FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM . . . . TO . . . .
COMMISSION FILE NUMBER 1-3473
TESORO PETROLEUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-0862768
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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8700 TESORO DRIVE, SAN ANTONIO, TEXAS 78217
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.16 2/3 par value New York Stock Exchange
Pacific Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Pacific Stock Exchange
12 3/4% Subordinated Debentures due New York Stock Exchange
March 15, 2001
13% Exchange Notes due New York Stock Exchange
December 1, 2000
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /
At March 1, 1995, the aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $254,557,348 based upon the closing price of its shares on the New York Stock Exchange Composite tape. At March 1, 1995, there were 24,534,430 shares of the registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT FORM 10-K PART
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Proxy Statement for 1995 Annual Meeting Part III
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PART I
ITEM 1. BUSINESS
Tesoro Petroleum Corporation, together with its subsidiaries ("Tesoro" or the "Company"), is a natural resource company engaged in petroleum refining and marketing, natural gas exploration and production, and wholesale marketing of fuel and lubricants. The Company was incorporated in Delaware in 1968 (a successor by merger to a California corporation incorporated in 1939). For financial information relating to industry segments, see Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and Note B of Notes to Consolidated Financial Statements in Item 8.
During 1994, the Company consummated a recapitalization plan and equity offering whereby a major portion of the Company's outstanding debt was restructured and all of its preferred stock and dividend arrearages were eliminated and which, among other matters, deferred $44 million of debt service requirements, increased stockholders' equity by approximately $82 million and eliminated $9.2 million of annual preferred dividend requirements. In addition, the recapitalization enabled the Company to enter into a $125 million corporate Revolving Credit Facility and obtain $15 million financing for a major addition to the Company's refinery. For further information concerning the recapitalization and offering, see Note C of Notes to Consolidated Financial Statements in Item 8.
REFINING AND MARKETING
OVERVIEW
The Company conducts petroleum refining operations in Alaska and sells refined products to a wide variety of customers in Alaska, in the area west of the Rocky Mountains and in certain Far Eastern markets. During 1994, products from the Company's refinery accounted for approximately 65% of such sales, including products received on exchange in the U.S. West Coast market, with the remaining 35% being purchased from other refiners and suppliers.
The Company's refinery, which is located in Kenai, Alaska, has a rated throughput capacity of 72,000 barrels per day and is capable of producing liquefied petroleum gas, gasoline, jet fuel, diesel fuel, heating oil, heavy oils and residual product. The refinery is designed to process crude oil with a sulphur content of up to 1%. Alaska North Slope ("ANS") and Cook Inlet crude oils, the primary crude oils currently used as feedstock for the refinery, are below this limit. To assure the availability of crude oil to the refinery, the Company has a royalty crude oil purchase contract with the State of Alaska ("State")(see "Crude Oil Supply" discussed below). During 1994, the refinery processed approximately 59% ANS crude oil, 32% Cook Inlet crude oil and 9% other refinery feedstocks, which yielded refined products consisting of approximately 25% gasoline, 43% middle distillates and refinery fuel and 32% of residual product.
During 1994, the Company continued its operational strategy to improve the refinery's economics, which included upgrading feedstocks, more closely matching production with product demand within Alaska and initiating new marketing efforts within and outside Alaska. These efforts reduced the Company's overall refinery production in 1994, particularly residual fuel oil. The markets for residual fuel oil have generally been weak for the past several years due to a global oversupply of this product. During 1994, the Company reduced its average daily refinery throughput and production by 7% from the 1993 levels, resulting in a cumulative reduction from the 1992 levels of 25%. This reduction in throughput enabled the Company to reduce the percentage of lower-quality ANS crude oil in the feedstock mix to 59% in 1994, compared with 72% in 1993. By utilizing a greater percentage of higher-quality feedstocks (which results in higher-valued production yields), the Company can economically operate the refinery at reduced throughput levels. Operating the refinery at lower throughput levels resulted in less production of certain products, particularly residual product, for which there is no significant market in Alaska.
The Company has installed a vacuum unit, which became operational in December 1994, that is expected to reduce the refinery's yield of residual product about 50% by further processing these volumes into higher-valued products. With the vacuum unit now operational, the Company is pursuing marketing initiatives to
increase demand for the refinery's production which would increase the refinery's capacity utilization and improve efficiencies.
CRUDE OIL SUPPLY
The refinery is designed to process crude oil with up to 1.0% sulphur content. As such, the refinery can process Cook Inlet, ANS and certain foreign crude oils.
ANS CRUDE OIL. ANS crude oil is a heavy crude oil which contains an average of 1.0% sulphur. In 1994, approximately 59% of the refinery's feedstock was ANS crude oil, of which approximately 28,700 barrels per day were purchased under a royalty crude oil purchase contract with the State, which expired at the end of 1994. The Company and the State have extended this contract through 1995. The agreement between the Company and the State requires the Company to purchase approximately 40,000 barrels per day at the weighted average net-back price reported by the three major North Slope producers for ANS crude oil delivered to the U.S. West Coast. The Company does not currently anticipate increasing the percentage of ANS crude oil utilized as feedstock at the refinery. Under its agreement with the State, the Company has the right to sell or to exchange up to 20% of the ANS crude oil to be purchased from the State during 1995. The Company is currently negotiating with the State for a new three-year contract for the period January 1, 1996 through December 31, 1998. Based on preliminary discussions with the State, the Company believes that a new contract will provide for the purchase of approximately the same volumes of ANS royalty crude oil as the current contract and believes that such crude oil will be priced at the weighted average price reported to the State by a major North Slope producer for ANS crude oil as valued at Pump Station No. 1 on the Trans Alaska Pipeline System ("TAPS"). All ANS crude oil feedstock is delivered to the refinery by tanker through the Kenai Pipe Line Company ("KPL") marine terminal. The Company and KPL have entered into an agreement whereby the Company will purchase KPL, subject to regulatory approval. The Company expects that this purchase transaction will be consummated in early 1995.
COOK INLET CRUDE OIL. Cook Inlet crude oil, a lighter crude oil that contains an average of .1% sulphur, accounted for approximately 32% of the refinery's feedstock supply in 1994. The Company obtains Cook Inlet crude from several producers on the Kenai Peninsula under short-term contracts. Cook Inlet crude oil is delivered by tanker or through an existing pipeline to the refinery.
OTHER SUPPLY. In 1994, the Company's refinery obtained approximately 9% of its feedstock supply from other sources. This feedstock supply was primarily heavy atmospheric gas oil ("HAGO") and was purchased from a local competitor's refineries and from a U.S. West Coast refinery under short-term contracts. HAGO is a refinery byproduct which generates various light refined products with no residual fuel oil.
From time to time, the Company evaluates the economic viability of processing foreign crude oil in its Alaska refinery and occasionally purchases spot quantities to supplement its normal crude oil supply. This foreign crude oil is also delivered to the refinery by tanker through the KPL marine terminal.
ANS AGREEMENT. In January 1993, the Company entered into an agreement with the State ("ANS Agreement") that settled a contractual dispute concerning the value of ANS royalty crude oil sold to the Company. The ANS Agreement provided that $97.1 million was owed to the State by the Company. Under the ANS Agreement, the Company paid the State $10.3 million in January 1993 and is obligated to make variable monthly payments to the State through December 2001 on a per barrel charge that is currently 16 cents and increases to 33 cents on the volume of feedstock processed at the Company's refinery. In 1994 and 1993, the Company's variable payments to the State totaled $2.8 million and $2.6 million, respectively. In January 2002, the Company is obligated to pay the State $60 million; provided, however, that such payment may be deferred indefinitely by continuing the variable monthly payments to the State beginning at 34 cents per barrel for 2002 and increasing one cent per barrel annually thereafter. Variable monthly payments made after December 2001 will not reduce the $60 million obligation to the State. The $60 million obligation is evidenced by a security bond, and the bond and the variable monthly payments are secured by a mortgage on the Company's refinery. The Company's obligations under the ANS Agreement and the mortgage may be subordinated to current and future senior debt obligations (including, without limitation, principal, interest and related expenses) of up to $175 million plus any indebtedness incurred subsequent to the date of the
Agreement to improve the Company's refinery. For further information concerning the Company's settlement with the State, see Note I of Notes to Consolidated Financial Statements in Item 8.
REFINING AND MARKETING ACTIVITIES
The following table summarizes the Company's refining and marketing operations for the three years ended December 31, 1994, 1993 and 1992:
YEARS ENDED DECEMBER 31,
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1994 1993 1992
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Refinery Throughput (average daily barrels)...................... 46,032 49,753 61,425
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Refinery Production (average daily barrels):
Gasoline....................................................... 11,728 12,021 14,188
Middle distillates............................................. 18,839 19,441 23,305
Heavy oils and residual product................................ 15,118 17,573 23,444
Refinery fuel.................................................. 1,776 2,046 2,491
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Total Refinery Production.............................. 47,461 51,081 63,428
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Product Sales (average daily barrels):
Gasoline....................................................... 23,191 22,466 25,196
Middle distillates............................................. 33,256 29,354 38,313
Heavy oils and residual product................................ 14,228 16,945 23,931
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Total Product Sales.................................... 70,675 68,765 87,440
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Product Sales Prices ($/barrel):
Gasoline....................................................... $27.03 27.82 28.89
Middle distillates............................................. $24.47 27.39 26.93
Heavy oils and residual product................................ $10.93 11.19 11.60
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ALASKA MARKETING
GASOLINE. In 1994, the Company distributed virtually all of the gasoline produced at the refinery to end users in Alaska, either by retail sales through its 7-Eleven convenience store locations and two other Company operated locations, by wholesale sales through 88 branded and 24 unbranded dealers and jobbers and by deliveries to two major oil companies for their retail operations in Alaska in exchange for gasoline delivered to the Company on the U.S. West Coast. During 1994, the Company's refinery production of gasoline was essentially balanced with the Alaskan market demand. The Company holds an exclusive license agreement for all 7-Eleven convenience stores in Alaska and operates such stores in 38 locations, 32 of which sell Company-branded gasoline. During 1994, these convenience stores sold an average of 71,100 gallons of gasoline per day.
MIDDLE DISTILLATES. The Company is a major supplier of commercial jet fuel into the Alaskan marketplace, with all of its production being marketed in Alaska to passenger and cargo airlines. The demand for jet fuel in Alaska currently exceeds the production of the refiners in Alaska, and several marketers, including the Company, import jet fuel into Alaska to meet excess demand. Substantially all of the Company's diesel fuel and other distillate production is sold on a wholesale basis in Alaska primarily for marine and industrial purposes. Approximately 6% of the Company's diesel fuel production in 1994 was sold for on-highway use. See "Government Regulation and Legislation -- Environmental Controls" for a discussion of the effect of governmental regulations on the production of low-sulphur diesel fuel for on-highway use in Alaska. Generally, the production of diesel fuel by refiners in Alaska is in balance with demand; however, because of the high variability of the demand, there are occasions when diesel fuel is imported into or exported from Alaska.
HEAVY OILS AND RESIDUAL PRODUCT. Since there is no significant demand for heavy oils and residual product in Alaska, substantially all of the Company's refinery production of such products is exported from Alaska. During 1994, the Company sold and transported a substantial volume of its residual product to the U.S. West Coast, where it was generally used as a refinery feedstock. Prior to 1993, the Company's primary market for residual product was the Far Eastern bunker fuel markets. Marketing the residual product as a
feedstock has reduced the Company's exposure to the pricing volatility that exists in the Far Eastern bunker fuel markets. In addition, the refinery's reduced throughput and reduction of ANS crude oil as a percentage of total feedstock during 1994 caused residual product output to decrease from approximately 17,600 barrels per day in 1993 to approximately 15,100 barrels per day during 1994. The Company has recently completed the installation of a vacuum unit at the refinery at a cost of $25 million. The vacuum unit, which uses residual product as a feedstock, is anticipated to reduce the refinery's yield of residual product by approximately 50% by further processing these volumes into light vacuum gas oil (LVGO), heavy vacuum gas oil (HVGO) and vacuum tower bottoms (VTB). The LVGO is further processed in the refinery's hydrocracker, where it is converted into gasoline and jet fuel. HVGO is sold to refiners on the U.S. West Coast, where it is used as a catalytic hydrocracker feedstock, while the VTBs are generally sold on the U.S. West Coast where they are blended with light cycle oil to produce bunker fuel.
U.S. WEST COAST MARKETING
The Company conducts domestic wholesale marketing operations, primarily in California, Oregon and Washington with its principal office located in Long Beach, California. During 1994, these operations sold approximately 31,400 barrels per day of refined products, of which approximately 30% was received from major oil companies in exchange for products from the Company's refinery and 70% was purchased from other suppliers. The Company sells these refined products in the bulk market and through 27 terminal locations, of which four are owned by the Company.
TRANSPORTATION
In October 1994, the Company chartered an American flag vessel, the Potomac Trader, under a charter agreement expiring in September 1996 with two one-year renewal options. The Potomac Trader is used primarily to transport ANS crude oil from the TAPS terminal at Valdez, Alaska to the Company's refinery. The Potomac Trader is smaller and less expensive than the previous vessel utilized by the Company and better matches the Company's logistical requirements. The Company also has a charter for another American flag vessel, the Baltimore Trader, under a one-year agreement expiring in January 1996. The Baltimore Trader is used to transport residual product to the U.S. West Coast and occasionally to transport feedstocks to the Company's refinery. From time to time, the Company also charters tankers and ocean-going barges to transport petroleum products to its customers within Alaska, on the U.S. West Coast and in the Far East.
The Company operates a common carrier petroleum products pipeline from the Company's refinery to its terminal in Anchorage. This ten-inch diameter pipeline has a capacity to transport approximately 40,000 barrels of petroleum products per day and allows the Company to transport light products to the terminal throughout the year, regardless of weather conditions. During 1994, the pipeline transported an average of approximately 23,800 barrels of petroleum products per day, all of which were transported for the Company. For further information on transportation in Alaska, see "Government Regulation and Legislation -- Environmental Controls."
EXPLORATION AND PRODUCTION
UNITED STATES
During 1994, the Company concentrated its activities in the Bob West Field, which is located in the southern part of the Wilcox Trend in Starr and Zapata Counties, Texas. The Company, which does not operate the field, owns an average 50% revenue interest in approximately two-thirds of the field and a 28% revenue interest in the remainder. Pursuant to an agreement with the operator, the Company has an option with respect to the 50% revenue interest portion of the field to elect, subject to certain conditions, to assume operations of that portion of the field. The Wilcox Trend extends from Northern Mexico through South Texas into Western Louisiana. Multiple pay sands exist within the Wilcox Trend, where extensive faulting has trapped hydrocarbons in numerous producing zones. Continued successful development of the Bob West Field, discovered in 1990, has resulted in the Company's net proven natural gas reserves increasing from 120 billion cubic feet ("Bcf") at December 31, 1993 to 129 Bcf at December 31, 1994, reflecting a replacement of 129% of 1994 production. Two exploratory and 20 development wells were drilled and
completed in this field during 1994, bringing the number of producing wells to 46 at December 31, 1994 with an additional two wells being drilled and four wells awaiting completion at year-end. Of these six additional wells, two were subsequently completed as producing wells and the remainder are in the completion phase. Twenty-four additional well locations have been selected for further development of this 4,000-acre field, most of which are expected to be drilled during 1995 and 1996, the timing of which is dependent upon, among other factors, the price the Company receives for its natural gas production. During December 1994, the Company's net production from the Bob West Field wells averaged approximately 130 million cubic feet ("Mmcf") per day, which represented approximately 90% of the Company's year-end 1994 net deliverability. From time to time, the Company may increase or decrease its natural gas production in response to market conditions. Due to weakened spot market natural gas prices, beginning in January 1995, the Company and one of its partners initiated a voluntary reduction of natural gas production sold in the spot market. The Company's share of this reduction is estimated to be approximately 34 Mmcf per day, representing 33% of the Company's estimated current net deliverability of natural gas available for sale in the spot market. This voluntary reduction has continued through February 1995. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Exploration and Production".
In addition to the continued development of the Bob West Field, during 1994 the Company also participated in the drilling of five exploratory wells and one unsuccessful development well in other areas of South Texas. One of the exploratory wells was successful, two were dry holes and two were in progress at December 31, 1994. One of the wells in progress at year-end was subsequently abandoned and the other is in the process of being completed.
TENNESSEE GAS CONTRACT. The Company has interests in two 352-acre producing units in the Bob West Field that are subject to a Gas Purchase and Sales Agreement (the "Tennessee Gas Contract") with Tennessee Gas Pipeline Company ("Tennessee Gas") expiring on January 31, 1999. The Tennessee Gas Contract requires Tennessee Gas to purchase gas from the two producing units at escalating prices that are substantially above current spot market prices for natural gas. During 1994, for example, Tennessee Gas purchased approximately 21% of the Company's net gas production from the Bob West Field under the Tennessee Gas Contract pursuant to a contract price of $8.01 per thousand cubic feet ("Mcf") which was substantially above the 1994 average spot market price of $1.64 per Mcf. The Tennessee Gas Contract is presently the subject of litigation with Tennessee Gas. In June 1992, the trial court returned a verdict in favor of the Company upholding the terms of the Tennessee Gas Contract. The Court of Appeals upheld the validity of the Tennessee Gas Contract but remanded the case for further consideration of legal issues which might limit certain terms of the Tennessee Gas Contract. The ruling of the Court of Appeals is presently being reviewed by the Supreme Court of Texas. Pending the decision of the Supreme Court of Texas, the trial court, pursuant to a bond hearing, ordered that Tennessee Gas pay for gas at $3.00 per Mmbtu, which approximates $3.00 per Mcf ("Bond Price"), for the period September 17, 1994 through August 1, 1995 and post a bond which, together with the anticipated sales of natural gas to Tennessee Gas at the Bond Price, will equal the anticipated value of the Tennessee Gas Contract during this interim period. The Bond Price is nonrefundable by the Company, and the Company retains the right to receive the full contract price for all gas sold to Tennessee Gas. Prior to the bond hearing, the Company was receiving the contract price from Tennessee Gas for purchases of gas under the Tennessee Gas Contract. The Company continues to recognize revenues under the Tennessee Gas Contract based on the contract price. See Legal Proceedings in Item 3 and Notes L and P of Notes to Consolidated Financial Statements in Item 8.
GAS PROCESSING, GATHERING AND TRANSPORTATION. The Company owns a 70% interest in the Bob West Field's central gas processing facility which was expanded during 1994 to enable a processing capacity of 350 Mmcf per day. The Company owns a 70% interest in Starr County Gathering System which consists of two ten-inch diameter and one twenty-inch diameter pipelines that transport natural gas eight miles from the field to common carrier pipeline facilities. The Company does not operate either of such facilities. From February 1994 until May 1994, the pipeline facilities were at capacity and production subject to spot market prices was being curtailed. In 1994, the Company acquired a 50% interest in a twenty-inch diameter natural gas pipeline that was constructed during 1994 and which eliminated the curtailment of natural gas production subject to spot market sales prices. The Company believes that these expansions in pipeline capacity,
gathering systems and processing capacities have minimized the risk of significant marketing constraints for the foreseeable future.
BOLIVIA
The Company's Bolivian exploration and production operations are located in
southern Bolivia near the border with Argentina, where, since 1976, the Company
has discovered four significant natural gas fields. At December 31, 1994, Tesoro
was the second largest holder of proved natural gas reserves in Bolivia, with
estimated net proved natural gas reserves of 96 Bcf. The Company is the operator
of a joint venture that holds two Contracts of Operation with YPFB, the Bolivian
state-owned oil and gas company. The Company has a 75% interest in a Contract of
Operation, which expires in 2007, covering approximately 93,000 acres in Block
XVIII. The Company has drilled five exploratory wells and 12 development wells
within three separate fields in Block XVIII. During 1994, the Company's net
production from these fields averaged 22 Mmcf of gas per day and 733 barrels of
condensate per day, a production level that exceeded that of the average of the
prior three years, primarily due to the inability of another producer during
1994 to satisfy gas supply requirements. The Company and its joint venture
participant are entitled to receive a quantity of hydrocarbons equal to 40% of
the total production, net of Bolivian taxes and royalties on production, which
are payable in kind. The Company is currently selling all of its natural gas
production from the La Vertiente, Escondido and Taiguati Fields in Block XVIII
to YPFB which in turn sells the natural gas to Yacimientos Petroliferos
Fiscales, S.A.("YPF"), a publicly-held company based in Argentina. The contract
between YPFB and YPF was recently extended through March 31, 1997. The contract
extension maintained approximately the same volumes as their previous contract,
but with a small decrease in price. The Company's contract for the sale of
natural gas to YPFB has expired and is subject to renegotiation. The Company is
currently selling its natural gas production to YPFB based on the pricing terms
in the contract between YPFB and YPF. The Company anticipates that any
renegotiation of its contract with YPFB will result in the Company receiving a
lower price than it received under its previous contract with YPFB. Any
renegotiation may result in a reduction of volumes purchased from the Company
due to new supply sources that commenced production near the end of 1994.
The Company has a 72.6% interest in a Contract of Operation, which expires in 2008, covering approximately 1.2 million acres in Block XX. The Company and its joint venture participant are entitled to receive a quantity of hydrocarbons equal to 50% of the total production, net of Bolivian taxes and royalties on production, which are payable in kind. The development of Block XX is currently limited by a lack of access to major gas-consuming markets. Prior to 1993, one successful commercial gas discovery well, the Los Suris No. 1, was drilled on the block and is shut-in pending the approval by the Government of Bolivia of a commercialization agreement. A work plan for Block XX that included a three-well exploratory program was approved by YPFB and the Government of Bolivia. Under the plan, the Company drilled a well, the Los Suris No. 2, which was completed in February 1994 and tested gross production potential of approximately 9 Mmcf of gas per day and approximately 120 barrels of condensate per day from two producing intervals. The Los Suris No. 2 is also shut-in pending the approval of a commercialization agreement. The second exploratory well, San Antonio X-1, was abandoned in September 1994 and Palo Marcado X-3, the third exploratory well, was spudded in December 1994 and is currently being drilled to a proposed depth of 3,000 meters. To guarantee the drilling of the second and third exploratory wells, the Company submitted bank guarantees to YPFB in the aggregate amount of $4.0 million. Upon abandonment of the San Antonio X-1, YPFB released the Company from the first $2.0 million guarantee. The Company may postpone the relinquishment of inactive acreage until July 15, 1996 by submitting, no later than July 1, 1995, an additional two-well drilling program that is acceptable to YPFB.
During 1994, feasibility studies proceeded for several pipeline projects to new markets in Brazil, Chile and Paraguay. In August 1994, the governments of Brazil and Bolivia announced an extension of their previous agreement to jointly construct a pipeline from gas fields in Bolivia to the industrial area along the Atlantic seaboard of Brazil. Both YPFB and Petrobras, the Brazilian state-owned petroleum company, have selected natural gas transmission industry partners for their respective portions of this project. A preliminary
financing proposal has been announced for the Brazilian pipeline project, although no final decision on the construction or the completion date of this pipeline has been made.
For further information regarding Tesoro's Bolivian operations, see Notes B and P of Notes to Consolidated Financial Statements in Item 8.
OPERATING STATISTICS
The following table summarizes the Company's exploration and production activities for the years ended December 31, 1994, 1993 and 1992. Effective May 1, 1992, the Company sold its Indonesian operations:
YEARS ENDED DECEMBER 31,
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1994 1993 1992
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Net Natural Gas Production (average daily Mcf):
United States(1)............................................. 83,796 38,767 13,960
Bolivia(2)................................................... 22,082 19,232 19,421
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Total................................................ 105,878 57,999 33,381
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Net Crude Oil Production (average barrels per day):
Bolivia (condensate)......................................... 733 663 660
Indonesia.................................................... -- -- 2,714
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Total................................................ 733 663 3,374
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Average Realized Sales Prices -- Natural Gas (per Mcf):
United States(1)............................................. $ 3.00 3.55 3.68
Bolivia...................................................... $ 1.20 1.22 1.67
Average Realized Sales Prices -- Crude Oil (per barrel):
Bolivia (condensate)......................................... $ 13.28 14.26 17.65
Indonesia.................................................... $ -- -- 18.20
Average Lifting Cost (per net equivalent Mcf):
United States(3)............................................. $ .45 .48 .74
Bolivia...................................................... $ .06 .14 .08
Indonesia.................................................... $ -- -- 1.94
Depletion Rates (per net equivalent Mcf):
United States................................................ $ .79 .78 .95
Indonesia.................................................... $ -- -- .15
Net Exploratory Wells Drilled:
United States --
Net productive wells...................................... 1.53 .38 1.00
Net dry holes............................................. 1.12 .50 .50
Net Development Wells Drilled:
Net productive wells --
United States............................................. 11.09 7.87 3.85
Indonesia................................................. -- -- --
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Total................................................ 11.09 7.87 3.85
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Net dry holes --
United States............................................. .38 -- --
Indonesia................................................. -- -- --
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Total................................................ .38 -- --
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(2) The Company's natural gas production from Bolivia as presented above represents the Company's net production before Bolivian taxes.
(3) Average lifting costs for the Company's U.S. operations include such items as severance taxes, property taxes, insurance, materials and supplies and transportation of natural gas production through Company-owned pipelines. Since severance taxes are based upon sales prices of natural gas, the average lifting costs presented above include the impact of above-market prices for sales under the Tennessee Gas Contract. Lifting costs per Mcf of natural gas sold in the spot market were approximately $.38, $.39 and $.63 for 1994, 1993 and 1992, respectively.
ACREAGE AND WELLS
The following table sets forth the Company's gross and net acreage and productive wells at December 31, 1994:
DEVELOPED UNDEVELOPED
ACREAGE ACREAGE
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GROSS NET GROSS NET
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Acreage (in thousands):
United States................................................ 4 2 8 3
Bolivia...................................................... 38 29 1,210 880
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Total................................................ 42 31 1,218 883
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GROSS NET
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Productive Gas Wells:
United States............................................................. 48 26.8
Bolivia................................................................... 15 11.2
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Total*............................................................ 63 38.0
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For further information regarding the Company's exploration and production activities, see Notes B and P of Notes to Consolidated Financial Statements in Item 8.
OIL FIELD SUPPLY AND DISTRIBUTION
The Company sells lubricants, fuels and specialty petroleum products primarily to onshore and offshore drilling contractors. The Company's products are sold through six land terminals and 11 marine terminals in various Texas and Louisiana locations. These products are used to power and lubricate machinery on drilling and production locations. The Company also provides products for marine, commercial and industrial applications. Effective March 31, 1994, the Company discontinued its environmental remediation products and services operations and recorded charges of $1.9 million during 1994 in connection with such discontinuance. The Company is continuing its wholesale marketing of fuel and lubricants.
COMPETITION
The oil and gas industry is highly competitive in all phases, including the refining and marketing of crude oil and petroleum products and the search for and development of oil and gas reserves. The industry also competes with other industries that supply the energy and fuel requirements of industrial, commercial, individual and other consumers. The Company competes with a substantial number of major integrated oil companies and other companies having materially greater financial and other resources. These competitors have a greater ability to bear the economic risks inherent in all phases of the industry. In addition, unlike the Company, many competitors also produce large volumes of crude oil that may be used in connection with their refining operations. The North American Free Trade Agreement has further streamlined and simplified procedures for the importation and exportation of natural gas among Mexico, the United States and Canada. These changes are likely to enhance the ability of Canadian and Mexican producers to export natural gas to the United States, thereby further increasing competition in the domestic natural gas market.
The refining and marketing businesses are highly competitive, with price being the principal factor in competition. In the refining market, the Company's refinery competes primarily with three other refineries in Alaska and, to a lesser extent, refineries on the U.S. West Coast. Given the refinery's proximity to the Alaskan market, the Company believes it enjoys a cost advantage in that market versus refineries on the U.S. West Coast. However, there is no assurance that the Company's cost advantage can be maintained. The Company's
refining competition in Alaska consists of a refinery situated near Fairbanks owned by MAPCO, Inc. and two refineries situated near Valdez and Fairbanks, respectively, owned by Petro Star Inc. The Company estimates that such other refineries have a combined capacity to process approximately 172,000 barrels per day of crude oil. ANS crude oil is the only feedstock used in these competing refineries. After processing the crude oil and removing the lighter-end products, which represent approximately 30% of each barrel processed, these refiners are permitted, because of their direct connection to the TAPS, to return the remainder of the processed crude back into the pipeline system as "return oil" in consideration for a fee, thereby eliminating their need to market residual product. The Company's refinery is not directly connected to the TAPS, and the Company, therefore, cannot return its residual product to the TAPS. In general, the competing refineries in Alaska do not have the same downstream capabilities that the Company currently possesses. The Company estimates that its refinery has the capacity to produce approximately twice the volume of light products per barrel of ANS crude oil that any of the competing refineries is currently able to produce.
The Company's marketing business in Alaska is segmented by product line. The Company believes it is the largest producer and distributor of gasoline in Alaska, with the largest network of branded and unbranded dealers and jobbers. The Company is the principal supplier for two major oil companies through product exchange agreements, whereby gasoline in Alaska is provided in exchange for gasoline delivered to the Company on the U.S. West Coast. Jet fuel sales are concentrated in Anchorage, where the Company is one of two principal suppliers to, and the only supplier with a direct pipeline into, the Anchorage International Airport, which is a major hub for air cargo traffic to the Far East. Diesel fuel is sold primarily on a wholesale basis.
The Company's U.S. West Coast marketing business is primarily a distribution business selling to independent dealers and jobbers outside major urban areas. The Company competes against independent marketing companies and, to a lesser extent, integrated oil companies when engaging in these marketing operations.
OTHER
A portion of the Company's operations are conducted in foreign countries where the Company is also subject to risks of a political nature and other risks inherent in foreign operations. The Company's operations outside the United States in recent years have been, and in the future may be, materially affected by host governments through increases or variations in taxes, royalty payments, export taxes and export restrictions and adverse economic conditions in the foreign countries, the future effects of which the Company is unable to predict.
GOVERNMENT REGULATION AND LEGISLATION
UNITED STATES
NATURAL GAS REGULATIONS. Historically, all domestic natural gas sold in so-called "first sales" was subject to federal price regulations under the Natural Gas Policy Act of 1978 ("NGPA"), the Natural Gas Act ("NGA"), and the regulations and orders issued by the Federal Energy Regulatory Commission ("FERC") in implementing such Acts. Under the Natural Gas Wellhead Decontrol Act of 1989, all remaining natural gas wellhead pricing, sales, certificate and abandonment regulation of first sales by the FERC was terminated on January 1, 1993.
The FERC also regulates interstate natural gas pipeline transportation rates and service conditions, which affect the marketing of gas produced by the Company, as well as the revenues received by the Company for sales of such natural gas. Since the latter part of 1985, through its Order Nos. 436, 500 and 636, the FERC has endeavored to make natural gas transportation more accessible to gas buyers and sellers on an open and non-discriminatory basis, and the FERC's efforts have significantly altered the marketing and pricing of natural gas. A related effort has been made with respect to intrastate pipeline operations pursuant to the FERC's authority under Section 311 of the NGPA, under which the FERC establishes rules by which intrastate pipelines may participate in certain interstate activities without becoming subject to full NGA jurisdiction. These Orders have gone through various permutations, but have generally remained intact as promulgated.
The FERC considers these changes necessary to improve the competitive structure of the interstate natural gas pipeline industry and to create a regulatory framework that will put gas sellers into more direct contractual relations with gas buyers than has historically been the case.
The FERC's latest action in this area, Order No. 636, issued April 8, 1992, reflected the FERC's finding that under the current regulatory structure, interstate pipelines and other gas merchants, including producers, do not compete on an equal basis. The FERC asserted that Order No. 636 was designed to equalize that marketplace. This equalization process is being implemented through negotiated settlements in individual pipeline service restructuring proceedings, designed specifically to "unbundle" those services (e.g., gathering, transportation, sales and storage) provided by many interstate pipelines so that producers of natural gas may secure services from the most economical source, whether interstate pipelines or other parties. In many instances, the result of the FERC initiatives has been to substantially reduce or bring to an end the interstate pipelines' traditional role as wholesalers of natural gas in favor of providing only gathering, transportation and storage services for others which will buy and sell natural gas. The FERC has issued final orders in all of the individual pipeline restructuring proceedings and all of the interstate pipelines are now operating under new open access tariffs.
Although Order No. 636 does not regulate gas producers, such as the Company, the FERC has stated that Order No. 636 is intended to foster increased competition within all phases of the natural gas industry. It is unclear what impact, if any, increased competition within the natural gas industry under Order No. 636 will have on the Company and its gas sales efforts. In addition, numerous petitions seeking judicial review of Orders No. 636, 636A and 636B and seeking review of the FERC's orders approving open access tariffs for the individual pipelines have already been filed. Because the restructuring requirements that emerge from this lengthy process may be significantly different from those of Order No. 636 as originally promulgated, it is not possible to predict what effect, if any, the final rule resulting from Order No. 636 will have on the Company. The Company does not believe that it will be affected by any action taken with respect to Order No. 636 any differently than other gas producers and marketers with which it competes.
In late 1993, the FERC initiated a proceeding seeking industry-wide comments about its role in regulating natural gas gathering performed by interstate pipelines or their affiliates. In 1994, the FERC granted a number of interstate pipeline applications to abandon certificated gathering facilities to non-jurisdictional entities. The rates charged by these entities, which may or may not be affiliated with the interstate pipeline, are no longer regulated by the FERC. Under the individual orders, gathering services must be continued to existing customers and be provided in an open-access and non-discriminatory manner. These orders are now subject to rehearing before the FERC and numerous parties will likely seek judicial review.
The oil and gas exploration and production operations of the Company are subject to various types of regulation at the state and local levels. Such regulation includes requiring drilling permits and the maintenance of bonds in order to drill or operate wells; the regulation of the location of wells; the method of drilling and casing of wells and the surface use and restoration of properties upon which wells are drilled; and the plugging and abandoning of wells. The operations of the Company are also subject to various conservation regulations, including regulation of the size of drilling and spacing units or proration units, the density of wells that may be drilled in a given area and the unitization or pooling of oil and gas properties. In this regard, some states allow the forced pooling or integration of lands and leases. In addition, state conservation laws establish maximum rates of production from oil and gas wells, generally prohibit the venting or flaring of gas and impose certain requirements regarding the ratability of production. The effect of these regulations is to limit the amounts of crude oil, condensate and natural gas the Company can produce from its wells and the number of wells or the locations at which the Company can drill.
Additional proposals and proceedings that might affect the natural gas industry are considered from time to time by Congress, the FERC, state regulatory bodies and the courts. The Company cannot predict when or if any such proposals might become effective, or their effect, if any, on the Company's operations. The natural gas industry historically has been very heavily regulated; therefore, there is no assurance that the less stringent regulatory approach recently pursued by the FERC and Congress will continue indefinitely into the future.
ENVIRONMENTAL CONTROLS. Federal, state, area and local laws, regulations and ordinances relating to the protection of the environment affect all operations of the Company to some degree. An example of a federal environmental law that will require operational additions and modifications is the Clean Air Act, which was amended in 1990. While the Company believes that its facilities generally are in substantial compliance with current regulatory standards for air emissions, over the next several years the Company's facilities will be required to comply with the new requirements being adopted and promulgated by the U.S. Environmental Protection Agency (the "EPA") and the states in which the Company operates. These regulations will necessitate the installation of additional controls or other modifications or changes in use for certain emission sources. At this time, the Company can only estimate when new standards will be imposed by the EPA or relevant state agencies, or what technologies or changes in processes the Company may have to install or undertake to achieve compliance with any applicable new requirements. The Company's refinery as well as some other Company facilities will require submission of an application for a Clean Air Act Amendment Title V permit during 1995. When issued, although specifics are still undetermined, the amended permit will involve stricter monitoring requirements and additional equipment. The Company believes it can comply with these new requirements without adversely affecting operations.
The passage of the Federal Clean Air Act Amendments of 1990 prompted adoption of regulations by the State obligating the Company to produce oxygenated gasoline for delivery to the Anchorage and Fairbanks, Alaska markets starting on November 1, 1992. Controversies surrounding the potential health effects in Arctic regions of oxygenated gasoline containing methyl tertiary butyl ether ("MTBE") prompted early discontinuance of the program in Fairbanks. On October 21, 1993, the United States Congress granted the State one additional year of exemption from requiring the use of oxygenated gasoline. In addition, the EPA has been directed to conduct additional studies of potential health effects of oxygenated fuel in Alaska. In the fall of 1994, the State mandated the use of oxygenated fuels containing ethanol in the Anchorage area, from January 1, through February 28, 1995. This was a shortened period due to time constraints faced by gasoline sellers in transporting ethanol to Alaska, and in making the necessary modifications to terminal facilities for blending of the products. In following years, the period for use of oxygenated gasoline in Anchorage will be November 1, through the last day of February of the succeeding year. No requirements for use of such products in Fairbanks have been issued, but are expected. Additional federal regulations promulgated on August 21, 1990, which went into effect on October 1, 1993, set limits on the quantity of sulphur in on-highway diesel fuels which the Company produces. The State filed an application with the federal government in February 1993 for a waiver from this requirement since only 5% of the diesel fuel sold in Alaska was for on-highway vehicles. The EPA supported the State's position and formalities for obtaining the exemption were completed on September 27, 1993. The EPA, in a letter to the State dated September 30, 1993, stated that the EPA was completing the final documentation regarding the waiver and that Alaska would have a low priority for enforcement of the diesel fuel regulations, pending publication of a final decision, which has not yet occurred. The Company estimates that substantial capital expenditures would be required to enable the Company to produce low-sulphur diesel fuel to meet these federal regulations. If the State is unable to obtain a permanent waiver from the federal regulations, the Company would discontinue sales of diesel fuel for on-highway use. The Company estimates that such sales accounted for less than 1% of its refined product sales in Alaska during 1994. While the Company is unable to predict the outcome of these matters; their ultimate resolution should not have a material impact on its operations.
OIL SPILL PREVENTION AND RESPONSE. The Federal Oil Pollution Act of 1990 ("OPA 90") and related state regulations require most refining, transportation and oil storage facilities to prepare oil spill prevention contingency plans for use during an oil spill response. The Company has prepared and submitted these plans for approval and, in most cases, has received federal and state approvals necessary to meet various regulations and to avoid the potential of negative impacts on the operation of its facilities.
The Company currently charters a tanker to transport crude oil from the Valdez, Alaska, pipeline terminal through Prince William Sound and Cook Inlet to its refinery. In addition, the Company routinely charters, on a long-term and spot basis, additional tankers and barges for shipment of crude oil and refined products through Cook Inlet, as well as other locations. OPA 90 requires, as a condition of operation, that the Company demonstrate the capability to respond to the "worst case discharge" to the maximum extent
practicable. Alaska law requires the Company to provide spill-response capability to contain or control, and clean-up within 72 hours, an amount equal to 50,000 barrels for a tanker carrying fewer than 500,000 barrels of crude oil or equal to 300,000 barrels for a tanker carrying more than 500,000 barrels. To meet these requirements, the Company has entered into a contract with Alyeska Pipeline Service Company ("Alyeska") to provide initial spill response services in Prince William Sound, with the Company later to assume those responsibilities after mutual agreement with Alyeska and State and Federal On-Scene Coordinators. The Company has also entered into an agreement with Cook Inlet Spill Prevention and Response, Incorporated for oil spill response services in Cook Inlet. The Company believes these contracts provide for the additional services necessary to meet spill response requirements established by Alaska and federal law.
Transportation, storage, and refining of crude oil in Alaska result in the greatest regulatory impact, with respect to oil spill prevention and response. Oil transportation and terminaling operations at other Company facilities also result in compliance mandates for oil spill prevention and response. The Company contracts with various oil spill response cooperatives or local contractors to provide necessary oil spill response capabilities which may be required on a location by location basis.
Current State regulations in Alaska require installation of dike liners in secondary containment systems for petroleum storage tanks by January 1997. This requirement affects all storage tanks. New storage tanks built after 1992 must have such liners and older tanks must be retrofitted and have liners installed. The Company expects the deadline for this work to be extended and possibly changed to lessen its financial impact. However, if such changes do not occur, expenditures in the range of $8 million by January 1997 will be required to bring the Company's tanks into compliance.
UNDERGROUND STORAGE TANKS. Regulations promulgated by the EPA on September 23, 1988, require that all underground storage tanks used for storing gasoline or diesel fuel either be closed or upgraded not later than December 22, 1998, in accordance with standards set forth in the regulations. The Company's service stations subject to the upgrade requirements are limited to locations within the State of Alaska. The Company continues to monitor, test and make physical improvements in its current operations which result in a cleaner environment. The Company may be required to make significant expenditures for removal or upgrading of underground storage tanks at several of its current and former service station locations by December 22, 1998; however, the Company does not expect to make any material capital expenditures for such purposes during 1995 and 1996 and does not expect that such expenditures subsequent to 1996 will have a material adverse effect on the financial condition of the Company.
ENVIRONMENTAL EXPENDITURES. The Company incurred capital expenditures of approximately $2.7 million for environmental control purposes during 1994 and anticipates incurring approximately $2 million for such purposes during 1995, primarily for the removal and upgrading of underground storage tanks, and approximately $8 million during 1996 for the installation of dike liners required under Alaska environmental regulations as discussed above. For further information regarding environmental matters, see "Legal Proceedings" in Item 3 and "Environmental Controls" and "Underground Storage Tanks" discussed above.
BOLIVIA
The Company's operations in Bolivia are subject to the Bolivian General Law of Hydrocarbons and various other laws and regulations. The General Law of Hydrocarbons imposes certain limitations on the Company's ability to conduct its operations in Bolivia. In the Company's opinion, neither the General Law of Hydrocarbons nor other limitations currently imposed by Bolivian laws, regulations and practices will have a material adverse effect upon its Bolivian operations.
TAXES
UNITED STATES
The Revenue Reconciliation Act of 1993 will impose a tax of 4.3 cents per gallon on commercial aviation fuel effective October 1, 1995. The Company does not believe such tax will have a material adverse effect on the Company's future operations.
BOLIVIA
The Company is subject to Bolivian taxation at the rate of 30% of the gross production of hydrocarbons at the wellhead, which is retained and paid by YPFB for the Company's account. In 1987, the Bolivian General Corporate Income Tax Law was replaced by a tax system, including a value-added tax, which is not imposed on net income. As a result, it is uncertain whether the Company can treat the Bolivian hydrocarbons tax as creditable in the United States for federal income tax purposes. However, due to the Company's net operating loss carryforwards, the Company does not now, or in the near future, expect to use these taxes as credits for federal income tax purposes. In December 1994, Bolivia modified its 1987 tax system, and reintroduced a tax on net income. Until such time as regulations are issued, it is unclear whether the Company can treat the 30% gross production taxes as creditable for U.S. tax purposes.
In 1990, the Bolivian Government passed a General Law of Hydrocarbons containing provisions designed to ensure the creditability, for United States federal income tax purposes, of these hydrocarbon taxes if the Company makes an election that may subject it to a higher Bolivian tax rate in the future. Regulations under this law have not been issued; however, the Company does not anticipate that this law will have a material adverse effect on the Company's Bolivian operations.
EMPLOYEES
At December 31, 1994, the Company employed approximately 870 persons, of which approximately 40 were located in foreign countries. None of the Company's employees are represented by a union for collective bargaining purposes. The Company considers its relations with its employees to be satisfactory.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the Company's executive officers, their ages and their positions with the Company at March 1, 1995.
NAME AGE POSITION POSITION HELD SINCE
- --------------------------------- --- --------------------------------- -------------------
Michael D. Burke................. 51 President and Chief Executive July 1992
Officer
Gaylon H. Simmons................ 55 Executive Vice President September 1993
Bruce A. Smith................... 51 Executive Vice President and September 1993
Chief Financial Officer
James W. Queen................... 55 Senior Vice President February 1994
James C. Reed, Jr. .............. 50 Senior Vice President, General August 1994
Counsel and Secretary
Don E. Beere..................... 54 Vice President, Controller February 1992
William T. Van Kleef............. 43 Vice President, Treasurer March 1993
Gregory A. Wright................ 45 Vice President, Corporate February 1995
Communications
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There are no family relationships among the officers listed, and there are no arrangements or understandings pursuant to which any of them were elected as officers. Officers are elected annually by the Board of Directors at its first meeting following the Annual Meeting of Stockholders, each to hold office until the corresponding meeting of the Board in the next year or until a successor shall have been elected or shall have qualified.
All of the Company's executive officers have been employed by the Company or its subsidiaries in an executive capacity for at least the past five years, except for those named below who have had the business experience indicated during that period. Positions, unless otherwise specified, are with the Company.
Michael D. Burke -- President and Chief Executive Officer since July 1992.
President and Chief Executive Officer of T.E. Products Pipeline
Company, L.P., an affiliate of Texas Eastern Corporation, from
1990 to 1992. President of Texas Eastern Products Pipeline
Company and Group Vice President of Texas Eastern Corporation
from 1986 to 1990.
Gaylon H. Simmons -- Executive Vice President responsible for Refining, Marketing
and Crude Supply Operations since September 1993. Senior Vice
President, Refining, Marketing and Crude Supply from January
1993 to September 1993. President and Chief Executive Officer
of Simmons Sirvey Group, Inc. from 1991 to December 1992.
President and Chief Executive Officer of Permian Corporation
from 1989 to 1991. Vice President, Supply and Marketing for
MAPCO Petroleum, Inc. from 1985 to 1989.
Bruce A. Smith -- Executive Vice President responsible for Exploration and
Production Operations and Chief Financial Officer since
September 1993. Vice President and Chief Financial Officer from
September 1992 to September 1993. Vice President and Treasurer
of Valero Energy Corporation from 1986 to 1992.
James C. Reed, Jr. -- Senior Vice President, General Counsel and Secretary since
August 1994. Vice President, General Counsel and Secretary from
September 1993 to August 1994. Vice President, Secretary from
December 1992 to September 1993. Vice President, Secretary of
Tesoro Petroleum Companies, Inc., from February 1992 to
December 1992. Vice President, Assistant Secretary of Tesoro
Petroleum Companies, Inc., from 1990 to 1992. Assistant General
Counsel and Assistant Secretary from 1982 to 1990.
Don E. Beere -- Vice President, Controller since February 1992. Vice President,
Internal Audit and Management Systems of Tesoro Petroleum
Companies, Inc. from 1990 to 1992. Director, Internal Audit and
Management Systems from 1989 to 1990. Director, Internal Audit
from 1986 to 1989.
William T. Van Kleef -- Vice President, Treasurer since March 1993. Financial
Consultant from January 1992 to February 1993. Consultant to
Parker & Parsley (successor to the assets and operations of
Damson Oil Corporation and its affiliates) from February 1991
to December 1991. Vice President and Chief Financial Officer of
Damson Oil Corporation from 1986 to 1991.
Gregory A. Wright -- Vice President, Corporate Communications since February 1995.
Vice President, Corporate Communications of Tesoro Petroleum
Companies, Inc. from January 1995 to February 1995. Vice
President, Business Development of Valero Energy Corporation
from 1994 to January 1995. Vice President, Corporate Planning
of Valero Energy Corporation from 1992 to 1994. Vice President,
Investor Relations of Valero Energy Corporation from 1989 to
1992.
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ITEM 2. PROPERTIES
See information appearing under Item 1, Business herein and Notes B, F and P of Notes to Consolidated Financial Statements in Item 8.
ITEM 3. LEGAL PROCEEDINGS
TENNESSEE GAS CONTRACT. The Company is selling a portion of the gas from its Bob West Field to Tennessee Gas Pipeline Company ("Tennessee Gas") under a Gas Purchase and Sales Agreement (the "Tennessee Gas Contract") which provides that the price of gas shall be the maximum price as calculated in accordance with Section 102(b)(2) ("Contract Price") of the Natural Gas Policy Act of 1978 ("NGPA"). Tennessee Gas filed suit against the Company in the District Court of Bexar County, Texas alleging that the Tennessee Gas Contract is not applicable to the Company's properties and that the gas sales price should be the price calculated under the provisions of Section 101 of the NGPA rather than the Contract Price. During December 1994, the Contract Price was in excess of $8.00 per Mcf, the Section 101 price was $4.81 per Mcf and the average spot market price was $1.56 per Mcf. Tennessee Gas also claimed that the contract should be considered an "output contract" under Section 2.306 of the Texas Business and Commerce Code and that the increases in volumes tendered under the contract exceeded those allowable for an output contract.
The District Court judge returned a verdict in favor of the Company on all issues. On appeal by Tennessee Gas, the Court of Appeals for the Fourth Supreme Judicial District of Texas affirmed the validity of the Tennessee Gas Contract as to the Company's properties and held that the price payable by Tennessee Gas for the gas was the Contract Price. The Court of Appeals remanded the case to the trial court based on its determination (i) that the Tennessee Gas Contract was an output contract and (ii) that a fact issue existed as to whether the increases in the volumes of gas tendered to Tennessee Gas under the contract were made in bad faith or were unreasonably disproportionate to prior tenders. The Company sought review of the appellate court ruling on the output contract issue in the Supreme Court of Texas. Tennessee Gas also sought review of the appellate court ruling denying the remaining Tennessee Gas claims in the Supreme Court of Texas. The Supreme Court of Texas heard arguments in December 1994 regarding the output contract issue and certain of the issues raised by Tennessee Gas but has not yet issued its opinion.
Although the outcome of any litigation is uncertain, management, based upon
advice from outside legal counsel, is confident that the decision of the trial
and appellate courts will ultimately be upheld as to the validity of the
Tennessee Gas Contract and the Contract Price. If the Supreme Court of Texas
were to affirm the appellate court ruling, the Company believes that the only
issue for trial should be whether the increases in the volumes of gas tendered
to Tennessee Gas from the Company's properties were made in bad faith or were
unreasonably disproportionate. The appellate court decision was the first
reported decision in Texas holding that a take-or-pay contract was an output
contract. As a result, it is not clear what standard the trial court would be
required to apply in determining whether the increases were in bad faith or
unreasonably disproportionate. The appellate court acknowledged in its opinion
that the standards used in evaluating other kinds of output contracts would not
be appropriate in this context. The Company believes that the appropriate
standard would be whether the development of the field was undertaken in a
manner that a prudent operator would have undertaken in the absence of an
above-market sales price. Under that standard, the Company believes that, if
this issue is tried, the development of the Company's gas properties and the
resulting increases in volumes tendered to Tennessee Gas will be found to have
been reasonable and in good faith. Accordingly, the Company has recognized
revenues, net of production taxes and marketing charges, for natural gas sales
through December 31, 1994, under the Tennessee Gas Contract based on the
Contract Price, which net revenues aggregated $36.9 million more than the
Section 101 prices and $69.5 million in excess of the spot market prices. If
Tennessee Gas were ultimately to prevail in this litigation, the Company could
be required to return to Tennessee Gas $52.5 million, plus interest if awarded
by the court, representing the difference between the spot market price and the
Contract Price received by the Company through September 17, 1994 (the date on
which the Company entered into a bond agreement discussed below). In addition,
the Company's calculation of the standardized measure of discounted future net
cash flows relating to proved reserves in the United States at December 31, 1994
of $127 million was determined in part using the Contract Price as
compared with $73 million at spot market prices. An adverse judgment in this case could have a material adverse effect on the Company.
On August 4, 1994, the trial court rejected a motion by Tennessee Gas to
post a supersedeas bond in the form of monthly payments into the registry of the
court representing the difference between the Contract Price and spot market
price of gas sold to Tennessee Gas pursuant to the Tennessee Gas Contract. The
court advised Tennessee Gas that should it wish to supersede the judgment,
Tennessee Gas had the option to post a bond which would be effective only until
August 1, 1995, in an amount equal to the anticipated value of the Tennessee Gas
Contract during that period. In September 1994, the court ordered that,
effective until August 1, 1995, Tennessee Gas (i) take at least its entire
monthly take-or-pay obligation under the Tennessee Gas Contract, (ii) pay for
gas at $3.00 per Mmbtu, which approximates $3.00 per Mcf ("Bond Price"), and
(iii) post a $120 million bond with the court representing an amount which,
together with anticipated sales of natural gas to Tennessee Gas at the Bond
Price, will equal the anticipated value of the Tennessee Gas Contract during
this interim period. The Bond Price is nonrefundable by the Company, and the
Company retains the right to receive the full Contract Price for all gas sold to
Tennessee Gas. The Company continues to recognize revenues under the Tennessee
Gas Contract based on the Contract Price. At December 31, 1994, the Company had
recognized cumulative revenues in excess of spot market prices (through
September 17, 1994) and in excess of the Bond Price (subsequent to September 17,
1994) totaling $65.7 million. Receivables at December 31, 1994, included $17.7
million from Tennessee Gas, of which $13.2 million represented the difference
between the Contract Price and the Bond Price. For further information regarding
the Tennessee Gas Contract, see Notes L and P of Notes to Consolidated Financial
Statements in Item 8.
MINERAL ESTATE CLAIM. In February 1995, a lawsuit was filed in the U.S.
District Court for the Southern District of Texas, McAllen Division, by the
Heirs of H.P. Guerra, Deceased ("Plaintiffs") against the United States and
Tesoro and other working and overriding royalty interest owners to recover the
oil and gas mineral estate under 2,706.34 acres situated in Starr County, Texas.
The oil and gas mineral estate sought to be recovered underlies lands taken by
the United States in connection with the construction of the Falcon Dam and
Reservoir. In their lawsuit, the Plaintiffs allege that the original taking by
the United States in 1948 was unlawful and void and the refusal of the United
States to revest the mineral estate to H.P. Guerra or his heirs was arbitrary
and capricious and unconstitutional. Plaintiffs seek (i) restoration of their
oil and gas estate; (ii) restitution of all proceeds realized from the sale of
oil and gas from their mineral estate, plus interest on the value thereof; and
(iii) cancellation of all oil and gas leases issued by the United States to
Tesoro and the other working interest owners covering their mineral estate. The
lawsuit covers a significant portion of the mineral estate in the Bob West
Field; however, none of the acreage covered is dedicated to the Tennessee Gas
Contract. The Company cannot predict the ultimate resolution of this matter but,
based upon advice from outside legal counsel, believes the lawsuit is without
merit.
REFUND CLAIM. In July 1994, Simmons Oil Corporation, also known as David Christopher Corporation, a former customer of the Company ("Customer"), filed suit against the Company in the United States District Court for the District of New Mexico for a refund in the amount of approximately $1.2 million, plus interest of approximately $4.4 million and attorney's fees, related to a gasoline purchase from the Company in 1979. The Customer also alleges entitlement to treble damages and punitive damages in the aggregate amount of $16.8 million. The refund claim is based on allegations that the Company renegotiated the acquisition price of gasoline sold to the Customer and failed to pass on the benefit of the renegotiated price to the Customer in violation of Department of Energy price and allocation controls then in effect. The Company cannot predict the ultimate resolution of this matter but believes the claim is without merit.
ENVIRONMENTAL MATTERS. In March 1991, the Company entered into a Consent Order with the Alaska Department of Environmental Conservation ("ADEC") substantially similar to Consent Orders reached with the EPA in September 1989. These Consent Orders provide for the investigation and cleanup of hydrocarbons in the soil and groundwater at the Company's Alaska refinery, which resulted from sewer hub seepage associated with the underground oil/water sewer system. The Consent Orders formalized efforts, which commenced in 1987, to remedy the presence of hydrocarbons in the soil and groundwater and provide for the performance of additional future work. The Company has replaced or rebuilt the drainage hubs and has
initiated a subsurface monitoring and interception system designed to identify the extent of hydrocarbons present in the groundwater and to remove the hydrocarbons.
In March 1992, the Company received a Compliance Order and Notice of Violation from the Environmental Protection Agency (the "EPA") alleging violations by the Company of the New Source Performance Standards under the Clean Air Act at its Alaska refinery. These allegations include failure to install, maintain and operate monitoring equipment over a period of approximately six years, failure to perform accuracy testing on monitoring equipment, and failure to install certain pollution control equipment. From March 1992 to July 1993, the EPA and the Company exchanged information relevant to these allegations. In addition, the EPA conducted an environmental audit of the Company's refinery in May 1992. As a result of this audit, the EPA is also alleging violation of certain regulations related to asbestos materials. In October 1993, the EPA referred these matters to the Department of Justice ("DOJ"). The DOJ contacted the Company to begin negotiating a resolution of these matters. The DOJ has indicated that it is willing to enter into a judicial consent decree with the Company and that this decree would include a penalty assessment. Negotiations on the penalty are in progress. The DOJ has proposed a penalty assessment of approximately $3.7 million. The Company is continuing to negotiate with the DOJ but cannot predict the ultimate outcome of the negotiations.
The Company, along with numerous other parties, has been identified by the EPA as a potentially responsible party ("PRP") pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") for the Mud Superfund site in Abbeville, Louisiana. The Company arranged for the disposal of a minimal amount of materials at this location, but CERCLA imposes joint and several liability on each PRP. The EPA is seeking reimbursement for its response costs incurred to date at the site, as well as a commitment from the PRPs either to conduct future remedial activities or to finance such activities. At this time, the Company is unable to determine the extent of the Company's liability related to this site; however, the extent of the Company's allocated financial contribution to the cleanup of this site is expected to be minimal based on the number of companies and the volumes of waste involved and the payment by the Company of a de minimus settlement amount of $2,500 at a similar site in Louisiana. The Company believes that the aggregate amount of such liability, if any, would not have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The principal markets on which the Company's Common Stock is traded are the New York Stock Exchange and the Pacific Stock Exchange. The per share market price ranges for the Company's Common Stock during 1994 and 1993 are summarized below:
1994 1993
------------ -----------
QUARTERS HIGH LOW HIGH LOW
----------------------------------------------- ---- --- --- ---
First.......................................... $12 3/8 5 1/4 5 5/8 3
Second......................................... $12 1/8 9 7/8 6 5/8 5
Third.......................................... $11 1/4 8 1/2 7 3/4 5 1/8
Fourth......................................... $ 10 8 1/2 7 1/2 5 1/8
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At March 1, 1995, there were approximately 4,300 holders of record of the Company's 24,534,430 outstanding shares of Common Stock. The Company did not pay dividends on its Common Stock for the periods set forth above.
For information regarding restrictions on future dividend payments, see Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and Note I of Notes to Consolidated Financial Statements in Item 8.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and the Company's Consolidated Financial Statements, including the notes thereto, in Item 8.
