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 PRELIMINARY PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY 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.
PROSPECTUS SUPPLEMENT Issued April 9, 1997 (Subject to Completion)
(To Prospectus dated February 3, 1997)
22,000,000 Shares
Tosco Corporation
COMMON STOCK
-----------------
ALL OF THE SHARES OF COMMON STOCK (THE "SHARES") OFFERED HEREBY ARE BEING SOLD
BY THE COMPANY. OF THE 22,000,000 SHARES BEING OFFERED, 17,600,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS
AND 4,400,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." THE COMPANY'S
COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "TOS." ON
APRIL 7, 1997, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NEW YORK
STOCK EXCHANGE WAS $28 7/8 PER SHARE.
-----------------
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 $_____ A SHARE
----------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
------ --------------- -----------
Per Share .......... $ $ $
Total (3) .......... $ $ $
- ----------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at $750,000.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
3,300,000 additional Shares at the price to public less underwriting
discounts and commissions for the purpose of covering over-allotments, if
any. If the U.S. Underwriters exercise such option in full, the total price
to public, underwriting discounts and commissions and proceeds to Company
will be $________, $________ and $________, respectively. See
"Underwriters."
----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein 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 Shares will be made on or about ___, 1997 at the office of
Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor
in immediately available funds.
----------
MORGAN STANLEY & CO.
Incorporated
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
OPPENHEIMER & CO., INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
April , 1997
<PAGE>
[Map of the United States indicating Tosco Corporation's
Refining and Marketing Operations as of April 1, 1997]
<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 SECURITIES 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
----
Special Note Regarding Forward-Looking Statements ....................... S- 2
The Company ............................................................. S- 3
The Offering ............................................................ S- 5
Use of Proceeds ......................................................... S- 5
Common Stock Price Range and Dividends .................................. S- 6
Unaudited Pro Forma Financial Information ............................... S- 7
Capitalization .......................................................... S-12
Selected Consolidated Financial Data .................................... S-13
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................... S-14
Underwriters ............................................................ S-20
Legal Matters ........................................................... S-22
Experts ................................................................. S-22
PROSPECTUS
Available Information ................................................... 2
Incorporation of Certain Documents by Reference ......................... 3
The Company ............................................................. 4
Use of Proceeds ......................................................... 5
Ratios of Earnings to Fixed Charges and Earnings
to Combined Fixed Charges and Preferred Stock
Dividends ............................................................. 5
Description of Debt Securities .......................................... 6
Description of Preferred Stock .......................................... 12
Description of Depositary Shares ........................................ 15
Description of Common Stock ............................................. 18
Plan of Distribution .................................................... 18
Legal Matters ........................................................... 19
Experts ................................................................. 19
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the captions "The Company" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and elsewhere in this Prospectus Supplement and the accompanying
Prospectus or in the information incorporated by reference herein or therein may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act") and as such may
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of Tosco to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements.
----------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET. IN
ADDITION, UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET
MAKING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
S-2
<PAGE>
THE COMPANY
Tosco Corporation ("Tosco" or the "Company") is the largest independent
refiner and marketer of petroleum products in the United States, operating
principally on the East and West Coasts, and is also the nation's largest
operator of company-controlled convenience stores. Tosco has grown rapidly
through acquisitions and internal growth. Since February 1996, the Company has
more than tripled its retail operations and increased its refining capacity by
approximately 76% through the completion of three acquisitions: (i) British
Petroleum's ("BP") U.S. Northeast refining and marketing assets on February 2,
1996; (ii) The Circle K Corporation ("Circle K") on May 30, 1996; and (iii)
Union Oil Company of California's ("Unocal") West Coast petroleum refining,
marketing and related supply and transportation assets on March 31, 1997.
The Company currently has approximately 950,000 barrels per day of refining
capacity and approximately 13 million gallons per day of retail fuel sales
through a retail network of approximately 5,200 sites, 4,600 of which sell fuel.
Operations at the 160,000 barrel per day Trainer refinery are currently
suspended while the plant is undergoing a modernization and upgrading program.
This program is expected to be completed and refinery operations should
recommence during the second quarter of 1997. Tosco's primary operating
facilities are summarized in the table below.
REFINING DATA
AVERAGE
REFINERY LOCATION DATE ACQUIRED THROUGHPUT (B/D)
- ----------------- ------------- ----------------
Avon, California 1976 170,000
Linden, New Jersey 1993 280,000
Ferndale, Washington 1993 90,000
Trainer, Pennsylvania 1996 160,000
Los Angeles, California (two sites) 1997 130,000
Rodeo, California 1997 77,000
Santa Maria, California 1997 43,000
-------
950,000
=======
RETAIL DATA
ANNUAL
ANNUAL FUEL FUEL MERCHANDISE MERCHANDISE
RETAIL CHANNEL VOLUME (MGAL) LOCATIONS SALES ($M) LOCATIONS
- -------------- ------------- --------- ---------- ---------
Company-Operated 1,825,000 2,084 $2,100,000 2,440
Dealer 2,150,000 1,350 -- --
Jobber 775,000 1,166 -- --
--------- ----- ---------- -----
4,750,000 4,600 $2,100,000 2,440
========= ===== ========== =====
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.
ACQUISITION OF UNOCAL REFINING AND MARKETING ASSETS
On March 31, 1997, Tosco acquired Unocal's West Coast petroleum refining,
marketing and related supply and transportation assets (the "Acquisition") for a
purchase price of approximately $1.4 billion, plus inventory preliminarily
valued at approximately $396 million as of the closing date. In addition, Unocal
is entitled to receive contingent participation payments over the next seven
years, up to a maximum amount of $250 million, if the margin on sales to branded
dealers exceeds a base index and/or the differential between California Air
Resources Board Phase II gasoline and conventional gasoline exceeds a base
index. For a period of 25 years, Unocal will be responsible for environmental
liabilities arising out of or relating to the period prior to the closing,
except that Tosco will pay the first $7 million of such environmental
liabilities each year, plus 40% of any amounts in excess of $7 million per year,
with Unocal paying the remaining 60% each year. The aggregate maximum amount
that Tosco may have to pay in total for the 25 year period for such
environmental liabilities is limited to $200 million and was accrued for at the
date of the Acquisition.
S-3
<PAGE>
The assets which were acquired from Unocal include the following: two
petroleum refining systems comprised of four sites in California with an
aggregate throughput capacity of 250,000 barrels per day; a retail gasoline
system, consisting of approximately 1,325 76-branded gasoline stations,
approximately 1,100 of which are company-controlled, which currently sells over
130,000 barrels per day of gasoline and diesel fuel; a distribution system
comprised of 13 company-owned oil storage terminals, three modern American-flag
40,000 deadweight-ton tankers and 1,500 miles of crude oil and product pipeline;
the worldwide rights to the "76" and "Union" brands, together with the
distinctive orange ball logo, in the petroleum refining and marketing
businesses, except for pre-existing license grants relating to 76 Truckstops and
to Uno-Ven; and Unocal's lubricants manufacturing, distribution and marketing
business. Tosco has entered into an agreement to sell for $48.5 million in cash
the three tankers it acquired from Unocal.
The purchase price paid pursuant to the Acquisition consisted of
approximately $1.4 billion of cash (including inventories) and 14,092,482 shares
of Common Stock of Tosco having an aggregate value of approximately $397
million. Certain of the service stations were purchased directly from Unocal for
approximately $250 million by a special purpose entity. Such entity leased the
service stations to Tosco pursuant to a long-term lease which provides Tosco
with the option to purchase the service stations at agreed upon prices. The
shares of Common Stock which Unocal received (the "Unocal Shares") were valued
at $28.1625 per share, which was the average of the high and low Tosco stock
prices for the ten trading days preceding the closing date. The $1.4 billion
cash portion of the purchase price for the Acquisition, including working
capital, was obtained from a combination of Tosco's available cash, borrowings
under Tosco's amended and restated revolving credit agreement (the "New Credit
Agreement"), borrowings under a $250 million credit agreement entered into on
March 31, 1997 (the "Additional Credit Agreement") and proceeds received from
Tosco's sale of $600 million of unsecured term debt securities on January 14,
1997.
In connection with the Acquisition, Tosco and Unocal entered into a Stock
Purchase and Shareholder Agreement, as amended, relating to Unocal's disposition
and voting of Unocal Shares. Tosco has agreed to use up to 75% of the proceeds
of this offering to repurchase the Unocal Shares, 1,750,000 of which will be
repurchased at a price of $28.1625 per share, less the underwriting commissions,
with the balance to be repurchased at the Price to Public less 50% of the
underwriting commissions. If the Price to Public is less than $23.94 per share,
Unocal has the option, but not the obligation, not to sell such balance of its
shares to Tosco, but will enter into a lock-up agreement with respect to the
balance of the Unocal Shares until October 1, 1997 (or such earlier date as the
managing underwriters shall agree). The agreement provides certain registration
rights with respect to the Unocal Shares. It also restricts Unocal's rights to
sell the Unocal Shares or acquire additional shares of Tosco, requires Unocal to
vote the Unocal Shares at all shareholder meetings in proportion to the votes of
other shareholders and prohibits Unocal from taking or influencing the control
of Tosco.
RECENT DEVELOPMENTS
The Company's net income for the first quarter of 1997 is expected to be
less than the net income of $24 million reported in the first quarter of 1996. A
number of factors contribute to the anticipated lower operating results,
including (i) warm winter weather on the East Coast, which resulted in a poor
refining environment in the region; (ii) poor refining and retail margins,
especially in the first half of the quarter, due to high raw material prices
which could not be fully recovered in the markets; and (iii) the scheduled
turnaround of the fluid coking unit at the Company's Avon Refinery in
California, which removed this essential unit from production for 54 days during
the quarter. In addition to these fundamental factors, the Company suffered
reduced throughput rates at the Bayway Refinery in January as a result of a
disruption in December 1996 at the catalytic cracking unit and a loss of
production from the hydrocracking unit at the Avon Refinery caused by an
explosion and fire in late January 1997. Both of these incidents are covered by
insurance for property damage and business interruption after deduction of
self-insured retentions. Refining and retail margins improved on a seasonal
basis late in the first quarter of 1997. Avon's hydrocracker, however, will
remain out of service for a number of months. The results for the quarter will
be significantly affected by the degree to which the insured losses will be
recovered. The timing and ultimate size of such recoveries have not yet been
determined.
S-4
<PAGE>
THE OFFERING
Common Stock offered:
United States offering ........................... 17,600,000 Shares (1)
International offering ........................... 4,400,000 Shares
Total .......................................... 22,000,000 Shares (1)
Common Stock to be outstanding after the offering ... 153,022,008 Shares (1)(2)
New York Stock Exchange Symbol ...................... TOS
- ----------
(1) Assumes the U.S. Underwriters' over-allotment option is not exercised. See
"Underwriters."
(2) Excludes 16,078,723 shares of Common Stock reserved for issuance upon
exercise of currently outstanding stock options and the conversion of
convertible securities.
USE OF PROCEEDS
The net proceeds to Tosco from the sale of the Shares offered hereby are
estimated to be approximately $621.3 million (approximately $713.4 million if
the U.S. Underwriters' over-allotment option is exercised in full). Assuming an
offering price of $28 7/8 per Share, $405.7 million of the net proceeds will be
used to repurchase and retire the Unocal Shares. The balance of the net proceeds
will be used to repay borrowings made by Tosco under its New Credit Agreement
and Additional Credit Agreement to finance the Acquisition. The indebtedness
under the New Credit Agreement and Additional Credit Agreement bears interest at
one of three alternative rates at Tosco's option (a Federal Funds rate, a
Eurodollar rate or a base rate related to prime), plus an incremental margin. At
March 31, 1997, the weighted average interest rate under both the New Credit
Agreement and the Additional Credit Agreement was 6.4%. Each of the New Credit
Agreement and the Additional Credit Agreement expires in January 2002. See "The
Company--Acquisition of Unocal Refining and Marketing Assets" and "The
Company--Recent Financings" in the accompanying Prospectus.
