Edith Citron and Martin Philip are lead plaintiffs in a shareholder's derivative action brought against Texaco. The complaint charges that the company's named directors and officers "grossly" mismanaged the company, breached their fiduciary duty, and damaged Texaco. As a result of this mismanagement, plaintiffs claim that "the image, reputation and financial condition of Texaco have been damaged, it has been exposed to substantial financial liability, it was the target of an extensive investigation by the [EEOC] regarding possible violations of the federal and state civil rights laws, as well as having been named in several litigations alleging violations of the civil rights statutes."

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

Edith Citron and Martin H. Philip, derivatively on behalf of Texaco Inc.,

Plaintiffs,

v.

THOMAS S. MURPHY, EDMUND M. CARPENTER, CHARLES H. PRICE II, JOHN BRADEMAS, ROBERT A. BECK, MICHAEL C. HAWLEY, WILLARD CARLISLE BUTCHER, WILLIAM C. STEERE, JR., ALLEN J. KROWE, ROBIN B. SMITH, WILLIAM WRIGLEY, PETER I. BIJUR, ALFRED C. DECRANE, JR., FRANKLYN G. JENIFER, THOMAS A. VANDERSLICE, ROBERT ULRICH, J. DAVID KEOUGH, RICHARD A. LUNDWALL and TEXACO INC.,

Defendants.

Civil Action No. 96 Civ.

VERIFIED DERIVATIVE COMPLAINT

Jury Trial Demanded

Plaintiffs Edith Citron and Martin H. Philip, by their attorneys, for their complaint, allege upon personal knowledge as to themselves and their own acts, and as to all other matters, upon information and belief based upon, inter alia, the investigation made by and through their attorneys, which investigation included a review of pleadings and news articles, as follows:

INTRODUCTION AND OVERVIEW OF ACTION

1. This is a shareholder's derivative action brought pursuant to the common law, by individuals who are now and at all times relevant hereto have been shareholders of Texaco Inc. ("Texaco" or the "Company"). This action is brought in the name and for the benefit of the Company against certain of its directors, officers and employees (the "Individual Defendants"). It complains of a course of conduct in which the Individual Defendants have participated directly or indirectly in violation of their respective fiduciary duties and duties of loyalty owed to Texaco, and other applicable law.

2. As set forth in greater detail below, this complaint alleges that the Company, through its officers and directors, has grossly mismanaged and failed to properly supervise its various divisions, subsidiaries, employees, agents and affiliates, and has made decisions relative to the business, operations and corporate governance of both the Company itself and its affiliates which have exposed the Company to substantial liability, significantly threatened its assets, and breached fiduciary duties owed by the Individual Defendants to the Company's shareholders. The Individual Defendants breached their fiduciary duties, and acted in gross, reckless, or intentional disregard of the injury and risk of loss they were inflicting upon the Company and/or aided and abetted such breaches of fiduciary duty. Among the many instances of wrongful conduct by the Individual Defendants is the fact that the Company's employees and representatives, directly under the supervision and control of the Individual Defendants, blatantly disregarded their obligations under Federal and State Civil Rights statutes, thus threatening the Company, which is a Federal Contractor, with severe penalties by the Federal Government and with potential liability from litigation for violations of civil rights.

3. As result of this gross mismanagement and negligence, and other action and inaction by senior officers, directors and employees of Texaco, the image, reputation and financial condition of Texaco have been damaged, it has been exposed to substantial financial liability, it was the target of an extensive investigation by the Equal Employment Opportunity Commission ("EEOC") regarding possible violations of the federal and state civil rights laws, as well as been named in several litigations alleging violations of the civil rights statutes.

PARTIES, JURISDICTION AND VENUE

4. (a) Plaintiff Edith Citron, a resident of Florida, is and was at all times relevant to the complaint a stockholder of Texaco.

(b) Plaintiff Martin H. Philip, a resident of Pennsylvania, is and was at all times relevant to the complaint a stockholder of Texaco.

Plaintiffs bring this action derivatively on behalf of Texaco.

5. (a) Defendant Texaco is a publicly traded oil and gas company organized and existing under the laws of the State of Delaware and has its principal place of business at 2000 Westchester Avenue, White Plains, New York, 10650. It operates through the parent company and its various subsidiaries including the Heddington Insurance Company and Texaco Refining and Marketing Inc.

(b) Texaco is named as a nominal defendant herein. This action is brought on its behalf and no claims are asserted against it.

