SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as Permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
TESORO PETROLEUM CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
-1-
PRELIMINARY MATERIALS
[TESORO LETTERHEAD]
___________________________________, 1996
REVOCATION OF CONSENT STATEMENT
BY BOARD OF DIRECTORS OF
TESORO PETROLEUM CORPORATION
IN OPPOSITION TO CONSENT SOLICITATION
BY CERTAIN STOCKHOLDERS
Dear Fellow Stockholders:
This Revocation of Consent Statement is furnished by the Board of Directors
(the "Board") of Tesoro Petroleum Corporation, a Delaware corporation ("Tesoro"
or the "Company"), to the holders of outstanding shares of the Company's Common
Stock, par value $.16 2/3 per share (the "Common Stock"), in connection with the
Board's opposition to the solicitation (the "Flannery Solicitation") of written
stockholders' consents by a so-called committee of Kevin S. Flannery, Alan
Kaufman, James H. Stone, Robert S. Washburn and George F. Baker, who call
themselves The Stockholders' Committee for New Management of Tesoro Petroleum
Corporation and are referred to herein as the "Committee" or the "Flannery
Group," to (i) remove, without cause, all of the current members of the Board,
(ii) elect to the Board a slate of five nominees designated by the Committee and
(iii) amend the Company's By-laws to reduce the number of directors to five, to
permit vacancies in a director position to be filled by written consent and to
require certain vacancies in director positions to be filled only by stockholder
action and repeal all changes to the Company's By-laws adopted on or after
November 14, 1995. This Statement and the enclosed GREEN Revocation of Consent
Card are first being mailed to stockholders on or about ________________ ___,
1996.
THE BOARD UNANIMOUSLY OPPOSES THE FLANNERY SOLICITATION. THE BOARD URGES
YOU NOT TO SIGN ANY WHITE CONSENT CARD SENT TO YOU BY HIS COMMITTEE.
IF YOU PREVIOUSLY SIGNED AND RETURNED THE WHITE CONSENT CARD YOU HAVE EVERY
RIGHT TO CHANGE YOUR MIND. WHETHER OR NOT YOU HAVE SIGNED THE WHITE CONSENT
CARD, THE BOARD URGES YOU TO SIGN, DATE AND MAIL THE ENCLOSED GREEN REVOCATION
OF CONSENT CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. ALTHOUGH SUBMITTING A
CONSENT REVOCATION WILL NOT HAVE ANY LEGAL EFFECT IF YOU HAVE NOT SUBMITTED A
CONSENT CARD, IT WILL HELP US KEEP TRACK OF THE PROGRESS OF THE STOCKHOLDER
VOTE. REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR REVOCATION OF CONSENT IS
IMPORTANT. PLEASE ACT TODAY.
IF YOUR SHARES ARE HELD IN THE NAME OF A BANK, BROKER OR OTHER NOMINEE, WE
URGE YOU TO CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND DIRECT HIM OR
HER TO EXECUTE A GREEN REVOCATION OF CONSENT CARD ON YOUR BEHALF, VOTING AS
RECOMMENDED BY TESORO PETROLEUM CORPORATION'S BOARD OF DIRECTORS. YOU SHOULD
ALSO SIGN, DATE AND MAIL YOUR GREEN REVOCATION OF CONSENT CARD WHEN YOU RECEIVE
IT IN THE MAIL. PLEASE DO SO AT ONCE.
-2-
If you have any questions about giving your revocation of consent or
require assistance, please call:
Georgeson & Company, Inc.
88 Pine Street
New York, New York 10005
1-800-223-2064
-3-
REASONS TO REJECT THE
FLANNERY SOLICITATION
In furtherance of their goal of taking control of the Board of Directors of
the Company, the Flannery Group is seeking written consents of the Company's
stockholders to remove the current duly elected Board of Directors and to
replace them with five persons hand-picked by the dissidents. In response to
the Flannery Solicitation, the Board of Directors is asking stockholders not to
provide their consent and is soliciting from the Company's stockholders
revocations of any consents that may have been given.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY BELIEVES THAT THE
FLANNERY GROUP PROPOSALS ARE NOT IN THE BEST INTERESTS OF THE COMPANY'S
STOCKHOLDERS AND URGES STOCKHOLDERS TO REJECT THE PROPOSALS. YOUR BOARD OF
DIRECTORS THEREFORE REQUESTS THAT YOU SIGN, DATE AND RETURN THE ENCLOSED GREEN
REVOCATION OF CONSENT CARD, WHETHER OR NOT YOU HAVE PREVIOUSLY SIGNED AND
RETURNED THE WHITE CONSENT CARD.
REASONS TO SUPPORT
THE BOARD OF DIRECTORS
The Board of Directors strongly believes that the arguments set forth by
the Flannery Group are seriously flawed and misleading, that the Flannery
Group's proposed agenda for the Company is totally unrealistic and that it is
based on a lack of understanding of Tesoro's business and our industry. Worse,
Mr. Flannery appears to be motivated by self-interest at the expense of the
Tesoro stockholders.
Furthermore, the Flannery Group's attempts to take over Tesoro would, the
Board believes, deprive the stockholders of the opportunity to benefit from the
progress now underway at Tesoro. This progress has been accomplished by an
experienced management team that has implemented a sound and realistic strategy
that has already achieved significantly improved results over the past three
years. Entering into 1996, Tesoro has a healthy financial structure, has
reduced costs, and has enhanced operations in each of its business segments.
The fruits of the Company's strategy are becoming more and more apparent
and hold, the Board believes, the potential to significantly improve future
performance. Now is not the time to interrupt this strategy and the work of
current management.
-4-
Look at the record:
. For 1995, Tesoro reported net earnings of $54.6 million, which
represents the Company's best performance in over ten years and,
excluding the gain on the sale of certain interests in the Bob West
Field in 1995, its best performance in the last five years;
. Efforts to reorganize the Company, restructure its finances and reduce
debt and costs have been successful and will continue;
. Since 1992, when the Board installed new management, Tesoro's stock
price has nearly tripled; operating profits have soared from $10
million in 1992 to in excess of $100 million in 1995; long-term
debt-to-capitalization has improved to approximately 42 percent at the
end of 1995, down from 83 percent in 1992; and total debt (including
redeemable preferred stock) has been cut from $273 million in 1992 to
an estimated $164 million at 1995 year end;
. The exploration and production operations achieved outstanding
operating profits during the last three years and continue to develop
existing properties and explore for reserves with excellent success
rates at low cost;
. The refining and marketing operations have been improved by producing
higher-margin products and expanding marketing efforts, despite
continued difficult industry conditions; and
. The oil field supply and distribution operations have been
restructured by streamlining core operations and by selling
unprofitable land-based operations. In addition, the Company has
recently acquired Coastwide Energy Services, Inc. Management believes
that the combining of Coastwide with the Company's existing oil field
supply and distribution operations will generate significantly
improved results from these operations in the future.
AS OPPOSED TO THESE REAL SUCCESSES BY
THE COMPANY'S MANAGEMENT AND ITS TANGIBLE FUTURE PLANS,
WHAT DOES THE FLANNERY GROUP HAVE TO OFFER?
The Flannery Group has no specific strategies for maximizing stockholder
value. The Flannery Group has admitted that it needs time (after reimbursement
out of Tesoro's corporate treasury for its estimated expenses of $500,000 in
waging its consent solicitation) to conduct "a detailed review of the Company
and its assets, corporate structure, dividend policy, capitalization,
operations, properties, policies and personnel" in order to develop "strategies
to enhance stockholder value."
Mr. Flannery has circulated a proposed business agenda for Tesoro in
connection with a previous unsuccessful take-over attempt, and he repeats many
of these proposed actions in his solicitation material. These proposals, which
would essentially entail a breakup of the Company, reveal an utter lack of
understanding of Tesoro's businesses. In his plan, Flannery calls above all for
the sale of the Company's Alaska refinery. The Flannery Group stated in its
solicitation material that it believes that "there is an opportunity to increase
value for stockholders by divesting the Refining Business and focusing on the
core business of exploiting the Company's valuable interest in the Bob West and
Bolivian fields." Management believes that Flannery and the Flannery Group
don't understand the current industry conditions and have no reasonable basis to
believe that these proposals will enhance shareholder value. The facts are:
-5-
. Until prompted to do so in response to the Company's counterlawsuit,
Flannery had failed to disclose and apparently did not understand that
numerous refineries are on the market and there appear to be few
interested purchasers;
. Flannery fails to disclose that many refineries that had been offered
for sale have since been shut down;
. Flannery would seek to sell the refinery at a low point in the industry
cycle, which management believes would result in a fire-sale price at
best.
Therefore, a sale at current market prices would in our view adversely
affect shareholder value by wiping out any value gained by the Company's
strategic improvements in its refinery operations, depriving shareholders of the
opportunity to participate in the cyclical turnaround expected by analysts and
industry experts.
Tesoro has considered a possible sale of the refining and marketing
operations, but management believes that such a sale is not achievable in
today's market on a reasonable commercial basis. It is no secret that Tesoro's
management has been and is engaged in an ongoing effort to evaluate various
options in order to enhance the return from these assets, including a possible
joint venture, strategic alliance or business combination. Since 1993, Tesoro
has held discussions with at least six companies regarding the evaluation of
such possible transactions; however, none of those discussions has yet resulted
in a transaction. Management will continue to evaluate ways to maximize the
value of these assets for our shareholders. Notwithstanding these efforts,
Tesoro's strategy has been to invest in high return, quick payback projects that
enhance the flexibility of the refinery to produce higher-margin products and to
expand efforts to market the refinery's output.
Despite some of the worst industry conditions in the past decade, Tesoro
successfully cut first-half 1995 losses of its refining and marketing operations
during the last half of the year and reported an operating profit for these
operations for 1995. The Flannery Group misleadingly criticizes the
improvements that have been made at the refinery. Flannery states, "During
1994, the Company made $32 million of capital expenditures for the refining
business . . . and that all that money would be better spent if used to reduce
the Company's high-cost debt or in developing the Company's E&P Business." He
is wrong! The improvements that have been made, especially the expenditure of
$25 million for a vacuum unit, have had a positive impact that has resulted in a
contribution of approximately $14 million in 1995 alone, and the investment in
the vacuum unit should pay for itself within the next six months. No reduction
of debt would have resulted in such a return on investment. We expect that our
recent initiatives, along with expected improvements in industry conditions,
will generate solid operating profits for these operations in the future.