S-5
<PAGE>
COMMON STOCK PRICE RANGE AND DIVIDENDS
Tosco's Common Stock is listed on the New York Stock Exchange (the "NYSE")
and the Pacific Stock Exchange under the symbol "TOS." The following table sets
forth for the periods indicated the high and low sale prices per share of Common
Stock as reported on the NYSE Composite Tape, together with the dividends
declared by the Company per share of Common Stock. All share and per share data
have been adjusted to reflect a three-for-one stock split distributed on
February 25, 1997 to shareholders of record on February 13, 1997.
CASH
COMMON STOCK PRICE DIVIDENDS
------------------ DECLARED
HIGH LOW PER SHARE
---- --- ---------
YEAR ENDED DECEMBER 31, 1995
First Quarter $10 3/8 $ 9 1/8 $.053
Second Quarter 12 1/8 10 .053
Third Quarter 11 5/8 10 1/4 .053
Fourth Quarter 12 7/8 11 1/4 .053
YEAR ENDED DECEMBER 31, 1996
First Quarter 16 1/4 12 3/8 .053
Second Quarter 18 15 1/4 .053
Third Quarter 18 1/2 15 1/2 .053
Fourth Quarter 27 18 1/8 .057
YEAR ENDED DECEMBER 31, 1997
First Quarter 31 1/2 25 7/8 .060
Second Quarter (through April 7, 1997) 30 5/8 28 1/4
At March 31, 1997, there were approximately 13,848 holders of record of
Common Stock.
A recent reported last sale price per share for the Common Stock on the
NYSE is set forth on the cover page of this Prospectus Supplement.
Tosco has paid a regular quarterly cash dividend on its Common Stock since
the third quarter of 1989. Tosco increased its quarterly dividend by $.0033, to
$.0567 per share, effective with the fourth quarter of 1996, and to $.06 per
share effective with the first quarter of 1997. Holders of Common Stock are
entitled to receive dividends from funds legally available therefor, when, as
and if declared by the Board of Directors of the Company, subject to the prior
rights of holders of any shares of preferred stock of the Company. In addition,
in connection with the issuance of convertible preferred securities by Tosco
Financing Trust, Tosco may not pay dividends on its Common Stock if it defers
payment of interest on debentures issued by it in connection therewith or
defaults in its obligations thereunder.
Pursuant to the terms of Tosco's New Credit Agreement, Additional Credit
Agreement and its bond indentures, dividends on Tosco's Common Stock are
permitted to the extent Tosco satisfies certain defined criteria. Continued
payment of such quarterly dividend is also subject to profitable results of
operations, which are primarily dependent on the continued favorable performance
of Tosco's operating facilities and favorable operating margins, and such other
factors as Tosco's Board of Directors may deem relevant. There can be no
assurance that Tosco will be able to continue payment of such quarterly
dividend.
S-6
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Combined Balance Sheet as of December 31,
1996 was prepared assuming the Acquisition, the Financing Transactions (as
defined below) and this offering had occurred on December 31, 1996. The
unaudited Pro Forma Combined Statement of Income for the year ended December 31,
1996 was prepared assuming the acquisition of Circle K, the Acquisition, the
Financing Transactions and this offering had occurred on January 1, 1996.
The Acquisition has been accounted for using the purchase method of
accounting. Under purchase accounting, tangible and identifiable intangible
assets acquired and liabilities assumed are recorded at their respective fair
values. The pro forma adjustments are based on a preliminary allocation of the
purchase price and are subject to revision once appraisals and other studies of
the fair value of the assets and liabilities acquired are completed. The
purchase price allocation is currently expected to be completed by the end of
1997. Actual purchase accounting adjustments may differ significantly from the
pro forma adjustments presented herein. The purchase price of the Acquisition
could be increased by up to $250 million in contingent participation payments
over the next seven years if retail market conditions and/or California Air
Resources Board Phase II gasoline premiums improve above certain specified
levels.
The Financing Transactions include: (i) the issuance of $600 million of
unsecured term debt on January 14, 1997; (ii) cash borrowings under the New
Credit Agreement and Additional Credit Agreement; and (iii) the repayment of
$100 million of 9% First Mortgage Bonds due March 15, 1997.
The unaudited pro forma combined financial statements do not purport to
represent the actual results of operations of the Company had the transactions
and events assumed therein in fact occurred on the date specified, nor are they
necessarily indicative of the results of operations that may be achieved in the
future. The unaudited pro forma financial information is based on certain
assumptions and adjustments described in the notes hereto and should be read in
conjunction therewith. See the Company's 1996 Consolidated Financial Statements
incorporated herein by reference.
S-7
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
RECORD
PURCHASE OF SALE OF
FINANCING UNOCAL COMMON
HISTORICAL TRANSACTIONS(1) ASSETS(2) STOCK(3) PRO FORMA
---------- --------------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash, cash equivalents, marketable
securities and deposits ............. $ 129,656 $ -- $ -- $ -- $ 129,656
Cash held in escrow .................. -- 600,000 (600,000) -- --
Inventories .......................... 639,760 -- 396,000(4) -- 1,035,760
Other current assets ................. 273,079 -- -- -- 273,079
----------- --------- ----------- ----------- -----------
Total current assets ............... 1,042,495 600,000 (204,000) -- 1,438,495
Property, plant and equipment(2) ..... 1,681,877 -- 1,413,086(2) -- 3,094,963
Intangibles and other long-term assets 830,453 7,500 -- -- 837,953
----------- --------- ----------- ----------- -----------
Total assets ....................... $ 3,554,825 $ 607,500 $ 1,209,086 $ -- $ 5,371,411
=========== ========= =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities .................. $ 919,306 $ -- $ 7,000(5) $ -- $ 926,306
Current maturities of long-term debt . 113,200 (100,000) -- -- 13,200
----------- --------- ----------- ----------- -----------
Total current liabilities .......... 1,032,506 (100,000) 7,000 -- 939,506
Revolving credit facilities .......... -- 107,500 562,206 (215,576) 454,130
Long-term debt, including capitalized
leases .............................. 826,832 600,000 -- -- 1,426,832
Accrued environmental costs .......... 87,363 -- 193,000(5) -- 280,363
Other liabilities .................... 237,801 -- 50,000 -- 287,801
Company-obligated, mandatorily
redeemable, convertible preferred
securities of Tosco Financing Trust
holding solely 5 3/4% convertible
junior subordinated Debentures
of Tosco ............................ 300,000 -- -- -- 300,000
Shareholders' equity:
Common Stock ......................... 103,865 -- 10,569 5,931 120,365
Additional paid in capital ........... 963,667 -- 386,311 209,645 1,559,623
Retained earnings .................... 77,594 -- -- -- 77,594
Treasury stock, at cost .............. (74,803) -- -- -- (74,803)
----------- --------- ----------- ----------- -----------
1,070,323 -- 396,880 215,576 1,682,779
----------- --------- ----------- ----------- -----------
Total liabilities and equity ....... $ 3,554,825 $ 607,500 $ 1,209,086 $ -- $ 5,371,411
=========== ========= =========== =========== ===========
</TABLE>
- ----------
(1) The Financing Transactions, net of estimated costs, include: (i) the
issuance of $600 million of unsecured term debt on January 14, 1997; (ii)
cash borrowings under the New Credit Agreement and Additional Credit
Agreement; and (iii) the repayment of $100 million of 9% First Mortgage
Bonds due March 15, 1997. Under the terms of the purchase agreement with
Unocal, Tosco deposited into an escrow account on January 15, 1997, $1.4
billion in value, consisting of $600 million in cash, a $400 million letter
of credit and a stock purchase agreement requiring Tosco to issue shares of
Common Stock to Unocal equal to approximately $400 million at the date of
the Acquisition. See Note (2).
S-8
<PAGE>
(2) Records consummation of the Unocal Acquisition and long-term operating
lease of approximately $250 million for certain service station sites from
a special purpose entity. The pro forma balance sheet reflects the issuance
of 14,092,482 shares of Tosco Common Stock to Unocal at $28.1625 per share
pursuant to the terms of the escrow agreement.
(3) Issuance and sale of 22,000,000 shares of Tosco Common Stock at an assumed
offering price of $28 7/8 per share generating net proceeds of
approximately $621.3 million. The pro forma financial information further
assumes that of the estimated net proceeds, $405.7 million will be used to
repurchase the Unocal Shares and $215.6 million will be used to repay
borrowings made by Tosco under its New Credit Agreement and Additional
Credit Agreement. See "The Company--Acquisition of Unocal Refining and
Marketing Assets."
(4) Represents the estimated value of inventories acquired at the closing of
the Acquisition. The actual value of inventories acquired will be based on
the volumes and prices at the closing date.
(5) Under the purchase agreement, for a period of 25 years, Unocal will be
responsible for environmental liabilities arising out of or relating to the
period prior to March 31, 1997, except that Tosco will pay the first $7
million of such environmental liabilities each year, plus 40% of any
amounts in excess of $7 million per year, with Unocal paying the remaining
60% each year. The aggregate maximum amount that Tosco may have to pay in
total for the 25 year period for such environmental liabilities is limited
to $200 million. As the Company has not completed its environmental
studies, it has determined it to be prudent to accrue the maximum amount of
its potential liability.
S-9
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CIRCLE K
PRO FORMA
TOSCO CIRCLE K(1) ADJUSTMENTS PRO FORMA(2) UNOCAL
----- ----------- ----------- ------------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales ............................. $ 9,922,611 $ 1,519,542 ($218,800)(4) $ 11,223,353 $ 4,868,700
Cost of sales and operating
expenses ......................... (9,384,718) (1,217,565) 218,800(4) (10,593,305) (4,708,500)
-- (209,822)(5) -- --
Selling, general and administrative
expense .......................... (202,855) (263,636) 209,822(5) (261,154) (127,500)
(4,485)(6) --
Interest expense, net ............. (87,189) (11,324) (12,559)(7) (111,072) (1,200)
----------- ----------- ------------- ------------ -----------
Income before income taxes ........ 247,849 27,017 (17,044) 257,822 31,500
Provision for income taxes ........ (101,099) (11,347) 4,961(8) (107,485) (17,600)
----------- ----------- ------------- ------------ -----------
Income before dividends on Trust
Preferred Securities ............. $ 146,750 $ 15,670 ($ 12,083) $ 150,337 $ 13,900
Dividends on Trust Preferred,
net of taxes ..................... (464) -- -- (464) --
----------- ----------- ------------- ------------ -----------
Net income ........................ $ 146,286 $ 15,670 ($ 12,083) $ 149,873 $ 13,900
=========== =========== ============= ============ ===========
Earnings per share before
extraordinary item:
Primary ......................... $ 1.16 -- -- $ 1.12(9) --
Fully diluted ................... $ 1.15 -- -- $ 1.11(9) --
</TABLE>
UNOCAL
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED(3)
----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Sales ............................. ($1,011,200)(10) $ 15,080,853
Cost of sales and operating
expenses ......................... 1,011,200(10) (14,237,605)
53,000(11) --
Selling, general and administrative
expense .......................... -- (388,654)
-- --
Interest expense, net ............. (63,300)(12) (175,572)
----------- ------------
Income before income taxes ........ (10,300) 279,022
Provision for income taxes ........ 4,068 (121,017)
----------- ------------
Income before dividends on Trust
Preferred Securities ............. ($ 6,232) $ 158,005
Dividends on Trust Preferred,
net of taxes ..................... -- (464)
----------- ------------
Net income ........................ ($ 6,232) $ 157,541
=========== ============
Earnings per share before
extraordinary item:
Primary ......................... -- $1.01(14)
Fully diluted ................... -- $1.00(14)
- ----------
(1) Tosco consummated the purchase of Circle K on May 30, 1996. Accordingly,
the results of operations of Circle K are included in Tosco's historical
statement of income for the year ended December 31, 1996 from that date.
