<PAGE> 1
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 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) 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 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] 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:
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<PAGE> 2
TESORO PETROLEUM CORPORATION
---------------------
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 1997
---------------------
The 1997 Annual Meeting of Stockholders of Tesoro Petroleum Corporation
will be held at the Plaza San Antonio, A Marriott Hotel, 555 South Alamo Street,
San Antonio, Texas, at 10:00 A.M. Central time on Wednesday, May 7, 1997, for
the following purposes:
1. To elect seven directors of the Company;
2. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for fiscal year 1997; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Holders of Common Stock of record at the close of business on March 25,
1997, are entitled to notice of and to vote at the annual meeting.
By Order of the Board of Directors,
JAMES C. REED, JR.
Secretary
April 7, 1997
San Antonio, Texas
---------------------
YOUR VOTE IS IMPORTANT. IF YOU DO NOT EXPECT TO ATTEND THE ANNUAL MEETING, OR IF
YOU DO PLAN TO ATTEND BUT WISH TO VOTE BY PROXY, PLEASE DATE, SIGN AND MAIL
PROMPTLY THE ENCLOSED PROXY. A RETURN ENVELOPE IS PROVIDED FOR THIS PURPOSE.
<PAGE> 3
TESORO PETROLEUM CORPORATION
PROXY STATEMENT
---------------------
1997 ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 1997
---------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (sometimes referred to herein as the "Board") of Tesoro
Petroleum Corporation ("Tesoro" or the "Company") of proxies to be voted at the
1997 Annual Meeting of Stockholders to be held on Wednesday, May 7, 1997, and at
any adjournment thereof.
Each proxy will be voted as specified thereon by the stockholder. Any duly
executed proxy not specifying the contrary will be voted (i) for the directors
nominated for election at the meeting and (ii) for the ratification of the
appointment of Deloitte & Touche LLP as the Company's independent auditors for
fiscal year 1997. A stockholder giving a proxy may revoke it by written notice
to the Secretary of the Company at any time before it is voted.
At the close of business on March 25, 1997, the record date for the 1997
annual meeting, there were outstanding and entitled to vote 26,789,132 shares of
Common Stock of the Company. The holders of Common Stock are entitled to one
vote for each share held by them on all matters submitted to them. The Company
has no other voting securities outstanding.
A copy of the Annual Report of the Company, including financial statements
and a description of the Company's operations for fiscal year 1996, has
previously been mailed to all stockholders as of the record date. Such Annual
Report is not incorporated herein by reference.
The principal executive offices of the Company are located at 8700 Tesoro
Drive, San Antonio, Texas 78217-6218. This Proxy Statement and accompanying form
of proxy are being mailed to stockholders on or about April 7, 1997.
<PAGE> 4
1. ELECTION OF DIRECTORS
At the 1997 annual meeting, the stockholders are requested to elect seven
directors to hold office until the 1998 Annual Meeting of Stockholders or until
their successors are elected and qualified. Unless otherwise specified, all duly
executed proxies received on a timely basis will be voted for the nominees set
forth below. Each of such nominees has indicated his willingness to serve as a
director, if elected, and the Company has no reason to believe that any nominee
will be unable to serve. The persons designated as proxies, however, reserve
full discretion to cast votes for other persons in the event that any one or
more of the nominees are unable to serve.
The election of director nominees requires a plurality of the votes cast at
the election. Under Delaware law and the Company's Certificate of Incorporation
and By-laws, shares as to which a stockholder withholds authority to vote on the
election of directors ("Abstentions"), and shares as to which a broker indicates
that it does not have discretionary authority to vote ("Broker Non-Votes") on
the election of directors, will not be counted as voting thereon and will not
affect the election of the nominees receiving a plurality of the votes cast.
On December 26, 1995, the Stockholders' Committee for New Management of
Tesoro Petroleum Corporation (the "Committee"), comprised at that time of five
holders of the Company's Common Stock, announced its intention to engage in a
solicitation (the "Solicitation") of written consents for the primary purpose of
removing the then current members of the Board and replacing them with a new
board. On April 4, 1996, a settlement agreement was reached between the
Committee and certain related parties (the "Solicitation Parties"), the Company
and Ardsley Advisory Partners ("Ardsley"), the Company's then largest
stockholder. Pursuant to the settlement agreement, the Solicitation Parties
severally agreed, among other things, that for a period beginning as of April 4,
1996, and ending on the earlier of the day after the Company's 1999 annual
meeting or June 30, 1999 (the "Standstill Period"), he or it shall not in any
way, directly or indirectly, without the approval of the Board, make, encourage,
participate or assist in (a) any attempt to take control of the Company, (b) any
consent solicitation to remove any member of the Company's Board of Directors,
(c) any solicitation of proxies to vote or become a participant in any election
contest to remove any member of the Company's Board of Directors, (d) the
nomination or election of any alternate director or slate of directors proposed
from the floor at any meeting of the Company's stockholders, or (e) any offers
or indications of interest with respect to the acquisition or disposition of the
Company or any of its business units. In accordance with the settlement
agreement, the Board was expanded to nine members with the addition on April 12,
1996, of Alan J. Kaufman, M.D., a Committee member, and Sanford B. Prater, a
Partner of Ardsley, and William J. Johnson who was selected by the Governance
Committee of the Board of Directors on June 6, 1996. On October 23, 1996, Mr.
Prater resigned from the Board pursuant to a provision in the settlement
agreement which provided that, if Ardsley's holdings of Tesoro Common Stock
declined by more than 50 percent, Mr. Prater was obligated to tender his
resignation from the Board. The settlement agreement further provides that Dr.
Kaufman and Mr. Johnson shall continue subject to the terms of the settlement
agreement to be nominated for election as part of the Board's recommended slate
throughout the Standstill Period. In the case of Dr. Kaufman, the settlement
agreement provides that, in the event any of the Solicitation Parties breaches
the terms of the standstill, confidentiality and non-disparagement provisions of
the settlement agreement or in the event Dr. Kaufman reduces his holdings of
Company Common Stock below 400,000 shares or votes for any nominee for director
other than those supported by a majority of the Board, Dr. Kaufman shall
immediately tender his resignation and, at the option of the Company, be removed
from the Board.
Pursuant to the retirement policy approved by the Company's Governance
Committee, which policy has a mandatory retirement age, Robert J. Caverly who
has been serving as Chairman Emeritus of the Board and as Chairman of the
Governance Committee will not be able to stand for reelection to the Board. The
Company greatly appreciates the dedicated service and leadership that Mr.
Caverly has provided to the Company. The Board of Directors has decided not to
fill the vacancy created by the retirement of Mr. Caverly; therefore, the
stockholders are being asked to elect seven directors to hold office until the
1998 Annual Meeting of Stockholders or until their successors are duly elected
and qualified, and proxies cannot be voted for more than seven nominees.
