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 Section 14a-11(c) or Rule 14a-12
TEXACO INC.
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(Name of Registrant as Specified In Its Charter)
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(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)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
[ TEXACO LOGO ]
Texaco Inc.
2000 Westchester Avenue
White Plains, NY 10650
NOTICE OF ANNUAL MEETING
Dear Stockholder:
Your Board of Directors and your management cordially invite you to attend
the Annual Meeting of the Stockholders of Texaco Inc. which will be held at the
Rye Town Hilton, 699 Westchester Avenue, Rye Brook, New York on Tuesday, May 13,
1997, at 2:00 p.m. to transact such business as may properly come before the
meeting.
We intend to present for your approval at this meeting
(1) the election of five directors,
(2) the appointment of auditors for the year 1997,
(3) amendments to the Certificate of Incorporation to increase the number
of authorized shares of Common Stock and reduce the par value of the
Common Stock, and
(4) the Incentive Compensation Program of 1997.
In addition, certain stockholders have notified the company that they
intend to present to the meeting proposals regarding: an advisory committee,
classification of the Board of Directors, and diversity on the Board of
Directors.
Stockholders of record at the close of business on March 14, 1997 are
entitled to notice of and vote at this meeting or any adjournment thereof.
Please complete, sign and mail promptly in the return envelope provided the
enclosed proxy card which is being solicited on behalf of the management,
whether or not you plan to attend the meeting. If you are a stockholder of
record, you can use the toll-free telephone number on the proxy card to have
your shares voted.
Only those stockholders or their properly identified proxies with valid
admission cards will be admitted to the meeting. If you are a stockholder of
record, an admission card is included with your proxy card. Other stockholders
should contact the bank or broker holding their shares for an admission card.
Carl B. Davidson
Vice President and Secretary
March 27, 1997
TABLE OF CONTENTS
Page
Proxy Statement
General Information 1
Description of Capital Stock 1
Voting of Shares 2
Confidential Voting 2
The Board of Directors
Governance 3
Committees 4
Qualifications and Nomination of Directors 6
Compensation of Directors 6
Litigation 7
Security Ownership of Directors and Management 8
Proposals Before the Meeting
Management Proposals
Item 1 - Election of Directors 9
Item 2 - Approval of Auditors 13
Item 3 - Amendment to the Certificate of Incorporation 13
Item 4 - Approval of the Incentive Compensation Program of 1997 14
Stockholder Proposals Relating to:
Item 5 - A Shareholder's Advisory Committee 22
Item 6 - Classification of the Board of Directors 24
Item 7 - Diversity on the Board of Directors 26
Executive Compensation
Compensation Committee Report 28
Summary Compensation Table 31
Option Grants in 1996 32
Aggregated Option Exercises in 1996 and Year-End Option Values 35
Performance Graphs 36
Retirement Plan 37
Future Stockholder Proposals 38
Other Business 38
Appendix A - The Incentive Compensation Program of 1997 39
PROXY STATEMENT
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General Information
We are mailing this proxy statement and accompanying proxy card to
stockholders beginning March 27, 1997. The Board of Directors of Texaco Inc. is
soliciting the proxy, and the company will bear the cost. Proxies may be
solicited by mail, telephone, telegram, facsimile, or in person. We will request
persons holding stock in their names for others, or in the names of nominees for
others, to obtain voting instructions from the beneficial owner, and we will
reimburse them for their reasonable out-of-pocket expenses in obtaining voting
instructions. D. F. King & Co., Inc. has been retained to assist in soliciting
proxies at a fee not to exceed $17,500, plus reasonable out-of-pocket expenses.
We are sending to stockholders with this Proxy Statement a copy of the Annual
Report to Stockholders for 1996, including audited financial statements. It is
not to be regarded as proxy soliciting material.
Description of Capital Stock
Excluding 10,762,732 shares of the company's Common Stock held in the
company's treasury, there were outstanding, at March 14, 1997, the following
series of voting securities: 263,530,685 shares of Common Stock, 715,682.085
shares of Series B ESOP Convertible Preferred Stock and 57,034.973 shares of
Series F ESOP Convertible Preferred Stock. Each outstanding share of Common
Stock is entitled to one vote, each outstanding share of Series B Preferred
Stock is entitled to 12.9 votes and each outstanding share of Series F Preferred
Stock is entitled to ten votes on all matters properly brought before the
meeting. All the shares of the Series B and Series F Preferred Stock are voted
by State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02104-1389, the independent Trustee of the company's Employee
Stock Ownership Plans. State Street Bank and Trust Company filed a Schedule 13G
with the Securities and Exchange Commission disclosing that, as of December 31,
1996, it had voting and dispositive power over 14,045,294.5 shares, or
approximately 5% of the company's outstanding voting securities, as Trustee of
the foregoing plans (as well as various collective investment funds and personal
trust accounts). Under the terms of these plans, State Street Bank and Trust
Company is required to vote shares attributable to any participant in accordance
with confidential instructions received from the participant and to vote all
shares for which it shall not have received instructions in the same ratio as
the shares with respect to which instructions were received.
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1
Voting of Shares
Approval of matters presented to the meeting requires the affirmative vote
of a majority of the voting power of the shares present in person or represented
by proxy and entitled to vote on the subject matter, except for (1) the election
of directors, which requires a plurality; and (2) the amendment to the
Certificate of Incorporation, which requires both (a) a majority of the issued
and outstanding shares of Common Stock, Series B ESOP Convertible Preferred
Stock, and Series F ESOP Convertible Preferred Stock voting together as a class
and (b) a majority of the issued and outstanding shares of Common Stock voting
as a separate class.
If you are a stockholder of record, you can have your shares voted by
calling the toll-free telephone number on the proxy card or by mailing your
signed proxy card in the postage-paid envelope provided. Specific instructions
to be followed by any owner of record interested in granting a proxy by
telephone are set forth in the enclosed proxy card.
Your executed proxy will be voted at the meeting, unless you revoke it. You
can revoke your proxy at any time before it is exercised by giving written
notice to the Secretary, by submitting a later-dated proxy or by voting in
person at the meeting.
Signed, unmarked proxy cards are voted as the Board recommends. The number
of shares abstaining on each proposal are counted and reported as a separate
total. Abstentions are included in the tally of shares represented, but are not
included in the determination of the number of votes cast for or against a
particular item. Therefore, abstentions have the effect of a vote cast against a
particular item. Shares not voted simply as a consequence of brokers voting less
than all of their entitlement on non-discretionary items under the provisions of
New York Stock Exchange Rule 452 are not included in the tally of the number of
shares cast for, against or abstained from any proposal, and will, therefore,
have the effect of reducing the number of shares needed to approve any item.
The company has established a grantor trust and contributed to such trust
4,000,000 shares of Common Stock to be held as a reserve for the discharge of
the company's obligations under certain nonqualified deferred compensation plans
and arrangements. These shares are voted by the Trustee in accordance with
written instructions received from the beneficiaries of the trust. Shares for
which no instructions are received are voted in the same ratio as the shares
with respect to which instructions are received.
Unless otherwise indicated on any proxy card, the persons named as your
proxies in the proxy card intend to vote the shares it represents FOR all the
nominees for director, FOR Items 2, 3 and 4 and AGAINST Items 5, 6, and 7.
Confidential Voting
All voted proxies and ballots are handled so as to protect employee and
individual stockholder voting privacy. No such vote shall be disclosed except:
as necessary to meet any legal requirements; in limited circumstances such as a
proxy contest in opposition to the Board of Directors; to permit independent
Inspectors of Election to tabulate and certify the vote; and to respond to
stockholders who have written comments on their proxy cards.
2
THE BOARD OF DIRECTORS
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Governance
We believe that the cornerstone of good governance is the integrity and
quality of leadership - the Board of Directors and
those whom the Board chooses to manage the company. To help implement this
belief, we have established the following policies and practices:
* Currently 12 of 14 members of the Board are outside, independent
directors, and the following Committees are composed entirely of outside
directors:
- Non-Management Directors
- Audit
- Compensation
- Pension
- Public Responsibility
- Directors and Board Governance
* We have assured a free flow of information about the company's business.
New directors participate in orientation programs, which include visits to
company facilities and discussions with management personnel. Pre-meeting
materials include supporting data and write-ups of items coming before the
Board, as well as operational and financial information. Senior officers
routinely attend every Board meeting, and they and other members of management
frequently brief the Board. Board members take these and other opportunities to
discuss company business with these officers.
* The Board and management discuss and define mutual expectations and
requirements for each other. Guidelines for the Board include loyalty to and
pride in Texaco and its reputation; independence and integrity; representation
of the total stockholder constituency; good understanding of the business; study
and understanding of Board issues; active, objective and constructive
participation at meetings of the Board and its committees; collective breadth of
experience; appraisal of executive management; management succession planning
and review; assistance in representing Texaco to the outside world; and
individual availability for consultation on corporate issues.
* The Board has clearly delineated its role and that of management. It
views its role as providing guidance and strategic oversight to the management,
both collectively and individually, in order to realize the mutual objective of
increasing shareholder wealth. It is management's responsibility and obligation
to conduct the day-to-day operations in a way that will meet this objective. The
Board, in discharging its fiduciary duty to the owners of the company, holds
management strictly accountable for the financial results and has delegated to
management the power and responsibility to achieve superior results, while
assuring management it can call on the Board's support, advice and experience.
* We strive for open and continuous communication with institutional
investors, other stockholders and the press.
* The Board periodically evaluates its effectiveness in creating and
protecting value for our stockholders as measured against the following nine
areas of Board involvement and responsibility:
1. Review and approval of Texaco's tactical plans, monitoring their
accomplishment and comparing Texaco's competitive positioning.
2. Review of Texaco's strategic plan and its long range goals, the
evaluation of Texaco's performance against such plan and goals and
against the competition, and the evaluation of
3
the desirability, as appropriate, of modifications to such plan and
goals.
3. Oversight of Texaco's financial health.
4. Monitoring of such activities of Texaco as pose significant risks and
of the company's programs to respond to and contain such risks.
5. Review of the performance of the Chief Executive Officer and other
senior officers and their compensation relative to performance.
6. Review of Texaco's adherence to its corporate "Vision and Values" which
include its responsibilities to its stockholders, employees, customers
and the community.
7. Preparedness for the selection of a successor Chief Executive
Officer, and the monitoring of the company's development and selection
of key personnel.
8. Selection process for Board membership and the overall quality and
preparedness of its members.
9. Availability of the information which the Board and management believe
is needed for the Board to perform its duties effectively.
* Our by-laws provide for stockholder nominations of director candidates.
We have published guidelines and qualifications for director candidates. The
criteria require that they have: the highest personal and professional ethics,
integrity and values; education and breadth of experience to understand business
problems and evaluate and postulate solutions; personality to work well with
others with depth and wide perspective in dealing with people and situations;
respect for the views of others and not rigid in approach to problems; a
reasoned and balanced commitment to the social responsibilities of the company;
an interest and availability of time to be involved with the company and its
employees over a sustained period; stature to represent the company before the
public, stockholders and the other various individuals and groups that affect
the company; the willingness to objectively appraise management performance in
the interest of the stockholders; an open mind on all policy issues and areas of
activity affecting overall interests of the company and its stockholders; and
involvement only in other activities or interests that do not create a conflict
with the director's responsibilities to the company and its stockholders.
* Each committee of Texaco's Board annually assesses its performance to
confirm that it is meeting its responsibilities under its charter. Some of the
items which Board committees consider in their self-evaluation are: the
appropriateness of the scope of its charter; appropriateness of matters
presented for information and for approval; sufficiency of time for
consideration of agenda items; frequency of meetings; length of meetings;
quality and length of written materials; and quality of oral presentations.
* The Board has discussed and adopted a compilation of our Corporate
Governance Policies, specifically addressing thirty distinct issues. This
compilation is available from the Secretary.
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Committees
Our Board is organized so that a significant portion of its business is
conducted through the following committees:
The Committee of Non-Management Directors, composed of all of the
non-employee directors, was established in 1949. The Chairman, Mr. Murphy, leads
the personal performance appraisals of the
4
Chief Executive Officer and also serves as a contact point on Board issues. It
is responsible for interpreting and administering company incentive plans and
reviewing the Compensation Committee's recommendations for awards made under
these plans, the handling of compensation for employee directors, and the
company's organization, personnel development, and key management replacement
programs with special focus on Chief Executive succession. This committee
provides a forum for the non-management directors to privately discuss the
performance of management. It held three meetings in 1996.
The Public Responsibility Committee, consisting of Dr. Brademas (Chairman),
Mr. Hawley, Dr. Jenifer, Mrs. Smith and Mr. Steere, met three times in 1996. It
reviews and makes recommendations regarding the policies and procedures
affecting the company's role as a responsible corporate citizen, including those
related to equal employment opportunity, health, environmental and safety
matters, the company's relationship with its several constituencies and the
company's philanthropic programs.
The Audit Committee, has been composed of non-management directors since
its formation in 1939, 38 years before the New York Stock Exchange imposed this
requirement on listed companies. It held two meetings in 1996. Its members are
Mr. Vanderslice (Chairman), Mr. Hawley, Mr. Murphy, Mrs. Smith, and Drs.
Brademas and Jenifer. Depending on the nature of the matters under review, the
outside auditors, and such officers and other employees as necessary, attend all
or part of the meetings of the committee. The committee reviews and evaluates
the scope of the audit, accounting policies and reporting practices, internal
auditing, internal controls, security procedures and other matters deemed
appropriate. The committee also reviews the performance by Arthur Andersen LLP
in their audit of the company's financial statements and evaluates their
independence and professional competence. It reserves time at each meeting to
meet separately with outside auditors to discuss issues of importance, including
the sufficiency of management cooperation.
The Compensation Committee, which met four times in 1996, is composed of
Messrs. Beck (Chairman), Butcher, Carpenter, Price, Steere and Vanderslice. It
surveys and reviews compensation practices in industry to make certain that the
company remains competitive and able to recruit and retain highly qualified
personnel, and that the company's compensation structure incorporates programs
which reflect operating and financial performance, motivate performance which
will best serve the stockholders' interest and are in full compliance with
Texaco's "Vision and Values." The committee establishes the criteria for bonus
and other executive compensation packages.
The Finance Committee, consisting of Messrs. Bijur (Chairman), Beck,
Butcher, Carpenter, Price and Wrigley, met three times in 1996. It reviews and
makes recommendations to the Board concerning the company's financial
strategies, policies and structure including: the current and projected
financial position and capital structure; the obtaining of funds necessary for
general operation; cash management activities, such as investment guidelines,
the investment portfolio and cash mobilization systems; exposure to fluctuation
in foreign currency exchange rates and interest rates; and changes in dividend
policy.
The Committee on Directors and Board Governance, consisting of Messrs.
Butcher (Chairman), Beck, Murphy, Vanderslice and Wrigley and Mrs. Smith, met
once in 1996. It maintains oversight of Board operation
5
and effectiveness, reviews the size and composition of the Board, reviews the
qualifications of a broad range of candidates for Board membership identified
from many sources and recommends candidates to the Board as nominees for
election as directors.
The Pension Committee met four times in 1996. The members are Messrs.
Wrigley (Chairman), Murphy, Price and Steere. It approves investment policy and
guidelines, reviews investment performance, and appoints and retains trustees,
insurance carriers and investment managers for funds allocated to the company's
retirement plans.