Flannery has clearly shown a lack of understanding of Tesoro's natural gas
exploration business by continually questioning the way in which the Company
reports its gas reserves. His public statements that Tesoro has intentionally
understated its reserves are simply untrue. Tesoro has stated its reserves in
accordance with standard industry practice, based upon the evaluation of
knowledgeable and respected independent engineers. Nevertheless, Flannery would
have you believe that the Company has been deceiving you. On the contrary,
Flannery has been misleading you by using his distorted claims to seek your vote
and install himself in control of the Company. In fact, Flannery admitted under
oath in a deposition given in connection with his previously failed attempt to
replace the Board, "I don't know anything about the E&P [exploration and
production] business."
Flannery's experience is in equity trading, not corporate finance, which is
evidenced by his statement that his group would "reduce or refinance high-cost
debt." Tesoro's management has taken important steps to reduce debt by over
$100 million since 1992, including the recent redemption of $34.6 million of its
12-3/4% subordinated debentures. Apparently, Flannery fails to realize that
further refinancing, prior to an improvement in the Company's credit ratings,
would not be prudent as any interest savings that might be realized in the short
term would be more than offset by the cost of the refinancing. Management
believes that its strategies and initiatives will result in an improvement in
the Company's credit ratings, which should permit the refinancing of its debt on
a more attractive basis and would result in significantly greater interest
savings and fewer restrictions. Management regularly meets with investment
bankers to assess opportunities to refinance debt. In addition, management has
been holding discussions since the fall of 1995 on refinancing the Company's
debt with the state of Alaska.
-6-
Moreover, the Flannery Group's contention that proceeds from the sale of
the refinery could be used to pay down high-cost debt lacks any credibility.
Until prompted to do so in response to the Company's counterlawsuit, they failed
to disclose that it is unlikely that a sale of the refinery in today's market
would cover the approximately $90 million of refinery debt, together with the
environmental costs associated with the refinery, let alone leave excess funds
to repay other debt.
Flannery has also revealed his lack of understanding of Tesoro's business
by his inconsistent statements. He has alternatively condemned and praised the
same business decisions by Tesoro as it has suited his needs to gain publicity
for himself. For example, at Tesoro's 1995 annual meeting, Flannery criticized
the Company's decision to consider selling certain portions of its Bob West
Field properties. Yet once a sale was actually announced, Bob Thomas, chief
financial officer of Whelan Management Corp., a member of the Flannery Group,
was quoted in the press as saying that this sale vindicates their position
because Tesoro is finally doing some of the things they have been urging for the
last year and a half.
IS FLANNERY REALLY MOTIVATED BY
A DESIRE TO ENHANCE SHAREHOLDER VALUE?
As he was forced to reveal in a deposition under oath, Flannery, in
previous attempts to sell the Company, expected to receive a multi-million
dollar commission. Flannery would have you believe that "opportunity comes from
the possibility of . . . disposing of the refining business and other assets .
. . or perhaps by selling the entire Company to another industry participant .
. ." Opportunity for whom? Flannery has now disclosed this clear conflict of
interest, but he did not do so until sued by the Company for failure to make
such disclosure.
In previous and unauthorized efforts to sell the Company, Flannery has
engaged in activities which management believes may have already harmed the
Company and the stockholders' investment in it. By styling himself as an
investment banker and unilaterally contacting as many companies as he considered
to be potential buyers for the Company or its exploration and production
business, without any apparent success, and especially by seeking to sell the
Company to Tennessee Gas Pipeline Company ("Tennessee Gas"), Flannery
interfered, in management's view, with delicate and important settlement
negotiations between Tennessee Gas and the Company. Because of his
interference, Tennessee Gas suspended negotiations and closed a window of
opportunity to settle the matter, even as the parties were preparing formal
settlement papers. Management believes that this could result in substantial
damage to Tesoro.
Flannery's meddling and disruption of Tesoro's business must be ended once
and for all. Over the past few years, his actions have interfered with the
Company's progress and forced management to deal with the distractions he has
created, wasting valuable time and resources. THIS HARASSMENT MUST STOP!
THEREFORE, THE BOARD URGES THAT STOCKHOLDERS NOT SUPPORT THE FLANNERY GROUP
IN ITS ATTEMPT TO REMOVE AND REPLACE YOUR BOARD OF DIRECTORS AND URGES
STOCKHOLDERS TO REVOKE ANY CONSENT THAT MAY HAVE BEEN GIVEN.
REASONS TO REJECT THE FLANNERY GROUP'S PROPOSAL TO
AMEND THE COMPANY'S BY-LAWS
The Flannery Group's proposed amendments to the Company's By-laws are
intended to facilitate the proposed removal and replacement of the current
members of the Board with the Flannery Group's nominees. The proposed
amendments are not intended to improve corporate governance or otherwise to
benefit the Company or its stockholders.
The Flannery Group proposes to amend the Company's By-laws to set the
number of directors of the Company at five (the number of nominees that the
Flannery Group is urging stockholders to elect) (Section 2.1 of the By-laws), to
provide that any vacancies on the Board that result from removal of directors by
stockholders be filled only by stockholders (Section 2.2 of the By-laws), to
provide that directors may be removed by written consent (Section 2.7 of the
By-laws), and to provide that any By-laws adopted on or after November 14, 1995
(the date on which the Company
-7-
last made a quarterly filing with the Securities and Exchange Commission ("SEC")
disclosing amendments to its By-laws), be deleted. No amendments to the
Company's By-laws have been made since November 14, 1995.
Your Board believes that the proposed amendments to the By-laws are unwise,
independent of the Flannery Group's efforts to seize control of your Board. If
the Flannery Group's slate is defeated, then the proposed amendments to the
By-laws would not only be superfluous but also would hinder the flexibility of
the Board in the future by setting a definite number of directors, by taking
away the right of the Board to fill vacancies between stockholder meetings, and
by preventing any amendments to the By-laws in the future.
THEREFORE, THE BOARD URGES THAT STOCKHOLDERS NOT CONSENT TO THE PROPOSED
AMENDMENTS TO THE BY-LAWS AND TO REVOKE ANY CONSENT THAT MAY HAVE BEEN GIVEN.
LITIGATION
On December 26, 1995, Messrs. Flannery, Kaufman, Washburn, Stone and Baker
filed suit in the Federal District Court for the Western District of Texas, San
Antonio Division (Civil Action SA95CA1298) against the Company and Bruce A.
Smith, its President and Chief Executive Officer. The suit asks the court (i)
to enjoin the Company and Mr. Smith from bringing legal action for wrongdoing by
the plaintiffs in any other court, (ii) to declare that the Company's
Shareholder Rights Plan does not apply to the Committee's efforts to solicit
written consents, (iii) to declare that the Company's By-laws permit
stockholders to remove directors by consent, (iv) to declare that the plaintiffs
have complied with certain federal securities laws and (v) to enjoin the Company
and Mr. Smith from taking any action to delay or otherwise unlawfully interfere
with the Committee's efforts to solicit consents. However, the complaint
contains no allegations whatsoever that either the Company or Mr. Smith has done
anything to delay or otherwise unlawfully interfere with the Committee's
solicitation.
On January 8, 1996, the Company moved to dismiss the Flannery Group's
complaint since it does not allege an actual case or controversy, does not
allege any actual illegal conduct by the Company and otherwise improperly
requests that the court make legal determinations that are not ripe for
consideration. The Company also filed an answer and counterclaims which include
allegations that the Flannery Group or members thereof and others have violated
the federal securities laws, have disseminated false and misleading information
to the Company's stockholders in an effort to take control of the Company and
tortiously interfered with the business of the Company, resulting in significant
harm to the Company. Among the allegations made by the Company is the
allegation that Ardsley Advisory Partners ("Ardsley") is part of the Flannery
Group and, as a result, the documents filed by the Flannery Group and by Ardsley
with the SEC do not comply with the requirements of the law and are false and
misleading. See "Security Ownership of Certain Beneficial Owners."
Also, on January 8, 1996, the United States District Court, at the request
of the Company, issued a temporary restraining order restraining the Flannery
Group from taking any action in furtherance of its consent solicitation,
including soliciting or attempting to solicit consents, filing or disseminating
to the Company's stockholders or the public any Schedule 13D or 14A statements
relating to the Company, or making any false or misleading statements regarding
the Company. In connection with the request for the restraining order, the
Company volunteered not to commence any judicial proceedings in any other forum
that would require litigation of issues common to those before the court or to
take any action unlawfully to delay or interfere with the plaintiffs efforts to
solicit written consents. On January 12, 1996, the court entered an order
disqualifying counsel for the Flannery Group and subsequently extended the
temporary restraining order as a result. On January 31, 1996, the court held a
hearing on the Company's preliminary injunction motion. In connection
therewith, the Flannery Group filed with the court a substantially revised
Schedule 14A statement purporting to correct the false and misleading statements
that the Company claims are in the Flannery Group's initial 14A statement. On
February 1, 1996, the court dissolved the temporary restraining order and denied
the motion for a preliminary injunction.
-8-
THE CONSENT PROCEDURE
The record date for determination of the stockholders of the Company
entitled to execute, withhold or revoke consents relating to the Flannery
Solicitation is the close of business on February 24, 1996 (the "Record Date").
Under Delaware law, unrevoked consents from the holders of record of a majority
of the outstanding shares of Common Stock on the Record Date are necessary for
the Company's stockholders to act by written consent to (i) remove, without
cause, all of the members of the current Board, (ii) elect the Committee
nominees and (iii) amend the Company's By-Laws as proposed by the Committee. As
of the Record Date, there were ___________ shares of Common Stock outstanding,
each entitled to one vote per share.
Under Section 228 of the Delaware General Corporation Law, all consents
will expire unless valid, unrevoked consents representing a majority of the
outstanding shares of Common Stock of the Company are delivered to the Company
within 60 days of the earliest-dated consent. No consents have been delivered
by the Committee to the Company. Accordingly, the Company does not know the
start date of the 60-day period.
A stockholder may revoke any previously signed consent by signing, dating
and returning to the Company a GREEN Revocation of Consent Card. A consent may
also be revoked by delivery of a written revocation of consent to the Committee.
Stockholders are urged, however, to deliver all revocations of consents to
Georgeson & Company, Inc., 88 Pine Street, New York, New York 10005 (Facsimile
No. 212-440-9009). The Company requests that if a revocation is instead
delivered to the Committee, a photostatic copy of the revocation also be
delivered to the Company, c/o Georgeson & Company, Inc., at the address set
forth above, so that the Company will be aware of all revocations. Any
revocation of consent may itself be revoked at any time by signing, dating and
returning a subsequently dated white consent card sent to you by the Committee
to the Committee, or by delivery of a written revocation of such revocation of
consent to the Company or the Committee.
The Company has in its By-laws a procedure to handle consents solicited by
stockholders. As contemplated by Section 1.9 of the By-laws, the Company will
retain an independent inspector of elections in connection with the Flannery
Solicitation.