The separately presented historical results of operations of Circle K,
excluding non-recurring charges, are for the period January 1, 1996 to May
29, 1996.
(2) The pro forma income statement does not reflect the improvement in
operating contribution anticipated from the acquisition of Circle K or the
possible reduction in operating and administrative costs expected from the
consolidation of the Seattle, Washington office of Tosco with the Phoenix,
Arizona office of Circle K, net of non-recurring costs of consolidation.
(3) The pro forma income statement does not reflect the improvement in
operating contribution and cost reductions anticipated from the
Acquisition.
Circle K pro forma adjustments:
(4) Removes excise taxes of Circle K included in sales and cost of sales for
consistency of presentation.
(5) Allocates Circle K store operating costs and depreciation and amortization
to cost of sales for consistency of presentation.
(6) Records amortization of intangibles (primarily trademarks) acquired in the
purchase of Circle K over 40 years (the useful life over which the
intangible assets are expected to be realized).
(7) Records interest on $435.4 million additional debt incurred to finance the
Circle K acquisition. The Circle K acquisition was financed by the issuance
of $240 million of 7 5/8% senior unsecured notes due 2006 and cash
borrowings under Tosco's Credit Agreement. Records amortization of debt
financing costs of $2.9 million over 10 year term of debt.
(8) Records income taxes on taxable pro forma adjustments at Tosco's current
effective tax rate of 39.5%. No deduction has been taken on amortization of
intangibles which will not be deductible for income tax purposes.
9) Pro forma earnings per share are based on the number of common and common
equivalent shares that would have been outstanding had the Circle K
acquisition occurred on January 1, 1996.
S-10
<PAGE>
Unocal pro forma adjustments:
(10) Removes excise taxes of Unocal included in sales and cost of sales for
consistency of presentation.
(11) Adjusts historical depreciation and amortization based on a purchase price
allocation of $1.413 billion. Records annual rental expense of
approximately $24 million pursuant to a long-term lease of certain service
stations purchased from Unocal by a special purpose entity for
approximately $250 million.
(12) Records interest on $1.00 billion of additional indebtedness including $600
million of unsecured term debt, $454 million of borrowings under the New
Credit Agreement and Additional Credit Agreement as adjusted for repayment
of $100 million of 9% First Mortgage Bonds due March 15, 1997 with interest
rates of 7.63%, 5.75% and 9%, respectively. Records amortization of debt
financing costs of $7.5 million over the weighted average debt terms of 19
years.
(13) Records income taxes on pro forma results of Unocal's operations at Tosco's
current effective tax rate of 39.5%.
(14) Pro forma earnings per share are based on the number of common and common
equivalent shares that would have been outstanding had the Acquisition and
this offering occurred on January 1, 1996.
S-11
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1996, the current
maturities of long-term debt, the total consolidated capitalization, and the
total consolidated capitalization of Tosco as adjusted to reflect (i) the
issuance of $600 million of unsecured term debt on January 14, 1997, (ii) cash
borrowings under the New Credit Agreement and the Additional Credit Agreement,
(iii) the repayment of $100 million of 9% First Mortgage Bonds due March 15,
1997, (iv) the consummation of the Acquisition, including the issuance of
14,092,482 shares of Common Stock to Unocal, (v) the sale of 22 million Shares
at an assumed offering price of $28 7/8 per Share (assuming no exercise of the
U.S. Underwriters' over-allotment option) and (vi) the application of the net
proceeds from this offering, assuming $405.7 million is used to repurchase and
retire the Unocal Shares and the balance is used to repay borrowings under the
New Credit Agreement and Additional Credit Agreement. See "Use of Proceeds." The
following table should be read in conjunction with the Company's 1996
Consolidated Financial Statements incorporated herein by reference.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt ............................. $ 113,200 $ 13,200
=========== ===========
Long-term debt--collateralized:
Mortgage bonds guaranteed on a collateralized basis by the Bayway
Refining Company ............................................... $ 150,000 $ 150,000
Mortgage bonds collateralized by the Avon Refinery .............. 200,000 200,000
Capital leases .................................................. 55,080 55,080
Real estate installment purchase ................................ 52,777 52,777
Other ........................................................... 3,656 3,656
Long-term debt--uncollateralized:
Revolving credit facility (1) ................................... -- 454,130
7% Notes due 2000 ............................................... 125,000 125,000
7 5/8% Notes due 2006 ........................................... 240,000 240,000
7.25% Notes due 2007 ............................................ -- 200,000
7.80% Debentures due 2027 ....................................... -- 300,000
7.90% Debentures due 2047 ....................................... -- 100,000
Other ........................................................... 319 319
----------- -----------
Total long-term debt ......................................... 826,832 1,880,962
----------- -----------
Company-obligated, mandatorily redeemable, convertible
preferred securities of Tosco Financing Trust holding
solely 5 3/4% convertible junior subordinated
debentures of Tosco (2) ........................................ 300,000 300,000
----------- -----------
Shareholders' equity:
Common Stock $.75 par value, 250,000,000 shares
authorized, 138,486,201 shares issued, as
adjusted 160,486,201 (including treasury shares)(3) ........... 103,865 120,365
Additional paid-in capital ...................................... 963,667 1,559,623
Retained earnings ............................................... 77,594 77,594
Treasury stock, at cost (7,470,996 shares) ...................... (74,803) (74,803)
----------- -----------
Total shareholders' equity ................................... 1,070,323 1,682,779
----------- -----------
Total capitalization ....................................... $ 2,197,155 $ 3,863,741
=========== ===========
</TABLE>
- ----------
(1) At December 31, 1996, Tosco's Credit Agreement (as defined in the
Prospectus) provided for an extension of up to $600 million in credit. At
that date, Tosco had no cash borrowings and outstanding letters of credit
of approximately $112,000 under the Credit Agreement. On January 14, 1997,
the Credit Agreement was amended to increase the availability by $400
million to $1 billion under the New Credit Agreement.
(2) The sole assets of the Trust are 5 3/4% Convertible Debentures of Tosco
due 2026 with a principal amount of $300 million.
(3) Excludes 16,078,723 shares of Common Stock reserved for issuance upon
exercise of currently outstanding stock options and the conversion of
convertible securities as of March 31, 1997.
S-12
<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, 1996. This
table should be read in conjunction with the Company's Consolidated Financial
Statements incorporated herein by reference.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,(A)
-----------------------------------------------------------------
1992 1993 1994 1995 1996(B)
---- ---- ---- ---- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Sales .............................................. $ 1,861.0 $ 3,559.2 $ 6,365.8 $ 7,284.0 $ 9,922.6
Gross profit on sales .............................. 132.7 251.8 260.4 284.8 551.4
Inventory valuation (recovery) writedown ........... -- 17.7 (17.7) -- --
Restructuring (1996 and 1995) charge and
environmental cost accrual ....................... 25.0 -- 6.0 5.2 13.5
--------- --------- --------- --------- ---------
107.7 234.1 272.1 279.6 537.9
Selling, general and administrative expense ........ 38.7 58.2 84.1 95.9 202.8
Interest expense, net .............................. 18.0 44.1 54.2 56.3 87.2
--------- --------- --------- --------- ---------
Pre-tax income ..................................... 51.0 131.8 133.8 127.4 247.9
Provision for income taxes ......................... 20.8 51.2 50.0 50.3 101.1
--------- --------- --------- --------- ---------
Income from continuing operations before other items 30.2 80.6 83.8 77.1 146.8
Dividends on preferred securities, net of tax ...... -- -- -- -- .5
Discontinued operations, net of income taxes:
Income (loss) from operations ..................... (15.9) -- -- -- --
Estimated loss on disposal ........................ (105.0) -- -- -- --
Cumulative effect of accounting changes ............ 16.2 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) .................................. ($ 74.5) $ 80.6 $ 83.8 $ 77.1 $ 146.3
========= ========= ========= ========= =========
Income (loss) attributable to common shares ........ ($ 84.5) $ 70.5 $ 77.6 $ 77.1 $ 146.3
========= ========= ========= ========= =========
EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE(C):
Primary:
From continuing operations ........................ $ .23 $ .79 $ .76 $ .69 $ 1.16
From discontinued operations ...................... (1.36) -- -- -- --
From cumulative effect of accounting changes ...... .18 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) .................................. ($ .95) $ .79 $ .76 $ .69 $ 1.16
========= ========= ========= ========= =========
Fully diluted:
From continuing operations ........................ $ .23 $ .78 $ .75 $ .68 $ 1.15
From discontinued operations ...................... (1.36) -- -- -- --
From cumulative effect of accounting changes ...... .18 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) .................................. ($ .95) $ .78 $ .75 $ .68 $ 1.15
========= ========= ========= ========= =========
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets ............................. $ 952.9 $1,492.9 $1,797.2 $2,003.2 $3,554.8
Current maturities of long-term debt ..... .8 .8 .8 .8 113.2
Long-term and revolver debt .............. 356.8 603.3 687.4 624.0 826.8
Company-obligated, mandatorily redeemable,
convertible preferred securities of Tosco
Financing Trust ......................... -- -- -- -- 300.0
Preferred stock .......................... 111.2 111.2 -- -- --
Total shareholders' equity ............... 381.4 521.6 575.5 627.1 1,070.3
</TABLE>
- ----------
(a) Reflects Seminole Fertilizer Corporation as a discontinued operation for
all years.
(b) Includes the operations of The Circle K Corporation for the period May 30,
1996 through December 31, 1996.
(c) In February 1997, Tosco declared and distributed a three-for-one stock
split. The earnings (loss) per common and common equivalent share for all
years reflect this stock split.
S-13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
1996 was a year of expansion for Tosco. Tosco acquired the U.S. Northeast
refining and marketing assets of British Petroleum ("BP") in February 1996, and
The Circle K Corporation ("Circle K") in May 1996, and entered into an agreement
to acquire the West Coast refining and marketing division of Union Oil Company
of California ("Unocal") in December 1996 (the "Acquisition"). The completed
acquisitions and continued growth of Tosco's operations provided the basis for
Tosco's most successful year in terms of revenues, operating contribution, and
net income. Tosco's capital structure and credit standing also strengthened in
1996 through profitable results of operations and the issuance of $300 million
of Trust Convertible Preferred Securities at favorable rates and conversion
ratios. Tosco achieved investment grade ratings by all major ratings agencies
and made further progress to an unsecured debt structure with an expanded
unsecured Revolving Credit Facility. The ratio of debt (non-current portion of
long-term debt) to total capitalization improved to 38%, its best since 1991, a
period prior to the start of Tosco's rapid growth. Common Stock was split
3-for-1 in February 1997 and Tosco announced that future quarterly dividends
would be raised to $.06 per post-split share (equivalent to $.18 per pre-split
share).
The net income for the first quarter of 1997 is expected to be less than
the comparable quarter of 1996. See "The Company--Recent Developments."
ACQUISITIONS
Northeast Refining and Marketing Assets--On February 2, 1996, Tosco
purchased BP's U.S. Northeast refining and marketing assets for $64 million,
plus the value of inventories. Under the purchase agreement, Tosco obtained a 15
year exclusive license, with various renewal options, to market gasoline and
diesel fuels under the BP brand in the U.S. Northeast. BP retained environmental
obligations relating to the Trainer Refinery and other properties included in
the sale. See Note 3 to the Company's 1996 Consolidated Financial Statements
incorporated herein by reference.
Circle K--On May 30, 1996, Tosco completed its acquisition of Circle K for
a total consideration of $444 million in cash and approximately 19.5 million
(post-split) shares of Tosco Common Stock. Circle K has approximately 2,400
company-controlled convenience stores, approximately 2,000 of which sell
gasoline. With the acquisition of Circle K, Tosco is the largest operator of
company-controlled convenience stores in the United States. See Note 3 to the
Company's 1996 Consolidated Financial Statements incorporated herein by
reference.
