PROSPECTUS SUPPLEMENT (Subject to Completion, Issued July 10, 1995) (To
Prospectus dated July 7, 1995)
$100,000,000
Tosco Corporation
% NOTES DUE 2000
-----------------
Interest payable and
-----------------
The % Notes due 2000 (the "Notes") mature on , 2000. The Notes are not
redeemable at any time prior to maturity and have no sinking fund
provisions. The Notes are sometimes referred to herein as the
"Offered Securities." The Offered Securities will be issued only
in book-entry form through the facilities of
The Depository Trust Company (the "Depositary").
See "Description of the Notes" herein.
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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
PRICE % AND ACCRUED INTEREST, IF ANY
-----------------
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(2) Company(1)(3)
--------- -------------- -------------
Per Note ............................ % % %
Total ............................... $ $ $
- --------------
(1) Plus accrued interest, if any, from , 1995.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(3) Before deducting expenses payable by the Company, estimated at $250,000.
-----------------
The Notes are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Andrews &
Kurth L.L.P., counsel for the Underwriters. It is expected that delivery of the
Notes will be made on or about , 1995, through the book-entry facilities
of The Depository Trust Company, New York, New York, against payment therefor
in immediately available funds.
-----------------
MORGAN STANLEY & CO. DONALDSON, LUFKIN & JENRETTE
Incorporated Securities Corporation
FURMAN SELZ INCORPORATED OPPENHEIMER & CO., INC.
, 1995
Information contained in this preliminary prospectus supplement is subject to
completion or amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. Securities may not
be sold nor may offers to buy be accepted prior to the time that a final
prospectus supplement is delivered. This prospectus supplement and the
accompanying 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.
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus Supplement or the accompanying Prospectus in
connection with the offer contained in this Prospectus Supplement and the
accompanying Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or any underwriter, agent or dealer. This Prospectus Supplement and the
accompanying Prospectus do not constitute an offer to sell or a solicitation of
an offer to buy any of the Notes offered hereby in any jurisdiction to any
person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus Supplement and the
accompanying Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein or
therein is correct as of any time subsequent to the date hereof or that there
has been no change in the affairs of the Company since the date hereof.
-----------------
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Prospectus Supplement Summary ..................................... S- 3
The Company ....................................................... S- 4
Use of Proceeds ................................................... S- 4
Capitalization .................................................... S- 5
Selected Consolidated Financial Data .............................. S- 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ S- 7
Description of the Notes .......................................... S-14
Underwriters ...................................................... S-15
Prospectus
Available Information ............................................. 2
Incorporation of Certain Documents by Reference ................... 3
The Company ....................................................... 4
Risk Factors ...................................................... 4
Use of Proceeds ................................................... 5
Ratio of Earnings to Fixed Charges ................................ 5
Description of Debt Securities .................................... 5
Plan of Distribution .............................................. 13
Legal Matters ..................................................... 13
Experts ........................................................... 13
-----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the Consolidated Financial Statements (including the
Notes thereto) incorporated by reference in this Prospectus Supplement.
THE COMPANY
Tosco, through divisions and subsidiaries, is a large independent refiner,
wholesaler, and retail marketer of petroleum products, principally on the East
and West Coasts of the United States. Tosco, through its Avon, Bayway and
Ferndale Refineries, currently processes approximately 525,000 barrels per day
of crude oil and other feedstocks into various petroleum products, consisting
chiefly of light transportation fuels (gasoline, diesel and jet fuel) and
heating oil. Tosco has extensive distribution facilities and also engages in
related commercial activities throughout the United States and internationally.
Following the December 28, 1993 acquisition of British Petroleum's ("BP")
petroleum refining and retail marketing system in the Pacific Northwest, Tosco
increased its involvement in petroleum marketing. During 1994, Tosco added BP's
retail marketing assets in California and Exxon Corporation's retail marketing
assets in Arizona. Tosco also acquired the exclusive right to market under the
BP brand in nine Western states.
Tosco also has interests in oil shale properties in Colorado and Utah.
THE OFFERING
Securities ................ $100,000,000 of % Notes due 2000.
Maturity .................. , 2000.
Interest Payment Dates .... and commencing , 1996.
Optional Redemption ....... None.
Collateral ................ None.
Ranking ................... The Notes will be unsecured senior obligations of
the Company, and will rank pari passu in right of
payment with all existing and future unsecured
senior indebtedness of the Company and senior in
right of payment to all existing and future
subordinated indebtedness of the Company.
At March 31, 1995, the Company had outstanding
$300 million of first mortgage bonds
collateralized by its Avon Refinery, $150 million
of first mortgage bonds collateralized by its
Bayway Refinery, a revolving credit facility (the
"Credit Agreement") of up to $450 million (on
which two wholly-owned subsidiaries are also
borrowers) collateralized by accounts receivable,
inventory and investments, and $5.3 million of
other collateralized debt. As of March 31, 1995,
the Company (including its two wholly-owned
subsidiaries) had $273 million of cash borrowings
and outstanding letters of credit of
approximately $112 million under the Credit
Agreement. There is no other subsidiary debt
which is effectively senior to the Debt
Securities.
Use of Proceeds .......... To repay certain indebtedness outstanding under
the Company's Credit Agreement. See "Use of
Proceeds."
Certain Covenants ......... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Subsidiaries to (i) incur Debt
collateralized by a lien on a Principal Property
and (ii) enter into a sale and lease back
transaction, and limit the ability of the
Company's Subsidiaries having a Principal
Property to incur debt with a maturity greater
than twelve months or issue preferred stock. See
"Description of Debt Securities--Covenants" in
the accompanying Prospectus.
S-3
<PAGE>
THE COMPANY
Tosco, through divisions and subsidiaries, is a large independent refiner,
wholesaler, and retail marketer of petroleum products, principally on the East
and West Coasts of the United States. Tosco, through its Avon, Bayway and
Ferndale Refineries, currently processes approximately 525,000 barrels per day
of crude oil and other feedstocks into various petroleum products, consisting
chiefly of light transportation fuels (gasoline, diesel and jet fuel) and
heating oil. Tosco has extensive distribution facilities and also engages in
related commercial activities throughout the United States and internationally.
Following the December 28, 1993 acquisition of British Petroleum's ("BP")
petroleum refining and retail marketing system in the Pacific Northwest, Tosco
increased its involvement in petroleum marketing. During 1994, Tosco added BP's
retail marketing assets in California and Exxon Corporation's retail marketing
assets in Arizona. Tosco also acquired the exclusive right to market under the
BP brand in nine Western states.
Tosco also has interests in oil shale properties in Colorado and Utah.
Tosco was incorporated under the laws of the State of Nevada in 1955. Its
principal executive offices are located at 72 Cummings Point Road, Stamford,
Connecticut 06902, and its telephone number is (203) 977-1000.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Notes to
pay down indebtedness outstanding under the Company's Credit Agreement with bank
lenders. The Credit Agreement matures in April 1998 and bears interest at a
margin over one of several fluctuating rates. The interest rate on loans under
the Credit Agreement averaged 6% for the year ended December 31, 1994 and 7.75%
for the quarter ended March 31, 1995.
S-4
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company and its subsidiaries at March 31, 1995, and as adjusted to reflect
(i) the issuance and sale of the Notes and (ii) the application of the estimated
net proceeds of $99.0 million as described under "Use of Proceeds". The
following table should be read in conjunction with the Consolidated Financial
Statements and related notes incorporated by reference in this
Prospectus Supplement.
March 31, 1995
---------------------------
Actual As Adjusted
---------- -----------
(in thousands)
Cash, cash equivalents, short-term investments
and deposits(a) .................................. $ 96,256 $ 96,006
Long-term debt--collateralized:
Revolving credit facilities(b) ................... 273,000 174,000
Mortgage bonds guaranteed on a collateralized
basis by the Bayway Refining Company ............ 150,000 150,000
Mortgage bonds collateralized by the Avon Refinery 300,000 300,000
Other ............................................ 5,302 5,302
Long-term debt--uncollateralized:
The % Notes due 2000 ............................ -- 100,000
----------- -----------
Total debt, including current portion ............ 728,302 729,302
Less current portion ............................. 783 783
----------- -----------
Total long-term debt ......................... 727,519 728,519
----------- -----------
Shareholders' equity:
Common Stock, $.75 par value, 50,000,000
shares authorized, 39,598,900 shares outstanding
(including treasury shares) ..................... 29,702 29,702
Capital in excess of par value ................... 639,853 639,853
Retained earnings (deficit) ...................... (35,641) (35,641)
Less reductions from capital, primarily Common
Stock held in treasury, at cost
(2,549,041 shares) .............................. (68,880) (68,880)
----------- -----------
Total shareholders' equity .................... 565,034 565,034
----------- -----------
Total capitalization ........................ 1,292,553 1,293,553
----------- -----------
Total capitalization, cash, cash
equivalents, short-term investments
and deposits ................................ $ 1,388,809 $ 1,389,559
=========== ===========
- ------------------
(a) Includes $14 million of restricted cash held by a wholly-owned
subsidiary of Tosco.
(b) At March 31, 1995, the Credit Agreement provided for an extension of up to
$450 million in credit. At that date, the Company had $273 million of cash
borrowings and outstanding letters of credit of approximately $112 million
under the Credit Agreement.
S-5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for each of the five years in the period ended December 31, 1994 and for
the three-month periods ended March 31, 1994 and 1995. The selected consolidated
financial data for the interim periods have been derived from the unaudited
interim financial statements and, in the opinion of management, include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation. The selected consolidated financial data for the interim periods
are not necessarily indicative of the results to be achieved for the full years.