6. At all times relevant to this complaint, the following defendants (the "Individual Defendants") held the following positions at Texaco:

Name...........................Position

Thomas S. Murphy...............Director (1977-present)

Edmund M. Carpenter............Director (1991-present)

Charles H. Price II............Director (1989-present)

John Brademas..................Director (1989-present)

Robert A. Beck.................Director (1984-present)

Michael C. Hawley..............Director (July 1995-present)

Willard Carlisle Butcher.......Director (1981-present)

William C. Steere, Jr. ........Director (1992-present)

Allen J. Krowe.................Vice Chairman, Director

--.............................(1993-present)

Robin B. Smith.................Director (1992-present)

William Wrigley................Director (1974-present)

Peter I. Bijur.................Chairman of the Board/CEO,

--.............................Director (on Board since

--.............................February 1996)

Alfred C. DeCrane, Jr. ........Former Chairman of the Board/CEO

--.............................(retired in 1996)

Thomas A. Vanderslice..........Director (1980-present)

Franklyn G. Jenifer............Director (1993-present)

Robert Ulrich..................Former Treasurer

J. David Keough................Former Senior

--.............................Assistant Treasurer

Richard A. Lundwall............Former Senior Coordinator

--.............................for Personnel Services

7. The Individual Defendants are all of the current directors of Texaco and were directors of Texaco at all times relevant to this action, with the exceptions of Michael C. Hawley and Peter I. Bijur, who came to the Board in 1995 and 1996, respectively, and defendants Ulrich, Keough and Lundwall, who were executives of Texaco at times relevant to this action. None of the Individual Defendants are domiciled or reside in the state of Florida or Pennsylvania. All of the Individual Defendants engaged in regular frequent business activities in New York, and have committed tortious acts in New York out of which this action arises.

8. This court has jurisdiction over this action pursuant to 28 U.S.C. Sec. 1332. Plaintiffs and the Individual Defendants are citizens of different states and the matter in controversy exceeds the sum or value of $50,000, exclusive of interest and costs.

9. Venue is proper in this judicial district pursuant to 28 U.S.C. Sec. 1391 because the principal offices of Texaco are within this district, thus Texaco resides in this district, transacts business and affairs and is found.and/or has agents in this district.

DERIVATIVE ALLEGATIONS

10. Plaintiffs bring this action derivatively in the right of and for the benefit of Texaco to redress injuries suffered and to be suffered by the Company as a direct result of the violations of law and breaches of fiduciary duty, corporate mismanagement, waste of corporate assets, and abuse of control by the Individual Defendants.

11. Plaintiffs will fairly and adequately represent the interests of Texaco in enforcing and prosecuting its rights.

12. This action is brought to remedy violations of applicable state common law.

13. Any demand on the Texaco Board to institute this action would be a futile and useless act for the following reasons:

(a) The Board participated in the wrongful acts at issue, or the wrongful acts at issue are the direct and proximate result of the reckless or grossly negligent failure of the members of the Board to adequately inform themselves as to the Company's affairs and institute adequate systems of internal controls and supervision, with regard to their equal employment opportunity policies for employees as required of all Federal contractors.

(b) All of the directors have long known of the wrongful acts at issue and have done nothing to remedy the harm to the Company.

(c) The wrongful acts at issue constitute violations of law and the fiduciary duties of the Board, and these acts are thus not subject to the business judgment rule.

(d) The directors of Texaco cannot be relied upon to reach a truly independent and objective decision as to whether to commence and prosecute this action against themselves for wrongful acts at issue, because that would require them to sue themselves and their fellow or current or former directors and allies in the top ranks of the Company. Many of the directors have developed personal, social and business ties with other directors. Many of the other companies on which the members of the Texaco Board serve as directors have business relationships with Texaco. Bringing this action would prejudice and harm those relationships, and, as a consequence, the directors have an inherent bias against bringing or vigorously prosecuting this action.

(e) To the extent that Texaco presently maintains or previously maintained officers' and directors' liability insurance coverage, that insurance would be the primary or principal source of any recovery against the defendants, and would be rendered void if the Company commenced proceedings against such defendants, as these policies uniformly contain provisions which void coverage if the Company brings suit in its own name. ,

(f) Many of the directors serve on the boards of directors of other corporations, as a consequence of which they receive substantial financial benefits and prestige, both of which would be seriously jeopardized if they brought this action against themselves.

(g) The directors receive payments, benefits, and other emoluments by virtue of their membership on the Board and their control of Texaco. They have thus benefitted from the wrongdoing herein alleged and have engaged in such conduct to preserve their positions of control and the perquisites thereof, and are incapable of exercising independent objective judgment in deciding whether to bring this action.

(h) In Texaco's 1995 Annual Report, the Company's directors misrepresented that their "commitment to diversity is an inclusive process, grounded in our core value of respect for the individual and in our long-standing policies of equal opportunity for all employees. And we are making substantial gains toward achieving a more diverse workforce with broader avenues for career development." The directors signed their names to the Annual Report and issued a report in 1995 entitled "Equal Opportunity and Texaco: A Report." This report supposedly details their "progress", in the "important area" of achieving diversity in the Company's workforce. Having issued these reports, the directors are not in a position to bring this action because to do so would be an acknowledgement of their misrepresentations.