YEARS ENDED THREE MONTHS YEARS ENDED
DECEMBER 31, ENDED SEPTEMBER 30,
---------------------- DECEMBER 31, ---------------
1994 1993 1992 1991(1) 1991 1990
------ ----- ----- ------------ ------------ ------------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
STATEMENTS OF OPERATIONS DATA
Gross Operating Revenues:
Refining and Marketing................................... $687.0 687.2 810.7 196.8 898.6 860.5
Exploration and Production(2)............................ 106.3 63.1 42.7 12.5 59.2 32.4
Oil Field Supply and Distribution........................ 77.9 80.7 93.5 36.5 134.3 103.7
Intersegment eliminations(3)............................. -- -- (.4) (5.2) (7.1) --
------ ----- ----- ----- ------------ -----
Total Gross Operating Revenues......................... $871.2 831.0 946.5 240.6 1,085.0 996.6
====== ===== ===== ============ ====== =====
Segment Operating Profit (Loss):
Refining and Marketing................................... $ 2.4 15.2 (14.9) 1.7 19.3 48.2
Exploration and Production(2)............................ 64.3 40.7 29.1 7.4 35.6 16.8
Oil Field Supply and Distribution........................ (2.3) (3.6) (4.7) (1.2) (.5) 2.9
------ ----- ----- ----- ------------ -----
Total Segment Operating Profit......................... $ 64.4 52.3 9.5 7.9 54.4 67.9
====== ===== ===== ============ ====== =====
Earnings (Loss) Before Extraordinary Loss and the
Cumulative Effect of Accounting Changes.................. $ 20.5 17.0 (45.3) (.4) 3.9 22.7
Extraordinary Loss on Extinguishment of Debt............... (4.8) -- -- -- -- --
Cumulative Effect of Accounting Changes.................... -- -- (20.6) -- -- --
------ ----- ----- ----- ------------ -----
Net Earnings (Loss)(4)..................................... $ 15.7 17.0 (65.9) (.4) 3.9 22.7
====== ===== ===== ============ ====== =====
Net Earnings (Loss) Applicable to Common Stock(4).......... $ 13.0 7.8 (75.1) (2.7) (5.3) 13.5
====== ===== ===== ============ ====== =====
Earnings (Loss) per Primary and Fully Diluted* Share(4)(5):
Earnings (loss) before extraordinary loss and the
cumulative effect of accounting changes................ $ .77 .54 (3.87) (.19) (.37) .96
Extraordinary loss on extinguishment of debt............. (.21) -- -- -- -- --
Cumulative effect of accounting changes.................. -- -- (1.47) -- -- --
------ ----- ----- ----- ------------ -----
Net earnings (loss)...................................... $ .56 .54 (5.34) (.19) (.37) .96
====== ===== ===== ============ ====== =====
Average Common and Common Equivalent Shares Outstanding(5):
Primary.................................................. 23.2 14.3 14.1 14.1 14.1 14.1
Fully diluted............................................ 24.7 19.1 18.8 18.8 18.8 18.8
CAPITAL EXPENDITURES
Refining and Marketing................................... $ 32.0 7.1 3.7 .8 4.4 6.9
Exploration and Production............................... 65.6 29.3 9.3 3.0 19.3 13.2
Other.................................................... 2.0 1.1 2.4 .1 .8 3.0
------ ----- ----- ----- ------------ -----
Total Capital Expenditures............................. $ 99.6 37.5 15.4 3.9 24.5 23.1
====== ===== ===== ============ ====== =====
BALANCE SHEET AND OTHER DATA
Total Assets............................................... $484.4 434.5 446.7 494.7 496.8 504.9
Working Capital............................................ $ 85.9 124.5 122.6 106.1 95.4 117.9
Long-Term Debt and Other Obligations, Including Current
Portion(5)............................................... $199.6 185.5 201.7 189.4 184.7 168.0
Redeemable Preferred Stock(5).............................. $ -- 78.1 71.7 57.4 57.4 57.4
Common Stock and Other Stockholders' Equity(5)(6).......... $160.7 58.5 50.7 137.0 137.4 141.4
|
* Anti-dilutive.
(1) The Company's fiscal year-end was changed from September 30 to December 31, effective January 1, 1992.
(2) The Company is involved in litigation related to a natural gas sales contract. For additional information concerning this dispute, see Legal Proceedings in Item 3 and Notes L and P of Notes to Consolidated Financial Statements in Item 8.
(3) Intersegment eliminations represent sales from Refining and Marketing to Oil Field Supply and Distribution, at prices which approximate market.
(4) The net loss for 1992 included a charge of $20.6 million for the cumulative effect of the adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 109, "Accounting for Income Taxes". Net earnings for 1994 included a $4.8 million extraordinary loss related to an early extinguishment of debt in connection with a recapitalization.
(5) For information on the Company's recapitalization and equity offering in 1994, see Note C of Notes to Consolidated Financial Statements in Item 8.
(6) No dividends were paid on common shares during the periods presented above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
During 1994, the Company significantly strengthened its short-term and long-term liquidity and increased its equity capital and financial resources. These improvements were achieved by consummation of a recapitalization plan and equity offering whereby a major portion of the Company's outstanding debt was restructured and all of its preferred stock and dividend arrearages were eliminated and which, among other matters, deferred $44 million of debt service requirements, increased stockholders' equity by approximately $82 million and eliminated $9.2 million of annual preferred dividend requirements (see Note C of Notes to Consolidated Financial Statements in Item 8). In addition, the Company entered into a $125 million corporate Revolving Credit Facility and obtained $15 million financing for a major addition to the Company's refinery. These accomplishments, together with the Company's cash flows from operations, enabled the Company to invest $99.6 million in capital projects during 1994 and have better positioned the Company for future profitability and growth.
The Company operates in an environment where markets for crude oil, natural gas and refined products historically have been volatile and are likely to continue to be volatile in the future. The Company's operating margins and liquidity are subject to fluctuation in response to changes in the supply of and demand for crude oil, natural gas and refined petroleum products, market uncertainty and a variety of additional factors that are beyond the control of the Company. These factors include, among others, the level of consumer product demand, weather conditions, the proximity of the Company's natural gas reserves to pipelines, the capacities of such pipelines, fluctuations in seasonal demand, governmental regulations, the price and availability of alternative fuels and overall economic conditions. The Company cannot predict the future markets and prices for the Company's natural gas or refined products and the resulting future impact on earnings and cash flows. Due to the effect of depressed market conditions (see "Results of Operations" below), the Company's operations will continue to be adversely affected for so long as these market conditions exist. The Company's future capital expenditures, borrowings under its credit arrangements and other sources of capital will be affected by these conditions.
CREDIT ARRANGEMENTS
During April 1994, the Company entered into a three-year, $125 million corporate Revolving Credit Facility with a consortium of ten banks, replacing certain interim financing arrangements. The Revolving Credit Facility, which is subject to a borrowing base, provides for (i) the issuance of letters of credit up to the full amount of the borrowing base as calculated and (ii) cash borrowings up to the amount of the borrowing base attributable to domestic oil and gas reserves. Outstanding obligations under the Revolving Credit Facility are secured by liens on substantially all of the Company's trade accounts receivable and product inventory and by mortgages on the Company's refinery and South Texas natural gas reserves. At December 31, 1994, the borrowing base of approximately $107 million included a domestic oil and gas reserve component of $45 million. At December 31, 1994, the Company had outstanding letters of credit under the Revolving Credit Facility of approximately $48 million with no cash borrowings outstanding. Although at December 31, 1994 there were no cash borrowings outstanding under the Revolving Credit Facility, the Company expects to incur short-term borrowings from time to time in 1995 under the Revolving Credit Facility to finance working capital requirements and, to a lesser extent, capital expenditures.
Under the terms of the Revolving Credit Facility, as amended, the Company is required to maintain specified levels of working capital, tangible net worth, consolidated cash flow and refinery cash flow, as defined in the Revolving Credit Facility. Among other matters, the Revolving Credit Facility has certain restrictions with respect to (i) capital expenditures, (ii) incurrence of additional indebtedness, and (iii) dividends on capital stock. The Revolving Credit Facility contains other covenants customary in credit arrangements of this kind. During the third and fourth quarters of 1994, the Company did not satisfy the refinery cash flow requirement which required a waiver and an amendment to the Revolving Credit Facility. Future compliance with financial covenants under the amended Revolving Credit Facility is primarily dependent on the
Company's cash flows from operations, capital expenditures, levels of borrowings under the Revolving Credit Facility and the value of the Company's domestic oil and gas reserves. Based on current market conditions, including the volatility in refinery margins and the recent downturn in the price of natural gas, continued compliance with such covenants is not assured. If the Company is not able to continue to comply with its financial covenants, it will be required to seek waivers or amendments from its banks. If such an event occurs, the Company believes it will be able to negotiate terms and conditions with its banks under the Revolving Credit Facility which will allow the Company to adequately finance its operations. For further information concerning such restrictions and covenants, see Note I of Notes to Consolidated Financial Statements in Item 8.
During May 1994, the National Bank of Alaska and the Alaska Industrial Development & Export Authority agreed to provide a loan to the Company of up to $15 million of the cost of the vacuum unit for the Company's refinery (the "Vacuum Unit Loan"). The Vacuum Unit Loan matures January 1, 2002 and is secured by a first lien on the refinery. At December 31, 1994, the Company had borrowed $15 million under the Vacuum Unit Loan. The Vacuum Unit Loan contains covenants and restrictions similar to those under the Revolving Credit Facility. At December 31, 1994, the Company satisfied all of its covenants except for an annual refinery cash flow requirement, as defined in the Vacuum Unit Loan. The lenders waived this refinery cash flow requirement for the year ended December 31, 1994. For further information on the Vacuum Unit Loan, see Note I of Notes to Consolidated Financial Statements in Item 8.
DEBT AND OTHER OBLIGATIONS
The Company's funded debt obligations as of December 31, 1994 included approximately $64.6 million principal amount of 12 3/4% Subordinated Debentures ("Subordinated Debentures"), which bear interest at 12 3/4% per annum and require sinking fund payments sufficient to annually retire $11.25 million principal amount of Subordinated Debentures. As part of a recapitalization, $44.1 million principal amount of Subordinated Debentures was tendered in exchange for a like principal amount of new 13% Exchange Notes ("Exchange Notes"). This exchange satisfied the 1994 sinking fund requirement and, except for $.9 million, will satisfy sinking fund requirements for the Subordinated Debentures through 1997. The indenture governing the Subordinated Debentures contains certain covenants, including a restriction that prevents the current payment of cash dividends on Common Stock and currently limits the Company's ability to purchase or redeem any shares of its capital stock. The Exchange Notes bear interest at 13% per annum, mature December 1, 2000 and have no sinking fund requirements. The limitation on dividend payments included in the indenture governing the Exchange Notes is less restrictive than the limitation imposed by the Subordinated Debentures. The Subordinated Debentures and Exchange Notes are redeemable at the option of the Company at 100% of principal amount, plus accrued interest. For further information on redemption provisions and restrictions on dividends, see Note I of Notes to Consolidated Financial Statements in Item 8.
Under an agreement reached in 1993, which settled a contractual dispute with the State of Alaska ("State"), the Company paid the State $10.3 million in January 1993 and is obligated to make variable monthly payments to the State through December 2001 based on a per barrel charge that is currently 16 cents and increases to 33 cents on the volume of feedstock processed at the Company's refinery. In 1994, the Company's variable payments to the State totaled $2.8 million. In January 2002, the Company is obligated to pay the State $60 million; provided, however, that such payment may be deferred indefinitely by continuing the variable monthly payments to the State beginning at 34 cents per barrel for 2002 and increasing one cent per barrel annually thereafter. Variable monthly payments made after December 2001 will not reduce the $60 million obligation to the State. The $60 million obligation is evidenced by a security bond, and the bond and the throughput barrel obligations are secured by a mortgage on the Company's refinery. The Company's obligations under the agreement with the State and the mortgage are subordinated to current and future senior debt of up to $175 million plus any indebtedness incurred subsequent to the date of the agreement to improve the Company's refinery.
CAPITAL EXPENDITURES
Capital spending in 1994 amounted to $99.6 million, compared with $37.5 million in 1993. The Company's cash flows from operating activities of $60 million in 1994, together with existing cash and a $15 million borrowing under the Vacuum Unit Loan, enabled the Company to invest in significant capital projects during the year. The Company's exploration and production activities in South Texas accounted for approximately 66% of the capital expenditures in 1994, primarily for continued development of the Bob West Field. During 1994, the Company participated in the drilling of 20 development wells and two exploratory wells in this field and expanded the field's gas processing facilities and pipelines. In addition, the Company participated in the drilling of five exploratory wells and one unsuccessful development well in other areas of South Texas. Capital projects for the Company's refining and marketing operations for 1994 totaled $32 million, of which $25 million was associated with the refinery's installation of the vacuum unit. The vacuum unit, which became operational in December 1994, will reduce the refinery's yield of residual product about 50% by further processing these volumes into higher-valued products.
Capital spending for 1995 is expected to be financed through a combination of cash flows from operations and borrowings under the Revolving Credit Facility. For 1995, the Company has under consideration total capital expenditures of approximately $65 million. Capital expenditures for the continued development of the Bob West Field and exploratory drilling in other areas of South Texas in 1995 are projected to be $55 million. The amount of such expenditures for exploration and production activities is dependent upon, among other factors, the price the Company receives for its natural gas production. Capital expenditures for 1995 for the refining and marketing segment are projected to be $10 million, primarily for capital improvements at the refinery and expansion of the Company's retail locations in Alaska. For information on litigation related to a natural gas sales contract and the related impact on the Company's cash flows from operations, see "Tennessee Gas Contract" below and Notes L and P of Notes to Consolidated Financial Statements in Item 8.
CASH FLOWS FROM OPERATING, INVESTING AND FINANCING ACTIVITIES
Components of the Company's cash flows are set forth below (in millions):
1994 1993 1992
------ ----- -----
Cash Flows From (Used In):
Operating Activities..................................... $ 60.3 21.8 11.4
Investing Activities..................................... (91.2) (23.4) (21.1)
Financing Activities..................................... 8.3 (8.7) (4.5)
------ ----- -----
Decrease in Cash and Cash Equivalents...................... $(22.6) (10.3) (14.2)
====== ===== =====
|
During 1994, net cash from operating activities increased to $60 million, compared with $22 million in 1993. This increase in cash flows was primarily related to sales of increased natural gas production from the Bob West Field, partially offset by lower prices received for such sales of natural gas and reduced cash flows from the refining and marketing operations. Variable payments to the State of Alaska totaled $2.8 million in 1994. Net cash used in investing activities of $91 million during 1994 included capital expenditures of $100 million, an increase of $63 million from the prior year. These uses of cash in investing activities in 1994 were partially offset by a net decrease of $6 million in short-term investments and cash proceeds of $3 million from sales of assets. Net cash from financing activities of $8 million during 1994 included $15 million in borrowings under the Vacuum Unit Loan and $4 million net proceeds from the equity offering after exercise of an option granted by MetLife Louisiana (see Note C of Notes to Consolidated Financial Statements in Item 8). These financing sources of cash during 1994 were partially offset by the repayment of net borrowings of $5 million under interim financing arrangements early in 1994 and dividends of $2 million paid on preferred stock. At December 31, 1994, the Company's cash totaled $14 million and working capital amounted to $86 million.
During 1993, cash and cash equivalents decreased by $10 million and short-term investments decreased by $14 million. Net cash from operating activities of $22 million in 1993 was primarily due to net earnings adjusted for certain noncash charges, partially offset by payments totaling $12.9 million to the State (under
the settlement agreement entered into in January 1993) and increased working capital requirements. Net cash used in investing activities of $23 million during 1993 included capital expenditures of $37 million, mainly for exploration and production activities in the Bob West Field. During 1993, the Company completed the expansion of a gas processing facility and pipeline and participated in the drilling of 15 development gas wells in this field. In addition, the Company participated in drilling four exploratory wells and one development well outside of the Bob West Field in 1993. These uses of cash in investing activities were partially offset by the net decrease of $14 million in short-term investments. Net cash used in financing activities of $9 million in 1993 included the repurchase of $11.25 million principal amount of Subordinated Debentures for $9.7 million in cash, partially offset by borrowings of $5 million under interim financing arrangements. The Company did not pay dividends on preferred stocks in 1993.
During 1992, cash and cash equivalents decreased by $14 million and short-term investments increased by $20 million. Cash flows from operating activities of $11 million included a net loss, offset by certain significant noncash charges, including the cumulative effect of accounting changes, depreciation, depletion and amortization and the settlement with the State, and by reduced working capital requirements. Net cash used in investing activities of $21 million in 1992 was mainly due to capital expenditures of $15 million, primarily for continued exploration and development activities in the Bob West Field and capital improvements in Alaska, and to the purchase of short-term investments of $24 million. Partially offsetting cash used in investing activities in 1992 were net proceeds of $13 million from sales of assets. During 1992, the Company received, before expenses, $6.8 million from the sale of its Indonesian operations, $3.3 million from the sale of its corporate aircraft and related assets and $2.1 million from the sale of certain exploration and production properties outside of the Bob West Field. Cash flows used in financing activities of $4 million in 1992 included repayment of long-term debt. The Company deferred payments of dividends on preferred stocks in 1992.
TENNESSEE GAS CONTRACT
The Company is selling a portion of the gas from its Bob West Field to Tennessee Gas Pipeline Company ("Tennessee Gas") under a Gas Purchase and Sales Agreement (the "Tennessee Gas Contract") which provides that the price of gas shall be the maximum price as calculated in accordance with Section 102(b)(2) ("Contract Price") of the Natural Gas Policy Act of 1978 ("NGPA"). Tennessee Gas filed suit against the Company in the District Court of Bexar County, Texas alleging that the Tennessee Gas Contract is not applicable to the Company's properties and that the gas sales price should be the price calculated under the provisions of Section 101 of the NGPA rather than the Contract Price. During December 1994, the Contract Price was in excess of $8.00 per Mcf, the Section 101 price was $4.81 per Mcf and the average spot market price was $1.56 per Mcf. Tennessee Gas also claimed that the contract should be considered an "output contract" under Section 2.306 of the Texas Business and Commerce Code and that the increases in volumes tendered under the contract exceeded those allowable for an output contract.
The District Court judge returned a verdict in favor of the Company on all issues. On appeal by Tennessee Gas, the Court of Appeals for the Fourth Supreme Judicial District of Texas affirmed the validity of the Tennessee Gas Contract as to the Company's properties and held that the price payable by Tennessee Gas for the gas was the Contract Price. The Court of Appeals remanded the case to the trial court based on its determination (i) that the Tennessee Gas Contract was an output contract and (ii) that a fact issue existed as to whether the increases in the volumes of gas tendered to Tennessee Gas under the contract were made in bad faith or were unreasonably disproportionate to prior tenders. The Company sought review of the appellate court ruling on the output contract issue in the Supreme Court of Texas. Tennessee Gas also sought review of the appellate court ruling denying the remaining Tennessee Gas claims in the Supreme Court of Texas. The Supreme Court of Texas heard arguments in December 1994 regarding the output contract issue and certain of the issues raised by Tennessee Gas but has not yet issued its opinion.
Although the outcome of any litigation is uncertain, management, based upon advice from outside legal counsel, is confident that the decision of the trial and appellate courts will ultimately be upheld as to the validity of the Tennessee Gas Contract and the Contract Price. If the Supreme Court of Texas were to affirm the appellate court ruling, the Company believes that the only issue for trial should be whether the increases in the volumes of gas tendered to Tennessee Gas from the Company's properties were made in bad faith or were
unreasonably disproportionate. The appellate court decision was the first
reported decision in Texas holding that a take-or-pay contract was an output
contract. As a result, it is not clear what standard the trial court would be
required to apply in determining whether the increases were in bad faith or
unreasonably disproportionate. The appellate court acknowledged in its opinion
that the standards used in evaluating other kinds of output contracts would not
be appropriate in this context. The Company believes that the appropriate
standard would be whether the development of the field was undertaken in a
manner that a prudent operator would have undertaken in the absence of an
above-market sales price. Under that standard, the Company believes that, if
this issue is tried, the development of the Company's gas properties and the
resulting increases in volumes tendered to Tennessee Gas will be found to have
been reasonable and in good faith. Accordingly, the Company has recognized
revenues, net of production taxes and marketing charges, for natural gas sales
through December 31, 1994, under the Tennessee Gas Contract based on the
Contract Price, which net revenues aggregated $36.9 million more than the
Section 101 prices and $69.5 million in excess of the spot market prices. If
Tennessee Gas were ultimately to prevail in this litigation, the Company could
be required to return to Tennessee Gas $52.5 million, plus interest if awarded
by the court, representing the difference between the spot market price and the
Contract Price received by the Company through September 17, 1994 (the date on
which the Company entered into a bond agreement discussed below). In addition,
the Company's calculation of the standardized measure of discounted future net
cash flows relating to proved reserves in the United States at December 31, 1994
of $127 million was determined in part using the Contract Price as compared with
$73 million at spot market prices. An adverse judgment in this case could have a
material adverse effect on the Company.
On August 4, 1994, the trial court rejected a motion by Tennessee Gas to
post a supersedeas bond in the form of monthly payments into the registry of the
court representing the difference between the Contract Price and spot market
price of gas sold to Tennessee Gas pursuant to the Tennessee Gas Contract. The
court advised Tennessee Gas that should it wish to supersede the judgment,
Tennessee Gas had the option to post a bond which would be effective only until
August 1, 1995, in an amount equal to the anticipated value of the Tennessee Gas
Contract during that period. In September 1994, the court ordered that,
effective until August 1, 1995, Tennessee Gas (i) take at least its entire
monthly take-or-pay obligation under the Tennessee Gas Contract, (ii) pay for
gas at $3.00 per Mmbtu, which approximates $3.00 per Mcf ("Bond Price"), and
(iii) post a $120 million bond with the court representing an amount which,
together with anticipated sales of natural gas to Tennessee Gas at the Bond
Price, will equal the anticipated value of the Tennessee Gas Contract during
this interim period. The Bond Price is nonrefundable by the Company, and the
Company retains the right to receive the full Contract Price for all gas sold to
Tennessee Gas. The Company continues to recognize revenues under the Tennessee
Gas Contract based on the Contract Price. At December 31, 1994, the Company had
recognized cumulative revenues in excess of spot market prices (through
September 17, 1994) and in excess of the Bond Price (subsequent to September 17,
1994) totaling $65.7 million. Receivables at December 31, 1994, included $17.7
million from Tennessee Gas, of which $13.2 million represented the difference
between the Contract Price and the Bond Price. For further information regarding
the Tennessee Gas Contract, see Notes L and P of Notes to Consolidated Financial
Statements in Item 8.
ENVIRONMENTAL AND OTHER MATTERS
The Company is subject to extensive federal, state and local environmental laws and regulations. These laws, which change frequently, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites or install additional controls or other modifications or changes in use for certain emission sources. The Company is currently involved in remedial responses and has incurred cleanup expenditures associated with environmental matters at a number of sites, including certain of its own properties. In addition, the Company is holding discussions with the Department of Justice concerning the assessment of penalties with respect to certain alleged violations of the Clean Air Act. (See "Legal Proceedings -- Environmental Matters".) At December 31, 1994, the Company's accruals for environmental matters, including the alleged violations of the Clean Air Act, amounted to $10.8 million. Based on currently available information, including the participation of other parties or former owners in remediation actions, the Company believes these accruals are adequate. In addition, to comply with environmental laws and
regulations, the Company anticipates that it will be required to make capital improvements in 1995 of approximately $2 million, primarily for the removal and upgrading of underground storage tanks, and approximately $8 million during 1996 for the installation of dike liners required under Alaska environmental regulations. Conditions that require additional expenditures may exist for various Company sites, including, but not limited to, the Company's refinery, retail gasoline outlets (current and closed locations) and petroleum product terminals, and for compliance with the Clean Air Act. The amount of such future expenditures cannot currently be determined by the Company. For further information on environmental contingencies, see Note L of Notes to Consolidated Financial Statements in Item 8.
The Company transports its crude oil and a substantial portion of its refined products utilizing Kenai Pipe Line Company's ("KPL") pipeline and marine terminal facilities in Kenai, Alaska. In March 1994, KPL filed a revised tariff with the Federal Energy Regulatory Commission ("FERC") for dock loading services, which would have increased the Company's annual cost of transporting products through KPL's facilities from $1.2 million to $11.2 million. Following FERC's rejection of KPL's tariff filing and the commencement of negotiations for the purchase by the Company of the dock facilities, KPL filed a temporary tariff that has increased the Company's annual cost by approximately $1.5 million. The Company and KPL have entered into an agreement for the purchase by the Company of KPL, subject to regulatory approval. The Company expects that this purchase transaction will be consummated in early 1995.
The Company's contract with the State for the purchase of royalty crude oil expires on December 31, 1995. The Company is currently negotiating with the State for a new three-year contract for the period January 1, 1996 through December 31, 1998. Based on preliminary discussions with the State, the Company believes that a new contract will provide for the purchase of approximately the same volumes of Alaska North Slope ("ANS") royalty crude oil, the primary feedstock for the refinery, as the current contract and will be priced at the weighted average price reported to the State by a major North Slope producer for ANS crude oil as valued at Pump Station No. 1 on the Trans Alaska Pipeline System.
As discussed in Note L of Notes to Consolidated Financial Statements in Item 8, the Company is involved with other litigation and claims, none of which is expected to have a material adverse effect on the financial condition of the Company.
RESULTS OF OPERATIONS
Net earnings of $15.7 million ($.56 per share) for 1994 compare with $17.0 million ($.54 per share) in 1993. The comparability between 1994 and 1993 was impacted by certain significant transactions. The 1994 earnings included a noncash extraordinary loss of $4.8 million on the extinguishment of debt in connection with a recapitalization in early 1994. Earnings before the extraordinary loss were $20.5 million, or $.77 per share, for 1994. Earnings for 1994 were favorably impacted by a refund of $8.5 million received in settlement of a tariff dispute and a gain of $2.4 million from the sale of assets, partially offset by net charges of approximately $7 million related to environmental contingencies and other matters. During 1993, the Company's earnings benefited from the resolution of several state tax issues, resulting in a net reduction of $3.0 million in income tax expense and $5.2 million in interest expense. In addition, a gain of $1.4 million was recognized in 1993 for the retirement of $11.25 million principal amount of Subordinated Debentures, which were purchased in January 1993 to satisfy the initial sinking fund requirement. Excluding these significant transactions from both periods, the improvement in net earnings of approximately $9 million in 1994 was primarily attributable to increased natural gas production from the Company's exploration and production operations in South Texas, partially offset by the impact of lower spot market prices for sales of natural gas and lower operating results from the Company's refining and marketing operations.
Net earnings of $17.0 million ($.54 per share) in 1993 compare with a net loss of $65.9 million ($5.34 per share) in 1992. As described above, earnings in 1993 benefited from the reduction in income taxes and interest expense together with the gain on early extinguishment of debt. The 1992 loss included charges of $20.6 million for the cumulative effect of accounting changes, $10.5 million for settlement of a contractual dispute with the State and $9.1 million for a cost reduction program and other employee terminations, partially offset by a gain of $5.8 million from the sale of the Company's Indonesian operations. Excluding these transactions,
the improvement in 1993 net earnings compared with 1992 was attributable to increased gross margins on sales of refined products, increased natural gas production from the Bob West Field and reduced general and administrative expenses.
A discussion and analysis of the factors contributing to these results are presented below. The accompanying consolidated financial statements and related footnotes, together with the following information, are intended to provide shareholders and other investors with a reasonable basis for assessing the Company's operations, but should not serve as the sole criterion for predicting the future performance of the Company. The Company conducts its operations in the following business segments: Refining and Marketing; Exploration and Production; and Oil Field Supply and Distribution.
REFINING AND MARKETING
1994 1993 1992
------- ------ ------
(DOLLARS IN MILLIONS
EXCEPT PER BARREL AMOUNTS)
GROSS OPERATING REVENUES:
Refined products..................................................................... $ 582.7 590.9 745.6
Other, primarily crude oil resales and merchandise................................... 104.3 96.3 65.1
------- ------ ------
Gross Operating Revenues....................................................... $ 687.0 687.2 810.7
======= ====== ======
OPERATING PROFIT (LOSS):
Gross margin -- refined products..................................................... $ 85.3 89.4 59.0
Gross margin -- other................................................................ 13.1 13.2 12.8
------- ------ ------
Gross margin................................................................... 98.4 102.6 71.8
Operating expenses................................................................... 88.2 76.9 75.3
Depreciation and amortization........................................................ 10.4 10.3 10.2
Other, including gain on asset sales................................................. (2.6) .2 1.2
------- ------ ------
Operating Profit (Loss)........................................................ $ 2.4 15.2 (14.9)
======= ====== ======
PRODUCT SALES (average daily barrels):
Gasoline............................................................................. 23,191 22,466 25,196
Middle distillates................................................................... 33,256 29,354 38,313
Heavy oils and residual product...................................................... 14,228 16,945 23,931
------- ------ ------
Total Product Sales............................................................ 70,675 68,765 87,440
======= ====== ======
PRODUCT SALES PRICES ($/barrel):
Gasoline............................................................................. $ 27.03 27.82 28.89
Middle distillates................................................................... $ 24.47 27.39 26.93
Heavy oils and residual product...................................................... $ 10.93 11.19 11.60
Average Sales Price.................................................................. $ 22.59 23.54 23.30
Average Costs of Sales*.............................................................. 19.67 19.98 21.12
------- ------ ------
Gross Sales Margin................................................................... $ 2.92 3.56 2.18
======= ====== ======
REFINERY THROUGHPUT (average daily barrels)............................................ 46,032 49,753 61,425
======= ====== ======
REFINERY PRODUCTION (average daily barrels):
Gasoline............................................................................. 11,728 12,021 14,188
Middle distillates................................................................... 18,839 19,441 23,305
Heavy oils and residual product...................................................... 15,118 17,573 23,444
Refinery fuel........................................................................ 1,776 2,046 2,491
------- ------ ------
Total Refinery Production...................................................... 47,461 51,081 63,428
======= ====== ======
REFINED PRODUCT SPREAD ($/barrel):
Average yield value of products produced............................................. $ 19.48 20.11 20.66
Cost of raw materials................................................................ 15.65 15.73 17.35
------- ------ ------
Spread......................................................................... $ 3.83 4.38 3.31
======= ====== ======
|
In addition to products manufactured at the refinery, other sources of refined products available for sale include existing inventory balances and products purchased from third parties. Margins on sales of purchased products, together with the effect of changes in inventories, are included in the gross sales margin presented above. During 1994, 1993 and 1992, the Company purchased for resale approximately 27,200, 19,300 and 25,200 average daily barrels of refined products, respectively. While margins on sales of purchased product remained relatively steady in 1994 and 1993, these margins were lower in 1992 due to product purchased to satisfy a contract commitment.
1994 COMPARED TO 1993. Throughout most of 1994, the Refining and Marketing segment was adversely affected by the volatile product market and increased demand for ANS crude oil. The Company's average sales price for refined products decreased from $23.54 per barrel in 1993 to $22.59 per barrel in 1994. Although the Company's average crude costs were lower in 1994, decreased production of ANS crude oil, combined with an increased demand for ANS crude oil for use as a feedstock in West Coast refineries, resulted in an increase in the cost of ANS crude oil supplied to the Company's refinery. As a result, the Company's refined product margins were severely depressed in 1994 and will continue to be depressed as long as the cost of ANS crude oil remains high relative to the price received for the Company's sales of refined products.
The adverse effect of market conditions on the segment's 1994 results, combined with charges of $6.6 million for environmental contingencies and other matters, was partially offset by a refund of $8.5 million received in settlement of a tariff dispute, a gain of $2.4 million from the sale of assets and favorable feedstock cost adjustments of $1.5 million. Excluding these items, the segment's operating profit of $2.4 million for 1994 would be reduced to a loss of $3.4 million, compared with operating profit of $15.2 million in 1993. The decrease in operating results in 1994 was primarily attributable to lower gross margins on sales of refined products, which fell to $2.92 per barrel in 1994, compared with $3.56 per barrel in 1993. Revenues from sales of refined products in 1994 were lower than 1993 due to lower sales prices. However, these lower refined product revenues in 1994 were partially offset by crude oil resales of $72.3 million, compared with $62.1 million in 1993. To optimize the refinery's feedstock mix and in response to market conditions, the Company at times resells previously purchased crude oil. The increase in operating expenses of $11.3 million was primarily for environmental matters and, to a lesser extent, higher advertising and maintenance expenses.
During 1994, the Company continued its operational strategy to improve the refinery's economics, which included upgrading feedstocks, more closely matching production with product demand within Alaska and initiating new marketing efforts within and outside Alaska. These efforts reduced the Company's overall refinery production in 1994, particularly residual fuel oil. The markets for residual fuel oil have generally been weak for the past several years due to a global oversupply of this product. During 1994, the Company reduced its average daily refinery throughput and production by 7% from the 1993 levels, resulting in a cumulative reduction from the 1992 levels of 25%. This reduction in throughput enabled the Company to reduce the percentage of lower-quality ANS crude oil in the feedstock mix to 59% in 1994, compared with 72% in 1993. By utilizing a greater percentage of higher-quality feedstocks (which results in higher-valued production yields), the Company can economically operate the refinery at reduced throughput levels. Operating the refinery at lower throughput levels resulted in less production of certain products, particularly residual fuel oil, for which there is no significant market in Alaska. During 1994, residual fuel oil produced at the refinery was exported from Alaska and sold into U.S. West Coast and Far Eastern markets. The Company has installed a vacuum unit, which became operational in December 1994, that is expected to reduce the refinery's yield of residual product about 50% by further processing these volumes into higher-valued products. With the vacuum unit now operational, the Company is pursuing marketing initiatives to increase demand for the refinery's production which would increase the refinery's capacity utilization and improve efficiencies.
1993 COMPARED TO 1992. Similar to the reasons discussed above, implementation of the Company's operational strategy reduced refinery throughput and production during 1993 by 19%. The decrease in volumes was a significant factor in the change in revenues when comparing 1993 with 1992. Average sales prices were essentially unchanged; however, gross margins increased in 1993. Partially offsetting the decrease in revenues from refined products was a $33.8 million increase in resales of crude oil. Costs of sales in 1993 decreased due to lower volumes and prices and to the $10.5 million charge in 1992 for settlement of a contractual dispute
with the State relating to the purchase of crude oil. The $30.1 million improvement in overall operating profit was primarily due to the improved margins on refined product sales, part of which was attributable to favorable market conditions during the fourth quarter of 1993. While the price of crude oil dropped in the 1993 fourth quarter, the Company's refined product margins held steady or improved.
EXPLORATION AND PRODUCTION
1994 1993 1992
------- ------ ------
(DOLLARS IN MILLIONS
EXCEPT PER UNIT AMOUNTS)
UNITED STATES:
Gross operating revenues*..................................... $ 93.1 50.5 18.8
Lifting cost.................................................. 13.8 6.8 3.8
Depreciation, depletion and amortization...................... 24.3 11.1 4.9
Other......................................................... -- .3 1.2
------- ------ ------
Operating Profit -- United States..................... 55.0 32.3 8.9
------- ------ ------
BOLIVIA:
Gross operating revenues...................................... 13.2 12.6 17.9
Lifting cost.................................................. .6 1.2 .7
Other......................................................... 3.3 3.0 4.6
------- ------ ------
Operating Profit -- Bolivia........................... 9.3 8.4 12.6
------- ------ ------
INDONESIA(sold effective May 1, 1992):
Gross operating revenues...................................... -- -- 6.0
Lifting cost.................................................. -- -- 3.7
Depreciation, depletion and amortization...................... -- -- .3
Gain on sales of assets and other............................. -- -- (5.6)
------- ------ ------
Operating Profit -- Indonesia......................... -- -- 7.6
------- ------ ------
TOTAL OPERATING PROFIT -- EXPLORATION AND PRODUCTION............ $ 64.3 40.7 29.1
======= ====== ======
UNITED STATES:
Net natural gas production (average daily Mcf) --
Spot market and other...................................... 65,841 28,168 9,986
Tennessee Gas Contract*.................................... 17,955 10,599 3,974
------- ------ ------
Total Production...................................... 83,796 38,767 13,960
======= ====== ======
Average natural gas sales price per Mcf --
Spot market................................................ $ 1.64 2.03 1.83
Tennessee Gas Contract*.................................... $ 8.01 7.59 4.46
Average.................................................... $ 3.00 3.55 3.68
Average lifting cost per Mcf.................................. $ .45 .48 .74
Depletion per Mcf............................................. $ .79 .78 .95
BOLIVIA:
Net natural gas production (average daily Mcf)................ 22,082 19,232 19,421
Average natural gas sales price per Mcf....................... $ 1.20 1.22 1.67
Net crude oil (condensate) production (average daily
barrels)................................................... 733 663 660
Average crude oil sales price per barrel...................... $ 13.28 14.26 17.65
Average lifting cost per net equivalent Mcf................... $ .06 .14 .08
INDONESIA (sold effective May 1, 1992):
Net crude oil production (average daily barrels).............. -- -- 2,714
Average crude oil sales price per barrel...................... $ -- -- 18.20
Average lifting cost per net equivalent Mcf................... $ -- -- 1.94
|
1994 COMPARED TO 1993. The Exploration and Production segment's U.S. operations, which are concentrated in the Bob West Field in South Texas, achieved a record level of operating profit in 1994. Successful development drilling in the Bob West Field increased the number of producing wells in which the Company has a working interest to 46 at year-end 1994, compared with 25 at the end of 1993, resulting in a 116% increase in the Company's U.S. natural gas production. Revenues from the U.S. operations increased by $42.6 million in 1994 primarily due to the increased production. However, revenues were adversely impacted by a 15% decline in the weighted average sales price, which included a 19% drop in spot market prices. Due to the increase in volumes sold in the spot market, the percentage contribution of sales at above-market prices under the Tennessee Gas Contract was reduced. In 1994, approximately 21% of the Company's net production from the Bob West Field was sold under the Tennessee Gas Contract, compared with 27% in 1993. Total lifting costs and depreciation, depletion and amortization were higher in 1994 due to the increased production level, but were relatively unchanged on a per Mcf basis.
Tennessee Gas may elect, and from time to time has elected, not to take gas under the Tennessee Gas Contract. The Company recognizes revenues under the Tennessee Gas Contract based on the quantity of natural gas actually taken by Tennessee Gas. While Tennessee Gas has the right to elect not to take gas during any contract year, this right is subject to an obligation to pay, within 60 days after the end of such contract year, for gas not taken. The contract year ends on January 31 of each year. Although the failure to take gas could adversely affect the Company's income and cash flows from operating activities within a contract year, the Company should recover reduced cash flows shortly after the end of the contract year under the take-or-pay provisions of the Tennessee Gas Contract, subject to the provisions of a bond posted by Tennessee Gas which is discussed in "Capital Resources and Liquidity -- Tennessee Gas Contract" and Notes L and P of Notes to Consolidated Financial Statements in Item 8.
From time to time, the Company may increase or decrease its natural gas production in response to market conditions. As a result of weakened spot market gas prices, beginning in January 1995, the Company and one of its partners initiated a voluntary reduction of natural gas production sold in the spot market. The Company's share of this reduction is estimated to be approximately 34 Mmcf per day. Primarily as a result of this voluntary reduction, the Company's share of spot natural gas production in South Texas averaged 77 Mmcf per day in January 1995 as compared to 104 Mmcf per day in December 1994. This voluntary reduction has continued through February 1995.
Results from the Company's Bolivian operations improved by $.9 million in 1994, primarily due to a 15% increase in average daily natural gas production. The Company was producing gas at higher levels during 1994 due to the inability of another producer to satisfy gas supply requirements. Natural gas production volumes in early 1995 have declined to approximately 19,400 average daily Mcf from the 22,100 average daily Mcf in 1994. The Company's Bolivian natural gas production is sold to Yacimientos Petroliferos Fiscales Bolivianos ("YPFB"), which in turn sells the natural gas to Yacimientos Petroliferos Fiscales, S.A. ("YPF"), a publicly-held company based in Argentina. The contract between YPFB and YPF, which was recently extended through March 31, 1997, maintains approximately the same volumes as their previous contract, but with a small decrease in price. The Company's contract for the sale of natural gas to YPFB has expired and is subject to renegotiation. The Company is currently selling its natural gas production to YPFB based on the pricing terms in the contract between YPFB and YPF. The Company anticipates that any renegotiation of its contract with YPFB will result in the Company receiving a lower price than it received under the previous contract. Any renegotiation may also result in a reduction of volumes purchased from the Company due to new supply sources that commenced production near the end of 1994.
1993 COMPARED TO 1992. The number of producing wells in the United States in which the Company has an interest increased to 25 at year-end 1993 compared with ten at the end of 1992. The resulting increase in the Company's U.S. production levels contributed to higher revenues. However, the increase in production was partially offset by a decline in average sales prices to $3.55 per Mcf in 1993 from $3.68 per Mcf in 1992. Total lifting costs and depreciation, depletion and amortization increased in 1993 due to the higher production volumes; however, the depletion rate decreased due to a 63% increase in proved reserves.
The Bolivian operations experienced a decline in revenues in 1993 primarily due to reduced contractual sales prices for natural gas production. The 1992 operating results from the Indonesian operations, which were sold effective May 1, 1992, included a $5.8 million gain from the sale.
OIL FIELD SUPPLY AND DISTRIBUTION
1994 1993 1992
------ ----- -----
(DOLLARS IN MILLIONS)
Gross Operating Revenues........................................... $ 77.9 80.7 93.5
Costs of Sales..................................................... 67.5 68.4 82.4
------ ----- -----
Gross Margin............................................. 10.4 12.3 11.1
Operating Expenses and Other....................................... 12.4 15.5 15.3
Depreciation and Amortization...................................... .3 .4 .5
------ ----- -----
Operating Loss........................................... $( 2.3) (3.6) (4.7)
====== ===== =====
Refined Product Sales (average daily barrels)...................... 7,774 7,368 8,476
====== ===== =====
|
1994 COMPARED TO 1993. Although sales volumes of refined products increased by 6% in 1994, sales prices and gross margins continued to be impacted by strong competition in an oversupplied market. By consolidating certain of the Company's terminals and discontinuing the environmental products marketing operations, operating expenses and other were reduced to $12.4 million in 1994 from $15.5 million in 1993. Included in operating expenses in 1994 were charges of $1.9 million for discontinuing the Company's environmental products marketing operations. The Company is continuing its wholesale marketing of fuel and lubricants.
1993 COMPARED TO 1992. Revenues and costs of sales in this segment decreased in 1993 due to the discontinuance of a wholesale distribution operation in Oklahoma during the second quarter of 1992. In addition, the decrease in crude oil prices during 1993 resulted in a corresponding decrease in refined product prices. Notwithstanding such decreases, margins on both refined product and merchandise sales improved in 1993 due to the consolidation of certain of the Company's locations and elimination of marginally profitable locations, including the facility in Oklahoma. Effective at year-end 1992, the Company acquired the remaining 50% interest in Tesoro-Leevac Petroleum Company, a joint venture, which allowed the Company to consolidate certain of its marine terminals; however, this acquisition did not have a material impact on the revenues and margins of this segment in 1993.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses of $14.7 million in 1994 compare with $16.7 million in 1993 and $25.9 million in 1992. The Company continues to closely monitor corporate activities in an effort to minimize costs. These efforts resulted in a 12% decrease in general and administrative expenses in 1994. The decrease in 1993, compared with 1992, was primarily due to the inclusion in 1992 of expenses for a cost reduction program and other employee terminations totaling $9.1 million, of which $1.3 million was charged to the operating segments. There were no significant comparable charges recorded in 1994 or 1993. The remaining decrease in 1993 was attributable to the effects of the cost reduction program.
GAIN ON SALES OF ASSETS
During 1994, the Company realized a gain of $2.4 million from the sale of assets, primarily a terminal facility in Valdez, Alaska. The sale of assets during 1993 was immaterial, whereas 1992 included a $5.8 million gain from the sale of the Company's Indonesian operations, partially offset by a $1.8 million loss from the sale of drilling rigs and costs related to the disposition of the Company's remaining oil field tool rental assets.
INTEREST EXPENSE
Interest expense of $18.7 million in 1994 compares with $14.5 million in 1993 and $21.1 million in 1992. The increase in 1994 was primarily due to a reduction of $5.2 million recorded in 1993 related to the resolution of outstanding issues with several state taxing authorities, partially offset by $.9 million capitalized interest in 1994 related to construction of the vacuum unit. When comparing 1993 with 1992, the change was also due to the reduction related to the resolution of state tax issues.
INCOME TAXES
Income taxes of $5.6 million in 1994 compare with $1.7 million in 1993 and $5.4 million in 1992. The increase in 1994, compared with 1993, was primarily due to a reduction of $3.0 million recorded in 1993 for resolution of outstanding issues with several state taxing authorities. The decrease in 1993, compared with 1992, was also due to the reduction related to state tax issues together with lower foreign income taxes resulting from the Company's reduced revenues from its Bolivian operations.
IMPACT OF CHANGING PRICES
The Company's operating results and cash flows are sensitive to the volatile changes in energy prices. Major shifts in the cost of crude oil and the price of refined products can result in a change in gross margin from the refining and marketing operations, as prices received for refined products may or may not keep pace with changes in crude oil costs. These energy prices, together with volume levels, also determine the carrying value of crude oil and refined product inventory.
Likewise, changes in natural gas prices impact revenues and the present value of estimated future net revenues and cash flows from the Company's exploration and production operations. The carrying value of oil and gas assets may also be subject to noncash write-downs based on changes in natural gas prices and other determining factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Tesoro Petroleum Corporation
We have audited the accompanying consolidated balance sheets of Tesoro Petroleum Corporation and subsidiaries as of December 31, 1994 and 1993, and the related statements of consolidated operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Tesoro Petroleum Corporation and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note A of Notes to Consolidated Financial Statements, in 1992 the Company changed its methods of accounting for postretirement benefits other than pensions and accounting for income taxes.
DELOITTE & TOUCHE LLP
San Antonio, Texas
February 1, 1995
TESORO PETROLEUM CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- ------- -------
REVENUES:
Gross operating revenues................................... $871,211 831,007 946,446
Interest income............................................ 2,522 1,803 3,170
Gain on sales of assets.................................... 2,379 60 4,024
Other...................................................... 1,048 2,040 732
-------- ------- -------
Total Revenues..................................... 877,160 834,910 954,372
-------- ------- -------
COSTS AND EXPENSES:
Costs of sales and operating expenses...................... 775,051 756,764 926,082
General and administrative................................. 14,750 16,712 25,849
Depreciation, depletion and amortization................... 36,016 22,591 16,552
Interest expense, net of capitalized interest.............. 18,749 14,550 21,115
Other...................................................... 6,538 5,640 4,636
-------- ------- -------
Total Costs and Expenses........................... 851,104 816,257 994,234
-------- ------- -------
EARNINGS (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY LOSS ON
EXTINGUISHMENT OF DEBT AND THE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES......................................... 26,056 18,653 (39,862)
Income Tax Provision......................................... 5,573 1,697 5,383
-------- ------- -------
EARNINGS (LOSS) BEFORE EXTRAORDINARY LOSS ON EXTINGUISHMENT
OF DEBT AND THE CUMULATIVE EFFECT OF ACCOUNTING CHANGES.... 20,483 16,956 (45,245)
Extraordinary Loss on Extinguishment of Debt................. (4,752) -- --
Cumulative Effect of Accounting Changes...................... -- -- (20,630)
-------- ------- -------
NET EARNINGS (LOSS).......................................... 15,731 16,956 (65,875)
Dividend Requirements on Preferred Stock..................... 2,680 9,207 9,207
-------- ------- -------
NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCK............... $ 13,051 7,749 (75,082)
======== ======= =======
EARNINGS (LOSS) PER PRIMARY AND FULLY DILUTED* SHARE:
Earnings (Loss) Before Extraordinary Loss on Extinguishment
of Debt and the Cumulative Effect of Accounting
Changes................................................. $ .77 .54 (3.87)
Extraordinary Loss on Extinguishment of Debt............... (.21) -- --
Cumulative Effect of Accounting Changes.................... -- -- (1.47)
-------- ------- -------
Net Earnings (Loss)........................................ $ .56 .54 (5.34)
======== ======= =======
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES......... 23,196 14,290 14,063
======== ======= =======
|
The accompanying notes are an integral part of these consolidated financial statements.
TESORO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
--------------------
1994 1993
-------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (includes restricted cash of $25,420 in
1993).............................................................. $ 14,018 36,596
Short-term investments................................................ -- 5,952
Receivables, net...................................................... 91,140 69,637
Inventories........................................................... 68,302 74,186
Prepaid expenses and other............................................ 8,648 10,136
-------- -------
Total Current Assets.......................................... 182,108 196,507
-------- -------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment......................................... 479,116 385,463
Less accumulated depreciation, depletion and amortization............. 205,782 172,312
-------- -------
Net Property, Plant and Equipment............................. 273,334 213,151
-------- -------
OTHER ASSETS:
Investment in Tesoro Bolivia Petroleum Company........................ 10,295 6,310
Other................................................................. 18,623 18,554
-------- -------
Total Other Assets............................................ 28,918 24,864
-------- -------
Total Assets............................................. $484,360 434,522
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................................... $ 53,573 43,192
Accrued liabilities................................................... 35,266 24,017
Current portion of long-term debt and other obligations............... 7,404 4,805
-------- -------
Total Current Liabilities..................................... 96,243 72,014
-------- -------
OTHER LIABILITIES....................................................... 35,175 45,272
-------- -------
LONG-TERM DEBT AND OTHER OBLIGATIONS,
LESS CURRENT PORTION.................................................. 192,210 180,667
-------- -------
COMMITMENTS AND CONTINGENCIES (Note L)
$2.20 REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK AND ACCRUED
DIVIDENDS; $1 stated value, 2,875,000 shares issued and outstanding in
1993; liquidation and redemption value of $78,056 in 1993............. -- 78,051
-------- -------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; authorized 5,000,000 shares including
redeemable preferred shares:
$2.16 Cumulative convertible preferred stock; $1 stated value,
1,319,563 shares issued and outstanding in 1993; liquidation value
of $42,134 in 1993................................................ -- 1,320
Common stock, par value $.16 2/3; authorized 50,000,000 shares;
24,389,801 shares issued and outstanding (14,089,236 in 1993)...... 4,065 2,348
Additional paid-in capital............................................ 175,514 86,748
Accumulated deficit................................................... (18,847) (31,898)
-------- -------
Total Stockholders' Equity.................................... 160,732 58,518
-------- -------
Total Liabilities and Stockholders' Equity............... $484,360 434,522
======== =======
|
The accompanying notes are an integral part of these consolidated financial statements.
TESORO PETROLEUM CORPORATION
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
$2.20 $2.16
CUMULATIVE CUMULATIVE
CONVERTIBLE CONVERTIBLE RETAINED
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
------------------- ------------------ ----------------- PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT)
------ -------- ------ ------- ------ ------ ---------- ------------
DECEMBER 31, 1991.............. -- $ -- 1,320 $ 1,320 14,067 $2,344 $ 86,522 $ 46,785
Net loss..................... -- -- -- -- -- -- -- (65,875)
Accrued dividends on
preferred stocks........... -- -- -- -- -- -- -- (20,525)
Stock awards and other....... -- -- -- -- 4 1 125 (32)
------ -------- ------ ------- ------ ------ ---------- ------------
DECEMBER 31, 1992.............. -- -- 1,320 1,320 14,071 2,345 86,647 (39,647)
Net earnings................. -- -- -- -- -- -- -- 16,956
Accrued dividends on
preferred stocks........... -- -- -- -- -- -- -- (9,175)
Stock awards and other....... -- -- -- -- 18 3 101 (32)
------ -------- ------ ------- ------ ------ ---------- ------------
DECEMBER 31, 1993.............. -- -- 1,320 1,320 14,089 2,348 86,748 (31,898)
Net earnings................. -- -- -- -- -- -- -- 15,731
Accrued dividends on
preferred stocks........... -- -- -- -- -- -- -- (2,680)
Reclassification of $2.16
Preferred Stock and accrued
and unpaid dividends
thereon into Common
Stock...................... -- -- (1,320) (1,320) 6,598 1,099 9,670 --
Issuance of Common Stock in
connection with
reclassification of $2.20
Preferred Stock and accrued
dividends thereon into
equity..................... 2,875 57,500 -- -- 1,900 317 20,914 --
Costs of Recapitalization.... -- -- -- -- -- -- (3,327) --
Offering, net................ -- -- -- -- 5,851 975 55,992 --
Exercise of MetLife Louisiana
Option..................... (2,875) (57,500) -- -- (4,084) (681) 5,232 --
Stock awards and other....... -- -- -- -- 36 7 285 --
------ -------- ------ ------- ------ ------ ---------- ------------
DECEMBER 31, 1994.............. -- $ -- -- $ -- 24,390 $4,065 $175,514 $(18,847)
====== ========= ====== ======== ====== ======= ========= ============
|
The accompanying notes are an integral part of these consolidated financial statements.
TESORO PETROLEUM CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- ------- -------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings (loss)........................................ $ 15,731 16,956 (65,875)
Adjustments to reconcile net earnings (loss) to net cash
from operating activities:
Depreciation, depletion and amortization................ 36,016 22,591 16,552
Loss (gain) on extinguishment of debt................... 4,752 (1,422) --
Cumulative effect of accounting changes................. -- -- 20,630
Gain on sales of assets................................. (2,379) (60) (4,024)
Amortization of deferred charges and other, net......... 2,800 3,323 4,231
Changes in assets and liabilities:
Receivables........................................... (20,503) 7,539 12,320
Inventories........................................... 5,884 325 7,986
Investment in Tesoro Bolivia Petroleum Company........ (3,985) (3,524) 3,908
Other assets.......................................... 2,177 (85) 3,484
Accounts payable and other current liabilities........ 20,567 (12,800) (5,282)
Obligation payments to State of Alaska................ (2,754) (12,910) --
Other liabilities and obligations..................... 1,991 1,901 17,458
-------- ------- -------
Net cash from operating activities................. 60,297 21,834 11,388
-------- ------- -------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures....................................... (99,587) (37,451) (15,446)
Proceeds from sales of assets, net......................... 2,544 194 12,905
Purchases of short-term investments........................ (1,974) (26,245) (23,976)
Sales of short-term investments............................ 7,926 40,314 3,955
Other...................................................... (50) (247) 1,478
-------- ------- -------
Net cash used in investing activities.............. (91,141) (23,435) (21,084)
-------- ------- -------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net................ 56,967 -- --
Repurchase of common and preferred stock................... (52,948) -- --
Repurchase of debentures................................... -- (9,675) --
Payments of long-term debt................................. (11,383) (1,643) (6,468)
Issuance of long-term debt................................. 20,000 5,000 2,024
Dividends on preferred stocks.............................. (1,684) -- --
Costs of Recapitalization and other........................ (2,686) (2,354) (20)
-------- ------- -------
Net cash from (used in) financing activities....... 8,266 (8,672) (4,464)
-------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS........................ (22,578) (10,273) (14,160)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............... 36,596 46,869 61,029
-------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR..................... $ 14,018 36,596 46,869
======== ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid, net of $915 capitalized in 1994............. $ 15,898 19,288 17,805
======== ======= =======
Income taxes paid.......................................... $ 5,361 5,125 6,446
======== ======= =======
|
The accompanying notes are an integral part of these consolidated financial statements.
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Tesoro Petroleum Corporation is a natural resource company engaged in petroleum refining and marketing, natural gas exploration and production, and wholesale marketing of fuel and lubricants.
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The Consolidated Financial Statements include the accounts of Tesoro Petroleum Corporation and its subsidiaries (collectively, the "Company" or "Tesoro") after elimination of significant intercompany balances and transactions. The preparation of these Consolidated Financial Statements required the use of management's best estimates and judgment. Certain previously reported amounts have been reclassified to conform with the 1994 presentation.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Short-term debt securities with original maturities in excess of 90 days are classified as short-term investments on the Company's Consolidated Balance Sheets. Cash equivalents and short-term investments are stated at cost, which approximates market value. For information regarding restricted cash, see Note I.
INVENTORIES
The Company follows the lower of cost (last-in, first-out basis -- LIFO) or market method for valuing inventories of crude oil and wholesale refined products. All other inventories are valued principally at the lower of cost (generally on a first-in, first-out or weighted-average basis) or market.
HEDGES
The Company, at times, enters into futures and other contracts in its refining and marketing and natural gas operations to hedge the price risks associated with inventories and anticipated transactions. The impact of changes in the market value of these contracts is deferred until the gain or loss is recognized on the hedged inventory or commitment. At December 31, 1994 and 1993, deferred gains and losses related to hedge transactions were not material. Amounts recognized in the Statements of Consolidated Operations related to these transactions for the years ended December 31, 1994, 1993 and 1992 were not material.
PROPERTY, PLANT AND EQUIPMENT
The annual provisions for depreciation on the Company's property, plant and equipment have been computed in accordance with the following ranges of rates:
Refining and Marketing.................................... 3 years to 34 years Exploration and Production................................ 3 years to 20 years Oil Field Supply and Distribution......................... 3 years to 45 years Corporate................................................. 3 years to 20 years |
The Company uses the full-cost method of accounting for oil and gas properties. Under this method, all costs associated with property acquisition and exploration and development activities are capitalized into cost centers that are established on a country-by-country basis. For each cost center, the capitalized costs are subject to a limitation so as not to exceed the present value of future net revenues from estimated production of proved oil and gas reserves net of income tax effect plus the lower of cost or estimated fair value of unproved properties included in the cost center. Capitalized costs within a cost center, together with estimates of costs for future development, dismantlement and abandonment, are amortized on a unit-of-production method
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
using the proved oil and gas reserves for each cost center. The Company's investment in certain oil and gas properties is excluded from the amortization base until the properties are evaluated. No gain or loss is recognized on the sale of oil and gas properties except in the case of the sale of properties involving significant remaining reserves. Proceeds from the sale of insignificant reserves and undeveloped properties are applied to reduce the costs in the cost centers.
Assets recorded under capital leases have been capitalized in accordance with promulgations from the Financial Accounting Standards Board. Amortization of such assets is recorded over the shorter of lease terms or useful lives under methods that are consistent with the Company's depreciation policy for owned assets.
Depreciation of other property is provided using primarily the straight-line method with rates based on the estimated useful lives of the properties and with an estimated salvage value of generally 20% for refinery assets and 10% for other assets. Amortization of leasehold improvements is provided using the straight-line method over the term of the respective lease or the useful life of the asset, whichever period is less.
RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company accounts for retiree health care and life insurance benefits in accordance with Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS No. 106"). The projected future cost of providing postretirement benefits other than pensions, such as health care and life insurance, are expensed as employees render service instead of when benefits are paid. Prior to the adoption of SFAS No. 106, the Company had expensed these benefits on a pay-as-you-go basis. The adoption of SFAS No. 106, effective January 1, 1992, resulted in a net charge of $21.6 million, or $1.54 per share, for the cumulative effect of the change in accounting principle for periods prior to 1992, which were not restated. In addition, the adoption of SFAS No. 106 resulted in an increase of $1.2 million, or $.09 per share, in the 1992 net loss before cumulative effect of accounting changes.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Measurement of deferred tax assets and liabilities is based on enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company adopted SFAS No. 109 effective January 1, 1992 by recognizing a net benefit of $1.0 million, or $.07 per share, for the cumulative effect of the accounting change. Periods prior to 1992 were not restated. The adoption of SFAS No. 109 did not have a significant effect on 1992 results of operations.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that extend the life, increase the capacity, or mitigate or prevent environmental contamination, are capitalized. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the cost can be reasonably estimated. Such amounts are based on the estimated timing and extent of remedial actions required by applicable governing agencies, experience gained from similar sites on which environmental assessments or remediation has been completed, and the amount of the Company's anticipated liability considering the proportional liability and financial abilities of other responsible parties. Estimated liabilities are not discounted to present value. Generally, the
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
timing of these accruals coincides with completion of a feasibility study or the Company's commitment to a formal plan of action.
EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is calculated on net earnings (loss) after deducting dividend requirements on preferred stocks and is based on the weighted average number of common and common equivalent shares outstanding during the period. Fully diluted earnings (loss) per share was the same as primary earnings (loss) per share since the assumed conversion of preferred stocks to common shares would be anti-dilutive.
NOTE B -- BUSINESS SEGMENTS
The Company's revenues are derived from three business segments: Refining and Marketing, Exploration and Production, and Oil Field Supply and Distribution.
Refining and Marketing includes the operations of the Company's refinery in Kenai, Alaska, which produces gasoline, jet fuel, diesel fuel, and heavy oils and residual product. These products, together with other purchased products, are sold primarily at wholesale through terminal facilities and other locations in Alaska, California and the Pacific Northwest. In addition, Refining and Marketing sells gasoline, petroleum products and convenience store items at retail through a chain of 7-Eleven convenience stores in Alaska. To optimize the refinery's feedstock mix and in response to market conditions, the Company at times resells previously purchased crude oil. These crude oil resales amounted to $72.3 million, $62.1 million and $28.3 million in 1994, 1993 and 1992, respectively. From time to time, Refining and Marketing exports products to customers in Far Eastern markets. Revenues from such export sales amounted to $5.2 million, $20.5 million and $101.0 million in 1994, 1993 and 1992, respectively.
