Production Payments and Volumetric Production Payments.
"Public Equity Offering" means any public underwritten offering by the
Company of Voting Stock (other than Disqualified Stock) of the Company pursuant
to registration under the Securities Act of 1933, as amended, made pursuant to
an underwriting or similar agreement executed and delivered after the Issue
Date.
"Purchase Agreement" means the Purchase Agreement dated June 29, 1998
among the Company and the Initial Purchasers (as defined therein) relating to
the Offering.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registration Rights Agreement" means (i) the Registration Rights
Agreement, dated as of the Issue Date, by and among the Company and the other
parties named on the signature pages thereof relating to the Original Notes,
attached hereto as Exhibit F, and (ii) any similar agreement that the Company
and other parties may enter into in relation to any other Initial Notes, in
each case as such agreement may be amended, modified or supplemented from time
to time.
"Regulation S" means Regulation S promulgated under the Securities
Act.
"Regulation S Global Note" means a Regulation S Temporary Global Note
or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global Note in
the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global Note in
the form of Exhibit A-2 hereto bearing the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee, issued in a denomination equal to the outstanding principal amount
of the Notes initially sold in reliance on Rule 903 of Regulation S.
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<PAGE> 26
"Representative" means the administrative agent under the Senior
Credit Facility or its successor thereunder or any other agent or
representative on behalf of the holders of Designated Senior Debt.
"Responsible Officer," when used with respect to the Trustee, means
any officer, including, without limitation, any vice president, assistant vice
president, assistant treasurer or secretary within the Corporate Trust
Administration of the Trustee (or any successor group of the Trustee) or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to particular corporate trust matter, any other officer or employee to whom
such matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day distribution compliance period as
set forth in Regulation S, which period shall be terminated with respect to any
Regulation S Temporary Global Note as provided in Section 2.01.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referenced Person that is not an Unrestricted Subsidiary or a direct or
indirect Subsidiary of an Unrestricted Subsidiary; provided that, on the Issue
Date, all Subsidiaries of the Company shall be Restricted Subsidiaries of the
Company.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Note" means the Global Note in the form of Exhibit
A-1 hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with and registered in the name of the Depositary or its nominee that
will be issued in a denomination equal to the outstanding principal amount of
the Notes sold in reliance on Rule 144A.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
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"Senior Credit Facility" means that certain Third Amended and Restated
Credit Agreement, dated as of the Issue Date, by and among the Company, Lehman
Brothers Inc., as Arranger, Lehman Commercial Paper Inc., as Syndication Agent,
and certain other lenders and agents, providing for up to $200,000,000 of term
loan borrowings and $300,000,000 of revolving credit borrowings and letters of
credit in each case, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith and in
each case as amended, modified, renewed, restated, refunded, replaced or
refinanced (in each case, without limitation as to amount), in whole or in
part, from time to time and any agreements (and related documents) governing
Indebtedness incurred to refund or refinance credit extensions and commitments
then outstanding or permitted to be outstanding under such Senior Credit
Facility, whether by the same or any other lender or group of lenders. The
Company shall promptly notify the Trustee of any other lender or group of
lenders. The Company shall promptly notify the Trustee of any such refunding
or refinancing of the existing Senior Credit Facility.
"Senior Debt" means (i) Indebtedness of the Company or any Guarantor
for money borrowed and all obligations of such Person under, or with respect
to, the Senior Credit Facility or any other Credit Facility, whether direct or
indirect, under guarantees, letters of credit, foreign currency or interest
rate swaps, foreign exchange contracts, caps, collars, options, hedges or other
agreements or arrangements designed to protect against fluctuations in currency
values or interest rates, other extensions of credit, expenses, fees,
reimbursements, indemnities and all other amounts (including interest at the
contract rate accruing on or after the filing of any petition in bankruptcy or
reorganization relating to the Company or any Guarantor whether or not a claim
for post-filing interest is allowed in such proceeding), (ii) the principal of
and premium, if any, and accrued and unpaid interest, whether existing on the
date hereof or hereafter incurred, in respect of (A) indebtedness of the
Company or any Guarantor for money borrowed, (B) guarantees by the Company or
any Guarantor of indebtedness for money borrowed by any other Person, (C)
indebtedness evidenced by notes, debentures, bonds, or other instruments for
the payment of which the Company or any Guarantor is responsible or liable, by
guarantees or otherwise, (D) obligations of the Company or any Guarantor for
the reimbursement of any obligor on any letter of credit, banker's acceptance
or similar credit transaction, (E) obligations of the Company or any Guarantor
under any agreement to lease, or any lease of, any real or personal property
which, in accordance with GAAP, is classified on the Company's or any
Guarantor's consolidated balance sheet as a liability, and (F) obligations of
the Company or any Guarantor under interest rate swaps, caps, collars, options
and similar arrangements and commodity or foreign currency hedges and (iii)
modifications, renewals, extensions, replacements, refinancings and refundings
of any such indebtedness, obligations or guarantees, unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding,
it is expressly provided that such indebtedness, obligations or guarantees, or
such modifications, renewals, extensions, replacements, refinancings or
refundings thereof, are not superior in right of payment to the Notes; provided
that Senior Debt will not be deemed to include (a) Indebtedness represented by
preferred stock, (b) any obligation of the Company or any Guarantor to any
Subsidiary or other Affiliate, (c) any liability for federal, state, local or
other taxes owed or owing by the Company or any Guarantor, (d) any accounts
payable or other liability to trade creditors, (e) any Indebtedness, guarantee
or obligation of the Company or any Guarantor which is
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<PAGE> 28
expressly subordinate or junior by its terms in right of payment to any other
Indebtedness, guarantee or obligation of the Company or any Guarantor, (f) that
portion of any Indebtedness incurred in violation of Section 4.09 hereof (other
than Indebtedness incurred under a Credit Facility if prior to the incurrence
thereof or, in the case of contingent obligations such as letters of credit
pursuant to which such Indebtedness is incurred, prior to the issuance thereof
or agreement to extend credit in respect thereof, the Company has certified to
the lenders under such Credit Facility that such incurrence or extension of
credit does not violate such covenant) or (g) Indebtedness of the Company or
any Guarantor which is classified as non-recourse in accordance with GAAP or
any unsecured claim arising in respect thereof by reason of the application of
Section 1111(b) (1) of the Bankruptcy Code.
"Shelf Registration Statement" has the meaning set forth in a
corresponding Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issue Date.
"Stated Maturity" means, with respect to any installment of interest
or principal, or sinking fund or mandatory redemption of principal, on any
series of Indebtedness, the date on which such payment of interest or principal
was scheduled to be paid or made, as applicable, in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or an entity described in clause (i)
and related to such Person or (b) the only general partners of which are such
Person or of one or more entities described in clause (i) and related to such
Person (or any combination thereof).
"Subsidiary Guarantee" means the guarantee of the Notes (including any
Exchange Notes) by each of the Guarantors pursuant to Article XI hereof and in
the related form of guarantee notation endorsed on the form of Note attached
hereto as Exhibit A-1 or A-2 and any additional guarantee of the Notes
(including any Exchange Notes) to be executed by any Restricted Subsidiary of
the Company pursuant to Section 4.18.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
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"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes that
do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent Global Note in the form
of Exhibit A-1 attached hereto that bears the Global Note Legend and that has
the "Schedule of Exchanges of Interests in the Global Note" attached thereto,
and that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary of the Company) that
is designated by the Board of Directors as an Unrestricted Subsidiary pursuant
to a resolution of the Board of Directors as certified in an Officers'
Certificate delivered to the Trustee and (ii) each Subsidiary of an
Unrestricted Subsidiary, whenever it shall become such a Subsidiary. The Board
of Directors may designate any Subsidiary of the Company to become an
Unrestricted Subsidiary if it (a) has no Indebtedness other than Non-Recourse
Indebtedness; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained, in light of all the circumstances, at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Persons to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) does
not own any Capital Stock of or own or hold any Lien on any property of, the
Company or any Restricted Subsidiary of the Company; and (f) would constitute
an Investment which the Company could make in compliance with Section 4.07.
Notwithstanding the foregoing, if, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred as of such date.
"U.S." means the United States of America.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
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<PAGE> 30
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.
"Washington Acquisition" means the purchase by the Company of all of
the outstanding capital stock of Shell Anacortes Refining Company, an
affiliate of Shell Oil Company, which is being made in connection with the
Offering.
"Washington Agreement" means the Stock Purchase Agreement, dated as of
May 1, 1998, by and among the Company, as buyer, Shell Refining Holding
Company, as seller, and Shell Anacortes Refining Company entered into for the
purpose of effecting the Washington Acquisition, as such agreement may be
modified or amended from time to time.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of a Person means a Restricted
Subsidiary of such Person to the extent (i) all of the outstanding Capital
Stock and other Equity Interests of which (other than director's qualifying
shares) shall be directly or indirectly owned by such Person or (ii) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such jurisdiction to be partially owned
by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction or another foreign jurisdiction in order
for such Restricted Subsidiary to transact business in such foreign
jurisdiction, provided that such Person, directly or indirectly, owns the
remaining Capital Stock or ownership interests in such Restricted Subsidiary
and, by contract or otherwise, derives the economic benefits of ownership of
such Restricted Subsidiary to substantially the same extent as if such
Restricted Subsidiary were a wholly owned Restricted Subsidiary.
SECTION 1.02 Other Definitions.
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
---- ----------
<S> <C>
"Affiliate Transaction" .................................. 4.11
"Asset Sale Offer" ....................................... 3.09
"Change of Control Offer" ................................ 4.15
"Change of Control Payment" .............................. 4.15
"Change of Control Payment Date" ......................... 4.15
"Collateral Account" ..................................... 4.20(c)
"Collateral Funds"" ...................................... 4.20(d)
</TABLE>
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<PAGE> 31
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
---- ----------
<S> <C>
"Covenant Defeasance" ..................................................... 8.03
"DTC" ..................................................................... 2.03
"Event of Default" ........................................................ 6.01
"Excess Proceeds" ......................................................... 4.10
"Funding Guarantor" ....................................................... 11.05
"incur" ................................................................... 4.09
"Legal Defeasance" ........................................................ 8.02
"Nonpayment Default" ...................................................... 10.03
"Offer Amount" ............................................................ 3.09
"Offer Period" ............................................................ 3.09
"Original Notes" .......................................................... 2.02
"Paying Agent" ............................................................ 2.03
"Payment Blockage Default ................................................. 10.03
"Payment Default" ......................................................... 6.01
"Permitted Debt" .......................................................... 4.09
"Purchase Date" ........................................................... 3.09
"Registrar" ............................................................... 2.03
"Restricted Payments" ..................................................... 4.07
"Special Redemption" ...................................................... 3.01
"Special Redemption Amount" ............................................... 4.20(a)
"Special Redemption Date" ................................................. 3.10
"Special Redemption Price" ................................................ 3.10
</TABLE>
SECTION 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes means the Company and any successor obligor upon
the Notes.
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<PAGE> 32
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
SECTION 1.04 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive, and "including" means "including
without limitation," "including but not limited to" or words of similar import;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.
ARTICLE II
THE NOTES
SECTION 2.01 Form and Dating.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A-1 (or in the case of a Regulation S
Temporary Global Note, Exhibit A-2) hereto. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each
Note shall be dated the date of its authentication. The Notes shall be in
denominations of $1,000 and integral multiples thereof. Subject to Section
4.18 and 11.02 hereof, the Notes may bear notations of Subsidiary Guarantees.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture, and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note or any notation of Subsidiary Guarantees thereon
conflicts with the express provisions of this Indenture, the provisions of this
Indenture shall govern and be controlling.
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<PAGE> 33
Notes issued in global form shall be substantially in the form of
Exhibit A-1 or A-2 attached hereto (including the Global Note Legend and the
"Schedule of Exchanges in the Global Note" attached thereto). Notes issued in
definitive form shall be substantially in the form of Exhibit A-1 attached
hereto (but without the Global Note Legend and without the "Schedule of
Exchanges of Interests in the Global Note" attached thereto). Each Global Note
shall represent such of the outstanding Notes as shall be specified therein and
each shall provide that it shall represent the aggregate principal amount of
outstanding Notes from time to time endorsed thereon and that the aggregate
principal amount of outstanding Notes represented thereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges and redemptions.
Any endorsement of a Global Note to reflect the amount of any increase or
decrease in the aggregate principal amount of outstanding Notes represented
thereby shall be made by the Trustee, the Depositary or the Note Custodian, at
the direction of the Trustee, in accordance with instructions given by the
Holder thereof as required by Section 2.06 hereof.
Notes offered and sold in reliance on Regulation S shall be issued
initially in the form of the Regulation S Temporary Global Note, which shall be
deposited on behalf of the purchasers of the Notes represented thereby with the
Trustee, as Note Custodian for the Depositary, and registered in the name of
the nominee of the Depositary for credit to the accounts of designated agents
holding on behalf of Euroclear or CEDEL, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The Restricted Period
shall be terminated upon the receipt by the Trustee of (i) a written
certificate from the Depositary, together with copies of certificates from
Euroclear and CEDEL certifying that they have received certification of
non-United States beneficial ownership of 100% of the aggregate principal
amount of the Regulation S Temporary Global Note (except to the extent of any
beneficial owners thereof who acquired an interest therein during the
Restricted Period pursuant to another exemption from registration under the
Securities Act and who will take delivery of a beneficial ownership interest in
a Rule 144A Global Note or a Restricted Definitive Note bearing a Private
Placement Legend, to the extent permitted by Section 2.06(b) hereof) or an
Opinion of Counsel to the effect that no such certification is required under
Regulation S, and (ii) an Officers' Certificate from the Company certifying to
the effect that the 40-day distribution compliance period applicable to the
Regulation S Temporary Global Note has expired. Following the termination of
the Restricted Period, beneficial interests in the Regulation S Temporary
Global Note shall be exchanged for beneficial interests in one or more
Regulation S Permanent Global Notes pursuant to the Applicable Procedures.
Simultaneously with the authentication of Regulation S Permanent Global Notes,
the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate
principal amount of the Regulation S Temporary Global Note and the Regulation S
Permanent Global Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depositary or its
nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
The provisions of the "Operating Procedures of the Euroclear System" and
"Terms and Conditions Governing Use of Euroclear" and the "General Terms and
Conditions of Cedel Bank" and "Customer Handbook" of CEDEL shall be applicable
to transfers of beneficial interests in the
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<PAGE> 34
Regulation S Temporary Global Note and the Regulation S Permanent Global Notes
that are held by members of, or Participants, in DTC through Euroclear or
CEDEL.
SECTION 2.02 Execution and Authentication.
One Officer shall sign the Notes for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall authenticate (i) the Initial Notes for original
issue on the Issue Date in the aggregate principal amount of $300,000,000 (the
"Original Notes"), (ii) additional Initial Notes for original issue from time
to time after the Issue Date in such principal amounts as may be set forth in a
written order of the Company described in this sentence and not to exceed the
aggregate principal amount of $50,000,000 and (iii) any Exchange Notes from
time to time for issue only in exchange for a like principal amount of Initial
Notes, in each case, upon a written order of the Company signed by one Officer,
which written order shall specify (a) the amount of Notes to be authenticated
and the date of original issue thereof, (b) whether the Notes are Initial Notes
or Exchange Notes and (c) the amount of Notes to be issued in global form or
definitive form. The aggregate principal amount of Notes outstanding at any
time may not exceed $300,000,000 plus such additional principal amounts as may
be issued and authenticated pursuant to clause (ii) of this paragraph, except
as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
SECTION 2.03 Registrar and Paying Agent.
The Company shall maintain an office or agency within the City and
State of New York where Notes may be presented for registration of transfer or
for exchange ("Registrar") and an office or agency where Notes may be presented
for payment ("Paying Agent"). The Registrar shall keep a register of the Notes
and of their transfer and exchange. The Company may appoint one or more
co-registrars and one or more additional paying agents. The term "Registrar"
includes any co-registrar and the term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company shall promptly notify the Trustee in writing
of the name and address of any Agent not a party to this Indenture. If
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<PAGE> 35
the Company fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act as such. The Company or any of its Subsidiaries
may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes. The Trustee has been
appointed by DTC to act as Note Custodian with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent.
SECTION 2.04 Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, or premium or Liquidated Damages, if any, or interest on, the
Notes, and will notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or an
Affiliate of the Company (including any Subsidiary) acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Company, the Trustee shall serve as Paying Agent for
the Notes.
SECTION 2.05 Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company shall provide to a Responsible Officer of the
Trustee at least seven Business Days before each interest payment date and at
such other times as the Trustee may request in writing, a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of the Holders of Notes and the Company shall otherwise comply with TIA Section
312(a).
SECTION 2.06 Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global Notes
will be exchanged by the Company for Definitive Notes if (i) the Company
delivers to the Trustee notice from the Depositary that it is unwilling or
unable to continue to act as Depositary for the Global Notes or that it is no
longer a clearing agency registered under the Exchange Act and, in
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<PAGE> 36
either case, a successor Depositary is not appointed by the Company within 90
days after the date of such notice from the Depositary or (ii) the Company in
its sole discretion notifies the Trustee in writing that it elects to cause
issuance of the Notes in certificated form; provided that in no event shall the
Regulation S Temporary Global Note be exchanged by the Company for Definitive
Notes prior to (x) the expiration of the Restricted Period and (y) the receipt
by the Registrar of any certificates required pursuant to Rule 903 under the
Securities Act or an Opinion of Counsel to the effect that such certificates
are not required pursuant to Rule 903. Upon the occurrence of either of the
preceding events in (i) or (ii) above, Definitive Notes shall be issued in such
names as the Depositary shall instruct the Trustee. Global Notes also may be
exchanged or replaced, in whole or in part, as provided in Sections 2.07 and
2.11 hereof. Every Note authenticated and delivered in exchange for, or in
lieu of, a Global Note or any portion thereof, pursuant to Section 2.07 or 2.11
hereof, shall be authenticated and delivered in the form of, and shall be, a
Global Note. A Global Note may not be exchanged for another Note other than as
provided in this Section 2.06(a), however, beneficial interests in a Global
Note may be transferred and exchanged as provided in Section 2.06(b), (c) or
(f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred
to Persons who take delivery thereof in the form of a beneficial
interest in the same Restricted Global Note in accordance with the
transfer restrictions set forth in the Private Placement Legend;
provided, however, that prior to the expiration of the Restricted
Period transfers of beneficial interests in the Regulation S Temporary
Global Note may not be made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser). Beneficial
interests in any Unrestricted Global Note may be transferred only to
Persons who take delivery thereof in the form of a beneficial interest
in an Unrestricted Global Note. No written orders or instructions shall
be required to be delivered to the Registrar to effect the transfers
described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests
in Global Notes. In connection with all transfers and exchanges of
beneficial interests (other than a transfer of a beneficial interest in
a Global Note to a Person who takes delivery thereof in the form of a
beneficial interest in the same Global Note), the transferor of such
beneficial interest must deliver to the Registrar (A) (1) a written
order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing
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<PAGE> 37
the Depositary to credit or cause to be credited a beneficial interest
in another Global Note in an amount equal to the beneficial interest
to be transferred or exchanged and (2) instructions given in
accordance with the Applicable Procedures containing information
regarding the Participant account to be credited with such increase or
(B) (1) a written order from a Participant or an Indirect Participant
given to the Depositary in accordance with the Applicable Procedures
directing the Depositary to cause to be issued a Definitive Note in an
amount equal to the beneficial interest to be transferred or exchanged
and (2) instructions given by the Depositary to the Registrar
containing information regarding the Person in whose name such
Definitive Note shall be registered to effect the transfer or exchange
referred to in (1) above; provided that in no event shall Definitive
Notes be issued upon the transfer or exchange of beneficial interests
in the Regulation S Temporary Global Note prior to (x) the expiration
of the Restricted Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903 under the Securities Act.
Upon an Exchange Offer by the Company in accordance with Section
2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be
deemed to have been satisfied upon receipt by the Registrar of the
instructions contained in the Letter of Transmittal delivered by the
Holder of such beneficial interests in the Restricted Global Notes.
Upon notification from the Registrar that all of the requirements for
transfer or exchange of beneficial interests in Global Notes contained
in this Indenture, the Notes and otherwise applicable under the
Securities Act have been satisfied, the Trustee shall adjust the
principal amount of the relevant Global Notes pursuant to Section
2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of clause (ii) above and the Registrar
receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the Rule 144A Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in Item (1) thereof; or
(B) if the transferee will take delivery in the form of
the Regulation S Temporary Global Note or the Regulation S
Permanent Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in Item (2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in the Unrestricted
Global Note. A beneficial interest in any Restricted Global Note may be
exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Note or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note if the exchange or transfer complies with the requirements of
clause (ii) above and:
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(A) such exchange or transfer is effected pursuant to an
Exchange Offer in accordance with the corresponding Registration
Rights Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in the
case of a transfer, is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to a Shelf
Registration Statement in accordance with the corresponding
Registration Rights Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to an Exchange Offer Registration Statement
in accordance with the corresponding Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in
a Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted Global Note,
a certificate from such holder in the form of Exhibit C hereto,
including the certifications in Item (1)(a) thereof;
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit B hereto,
including the certifications in Item (4) thereof; and
(3) in each such case set forth in this subparagraph
(D), an Opinion of Counsel in form reasonably acceptable to the
Trustee and the Company to the effect that such exchange or
transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are not required in order to maintain compliance
with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an authentication order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of beneficial interests transferred pursuant to subparagraph
(B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
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(c) Transfer or Exchange of Beneficial Interests for Definitive
Notes.
(i) If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Definitive Note, then, upon
receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Restricted Definitive Note, a certificate from such
holder in the form of Exhibit C hereto, including the
certifications in Item (2)(a) thereof;
(B) if such beneficial interest is being transferred to
a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in Item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in Item (2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in Item (3)(a) thereof;
(E) if such beneficial interest is being transferred to
an Institutional Accredited Investor or in reliance on any other
exemption from the registration requirements of the Securities
Act, in either case other than those listed in subparagraphs (B)
through (D) above, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications,
certificates and any Opinion of Counsel required by Item (3)
thereof, if applicable;
(F) if such beneficial interest is being transferred to
the Company or any of its Subsidiaries, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in Item (3)(b) thereof; or
(G) if such beneficial interest is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in Item (3)(c) thereof,
the Trustee, upon notice of receipt of such documentation by the Registrar,
shall cause the aggregate principal amount of the applicable Global Note to be
reduced accordingly pursuant to Section
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2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate
and make available for delivery to the Person designated in the instructions a
Definitive Note in the appropriate principal amount. Any Definitive Note issued
in exchange for a beneficial interest in a Restricted Global Note pursuant to
this Section 2.06(c) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from the Depositary
and the Participant or Indirect Participant. The Trustee shall make available
for delivery such Definitive Notes to the Persons in whose names such Notes are
so registered. Any Definitive Note issued in exchange for a beneficial interest
in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear the
Private Placement Legend and shall be subject to all restrictions on transfer
contained therein.
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof,
a beneficial interest in the Regulation S Temporary Global Note may not
be (A) exchanged for a Definitive Note prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903(c)(3)(B) under the Securities
Act or (B) transferred to a Person who takes delivery thereof in the form
of a Definitive Note prior to the conditions set forth in clause (A)
above or unless the transfer is pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 903 or
Rule 904.
(iii) Notwithstanding 2.06(c)(i) hereof, a holder of a
beneficial interest in a Restricted Global Note may exchange such
beneficial interest for an Unrestricted Definitive Note or may transfer
such beneficial interest to a Person who takes delivery thereof in the
form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to
an Exchange Offer in accordance with the corresponding
Registration Rights Agreement and the holder of such beneficial
interest, in the case of an exchange, or the transferee, in the
case of a transfer, is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to a Shelf
Registration Statement in accordance with the corresponding
Registration Rights Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to an Exchange Offer Registration Statement
in accordance with the corresponding Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that
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does not bear the Private Placement Legend, a certificate from such
holder in the form of Exhibit C hereto, including the certifications in
Item (1)(b) thereof;
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest to
a Person who shall take delivery thereof in the form of a Definitive
Note that does not bear the Private Placement Legend, a certificate
from such holder in the form of Exhibit B hereto, including the
certifications in Item (4) thereof; and
(3) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form reasonably acceptable
to the Trustee and the Company, to the effect that such exchange or
transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private Placement
Legend are not required in order to maintain compliance with the
Securities Act.
(iv) If any holder of a beneficial interest in an
Unrestricted Global Note proposes to exchange such beneficial interest for a
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Definitive Note, then, upon notice
by the Registrar of satisfaction of the conditions set forth in Section
2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount
of the applicable Global Note to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Company shall execute and the Trustee shall
authenticate and make available for delivery to the Person designated in the
instructions a Definitive Note in the appropriate principal amount. Any
Definitive Note issued in exchange for a beneficial interest pursuant to
this Section 2.06(c)(iv) shall be registered in such name or names and in
such authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions from
the Depositary and the Participant or Indirect Participant. The Trustee
shall make available for delivery such Definitive Notes to the Persons in
whose names such Notes are so registered. Any Definitive Note issued in
exchange for a beneficial interest pursuant to this Section 2.06(c)(iv)
shall not bear the Private Placement Legend. A beneficial interest in an
Unrestricted Global Note cannot be exchanged for a Definitive Note bearing
the Private Placement Legend or transferred to a Person who takes delivery
thereof in the form of a Definitive Note bearing the Private Placement
Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note or
to transfer such Definitive Notes to a Person who takes delivery thereof in
the form of a beneficial interest in a Restricted Global Note, then, upon
receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes
to exchange such Note for a beneficial interest in a Restricted Global
Note, a certificate
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<PAGE> 42
from such Holder in the form of Exhibit C hereto, including the
certifications in Item (2)(b) thereof;
(B) if such Definitive Note is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications
in Item (1) thereof;
(C) if such Definitive Note is being transferred to a Non-U.S.
Person in an offshore transaction in accordance with Rule 903 or Rule
904 under the Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in Item (2) thereof;
(D) if such Definitive Note is being transferred pursuant to
an exemption from the registration requirements of the Securities Act
in accordance with Rule 144 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications
in Item (3)(a) thereof;
(E) if such Definitive Note is being transferred to an
Institutional Accredited Investor or in reliance on any other exemption
from the registration requirements of the Securities Act, in either
case, other than those listed in subparagraphs (B) through (D) above, a
certificate in the form of Exhibit B hereto, including certifications,
certificates, and any Opinion of Counsel required by Item (3) thereof,
if applicable;
(F) if such Definitive Note is being transferred to the Company
or any of its Subsidiaries, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in Item (3)(b) thereof;
or
(G) if such Definitive Note is being transferred pursuant to an
effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in Item (3)(c) thereof,
the Trustee, upon notice of receipt of such documentation by the Registrar,
shall cancel the Definitive Note, increase or cause to be increased the
aggregate principal amount of, in the case of subparagraph (A) above, the
appropriate Restricted Global Note and, in the case of subparagraph (B) above,
the Rule 144A Global Note, and, in the case of subparagraph (C) above, the
Regulation S Global Note.
(ii) A Holder of a Restricted Definitive Note may exchange such Note
for a beneficial interest in an Unrestricted Global Note or transfer such
Restricted Definitive Note to a Person who takes delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note only if:
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(A) such exchange or transfer is effected pursuant to an
Exchange Offer in accordance with the corresponding Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, is not (1) a broker-dealer, (2)
a Person participating in the distribution of the Exchange Notes or (3)
a Person who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to a Shelf
Registration Statement in accordance with the corresponding
Registration Rights Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to an Exchange Offer Registration Statement in
accordance with the corresponding Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in Item (1)(c) thereof;
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof in the
form of a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit B hereto, including
the certifications in Item (4) thereof; and
(3) in each such case set forth in this subparagraph (D),
an Opinion of Counsel in form reasonably acceptable to the Trustee and
the Company to the effect that such exchange or transfer is in
compliance with the Securities Act, that the restrictions on transfer
contained herein and in the Private Placement Legend are not required
in order to maintain compliance with the Securities Act, and such
Definitive Notes are being exchanged or transferred in compliance with
any applicable blue sky securities laws of any State of the United
States.
Upon satisfaction of the conditions of any of the subparagraphs in this Section
2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase or
cause to be increased the aggregate principal amount of the Unrestricted Global
Note.
(iii) A Holder of an Unrestricted Definitive Note may exchange such
Note for a beneficial interest in an Unrestricted Global Note or transfer
such Definitive Notes to a Person who takes delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note at any time. Upon
receipt of a request for such an exchange or transfer, the Trustee shall
cancel the applicable Unrestricted Definitive Note and increase or cause
to be increased the aggregate principal amount of one of the Unrestricted
Global Notes.
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(iv) If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D)
or (iii) above at a time when an Unrestricted Global Note has not yet been
issued, the Company shall issue and, upon receipt of an authentication
order in accordance with Section 2.02 hereof, the Trustee shall
authenticate one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of beneficial interests
transferred pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, pursuant to the provisions of this Section 2.06(e).
(i) Restricted Definitive Notes may be transferred to and
registered in the name of Persons who take delivery thereof if the
Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a certificate in
the form of Exhibit B hereto, including the certifications in Item (1)
thereof;
(B) if the transfer will be made pursuant to Rule 903 or
Rule 904 of the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in Item (2) thereof; and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities Act,
then the transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications, certificates and Opinion of
Counsel required by Item (3) thereof, if applicable.
(ii) Any Restricted Definitive Note may be exchanged by the
Holder thereof for an Unrestricted Definitive Note or transferred to a
Person or Persons who take delivery thereof in the form of an Unrestricted
Definitive Note if:
(A) such exchange or transfer is effected pursuant to an
Exchange Offer in accordance with the corresponding Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, is not (1) a broker-dealer, (2)
a Person participating in the distribution of the Exchange Notes or (3)
a Person who is an affiliate (as defined in Rule 144) of the Company;
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(B) any such transfer is effected pursuant to a Shelf
Registration Statement in accordance with the corresponding
Registration Rights Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to an Exchange Offer Registration Statement in
accordance with the corresponding Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit C hereto, including
the certifications in Item (1)(b) thereof;
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take delivery
thereof in the form of an Unrestricted Definitive Note, a certificate
from such Holder in the form of Exhibit B hereto, including the
certifications in Item (4) thereof; and
(3) in each such case set forth in this subparagraph (D),
an Opinion of Counsel in form reasonably acceptable to the Trustee and
the Company to the effect that such exchange or transfer is in
compliance with the Securities Act, that the restrictions on transfer
contained herein and in the Private Placement Legend are not required
in order to maintain compliance with the Securities Act, and such
Restricted Definitive Note is being exchanged or transferred in
compliance with any applicable blue sky securities laws of any State of
the United States.
(iii) A Holder of Unrestricted Definitive Notes may transfer such
Notes to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note. Upon receipt of a request for such a transfer, the
Registrar shall register the Unrestricted Definitive Notes pursuant to the
instructions from the Holder thereof. Unrestricted Definitive Notes cannot
be exchanged for or transferred to Persons who take delivery thereof in the
form of a Restricted Definitive Note.
(f) Exchange Offer. Upon the occurrence of an Exchange Offer in
accordance with the corresponding Registration Rights Agreement, the Company
shall issue and, upon receipt of (A) an authentication order in accordance with
Section 2.02 hereof and (B) an Opinion of Counsel opining as to the
enforceability of the Exchange Notes and the guarantees thereof, the Trustee
shall authenticate (i) one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of the beneficial interests in
the Restricted Global Notes tendered for acceptance by Persons that are not (1)
broker-dealers, (2) Persons participating in the distribution of the Exchange
Notes or (3) Persons who are affiliates (as defined in Rule 144) of the Company
and accepted for exchange in such Exchange Offer and (ii) Definitive Notes in
an aggregate principal
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amount equal to the principal amount of the Restricted Definitive Notes
accepted for exchange in such Exchange Offer, unless the Holders of such
Restricted Definitive Notes shall request the receipt of Definitive Notes, in
which case the Company shall execute and the Trustee shall authenticate and
deliver to the Persons designated by the Holders of such Restricted Definitive
Notes one or more Definitive Notes without the Private Placement Legend in the
appropriate principal amount. Concurrent with the issuance of such
Unrestricted Global Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced accordingly, and
the Company shall execute and the Trustee shall authenticate and make available
for delivery to the Persons designated by the Holders of Definitive Notes so
accepted Definitive Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Note and each Definitive Note (and all Notes issued in exchange
therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES (1)
NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO (X) THE DATE
THAT IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k)
UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF (OR ANY PREDECESSOR OF THIS SECURITY) AND THE
LAST DAY ON WHICH TESORO PETROLEUM CORPORATION (THE "COMPANY") OR ANY AFFILIATE
OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) AND
(Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE
RESTRICTION TERMINATION DATE"), EXCEPT (A) TO THE COMPANY OR A SUBSIDIARY
THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT IS
ACQUIRING SUCH NOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
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INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS RELATING TO
RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM THE TRUSTEE), (E) PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS THAT OCCUR IN AN "OFFSHORE TRANSACTION" WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND (2)
THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE
TRUSTEE, THE TRANSFER AGENT AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (C), (D), (E) OR (F) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING
CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS
NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THE HOLDER
HEREOF, BY PURCHASING THIS NOTE, REPRESENTS AND AGREES FOR THE BENEFIT OF THE
COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A, (2) AN INSTITUTIONAL ACCREDITED INVESTOR, (3) A NON-U.S. PERSON AND
IS ACQUIRING THE NOTE IN AN "OFFSHORE TRANSACTION" PURSUANT TO REGULATION S
UNDER THE SECURITIES ACT OR (4) IT IS A PERSON ELIGIBLE TO BE TRANSFERRED THIS
NOTE IN ACCORDANCE WITH CLAUSE (F) OF THE FOREGOING SENTENCE. THIS LEGEND WILL
BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER
THE SECURITIES ACT."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraph (b)(iv), (c)(iii),
(d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) of this Section 2.06 (and
all Notes issued in exchange therefor or substitution thereof) shall
not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER
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ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS
MAY BE REQUIRED PURSUANT TO ARTICLE II OF THE INDENTURE, (II) THIS GLOBAL NOTE
MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE
INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF TESORO PETROLEUM CORPORATION."
Additionally, for so long as DTC is the Depositary with respect to any
Global Note, each such Global Note shall also bear a legend in substantially the
following form:
"UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."
(iii) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the following
form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note, by the
Trustee, the Note Custodian or the Depositary at the direction of the Trustee,
to reflect such reduction; and if the beneficial interest is being exchanged for
or transferred
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<PAGE> 49
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note, by the Trustee, the Note
Custodian or by the Depositary at the direction of the Trustee, to reflect such
increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, subject to
Section 2.06, the Company shall execute and, upon the Company's order, the
Trustee shall authenticate Global Notes and Definitive Notes at the
Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment of
a sum sufficient to cover any transfer tax or similar governmental charge
payable in connection therewith (other than any such transfer taxes or
similar governmental charge payable upon exchange or transfer pursuant to
Sections 3.06, 4.10, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer or
exchange of any Note selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture and the Subsidiary
Guarantees, as the Global Notes or Definitive Notes surrendered upon such
registration of transfer or exchange.
(v) The Company and the Registrar shall not be required (A) to
issue, to register the transfer of or to exchange Notes during a period
beginning at the opening of business 15 days before the day of any selection
of Notes for redemption under Section 3.02 hereof and ending at the close of
business on the day of selection, (B) to register the transfer of or to
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part, (C) to register the
transfer of or to exchange a Note between a record date and the next
succeeding Interest Payment Date or (D) to register the transfer of a Note
other than in denominations of $1,000 or multiple integrals thereof.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Notes and for all other purposes, and none of the Trustee, any Agent or
the Company shall be affected by notice to the contrary.
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(vii) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06
to effect a transfer or exchange may be submitted by facsimile.
(ix) The Trustee and the Registrar shall have no obligation or
duty to monitor, determine or inquire as to whether any Person is or is
not a Person described in clauses (1), (2) and (3) of each of Sections
2.06(b)(iv)(A), 2.06(c)(iii)(A), 2.06(d)(ii)(A), 2.06(e)(ii)(A) and
2.06(f) hereof or under applicable law (other than the TIA) with respect
to any transfer of any interest in any Note (including any transfers
between or among Participants or beneficial owners of interests in any
Global Note) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do
so if and when expressly required by the terms of, this Indenture, and to
examine the same to determine substantial compliance as to form with the
express requirements hereof.
SECTION 2.07 Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the Company, or
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by one Officer of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee and any Agent from any loss that any of them may suffer if
a Note is replaced. The Company and the Trustee may charge for their respective
expenses in replacing a Note. If, after the delivery of such replacement Note, a
bona fide purchaser of the original Note in lieu of which such replacement Note
was issued presents for payment or registration such original Note, the Trustee
shall be entitled to recover such replacement Note from the Person to whom it
was delivered or any Person taking therefrom, except a bona fide purchaser, and
shall be entitled to recover upon the security or indemnity provided therefor to
the extent of any loss, damage, cost or expense incurred by the Company, the
Trustee and any Agent in connection therewith.
Subject to the provisions of the final sentence of the preceding
paragraph of this Section 2.07, every replacement Note is an additional
obligation of the Company and shall be entitled to all of the benefits of this
Indenture equally and proportionately with all other Notes duly issued
hereunder.
SECTION 2.08 Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for cancellation,
those reductions in the interest in a Global Note effected by the Trustee in
accordance with the provisions hereof, and those described in this
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<PAGE> 51
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section 4.01
hereof, it ceases to be outstanding and interest and Liquidated Damages, if any,
on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary of the Company
or an Affiliate of any thereof) holds, on a redemption date or maturity date,
money sufficient to pay Notes payable on that date, then on and after that date
such Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest and Liquidated Damages, if any.
SECTION 2.09 Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that a Responsible Officer of the Trustee actually knows are so owned
shall be so disregarded. Notwithstanding the foregoing, Notes that the Company,
a Subsidiary of the Company or an Affiliate of the Company offers to purchase or
acquires pursuant to an offer, exchange offer, tender offer or otherwise shall
not be deemed to be owned by the Company, such Subsidiary or such Affiliate
until legal title to such Notes passes to the Company, such Subsidiary or such
Affiliate, as the case may be.
SECTION 2.10 Temporary Notes.
Until Definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes upon a written order of the
Company signed by one Officer of the Company. Temporary Notes shall be
substantially in the form of Definitive Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate Definitive Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
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SECTION 2.11 Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall return such
canceled Notes to the Company. The Company may not issue new Notes to replace
Notes that it has paid or that have been delivered to the Trustee for
cancellation other than as contemplated by an Exchange Offer.
SECTION 2.12 Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company shall promptly notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
SECTION 2.13 CUSIP Numbers.
The Company in issuing the Notes may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption or repurchase, as the case may be, as a convenience to Holders;
provided that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Notes or as contained in
any notice of a redemption or repurchase, as the case may be, and that reliance
may be placed only on the other identification numbers printed on the Notes, and
any such redemption or repurchase, as the case may be, shall not be affected by
any defect in or omission of such numbers. The Company will promptly notify the
Trustee of any change in the "CUSIP" numbers.
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ARTICLE III
REDEMPTION AND PREPAYMENT
SECTION 3.01 Notices to Trustee.
If (x) the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days but not more than 60 days before a redemption date and (y) the
Company redeems Notes pursuant to the redemption provisions of Section 3.10
hereof (a "Special Redemption"), it shall furnish, subject to Section 3.03
hereof, to the Trustee, at least three Business Days before notice of the
Special Redemption is to be mailed to the Holders (unless a shorter notice
period shall be satisfactory to the Trustee, as evidenced by a writing signed by
the Trustee), in each case, an Officers' Certificate setting forth (i) the
clause of this Indenture pursuant to which the redemption shall occur, (ii) the
redemption date, (iii) the principal amount of Notes to be redeemed, (iv) the
redemption price and (v) that the redemption price will be deposited with the
Trustee in immediately available funds no later than 10:00 a.m., New York City
time, on the redemption date.
SECTION 3.02 Selection of Notes to be Redeemed.
If less than all of the Notes are to be redeemed at any time, selection
of Notes for redemption shall be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
(except in the case of any Special Redemption) or in accordance with any other
method the Trustee considers fair and appropriate; provided that no Notes of
$1,000 or less shall be redeemed in part. In the event of partial redemption by
lot, the particular Notes to be redeemed shall be selected, unless otherwise
provided herein, not less than 30 nor more than 60 days prior to the redemption
date by the Trustee from the outstanding Notes not previously called for
redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000.
Except as provided in the preceding sentence, provisions of this Indenture that
apply to Notes called for redemption also apply to portions of Notes called for
redemption.
The provisions of the two preceding paragraphs of this Section 3.02 shall
not apply with respect to any redemption affecting only a Global Note, whether
such Global Note is to be redeemed in whole or in part. In case of any such
redemption in part, the unredeemed portion of the principal amount of the Global
Note shall be in an authorized denomination.
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SECTION 3.03 Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date (other than in connection with a
Special Redemption), the Company shall mail or cause to be mailed, by first
class mail, a notice of redemption to each Holder whose Notes are to be redeemed
at its registered address. In the event of a Special Redemption, at least three
Business Days before a Special Redemption, the Company shall mail or cause to be
mailed a notice of redemption by first class mail, postage prepaid, to each
Holder, with a copy to the Trustee. In the event of a Special Redemption on the
Special Redemption Date, the Company shall provide the Trustee with written
notice on or prior to 9:30 a.m., New York City time on the Business Day
immediately preceding the Special Redemption Date to effect such Special
Redemption; provided that failure to provide any such notice of a Special
Redemption shall not affect the Company's right to effect a Special Redemption
on the Special Redemption Date, or the amount of the Company's obligation on the
Notes.
The notice shall identify the Notes (including CUSIP numbers) to be
redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest and Liquidated Damages, if any, on Notes called for redemption
cease to accrue on and after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Notes.
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<PAGE> 55
If any of the Notes to be redeemed is in the form of a Global Note,
then the Company shall modify such notice to the extent necessary to accord
with the Applicable Procedures of the Depositary applicable to such redemption.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as
provided in the preceding paragraph.
SECTION 3.04 Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05 Deposit of Redemption Price.
No later than 10:00 a.m. New York City Time on the redemption date
(other than in connection with a Special Redemption), the Company shall deposit
with the Trustee or with the Paying Agent immediately available funds
sufficient to pay the redemption price of and accrued interest and Liquidated
Damages, if any, on all Notes to be redeemed on that date. The Trustee or the
Paying Agent shall promptly return to the Company any money deposited with the
Trustee or the Paying Agent by the Company in excess of the amounts necessary
to pay the redemption price of, and accrued interest and Liquidated Damages, if
any, on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph
or in the case of a Special Redemption, from and after the Special Redemption
Date or such earlier date of a Special Redemption in accordance with Sections
3.03 and 3.10 hereof, on and after the redemption date, interest and Liquidated
Damages, if any, shall cease to accrue on the Notes or the portions of Notes
called for redemption. If a Note is redeemed on or after an interest record
date but on or prior to the related interest payment date, then any accrued and
unpaid interest and Liquidated Damages, if any, shall be paid to the Person in
whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender
for redemption because of the failure of the Company to comply with the
preceding paragraph, interest shall be paid on the unpaid principal, from the
redemption date until such principal is paid, and to the extent lawful on any
interest not paid on such unpaid principal, in each case at the rate provided
in the Notes and in Section 4.01 hereof.
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SECTION 3.06 Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
SECTION 3.07 Optional Redemption.
(a) Except as set forth in clause (b) of this Section 3.07, the
Notes shall not be redeemable at the Company's option prior to July 1, 2003.
Thereafter, the Notes will be subject to redemption at any time or from time to
time at the option of the Company, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on July 1
of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . 104.5%
2004 . . . . . . . . . . . . . . . . . . . 103.0%
2005 . . . . . . . . . . . . . . . . . . . 101.5%
2006 and thereafter . . . . . . . . . . . . 100.0%
</TABLE>
(b) Notwithstanding the foregoing, at any time or from time to time
before July 1, 2001, the Company may on any one or more occasions redeem up to
35% of the aggregate principal amount of Notes outstanding at a redemption price
of 109% of the principal amount thereof, plus accrued and unpaid interest, if
any, and Liquidated Damages, if any, thereon, to the redemption date, with the
net cash proceeds of any one or more Public Equity Offerings; provided that at
least 65% of the aggregate principal amount of Notes outstanding on the Issue
Date remain outstanding immediately after each occurrence of such redemption;
and provided, further, that each such redemption shall occur within 90 days of
the date of the closing of such Public Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Sections 3.01 through 3.06 hereof.
SECTION 3.08 Mandatory Redemption.
Except as set forth under Sections 3.09, 3.10, 4.10 and 4.15 hereof, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
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SECTION 3.09 Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company shall be
required to commence an offer to all Holders to purchase Notes (an "Asset Sale
Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes validly tendered in response to
the Asset Sale Offer. Payment for any Notes so purchased shall be made in the
same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid to the Person in whose name a Note is
registered at the close of business on such record date, and no additional
interest or Liquidated Damages shall be payable to Holders who tender Notes
pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send, by
first class mail, a notice to each of the Holders, with a copy to the Trustee.
The notice shall contain all instructions and materials necessary to enable such
Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer
shall be made to all Holders. The notice, which shall govern the terms of the
Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrete or accrue interest and Liquidated Damages, if any;
(d) that, unless the Company defaults in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrete or accrue interest and Liquidated Damages, if any, after the Purchase
Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may only elect to have all of such Note purchased and may not
elect to have only a portion of such Note purchased;
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<PAGE> 58
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed to the
Company, the Depositary, if appointed by the Company, or a Paying Agent at the
address specified in the notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, such depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Trustee shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Trustee so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
If any of the Notes subject to an Asset Sale Offer is in the form of a
Global Note, then the Company shall modify such notice to the extent necessary
to accord with the Applicable Procedures of the Depositary applicable to such
repurchases.
On or before the Purchase Date, the Company shall, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer,
or if less than the Offer Amount has been tendered, all Notes tendered, and
shall deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, the depositary (if any, and as referred
to in clause (f) above of this Section 3.09) or the Paying Agent, as the case
may be, shall promptly (but in any case not later than five days after the
Purchase Date) mail or deliver to each tendering Holder an amount equal to the
purchase price of the Notes tendered by such Holder and accepted by the Company
for purchase, and the Company, shall promptly issue a new Note, and the Trustee,
upon written request from the Company shall authenticate and make available for
delivery such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
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SECTION 3.10 Special Redemption.
If the Washington Acquisition is not consummated by the Company, or the
Washington Agreement is terminated without consummation of the Washington
Acquisition, on or prior to December 31, 1998, the Company shall redeem 50% of
the aggregate principal amount of the Original Notes at a redemption price equal
to 101% of the redeemed principal amount thereof (the "Special Redemption
Price"), plus accrued interest and Liquidated Damages, if any, to the date of
redemption. The date for such redemption (the "Special Redemption Date") shall
be the earlier of December 31, 1998 and ten business days following the date of
termination of the Washington Agreement without consummation of the Washington
Acquisition. Selection of Notes for special redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed, or, if the Notes are not so
listed, on a pro rata basis or by such method other than by lot as the Trustee
shall deem fair and appropriate; provided that no Notes of $1,000 or less shall
be redeemed in part. Notice of the Special Redemption to the Trustee and the
Holders shall be made in accordance with Sections 3.01 and 3.03 hereof.
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ARTICLE IV
COVENANTS
SECTION 4.01 Payment of Notes.
The Company shall pay or cause to be paid the principal of, and premium,
if any, interest and Liquidated Damages, if any, on, the Notes on the dates and
in the manner provided in the Notes. Principal, premium, if any, interest and
Liquidated Damages, if any, shall be considered paid on the date due if the
Paying Agent, if other than the Company or a Subsidiary thereof, holds as of
10:00 a.m. New York City Time on the due date money deposited by the Company in
immediately available funds and designated for and sufficient to pay all
principal, premium, if any, interest and Liquidated Damages, if any, then due.
The Company shall pay all Liquidated Damages, if any, in the same manner on the
dates and in the amounts set forth in the corresponding Registration Rights
Agreement.
The Company shall pay interest (including post-petition interest in any
proceeding under the Bankruptcy Code) on overdue principal at the rate borne on
the Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under the Bankruptcy Code) on overdue installments of
interest and Liquidated Damages, if any, (without regard to any applicable grace
period) at the same rate to the extent lawful.
SECTION 4.02 Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be presented or
surrendered for payment, where Notes may be surrendered for registration of
transfer or for exchange and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
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The Company hereby designates the office of the Trustee at 100 Wall
Street, 20th Floor, New York, New York, 10005, as one such office or agency of
the Company in accordance with Section 2.03 hereof.
SECTION 4.03 Reports.
(a) Whether or not required by the rules and regulations of the SEC,
so long as any Notes are outstanding, the Company shall furnish to each of the
Holders of Notes, beginning with annual financial information for the year ended
December 31, 1998, (i) all quarterly and annual financial information with
respect to the Company and its Subsidiaries that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were
required to file such forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and, with respect to the
annual information only, a report thereon by the Company's independent public
accountants and (ii) all current reports that would be required to be filed with
the SEC on Form 8-K if the Company were required to file such reports. All such
information and reports shall be mailed or otherwise delivered to the Holders of
Notes within 15 days after the dates on which such filings would have been
required to be made had the Company been subject to the rules and regulations of
the SEC. In addition, whether or not required by the rules and regulations of
the SEC, the Company shall file a copy of all such information and reports with
the SEC for public availability within the time periods specified in the SEC's
rules and regulations (unless the SEC will not accept such a filing) and make
such information available to securities analysts and prospective investors upon
request. The Company shall at all times comply with TIA Section 314(a).
(b) For so long as any Initial Notes remain outstanding, the Company
shall furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
(c) Delivery of such reports, information and documents to the
Trustee is for informational purposes only, and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.04 Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
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Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants that in making
the examination necessary for certification of such financial statements,
nothing has come to their attention that would lead them to believe that the
Company has violated any provisions of Article IV or Article V hereof or, if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any future knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any executive Officer having knowledge
that an event or circumstance constitutes a Default or an Event of Default and
that such event or circumstance has occurred and is existing, an Officers'
Certificate specifying such Default or Event of Default and what action the
Company is taking or proposes to take with respect thereto.
SECTION 4.05 Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, charges, assessments, and governmental
levies except such as are contested in good faith and, if required, by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.06 Waiver of Stay, Extension and Usury Laws.
Each of the Company and the Guarantors covenants (to the extent that it
may lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and each of the
Company and the Guarantors (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
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SECTION 4.07 Restricted Payments.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any other payment or distribution on account of the Company's or any of
its Restricted Subsidiaries' Equity Interests (including, without limitation,
any payment in connection with any merger or consolidation involving the
Company) or to the direct or indirect holders of the Company's or any of its
Restricted Subsidiaries' Equity Interests in their capacity as such, in each
case other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company or declared or paid to the Company or
any of its Restricted Subsidiaries; (ii) purchase, redeem or otherwise acquire
or retire for value (including without limitation, in connection with any
merger or consolidation involving the Company) any Equity Interests of the
Company (other than any such Equity Interests owned by a Wholly Owned
Restricted Subsidiary of the Company); (iii) make any payment to purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness that
is subordinated to the Notes, except a payment of interest or principal at its
Stated Maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company or any of its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv), (v), (vi), (viii) or (ix) of the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of
the Company for the period (taken as one accounting period) from the beginning
of the first fiscal quarter immediately following the Issue Date to the end of
the Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a loss, less 100% of such loss), plus
(ii) 100% of the aggregate net cash proceeds, or the Fair Market Value of assets
or property other than cash, received by the Company from the issue or sale, in
either case, since the Issue Date of (A) Equity Interests of the Company (other
than Disqualified Stock), or (B) Disqualified Stock or debt securities of the
Company that have been converted into, or exchanged for, such Equity Interests
together with the aggregate cash received at the time of such conversion or
exchange, or received by the Company from any such conversion or exchange of
such debt securities sold or issued prior to the Issue Date other than Equity
Interests (or Disqualified Stock or convertible or exchangeable debt securities)
sold to a Restricted Subsidiary of the Company and other than Disqualified Stock
or debt securities that have been converted or exchanged into Disqualified
Stock, plus (iii) in case
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any Unrestricted Subsidiary has been redesignated a Restricted Subsidiary
pursuant to the terms of this Indenture or has been merged, consolidated or
amalgamated with or into, or transfers or conveys assets to or is liquidated
into, the Company or a Restricted Subsidiary and provided that no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof, the lesser of (A) the book value (determined in accordance
with GAAP) at the date of such redesignation, combination or transfer of the
aggregate Investments made by the Company and its Restricted Subsidiaries in
such Unrestricted Subsidiary (or of the assets transferred or conveyed, as
applicable) and (B) the Fair Market Value of such Investment in such
Unrestricted Subsidiary at the time of such redesignation, combination or
transfer (or of the assets transferred or conveyed, as applicable), in each
case as determined in good faith by the Board of Directors of the Company,
whose determination shall be conclusive and evidenced by a resolution of such
Board and, in each case, after deducting any Indebtedness of the Unrestricted
Subsidiary so designated or combined or with the assets so transferred or
conveyed, plus (iv) to the extent not already included in Consolidated Net
Income for such period, (A) if any Restricted Investment that was made by the
Company or any Restricted Subsidiary after the Issue Date is sold for cash or
otherwise liquidated or repaid for cash, the cash return of capital with
respect to such Restricted Investment resulting from such sale or disposition
(less the cost of disposition, if any) and (B) with respect to any Restricted
Investment that was made by the Company or any Restricted Subsidiary after the
Issue Date, the net reduction in such Restricted Investment resulting from
payments of interest, dividends, principal repayments and other transfers and
distributions of cash, assets or property, in an amount not to exceed the
aggregate amount of such Restricted Investment, plus (v) $50,000,000.
The foregoing provisions shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture, including the immediately preceding paragraph; (ii) the redemption,
repurchase, retirement, defeasance or other acquisition, prior to its Stated
Maturity, of any (y) Indebtedness (or portion thereof) which is subordinated
to the Notes, or the making of any principal payment thereon, or (z) Equity
Interests of the Company or any Restricted Subsidiary, in each case in exchange
for, or out of the net cash proceeds of the substantially concurrent sale or
issuance (other than to a Restricted Subsidiary of the Company) of, Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition, or payments, shall be
excluded from clause (c) (ii) of the preceding paragraph; (iii) the making of
any principal payment on, or the defeasance, redemption, repurchase or other
acquisition of, prior to its Stated Maturity, Indebtedness which is
subordinated to the Notes with the net cash proceeds from an incurrence of, or
in exchange for the issuance of, Permitted Refinancing Indebtedness; (iv) the
payment of any dividend or distribution by a Restricted Subsidiary of the
Company to the holders of its common Equity Interests on a pro rata basis; (v)
the repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company or any Restricted Subsidiary of the Company
held by any current or former officer, employee or director of the Company (or
any of its Subsidiaries) pursuant to the terms of agreements (including
employment agreements) and plans approved by the Company's Board of Directors,
including any management equity plan or stock option plan or any other
management or employee benefit plan, agreement or
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trust; provided, however, that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests pursuant to this
clause (v) shall not exceed the sum of (y) $1,000,000 in any twelve-month
period and (z) the aggregate net proceeds received by the Company during such
twelve-month period from issuance of such Equity Interests pursuant to such
agreements or plans; (vi) repurchases of Equity Interests deemed to occur upon
the cashless exercise of stock options; (vii) the purchase, redemption,
defeasance or retirement, in each case prior to its Stated Maturity, of any
Indebtedness that is subordinated to the Notes in right of payment by payments
out of Excess Proceeds remaining after completion of an Asset Sale Offer,
provided that (x) any payments made or value given for such purchase,
redemption, defeasance or retirement shall be made out of, or shall not be in
excess of, any Excess Proceeds remaining after completion of an Asset Sale
Offer (but for the provision of the last sentence of Section 4.10 hereof) and
(y) the Company would, at the time of such payment and after giving pro forma
effect thereto as if such payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section 4.09 hereof; (viii) reasonable and
customary directors' fees to the members of the Company's Board of Directors,
provided that such fees are consistent with past practice or current
requirements; and (ix) cash dividends declared or paid in respect of shares of
Mandatorily Convertible Preferred Stock of the Company issued on or prior to
the Issue Date (together with any additional shares issued in respect of any
underwriters' over-allotment option in effect on the Issue Date); provided,
further, that, with respect to clauses (ii), (iii), (v), (vi), (vii), (viii)
and (ix) above, no Default or Event of Default shall have occurred and be
continuing.
In determining whether any Restricted Payment is permitted by the
foregoing covenant, the Company may allocate or reallocate all or any portion of
such Restricted Payment among the clauses (i) through (ix) of the preceding
paragraph or among such clauses and the first paragraph of this covenant
including clauses (a), (b) and (c), provided that at the time of such allocation
or reallocation, all such Restricted Payments, or allocated portions thereof,
would be permitted under the various provisions of the foregoing covenant.
The amount of all Restricted Payments (other than cash) shall be the Fair
Market Value (as determined by the Board of Directors of the Company and as
evidenced by a resolution of the Board of Directors of the Company set forth in
an Officers' Certificate delivered to the Trustee) on the date of the transfer,
incurrence or issuance of such non-cash Restricted Payment. Not later than (i)
the end of any calendar quarter in which any Restricted Payment is made or (ii)
the making of a Restricted Payment which, when added to the sum of all previous
Restricted Payments made in a calendar quarter, would cause the aggregate of all
Restricted Payments made in such quarter to exceed $10,000,000, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payments were permitted and setting forth the basis upon which the
calculations required by this covenant were computed, which calculations may be
based upon the Company's latest available financial statements.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if (i) immediately after giving effect to such
designation, the Company could incur
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at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of Section 4.09 hereof, (ii)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing and (iii) the
Company certifies that such designation complies with this covenant. Any such
designation by the Board of Directors shall be evidenced by the Company
promptly filing with the Trustee a copy of the resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
The Board of Directors may designate any Subsidiary of the Company to be
an Unrestricted Subsidiary under the circumstances and pursuant to the
requirements described in the definition of "Unrestricted Subsidiary," which
requirements include that such designation will be made in compliance with this
covenant. For purposes of making the determination as to whether such
designation would be made in compliance with this covenant, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of (i) the net book value (determined in accordance with
GAAP) of such Investments at the time of such designation, (ii) the Fair Market
Value of such Investments at the time of such designation and (iii) the original
Fair Market Value of such Investments at the time they were made.
If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture, and any
Indebtedness of such Subsidiary shall be deemed to be incurred as of such date.
SECTION 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company or the Company to (i)(x) pay dividends or
make any other distributions to the Company or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits, or (y) pay any Indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) the Indenture, the Notes, Existing Indebtedness and the Senior
Credit Facility as in effect on the Issue Date, any other Credit Facility
hereafter in effect provided to the extent its provisions are no more
restrictive than those in the Senior Credit Facility as it is in effect on the
Issue Date and any future Liens that may be permitted to be granted under, or
incurred not in violation of, any other provisions of the Indenture, (b)
applicable law, (c) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except
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with respect to Indebtedness incurred in connection with or in contemplation of
such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person or such Person's subsidiaries, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of this Indenture to be incurred, (d) restrictions of
the nature described in clause (iii) above by reason of customary
non-assignment provisions in contracts, agreements, and leases entered into in
the ordinary course of business and consistent with customary provisions for
the sale of property, (e) purchase money obligations for property acquired in
the ordinary course of business that impose restrictions of the nature
described in clause (iii) above on the property so acquired, (f) any
restriction with respect to a Restricted Subsidiary of the Company imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition, (g) agreements relating to
secured Indebtedness otherwise permitted to be incurred pursuant to Section
4.09 hereof, and not in violation of Section 4.12 hereof, that limit the right
of the debtor to dispose of assets securing such Indebtedness and (h) Permitted
Refinancing Indebtedness in respect of Indebtedness referred to in clause (a),
(c), (e) and (g) of this paragraph, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
SECTION 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), other than Permitted Debt, and the Company shall not issue any
Disqualified Stock and shall not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock other than Permitted Debt; provided,
however, that (a) the Company or any Guarantor may incur Indebtedness (including
Acquired Debt) or (b) the Company may issue shares of Disqualified Stock if the
Company's Fixed Charge Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.00 to 1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The provisions of the first paragraph of this covenant shall not apply to
the incurrence of any Permitted Debt. Accrual of interest, the accretion of
accreted value and the payment of interest in the form of additional
Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes
of this covenant.
For purposes of determining compliance with this Section 4.09 , in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt or is entitled to be incurred pursuant to the first
paragraph of this Section 4.09, the Company shall, in its sole
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discretion, classify such item of Indebtedness in any manner that complies with
this Section 4.09, and such item of Indebtedness or a portion thereof may be
classified as having been incurred under more than one of the such applicable
categories or pursuant to the first paragraph of this Section 4.09.