(i) In addition, Texaco's directors recommended in 1995 that shareholders vote against a stockholder proposal relating to employment opportunity because, according to the directors, it was "redundant and wasteful of corporate resources."

FACTUAL BACKGROUND

14. On March 23, 1994, Bari-Ellen Roberts, et al., filed a civil rights class action claim against Texaco ("Roberts Action" or "Roberts Complaint") alleging that the Company engages in racially discriminatory employment policies in violation of the Civil Rights Act of 1871, 42 U.S.C. Sec. 1981 (as amended in 1981), the Civil Rights Act of 1964, as amended in 1991, 42 U.S.C. Secs. 2000e, et seq. ("Title VII"), and the New York Human Rights Law on behalf of all African-American persons employed at Texaco at any time form March 23, 1991 to the present (the "Roberts Class Period"), who have "held or who have tried to obtain a managerial, supervisory, or professional position and who have been, continue to be, or may in the future be adversely affected by Texaco's racially discriminatory policies and practices." (Roberts Complaint Para. 15). In Roberts' First Amended Complaint, plaintiffs allege that in every salary group utilized by Texaco, there is a low representation of African-American employees than in the rest of the gas and oil industry, and that as salary ranges increase, the disparity of representation of African-American employees at Texaco also increases. The complaint also alleges that the Office of Federal Contract Compliance Programs ("OFCCP") recently reprimanded Texaco for the significant disparate impact and treatment caused by its employment policies and practices at Texaco's Houston, Texas facility. The OFCCP's 1994 compliance audit resulted in Texaco's citation for violations of Executive Order 11246 as well as for violations of the OFCCP's affirmative action program at the Houston facility. (Roberts Complaint Para. 3).

15. The more generalized allegations in the Roberts Complaint center around Texaco's discriminatory employment practices. Texaco's pattern and practices of discrimination includes: (1) denying employees the opportunity for promotion and refusing to promote qualified African-American employees; (2) denying employees comparable salaries, raises and other compensation given to Caucasian employees; (3) preventing African-Americans from acquiring the experience and opportunities necessary to obtain the qualifications to be promoted; and (4) retaliating against employees who assert their civil rights through intimidation, diminishment of work responsibilities, and termination of employment. (Roberts Complaint Para. 20). Inadequate Internal Controls

16. One of the more pervasive and troubling oversights on the part of the Board is its failure to establish basic, fundamental policies concerning promotion practices throughout Texaco, in blatant disregard for the requirements imposed on the Company as a Federal contractor. Instead, what exists are ad hoc, overwhelmingly subjective criteria which are not uniformly applied to African-Americans and Caucasian employees. (Roberts Complaint Para. 21). There are inadequate written policies, procedures or guidelines at Texaco for the promotion of employees. The Company's grading system, employed under its Performance Management Program ("PMP"), changes frequently, and thus employees necessarily find themselves judged by a varying set of standards. The system is arbitrary and is used as a pretext for denying qualified minority employees promotions to which they are otherwise entitled. (Roberts Complaint Para. 23). In addition, the Company's pattern of discrimination, which is greatly encouraged and facilitated by its complete lack of internal controls with regard to employment practices, includes the following: (a) filling supervisory, managerial or professional level job openings through word-of-mouth recruitment which is subjective and unfairly restricts the promotion of qualified African-Americans; (b) generally failing to publicly post job openings for supervisory, managerial and certain professional positions; (c) failing to maintain an objective system for creating new jobs, including title, salary and responsibilities; (d) employing a system for appealing contested PMP reviews that provides no meaningful way to address an unjust review (for example, under the PMP appeal process, an employee must appeal a PMP review primarily to the same individuals who prepared the original review); (f) failing to select African-American employees for promotions on the basis of criteria which have been shown to be relevant and necessary to job performance as required by 29 C.F.R. 1607; and (f) failing to promote African-Americans to higher level managerial, supervisory or professional jobs. (Roberts Complaint Paras. 24a-f).

17. The other glaring example of the Board's complete failure to govern the Company can be seen in the racist culture it has allowed to flourish at Texaco. Recent media accounts have shown these attitudes to be all too prevalent in the Company. The Roberts Complaint alleges that for Texaco, racist, discriminatory treatment of African-Americans is virtually part of the corporate culture. The named plaintiffs in the Roberts Action had been subjected to numerous racist remarks from Caucasian Texaco employees, including remarks made by supervisors. Illustrative of Texaco's attitudes towards minorities is the comment one senior Texaco representative made when confronted with the issue of the lack of diversity on its then Board of Directors. At a meeting on February 10, 1993, Texaco's Corporate Secretary, Mr. Carl Davidson, proclaimed: are not simply seeking skirts or a black face to put on oUr board.'"