Exploration and Production is engaged in the exploration, development and production of natural gas, primarily in the Bob West Field in South Texas. In addition to natural gas producing activities, Exploration and Production activities include the transportation of natural gas to processing facilities and common carrier pipelines in the South Texas area. The Company also holds an interest in a joint venture agreement to explore for and produce hydrocarbons in Bolivia. These operations in Bolivia include natural gas and condensate reserves, the majority of which are shut-in awaiting access to gas-consuming markets. See Notes L and P for information regarding a natural gas sales contract that is the subject of litigation.
Oil Field Supply and Distribution is involved with the wholesale marketing of fuels, lubricants and specialty petroleum products, primarily to onshore and offshore drilling contractors along the Texas and Louisiana Gulf Coast area. During 1994, the Company discontinued its environmental remediation products and services operations formerly associated with this segment.
Segment operating profit is gross operating revenues and gains on asset sales less applicable segment costs of sales, operating expenses, depreciation, depletion and other items. Income taxes, interest expense, interest income and general and administrative expenses are not included in determining operating profit. In 1992, the Company sold its Indonesian exploration and production operations, resulting in a $5.8 million gain that is included in operating profit presented below. Also in 1992, revenues and operating profit from the South Texas oil and gas producing activities include $5.4 million from a change in estimate of the Company's revenues from its natural gas production. Operating profit from the Refining and Marketing segment in 1994 included a gain of $2.4 million from the sale of assets and a refund of $8.5 million for a tariff issue, partially offset by net charges of approximately $5 million for environmental contingencies and other matters.
Identifiable assets are those assets utilized by the segment. Corporate assets are principally cash, investments and other assets that cannot be directly associated with the operations of a business segment.
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------ ----- -----
(IN MILLIONS)
GROSS OPERATING REVENUES:
Refining and Marketing --
Refined products.............................................. $582.7 590.9 745.6
Other, primarily crude oil resales and merchandise............ 104.3 96.3 65.1
Exploration and Production --
U.S. oil and gas.............................................. 91.8 50.2 18.8
Bolivia....................................................... 13.2 12.6 17.9
Other, including U.S. gas transportation...................... 1.3 .3 --
Indonesia..................................................... -- -- 6.0
Oil Field Supply and Distribution................................ 77.9 80.7 93.5
Intersegment Eliminations........................................ -- -- (.4)
------ ----- -----
Total Gross Operating Revenues................................ $871.2 831.0 946.5
====== ===== =====
OPERATING PROFIT (LOSS), INCLUDING GAIN ON SALES OF ASSETS:
Refining and Marketing........................................... $ 2.4 15.2 (14.9)
Exploration and Production --
U.S. oil and gas.............................................. 52.1 31.4 8.9
Bolivia....................................................... 9.3 8.4 12.6
Other, including U.S. gas transportation...................... 2.9 .9 --
Indonesia..................................................... -- -- 7.6
Oil Field Supply and Distribution................................ (2.3) (3.6) (4.7)
------ ----- -----
Total Operating Profit........................................ 64.4 52.3 9.5
Corporate and Unallocated Costs.................................... (38.3) (33.6) (49.4)
------ ----- -----
Earnings (Loss) Before Income Taxes, Extraordinary Loss and the
Cumulative Effect of Accounting Changes.......................... $ 26.1 18.7 (39.9)
====== ===== =====
IDENTIFIABLE ASSETS:
Refining and Marketing........................................... $309.1 281.5 308.0
Exploration and Production --
U.S. oil and gas.............................................. 105.5 65.2 33.1
Bolivia....................................................... 11.1 6.5 2.9
Other, including U.S. gas transportation...................... 8.4 2.0 1.0
Indonesia..................................................... -- -- .3
Oil Field Supply and Distribution................................ 19.8 21.3 23.2
Corporate........................................................ 30.5 58.0 78.2
------ ----- -----
Total Assets.................................................. $484.4 434.5 446.7
====== ===== =====
DEPRECIATION, DEPLETION AND AMORTIZATION:
Refining and Marketing........................................... $ 10.4 10.3 10.2
Exploration and Production --
U.S. oil and gas.............................................. 24.1 11.1 4.9
Other, including U.S. gas transportation...................... .2 -- --
Indonesia..................................................... -- -- .3
Oil Field Supply and Distribution................................ .3 .4 .5
Corporate........................................................ 1.0 .8 .7
------ ----- -----
Total Depreciation, Depletion and Amortization................ $ 36.0 22.6 16.6
====== ===== =====
CAPITAL EXPENDITURES:
Refining and Marketing........................................... $ 32.0 7.1 3.7
Exploration and Production --
U.S. oil and gas.............................................. 60.4 28.6 8.9
Other, including U.S. gas transportation...................... 5.2 .7 --
Indonesia..................................................... -- -- .4
Oil Field Supply and Distribution................................ .2 .3 1.1
Corporate........................................................ 1.8 .8 1.3
------ ----- -----
Total Capital Expenditures.................................... $ 99.6 37.5 15.4
====== ===== =====
|
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- RECAPITALIZATION AND OFFERING
RECAPITALIZATION
In February 1994, the Company consummated exchange offers and adopted amendments to its Restated Certificate of Incorporation pursuant to which the Company's outstanding debt and preferred stocks were restructured (the "Recapitalization"). Significant components of the Recapitalization, together with the applicable accounting effects, were as follows:
(i) The Company exchanged $44.1 million principal amount of new 13% Exchange Notes ("Exchange Notes") due December 1, 2000 for a like principal amount of 12 3/4% Subordinated Debentures ("Subordinated Debentures") due March 15, 2001. This exchange satisfied the 1994 sinking fund requirement and, except for $.9 million, will satisfy sinking fund requirements for the Subordinated Debentures through 1997.
The exchange of the Subordinated Debentures was accounted for as an early extinguishment of debt in the first quarter of 1994, resulting in a charge of $4.8 million as an extraordinary loss on this transaction, which represented the excess of the estimated market value of the Exchange Notes over the carrying value of the Subordinated Debentures. The carrying value of the Subordinated Debentures exchanged was reduced by applicable unamortized debt issue costs. No tax benefit was available to offset the extraordinary loss as the Company has provided a 100% valuation allowance to the extent of its deferred tax assets.
(ii) The 1,319,563 outstanding shares of the Company's $2.16 Cumulative Convertible Preferred Stock ("$2.16 Preferred Stock"), which had a $25 per share liquidation preference, plus accrued and unpaid dividends aggregating $9.5 million at February 9, 1994, were reclassified into 6,465,859 shares of Common Stock. The Company also issued an additional 132,416 shares of Common Stock on behalf of the holders of $2.16 Preferred Stock in connection with the settlement of litigation related to the reclassification of the $2.16 Preferred Stock. In addition, the Company paid $.5 million for certain legal fees and expenses in connection with such litigation. The reclassification of the $2.16 Preferred Stock eliminated annual preferred dividend requirements of $2.9 million on the $2.16 Preferred Stock.
The issuance of the Common Stock in connection with the reclassification and settlement of litigation that was recorded in 1994 resulted in an increase in Common Stock of approximately $1 million, equal to the aggregate par value of the Common Stock issued, and an increase in additional paid-in capital of approximately $9 million.
(iii) The Company and MetLife Security Insurance Company of Louisiana ("MetLife Louisiana"), the holder of all of the Company's outstanding $2.20 Cumulative Convertible Preferred Stock ("$2.20 Preferred Stock"), entered into an agreement pursuant to which MetLife Louisiana agreed, among other matters, to waive all existing mandatory redemption requirements, to consider all accrued and unpaid dividends on the $2.20 Preferred Stock (aggregating $21.2 million at February 9, 1994) to have been paid, and to grant to the Company a three-year option (the "MetLife Louisiana Option") to purchase all of MetLife Louisiana's holdings of $2.20 Preferred Stock and Common Stock for approximately $53 million prior to June 30, 1994 (after giving effect to the cash dividend on the $2.20 Preferred Stock paid in May 1994), all in consideration for, among other things, the issuance by the Company to MetLife Louisiana of 1,900,075 shares of Common Stock. Such additional shares were also subject to the MetLife Louisiana Option.
These actions resulted in the reclassification of the $2.20 Preferred Stock into equity capital at its aggregate liquidation preference of $57.5 million and the recording of an increase in additional paid-in capital of approximately $21 million in February 1994.
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EQUITY OFFERING
In June 1994, the Company completed a public offering (the "Offering") of 5,850,000 shares of its Common Stock for the purpose of raising funds to exercise the MetLife Louisiana Option. Net proceeds to the Company from the Offering, after deduction of associated expenses, were approximately $57.0 million. On June 29, 1994, the Company exercised the MetLife Louisiana Option in full for approximately $53.0 million, acquiring 2,875,000 shares of $2.20 Preferred Stock having a liquidation value of $57.5 million and 4,084,160 shares of Common Stock having an aggregate market value of $45.9 million (based on a closing price of $11.25 per share on June 28, 1994). The exercise eliminated annual preferred dividend requirements of $6.3 million on the $2.20 Preferred Stock. The Offering and the exercise in full of the MetLife Louisiana Option resulted in a net increase of 1,765,840 outstanding shares of Common Stock, the retirement of $57.5 million of the $2.20 Preferred Stock, and increases in Common Stock of approximately $.3 million, additional paid-in capital of approximately $61.2 million and cash of approximately $4.0 million in June 1994.
If the Recapitalization and Offering had been completed at the beginning of the year, the pro forma earnings per share before extraordinary loss would have increased from $.77 to $.82 on both a primary and fully diluted basis for the year ended December 31, 1994, reflecting the elimination of all preferred stock dividend requirements and the issuance of additional shares of Common Stock associated with the Recapitalization and Offering reduced by shares of Common Stock acquired and retired upon exercise of the MetLife Louisiana Option.
See Note I for information on the Company's long-term debt, including restrictions on dividend payments.
NOTE D -- RECEIVABLES
The Company's allowance for doubtful accounts is reflected as a reduction of receivables in the Consolidated Balance Sheets. The following table reconciles the change in the Company's allowance for doubtful accounts (in thousands):
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------ ----- ------
Balance at Beginning of Year...................................... $2,487 2,587 4,068
Charged to Costs and Expenses..................................... 299 667 937
Recoveries of Amounts Previously Written Off and Other............ (4) 71 396
Write-off of Doubtful Accounts.................................... (966) (838) (2,814)
------ ----- ------
Balance at End of Year....................................... $1,816 2,487 2,587
====== ===== ======
|
Receivables at December 31, 1994 included $17.7 million relating to sales under a natural gas sales contract that is the subject of litigation. Of this amount, $13.2 million represented the difference between the contract price and the price currently being received by the Company under the terms of a court-ordered bonding arrangement. For further information on this litigation, see Notes L and P.
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- INVENTORIES
Components of inventories at December 31, 1994 and 1993 were as follows (in thousands):
DECEMBER 31,
------------------
1994 1993
------- ------
Crude Oil and Wholesale Refined Products, at LIFO......................... $58,798 62,959
Merchandise and Retail Refined Products................................... 5,934 8,052
Materials and Supplies.................................................... 3,570 3,175
------- ------
Inventories............................................................. $68,302 74,186
======= ======
|
At December 31, 1994, inventories valued using LIFO were lower than replacement cost by approximately $1.8 million. At December 31, 1993, inventories valued using LIFO approximated replacement cost.
NOTE F -- PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment at December 31, 1994 and 1993 were as follows (in thousands):
DECEMBER 31,
--------------------
1994 1993
-------- -------
Refining and Marketing.................................................. $309,925 282,286
Exploration and Production, Full-Cost Method of Accounting:
Properties being amortized............................................ 131,930 73,345
Properties not yet evaluated.......................................... 3,758 1,959
Other................................................................. 6,543 1,339
Oil Field Supply and Distribution....................................... 14,689 15,413
Corporate............................................................... 12,271 11,121
-------- -------
479,116 385,463
Less Accumulated Depreciation, Depletion and Amortization............... 205,782 172,312
-------- -------
Net Property, Plant and Equipment..................................... $273,334 213,151
======== =======
|
NOTE G -- ACCRUED LIABILITIES
The Company's current accrued liabilities as shown in the Consolidated Balance Sheets included the following (in thousands):
DECEMBER 31,
------------------
1994 1993
------- ------
Accrued Environmental Costs............................................... $10,829 6,171
Accrued Interest.......................................................... 4,223 5,185
Accrued Employee and Pension Costs........................................ 7,884 4,028
Accrued Product Taxes..................................................... 3,009 749
Other..................................................................... 9,321 7,884
------- ------
Accrued Liabilities..................................................... $35,266 24,017
======= ======
|
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other liabilities classified as noncurrent in the Consolidated Balance Sheets consisted of the following (in thousands):
DECEMBER 31,
------------------
1994 1993
------- ------
Accrued Postretirement Benefits........................................... $26,131 27,270
Deferred Income Taxes..................................................... 4,582 3,792
Accrued Dividends on $2.16 Preferred Stock................................ -- 9,145
Other..................................................................... 4,462 5,065
------- ------
Other Liabilities....................................................... $35,175 45,272
======= ======
|
NOTE H -- INCOME TAXES
The income tax provision included the following (in thousands):
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------ ------ -----
Federal:
Current......................................................... $ 700 -- 418
Deferred........................................................ -- -- (454)
Foreign........................................................... 3,588 3,419 5,104
State............................................................. 1,285 (1,722) 315
------ ------ -----
Income Tax Provision............................................ $5,573 1,697 5,383
====== ====== =====
|
During 1993, the Company resolved several outstanding issues with state taxing authorities resulting in a reduction of $3.0 million in state income tax expense and $5.2 million in related interest expense.
Deferred income taxes and benefits are provided for differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Temporary differences and the resulting deferred tax assets and liabilities are summarized as follows (in thousands):
DECEMBER 31,
--------------------
1994 1993
-------- -------
Deferred Tax Assets:
Net operating losses available for utilization through the year
2008............................................................... $ 16,921 24,890
Investment tax and other credits...................................... 8,196 8,196
Settlement with the State of Alaska................................... 21,650 21,583
Accrued postretirement benefits....................................... 8,865 8,359
Settlement with Department of Energy.................................. 4,443 4,443
Other................................................................. 8,994 7,220
-------- -------
Total Deferred Tax Assets..................................... 69,069 74,691
Deferred Tax Liabilities:
Accelerated depreciation and property-related items................... (43,621) (45,965)
-------- -------
Deferred Tax Assets Before Valuation Allowance.......................... 25,448 28,726
Valuation Allowance..................................................... (25,448) (28,726)
State Income and Alternative Minimum Taxes.............................. (4,332) (3,350)
Other................................................................... (250) (442)
-------- -------
Net Deferred Tax Liability............................................ $ (4,582) (3,792)
======== =======
|
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the components of the Company's results of operations and a reconciliation of the normal statutory federal income tax with the provision for income taxes (in thousands):
YEARS ENDED DECEMBER 31,
------------------------------
1994 1993 1992
------- ------ -------
Earnings (Loss) Before Income Taxes, Extraordinary Loss and the
Cumulative Effect of Accounting Changes:
United States............................................. $18,336 10,906 (60,117)
Foreign................................................... 7,720 7,747 20,255
------- ------ -------
$26,056 18,653 (39,862)
======= ====== =======
Income Taxes at Statutory U.S. Corporate Tax Rate.............. $ 9,120 6,529 (13,553)
Effect of:
Foreign income taxes, net of U.S. tax benefit................ 3,588 3,419 5,104
State income taxes (benefit), net of U.S. tax benefit........ 1,285 (1,722) 315
Accounting limitation (recognition) of operating loss
tax benefits.............................................. (9,120) (6,529) 13,553
Other........................................................ 700 -- (36)
------- ------ -------
Income Tax Provision...................................... $ 5,573 1,697 5,383
======= ====== =======
|
At December 31, 1994, the Company's net operating loss carryforwards were approximately $48.3 million for regular tax and approximately $26.2 million for alternative minimum tax. These tax loss carryforwards are available for future years and, if not used, will begin to expire in the year 2004. Also at December 31, 1994, the Company had approximately $8.2 million of investment tax credits and employee stock ownership credits available for carryover to subsequent years. These credits, if not used, will begin to expire in the year 2001.
NOTE I -- LONG-TERM DEBT AND OTHER OBLIGATIONS
Long-term debt and other obligations consisted of the following (in thousands):
DECEMBER 31,
---------------------
1994 1993
-------- --------
12 3/4% Subordinated Debentures due 2001............................... $ 59,146 98,154
13% Exchange Notes due 2000............................................ 44,116 --
Liability to State of Alaska........................................... 61,856 61,666
Vacuum Unit Loan....................................................... 15,000 --
Liability to Department of Energy...................................... 13,194 13,194
Exploration and Production Loan........................................ -- 5,000
Industrial Revenue Bonds............................................... 2,385 2,752
Capital Lease Obligations (interest at 11%)............................ 3,540 3,934
Other.................................................................. 377 772
-------- --------
199,614 185,472
Less Current Portion................................................... 7,404 4,805
-------- --------
$192,210 180,667
======== ========
|
Based on closing market prices, at December 31, 1994, the Company estimated that the fair value of the Subordinated Debentures, exclusive of accrued interest, was approximately $65.0 million and the fair value of the Exchange Notes, exclusive of accrued interest, approximated $44.7 million. The carrying value of the other long-term debt and obligations approximated the Company's estimate of the fair value of such items.
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in Note C, approximately four years of sinking fund requirements on the Subordinated Debentures were satisfied by the exchange offer included in the Recapitalization. After giving effect to the Recapitalization, sinking fund requirements and aggregate maturities of long-term debt and obligations for each of the five years following December 31, 1994 are as follows (in thousands):
SINKING
AGGREGATE FUND
MATURITIES REQUIREMENTS TOTAL
---------- ------------ -------
1995....................................................... $7,404 -- 7,404
1996....................................................... $9,870 -- 9,870
1997....................................................... $9,606 884 10,490
1998....................................................... $9,604 11,250 20,854
1999....................................................... $9,593 11,250 20,843
|
REVOLVING CREDIT FACILITY
During April 1994, the Company entered into a three-year, $125 million corporate revolving credit facility ("Revolving Credit Facility") with a consortium of ten banks. The Revolving Credit Facility, which is subject to a borrowing base, provides for (i) the issuance of letters of credit up to the full amount of the borrowing base as calculated, but not to exceed $125 million, and (ii) cash borrowings up to the amount of the borrowing base attributable to domestic oil and gas reserves. The Company currently has $100 million in available commitments under the Revolving Credit Facility. The Company may at any time designate all or a portion of the remaining $25 million under the Revolving Credit Facility as available commitments. Outstanding obligations under the Revolving Credit Facility are secured by liens on substantially all of the Company's trade accounts receivable and product inventory and by mortgages on the Company's refinery and South Texas natural gas reserves.
At December 31, 1994, the borrowing base, which is comprised of eligible accounts receivable, inventory and domestic oil and gas reserves, was approximately $107 million. At December 31, 1994, the Company had outstanding letters of credit under the Revolving Credit Facility of approximately $48 million, with remaining unused available commitments of approximately $52 million. Cash borrowings are limited to the amount of the domestic oil and gas reserve component of the borrowing base, which has most recently been determined to be approximately $45 million. Under the terms of the Revolving Credit Facility, the oil and gas component of the borrowing base is redetermined at least semi-annually. The lenders or the Company may request additional redeterminations. Fees on outstanding letters of credit range from 1.25% to 2.25% per annum, depending upon the Company's cash flow coverage ratio, as defined, while the excess of total available commitments over cash borrowings and outstanding letters of credit incur fees of .5% per annum. The Company pays a fee equal to 1/4 of 1% per annum on amounts that have not been designated as available commitments. Cash borrowings under the Revolving Credit Facility will reduce the availability of letters of credit on a dollar-for-dollar basis; however, letter of credit issuances will not reduce cash borrowing availability unless the aggregate dollar amount of outstanding letters of credit exceeds the sum of the accounts receivable and inventory components of the borrowing base. Cash borrowings bear interest at the higher of the prime rate, as defined, or the federal funds rate, as defined, plus an additional percentage ranging from one-fourth of 1% to 1.25%, depending upon the Company's cash flow coverage ratio, as defined. At December 31, 1994, there were no cash borrowings under the Revolving Credit Facility.
Under the terms of the Revolving Credit Facility, as amended, the Company is required to maintain specified levels of working capital, tangible net worth, consolidated cash flow and refinery cash flow, as defined in the Revolving Credit Facility. Among other matters, the Revolving Credit Facility has certain restrictions with respect to (i) capital expenditures, (ii) incurrence of additional indebtedness, and (iii) dividends on capital stock. The Revolving Credit Facility contains other covenants customary in credit arrangements of this
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
kind. During the third and fourth quarters of 1994, the Company did not satisfy the refinery cash flow requirement which required a waiver and an amendment to the Revolving Credit Facility. Future compliance with financial covenants under the amended Revolving Credit Facility is primarily dependent on the Company's cash flows from operations, capital expenditures, levels of borrowings under the Revolving Credit Facility and the value of the Company's domestic oil and gas reserves. Based on current market conditions, including the volatility in refinery margins and the recent downturn in the price of natural gas, continued compliance with such covenants is not assured. If the Company is not able to continue to comply with its financial covenants, it will be required to seek waivers or amendments from its banks. If such an event occurs, the Company believes it will be able to negotiate terms and conditions with its banks under the Revolving Credit Facility which will allow the Company to adequately finance its operations.
The Revolving Credit Facility replaced certain interim financing arrangements that the Company had been using since the termination of its prior letter of credit facility in October 1993. The interim financing arrangements that were cancelled in conjunction with the completion of the Revolving Credit Facility included a waiver and substitution of collateral agreement with the State of Alaska and a $30 million reducing revolving exploration and production credit facility. The completion of the Revolving Credit Facility provides the Company significant flexibility in the investment of excess cash balances, as the Company is no longer required to maintain minimum cash balances or to secure letters of credit with cash. At December 31, 1993, the Company had arranged for the issuance of $25.4 million of outstanding letters of credit which were secured by restricted cash deposits.
VACUUM UNIT LOAN
During May 1994, the National Bank of Alaska and the Alaska Industrial Development & Export Authority agreed to provide a loan to the Company of up to $15 million of the cost of the vacuum unit for the Company's refinery (the "Vacuum Unit Loan"). The Vacuum Unit Loan matures January 1, 2002, requires 28 equal quarterly payments beginning April 1995 and bears interest at the unsecured 90-day commercial paper rate, adjusted quarterly, plus 2.6% per annum (7.8% at December 31, 1994) for two-thirds of the amount borrowed and at the National Bank of Alaska floating prime rate plus 1/4 of 1% per annum (8.75% at December 31, 1994) for the remainder. The Vacuum Unit Loan is secured by a first lien on the Company's refinery. At December 31, 1994, the Company had borrowed $15 million under the Vacuum Unit Loan. The Vacuum Unit Loan contains covenants and restrictions similar to those under the Revolving Credit Facility. At December 31, 1994, the Company satisfied all of its covenants except for an annual refinery cash flow requirement, as defined in the Vacuum Unit Loan. The lenders waived this refinery cash flow requirement for the year ended December 31, 1994.
12 3/4% SUBORDINATED DEBENTURES AND 13% EXCHANGE NOTES
In 1983, the Company issued $120 million of 12 3/4% Subordinated Debentures at a price of 84.559% of the principal amount, due March 15, 2001. The debentures are redeemable at the option of the Company at 100% of principal amount plus accrued interest. Sinking fund payments sufficient to retire $11.25 million principal amount of debentures annually commenced on March 15, 1993. The Company satisfied the initial sinking fund requirement by purchasing $11.25 million principal amount of debentures at market value on January 26, 1993. The exchange of $44.1 million principal amount of Subordinated Debentures for Exchange Notes in February 1994 satisfied the 1994 sinking fund requirement and, except for $.9 million, will satisfy sinking fund requirements for the Subordinated Debentures through 1997 (see Note C). At December 31, 1994 and 1993, subordinated debt amounted to $59.1 million (net of discount of $5.5 million) and $98.2 million (net of discount of $10.6 million), respectively. The indenture contains restrictions on payment of dividends on the Company's common stock and purchases or redemptions of common or preferred stocks. Due to losses incurred, as of December 31, 1994 the Company must generate approximately $113 million of future net earnings applicable to common stock or from the issuance of capital stock before future dividends
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
can be paid on common stock or before purchases or redemptions can be made of common or preferred stocks. The Exchange Notes mature December 1, 2000, and have no sinking fund requirements. The Exchange Notes are redeemable at the option of the Company at 100% of principal amount plus accrued interest except that no optional redemption may be made unless an equal principal amount of, or all the outstanding, Subordinated Debentures are concurrently redeemed. The Exchange Notes rank pari passu with the other senior debt of the Company and with the Subordinated Debentures, and senior in right of payment of the obligation to the State of Alaska (discussed below) and all other subordinated indebtedness of the Company. The indenture governing the Exchange Notes contains limitations on dividends that are less restrictive than the limitation under the Subordinated Debentures.
STATE OF ALASKA
In January 1993, the Company and its subsidiary, Tesoro Alaska Petroleum Company ("Tesoro Alaska"), entered into an agreement ("Agreement") with the State of Alaska ("State") that settled Tesoro Alaska's contractual dispute with the State. In addition to $62 million accrued through September 30, 1992, a charge of $10.5 million for the settlement was included in the Company's operations during the fourth quarter of 1992.
Under the Agreement, Tesoro Alaska paid the State $10.3 million in January 1993 and is obligated to make variable monthly payments to the State through December 2001 based on a per barrel charge that is currently 16 cents and increases to 33 cents on the volume of feedstock processed at the Company's refinery. In 1994 and 1993, the Company's variable payments to the State totaled $2.8 million and $2.6 million, respectively. In January 2002, Tesoro Alaska is obligated to pay the State $60 million; provided, however, that such payment may be deferred indefinitely by continuing the variable monthly payments to the State beginning at 34 cents per barrel for 2002 and increasing one cent per barrel annually thereafter. Variable monthly payments made after December 2001 will not reduce the $60 million obligation to the State. The imputed rate of interest used by the Company on the $60 million obligation was 13%. The $60 million obligation is evidenced by a security bond, and the bond and the throughput barrel obligations are secured by a mortgage on the Company's refinery. Tesoro Alaska's obligations under the Agreement and the mortgage are subordinated to current and future senior debt of up to $175 million plus any indebtedness incurred subsequent to the date of the Agreement to improve the Company's refinery.
The State's claim against Tesoro Alaska arose out of certain provisions in present and past contracts with the State that required Tesoro Alaska to pay the State additional retroactive amounts if the State prevailed in litigation against the producers of North Slope crude oil ("Producers"). As a result of settlements between the State and the Producers, the State claimed that the royalty oil it sold Tesoro Alaska and others was undervalued to the extent that the Producers undervalued their oil.
DEPARTMENT OF ENERGY
A Consent Order entered into by the Company with the Department of Energy ("DOE") in 1989 settled all issues relating to the Company's compliance with federal petroleum price and allocation regulations from 1973 through decontrol in 1981. Through December 31, 1994, the Company had paid $42.1 million to the DOE since 1989. The Company's remaining obligation is to pay $13.2 million, exclusive of interest at 6%, over the next eight years.
INDUSTRIAL REVENUE BONDS
The industrial revenue bonds mature in 1997 and require semiannual payments of approximately $365,000. The bonds bear interest at a variable rate (6 3/8% at December 31, 1994), which is equal to 75% of the National Bank of Alaska's prime rate. The bonds are collateralized by the Company's refinery sulphur recovery unit, which had a carrying value of approximately $6.5 million at December 31, 1994.
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CAPITAL LEASE OBLIGATIONS
The Company is the lessee of certain buildings and equipment under capital leases with remaining lease terms of three to 13 years. These buildings and equipment are primarily used in the Company's convenience store operations in Alaska. The assets and liabilities under capital leases are recorded at the present value of the minimum lease payments. Property, plant and equipment at December 31, 1994 included assets held under capital leases of $6.2 million with a net book value of $2.1 million.
NOTE J -- BENEFIT PLANS
RETIREMENT PLAN
For all eligible employees, the Company provides a qualified noncontributory retirement plan. Plan benefits are based on years of service and compensation. It is the Company's policy to fund costs accrued to the extent such costs are tax deductible. The components of net pension expense for the Company's retirement plan are presented below (in thousands):
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------ ------
Service Costs................................................. $ 1,121 931 717
Interest Cost................................................. 3,351 3,513 3,492
Actual Return on Plan Assets.................................. (217) (5,695) (1,763)
Net Amortization and Deferral................................. (3,408) 1,488 (2,231)
------- ------ ------
Net Pension Expense................................. $ 847 237 215
======= ====== ======
|
In addition to the retirement plan pension expense above, during 1992 the Company recognized a curtailment gain of $1.0 million for employee terminations in conjunction with a cost reduction program.
The funded status of the Company's retirement plan and amounts included in the Company's Consolidated Balance Sheets are set forth in the following table (in thousands):
DECEMBER 31,
------------------
1994 1993
------- ------
Actuarial Present Value of Benefit Obligation:
Vested benefit obligation............................................... $35,877 41,200
======= ======
Accumulated benefit obligation.......................................... $38,102 43,694
======= ======
Plan Assets at Fair Value................................................. $38,100 40,718
Projected Benefit Obligation.............................................. 43,650 48,700
------- ------
Plan Assets Less Than Projected Benefit Obligation........................ (5,550) (7,982)
Unrecognized Net Loss..................................................... 9,029 11,997
Unrecognized Prior Service Costs.......................................... (490) (518)
Unrecognized Net Transition Asset......................................... (5,648) (6,883)
------- ------
Accrued Pension Expense Liability....................................... $(2,659) (3,386)
======= ======
|
Retirement plan assets are primarily comprised of common stock and bond funds. Actuarial assumptions used to measure the projected benefit obligations at December 31, 1994, 1993 and 1992 included a discount rate of 8 1/2%, 7% and 9%, respectively, and a compensation increase rate of 6%, 4 1/2% and 6%, respectively. The expected long-term rate of return on assets was 9% for 1994, 1993 and 1992.
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EXECUTIVE SECURITY PLAN
The Company's executive security plan ("ESP") provides executive officers and other key personnel with supplemental death or retirement benefits in addition to those benefits available under the Company's group life insurance and retirement plans. These supplemental retirement benefits are provided by a nonqualified, noncontributory plan and are based on years of service and compensation. Funding is provided based upon the estimated requirements of the plan. The components of net pension expense for the ESP are presented below (in thousands):
YEARS ENDED DECEMBER 31,
-------------------------
1994 1993 1992
----- ---- ------
Service Costs...................................................... $ 474 426 293
Interest Cost...................................................... 273 291 353
Actual Return on Plan Assets....................................... (230) (256) (1,004)
Net Amortization and Deferral...................................... 228 295 994
----- ---- ------
Net Pension Expense.............................................. $ 745 756 636
===== ==== ======
|
During 1994, 1993 and 1992, the Company incurred additional ESP expense of $.4 million, $.5 million and $3.5 million, respectively, for settlement losses and other benefits resulting from a cost reduction program, other employee terminations and sales of assets.
The funded status of the ESP and amounts included in the Company's Consolidated Balance Sheets are set forth in the following table (in thousands):
DECEMBER 31,
----------------
1994 1993
------ -----
Actuarial Present Value of Benefit Obligation:
Vested benefit obligation................................................. $3,071 2,394
====== =====
Accumulated benefit obligation............................................ $3,621 2,792
====== =====
Plan Assets at Fair Value................................................... $3,822 3,139
Projected Benefit Obligation................................................ 4,075 3,069
------ -----
Plan Assets in Excess of (Less Than) Projected Benefit Obligation........... (253) 70
Unrecognized Net Loss....................................................... 2,158 1,177
Unrecognized Prior Service Costs............................................ 495 619
Unrecognized Net Transition Obligation...................................... 843 1,110
------ -----
Prepaid Pension Asset..................................................... $3,243 2,976
====== =====
|
Assets of the ESP consist of a group annuity contract. Actuarial assumptions used to measure the projected benefit obligation at December 31, 1994, 1993 and 1992 included a discount rate of 8 1/2%, 7% and 9%, respectively, and a compensation increase rate of 5%, 4 1/2% and 5%, respectively. The expected long-term rate of return on assets was 9% for 1994, 1993 and 1992.
RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides health care and life insurance benefits to retirees and eligible dependents who were participating in the Company's group insurance program at retirement. These benefits are provided through unfunded defined benefit plans. The health care plans are contributory, with retiree contributions adjusted periodically, and contain other cost-sharing features such as deductibles and coinsurance. The life
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
insurance plan is noncontributory. The Company continues to fund the cost of postretirement health care and life insurance benefits on a pay-as-you-go basis.
As discussed in Note A, the Company adopted SFAS No. 106 effective January 1, 1992 and incurred a net charge of $21.6 million ($16.1 million for health care benefits and $5.5 million for life insurance benefits) for the cumulative effect of the change in accounting principle. The components of net periodic postretirement benefits expense, other than pensions, for 1994, 1993 and 1992 included the following (in thousands):
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------ ----- -----
Health Care:
Service costs.................................................... $ 471 420 400
Interest costs................................................... 1,264 1,396 1,332
------ ----- -----
Net Periodic Postretirement Expense...................... $1,735 1,816 1,732
====== ===== =====
Life Insurance:
Service costs.................................................... $ 198 100 100
Interest costs................................................... 489 492 457
Net amortization................................................. 29 -- --
------ ----- -----
Net Periodic Postretirement Expense...................... $ 716 592 557
====== ===== =====
|
The following tables show the status of the plans reconciled with the amounts in the Company's Consolidated Balance Sheets (in thousands):
DECEMBER 31,
------------------
1994 1993
------- ------
Health Care:
Accumulated Postretirement Benefit Obligation--
Retirees................................................................ $14,066 19,079
Active participants eligible to retire.................................. 1,309 1,566
Other active participants............................................... 3,490 5,824
------- ------
18,865 26,469
Unrecognized net loss................................................... (164) (8,685)
------- ------
Accrued Postretirement Benefit Liability............................. $18,701 17,784
======= ======
Life Insurance:
Accumulated Postretirement Benefit Obligation --
Retirees................................................................ $ 5,321 4,915
Active participants eligible to retire.................................. 421 571
Other active participants............................................... 1,324 1,658
------- ------
7,066 7,144
Unrecognized net loss................................................... (438) (1,044)
------- ------
Accrued Postretirement Benefit Liability............................. $ 6,628 6,100
======= ======
|
The weighted average annual assumed rate of increase in the per capita cost of covered health care benefits was assumed to be 8% for 1995, decreasing gradually to 6% by the year 2009 and remaining at that level thereafter. This health care cost trend rate assumption has a significant effect on the amount of the obligation and periodic cost reported. For example, an increase in the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement obligation at December 31,
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994 by $3.3 million and the aggregate of service cost and interest cost components of net periodic postretirement benefits for the year then ended by $.4 million. Actuarial assumptions used to measure the accumulated postretirement benefit obligation at December 31, 1994, 1993 and 1992 included a discount rate of 8 1/2%, 7% and 8 1/2%, respectively, and a compensation rate increase of 6%, 4 1/2% and 6%, respectively.
THRIFT PLAN
The Company's employee thrift plan provides for contributions by eligible employees into designated investment funds with a matching contribution by the Company of 50% of the employee's basic contribution. The Company's contributions amounted to $547,000, $482,000 and $474,000 during 1994, 1993 and 1992, respectively.
COST REDUCTION PROGRAM AND OTHER EMPLOYEE TERMINATIONS
In addition to the ESP settlement losses and other benefits and the retirement plan curtailment gain discussed above, during 1992 the Company incurred charges of $6.6 million for expenses to implement a cost reduction program and other employee terminations.
NOTE K -- OPERATING LEASES
The Company has various noncancellable operating leases related to convenience stores, equipment, property, vessels and other facilities. Lease terms range from one year to 38 years and generally contain multiple renewal options. Future minimum annual payments for operating leases, existing at December 31, 1994, were as follows (in thousands):
1995............................................................................. $ 18,122
1996............................................................................. 14,829
1997............................................................................. 3,724
1998............................................................................. 3,528
1999............................................................................. 1,217
Thereafter....................................................................... 12,908
--------
Total.......................................................................... $ 54,328
=======
|
Total rental expense was approximately $33.6 million, $32.5 million and $24.3 million for 1994, 1993 and 1992, respectively. Rental expense for 1994, 1993 and 1992 included $24.6 million, $22.9 million and $12.0 million, respectively, related to the lease of vessels used to transport crude oil and refined products to and from the Company's refinery. The lease on one vessel expired in October 1994 and was replaced with a charter agreement for another vessel. This charter agreement expires in September 1996 and contains two one-year renewal options. The Company has a charter for another vessel under a one-year agreement expiring in January 1996.
NOTE L -- COMMITMENTS AND CONTINGENCIES
GAS PURCHASE AND SALES CONTRACT
The Company is selling a portion of the gas from its Bob West Field to Tennessee Gas Pipeline Company ("Tennessee Gas") under a Gas Purchase and Sales Agreement (the "Tennessee Gas Contract") which provides that the price of gas shall be the maximum price as calculated in accordance with Section 102(b)(2) (the "Contract Price") of the Natural Gas Policy Act of 1978 (the "NGPA"). Tennessee Gas filed suit against the Company in the District Court of Bexar County, Texas alleging that the Tennessee Gas Contract is not applicable to the Company's properties and that the gas sales price should be the price calculated under the provisions of Section 101 of the NGPA rather than the Contract Price. During December 1994, the
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Contract Price was in excess of $8.00 per Mcf, the Section 101 price was $4.81
per Mcf and the average spot market price was $1.56 per Mcf. Tennessee Gas also
claimed that the contract should be considered an "output contract" under
Section 2.306 of the Texas Business and Commerce Code and that the increases in
volumes tendered under the contract exceeded those allowable for an output
contract.
The District Court judge returned a verdict in favor of the Company on all issues. On appeal by Tennessee Gas, the Court of Appeals for the Fourth Supreme Judicial District of Texas affirmed the validity of the Tennessee Gas Contract as to the Company's properties and held that the price payable by Tennessee Gas for the gas was the Contract Price. The Court of Appeals remanded the case to the trial court based on its determination (i) that the Tennessee Gas Contract was an output contract and (ii) that a fact issue existed as to whether the increases in the volumes of gas tendered to Tennessee Gas under the contract were made in bad faith or were unreasonably disproportionate to prior tenders. The Company sought review of the appellate court ruling on the output contract issue in the Supreme Court of Texas. Tennessee Gas also sought review of the appellate court ruling denying the remaining Tennessee Gas claims in the Supreme Court of Texas. The Supreme Court of Texas heard arguments in December 1994 regarding the output contract issue and certain of the issues raised by Tennessee Gas but has not yet issued its opinion.
Although the outcome of any litigation is uncertain, management, based upon
advice from outside legal counsel, is confident that the decision of the trial
and appellate courts will ultimately be upheld as to the validity of the
Tennessee Gas Contract and the Contract Price. If the Supreme Court of Texas
were to affirm the appellate court ruling, the Company believes that the only
issue for trial should be whether the increases in the volumes of gas tendered
to Tennessee Gas from the Company's properties were made in bad faith or were
unreasonably disproportionate. The appellate court decision was the first
reported decision in Texas holding that a take-or-pay contract was an output
contract. As a result, it is not clear what standard the trial court would be
required to apply in determining whether the increases were in bad faith or
unreasonably disproportionate. The appellate court acknowledged in its opinion
that the standards used in evaluating other kinds of output contracts would not
be appropriate in this context. The Company believes that the appropriate
standard would be whether the development of the field was undertaken in a
manner that a prudent operator would have undertaken in the absence of an
above-market sales price. Under that standard, the Company believes that, if
this issue is tried, the development of the Company's gas properties and the
resulting increases in volumes tendered to Tennessee Gas will be found to have
been reasonable and in good faith. Accordingly, the Company has recognized
revenues, net of production taxes and marketing charges, for natural gas sales
through December 31, 1994, under the Tennessee Gas Contract based on the
Contract Price, which net revenues aggregated $36.9 million more than the
Section 101 prices and $69.5 million in excess of the spot market prices. If
Tennessee Gas were ultimately to prevail in this litigation, the Company could
be required to return to Tennessee Gas $52.5 million, plus interest if awarded
by the court, representing the difference between the spot market price and the
Contract Price received by the Company through September 17, 1994 (the date on
which the Company entered into a bond agreement discussed below). An adverse
judgment in this case could have a material adverse effect on the Company.
On August 4, 1994, the trial court rejected a motion by Tennessee Gas to
post a supersedeas bond in the form of monthly payments into the registry of the
court representing the difference between the Contract Price and spot market
price of gas sold to Tennessee Gas pursuant to the Tennessee Gas Contract. The
court advised Tennessee Gas that should it wish to supersede the judgment,
Tennessee Gas had the option to post a bond which would be effective only until
August 1, 1995, in an amount equal to the anticipated value of the Tennessee Gas
Contract during that period. In September 1994, the court ordered that,
effective until August 1, 1995, Tennessee Gas (i) take at least its entire
monthly take-or-pay obligation under the Tennessee Gas Contract, (ii) pay for
gas at $3.00 per Mmbtu, which approximates $3.00 per Mcf (the "Bond Price"), and
(iii) post a $120 million bond with the court representing an amount which,
together with anticipated sales of natural gas to Tennessee Gas at the Bond
Price, will equal the anticipated value of the Tennessee Gas Contract during
this interim period. The Bond Price is nonrefundable by the Company, and the
Company
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
retains the right to receive the full Contract Price for all gas sold to Tennessee Gas. The Company continues to recognize revenues under the Tennessee Gas Contract based on the Contract Price. At December 31, 1994, the Company had recognized cumulative revenues in excess of spot market prices (through September 17, 1994) and in excess of the Bond Price (subsequent to September 17, 1994) totaling $65.7 million. Receivables at December 31, 1994 included $17.7 million from Tennessee Gas, of which $13.2 million represented the difference between the Contract Price and the Bond Price. For further information concerning the effect of the Tennessee Gas Contract on certain of the Company's revenues and cash flows, see Note P.
ENVIRONMENTAL
The Company is subject to extensive federal, state and local environmental laws and regulations. These laws, which change frequently, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites or install additional controls or other modifications or changes in use for certain emission sources. The Company is currently involved with a waste disposal site in Louisiana at which it has been named a potentially responsible party under the Federal Superfund law. Although this law might impose joint and several liability upon each party at the site, the extent of the Company's allocated financial contribution to the cleanup of this site is expected to be limited based upon the number of companies and the volumes of waste involved and the payment by the Company of a de minimus settlement amount of $2,500 at a similar site in Louisiana. The Company is also involved in remedial responses and has incurred cleanup expenditures associated with environmental matters at a number of sites, including certain of its own properties. In addition, the Company is holding discussions with the Department of Justice ("DOJ") concerning the assessment of penalties with respect to certain alleged violations of regulations promulgated under the Clean Air Act as discussed below.
In March 1992, the Company received a Compliance Order and Notice of Violation from the Environmental Protection Agency (the "EPA") alleging violations by the Company of the New Source Performance Standards under the Clean Air Act at its Alaska refinery. These allegations include failure to install, maintain and operate monitoring equipment over a period of approximately six years, failure to perform accuracy testing on monitoring equipment, and failure to install certain pollution control equipment. From March 1992 to July 1993, the EPA and the Company exchanged information relevant to these allegations. In addition, the EPA conducted an environmental audit of the Company's refinery in May 1992. As a result of this audit, the EPA is also alleging violation of certain regulations related to asbestos materials. In October 1993, the EPA referred these matters to the DOJ. The DOJ contacted the Company to begin negotiating a resolution of these matters. The DOJ has indicated that it is willing to enter into a judicial consent decree with the Company and that this decree would include a penalty assessment. Negotiations on the penalty are in progress. The DOJ has proposed a penalty assessment of approximately $3.7 million. The Company is continuing to negotiate with the DOJ but cannot predict the ultimate outcome of the negotiations.
At December 31, 1994, the Company's accruals for environmental matters, including the alleged violations of the Clean Air Act, amounted to $10.8 million. Based on currently available information, including the participation of other parties or former owners in remediation actions, the Company believes these accruals are adequate. In addition, to comply with environmental laws and regulations, the Company anticipates that it will be required to make capital improvements in 1995 of approximately $2 million, primarily for the removal and upgrading of underground storage tanks, and approximately $8 million during 1996 for the installation of dike liners required under Alaska environmental regulations. Conditions that require additional expenditures may exist for various Company sites, including, but not limited to, the Company's refinery, retail gasoline outlets (current and closed locations) and petroleum product terminals, and for compliance with the Clean Air Act. The amount of such future expenditures cannot currently be determined by the Company.
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER
The Company transports its crude oil and a substantial portion of its refined products utilizing Kenai Pipe Line Company's ("KPL") pipeline and marine terminal facilities in Kenai, Alaska. In March 1994, KPL filed a revised tariff with the Federal Energy Regulatory Commission ("FERC") for dock loading services, which would have increased the Company's annual cost of transporting products through KPL's facilities from $1.2 million to $11.2 million. Following FERC's rejection of KPL's tariff filing and the commencement of negotiations for the purchase by the Company of the dock facilities, KPL filed a temporary tariff that has increased the Company's annual cost by approximately $1.5 million. The Company and KPL have entered into an agreement for the purchase by the Company of KPL, subject to regulatory approval. The Company expects that this purchase transaction will be consummated in early 1995.
In July 1994, a former customer of the Company ("Customer") filed suit against the Company in the United States District Court for the District of New Mexico for a refund in the amount of approximately $1.2 million, plus interest of approximately $4.4 million and attorney's fees, related to a gasoline purchase from the Company in 1979. The Customer also alleges entitlement to treble damages and punitive damages in the aggregate amount of $16.8 million. The refund claim is based on allegations that the Company renegotiated the acquisition price of gasoline sold to the Customer and failed to pass on the benefit of the renegotiated price to the Customer in violation of Department of Energy price and allocation controls then in effect. The Company cannot predict the ultimate resolution of this matter but believes the claim is without merit.
In February 1995, a lawsuit was filed in the U.S. District Court for the
Southern District of Texas, McAllen Division, by the Heirs of H.P. Guerra,
Deceased ("Plaintiffs") against the United States and Tesoro and other working
and overriding royalty interest owners to recover the oil and gas mineral estate
under 2,706.34 acres situated in Starr County, Texas. The oil and gas mineral
estate sought to be recovered underlies lands taken by the United States in
connection with the construction of the Falcon Dam and Reservoir. In their
lawsuit, the Plaintiffs allege that the original taking by the United States in
1948 was unlawful and void and the refusal of the United States to revest the
mineral estate to H.P. Guerra or his heirs was arbitrary and capricious and
unconstitutional. Plaintiffs seek (i) restoration of their oil and gas estate;
(ii) restitution of all proceeds realized from the sale of oil and gas from
their mineral estate, plus interest on the value thereof; and (iii) cancellation
of all oil and gas leases issued by the United States to Tesoro and the other
working interest owners covering their mineral estate. The lawsuit covers a
significant portion of the mineral estate in the Bob West Field; however, none
of the acreage covered is dedicated to the Tennessee Gas Contract. The Company
cannot predict the ultimate resolution of this matter but, based upon advice
from outside legal counsel, believes the lawsuit is without merit.
NOTE M -- INCENTIVE STOCK PLANS
The Company has two employee incentive stock plans, the Amended Incentive Stock Plan of 1982 (the "1982 Plan") and the Executive Long-Term Incentive Plan (the "1993 Plan") (collectively, the "Plans"). The 1982 Plan expired in 1994 as to issuance of stock appreciation rights, stock options and stock awards; however, grants made before the expiration date that have not been fully exercised remain outstanding pursuant to their terms. The 1993 Plan provides for the issuance of awards in a variety of forms, including restricted stock, incentive stock options, nonqualified stock options, stock appreciation rights and performance share and performance unit awards. The 1993 Plan, which provides for the grant of up to 1,250,000 shares of the Company's Common Stock, will expire, unless earlier terminated, as to the issuance of awards in the year 2003. At December 31, 1994, the Company had 588,147 shares available for future grants under the 1993 Plan. Shares of unissued Common Stock reserved for the Plans totaled 2,381,603 at December 31, 1994, which included 245,903 shares representing awards granted under the Plans that had not yet been issued.
Stock appreciation rights become exercisable in three to five annual installments, normally beginning with the first anniversary of the date of the grant, and expire ten years from the date of grant. Stock
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
appreciation rights entitle the employee to receive, without payment to the Company, the incremental increase in market value of the related stock from date of grant to date of exercise, payable in cash. Related compensation expense is charged to earnings over periods earned. During 1994, compensation expense related to stock appreciation rights was approximately $20,000 as a result of the market price of the related stock exceeding the exercise price of the stock appreciation rights. During 1993 and 1992, no compensation expense was recognized since the market value of the Company's Common Stock remained below the exercise price.
Stock options may be granted at exercise prices equal to the market value on the date the options are granted. The options granted generally become exercisable after one year in 20% increments per year and expire ten years from date of grant. Options granted to certain officers under the 1982 Plan are subject to accelerated vesting provisions based upon the improvement in the market price of the Company's Common Stock during a period immediately preceding their employment anniversary dates.
Stock awards and performance shares granted to officers and key employees under the Plans amounted to 137,253, 83,015 and 100,000 common shares in 1994, 1993 and 1992, respectively. Compensation expense, representing the excess of the market value of the Common Stock on the dates of the awards over the purchase price to be paid by the employee, is charged to earnings over the periods that the shares are earned and amounted to $1,319,000, $572,000 and $142,000 in 1994, 1993 and 1992, respectively.
A summary of the activity in the Plans is set forth below:
STOCK OPTIONS
---------------------------
OUTSTANDING EXERCISABLE
----------- -----------
September 30, 1991.................................................... 221,805 159,623
Granted at $3.925 to $4.840......................................... 600,000 --
Becoming exercisable................................................ -- 34,243
Cancelled or expired................................................ (109,171) (90,786)
----------- -----------
December 31, 1992..................................................... 712,634 103,080
Granted at $2.925 to $5.250......................................... 349,680 --
Becoming exercisable................................................ -- 127,044
Cancelled or expired................................................ (45,444) (44,278)
----------- -----------
December 31, 1993..................................................... 1,016,870 185,846
Granted at $8.938 to $9.500......................................... 524,600 --
Becoming exercisable................................................ -- 312,880
Exercised........................................................... (18,764) (18,764)
Cancelled or expired................................................ (26,413) (1,083)
----------- -----------
December 31, 1994 ($2.925 to $12.625)................................. 1,496,293 478,879
========= ========
|
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK APPRECIATION RIGHTS
---------------------------
OUTSTANDING EXERCISABLE
----------- -----------
September 30, 1991.................................................... 243,864 181,680
Becoming exercisable................................................ -- 34,248
Cancelled or expired................................................ (119,414) (101,030)
----------- -----------
December 31, 1992..................................................... 124,450 114,898
Becoming exercisable................................................ -- 7,042
Cancelled or expired................................................ (54,687) (53,521)
----------- -----------
December 31, 1993..................................................... 69,763 68,419
Becoming exercisable................................................ -- 1,344
Exercised........................................................... (14,921) (14,921)
Cancelled or expired................................................ (3,582) (3,582)
----------- -----------
December 31, 1994 ($8.375 to $12.625)................................. 51,260 51,260
========= ========
|
NOTE N -- PREFERRED STOCK PURCHASE RIGHTS
In November 1985, the Company's Board of Directors declared a distribution of one preferred stock purchase right for each share of the Company's Common Stock. Each right will entitle the holder to buy 1/100 of a share of a newly authorized Series A Participating Preferred Stock at an exercise price of $35 per right. The rights become exercisable on the tenth day after public announcement that a person or group has acquired 20% or more of the Company's Common Stock. The rights may be redeemed by the Company prior to becoming exercisable by action of the Board of Directors at a redemption price of $.05 per right. If the Company is acquired by any person after the rights become exercisable, each right will entitle its holder to purchase stock of the acquiring company having a market value of twice the exercise price of each right. At December 31, 1994, there were 24,389,801 rights outstanding, which will expire in December 1995.
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE O -- QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERS
--------------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ----- ------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
1994
Gross Operating Revenues................................ $189.1 210.7 251.8 219.6
Operating Profit........................................ $ 18.3 11.7 7.1 27.3
Net Earnings (Loss) Before Extraordinary Loss........... $ 7.2 1.3 (3.3) 15.3
Extraordinary Loss...................................... 4.8 -- -- --
------ ------ ----- ------
Net Earnings (Loss)..................................... $ 2.4 1.3 (3.3) 15.3
====== ===== ===== =====
Earnings (Loss) Per Primary and Fully Diluted Share:
Earnings (loss) before extraordinary loss............ $ .27 .02 (.13) .61
Extraordinary loss................................... (.24) -- -- --
------ ------ ----- ------
Net earnings (loss).................................. $ .03 .02 (.13) .61
====== ===== ===== =====
1993
Gross Operating Revenues................................ $224.5 185.6 214.5 206.4
Operating Profit........................................ $ 6.0 8.9 13.1 24.3
Net Earnings (Loss)..................................... $( 2.9) 1.5 1.7 16.7
Earnings (Loss) Per Share:
Primary.............................................. $ (.37) (.06) (.04) 1.00
Fully Diluted........................................ $ (.37) (.06) (.04) .87
|
The 1994 first quarter included an extraordinary loss of $4.8 million on the early extinguishment of debt in connection with the Recapitalization (see Note C) and a gain of $2.8 million from the sale of assets. During the 1994 fourth quarter, a refund of $8.5 million was recognized for settlement of a tariff dispute, partially offset by charges of approximately $4 million related to environmental contingencies and other matters. The 1993 second and fourth quarters included benefits of $3.0 million and $5.2 million, respectively, for resolution of several state tax issues. A $5.0 million charge for an inventory erosion was recorded in the 1993 third quarter. Included in the 1993 fourth quarter, however, was a $5.7 million offset to the inventory adjustment taken earlier in the year. Inventory levels at year-end 1993 were greater than projected earlier in the year due to changing market conditions. The 1993 fourth quarter benefited from the decline in crude oil prices, while the Company's refined product margins held steady or improved.
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE P -- OIL AND GAS PRODUCING ACTIVITIES
The information presented below represents the oil and gas producing activities of the Company's exploration and production segment. Amounts related to the U.S. natural gas transportation operations, as disclosed in Note B, have been excluded.
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
DECEMBER 31,
------------------------------
1994 1993 1992
-------- ------ ------
(IN THOUSANDS)
Capitalized Costs:
Proved properties............................................ $116,558 60,489 34,050
Unproved properties:
Properties being amortized................................ 15,372 12,856 11,132
Properties not being amortized............................ 3,758 1,959 1,482
-------- ------ ------
135,688 75,304 46,664
Accumulated depreciation, depletion and amortization......... 50,261 26,118 15,006
-------- ------ ------
Net Capitalized Costs..................................... $ 85,427 49,186 31,658
======== ====== ======
|
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES
UNITED
STATES BOLIVIA INDONESIA TOTAL
------- ------- --------- ------
(IN THOUSANDS)
Year Ended December 31, 1994:
Property acquisition, unproved...................... $ 438 -- -- 438
Exploration......................................... 8,808 -- -- 8,808
Development......................................... 51,133 -- -- 51,133
------- ----- ------- ------
$60,379 -- -- 60,379
======= ===== ======= ======
Year Ended December 31, 1993:
Property acquisition, unproved...................... $ 887 -- -- 887
Exploration......................................... 2,257 -- -- 2,257
Development......................................... 25,496 -- -- 25,496
------- ----- ------- ------
$28,640 -- -- 28,640
======= ===== ======= ======
Year Ended December 31, 1992:
Property acquisition, unproved...................... $ 9 -- -- 9
Exploration......................................... 977 6 333 1,316
Development......................................... 7,922 -- 109 8,031
------- ---- ------ ------
$ 8,908 6 442 9,356
======= ===== ======= ======
|
The Company's investment in oil and gas properties included $3.8 million in unevaluated properties, which have been excluded from the amortization base as of December 31, 1994. The Company anticipates that the majority of these costs, substantially all of which were incurred in 1994, will be included in the amortization base during 1995.
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
The following table sets forth the results of operations for oil and gas producing activities, in the aggregate by geographic area, with income tax expense computed using the statutory tax rate for the period adjusted for permanent differences, tax credits and allowances.
UNITED
STATES(1) BOLIVIA INDONESIA TOTAL
------- ------ --------- --------
(IN THOUSANDS EXCEPT AS INDICATED)
Year Ended December 31, 1994:
Gross revenues -- sales to nonaffiliates........... $91,791 13,211 -- 105,002
Lifting costs...................................... 13,855 619 -- 14,474
Administrative support and other................... 1,692 3,242 -- 4,934
Depreciation, depletion and amortization........... 24,143 -- -- 24,143
------- ------ --------- --------
Pretax results of operations....................... 52,101 9,350 -- 61,451
Income tax expense................................. 19,104 5,605 -- 24,709
------- ------ --------- --------
Results of operations from producing
activities(2)................................... $32,997 3,745 -- 36,742
======= ====== ======= =======
Depletion rate per net equivalent Mcf.............. $ .79 -- --
======= ====== =======
Year Ended December 31, 1993:
Gross revenues -- sales to nonaffiliates........... $50,228 12,594 -- 62,822
Lifting costs...................................... 6,763 1,152 -- 7,915
Administrative support and other................... 939 3,046 -- 3,985
Depreciation, depletion and amortization........... 11,111 -- -- 11,111
------- ------ --------- --------
Pretax results of operations....................... 31,415 8,396 -- 39,811
Income tax expense................................. 6,647 5,160 -- 11,807
------- ------ --------- --------
Results of operations from producing
activities(2)................................... $24,768 3,236 -- 28,004
======= ====== ======= =======
Depletion rate per net equivalent Mcf.............. $ .78 -- --
======= ====== =======
Year Ended December 31, 1992:
Gross revenues -- sales to nonaffiliates........... $18,850 17,898 5,975 42,723
Lifting costs...................................... 3,796 688 3,698 8,182
Administrative support and other................... 1,216 4,635 107 5,958
Gain (loss) on sales of assets..................... (3) -- 5,750(3) 5,747
Depreciation, depletion and amortization........... 4,862 -- 336 5,198
------- ------ --------- --------
Pretax results of operations....................... 8,973 12,575 7,584 29,132
Income tax expense................................. 305 7,108 3,066 10,479
------- ------ --------- --------
Results of operations from producing
activities(2)................................... $ 8,668 5,467 4,518 18,653
======= ====== ======= =======
Depletion rate per net equivalent Mcf.............. $ .95 -- .15
======= ====== =======
|
(2) Excludes corporate general and administrative and financing costs.
(3) Represents gain from the sale of the Company's Indonesian operations effective May 1, 1992.
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED RESERVES (UNAUDITED)
The following table sets forth the computation of the standardized measure of discounted future net cash flows relating to proved reserves and the changes in such cash flows in accordance with Statement of Financial Accounting Standards No. 69 ("SFAS No. 69"). The standardized measure is the estimated excess future cash inflows from proved reserves less estimated future production and development costs, estimated future income taxes and a discount factor. Future cash inflows represent expected revenues from production of year-end quantities of proved reserves based on year-end prices and any fixed and determinable future escalation provided by contractual arrangements in existence at year-end. Escalation based on inflation, federal regulatory changes and supply and demand are not considered. Estimated future production costs related to year-end reserves are based on year-end costs. Such costs include, but are not limited to, production taxes and direct operating costs. Inflation and other anticipatory costs are not considered until the actual cost change takes effect. Estimated future income tax expenses are computed using the appropriate year-end statutory tax rates. Consideration is given for the effects of permanent differences, tax credits and allowances. A discount rate of 10% is applied to the annual future net cash flows after income taxes.
The methodology and assumptions used in calculating the standardized measure are those required by SFAS No. 69. The standardized measure is not intended to be representative of the fair market value of the Company's proved reserves. The calculations of revenues and costs do not necessarily represent the amounts to be received or expended by the Company.