Only stockholders as of the Record Date are eligible to execute, withhold
or revoke consents in connection with this solicitation. Persons owning Common
Stock beneficially (but not of record), such as persons whose ownership of
Common Stock is through a broker, bank or other financial institution, should
contact such broker, bank or financial institution and instruct such person to
execute the GREEN revocation card on their behalf [or to have such broker's,
bank's or financial institution's nominee (such as Cede & Co.) execute such
revocation card].
If you have any questions concerning this Revocation of Consent Statement
or need assistance in executing the enclosed GREEN revocation card, please
contact Georgeson & Company, Inc., 88 Pine Street, New York, New York 10005
(Telephone No. 1-800-223-2064).
Carefully review this Revocation of Consent Statement. YOUR RESPONSE IS
IMPORTANT. You are urged to reject the Committee's solicitation efforts by
promptly completing, signing, dating and mailing the enclosed GREEN revocation
card. Your Board strongly urges you not to return any white consent cards.
Please be aware that if you sign a white card but do not check any of the boxes
thereon, you will be deemed to have consented to all of the Committee's
proposals.
DIRECTOR AND OFFICER INFORMATION
Information Concerning Directors
Certain information as to each current duly elected director of the Company
is set forth in the table below and in the following paragraphs. Certain of the
information appearing in the table and the notes thereto has been furnished to
the Company by the respective directors.
-9-
Served as
Director of
Age at the Company
December 31, or Predecessor Other Positions and
Name(1) 1995 Companies from Offices with the Company
- ------- ---- -------------- ------------------------
Robert J. Caverly. . . . . .77 1992 Chairman of the
Board of Directors(2)(3)(4)
Peter M. Detwiler. . . . . .67 1967 (2)(3)
Steven H. Grapstein. . . . .37 1992 Vice Chairman of the
Board of Directors(4)(5)
Raymond K. Mason, Sr.. . . .68 1983
John J. McKetta, Jr. . . . .80 1980 (3)(5)
Bruce A. Smith . . . . . . .52 1995 President and Chief
Executive Officer(2)
Murray L. Weidenbaum . . . .68 1992 (2)(3)(4)(5)
- -------------------------------------
(1) Michael D. Burke resigned as a director of the Company on January 12, 1996,
to focus his full time and attention on building his new business.
(2) Member of the Executive Committee (Mr. Caverly, Chairman).
(3) Member of the Compensation Committee (Mr. Detwiler, Chairman).
(4) Member of the Governance Committee (Mr. Caverly, Chairman).
(5) Member of the Audit Committee (Dr. Weidenbaum, Chairman).
-------------------------------------
Robert J. Caverly was elected Chairman of the Board of Directors in May
1995. Mr. Caverly was Vice Chairman of the Board of Directors from February
1995 until May 1995. Mr. Caverly is a consultant and investor. For the last
five years he has performed interim management assignments for various real
estate development projects and has been a consultant on real estate matters to
financial institutions and law firms. Mr. Caverly was a director of Contel
Corporation from 1975 to March 1991. From 1972 through 1979, Mr. Caverly served
in the positions of Executive Vice President of Operations, director, and member
of the Executive Committee of Occidental Petroleum Corporation.
Peter M. Detwiler is presently President and Chief Executive Officer of
Pinoak Digital Corporation, a Federal Communication Commission licensed marine
high speed digital communications company. Mr. Detwiler is Chairman of the
Board of Detwiler & Company, Inc., a consulting company. He is the former Vice
Chairman of the Board of Directors of E.F. Hutton & Company Inc. and the E.F.
Hutton Group, New York, New York, a major financial firm, with which he had been
associated since 1961.
Steven H. Grapstein was elected Vice Chairman of the Board of Directors, a
non-officer position, in February 1996. Mr. Grapstein has been a Vice President
of Kuo Investment Company and subsidiaries, an international investment group,
since September 1985. He is a director of several of the Kuo companies. Mr.
Grapstein has been a Vice President of Oakville N.V. since 1989. Mr. Grapstein
is also a director of Baldwin Plc., which is an entertainment and
leisure-related entity. See "Security Ownership of Certain Beneficial Owners"
for information regarding the securities of the Company owned by Oakville N.V.
Raymond K. Mason, Sr., has been Chairman of the Board of Directors of
American Banks of Florida, Inc., since 1978. Mr. Mason has served as Chairman
of the Board of Directors of American Security Life Assurance Company of
-10-
North Carolina ("ASLNC") and its parent, American Security Life Assurance
Company of Florida ("ASLF"). During December 1990, ASLNC and ASLF voluntarily
consented to administrative rehabilitation. Pursuant to administrative
rehabilitation, Mr. Mason's authority as Chairman of the Board of Directors of
ASLNC and ASLF was automatically suspended. Both of these companies are
presently in liquidation. In connection with the liquidation of ASLNC, Mr.
Mason was named as a co-defendant in a lawsuit alleging violations of federal
and state RICO statutes, common law fraud and unfair and deceptive trade
practices. The parties, without admitting liability, have entered into a
settlement agreement which provides for cash payments to the plaintiffs, for the
purchase of certain assets owned by the estate of ASLNC, for dismissal of the
litigation with prejudice and for the delivery of general releases.
John J. McKetta, Jr., is Professor Emeritus of Chemical Engineering at The
University of Texas at Austin. Dr. McKetta has been associated with The
University of Texas since 1946.
Bruce A. Smith was elected President and Chief Executive Officer effective
September 29, 1995. Mr. Smith was Executive Vice President, Chief Financial
Officer and Chief Operating Officer of the Company from July 1995 to September
1995; Executive Vice President responsible for Exploration and Production
Operations and Chief Financial Officer of the Company from September 1993 to
July 1995; and Vice President and Chief Financial Officer of the Company from
September 1992 to September 1993. Mr. Smith was Vice President and Treasurer of
Valero Energy Corporation from 1986 to September 1992.
Murray L. Weidenbaum is an economist and educator and is the Mallinckrodt
Distinguished University Professor at Washington University in St. Louis,
Missouri, where he also serves as Chairman of the University Center for the
Study of American Business. He has been a faculty member at Washington
University since 1964. Dr. Weidenbaum is a director of May Department Stores
Company and Harbour Group, Ltd.
No director of the Company has a family relationship with any other director
or executive officer of the Company.
-------------------------------------
The Board met ten times during fiscal year 1995. Each member of the Board
attended at least 75 percent of the meetings of the Board and committees on
which such directors served during fiscal year 1995. The Board has an Executive
Committee and the following standing committees: Audit Committee, Compensation
Committee and Governance Committee.
The Executive Committee, between meetings of the Board and while the Board
is not in session, has and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Company as provided
in Article III of the By-laws of the Company and has and may exercise such other
powers and authority as may be lawfully delegated to such committee by the
Board, including the power and authority (i) to declare a dividend on the
Company's capital stock, (ii) to authorize the issuance of the Company's capital
stock, (iii) to adopt a certificate of ownership and merger pursuant to Section
253 of the Delaware General Corporation Law, and (iv) to the extent authorized
in any resolution or resolutions providing for the issuance of shares of stock
adopted by the Board or the Executive Committee as provided in subsection (a) of
Section 151 of the Delaware General Corporation Law, to fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Company or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Company or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series. The Executive
Committee met three times during fiscal year 1995.
The Audit Committee's primary purposes are (i) to aid the individual
directors of the Board as a whole in performing and fulfilling their oversight
responsibilities for financial reporting to the public; (ii) to aid in
maintaining the corporate image and credibility as it relates to financial
reporting; (iii) to recommend and support, with management and/or the Board, as
appropriate, efforts to improve and maintain standards and procedures for
financial control and quality financial reporting; (iv) to provide
communication, as necessary, between the Board and control and accounting,
legal, internal auditing and the external auditors; and (v) to recommend and
support, with management and/or the Board, as appropriate, efforts to assure the
Company's compliance with the requirements of the Foreign Corrupt Practices Act
of 1977, as amended. The Audit Committee met seven times during fiscal year
1995.
-11-
The Compensation Committee's primary purposes are (i) to review and approve
all areas of senior executive compensation including but not limited to salary
adjustments, cash incentive awards and stock incentives, and to review and
approve the aggregate amount of all merit increases, cash incentive awards and
stock incentives for the Company's other executives; (ii) to administer and
interpret the Company's Amended Incentive Stock Plan of 1982 (the "1982 Plan"),
the Company's Executive Long-Term Incentive Plan (the "1993 Plan") and any
future incentive plans, to the extent set forth in such plans; (iii) to review
Company retirement matters, consider amendments to the Company's retirement
plans based on cost and benefit considerations, make recommendations to the
Board in respect to such amendments and proposals, and review and approve any
overall changes in retirement benefit formulas; (iv) to review new employment
agreements, amendments and extensions of existing employment agreements, and to
make recommendations to the Board with respect to such agreements; (v) to
administer and interpret employment agreements and make recommendations to the
Board with respect thereto; and (vi) to consult with the Board and review with
the Board the actions of the Compensation Committee as appropriate. The
Compensation Committee met seven times during fiscal year 1995.
The Governance Committee was formed on February 6, 1996, and replaces the
Nominating Committee which met one time during fiscal year 1995. The Governance
Committee considers and recommends to the Board from time to time suitable
candidates for membership on the Board and will consider nominees recommended by
stockholders. Stockholders wishing to submit a recommendation should write to
the Governance Committee. The Governance Committee also reviews and makes
recommendations to the Board annually regarding (i) the organization and
structure of the Board and the committees of the Board and (ii) the role and
effectiveness of the Chief Executive Officer, the Board and each committee of
the Board.
In connection with the formation of the Governance Committee, the Board also
approved a retirement policy and a term limits policy for directors. Under the
retirement policy, a person may not stand for election if he or she would attain
age 72 during the term to which he or she would be elected and all present
directors, with one exception, who are 72 years or older must retire at the next
annual meeting. The exception is Mr. Caverly who, for continuity purposes, has
been asked to serve an additional one-year term as Chairman Emeritus and as
Chairman of the Governance Committee, if elected. Under the term limits policy,
no non-management director may serve more than 15 years. As a result of these
policies, Dr. McKetta and Mr. Detwiler will not be eligible to stand for
reelection at the next annual meeting.