This table should be read in conjunction with the Company's Consolidated
Financial Statements and related notes incorporated by reference in this
Prospectus Supplement.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31,(a) March 31,(a)
------------------------------------------------------- ---------------------
1990 1991 1992 1993 1994 1994 1995
--------- -------- -------- --------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of Operations (in thousands, except for per share and ratio data)
Sales ...................................... $1,854.6 $1,608.7 $1,861.0 $3,559.2 $6,365.8 $1,495.7 $1,696.3
======== ======== ======== ======== ======== ======== ========
Gross profit on sales ...................... $ 248.3 $ 121.2 $ 132.7 $ 251.8 $ 260.4 $ 105.5 $ 32.1
Inventory valuation (recovery)
writedown ................................. 17.7 (17.7)
Restructuring charge ....................... 2.2
Environmental cost accrual ................. 2.0 4.0 25.0 6.0
-------- -------- -------- -------- -------- -------- --------
Operating contribution ..................... 246.3 117.2 107.7 234.1 272.1 105.5 29.9
Selling, general and administrative
expense ................................... 48.1 30.2 38.7 58.2 84.1 27.1 22.6
Interest expense, net ...................... 24.3 16.5 18.0 44.1 54.2 12.5 14.5
-------- -------- -------- -------- -------- -------- --------
Pre-tax income (loss) ...................... 173.9 70.5 51.0 131.8 133.8 65.9 (7.2)
Provision (credit) for income taxes (b) .... 19.6 2.4 20.8 51.2 50.0 27.0 (2.9)
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before other items ............. 154.3 68.1 30.2 80.6 83.8 38.9 (4.3)
Discontinued operations, net of
income taxes:
Income (loss) from operations ............ (31.1) 7.3 (15.9)
Estimated loss on disposal ............... (105.0)
Cumulative effect of accounting changes .... 16.2
-------- -------- -------- -------- -------- -------- --------
Net income (loss) .......................... $ 123.2 $ 75.4 ($ 74.5) $ 80.6 $ 83.8 $ 38.9 ($ 4.3)
======== ======== ======== ======== ======== ======== ========
Income (loss) per common and
common equivalent share
Primary:
From continuing operations ................ $ 6.81 $ 2.15 $ .68 $ 2.38 $ 2.27 $ 1.11 ($ .12)
From discontinued operations .............. (1.44) .24 (4.08)
From cumulative effect of accounting
changes .................................. .55
-------- -------- -------- -------- -------- -------- --------
Net income (loss) .......................... $ 5.37 $ 2.39 ($ 2.85) $ 2.38 $ 2.27 $ 1.11 ($ .12)
======== ======== ======== ======== ======== ======== ========
Fully-diluted:
From continuing operations ................ $ 4.94 $ 2.12 $ .68 $ 2.33 $ 2.24 $ 1.04 ($ .12)
From discontinued operations .............. (1.00) .23 (4.08)
From cumulative effect of accounting
changes .................................. .55
-------- -------- -------- -------- -------- -------- --------
Net income (loss) .......................... $ 3.94 $ 2.35 ($ 2.85) $ 2.33 $ 2.24 $ 1.04 ($ .12)
======== ======== ======== ======== ======== ======== ========
Balance Sheet Data (at end of period)
Total assets ............................... $ 678.9 $ 871.0 $ 952.9 $1,492.9 $1,797.2 $1,600.3 $1,872.3
======== ======== ======== ======== ======== ======== ========
Long-term debt ............................. $ 202.7 $ 211.9 $ 356.8 $ 603.3 $ 687.4 $ 573.4 $ 727.5
Preferred stock ............................ 111.2 111.2 111.2 111.2
Common shareholders' equity ................ 333.3 385.6 270.2 410.4 575.5 441.2 565.0
-------- -------- -------- -------- -------- -------- --------
Total capitalization ....................... $ 536.0 $ 708.7 $ 738.2 $1,124.9 $1,262.9 $1,125.8 $1,292.5
======== ======== ======== ======== ======== ======== ========
Other Information
Ratio of long-term debt to
total capitalization ...................... .38 .30 .48 .54 .54 .51 .56
Current ratio .............................. 1.6 1.6 2.6 2.2 1.8 1.9 1.6
Book value per share ....................... $ 11.15 $ 12.78 $ 9.10 $ 12.60 $ 15.53 $ 13.56 $ 15.25
Cash dividends per share ................... $ .60 $ .60 $ .60 $ .60 $ .62 $ .15 $ .16
Ratio of earnings to fixed charges(c) ...... 5.72x 3.55x 2.71x 3.28x 2.83x 4.81x .61x
- ---------------
(a) Reflects Seminole Fertilizer Corporation as a discontinued operation for
all periods.
(b) Reflects the provision for income taxes for 1994, 1993 and 1992 at regular
tax rates pursuant to the provisions of SFAS No. 109 adopted January 1,
1992.
(c) The ratios of earnings to fixed charges represent the number of times "fixed
charges" were covered by "earnings." "Fixed charges" consist of interest on
outstanding debt, one-third (the proportion deemed representative of the
interest factor) of net rentals and amortization of debt discount and
expense. "Earnings" consist of consolidated income from operations before
income taxes and fixed charges. Earnings for the first quarter of 1995 were
less than fixed charges by approximately $8.2 million.
</TABLE>
S-6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
Tosco incurred a net loss of $4.3 million for the first quarter of 1995,
including a $1.3 million restructuring charge due to continuing poor refining
margins and extensive scheduled turnaround maintenance. For the year 1994, Tosco
earned net income of $83.8 million including a $17.7 million inventory valuation
recovery and a $6 million environmental cost accrual. Excluding these non-cash
items, Tosco's results for 1994 declined from 1993 due to weak refining margins,
reduced production levels, and higher costs. These negative factors overshadowed
strong operating results from Tosco's entry into retail marketing and the
achievement of investment grade credit ratings on its senior debt.
Results of operations--Three months ended March 31, 1995
Three Months Ended March 31,
----------------------------
1995 1994
--------- ---------
(Thousands of Dollars)
Sales(a) ........................................ $1,696,319 $1,495,688
Cost of sales ................................... 1,664,173 1,390,191
---------- ----------
Operating contribution .......................... 32,146 105,497
Restructuring charge ............................ 2,200
Selling, general, and administrative expense .... 22,602 27,098
Net interest expense ........................... 14,499 12,506
---------- ----------
Pre-tax income (loss) .......................... ( 7,155) 65,893
Provision (credit) for income taxes ............ ( 2,882) 27,026
---------- ----------
Net income (loss) .............................. ($ 4,273) $ 38,867
========== ===========
- --------------
(a) The increase in sales for the first quarter of 1995 is primarily due to the
acquisition of additional retail marketing assets and higher sales prices.
<TABLE>
<CAPTION>
Refining Data Summary
Three Months Ended March 31, 1995 and 1994
------------------------------------------
(In thousands of barrels per day except for refining margins)
Avon (a) Bayway (b) Ferndale (c) Consolidated
-------------- ---------------- ---------------- ---------------
1995 1994 1995 1994 1995 1994 1994 1995
----- ---- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crude and other
raw materials .......... 166.5 168.2 294.0 260.9 58.6 92.8 519.1 521.9
===== ===== ===== ===== ==== ==== ===== =====
Petroleum products
produced:
Clean products ........ 107.5 132.3 245.8 211.3 36.3 60.7 389.6 404.3
Other finished
products ............. 54.1 33.4 54.4 56.3 13.4 30.2 121.9 119.9
----- ----- ----- ----- ---- ----- ----- -----
Total finished
products produced ...... 161.6 165.7 300.2 267.6 49.7 90.9 511.5 524.2
===== ===== ===== ===== ==== ==== ===== =====
Refining margin per
charge barrel(d) ....... $5.01 $7.39 $2.55 $3.77 $3.42 $4.99 $3.44 $5.15
===== ===== ===== ===== ==== ==== ===== =====
- ---------------
(a) Avon's 1994 refining margin and raw materials processed were restated to
include the production costs of MTBE.
(b) Bayway's refining margins include the results of hedges on a varying
percentage of Bayway's production.
(c) Ferndale's decline in total charges and production for 1995 is due to the
refinery turnaround.
(d) As illustrated by the table, refining margins (the difference between the
price of refined products produced for sale and raw material costs) vary
significantly by refinery. This variance is due to a number of reasons
including marketing conditions in the principal areas served by the
refineries, their configuration and complexity (ability to convert raw
materials into clean products), and maintenance schedules.
</TABLE>
S-7
<PAGE>
Tosco incurred a net loss of $4.3 million, or ($.12) per fully diluted
share, on sales of $1.7 billion for the first quarter of 1995, compared to net
income of $38.9 million, or $1.04 per fully diluted share, on sales of $1.5
billion for the first quarter of 1994. Results of operations for the first
quarter of 1995 includes an after tax restructuring charge of $1.3 million ($.04
per share).
Tosco generated an operating contribution (income before the restructuring
charge, selling, general and administrative expense, net interest expense, and
income taxes) for the first quarter of 1995 of $32.1 million, a decrease of
$73.4 million from 1994. The decline was primarily due to extremely poor
refining margins and extensive scheduled turnaround maintenance. Avon's fluid
catalytic cracking unit (cat cracker), the refinery's principal gasoline
production unit, and the processing units at the Ferndale Refinery were shutdown
for 55 and 33 days, respectively, during the first quarter of 1995. As a result,
raw material throughput at the Avon and Ferndale Refineries declined by 36,000
barrels per day (B/D) (from 261,000 B/D for 1994 to 225,000 B/D in 1995) and
production of clean transportation fuels (gasoline and distillates) fell by
49,200 B/D (from 193,000 B/D to 143,800 B/D). The decrease in production at
Tosco's West Coast refineries was partially offset by increased production at
the Bayway Refinery. Bayway's raw material throughput increased by 33,100 B/D to
294,000 B/D while clean product production increased by 34,500 B/D to 245,800
B/D, the highest levels of production achieved under Tosco's ownership. While
Bayway's strong operating performance mitigated the production declines at Avon
and Ferndale, Tosco was not able to overcome weak refining margins on both
coasts of the United States. Consolidated refining margins declined by $1.71
(approximately 33%), to $3.44. Exceptionally weak market conditions resulted
from the combined impact of a surplus of heating oil due to the mild winter on
the East Coast of the United States and poor gasoline markets due to the
industry's inability to recover the higher production cost of reformulated
gasolines in highly competitive markets. The poor refining results were
partially offset by the strong performance of the retail operations. Retail
marketing fuel margins averaged $.09 per gallon during the first quarter of 1995
compared to $.08 for the first quarter of 1994. A barrel is equal to 42 gallons.
Retail volumes sold also increased by 27,600 B/D to 66,300 B/D, and operating
costs increased by $5 million, over the first quarter of 1994 primarily because
of the August and December 1994 acquisitions of the retail marketing operations
in Northern California and Arizona from BP and Exxon, respectively.
The decrease in selling, general, and administrative (SG&A) expense for the
first quarter of 1995 is due to significantly lower provisions for incentive
compensation and potential losses on trade receivables, partially offset by
increases in the costs of Tosco's expanded operations. The increase in net
interest expense was primarily due to higher levels of debt and higher interest
rates.