As indicated in Note L, certain of the Company's U.S. production activities are involved in litigation pertaining to a natural gas sales contract with Tennessee Gas. Although the outcome of any litigation is uncertain, based upon advice from outside legal counsel, management believes that the Company will ultimately prevail in this dispute. Accordingly, the Company has based its calculation of the standardized measure of discounted future net cash flows on the Contract Price. However, if Tennessee Gas were to prevail, the impact on the Company's future revenues and cash flows would be significant. Based on the Contract Price, the standardized measure of discounted future net cash flows relating to proved reserves in the United States at December 31, 1994 was $127 million, compared with $73 million at spot market prices.
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED RESERVES (UNAUDITED)
UNITED
STATES(1) BOLIVIA TOTAL
--------- ------- --------
(IN THOUSANDS)
December 31, 1994:
Future cash inflows....................................... $ 292,620 120,886 413,506
Future production costs................................... (52,534) (30,873) (83,407)
Future development costs.................................. (29,933) (7,258) (37,191)
--------- ------- --------
Future net cash flows before income tax expense........... 210,153 82,755 292,908
Future income tax expense................................. (61,419) (44,537) (105,956)
--------- ------- --------
Future net cash flows..................................... 148,734 38,218 186,952
10% annual discount factor................................ (21,948) (16,229) (38,177)
--------- ------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 126,786 21,989 148,775
======== ======= ========
December 31, 1993:
Future cash inflows....................................... $ 315,788 133,363 449,151
Future production costs................................... (59,398) (31,092) (90,490)
Future development costs.................................. (48,020) (2,981) (51,001)
--------- ------- --------
Future net cash flows before income tax expense........... 208,370 99,290 307,660
Future income tax expense................................. (76,500) (52,334) (128,834)
--------- ------- --------
Future net cash flows..................................... 131,870 46,956 178,826
10% annual discount factor................................ (29,118) (20,516) (49,634)
--------- ------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 102,752 26,440 129,192
======== ======= ========
December 31, 1992:
Future cash inflows....................................... $ 215,172 146,555 361,727
Future production costs................................... (33,162) (40,374) (73,536)
Future development costs.................................. (30,294) (9,248) (39,542)
--------- ------- --------
Future net cash flows before income tax expense........... 151,716 96,933 248,649
Future income tax expense................................. (42,884) (56,682) (99,566)
--------- ------- --------
Future net cash flows..................................... 108,832 40,251 149,083
10% annual discount factor................................ (21,744) (16,628) (38,372)
--------- ------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 87,088 23,623 110,711
======== ======= ========
|
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- ------- -------
(IN THOUSANDS)
Sales and transfers of oil and gas produced, net of
production costs........................................... $(88,751) (52,766) (31,208)
Net changes in prices and production costs................... 12,834 (21,160) (32,397)
Extensions, discoveries and improved recovery................ 54,503 73,792 104,219
Development costs incurred................................... 51,148 25,510 10,012
Revisions of estimated future development costs.............. (34,738) (24,052) (18,666)
Revisions of previous quantity estimates..................... 1,818 31,031 (15,384)
Purchases and sales of minerals in-place..................... -- -- (5,884)
Accretion of discount........................................ 12,919 11,071 8,174
Net changes in income taxes.................................. 9,850 (24,945) 4,863
-------- ------- -------
Net increase................................................. 19,583 18,481 23,729
Beginning of period.......................................... 129,192 110,711 86,982
-------- ------- -------
End of period................................................ $148,775 129,192 110,711
======== ======= =======
|
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESERVE INFORMATION (UNAUDITED)
The following estimates of the Company's proved oil and gas reserves are based on evaluations prepared by Netherland, Sewell & Associates, Inc. (except for estimates of reserves at December 31, 1991 for properties in Bolivia and Indonesia, which estimates were prepared by the Company's in-house engineers). Reserves were estimated in accordance with guidelines established by the Securities and Exchange Commission and Financial Accounting Standards Board, which require that reserve estimates be prepared under existing economic and operating conditions with no provision for price and cost escalations except by contractual arrangements.
UNITED
STATES(2) BOLIVIA TOTAL
--------- --------- -------
PROVED GAS RESERVES (millions of cubic feet)(1):
December 31, 1991........................................... 36,884 113,465 150,349
Revisions of previous estimates.......................... (9,601) 651 (8,950)
Extensions, discoveries and other additions.............. 53,952 -- 53,952
Production............................................... (5,110) (7,108) (12,218)
Sales of minerals in-place............................... (2,372) -- (2,372)
--------- --------- -------
December 31, 1992........................................... 73,753 107,008 180,761
Revisions of previous estimates.......................... 16,304 (693) 15,611
Extensions, discoveries and other additions.............. 44,291 -- 44,291
Production............................................... (14,150) (7,020) (21,170)
--------- --------- -------
December 31, 1993........................................... 120,198 99,295 219,493
Revisions of previous estimates.......................... 9,881 (9,678) 203
Extensions, discoveries and other additions.............. 29,606 14,199 43,805
Production............................................... (30,586) (8,060) (38,646)
--------- --------- -------
December 31, 1994(3)........................................ 129,099 95,756 224,855
======= ======= =======
PROVED DEVELOPED GAS RESERVES included above (millions of
cubic feet):
December 31, 1991........................................... 21,187 106,036 127,223
December 31, 1992........................................... 34,160 91,376 125,536
December 31, 1993........................................... 65,652 99,295 164,947
December 31, 1994(3)........................................ 110,071 81,558 191,629
|
TESORO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BOLIVIA INDONESIA TOTAL
--------- --------- -------
PROVED OIL RESERVES (thousands of barrels)(1):
December 31, 1991........................................... 2,771 5,571 8,342
Revisions of previous estimates.......................... (266) -- (266)
Production............................................... (242) (328) (570)
Sales of minerals in-place............................... -- (5,243) (5,243)
--------- --------- -------
December 31, 1992........................................... 2,263 -- 2,263
Revisions of previous estimates.......................... 152 -- 152
Production............................................... (242) -- (242)
--------- --------- -------
December 31, 1993........................................... 2,173 -- 2,173
Revisions of previous estimates.......................... (280) -- (280)
Extensions, discoveries and other additions.............. 168 -- 168
Production............................................... (268) -- (268)
--------- --------- -------
December 31, 1994(3)........................................ 1,793 -- 1,793
======= ======= =======
PROVED DEVELOPED OIL RESERVES included above (thousands of
barrels):
December 31, 1991........................................... 2,680 5,571 8,251
December 31, 1992........................................... 2,098 -- 2,098
December 31, 1993........................................... 2,173 -- 2,173
December 31, 1994(3)........................................ 1,627 -- 1,627
|
(2) See Note L regarding litigation involving a natural gas sales contract.
(3) No major discovery or adverse event has occurred since December 31, 1994 that would cause a significant change in proved reserves.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this Item will be contained in the Company's 1995 Proxy Statement, incorporated herein by reference.
See also Executive Officers of the Registrant under Business in Item 1.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item will be contained in the Company's 1995 Proxy Statement, incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information required under this Item will be contained in the Company's 1995 Proxy Statement, incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item will be contained in the Company's 1995 Proxy Statement, incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements of Tesoro Petroleum Corporation and its subsidiaries are included in Part II, Item 8 of this Form 10-K:
PAGE
------
Independent Auditors' Report......................................................... 32
Statements of Consolidated Operations -- Years Ended December 31, 1994, 1993 and
1992............................................................................... 33
Consolidated Balance Sheets -- December 31, 1994 and 1993............................ 34
Statements of Consolidated Stockholders' Equity -- Years Ended December 31, 1994,
1993 and 1992...................................................................... 35
Statements of Consolidated Cash Flows -- Years Ended December 31, 1994, 1993 and
1992............................................................................... 36
Notes to Consolidated Financial Statements........................................... 37
|
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the Consolidated Financial Statements or notes thereto.
3. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
3 Restated Certificate of Incorporation of the Company (incorporated by reference
herein to Exhibit 3 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-3473).
3(a) Bylaws of the Company, as amended through February 23, 1995.
3(b) Amendment to Restated Certificate of Incorporation of the Company adding a new
Article IX limiting Directors' Liability (incorporated by reference herein to
Exhibit 3(b) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-3473).
3(c) Certificate of Designation Establishing a Series of $2.20 Cumulative Convertible
Preferred Stock, dated as of January 26, 1983 (incorporated by reference herein to
Exhibit 3(c) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-3473).
3(d) Certificate of Designation Establishing a Series A Participating Preferred Stock,
dated as of December 16, 1985 (incorporated by reference herein to Exhibit 3(d) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993, File No. 1-3473).
3(e) Certificate of Amendment, dated as of February 9, 1994, to Restated Certificate of
Incorporation of the Company amending Article IV, Article V, Article VII and Article
VIII (incorporated by reference herein to Exhibit 3(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, File No. 1-3473).
4(a) 12 3/4% Subordinated Debentures due March 15, 2001, Form of Indenture, dated March
15, 1983 (incorporated by reference herein to Exhibit 4(b) to Registration Statement
No. 2-81960).
4(b) 13% Exchange Notes due December 1, 2000, Indenture, dated February 8, 1994
(incorporated by reference herein to Exhibit 2 to the Company's Registration
Statement on Form 8-A filed March 2, 1994).
4(c) Copy of Indenture between the Company and Bankers Trust Company, a Trustee, pursuant
to which the Exchange Notes Due December 1, 2000 were issued (incorporated by
reference herein to Exhibit 2 to the Company's Registration Statement on Form 8-A
filed March 2, 1994).
4(d) Rights Agreement dated December 16, 1985 between the Company and Chemical Bank, N.A.
successor to InterFirst Bank Fort Worth, N.A. (incorporated by reference herein to
Exhibit 4(i) to the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1985, File No. 1-3473).
4(e) Amendment to Rights Agreement dated December 16, 1985 between the Company and
Chemical Bank, N.A. (incorporated by reference herein to Exhibit 4(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-3473).
4(f) Tesoro Exploration and Production Company's Loan Agreement dated as of October 29,
1993 (incorporated by reference herein to Exhibit 4(b) to the Company's report on
Form 10-Q for the quarter ended September 30, 1993, File No. 1-3473).
4(g) Agreement for Waiver and Substitution of Collateral dated as of September 30, 1993
by and between Tesoro Alaska Petroleum Company and the State of Alaska (incorporated
by reference herein to Exhibit 4(c) to the Company's report on Form 10-Q for the
quarter ended September 30, 1993, File No. 1-3473).
4(h) Credit Agreement (the "Credit Agreement") dated as of April 20, 1994 among the
Company and Texas Commerce Bank National Association ("TCB") as Issuing Bank and as
Agent, and certain other banks named therein (incorporated by reference herein to
Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended March 31,
1994, File No. 1-3473).
4(i) Guaranty Agreement dated as of April 20, 1994 among various subsidiaries of the
Company and TCB, as Issuing Bank and as Agent, and certain other banks named therein
(incorporated by reference herein to Exhibit 10.2 to the Company's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
|
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
4(j) Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of April 20, 1994 from Tesoro Exploration and Production Company,
entered into in connection with the Credit Agreement (incorporated by reference
herein to Exhibit 10.3 to the Company's report on Form 10-Q for the quarter ended
March 31, 1994, File No. 1-3473).
4(k) Deed of Trust, Security Agreement and Financing Statement dated as of April 20, 1994
among Tesoro Alaska Petroleum Company, TransAlaska Title Insurance Agency, Inc., as
Trustee, and TCB, as Agent, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 10.4 to the Company's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(l) Pledge Agreement dated as of April 20, 1994 by the Company in favor of TCB, entered
into in connection with the Credit Agreement (incorporated by reference herein to
Exhibit 10.5 to the Company's report on Form 10-Q for the quarter ended March 31,
1994, File No. 1-3473).
4(m) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between the
Company and TCB, entered into in connection with the Credit Agreement (incorporated
by reference herein to Exhibit 10.6 to the Company's report on Form 10-Q for the
quarter ended March 31, 1994, File No. 1-3473).
4(n) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between
Tesoro Alaska Petroleum Company and TCB, entered into in connection with the Credit
Agreement (incorporated by reference herein to Exhibit 10.7 to the Company's report
on Form 10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(o) Security Agreement (Accounts) dated as of April 20, 1994 between Tesoro Petroleum
Distributing Company and TCB, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 10.8 to the Company's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(p) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between
Tesoro Exploration and Production Company and TCB, entered into in connection with
the Credit Agreement (incorporated by reference herein to Exhibit 10.9 to the
Company's report on Form 10-Q for the quarter ended March 31, 1994, File No.
1-3473).
4(q) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between
Tesoro Refining, Marketing & Supply Company and TCB, entered into in connection with
the Credit Agreement (incorporated by reference herein to Exhibit 10.10 to the
Company's report on Form 10-Q for the quarter ended March 31, 1994, File No.
1-3473).
4(r) Loan Agreement (the "Loan Agreement") dated as of May 26, 1994 among Tesoro Alaska
Petroleum Company, as Borrower, the Company, as Guarantor, and National Bank of
Alaska ("NBA"), as Lender (incorporated by reference herein to Exhibit 4.30 to
Registration Statement No. 33-53587).
4(s) Guaranty Agreement dated as of May 26, 1994 between the Company and NBA, entered
into in connection with the Loan Agreement (incorporated by reference herein to
Exhibit 4.31 to Registration Statement No. 33-53587).
4(t) $15,000,000 Promissory Note dated as of May 26, 1994 of Tesoro Alaska Petroleum
Company payable to the order of NBA, in connection with the Loan Agreement
(incorporated by reference herein to Exhibit 4.32 to Registration Statement No.
33-53587).
4(u) Construction Loan Agreement dated as of May 26, 1994 between Tesoro Alaska Petroleum
Company and NBA, entered into in connection with the Loan Agreement (incorporated by
reference herein to Exhibit 4.33 to Registration Statement No. 33-53587).
4(v) Deed of Trust dated as of May 26, 1994 from Tesoro Alaska Petroleum Company, entered
into in connection with the Loan Agreement (incorporated by reference herein to
Exhibit 4.34 to Registration Statement No. 33-53587).
4(w) Security Agreement dated as of May 26, 1994 between Tesoro Alaska Petroleum Company
and NBA, entered into in connection with the Loan Agreement (incorporated by
reference herein to Exhibit 4.35 to Registration Statement No. 33-53587).
|
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
4(x) Consent and Intercreditor Agreement dated as of May 26, 1994 among NBA, TCB, as
Agent, and the Company, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 4.36 to Registration Statement No.
33-53587).
4(y) Copy of Consent and Waiver No. 1 dated October 27, 1994 to the Company's Credit
Agreement dated as of April 20, 1994 (incorporated by reference herein to Exhibit 4
to the Company's report on Form 10-Q for the quarter ended September 30, 1994, File
No. 1-3473).
4(z) Copy of First Amendment to Credit Agreement dated as of January 20, 1995 among the
Company and TCB as Issuing Bank and as Agent, and certain other banks named therein.
4(aa) Copy of First Amendment to the Loan Agreement dated as of January 26, 1995 among
Tesoro Alaska Petroleum Company, Tesoro Petroleum Corporation and NBA.
10(a) Form of Executive Agreement providing for continuity of management between the
Company and James W. Queen dated June 28, 1984 (incorporated by reference herein to
Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1984, File No. 1-3473).
10(b) Form of Amendment to Executive Agreements between the Company and James W. Queen
dated September 30, 1987 (incorporated by reference herein to Exhibit 10(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1987,
File No. 1-3473).
10(c) Form of Second Amendment to Executive Agreements between the Company and James W.
Queen dated February 28, 1990 (incorporated by reference herein to Exhibit 10(e) to
the Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1990, File No. 1-3473).
10(d) The Company's Amended Executive Security Plan, as amended through November 13, 1989,
and Funded Executive Security Plan, as amended through February 28, 1990, for
executive officers and key personnel (incorporated by reference herein to Exhibit
10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1990, File No. 1-3473).
10(e) Sixth Amendment to the Company's Amended Executive Security Plan and Seventh
Amendment to the Company's Funded Executive Security Plan, both dated effective
March 6, 1991 (incorporated by reference herein to Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1991, File No.
1-3473).
10(f) Seventh Amendment to the Company's Amended Executive Security Plan and Eighth
Amendment to the Company's Funded Executive Security Plan, both dated effective
December 8, 1994.
10(g) Employment Agreement between the Company and Michael D. Burke dated July 27, 1992
(incorporated by reference herein to Exhibit 10(j) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(h) First Amendment and Extension to Employment Agreement between the Company and
Michael D. Burke dated December 14, 1994.
10(i) Employment Agreement between the Company and Bruce A. Smith dated September 14, 1992
(incorporated by reference herein to Exhibit 10(k) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(j) First Amendment and Extension to Employment Agreement between the Company and Bruce
A. Smith dated December 14, 1994.
10(k) Employment Agreement between the Company and Gaylon H. Simmons dated January 4, 1993
(incorporated by reference herein to Exhibit 10(l) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(l) First Amendment and Extension to Employment Agreement between the Company and Gaylon
H. Simmons dated December 14, 1994.
10(m) Employment Agreement between the Company and James C. Reed, Jr. dated December 14,
1994.
10(n) Employment Agreement between the Company and William T. Van Kleef dated December 14,
1994.
10(o) Management Stability Agreement between the Company and Don E. Beere dated December
14, 1994.
|
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
10(p) Management Stability Agreement between the Company and Gregory A. Wright dated
February 23, 1995.
10(q) The Company's Amended Incentive Stock Plan of 1982, as amended through February 24,
1988 (incorporated by reference herein to Exhibit 10(t) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1988, File No. 1-3473).
10(r) Resolution approved by the Company's stockholders on April 30, 1992 extending the
term of the Company's Amended Incentive Stock Plan of 1982 to February 24, 1994
(incorporated by reference herein to Exhibit 10(o) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(s) Copy of the Company's Executive Long-Term Incentive Plan (incorporated by reference
to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-3473).
10(t) Copy of the Company's Non-Employee Director Retirement Plan dated December 8, 1994.
10(u) Copy of the Company's Board of Directors Deferred Compensation Plan dated February
23, 1995.
10(v) Copy of the Company's Board of Directors Deferred Compensation Trust dated February
23, 1995.
10(w) Agreement for the Sale and Purchase of Royalty Oil between Tesoro Alaska Petroleum
Company and the State of Alaska (for the sale of Prudhoe Bay Royalty Oil), dated
February 26, 1982 (incorporated by reference herein to Exhibit 10(p) to the
Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1984,
File No.1-3473).
10(x) Agreement for the Sale and Purchase of State Royalty Oil dated as of September 27,
1994 by and between Tesoro Alaska Petroleum Company and the State of Alaska.
10(y) Copy of Settlement Agreement dated effective January 19, 1993, between Tesoro
Petroleum Corporation, Tesoro Alaska Petroleum Company and the State of Alaska
(incorporated by reference herein to Exhibit 10(q) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(z) Form of Indemnification Agreement between the Company and its officers and directors
(incorporated by reference herein to Exhibit B to the Company's Proxy Statement for
the Annual Meeting of Stockholders held on February 25, 1987, File No. 1-3473).
10(aa) Gas Purchase and Sales Agreement dated January 16, 1979 (incorporated by reference
herein to Exhibit 10(p) of the Company's Registration Statement No. 33-68282 on Form
S-4).
11 Information Supporting Earnings (Loss) Per Share Computations.
21 Subsidiaries of the Company.
23(a) Consent of Deloitte & Touche LLP.
23(b) Consent of Netherland, Sewell & Associates, Inc.
27 Financial Data Schedule.
|
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TESORO PETROLEUM CORPORATION
March 16, 1995 By: /s/ MICHAEL D. BURKE
------------------------------------
Michael D. Burke
President and Chief Executive
Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------- ---------------
Chairman of the Board of March , 1995
- ------------------------------------------ Directors and Director
(Charles Wohlstetter)
/s/ MICHAEL D. BURKE Director, President and Chief March 16, 1995
- ------------------------------------------ Executive Officer (Principal
(Michael D. Burke) Executive Officer)
/s/ BRUCE A. SMITH Executive Vice President and March 16, 1995
- ------------------------------------------ Chief Financial Officer
(Bruce A. Smith) (Principal Financial Officer and
Accounting Officer)
/s/ ROBERT J. CAVERLY Vice Chairman of the Board of March 16, 1995
- ------------------------------------------ Directors and Director
(Robert J. Caverly)
/s/ PETER M. DETWILER Director March 16, 1995
- ------------------------------------------
(Peter M. Detwiler)
/s/ STEVEN H. GRAPSTEIN Director March 16, 1995
- ------------------------------------------
(Steven H. Grapstein)
/s/ RAYMOND K. MASON, SR. Director March 16, 1995
- ------------------------------------------
(Raymond K. Mason, Sr.)
/s/ JOHN J. MCKETTA, JR. Director March 16, 1995
- ------------------------------------------
(John J. McKetta, Jr.)
/s/ MURRAY L. WEIDENBAUM Director March 16, 1995
- ------------------------------------------
(Murray L. Weidenbaum)
Director March , 1995
- ------------------------------------------
(Joel V. Staff)
|
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
3 Restated Certificate of Incorporation of the Company (incorporated by reference
herein to Exhibit 3 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-3473).
3(a) Bylaws of the Company, as amended through February 23, 1995.
3(b) Amendment to Restated Certificate of Incorporation of the Company adding a new
Article IX limiting Directors' Liability (incorporated by reference herein to
Exhibit 3(b) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-3473).
3(c) Certificate of Designation Establishing a Series of $2.20 Cumulative Convertible
Preferred Stock, dated as of January 26, 1983 (incorporated by reference herein to
Exhibit 3(c) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-3473).
3(d) Certificate of Designation Establishing a Series A Participating Preferred Stock,
dated as of December 16, 1985 (incorporated by reference herein to Exhibit 3(d) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993, File No. 1-3473).
3(e) Certificate of Amendment, dated as of February 9, 1994, to Restated Certificate of
Incorporation of the Company amending Article IV, Article V, Article VII and Article
VIII (incorporated by reference herein to Exhibit 3(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, File No. 1-3473).
4(a) 12 3/4% Subordinated Debentures due March 15, 2001, Form of Indenture, dated March
15, 1983 (incorporated by reference herein to Exhibit 4(b) to Registration Statement
No. 2-81960).
4(b) 13% Exchange Notes due December 1, 2000, Indenture, dated February 8, 1994
(incorporated by reference herein to Exhibit 2 to the Company's Registration
Statement on Form 8-A filed March 2, 1994).
4(c) Copy of Indenture between the Company and Bankers Trust Company, a Trustee, pursuant
to which the Exchange Notes Due December 1, 2000 were issued (incorporated by
reference herein to Exhibit 2 to the Company's Registration Statement on Form 8-A
filed March 2, 1994).
4(d) Rights Agreement dated December 16, 1985 between the Company and Chemical Bank, N.A.
successor to InterFirst Bank Fort Worth, N.A. (incorporated by reference herein to
Exhibit 4(i) to the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1985, File No. 1-3473).
4(e) Amendment to Rights Agreement dated December 16, 1985 between the Company and
Chemical Bank, N.A. (incorporated by reference herein to Exhibit 4(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-3473).
4(f) Tesoro Exploration and Production Company's Loan Agreement dated as of October 29,
1993 (incorporated by reference herein to Exhibit 4(b) to the Company's report on
Form 10-Q for the quarter ended September 30, 1993, File No. 1-3473).
4(g) Agreement for Waiver and Substitution of Collateral dated as of September 30, 1993
by and between Tesoro Alaska Petroleum Company and the State of Alaska (incorporated
by reference herein to Exhibit 4(c) to the Company's report on Form 10-Q for the
quarter ended September 30, 1993, File No. 1-3473).
4(h) Credit Agreement (the "Credit Agreement") dated as of April 20, 1994 among the
Company and Texas Commerce Bank National Association ("TCB") as Issuing Bank and as
Agent, and certain other banks named therein (incorporated by reference herein to
Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended March 31,
1994, File No. 1-3473).
4(i) Guaranty Agreement dated as of April 20, 1994 among various subsidiaries of the
Company and TCB, as Issuing Bank and as Agent, and certain other banks named therein
(incorporated by reference herein to Exhibit 10.2 to the Company's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
|
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
4(j) Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of April 20, 1994 from Tesoro Exploration and Production Company,
entered into in connection with the Credit Agreement (incorporated by reference
herein to Exhibit 10.3 to the Company's report on Form 10-Q for the quarter ended
March 31, 1994, File No. 1-3473).
4(k) Deed of Trust, Security Agreement and Financing Statement dated as of April 20, 1994
among Tesoro Alaska Petroleum Company, TransAlaska Title Insurance Agency, Inc., as
Trustee, and TCB, as Agent, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 10.4 to the Company's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(l) Pledge Agreement dated as of April 20, 1994 by the Company in favor of TCB, entered
into in connection with the Credit Agreement (incorporated by reference herein to
Exhibit 10.5 to the Company's report on Form 10-Q for the quarter ended March 31,
1994, File No. 1-3473).
4(m) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between the
Company and TCB, entered into in connection with the Credit Agreement (incorporated
by reference herein to Exhibit 10.6 to the Company's report on Form 10-Q for the
quarter ended March 31, 1994, File No. 1-3473).
4(n) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between
Tesoro Alaska Petroleum Company and TCB, entered into in connection with the Credit
Agreement (incorporated by reference herein to Exhibit 10.7 to the Company's report
on Form 10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(o) Security Agreement (Accounts) dated as of April 20, 1994 between Tesoro Petroleum
Distributing Company and TCB, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 10.8 to the Company's report on Form
10-Q for the quarter ended March 31, 1994, File No. 1-3473).
4(p) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between
Tesoro Exploration and Production Company and TCB, entered into in connection with
the Credit Agreement (incorporated by reference herein to Exhibit 10.9 to the
Company's report on Form 10-Q for the quarter ended March 31, 1994, File No.
1-3473).
4(q) Security Agreement (Accounts and Inventory) dated as of April 20, 1994 between
Tesoro Refining, Marketing & Supply Company and TCB, entered into in connection with
the Credit Agreement (incorporated by reference herein to Exhibit 10.10 to the
Company's report on Form 10-Q for the quarter ended March 31, 1994, File No.
1-3473).
4(r) Loan Agreement (the "Loan Agreement") dated as of May 26, 1994 among Tesoro Alaska
Petroleum Company, as Borrower, the Company, as Guarantor, and National Bank of
Alaska ("NBA"), as Lender (incorporated by reference herein to Exhibit 4.30 to
Registration Statement No. 33-53587).
4(s) Guaranty Agreement dated as of May 26, 1994 between the Company and NBA, entered
into in connection with the Loan Agreement (incorporated by reference herein to
Exhibit 4.31 to Registration Statement No. 33-53587).
4(t) $15,000,000 Promissory Note dated as of May 26, 1994 of Tesoro Alaska Petroleum
Company payable to the order of NBA, in connection with the Loan Agreement
(incorporated by reference herein to Exhibit 4.32 to Registration Statement No.
33-53587).
4(u) Construction Loan Agreement dated as of May 26, 1994 between Tesoro Alaska Petroleum
Company and NBA, entered into in connection with the Loan Agreement (incorporated by
reference herein to Exhibit 4.33 to Registration Statement No. 33-53587).
4(v) Deed of Trust dated as of May 26, 1994 from Tesoro Alaska Petroleum Company, entered
into in connection with the Loan Agreement (incorporated by reference herein to
Exhibit 4.34 to Registration Statement No. 33-53587).
4(w) Security Agreement dated as of May 26, 1994 between Tesoro Alaska Petroleum Company
and NBA, entered into in connection with the Loan Agreement (incorporated by
reference herein to Exhibit 4.35 to Registration Statement No. 33-53587).
|
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
4(x) Consent and Intercreditor Agreement dated as of May 26, 1994 among NBA, TCB, as
Agent, and the Company, entered into in connection with the Credit Agreement
(incorporated by reference herein to Exhibit 4.36 to Registration Statement No.
33-53587).
4(y) Copy of Consent and Waiver No. 1 dated October 27, 1994 to the Company's Credit
Agreement dated as of April 20, 1994 (incorporated by reference herein to Exhibit 4
to the Company's report on Form 10-Q for the quarter ended September 30, 1994, File
No. 1-3473).
4(z) Copy of First Amendment to Credit Agreement dated as of January 20, 1995 among the
Company and TCB as Issuing Bank and as Agent, and certain other banks named therein.
4(aa) Copy of First Amendment to the Loan Agreement dated as of January 26, 1995 among
Tesoro Alaska Petroleum Company, Tesoro Petroleum Corporation and NBA.
10(a) Form of Executive Agreement providing for continuity of management between the
Company and James W. Queen dated June 28, 1984 (incorporated by reference herein to
Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1984, File No. 1-3473).
10(b) Form of Amendment to Executive Agreements between the Company and James W. Queen
dated September 30, 1987 (incorporated by reference herein to Exhibit 10(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1987,
File No. 1-3473).
10(c) Form of Second Amendment to Executive Agreements between the Company and James W.
Queen dated February 28, 1990 (incorporated by reference herein to Exhibit 10(e) to
the Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1990, File No. 1-3473).
10(d) The Company's Amended Executive Security Plan, as amended through November 13, 1989,
and Funded Executive Security Plan, as amended through February 28, 1990, for
executive officers and key personnel (incorporated by reference herein to Exhibit
10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1990, File No. 1-3473).
10(e) Sixth Amendment to the Company's Amended Executive Security Plan and Seventh
Amendment to the Company's Funded Executive Security Plan, both dated effective
March 6, 1991 (incorporated by reference herein to Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1991, File No.
1-3473).
10(f) Seventh Amendment to the Company's Amended Executive Security Plan and Eighth
Amendment to the Company's Funded Executive Security Plan, both dated effective
December 8, 1994.
10(g) Employment Agreement between the Company and Michael D. Burke dated July 27, 1992
(incorporated by reference herein to Exhibit 10(j) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(h) First Amendment and Extension to Employment Agreement between the Company and
Michael D. Burke dated December 14, 1994.
10(i) Employment Agreement between the Company and Bruce A. Smith dated September 14, 1992
(incorporated by reference herein to Exhibit 10(k) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(j) First Amendment and Extension to Employment Agreement between the Company and Bruce
A. Smith dated December 14, 1994.
10(k) Employment Agreement between the Company and Gaylon H. Simmons dated January 4, 1993
(incorporated by reference herein to Exhibit 10(l) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(l) First Amendment and Extension to Employment Agreement between the Company and Gaylon
H. Simmons dated December 14, 1994.
10(m) Employment Agreement between the Company and James C. Reed, Jr. dated December 14,
1994.
10(n) Employment Agreement between the Company and William T. Van Kleef dated December 14,
1994.
10(o) Management Stability Agreement between the Company and Don E. Beere dated December
14, 1994.
|
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
10(p) Management Stability Agreement between the Company and Gregory A. Wright dated
February 23, 1995.
10(q) The Company's Amended Incentive Stock Plan of 1982, as amended through February 24,
1988 (incorporated by reference herein to Exhibit 10(t) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1988, File No. 1-3473).
10(r) Resolution approved by the Company's stockholders on April 30, 1992 extending the
term of the Company's Amended Incentive Stock Plan of 1982 to February 24, 1994
(incorporated by reference herein to Exhibit 10(o) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(s) Copy of the Company's Executive Long-Term Incentive Plan (incorporated by reference
to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-3473).
10(t) Copy of the Company's Non-Employee Director Retirement Plan dated December 8, 1994.
10(u) Copy of the Company's Board of Directors Deferred Compensation Plan dated February
23, 1995.
10(v) Copy of the Company's Board of Directors Deferred Compensation Trust dated February
23, 1995.
10(w) Agreement for the Sale and Purchase of Royalty Oil between Tesoro Alaska Petroleum
Company and the State of Alaska (for the sale of Prudhoe Bay Royalty Oil), dated
February 26, 1982 (incorporated by reference herein to Exhibit 10(p) to the
Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1984,
File No.1-3473).
10(x) Agreement for the Sale and Purchase of State Royalty Oil dated as of September 27,
1994 by and between Tesoro Alaska Petroleum Company and the State of Alaska.
10(y) Copy of Settlement Agreement dated effective January 19, 1993, between Tesoro
Petroleum Corporation, Tesoro Alaska Petroleum Company and the State of Alaska
(incorporated by reference herein to Exhibit 10(q) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No. 1-3473).
10(z) Form of Indemnification Agreement between the Company and its officers and directors
(incorporated by reference herein to Exhibit B to the Company's Proxy Statement for
the Annual Meeting of Stockholders held on February 25, 1987, File No. 1-3473).
10(aa) Gas Purchase and Sales Agreement dated January 16, 1979 (incorporated by reference
herein to Exhibit 10(p) of the Company's Registration Statement No. 33-68282 on Form
S-4).
11 Information Supporting Earnings (Loss) Per Share Computations.
21 Subsidiaries of the Company.
23(a) Consent of Deloitte & Touche LLP.
23(b) Consent of Netherland, Sewell & Associates, Inc.
27 Financial Data Schedule.
|
Adopted: September 22, 1971 ITEM 14(a)3, EXHIBIT 3(a) Amended: May 31, 1973 November 20, 1974 November 1, 1975 September 29, 1976 September 29, 1979 August 27, 1980 November 22, 1988 April 14, 1989 June 28, 1989 January 2, 1992 September 29, 1992 February 9, 1994 February 23, 1995
BY-LAWS
OF
TESORO PETROLEUM CORPORATION
(As Amended February 23, 1995)
ARTICLE I
Meeting of Stockholders
Section 1.1 Annual Meetings. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as properly may come before such meeting shall be held on such date, and at such time and place within or without the State of Delaware, as may be designated by the Board of Directors.
Section 1.2 Special Meetings. Special meetings of the stockholders for any proper purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or any Vice President, to be held on such date, and at such time and place within or without the State of Delaware, as the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, or a Vice President, whichever has called the meeting, shall direct. A special meeting of the stockholders shall be called by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, or any Vice President whenever stockholders holding shares representing a majority of the votes of the shares of the Corporation then issued and outstanding and entitled to vote on matters to be submitted to stockholders of the Corporation shall make application therefor in writing. Any such written request shall state a proper purpose or purposes of the meeting and shall be delivered to the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, or any Vice President. A special meeting of the stockholders shall be called by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or any Vice President, for the purpose of electing one additional member to the Board of Directors in the event there should occur three tie votes of the Board of Directors with respect to any matter or series of matters at any meeting or series of meetings within a three consecutive month period.
Section 1.3 Notice of Meeting. Written notice, signed by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, any Vice President, the Secretary or an Assistant Secretary, of every meeting of stockholders (other than an adjourned meeting unless otherwise required by statute) stating the purpose or purposes for which the meeting is called, and the date and time when, and the place where, it is to be held shall be either delivered personally or mailed to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the meeting, except as otherwise provided by statute. If mailed, such notice shall be directed to a stockholder at his address as it shall appear on the stock books of the Corporation, unless he shall have filed with the Secretary a written request that notices intended for him be mailed to some other address, in which case it shall be mailed to the address designated in such request, and shall be given when deposited in the United States mail, postage prepaid.
Section 1.4 Quorum. The presence at any meeting, in person or by proxy, of the holders of record of shares representing a majority of the votes of the shares then issued and outstanding and entitled to vote shall be necessary and sufficient to constitute a quorum for the transaction of business, except where otherwise provided by statute.
Section 1.5 Adjournments. In the absence of a quorum, a majority of the votes of the stockholders entitled to vote, present in person or by proxy, or, if no stockholder entitled to vote is present in person or by proxy, any officer entitled to preside at or act as secretary of such meeting, may adjourn the meeting from time to time until a quorum shall be present.
Section 1.6 Voting. Directors shall be chosen by a plurality of the votes cast at the election, and, except where otherwise provided by statute, or the Certificate of Incorporation, all other questions shall be determined by a majority of the votes cast on such question.
Section 1.7 Proxies. Any stockholders entitled to vote may vote by proxy, provided that the instrument authorizing such proxy to act shall have been executed in writing (which shall include telegraphing or cabling) by the stockholder himself or by his duly authorized attorney.
Section 1.8 Judges of Election. The Board of Directors may appoint judges of election to serve at any election of directors and at balloting on any other matter that may properly come before a meeting of stockholders. If no such appointment shall be made, or if any of the judges so appointed shall fail to attend, or refuse or be unable to serve, then such appointment may be made by the presiding officers at the meeting.
ARTICLE II
Board of Directors
Section 2.1 Number, Election and Term of Office. The number of directors which shall constitute the whole Board of Directors shall be fixed from time to time by resolution of the Board of Directors but shall not be less than three. The directors shall be elected at the annual meeting of stockholders, except as provided in Section 2.2, and each director elected at an annual meeting of stockholders, and directors elected in the interim to fill vacancies and newly created directorships shall hold office until the next annual meeting of stockholders or until their successors are duly elected and qualified or until their earlier resignation or removal. A director need not be a stockholder.
Section 2.2 Vacancies and Additional Directorships. Unless otherwise provided in the Certificate of Incorporation or these By-laws: (1) vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum; (2) whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office.
Section 2.3 The Chairman and the Vice Chairman of the Board of Directors. The Board of Directors may appoint a Chairman of the Board of Directors and a Vice Chairman of the Board of Directors who shall each be a director but need not be a stockholder of the Corporation. The Chairman and the Vice Chairman shall not, by reason of said titles, be or be deemed to be an officer of the Corporation. The Chairman or, in his absence, the Vice Chairman shall, when present, preside at all meetings of the stockholders and of the Board of Directors. Each of the Chairman and Vice Chairman may sign, with an officer thereunto duly authorized, certificates of stock of the Corporation, the issuance of which shall have been duly authorized (the signatures to which may be facsimile signatures) and may sign and execute in the name of the Corporation other instruments which the Board of Directors has authorized to be executed. From time to time, the Chairman or, in his absence or at his direction, the Vice Chairman shall report to the Board of Directors all matters which to their knowledge the interests of the Corporation may require be brought to their attention. The Chairman and the Vice Chairman shall perform such other duties as are given to them by these By-laws or as from time to time may be assigned to them by the Board of Directors.
Section 2.4 Meetings. A meeting of the Board of Directors shall be held for organization, for the election of officers and for the transaction of such other business as may properly come before the meeting, within thirty days after each annual election of directors.
The Board of Directors by resolution may provide for the holding of regular meetings and may fix the times and places at which such meetings shall be held. Notice of regular meetings shall not be required to be given, provided that whenever the time or place of regular meetings shall be fixed or changed, notice of such action shall be mailed promptly to each director who shall not have been present at the meeting at which such action was taken, addressed to him at his residence or usual place of business.
Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, any Vice President or any two directors. Except as otherwise required by statute, notice of each special meeting shall be mailed to each director, addressed to him at his
residence or usual place of business, or shall be sent to him at such place by telegram, radio or cable, or telephoned or delivered to him personally, not later than two days before the day on which the meeting is to be held. Such notice shall state the time and place of such meeting, but unless otherwise required by statute, the Certificate of Incorporation of the Corporation or these By-laws need not state the purposes thereof.
Notice of any meeting need not be given to any director who shall attend such meeting in person or who shall waive notice thereof, before or after such meeting, in writing or by telegram, radio or cable.
Section 2.5 Quorum. One-third of the total number of members of the Board of Directors as constituted from time to time, but not less than two, shall be necessary and sufficient to constitute a quorum for the transaction of business. In the absence of a quorum, a majority of those present at the time and place of any meeting may adjourn the meeting from time to time until a quorum shall be present, and the meeting may be held as adjourned without further notice of waiver. A majority of those present at any meeting at which a quorum is present may decide any question brought before such meeting, except as otherwise provided by law, the Certificate of Incorporation or these By-laws.
Section 2.6 Resignation of Directors. Any director may resign at any time by giving written notice of such resignation to the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, any Vice President or the Secretary. Any such resignation shall take effect at the time specified therein, or, if no time be specified, upon receipt thereof by the Board of Directors or one of the above-named officers; and, unless specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 2.7 Removal of Directors. At any special meeting of the stockholders, duly called for the purpose of removing a director or directors as provided in these By-laws, any director or directors may, by the affirmative vote of the holders of shares representing a majority of the votes of all the shares of stock outstanding and entitled to vote for the election of directors, be removed from office, either for or without cause. Such vacancy shall be filled by the directors as provided in Section 2.2.
Section 2.8 Compensation of Directors. Directors shall receive such reasonable compensation for their service as such, whether in the form of salary or a fixed fee for attendance at meetings, with expenses, if any, as the Board of Directors may from time to time determine. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
Section 2.9 Indemnification. The Corporation shall indemnify to the full extent authorized or permitted by the laws of the State of Delaware any person who is made,
or threatened to be made, a party to an action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that he, his testator or intestate is or was a director, officer or employee of the Corporation or serves or served any other enterprise at the request of the Corporation.
ARTICLE III
Committees of the Board
Section 3.1 Designation, Power, Alternate Members and Term of Office. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees including an Executive Committee, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in such resolution or in these By-laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger of consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-laws of the Corporation or, unless the resolution of the Board of Directors establishing any such committee shall expressly so provide or these By-laws shall expressly so provide, declaring a dividend on the Corporation's capital stock or authorizing the issuance of the Corporation's capital stock. The Board may designate one or more directors as alternate members of any committee who, in the order specified by the Board, may replace any absent or disqualified member at any meeting of the committee. If at a meeting of any committee one or more of the members thereof should be absent or disqualified, and if either the Board of Directors has not so designated any alternate member or members, or the number of absent or disqualified members exceeds the number of alternate members who are present at such meeting, then the member or members of such committee (including alternates) present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. The term of office of the members of each committee shall be as fixed from time to time by the Board, subject to these By-laws; provided, however, that any committee member who ceases to be a member of the Board shall ipso facto cease to be a committee member. Each committee shall appoint a secretary, who may be the Secretary of the Corporation or an Assistant Secretary thereof.
Section 3.2 Meetings, Notices and Records. Each committee may provide for the holding of regular meetings, with or without notice, and may fix the time and place at which such meetings shall be held. Special meetings of each committee shall be held upon call by or at the direction of its chairman or, if there be no chairman, by or at the direction of any two of its members, at the time and place specified in the respective notices or waivers of notice thereof. Notice of each special meeting of a committee shall be mailed to each member of such committee, addressed to him at his residence or usual place of business, at least two days before the day on which the meeting is to be held, or shall be sent by telegram, radio or cable, addressed to him at such place, or telephoned or delivered to him personally not later than the day before the day on which the meeting is to be held. Notice of any meeting of a committee need not be given to any member thereof who shall attend the meeting in person or who shall waive notice thereof, before or after such meeting, in writing or by telegram, radio or cable. Notice of any adjourned meeting need not be given. Each committee shall keep a record of its proceedings.
Section 3.3 Quorum and Manner of Acting. At each meeting of any committee the presence of one-third but not less than two of its members then in office shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the members present at any meeting at which a quorum is present shall be the act of such committee. In the absence of a quorum, a majority of the members present at the time and place of any meeting may adjourn the meeting from time to time until a quorum shall be present. Subject to the foregoing and other provisions of these By-laws and except as otherwise determined by the Board of Directors, each committee may make rules for the conduct of its business. Any determination made in writing and signed by all the members of such committee shall be as effective as if made by such committee at a meeting.
Section 3.4 Resignations. Any member of a committee may resign at any time by giving written notice of such resignation to the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, any Vice President or the Secretary. Any such resignation shall take effect at the time specified therein, or if no time be specified, upon receipt thereof by the Board of Directors or one of the above-named officers; and, unless specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 3.5 Removal. Any member of any committee may be removed at any time by the Board of Directors with or without cause.
Section 3.6 Vacancies. If any vacancy shall occur in any committee by reason of death, resignation, disqualification, removal or otherwise, the remaining members of such committee, though less than a quorum, shall continue to act until such vacancy is filled by a resolution passed by a majority of the whole Board of Directors.
Section 3.7 Compensation. Committee members shall receive such reasonable compensation for their services as such, whether in the form of salary or a fixed fee for attendance at meetings, with expenses, if any, as the Board of Directors may from time to time determine. Nothing herein contained shall be construed to preclude any committee member from serving the Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
Officers
Section 4.1 Officers. The officers of the Corporation shall be a President, one or more Vice Presidents (which may include Executive Vice Presidents, Group Vice Presidents, Senior Vice Presidents and other categories of Vice Presidents), a Secretary, a Treasurer, and such other officers as may be appointed in accordance with the provisions of Section 4.3.
Section 4.2 Election, Term of Office and Qualifications. Each
officer (except such officers as may be appointed in accordance with the
provisions of Section 4.3) shall be elected by the Board of Directors. Each
such officer (whether elected at the first meeting of the Board of Directors
after the annual meeting of stockholders or to fill a vacancy otherwise) shall
hold his office until the first meeting of the Board of Directors after the
next annual meeting of stockholders and until his successor shall have been
elected, or until his death, or until he shall have resigned in the manner
provided in Section 4.4 or shall have been removed in the manner provided in
Section 4.5.
Section 4.3 Subordinate Officers and Agents. The Board of Directors from time to time may appoint other officers or agents (including one or more Assistant Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers), to hold office for such period, have such authority and perform such duties as are provided in these By-laws or as may be provided in the resolutions appointing them. The Board of Directors may delegate to any officer or agent the power to appoint any such subordinate officers or agents and to prescribe their respective terms of office, authorities and duties.
Section 4.4 Resignations. Any officer may resign at any time by giving written notice of such resignation to the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, any Vice President or the Secretary. Any such resignation shall take effect at the time specified therein or, if no time be specified, upon receipt thereof by the Board of Directors or
one of the above-named officers; and, unless specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 4.5 Removal. Any officer specifically designated in Section
4.1 may be removed at any time, either with or without cause, at any meeting of
the Board of Directors by the vote of a majority of all the Directors then in
office. Any officer or agent appointed in accordance with the provisions of
Section 4.3 may be removed, either with or without cause, by the Board of
Directors at any meeting, by the vote of a majority of the Directors present at
such meeting, or by any superior officer or agent upon whom such power of
removal shall have been conferred by the Board of Directors.
Section 4.6 Vacancies. A vacancy in any office by reason of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed by these By-laws for regular election or appointment to such office.
Section 4.7 The President. The President shall be the Chief Executive Officer of the Corporation. Subject to the direction of the Board of Directors, he shall have general charge of the business, affairs and property of the Corporation and general supervision over the officers and agents of the Corporation. He shall see that all orders and resolutions of the Board of Directors are carried into effect. In the absence of the Chairman of the Board of Directors and the Vice Chairman of the Board of Directors, he shall preside at all meetings of stockholders. He may sign, with any other officer thereunto duly authorized, certificates of stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature), and may sign and execute in the name of the Corporation, deeds, mortgages, bonds, contracts, agreements or other instruments duly authorized by the Board of Directors except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by statute to some other officer or agent. He shall perform such other duties as are given to him by these By-laws or as from time to time may be assigned to him by the Board of Directors.
Section 4.8 The Vice Presidents. In the event of the absence or disability of the President, any Vice President designated by the President (or in the absence of such designation, the Vice President designated by the Board of Directors) shall perform all the duties of the President and, when so acting, shall have all the powers of and be subject to all restrictions upon the President. Any Vice President may also sign, with any other officer thereunto duly authorized, certificates of stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature), and may sign and execute in the name of the Corporation, deeds, mortgages, bonds and other instruments duly authorized by the Board of Directors, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by statute to some other officer or agent. Each Vice
President shall perform such other duties as are given to him by these By-laws or as from time to time may be assigned to him by the Board of Directors or the President.
Section 4.9 The Secretary. The Secretary shall
(a) record all the proceedings of the meetings of the stockholders, the Board of Directors, and any committees in a book or books to be kept for that purpose;
(b) cause all notices to be duly given in accordance with the provisions of these By-laws and as required by statute;
(c) whenever any committee shall be appointed in pursuance of a resolution of the Board of Directors, furnish the chairman of such committee with a copy of such resolution;
(d) be custodian of the records and of the seal of the Corporation, and cause such seal to be affixed to all certificates representing stock of the Corporation prior to the issuance thereof and to all instruments the execution of which on behalf of the Corporation under its seal shall have been duly authorized;
(e) see that the lists, books, reports, statements, certificates and other documents and records required by statute are properly kept and filed;
(f) have charge of the stock and transfer books of the Corporation, and exhibit such stock book at all reasonable times to such persons as are entitled by statute to have access thereto;
(g) sign (unless the Treasurer or an Assistant Secretary or an Assistant Treasurer shall sign) certificates representing stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature); and
(h) in general, perform all duties incident to the office of Secretary and such other duties as are given to him by these By-laws or as from time to time may be assigned to him by the Board of Directors or the President.
Section 4.10 Assistant Secretaries. At the request of the Secretary or in his absence or disability, the Assistant Secretary designated by him (or in the absence of such designation, the Assistant Secretary designated by the Board of Directors or the President) shall perform all the duties of the Secretary and, when so acting, shall have all the powers of and be subject to all restrictions upon the Secretary. The Assistant Secretaries shall perform such other duties as from time to time may be assigned to them by the Board of Directors, the President or the Secretary.
Section 4.11 The Treasurer. The Treasurer shall
(a) have charge of and supervision over and be responsible for the funds, securities, receipts and disbursements of the Corporation;
(b) cause the monies and other valuable effects of the Corporation to be deposited in the name and to the credit of the Corporation in such banks or trust companies or with such bankers or other depositaries as shall be selected in accordance with Section 5.3 of these By-laws or to be otherwise dealt with in such manner as the Board of Directors may direct;
(c) cause the funds of the Corporation to be disbursed by checks or drafts upon the authorized depositaries of the Corporation, and cause to be taken and preserved proper vouchers for all monies disbursed;
(d) render to the Board of Directors or the President, whenever requested, a statement of the financial condition of the Corporation and of all his transactions as Treasurer;
(e) cause to be kept at the Corporation's principal office correct books of account of all its business and transactions and such duplicate books of account as he shall determine and upon application cause such books or duplicates thereof to be exhibited to any director;
(f) be empowered, from time to time, to require from the officers or agents of the Corporation reports or statements giving such information as he may desire with respect to any and all financial transactions of the Corporation;
(g) sign (unless the Secretary or an Assistant Secretary or an Assistant Treasurer shall sign) certificates representing stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature); and
(h) in general, perform all duties incident to the office of Treasurer and such other duties as are given to him by these By-laws or as from time to time may be assigned to him by the Board of Directors or the President.
Section 4.12 Assistant Treasurers. At the request of the Treasurer or in his absence or disability, the Assistant Treasurer designated by him (or in the absence of such designation, the Assistant Treasurer designated by the Board of Directors or the President) shall perform all the duties of the Treasurer, and, when so acting, shall have all the powers of and be subject to all restrictions upon the Treasurer. The Assistant Treasurers shall perform such other duties as from time to time may be assigned to them by the Board of Directors, the President or the Treasurer.
Section 4.13 Salaries. The salaries of the officers of the Corporation shall be fixed from time to time by the Board of Directors, except that the Board of Directors may delegate to any person the power to fix the salaries or other compensation of any officers or agents appointed in accordance with the provisions of Section 4.3. No officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation.
Section 4.14 Surety Bonds. If the Board of Directors shall so require, any officer or agent of the Corporation shall execute to the Corporation a bond in such sum and with such surety or sureties as the Board of Directors may direct, conditioned upon the faithful discharge of his duties, including responsibilities for negligence and for the accounting for all property, funds or securities of the Corporation which may come into his hands.
ARTICLE V
Execution of Instruments and
Deposit of Corporate Funds
Section 5.1 Execution of Instruments Generally. The Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, any Vice President, the Secretary or the Treasurer, subject to the approval of the Board of Directors, may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. The Board of Directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation, and such authorization may be general or confined to specific instances.
Section 5.2 Borrowing. No loans or advances shall be obtained or contracted for, by or on behalf of the Corporation and no negotiable paper shall be issued in its name, unless and except as authorized by the Board of Directors. Such authorization may be general or confined to specific instances. Any officer or agent of the Corporation thereunto so authorized may obtain loans and advances for the Corporation, and for such loans and advances may make, execute and deliver promissory notes, bonds, or other evidences of indebtedness of the Corporation. Any officer or agent of the Corporation thereunto so authorized may pledge, hypothecate or transfer as security for the payment of any and all loans, advances, indebtedness and liabilities of the Corporation, any and all stocks, bonds, other securities and other personal property at any time held by the Corporation, and to that end may endorse, assign and deliver the same and so every act and thing necessary or proper in connection therewith.
Section 5.3 Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to its credit in such banks or trust companies or with such bankers or other depositaries as the Board of Directors may select, or as may be selected by any officer or officers or agent or agents authorized so to do by the Board of Directors. Endorsements for deposit to the credit of the Corporation in any of its duly authorized depositaries shall be made in such manner as the Board of Directors from time to time may determine.
Section 5.4 Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, and all notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers or agent or agents of the Corporation, and in such manner, as from time to time shall be determined by the Board of Directors.
Section 5.5 Proxies. Proxies to vote with respect to shares of stock of other corporations owned by or standing in the name of the Corporation may be executed and delivered from time to time on behalf of the Corporation by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or a Vice President or by any other person or persons thereunto authorized by the Board of Directors.
ARTICLE VI
Record Dates
Section 6.1. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversation or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall be not more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. Only those stockholders of record on the date so fixed shall be entitled to any of the foregoing rights, notwithstanding the transfer of any such stock on the books of the Corporation after any such record date fixed by the Board of Directors.
ARTICLE VII
Corporate Seal
Section 7.1. The corporate seal shall be circular in form and shall bear the name of the Corporation and words and figures denoting its organization under the laws of the State of Delaware and the year thereof and otherwise shall be in such form as shall be approved from time to time by the Board of Directors.
ARTICLE VIII
Fiscal Year
Section 8.1. The fiscal year of the Corporation shall begin on the 1st day of January in each year and shall end on the 31st day of December in the same year.
ARTICLE IX
Amendments
Section 9.1. Except as otherwise provided in Article VII of the Certificate of Incorporation, all By-laws of the Corporation may be amended, altered or repealed, and new By-laws may be made, by the affirmative vote of the holders of record of shares representing a majority of the votes of the outstanding shares of stock of the Corporation entitled to vote cast at any annual or special meeting, or by the affirmative vote of a majority of the Directors cast at any regular or special meeting at which a quorum is present.
ITEM 14(a)3, EXHIBIT 4(z)
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("First Amendment") effective as of December 31, 1994 (the "First Amendment Effective Date") is made and entered into by and among TESORO PETROLEUM CORPORATION (the "Company"), a Delaware corporation, TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("TCB"), individually, as an Issuing Bank and as Agent (the "Agent") and BANQUE PARIBAS ("BP"), individually, and as an Issuing Bank and as Co-Agent and the other financial institutions (collectively, with TCB and BP, the "Lenders") parties to the Credit Agreement (as hereinafter defined) as amended by this First Amendment.
RECITALS
WHEREAS, the Company, the Agent, the Co-Agent and the Lenders are parties to a Credit Agreement dated as of April 20, 1994 (the "Credit Agreement"); and
WHEREAS, the Company, the Agent, the Co-Agent and the Lenders have agreed, on the terms and conditions herein set forth, that the Credit Agreement be amended in certain respects;
NOW, THEREFORE, IT IS AGREED:
Section 1. Definitions. Capitalized terms used but not otherwise defined herein shall have the meaning assigned such terms in the Credit Agreement.
Section 2. Amendments to the Credit Agreement. On and after the First Amendment Effective Date, the Credit Agreement shall be amended as follows:
(a) The following new definition is hereby added to Section 1.01 of the Credit Agreement:
"Tesoro Refining and Marketing Group" shall mean Tesoro Alaska, Tesoro R&M, Tesoro Alaska Pipeline Company, a Delaware corporation, Tesoro Northstore Company, an Alaska corporation, and Interior Fuels Company, an Alaska corporation.
(b) The definition of "Cash Flow" set forth in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows:
"Cash Flow" shall mean, as to any Person, the sum of the net income of such Person after taxes for any period plus, to the extent deducted from net income, all non-cash items, including, but not limited to, depreciation, depletion and impairment, amortization of leasehold and intangibles, deferred taxes and write-offs of exploration costs and producing lease abandonments and write-offs of original issue discount and deferred financing costs on existing Indebtedness that has been replaced by Indebtedness permitted by Section 5.04(a)(ii), minus, to the extent included in the net income of Tesoro E&P, revenues attributable to the supersedeas bond posted pursuant to the Memorandum of Binding Agreement relating to Tennessee Gas Pipeline Company v. Lenape Resources Corp., No. 90-CI-12181 (District Court of
Bexar County, Texas, 57th Judicial District, September 1, 1994), as the same may be amended, supplemented, modified or replaced from time to time, provided that such revenues may be included in the net income of Tesoro E&P at such time and to the extent that Tesoro E&P collects cash on such supersedeas bond; in each case determined for such period and as to such Person.
(c) Section 5.02(h)(i) of the Credit Agreement is hereby amended in its entirety as follows:
(h) Bi-Weekly Borrowing Base Reports.
(i) As soon as available and in any event by the Thursday following the close of each two calendar week period, a Borrowing Base Report dated and reflecting amounts as of the close of business on Thursday of the preceding calendar week.
(d) Section 5.03(b) of the Credit Agreement is hereby amended in its entirety as follows:
(b) Working Capital. Maintain at all times its Consolidated Working Capital Ratio of as least 1.30 to 1.00.
(e) The first sentence of Section 5.03(c) of the Credit Agreement is hereby amended to read in its entirety as follows:
Maintain a cash flow coverage ratio for itself and its Subsidiaries on a consolidated basis as of any Quarterly Date equal to or greater than (i) 1.05 to 1.00 for the Rolling Periods ending on December 31, 1994, March 31, 1995 and June 30, 1995 and (ii) 1.10 to 1.00 for the Rolling Period ending on September 30, 1995 and for each Rolling Period thereafter ending on the applicable Quarterly Date.
(f) Section 5.03(d) of the Credit Agreement is hereby amended in its entirety as follows:
(d) Tesoro Refining and Marketing Group EBITDA. Cause the Tesoro Refining and Marketing Group to maintain the Tesoro Refining and Marketing Group EBITDA in an amount equal to or greater than:
For the Rolling Minimum Tesoro Refining Period Ending and Marketing Group EBITDA --------------- --------------------------- December 31, 1994 $ 5,000,000 March 31, 1995 $ 5,000,000 June 30, 1995 $15,000,000 September 30, 1995 $25,000,000 December 31, 1995 $25,000,000 March 31, 1996 and thereafter $30,000,000 |
As used in this Subsection, Tesoro Refining and Marketing Group EBITDA shall mean, as to the Tesoro Refining and Marketing Group, and for any Rolling Period,
the amount equal to consolidated net income of the Tesoro Refining and Marketing Group less any non-cash income included in such net income, plus, to the extent deducted from such net income, interest expense, depreciation, depletion and impairment, amortization of leasehold and intangibles, other non-cash expenses, and taxes; provided, that, gains or losses on the disposition of assets shall not be included in Tesoro Refining and Marketing Group EBITDA.
(g) Section 5.04(e) of the Credit Agreement is hereby amended by deleting the reference to "and" at the end of clause (ix), by changing the period at the end of clause (x) to read "; and" and by adding the following new clause (xi):
(xi) the purchase of 20,000 shares of capital stock of Kenai Pipe Line Company, a Delaware corporation, pursuant to the stock purchase agreement dated as of December 29, 1994 among Chevron Pipe Line Company and Atlantic Richfield Company, as Sellers, and Tesoro Alaska, as Buyer.
(h) Section 5.04(o)(iii) of the Credit Agreement is hereby amended in its entirety as follows:
(iii) Additional Capital Expenditures. Notwithstanding the maximum capital expenditure amounts set forth in clauses (i) and (ii) above, the maximum amount of capital expenditures for the Company and its Subsidiaries on a consolidated basis and for Tesoro Alaska may be increased by a total of $7,000,000 in the aggregate spread, as the Company may elect, among the calendar years of 1994, 1995 and 1996; provided that after giving effect to any such increased capital expenditures, the Company shall not be in Default.