SECTION 4.10 Asset Sales.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the Fair Market Value of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of, or any combination of, (A) cash or Cash Equivalents, (B) the
assumption of any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary of the Company (other than liabilities that are by their terms
subordinated to the Notes or any Subsidiary Guarantee) by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability and (C) any securities,
notes or other obligations received by the Company or any such Restricted
Subsidiary from such transferee that are converted by the Company or such
Restricted Subsidiary into cash or Cash Equivalents within 30 days following
their receipt (to the extent of the cash or Cash Equivalents received);
provided, that any Asset Sale pursuant to a condemnation, appropriation or other
similar taking, including by deed in lieu of condemnation, or pursuant to the
foreclosure or other enforcement of a Lien incurred not in violation of Section
4.12 hereof or exercise by the related lienholder of rights with respect
thereto, including by deed or assignment in lieu of foreclosure shall not be
required to satisfy the conditions set forth in clauses (i) and (ii) of this
paragraph.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or such Restricted Subsidiary, as the case may be, may apply such
Net Proceeds, at its option, (a) to permanently repay term loans that constitute
Senior Debt, and if no term Senior Debt is outstanding at such time, to repay
outstanding revolving borrowings that constitute Senior Debt, (b) to acquire a
controlling interest in another business or all or substantially all of the
assets of a business, in each case engaged in a Permitted Business, or (c) to
acquire other non-current assets to be used in a Permitted Business, including,
without limitation, assets or Investments of the nature or type described in
clause (m) of the definition "Permitted Investments," provided that the Company
or such Restricted Subsidiary will have complied with clause (b) or (c) if,
within 365 days of such Asset Sale, the Company or such Restricted Subsidiary
shall have commenced and not completed or abandoned an expenditure or
Investment, or a binding agreement with respect to an expenditure or Investment,
in compliance with clause (b) or (c) and such expenditure or Investment is
substantially completed within a date one year and six months after the date of
such Asset Sale. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce Indebtedness under any Credit Facility or
otherwise expend or invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph shall be
deemed to constitute "Excess Proceeds." When the
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aggregate amount of Excess Proceeds exceeds $10,000,000, the Company shall be
required to make an offer to all Holders of Notes and holders of each other
Indebtedness that ranks by its terms pari passu in right of payment with the
Notes and the terms of which contain substantially similar requirements with
respect to the application of net proceeds from asset sales as are contained in
the Indenture (an "Asset Sale Offer") to purchase on a pro rata basis (with the
Excess Proceeds prorated between the Holders and such holders of pari passu
Indebtedness based upon outstanding aggregate principal amounts) the maximum
principal amount of Notes, that is an integral multiple of $1,000, that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
and Liquidated Damages thereon, if any, to the date of purchase, in accordance
with the procedures set forth in Section 3.09 hereof. To the extent that the
aggregate amount of Notes and other such Indebtedness tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Company and its
Restricted Subsidiaries may use any remaining Excess Proceeds for general
corporate purposes and any other purpose not prohibited by the Indenture. If
the aggregate principal amount of Notes surrendered by Holders thereof exceeds
the amount of such prorated Excess Proceeds, the Trustee shall select the Notes
to be purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
SECTION 4.11 Transactions with Affiliates.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any payment to, or sell, lease,
transfer or otherwise dispose of any properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate of any such Person (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that
are no less favorable to the Company or the relevant Restricted Subsidiary than
those that could have been obtained in a comparable transaction by the Company
or such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$1,000,000, an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above, (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $10,000,000, a resolution of its Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of its Board of Directors, and (c) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $10,000,000 and for which there
are no disinterested members of its Board of Directors, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an Independent Financial Advisor; provided that none of the
following shall be deemed to be Affiliate Transactions: (1) Affiliate
Transactions involving the purchase or sale of crude oil, natural gas and other
hydrocarbons, and refined products therefrom, in the ordinary course of any
Permitted Business, so long as such transactions are priced in line with
industry accepted benchmark prices and the pricing of such transactions are
equivalent to the pricing of comparable
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transactions with unrelated third parties, (2) any employment agreement or
other employee compensation plan or arrangement entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of business, (3)
transactions between or among (A) the Company and its Restricted Subsidiaries
and (B) the Restricted Subsidiaries of the Company, (4) fees and compensation
paid to, and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company and of its Restricted Subsidiaries in their capacity
as such, to the extent such fees and compensation are reasonable and customary,
(5) loans or advances to officers, directors and employees for moving,
entertainment and travel expenses, drawing accounts and similar expenditures
and other purposes, in each case in the ordinary course of business, (6)
maintenance in the ordinary course of business of customary benefit programs or
arrangements for employees, officers or directors, including vacation plans,
health and life insurance plans, deferred compensation plans and retirement or
savings plans and similar plans, and (7) fees and compensation paid to, and
indemnity provided on behalf of, officers, directors or employees of the
Company or any of its Restricted Subsidiaries, as determined by the Board of
Directors of the Company or of any such Restricted Subsidiary, to the extent
such fees and compensation are reasonable and customary as determined by the
Board of Directors of the Company or such Restricted Subsidiary.
SECTION 4.12 Liens.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien that secures obligations under any Indebtedness which is pari
passu with or subordinated to the Notes, unless the Notes are equally and
ratably secured with the obligations so secured or until such time as such
obligations are no longer secured by a Lien.
SECTION 4.13 Business Activities.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in any business other than a Permitted Business, except
to such extent as would not be material to the Company and its Restricted
Subsidiaries taken as a whole.
SECTION 4.14 Corporate Existence.
Subject to Articles V and X hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence, and the corporate, partnership or other existence of each
of its Restricted Subsidiaries, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Company or any
such Restricted Subsidiary; provided, however, that the Company shall not be
required to preserve the existence of any of its Restricted Subsidiaries, if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries, taken as a whole.
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SECTION 4.15 Offer to Repurchase upon Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon, to the date of purchase
(the "Change of Control Payment").
Within 30 days following any Change of Control, the Company will mail a
notice to each Holder stating: (i) the description of the transaction or
transactions that constitute the Change of Control, that the Change of Control
Offer is being made pursuant to this Section 4.15, and that all Notes validly
tendered and not withdrawn will be accepted for payment; (ii) the purchase price
and the purchase date, which shall be no earlier than 30 days and no later than
60 days from the date such notice is mailed (the "Change of Control Payment
Date"); (iii) that any Note not tendered will continue to accrue interest and
Liquidated Damages, if any; (iv) that, unless the Company defaults in the
payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest and
Liquidated Damages, if any, after the Change of Control Payment Date; (v) that
Holders electing to have any Notes purchased pursuant to a Change of Control
Offer will be required to surrender the Notes properly endorsed, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Notes
properly completed, together with other customary documents as the Company may
reasonably request, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day preceding the Change of
Control Payment Date; (vi) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Notes delivered for purchase, and a statement
that such Holder is withdrawing his election to have the Notes purchased; and
(vii) that Holders whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof. If any of the Notes subject to a Change
of Control Offer are in the form of a Global Note, then the Company shall modify
such notice to the extent necessary to accord with the Applicable Procedures of
the Depositary applicable to repurchases. In addition, the Company shall comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of Notes as a
result of a Change of Control.
(b) On the Change of Control Payment Date, the Company will, to the
extent lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent in immediately available funds an amount equal to the Change of Control
Payment in respect of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee the Notes so accepted together
with an Officers'
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Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent will promptly mail to each
Holder of Notes so tendered the Change of Control Payment for such Notes, and
the Trustee will promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. Prior to complying with the provisions of this Section 4.15, but in
any event within 90 days following a Change of Control, the Company will either
repay all of its outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing such outstanding Senior Debt to permit the
repurchase of Notes required by this covenant. The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
(c) The Change of Control provisions described above will be
applicable whether or not any other provisions of this Indenture are applicable,
except as set forth in Article VIII hereof.
(d) The Company will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth herein applicable to a Change of Control Offer made by
the Company and purchases all Notes validly tendered and not withdrawn under
such Change of Control Offer.
SECTION 4.16 No Senior Subordinated Debt.
Notwithstanding any other provision hereof, (i) the Company will not
incur, create, issue, assume, guarantee or otherwise become liable directly or
indirectly for any Indebtedness (including Acquired Debt) that is expressly
subordinate or junior in right of payment to any Senior Debt of the Company and
senior in any respect in right of payment to the Notes, and (ii) no Guarantor
will incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness (including Acquired Debt) that is expressly subordinate or junior
in right of payment to any Senior Debt of such Guarantor and senior in any
respect in right of payment to its Subsidiary Guarantee, it being understood
that Indebtedness will not be considered senior to other Indebtedness solely by
reason of being secured.
SECTION 4.17 Limitation on Issuances and Sales of Capital Stock of
Subsidiaries.
The Company (i) will not, and will not permit any Wholly Owned Restricted
Subsidiary of the Company to, transfer, convey, sell or otherwise dispose of any
Capital Stock of any Wholly Owned Restricted Subsidiary of the Company to any
Person (other than the Company or a Wholly Owned Restricted Subsidiary of the
Company), unless (a) such transfer, conveyance, sale, lease or other disposition
is of all the Capital Stock of such Restricted Subsidiary and (b) the net
proceeds from such transfer, conveyance, sale, lease or other disposition are
applied in accordance with Section 4.10 hereof, and (ii) will not permit any
Wholly Owned Restricted Subsidiary of the Company to issue any of its Equity
Interests to any Person other than to the Company or a Wholly
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Owned Restricted Subsidiary of the Company, subject to dispositions and
issuances permitted by clauses (i) and (ii) of the definition of "Wholly Owned
Restricted Subsidiary."
SECTION 4.18 Additional Subsidiary Guarantees.
(a) If any Subsidiary of the Company guarantees any Indebtedness of
the Company, then such Subsidiary shall (i) execute a supplemental indenture
substantially in the form of Exhibit E hereto providing that such Subsidiary
shall become a Guarantor under the Indenture and (ii) deliver an Opinion of
Counsel to the effect that such supplemental indenture has been duly authorized
and executed by such Subsidiary. Neither the Company nor any Guarantor shall be
required to make a notation on the Notes to reflect any such subsequent
Subsidiary Guarantee. Nothing in this Section 4.18 shall be construed to permit
any Restricted Subsidiary of the Company to incur Indebtedness otherwise
prohibited by Section 4.09 hereof.
SECTION 4.19 Payments for Consent.
The Company will not, and will not permit any of its Restricted
Subsidiaries, directly or indirectly to, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of this Indenture or the Notes unless such consideration
is offered to be paid or is paid to all Holders of the Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
SECTION 4.20 Collateral for Special Redemption.
(a) In order to secure the full and punctual payment and performance
of the Company's obligation, subject to Section 4.20(c), to pay the Special
Redemption Price upon a Special Redemption in the amount of $151,500,000 (the
"Special Redemption Amount"), the Company hereby grants to the Trustee, for the
benefit of the Holders, a continuing security interest in and to the Collateral,
whether now owned or existing or hereafter acquired or arising; provided that
this security interest shall be limited to receipt by the Trustee of the Special
Redemption Amount; and provided further that the security interest granted to
the Trustee hereunder shall not include any of the Company's other property,
including its interest or right to receive capital stock under the Escrow
Agreement upon consummation of the Washington Acquisition. The Company and the
Trustee acknowledge that additional security interests in favor of the lenders
under the Senior Credit Facility may be contemporaneously granted in the
Collateral. The Trustee shall, upon the written request of the Company, execute
and deliver, in its capacity as Trustee for the benefit of the Holders, (i) any
financing statement or other document evidencing or perfecting the security
interests granted hereunder or (ii) any intercreditor agreement among the
Trustee and lenders under the Senior Credit Facility or their agents for the
purpose of clarifying the relative rights of the parties in respect of the
Collateral. The Trustee shall not be liable or accountable for any losses
resulting from entering into the foregoing instruments and agreements upon the
direction of the Company.
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(b) If the Washington Acquisition is consummated by the Company on or
prior to December 31, 1998, the Company shall deliver to the Trustee an
Officers' Certificate certifying to that effect. Upon receipt of such Officer's
Certificate, the security interests granted in respect of the Collateral
pursuant to paragraph (a) of this Section 4.20 shall be released by the Trustee,
whereupon the Trustee shall execute and deliver a termination statement or other
instrument evidencing the release of such security interest furnished to the
Trustee by the Company and, should the Trustee receive any funds pursuant to the
Escrow Agreement, the Trustee shall pursuant to the Company's written
instructions, remit all such funds to the Company.
(c) In the event cash or investment proceeds are received by the
Trustee (in its capacity as Trustee) pursuant to the Escrow Agreement and prior
to the Special Redemption Date from or in respect of the Collateral, the Trustee
shall deposit and maintain such proceeds in an account established for such
purpose (the "Collateral Account"), which account shall be under the sole
dominion and control of the Trustee. Amounts deposited in the Collateral Account
shall be invested and reinvested in Cash Equivalents from time to time in
accordance with applicable law as directed by the Company in writing with such
investment held in the Collateral Account. Any income received with respect to
the balance from time to time standing to the credit of the Collateral Account,
including any interest or capital gains on Cash Equivalents, shall so long as no
Default or Event of Default shall have occurred and be continuing, be
distributed (free of any Lien created hereby) to the Company, as and when
instructed by the Company, so long as the balance thereof is at all times at
least equal to the Special Redemption Amount. The Trustee shall not be liable or
accountable for any losses resulting without negligence on the part of the
Trustee from the sale or depreciation in the market value of any investment of
amounts on deposit in the Collateral Account. Subject to Article VII hereof and
the provisions of the Escrow Agreement, the Trustee solely in its individual
capacity, and in any other capacity it may now or hereafter have (other than
under this Indenture or the Escrow Agreement) hereby waives any rights it may
have in such respective capacities to the Collateral Account and the Collateral,
and all funds and investments therein including any such rights arising through
any counterclaim, defense, recoupment, charge, lien or right of set-off.
(d) Upon notice from the Company to the Trustee pursuant to Section
3.01 hereof of a Special Redemption, all funds in the Collateral Account up to
the Special Redemption Amount (the "Collateral Funds") shall be applied, or paid
to the Paying Agent, to fund the Special Redemption Price, whereupon the
security interests in the Collateral shall terminate as of the date of such
application and the Trustee shall pay any amount in the Collateral Account in
excess of the amount needed to fund the Special Redemption Price to the Company.
Upon receipt of a notice pursuant to Section 4.20(b) or upon payment by the
Company of the Special Redemption Price in connection with a Special Redemption
(whether or not with the Collateral) to the Holders of the Notes, or any Paying
Agent or the Trustee for payment to Holders of the Notes, the Trustee shall
execute, deliver or acknowledge, upon written request of the Company, any
necessary or proper instruments of termination or release, to evidence the
release of any Collateral permitted to by released pursuant to this Section
4.20. In addition, if the Special Redemption is effectuated with funds of the
Company distinct of the Collateral, then upon the Company's written instructions
to
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the Trustee to such effect, it shall remit the Collateral (including all funds
in the Collateral Account) to the Company. TIA Section 314(d) shall not apply
to the release of Collateral pursuant to this provision if such release occurs
prior to the filing of the Exchange Offer Registration Statement pursuant to
the Registration Rights Agreement, after which time this sentence shall be
deemed deleted from this Indenture.
(e) The parties intend that the Trustee shall have "control" of the
Collateral Account and the Collateral Funds (including all securities therein)
within the meaning of, and to the extent governed by, Article 8 of the Uniform
Commercial Code as in effect in the State of New York on the Issue Date, and
shall not release Collateral Funds, if any, except as provided in this Section
4.20.
ARTICLE V
SUCCESSORS
SECTION 5.01 Merger, Consolidation, or Sale of Assets.
The Company will not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person, unless (i) the
Company is the resulting, transferee or surviving Person or the Person formed by
or surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the Person to whom such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the obligations
and covenants of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately before and after such transaction no Default or Event of Default
shall have occurred and be continuing; and (iv) except in the case of a merger
of the Company with or into a Wholly Owned Restricted Subsidiary, the Company or
the Person formed by or surviving any such consolidation or merger (if other
than the Company), or to whom such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the transaction and (B) will, at the
time of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof.
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SECTION 5.02 Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor Person
formed by such consolidation or into or with which the Company is merged or to
whom such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
such successor Person and not to the Company), and may exercise every right and
power of, the Company under this Indenture and the Notes with the same effect as
if such successor Person had been named as the Company herein; and when such
successor corporation duly assumes all of the obligations and covenants of the
Company pursuant to the Notes and hereto, except in the case of a lease of all
or substantially all of the properties or assets in one or more related
transactions, the predecessor Person shall be relieved of all such obligations.
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default.
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes and such default
continues for a period of 30 days (whether or not prohibited by Article 10
hereof);
(b) the Company defaults in the payment when due of principal of or
premium, if any, on the Notes (whether or not prohibited by Article 10 hereof);
(c) the Company or any of its Restricted Subsidiaries fails to comply
with any of the provisions of Sections 3.10, 4.10, 4.15 or 5.01 hereof;
(d) the Company or any of its Restricted Subsidiaries fails to
observe or perform any covenant or other agreement in this Indenture or the
Notes (other than the provisions expressly set forth in clause (c) above) for 60
days after written notice of such failure to the Company by the Trustee or the
Holders of at least 25% in aggregate principal amount of the Notes then
outstanding;
(e) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or
is created after the Issue Date, which default (i) is caused by a failure to pay
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principal of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness (a "Payment
Default") or (ii) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates without duplication $15,000,000 or more, and such
default shall not have been cured or waived or any such acceleration rescinded
within ten Business Days after the running of such grace period or the
occurrence of such acceleration;
(f) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Company or
any of its Restricted Subsidiaries, and such judgment or judgments remain
unpaid, unstayed or undischarged for a period (during which execution shall not
be effectively stayed) of 60 days, provided that the aggregate of all such
unpaid or undischarged judgments exceeds $15,000,000 (excluding amounts covered
by insurance);
(g) the Company or any of its Significant Subsidiaries or any group
of Subsidiaries that, when taken together, would constitute a Significant
Subsidiary pursuant to or within the meaning of the Bankruptcy Code:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
(iii) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due;
(h) a court of competent jurisdiction enters an order or decree under
the Bankruptcy Code that:
(i) is for relief against the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, when taken together, would
constitute a Significant Subsidiary, in an involuntary case;
(ii) appoints a Custodian of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, when taken
together, would constitute a Significant Subsidiary, or for all or
substantially all of the property of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, when taken
together, would constitute a Significant Subsidiary; or
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(iii) orders the liquidation of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, when taken
together, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive
days; or
(i) except as permitted herein, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations under
its Subsidiary Guarantee (other than by reason of the termination of this
Indenture or the release of any such Subsidiary Guarantee in accordance with
this Indenture).
SECTION 6.02 Acceleration.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Upon any such
declaration, the Notes shall become due and payable immediately. Notwithstanding
the foregoing, if an Event of Default specified in clause (g) or (h) of Section
6.01 hereof occurs with respect to the Company or any Significant Subsidiary or
any group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes shall be due and payable immediately without
further action or notice. The Holders of at least a majority in aggregate
principal amount of the then outstanding Notes by written notice to the Trustee
may on behalf of all of the Holders rescind an acceleration and its consequences
if the rescission would not conflict with any judgment or decree and if all
existing Events of Default (except nonpayment of principal, interest or
Liquidated Damages that has become due solely because of the acceleration) have
been cured or waived.
SECTION 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, interest and
Liquidated Damages, if any, on the Notes or to enforce the performance of any
provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
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SECTION 6.04 Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of the
then outstanding Notes by notice to the Trustee may on behalf of the Holders of
all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of interest or Liquidated Damages, if any, on, or the principal of, the
Notes including in connection with an offer to purchase; provided, however, that
the Holders of a majority in aggregate principal amount of then outstanding
Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration, to the extent permitted by
applicable law. Upon any such waiver, such Default or Event of Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
SECTION 6.05 Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
SECTION 6.06 Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if:
(a) the Holder of a Note has previously given to the Trustee written
notice of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense to be incurred in compliance with such request;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
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(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all of such
Holders.
SECTION 6.07 Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and
Liquidated Damages, if any, and interest on the Note, on or after the respective
due dates expressed in the Note (including in connection with an offer to
purchase or redemption), or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
SECTION 6.08 Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) hereof occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09 Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other
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properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes
or the rights of any Holder, or to authorize the Trustee to vote in respect of
the claim of any Holder in any such proceeding.
SECTION 6.10 Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense, and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for
principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any and
interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the cost of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
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ARTICLE VII
TRUSTEE
SECTION 7.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties that are
specifically set forth in this Indenture and the TIA and no others, and
no implied covenants or obligations shall be read into this Indenture
against the Trustee. To the extent of any conflict between the duties of
the Trustee hereunder and under the TIA, the TIA shall control.
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
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(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02 Rights of Trustee.
(a) The Trustee may conclusively rely upon any document (whether in
its original or facsimile form) believed by it to be genuine and to have been
signed or presented by the proper Person. The Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel of its selection and the advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
(including fees and expenses of its agents and counsel) that might be incurred
by it in compliance with such request or direction.
SECTION 7.03 Individual Rights of Trustee.
The Trustee, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any
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conflicting interest it must eliminate such conflict within 90 days, apply to
the SEC for permission to continue as trustee or resign. Any Agent may do the
same with like rights and duties. The Trustee is also subject to Sections 7.10
and 7.11 hereof.
SECTION 7.04 Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.05 Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
actually known to a Responsible Officer of the Trustee, the Trustee shall mail
to Holders of Notes a notice of the Default or Event of Default within 90 days
after the later of (a) the date the Default or Event of Default shall have
occurred and (b) the date such Responsible Officer first had such actual
knowledge. Except in the case of a Default or Event of Default in payment of
principal of, or interest on, any Note, the Trustee may withhold the notice if
and so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of the Holders of the Notes.
SECTION 7.06 Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA Section 313(a) (but if no event described in TIA
Section 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA
Section 313(b)(2). The Trustee shall also transmit by mail all reports as
required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the SEC and each stock exchange on
which the Notes are listed in accordance with TIA Section 313(d). The Company
shall promptly notify the Trustee when the Notes are listed on any stock
exchange or delisted therefrom.
SECTION 7.07 Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such compensation
for its acceptance of this Indenture and services hereunder as such parties
shall agree from time to time. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an
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express trust. The Company shall reimburse the Trustee promptly upon request
for all reasonable disbursements, advances and expenses incurred or made by it
in addition to the compensation for its services. Such expenses shall include
the reasonable compensation, disbursements and expenses of the Trustee's agents
and counsel.
The Company shall indemnify each of the Trustee and any predecessor
Trustee against any and all losses, liabilities, claims, damages or expenses
incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against the Company (including this Section
7.07) and defending itself against any claim (whether asserted by the Company or
any Holder or any other person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent any
such loss, liability, claim, damage or expense may be attributable to its
negligence, bad faith or willful misconduct. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim, and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel, and the Company
shall pay the reasonable fees and expenses of such counsel. The Company need not
pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the Trustee
shall have a Lien prior to the Notes on all money or property held or collected
by the Trustee, except that held in trust to pay principal and interest on
particular Notes. Such Lien shall survive the satisfaction and discharge of this
Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under the
Bankruptcy Code.
The Trustee shall comply with the provisions of TIA Section 313(b)(2) to
the extent applicable.
SECTION 7.08 Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
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(a) the Trustee fails to comply with Section 7.10 hereof,
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under the Bankruptcy Code;
(c) a Custodian takes charge of the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee (at the expense of
the Company), the Company, or the Holders of Notes of at least 10% in principal
amount of the then outstanding Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10 hereof, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders of the Notes. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
SECTION 7.09 Successor Trustee by Merger, Etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee. As
soon as practicable, the successor Trustee shall mail a notice of its succession
to the Company and the Holders of the Notes.
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SECTION 7.10 Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $50,000,000
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section
310(b).
SECTION 7.11 Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE VIII
SATISFACTION AND DISCHARGE; DEFEASANCE
SECTION 8.01 Satisfaction and Discharge of Indenture.
This Indenture shall upon delivery of a written request of an Officer of
the Company to the Trustee cease to be of further effect with respect to the
Notes (except as to any surviving rights of registration of transfer or exchange
of Notes herein expressly provided for), and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to the Notes, when
(a) either
(i) all such Notes theretofore authenticated and delivered
(other than (1) such Notes which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 2.07 hereof and
(2) such Notes for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 8.08 hereof) have been delivered to the Trustee for cancellation;
or
(ii) all such Notes not theretofore delivered to the Trustee for
cancellation
(A) have become due and payable by reason of the making of
a notice of redemption or otherwise,
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(B) will become due and payable at their final Stated
Maturity within one year, or
(C) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense of,
the Company,
and the Company, in the case of (A) , (B) or (C) above, has deposited or caused
to be deposited with the Trustee as trust funds , in trust solely for the
purpose and the benefit of the Holders of such Notes, an amount of U.S. Dollars
or non-callable Government Securities , or a combination thereof, sufficient,
without consideration of any reinvestment of interest, to pay and discharge the
entire indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation, for principal and any premium and interest and Liquidated
Damages, if any, to the date of such deposit (in the case of such Notes which
have become due and payable) or to the Stated Maturity or redemption date (as
the case may be) of the principal of the Notes;
(b) no Default or Event of Default with respect to this Indenture or
the Notes shall have occurred and be continuing on the date of such deposit or
shall occur as a result of such deposit (other than a Default or Event of
Default resulting from the incurrence of Indebtedness or the grant of Liens
securing such Indebtedness, all or a portion of the proceeds of which will be
used to defease the Notes pursuant to this Article VIII concurrently with such
incurrence or within 30 days thereof), and such deposit will not result in a
breach or violation of, or constitute a default under, any material instrument
to which the Company is a party or by which the Company is bound;
(c) the Company has paid or caused to be paid all other sums payable
hereunder by the Company with respect to such Notes; and
(d) the Company has delivered to the Trustee (i) irrevocable
instructions under the Indenture to apply the deposited funds toward the payment
of such Notes at their Stated Maturity or the redemption date, as the case may
be, and (ii) or an Officers' Certificate and an Opinion of Counsel, each stating
that all conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture with
respect to the Notes, the obligations of the Company to the Trustee under
Section 7.07 hereof, and, if U.S. dollars or Government Securities shall have
been deposited with the Trustee pursuant to subclause (ii) of clause (a) of this
Section, the obligations of the Company or Trustee under Section 8.02 hereof and
Section 8.08 hereof shall survive.
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SECTION 8.02 Application of Trust Money.
Subject to the provisions of Section 8.08 hereof, all money and
Government Securities deposited with the Trustee pursuant to Section 8.01 hereof
shall be held in trust and applied by it, in accordance with the provisions of
the Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal, any
Liquidated Damages, and any premium and interest for whose payment such money or
Government Securities has been deposited with the Trustee.
SECTION 8.03 Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, exercise its
right under either Section 8.04 or 8.05 hereof with respect to all outstanding
Notes upon compliance with the conditions set forth below in this Article VIII.
SECTION 8.04 Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.03 hereof of the option
applicable to this Section 8.04, each of the Company and the Guarantors shall,
subject to the satisfaction of the conditions set forth in Section 8.06 hereof,
be deemed to have discharged its obligations with respect to all outstanding
Notes and, as applicable, its Subsidiary Guarantees on the date the conditions
set forth below are satisfied (hereinafter, "Legal Defeasance"). For this
purpose, Legal Defeasance means that each of the Company and the Guarantors
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Notes, and to the extent applicable, represented by the
Subsidiary Guarantees, which in each case shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.07 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Notes or Subsidiary Guarantees
and this Indenture (and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Notes to receive
solely from the trust fund described in Section 8.06 hereof, and as more fully
set forth in such Section, payments in respect of the principal of, and premium,
if any, and interest and Liquidated Damages, if any, on, such Notes when such
payments are due, (b) the Company's obligations with respect to such Notes under
Sections 2.03, 2.04, 2.07, 2.10 and 4.02 hereof, (c) the rights, powers, trusts,
duties and immunities of the Trustee hereunder and the Company's obligations in
connection therewith and (d) this Article VIII. Subject to compliance with this
Article VIII, the Company may exercise its option under this Section 8.04
notwithstanding the prior exercise of its option under Section 8.05 hereof.
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SECTION 8.05 Covenant Defeasance.
Upon the Company's exercise under Section 8.03 hereof of the option
applicable to this Section 8.05, each of the Company and the Guarantors shall,
subject to the satisfaction of the conditions set forth in Section 8.06 hereof,
be released from its obligations under the covenants contained in Article IV
hereof (other than those in Sections 4.01, 4.02, 4.06 and 4.14), Article V
hereof and Section 11.03 hereof on and after the date the conditions set forth
below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document, and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.03 hereof of the option applicable to this Section 8.05 hereof, subject to the
satisfaction of the conditions set forth in Section 8.06 hereof, Sections
6.01(e) through 6.01(g) hereof and 6.01(i) hereof shall not constitute Events of
Default.
SECTION 8.06 Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.04 or 8.05 hereof in order to exercise either Legal Defeasance or
Covenant Defeasance with respect to the outstanding Notes:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, and premium, if any, and interest and Liquidated
Damages, if any, on, the outstanding Notes on the stated maturity or on the
applicable repurchase or redemption date, as the case may be, and the Company
must specify whether the Notes are being defeased to maturity or to a particular
repurchase or redemption date;
(b) in the case of an election under Section 8.04 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize
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income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of an election under Section 8.05 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness or the grant of Liens securing
such Indebtedness, all or a portion of the proceeds of which will be used to
defease the Notes pursuant to this Article VIII concurrently with such
incurrence or within 30 days thereof) or insofar as Section 6.01(g) or 6.01(h)
hereof is concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such deposit will not result in a breach or violation of, or
constitute a default under, any material agreement or instrument (other than
this Indenture) to which the Company or any of its Restricted Subsidiaries is a
party or by which the Company or any of its Restricted Subsidiaries is bound, or
if such breach, violation or default would occur, which is not waived as of, and
for all purposes, on and after, the date of such deposit;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that on the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.07 Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.08 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes
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of this Section 8.07, the "Trustee") pursuant to Section 8.06 hereof in respect
of the outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as Paying Agent) as the Trustee may determine, to the Holders of such
Notes of all sums due and to become due thereon in respect of principal,
premium, if any, and interest and Liquidated Damages, if any, but such money
need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.06 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article VIII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.06 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.06(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.08 Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, or premium, if any,
or interest and Liquidated Damages, if any, on, any Note and remaining unclaimed
for two years after such principal, and premium, if any, or interest and
Liquidated Damages, if any, has become due and payable shall be paid to the
Company on its request or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Note shall thereafter, as a secured creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 8.09 Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. dollars or
non-callable Government Securities in accordance with Section 8.04 or 8.05
hereof, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
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shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.04 or 8.05 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.04 or 8.05
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, or premium, if any, or interest and Liquidated
Damages, if any, on, any Note following the reinstatement of its obligations,
the Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE IX
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01 Without Consent of Holders of Notes.
Notwithstanding Section 9.02 hereof, the Company and the Trustee may
amend or supplement this Indenture or the Notes without the consent of any
Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article II hereof (including
the related definitions) in a manner that does not materially adversely affect
any Holder;
(c) to provide for the assumption of the Company's obligations to the
Holders of the Notes in the case of a merger, consolidation or sale of assets of
the Company pursuant to Article V hereof or of any Guarantor pursuant to Article
XI hereof or to add any Person as a Guarantor hereunder or to release any
Guarantor or otherwise comply with Article XI;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any such Holder; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA or to allow any
Guarantor to guarantee the Notes.
Upon the request of the Company accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company in the execution of any
amended or supplemental indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations that
may be therein contained, but the Trustee shall not be obligated to enter into
such amended or supplemental Indenture that affects its own rights, duties,
liabilities or immunities under this Indenture or otherwise.
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SECTION 9.02 With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture (including Sections 3.09, 4.10
and 4.15 hereof) and the Notes may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with the purchase of, or
a tender offer or exchange offer for, the Notes), and, subject to Sections 6.04
and 6.07 hereof, any existing Default or Event of Default or compliance with any
provision of this Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Notes).
Upon the request of the Company accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
a Responsible Officer of the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Company in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture affects
the Trustee's own rights, duties, liabilities or immunities under this Indenture
or otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Notes. However, without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Notes held by a nonconsenting
Holder):
(a) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver under any provision of this Indenture, the
Notes or any Subsidiary Guarantee;
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(b) reduce the principal of or change the fixed maturity of any Note
or alter or waive in any manner that adversely affects the rights of any Holder
of Notes any of the provisions with respect to the redemption of the Notes
except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof and
the related definitions;
(c) reduce the rate of or change the time for payment of interest,
including default interest, or Liquidated Damages, if any, on any Note;
(d) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest or Liquidated Damages, if any, on the Notes
(except a rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the then outstanding Notes and a
waiver of the payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change that adversely affects the rights of any Holder
of Notes in the provisions of this Indenture relating to waivers of past
Defaults or make any change to the rights of Holders of Notes to receive
payments of principal of, or premium, if any, or interest or Liquidated Damages,
if any, on the Notes (except as permitted in clause (g) of this Section 9.02);
(g) waive a redemption payment with respect to any Note (other than a
payment required by Sections 3.09, 4.10 and 4.15 hereof); or
(h) make any change in Section 6.04 or 6.07 hereof or in the
foregoing amendment and waiver provisions.
In addition to any consent of Holders required in this Section 9.02, any
amendment to Article X hereof will require the consent of the Holders of at
least 75% in aggregate principal amount of the Notes then outstanding if such
amendment would adversely affect the rights of Holders of Notes.
SECTION 9.03 Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in a amended or supplemental indenture that complies with the TIA as then
in effect.
SECTION 9.04 Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment,
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supplement or waiver becomes effective in accordance with its terms and
thereafter binds every Holder.
SECTION 9.05 Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company, in
exchange for all Notes, may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06 Trustee to Sign Amendments, Etc.
The Trustee shall sign any amended or supplemental indenture authorized
pursuant to this Article IX if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Trustee
may, but shall not be obligated to, enter into any such supplemental indenture
which affects the Trustee's own rights, duties, liabilities or immunities under
this Indenture or otherwise. The Company may not sign an amendment or
supplemental indenture until the Board of Directors approves it. In executing
any amended or supplemental indenture, the Trustee shall be entitled to receive
and (subject to Section 7.01 hereof) shall be fully protected in relying upon,
an Officers' Certificate and an Opinion of Counsel stating that the execution of
such amended or supplemental indenture is authorized or permitted by this
Indenture.
ARTICLE X
SUBORDINATION
SECTION 10.01 Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Note agrees, that the
payment of principal of, and premium, if any, and interest and Liquidated
Damages, if any, on the Notes is subordinated in right of payment, to the extent
and in the manner provided in this Article X, to the prior payment in full, in
cash, of all Senior Debt (whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed), and that the subordination is for the
benefit of the holders of Senior Debt.
SECTION 10.02 Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, in
an assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt shall be entitled to receive
payment in
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full, in cash, of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Debt (whether or not an allowable claim)) before the
Holders of the Notes shall be entitled to receive any payment with respect to
the Notes, and until all Obligations with respect to Senior Debt are paid in
full, in cash, pursuant to such liquidation or dissolution, any such
distribution to which the Holders of Notes would be entitled shall be made to
the holders of Senior Debt (except that Holders of Notes may receive and retain
(i) Permitted Junior Securities, (ii) payments and other distributions made
from any defeasance trust created pursuant to Article VIII hereof; provided
that at the time of its creation such trust does not violate the Senior Credit
Facility and (iii) payments from the Collateral Account or otherwise from funds
released to the Company or the Trustee from escrow under the Escrow Agreement
for payment of the Special Redemption Price as described in Section 3.10 hereof
provided that such payments are limited in the aggregate to the Special
Redemption Amount,
SECTION 10.03 Default on Designated Senior Debt.
The Company may not make any payment upon or in respect of the Notes
(other than (i) Permitted Junior Securities, (ii) payments and other
distributions made from any trust created pursuant to Article VIII hereof;
provided that at the time of its creation such trust does not violate the Senior
Credit Facility and (iii) payments from the Collateral Account or otherwise from
funds released to the Company or the Trustee from escrow under the Escrow
Agreement for payment of the Special Redemption Price as described in Section
3.10 hereof) if:
(a) a default in the payment, when due, of the principal of, premium,
if any, or interest on Designated Senior Debt occurs and is continuing beyond
any applicable grace period in the agreement, indenture or other document
governing such Designated Senior Debt; or
(b) a default, other than a payment default pursuant to the preceding
clause (a), on Designated Senior Debt occurs and is continuing that then permits
holders of the Designated Senior Debt as to which such default relates to
accelerate its maturity without further notice or the expiration of any
applicable grace periods (a "Nonpayment Default") and the Trustee receives (and
the Company receives, if not sent by the Company) a notice of the default (a
"Payment Blockage Notice") from a Person who may give it pursuant to Section
10.09 hereof, which notice states it is a Payment Blockage Notice under this
Indenture and that is submitted by such Person to evidence its election to
effect a payment blockage for the period specified in the next following
paragraph.
The Company may and shall resume payments on and distributions in
respect of the Notes:
(i) in the case of a payment default pursuant to clause
(a) of this Section 10.03, the date on which the default is cured or
waived or any acceleration if rescinded, as applicable, and
(ii) in the case of a Nonpayment Default, the earlier of
(a) the date on which such Nonpayment Default is cured or waived or
(b) 179 days after the date on which
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the applicable Payment Blockage Notice is received, unless the maturity
of such Designated Senior Debt has been accelerated and not thereafter
rescinded, provided, in each case, the Company may pay the Notes without
regard to the foregoing if it and the Trustee receive written notice
approving the same from Representatives of each Designated Senior Debt.
If the Trustee receives any such Payment Blockage Notice, no subsequent
Payment Blockage Notice shall commence or be effective for purposes of this
Section unless and until (i) 360 days shall have elapsed since the effectiveness
of the immediately prior Payment Blockage Notice and (ii) all scheduled payments
of principal of, and, premium, if any, and interest and Liquidated Damages, if
any, on, the Notes that have come due have been paid in full in cash. No
Nonpayment Default that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default shall have been cured or
waived for a period of not less than 90 days.
SECTION 10.04 Acceleration of Notes.
If payment of the Notes is accelerated because of an Event of Default,
the Company shall promptly notify holders of Senior Debt of the acceleration.
SECTION 10.05 Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent of any
facts known to the Company that would cause a payment of any Obligations with
respect to the Notes to violate this Article X, but failure to give such notice
shall not affect the subordination of the Notes to the Senior Debt as provided
in this Article X.
SECTION 10.06 Subrogation.
After all Senior Debt is paid in full in cash and until the Notes are
paid in full, Holders of Notes shall be subrogated to the rights of holders of
Senior Debt or holders of debt of the Company which is pari passu with the Notes
but not expressly subordinated to Senior Debt to receive distributions
applicable to Senior Debt to the extent that distributions otherwise payable to
the Holders of Notes have been applied to the payment of Senior Debt. A
distribution made under this Article X to holders of Senior Debt that otherwise
would have been made to Holders of Notes is not, as between the Company and
Holders, a payment by the Company on the Notes.
SECTION 10.07 Relative Rights.
This Article X defines the relative rights of Holders of Notes and
holders of Senior Debt. Nothing in this Indenture shall:
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(a) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay principal
of, premium, if any and interest and Liquidated Damages, if any, on, the Notes
in accordance with their terms;
(b) affect the relative rights of Holders of Notes and creditors of
the Company other than their rights in relation to holders of Senior Debt; or
(c) prevent the Trustee or any Holder of Notes from exercising its
available remedies upon a Default or Event of Default, subject to the rights of
holders and owners of Senior Debt to receive distributions and payments
otherwise payable to Holders of Notes.
If the Company fails because of this Article X to pay principal of or
interest and Liquidated Damages, if any, on a Note on the due date, the failure
after any applicable grace period has elapsed is still a Default or Event of
Default.
SECTION 10.08 Subordination May Not Be Impaired by Company.
No right of any holder of Senior Debt to enforce the subordination of the
Indebtedness evidenced by the Notes shall be impaired by any act or failure to
act by the Company or any Holder or by the failure of the Company or any Holder
to comply with this Indenture.
SECTION 10.09 Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of any
Senior Debt, the distribution may be made and the notice given to the
Representative of such Senior Debt.
Upon any payment or distribution of assets of the Company referred to in
this Article X, the Trustee and the Holders of Notes shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the Holders of Notes
for the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Debt and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article X.
SECTION 10.10 Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article X or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless a Responsible Officer of the Trustee shall
have received at its Corporate Trust Office at least five Business Days prior to
the date of such payment
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written notice of facts that would cause the payment of any Obligations with
respect to the Notes to violate this Article X. Only the Company or a
Representative of the holders of any Designated Senior Debt may give the
notice. Nothing in this Article X shall impair the claims of, or payments to,
the Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
SECTION 10.11 Authorization to Effect Subordination.
Each Holder of Notes, by the Holder's acceptance thereof, authorizes and
directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article X, and appoints the Trustee to act as such Holder's attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
6.09 hereof at least 30 days before the expiration of the time to file such
claim, any Representative is hereby authorized to file an appropriate claim for
and on behalf of the Holders of the Notes.
SECTION 10.12 Amendments.
The provisions of this Article X shall not be amended or modified without
the written consent of the respective Representatives under the Senior Credit
Facility and all other Designated Senior Debt.
SECTION 10.13 Continued Effectiveness.
The terms of this Indenture, the subordination effected hereby, and the
rights and other obligations of the Holders of the Notes of the holders of
Senior Debt arising hereunder, shall not be affected, modified or impaired in
any manner or to any extent by: (i) any amendment or modification of or
supplement to any Credit Facility (to the extent not prohibited by this
Indenture); (ii) the validity and enforceability of any of such documents; or
(iii) any exercise or non-exercise of any right, power or remedy under or in
respect of the Senior Debt or the Obligations evidenced by the Notes or any of
the instruments or documents referred to in clause (i) above. Each Holder of
Notes hereby acknowledges that the provisions of this Indenture are intended to
be enforceable at all times, whether before the commencement of, in connection
with or premised on the occurrence of any voluntary or involuntary insolvency,
bankruptcy, receivership, custodianship, liquidation, dissolution,
reorganization, assignment for the benefit of creditors, appointment of a
custodian, receiver, trustee or other officer with similar powers or any other
proceeding for the liquidation, dissolution or other winding up of the Company
or any Guarantor (including, without limitation, any such proceeding under the
Bankruptcy Code).
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SECTION 10.14 Cumulative Rights; No Waivers.
Subject to Section 10.03 hereof, each and every right, remedy and power
granted to any Representative of any Senior Debt hereunder shall be cumulative
and in addition to any other right, remedy or power specifically granted herein,
in the related Senior Debt or now or hereafter existing in equity, at law, by
virtue of statute or otherwise, and may be exercised by any Representative of
any Senior Debt or the holders of any Senior Debt, from time to time,
concurrently or independently and as often and in such order as such any
Representative or the holders of Senior Debt may deem expedient (subject to the
limits provided in Section 10.03 hereof with respect to payment blockages). Any
failure or delay on the part of any Representative of Senior Debt or the holders
of Senior Debt in exercising any such right, remedy or power, or abandonment or
discontinuance of steps to enforce the same, shall not operate as a waiver
thereof or affect the rights of such any Representative or the holders of Senior
Debt thereafter to exercise the same, and any single or partial exercise of any
such right, remedy or power shall not preclude any other or further exercise
thereof or the exercise of any other right, remedy or power, and no such
failure, delay, abandonment or single or partial exercise of the rights of any
Representative of Senior Debt or the holders of Senior Debt hereunder shall be
deemed to establish a custom or course of dealing or performance among the
parties hereto.
SECTION 10.15 Trustee.
Any Representative of Senior Debt shall be entitled to send any notices
required or permitted to be delivered to the Holders of the Notes to the Trustee
on behalf of such holders and any such notice so delivered to the Trustee shall
be deemed to have been delivered to all Holders of Notes.
ARTICLE XI
GUARANTEES
SECTION 11.01 Subsidiary Guarantees.
Subject to Section 11.05 hereof, each of the Guarantors hereby jointly
and severally, unconditionally guarantees, and each Person who in the future
becomes a Guarantor by executing a supplemental indenture in the form attached
to this Indenture as Exhibit E shall jointly and severally, unconditionally
guarantee, on a senior subordinated basis to each Holder of a Note authenticated
and delivered by the Trustee and to the Trustee and its successors and assigns,
the Notes and the Obligations of the Company hereunder and thereunder, that:
(a) the principal of, and premium, if any, interest and Liquidated
Damages, if any, on, the Notes will be promptly paid in full when due, subject
to any applicable grace period, whether at maturity, by acceleration, redemption
or otherwise, and interest on the overdue principal of, and premium, if any, (to
the extent permitted by law) interest and Liquidated Damages, if any, on, the
Notes, and all other payment Obligations of the Company to the Holders or the
Trustee hereunder
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or thereunder will be promptly paid in full and performed, all in accordance
with the terms hereof and thereof; and
(b) in case of any extension of time of payment or renewal of any
Notes or any of such other Obligations, the same will be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
subject to any applicable grace period, whether at stated maturity, by
acceleration, redemption or otherwise.
Failing payment when so due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Guarantors will be jointly
and severally obligated to pay the same immediately. An Event of Default under
this Indenture or the Notes shall constitute an event of default under the
Subsidiary Guarantees, and shall entitle the Holders to accelerate the
Obligations of the Guarantors hereunder and under the Notes in the same manner
and to the same extent as the Obligations of the Company hereunder and under the
Notes. The Guarantors hereby agree that their Obligations hereunder shall be
unconditional, irrespective of the validity or enforceability of the Notes or
this Indenture, the absence of any action to enforce the same, any waiver or
consent by any Holder with respect to any provisions hereof or thereof, the
recovery of any judgment against the Company, any action to enforce the same or
any other circumstance (other than complete performance) which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor. Each
Guarantor, to the extent permitted by law, hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that its
Subsidiary Guarantee will not be discharged except by complete performance of
the Obligations contained in the Notes and this Indenture. If any Holder or the
Trustee is required by any court or otherwise to return to the Company, the
Guarantors, or any Note Custodian, Trustee, liquidator or other similar official
acting in relation to either the Company or the Guarantors, any amount paid by
the Company or any Guarantor to the Trustee or such Holder, this Subsidiary
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Guarantor agrees that it shall not be entitled to, and
hereby waives, any right to exercise any right of subrogation in relation to the
Holders in respect of any Obligations guaranteed hereby, except as provided
under Section 11.05 hereof. Each Guarantor further agrees that, as between the
Guarantors, on the one hand, and the Holders and the Trustee, on the other hand,
(x) the maturity of the Obligations guaranteed hereby may be accelerated as
provided in Article VI hereof for the purposes of its Subsidiary Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Obligations guaranteed thereby, and (y) in the
event of any declaration of acceleration of such Obligations as provided in
Article VI hereof, such Obligations (whether or not due and payable) shall
forthwith become due and payable by each Guarantor for the purpose of its
Subsidiary Guarantee. The Guarantors shall have the right to seek contribution
from any non-paying Guarantor pursuant to Section 11.05 hereof after the Notes
and the Obligations hereunder shall have been paid in full to the Holders under
the Subsidiary Guarantees.
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SECTION 11.02 Execution and Delivery of Additional Subsidiary Guarantee or
Supplemental Indenture; Notation of Subsidiary Guarantee.
To effect any additional Subsidiary Guarantee set forth in Section 11.01
hereof, any future Guarantor shall execute and deliver a supplemental indenture
substantially in the form of Exhibit E hereto, which supplemental indenture
shall be entered into in accordance with Section 4.18 hereof and shall be
executed on behalf of such Guarantor, by manual or facsimile signature, by an
Officer of such Guarantor.
To evidence its Subsidiary Guarantee set forth in Section 11.01 hereof,
each Guarantor hereby agrees that a notation of such Subsidiary Guarantee
substantially in the form set forth on Exhibits A-1 and A-2 hereof shall be
endorsed by manual or facsimile signature of an Officer of such Guarantor or of
the Company as attorney-in fact for such Guarantor on each Note authenticated
and delivered by the Trustee, and that this Indenture shall be executed on
behalf of such Guarantor, by manual or facsimile signature, by an Officer of
such Guarantor. For so long as a Subsidiary Guarantee of such Guarantor remains
in full force and effect, each Guarantor hereby irrevocably appoints the Company
as its attorney-in-fact for the purpose of executing in the name and on behalf
of such Guarantor any endorsement of a notation of a Subsidiary Guarantee on any
Note. If an Officer of the Company whose signature is on this Indenture or on
the Subsidiary Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which a Subsidiary Guarantee is endorsed, the
Subsidiary Guarantee shall be valid nevertheless.
Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in
Section 11.01 hereof shall remain in full force and effect notwithstanding any
failure to endorse on each or any Note a notation of such Subsidiary Guarantee.
The delivery of any Note by the Trustee, after the authentication thereof
hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth
in this Indenture on behalf of the Guarantors.
For so long as a Subsidiary Guarantee of such Guarantor remains in full
force and effect, each Guarantor hereby irrevocably appoints the Company as its
attorney-in-fact for the purpose of executing in the name and on behalf of such
Guarantor any supplemental indenture to this Indenture, or consent to any such
supplemental indenture, which the Company and the Trustee are authorized to
enter into pursuant to Sections 9.01 or 9.02 of this Indenture.
SECTION 11.03 Guarantors May Consolidate, Etc., on Certain Terms.
(a) Except as set forth in Articles IV and V hereof, nothing
contained in this Indenture shall prohibit a merger between a Guarantor and
another Guarantor or a merger between a Guarantor and the Company.
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(b) No Guarantor shall consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person), another Person whether
or not affiliated with such Guarantor unless (i) the Person formed by or
surviving any such consolidation or merger (if other than such Guarantor)
assumes all the Obligations of such Guarantor, pursuant to a supplemental
indenture substantially in the form of Exhibit E hereto, under this Indenture;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default exists; (iii) such Guarantor, or any Person formed by or surviving any
such consolidation or merger, would have Consolidated Net Worth (immediately
after giving effect to such transaction) equal to or greater than the
Consolidated Net Worth of such Guarantor immediately preceding the transaction;
and (iv) except in the case of the merger of a Guarantor with or into another
Guarantor or the Company, the Company would be permitted by virtue of the
Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect
to such transaction, to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph of
Section 4.09 hereof.
Notwithstanding the foregoing paragraph (and in the case of clause (iii)
of this paragraph, notwithstanding Section 11.03(c) hereof), (i) any Guarantor
may consolidate with, merge into or transfer all or a part of its properties and
assets to the Company or any other Guarantor, (ii) any Guarantor may consolidate
with merge into or transfer all or a part of its properties and assets to a
Wholly Owned Restricted Subsidiary of the Company that has no significant assets
or liabilities and was incorporated, organized or formed solely for the purpose
of reincorporating or otherwise reorganizing such Guarantor in another State of
the United States; provided that, in each case, such successor, resultant or
transferee Person continues to be a Guarantor and (iii) subject to the
provisions of Section 11.04, upon the occurrence of one or more of the
transactions provided for in the preceding paragraph, a Guarantor shall be
released from its obligations under its Subsidiary Guarantee and otherwise under
this Indenture, and any related resultant, surviving or transferee Person shall
not be required to assume any of such obligations.
(c) In the case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor Person, by supplemental indenture,
executed and delivered to the Trustee and substantially in the form of Exhibit E
hereto, of the Subsidiary Guarantee endorsed upon the Notes and the due and
punctual performance of all of the covenants and conditions of this Indenture to
be performed by the Guarantor, such successor Person shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor Person thereupon may cause to be signed
any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All of the Subsidiary Guarantees so issued shall
in all respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
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SECTION 11.04 Releases Following Release Under All Indebtedness or Sale of
Assets.
Upon (x) the release by the lenders of all guarantees of a Guarantor
guaranteeing, and all Liens on the property and assets of such Guarantor
securing, Indebtedness of the Company, or (y) a sale or other disposition,
whether in one or a series of related transactions, of all or substantially all
of the assets of any Guarantor, by way of merger, consolidation or otherwise, or
a sale or other disposition, whether in one or a series of related transactions,
of all of the Capital Stock of any Guarantor in compliance with the Indenture to
any entity that is not the Company or a Subsidiary, then such Guarantor and such
acquiring, resulting, surviving or transferee Person will be released and
relieved of any obligations under any Subsidiary Guarantee; provided, however,
that any such termination shall occur only to the extent that all obligations of
such Guarantor under such Indebtedness and all of its guarantees of, and under
all of its pledges of assets or other security interests which secure,
Indebtedness of the Company shall also terminate upon such release, sale or
transfer and, in the event of any sale or other disposition, delivery of an
Officers' Certificate to the Trustee that the Net Proceeds of such sale or other
disposition will be applied in accordance with Section 4.10 hereof. Upon
delivery by the Company to the Trustee of an Officers' Certificate to the effect
of the foregoing, the Trustee shall execute any documents reasonably required in
order to evidence the release of any Guarantor from its Obligation under its
Subsidiary Guarantee and this Indenture. Any Guarantor not released from its
Obligations under its Subsidiary Guarantee shall remain liable for the full
amount of principal of, and premium, if any, interest and Liquidated Damages, if
any, on the Notes and for the other Obligations of such Guarantor under this
Indenture as provided in this Article XI.
SECTION 11.05 Limitation on Guarantor Liability; Contribution.
For purposes hereof, each Guarantor's liability under its Subsidiary
Guarantee shall be limited to the lesser of (i) the aggregate amount of the
Obligations of the Company under the Notes and this Indenture and (ii) the
amount, if any, which would not have (A) rendered such Guarantor "insolvent" (as
such term is defined in the Bankruptcy Code and in the Debtor and Creditor Law
of the State of New York) or (B) left such Guarantor with unreasonably small
capital at the time its Subsidiary Guarantee of the Notes was entered into;
provided that, it will be a presumption in any lawsuit or other proceeding in
which a Guarantor is a party that the amount guaranteed pursuant to its
Subsidiary Guarantee is the amount set forth in clause (i) above unless any
creditor, or representative of creditors of such Guarantor, or debtor in
possession or trustee in bankruptcy of such Guarantor, otherwise proves in such
a lawsuit that the aggregate liability of such Guarantor is the amount set forth
in clause (ii) above. In making any determination as to solvency or sufficiency
of capital of a Guarantor in accordance with the previous sentence, the right of
such Guarantor to contribution from other Guarantors as set forth below, and any
other rights such Guarantor may have, contractual or otherwise, shall be taken
into account.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors shall agree, inter se, that in the event any payment
or distribution is made by any Guarantor (a "Funding Guarantor") under its
Subsidiary Guarantee, such Funding Guarantor shall be entitled to
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<PAGE> 106
a contribution from all other Guarantors in a pro rata amount based on the
Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all
payments, damages and expenses incurred by that Funding Guarantor in
discharging the Company's obligations with respect to the Notes or any other
Guarantor's Obligations with respect to its Subsidiary Guarantee.
SECTION 11.06 Trustee to Include Paying Agent.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article XI shall in each case (unless the context shall
otherwise require) be construed as extending to and including such Paying Agent
within its meaning as fully and for all intents and purposes as if such Paying
Agent were named in this Article XI in place of the Trustee.
SECTION 11.07 Subordination of Subsidiary Guarantee.
The obligations of each Guarantor under its Subsidiary Guarantee pursuant
to this Article XI shall be subordinated to the prior payment in full of all
Senior Debt of such Guarantor, and the amounts for which the Guarantors will be
liable under the guarantees issued from time to time with respect to Senior
Debt, to the same extent as the obligations of the Company with respect to the
Notes are subordinated to Senior Debt of the Company. For the purposes of the
foregoing sentence, the Trustee and the Holders of Notes shall have the right to
receive or retain payments by any of the Guarantors only at such times as they
may receive or retain payments in respect of the Notes pursuant to this
Indenture, including Article X hereof.
Each Holder of a Note by its acceptance thereof (a) agrees to and shall
be bound by the provisions of this Section 11.07, (b) authorizes and directs the
Trustee on its behalf to take such action as may be necessary or appropriate to
effectuate the subordination so provided and (c) appoints the Trustee its
attorney-in-fact for any and all such purposes. Consistent with the
subordination of the Subsidiary Guarantees, for purposes of any applicable
fraudulent transfer or similar laws, Indebtedness incurred under any Credit
Facility will be deemed to have been incurred prior to the incurrence by any
Guarantor of its liability under its Subsidiary Guarantee.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
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SECTION 12.02 Notices.
Any notice or communication by the Company, any Guarantor or the Trustee
to the others is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telecopier
or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company or any Guarantor:
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217-6218
Attention: Corporate Secretary
If to the Trustee:
U.S. Bank Trust National Association
535 Griswold, Suite 740
Detroit, Michigan 48226
Fax No.: 313-963-9428
Attention: Corporate Trust Administration
Ref: Tesoro Petroleum Corporation
The Company, any Guarantor or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back; when receipt acknowledged, if
telecopied; and the next Business Day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
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<PAGE> 108
If the Company mails a notice or communication to Holders, it shall mail
a copy to the Trustee and each Agent at the same time.
SECTION 12.03 Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA Section 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA Section
312(c).
SECTION 12.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 12.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
SECTION 12.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA
Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
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<PAGE> 109
SECTION 12.06 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 12.07 No Personal Liability of Directors, Officers, Employees and
Stockholders.
No past, present or future director, officer, employee, incorporator,
partner, member or stockholder or other owner of Capital Stock of the Company or
any of its Subsidiaries, or of any member, partner or stockholder of any such
entity, as such, shall have any liability for any obligations of the Company or
any Guarantor under the Notes, this Indenture or the Subsidiary Guarantees or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
SECTION 12.08 Governing Law.
THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES THEREOF, SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE,
THE NOTES AND THE SUBSIDIARY GUARANTEES.
SECTION 12.09 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 12.10 Successors.
All agreements of the Company in this Indenture and the Notes shall bind
its successors. All agreements of the Trustee in this Indenture shall bind its
successors.
SECTION 12.11 Severability.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
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SECTION 12.12 Counterpart Originals.
The parties may sign any number of copies of this Indenture, and each
party hereto may sign any number of separate copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 12.13 Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
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SIGNATURES
Dated as of July 2, 1998
ISSUER:
TESORO PETROLEUM CORPORATION
By: /s/ James C. Reed, Jr.
------------------------------------
James C. Reed, Jr.
Executive Vice President
TRUSTEE:
U. S. BANK TRUST NATIONAL ASSOCIATION
By: /s/ James D. Khami
------------------------------------
Name: James D. Khami
-----------------------------
Title: Vice President
--------------------------
<PAGE> 112
GUARANTORS:
DIGICOMP, INC.
INTERIOR FUELS COMPANY
KENAI PIPE LINE COMPANY
TESORO ALASKA PETROLEUM COMPANY
TESORO ALASKA PIPELINE COMPANY
TESORO BOLIVIA PETROLEUM COMPANY
TESORO EXPLORATION AND
PRODUCTION COMPANY
TESORO HAWAII CORPORATION
TESORO LATIN AMERICA COMPANY
TESORO MARINE SERVICES HOLDING COMPANY
TESORO MARINE SERVICES, INC.
TESORO NATURAL GAS COMPANY
TESORO NORTHSTORE COMPANY
TESORO PETROLEUM COMPANIES, INC.
TESORO REFINING, MARKETING &
SUPPLY COMPANY
TESORO SOUTH PACIFIC PETROLEUM
COMPANY
TESORO VOSTOK COMPANY
By: /s/ James C. Reed, Jr.
----------------------------------
James C. Reed, Jr.
Executive Vice President of each of
the above entities
TESORO E&P COMPANY, L.P.
By: Tesoro Exploration and Production
Company
as General Partner
By: /s/ James C. Reed, Jr.
----------------------------------
James C. Reed, Jr.
Executive Vice President
TESORO PIPELINE COMPANY, L.P.
By: Tesoro Natural Gas Company
as General Partner
By: /s/ James C. Reed, Jr.
----------------------------------
James C. Reed, Jr.
Executive Vice President
<PAGE> 113
GUARANTORS (CONT'D):
TESORO FINANCIAL SERVICES HOLDING
COMPANY
TESORO GAS RESOURCES COMPANY, INC.
By: /s/ Jeffrey B. Fabian
----------------------------------
Jeffrey B. Fabian
President
VICTORY FINANCE COMPANY
By: /s/ Jeffrey B. Fabian
----------------------------------
Jeffrey B. Fabian
Secretary
<PAGE> 114
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL
ACCREDITED INVESTOR
Exhibit E FORM OF SUPPLEMENTAL INDENTURE
Exhibit F REGISTRATION RIGHTS AGREEMENT
<PAGE> 115
EXHIBIT A-1
(FACE OF NOTE)
CUSIP/CINS
---------
9% Senior Subordinated Notes due 2008[, Series B]*
No. $
----- ---------
TESORO PETROLEUM CORPORATION
promises to pay to
or registered assigns,
the principal sum of
Dollars on July 1, 2008.
Interest Payment Dates: January 1 and July 1
Record Dates: December 15 and June 15
TESORO PETROLEUM CORPORATION
By:
----------------------------------
Name:
Title:
This is one of the [Global]
Notes referred to in the
within-mentioned Indenture:
U. S. BANK TRUST NATIONAL ASSOCIATION
AS TRUSTEE
By: Dated:
----------------------------------
Authorized Signatory
* Include if the Note represents an Exchange Note.
A1-1
<PAGE> 116
(Back of Note)
9% Senior Subordinated Notes due 2008[, Series B]*
[Insert the Global Note Legend, if applicable,
pursuant to the provisions of the Indenture]
[Insert the Private Placement Legend, if applicable,
pursuant to the provisions of the Indenture]
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. Interest. Tesoro Petroleum Corporation, a Delaware
corporation (the "Company"), promises to pay interest on the principal amount
of this Note at 9% per annum, from July 2, 1998 until maturity and shall pay
the Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Liquidated
Damages, if any, semi-annually in arrears on January 1 and July 1 of each year,
or if any such day is not a Business Day, on the next succeeding Business Day
(each an "Interest Payment Date"). Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance; provided that if there is no existing
Default in the payment of interest, and if this Note is authenticated between a
record date referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such next succeeding Interest Payment
Date, except in the case of the original issuance of Notes, in which case
interest shall accrue from date of authentication; provided, further, that the
first Interest Payment Date shall be January 1, 1999. The Company shall pay
interest (including postpetition interest in any proceeding under the
Bankruptcy Code) on overdue principal and premium, if any, from time to time on
demand at the rate borne on the Notes; it shall pay interest (including
post-petition interest in any proceeding under the Bankruptcy Code) on overdue
installments of interest and Liquidated Damages, if any, (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the December 15 or June
15 next preceding the Interest Payment Date, even if such Notes are canceled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
The Notes will be payable as to principal, premium and Liquidated Damages, if
any, and interest at the office or agency of the Company maintained for such
purpose within the City and State of New York, or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in the register of Holders, and
provided that payment by wire transfer of immediately available funds will be
required with respect to principal of, and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall
have provided wire transfer instructions to the Company or the Paying Agent.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
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<PAGE> 117
3. Paying Agent and Registrar. Initially, U.S. Bank Trust
National Association, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in any
such capacity.