-------------------------------------
Compensation of Directors
Each member of the Board who is not an officer of the Company receives a
base retainer of $18,000 per year, and an additional $2,000 for each meeting of
the Board or any committee thereof attended in person, and $1,000 for each
telephone meeting, including committee meetings held on the same day as a
meeting of the Board. The Chairman of the Board receives $100,000 per year for
his services, and Mr. Caverly, as Chairman of the Board, was granted a $50,000
cash bonus for his services in 1995. In addition, the Chairman of the Audit
Committee and the Chairman of the Compensation Committee each receive $5,000 per
year for their service in such positions. The Company provides group life
insurance benefits in the amount of $100,000 and accidental death and
dismemberment insurance up to a maximum of $250,000 for each of the members of
the Board who are not employees of the Company. The premium for such insurance
ranged from $132 to $3,420 for each of these directors during fiscal year 1995.
The Company currently provides health insurance to non-employee members of the
Board who are not otherwise eligible for employer-provided health insurance, on
the same basis as for active employees, with the director paying his pro rata
share of health insurance premiums.
Mr. Burke, who had been a director of the Company, resigned as a director on
January 12, 1996. Effective September 29, 1995, Mr. Burke terminated his
employment as President and Chief Executive Officer of the Company. Pursuant to
the terms of his employment agreement entered into in 1992, as amended, Mr.
Burke will receive, for a period of two years following his termination as
President and Chief Executive Officer , 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. Effective September 26, 1995, the Company entered into an agreement
with M.D. Burke & Company, formerly M.D. Burke Enterprises, Inc., a Texas
corporation solely owned by Mr. Burke ("Burke & Company"), pursuant to which
Burke & Company agreed to provide consulting services to the Company from
October 1, 1995, to December 31, 1996. The Company paid Burke & Company $75,000
in October 1995
-12-
and $250,000 in January 1996, in full payment for services to be rendered under
this agreement. See "Executive Compensation--Employment Contracts, Management
Stability Agreement and Change-in-Control Arrangements."
The Company has a Non-Employee Director Retirement Plan (the "Director
Retirement Plan") which provides that any eligible non-employee director who
elects to participate in the Director Retirement Plan and who has served on the
Board for at least 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 Director Retirement Plan provides
that the Company shall pay to such director annually a sum (the "Retirement
Amount") equal to the base annual retainer fee paid to the director at the time
such director ends service as a director to the Company. Such payments are to
be made for a period of time equal to the aggregate length of time (the "Benefit
Period") such director served on the Board (excluding any period during which
the director was a full-time employee of the Company). The Company's obligation
to pay the Retirement Amount terminates upon the death of the director; however,
in the event of death of a director after age 65, the Company will pay an amount
equal to 50 percent of the Retirement Amount to the 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 is prorated based upon the director's date of death.
If a director does not have a spouse at the time of his death, no further
benefits will be paid.
In addition to the retirement benefit provided above, if a non-employee
director was the Chairman of the Board or the Chairman of any committee of the
Company's Board at the time the director's service ends, the Company will pay
such director a one-time payment equal to the fee paid during the prior calendar
year by the Company for the director's service as Chairman of the Board and/or
Chairman of any committee of the Board. In the event of the death of a director
while serving as Chairman of the Board or Chairman of any committee of the
Board, this payment will be made to such director's spouse, if living, otherwise
such payment will be made to his estate.
Effective April 1, 1995, the Board adopted the Tesoro Petroleum Corporation
Board of Directors Deferred Compensation Plan (the "Deferred Compensation Plan")
pursuant to which a director electing to participate may defer between 20
percent and 100 percent of his director fees for the ensuing year, which
deferred fees are credited to an interest-bearing account maintained by the
Company. All payments under the Deferred Compensation Plan are the sole
obligation of the Company. Upon the death of a participating director, the
balance in his account under the Deferred Compensation Plan is paid to his
beneficiary or beneficiaries in one lump sum. In the event of the disability,
retirement or the removal or resignation prior to the death, disability or
retirement of a participating director, the balance in his account will be paid
to such director in ten equal annual installments. In the event of a change of
control (as "change of control" is defined in the Deferred Compensation Plan),
the balance in each participating director's account will be distributed to him
as a lump sum within 30 days after the date of the change of control. Effective
April 1, 1995, the Company also entered into an agreement with Frost National
Bank of San Antonio, Texas, which established the Tesoro Petroleum Corporation
Board of Directors Deferred Compensation Trust for the sole purpose of creating
a fund to provide for the payment of deferred compensation to participating
directors under the Deferred Compensation Plan. As of December 31, 1995, no
members of the Board were participating in the Deferred Compensation Plan.
At the 1995 annual meeting, the Company's stockholders approved the
Non-Employee Director Stock Option Plan (the "1995 Plan") which provides for
automatic, non-discretionary annual stock options, exercisable at fair market
value as of the date of grant, to be awarded to non-employee directors. Under
the 1995 Plan, stock options with respect to 5,000 shares of the Company's
Common Stock with an exercise price of $10.125 per share were awarded to each
non-employee director on February 23, 1995, for an aggregate of 35,000 shares.
In addition, stock options for 1,000 shares with an exercise price of $11.375
per share were granted to each non-employee director of the Company on the day
following the annual meeting of stockholders in 1995 and will be granted to each
non-employee director following the annual meeting of stockholders in each
succeeding year until February 2005 when the 1995 Plan will terminate as to the
issuance of stock options. A maximum of 150,000 shares of the Company's Common
Stock is reserved for issuance upon exercise of stock options granted under the
1995 Plan.
Stock Ownership
The following table shows the beneficial ownership of the Company's Common
Stock reported to the Company as of December 31, 1995, including shares as to
which a right to acquire ownership exists (for example, through the exercise of
stock options or stock awards) within the meaning of Rule 13d-3(d)(1) under the
Securities Exchange Act
-13-
of 1934, as amended ("Exchange Act"), for each director, the Chief Executive
Officer, the other four most highly compensated officers of the Company during
1995 and, as a group, such persons and other executive officers. Unless
otherwise indicated, each person or member of the group listed has sole voting
and investment power with respect to the shares of Common Stock listed.
Beneficial Ownership of Common Stock
on December 31, 1995(1)
---------------------------------------
Shares Percent of Class
------ ----------------
Robert J. Caverly. . . . . . . . . . . . . . 9,000 (2) 0.036
Peter M. Detwiler. . . . . . . . . . . . . . 14,715 (2) 0.059
Steven H. Grapstein. . . . . . . . . . . . . 1,528,900 (2)(3) 6.168
Raymond K. Mason, Sr.. . . . . . . . . . . . 23,428 (2) 0.095
John J. McKetta, Jr. . . . . . . . . . . . . 7,565 (2) 0.031
Bruce A. Smith . . . . . . . . . . . . . . . 94,018 (4) 0.378
Murray L. Weidenbaum . . . . . . . . . . . . 7,000 (2) 0.028
Gaylon H. Simmons. . . . . . . . . . . . . . 128,540 (5) 0.516
James C. Reed, Jr. . . . . . . . . . . . . . 30,980 (6) 0.125
William T. Van Kleef . . . . . . . . . . . . 22,645 (7) 0.091
Thomas E. Reardon. . . . . . . . . . . . . . 14,163 (8) 0.057
All directors and executive officers
as a group (14 individuals) . . . . . . . 1,934,196 (9) 7.709
- -------------------------------------
(1) The shares shown do not include 430,367 shares of the Company's Common Stock
beneficially owned by Mr. Burke, who resigned as a director on January 12,
1996.
(2) The shares shown for Mr. Caverly, Mr. Detwiler, Mr. Grapstein, Mr. Mason,
Dr. McKetta and Dr. Weidenbaum include 6,000 shares each which such
directors had the right to acquire through the exercise of stock options on
December 31, 1995, or within 60 days thereafter.
(3) The shares shown include 1,522,900 shares of the Company's Common Stock
owned by Oakville N.V. Mr. Grapstein is an officer of Oakville N.V. As an
officer, Mr. Grapstein shares voting and investment power with respect to
such shares.
(4) The shares shown include 1,304 shares credited to Mr. Smith's account under
the Company's Thrift Plan and 80,866 shares which Mr. Smith had the right to
acquire through the exercise of stock options on December 31, 1995, or
within 60 days thereafter.
(5) The shares shown include 114,200 shares which Mr. Simmons had the right to
acquire through the exercise of stock options on December 31, 1995, or
within 60 days thereafter.
(6) The shares shown include 733 and 88 shares credited to Mr. Reed's account
under the Company's Thrift Plan and Employee Stock Ownership Plan,
respectively, and 23,200 shares which Mr. Reed had the right to acquire
through the exercise of stock options or stock awards on December 31, 1995,
or within 60 days thereafter.
(7) The shares shown include 728 shares credited to Mr. Van Kleef's account
under the Company's Thrift Plan and 14,660 shares which Mr. Van Kleef had
the right to acquire through the exercise of stock options or stock awards
on December 31, 1995, or within 60 days thereafter.
-14-
(8) The shares shown include 88 shares credited to Mr. Reardon's account under
the Company's Employee Stock Ownership Plan and 12,741 shares which Mr.
Reardon had the right to acquire through the exercise of stock options on
December 31, 1995, or within 60 days thereafter.
(9) The shares shown include 2,765 shares and 352 shares credited to the
accounts of executive officers and directors under the Company's Thrift Plan
and Employee Stock Ownership Plan, respectively, and 311,384 shares which
directors and executive officers had the right to acquire through the
exercise of stock options or stock awards on December 31, 1995, or within 60
days thereafter. The shares shown also include 3,000 shares acquired in the
name of an executive officer's mother with respect to which such executive
officer has voting and investment power.
-------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information based on filings made with the
SEC as to each person or group who on December 31, 1995, beneficially owned more
than 5 percent of the outstanding shares of Common Stock of the Company. The
Company has sued Ardsley claiming that it is a member of the Flannery Group and
has alleged that the documents filed by the Flannery Group and by Ardsley with
the SEC do not comply with the requirements of the law and are false and
misleading (see "Litigation" above).
Amount and Nature of
Beneficial Ownership
--------------------
Number Percent
Title of Class Name and Address of Beneficial Owner of Shares of Class
-------------- ------------------------------------ --------- --------
Common Stock . . . . . Ardsley Advisory Partners(1) 2,560,000 10.331
646 Steamboat Road
Greenwich, CT 06830
Common Stock . . . . . Oakville N.V.(2) 1,522,900 6.146
c/o Kuo Investment Company
33rd Floor
767 Third Avenue
New York, NY 10017
Common Stock . . . . . The Stockholder's Committee for 1,467,808 5.923
New Management of Tesoro
Petroleum Corporation(3)
c/o Whelan Management Corp.