Unocal--On March 31, 1997, Tosco completed its acquisition of the West
Coast refining and marketing division of Unocal for a total consideration
consisting of $1 billion in cash and 14,092,482 shares of Tosco Common Stock,
valued at $28.1625 per share. The Results of Operations table below does not
reflect the Acquisition. Tosco expects the Acquisition to be additive to
earnings per share after the combined operations are fully integrated through
substantial cost savings, efficiencies and synergies. See Note 19 to the
Company's 1996 Consolidated Financial Statements incorporated herein by
reference. See "The Company--Acquisition of Unocal Refining and Marketing
Assets." RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Sales (a) ................................... $6,365,757 $7,284,051 $9,922,611
Cost of sales ............................... 6,087,642 6,999,301 9,371,218
Environmental cost accrual .................. 6,000 -- --
Consolidation accrual ....................... -- 5,200 13,500
Selling, general, and administrative expenses 84,123 95,858 202,855
Interest expense, net ....................... 54,143 56,253 87,189
---------- ---------- ----------
Income before income taxes .................. 133,849 127,439 247,849
Income taxes ................................ 50,006 50,381 101,099
Dividends on Trust Convertible Preferred
Securities, net of income tax benefit ...... -- -- 464
---------- ---------- ----------
Net income .................................. $ 83,843 $ 77,058 $ 146,286
========== ========== ==========
Fully diluted earnings per share(b) ......... $ 0.75 $ 0.68 $ 1.15
========== ========== ==========
</TABLE>
S-14
<PAGE>
- ----------
(a) The increase in 1996 sales is primarily attributable to Tosco's
acquisitions and higher petroleum sales prices. Higher sales prices are
primarily attributable to higher crude oil costs.
(b) Earnings per share for 1996 reflect the shares issued in connection with
the acquisition of Circle K. Earnings per share for all periods presented
reflect the 3-for-1 stock split declared and distributed in February 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
REFINING DATA SUMMARY (A):
Average charge barrels input per day:
Crude oil ............................................ 433,000 466,000 468,900
Other feed and blending stocks ....................... 70,700 74,900 66,100
------- ------- -------
503,700 540,900 535,000
======= ======= =======
Average barrels of petroleum products produced per day:
Clean products (b) ................................... 400,200 432,800 433,900
Other finished products .............................. 103,900 110,500 104,600
------- ------- -------
504,100 543,300 538,500
======= ======= =======
Operating margin per charge barrel (c) ................ $ 3.96 $ 3.77 $ 4.89
======= ======= =======
</TABLE>
- ----------
(a) The refining data summary presents the operating results of the Bayway
Refinery, located on the New York Harbor; the Avon Refinery, located in the
San Francisco Bay Area; and the Ferndale Refinery, located on Washington's
Puget Sound. The Trainer Refinery, located near Philadelphia, which was
acquired in a shutdown state and is currently undergoing refurbishment and
modernization, is scheduled to restart during the second quarter of 1997.
(b) Clean products are defined as clean transportation fuels (gasoline, diesel,
and jet fuel) and heating oil.
(c) Operating contribution (sales minus cost of sales), as adjusted to exclude
refinery operating costs and consolidation charges, divided by total
refinery charges.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
RETAIL DATA SUMMARY:
Volume of fuel sold (thousands of gallons) ..... 769,000 1,046,610 2,060,590
Blended fuel margin (cents per gallon) ......... 10.00 10.00 11.64
Number of gasoline stations at year end ........ 995 1,015 3,270
Merchandise sales (thousands of dollars) ....... $ 23,759 $ 28,710 $1,173,370
Merchandise margin (percentage of sales) ....... 28.0% 28.8% 29.7%
Number of merchandise stores at year end ....... 75 115 2,400
Other retail gross profit (thousands of dollars) $ 6,620 $ 15,690 $ 53,000
</TABLE>
1996 COMPARED TO 1995
Tosco earned a record $146.3 million in 1996 ($1.15 per fully diluted
post-split share) compared to $77.1 million in 1995 ($.68 per fully diluted
post-split share). Results of operations for 1996 include a pre-tax charge of
$13.5 million ($8.1 million after-tax, $.06 per post-split share) for the
consolidation of the retail marketing division following the acquisition of
Circle K. Results of operations for 1995 include a restructuring charge of $5.2
million.
Operating contribution (sales less cost of sales) was $551 million in 1996
compared to $285 million in 1995, an increase of $266 million due to improved
refinery operations ($155 million) and expanded retail operations($111 million).
S-15
<PAGE>
Refinery operating contribution increased by $155 million to $365 million
for 1996 due to improved refining margins partially offset by higher refinery
operating costs and lower production volumes. Refining operating contribution
per barrel, which fluctuated significantly during the year, averaged $4.89 for
the year, an improvement of $1.12 from 1995. Operating contribution for 1996
benefited from the strong East Coast refining margins due to cold weather in the
first quarter of 1996, while operating contribution for 1995 was negatively
impacted by extremely weak refining margins and extensive scheduled refinery
turnaround maintenance at the Avon and Ferndale Refineries. The improved
operating contribution of 1996 was partially offset by higher refinery operating
costs and declines in 1996 production levels. Higher refinery operating costs
were primarily due to the Trainer Refinery (acquired in a shutdown state in
February 1996), increased energy costs, and higher depreciation costs. Raw
material throughput for 1996 declined by 5,900 barrels per day ("B/D") to
535,000 B/D. However, production of clean products increased by 1,100 B/D to
433,900 B/D. Production of clean products was aided by the completion of the
solvent deasphalting unit ("SDA") at the Bayway Refinery in August 1996. The SDA
processes low-value residual fuel to produce feedstock for the cat cracker, the
refinery's principal gasoline manufacturing unit, and reduces the amount of
high-cost, partially refined feedstocks that Bayway purchases from third
parties.
Operating contribution from Tosco's retail operations increased by $111
million to $186 million for 1996, primarily because of the acquisition of Circle
K. Retail volume of fuel sales approximately doubled to 2.06 billion gallons,
and the blended fuel margin increased by 1.6 cents per gallon to 11.6 cents per
gallon. The increase in fuel margin was primarily attributable to the higher
proportion of sales from company-operated stores. Fuel margins achieved at
company-operated stores are typically higher than margins on branded fuel sales
to the dealer/jobber channel of trade. Operating contribution from retail
operations also improved due to expanded merchandise sales of approximately $1.2
billion for 1996 (with margins of 29.7%). These improved margins were reduced by
station operating and other costs of the approximately 2,400 convenience stores
acquired in the Circle K acquisition.
Selling, general and administrative expenses ("SG&A") were $203 million in
1996 compared to $96 million in 1995. This increase of $107 million was due to
Tosco's expanded operations and higher levels of incentive compensation due to
improved operating results.
In June 1995, Tosco entered into a three-year agreement with a financial
institution to sell, on a revolving basis, up to $100 million of an undivided
percentage ownership interest in a designated pool of accounts receivable (the
"Receivable Transfer Agreement"). The Receivable Transfer Agreement was amended
in May 1996 to increase the program to $175 million, and again in December 1996
to $200 million. Costs of the Receivable Transfer Agreement (which are less than
interest costs would be on equivalent borrowings under Tosco's Revolving Credit
Facility) are included in cost of sales. See Note 5 to the Company's 1996
Consolidated Financial Statements incorporated herein by reference. Interest
expense increased in 1995, despite the reduction in interest costs resulting
from the Receivable Transfer Agreement, due to higher debt levels related to
Tosco's expanded operations and higher price levels of raw materials and
products.
Income taxes in 1996 increased by $51 million to $101 million due to
improved pretax income and a higher effective tax rate. See Note 15 to the
Company's 1996 Consolidated Financial Statements incorporated herein
by reference.
1995 COMPARED TO 1994
Tosco earned $77.1 million ($.68 per fully diluted post-split share) on
sales of $7.3 billion for 1995 compared to net income of $83.8 million ($.75 per
fully diluted post-split share) on sales of $6.4 billion for 1994. Results of
operations for 1995 include a restructuring charge totaling $5.2 million ($3.1
million after tax, $.03 per post-split share) related to a major expense
reduction program at the Avon Refinery. Results of operations for 1994 include
the reversal of 1993's $17.7 million ($10.7 million after tax, $.10 per
post-split share) writedown of LIFO inventories due to the recovery of prices
during 1994 and a $6.0 million ($3.6 million after tax, $.03 per post-split
share) environmental cost accrual for probable investigative and remedial
liabilities at former operating locations.
Tosco generated an operating contribution (sales less cost of sales) for
1995 of $285 million, an increase of $7 million over 1994. The increase was
primarily attributable to the excellent production operations, lower production
costs, and moderately higher East Coast operating margins, which more than
offset declines in West Coast refinery operating margins, and the continued
strong performance of expanded retail operations.
Consolidated refinery production for 1995 improved over 1994 due to the
achievement of record production levels at the Avon and Bayway Refineries, which
more than offset the reduced production levels at the Ferndale
S-16
<PAGE>
Refinery. Consolidated raw material throughput increased by 37,200 B/D to
540,900 B/D while production of clean products increased by 32,600 B/D to
432,800 B/D. Total production also increased by 39,200 B/D to 543,300 B/D. This
increased production was achieved despite the shut down of the Avon cat cracker,
its principal gasoline production unit, and the Ferndale Refinery, for 55 days
and 33 days, respectively, for major turnaround maintenance. Bayway's record
production results were primarily attributable to expanded crude distillation
capacity completed in 1994 and record unit production rates of the fluid
catalytic cracking unit, the world's largest and Bayway's principal gasoline
production unit. The cat cracker was shut down for scheduled turnaround
maintenance in 1994.
East coast margins improved by $.25 per barrel for the year, primarily
during the second half of 1995, due to higher sale prices. Operating margins for
the year were hurt by the exceptionally weak market conditions of the first
quarter of 1995 caused by the combined impact of a surplus of heating oil and
poor gasoline markets. Operating margins improved during the balance of the year
as demand strengthened and uncertainty over the introduction of reformulated
gasoline ("RFG") subsided.
West coast margins declined as excess supply in highly competitive markets
depressed product prices, particularly in the first quarter of 1995. In response
to continuing poor operating margins, Tosco implemented a restructuring program
to reduce costs and increase efficiency. The restructuring cost of $5.2 million,
recorded in the first and second quarters of 1995, was primarily for the
then-anticipated severance costs of approximately 175 people at the Avon
Refinery and related support locations.
Retail operations generated an operating contribution of $75 million for
1995, an increase of $11 million from 1994. Retail volumes sold increased by 278
million gallons to 1.047 billion gallons due to the acquisition of retail
operations in Northern California and Arizona in August 1994 and December 1994,
respectively. Retail gasolinemargins remained approximately the same at $.10 per
gallon for 1995 and 1994.
SG&A increased by $12 million to $96 million due to Tosco's expanded retail
operations and higher levels of incentive compensation (due to higher levels of
operating income before special items), partially offset by certain benefit
recoveries. SG&A for 1994 was reduced by insurance recoveries of $3 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). See
Note 17 to the Company's 1996 Consolidated Financial Statements incorporated
herein by reference.
Net interest expense increased in 1995 by $2 million, despite the reduction
in interest costs resulting from the Receivable Transfer Agreement effective
June 1995, due to higher debt levels related to Tosco's expanded operations.
The provision for income taxes for 1995 approximated the 1994 amount
despite lower pre-tax income, because the tax provision for 1994 included
recognition of revised income tax benefits of $3 million related to
Tosco's discontinued fertilizer operations.
OUTLOOK
Results of operations are primarily determined by the operating efficiency
of the refineries, and refining and retail fuel margins. Refinery production for
the first quarter of 1997 will be negatively impacted by a January accident at
the Avon hydrocracking unit, the scheduled turnaround at the Avon coker unit,
and reduced throughput rates at the Bayway Refinery in January due to
unscheduled major maintenance.
On January 21, 1997, a fire and explosion occurred at Avon's hydrocracking
unit (a gasoline production unit). No other units at the refinery were damaged.