The Board of Directors also has an Executive Committee, which may exercise
all of the powers of the Board in the management and direction of the business
and affairs of the company, except those which by statute are reserved to the
Board of Directors. This committee, consisting of Messrs. Bijur (Chairman),
Butcher, Carpenter, Krowe, Murphy and Vanderslice, and Mrs. Smith, met three
times in 1996.
The Board of Directors held thirteen meetings in 1996. One of the meetings
each year is held as part of a visit to a company facility to review operations
and meet field personnel. Overall attendance by directors at meetings of the
Board and its committees on which the directors served exceeded 95%. Due to
illness, Mr. Beck was able to attend only 72% of the total number of meetings of
the Board and its Committees on which he served.
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Qualifications and Nomination
of Directors
Candidates are selected on the basis of the contributions they can make in
providing advice and guidance to the Board and management. The company is
committed to an inclusive Board with a diversity of experience and outlook. The
criteria for director candidates, developed in consultation with individual and
institutional holders, are set forth in full on page 4. The Committee on
Directors and Board Governance also will consider proposals for nomination from
stockholders of record which are made in writing to the Secretary, are timely,
contain sufficient background information concerning the nominee to enable a
proper judgment to be made as to his or her qualifications and include a written
consent of the proposed nominee to stand for election if nominated and to serve
if elected. The requirements for making nominations are set forth in the
company's by-laws.
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Compensation of Directors
Employee directors receive no compensation for service on the Board or
its committees. Non-employee directors receive an annual retainer of $30,000,
and $1,250 for each Board and committee meeting attended, as well as an annual
fee of 450 restricted stock-equivalent units which have significant vesting and
transferability restrictions. Committee Chairmen receive annual retainers of
$7,000. One half of the annual retainers are paid in Common Stock or restricted
stock-equivalent units. Directors may elect to receive all or any part of the
remaining retainers and fees in Common Stock and to defer payment of fees, in
cash, in Common Stock or in restricted stock-equivalent units.
Directors may participate in a group personal liability and property damage
insurance program administered and partially funded by the company.
6
As part of its corporate-wide effort to encourage charitable giving, the
company has established a directors' gift program. Institutions that are
qualified recipients of grants from the Texaco Foundation are the only
institutions that may qualify as recipients of gifts under the directors'
program. Upon the death of a director, the company will donate up to a total of
one million dollars to one or more qualifying charitable organizations
designated by the director. The directors' program is funded entirely by
insurance policies on the life of each director. The company owns the policies,
pays the premiums for such insurance ($672,442 for 1996) and is entitled to all
tax deductions resulting from such contributions to charitable organizations.
Individual directors derive no financial benefit from this program.
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Litigation
As of March 20, 1997 two purported stockholder derivative suits were
pending against Texaco Inc., as nominal defendant, its directors, and certain
current and former officers and employees alleging among other things that the
directors breached their fiduciary duties to the corporation and its
stockholders by failing to oversee Texaco's compliance with the employment
discrimination laws and with the discovery obligations in a discrimination case.
The cases, titled Kaplan v. Beck, et al. and Citron v. Murphy, et al., seek
money damages on behalf of Texaco Inc., attorneys fees, and injunctive relief.
The cases are pending in federal court in White Plains, N.Y.
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7
Security Ownership of Directors and
Management
The table below sets forth, as of February 1, 1997, information with
respect to the company's voting securities and non-voting stock-equivalent
restricted units beneficially owned by directors, executive officers included in
the "Summary Compensation Table" on page 31 and all directors and executive
officers of the company as a group. Except as otherwise noted, each person has
sole voting and investment power over the shares listed in the first column. The
total beneficial ownership of voting securities of all directors and executive
officers as a group represents less than 1% of each class of shares outstanding.
Number of Shares or Units
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Shares Underlying Stock-Equivalent
Options Exercisable Series B Restricted
Names of Beneficial Owners Common Stock Within 60 Days Preferred Units
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Robert A. Beck 5,493 -- -- 698
Peter I. Bijur 67,432 8,298 202 --
C. Robert Black 55,227 24,333 186 --
William C. Bousquette 11,099 2,856 -- --
John Brademas 1,556 -- -- 698
Willard C. Butcher 2,261(1) -- -- 698
Edmund M. Carpenter 365 -- -- 2,133
Alfred C. DeCrane, Jr. 113,589 133,302 432 132,445
Michael C. Hawley 200 -- -- 1,577
Franklyn G. Jenifer 100 -- -- 1,400
Allen J. Krowe 117,701 98,388 342 --
Thomas S. Murphy 20,885 -- -- 698
Charles H. Price, II 1,719 -- -- 3,213
Robin B. Smith 300 -- -- 1,767
William C. Steere, Jr. 700 -- -- 4,148
Glenn F. Tilton 42,456 16,201 151 --
Thomas A. Vanderslice 11,221 -- -- 6,836
William Wrigley 30,449(2) -- -- 698
Directors and Executive Officers as a group 853,086 482,783 3,376 157,010
(1) Does not include 21 shares held by Mr. Butcher's wife as custodian for
their minor son, as to which Mr. Butcher disclaims beneficial interest.
(2) Does not include 124,796 shares owned of record by the Wm. Wrigley Jr. Company Foundation, of which Mr. Wrigley
is Chairman of the Board and among the officers authorized to vote the shares held by the Foundation,
or 1,000 shares held in a trust, of which Mr. Wrigley is the trustee with sole voting and investment power, for
the benefit of his son. Mr. Wrigley disclaims any beneficial interest in such shares.
8
PROPOSALS BEFORE THE MEETING
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Item 1-Election of Directors
The Board is divided into three classes of directors. At each annual
meeting of stockholders, members of one of the classes, on a rotating basis, are
elected for a three-year term.
In accordance with the company's Certificate of Incorporation and by-laws,
the Board of Directors by resolution fixed the total number of directors at 14.
The Board has designated five persons as nominees for election as directors
at the Annual Meeting. All of the nominees are currently directors and were
previously elected by the stockholders. In accordance with the Board's
retirement policy for directors, Mr. Beck will retire at the Annual Meeting in
1998 and Mr. Butcher will retire at the Annual Meeting in 1999, both prior to
the expiration of their three-year terms.
The company has no reason to believe that any of the nominees will be
disqualified or unable or unwilling to serve if elected. However, if any nominee
should become unavailable for any reason, proxies may be voted for another
person nominated by the present Board of Directors to fill the vacancy, or the
size of the Board may be reduced.
Following is certain biographical information concerning the nominees, as
well as those directors whose terms of office are continuing after the meeting.
9
NOMINEES FOR THREE YEAR TERM EXPIRING AT
THE 2000 ANNUAL MEETING
[PHOTO OF ROBERT A. BECK APPEARS HERE]
Robert A. Beck, 71, Chairman Emeritus since 1987 and former Chairman of the
Board and Chief Executive Officer of The Prudential Insurance Company of
America, has been a director since 1984. He joined Prudential in 1951, was
elected President in 1974 and Chairman and Chief Executive Officer in 1978. He
is a Trustee of Syracuse University and a member of The Business Council.
[PHOTO OF WILLARD C. BUTCHER APPEARS HERE]
Willard C. Butcher, 70, former Chairman and Chief Executive Officer of the Chase
Manhattan Bank, N.A. has been a director since 1981. He is a director of ASARCO,
Incorporated and International Paper Co. He is a member of The Business Council,
the International Advisory Board for Banca Nazionale del Lavoro, and the
International Advisory Council of the Chase Manhattan Bank, and vice chairman of
Lincoln Center for the Performing Arts, Inc. He is a Trustee emeritus of the
American Enterprise Institute for Public Policy Research and a fellow emeritus
of Brown University and a Trustee of Business Committee for the Arts, Inc.
[PHOTO OF EDMUND M. CARPENTER APPEARS HERE]
Edmund M. Carpenter, 55, Sr. Managing Director of Clayton, Dubilier and Rice
since 1997, was elected a director in 1991. He was Chairman and Chief Executive
Officer of General Signal Corporation from 1988 to 1995. Prior to serving with
General Signal, Mr. Carpenter was President, Chief Operating Officer and a
director of ITT Corporation. He is a director of Campbell Soup Company and Dana
Corporation.
[PHOTO OF FRANKLYN G. JENIFER APPEARS HERE]
Franklyn G. Jenifer, 57, President of the University of Texas at Dallas, has
been a Director since 1993. Following an academic career as a professor of
biology, Dr. Jenifer was President of Howard University from 1990 to 1994. Prior
to that he was Chancellor of the Massachusetts Board of Regents of Higher
Education, and from 1979 to 1986, Vice Chancellor of the New Jersey Department
of Higher Education. He serves on the Board of Visitors of the John F. Kennedy
School of Government of Harvard University, the Corporation of Woods Hole
Oceanographic Institution, the National Foundation for Biomedical Research, the
Board of Trustees of Universities Research Association, Inc., the Board of
Directors of the United Way of Metropolitan Dallas, the Monitoring Committee for
the Louisiana Desegregation Settlement Agreement, and the Texas Science and
Technology Council.
[PHOTO OF THOMAS A. VANDERSLICE APPEARS HERE]
Thomas A. Vanderslice, 65, President of TAV Associates, has been a director
since 1980. He was formerly Chairman of the Board, President and Chief Executive
Officer of M/A-COM, Inc., Chairman and Chief Executive Officer of Apollo
Computer, Inc., President and Chief Operating Officer of GTE Corporation, and an
officer of General Electric Company. He is a member of the Board of Trustees of
Boston College and of the Board of Directors of W. R. Grace & Co., the National
Academy of Engineering, the American Chemical Society, and the American
Institute of Physics, and Chairman of the Massachusetts High Technology Council.
10
DIRECTORS CONTINUING IN OFFICE UNTIL
THE 1999 ANNUAL MEETING
[PHOTO OF MICHAEL C. HAWLEY APPEARS HERE]
Michael C. Hawley, 59, President and Chief Operating Officer and Director of The
Gillette Company since April 1995, has been a director since 1995. After joining
Gillette in 1961, he held management positions of increasing responsibility in a
variety of countries and returned to Boston in 1985 when he was appointed Vice
President, Operations Services, and elected a corporate Vice President. In 1989
he was elected President of Oral-B Laboratories, a Gillette subsidiary, and in
1993 was elected Executive Vice President, International Group. He is also a
director of John Hancock Mutual Life Insurance Co.
[PHOTO OF ALLEN J. KROWE APPEARS HERE]
Allen J. Krowe, 64, Vice Chairman of the Board of Texaco Inc., has been a
director since 1993. He joined Texaco in 1988 as Senior Vice President and Chief
Financial Officer after having served as Executive Vice President and a director
of IBM Corporation. Mr. Krowe is a director of PPG Industries, Inc., IBJ
Schroder Bank & Trust Company, Greenwich Air Services and the University of
Maryland Foundation.
[PHOTO OF ROBIN B. SMITH APPEARS HERE]
Robin B. Smith, 57, Chairman and Chief Executive Officer of Publishers Clearing
House since August 1996 and President and Chief Executive Officer since 1988,
was elected a director in 1992. Prior to joining Publishers Clearing House in
1981 as President and Chief Operating Officer, Mrs. Smith concluded her sixteen
year career with Doubleday & Co., Inc. as President and General Manager of its
Dell Publishing subsidiary. She is a director of Springs Industries, Inc.,
BellSouth Corporation, Kmart Corporation and a number of Prudential mutual
funds.
[PHOTO OF WILLIAM C. STEERE APPEARS HERE]
William C. Steere, 60, Chairman and Chief Executive Officer of Pfizer Inc., was
elected a director in 1992. Mr. Steere began his career with Pfizer, a
diversified health care company with global operations, and attained the
positions of President of Pfizer Pharmaceutical Group and President and Chief
Executive Officer before elevation to his present position in 1992. He is a
director of the Federal Reserve Bank of New York, Dow Jones & Company, Inc., the
New York Botanical Garden, Minerals Technologies Inc., WNET-Thirteen, the
Business Council, the Business Roundtable and the New York University Medical
Center. He is also past chairman of the Board of Directors of the Pharmaceutical
Manufacturers Association.
[PHOTO OF WILLIAM WRIGLEY APPEARS HERE]
William Wrigley, 64, President, Chief Executive Officer and a director of Wm.
Wrigley Jr. Company, has been a director since 1974. He is Chairman of the
Board, Chairman of the Executive Committee and a director of Santa Catalina
Island Company; a director of American Home Products Corporation and Grocery
Manufacturers of America, Inc. He also serves as a Trustee of the University of
Southern California and is a Benefactor and Life Member of the Santa Catalina
Island Conservancy.
11
DIRECTORS CONTINUING IN OFFICE UNTIL
THE 1998 ANNUAL MEETING
[PHOTO OF PETER I. BIJUR APPEARS HERE]
Peter I. Bijur, 54, Chairman of the Board and Chief Executive Officer of Texaco
Inc., was elected a director in 1996. He joined the company in 1966 and was
elected a Vice President in 1983. In 1990 he was appointed President of Texaco
Europe. He was elected a Senior Vice President of Texaco Inc. in 1992. He is a
Director of the American Petroleum Institute and serves on its Management
Committee. He is also a member of The Business Council, The Business Roundtable,
The Conference Board, and the National Petroleum Council. In addition, he
currently serves on the Board of Trustees of Middlebury College and is a member
of the INROADS, Inc. National Honorary Board of Directors. He also is a Fellow
both of the Institute of Petroleum and the Royal Society of Arts in London and
is a former board member of the Toronto Symphony Orchestra.
[PHOTO OF JOHN BRADEMAS APPEARS HERE]
John Brademas, 70, President Emeritus of New York University, became a director
in 1989. He served eleven terms in Congress as a Representative from Indiana,
the last two as Majority Whip. He is a graduate of Harvard and Oxford
Universities, where he was a Rhodes Scholar. He is a director of Loews
Corporation, Scholastic, Inc., Kos Pharmaceuticals, Inc. and NYNEX Corporation,
Chairman of the President's Committee on the Arts and Humanities, and is active
in numerous academic and philanthropic organizations.
[PHOTO OF THOMAS S. MURPHY APPEARS HERE]
Thomas S. Murphy, 71, former Chairman of the Board and Chief Executive Officer
of Capital Cities/ABC, Inc., has been a director since 1977. He is Chairman of
the New York University Medical Center Board of Trustees, a member of the Board
of Overseers of Harvard College and a director of Johnson & Johnson and Walt
Disney Co.
[PHOTO OF CHARLES H. PRICE APPEARS HERE]
Charles H. Price, II, 66, former Chairman of Mercantile Bank of Kansas City and
former United States Ambassador to the United Kingdom (1983-1989) and Belgium
(1981-1983), became a director in 1989. He is an advisory director of the
Mercantile Bancorporation, Inc. and a director of Mercantile Bank of Kansas
City, 360(degree) Communications, Inc., The New York Times Company, Hanson PLC
and U.S. Industries, Inc. Prior to service as a United States Ambassador, he had
been Chairman of the Board of the Price Candy Company, American Bancorporation
and American Bank and Trust Company.