Results of operations--1994
For the Year Ended
December 31,
-------------------------------
1994 1993
---------- ----------
(Thousands of Dollars)
Sales ........................................ $6,365,757 $3,559,217
Cost of sales ................................ 6,105,293 3,307,492
Inventory valuation (recovery) writedown ..... (17,651) 17,651
Environmental cost accrual ................... 6,000 --
---------- ----------
Operating contribution ....................... 272,115 234,074
Selling, general, and administrative expense . 84,123 58,174
Net interest expense ......................... 54,143 44,146
---------- ----------
Pre-tax income ............................... 133,849 131,754
Provision for income taxes ................... 50,006 51,175
---------- ----------
Net income ................................... $ 83,843 $ 80,579
========== ==========
S-8
<PAGE>
<TABLE>
<CAPTION>
Refining Data Summary
Years ended December 31, 1994 and 1993
(In thousands of B/D except for refining margins)
Avon Bayway(a) Ferndale Consolidated(a)
---------------- ---------------- -------- ---------------
1994 1993 1994 1993 1994 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Crude and other raw materials ................. 160.6 166.3 252.2 259.2 90.6 503.4 425.5
====== ====== ====== ====== ===== ====== ======
Petroleum products produced:
Clean products ............................... 132.7 137.6 204.8 213.9 62.8 400.3 351.5
Other finished products ...................... 26.7 26.5 51.5 50.5 25.7 103.9 77.0
------ ------ ------ ------ ----- ------ ------
Total finished products produced .............. 159.4 164.1 256.3 264.4 88.5 504.2 428.5
====== ====== ====== ====== ===== ====== ======
Refining margin per charge barrel ............. $ 6.79 $ 8.03 $ 3.02 $ 3.47 $4.54 $ 4.50 $ 5.60
====== ====== ====== ====== ===== ====== ======
- ----------------
(a) Refining margins for the Bayway Refinery for 1994 were adversely impacted
because of the scheduled shutdown of the fluid cat cracker during which the
volume and mix of finished products produced was not representative of
normal operations.
</TABLE>
Tosco earned $83.8 million, or $2.24 per fully diluted share, on sales of
$6.4 billion for 1994 compared to $80.6 million or $2.33 per fully diluted
share, on sales of $3.6 billion for 1993. Earnings per fully diluted share for
1994 fell by $.09 per share while income rose by $3.3 million because of the
issuance of 2,990,000 shares of Common Stock in December 1993. Tosco's
acquisitions and expanded wholesale operations were the principal reasons for
the increase in sales and cost of sales for 1994 compared to 1993. In April
1993, Tosco purchased the Bayway Refinery and related assets from Exxon
Corporation. In December 1993, Tosco acquired, through long-term lease,
Northville Industries' Long Island, New York oil distribution system and
purchased the Ferndale Refinery and retail marketing operations in the Pacific
Northwest from BP Exploration & Oil Inc. (BP). In August 1994 and mid-December
1994, Tosco expanded its retail system through the acquisition, under long-term
lease arrangements, of the retail marketing operations of BP in Northern
California and Exxon in Arizona, respectively.
Results of operations for 1994 include the reversal of the $17.7 million
($10.7 million after tax, $.29 per share) writedown of LIFO inventories incurred
in 1993 due to the recovery of prices during 1994. Tosco also recorded a $6
million ($3.6 million after tax, $.10 per share) environmental cost accrual for
probable investigative and remedial liabilities at former operating locations.
See Note 15 to the 1994 Consolidated Financial Statements.
Tosco generated an operating contribution for 1994 of $272.1 million from
its three refineries and retailmarketing operations, an increase of $38.0
million over 1993.
Tosco Northwest, whose operations encompass retail marketing operations,
the Ferndale Refinery and related commercial activities, produced an operating
contribution of $118.6 million in its initial year of operations due to strong
retail margins, good production results from the Ferndale Refinery, and good
refining margins in the Pacific Northwest. The Ferndale Refinery processed
90,600 B/D of raw materials for 1994, a 17,100 B/D improvement over 1993
production results under previous management. Refining margins were $4.54 for
1994 due to better than anticipated prices, especially for residual fuels, while
retail margins averaged $.10 per gallon on sales volumes of 2.1 million gallons
per day. Following the completion of the Northern California and Arizona
transactions in August and December 1994, respectively, retail margins increased
to $.12 per gallon on sales volumes of 2.7 million gallons per day.
The Avon Refinery and its related commercial operations experienced a
decline in operating contribution from 1993 due to reduced production levels and
poor refining margins. Raw material throughput rates for 1994 fell by 5,700 to
160,600 B/D while production of clean transportation fuels fell by 4,900 B/D to
132,700 B/D. Scheduled turnaround maintenance on the fluid coker, which was
completed during the second quarter of 1994, was the primary reason for the fall
in production. Tosco also reduced production levels in early December 1994 in
response to poor refining margins and to prepare for an early start of the major
upgrade and turnaround of the cat cracker which occurred in January 1995.
S-9
<PAGE>
Avon's refining margins for 1994 declined by $1.24 to $6.79, the lowest
since 1987. Increases in raw material costs were not matched by increases in
product prices because of excess supply, highly competitive markets and the
lingering effects of the recession in California, Avon's principal market, which
lagged the improvement in the national economy.
Bayway's operating contribution for 1994 includes the reversal of the $17.7
million writedown of LIFO inventories recorded in 1993. Excluding the inventory
valuation, Bayway's operating contribution for 1994 declined from the
approximate nine month operating period of 1993. The decline in operating
contribution was primarily due to reduced production, weak refining margins and
higher distribution costs. Raw materials processed declined by 7,000 B/D to
252,200 B/D while production of clean products declined by 9,100 B/D to 204,800
B/D due to scheduled turnaround maintenance of the cat cracker, the world's
largest and Bayway's principal gasoline production unit, during the third
quarter of 1994. Bayway also reduced production runs in early December in
response to weak refining margins in the Northeast and to perform some minor but
necessary maintenance of production units.
Refining margins, including results of hedges designed to lock in a
predetermined level of refining margins on a percentage of Bayway's production,
averaged $3.02 for the year, a decline of $.45 from 1993. Bayway, like Avon, was
not able to match increases in raw material costs with comparable increases in
product prices, due to excess supply in highly competitive markets. In addition,
fourth quarter margins were negatively impacted by mild winter weather and
market uncertainty over the introduction of cleaner burning but higher cost
reformulated gasoline (RFG). Certain areas in the Northeast elected to opt out,
and were permitted to do so by the federal government, of their voluntary
participation in the RFG program (mandated by federal regulations for the
largest metropolitan areas of the United States). Operating costs were also
impacted by higher distribution costs as Bayway expanded its terminal
distribution network and commercial operations.
SG&A expense for 1994 increased by $25.9 million to $84.1 million due to
Tosco's expanded operations. SG&A expense for 1994 was reduced by insurance
recoveries of $3.5 million (related to now-settled litigation with the
predecessor owners of the Avon Refinery over environmental matters) and $1.0
million (related to a retroactive adjustment of prior year medical costs based
on favorable claim experience).
The increase in net interest expense for 1994 is primarily due to higher
levels of debt related to Tosco's acquisitions and their associated working
capital requirements and higher short-term interest rates.
The provision for income taxes for 1994 reflects a 1.5% reduction in the
annual effective income tax rate and recognition of $2.9 million of revised
income tax benefits related to Tosco's former activities. The effective rate
reduction is attributable to revised state income tax allocation factors and
estimated California investment tax credits. The provision for income taxes for
1993 included prior year tax credits of approximately $2.5 million which were
finalized in tax returns filed in October 1993.
Results of operations--1993
Tosco's continuing operations earned $80.6 million, or $2.33 per fully
diluted share, on sales of $3.56 billion for 1993 as compared to income from
continuing operations of $30.2 million, or $.68 per fully diluted share, on
sales of $1.86 billion for 1992. Continuing operations exclude the results of
Tosco's former phosphate fertilizer operations.
Tosco's operating contribution of $234.1 million for 1993 increased by
$126.4 million over 1992 due to a $74.8 million increase in operating
contribution from Avon and its related commercial activities and an operating
contribution of $51.6 million from Bayway and its related commercial activities.
Avon's improvement in operating contribution was primarily attributable to
record production rates, improved refining margins and lower environmental cost
accruals, partially offset by the increased refinery and product distribution
costs associated with higher levels of production. Raw material throughput rates
averaged a record 166,310 B/D for 1993 (versus 152,510 B/D for 1992) and
production of clean transportation fuels also averaged a record 137,610 B/D
(versus 126,570 B/D for 1992). Refining margins improved by $.70 to $8.03 per
barrel as per barrel costs of raw materials fell by more than the sales value of
refined products produced. The improved margins (achieved despite the sluggish
economy, especially in California) were assisted by the completion and start up
of facilities for the production of low-sulfur, low-aromatic diesel fuel meeting
the California Air Resources Board's (CARB) cleaner burning fuel standards
effective October 1, 1993.
Bayway achieved an operating contribution of $51.6 million, after an
inventory writedown of $17.7 million, for the period April 8, 1993 to December
31, 1993 due to strong refinery performance in a period of lackluster margins.
S-10
<PAGE>
Raw material throughput averaged 259,250 B/D while production of clean
transportation fuels and total production averaged 213,980 and 264,490 B/D,
respectively. Refining margins, including net realized results of hedges,
averaged $3.47 per barrel while refinery and distribution expenses together
averaged approximately $2.55 per barrel.
Consolidated selling, general and administrative expense of $58.2 million
for 1993 increased by $19.4 million over 1992 primarily due to the acquisition
of Bayway (including approximately $7.5 million of non-recurring costs incurred
in establishing commercial, accounting and general administrative functions at
Bayway).
Consolidated net interest expense for 1993 of $44.1 million increased by
$26.2 million over 1992. Net interest expense for 1992 includes $12.8 million of
intercompany interest income from discontinued operations and the writeoff of
approximately $3.6 million of deferred financing costs related to previously
outstanding indebtedness. Without the effect of these two items, consolidated
net interest expense for 1993 increased by $17 million as the costs of higher
levels of debt (resulting from the purchase of Bayway and its associated working
capital requirements) more than offset the benefits of lower interest rates.
The provision for income taxes for 1993 includes the 1% increase in federal
income tax rates effective January 1, 1993 as well as tax credits of
approximately $2.5 million which were finalized in tax returns filed in October
1993.
Outlook
Results of operations continue to be determined principally by two factors:
the operating efficiency of the refineries, and refining and retail marketing
margins.
Tosco's processing units are periodically shut down for turnaround
maintenance as the units reach the end of their normal operating cycle. The
scheduled turnarounds of the Avon fluid coker and the Bayway cat cracker, the
refineries' principal conversion and gasoline production units, were completed
in 1994 and are not expected to undergo turnaround maintenance for three to four
years. Avon's cat cracker and the processing units at the Ferndale Refinery were
shutdown for turnaround maintenance beginning in January and February 1995,
respectively. These turnarounds were completed in the first quarter and
throughput volumes have returned to normal levels. Significant turnaround
activity is not planned for the balance of 1995 and, assuming reasonable
margins, Tosco expects to operate the refineries at high production levels for
the balance of 1995.