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<PAGE> 5
INFORMATION CONCERNING DIRECTORS AND NOMINEES
Certain information as to each nominee for director 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 nominees.
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR OF
AGE AT THE COMPANY
MARCH 25, OR PREDECESSOR OTHER POSITIONS AND OFFICES
NAME 1997 COMPANIES FROM WITH THE COMPANY
---- --------- -------------- ---------------------------
<S> <C> <C> <C>
Steven H. Grapstein......... 39 1992 Vice Chairman of the Board of
Directors(1)(2)(3)
William J. Johnson.......... 62 1996 (4)
Alan J. Kaufman............. 59 1996 (2)(4)
Raymond K. Mason, Sr........ 70 1983 (2)(4)
Bruce A. Smith.............. 53 1995 Chairman of the Board of Directors,
President and Chief Executive Officer(1)
Patrick J. Ward............. 66 1996 (2)(4)
Murray L. Weidenbaum........ 70 1992 (3)(4)
</TABLE>
- ---------------
(1) Member of the Executive Committee (Mr. Smith, Chairman).
(2) Member of the Compensation Committee (Mr. Grapstein, Chairman).
(3) Member of the Governance Committee (Mr. Caverly, Chairman).
(4) Member of the Audit Committee (Dr. Weidenbaum, Chairman).
---------------------------
Steven H. Grapstein has been Chief Executive Officer of Kuo Investment
Company and subsidiaries ("Kuo"), an international investment group, since
January 1997. From September 1985 to January 1997, Mr. Grapstein was a Vice
President of Kuo. He is also a director of several of the Kuo companies. Mr.
Grapstein has been a Vice President of Oakville N.V. ("Oakville") 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.
William J. Johnson has been a petroleum consultant and president of JonLoc
Inc., a small, private oil and gas company, since 1994. From 1991 through 1994,
Mr. Johnson served as President, Chief Operating Officer and director of Apache
Corporation, a large independent oil and gas company. Mr. Johnson is on the
Board of Directors of Camco International, Inc., Snyder Oil Corporation and
Patina Oil & Gas Corporation.
Alan J. Kaufman, M.D., has been a practicing neurosurgeon for over 25 years
and an investor in a number of companies. Since 1987, he has been a director of
Newpark Resources, Inc., a company engaged primarily in providing oil field
services.
Raymond K. Mason, Sr., has been Chairman of the Board of Directors of
American Banks of Florida, Inc., since 1978.
Bruce A. Smith has been Chairman of the Board of Directors, President and
Chief Executive Officer of the Company since June 1996. He has been a director
of the Company since July 1995. Mr. Smith was President and Chief Executive
Officer of the Company from September 1995 to June 1996; 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 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.
Patrick J. Ward has 47 years of experience in international energy
operations with Caltex Petroleum Corporation, a 50/50 joint venture of Chevron
Corp. and Texaco, Inc., engaged in the business of refining and
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<PAGE> 6
marketing. Prior to his retirement in August 1995, he was Chairman, President
and Chief Executive Officer of Caltex, positions he had held since 1990.
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.
No director of the Company has a family relationship with any other
director or executive officer of the Company.
---------------------------
The Board of Directors met 12 times during fiscal year 1996. Each member of
the Board of Directors attended at least 75 percent of the meetings of the Board
and committees on which such director served during fiscal year 1996. The Board
of Directors 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 four times during fiscal year 1996.
The Audit Committee's primary purposes are (i) to aid the individual
directors of the Board of Directors 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 of Directors, 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 of Directors and control
and accounting, legal, internal auditing and the external auditors; and (v) to
recommend and support, with management and/or the Board of Directors, 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
five times during fiscal year 1996.
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"),
Amended and Restated 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 of Directors 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 of Directors
with respect to such agreements; (v) to administer and interpret employment
agreements and make recommendations to the Board of Directors with respect
thereto; and (vi) to consult with the Board of Directors and review with the
Board the actions of the Compensation Committee as appropriate. The Compensation
Committee met seven times during fiscal year 1996.
4
<PAGE> 7
The Governance Committee, which was formed on February 6, 1996, considers
and recommends to the Board from time to time suitable candidates for membership
on the Board, including nominees recommended by stockholders. Stockholders
wishing to submit a recommendation should write to the Governance Committee.
Stockholders may also make nominations for director at annual or certain special
stockholder meetings if they comply with the procedures described below. 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 director compensation and (ii) the role and
effectiveness of the Chief Executive Officer, the Board and each committee of
the Board. The Governance Committee met five times during fiscal year 1996.
Under the Company's By-laws, a stockholder of the Company entitled to vote
for the election of directors, may, if he or she complies with the following
procedures, make a nomination for director at a stockholder meeting. Nominations
for director may be made by stockholders only after compliance with the
procedures set forth in the Company's By-laws. The following summary is
qualified in its entirety by reference to the full text of the By-laws. Written
notice of such stockholder's intent to make such nomination must be delivered to
the Company (Attention: Corporate Secretary) on a timely basis as set forth
below and must contain (i) the name and address of the stockholder as it appears
on the Company's books and of the beneficial owner, if any, on behalf of whom
such nomination is made, and (ii) as to each person whom the stockholder
proposes to nominate for election as a director, all information relating to
such person that is required to be disclosed in solicitation of proxies for
election of directors, or is otherwise required, by Regulation 14A under the
Securities Exchange Act of 1934, as amended ("Exchange Act") (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected).
In the case of an annual meeting of stockholders, the required notice must
be delivered not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided that, in the event
that the date of the annual meeting is advanced by more than 30 days or delayed
by more than 60 days from such anniversary date, the notice must be delivered no
earlier than the ninetieth day prior to such annual meeting and not later than
the close of business on the later of the sixtieth day prior to such annual
meeting or the tenth day following the day on which public announcement of the
date of such meeting is first made. If the number of directors to be elected to
the Board is increased and there is no public announcement specifying the size
of the increased Board made by the Company at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a notice will be considered
timely, but only with respect to nominees for any new positions created by such
increase, if delivered not later than the close of business on the tenth day
following the day on which the public announcement is first made by the Company.
In the case of a special meeting of stockholders at which directors are proposed
to be elected in the notice of meeting, the stockholder wishing to make a
nomination for director must deliver the required written notice to the Company
(Attention: Corporate Secretary) not earlier than the ninetieth day prior to the
special meeting and not later than the close of business on the later of the
sixtieth day prior to such meeting or the tenth day following the day on which
public announcement is first made of the date of the special meeting and of the
nominees proposed by the Board to be elected at such meeting.