12
Item 2-Approval of Auditors
The following resolution concerning the appointment of independent auditors
will be offered at the meeting:
"RESOLVED, that the appointment by the Board of Directors of the
company of Arthur Andersen LLP to audit the financial statements of the
company and its subsidiaries for the fiscal year 1997 is hereby ratified
and approved."
Arthur Andersen LLP has been auditing the accounts of the company and its
subsidiaries for many years. In recommending the approval by the stockholders of
the appointment of that firm, the Board of Directors is acting upon the
recommendation of the Audit Committee, which has satisfied itself as to the
firm's professional competence and standing.
Representatives of Arthur Andersen LLP will be present at the meeting with
the opportunity to make a statement and to respond to appropriate questions.
----------
Item 3-Amendment to the Certificate
of Incorporation
The Board of Directors has unanimously adopted and recommends that
stockholders consider and approve an amendment to Article IV of the company's
Restated Certificate of Incorporation ("Certificate") which would (1) increase
the total number of shares of all classes of stock which the company shall have
authority to issue from 380,000,000 to 730,000,000, (2) increase the number of
authorized shares of Common Stock from 350 million to 700 million, and (3)
change the par value of the Common Stock from $6.25 each to $3.125 each.
If the proposal is approved, such amendment would become effective upon the
filing of the amendment with the Delaware Secretary of State. The Board does not
intend to have such filing made until the company desires to issue a number of
shares of Common Stock greater than those currently authorized by the
Certificate for any of the purposes described below. If such amendment is not
filed with the Secretary of State within three years from the date it is
approved by the stockholders, the company will not file such amendment without
further approval of the stockholders.
If the amendment described above is approved by the stockholders and filed
by the company with the Secretary of State, the first paragraph of Article IV of
the Certificate would be replaced in its entirety by the following:
The total number of shares of all classes of stock which the
company shall have the authority to issue is 730,000,000, consisting of
30,000,000 shares of Preferred Stock of the par value of $1.00 each and
700,000,000 shares of Common Stock of the par value of $3.125 each. At
the effective time of the amendment to this Article decreasing the
par value of the Common Stock to $3.125, and without any further
action on the part of the company or its stockholders, each share
of Common Stock with a par value of $6.25 then issued and outstanding
shall be changed and reclassified into a fully paid and nonassessable
share of Common Stock with a par value of $3.125.
As of March 14, 1997, of the currently authorized shares of Common Stock,
263,530,685 were outstanding and 10,762,732 were held in treasury. The proposed
amendment would not increase the number of authorized preferred shares, which
would remain at 30,000,000.
13
Although currently authorized shares are sufficient to meet all known
needs, the Board considers it desirable that it have the flexibility to
authorize and issue an additional amount of Common Stock and to reduce the par
value of the Common Stock without further stockholder action, unless required by
law or stock exchange regulations. This will enhance the company's flexibility
in connection with possible stock splits, stock dividends, acquisitions,
financings and other corporate purposes, should the Board deem such actions to
be in the best interests of the company and its stockholders.
We are currently repurchasing up to $500 million of our Common Stock under
a repurchase program announced in October, 1995. Through March 14, 1997, we have
repurchased $194 million of our Common Stock under this program.
At the time the proposed amendment becomes effective, and without any
further action on the part of the company or its stockholders, each share of
Common Stock with a par value of $6.25 then issued and outstanding will be
changed and reclassified into a fully paid and nonassessable share of Common
Stock with a par value of $3.125. The capital account of the company would be
decreased to reflect such change and reclassification. This would have the
effect of increasing the surplus account from which the company may, under
Delaware law, pay dividends and repurchase its stock. However, issuances of
stock pursuant to a stock dividend, for example, would have the effect of
increasing the capital account and decreasing the surplus account by the
aggregate par value of the newly issued shares.
Certificates representing shares of Common Stock, par value $6.25, would,
from and after the time the foregoing amendment becomes effective, represent
shares of Common Stock, par value $3.125 each.
A change in the par value should have no significance to the trading of the
Common Stock and will not affect the certificates representing shares of Common
Stock, as all Common Stock outstanding would be deemed to have a par value of
$3.125 per share, and, accordingly, it would not be necessary for any
stockholder to exchange certificates representing currently outstanding shares.
Each share of Common Stock currently has one vote, shares equally on
liquidation and does not have preemptive rights to subscribe to additional
securities that may be issued by the company. No change in these attributes is
proposed.
Both (1) a majority of the issued and outstanding shares of Common Stock,
Series B ESOP Convertible Preferred Stock and Series F ESOP Convertible
Preferred Stock entitled to notice of and to vote at the meeting voting together
as a class, and (2) the majority of the issued and outstanding shares of Common
Stock voting as a separate class, must approve Item 3.
The Board of Directors recommends that you vote FOR Item 3.
----------
Item 4-Approval of the Incentive Compensation Program of 1997
The Board has approved, and is presenting to the stockholders for approval,
the Incentive Compensation Program of 1997 (the "1997 Incentive Program" or the
"Program").
Stockholder approval of the Program is required so that payments from the
Program will continue to be tax deductible as performance-based compensation
under Section 162(m) of the Internal Revenue Code ("IRC"), which limits the
deductibility by publicly-held companies of compensation
14
amounts paid to certain senior officers which exceed $1 million.
The Program is composed of the 1997 Stock Incentive Plan (the "1997 Stock
Plan") and the 1997 Incentive Bonus Plan (the "1997 Bonus Plan"). The 1997 Stock
Plan generally follows the Stock Incentive Plan approved by the stockholders in
1993 (the "1993 Plan"), and the 1997 Bonus Plan generally follows the Incentive
Bonus Plan approved by the stockholders in 1989 (the "1989 Plan"), other than
for the few principal differences described below. As was the case under the
prior plans, it is expected that the 1997 Incentive Program will constitute a
significant part of the compensation paid to the officers and employees who
participate in the plan, providing them with an opportunity to acquire a
proprietary interest in the company and giving them a strong mutuality of
interest with other stockholders and a significant incentive to use their best
efforts for both the company's short-term and long-term success.
The Board of Directors believes that adoption of the 1997 Incentive Program
is in the best interests of the company and its stockholders and recommends that
the stockholders vote FOR approval of the 1997 Incentive Program.
Summary of the Incentive Compensation Program of 1997
Following is a summary description of the 1997 Incentive Program, which
summary is qualified in its entirety by reference to the full text of the
Program set forth in the Appendix. The 1997 Incentive Program is composed of two
elements: the 1997 Stock Plan and the 1997 Bonus Plan.
THE 1997 STOCK INCENTIVE PLAN
Effectiveness; Termination.
The plan will be effective when the stockholders approve it (the "Approval
Date"). No new grants will be made under the plan after December 31, 2006.
Plan Limits.
The number of shares and share equivalents available for issuance under the
plan in any calendar year is one percent (1.0%) of the aggregate number of
shares of Common Stock issued and outstanding on December 31 of the previous
year. In addition, the following shares are also available for issuance each
year:
(a) shares available for issuance under
the plan in the previous year but not issued; plus
(b) shares related to options that have expired, been forfeited or been
canceled or that have been settled in cash rather than with shares;
plus
(c) shares that were used to pay the purchase price of shares acquired upon
the exercise of a stock option, plus
(d) shares withheld by the company to pay the tax-withholding obligations
of participants.
The payment of cash dividends and dividend equivalents in conjunction with
any awards does not reduce the number of shares available for issuance under the
plan.
In addition to the above limitations, no more than 2,636,980 shares are
available for grant as qualified stock options under the plan each year, no more
than 20% of the shares issued each year can be issued as Restricted Stock, and
no more than 500,000 shares or share equivalents can be issued to any
participant in any calendar year.
Based on the number of shares of Common Stock issued and outstanding at
15
December 31, 1996, the initial number of shares available on the Approval Date
for issuance under the 1997 Stock Plan in 1997 would be 2,636,980 shares.
Although more than eight million options and shares could have been awarded
through March 14, 1997 under the 1993 Plan, only 3,871,311 have been awarded.
Except for Restored Options and shares in lieu of director's fees and retainers,
no further awards will be made under the 1993 Plan prior to the Approval Date.
The number and type of awards that may be granted under the plan, the
number of eligible participants who may be granted such awards and the
allocation of such awards among participants has not been determined at this
date.
In the unlikely event that all shares and share equivalents available for
issuance under the 1997 Stock Plan are issued to participants in each year
through 2006, those awards, when combined with shares issued upon the exercise
of options granted prior to the Approval Date, would represent less than 11.75%
of the shares of Common Stock currently outstanding.
If the 1997 Stock Plan had been in effect during 1996, grants under the
plan during 1996 would have been the same as grants made during 1996 under the
1993 Plan. Awards during 1996 under the 1993 Plan to the company's Chief
Executive Officer and former Chief Executive Officer and its four other most
highly compensated Executive Officers are reported in the Summary Compensation
Table on page 31 and the Option Grants in 1996 Table on pages 32 through 34.
Awards during 1996 under the 1993 Plan to (a) all current executive officers as
a group, (b) all current directors who are not executive officers, as a group,
and (c) all employees, including all officers who are not executive officers, as
a group were as follows:
Awards During 1996 Under the 1993 Plan
Restricted
Stock Awards Stock Option Awards
--------------------------- ----------------------------
Dollar Number Grant Date Number
Name and Position Value($) of Units Value(1)($) of Units
----------------- --------------------------- ----------------------------
Executive Group $5,053,712 59,543 $4,359,738 416,801
Non-Executive $566,998 6,354 0 0
Director Group
Non-Executive $12,416,194 146,288 $10,711,207 1,024,016
Officer Employee Group
(1) This is a hypothetical valuation using a modified Black-Scholes
valuation formula pursuant to Securities and Exchange Commission
regulations and does not reflect the actual value of the option awards
at any given time.
16
Types of Awards.
The 1997 Stock Plan permits the Board to award one or more of the following
different types of incentive awards, depending on suitability in individual
cases: stock options, including qualified stock options; restricted stock;
restricted units and such other incentive award forms as are consistent with the
purposes of the plan.
Stock Options. One or more stock options can be granted to any participant.
Each stock option granted will be subject to the terms of the grant and to the
following conditions: (a) the exercise price per share will be specified in the
grant, and cannot be less than the fair market value of the underlying Common
Stock on the date of the grant, unless adjusted as provided in the plan; (b) the
expiration period for any option cannot exceed ten years; (c) payment of the
exercise price can be made in cash, stock units, shares of Common Stock or other
consideration established by the Compensation Committee ("Committee") of the
Board; (d) options granted under the plan are exercisable in accordance with the
terms specified in the grant; and (e) stock options expire at the time specified
in the grant or earlier in accordance with the termination and forfeiture
provisions of the plan. The Committee may alter the expiration period for any
options not yet vested at its discretion.
In the case of a participant who pays the exercise price of an option prior
to the date on which it expires by means of presenting shares of Common Stock
previously acquired by the participant, the Committee grants the participant
another option (a "Restored Option") of the same type as the option being
exercised for the same number of shares that were so presented. The duration of
the Restored Option will be for the remaining term of the underlying option, and
the exercise price will be the fair market value of the Common Stock on the day
on which the underlying option was exercised.
Restricted Stock. The participant has the right to vote restricted stock
and to receive all dividends and distributions with respect thereto. On the
"Award Maturity Date," or upon such earlier date as the Committee shall
determine, the restrictions imposed by the plan upon the restricted stock lapse,
and the participant becomes fully vested in the award. The Committee intends to
continue the Board's practice under the 1993 Plan that the annual grants of
restricted stock (other than restricted stock issued to directors in lieu of
fees and retainers and restricted stock issued upon the exercise of a stock
option) will contain a performance element (currently based on total return to
stockholders) which must be satisfied in order for all or a specified portion of
the grant to vest. The performance element is based on total shareholder return
versus the integrated international oil index published by Standard & Poors.
Restricted Units. A restricted unit is deemed to be the equivalent of a
share of Common Stock and dividend equivalents are paid on each restricted unit.
Upon vesting of a restricted unit, the participant receives either an equivalent
number of shares of Common Stock or the fair market value
of an equivalent number of shares of Common Stock.
The closing sale price of Texaco Inc. Common Stock on March 20, 1997, as
reported in The Wall Street Journal was $101.00 per share.
Eligibility for Participation.
Participants in the plan are those current and newly retired officers and
key employees of the company who are selected by the Committee. Approximately
400 employees (including 19 Executive Officers) are currently eligible to
participate in the plan.
17
Non-employee directors are also participants in the plan with respect to
their annual retainers and fees. The Board may pay all or a portion of
directors' retainers and fees in Common Stock, either restricted or
unrestricted, or in restricted units at their full market value, to be
determined by the Board.
Administration and Amendment of the Plan.
The plan is administered and interpreted by the Committee, which has the
exclusive right to interpret its provisions and to adopt or change the rules for
its administration. The Committee determines the number and types of awards to
be made under the plan and the participants to whom awards are made. It cannot
increase the maximum number of shares available for issuance to any Participant
or change the performance goals under the plan. The Committee may delegate to
the Chief Executive Officer the right to grant awards to eligible employees who
are not elected officers of the company.
Adjustments.
In the event of any stock split, stock dividend, special dividend, or other
relevant change in capitalization, the Committee will appropriately adjust the
aggregate number and kind of shares subject to award and the number of shares
and purchase price per share, if any, under any outstanding awards and options
granted under the plan.
Retirement, Death or Disability.
The plan provides for both early vesting and forfeiture at the discretion
of the Committee under specific contingencies, such as retirement, death or
total disability.
Forfeiture.
The plan permits the Committee to cause the forfeiture of awards and other
benefits and rights with respect to any awards that are outstanding under
certain circumstances. All long-term awards under the plan are made pursuant to
award agreements in which the participant agrees to such restrictions as the
Committee shall impose as being consistent with the purposes of the plan and the
interests of the stockholders.
Transferability.
Awards under the plan may be transferred by the participant during his or
her lifetime only to an immediate family member or trust established for the
benefit of the family member and may not otherwise be assigned, pledged or
transferred except by will or by the laws of descent and distribution. If a
participant dies, rights with respect to an award granted under the plan are
exercisable by the participant's designated beneficiary or personal
representative.
Withholding Taxes.
The company deducts withholding taxes on any award and any grant of an
award may provide that such withholding taxes may be satisfied with Common Stock
having a value equal to the amount of the withholding tax liability.
Changes From The 1993 Plan.
Following is a summary description of the major differences between the
1993 Plan and the 1997 Stock Plan, which summary, to the extent it relates to
the 1997 Stock Plan, is qualified in its entirety by reference to the full text
of the 1997 Stock Plan set forth in the Appendix.
Administration of the Plan. The 1993 Plan was administered by the full
Board of Directors. Internal Revenue Code (I.R.C.) Section 162(m) permits the
company to deduct annual compensation in excess of $1 million only if the plan
is administered by a
18
committee of "outside" directors. Because the full Board is not composed
entirely of outside directors, the 1997 Stock Plan will be administered by the
Compensation Committee of the Board, which is comprised exclusively of "outside"
directors.
Performance Goals. The 1993 Plan required the Board to establish
performance goals and guidelines on the issuance of awards. The 1997 Stock Plan
permits the Compensation Committee to establish performance goals, thereby
satisfying the requirements of I.R.C. Section 162(m).