8 Holley Street
Lakeville, CT 06039
- -------------------------------------
(1) According to a Schedule 13G, as amended, filed with the SEC, Ardsley states
that it is a general partnership organized under the laws of the state of
Connecticut and an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, as amended (the "Act"). In its Schedule
13G, Ardsley claims that, with respect to the shares of Common Stock of the
Company held by Ardsley, it acts as investment advisor for the discretionary
accounts of certain clients, including (i) investment partnerships for which
Ardsley serves as the management company and (ii) a general partnership
comprised of the same partners as Ardsley serves as general partner. By
reason of the provisions of Rule 13d-3 under the Act, Ardsley is deemed to
own beneficially the shares owned by the managed accounts. Each client for
whose account Ardsley had purchased Common Stock has the right to receive or
the power to direct the receipt of dividends from, or the proceeds from the
sale of, such shares purchased for his account. No such client has any of
the foregoing rights with respect to more than 5 percent of the Company's
Common Stock. In its Schedule 13G, Ardsley states that there is no
agreement or understanding among such persons to act together for the
purpose of acquiring, holding, voting or disposing of any such securities.
Philip J. Hempleman, a managing partner of Ardsley, is a citizen
-15-
of the United States. By virtue of Mr. Hempleman's position as managing
partner of Ardsley, he may be deemed to have the shared power to vote, or
direct the voting of, and the shared power to dispose, or direct the
disposition of, the shares of the Company's Common Stock held by the
discretionary accounts managed by Ardsley, and therefore, Mr. Hempleman may
be deemed to be a beneficial owner of such shares.
According to the Schedule 13D filed by the Flannery Group, on November 16,
1995, Whelan Management Corp. purchased from Ardsley options to acquire up
to 400,000 shares of Tesoro Common Stock from Ardsley. As noted above under
"Litigation," the Company has alleged that Ardsley is a member of the
Flannery Group and that the documents filed by the Flannery Group and by
Ardsley do not comply with the requirements of law and are false and
misleading.
(2) According to Schedule 13Ds on file with the SEC, Oakville N.V., a
Netherlands Antilles corporation ("Oakville"), is a wholly owned subsidiary
of Kuo Investment Limited, a Cayman Islands corporation ("Kuo"). According
to information provided to the Company by Oakville, the following persons
are Oakville's directors and executive officers: (a) Peter Yun Siak Fu,
President and Director of Oakville; Director and officer of Kuo; (b) Peter
Chong Cheng Fu, Director and Secretary of Oakville; Director and officer of
Kuo; (c) Ong Beng Seng, Vice President and Director of Oakville; Director
and officer of Kuo; (d) David Song Long Ban, Treasurer and Director of
Oakville; Director and officer of Kuo; (e) Steven H. Grapstein, Vice
President and Director of Oakville; and (f) Holland Intertrust (Curacao)
N.V., a Netherlands Antilles corporation, a Director of Oakville. Oakville
reports that it has sole voting and dispositive power over its voting
securities.
(3) According to the Schedule 13D filed with the SEC on December 26, 1995, by
the Flannery Group, Messrs. Flannery, Baker, Kaufman, Stone and Washburn
and Whelan Management Corp., the Kaufman Children's Trust, the Robert S. and
Suzanne P. Washburn Revocable Trust and Robert S. Washburn, Trustee for the
Robert S. Washburn Money Purchase, Pension and Profit Sharing Keogh Plan
Trusts have formed a group to seek to acquire control of the Company.
According to the Schedule 13D, as of the date of the filing, Whelan
Management Corp. owned 140,615 shares of the Company's Common Stock and held
options to acquire 200,000 additional shares; Mr. Flannery held, through a
trust, 18,357 shares of Common Stock and held options to acquire 8,000
shares; Mr. Baker owned 10,000 shares of Common Stock and held options to
acquire 100,000 shares; Mr. Kaufman owned 581,500 shares of Common Stock
either directly or through an individual retirement account; the Kaufman
Children's Trust owned 20,000 shares of Common Stock; Mr. Stone owned 46,000
shares of Common Stock and held options to acquire 110,000 shares; the
Robert S. and Suzanne P. Washburn Revocable Trust owned 39,545 shares of
Common Stock; and the Robert S. Washburn Money Purchase, Pension and Profit
Sharing Keogh Plan Trusts owned 193,791 shares of Common Stock. In
addition, Mr. Flannery's wife owned 2,500 shares of Common Stock as to which
Mr. Flannery disclaimed beneficial ownership and Mr. Kaufman's wife owned
10,500 shares as to which Mr. Kaufman disclaimed beneficial ownership. Mr.
Flannery has sole power to vote and direct the disposition of the shares
held in the trust for his benefit, Mr. Kaufman has the sole power to vote
and direct the disposition of the shares held by the Kaufman Children's
Trust, Mr. Washburn shares the power to vote and direct the disposition of
the shares held by the Robert S. and Suzanne P. Washburn Revocable Trust
with Suzanne P. Washburn, and Mr. Washburn has the sole power to vote and
direct the disposition of the shares held by the Robert S. Washburn Money
Purchase, Pension and Profit Sharing Keogh Plan Trusts.
-------------------------------------
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10 percent of the Company's voting
stock to file with the Commission initial reports of ownership and reports of
changes in ownership of Common Stock or other equity securities of the Company.
The Company believes that during the fiscal year ended December 31, 1995, its
directors, executive officers and holders of more than 10 percent of the
Company's voting stock complied with all Section 16(a) filing requirements with
the following exception: Bruce A. Smith was late in filing a Form 4 covering
two transactions.
-16-
EXECUTIVE COMPENSATION
Summary of Compensation
The following table contains information concerning the annual and
long-term compensation for services in all capacities to the Company for fiscal
years ended December 31, 1995, 1994 and 1993, of Mr. Burke, who terminated his
employment as President and Chief Executive Officer of the Company effective
September 29, 1995, and resigned as a director of the Company on January 12,
1996, and those persons who were on December 31, 1995, (i) the Chief Executive
Officer and (ii) the other four most highly compensated officers of the Company
(the "named executive officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards
------------------------------------- ------------------------
Other Annual Restricted Stock All Other
Name and Salary Bonus Compensation Stock Options Compensation
Principal Position Year ($) ($) ($)<F1> Award(s)($) (Shares) ($)<F2>
- ------------------ ---- ------ ----- ------------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael D. Burke 1995 347,885 184,438 -- -- -- 1,821,795
1994 450,000 450,000 34,121 -- 209,000 238,942
1993 450,002 157,500 21,911 -- -- 195,190
Bruce A. Smith 1995 347,692 350,000 -- -- 100,000 320,612
President and 1994 288,462 300,000 -- -- 71,000 145,946
Chief Executive 1993 200,504 70,000 50,248 -- -- 3,719
Officer
Gaylon H. Simmons 1995 300,000 118,125 -- -- 47,000 307,588
Executive Vice 1994 294,231 300,000 1,045 -- 71,000 160,373
President, Refining, 1993 244,231 87,500 8,438 -- 150,000 32,308
Marketing and Crude Supply
James C. Reed, Jr. 1995 192,539 161,000 -- -- 20,000 568,312
Executive Vice 1994 173,077 175,000 -- -- 26,000 185,643
President, General 1993 124,078 44,667 -- -- 25,000 78,938
Counsel and Secretary
William T. Van Kleef 1995 169,635 129,000 -- -- 20,000 60,962
Senior Vice President 1994 149,039 91,931 -- -- 11,300 38,445
and Chief Financial 1993 100,962 33,500 -- -- 16,000 8,600
Officer
Thomas E. Reardon 1995 156,750 86,625 -- -- 10,000 114,381
Vice President, Human 1994 130,385 69,713 -- -- 11,300 181,356
Resources and 1993 119,037 20,910 -- -- 16,000 74,840
Environmental
- -------------------------------------
<FN>
<F1> No payments were made to the named executive officers in 1995 which are
reportable as Other Annual Compensation. Other Annual Compensation for
1994 reflects income tax reimbursements for Mr. Burke and Mr. Simmons.
Other Annual Compensation for 1993 includes income tax reimbursements of
$21,911, $8,438 and $17,800 for Mr. Burke, Mr. Simmons and Mr. Smith,
respectively, and $32,448 of perquisites and other personal benefits for
Mr. Smith. The aggregate amount of perquisites and other personal benefits
was less than either $50,000 or 10 percent of the total annual salary and
bonus reported for the other named executive officers for all periods
shown.
-17-
<F2> All Other Compensation for 1995 includes $1,120,000 in lump-sum termination
benefits for Mr. Burke; $55,261 paid to Mr. Burke for accrued and unused
vacation to the date of his termination; amounts contributed by the Company
and earnings on the respective executive officer's account in the Funded
Executive Security Plan (see "Retirement Benefits" on page 18) of $642,034,
$316,112, $303,088, $563,812, $56,462 and $109,881 for Mr. Burke, Mr.
Smith, Mr. Simmons, Mr. Reed, Mr. Van Kleef and Mr. Reardon, respectively;
and amounts contributed to the Company's Thrift Plan of $4,500 for each of
the executive officers. All Other Compensation for 1994 includes
relocation expenses of $50,383 and $1,500 for Mr. Burke and Mr. Simmons,
respectively, related to their employment with the Company; amounts
contributed by the Company and earnings on the respective executive
officer's account in the Funded Executive Security Plan of $180,944,
$153,046, $139,254, $180,417, $36,022 and $177,445 for Mr. Burke, Mr.
Simmons, Mr. Smith, Mr. Reed, Mr. Van Kleef and Mr. Reardon, respectively;
and amounts contributed to the Company's Thrift Plan of $7,615, $5,827,
$6,692, $5,226, $2,423 and $3,911 for Mr. Burke, Mr. Simmons, Mr. Smith,
Mr. Reed, Mr. Van Kleef and Mr. Reardon, respectively. All Other
Compensation for 1993 includes relocation expenses of $36,421 and $16,500
for Mr. Burke and Mr. Simmons, respectively; amounts contributed by the
Company and earnings on the respective executive officer's account in the
Funded Executive Security Plan of $153,057, $15,808, $2,104, $75,217,
$8,600 and $71,269 for Mr. Burke, Mr. Simmons, Mr. Smith, Mr. Reed, Mr. Van
Kleef and Mr. Reardon, respectively; and amounts contributed to the
Company's Thrift Plan of $5,712, $1,615, $3,721 and $3,571 for Mr. Burke,
Mr. Smith, Mr. Reed and Mr. Reardon, respectively.