4. Indenture; Subordination. The Company issued the Notes under
an Indenture dated as of July 2, 1998 ("Indenture") between the Company, the
Guarantors and the Trustee, as the same may be amended, modified or
supplemented from time to time. The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The
Notes are subject to all such terms, and Holders are referred to the Indenture
and such Act for a statement of such terms. To the extent any provision of
this Note conflicts with the express provisions of the Indenture, the
provisions of the Indenture shall govern and be controlling. The Notes are
general unsecured obligations of the Company limited to $300,000,000 aggregate
principal amount in the case of Notes issued on the Issue Date.
The Notes are subordinated in right of payment, in the manner and to
the extent set forth in the Indenture, to the prior payment in full in cash of
all Senior Debt of the Company, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed. The
Subsidiary Guarantees in respect of the Notes will be subordinated in right of
payment, in the manner and to the extent set forth in the Indenture, to the
prior payment in full in cash of all Senior Debt of each Guarantor, whether
outstanding on the date of the Indenture or thereafter created, incurred
assumed or guaranteed. Each Holder by its acceptance hereof agrees to be bound
by such provisions and authorizes and expressly directs the Trustee, on its
behalf, to take such action as may be necessary or appropriate to effectuate
the subordination provided for in the Indenture and appoints the Trustee its
attorney-in-fact for such purposes.
5. Optional Redemption.
(a) Except as set forth in subparagraph (b) of this
paragraph 5 and paragraph 8 below, the Notes shall not be redeemable at the
Company's option prior to July 1, 2003. Thereafter, the Notes will be subject
to redemption at any time or from time to time at the option of the Company, in
whole or in part, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the applicable redemption date, if
redeemed during the twelve-month period beginning on July 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003 ......................... 104.5%
2004 ......................... 103.0%
2005 ......................... 101.5%
2006 and thereafter............ 100.0%
</TABLE>
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<PAGE> 118
(b) Notwithstanding the foregoing, at any time or from time
to time prior to July 1, 2001, the Company may on any one or more occasions
redeem up to 35% of the aggregate principal amount of Notes outstanding at a
redemption price of 109% of the principal amount thereof, plus accrued and
unpaid interest, if any, and Liquidated Damages thereon, if any, to the
redemption date, with the net cash proceeds of any one or more Public Equity
Offerings; provided that at least 65% of the aggregate principal amount of Notes
outstanding on the Issue Date remain outstanding immediately after each
occurrence of such redemption; and provided, further, that each such redemption
shall occur within 90 days of the date of the closing of such Public Equity
Offering.
6. Mandatory Redemption. Except as set forth in paragraph 8
below, the Company shall not be required to make mandatory redemption payments
with respect to the Notes.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each
Holder of Notes will have the right to require the Company to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of such Holder's
Notes pursuant to a Change of Control Offer described in the Indenture at an
offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of purchase (the "Change of Control Payment"). Within 30 days following
any Change of Control, the Company shall mail a notice to each Holder setting
forth the procedures governing the Change of Control Offer as required by the
Indenture.
(b) If the Company or a Restricted Subsidiary consummates
any Asset Sales and the aggregate amount of Excess Proceeds exceeds
$10,000,000, the Company shall commence an offer to all Holders of Notes (an
"Asset Sale Offer") pursuant to Section 3.09 of the Indenture (pro rata in
proportion to outstanding Indebtedness that is pari passu with the Notes that
require asset sales offers) to purchase the maximum principal amount of Notes
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase, in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company (or such Restricted Subsidiary) may use
such deficiency for general corporate purposes. If the aggregate principal
amount of Notes surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro rata
basis. Holders of Notes that are the subject of an offer to purchase will
receive an Asset Sale Offer from the Company prior to any related purchase date
and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes.
8. Special Redemption. If the Washington Acquisition is not
consummated by the Company, or the Washington Agreement is terminated without
consummation of the Washington Acquisition, on or prior to December 31, 1998,
the Company shall redeem outstanding Notes in an amount equal to 50% of the
aggregate principal amount of the Original Notes at a redemption price equal to
101% of the redeemed principal amount thereof (the "Special Redemption Price"),
plus accrued interest and Liquidated Damages, if any, to the date of
redemption. The date for such redemption (the "Special Redemption Date") shall
be the earlier of December 31, 1998 and ten
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<PAGE> 119
business days following the date of termination of the Washington Agreement
without consummation of the Washington Acquisition. Selection of Notes for
special redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
or by such method (other than by lot) as the Trustee shall deem fair and
appropriate; provided that no Notes of $1,000 or less shall be redeemed in
part. Notice of the Special Redemption to the Trustee and the Holders shall be
made in accordance with Sections 3.01 and 3.03 of the Indenture.
9. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date (other than
in connection with a Special Redemption) to each Holder whose Notes are to be
redeemed at its registered address. Notes in denominations larger than $1,000
may be redeemed in part but only in whole multiples of $1,000, unless all of
the Notes held by a Holder are to be redeemed. On and after the redemption
date, interest and Liquidated Damages, if any, cease to accrue on Notes or
portions thereof called for redemption.
10. Denominations, Transfer, Exchange. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, it need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
11. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
12. Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the then
outstanding Notes, and any existing default or compliance with any provision of
the Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the
consent of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes or to
alter the provisions of Article II of the Indenture (including the related
definitions) in a manner that does not materially adversely affect any Holder,
to provide for the assumption of the Company's obligations to Holders of the
Notes in case of a merger, consolidation or sale of assets pursuant to Article
V of the Indenture or to add any Person as a Guarantor or to release any
Guarantor or otherwise comply with Article XI of the Indenture, to make any
change that would provide any additional rights or benefits to the Holders of
the Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, or to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the TIA.
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<PAGE> 120
13. Defaults and Remedies. Events of Default include: (a) default
in the payment when due of interest on, or Liquidated Damages, if any, with
respect to, the Notes and such default continues for a period of 30 days; (b)
default in the payment when due of principal of, or premium, if any, on, the
Notes; (c) failure by the Company to comply with any of the provisions of
Section 5.01 of the Indenture; (d) failure by the Company or any of its
Restricted Subsidiaries to comply with any of the provisions of Section 3.10,
4.10 or 4.15 of the Indenture; (e) failure by the Company or any of its
Restricted Subsidiaries to observe or perform any other covenant or other
agreement in the Indenture or the Notes for 60 days after written notice to the
Company by the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding; (f) a default occurs under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries), whether such Indebtedness
or guarantee now exists, or is created after the Issue Date, which default (i)
is caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness prior to the expiration of the grace period provided in such
Indebtedness (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates without duplication
$15,000,000 or more, and such default shall not have been cured or waived or
any such acceleration rescinded within 10 Business Days after the running of
such grace period or the occurrence of such acceleration; (g) a final judgment
or final judgments for the payment of money are entered by a court or courts of
competent jurisdiction against the Company or any of its Restricted
Subsidiaries, and such judgment or judgments remain unpaid, unstayed or
undischarged for a period (during which execution shall not be effectively
stayed) of 60 days, provided that the aggregate of all such unpaid or
undischarged judgments exceeds $15,000,000 (excluding amounts covered by
insurance); (h) certain events of bankruptcy or insolvency with respect to the
Company or any of its Subsidiaries that, when taken together, would constitute
a Significant Subsidiary or any of its Significant Subsidiaries; or (i) except
as permitted in the Indenture, any Subsidiary Guarantee shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any Person acting on
behalf of any Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee (other than by reason of termination of the Indenture or
the release of such Subsidiary Guarantee in accordance with the Indenture). If
any Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Notes may declare all the
Notes to be due and payable immediately. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest. The
Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes. The Company is required to
deliver to
A1-6
<PAGE> 121
the Trustee annually a statement regarding compliance with the Indenture, and
the Company is required upon becoming aware of any Default or Event of Default,
to deliver to the Trustee a statement specifying such Default or Event of
Default.
14. Trustee Dealings with Company. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for, the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
15. No Recourse Against Others. A director, officer, employee,
incorporator, partner, member or stockholder of the Company or any Subsidiary
of the Company or any Guarantor, as such, shall not have any liability for any
obligations of the Company or Guarantors under the Notes, the Subsidiary
Guarantees or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
16. Authentication. This Note shall not be valid until
authenticated by the manual signature of a Responsible Officer of the Trustee
or an authenticating agent.
17. Abbreviations. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
18. Additional Rights of Holders of Restricted Global Notes and
Restricted Definitive Notes. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of [July 2, 1998] [bracketed date to be included on Original
Notes, all other Notes should reference date of any corresponding Registration
Rights Agreement], between the Company and the parties named on the signature
pages thereof (the "Registration Rights Agreement").
19. CUSIP Numbers. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to: Tesoro Petroleum Corporation, 8700 Tesoro
Drive, San Antonio, Texas 78217-6218, Attention: Vice President, Finance and
Treasurer.
A1-7
<PAGE> 122
NOTATION OF SUBSIDIARY GUARANTEES
Payment of principal of, and premium, if any, interest and Liquidated
Damages, if any, on, this Note is jointly, severally, and unconditionally
guaranteed on a senior subordinated basis to the extent and in the manner set
forth in the Indenture by the Guarantors who have become parties to the
Indenture, including the Guarantors duly endorsing this notation. Subsidiary
Guarantees are subject to release under circumstances set forth in the
Indenture.
[Insert Names of Guarantors]
BY TESORO PETROLEUM CORPORATION
Attorney in fact for each of the
Guarantors
By:
----------------------------------
Name/Title:
A1-8
<PAGE> 123
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
---------------------------------------------------------
- --------------------------------------------------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:
Your Signature:
-----------------------------------------------------------------
(Sign exactly as your name appears on the face of this Note)
SIGNATURE GUARANTEE
- --------------------------------------------------------------------------------
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
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<PAGE> 124
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$
-----------------
Date:
Your Signature:
----------------------------------------------------------------
(Sign exactly as your name appears on the face of the Note)
Tax Identification No.:
-------------------------------------------------------
SIGNATURE GUARANTEE
- --------------------------------------------------------------------------------
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
A1-10
<PAGE> 125
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE***
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF SIGNATURE OF
AMOUNT OF AMOUNT OF OF THIS GLOBAL NOTE AUTHORIZED
DECREASE IN INCREASE IN FOLLOWING SUCH SIGNATORY OF
PRINCIPAL AMOUNT PRINCIPAL AMOUNT DECREASE (OR TRUSTEE OR NOTE
DATE OF EXCHANGE OF THIS GLOBAL NOTE OF THIS GLOBAL NOTE INCREASE) CUSTODIAN
---------------- ------------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
</TABLE>
- -------------------
*** This should be included only if the Note is issued in global form.
A1-11
<PAGE> 126
EXHIBIT A-2
(FACE OF REGULATION S TEMPORARY GLOBAL NOTE)
CUSIP/CINS:
---------
9% Senior Subordinated Notes due 2008*
No. $
----- ---------
TESORO PETROLEUM CORPORATION
promises to pay to
or registered assigns,
the principal sum of
Dollars on July 1, 2008.
Interest Payment Dates: January 1 and July 1
Record Dates: December 15 and June 15.
TESORO PETROLEUM CORPORATION
By:
----------------------------------
Name:
Title:
This is one of the [Global]
Notes referred to in the
within-mentioned Indenture:
U. S. BANK TRUST NATIONAL ASSOCIATION
AS TRUSTEE
By: Dated:
----------------------------------
Authorized Signatory
A2-1
<PAGE> 127
(BACK OF REGULATION S TEMPORARY GLOBAL NOTE)
9% SENIOR SUBORDINATED NOTES DUE 2008
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO ARTICLE II OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY
BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE
INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF TESORO PETROLEUM CORPORATION.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY
(AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE), TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES
(1) NOT TO OFFER, SELL OR
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<PAGE> 128
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO (X) THE DATE THAT IS TWO YEARS (OR
SUCH SHORTER PERIOD OF TIME AS PERMITTED Y RULE 144(k) UNDER THE SECURITIES ACT
OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE
DATE HEREOF (OR ANY PREDECESSOR OF THIS SECURITY) AND THE LAST DAY ON WHICH
TESORO PETROLEUM CORPORATION (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY
WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) AND (Y) SUCH LATER
DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION
TERMINATION DATE"), EXCEPT (A) TO THE COMPANY OR A SUBSIDIARY THEREOF, (B)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C)
FOR SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT IS ACQUIRING SUCH
NOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS RELATING TO RESTRICTIONS ON
TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM THE TRUSTEE), (E) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR IN AN "OFFSHORE TRANSACTION" WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND (2) THAT IT WILL GIVE TO
EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE, THE TRANSFER
AGENT AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (i) PURSUANT TO CLAUSE (C), (D), (E) OR (F) TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS NOTE IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THE HOLDER HEREOF, BY PURCHASING
THIS NOTE, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1)
A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A, (2) AN
INSTITUTIONAL ACCREDITED INVESTOR, (3) A NON-U.S. PERSON AND IS ACQUIRING THE
NOTE IN AN "OFFSHORE TRANSACTION" PURSUANT TO REGULATION S UNDER THE SECURITIES
ACT OR (4) IT IS A PERSON ELIGIBLE TO BE TRANSFERRED THIS NOTE IN ACCORDANCE
WITH CLAUSE (F) OF THE FOREGOING SENTENCE. THIS LEGEND WILL BE REMOVED UPON
THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES"
A2-3
<PAGE> 129
AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
Capitalized terms used herein shall have the meanings assigned to them
in the indenture referred to below unless otherwise indicated.
1. Interest. Tesoro Petroleum Corporation, a Delaware
corporation (the "Company"), promises to pay interest on the principal amount
of this Note at 9% per annum from July 2, 1998 until maturity and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Liquidated
Damages semi-annually in arrears on January 1 and July 1 of each year, or if
any such day is not a Business Day, on the next succeeding Business Day (each
an "Interest Payment Date"). Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance; provided that if there is no existing
Default in the payment of interest, and if this Note is authenticated between a
record date referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such next succeeding Interest Payment
Date, except in the case of the original issuance of Notes, in which case
interest shall accrue from date of authentication; provided, further, that the
first Interest Payment Date shall be January 1, 1999. The Company shall pay
interest (including postpetition interest in any proceeding under the
Bankruptcy Code) on overdue principal and premium, if any, from time to time on
demand at the rate borne on the Notes; it shall pay interest (including
post-petition interest in any proceeding under the Bankruptcy Code) on overdue
installments of interest and Liquidated Damages, if any, (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
Until this Regulation S Temporary Global Note is exchanged for one or
more Regulation S Permanent Global Notes, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be entitled
to the same benefits as other Notes under the Indenture.
2. Method of Payment. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the December 15 or June
15 next preceding the Interest Payment Date, even if such Notes are canceled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
The Notes will be payable as to principal, premium and Liquidated Damages, if
any, and interest at the office or agency of the Company maintained for such
purpose within the City and State of New York, or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in the register of Holders, and
provided that payment by wire transfer of immediately available funds will be
required with respect to principal of, and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall
have provided wire transfer instructions to the Company or the Paying Agent.
Such payment
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<PAGE> 130
shall be in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, U.S. Bank Trust
National Association, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in any
such capacity.
4. Indenture; Subordination. The Company issued the Notes under
an Indenture dated as of July 2, 1998 ("Indenture") between the Company,
Guarantors and the Trustee, as the same may be amended, modified or
supplemented from time to time. The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The
Notes are subject to all such terms, and Holders are referred to the Indenture
and such Act for a statement of such terms. To the extent any provision of
this Note conflicts with the express provisions of the Indenture, the
provisions of the Indenture shall govern and be controlling. The Notes are
general unsecured obligations of the Company limited to $300,000,000 aggregate
principal amount in the case of Notes issued on the Issue Date.
The Notes are subordinated in right of payment, in the manner and to
the extent set forth in the Indenture, to the prior payment in full in cash of
all Senior Debt of the Company, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed. The
Subsidiary Guarantees in respect of the Notes will be subordinated in right of
payment, in the manner and to the extent set forth in the Indenture, to the
prior payment in full in cash of all Senior Debt of each Guarantor, whether
outstanding on the date of the Indenture or thereafter created, incurred
assumed or guaranteed. Each Holder by its acceptance hereof agrees to be bound
by such provisions and authorizes and expressly directs the Trustee, on its
behalf, to take such action as may be necessary or appropriate to effectuate
the subordination provided for in the Indenture and appoints the Trustee its
attorney-in-fact for such purposes.
5. Optional Redemption.
(a) Except as set forth in subparagraph (b) of this
paragraph 5 and paragraph 8 below, the Notes shall not be redeemable at the
Company's option prior to July 1, 2003. Thereafter, the Notes will be subject
to redemption at any time or from time to time at the option of the Company, in
whole or in part, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the applicable redemption date, if
redeemed during the twelve-month period beginning on July 1 of the years
indicated below:
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<PAGE> 131
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003 .............................. 104.5%
2004 .............................. 103.0%
2005 .............................. 101.5%
2006 and thereafter ................ 100.000%
</TABLE>
(b) Notwithstanding the foregoing, at any time or from
time to time prior to July 1, 2001, the Company may on any one or more
occasions redeem up to 35% of the aggregate principal amount of Notes
outstanding at a redemption price of 109% of the principal amount thereof, plus
accrued and unpaid interest, if any, and Liquidated Damages thereon, if any, to
the redemption date, with the net cash proceeds of any one or more Public
Equity Offerings; provided that at least 65% of the aggregate principal amount
of Notes outstanding on the Issue Date remain outstanding immediately after
each occurrence of such redemption; and provided, further, that each such
redemption shall occur within 90 days of the date of the closing of such Public
Equity Offering.
6. Mandatory Redemption. Except as set forth in paragraph 8
below, the Company shall not be required to make mandatory redemption payments
with respect to the Notes.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each
Holder of Notes will have the right to require the Company to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of such Holder's
Notes pursuant to a Change of Control Offer described in the Indenture at an
offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to
the date of purchase (the "Change of Control Payment"). Within 30 days
following any Change of Control, the Company shall mail a notice to each Holder
setting forth the procedures governing the Change of Control Offer as required
by the Indenture.
(b) If the Company or a Restricted Subsidiary consummates
any Asset Sales and the aggregate amount of Excess Proceeds exceeds
$10,000,000, the Company shall commence an offer to all Holders of Notes (an
"Asset Sale Offer") pursuant to Section 3.09 of the Indenture (pro rata in
proportion to outstanding Indebtedness that is pari passu with the Notes that
require asset sales offers) to purchase the maximum principal amount of Notes
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase, in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company (or such Restricted Subsidiary) may use
such deficiency for general corporate purposes. If the aggregate principal
amount of Notes surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro rata
basis. Holders of Notes that are the subject of an offer to purchase will
receive an Asset Sale Offer from the Company prior to any related purchase date
and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes.
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<PAGE> 132
8. Special Redemption. If the Washington Acquisition is not
consummated by the Company, or the Washington Agreement is terminated without
consummation of the Washington Acquisition, on or prior to December 31, 1998,
the Company shall redeem outstanding Notes in an amount equal to 50% of the
aggregate principal amount of the Original Notes at a redemption price equal to
101% of the redeemed principal amount thereof (the "Special Redemption Price"),
plus accrued interest and Liquidated Damages, if any, to the date of
redemption. The date for such redemption (the "Special Redemption Date") shall
be the earlier of December 31, 1998 and ten business days following the date of
termination of the Washington Agreement without consummation of the Washington
Acquisition. Selection of Notes for special redemption will be made by the
Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed, or, if the Notes
are not so listed, on a pro rata basis, or by such method (other than by lot)
as the Trustee shall deem fair and appropriate; provided that no Notes of
$1,000 or less shall be redeemed in part. Notice of the Special Redemption to
the Trustee and the Holders shall be made in accordance with Sections 3.01 and
3.03 of the Indenture.
9. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date (other than
in connection with a Special Redemption) to each Holder whose Notes are to be
redeemed at its registered address. Notes in denominations larger than $1,000
may be redeemed in part but only in whole multiples of $1,000, unless all of
the Notes held by a Holder are to be redeemed. On and after the redemption
date, interest and Liquidated Damages, if any, cease to accrue on Notes or
portions thereof called for redemption.
10. Denominations, Transfer, Exchange. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, it need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in whole or in
part for one or more Global Notes only (i) on or after the termination of the
40-day restricted period (as defined in Regulation S) and (ii) upon presentation
of certificates (accompanied by an Opinion of Counsel, if applicable) required
by Article II of the Indenture. Upon exchange of this Regulation S Temporary
Global Note for one or more Global Notes, the Trustee shall cancel this
Regulation S Temporary Global Note.
11. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
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<PAGE> 133
12. Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the then
outstanding Notes, and any existing default or compliance with any provision of
the Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the
consent of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes or to
alter the provisions of Article II of the Indenture (including the related
definitions) in a manner that does not materially adversely affect any Holder,
to provide for the assumption of the Company's obligations to Holders of the
Notes in case of a merger, consolidation or sale of assets pursuant to Article
V of the Indenture or to add any Person as a Guarantor or to release any
Guarantor or otherwise comply with Article XI of the Indenture, to make any
change that would provide any additional rights or benefits to the Holders of
the Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, or to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the TIA.
13. Defaults and Remedies. Events of Default include: (a) default
in the payment when due of interest on, or Liquidated Damages, if any, with
respect to, the Notes and such default continues for a period of 30 days; (b)
default in the payment when due of principal of, or premium, if any, on, the
Notes; (c) failure by the Company to comply with any of the provisions of
Section 5.01 of the Indenture; (d) failure by the Company or any of its
Restricted Subsidiaries to comply with any of the provisions of Section 3.10,
4.10 or 4.15 of the Indenture; (e) failure by the Company or any of its
Restricted Subsidiaries to observe or perform any other covenant or other
agreement in the Indenture or the Notes for 60 days after written notice to the
Company by the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding; (f) a default occurs under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries), whether such Indebtedness
or guarantee now exists, or is created after the Issue Date, which default (i)
is caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness prior to the expiration of the grace period provided in such
Indebtedness (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates without duplication
$15,000,000 or more, and such default shall not have been cured or waived or
any such acceleration rescinded within 10 Business Days after the running of
such grace period or the occurrence of such acceleration; (g) a final judgment
or final judgments for the payment of money are entered by a court or courts of
competent jurisdiction against the Company or any of its Restricted
Subsidiaries, and such judgment or judgments remain unpaid, unstayed or
undischarged for a period (during which execution shall not be effectively
stayed) of 60 days, provided that the aggregate of all such unpaid or
undischarged judgments exceeds $15,000,000 (excluding amounts covered by
insurance); (h) certain events of bankruptcy or insolvency with respect to the
Company or any of its Subsidiaries that, when taken
A2-8
<PAGE> 134
together, would constitute a Significant Subsidiary or any of its Significant
Subsidiaries; or (i) except as permitted in the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee (other than by reason
of termination of the Indenture or the release of such Subsidiary Guarantee in
accordance with the Indenture). If any Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare all the Notes to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, all outstanding Notes
will become due and payable without further action or notice. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of
the then outstanding Notes may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in
aggregate principal amount of the Notes then outstanding by notice to the
Trustee may on behalf of the Holders of all of the Notes waive any existing
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest on, or the
principal of, the Notes. The Company is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and the Company
is required upon becoming aware of any Default or Event of Default, to deliver
to the Trustee a statement specifying such Default or Event of Default.
14. Trustee Dealings with Company. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for, the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
15. No Recourse Against Others. A director, officer, employee,
incorporator, partner, member or stockholder of the Company or any Subsidiary
of the Company or any Guarantor, as such, shall not have any liability for any
obligations of the Company or Guarantors under the Notes, the Subsidiary
Guarantees or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
16. Authentication. This Note shall not be valid until
authenticated by the manual signature of a Responsible Officer of the Trustee
or an authenticating agent.
17. Abbreviations. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
A2-9
<PAGE> 135
18. Additional Rights of Holders of Restricted Global Notes and
Restricted Definitive Notes. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of [July 2, 1998] [bracketed date to be included on Original
Notes, all other Notes should reference date of any corresponding Registration
Rights Agreement], between the Company and the parties named on the signature
pages thereof (the "Registration Rights Agreement").
19. CUSIP Numbers. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217-6218
Attention: Vice President, Finance and Treasurer
A2-10
<PAGE> 136
NOTATION OF SUBSIDIARY GUARANTEES
Payment of principal of, and premium, if any, interest and Liquidated
Damages, if any, on, this Note is jointly, severally, and unconditionally
guaranteed on a senior subordinated basis to the extent and in the manner set
forth in the Indenture by the Guarantors who have become parties to the
Indenture, including the Guarantors duly endorsing this notation. Subsidiary
Guarantees are subject to release under circumstances set forth in the
Indenture.
[Insert Names of Guarantors]
BY TESORO PETROLEUM CORPORATION
Attorney in fact for each of the Guarantors
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
A2-11
<PAGE> 137
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
---------------------------------------------------------
- --------------------------------------------------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:
Your Signature:
-----------------------------------------------------------------
(Sign exactly as your name appears on the face of this Note)
SIGNATURE GUARANTEE
- --------------------------------------------------------------------------------
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
A2-12
<PAGE> 138
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$
-----------------
Date:
Your Signature:
----------------------------------------------------------------
(Sign exactly as your name appears on the face of the Note)
Tax Identification No.:
-------------------------------------------------------
SIGNATURE GUARANTEE
- --------------------------------------------------------------------------------
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
A2-13
<PAGE> 139
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary
Global Note for an interest in another Global Note or Definitive Note, or of
other Restricted Global Notes or Restricted Definitive Note for an interest in
this Regulation S Temporary Global Note, have been made:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF SIGNATURE OF
AMOUNT OF AMOUNT OF OF THIS GLOBAL NOTE AUTHORIZED
DECREASE IN INCREASE IN FOLLOWING SUCH SIGNATORY OF
PRINCIPAL AMOUNT PRINCIPAL AMOUNT DECREASE (OR TRUSTEE OR NOTE
DATE OF EXCHANGE OF THIS GLOBAL NOTE OF THIS GLOBAL NOTE INCREASE) CUSTODIAN
---------------- ------------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
</TABLE>
A2-14
<PAGE> 1
EXHIBIT 4.6
================================================================================
$500,000,000
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
TESORO PETROLEUM CORPORATION,
AS BORROWER,
THE SEVERAL LENDERS
FROM TIME TO TIME PARTIES HERETO,
LEHMAN BROTHERS INC.,
AS ARRANGER,
LEHMAN COMMERCIAL PAPER INC.,
AS SYNDICATION AGENT,
PARIBAS
AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS CO-ADMINISTRATIVE AGENTS
THE FIRST NATIONAL BANK OF CHICAGO,
AS GENERAL ADMINISTRATIVE AGENT
PARIBAS,
AS COLLATERAL AGENT
AND
THE BANK OF NOVA SCOTIA,
AS DOCUMENTATION AGENT
DATED AS OF JULY 2, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS ................................................... 2
1.1 Defined Terms .................................................... 2
1.2 Other Definitional Provisions .................................... 27
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS ............................... 27
2.1 Term Loan Commitments ............................................ 27
2.2 Procedure for Term Loan Borrowing ................................ 28
2.3 Repayment of Term Loans .......................................... 29
2.4 Revolving Credit Commitments ..................................... 30
2.5 Procedure for Revolving Credit Borrowing ......................... 31
2.6 Repayment of Loans; Evidence of Debt ............................. 31
2.7 Commitment Fees, etc ............................................. 32
2.8 Termination or Reduction of Commitments .......................... 33
2.9 Optional Prepayments ............................................. 33
2.10 Mandatory and Special Prepayments and Commitment Reductions ..... 33
2.11 Conversion and Continuation Options ............................. 34
2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches ....... 35
2.13 Interest Rates and Payment Dates ................................ 35
2.14 Computation of Interest and Fees ................................ 36
2.15 Inability to Determine Interest Rate ............................ 36
2.16 Pro Rata Treatment and Payments ................................. 37
2.17 Requirements of Law ............................................. 39
2.18 Taxes ........................................................... 40
2.19 Indemnity ....................................................... 42
2.20 Illegality ...................................................... 42
2.21 Change of Lending Office ........................................ 43
SECTION 3. LETTERS OF CREDIT ............................................. 43
3.1 L/C Commitment ................................................... 43
3.2 Procedure for Issuance of Letter of Credit ....................... 44
3.3 Fees and Other Charges ........................................... 44
3.4 L/C Participations ............................................... 45
3.5 Reimbursement Obligation of the Borrower ......................... 46
3.6 Obligations Absolute ............................................. 46
3.7 Letter of Credit Payments ........................................ 47
3.8 Applications ..................................................... 47
3.9 Indemnification of Issuing Banks ................................. 47
SECTION 4. REPRESENTATIONS AND WARRANTIES ................................ 47
4.1 Financial Condition .............................................. 47
4.2 No Change ........................................................ 49
4.3 Corporate Existence; Compliance with Law ......................... 49
4.4 Corporate Power; Authorization; Enforceable Obligations .......... 50
4.5 No Legal Bar ..................................................... 50
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
4.6 No Material Litigation ........................................... 50
4.7 No Default ....................................................... 51
4.8 Ownership of Property; Liens ..................................... 51
4.9 Intellectual Property ............................................ 51
4.10 Taxes ........................................................... 51
4.11 Federal Regulations ............................................. 51
4.12 Labor Matters ................................................... 51
4.13 ERISA ........................................................... 52
4.14 Investment Company Act; Other Regulations ....................... 52
4.15 Subsidiaries .................................................... 52
4.16 Use of Proceeds ................................................. 52
4.17 Environmental Matters ........................................... 52
4.18 Accuracy of Information, etc .................................... 54
4.19 Security Documents .............................................. 54
4.20 Solvency ........................................................ 55
4.21 Senior Indebtedness ............................................. 55
4.22 Year 2000 Matters ............................................... 55
4.23 Regulation H .................................................... 56
4.24 Excluded Subsidiaries ...................................... 56
SECTION 5. CONDITIONS PRECEDENT .......................................... 56
5.1 Conditions to Initial Extension of Credit ........................ 56
5.2 Conditions to Each Extension of Credit ........................... 60
SECTION 6. AFFIRMATIVE COVENANTS ......................................... 61
6.1 Financial Statements ............................................. 61
6.2 Certificates; Other Information .................................. 61
6.3 Payment of Obligations ........................................... 63
6.4 Conduct of Business and Maintenance of Existence, etc.
Except with respect to Excluded Subsidiaries: .............. 63
6.5 Maintenance of Property; Insurance ............................... 63
6.6 Inspection of Property; Books and Records; Discussions ........... 63
6.7 Notices .......................................................... 63
6.8 Environmental Laws ............................................... 64
6.9 Additional Collateral, etc ....................................... 65
6.10 Further Assurances .............................................. 67
6.11 Satisfaction of Obligations Related to Washington
Escrow Release ............................................. 67
SECTION 7. NEGATIVE COVENANTS ............................................ 70
7.1 Financial Condition Covenants .................................... 70
7.2 Limitation on Indebtedness ....................................... 71
7.3 Limitation on Liens .............................................. 72
7.4 Limitation on Fundamental Changes ................................ 75
7.5 Limitation on Disposition of Property ............................ 76
7.6 Limitation on Restricted Payments ................................ 77
7.7 Limitation on Investments ........................................ 77
7.8 Limitation on Optional Payments and Modifications of Debt
Instruments, etc ........................................... 79
7.9 Limitation on Transactions with Affiliates ....................... 79
7.10 Limitation on Sales and Leasebacks .............................. 80
7.11 Limitation on Changes in Fiscal Periods ......................... 80
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.12 Limitation on Negative Pledge Clauses ........................... 80
7.13 Limitation on Restrictions on Subsidiary Distributions .......... 80
7.14 Limitation on Lines of Business ................................. 80
7.15 Limitation on Amendments to Acquisition Documents ............... 81
SECTION 8. EVENTS OF DEFAULT ............................................. 81
SECTION 9. THE AGENTS .................................................... 84
9.1 Appointment ...................................................... 84
9.2 Delegation of Duties ............................................. 85
9.3 Exculpatory Provisions ........................................... 85
9.4 Reliance by Agents ............................................... 85
9.5 Notice of Default ................................................ 85
9.6 Non-Reliance on Agents and Other Lenders ......................... 86
9.7 Indemnification .................................................. 86
9.8 Agent in Its Individual Capacity ................................. 87
9.9 Successor Agents ................................................. 87
9.10 Authorization of Collateral Agent ............................... 88
9.11 The Arranger, the Co-Administrative Agents and
Documentation Agent ....................................... 88
SECTION 10. MISCELLANEOUS ................................................ 88
10.1 Amendments and Waivers .......................................... 88
10.2 Notices ......................................................... 89
10.3 No Waiver; Cumulative Remedies .................................. 90
10.4 Survival of Representations and Warranties ...................... 90
10.5 Payment of Expenses ............................................. 91
10.6 Successors and Assigns; Participations and Assignments .......... 91
10.7 Adjustments; Set-off ............................................ 94
10.8 Counterparts .................................................... 95
10.9 Severability .................................................... 95
10.10 Integration ..................................................... 95
10.11 GOVERNING LAW ................................................... 95
10.12 Submission To Jurisdiction; Waivers ............................. 95
10.13 Acknowledgements ................................................ 96
10.14 Confidentiality ................................................. 96
10.15 Enforceability; Usury ........................................... 97
10.16 Accounting Changes .............................................. 98
10.17 WAIVERS OF JURY TRIAL ........................................... 98
10.18 Purchase of Loans Under Existing Credit Agreement; Reallocation . 98
10.19 Notice of Remedies Pursuant to Alaskan Law ...................... 100
10.20 Delivery of Lender Addenda ...................................... 100
</TABLE>
-iii-
<PAGE> 5
ANNEXES:
A Pricing Grids for Revolving Credit Loans, Tranche A Term Loans and
Tranche B Term Loans
SCHEDULES:
1.1A Initial Mortgaged Properties
1.1B Washington Mortgaged Property
1.1C Mortgaged Oil and Gas Properties
1.1D Owned Marine Terminals
3.1 Existing Letters of Credit
4.4 Consents, Authorizations, Filings and Notices
4.9 Intellectual Property Claim
4.13 Certain ERISA Events
4.15 Subsidiaries
4.19(a) UCC Filing Jurisdictions
4.19(b) Mortgage Filing Jurisdictions
4.19(c) Oil and Gas Mortgage Filing Jurisdictions
7.2(d) Existing Indebtedness
7.3(f) Existing Liens
EXHIBITS:
A Guarantee and Collateral Agreement
B Form of Compliance Certificate
C Form of Closing Certificate
D-1 Form of Mortgage
D-2 Form of Oil and Gas Mortgage
E Form of Assignment and Acceptance
F-1 Form of Legal Opinion of Fulbright & Jaworski L.L.P.
F-2 Form of Legal Opinion of James C. Reed, Jr.
G-1 Form of Term Note
G-2 Form of Revolving Credit Note
H Form of Prepayment Option Notice
I Form of Exemption Certificate
J Form of Consent and Confirmation
K Form of Lender Addendum
-iv-
<PAGE> 6
THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 2,
1998, among TESORO PETROLEUM CORPORATION, a Delaware corporation (the
"Borrower"), the several banks and other financial institutions or entities from
time to time parties to this Agreement (the "Lenders"), LEHMAN BROTHERS INC.
("LBI"), as advisor and arranger (in such capacity, the "Arranger"), LEHMAN
COMMERCIAL PAPER INC. ("LCPI"), as syndication agent (in such capacity, the
"Syndication Agent"), PARIBAS and THE FIRST NATIONAL BANK OF CHICAGO, as
co-administrative agents (in such capacity, the "Co-Administrative Agents"), THE
FIRST NATIONAL BANK OF CHICAGO, as general administrative agent (in such
capacity, the "General Administrative Agent"), PARIBAS, as collateral agent (in
such capacity, the "Collateral Agent"), and THE BANK OF NOVA SCOTIA, as
documentation agent (in such capacity, the "Documentation Agent").
W I T N E S S E T H:
WHEREAS, on May 29, 1998, the Borrower acquired (the "Hawaii
Acquisition") all of the capital stock of BHP Petroleum Americas Refining Inc.,
a Hawaii corporation, and BHP Petroleum South Pacific Inc., a California
corporation (the "Acquired Hawaii Companies"), from Hawaii Energy Resources
Inc., a Hawaii corporation, and BHP Petroleum Pacific Islands Inc., a Hawaii
corporation (the "Hawaii Sellers"), respectively;
WHEREAS, the Borrower has entered into the Second Amended and
Restated Credit Agreement, dated as of May 29, 1998 (the "Existing Credit
Agreement"), with the lenders parties thereto, LCPI, as administrative agent,
and the arranger and other agents parties thereto, pursuant to which the
Borrower financed the Hawaii Acquisition, refinanced certain existing
indebtedness, paid certain fees and expenses relating to such transactions and
provided for working capital needs and general corporate needs (including
capital expenditures) of the Borrower and its Subsidiaries;
WHEREAS, the Borrower also has agreed to acquire (the "Washington
Acquisition"; together with the Hawaii Acquisition, the "Acquisitions") all of
the Capital Stock of Shell Anacortes Refining Company, a Delaware corporation
(the "Acquired Washington Company"), from Shell Refining Holding Company, a
Delaware corporation (the "Washington Seller"), pursuant to a Stock Purchase
Agreement, dated as of May 1, 1998 (including all related agreements, the
"Washington Acquisition Agreement"), between the Borrower and the Washington
Seller;
WHEREAS, the Borrower has requested the Lenders to make available
the credit facilities described in this Agreement and to amend and restate the
Existing Credit Agreement in order to finance the Washington Acquisition, the
payment of certain fees and expenses relating to such transactions and the
repayment of certain existing indebtedness (including the Existing Credit
Agreement); and to provide for the ongoing working capital and general corporate
needs (including capital expenditures) of the Borrower and its Subsidiaries;
<PAGE> 7
2
WHEREAS, the Borrower intends to consummate an offering of the
Senior Subordinated Notes and to issue common stock and mandatorily convertible
preferred stock, of which $223,125,000 shall be in the form of common stock and
mandatorily convertible preferred stock, and not more than $143,437,500 shall be
in the form of mandatorily convertible preferred stock (collectively, the
"Capital Markets Instruments") yielding gross cash proceeds of $523,125,000;
WHEREAS, the Lenders are willing to make such credit facilities
available upon and subject to the terms and conditions hereinafter set forth;
and
WHEREAS, at the time the Existing Credit Agreement was entered into,
the parties thereto contemplated that the Existing Credit Agreement would be
amended and restated as provided herein;
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the parties hereto hereby agree that on the Closing Date
the Existing Credit Agreement is hereby amended and restated in its entirety as
follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in
this subsection 1.1 shall have the respective meanings set forth in this
subsection 1.1.
"Additional Tranche A Term Loan Commitment": as to any
Lender, the obligation of such Lender, if any, to make Additional
Tranche A Term Loans to the Borrower hereunder in an aggregate
principal amount not to exceed the amount set forth under the
heading "Additional Tranche A Term Loan Commitment" opposite such
Lender's name on Schedule 1 to the Lender Addendum delivered by such
Lender or, as the case may be, in Schedule 1 to the Assignment and
Acceptance pursuant to which such Lender acquired such Additional
Tranche A Term Loan Commitment. The original aggregate amount of the
Additional Tranche A Term Loan Commitments is $50,000,000.
"Additional Tranche A Term Loan Commitment Period": the
period from and including the Closing Date to and including the
earlier of (a) the date that is six months after the Closing Date
and (b) the date on which the Additional Tranche A Term Loan
Commitment is terminated in accordance with this Agreement.
"Additional Tranche A Term Loans": as defined in
subsection 2.1(a).
"Adjustment Date": as defined in the Pricing Grid.
"Affiliate": as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person. For purposes of this
definition, "control" of a Person means the power, directly or
indirectly, either to (a) vote 10% or more of the securities having
ordinary voting
<PAGE> 8
3
power for the election of directors (or persons performing similar
functions) of such Person or (b) direct or cause the direction of
the management and policies of such Person, whether by contract or
otherwise.
"Agents": the collective reference to the Syndication
Agent, the General Administrative Agent, the Collateral Agent and
the Documentation Agent.
"Aggregate Exposure": with respect to any Lender at any
time, an amount equal to the sum of (a) the aggregate undrawn amount
of such Lender's Commitments at such time and (b) the aggregate
principal amount of such Lender's Term Loans and Revolving
Extensions of Credit then outstanding.
"Aggregate Exposure Percentage": with respect to any
Lender at any time, the ratio (expressed as a percentage) of such
Lender's Aggregate Exposure at such time to the Aggregate Exposure
of all Lenders at such time.
"Agreement": this Third Amended and Restated Credit
Agreement, as amended, supplemented or otherwise modified from time
to time.
"Applicable Margin": for each Type of Loan, the rate per
annum set forth under the relevant column heading below:
<TABLE>
<CAPTION>
Eurodollar Base Rate
Loans Loans
---------- ---------
<S> <C> <C>
Revolving Credit Loans 1.875% 0.375%
Tranche A Term Loans 1.875% 0.375%
Tranche B Term Loans 2.125% 0.625%;
</TABLE>
provided, that on and after the date which is three months after the
Closing Date, the Applicable Margin shall be determined pursuant to
the Pricing Grid (subject to the exceptions set forth therein).
"Application": an application, in such form as the
relevant Issuing Bank may specify from time to time, requesting such
Issuing Bank to open, increase or extend a Letter of Credit.
"Asset Sale": any Disposition of Property or series of
related Dispositions of Property (excluding (i) any such Disposition
permitted by clause (a), (b), (c), (d), (f) or (j) of subsection 7.5
and (ii) any other Disposition of Property having a fair market
value at the time of such Disposition not in excess of $25,000,
provided that in no event shall the aggregate fair market value
(measured at the time of each such Disposition) of all Property the
Dispositions of which are excluded pursuant to this clause (ii)
during the term of this Agreement exceed $1,000,000).
<PAGE> 9
4
"Assignee": as defined in subsection 10.6(c).
"Assignment and Acceptance": as defined in subsection
10.6(c).
"Assignor": as defined in subsection 10.6(c).
"Available Additional Tranche A Term Loan Commitment":
as to any Tranche A Term Loan Lender at any time, an amount equal to
the excess, if any, of (a) such Lender's Additional Tranche A Term
Loan Commitment then in effect over (b) such Lender's Additional
Tranche A Term Loans then outstanding.
"Available Revolving Credit Commitment": as to any
Revolving Credit Lender at any time, an amount equal to the excess,
if any, of (a) such Lender's Revolving Credit Commitment then in
effect over (b) such Lender's Revolving Extensions of Credit then
outstanding.
"Base Rate": for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greatest
of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate
in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime
Rate" shall mean a rate per annum equal to the corporate base rate
of interest announced from time to time by the Reference Lender,
changing when and as said corporate base rate changes; "Base CD
Rate" shall mean the sum of (a) the product of (i) the Three-Month
Secondary CD Rate and (ii) a fraction, the numerator of which is one
and the denominator of which is one minus the C/D Reserve Percentage
and (b) the C/D Assessment Rate; and "Three-Month Secondary CD Rate"
shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or,
if such day shall not be a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of
the Federal Reserve Bank of New York (which rate will, under the
current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day),
or, if such rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money
center banks in New York City received at approximately 10:00 A.M.,
New York City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by the Reference
Lender from three New York City negotiable certificate of deposit
dealers of recognized standing selected by it. Any change in the
Base Rate due to a change in the Prime Rate, the Three-Month
Secondary CD Rate or the Federal Funds Effective Rate shall be
effective as of the opening of business on the effective day of such
change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate, respectively.
"Base Rate Loans": Loans for which the applicable rate
of interest is based upon the Base Rate.
<PAGE> 10
5
"Benefitted Lender": as defined in subsection 10.7.
"Board": the Board of Governors of the Federal Reserve
System of the United States (or any successor).
"Borrowing Date": any Business Day specified by the
Borrower as a date on which the Borrower requests the relevant
Lenders to make Loans hereunder.
"Business Day": (i) for all purposes other than as
covered by clause (ii) below, a day other than a Saturday, Sunday or
other day on which commercial banks in New York, New York or
Chicago, Illinois are authorized or required by law to close and
(ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans,
any day which is a Business Day described in clause (i) and which is
also a day for trading by and between banks in Dollar deposits in
the interbank eurodollar market.
"Capital Expenditures": for any period, with respect to
any Person, the aggregate of all expenditures by such Person and its
Subsidiaries for the acquisition or leasing (pursuant to a capital
lease) of fixed or capital assets or additions to equipment
(including replacements, capitalized repairs and improvements during
such period) which should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
"Capital Lease Obligations": as to any Person, the
obligations of such Person to pay rent or other amounts under any
lease of (or other arrangement conveying the right to use) real or
personal property, or a combination thereof, which obligations are
required to be classified and accounted for as a liability for
capital leases on a balance sheet of such Person under GAAP, and,
for the purposes of this Agreement, the amount of such obligations
at any time shall be the liability amount thereof at such time
determined in accordance with GAAP.
"Capital Markets Instruments": as defined in the
recitals hereto.
"Capital Stock": any and all shares, interests,
participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent ownership interests
in a Person (other than a corporation) and any and all warrants,
rights or options to purchase any of the foregoing.
"Cash Equivalents": (a) marketable direct obligations
issued by, or unconditionally guaranteed by, the United States
Government or issued by any agency thereof and backed by the full
faith and credit of the United States, in each case maturing within
one year from the date of acquisition; (b) certificates of deposit,
time deposits, eurodollar time deposits or overnight bank deposits
having maturities of six months or less from the date of acquisition
issued by any Lender, or by any commercial bank organized under the
laws of the United States of America or any state thereof having
combined capital and surplus of not less than $500,000,000; (c)
<PAGE> 11
6
commercial paper of an issuer rated at least A-2 by Standard &
Poor's Ratings Services ("S&P") or P-2 by Moody's Investors Service,
Inc. ("Moody's"), or carrying an equivalent rating by a nationally
recognized rating agency, if both of the two named rating agencies
cease publishing ratings of commercial paper issuers generally, and
maturing within six months from the date of acquisition; (d)
repurchase obligations of any Lender or of any commercial bank
satisfying the requirements of clause (b) of this definition, having
a term of not more than 30 days with respect to securities issued or
fully guaranteed or insured by the United States government; (e)
securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by
any foreign government, the securities of which state, commonwealth,
territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A by S&P or A by
Moody's; (f) securities with maturities of six months or less from
the date of acquisition backed by standby letters of credit issued
by any Lender or any commercial bank satisfying the requirements of
clause (b) of this definition; or (g) shares of money market mutual
or similar funds which invest exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.
"C/D Assessment Rate": for any day as applied to any
Base Rate Loan, the annual assessment rate (rounded upwards to the
higher multiple of 1/100 of 1%) in effect on such day which is
payable by a member of the Bank Insurance Fund maintained by the
Federal Deposit Insurance Corporation (the "FDIC") classified as
well-capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the
meaning of 12 C.F.R. Section 327.3(e) (or any successor provision)
to the FDIC (or any successor) for the FDIC's (or such successor's)
insuring time deposits at offices of such institution in the United
States, as estimated by the General Administrative Agent.
"C/D Reserve Percentage": for any day as applied to any
Base Rate Loan, that percentage (expressed as a decimal) which is in
effect on such day, as prescribed by the Board, for determining the
maximum reserve requirement for a Depositary Institution (as defined
in Regulation D of the Board as in effect from time to time) in
respect of new non-personal time deposits in Dollars having a
maturity of 30 days or more.
"Closing Date": the date on which the conditions
precedent set forth in subsection 5.1 shall have been satisfied or
waived, which date is July 2, 1998.
"Code": the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral": all Property of the Loan Parties, now
owned or hereafter acquired, upon which a Lien is purported to be
created by any Security Document.
<PAGE> 12
7
"Collateral Agent": Paribas, in its capacity as
Collateral Agent under this Agreement and the Security Documents,
and any successor thereto in such capacity.
"Commitment": as to any Lender, the sum of the Tranche A
Term Loan Commitment, the Tranche B Term Loan Commitment and the
Revolving Credit Commitment of such Lender.
"Commitment Fee Rate": 0.375% per annum.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which is treated as a single employer
under Section 414 of the Code.
"Compliance Certificate": a certificate duly executed by
a Responsible Officer substantially in the form of Exhibit B.
"Confidential Information Memorandum": the Confidential
Information Memorandum dated June 1998 and furnished to the Lenders.
"Consent and Confirmation": the Consent and
Confirmation, substantially in the form of Exhibit J, to be executed
and delivered by each Subsidiary Guarantor which is a party to the
Guarantee and Collateral Agreement on the Closing Date.
"Consolidated EBITDA": for any period, Consolidated Net
Income for such period plus, without duplication and to the extent
reflected as a charge in the statement of such Consolidated Net
Income for such period, the sum of (a) income and franchise tax
expense (but excluding Bolivian taxes paid in kind), (b) interest
expense, amortization or writeoff of debt discount and debt issuance
costs and commissions, discounts and other fees and charges
associated with Indebtedness (including the Loans), (c)
depreciation, depletion and amortization expense, (d) amortization
of intangibles (including, but not limited to, goodwill) and
organization costs, (e) any extraordinary, unusual or non-recurring
expenses or losses (including, whether or not otherwise includable
as a separate item in the statement of such Consolidated Net Income
for such period, losses on sales of assets outside of the ordinary
course of business), (f) any other non-cash charges, and (g) cash
not to exceed $15,000,000 and all non-cash items, in each case
related to that certain special incentive compensation award program
(the "Special Incentive Plan") which was funded as a result of the
Borrower's stock price having reached an average price per share of
$20 or higher over 20 consecutive trading days after June 30, 1997,
and before December 31, 1998, and minus, to the extent included in
the statement of such Consolidated Net Income for such period, the
sum of (a) interest income, (b) any extraordinary, unusual or
non-recurring income or gains (including, whether or not otherwise
includable as a separate item in the statement of such Consolidated
Net Income for such period, gains on the sales of assets outside of
the ordinary course of business) and (c) any other non-cash income,
all as determined on a consolidated basis.
<PAGE> 13
8
"Consolidated Fixed Charge Coverage Ratio": for any
period, the ratio of (a) Consolidated EBITDA for such period to (b)
the sum of Consolidated Interest Expense for such period and the
aggregate amount of cash dividends actually paid by the Borrower
during such period in respect of its Capital Stock (including,
without limitation, the Mandatorily Convertible Preferred Stock).
"Consolidated Interest Expense": for any period, total
interest expense (including that attributable to Capital Lease
Obligations) of the Borrower and its Subsidiaries for such period
with respect to all outstanding Indebtedness of the Borrower and its
Subsidiaries (including, without limitation, all commissions,
discounts and other fees and charges owed with respect to bankers'
acceptance financing and net costs under Hedge Agreements (but
excluding hydrocarbon swaps or other similar agreements providing
protection against fluctuations of hydrocarbon prices) in respect of
interest rates to the extent such net costs are allocable to such
period in accordance with GAAP).
"Consolidated Leverage Ratio": as at the last day of any
period of four consecutive fiscal quarters, the ratio of (a)
Consolidated Total Debt on such day to (b) Consolidated EBITDA for
such period; provided that for purposes of calculating Consolidated
EBITDA of the Borrower and its Subsidiaries for any period, the
Consolidated EBITDA of any Person acquired by the Borrower or its
Subsidiaries during such period shall be included on a pro forma
basis for such period (assuming the consummation of such acquisition
and the incurrence or assumption of any Indebtedness in connection
therewith occurred on the first day of such period) if the
consolidated balance sheet of such acquired Person and its
consolidated Subsidiaries as at the end of the period preceding the
acquisition of such Person and the related consolidated statements
of income and stockholders' equity and of cash flows for the period
in respect of which Consolidated EBITDA is to be calculated (i) have
been previously provided to the General Administrative Agent and the
Lenders and (ii) either (A) have been reported on without a
qualification arising out of the scope of the audit by independent
certified public accountants of nationally recognized standing or
(B) have been found acceptable by the General Administrative Agent.
"Consolidated Net Income": for any period, the
consolidated net income (or loss) of the Borrower and its
Subsidiaries, determined on a consolidated basis in accordance with
GAAP; provided that there shall be excluded (a) the income (or
deficit) of any Person accrued prior to the date it becomes a
Subsidiary of the Borrower or is merged into or consolidated with
the Borrower or any of its Subsidiaries, (b) the income (or deficit)
of any Person (other than a Subsidiary of the Borrower) in which the
Borrower or any of its Subsidiaries has an ownership interest,
except to the extent that any such income is actually received by
the Borrower or such Subsidiary in the form of dividends or similar
distributions and (c) the undistributed earnings of any Subsidiary
of the Borrower to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary is not at the
time permitted by the terms of any Contractual Obligation (other
than under any Loan
<PAGE> 14
9
Document) or Requirement of Law (other than fraudulent conveyance or
similar laws) applicable to such Subsidiary.
"Consolidated Total Debt": at any date, the aggregate
principal amount of all Indebtedness of the Borrower and its
Subsidiaries at such date, determined on a consolidated basis in
accordance with GAAP, not including any letters of credit issued in
the ordinary course of business and outstanding on such date.
"Continuing Directors": the directors of the Borrower on
the Closing Date, after giving effect to the Hawaii Acquisition and
the other transactions contemplated hereby, and each other director,
if, in each case, such other director's nomination for election to
the board of directors of the Borrower is recommended by at least
66-2/3% of the then Continuing Directors.
"Contractual Obligation": as to any Person, any
provision of any security issued by such Person or of any agreement,
instrument or other undertaking to which such Person is a party or
by which it or any of its Property is bound.
"Default": any of the events specified in Section 8,
whether or not any requirement for the giving of notice, the lapse
of time, or both, has been satisfied.
"Disposition": with respect to any Property, any sale,
lease, sale and leaseback, assignment, conveyance, transfer or other
disposition thereof; the terms "Dispose" and "Disposed of" shall
have correlative meanings.
"Dollars" and "$": dollars in lawful currency of the
United States of America.
"Domestic Subsidiary": any Subsidiary of the Borrower
organized under the laws of any jurisdiction within the United
States of America.
"Environmental Laws": any and all foreign, Federal,
state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, requirements of any
Governmental Authority or other Requirements of Law (including
common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the
environment, as now or may at any time hereafter be in effect.
"Environmental Permits": any and all permits, licenses,
registrations, notifications, approvals, exemptions and any other
authorization required under any Environmental Law.
"ERISA": the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Eurocurrency Reserve Requirements": for any day as
applied to a Eurodollar Loan, the aggregate (without duplication) of
the maximum rates (expressed as a
<PAGE> 15
10
decimal fraction) of reserve requirements in effect on such day
(including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other
Governmental Authority having jurisdiction with respect thereto)
dealing with reserve requirements prescribed for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the
Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during
each Interest Period pertaining to a Eurodollar Loan, the rate per
annum determined on the basis of the rate for deposits in Dollars
for a period equal to such Interest Period commencing on the first
day of such Interest Period appearing on Page 3750 of the Dow Jones
Markets screen as of 11:00 A.M., London time, two Business Days
prior to the beginning of such Interest Period. In the event that
such rate does not appear on Page 3750 of the Dow Jones Markets
screen (or otherwise on such screen), the "Eurodollar Base Rate" for
purposes of this definition shall be determined by reference to such
other comparable publicly available service for displaying
eurodollar rates as may be selected by the General Administrative
Agent or, in the absence of such availability, by reference to the
rate at which the General Administrative Agent is offered Dollar
deposits at or about 11:00 A.M., New York City time, two Business
Days prior to the beginning of such Interest Period in the interbank
eurodollar market where its eurodollar and foreign currency and
exchange operations are then being conducted for delivery on the
first day of such Interest Period for the number of days comprised
therein.
"Eurodollar Loans": Loans for which the applicable rate
of interest is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum
determined for such day in accordance with the following formula
(rounded upward to the nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to
Eurodollar Loans the then current Interest Periods with respect to
all of which begin on the same date and end on the same later date
(whether or not such Loans shall originally have been made on the
same day).
"Event of Default": any of the events specified in
Section 8, provided that any requirement for the giving of notice,
the lapse of time, or both, as applicable, has been satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower,
the excess, if any, of (a) Consolidated EBITDA for such fiscal year
minus (b) the sum, without duplication, of (i) the aggregate amount
of all regularly scheduled principal payments of (x)
<PAGE> 16
11
Funded Debt (including, without limitation, the Term Loans) and
(y) other Indebtedness of the type described in clause (b) of the
definition thereof not to exceed $50,000,000 in aggregate principal
amount, in each case of the Borrower and its Subsidiaries made
during such fiscal year (other than in respect of any revolving
credit facility to the extent there is not an equivalent permanent
reduction in commitments thereunder), (ii) the aggregate amount
actually paid by the Borrower and its Subsidiaries in cash during
such fiscal year on account of Capital Expenditures (excluding the
principal amount of Indebtedness incurred in connection with such
expenditures and any such expenditures financed with the proceeds of
any Reinvestment Deferred Amount), (iii) the aggregate amount
actually paid by the Borrower and its Subsidiaries in cash during
such fiscal year on account of income and franchise taxes, (iv)
transaction costs, to the extent excluded from Consolidated EBITDA,
related to the Acquisitions, the issuance of the Capital Markets
Instruments and the financing contemplated by this Agreement, (v)
cash interest expense during such fiscal year, (vi) the aggregate
amount of cash dividends actually paid by the Borrower during such
fiscal year, as permitted by subsection 7.6, in respect of the
Borrower's common stock and the Mandatorily Convertible Preferred
Stock and (vii) the aggregate amount actually paid by the Borrower
and its Subsidiaries in cash during such period on account of the
costs and expenses associated with shutting down a refinery or a
portion thereof for maintenance and repair in the ordinary course of
business, to the extent that such costs and expenses (A) have been
added to Consolidated Net Income as a non-cash charge in determining
Consolidated EBITDA for a prior period or (B) will be amortized as
non-cash charges in subsequent periods and added to Consolidated Net
Income in determining Consolidated EBITDA for such subsequent
periods.
"Excess Cash Flow Application Date": as defined in
subsection 2.10(c).
"Excluded Foreign Subsidiary": any Foreign Subsidiary in
respect of which either (i) the pledge of all of the Capital Stock
of such Subsidiary as Collateral or (ii) the guaranteeing by such
Subsidiary of the Obligations, would, in the good faith judgment of
the Borrower, result in adverse tax consequences to the Borrower.
"Excluded Subsidiaries": the collective reference to
Tesoro Indonesia Petroleum Company, a Delaware corporation; Tesoro
Equipment Company, a Delaware corporation; Tesoro Crude Oil Company,
a Delaware corporation; Tesoro Gasoline Marketing Company, a
Delaware corporation; Tesoro Pump & Valve Company, a Delaware
corporation; Tesoro Environmental Resources Company, a Delaware
corporation; Tesoro Environmental Products Company, a Delaware
corporation; Tesoro Technology Partners Company, a Delaware
corporation; and Coastwide Marine Services, Inc., a Texas
corporation.
"Existing Credit Agreement": as defined in the recitals
to this Agreement.
"Existing Letters of Credit": as defined in subsection
3.1.
<PAGE> 17
12
"Facility": each of (a) the Tranche A Term Loan
Commitments and the Tranche A Term Loans made thereunder (the
"Tranche A Term Loan Facility"), (b) the Tranche B Term Loan
Commitments and the Tranche B Term Loans made thereunder (the
"Tranche B Term Loan Facility"; together with the Tranche A Term
Loan Facility, the "Term Loan Facilities") and (c) the Revolving
Credit Commitments and the extensions of credit made thereunder (the
"Revolving Credit Facility").
"Federal Funds Effective Rate": for any day, an interest
rate per annum equal to the weighted average of the rates on
overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the immediately
preceding Business Day) by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day which is a Business
Day, the average of the quotations for the day (at approximately
11:00 A.M., Chicago, Illinois time) of such transactions received by
the Reference Lender from three federal funds brokers of recognized
standing selected by it in its sole discretion.
"Foreign Subsidiary": any Subsidiary of the Borrower
that is not a Domestic Subsidiary.
"Funded Debt": as to any Person, all Indebtedness of
such Person that matures more than one year from the date of its
creation or matures within one year from such date but is renewable
or extendible, at the option of such Person, to a date more than one
year from such date or arises under a revolving credit or similar
agreement that obligates the lender or lenders to extend credit
during a period of more than one year from such date, including,
without limitation, all current maturities and current sinking fund
payments in respect of such Indebtedness whether or not required to
be paid within one year from the date of its creation and, in the
case of the Borrower, Indebtedness in respect of the Loans.
"Funding Office": the office specified from time to time
by the General Administrative Agent as its funding office by notice
to the Borrower and the Lenders in accordance with subsection 9.2.
"GAAP": generally accepted accounting principles in the
United States of America as in effect from time to time, except that
for purposes of subsection 7.1, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent
with those used in the preparation of the most recent audited
financial statements delivered pursuant to subsection 4.1(b).
"Governmental Authority": any nation or government, any
state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government (including,
without limitation, the National Association of Insurance
Commissioners).