---------------------------
COMPENSATION OF DIRECTORS
Each member of the Board of Directors 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 of Directors 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 of Directors. The non-executive Chairman
Emeritus and Vice Chairman of the Board of Directors receive $50,000 and
$25,000, respectively, per year for their services. In addition, the Chairman of
the Audit Committee, Chairman of the Compensation Committee and Chairman of the
Governance 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
$350,000 for each of the members of the Board of Directors who are not
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<PAGE> 8
employees of the Company. The premium for such insurance ranged from $144 to
$3,588 for each of these directors during 1996. Commencing with the 1997 Annual
Meeting of Stockholders, one-half of each of the director's annual retainer will
be paid in Common Stock of the Company on an annual basis. The Company will
issue to each director within 30 days after the annual meeting of stockholders
of the Company at which the director is elected a number of shares equal to
one-half of the annual retainer in effect on the date of such meeting divided by
the average of the closing prices for the Common Stock, as reported on the New
York Stock Exchange ("NYSE") composite tape, for the ten trading days prior to
such annual meeting. The shares of Common Stock issued to the directors will be
held by the Company and will not be sold, pledged or otherwise disposed of and
will not be delivered to the directors until the earlier of (i) the first
anniversary date of the annual meeting which immediately preceded the issuance
of such shares or (ii) the date on which the person ceases to be a director. The
directors will have full voting rights with respect to such shares of Common
Stock.
The Company had previously established in December 1994 a Non-Employee
Director Retirement Plan (the "Director Retirement Plan") which provided that
any eligible non-employee director who elected to participate in the Director
Retirement Plan and who had served on the Board of Directors for at least three
full years (excluding service while a full-time employee of the Company) would
be entitled to a retirement payment beginning the later of the director's
sixty-fifth birthday or such date that the individual's service as a director
ends. However, to more closely align director compensation with shareholders'
interests, on March 6, 1997, the Board of Directors amended the Director
Retirement Plan to freeze the plan and convert all of the accrued benefits of
the current directors under the plan to a lump-sum present value which will be
transferred to and become the initial account balance of the directors in the
Tesoro Petroleum Corporation Board of Directors Deferred Phantom Stock Plan (the
"Phantom Stock Plan"). After the amendment and transfer, only those retired
directors who have begun receiving benefits will remain participants in the
Director Retirement Plan. Under the Director Retirement Plan, retired directors
are receiving annually a sum (the "Retirement Amount") equal to the base annual
retainer fee paid to the director at the time such director ended service as a
director to the Company. Such payments are being made for a period of time equal
to the aggregate length of time (the "Benefit Period") such director served on
the Board of Directors. 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 of Directors or the Chairman of any committee of the
Company's Board of Directors at the time the director's service ended, the
Company paid 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 of Directors and/or Chairman of any committee of the Board of Directors.
Upon establishment of the Phantom Stock Plan, effective March 6, 1997, the
lump-sum accrued benefit of each of the current non-employee directors was
transferred from the Director Retirement Plan into an account in the Phantom
Stock Plan ("Account"). By participating in the Phantom Stock Plan, each
director waives any and all rights under the Director Retirement Plan.
Commencing with 1997, each current and future non-employee director
("Participant") shall have credited to his Account as of the last day of the
year a yearly accrual equal to $7,250 (limited to 15 accruals, including
previous accruals of retirement benefits under the Director Retirement Plan);
and each Participant who is serving as a chairman of a committee of the Board of
Directors immediately prior to his termination as director and who has served at
least three years as a director shall have an additional $5,000 credited to his
Account. The Phantom Stock Plan allows for pro rata calculations of the yearly
accrual in the event a director serves for part of a year. In addition, a
Participant may elect to defer any part or all of the cash portion of his annual
director retainer into his Account. Each transfer, accrual or deferral shall be
credited to the Participant's Account in units based upon the number of shares
that could have been purchased with the dollars credited based upon the closing
price of the Company's Common Stock on the NYSE on the date the amount is
credited. Dividends or other distributions accrue to the Participant's Account.
Participants are vested 100 percent at all times with respect to deferrals and,
if
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<PAGE> 9
applicable, the chairman fee portion of his Account. Participants vest in
amounts transferred from the Director Retirement Plan and the yearly accruals
upon completion of three full years of service (including all service prior to
March 6, 1997) as a member of the Board. If a Participant voluntarily resigns or
is removed from the Board prior to serving three years on the Board, he shall
forfeit all amounts not vested. If a director dies, retires or becomes disabled,
he shall be 100 percent vested in his Account without regard to service.
Distributions from the Phantom Stock Plan shall be made in cash, in either a
lump-sum distribution or annual installments not exceeding ten years, based on
the closing market price of the Company's Common Stock on the NYSE on the
business day immediately preceding the date on which the cash distribution is to
be made. Death, disability, retirement or cessation of a Participant as a
director of the Company constitute an event requiring a distribution. Upon the
death of a Participant, the Participant's beneficiary will receive the cash
value of the Participant's Account as of the date of death.
Effective April 1, 1995, the Board of Directors 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 total cash
compensation 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, 1996, no members of the Board were participating in the Deferred
Compensation Plan. For 1997, Mr. Ward has elected to defer 100 percent of his
compensation under the Deferred Compensation Plan.
The Company's 1995 Non-Employee Director Stock Option Plan (the "1995
Plan") provides for the grant to non-employee directors of automatic,
non-discretionary stock options, at an exercise price equal to the fair market
value of the Common Stock as of the date of grant. Under the 1995 Plan, each
person serving as a non-employee director on February 23, 1995, or elected
thereafter, initially receives an option to purchase 5,000 shares of the
Company's Common Stock. Thereafter, each non-employee director, while the 1995
Plan is in effect and shares are available to grant, will be granted an option
to purchase 1,000 shares of Common Stock on the next day after each annual
meeting of the Company's stockholders but not later than June 1, if no annual
meeting is held. All options under the 1995 Plan become exercisable six months
after the date of grant. The 1995 Plan will terminate as to the issuance of
stock options in February 2005. Under the 1995 Plan, Mr. Ward, Dr. Kaufman and
Mr. Johnson each received an option for 5,000 shares at an exercise price per
share of $8.250, $9.375 and $11.625, respectively, during 1996. 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 June 7, 1996. At March
25, 1997, the Company had 62,000 options outstanding and 83,000 shares available
for future grants under the 1995 Plan.