Awards Under the Plan. The total number of shares of Common Stock which can
be awarded annually under the 1997 Stock Plan has been increased from
eight-tenths of one percent (0.8%) of the shares outstanding at the end of the
preceding year, as provided in the 1993 Plan, to one percent (1%) in the 1997
Stock Plan. "Substitute Awards" made to employees of newly acquired companies
and to new hires are not counted in the 1% calculation.
The maximum number of shares available annually for grant as qualified
stock options was changed from 2,069,981 to 2,636,980, and the limitation on the
number of awards that could be settled for cash has been eliminated in the 1997
Stock Plan. An annual limitation, 500,000, on the number of shares or share
equivalents which may be granted to any participant was added to the 1997 Stock
Plan in order to satisfy I.R.C. Section 162(m).
Forfeiture. The 1997 Stock Plan gives the Committee the authority to
require the forfeiture of unexercised options and unvested restricted stock and
units in order to protect the company's assets, proprietary information,
compliance with the law or corporate integrity. The 1993 Plan contained no such
provision.
Transferability. Securities regulations in effect in 1993 prohibited the
transfer of stock options. Therefore, the 1993 Plan prohibited transfer of
awards under the plan. This regulation has been eliminated. Therefore, the 1997
Stock Plan permits the transfer of awards to participants' immediate family
members in order to facilitate estate planning by participants.
THE 1997 INCENTIVE BONUS PLAN
Under the 1997 Bonus Plan feature of the 1997 Program, cash bonus awards to
eligible participants are determined on the basis of the company's "normalized
net income," which is net income adjusted to exclude certain non-recurring items
of income and expense. As it has in the past, the Compensation Committee will
continue to look at other criteria in determining whether individual or
corporate-wide bonuses determined on the basis of normalized net income are in
line with overall performance. Such criteria shall include the company's
consolidated net income, return on equity, change in year-to-year earnings,
return on capital employed versus peers in the oil industry, operating and
financial performance versus established objectives, performance versus prior
year's results and achievement of other corporate and/or divisional objectives
established each year by the Committee. In addition, beginning in 1997, the
Committee will review achievement of specific performance objectives relating to
respect for the individual, safety and workforce diversity.
Eligible participants are those current officers and key employees and
former officers and key employees who served during the performance year being
recognized.
No participant can receive an annual award of more than 2/10ths of 1% of
the Company's normalized net income, and the Committee can reduce the award
amount of
19
any or all participants below that amount to reflect the participant's and the
company's performance. Based on the company's normalized net income for 1996 of
$1.665 billion, had the 1997 Bonus Plan been in existence in 1996, the maximum
amount that could have been awarded to any participant would have been
$3,330,000. The Committee has full authority to exercise its discretion each
year to make awards that are less than the maximum provided for in the 1997
Bonus Plan.
The Committee can amend the plan, but it may not make awards to any
participant in excess of the 2/10ths of 1% limitation, and it may not change the
business criteria or the performance targets established at the beginning of
each performance period. Decisions by the Committee may be subject to
ratification by the Board at the Board's discretion.
Changes From the 1989 Plan. Following is a summary description of the major
differences between the 1997 Bonus Plan and the 1989 Plan, which summary, to the
extent it relates to the 1997 Bonus Plan, is qualified in its entirety by
reference to the full text of the 1997 Bonus Plan set forth in the Appendix.
The 1989 Plan was administered by the Board. The 1997 Bonus Plan will be
administered by the Committee, which establishes performance goals and
guidelines and certifies that such goals have been met.
Under the 1989 Plan, the Board could each year transfer to an Incentive
Bonus Reserve an amount of not more than 1% of the consolidated net income of
the company up to a 6% return on the company's equity, plus 3% of the
consolidated net income of the company in excess of a 6% return on the company's
equity. The Board would then make bonus awards from this reserve. The 1997 Bonus
Plan has no provision for a bonus reserve. Rather, in order to comply with
I.R.C. Section 162(m), it provides a limit on the awards that can be made to
each participant.
If the Program is approved by the stockholders at the 1997 Annual Meeting,
no awards would thereafter be made under either the 1993 Plan or the 1989 Plan.
No awards will be made under the Program if stockholder approval is not
received.
----------
Tax Information
This description of the tax consequences of awards under the 1997 Incentive
Program is based on Federal tax laws currently in effect and does not purport to
be a complete description of such Federal tax consequences.
There are no Federal tax consequences either to the optionee or to the
company upon the grant of an incentive stock option ("ISO") or a nonqualified
stock option ("NQSO"). On the exercise of an ISO, the optionee will not
recognize any income and the company will not be entitled to a deduction
although such exercise may give rise to alternative minimum tax liability for
the optionee. Generally, if the optionee disposes of shares acquired upon
exercise of an ISO within two years of the date of grant or one year of the date
of exercise, the optionee will recognize ordinary income, and the company will
be entitled to a deduction, equal to the excess of the fair market value of the
shares on the date of exercise over the option price (limited generally to the
gain on the sale). The balance of any gain, and any loss, will be treated as a
capital gain or loss to the optionee. If the shares are disposed of after the
foregoing holding requirements are met, the company will not be entitled to any
deduction, and the entire gain or loss for the optionee will be treated as a
capital gain or loss.
20
On exercise of a NQSO, the excess of the date-of-exercise fair market value
of the shares acquired over the option price will generally be taxable to the
optionee as ordinary income and deductible by the company. The disposition of
shares acquired upon exercise of a NQSO will generally result in a capital gain
or loss for the optionee, but will have no tax consequences for the company.
With respect to other awards, participants will generally recognize
ordinary income and the company will generally be entitled to deductions as
follows:
(i) in the amount of dividends paid on restricted stock during the
restricted period and, when such restrictions lapse, in an amount equal
to the fair market value of the restricted stock at such time; and
(ii) in the amount of dividend equivalents paid on restricted units and,
upon vesting of restricted units, in the amount of the cash and/or the
fair market value of any Common Stock received by a participant
pursuant to restricted units.
The Board recommends that you vote FOR approval of the Incentive
Compensation Program of 1997.
----------
21
Stockholder Proposals
The company is not responsible for the content of the stockholder proposals
contained in Items 5, 6, and 7 which are printed as they were submitted. We have
included the names, addresses and shareholdings of the primary proponents. The
names, addresses and shareholdings of any co-filers may be obtained upon oral or
written request to the Secretary of the company.
Item 5-Stockholder Proposal Relating to a Shareholder's Advisory Committee
This stockholder proposal was submitted by Robert M. Dowling, 503 Mountain
Laurel Road, Fairfield, CT 06430, beneficial owner of 50 shares, and is quoted
directly from his submission.
"RESOLVED, that the company shall be requested to establish a Shareholder's
Advisory Committee. The Committee will provide non-binding recommendations to
the Board of Directors pertaining to Shareholders' interests on policy matters
relevant to the company and its business, such as major acquisitions,
restructurings, executive compensation, ethical issues, mergers and other
significant matters on which the Board is to consult with the Committee. The
Board shall insure the effective operation of this Committee and will give
consideration to its recommendations. This resolution shall in no way limit or
otherwise restrict the ability of the Board to take any action it deems in the
company's best interest.
Members of the Committee shall serve without compensation, except for the
reimbursement of reasonable expenses. The Committee will have a minimum of
fifteen (15) members and the Board shall develop procedures for the selection of
members willing to serve, provided that the following apply:
1. Members will be the beneficial owner of at least 500 shares of the
company's voting stock for the entire period of membership.
2. At least seven (7) members shall be selected from the 1,000 largest
beneficial owners of the company's voting shares.
3. Members will have no present affiliation with the company, other than
as a Shareholder.
4. The term of each member shall be for two (2) years and in no instance
can a member serve more than two (2) consecutive terms."
Supporting Statement
The final voting results for this proposal, initially presented at the 1996
Shareholder meeting resulted in 7,566,738 shares in favor or 3.66 percent of
those voted. This positive response exceeds the criterion established by the SEC
for resubmissions and as such it is again presented for further consideration at
the 1997 meeting.
Although it may be argued that procedures are in place to communicate with
Shareholders, many view management's periodic overviews as insufficient. The
proposed committees personnel composition has the potential to make a
significant contribution and will be neither costly to maintain nor
bureaucratic. As an advisory group, the Committee by definition cannot impede
the decision-making process and it's quality will be such that confidentiality
will be maintained. The Committee would also assist in assuring that ethical
standards are enforced and applied to all employees, regardless of position, in
a uniform and fair manner.
The formation of the Committee will act as a valuable resource and will
benefit the company by strengthening
22
confidence between Shareholders and Board representatives.
The Board of Directors recommends a vote AGAINST this proposal for the
following reasons:
A shareholder advisory committee is unnecessary since the responsibilities
of the Board and its Committees include the functions described in the proposal.
They review and approve the company's financial and competitive positions;
review operations and activities that pose risk to the company; and review the
company's adherence to its vision and values and compliance with our Corporate
Conduct Guidelines.
The Board's legal and fiduciary obligations include gathering all the
information it deems necessary, from whatever sources, in order to make
decisions that are in the best interest of the company and its stockholders.
Although this proposal states it will not limit or restrict the Board's ability
to act in the stockholders' best interest, it provides that on stated issues the
Board "is to consult with the committee" and "give consideration to its
recommendations." Thus, before taking action on such issues the Board must call
together this committee, wait while the committee gathers its consultants or
advisors, and delay acting until it has had the opportunity to consider in good
faith the committee's recommendations.
The requirement that the Board consult with the committee on an open-ended
list of matters, along with the logistical complexity of consulting with a
15-member body, would certainly slow the Board's ability to act, thus impeding
its ability to manage the business and affairs of the company for the benefit of
all stockholders in those situations where time is of the essence. For example,
the delay inherent in noticing and convening the committee, and in waiting for
its advice, may be fatal to a proposed transaction, such as an acquisition or
new business opportunity. Furthermore, the other party to the transaction may,
for legitimate business reasons, object to confidential information involving
the transaction being spread beyond directors and officers of the company.
Nor would the addition of this committee be without cost. The proposal
requires the company to pay the committee members' expenses, including
presumably any fees for expert advice from lawyers, investment bankers,
compensation consultants and others, even if the board has already retained
experts to provide such advice.
The Board believes that the creation of such a committee would provide no
benefit to the company or to its stockholders and would add a time consuming,
costly and redundant layer of oversight.
Therefore, the Board of Directors recommends a vote AGAINST this proposal.
----------
23
Item 6-Stockholder Proposal Relating to Classification of the Board
of Directors
This stockholder proposal was submitted by the International Brotherhood of
Teamsters, 25 Louisiana Avenue, N.W., Washington, DC 20001, beneficial owners of
3,600 shares, and is quoted directly from their submission.
RESOLVED: That the stockholders of Texaco request that the Board of
Directors take the steps necessary to declassify the elections of Directors by
providing that at future Board elections new directors be elected annually and
not by classes as is now provided. The declassification shall be phased in a
manner that does not affect the unexpired terms of Directors previously elected.
Supporting Statement
This resolution requests that the Board end the staggered board system in
place at Texaco and instead have all our Directors elected annually. Presently
Texaco has 3 classes of Directors and 1/3 of our Board is elected each year and
each Director now serves a 3 year term.
Increasingly, institutional investors are calling for the end of this
system of staggered voting. They believe it makes a Board less accountable to
shareholders when directors do not stand for annual election. Significant
institutional investors such as the Public Employees Retirement System of the
State of California, New York City pension funds, New York State pension funds
and many others have been supporting this position. As a result shareholder
resolutions to end this staggered system of voting have been receiving
increasingly large votes. In fact this resolution received a massive vote at
Texaco's 1995 stockholder meeting of 44% indicating that many Texaco
shareholders feel the time has come for this reform. Numerous companies have
demonstrated leadership by changing this practice. Included among them are
Westinghouse, Chemical Bank, Commonwealth Edison of Chicago, the Equitable
companies.
We believe this is a practice in which corporations seeking to be
accountable to their investors are increasingly putting into place. Studies by
the Chief Economist of the SEC have shown that adoption of a classified Board
tends to depress a company's stock price and may be contrary to shareholder
interests.
The election of corporate directors is a primary avenue for shareholders to
influence corporate affairs and exert accountability on management. We strongly
believe that our company's financial performance is linked to its corporate
governance policies and procedures and the level of management accountability
they impose. Therefore, as shareholders concerned about the value of our
investment, we're concerned by our company's current system of electing only
one-third of the Board of Directors each year. On other governance issues Texaco
is often considered a leader. We believe this staggering of director terms
prevents shareholders from annually registering their views on the performance
of the board collectively and each director individually.
Most alarming is that the staggered board can help insulate directors and
senior executives from the consequences of poor financial or social performance
by denying shareholders the opportunity to replace an entire Board which is
pursuing failed policies.
In addition socially concerned investors also support this reform since the
recent scandal regarding racial discrimination and legal settlement of $170
million demonstrates the need for annual board accountability.
To hold the Board more fully accountable on financial and social
performance we believe the staggered board system should be ended at Texaco."
24
The Board of Directors recommends a vote AGAINST this proposal for the
following reasons:
The company's practice of having a classified Board was approved
overwhelmingly by stockholders by a vote of 86.4% and instituted in 1984, as
part of a corporate governance system that would help Texaco carry out its
long-term business strategy and also assist in protecting the interests of
stockholders against raids on their stock value by possible hostile approaches.
A classified Board offers a number of advantages to a corporation,
especially one like Texaco, that must plan effectively over the long term. The
company's Board structure helps assure stability, since a majority of the
directors at any one time will have prior experience as directors of the
company, and helps the company to attract and retain highly qualified
individuals willing to commit the time and dedication necessary to understand
the company, its operations and its competitive environment.
Directors on the company's classified Board can best properly represent the
interests of all stockholders. For example, this structure can give the Board
needed time to evaluate any proposal to acquire the company, study alternative
proposals, and help ensure that the best price will be obtained in any
transaction involving the company. A classified Board also encourages persons
seeking to acquire control of the company to initiate such an acquisition
through arm's-length negotiations with the Board, which would then be in a
position to negotiate a transaction that is fair to all stockholders.
A number of leading institutional investors and commentators have
recognized the benefits inherent in a classified Board. For example, the
Teachers Insurance and Annuity Association - College Retirement Equities Fund,
has concluded that a classified Board is in full accordance with the principles
of good corporate governance, and has recognized and supported the right of a
Board to organize its functions and its business in the manner it deems most
efficient.
As detailed in the Section providing information concerning the Board of
Directors beginning on page 3, Texaco has been a consistent leader in
implementing corporate governance policies that ensure responsiveness and
accountability to stockholders. In recognition of this leadership role, in both
1994 and 1995 Chief Executive magazine named Texaco's Board of Directors as one
of the five best boards of the 200 companies examined.
The Board continues to believe that a classified Board is appropriate and
prudent in protecting the interests of all of Texaco's stockholders, and that
the continuity and quality of leadership that results from a classified Board
provides the proper environment in which to foster the creation of long-term
value for stockholders.
A similar proposal was put before stockholders two years ago and received
less than a majority of the votes cast, confirming the board's view that a
classified board structure was a significant stockholder rights protection that
should be retained.
Therefore, the Board of Directors recommends a vote AGAINST this proposal.