<PAGE> 18
13
"Guarantee and Collateral Agreement": the Guarantee and
Collateral Agreement, dated as of May 29, 1998, a copy of which is
attached hereto as Exhibit A, as the same may be amended,
supplemented or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the
"guaranteeing person"), any obligation of (a) the guaranteeing
person or (b) another Person (including, without limitation, any
bank under any letter of credit) to induce the creation of which the
guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect
guaranteeing any Indebtedness, leases, dividends or other
obligations (the "primary obligations") of any other third Person
(the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any
such primary obligation or any Property constituting direct or
indirect security therefor, (ii) to advance or supply funds (1) for
the purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary
obligor, (iii) to purchase Property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless
the owner of any such primary obligation against loss in respect
thereof; provided, however, that the term Guarantee Obligation shall
not include endorsements of instruments for deposit or collection in
the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the
lower of (a) an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Guarantee Obligation
is made and (b) the maximum amount for which such guaranteeing
person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such guaranteeing person may be
liable are not stated or determinable, in which case the amount of
such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as
determined by the Borrower in good faith.
"Hawaii Sellers": as defined in the recitals to this
Agreement.
"Hedge Agreements": all interest rate swaps, caps,
collar agreements, hydrocarbon swaps or similar arrangements entered
into by the Borrower providing for protection against fluctuations
in interest rates, currency exchange rates or hydrocarbon prices or
the exchange of nominal interest obligations, either generally or
under specific contingencies.
"Hydrocarbons": oil, gas, casinghead gas, condensate,
distillate, liquid hydrocarbons, gaseous hydrocarbons and all
products refined or separated therefrom, and all other substances
produced in association therewith.
<PAGE> 19
14
"Hydrocarbon Interest": with respect to any Person, all
rights, titles, interests and estates now owned or hereafter
acquired by such Person in and to oil, gas and mineral leases or
other liquid or gaseous hydrocarbon leases, mineral fee interests,
overriding royalty and royalty interests, operating rights, net
profit interests, production payment interests and other similar
types of interests, including any reserved or residual interest of
whatever nature.
"Indebtedness": of any Person at any date, without
duplication, (a) all indebtedness of such Person for borrowed money,
(b) all obligations of such Person for the deferred purchase price
of Property or services (other than current trade payables incurred
in the ordinary course of such Person's business), (c) all
obligations of such Person evidenced by notes, bonds, debentures or
other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with
respect to Property acquired by such Person (even though the rights
and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such
Property), (e) all Capital Lease Obligations of such Person, (f) all
reimbursement obligations of such Person, contingent or otherwise,
as an account party under acceptance, letter of credit or similar
facilities, (g) all obligations of such Person, contingent or
otherwise, to purchase, redeem, retire or otherwise acquire for
value any Capital Stock of such Person, (h) all Guarantee
Obligations of such Person for obligations of the kind referred to
in clauses (a) through (g) above; (i) for the purposes of
subsections 7.2 and 8(e) only, all obligations of the kind referred
to in clauses (a) through (h) above secured by (or for which the
holder of such obligation has an existing right, contingent or
otherwise, to be secured by) any Lien on Property (including,
without limitation, accounts and contract rights) owned by such
Person, whether or not such Person has assumed or become liable for
the payment of such obligation, (j) for the purposes of subsection
8(e) only, all obligations of such Person in respect of Hedge
Agreements and (k) the liquidation value of any mandatorily
redeemable preferred Capital Stock of such Person or its
Subsidiaries held by any Person other than such Person and its
Wholly Owned Subsidiaries. Obligations of the Borrower and its
Subsidiaries to Marine Spill Response Corporation in an aggregate
amount of up to $8,100,000 shall not be deemed to constitute
Indebtedness.
"Indemnified Liabilities": as defined in subsection
10.5.
"Indemnitee": as defined in subsection 10.5.
"Initial Mortgaged Properties": the real properties
listed on Schedule 1.1A, as to which the Collateral Agent for the
benefit of the Lenders shall be granted a Lien pursuant to the
relevant Mortgages on or prior to the Closing Date.
"Initial Tranche A Term Loan": as defined in subsection
2.1(a).
"Initial Tranche A Term Loan Commitment": as to any
Lender, the obligation of such Lender, if any, to make an Initial
Tranche A Term Loan to the Borrower
<PAGE> 20
15
hereunder in a principal amount not to exceed the amount set forth
under the heading "Initial Tranche A Term Loan Commitment" opposite
such Lender's name on Schedule 1 to the Lender Addendum delivered by
such Lender or, as the case may be, in Schedule 1 to the Assignment
and Acceptance pursuant to which such Lender acquired such Initial
Tranche A Term Loan Commitment. The original aggregate amount of the
Initial Tranche A Term Loan Commitments is $50,000,000.
"Insolvency": with respect to any Multiemployer Plan,
the condition that such Plan is insolvent within the meaning of
Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Intellectual Property": the collective reference to all
rights, priorities and privileges relating to intellectual property,
whether arising under United States, multinational or foreign laws
or otherwise, including, without limitation, copyrights, copyright
licenses, patents, patent licenses, trademarks, trademark licenses,
technology, know-how and processes, and all rights to sue at law or
in equity for any infringement or other impairment thereof,
including the right to receive all proceeds and damages therefrom.
"Intercreditor Agreement": the Intercreditor Agreement,
dated as of the Closing Date, between the Collateral Agent and the
trustee under the Senior Subordinated Note Indenture, relating to
the relative priorities of such parties' interests in any amounts
released to the Borrower from the Washington Escrow.
"Interest Payment Date": (a) as to any Base Rate Loan,
the last day of each March, June, September and December to occur
while such Loan is outstanding and the final maturity date of such
Loan, (b) as to any Eurodollar Loan having an Interest Period of
three months or less, the last day of such Interest Period, (c) as
to any Eurodollar Loan having an Interest Period longer than three
months, each day which is three months, or a whole multiple thereof,
after the first day of such Interest Period and the last day of such
Interest Period and (d) as to any Loan (other than any Revolving
Credit Loan that is a Base Rate Loan), the date of any repayment or
prepayment made in respect thereof.
"Interest Period": as to any Eurodollar Loan, (a)
initially, the period commencing on the borrowing or conversion
date, as the case may be, with respect to such Eurodollar Loan and
ending one, two, three or six months thereafter, as selected by the
Borrower in its notice of borrowing or notice of conversion, as the
case may be, given with respect thereto; and (b) thereafter, each
period commencing on the last day of the next preceding Interest
Period applicable to such Eurodollar Loan and ending one, two, three
or six months thereafter, as selected by the Borrower by irrevocable
notice to the General Administrative Agent not less than three
Business Days prior to the last day of the then current Interest
Period with respect thereto; provided, that all of the foregoing
provisions relating to Interest Periods are subject to the
following:
<PAGE> 21
16
(i) if any Interest Period would otherwise
end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business
Day unless the result of such extension would be to
carry such Interest Period into another calendar month
in which event such Interest Period shall end on the
immediately preceding Business Day;
(ii) any Interest Period that would otherwise
extend beyond the Revolving Credit Termination Date or
beyond the date final payment is due on the Tranche A
Term Loans or the Tranche B Term Loans, as the case may
be, shall end on the Revolving Credit Termination Date
or such due date, as applicable;
(iii) any Interest Period that begins on the
last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall
end on the last Business Day of a calendar month; and
(iv) the Borrower shall select Interest
Periods so as not to require a payment or prepayment of
any Eurodollar Loan during an Interest Period for such
Loan.
"Investments": as defined in subsection 7.7.
"Issuing Bank": Paribas, The First National Bank of
Chicago and First Union National Bank, each in its capacity as an
issuer of any Letter of Credit, at the option of the Borrower.
"L/C Commitment": $200,000,000.
"L/C Fee Payment Date": the last day of each March,
June, September and December and the last day of the Revolving
Credit Commitment Period.
"L/C Obligations": at any time, an amount equal to the
sum of (a) the aggregate then undrawn and unexpired amount of the
then outstanding Letters of Credit and (b) the aggregate amount of
drawings under Letters of Credit which have not then been reimbursed
pursuant to subsection 3.5.
"L/C Participants": with respect to any Letter of
Credit, the collective reference to all the Revolving Credit Lenders
other than the Issuing Bank that issued such Letter of Credit.
"Lender Addendum": with respect to any Lender which
becomes a party hereto on the date hereof, a Lender Addendum,
substantially in the form of Exhibit K, to be executed and delivered
by such Lender as provided in subsection 10.20.
"Letters of Credit": as defined in subsection 3.1(a).
<PAGE> 22
17
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge
or other security interest or any preference, priority or other
security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or
other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this
Agreement.
"Loan Documents": this Agreement, the Security
Documents, each Consent and Confirmation and the Notes.
"Loan Parties": the Borrower and each Subsidiary of the
Borrower which is a party to a Loan Document.
"Majority Facility Lenders": with respect to any
Facility, the holders of more than 50% of the aggregate unpaid
principal amount of the Term Loans or the Total Revolving Extensions
of Credit, as the case may be, outstanding under such Facility (or,
in the case of the Revolving Credit Facility, prior to any
termination of the Revolving Credit Commitments, the holders of more
than 50% of the Total Revolving Credit Commitments).
"Majority Revolving Credit Facility Lenders": the
Majority Facility Lenders in respect of the Revolving Credit
Facility.
"Majority Tranche A Term Loan Facility Lenders": the
Majority Facility Lenders in respect of the Tranche A Term Loan
Facility.
"Majority Tranche B Term Loan Facility Lenders": the
Majority Facility Lenders in respect of the Tranche B Term Loan
Facility.
"Mandatorily Convertible Preferred Stock": the
mandatorily convertible preferred stock issued as a part of the
Capital Markets Instruments.
"Material Adverse Effect": a material adverse effect on
(a) the Washington Acquisition, (b) the business, assets, property,
condition (financial or otherwise) or prospects of the Borrower and
its Subsidiaries taken as a whole or (c) the validity or
enforceability of this Agreement or any of the other Loan Documents
or the rights or remedies of the Agents or the Lenders hereunder or
thereunder. The termination of the Washington Acquisition Agreement
and the failure to consummate the Washington Acquisition as
contemplated by subsection 2.10(e) shall not constitute a Material
Adverse Effect.
"Materials of Environmental Concern": any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products, polychlorinated biphenyls, urea-formaldehyde insulation,
asbestos, pollutants, contaminants, radioactivity, and any
<PAGE> 23
18
other substances or forces of any kind, whether or not any such
substance or force is defined as hazardous or toxic under any
Environmental Law, that is regulated pursuant to or could give rise
to liability under any Environmental Law.
"Mortgaged Oil and Gas Properties": the real properties
listed on Schedule 1.1C, as to which the Collateral Agent for the
benefit of the Lenders shall be granted a Lien pursuant to the Oil
and Gas Mortgages on or prior to the Closing Date.
"Mortgaged Properties": the collective reference to the
Initial Mortgaged Properties and the Washington Mortgaged Property.
"Mortgages": each of the mortgages and deeds of trust
made by any Loan Party in favor of, or for the benefit of, the
Collateral Agent for the benefit of the Lenders, substantially in
the form of Exhibit D-1 (with such changes thereto as shall be
advisable under the law of the jurisdiction in which such mortgage
or deed of trust is to be recorded), as the same may be amended,
supplemented or otherwise modified from time to time.
"Multiemployer Plan": a Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Asset
Sale or any Recovery Event, the proceeds thereof in the form of cash
(including any such proceeds received by way of deferred payment of
principal pursuant to any Cash Equivalents, a note or installment
receivable or purchase price adjustment receivable or otherwise, but
only as and when received) of such Asset Sale or Recovery Event, net
of attorneys' fees, accountants' fees, investment banking fees,
amounts required to be applied to the repayment of Indebtedness
secured by and any other amounts required for the release of a Lien
expressly permitted hereunder on any asset which is the subject of
such Asset Sale or Recovery Event (other than any Lien pursuant to a
Security Document) and other customary fees and expenses incurred in
connection therewith and net of taxes paid or reasonably estimated
to be payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing
arrangements) and (b) in connection with any issuance or sale of
equity securities or debt securities, the cash proceeds received
from such issuance or incurrence, net of attorneys' fees, investment
banking fees, accountants' fees, underwriting discounts and
commissions and other customary fees, expenses and other transaction
costs incurred in connection therewith.
"Non-Excluded Taxes": as defined in subsection 2.18(a).
"Non-U.S. Lender": as defined in subsection 2.18(d).
"Notes": the collective reference to any promissory note
evidencing Loans.
<PAGE> 24
19
"Obligations": the unpaid principal of and interest on
(including, without limitation, interest accruing after the maturity
of the Loans and Reimbursement Obligations and interest accruing
after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding, relating to
the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Loans and
all other obligations and liabilities of the Borrower to the General
Administrative Agent or to any Lender (or, in the case of Hedge
Agreements, any affiliate of any Lender), whether direct or
indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which arise under this Agreement,
any other Loan Document, the Letters of Credit, any Hedge Agreement
entered into with any Lender or any affiliate of any Lender or any
other document made, delivered or given by any Loan Party pursuant
hereto or thereto, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses
(including, without limitation, all fees, charges and disbursements
of counsel to the General Administrative Agent or to any Lender that
are required to be paid by the Borrower pursuant hereto) or
otherwise.
"Oil and Gas Lease Obligations": obligations, whether
current or long term, in the normal course of business under or
pursuant to customary oil, gas and mineral leases, royalties and oil
and gas operating agreements, farm-out and farm-in agreements,
development agreements and other agreements which are customary in
the oil and gas industry.
"Oil and Gas Mortgages": each of the mortgages made by
any Loan Party in favor of, or for the benefit of, the Collateral
Agent for the benefit of the Lenders, substantially in the form of
Exhibit D-2, as the same may be amended, supplemented or otherwise
modified from time to time.
"Oil and Gas Properties": the Hydrocarbon Interests of
the Borrower and its Subsidiaries; all property now or hereafter
pooled or unitized with such Hydrocarbon Interests; all presently
existing or future unitization, pooling agreements and declarations
of pooled units and the units created thereby (including without
limitation all units created under orders, regulations and rules of
any Governmental Authority have jurisdiction) which may affect all
or any portion of such Hydrocarbon Interests; all operating
agreements, contracts and other agreements which relate to any of
such Hydrocarbon Interests or the production, sale, purchase,
exchange or processing of Hydrocarbons from or attributable to such
Hydrocarbon Interest; all Hydrocarbons in and under and which may be
produced and saved or attributable to such Hydrocarbon Interests,
the lands covered thereby and all oil in tanks and all rents,
issues, profits, proceeds, products, revenues and other income from
or attributable to such Hydrocarbon Interests; all tenements,
hereditaments, appurtenances and properties in any manner
appertaining, belonging, affixed or incidental to such Hydrocarbon
Interests, properties, rights, titles, interests and estates
described or referred to above, including any and all Property, real
or personal, now owned or hereinafter acquired and situated upon,
used, held for use or useful in connection with the operating,
working or development of any of such Hydrocarbon Interests or
Property (excluding
<PAGE> 25
20
drilling rigs, automotive equipment or other personal property which
may be on such premises for the purpose of drilling a well or for
other similar temporary uses) and including any and all oil wells,
gas wells, injection wells or other wells, buildings, structures,
fuel separators, liquid extraction plants, plant compressors, pumps,
pumping units, field gathering systems, tanks and tank batteries,
fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables,
wires, towers, casing, tubing and rods, surface leases,
rights-of-way, easements and servitudes together with all additions,
substitutions, replacements, accessions and attachments to any and
all of the foregoing.
"Other Taxes": any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or
similar levies arising from any payment made hereunder or from the
execution, delivery or enforcement of, or otherwise with respect to,
this Agreement or any other Loan Document, other than, in each case,
any franchise tax or similar tax based upon the income, capital,
assets or other properties of any Lender.
"Owned Marine Terminals": the marine terminals owned by
the Borrower and its Subsidiaries, as set forth on Schedule 1.1D.
"Participant": as defined in subsection 10.6(b).
"Payment Office": the office specified from time to time
by the General Administrative Agent as its payment office by notice
to the Borrower and the Lenders in accordance with subsection 10.2.
"PBGC": the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA (or any
successor).
"Person": an individual, partnership, corporation,
limited liability company, business trust, joint stock company,
trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan
which is covered by ERISA and in respect of which the Borrower or a
Commonly Controlled Entity is (or, if such plan were terminated at
such time, would under Section 4069 of ERISA be deemed to be) an
"employer" as defined in Section 3(5) of ERISA.
"Pricing Grid": the pricing grid attached hereto as
Annex A.
"Pricing Grid Commencement Date": as defined in Annex A
(the Pricing Grid).
"Pro Forma Balance Sheet": as defined in subsection
4.1(a).
"Projections": as defined in subsection 6.2(c).
<PAGE> 26
21
"Property": any right or interest in or to property of
any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible, including, without limitation, Capital
Stock.
"Recovery Event": any settlement of or payment in
respect of any property or casualty insurance claim or any
condemnation proceeding relating to any asset of the Borrower or any
of its Subsidiaries.
"Reference Lender": The First National Bank of Chicago.
"Register": as defined in subsection 10.6(d).
"Regulation U": Regulation U of the Board as in effect
from time to time.
"Reimbursement Obligation": the obligation of the
Borrower to reimburse the relevant Issuing Bank pursuant to
subsection 3.5 for amounts drawn under Letters of Credit issued by
such Issuing Bank.
"Reinvestment Deferred Amount": with respect to any
Reinvestment Event, the aggregate Net Cash Proceeds received by the
Borrower or any of its Subsidiaries in connection therewith which
are not applied to prepay the Term Loans pursuant to subsection
2.10(b) as a result of the delivery of a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event
in respect of which the Borrower has delivered a Reinvestment
Notice.
"Reinvestment Notice": a written notice executed by a
Responsible Officer stating that no Event of Default has occurred
and is continuing and that the Borrower (directly or indirectly
through a Subsidiary) intends and expects to use all or a specified
portion of the Net Cash Proceeds of an Asset Sale or Recovery Event
to acquire, construct, develop, improve or repair Property useful in
its business.
"Reinvestment Prepayment Amount": with respect to any
Reinvestment Event, the Reinvestment Deferred Amount relating
thereto less any amount expended prior to the relevant Reinvestment
Prepayment Date to acquire, construct, develop, improve or repair
Property useful in the Borrower's business.
"Reinvestment Prepayment Date": with respect to any
Reinvestment Event, the earlier of (a) the date occurring twelve
months after such Reinvestment Event and (b) the date on which the
Borrower shall have determined not to acquire, construct, develop,
improve or repair Property useful in the Borrower's business with
all or any portion of the relevant Reinvestment Deferred Amount.
"Reorganization": with respect to any Multiemployer
Plan, the condition that such plan is in reorganization within the
meaning of Section 4241 of ERISA.
<PAGE> 27
22
"Reportable Event": any of the events set forth in
Section 4043(c) of ERISA, other than those events as to which the
thirty day notice period is waived under subsections .27, .28, .29,
.30, .31, .32, .34 or .35 of PBGC Reg. Section 4043.
"Required Lenders": at any time, the holders of more
than 50% of the sum of (a) the undrawn Commitments and (b) the
aggregate unpaid principal amount of the Term Loans and Total
Revolving Extensions of Credit then outstanding.
"Required Prepayment Lenders": the Majority Facility
Lenders in respect of each Facility.
"Requirement of Law": as to any Person, the Certificate
of Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its Property or to which such Person or any of its Property
is subject.
"Responsible Officer": the chief executive officer,
president, chief financial officer, general counsel or treasurer of
the Borrower, but in any event, with respect to financial matters,
the chief financial officer or treasurer of the Borrower.
"Restricted Payments": as defined in subsection 7.6.
"Revolving Credit Commitment": as to any Lender, the
obligation of such Lender, if any, to make Revolving Credit Loans
and participate in Letters of Credit, in an aggregate principal
and/or face amount not to exceed the amount set forth under the
heading "Revolving Credit Commitment" opposite such Lender's name on
Schedule 1 to the Lender Addendum delivered by such Lender or, as
the case may be, in Schedule 1 to the Assignment and Acceptance
pursuant to which such Lender acquired such Revolving Credit
Commitment, as the same may be changed from time to time pursuant to
the terms hereof. The original amount of the Total Revolving Credit
Commitments is $300,000,000.
"Revolving Credit Commitment Period": the period from
and including the Closing Date to the Revolving Credit Termination
Date.
"Revolving Credit Lender": each Lender which has a
Revolving Credit Commitment or which is the holder of Revolving
Credit Loans.
"Revolving Credit Loans": as defined in subsection 2.4.
"Revolving Credit Percentage": as to any Revolving
Credit Lender at any time, the percentage which such Lender's
Revolving Credit Commitment then constitutes of the Total Revolving
Credit Commitments (or, at any time after the Revolving Credit
Commitments shall have expired or terminated, the percentage which
the aggregate
<PAGE> 28
23
principal amount of such Lender's Revolving Credit Loans then
outstanding constitutes of the aggregate principal amount of the
Revolving Credit Loans then outstanding).
"Revolving Credit Termination Date": July 2, 2001.
"Revolving Extensions of Credit": as to any Revolving
Credit Lender at any time, an amount equal to the sum of (a) the
aggregate principal amount of all Revolving Credit Loans made by
such Lender then outstanding and (b) such Lender's Revolving Credit
Percentage of the L/C Obligations then outstanding.
"Security Documents": the collective reference to the
Guarantee and Collateral Agreement, the Mortgages, the Oil and Gas
Mortgages and all other security documents hereafter delivered to
the Collateral Agent granting a Lien on any Property of any Person
to secure the obligations and liabilities of any Loan Party under
any Loan Document.
"Senior Subordinated Note Indenture": the Indenture,
dated as of July 2, 1998, entered into by the Borrower, certain of
its Subsidiaries and U.S. Bank Corporate Trust Services, as trustee,
in connection with the issuance of the Senior Subordinated Notes,
together with all instruments and other agreements entered into by
the Borrower or such Subsidiaries in connection therewith, as the
same may be amended, supplemented or otherwise modified from time to
time in accordance with subsection 7.8.
"Senior Subordinated Notes": the collective reference to
(i) the up to $300,000,000 aggregate principal amount of senior
subordinated notes of the Borrower issued on the Closing Date
pursuant to the Senior Subordinated Note Indenture in connection
with the issuance of the Capital Markets Instruments and (ii) the
additional up to $50,000,000 aggregate principal amount of senior
subordinated notes of the Borrower that may be issued after the
Closing Date pursuant to the Senior Subordinated Note Indenture,
subject to compliance with subsection 7.2(e).
"Shipping Joint Venture": a joint venture or similar
business arrangement on terms reasonably satisfactory to the General
Administrative Agent between the Borrower or any of its Subsidiaries
and a shipping company pursuant to which the Borrower or such
Subsidiary acquires the right to use a vessel, provided that in no
event shall the Borrower or any of its Subsidiaries contribute or
otherwise be liable for the payment of cash or Cash Equivalents in
connection with such arrangement in an amount in excess of
$15,000,000.
"Single Employer Plan": any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means
that, as of any date of determination, (a) the amount of the
"present fair saleable value" of the assets of such Person will, as
of such date, exceed the amount of all "liabilities of such Person,
<PAGE> 29
24
contingent or otherwise", as of such date, as such quoted terms are
determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the
present fair saleable value of the assets of such Person will, as of
such date, be greater than the amount that will be required to pay
the liability of such Person on its debts as such debts become
absolute and matured, (c) such Person will not have, as of such
date, an unreasonably small amount of capital with which to conduct
its business, and (d) such Person will be able to pay its debts as
they mature. For purposes of this definition, (i) "debt" means
liability on a "claim", and (ii) "claim" means any (x) right to
payment, whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured or (y)
right to an equitable remedy for breach of performance if such
breach gives rise to a right to payment, whether or not such right
to an equitable remedy is reduced to judgment, fixed, contingent,
matured or unmatured, disputed, undisputed, secured or unsecured.
"South American Letter of Credit": any letter of credit
issued to support performance guarantees or bonds on behalf of
Tesoro Bolivia or Tesoro Latin American Company.
"Special Incentive Plan": as defined in the definition
of Consolidated EBITDA.
"Specified Change of Control": a "Change of Control" as
defined in the Senior Subordinated Note Indenture.
"Subsidiary": as to any Person, a corporation,
partnership, limited liability company or other entity of which
shares of stock or other ownership interests having ordinary voting
power (other than stock or such other ownership interests having
such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or
the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such
Person. Unless otherwise qualified, all references to a "Subsidiary"
or to "Subsidiaries" in this Agreement shall refer to a Subsidiary
or Subsidiaries of the Borrower.
"Subsidiary Guarantor": each Subsidiary of the Borrower
other than any Excluded Subsidiary and any Excluded Foreign
Subsidiary.
"Term Loan Commitments": the collective reference to the
Tranche A Term Loan Commitments and the Tranche B Term Loan
Commitments.
"Term Loan Lenders": the collective reference to the
Tranche A Term Loan Lenders and the Tranche B Term Loan Lenders.
"Term Loans": the collective reference to the Tranche A
Term Loans and the Tranche B Term Loans.
<PAGE> 30
25
"Tesoro Bolivia": Tesoro Bolivia Petroleum Company, a
Texas corporation.
"Total Revolving Credit Commitments": at any time, the
aggregate amount of the Revolving Credit Commitments then in effect.
"Total Revolving Extensions of Credit": at any time, the
aggregate amount of the Revolving Extensions of Credit of the
Revolving Credit Lenders outstanding at such time.
"Tranche A Term Loan Commitment": as to any Lender, the
sum of the Initial Tranche A Term Loan Commitment of such Lender and
the Additional Tranche A Term Loan Commitment of such Lender.
"Tranche A Term Loan Lender": each Lender which has a
Tranche A Term Loan Commitment or is the holder of Tranche A Term
Loans.
"Tranche A Term Loan Percentage": as to any Tranche A
Term Loan Lender at any time, the percentage which such Lender's
Tranche A Term Loan Commitment then constitutes of the aggregate
Tranche A Term Loan Commitments (or, at any time after the Closing
Date, the percentage which the aggregate principal amount of such
Lender's Tranche A Term Loans then outstanding constitutes of the
aggregate principal amount of the Tranche A Term Loans then
outstanding).
"Tranche A Term Loans": as to any Lender, the collective
reference to the Initial Tranche A Term Loans and Additional Tranche
A Term Loans of such Lender, if any.
"Tranche B Term Loan": as defined in subsection 2.1.
"Tranche B Term Loan Commitment": as to Tranche B Term
Loan Lender, the obligation of such Lender, if any, to make a
Tranche B Term Loan to the Borrower hereunder in a principal amount
not to exceed the amount set forth under the heading "Tranche B Term
Loan Commitment" opposite such Lender's name on Schedule 1 to the
Lender Addendum delivered by such Lender or, as the case may be, in
Schedule 1 to the Assignment and Acceptance pursuant to which such
Lender acquired such Tranche B Term Loan Commitment. The original
aggregate amount of the Tranche B Term Loan Commitments is
$100,000,000.
"Tranche B Term Loan Lender": each Lender which has a
Tranche B Term Loan Commitment or which is the holder of a Tranche B
Term Loan.
"Tranche B Term Loan Percentage": as to any Lender at
any time, the percentage which such Lender's Tranche B Term Loan
Commitment then constitutes of the aggregate Tranche B Term Loan
Commitments (or, at any time after the Closing Date, the percentage
which the aggregate principal amount of such Lender's
<PAGE> 31
26
Tranche B Term Loans then outstanding constitutes of the aggregate
principal amount of the Tranche B Term Loans then outstanding).
"Transferee": as defined in subsection 10.15.
"Type": as to any Loan, its nature as a Base Rate Loan
or a Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No.E500, as the same may be amended from time
to time.
"Washington Acquisition": as defined in the recitals to
this Agreement.
"Washington Acquisition Agreement": as defined in the
recitals to this Agreement.
"Washington Escrow": the escrow effected under the
Washington Escrow Agreement, pursuant to which there shall be
deposited in escrow on the Closing Date, to be withdrawn on the
Washington Escrow Release Date, the purchase price payable pursuant
to the Washington Acquisition Agreement.
"Washington Escrow Agreement": an escrow agreement and
related documents, in form and substance satisfactory to the
Syndication Agent and the General Administrative Agent, which
agreement and related documents shall in any event provide that the
escrow agent thereunder is instructed (which instruction may not be
permitted by the Borrower to be changed without the written consent
of the General Administrative Agent) that in the event that funds
deposited in the Washington Escrow are to be released to the
Borrower, then, instead, $151,500,000 of such deposited funds shall
be released by the escrow agent to the trustee under the Senior
Subordinated Note Indenture as required therein and the remainder of
such deposited funds shall be released by the escrow agent to the
General Administrative Agent (for application by the General
Administrative Agent toward prepayment of the Loans as set forth in
subsection 2.10(e)).
"Washington Escrow Release Date": the date specified in
the Washington Escrow Agreement on which the funds delivered on the
Closing Date to the escrow agent under the Washington Escrow
Agreement shall be released from escrow in the manner specified
therein, which date is expected to be the date on which all relevant
actions of Governmental Authorities in respect of the Washington
Acquisition have been accomplished.
<PAGE> 32
27
"Washington Mortgaged Property": the real property
listed on Schedule 1.1B, as to which the Collateral Agent for the
benefit of the Lenders shall be granted a Lien pursuant to the
relevant Mortgage within five Business Days after the Washington
Escrow Release Date.
"Washington Seller": as defined in the recitals to this
Agreement.
"Wholly Owned Subsidiary": as to any Person, any other
Person all of the Capital Stock of which (other than directors'
qualifying shares required by law) is owned by such Person directly
and/or through other Wholly Owned Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Subsidiary
Guarantor that is a Wholly Owned Subsidiary of the Borrower.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Borrower and its Subsidiaries not defined in
subsection 1.1 and accounting terms partly defined in subsection 1.1, to the
extent not defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Term Loan Commitments. Subject to the terms and conditions
hereof:
(a) Each Tranche A Term Loan Lender severally agrees to make (i) a
term loan (an "Initial Tranche A Term Loan") to the Borrower on the Closing Date
in a principal amount not to exceed the amount of the Initial Tranche A Term
Loan Commitment of such Lender and (ii) no more than five additional term loans
("Additional Tranche A Term Loans") to the Borrower during the Additional
Tranche A Term Loan Commitment Period in an aggregate principal amount for all
Tranche A Term Loan Lenders that, taken together with the aggregate principal
amount all other Additional Tranche A Term Loans made by the Lenders during the
Additional Tranche A Term Loan Commitment Period, shall not exceed the aggregate
Additional Tranche A Term Loan Commitments of the Lenders; provided that, at the
end of the last day of the Additional Tranche A Term Loan Commitment Period, the
<PAGE> 33
28
Available Additional Tranche A Term Loan Commitment of each Lender, if any,
automatically shall be reduced to zero. Each Tranche A Term Loan made pursuant
to this subsection 2.1(a) shall be made in the manner set forth in subsection
10.18, to the extent subsection 10.18 is applicable to such Tranche A Term Loan.
(b) Each Tranche B Term Loan Lender severally agrees to make a term
loan (a "Tranche B Term Loan") to the Borrower on the Closing Date in an amount
not to exceed the amount of the Tranche B Term Loan Commitment of such Lender.
Each Tranche B Term Loan made pursuant to this subsection 2.1(b) shall be made
in the manner set forth in subsection 10.18, to the extent subsection 10.18 is
applicable to such Tranche B Term Loan.
The Term Loans may from time to time be Eurodollar Loans or Base Rate Loans, as
determined by the Borrower and notified to the General Administrative Agent in
accordance with subsections 2.2 and 2.13.
2.2 Procedure for Term Loan Borrowing. (a) The Borrower shall give
the General Administrative Agent irrevocable notice (which notice must be
received by the General Administrative Agent prior to 11:00 A.M., Chicago,
Illinois time, (i) three Business Days prior to the anticipated Closing Date, if
all or any part of the Initial Tranche A Term Loans or the Tranche B Term Loans,
as the case may be, are to be initially Eurodollar Loans, or (ii) one Business
Day prior to the anticipated Closing Date, otherwise) requesting that the
Tranche A Term Loan Lenders make the Initial Tranche A Term Loans and the
Tranche B Term Loan Lenders make the Tranche B Term Loans, in each case on the
Closing Date, and specifying (i) the amounts and Types of Initial Tranche A Term
Loans and Tranche B Term Loans, respectively, to be borrowed and (ii) in the
case of Eurodollar Loans, the respective amounts of each such Type of Loan and
the respective lengths of the initial Interest Period therefor. Upon receipt of
such notice the General Administrative Agent shall promptly notify each Tranche
A Term Loan Lender and each Tranche B Term Loan Lender thereof. Not later than
1:00 P.M., Chicago, Illinois time, on the Closing Date each Tranche A Term Loan
Lender shall make available to the General Administrative Agent at the Funding
Office an amount in immediately available funds equal to the Initial Tranche A
Term Loan to be made by such Lender and each Tranche B Term Loan Lender shall
make available to the General Administrative Agent at the Funding Office an
amount in immediately available funds equal to the Tranche B Term Loan to be
made by such Lender. The General Administrative Agent shall make available to
the Borrower the aggregate of the amounts made available to the General
Administrative Agent by the Tranche A Term Loan Lenders and the Tranche B Term
Loan Lenders in like funds as received by the General Administrative Agent.
(b) Subject to subsection 2.1(a), the Borrower may borrow under the
Additional Tranche A Term Loan Commitments during the Additional Tranche A Term
Loan Commitment Period on any Business Day, provided that the Borrower shall
give the General Administrative Agent irrevocable notice (which notice must be
received by the General Administrative Agent prior to 11:00 A.M., Chicago,
Illinois time, (a) three Business Days prior to the requested Borrowing Date, in
the case of Eurodollar Loans, or (b) one Business Day prior to the requested
Borrowing Date, in the case of Base Rate Loans), specifying (i) the amount and
Type of Additional Tranche A Term Loans to be borrowed, (ii) the requested
<PAGE> 34
29
Borrowing Date and (iii) in the case of Eurodollar Loans, the respective amounts
of each such Type of Loan and the respective lengths of the initial Interest
Period therefor. Each borrowing under the Additional Tranche A Term Loan
Commitments shall be in an amount equal to $10,000,000 or a whole multiple of
$1,000,000 in excess thereof (or, if the then aggregate Available Additional
Tranche A Term Loan Commitments are less than $10,000,000, such lesser amount).
Upon receipt of any such notice from the Borrower, the General Administrative
Agent shall promptly notify each Tranche A Term Loan Lender thereof. Each
Tranche A Term Loan Lender will make the amount of its pro rata share of each
borrowing of Additional Tranche A Term Loans available to the General
Administrative Agent for the account of the Borrower at the Funding Office prior
to 1:00 P.M., Chicago, Illinois time, on the Borrowing Date requested by the
Borrower in funds immediately available to the General Administrative Agent. The
General Administrative Agent shall make available to the Borrower the aggregate
of such amounts made available to the General Administrative Agent by the
Tranche A Term Loan Lenders in like funds as received by the General
Administrative Agent.
2.3 Repayment of Term Loans. (a) The Tranche A Term Loans of each
Tranche A Term Loan Lender shall mature in 16 consecutive quarterly
installments, commencing on September 30, 1999, each of which shall be in an
amount equal to such Lender's Tranche A Term Loan Percentage multiplied by the
amount set forth below opposite such installment (provided, that if less than
the full amount of the Tranche A Term Loan Commitments is actually drawn by the
Borrower, then the amount of each such installment shall be proportionally
reduced):
<TABLE>
<CAPTION>
Installment Principal Amount
----------- ----------------
<S> <C>
September 30, 1999 $ 5,000,000
December 31, 1999 $ 5,000,000
March 31, 2000 $ 5,000,000
June 30, 2000 $ 5,000,000
September 30, 2000 $ 6,250,000
December 31, 2000 $ 6,250,000
March 31, 2001 $ 6,250,000
June 30, 2001 $ 6,250,000
September 30, 2001 $ 6,250,000
December 31, 2001 $ 6,250,000
March 31, 2002 $ 6,250,000
June 30, 2002 $ 6,250,000
September 30, 2002 $ 7,500,000
December 31, 2002 $ 7,500,000
March 31, 2003 $ 7,500,000
June 30, 2003 $ 7,500,000.
</TABLE>
<PAGE> 35
30
(b) The Tranche B Term Loan of each Tranche B Term Loan Lender shall
mature in 22 consecutive quarterly installments, commencing on September 30,
1998, each of which shall be in an amount equal to such Lender's Tranche B Term
Loan Percentage multiplied by the amount set forth below opposite such
installment (provided, that if less than the full amount of the Tranche B Term
Loan Commitments is actually drawn by the Borrower, then the amount of each such
installment shall be proportionally reduced):
<TABLE>
<CAPTION>
Installment Principal Amount
----------- ----------------
<S> <C>
September 30, 1998 $ 250,000
December 31, 1998 $ 250,000
March 31, 1999 $ 250,000
June 30, 1999 $ 250,000
September 30, 1999 $ 250,000
December 31, 1999 $ 250,000
March 31, 2000 $ 250,000
June 30, 2000 $ 250,000
September 30, 2000 $ 250,000
December 31, 2000 $ 250,000
March 31, 2001 $ 250,000
June 30, 2001 $ 250,000
September 30, 2001 $ 250,000
December 31, 2001 $ 250,000
March 31, 2002 $ 250,000
June 30, 2002 $ 250,000
September 30, 2002 $ 250,000
December 31, 2002 $ 250,000
March 31, 2003 $ 250,000
June 30, 2003 $ 250,000
September 30, 2003 $ 250,000
December 31, 2003 $ 94,750,000.
</TABLE>
2.4 Revolving Credit Commitments. (a) Each Revolving Credit Lender
severally agrees to make revolving credit loans ("Revolving Credit Loans") to
the Borrower from time to time during the Revolving Credit Commitment Period in
an aggregate principal amount at any one time outstanding which, when added to
such Lender's Revolving Credit Percentage of the L/C Obligations then
outstanding, does not exceed the amount of such Lender's Revolving Credit
Commitment. During the Revolving Credit Commitment Period the Borrower may use
the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit
Loans in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof. The Revolving Credit Loans may from time to time be
Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified
to the General
<PAGE> 36
31
Administrative Agent in accordance with subsections 2.5 and 2.11, provided that
no Revolving Credit Loan shall be made as a Eurodollar Loan after the day that
is one month prior to the Revolving Credit Termination Date. Each Revolving
Credit Loan made pursuant to this subsection 2.4(a) shall be made in the manner
set forth in subsection 10.18, to the extent subsection 10.18 is applicable to
such Revolving Credit Loan.
(b) The Borrower shall repay all outstanding Revolving Credit Loans
on the Revolving Credit Termination Date.
2.5 Procedure for Revolving Credit Borrowing. The Borrower may
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Borrower shall give the
General Administrative Agent irrevocable notice (which notice must be received
by the General Administrative Agent prior to 12:00 Noon, Chicago, Illinois time,
(a) in the case of Eurodollar Loans, three Business Days prior to the requested
Borrowing Date, or (b) in the case of Base Rate Loans, on the requested
Borrowing Date), specifying (i) the amount and Type of Revolving Credit Loans to
be borrowed, (ii) the requested Borrowing Date and (iii) in the case of
Eurodollar Loans, the respective amounts of each such Type of Loan and the
respective lengths of the initial Interest Period therefor. Each borrowing under
the Revolving Credit Commitments shall be in an amount equal to (x) in the case
of Base Rate Loans, $1,000,000 or a whole multiple of $1,000,000 in excess
thereof (or, if the then aggregate Available Revolving Credit Commitments are
less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar
Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon
receipt of any such notice from the Borrower, the General Administrative Agent
shall promptly notify each Revolving Credit Lender thereof. Each Revolving
Credit Lender will make the amount of its pro rata share of each borrowing
available to the General Administrative Agent for the account of the Borrower at
the Funding Office prior to 3:00 P.M., Chicago, Illinois time, on the Borrowing
Date requested by the Borrower in funds immediately available to the General
Administrative Agent. The General Administrative Agent shall make available to
the Borrower the aggregate of the amounts made available to the General
Administrative Agent by the Revolving Credit Lenders in like funds as received
by the General Administrative Agent.
2.6 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay to the General Administrative Agent for the
account of the appropriate Revolving Credit Lender or Term Loan Lender, as the
case may be, (i) the then unpaid principal amount of each Revolving Credit Loan
of such Revolving Credit Lender on the Revolving Credit Termination Date (or
such earlier date on which the Loans become due and payable pursuant to Section
8) and (ii) the principal amount of each Term Loan of such Term Loan Lender in
installments according to the amortization schedules set forth in subsection 2.3
(or on such earlier date on which the Loans become due and payable pursuant to
Section 8). The Borrower hereby further agrees to pay interest on the unpaid
principal amount of the Loans from time to time outstanding from the date hereof
until payment in full thereof at the rates per annum, and on the dates, set
forth in subsection 2.13.
<PAGE> 37
32
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The General Administrative Agent, on behalf of the Borrower,
shall maintain the Register pursuant to subsection 10.6(e), and a subaccount
therein for each Lender, in which shall be recorded (i) the amount of each Loan
made hereunder and any Note evidencing such Loan, the Type thereof and each
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder and (iii) both the amount of any sum received by the General
Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to subsection 2.6(b) shall, to the extent permitted by
applicable law, be prima facie evidence (in the absence of manifest error) of
the existence and amounts of the obligations of the Borrower therein recorded;
provided, however, that the failure of any Lender or the General Administrative
Agent to maintain the Register or any such account, or any error therein, shall
not in any manner affect the obligation of the Borrower to repay (with
applicable interest) the Loans made to such Borrower by such Lender in
accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the General
Administrative Agent by any Lender, the Borrower will execute and deliver to
such Lender a promissory note of the Borrower evidencing any Term Loans or
Revolving Credit Loans, as the case may be, of such Lender, substantially in the
forms of Exhibit G-1 or G-2, respectively, with appropriate insertions as to
date and principal amount.
2.7 Commitment Fees, etc. (a) The Borrower agrees to pay to the
General Administrative Agent for the account of each Revolving Credit Lender a
commitment fee for the period from and including the Closing Date to the last
day of the Revolving Credit Commitment Period, computed at the Commitment Fee
Rate on the average daily amount of the Available Revolving Credit Commitment of
such Lender during the period for which payment is made, payable quarterly in
arrears on the last day of each March, June, September and December and on the
Revolving Credit Termination Date, commencing on the first of such dates to
occur after the date hereof.
(b) The Borrower agrees to pay to the General Administrative Agent
for the account of each Term Loan Lender a commitment fee for the period from
and including the Closing Date to the last day of the Additional Tranche A Term
Loan Commitment Period, computed at the Commitment Fee Rate on the average daily
amount of the undrawn Term Loan Commitments of such Lender during the period for
which payment is made, payable quarterly in arrears on the last day of each
March, June, September and December and on the last day of the Additional
Tranche A Term Loan Commitment Period, commencing on the first of such dates to
occur after the date hereof.
<PAGE> 38
33
(c) The Borrower agrees to pay to the Syndication Agent the fees in
the amounts and on the dates previously agreed to in writing by the Borrower and
the Syndication Agent.
(d) The Borrower agrees to pay to the General Administrative Agent
the fees in the amounts and on the dates from time to time agreed to in writing
by the Borrower and the General Administrative Agent.
2.8 Termination or Reduction of Commitments. The Borrower shall have
the right, upon not less than three Business Days' notice to the General
Administrative Agent, to terminate any of the Commitments or, from time to time,
to reduce the amount of any of the Commitments; provided that no such
termination or reduction of Revolving Credit Commitments shall be permitted if,
after giving effect thereto and to any prepayments of the Revolving Credit Loans
made on the effective date thereof, the Total Revolving Extensions of Credit
would exceed the Total Revolving Credit Commitments. Any such reduction shall be
in an amount equal to $1,000,000, or a whole multiple thereof (or, if the then
aggregate Commitments are less than $1,000,000, such lesser amount), and shall
reduce permanently the relevant Commitments then in effect.
2.9 Optional Prepayments. The Borrower may at any time and from time
to time prepay the Loans, in whole or in part, without premium or penalty, upon
irrevocable notice delivered to the General Administrative Agent at least three
Business Days prior thereto in the case of Eurodollar Loans and prior to 11:00
A.M., Chicago, Illinois time, on the date of such prepayment in the case of Base
Rate Loans, which notice shall specify the date and amount of prepayment and
whether the prepayment is of Eurodollar Loans or Base Rate Loans; provided, that
if a Eurodollar Loan is prepaid on any day other than the last day of the
Interest Period applicable thereto, the Borrower shall also pay any amounts
owing pursuant to subsection 2.19. Upon receipt of any such notice the General
Administrative Agent shall promptly notify each relevant Lender thereof. If any
such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with (except in the case of
Revolving Credit Loans which are Base Rate Loans) accrued interest to such date
on the amount prepaid. Partial prepayments of Term Loans and Revolving Credit
Loans shall be in an aggregate principal amount of $1,000,000 or a whole
multiple thereof.
2.10 Mandatory and Special Prepayments and Commitment Reductions.
(a) Unless the Required Prepayment Lenders shall otherwise agree, if any
Indebtedness shall be incurred by the Borrower or any of its Subsidiaries
(excluding Indebtedness permitted by subsection 7.2 as in effect on the date
hereof), an amount equal to 100% of the Net Cash Proceeds thereof shall be
applied on the date of receipt of such Net Cash Proceeds by the Borrower or such
Subsidiary, as the case may be, toward the prepayment of the Term Loans and the
reduction of the Term Loan Commitments as set forth in subsection 2.10(d).
(b) Unless the Required Prepayment Lenders shall otherwise agree, if
on any date the Borrower or any of its Subsidiaries shall receive Net Cash
Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment
Notice shall be delivered in respect thereof, such Net Cash Proceeds shall be
applied as promptly as practicable but in any event
<PAGE> 39
34
not later than five Business Days after such date toward the prepayment of the
Term Loans as set forth in subsection 2.10(d); provided that on each
Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment
Amount with respect to the relevant Reinvestment Event shall be applied toward
the prepayment of the Term Loans as set forth in subsection 2.10(d).
(c) Unless the Required Prepayment Lenders shall otherwise agree, if
in any fiscal year of the Borrower (commencing with the fiscal year ending
December 31, 1998), there shall be Excess Cash Flow, then the Borrower shall, on
the relevant Excess Cash Flow Application Date, apply (i) if the Consolidated
Leverage Ratio on the last day of such fiscal year is greater than or equal to
2.5:1.0, then 50% of such Excess Cash Flow, and (ii) if the Consolidated
Leverage Ratio on the last day of such fiscal year is less than 2.5:1.0, then
25% of such Excess Cash Flow, in either case toward the prepayment of the Term
Loans as set forth in subsection 2.10(d). Each such prepayment shall be made on
a date (an "Excess Cash Flow Application Date") no later than five days after
the earlier of (i) the date on which the financial statements of the Borrower
referred to in subsection 6.1(a), for the fiscal year with respect to which such
prepayment is made, are required to be delivered to the Lenders and (ii) the
date such financial statements are actually delivered.
(d) Amounts to be applied in connection with prepayments and
Commitment reductions made pursuant to paragraphs (a), (b) and (c) of this
subsection 2.10 shall be applied, subject to subsection 2.16(d), first, to the
prepayment of the Term Loans ratably and to the installments thereof ratably in
accordance with the then outstanding amounts thereof and, second, to reduce
permanently the Term Loan Commitments. The application of any such prepayment
pursuant to this subsection 2.10 shall be made first to Base Rate Loans and
second to Eurodollar Loans. Each such prepayment shall be accompanied by accrued
interest to the date of such prepayment on the amount prepaid.
(e) Unless the Required Prepayment Lenders shall otherwise agree,
if, pursuant to the Washington Escrow Agreement, the escrow agent thereunder
releases any funds deposited in the Washington Escrow to the General
Administrative Agent, then (i) such funds shall be applied, first, to the
prepayment of the Tranche B Term Loans ratably and to the installments thereof
ratably in accordance with the then outstanding amounts thereof and, second, to
the prepayment of the Tranche A Term Loans ratably and to the installments
thereof ratably in accordance with the then outstanding amounts thereof, and
(ii) simultaneously with such prepayments, (x) the Total Revolving Credit
Commitments and the L/C Commitment in each case shall be permanently reduced by
$50,000,000 and (y) the aggregate undrawn Additional Tranche A Term Loan
Commitments shall be permanently reduced by an amount equal to the aggregate
outstanding principal amount of the Tranche A Term Loans after giving effect to
the prepayments made pursuant to the foregoing clause (i). The application of
any such prepayments pursuant to this subsection 2.10(e) shall be made first to
Base Rate Loans and second to Eurodollar Loans. Each such prepayment shall be
accompanied by accrued interest to the date of such prepayment on the amount
prepaid.
2.11 Conversion and Continuation Options. (a) The Borrower may elect
from time to time to convert Eurodollar Loans to Base Rate Loans by giving the
General
<PAGE> 40
35
Administrative Agent not later than 11:00 A.M., Chicago, Illinois time, at least
one Business Day's prior irrevocable notice of such election, provided that any
such conversion of Eurodollar Loans may only be made on the last day of an
Interest Period with respect thereto. The Borrower may elect from time to time
to convert Base Rate Loans to Eurodollar Loans by giving the General
Administrative Agent not later than 11:00 A.M., Chicago, Illinois time, at least
three Business Days' prior irrevocable notice of such election (which notice
shall specify the length of the initial Interest Period therefor), provided that
no Base Rate Loan under a particular Facility may be converted into a Eurodollar
Loan (i) when any Event of Default has occurred and is continuing and the
General Administrative Agent or the Majority Facility Lenders in respect of such
Facility have determined in its or their sole discretion not to permit such
conversions or (ii) after the date that is one month prior to the final
scheduled termination or maturity date of such Facility. Upon receipt of any
such notice, the General Administrative Agent shall promptly notify each
relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the General Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in subsection 1.1,
of the length of the next Interest Period to be applicable to such Loans,
provided that no Eurodollar Loan under a particular Facility may be continued as
such (i) when any Event of Default has occurred and is continuing and the
General Administrative Agent has or the Majority Facility Lenders in respect of
such Facility have determined in its or their sole discretion not to permit such
continuations or (ii) after the date that is one month prior to the final
scheduled termination or maturity date of such Facility, and provided, further,
that if the Borrower shall fail to give any required notice as described above
in this paragraph or if such continuation is not permitted pursuant to the
preceding proviso such Loans shall be automatically converted to Base Rate Loans
on the last day of such then expiring Interest Period. Upon receipt of any such
notice, the General Administrative Agent shall promptly notify each relevant
Lender thereof.
2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches.
Notwithstanding anything to the contrary in this Agreement, all borrowings,
conversions, continuations and optional prepayments of Eurodollar Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, (a) after giving effect
thereto, the aggregate principal amount of the Eurodollar Loans comprising each
Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of
$1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall
be outstanding at any one time.
2.13 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per annum
equal to the Base Rate plus the Applicable Margin.
<PAGE> 41
36
(c) (i) If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate per annum which is equal to (x) in the case of the Loans, the rate
that would otherwise be applicable thereto pursuant to the foregoing provisions
of this subsection 2.13 plus 2% or (y) in the case of Reimbursement Obligations,
the rate applicable to Base Rate Loans under the Revolving Credit Facility plus
2%, and (ii) if all or a portion of any interest payable on any Loan or
Reimbursement Obligation or any commitment fee or other amount payable hereunder
shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest at a rate per annum equal to
the rate then applicable to Base Rate Loans under the relevant Facility plus 2%
(or, in the case of any such other amounts that do not relate to a particular
Facility, the rate then applicable to Base Rate Loans under the Revolving Credit
Facility plus 2%), in each case, with respect to clauses (i) and (ii) above,
from the date of such non-payment until such amount is paid in full (as well
after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this
subsection 2.13 shall be payable from time to time on demand.
2.14 Computation of Interest and Fees. (a) Interest, fees and
commissions payable pursuant hereto shall be calculated on the basis of a
360-day year for the actual days elapsed, except that, with respect to Base Rate
Loans the rate of interest on which is calculated on the basis of the Prime
Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-,
as the case may be) day year for the actual days elapsed. The General
Administrative Agent shall as soon as practicable notify the Borrower and the
relevant Lenders of each determination of a Eurodollar Rate. Any change in the
interest rate on a Loan resulting from a change in the Base Rate or the
Eurocurrency Reserve Requirements shall become effective as of the opening of
business on the day on which such change becomes effective. The General
Administrative Agent shall as soon as practicable notify the Borrower and the
relevant Lenders of the effective date and the amount of each such change in
interest rate.
(b) Each determination of an interest rate by the General
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error. The General Administrative Agent shall, at the request of the
Borrower, deliver to the Borrower a statement showing the quotations used by the
General Administrative Agent in determining any interest rate pursuant to
subsection 2.13(a).
2.15 Inability to Determine Interest Rate. If prior to the first day
of any Interest Period:
(a) the General Administrative Agent shall have determined in good
faith (which determination shall be conclusive and binding upon the
Borrower) that, by
<PAGE> 42
37
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period, or
(b) the General Administrative Agent shall have received notice from
the Majority Facility Lenders in respect of the relevant Facility that the
Eurodollar Rate determined or to be determined for such Interest Period
will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the General Administrative Agent shall give telecopy or telephonic notice
thereof to the Borrower and the relevant Lenders as soon as practicable
thereafter. If such notice is given (x) any Eurodollar Loans under the relevant
Facility requested to be made on the first day of such Interest Period shall be
made as Base Rate Loans, (y) any Loans under the relevant Facility that were to
have been converted on the first day of such Interest Period to Eurodollar Loans
shall be continued as Base Rate Loans and (z) any outstanding Eurodollar Loans
under the relevant Facility shall be converted, on the last day of the Interest
Period then in effect with respect to such Eurodollar Loans, to Base Rate Loans.
Until such notice has been withdrawn by the General Administrative Agent, no
further Eurodollar Loans under the relevant Facility shall be made or continued
as such, nor shall the Borrower have the right to convert Loans under the
relevant Facility to Eurodollar Loans.
2.16 Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower
from the Lenders hereunder, each payment by the Borrower on account of any
commitment fee and any reduction of the Commitments of the Lenders shall be made
pro rata according to the respective Tranche A Term Loan Percentages, Tranche B
Term Loan Percentages or Revolving Credit Percentages, as the case may be, of
the relevant Lenders. Each payment (other than prepayments) in respect of
principal or interest in respect of the Loans, each payment in respect of fees
payable hereunder, and each payment in respect of Reimbursement Obligations,
shall be allocated among the Facilities in respect of which such amounts are
owing pro rata according to the amounts then due and owing under the respective
Facilities.
(b) Except as otherwise provided in subsection 2.16(d), each payment
(including each prepayment) by the Borrower on account of principal of and
interest on the Term Loans shall be made pro rata according to the respective
outstanding principal amounts of the Term Loans then held by the Term Loan
Lenders, and the amount of each principal prepayment of the Term Loans shall be
applied to reduce the then remaining installments of the Tranche EA Term Loans
and the Tranche EB Term Loans, as the case may be, pro rata based upon the then
remaining principal amount thereof. Amounts prepaid on account of the Term Loans
may not be reborrowed.
(c) Each payment (including each prepayment) by the Borrower on account of
principal of and interest on the Revolving Credit Loans shall be made pro rata
according to the respective outstanding principal amounts of the Revolving
Credit Loans then held by the Revolving Credit Lenders.
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(d) Notwithstanding anything to the contrary in subsections 2.10(a), (b),
(c) or (d) or subsection 2.16, so long as any Tranche A Term Loans are
outstanding, each Tranche B Term Loan Lender may, at its option, decline all or
any portion of any optional prepayment or mandatory prepayment applicable to the
Tranche B Term Loans of such Lender (other than any mandatory prepayment made
pursuant to subsection 2.10(e)); accordingly, with respect to the amount of any
such optional prepayment or mandatory prepayment that is allocated to Tranche B
Term Loans (such amounts, the "Tranche B Prepayment Amount"), at any time when
Tranche A Term Loans remain outstanding, the Borrower will, (i) in the case of
any optional prepayment which the Borrower wishes to make, not later than 10
days prior to the date on which the Borrower wishes to make such optional
prepayment, and (ii) in the case of any such mandatory prepayment required to be
made pursuant to subsection 2.10, in lieu of applying such amount to the
prepayment of Tranche B Term Loans on the date specified in subsection 2.10 for
such prepayment, give the General Administrative Agent telephonic notice
(promptly confirmed in writing) requesting that the General Administrative Agent
prepare and provide to each Tranche B Term Loan Lender a notice (each, a
"Prepayment Option Notice") as described below. As promptly as practicable after
receiving such notice from the Borrower, the General Administrative Agent will
send to each Tranche B Term Loan Lender a Prepayment Option Notice, which shall
be in the form of Exhibit H, and shall include an offer by the Borrower to
prepay on the date (each a "Prepayment Date") that is 5 days after the date of
the Prepayment Option Notice, the Tranche B Term Loans of such Lender by an
amount equal to the portion of the Prepayment Amount indicated in such Lender's
Prepayment Option Notice as being applicable to such Lender's Tranche B Term
Loans. On the Prepayment Date, (i) the Borrower shall pay to the General
Administrative Agent the aggregate amount necessary to prepay that portion of
the outstanding Tranche B Term Loans in respect of which Tranche B Term Loan
Lenders have not declined to accept prepayment as described above (such Lenders,
the "Accepting Lenders"), and such amount shall be applied to reduce the Tranche
B Repayment Amounts with respect to each Accepting Lender and (ii) the Borrower
shall pay to the General Administrative Agent an amount equal to the portion of
the Tranche B Prepayment Amount not accepted by the Accepting Lenders, and such
amount shall be applied to the prepayment of the Tranche A Term Loans.
(e) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
Chicago, Illinois time, on the due date thereof to the General Administrative
Agent, for the account of the Lenders, at the Payment Office, in Dollars and in
immediately available funds. The General Administrative Agent shall distribute
such payments to the Lenders promptly upon receipt in like funds as received. If
any payment hereunder (other than payments on the Eurodollar Loans) becomes due
and payable on a day other than a Business Day, such payment shall be extended
to the next succeeding Business Day. If any payment on a Eurodollar Loan becomes
due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Business Day. In
the case of any extension of any payment of principal pursuant to the preceding
two sentences, interest thereon shall be payable at the then applicable rate
during such extension.
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(f) Unless the General Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
General Administrative Agent, the General Administrative Agent may assume that
such Lender is making such amount available to the General Administrative Agent,
and the General Administrative Agent may, in reliance upon such assumption, make
available to the Borrower a corresponding amount. If such amount is not made
available to the General Administrative Agent by the required time on the
Borrowing Date therefor, such Lender shall pay to the General Administrative
Agent, on demand, such amount with interest thereon at a rate equal to the daily
average Federal Funds Effective Rate for the period until such Lender makes such
amount immediately available to the General Administrative Agent. A certificate
of the General Administrative Agent submitted to any Lender with respect to any
amounts owing under this paragraph shall be conclusive in the absence of
manifest error. If such Lender's share of such borrowing is not made available
to the General Administrative Agent by such Lender within three Business Days of
such Borrowing Date, the General Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum equal to the
interest rate applicable for such period to such borrowing, on demand, from the
Borrower.
(g) Unless the General Administrative Agent shall have been notified in
writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the General Administrative
Agent, the General Administrative Agent may assume that the Borrower is making
such payment, and the General Administrative Agent may, but shall not be
required to, in reliance upon such assumption, make available to the Lenders
their respective pro rata shares of a corresponding amount. If such payment is
not made to the General Administrative Agent by the Borrower within three
Business Days of such required date, the General Administrative Agent shall be
entitled to recover, on demand, from each Lender to which any amount which was
made available pursuant to the preceding sentence, such amount with interest
thereon at the rate per annum equal to the daily average Federal Funds Effective
Rate. Nothing herein shall be deemed to limit the rights of the General
Administrative Agent or any Lender against the Borrower.
2.17 Requirements of Law. (a) If the adoption of or any change in any
Requirement of Law (exclusive of any organizational or governance document of
any Lender or Agent) or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Letter of Credit, any Application or any
Eurodollar Loan made by it, or change the basis of taxation of payments to
such Lender in respect thereof (except for Non-Excluded Taxes covered by
subsection 2.18 and changes in the rate of tax on the overall net income
of such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other
<PAGE> 45
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liabilities in or for the account of, advances, loans or other extensions
of credit by, or any other acquisition of funds by, any office of such
Lender which is not otherwise included in the determination of the
Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition; and the
result of any of the foregoing is to increase the cost to such Lender, by
an amount which such Lender deems to be material, of making, converting
into, continuing or maintaining Eurodollar Loans or issuing or
participating in Letters of Credit, or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall
promptly pay such Lender, upon its demand, any additional amounts
necessary to compensate such Lender for such increased cost or reduced
amount receivable. If any Lender becomes entitled to claim any additional
amounts pursuant to this subsection 2.17, it shall promptly notify the
Borrower (with a copy to the General Administrative Agent) of the event by
reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law (exclusive of any organizational or governance
document of any Lender or Agent) regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the General
Administrative Agent) of a written request therefor, the Borrower shall pay to
such Lender such additional amount or amounts as will compensate such Lender for
such reduction.
(c) A certificate as to any additional amounts payable pursuant to
this subsection 2.17 submitted by any Lender to the Borrower (with a copy to the
General Administrative Agent) shall be conclusive in the absence of manifest
error. The obligations of the Borrower pursuant to this subsection 2.17 shall
survive the termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder.