The hydrocracking unit remains shutdown while investigations into the cause of
the accident continue. The date the unit will return to service is not known.
The accident is not expected to significantly affect the scheduled early March
completion date of the fluid coker, which was shutdown in early January for
scheduled turnaround maintenance. Tosco has altered its operations to optimize
production while these units are shutdown. Tosco has adequate property and
business interruption insurance that should mitigate the impact of the accident
on results of operations and cash flow. At the Bayway Refinery, the cat cracker
was shutdown for unscheduled major maintenance in January 1997. The cat cracker
returned to normal operations in late January. There are no other significant
turnarounds scheduled at Tosco's operating refineries for 1997. The shut-down
Trainer Refinery, which is currently undergoing a $100 million refurbishment and
modernization program, is also expected to restart during the second quarter of
1997.
S-17
<PAGE>
Refining and retail fuel margins were extremely poor in January 1997.
Margins, especially on the West Coast, improved in February but remain weak
overall. Merchandise margins remain consistent. Tosco is not able to predict the
short-term level or trend of refinery and retail fuel operating margins because
of the uncertainties associated with oil markets. In view of uncertain operating
margins and highly competitive markets, Tosco is committed to improving its
results by lowering costs in all areas of operation without compromising safety,
reliability, or environmental compliance.
CASH FLOWS
Cash and cash equivalents increased by $75 million during 1996 as cash
provided by operating and financing activities of $470 million and $322 million,
respectively, exceeded cash used in investing activities of $717 million.
Net cash provided by operating activities of $470 million was from cash
earnings of $364 million (net income plus depreciation, amortization, and
deferred income taxes), plus a decrease in working capital of $103 million, and
$3 million from other sources. The decrease in working capital is primarily due
to the sale of receivables pursuant to the Receivable Transfer Agreement (which
was expanded to $200 million in December 1996).
Net cash used in investing activities totaled $717 million: the acquisition
of Circle K ($412 million), capital additions ($194 million), the acquisition of
the BP Northeast refining and marketing assets ($64 million), and other items
($47 million).
Net cash provided by financing activities totaled $322 million as proceeds
from notes of $240 million and company-obligated, mandatorily redeemable,
convertible preferred securities ("Trust Convertible Trust Securities") of $300
million exceeded the retirement of $103 million of pre-acquisition debt of
Circle K, net repayments under short-term bank lines and the Revolving Credit
Facility of $65 million, dividend payments of $27 million, and other items of
$23 million.
LIQUIDITY
Liquidity (as measured by cash, cash equivalents, marketable securities,
deposits, and unused credit facilities) increased by $254 million during 1996 as
cash and cash equivalents increased by $75 million, marketable securities and
deposits increased by $6 million, and unused credit facilities increased by $173
million. At December 31, 1996, liquidity totaled $618 million. In January 1997,
Tosco increased its cash and credit availability by $400 million to $1 billion.
In January 1997, Tosco filed a shelf registration statement providing for
the issuance of up to $1.5 billion aggregate principal amount of its securities.
The securities to be issued may consist of one or more series of debentures,
notes or other uncollateralized forms of indebtedness, Common Stock, Preferred
Stock, and Preferred Stock represented by depository shares. Such securities may
be offered, separately or together, in amounts and at prices and terms to be set
forth in one or more supplements to the shelf registration statement.
The Revolving Credit Facility, as well as funds potentially available from
the issuance of securities, provides Tosco with adequate resources to meet its
expected liquidity demands, including required debt payments and liquidity
requirements associated with the Acquisition, for at least the next twelve
months.
CAPITAL EXPENDITURES
On February 2, 1996, Tosco completed the purchase of BP's U.S. Northeast
refining and marketing assets, and on May 30, 1996, Tosco completed its
acquisition of Circle K. Additionally, Tosco spent $194 million on budgeted
capital projects in 1996, primarily at the Avon and Bayway Refineries and for
retail assets. Refinery capital spending programs were for the completion of
projects to meet reformulated fuel specifications, compliance with environmental
regulations and permits, personnel/process safety programs, and operating
flexibility and reliability projects (including the tie-in of the SDA at
Bayway). Retail capital spending was focused on integrating operations and
enhancing existing sites.
The Acquisition was funded by a combination of term debt, bank debt, and
equity. Tosco expects to fund its other refinery and retail capital expenditures
from cash provided by operations, available credit, and other resources. In view
of the Acquisition, capital spending for retail operations will be refocused on
enhancing existing retail sites and integrating operations after the
Acquisition.
S-18
<PAGE>
CAPITALIZATION
At December 31, 1996, total shareholders' equity was $1.07 billion, a $443
million increase from the December 31, 1995 balance of $627 million. This
increase was due to the issuance of 19,476,255 (post-split) shares of Common
Stock for $327 million, net income of $146 million less Common Stock dividends
of $27 million, and other items of $3 million. Debt, including current
maturities and short-term bank borrowings, increased by $295 million to $940
million, due to Tosco's acquisitions. The ratio of debt (non-current portion of
long-term debt) to total capitalization decreased from 50% to 38% due to
profitable results of operations and the issuance of $300 million of Trust
Convertible Preferred Securities in December 1996. See Note 11 to the Company's
1996 Consolidated Financial Statements incorporated herein by reference.
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 the Revolving Credit
Facility.
RISK MANAGEMENT
Tosco uses a variety of strategies to reduce commodity price, interest, and
operational risks. As discussed in Note 4 to the Company's 1996 Consolidated
Financial Statements incorporated herein by reference, Tosco, at times and when
able, uses futures contracts to lock in what it believes to be favorable margins
on a varying portion of refinery 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 Tosco's exposure to
fluctuations in refining margins and therefore tends to reduce the volatility of
operating results. In addition, Tosco enters into swap contracts with
counterparties to hedge sales prices of residual fuels production. Futures and
forward contracts were also used to a lesser extent to hedge inventories stored
for future sale and to hedge against adverse price movements between the cost of
domestic and foreign crude oil. At December 31, 1996, Tosco had hedged
approximately 2% of its expected first quarter 1997 production at acceptable
historical margins.
Tosco manages its interest rate risk by maintaining a mix of fixed rate and
floating rate debt. Floating rate debt, primarily borrowings under the Revolving
Credit Facility, which currently provides up to $1 billion of uncollateralized
revolving credit availability, is used to finance Tosco's working capital
requirements. Existing fixed rate debt consists primarily of $125 million
uncollateralized noncallable notes issued in July 1995 to repay indebtedness
under the previously outstanding Collateralized Revolving Credit Facility, $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, $240 million
uncollateralized noncallable notes issued in May 1996 to finance a portion of
the Circle K purchase price, a $55 million real estate installment purchase
note, and various capital lease obligations.
Tosco carries insurance policies on insurable risks, which it believes to
be 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. See Note 4 to the Company's 1996 Consolidated Financial
Statements incorporated herein by reference for a discussion of Tosco's strategy
to reduce credit risk.
S-19
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof, the U.S. Underwriters named below have severally agreed
to purchase, and the Company has agreed to sell to them, and the International
Underwriters named below have severally agreed to purchase, and the Company has
agreed to sell to them, the respective number of shares of Common Stock set
forth opposite the names of such Underwriters below:
Number of
Name Shares
---- ------
U.S. Underwriters:
Morgan Stanley & Co. Incorporated ..............
Bear, Stearns & Co. Inc. .......................
Credit Suisse First Boston Corporation .........
Oppenheimer & Co., Inc. ........................
Salomon Brothers Inc ...........................
Smith Barney Inc. ..............................
----------
Subtotal ...................................... 17,600,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited .....
Credit Suisse First Boston (Europe) Limited ....
Salomon Brothers International Limited .........
J. Henry Schroder & Co. Limited ................
UBS Limited ....................................
Subtotal ...................................... 4,400,000
----------
Total ........................ 22,000,000
==========
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by their counsel and certain other conditions. The Underwriters
are obligated to take and pay for all of the shares of Common Stock offered
hereby (other than those covered by the U.S. Underwriters' over-allotment option
described below) if any such shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions (i) it
is not purchasing any U.S. Shares (as defined below) for the account of anyone
other than a United States or Canadian Person (as defined below) and (ii) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
U.S. Shares or distribute any prospectus relating to the U.S. Shares outside the
United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions, (i) it is not purchasing any International Shares (as defined below)
for the account of any United States or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
International Shares or distribute any prospectus relating to the International
Shares within the United States or Canada or to any United States or Canadian
Person. With respect to any Underwriter that is a U.S. Underwriter and an
International Underwriter, the foregoing representations and agreements (i) made
by it in its capacity as a U.S. Underwriter will apply only to shares of Common
Stock purchased by it in its capacity as a U.S. Underwriter, (ii) made by it in
its capacity as an International Underwriter will apply only to shares of Common
Stock purchased by it in its capacity as an International Underwriter and (iii)
do not restrict its ability to distribute any prospectus relating to the shares
of Common Stock to any person. The foregoing limitations do not apply to
stabilization transactions or to certain
S-20
<PAGE>
other transactions specified in the Agreement Between U.S. and International
Underwriters. "United States or Canadian Person" means any national or resident
of the United States or Canada, or any corporation, pension, profit-sharing or
other trust or other entity organized under the laws of the United States or
Canada or of any political subdivision thereof (other than a branch located
outside the United States or Canada of any United States or Canadian Person) and
includes any United States or Canadian branch of a person who is otherwise not a
United States or Canadian Person. All shares of Common Stock to be purchased by
the U.S. Underwriters and the International Underwriters are referred to herein
as the U.S. Shares and the International Shares, respectively.
Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the Price to Public set forth on the cover page hereof,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer of Common Stock in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any shares of Common Stock a notice stating in substance that, by
purchasing such Common Stock, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, directly or indirectly, any such
Common Stock in Canada or in, or for the benefit of, any resident of Canada in
contravention of the securities laws of Canada or any province or territory
thereof and that any offer of Common Stock in Canada will be made only pursuant
to an exemption from the requirement to file a prospectus in the province of
Canada in which such offer is made, and that such dealer will deliver to any
other dealer to whom it sells any Common Stock a notice to the foregoing effect.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, during the period of six months from the closing date, will not
offer or sell any shares of Common Stock to persons in the United Kingdom except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the shares of Common Stock in,
from or otherwise involving the United Kingdom; and (iii) it has only issued or
passed on and will only issue or pass on to any person in the United Kingdom any
document received by it in connection with the issue of the shares of Common
Stock, if that person is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996, or is a
person to whom the document may otherwise lawfully be issued or passed on.
The Underwriters propose to offer part of the Common Stock directly to the
public at the Price to Public set forth on the cover page hereof and part to
certain dealers at a price which represents a concession not in excess of $___ a
share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $___ a share to other
Underwriters or to certain dealers.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this Prospectus
Supplement, to purchase up to 3,300,000 additional shares of Common Stock at the
public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of Common Stock offered hereby. To
the extent such option is exercised, each U.S. Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Common Stock as the number set forth
next to such U.S. Underwriter's name in the preceding table bears to the total
number of shares of Common Stock offered by the U.S. Underwriters hereby.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
S-21
<PAGE>
Each of the Company and its executive officers and directors has agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated, it
will not offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock, or any securities convertible into or exercisable for Common
Stock, for a period of 90 days after the date of this Prospectus Supplement,
(other than (i) the shares of Common Stock offered hereby, (ii) shares of Common
Stock issuable by the Company pursuant to the exercise of options or warrants or
the conversion of a security outstandingon the date hereof, (iii) up to 106,000
shares of Common Stock which may be sold by two of the Company's directors who
are retiring on May 15, 1997; or (iv) limited transfers of Common Stock to
charitable organizations by certain officers and directors of the Company).
Although Tosco has agreed to use up to 75% of the proceeds of this offering
to repurchase the Unocal Shares, if the offering price is less than $23.94 per
share, Unocal has the option to not sell 12,342,482 of its shares to Tosco, but
will enter into a lock-up agreement with respect to the balance of the Unocal
Shares until October 1, 1997 (or such earlier date as the managing underwriters
shall agree). See "The Company--Acquisition of Unocal Refining and Marketing
Assets."