----------
25
Item 7-Stockholder Proposal Relating to Diversity on the Board of Directors
This stockholder proposal was submitted by the Board of Pensions,
Evangelical Lutheran Church in America, 800 Marquette Avenue, Suite 1050,
Minneapolis, MN 55402-2885, beneficial owners of 3,200 shares, and is quoted
directly from their submission.
"WHEREAS, in 1993 shareholders introduced a resolution urging Texaco to
make its Board of Directors inclusive. We believed then, as we do now, that our
board of directors needs to be more representative of shareholders and reflect a
diverse population, workforce and marketplace, so our company can remain
competitive. The loss of $170 million in discrimination settlements in 1996
strongly underscores Texaco's need for expanded diversity on our Board.
In 1994, the Investor Responsibility Research Center reported inclusiveness
at senior management and board levels was only 9% within the Fortune 500
companies. If we are to be prepared for the twenty-first century, we must learn
how to compete in an increasingly diverse global marketplace by selecting the
best people regardless of race, gender, religion or physical challenge.
We believe the judgements and perspectives of a more diverse board would
improve the quality of corporate decision-making. Since the board is responsible
for representing shareholder interests, we urge our corporation to enlarge its
search for qualified board members including women and minorities. The Teachers
Insurance and Annuity Association and College Retirement Equities Fund, the
largest institutional investor in the United States, recently issued a set of
corporate governance guidelines including a call for "diversity of directors by
experience, sex, age and race."
Robert Campbell, CEO of Sun Oil, stated in the Wall Street Journal of
August 12 1996; "Often what a women or minority person can bring to the board is
some perspective a company has not had before - adding some modern-day reality
to the deliberation process. Those perspectives are of great value, and often
missing from an all white-male gathering. They can also be inspirational to the
company's diverse workforce."
W.R. Grace's 1996 proxy states their Board... "recognizes that its
composition should reflect the global nature of the company's operations and the
diversity of its workforce. The Board also recognizes that it is in a unique
position to `set the tone at the top' and to demonstrate its belief that
diversity makes good business sense." While Texaco has one woman and one African
American on its Board, we believe the recent scandal and legal settlement
highlight the need for additional Board members.
We request the Nominating Committee of the Board take urgent steps to
include additional women and minority candidates for nomination to the Board in
1997 and 1998.
THEREFORE, BE IT RESOLVED that the shareholders request:
1. The Board issue a policy publicly committing the company to a more
diverse board, a program of steps, and the timeline to move further in
that direction.
2. The Board make available a report by September 1997 summarizing effort
to encourage and increase the diversification of:
a) our Board of Directors
b) our executive board search firms
c) Texaco's Public Responsibility
Committee
d) all Board of Directors committees"
26
The Board of Directors recommends a vote AGAINST this proposal for the
following reasons:
We are strongly committed to the promotion of diversity and inclusiveness
not only on our Board of Directors, but throughout the company. This commitment
has been communicated both through the company's statement of Vision and Values
and its Corporate Conduct Guidelines, which are provided to each employee and
available to stockholders upon request to the Corporate Secretary, and through a
comprehensive plan to ensure fairness and economic opportunity for employees and
business partners, including minorities and women, the details of which were
published and widely disseminated on December 18, 1996.
Consistent with this commitment, the Committee on Directors and Board
Governance continually seeks opportunities to enhance the diversity of the
Board. The search for and selection of director candidates is by its very nature
extremely sensitive. Intensive research and review of qualifications is required
to identify candidates who have the necessary skills and experience to meet the
company's published standards and to effectively represent the interests of
stockholders. Often, when appropriate candidates are initially identified they
may be unable or unwilling to serve on the Board as a result of a variety of
legal or other concerns. Arbitrary deadlines could sacrifice the thoroughness of
this effort. All of this activity occurs, of necessity, "behind the scenes,"
where the level and intensity of the effort cannot be apparent to stockholders.
To pursue successfully such an inherently sensitive process, the Committee
on Directors and Board Governance and the Board as a whole must have maximum
flexibility to review and consider the broadest range of appropriate candidates.
We are concerned that the mandates in this stockholder proposal would be too
restrictive to allow the Board to identify candidates who represent both the
desired degree of diversity and the outstanding qualities needed to best serve
the interests of stockholders. The company does accept the essence and intent of
the proposal, shares completely the objectives behind it and wishes to
re-emphasize that the Board is already moving aggressively and responsibly in
the direction suggested.
Therefore, the Board of Directors recommends a vote AGAINST this proposal.
----------
27
EXECUTIVE COMPENSATION
- - --------------------------------------------------------------------------------
Compensation Committee Report
The Compensation Committee of the Board of Directors is composed entirely
of independent outside directors. The Committee is responsible for establishing
and administering the compensation policies applicable to the company's officers
and senior personnel.
The company's management pay structure and award opportunities are targeted
to be competitive in the mid-range with a mixed group of twenty oil and non-oil
companies (the "Comparable Companies"). The Comparable Companies were selected
based on size, complexity and operational challenge in relation to Texaco. All
of the Comparable Companies, except for the U.S. subsidiary of one foreign-based
oil company, are included in the S&P 500 Index, and four of these companies are
also included in the S&P Integrated International Oil Index, both of which are
used in the comparison graphs on page 36.
In addition, each year the company and the Committee test Texaco's
performance against the results of its competitors. That comparison is reflected
in the graphs on page 36.
The compensation program is composed of three elements: salary at a
competitive level to attract and retain the highest caliber of employees;
performance bonus; and long-term stock-based incentives. The bonus is based on
performance with respect to financial and operating objectives, and the
long-term awards are tied to stock price performance and total return to
stockholders. This mix of compensation elements places more of total
compensation at risk and emphasizes performance.
As a person's level of responsibility in the company increases, a greater
portion of potential total compensation opportunity is shifted from salary to
performance incentives and to greater reliance on growing total return to
stockholders through stock-based awards. This increasingly aligns the interests
of these managers with the interests of stockholders.
The total of salary and bonus is intended to provide cash compensation
which is to be competitive in a mid-range when performance meets goals.
The overall salary range structure, including midpoints and progression
between grade levels, is maintained at a mid-range competitive level to attract
and retain the highest caliber of employees. Individual salaries are based on
the salary range for the position as well as the length of service in grade and
the quality of performance in that position.
The bonus formula for non-officer participants contains a subjective
element under which they are rated with respect to initiative, managerial
ability, overall contribution to corporate and/or unit performance, fostering
the company's "Vision and Values" and compliance with the Corporate Conduct
Guidelines. The successful Texaco manager must perform effectively in many areas
which are not measured specifically by financial or operating results.
Performance is also assessed against standards of business conduct reflecting
social values and the expectations of the company's key constituencies including
its employees and stockholders, the consumers of its products, suppliers and
customers, the communities in which it operates and the countries where it does
business. Among the corporate values and elements of the Corporate Conduct
Guidelines considered
28
are those which promote equal employment opportunity and diversity, safeguarding
of the environment and protection of the health and safety of the company's
employees. Adherence to these high standards is understood to have direct effect
on the company's profitability, and the performance of the company's managers is
appraised in this regard.
The long-term incentive program consisting of stock options and performance
restricted shares (which vest based on the company's total return to
stockholders vs. the S&P Integrated International Oil Index) emphasizes total
return to stockholders, motivates stock ownership by the management by requiring
that vested benefits be received in stock and not cash, and encourages retention
and continuity of management. While the company has no obligatory levels for
equity holdings by management personnel, long-term incentive awards are designed
and administered to encourage share ownership and have done so. The Committee
reviews the ownership by officers each year. In general, the officers have stock
holdings in excess of typical target or mandatory levels where they have been
established by some companies in industry. Of the six officers named in the
table on page 31 the four who are still active employees, Messrs. Bijur, Krowe,
Black and Tilton, had, on average, holdings in Texaco stock of 12 1/2 times
salary as of December 31, 1996. The values of the packages of long-term
incentive award targets comprised of performance shares and options at each
grade level are established by the Committee and are intended to be fully
competitive with the programs offered by the Comparable Companies. Generally,
the number of options and performance shares awarded to any participant are
determined by a competitive position grading and by the level of performance.
There is no relationship to awards in prior years.
The compensation of the Chief Executive Officer and any other
officer-director is established by the Committee and reviewed with and ratified
by the Committee of Non-Management Directors, which consists of all the outside
directors and is chaired by Mr. Murphy. The compensation for Mr. DeCrane for the
first six months of 1996 when he served as Chief Executive was determined by the
Compensation Committee in the same general manner as for other members of the
management team. Reference was also made to the salary rate of chief executive
officers of the Comparable Companies and his salary was at approximately the
mid-range of that group. Mr. DeCrane's bonus for 1996 was determined by the
performance of the company with respect to the established Incentive Bonus Plan
objectives as applied to the target level for his position grade.
Mr. Bijur's salary was increased in 1996 concurrent with his promotion to
Vice Chairman of the Board, and was further increased upon his election as
Chairman of the Board and Chief Executive Officer. He will also receive an
increase on April 1, 1997 consistent with a new corporate policy to have an
annual salary review date of April 1 for all non-represented U.S. based
employees. His salary level was set after reference to the salary rates and
length of time in the position of the chief executive officers of the Comparable
Companies. Because he is new to his position, Mr. Bijur's base salary is below
the average and the median base salary paid for his position by the companies in
the comparator group. Mr. Bijur's bonus for 1996 was based on the target levels
established prior to his assuming each of the three positions he held during the
year as apportioned for the time served in each.
Long-term awards granted were based on the standard established by the
Compensation Committee for all members of the management team, as noted above.
In establishing the overall compensation for the
29
company's Chief Executive Officers, the Committee compares Texaco's
performance with other companies in the industry and with the specific
objectives set and considers a range of performance factors including normalized
earnings, return on capital employed, return on average stockholders' equity,
total return to stockholders, net income per share, and worldwide reserve
replacement without assigning any particular weight to any of these factors. The
total compensation of a chief executive officer reflects his success in: meeting
objectives, formulating corporate strategies, and, in the case of Mr. Bijur, in
his development and execution of the restructuring of the company's business
effective January 1, 1997 and his leadership in settling litigation and
establishing policies and objectives relating to the company's diversity
policies.
The Committee reviews information on compensation and other data at
competitor and comparable sized companies that it receives from outside
independent consultants, at least annually.
As the result of studies and recommendations by a consultant in 1996, the
Committee concluded that the target levels of awards under the Stock Incentive
Plan and the Incentive Bonus Plan were no longer sufficient to maintain
compensation opportunities relative to the Comparable Companies. The long-term
award levels were increased for the 1996 awards compared to those in 1995 and
are reflected in the awards received by the persons named in the table on page
31. The incentive bonus award levels were increased for all participants except
those persons named in the table on page 31.
Texaco's incentive bonus and stock incentive plans are performance-based
plans. Therefore, under I.R.C. Section 162 (m), compensation paid in 1996 is
fully deductible and it is the intention of the Committee to continue to comply
to the extent practicable. The incentive plans being recommended for stockholder
approval at the 1997 Annual Meeting are constituted to keep the company's
compensation programs in compliance with Section 162(m).
In conclusion, the Committee believes that the quality and motivation of
all of Texaco's employees, including its managers, make a significant difference
in the long-term performance of the company. The Committee also believes that
compensation programs which reward performance that meets or exceeds high
standards also benefit the stockholders, so long as there is an appropriate
downside risk element to compensation when performance falls short of such
standards and that the Committee has appropriate flexibility in administering
the program to achieve the objectives of same. The Committee is of the opinion
that Texaco's management compensation programs meet these requirements, have
contributed to the company's success and are deserving of stockholder support.
Robert A. Beck Willard C. Butcher
Chairman
Edmund M. Carpenter Charles H. Price, II
William C. Steere Thomas A. Vanderslice
30
The following compensation information is furnished for service performed
by the company's Chief Executive Officer and former Chief Executive Officer and
its four other most highly compensated Executive Officers for the three years
indicated.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------
Securities
Other Restricted Underlying All
Name and Principal Annual Stock Options/ Other
Position Year Salary($) Bonus($) Compensation($) Awards($)(1) SARs(#) Compensation($)(2)
-------- ---- ------------------ ---------------------------- ------- ------------------
P.I. Bijur 1996 638,833 939,089 4,985 971,904 155,073 38,322
Chairman of the 1995 405,333 251,363 3,518 200,330 65,576 27,200
Board/CEO 1994 382,500 140,879 3,351 154,063 21,481 25,134
(from July 1)
A.C. DeCrane, Jr. 1996 500,000 588,534 11,017 971,904 412,777 29,988
Chairman of 1995 977,500 862,764 10,063 777,514 277,615 61,500
the Board/CEO 1994 927,500 595,135 9,818 769,107 149,859 57,834
(until July 1)
A.J. Krowe 1996 701,500 772,743 4,262 595,483 194,609 172,855
Vice Chairman 1995 672,000 566,403 4,166 453,710 144,021 171,091
1994 633,000 390,705 8,865 534,964 71,068 168,751
C.R. Black 1996 406,667 278,634 7,206 179,341 66,904 24,420
Senior Vice 1995 390,000 204,232 12,623 162,267 52,163 28,408
President 1994 373,333 140,879 12,294 154,063 26,792 35,150
W.C. Bousquette 1996 425,000 374,500 1,246 161,432 25,052 112,696
Senior Vice 1995 399,866 174,618 74,706 286,767 27,129 325,719
President
(retired 1994 0 0 0 0 0 0
Dec. 31, 1996)
G.F. Tilton 1996 360,000 342,934 39,279 230,351 70,315 52,415
Senior Vice 1995 322,500 251,363 31,431 200,330 54,158 104,659
President 1994 268,500 116,300 0 128,488 20,312 18,679
(1) Messrs. Bijur, DeCrane, Krowe, Black, Bousquette and Tilton had restricted
stockholdings of 50,955; 181,132; 109,233; 41,342; 8,928; and 37,101
shares, respectively, as of December 31, 1996. The shares had a market
value of $4,999,959; $17,773,578; $10,718,488; $4,056,684; $876,060; and
$3,640,536, respectively, at December 31, 1996, based on a value of $98.125
per share. These share numbers and values include the awards since the last
proxy statement which are reported in the "Restricted Stock Awards" column
above. Dividends are paid on the restricted stock at the same time and rate
as dividends paid to holders of unrestricted stock.
(2) Matching contributions to the qualified and nonqualified Employees Thrift
Plans and moving expenses associated with job reassignment are provided on
the same basis for all employees. Mr. Krowe became entitled to Texaco
retirement benefits commencing in July 1992, the month after he attained
age 60, for the period October 1988 through June 1992, which are no less
than he would have been entitled to under his previous employer's
retirement plan, reduced by the amount actually received from that previous
employer's plan. Included in the amounts shown for Mr. Krowe is $130,771
received pursuant to the aforementioned arrangement in 1996.