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<PAGE> 10
STOCK OWNERSHIP
The following table shows the beneficial ownership of the Company's Common
Stock reported to the Company as of March 25, 1997, 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
Exchange Act for each director and nominee, the Chief Executive Officer, the
other four most highly compensated officers of the Company during 1996 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.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF COMMON
STOCK ON MARCH 25, 1997
--------------------------------
SHARES PERCENT OF CLASS
--------- ----------------
<S> <C> <C>
Robert J. Caverly....................... 10,000(1) 0.037
Steven H. Grapstein..................... 1,529,900(1)(2) 5.709
William J. Johnson...................... 5,000(1) 0.019
Alan J. Kaufman......................... 670,500(1)(3) 2.502
Raymond K. Mason, Sr. .................. 24,428(1) 0.091
Bruce A. Smith.......................... 362,430(4) 1.345
Patrick J. Ward......................... 12,000(1)(5) 0.045
Murray L. Weidenbaum.................... 8,000(1) 0.030
William T. Van Kleef.................... 107,724(6) 0.402
James C. Reed, Jr. ..................... 110,143(7) 0.411
Thomas E. Reardon....................... 20,495(8) 0.077
Gregory A. Wright....................... 9,692(9) 0.036
All directors, nominees for election as
a director and executive officers as a
group (16 individuals)................ 2,915,431(10) 10.768
</TABLE>
- ---------------
(1) The shares shown for Mr. Caverly, Mr. Grapstein, Mr. Mason and Dr.
Weidenbaum include 7,000 shares each which such directors had the right to
acquire through the exercise of stock options on March 25, 1997, or within
60 days thereafter. The shares shown for Mr. Johnson, Dr. Kaufman and Mr.
Ward include 5,000 shares, 6,000 shares and 6,000 shares, respectively,
which such directors had the right to acquire through the exercise of stock
options on March 25, 1997, or within 60 days thereafter.
(2) The shares shown include 1,522,900 shares of the Company's Common Stock
owned by Oakville. Mr. Grapstein is an officer of Oakville. As an officer,
Mr. Grapstein shares voting and investment power with respect to such
shares. See "Security Ownership of Certain Beneficial Owners."
(3) The shares shown include 9,000 shares held in the name of Dr. Kaufman's
spouse for which he disclaims beneficial ownership, and 20,000 shares owned
by the Kaufman Children's Trust for which Dr. Kaufman has sole power to
vote and direct the disposition thereof.
(4) The shares shown include 2,182 shares credited to Mr. Smith's account under
the Company's Thrift Plan and 148,400 shares which Mr. Smith had the right
to acquire through the exercise of stock options on March 25, 1997, or
within 60 days thereafter. The shares shown also include 200,000 shares of
restricted Common Stock whose restrictions lapse only if Tesoro's stock
reaches an average price of $20 per share or higher over any 20 consecutive
trading days after June 30, 1997, and before December 31, 1998.
(5) The shares shown include 6,000 shares owned by the P&L Family Partnership
Ltd. which Mr. Ward and his spouse control through 90 percent ownership.
(6) The shares shown include 1,347 shares credited to Mr. Van Kleef's account
under the Company's Thrift Plan and 24,120 shares which Mr. Van Kleef had
the right to acquire through the exercise of stock options or stock awards
on March 25, 1997, or within 60 days thereafter. The shares shown also
include 75,000 shares of restricted Common Stock whose restrictions lapse
only if Tesoro's stock reaches an
8
<PAGE> 11
average price of $20 per share or higher over any 20 consecutive trading
days after June 30, 1997, and before December 31, 1998.
(7) The shares shown include 903 shares credited to Mr. Reed's account under
the Company's Thrift Plan and 19,400 shares which Mr. Reed had the right to
acquire through the exercise of stock options on March 25, 1997, or within
60 days thereafter. The shares shown also include 75,000 shares of
restricted Common Stock whose restrictions lapse only if Tesoro's stock
reaches an average price of $20 per share or higher over any 20 consecutive
trading days after June 30, 1997, and before December 31, 1998.
(8) The shares shown include 285 shares credited to Mr. Reardon's account under
the Company's Thrift Plan and 18,713 shares which Mr. Reardon had the right
to acquire through the exercise of stock options on March 25, 1997, or
within 60 days thereafter. The shares shown also include 1,334 shares held
in the name of Mr. Reardon's spouse for which he disclaims beneficial
ownership.
(9) The shares shown include 492 shares credited to Mr. Wright's account under
the Company's Thrift Plan and 9,200 shares which Mr. Wright had the right
to acquire through the exercise of stock options on March 25, 1997, or
within 60 days thereafter.
(10) The shares shown include 6,073 shares credited to the accounts of executive
officers and directors under the Company's Thrift Plan and 285,151 shares
which directors and executive officers had the right to acquire through the
exercise of stock options or stock awards on March 25, 1997, 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. In addition, the shares shown
include the 350,000 shares of restricted Common Stock described above which
have been granted to Messrs. Smith, Van Kleef and Reed.
---------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information based on filings made with the
Securities and Exchange Commission ("SEC") as to each person or group who on
March 25, 1997, beneficially owned more than 5 percent of the outstanding shares
of Common Stock of the Company.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
---------------------
NUMBER PERCENT
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OF CLASS
-------------- ------------------------------------ --------- --------
<S> <C> <C> <C>
Common Stock................ Wanger Asset Management, L.P.(1) 1,721,000 6.424
227 West Monroe Street, Suite 3000
Chicago, IL 60606
Common Stock................ Heartland Advisors, Inc.(2) 1,620,750 6.050
790 N. Milwaukee Street
Milwaukee, WI 53202
Common Stock................ Oakville N.V.(3) 1,522,900 5.685
c/o Kuo Investment Company
767 Third Avenue, 33rd Floor
New York, NY 10017
</TABLE>
- ---------------
(1) According to a Schedule 13G filed with the SEC, Wanger Asset Management,
L.P. ("WAM"), states that it is a Delaware limited partnership and is an
Investment Advisor registered under Section 203 of the Investment Advisers
Act of 1940; Wanger Asset Management Ltd. states that it is a Delaware
corporation and the General Partner of the Investment Adviser; and Ralph
Wanger ("Wanger") states that he is a U.S. citizen and principal stockholder
of the General Partner. The Schedule 13G indicates that the shares reported
therein have been acquired on behalf of discretionary clients of WAM and
that persons other than WAM are entitled to receive all dividends from, and
proceeds from, the sale of those shares. WAM states that it also serves as
an investment advisor to Acorn Investment Trust which is not controlled by
WAM and which holds 900,000 shares of the Company's Common Stock with
respect to
9
<PAGE> 12
which the trust has delegated to WAM shared voting power and shared
dispositive power. According to the Schedule 13G, WAM, within the meaning of
Rule 13d-3, beneficially owns the shares shown in the table above and
possesses shared power to vote or to direct the vote and shared power to
dispose or direct the disposition of these shares.