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase shares in
the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing Shares in the
offering, if the syndicate repurchases previously distributed Common Stock in
transactions to cover syndicate short positions, in stabilization transactions
or otherwise. Any of these activities may stabilize or maintain the market price
of the Common Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
Morgan Stanley & Co. Incorporated served as an initial purchaser in
connection with Tosco's offering of $600 million of unsecured debt securities in
January 1997, an initial purchaser in connection with the offering of 6 million
Convertible Preferred Securities of Tosco Financing Trust completed in December
1996 and an underwriter in connection with Tosco's offering of $240 million
principal amount of 7 5/8% Notes due 2006 (the "7 5/8% Notes") completed in May
1996 and received customary compensation with respect thereto. Oppenheimer &
Co., Inc. acted as an underwriter in connection with Tosco's offering of the 7
5/8% Notes and received customary compensation with respect thereto.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Shares offered
hereby will be passed upon for the Company by Stroock & Stroock & Lavan LLP of
New York, New York. Members of Stroock & Stroock & Lavan LLP are beneficial
owners of Common Stock of the Company. Certain legal matters relating to the
sale of the Shares offered hereby will be passed upon for the Underwriters by
Andrews & Kurth L.L.P. of New York, New York.
EXPERTS
The consolidated balance sheets of Tosco as of December 31, 1995 and 1996,
and the consolidated statements of income, common shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996,
incorporated by reference in this Prospectus Supplement, 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.
S-22
<PAGE>
[INTENTIONALLY LEFT BLANK]
<PAGE>
PROSPECTUS
$1,500,000,000
TOSCO CORPORATION
DEBT SECURITIES, COMMON STOCK, PREFERRED STOCK AND
DEPOSITARY SHARES
----------
Tosco Corporation ("Tosco" or the "Company") may offer and issue from time
to time up to $1,500,000,000 aggregate principal amount of its securities
consisting of (i) one or more series of debentures, notes or other unsecured
evidences of indebtedness (the "Debt Securities"), which may be either senior
debt securities ("Senior Debt Securities") or subordinated debt securities
("Subordinated Debt Securities"), (ii) shares of its Common Stock, par value
$.75 per share ("Common Stock"), (iii) shares of its Preferred Stock, par value
$1.00 per share ("Preferred Stock") and (iv) shares of Preferred Stock
represented by depositary shares (the "Depositary Shares"). The Debt Securities,
Common Stock, Preferred Stock and Depositary Shares (collectively, the
"Securities") may be offered, separately or together, in amounts, at prices and
on terms to be set forth in one or more supplements to this Prospectus (each
a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Common Stock, any initial
public offering price, (ii) in the case of Preferred Stock, the specific title
and stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price, (iii) in the case of
Depositary Shares, the fractional share of Preferred Stock represented by each
Depositary Share and (iv) in the case of Debt Securities, the specific title,
series, aggregate principal amount, maturity, rate (or manner of calculation
thereof) and time of payment of interest, form (which may be registered or
bearer or certificated or global), authorized denominations, terms for
redemption at the option of the Company or repayment at the option of the
holder, terms for sinking fund payments, covenants, whether they are senior or
subordinate and any initial public offering price.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, Securities covered by
such Prospectus Supplement.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------
The Securities may be offered directly or through agents designated from
time to time by the Company or to or through underwriters or dealers. If any
agents or underwriters are involved in the sale of any of the Securities their
names, and any applicable purchase price, fee, commission or discount
arrangement between or among them, will be set forth, or will be calculable from
the information set forth, in an accompanying Prospectus Supplement. No
Securities may be sold by the Company through agents, underwriters or dealers
without delivery of a Prospectus Supplement describing the method and terms of
the offering of such Securities. See "Plan of Distribution."
February 3, 1997
<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, 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. THIS PROSPECTUS AND THE PROSPECTUS SUPPLEMENT DO
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
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
OFFER 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
INFORMATION SET FORTH IN THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT OR 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. Such reports and other information filed with the
Commission may also be available at the Commission's site on the World Wide Web
located at http://www.sec.gov. 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. Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete; with
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to such exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. 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, 1995.
2. Quarterly report on Form 10-Q for the quarter ended March 31, 1996.
3. Quarterly report on Form 10-Q for the quarter ended June 30, 1996.
4. Quarterly report on Form 10-Q for the quarter ended September 30,
1996.
5. Current reports on Form 8-K filed on April 25, 1996, June 12, 1996
and December 27, 1996 and Form 8-K/A filed on August 12, 1996.
6. Proxy Statement for 1996 Annual Meeting of Stockholders.
7. Proxy Statement dated January 10, 1997 for Special Meeting of
Stockholders.
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 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 ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
3
<PAGE>
THE COMPANY
Tosco is one of the largest independent refiners and marketers of petroleum
products in the United States, operating principally on the East and West Coasts
of the United States. Tosco, through its Avon Refinery located in the San
Francisco Bay Area, Ferndale Refinery located on Puget Sound north of Seattle,
and Bayway Refinery located in Linden, New Jersey, processes approximately
550,000 barrels per day of crude oil and other feedstocks into various petroleum
products. Tosco also owns a refinery located in Trainer, Pennsylvania, near
Philadelphia. Operations at this 150,000 barrel per day facility are currently
suspended and the plant is undergoing a modernization and upgrading program
which is expected to be completed in June 1997, when operations are expected to
recommence. Through its retail distribution network, Tosco has approximately
8,000,000 gallons per day of retail fuel sales. Tosco has extensive distribution
facilities and also engages in related commercial activities throughout the
United States and internationally. With the acquisition of The Circle K
Corporation in May 1996, Tosco is the nation's largest operator
of company-controlled convenience stores. Tosco also has interests in oil shale
properties in Colorado and Utah.
On December 14, 1996, Tosco entered into a definitive agreement to acquire
the West Coast petroleum refining, marketing and related supply and
transportation assets of Union Oil Company of California ("Unocal"). See
"Acquisition of Unocal Refining and Marketing Assets." Upon completion of the
proposed acquisition, Tosco would be the largest independent refiner and
marketer in the United States, with over 950,000 barrels per day of refining
capacity and approximately 12,000,000 gallons per day of retail fuel sales
through more than 5,300 sites.
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.
ACQUISITION OF UNOCAL REFINING AND MARKETING ASSETS
On December 14, 1996, Tosco entered into a definitive Sale and Purchase
Agreement (the "Agreement") with Unocal to acquire Unocal's West Coast petroleum
refining, marketing and related supply and transportation assets for a purchase
price of approximately $1.4 billion, plus the value of inventory as of the
closing date (the "Acquisition"). In addition, Unocal will be entitled to
receive contingent participation payments over the next seven years, up to a
maximum amount of $250 million, if the margin on dealer tank wagons exceeds a
base index and/or the differential between California Air Resources Board Phase
II gasoline and conventional gasoline exceeds a base index. For a period of 25
years, Unocal will be responsible for environmental liabilities arising out of
or relating to the period prior to the closing, except that Tosco will pay the
first $7 million of such environmental liabilities each year, plus 40% of any
amounts in excess of $7 million per year, with Unocal paying the remaining 60%
each year. The aggregate maximum amount that Tosco may have to pay in total for
25 years for such environmental liabilities is limited to $200 million.
Environmental liabilities assumed by Tosco pursuant to the Acquisition will be
reserved for at the time of Acquisition.
The assets to be acquired from Unocal include the following: two petroleum
refining systems comprised of four sites in California with an aggregate
throughput capacity of 250,000 barrels per day; a retail gasoline system,
consisting of approximately 1,350 76-branded gasoline stations, approximately
1,100 of which are company-controlled, which currently sells over 100,000
barrels per day of gasoline and diesel fuel; a distribution system comprised
of 13 company-owned oil storage terminals, three modern American-flag 40,000
deadweight-ton tankers and 1,500 miles of crude oil and product pipeline; the
worldwide rights to the "76" and "Union 76" brands, together with the
distinctive orange ball logo, in the petroleum refining and marketing
businesses, except for pre-existing license grants relating to 76 Truckstops and
to Uno-Ven; and Unocal's lubricants manufacturing, distribution and marketing
business.
Consummation of the Acquisition is subject to the satisfaction of a number
of conditions, including obtaining governmental regulatory approvals, approval
by Tosco's stockholders of an amendment to its charter to allow for the issuance
of additional shares of Tosco's Common Stock and the satisfaction of other
conditions normally contained in transactions of this type. Pursuant to the
Agreement, on January 15, 1997, Tosco deposited into an escrow account $1
billion in cash or equivalents and the right to receive $400 million of Common
Stock of Tosco. Tosco will not be required to issue Common Stock having a value
of less than $45 per share. The number of shares of Common Stock to which Unocal
will be entitled will be determined based on the average Tosco stock prices for
the ten days preceding the date Unocal would be entitled to receive such shares.
If the price is below $45 per share, each of Tosco and Unocal will have
specified rights. If the charter amendment is not approved and Tosco does not
elect to pay the entire purchase price in cash, either party has the right to
terminate the Agreement and Unocal would receive a $20 million break-up fee. If
Unocal receives shares of Common Stock, it will be granted registration rights
to sell such shares and will enter
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into an agreement with Tosco restricting its right to sell such shares or
acquire additional shares, agreeing to vote such shares at all stockholder
meetings in proportion to the votes of other stockholders and undertaking not to
take or influence the control of Tosco.
The Acquisition is presently expected to close in the first quarter of
1997. There is no assurance that the Acquisition will be consummated.
RECENT FINANCINGS
In December 1996, Tosco Financing Trust, a Delaware statutory business
trust (the "Trust"), sold an aggregate of 6 million 5 3/4% trust convertible
preferred securities (the "Convertible Preferred Securities") for a total sales
price of $300 million in cash. Tosco owns all the common securities of the
Trust. The proceeds received by the Trust from the sale of the Convertible
Preferred Securities were used by the Trust to acquire $300 million of 5 3/4%
Convertible Junior Subordinated Debentures due December 15, 2026 of Tosco. The
Convertible Preferred Securities are convertible at any time from and after
March 15, 1997 and prior to December 15, 2026 into shares of Common Stock of
Tosco at an initial conversion rate of .50633 shares of Tosco Common Stock for
each Convertible Preferred Security (equivalent to a conversion price of $98.75
per share of Tosco Common Stock). The conversion price will be reset if the
Acquisition is terminated or not consummated on or prior to December 31, 1997.
The proceeds were used to pay down borrowings under Tosco's Credit Agreement (as
defined herein) and to the payment of $100 million of 9% First Mortgage Bonds
due March 15, 1997.
On January 14, 1997, Tosco sold an aggregate of $600 million of notes (the
"Notes"), consisting of $200 million of 7.25% notes due 2007, $300 million of
7.80% debentures due 2027 and $100 million of 7.90% debentures due 2047. The
proceeds from the Notes will be used to finance the Acquisition and have been
placed in escrow pursuant to the Agreement.
On January 14, 1997, Tosco entered into an amended and restated revolving
credit agreement (the "New Credit Agreement"), which expanded Tosco's existing
revolving credit agreement (the "Credit Agreement") from $600 million to $1
billion. The increased amount of availability will be used to finance the
Acquisition and for working capital purposes.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the net
proceeds to Tosco from the sale of the Securities offered hereby will be used
for general corporate purposes, which may include financing the Acquisition. The
balance of the cash portion of the purchase price for the Acquisition, including
working capital, will come from Tosco's available cash, from borrowings under
the New Credit Agreement, and from the net proceeds received from Tosco's sale
of the Notes.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to fixed charges
for the periods indicated.
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
- ------------------ -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
- ---- ---- ---- ---- ---- ---- ----
3.28x 2.08x 2.49x 2.83x 3.28x 2.71x 3.55x
The following table sets forth the ratio of earnings to combined fixed
charges and preferred stock dividends for the periods indicated.