</TABLE>
-------------------------------------
Option Grants and Exercises
The following table sets forth information concerning individual grants of
stock options pursuant to the Company's 1993 Plan during the year ended December
31, 1995, to the named executive officers. No stock appreciation rights were
granted under the 1993 Plan during 1995.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1995
Potential Realizable
Individual Grants Value at Assumed
------------------------------------------------- Annual Rates of Stock
% of Total Price Appreciation
Options Options Granted Exercise or For Option Term
Granted to Employees Base Price Expiration ---------------------------
Name (#)<F1> in 1995 ($/Share) Date 5%($) 10%($)
- ------------------ ------ ------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Burke -- -- -- -- -- --
Bruce A. Smith 100,000 24.5 8.00 10/31/05 503,116 1,274,994
Gaylon H. Simmons 47,000 11.5 8.00 10/31/05 236,464 599,247
James C. Reed, Jr. 20,000 4.9 8.00 10/31/05 100,623 254,999
William T. Van Kleef 20,000 4.9 8.00 10/31/05 100,623 254,999
Thomas E. Reardon 10,000 2.5 8.00 10/31/05 50,312 127,499
- ------------------------------------
<FN>
<F1> The options granted to the named executive officers during 1995 are
exercisable in five equal annual installments beginning one year from the
dates of grant. The exercise price per share of these options is the
average of the high and low prices of the Company's Common Stock on the New
York Stock Exchange on the dates of the grants.
</TABLE>
-------------------------------------
-18-
Aggregated Option/SAR Exercises in 1995 and Option/SAR Values at December 31,
1995
The following table reflects unexercised options to purchase shares of
Common Stock and unexercised Stock Appreciation Rights ("SARs") granted to the
named executive officers during fiscal year 1995 and prior years under the 1982
Plan and the 1993 Plan.
<TABLE>
<CAPTION> Value of Unexercised
Number of Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares December 31, 1995(#) December 31, 1995($)
Acquired on Value -------------------- --------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- --------------- ----------- ----------- ----------- ------------- ----------- -------------
<C> <C> <C> <C> <C> <C> <C>
Michael D. Burke 211,045 1,767,500 -- -- -- --
Bruce A. Smith -- -- 80,866 190,134 313,330 219,170
Gaylon H. Simmons -- -- 114,200 153,800 570,000 314,375
James C. Reed, Jr. -- -- 15,200 55,800 33,750 63,125
William T. Van Kleef -- -- 8,660 38,640 21,600 44,900
Thomas E. Reardon -- -- 16,823 28,640 21,600 38,650
- -------------------------------------
</TABLE>
Retirement Benefits
The Company maintains a noncontributory qualified Retirement Plan which
covers officers and other eligible employees. Benefits under the plan are
payable on a straight life annuity basis and are based on the average monthly
earnings and years of service of participating employees. Average monthly
earnings used in calculating retirement benefits are primarily salary and bonus
received by the participating employee during the 36 consecutive months of the
last 120 months of service which produces the highest average monthly rate of
earnings.
In addition, the Company maintains an unfunded executive security plan, the
Amended Executive Security Plan ("Amended Plan"), for executive officers and
other key personnel selected by the Chief Executive Officer. The Amended Plan
provides for a monthly retirement income payment during retirement equal to a
percentage of a participant's Earnings. "Earnings" is defined under the Amended
Plan to mean a participant's average monthly rate of total compensation,
primarily salary and bonus earned, including performance bonuses and incentive
compensation paid after December 1, 1993, in the form of stock awards of the
Company's Common Stock, for the 36 consecutive calendar months which produce the
highest average monthly rate of compensation for the participant. The monthly
retirement benefit percentage is defined as the sum of 4 percent of Earnings for
each of the first ten years of employment, plus 2 percent of Earnings for each
of the next ten years of employment, plus 1 percent of Earnings for each of the
next ten years of employment. The maximum percentage is 70 percent. The
Amended Plan provides for the payment of the difference, if any, between (a) the
total retirement income payment calculated above and (b) the sum of retirement
income payments from the Company's Retirement Plan and Social Security benefits.
The Company also maintains the Funded Executive Security Plan ("Funded
Plan") which covers only persons who participate in the Amended Plan and
provides participants with substantially the same after-tax benefits as the
Amended Plan. Advance payments are made to the extent a participant is expected
to incur a pre-retirement tax liability as a result of his participation in the
Funded Plan. The Funded Plan is funded separately for each participant on an
actuarially determined basis through a bank trust whose primary asset is an
insurance contract providing for a guaranteed rate of return for certain
periods. Amounts payable to participants from the Funded Plan reduce amounts
otherwise payable under the Amended Plan.
-19-
The following table shows the estimated annual benefits payable upon
retirement under the Company's Retirement Plan, Amended Plan and the Funded Plan
for employees in specified compensation and years of benefit service
classifications without reference to any amount payable upon retirement under
the Social Security law or any amount advanced before retirement. The estimated
annual benefits shown are based upon the assumption that the plans continue in
effect and that the participant receives payment for life. As of January 1,
1996, the federal tax law generally limits maximum annual retirement benefits
payable by the Retirement Plan to any employee to $120,000, adjusted annually to
reflect increases in the cost of living and adjusted actuarially for retirement.
However, since the Amended Plan and the Funded Plan are not qualified under
Section 401 of the Internal Revenue Code, it is possible for certain retirees to
receive annual benefits in excess of this tax limitation.
Highest Average Number of Years of Benefit Service
Annual Rate -----------------------------------------------------
of Compensation 10 15 20 25 30
- --------------- -----------------------------------------------------
$ 100,000. . . . .$ 40,000 50,000 60,000 65,000 70,000
$ 200,000. . . . .$ 80,000 100,000 120,000 130,000 140,000
$ 300,000. . . . .$ 120,000 150,000 180,000 195,000 210,000
$ 400,000. . . . .$ 160,000 200,000 240,000 260,000 280,000
$ 500,000. . . . .$ 200,000 250,000 300,000 325,000 350,000
$ 600,000. . . . .$ 240,000 300,000 360,000 390,000 420,000
$ 700,000. . . . .$ 280,000 350,000 420,000 455,000 490,000
$ 800,000. . . . .$ 320,000 400,000 480,000 520,000 560,000
$ 900,000. . . . .$ 360,000 450,000 540,000 585,000 630,000
$1,000,000. . . . .$ 400,000 500,000 600,000 650,000 700,000
$1,100,000. . . . .$ 440,000 550,000 660,000 715,000 770,000
The years of benefit service as of December 31, 1995 for the named
executive officers were as follows: Mr. Smith, 3 years; Mr. Simmons, 2 years;
Mr. Reed, 21 years; Mr. Van Kleef, 2 years; and Mr. Reardon, 15 years.
In addition to the retirement benefits described above, the Amended Plan
provides for a pre-retirement death benefit payable over eight years of four
times a participant's annual base pay as of December 1 preceding a participant's
date of death, less the amount payable from the Funded Plan at the date of
death. The amount payable from the Funded Plan at death is based on the
actuarial value of the participant's vested accrued benefit, payable in 96
monthly installments or as a life annuity if a surviving spouse is the
designated beneficiary.
-20-
Employment Contracts, Management Stability Agreement and Change-in-Control
Arrangements
Pursuant to the terms of Mr. Burke's amended employment agreement, upon his
termination as President and Chief Executive Officer of the Company, Mr. Burke
(i) received a payment of $1,175,261, before withholding taxes of $346,114, as a
lump-sum payment for severance and unused vacation; (ii) received two years
additional service credit under the Company's Amended Plan and Funded Plan and
received a lump-sum payment of $986,480, before withholding taxes of $404,950,
in exchange for his interests in such plans; and (iii) was immediately vested in
409,000 of unvested stock options, and the restrictions terminated on 20,000
shares of restricted stock held by Mr. Burke. Mr. Burke will receive, for a
period of two years following his termination, 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. In addition, the Company paid Burke & Company, a corporation solely
owned by Mr. Burke, $75,000 and $250,000 in October 1995 and January 1996,
respectively, for consulting services to be performed by Burke & Company through
December 31, 1996.
Under an employment agreement dated February 16, 1996, Mr. Smith is
employed until December 14, 1997, at an annual base salary of not less than
$500,000. Under an employment agreement dated January 4, 1993, as amended, Mr.
Simmons is employed until April 4, 1996, at an annual base salary of not less
than $300,000. Under separate employment agreements, Mr. Reed and Mr. Van Kleef
are employed until December 31, 1996, at annual base salaries of $230,000 and
$215,000, respectively. In addition to their base salaries, each of the
employment agreements for the above executives provide that the Company shall
establish an annual incentive compensation plan for executive officers in which
each executive shall be entitled to participate in a manner consistent with his
position with the Company and the evaluations of his performance by the Board or
any appropriate committee thereof. The target incentive bonus under the 1996
annual incentive compensation plan is a percentage of the respective executive
officer's annual base salary and is 55 percent for Mr. Smith, 45 percent for Mr.
Simmons, 40 percent for Mr. Reed and 40 percent for Mr. Van Kleef. Each of the
employment agreements also provide that the executive will receive an annual
amount (the "flexible perquisite amount") to cover various business-related
expenses such as dues for country, luncheon or social clubs; automobile
expenses; and financial and tax planning expenses. The executive may elect at
any time by written notice to the Company to receive in cash any of such
flexible perquisite amount which has not been paid to or on behalf of the
executive. The annual flexible perquisite amount is $20,000 each for Mr. Smith,
Mr. Simmons, Mr. Reed and Mr. Van Kleef. In addition, each employment
agreement, other than Mr. Smith's, provides that the Company will pay on behalf
of the executive up to $15,000 for an initiation fee or fees for a country,
luncheon or social club or clubs and will pay directly to the executive an
amount equal to 65 percent of the amount so paid on the executive's behalf to
offset the applicable income tax expense to the executive. Each employment
agreement also provides that the Company will pay additional initiation fees and
reimburse the executive for related tax expenses to the extent the Board or a
duly authorized committee thereof determines such fees are reasonable and in the
best interest of the Company.
Each of the employment agreements with Mr. Smith, Mr. Simmons, Mr. Reed and
Mr. Van Kleef provides that in the event the Company should terminate such
executive officer's employment without cause, if he should resign his employment
for "good reason" (as "good reason" is defined in the employment agreements), or
if the Company shall not have offered to such executive officer prior to the
termination date of his employment agreement the opportunity to enter into a new
employment agreement, with terms, in all respects, no less favorable to the
executive than the terms of his current employment agreement, such executive
will be paid a lump-sum payment equal to (i) two times the sum of (a) his base
salary at the then current rate and (b) the sum of the target bonuses under all
of the Company's incentive bonus plans applicable to such executive for the year
in which the termination occurs 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 such executive 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. Each executive 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 flexible perquisites amount and (iii) two years
additional service credit under the Amended Plan and the Funded Plan or
successors thereto, of the Company applicable to such executive on the date of
termination. All unvested stock options held by the executive on the date of
the termination shall become immediately vested and all restrictions on
"restricted stock" then held by the executive shall terminate.