2.18 Taxes. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on any Agent or any Lender as a result of a present or
former connection between such Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
such Agent or such Lender having executed, delivered or performed its
obligations or received a payment under,
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41
or enforced, this Agreement or any other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld
from any amounts payable to any Agent or any Lender hereunder, the amounts so
payable to such Agent or such Lender shall be increased to the extent necessary
to yield to such Agent or such Lender (after payment of all Non-Excluded Taxes
and Other Taxes) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in this Agreement, provided, however, that the
Borrower shall not be required to increase any such amounts payable to any
Lender with respect to any Non-Excluded Taxes (i) that are attributable to such
Lender's failure to comply with the requirements of paragraph (d) or (e) of this
subsection 2.18 or (ii) that are United States withholding taxes imposed on
amounts payable to such Lender at the time the Lender becomes a party to this
Agreement, except to the extent that such Lender's assignor (if any) was
entitled, at the time of assignment, to receive additional amounts from the
Borrower with respect to such Non-Excluded Taxes pursuant to this subsection
2.18(a).
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by
the Borrower, as promptly as possible thereafter the Borrower shall send to the
General Administrative Agent for the account of the relevant Agent or Lender, as
the case may be, a certified copy of an original official receipt received by
the Borrower showing payment thereof or other evidence of payment thereof
satisfactory to the General Administrative Agent. If the Borrower fails to pay
any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing
authority or fails to remit to the Agents the required receipts or other
required documentary evidence, the Borrower shall indemnify the General
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by any Agent or any Lender as a result of any
such failure. The agreements in this subsection 2.18 shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
(d) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
deliver to the Borrower and the General Administrative Agent (or, in the case of
a Participant, to the Lender from which the related participation shall have
been purchased) two copies of either U.S. Internal Revenue Service Form 1001 or
Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S.
federal withholding tax under Section 871(h) or 881(c) of the Code with respect
to payments of "portfolio interest" a statement substantially in the form of
Exhibit I and a Form W-8, or any subsequent versions thereof or successors
thereto properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Borrower under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases
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the related participation). In addition, each Non-U.S. Lender shall deliver such
forms promptly upon the obsolescence or invalidity of any form previously
delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify
the Borrower at any time it determines that it is no longer in a position to
provide any previously delivered certificate to the Borrower (or any other form
of certification adopted by the U.S. taxing authorities for such purpose).
Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall
not be required to deliver any form pursuant to this paragraph that such
Non-U.S. Lender is not legally able to deliver.
(e) A Lender that is entitled to an exemption from or reduction of
non-U.S. withholding tax under the law of the jurisdiction in which the Borrower
is located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
General Administrative Agent), at the time or times prescribed by applicable law
or reasonably requested by the Borrower, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be
made without withholding or at a reduced rate, provided that such Lender is
legally entitled to complete, execute and deliver such documentation and in such
Lender's reasonable judgment such completion, execution or submission would not
materially prejudice the legal position of such Lender.
2.19 Indemnity. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank eurodollar
market. A certificate as to any amounts payable pursuant to this subsection 2.19
submitted to the Borrower by any Lender shall be conclusive in the absence of
manifest error. This covenant shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
2.20 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law (exclusive of any
organizational or governance document of any Lender or Agent) or in the
interpretation or application thereof shall make it unlawful for any Lender to
make or maintain Eurodollar Loans as contemplated by this
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Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans,
continue Eurodollar Loans as such and convert Base Rate Loans to Eurodollar
Loans shall forthwith be cancelled and (b) such Lender's Loans then outstanding
as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans
on the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to subsection
2.19.
2.21 Change of Lending Office. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of subsection 2.17, 2.18(a)
or 2.20 with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided, that such
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this subsection 2.21 shall
affect or postpone any of the obligations of any Borrower or the rights of any
Lender pursuant to subsection 2.17, 2.18(a) or 2.19.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Pursuant to the Existing Credit Agreement,
Paribas, as issuing bank thereunder, has issued the Letters of Credit described
in Schedule 3.1 (the "Existing Letters of Credit"). From and after the Closing
Date, the Existing Letters of Credit shall constitute "Letters of Credit"
hereunder issued by Paribas, in its capacity as an Issuing Bank. Subject to the
terms and conditions hereof, each Issuing Bank, in reliance on the agreements of
the other Revolving Credit Lenders set forth in subsection 3.4(a), agrees to
issue letters of credit (together with the Existing Letters of Credit, the
"Letters of Credit") for the account of the Borrower on any Business Day during
the Revolving Credit Commitment Period in such form as may be approved from time
to time by such Issuing Bank; provided that such Issuing Bank shall have no
obligation to issue any Letter of Credit if, after giving effect to such
issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the
aggregate amount of the Available Revolving Credit Commitments would be less
than zero. Each Letter of Credit shall (i) be denominated in Dollars and (ii)
expire no later than the earlier of (x) the first anniversary of its date of
issuance and (y) the date which is five Business Days prior to the Revolving
Credit Termination Date (unless, in the case of this clause (y), the Borrower
fully cash collateralizes such Letter of Credit in a manner satisfactory to such
Issuing Bank and the General Administrative Agent, in which case the expiration
date of such Letter of Credit shall be no later than 364 days after the
Revolving Credit Termination Date, except that any South American Letter of
Credit so cash collateralized may have an expiry date of up to two years from
the date of issuance thereof), provided that any Letter of Credit with a
one-year term may provide for the renewal thereof for additional one-year
periods (which shall in no event extend beyond the applicable date referred to
in clause (y) above).
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(b) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of (i) in the case of a
Letter of Credit issued by Paribas, the State of Texas, (ii) in the case of a
Letter of Credit issued by The First National Bank of Chicago, the State of
Illinois and (iii) in the case of a Letter of Credit issued by First Union
National Bank, the State of New York.
(c) No Issuing Bank shall at any time be obligated to issue any
Letter of Credit hereunder if such issuance would violate or cause violation by
such Issuing Bank or any L/C Participant of any limits imposed by any applicable
Requirement of Law (exclusive of any organizational or governance document of
any Lender or Agent) imposed after the Closing Date.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may
from time to time request that an Issuing Bank issue a Letter of Credit by
delivering to such Issuing Bank at its address for notices specified herein an
Application therefor, completed to the satisfaction of such Issuing Bank, and
such other certificates, documents and other papers and information as such
Issuing Bank may request. Upon receipt of any Application, the relevant Issuing
Bank will process such Application and the certificates, documents and other
papers and information delivered to it in connection therewith in accordance
with its customary procedures and shall promptly issue the Letter of Credit
requested thereby (but in no event shall such Issuing Bank be required to issue
any Letter of Credit earlier than one Business Day after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by such
Issuing Bank and the Borrower. The relevant Issuing Bank shall furnish a copy of
such Letter of Credit to the Borrower promptly following the issuance thereof.
The relevant Issuing Bank shall promptly furnish to the General Administrative
Agent, which shall in turn promptly furnish to the Lenders, notice of the
issuance of each Letter of Credit (including the amount thereof).
3.3 Fees and Other Charges. (a) The Borrower will pay a fee on all
outstanding Letters of Credit at a per annum rate equal to the Applicable Margin
then in effect with respect to Eurodollar Loans under the Revolving Credit
Facility minus the fronting fee referred to below, shared ratably among the
Revolving Credit Lenders and payable quarterly in arrears on each L/C Fee
Payment Date after the issuance date. In addition, the Borrower shall pay to the
relevant Issuing Bank for its own account with respect to each Letter of Credit
a fronting fee calculated at a rate per annum equal to 0.125% on the face amount
thereof (provided that in no event shall the fronting fee for any Letter of
Credit be less than $300), payable quarterly in arrears on each L/C Fee Payment
Date after the Issuance Date.
(b) In addition to the foregoing fees, the Borrower shall pay or
reimburse the relevant Issuing Bank for its own account for such normal and
customary costs and expenses as are incurred or charged by such Issuing Bank in
negotiating, effecting payment under, amending or otherwise administering any
Letter of Credit.
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3.4 L/C Participations. (a) Effective on the Closing Date (with
respect to the Existing Letters of Credit), and effective on the date of
issuance thereof (with respect to Letters of Credit issued after the Closing
Date), the relevant Issuing Bank irrevocably agrees to grant and hereby grants
to each L/C Participant, and, to induce such Issuing Bank to issue Letters of
Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase
and hereby accepts and purchases from such Issuing Bank, on the terms and
conditions hereinafter stated, for such L/C Participant's own account and risk
an undivided interest equal to such L/C Participant's Revolving Credit
Percentage in such Issuing Bank's obligations and rights under the Letters of
Credit issued by such Issuing Bank hereunder and the amount of each draft paid
by the relevant Issuing Bank thereunder in accordance with the terms of this
Agreement. Notwithstanding the provisions contained in the next to last sentence
of subsection 3.5, each L/C Participant unconditionally and irrevocably agrees
with each Issuing Bank that, if a draft is paid under any Letter of Credit for
which the relevant Issuing Bank is not reimbursed in full by the Borrower for
all Reimbursement Obligations in accordance with the terms of this Agreement,
such L/C Participant shall pay to such Issuing Bank upon demand at such Issuing
Bank's address for notices specified herein an amount equal to such L/C
Participant's Revolving Credit Percentage of the amount of such draft, or any
part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant to an
Issuing Bank pursuant to subsection 3.4(a) in respect of any unreimbursed
portion of any payment made by such Issuing Bank under any Letter of Credit is
paid to such Issuing Bank within three Business Days after the date such payment
is due, such L/C Participant shall pay to such Issuing Bank on demand an amount
equal to the product of (i) such amount, times (ii) the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to such
Issuing Bank, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to subsection
3.4(a) is not made available to the relevant Issuing Bank by such L/C
Participant within three Business Days after the date such payment is due, such
Issuing Bank shall be entitled to recover from such L/C Participant, on demand,
such amount with interest thereon calculated from such due date at the rate per
annum applicable to Base Rate Loans under the Revolving Credit Facility. A
certificate of the relevant Issuing Bank submitted to any L/C Participant with
respect to any amounts owing under this subsection 3.4(b) shall be conclusive in
the absence of manifest error.
(c) Whenever, at any time after an Issuing Bank has made payment
under any Letter of Credit and has received from any L/C Participant its pro
rata share of such payment in accordance with subsection 3.4(a), such Issuing
Bank receives any payment related to such Letter of Credit (whether directly
from the Borrower or otherwise, including proceeds of collateral applied thereto
by such Issuing Bank), or any payment of interest on account thereof, such
Issuing Bank will distribute to such L/C Participant its pro rata share thereof;
provided, however, that in the event that any such payment received by such
Issuing Bank shall be required to be returned by such Issuing Bank, such L/C
Participant shall immediately return to such Issuing Bank the portion thereof
previously distributed by such Issuing Bank to it.
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3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to
reimburse the relevant Issuing Bank on each date on which such Issuing Bank
notifies the Borrower of the date and amount of a draft presented under any
unexpired Letter of Credit and paid by such Issuing Bank for the amount of (a)
such draft so paid and (b) any costs or expenses provided for in subsection
3.3(b) which are incurred by such Issuing Bank in connection with such payment.
Each such payment shall be made to such Issuing Bank at its address for notices
specified herein in lawful money of the United States of America and in
immediately available funds. Interest shall be payable on any and all amounts
remaining unpaid by the Borrower under this subsection 3.5 from the date such
amounts become payable (whether at stated maturity, by acceleration or
otherwise) until payment in full at the rate set forth in (i) until the second
Business Day following the date of the applicable drawing, subsection 2.13(b)
and (ii) thereafter, subsection 2.13(c). Each drawing under any Letter of Credit
shall (unless an event of the type described in clause (i) or (ii) of subsection
8(f) shall have occurred and be continuing with respect to the Borrower, in
which case the procedures specified in subsection 3.4 for funding by L/C
Participants shall apply) constitute a request by the Borrower to the General
Administrative Agent for a borrowing pursuant to subsection 2.5 of Base Rate
Loans in the amount of such drawing plus interest and expenses incurred by the
Issuing Bank. The Borrowing Date with respect to such borrowing shall be the
date of such drawing and all proceeds of such borrowing shall be paid to the
relevant Issuing Bank.
3.6 Obligations Absolute. The Borrower's obligations under this
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment which the
Borrower may have or have had against the relevant Issuing Bank, any beneficiary
of a Letter of Credit or any other Person; provided, that in honoring each
Letter of Credit, the relevant Issuing Bank has acted in good faith and has
examined such Letter of Credit and the accompanying document or documents, as
the case may be, with such care as to ascertain that on their face they appear
to comply with the terms of such Letter of Credit. The Borrower also agrees with
each Issuing Bank, subject to the proviso contained in the preceding sentence,
that such Issuing Bank shall not be responsible for, and the Borrower's
Reimbursement Obligations under subsection 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee. No Issuing Bank
shall be liable for (i) any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
such Issuing Bank, (ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any such Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason, (iii) failure
of the beneficiary of any such Letter of Credit to comply fully with conditions
required in order to draw upon such Letter of Credit, which failure is not the
result of gross negligence or willful misconduct of such
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47
Issuing Bank as determined by a final and nonappealable decision of a court of
competent jurisdiction, (iv) the misapplication by the beneficiary of any such
Letter of Credit of the proceeds of any drawing thereunder and (v) any
consequences arising from causes beyond the control of such Issuing Bank,
including, without limitation, the actions of any Governmental Authority. The
Borrower agrees that any action taken or omitted by any Issuing Bank under or in
connection with any Letter of Credit or the related drafts or documents, if done
in the absence of gross negligence or willful misconduct and in accordance with
the standards or care specified in the Uniform Commercial Code of the State of
New York, shall be binding on the Borrower and shall not result in any liability
of such Issuing Bank to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for
payment under any Letter of Credit, the relevant Issuing Bank shall promptly
notify the Borrower of the date and amount thereof. The responsibility of the
relevant Issuing Bank to the Borrower in connection with any draft presented for
payment under any Letter of Credit shall, in addition to any payment obligation
expressly provided for in such Letter of Credit, be limited to determining that
the documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit and appear on their face to comply with such Letter of Credit.
3.8 Applications. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
3.9 Indemnification of Issuing Banks. To the extent the relevant
Issuing Bank is not reimbursed and indemnified by the Borrower, each Lender will
reimburse and indemnify such Issuing Bank in proportion to its Revolving Credit
Percentage, for and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses (including
counsel fees and disbursements) or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against such Issuing
Bank in performing its duties hereunder, in any way relating to or arising out
of this Agreement and by reason of the ordinary negligence of such Issuing Bank;
provided that no Lender shall be liable to such Issuing Bank for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from such Issuing Bank's gross
negligence or willful misconduct. The provisions of this subsection 3.9 shall
survive any termination of this Agreement and the payment of the Obligations and
shall continue thereafter in full force and effect.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this Agreement
and to make the Loans and issue or participate in the Letters of Credit, the
Borrower hereby represents and warrants to each Agent and each Lender that:
4.1 Financial Condition. (a) The unaudited pro forma consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at March 31,
1998 (including the notes thereto) (the "Pro Forma Balance Sheet"), copies of
which have heretofore been
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48
furnished to each Lender, has been prepared giving effect (as if such events had
occurred on such date) to (i) the consummation of the Acquisitions, (ii) the
Loans to be made hereunder and the use of proceeds thereof, (iii) the issuance
of the Capital Markets Instruments and the use of proceeds thereof and (iv) the
payment of fees and expenses in connection with the foregoing. The Pro Forma
Balance Sheet has been prepared based on the best information available to the
Borrower as of the date of delivery thereof, and presents fairly on a pro forma
basis the estimated financial position of the Borrower and its consolidated
Subsidiaries as at March 31, 1998, assuming that the events specified in the
preceding sentence had actually occurred at such date.
(b) The audited consolidated balance sheets of the Borrower and its
consolidated Subsidiaries as at December 31, 1997 and December 31, 1996, and the
related statements of consolidated income and cash flows for the fiscal years
ended on such dates, reported on by and accompanied by an unqualified report
from Deloitte & Touche LLP, present fairly the consolidated financial condition
of the Borrower and its consolidated Subsidiaries as at such dates, and the
consolidated results of its operations and its consolidated cash flows for the
respective fiscal years then ended. The unaudited consolidated balance sheet of
the Borrower and its consolidated Subsidiaries as at March 31, 1998, and the
related unaudited statements of consolidated income and cash flows for the
three-month period ended on such date, present fairly the consolidated financial
condition of the Borrower and its consolidated Subsidiaries as at such date, and
the consolidated results of its operations and its consolidated cash flows for
the three-month period then ended (subject to normal year-end audit
adjustments). All such financial statements, including the related notes
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by the aforementioned firm
of accountants and disclosed therein). The Borrower and its Subsidiaries do not
have any material Guarantee Obligations, contingent liabilities and liabilities
for taxes, or any material long-term leases or unusual forward or long-term
commitments, including, without limitation, any interest rate or foreign
currency swap or exchange transaction or other obligation in respect of
derivatives, which are not reflected in the most recent financial statements
referred to in this paragraph. During the period from December 31, 1997 to and
including the date hereof there has been no Disposition by the Borrower and its
Subsidiaries of any material part of its business or Property.
(c) To the best knowledge of the Borrower, the audited consolidated
balance sheets of each Acquired Hawaii Company and its consolidated Subsidiaries
as at May 31, 1997 and May 31, 1996, and the related consolidated statements of
income and of cash flows for the fiscal years ended on such dates, reported on
by and accompanied by an unqualified report from Arthur Andersen LLP, present
fairly the consolidated financial condition of such Acquired Hawaii Company and
its consolidated Subsidiaries as at such dates, and the consolidated results of
its operations and its consolidated cash flows for the respective fiscal years
then ended. To the best knowledge of the Borrower, the unaudited consolidated
balance sheet of each Acquired Hawaii Company and its consolidated Subsidiaries
as at December 31, 1997, and the related unaudited consolidated statements of
income and cash flows for the seven-month period ended on such date, present
fairly the consolidated financial condition of such Acquired Hawaii Company and
its consolidated Subsidiaries as at such date, and the
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49
consolidated results of its operations and its consolidated cash flows for the
seven-month period then ended (subject to normal year-end audit adjustments). To
the best knowledge of the Borrower, all such financial statements, including the
related notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by the
aforementioned firm of accountants and disclosed therein). To the best knowledge
of the Borrower, each Acquired Hawaii Company and its Subsidiaries do not have
any material Guarantee Obligations, contingent liabilities and liabilities for
taxes, or any material long-term leases or unusual forward or long-term
commitments, including, without limitation, any interest rate or foreign
currency swap or exchange transaction or other obligation in respect of
derivatives, which are not reflected in the most recent financial statements
referred to in this paragraph. To the best knowledge of the Borrower, during the
period from December 31, 1997 to and including the date hereof there has been no
Disposition by any Acquired Hawaii Company or its Subsidiaries of any material
part of its business or Property.
(d) To the best knowledge of the Borrower, (A) the audited balance
sheets of the Acquired Washington Company as at December 31, 1997 and December
31, 1996, and the related statements of income and of cash flows for the fiscal
year ended on December 31, 1997 and the nine months ended on December 31, 1996,
reported on by and accompanied by an unqualified report from Price Waterhouse
LLP, present fairly the financial condition of the Acquired Washington Company
as at such dates, and the results of its operations and its cash flows for the
respective fiscal years then ended, (B) the unaudited balance sheet of the
Acquired Washington Company as at March 31, 1998, and the related unaudited
statements of income and cash flows for the three-month period ended on such
date, presents fairly the financial condition of the Acquired Washington Company
as at such date, and the results of its operations and its cash flows for the
three-month period then ended (subject to normal year-end audit adjustments),
(C) all such financial statements, including the related notes thereto, have
been prepared in accordance with GAAP applied consistently throughout the
periods involved (except as approved by the aforementioned firm of accountants
and disclosed therein), (D) the Acquired Washington Company does not have any
material Guarantee Obligations, contingent liabilities and liabilities for
taxes, or any material long-term leases or unusual forward or long-term
commitments, including, without limitation, any interest rate or foreign
currency swap or exchange transaction or other obligation in respect of
derivatives, which are not reflected in the most recent financial statements
referred to in this paragraph and (E) during the period from December 31, 1997
to and including the date of this Agreement there has been no Disposition by the
Acquired Washington Company of any material part of its business or Property.
4.2 No Change. Since December 31, 1997 there has been no development
or event which has had or could reasonably be expected to have a Material
Adverse Effect.
4.3 Corporate Existence; Compliance with Law. Each of the Borrower
and its Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has the
corporate power and authority, and the legal right, to own and operate its
Property, to lease the Property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in
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50
good standing under the laws of each jurisdiction where its ownership, lease or
operation of Property or the conduct of its business requires such
qualification, except where the failure to be so qualified and in good standing
could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect and (d) is in compliance with all Requirements of Law except to the
extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. Each
Loan Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder and to consummate the Acquisitions. Each
Loan Party has taken all necessary corporate action to authorize the execution,
delivery and performance of the Loan Documents to which it is a party and, in
the case of the Borrower, to authorize the borrowings on the terms and
conditions of this Agreement and the Acquisitions. No consent or authorization
of, filing with, notice to or other act by or in respect of, any Governmental
Authority or any other Person is required in connection with the consummation of
the Acquisitions and the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement or any of the Loan
Documents, except (i) consents, authorizations, filings and notices described in
Schedule 4.4, which consents, authorizations, filings and notices have been
obtained or made and are in full force and effect (except as noted in Schedule
4.4), (ii) the filings referred to in subsection 4.19 and (iii) any consent that
may be required to be obtained by or on behalf of any Lender. Each Loan Document
has been duly executed and delivered on behalf of each Loan Party party thereto.
This Agreement constitutes, and each other Loan Document upon execution will
constitute, a legal, valid and binding obligation of each Loan Party party
thereto, enforceable against each such Loan Party in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder, the use of the proceeds thereof and the consummation of
the Acquisitions will not violate any Requirement of Law applicable to, or any
material Contractual Obligation of, the Borrower or any of its Subsidiaries and
will not result in, or require, the creation or imposition of any Lien on any of
their respective properties or revenues pursuant to any Requirement of Law or
any such Contractual Obligation (other than the Liens created by the Security
Documents). No Requirement of Law or Contractual Obligation applicable to the
Borrower or any of its Subsidiaries could reasonably be expected to have a
Material Adverse Effect.
4.6 No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
of its Subsidiaries or against any of their respective properties or revenues
(a) with respect to any of the Loan Documents or any
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51
of the transactions contemplated hereby or thereby, or (b) which could
reasonably be expected to have a Material Adverse Effect.
4.7 No Default. Neither the Borrower nor any of its Subsidiaries is
in default of its Contractual Obligations in any respect which could reasonably
be expected to have a Material Adverse Effect. No Default or Event of Default
has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of the Borrower and its
Subsidiaries has indefeasible title to, or a valid leasehold interest in, all of
its material real property, and good title to, or a valid leasehold interest in,
all its other material Property, and none of such Property is subject to any
Lien except as permitted by subsection 7.3.
4.9 Intellectual Property. The Borrower and each of its Subsidiaries
owns, or is licensed to use, all Intellectual Property necessary for the conduct
of its business as currently conducted. Except as set forth in Schedule 4.9, no
material claim has been asserted and is pending against the Borrower or any of
its Subsidiaries by any Person challenging or questioning the use of any such
Intellectual Property by the Borrower or any of its Subsidiaries or the validity
or effectiveness of any such Intellectual Property, nor does the Borrower know
of any valid basis for any such claim. The use of such Intellectual Property by
the Borrower and its Subsidiaries does not infringe on the rights of any Person
known by the Borrower to have a legal right therein.
4.10 Taxes. Each of the Borrower and its Subsidiaries has filed or
caused to be filed all Federal, state and other material tax returns which are
required to be filed and has paid all taxes shown to be due and payable on said
returns or on any assessments made against it or any of its Property and all
other taxes, fees or other charges imposed on it or any of its Property by any
Governmental Authority, and no tax Lien has been filed, and, to the knowledge of
the Borrower, no claim which could reasonably be expected to have a Material
Adverse Effect is being asserted, with respect to any such tax, fee or other
charge (other than any such claim the amount or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which reserves in conformity with GAAP have been provided on the books of the
Borrower or its Subsidiaries, as the case may be).
4.11 Federal Regulations. No part of the proceeds of any Loans will
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect or for any purpose which violates the provisions of the
Regulations of the Board. If requested by any Lender or the General
Administrative Agent, the Borrower will furnish to the General Administrative
Agent and each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-3 or FR Form U-1 referred to in Regulation U.
4.12 Labor Matters. There are no strikes or other labor disputes
against the Borrower or any of its Subsidiaries pending or, to the knowledge of
the Borrower, threatened that (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect. Hours worked by and
payment made to employees of the Borrower and its Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other
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52
applicable Requirement of Law dealing with such matters that (individually or in
the aggregate) could reasonably be expected to have a Material Adverse Effect.
All payments due from the Borrower or any of its Subsidiaries on account of
employee health and welfare insurance that (individually or in the aggregate)
could reasonably be expected to have a Material Adverse Effect if not paid have
been paid or accrued as a liability on the books of the Borrower or the relevant
Subsidiary.
4.13 ERISA. Except as set forth on Schedule 4.13, neither a
Reportable Event nor an "accumulated funding deficiency" (within the meaning of
Section 412 of the Code or Section 302 of ERISA) has occurred during the
five-year period prior to the date on which this representation is made or
deemed made with respect to any Plan, and each Plan has complied in all material
respects with the applicable provisions of ERISA and the Code. No termination of
a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan
has arisen, during such five-year period. The present value of all accrued
benefits under each Single Employer Plan (based on those assumptions used to
fund such Plans) did not, as of the last annual valuation date prior to the date
on which this representation is made or deemed made, exceed the value of the
assets of such Plan allocable to such accrued benefits by a material amount.
Neither the Borrower nor any Commonly Controlled Entity has had a complete or
partial withdrawal from any Multiemployer Plan which has resulted or could
reasonably be expected to result in a material liability under ERISA, and
neither the Borrower nor any Commonly Controlled Entity would become subject to
any material liability under ERISA if the Borrower or any such Commonly
Controlled Entity were to withdraw completely from all Multiemployer Plans as of
the valuation date most closely preceding the date on which this representation
is made or deemed made. No such Multiemployer Plan is in Reorganization or
Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) which limits its ability to incur Indebtedness.
4.15 Subsidiaries. The Subsidiaries listed on Schedule 4.15
constitute all the Subsidiaries of the Borrower at the date hereof.
4.16 Use of Proceeds. The proceeds of the Term Loans shall be used
to finance, in part, the Washington Acquisition and to pay related fees and
expenses, to refinance certain existing Indebtedness of the Borrower and its
Subsidiaries (including the Existing Credit Agreement) and to finance certain
capital expenditures. The proceeds of the Revolving Credit Loans and the Letters
of Credit shall be used to finance, in part, the Washington Acquisition and to
provide for the ongoing working capital and general corporate needs (including
certain capital expenditures) of the Borrower and its Subsidiaries in the
ordinary course of business.
4.17 Environmental Matters. (a) Other than exceptions to any of the
following that could not, individually or in the aggregate, reasonably be
expected to have a
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53
Material Adverse Effect, the Borrower and each of its Subsidiaries: (i) is, and
within the period of all applicable statutes of limitation has been, in
compliance with all applicable Environmental Laws; (ii) holds all Environmental
Permits (each of which is in full force and effect) required for any of its
current or intended operations or for any property owned, leased, or otherwise
operated by it; (iii) is, and within the period of all applicable statutes of
limitation has been, in compliance with all of its Environmental Permits; and
(iv) reasonably believes that: each of its Environmental Permits will be timely
renewed and complied with, without material expense; any additional
Environmental Permits that may be required of any of it will be timely obtained
and complied with, without material expense; and compliance with any
Environmental Law that is or is expected to become applicable to it will be
timely attained and maintained, without material expense.
(b) Other than exceptions to any of the following that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect: Materials of Environmental Concern are not present at, on,
under, in, or about any real property now or formerly owned, leased or operated
by the Borrower or any of its Subsidiaries or at any other location (including,
without limitation, any location to which Materials of Environmental Concern
have been sent for re-use or recycling or for treatment, storage, or disposal)
which could reasonably be expected to (i) give rise to liability of the Borrower
or any of its Subsidiaries under any applicable Environmental Law or otherwise
result in costs to any of them, or (ii) interfere with the Borrower's or any of
its Subsidiaries' continued operations, or (iii) impair the fair saleable value
of any real property owned or leased by the Borrower or any of its Subsidiaries.
(c) Other than exceptions to any of the following that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect: there is no judicial, administrative, or arbitral proceeding
(including any notice of violation or alleged violation) under or relating to
any Environmental Law to which the Borrower or any of its Subsidiaries is, or to
the knowledge of any of them will be, named as a party that is pending or, to
the knowledge of any of them, threatened.
(d) Other than exceptions to any of the following that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect: neither the Borrower nor any of its Subsidiaries has received
any request for information, or been notified that it is a potentially
responsible party under or relating to the federal Comprehensive Environmental
Response, Compensation, and Liability Act or any similar Environmental Law, or
with respect to any Materials of Environmental Concern.
(e) Other than exceptions to any of the following that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect: neither the Borrower nor any of its Subsidiaries has entered
into or agreed to any consent decree, order, or settlement or other agreement,
nor is subject to any judgment, decree, or order or other agreement, in any
judicial, administrative, arbitral, or other forum, relating to compliance with
or liability under any Environmental Law.
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(f) Other than exceptions to any of the following that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect: neither the Borrower nor any of its Subsidiaries has assumed or
retained, by contract or operation of law, any liabilities of any kind, fixed or
contingent, known or unknown, under any Environmental Law or with respect to any
Materials of Environmental Concern.
4.18 Accuracy of Information, etc. No statement or information
contained in this Agreement, any other Loan Document, the Confidential
Information Memorandum or any other document, certificate or statement furnished
to the General Administrative Agent or the Lenders or any of them, by or on
behalf of any Loan Party for use in connection with the transactions
contemplated by this Agreement or the other Loan Documents, contained as of the
date such statement, information, document or certificate was so furnished (or,
in the case of the Confidential Information Memorandum, as of the date of this
Agreement), any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. The projections and pro forma financial information
contained in the materials referenced above are based upon good faith estimates
and assumptions believed by management of the Borrower to be reasonable at the
time made, it being recognized by the Lenders that such financial information as
it relates to future events is not to be viewed as fact and that actual results
during the period or periods covered by such financial information may differ
from the projected results set forth therein by a material amount. As of the
date hereof, the representations and warranties contained in the Hawaii
Acquisition Agreement and the Washington Acquisition Agreement are true and
correct in all material respects. There is no fact known to any Loan Party that
could reasonably be expected to have a Material Adverse Effect that has not been
expressly disclosed herein, in the other Loan Documents, in the Confidential
Information Memorandum or in any other documents, certificates and statements
furnished to the General Administrative Agent and the Lenders for use in
connection with the transactions contemplated hereby and by the other Loan
Documents.
4.19 Security Documents. (a) Except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles,
the Guarantee and Collateral Agreement is effective to create in favor of the
Collateral Agent, for the benefit of the Lenders, a legal, valid and enforceable
security interest in the Collateral described therein and proceeds thereof. In
the case of the Pledged Stock described in the Guarantee and Collateral
Agreement, when stock certificates representing such Pledged Stock are delivered
to the Collateral Agent, and in the case of the other Collateral described in
the Guarantee and Collateral Agreement, when financing statements in appropriate
form are filed in the offices specified on Schedule E4.19(a), the Guarantee and
Collateral Agreement shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the Loan Parties in such
Collateral and the proceeds thereof, as security for the Obligations (as defined
in the Guarantee and Collateral Agreement), in each case prior and superior in
right to any other Person except as permitted thereby.
(b) Except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights
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generally and by general equitable principles, each of the Mortgages is
effective to create in favor of the Collateral Agent, for the benefit of the
Lenders, a legal, valid and enforceable Lien on the Mortgaged Properties
described therein and proceeds thereof, and when the Mortgages are filed in the
offices specified on Schedule E4.19(b), each such Mortgage shall constitute a
fully perfected Lien on, and security interest in, all right, title and interest
of the Loan Parties in such Mortgaged Properties and the proceeds thereof, as
security for the Obligations (as defined in the relevant Mortgage), in each case
prior and superior in right to any other Person except as permitted thereby.
(c) Except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles, each of the Oil
and Gas Mortgages is effective to create in favor of the Collateral Agent, for
the benefit of the Lenders, a legal, valid and enforceable Lien on the Mortgaged
Oil and Gas Properties described therein and proceeds thereof, and when the Oil
and Gas Mortgages are filed in the offices specified on Schedule E4.19(c), each
such Oil and Gas Mortgage shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the Loan Parties in such
Mortgaged Oil and Gas Properties and the proceeds thereof, as security for the
Obligations (as defined in the relevant Oil and Gas Mortgage), in each case
prior and superior in right to any other Person except as permitted thereby.
4.20 Solvency. Each Loan Party is, and after giving effect to the
Acquisitions and the incurrence of all Indebtedness and obligations being
incurred in connection herewith and therewith will be and will continue to be,
Solvent.
4.21 Senior Indebtedness. The Obligations constitute "Senior Debt"
and "Designated Senior Debt" of the Borrower under and as defined in the Senior
Subordinated Note Indenture. The obligations of each Subsidiary Guarantor under
the Guarantee and Collateral Agreement constitute "Senior Debt" of such
Subsidiary Guarantor under and as defined in the Senior Subordinated Note
Indenture.
4.22 Year 2000 Matters. Any reprogramming required to permit the
proper functioning (but only to the extent that such proper functioning would
otherwise be impaired by the occurrence of the year 2000) in and following the
year 2000 of computer systems and other equipment containing embedded
microchips, in either case owned or operated by the Borrower or any of its
Subsidiaries or used or relied upon in the conduct of their business (including
any such systems and other equipment supplied by others), and the testing of all
such systems and other equipment as so reprogrammed, will be completed by June
30, 1999. The costs to the Borrower and its Subsidiaries that have not been
incurred as of the date hereof for such reprogramming and testing and for the
other reasonably foreseeable consequences to them of any improper functioning of
other computer systems and equipment containing embedded microchips due to the
occurrence of the year 2000 could not reasonably be expected to result in a
Default or Event of Default or to have a Material Adverse Effect. Except for any
reprogramming referred to above, the computer systems of the Borrower and its
Subsidiaries are and, with ordinary course upgrading and maintenance, will
continue for
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the term of this Agreement to be, in all material respects sufficient for the
conduct of their business as currently conducted.
4.23 Regulation H. No Mortgage encumbers improved real property
which is located in an area that has been identified by the Secretary of Housing
and Urban Development as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance Act
of 1968.
4.24 Excluded Subsidiaries. The aggregate book value of the assets
of all Excluded Subsidiaries does not and will not at any time exceed $1,000,000
in the aggregate.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, prior to or concurrently with the making of such
extension of credit on the Closing Date, of the following conditions precedent:
(a) Loan Documents. The Syndication Agent shall have received
(i) this Agreement, executed and delivered by a duly authorized officer of
the Borrower and each Agent, and a Lender Addendum with respect to each
initial Lender, executed and delivered by the parties thereto, (ii) the
Guarantee and Collateral Agreement, executed and delivered by a duly
authorized officer of the Borrower and each Subsidiary Guarantor, (iii) a
Mortgage covering each of the Initial Mortgaged Properties, and an Oil and
Gas Mortgage covering each of the Mortgaged Oil and Gas Properties,
executed and delivered by a duly authorized officer of each party thereto,
(iv) for the account of each Lender so requesting in accordance with
subsection 2.6(e), Notes conforming to the requirements hereof and
executed and delivered by a duly authorized officer of the Borrower and
(v) a Consent and Confirmation executed and delivered by a duly authorized
officer of each Subsidiary Guarantor. The Security Documents described in
clauses (ii) and (iii) of the preceding sentence were delivered on May 29,
1998.
(b) Capital Markets Instruments. The Borrower shall have issued and
sold the Capital Markets Instruments. The General Administrative Agent
shall have received certified true and correct copies of (i) the Senior
Subordinated Note Indenture and (ii) the Certificate of Designations and
Preferences for the Mandatorily Convertible Preferred Stock.
(c) Washington Escrow Deposit; Washington Seller Letter Agreement;
Intercreditor Agreement. (i) The Borrower shall have made the required
deposit in the Washington Escrow pursuant to the Washington Escrow
Agreement.
(ii) The Borrower, the Washington Seller, the General Administrative
Agent and the Collateral Agent shall have entered into a satisfactory
letter agreement
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pursuant to which (i) the Washington Seller acknowledges that the Borrower
has granted to the Collateral Agent a security interest in the Borrower's
rights under the Washington Acquisition Agreement and the Washington
Escrow Agreement and (ii) the Washington Seller agrees that, upon release
to the Washington Seller on the Washington Escrow Release Date of funds
from the Washington Escrow, the Washington Seller will promptly deliver to
the Collateral Agent the stock certificate or stock certificates
representing all Capital Stock of the Acquired Washington Company, duly
endorsed in blank.
(iii) The Intercreditor Agreement shall have been executed and
delivered by the parties thereto.
(d) Pro Forma Balance Sheet; Financial Statements. The Lenders shall
have received (i) the Pro Forma Balance Sheet, (ii) audited consolidated
financial statements of the Borrower and its consolidated Subsidiaries,
audited consolidated financial statements of the Acquired Hawaii Companies
and their consolidated Subsidiaries, and audited financial statements of
the Acquired Washington Company, in each case for the 1997 and 1996 fiscal
years, and (iii) unaudited interim consolidated financial statements of
the Borrower and its consolidated Subsidiaries, unaudited interim
consolidated financial statements of each Acquired Hawaii Company and its
consolidated Subsidiaries, and unaudited interim financial statements of
the Acquired Washington Company, in each case for each fiscal quarterly
period ended subsequent to the date of the latest applicable financial
statements delivered pursuant to clause (ii) of this paragraph (d) as to
which such financial statements are available, and such financial
statements shall not, in the reasonable judgment of the Lenders, reflect
any material adverse change in the consolidated financial condition of the
Borrower and its consolidated Subsidiaries, the Acquired Hawaii Companies
and their consolidated Subsidiaries, and the Acquired Washington Company,
in each case as reflected in the financial statements or projections
contained in the Confidential Information Memorandum.
(e) Approvals. All governmental and third party approvals necessary
in connection with the Loan Documents and the financing contemplated
thereby and the continuing operations of the Borrower and its Subsidiaries
shall have been obtained and be in full force and effect.
(f) Related Agreements. The Syndication Agent shall have received
(in a form reasonably satisfactory to such Agent), with a copy for each
Lender, true and correct copies, certified as to authenticity by the
Borrower, of the Hawaii Acquisition Agreement, the Washington Acquisition
Agreement and such other documents or instruments as may be reasonably
requested by the Syndication Agent, including, without limitation, a copy
of any debt instrument, security agreement or other material contract for
borrowed money to which any of the Loan Parties may be a party.
(g) Fees. The Lenders, the Agents and the Arranger shall have
received all fees required to be paid, and all reasonable expenses for
which invoices have been
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presented, on or before the Closing Date. All such amounts shall be paid
with proceeds of Loans made on the Closing Date and will be reflected in
the funding instructions given by the Borrower to the General
Administrative Agent on or before the Closing Date.
(h) Business Plan. The Lenders shall have received satisfactory
financial projections, together with satisfactory assumptions, for fiscal
years 1998-2005 of the Borrower.
(i) Solvency Certificate. The Lenders shall have received a
certificate of a Responsible Officer in form and substance reasonably
satisfactory to the Syndication Agent certifying as to the solvency of the
Borrower and its Subsidiaries considered as a whole after giving effect to
the Acquisitions and the transactions contemplated hereby.
(j) Environmental Assessment. The General Administrative Agent shall
have received, with a copy for each Lender, an environmental assessment,
in form, scope and substance satisfactory to the Syndication Agent and
from a firm satisfactory to the Syndication Agent, with respect to the
Acquired Hawaii Companies, the Acquired Washington Company and the
Borrower and its Subsidiaries.
(k) Closing Certificates. The Syndication Agent shall have received,
with counterparts for each Lender, certificates of each Loan Party, dated
the Closing Date, which together contain the information set forth in
Exhibit C, with appropriate insertions and attachments.
(l) Legal Opinions. The Syndication Agent shall have received the
following executed legal opinions:
(i) the legal opinion of Fulbright & Jaworski L.L.P., counsel
to the Borrower and its Subsidiaries, substantially in the form of
Exhibit F-1;
(ii) the legal opinion of James C. Reed, Jr., general counsel
of the Borrower and its Subsidiaries, substantially in the form of
Exhibit F-2;
(iii) the legal opinion of local counsel in each of Louisiana,
Alaska and Hawaii and of such other special and local counsel as may
be required by the Syndication Agent; and
(iv) title opinions or other evidence of the Borrower's title
with respect to the Oil and Gas Properties as reasonably required by
the Syndication Agent.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Syndication Agent may
reasonably require.
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(m) Pledged Stock; Stock Power. The Syndication Agent shall have
received the certificates representing the shares of Capital Stock pledged
pursuant to the Guarantee and Collateral Agreement (other than the Capital
Stock of the Acquired Washington Company), together with an undated stock
power for each such certificate executed in blank by a duly authorized
officer of the pledgor thereof.
(n) Filings, Registrations and Recordings. Each document (including,
without limitation, any Uniform Commercial Code financing
statement) required by the Security Documents or under law or reasonably
requested by the Collateral Agent to be filed, registered or recorded in
order to create in favor of the Collateral Agent, for the benefit of the
Lenders, a perfected Lien on the Collateral described therein (other than
any Collateral in which the Acquired Washington Company has any right,
title or interest), prior and superior in right to any other Person (other
than with respect to Liens expressly permitted by subsection 7.3), shall
be in proper form for filing, registration or recordation.
(o) Title Insurance; Flood Insurance. (i) If requested by the
Collateral Agent, the Collateral Agent shall have received, and the title
insurance company issuing the policy referred to in clause (ii) below (the
"Title Insurance Company") shall have received, maps or plats of an
as-built survey of the sites of the Initial Mortgaged Properties (other
than the Owned Marine Terminals) certified to the Collateral Agent and the
Title Insurance Company in a manner satisfactory to them, dated a date
satisfactory to the Collateral Agent and the Title Insurance Company by an
independent professional licensed land surveyor satisfactory to the
Collateral Agent and the Title Insurance Company, which maps or plats and
the surveys on which they are based shall be made in accordance with the
Minimum Standard Detail Requirements for Land Title Surveys jointly
established and adopted by the American Land Title Association and the
American Congress on Surveying and Mapping in 1992, and, without limiting
the generality of the foregoing, there shall be surveyed and shown on such
maps, plats or surveys the following: (A) the locations on such sites of
all the buildings, structures and other improvements and the established
building setback lines; (B) the lines of streets abutting the sites and
width thereof; (C) all access and other easements appurtenant to the
sites; (D) all roadways, paths, driveways, easements, encroachments and
overhanging projections and similar encumbrances affecting the site,
whether recorded, apparent from a physical inspection of the sites or
otherwise known to the surveyor; (E) any encroachments on any adjoining
property by the building structures and improvements on the sites; (F) if
the site is described as being on a filed map, a legend relating the
survey to said map; and (G) the flood zone designations, if any, in which
such Initial Mortgaged Properties are located.
(ii) The Collateral Agent shall have received in respect of each
Initial Mortgaged Property (other than the Owned Marine Terminals) a
mortgagee's title insurance policy (or policies) or marked up
unconditional binder for such insurance. Each such policy shall (A) be in
an amount reasonably satisfactory to the Collateral Agent; (B) be issued
at ordinary rates; (C) insure that the Mortgage insured thereby
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creates a valid first Lien on such Initial Mortgaged Property free and
clear of all defects and encumbrances, except as disclosed therein; (D)
name the Collateral Agent for the benefit of the Lenders as the insured
thereunder; (E) be in the form of ALTA Loan Policy - 1970 (Amended
10/17/70 and 10/17/84) (or equivalent policies); (F) contain such
endorsements and affirmative coverage as the Collateral Agent may
reasonably request and (G) be issued by title companies satisfactory to
the Collateral Agent (including any such title companies acting as
co-insurers or reinsurers, at the option of the Collateral Agent). The
Collateral Agent shall have received evidence satisfactory to it that all
premiums in respect of each such policy, all charges for mortgage
recording tax, and all related expenses, if any, have been paid.
(iii) If requested by the Collateral Agent, the Collateral Agent
shall have received (A) a policy of flood insurance which (1) covers any
parcel of improved real property which is encumbered by any Mortgage, (2)
is written in an amount not less than the outstanding principal amount of
the indebtedness secured by such Mortgage which is reasonably allocable to
such real property or the maximum limit of coverage made available with
respect to the particular type of property under the National Flood
Insurance Act of 1968, whichever is less, and (3) has a term ending not
later than the maturity of the Indebtedness secured by such Mortgage and
(B) confirmation that the Borrower has received the notice required
pursuant to Section 208(e)(3) of Regulation H of the Board.
(iv) The Collateral Agent shall have received a copy of all recorded
documents referred to, or listed as exceptions to title in, the title
policy or policies referred to in clause (ii) above and a copy of all
other material documents affecting the Initial Mortgaged Properties.
(p) Insurance. The Collateral Agent shall have received insurance
certificates satisfying the requirements of subsection 5.3 of the
Guarantee and Collateral Agreement.
5.2 Conditions to Each Extension of Credit. The agreement of each
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit) is subject to
the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct on and as of such date as if made on and as of
such date.
(b) No Default. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
Each borrowing by and issuance or extension of a Letter of Credit on behalf of
the Borrower hereunder shall constitute a representation and warranty by the
Borrower as of the date of
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such extension of credit that the conditions contained in this subsection 5.2
have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain
in effect, any Letter of Credit remains outstanding or any Loan or other amount
is owing to any Lender or any Agent hereunder, the Borrower shall and (except in
the case of subsection 6.1) shall cause its Subsidiaries to:
6.1 Financial Statements. Furnish to each Agent and each Lender:
(a) as soon as available, but in any event within 105 days after the
end of each fiscal year of the Borrower, a copy of the audited
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such year and the related audited statements
of consolidated income and cash flows for such year, setting forth in each
case in comparative form the figures for the previous year, reported on
without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit, by Deloitte & Touche
LLP or other independent certified public accountants of nationally
recognized standing; and
(b) as soon as available, but in any event not later than 60 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such quarter
and the related unaudited statements of consolidated income and cash flows
for such quarter and the portion of the fiscal year through the end of
such quarter, setting forth in comparative form the figures for the
corresponding quarter and the corresponding portion of the Borrower's
previous fiscal year on the statements of consolidated income and cash
flows and, in the case of the balance sheet only, the last day of the
immediately preceding fiscal year, certified by a Responsible Officer as
being fairly stated in all material respects (subject to normal year-end
adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2 Certificates; Other Information. Furnish to each Agent and each
Lender, or, in the case of clause (f), to the relevant Lender:
(a) concurrently with the delivery of the financial statements
referred to in subsection 6.1(a), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor
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no knowledge was obtained of any Default or Event of Default, except as
specified in such certificate;
(b) concurrently with the delivery of any financial statements
pursuant to subsection 6.1, (i) a certificate of a Responsible Officer
stating that, to the best of such Responsible Officer's knowledge, each
Loan Party during such period has observed or performed all of its
covenants and other agreements, and satisfied every condition, contained
in this Agreement and the other Loan Documents to which it is a party to
be observed, performed or satisfied by it, and that such Responsible
Officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate and (ii) in the case of quarterly
or annual financial statements, (x) a Compliance Certificate containing
all information necessary for determining compliance by the Borrower and
its Subsidiaries with the provisions of this Agreement referred to therein
as of the last day of the fiscal quarter or fiscal year of the Borrower,
as the case may be, and (y) to the extent not previously disclosed to the
General Administrative Agent, a listing of any county or state within the
United States where any Loan Party keeps inventory or equipment and of any
Intellectual Property acquired by any Loan Party since the date of the
most recent list delivered pursuant to this clause (y) (or, in the case of
the first such list so delivered, since the Closing Date);
(c) as soon as available, and in any event no later than 60 days
after the end of each fiscal year of the Borrower, a detailed consolidated
budget for the following fiscal year (including a projected consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of the
following fiscal year, and the related consolidated statements of
projected cash flow, projected changes in financial position and projected
income), and, as soon as available, significant revisions, if any, of such
budget and projections with respect to such fiscal year (collectively, the
"Projections"), which Projections shall in each case be accompanied by a
certificate of a Responsible Officer stating that such Projections are
based on reasonable estimates, information and assumptions and that such
Responsible Officer has no reason to believe that such Projections are
incorrect or misleading in any material respect;
(d) no later than 3 Business Days prior to the effectiveness
thereof, copies of substantially final drafts of any proposed amendment,
supplement, waiver or other modification with respect to (i) the Senior
Subordinated Note Indenture, (ii) the Hawaii Acquisition Agreement or
(iii) the Washington Acquisition Agreement;
(e) within five days after the same are sent, copies of all
financial statements and reports which the Borrower sends to the holders
of any class of its debt securities or public equity securities and,
within five days after the same are filed, copies of all financial
statements and reports (excluding the related exhibits thereto unless
specifically requested by such Agent or Lender) which the Borrower may
make to, or file with, the Securities and Exchange Commission or any
successor or analogous Governmental Authority; and
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(f) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at
or before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or its Subsidiaries, as the case may be.
6.4 Conduct of Business and Maintenance of Existence, etc. Except
with respect to Excluded Subsidiaries: (a) (i) preserve, renew and keep in full
force and effect its corporate existence and (ii) take all reasonable action to
maintain all rights, privileges and franchises necessary or desirable in the
normal conduct of its business, except, in each case, as otherwise permitted by
subsection 7.4 and except, in the case of clause (ii) above, to the extent that
failure to do so could not reasonably be expected to have a Material Adverse
Effect; and (b) comply with all Contractual Obligations and Requirements of Law
applicable to it except to the extent that failure to comply therewith could
not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all Property
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted (as determined by the Borrower in its reasonable
discretion), (b) maintain with financially sound and reputable insurance
companies (or, to the extent reasonable, customary among companies engaged in
the same or a similar business and, in any event, consistent with the past
business practices of the Borrower, through self-insurance) insurance on all its
Property in at least such amounts and against at least such risks (but including
in any event public liability, product liability and business interruption) as
are usually insured against in the same general area by companies engaged in the
same or a similar business.
6.6 Inspection of Property; Books and Records; Discussions. (a) Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law applicable to it shall be made
of all dealings and transactions in relation to its business and activities and
(b) permit representatives of any Lender to visit and inspect any of its
properties and examine and make abstracts from any of its books and records at
any reasonable time during normal business hours and as often as may reasonably
be desired and to discuss the business, operations, properties and financial and
other condition of the Borrower and its Subsidiaries with officers of the
Borrower and its Subsidiaries and with its independent certified public
accountants.
6.7 Notices. Promptly give notice to the General Administrative
Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
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(b) any (i) default or event of default under any
Contractual Obligation of the Borrower or any of its Subsidiaries or
(ii) litigation, investigation or proceeding which may exist at any
time between the Borrower or any of its Subsidiaries and any
Governmental Authority, which in either case, if not cured or if
adversely determined, as the case may be, could reasonably be
expected to have a Material Adverse Effect;
(c) any litigation or proceeding in which the Borrower
or any of its Subsidiaries is a party in which the amount involved
is $5,000,000 or more and not covered by insurance or in which
material injunctive or similar relief is sought;
(d) the following events, as soon as possible and in any
event within 30 days after the Borrower knows or has reason to know
thereof: (i) the occurrence of any Reportable Event with respect to
any Plan, a failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC or a Plan or any
withdrawal from, or the termination, Reorganization or Insolvency
of, any Multiemployer Plan or (ii) the institution of proceedings or
the taking of any other action by the PBGC or the Borrower or any
Commonly Controlled Entity or any Multiemployer Plan with respect to
the withdrawal from, or the termination, Reorganization or
Insolvency of, any Plan; and
(e) any development or event which has had or could
reasonably be expected to have a Material Adverse Effect.
Each notice pursuant to this subsection 6.7 shall be accompanied by a statement
of a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Borrower or the relevant Subsidiary proposes
to take with respect thereto.
6.8 Environmental Laws. (a) (i) Comply with all Environmental Laws
applicable to it, and obtain, comply with and maintain any and all Environmental
Permits necessary for its operations as conducted and as planned; and (ii) take
all reasonable efforts to ensure that all of its tenants, subtenants,
contractors, subcontractors, and invitees comply with all Environmental Laws,
and obtain, comply with and maintain any and all Environmental Permits,
applicable to any of them insofar as any failure to so comply, obtain or
maintain, or take such efforts, reasonably could be expected to adversely affect
the Borrower. For purposes of the preceding sentence, the Borrower or any of its
Subsidiaries shall not be deemed to be in noncompliance or default with any
applicable Environmental Law or Environmental Permit if, upon learning of any
actual or suspected noncompliance, the Borrower and/or Subsidiary, as the case
may be, shall promptly undertake all reasonable efforts to achieve compliance;
provided, that, in any case, such noncompliance, and any other noncompliance
with Environmental Laws, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect.
(b) Promptly comply with all orders and directives of all
Governmental Authorities regarding Environmental Laws, other than such orders
and directives as to which an appeal has been timely and properly taken in good
faith (provided, that the pendency of any and all such appeals could not
reasonably be expected to have a Material Adverse Effect).
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(c) (i) Prior to acquiring any ownership or leasehold interest in
real property, or other interest in any real property (other than interests in
Oil and Gas Properties which are not being operated or occupied) that could give
rise to the Borrower being found to be an operator subject to potential
liability under any Environmental Law (or any entity with such interests in any
real property), obtain a written report by an environmental consulting firm
reasonably acceptable to the Syndication Agent and the General Administrative
Agent (an "Environmental Consultant") of the Environmental Consultant's
assessment of the presence or potential presence of significant levels of any
Materials of Environmental Concern on, under, in, or about the property, or of
other conditions that could give rise to potentially significant liability under
or violations of Environmental Law relating to such acquisition, and notify the
General Administrative Agent and the Syndication Agent of such acquisition no
later than promptly following the closing thereof; and (ii) if requested by the
General Administrative Agent or the Syndication Agent, provide such report to
the General Administrative Agent and the Syndication Agent and afford the
General Administrative Agent and the Syndication Agent a reasonable opportunity,
if requested by either of them, to discuss such report with the Environmental
Consultant who prepared it and a knowledgeable representative of the Borrower.
The General Administrative Agent and the Syndication Agent shall have the right,
but shall not have any duty, to obtain, review, or discuss any such report.
6.9 Additional Collateral, etc. (a) With respect to any Property
(including any vessel as to which all or any portion of the purchase price has
been funded with the proceeds of Loans) acquired after the Closing Date by the
Borrower or any of its Subsidiaries (other than (w) any Property described in
paragraph (b), (c) or (d) below, (x) any Property subject to a Lien expressly
permitted by subsection 7.3(g), (y) vessels acquired with the proceeds of
transactions permitted by subsection 7.2(b) and (z) leasehold interests in real
property) as to which the Collateral Agent, for the benefit of the Lenders, does
not have a perfected Lien, promptly (i) execute and deliver to the General
Administrative Agent such amendments to the Guarantee and Collateral Agreement
or such other documents as the General Administrative Agent deems necessary or
advisable to grant to the Collateral Agent, for the benefit of the Lenders, a
security interest in such Property and (ii) take all actions necessary or
reasonably advisable to grant to the Collateral Agent, for the benefit of the
Lenders, a perfected first priority security interest in such Property,
including, without limitation, the filing of Uniform Commercial Code financing
statements in such jurisdictions as may be required by the Guarantee and
Collateral Agreement or by law or as may be requested by the General
Administrative Agent.
(b) (i) With respect to any fee interest in any real property having
a value (together with improvements thereof) of at least $2,500,000 acquired
after the Closing Date by the Borrower or any of its Subsidiaries (other than
any such real property subject to a Lien expressly permitted by subsection
7.3(g), and other than any such real property interest owned by the Acquired
Washington Company, which shall be governed by subsection 6.11), promptly (A)
execute and deliver a first priority Mortgage in favor of the Collateral Agent,
for the benefit of the Lenders, covering such real property, (B) if requested by
the General Administrative Agent, provide the Lenders with (x) title and
extended coverage insurance covering such real property (other than Owned Marine
Terminals) in an amount at least equal to the purchase price of such real estate
(or such other amount as shall be reasonably
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specified by the General Administrative Agent) as well as a current ALTA survey
thereof, together with a surveyor's certificate and (y) any consents or
estoppels reasonably deemed necessary or advisable by the General Administrative
Agent in connection with such mortgage or deed of trust, each of the foregoing
in form and substance reasonably satisfactory to the General Administrative
Agent, and (C) if requested by the General Administrative Agent, deliver to the
General Administrative Agent legal opinions relating to the matters described
above, which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the General Administrative Agent.
(ii) With respect to any Oil and Gas Properties in any single field
having an aggregate value for such field (together with improvements thereof) of
at least $2,500,000 acquired after the Closing Date by the Borrower or any of
its Subsidiaries, promptly (A) execute and deliver a first priority Oil and Gas
Mortgage in favor of the Collateral Agent, for the benefit of the Lenders,
covering such Oil and Gas Property and (B) deliver to the General Administrative
Agent legal opinions and title opinions or other evidence of the Borrower's
title, in each case as reasonably required by the General Administrative Agent,
relating to the matters described above, which opinions or evidence of title, as
the case may be, shall be in form and substance, and from counsel, reasonably
satisfactory to the General Administrative Agent.
(c) With respect to any new Subsidiary (other than an Excluded
Foreign Subsidiary) created or acquired after the Closing Date (which, for the
purposes of this paragraph, shall include any existing Subsidiary that ceases to
be an Excluded Foreign Subsidiary) by the Borrower or any of its Subsidiaries
(other than the Acquired Washington Company, which shall be governed by
subsection 6.11), promptly (i) execute and deliver to the General Administrative
Agent such amendments to the Guarantee and Collateral Agreement as the General
Administrative Agent deems necessary or advisable to grant to the Collateral
Agent, for the benefit of the Lenders, a perfected first priority security
interest in the Capital Stock of such new Subsidiary which is owned by the
Borrower or any of its Subsidiaries, (ii) deliver to the Collateral Agent the
certificates representing such Capital Stock, together with undated stock
powers, in blank, executed and delivered by a duly authorized officer of the
Borrower or such Subsidiary, as the case may be, (iii) cause such new Subsidiary
(A) to become a party to the Guarantee and Collateral Agreement and (B) to take
such actions necessary or advisable to grant to the Collateral Agent for the
benefit of the Lenders a perfected first priority security interest in the
Collateral described in the Guarantee and Collateral Agreement with respect to
such new Subsidiary, including, without limitation, the filing of Uniform
Commercial Code financing statements in such jurisdictions as may be required by
the Guarantee and Collateral Agreement or by law or as may be requested by the
General Administrative Agent, and (iv) if requested by the General
Administrative Agent, deliver to the General Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the General
Administrative Agent.
(d) With respect to any new Excluded Foreign Subsidiary created or
acquired after the Closing Date by the Borrower or any of its Subsidiaries,
promptly (i) execute and deliver to the General Administrative Agent such
amendments to the Guarantee
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and Collateral Agreement as the General Administrative Agent deems necessary or
advisable in order to grant to the Collateral Agent, for the benefit of the
Lenders, a perfected first priority security interest in the Capital Stock of
such new Subsidiary which is owned by the Borrower or any of its Subsidiaries
(provided that in no event shall more than 65% of the total outstanding Capital
Stock of any such new Subsidiary be required to be so pledged), (ii) deliver to
the Collateral Agent the certificates representing such Capital Stock, together
with undated stock powers, in blank, executed and delivered by a duly authorized
officer of the Borrower or such Subsidiary, as the case may be, and take such
other action as may be necessary or, in the opinion of the General
Administrative Agent, desirable to perfect the Lien of the Collateral Agent
thereon, and (iii) if requested by the General Administrative Agent, deliver to
the General Administrative Agent legal opinions relating to the matters
described above, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the General Administrative Agent.
6.10 Further Assurances. (a) In the case of the Borrower, from time
to time execute and deliver, or cause to be executed and delivered, such
additional instruments, certificates or documents, and take all such actions, as
the General Administrative Agent may reasonably request, for the purposes of
implementing or effectuating the provisions of this Agreement and the other Loan
Documents, or of more fully perfecting or renewing the rights of the Agents and
the Lenders with respect to the Collateral (or with respect to any additions
thereto or replacements or proceeds thereof or with respect to any other
property or assets hereafter acquired by the Borrower which may be deemed to be
part of the Collateral) pursuant hereto or thereto. Upon the exercise by the
General Administrative Agent or any Lender of any power, right, privilege or
remedy pursuant to this Agreement or the other Loan Documents which requires any
consent, approval, recording, qualification or authorization of any Governmental
Authority, the Borrower will execute and deliver, or will cause the execution
and delivery of, all applications, certifications, instruments and other
documents and papers that the General Administrative Agent or such Lender may be
required to obtain from the Borrower or any of its Subsidiaries for such
governmental consent, approval, recording, qualification or authorization.
6.11 Satisfaction of Obligations Related to Washington Escrow
Release. On the Washington Escrow Release Date, if on such date funds are
released to the Washington Seller and ownership of the Capital Stock of the
Acquired Washington Company is transferred to the Borrower (subject to the
security interest of the Collateral Agent), the Borrower shall satisfy the
conditions set forth in paragraphs (a), (b), (d), (e) and (f) below, and within
five Business Days after the Washington Escrow Release Date, the Borrower shall
satisfy each of the other conditions set forth below:
(a) Washington Acquisition. The Washington Acquisition shall have
been consummated pursuant to the Washington Acquisition Agreement on terms
and conditions reasonably satisfactory to the Lenders, and no material
provision thereof shall have been waived, amended, supplemented or
otherwise modified without the consent of the Syndication Agent (which
consent shall not be unreasonably withheld, conditioned or delayed).