(2) According to a Schedule 13G filed with the SEC, Heartland Advisors, Inc.
("Heartland"), states that it is a corporation organized under the laws of
the state of Wisconsin and an investment adviser registered under Section
203 of the Investment Advisers Act of 1940. In its Schedule 13G, Heartland
states that the shares of the Company's Common Stock are held in investment
advisory accounts of Heartland, and as a result, various persons have the
right to receive or the power to direct the receipt of dividends from, or
the proceeds from the sale of, securities. The interests of one such
account, Heartland Value Fund, a series of Heartland Group, Inc., a
registered investment company, relates to more than 5 percent of the class.
Within the meaning of Rule 13d-3 of the Act, 1,620,750 shares of the
Company's Common Stock may be deemed beneficially owned by Heartland.
According to the Schedule 13G, Heartland has sole voting power with respect
to 1,571,750 of these shares and sole dispositive power with respect to
1,620,750 of these shares.
(3) According to Schedule 13Ds on file with the SEC, Oakville, a Netherlands
Antilles corporation, 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.
---------------------------
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 SEC 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, 1996, 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: In connection with the automatic stock options granted
under the 1995 Plan, Form 5's for Messrs. Caverly, Grapstein, Kaufman, Mason,
Ward and Weidenbaum were not timely filed reporting the automatic options
granted on June 7, 1996.
10
<PAGE> 13
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, 1996, 1995 and 1994, of those persons who were on
December 31, 1996, (i) the Chief Executive Officer and (ii) the other four most
highly compensated officers of the Company (the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------- ----------------------
OTHER ANNUAL RESTRICTED STOCK ALL OTHER
NAME AND SALARY BONUS COMPENSATION STOCK OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) AWARD(S)($) (SHARES) ($)(3)
------------------ ---- ------- ------- ------------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce A. Smith.......... 1996 510,096 680,960 -- (2) 170,000 790,751
Chairman of the Board 1995 347,692 350,000 -- -- 100,000 320,612
of Directors, 1994 288,462 300,000 -- -- 71,000 145,946
President and Chief
Executive Officer
William T. Van Kleef.... 1996 236,269 248,900 -- (2) 100,000 216,207
Executive Vice 1995 169,635 129,000 -- -- 20,000 60,962
President, Operations 1994 149,039 91,931 -- -- 11,300 38,445
James C. Reed, Jr....... 1996 243,673 232,750 -- (2) 50,000 1,004,676
Executive Vice 1995 192,539 161,000 -- -- 20,000 568,312
President, General 1994 173,077 175,000 -- -- 26,000 185,643
Counsel and Secretary
Thomas E. Reardon....... 1996 168,231 128,250 -- -- 17,500(2) 456,611
Vice President, Human 1995 156,750 86,625 -- -- 10,000 114,381
Resources and 1994 130,385 69,713 -- -- 11,300 181,356
Environmental
Gregory A. Wright....... 1996 147,019 90,000 -- -- 11,500(2) 4,531
Vice President and 1995 117,289 54,375 -- -- 26,000 --
Treasurer 1994 -- -- -- -- -- --
</TABLE>
- ---------------
(1) No payments were made to the named executive officers in 1996 which are
reportable in Other Annual Compensation. 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 named executive officers
for all periods shown.
(2) See Long-Term Incentive Plans -- Awards in 1996 table on page 13 for
information related to restricted stock and stock options granted in
connection with the Company's special incentive compensation strategy.
(3) All Other Compensation for 1996 includes 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 17) of $786,251,
$211,707, $1,000,176 and $451,817 for Mr. Smith, Mr. Van Kleef, Mr. Reed and
Mr. Reardon, respectively; and amounts contributed to the Company's Thrift
Plan of $4,500, $4,500, $4,500, $4,794 and $4,531 for Mr. Smith, Mr. Van
Kleef, Mr. Reed, Mr. Reardon and Mr. Wright, respectively. All Other
Compensation for 1995 includes amounts contributed by the Company and
earnings on the respective executive officer's account in the Funded
Executive Security Plan of $316,112, $56,462, $563,812 and $109,881 for Mr.
Smith, Mr. Van Kleef, Mr. Reed and Mr. Reardon, respectively;
11
<PAGE> 14
and amounts contributed to the Company's Thrift Plan of $4,500 for each of
these executive officers. All Other Compensation for 1994 includes amounts
contributed by the Company and earnings on the respective executive
officer's account in the Funded Executive Security Plan of $139,254,
$36,022, $180,417 and $177,445 for Mr. Smith, Mr. Van Kleef, Mr. Reed and
Mr. Reardon, respectively; and amounts contributed to the Company's Thrift
Plan of $6,692, $2,423, $5,226 and $3,911 for Mr. Smith, Mr. Van Kleef, Mr.
Reed and Mr. Reardon, respectively.
---------------------------
OPTION GRANTS IN 1996
The following table sets forth information concerning individual grants of
stock options pursuant to the Company's 1993 Plan during the year ended December
31, 1996, to the named executive officers (excluding long-term
performance-vested options referred to below). No Stock Appreciation Rights
("SARs") were granted under the 1993 Plan during 1996.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED APPRECIATION FOR OPTION
OPTIONS TO EXERCISE OR TERM
GRANTED EMPLOYEES BASE PRICE EXPIRATION ---------------------------
NAME (#)(1) IN 1996 ($/SHARE)(2) DATE 5%($) 10%($)
---- ---------- ---------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Bruce A. Smith.......................... 170,000 23.5 14.9375 11/06/06 1,596,999 4,047,110
William T. Van Kleef.................... 100,000 13.8 14.9375 11/06/06 939,411 2,380,655
James C. Reed, Jr. ..................... 50,000 6.9 14.9375 11/06/06 469,706 1,190,327
Thomas E. Reardon....................... 17,500 2.4 14.9375 11/06/06 164,396 416,616
Gregory A. Wright....................... 11,500 1.6 14.9375 11/06/06 108,032 273,776
</TABLE>
- ---------------
(1) The options granted to the named executive officers during 1996 are
exercisable in three equal annual installments beginning one year from the
dates of grant.
(2) 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 NYSE on the dates of the
grants.