(i) Annex II to the Credit Agreement is hereby amended to be identical to Exhibit A attached hereto, being a revised "Eligible Inventory Valuation".
Section 3. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Credit Agreement or any of the other Financing Documents, or (b) except as expressly set forth herein, prejudice any right or rights which the Lenders may now have or may have in the future under or in connection with the Credit Agreement, the Financing Documents or any of the other documents referred to therein. Except as expressly modified hereby or by express written amendments thereof, the terms and provisions of the Credit Agreement, the Notes, and any other Financing Documents or any other documents or instruments executed in connection with any of the foregoing are and shall remain in full force and effect. In the event of a conflict between this First Amendment and any of the foregoing documents, the terms of this First Amendment shall be controlling.
Section 4. Payment of Expenses. The Company agrees, whether or not the transactions hereby contemplated shall be consummated, to reimburse and save the Agent harmless from and against liability for the payment of all reasonable substantiated out-of-pocket costs and expenses arising in connection with the preparation, execution, delivery, amendment, modification, waiver and enforcement of, or the preservation of any rights under this First Amendment, including, without limitation, the reasonable fees and expenses of any local or other counsel for the Agent, and all stamp taxes (including interest and penalties, if any), recording taxes and fees, filing taxes and fees,
and other charges which may be payable in respect of, or in respect of any modification of, the Credit Agreement and the other Financing Documents. The provisions of this Section shall survive the termination of the Credit Agreement and the repayment of the Loans.
Section 5. Governing Law. This First Amendment and the rights and obligations of the parties hereunder and under the Credit Agreement shall be construed in accordance with and be governed by the laws of the State of Texas and the United States of America.
Section 6. Descriptive Headings, etc. The descriptive headings of the several Sections of this First Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof
Section 7. Entire Agreement. This First Amendment and the documents referred to herein represent the entire understanding of the parties hereto regarding the subject matter hereof and supersede all prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof, including, without limitation, any commitment letters regarding the transactions contemplated by this First Amendment.
Section 8. Counterparts. This First Amendment may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument.
Section 9. Amended Definitions. As used in the Credit agreement (including all Exhibits thereto) and all other instruments and documents executed in connection therewith, on and subsequent to the First Amendment Effective Date the term "Agreement" shall mean the Credit Agreement as amended by this First Amendment.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE Section 26.02
THIS FIRST AMENDMENT AND THE OTHER FINANCING DOCUMENTS EXECUTED BY ANY OF THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF TOGERHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARNES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered by their respective duly authorized offices as of January 20, 1995, and effective as of the date first above written.
TESORO PETROLEUM CORPORATION
By: /s/ WILLIAM T. VAN KLEEF
---------------------------
William T. Van Kleef
Vice President, Treasurer
|
[Signature Page - 1]
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
Individually, as an Issuing Bank
and as Agent
By: /s/ P. STAN BURGE ---------------------------- P. Stan Burge Vice President |
Address for Notices:
712 Main Street
Houston, Texas 77002
Attention: Mr. P. Stan Burge
[Signature Page - 2]
BANQUE PARIBAS
Individually, as an Issuing Bank
and as Co-Agent
By: /s/ BRIAN MALONE ------------------------------- Name: Brian Malone Title: Vice President By: /s/ MEI WAN TONG ------------------------------ Name: Mei Wan Tong Title: Group Vice President |
Address for Notices:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attention: Mr. Brian Malone
[Signature Page - 3]
BANK OF SCOTLAND
By: /s/ CATHERINE M. ONIFFREY ------------------------------ Name: Catherine M. Oniffrey Title: Vice President |
Address for Notices:
380 Madison Avenue
New York, New York 10017
Attention: Ms. Catherine Oniffrey
With Copy To:
1200 Smith Street
1750 Two Allen Center
Houston, Texas 77002
Attention: Ms. Janna Blanter
[Signature Page - 4]
CHRISTIANIA BANK
By: /s/ PETER M. DODGE
---------------------------
Name: Peter M. Dodge
Title: Vice President
By: /s/ CARL P SVENDSEN
---------------------------
Name: Carl P. Svendsen
Title: FVP
|
Address for Notices:
11 West 42nd Street, 7th Floor
New York, New York 10036
Attention: Mr. Peter Dodge
[Signature Page - 5]
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. ASHBY
------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan
Operations
|
Address for Notices:
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Attention: Ms. Lauren Bianchi
With Copy To:
1100 Louisiana Street, Suite 3000
Houston, Texas 77002
Attention: Mr. Michael W. Nepveux
[Signature Page - 6]
NBD BANK
By: /s/ RUSSELL H. LIEBETRAU, JR. -------------------------------- Name: Russell H. Liebetrau, Jr. Title: Vice President |
Address for Notices:
611 Woodward Avenue
Detroit, Michigan 48226
Attention: Mr. Russell H. Liebetrau, Jr.
[Signature Page - 7]
BANK OF AMERICA ILLINOIS
By: /s/ RONALD E. McKAIG
-------------------------------
Name: Ronald E. McKaig
Title: Vice President
|
Address for Notices:
231 S. LaSalle Street
Chicago, Illinois 60697
Attention: Mr. Ron McKaig
[Signature Page - 8]
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: First Union Corporation of
North Carolina, as Agent
By: /s/ PAUL N. RIDDLE -------------------------------- Name: Mr. Paul N. Riddle Title: Vice President |
Address for Notices:
1001 Fannin Street, Suite 2255
Houston, Texas 77002
Attention: Mr. Paul N. Riddle
[Signature Page - 9]
NATIONAL BANK OF CANADA
By: /s/ LARRY L. SEERS
-------------------------------
Name: Larry L. Seers
Title: Group Vice President
By: /s/ CHARLES COLLIE
--------------------------------
Name: Charles Collie
Title: Vice President
|
Address for Notices:
125 West 55th Street
New York, New York 10019-5366
With Copy To:
2121 San Jacinto, Suite 1850
Dallas, Texas 75201
Attention: Mr. David L. Schreiber
[Signature Page - 10]
THE FROST NATIONAL BANK
By: /s/ PHIL DUDLEY
--------------------------
Name: Phil Dudley
Title: Vice President
|
Address for Notices:
100 W. Houston Street
San Antonio, Texas 78205
Attention: Mr. Phil Dudley
[Signature Page - 11]
EXHIBIT A
REVISED ANNEX II
ELIGIBLE INVENTORY VALUATION
1. TESORO ALASKA PETROLEUM COMPANY
Market Price Indicators
-----------------------
A. Crude Oil:
1. East Side Cook Inlet Union's posted price for Kenai plus
$0.17 per barrel.
2. West Side Cook Inlet Union's posted price for Kenai plus
$0.17 per barrel.
3. Alaska North Slope (ANS) The mean posting price for ANS (Cal)
effective on the date of inventory
valuation as published in Platt's
Oilgram Price Report less $1.00 per
barrel.
B. Refined Products Anchorage locations:
-------------------
1. All Gasolines The average of the OPIS prices for
#2 Diesel Fuel each individual product for Texaco,
Jet Fuel (Commercial Jet A) Chevron, Mapco and Tesoro Alaska
Jet B for Anchorage.
Fairbanks location:
------------------
The average of the OPIS prices for
each individual product for Texaco,
Chevron, Mapco and Tesoro Alaska for
Anchorage plus $2.94 per barrel.
Kenai locations:
---------------
The average of the OPIS prices for
each individual product for Texaco,
Chevron, Mapco and Tesoro Alaska for
Anchorage plus $0.609 per barrel.
Valdez locations:
----------------
The average of the OPIS prices for
each individual product for Texaco,
Chevron, Mapco and Tesoro Alaska for
Anchorage plus $2.94 per barrel.
2. Residual Fuel Oil Spot Crude Price Assessments for ANS
(Cal) as posted in Platt's Oilgram
Price Report less $8.00 per barrel.
3. Propane Edmonton Canada average posting for
propane plus $7.45 per barrel.
|
Annex II-1
4. Butane Edmonton Canada average posting for
propane plus $7.45 per barrel minus
$5.04 per barrel.
5. JP4 (a) 70% of the PADS average of
unleaded gasoline as published in
OPIS plus (b) 30% of the PADS average
of Jet Fuel in Los Angeles, San
Francisco and Seattle as published in
OPIS.
6. HVGO 70% of the average price of the
Platt's West Coast Pipeline (Los
Angeles) for 87 octane unleaded plus
30% of the average price of the
Platt's West Coast Pipeline (Los
Angeles) for low-sulfur No. 2 on the
date of inventory valuations, minus
$7.98 per barrel.
7. VTB Cutter stock The average #2 Diesel Fuel price as
calculated for Kenai locations.
8. VTB 32.5% of the average price of the
Platt's Spot Crude Price Assessments
for ANS (Cal) on the date of
inventory valuations.
9. Industrial Fuel Oil The average posted price as published
in Platt's Bunkerwire Marine Fuel -
Oil Spot Prices for Los Angeles (per
metric ton) plus $5.10 per metric ton
shipping premium. This valuation is
then divided by 6.5 to convert metric
tons to barrels.
C. Unfinished Products/Blendstocks
1. Light straight run 90.3% of the average of the OPIS
prices for Texaco, Chevron, Mapco and
Tesoro Alaska for unleaded gas at
Anchorage minus $0.609 per barrel.
2. Isomerate 97.4% of the average of the OPIS
prices for Texaco, Chevron, Mapco and
Tesoro Alaska for unleaded gas at
Anchorage minus $0.609 per barrel.
3. Naptha 96.04% of the average of the OPIS
prices for Texaco, Chevron, Mapco and
Tesoro Alaska for unleaded gas at
Anchorage minus $0.609 per barrel.
|
Annex II-2
4. Reformate 107.4% of the average of the OPIS
prices for Texaco, Chevron, Mapco and
Tesoro Alaska for unleaded gas at
Anchorage minus $0.609 per barrel.
5. Gasoil 55% of the average Jet Fuel Prices
plus 50% of the average unleaded
gasoline prices as calculated herein.
6. MTBE Platt's Oilgram Price Report (Gulf
Coast) plus $2.52 per barrel.
7. HAGO The mean posting price for ANS (Cal)
as published in Platt's Oilgram Price
Report less $1.00 per barrel plus
$7.25 per barrel.
8. Ethanol Average posted price for Seattle and
Portland as published in OPIS.
D. Merchandise Weighted average cost (in-house)
* Cook Inlet crude oil at the Kenai Refinery will be valued at East Side
Cook Inlet Crude oil market prices per above.
|
Annex II-3
II. TESORO REFINING, MARKETING & SUPPLY COMPANY
MARKET
STATE TERMINAL PRODUCTS PRICE INDICATORS
----- -------- -------- -----------------
California Sacramento Regular Average posted price as
Unleaded published in Oil Price
Unleaded Premium Information Service
Diesel #2
Stockton Regular Average posted price as
Unleaded published in Oil Price
Unleaded Premium Information Service
Diesel #2
Port Hueneme Regular Average posted price as
Unleaded published in Oil Price
Unleaded Premium Information Service
Diesel #2
Washington Vancouver Regular Average posted price as
Unleaded published in Oil Price
Unleaded Premium Information Service
Diesel #2
Oregon Portland Regular Average posted price as
Unleaded published in Oil Price
Unleaded Premium Information Service
Diesel #2
|
Annex II-4
ITEM 14(a)3, EXHIBIT 4(aa)
FIRST AMENDMENT TO THE LOAN AGREEMENT DATED MAY 26, 1994.
This Amendment is entered into as of January 26, 1995 among TESORO ALASKA PETROLEUM COMPANY, a Delaware corporation (the "Borrower") TESORO PETROLEUM CORPORATION, a Delaware corporation (the "Guarantor"), and NATIONAL BANK OF ALASKA, a National Banking Association (the "Bank").
The parties to the Loan Agreement dated May 26, 1994, (the "Loan Agreement") agree to the following changes in the terms and conditions of the Loan Agreement.
Section 5.4 EBITDA. Requirement for EBITDA of $15,000,000 at 12/31/94 is hereby waived.
Section 6.2 Capital Expenditures, (iii) Additional Capital Expenditures. Maximum capital expenditures under this section is reduced to $7,000,000 in the aggregate spread among the calendar years 1994, 1995, 1996.
Section 6.5 Investments. Add (iv) and except for investment in Kenai Pipe Line Company as outlined in the Stock Purchase Agreement by and between Chevron Pipe Line Company and Atlantic Richfield Company (sellers) and Tesoro Alaska Petroleum Company (buyer) dated December 29, 1994.
ALL OTHER TERMS AND CONDITIONS OF THE LOAN AGREEMENT REMAIN THE SAME. WAIVER GRANTED HEREIN DOES NOT IMPLY WAIVER OF ANY OTHER TERM OR CONDITION OF THE AGREEMENT.
BORROWER:
TESORO ALASKA PETROLEUM COMPANY
By: /s/ WILLIAM T. VAN KLEEF
-----------------------------------------
William T. Van Kleef
Its: Vice President and Treasurer
|
GUARANTOR:
TESORO PETROLEUM COMPANY
By: /s/ WILLIAM T. VAN KLEEF
-----------------------------------------
William T. Van Kleef
Its: Vice President and Treasurer
|
BANK:
NATIONAL BANK OF ALASKA
By: /s/ PATRICIA JELLEY BENZ
-----------------------------------------
Patricia Jelley Benz
Its: Vice President
|
ITEM 14(a)3, EXHIBIT 10(f)
SEVENTH AMENDMENT TO
TESORO PETROLEUM CORPORATION
AMENDED EXECUTIVE SECURITY PLAN
W I T N E S S E T H:
WHEREAS, the Company adopted and established, effective December 1, 1984, the "Tesoro Petroleum Corporation Amended Executive Security Plan," hereinafter the "Plan," for the benefit of its eligible employees; and
WHEREAS, the Plan provides that it may be amended at any time by the Board of Directors of the Company; and
WHEREAS, the Board of Directors of the Company has adopted on December 8, 1994, certain resolutions directing that such Plan be amended;
NOW, THEREFORE, the Plan is hereby amended in accordance with such resolutions as set forth below, effective as of the dates specified below, as follows:
Effective December 8, 1994, Appendix A to the Plan is hereby amended by adding the following:
BOARD OF DIRECTORS MEETING
December 8, 1994
RESOLVED, that the definition of "Basic Compensation" under
Section 1.2 of the Amended Executive Security Plan ("Amended
Plan") and the definition of "Compensation" under Section
2.09 of the Funded Executive Security Plan ("Funded Plan")
shall include performance bonuses and incentive
compensation paid after December 1, 1993, in the form of
stock awards of the Company's Common Stock valued based on
the closing price of the Company's Common Stock on the New
York Stock Exchange Composite Tape on the date of grant;
and
FURTHER RESOLVED, that in accordance with Section 6.7 of the Company's
Amended Plan the foregoing resolution shall be added to
Appendix A to the Amended Plan and in accordance with
Section 10.10 of the Company's Funded Plan the foregoing
resolution shall be added to Appendix B to the Funded Plan;
and
FURTHER RESOLVED, that the President or any Vice President of the Company is hereby authorized to take all such actions as may be necessary or appropriate to effectuate the foregoing resolution.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the foregoing, Tesoro Petroleum Corporation, as directed by the Board of Directors, has caused its corporate seal to be affixed hereto and these presents to be fully executed in its name and behalf by its proper officers thereunto authorized this 9th day of December 1994.
ATTEST: TESORO PETROLEUM CORPORATION /s/ JAMES C. REED, JR. By: /s/ WILLIAM T. VAN KLEEF - ---------------------------------------- ---------------------------------- James C. Reed, Jr. William T. Van Kleef Senior Vice President, General Counsel Vice President, Treasurer and Secretary |
[seal]
EIGHTH AMENDMENT TO
TESORO PETROLEUM CORPORATION
FUNDED EXECUTIVE SECURITY PLAN
W I T N E S S E T H :
WHEREAS, the Company adopted and established, effective December 1, 1984, the "Tesoro Petroleum Corporation Funded Executive Security Plan," hereinafter called the "Plan," for the benefit of its eligible employees; and
WHEREAS, the Plan provides that it may be amended at any time by the Board of Directors of the Company; and
WHEREAS, the Board of Directors of the Company has adopted, on December 8, 1994, certain resolutions directing that such Plan be amended;
NOW, THEREFORE, the Plan is hereby amended in accordance with such resolutions as set forth below, effective as of the date specified below, as follows:
Effective December 8, 1994, Appendix B to the Plan is hereby amended by adding the following:
BOARD OF DIRECTORS MEETING
December 8, 1994
RESOLVED, that the definition of "Basic Compensation" under
Section 1.2 of the Amended Executive Security Plan ("Amended
Plan") and the definition of "Compensation" under Section
2.09 of the Funded Executive Security Plan ("Funded Plan")
shall include performance bonuses and incentive compensation
paid after December 1, 1993, in the form of stock awards of
the Company's Common Stock valued based on the closing
price of the Company's Common Stock on the New York Stock
Exchange Composite Tape on the date of grant; and
FURTHER RESOLVED, that in accordance with Section 6.7 of the Company's Amended Plan the foregoing resolution shall be added to Appendix A to the Amended Plan and in accordance with Section 10.10 of the Company's Funded
Plan the foregoing resolution shall be added to Appendix B to the Funded Plan; and
FURTHER RESOLVED, that the President or any Vice President of the Company is hereby authorized to take all such actions as may be necessary or appropriate to effectuate the foregoing resolution.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the foregoing, Tesoro Petroleum Corporation, as directed by the Board of Directors, has caused its corporate seal to be affixed hereto and these presents to be fully executed in its name and behalf by its proper officers thereunto authorized this 9th day of December 1994.
ATTEST: TESORO PETROLEUM CORPORATION /s/ JAMES C. REED, JR. By: /s/ WILLIAM T. VAN KLEEF - --------------------------------------- --------------------------------- James C. Reed, Jr. William T. Van Kleef Senior Vice President, General Counsel Vice President, Treasurer and Secretary |
[seal]
ITEM 14(a)3, EXHIBIT 10(h)
FIRST AMENDMENT AND EXTENSION
TO
EMPLOYMENT AGREEMENT
This First Amendment and Extension to Employment Agreement dated December 14, 1994, between Tesoro Petroleum Corporation, a Delaware corporation (the "Company"), and Michael D. Burke ("Employee"), amends and extends the Employment Agreement dated July 27, 1992 (the "Original Agreement"), between the Company and the Employee:
The Company and the Employee desire and agree to amend and extend the Original Agreement as follows:
1. Section 2 of the Original Agreement:
(a) Section 2 is amended by changing "semi-monthly" in subparagraph (a) to "bi-weekly."
(b) Section 2 is further amended by deleting subparagraph (b) and redesignating subparagraph (c) through (f) as subparagraphs (b) through (e), respectively.
(c) Section 2 is further amended to add the following subparagraphs (f), (g), and (h) and changing the designation of subparagraph (g) to (i):
(f) Annual Incentive Plan. The Company shall establish an Annual Incentive Compensation Plan for executive officers in which the Employee shall be entitled to participate in a manner consistent with his position with the Company and the evaluations of his performance by the Board of Directors or any appropriate Committee thereof.
(g) Stock Options and Restricted Stock Grants. The Employee shall be entitled to receive stock options and restricted stock grants under the Company's plans in effect from time to time, if any, commensurate with his position with the Company and the evaluations of his performance by the Board of Directors or any appropriate committee thereof.
(h) Flexible Perquisites Arrangement. The Employee shall receive a stipulated amount of $25,000 which will be expended by the Company on behalf of the Employee or paid to the Employee, at the Employee's
election, to cover various business-related expenses such as monthly dues for country, luncheon or social clubs, automobile expenses and financial and tax planning expenses. The Employee may elect at any time by written notice to the Company to receive any of such stipulated amount which has not been paid to or on behalf of the Employee. In addition, the Company will pay on behalf of the Employee up to $15,000 to pay an initiation fee or fees for a country, luncheon or social club or clubs and will pay directly to the Employee an amount equal to 65 percent of the amount so paid on the Employee's behalf to offset the applicable income tax expense to the Employee. In addition, the Company will pay additional initiation fees and reimburse the Employee for related tax expenses to the extent the Board of Directors or a duly authorized committee thereof determines such fees are reasonable and in the best interest of the Company.
2. Section 5 of the Original Agreement is amended to delete the phrase "on the third anniversary of the date of this Agreement" and substitute "on October 27, 1995, therefor and to add the following at the end thereof.
Notwithstanding the foregoing, if the Company shall not have
offered to the Employee the opportunity to enter into a new
employment agreement prior to October 27, 1995, with terms, in
all respects, no less favorable to the Employee than the terms
of this Agreement and with a term lasting until at least
October 27, 1997, the Employee shall have the right to elect
by written notice delivered to the Company prior to November
27, 1995, to terminate his employment and such termination
shall be deemed to have been for Good Reason in accordance with
Section 6 and the Employee shall be entitled to all payments
and benefits as if he had terminated his employment for Good
Reason in accordance with Section 6 on October 26, 1995.
3. Section 6 of the Original Agreement is amended to read in its entirety as follows:
6. Termination by the Company Without Cause and Termination by Employee for "Good Reason." The Company may, by delivering 30 days prior written notice to Employee, terminate Employee's employment at any time without cause, and the Employee may, by delivering 30
days prior written notice to the Company, terminate Employee's employment for "Good Reason," as defined below. If such termination without cause or for Good Reason occurs, Employee shall be entitled to receive a lump-sum payment equal to the sum of (a) two times the sum of (i) his Base Salary at the then current rate and (ii) the sum of the target bonuses under all of the Company's incentive bonus plans applicable to Employee for the year in which the termination occurs and (b) if termination occurs in the fourth quarter of a calendar year, the sum of the target bonuses under all of the Company's incentive bonus plans applicable to Employee for the year in which the termination occurs prorated daily based on the number of days from the beginning of the calendar year in which the termination occurs to and including the date of termination. Employee shall also receive all unpaid bonuses for the year prior to the year in which the termination occurs and shall receive (i) for a period of two years continuing coverage and benefits comparable to all life, health and disability insurance plans which the Company from time to time makes available to its management executives and their families, (ii) a lump-sum payment equal to two times the stipulated flexible perquisites amount pursuant to Section 2(h), and (iii) two years additional service credit under the current non-qualified supplemental pension plans, or successors thereto, of the Company applicable to the Employee on the date of termination. All unvested stock options held by Employee on the date of the termination shall become immediately vested and all restrictions on Restricted Stock then held by the Employee shall terminate.
For purposes of this Section 6, "Good Reason" shall mean the occurrence of any of the following events.
(a) Removal, without the consent of Employee in writing, from one or more of the offices Employee holds on the date of this Agreement or a material reduction in Employee's authority or responsibility, including, without limitation, involuntary removal from the Board of Directors, but not including termination of Employee for "cause," as defined below; or
(b) The Company otherwise commits a material breach of this Agreement.
The Company shall pay any attorney fees incurred by
Employee in reasonably seeking to enforce the terms of this
Section 6.
4. Section 7 of the Original Agreement is deleted in its entirety and a new Section 7 is added as follows:
Section 7. Termination upon Death or Disability. If
the Employee's employment is terminated because of death or on
account of becoming permanently disabled (as defined in Section
8), the Employee, or his estate, if applicable, shall be
entitled to receive the Employee's Base Salary earned pro rata
to the date of his termination of employment, plus unpaid
bonuses for the year prior to the year in which the termination
occurs. All unvested stock options held by the Employee on the
date of termination shall become immediately vested and all
restrictions on Restricted Stock held by he Employee shall
terminate.
5. Section 8 of the Original Agreement is amended by deleting the second sentence thereof and substituting the following therefor:
In the event the employment of Employee is terminated for "cause," Employee shall be entitled only to his Base Salary earned pro rata to his date of termination with no entitlement to any base salary continuation payments or benefit continuation (except as specifically provided by the terms of an employee benefit plan of the Company).
6. Section 9 of the Original Agreement is hereby amended by deleting the words "accrued and" in the second sentence thereof adding the following after the word "bonuses" appearing in such second sentence:
"for the year prior to the year in which the termination occurs"
7. Section 10 of the Original Agreement is amended as follows:
(a) Subclause (a) is amended in its entirety to read as follows:
(a) A lump-sum payment equal to three times the base salary at the then current rate;
(b) The following is added as a new subclause (b):
(b) A lump-sum payment equal to the sum of (i) three times the sum of the target bonuses under all of the Company's incentive bonus plans applicable to the Employee for the year in which the termination occurs or the year in which the change of control occurred, whichever is greater, and (ii) if termination occurs in the fourth quarter of a calendar year, the sum of the target bonuses under all of the Company's incentive bonus plans applicable to Employee for the year in which the termination occurs prorated daily based on the number of days from the beginning of the calendar year in which the termination occurs to and including the date of termination.
(c) Subclause (b) is redesignated as subclause (c) and the words "awarded under this Agreement" are deleted therefrom.
(d) The first sentence after subclause lb) is amended to read in its entirety as follows:
The Company (or its successor) shall also provide (i) for a period of three years continuing coverage and benefits comparable to all life, health and disability plans of the Company in effect at the time a change of control is deemed to have occured; (ii) a lump-sum payment equal to three times the stipulated flexible perquisites amount pursuant to Section 2(h); and (iii) three years additional service credit under the current non-qualified supplemental pension plans, or successors thereto, of the Company applicable to the Employee on the date of termination.
(e) The second full paragraph relating to "gross up" payments to cover taxes under Section 280G of the Internal Revenue Code is deleted in its entirety and the two paragraphs immediately thereafter are deleted in their entirety and the following is substituted therefor.
For purposes of this Agreement, a "change of control" shall be
deemed to have occurred if (i) there shall be consummated (A) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or
other property, other than a merger of the Company where a majority of
the Board of Directors of the surviving corporation are, and for a
two-year period after the merger continue to be, persons who were
directors of the Company immediately prior to the merger or were
elected as directors, or nominated for election as director, by a vote
of at least two-thirds of the directors then still in office who were
directors of the Company immediately prior to the merger, or (B) any
sale, lease, exchange or transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the
Company, or (ii) the shareholders of the Company shall approve any plan
or proposal for the liquidation or dissolution of the Company, or (iii)
(A) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), other than the Company or a subsidiary thereof or any employee
benefit plan sponsored by the Company or a subsidiary thereof, shall
become the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of securities of the Company representing 20 percent or
more of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, and (B) at any time during
a period of two years thereafter, individuals who immediately prior to
the beginning of such period constituted the Board of Directors of the
Company shall cease for any reason to constitute at least a majority
thereof, unless the election or the nomination by the Board of
Directors for election by the Company's shareholders of each new
director during such period was approved by a vote of at least
two-thirds of the directors then still in office who were directors at
the beginning of such period.
For purposes of this Section 10, "good reason upon change of control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the assignment to Employee of any duties inconsistent with the employment of Employee to the positions set forth in Section 1, or a significant diminution of Employee's positions, duties, responsibilities and status with the Company from those immediately prior to a change of control or a diminution in Employee's titles or offices as in effect immediately prior to a change of control, or any removal of Employee from, or any failure to reelect Employee to, any of such positions;
(ii) a reduction by the Company in Employee's base salary in effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any thrift, stock ownership, pension, life insurance, health, dental and accident or disability plan in which Employee is participating or is eligible to participate at the time of the change of control (or plans providing Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any of such plans or deprive Employee of any material fringe benefits enjoyed by Employee at the time of the change of control or the failure by the Company to provide the Employee with the number of paid vacation days to which Employee is entitled in accordance with the vacation policies of the Company in effect at the time of a change of control;
(iv) the failure by the Company to continue in effect any incentive plan or arrangement (including without limitation, the Company's Incentive Compensation Plan and similar incentive compensation benefits) in which Employee is participating at the time of a change of control (or to substitute and continue other plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control;
(v) the failure by the Company to continue in effect any plan or arrangement with respect to securities of the Company (including, without limitation, any plan or arrangement to receive and exercise stock options, stock appreciation rights, restricted stock or grants thereof or to acquire stock or other securities of the Company) in which Employee is participating at the time of a change of control (or to substitute and continue plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any such plan;
(vi) the relocation of the Company's principal executive offices to a location outside the San Antonio, Texas, area, or the Company's requiring Employee to be based anywhere other than at the location of the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with Employee's present business travel obligations, or, in the event Employee consents to any such relocation of the Company's principal executive or divisional offices, the failure by the Company to pay (or reimburse Employee for) all reasonable moving expenses incurred by Employee relating to a change of Employee's principal residence in connection with such relocation and to indemnify Employee against any loss (defined as the difference between the actual sale price of such residence and the fair market value thereof as determined by the highest of three appraisals from Member Appraisal Institute-approved real estate appraisers reasonably satisfactory to both Employee and the Company at the time Employee's principal residence is offered for sale in connection with any such change of residence);
(vii) any material breach by the Company of any provision of this Agreement;
(viii) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; or
(ix) any purported termination of Employee's employment by the Company other than termination for cause fully in compliance with this Agreement and for purposes of this Agreement, no such purported termination shall be effective.
8. Miscellaneous.
(a) Complete Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and cancels and supersedes all other agreements between the parties which may have related to the subject matter contained in this Agreement, provided that, except as expressly modified hereby, the Original Agreement shall remain in full force and effect.
(b) Modification; Amendment; Waiver. No modification, amendment or waiver of any provisions of this Agreement shall be effective unless approved in writing by both parties. The failure at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of either party thereafter to enforce each and every provision hereof in accordance with its terms.
(c) Governing Law; Jurisdiction. This Agreement and performance under it, and all proceedings that may ensue from its breach, shall be construed in accordance with and under the laws of the State of Texas.
(d) Employee's Representations. Employee represents and warrants that he is free to enter into this Agreement and to perform each of the terms and covenants of it. Employee represents and warrants that he is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that his execution and performance of this Agreement is not a violation or breach of any other agreement between Employee and any other person or entity.
(e) Company's Representations. Company represents and warrants that it is free to enter into this Agreement and to perform each of the terms and covenants of it. Company represents and warrants that it is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that its execution and performance of this Agreement is not a violation or breach of any other agreement between Company and any other person or entity. The Company represents and warrants that this Agreement is a legal, valid and binding agreement of the Company, enforceable in accordance with its terms.
(f) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
(g) Assignment. The rights and obligations of the parties under this Agreement shall be binding upon and inure to the benefit of their respective successors, assigns, executors, administrators and heirs, provided, however, that neither the Company nor Employee may assign any duties under this Agreement without the prior written consent of the other.
(h) Limitation. This Agreement shall not confer any right or impose any obligation on the Company to continue the employment of Employee in any capacity, or limit the right of the Company or Employee to terminate Employee's employment.
In witness whereof, the parties have executed this Agreement as of the day and year first above written.
Company: Tesoro Petroleum Corporation
BY /s/ CHARLES WOHLSTETTER
----------------------------------------
Charles Wohlstetter
Chairman of the Board of Directors
Employee: /s/ MICHAEL D. BURKE
---------------------------------
Michael D. Burke
|
ITEM 14(a)3, EXHIBIT 10(j)
FIRST AMENDMENT AND EXTENSION
TO
EMPLOYMENT AGREEMENT
This First Amendment and Extension to Employment Agreement dated December 14, 1994, between Tesoro Petroleum Corporation, a Delaware corporation (the "Company"), and Bruce A. Smith ("Employee"), amends and extends the Employment Agreement dated September 14, 1992 (the "Original Agreement"), between the Company and the Employee:
The Company and the Employee desire and agree to amend and extend the Original Agreement as follows:
1. Section 2 of the Original Agreement:
(a) Section 2 is amended by changing "semi-monthly" in subparagraph (a) to "bi-weekly."
(b) Section 2 is further amended by deleting subparagraph (b) and redesignating subparagraph (c) as subparagraph (b).
(c) Section 2 is further amended to add the following
subparagraphs (c), (d), and (e) and changing the designation of subparagraph
(d) to (f):
(c) Annual Incentive Plan. The Company shall establish an Annual Incentive Compensation Plan for executive officers in which the Employee shall be entitled to participate in a manner consistent with his position with the Company and the evaluations of his performance by the Board of Directors or any appropriate Committee thereof.
(d) Stock Options and Restricted Stock Grants. The Employee shall be entitled to receive stock options and restricted stock grants under the Company's plans in effect from time to time, if any, commensurate with his position with the Company and the evaluations of his performance by the Board of Directors or any appropriate committee thereof.
(e) Flexible Perquisites Arrangement. The Employee shall receive a stipulated amount of $20,000 which will be expended by the Company on behalf of the Employee or paid to the Employee, at the Employee's election, to cover various business-related expenses such as
monthly dues for country, luncheon or social clubs, automobile expenses and financial and tax planning expenses. The Employee may elect at any time by written notice to the Company to receive any of such stipulated amount which has not been paid to or on behalf of the Employee. In addition, the Company will pay on behalf of the Employee up to $15,000 to pay an initiation fee or fees for a country, luncheon or social club or clubs and will pay directly to the Employee an amount equal to 65 percent of the amount so paid on the Employee's behalf to offset the applicable income tax expense to the Employee. In addition, the Company will pay additional initiation fees and reimburse the Employee for related tax expenses to the extent the Board of Directors or a duly authorized committee thereof determines such fees are reasonable and in the best interest of the Company.
2. Section 4 of the Original Agreement is amended to delete the phrase "on the third anniversary of the date of this Agreement" and substitute "on December 14, 1995," therefor and to add the following at the end thereof.
Notwithstanding the foregoing, if the Company shall not have offered to the Employee the opportunity to enter into a new employment agreement prior to December 14, 1995, with terms, in all respects, no less favorable to the Employee than the terms of this Agreement and with a term lasting until at least December 14, 1997, the Employee shall have the right to elect by written notice delivered to the Company prior to January 14, 1996, to terminate his employment and such termination shall be deemed to have been for Good Reason in accordance with Section 5 and the Employee shall be entitled to all payments and benefits as if he had terminated his employment for Good Reason in accordance with Section 5 on December 13, 1995.
3. Section 5 of the Original Agreement is amended to read in its entirety as follows:
5. Termination by the Company Without Cause and Termination by Employee for "Good Reason." The Company may, by delivering 30 days prior written notice to Employee, terminate Employee's employment at any time without cause, and the Employee may, by delivering 30 days prior written notice to the Company, terminate
Employee's employment for "Good Reason," as defined below. If such termination without cause or for Good Reason occurs, Employee shall be entitled to receive a lump-sum payment equal to the sum of (a) two times the sum of (i) his Base Salary at the then current rate and (ii) the sum of the target bonuses under all of the Company's incentive bonus plans applicable to Employee for the year in which the termination occurs and (b) if termination occurs in the fourth quarter of a calendar year, the sum of the target bonuses under all of the Company's incentive bonus plans applicable to Employee for the year in which the termination occurs prorated daily based on the number of days from the beginning of the calendar year in which the termination occurs to and including the date of termination. Employee shall also receive all unpaid bonuses for the year prior to the year in which the termination occurs and shall receive (i) for a period of two years continuing coverage and benefits comparable to all life, health and disability insurance plans which the Company from time to time makes available to its management executives and their families, (ii) a lump-sum payment equal to two times the stipulated flexible perquisites amount pursuant to Section 2(e), and (iii) two years additional service credit under the current non-qualified supplemental pension plans, or successors thereto, of the Company applicable to the Employee on the date of termination. All unvested stock options held by Employee on the date of the termination shall become immediately vested and all restrictions on Restricted Stock then held by the Employee shall terminate.
For purposes of this Section 5, "Good Reason" shall mean the occurrence of any of the following events.
(a) Removal, without the consent of Employee in writing, from one or more of the offices Employee holds on the date of this Agreement or a material reduction in Employee's authority or responsibility but not termination of Employee for "cause," as defined below; or
(b) The Company otherwise commits a material breach of this Agreement.
The Company shall pay any attorney fees incurred by Employee in reasonably seeking to enforce the terms of this Section 5.
4. Section 6 of the Original Agreement Is deleted in its entirety and a new Section 6 is added as follows:
Section 6. Termination upon Death or Disability. If the Employee's employment is terminated because of death or on account of becoming permanently disabled (as defined in Section 7), the Employee, or his estate, if applicable, shall be entitled to receive the Employee's Base Salary earned pro rata to the date of his termination of employment, plus unpaid bonuses for the year prior to the year in which the termination occurs. All unvested stock options held by the Employee on the date of termination shall become immediately vested and all restrictions on Restricted Stock held by the Employee shall terminate.
5. Section 7 of the Original Agreement is amended by deleting the second sentence thereof and substituting the following therefor:
In the event the employment of Employee is terminated for "cause," Employee shall be entitled only to his Base Salary earned pro rata to his date of termination with no entitlement to any base salary continuation payments or benefit continuation (except as specifically provided by the terms of an employee benefit plan of the Company).
6. Section 8 of the Original Agreement is hereby amended by deleting the words "accrued and" in the second sentence thereof adding the following after the word "bonuses" appearing in such second sentence:
"for the year prior to the year in which the termination occurs"
7. Section 9 of the Original Agreement is amended as follows:
(a) Subclause (a) is amended in its entirety to read as follows:
(a) A lump-sum payment equal to three times the base salary at the then current rate;
(b) The following is added as a new subclause (b):
(b) A lump-sum payment equal to the sum of (i) three times
the sum of the target bonuses under all of the Company's
incentive bonus plans applicable to the Employee for the
year in which the termination occurs or the year in which
the change of control occurred, whichever is greater, and
(ii) if termination occurs in the fourth quarter of a
calendar year, the sum of the target bonuses under all of
the Company's incentive bonus plans applicable to Employee
for the year in which the termination occurs prorated daily
based on the number of days from the beginning of the
calendar year in which the termination occurs to and
including the date of termination.
(c) Subclause (b) is redesignated as subclause (c) and the words "awarded under this Agreement" are deleted therefrom.
(d) The first sentence after subclause (b) is amended to read in its entirety as follows:
The Company (or its successor) shall also provide (i)
for a period of three years continuing coverage and
benefits comparable to all life, health and disability plans
of the Company in effect at the time a change of control is
deemed to have occurred; (ii) a lump-sum payment equal three
times the stipulated flexible perquisites amount pursuant to
Section 2(e); and (iii) three years additional service
credit under the current non-qualified supplemental pension
plans, or successors thereto, of the Company applicable to
the Employee on the date of termination.
(e) The second full paragraph relating to "gross up" payments to cover taxes under Section 28OG of the Internal Revenue Code is deleted in its entirety and the two paragraphs immediately thereafter are deleted in their entirety and the following is substituted therefor.
For purposes of this Agreement, a "change of control" shall be deemed to have occurred if (i) there shall be consummated (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or
other property, other than a merger of the Company where a majority of
the Board of Directors of the surviving corporation are, and for a
two-year period after the merger continue to be, persons who were
directors of the Company immediately prior to the merger or were
elected as directors, or nominated for election as director, by a vote
of at least two-thirds of the directors then still in office who were
directors of the Company immediately prior to the merger, or (B) any
sale, lease, exchange or transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the
Company, or (ii) the shareholders of the Company shall approve any plan
or proposal for the liquidation or dissolution of the Company, or (iii)
(A) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), other than the Company or a subsidiary thereof or any employee
benefit plan sponsored by the Company or a subsidiary thereof, shall
become the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of securities of the Company representing 20 percent
or more of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, and (B) at any time during
a period of two years thereafter, individuals who immediately prior to
the beginning of such period constituted the Board of Directors of the
Company shall cease for any reason to constitute at least a majority
thereof, unless the election or the nomination by the Board of
Directors for election by the Company's shareholders of each new
director during such period was approved by a vote of at least two-
thirds of the directors then still in office who were directors at the
beginning of such period.
For purposes of this Section 9, "good reason upon change of control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the assignment to Employee of any duties inconsistent with the employment of Employee to the positions set forth in
Section 1, or a significant diminution of Employee's positions, duties, responsibilities and status with the Company from those immediately prior to a change of control or a diminution in Employee's titles or offices as in effect immediately prior to a change of control, or any removal of Employee from, or any failure to reelect Employee to, any of such positions;
(ii) a reduction by the Company in Employee's base salary in effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any thrift, stock ownership, pension, life insurance, health, dental and accident or disability plan in which Employee is participating or is eligible to participate at the time of the change of control (or plans providing Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any of such plans or deprive Employee of any material fringe benefits enjoyed by Employee at the time of the change of control or the failure by the Company to provide the Employee with the number of paid vacation days to which Employee is entitled in accordance with the vacation policies of the Company in effect at the time of a change of control;
(iv) the failure by the Company to continue in effect any incentive plan or arrangement (including without limitation, the Company's Incentive Compensation Plan and similar incentive compensation benefits) in which Employee is participating at the time of a change of control (or to substitute and continue other plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control;
(v) the failure by the Company to continue in effect any plan or arrangement with respect to securities of the Company (including, without limitation, any plan or arrangement to receive and exercise stock options, stock appreciation rights, restricted stock or grants thereof or to
acquire stock or other securities of the Company) in which Employee is participating at the time of a change of control (or to substitute and continue plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any such plan;
(vi) the relocation of the Company's principal executive offices to a location outside the San Antonio, Texas, area, or the Company's requiring Employee to be based anywhere other than at the location of the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with Employee's present business travel obligations, or, in the event Employee consents to any such relocation of the Company's principal executive or divisional offices, the failure by the Company to pay (or reimburse Employee for) all reasonable moving expenses incurred by Employee relating to a change of Employee's principal residence in connection with such relocation and to indemnify Employee against any loss (defined as the difference between the actual sale price of such residence and the fair market value thereof as determined by the highest of three appraisals from Member Appraisal Institute-approved real estate appraisers reasonably satisfactory to both Employee and the Company at the time Employee's principal residence is offered for sale in connection with any such change of residence);
(vii) any material breach by the Company of any provision of this Agreement;
(viii) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; or
(ix) any purported termination of Employee's employment by the Company other than termination for cause fully in compliance with this Agreement and for purposes of this Agreement, no such purported termination shall be effective.
8. Miscellaneous.
(a) Complete Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and cancels and supersedes all other agreements between the-parties which may have related to the subject matter contained in this Agreement, provided that, except as expressly modified hereby, the Original Agreement shall remain in full force and effect.
(b) Modification; Amendment; Waiver. No modification, amendment or waiver of any provisions of this Agreement shall be effective unless approved in writing by both parties. The failure at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of either party thereafter to enforce each and every provision hereof in accordance with its terms.
(c) Governing Law; Jurisdiction. This Agreement and performance under it, and all proceedings that may ensue from its breach, shall be construed in accordance with and under the laws of the State of Texas.
(d) Employee's Representations. Employee represents and warrants that he is free to enter into this Agreement and to perform each of the terms and covenants of it. Employee represents and warrants that he is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that his execution and performance of this Agreement is not a violation or breach of any other agreement between Employee and any other person or entity.
(e) Company's Representations. Company represents and warrants that it is free to enter into this Agreement and to perform each of the terms and covenants of it. Company represents and warrants that it is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that its execution and performance of this Agreement is not a violation or breach of any other agreement between Company and any other person or entity. The Company represents and warrants that this Agreement is a legal, valid and binding agreement of the Company, enforceable in accordance with its terms.
(f) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
(g) Assignment. The rights and obligations of the parties under this Agreement shall be binding upon and inure to the benefit of their respective successors, assigns, executors, administrators and heirs; provided, however, that neither the Company nor Employee may assign any duties under this Agreement without the prior written consent of the other.
(h) Limitation. This Agreement shall not confer any right or impose any obligation on the Company to continue the employment of Employee in any capacity, or limit the right of the Company or Employee to terminate Employee's employment,
In witness whereof, the parties have executed this Agreement as of the day and year first above written.
Company: Tesoro Petroleum Corporation
By /s/ MICHAEL D. BURKE
------------------------------------------
Michael D. Burke
President and Chief Executive Officer
Employee: /s/ BRUCE A. SMITH
---------------------------------------
Bruce A. Smith
|
I hereby agree to the removal of Management Information Systems from reporting directly to me, and I hereby stipulate that such action shall not be considered to be "Good Reason" under Section 5 of the Employment Agreement between Tesoro Petroleum Corporation and Bruce A. Smith dated September 14, 1992, as amended by First Amendment and Extension thereto dated December 14, 1994.
/s/ BRUCE A. SMITH
--------------------------
Bruce A.Smith
|
ITEM 14(a)3, EXHIBIT 10(l)
FIRST AMENDMENT AND EXTENSION
TO
EMPLOYMENT AGREEMENT
This First Amendment and Extension to Employment Agreement dated December 14, 1994, between Tesoro Petroleum Corporation, a Delaware corporation (the "Company"), and Gaylon H. Simmons ("Employee"), amends and extends the Employment Agreement dated January 4, 1993 (the "Original Agreement"), between the Company and the Employee:
The Company and the Employee desire and agree to amend and extend the Original Agreement as follows:
1. Section 2 of the Original Agreement:
(a) Section 2 is amended by changing "semi-monthly" in subparagraph (a) to "bi-weekly."
(b) Section 2 is further amended by deleting subparagraph (b) and redesignating subparagraph (c) as subparagraph (b).
(c) Section 2 is further amended to add the following subparagraphs
(c), (d), and (e) and changing the designation of subparagraph (d) to (f):
(c) Annual Incentive Plan. The Company shall establish an Annual Incentive Compensation Plan for executive officers in which the Employee shall be entitled to participate in a manner consistent with his position with the Company and the evaluations of his performance by the Board of Directors or any appropriate Committee thereof.
(d) Stock Options and Restricted Stock Grants. The Employee shall be entitled to receive stock options and restricted stock grants under the Company's plans in effect from time to time, if any, commensurate with his position with the Company and the evaluations of his performance by the Board of Directors or any appropriate committee thereof.
(e) Flexible Perquisites Arrangement. The Employee shall receive a stipulated amount of $20,000 which will be expended by the Company on behalf of the Employee or paid to the Employee, at the Employee's election, to cover various business-related expenses such as
monthly dues for country, luncheon or social clubs, automobile expenses and financial and tax planning expenses. The Employee may elect at any time by written notice to the Company to receive any of such stipulated amount which has not been paid to or on behalf of the Employee. In addition, the Company will pay on behalf of the Employee up to $15,000 to pay an initiation fee or fees for a country, luncheon or social club or clubs and will pay directly to the Employee an amount equal to 65 percent of the amount so paid on the Employee's behalf to offset the applicable income tax expense to the Employee. In addition, the Company will pay additional initiation fees and reimburse the Employee for related tax expenses to the extent the Board of Directors or a duly authorized committee thereof determines such fees are reasonable and in the best interest of the Company.
2. Section 4 of the Original Agreement is amended to delete the phrase "on the third anniversary of the date of this Agreement" and substitute "on April 4, 1996," therefor and to add the following at the end thereof.
Notwithstanding the foregoing, if the Company shall not have offered to
the Employee the opportunity to enter into a new employment agreement
prior to April 4, 1996, with terms, in all respects, no less favorable
to the Employee than the terms of this Agreement and with a term
lasting until at least April 4, 1998, the Employee shall have the
right to elect by written notice delivered to the Company prior to May
4, 1996, to terminate his employment and such termination shall be
deemed to have been for Good Reason in accordance with Section 5 and
the Employee shall be entitled to all payments and benefits as if he
had terminated his employment for Good Reason in accordance with
Section 5 on April 3, 1996.
3. Section 5 of the Original Agreement is amended to read in its entirety as follows:
5. Termination by the Company Without Cause and Termination by Employee for "Good Reason." The Company may, by delivering 30 days prior written notice to Employee, terminate Employee's employment at any time without cause, and the Employee may, by delivering 30 days prior written notice to the Company, terminate
Employee's employment for "Good Reason," as defined below. If such termination without cause or for Good Reason occurs, Employee shall be entitled to receive a lump-sum payment equal to the sum of (a) two times the sum of (i) his Base Salary at the then current rate and (ii) the sum of the target bonuses under all of the Company's incentive bonus plans applicable to Employee for the year in which the termination occurs and (b) if termination occurs in the fourth quarter of a calendar year, the sum of the target bonuses under all of the Company's incentive bonus plans applicable to Employee for the year in which the termination occurs prorated daily based on the number of days from the beginning of the calendar year in which the termination occurs to and including the date of termination. Employee shall also receive all unpaid bonuses for the year prior to the year in which the termination occurs and shall receive (i) for a period of two years continuing coverage and benefits comparable to all life, health and disability insurance plans which the Company from time to time makes available to its management executives and their families, (ii) a lump-sum payment equal to two times the stipulated flexible perquisites amount pursuant to Section 2(e), and (iii) two years additional service credit under the current non-qualified supplemental pension plans, or successors thereto, of the Company applicable to the Employee on the date of termination. All unvested stock options held by Employee on the date of the termination shall become immediately vested and all restrictions on Restricted Stock then held by the Employee shall terminate.
For purposes of this Section 5, "Good Reason" shall mean the occurrence of any of the following events.
(a) Removal, without the consent of Employee in writing, from one or more of the offices Employee holds on the date of this Agreement or a material reduction in Employee's authority or responsibility but not termination of Employee for "cause," as defined below; or
(b) The Company otherwise commits a material breach of this Agreement.
The Company shall pay any attorney fees incurred by Employee in reasonably seeking to enforce the terms of this Section 5.
4. Section 6 of the Original Agreement is deleted in its entirety and a new Section 6 is added as follows:
Section 6. Termination upon Death or Disability. If the Employee's employment is terminated because of death or on account of becoming permanently disabled (as defined in Section 7), the Employee, or his estate, if applicable, shall be entitled to receive the Employee's Base Salary earned pro rata to the date of his termination of employment, plus unpaid bonuses for the year prior to the year in which the termination occurs. All unvested stock options held by the Employee on the date of termination shall become immediately vested and all restrictions on Restricted Stock held by the Employee shall terminate.
5. Section 7 of the Original Agreement is amended by deleting the second sentence thereof and substituting the following therefor:
In the event the employment of Employee is terminated for "cause," Employee shall be entitled only to his Base Salary earned pro rata to his date of termination with no entitlement to any base salary continuation payments or benefit continuation (except as specifically provided by the terms of an employee benefit plan of the Company).
6. Section 8 of the Original Agreement is hereby amended by deleting the words "accrued and" in the second sentence thereof adding the following after the word "bonuses" appearing in such second sentence:
"for the year prior to the year in which the termination occurs"
7. Section 9 of the Original Agreement is amended as follows:
(a) Subclause (a) is amended in its entirety to read as follows:
(a) A lump-sum payment equal to three times the base salary at the then current rate;
(b) The following is added as a new subclause (b):
(b) A lump-sum payment equal to the sum of (i) three times the sum of the target bonuses under all of the Company's incentive bonus plans applicable to the Employee for the year in which the termination occurs or the year in which the change of control occurred, whichever is greater, and (ii) if termination occurs in the fourth quarter of a calendar year, the sum of the target bonuses under all of the Company's incentive bonus plans applicable to Employee for the year in which the termination occurs prorated daily based on the number of days from the beginning of the calendar year in which the termination occurs to and including the date of termination.
(c) Subclause (b) is redesignated as subclause (c) and the words "awarded under this Agreement" are deleted therefrom.
(d) The first sentence after subclause (b) is amended to read in its entirety as follows:
The Company (or its successor) shall also provide (i)
for a period of three years continuing coverage and
benefits comparable to all life, health and
disability plans of the Company in effect at the time
a change of control is deemed to have occurred; (ii)
a lump-sum payment equal to three times the
stipulated flexible perquisites amount pursuant to
Section 2(e); and (iii) three years additional
service credit under the current non-qualified
supplemental pension plans, or successors thereto, of
the Company applicable to the Employee on the date of
termination.
(e) The second full paragraph relating to "gross up" payments to cover taxes under Section 280G of the Internal Revenue Code is deleted in its entirety and the two paragraphs immediately thereafter are deleted in their entirety and the following is substituted therefor.
For purposes of this Agreement, a "change of control" shall be deemed to have occurred if (i) there shall be consummated (A) any consolidation or merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company where a majority of the Board of Directors of the surviving corporation are, and for a two-year period after the merger continue to be, persons who were directors of the Company immediately prior to the merger or were elected as directors, or nominated for election as director, by a vote of at least two-thirds of the directors then still in office who were directors of the Company immediately prior to the merger, or (B) any sale, lease, exchange or transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, or (ii) the shareholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company, or (iii) (A) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than the Company or a subsidiary thereof or any employee benefit plan sponsored by the Company or a subsidiary thereof, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, and (B) at any time during a period of two years thereafter, individuals who immediately prior to the beginning of such period constituted the Board of Directors of the Company shall cease for any reason to constitute at least a majority thereof, unless the election or the nomination by the Board of Directors for election by the Company's shareholders of each new director during such period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.
For purposes of this Section 9, "good reason upon change of control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the assignment to Employee of any duties inconsistent with the
employment of Employee to the positions set forth in Section 1, or a significant diminution of Employee's positions, duties, responsibilities and status with the Company from those immediately prior to a change of control or a diminution in Employee's titles or offices as in effect immediately prior to a change of control, or any removal of Employee from, or any failure to reelect Employee to, any of such positions;
(ii) a reduction by the Company in Employee's base salary in effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any thrift, stock ownership, pension, life insurance, health, dental and accident or disability plan in which Employee is participating or is eligible to participate at the time of the change of control (or plans providing Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any of such plans or deprive Employee of any material fringe benefits enjoyed by Employee at the time of the change of control or the failure by the Company to provide the Employee with the number of paid vacation days to which Employee is entitled in accordance with the vacation policies of the Company in effect at the time of a change of control;
(iv) the failure by the Company to continue in effect any incentive plan or arrangement (including without limitation, the Company's Incentive Compensation Plan and similar incentive compensation benefits) in which Employee is participating at the time of a change of control (or to substitute and continue other plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control;
(v) the failure by the Company to continue in effect any plan or arrangement with respect to securities of the Company (including, without limitation, any plan or arrangement to receive and exercise stock options, stock
appreciation rights, restricted stock or grants thereof or to acquire stock or other securities of the Company) in which Employee is participating at the time of a change of control (or to substitute and continue plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any such plan;
(vi) the relocation of the Company's principal executive offices to a location outside the San Antonio, Texas, area, or the Company's requiring Employee to be based anywhere other than at the location of the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with Employee's present business travel obligations, or, in the event Employee consents to any such relocation of the Company's principal executive or divisional offices, the failure by the Company to pay (or reimburse Employee for) all reasonable moving expenses incurred by Employee relating to a change of Employee's principal residence in connection with such relocation and to indemnify Employee against any loss (defined as the difference between the actual sale price of such residence and the fair market value thereof as determined by the highest of three appraisals from Member Appraisal Institute-approved real estate appraisers reasonably satisfactory to both Employee and the Company at the time Employee's principal residence is offered for sale in connection with any such change of residence);
(vii) any material breach by the Company of any provision of this Agreement;
(viii) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; or
(ix) any purported termination of Employee's employment by the Company other than termination for cause fully in compliance with this Agreement and for purposes of this
Agreement, no such purported termination shall be effective.
8. Miscellaneous.
(a) Complete Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and cancels and supersedes all other agreements between the parties which may have related to the subject matter contained in this Agreement, provided that, except as expressly modified hereby, the Original Agreement shall remain in full force and effect.
(b) Modification; Amendment; Waiver. No modification, amendment or waiver of any provisions of this Agreement shall be effective unless approved in writing by both parties. The failure at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of either party thereafter to enforce each and every provision hereof in accordance with its terms.
(c) Governing Law; Jurisdiction. This Agreement and performance under it, and all proceedings that may ensue from its breach, shall be construed in accordance with and under the laws of the State of Texas.
(d) Employee's Representations. Employee represents and warrants that he is free to enter into this Agreement and to perform each of the terms and covenants of it. Employee represents and warrants that he is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that his execution and performance of this Agreement is not a violation or breach of any other agreement between Employee and any other person or entity.
(e) Company's Representations. Company represents and warrants that it is free to enter into this Agreement and to perform each of the terms and covenants of it. Company represents and warrants that it is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that its execution and performance of this Agreement is not a violation or breach of any other agreement between Company and any other person or entity. The Company represents and warrants that this Agreement is a legal, valid and binding agreement of the Company, enforceable in accordance with its terms.
(f) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
(g) Assignment. The rights and obligations of the parties under this Agreement shall be binding upon and inure to the benefit of their respective successors, assigns, executors, administrators and heirs, provided, however, that neither the Company nor Employee may assign any duties under this Agreement without the prior written consent of the other.
(h) Limitation. This Agreement shall not confer any right or impose any obligation on the Company to continue the employment of Employee in any capacity, or limit the right of the Company or Employee to terminate Employee's employment.
In witness whereof, the parties have executed this Agreement as of the day and year first above written.
Company: Tesoro Petroleum Corporation
By: /s/ MICHAEL D. BURKE
-------------------------------------
Michael D. Burke
President and Chief Executive Officer
Employee: /s/ GAYLON H. SIMMONS
-------------------------------------
Gaylon H. Simmons
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ITEM 14(a)3, EXHIBIT 10(m)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of December 14, 1994, by and between James C. Reed, Jr. ("Employee"), and Tesoro Petroleum Corporation, a Delaware corporation (the "Company").
Recitals:
A. The Company wishes to continue the employment of Employee as its Senior Vice President, General Counsel and Secretary; as such, Employee shall have certain responsibilities and shall receive certain compensation and benefits.
B. Employee and the Company wish to formalize this employment relationship in a written agreement and to set forth certain additional agreements between Employee and the Company.
THE PARTIES AGREE AS FOLLOWS:
1. Employment and Duties.
During the term of this Agreement, the Company agrees to employ Employee as Senior Vice President, General Counsel and Secretary, and Employee agrees to serve the Company in such capacity on the terms and subject to the conditions set forth in this Agreement. Employee shall devote substantially all of his business time, energy and skill to the affairs of the Company as the Company, acting through its Board of Directors or its Chief Executive Officer, shall reasonably deem necessary to discharge Employee's duties in such capacity. Employee may participate in social, civic, charitable, religious, business, educational or professional associations, so long as such participation would not materially detract from Employee's ability to perform his duties under this Agreement. Employee shall not engage in any other business activity during the term of this Agreement without the prior written consent of the Company, other than the passive management of Employee's personal investments or activities which would not materially detract from Employee's ability to perform his duties under this Agreement.
2. Compensation.
(a) Salary. Withholding. During the term of this Agreement, the Company shall pay Employee a base salary of $175,000 per year, payable in arrears in equal bi-weekly installments. The parties shall comply with all applicable withholding requirements in connection with all compensation payable to Employee. The Company's Board of Directors may, in its sole discretion, review and adjust upward Employee's base salary from time to time, but no downward adjustment in Employee's base salary may be made during the term of this Agreement.
(b) Annual Incentive Plan. The Company shall establish an Annual Incentive Compensation Plan for executive officers in which the Employee shall be entitled to participate in a manner consistent with his position with the Company and the evaluations of his performance by the Board of Directors or any appropriate committee thereof.
(c) Stock Options and Restricted Stock Grants. The Employee shall be entitled to receive stock options and restricted stock grants under the Company's plans in effect from time to time, if any, commensurate with his position with the Company and the evaluations of his performance by the Board of Directors or any appropriate committee thereof.
(d) Flexible Perquisites Arrangement. The Employee shall receive annually a stipulated amount of $20,000 which will be expended by the Company on behalf of the Employee or paid to the Employee, at the Employee's election, to cover various business-related expenses such as monthly dues for country, luncheon or social clubs, automobile expenses and financial and tax planning expenses. The Employee may elect at any time by written notice to the Company to receive any of such stipulated amount which has not been paid to or on behalf of the Employee. In addition, the Company will pay on behalf of the Employee up to $15,000 to pay an initiation fee or fees for a country, luncheon or social club or clubs and will pay directly to the Employee an amount equal to 65 percent of the amount so paid on the Employee's behalf to offset the applicable income tax expense to the Employee. In addition, the Company will pay additional initiation fees and reimburse the Employee for related tax expenses to the extent the Board of Directors or a duly authorized committee thereof determines such fees are reasonable and in the best interest of the Company.