<PAGE> 73
68
(b) Guarantee and Pledge By and With Respect to Acquired Washington
Company. The Borrower shall have and shall have caused the Acquired
Washington Company to, as the case may be, (i) execute and deliver to the
General Administrative Agent such amendments to the Guarantee and
Collateral Agreement as the General Administrative Agent deems necessary
or advisable to grant to the Collateral Agent, for the benefit of the
Lenders, a perfected first priority security interest in the Capital Stock
of the Acquired Washington Company, (ii) deliver to the Collateral Agent
the certificates representing such Capital Stock, together with undated
stock powers, in blank, executed and delivered by a duly authorized
officer of the Borrower or the Acquired Washington Company, as the case
may be and (iii) cause the Acquired Washington Company (A) to become a
party to the Guarantee and Collateral Agreement and (B) to take such
actions necessary or advisable to grant to the Collateral Agent for the
benefit of the Lenders a perfected first priority security interest in the
Collateral described in the Guarantee and Collateral Agreement with
respect to the Acquired Washington Company, including, without limitation,
the filing of Uniform Commercial Code financing statements in such
jurisdictions as may be required by the Guarantee and Collateral Agreement
or by law or as may be requested by the General Administrative Agent.
(c) Washington Mortgage. The General Administrative Agent shall have
received a Mortgage covering the Washington Mortgaged Property, executed
and delivered by a duly authorized officer of each party thereto.
(d) Approvals. All governmental and third party approvals necessary
in connection with the Washington Acquisition shall have been obtained and
be in full force and effect, and all applicable waiting periods shall have
expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse
conditions on the Washington Acquisition.
(e) Lien Searches. The General Administrative Agent shall have
received the results of a recent lien search in each of the jurisdictions
where the Acquired Washington Company does business, and such search shall
reveal no material liens on any of the assets of the Acquired Washington
Company except for liens permitted by subsection 7.3.
(f) Legal Opinions. The General Administrative Agent shall have
received the following executed legal opinions:
(i) to the extent consented to by the relevant counsel, each
legal opinion, if any, delivered in connection with the Washington
Acquisition Agreement, accompanied by a reliance letter in favor of
the Lenders; and
(ii) the legal opinion of local counsel in Washington and of
such other special and local counsel as may be required by the
Syndication Agent.
<PAGE> 74
69
(g) Title Insurance; Flood Insurance. (i) If requested by the
General Administrative Agent, the General Administrative Agent shall have
received, and the Title Insurance Company shall have received, maps or
plats of an as-built survey of the site of the Washington Mortgaged
Property certified to the General Administrative Agent and the Title
Insurance Company in a manner satisfactory to them, dated a date
satisfactory to the General Administrative Agent and the Title Insurance
Company by an independent professional licensed land surveyor satisfactory
to the General Administrative Agent and the Title Insurance Company, which
maps or plats and the surveys on which they are based shall be made in
accordance with the Minimum Standard Detail Requirements for Land Title
Surveys jointly established and adopted by the American Land Title
Association and the American Congress on Surveying and Mapping in 1992,
and, without limiting the generality of the foregoing, there shall be
surveyed and shown on such maps, plats or surveys the following: (A) the
locations on such sites of all the buildings, structures and other
improvements and the established building setback lines; (B) the lines of
streets abutting the sites and width thereof; (C) all access and other
easements appurtenant to the sites; (D) all roadways, paths, driveways,
easements, encroachments and overhanging projections and similar
encumbrances affecting the site, whether recorded, apparent from a
physical inspection of the sites or otherwise known to the surveyor; (E)
any encroachments on any adjoining property by the building structures and
improvements on the sites; (F) if the site is described as being on a
filed map, a legend relating the survey to said map; and (G) the flood
zone designations, if any, in which the Washington Mortgaged Property is
located.
(ii) The General Administrative Agent shall have received in respect
of the Washington Mortgaged Property a mortgagee's title insurance policy
(or policies) or marked up unconditional binder for such insurance. Such
policy shall (A) be in an amount reasonably satisfactory to the General
Administrative Agent; (B) be issued at ordinary rates; (C) insure that the
Mortgage insured thereby creates a valid first Lien on the Washington
Mortgaged Property free and clear of all defects and encumbrances, except
as disclosed therein; (D) name the Collateral Agent for the benefit of the
Lenders as the insured thereunder; (E) be in the form of ALTA Loan Policy
- 1970 (Amended 10/17/70 and 10/17/84) (or equivalent policies); (F)
contain such endorsements and affirmative coverage as the General
Administrative Agent may reasonably request and (G) be issued by title
companies satisfactory to the General Administrative Agent (including any
such title companies acting as co-insurers or reinsurers, at the option of
the General Administrative Agent). The General Administrative Agent shall
have received evidence satisfactory to it that all premiums in respect of
such policy, all charges for mortgage recording tax, and all related
expenses, if any, have been paid.
(iii) If requested by the General Administrative Agent, the General
Administrative Agent shall have received (A) a policy of flood insurance
which (1) covers any parcel of improved real property which is encumbered
by the Mortgage covering the Washington Mortgaged Property, (2) is written
in an amount not less than the outstanding principal amount of the
indebtedness secured by such Mortgage which
<PAGE> 75
70
is reasonably allocable to such real property or the maximum limit of
coverage made available with respect to the particular type of property
under the National Flood Insurance Act of 1968, whichever is less, and (3)
has a term ending not later than the maturity of the Indebtedness secured
by such Mortgage and (B) confirmation that the Borrower has received the
notice required pursuant to Section 208(e)(3) of Regulation H of the
Board.
(iv) The General Administrative Agent shall have received a copy of
all recorded documents referred to, or listed as exceptions to title in,
the title policy or policies referred to in clause (ii) above and a copy
of all other material documents affecting the Washington Mortgaged
Property.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain
in effect, any Letter of Credit remains outstanding or any Loan or other amount
is owing to any Lender or any Agent hereunder, the Borrower shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly:
7.1 Financial Condition Covenants.
(a) Consolidated Leverage Ratio. Permit the Consolidated Leverage
Ratio as at the last day of any period of four consecutive fiscal quarters of
the Borrower and its consolidated Subsidiaries ending during any period set
forth below to exceed the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Consolidated
Period Leverage Ratio
------ --------------
<S> <C>
July 1, 1998 - September 30, 1999 3.25:1.00
October 1, 1999 - September 30, 2000 3.00:1.00
October 1, 2000 - September 30, 2001 2.50:1.00
Thereafter 2.00:1.00
</TABLE>
; provided, that for the purposes of determining the ratio described above for
the fiscal quarters of the Borrower ending September 30, 1998, December 31, 1998
and March 31, 1999, Consolidated EBITDA for the relevant period shall be deemed
to equal Consolidated EBITDA for such fiscal quarter (and, in the case of the
latter two such determinations, each previous fiscal quarter commencing on or
after July 1, 1998) multiplied by 4, 2 and 4/3, respectively.
(b) Consolidated Fixed Charge Coverage Ratio. Permit the
Consolidated Fixed Charge Coverage Ratio for any period of four consecutive
fiscal quarters of the Borrower and its consolidated Subsidiaries ending during
any period set forth below to be less than the ratio set forth below opposite
such period:
<PAGE> 76
71
<TABLE>
<CAPTION>
Consolidated Fixed
Period Charge Coverage Ratio
------ ---------------------
<S> <C>
July 1, 1998 - September 30, 1999 3.00:1.00
October 1, 1999 - September 30, 2000 3.25:1.00
Thereafter 3.50:1.00
</TABLE>
; provided, that for the purposes of determining the ratio described above for
the fiscal quarters of the Borrower ending September 30, 1998, December 31, 1998
and March 31, 1999, Consolidated EBITDA for the relevant period shall be deemed
to equal Consolidated EBITDA for such fiscal quarter (and, in the case of the
latter two such determinations, each previous fiscal quarter commencing on or
after July 1, 1998) multiplied by 4, 2 and 4/3, respectively.
7.2 Limitation on Indebtedness. Create, incur, assume or permit to
exist (collectively, "incur") any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness (including, without limitation, Capital Lease
Obligations) secured by Liens permitted by subsection 7.3(g) in an
aggregate principal amount not to exceed $30,000,000 at any one time
outstanding;
(c) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(d) and any refinancings, refundings, renewals or extensions
thereof (without any increase in the principal amount thereof (other than
for payment of related expenses, fees and premiums, if any) or any
shortening of the maturity of any principal amount thereof);
(d) Guarantee Obligations made in the ordinary course of business by
the Borrower or any of its Subsidiaries of obligations of the Borrower or
any Subsidiary Guarantor;
(e) Indebtedness of the Borrower in respect of the Senior
Subordinated Notes in an aggregate principal amount not to exceed
$300,000,000; provided that the Borrower may incur additional Indebtedness
in respect of the Senior Subordinated Notes after the Closing Date in an
aggregate principal amount of up to $50,000,000, so long as (i) no Default
or Event of Default shall have occurred and be continuing on the date of
such incurrence before or after giving effect thereto and (ii) the
Borrower shall be in compliance, on a pro forma basis after giving effect
to such incurrence, with the covenants contained in subsection 7.1, in
each case recomputed as at the last day of the most recently ended fiscal
quarter of the Borrower with respect to which financial statements have
been delivered pursuant to subsection 6.1(b) as if such incurrence had
occurred on the first day of each relevant period for testing such
compliance;
(f) Indebtedness owing by (i) the Borrower to Subsidiaries which are
not Subsidiary Guarantors not to exceed $7,500,000 in the aggregate, (ii)
any Subsidiary
<PAGE> 77
72
of the Borrower to the Borrower, (iii) the Borrower to any Subsidiary
Guarantor, and (iv) any Subsidiary Guarantor to any other Subsidiary
Guarantor;
(g) Indebtedness not to exceed $15,000,000 in the aggregate at any
one time outstanding in respect of letters of credit (other than Letters
of Credit) or bank guaranties provided for the account of the Borrower or
any of its Subsidiaries in the ordinary course of their respective
businesses conducted in South America and used in lieu of or in support of
performance guarantees or performance, surety or other similar bonds or
bankers' acceptances;
(h) Guarantee Obligations of the Borrower and its Subsidiaries in
respect of the obligations incurred by branded dealers and distributors in
connection with retail gasoline station improvements; provided, that the
aggregate amount of outstanding Guarantee Obligations incurred pursuant to
this subsection 7.2(h), taken together with the aggregate amount of
Investments made pursuant to subsection 7.7(k), shall not exceed (i) at
any time during 1998, $10,000,000, and (ii) at any time thereafter,
$20,000,000;
(i) Indebtedness assumed by the Borrower or any of its Subsidiaries
in connection with purchases of all or substantially all of the Capital
Stock of Persons organized under the laws of the United States or any
state thereof and engaged in lines of business similar to the line of
business of the Borrower on the date of this Agreement, but in no event in
contravention of subsection 4.16; provided, that the aggregate amount of
Indebtedness so assumed pursuant to this subsection 7.2(i), taken together
with the aggregate amount of Investments made pursuant to subsection
7.7(i), shall in no event exceed $75,000,000;
(j) Indebtedness of the Borrower or any of its Subsidiaries not
otherwise permitted by this subsection 7.2 in an aggregate principal
amount (for the Borrower and all of its Subsidiaries) at any one time
outstanding not to exceed $75,000,000;
(k) any refinancings, refundings, renewals or extensions, in whole
or in part, of any Indebtedness referred to in subsection 7.2(a) or (j)
(without any increase in the principal amount thereof (other than for
payment of related expenses, fees and premiums, if any) or any shortening
of the maturity of any principal amount thereof); and
(l) Indebtedness secured by Liens on a vessel permitted by
subsection 7.3(s) in an aggregate principal amount not to exceed
$55,000,000; provided that no Indebtedness shall be permitted pursuant to
this subsection 7.2(l) if the Borrower or any of its Subsidiaries has
entered into the Shipping Joint Venture with respect to such vessel or any
portion of the purchase price of such vessel has been funded with the
proceeds of Loans.
7.3 Limitation on Liens. Create, incur, assume or permit to exist
any Lien upon any of its Property, whether now owned or hereafter acquired,
except for:
<PAGE> 78
73
(a) Liens for taxes, assessments or other governmental charges not
yet due or which are being contested in good faith by appropriate proceedings,
provided that adequate reserves with respect thereto are maintained on the books
of the Borrower or its Subsidiaries, as the case may be, in conformity with
GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, landlords' or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 30 days or which are
being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case materially
detract from the value of the Property subject thereto or materially interfere
with the ordinary conduct of the business of the Borrower or any of its
Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule 7.3(f),
securing Indebtedness permitted by subsection 7.2(c), provided that no such Lien
is spread to cover any additional Property after the Closing Date and that the
amount of Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness of the Borrower or any other
Subsidiary incurred pursuant to subsection 7.2(b) to finance the acquisition or
construction of, or repairs, improvements or additions to, fixed or capital
assets, provided that (i) such Liens shall be created substantially
simultaneously with the acquisition of such fixed or capital assets, (ii) such
Liens do not at any time encumber any Property of the Borrower or its
Subsidiaries other than the Property financed by such Indebtedness and (iii) the
amount of Indebtedness secured thereby is not increased;
(h) Liens created pursuant to the Security Documents;
(i) any interest or title of a lessor under any lease entered into
by the Borrower or any other Subsidiary in the ordinary course of its business
and covering only the assets so leased;
(j) any Lien securing Indebtedness, neither assumed nor guaranteed
by the Borrower or any of its Subsidiaries nor on which it customarily pays
interest, existing upon real estate or rights in or relating to real estate
acquired by the Borrower for
<PAGE> 79
74
substation, metering station, pump station, storage, gathering line,
transmission line, transportation line, distribution line or for right-of-way
purposes, any Liens reserved in leases for rent and for compliance with the
terms of the leases in the case of leasehold estates, to the extent that any
such Lien referred to in this clause (j) does not materially impair the use of
the Property covered by such Lien for the purposes of which such Property is
held by the Borrower or any of its Subsidiaries;
(k) inchoate Liens arising under ERISA;
(l) Liens reserved in customary oil, gas and/or mineral leases for
bonus or rental payments and for compliance with the terms of such leases and
Liens reserved in customary operating agreements, farm-out and farm-in
agreements, exploration agreements, development agreements and other similar
agreements for compliance with the terms of such agreements;
(m) any obligations or duties affecting any of the Property of the
Borrower or its Subsidiaries to any municipality or public authority with
respect to any franchise, grant, license or permit which do not materially
impair the use of such Property for the purposes for which it is held;
(n) defects, irregularities and deficiencies in title of any rights
of way or other Property of the Borrower or any Subsidiary which in the
aggregate do not materially impair the use of such rights of way or other
Property for the purposes for which such rights of way and other Property are
held by the Borrower or any Subsidiary, and defects, irregularities and
deficiencies in title to any Property of the Borrower or its Subsidiaries, which
defects, irregularities or deficiencies have been cured by possession under
applicable statutes of limitation;
(o) royalties, overriding royalties, revenue interests, production
payments (other than production payments granted or created by the Borrower in
connection with the borrowing of money), advance payment obligations (other than
obligations in respect of advance payment received by the Borrower in connection
with the borrowing of money) and other similar burdens now existing on Oil and
Gas Properties now owned or, as to Oil and Gas Properties hereafter acquired, at
the time of acquisition by the Borrower or any of its Subsidiaries;
(p) Liens arising out of all present and future division and
transfer orders, advance payment agreements, processing contracts, gas
processing plant agreements, operating agreements, gas balancing or deferred
production agreements, pooling, unitization or communitization agreements,
pipeline, gathering or transportation agreements, platform agreements, drilling
contracts, injection or repressuring agreements, cycling agreements,
construction agreements, salt water or other disposal agreements, leases or
rental agreements (but only as otherwise permitted by this Agreement), farm-out
and farm-in agreements, exploration and development agreements, and any and all
other contracts or agreements covering or arising out of production, sale, use,
purchase, exchange, storage, separation, dehydration, treatment,
<PAGE> 80
75
compression, gathering, transportation, processing, improvement,
marketing, disposal or handling of any Property of the Borrower or its
Subsidiaries, provided such agreements are entered into in the ordinary
course of business and contain terms customary for such agreements in the
industry;
(q) Liens securing Indebtedness permitted pursuant to subsection
7.2(i), so long as the aggregate fair market value (determined, in the
case of each such Lien, as of the date such Lien is incurred) of the
assets subject thereto does not at any time exceed an amount equal to the
product of (i) 1.5 and (ii) the aggregate outstanding principal amount of
the obligations secured thereby;
(r) Liens securing Indebtedness permitted pursuant to subsection
7.2(j), so long as (i) the aggregate outstanding principal amount of the
obligations secured thereby does not exceed $60,000,000, and (ii) the
aggregate fair market value (determined, in the case of each such Lien, as
of the date such Lien is incurred) of the assets subject thereto does not
at any time exceed an amount equal to the product of (x) 1.5 and (y) the
aggregate outstanding principal amount of the obligations secured thereby;
(s) Liens in favor of collecting or payor banks having a right of
setoff, revocation, refund or chargeback with respect to money or
instruments of the Borrower or any of its Subsidiaries on deposit with or
in possession of such bank;
(t) Liens securing Indebtedness of the Borrower or any of its
Subsidiaries incurred pursuant to subsection 7.2(l) to finance the
acquisition of a vessel, provided that (i) such Liens shall be created
substantially simultaneously with such acquisition, (ii) such Liens do not
at any time encumber any Property of the Borrower or its Subsidiaries
other than such vessel and (iii) the amount of Indebtedness secured
thereby is not increased; and
(u) Liens in favor of the trustee under the Senior Subordinated Note
Indenture on up to $151,500,000 of the net cash proceeds of the Senior
Subordinated Notes (including any Lien in favor of such trustee on the
Borrower's interest, up to $151,500,000, in the Washington Escrow)
securing the payment of the Borrower's obligations under the Senior
Subordinated Notes.
7.4 Limitation on Fundamental Changes. Except for Excluded
Subsidiaries, enter into any merger, consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or Dispose of all or substantially all of its Property or
business, except that:
(a) any Subsidiary of the Borrower may be merged or consolidated
with or into the Borrower (provided that the Borrower shall be the
continuing or surviving corporation) or with or into any Subsidiary
Guarantor (provided that the Subsidiary Guarantor shall be the continuing
or surviving corporation); and
<PAGE> 81
76
(b) any Subsidiary of the Borrower may Dispose of any or all of its
assets (upon dividend, distribution, voluntary liquidation or otherwise)
to the Borrower or any Subsidiary Guarantor.
7.5 Limitation on Disposition of Property. Except for Excluded
Subsidiaries, dispose of any of its Property (including, without limitation,
receivables and leasehold interests), whether now owned or hereafter acquired,
or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's
Capital Stock to any Person, except:
(a) the Disposition of obsolete or worn out Property in the ordinary
course of business;
(b) the sale of inventory, hydrocarbon production, other mineral
products and products refined therefrom in the ordinary course of
business;
(c) Dispositions permitted by subsection 7.4(b);
(d) the sale or issuance of any Subsidiary's Capital Stock to the
Borrower or any Subsidiary Guarantor;
(e) any Recovery Event; provided, that the requirements of
subsection 2.10(b) are complied with in connection therewith;
(f) other Dispositions outside the ordinary course of business
occurring during the term of this Agreement which yield gross proceeds to
the Borrower or any of its Subsidiaries (valued at the initial principal
amount thereof in the case of non-cash proceeds consisting of notes or
other debt securities and valued at fair market value in the case of other
non-cash proceeds) in an aggregate amount not in excess of $25,000,000;
(g) Asset Sales not otherwise permitted by this subsection 7.5;
provided, that (i) the aggregate book value of all assets which are the
subject thereof does not exceed, during the term of this Agreement, 1% of
the aggregate book value of the assets of the Borrower and its
Subsidiaries after giving effect to the Acquisitions and (ii) the
requirements of subsection 2.10(b) are complied with in connection
therewith;
(h) any trade or exchange by the Borrower or any Subsidiary
Guarantor of any Oil and Gas Property for Property owned or held by
another Person; provided that (i) the fair market value of the Oil and Gas
Property so traded or exchanged by (together with any accompanying cash or
Cash Equivalents paid by) the Borrower or such Subsidiary Guarantor, as
the case may be (the "Released Property"), is substantially equivalent to
the fair market value of the Property (together with any accompanying cash
or Cash Equivalents) received by the Borrower or such Subsidiary
Guarantor, as the case may be, in connection with such trade or exchange
(the "Received Property") and (ii) if the Released Property constitutes
Collateral immediately prior to such trade or exchange, then the Received
Property shall
<PAGE> 82
77
constitute Collateral and, accordingly, shall be pledged to the Collateral
Agent, for the benefit of the Lenders, in the manner provided in the
applicable paragraph or paragraphs of subsection 6.9; provided, further,
that the aggregate value of all Oil and Gas Properties traded or exchanged
and any accompanying cash or Cash Equivalents paid by the Borrower and the
Subsidiary Guarantors pursuant to this subsection 7.5(h) in connection
with the business of the Borrower and its Subsidiaries conducted outside
of South America shall not exceed $50,000,000;
(i) the sale or transfer (whether or not in the ordinary course of
business) of crude oil or natural gas properties or direct or indirect
interests in real property; provided, that at the time of any such sale or
transfer, the Property being sold or transferred does not have associated
with it any proved reserves; and
(j) the abandonment, farmout, lease or sublease of developed or
undeveloped crude oil or natural gas properties in the ordinary course of
business.
7.6 Limitation on Restricted Payments. Declare or pay any dividend
(other than dividends payable solely in common stock of the Person making such
dividend) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any Capital Stock of the Borrower or any
Subsidiary, whether now or hereafter outstanding, or make any other distribution
in respect thereof, either directly or indirectly, whether in cash or property
or in obligations of the Borrower or any Subsidiary (collectively, "Restricted
Payments"), except that (a) any Subsidiary may make Restricted Payments to the
Borrower or any Subsidiary Guarantor and (b) so long as no Default or Event of
Default shall be in existence, the Borrower may pay dividends (i) on the
Mandatorily Convertible Preferred Stock at the stated rate and (ii) on its
common stock in an aggregate amount not to exceed $10,000,000 in any fiscal year
of the Borrower.
7.7 Limitation on Investments. Make any advance, loan, extension of
credit (by way of guaranty or otherwise) or capital contribution to, or purchase
any Capital Stock, bonds, notes, debentures or other debt securities of, or any
assets constituting an ongoing business from, or make any other investment in,
any other Person (all of the foregoing, "Investments"), except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Investments arising in connection with the incurrence of
Indebtedness permitted by subsections 7.2(d) and (f);
(d) loans and advances to officers, directors and employees of the
Borrower or any of its Subsidiaries in the ordinary course of business
(including, without limitation, for travel, entertainment and relocation
expenses) in an aggregate amount for the Borrower and its Subsidiaries not
to exceed $7,500,000 at any one time outstanding;
<PAGE> 83
78
(e) the Acquisitions;
(f) Investments in assets useful in the Borrower's business made by
the Borrower or any of its Subsidiaries with the proceeds of any
Reinvestment Deferred Amount;
(g) entering into a joint venture or partnership in connection with
the sale to such joint venture or partnership of all or a portion of the
assets of Tesoro Bolivia;
(h) (i) the purchase of stock issued by the Borrower from
participants in the incentive stock plans of the Borrower made for the
purpose of satisfying federal withholding tax obligations of such
participants as provided for under the terms of such incentive stock plans
or stock incentive grants thereunder or (ii) the purchase existing options
issued to such participants pursuant to such incentive stock plans in
order to make stock available for issuance to current employees, provided
that the aggregate amount of Investments permitted pursuant to the
foregoing clause (ii) during the term of this Agreement shall in no event
exceed $5,000,000;
(i) purchases of all or substantially all of the Capital Stock of
Persons organized under the laws of the United States or any state thereof
and engaged in lines of business similar to the line of business of the
Borrower on the date of this Agreement, but in no event in contravention
of subsection 4.16; provided, that the aggregate amount of Investments
made pursuant to this subsection 7.7(i), taken together with the aggregate
amount of Indebtedness assumed by the Borrower and its Subsidiaries
pursuant to subsection 7.2(i), shall in no event exceed $75,000,000;
(j) Investments (other than those relating to the incurrence of
Indebtedness permitted by subsection 7.7(c)) by the Borrower or any of its
Subsidiaries in the Borrower or any Person that, prior to such investment,
is a Subsidiary Guarantor; provided that any such Investments in Tesoro
Bolivia shall not in the aggregate exceed (i) during the period from the
Closing Date until the first anniversary of the Closing Date, $75,000,000,
(ii) during the period from the first anniversary of the Closing Date
until the second anniversary of the Closing Date, $75,000,000, (iii)
during the period from the second anniversary of the Closing Date until
the third anniversary of the Closing Date, $50,000,000 or (iv) after the
third anniversary of the Closing Date, the amounts permitted by subsection
7.7(k);
(k) Investments (other than those relating to the incurrence of
Indebtedness permitted by subsection 7.7(c) by the Borrower or any of its
Subsidiaries in the Borrower or any Person that, prior to such investment,
is a Subsidiary Guarantor; provided that, (i) any such Investments in
Tesoro Latin American Company or any other Subsidiary (other than Tesoro
Bolivia) which conducts a material portion of its operations outside the
United States shall not in the aggregate exceed $25,000,000 during the
first three one-year periods following the Closing Date and (ii) any such
Investment in Tesoro Latin America Company or any other Subsidiary
(including Tesoro Bolivia) which conducts a material portion of its
operations outside the United
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States shall not in the aggregate exceed $40,000,000 in any one-year
period following the Closing Date;
(l) Investments by the Borrower or any of its Subsidiaries in the
businesses of branded dealers and distributors in connection with retail
gasoline station improvements; provided, that the aggregate amount of
Investments made pursuant to this subsection 7.7(k), taken together with
the aggregate amount of outstanding Guarantee Obligations incurred
pursuant to subsection 7.2(h), shall not exceed (i) at any time during
1998, $10,000,000, and (ii) at any time thereafter, $20,000,000;
(m) Investments by the Borrower or any of its Subsidiaries
consisting of the receipt by the Borrower or such Subsidiary of Capital
Stock or other securities, obligations or production payments in
settlement of debts created in the ordinary course of business and owing
to, or in satisfaction of judgments in favor of, the Borrower or any of
its Subsidiaries; provided, that the aggregate amount of debts so settled
and judgments so satisfied during the term of this Agreement shall not
exceed $10,000,000;
(n) the Shipping Joint Venture; provided that the Shipping Joint
Venture shall not constitute an Investment permitted by this subsection
7.7 if any Indebtedness is outstanding pursuant to subsection 7.2(l) or if
all or any portion of the purchase price of the vessel owned by such
Shipping Joint Venture has been funded with the proceeds of Loans; and
(o) entering into a joint venture or partnership in connection with
the sale to such joint venture or partnership of all or a portion of the
assets of Tesoro Marine Services, Inc.; provided, that the fair market
value of the investment by Tesoro Marine Services, Inc. to such joint
venture or partnership shall in no event exceed $50,000,000 and the terms
of such joint venture or partnership shall be reasonably satisfactory to
the General Administrative Agent in all material respects and the
interests of the Borrower and any of its Subsidiaries in such joint
venture or partnership shall be pledged to the Collateral Agent, for the
benefit of the Lenders, in the manner provided in clauses (i) and (ii) of
subsection 6.9(a).
7.8 Limitation on Optional Payments and Modifications of Debt
Instruments, etc. (a) Make or offer to make any optional or voluntary payment,
prepayment, repurchase or redemption of, or otherwise voluntarily or optionally
defease, or deposit any funds with any trustee or create any trust to defease,
the Senior Subordinated Notes, (b) amend, modify or otherwise change, or consent
or agree to any amendment, modification, waiver or other change to, any of the
terms of the Senior Subordinated Notes (other than any such amendment,
modification, waiver or other change which (i) would extend the maturity or
reduce the amount of any payment of principal thereof, reduce the rate or extend
the date for payment of interest thereon or relax any covenant or other
restriction applicable to the Borrower or any of its Subsidiaries and (ii) does
not involve the payment of a consent fee), (c) designate any Indebtedness (other
than the Obligations) as "Designated Senior Debt" for the purposes of the Senior
Subordinated Note Indenture or (d) amend its certificate of
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incorporation in any manner determined by the General Administrative Agent to be
adverse to the Lenders.
7.9 Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of Property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than the
Borrower or any Subsidiary Guarantor) unless such transaction is (a) otherwise
not prohibited by this Agreement, (b) in the ordinary course of business of the
Borrower or such Subsidiary, as the case may be, and (c) upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary, as the
case may be, than it would obtain in a comparable arm's-length transaction with
a Person which is not an Affiliate.
7.10 Limitation on Sales and Leasebacks. Enter into any arrangement
with any Person providing for the leasing by the Borrower or any Subsidiary of
real or personal property which has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of the Borrower or such Subsidiary.
7.11 Limitation on Changes in Fiscal Periods. Permit the fiscal year
of the Borrower to end on a day other than December 31 or change the Borrower's
method of determining fiscal quarters.
7.12 Limitation on Negative Pledge Clauses. Enter into or permit to
exist or become effective any agreement which prohibits or limits the ability of
the Borrower or any of its Subsidiaries to create, incur, assume or permit to
exist any Lien upon any of its Property or revenues, whether now owned or
hereafter acquired, to secure the Obligations or, in the case of any Subsidiary
Guarantor, its obligations under the Guarantee and Collateral Agreement, other
than (a) this Agreement and the other Loan Documents and (b) any agreements
governing any purchase money Liens or Capital Lease Obligations otherwise
permitted hereby (in which case, any prohibition or limitation shall only be
effective against the assets financed thereby).
7.13 Limitation on Restrictions on Subsidiary Distributions. Enter
into or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any Subsidiary to (a) make Restricted Payments in
respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness
owed to, the Borrower or any other Subsidiary, (b) make Investments in the
Borrower or any other Subsidiary or (c) transfer any of its assets to the
Borrower or any other Subsidiary, except for such encumbrances or restrictions
existing under or by reason of (i) any restrictions existing under the Loan
Documents, (ii) any restrictions with respect to a Subsidiary imposed pursuant
to an agreement which has been entered into in connection with the Disposition
of all or substantially all of the Capital Stock or assets of such Subsidiary
and (iii) solely in the case of the foregoing clause (c), customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with the past practices of the Borrower and its
Subsidiaries.
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7.14 Limitation on Lines of Business. Enter into any business,
either directly or through any Subsidiary, except for those businesses in which
the Borrower and its Subsidiaries are engaged on the date of this Agreement or
which are reasonably related thereto.
7.15 Limitation on Amendments to Acquisition Documents. (a) Amend,
supplement or otherwise modify (pursuant to a waiver or otherwise) the terms and
conditions of the indemnities and licenses furnished to the Borrower or any of
its Subsidiaries pursuant to the Hawaii Acquisition Agreement, the Washington
Acquisition Agreement, or any other document delivered by the Hawaii Sellers,
the Washington Seller or any of their respective affiliates in connection
therewith such that after giving effect thereto such indemnities or licenses
shall be materially less favorable to the interests of the Loan Parties or the
Lenders with respect thereto or (b) otherwise amend, supplement or otherwise
modify the terms and conditions of the Hawaii Acquisition Agreement, the
Washington Acquisition Agreement or any such other documents except to the
extent that any such amendment, supplement or modification could not reasonably
be expected to have a Material Adverse Effect.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
the Borrower shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any other amount payable hereunder or under any other Loan
Document, within five days after any such interest or other amount becomes
due in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been inaccurate in any material respect on or
as of the date made or deemed made; or
(c) (i) Any Loan Party shall default in the observance or
performance of any agreement contained in clause (i) or (ii) of subsection
6.4(a) (with respect to the Borrower only), subsection 6.7(a), Section 7
of this Agreement or Section 5 of the Guarantee and Collateral Agreement
or (ii) an "Event of Default" under and as defined in any Mortgage shall
have occurred and be continuing; or
(d) Any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section 8),
and such default shall continue unremedied for a period of 30 days; or
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(e) Any Loan Party shall (i) default in making any payment of any
principal of any Indebtedness (including, without limitation, any
Guarantee Obligation constituting Indebtedness, but excluding the Loans)
on the scheduled or original due date with respect thereto; or (ii)
default in making any payment of any interest on any such Indebtedness
beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness was created; or (iii) default in
the observance or performance of any other agreement or condition relating
to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur
or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or beneficiary of such
Indebtedness (or a trustee or agent on behalf of such holder or
beneficiary) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or (in the case of
any such Indebtedness constituting a Guarantee Obligation) to become
payable; provided, that a default, event or condition described in clause
(i), (ii) or (iii) of this paragraph (e) shall not at any time constitute
an Event of Default unless, at such time, one or more defaults, events or
conditions of the type described in clauses (i), (ii) and (iii) of this
paragraph (e) shall have occurred and be continuing with respect to
Indebtedness the aggregate outstanding principal amount of which is at
least $15,000,000; or
(f) (i) Any Loan Party shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief
of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or any Loan Party shall make a general assignment for the benefit
of its creditors; or (ii) there shall be commenced against any Loan Party
any case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced
against any Loan Party any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in
the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) any Loan Party shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v)
any Loan Party shall generally not, or shall be unable to, or shall admit
in writing its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a
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Plan shall arise on the assets of the Borrower or any Commonly Controlled
Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall
be appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Required Lenders, likely to
result in the termination of such Plan for purposes of Title IV of ERISA,
(iv) any Single Employer Plan shall terminate for purposes of Title IV of
ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in the
reasonable opinion of the Required Lenders is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist with respect to a Plan; and in each case in
clauses (i) through (vi) above, such event or condition, together with all
other such events or conditions, if any, could, in the sole judgment of
the Required Lenders, reasonably be expected to have a Material Adverse
Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance as to which the relevant insurance
company has acknowledged coverage) of $10,000,000 or more, and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 30 days from the entry thereof; or
(i) Any of the Security Documents covering material collateral shall
cease, for any reason, to be in full force and effect, or any Loan Party
or any Affiliate of any Loan Party shall so assert, or any Lien created by
any of the Security Documents shall cease to be enforceable and of the
same effect and priority purported to be created thereby; or
(j) The guarantee contained in Section 2 of the Guarantee and
Collateral Agreement shall cease, for any reason, to be in full force and
effect or any Loan Party shall so assert; or
(k) (i) Any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) shall become, or obtain rights (whether by
means or warrants, options or otherwise) to become, the "beneficial owner"
(as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly
or indirectly, of more than 25% of the outstanding common stock of the
Borrower; (ii) the board of directors of the Borrower shall cease to
consist of a majority of Continuing Directors; or (iii) a Specified Change
of Control shall occur; or
(l) At any time, the Senior Subordinated Notes or the guarantees
thereof shall cease, for any reason, to be validly subordinated to the
Obligations or the obligations of the Subsidiary Guarantors under the
Guarantee and Collateral Agreement, as the case may be, as provided in the
Senior Subordinated Note Indenture, or any Loan
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Party, the trustee in respect of the Senior Subordinated Notes or the
holders of at least 25% in aggregate principal amount of the Senior
Subordinated Notes shall so assert;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) shall immediately become due and payable, and (B) if such event is
any other Event of Default, either or both of the following actions may be
taken, so long as such Event of Default is in existence and has not otherwise
been cured or waived in accordance herewith: (i) with the consent of the
Majority Revolving Credit Facility Lenders, the General Administrative Agent
may, or upon the request of the Majority Revolving Credit Facility Lenders, the
General Administrative Agent shall, by notice to the Borrower declare the
Revolving Credit Commitments to be terminated forthwith, whereupon the Revolving
Credit Commitments shall immediately terminate; and (ii) with the consent of the
Required Lenders, the General Administrative Agent may, or upon the request of
the Required Lenders, the General Administrative Agent shall, by notice to the
Borrower, declare the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement and the other Loan Documents
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) to be due and payable forthwith, whereupon
the same shall immediately become due and payable. With respect to all Letters
of Credit with respect to which presentment for honor shall not have occurred at
the time of an acceleration pursuant to this paragraph, the Borrower shall at
such time deposit in a cash collateral account opened by the General
Administrative Agent an amount equal to the aggregate then undrawn and unexpired
amount of such Letters of Credit. Amounts held in such cash collateral account
shall be applied by the General Administrative Agent to the payment of drafts
drawn under such Letters of Credit, and the unused portion thereof after all
such Letters of Credit shall have expired or been fully drawn upon, if any,
shall be applied to repay other obligations of the Borrower hereunder and under
the other Loan Documents. After all such Letters of Credit shall have expired or
been fully drawn upon, all Reimbursement Obligations shall have been satisfied
and all other obligations of the Borrower hereunder and under the other Loan
Documents shall have been paid in full, the balance, if any, in such cash
collateral account shall be returned to the Borrower (or such other Person as
may be lawfully entitled thereto).
SECTION 9. THE AGENTS
9.1 Appointment. Each Lender hereby irrevocably designates and
appoints the Agents as the agents of such Lender under this Agreement and the
other Loan Documents, and each such Lender irrevocably authorizes each Agent, in
such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the such Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere
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in this Agreement, no Agent shall have any duties or responsibilities, except
those expressly set forth herein, or any fiduciary relationship with any Lender,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against any Agent.
9.2 Delegation of Duties. Each Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Agent shall be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
9.3 Exculpatory Provisions. Neither any Agent nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross negligence or willful misconduct)
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Loan Party or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agents under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of any Loan Party a party thereto to perform its obligations
hereunder or thereunder. The Agents shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.
9.4 Reliance by Agents. Each Agent shall be entitled to rely, and
shall be fully protected in relying, upon any instrument, writing, resolution,
notice, consent, certificate, affidavit, letter, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Loan Parties), independent accountants and other
experts selected by the General Administrative Agent. The Agents may deem and
treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the General Administrative Agent. Each Agent shall be fully justified
in failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders (or, if so specified by this Agreement, all Lenders) as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. Each Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement and the other Loan Documents in accordance with a request of the
Required Lenders (or, if so specified by this Agreement, all Lenders),
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and such request and any action taken or failure to act pursuant thereto shall
be binding upon all the Lenders and all future holders of the Loans.
9.5 Notice of Default. No Agent shall be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless
such Agent has received notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the General Administrative
Agent receives such a notice, the General Administrative Agent shall give notice
thereof to the Lenders. The General Administrative Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Required Lenders (or, if so specified by this Agreement, all Lenders);
provided that unless and until the General Administrative Agent shall have
received such directions, the General Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
acknowledges that neither the Agents nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by any Agent hereinafter
taken, including any review of the affairs of a Loan Party or any affiliate of a
Loan Party, shall be deemed to constitute any representation or warranty by any
Agent to any Lender. Each Lender represents to the Agents that it has,
independently and without reliance upon any Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon any Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and their affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the General
Administrative Agent hereunder, no Agent shall have any duty or responsibility
to provide any Lender with any credit or other information concerning the
business, operations, property, condition (financial or otherwise), prospects or
creditworthiness of any Loan Party or any affiliate of a Loan Party which may
come into the possession of such Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
9.7 Indemnification. The Lenders agree to indemnify each Agent in
its capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective Aggregate Exposure Percentages in effect on the date on which
indemnification is sought under this subsection 9.7 (or, if indemnification is
sought after the date upon which the Commitments shall have terminated and the
Loans shall have been paid in full, ratably in accordance with such
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Aggregate Exposure Percentages immediately prior to such date), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the
payment of the Loans) be imposed on, incurred by or asserted against such Agent
in any way relating to or arising out of, the Commitments, this Agreement, any
of the other Loan Documents or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by such Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements which are found by a final
and nonappealable decision of a court of competent jurisdiction to have resulted
from such Agent's gross negligence or willful misconduct. The agreements in this
subsection 9.7 shall survive the payment of the Loans and all other amounts
payable hereunder.
9.8 Agent in Its Individual Capacity. Each Agent and its affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with any Loan Party as though such Agent was not an Agent. With respect
to its Loans made or renewed by it and with respect to any Letter of Credit
issued or participated in by it, each Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include each Agent in its individual capacity.
9.9 Successor Agents. The General Administrative Agent or the
Collateral Agent, as the case may be, may resign as such Agent upon 10 days'
notice to the Lenders and the Borrower. If the General Administrative Agent or
the Collateral Agent, as the case may be, shall resign as such Agent under this
Agreement and the other Loan Documents, then the Required Lenders shall appoint
from among the Lenders a successor General Administrative Agent or Collateral
Agent, as the case may be, which successor agent shall (unless an Event of
Default under subsection 8(a) or subsection 8(f) with respect to the Borrower
shall have occurred and be continuing) be subject to approval by the Borrower
(which approval shall not be unreasonably withheld or delayed), whereupon such
successor agent shall succeed to the rights, powers and duties of the General
Administrative Agent or the Collateral Agent, as the case may be, and the term
"General Administrative Agent" or "Collateral Agent", as the case may be, shall
mean such successor agent effective upon such appointment and approval, and the
former General Administrative Agent's or Collateral Agent's, as the case may be,
rights, powers and duties as General Administrative Agent or the Collateral
Agent, as the case may be, shall be terminated, without any other or further act
or deed on the part of such former General Administrative Agent or Collateral
Agent or any of the parties to this Agreement or any holders of the Loans;
provided, that the retiring Collateral Agent shall take such actions, at the
expense of the Borrower, as shall be required to transfer all Security Documents
and Collateral to the successor Collateral Agent. If no successor agent has
accepted appointment as General Administrative Agent by the date that is 10 days
following a retiring General Administrative Agent's notice of resignation, the
retiring General Administrative Agent's resignation shall nevertheless thereupon
become effective, and the Lenders shall assume and perform all of the duties of
the General Administrative Agent
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hereunder until such time, if any, as the Required Lenders appoint a successor
agent as provided for above. The Syndication Agent may, at any time, by notice
to the Lenders and the General Administrative Agent, resign as Syndication Agent
hereunder, whereupon the duties, rights, obligations and responsibilities
hereunder shall automatically be assumed by, and inure to the benefit of, the
General Administrative Agent, without any further act by the Syndication Agent,
the General Administrative Agent or any Lender. After any retiring Agent's
resignation as Agent, the provisions of this Section 9 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement and the other Loan Documents.
9.10 Authorization of Collateral Agent. The Collateral Agent is
hereby irrevocably authorized and directed by each of the Lenders to release,
and hereby agrees to release in accordance with the terms of the Guarantee and
Collateral Agreement, the obligations of any Subsidiary Guarantor or any Lien
covering any Property of the Borrower or any of its Subsidiaries, in either case
which is the subject of a Disposition which is permitted by this Agreement or
which has been consented to in accordance with subsection 10.1.
9.11 The Arranger, the Co-Administrative Agents and Documentation
Agent. The Arranger, the Co-Administrative Agents and the Documentation Agent,
in their respective capacities as such, shall have no duties or
responsibilities, and shall incur no liability, under this Agreement and the
other Loan Documents.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may, or
(with the written consent of the Required Lenders) the Agents and each Loan
Party party to the relevant Loan Document may, from time to time, (a) enter into
written amendments, supplements or modifications hereto and to the other Loan
Documents for the purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights of the Lenders or of
the Loan Parties hereunder or thereunder or (b) waive, on such terms and
conditions as the Required Lenders, or the Agents, as the case may be, may
specify in such instrument, any of the requirements of this Agreement or the
other Loan Documents or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such amendment, supplement or
modification shall (i) forgive the principal amount or extend the final
scheduled date of maturity of any Loan, extend the scheduled date of any
amortization payment in respect of any Term Loan, reduce the stated rate of any
interest or fee payable hereunder or extend the scheduled date of any payment
thereof, or increase the amount or extend the expiration date of any Commitment
of any Lender, in each case without the consent of each Lender directly affected
thereby; (ii) amend, modify or waive any provision of this subsection 10.1 or
reduce any percentage specified in the definition of Required Lenders or
Required Prepayment Lenders, consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement and the other
Loan
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Documents, release all or substantially all of the Collateral or release
all or substantially all of the Subsidiary Guarantors from their obligations
under the Guarantee and Collateral Agreement, in each case without the consent
of all Lenders; (iii) amend, modify or waive any condition precedent to any
extension of credit under the Revolving Credit Facility set forth in subsection
5.2 (including, without limitation, in connection with any waiver of an existing
Default or Event of Default) without the consent of the Majority Revolving
Credit Facility Lenders; (iv) amend, modify or waive any condition precedent to
any extension of credit under the Tranche A Term Loan Facility or the Tranche B
Term Loan Facility set forth in subsection 5.2 (including, without limitation,
in connection with any waiver of an existing Default or Event of Default)
without the consent of the Majority Tranche A Term Loan Facility Lenders or the
Majority Tranche B Term Loan Facility Lenders, as the case may be; (v) reduce
the percentage specified in the definition of Majority Facility Lenders with
respect to any Facility without the written consent of all Lenders under such
Facility; (vi) amend, modify or waive any provision of Section 9 without the
consent of the Agents; (vii) amend, modify or waive any provision of subsection
2.14 without the consent of each Lender directly affected thereby; or (viii)
amend, modify or waive any provision of Section 3 without the consent of each
Issuing Bank. Any such waiver and any such amendment, supplement or modification
shall apply equally to each of the Lenders and shall be binding upon the Loan
Parties, the Lenders, the Agents and all future holders of the Loans. In the
case of any waiver, the Loan Parties, the Lenders and the Agents shall be
restored to their former position and rights hereunder and under the other Loan
Documents, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent or
other Default or Event of Default, or impair any right consequent thereon. Any
such waiver, amendment, supplement or modification shall be effected by a
written instrument signed by the parties required to sign pursuant to the
foregoing provisions of this subsection 10.1; provided, that delivery of an
executed signature page of any such instrument by facsimile transmission shall
be effective as delivery of a manually executed counterpart thereof.
10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed (a) in the case of the Borrower and the Agents, as follows,
and (b) in the case of any Lender, as set forth on Schedule 1 to the Lender
Addendum delivered by such Lender, or, in the case of a Lender which becomes a
party to this Agreement pursuant to an Assignment and Acceptance, in such
Assignment and Acceptance, or (c) in the case of any party, to such other
address as such party may hereafter notify to the other parties hereto:
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The Borrower: Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
Attention: Treasurer
Telecopy: (210) 283-2003
Telephone: (210) 283-2440
The Syndication Agent: Lehman Commercial Paper Inc.
3 World Financial Center
New York, New York 10285
Attention: Michael O'Brien
Telecopy: (212) 528-0819
Telephone: (212) 526-0437
The General Administrative
Agent: The First National Bank of Chicago
One First National Plaza
Mail Suite 0634, 10th Floor
Chicago, Illinois 60670
Attention: Bill Laird
Telecopy: (312) 732-3055
Telephone: (312) 732-5635
With a copy to: The First National Bank of Chicago
1100 Louisiana Street, Suite 3200
Houston, Texas 77002
Attention: Dixon Schultz
Telecopy: (713) 654-7370
Telephone: (713) 654-7300
The Collateral Agent: Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attention: Brian Malone
Telecopy: (713) 659-6915
Telephone: (713) 659-4811
provided that any notice, request or demand to or upon any Agent or any Lender
shall not be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of any party hereto, any right, remedy, power
or privilege hereunder or under the other Loan Documents shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The
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91
rights, remedies, powers and privileges herein provided are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans and other extensions of credit hereunder.
10.5 Payment of Expenses. The Borrower agrees (a) to pay or
reimburse the Agents for all their reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the General Administrative Agent, the Collateral
Agent and the Issuing Banks, (b) to pay or reimburse each of the Lenders and
Agents for all its reasonable costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Agreement, the other Loan
Documents and any such other documents, including, without limitation, the fees
and disbursements of counsel (including the allocated fees and expenses of
in-house counsel) to each Lender and of counsel to the Agents, (c) to pay,
indemnify, and hold each Lender and the Agents harmless from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay caused by any Loan Party in paying, stamp, excise and
other taxes, if any, which may be payable or determined to be payable in
connection with the execution and delivery of, or consummation or administration
of any of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, this
Agreement, the other Loan Documents and any such other documents, and (d) to
pay, indemnify, and hold each Lender and the Agents and their respective
officers, directors, employees, affiliates, agents and controlling persons
(each, an "Indemnitee") harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents and any such other documents, including,
without limitation, any of the foregoing relating to the use of proceeds of the
Loans or the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of the Borrower, any of its
Subsidiaries or any property at any time owned, leased or in any way used by the
Borrower or any of its Subsidiaries (all the foregoing in this clause (d),
collectively, the "Indemnified Liabilities"), provided, that the Borrower shall
have no obligation hereunder to any Indemnitee with respect to Indemnified
Liabilities (i) to the extent such Indemnified Liabilities are found by a final
and nonappealable decision of a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of such Indemnitee or (ii)
solely related to the transfer, assignment or other disposition by or on behalf
of any Indemnitee of any Note or any interest in its Commitments or rights to
payment under this Agreement. Without limiting the foregoing, and to the extent
permitted by applicable law, the Borrower agrees not to assert and to cause its
Subsidiaries not to assert, and hereby waives and agrees to cause its
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Subsidiaries so to waive, all rights for contribution or any other rights of
recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, under or
related to Environmental Laws, that any of them now or hereafter might have by
statute or otherwise against any Indemnitee. The agreements in this subsection
10.5 shall survive repayment of the Loans and all other amounts payable
hereunder.
10.6 Successors and Assigns; Participations and Assignments. a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Agents, all future holders of the Loans and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agents and each Lender.
(b) Any Lender may, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan Documents, and the
Borrower and the Agents shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents. In no event shall any Participant under
any such participation have any right to approve any amendment or waiver of any
provision of any Loan Document, or any consent to any departure by any Loan
Party therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, the Loans or any fees payable
hereunder, or postpone the date of the final maturity of the Loans, in each case
to the extent subject to such participation. The Borrower agrees that if amounts
outstanding under this Agreement and the Loans are due but unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall, to the maximum extent permitted by
applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, provided that, in purchasing such participating
interest, such Participant shall be deemed to have agreed to share with the
Lenders the proceeds thereof as provided in subsection 10.7(a) as fully as if it
were a Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of subsections 2.17, 2.18 and 2.19 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it was a Lender; provided that, in the case of subsection 2.18, such
Participant shall have complied with the requirements of such subsection and
provided, further, that no Participant shall be entitled to receive any greater
amount pursuant to any such subsection than the transferor Lender would have
been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
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(c) Any Lender (an "Assignor") may, in accordance with applicable
law, at any time and from time to time assign to (i) any Lender or any affiliate
thereof (provided that the consent of the Issuing Banks shall be obtained in
connection with any assignment of Revolving Credit Commitments to an affiliate
of a Lender), (ii) in the case of all or any part of its rights and obligations
in respect of funded Term Loans, to an additional bank, financial institution or
other entity, or (iii) with the consent of the Borrower and the Agents (and, in
the case of any assignment of Revolving Credit Commitments, the Issuing Banks),
which, in each case, shall not be unreasonably withheld or delayed (provided
that the consent of the Agents need not be obtained by LCPI with respect to any
assignments to LCPI or by LCPI, and the consent of the Issuing Banks need not be
obtained with respect to any assignment of Term Loans and Term Loan Commitments
to LCPI or by LCPI), to an additional bank, financial institution or other
entity (an "Assignee") all or any part of its rights and obligations under this
Agreement pursuant to an Assignment and Acceptance, substantially in the form of
Exhibit E (an "Assignment and Acceptance"), executed by such Assignee and such
Assignor (and, where the consent of the Borrower, the Agents or the Issuing
Banks is required pursuant to the foregoing provisions, by the Borrower or the
Borrower and such other Persons, as the case may be) and delivered to the
General Administrative Agent for its acceptance and recording in the Register;
provided that no such assignment to an Assignee (other than any Lender or any
affiliate thereof) shall be in an aggregate principal amount of less than
$5,000,000 (other than in the case of an assignment of all of a Lender's
interests under this Agreement), unless otherwise agreed by the Borrower, the
Syndication Agent and the General Administrative Agent. Any such assignment need
not be ratable as among the Facilities. Upon such execution, delivery,
acceptance and recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder with a Commitment and/or Loans as
set forth therein, and (y) the Assignor thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of an
Assignor's rights and obligations under this Agreement, such Assignor shall
cease to be a party hereto). Notwithstanding any provision of this subsection
10.6(c), the consent of the Borrower shall not be required for any assignment
which occurs at any time when any Event of Default shall have occurred and be
continuing.
(d) The General Administrative Agent shall, on behalf of the
Borrower, maintain at its address referred to in subsection 10.2 a copy of each
Assignment and Acceptance delivered to it and a register (the "Register") for
the recordation of the names and addresses of the Lenders and the Commitment of,
and principal amount of the Loans owing to, each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the General Administrative Agent and the Lenders shall treat
each Person whose name is recorded in the Register as the owner of the Loans and
any Notes evidencing such Loans recorded therein for all purposes of this
Agreement. Any assignment of any Loan, whether or not evidenced by a Note, shall
be effective only upon appropriate entries with respect thereto being made in
the Register (and each Note shall expressly so provide). Any assignment or
transfer of all or part of a Loan evidenced by a Note shall be registered on the
Register only upon surrender for registration of assignment or transfer of the
Note evidencing such Loan, accompanied by a duly executed
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Assignment and Acceptance; thereupon one or more new Notes in the same aggregate
principal amount shall be issued to the designated Assignee, and the old Notes
shall be returned by the General Administrative Agent to the Borrower marked
"cancelled". The Register shall be available for inspection by the Borrower or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor and an Assignee (and, in any case where the consent of any other Person
is required by subsection 10.6(c), by each such other Person) together with
payment by such Assignor and/or such Assignee (as agreed between them) to the
General Administrative Agent of a registration and processing fee of $2,500
(provided that no such payment shall be required with respect to assignments (y)
involving LCPI as assignor or assignee or (z) assignments to an Assignee which
is already a Lender; provided, further, that with respect to one or more
substantially concurrent assignments by a Lender to an affiliate or affiliates
thereof or to Persons under common management with such Lender, only one such
fee shall be payable), the General Administrative Agent shall (i) promptly
accept such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and the Borrower.
On or prior to such effective date, the Borrower, at its own expense, upon
request, shall execute and deliver to the General Administrative Agent (in
exchange for the Revolving Credit Note and/or applicable Term Notes, as the case
may be, of the assigning Lender) a new Revolving Credit Note and/or applicable
Term Notes, as the case may be, to the order of such Assignee in an amount equal
to the Revolving Credit Commitment and/or applicable Term Loans, as the case may
be, assumed or acquired by it pursuant to such Assignment and Acceptance and, if
the Assignor has retained a Revolving Credit Commitment and/or Term Loans, as
the case may be, upon request, a new Revolving Credit Note and/or Term Notes, as
the case may be, to the order of the Assignor in an amount equal to the
Revolving Credit Commitment and/or applicable Term Loans, as the case may be,
retained by it hereunder. Such new Note or Notes shall be dated the Closing Date
and shall otherwise be in the form of the Note or Notes replaced thereby.
(f) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection 10.6 concerning assignments
of Loans and Notes relate only to absolute assignments and that such provisions
do not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law; provided, that all
related costs, fees and expenses assessed against or incurred by such Lender
solely in connection with any such assignment to any Federal Reserve Bank or any
related re-assignment to such Lender shall be for the sole account of such
Lender.
10.7 Adjustments; Set-off. (a) Except to the extent that this
Agreement provides for payments to be allocated to a particular Lender or to the
Lenders under a particular Facility, if any Lender (a "Benefitted Lender") shall
at any time receive any payment of all or part of the Obligations owing to it,
or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in subsection 8(f), or otherwise), in a greater proportion than any
such
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payment to or collateral received by any other Lender, if any, in respect of
such other Lender's Obligations, such Benefitted Lender shall purchase for cash
from the other Lenders a participating interest in such portion of each such
other Lender's Obligations, or shall provide such other Lenders with the
benefits of any such collateral, as shall be necessary to cause such Benefitted
Lender to share the excess payment or benefits of such collateral ratably with
each of the Lenders; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such Benefitted Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided
by law, at any time when an Event of Default is in existence, each Lender shall
have the right, without prior notice to the Borrower, any such notice being
expressly waived by the Borrower to the extent permitted by applicable law, upon
any amount becoming due and payable by the Borrower hereunder (whether at the
stated maturity, by acceleration or otherwise), to set off and appropriate and
apply against such amount any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Lender or any branch or agency thereof to or for the credit or the
account of the Borrower, as the case may be. Each Lender agrees promptly to
notify the Borrower and the General Administrative Agent after any such setoff
and application made by such Lender, provided that the failure to give such
notice shall not affect the validity of such setoff and application.
10.8 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrower and the General Administrative Agent.
10.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Agents and the Lenders with respect
to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by any Agent or any Lender relative to subject
matter hereof not expressly set forth or referred to herein or in the other Loan
Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE
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GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. (a) The Borrower hereby
irrevocably and unconditionally:
(i) submits for itself and its Property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the courts
of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower at its address set forth in subsection 10.2 or at
such other address of which the General Administrative Agent shall have
been notified pursuant thereto; and
(iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction.
(b) Each party hereto hereby waives, to the maximum extent not
prohibited by law, any right it may have to claim or recover in any legal action
or proceeding referred to in this subsection 10.12 any special, exemplary,
punitive or consequential damages.
10.13 Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the General Administrative Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and the
relationship between General Administrative Agent and Lenders, on one
hand, and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among the Borrower and the Lenders.
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10.14 Confidentiality. Each of the Agents and the Lenders agrees to
keep confidential all non-public information provided to it by any Loan Party
pursuant to this Agreement that is designated by such Loan Party as
confidential; provided that nothing herein shall prevent any Agent or any Lender
from disclosing any such information (a) to the General Administrative Agent,
any other Lender or any affiliate of any Lender, (b) to any Participant or
Assignee (each, a "Transferee") or prospective Transferee which agrees to comply
with the provisions of this subsection 10.14, (c) any of its employees,
directors, agents, attorneys, accountants and other professional advisors, (d)
upon the request or demand of any Governmental Authority having jurisdiction
over it, (e) in response to any order of any court or other Governmental
Authority or as may otherwise be required pursuant to any Requirement of Law
(exclusive of any organizational or governance document of such Agent or
Lender), (f) if requested or required to do so in connection with any litigation
or similar proceeding, (g) which has been publicly disclosed other than in
breach of this subsection 10.14, (h) to the National Association of Insurance
Commissioners or any similar organization or any nationally recognized rating
agency that requires access to information about a Lender's investment portfolio
in connection with ratings issued with respect to such Lender or (i) in
connection with the exercise of any remedy hereunder or under any other Loan
Document. In the event that any Agent or Lender shall have received a demand or
request, or intends to respond to or otherwise satisfy a requirement, for the
delivery of any such confidential information pursuant to the foregoing clause
(f), such Agent or Lender promptly shall make reasonable efforts to notify the
Borrower thereof within any applicable time period permitted to contest
compliance with any such demand, request or requirement; provided, that in no
event shall any Lender or Agent be liable for any action taken pursuant to such
clause (f) or for any failure so to notify the Borrower in accordance with the
foregoing.
10.15 Enforceability; Usury. In no event shall any provision of this
Agreement, the Notes, or any other instrument evidencing or securing the
indebtedness of the Borrower hereunder ever obligate the Borrower to pay or
allow any Lender to collect interest on the Notes or any other indebtedness of
the Borrower hereunder at a rate greater than the maximum non-usurious rate
permitted by applicable law (herein referred to as the "Highest Lawful Rate"),
or obligate the Borrower to pay any taxes, assessments, charges, insurance
premiums or other amounts to the extent that such payments, when added to the
interest payable on the Notes, would be held to constitute the payment by the
Borrower of interest at a rate greater than the Highest Lawful Rate; and this
provision shall control over any provision to the contrary.
Without limiting the generality of the foregoing, in the event the
maturity of all or any part of the principal amount of the indebtedness of the
Borrower hereunder shall be accelerated for any reason, then such principal
amount so accelerated shall be credited with any interest theretofore paid
thereon in advance and remaining unearned at the time of such acceleration. If,
pursuant to the terms of this Agreement or the Notes, any funds are applied to
the payment of any part of the principal amount of the indebtedness of the
Borrower hereunder prior to the maturity thereof, then (a) any interest which
would otherwise thereafter accrue on the principal amount so paid by such
application shall be canceled, and (b) the indebtedness of the Borrower
hereunder remaining unpaid after such application shall be credited with the
amount of all interest, if any, theretofore collected on the principal amount
<PAGE> 103
98
so paid by such application and remaining unearned at the date of said
application; and if the funds so applied shall be sufficient to pay in full all
the indebtedness of the Borrower hereunder, then the Lenders shall refund to the
Borrower all interest theretofore paid thereon in advance and remaining unearned
at the time of such acceleration. All sums paid or agreed to be paid to the
General Administrative Agent or to any Lender for the use, forbearance or
detention of sums due hereunder shall, to the extent permitted by law applicable
to the General Administrative Agent or such Lender, be amortized, prorated,
allocated and spread throughout the full term of the Loans until paid in full,
so that the rate or amount of interest on account of any Loans or other amounts
hereunder does not exceed the maximum amount allowed by such applicable law.
Regardless of any other provision in this Agreement, or in any of the written
evidences of the indebtedness of the Borrower hereunder, the Borrower shall
never be required to pay any unearned interest on such indebtedness or any
portion thereof, and shall never be required to pay interest thereon at a rate
in excess of the Highest Lawful Rate construed by courts having competent
jurisdiction thereof.
10.16 Accounting Changes. In the event that any "Accounting Change"
(as defined below) shall occur and such change results in a change in the method
of calculation of financial covenants, standards or terms in this Agreement,
then the Borrower and the General Administrative Agent agree to enter into
negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating the Borrower's financial condition shall be the same
after such Accounting Changes as if such Accounting Changes had not been made.
