EXHIBIT 99
SETTLEMENT AND STANDSTILL AGREEMENT
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This Agreement, dated as of April 4, 1996, is among Kevin S.
Flannery, Alan Kaufman, Robert S. Washburn, James H. Stone, George F. Baker,
Douglas Thompson, Gale E. Galloway, and Whelan Management Corp. (together, the
"Solicitation Parties"), Ardsley Advisory Partners ("Ardsley"), and Tesoro
Petroleum Corporation ("Tesoro").
WHEREAS, on or about December 26, 1995, The Stockholders
Committee for New Management of Tesoro Petroleum Corporation, comprised of
Messrs. Flannery, Kaufman, Washburn, Stone and Baker (the "Committee),
announced its intention to engage in a solicitation (the "Solicitation") of
written consents for the purpose, inter alia, of removing the current members of
the Board of Directors of Tesoro and replacing them with a new Board comprised
of Messrs. Kaufman, Stone, Baker, Thompson and Galloway, and in connection
therewith filed with the Securities and Exchange Commission ("SEC") Schedule 13D
and preliminary Schedule 14A statements relating thereto; and
WHEREAS, on or about December 26, 1995, the Committee commenced
an action in the United States District Court for the Western District of Texas
(C.A. No. SA-95-CA-1298) (the "Pending Action") against Tesoro and its Chief
Executive Officer Bruce A. Smith; and
WHEREAS, on or about January 8, 1996, defendants in the Pending
Action filed their answer to the amended complaint, and defendant Tesoro
asserted various counterclaims against the Solicitation Parties and others
relating, inter alia, to the Solicitation; and
WHEREAS, on or about March 1, 1996, the Committee filed a
definitive Schedule 14A (the "Committee Schedule") with the SEC, and thereafter
commenced the Solicitation pursuant thereto; and
WHEREAS, the parties hereto have agreed to the terms of a
proposed settlement that would result in the dismissal of the Pending Action and
termination of the Solicitation substantially in accord with the terms set forth
below;
NOW, THEREFORE, in order to effectuate the settlement, and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. The parties shall execute and file with the Court as soon as
practicable a stipulation of dismissal without prejudice or costs to either
side, encompassing all
claims and counterclaims in the Pending Action. All discovery and other
proceedings in the Pending Action shall be suspended in the interim.
2. The Solicitation Parties hereby agree to terminate the
Solicitation by, among other things, (a) promptly filing an amended Schedule 13D
Statement announcing the termination of the Solicitation, (b) promptly issuing,
or causing to be issued, with Tesoro a joint press release announcing the
settlement and termination of the Solicitation, and (c) executing such other
documents as may be necessary or appropriate to accomplish the settlement set
forth herein. In addition, by executing this Agreement Kevin S. Flannery hereby
revokes all notices to Tesoro of his intention to submit a slate of candidates
at the Company's 1996 annual meeting.
3. For a period beginning on the date hereof and ending on the
earlier of the day after Tesoro's 1999 annual meeting or June 30, 1999 (the
"Standstill Period"), each of the Solicitation Parties severally agrees on
behalf of himself or itself and his or its affiliates, agents, representatives,
or any person or entity controlled or under common control with any such member,
that he or it shall not, directly or indirectly, (a) make, or in any way
participate or assist in, or otherwise encourage any attempt to take control of
Tesoro, without the approval of the Board, whether through the acquisition of
shares of capital stock during a tender offer for the common stock of Tesoro,
exercising voting rights with respect to shares of capital stock or otherwise,
provided, however, that this provision shall not preclude any of the
Solicitation Parties from tendering shares in response to a tender offer for
Tesoro shares that is made without the participation, assistance or
encouragement of any of the Solicitation Parties; (b) solicit any consent or
participate or assist in any way or otherwise encourage any consent solicitation
seeking, without the approval of the Board, to remove any member of the Tesoro
Board of Directors and/or to elect one or more new directors or to take any
other action which would have the effect of removing any member of the Tesoro
Board of Directors; (c) commence, support (including without limitation by
giving a proxy or voting) or otherwise encourage any "solicitation" of "proxies"
to vote (as such terms are defined in Rule 14a-1 of the Securities Exchange Act
of 1934) or become a "participant" in any "election contest" (as such terms are
defined in Rule 14a-11 of the Securities Exchange Act of 1934) in connection
with any annual or special meeting of stockholders seeking, without the approval
of the Board, to remove any member of the Tesoro Board of Directors and/or to
elect one or more new directors not nominated for election by the Tesoro Board
of Directors; (d) nominate, support (including without limitation by giving a
proxy or voting) or otherwise encourage the nomination or election of any
alternate director or slate of directors proposed from the
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floor at any annual or special meeting of Tesoro stockholders; or (e) without
the approval of the Board, solicit, support or otherwise encourage any offers or
indications of interest with respect to the acquisition or disposition of Tesoro
or any of its business units.