(e) Other Benefits. Employee shall be eligible to participate in and have the benefits under the terms of all life, accident, disability and health insurance plans, pension, profit sharing, incentive compensation and savings plans and all other similar Plans and benefits which the Company from time to time makes available to its management executives, including, without limitation, those listed on Exhibit A, in the same manner and at least at the same participation level as other senior management executives.
3. Business Expenses.
The Company shall promptly reimburse Employee for all appropriately documented, reasonable business expenses incurred by Employee in accordance with Company policies.
4. Term.
This Agreement shall commence effective as of December 14, 1994, and if not terminated earlier as herein provided, shall terminate on December 31, 1996. Notwithstanding the foregoing, if the Company shall not have offered to the Employee the opportunity to enter into a new employment agreement prior to December 31, 1996, with terms, in all respects, no less favorable to the Employee than the terms of this Agreement and with a term lasting until at least December 31, 1998, the Employee shall have the right to elect by written notice delivered to the Company prior to January 31, 1997, to terminate his employment and such termination shall be deemed to have been for Good Reason in accordance with Section 5 and the Employee shall be entitled to all payments and benefits as if he had terminated his employment for Good Reason in accordance with Section 5 on December 30, 1996.
5. Termination by the Company Without Cause, Termination by Employee for "Good Reason" or Failure to Extend Employment Contract.
The Company may, by delivering 30 days prior written notice to
Employee, terminate Employee's employment at any time without cause, and the
Employee may, by delivering 30 days prior written notice to the Company,
terminate Employee's employment for "good reason," as defined below. If such
termination without cause or for good reason occurs or if the Company fails to
offer to the Employee a new employment contract prior to December 31, 1996,
with terms, in all respects, no less favorable to the employee than the terms
of this Agreement, Employee shall be entitled to receive a lump-sum payment
equal to the sum of (a) two times the sum of (i) his Base Salary at the then
current rate and (ii) the sum of the target bonuses under all of the Company's
incentive bonus plans applicable to Employee for the year in which the
termination occurs and (b) if termination occurs in the fourth quarter of a
calendar year, the sum of the target bonuses under all of the Company's
incentive bonus plans applicable to Employee for the year in which the
termination occurs prorated daily based on the number of days from the
beginning of the calendar year in which the termination occurs to and including
the date of termination. Employee shall also receive all unpaid bonuses for
the year prior to the year in which the termination occurs and shall receive
(i) for a period of two years continuing coverage and benefits comparable to
all life, health and disability insurance plans which the Company from time to
time makes available to its management executives and their families, (ii) a
lump-sum payment equal to two times the stipulated flexible perquisites amount
pursuant to Section 2(d), and (iii) two years additional service credit under
the current non-qualified supplemental pension plans, or successors thereto, of
the Company applicable to the Employee on the date of termination. All
unvested stock options held by Employee on the date of the termination shall
become immediately vested and all restrictions on Restricted Stock then held by
the Employee shall terminate.
For purposes of this Section 5, "good reason" shall mean the occurrence of any of the following events:
(a) Removal, without the consent of Employee in writing, from one or more of the offices Employee holds on the date of this Agreement or a material reduction in Employee's authority or responsibility but not termination of Employee for "cause," as defined below; or
(b) The Company otherwise commits a material breach of this Agreement.
The Company shall pay any attorney fees incurred by Employee in reasonably seeking to enforce the terms of this Paragraph 5.
6. Termination upon Death or Disability.
If the Employee's employment is terminated because of death or on account of his becoming permanently disabled (as defined in Section 7), the Employee, or his estate, if applicable, shall be entitled to receive the Employee's Base Salary earned pro rata to the date of his termination of employment, plus unpaid bonuses for the year prior to the year in which the termination occurs. All unvested stock options held by the Employee on the date of termination shall become immediately vested and all restrictions on Restricted Stock held by the Employee shall terminate.
7. Termination by the Company for Cause.
The Company may terminate this Agreement at any time if such termination is for "cause," as defined below, by delivering to Employee written notice describing the cause of termination 30 days before the effective date of such termination and by granting Employee at least 30 days to cure the cause. In the event the employment of Employee is terminated for "cause," Employee shall be entitled only to his Base Salary earned pro rata to his date of termination with no entitlement to any base salary continuation payments or benefit continuation (except as specifically provided by the terms of an employee benefit plan of the Company). Except as otherwise provided in this Agreement, the determination of whether Employee is terminated for "cause" shall be made by the Board of Directors of the Company, in the reasonable exercise of its business judgment, and shall be limited to the occurrence of the following events:
(a) Conviction of or a plea of nolo contendere, to the charge of a felony (which, through lapse of time or otherwise, is not subject to appeal);
(b) Willful refusal without proper legal cause to perform, or gross negligence in performing, Employee's duties and responsibilities;
(c) Material breach of fiduciary duty to the Company through the misappropriation of Company funds or property; or
(d) The unauthorized absence of Employee from work (other than for sick leave or disability) for a period of 30 working days or more during a period of 45 working days.
For purposes of this Agreement, Employee shall be deemed to be "permanently disabled" if Employee shall be considered to be permanently and totally disabled in accordance with the Company's Long-Term Disability Income Plan. If there should be a dispute between the Company and Employee as to Employee's physical or mental disability for purposes of this Agreement, the question shall be settled by the opinion of an impartial reputable physician or psychiatrist agreed upon by the parties or their representatives, or if the parties cannot agree within ten calendar days after a request for designation of such party, then a physician or psychiatrist shall be designated by the San Antonio, Texas Medical Association. The parties agree to be bound by the final decision of such physician or psychiatrist.
8. Voluntary Termination by Employee.
Employee may terminate this Agreement at any time upon delivering 30 days written notice to the Company. In the event of such voluntary termination other than for "good reason," as defined above, Employee shall be entitled to his base salary earned pro rata to the date of his resignation, plus unpaid bonuses for the year prior to the year in which the termination occurs, but no base salary continuation payments or benefits continuation (except as specifically provided by the terms of an employee benefit plan of the Company). On or after the date the Company receives notice of Employee's resignation, the Company may, at its option, pay Employee his base salary through the effective date of his resignation and terminate his employment immediately.
9. Termination Following Change of Control.
Notwithstanding anything to the contrary contained herein, should Employee at any time within two years of a change of control cease to be an employee of the Company (or its successor), by reason of (i) involuntary termination by the Company (or its successor) other than for "cause" (following a change of control, "cause" shall be limited to the conviction of or a plea of nolo contendere to the charge of a felony (which, through lapse of time or otherwise, is not subject to appeal), or a material breach of fiduciary duty to the Company through the misappropriation of Company funds or property), or (ii) voluntary termination by Employee for "good reason upon change of control" (as defined below), the Company (or its successor) shall pay to Employee within ten days of such termination the following severance payments and benefits:
(a) A lump-sum payment equal to three times the base salary of the Employee at the then current rate;
(b) A lump-sum payment equal to the sum of (i) three times the sum of the target bonuses under all of the Company's incentive bonus plans applicable to the Employee for the year in which the termination occurs or the year in which the change of control occurred, whichever is greater, and (ii) if termination occurs in the fourth quarter of a calendar year, the sum of the target bonuses under all of the Company's incentive bonus plans applicable to Employee for the year in which the termination occurs prorated daily based on the number of days from the beginning of the calendar year in which the termination occurs to and including the date of termination.
(c) A lump-sum payment equal to the amount of any unpaid bonuses to which the Employee is entitled under any incentive bonus plan.
The Company (or its successor) shall also provide to Employee (i) for
a period of three years continuing coverage and benefits comparable to all
life, health and disability plans of the Company in effect at the time a change
of control is deemed to have occurred; (ii) a lump-sum payment equal to three
times the stipulated flexible perquisites amount pursuant to Section 2(d); and
(iii) three years additional service credit under the current non-qualified
supplemental pension plans, or successors thereto, of the Company applicable to
the Employee on the date of termination.
For purposes of this Agreement, a "change of control" shall be deemed to have occurred if (i) there shall be consummated (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company where a majority of the Board of Directors of the surviving corporation are, and for a two year period after the merger continue to be, persons who were directors of the Company immediately prior to the merger or were elected as directors, or nominated for election as director, by a vote of at least two-thirds of the directors then still in office who were directors of the Company immediately prior to the merger, or (B) any sale, lease, exchange or transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, or (ii) the shareholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company, or (iii) (A) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than the Company or a subsidiary thereof or any employee benefit plan sponsored by the Company or a subsidiary thereof, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, and (B) at any time during a period of two years thereafter, individuals who immediately prior to the beginning of such period constituted the Board of Directors of the Company shall cease for any reason to constitute at least a majority thereof, unless the election or the nomination by the Board of Directors for election by the Company's shareholders of each new director during such period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.
For purposes of this Section 9, "good reason upon change of control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the assignment to Employee of any duties inconsistent with the employment of Employee to the positions set forth in Section 1, or a significant diminution of Employee's positions, duties, responsibilities and status with the Company from those immediately prior to a change of control or a diminution in Employee's titles or offices as in effect immediately prior to a change of control, or any removal of Employee from, or any failure to reelect Employee to, any of such positions;
(ii) a reduction by the Company in Employee's base salary in effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any thrift, stock ownership, pension, life insurance, health, dental and accident or disability plan in which Employee is participating or is eligible to participate at the time of the
change of control (or plans providing Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any of such plans or deprive Employee of any material fringe benefits enjoyed by Employee at the time of the change of control or the failure by the Company to provide the Employee with the number of paid vacation days to which Employee is entitled in accordance with the vacation policies of the Company in effect at the time of a change of control;
(iv) the failure by the Company to continue in effect any incentive plan or arrangement (including without limitation, the Company's Incentive Compensation Plan and similar incentive compensation benefits) in which Employee is participating at the time of a change of control (or to substitute and continue other plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control;
(v) the failure by the Company to continue in effect any plan or arrangement with respect to securities of the Company (including, without limitation, any plan or arrangement to receive and exercise stock options, stock appreciation rights, restricted stock or grants thereof or to acquire stock or other securities of the Company) in which Employee is participating at the time of a change of control (or to substitute and continue plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any such plan;
(vi) the relocation of the Company's principal executive offices to a location outside the San Antonio, Texas, area, or the Company's requiring Employee to be based anywhere other than at the location of the Company's principal executive offices, except for required travel on the
Company's business to an extent substantially consistent with Employee's present business travel obligations, or, in the event Employee consents to any such relocation of the Company's principal executive or divisional offices, the failure by the Company to pay (or reimburse Employee for) all reasonable moving expenses incurred by Employee relating to a change of Employee's principal residence in connection with such relocation and to indemnify Employee against any loss (defined as the difference between the actual sale price of such residence and the fair market value thereof as determined by the highest of three appraisals from Member Appraisal Institute-approved real estate appraisers reasonably satisfactory to both Employee and the Company at the time the Employee's principal residence is offered for sale in connection with any such change of residence);
(vii) any material breach by the Company of any provision of this Agreement;
(viii) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; or
(ix) any purported termination of Employee's employment by the Company other than termination for cause fully in compliance with this Agreement and for purposes of this Agreement, no such purported termination shall be effective.
In the event of a change of control as "change of control" is defined in any stock option plan or stock option agreement pursuant to which the Employee holds options to purchase common stock of the Company, Employee shall retain the rights to all accelerated vesting and other benefits under the terms of such plans and agreements.
The Company shall pay any attorney fees incurred by Employee in reasonably seeking to enforce the terms of this paragraph 9.
10. Exclusivity of Termination Provisions.
The termination provisions of this Agreement regarding the parties' respective obligations in the event Employee's employment is terminated are intended to be exclusive and in lieu of any other rights or remedies to which Employee or the
Company may otherwise be entitled at law, in equity, or otherwise. It is also agreed that, although the personnel policies and fringe benefit programs of the Company may be unilaterally modified from time to time, the termination provisions of this Agreement are not subject to modification, whether orally, impliedly or in writing, unless any such modification is mutually agreed upon and signed by the parties.
11. Vacation.
Employee shall be entitled to four weeks vacation annually in accordance with Company policy as in effect from time to time. In the event Employee does not use his entire vacation time in any year, Employee shall be entitled to carry over unused vacation into the following year until his accrued vacation reaches six weeks or such greater period as may be permitted under the Company's vacation policy for management executives.
12. Nondisclosure.
During the term of this Agreement and thereafter, Employee shall not, without the prior written consent of the Board of Directors, disclose or use for any purpose (except in the course of his employment under this Agreement and in furtherance of the business of the Company) confidential information or proprietary data of the Company (or any of its subsidiaries), except as required by applicable law or legal process; provided, however, that confidential information shall not include any information known generally to the public or ascertainable from public or published information (other than as a result of unauthorized disclosure by Employee) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Company (or any of its subsidiaries.
13. Noncompetition.
The Company and Employee agree that the services rendered by Employee hereunder are unique. Employee hereby agrees that, during the term of this Agreement and for a period of one year thereafter, he shall not (except in the course of his employment under this Agreement and in furtherance of the business of the Company (or any of its subsidiaries)) (i) engage in as principal, consultant or employee in any segment of a business of a company, partnership or firm ("Business Segment") that is directly competitive with any significant business of the Company in one of its major commercial or geographic markets or (ii) hold an interest (except as a holder of a less than 5 percent interest in a publicly traded firm or mutual fund, or as a minority stockholder or unitholder in a firm not publicly traded) in a company, partnership, or firm with a Business Segment that is directly competitive, without prior written consent of the Company.
14. Remedies.
Employee acknowledges that irreparable damage would result to the company if the provisions of paragraphs 12 or 13 above are not specifically enforced and agrees that the Company shall be entitled to any appropriate legal, equitable or other remedy, including injunctive relief, in respect of any failure to comply with such provisions.
15. Miscellaneous.
(a) Complete Agreement. This Agreement constitutes the entire agreement between the parties and cancels and supersedes all other agreements between the parties which may have related to the subject matter contained in this Agreement.
(b) Modification; Amendment; Waiver. No modification, amendment or waiver of any provisions of this Agreement shall be effective unless approved in writing by both parties. The failure at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of either party thereafter to enforce each and every provision hereof in accordance with its terms.
(c) Governing Law; Jurisdiction. This Agreement and performance under it, and all proceedings that may ensue from its breach, shall be construed in accordance with and under the laws of the State of Texas.
(d) Employee's Representations. Employee represents and warrants that he is free to enter into this Agreement and to perform each of the terms and covenants of it. Employee represents and warrants that he is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that his execution and performance of this Agreement is not a violation or breach of any other agreement between Employee and any other person or entity.
(e) Company's Representations. Company represents and warrants that it is free to enter into this Agreement and to perform each of the terms and covenants of it. Company represents and warrants that it is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that its execution and performance of this Agreement is not a violation or breach of any other agreement between Company and any other person or entity. The Company represents and warrants that this Agreement is a legal, valid and binding agreement of the Company, enforceable in accordance with its terms.
(f) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
(g) Assignment. The rights and obligations of the parties under this Agreement shall be binding upon and inure to the benefit of their respective successors, assigns, executors, administrators and heirs, provided, however, that neither the Company nor Employee may assign any duties under this Agreement without the prior written consent of the other.
(h) Limitation. This Agreement shall not confer any right or impose any obligation on the Company to continue the employment of Employee in any capacity, or limit the right of the Company or Employee to terminate Employee's employment.
(i) Notices. All notices and other communications under this Agreement shall be in writing and shall be given in person or by telegraph, facsimile or first-class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given when delivered personally or three days after mailing or one day after transmission of a telegram or facsimile, as the case may be, to the representative persons named below.
If to the Company: Corporate Secretary
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
If to the Employee: James C. Reed, Jr.
9050 Bat Cave Loop
San Antonio, Texas 78266
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
COMPANY: TESORO PETROLEUM CORPORATION
By /s/ MICHAEL D. BURKE
-------------------------------------
Michael D. Burke
President and Chief Executive Officer
EMPLOYEE: /s/ JAMES C. REED, JR.
-------------------------------------
James C. Reed, Jr.
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EXHIBIT A
BENEFITS LISTING
1. Group Health Plan
2. Group Life and Accidental Death & Dismemberment Plan
3. Short Term Disability Income Plan
4. Long Term Disability Income Plan
5. Business Travel Accident Insurance Plan
6. Tesoro Petroleum Corporation Thrift/401K Plan
7. Tesoro Petroleum Corporation Retirement Plan
8. Tesoro Petroleum Corporation Amended Executive Security Plan
9. Tesoro Petroleum Corporation Funded Executive Security Plan
10. Tax Preparation and Financial Planning
ITEM 14(a)3, EXHIBIT 10(n)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of December 14, 1994, by and between William T. Van Kleef ("Employee") and Tesoro Petroleum Corporation, a Delaware corporation (the "Company").
Recitals:
A. The Company wishes to continue the employment of Employee as its Vice President, Treasurer; as such, Employee shall have certain responsibilities and shall receive certain compensation and benefits.
B. Employee and the Company wish to formalize this employment relationship in a written agreement and to set forth certain additional agreements between Employee and the Company.
THE PARTIES AGREE AS FOLLOWS:
1. Employment and Duties.
During the term of this Agreement, the Company agrees to employ Employee as Vice President, Treasurer, and Employee agrees to serve the Company in such capacity on the terms and subject to the conditions set forth in this Agreement. Employee shall devote substantially all of his business time, energy and skill to the affairs of the Company as the Company, acting through its Board of Directors or its Chief Executive Officer, shall reasonably deem necessary to discharge Employee's duties in such capacity. Employee may participate in social, civic, charitable, religious, business, educational or professional associations, so long as such participation would not materially detract from Employee's ability to perform his duties under this Agreement. Employee shall not engage in any other business activity during the term of this Agreement without the prior written consent of the Company, other than the passive management of Employee's personal investments or activities which would not materially detract from Employee's ability to perform his duties under this Agreement.
2. Compensation.
(a) Salary; Withholding. During the term of this Agreement, the Company shall pay Employee a base salary of $150,000 per year, payable in arrears in equal biweekly installments. The parties shall comply with all applicable withholding requirements in connection with all compensation payable to Employee. The Company's Board of Directors may, in its sole discretion, review and adjust upward Employee's base salary from time to time, but no downward adjustment in Employee's base salary may be made during the term of this Agreement.
(b) Annual Incentive Plan. The Company shall establish an Annual Incentive Compensation Plan for executive officers in which the Employee shall be entitled to participate in a manner consistent with his position with the Company and the evaluations of his performance by the Board of Directors or any appropriate committee thereof.
(c) Stock Options and Restricted Stock Grants. The Employee shall be entitled to receive stock options and restricted stock grants under the Company's plans in effect from time to time, if any, commensurate with his position with the Company and the evaluations of his performance by the Board of Directors or any appropriate committee thereof.
(d) Flexible Perquisites Arrangement. The Employee shall receive annually a stipulated amount of $20,000 which will be expended by the Company on behalf of the Employee or paid to the Employee, at the Employee's election, to cover various business-related expenses such as monthly dues for country, luncheon or social clubs, automobile expenses and financial and tax planning expenses. The Employee may elect at any time by written notice to the Company to receive any of such stipulated amount which has not been paid to or on behalf of the Employee. In addition, the Company will pay on behalf of the Employee up to $15,000 to pay an initiation fee or fees for a country, luncheon or social club or clubs and will pay directly to the Employee an amount equal to 65 percent of the amount so paid on the Employee's behalf to offset the applicable income tax expense to the Employee. In addition, the Company will pay additional initiation fees and reimburse the Employee for related tax expenses to the extent the Board of Directors or a duly authorized committee thereof determines such fees are reasonable and in the best interest of the Company.
(e) Other Benefits. Employee shall be eligible to participate in and have the benefits under the terms of all life, accident, disability and health insurance plans, pension, profit sharing, incentive compensation and savings plans and all other similar plans and benefits which the Company from time to time makes available to its management executives, including, without limitation, those listed on Exhibit A, in the same manner and at least at the same participation level as other senior management executives.
3. Business Expenses.
The Company shall promptly reimburse Employee for all appropriately documented, reasonable business expenses incurred by Employee in accordance with Company policies.
4. Term.
This Agreement shall commence effective as of December 14, 1994, and if not terminated earlier as herein provided, shall terminate on December 31, 1996. Notwithstanding the foregoing, if the Company shall not have offered to the Employee the opportunity to enter into a new employment agreement prior to December 31, 1996, with terms, in all respects, no less favorable to the Employee than the terms of this Agreement and with a term lasting until at least December 31, 1998, the Employee shall have the right to elect by written notice delivered to the Company prior to January 31, 1997, to terminate his employment and such termination shall be deemed to have been for Good Reason in accordance with Section 5 and the Employee shall be entitled to all payments and benefits as if he had terminated his employment for Good Reason in accordance with Section 5 on December 30, 1996.
5. Termination by the Company Without Cause, Termination by Employee for "Good Reason" or Failure to Extend Employment Contract.
The Company may, by delivering 30 days prior written notice to
Employee, terminate Employee's employment at any time without cause, and the
Employee may, by delivering 30 days prior written notice to the Company,
terminate Employee's employment for "good reason," as defined below. If such
termination without cause or for good reason occurs or if the Company falls to
offer to the Employee a new employment contract prior to December 31, 1996,
with terms, in all respects, no less favorable to the employee than the terms
of this Agreement, Employee shall be entitled to receive a lump-sum payment
equal to the sum of (a) two times the sum of (i) his Base Salary at the then
current rate and (ii) the sum of the target bonuses under all of the Company's
incentive bonus plans applicable to Employee for the year in which the
termination occurs and (b) if termination occurs in the fourth quarter of a
calendar year, the sum of the target bonuses under all of the Company's
incentive bonus plans applicable to Employee for the year in which the
termination occurs prorated daily based on the number of days from the
beginning of the calendar year in which the termination occurs to and including
the date of termination. Employee shall also receive all unpaid bonuses for
the year prior to the year in which the termination occurs and shall receive
(i) for a period of two years continuing coverage and benefits comparable to
all life, health and disability insurance plans which the Company from time to
time makes available to its management executives and their families, (ii) a
lump-sum payment equal to two times the stipulated flexible perquisites amount
pursuant to Section 2(d), and (iii) two years additional service credit under
the current non-qualified supplemental pension plans, or successors thereto, of
the Company applicable to the Employee on the date of termination. All
unvested stock options held by Employee on the date of the termination shall
become immediately vested and all restrictions on Restricted Stock then held by
the Employee shall terminate.
For purposes of this Section 5, "good reason" shall mean the occurrence of any of the following events:
(a) Removal, without the consent of Employee in writing, from one or more of the offices Employee holds on the date of this Agreement or a material reduction in Employee's authority or responsibility but not termination of Employee for "cause," as defined below; or
(b) The Company otherwise commits a material breach of this Agreement.
The Company shall pay any attorney fees incurred by Employee in reasonably seeking to enforce the terms of this Paragraph 5.
6. Termination upon Death or Disability.
If the Employee's employment is terminated because of death or on account of his becoming permanently disabled (as defined in Section 7), the Employee, or his estate, if applicable, shall be entitled to receive the Employee's Base Salary earned pro rata to the date of his termination of employment, plus unpaid bonuses for the year prior to the year in which the termination occurs. All unvested stock options held by the Employee on the date of termination shall become immediately vested and all restrictions on Restricted Stock held by the Employee shall terminate.
7. Termination by the Company for Cause.
The Company may terminate this Agreement at any time if such termination is for "cause," as defined below, by delivering to Employee written notice describing the cause of termination 30 days before the effective date of such termination and by granting Employee at least 30 days to cure the cause. In the event the employment of Employee is terminated for "cause," Employee shall be entitled only to his Base Salary earned pro rata to his date of termination with no entitlement to any base salary continuation payments or benefit continuation (except as specifically provided by the terms of an employee benefit plan of the Company). Except as otherwise provided in this Agreement, the determination of whether Employee is terminated for "cause" shall be made by the Board of Directors of the Company, in the reasonable exercise of its business judgment, and shall be limited to the occurrence of the following events:
(a) Conviction of or a plea of nolo contendere to the charge of a felony (which, through lapse of time or otherwise, is not subject to appeal);
(b) Willful refusal without proper legal cause to perform, or gross negligence in performing, Employee's duties and responsibilities;
(c) Material breach of fiduciary duty to the Company through the misappropriation of Company funds or property; or
(d) The unauthorized absence of Employee from work (other than for sick leave or disability) for a period of 30 working days or more during a period of 45 working days.
For purposes of this Agreement, Employee shall be deemed to be "permanently disabled" if Employee shall be considered to be permanently and totally disabled in accordance with the Company's Long-Term Disability Income Plan. If there should be a dispute between the Company and Employee as to Employee's physical or mental disability for purposes of this Agreement, the question shall be settled by the opinion of an impartial reputable physician or psychiatrist agreed upon by the parties or their representatives, or if the parties cannot agree within ten calendar days after a request for designation of such party, then a physician or psychiatrist shall be designated by the San Antonio, Texas Medical Association. The parties agree to be bound by the final decision of such physician or psychiatrist.
8. Voluntary Termination by Employee.
Employee may terminate this Agreement at any time upon delivering 30 days written notice to the Company. In the event of such voluntary termination other than for "good reason," as defined above, Employee shall be entitled to his base salary earned pro rata to the date of his resignation, plus unpaid bonuses for the year prior to the year in which the termination occurs, but no base salary continuation payments or benefits continuation (except as specifically provided by the terms of an employee benefit plan of the Company). On or after the date the Company receives notice of Employee's resignation, the Company may, at its option, pay Employee his base salary through the effective date of his resignation and terminate his employment immediately.
9. Termination Following Change of Control.
Notwithstanding anything to the contrary contained herein, should Employee at any time within two years of a change of control cease to be an employee of the Company (or its successor), by reason of (i) involuntary termination by the Company (or its successor) other than for "cause" (following a change of control, "cause" shall be limited to the conviction of or a plea of nolo contendere to the charge of a felony (which, through lapse of time or otherwise, is not subject to appeal), or a material breach of fiduciary duty to the Company through the misappropriation of Company funds or property), or (ii) voluntary termination by Employee for "good reason upon change of control" (as defined below), the Company (or its successor) shall pay to Employee within ten days of such termination the following severance payments and benefits:
(a) A lump-sum payment equal to three times the base salary of the Employee at the then current rate;
(b) A lump-sum payment equal to the sum of (i) three times the sum of the target bonuses under all of the Company's incentive bonus plans applicable to the Employee for the year in which the termination occurs or the year in which the change of control occurred, whichever is greater, and (ii) if termination occurs in the fourth quarter of a calendar year, the sum of the target bonuses under all of the Company's incentive bonus plans applicable to Employee for the year in which the termination occurs prorated daily based on the number of days from the beginning of the calendar year in which the termination occurs to and including the date of termination.
(c) A lump-sum payment equal to the amount of any unpaid bonuses to which the Employee is entitled under any incentive bonus plan.
The Company (or its successor) shall also provide to Employee (i) for
a period of three years continuing coverage and benefits comparable to all
life, health and disability plans of the Company in effect at the time a change
of control is deemed to have occurred; (ii) a lump-sum payment equal to three
times the stipulated flexible perquisites amount pursuant to Section 2(d); and
(iii) three years additional service credit under the current non-qualified
supplemental pension plans, or successors thereto, of the Company applicable to
the Employee on the date of termination.
For purposes of this Agreement, a "change of control" shall be deemed to have occurred if (i) there shall be consummated (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company where a majority of the Board of Directors of the surviving corporation are, and for a two year period after the merger continue to be, persons who were directors of the Company immediately prior to the merger or were elected as directors, or nominated for election as director, by a vote of at least two-thirds of the directors then still in office who were directors of the Company immediately prior to the merger, or (B) any sale, lease, exchange or transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, or (ii) the shareholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company, or (iii) (A) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than the Company or a subsidiary thereof or any employee benefit plan sponsored by the Company or a subsidiary thereof, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, and (B) at any time during a period of two years thereafter, individuals who immediately prior to the beginning of such period constituted the Board of Directors of the Company shall cease for any reason to constitute at least a majority thereof, unless the election or the nomination by the Board of Directors for election by the Company's shareholders of each new director during such period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.
For purposes of this Section 9, "good reason upon change of control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the assignment to Employee of any duties inconsistent with the employment of Employee to the positions set forth in Section 1, or a significant diminution of Employee's positions, duties, responsibilities and status with the Company from those immediately prior to a change of control or a diminution in Employee's titles or offices as in effect immediately prior to a change of control, or any removal of Employee from, or any failure to reelect Employee to, any of such positions;
(ii) a reduction by the Company in Employee's base salary in effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any thrift, stock ownership, pension, life insurance, health, dental and accident or disability plan in which Employee is participating or is eligible to participate at the time of the
change of control (or plans providing Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any of such plans or deprive Employee of any material fringe benefits enjoyed by Employee at the time of the change of control or the failure by the Company to provide the Employee with the number of paid vacation days to which Employee is entitled in accordance with the vacation policies of the Company in effect at the time of a change of control;
(iv) the failure by the Company to continue in effect any incentive plan or arrangement (including without limitation, the Company's Incentive Compensation Plan and similar incentive compensation benefits) in which Employee is participating at the time of a change of control (or to substitute and continue other plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control;
(v) the failure by the Company to continue in effect any plan or arrangement with respect to securities of the Company (including, without limitation, any plan or arrangement to receive and exercise stock options, stock appreciation rights, restricted stock or grants thereof or to acquire stock or other securities of the Company) in which Employee is participating at the time of a change of control (or to substitute and continue plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any such plan;
(vi) the relocation of the Company's principal executive offices to a location outside the San Antonio, Texas, area, or the Company's requiring Employee to be based anywhere other than at the location of the Company's principal executive offices, except for required travel on the
Company's business to an extent substantially consistent with Employee's present business travel obligations, or, in the event Employee consents to any such relocation of the Company's principal executive or divisional offices, the failure by the Company to pay (or reimburse Employee for) all reasonable moving expenses incurred by Employee relating to a change of Employee's principal residence in connection with such relocation and to indemnify Employee against any loss (defined as the difference between the actual sale price of such residence and the fair market value thereof as determined by the highest of three appraisals from Membership Appraisal Institute-approved real estate appraisers reasonably satisfactory to both Employee and the Company at the time the Employee's principal residence is offered for sale in connection with any such change of residence);
(vii) any material breach by the Company of any provision of this Agreement;
(viii) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; or
(ix) any purported termination of Employee's employment by the Company other than termination for cause fully in compliance with this Agreement and for purposes of this Agreement, no such purported termination shall be effective.
In the event of a change of control as "change of control" is defined in any stock option plan or stock option agreement pursuant to which the Employee holds options to purchase common stock of the Company, Employee shall retain the rights to all accelerated vesting and other benefits under the terms of such plans and agreements.
The Company shall pay any attorney fees incurred by Employee in reasonably seeking to enforce the terms of this paragraph 9.
10. Exclusivity of Termination Provisions.
The termination provisions of this Agreement regarding the parties' respective obligations in the event Employee's employment is terminated are intended to be exclusive and in lieu of any other rights or remedies to which Employee or the
Company may otherwise be entitled at law, in equity, or otherwise. It is also agreed that, although the personnel policies and fringe benefit programs of the Company may be unilaterally modified from time to time, the termination provisions of this Agreement are not subject to modification, whether orally, impliedly or in writing, unless any such modification is mutually agreed upon and signed by the parties.
11. Vacation.
Employee shall be entitled to four weeks vacation annually in accordance with Company policy as in effect from time to time. In the event Employee does not use his entire vacation time in any year, Employee shall be entitled to carry over unused vacation into the following year until his accrued vacation reaches six weeks or such greater period as may be permitted under the Company's vacation policy for management executives.
12. Nondisclosure.
During the term of this Agreement and thereafter, Employee shall not, without the prior written consent of the Board of Directors, disclose or use for any purpose (except in the course of his employment under this Agreement and in furtherance of the business of the Company) confidential information or proprietary data of the Company (or any of its subsidiaries), except as required by applicable law or legal process; provided, however, that confidential information shall not include any information known generally to the public or ascertainable from public or published information (other than as a result of unauthorized disclosure by Employee) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Company (or any of its subsidiaries.
13. Noncompetition.
The Company and Employee agree that the services rendered by Employee hereunder are unique. Employee hereby agrees that, during the term of this Agreement and for a period of one year thereafter, he shall not (except in the course of his employment under this Agreement and in furtherance of the business of the Company (or any of its subsidiaries)) (i) engage in as principal, consultant or employee in any segment of a business of a company, partnership or firm ("Business Segment") that is directly competitive with any significant business of the Company in one of its major commercial or geographic markets or (ii) hold an interest (except as a holder of a less than 5 percent interest in a publicly traded firm or mutual fund, or as a minority stockholder or unitholder in a firm not publicly traded) in a company, partnership, or firm with a Business Segment that is directly competitive, without prior written consent of the Company.
14. Remedies.
Employee acknowledges that irreparable damage would result to the company if the provisions of paragraphs 12 or 13 above are not specifically enforced and agrees that the Company shall be entitled to any appropriate legal, equitable or other remedy, including injunctive relief, in respect of any failure to comply with such provisions.
15. Miscellaneous.
(a) Complete Agreement. This Agreement constitutes the entire agreement between the parties and cancels and supersedes all other agreements between the parties which may have related to the subject matter contained in this Agreement.
(b) Modification; Amendment; Waiver. No modification, amendment or waiver of any provisions of this Agreement shall be effective unless approved in writing by both parties. The failure at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of either party thereafter to enforce each and every provision hereof in accordance with its terms.
(c) Governing Law; Jurisdiction. This Agreement and performance under it, and all proceedings that may ensue from its breach, shall be construed in accordance with and under the laws of the State of Texas.
(d) Employee's Representations. Employee represents and warrants that he is free to enter into this Agreement and to perform each of the terms and covenants of it. Employee represents and warrants that he is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that his execution and performance of this Agreement is not a violation or breach of any other agreement between Employee and any other person or entity.
(e) Company's Representations. Company represents and warrants that it is free to enter into this Agreement and to perform each of the terms and covenants of it. Company represents and warrants that it is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that its execution and performance of this Agreement is not a violation or breach of any other agreement between Company and any other person or entity. The Company represents and warrants that this Agreement is a legal, valid and binding agreement of the Company, enforceable in accordance with its terms.
(f) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
(g) Assignment. The rights and obligations of the parties under this Agreement shall be binding upon and inure to the benefit of their respective successors, assigns, executors, administrators and heirs, provided, however, that neither the Company nor Employee may assign any duties under this Agreement without the prior written consent of the other.
(h) Limitation. This Agreement shall not confer any right or impose any obligation on the Company to continue the employment of Employee in any capacity, or limit the right of the Company or Employee to terminate Employee's employment.
(i) Notices. All notices and other communications under this Agreement shall be in writing and shall be given in person or by telegraph, facsimile or first-class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given when delivered personally or three days after mailing or one day after transmission of a telegram or facsimile, as the case may be, to the representative persons named below.
If to the Company: Corporate Secretary
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
If to the Employee: William T. Van Kleef
4351 F.M. 2673
Canyon Lake, Texas 78133
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
COMPANY: TESORO PETROLEUM CORPORATION
By /s/ MICHAEL D. BURKE
Michael D. Burke
President and Chief Executive Officer
EMPLOYEE: /s/ WILLIAM T. VAN KLEEF
William T. Van Kleef
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EXHIBIT A
BENEFITS LISTING
1. Group Health Plan
2. Group Life and Accidental Death & Dismemberment Plan
3. Short Term Disability Income Plan
4. Long Term Disability Income Plan
5. Business Travel Accident Insurance Plan
6. Tesoro Petroleum Corporation Thrift/401K Plan
7. Tesoro Petroleum Corporation Retirement Plan
8. Tesoro Petroleum Corporation Amended Executive Security Plan
9. Tesoro Petroleum Corporation Funded Executive Security Plan
10. Tax Preparation and Financial Planning
ITEM 14(a)3, EXHIBIT 10(o)
MANAGEMENT STABILITY AGREEMENT
This Management Stability Agreement is dated December 14, 1994, between Tesoro Petroleum Corporation, a Delaware corporation (the "Company"), and Don E. Beere ("Employee").
Recitals:
WHEREAS, the Board of Directors of the Company has determined that it is in the best interest of the Company to reduce uncertainty to certain key employees of the Company in the event of certain fundamental events involving the control or existence of the Company;
WHEREAS, the Board of Directors of the Company has determined that an agreement protecting certain interests of key employees of the Company in the event of certain fundamental events involving the control or existence of the Company is in the best interest of the Company because it will assist the Company in attracting and retaining key employees such as this Employee; and
WHEREAS, the Employee is relying on this Agreement and the obligations of the Company hereunder in continuing to work for the Company.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Termination Following Change of Control.
Should Employee at any time within two years of a change of control cease to be an employee of the Company (or its successor), by reason of (i) involuntary termination by the Company (or its successor) other than for "cause" (following a change of control), "cause" shall be limited to the conviction of or a plea of nolo contendere to the charge of a felony (which, through lapse of time or otherwise, is not subject to appeal), a material breach of fiduciary duty to the Company through the misappropriation of Company funds or property) or (ii) voluntary termination by Employee for "good reason upon change of control" (as defined below), the Company (or its successor) shall pay to Employee within ten days of such termination the following severance payments and benefits:
(a) A lump-sum payment equal to two times the base salary of the Employee at the then current rate; and
(b) A lump-sum payment equal to (i) two times the sum of the target bonuses under all of the Company's incentive bonus plans applicable to the Employee for the year in which the termination occurs or the year in which the change of control occurred,
whichever is greater, and (ii) if termination occurs in the fourth quarter of a calendar year, the sum of the target bonuses under all of the Company's incentive bonus plans applicable to Employee for the year in which the termination occurs prorated daily based on the number of days from the beginning of the calendar year in which the termination occurs to and including the date of termination.
The Company (or its successor) shall also provide continuing coverage and benefits comparable to all life, health and disability plans of the Company for a period of 24 months from the date of termination and shall receive two years additional service credit under the current non-qualified supplemental pension plans, or successors thereto, of the Company applicable to the Employee on the date of termination.
For purposes of this Agreement, a "change of control" shall be deemed to have occurred if (i) there shall be consummated (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company where a majority of the Board of Directors of the surviving corporation are, and for a two year period after the merger continue to be, persons who were directors of the Company immediately prior to the merger or were elected as directors, or nominated for election as directors, by a vote of at least two-thirds of the directors then still in office who were directors of the Company immediately prior to the merger, or (B) any sale, lease, exchange or transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, or (ii) the shareholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company, or (iii) (A) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than the Company or a subsidiary thereof or any employee benefit plan sponsored by the Company or a subsidiary thereof, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of
directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, and (B) at any time during a period of one year thereafter, individuals who immediately prior to the beginning of such period constituted the Board of Directors of the Company shall cease for any reason to constitute at least a majority thereof, unless the election or the nomination by the Board of Directors for election by the Company's shareholders of each new director during such period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.
For purposes of this Section 1, "good reason upon change of control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the assignment to Employee of any duties inconsistent with the employment of Employee immediately prior to the change of control, or a significant diminution of Employee's positions, duties, responsibilities and status with the Company from those immediately prior to a change of control or a diminution in Employee's titles or offices as in effect immediately prior to a change of control, or any removal of Employee from, or any failure to reelect Employee to, any of such positions;
(ii) a reduction by the Company in Employee's base salary in effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any thrift, stock ownership, pension, life insurance, health, dental and accident or disability plan in which Employee is participating or is eligible to participate at the time of the change of control (or plans providing Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any of such plans or deprive Employee of any material fringe benefits enjoyed by Employee at the time of the change of control or the failure by the Company to provide the Employee with the number of paid vacation
days to which Employee is entitled in accordance with the vacation policies of the Company in effect at the time of a change of control;
(iv) the failure by the Company to continue in effect any incentive plan or arrangement (including without limitation, the Company's Incentive Compensation Plan and similar incentive compensation benefits) in which Employee is participating at the time of a change of control (or to substitute and continue other plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control;
(v) the failure by the Company to continue in effect any plan or arrangement with respect to securities of the Company (including, without limitation, any plan or arrangement to receive and exercise stock options, stock appreciation rights, restricted stock or grants thereof or to acquire stock or other securities of the Company) in which Employee is participating at the time of a change of control (or to substitute and continue plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any such plan;
(vi) the relocation of the Company's principal executive offices to a location outside the San Antonio, Texas, area, or the Company's requiring Employee to be based anywhere other than at the location of the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with Employee's present business travel obligations, or, in the event Employee consents to any such relocation of the Company's principal executive or divisional offices, the failure by the Company to pay (or reimburse Employee for) all reasonable moving expenses incurred by Employee relating to a change of Employee's principal residence in connection with such relocation and to indemnify Employee against any loss (defined as the difference between the actual sale price of such residence and the higher of
(a) Employee's aggregate investment in such residence or (b) the fair market value thereof as determined by a real estate appraiser reasonably satisfactory to both Employee and the Company at the time the Employee's principal residence is offered for sale in connection with any such change of residence;
(vii) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company;
In the event of a change of control as "change of control" is defined in any stock option plan or stock option agreement pursuant to which the Employee holds options to purchase common stock of the Company, Employee shall retain the rights to all accelerated vesting and other benefits under the terms thereof.
The Company shall pay any attorney fees incurred by Employee in reasonably seeking to enforce the terms of this Paragraph 1.
2. Complete Agreement.
This Agreement constitutes the entire agreement between the parties and cancels and supersedes all other agreements between the parties which may have related to the subject matter contained in this Agreement.
3. Modification; Amendment; Waiver.
No modification, amendment or waiver of any provisions of this Agreement shall be effective unless approved in writing by both parties. The failure at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of either party thereafter to enforce each and every provision hereof in accordance with its terms.
4. Governing Law; Jurisdiction.
This Agreement and performance under it, and all proceedings that may ensue from its breach, shall be construed in accordance with and under the laws of the State of Texas.
5. Severability.
Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
6. Assignment.
The rights and obligations of the parties under this Agreement shall be binding upon and inure to the benefit of their respective successors, assigns, executors, administrators and heirs, provided, however, that the Company may not assign any duties under this Agreement without the prior written consent of the Employee.
7. Limitation.
This Agreement shall not confer any right or impose any obligation on the Company to continue the employment of Employee in any capacity, or limit the right of the Company or Employee to terminate Employee's employment.
8. Notices.
All notices and other communications under this Agreement shall be in writing and shall be given in person or by telegraph, facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given when delivered personally or three days after mailing or one day after transmission of a telegram or facsimile, as the case may be, to the representative persons named below:
If to the Company: Corporate Secretary
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
If to the Employee: Don E. Beere
15203 Eaglebrook
San Antonio, Texas 78232
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
COMPANY: TESORO PETROLEUM CORPORATION
By /s/ MICHAEL D. BURKE
Michael D. Burke
President and Chief Executive Officer
EMPLOYEE: /s/ DON E. BEERE
Don E. Beere
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ITEM 14(a)3, EXHIBIT 10(p)
MANAGEMENT STABILITY AGREEMENT
This Management Stability Agreement is dated February 23, 1995, between Tesoro Petroleum Corporation, a Delaware corporation (the "Company"), and Gregory A. Wright ("Employee").
Recitals:
WHEREAS, the Board of Directors of the Company has determined that it is in the best interest of the Company to reduce uncertainty to certain key employees of the Company in the event of certain fundamental events involving the control or existence of the Company;
WHEREAS, the Board of Directors of the Company has determined that an agreement protecting certain interests of key employees of the Company in the event of certain fundamental events involving the control or existence of the Company is in the best interest of the Company because it will assist the Company in attracting and retaining key employees such as this Employee; and
WHEREAS, the Employee is relying on this Agreement and the obligations of the Company hereunder in continuing to work for the Company.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Termination Following Change of Control.
Should Employee at any time within two years of a change of control cease to be an employee of the Company (or its successor), by reason of (i) involuntary termination by the Company (or its successor) other than for "cause" (following a change of control), "cause" shall be limited to the conviction of or a plea of nolo contendere to the charge of a felony (which, through lapse of time or otherwise, is not subject to appeal), a material breach of fiduciary duty to the Company through the misappropriation of Company funds or property) or (ii) voluntary termination by Employee for "good reason upon change of control" (as defined below), the Company (or its successor) shall pay to Employee within ten days of such termination the following severance payments and benefits:
(a) A lump-sum payment equal to two times the base salary of the Employee at the then current rate; and
(b) A lump-sum payment equal to (i) two times the sum of the target bonuses under all of the Company's incentive bonus plans applicable to the Employee for the year in which the termination occurs or the year in which the change of control occurred,
whichever is greater, and (ii) if termination occurs in the fourth quarter of a calendar year, the sum of the target bonuses under all of the Company's incentive bonus plans applicable to Employee for the year in which the termination occurs prorated daily based on the number of days from the beginning of the calendar year in which the termination occurs to and including the date of termination.
The Company (or its successor) shall also provide continuing coverage and benefits comparable to all life, health and disability plans of the Company for a period of 24 months from the date of termination.
For purposes of this Agreement, a "change of control" shall be deemed to have occurred if (i) there shall be consummated (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company where a majority of the Board of Directors of the surviving corporation are, and for a two year period after the merger continue to be, persons who were directors of the Company immediately prior to the merger or were elected as directors, or nominated for election as directors, by a vote of at least two-thirds of the directors then still in office who were directors of the Company immediately prior to the merger, or (B) any sale, lease, exchange or transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, or (ii) the shareholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company, or (iii) (A) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than the Company or a subsidiary thereof or any employee benefit plan sponsored by the Company or a subsidiary thereof, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or
otherwise, and (B) at any time during a period of one year thereafter, individuals who immediately prior to the beginning of such period constituted the Board of Directors of the Company shall cease for any reason to constitute at least a majority thereof, unless the election or the nomination by the Board of Directors for election by the Company's shareholders of each new director during such period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.
For purposes of this Section 1, "good reason upon change of control" shall exist if any of the following occurs:
(i) without Employee's express written consent, the assignment to Employee of any duties inconsistent with the employment of Employee immediately prior to the change of control, or a significant diminution of Employee's positions, duties, responsibilities and status with the Company from those immediately prior to a change of control or a diminution in Employee's titles or offices as in effect immediately prior to a change of control, or any removal of Employee from, or any failure to reelect Employee to, any of such positions;
(ii) a reduction by the Company in Employee's base salary in effect immediately prior to a change of control;
(iii) the failure by the Company to continue in effect any thrift, stock ownership, pension, life insurance, health, dental and accident or disability plan in which Employee is participating or is eligible to participate at the time of the change of control (or plans providing Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any of such plans or deprive Employee of any material fringe benefits enjoyed by Employee at the time of the change of control or the failure by the Company to provide the Employee with the number of paid vacation days to which Employee is entitled in accordance with the
vacation policies of the Company in effect at the time of a change of control;
(iv) the failure by the Company to continue in effect any incentive plan or arrangement (including without limitation, the Company's Incentive Compensation Plan and similar incentive compensation benefits) in which Employee is participating at the time of a change of control (or to substitute and continue other plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control;
(v) the failure by the Company to continue in effect any plan or arrangement with respect to securities of the Company (including, without limitation, any plan or arrangement to receive and exercise stock options, stock appreciation rights, restricted stock or grants thereof or to acquire stock or other securities of the Company) in which Employee is participating at the time of a change of control (or to substitute and continue plans or arrangements providing the Employee with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any change of control or the taking of any action by the Company which would adversely affect Employee's participation in or materially reduce Employee's benefits under any such plan;
(vi) the relocation of the Company's principal executive offices to a location outside the San Antonio, Texas, area, or the Company's requiring Employee to be based anywhere other than at the location of the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with Employee's present business travel obligations, or, in the event Employee consents to any such relocation of the Company's principal executive or divisional offices, the failure by the Company to pay (or reimburse Employee for) all reasonable moving expenses incurred by Employee relating to a change of Employee's principal residence in connection with such relocation and to indemnify Employee against any loss (defined as the difference between the actual sale price of such residence and the higher of (a) Employee's aggregate investment in such residence or
(b) the fair market value thereof as determined by a real estate appraiser reasonably satisfactory to both Employee and the Company at the time the Employee's principal residence is offered for sale in connection with any such change of residence;
(vii) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company;
In the event of a change of control as "change of control" is defined in any stock option plan or stock option agreement pursuant to which the Employee holds options to purchase common stock of the Company, Employee shall retain the rights to all accelerated vesting and other benefits under the terms thereof.
The Company shall pay any attorney fees incurred by Employee in reasonably seeking to enforce the terms of this Paragraph 1.
2. Complete Agreement.
This Agreement constitutes the entire agreement between the parties and cancels and supersedes all other agreements between the parties which may have related to the subject matter contained in this Agreement.
3. Modification; Amendment; Waiver.
No modification, amendment or waiver of any provisions of this Agreement shall be effective unless approved in writing by both parties. The failure at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of either party thereafter to enforce each and every provision hereof in accordance with its terms.
4. Governing Law; Jurisdiction.
This Agreement and performance under it, and all proceedings that may ensue from its breach, shall be construed in accordance with and under the laws of the State of Texas.
5. Severability.
Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions of this Agreement.
6. Assignment.
The rights and obligations of the parties under this Agreement shall be binding upon and inure to the benefit of their respective successors, assigns, executors administrators and heirs, provided, however, that the Company may not assign any duties under this Agreement without the prior written consent of the Employee.
7. Limitation.
This Agreement shall not confer any right or impose any obligation on the Company to continue the employment of Employee in any capacity, or limit the right of the Company or Employee to terminate Employee's employment.
8. Notices.
All notices and other communications under this Agreement shall be in writing and shall be given in person or by telegraph, facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given when delivered personally or three days after mailing or one day after transmission of a telegram or facsimile, as the case may be, to the representative persons named below:
If to the Company: Corporate Secretary
Tesoro Petroleum Corporation
8700 Tesoro Drive
San Antonio, Texas 78217
If to the Employee: Gregory A. Wright
403 Arch Bluff
San Antonio, Texas 78216
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
COMPANY: TESORO PETROLEUM CORPORATION
By /s/ MICHAEL D. BURKE
-------------------------------------
Michael D. Burke
President and Chief Executive Officer
EMPLOYEE: /s/ GREGORY A. WRIGHT
----------------------------------------
Gregory A. Wright
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ITEM 14(a)3, EXHIBIT 10(t)
TESORO PETROLEUM CORPORATION
Non-Employee Director Retirement Plan
(Effective December 8, 1994)
To promote the interest of Tesoro Petroleum Corporation (the "Company") and to assist the Company in obtaining and retaining qualified persons to act as directors of the Company, the Company has adopted the following Non-Employee Director Retirement Plan (the "Plan").
1. ADMINISTRATION. The Plan shall be administered by the Company's Board of Directors or by a committee consisting of directors of the Company appointed by the Board of Directors (the "Committee"). The Committee shall make all determinations which may be necessary or advisable for the administration of the Plan and is granted all powers and discretion granted in Section 7.3 and 7.4 of the Tesoro Petroleum Corporation Board of Directors Deferred Compensation Plan.
2. ELIGIBILITY. Each person, other than full-time employees of the Company, serving, on or after the Effective Date of this Plan, as a director subject to reelection by the holders of capital stock of the Company entitled to vote in the elections of directors shall be entitled to elect to participate in this Plan. Each director electing to participate shall be entitled to benefits or the terms and conditions set forth below.
3. RETIREMENT BENEFIT. Any eligible director who elects to participate in this Plan and has served on the Board of Directors of the Company for at least an aggregate of three full years (excluding service while a full-time employee of the Company) shall be entitled to a retirement payment beginning the later of the director's sixty-fifth birthday or such later date that the individual's service as a director ends (the "Retirement Date"), as provided herein. Subject to Sections 4 and 5 below, the Company shall pay to the director annually a sum (the "Retirement Amount") equal to the base annual director retainer fee paid at the time the person ends service as a director of the Company. The base annual director retainer fee shall not include fees paid for attendance at meetings or other purposes. After a director's Retirement Date, the Retirement Amount shall be paid in monthly installments beginning on the first day of the month following the director's Retirement Date. The obligations of the Company under this Plan shall be subject to such provisions as it may deem appropriate for the withholding of any taxes which the Company determines is required to be withheld in connection with any payment under this Plan.
4. TERMINATION OF PAYMENT. The Company shall pay the Retirement Amount annually for a period equal to the aggregate length of time (the "Benefit Period") the director served on the Board of Directors (excluding any period during which the director was a full-time employee of the Company), such period to be rounded up to the next full year; provided that the Company's obligation to pay the Retirement Amount shall terminate upon the death of the director. Notwithstanding the preceding sentence, in the event of death of a director after age 65, the Company shall pay an amount equal to 50 percent of the Retirement Amount to such director's spouse for the shorter of the remaining term of the Benefit Period or until the date of death of such spouse. In the event of death of a director during a year, the amount paid the surviving spouse shall be prorated based on the director's date of death. If a director does not have a spouse at the time of his death, no further benefits shall be paid.
5. SPECIAL RETIREMENT PAYMENT. In addition to the benefit provided in
Section 3 above, if an electing director was the Chairman of the Board
or the Chairman of any committee of the Company's Board (the "Board")
at the time the director's service ends, the Company shall pay such
person a one-time payment equal to the fee paid the prior calendar
year by the Company for such individual's service as Chairman of the
Board and/or Chairman of any committee of the Board. This payment is
to be made within 30 days of the date the director's service ends. In
the event of death of a director while serving as Chairman of the
Board or Chairman of any committee of the Board, this payment shall be
made to such director's spouse if living, otherwise to his estate.
6. CONSULTATION. At any time payments are being made to a person pursuant to this Plan, such person agrees to be available to consult with and advise the Board of Directors of the Company from time to time upon reasonable notice; provided that the Company shall pay all out-of-pocket expenses of such person, such person shall not be obligated to travel and such consultations shall not require more of such person's time than that required when he served as a director.
7. MEDIATION-ARBITRATION. A director and the Company will attempt in good faith to resolve any controversy or claim arising out of or relating to this agreement by mediation in accordance with the Center for Public Resources Model Procedure for Mediation of Business Disputes.
If the matter has not been resolved pursuant to the aforesaid mediation procedure within 60 days of the commencement of such procedure (which period may be extended by mutual agreement), or if either party will not participate in a mediation, the controversy shall be settled by arbitration in accordance with the Center for Public Resources Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Section 1-16, and judgment upon the award rendered by the Arbitrator(s) may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Antonio, Texas. The arbitrators are not empowered to award damages in excess of actual damages, including punitive damages.
8. EFFECTIVE DATE. This Plan shall be effective on December 8, 1994, and shall remain in effect until termination by a resolution of the Board of Directors of the Company. Upon termination of this Plan, no person who has not retired shall be entitled to any benefits hereunder. However, the benefits payable to all then-retired directors shall continue in accordance with this Plan.
9. AMENDMENT OR TERMINATION OF THE PLAN. The members of the Board of Directors may amend or terminate this Plan at any time by an instrument in writing. Neither Plan termination nor amendment will affect the rights of any director to the benefits which would then be payable if such individual were then age 65 and ended his service immediately before such amendment or termination. Any such benefits shall be based upon the director fee schedule then in place.
10. PAYMENTS UNDER THIS AGREEMENT ARE THE OBLIGATIONS OF COMPANY. Company will pay the benefits due under this Plan from the general assets of the Company.
11. LIMITATION OF RIGHTS. Nothing in this Plan will be construed:
(a) To give any member of the Board of Directors any right to be designated a participant in the Plan;
(b) To limit in any way the right of Company to remove an individual from the Board of Directors at any time; or
(c) To evidence any agreement or understanding, expressed or implied, that Company will retain an individual as a member of the Board of Directors for any particular remuneration or any terms of years.
12. DISTRIBUTIONS TO INCOMPETENTS. Should a director or spouse of a deceased director become incompetent, the Committee is authorized to pay the funds due directly to the incompetent or to apply those funds for the benefit of the incompetent in any manner the Committee determines in its sole discretion.
13. NONALIENATION OF BENEFITS. No right or benefit provided in this Plan will be transferable by the individual. No right or benefit under this Plan will be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge,
and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge the same will be void. No right or benefit under this Plan will in any manner be liable for or subject to any debts, contracts, liabilities or torts of the person entitled to such benefits. If any director or spouse of a deceased director becomes bankrupt or attempts to anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit under this Plan, that right or benefit will, in the discretion of the Committee, cease. In that event, the Committee may have Company hold or apply the right or benefit or any part of it to the benefit of such individual or his or her spouse in any manner the Committee believes to be proper in its sole and absolute discretion, but is not required to do so.
14. SEVERABILITY. If any term, provision, covenant or condition of the Plan is held to be invalid, void or otherwise unenforceable, the rest of the Plan will remain in full force and effect and will in no way be affected, impaired or invalidated.
15. NOTICE. Any notice or filing required or permitted to be given to the Committee or a director or spouse of a deceased director will be sufficient if in writing and hand delivered or sent by U.S. mail to the principal office of Company or to the last known residential mailing address of such individual. Notice will be deemed to be given as of the date of hand delivery or if delivery is by mail, as of the date shown on the postmark.
16. GENDER AND NUMBER. Words used in this Plan of one gender are to be construed as though they were also used in another gender in all cases where they would so apply and likewise words in the singular or plural are to be construed as though they also included the other in all cases where they would so apply.
17. GOVERNING LAW. The Plan will be construed, administered and governed in all respects by the laws of the state of Texas.
IN WITNESS WHEREOF, the Company has executed this document effective the 8th day of December 1994.
TESORO PETROLEUM CORPORATION
By /s/ WILLIAM T. VAN KLEEF William T. Van Kleef Vice President, Treasurer |
ITEM 14(a)3, EXHIBIT 10(u)
TESORO PETROLEUM CORPORATION
BOARD OF DIRECTORS DEFERRED COMPENSATION PLAN
WHEREAS, Tesoro Petroleum Corporation seeks to establish the Tesoro Petroleum Corporation Board of Directors Deferred Compensation Plan effective April 1, 1995, to provide certain members of the Board of Directors with a deferred compensation plan whereby a portion of their director's fees may be deferred by election prior to its being earned by the director;
NOW, THEREFORE, Tesoro Petroleum Corporation adopts the Tesoro Petroleum Corporation Board of Directors Deferred Compensation Plan as follows:
ARTICLE I
DEFINITIONS
1.1 ACCOUNT. "Account" means a Participant's Account in the Deferred Compensation Ledger maintained by the Committee which reflects the benefits a Participant is entitled to under this Plan.
1.2 BENEFICIARY. "Beneficiary" means a person or entity designated by the Participant under the terms of this Plan to receive any amounts distributed under the Plan upon the death of the Participant.
1.3 BOARD OF DIRECTORS. "Board of Directors" means the Board of Directors of Tesoro Petroleum Corporation.
1.4 CHANGE OF CONTROL. For purposes of this Agreement, a "change of control" shall be deemed to have occurred if (i) there shall be consummated (A) any consolidation or merger of Corporation in which Corporation is not the continuing or surviving corporation or pursuant to which shares of Corporation's Common Stock would be converted into cash, securities or other property, other than a merger of Corporation where a majority of the Board of Directors of the surviving corporation are, and for a two-year period after the merger continue to be, persons who were directors of Corporation immediately prior to the merger or were elected as directors, or nominated for election as director, by a vote of at least two-thirds of the directors then still in office who were directors of Corporation immediately prior to the merger, or (B) any sale, lease, exchange or transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Corporation, or (ii) the shareholders of Corporation shall approve any plan or proposal for the liquidation or dissolution of Corporation, or (iii) (A) any "person" (as such term
is used in Sections 13(d) and 14(d)(2) of the Securities Act), other
than Corporation or a subsidiary thereof or any employee benefit plan
sponsored by Corporation or a subsidiary thereof, shall become the
beneficial owner (within the meaning of Rule 13d-3 under the
Securities Act) of securities of Corporation representing 20 percent
or more of the combined voting power of Corporation's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, and (B) at any time
during a period of two years thereafter, individuals who immediately
prior to the beginning of such period constituted the Board of
Directors of Corporation shall cease for any reason to constitute at
least a majority thereof, unless the election or the nomination by the
Board of Directors for election by Corporation's shareholders of each
new director during such period was approved by a vote of at least
two-thirds of the directors then still in office who were directors
at the beginning of such period.