Until such time as such an amendment shall have been executed and delivered by
the Borrower, the General Administrative Agent and the Required Lenders, all
financial covenants, standards and terms in this Agreement shall continue to be
calculated or construed as if such Accounting Changes had not occurred.
"Accounting Changes" refers to changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants or, if applicable, the Securities and Exchange Commission (or
successors thereto or agencies with similar functions).
10.17 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND THE
LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND
FOR ANY COUNTERCLAIM THEREIN.
10.18 Purchase of Loans Under Existing Credit Agreement;
Reallocation.
(a) Pursuant to the Existing Credit Agreement, (i) LCPI, as Tranche
C Term Loan Lender thereunder, purchased loans previously made to the Borrower
pursuant to the credit agreement that was amended and restated pursuant to the
Existing Credit Agreement, and such loans so purchased by LCPI were amended and
restated as Tranche C Term Loans under the Existing Credit Agreement, and (ii)
LCPI made Second Lien Term Loans and Revolving Credit Loans (each as defined in
the Existing Credit Agreement). Notwithstanding the express terms of subsections
2.1 and 2.4 and any other contrary provision contained in
<PAGE> 104
99
Section 2, each Lender (other than LCPI) shall fund its Loans on the Closing
Date through the purchase of Loans outstanding under the Existing Credit
Agreement, as follows:
(i) Each Tranche B Term Loan Lender (other than LCPI) shall purchase
its Tranche B Term Loan Percentage of all Tranche C Term Loans outstanding
under (and as defined in) the Existing Credit Agreement on the Closing
Date immediately prior to the effectiveness of this Agreement, and such
loans so purchased (as well as LCPI's Tranche B Term Loan Percentage of
all Tranche C Term Loans outstanding under the Existing Credit Agreement
on the Closing Date immediately prior to the effectiveness of this
Agreement) shall thereafter be deemed to be Tranche B Term Loans hereunder
and be subject to all terms and conditions thereof. The Borrower hereby
expressly confirms that such loans so purchased shall constitute Tranche B
Term Loans hereunder and that the representations and warranties set forth
in Section 4 apply to such Tranche B Term Loans.
(ii) Each Tranche A Term Loan Lender (other than LCPI) shall
purchase its Tranche A Term Loan Percentage of all Tranche C Term Loans
outstanding under the Existing Credit Agreement on the Closing Date
immediately prior to the effectiveness of this Agreement other than (A)
the amount of such Tranche C Term Loans purchased by the Tranche B Term
Loan Lenders pursuant to clause (i) above and (B) the amount of such
Tranche C Term Loans constituting LCPI's Tranche B Term Loan Percentage of
such Tranche C Term Loans, and such loans so purchased shall thereafter be
deemed to be Tranche A Term Loans hereunder and be subject to all terms
and conditions thereof. The Borrower hereby expressly confirms that such
loans so purchased shall constitute Tranche A Term Loans hereunder and
that the representations and warranties set forth in Section 4 apply to
such Tranche A Term Loans.
(iii) Each Revolving Credit Lender (other than LCPI) shall purchase
its Revolving Credit Percentage of all Revolving Credit Loans outstanding
under (and as defined in) the Existing Credit Agreement on the Closing
Date immediately prior to the effectiveness of this Agreement, and such
loans so purchased shall thereafter be deemed to be Revolving Credit Loans
hereunder and be subject to all terms and conditions thereof. The Borrower
hereby expressly confirms that such loans so purchased shall constitute
Revolving Credit Loans hereunder and that the representations and
warranties set forth in Section 4 apply to such Revolving Credit Loans.
(b) In the event that any prepayment is to be made hereunder in respect of
the portion of the Term Loans acquired by the Lenders through the purchase of
loans outstanding under the Existing Credit Agreement, then, notwithstanding the
other provisions of this Agreement, such prepayment shall be applied to the
Revolving Credit Loans and each Revolving Credit Lender shall simultaneously
purchase its Revolving Credit Percentage of such portion of the Term Loans which
would otherwise be prepaid, and such portion so purchased by the Revolving
Credit Lenders shall thereafter be deemed to constitute Revolving Credit Loans
and be subject to all terms and conditions thereof.
<PAGE> 105
100
(c) Each purchase and assignment of loans (the "Assigned Loans") made
pursuant to paragraphs (a) and (b) above shall be made by the relevant assignor
without recourse to such assignor. Each such assignor (i) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made by any Loan Party in or in
connection with this Agreement or the Existing Credit Agreement or with respect
to the execution, legality, validity, enforceability, genuineness, sufficiency
or value of this Agreement, the Existing Credit Agreement, or any instrument or
document furnished pursuant hereto or thereto or in connection herewith or
therewith, other than that such assignor has not created any adverse claim upon
the interest being assigned by it hereunder and that on the date of such
assignment such interest is free and clear of any such adverse claim created by
or on behalf of such assignor; (b) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower, any of its Subsidiaries or any other obligor or the performance or
observance by the Borrower, any of its Subsidiaries or any other obligor of any
of their respective obligations under this Agreement or any other Loan Document
or any other instrument or document furnished pursuant hereto or thereto. Each
assignee of Assigned Loans represents and warrants that it is legally authorized
to agree to the provisions of this subsection and that this subsection
constitutes its legally valid and binding obligation.
10.19 Notice of Remedies Pursuant to Alaskan Law. Notice is hereby
served that each of the Borrower and the Subsidiary Guarantors is personally
obligated and (in the case of the Subsidiary Guarantors, subject to the terms
and provisions of the Guarantee and Collateral Agreement) fully liable for the
amount due under any Loan made or Note issued under this Agreement. The General
Administrative Agent or the Collateral Agent, as the case may be, for the
benefit of the Lenders, has the right to sue on any such Loan or Note and obtain
a personal judgment against the Borrower or any such Subsidiary Guarantor for
satisfaction of the amount due under any such Loan or Note either before or
after a judicial foreclosure on any Collateral.
10.20 Delivery of Lender Addenda. Each initial Lender shall become a
party to this Agreement by delivering to the General Administrative Agent, the
Syndication Agent and the Borrower a Lender Addendum duly executed by such
Lender, the Borrower and each Agent. Each Lender Addendum is deemed incorporated
herein by this reference.
<PAGE> 106
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
TESORO PETROLEUM CORPORATION
By: /s/ G.A. WRIGHT
------------------------------------
Name:
Title:
LEHMAN BROTHERS INC.,
as Arranger
By: /s/ CHRISTOPHER R. RYAN
------------------------------------
Name:
Title:
LEHMAN COMMERCIAL PAPER INC.,
as Syndication Agent and as a Lender
By: /s/ CHRISTOPHER R. RYAN
------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Co-Administrative Agent, General
Administrative Agent and as a Lender
By: /s/ DIXON SCHULTZ
------------------------------------
Name:
Title:
<PAGE> 107
PARIBAS,
as Co-Administrative Agent, Collateral Agent
and as a Lender
By: /s/ MARIAN LIVINGSTON
-------------------------------------------
Name: Marian Livingston
Title: Vice President
By: /s/ BETSY R. JOCHER
-------------------------------------------
Name: Betsy R. Jocher
Title: Assistant Vice President
THE BANK OF NOVA SCOTIA,
as Documentation Agent and as a Lender
By: /s/ F.C.H. ASHBY
-------------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager, Loan Operations
<PAGE> 108
Annex A
PRICING GRID
<TABLE>
<CAPTION>
FOR REVOLVING CREDIT LOANS AND TRANCHE A TERM LOANS:
========================================================================================
Consolidated Leverage Applicable Margin Applicable Margin
Ratio for Eurodollar Loans for Base Rate Loans
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 4.0:1.0 2.125% 0.625%
- ----------------------------------------------------------------------------------------
Greater than or equal to 3.5:1.0 but
less than 4.0:1.0 1.875% 0.375%
- ----------------------------------------------------------------------------------------
Greater than or equal to 3.0:1.0 but
less than 3.5:1.0 1.625% 0.125%
- ----------------------------------------------------------------------------------------
Greater than or equal to 2.5:1.0 but
less than 3.0:1.0 1.375% 0.000%
- ----------------------------------------------------------------------------------------
Less than 2.5:1.0 1.125% 0.000%
========================================================================================
FOR TRANCHE B TERM LOANS:
========================================================================================
Consolidated Leverage Applicable Margin Applicable Margin
Ratio for Eurodollar Loans for Base Rate Loans
- ----------------------------------------------------------------------------------------
Greater than or equal to 3.0:1.0 2.125% 0.625%
- ----------------------------------------------------------------------------------------
Less than 3.0:1.0 2.000% 0.500%
========================================================================================
</TABLE>
Changes in the Applicable Margin with respect to Revolving Credit Loans, Tranche
A Term Loans or Tranche B Term Loans resulting from changes in the Consolidated
Leverage Ratio shall become effective on the date (the "Adjustment Date") on
which financial statements are delivered to the Lenders pursuant to subsection
6.1 (but in any event not later than the 60th day after the end of each of the
first three quarterly periods of each fiscal year or the 105th day after the end
of each fiscal year, as the case may be) and shall remain in effect until the
next change to be effected pursuant to this paragraph. If any financial
statements referred to above are not delivered within the time periods specified
above, then, until such financial statements are delivered, the Consolidated
Leverage Ratio as at the end of the fiscal period that would have been covered
thereby shall for the purposes of this definition be deemed to be greater than
(a) in the case of Revolving Credit Loans and Tranche A Term Loans, 4.0:1.0, and
(b) in the case of Tranche B Term Loans, 3.0:1.0. In addition, at all times
while an Event of Default shall have occurred and be continuing, the
Consolidated Leverage Ratio shall for the purposes of this definition be deemed
to be greater than (a) in the case of Revolving Credit Loans and Tranche A Term
Loans, 4.0:1.0, and (b) in the case of Tranche B Term Loans, 3.0:1.0. Each
determination of the Consolidated Leverage Ratio pursuant to this definition
shall be made with respect to the period of four consecutive fiscal quarters of
the Borrower and its consolidated Subsidiaries ending at the end of the period
covered by the relevant consolidated financial statements. The Applicable Margin
in effect from the day which is three months after the Closing Date (the
"Pricing Grid Commencement Date") until the first Adjustment Date thereafter
shall be determined on the basis of the Borrower's financial statements for the
first full fiscal quarter ending after the Closing Date; provided, that if such
financial statements have not been delivered to the Lenders pursuant to
subsection 6.1 prior to the Pricing Grid Commencement Date, the Applicable
Margin shall not be adjusted pursuant to the Pricing Grid until the date of
delivery of such financial statements pursuant to subsection 6.1.
<PAGE> 1
EXHIBIT 4.7
CONSENT AND CONFIRMATION
CONSENT AND CONFIRMATION, dated as of July 2, 1998 (this "Consent and
Confirmation"), with respect to the Third Amended and Restated Credit Agreement,
dated as of July 2, 1998 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among Tesoro Petroleum Corporation, the
Lenders parties thereto, Lehman Brothers Inc., as Arranger, Lehman Commercial
Paper Inc., as Syndication Agent, The First National Bank of Chicago, as
Co-Administrative Agent and as General Administrative Agent, Paribas, as
Co-Administrative Agent and as Collateral Agent and The Bank of Nova Scotia, as
Documentation Agent. Terms defined in the Credit Agreement and the Guarantee and
Collateral Agreement (as defined below) shall be used herein as therein defined.
W I T N E S S E T H :
WHEREAS, the Credit Agreement amends and restates in its entirety the
Second Amended and Restated Credit Agreement, dated as of May 29, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Existing
Credit Agreement"), among Tesoro Petroleum Corporation, the Lenders parties
thereto, Lehman Brothers Inc., as arranger, Lehman Commercial Paper Inc., as
administrative agent and the other agents named therein;
WHEREAS, pursuant to the Existing Credit Agreement, (a) the Borrower
and each of the undersigned Subsidiaries of the Borrower (the Borrower and such
Subsidiaries, collectively, the "Grantors") executed and delivered the Guarantee
and Collateral Agreement, dated as of May 29, 1998 (the "Guarantee and
Collateral Agreement"), among the Grantors, Paribas, as collateral agent and
Lehman Commercial Paper Inc., as administrative agent and (b) certain of the
Grantors executed and delivered other Security Documents; and
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement that each of the Grantors consent to the amendment and restatement of
the Existing Credit Agreement and provide the other agreements, confirmations
and acknowledgements provided herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Each of the Grantors hereby (a) confirms receipt of the Credit
Agreement and the Loan Documents, (b) irrevocably consents to the execution and
delivery thereof by the parties thereto and (c) irrevocably agrees that the
obligations of such Grantor under the Guarantee and Collateral Agreement and the
other Security Documents shall remain in full force and effect upon the
effectiveness of the Credit Agreement and the Loan Documents.
<PAGE> 2
2
2. All references in the Guarantee and Collateral Agreement and the
other Security Documents to the "Credit Agreement", any "Loan Documents", any
"Lenders" or any "Agent" shall be deemed to be references to the Credit
Agreement, the Loan Documents, the Lenders and the relevant Agent after giving
effect to the amendment and restatement effected by the Credit Agreement, except
that The First National Bank of Chicago, as General Administrative Agent under
the Credit Agreement, hereby assumes, effective upon the effectiveness of the
Credit Agreement, the rights and obligations under the Guarantee and Collateral
Agreement of Lehman Commercial Paper Inc., as administrative agent thereunder,
and Lehman Commercial Paper Inc. hereby resigns in such capacity. All references
in the Security Documents to the "Administrative Agent" shall be deemed to be
references to the General Administrative Agent.
3. Each of the Grantors hereby confirms that the representations and
warranties made by it in any Security Document are true and correct in all
material respects on the date hereof, and the information with respect to such
Grantor set forth in any Security Document or schedule or exhibit thereto is
true, correct and complete in all material respects on the date hereof.
4. Subsection 4.8(a) of the Guarantee and Collateral Agent is amended
to read as follows: "No amount payable to such Grantor under or in connection
with any Receivable is evidenced by any Instrument or Chattel Paper which has
not been delivered to the Collateral Agent, except for Receivables in an amount
not in excess of $5,000,000 in the aggregate; provided that (i) the applicable
Grantor shall deliver to the Collateral Agent any Instrument or Chattel Paper
evidencing any Receivable in an amount greater than $1,000,000 and (ii) during
the existence of an Event of Default, the Grantors shall deliver to the
Collateral Agent, promptly upon its request, all Instruments and Chattel Paper
evidencing any Receivable."
5. This Consent and Confirmation may be executed by one or more of
the parties to this Consent and Confirmation on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. Delivery of an executed signature page
of this Consent and Confirmation by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof. A set of the copies of this
Consent and Confirmation signed by all the parties shall be lodged with the
Borrower and the General Administrative Agent.
6. The provisions of subsections 10.12, 10.13 and 10.17 of the Credit
Agreement are hereby incorporated herein by reference, mutatis mutandis.
7. THIS CONSENT AND CONFIRMATION AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES UNDER THIS CONSENT AND CONFIRMATION SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE> 3
IN WITNESS WHEREOF, each of the undersigned has caused this Consent and
Confirmation to be duly executed and delivered as of the date first above
written.
LEHMAN COMMERCIAL PAPER INC.,
as Administrative Agent under the
Existing Credit Agreement and the
Guarantee and Collateral Agreement
By: /s/ WILLIAM J. GALLAGHER
--------------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as General Administrative Agent
By: /s/ DIXON SCHULTZ
--------------------------------
Title: Vice President
TESORO PETROLEUM CORPORATION
By: /s/ G.A. WRIGHT
--------------------------------
Title:
SUBSIDIARIES OF THE BORROWER:
TESORO PETROLEUM COMPANIES, INC.
By: /s/ G.A. WRIGHT
--------------------------------
Title:
DIGICOMP INC.
By: /s/ G.A. WRIGHT
--------------------------------
Title:
TESORO ALASKA PETROLEUM COMPANY
By: /s/ G.A. WRIGHT
--------------------------------
Title:
<PAGE> 4
INTERIOR FUELS COMPANY
By: /s/ G. A. WRIGHT
--------------------------------
Title:
KENAI PIPE LINE COMPANY
By: /s/ G. A. WRIGHT
--------------------------------
Title:
TESORO ALASKA PIPELINE COMPANY
By: /s/ G. A. WRIGHT
--------------------------------
Title:
TESORO NORTHSTORE COMPANY
By: /s/ G. A. WRIGHT
--------------------------------
Title:
TESORO REFINING, MARKETING & SUPPLY
COMPANY
By: /s/ G. A. WRIGHT
--------------------------------
Title:
TESORO VOSTOK COMPANY
By: /s/ G. A. WRIGHT
--------------------------------
Title:
TESORO EXPLORATION AND PRODUCTION
COMPANY
By: /s/ G. A. WRIGHT
--------------------------------
Title:
<PAGE> 5
TESORO E&P COMPANY, L.P.
By: Tesoro Exploration and
Production Company, its
General Partner
By: /s/ G. A. WRIGHT
--------------------------------
Title:
TESORO NATURAL GAS COMPANY
By: /s/ G. A. WRIGHT
--------------------------------
Title:
TESORO PIPELINE COMPANY, L.P.
By: Tesoro Natural Gas Company,
its General Partner
By: /s/ G. A. WRIGHT
--------------------------------
Title:
TESORO BOLIVIA PETROLEUM COMPANY
By: /s/ G. A. WRIGHT
--------------------------------
Title:
TESORO MARINE SERVICES HOLDING
COMPANY
By: /s/ G. A. WRIGHT
--------------------------------
Title:
TESORO LATIN AMERICA COMPANY
By: /s/ G. A. WRIGHT
--------------------------------
Title:
<PAGE> 6
TESORO MARINE SERVICES, INC.
By: /s/ G.A. WRIGHT
--------------------------------
Title:
TESORO HAWAII CORPORATION
By: /s/ G.A. WRIGHT
--------------------------------
Title:
TESORO SOUTH PACIFIC PETROLEUM
COMPANY
By: /s/ G.A. WRIGHT
--------------------------------
Title:
TESORO FINANCIAL SERVICES HOLDING
COMPANY
By: /s/ JEFFREY B. FABIAN
--------------------------------
Title: President
VICTORY FINANCE COMPANY
By: /s/ DAVID W. DUPERT
--------------------------------
Title: President
TESORO GAS RESOURCES COMPANY, INC.
By: /s/ JEFFREY B. FABIAN
--------------------------------
Title: President
<PAGE> 1
EXHIBIT 5.1
[FULBRIGHT & JAWORSKI L.L.P. LETTERHEAD]
July 24, 1998
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
Dear Sirs:
We refer to the Registration Statement on Form S-4 (the
"Registration Statement") to be filed by Tesoro Petroleum Corporation (the
"Company") with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, relating to $300,000,000 aggregate principal amount of the
Company's 9% Senior Subordinated Notes due 2008, Series B (the "New Notes")
proposed to be issued under and pursuant to the Indenture, dated as of July 2,
1998, between the Company and U.S. Bank Trust National Association, as Trustee
(the "Indenture"), in exchange for the Company's 9% Senior Subordinated Notes
due 2008.
We assume that appropriate action will be taken, prior to the
offer and sale of the New Notes, to register and qualify such New Notes for sale
under all applicable state securities or "blue sky" laws.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified or photostatic copies, and the authenticity of the originals
of such latter documents.
Based on the foregoing, we advise you that in our opinion the New
Notes being issued by the Company have been duly and validly authorized for
issuance by the Company, and, when duly executed and authenticated in accordance
with the terms of the Indenture and delivered as contemplated in the Prospectus
forming part of the Registration Statement, the New Notes will be legal, valid
and binding obligations of the Company (subject to bankruptcy, insolvency and
other laws which affect the rights of creditors generally, including the laws of
the State of Delaware relating to compromises, arrangements and
reorganizations).
<PAGE> 2
Tesoro Petroleum Corporation
July 24, 1998
Page 2
We consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Prospectus contained therein. This consent is not to be
construed as an admission that we are a person whose consent is required to be
filed with the Registration Statement under the provisions of the Securities Act
of 1933.
Very truly yours,
/s/ Fulbright & Jaworski L.L.P.
<PAGE> 1
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of July 2, 1998 by and among Tesoro Petroleum Corporation, a
Delaware corporation (the "Company"), each of the guarantors set forth on the
signature pages hereto (the "Guarantors") and Lehman Brothers Inc., Bear,
Stearns & Co. Inc. and Salomon Smith Barney (the "Initial Purchasers"), who
have agreed to purchase the Company's 9% Senior Subordinated Notes due 2008
(the "Senior Subordinated Notes") pursuant to and subject to the terms and
conditions of a certain Purchase Agreement, dated July 2, 1998 (the "Purchase
Agreement"), by and among the Company, the Guarantors and the Initial
Purchasers. In order to induce the Initial Purchasers to purchase the Senior
Subordinated Notes, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligation of the Initial Purchasers to purchase the Senior
Subordinated Notes pursuant to the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Advice: As defined in Section 6(d) hereof.
Affiliate: With respect to any specified person, "Affiliate" shall
mean any other person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified person. For the
purposes of this definition, "control," when used with respect to any person,
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Broker-Dealer Transfer Restricted Securities: New Senior Subordinated
Notes that are acquired by a Broker- Dealer in the Exchange Offer in exchange
for Senior Subordinated Notes that such Broker-Dealer acquired for its own
account as a result of market-making activities or other trading activities
(other than Senior Subordinated Notes acquired directly from the Company or any
of its Affiliates).
Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
Closing Date: The date of this Agreement.
<PAGE> 3
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Securities Act of the Exchange Offer Registration
Statement relating to the New Senior Subordinated Notes to be issued in the
Exchange Offer, (ii) the maintenance of such Exchange Offer Registration
Statement continuously effective and the keeping of the Exchange Offer open for
a period not less than the minimum period required pursuant to Section 3(b)
hereof, and (iii) the delivery by the Company to the Trustee under the
Indenture of New Senior Subordinated Notes in the same aggregate principal
amount as the aggregate principal amount of Senior Subordinated Notes that were
tendered by Holders thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Transfer Restricted
Securities, each Interest Payment Date.
Definitive Notes: As defined in the Indenture.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
Exchange Offer: The registration by the Company under the Securities
Act of the New Senior Subordinated Notes pursuant to an Exchange Offer
Registration Statement pursuant to which the Company offers the Holders of all
outstanding Transfer Restricted Securities the opportunity to exchange all such
outstanding Transfer Restricted Securities held by such Holders for New Senior
Subordinated Notes in an aggregate principal amount equal to the aggregate
principal amount of the Transfer Restricted Securities tendered in such
exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Senior Subordinated Notes (a) to certain "qualified
institutional buyers," as such term is defined in Rule 144A under the
Securities Act, and (b) outside the United States to certain persons in
reliance on Regulation S under the Securities Act.
Global Note Holder: As defined in the Indenture.
Holders: As defined in Section 2(b) hereof.
indemnified party: As defined in Section 8(c) hereof.
-2-
<PAGE> 4
indemnifying party: As defined in Section 8(c) hereof.
Indenture: The Indenture, dated as of the Closing Date, among the
Company and The Bank of New York, as trustee (the "Trustee"), pursuant to which
the Notes are to be issued, as such Indenture is amended or supplemented from
time to time in accordance with the terms thereof.
Initial Purchasers: As defined in the preamble hereto.
Interest Payment Date: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Senior Subordinated Notes and the New Senior Subordinated
Notes.
New Senior Subordinated Notes: The Company's New 9% Senior
Subordinated Notes due 2008 to be issued pursuant to the Indenture (i) in the
Exchange Offer or (ii) upon the request of any holder of Senior Subordinated
Notes covered by a Shelf Registration Statement, in exchange for such Senior
Subordinated Notes.
Offering Memorandum: As defined in the Purchase Agreement.
Person: An individual, partnership, corporation, limited liability
company, joint venture, association, joint- stock company, trust or
unincorporated organization, or a government or agency or political subdivision
thereof or any other entity.
Prospectus: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Record Holder: With respect to any Damages Payment Date relating to
Notes, each Person who is a Holder of Notes on the record date with respect to
the Interest Payment Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company and
the Guarantors relating to (a) an offering of New Senior Subordinated Notes
pursuant to an Exchange Offer or (b) the registration for resale of Transfer
Restricted Securities pursuant to the Shelf Registration Statement, in each
case (i) which is filed pursuant to the provisions of this Agreement, and (ii)
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
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Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939, as amended (15 U.S.C. Section
77aaa-77bbbb), as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Senior Subordinated Note, until
the earliest to occur of (a) the date on which such Senior Subordinated Note is
exchanged in the Exchange Offer and entitled to be resold to the public by the
Holder thereof without complying with the prospectus delivery requirements of
the Securities Act, (b) the date on which such Senior Subordinated Note has
been effectively registered under the Securities Act and disposed of in
accordance with a Shelf Registration Statement, (c) the date on which such
Senior Subordinated Note is distributed to the public pursuant to Rule 144 or
is saleable pursuant to Rule 144(k) under the Securities Act and (d) the date
on which such Senior Subordinated Note is distributed by a Broker-Dealer
pursuant to the "Plan of Distribution" contemplated by the Exchange Offer
Registration Statement (including delivery of the Prospectus contained
therein).
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to
the public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to
the benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed
to be a holder of Transfer Restricted Securities (each, a "Holder") whenever
such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with), the Company shall (i) cause to be filed
with the Commission as soon as practicable after the Closing Date, but in no
event later than 60 days after the Closing Date, the Exchange Offer
Registration Statement under the Securities Act relating to the New Senior
Subordinated Notes and the Exchange
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<PAGE> 6
Offer, (ii) use its best efforts to cause such Exchange Offer Registration
Statement to become effective at the earliest possible time, but in no event
later than 120 days after the Closing Date, (iii) in connection with the
foregoing, (A) file all pre-effective amendments to such Exchange Offer
Registration Statement as may be necessary in order to cause such Exchange
Offer Registration Statement to become effective, (B) if applicable, file a
post-effective amendment to such Exchange Offer Registration Statement pursuant
to Rule 430A under the Securities Act and (C) cause all necessary filings, if
any, in connection with the registration and qualification of the New Senior
Subordinated Notes to be made under the Blue Sky laws of such jurisdictions as
are necessary to permit Consummation of the Exchange Offer and (iv) upon the
effectiveness of such Exchange Offer Registration Statement, commence and
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting registration of the New Senior Subordinated Notes to be offered
in exchange for the Transfer Restricted Securities and to permit sales of
Broker-Dealer Transfer Restricted Securities by Broker-Dealers as contemplated
by Section 3(c) below.
(b) The Company shall use its best efforts to cause the Exchange
Offer Registration Statement to be effective continuously and shall keep the
Exchange Offer open for a period of not less than the minimum period required
under applicable federal and state securities laws to Consummate the Exchange
Offer; provided, however, that in no event shall such period be less than
twenty (20) Business Days. The Company shall cause the Exchange Offer to comply
with all applicable federal and state securities laws. No securities other
than the Notes shall be included in the Exchange Offer Registration Statement.
The Company shall use its best efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than thirty
(30) Business Days thereafter.
(c) The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate that any Restricted Broker-Dealer who holds Senior Subordinated Notes
that are Transfer Restricted Securities and that were acquired for the account
of such Restricted Broker-Dealer as a result of market-making activities or
other trading activities (other than Transfer Restricted Securities acquired
directly from the Company or one of its Affiliates) may exchange such Senior
Subordinated Notes pursuant to the Exchange Offer; however, such Broker-Dealer
may be deemed to be an "underwriter" within the meaning of the Securities Act
and must, therefore, deliver a prospectus meeting the requirements of the
Securities Act in connection with its initial sale of the New Senior
Subordinated Notes received by such Broker-Dealer in the Exchange Offer, which
prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the Prospectus contained in the Exchange Offer Registration
Statement. Such "Plan of Distribution" section shall also contain all other
information with respect to such resales of Broker-Dealer Transfer Restricted
Securities that the Commission may require in order to permit such sales
pursuant thereto but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Notes held by any such Broker-Dealer
except to the extent required by the Commission as a result of a change in
policy after the date of this Agreement.
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<PAGE> 7
The Company and the Guarantors shall use their respective best efforts
to keep the Exchange Offer Registration Statement continuously effective,
supplemented and amended as required by the provisions of Section 6(c) below to
the extent necessary to ensure that it is available for resales of
Broker-Dealer Transfer Restricted Securities acquired by Restricted
Broker-Dealers and to ensure that it conforms with the requirements of this
Agreement, the Securities Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period of 180 days from the
date on which the Exchange Offer Registration Statement is declared effective
or, if shorter, until all Broker-Dealer Transfer Restricted Securities have
been sold thereunder.
The Company shall provide sufficient copies of the latest version of
such Prospectus to such Restricted Broker- Dealers promptly upon request at any
time during such 180 day period in order to facilitate such sales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to
file an Exchange Offer Registration Statement or to consummate the Exchange
Offer because the Exchange Offer is not permitted by applicable law or
Commission policy (after the procedures set forth in Section 6(a) below have
been complied with) or (ii) if any Holder of Transfer Restricted Securities
shall notify the Company within twenty (20) Business Days of the Consummation
of the Exchange Offer that (A) such Holder is prohibited by applicable law or
Commission policy from participating in the Exchange Offer, or (B) such Holder
may not resell the New Senior Subordinated Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and that the Prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such Holder, or (C) such Holder is a
Broker-Dealer and holds Senior Subordinated Notes acquired directly from the
Company or one of its Affiliates, then the Company and the Guarantors shall:
(x) cause to be filed a shelf registration statement
pursuant to Rule 415 under the Securities Act, which may be an
amendment to the Exchange Offer Registration Statement (in either
event, the "Shelf Registration Statement") on or prior to the earliest
to occur of (1) the 60th day after the date on which the Company
receives notice from the Commission or determines that it is not
required to file the Exchange Offer Registration Statement pursuant to
clause (i) above, (2) the 60th day after the date on which the Company
receives notice from a Holder of Transfer Restricted Securities as
contemplated by clause (ii) above, and (3) the 120th day after the
Closing Date (such earliest date being the "Shelf Filing Deadline"),
which Shelf Registration Statement shall provide for resales of all
Transfer Restricted Securities the Holders of which shall have
provided the information required pursuant to Section 4(b) hereof; and
(y) use its best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission on or before the
60th day after the Shelf Filing Deadline.
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<PAGE> 8
The Company and the Guarantors shall use their respective best efforts
to keep such Shelf Registration Statement continuously effective, supplemented
and amended as required by and subject to the provisions of Sections 6(b) and
(c) hereof to the extent necessary to ensure that it is available for sales of
Transfer Restricted Securities by the Holders thereof entitled to the benefit of
this Section 4(a), and to ensure that it conforms with the requirements of this
Agreement, the Securities Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period of at least two years
(as extended pursuant to Section 6(c)(i)) following the date on which such Shelf
Registration Statement first becomes effective under the Securities Act or such
shorter period ending when all of the Transfer Restricted Securities available
for sale thereunder have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 Business Days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
such Holder shall have provided all such reasonably requested information.
Each Holder as to which any Shelf Registration Statement is being effected
agrees to furnish promptly to the Company all information required to be
disclosed in order to make the information previously furnished to the Company
by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any of the Registration Statements required by this Agreement
are not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (ii) any of such Registration Statements have not
been declared effective by the Commission on or prior to the date specified for
such effectiveness in this Agreement (the "Effectiveness Target Date"), (iii)
the Exchange Offer has not been Consummated within 30 Business Days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) any Registration Statement required by this Agreement is
filed and declared effective but shall thereafter cease to be effective or fail
to be usable for its intended purpose without being succeeded within 30 days by
a post-effective amendment to such Registration Statement, the effectiveness of
another Registration Statement or the use of the Prospectus (as amended or
supplemented) is again permitted that cures such failure (each such event
referred to in clauses (i) through (iv), a "Registration Default"), the Company
hereby agrees to pay Liquidated Damages to each Holder of Transfer Restricted
Securities with respect to the first 90-day period immediately following the
occurrence of such Registration Default, in an amount equal to $0.05 per week
per $1,000 principal amount of Transfer Restricted Securities held by such
Holder for each week or portion thereof that the Registration Default
continues. The amount of the Liquidated Damages shall increase by an
additional $0.05 per week per $1,000 in principal amount of Transfer Restricted
Securities with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of
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<PAGE> 9
Liquidated Damages of $0.50 per week per $1,000 principal amount of Transfer
Restricted Securities. All accrued Liquidated Damages shall be paid to the
Global Note Holder by the Company by wire transfer of immediately available
funds or by federal funds check and to Holders of Certificated Securities by
wire transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified on each Damages
Payment Date, as provided in the Indenture. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the
case of (i) above, (2) upon the effectiveness of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (ii) above, (3) upon Consummation of the Exchange
Offer, in the case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional Registration Statement
that causes the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement) to again be declared effective or the
Prospectus to be made usable in the case of (iv) above, the Liquidated Damages
payable with respect to the Transfer Restricted Securities as a result of such
clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All obligations of the Company and the Guarantors set forth in the
preceding paragraph that are outstanding with respect to any Transfer
Restricted Security at the time such security ceases to be a Transfer
Restricted Security shall survive until such time as all such obligations with
respect to such security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall comply with all applicable
provisions of Section 6(c) below, shall use their respective best efforts to
effect such exchange to permit the sale of Broker-Dealer Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (which shall be in a manner consistent with the terms of
this Agreement), and shall comply with all of the following provisions:
(i) If, following the date hereof and prior to the
Consummation of the Exchange Offer, there has been published a change
in Commission policy with respect to exchange offers such as the
Exchange Offer, such that in the reasonable opinion of counsel to the
Company there is a substantial question as to whether the Exchange
Offer is permitted by applicable law or Commission policy, the Company
and the Guarantors hereby agree to seek a no-action letter or other
favorable decision from the Commission allowing the Company and the
Guarantors to Consummate an Exchange Offer for such Senior
Subordinated Notes. The Company and the Guarantors hereby agree to
pursue the issuance of such a decision to the Commission staff level
but shall not be required to take commercially unreasonable action to
effect a change of Commission policy. The Company and the Guarantors
hereby agree, however, to take all such other actions as are
reasonably requested by the Commission staff or otherwise required in
connection with the issuance of such decision, including without
limitation, to (A) participate in telephonic conferences with the
Commission staff,
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<PAGE> 10
(B) deliver to the Commission staff an analysis prepared by counsel to
the Company setting forth the legal bases, if any, upon which such
counsel has concluded that such an Exchange Offer should be permitted
and (C) diligently pursue a resolution (which need not be favorable)
by the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange
Offer pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation thereof, a written representation to the
Company (which may be contained in the letter of transmittal
contemplated by the Exchange Offer Registration Statement) to the
effect that (A) it is not an Affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement
or understanding with any person to participate in, a distribution of
the New Senior Subordinated Notes to be issued in the Exchange Offer
and (C) it is acquiring the New Senior Subordinated Notes in its
ordinary course of business. In addition, all such Holders of
Transfer Restricted Securities shall otherwise reasonably cooperate in
the Company's preparations for the Exchange Offer. Each Holder hereby
acknowledges and agrees that any Broker-Dealer and any such Holder
using the Exchange Offer to participate in a distribution of the
securities to be acquired in the Exchange Offer (1) could not under
Commission policy as in effect on the date of this Agreement rely on
the position of the Commission enunciated in Morgan Stanley and Co.,
Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation
(available May 13, 1988), as interpreted in the Commission's letter to
Sherman & Sterling dated July 2, 1993, and similar no-action letters
(including any no- action letter obtained pursuant to clause (i)
above), and (2) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a
secondary resale transaction and that such a secondary resale
transaction should be covered by an effective registration statement
containing the selling security holder information required by Item
507 or 508, as applicable, of Regulation S-K if the resales are of New
Senior Subordinated Notes obtained by such Holder in exchange for
Senior Subordinated Notes acquired by such Holder directly from the
Company or an Affiliate thereof.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company and the Guarantors shall provide a
supplemental letter to the Commission (A) stating that the Company and
the Guarantors are registering the Exchange Offer in reliance on the
position of the Commission enunciated in Exxon Capital Holdings
Corporation(available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) and, if applicable, any no-action letter
obtained pursuant to clause (i) above, (B) including a representation
that neither the Company nor any Guarantor has entered into any
arrangement or understanding with any Person to distribute the New
Senior Subordinated Notes to be received in the Exchange Offer and
that, to the best of the Company's information and belief, each Holder
participating in the Exchange Offer is acquiring the New Senior
Subordinated Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the New Senior Subordinated Notes received in the
Exchange Offer and (C) any other undertaking or
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<PAGE> 11
representation required by the Commission as set forth in any
no-action letter obtained pursuant to clause (i) above.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall comply with all
the provisions of Section 6(c) below and shall use their best efforts to effect
such registration to permit the sale of the Transfer Restricted Securities
being sold in accordance with the intended method or methods of distribution
thereof, and pursuant thereto the Company and the Guarantors will as
expeditiously as possible, and in any event within the time periods and
otherwise in accordance with the provisions hereof, prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Securities Act, which form shall be available for
the sale of the Transfer Restricted Securities in accordance with the intended
method or methods of distribution thereof.
(c) General Provisions. In connection with any Registration
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Exchange Offer Registration Statement and the related Prospectus required to
permit resales of Transfer Restricted Securities by Restricted Broker-Dealers),
the Company and the Guarantors shall:
(i) use their respective best efforts to keep such
Registration Statement continuously effective and provide all
requisite financial statements for the period specified in Section 3
or 4 of this Agreement, as applicable; upon the occurrence of any
event that would cause any such Registration Statement or the
Prospectus contained therein (A) to contain a material misstatement or
omission or (B) not to be effective and usable for resale of Transfer
Restricted Securities during the period required by this Agreement,
the Company and the Guarantors shall file promptly an appropriate
amendment to such Registration Statement, (1) in the case of clause
(A), correcting any such misstatement or omission, and (2) in the case
of either clause (A) or (B), use their respective best efforts to
cause such amendment to be declared effective and such Registration
Statement and the related Prospectus to become usable for their
intended purpose(s) as soon as practicable thereafter;
(ii) use their respective best efforts to prepare and file
with the Commission such amendments and post-effective amendments to
the Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period set forth
in Section 3 or 4 hereof, as applicable, or such shorter period as
will terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities
Act, and to comply fully with the applicable provisions of Rules 424,
430A and 462, as applicable under the Securities Act in a timely
manner; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with
the intended method or methods of distribution by the sellers thereof
set forth in such Registration Statement or supplement to the
Prospectus;
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<PAGE> 12
(iii) advise the underwriter(s), if any, and selling
Holders promptly and, if requested by such Persons, to confirm such
advice in writing, (A) when the Prospectus or any Prospectus
supplement or post- effective amendment thereto has been filed, and,
with respect to any Registration Statement or any post- effective
amendment thereto, when the same has become effective, (B) of any
request by the Commission for amendments to the Registration Statement
or amendments or supplements to the Prospectus or for additional
information relating thereto, (C) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement under the Securities Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation
of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue in any material respect, or
that requires the making of any additions to or changes in the
Registration Statement or the Prospectus in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. If at any time the Commission shall issue
any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities
under state securities or Blue Sky laws, the Company shall use its
best efforts to obtain the withdrawal or lifting of such order at the
earliest practicable time;
(iv) upon written request, furnish to the Initial
Purchasers, and, upon written request, to each of the selling Holders
and each of the underwriter(s) in connection with such sale, if any,
before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus, which
documents will be subject to the review of such Holders and
underwriter(s) in connection with such sale, if any, for a period of
at least five Business Days, and the Company will not file any such
Registration Statement or Prospectus or any amendment or supplement to
any such Registration Statement or Prospectus to which a selling
Holder of Transfer Restricted Securities covered by such Registration
Statement or the underwriter(s) in connection with such sale, if any,
shall reasonably object within five Business Days after the receipt
thereof. A selling Holder or underwriter in connection with such
sale, if any, shall be deemed to have reasonably objected to such
filing (A) if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a
material misstatement or omission or fails to comply with the
applicable requirements of the Securities Act or (B) if any of the
information furnished to the Company by such selling Holder or
underwriter in connection with such sale, if any, and included in such
Registration statement, amendment, Prospectus or supplement, as
applicable, as proposed to be filed is incorrect in any respect;
(v) upon written request, promptly prior to the filing of
any document that is to be incorporated by reference into a
Registration Statement or Prospectus, provide copies of
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such document to the selling Holders and to the underwriter(s) in
connection with such sale, if any, make the Company's and the
Guarantors' representatives available for discussion of such document
and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such
selling Holders or underwriters, if any, reasonably may request;
(vi) in the case of a shelf registration, make available
at reasonable times for inspection by the selling Holders, any
underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney or accountant retained by
such selling Holders or any of the underwriter(s), all relevant
financial and other records, pertinent corporate documents and
properties of the Company and cause the Company's officers, directors
and employees to supply all information, in each case, reasonably
requested by any such Holder, underwriter, attorney or accountant in
connection with such Registration Statement or any post-effective
amendment thereto subsequent to the filing thereof and prior to its
effectiveness;
(vii) if requested by any selling Holders or the
underwriter(s) in connection with such sale, if any, promptly
incorporate in any Registration Statement or Prospectus, pursuant to a
supplement or post-effective amendment if necessary, such information
as such selling Holders and underwriter(s), if any, may reasonably
request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Securities, information with respect to the principal
amount of Transfer Restricted Securities being sold to such
underwriter(s), the purchase price being paid therefor and any other
terms of the offering of the Transfer Restricted Securities to be sold
in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after
the Company is notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment;
(viii) use their respective commercially reasonable efforts
to cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with the appropriate rating
agencies, if so requested by the Holders of a majority in aggregate
principal amount of Notes covered thereby or the underwriter(s) in
connection with such sale, if any, unless such Transfer Restricted
Securities are already so rated;
(ix) furnish to each selling Holder and each of the
underwriter(s) in connection with such sale, if any, without charge,
at least one copy of the Registration Statement, as first filed with
the Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(x) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment
or supplement thereto as such Persons reasonably may request; the
Company and
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<PAGE> 14
the Guarantors hereby consent to the use of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and
each of the underwriter(s), if any, in connection with the offering
and the sale of the Transfer Restricted Securities covered by the
Prospectus or any amendment or supplement thereto;
(xi) enter into such agreements (including an underwriting
agreement), and make such representations and warranties with respect
to the business of the Company as are customarily addressed in
representations and warranties made by issuers to underwriters in
underwritten offerings, and take all such other commercially
reasonable actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities
pursuant to any Registration Statement contemplated by this Agreement,
all to such extent as may be requested by the Initial Purchasers or by
any Holder of Transfer Restricted Securities or underwriter in
connection with any sale or resale pursuant to any Registration
Statement contemplated by this Agreement; and whether or not an
underwriting agreement is entered into and whether or not the
registration is an Underwritten Registration, the Company and the
Guarantors shall:
(A) furnish to each Initial Purchaser, each
selling Holder and each underwriter, if any, in such substance
and scope as they may reasonably request and as are
customarily made by issuers to underwriters in primary
underwritten offerings, upon the date of the Consummation of
the Exchange Offer and, if applicable, the effectiveness of
the Shelf Registration Statement:
(1) a certificate, dated the date of Consummation
of the Exchange Offer or the date of effectiveness of the
Shelf Registration Statement, as the case may be, signed on
behalf of the Company and each of the Guarantors by the
Chairman of the Board, President or any Vice President and
Treasurer or Chief Financial Officer of the Company,
confirming, as of the date thereof, the matters set forth in
paragraph (i) of Section 7 of the Purchase Agreement and such
other matters as such parties may reasonably request;
(2) opinions, dated the date of Consummation of
the Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel or
counsels for the Company and the Guarantors, covering such
matters as are customarily covered in opinions given in
connection with underwritten firm commitment offerings.
(3) customary comfort letters, dated as of the
date of Consummation of the Exchange Offer or the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters by underwriters in connection with
Underwritten Offerings, and affirming the matters
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<PAGE> 15
set forth in the comfort letters delivered pursuant to Section
7(f) and (g)of the Purchase Agreement, without exception;
(B) set forth in full or incorporate by reference
in the underwriting agreement, if any, the indemnification
provisions and procedures of Section 8 hereof with respect to
all parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates
as may be reasonably requested by such parties to evidence
compliance with clause (A) above and with any customary
conditions contained in the underwriting agreement or other
agreement entered into by the Company and the Guarantors
pursuant to this clause (xi), if any.
The above shall be done at each closing under such
underwriting or similar agreement, as and to the extent required
thereunder, and, if at any time the representations and warranties of
the Company and the Guarantors contemplated in clause (A)(1) above
cease to be true and correct in any material respect, the Company and
the Guarantors shall so advise the Initial Purchasers and the
underwriter(s), if any, each selling Holder and each Restricted
Broker-Dealer promptly and, if requested by such Persons, shall
confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and its counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the
securities or Blue Sky laws of such jurisdictions as the selling
Holders or underwriter(s), if any, may request and do any and all
other acts or things necessary or advisable to enable the disposition
in such jurisdictions of the Transfer Restricted Securities covered by
the applicable Registration Statement; provided, however, that neither
the Company nor any Guarantor shall be required to register or qualify
as a foreign corporation where it is not now so qualified or to take
any action that would subject it to the service of process in suits or
to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so
subject;
(xiii) shall issue, upon the request of any Holder of Senior
Subordinated Notes covered by any Shelf Registration Statement
contemplated by this Agreement, New Senior Subordinated Notes, having
an aggregate principal amount equal to the aggregate principal amount
of the Senior Subordinated Notes surrendered to the Company by such
Holder in exchange therefor or being sold by such Holder; such New
Senior Subordinated Notes to be registered in the name of such Holder
or in the name of the purchaser(s) of such Notes, as the case may be;
in return, the Senior Subordinated Notes held by such Holder shall be
surrendered to the Company for cancellation;
(xiv) cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities
-14-
<PAGE> 16
to be sold and not bearing any restrictive legends; and enable such
Transfer Restricted Securities to be in such denominations and
registered in such names as the Holders or the underwriter(s), if any,
may request at least two Business Days prior to any sale of Transfer
Restricted Securities made by such underwriter(s);
(xv) use their respective commercially reasonable efforts
to cause the disposition of the Transfer Restricted Securities covered
by the Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof or the underwriter(s), if any, to
consummate the disposition of such Transfer Restricted Securities,
subject to the proviso contained in clause (xii) above;
(xvi) subject to Section 6(c)(i), if any fact or event
contemplated by clause 6(c)(iii)(D) above shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the
circumstances under which they were made not misleading;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration
Statement covering such Transfer Restricted Securities and provide the
Trustee under the indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with
the Depositary Trust Company;
(xviii) cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter" that is required to be retained in accordance with the
rules and regulations of the NASD), and use their respective best
efforts to cause such Registration Statement to become effective and
approved by such governmental agencies or authorities as may be
necessary to enable the Holders selling Transfer Restricted Securities
to consummate the disposition of such Transfer Restricted Securities;
(xix) otherwise use their respective commercially
reasonable efforts to comply with all applicable rules and regulations
of the Commission, and make generally available to its security
holders, as soon as practicable, a consolidated earnings statement
meeting the requirements of Rule 158 (which need not be audited) for
the twelve-month period (A) commencing at the end of any fiscal
quarter in which Transfer Restricted Securities are sold to
underwriters in a firm or best efforts Underwritten Offering or (B) if
not sold to underwriters in such an offering, beginning with the first
month of the Company's first fiscal quarter commencing after the
effective date of the Registration Statement;
-15-
<PAGE> 17
(xx) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement, and, in connection therewith, cooperate
with the Trustee and the Holders of Notes to effect such changes to
the Indenture as may be required for such Indenture to be so qualified
in accordance with the terms of the TIA; and execute and use its
commercially reasonable efforts to cause the Trustee to execute, all
documents that may be required to effect such changes and all other
forms and documents required to be filed with the Commission to enable
such Indenture to be so qualified in a timely manner;
(xxi) cause all Transfer Restricted Securities covered by
the Registration Statement to be listed on each securities exchange on
which similar securities issued by the Company are then listed if
requested by the Holders of a majority in aggregate principal amount
of Senior Subordinated Notes or the managing underwriter(s), if any;
and
(xxii) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of
Section 13 and Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. (i) Each Holder agrees by
acquisition of a Transfer Restricted Security that, upon receipt of the notice
referred to in Section 6(c)(i) or any notice from the Company of the existence
of any fact of the kind described in Section 6(c)(iii)(D) hereof, such Holder
will forthwith discontinue disposition of Transfer Restricted Securities
pursuant to the applicable Registration Statement until such Holder's receipt
of the copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xvi) hereof, or until it is advised in writing (the "Advice") by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus. If so directed by the Company, each Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of such notice.
In the event the Company shall give any such notice, the time period regarding
the effectiveness of such Registration Statement set forth in Section 3 or 4
hereof, as applicable, shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 6(c)(i) or Section 6(c)(iii)(D) hereof to and including the date when
each selling Holder covered by such Registration Statement shall have received
the copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xvi) hereof or shall have received the Advice.
(ii) The Company may require a Holder of Transfer Restricted
Securities to be included in a Registration Statement to furnish to the Company
such information as required by law to be disclosed by such Holder in such
Registration Statement, and the Company may exclude from such Registration
Statement the Transfer Restricted Securities of any Holder who unreasonably
fails to furnish such information within a reasonable time after receiving such
request.
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<PAGE> 18
SECTION 7. REGISTRATION EXPENSES
All expenses incident to the Company's and the Guarantors' performance
of or compliance with this Agreement will be borne by the Company, regardless
of whether a Registration Statement becomes effective, including, without
limitation: (i) all registration and filing fees and expenses (including
filings made by any Initial Purchaser or Holder with the NASD (and, if
applicable, the fees and expenses of any "qualified independent underwriter")
that may be required by the rules and regulations of the NASD); (ii) all fees
and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing
certificates for the New Senior Subordinated Notes to be issued in the Exchange
Offer and printing of Prospectuses); (iv) all fees and disbursements of counsel
for the Company; (v) all messenger and delivery services and telephone expenses
of the Company and the Guarantors; (vi) all application and filing fees in
connection with listing Notes on a national securities exchange or automated
quotation system pursuant to the requirements hereof; and (vii) all fees and
disbursements of independent certified public accountants of the Company
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company and the Guarantors will, in any event, bear its internal
expenses (including, without limitation, all salaries and expenses of any of
its officers and employees performing legal or accounting duties), the expenses
of any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
SECTION 8. INDEMNIFICATION
(a) The Company and each Guarantor, jointly and severally, shall
indemnify and hold harmless each Holder, its directors, officers and employees
and each person, if any, who controls such Holder within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, from and against
any and all losses, claims, damages, liabilities, judgments and actions, joint
or several, or any action in respect thereof (including, but not limited to,
any loss, claim, damage, liability, judgment or action relating to purchases
and sales of Notes), to which that Holder, its directors, officers, employees
or controlling persons may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability, judgment or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
Preliminary Prospectus or Prospectus or in any amendment or supplement thereto
or (ii) the omission or alleged omission to state in any Registration
Statement, Preliminary Prospectus or Prospectus, or in any amendment or
supplement thereto, any material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall reimburse
such Holder and each such director, officer, employee or controlling person
promptly upon demand for any legal or other expenses reasonably incurred by
such Holder, director, officer, employee or controlling person in connection
with investigating or defending or preparing to defend against any such loss,
claim, damage, liability, judgment or action as such expenses are incurred;
provided, however, that the Company and the Guarantors shall not be liable in
any such case to the extent that any such loss, claim, damage, liability,
judgment or action arises out of, or is based upon, any untrue
-17-
<PAGE> 19
statement or alleged untrue statement or omission or alleged omission made in
any Registration Statement, Preliminary Prospectus or Prospectus, or in any
such amendment or supplement in reliance upon and in conformity with written
information concerning such Holder furnished to the Company by or on behalf of
such Holder specifically for inclusion therein. The foregoing indemnity
agreement is in addition to any liability which the Company may otherwise have
to any Holder or to any director, officer, employee or controlling person of
such Holder.
(b) Each Holder, severally and not jointly, shall indemnify and
hold harmless the Company, the Guarantors and their respective directors,
officers and employees and each person, if any, who controls the Company or any
Guarantor within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, from and against any and all losses, claims, damages,
liabilities, judgments or actions, joint or several, or any action in respect
thereof, to which the Company, or any such director, officer or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability, judgment or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement, Preliminary Prospectus or
Prospectus or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state in any Registration Statement, Preliminary Prospectus
or Prospectus, or in any amendment or supplement thereto, any material fact
required to be stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that the untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information concerning such Holder
furnished to the Company by or on behalf of such Holder specifically for
inclusion therein, and shall reimburse the Company, the Guarantors and any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by the Company, any Guarantor or any such director, officer
or controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability, judgment
or action as such expenses are incurred. The foregoing indemnity agreement is
in addition to any liability which any Holder may otherwise have to the
Company, any Guarantor or any such director, officer, employee or controlling
person.
(c) Promptly after receipt by any person in respect of which
indemnity may be sought pursuant to Section 8(a) or 8(b) (the "indemnified
party") of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
any person against whom indemnity may be sought pursuant to Section 8(a) or
8(b) (the "indemnifying party"), notify the indemnifying party in writing of
the claim or the commencement of that action; provided, however, that the
failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 8. If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party and the
-18-
<PAGE> 20
payment of all fees and expenses of such counsel shall be the responsibility of
the indemnifying party. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof other than
reasonable costs of investigation. In addition, any indemnified party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified party unless (i) the employment of such counsel
shall have been specifically authorized in writing by the indemnifying party,
(ii) the indemnifying party shall have failed to assume the defense of such
action or employ counsel reasonably satisfactory to the indemnified party or
(iii) the named parties to any such action (including any impleaded parties)
include both the indemnified party and the indemnifying party, and the
indemnified party shall have been advised by such counsel that there may be one
or more legal defenses available to it which are different from or additional
to those available to the indemnifying party (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf
of the indemnified party). In any such case, the indemnifying party shall not,
in connection with any one action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) of all
indemnified parties, and all such fees and expenses shall be reimbursed as they
are incurred. Such firm shall be designated in writing by Lehman Brothers Inc.
in the case of the parties indemnified pursuant to Section 8(a), and by the
Company, in the case of parties indemnified pursuant to Section 8(b). No
indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld), settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with the consent of the indemnifying party or if
there be a final judgment of the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified party from and
against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall
for any reason be unavailable or insufficient to hold harmless an indemnified
party under Section 8(a) or 8(b) in respect of any loss, claim, damage,
liability, judgment or any action in respect thereof, referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage, liability, judgment or action in respect thereof,
(i) in such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Guarantors, on the one hand, and the Holders,
on the other, from the offering of the Notes or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the
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<PAGE> 21
relative benefits referred to in clause (i) above but also the relative fault
of the Company and the Guarantors, on the one hand, and the Holders, on the
other, with respect to the statements or omissions which resulted in such loss,
claim, damage, liability, judgment or action in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Guarantors, on the one hand, and the Holders, on the other,
with respect to such offering shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Senior Subordinated Notes
purchased under the Purchase Agreement (before deducting expenses) received by
the Company as set forth in the table on the cover page of the Offering
Memorandum, on the one hand, and the total net proceeds received by such Holder
upon its resale of Notes less the amount paid by such Holder for such Notes, on
the other hand, bear to the total sum of such amounts. The relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company and the Guarantors
or such Holder, the intent of the parties and their relative knowledge, access
to information and opportunity to correct or prevent such statement or
omission. For the purposes of the preceding two sentences, the net proceeds
deemed to be received by the Company shall be deemed to be also for the benefit
of the Guarantors and the information supplied by the Company shall also be
deemed to have been supplied by the Guarantors. The Company, the Guarantors
and the Holders agree that it would not be just and equitable if contributions
pursuant to this Section 8 were to be determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, damage, liability, judgment
or action in respect thereof, referred to above in this Section 8 shall be
deemed to include, for purposes of this Section 8(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), no Holder, and none of its directors,
officers, employees or controlling persons, shall be required to contribute, in
the aggregate, any amount in excess of the amount by which the total net
proceeds received by such Holder upon its resale of Notes exceeds the sum of
the amount paid by such Holder for such Notes and the amount of any damages
which such Holder has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Holders' obligations to
contribute as provided in this Section 8(d) are several in proportion to the
respective principal amount of Notes held by each of the Holders hereunder and
not joint.
(e) The remedies provided for in this Section 8 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
SECTION 9. RULE 144A
The Company and the Guarantors hereby agree with each Holder, for so
long as any Transfer Restricted Securities remain outstanding and during any
period in which the Company and the Guarantors are subject to Section 13 or
15(d) of the Exchange Act, to make available to any Holder
-20-
<PAGE> 22
or beneficial owner of Transfer Restricted Securities in connection with any
sale thereof and any prospective purchaser of such Transfer Restricted
Securities from such Holder or beneficial owner, the information required by
Rule 144A(d)(4) under the Securities Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATION
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
For any Underwritten Offering, the investment banker or investment
bankers and manager or managers that will administer such offering will be
selected by the Holders of a majority in aggregate principal amount of the
Transfer Restricted Securities included in such offering; provided, that such
investment bankers and managers must be reasonably satisfactory to the Company.
Such investment bankers and managers are referred to herein as the
"underwriters."
SECTION 12. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled to
exercise all rights provided herein, in the Indenture, the Purchase Agreement
or granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights under this Agreement. The
Company and the Guarantors agree that monetary damages (including the
Liquidated Damages contemplated hereby) would not be adequate compensation for
any loss incurred by reason of a breach by them of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any
Guarantor will on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions
hereof. Neither the Company nor any Guarantor is currently bound by any
agreement granting registration rights with respect to its securities that
conflicts with the registration rights set forth herein.
(c) Adjustments Affecting the Notes. Neither the Company nor any
Guarantor will take any action, or permit any change to occur, with respect to
the Notes that would materially and adversely affect the ability of the Holders
to Consummate any Exchange Offer.
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<PAGE> 23
(d) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case
of Section 5 hereof and this Section 12(d), the Holders of all outstanding
Transfer Restricted Securities and (ii) in the case of all other provisions
hereof, the Company has obtained the written consent of Holders of a majority
of the outstanding principal amount of Transfer Restricted Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders whose
securities are being tendered pursuant to the Exchange Offer and that does not
affect directly or indirectly the rights of other Holders whose securities are
not being tendered pursuant to such Exchange Offer may be given by the Holders
of a majority of the outstanding principal amount of Transfer Restricted
Securities being tendered or registered.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
With a copy to:
Lehman Brothers Inc.
3 World Financial Center New York, New York
10285-1600 Attention: Syndicate Registration
Telecopy No.: (212) 528-8822
(ii) if to the Initial Purchasers, to the Initial
Purchasers' address specified in Section 12(a) of the Purchase
Agreement.
(iii) if to the Company:
Tesoro Petroleum Corporation 8700 Tesoro
Drive San Antonio, Texas 78217 Telecopy No.:
(210) 828-8600 Attention: Vice President,
Finance and Treasurer
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next Business Day, if timely delivered to an air courier guaranteeing overnight
delivery.
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<PAGE> 24
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that nothing herein shall be deemed to permit any assignment, transfer
or other disposition of Transfer Restricted Securities in violation of the
terms hereof or of the Purchase Agreement or the Indenture. If any transferee
of any Holder shall acquire Transfer Restricted Securities in any manner,
whether by operation of law or otherwise, such Transfer Restricted Securities
shall be held subject to all of the terms of this Agreement, and by owning and
holding such Transfer Restricted Securities such person shall be conclusively
deemed to have agreed to be bound by and to perform all of the terms and
provisions of this Agreement, including the restrictions on resale set forth in
this Agreement and, if applicable, the Purchase Agreement, and such Person
shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, AS
APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable by a court of competent jurisdiction,
the validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be affected
or impaired thereby.
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<PAGE> 25
(k) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TESORO PETROLEUM CORPORATION
By: /s/ GREGORY A. WRIGHT
------------------------------------
Gregory A. Wright
Vice President, Finance and Treasurer
DIGICOMP, INC.
INTERIOR FUELS COMPANY
KENAI PIPE LINE COMPANY
TESORO ALASKA PETROLEUM COMPANY
TESORO ALASKA PIPELINE COMPANY
TESORO BOLIVIA PETROLEUM COMPANY
TESORO EXPLORATION AND
PRODUCTION COMPANY
TESORO HAWAII CORPORATION
TESORO LATIN AMERICA COMPANY
TESORO MARINE SERVICES HOLDING
COMPANY
TESORO MARINE SERVICES, INC.
TESORO NATURAL GAS COMPANY
TESORO NORTHSTORE COMPANY
TESORO PETROLEUM COMPANIES, INC.
TESORO REFINING, MARKETING &
SUPPLY COMPANY
TESORO SOUTH PACIFIC PETROLEUM
COMPANY
TESORO VOSTOK COMPANY
By: /s/ GREGORY A. WRIGHT
------------------------------------
Gregory A. Wright
Vice President
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<PAGE> 26
TESORO FINANCIAL SERVICES HOLDING
COMPANY
TESORO GAS RESOURCES COMPANY, INC.
By: /s/ JEFFREY B. FABIAN
------------------------------------
Jeffrey B. Fabian
President
VICTORY FINANCE COMPANY
By: /s/ JEFFREY B. FABIAN
------------------------------------
Jeffrey B. Fabian
Secretary
TESORO E&P COMPANY, L.P.
By: Tesoro Exploration and Production
Company as General Partner
By: /s/ GREGORY A. WRIGHT
------------------------------------
Gregory A. Wright
Vice President
TESORO PIPELINE COMPANY, L.P.