4. Tesoro's Board of Directors shall be expanded to include nine
members. Dr. Alan Kaufman shall be added to the Tesoro Board of Directors on or
before April 12, 1996. Tesoro further agrees that Dr. Kaufman shall be
nominated for election as part of the Board of Directors' recommended slate
throughout the Standstill Period unless he dies, resigns or is removed pursuant
to paragraph 9 below. Dr. Kaufman agrees to serve as a director, if elected by
the requisite vote of shareholders, throughout the Standstill Period unless he
dies, resigns or is removed pursuant to paragraph 9 below.
5. Tesoro also agrees to add to its Board of Directors
throughout the Standstill Period another independent director with no prior
relationship or connection to Tesoro, Ardsley or any of the Solicitation
Parties, who shall be selected by the Board of Directors in accordance with
governance procedures that have been adopted by the Board. Tesoro agrees that
the individual selected pursuant to this paragraph shall be proposed for
election as soon as possible but in no event later than July 31, 1996. In the
event that the independent director selected pursuant to this paragraph shall at
any time during the Standstill Period die, resign or be removed from the Board
of Directors (for any reason other than the failure to receive the requisite
vote of shareholders), Tesoro agrees to replace such director with another
independent director selected in accordance with the Company' By-laws and
governance procedures then in effect.
6. Tesoro also agrees to provide Ardsley during the Standstill
Period with the right to designate one of its employees (who shall not include
any of the Solicitation Parties or any affiliate, agent or representative of, or
other person or entity controlled by or under common control with, any of the
Solicitation Parties) as a nominee for election to Tesoro's Board of Directors,
subject to a normal background check. Tesoro agrees that the person designated
by Ardsley pursuant to this paragraph will be added to the Tesoro Board on or
before April 12, 1996. Tesoro further agrees that the employee designated by
Ardsley pursuant to this paragraph shall be nominated for election as part of
the Board's recommended slate throughout the Standstill Period unless he dies,
resigns or is removed pursuant to paragraph 10 below. If such employee dies or
resigns, Ardsley shall be entitled to designate another employee to become a
director, subject to a normal background check.
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7. Dr. Kaufman hereby agrees not to disclose without the consent
of Tesoro any non-public information or trade secrets of Tesoro obtained in his
capacity as a director of Tesoro to any unauthorized person including without
limitation any of the Solicitation Parties, except as may be required by law.
8. Ardsley hereby agrees that the person designated pursuant to
paragraph 6 above shall not disclose without the consent of Tesoro any
non-public information or trade secrets of Tesoro obtained in his capacity as a
director of Tesoro to any unauthorized person including without limitation any
of the Solicitation Parties, except as may be required by law.
9. In the event of a breach of the provisions set forth in
paragraphs 2, 3, 7, 12 or 13 of this Agreement by any of the Solicitation
Parties, or in the event that the total common stock holdings of Dr. Kaufman
shall at any time during the Standstill Period be reduced to less than 400,000
shares, or in the event that Dr. Kaufman shall, at any time during the
Standstill Period, while he is a member of Tesoro's Board of Directors, announce
his intention to vote or vote his shares of Tesoro common stock for any
candidate other than the nominees for election to the Board of Directors of
Tesoro proposed by a majority of Tesoro's Board, Dr. Kaufman shall immediately
tender his resignation and, at the option of Tesoro, be removed from the Tesoro
Board. The death, resignation or removal pursuant to the terms of this
Agreement of Dr. Alan Kaufman from the Tesoro Board shall not relieve any of the
Solicitation Parties from their obligations hereunder, which shall continue and
remain in effect until the conclusion of the Standstill Period.