Refining margins have improved over the first quarter 1995 levels, but
Tosco is not able to predict whether the improved level will continue. In view
of uncertain refining margins and the competitive refining environment, steps
have been taken to reduce operating costs and increase efficiencies. During the
first quarter of 1995, Tosco announced a restructuring program designed to
reduce costs and improve operating efficiencies in response to continuing poor
refining margins. The estimated cost of approximately $5.2 million is primarily
for the severance cost of approximately 175 people at the Avon Refinery and
related support locations. The $5.2 million restructuring charge, $2.2 million
of which was recorded in the first quarter with the $3.0 balance to be recorded
in the second quarter of 1995, will be paid over the next 12 months from cash
provided from operations and will be more than offset by the anticipated annual
savings of approximately $10 million. This restructuring is continuing with the
further goal of consolidating certain operating and administrative functions,
including the closing of the Concord, California administrative office, to
achieve an additional reduction in annual costs of up to $10 million. These
changes are expected to take place over the next year. The plans for this aspect
of the program are in their early stages and it is not known whether or not an
additional restructuring charge will be necessary or appropriate. Any additional
restructuring charge would also be paid over the months following from cash from
operations. It is anticipated that the actual annual savings would be in excess
of any restructuring charge. Tosco's objective is to be the low-cost refiner in
each of its markets to enable Tosco to better withstand difficult times and
ensure increasing profitability in improved markets.
Tosco's expansion into retail marketing has been successful in providing
earnings in a period of poor refining margins and Tosco continues to seek
opportunities to acquire additional retail marketing assets that allow an
attractive rate of return and complement its existing refining and retail
systems.
Cash flows and liquidity--Three months ended March 31, 1995
Cash increased by $10 million during 1995 as cash provided by operating and
financing activities of $118 million and $22 million, respectively, exceeded
cash used in investing activities of $130 million. Cash provided by operating
activities of $118 million was from cash earnings of $22 million (net loss plus
depreciation, amortization and the restructuring charge) and a decrease in
working capital of $97 million, partially offset by a decrease from other
sources of $1 million.
S-11
<PAGE>
Net cash used in investing activities during 1995 totaled $130 million,
primarily for capital additions and deferred turnaround expenditures of $48
million and $43 million, respectively, increases in short-term deposits of $32
million and a net transfer to Tosco's former fertilizer operations for payment
of liabilities of $7 million. Cash generated from financing activities totaled
$22 million as net borrowings under the revolving credit facility of $40 million
exceeded short-term bank repayments of $12 million and dividend and other
payments totaling $6 million.
Liquidity (as measured by cash, short-term investments and deposits and
unused credit facilities) decreased by $51 million during 1995 due to a decrease
in credit availability of $93 million partially offset by increases in cash and
cash equivalents of $10 million and short-term investments and deposits of $32
million. At March 31, 1995, liquidity totaled $162 million (an amount which
Tosco believes is adequate to meet its expected liquidity demands for at least
the next twelve months).
Cash flows and liquidity--1994
Cash decreased by $31 million during 1994 as cash used in investing
activities of $252 million exceeded cash provided by operating and financing
activities of $126 million and $95 million, respectively. Cash provided by
operating activities of $126 million was from cash earnings of $192 million (net
income plus depreciation, amortization, the environmental cost accrual and
deferred income taxes minus the inventory valuation recovery), and from other
sources of $6 million, partially reduced by an increase in working capital of
$72 million.
Net cash used in investing activities during 1994 totaled $252 million,
primarily for capital additions and deferred turnaround expenditures of $160
million and $76 million, respectively, increases in other assets of $15 million
and a net transfer to Tosco's former fertilizer operations for payment of
liabilities of $9 million, partially offset by a $10 million return of Tosco's
investment in Continental--Tosco Limited Partnership. Cash generated from
financing activities totaled $95 million as net borrowings under the revolving
credit facility of $86 million and short-term bank borrowings of $42 million
exceeded dividend payments of $28 million and debt and other payments totaling
$5 million.
Liquidity (as measured by cash, short-term investments and deposits and
unused credit facilities) increased by $67 million during 1994 due to an
increase of $98 million in unused credit facilities partially offset by a
decrease in cash and equivalents of $31 million. Tosco amended its revolving
credit facility in 1994 to support its expanded working capital requirements
due to its acquisitions. At December 31, 1994, liquidity totaled $213 million.
Capital Expenditures and Capitalization
Capital spending programs continue to address compliance with reformulated
fuel specifications, environmental regulations and permits, operating
flexibility and reliability, personnel/process safety, and retail expansion and
modernization. During the first three months of 1995, Tosco spent $48 million on
budgeted capital projects primarily at the Avon Refinery and the retail outlets.
Tosco spent $160 million on budgeted capital projects in 1994 and accrued
approximately $11 million of participation payments based on Tosco's
interpretation of its agreement with BP. The Avon Refinery underwent several
significant upgrades during 1994, including improvements and expansion of its
cat feed hydrotreater and alkylation unit, and the Bayway Refinery increased its
storage capacity with the construction of two 250,000-barrel crude tanks. Pump
credit card readers and convenience store upgrades were implemented to enhance
the efficiency and attractiveness of the retail stations.
During the second quarter of 1994, Tosco's Board of Directors approved a
$25 million project for the refurbishment and improvement of the Avon Refinery's
65,000 B/D cat cracker. This expansion project, which is expected to produce a
five percent volume increase in clean transportation fuels, was completed during
the scheduled turnaround of the unit in the first quarter of 1995.
In 1996, gasoline sold in California must meet new specifications enacted
by the California Air Resources Board (CARB Phase II gasoline). The Avon
Refinery's reformulated gasoline project, budgeted at $100 million, will convert
a significant portion of its current production to CARB Phase II gasoline. Tosco
entered into a long-term exchange agreement with Chevron USA Products Company
which will provide Tosco, commencing in 1996, with 30,000 B/D of CARB Phase II
gasoline in exchange for 30,000 B/D of conventional grade gasoline. The product
exchange agreement extends to 2003. Tosco expects that the supply of CARB Phase
II gasoline from this exchange, and from Tosco's own planned production, will
equal approximately 80% of the Avon Refinery's current gasoline production.
S-12
<PAGE>
Tosco's retail capital spending program will focus on building new
stations, remodeling existing facilities, and acquiring new locations.
Tosco expects to fund its 1995 capital expenditures from cash provided by
operations and from available credit and other resources. In April 1995, Tosco
amended its working capital agreement to extend its maturity date by one year to
April 1998 and reduce costs. Tosco is reviewing other financing alternatives to
improve its financial capacity and flexibility and further reduce costs. Tosco
may, depending upon market conditions, offer debt securities (to exchange for
existing debt and/or to pay down cash borrowings under the Credit Agreement) or
expand its revolving credit availability.
In 1994, Bayway entered into a twelve-year tanker agreement with Neptune
Orient Lines, Ltd. for the charter of four 100,000 DWT crude oil tankers. The
tankers will be built to maximize the use of the Bayway Refinery's dock
receiving facilities as well as to meet the requirements of the U.S. Oil
Pollution Act of 1990. The first tanker is expected to be delivered in the
second half of 1996. Bayway also entered into a long-term lease agreement with
Statia Terminals for 3,600,000 barrels of crude oil storage in Nova Scotia,
Canada. The four tankers will be used to move crude oil from the Nova Scotia
storage location to the Bayway Refinery or in direct shipments to other
locations. In September 1994, Bayway announced that it had entered into a letter
of intent pursuant to which the Huntsman Chemical Corporation (Huntsman) would
build an ethylbenzene plant at the Bayway Refinery and purchase feedstocks
produced by the Bayway Refinery. In January 1995, Huntsman delayed the proposed
construction project. Bayway does not anticipate any significant impact on its
results due to this delay.
At March 31, 1995, total shareholder's equity was $565 million, a decrease
from December 31, 1994 of $10 million due to the loss of $4 million and dividend
and other payments totaling $6 million. Debt, including current maturities and
short-term bank borrowings, increased by $28 million to $758 million at March
31, 1995.
At December 31, 1994, total shareholders' equity was $576 million, an
increase from December 31, 1993 of $54 million due to net income ($84 million)
less dividend and other payments ($30 million). In September 1994, Tosco
increased its quarterly dividend by $.01 per share to $.16 per share. Debt,
including current maturities and short-term bank borrowings, increased by $126
million to $730 million at the end of 1994, primarily due to the expansion of
Tosco's operations.
Impact of Inflation
The impact of inflation has been less significant during recent years
because of the relatively low rates of inflation experienced in the United
States. Raw material costs, energy costs, and labor costs are important
components of Tosco's costs. Any or all of these components could be increased
by inflation, with a possible adverse effect on profitability, especially in
high inflation periods when raw material and energy cost increases generally
lead finished product prices. In addition, a rapid escalation of raw material
and finished products prices could result in credit restrictions if working
capital requirements exceed the maximum availability under Tosco's working
capital facilities.
Risk Management
Tosco uses a variety of strategies to attempt to reduce commodity price,
interest and operational risks.
Tosco, at times and when able, uses futures contracts to lock in what it
considers to be acceptable margins on a varying portion of Bayway's production
by taking offsetting long (obligation to buy at a fixed price) positions in
crude oil and short (obligation to deliver at a fixed price) positions in
gasoline and heating oil futures and forward contracts. This strategy hedges
Bayway's exposure to fluctuations in refining margins and therefore reduces the
volatility of operating results. In addition, Tosco enters into swap contracts
with counterparties (typically agreeing to sell at fixed forward prices, and to
buy at future variable market prices, stated volumes of residual fuels) to hedge
sales prices of the Bayway Refinery's residual fuels production. At December 31,
1994, Bayway had hedged approximately 12% and 6% of its expected first quarter
and annual 1995 production, respectively, at acceptable historical margins. With
the improvement in refining margins late in the first quarter of 1995, Tosco
increased its use of futures contracts and derivative instruments and at March
31, 1995 had hedged approximately 37% and 17% of Bayway's expected second
quarter and remaining 1995 production. Tosco does not hedge production at either
the Avon or Ferndale refineries and the Bayway refinery accounts for
approximately 55% of Tosco's total production. Tosco utilizes futures and
forward contracts to a lesser extent to hedge inventories stored for future sale
and to hedge against adverse price movements between the cost of foreign crude
oil that Bayway refines and the cost of domestic crude oil.
S-13
<PAGE>
Tosco manages its interest rate risk by maintaining an appropriate mix of
fixed rate and floating rate debt. Currently, floating rate debt, primarily
borrowings under the Revolving Credit Facilities which provide up to $450
million of revolving credit availability, is used to finance Tosco's working
capital requirements. Existing fixed rate debt consists primarily of $450
million of mortgage bonds issued in 1992 and 1993 to refinance previously
outstanding floating rate bank debt and to finance the acquisition of capital
assets including the acquisition of the Bayway Refinery. As required by the
previously outstanding bank debt agreement, Tosco entered into an interest rate
swap agreement which converted a predetermined percentage of floating rate bank
term debt ($49.5 million at December 31, 1994) to fixed rate term debt. The
interest rate swap expires in the second quarter of 1996.
Tosco carries insurance policies on insurable risks, which it believes to
be appropriate at commercially reasonable rates. While Tosco believes that it is
adequately insured, future losses could exceed insurance policy limits or, under
adverse interpretations, be excluded from coverage. Future liability or costs,
if any, incurred under such circumstances would have to be paid out of general
corporate funds, if available.