Each employment agreement further provides that, in the event such
executive officer's employment is involuntarily terminated within two years of a
change of control or if the executive officer's employment is voluntarily
-21-
terminated within two years of a change of control "for good reason," as defined
in each of the employment agreements, he shall be paid within ten days of such
termination (i) a lump-sum payment equal to three times his base salary at the
then current rate; (ii) a lump-sum payment equal to the sum of (a) three times
the sum of the target bonuses under all of the Company's incentive bonus plans
applicable to such executive for the year in which the termination occurs or the
year in which the change of control occurred, whichever is greater, 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
such executive 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; and (iii) a
lump-sum payment equal to the amount of any accrued but unpaid bonuses. 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 flexible perquisites
amount; and (iii) three years additional service credit under the Amended Plan
and the Funded Plan, or successors thereto, of the Company applicable to such
executive on the date of termination. 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 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.
The Company has a Management Stability Agreement ("Stability Agreement")
with Mr. Reardon which is only operative in the event of a change of control of
the Company. The Stability Agreement provides that, if Mr. Reardon's employment
is involuntarily terminated within two years of a change of control or if Mr.
Reardon's employment is voluntarily terminated within two years of a change of
control "for good reason," as defined in the Stability Agreement, he shall be
paid within ten days of such termination (i) a lump-sum payment equal to two
times his base salary at the then current rate and (ii) a lump-sum payment equal
to the sum of (a) two times the sum of the target bonuses under all of the
Company's incentive bonus plans applicable to Mr. Reardon for the year in which
the termination occurs or the year in which the change of control occurred,
whichever is greater, 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 Mr. Reardon 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 (i) for a
period of two 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, and (ii) two years additional service credit
under the Amended Plan and the Funded Plan, or successors thereto, of the
Company applicable to such executive on the date of termination. 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
-22-
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 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.
1994 Report of Compensation Committee
The Compensation Committee of the Board of Directors of the Company has
prepared the following report regarding 1994 executive compensation which was
issued in connection with the 1995 annual meeting. The Compensation Committee
has not prepared its 1995 report for the 1996 annual meeting. The Compensation
Committee, which is composed entirely of non-employee directors, is responsible
for all components of the Company's officer compensation programs and the
aggregate cost-related aspects of non-officer compensation. The members of the
Compensation Committee are Peter M. Detwiler (Chairman), Robert J. Caverly, John
J. McKetta, Jr., and Murray L. Weidenbaum. The Compensation Committee works
closely with the entire Board of Directors in the execution of its duties. This
report is required by rules established by the SEC and provides specific
information regarding compensation for the Company's President and Chief
Executive Officer and the other officers named in the Summary Compensation
Table, as well as compensation information of all executive officers of the
Company.
Executive Compensation Policy and Philosophy
During 1994, the Compensation Committee conducted a comprehensive review of
the Company's executive compensation philosophy and programs. As part of this
review, the Compensation Committee adopted the National Association of Corporate
Directors Blue Ribbon Commission Report on Executive Compensation as its
charter. Based on this new charter, the Company's executive compensation
programs have been founded on the following guiding principles.
. Pay-for-Performance--To this end, the Company has placed considerable
emphasis on incentive compensation programs which reward executives for
operating and financial performance. These incentive programs focus on
both annual and long-term performance.
. Pay Competitiveness--The Company believes it must offer competitive total
compensation opportunities in order to attract, motivate and retain
executive talent. The Company's philosophy is to target the market median
(50th percentile) for all elements of executive compensation over time for
market median performance, but to provide upper quartile pay opportunities
(through incentive pay) for outstanding performance and below market pay
through reduced or lack of incentive pay for performance below
expectations. The elements of compensation considered include base salary,
annual incentives, long-term incentives and certain executive benefits.
The Company determines competitive levels of compensation using published
compensation surveys (for energy and general industry companies of
comparable size to the Company as measured by revenues), information
obtained from compensation consultants and an analysis of compensation data
contained in the proxy statements for the 12 industry peer companies
included in the Company's Total Shareholder Return Graph as the new
industry peer group established for 1994. This new peer group was viewed
by the Compensation Committee, and reported to the Board, as more
comparable to the Company than the peer group used in past years based on
certain operating and financial characteristics.
. Alignment with Shareholders--The Company believes that a significant
portion of each executive's compensation and wealth accumulation
opportunities should be tied to the Company's stock price performance.
-23-
As a result, a significant portion of executive compensation is provided in
the form of stock options, which only provide income to executives if the
Company's Common Stock price increases after the date of grant.
Description of the Current Executive Compensation Program
This section of the Compensation Committee's report describes each of the
principal elements of the Company's executive compensation program with specific
reference to the objectives discussed above.
Base Salary Program
The Company's base salary levels are determined based on market
compensation rates, each employee's performance over time and each employee's
role in the Company. Consequently, employees with higher levels of sustained
performance over time and/or employees assuming greater responsibilities are
paid correspondingly higher salaries. Salaries for executive officers as a
group are reviewed annually considering a variety of factors, including
individual performance, general levels of market salary increases and the
Company's overall financial results. All salary increases are granted within a
pay-for-performance framework, but performance criteria vary significantly by
individual executive. Also, performance is assessed qualitatively and no
specific weighting is attached to performance factors considered for each of the
named executive officers.
During 1994, significant salary adjustments were provided to certain of the
named executive officers in order to bring their salary levels to market levels.
These salary adjustments are also reflective of an assessment of outstanding
performance by these individuals in effecting a turnaround in Company results
(assessed qualitatively and without any formal measures or weightings of
measures). After taking these increases into consideration, the Company's
actual base salaries for its executive officers are generally consistent with
the Company's philosophy of targeting the market median.
Annual Incentives
The Company's annual incentive program is intended to (i) reward key
employees based on Company, business unit and individual performance; (ii)
motivate key employees; and (iii) provide competitive cash compensation
opportunities to plan participants. As a pay-for-performance plan, incentive
awards are paid annually based on the performance during the most recently
completed fiscal year. For 1994, no specific performance formula was used to
assess Company, business unit and individual performance. Rather, the
Compensation Committee assessed performance based on a subjective review of
Company and executive officer accomplishments during the year. These
accomplishments included a successful equity offering, operational improvements
and vastly improved total return to shareholders. These performance indicators
were not weighted as part of any performance formula.
In light of the Company's outstanding achievements, each of the top four
executive officers named in the Summary Compensation Table were awarded bonuses
equal to one times their year-end base salary (which was slightly different from
the salary figures shown in the Summary Compensation Table because of salary
increases provided to certain executives during the year).
Mr. Van Kleef, who played a significant role in the Company's equity
offering, was awarded the maximum bonus amount provided to his position level in
the Company. Other executive officers of the Company (not named in the Proxy
Statement) also received annual incentive awards that, in the aggregate, were
above the level of incentive pay provided to executive officers of the Company
in recent years because of the Company's outstanding achievements in 1994.
The size of these incentive awards was intended to place annual incentive
pay within the top quartile of the market (determined using data from the new
industry peer group of companies and published survey data previously described)
for 1994. Future annual incentive awards, if any, will continue to be based on
the Company's absolute results as compared to both internal standards and the
results of its industry peer group.
-24-
Long-Term Incentives
The Company believes that its executive officers should have an ongoing
stake in the success of the Company. The Company also believes these key
employees should have a considerable portion of their total compensation tied to
the Company's stock price performance, since stock-related compensation is
directly tied to shareholder value.
As part of the comprehensive review of the Company's executive compensation
in 1994, the Compensation Committee decided to use stock options as the
Company's principal long-term incentive device. Stock options provide a strong
tie between pay and performance, since executives only realize value from stock
options if the Company's share price rises after the date of grant. All stock
options in 1994 were granted at 100 percent of fair market value at the date of
grant and vest at a rate of 20 percent per year over five years.
In determining the size of stock option grants for executive officers in
1994, the Compensation Committee considered market data on typical stock option
grants at the market median and market 75th percentile. Because of the
Company's outstanding achievements (as described previously in the "Annual
Incentives" section of this report) the Compensation Committee awarded stock
options at approximately the market 75th percentile for 1994. The Compensation
Committee considered the size and timing of past stock option grants in
determining 1994 stock option award levels.
Other Executive Benefits and Perquisites
The Company also provides certain benefits and perquisites to its key
executive officers. These benefits and perquisites are not tied to any formal
performance criteria and are intended to serve as part of a competitive total
compensation package. These benefits and perquisites include, but are not
limited to, supplemental retirement plans, change-in-control arrangements, and,
for senior executive officers, a flexible perquisites program (with a dollar
limit placed on perquisite expenses) and employment agreements (some of which
were modified in 1994, as described elsewhere in this Proxy Statement). Levels
of Company benefits and perquisites for executives were in line with median
market levels.
Discussion of 1994 Compensation for President and Chief Executive Officer
For fiscal year 1994, the Compensation Committee made the following
determinations regarding Mr. Burke's compensation.
. Base Salary--Mr. Burke's base salary was set at $450,000 annually on the
date of his employment in 1992. The Compensation Committee did not adjust
Mr. Burke's base salary in 1993 or 1994. As a result, Mr. Burke's base
salary now falls slightly below the median rates obtained from the
Company's current peer group and published survey data.
. Annual Incentive Award--Under the terms of his original employment
agreement, Mr. Burke was entitled to a maximum annual incentive of 40
percent of his base salary. During 1994, Mr. Burke's employment agreement
was modified by the Compensation Committee in a number of ways in order to
make the structure of the agreement more closely track prevailing market
practices. One of the changes made in the modification was to remove
language providing a cap on Mr. Burke's annual incentive award.
Based on the Company's outstanding results in 1994, the Compensation
Committee provided Mr. Burke with an annual incentive award of $450,000
with respect to fiscal year 1994. In making this determination, the
Compensation Committee considered the Company's significant increase in
total shareholder return, the successful equity offering and improvements
in certain operating performance areas. These factors were considered by
the Compensation Committee in its discretion and were not weighted. Of
this incentive award, 50 percent was paid in cash in December 1994 and 50
percent was paid in shares of the Company's Common Stock in February 1995.
The stock portion of the award that was withheld until February 1995 was
not paid until the Compensation Committee had the opportunity to review and
approve audited financial results for the Company for 1994.
-25-
. Stock Options--Mr. Burke received a grant of 209,000 stock options in 1994.
These stock options were granted at 100 percent of the fair market value of
the Company's Common Stock on the grant date and vest at a rate of 20
percent per year over five years. The size of the stock option grant was
established at approximately the market 75th percentile of the published
compensation survey data collected in order (i) to recognize Mr. Burke's
contributions to the Company's turnaround (e.g., improved shareholder
return, the successful equity offering and certain operational
improvements) and (ii) to place more emphasis on stock-based compensation
in Mr. Burke's total compensation package. The performance sensitivity of
stock options is a result of options only producing income for the
recipient if the Company's stock price rises after the grant date. The
Compensation Committee also considered the fact that Mr. Burke had not
received any stock options since 1992 in establishing the size of his
option grant.