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
- ------------------ -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
- ---- ---- ---- ---- ---- ---- ----
3.28x 2.08x 2.49x 2.31x 2.25x 1.42x 2.78x
For the purpose of computing the above ratios, 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. Fixed charges and preferred stock dividends include
the foregoing, plus dividends on preferred stock adjusted to a pre-tax basis.
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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 Senior Debt Securities are to be issued in one or more series (each
such series a "Series") under an Indenture dated as of May 1, 1996, to be
supplemented by one or more supplemental indentures (the "Senior Indenture")
between the Company and State Street Bank and Trust Company, as Trustee (the
"Trustee"). The form of the Senior Indenture is included as an exhibit to the
Registration Statement. The Subordinated Debt Securities are to be issued under
a separate indenture to be entered into between the Company and the Trustee (the
"Subordinated Indenture"). The form of Subordinated Indenture will be filed in
connection with any offering of Subordinated Debt. The Senior Indenture and
Subordinated Indenture are collectively referred to herein as the "Indentures."
GENERAL
The Indentures do not limit the amount of Debt Securities which can be
issued thereunder and provide 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 Indentures do not limit the amount of other
indebtedness or securities which may be issued by the Company. All Senior Debt
Securities will be unsecured and will not rank below any other unsecured
indebtedness of the Company. The Subordinated Debt Securities when issued will
be subordinated in right of payment to the prior payment in full of all Senior
Debt of the Company, as described under "Subordination of Subordinated Debt
Securities" and in the applicable Prospectus Supplement. The Trustee will
authenticate and deliver Debt Securities executed and delivered to it by the
Company as set forth in the Indentures.
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; (ix) the
events of default or covenants relating to the Offered Securities, to the extent
different from or in addition to those described herein; (x) whether the Offered
Securities will be issued in certificated and/or book-entry form; (xi) whether
the Offered Securities will be in registered or bearer form and the
denominations thereof; (xii) whether the Debt Securities offered will be Senior
Debt Securities or Subordinated Debt Securities; (xiii) if applicable, the terms
of any right to convert Debt Securities into shares of Common Stock of the
Company or other securities or property; and (xiv) any other terms or conditions
not inconsistent with the provisions of the Indentures 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.
Unless otherwise set forth in the Prospectus Supplement, 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
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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 or a floating rate. 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 Indentures require the annual filing by the Company with the Trustee of
a certificate as to compliance with all conditions and covenants contained in
the Indentures.
The Company will comply with Section 14(e) 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
Indentures which may afford the holders of Offered Securities protection in the
event of a highly leveraged transaction involving the Company. Except as
otherwise described in the Prospectus Supplement, any such covenants or
provisions will not be 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
Indentures" below.
CONVERSION RIGHTS
The terms on which Debt Securities of any Series are convertible into
Common Stock or other securities or property will be set forth in the Prospectus
Supplement relating thereto. Such terms shall include provisions as to whether
conversion is mandatory or at the option of the holder and may include
provisions pursuant to which the number of shares of Common Stock or other
securities or property to be received by the Holders of Debt Securities would be
calculated according to the market price of Common Stock or other securities or
property as of a time stated in the applicable Prospectus Supplement.
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Prospectus Supplement, the following
provisions will apply to the Subordinated Debt Securities.
The Subordinated Debt Securities will, to the extent set forth in the
Subordinated Indenture, be subordinate in right of payment to the prior payment
in full of all Senior Debt, including the Senior Debt Securities. Upon any
payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Debt will first be
entitled to receive payment in full of principal of (and premium, if any) and
interest, if any, on such Senior Debt before the Holders of the Subordinated
Debt Securities will be entitled to receive or retain any payment in respect of
the principal of (and premium, if any) or interest, if any, on the Subordinated
Debt Securities.
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are not holders of Senior Debt or are Holders of
Subordinated Debt Securities may recover less, ratably, than holders of Senior
Debt and may recover more, ratably, than the Holders of the Subordinated Debt
Securities.
In the event of the acceleration of the maturity of any Subordinated Debt
Securities, the holders of all Senior Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
due thereon before the Holders of the Subordinated Debt Securities will be
entitled to receive any payment upon the principal of (or premium, if any) or
interest, if any, on the Subordinated Debt Securities.
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Subordinated Debt Securities may be made if there shall
have occurred and be continuing a default in any payment with respect to Senior
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Debt, or an event of default with respect to any Senior Debt resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default. For purposes of the subordination
provisions, the payment, issuance and delivery of cash, property or securities
(other than stock and certain subordinated securities of the Company) upon
conversion of a Subordinated Debt Security will be deemed to constitute payment
on account of the principal of such Subordinated Debt Security.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company to the extent that such
claim for post-petition interest is allowed in such proceeding), on indebtedness
for borrowed money, whether incurred on or prior to the date of the Subordinated
Indenture or thereafter incurred, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are not superior in right of payment to the Subordinated
Debt Securities or to other indebtedness for borrowed money which is pari passu
with, or subordinated to, the Subordinated Debt Securities; provided, however,
that Senior Debt shall not be deemed to include the Subordinated Debt
Securities.
The Subordinated Indenture does not limit or prohibit the incurrence of
additional Senior Debt, which may include indebtedness that is senior to the
Subordinated Debt Securities, but subordinate to the other obligations of the
Company. The Senior Debt Securities, when issued, will constitute Senior Debt.
The Prospectus Supplement may further describe the provisions, if any,
applicable to the subordination of the Subordinated Debt Securities of a
particular Series.
GLOBAL SECURITY
Unless otherwise set forth in the Prospectus Supplement, 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 Indentures. 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 Indentures.
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
Secu-
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rity 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 Debt Securities in definitive
registered form 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 Debt Securities in definitive registered form 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 Company, the Trustee and the
Depositary, receive Debt Securities in definitive registered form 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 Debt
Securities in definitive registered form equal in principal amount to such
beneficial interest. Debt Securities in definitive registered form 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 Indentures. Accordingly, each person owning a beneficial interest in a
Global Security for a Series of 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 Indentures. 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 Indentures. 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 Indentures, 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
Any applicable covenants with respect to the Offered Securities will be
described in the Prospectus Supplement.
EVENTS OF DEFAULT
As to any Series of Debt Securities, the Indentures define 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 (with respect to Subordinated Debt
Securities whether or not such payment is prohibited by the subordination
provisions of the Subordinated Indenture); (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 (with respect to
Subordinated Debt Securities whether or not such payment is prohibited by the
subordination provisions of the Subordinated Indenture); (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 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
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outstanding; or (d) 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 or the Events of Default may be changed, which
additions or changes will be described in the Prospectus Supplement relating to
such Debt Securities. The Indentures provide 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 Indentures provide 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 Indentures provide that if an Event of Default (other than an Event of
Default described in clause (d) 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
Indentures provide that if an Event of Default described in clause (d) 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 Indentures also permit the
Company not to comply with certain covenants in the Indentures 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 Indentures 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 Indentures 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 Indentures 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 Indentures 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 Indentures to institute any
proceeding at law or in equity or in bankruptcy or otherwise upon or under or
with respect to the Indentures 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 Indentures provide 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 Indentures according to their tenor and the due
and punctual performance and observance of all of the covenants and conditions
of the Indentures to be performed or observed by the Company and (ii)
immediately after such merger or consolidation, or such sale, conveyance or
lease,
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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 INDENTURES
The Indentures 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 Indentures and the terms of the Debt Securities of such
Series.
MODIFICATION OF THE INDENTURES
The Indentures contain 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 Indentures, to execute supplemental indentures adding any provisions
to, or changing in any manner or eliminating any of the provisions of, the
Indentures 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, (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 or (iii) in the case of Subordinated Debt Securities, modify
the subordination provisions in a manner adverse to the Holders of the
Subordinated Debt Securities. 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 Indentures provide, 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 Indentures) 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.
CERTAIN DEFINITIONS
The terms set forth below are defined in the Indentures as follows:
"Government Obligations" means, unless otherwise specified pursuant to the
Indentures, securities which are (i) direct obligations of the United States
government for which its full faith and credit is pledged or (ii) obligations of
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a person controlled or supervised by, or acting as an agency or instrumentality
of, the United States government, the payment of which obligations is
unconditionally guaranteed by the United States government, and which, in either
case, are full faith and credit obligations of the United States government, and
which are not callable or redeemable at the option of the issuer thereof prior
to their stated maturity.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of the
outstanding capital stock (or other interests entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, general
partners, managers, managing members, managing partners or trustees thereof or,
if such persons are not elected, to vote on any matter that is submitted to the
vote of all persons holding ownership interests in such entity) is at the time
owned or controlled, directly or indirectly, by (i) the Company, (ii) the
Company and one or more Subsidiaries or (iii) one or more Subsidiaries.
APPLICABLE LAW
The Debt Securities and the Indentures will be governed by, and construed
in accordance with, the laws of the State of New York.
CONCERNING THE TRUSTEE
The Trustee may provide various commercial banking services to the Company
from time to time. Upon the occurrence of an Event of Default or an event which,
after notice or lapse of time or both, would become an Event of Default, or upon
the occurrence of a default under such other indenture, the Trustee may be
deemed to have a conflicting interest with respect to the Debt Securities for
purposes of the Trust Indenture Act of 1939 and, unless the Trustee is able to
eliminate any such conflicting interest, the Trustee may be required to resign
as Trustee under either the Subordinated Indenture or the Senior Indenture. In
that event, the Company would be required to appoint a successor trustee for
such Indenture.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The Company is authorized to issue 12,000,000 shares of Preferred Stock,
$1.00 par value per share, of which no Preferred Stock was outstanding at the
date hereof. Subject to the limitations prescribed by the Articles of
Incorporation, the Board of Directors is authorized to fix the number of shares
constituting each series of Preferred Stock and the designations and powers,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including such provisions
as may be desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution of the Board of Directors.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. Certain other terms of a particular series of Preferred Stock will
be described in the Prospectus Supplement relating to that series. If so
indicated in the Prospectus Supplement, the terms of any such series may differ
from the terms set forth below. The description of certain provisions of the
Preferred Stock set forth below and in any Prospectus Supplement does not
purport to be complete and is in all respects subject to and qualified in its
entirety by reference to the applicable provisions of the Company's Articles of
Incorporation and Bylaws and any applicable certificate of designations
supplementary to the Articles of Incorporation designating terms of a series of
Preferred Stock which will be filed with the Commission in connection with the
offering of such series of Preferred Stock.
The issuance of Preferred Stock could adversely affect the voting power,
dividend rights and other rights of holders of Common Stock. Issuance of
Preferred Stock also could, depending on the terms of such issue, either impede,
delay, prevent or facilitate a merger, tender offer or change in control of the
Company. Although the Board of Directors is required to make a determination as
to the best interests of the stockholders of the Company when issuing Preferred
Stock, the Board could act in a manner that would discourage an acquisition
attempt or other transaction that some, or a majority, of the stockholders might
believe to be in the best interests of the Company or in which stockholders
might receive a premium for their shares over the then prevailing market price.
Management believes that the availability of Preferred Stock will provide the
Company with increased flexibility in structuring possible further financing and
acquisitions and in meeting other needs that might arise.
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TERMS
The Preferred Stock offered hereby will be issued in one or more series.