AGGREGATED OPTION/SAR EXERCISES IN 1996 AND OPTION/SAR VALUES AT DECEMBER 31,
1996
The following table reflects the number of stock options and SARs exercised
and the value realized by the named executive officers during 1996 and the
number of unexercised stock options (excluding long-term performance-vested
options referred to below) and SARs remaining at year-end and the potential
value thereof based on the year-end market price of the Company's Common Stock
of $14 per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES DECEMBER 31, 1996(#) DECEMBER 31, 1996($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce A. Smith.......... -- -- 148,400 292,600 1,255,300 671,700
William T. Van Kleef.... -- -- 18,120 129,180 130,883 186,324
James C. Reed, Jr....... 10,000 58,750 19,400 91,600 114,550 253,700
Thomas E. Reardon....... 1,489 2,978 22,794 38,680 136,590 138,324
Gregory A. Wright....... -- -- 5,200 32,300 24,200 96,800
</TABLE>
12
<PAGE> 15
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1996
The following table provides information as to long-term incentive awards
in the form of restricted stock and stock options granted in 1996 to the named
executive officers in connection with a special incentive compensation strategy
(see page 15) for all employees to perform at an outstanding level, which are
not included in the Summary Compensation Table on page 11.
<TABLE>
<CAPTION>
NUMBER OF SHARES, UNITS OR PERFORMANCE OR OTHER PERIOD
NAME OTHER RIGHTS(#) UNTIL MATURATION OR PAYOUT
---- -------------------------- ---------------------------
<S> <C> <C>
Bruce A. Smith................................. 200,000 7/1/97-12/30/98(1)
William T. Van Kleef........................... 75,000 7/1/97-12/30/98(1)
James C. Reed, Jr.............................. 75,000 7/1/97-12/30/98(1)
Thomas E. Reardon.............................. 50,000 7/1/97-12/30/98(2)
Gregory A. Wright.............................. 30,000 7/1/97-12/30/98(2)
</TABLE>
- ---------------
(1) Represents restricted stock awards which will be earned only if the market
price of the Company's Common Stock reaches an average price per share of
$20 or higher over any 20 consecutive trading days after June 30, 1997, and
before December 31, 1998 (the "Performance Target").
(2) Represents stock options which have an exercise price of $11.375 per share
(the fair market value as defined in the 1993 Plan of a share of the
Company's Common Stock on the date of grant) and will vest only upon
achieving the Performance Target.
---------------------------
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of Tesoro Petroleum
Corporation has prepared the following report regarding 1996 executive
compensation. The Compensation Committee, which is composed entirely of
non-employee directors, is responsible for all components of the Company's
senior executive compensation programs and the aggregate cost-related aspects of
other executive compensation. The members of the Compensation Committee for 1996
were Steven H. Grapstein (Chairman), Alan J. Kaufman, Raymond K. Mason, Sr., and
Patrick J. Ward. 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 Chairman, 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
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 base salary, 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 (the
"Performance Graph").
13
<PAGE> 16
- 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. As
a result, a significant portion of executive compensation is provided in
the form of stock options granted at not less than 100 percent of fair
market value as defined in the Company's Amended and Restated Executive
Long-Term Incentive Plan ("1993 Plan"), which only provide income to
executives if the Company's Common Stock price increases after the date
of grant. In addition, to encourage a longer-term focus to perform at
outstanding levels and to provide an extraordinary incentive for
achieving outstanding stock price performance, special incentive
compensation is provided in the form of performance-vested restricted
stock and stock options, which only provide compensation if Tesoro's
stock reaches an average price of $20 per share or higher over any 20
consecutive trading days after June 30, 1997, and before December 31,
1998 (see Long-Term Incentives discussed below).
DESCRIPTION OF THE 1996 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. The Company's actual base salaries for its executive officers are
generally consistent with the Company's philosophy of targeting the market 50th
percentile.
Annual Incentives
Under the Company's 1996 annual incentive strategy, covering senior and
mid-level executives, target awards were set at the market 50th percentile. The
strategy was structured so that 75 percent of annual incentive award
opportunities are tied to corporate performance for corporate positions (and for
business unit positions, a combination of corporate and business unit
performance) and 25 percent of the award opportunities are tied to a qualitative
assessment of individual performance.
The corporate financial objectives for 1996 were return on total capital
compared to the industry peers shown in the Performance Graph and earnings
before extraordinary item, interest expense, income taxes and depreciation,
depletion and amortization ("EBITDA") relative to the Company's business plan.
These measures were weighted equally. For the Exploration and Production group,
the quantitative performance measures were operating profit and total domestic
reserve additions. For Refining and Marketing and Marine Services, the business
unit objectives were return on capital employed, EBITDA relative to the business
plan, safety performance, and environmental performance.
The individual, subjective performance measures varied by executive but
included such items as effectiveness in developing and implementing a strategic
plan, increasing market share, establishing effective administrative support
systems, and managing costs. These objectives were not weighted. Annual
incentive awards earned under the strategy in 1996 for executive officers were
paid at maximum or near maximum since the Company's performance was outstanding.
Payouts for business unit officers fell between target and maximum based on
combined corporate and unit results.
14
<PAGE> 17
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 stockholder value.
In 1996, the Compensation Committee provided stock option grants to key
executives and selected other employees under the Company's 1993 Plan. Stock
options provide a strong tie between pay and performance, since recipients only
realize value from stock options if the Company's share price rises after the
date of grant. All stock options in 1996 were granted at 100 percent of fair
market value at the time of grant and vest in 20 percent to 33 percent
increments per year.
In determining the size of stock option grants for executive officers in
1996, the Compensation Committee considered market data on typical stock option
grants at the market 25th, 50th and 75th percentiles. The 1996 stock option
grants made to executives ranged between the 25th and 75th percentiles based on
the Chief Executive Officer's and Compensation Committee's assessment of the
participant's ability to affect long-term results.
In 1996, the Compensation Committee approved a special incentive
compensation strategy comprised of performance-vested restricted stock and stock
options for the executive officers. The intent of this strategy is to provide an
extraordinary incentive for achieving outstanding stock price performance. Under
this strategy, executive officers received from the 1993 Plan a significant
number of restricted shares (for three of the named executive officers) or stock
options (for other executive officers) which vest only if the Company's stock
reaches an average price of $20 or higher over 20 consecutive trading days after
June 30, 1997, and before December 31, 1998. If this share price target is not
achieved, these special performance-vested restricted stock and stock options
are canceled. The intent of this program is to provide market 90th percentile
total pay if the Company achieves outstanding stock price growth.
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. Levels of
Company benefits and perquisites for executives were in line with market 50th
and 75th percentile levels.
DISCUSSION OF 1996 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The discussion below applies to Mr. Smith's 1996 compensation.
- Base Salary -- Mr. Smith's annual base salary was increased from $500,000
to $575,000 in 1996. This base salary adjustment placed Mr. Smith's base
salary at a level consistent with the 50th percentile for the Company's
peer group in the published compensation surveys previously described.
The base salary adjustment was intended to move Mr. Smith's base pay to a
competitive level and reflected the Compensation Committee's subjective
assessment that Mr. Smith's performance was outstanding.