Policy with Respect to the $1 Million Deduction Limit
In 1993, the U.S. Treasury Department issued regulations under Section
162(m) of the Internal Revenue Code that prevent publicly traded companies from
receiving a tax deduction on non-performance based compensation to executive
officers in excess of $1 million. To ensure that the Company's stock option
grants qualify as performance-based compensation under the regulations, approval
of an amendment to the Company's Executive Long-Term Incentive Plan is being
sought at the 1995 annual meeting<F1>. The Company's cash compensation levels
for the named executive officers do not transcend the $1 million pay limit in
1994 and will most likely not be affected by the regulations in the near future.
As such, no specific actions have been taken with regard to cash compensation to
comply with Section 162(m) at this time.
Compensation Committee of the Board of Directors
Peter M. Detwiler, Chairman
Robert J. Caverly
John J. McKetta, Jr.
Murray L. Weidenbaum
SOLICITATION OF REVOCATIONS
Cost and Method
The cost of the solicitation of revocations of consent will be borne by the
Company. The Company estimates that the total expenditures relating to such
solicitation (other than salaries and wages of officers and employees, but
including costs of litigation related to the solicitation) will be approximately
$500,000, of which approximately $________________ has been spent as of the date
hereof. In addition to solicitation by mail, directors, officers and other
employees of the Company may, without additional compensation, solicit
revocations by mail, in person or by telecommunication.
The Company has retained Georgeson & Company, Inc. ("Georgeson"),
professional consent revocation solicitors, at an estimated fee of
$_______________ plus reasonable out-of-pocket expenses, to assist in the
solicitation of revocations. The Company will reimburse brokerage houses,
banks, custodians and other nominees and fiduciaries for out-of-pocket expenses
incurred in forwarding the Company's consent revocation materials to, and
obtaining instructions relating to such materials from, beneficial owners of
Common Stock. Georgeson has advised the Company that approximately __________
employees of Georgeson will be involved in the solicitation by Georgeson on
behalf of the Company.
- -------------------------------------
<F1> Approval was obtained at the Company's 1995 annual meeting.
-26-
Participants in the Solicitation
Under applicable regulations of the SEC, each of the directors of the
Company may be deemed to be a "participant" in the Company's solicitation of
revocations of consent. The following sets forth the business address of each
director:
Robert J. Caverly Peter M. Detwiler
174 Ashdale Place Detwiler & Company, Inc.
Los Angeles, California 90049 High Stoy Farm
2440 Larger Cross Road
P.O. Box 360
Gladstone, New Jersey 07934
Steven H. Grapstein Raymond K. Mason, Sr.
Kuo Investment Company c/o Annette Pritchett
33rd Floor 1551 Atlantic Blvd.
767 Third Avenue Jacksonville, Florida 32207
New York, New York 10017
John J. McKetta, Jr. Bruce A. Smith
Dept. of Chemical Engineering Tesoro Petroleum Corporation
University of Texas 8700 Tesoro Drive
Austin, Texas 78712 San Antonio, Texas 78217
Murray L. Weidenbaum
Center for the Study of American
Business (CSAB)
Washington University
Campus Box 1208
One Brookings Drive
St. Louis, Missouri 63130-4899
Set forth in Schedule A hereto is a listing of transactions in Common Stock
by the Company's participants during the last two years. Information about the
present stock ownership interest of the Company's participants is provided in
"Director and Officer Information--Stock Ownership."
Other Contracts, Arrangements and Understandings with Participants
Except as otherwise set forth in this Revocation of Consent Statement, to
the best of the Company's knowledge, (i) no participant referred to above is, or
was within the past year, a party to any contract, arrangement or understanding
with any person with respect to any shares of Common Stock, and (ii) neither any
of the participants referred to above nor any of their respective associates has
any arrangement or understanding with any person with respect to any future
employment by the Company or its affiliates, or with respect to any future
transaction as to which the Company or any of its affiliates will or may be a
party.
We appreciate your support and encouragement.
On Behalf of the Board of Directors,
James C. Reed, Jr.
Secretary
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IMPORTANT
The Board of Directors urges you NOT to return any WHITE consent card
solicited from you. If you previously returned any such consent card you have
every right to change your vote. Simply sign, date and mail the enclosed GREEN
Revocation of Consent Card in the postage-paid envelope provided, whether or not
you previously returned the white consent card.
If your Shares are held in "Street" name at a brokerage firm, custodian
bank or other nominee and you wish to support your current Board of Directors,
you must either (a) sign and date the GREEN Revocation of Consent Card and mail
it in the envelope provided to you by such organization, or (b) call the person
responsible for your account at that organization and instruct that person to
execute and mail a GREEN Revocation of Consent Card representing your Shares.
For additional information or assistance, please call Georgeson & Company,
Inc., our soliciting agent, toll free at 1-800-223-2064. Georgeson & Company,
Inc.'s address is 88 Pine Street, New York, New York 10005.
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<PAGE>
SCHEDULE A
The following table sets forth all purchases and sales of the Company's
securities by the participants referred to above during the last two years.
Unless otherwise indicated, all transactions are in the public market.
Number of
Shares Date of
Purchased Purchase
Name (or Sold) or Sale
---- --------- -------
Raymond K. Mason, Sr. 8,900 6/22/94
5,000 10/27/95
Bruce A. Smith 5 (1) 10/12/94
3 (1) 12/12/94
709 (2) 1994
16,783 (2) 2/15/95
(4,943) (3) 8/15/95
446 (2) 1995
Murray L. Weidenbaum 900 11/6/95
(1) Shares acquired in private transactions.
(2) Shares acquired through various Tesoro employee benefit and incentive stock
plans.
(3) Disposition of shares in payment of withholding taxes.
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Preliminary Copy
REVOCATION OF CONSENT
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
TESORO PETROLEUM CORPORATION
The undersigned, a holder of shares of Common Stock, par value $.16 2/3 per
share (the "Common Stock"), of Tesoro Petroleum Corporation (the "Company"),
acting with respect to all the shares of Common Stock held by the undersigned at
the close of business on _________________ ___, 1996, hereby acts as follows
concerning the proposals of The Stockholders' Committee for New Management of
Tesoro Petroleum Corporation (the "Committee") set forth below:
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY URGES YOU TO EXECUTE THE "YES,
REVOKE MY CONSENT" BOX FOR PROPOSAL NO. 1.A.
PROPOSAL NO. 1.A OF THE COMMITTEE OF CERTAIN STOCKHOLDERS
Resolution to amend Section 2.1 of Article II of the By-laws to reduce the
number of directors to five unless and until changed by resolution of the Board
of Directors.
/ / YES, REVOKE MY CONSENT / / NO, DO NOT REVOKE MY CONSENT
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY URGES YOU TO EXECUTE THE "YES,
REVOKE MY CONSENT" BOX FOR PROPOSAL NO. 1.B.
PROPOSAL NO. 1.B OF THE COMMITTEE OF CERTAIN STOCKHOLDERS
Resolution to amend Section 2.2 of Article II of the By-laws to require
that any vacancies created by removal of directors be filled only by stockholder
action, and that other vacancies be filled by remaining directors.
/ / YES, REVOKE MY CONSENT / / NO, DO NOT REVOKE MY CONSENT
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY URGES YOU TO EXECUTE THE "YES,
REVOKE MY CONSENT" BOX FOR PROPOSAL NO. 1.C.
PROPOSAL NO. 1.C OF THE COMMITTEE OF CERTAIN STOCKHOLDERS
Resolution to amend Section 2.7 of Article II of the By-laws to provide
that directors may be removed at any meeting or by written consent of a majority
of the stockholders.
/ / YES, REVOKE MY CONSENT / / NO, DO NOT REVOKE MY CONSENT
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THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY URGES YOU TO EXECUTE THE "YES,
REVOKE MY CONSENT" BOX FOR PROPOSAL NO. 1.D.
PROPOSAL NO. 1.D OF THE COMMITTEE OF CERTAIN STOCKHOLDERS
Resolution to delete any provision of the By-laws, or any amendment to the
By-laws, adopted on or after November 14, 1995.
/ / YES, REVOKE MY CONSENT / / NO, DO NOT REVOKE MY CONSENT
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY URGES YOU TO EXECUTE THE "YES,
REVOKE MY CONSENT" BOX FOR PROPOSAL NO. 2.
PROPOSAL NO. 2 OF THE COMMITTEE OF CERTAIN STOCKHOLDERS
Resolution to remove all incumbent directors without cause.
/ / YES, REVOKE MY CONSENT / / NO, DO NOT REVOKE MY CONSENT
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY URGES YOU TO EXECUTE THE "YES,
REVOKE MY CONSENT" BOX FOR PROPOSAL NO. 3.
PROPOSAL NO. 3 OF THE COMMITTEE OF CERTAIN STOCKHOLDERS
Resolution to elect George F. Baker, Gale L. Galloway, Alan Kaufman, James
H. Stone and Douglas Thompson as directors.
/ / YES, REVOKE MY CONSENT / / NO, DO NOT REVOKE MY CONSENT
Instructions: If you want to revoke your consent for fewer than all of the
candidates, check the "Yes, Revoke My Consent" box but write the
names of the persons as to which consent is not revoked in the
following space:
________________________________________________________________
IF YOU WISH TO SUPPORT CURRENT MANAGEMENT, PLEASE MARK ALL THE "YES, REVOKE
MY CONSENT" BOXES.
UNLESS OTHERWISE INDICATED ABOVE, THIS REVOCATION CARD REVOKES ALL PRIOR
CONSENTS GIVEN WITH RESPECT TO ANY OR ALL OF THE PROPOSALS SET FORTH HEREIN.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE REVOCATION OF CONSENT
STATEMENT OF THE COMPANY, DATED _________________ ___, 1996, IN OPPOSITION TO
THE SOLICITATION OF THE COMMITTEE. UNLESS YOU SPECIFY OTHERWISE, BY SIGNING AND
DELIVERING THIS REVOCATION CARD TO THE COMPANY, YOU WILL BE DEEMED TO HAVE
REVOKED CONSENT TO ALL OF THE PROPOSALS SET FORTH HEREIN.
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Dated: _____________________, 1996
_________________________________________________
Signature (Title, if any)
_________________________________________________
Signature, if held jointly
Please sign exactly as your name appears hereon.
Persons signing as Executors, Administrators,
Trustees, etc. give full title as such. Joint
owners should both sign.
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