1.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
1.6 COMMITTEE. "Committee" means the persons who are from time to time
serving as President, Secretary and Treasurer of Corporation. These
persons shall constitute the members of the committee administering
this Plan.
1.7 CORPORATION. "Corporation" means Tesoro Petroleum Corporation.
1.8 DEFERRED COMPENSATION LEDGER. "Deferred Compensation Ledger" means
the ledger maintained by the Committee for each Participant which
reflects the amount of compensation deferred by the Participant under
this Plan and the amount of interest credited to his Account.
1.9 DISABILITY. "Disability" means a physical or mental condition which,
in the judgment of the Committee, totally and presumably permanently
prevents the Participant from engaging in any substantial gainful
employment. A determination that Disability exists shall be based
upon competent medical evidence satisfactory to the Committee.
1.10 PARTICIPANT. "Participant" means a member of the Board of Directors
of Corporation who is not otherwise employed by Corporation or a
subsidiary of Corporation.
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1.11 PLAN. "Plan" means the Tesoro Petroleum Corporation Board of
Directors Deferred Compensation Plan set forth in this document, as
amended from time to time.
1.12 PLAN YEAR. "Plan Year" means the nine-month period beginning April 1,
1995, and ending December 31, 1995, and for all future years the
calendar year.
1.13 RETIREMENT. "Retirement" means the retirement of a Participant from
the Board of Directors of Corporation at or after age 65.
1.14 SECURITIES ACT. "Securities Act" means the Securities Exchange Act of
1934, as amended from time to time.
1.15 TRUST. "Trust" means the Tesoro Petroleum Corporation Board of
Directors Deferred Compensation Trust created by separate agreement.
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ARTICLE II
ELIGIBILITY
All members of the Board of Directors who are not otherwise employed by Corporation or a subsidiary of Corporation will be eligible to participate in this Plan.
ARTICLE III
DEFERRAL
3.1 DEFERRAL ELECTION. A new Participant may elect not later than 30 days following election to the Board what, if any, percentage of his director's fee earned during the ensuing Plan Year is to be deferred under this Plan. All other Participants may elect prior to the beginning of any Plan Year what, if any, percentage of his director's fee earned during the ensuing Plan Year is to be deferred under this Plan. Once an election has been made as to the percentage to be deferred it becomes irrevocable for that Plan Year. The election to participate in the Plan for a given Plan Year will be effective only upon receipt by the Committee of the Participant's percentage deferral election on such form and at such time as will be determined by the Committee from time to time. If the Committee fails to receive a Participant's election prior to the beginning of a Plan Year, that Participant will be deemed to have elected to defer his director's fees for that Plan Year on the same basis as his most recent election.
3.2 DEFERRAL AMOUNT. A Participant who elects to defer a percentage of his director's fees for the ensuing year may defer a minimum of 20 percent and a maximum of 100 percent, or any percentage amount between the minimum and the maximum in increments of 10 percent.
ARTICLE IV
ACCOUNT
4.1 ESTABLISHING A PARTICIPANT'S ACCOUNT. The Committee will establish an Account for each Participant in a special Deferred Compensation Ledger which will be maintained by Corporation. The Account will reflect the amount of Corporation's obligation to the Participant at any given time.
4.2 CREDIT OF THE PARTICIPANT'S DEFERRAL. The Committee will credit the amount of a Participant's deferral to the Participant's Account in the Deferred Compensation Ledger as it would have been paid during the Plan Year but for the deferral which was elected. Each Account shall be adjusted as of the end of each calendar year quarter (the "Valuation Date") for amounts deferred during such calendar year quarter plus interest as set forth in Section 4.3 on the Account balance as of the beginning of such quarter. In the event of a
Change of Control, interest will not be credited after the most recent Valuation Date preceding the Change of Control.
4.3 CREDITING OF INTEREST. Interest will be credited on a Participant's Account at the rate established by Section 4.4 compounded quarterly. A full quarter's interest shall be credited for any partial month at the end of the period for which it is calculated.
4.4 INTEREST RATE. Interest will be applied to each quarter's deferral at the prime rate published in The Wall Street Journal (Southwest Edition) on the last business day of such quarter plus two percentage points. Except as provided above, interest will continue to be credited until distribution is made in the case of a lump sum or until distribution has commenced in the case of an installment distribution when the rate calculated under Section 4.5 becomes applicable.
4.5 PROCEDURE TO CREDIT INTEREST AFTER DISTRIBUTION HAS BEGUN. For purposes of crediting interest to a Participant's Account once the Participant has qualified for and is receiving an installment distribution, the interest rate to be applied to the declining balance beginning immediately after the first installment is due will be that rate determined by taking a quarterly average of the rate calculated under Section 4.4 for the last calendar year prior to the month in which the first installment becomes due. This rate, once established, will be used until the distribution is complete, and interest will be compounded annually.
ARTICLE V
VESTING
All deferrals of directors' fees will be 100 percent vested at all times. The applicable interest accumulated on those deferrals will be 100 percent vested.
ARTICLE VI
DISTRIBUTIONS
6.1 DEATH/BENEFICIARY DESIGNATION. Upon the death of a Participant, the Participant's Beneficiary or Beneficiaries will receive the balance then credited to the Participant's Account in the Deferred Compensation Ledger in one lump sum payment of principal and interest. The payment will be made within 90 days after the Participant's death.
Each Participant, at the time of making his initial deferral election, must file with the Committee a designation of one or more Beneficiaries to whom distributions otherwise due the Participant will be made in the event of his death prior to the complete distribution of the amount credited to his Account in the Deferred Compensation Ledger. The designation will be effective upon receipt by the Committee of a properly executed form which the Committee has approved for that purpose. The Participant may from time to time revoke or change any designation of Beneficiary by filing another approved Beneficiary designation form with the Committee. If there is no valid designation of Beneficiary on file with the Committee at the time of the Participant's death, or if all of the Beneficiaries designated in the last Beneficiary designation have predeceased the Participant or otherwise ceased to exist, the Beneficiary will be the Participant's spouse, if the spouse survives the Participant, or otherwise the Participant's estate. A Beneficiary must survive the Participant by 60 days in order to be considered to be living on the date of the Participant's death. If any Beneficiary survives the Participant but dies or otherwise ceases to exist before receiving all amounts due the Beneficiary from the Participant's Account, the balance of the amount which would have been paid to that Beneficiary will, unless the Participant's designation provides otherwise, be distributed to the individual deceased Beneficiary's estate or to the Participant's estate in the case of a Beneficiary which is not an individual.
6.2 DISABILITY. Upon the disability of a Participant, the Participant will receive the entire amount credited to the Participant's Account in the Deferred Compensation Ledger in 10 equal annual installments of principal and interest. The first installment will be made on January 1 after the Participant becomes disabled and each succeeding installment will be made on the same day of each succeeding year thereafter. The Committee, in its sole discretion, may distribute such amount over such shorter period as it may determine including a lump sum.
6.3 RETIREMENT. Upon the Retirement of a Participant, the Participant will receive the entire amount credited to his Account in the Deferred Compensation
Ledger in 10 equal annual installments of principal and interest. The first installment will be made on January 1 after the Participant's Retirement and each succeeding installment will be made on the same day of each succeeding year thereafter. The Committee, in its sole discretion, may distribute such amount over such shorter period as it may determine including a lump sum.
6.4 REMOVAL OR RESIGNATION PRIOR TO DEATH, DISABILITY OR RETIREMENT. Upon a participant's removal or resignation from the Board of Directors prior to death, Disability or Retirement, the Participant will receive the amount credited to his Account in the Deferred Compensation Ledger in 10 equal annual installments of principal and interest. The first installment will be made on January 1 after the Participant's removal or resignation from the Board of Directors. The Committee, in its sole discretion, may distribute such amount over such shorter period as it may determine including a lump sum.
6.5 HARDSHIP WITHDRAWALS. Any Participant who is in pay status may request a hardship withdrawal. No hardship withdrawal can exceed the lesser of the amount credited to the Participant's Account or the amount reasonably needed to satisfy the emergency need. Whether a hardship exists and the amount reasonably needed to satisfy the emergency need will be determined by the Committee based upon the evidence presented by the Participant and the rules established in this section. If a hardship withdrawal is approved by the Committee it will be paid within 10 days of the Committee's determination. For purposes of this section, hardship shall mean any financial emergency or extreme hardship affecting the personal or family affairs of the Participant and having a significant financial effect. The Committee may find that financial emergency or extreme hardship exists in situations in which a distribution is necessary for purposes such as, but not limited to, the following: (i) for the purpose of enabling a Participant to meet financial requirements of an illness or disability of the Participant or a member of his family; (ii) for the purpose of purchasing a principal home or preserving a principal home in which the Participant lives or will live; (iii) for the purpose of providing for the education of a Participant's children; and (iv) for the purpose of defraying major legal expenses and liability assessments or judgments arising out of legal proceedings involving the Participant or a member of his family. The decision of the Committee regarding the existence or nonexistence of a hardship of a Participant shall be final and binding. The Committee shall have the authority to require a participant to provide such proof as it deems necessary to establish the existence and significant nature of the Participant's hardship.
6.6 RESPONSIBILITY FOR DISTRIBUTIONS AND WITHHOLDING OF TAXES. The Committee will furnish information to Corporation concerning the amount and form of distribution to any Participant entitled to a distribution so that Corporation may
make or cause the Trust to make the distribution required. The Committee will also calculate the deductions from the amount of the benefit paid under the Plan for any taxes required to be withheld by federal, state or local government and will cause them to be withheld.
6.7 CHANGE OF CONTROL. Notwithstanding the above, in the event of a Change of Control, all accounts shall be adjusted as provided in Article IV, and all Participant Accounts shall be distributed as a lump sum within 30 days after the date of the Change of Control.
ARTICLE VII
ADMINISTRATION
7.1 COMMITTEE APPOINTMENT. The Committee will be comprised of the President, the Secretary and the Treasurer of Corporation.
7.2 COMMITTEE ORGANIZATION AND VOTING. The Committee will select from among its members a chairman who will preside at all of its meetings and will elect a secretary without regard to whether that person is a member of the Committee. The secretary will keep all records, documents and data pertaining to the Committee's supervision and administration of the Plan. A majority of the members of the Committee will constitute a quorum for the transaction of business and the vote of a majority of the members present at any meeting will decide any question brought before the meeting. In addition, the Committee may decide any question by vote, taken without a meeting, of a majority of its members. A member of the Committee who is also a participant will not vote or act on any matter relating solely to himself.
7.3 POWERS OF THE COMMITTEE. The Committee will have the exclusive responsibility for the general administration of the Plan according to the terms and provisions of the Plan and will have all powers necessary to accomplish those purposes, including but not by way of limitation the final authority, right and power:
(a) To make rules and regulations for the administration of the Plan;
(b) To construe all terms, provisions, conditions and limitations of the Plan;
(c) To correct any defect, supply any omission or reconcile any inconsistency that may appear in the Plan in the manner and to
the
extent it deems expedient to carry the Plan into effect for the greatest benefit of all parties at interest;
(d) To designate the persons eligible to become Participants;
(e) To determine all controversies relating to the administration of the Plan, including but not limited to:
(1) Differences of opinion arising between Corporation and a Participant except when the difference of opinion relates to the entitlement to, the amount of or the method or timing of payment of a benefit affected by a Change of Control; and
(2) Any question it deems advisable to determine in order to promote the uniform administration of the Plan for the benefit of all parties at interest; and
(f) To delegate those clerical and recordation duties of the Committee, as it deems necessary or advisable for the proper and efficient administration of the Plan.
7.4 COMMITTEE DISCRETION. The Committee in exercising any power or authority granted under this Plan or in making any determination under this Plan shall perform, or refrain from performing, those acts using its sole discretion and judgment. Any decision made by the Committee or any refraining to act or any act taken by the Committee in good faith shall be final and binding on all parties. The Committee's decision shall never be subject to de novo review.
7.5 COMMITTEE DISCRETION ON CHANGE OF CONTROL. Notwithstanding the foregoing, the Committee's decisions, refraining to act or acting is to be subject to judicial review for those incidents occurring during the Plan Year in which a Change of Control occurs.
7.6 ANNUAL STATEMENTS. The Committee will cause each Participant to receive an annual statement as soon as administratively practicable after the conclusion of each Plan Year containing the amounts deferred through that Plan Year and the interest applicable to the deferred amounts.
7.7 REIMBURSEMENT OF EXPENSES. The Committee will serve without compensation for their services but will be reimbursed by Corporation for all expenses properly and actually incurred in the performance of their duties under the Plan.
ARTICLE VIII
AMENDMENT AND/OR TERMINATION
8.1 AMENDMENT OR TERMINATION OF THE PLAN. The members of the Board of Directors who are not eligible to participate may amend or terminate this Plan at any time by an instrument in writing.
8.2 NO RETROACTIVE EFFECT ON ACCOUNT. No amendment will affect the rights of any participant to the amounts then standing to his credit in his Account in the Deferred Compensation Ledger, to change the method of calculating the rate of interest already accrued or to accrue in the future on amounts deferred by him prior to the date of the amendment or to change a participant's right under any provision relating to a Change of Control after a Change of Control has occurred without the Participant's consent. However, the members of the Board of Directors who are not eligible to participate shall retain the right at any time to change in any manner the method of calculating the rate of interest on all amounts deferred by a Participant after the date of the amendment if it has been announced to the Participants.
8.3 EFFECT OF TERMINATION. If the Plan is terminated, all amounts deferred by participants and credited to a participant's Account remain vested under Article V, and interest will be applied to the Account in accordance with Section 4.4 as if the Participant were entitled to and did retire on the date the Plan terminated. Distribution would commence in accordance with Section 6.3 as soon as conveniently practicable, and interest during the distribution period would be calculated and credited in accordance with Section 4.5. In the event of a Change of Control following Plan termination, all Accounts shall be distributed as provided in Section 6.7.
ARTICLE IX
FUNDING
9.1 PAYMENTS UNDER THIS AGREEMENT ARE THE OBLIGATION OF CORPORATION. Corporation will pay the benefits due the Participants under this Plan; however should it fail to do so when a benefit is due, the benefit will be paid by the trustee of the Trust entered into contemporaneously with this agreement, by and between Corporation and Frost National Bank. In any event, if the Trust fails to pay for any reason, Corporation remains liable for the payment of all benefits provided by this Plan.
9.2 AGREEMENT MAY BE FUNDED THROUGH RABBI TRUST. It is specifically recognized by both Corporation and the Participants that Corporation may, but is not required to, contribute any amount it finds desirable to a so- called "Rabbi Trust," established to accumulate assets sufficient to fund the obligations of Corporation under this Plan. However, under all circumstances, the rights of the Participants to the assets held in the Trust will be no greater than the rights expressed in this agreement. Nothing contained in any trust agreement which creates any funding trust or trusts will constitute a guarantee by Corporation that assets of Corporation transferred to that trust or those trusts will be sufficient to pay any benefits under this Plan or would place the participant in a secured position ahead of general creditors should Corporation become insolvent or bankrupt. Any trust agreement prepared to fund Corporation's obligations under this agreement must specifically set out these principles so it is clear in that trust agreement that the Participants in this Plan are only unsecured general creditors of Corporation in relation to their benefits under this Plan.
9.3 REVERSION OF EXCESS ASSETS. Corporation may at any time request the actuary, who last performed the annual actuarial valuation of the Corporation Retirement Plan, to determine the present value of the accrued benefit, as of the month end coincident with or next following the request, of all Participants and Beneficiaries of deceased Participants for which Corporation is or will be obligated to make payments under this Plan. If the fair market value of the assets held in the Trust, as determined by the trustee as of that same date, exceeds the total of the accrued benefits of all Participants and Beneficiaries by 25 percent, Corporation may direct the trustee to return to it all of the excess funds.
9.4 PARTICIPANTS MUST RELY ONLY ON GENERAL CREDIT OF CORPORATION. It is also specifically recognized by both Corporation and the participants that this Plan is only a general corporate commitment and that each participant must rely
upon the general credit of Corporation for the fulfillment of its obligations hereunder. Under all circumstances the rights of Participants to any asset held by Corporation will be no greater than the rights expressed in this agreement. Nothing contained in this agreement will constitute a guarantee by Corporation that the assets of Corporation will be sufficient to pay any benefits under this Plan or would place the Participant in a secured position ahead of general creditors of Corporation. Though Corporation has established and may fund a Rabbi Trust, as indicated in Section 9.2, to accumulate assets to fulfill its obligations, the Plan and any such trust will not create any lien, claim, encumbrance, right, title or other interest of any kind whatsoever in any participant in any asset held by Corporation, contributed to any such trust or otherwise designated to be used for payment of any of its obligations created in this agreement. No specific assets of Corporation have been or will be set aside, or will in any way be transferred to any trust or will be pledged in any way for the performance of Corporation's obligations under this Plan which would remove such assets from being subject to the general creditors of Corporation.
ARTICLE X
MEDIATION--ARBITRATION
The Participants and Corporation will attempt in good faith to resolve any controversy or claim arising out of or relating to this agreement by mediation in accordance with the Center for Public Resources Model Procedure for Mediation of Business Disputes.
If the matter has not been resolved pursuant to the aforesaid mediation procedure within 60 days of the commencement of such procedure (which period may be extended by mutual agreement), or if either party will not participate in a mediation, the controversy shall be settled by arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by a sole arbitrator. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Section 1-16, and judgment upon the award rendered by the Arbitrator(s) may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Antonio, Texas. The arbitrator(s) are not empowered to award damages in excess of actual damages, including punitive damages.
ARTICLE XI
MISCELLANEOUS
11.1 LIMITATION OF RIGHTS. Nothing in this Plan will be construed:
(a) To give any member of the Board of Directors any right to be
designated a Participant in the Plan;
(b) To give a Participant any right with respect to the fee or
compensation deferred or the interest credited in the Deferred
Compensation Ledger, except in accordance with the terms of
this Plan;
(c) To limit in any way the right of Corporation to remove a
Participant from the Board of Directors at any time;
(d) To evidence any agreement or understanding, expressed or
implied, that Corporation will retain a participant as a
member of the Board of Directors for any particular
remuneration; or
(e) To give a participant or any other person claiming through him
any interest or right under this Plan other than that of any
unsecured general creditor of Corporation.
11.2 DISTRIBUTIONS TO INCOMPETENTS OR MINORS. Should a Participant become
incompetent or should a Participant designate a Beneficiary who is a
minor or incompetent, the Committee is authorized to pay the funds due
to the parent of the minor or to the guardian of the minor or
incompetent or directly to the minor or to apply those funds for the
benefit of the minor or incompetent in any manner the Committee
determines in its sole discretion.
11.3 NONALIENATION OF BENEFITS. No right or benefit provided in this Plan
will be transferable by the Participant except, upon his death, to a
named Beneficiary as provided in this Plan. No right or benefit under
this Plan will be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance or charge, and any attempt to
anticipate, alienate, sell, assign, pledge, encumber, or charge the
same will be void. No right or benefit under this Plan will in any
manner be liable for or subject to any debts, contracts, liabilities
or torts of the person entitled to such benefits. If any Participant
or any Beneficiary becomes bankrupt or attempts to anticipate,
alienate, sell, assign, pledge, encumber or charge any right or
benefit under this Plan, that right or benefit will, in the discretion
of the Committee, cease. In that event, the Committee may have
Corporation hold or apply the right or benefit or any part of it to
the benefit of
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the Participant or Beneficiary, his or her spouse, children or other
dependents or any of them in any manner and in any proportion the
Committee believes to be proper in its sole and absolute
discretion, but is not required to do so.
11.4 RELIANCE UPON INFORMATION. The Committee will not be liable for any
decision or action taken in good faith in connection with the
administration of this Plan. Without limiting the generality of the
foregoing, any decision or action taken by the Committee when it
relies upon information supplied it by any officer of Corporation,
Corporation's legal counsel, Corporation's independent accountants or
other advisors in connection with the administration of this Plan will
be deemed to have been taken in good faith.
11.5 SEVERABILITY. If any term, provision, covenant or condition of the
Plan is held to be invalid, void or otherwise unenforceable, the rest
of the Plan will remain in full force and effect and will in no way be
affected, impaired or invalidated.
11.6 NOTICE. Any notice or filing required or permitted to be given to the
Committee or a Participant will be sufficient if in writing and hand
delivered or sent by U.S. mail to the principal office of Corporation
or to the last known residential mailing address of the Participant.
Notice will be deemed to be given as of the date of hand delivery or
if delivery is by mail, as of the date shown on the postmark.
11.7 GENDER AND NUMBER. Words used in this Plan of one gender are to be
construed as though they were also used in another gender in all cases
where they would so apply and likewise words in the singular or plural
are to be construed as though they also included the other in all
cases where they would so apply.
11.8 GOVERNING LAW. The Plan will be construed, administered and governed
in all respects by the laws of the state of Texas.
11.9 EFFECTIVE DATE. This Plan will be operative and effective on April 1,
1995.
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IN WITNESS WHEREOF, Corporation has executed this document on
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this 23rd day of February 1995.
TESORO PETROLEUM CORPORATION
By /s/ WILLIAM T. VAN KLEEF
___________________________________
William T. Van Kleef
Vice President, Treasurer
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ITEM 14(a)3, EXHIBIT 10(v)
TESORO PETROLEUM CORPORATION
BOARD OF DIRECTORS DEFERRED COMPENSATION TRUST
This agreement made and entered into by and between Tesoro Petroleum Corporation and Frost National Bank, a banking corporation, located in San Antonio, Bexar County, Texas, as Trustee.
WHEREAS, Tesoro Petroleum Corporation adopted the Tesoro Petroleum Corporation Board of Directors Deferred Compensation Plan effective April 1, 1995, and approved the establishment of this Trust for the Payment of benefits from that Plan;
NOW, THEREFORE, in consideration of the mutual undertakings of each of the parties, the parties agree to the establishment of this Tesoro Petroleum Corporation Board of Directors Deferred Compensation Trust to read as follows:
ARTICLE I
DEFINITIONS
1.1 BOARD OF DIRECTORS. "Board of Directors" means the Board of Directors of Corporation.
1.2 CHANGE OF CONTROL. For purposes of this Agreement, a "change of control" shall be deemed to have occurred if (i) there shall be consummated (A) any consolidation or merger of Corporation in which Corporation is not the continuing or surviving corporation or pursuant to which shares of Corporation's Common Stock would be converted into cash, securities or other property, other than a merger of Corporation where a majority of the Board of Directors of the surviving corporation are, and for a two-year period after the merger continue to be, persons who were directors of Corporation immediately prior to the merger or were elected as directors, or nominated for election as director, by a vote of at least two-thirds of the directors then still in office who were directors of Corporation immediately prior to the merger, or (B) any sale, lease, exchange or transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Corporation, or (ii) the shareholders of Corporation shall approve any plan or proposal for the liquidation or dissolution of Corporation, or (iii) (A) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Act), other than Corporation or a subsidiary thereof or any employee benefit plan sponsored by Corporation or a subsidiary thereof, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Securities Act) of securities of
Corporation representing 20 percent or more of the combined voting
power of Corporation's then outstanding securities ordinarily (and
apart from rights accruing in special circumstances) having the right
to vote in the election of directors, as a result of a tender or
exchange offer, open market purchases, privately negotiated purchases
or otherwise, and (B) at any time during a period of two years
thereafter, individuals who immediately prior to the beginning of such
period constituted the Board of Directors of Corporation shall cease
for any reason to constitute at least a majority thereof, unless the
election or the nomination by the Board of Directors for
election by Corporation's shareholders of each new director during
such period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of
such period.
1.3 CODE. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
1.4 COMMITTEE. "Committee" means the persons who are from time to time
serving as members of the committee administering the Plan.
1.5 CORPORATION. "Corporation" means Tesoro Petroleum Corporation.
1.6 PARTICIPANT. "Participant" means a member of the Board of Directors
of Corporation who is not otherwise employed by Corporation or a
subsidiary of Corporation.
1.7 PLAN. "Plan" means the Tesoro Petroleum Corporation Board of
Directors Deferred Compensation Plan, as amended from time to time.
1.8 PLAN YEAR. "Plan Year" means the calendar year.
1.9 SECURITIES ACT. "Securities Act" means the Securities Exchange Act of
1934, as amended from time to time.
1.10 TRUST. "Trust" means the Corporation Board of Directors Deferred
Compensation Trust created by this agreement.
1.11 TRUSTEE. "Trustee" means Frost National Bank which is serving as
trustee under this agreement or any successor or successors as shall
be appointed pursuant to this agreement upon the resignation or
removal of the previous person or entity serving as trustee under this
agreement.
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ARTICLE II
ESTABLISHMENT OF TRUST
2.1 PURPOSE. This Trust is hereby established by Corporation and the Trustee for the sole purpose of creating a fund to provide for the payment of deferred compensation to the Plan Participants.
2.2 IRREVOCABLE SUBJECT TO CERTAIN EXCEPTIONS. Subject only to the
exceptions in this section all contributions to, all assets held in,
and all earnings of this Trust are solely and irrevocably dedicated to
the payment of (a) the deferred compensation described in the Plan for
the benefit of the Participants and (b) the reasonable expenses of
administering the Trust until the Plan has been satisfied in full, at
which time the Trust will terminate as provided in Section 10.3.
Provided, however, the assets held in the Trust will be subject to
judgment creditors of Corporation and will be subject to the general
creditors of Corporation if Corporation becomes insolvent. To that
end if the Trustee receives notice from Corporation pursuant to
Section 5.3, the Trustee will suspend payment of all benefits under
the Trust, and will hold all assets of the Trust for the benefit of
Corporation's judgment creditors and/or general creditors as the case
may be. Further, if the Trustee receives written allegations of
Corporation's insolvency from any other source, the Trustee will
suspend the payment of all benefits under the Trust, and will hold all
of the Trust's assets for the benefit of Corporation's general
creditors, and must determine within 30 days whether Corporation is
solvent. However, the Trustee will resume payments, including any
benefits suspended, if it determines Corporation is solvent. In the
case of the Trustee's actual knowledge of a levy on the assets of the
Trust by a judgment creditor or the Trustee's actual knowledge of or
determination of Corporation's insolvency, the Trustee will deliver
the assets of the Trust as directed by a court of competent
jurisdiction.
ARTICLE III
CONTRIBUTIONS AND PLAN ADMINISTRATION
3.1 CONTRIBUTIONS. Corporation may contribute in cash or assets to the Trust established for it the cost of providing benefits under the Plan for the Participants at such time or times and in the manner determined by Corporation.
3.2 ESTABLISHING CONTRIBUTION ACCOUNTS FOR PARTICIPANTS. Corporation will, at the time of its contribution, notify the Committee as to the Participant for which the contribution is made so that the Committee may maintain separate records for the accounts of the Participants who are being funded by the Trust.
3.3 VALUATION OF TRUST; ALLOCATION OF GAINS AND LOSSES TO PARTICIPANTS' ACCOUNTS. The Trustee will provide to the Committee, at intervals agreed upon by them, but no less often than once each Plan Year, a statement of the value of the Trust assets and the Trust income and losses.
3.4 RETURN OF EXCESS ASSETS TO COMPANY. Corporation may at any time request the plan consultant who administers the plan (or in the case of a Change of Control, administered it just prior to the Change of Control) to determine the present value of the Accounts as determined under the Plan. If the fair market value of the assets held in the Trust, as determined by the Trustee as of that same date, exceeds the total of the Accounts of all Participants and Beneficiaries by 25 percent, Corporation may direct the Trustee to return to it all of the excess funds.
ARTICLE IV
POWERS, DUTIES AND RESPONSIBILITIES OF THE TRUSTEE
4.1 GENERAL RESPONSIBILITIES. The Trustee, has the exclusive responsibility for all of the Trust funds and all the powers necessary to receive, hold, preserve, protect, conserve, manage and invest the Trust funds as provided generally in this agreement and to pay all costs and expenses. The Trustee will be responsible only for the sums actually received by it as Trustee and will not be responsible for determining the amount necessary to fund the Trust or for collecting any contributions from Corporation.
4.2 INVESTMENT RESPONSIBILITY OF TRUSTEE. Except as set forth in the following paragraphs of this section, the Trustee is required to invest the Trust assets solely in U.S. Treasury obligations which mature in three years or less unless and until the Committee (a) issues a different investment direction, (b) directs the Trustee to assume full investment responsibilities for the Trust or (c) directs the Trustee to accept the direction of one or more investment managers appointed by the Committee. If the Committee issues an investment direction, permits the Trustee to assume full investment responsibility or appoints one or more investment managers to direct the investment of a portion of the Trust assets, the Trustee is authorized and
empowered to hold any asset, whether or not productive of income or whether consisting of wasting assets, and to invest in any assets of any kind or nature, whether real, personal or mixed, whether tangible or intangible, in any rights or interests in property, or in any evidence or indicia of property, including but not limited to the following types of properties or interests therein, or anything of a similar character, kind or class: insurance contracts, fees, beneficial interests, leaseholds, bonds, whether taxable or non-taxable, mutual funds, mortgages, leases, notes, whether secured or not, obligations, savings accounts, certificates of deposit or like investments with the commercial department of any bank, including any bank acting as Trustee, common, pooled or collective trust funds which any corporate trustee or any other corporation may now have or in the future may adopt, or options, rights or warrants which entitle the Trustee to subscribe to or purchase securities, so long as the investments are made in accordance with the laws of the state of the situs of the Trust and the terms of this agreement.
When the Trustee receives funds to be invested or determines that assets in the Trust fund should be sold and the proceeds held for a period of time pending reinvestment or other purpose, the funds may be held uninvested in cash or invested in short-term investments such as certificates of deposit with the Trustee, U.S. Treasury bills, savings accounts with the Trustee, commercial paper or other similar assets which may be offered by the Trustee and as may be determined by the Trustee in its sole discretion.
Notwithstanding the first paragraph of this section, if there is a Change of Control, all funds deposited prior to the Change of Control are to be invested solely in U.S. Treasury obligations which mature in three years or less unless there have been insurance policies contributed to or purchased by the Trust prior to the Change of Control in which event they shall be transferred to Corporation for a corporation contribution in the amount of their terminal reserve value plus cash surrender value, if any, and if Corporation elects not to purchase said policies, the policies shall be distributed to the insured Participant.
4.3 INVESTMENT POWERS OF TRUSTEE. The Trustee has, subject to the requirements of Sections 4.1 and 4.2, the following powers, duties and obligations relating to the receipt, preservation, conservation, protection, management, investment and reinvestment of both principal and income and disposition of the Trust created by this agreement, as the Trust may be composed from time to time, in addition to all of the powers, duties and obligations of the Trustee under common law and the Texas Trust Code until the situs of the Trust is removed to another state in which event the laws of the state of the situs of the Trust will then govern:
(a) To keep any and all securities and other property in its name provided that its fiduciary capacity is disclosed;
(b) To vote, either in person or by proxy, any share of stock held as a part of the assets of the Trust fund;
(c) To collect the principal and income of the Trust fund as the same may become due and payable and to give binding receipt therefor;
(d) To take any action, whether by legal proceeding, compromise, or otherwise, as the Trustee in its sole discretion deems to be in the best interest of the Trust if there is a default in the payment of any principal or income of the Trust at any time;
(e) To invest, sell and reinvest Trust assets in any assets it selects within the limits described in Sections 4.1 and 4.2;
(f) To borrow from or loan such sums as the Trustee considers necessary or desirable, and for that purpose to mortgage or pledge all or any part of the property of the Trust;
(g) To substitute insureds on any policy held by the Trust; and
(h) To employ such accountants, lawyers, brokers, or other agents as the Trustee deems advisable in administering the Trust funds.
The Trustee will not be required to take any legal action to collect, preserve or maintain any Trust property unless it has been indemnified either by the Trust involved, or by Corporation with respect to any expenses or losses to which it may be subjected by taking that action. Any property acquired by the Trustee through the enforcement or compromise of any claim or claims it has as Trustee will become a part of the Trust fund.
4.4 PAYMENT AND DISTRIBUTION POWERS OF TRUSTEE. The Trustee has the following powers relating to payments and distributions to be made from the Trust funds.
(a) Pursuant to the terms of the Plan to pay, distribute and deliver to a Participant any amounts due to him under the terms of the Plan;
(b) Pursuant to the terms of Sections 2.2 and 5.3 to pay, distribute and deliver to any judgment creditor and/or general creditor, as the case may
be, who qualified for it those sums determined to be due by the appropriate authority;
(c) To pay out of the Trust fund all taxes of any nature levied, assessed or imposed upon the Trust fund, all reasonable expenses, including but not limited to, counsel fees, and the Trustee's compensation; and
(d) Pursuant to the terms of Article III, upon receipt of a certification by the actuary that excess funds are held in the Trust, to return those excess funds to Corporation.
4.5 RELIANCE UPON REPRESENTATIONS OF TRUSTEE. All persons dealing with the Trustee are entitled to rely upon the representations of the Trustee as to its authority and are released from any duty to inquire into its authority for taking or omitting any action or to verify that any money paid or other property delivered to the Trustee is used by the Trustee for trust purposes. Any action of the Trustee under the Trust created by this agreement will be conclusive evidence of the facts recited in it. All persons will be fully protected when acting or relying upon any notice, resolution, instruction, direction, order, certificate, opinion, letter, telegram or other document believed by those persons to be genuine, to have been signed by the Trustee, and to be the act of the Trustee.
4.6 DETERMINATION OF TRUSTEE'S OBLIGATIONS UNDER AGREEMENT; EMPLOYMENT OF COUNSEL. The Trustee may engage and consult with legal counsel of its choice, who may be counsel for Corporation or Trustee's own general counsel, with respect to the meaning or construction of this agreement or the Trustee's obligations or duties under this agreement.
4.7 WAIVER OF BOND, INVENTORY, RETURN AND REPORT TO COURT. The Trustee will not be required to give bond or other security for the faithful performance of its duties unless required by a law which cannot be waived; and the Trustee will not be required to make any inventory, return, or report to any court unless required by a law which cannot be waived.
4.8 NEGATION OF TRUSTEE ENGAGING IN BUSINESS ENTERPRISE. Without regard to any other provision of this agreement and any powers given to the Trustee in this agreement, the Trustee will have no power to start, enter into, or otherwise engage in a business enterprise if the activities would constitute the carrying on of a trade or business within the meaning of Treasury Regulation Section 301.7701.
ARTICLE V
NOTICES AND DIRECTIONS
5.1 PROPER NOTICE TO TRUSTEE. The Trustee will not be bound by any certificate, notice, resolution, consent, order, information or other communication unless and until it has been received at a location which is mutually agreeable to the parties and is in writing, signed by a person designated pursuant to Section 5.2.
5.2 TRUSTEE'S RELIANCE ON NOTICE BY COMMITTEE AND CORPORATION. The Trustee, in all matters pertaining to its management, investment and distribution of the Trust, when it acts in good faith, may rely upon any such notice, resolution, instruction, direction, order, certificate, opinion, letter, telegram or other document believed by the Trustee to be genuine, to have been signed by a proper representative of the Committee or other party permitted to issue a direction to it. In this connection, Corporation and the Committee shall furnish to the Trustee the name and signature of the person or persons who are entitled to act on behalf of Corporation when communicating with or directing the Trustee on matters relating to the Trust.
5.3 NOTICE TO TRUSTEE OF CORPORATION'S INSOLVENCY. In the event of a levy by a judgment creditor or in the event of Corporation's insolvency during the term of the Trust, Corporation's Board of Directors and chief executive officer must give written notice to the Trustee within a reasonable time not to exceed three days of the levy or of a finding of insolvency, as the case may be. For this purpose "insolvency" means the earlier of: becoming subject to proceedings as a debtor under the federal Bankruptcy Code, the general assignment by Corporation to or for the benefit of its creditors, or the inability of Corporation to pay its debts as they mature.
ARTICLE VI
TRUSTEE'S FEE AND EXPENSE
The Trustee will receive such compensation for services rendered as is agreed upon from time to time between the Trustee and Corporation. Likewise, the Trustee will be reimbursed for expenses properly and actually incurred in the performance of its duties under this agreement. The Trustee's compensation and the expenses of the Trust will be paid by Corporation, but should it fail to do so, the Trustee is authorized to charge such compensation and expenses to the Trust.
ARTICLE VII
LIABILITY OF THE TRUSTEE
7.1 TRUSTEE GENERALLY NOT LIABLE WHEN ACTING IN GOOD FAITH. The Trustee will not be liable to the Trust or to any person having a beneficial interest in the Trust for any losses or decline in value which may be incurred upon any investment of the Trust fund, or for failure of the fund to produce any or greater earnings, interest, or profits, so long as the Trustee acts in good faith.
7.2 TRUSTEE GENERALLY NOT LIABLE FOR ACT OR OMISSION AT DIRECTION OF COMMITTEE. The Trustee will not be liable for any act or omission by it because of a direction of the Committee, Corporation or agent appointed by either of them except to the extent required by any applicable state or federal law, which liability cannot be waived. When the Trustee has made any payment out of the Trust fund at the direction of the Committee, Corporation or any agent appointed by either of them, it will not be responsible for the correctness of the amount of the payment to the recipient, or the method by which it is paid. The Trustee is also protected in relying upon any certificate, notice, resolution, consent, order, or other communication purporting to have been signed on behalf of the Committee, Corporation or an agent appointed by either of them which it believes to be genuine, without any obligation on the part of the Trustee to ascertain whether or not the provisions of this agreement are being fulfilled.
7.3 INDEMNIFICATION OF TRUSTEE. The Trustee shall be indemnified and held harmless from any loss, liability, claim cost or expense (including attorney fees, court costs, and other costs in defending a lawsuit) arising out of its acting as Trustee of the Trust except for bad faith or gross negligence. The Trustee
shall not be liable for the actions of any other fiduciary or the failure of any other fiduciary to take action in a given situation.
7.4 TRUSTEE'S POWER TO WITHHOLD FOR PAYMENT OF TAXES. The Trustee may, in its sole discretion, withhold from distribution all or any part of the fund which the Trustee considers necessary and proper for the payment of taxes under present or future laws, which the Trustee is obligated to pay or withhold.
7.5 TRUSTEE NOT REQUIRED TO PREPARE RETURNS OR REPORTS. The Trustee will not be required to prepare, file, or distribute any tax return or other report required by a governmental agency under state or federal law. All such returns or reports shall be the obligation of Corporation.
7.6 WHEN DETERMINING COURSE OF ACTION TRUSTEE MAY RELY UPON COMMITTEE. If at any time the Trustee is in doubt concerning the course which it should follow in connection with any matter relating to the administration of the Trust, it may request the advice of the Committee and be protected in relying upon the written advice or direction given by the Committee except during any four-year period beginning on the day a Change of Control occurs. During any such period the Trustee may not request and rely on the advice of the Committee.
ARTICLE VIII
SETTLEMENT OF THE ACCOUNTS OF THE TRUSTEE
8.1 TRUSTEE'S MAINTENANCE OF RECORDS. The Trustee will keep all records necessary in the conduct of the Trust. The Trustee's books and records of the Trust fund are open to inspection by the Committee, Corporation and/or the Participants at all reasonable times during business hours of the Trustee.
8.2 TRUSTEE'S RENDERING OF ACCOUNTING TO COMMITTEE. Within 60 days after the close of each Plan Year, or such other times as requested by the Committee and as of the date of the removal or resignation of the Trustee, the Trustee must render to the Committee an accounting and report of the Trust fund for the Plan Year or other period that is applicable since the previous accounting. The report is to reflect the transactions for the period covered, the cost of assets and investments, the fair market value of the assets held in the Trust and the amount held for the funding of Corporation's obligation to the Participants as of the end of the Plan Year or such other date as is applicable. The report is to be open for inspection for 90 days after its receipt by the Committee, and if objections are not filed within that period of time, it is
assumed that the report is approved. That approval will constitute a full and complete discharge and release to the Trustee by Corporation, all of the Participants and all other persons having or claiming any interest in any of the Trust fund.
ARTICLE IX
ACTION, RESIGNATION, REMOVAL AND SUBSTITUTION OF TRUSTEE
9.1 APPOINTMENT OF TRUSTEE AND OPERATION IF MULTIPLE TRUSTEES. One or more entities or one or more individuals will serve as Trustee, as determined from time to time by the members of the Board of Directors who are not eligible to participate in the Plan. When more than one entity and/or individual serves as Trustee, any action by the Trustees will be determined by the majority of the Trustees. Those actions will be binding upon all parties at interest. The entities and/or individuals who collectively act as Trustee may act by vote at a meeting or by a written consent without a meeting. Any act of more than one individual or entity serving as Trustee will be sufficiently evidenced if certified to by one of the individuals or entities serving as Trustee. Also, if there is more than one individual and/or entity serving as Trustee, one of the Trustees may be given authority to perform all administrative and ministerial duties. Any individual who serves as Trustee may be an employee of Corporation. Each Trustee will serve until a successor Trustee is named by the members of the Board of Directors who are authorized to appoint the Trustee or until his death or incapacity or his or its resignation or removal, in which event the members of the Board of Directors who are authorized to appoint the Trustee will name a successor Trustee.
9.2 RESIGNATION OF TRUSTEE. The Trustee or any successor Trustee may resign as Trustee at any time by filing with Corporation its or his written resignation. No resignation will take effect until 60 days from the date of notice unless prior to that time a successor Trustee has been appointed and he or it has accepted the office.
9.3 REMOVAL OF TRUSTEE. The Trustee or any successor Trustee may be removed by Corporation at any time. No removal will take effect until 60 days from the date of notice unless prior to that time a successor Trustee has been appointed and he or it has accepted the office and the Trustee consents to the earlier date.
9.4 NO VACANCY IN OFFICE OF TRUSTEE. Any vacancy in the office of Trustee created by the resignation or removal of the Trustee will not terminate the Trust. Upon removal or resignation of the Trustee, the members of the Board of Directors who are authorized to appoint the Trustee must appoint a successor Trustee.
9.5 APPOINTMENT OF SUCCESSOR TRUSTEE. The appointment of a successor Trustee will be accomplished by the delivery to the resigning or removed Trustee, as the case may be, of a written appointment of the successor Trustee by the members of the Board of Directors who are authorized to appoint the Trustee and the written acceptance of the appointment by the successor Trustee. Any successor Trustee must be one or more individuals (who may be employees of Corporation) or an entity authorized and empowered to conduct a trust business in the state of the situs of the Trust. This agreement will then be applicable to each successor Trustee.
9.6 APPOINTMENT OF SUCCESSOR TRUSTEE AFTER A CHANGE OF CONTROL. If a Trustee dies, becomes incapacitated, resigns or is removed contemporaneously with or following a Change of Control, notwithstanding anything to the contrary in this agreement, the members of the Board of Directors who are authorized to appoint the Trustee must receive the consent of a majority in interest of the Participants for whose account assets are held under the terms of this agreement in order to appoint a successor Trustee. If the members of the Board of Directors who are authorized to appoint the Trustee cannot obtain the consent of a majority in interest of the Participants to any Trustee acceptable to them, then an arbitrator will be appointed to select the new Trustee which will be appointed by the members of the Board of Directors who are authorized to appoint the Trustee. The arbitrator will be selected by permitting each of Corporation and the Participants (by a vote of the majority in interest) to strike one name each from a panel of three names obtained from the American Arbitrator Association. The person whose name is remaining will be the arbitrator.
9.7 VESTING OF RIGHTS, TITLES, POWERS IN SUCCESSOR TRUSTEE. Any successor Trustee, after acknowledging acceptance of this agreement, the Trust assets and the accounting of the retiring Trustee, will be vested with all the estates, titles, rights, powers, duties, and discretions granted to the retiring Trustee. The retiring Trustee must execute and deliver all assignments or other instruments necessary or advisable for the transfer of all Trust assets as are reasonably required by the successor Trustee.
9.8 CONTINUANCE OF CORPORATE TRUSTEE THROUGH MERGER. Any corporation into which any corporate Trustee or any successor corporate Trustee may be
merged or consolidated, or any corporation resulting from any merger or consolidation to which any corporate Trustee or any successor corporate Trustee may be a party, or any corporation to which all or substantially all of the trust business of any corporate Trustee or any successor corporate Trustee may be transferred, will be a successor of such Trustee under this agreement without the filing of any instrument or the performance of any other act.
ARTICLE X
AMENDMENT AND TERMINATION
10.1 CORPORATION'S RIGHT TO AMEND. The members of the Board of Directors
who are not eligible to participate in the Plan will have the sole
right to amend this agreement. An amendment must be made by an
executed written agreement setting forth the nature of the amendment
and its effective date. No amendment will make this agreement nor the
Trust created by this agreement revocable or will divert the funds
held in the Trust created by this agreement from the purposes set out
in Section 2.2. No amendment will change a Participant's rights under
any provision of this Trust after a Change of Control has occurred,
without the affected Participant's consent, as to assets contributed
to the Trust before the Change of Control and as to the accumulation
of income and appreciation applicable to those assets. No amendment
will increase the duties of the Trustee without its written consent.
10.2 AMENDMENTS NECESSARY TO COMPLY WITH STATE OR FEDERAL STATUTES.
Corporation agrees to make any amendment to this agreement as may be
necessary to maintain compliance with the various federal and state
laws and any amendment may be made retroactively.
10.3 TERMINATION OF TRUST BY CORPORATION. The members of the Board of
Directors who are not eligible to participate in the Plan may
terminate the Trust only after all benefits to the extent funded by
the Trust have been paid to the Participants who are funded by it,
pursuant to the Plan, by executing and delivering to the Trustee a
notice of termination which specifies the date on which the Trust will
terminate. Upon termination, the Trustee will distribute to the
Participants the assets certified to it by the Committee to be
sufficient to fulfill all of the obligations of Corporation under the
Plan at the time and in the form provided in it, and afterward, any
Trust assets remaining will be allocated among the Participants in the
ratio of each Participant's Account to the total value of all
Participant Accounts. The Trust created under this agreement will
automatically terminate upon a determination of the insolvency of
Corporation.
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In that event, the Trustee shall deliver the Trust assets as directed
by a court of competent jurisdiction. The Trust may also be
terminated by Corporation, with the written consent of all of the
Participants whose benefits are funded by it, if a tax, labor or other
federal statute or regulation causes this Trust to become taxable,
before distribution, to the Participant or to become unlawful. In
that event, the Trustee will return the assets to the Corporation.
10.4 CONTINUANCE OF TRUST WHEN CORPORATION CONSOLIDATES, MERGES OR
SELLS SUBSTANTIALLY ALL OF ITS ASSETS. The Trust created by this
agreement will not terminate in the event Corporation consolidates or
merges and is not the surviving corporation, sells substantially all
of its assets, is a party to a reorganization in which its employees
and substantially all of its assets are transferred to another entity,
liquidates or dissolves if there is a successor corporation. Instead,
the Trust will continue until it has fulfilled the obligations to its
Participants as set forth in Section 2.2, at which time it will
automatically terminate.
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ARTICLE XI
MISCELLANEOUS
11.1 NO EMPLOYMENT COMMITMENT. The adoption and maintenance of the Trust
created under this agreement will not be deemed to be a contract
between Corporation and the Participants which gives the Participants
the right to be retained on the Board of Directors of Corporation, to
interfere with the rights of Corporation to remove the Participants,
or to interfere with the Participants' rights to terminate their
membership on the Board of Directors at any time.
11.2 NON-ALIENATION OF BENEFITS. No benefits payable or to become payable
from the Trust will be subject to anticipation or assignment by the
Participants or other persons entitled to receive benefits under the
Trust; to attachment by, interference with, or control of any
creditors of the Participants or other persons entitled to receive
benefits under the Trust; or to being taken or reached by any legal or
equitable process in satisfaction of any debt or liability of the
Participants prior to their actual receipt by the Participants or
other persons entitled to receive benefits under the Trust. Any
attempted conveyance, transfer, assignment, mortgage, pledge, or
encumbrance of the Trust, any part of it, or any interest in it by a
Participant, or any person entitled to secure benefits under the
Trust, prior to distribution will be void, whether that conveyance,
transfer, assignment, mortgage, pledge or encumbrance is intended to
take place or become effective before or after any distribution of
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Trust assets or the termination of the Trust fund itself. The Trustee
will never under any circumstances be required to recognize any
conveyance, transfer, assignment, mortgage, pledge or encumbrance by a
Participant, or other person entitled to receive benefits under the
Trust created under this agreement, of a Trust fund created under this
agreement, any part of it, or any interest in it, or to pay any money
or thing of value to any creditor or assignee of a Participant, or
other person entitled to receive benefits under the Trust, for any
cause whatsoever.
11.3 GENDER AND NUMBER OF WORDS. Whenever the context requires it, words
of the masculine, feminine or neuter gender will include one or both
of the others; and words used in either the singular or the plural
number will include the other.
11.4 TEXAS LAW APPLICABLE. The provisions of this agreement shall be
construed, according to the laws of the state of Texas.
11.5 SEVERABILITY OF AGREEMENT. Each provision of this agreement is
severable, and if any provision is found to be void or against public
policy, it will not affect the validity of any other provision hereof.
11.6 DEFINITIONS. Any word not otherwise defined in this agreement shall
have the meaning as defined in the Plan.
IN WITNESS WHEREOF, Corporation and the Trustee have executed this
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agreement on this 23rd day of February 1995.
TESORO PETROLEUM CORPORATION
By /s/ WILLIAM T. VAN KLEEF ___________________________________ William T. Van Kleef Vice President, Treasurer |
FROST NATIONAL BANK
By ___________________________________
Trust Officer
ITEM 14(a)3, EXHIBIT 10(x)
AGREEMENT FOR THE SALE AND PURCHASE
OF
STATE ROYALTY OIL
to
TESORO ALASKA PETROLEUM COMPANY
THE STATE OF ALASKA
Department of Natural Resources
Dated as of September 27, 1994
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS ...................................................................... 1
1.1 Commissioner ......................................................... 1
1.2 Daily Royalty Oil .................................................... 1
1.3 Day .................................................................. 1
1.4 Effective Date ....................................................... 1
1.5 Field Cost Agreement ................................................. 1
1.6 Leases ............................................................... 1
1.7 Lessee ............................................................... 2
1.8 Month ................................................................ 2
1.9 Oil .................................................................. 2
1.10 Point of Delivery .................................................... 2
1.11 Royalty Oil .......................................................... 2
1.12 Royalty Settlement Agreements ........................................ 2
1.13 Royalty Value ........................................................ 2
1.14 TAPS ................................................................. 2
1.15 Unit Agreement ....................................................... 3
ARTICLE II
SALE OF ROYALTY OIL .............................................................. 3
2.1 Quantity ............................................................. 3
2.2 Quality .............................................................. 4
2.3 Price of the Royalty Oil ............................................. 5
2.4 Purchase Price Reopener .............................................. 5
2.5 No Third-Party Intervention .......................................... 6
2.6 Point and Time of Delivery ........................................... 6
2.7 Passage of Title and Risk of Loss .................................... 7
2.8 Tesoro's Responsibility .............................................. 7
2.9 Transportation Arrangements .......................................... 7
2.10 Absolute Obligations ................................................. 8
2.11 Date of First Delivery ............................................... 8
2.12 Performance Guaranty and Reservation Fee ............................. 8
2.13 In-State Processing .................................................. 8
ARTICLE III
REPRESENTATION AND OBLIGATIONS OF TESORO ......................................... 9
3.1 Good Standing and Due Authorization ................................... 9
3.2 Financial Condition ................................................... 10
3.3 Financial Statements .................................................. 10
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ARTICLE IV
MEASUREMENTS AND TESTS ............................................................ 11
ARTICLE V
PAYMENTS AND ACCOUNTING ........................................................... 11
5.1 Initial Billing ........................................................ 11
5.2 Initial Adjustment ..................................................... 12
5.3 Subsequent Adjustments ................................................. 12
5.4 Payment ................................................................ 12
5.5 Interest ............................................................... 13
5.6 Late Payment Penalty ................................................... 15
5.7 Payment to Lessee ...................................................... 15
5.8 Payment to Third Parties ............................................... 15
ARTICLE VI
TERM .............................................................................. 16
ARTICLE VII
DEFAULT OR TERMINATION ............................................................ 16
7.1 Default ................................................................ 16
7.2 Failure to Pay Debts ................................................... 18
7.3 State's Remedies ....................................................... 18
7.4 Tesoro's Exclusive Remedies ............................................ 19
ARTICLE VIII
DISPOSITION OF OIL ................................................................ 20
8.1 Disposition of Oil Upon Default or Termination ......................... 20
8.2 Inability to Receive Oil ............................................... 20
8.3 No Right to Storage or Underlift ....................................... 21
ARTICLE IX
WAIVER ............................................................................ 21
ARTICLE X
VALIDITY .......................................................................... 21
ARTICLE XI
FORCE MAJEURE AND CHANGE IN CONDITION ............................................. 22
11.1 Effect of Force Majeure ................................................ 22
11.2 Responsibility ......................................................... 22
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ARTICLE XII
NOTICES ........................................................................... 23
12.1 Method ................................................................. 23
12.2 Change of Address ...................................................... 23
ARTICLE XIII
RULES AND REGULATIONS ............................................................. 24
ARTICLE XIV
SOVEREIGN POWER OF THE STATE ...................................................... 24
ARTICLE XV
SECURITY .......................................................................... 24
ARTICLE XVI
PREFERENTIAL HIRING AND NON-DISCRIMINATION ........................................ 26
ARTICLE XVII
APPLICABLE LAW .................................................................... 27
17.1 Alaska Law ............................................................. 27
17.2 Submission to Jurisdiction ............................................. 27
ARTICLE XVIII
WARRANTIES ........................................................................ 27
ARTICLE XIX
AMENDMENT ......................................................................... 27
ARTICLE XX
SUCCESSORS AND ASSIGNS ............................................................ 28
ARTICLE XXI
HEADINGS .......................................................................... 28
ARTICLE XXII
RECORDS ........................................................................... 28
22.1 Preservation of Records ................................................ 28
22.2 Inspection of Records of Parties ....................................... 29
ARTICLE XXIII
INTERPRETATION OF TERMS AND CONDITIONS ............................................ 29
ARTICLE XXIV
COUNTERPARTS ...................................................................... 30
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SIGNATURES ............................................................................. 30 ACKNOWLEDGEMENT ........................................................................ 31 EXHIBT A ............................................................................... 33 |
AGREEMENT FOR THE SALE AND
PURCHASE OF ROYALTY OIL
THIS AGREEMENT is effective as of September 27, 1994 by and between the State of Alaska (State) and Tesoro Alaska Petroleum Company (Tesoro), a Delaware corporation with its principal offices located at 3230 C Street, Anchorage, Alaska 99503.
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following respective meanings:
1.1 "Commissioner" means the Commissioner of the Alaska Department of Natural Resources or his designee.
1.2 "Daily Royalty Oil" means the quantity of Royalty Oil produced by the Lessees from the Prudhoe Bay Unit Area in a Day except as provided in Section 2.1(b).
1.3 "Day" means a period of twenty-four (24) consecutive hours, beginning at 12:01 a.m., Alaska Standard Time.
1.4 "Effective Date" shall have the meaning set out in Article VI.
1.5 "Field Cost Agreement" means the Prudhoe Bay Royalty Settlement Agreement effective April 1, 1980.
1.6 "Leases" means the Oil and Gas leases which are subject to the terms of the Prudhoe Bay Unit Agreement.
1.7 "Lessee" means any person owning a working interest in any of the Leases.
1.8 "Month" means the period beginning at 12:01 a.m., Alaska Standard Time, on the first Day of the calendar Month and ending at the same time on the first Day of the next succeeding calendar Month.
1.9 "Oil" shall have the same meaning as the word "oil" under the Leases and the Unit Agreement, except where inconsistent with Sections 2.1(b) and 2.2 of this Agreement, in which case Sections 2.1(b) and 2.2 shall control. For purposes of this Agreement, "Oil" shall also include natural gas liquids ("NGLs").
1.10 "Point of Delivery" shall have the meaning set out in Section 2.6.
1.11 "Royalty Oil" means the Oil which the State may take in-kind (in amount) as its royalty under the Leases whether or not the State has elected to take or is taking that royalty in-kind except as provided in Section 2.1(b).
1.12 "Royalty Settlement Agreements" means the written royalty settlement agreements between the State and BP Exploration (Alaska) Inc. ("BP") dated December 31, 1991; the State and Atlantic Richfield Company and ARCO Alaska, Inc., ("ARCO") dated September 12, 1990; and the State and Exxon Corporation ("Exxon") dated December 31, 1991.
1.13 "Royalty Value" means the royalty value of all liquid hydrocarbons from the Prudhoe Bay Unit calculated in accordance with the Royalty Settlement Agreements for West Coast placements as explained in Section 2.3.
1.14 "TAPS" means the Trans Alaska Pipeline System.
1.15 "Unit Agreement" means the Prudhoe Bay Unit Agreement effective April 1, 1977, by and between the Lessees and the State, as amended from time to time.
ARTICLE II
SALE OF ROYALTY OIL
2.1 Quantity.
2.1(a) Prudhoe Bay Unit Quantity. The State agrees to sell to Tesoro and Tesoro agrees to buy from the State that amount of Oil equal to 27.2% of the Daily Royalty Oil (Maximum Quantity).
Subject to the limitations below, Tesoro may at any time decrease or increase the amount of Oil to be tendered but not the Maximum Quantity provided above. To increase or decrease the amount of Oil to be tendered, Tesoro must give the State at least six Months and ten Days written notice. If, however, the increase or decrease is less than ten percent of Tesoro's then current in-kind nomination, Tesoro must give at least one hundred Days written notice. In addition, the new tendering will take effect on the first Day of the Month after the applicable notice period expires.
It is understood and agreed that the volume of Daily Royalty Oil available to the State will vary and may be interrupted from time to time, and depends upon a variety of factors, including the rate of production from the Leases. The State disclaims and Tesoro waives any representation, covenant or warranty, expressed or implied, as to the specific quantity or the total or daily, monthly, average, or aggregate volume of Royalty Oil to be sold or tendered under this Agreement. The State warrants that it has good title to the Oil tendered under this Agreement.
If the State underlifts or stores Royalty Oil at the Prudhoe Bay Unit, or if the State recovers underlifted or stored Royalty Oil, the quantity of Oil tendered under this Agreement shall be calculated as if no Royalty Oil was underlifted or stored or recovered.
2.1(b) Initial Participating Areas Quantity. It is understood and agreed that the State may choose, in its sole discretion, to sell Tesoro, and Tesoro agrees to buy from the state, oil that is produced solely from the Initial Participating Area of the Prudhoe Bay Unit rather than from al1 participating areas and Leases within the Prudhoe Bay Unit Agreement. If the State so elects, the Maximum Quantity of Oil shall equal 30.5% of the Royalty Oil produced from the Initial Participating Areas in a Day. If the State so elects, the Terms Daily Royalty Oil, Oil, and Royalty Oil shall have the same meaning set forth in Article I as limited in this section.
2.2 Quality. The Oil sold shall be the same quality as the Royalty Oil delivered by the Lessees to the State at the Point of Delivery from the Prudhoe Bay Unit Area. It is understood and agreed that the quality of the Oil sold may vary from time to time. The State disclaims, and Tesoro waives, any guarantee, representation, or warranty, either expressed or implied, of merchantability, fitness for use, or suitability for any particular use or purpose, or otherwise, of any of the Oil delivered under this Agreement or as to any specific, average, or overall quantity or characteristic of Oil to be sold or tendered under this Agreement. Tesoro expressly waives any claim that any liquid hydrocarbons made available to the State by the Lessees, including such substances as crude oil, condensate, natural gas liquids, or return oil from the Prudhoe Bay Unit Crude Oil Topping Plant, that may be blended with crude by the Lessees before the Point of Delivery and tendered as a common stream by the Lessees to the State as Royalty Oil are not Oil, for purposes of this Agreement.