DESCRIPTION OF THE NOTES
The following description of the particular terms of the Notes supplements,
and to the extent inconsistent therewith replaces, the description of the
general terms and provisions of the Notes set forth in the Prospectus, to which
description reference is hereby made.
The Notes will be unsecured general obligations of the Company and will be
issued under an indenture dated as of July 7, 1995 (the "Indenture"), between
the Company and The First National Bank of Boston (the "Trustee").
The Notes will be limited to $100,000,000 aggregate principal amount and
will mature on , 2000. Each Note will bear interest from , 1995, or
from the most recent interest payment date to which interest has been paid, at
the rate of % per annum, payable semiannually on and , commencing
on , 1996, to the person in whose name such Note is registered at the
close of business on the preceding and , respectively.
The Notes are not redeemable at any time prior to maturity and have no
sinking fund provisions.
Book-Entry Procedures
Upon issuance, all Notes will be represented by a fully registered global
note (the "Global Note"). The Global Note will be deposited with, or on behalf
of, The Depository Trust Company, as Depositary (the "Depositary"), and
registered in the name of the Depositary or a nominee thereof. Unless and until
it is exchanged in whole or in part for Notes in definitive form, the Global
Note may not be transferred except as a whole by the Depositary to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary.
A further description of the Depositary's procedures with respect to the
Global Note is set forth in the Prospectus under "Description of Debt
Securities--Global Security." The Depositary has confirmed to the Company, the
Underwriters and the Trustee that it intends to follow such procedures.
Same-Day Settlement and Payment
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest on the Global Notes will
be made by the Company in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the Notes
will trade in the Depositary's Same-Day Funds Settlement System until maturity,
and secondary market trading activity in the Notes will therefore be required by
the Depositary to settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds on
trading activity in the Notes.
S-14
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to them, the respective
principal amounts of the Notes set forth opposite their names below:
Principal
Amount
Name of Notes
---- ------------
Morgan Stanley & Co. Incorporated ........................ $
Donaldson Lufkin & Jenrette Securities Corporation .......
Furman Selz Incorporated .................................
Oppenheimer & Co., Inc. ..................................
BA Securities, Inc. ......................................
NatWest Capital Markets Limited
(as agent for National Westminster Bank Plc) ............
------------
Total ............................................... $100,000,000
============
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Notes is subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all the Notes
offered hereby if any are taken.
The Underwriters initially propose to offer all or part of the Notes
directly to the public at the public offering price set forth on the cover page
hereof and all or part to certain dealers at a price which represents a
concession not in excess of % of the principal amount of the Notes. Any
Underwriter may allow, and any such dealer may reallow, concessions to certain
other dealers not in excess of % of the principal amount of the Notes. After the
initial offering of the Notes, the offering price and other selling terms may
from time to time be varied by the Underwriters.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Company does not intend to apply for listing of the Notes on a national
securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Notes as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Notes, and any such market making may be discontinued at any time at the
sole discretion of the Underwriters. Accordingly, no assurance can be given as
to the liquidity of, or trading markets for, the Notes.
The Underwriters and their affiliates engage in transactions with and
perform services for the Company in the ordinary course of business.
S-15
<PAGE>
PROSPECTUS
$250,000,000
TOSCO CORPORATION
Debt Securities
------------------
Tosco Corporation ("Tosco" or the "Company") may offer and issue from time
to time up to $250,000,000 in aggregate proceeds of its debt securities
each of which will be a direct, unsecured obligation of Tosco (the "Debt
Securities"). The Debt Securities may be offered to the public on terms
determined by market conditions at the time of sale.
The Debt Securities may be issued in one or more series with the same or
various maturities at or above par or with an original issue discount. The
specific designation, aggregate principal amount, authorized denominations,
purchase price, maturity, interest rate (or method of calculation) and time of
payment of interest (if any), any terms for redemption or repurchase, any
listing on a securities exchange or other specific terms of the Debt Securities
in respect of which this Prospectus is being delivered (the "Offered
Securities") are set forth in the accompanying supplement to this Prospectus
(the "Prospectus Supplement"), together with the terms of offering of the
Offered Securities.
------------------
SEE "RISK FACTORS" LOCATED ON PAGES 4 AND 5 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PURCHASERS OF THE DEBT SECURITIES.
------------------
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 REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
The Debt Securities may be offered directly, through agents designated from
time to time, through dealers or through underwriters. Such agents or
underwriters may act alone or with other agents or underwriters. See "Plan of
Distribution". Any such agents, dealers or underwriters will be set forth in the
Prospectus Supplement. If an agent of the Company or a dealer or underwriter is
involved in the offering of the Offered Securities, the agent's commission,
dealer's purchase price, underwriter's discount and net proceeds to the Company
will be set forth in, or may be calculated from, the Prospectus Supplement. Any
underwriters, dealers or agents participating in the offering may be deemed
"underwriters" within the meaning of the Securities Act of 1933.
This Prospectus may not be used to consummate sales of Debt Securities
unless accompanied by a Prospectus Supplement.
July 7, 1995
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus or the Prospectus Supplement in connection with the offer made by
this Prospectus and Prospectus Supplement, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or by any Underwriter, dealer or agent. This Prospectus and the
Prospectus Supplement do not constitute an offer to sell or the solicitation of
an offer to buy any of the Offered Securities in any jurisdiction to any person
to whom it is unlawful to make such offer or solicitation. This Prospectus and
the Prospectus Supplement do not constitute an offer to sell or a solicitation
of an offer to buy any securities other than those to which they relate. Neither
the delivery of this Prospectus nor any sale made hereunder or under the
Prospectus Supplement shall, under any circumstances, create an implication that
there has been no change in the affairs of the Company or any of its
subsidiaries since the respective dates of this Prospectus and the Prospectus
Supplement.
------------------
AVAILABLE INFORMATION
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
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the regional offices of the
Commission at 7 World Trade Center (13th Floor), New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such information can be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such materials can also be
inspected at the offices of the New York Stock Exchange, Inc. and the Pacific
Stock Exchange, Inc., on which exchanges the Company's Common Stock is listed.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement,
including the exhibits filed as a part thereof and otherwise incorporated
therein. Copies of the Registration Statement and the exhibits may be inspected,
without charge, at the offices of the Commission, or obtained at prescribed
rates from the Public Reference Section of the Commission at the address set
forth above.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
1. Annual Report on Form 10-K for the year ended December 31, 1994
filed on March 30, 1995, as amended by Form 10-K/A filed on April 20, 1995.
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1995
filed on May 12, 1995, as amended by Form 10-Q/A filed on June 21, 1995
and Form 10-Q/A-1 filed on June 30, 1995.
All documents filed by the Company pursuant to Sections 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 Debt Securities hereunder shall be deemed
to be incorporated by reference herein and to be a part hereof from the date of
the filing of such reports and 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 the purposes of this Prospectus and the Prospectus
Supplement to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus or the Prospectus
Supplement.
The Company will provide a copy of any or all of such documents (exclusive
of exhibits unless such exhibits are specifically incorporated by reference
therein), without charge, to each person to whom this Prospectus is delivered,
upon written or oral request to Joseph Watson, Investor Relations, Tosco
Corporation, 72 Cummings Point Road, Stamford, Connecticut 06902 (telephone
(203) 977-1000).
------------------
IN CONNECTION WITH THE OFFERING OF THE SECURITIES DESCRIBED IN THE
ACCOMPANYING PROSPECTUS SUPPLEMENT, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH SECURITIES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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THE COMPANY
Tosco, through divisions and subsidiaries, is a large independent refiner,
wholesaler and retail marketer of petroleum products, principally on the East
and West Coasts of the United States. Tosco, through its Avon, Bayway and
Ferndale Refineries, currently processes approximately 525,000 barrels per day
of crude oil and other feedstocks into various petroleum products, consisting
chiefly of light transportation fuels (gasoline, diesel and jet fuel) and
heating oil. Tosco has extensive distribution facilities and also engages in
related commercial activities throughout the United States and internationally.
Following the December 28, 1993 acquisition of British Petroleum's ("BP")
petroleum refining and retail marketing system in the Pacific Northwest, Tosco
increased its involvement in petroleum marketing. During 1994, Tosco added BP's
retail marketing assets in California and Exxon Corporation's retail marketing
assets in Arizona. Tosco also acquired the exclusive right to market under the
BP brand in nine Western states.
Tosco also has interests in oil shale properties in Colorado and Utah.
Tosco was incorporated under the laws of the State of Nevada in 1955. Its
principal executive offices are located at 72 Cummings Point Road, Stamford,
Connecticut 06902, and its telephone number is (203) 977-1000.
RISK FACTORS
The following factors should be carefully considered in evaluating Tosco
and the Debt Securities offered hereby.
Volatility of Refining Industry
A significant portion of Tosco's earnings are dependent upon its refining
margins (the difference between the price of refined products produced for sale
and the cost of crude oil). These refining margins have fluctuated widely due to
changes in the cost of crude oil purchased and the price of refined products
sold (which depend upon factors beyond the control of Tosco). These factors
include the demand for crude oil, gasoline and other refined products (which
fluctuate with changes in the economy, price levels and seasons), the level of
foreign and domestic production, the availability of imports, the availability
and marketing of competitive fuels, the impact of energy conservation efforts
and the extent of government regulation. Refining margins also vary
significantly by refinery for a number of reasons including marketing conditions
in the principal areas served by the refineries, their configuration and
complexity (ability to convert raw materials into clean products), cost
structure, and maintenance schedules. Refining margins averaged $5.01, $2.55 and
$3.42 per barrel for the first quarter of 1995 for the Avon, Bayway and Ferndale
Refineries, respectively ($6.79, $3.02, and $4.54 per barrel for the year ended
December 31, 1994). A barrel is equal to 42 gallons. The Bayway and Ferndale
Refineries were acquired in April and December 1993, respectively. As a
consequence of fluctuations in the cost of crude oil and refined product prices
and the acquisition of the Bayway and Ferndale Refineries, consolidated refining
margins averaged $3.44 per barrel for the first quarter of 1995 and $4.50,
$5.60, and $7.33 per barrel for the years 1994, 1993, and 1992. To reduce
Tosco's exposure to fluctuations in refining margins, and reduce the volatility
of operating results, Tosco has, when it is able, used futures contracts to lock
in what it considered to be acceptable refining margins on a varying percentage
of Bayway's production. While refining margins have fluctuated widely, refining
margins have trended downward since the acquisition of the Bayway Refinery. As a
consequence, Tosco's use of futures contracts and derivative instruments has
similarly declined through December 31, 1994. At December 31, 1994, Bayway had
hedged approximately 12% and 6% of its expected first quarter and annual 1995
production. With the improvement in refining margins late in the first quarter
of 1995, Tosco increased its use of futures contracts and derivative instruments
and at March 31, 1995 had hedged approximately 37% and 17% of Bayway's expected
second quarter and remaining 1995 production. Tosco does not hedge production at
either the Avon or Ferndale refineries and the Bayway refinery accounts for
approximately 55% of Tosco's total production. Results from Tosco's retail
operations are generally less volatile than refining results.