31
OPTION GRANTS IN 1996
Individual Grants of Options
- - ---------------------------------------------------------------------------------------------------------------
Number
of
Securities
Underlying % of Total Exercise or Grant Date
Options Options Base Expiration Present
Name Date Granted(#) Granted Price($/Sh.) Date Value $*
- - ---- ---- ---------- ------- ------------ ---- --------
P.I. Bijur 06/28/96 80,157 1.904% 84.87500 06/28/2006 838,442
A.C. DeCrane, Jr. 06/28/96 80,157 1.904% 84.87500 06/28/2006 838,442
A.J. Krowe 06/28/96 49,112 1.167% 84.87500 06/28/2006 513,712
C.R. Black 06/28/96 14,791 0.351% 84.87500 06/28/2006 154,714
W.C. Bousquette 06/28/96 13,314 0.316% 84.87500 06/28/2006 139,264
G.F. Tilton 06/28/96 18,998 0.451% 84.87500 06/28/2006 198,719
Individual Grants of Restored Options
- - ---------------------------------------------------------------------------------------------------------------
All options include a restoration feature, by which options are granted to
replace shares that are exchanged by participants as full or partial payment to
the company of the purchase price of shares being acquired through the exercise
of a stock option or withheld by the company in satisfaction of tax withholding
obligations. Since restored options are granted at an exercise price which is
equal to the market price of the company's Common Stock on the day of grant,
they are issued at an exercise price which is at a higher price than the
exercise price of the original grant. Options vest 50% after one year and are
fully exercisable after two years. Restored options are fully exercisable after
six months and expire at the date of the original grant.
Number
of
Securities
Underlying % of Total Exercise or Grant Date
Options Options Base Expiration Present
Name Date Granted(#) Granted Price($/Sh.) Date Value $*
- - ---- ---- ---------- ------- ------------ ---- --------
P.I. Bijur 01/03/96 1,244 0.030% 78.50000 01/02/2000 10,238
01/03/96 114 0.003% 78.50000 06/22/2000 938
01/03/96 4,892 0.116% 78.50000 06/26/2002 40,261
04/26/96 3,700 0.088% 84.81250 01/02/2000 37,777
04/26/96 669 0.016% 84.81250 06/24/2004 6,830
04/26/96 1,883 0.045% 84.81250 02/24/2005 19,225
06/17/96 3,321 0.079% 83.32150 06/28/2001 34,372
06/17/96 4,778 0.114% 83.31250 06/25/2003 49,452
06/17/96 3,943 0.094% 83.31250 06/24/2004 40,810
06/26/96 3,622 0.086% 84.43750 06/24/2004 38,393
07/09/96 921 0.022% 86.18750 06/24/2004 10,149
07/09/96 6,558 0.156% 86.18750 06/23/2005 72,269
10/28/96 670 0.016% 101.93750 01/02/2000 8,737
10/28/96 2,098 0.050% 101.93750 06/28/2001 27,358
10/28/96 3,969 0.094% 101.93750 06/26/2002 51,756
10/28/96 1,335 0.032% 101.93750 06/23/2005 17,408
12/17/96 1,538 0.037% 97.00000 05/09/1999 18,533
12/17/96 2,201 0.052% 97.00000 01/02/2000 26,522
12/17/96 2,835 0.067% 97.00000 06/22/2000 34,162
12/17/96 3,959 0.094% 97.00000 06/26/2002 47,706
12/17/96 4,253 0.101% 97.00000 06/25/2003 51,249
12/26/96 3,454 0.082% 98.12500 05/09/1999 42,242
12/26/96 1,508 0.036% 98.12500 06/22/2000 18,443
12/30/96 931 0.022% 99.00000 06/22/2000 11,489
12/30/96 3,339 0.079% 99.00000 06/28/2001 41,203
12/30/96 4,021 0.096% 99.00000 06/25/2003 49,619
12/30/96 3,160 0.075% 99.00000 06/24/2004 38,994
32
Number
of
Securities
Underlying % of Total Exercise or Grant Date
Options Options Base Expiration Present
Name Date Granted(#) Granted Price($/Sh.) Date Value $*
A.C. DeCrane, Jr. 02/02/96 3,434 0.082% 81.62500 05/09/1999 29,429
02/02/96 26,575 0.631% 81.62500 01/02/2000 227,748
02/02/96 15,798 0.375% 81.62500 06/26/2002 135,389
02/02/96 15,318 0.364% 81.62500 06/25/2003 131,275
05/10/96 8,177 0.194% 80.37500 06/25/2003 78,581
05/10/96 9,521 0.226% 80.37500 02/24/2005 171,375
05/10/96 17,833 0.424% 80.37500 06/24/2004 91,497
05/22/96 22,839 0.543% 85.68750 06/28/2001 239,810
05/22/96 4,814 0.114% 85.68750 06/24/2004 50,547
05/22/96 901 0.021% 85.68750 07/22/2004 9,461
06/26/96 13,847 0.329% 84.43750 06/24/2004 146,778
08/02/96 6,733 0.160% 85.25000 06/22/2000 69,215
08/02/96 1,604 0.038% 85.25000 06/28/2001 16,489
08/02/96 22,376 0.532% 85.25000 06/25/2003 230,025
08/02/96 7,936 0.189% 85.25000 06/24/2004 81,582
08/02/96 905 0.022% 85.25000 07/22/2004 9,303
08/02/96 31,922 0.758% 85.25000 06/23/2005 328,158
11/11/96 18,302 0.435% 95.62500 05/09/1999 213,218
11/11/96 15,688 0.373% 95.62500 06/22/2000 182,765
11/11/96 13,485 0.320% 95.62500 06/26/2002 157,100
11/11/96 6,873 0.163% 95.62500 06/25/2003 80,070
11/11/96 139 0.003% 95.62500 06/24/2004 1,619
11/22/96 2,823 0.067% 99.31250 05/09/1999 34,441
11/22/96 11,140 0.265% 99.31250 01/02/2000 135,908
11/22/96 14,299 0.340% 99.31250 06/24/2004 174,448
11/22/96 7,706 0.183% 99.32150 02/24/2005 94,013
12/26/96 10,833 0.257% 98.12500 01/02/2000 132,488
12/26/96 8,139 0.193% 98.12500 06/26/2002 99,540
12/30/96 5,483 0.130% 99.00000 06/26/2002 67,660
12/30/96 7,177 0.171% 99.00000 06/25/2003 88,564
A.J. Krowe 02/02/96 6,984 0.166% 81.62500 01/02/2000 59,853
02/02/96 3,569 0.085% 81.62500 06/22/2000 30,586
02/02/96 584 0.014% 81.62500 06/28/2001 5,005
02/02/96 9,851 0.234% 81.62500 06/26/2002 84,423
04/26/96 7,752 0.184% 84.81250 05/09/1999 79,148
04/26/96 4,341 0.103% 84.81250 01/02/2000 44,322
04/26/96 3,271 0.078% 84.81250 06/24/2004 33,397
04/26/96 6,323 0.150% 84.81250 02/24/2005 64,558
05/10/96 9,491 0.225% 80.37500 06/24/2004 91,209
06/26/96 8,204 0.195% 84.43750 06/24/2004 86,962
08/02/96 7,076 0.168% 85.25000 06/24/2004 72,741
08/02/96 517 0.012% 85.25000 07/22/2004 5,315
08/02/96 18,628 0.443% 85.25000 06/23/2005 191,496
10/28/96 1,142 0.027% 101.93750 06/22/2000 14,892
10/28/96 6,310 0.150% 101.93750 06/26/2002 82,282
10/28/96 7,889 0.187% 101.93750 06/26/2002 102,873
10/28/96 10,252 0.244% 101.93750 06/25/2003 133,686
10/28/96 2,460 0.058% 101.93750 06/24/2004 32,078
11/11/96 3,390 0.081% 95.62500 06/22/2000 39,494
11/11/96 7,480 0.178% 95.62500 06/25/2003 87,142
11/11/96 462 0.011% 95.62500 07/22/2004 5,382
12/26/96 1,934 0.046% 98.12500 06/28/2001 23,653
12/26/96 9,306 0.221% 98.12500 06/25/2003 113,812
12/30/96 2,592 0.062% 99.00000 05/09/1999 31,985
12/30/96 463 0.011% 99.00000 06/22/2000 5,713
12/30/96 5,226 0.124% 99.00000 06/28/2001 64,489
33
Number
of
Securities
Underlying % of Total Exercise or Grant Date
Options Options Base Expiration Present
Name Date Granted(#) Granted Price($/Sh.) Date Value $*
- - ---- ---- ---------- ------- ------------ ---- --------
C.R. Black 01/25/96 6,274 0.149% 78.87500 06/26/2002 51,949
04/26/96 5,772 0.137% 84.81250 05/09/1999 58,932
04/26/96 1,900 0.045% 84.81250 06/26/2002 19,399
04/26/96 1,380 0.033% 84.81250 06/24/2004 14,090
04/26/96 1,883 0.045% 84.81250 02/24/2005 19,225
05/03/96 1,737 0.041% 83.93750 06/24/2004 18,013
06/26/96 2,991 0.071% 84.43750 06/24/2004 31,705
07/25/96 4,565 0.108% 84.81250 01/02/2000 48,389
07/25/96 3,008 0.071% 84.81250 06/24/2004 31,885
10/28/96 1,666 0.040% 101.93750 01/02/2000 21,725
10/28/96 2,560 0.061% 101.93750 06/22/2000 33,382
10/28/96 2,336 0.055% 101.93750 06/28/2001 30,461
10/28/96 1,019 0.024% 101.93750 06/26/2002 13,288
10/28/96 1,016 0.024% 101.93750 06/25/2003 13,249
10/28/96 5,572 0.132% 101.93750 06/23/2005 13,249
11/04/96 2,202 0.052% 99.75000 06/25/2003 69,037
12/26/96 2,772 0.066% 98.12500 06/28/2001 26,930
12/26/96 1,347 0.032% 98.12500 06/25/2003 33,902
12/30/96 2,113 0.050% 99.00000 06/25/2003 16,622
W.C. Bousquette 01/24/96 3,965 0.094% 78.50000 01/23/2005 32,354
07/24/96 5,482 0.130% 85.00000 06/23/2005 58,438
12/30/96 988 0.023% 99.00000 01/23/2005 12,192
12/30/96 1,303 0.031% 99.00000 06/23/2005 16,079
G.F. Tilton 04/26/96 1,096 0.026% 84.81250 01/02/2000 11,190
04/26/96 86 0.002% 84.81250 06/28/2001 878
04/26/96 2,135 0.051% 84.81250 06/26/2002 21,798
04/26/96 1,571 0.037% 84.81250 02/24/2005 16,040
05/03/96 1,452 0.034% 83.93750 05/09/1999 15,057
05/03/96 2,136 0.051% 83.93750 01/02/2000 22,150
05/03/96 786 0.019% 83.93750 06/22/2000 8,151
05/10/96 1,522 0.036% 80.37500 06/22/2000 14,626
05/10/96 458 0.011% 80.37500 06/24/2004 4,401
06/26/96 3,804 0.090% 84.43750 06/24/2004 40,322
06/26/96 6,102 0.145% 84.43750 06/23/2005 64,681
10/28/96 47 0.001% 101.93750 06/22/2000 613
10/28/96 1,757 0.042% 101.93750 06/25/2003 22,911
10/28/96 2,791 0.066% 101.93750 06/24/2004 36,395
10/28/96 1,825 0.043% 101.93750 06/23/2005 36,395
11/04/96 1,584 0.038% 99.75000 06/22/2000 22,612
11/04/96 551 0.013% 99.75000 06/26/2002 19,626
11/04/96 3,462 0.082% 99.75000 06/25/2003 6,827
11/11/96 956 0.023% 95.62500 05/09/1999 40,332
11/11/96 1,462 0.035% 95.62500 06/25/2003 11,137
12/26/96 3,174 0.075% 98.12500 05/09/1999 17,880
12/26/96 1,757 0.042% 98.12500 01/02/2000 38,818
12/26/96 1,490 0.035% 98.12500 06/22/2000 21,488
12/26/96 3,819 0.091% 98.12500 06/28/2001 18,223
12/26/96 2,404 0.057% 98.12500 06/26/2002 46,706
12/26/96 376 0.009% 98.12500 06/24/2004 29,401
12/30/96 1,460 0.035% 99.00000 01/02/2000 47,126
12/30/96 667 0.016% 99.00000 06/22/2000 29,665
12/30/96 587 0.014% 99.00000 06/24/2004 4,640
* Valuation. All options are granted at an exercise price equal to the
market value of the company's Common Stock on the date of grant.
Therefore, if there is no appreciation in that market value, no value will
be realizable. In accordance with Securities and Exchange Commission
rules, the Black-Scholes option pricing model was chosen to estimate the
grant date present value of the options set forth in this table. The
company's use of this model should not be construed as an endorsement of
its accuracy at valuing options. All stock option valuation models,
including the Black-Scholes model, require a prediction about the future
movement of the stock price. The following assumptions were made for
purposes of calculating the Grant Date Present Value: for all grants the
option term is assumed to be three years, volatility at 15%, dividend of
$3.40 per share and interest rates of 5.0% to 6.53%. The real value of the
options in this table depends solely upon the actual performance of the
company's stock during the applicable period.
34
AGGREGATED OPTION EXERCISES IN 1996 AND
YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquire Options at Year-End(#)* at Year-End($) **
on Value -------------------------- -------------------------
Name Exercise(#) Realized($)Exercisable Unexercisable Exercisable Unexercisable
- - ---- ----------- ---------- ----------- ------------- ----------- -------------
P.I. Bijur 21,318 1,968,795 10,062 139,980 135,591 1,589,974
A.C. DeCrane, Jr. 85,000 7,533,084 49,846 326,737 667,514 3,834,356
A.J. Krowe 50,334 4,631,577 63,772 166,581 984,658 2,066,002
C.R. Black 19,345 1,808,593 2,132 82,036 63,027 1,084,165
W.C. Bousquette 3,314 285,253 2,867 34,651 56,265 700,179
G.F. Tilton 17,290 1,624,513 14,116 61,825 191,385 665,533
* Includes options reported in the chart entitled "Option Grants in 1996".
** Based on the 1996 year-end price of $98.125.
Performance Graphs
The two graphs on the following page compare the cumulative total
stockholder return on Texaco's Common Stock with the cumulative total return of
the Standard & Poor's 500 Stock Index and the Standard & Poor's Integrated
International Oil Index during five-year and nine-year periods. The measurement
period in the first graph begins on December 31, 1991, and the second graph
begins four years earlier on December 31, 1987. The second graph reflects the
market performance of the company's stock over the full period from the
commencement of the extensive restructuring initiated by the company in 1988.
35
Five-Year Comparison
Cumulative Return to Shareholders
(Price Appreciation and the Reinvestment of Dividends)
Texaco vs. S&P Indices
DOLLARS (END-OF-PERIOD)
Total Return
Annual Growth
1991 1992 1993 1994 1995 1996 Rate
---- ---- ---- ---- ---- ---- ----
Texaco $100.00 $102.80 $117.01 $114.01 $156.59 $203.04 15.2%
S&P 500 $100.00 $107.61 $118.40 $120.01 $164.95 $202.72 15.2%
S&P Oils $100.00 $102.52 $122.94 $130.60 $175.27 $216.65 16.7%
Nine-Year Comparison
Cumulative Return to Shareholders
(Price Appreciation and the Reinvestment of Dividends)
Texaco vs. S&P Indices
DOLLARS (END-OF-PERIOD)
Total Return
Annual Growth
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Rate
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Texaco $100.00 $143.84 $204.05 $220.68 $235.16 $241.74 $275.17 $268.11 $368.25 $477.47 19.0%
S&P 500 $100.00 $116.50 $153.30 $148.52 $193.57 $208.30 $229.20 $232.31 $319.30 $392.41 16.4%
S&P Oils $100.00 $119.43 $160.98 $172.17 $198.48 $203.47 $244.01 $259.20 $347.87 $430.00 17.6%
36
Retirement Plan
Over 12,365 employees of the company and its subsidiaries, including the 19
elected officers, are eligible to participate in the Retirement Plan. The plan
is a qualified plan under the Internal Revenue Code and provides benefits funded
by company contributions. In addition, participants have the option of making
contributions to the plan and receiving greater pension benefits. Contributions
are paid to a Master Trustee and to insurance companies for investment.