2.3 Price of the Royalty Oil. The price each Month for Oil purchased
under this Agreement shall be the average Royalty Value (weighted by
production volume) for that Month of Oil delivered to the West Coast by ARCO,
BP, and Exxon from the Prudhoe Bay Unit production for which the Royalty Value
is determined by the Royalty Settlement Agreements. For ARCO, the Royalty Value
shall be determined according to the Royalty Value Formula stated in Section
III.A. of its Royalty Settlement Agreement without any field costs or
processing fees deduction. For Exxon, the Royalty Value shall be determined
according to the Royalty Value calculation stated in Section 3.1 c) of its
Royalty Settlement Agreement, except that the Average Valdez Netback shall be
the West Coast Valdez Netback. For BP, the Royalty Value shall be determined
according to the Royalty Value stated in Section 3.2 c) of its Royalty
Settlement Agreement, except that the Average Valdez Netback shall be the West
Coast Valdez Netback. Exhibit A is an illustrative calculation of the Monthly
Price.
If any applicable law of the United States of America or any rule or regulation promulgated by a federal agency will, in the judgment of the State, operate to prohibit or prevent the State from receiving the full amount due under the above provision, Tesoro's obligation to pay the amount of the purchase price in excess of the amount permitted will be suspended or adjusted to the minimum extent required for the State to comply with that law, rule or regulation.
2.4 Purchase Price Reopener. Neither the State nor Tesoro shall have the right to reopen this Agreement. Further, due to potential unpredictable increased costs to Tesoro posed by any changes to Article III of the BP or Exxon Royalty. Settlement Agreements or Paragraph III.A. of the ARCO Royalty Settlement Agreement and/or any changes made under the Reopener procedures of Article IV of the BP or Exxon Royalty Settlement Agreements or
Paragraph III.B. of the ARCO Royalty Settlement, the State shall give Tesoro notice of such changes or a Notice of Reopener initiated by either BP, Exxon, ARCO, or the State. Such notice shall include information on the nature of such changes and/or the Reopener, the requested effective date of any such changes or proposed changes, and the position taken by BP, Exxon, or ARCO and the State. Any changes and/or Reopener action under the Royalty Settlement Agreements will give Tesoro the right to terminate this contract upon six Months and ten Days written notice to the State.
2.5 No Third-Party Intervention. Tesoro shall not intervene or otherwise participate in any way regarding litigation, styled ANS Royalty Litigation, Case No. 1-JU-77-847, any future royalty settlement agreements with the Lessees, or reopeners or other discussions under or pertaining to royalty settlement agreements. Any judgment resulting from the ANS Royalty Litigation, any future royalty settlement agreements, or any reopener under any of the Royalty Settlement Agreements shall be conclusively binding upon Tesoro whether or not Tesoro agrees with or consents to the terms of any such judgment, settlement, or reopener. Furthermore, Tesoro has no independent right to invoke any of the provisions of the Royalty Settlement Agreements. If the Royalty Value is modified in the future as a result of a modification of any of the Royalty Settlement Agreements, a corresponding retroactive modification will be made to the price term of this Agreement and interest will apply to the modification, whether resulting in an overpayment or underpayment, as set forth in Section 5.6. Tesoro agrees to be conclusively bound by any such modification agreed to by the State and BP, Exxon, or ARCO.
2.6 Point and Time of Delivery. Simultaneously with receipt of its Royalty Oil from its Lessees, the State shall tender the Oil to Tesoro where the State receives the Royalty
Oil from its Lessees. That point presently agreed to by the State and its Lessees in Article 2.3 of the Field Cost Agreement is the TAPS Pump Station No. 1 Prudhoe Bay Custody Transfer meter ("Transfer Meter").
2.7 Passage of Title and Risk of Loss. Title and risk of loss to the Oil sold under this Agreement shall pass from the State to Tesoro for all purposes when the State tenders the Oil at the Point of Delivery.
2.8 Tesoro's Responsibility. Tesoro shall be responsible for the Oil after passage of title. Tesoro will indemnify and hold the State harmless from and against any and all claims, costs, damages (including reasonably foreseeable consequential damages), expenses, or causes of action arising from or in connection with any transaction or event which relates to the Oil after title has passed to Tesoro.
2.9 Transportation Arrangements. Tesoro shall make all necessary arrangements for transporting the Oil sold under this Agreement from the Point of Delivery, including satisfaction of line fill obligations and storage tank bottom requirements of the TAPS, if any. If requested by the State, Tesoro shall submit specific information concerning its arrangement for transportation of the Oil sold under this Agreement through and away from the TAPS and for the resale or other disposal of the Oil. Such information may include the specific tenders of Oil made to the TAPS and identification of tankers, if any, which will transport the Oil. In addition, Tesoro will provide the State, if requested by the State, with satisfactory evidence or reasonable assurance of the existence and continuing validity of adequate arrangements for the transportation or disposal of the Oil subject to this Agreement. Failure to
provide information, evidence, or assurances requested will, at the State's election by notice to Tesoro, be a material default under this Agreement.
2.10 Absolute Obligations. The obligations of Tesoro to accept, pay for, and arrange for the transportation of the Oil tendered or sold under this Agreement are absolute and will not be excused or discharged by the operation of any disability of Tesoro, event of force majeure, impracticability or performance, change in conditions, or any other reason or cause.
2.11 Date of First Delivery. The date of First Delivery will be the first Day of January 1, 1995.
2.12 Performance Guaranty and Reservation Fee. If, at any time, Tesoro does not take the Maximum Quantity, Tesoro shall pay to the State, in addition to the purchase price on the actual quantity taken, an amount equal to .75% of the purchase price per barrel per Day on the difference between the Maximum Quantity and the actual quantity tendered to and accepted by Tesoro for each Day Tesoro does not take the Maximum Quantity.
2.13 In-State Processing. Tesoro agrees to use best efforts to insure that any and all of the Royalty Oil tendered under this Agreement will be processed through Tesoro's refinery near Nikiski, Alaska, or will be exchanged for other crude oil which shall be processed at that refinery. "Process" means the manufacture of refined petroleum products. In no event, however, shall the quantity of Royalty Oil, which must be processed, be less than 80% of the volume of Royalty Oil tendered under this Agreement. "Exchange" means: (1) direct trades of equal volumes of crude oil; (2) trades of crude oil involving either cash or volume adjustments, or both, provided that those adjustments relate solely to quality or location differences; (3) sequential transactions in which Tesoro receives back crude oil from a party other than the party which
receives the Royalty Oil in a trade from Tesoro; or (4) matching purchases and sales of crude oil. The terms under which Tesoro receives crude oil in any exchange shall not differ in any significant term from the terms under which Tesoro delivered Royalty Oil except for terms which adjust for differences in quality and location. Tesoro agrees that any trade or exchange shall not reduce the price to be paid to the State and that trades or exchanges shall be at no cost or expense to the State.
Tesoro's obligation to process Royalty Oil or exchanged oil in-State may only be suspended or excused under the provisions of Articles VIII and XI.
The State may, at its option, waive the in-State processing requirement in whole or in part, if State is satisfied that Tesoro is using its best efforts to process the Royalty Oil tendered or the oil exchanged for Royalty Oil tendered under this Agreement at Tesoro's Alaska refinery and that the waiver would not be contrary to the underlying intent of the other provisions of this Agreement.
ARTICLE IV
REPRESENTATION AND OBLIGATIONS OF TESORO
Tesoro warrants, represents, and agrees:
3.1 Good Standing and Due Authorization. Tesoro is, and at all times during the operation of this Agreement shall remain, a corporation organized and existing under and by virtue of the laws of the United States or of any State, territory or the District of Columbia, and qualified to do business in, and in good standing with, the State of Alaska. Tesoro has all necessary corporate power to enter into this Agreement and to perform the covenants and
obligation under this Agreement. All necessary corporate action has been taken to authorize Tesoro to enter into this Agreement and perform its covenants and obligations under this Agreement.
3.2 Financial Condition. The financial information submitted to the State is complete and correct and fairly presents Tesoro's financial condition when the information was submitted to the State. The financial information was prepared in accordance with generally accepted accounting principles consistently applied. Since the date the information was submitted, the condition, business, and properties of Tesoro have not been materially adversely affected in any way. Tesoro agrees to inform the State immediately if there is any material adverse change in its condition, business, or properties which may have an appreciable adverse effect on its ability to perform under this Agreement. Tesoro, in addition, will immediately inform the State of any significant change in ownership of Tesoro, affiliates, parent company, and of any change in Tesoro's operations or Agreements, which may appreciably affect Tesoro's performance under this Agreement.
3.3 Financial Statements. As soon as possible after the end of the fiscal year of Tesoro, and in any event within one hundred twenty Days thereafter, Tesoro will furnish to the State, at Tesoro's sole cost and expense, a report or a complete copy of a report in a form to be prescribed from time to time by the State which will include Tesoro's balance sheet as of the close of the fiscal year and the income statement for that year, prepared in each case in accordance with generally accepted accounting principles consistently applied by certified public accountants of recognized standing. For purposes of complying with this article, Tesoro may submit, and the State will accept, the annual report of its parent, Tesoro Petroleum Corporation,
filed with the United States Securities and Exchange Commission pursuant to Sec. 13 or 15 (d) of the Security Exchange Act of 1934.
ARTICLE IV
MEASUREMENTS AND TESTS
The quantity and quality of Oil sold under this Agreement shall be determined at the Point of Delivery. Procedures and methods for measuring and metering the Oil sold under this Ageement shall be in accordance with the practices then in effect in the Prudhoe Bay Unit.
ARTICLE V
PAYMENTS AND ACCOUNTING
5.1 Initial Billing. The State will send to Tesoro, on or before the tenth business Day of each Month after delivery of Oil, an invoice statement of account of all Oil estimated to have been measured at the Transfer Meter and tendered to Tesoro under this Agreement during the immediately preceding Month according to the best information available to the State, the estimated purchase prices applicable to those deliveries, and the total amount due (Initial Billing Invoice). The estimates will be made by the State according to the best information reasonably available to the State. The State may render its Initial Billing Invoice to Tesoro based in part upon information reported by the Lessees to the State, information published by the U.S. Government, and information published in Platt's Oilgram Price Report or any other publicly available report. The State shall thereafter adjust its Initial Billing Invoice under this
Article as soon as more accurate information concerning the quantity and purchase price of Oil delivered each month is available. The State, however, shall not be required to adjust the Initial Billing Invoice before the sending of the next Month's invoice statement of account.
5.2 Initial Adjustment. After the Initial Billing Invoice under
Section 5.1, the next Monthly invoice will also state the State's initial
adjustments, plus interest, to be made, if any, to the Initial Billing Invoice
rendered in the immediately preceding Month, in accordance with any additional
or more accurate information which may have become available to the State
("Initial Adjustment Invoice"). Whether or not initial adjustments are made,
however, subsequent adjustments may be made under Section 5.5.
5.3 Subsequent Adjustments. Tesoro acknowledges that after the Initial Billing and Initial Adjustment Invoices, more accurate information concerning the quantity of or purchase price for Royalty Oil tendered may become available to the State. If any such information should later become available to the State, it shall furnish a corrected invoice statement of account to Tesoro ("Subsequent Adjustment Invoice") and the State will adjust the amount previously billed; and Tesoro will pay, or the State will credit or Refund, the amount of any Subsequent Adjustment Invoice plus interest. If the state should render a Subsequent Adjustment Invoice to Tesoro, any amount to be credited or refunded from the State to Tesoro or paid by Tesoro to the State will be refunded or paid within thirty Days after the date of the Subsequent Adjustment Invoice. The parties recognize that subsequent adjustments may be necessary after December 31, 1995, and, accordingly, the provisions of Article V will survive any termination of this Agreement.
5.4 Payment. Tesoro will make payment on the Initial Billing Invoice and the Initial Adjustment Invoice within ten Days of the date of the respective invoice and on any
Subsequent Adjustment Invoice within 30 days of the date of the invoice. Payment shall be made without any deduction, set off, or withholding, by wire transfer of immediately available funds to the State's account at the following address:
State Street Bank & Trust Company
Boston, Massachusetts
ABA #011000028
For credit to the State of Alaska
General Investment Fund, AYO1
Account #00657189
Attn: Kim Chan, Public Funds
Payment may be made in such other manner or to such other address as the State may specify in the invoice statement of account or by other written notice. All other payments to be made under this Agreement shall be paid in the same manner. If payment is due on a Saturday, Sunday, or legal holiday of the place where payment is to be received, payment shall be made on the next following business Day. It is recognized that the State may bill, and that Tesoro will pay, amounts that are based upon confidential information held or received by the State. If confidential information is used as the basis for a billing, then the State will furnish Tesoro, upon its request, with the certified statement of the Commissioner that the amounts billed are correct based upon the best information available to the State. If a dispute concerning a bill arises, Tesoro agrees to pay the full amount billed by the State, except for obvious clerical mistakes, pending final resolution of the dispute.
5.5 Interest. The Amount of all sums, which are not paid when due under this Agreement or which are later determined to be due as an adjustment, shall bear interest from the date accrued until paid in full at the rate as provided in AS 38.05.135(d) or as that statutory provision may later be amended. Currently, that interest rate in a calendar quarter is at the rate
of five percentage points above the annual rate charged member banks for advances by the 12th Federal Reserve District as of the first Day of that calendar quarter, or at the annual rate of 11 percent, whichever is greater, compounded quarterly as of the last Day of that quarter. The term "date accrued" means the date of the "Initial Billing plus ten Days." Interest shall apply to both adjustments for overpayments and underpayments.
The following illustrates from what date interest will run:
January 1 -- 31, 1995 -- Tesoro takes 1995 January production;
February 10, 1995 -- State sends Tesoro the Initial Billing Invoice for 1995 January production;
February 20, 1995 (initial Billing plus ten Days) -- Tesoro must pay the Initial Billing Invoice for January 1995 production. If it does not pay on this day, the Initial Billing Invoice bears interest from this date plus a late payment penalty;
March 10, 1995 -- State sends Tesoro the Initial Adjustment Invoice for January 1995 production; Tesoro owes the State an additional sum;
March 20, 1995 -- Tesoro must pay the Initial Adjustment Invoice plus interest from February 20, 1995.
January 11, 1996 -- State sends Tesoro a Subsequent Adjustment Invoice for January 1995 production; Tesoro is entitled to a credit;
February 11, 1996 -- State must credit or refund the amount of the Subsequent Adjustment Invoice plus interest from February 20, 1995.
April 15, 2000 -- State sends Tesoro another Subsequent Adjustment Invoice for January 1995 production; Tesoro owes the State an additional sum;
May 15, 2000 -- Tesoro must pay the Subsequent Adjustment Invoice for January 1995 production plus interest from February 20, 1995. If Tesoro does not pay the Subsequent Adjustment Invoice on this date, it must also pay a late payment penalty.
5.6 Late Payment Penalty. If Tesoro fails to make a full payment within ten Days of the date of either an Initial Billing Invoice or Initial Adjustment Invoice, or within thirty Days of the date of any Subsequent Adjustment Invoice, then in addition to the amount due plus interest from the date accrued until the date of actual payment, Tesoro will pay an amount equal to five percent of the principal payment due as a late payment penalty.
5.7 Payment to Lessee. At the request of the State in the invoice
statement of account or otherwise in writing, Tesoro shall pay all or any
portion designated by the State of that payment required to be made to one or
more of the Lessees at an address or addresses and in the manner designated by
the State. The payment will be made within the time limit specified in Section
5.3. The State may authorize and designate a third party to make the request
and designate the amount, manner and place of payment under this provision.
Unless otherwise specified, the balance of the payment due, if any, and payment
for subsequent Months, shall be made in accordance with Section 5.3.
5.8 Payment to Third Parties. The State may direct that Tesoro pay any amount due or which may become due directly to a third party in a manner and time as may be
directed by the State in written notice to Tesoro if, in the State's sole discretion, the payment to the third party will assist the State in monitoring or enforcing this Agreement.
ARTICLE VI
TERM
This Agreement shall become effective upon execution by the parties. The State's obligation to sell and Tesoro's obligation to buy Royalty Oil becomes effective immediately, Deliveries under this Agreement shall begin on January 1, 1995, and shall end December 31, 1995. The provisions of Article V shall survive the termination of this Agreement.
ARTICLE VII
DEFAULT OR TERMINATION
7.1 Default. If any one or more of the following events ("Events of Default") occur, then the State, at the its sole option, may terminate or suspend its obligation to tender and sell Oil and exercise any one or more of the rights and remedies provided in this Agreement:
(i) At any time, Tesoro (a) repudiates any of its covenants or obligations under this Agreement, or (b) fails, within five Days, after written request from the State to provide the State with written affirmation of this Agreement and of Tesoro's intention to perform under this Agreement (together with evidence or assurances of transportation arrangement pursuant to Section 2.9 reasonably satisfactory to the State);
(ii) Tesoro does not pay in full any sum owed under this Agreement at the time when payment is due;
(iii) Tesoro fails to observe or perform any of its other covenants and obligations under Article II;
(iv) Tesoro does not perform any act required or contemplated under this Agreement and: (a) the non-performance cannot be cured; (b) the nonperformance continues for more than thirty Days after the State has notified Tesoro of its nonperformance; or (c) Tesoro has failed to perform the same or any other act required or contemplated under this Agreement;
(v) There is a material adverse change in Tesoro's condition, business, or property which may appreciably affect its ability to perform any of its obligations under this Agreement and Tesoro is unable or unwilling to give the State adequate assurance of continued performance either within five Days of a request for such an assurance or within such other shorter time period as the State may request under the circumstances;
(vi) Any representation or warranty made by Tesoro in this Agreement was materially false or incorrect when made; or
(vii) Tesoro's failure or inability for any reason (including reasons beyond Tesoro's control) to maintain the Security described in Article XV, notwithstanding Tesoro's continuing willingness and
ability to perform its other obligations and covenants under the Agreement.
7.2 Failure to Pay Debts. If Tesoro becomes unable to pay any of its debts when due, or should otherwise become insolvent (regardless how that insolvency may be evidenced), Tesoro will immediately give notice of that fact to the State. Whether that notice is given, if Tesoro becomes unable to pay any of its debts when due or should otherwise become insolvent, the State's obligation to tender and sell Oil will automatically and immediately terminate without any requirement of notice or other action by the State; however, Tesoro will nevertheless be and remain liable for payment and performance of all of its obligations and covenants under this Agreement regarding Oil actually tendered by the State to and after any such termination. Within thirty Days after receipt of Tesoro's notice or, if no notice is given, after the State otherwise becomes aware (as determined in the State's sole discretion) of Tesoro's insolvency, the State will have the right, upon written notice to Tesoro, to reinstate all of the State's and Tesoro's obligations under this Agreement retroactively to the date of termination.
7.3 State's Remedies. If any Event of Default occurs or if the State's obligation to tender and sell Oil under this Agreement is terminated or suspended, all of Tesoro's obligations accrued but not otherwise due and payable under this Agreement will immediately be due and payable in full. In addition, Tesoro will indemnify and hold the State harmless from and against all other liability, damages (including reasonably foreseeable consequential damages), costs, losses and expenses (including reasonable attorney's fees and disbursements) incurred by the State and arising out of the Event of Default, termination, or suspension. The State shall have the right cumulatively to exercise any and all other rights and remedies and to obtain all
other relief available under applicable law or at equity, including mandatory injunction and specific performance.
Additionally, in its sole discretion, the State, upon occurrence of any Event of Default: (1) may dispose to third parties Royalty Oil to be tendered and sold under this Agreement and (2) may release Tesoro from the in-state processing obligations set forth in Article 2.13 until the Event of Default no longer exists or the obligation of Tesoro to take Oil under this Agreement expires. If the State disposes Oil to third parties, or if Tesoro is released from Article 2.13, whether or not this Agreement is terminated, Tesoro will nevertheless remain liable for the difference between the purchase price for that Oil under this Agreement and the price received by the State by disposition, including al1 of the expenses (including reasonable attorneys' fees and costs), and losses incurred by the State arising out of the Event of Default or disposition.
7.4 Tesoro's Exclusive Remedies. Upon any breach of, or default in performance of any of the State's covenants or obligations under this Agreement, Tesoro agrees that its remedies will not include a temporary restraining order or preliminary injunction preventing the State from taking any action regarding the Royalty Oil which is the subject of this Agreement.
ARTICLE VIII
DISPOSITION OF OIL
8.1 Disposition of Oil Upon Default or Termination. Tesoro recognizes that the State may be required to give six Months notice under the BP Royalty Settlement Agreement (or ninety Days if the amount of increase or decrease is less than ten percent of the then current nominations) to increase or decrease the amount of Daily Royalty Oil to be taken in-kind. Tesoro agrees that the State's electing to invoke its rights to return to taking its Royalty Oil in-value on less than six Month's prior notice, or to attempt to secure a waiver of any condition or requirement, is at the State's sole discretion. Notwithstanding termination of this Agreement for any reason, Tesoro shall continue to take and purchase the State's Royalty Oil in the amount and for the price set forth in this Agreement for up to six Months following termination if the State, in its sole discretion, so requires.
8.2 Inability to Receive Oil. If for any reason, Tesoro is unable or refuses to accept or receive any Oil tendered under this Agreement, Tesoro shall nevertheless be and remain responsible for the disposal of that Oil and for paying the State for the Oil as though it had been received and accepted by Tesoro unless the State, in its sole discretion, elects to waive this requirement. To secure the Tesoro's obligations under Section 8.2 and Section 2.10, Tesoro shall, if the State requests, assign to the State all right, title and interest of Tesoro under any nominations, Leases, agreements, contracts, charter parties and other arrangements for the transportation of the Oil sold under this Agreement through and away from the TAPS; provided, that the State shall not have any liability or obligations under any such nominations, Leases, agreements, contracts, charter parties or other arrangement unless, and to the extent that, the State
shall actually exercise its rights to succeed to Tesoro's interest under them and shall obtain the benefits of them.
8.3 No Right to Storage or Underlift. Tesoro waives and disclaims any interest or right that it may assert to storage of Royalty Oil, including by underlift or other means, to which the State is or may become to be entitled under the Leases or any other agreement.
ARTICLE IX
WAIVER
The failure of either party to insist upon strict performance of any provision of this Agreement shall not constitute a waiver of, or estoppel against, asserting the right to require that performance in the future. A waiver or estoppel in any one instance shall not constitute a waiver or estoppel with respect to a later breach of a similar nature or otherwise. A course of performance established by a party shall also not estop the other party from complaining of a later breach similar in nature.
ARTICLE X
VALIDITY
If any provision or clause of this Agreement or application of this Agreement is held invalid, that invalidity shall not affect other provisions or application of this Agreement which can be given effect without the invalid provision or application. If, however, an invalidity should operate to impair any material right or remedy of a party to this Agreement, that party may terminate this Agreement by notice to the other.
ARTICLE XI
FORCE MAJEURE AND CHANGE IN CONDITION
11.1 Effect of Force Majeure. Except for Tesoro's obligations to pay for Oil tendered and to accept and dispose of Royalty Oil, neither party shall be liable for any failure to perform when performance is prevented, in whole or in substantial part, by force majeure after good faith efforts to perform. The term 'force majeure" shall mean an event or condition not within the reasonable control of the party claiming the benefit of this excuse. If, however, any material obligation of Tesoro is excused or suspended by a force majeure for sixty successive Days or more, the State will have the right to terminate this Agreement. Before the State exercises its right to terminate, the State and Tesoro shall in good faith negotiate to restore the benefits and obligations of the force majeure condition.
11.2 Responsibility. If a party believes that force majeure has occurred, the party shall immediately notify the other party of its claim of force majeure. If force majeure occurs, that occurrence shall, so far as possible, be remedied with reasonable diligence. Except for Tesoro's obligations to pay for Oil tendered and to accept and dispose of Oil, the disabled party's obligations to perform that are affected by the force majeure shall be suspended from the time that notification occurs until the disability should have been remedied with reasonable diligence, and for no longer.
ARTICLE XII
NOTICES
12.1 Method. All notices, requests, demands or statements shall be in writing, and may be delivered personally, telecopied, or sent by registered or certified United States mail, postage prepaid, with a return receipt requested, to the party to be notified. Notice deposited in the mail in this manner shall be effective upon the expiration of seven Days after it is so deposited or upon the date of receipt, whichever is earlier. Notice given in any other manner shall be effective only if and when received by the addressee. For the purposes of notice, the address of the parties shall be as follows:
If to the State: State of Alaska
Commissioner of Natural Resources
400 Willoughby Avenue
Juneau, Alaska 99801
and
Director, Division of Oil and Gas
P.O. Box 107034
Anchorage, Alaska 99510-0734
Telecopy Number: (907)562-3852
If to Tesoro:
Gaylon H. Simmons
Tesoro Alaska Petroleum Company
8700 Tesoro Drive
San Antonio, Texas 78217
Telecopy Number: (210) 283-2031
12.2 Change of Address. Each party may change its address for notice by giving written notice of the change.
ARTICLE XIII
RULES AND REGULATIONS
This Agreement is subject to all present and future valid laws, orders, rules and regulations of the United States, the State of Alaska, and any duly constituted agency of the State of Alaska.
ARTICLE XIV
SOVEREIGN POWER OF THE STATE
This Agreement shall not be interpreted as a limit on the State of Alaska's exercise of any of its sovereign or regulatory powers, whether conferred by constitution, statute or regulation, including, but not limited to, its regulatory power over the Leases. Its exercise of any sovereign or regulatory power will not operate or be deemed to enlarge any rights of Tesoro or to limit or impair any obligations or liability of Tesoro under this Agreement.
ARTICLE XV
SECURITY
Sixty Days before the Date of First Delivery, Tesoro shall cause to be issued and delivered to the State an irrevocable stand-by letter of credit, with an effective date no later than the Date of First Delivery, issued for the benefit of the State by a State or national banking institution of the United States ("Issuer"), which is insured by the Federal Deposit Insurance Corporation and has an aggregate capital and surplus of not less than One Hundred Million Dollars ($100,000,000), or other banking institution acceptable to the State in its sole discretion.
The principal face amount of such letter of credit shall be a sum estimated by the Commissioner, in his sole discretion, to be equal to the aggregate purchase price for the approximate total amount of Oil to be tendered by the State to Tesoro during the first sixty Days following the Date of First Delivery. The letter of credit shall be in a form satisfactory to the Commissioner, but in any event shall not require any documents to be submitted in support of drafts drawn against this letter of credit other than the certified statement of the Commissioner or his designee and the Attorney General of the State of Alaska or his designee that Tesoro is liable to the State for a sum equal to the amount of such draft, and that sum is due and payable in full and has not been timely paid. The letter of credit must be renewed sixty Days before its expiration so that a letter of credit is continuously valid for sixty Days after the date of the last delivery of Royalty Oil. If a replacement letter of credit, in a form satisfactory to the Commissioner in his sole discretion, is not received sixty Days before the expiration of the existing letter of credit, then Tesoro shall be deemed to have materially breached this Agreement, there shall have occurred an event of default under Article 7.1, and all obligations of Tesoro accrued, but not otherwise due and payable under this Agreement, will immediately become due and payable in full.
If the State has reasonable grounds for asserting any claims against Tesoro and does assert those claims in an aggregate amount in excess of the aggregate principal face amount of the letter of credit then in effect, Tesoro shall, upon the State's request (whether or not Tesoro may deny, reject or otherwise resist such claims), cause the principal face amount to be increased by an amount equal to the excess. Tesoro shall also automatically increase the principal face amount, without request from the State, whenever the face amount is less than the expected purchase price of sixty Days of Oil tenders, to an amount equal to the expected purchase price
of sixty Days of Oil tenders. Upon approval of the State in its sole discretion, Tesoro may decrease the principal face amount if the face amount is more than the expected purchase price of sixty Days of Oil tenders to an amount equal to the expected purchase price of sixty Days of Oil tenders.
The letter of credit must allow drafts to be drawn and presented to the Issuer up to and including the 60th Day after the last delivery of Royalty Oil to Tesoro under this Agreement. The Commissioner may accept such other or additional security as he, in his sole discretion, considers adequate to protect the State.
ARTICLE XVI
PREFERENTIAL HIRING AND NON-DISCRIMINATION
Tesoro agrees to employ Alaska residents and Alaska companies to the extent they are available, willing and qualified for all work performed in Alaska in connection with the Agreement. "Alaska resident" means an individual who has resided in Alaska for one year at the time of employment and "Alaska companies" means companies incorporated in Alaska or whose principal place of business is in Alaska.
If this provision is determined to be unconstitutional, then Tesoro agrees to employ Alaska residents and Alaska companies to the extent such preferential hiring is determined to be constitutional.
ARTICLE XVII
APPLICABLE LAW
17.1 Alaska Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Alaska.
17.2 Submission to Jurisdiction. Any legal action or proceeding arising out of or relating to this Agreement or for the enforcement of the covenants or obligations of either party must be instituted in a State court of general jurisdiction sitting in the State of Alaska, and Tesoro hereby irrevocably submits to the jurisdiction of that court in any such action or proceeding.
ARTICLE XVIII
WARRANTIES
The purchase and sale of Royalty Oil are subject only to the warranties of the State expressly set forth in this Agreement and the State disclaims and Tesoro waives all other warranties, express or implied in law, whatsoever.
ARTICLE XIX
AMENDMENT
This Agreement may be supplemented, amended, or modified only by written instrument duly executed by the parties.
ARTICLE XX
SUCCESSORS AND ASSIGNS
No assignment, pledge, or encumbrance of this Agreement shall be made by either party without the written consent of the other party. The Commissioner or the Commissioner's designee may grant or deny such consent. Subject to the above requirements in this Article, this Agreement will be binding upon and inure to the benefit of each of the parties and its successors and permitted assignees.
ARTICLE XXI
HEADINGS
Headings used in this Agreement are for convenience only and shall not affect its construction.
ARTICLE XXII
RECORDS
22.1 Preservation of Records. Tesoro will preserve and maintain all books, accounts, and records relating to or arising out of the performance of this Agreement including, but not limited to, the purchase or sale of Royalty Oil and its refined products, for a period of no less than six years from the date of transaction or last adjustment relating to the transaction. Tesoro will also maintain and preserve all similar books, accounts, and records of which it has possession belonging to those third parties with whom it contracts for the performance of various parts of this Agreement. Neither Tesoro nor the State shall be required to retain any records for
more than six years unless retention of such records is specifically required by applicable law or regulation, or this Agreement. Tesoro shall either maintain its records within the State of Alaska or make such records available to the State at Tesoro's principal office in the State of Alaska within thirty Days after written request by the State.
22.2 Inspection of Records of Parties. Tesoro and the State will accord to each other and to their authorized agents, attorneys, and auditors during reasonable business hours access to any and all property, records, books, documents, and indices directly related to Tesoro's or the State's performance of this Agreement and which are under the control of the party from which access is desired so that the other party may inspect, photograph and make copies of that property, records, books, documents and indices. The State shall not be required to disclose any information, data, or records which are required to be held confidential by State or federal law or regulation, or by agreement. If the information obtained by the State may be held confidential under State or federal law or regulation, Tesoro may request that information be held confidential by the State and the State will keep this information confidential.
ARTICLE XXIII
INTERPRETATION OF TERMS AND CONDITIONS
Any disagreement about the meaning or application of a word, term, or condition in this Agreement will be decided according to the dispute resolution procedure set forth in this Article. Either party may give the other written notice of a disagreement. Within 60 days after written notice, Tesoro must present any argument and evidence supporting its view in writing to the Commissioner for consideration. Tesoro shall not have the right to civil litigation-type
discovery or a civil litigation-type trial with the right to call or cross-examine witnesses unless granted by the Commissioner in his sole discretion. The Commissioner will subsequently issue a finding on the meaning or application of the disputed word, term, or condition, setting forth the basis for the conclusions. Tesoro agrees to accept findings by the Commissioner under this Article which are supported by substantial evidence.
ARTICLE XXIV
COUNTERPARTS
This Agreement may be executed in multiple counterparts, the parties need not sign the same counterpart. Each counterpart shall be deemed to be an original and all of which taken together shall be one and the same instrument.
SIGNATURES
the State: THE STATE OF ALASKA
/s/ HARRY A. NOAH
------------------------------------
Commissioner
Department of Natural Resources
Date: 9/20/94
TESORO ALASKA PETROLEUM COMPANY
Tesoro Alaska Petroleum Company: By: /s/ GAYLON H. SIMMONS
--------------------------------
Its: Executive Vice President
Date: 9/27/94
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ACKNOWLEDGEMENT
State of Alaska )
) SS.
Third Judicial District )
|
THIS IS TO CERTIFY that on the 20th day of September, 1994, before me, appeared Harry A. Noah, the commissioner, Department of Natural Resources, State of Alaska; that Harry A. Noah executed that document under legal authority and with knowledge of its contents; and that this act was performed freely and voluntarily upon the premises and for the purposes stated in the document.
Witness my hand and official seal the day and year in this agreement first above written.
/s/ Barbara G. Hamilton ------------------------------------- Notary Public in and for Alaska My commission expires: 8/19/97 |
ACKNOWLEDGEMENT
State of Alaska )
) SS.
Third Judicial District )
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THIS IS TO CERTIFY that on the 27th day of September, 1994, before me, appeared Gaylon H. Simmons of Tesoro Alaska Petroleum Company, San Antonio, Texas; that he executed that document under legal authority and with knowledge of its contents; and that this act was performed freely and voluntarily upon the premises and for the purposes stated in the document.
Witness my hand and official seal the day and year in this agreement first above written.
/s/ Ronald G. McNeal ------------------------------------- My commission expires: 1/17/97 |
EXHIBIT A
CALCULATION OF MONTHLY PRICE
This exhibit shows the mechanics of the price calculation and data sources. Royalty Value and production volumes for the Prudhoe Bay Unit lessees are taken from the Royalty Reports filed by those lessees. Royalty Value currently is taken from Column H of these reports; Royalty Volume currently is taken from Column C. An example calculation using the information for February 1994 is shown below. Attached are the Royalty Report Summaries for the Prudhoe Bay I.P.A.
Production Royalty Value
Volume from from Column H
Column C of the from the Lessees'
Lessees' Monthly Monthly Royalty Product of Volume
Producer Royalty Report Report Times Royalty Value
-------- ---------------- ---------------- -------------------
LISBURNE PRODUCTION
CENTER
ARCO 1,188,773.05 $8.76015 $ 10,413,826.00
BP Exploration 944,154.55 $8.38000 $ 7,912,015.13
Exxon 1,377,278.40 $8.38000 $ 11,541,592.99
PRUDHOE BAY I.P.A.
ARCO 8,016,404.50 $8.98000 $ 71,987,312.41
BP Exploration 12,825,315.80 $8.61000 $110,425,969.04
Exxon 8,015,830.90 $8.61000 $ 69,016,304.05
------------- ---------------
TOTALS 32,367,757.20 $281,297,019.62
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Monthly Price = Total Production Volumes Times Royalty Values / Total Production Volume
or
$281,297,019.62 / 32,267,757.20 = $8.69066
Only BP's royalty value, calculated from the volume-weighted average of the prices reported for each market, may be made public. The per barrel price listed here is not BP's actual West Coast value. For purposes of this example, it is assumed that BP's West Coast value is its reported Royalty Value plus $0.75
Should Article 2.1(b) apply, the Monthly Price will be calculated using the Royalty Values and production volumes for only the Initial Participating Areas.
CALCULATION OF INTEREST
Numbers in these examples are illustrative. They do not represent accurate values that may have existed in the past or are forecasted for any time in the future.
Mechanics of the calculations include:
1. The annual interest rate specified in legislation is converted to a daily rate for calculations.
2. Credits are applied to the next monthly payment. Payment for an underpayment is due (a) within 10 days of the time the bill is sent for Initial Billings and initial adjustment or (b) within 30 days of the time the bill is sent for subsequent adjustments. Interest on underpayments stops accruing on the date of the invoice.
EXAMPLE 1: INITIAL BILLING
Assumptions:
1. Month is February.
2. Royalty Oil delivered to Tesoro in January = 1,240,000 barrels.
3. Monthly Price for January, as determined by the methodology of Exhibit A, = $8.00000.
4. Bill sent to Tesoro on February 10th; Payment due to State by February 20th.
Method for calculating Tesoro's initial invoice for February deliveries:
Volume x Price = Interim Billing
1,240,000 x $8.00000 = $9,920,000.00
Note:
The lessees are required to submit their royalty reports to the State for January's production by February 28th. For this reason the State will bill Tesoro for January production based on the December Monthly Price. This is an interim value and is subject to revision, since the Agreement requires that Tesoro pay the Monthly Price for the same production month. The revised price is incorporated in the invoice submitted the following month (March).
EXAMPLE 2: INITIAL ADJUSTMENT
Assumptions:
1. Month is March.
2. Royalty Oil delivered to Tesoro in January = 1,240,000 barrels.
3. Revised Monthly Price for January = $7.950000.
4. Annual interest rate charged member banks for advances by 12th Federal Reserve District as of January 1st is three percent. Annual rate for contract = 11 percent.
5. Tesoro receives notice of credit on March 3rd.
Method for calculating Tesoro's revised invoice for January deliveries:
Volume x Price = Revised Billing 1,240,000 x $7.95000 = $9,858,000.00
Amount Paid by Tesoro for January deliveries (calculated in Example 1):
Difference between date when Tesoro notified of credit (March 3rd) and original accrual date (February 20th) = 12 days.
EXAMPLE 3: SUBSEQUENT ADJUSTMENT
This adjustment is assumed to occur after true-up of BP transportation costs, a reopener for one of the Royalty Settlement Agreements, or for some other reason. It is assumed to occur June 5th.
Assumptions:
1. Month is June.
2. Royalty Oil delivered to Tesoro in January = 1,240,000 barrels.
3. Adjusted Monthly Price for January = $8.15000.
4. Annual interest rate charged member banks for advances by 12th
Federal Reserve District as of January 1 assumed to be three percent;
as of April 1 and through the third quarter, seven percent. Annual
interest rate for contract = 11 percent for the first quarter;
12 percent for the second and third quarter.
5. Tesoro is sent notice of underpayment on June 5th.
6. Tesoro's payment is received on July 5th.
Method for calculating Tesoro's revised invoice for January deliveries:
Volume x Price = Revised Billing 1,240,000 x $8.15000 = $10,106,000.00 |
Amount Paid by Tesoro for January deliveries (calculated in Example 2):
$9,858,000.00
-------------
Underpayment for January deliveries: $248,000.00
Days of interest in first quarter (Feb. 20th through March 31st) = 40
Days of interest in second quarter (April 1 through June 30th) = 91
Days of interest in third quarter (July 1 through July 5) = 5
Interest for first quarter = $248,000.00 x (11%/365) x 40 = $2,989.59
Interest for second quarter = ($248,000.00 + $2,989.59) x (12%/365) x 91 = $7,509.06
Interest for third quarter = ($248,000.00 + $2,989.59 + $7,509.06) x (12%/365) x 5 = $424.93
-----------
Payment from Tesoro due to the State within 30 days of invoice date = $258,923.58
|
If payment in full not received by or on July 5th then additional interest will accrue from July 6th through the payment receipt date, plus a late payment penalty will be assessed.
OIL ROY RPT SUM STATE OF ALASKA PAGE 1
REVISED 1/86 DEPARTMENT OF NATURAL RESOURCES UNIT PRUDHOE BAY UNIT
DO&G # 3-86 OIL OR GAS ROYALTY REPORT SUMMARY FIELD
DNR 10-4030 ZONE
LEASE
COMPANY NAME ARCO Alaska, Inc. REPORT FOR MONTH OF Feb 1994
ADDRESS P.O. Box 100360 REVISION NUMBER
CITY, STATE, ZIP Anchorage, AK 99510 DATE OF REVISION
(a) (b) (c) (d) (e) (f)
- ------------------------------------------------------------------------------------------------------------------------
Product Gross unit or Working (a) x (b) Royalty (c) x (d) Royalty
Description Lease Production Interest (Bbls) or Rate (Bbls) or In-Kind
(Bbls) or (MCF) Ownership % (MCF) (%) (MCF) (Bbls) or
(MCF)
- ------------------------------------------------------------------------------------------------------------------------
CRUDE 28,495,074.00 25,64316% 7,307,036.03 12.50000% 913,379.50 322,942.37
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS 28,495,074.00 7,307,036.03 913,379.50 322,942.37
- ------------------------------------------------------------------------------------------------------------------------
(g) (h) (i) (j) (k)
- ------------------------------------------------------------------------------------------------------------------------
Product Royalty Royalty Field Costs (h) - (i) (g) X (j)
Description In-Value Value per Bbl Reported Royalty
(e) - (f) $ per Bbl or MCF Royalty per In-Value
(Bbls) or (MCF) or MCF Bbl or MCF Dollars
- ------------------------------------------------------------------------------------------------------------------------
CRUDE 590,437.13 $8.98000 $0.790 $8.19000 $4,835,680.09
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS 590,437.13 $4,835,680.09
- ------------------------------------------------------------------------------------------------------------------------
*WEIGHTED AVERAGE VALUE
I declare that I have examined this report, including accompanying (03) COTP $3,624.51
schedules and statements, and to the best of my knowledge and (04) Less field cost for RIK ($255,124.47)
belief it is true, correct, and complete. Lease/Split Costs for RIK $0.00
(05) Interest to Revision (120.68)
SIGNED /s/ BARBARA B. AVE (06) Revisions (Attach ($6,908.00)
Reconciliations or
TITLE Authorized Representative TYPED NAME Barbara B. Ave amended returns) -------------
(07) Amount Due $4,577,272.13
PHONE NO. (907) 263-4965 =============
DATE 3/25/94
GAS ROYALTY: ATTACH FORM 10-422 Mail With Applicable Statements to: State of Alaska
OIL ROYALTY: ATTACH FORM 10-405 Department of Natural Resources
OIL AND/OR Division of Oil and Gas
GAS ROYALTY: VERIFICATION OF WIRE TRANSFER AMOUNTS OR A Royalty Accounting Section
COPY OF THE CHECK MADE IN PAYMENT OF ITEM (5) P.O. Box 7034
MUST BE ATTACHED. Anchorage, Alaska 99510-7034
RECEIVED
MAR 31 1994
DIVISION OF OIL & GAS
|
OIL ROY RPT SUM STATE OF ALASKA PAGE 3
REVISED 1/86 DEPARTMENT OF NATURAL RESOURCES UNIT PRUDHOE BAY UNIT
DO&G # 3-86 OIL OR GAS ROYALTY REPORT SUMMARY FIELD
DNR 10-4030 ZONE
LEASE
COMPANY NAME ARCO Alaska. Inc. REPORT FOR MONTH OF Feb 1994
ADDRESS P.O. Box 100360 REVISION NUMBER
CITY, STATE, ZIP Anchorge, AK 99510 DATE OF REVISION
(a) (b) (c) (d) (e) (f)
- ------------------------------------------------------------------------------------------------------------------------
Product Gross unit or Working (a) x (b) Royalty (c) x (d) Royalty
Description Lease Production Interest (Bbls) or Rate (Bbls) or In-Kind
(Bbls) or (MCF) Ownership % (MCF) (%) (MCF) (Bbls) or
(MCF)
- ------------------------------------------------------------------------------------------------------------------------
NGL 1,782,693.00 39,79196% 709,368.50 12.50000% 88,671.07 31,478.23
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS 1,782,693.00 709,368.50 88,671.07 31,478.23
- ------------------------------------------------------------------------------------------------------------------------
(g) (h) (i) (j) (k)
- ------------------------------------------------------------------------------------------------------------------------
Product Royalty Royalty Field Costs (h) - (i) (g) x (j)
Description In-Value Value per Bbl Reported Royalty
(e) - (f) $ per Bbl or MCF Royalty per In-Value
(Bbls) or (MCF) or (MCF) Bbl of MCF Dollars
- ------------------------------------------------------------------------------------------------------------------------
NGL 57,192.84 $8.98000 $3.400 $5.58000 $319,136.05
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS 57,192.84 $319,136.05
- ------------------------------------------------------------------------------------------------------------------------
*WEIGHTED AVERAGE VALUE
I declare that I have examined this report, including accompanying (03) COTP $ 0.00
shedules and statements, and to the best of my knowledge and (04) Less field costs for RIK $ 0.00
belief it is true, correct, and complete. Lease/Split Costs for RIK ($107,025.98)
(05) Revisions (attach ($644.39)
SIGNED /s/ BARBARA B. AVE reconciliations or
amended returns) -------------
TITLE Authorized Representative TYPED NAME Barbara B. Ave (06) Amount Due $ 211,476.94
=============
PHONE NO. (907) 263-4965
DATE 3/25/94
GAS ROYALTY: ATTACH FORM 10-422 Mail With Applicable Attachments To: State of Alaska
OIL ROYALTY: ATTACH FORM 10-405 Department of Natural Resources
OIL AND/OR Division of Oil and Gas
GAS ROYALTY: VERIFICATION OF WIRE TRANSFER AMOUNTS OR A Royalty Accounting Section
COPY OF THE CHECK MADE IN PAYMENT OF ITEM (5) P.O. Box 7034
MUST BE ATTACHED. Anchorage, Alaska 99510-7034
RECEIVED
MAR 31 1994
DIVISION OF OIL & GAS
|
ARS550P 00 PROD STATE OF ALASKA 03/29/94
ARS550M 00 OIL ROYALTY REPORT SUMMARY 11:50:12
STATE OF ALASKA AMENDMENT: 00
DEPT. OF NATURAL RESOURCES ROYALTY PAYER: BP EXPLORATION (ALASKA)
DIVISION OF OIL AND GAS P.O. BOX 196612
ROYALTY ACCOUNTING SECTION ANCHORAGE, AK 99519-6612
P.O. BOX 107034
ANCHORAGE, AK 99510-7034
FIELD, POOL OR LEASE: PRUDHOE BAY UNIT
PRODUCTION MONTH: FREBRUARY 1994
FILING DATE: 03/31/94
PAGE: 1
(a) (b) (c) (d) (e) (f)
- ------------------------------------------------------------------------------------------------------------------------
Product Gross unit or Working (a) x (b) Royalty (c) x (d) Royalty
Description Lease Production Interest (Bbls) Rate (Bbls) In-Kind
(Bbls) Ownership % (Bbls)
- ------------------------------------------------------------------------------------------------------------------------
NGLCN 1,782,693.00 18.7525446 334,300.30 12.500 41,787.54 14,834.60
OILCN 28,435,515.00 43.4290721 12,491,018.60 12.500 1,561,377.33 554,347.00
OILTP 40,559.00
OILTR
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS 30,277,767.00 12,825,318.90 1,603,144.87 569,181.60
- ------------------------------------------------------------------------------------------------------------------------
(g) (h) (i) (j) (k)
- ------------------------------------------------------------------------------------------------------------------------
Product (e) - (f) Royalty Field Costs (h) - (i) (g) X (j)
Description Royalty Value $/Bbl Reported Royalty
In-Value $/Bbl Royalty In-Value
(Bbls) $/Bbl Dollars
- ------------------------------------------------------------------------------------------------------------------------
NGLCN 26,952.94 7.8600 5.4500 2.4100 64,956.59
OILCN 1,007,030.33 7.8600 0.7900 7.0700 7,119,704.43
OILTP
OILTR
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS 1,033,983.27 (2) 7,184,661.02
- ------------------------------------------------------------------------------------------------------------------------
I declare that I have examined this report, including accompanying (3) Topping plant 7,184,661.02
schedules and statements, and to the best of my knowledge and $ 5,820,78
belief it is true, correct, and complete. (4) Less fields costs RIK-oil $ -437,934.13
processing fees RIK-Nols $ -60,848.57
(5) Revisions (attach amended
returns or reconciliations) $ 254,908.19
SIGNED: /s/ HAROLD S. WESSELLS (6) Amount due ($) $6,928,607.29
TITLE: ROYALTY OFFICER
DATE: 3/31/94
OIL ROYALTY: ATTACH FORM 10-405
VERIFICATION OF WIRE TRANSFER AMOUNTS OR A COPY OF THE CHECK MADE IN
PAYMENT OF ITEM (6) MUST BE ATTACHED. MAIL APPLICABLE ATTACHMENTS
TO DEPARTMENT OF NATURAL RESOURCES AT ABOVE ADDRESS.
NOTES:
COLUMN 5 INCLUDES AMOUNT FOR AMENDED REPORTS FOR RECEIVED
JULY 1993 THROUGH DECEMBER 1993 AS REQUIRED PER MAR 31 1994
THE ANS SETTLEMENT AGREEMENT DIVISION OF OIL & GAS
|
OIL RO RPT SUM Page 1 of 2
REVISED 1/86 STATE OF ALASKA UNIT: PRUDHOE BAY
DO&G #3-86 OIL ROYALTY REPORT SUMMARY FIELD: PRUDHOE BAY
DNR 10-4030 STATE OF ALASKA - DEPARTMENT OF NATURAL RESOURCES ZONE: PRUDHOE BAY
ROYALTY ADDRESS: EXXON CORPORATION REPORT FOR FEBRUARY 1994
P.O. BOX 4496 REVISION NUMBER 0.00
HOUSTON, TEXAS 77210-4496 REVISION DATE
(A) (B) (C) (D) (E) (F)
- ------------------------------------------------------------------------------------------------------------------------
Gross unit Working Total Royalty
Product Production Interest Working Interest Royalty Royalty In-Kind
Description (Bbls) Ownership % Bbls Rate Bbls Bbls
- ------------------------------------------------------------------------------------------------------------------------
CRUDE 28,495,074.00 0.25641196 7,306,477.80 0.125000 913,309.73 322,917.60
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS
- ------------------------------------------------------------------------------------------------------------------------
(G) (H) (I) (J) (K)
- ------------------------------------------------------------------------------------------------------------------------
Royalty Royalty Reported Royalty
Product In-Value Value Field Costs Royalty In-Value
Description Bbls $ per Bbl per Bbl per Bbl Dollars
- ------------------------------------------------------------------------------------------------------------------------
CRUDE 590,392.10 8.610 0.790 7.820 4,616,666.22
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS * * (2) 4,616,666.22
- ------------------------------------------------------------------------------------------------------------------------
*WEIGHTED AVERAGE VALUE
---------------------------------------------------
PRINCIPAL (1)INTEREST (M)TOTAL
- ------------------------------------------------------------------------------------------------
(3) COTP GRAVITY ADJUSTMENT 3,624.25 N/A 3,624.25
- ------------------------------------------------------------------------------------------------
(4) LESS FIELD COSTS FOR RJK (255,104.90) N/A (255,104.90)
- ------------------------------------------------------------------------------------------------
(5) OTHER (EXPL. INCENTIVE CREDIT) 0.00 N/A 0.00
- ------------------------------------------------------------------------------------------------
(6) SUBTOTAL ((2) THRU (5)) 4,365,385.57 0.00 4,365,385.57
- ------------------------------------------------------------------------------------------------
(7) REVISIONS 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------
(8) TOTAL AMOUNT DUE ((6)+(7)) 4,365,385.57 0.00 4,365,385.57
- ------------------------------------------------------------------------------------------------
I declare that I have examined this report, including accompanying
schedules and statements, and to the best of my knowledge and
belief it is true, correct, and complete.
SIGNED BY /s/ HYMES E. PERLIN for DCS
PRINTED NAME DAVID C. SHAMPANG
TITLE STATE ROYALTY UNIT SUPERVISOR RECEIVED
PHONE NUMBER (713) 658-8649 MAR 31 1994
DATE 29-MAR-94 DIVISION OF OIL & GAS
PREPARED BY JEANNE USIE (713) 658-6691
|
OIL ROYRPTSUM PAGE 1 OR 7
REVISED 1/88 STATE OF ALASKA UNIT: PRUDHOE BAY
DO&G #3-86 OIL ROYALTY REPORT SUMMARY FIELD: PRUDHOE BAY
DNR 10-4030 STATE OF ALASKA - DEPARTMENT OF NATURAL RESOURCES ZONE: PRUDHOE BAY
LEASE: PRUDHOE BAY
ROYALTY ADRESS: EXXON CORPORATION REPORT FOR FEBRUARY 1994
P.O. BOX 4498 REVISION NUMBER 0.00
HOUSTON, TEXAS 77210-4496 REVISION DATE
(A) (B) (C) (D) (E) (F)
- ------------------------------------------------------------------------------------------------------------------------
Product Gross unit Working Working Interest Royalty Total Royalty
Description Production Interest Bbls Rate Royalty In-Kind
(Bbls) Ownership % (%) Bbls (Bbls)
- ------------------------------------------------------------------------------------------------------------------------
NGLS 1,782,693.00 0.39791097 709,353.10 0.125000 88,669.14 31,477.50
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS
- ------------------------------------------------------------------------------------------------------------------------
(G) (H) (I) (J) (K)
- ------------------------------------------------------------------------------------------------------------------------
Product Royalty Royalty Field Costs Reported Royalty
Description In-Value Value $ per Bbl Royalty $ per In-Value
(Bbls) $ per Bbl Bbl Dollars
- ------------------------------------------------------------------------------------------------------------------------
NGLS 57,191.60 8.610 1.628 6.952 399,311.75
- ------------------------------------------------------------------------------------------------------------------------
(1) TOTALS * * (2) 399,311.75
- ------------------------------------------------------------------------------------------------------------------------
*WEIGHTED AVERAGE VALUE
---------------------------------------------------
PRINCIPAL (1) INTEREST (M)TOTAL
- ------------------------------------------------------------------------------------------------
(3) COTP GRAVITY ADJUSTMENT 0.00 N/A 0.00
- ------------------------------------------------------------------------------------------------
(4) LESS FIELD COST FOR RIK (51,243.37) N/A (51,245.37)
- ------------------------------------------------------------------------------------------------
(5) OTHER (EXPL. INCENTIVE CREDIT) 0.00 N/A 0.00
- ------------------------------------------------------------------------------------------------
(6) SUBTOTAL ((2) THRU (5)) 346,066.38 0.00 346,066.38
- ------------------------------------------------------------------------------------------------
(7) REVISIONS 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------
(8) TOTAL AMOUNT DUE ((6)+(7)) 346,066.38 0.00 346,066.38
- ------------------------------------------------------------------------------------------------
I declare that I have examined this report, including accompanying
schedules and statements, and to the best of my knowledge and
belief it is true, correct, and complete.
SIGNED /s/ HYMES E. PERLIN for DCS
PRINTED NAME: DAVID C. SHAMPANG
TITLE: STATE ROYALTY UNIT SUPERVISOR RECEIVED
PHONE NUMBER (713) 658-8549 MAR 31 1994
DATE 29-MAR-94 DIVISION OF OIL & GAS
PREPARED BY JEANNE USIE (713) 658-6691
|
ITEM 14(A)3, EXHIBIT 11
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
INFORMATION SUPPORTING EARNINGS (LOSS) PER SHARE COMPUTATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------- -------
PRIMARY EARNINGS (LOSS) PER SHARE COMPUTATION:
Earnings (loss) before extraordinary loss on extinguishment
of debt and the cumulative effect of accounting
changes.................................................. $20,483 16,956 (45,245)
Extraordinary loss on extinguishment of debt................ (4,752) -- --
Cumulative effect of accounting changes..................... -- -- (20,630)
------- ------- -------
Net earnings (loss)......................................... 15,731 16,956 (65,875)
Dividend requirements on preferred stock.................... 2,680 9,207 9,207
------- ------- -------
Net earnings (loss) applicable to common stock.............. $13,051 7,749 (75,082)
======= ======= =======
Average outstanding common shares............................. 22,552 14,070 14,063
Average outstanding common equivalent shares.................. 644 220 --
------- ------- -------
Average outstanding common and common equivalent shares..... 23,196 14,290 14,063
======= ======= =======
Primary Earnings (Loss) Per Share:
Earnings (loss) before extraordinary loss on extinguishment
of debt and the cumulative effect of accounting
changes.................................................. $ .77 .54 (3.87)
Extraordinary loss on extinguishment of debt................ (.21) -- --
Cumulative effect of accounting changes..................... -- -- (1.47)
------- ------- -------
Net earnings (loss)......................................... $ .56 .54 (5.34)
======= ======= =======
FULLY DILUTED EARNINGS (LOSS) PER SHARE COMPUTATION:
Net earnings (loss) applicable to common stock.............. $13,051 7,749 (75,082)
Add: Dividend requirements on preferred stock............... 2,680 9,207 9,207
------- ------- -------
Net earnings (loss) applicable to common stock -- fully
diluted.................................................. $15,731 16,956 (65,875)
======= ======= =======
Average outstanding common and common equivalent shares....... 23,196 14,290 14,063
Shares issuable on conversion of preferred shares............. 1,476 4,775 4,775
------- ------- -------
24,672 19,065 18,838
======= ======= =======
Fully Diluted Earnings (Loss) Per Share -- Anti-dilutive*..... $ .56 .54 (5.34)
======= ======= =======
|
* This calculation is submitted in accordance with paragraph 601(b)(11) of Regulation S-K, although it is not required by APB Opinion No. 15 because it
produces an anti-dilutive result.
ITEM 14(A)3, EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
PERCENT
OF
INCORPORATED VOTING
OR SECURITIES
ORGANIZED OWNED
UNDER BY
NAME OF COMPANY LAWS OF TESORO
- ----------------------------------------------------------------- -------- ----
Tesoro Alaska Petroleum Company.................................. Delaware 100%
Tesoro Alaska Pipeline Company................................... Delaware 100%
Tesoro Bolivia Petroleum Company................................. Texas 100%
Tesoro Exploration and Production Company........................ Delaware 100%
Tesoro Gas Resources Company, Inc................................ Delaware 100%
Tesoro Natural Gas Company....................................... Delaware 100%
Tesoro Northstore Company........................................ Alaska 100%
Tesoro Petroleum Companies, Inc.................................. Delaware 100%
Tesoro Petroleum Distributing Company............................ Louisiana 100%
Tesoro Refining, Marketing & Supply Company...................... Delaware 100%
|
Small or inactive subsidiaries are omitted from the above list. Such omitted subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a "significant subsidiary" at the end of the year covered by this
annual report.
ITEM 14(a) 3, EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Stockholders
Tesoro Petroleum Corporation
We consent to the incorporation by reference in Registration Statement No. 33-53293 of Tesoro Petroleum Corporation on Form S-8 of our report dated February 1, 1995, appearing in this Annual Report on Form 10-K of Tesoro Petroleum Corporation for the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
San Antonio, Texas
March 15, 1995
ITEM 14(a)3, Exhibit 23(b)
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the references to our firm in the Annual Report of Tesoro Petroleum Corporation on Form 10-K for the fiscal year ended December 31, 1994, filed with the Securities and Exchange Commission in Washington, D.C. pursuant to the Securities Exchange Act of 1934.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ Frederic D. Sewell
__________________________________
Frederic D. Sewell, President
Dallas, Texas
March 16, 1995
|
| ARTICLE5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TESORO PETROLEUM CORPORATION'S FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1994 |
| PERIOD END | DEC 31 1994 |
| CASH | 14,018 |
| SECURITIES | 0 |
| RECEIVABLES | 92,956 |
| ALLOWANCES | 1,816 |
| INVENTORY | 68,302 |
| CURRENT ASSETS | 182,108 |
| PP&E | 479,116 |
| DEPRECIATION | 205,782 |
| TOTAL ASSETS | 484,360 |
| CURRENT LIABILITIES | 96,243 |
| BONDS | 192,210 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 4,065 |
| OTHER SE | 156,667 |
| TOTAL LIABILITY AND EQUITY | 484,360 |
| SALES | 871,211 |
| TOTAL REVENUES | 874,638 |
| CGS | 775,051 |
| TOTAL COSTS | 775,051 |
| OTHER EXPENSES | 36,016 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 18,749 |
| INCOME PRETAX | 26,056 |
| INCOME TAX | 5,573 |
| INCOME CONTINUING | 20,483 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | (4,752) |
| CHANGES | 0 |
| NET INCOME | 15,731 |
| EPS PRIMARY | .56 1 |
| EPS DILUTED | .56 1 |
| 1 | Earnings per share is after an extraordinary loss of $4.8 million ($.21 loss per share) on extinguishment of debt. |