Continuity of Operations
Tosco's principal operating assets are the Bayway Refinery and the Avon
Refinery (together the "Refineries"). Tosco's earnings and its ability to
service the Debt Securities will depend primarily upon the continuing operation
of the Refineries.
In accordance with industry practice, the processing units at the
Refineries require regular scheduled major maintenance and refurbishment,
commonly known as "turnarounds". The unit is shut down during the turnaround
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and production, therefore, is reduced. Turnarounds for major processing units,
such as fluid catalytic crackers and the fluid coker, last approximately 40-50
days and run cycles between turnarounds are approximately two to four years,
depending on the individual unit. Turnarounds of the major processing units at
the Refineries were completed during 1994 and 1995.
Processing units are also subject to the possibilities of unplanned
shutdowns, which would reduce production. During the last 12 years there have
been two major unplanned shutdowns at the Avon Refinery, the last in 1989. There
have been none at the Bayway refinery since it was acquired in 1993.
Ownership of multiple refineries gives Tosco the opportunity to coordinate
scheduled major maintenance on the process units at the Refineries. In addition,
Tosco maintains insurance on the Refineries. However, if either of the
Refineries experiences interruptions in supply or operations, Tosco's business
could be materially adversely affected.
Environmental and Governmental Regulations
Tosco is subject to extensive regulations governing releases into the
environment and the storage, transportation, disposal and clean-up of hazardous
waste material. These include, on the federal level, the Clean Air Act (42
U.S.C. ss 7401-7671q), the Clean Water Act (33 U.S.C. ss 1251-1387), the
Resource Conservation and Recovery Act (42 U.S.C. ss 6901-6992k), the
Comprehensive Environmental Response, Liability and Compensation Act
(42 U.S.C. ss 9601-9675), leaking underground storage tank regulations,
other federal legislation and regulations issued by the U.S. Environmental
Protection Agency, and analogous state and local laws, principally in the states
of California, New Jersey and Washington. In addition, regulations relating to
motor fuel specifications at the federal (reformulated gasoline or "RFG") and
state levels (e.g. California Air Resources Board Phase I & II gasoline
specifications and diesel standards), including requirements for the additions
of oxygenates to gasoline (e.g. MTBE or ethanol) have resulted, and could
result, in increased operating costs and/or capital expenditures that may
adversely affect Tosco's results of operations and financial condition.
See Note 15 of the "Notes to Consolidated Financial Statements" contained
in Tosco's Annual Report on Form 10-K for 1994 with respect to environmental
cost accruals and for information concerning specific sites and proceedings.
Tosco cannot at this date reasonably estimate the range of probable losses
associated with the specific sites and proceedings because of the uncertainties
discussed in Note 15.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the net
proceeds to Tosco from the sale of the Debt Securities offered hereby will be
used for general corporate purposes, which may include repaying existing
indebtedness or financing acquisitions.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the periods indicated.
Three Months Year Ended December 31,
Ended ------------------------------------
March 31, 1995 1994 1993 1992 1991 1990
-------------- ---- ---- ---- ---- ----
.61x 2.83x 3.28x 2.71x 3.55x 5.72x
For the purpose of computing the above ratio of earnings to fixed charges,
earnings consist of consolidated income from operations before income taxes and
fixed charges. Fixed charges consist of interest on outstanding debt, one third
(the proportion deemed representative of the interest factor) of net rentals and
amortization of debt discount and expense. Earnings for the first quarter of
1995 were less than fixed charges by approximately $8.2 million.
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement (the "Offered Securities") and the extent,
if any, to which such general provisions may not apply thereto will be described
in the Prospectus Supplement relating to such Offered Securities.
The Debt Securities are to be issued in one or more series (each such
series a "Series") under an Indenture dated as of July 7, 1995 (the
"Indenture") between the Company and The First National Bank of Boston, as
Trustee (the "Trustee"). The form of the Indenture is filed as an exhibit to the
Registration Statement.
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General
The Indenture does not limit the amount of Debt Securities which can be
issued thereunder and provides that debt securities of any Series may be issued
thereunder up to the aggregate principal amount which may be authorized from
time to time by the Company. The Indenture does not limit the amount of other
indebtedness or securities which may be issued by the Company. However, the
Indenture does limit the ability of the Company's subsidiaries having a
Principal Property to incur Indebtedness and issue Preferred Stock. All Debt
Securities will be unsecured and will not rank below any other unsecured
indebtedness of the Company. The Trustee will authenticate and deliver Debt
Securities executed and delivered to it by the Company as set forth in the
Indenture.
Reference is made to the Prospectus Supplement for the following and other
possible terms of each Series of the Offered Securities in respect of which this
Prospectus is being delivered: (i) the title of the Offered Securities; (ii) any
limit upon the aggregate principal amount of the Offered Securities; (iii) if
other than 100% of the principal amount, the percentage of their principal
amount at which the Offered Securities will be offered; (iv) the date or dates
on which the principal of the Offered Securities will be payable (or method of
determination thereof); (v) the rate or rates (or method of determination
thereof) at which the Offered Securities will bear interest, if any, the date or
dates from which any such interest will accrue and on which such interest will
be payable, and the record dates for the determination of the holders, to whom
interest is payable; (vi) if other than as set forth herein, the place or places
where the principal of and interest, if any, on the Offered Securities will be
payable; (vii) the price or prices at which, the period or periods within which
and the terms and conditions upon which Offered Securities may be redeemed, in
whole or in part, at the option of the Company; (viii) the obligation, if any,
of the Company to redeem, repurchase or repay Offered Securities, whether
pursuant to any sinking fund or analogous provisions or pursuant to other
provisions set forth therein or at the option of a holder thereof; and (ix) any
other terms or conditions not inconsistent with the provisions of the Indenture
upon which the Offered Securities will be offered.
Unless otherwise provided in the Prospectus Supplement relating to any
Offered Securities, principal and interest, if any, will be payable, and the
Debt Securities will be transferable and exchangeable, at the office or offices
or agency maintained by the Company for such purposes, provided that payment of
interest on the Debt Securities will be paid at such place of payment by check
mailed to the persons entitled thereto at the addresses of such persons
appearing on the Security Register. Interest on the Debt Securities will be
payable on any interest payment date to the persons in whose name the Debt
Securities are registered at the close of business on the record date with
respect to such interest payment date.
Debt Securities may be issued only in fully registered form in minimum
denominations of $1,000 and any integral multiple thereof. Debt Securities may
be exchanged for an equal aggregate principal amount of Debt Securities of the
same Series and date of maturity in such authorized denominations as may be
requested upon surrender of the Debt Securities at an agency of the Company
maintained for such purpose and upon fulfillment of all other requirements of
such agent. No service charge will be made for any transfer or exchange of the
Debt Securities, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Debt Securities will bear interest at a fixed rate (a "Fixed Rate
Security") or a floating rate (a "Floating Rate Security"). Debt Securities
bearing no interest or interest at a rate which, at the time of issuance, is
below the prevailing market rate, will be sold at a discount below their stated
principal amount. Special United States federal income tax considerations
applicable to any such discounted Debt Securities or to certain Debt Securities
issued at par which are treated as having been issued at a discount for United
States federal income tax purposes will be described in the applicable
Prospectus Supplement.
The Indenture requires the annual filing by the Company with the Trustee of
a certificate as to compliance with all conditions and covenants contained in
the Indenture.
The Company will comply with Section 14(c) under the Exchange Act, and any
other tender offer rules under the Exchange Act which may then be applicable, in
connection with any obligation of the Company to purchase Offered Securities at
the option of the holders thereof. Any such obligations applicable to a Series
of Debt Securities will be described in the Prospectus Supplement relating
thereto.
Unless otherwise described in a Prospectus Supplement relating to any
Offered Securities, there are no covenants or provisions contained in the
Indenture which may afford the holders of Offered Securities protection in the
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event of a highly leveraged transaction involving the Company, except to the
limited extent described under the caption "Covenants" as described below. Such
covenants or provisions are not subject to waiver by the Company's Board of
Directors without the consent of the holders of not less than a majority in
principal amount of Debt Securities of each Series as described under
"Modification of the Indenture" below.
At March 31, 1995, the Company had outstanding $300 million of first
mortgage bonds collateralized by its Avon Refinery, $150 million of first
mortgage bonds collateralized by its Bayway Refinery, a revolving credit
facility of up to $450 million (on which two wholly-owned subsidiaries are also
borrowers) collateralized by accounts receivable, inventory and investments and
$5.3 million of other secured debt. At March 31, 1995, the Company (including
its two wholly-owned subsidiaries) had $273 million of cash borrowings and
outstanding letters of credit of approximately $112 million under such credit
facility. There is no other subsidiary debt which is effectively senior to the
Debt Securities.
Global Security
Upon issuance, each series of Debt Securities will be represented by a
single global security (the "Global Security") which will be deposited with, or
on behalf of, The Depository Trust Company (the "Depositary") and will be
registered in the name of the Depositary or a nominee of the Depositary.
Upon the issuance of the Global Security, the Depositary or its nominee
will credit on its book-entry registration and transfer system the respective
principal amounts of the individual Debt Securities represented by the Global
Security to the accounts of persons that have accounts with such Depositary
("Participants"). Such accounts shall be designated by the underwriters, if any.
Ownership of beneficial interests in the Global Security will be limited to
Participants or persons that may hold interests through Participants. Ownership
of beneficial interests in the Global Security will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary or its nominee (with respect to interests of Participants) and
the records of Participants (with respect to interests of persons who hold
through Participants). The laws of some states require that certain purchasers
of securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
the Global Security.
So long as the Depositary, or its nominee, is the registered owner of the
Global Security, the Depositary or the nominee, as the case may be, will be
considered the sole owner or holder of the Debt Securities represented by the
Global Security for all purposes under the Indenture. Except as provided below,
owners of beneficial interests in the Global Security will not be entitled to
have any of the individual Debt Securities represented by the Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of any such Debt Securities in definitive form and will not be
considered the owners or holders thereof under the Indenture.
Payments of principal of (and premium, if any) and interest (if any) on
individual Debt Securities represented by the Global Security registered in the
name of the Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Security.
None of the Company, the Trustee, any Paying Agent, or the Securities Registrar
for such Debt Securities will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interest of the Global Security or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
The Company has been advised by the Depositary that, upon receipt of any
payment of principal, premium or interest in respect of the Global Security, the
Depositary immediately will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interest in the principal
amount of the Global Security as shown on the records of the Depositary.
Payments by Participants to owners of beneficial interests in the Global
Security held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name".
Such payments will be the responsibility of such Participants.
If the Depositary is at any time unwilling, unable or ineligible to
continue as depositary and a successor depositary is not appointed by the
Company within 90 days, the Company will issue individual Debt Securities in
exchange for the Global Security. In addition, the Company may at any time and
in its sole discretion determine not to have any Debt Securities of a series
represented by one or more Global Securities and, in such event, will issue
individual Debt Securities in exchange for the Global Security for such series.