For purposes of calculating pension benefits for the named executive
officers, the plan recognizes salary and bonus only and does not take into
account other forms of compensation. For the named executive officers, salary
and bonus for the last three years are shown in the salary and bonus columns of
the Summary Compensation Table. Effective January 1, 1997, IRS regulations
provide that covered remuneration cannot exceed $160,000 per year (as indexed
for inflation) for purposes of this plan. The amount of an employee's pension is
the greater of a benefit based upon a final pay formula (applicable in most
cases), a career average formula, or a minimum retirement benefit.
PENSION PLAN TABLE
YEARS OF BENEFIT SERVICE
COVERED REMUNERATION* 15 20 25 30 35 40 45
- - --------------------- ------------------------------------------------------------------------------
$ 100,000 $ 22,500 $ 30,000 $ 37,250 $ 44,350 $ 51,350 $ 58,350 $ 65,350
200,000 45,000 60,000 74,700 88,700 102,700 116,700 130,700
400,000 90,000 120,000 149,400 177,400 205,400 233,400 261,400
600,000 135,000 180,000 224,100 266,100 308,100 350,100 392,100
800,000 180,000 240,000 298,800 354,800 410,800 466,800 522,800
1,000,000 225,000 300,000 373,500 443,500 513,500 583,500 653,500
1,200,000 270,000 360,000 448,200 532,200 616,200 700,200 784,200
1,400,000 315,000 420,000 522,900 620,900 718,900 816,900 914,900
1,600,000 360,000 480,000 597,600 709,600 821,600 933,600 1,045,600
1,800,000 405,000 540,000 672,300 798,300 924,300 1,050,300 1,176,300
2,000,000 450,000 600,000 747,000 887,000 1,027,000 1,167,000 1,307,000
* "Covered Remuneration" means the highest three-year average salary and bonus, if any, during the last ten years of
employment. The years of benefit service for the following individuals are: Mr. Bijur, 30; Mr. Krowe, 8; Mr. Black,
39; Mr. Bousquette, 2; and Mr. Tilton, 27. With respect to the plan, annual pension benefits are based on the non-
contributory final pay formula (up to 1.5% of final average pay times benefit service) and assume the participant retires
at age 65 and has been a non-contributory member of the plan throughout the period of service. These amounts, however,
do not reflect a reduction for Social Security benefits pursuant to the provisions of the plan. They do include those
additional sums, if any, payable under a Supplemental Pension Plan to compensate those employees who have earned annual
pension benefits payable under the plan but which are limited by Section 415 of the Internal Revenue Code.
37
Future Stockholder Proposals
Stockholders may present proposals to be considered for inclusion in the
1998 Proxy Statement, provided they are received at the company's principal
executive office no later than November 28, 1997, and are in compliance with
applicable laws and Securities and Exchange Commission regulations. In addition,
the company's by-laws establish procedures for stockholders to bring business
before the Annual Meeting of Stockholders, by providing written notice to the
company not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's Annual Meeting of Stockholders (subject to
adjustment if the subsequent year's meeting date is substantially moved). The
notice must briefly describe the proposed business and contain certain
information about the stockholder intending to present it. Any such proposals or
notice should be addressed to: Secretary, Texaco Inc., 2000 Westchester Avenue,
White Plains, New York 10650.
Other Business
A stockholder has advised the company that he intends to introduce
proposals at the meeting that would require the company to apologize in full
page ads in all newspapers and news magazines in the United States for remarks
allegedly made by two former employees, and to contribute one percent of the
company's net annual profit per year to organizations engaged in advancing human
toleration. The company believes that it has fully addressed the issues raised
by the proposals and has received a letter from the Securities and Exchange
Commission that it will take no action if the company does not include the
matters for a vote in its proxy materials. If the proposals are introduced at
the meeting, the Board will recommend to the persons named as your proxies in
the proxy card that they vote against them.
The management is not aware of any other matters that will be presented for
action at the meeting. If other proper matters are introduced, the persons named
in the accompanying proxy will vote the shares they represent in accordance with
their judgment.
CARL B. DAVIDSON
Vice President and Secretary.
March 27, 1997
38
APPENDIX A
THE INCENTIVE COMPENSATION PROGRAM OF 1997
The Incentive Compensation Program of 1997 is Comprised of The 1997 Stock
Incentive Plan and the 1997 Incentive Bonus Plan
- - --------------------------------------------------------------------------------
The 1997 Stock Incentive Plan
Section 1 -- Purpose of the Plan
The 1997 Stock Incentive Plan (the "Plan") is intended to advance the
interests of Texaco Inc. (the "Company") and its stockholders by motivating
officers and other key employees of the Company and its subsidiaries and
affiliates to direct their efforts to those activities which will contribute
materially to the Company's success. The Plan also includes a feature which
supports the requirement that directors of the Company receive a portion of
their fees and retainers in the form of Company stock or stock equivalents. The
Plan is intended to serve the best interests of the stockholders by linking
employees who have substantial responsibility for the operation, administration
and management of the Company with the enhancement of stockholder values while
allowing directors and employees to increase their proprietary interest in the
Company. Finally, the Plan will enable the Company to attract and retain in its
employ highly qualified persons for the successful conduct of its business.
Section 2 -- Participants
2.1 The participants in the Plan with respect to any award shall be those
officers and key employees of the Company and its subsidiaries and affiliates,
and those former officers and key employees of the Company and its subsidiaries
and affiliates who retired during the twelve months immediately preceding the
date of such award, who are selected by the Compensation Committee of the
Company's Board of Directors ("Compensation Committee"). With respect to the
provisions of the Plan concerning payments to directors, only non-employee
members of the Board of Directors shall participate.
2.2 Those selected to participate in the Plan shall be referred to
hereinafter as "Participants".
Section 3 -- Administration of the Plan
3.1 The Plan shall be administered and interpreted by the Compensation
Committee, whose determination on all matters shall be final.
3.2 As part of the Plan administration the Compensation Committee shall:
A. Determine the number and types of awards to be made under the Plan;
B. Establish performance goals and guidelines on the issuance of awards.
C. Select the Participants to whom awards shall be made; and
D. Do such other and further acts that may be desirable or necessary to
interpret, construe or implement the provisions of the Plan.
3.3 Notwithstanding the foregoing, the Compensation Committee may delegate
to the Chief Executive Officer of the Company, as a Committee of One under
Delaware Law, the right to grant awards to eligible employees who are not
elected officers of the Company.
3.4 The Compensation Committee may make, from time to time, such changes in
the Plan as it believes to be advisable; provided, however, that the Board may
not increase the maximum number of shares available for issuance to any
Participant or change the performance goals under the Plan.
39
3.5 The Board may (i) grant incentive awards for proper corporate purposes
otherwise than under the Plan to any employee, officer, director or other person
or entity and (ii) grant incentive awards to, or assume incentive awards of, any
person or entity in connection with the acquisition (whether by purchase, lease,
merger, consolidation or otherwise) of the business or assets (in whole or in
part) of any person or entity.
3.6 All awards granted under the Plan shall be granted on or before
December 31, 2006.
Section 4 -- Awards Under the Plan
4.1 Awards under the Plan may be made in any of the forms described in
Section 4.3 or such other incentive award forms as shall be consistent with the
purposes of the Plan. If other forms of awards are granted, the Compensation
Committee shall have the discretion to determine the terms and conditions
applicable to such awards.
4.2 The total number of shares of Common Stock initially available for
issuance to Participants under all forms of awards under the Plan in any
calendar year shall be no more than one percent (1.0%) of the aggregate number
of shares of Common Stock issued and outstanding on December 31 of the previous
year plus any available shares not issued under the Plan in the previous years.
The immediately preceding sentence shall not include Substitute Awards, which
shall include awards granted in assumption of, or in substitution for,
outstanding awards previously granted by a company acquired by the Company or
with which the Company combines and any awards made by the Company to a newly
hired employee. The following shares of Common Stock will also be available for
issuance:
A. option shares awarded on or after May 13, 1997 that expire or are
forfeited or are canceled without the issuance of shares or that relate
to awards settled in cash in lieu of the issuance of shares; plus
B. shares that are exchanged (either actually or constructively) by
Participants as full or partial payment to the Company for the purchase
price of shares being acquired through the exercise of a stock option
granted under the 1989, 1993 or 1997 Stock Incentive Plans and any
shares withheld by the Company in satisfaction of the tax-withholding
obligations of Participants created by the exercise of a stock option.
The payment of cash dividends and dividend equivalents in conjunction with
any awards shall not reduce the number of shares available for issuance under
the Plan.
The maximum number of shares of Common Stock available for grant as
qualified stock options (ISOs) shall be 2,636,980 per year.
The maximum number of shares or share equivalents, as defined in Section
4.3, which may be subject to awards granted under the Plan to any Participant in
any calendar year shall be 500,000. No more than twenty percent (20%) of the
shares of Common Stock available for awards in any year shall be issued as
Restricted Stock.
4.3 The types of awards under the Plan shall be as follows:
A. Stock Options. One or more stock options can be granted to any
Participant. Each stock option so granted shall be subject to the terms
of the grant and to the following conditions:
40
(1) The exercise price per share shall be specified by the grant, but
in no event shall the exercise price be less than the fair market value
of the underlying shares of Common Stock on the date of the grant.
(2) Except as provided in Section 5, a stock option granted under the
Plan shall become exercisable as specified in the grant.
(3) Except as provided in Section 5.1, each stock option shall expire
in accordance with the terms of the grant; provided, however, that (a)
the expiration period for any option shall not exceed ten years, (b) in
the event of a Participant's termination of employment, a stock option
may become exercisable, or cease to be exercisable, in accordance with
the provisions of Section 5, and (c) the Compensation Committee may
alter the expiration period for any options not yet vested at its
discretion.
(4) Stock options granted hereunder may be designated as ISO or
non-qualified, as the Compensation Committee Board so determines and
designates in the grant. If an option is designated as an ISO, the
terms of the grant shall comply with the statutory requirements for an
ISO in the Internal Revenue Code.
(5) The exercise price shall be paid in U.S. currency in cash, by
check, bank draft, or Common Stock, Restricted Stock or Stock Units
previously acquired and held by the Participant for at least six months
prior to the date of exercise, any combination thereof, or any other
acceptable payment method as established by the Compensation Committee.
Stock, units or other property used for this purpose shall be valued at
its fair market value on the date the stock option is exercised.
(6) If a Participant exercises a stock option by actually or
constructively presenting to the Company Common Stock, Restricted Stock
or Units previously acquired by the Participant, the Company shall
deliver to the Participant, in addition to the issuance of shares with
respect to which the option is so exercised, a number of "restored
options" equal to the number of shares of Common Stock, Restricted
Stock or Units actually or constructively presented to exercise the
option. The restored option shall vest six months after it is granted
and the exercise price will be the fair market value of the Common
Stock on the day on which the restored option is granted. All other
features of the restored option, including its expiration date, shall
be the same as the underlying option which exercise gave rise to the
restored option.
B. Restricted Stock. A Participant's ownership of a Restricted Stock award
shall be evidenced by a book entry account in the Participant's name.
The Participant shall thereupon become a stockholder of the Company
with respect to such Restricted Stock, and shall be entitled to vote
and to receive the dividends on such stock; provided, however, that
such Restricted Stock shall remain subject to the terms and provisions
of the Plan, which shall include the following:
(1) Restricted Stock awards may not be sold, exchanged, transferred,
pledged, hypothecated or otherwise disposed of except in accordance
with the terms of the Plan and of Award Agreements entered into with
the
41
Participants, and each transfer agent for the Common Stock shall be
instructed to such effect.
(2) Upon the date specified in the grant as the "Award Maturity Date",
or upon such earlier date as the Compensation Committee shall
determine, the restrictions imposed by the Plan and the Agreement upon
the Restricted Stock shall lapse, and the Participant shall be fully
vested in the award. Notwithstanding the foregoing, the Award Maturity
Date may be accelerated, or the award may be forfeited, in accordance
with the provisions of Section 5.
(3) Restricted Stock awards may be subject to performance criteria
which criteria determine whether or how many of those awards will vest.
The vesting of such awards is based on Texaco's total return to
stockholders.
C. Restricted Units. A specified number of Restricted Units, each of which
shall be deemed to be the equivalent of one share of Common Stock, may
be credited to the Participant's account. In addition, dollar amounts,
corresponding to dividends paid on each share of Common Stock shall be
credited to each Restricted Unit in a Participant's account. The
Restricted Units credited to a Participant's account will vest on the
date specified in Agreements entered into with the Participant. The
amount payable to the Participant on the vesting date will be either of
the following, at the Participant's election: (1) a number of shares of
Common Stock equal to the number of Restricted Units then in the
Participant's account or (2) the fair market value of shares of Common
Stock equivalent to the Restricted Units then in the Participant's
account. Unless the Compensation Committee shall determine otherwise,
at its sole discretion, fair market value shall mean the average of the
closing price of the Common Stock on the twenty trading days
immediately preceding the date the Units become vested.
D. Directors' Fees. The Board may pay all, or such portion as it shall
from time to time determine, of the retainer and fees payable to the
non-employee members of the Board (including their annual retainer,
Annual Fee and any fees payable for serving on a committee of the
Board) in shares of Common Stock, either restricted or unrestricted, or
restricted units, at their full market value. The number and type of
shares to be distributed to directors, in lieu of the cash compensation
to which they would otherwise be entitled, shall be determined annually
by the Board.
(2) Any Restricted Shares credited to a director hereunder, may, at
such director's election, be converted to Restricted Units no less than
six months after the date of such award. In addition, any deferred
cash may, at such director's election, be converted to Restricted Stock
or Units. All of such elections shall be made by the director at least
six months in advance of such payment, or such shorter or longer period
as may be permitted or required under any applicable law or regulation
in order to qualify for any exemption, deferral or other benefit under
applicable law or regulation.
42
Section 5 -- Termination of Employment and Forfeiture
5.1 Death, Disability or Normal Retirement. In the event a Participant
dies, becomes totally and permanently disabled (as defined by The Long Term
Disability Plan of Texaco Inc.), or retires on or after normal retirement date
(as defined in The Retirement Plan of Texaco Inc. or in resolutions applicable
to the retirement of directors), the terms of the grant of options, Restricted
Stock and Units shall remain unchanged, subject to the provisions of Section
5.4. It shall be within the Compensation Committee's discretion to either vest
any unvested portion of an award of options, or to accelerate the Award Maturity
Date with respect to awards of Restricted Stock and Units, subject in either
case to such conditions as the Compensation Committee may impose. In addition,
upon the death or permanent disability of a Participant, the grant may provide
that the Participant's representative shall have, at a minimum, an additional
six months to exercise an option, regardless of the expiration date.