- Annual Incentive Award -- Based on the Company's outstanding performance
on the measures described under the Annual Incentives section above (as
well as outstanding individual performance in the areas of progress in
establishing the Company's strategy and organizing a key leadership
team), the Compensation Committee provided Mr. Smith with an annual
incentive of $680,960 for 1996. This award was at 95 percent of the
maximum level.
- Stock Options -- Mr. Smith received a grant of 170,000 stock options in
1996. 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 in 33
percent increments per year. The size of the stock option grant was
established near
15
<PAGE> 18
the market 75th percentile of the published compensation survey data. 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.
In addition, under the special incentive compensation strategy described
above, Mr. Smith received a grant of 200,000 performance-vested restricted
shares which vest only if the Company's stock reaches an average price of $20 or
higher for 20 consecutive trading days after June 30, 1997, and before December
31, 1998. This incentive is intended to reward the CEO for significant growth in
share price.
POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT
Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), publicly traded companies may not receive a tax deduction on
non-performance based compensation to executive officers in excess of $1
million. The Company's stock option grants qualify as performance-based
compensation under the law. 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
Steven H. Grapstein, Chairman
Alan J. Kaufman
Raymond K. Mason, Sr.
Patrick J. Ward
16
<PAGE> 19
PERFORMANCE GRAPH
The Stock Price Performance Graph below compares the cumulative total
return of the Company's Common Stock to the cumulative total return of the S&P
500 Composite Index and to a composite peer group of companies (the "Peer
Group"). Companies in the Peer Group are as follows: Diamond Shamrock
Corporation (currently Ultramar Diamond Shamrock Corporation); Getty Petroleum
Corporation; Holly Corporation; Louisiana Land & Exploration Company; Maxus
Energy Corporation (through 1994); Murphy Oil Corporation; Oryx Energy; Quaker
State Corporation; Tosco Corporation; Total Petroleum (North America) Ltd.;
Union Texas Petroleum Holdings, Inc.; and Valero Energy Corporation. This line
graph is for the period of five fiscal years commencing December 31, 1991, and
ending December 31, 1996.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG THE COMPANY, S&P 500 INDEX AND A COMPOSITE PEER GROUP
[GRAPH]
<TABLE>
<CAPTION>
TESORO PETROLEUM
CORP. S&P 500 INDEX PEER GROUP
<S> <C> <C> <C>
12/31/91 $100 $100 $100
12/31/92 67 108 91
12/31/93 122 118 99
12/31/94 206 120 93
12/31/95 192 165 101
12/31/96 311 203 145
</TABLE>
- ---------------
* Assumes that the value of the investment in Common Stock and each index was
$100 on December 31, 1991, and that all dividends were reinvested. Investment
is weighted on the basis of market capitalization.
NOTE: The stock price performance shown on the graph is not necessarily
indicative of future price performance.
---------------------
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
17
<PAGE> 20
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 (excluding stock awards under the special
incentive compensation strategy), 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 selected persons approved by the Chief Executive
Officer who are also participants 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.
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,
1997, the federal tax law generally limits maximum annual retirement benefits
payable by the Retirement Plan to any employee to $125,000, 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 Code, it is possible for certain retirees to receive annual
benefits in excess of this tax limitation.
<TABLE>
<CAPTION>
NUMBER OF YEARS OF BENEFIT SERVICE
HIGHEST AVERAGE ANNUAL RATE --------------------------------------------------------
OF COMPENSATION 10 15 20 25 30
- --------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 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
</TABLE>
The years of benefit service as of December 31, 1996, for the named
executive officers were as follows: Mr. Smith, 4 years; Mr. Van Kleef, 3 years;
Mr. Reed, 22 years; Mr. Reardon, 16 years; and Mr. Wright, 1 year.
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
18
<PAGE> 21
accrued benefit, payable in 96 monthly installments or as a life annuity if a
surviving spouse is the designated beneficiary.
EMPLOYMENT CONTRACTS, MANAGEMENT STABILITY AGREEMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Under an employment agreement dated February 15, 1996, Mr. Smith is
employed until December 14, 1997, at an annual base salary of $575,000. Under
separate employment agreements, Mr. Van Kleef and Mr. Reed are employed until
December 31, 1998, at annual base salaries of $285,000 and $275,000,
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 strategy 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 of
Directors or any appropriate committee thereof. The target incentive bonus under
the 1996 annual incentive compensation strategy was a percentage of the
respective executive officer's annual base salary and was 70 percent for Mr.
Smith, 55 percent for Mr. Van Kleef and 50 percent for Mr. Reed. 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. Van Kleef and Mr. Reed. Each employment agreement also provides that the
Company will pay initiation fees and reimburse the executive for related tax
expenses to the extent the Board of Directors or a duly authorized committee
thereof determines such fees are reasonable and in the best interest of the
Company.
Each of the employment agreements with Mr. Smith, Mr. Van Kleef and Mr.
Reed 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, except for the restrictions
on restricted stock awards granted under the special incentive compensation
strategy which vest on a pro-rata basis relative to the period of time of the
Performance Target that such executive was an employee, until it is determined
whether the vesting requirement established in the award has been satisfied.
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
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
19
<PAGE> 22
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
director, by a vote of at least two-thirds of the directors then still in office
who were directors of the Company immediately prior to the merger, or (b) any
sale, lease, exchange or transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (ii)
the shareholders of the Company shall approve any plan or proposal for the
liquidation or dissolution of the Company, or (iii) (A) any "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the 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 separate Management Stability Agreements ("Stability
Agreements") with Mr. Reardon and Mr. Wright which are only operative in the
event of a change of control of the Company. The Stability Agreements provide
that, if Mr. Reardon's or Mr. Wright's employment is involuntarily terminated
within two years of a change of control or if Mr. Reardon's or Mr. Wright's
employment is voluntarily terminated within two years of a change of control
"for good reason," as defined in the Stability Agreements, 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 and Mr. Wright 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 and Mr. Wright 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 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 for Mr. Reardon 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,
20
<PAGE> 23
other than a merger of the Company where a majority of the Board of Directors of
the surviving corporation are, and for a two-year period after the merger
continue to be, persons who were directors of the Company immediately prior to
the merger or were elected as directors, or nominated for election as director,
by a vote of at least two-thirds of the directors then still in office who were
directors of the Company immediately prior to the merger, or (b) any sale,
lease, exchange or transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (ii)
the shareholders of the Company shall approve any plan or proposal for the
liquidation or dissolution of the Company, or (iii) (A) any "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the 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.
2. APPOINTMENT OF AUDITORS
The Board of Directors considers it desirable that its appointment of the
firm of Deloitte & Touche LLP as independent auditors for the Company and its
subsidiaries for fiscal year 1997 be ratified by the stockholders.