10. In the event of a breach of the provisions set forth in
paragraph 8 above, or in the event that at any time during the Standstill Period
(a) the total common stock holdings of Ardsley shall at any time be reduced to
50 percent or less of the number of shares held as of the date hereof, or (b)
Ardsley agrees or takes any action to support a change of control of Tesoro or
the election to the Tesoro Board of any person other than a Board nominee, the
director designated by Ardsley pursuant to paragraph 6 above shall immediately
tender his resignation and, at the option of Tesoro, be removed from the Tesoro
Board. Ardsley agrees to vote all shares of common stock of Tesoro owned by
Ardsley or with respect to which it or its affiliates have voting discretion in
favor of the entire slate of candidates proposed for election at Tesoro's 1996
annual meeting, provided it includes the individuals selected pursuant to
paragraphs 4 and 6 above. For purposes of this paragraph, Ardsley shall be
deemed the owner as of the date hereof of all shares covered by the option
granted to Whelan Management Corp. on November 18, 1995, unless the
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option is exercised, in whole or in part, by Whelan or any other of the
Solicitation Parties, in which case Ardsley shall not be deemed the owner as of
the date hereof of any shares acquired pursuant to the exercise of such option.
11. In consideration of the above and in order to eliminate
future legal fees and expenses associated with continued protracted litigation
and the Solicitation, Tesoro agrees to pay the Solicitation Parties each of
their reasonable out-of-pocket costs (including reasonable attorneys' fees)
actually incurred in connection with the Pending Action and/or the Solicitation,
up to a maximum of $700,000. Tesoro also agrees to pay Ardsley its reasonable
out-of-pocket costs (including reasonable attorneys' fees) actually incurred in
connection with the Pending Action, up to a maximum of $200,000. Tesoro hereby
agrees to pay $500,000 to the Solicitation Parties and $140,000 to Ardsley upon
execution of this Agreement and issuance of the joint press release required by
paragraph 2 of this Agreement, with the balance to be paid within 15 days of
receipt of the documentation required by the succeeding sentence. Tesoro shall
have the right to examine all invoices and other documentation necessary to
substantiate the amount and reasonableness of any fees and expenses incurred.
In the event of any dispute regarding the amount of expenses to be reimbursed
pursuant to this paragraph, the parties agree to submit the dispute to binding
arbitration. The arbitrator shall be Dean John Feerick of Fordham Law School
or, if he declines or is unable to serve, a mutually agreeable person of similar
standing in the legal community. The decision of the arbitrator shall be
rendered within 90 days from the date submitted to the arbitrator and the
decision shall be final, conclusive and not subject to appeal. In any such
arbitration, the prevailing party (i.e., the party to whom the arbitrator awards
the largest portion of the amount in dispute) shall recover his or its
reasonable attorneys' fees in connection therewith.
12. Each of the Solicitation Parties, Ardsley and Tesoro
severally agrees that during the Standstill Period neither he nor it nor any
affiliate shall make any statement or take any action that is critical or
disparaging of each other or the management or performance of Tesoro. Each of
the Solicitation Parties and Ardsley further severally agrees that throughout
the Standstill Period neither he nor it nor any of his or its affiliates will
issue any press release, knowingly make any statements to the press or other
news media, or make any critical or disparaging statement to any securities
analyst or institutional investor regarding the management or performance of
Tesoro.
13. Each of the Solicitation Parties has delivered herewith a
Revocation of Consent (the "Revocation"), revoking
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all consents previously executed by such member or his affiliates, agents,
representatives, or any person or entity controlled by or under common control
with such member, if any, and such member represents and warrants to such effect
to Tesoro. Each of such members, on behalf of himself or itself and his or its
affiliates, agents, representatives, and any person controlled by or under
common control with him, agrees to the following:
A. Except as contemplated by paragraph C of this Section 13,
neither he nor it nor any of his or its affiliates, agents,
representatives, or any person or entity controlled by or under common
control with such member, will sign or deliver any consents relating
to any of the matters (the "Matters") as to which consents are, were
or are proposed to be solicited pursuant to the Committee Schedule.
B. Neither he nor it nor any of his or its affiliates, agents,
representatives, or any person or entity controlled by or under common
control with such member, will take any action to revoke the
Revocation.
C. Neither he nor it nor any of his or its affiliates, agents,
representatives, or any person or entity controlled by or under common
control with such member, will deliver to Tesoro any consents relating
to any of the Matters, except the consent dated April 1, 1996,
relating to 100 shares of common stock of Tesoro held in the name of
Kevin S. Flannery, which consent is covered and revoked by the
Revocation.
D. He and it and his and its affiliates, agents,
representatives, and any person or entity controlled by or under
common control with such member, will immediately cease soliciting
consents relating to the Matters, will not encourage, and, in response
to any inquiry will specifically discourage, all other persons with
respect to the delivery to Tesoro of consents relating to any of the
Matters.