5.2 Early Retirement. In the event a Participant retires on or after the
Participant's early retirement date but before the Participant`s normal
retirement date (as both dates are defined in The Retirement Plan of Texaco
Inc.), the terms of the grant of options, Restricted Stock and Units shall
remain unchanged subject to the provision of Section 5.4. However, it shall be
within the Compensation Committee's discretion to either (i) vest any unvested
portion of an award of options, or to accelerate the Award Maturity Date with
respect to awards of Restricted Stock and Units, subject in either case to such
conditions as the Compensation Committee may impose, or (ii) forfeit any and all
options and Restricted Stock and Units of the Participant. The Compensation
Committee may delegate to the Chief Executive Officer the authority to vest,
accelerate, mature or forfeit those awards granted to non-officer employees.
5.3 In the event a Participant's employment is terminated under
circumstances not covered under Sections 5.1 and 5.2, the Participant shall
forfeit all benefits and rights with respect to any and all options and
Restricted Stock and Units of the Participant as of the date of termination of
employment. However, the Compensation Committee, in its discretion, may elect to
vest any unvested portion of an award of options, or to accelerate the Award
Maturity Date with respect to awards of Restricted Stock and Units, subject in
either case to such conditions as the Compensation Committee may impose.
5.4 In order to protect the Company's assets, proprietary information,
corporate integrity, its compliance with the law, as well as the best interests
of the Company, the Compensation Committee may forfeit any and all options and
Restricted Stock and Units of any active, terminated or retired Participant.
Such conditions of forfeiture shall be stated in each Participant's Award
Agreement. Any forfeiture provisions contained in such Award Agreements in
accordance with this Section 5.4 shall be null and void as of the day
immediately prior to a "Change of Control" as defined in the Company's
Separation Pay Plan.
Section 6 -- Award Agreements
6.1 All awards to Participants under the Plan shall be made pursuant to
Award Agreements entered into between the Participant and the Company. The
agreements shall be in such form as the Compensation Committee approves, from
time to time, for the purpose of carrying out the provisions of the Plan.
43
Section 7 -- Non-transferability
7.1 Awards under the Plan may not be transferred by the Participant during
the Participant's lifetime and may not be assigned, pledged or otherwise
transferred except by will or by the laws of descent and distribution.
Notwithstanding the prior sentence, the Compensation Committee may permit
certain awards made under the Plan to be transferred by gift to one or more
members of a Participant's immediate family. As used herein, "immediate family"
shall mean a spouse, parent, child, grandchild or trust established for such
individual.
7.2 A Participant shall have no vested rights under the Plan nor any
interest in any award except to the extent otherwise provided pursuant to the
terms of the Plan.
7.3 After a Participant dies, all rights with respect to an award granted
under the Plan are exercisable by the Participant's designated beneficiary or,
if there is no designated beneficiary, by the Participant's personal
representative.
Section 8 -- Antidilution
8.1 In the event that the Compensation Committee determines that any
dividend, distribution (whether in the form of cash, shares of Common Stock,
other securities or other property), merger, consolidation, reorganization,
recapitalization, reclassification, spin-off, combination of shares, stock
split-up, or stock dividend, combination, repurchase, issuance of warrants or
other rights or other event affects the Common Stock such that an adjustment is
determined by the Compensation Committee to be appropriate in order to prevent
dilution or enlargement of the benefits intended to be made available under the
Plan, the Compensation Committee shall appropriately adjust (a) the aggregate
number and kind of shares subject to award hereunder and (b) rights under
outstanding awards granted hereunder, including the number of subject shares and
the option price, if any.
Section 9 -- Withholding Taxes
9.1 The Company shall deduct from any payment made under the Plan any taxes
it is required to deduct by law. Participants shall be required to satisfy any
liability for withholding taxes as a prerequisite to the Company's obligation to
deliver shares or other securities of the Company upon exercise of a stock
option, upon vesting of Restricted Stock or Units, and upon settlement or
payment of any award under the Plan.
9.2 Any award under the Plan may provide that the recipient of such award
may elect to pay a portion or all of the amount of the required withholding
taxes in shares of Common Stock. In that event, the Participant shall authorize
the Company to withhold, or shall agree to deliver to the Company, shares owned
by such Participant or a portion of the shares that otherwise would be
distributed to the Participant having a fair market value on the date of the
award equal to the amount of withholding tax liability.
Section 10 -- Governing Law
10.1 The Plan and all action taken under it shall be governed, as to
construction and administration, by the laws of the State of New York.
Section 11 -- Effective Date
11.1 The Plan will become effective upon approval by the stockholders at
the 1997 Annual Meeting. Upon such approval, no additional awards will be made
under the 1993 Stock Incentive Plan.
44
The 1997 Incentive Bonus Plan
Section 1 -- Purpose of the Plan.
The Incentive Bonus Plan (the "Bonus Plan") is intended to advance the
interests of Texaco and its stockholders by basing elements of the compensation
of elected officers and selected key employees of Texaco Inc. and its
subsidiaries and affiliates (the "Company") on the performance of the individual
and the Company. Linking a substantial portion of compensation to performance
will encourage those employees to focus their efforts on those goals and
activities which the Company identifies as contributing materially to the
Company's success. Further, the Bonus Plan will enable the Company to remain
competitive in its compensation practices, allowing it to continue to attract
and retain in its employ highly qualified persons for the conduct of its
business.
Section 2 -- Participants.
The participants in the Bonus Plan ("Participants") shall be those current
officers and key employees of the Company and its subsidiaries and affiliates
and those former officers and key employees of the Company and its subsidiaries
and affiliates who served during the performance year being recognized, selected
by the Compensation Committee of the Board of Directors ("Committee").
Section 3 -- Administration.
The Bonus Plan shall be administered by the Committee. The Committee shall
make all determinations and regulations necessary or desirable for the
administration of the Bonus Plan; and its interpretation of any provision of the
Bonus Plan shall be final. Each member of the Committee who shall administer the
Bonus Plan shall be an "outside director" as defined under Section 162(m) of the
Internal Revenue Code. As part of the Bonus Plan administration the Committee
shall: (a) establish performance goals and guidelines consistent with the Bonus
Plan under which awards are to be made; (b) certify that such goals have been
met prior to payment of an award; and (c) perform such other and further acts
that may be desirable or necessary to interpret, construe or implement the
provisions of the Bonus Plan.
Section 4 -- Awards.
4.1 The Committee shall make all awards under the Bonus Plan, except that
it may delegate to the Chief Executive Officer of the Company the right to make
awards to eligible employees who are not elected officers of the Company.
4.2 Bonus Plan awards shall be determined on the basis of Company
"Normalized Net Income." "Normalized Net Income" with respect to any fiscal year
shall mean net income, as determined by the Company's independent auditors,
adjusted to exclude the following items: (a) extraordinary items (as described
in Accounting Principles Board Opinion No. 30); (b) gains or losses on the
disposition of discontinued operations of a segment of the business; (c) the
cumulative effect of changes in accounting principles; and (d) special items
identified by the Company representing charges or credits each in excess of $10
million after tax generally described as follows: (i) gains or losses on asset
sales or dispositions; (ii) tax benefits on asset sales; (iii) asset write
downs; (iv) litigation judgments or settlements; (v) accruals for environmental
obligations; (vi) effect of changes in tax law or rates on deferred tax
liabilities; (vii) accruals for reorganizations and restructuring programs;
(viii) property or casualty losses; and (ix) prior period income tax
adjustments.
4.3 No Participant shall receive an annual award under the Bonus Plan of
more than .002 of Company Normalized Net Income.
45
The Committee may not increase the award amount to any Participant above the
amount specified in the immediately preceding sentence, but may, in its sole
discretion, reduce the award amount of any or all Participants below such amount
to more accurately in its judgment, reflect the performance of the Company and
each Participant for
that year.
Section 5 -- Changes in the Plan.
The Committee may adopt, from time to time, such changes in the Bonus Plan and
its implementation as it believes to be advisable, except that the Committee may
not make awards in excess of the maximum amount per Participant and may not
change the business criteria or the performance targets established under the
Plan. Decisions by the Committee may be subject to Board ratification at the
Board's discretion.
Section 6 -- Miscellaneous.
The Company shall have the right to withhold from awards made under the
Bonus Plan amounts required to be withheld by the appropriate federal, state, or
local taxing authorities. The Bonus Plan and all action taken under it shall be
governed, as to construction and administration, by the laws of the State of New
York.
Section 7 -- Effective Date.
The Bonus Plan will become effective upon approval by the stockholders at
the 1997 Annual Meeting. Upon such approval, no additional awards will be made
under the 1989 Incentive Bonus Plan.
----------
46
PROXY
Please specify your choices by clearly marking the appropriate boxes. Unless
specified, this proxy will be voted FOR items 1, 2, 3, and 4, AGAINST items 5,
6, and 7 and will be voted in the discretion of the proxies on such other
matters as may properly come before the meeting or any adjournment thereof.
- - -------------------------------------------------------------------------------
DIRECTORS RECOMMEND A VOTE FOR ITEMS 1, 2, 3 AND 4
- - -------------------------------------------------------------------------------
1. Election of Directors for the terms indicated in the Proxy Statement:
Nominees are: (01) R.A. Beck
(02) W.C. Butcher
(03) E.M. Carpenter
(04) F.G. Jenifer
(05) T.A. Vanderslice
[_] FOR all listed nominees
[_] WITHHOLD vote from all listed nominees
[_] WITHHOLD vote only from ___________________________________________________
2. Approval of Arthur Andersen LLP as Auditors for the year 1997:
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to increase authorized shares and reduce par value..................
[_] FOR [_] AGAINST [_] ABSTAIN
4. Approval of Incentive Compensation Program...................................
[_] FOR [_] AGAINST [_] ABSTAIN
- - -------------------------------------------------------------------------------
DIRECTORS RECOMMEND A VOTE AGAINST ITEMS
5, 6, AND 7
- - -------------------------------------------------------------------------------
5. Stockholder proposal relating to a shareholder's advisory committee......
[_] FOR [_] AGAINST [_] ABSTAIN
6. Stockholder proposal relating to classification of directors.............
[_] FOR [_] AGAINST [_] ABSTAIN
7. Stockholder proposal relating to diversity on the board of directors.....
[_] FOR [_] AGAINST [_] ABSTAIN
===============================================================================
IF YOU WISH TO VOTE BY TELEPHONE, PLEASE
READ THE INSTRUCTIONS TO THE RIGHT
===============================================================================
CONTROL NUMBER
--------------
ACCOUNT NUMBER
--------------
PLEASE SIGN, DATE, AND RETURN CUSIP 881694 10 3
SEE REVERSE SIDE
__________________________________________ Date __________________________ 1997
(Sign exactly as name appears, indicating position or representative capacity,
where applicable)
(DETACH AND RETURN IN THE ENCLOSED ENVELOPE)
- - -------------------------------------------------------------------------------
[ LOGO ]
TELEPHONE VOTING INSTRUCTIONS
Have your proxy in hand. Decide how you wish to vote.
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you signed, dated, and returned your proxy card.
On a Touch Tone Telephone Dial Toll-Free:
1-888-266-6794
24 hours per day -- 7 days a week.
Enter the CONTROL NUMBER which is [123 456 789]
PLEASE ENTER ALL NUMBERS
You will hear these instructions:
OPTION #1
To grant a proxy to vote as the Board of Directors
recommends on all proposals; Press 1 now. When you
press 1, your selection will be confirmed and your proxy
will be voted as directed. END OF CALL.
OPTION #2
If you selected to grant a proxy to vote on
each proposal separately, you will hear these
instructions:
Proposal 1: To grant a proxy to vote FOR ALL nominees for
Director, press 1; to WITHHOLD FROM ALL nominees,
press 9; To WITHHOLD FROM AN INDIVIDUAL
nominee, press 0. Please make your selection now.
To withhold your vote from individual nominees, enter
the two digit number that appears next to the
nominee's name you DO NOT wish to vote for. Once
you have completed voting for Directors, press 0.
For All Other Proposals: You may make your selection any time:
To grant a proxy to vote FOR, press 1
To grant a proxy to vote AGAINST, press 9
To grant a proxy to ABSTAIN, press 0
Your selections will be repeated and you will have an
opportunity to confirm them.
If you vote by telephone, do not return the
proxy card.
THANK YOU FOR VOTING.
1234567890
- - -------------------------------------------------------------------------------
ADMISSION TICKET
to
Texaco's 1997 Annual Meeting of Stockholders
This is your Admission Ticket to gain access to Texaco's 1997 Annual Meeting of
Stockholders to be held in the Westchester Ballroom of the Rye Town Hilton in
Rye Brook, New York, on Tuesday, May 13, 1997, at 2:00 p.m. Please present this
Admission Ticket at one of the registration stations where you will be asked to
display some form of personal identification. Stockholders will be admitted
through the hotel's Westchester Ballroom entrance.
This ticket is not transferable
For your comments...
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
As part of the Company's continuing efforts to eliminate unnecessary
expenses, we are attempting to stop duplicate mailing of Annual Reports to the
same family residence. If more than one member of your household is receiving
copies of the Annual Report, please help us economize by completing the
following authorization:
[_] Discontinue mailing the Annual Report to my account because I have a
copy available to me from another source.
Name: _______________________________ Signature _____________________________
Account Number (shown on face of proxy card): _________________________________
(DETACH AND RETURN IN THE ENCLOSED ENVELOPE)
- - -------------------------------------------------------------------------------
Dear Texaco Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to
be held at the Rye Town Hilton, 699 Westchester Ave., Rye Brook, N.Y. on
Tuesday, May 13, 1997, at 2:00 p.m. If you plan to attend, please carry this
admission ticket with you to the meeting.
Please keep in mind that your vote is important. Whether or not you are
able to attend the meeting in person, please either use our new telephone
voting system to register your vote, or mark the attached proxy to indicate
your voting preferences and sign, detach, and return the proxy card in the
accompanying postage paid envelope.
I also welcome any comments or questions you have concerning the Company's
activities. For your convenience in providing such comments, space is
provided on the card above, which you can detach and return with your signed
proxy. In view of the large number of comments and questions we generally
receive, it will not be possible to respond to them individually. However, I
assure you that each one will be read and that subjects of general interest
will be covered at the meeting or in other information from the Company.
Peter I. Bijur
Chairman of the Board &
Chief Executive Officer
- - -------------------------------------------------------------------------------
(DETACH AND RETURN IN THE ENCLOSED ENVELOPE)
[ LOGO ] THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Texaco Inc.
2000 Westchester Ave.
White Plains, NY 10650
P.I. Bijur, J. Brademas, A.J. Krowe, T.S. Murphy, C.H. Price, II, and each
of them, as proxies, with full power of substitution, are hereby authorized to
represent and to vote, as designated on the reverse side, all Common Stock of
Texaco Inc. held of record by the undersigned on March 14, 1997, at the Annual
Meeting of Stockholders to be held at the Rye Town Hilton, 699 Westchester
Ave., Rye Brook, N.Y. on Tuesday, May 13, 1997, at 2:00 p.m.
If you plan to attend the Annual Meeting, please check the appropriate box
below. If you and a family member are attending, please provide Texaco with
the family member's name.
[_] Stockholder will attend the Annual Meeting
[_] Stockholder and a family member will attend the Annual Meeting
___________________________________________________
Family member's name (Please Print)