Representatives of Deloitte & Touche LLP are expected to be present at the 1997
Annual Meeting of Stockholders and to be available to respond to appropriate
questions. Such representatives will have the opportunity to make a statement at
the annual meeting if they desire to do so. Under Delaware law, the Certificate
of Incorporation and By-laws, a majority of the votes cast are required to
approve the appointment of Deloitte & Touche LLP as auditors. Abstentions and
Broker NonVotes are not votes "cast" on the question and therefore will not
count as votes for or against the proposal, and will not be included in
calculating the number of votes necessary for approval of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF THE FIRM OF
DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR THE COMPANY AND ITS
SUBSIDIARIES FOR FISCAL YEAR 1997.
3. EXPENSES OF SOLICITATION
The Company expects to solicit proxies primarily by mail, but directors,
officers and regular employees of the Company may also solicit in person, by
telephone or telegram. All expenses in connection with the solicitation of
proxies will be borne by the Company. Arrangements will be made by the Company
for the forwarding, at the Company's expense, of soliciting materials by
brokers, nominees, fiduciaries and other custodians to their principals. The
Company has retained a professional proxy soliciting organization, Georgeson &
Company Inc. of New York, New York, to aid in the solicitation of proxies from
brokers, bank nominees and other institutional owners, and possibly individual
holders of record of 1,000 shares or more, by personal interview, telephone,
telegram or mail. The Company will pay such organization its customary fees,
estimated not to exceed $8,500, and will reimburse such organization for certain
expenses.
4. STOCKHOLDERS' PROPOSALS
Proposals of stockholders to be presented at the annual meeting to be held
in 1998 must be received for inclusion in the Company's proxy statement and form
of proxy by December 7, 1997.
21
<PAGE> 24
5. OTHER MATTERS
As of the date of this Proxy Statement, management of the Company has no
knowledge of any matters to be presented for consideration at the meeting other
than those referred to above. If any other matters properly come before the
meeting, the persons named in the accompanying form of proxy intend to vote such
proxy to the extent entitled in accordance with their best judgment.
By Order of the Board of Directors,
JAMES C. REED, JR.
Secretary
April 7, 1997
22
<PAGE> 25
TESORO PETROLEUM CORPORATION
ANNUAL MEETING OF STOCKHOLDERS, MAY 7, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
PLEASE MARK, SIGN, DATE AND RETURN IN THE ENCLOSED ENVELOPE.
The undersigned hereby appoints BRUCE A. SMITH and JAMES C. REED,
JR., and each of them, as proxies of the undersigned, each with full power to
act without the other and with full power of substitution, to vote all the
shares of Common Stock of Tesoro Petroleum Corporation held in the name of the
undersigned at the close of business on March 25, 1997, at the Annual Meeting
of Stockholders to be held at the Plaza San Antonio, A Marriott Hotel, 555
South Alamo Street, San Antonio, Texas, on Wednesday, May 7, 1997, at 10:00
A.M. Central time, and at any adjournment thereof, with all the powers the
undersigned would have if personally present, upon the matters set forth in the
Notice of such meeting and as indicated in the following sentence. Said
proxies are authorized to vote in accordance with the Proxy Statement for the
election of the persons nominated pursuant thereto as directors (unless
authority is withheld as provided below), as indicated below upon the following
proposal, more fully set forth in the Proxy Statement, and in their discretion
upon such other matters as may properly come before the meeting.
(Continued and to be signed on the reverse side)
<PAGE> 26
PLEASE MARK YOUR CHOICE LIKE THIS X IN BLUE OR BLACK INK [x]
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" THE NOMINEES LISTED IN ITEM 1
AND "FOR" ITEM 2.
ITEM 1 - Election of 7 directors (all nominated as directors to serve for the
terms indicated in the Proxy Statement).
[ ] FOR all nominees [ ] WITHHELD for all nominees
Nominees: Steven H. Grapstein; William J. Johnson; Alan J. Kaufman; Raymond K.
Mason, Sr.; Bruce A. Smith; Patrick J. Ward; and Murray L. Weidenbaum.
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, DRAW A
LINE THROUGH OR STRIKE OUT THAT NOMINEE'S NAME AS SET FORTH ABOVE.
ITEM 2 - Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors for fiscal year 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
ITEM 3 -To transact such other business as may properly come before the meeting
or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED AND
RETURNED WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED STOCKHOLDER.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR ITEMS 1 AND 2.
Dated: ____________________________, 1997
Signature:_______________________________
Signature:_______________________________
PLEASE SIGN EXACTLY AS NAME APPEARS ABOVE. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATION NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
<PAGE> 27
TESORO PETROLEUM CORPORATION
THRIFT PLAN
ANNUAL MEETING OF STOCKHOLDERS, MAY 7, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned participant in the TESORO PETROLEUM CORPORATION
THRIFT PLAN (the "Plan") hereby acknowledges receipt of the Notice of the
Annual Meeting of Stockholders to be held at the Plaza San Antonio, A Marriott
Hotel, 555 South Alamo Street, San Antonio, Texas, on Wednesday, May 7, 1997,
at 10:00 A.M. Central time, and directs the Frost National Bank, Trustee, to
vote (or cause to be voted) all shares of Tesoro Common Stock allocated to the
undersigned's account under the Plan and held in the Trustee's name on March
25, 1997, at said meeting and at any adjournment thereof. Said Trustee is
authorized to vote in accordance with the Proxy Statement for the election of
the persons nominated pursuant thereto as directors (unless authority is
withheld as provided below), as indicated below upon the following proposal,
more fully set forth in the Proxy Statement, and in its discretion upon such
other matters as may properly come before the meeting.
(Continued and to be signed on the reverse side)
<PAGE> 28
PLEASE MARK YOUR CHOICE LIKE THIS X IN BLUE OR BLACK INK [x]
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" THE NOMINEES LISTED IN ITEM 1
AND "FOR" ITEM 2.
ITEM 1 - Election of 7 directors (all nominated as directors to serve for the
terms indicated in the Proxy Statement).
[ ] FOR all nominees [ ] WITHHELD for all nominees
Nominees: Steven H. Grapstein; William J. Johnson; Alan J. Kaufman; Raymond K.
Mason, Sr.; Bruce A. Smith; Patrick J. Ward; and Murray L. Weidenbaum.
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, DRAW A
LINE THROUGH OR STRIKE OUT THAT NOMINEE'S NAME AS SET FORTH ABOVE.
ITEM 2 - Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors for fiscal year 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
ITEM 3 -To transact such other business as may properly come before the meeting
or any adjournment thereof.
Dated:___________________________, 1997
Signature:_____________________________
PLEASE SIGN EXACTLY AS NAME APPEARS ABOVE. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