14. The parties hereto agree that any breach of the this
Agreement shall constitute irreparable harm and entitle any party to obtain
immediate injunctive relief to enforce compliance with the terms hereof. The
failure of any party to seek or obtain immediate relief shall not constitute a
waiver of, and shall not relieve any party from, his or its obligations
hereunder.
15. In the event that Tesoro or the Board of Directors of Tesoro
shall breach the provisions of paragraphs 4, 5, 6 or 12 of this Agreement, the
Solicitation Parties shall be relieved of their obligations pursuant to
paragraphs
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3 and 12 of this Agreement for the balance of the Standstill Period. In the
event any of the Solicitation Parties shall breach the provisions of paragraphs
2, 3, 7, 12 or 13, Tesoro shall be relieved of its obligations pursuant to
paragraphs 4, 5 and 12 of this Agreement. In the event that Tesoro or the Board
of Directors of Tesoro shall breach the provisions of paragraphs 6 or 12 of this
Agreement, Ardsley shall be relieved of its obligations pursuant to paragraphs
10 and 12 of this Agreement for the balance of the Standstill Period. In the
event that Ardsley shall breach the provisions of paragraphs 8, 10 or 12, Tesoro
shall be relieved of its obligations pursuant to paragraphs 6 and 12 of this
Agreement.
16. Immediately following the end of the Standstill Period,
provided that the parties shall have complied with the provisions of this
Agreement in all material respects, the parties hereto shall exchange mutual
general releases with respect to all claims or counterclaims which have or could
have been asserted, or which arise out of any of the acts, transactions or
events alleged, in the Pending Action (the "Released Claims"). Tesoro hereby
covenants not to sue any or each of the Solicitation Parties or Ardsley during
the Standstill Period with respect to any Released Claim provided that such
Solicitation Party or Ardsley, as the case may be, complies with his or its
respective obligations pursuant to paragraphs 2, 3, 7, 12 and 13 above. Each of
the Solicitation Parties hereby covenants not to sue Tesoro during the
Standstill Period with respect to any Released Claim provided that Tesoro
complies with its obligations pursuant to paragraphs 4, 5, 6 and 12 above. Each
of the parties hereto hereby agrees to toll the running of the applicable
statutes of limitations with respect to the Released Claims until the conclusion
of the Standstill Period. The provisions of this paragraph shall not operate as
a bar to an action to enforce the terms of this Agreement.
17. Except as otherwise provided herein, this Agreement shall
remain in full force and effect throughout the Standstill Period, unless all of
the parties hereto agree in writing to terminate this Agreement prior to the
conclusion of the Standstill Period.
18. No modification, amendment or waiver of the terms of this
Agreement shall be enforceable against any party hereto absent a written
agreement signed by Tesoro and such other party.
19. If for any reason the settlement provided for herein is not
consummated, all negotiations and proceedings relating to the settlement shall
be without prejudice to the rights of the parties hereto, who shall be restored
to the status quo existing as of the date of this agreement.
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20. Neither this Agreement, nor the fact of its existence nor
any of the terms hereof, nor any negotiations or proceedings relating thereto,
shall be offered or received in evidence in the Pending Action or in any other
action or proceeding, other than an action to enforce the terms hereof, nor
shall they be deemed to constitute any evidence or admission of liability or
wrongdoing on the part of any party to the Pending Action, all of which is
expressly denied, it being understood that the parties have agreed to enter into
this Agreement and the settlement contemplated hereunder solely to avoid the
expense, distraction and inconvenience of further protracted litigation and
other proceedings.
21. This Agreement shall inure to the benefit of and is binding
upon the parties and their respective officers, directors, employees, partners,
heirs, executors, successors, representatives, agents and assigns.
22. This Agreement shall be governed by the laws of the State of
New York, exclusive of the law on conflicts of laws.
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23. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original.
The executed signature pages from each actual or telecopied counterpart may be
joined together and attached to such original and shall constitute one and the
same instrument.
Whelan Management Corp. /s/ Kevin S. Flannery
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Kevin S. Flannery
By: /s/ Kevin S. Flannery /s/ Alan Kaufman
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Title: President Alan Kaufman
Ardsley Advisory Partners /s/ Robert S. Washburn
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Robert S. Washburn
By: /s/ Kevin M. McCormack /s/ James H. Stone
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Title: Partner James H. Stone
Tesoro Petroleum Corp. /s/ George F. Baker
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George F. Baker
By: /s/ Bruce A. Smith /s/ Douglas Thompson
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Title: President and Douglas Thompson
Chief Executive
Officer
/s/ Gale E. Galloway
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Gale E. Galloway
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