The Preferred Stock will, when issued, be fully paid and nonassessable by the
Company and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the particular
series of Preferred Stock offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred Stock;
(7) The provision for redemption, if applicable, of such Preferred Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company, including
the conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(12) A discussion of federal income tax considerations applicable to such
Preferred Stock;
(13) The relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the Company; and
(14) Any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the Company.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock; (ii) on a parity with all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock; and (iii) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Stock. The term "equity
securities" does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefor, cash dividends at such rates and on such dates as
will be set forth in the applicable Prospectus Supplement. Different series of
the Preferred Stock may be entitled to dividends at different rates or based
upon different methods of determination. Such rates may be variable or fixed or
both. Each such dividend shall be payable to holders of record as they appear on
the share transfer books of the Company on such record dates as shall be fixed
by the Board of Directors of the Company. Dividends on any series of the
Preferred Stock may be cumulative or non-cumulative, as provided in the
applicable Prospectus Supplement.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred
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Stock of such series for any period unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Preferred Stock of such series
for all past dividend periods and the then current dividend period or (ii) if
such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current divided
period, no dividends (other than in shares of Common Stock or other capital
shares ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the Common Stock, or any other
capital shares of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, nor shall
any shares of Common Stock, or any other capital shares of the Company ranking
junior to or on a parity with the Preferred Stock of such series as to dividends
or upon liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any monies be paid to or made available for a sinking fund for
the redemption of any such shares) by the Company (except by conversion into or
exchange for other capital shares of the Company ranking junior to the Preferred
Stock of such series as to dividends and upon liquidation).
REDEMPTION
The terms, if any, on which shares of a series of Preferred Stock may be
subject to mandatory redemption or redemption at the option of the Company, as a
whole or in part, will be set forth in the Prospectus Supplement applicable to
such series.
RIGHTS UPON LIQUIDATION
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, then, before any distribution or payment shall be made to the
holders of Common Stock or any other class or series of capital shares of the
Company ranking junior to such series of Preferred Stock, the holders of each
series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to accrued and
unpaid dividends for the then current dividend period and, if such series of
Preferred Stock is cumulative, for all dividend periods prior thereto, all as
set forth in the Prospectus Supplement with respect to such shares.
VOTING RIGHTS
Holders of the Preferred Stock will not be entitled to vote, except as
otherwise from time to time required by law or as indicated in the applicable
Prospectus Supplement.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into shares of Common Stock will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
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shares of Common Stock into which the shares of Preferred Stock are convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
SHAREHOLDER LIABILITY
Applicable Nevada law provides that no shareholder, including holders of
Preferred Stock, shall be personally liable for the acts and obligations of the
Company and that the funds and property of the Company shall be the only
recourse for such acts or obligations.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by the
Depositary Shares will be deposited under a separate Deposit Agreement (each, a
"Deposit Agreement") among the Company, the depositary named therein (the
"Preferred Stock Depositary") and the holders from time to time of the
Depositary Receipts. Subject to the terms of the Deposit Agreement, each owner
of a Depositary Receipt will be entitled, in proportion to the fractional
interest of a share of a particular series of Preferred Stock represented by the
Depositary Shares evidenced by such Depositary Receipt, to all the rights and
preferences of the Preferred Stock represented by such Depositary Shares
(including dividend, voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to the Preferred Stock
Depositary, the Company will cause the Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of the Preferred Stock to the record
holders of Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Preferred Stock
Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless the Preferred Stock
Depositary determines that is it not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption), the holders thereof will be entitled to
delivery at such office, to or upon such holders' order, of the number of whole
or fractional shares of the Preferred Stock and any money or other property
represented by the Depositary Shares evidenced by such Depositary Receipts.
Holders of Depositary Receipts will be entitled to receive whole or fractional
shares of the related Preferred Stock on
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the basis of the proportion of Preferred Stock represented by each Depositary
Share as specified in the applicable Prospectus Supplement, but holders of such
shares of Preferred Stock will not thereafter be entitled to receive Depositary
Shares therefor. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of shares of Preferred Stock to be withdrawn, the
Preferred Stock Depositary will deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the
Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the
same redemption date the number of Depositary Shares representing shares of the
Preferred Stock so redeemed, provided the Company shall have paid in full to the
Preferred Stock Depositary the redemption price of the Preferred Stock to be
redeemed plus an amount equal to any accrued and unpaid dividends thereon to the
date fixed for redemption. The redemption price per Depositary Share will be
equal to the redemption price and any other amounts per share payable with
respect to the Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Preferred Stock Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Stock. Each record holder of Depositary Receipts evidencing Depositary
Shares on the record date (which will be the same date as the record date for
the Preferred Stock) will be entitled to instruct the Preferred Stock Depositary
as to the exercise of the voting rights pertaining to the amount of Preferred
Stock represented by such holder's Depositary Shares. The Preferred Stock
Depositary will vote the amount of Preferred Stock represented by such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Stock Depositary in order to enable the Preferred Stock Depositary to
do so. The Preferred Stock Depositary will abstain from voting the amount of
Preferred Stock represented by such Depositary Shares to the extent it does not
receive specific instructions from the holders of Depositary Receipts evidencing
such Depositary Shares. The Preferred Stock Depositary shall not be responsible
for any failure to carry out any instruction to vote, or for the manner or
effect of any such vote made, as long as any such action or non-action is in
good faith and does not result from negligence or wilful misconduct of the
Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, are not convertible into Common Stock or
any other securities or property of the Company. Nevertheless, if so specified
in the applicable Prospectus Supplement relating to an offering of Depositary
Shares, the Depositary Receipts may be surrendered by holders thereof to the
Preferred Stock Depositary with written instructions to the Preferred Stock
Depositary to instruct the Company to cause conversion of the Preferred Stock
represented by the Depositary Shares evidenced by such Depositary Receipts into
whole shares of Common Stock, other shares of Preferred Stock of the Company or
other shares of capital stock, and the Company has agreed that upon
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receipt of such instructions and any amounts payable in respect thereof, it will
cause the conversion thereof utilizing the same procedures as those provided for
delivery of Preferred Stock to effect such conversion. If the Depositary Shares
evidenced by a Depositary Receipt are to be converted in part only, a new
Depositary Receipt or Receipts will be issued for any Depositary Shares not to
be converted. No fractional shares of Common Stock will be issued upon
conversion, and if such conversion will result in a fractional share being
issued, an amount will be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common Stock on the last
business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Stock and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Stock
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts or that would be materially and
adversely inconsistent with the rights granted to holders of the related
Preferred Stock will not be effective unless such amendment has been approved by
the existing holders of at least two-thirds of the Depositary Shares evidenced
by the Depositary Receipts then outstanding. No amendment shall impair the
right, subject to certain exceptions in the Deposit Agreement, of any holder of
Depositary Receipts to surrender any Depositary Receipt with instructions to
deliver to the holder the related Preferred Stock and all money and other
property, if any, represented thereby, except in order to comply with law. Every
holder of an outstanding Depositary Receipt at the time any such amendment
becomes effective shall be deemed, by continuing to hold such Receipt, to
consent and agree to such amendment and to be bound by the Deposit Agreement as
amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than
30 days' prior written notice to the Preferred Stock Depositary if a majority of
each series of Preferred Stock affected by such termination consents to such
termination, whereupon the Preferred Stock Depositary shall deliver or make
available to each holder of Depositary Receipts, upon surrender of the
Depositary Receipts held by such holder, such number of whole or fractional
shares of Preferred Stock as are represented by the Depositary Shares evidenced
by such Depositary Receipts together with any other property held by the
Preferred Stock Depositary with respect to such Depositary Receipt. In addition,
the Deposit Agreement will automatically terminate if (i) all outstanding
Depositary Shares shall have been redeemed, (ii) there shall have been a final
distribution in respect of the related Preferred Stock in connection with any
liquidation, dissolution or winding up of the Company and such distribution
shall have been distributed to the holders of Depositary Receipts evidencing the
Depositary Shares representing such Preferred Stock or (iii) each share of the
related Preferred Stock shall have been converted into capital stock of the
Company not so represented by Depositary Shares.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Stock Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay certain other transfer and
other taxes and governmental charges as well as the fees and expenses of the
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary. A successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obliga-
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tions of the Company and the Preferred Stock Depositary under the Deposit
Agreement will be limited to performing their duties thereunder in good faith
and without negligence (in the case of any action or inaction in the voting of
Preferred Stock represented by the Depositary Shares), gross negligence or
willful misconduct, and the Company and the Preferred Stock Depositary will not
be obligated to prosecute or defend any legal proceeding in respect of any
Depositary Receipts, Depositary Shares or shares of Preferred Stock represented
thereby unless satisfactory indemnity is furnished. The Company and the
Preferred Stock Depositary may rely on written advice of counsel or accountants,
or information provided by persons presenting shares of Preferred Stock
represented thereby for deposit, holders of Depositary Receipts or other persons
believed in good faith to be competent to give such information, and on
documents believed in good faith to be genuine and signed by a proper party.
In the event the Preferred Stock Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, the Preferred Stock Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
DESCRIPTION OF COMMON STOCK
GENERAL
The authorized capital stock of the Company includes 50 million shares of
Common Stock, $.75 par value per share. At December 27, 1996 there were
43,671,907 shares of Common Stock outstanding.
The holders of Common Stock are entitled to one vote for each share held
and have the sole right and power to vote in all matters on which a vote of
stockholders is taken, except as otherwise provided by statute and subject to
voting rights of any holders of Preferred Stock. Subject to the rights of any
holders of Preferred Stock, the holders of shares of Common Stock are entitled
to receive dividends when, as and if declared by the Board of Directors, out of
funds legally available therefor and to share pro rata in any distribution to
stockholders. Upon liquidation, dissolution, or winding up of Tosco, subject to
the rights of the holders of any shares of Preferred Stock, the holders of
Common Stock are entitled to receive the net assets of Tosco in proportion to
the respective number of shares held by them. The holders of Common Stock do not
have any preemptive right to subscribe for or purchase any shares of any class
of stock. The outstanding shares of Common Stock are not subject to further call
or redemption and all outstanding shares of Common Stock are validly issued,
fully paid and non-assessable.
All shares of Common Stock issued and sold will be duly authorized, fully
paid, and non-assessable. The Company has paid quarterly dividends since 1989.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Stock is Boston EquiServe,
Boston, Massachusetts.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
the Securities will be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as their agents to offer and sell the Securities
upon the terms and conditions as are set forth in the applicable Prospectus
Supplement. In connection with the sale of Securities, underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of Securities for whom they may act as agent. Underwriters may sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, are set forth in
the applicable Prospectus Supplement. Underwriters, dealers and agents
participating in the distribution of
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the Securities may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the
Securities may be deemed to be underwriting discounts and commissions under the
Securities Act. Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as their agents to solicit offers by certain
institutions to purchase Securities from them at the public offering price set
forth in such Prospectus Supplement pursuant to Delayed Delivery Contracts
("Contracts") providing for payment and delivery on the date or dates stated in
such Prospectus Supplement. Each Contract will be for an amount not less than,
and the aggregate principal amount of Securities sold pursuant to Contracts
shall be not less nor more than, the respective amounts stated in the applicable
Prospectus Supplement. Institutions with whom Contracts, when authorized, may be
made include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions, and other
institutions but will in all cases be subject to the approval of the Company.
Contracts will not be subject to any conditions except (i) the purchase by an
institution of the Securities covered by its Contracts shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject, and (ii) if the Securities are being sold
to underwriters, the Company shall have sold to such underwriters the total
principal amount of the Securities less the principal amount thereof covered by
Contracts.
The Securities (other than Common Stock) will be a new issue of securities
with no established trading market. If so indicated in the applicable Prospectus
Supplement, any underwriters or agents to or through whom Securities are sold by
the Company for public offering and sale may make a market in such Securities,
but such underwriters and agents will not be obligated to do so and may
discontinue any market-making at any time without notice. No assurance can be
given as to the liquidity of the trading market for any Securities, other than
Common Stock.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company in the ordinary
course of business.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Securities
offered hereby will be passed upon for the Company by Stroock & Stroock & Lavan
LLP of New York, New York.
EXPERTS
The consolidated balance sheets of Tosco as of December 31, 1995 and 1994,
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, 1995, 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.
The consolidated balance sheets of 76 Products Company and subsidiaries (a
division of Union Oil Company of California) as of September 30, 1996 and
December 31, 1995 and the related consolidated statements of operations, cash
flows and parent company investment for the nine months ended September 30, 1996
and the years ended December 31, 1995 and 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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