Further, if the Company so specifies with respect to the Debt Securities of a
series, an owner of a beneficial interest in the Global Security may, on terms
acceptable to the
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Company, the Trustee and the Depositary, receive individual Debt Securities in
exchange for such beneficial interests. In any such instance, an owner of a
beneficial interest in the Global Security will be entitled to physical delivery
of individual Debt Securities equal in principal amount to such beneficial
interest and to have such Debt Securities registered in its name. Individual
Debt Securities of such series so issued will be issued in denominations, unless
otherwise specified by the Company, of $1,000 and integral multiples thereof.
Except as provided above, owners of beneficial interests in the Global
Security will not be entitled to receive physical delivery of Debt Securities in
definitive form and will not be considered the holders thereof for any purposes
under the Indenture. Accordingly, each person owning a beneficial interest in a
Global Security for a series Debt Securities must rely on the procedures of the
Depositary and, if such person is not a Participant, on the procedures of the
Participant through which such person owns its interest, to exercise any rights
of a holder of such securities under the Indenture. The Depositary may grant
proxies and otherwise authorize participants to give or take any request,
demand, authorization, direction, notice, consent, waiver or other action which
a holder is entitled to give or take under the Indenture. The Company
understands that under existing industry practices, in the event that the
Company requests any action of holders or that an owner of a beneficial interest
in the Global Security desires to give or take any action to which a holder is
entitled to give or take under the Indenture, the Depositary would authorize the
Participants holding the relevant beneficial interests to give or take such
action, and such Participants would authorize beneficial owners owning through
such Participants to give or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered under the Exchange Act. The Depositary was created to hold the
securities of its participants and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (including the
underwriters, if any,), banks, trust companies, clearing corporations, and
certain other organizations, some of whom (and/or the representatives) own the
Depositary. Access to the Depositary's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant either directly or
indirectly.
Covenants
The covenants summarized below will be applicable (unless waived or
amended) so long as any of the Debt Securities are outstanding, unless stated
otherwise in the Prospectus Supplement.
Limitation on Liens
The Company will not, and will not permit any Subsidiary to, incur any Debt
secured by a Lien on any Principal Property without making effective provision
for securing all Outstanding Debt Securities of each series having the benefit
of this covenant equally and ratably with such Debt as to such Principal
Property.
With respect to any particular series of Debt Securities, the foregoing
restrictions will not apply to: (i) Liens existing at the date of original
issuance of such series of Debt Securities; (ii) any Liens securing Debt owed by
the Company to one or more Subsidiaries of the Company; (iii) Liens on any
Principal Property of a Person existing prior to the time (A) such Person
becomes a Subsidiary of the Company, (B) such Person merges into or consolidates
with a Subsidiary of the Company or (C) another Subsidiary of the Company merges
into or consolidates with such Person (in a transaction in which such Person
becomes a Subsidiary of the Company); (iv) Liens on any Principal Property
existing at the time of acquisition thereof; (v) Liens on any Principal Property
to secure Debt incurred for the purpose of financing all or any part of the
purchase price or the cost of construction or improvement of the Principal
Property subject to such Liens in an aggregate principal amount not to exceed
the fair market value of such property, construction or improvements; (vi) Liens
on any Principal Property of the Company or any Subsidiary in favor of
governmental bodies to secure certain advance or progress payments pursuant to
any contract or statute; and (vii) Liens to secure any extension, renewal,
refinancing or refunding (or successive extensions, renewals, refinancings or
refundings), in whole or in part, of any Debt secured by Liens referred to in
the foregoing clauses (i) to (vi), so long as such Lien does not extend to any
other property and the Debt so secured is not increased.
Notwithstanding the foregoing, the Company or any Subsidiary may incur Debt
secured by Liens which otherwise would be subject to the foregoing restrictions,
in an aggregate amount which, together with all other such Debt
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outstanding secured by Liens and all Attributable Debt outstanding in respect of
Sale and Leaseback Transactions (other than as permitted by the first paragraph
under the "Limitation on Sale and Leaseback Transactions" covenant below), does
not exceed 10% of Consolidated Net Tangible Assets.
Limitation on Sale and Leaseback Transactions
The Company will not, and will not permit any Subsidiary to, enter into any
Sale and Leaseback Transaction on any Principal Property (except for a period
not exceeding three years) unless: (i) the Company or such Subsidiary would be
entitled to incur a Lien to secure Debt by reason of the provisions described in
clauses (i) through (vii) of the second paragraph under the "Limitation on
Liens" covenant in an amount equal to the Attributable Debt of such Sale and
Leaseback Transaction without equally and ratably securing all Outstanding Debt
Securities of each series having the benefit of this covenant or (ii) the
Company or such Subsidiary applies within 180 days an amount equal to, in the
case of a sale or transfer for cash, the net proceeds (not exceeding the net
book value), and, otherwise, an amount equal to the fair value (as determined by
its Board of Directors), of the property so leased to (A) the retirement of Debt
Securities or other Funded Debt of the Company or such Subsidiary or (B) the
acquisition of property which constitutes a Principal Property.
Notwithstanding the foregoing, the Company or any Subsidiary may enter into
a Sale and Leaseback Transaction which would otherwise be subject to the
foregoing restriction, provided the amount of Attributable Debt in respect of
such Sale and Leaseback Transaction, together with all other such Attributable
Debt outstanding and all Debt outstanding secured by Liens (other than as
permitted by the second paragraph under the "Limitations on Liens" covenant
above), does not exceed 10% of Consolidated Net Tangible Assets.
Limitation on Subsidiary Funded Debt and Preferred Stock
The Company will not permit any Subsidiary of the Company having a
Principal Property to incur or suffer to exist any Funded Debt or issue any
Preferred Stock except: (i) Funded Debt outstanding under the Bank Credit
Facility; (ii) Funded Debt or Preferred Stock outstanding on the date of
original issuance of the Debt Securities of a particular series; (iii) Funded
Debt or Preferred Stock issued to and held by the Company or a Subsidiary of the
Company; (iv) Funded Debt incurred or Preferred Stock issued by a Person prior
to the time (A) such Person became a Subsidiary of the Company, (B) such Person
merges into or consolidates with a Subsidiary of the Company or (C) another
Subsidiary of the Company merges into or consolidates with such Person (in a
transaction in which such Person becomes a Subsidiary of the Company); (v)
Funded Debt or Preferred Stock incurred for the purpose of financing all or any
part of the purchase price or the cost of construction of or improvements to the
property of the Company or any of its Subsidiaries in an aggregate principal
amount or liquidation preference, as the case may be, not to exceed the fair
market value of such property, construction or improvements; and (vi) Funded
Debt or Preferred Stock that is exchanged for, or the proceeds of which are used
to refinance or refund, any Funded Debt or Preferred Stock permitted to be
outstanding pursuant to clauses (i) through (v) (or any extension or renewal
thereof) in an aggregate principal amount or liquidation preference, as the case
may be (which, in the case of a Discount Security, shall be the issue price
thereof), not to exceed the principal amount of the Funded Debt or the
liquidation preference of the Preferred Stock, as the case may be, so exchanged,
refinanced or refunded (which, in the case of a Discount Security, shall be the
accreted value thereof).
Notwithstanding the foregoing, the Company's Subsidiaries may incur Funded
Debt and Preferred Stock in an aggregate principal amount and liquidation
preference that does not exceed 10% of Consolidated Net Tangible Assets.
Certain Definitions. The terms set forth below are defined in the Indenture
as follows:
"Attributable Debt" when used in connection with a Sale and Leaseback
Transaction involving a Principal Property shall mean, at the time of
determination, the present value of the total net amount of rent required to be
paid under such lease during the remaining term thereof (including any renewal
term or period for which such lease has been extended), discounted at the rate
of interest set forth or implicit in the terms of such lease or, if not
practicable to determine such rate, the weighted average interest rate per annum
borne by the Debt Securities of each series outstanding pursuant to the
Indenture compounded semi-annually. For purposes of the foregoing definition,
rent shall not include amounts required to be paid by the lessee on account of
insurance, taxes, assessments, utility, operating and labor costs and similar
charges. In the case of any lease which is terminable by the lessee upon the
payment of a
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penalty, such net amount shall also include the amount of the penalty, but no
rent shall be considered as required to be paid under such lease subsequent to
the first date upon which it may be so terminated.
"Bank Credit Facility" means the bank facility provided for under the
Second Amended and Restated Credit Agreement, dated as of April 7, 1995, as
amended, among the Company, certain of its subsidiaries and the banks that are
or become parties from time to time thereto, as it may be amended, supplemented
or otherwise modified from time to time, and any successor or replacement bank
facility thereto, provided that the aggregate principal amount of borrowings
thereunder does not exceed $450 million.
"Consolidated Net Tangible Assets" means the total of all the assets
appearing on the consolidated balance sheet of the Company and its Subsidiaries,
less the following: (a) liabilities, (b) intangible assets, including, but
without limitation, such items as goodwill, trademarks, trade names, patents and
unamortized debt discount and expense carried as an asset on said balance sheet,
and (c) appropriate adjustment on account of minority interests of other persons
holding stock in any Subsidiary. Consolidated Net Tangible Assets shall be
determined in accordance with generally accepted accounting principles applied
on a consistent basis and shall be determined by reference to the most recent
publicly available quarterly or annual, as the case may be, consolidated balance
sheet of the Company.
"Debt" of a Person means, all indebtedness of such Person which is for
money borrowed.
"Funded Debt" means Debt which by its terms matures at, or can be extended
or renewed at the option of the obligor to, a date more than twelve months after
the date of the Debt's creation, including, but not limited to, outstanding
revolving credit loans.
"Incur" means to issue, incur, assume, guarantee, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
the payment of, any Debt.
"Lien" means any mortgage or deed of trust, pledge, assignment, security
interest, lien, charge, or other encumbrance or preferential arrangement
(including, without limitation, any conditional sale or other title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Principal Property" means (i) any refining or processing plant (together
with any pipeline, terminal or other facility related to such refining or
processing plant and necessary for its economic operation) or corporate offices,
in any case owned or leased by the Company or any Subsidiary, or any interest of
the Company or any Subsidiary in such property (in each case including the real
estate related thereto) located within the United States of America and (ii) any
Capital Stock of any Subsidiary that owns, directly or indirectly, a Principal
Property of the type described in clause (i).
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than one year after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other similar amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty.