By: Tesoro Natural Gas Company
as General Partner
By: /s/ GREGORY A. WRIGHT
------------------------------------
Gregory A. Wright
Vice President
Accepted:
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO. INC.
SALOMON SMITH BARNEY
By: LEHMAN BROTHERS INC.
By: /s/ H.E. McGEE III
-----------------------------------
(Authorized Representative)
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<PAGE> 1
EXHIBIT 12.1
TESORO PETROLEUM CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months
Ended
Years Ended December 31, March 31,
---------------------------------------------------- -----------------
1997 1996 1995 1994 1993 1997 1998
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes and extraordinary loss
on extinguishments of debt, net .................... $ 49,120 $115,147 $ 61,868 $ 26,056 $ 18,653 $ 9,575 $10,890
Interest expense, net of capitalized interest ......... 6,699 15,128 20,166 17,890 12,661 1,570 2,665
Amortization of debt discount ......................... -- 254 736 859 1,889 -- --
Amortization of debt issuance costs ................... -- 257 350 332 195 -- --
Estimated interest portion of rents (a) ............... 11,509 9,185 5,908 5,248 4,487 3,406 2,910
-------- -------- -------- -------- -------- ------- -------
Total Earnings ................................ $ 67,328 $139,971 $ 89,028 $ 50,385 $ 37,885 $14,551 $16,465
======== ======== ======== ======== ======== ======= =======
FIXED CHARGES:
Interest expenses, whether expensed or capitalized .... $ 7,118 $ 15,128 $ 20,166 $ 18,805 $ 12,661 $ 1,570 $ 2,665
Amortization of debt discount ......................... -- 254 736 859 1,889 -- --
Amortization of debt issuance costs ................... -- 257 350 332 195 -- --
Estimated interest portion of rents (a) ............... 11,509 9,185 5,908 5,248 4,487 3,406 2,910
-------- -------- -------- -------- -------- ------- -------
Total Fixed Charges ........................... $ 18,627 $ 24,824 $ 27,160 $ 25,244 $ 19,232 $ 4,976 $ 5,575
======== ======== ======== ======== ======== ======= =======
PREFERRED STOCK DIVIDEND REQUIREMENTS .................... $ -- $ -- $ -- $ 2,680 $ 9,207 -- --
======== ======== ======== ======== ======== ======= =======
COMBINED FIXED CHARGES AND PREFERRED STOCK
DIVIDEND REQUIREMENTS ................................. $ 18,627 $ 24,824 $ 27,160 $ 27,924 $ 28,439 $ 4,976 $ 5,575
======== ======== ======== ======== ======== ======= =======
RATIO OF EARNINGS TO FIXED CHARGES ....................... 3.61 5.64 3.28 2.00 1.97 2.92 2.95
======== ======== ======== ======== ======== ======= =======
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDEND REQUIREMENTS ................. 3.61 5.64 3.28 1.80 1.33 2.92 2.95
======== ======== ======== ======== ======== ======= =======
</TABLE>
- ----------
(a) For a majority of leases, the interest portion of rents was estimated by
using the Company's incremental borrowing rate in effect at the inception
of the leases. For the remaining leases, interest expense was estimated
by using one third of the rental payments. Total rental expense,
including marine charters, was $44.9 million, $41.5 million, $35.6
million, $33.6 million and $32.5 million for the years ended December 31,
1997, 1996, 1995, 1994 and 1993, respectively, and $11.7 million and
$12.3 million for the three months ended March 31, 1997 and 1998,
respectively.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Tesoro Petroleum Corporation is publicly held and has no parent. The
subsidiaries listed below are wholly-owned. Small or inactive subsidiaries are
omitted from the list below. Such omitted subsidiaries, considered in the
aggregate as a single subsidiary, would not constitute a "significant
subsidiary" for the year ended December 31, 1997.
<TABLE>
<CAPTION>
INCORPORATED
OR ORGANIZED
UNDER LAWS
NAME OF SUBSIDIARY(1) OF
--------------------- -------------
<S> <C>
Tesoro Alaska Petroleum Company............................. Delaware
Tesoro Alaska Pipeline Company.............................. Delaware
Tesoro Bolivia Petroleum Company............................ Texas
Tesoro Exploration and Production Company(2)................ Delaware
Tesoro Financial Services Holding Company................... Delaware
Victory Finance Company................................ Delaware
Tesoro Gas Resources Company, Inc.(2)....................... Delaware
Tesoro E&P Company, L.P.(2)............................ Delaware
Tesoro Hawaii Corporation(3)................................ Hawaii
Tesoro Marine Services Holding Company...................... Delaware
Tesoro Marine Services, Inc............................ Delaware
Tesoro Natural Gas Company.................................. Delaware
Tesoro Northstore Company................................... Alaska
Tesoro South Pacific Petroleum Company(3)................... California
</TABLE>
- ---------------
(1) Where the name of a subsidiary is indented, it is wholly-owned by its
immediate parent listed at the margin above it, unless otherwise indicated.
(2) Tesoro E&P Company, L.P. is owned 99% by Tesoro Gas Resources Company, Inc.
and 1% by Tesoro Exploration and Production Company.
(3) Acquired on May 29, 1998.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use and the incorporation by reference in this
Registration Statement of Tesoro Petroleum Corporation on Form S-4 of our
reports dated January 28, 1998, appearing in the Prospectus and the Annual
Report on Form 10-K of Tesoro Petroleum Corporation for the year ended December
31, 1997 and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
San Antonio, Texas
July 24, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Tesoro Petroleum Corporation of our report
dated May 29, 1998 relating to the financial statements of Shell Anacortes
Refining Company, which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts."
/s/ PricewaterhouseCoopers LLP
Houston, Texas
July 24, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the use of our report
dated March 31, 1998 covering the audited combined financial statements of BHP
Petroleum Americas Refining Inc. and BHP Petroleum South Pacific Inc. included
in Tesoro Petroleum Corporation's Form S-4, dated July 24, 1998, and to the
reference to our Firm under the heading "Experts" in this Registration
Statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Honolulu, Hawaii
July 24, 1998
<PAGE> 1
EXHIBIT 23.4
[NETHERLAND, SEWELL & ASSOCIATES, INC. LETTERHEAD]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the reference of our firm in the Annual Report on Form
10-K of Tesoro Petroleum Corporation for the year ended December 31, 1997, and
the incorporation by reference in the Registration Statement on Form S-4 of our
reserve report dated as of December 31, 1997. We also consent to the reference
to us under the heading "Experts" in the Prospectus, which is a part of this
Registration Statement on Form S-4.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ FREDERIC D. SEWELL
-------------------------------------
Frederic D. Sewell
President
Dallas, Texas
July 24, 1998
<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER
THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility of
a Trustee Pursuant to Section 305(b)(2)___
-------------------------------------------------------
U.S. BANK TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
<TABLE>
<S> <C> <C>
111 E. WACKER DRIVE, SUITE 3000
CHICAGO, ILLINOIS 60601 36-4046888
(Address of principal executive offices) (Zip Code) I.R.S. Employer Identification No.
</TABLE>
James D. Khami
535 Griswold, Suite 740
Detroit, Michigan 48226
Telephone (313) 234-4713
(Name, address and telephone number of agent for service)
TESORO PETROLEUM CORPORATION
(Exact name of obligor as specified in its charter)
AND OTHER REGISTRANTS
(SEE SEPARATE TABLE OF OTHER REGISTRANTS)
DELAWARE 74-2699185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8700 TESORO DRIVE
SAN ANTONIO, TEXAS 48084
(Address of Principal Executive Offices) (Zip Code)
9% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
(Title of the Indenture Securities)
================================================================================
<PAGE> 2
TABLE OF OTHER REGISTRANTS
<TABLE>
<S> <C> <C>
DELAWARE DIGICOMP, INC. 74-2521015
ALASKA INTERIOR FUELS COMPANY 74-2471007
DELAWARE KENAI PIPE LINE COMPANY 94-6062891
DELAWARE TESORO ALASKA PETROLEUM COMPANY 74-1646130
DELAWARE TESORO ALASKA PIPELINE COMPANY 74-1839523
TEXAS TESORO BOLIVIA PETROLEUM COMPANY 74-1799764
DELAWARE TESORO EXPLORATION AND PRODUCTION COMPANY 74-2307903
DELAWARE TESORO LATIN AMERICA COMPANY 74-2144598
DELAWARE TESORO MARINE SERVICES HOLDING COMPANY 74-2807425
DELAWARE TESORO MARINE SERVICES, INC. 74-2766974
DELAWARE TESORO NATURAL GAS COMPANY 74-1711669
ALASKA TESORO NORTHSTORE COMPANY 92-0098209
DELAWARE TESORO PETROLEUM COMPANIES, INC. 74-2385513
DELAWARE TESORO REFINING, MARKETING & SUPPLY COMPANY 74-2045147
DELAWARE TESORO VOSTOK COMPANY 74-2257610
DELAWARE TESORO E&P COMPANY, L.P. 74-2705971
DELAWARE TESORO PIPELINE COMPANY, L.P. 74-2742860
DELAWARE TESORO FINANCIAL SERVICES HOLDING COMPANY 51-0377202
DELAWARE TESORO GAS RESOURCES COMPANY, INC. 92-0150083
HAWAII TESORO HAWAII CORPORATION 99-0143882
CALIFORNIA TESORO SOUTH PACIFIC PETROLEUM COMPANY 95-3620808
DELAWARE VICTORY FINANCE COMPANY 51-0377203
</TABLE>
(Exact name of each guarantor as specified in its charter)
2
<PAGE> 3
FORM T-1
ITEM 1. GENERAL INFORMATION. Furnish the following information as to the
Trustee.
a) Name and address of each examining or supervising authority
to which it is subject.
Comptroller of the Currency
Washington, D.C.
b) Whether it is authorized to exercise corporate trust powers.
Yes
ITEM 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the
Trustee, describe each such affiliation.
None
ITEM 3-15.
Not applicable because, to the best of Trustee's knowledge, the
Trustee is not a trustee under any other indenture under which any
other securities or certificates of interest or participation in
any other securities of the obligor are outstanding and there is
not, nor has there been, a default with respect to securities
issued under this indenture.
ITEM 16. LIST OF EXHIBITS: List below all exhibits filed as a part of this
statement of eligibility and qualification.
1. A copy of the Articles of Association of the Trustee, as now
in effect, incorporated herein by reference to Exhibit 1 to
Item 16 of Form T-1, Registration No. 333-51415.*
2. A copy of the certificate of authority of the Trustee to
commence business, incorporated herein by reference to Exhibit
2 to Item 16 of Form T-1, Registration No. 33-64175.*
3. A copy of the certificate of authority of the Trustee to
exercise corporate trust powers, incorporated herein by
reference to Exhibit 3 to Item 16 of Form T-1, Registration
No. 33-64175.*
4. A copy of the existing bylaws of the Trustee, as now in
effect, incorporated herein by reference to Exhibit 4 to Item
16 of Form T-1, Registration No. 333-51415.*
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the
Trust Indenture Act of 1939, incorporated herein by reference
to Exhibit 6 of Form T-1, Registration No. 33-64175.*
7. A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority, filed herewith.
8. Not applicable.
9. Not applicable.
3
<PAGE> 4
* Exhibits thus designated are incorporated herein by reference to
Exhibits bearing identical numbers in Item 16 of the Form T-1 filed by
the Trustee with the Securities and Exchange Commission with the
specific references noted.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, U.S. BANK TRUST NATIONAL ASSOCIATION, a national
banking association organized and existing under the laws of the United
States of America, has duly caused this statement of eligibility and
qualification to be signed on its behalf by the undersigned, thereunto
duly authorized, all in the City of Detroit, State of Michigan on the
24th day of July, 1998.
U.S. BANK TRUST NATIONAL ASSOCIATION
By: /s/ JAMES D. KHAMI
-------------------------------------
James D. Khami
Vice President
4
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
U.S. Bank Trust National Association Call Date: 03/31/98 ST-BK: 17-1638 FFIEC 033
400 North Michigan Avenue Page RC-1
Chicago, IL 60611 Vendor ID: D CERT: 34094
9
Transit Number: 09600069
EXHIBIT 7
---------
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for March 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise indicated,
report the amount outstanding as of the last business day of the quarter.
Schedule RC - Balance Sheet
C200 <-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A): RCON
----
a. Noninterest-bearing balances and currency and coin (1)__________________________________0081. . 56,244 1.a
b. Interest-bearing balances (2)___________________________________________________________0071. . 0 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)______________________________1754. . 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D)____________________________1773. . 3,219 2.b
3. Federal funds sold and securities purchased under agreements to resell_____________________1350. . 0 3.
4. Loans and lease financing receivables:
RCON
a. Loans and leases, net of unearned income ----
(from Schedule RC-C)__________________________________2122. . 0 . . . . . . 4.a
b. LESS: Allowance for loan and lease losses_____________3123. . 0 . . . . . . 4.b
c. LESS: Allocated transfer risk reserve_________________3128. . 0 . . . . . . 4.c
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c)_____________________________________2125. . 0 4.d
5. Trading assets_____________________________________________________________________________3545. . 0 5.
6. Premises and fixed assets (including capitalized leases)___________________________________2145. . 125 6.
7. Other real estate owned (from Schedule RC-M)_______________________________________________2150. . 0 7.
8. Investments in unconsolidated subsidiaries and associated companies (from
Schedule RC-M)_____________________________________________________________________________2130. . 0 8.
9. Customers' liability to this bank on acceptances outstanding_______________________________2155. . 0 9.
10. Intangible assets (from Schedule RC-M)_____________________________________________________2143. . 47,202 10.
11. Other assets (from Schedule RC-F)__________________________________________________________2160. . 2,713 11.
12. Total assets (sum of items 1 through 11)___________________________________________________2170. . 109,503 12.
___________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
U.S. Bank Trust National Association Call Date: 03/31/98 ST-BK: 17-1638 FFIEC 033
400 North Michigan Avenue Page RC-2
Chicago, IL 60611 Vendor ID: D CERT: 34094
10
Transit Number: 09600069
Schedule RC - Continued
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
13. Deposits RCON
a. In domestic offices (sum of totals of ----
columns A and C from Schedule RC-E)________________________________________________________2200. . 0 13.a
RCON
----
(1) Noninterest-bearing (1)____________________________________6631. . 0 . . . . . . 13.a.1
(2) Interest-bearing___________________________________________6636. . 0 . . . . . . 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs______________________________ . . . . . .
(1) Noninterest-bearing____________________________________________________________________ . . . . . .
(2) Interest-bearing_______________________________________________________________________ . . . . . .
14. Federal funds purchased and securities sold under agreements to repurchase____________________2800. . 0 14.
15. a. Demand notes issued to the U.S. Treasury___________________________________________________2840. . 0 15.a
b. Trading liabilities________________________________________________________________________3548. . 0 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less______________________________________________2332. . 0 16.a
b. With a remaining maturity of more than one year through three years________________________A547. . 0 16.b
c. With a remaining maturity of more than three years_________________________________________A548. . 0 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding______________________________________2920. . 0 18.
19. Subordinated notes and debentures (2)_________________________________________________________3200. . 0 19.
20. Other liabilities (from Schedule RC-G)________________________________________________________2930. . 2,454 20.
21. Total liabilities (sum of items 13 through 20)________________________________________________2948. . 2,454 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus_________________________________________________3838. . 0 23.
24. Common stock__________________________________________________________________________________3230. . 1,000 24.
25. Surplus (exclude all surplus related to preferred stock)______________________________________3839. . 106,712 25.
26. a. Undivided profits and capital reserves_____________________________________________________3632. . (663) 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities_____________________8434. . 0 26.b
27. Cumulative foreign currency translation adjustments___________________________________________ . . . . . .
28. Total equity capital (sum of items 23 through 27)_____________________________________________3210. . 107,049 28.
29. Total liabilities and equity capital (sum of items 21 and 28)_________________________________3300. . 109,503 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes
the most comprehensive level of auditing work performed for the bank by independent
external auditors as of any date during 1997_________________________________________________6724. . 2 M.1
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally acceptable auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in accordance 8 = No external audit work
with generally accepted auditing standards by a certified
public accounting firm (may be required by a state charter-
ing authority)
_________
(1) Includes total demand deposits and noninterest-bearing time and saving deposits.
(2) Includes limited life preferred stock and related surplus.
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
U.S. Bank Trust National Association Call Date: 03/31/98 ST-BK: 17-1638 FFIEC 033
400 North Michigan Avenue Page RC-3
Chicago, IL 60611 Vendor ID: D CERT: 34094
11
Transit Number: 09600069
Schedule RC-A - Cash and Balances Due From Depository Institutions
Exclude assets held for trading.
C205 <-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
1. Cash items in process of collection, unposted debits, and currency and coin: RCON
----
a. Cash items in process of collection and unposted debits_________________________________0020. . 0 1.a
b. Currency and coin_______________________________________________________________________0080. . 0 1.b
2. Balances due from depository institutions in the U.S.:
a. U.S. branches and agencies of foreign banks_____________________________________________0083. . 0 2.a
b. Other commercial banks in the U.S. and other depository institutions in the U.S.________0085. . 56,244 2.b
3. Balances due from banks in foreign countries and foreign central banks:
a. foreign branches of other U.S. banks____________________________________________________0073. . 0 3.a
b. Other banks in foreign countries and foreign central banks______________________________0074. . 0 3.b
4. Balances due from Federal Reserve Banks____________________________________________________0090. . 0 4.
5. Total (sum of items 1 through 4) (must equal Schedule RC, sum of items 1.a and 1.b)________0010. . 56,244 5.
Memorandum
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
1. Noninterest-bearing balances due from commercial banks in the U.S. RCON
----
(included in items 2.a and 2.b above)______________________________________________________0050. . 56,244 M.1
</TABLE>
<PAGE> 1
TESORO PETROLEUM CORPORATION
LETTER OF TRANSMITTAL
FOR TENDER OF ALL OUTSTANDING
9% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
9% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS DATED , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED.
TO: U.S. BANK TRUST NATIONAL ASSOCIATION (THE "EXCHANGE AGENT")
<TABLE>
<S> <C> <C>
By Registered, Certified, or By Hand: By First Class Mail:
Overnight Mail or Courier:
U.S. Bank Trust N.A. U.S. Bank Trust N.A. U.S. Bank Trust N.A.
Attn: Specialized Finance 4th Floor Bond Drop Window P.O. Box 64485
SPFT0414 180 East Fifth Street St. Paul, MN 55164-9549
180 East Fifth Street St. Paul, MN 55101
St. Paul, MN 55101
By Facsimile:
(For Eligible Institutions
Only):
(651) 244-1537
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR TRANSMISSION TO A FACSIMILE
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE
METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IS AT THE RISK OF
THE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
The undersigned acknowledges that he or she has received the Prospectus,
dated , 1998 (the "Prospectus") of Tesoro Petroleum Corporation, a
Delaware corporation (the "Company"), and this Letter of Transmittal and the
instructions hereto (the "Letter of Transmittal"), which together constitute the
Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of
its 9% Senior Subordinated Notes due 2008, Series B (the "Exchange Notes") that
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the Prospectus
is a part, for each $1,000 principal amount of its outstanding 9% Senior
Subordinated Notes due 2008, (the "Old Notes"), of which $300,000,000 aggregate
principal amount is outstanding, upon the terms and subject to the conditions
set forth in the Prospectus. The term "Expiration Date" shall mean 5:00 p.m.,
New York City time, on , 1998, unless the Company, in its sole
discretion, extends the Exchange Offer, in which case the term shall mean the
latest date and time to which the Exchange Offer is extended by the Company.
Capitalized terms used but not defined herein shall have the meaning given to
them in the Prospectus.
This Letter of Transmittal is to be used either if (i) certificates
representing Old Notes are to be physically delivered to the Exchange Agent
herewith by Holders, (ii) tender of Old Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company ("DTC"), pursuant to the procedures set forth in "The Exchange
Offer -- Procedures for Tendering" in the Prospectus by any financial
institution that is a participant in DTC and whose name appears on a security
<PAGE> 2
position listing as the owner of Old Notes or (iii) tender of Old Notes is to be
made according to the guaranteed delivery procedures set forth in the Prospectus
under "The Exchange Offer -- Guaranteed Delivery Procedures." Delivery of this
Letter of Transmittal and any other required documents must be made to the
Exchange Agent. Delivery of documents to DTC does not constitute delivery to the
Exchange Agent.
The term "Holder" as used herein means any person in whose name Old Notes
are registered on the books of the Company or any other person who has obtained
a properly completed bond power from the registered holder.
All Holders of Old Notes who wish to tender their Old Notes must, prior to
the Expiration Date: (1) complete, sign, and deliver this Letter of Transmittal,
or a facsimile thereof, to the Exchange Agent, in person or to the address set
forth above; and (2) tender (and not withdraw) his or her Old Notes or, if a
tender of Old Notes is to be made by book-entry transfer to the account
maintained by the Exchange Agent at DTC, confirm such book-entry transfer (a
"Book-Entry Confirmation"), in each case in accordance with the procedures for
tendering described in the Instructions to this Letter of Transmittal. Holders
of Old Notes whose certificates are not immediately available, or who are unable
to deliver their certificates or Book-Entry Confirmation and all other documents
required by this Letter of Transmittal to be delivered to the Exchange Agent on
or prior to the Expiration Date, must tender their Old Notes according to the
guaranteed delivery procedures set forth under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures" in the Prospectus. (See Instruction 2.)
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of the Old Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made promptly following the
Expiration Date. For the purposes of the Exchange Offer, the Company shall be
deemed to have accepted for exchange validly tendered Old Notes when, as and if
the Company has given written notice thereof to the Exchange Agent.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW. THE INSTRUCTIONS INCLUDED IN THIS LETTER OF
TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR
ADDITIONAL COPIES OF THE PROSPECTUS, THIS LETTER OF TRANSMITTAL AND THE NOTICE
OF GUARANTEED DELIVERY MAY BE DIRECTED TO THE EXCHANGE AGENT. SEE INSTRUCTION 12
HEREIN.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD NOTES
MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY AND COMPLY WITH ALL OF
ITS TERMS.
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the certificate numbers and principal
amounts should be listed on a separate signed schedule, attached hereto. The
minimum permitted tender is $1,000 in principal amount of 9% Senior Subordinated
Notes due 2008. All other tenders must be in integral multiples of $1,000.
2
<PAGE> 3
DESCRIPTION OF 9% SENIOR SUBORDINATED NOTES DUE 2008
BOX I
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(A) (B)
AGGREGATE PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)* AMOUNT TENDERED
(PLEASE FILL IN, IF BLANK) CERTIFICATE NUMBER(S) (IF LESS THAN ALL)**
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF
OLD NOTES TENDERED
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Need not be completed by Holders who wish to tender with respect to all Old
Notes listed.
3
<PAGE> 4
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
BOX II
SPECIAL REGISTRATION INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered, or Exchange Notes issued in exchange for Old Notes accepted for
exchange, are to be issued in the name of someone other than the undersigned.
Issue certificates to:
Name
- ----------------------------------------
(Please Print)
------------------------------------------------
(Please Print)
Address
- --------------------------------------
------------------------------------------------
(Including Zip Code)
------------------------------------------------
(Tax Identification or Social Security Number)
BOX III
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered, or Exchange Notes issued in exchange for Old Notes accepted for
exchange, are to be delivered to someone other than the undersigned.
Issue certificates to:
Name
- ----------------------------------------
(Please Print)
------------------------------------------------
(Please Print)
Address
- --------------------------------------
------------------------------------------------
(Including Zip Code)
------------------------------------------------
(Tax Identification or Social Security Number)
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH
THE CERTIFICATE(S) FOR OLD NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF
SUCH OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS) OR, IF GUARANTEED DELIVERY
PROCEDURES ARE TO BE COMPLIED WITH, A NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
[ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED BY DTC TO AN ACCOUNT MAINTAINED
BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
----------------------------------------- [ ] The Depository Trust Company
Account Number
---------------------------------------------------------------------------
Transaction Code Number
---------------------------------------------------------------------------
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other documents required hereby to the Exchange Agent on
or prior to the Expiration Date may tender their Old Notes according to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer -- Guaranteed Delivery Procedures." (See Instruction 2.)
4
<PAGE> 5
[ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of tendering Holder(s)
--------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
---------------------------------------------------------
Name of Institution which Guaranteed Delivery
-------------------------------------------------------------
Transaction Code Number
----------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
----------------------------------------------------------------------------
Address:
---------------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Old Notes that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to Tesoro Petroleum Corporation (the "Company") the principal
amount of Old Notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Old Notes tendered hereby in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, the Company all right, title and interest in and to the Old Notes tendered
hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as its agent and attorney-in-fact (with full knowledge that the Exchange
Agent also acts as the agent of the Company and as Trustee and Registrar under
the Indenture for the Old Notes and the Exchange Notes) with respect to the
tendered Old Notes with full power of substitution (such power of attorney being
deemed an Irrevocable power coupled with an interest), subject only to the right
of withdrawal described in the Prospectus, to (i) deliver certificates for such
Old Notes to the Company or transfer ownership of such Old Notes on the account
books maintained by DTC, together, in either such case, with all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company and
(ii) present such Old Notes for transfer on the books of the Company and receive
all benefits and otherwise exercise all rights of beneficial ownership of such
Old Notes, all in accordance with the terms of the Exchange Offer.
The undersigned acknowledges that the Exchange Offer is being made in
reliance upon interpretative advice given by the staff of the Securities and
Exchange Commission to third parties in connection with
5
<PAGE> 6
transactions similar to the Exchange Offer, so that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for the Old Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than a
broker-dealer who purchased such Old Notes directly from the Company for resale
pursuant to Rule 144A or any other available exemption under the Securities Act
or a person that is an "affiliate" of the Company or any Guarantor within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to participate in
the distribution of such Exchange Notes.
The undersigned agrees that acceptance of any tendered Old Notes by the
Company and the issuance of Exchange Notes in exchange therefor shall constitute
performance in full by the Company of its obligations under the Registration
Rights Agreement, (as defined in the Prospectus) and that, upon the issuance of
the Exchange Notes, the Company will have no further obligations or liabilities
thereunder (except in certain limited circumstances).
The undersigned represents and warrants that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving Exchange Notes (which shall be the
undersigned unless otherwise indicated in the box entitled "Special Delivery
Instructions" above) (the "Recipient"), (ii) neither the undersigned nor the
Recipient (if different) is engaged in, intends to engage in or has any
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes and (iii) neither the undersigned nor the Recipient (if
different) is an "affiliate" of the Company or any Guarantor as defined in Rule
405 under the Securities Act. If the undersigned is not a broker-dealer, the
undersigned further represents that it is not engaged in, and does not intend to
engage in, a distribution of the Exchange Notes. If the undersigned is a
broker-dealer, the undersigned further (x) represents that it acquired Old Notes
for the undersigned's own account as a result of market making activities or
other trading activities, (y) represents that it has not entered into any
arrangement or understanding with the Company or any "affiliate" of the Company
(within the meaning of Rule 405 under the Securities Act) to distribute the
Exchange Notes to be received in the Exchange Offer and (z) acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act (for
which purposes delivery of the Prospectus, as the same may be hereafter
supplemented or amended, shall be sufficient) in connection with any resale of
Exchange Notes received in the Exchange Offer. Such a broker-dealer will not be
deemed, solely by reason of such acknowledgment and prospectus delivery, to
admit that it is an "underwriter" within the meaning of the Securities Act.
The undersigned understands and agrees that the Company reserves the right
not to accept tendered Old Notes from any tendering holder if the Company
determines, in its sole and absolute discretion, that such acceptance could
result in a violation of applicable securities laws.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and to acquire Exchange Notes issuable upon the exchange of such
tendered Old Notes, and that, when the same are accepted for exchange, the
Company will acquire good and unencumbered title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed to be necessary or desirable by the
Exchange Agent or the Company in order to complete the exchange, assignment and
transfer of tendered Old Notes or transfer of ownership of such Old Notes on the
account books maintained by a book-entry transfer facility.
The undersigned understands and acknowledges that the Company reserves the
right in its sole discretion to purchase or make offers for any Old Notes that
remain outstanding subsequent to the Expiration Date or, as set forth in the
Prospectus under the caption "The Exchange Offer -- Procedures for Tendering,"
to terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
The undersigned understands that the Company may accept the undersigned's
tender by delivering notice of acceptance, as provided below, to the Exchange
Agent, at which time the undersigned's right to withdraw
6
<PAGE> 7
such tender will terminate. For purposes of the Exchange Offer, the Company
shall be deemed to have accepted validly tendered Old Notes when, as and if the
Company has given oral (which shall be confirmed in writing) or written notice
thereof to the Exchange Agent.
The undersigned understands that the first interest payment following the
Expiration Date will include unpaid interest on the Old Notes accrued through
the date of issuance of the Exchange Notes.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
The undersigned acknowledges that the Exchange Offer is subject to the more
detailed terms set forth in the Prospectus and, in case of any conflict between
the terms of the Prospectus and this Letter of Transmittal, the Prospectus shall
prevail.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned (except as noted below with respect to tenders through DTC) at
the Company's cost and expense, to the undersigned at the address shown below or
at a different address as may be indicated herein under "Special Delivery
Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns. This tender may be withdrawn only in
accordance with the procedures set forth in this Letter of Transmittal.
By acceptance of the Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby acknowledges and agrees
that upon the receipt of notice by the Company of the happening of any event
which makes any statement in the Prospectus untrue in any material respect or
which requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented prospectus to such broker-dealer.
Unless otherwise indicated under "Special Registration Instructions,"
please issue the certificates representing the Exchange Notes issued in exchange
for the Old Notes accepted for exchange and return any certificates for Old
Notes not tendered or not exchanged, in the name(s) of the undersigned (or, in
either such event in the case of Old Notes tendered by DTC, by credit to the
account at DTC). Similarly, unless otherwise indicated under "Special Delivery
Instructions," please send the certificates representing the Exchange Notes
issued in exchange for the Old Notes accepted for exchange and return any
certificates for Old Notes not tendered or not exchanged (and accompanying
documents, as appropriate) to the undersigned at the address shown below the
undersigned's signature(s), unless, in either event, tender is being made
through DTC. In the event that both "Special Registration Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Notes issued in exchange for the Old Notes accepted
for exchange in the name(s) of, and return any certificates for Old Notes not
tendered or not exchanged to, the person(s) so indicated. The undersigned
understands that the Company has no obligations pursuant to the "Special
Registration Instructions" or "Special Delivery Instructions" to transfer any
Old Notes from the name of the registered Holder(s) thereof if the Company does
not accept for exchange any of the Old Notes so tendered.
Holders who wish to tender the Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal or any other documents required hereby to the Exchange Agent prior
to the Expiration Date, may tender their Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 1 regarding the
completion of the Letter of Transmittal.
7
<PAGE> 8
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
AND WHETHER OR NOT TENDER IS TO BE MADE
PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES
This Letter of Transmittal must be signed by the registered holder(s) as
their name(s) appear on the Old Notes or, if tendered by a participant in DTC,
exactly as such participant's name appears on a security listing as the owner of
Old Notes, or by person(s) authorized to become registered holder(s) by a
properly completed bond power from the registered holder(s), a copy of which
must be transmitted with this Letter of Transmittal. If Old Notes to which this
Letter of Transmittal relate are held of record by two or more joint holders,
then all such holders must sign this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
then such person must (i) set forth his or her full title below and (ii) unless
waived by the Company, submit evidence satisfactory to the Company of such
person's authority so to act, (See Instruction 4.)
<TABLE>
<S> <C>
X --------------------------------------------------- -----------------------------------------------------
Date
X --------------------------------------------------- -----------------------------------------------------
Signature(s) of Holder(s) of Authorized Signatory Date
Name(s): ------------------------------------------ Address: --------------------------------------------
--------------------------------------------
- ----------------------------------------------------- (including Zip Code)
(Please Print)
Capacity: ------------------------------------------- Area Code and Telephone Number: ---------------
Social Security No.: -------------------------------
</TABLE>
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
8
<PAGE> 9
BOX IV
SIGNATURE GUARANTEE (SEE INSTRUCTION 1)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
- --------------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures)
- --------------------------------------------------------------------------------
(Address (including zip code) and Telephone Number (including area code) of
Firm)
- --------------------------------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Printed Name)
- --------------------------------------------------------------------------------
(Title)
Date:
- --------------------------
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Guarantee of Signatures. Signatures on this Letter of Transmittal need
not be guaranteed if (a) this Letter of Transmittal is signed by the registered
holder(s) of the Old Notes tendered herewith and such holder(s) have not
completed the box set forth herein entitled "Special Registration Instructions"
or the box entitled "Special Delivery Instructions" or (b) such Old Notes are
tendered for the account of an Eligible Institution. (See Instruction 6.)
Otherwise, all signatures on this Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States (an "Eligible Institution"). All
signatures on bond powers and endorsements on certificates must also be
guaranteed by an Eligible Institution.
2. Delivery of this Letter of Transmittal and Old Notes. Certificates for
all physically delivered Old Notes or confirmation of any book-entry transfer to
the Exchange Agent at DTC of Old Notes tendered by book-entry transfer, as well
as, in each case (including cases where tender is affected by book-entry
transfer), a properly completed and duly executed copy of this Letter of
Transmittal or facsimile hereof and any other documents required by this Letter
of Transmittal must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date.
The method of delivery of the tendered Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder and the delivery will be deemed made only when
actually received by the Exchange Agent. If Old Notes are sent by mail,
certified or registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to ensure timely
delivery. No Letter of Transmittal or Old Notes should be sent to the Company.
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Depositary for purposes of the Exchange Offer within two
business days after receipt of this Prospectus, and
9
<PAGE> 10
any financial institution that is a participant in the Depositary may make
book-entry delivery of Old Notes by causing the Depositary to transfer such Old
Notes into the Exchange Agent's account at the Depositary in accordance with the
Depositary's procedures for transfer. However, although delivery of Old Notes
may be effected through book-entry transfer at the Depositary, the Letter of
Transmittal, with any required signature guarantees or an Agent's Message (as
defined below) in connection with a book-entry transfer and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address specified on the cover page of the Letter of Transmittal on
or prior to the Expiration Date or the guaranteed delivery procedures described
below must be complied with.
A Holder may tender Old Notes that are held through the Depositary by
transmitting its acceptance through the Depositary's Automatic Tender Offer
Program, for which the transaction will be eligible, and the Depositary will
then edit and verify the acceptance and send an Agent's Message to the Exchange
Agent for its acceptance. The term "Agent's Message" means a message transmitted
by the Depositary to, and received by, the Exchange Agent and forming part of
the Book-Entry Confirmation, which states that the Depositary has received an
express acknowledgment from each participant in the Depositary tendering the Old
Notes and that such participant has received the Letter of Transmittal and
agrees to be bound by the terms of the Letter of Transmittal and the Company may
enforce such agreement against such participant.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent
prior to the Expiration Date or comply with book-entry transfer procedures on a
timely basis must tender their Old Notes according to the guaranteed delivery
procedures set forth in the Prospectus. See "Exchange Offer -- Guaranteed
Delivery Procedures." Pursuant to such procedure: (i) such tender must be made
by or through an Eligible Institution; (ii) prior to the Expiration Date, the
Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, overnight courier, mail or hand delivery) setting forth the name
and address of the Holder of the Old Notes, the certificate number or numbers of
such Old Notes and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the Expiration Date, this Letter of Transmittal (or
facsimile hereof) together with the certificate(s) representing the Old Notes
and any other required documents will be deposited by the Eligible Institution
with the Exchange Agent; and (iii) such properly completed and executed Letter
of Transmittal (or facsimile hereof), as well as all other documents required by
this Letter of Transmittal and the certificate(s) representing all tendered Old
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at DTC), must be received by
the Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date, all in the manner provided in the Prospectus under the caption
"The Exchange Offer -- Guaranteed Delivery Procedures." Any Holder who wishes to
tender his Old Notes pursuant to the guaranteed delivery procedures described
above must ensure that the Exchange Agent receives the Notice of Guaranteed
Delivery prior to 5:00 p.m., New York City time, on the Expiration Date. Upon
request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to
Holders who wish to tender their Old Notes according to the guaranteed delivery
procedures set forth above.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes, and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. All tendering holders, by execution of this Letter of
Transmittal (or facsimile thereof), shall waive any right to receive notice of
the acceptance of the Old Notes for exchange. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to particular Old Notes. The Company's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
this Letter of Transmittal) shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
must be cured within such time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Old Notes,
nor shall any of them incur any
10
<PAGE> 11
liability for failure to give such notification. Tenders of Old Notes will not
be deemed to have been made until such defects or irregularities have been cured
to the Company's satisfaction or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders pursuant to the Company's determination, unless
otherwise provided in this Letter of Transmittal as soon as practicable
following the Expiration Date. The Exchange Agent has no fiduciary duties to the
Holders with respect to the Exchange Offer and is acting solely on the basis of
directions of the Company.
3. Inadequate Space. If the space provided is inadequate, the certificate
numbers and/or the number of Old Notes should be listed on a separate signed
schedule attached hereto.
4. Tender by Holder. Only a Holder of Old Notes may tender such Old Notes
in the Exchange Offer. Any beneficial owner of Old Notes who is not the
registered Holder and who wishes to tender should arrange with such registered
holder to execute and deliver this Letter of Transmittal on such beneficial
owner's behalf or must, prior to completing and executing this Letter of
Transmittal and delivering his Old Notes, either make appropriate arrangements
to register ownership of the Old Notes in such beneficial owner's name or obtain
a properly completed bond power from the registered holder or properly endorsed
certificates representing such Old Notes.
5. Partial Tenders; Withdrawals. Tenders of Old Notes will be accepted only
in integral multiples of $1,000. If less than the entire principal amount of any
Old Notes is tendered, the tendering Holder should fill in the principal amount
tendered in the third column of the box entitled "Description of 9% Senior
Subordinated Notes due 2008" above. The entire principal amount of any Old Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire principal amount of all Old Notes is not
tendered, then Old Notes for the principal amount of Old Notes not tendered and
a certificate or certificates representing Exchange Notes issued in exchange for
any Old Notes accepted will be sent to the Holder at his or her registered
address, unless a different address is provided in the "Special Delivery
Instructions" box above on this Letter of Transmittal or unless tender is made
through DTC, promptly after the Old Notes are accepted for exchange.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes, or, in the case of Old Notes
transferred by book-entry transfer the name and number of the account at DTC to
be credited), (iii) be signed by the Depositor in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Registrar, with respect to the Old
Notes, register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes are
to be registered, if different from that of the Depositor. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for purposes of the Exchange Offer and no Exchange Notes
will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for exchange by the Company will be returned to the Holder thereof
without cost to such Holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may
be retendered by following one of the procedures described in the Prospectus
under "The Exchange Offer -- Procedures for Tendering" at any time prior to the
Expiration Date.
6. Signatures on the Letter of Transmittal; Bond Powers and
Endorsements. If this Letter of Transmittal (or facsimile hereof) is signed by
the registered holder(s) of the Old Notes tendered hereby, the signature
11
<PAGE> 12
must correspond with the name(s) as written on the face of the Old Note without
alteration, enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many copies of this Letter of
Transmittal as there are different registrations of Old Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders (which term, for the purposes described herein,
shall include a book-entry transfer facility whose name appears on a security
listing as the owner of the Old Notes) of Old Notes tendered and the certificate
or certificates for Exchange Notes issued in exchange therefor is to be issued
(or any untendered principal amount of Old Notes to be reissued) to the
registered Holder, then such Holder need not and should not endorse any tendered
Old Notes, nor provide a separate bond power. In any other case, such Holder
must either properly endorse the Old Notes tendered or transmit a properly
completed separate bond power with this Letter of Transmittal with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by appropriate bond powers in each case
signed as the name of the registered Holder or Holders appears on the Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 6 must be guaranteed by an Eligible Institution.
7. Special Registration and Delivery Instructions. Tendering Holders should
indicate, in the applicable box or boxes, the name and address to which Exchange
Notes or substitute Old Notes for principal amounts not tendered or not accepted
for exchange are to be issued or sent, if different from the name and address of
the person signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
8. Backup Federal Income Tax Withholding and Substitute Form W-9. Under the
federal income tax laws, payments that may be made by the Company on account of
Exchange Notes issued pursuant to the Exchange Offer may be subject to backup
withholding at the rate of 31%. In order to avoid such backup withholding, each
tendering Holder should complete and sign the Substitute Form W-9 included in
this Letter of Transmittal and either (a) provide the correct taxpayer
identification number ("TIN") and certify, under penalties of perjury, that the
TIN provided is correct and that (i) the Holder has not been notified by the
Internal Revenue Service (the "IRS") that the Holder is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the IRS has notified the Holder that the Holder is no longer subject to backup
withholding; or (b) provide an adequate basis for exemption. If the tendering
Holder has not been issued a TIN and has applied for one, or intends to apply
for one in the near future, such Holder should write "Applied For" in the space
provided for the TIN in Part I of the Substitute Form W-9, sign and date the
Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer
Identification Number. If "Applied For" is written in Part 1, notwithstanding
that the Certificate of Payee Awaiting Taxpayer Identification Number is
completed, the Company (or the Paying Agent under the Indenture governing the
Exchange Notes) shall withhold 31% of payments made to the tendering Holder
seven days following receipt by the Company or Paying Agent of the Certificate
of Payee Awaiting Taxpayer Identification Number and prior to the time a
properly certified TIN is provided to the Company or Paying Agent. In general,
if a Holder is an individual, the TIN is the Social Security number of such
individual. If the Exchange Agent or the Company are not provided with the
correct TIN, the Holder may be subject to a $50 penalty imposed by the Internal
Revenue Service. Certain Holders (including, among others, all corporations and
certain foreign persons) are
12
<PAGE> 13
not subject to these backup withholding and reporting requirements. In order for
a foreign person to qualify as an exempt recipient, such Holder must submit a
statement (generally, IRS Form W-8), signed under penalties of perjury,
attesting to that person's exempt status. Such statements can be obtained from
the Exchange Agent. For further information concerning backup withholding and
instructions for completing the Substitute Form W-9 (including how to obtain a
taxpayer identification number if you do not have one and how to complete the
Substitute Form W-9 if Old Notes are registered in more than one name), consult
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
Notes to be deemed invalidly tendered, but may require the Company (or the
Paying Agent) to withhold 31% of the amount of any payments made on account of
the Exchange Notes. Backup withholding is not an additional federal income tax.
Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, the Holder may apply for a refund from the
IRS.
9. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Old Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be registered in the name of, any person other than the registered holder of the
Old Notes tendered hereby, or if tendered Old Notes are registered in the name
of a person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or on any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with this Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder. See the Prospectus under "The Exchange Offer -- Solicitation of Tenders;
Fees and Expenses."
Except as provided in this Instruction 9, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
10. Waiver of Conditions. The Company reserves the right, in its sole
discretion, to amend, waive or modify specified conditions in the Exchange Offer
in the case of any Old Notes tendered.
11. Mutilated, Lost, Stolen or Destroyed Old Notes. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instructions.
12. Requests for Assistance or Additional Copies. Requests for assistance
and requests for additional copies of the Prospectus or this Letter of
Transmittal may be directed to the Exchange Agent at the address specified in
the Prospectus. Holders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Exchange Offer.
(DO NOT WRITE IN SPACE BELOW)
<TABLE>
<CAPTION>
CERTIFICATE SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED
----------------------- ------------------ ------------------
<S> <C> <C>
- ------------------------------------ ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------ ------------------------------------
Date Received ------------------- Accepted by --------------------- Checked by ----------------------
Delivery Prepared by ------------ Checked by ---------------------- Date ------------------------------
</TABLE>
IMPORTANT TAX INFORMATION
Under federal income tax laws, a Holder whose tendered Old Notes are
accepted for exchange is required to provide the Company or the Paying Agent (as
payer) with such Holder's correct TIN on Substitute
13
<PAGE> 14
Form W-9 below or otherwise establish a basis for exemption from backup
withholding. If such Holder is an individual, the TIN is his or her social
security number. If the Company or the Paying Agent is not provided with the
correct TIN, a $50 penalty may be imposed by the Internal Revenue Service, and
payments made on Exchange Notes issued pursuant to the Exchange Offer may be
subject to backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Exchange Agent a properly completed Internal Revenue Service Form W-8,
signed under penalties of perjury, attesting to that Holder's exempt status. A
Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Company or the Paying Agent is required
to withhold 31% of any payments made to the Holder or other payee. Backup
withholding is not an additional federal income tax. Rather, the federal income
tax liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be applied for with the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made on Exchange Notes issued
pursuant to the Exchange Offer, the Holder is required to provide the Exchange
Agent with either: (i) the Holder's correct TIN by completing the form below,
certifying that the TIN provided on Substitute Form W-9 is correct (or that such
Holder is awaiting a TIN) and that (A) the Holder has not been notified by the
Internal Revenue Service that the Holder is subject to backup withholding as a
result of failure to report all interest or dividends or (B) the Internal
Revenue Service has notified the Holder that the Holder is no longer subject to
backup withholding or (ii) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE COMPANY OR THE PAYING AGENT
The Holder is required to give the Company or the Paying Agent the TIN
(e.g., social security number or employer identification number) of the
registered Holder of the Old Notes. If the Old Notes are held in more than one
name or are held not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
14
<PAGE> 15
CERTIFICATE OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a taxpayer identification number within 60 days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a number.
Moreover, I understand that during this 60-day period, 31% of all reportable
payments made to me will be withheld commencing 7 business days after the payor
receives this Certificate of Payee Awaiting Taxpayer Identification Number and
terminating on the date I provide a certified TIN to the payor.
SIGNATURE
- --------------------------------------------------------------------------------
NAME
- ------------------------------------------- ADDRESS
- ----------------------------------------
(please
print) (please print)
DATE
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE NOTES.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
15
<PAGE> 16
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: TESORO PETROLEUM CORPORATION
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I -- TAXPAYER IDENTIFICATION NUMBER
(TIN)
FORM W-9
ENTER YOUR TIN IN THE APPROPRIATE BOX AND
DEPARTMENT OF THE TREASURY CERTIFY BY SIGNING AND DATING BELOW. FOR
INTERNAL REVENUE SERVICE INDIVIDUALS, THIS IS YOUR SOCIAL SECURITY
NUMBER (SSN). FOR SOLE PROPRIETORS, SEE THE Social Security No.
REQUEST FOR TAXPAYER INSTRUCTIONS IN THE ENCLOSED GUIDELINES. FOR ----------------------------------
IDENTIFICATION NUMBER AND OTHER ENTITIES, IT IS YOUR EMPLOYER
CERTIFICATION IDENTIFICATION NUMBER (EIN). IF YOU DO NOT or
HAVE A NUMBER, SEE HOW TO GET A TIN IN THE Employer Identification No.
ENCLOSED GUIDELINES. ----------------------------------
NOTE: If the account is in more than one
name, see the chart on page 2 of the
enclosed Guidelines on whose number to
enter.
- -------------------------------------------------------------------------------------------------------------------
PART II -- FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
(See Part II instructions in the enclosed Guidelines.)
- -------------------------------------------------------------------------------------------------------------------
PART III -- CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be
issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not
been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
Signature
------------------------------------------------------------------------------------- Date ---------------, 1998
Name
------------------------------------------------------------------------------------------------------------------
(please print)
Address
------------------------------------------------------------------------------------------------------------------
(please print)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION INSTRUCTION -- You must cross out Item 2 above if you have
been notified by the IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return. For real
estate transactions, item 2 does not apply. However, if after being notified by
the IRS that you are currently subject to backup withholding, you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out such item(2).
16
<PAGE> 17
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE.
PURPOSE OF FORM -- A person who is required to file an information return with
the IRS must obtain your correct Taxpayer Identification Number (TIN) to report
income paid to you, real estate transactions, mortgage interest you paid, the
acquisition or abandonment of secured property, cancellation of debt or
contributions you made to an IRA. Use the accompanying Substitute Form W-9 to
furnish your correct TIN to the requester (the person asking you to furnish your
TIN), and, when applicable, (1) to certify that the TIN you are furnishing is
correct (or that you are waiting for a number to be issued), (2) to certify that
you are not subject to backup withholding, or (3) to claim exemption from backup
withholding if you are an exempt payee. Furnishing your correct TIN and making
the appropriate certifications will prevent certain payments from being subject
to backup withholding.
HOW TO OBTAIN A TIN. -- If you do not have a TIN, apply for one immediately.
To apply, get Form SS-5, Application for a Social Security Card (for
individuals), from your local office of the Social Security Administration, or
Form SS-4, Application for Employer Identification Number (for businesses and
all other entities), from your local IRS office.
To complete Substitute Form W-9 if you do not have a TIN, write "Applied for"
in the space for the TIN in Part 1, sign and date the form, and give it to the
requester. Generally, you must obtain a TIN and furnish it to the requester by
the time of payment. If the requester does not receive your TIN by the time of
payment, backup withholding, if applicable, will begin and continue until you
furnish your TIN to the requester.
Note: Writing "Applied for" on the form means that you have already applied
for a TIN OR that you intend to apply for one in the near future.
As soon as you receive your TIN, complete another Substitute Form W-9, include
your TIN, sign and date the form, and give it to the requester.
WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you are
required to withhold and pay to the IRS 31% of such payments under certain
conditions. This is called "backup withholding." Payments that could be subject
to backup withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, non-employee compensation and certain payments
from fishing boat operations, but do not include real estate transactions.
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
1. You do not furnish your TIN to the requester, or
2. The IRS notifies the requester that you furnished an incorrect TIN, or
3. You are notified by the IRS that you are subject to backup withholding
because you failed to report all your interest and dividends on your tax
return (for reportable interest and dividends only), or
4. You do not certify to the requester that you are not subject to backup
withholding under 3 above (for reportable interest and dividend accounts
opened after 1983 only), or
5. You do not certify your TIN when required. This applies only to reportable
interest, dividend, broker or barter exchange accounts opened after 1983,
broker accounts considered inactive during 1983, and real estate
transactions.
Certain payees and payments are exempt from backup withholding and information
reporting. See Payees and Payments Exempt From Backup Withholding, below, and
Exempt Payees Under Specific Instructions, below, if you are an exempt payee.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. -- The following is a list
of payees exempt from backup withholding and for which no information reporting
is required. For interest and dividends, all listed payees are exempt except
item (9). For broker transactions, payees listed in (1) through (13) and a
person registered under the Investment Advisers Act of 1940 who regularly acts
as a broker are exempt. Payments subject to reporting under sections 6041 and
6041A are generally exempt from backup withholding only if made to payees
described in items (1) through (7), except a corporation that provides medical
and health care services or bills and collects payments for such services is not
exempt from backup withholding or information reporting. Only payees described
in items (2) through (6) are exempt from backup withholding for barter exchange
transactions and patronage dividends.
(1) A corporation. (2) An organization exempt from tax under section 501(a),
or an IRA, or a custodial account under section 403(b)(7). (3) The United States
or any of its agencies or instrumentalities. (4) A state, the District of
Columbia, a possession of the United States or any of their political
subdivisions or instrumentalities. (5) A foreign government or any of its
political subdivisions, agencies, or instrumentalities. (6) An international
organization or any of its agencies or instrumentalities. (7) A foreign central
bank of issue. (8) A dealer in securities or commodities required to register in
the United States, the District of Columbia or a possession of the United
States. (9) A futures commission merchant registered with the Commodity Futures
Trading Commission. (10) A real estate investment trust. (11) An entity
registered at all times during the tax year under the Investment Company Act of
1940. (12) A common trust fund operated by a bank under section 584(a). (13) A
financial institution. (14) A middleman known in the investment community as a
nominee or listed in the most recent publication of the American Society of
Corporate Secretaries, Inc., Nominee List. (15) A trust exempt from tax under
section 664 or described in section 4947.
Payments of dividend and patronage dividends generally not subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
- Payments of patronage dividends not paid in money.
- Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have not
provided your correct TIN to the payer.
- Payments of tax-exempt interest (including exempt interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045,
6049, 6050A and 6050N, and their regulations.
PENALTIES
FAILURE TO FURNISH TIN. -- If you fail to furnish your correct TIN to a
requester, you will be subject to a penalty of $50 for each such failure unless
your failure is due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
MISUSE OF TINS. -- If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.
1
<PAGE> 18
SPECIFIC INSTRUCTIONS
NAME. -- If you are an individual, you must generally provide the name shown
on your Social Security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name, the last name shown on your
Social Security card, and your new last name.
If you are a sole proprietor, you must furnish your individual name. You may
also enter your business name or "doing business as" name on the business name
line. Enter your name(s) as shown on your Social Security card and/or as it was
used to apply for your EIN on Form SS-4.
TAXPAYER IDENTIFICATION NUMBER. -- You must enter your TIN in the appropriate
box. If you are a sole proprietor, you may enter your SSN or EIN. See the chart
below for further clarification of name and TIN combinations. If you do not have
a TIN, follow the instructions under How to Obtain a TIN on page 1.
EXEMPT PAYEES. -- If you are exempt from backup withholding, you should
complete the Substitute Form W-9 to avoid possible erroneous backup withholding.
Enter your correct TIN in Part 1, write "EXEMPT" in the block in Part 2, and
sign and date the form. If you are a nonresident alien or foreign entity not
subject to backup withholding, give the requester a completed Form W-8,
Certificate of Foreign Status.
SIGNING THE CERTIFICATION
1. INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984
AND BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You are required to furnish
your correct TIN, but you are not required to sign the certification.
2. INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983
AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item 2 in the certification before signing the form.
3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross
out item 2 of the certification.
4. OTHER PAYMENTS. You are required to furnish your correct TIN, but you are
not required to sign the certification unless you have been notified of an
incorrect TIN. "Other payments" include payments made in the course of the
requester's trade or business for rents, royalties, goods (other than bills for
merchandise), medical and health care services, payments to a nonemployee for
service (including attorney and accounting fees) and payments to certain fishing
boat crew members.
5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY OR IRA CONTRIBUTIONS. You are required to furnish your correct TIN, but
you are not required to sign the certification.
6. TIN "APPLIED FOR." Follow the instructions under How to Obtain a TIN on
page 1, and sign and date the Substitute Form W-9.
SIGNATURE -- For a joint account, only the person whose TIN is shown in Part 1
should sign.
PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct TIN
to persons who must file information returns with the IRS to report interest,
dividends, certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, cancellation of debt, or
contributions you made to an IRA. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. You must provide
your TIN whether or not you are required to file a tax return. Payers must
generally withhold 31% of taxable interest, dividend and certain other payments
to a payee who does not furnish a TIN to a payer. Certain penalties may also
apply.
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
GIVE NAME AND
FOR THIS TYPE OF ACCOUNT: SSN OF:
- ---------------------------------------------------------------
<C> <S> <C>
1. Individual The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-trustee(1)
trust (grantor is also trustee)
b. So-called trust account The actual owner(1)
that is not a legal or
valid trust under state law
5. Sole proprietorship The owner(3)
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
GIVE NAME AND
FOR THIS TYPE OF ACCOUNT: EIN OF:
- ---------------------------------------------------------------
<C> <S> <C>
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or pension Legal entity(4)
trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational or other
tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state or
local government, school district,
or prison) that receives
agricultural program payments
- ---------------------------------------------------------------
</TABLE>
2
(1) Use first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's SSN.
(3) Show your individual name. You may also enter your business or "doing
business as" name. You may use your SSN or EIN.
(4) List first and circle the name of the legal trust, estate or pension trust.
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity hereof is not designated in the account title).
NOTE: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
3
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR 9% SENIOR SUBORDINATED NOTES DUE 2008
OF TESORO PETROLEUM CORPORATION
As set forth in the Prospectus dated , 1998 (the "Prospectus") of
Tesoro Petroleum Corporation, a Delaware corporation (the "Company"), and in the
Letter of Transmittal (the "Letter of Transmittal"), this form or a form
substantially equivalent to this form must be used to accept the Exchange Offer
(as defined below) if the certificates for the outstanding 9% Senior
Subordinated Notes due 2008 (the "Old Notes") of the Company and all other
documents required by the Letter of Transmittal cannot be delivered to the
Exchange Agent by the expiration of the Exchange Offer or compliance with
book-entry transfer procedures cannot be effected on a timely basis. Such form
may be delivered by hand or transmitted by facsimile transmission, telex or mail
to the Exchange Agent no later than the Expiration Date, and must include a
signature guarantee by an Eligible Institution as set forth below. Capitalized
terms used herein but not defined herein have the meanings ascribed thereto in
the Prospectus.
TO: U.S. BANK TRUST NATIONAL ASSOCIATION (THE "EXCHANGE AGENT")
<TABLE>
<S> <C> <C>
By Registered, Certified, or By Hand By First Class Mail:
Overnight Mail or Courier:
U.S. Bank Trust N.A. U.S. Bank Trust N.A. U.S. Bank Trust N.A.
Attn: Specialized Finance 4th Floor Bond Drop Window P.O. Box 64485
SPFT0414 180 East Fifth Street St. Paul, MN 55164-9549
180 East Fifth Street St. Paul, MN 55101
St. Paul, MN 55101
By Facsimile:
(For Eligible Institutions
Only):
(651) 244-1537
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY. THE METHOD OF DELIVERY OF ALL DOCUMENTS,
INCLUDING CERTIFICATES, IS AT THE RISK OF THE HOLDER. IF DELIVERY IS BY MAIL,
REGISTERED OR CERTIFIED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. THE INSTRUCTIONS ACCOMPANYING THE LETTER OF TRANSMITTAL SHOULD BE
READ CAREFULLY BEFORE THIS NOTICE OF GUARANTEED DELIVERY IS COMPLETED.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution under the instruction thereto, such
signatures must appear in the applicable space provided on the Letter of
Transmittal for Guarantee of Signature(s).
<PAGE> 2
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Prospectus and the related
Letter of Transmittal which describes the Company's offer (the "Exchange Offer")
to exchange $1,000 in principal amount of a new series of 9% Senior Subordinated
Notes due 2008, Series B (the "Exchange Notes") for each $1,000 in principal
amount of the Old Notes.
The undersigned hereby tenders to the Company the aggregate principal
amount of Old Notes set forth below on the terms and conditions set forth in the
Prospectus and the related Letter of Transmittal pursuant to the guaranteed
delivery procedure set forth in the "The Exchange Offer -- Guaranteed Delivery
Procedures" section in the Prospectus and the accompanying Letter of
Transmittal.
The undersigned understands that no withdrawal of a tender of Old Notes may
be made after the Expiration Date. The undersigned understands that for a
withdrawal of a tender of Old Notes to be effective, a written notice of
withdrawal that complies with the requirements of the Exchange Offer must be
timely received by the Exchange Agent at one of its addresses specified on the
cover of this Notice of Guaranteed Delivery prior to the Expiration Date.
The undersigned understands that the exchange of Old Notes for Exchange
Notes pursuant to the Exchange Offer will be made only after timely receipt by
the Exchange Agent of (i) such Old Notes (or Book-Entry Confirmation of the
transfer of such Old Notes into the Exchange Agent's account at The Depository
Trust Company (the "Depositary" or "DTC")) and (ii) a Letter of Transmittal (or
facsimile thereof) with respect to such Old Notes, properly completed and duly
executed, with any required signature guarantees, this Notice of Guaranteed
Delivery and any other documents required by the Letter of Transmittal or a
properly transmitted Agent's Message. The term "Agent's Message" means a message
transmitted by the Depositary to, and received by, the Exchange Agent and
forming part of the confirmation of a book-entry transfer, which states that the
Depositary has received an express acknowledgment from each participant in the
Depositary tendering the Old Notes and that such participant has received the
Letter of Transmittal and agrees to be bound by the terms of the Letter of
Transmittal and the Company may enforce such agreement against such participant.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
2
<PAGE> 3
PLEASE SIGN AND COMPLETE
Signature(s) of Registered Owner(s) or Authorized Name(s) of Registered
Holder(s)
<TABLE>
<S> <C>
Signatory: --------------------------------------------
- ------------------------------------------ --------------------------------------------
- -------------------------------------------- --------------------------------------------
- -------------------------------------------- Address:
Principal Amount of Old Notes Tendered: --------------------------------------------
- -------------------------------------------- --------------------------------------------
Certificate No.(s) of Old Notes (if Area Code and Telephone No.:
available): -------------------
- -------------------------------------------- If Old Notes will be delivered by book-entry
- -------------------------------------------- transfer at The Depository Trust Company,
Date: insert
- -------------------------------------------- Depository Account No.:
--------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the registered Holder(s) of
Old Notes exactly as its (their) name(s) appears on certificates for Old Notes
or on a security position listing as the owner of Old Notes, or by person(s)
authorized to become registered Holder(s) by endorsements an documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must
provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): --------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
Capacity: --------------------------------------------------------------------
Address(es):--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE
AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL.
3
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or a correspondent in the United States, or
otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, hereby (a) represents
that each holder of Old Notes on whose behalf this tender is being made "own(s)"
the Old Notes covered hereby within the meaning of Rule l3d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and (b)
guarantees that, within three New York Stock Exchange trading days from the
expiration date of the Exchange Offer, a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof), together with certificates
representing the Old Notes covered hereby in proper form for transfer (or
confirmation of the book-entry transfer of such Old Notes into the Exchange
Agent's account at The Depository Trust Company, pursuant to the procedure for
book-entry transfer set forth in the Prospectus) and required documents will be
deposited by the undersigned with the Exchange Agent.
The undersigned acknowledges that it must deliver the Letter of Transmittal
and Old Notes tendered hereby to the Exchange Agent within the time period set
forth above and that failure to do so could result in financial loss to the
undersigned.
<TABLE>
<S> <C>
Name of Firm: --------------------------------------------
- ------------------------------------- Authorized Signature
Address: Name:
- -------------------------------------------- --------------------------------------------
- -------------------------------------------- Title:
Area Code and Telephone No.: --------------------------------------------
- ------------------- Date:
--------------------------------------------
</TABLE>
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