Events of Default
As to any Series of Debt Securities, the Indenture defines the following
events as "Events of Default": (a) failure to pay interest on any Debt Security
of such series after the interest becomes due and payable and continuance of
such default for a period of 30 days; (b) failure to pay all or any portion of
the principal of any Debt Security of such Series when such principal becomes
due and payable at maturity without any grace period; (c) default in the
performance, or breach, of any other covenant of the Company for the benefit of
the Debt Securities of such Series that continues for a period of 30 days (or
such other period specified in such other document) after written notice of such
default has been
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given (i) to the Company by the Trustee or (ii) to the Company and the Trustee
by the holders of at least 25% of the Debt Securities of such Series then
outstanding; (d) the occurrence of a default under any indebtedness aggregating
in excess of $10,000,000 (i) resulting from the failure to pay principal at
maturity or (ii) as a result of which the maturity of such Indebtedness has been
accelerated prior to its stated maturity; (e) final judgments against the
Company or any Subsidiary in excess of $10,000,000 which remain undischarged for
60 days; or (f) certain events of bankruptcy, insolvency, or reorganization
which are voluntary or, if involuntary, continue for a period of 90 days.
Additional Events of Default may be added for the benefit of holders of
certain Series of Debt Securities which, if added, will be described in the
Prospectus Supplement relating to such Debt Securities. The Indenture provides
that the Trustee shall notify the holders of Debt Securities of each Series of
any continuing default known to the Trustee which has occurred with respect to
that Series within 90 days after the occurrence thereof. The Indenture provides
that notwithstanding the foregoing, except in the case of default in the payment
of the principal of or interest on any of the Debt Securities of such Series the
Trustee may withhold such notice if the Trustee in good faith determines that
the withholding of such notice is in the interests of the holders of Debt
Securities of such Series.
The Indenture provides that if an Event of Default (other than an Event of
Default described in clause (f) above) with respect to any Series of Debt
Securities shall have occurred and be continuing, either the Trustee or the
holders of not less than 25% in aggregate principal amount of Debt Securities of
that Series then outstanding may declare the principal amount of, and accrued
and unpaid interest on, all Debt Securities of that Series to be due and payable
immediately. Upon certain conditions such acceleration may be annulled. The
Indenture provides that if an Event of Default described in clause (f) shall
have occurred and be continuing, the principal amount of (and accrued and unpaid
interest on) all Debt Securities of all Series shall ipso facto become due and
payable immediately, without any declaration or other act on the part of the
Trustee or any holder. Any past defaults and the consequences thereof (except a
default in the payment of principal of or interest on Debt Securities of that
Series) may be waived by the holders of a majority in principal amount of the
Debt Securities of that Series then outstanding. The Indenture also permits the
Company not to comply with certain covenants in the Indenture with respect to
Debt Securities of any Series upon waiver by the holders of a majority in
principal amount of the Debt Securities of such Series then outstanding.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default with respect to any Series of Debt
Securities shall occur and be continuing, the Trustee shall not be under any
obligation to exercise any of the trust powers vested in it by the Indenture at
the request or direction of any of the holders of that Series, unless such
holders shall have offered to the Trustee reasonable security or indemnity. The
holders of a majority in aggregate principal amount of the Debt Securities of
each Series affected and then outstanding shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee under the Indenture or exercising any trust power conferred on the
Trustee with respect to the Debt Securities of that Series; provided that the
Trustee may refuse to follow any direction which is in conflict with any law or
the Indenture and subject to certain other limitations.
No holder of any Debt Securities of any Series will have any right by
virtue or by availing of any provision of the Indenture to institute any
proceeding at law or in equity or in bankruptcy or otherwise upon or under or
with respect to the Indenture or for any remedy thereunder, unless such holder
shall have previously given the Trustee written notice of an Event of Default
with respect to Debt Securities of that Series and unless also the holders of at
least 25% in aggregate principal amount of the outstanding Debt Securities of
that Series shall have made written request, and offered reasonable indemnity,
to the Trustee to institute such proceeding as trustee and the Trustee shall
have failed to institute such proceeding within 60 days after its receipt of
such request, and the Trustee shall not have received from the holders of a
majority in aggregate principal amount of the outstanding Debt Securities of
that Series a direction inconsistent with such request. However, the right of a
holder of any Debt Security to receive payment of the principal of and any
interest on such Debt Security on or after the due dates expressed in such Debt
Security, or to institute suit for the enforcement of any such payment on or
after such dates, shall not be impaired or affected without the consent of such
holder.
Consolidation, Merger, Sale or Conveyance
The Indenture provides that the Company may consolidate with, or sell,
convey or lease all or substantially all of its assets to, or merge with or
into, any other corporation, if (i) either the Company is the continuing
corporation, or the successor corporation is a domestic corporation and
expressly assumes the due and punctual payment of the principal of and interest
on all the Debt Securities outstanding under the Indenture according to their
tenor and the due and
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punctual performance and observance of all of the covenants and conditions of
the Indenture to be performed or observed by the Company and (ii) immediately
after such merger or consolidation, or such sale, conveyance or lease, no Event
of Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing.
Satisfaction and Discharge of Indenture
The Indenture with respect to any Series (except for certain specified
surviving obligations including, among other things, the Company's obligation to
pay the principal of and interest on the Debt Securities of such Series) will be
discharged and cancelled upon the satisfaction of certain conditions, including
the payment of all principal of and interest on all the Debt Securities of such
Series or the deposit with the Trustee of cash or appropriate Government
Obligations or a combination thereof sufficient for such payment or redemption
in accordance with the Indenture and the terms of the Debt Securities of such
Series.
Modification of the Indenture
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Debt Securities of each Series at the time outstanding
under the Indenture, to execute supplemental indentures adding any provisions
to, or changing in any manner or eliminating any of the provisions of, the
Indenture or any supplemental indenture with respect to the Debt Securities of
such Series or modifying in any manner the rights of the holders of the Debt
Securities of such Series; provided that no such supplemental indenture may (i)
extend the stated maturity of the principal of any Debt Security, or reduce the
principal amount thereof or any premium thereon, or reduce the rate or extend
the time of payment of any interest thereof, or reduce any amount payable on
redemption thereof (including any amount with respect to original issue
discount), or reduce the amount of original issue discount security payable upon
acceleration or provable in bankruptcy, or impair or affect the right of any
holder of Debt Securities to institute suit for payment thereof, or, if the Debt
Securities provide therefor, any right of repayment at the option of the holders
of the Debt Securities, without the consent of the holder of each Debt Security
so affected, or (ii) reduce the aforesaid percentage of Debt Securities of such
Series, the consent of holders of which is required for any such supplemental
indenture, without the consent of the holders of all Debt Securities of such
Series so affected. Additionally, in certain prescribed instances, including the
establishment of the forms or terms of Debt Securities of any series, the
Company and the Trustee may execute supplemental indentures without the consent
of the holders of Debt Securities.
Defeasance and Covenant Defeasance
The Indenture provides, if such provision is made applicable to the Debt
Securities of any Series, that the Company may elect either (a) to terminate
(and be deemed to have satisfied) all its obligations with respect to such Debt
Securities (except for the obligations to register the transfer or exchange of
such Debt Securities, to replace mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of the Debt Securities,
to compensate and indemnify the Trustee and to punctually pay or cause to be
paid the principal of, and interest on, all Debt Securities of such Series when
due) ("defeasance") or (b) to be released from its obligations with respect to
such Debt Securities upon the deposit with the Trustee, in trust for such
purpose, of money and/or Government Obligations which through the payment of
principal and interest in accordance with their terms will provide money, in an
amount sufficient (in the opinion of a nationally recognized firm of independent
public accountants) to pay the principal of and interest, if any, on the
outstanding Debt Securities of such Series, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor. Such a trust
may be established only if, among other things, the Company has delivered to the
Trustee an opinion of counsel (as specified in the Indenture) with regard to
certain matters, including an opinion to the effect that the holders of such
Debt Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and discharge and will be subject to
federal income tax on the same amounts and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred. The Prospectus Supplement may further describe these or other
provisions, if any, permitting defeasance or covenant defeasance with respect to
the Debt Securities of any Series.
Applicable Law
The Debt Securities and the Indenture will be governed by, and construed in
accordance with, the laws of the State of New York.
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Concerning the Trustee
The Trustee may provide various commercial banking services to the Company
from time to time.
PLAN OF DISTRIBUTION
The Company may sell Offered Securities (i) through agents, (ii) through
underwriters, (iii) through dealers or (iv) directly to purchasers (through a
specific bidding or auction process or otherwise).
Offers to purchase Debt Securities may be solicited by agents designated by
the Company from time to time. Any such agent involved in the offer or sale of
the Offered Securities will be named, and any commissions payable by the Company
to such agent will be set forth, in the Prospectus Supplement. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment. Any such agent may be deemed to
be an underwriter, as the term is defined in the Securities Act, of the Debt
Securities so offered and sold. Agents may be entitled under agreements which
may be entered into with the Company to indemnification by the Company against
certain liabilities, including liabilities under the Securities Act, and may be
customers of, engaged in transactions with or perform services for the Company
in the ordinary course of business.
If an underwriter or underwriters are utilized in the sale of Offered
Securities, the Company will execute an underwriting agreement with such
underwriter or underwriters at the time an agreement for such sale is reached,
and the names of the specific managing underwriter or underwriters, as well as
any other underwriters, and the terms of the transactions, including
compensation of the underwriters and dealers, if any, will be set forth in the
Prospectus Supplement, which will be used by the underwriters to make resales of
Offered Securities. The underwriters may be entitled under the relevant
underwriting agreement to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act, and such
underwriters or their affiliates may be customers of, engage in transactions
with, or perform services for the Company in the ordinary course of business.
If a dealer is utilized in the sale of Offered Securities, the Company will
sell such Debt Securities to the dealer, as principal. The dealer may then
resell such Debt Securities to the public at varying prices to be determined by
such dealer at the time of resale. Dealers may be entitled, under agreements
which may be entered into with the Company, to indemnification by the Company
against certain liabilities, including liabilities under the Securities Act, and
such dealers or their affiliates may be customers of, extend credit to or engage
in transactions with, or perform services for the Company in the ordinary course
of business. The name of any dealer and the terms of the transactions will be
set forth in the Prospectus Supplement relating thereto.
Offers to purchase Debt Securities may be solicited directly by the Company
and sales thereof may be made by the Company directly to institutional investors
or others. The terms of any such sales, including the terms of any bidding or
auction process, if utilized, will be described in the Prospectus Supplement
relating thereto.
The place and time of delivery for the Debt Securities in respect of which
this Prospectus is delivered are set forth in the Prospectus Supplement.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Debt Securities
offered hereby will be passed upon for the Company by Stroock & Stroock & Lavan
of New York, New York. Certain legal matters in connection with the Debt
Securities offered hereby will be passed upon for the underwriters or agents, if
any, named in the Prospectus Supplement, by Andrews & Kurth L.L.P. of New York,
New York.
EXPERTS
The consolidated balance sheets of Tosco as of December 31, 1994 and 1993,
and the consolidated statements of income, common shareholders' equity (deficit)
and cash flows, and the financial statement schedules, for each of the three
years in the period ended December 31, 1994, incorporated by reference in this
Prospectus, have been incorporated herein in reliance on the report of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
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