18. When the lawsuit was filed, and even after the BEOC performed its preliminary investigation and granted the plaintiffs a right-to-sue letter, the Company steadfastly denied that any problem existed: "We believe that the complaint lacks merit...If it goes to court, we will prove it." said Texaco Spokesman David Dickson. (Black Enterprise, August 1994)

19. This was not the first time the Company had been sued for its discriminatory practices;.nor was it the first time it attempted to deceive the public and its shareholders about its complicity. In 1991, Janella Sue Martin sued the Company for refusing to promote her because of her gender. A Los Angeles Superior Court jury awarded her $20 million dollars in damages. When Texaco appealed the case, they called Ms. Martin's sanity into question, saying that she was "imagining conspiracy, discrimination and retaliation around every corner." Los Angeles Times, November 5, 1996.

20. As recent new stories have shown, it turns out that Ms. Martin wasn't imagining anything. On November 4, 1996, the New York Times printed excerpts of a conversation taking place during a meeting among several Texaco senior executives in August 1994. The executives were discussing the Roberts Complaint and the documents that they would produce in response to the plaintiffs' request. During the conversations, the executives referred to African-American employees as "black jelly beans" and made disparaging comments about Kwaanza, lamenting: "I'm still having trouble with Hanukkah. Now we have Kwaanza."

21. In addition to practicing their racial slurs, the executives also conspired to illegally destroy documents requested by the plaintiffs: Robert Ulrich, formerly a treasurer of the Company stated, "You know, there is no point in even keeping the restricted version anymore. All it could do is get us in trouble. That's the way I feel. I would not keep anything." Richard A. Lundwall, senior coordinator for personnel services replied, "Let me shred this thing and any other restricted version like it."

22. The "black jelly bean" comment was far from an isolated incident. According to several newspaper articles, relying on interviews and on affidavits filed in this Court, African-American employees have been made to suffer unimaginable indignities in their place of work. Black employees stated that they were referred to as "Aunt Jemima," orangutans and "porch monkeys," and were the butt of racist jokes. It seems as if the Company has never left behind its Jim Crow mentality, in which it advised its franchisees to "'Hire yourself a cheerful colored boy, the bigger and darker the better,' and then send him around town in white coveralls with the station name on the back." Wall Street Journal, November 11, 1996.

23. The Board's failure to govern the policies of Texaco has resulted in a company which blatantly disregards the law and makes no attempt to implement the plethora of "policies" that it has to address minority hiring and retention. It is clear that the Board has undergone no serious effort in the past to ensure that a non-racist, equal opportunity place of employment exists. What is even more frightening, however, is that it is managers of Mr. Ulrich's ilk that the Board charges with the responsibilities of implementing their purported equal opportunity programs. It is managers similar in position to Mr. Ulrich who decide whether the equal opportunity goals are being met with virtually no guidance, or, more importantly, control from the Board.

Potential Liability

24. Texaco's pattern of racist behavior has left the Company extremely vulnerable to liability. Damages in the Roberts Action are estimated at $71 million dollars for back pay alone. If the case goes to a jury, each plaintiff could receive $300,000 in damages, resulting in liability exceeding $500 million. It is likely that any settlement of the Roberts Action will cost Texaco at least tens of millions of dollars.

25. The Company is also threatened with criminal liability. According to the Wall Street Journal, the United States Attorney's Office is expected to file criminal charges against at least one of the individuals on the tape and is investigating a possible obstruction of justice charge against Texaco.

26. Through their negligence, the Company and the Board of Directors have completely mismanaged the Roberts Action. Instead, they left it in the hands of executives who defied this Court's orders and attempted to purge documents that would expose Texaco's discriminatory practices. Their only apparent check, as evidenced by the tape transcripts, was the fear of exposure: "I don't want to be caught in a cover-up. I don't want my own Watergate here." The laws concerning obstruction of justice were of no concern to the Company. Until recently, neither was the Roberts Action.

27. In addition, the actions of the Company and the Board of Directors have led the Rev. Jesse Jackson to call for a boycott of Texaco, which would cause substantial harm to the Company.

28. As a result of the lawsuits and the pending United States Attorney's Office investigations, Texaco has suffered irreparable harm to its image and reputation, and has been exposed to tremendous financial liability.

COUNT I FOR BREACH OF FIDUCIARY DUTY

29. Plaintiffs reallege and incorporate by reference paragraphs 1 through 28 above as if fully set forth herein.

30. The Individual Defendants owed to the Company the highest duties of loyalty, honesty and diligence in conducting its affairs in a lawful manner. The Individual Defendants knowingly, recklessly, or culpably breached their fiduciary duties by, inter alia, failing to establish internal controls sufficient to ensure that the Company's employment activities were carried on in a lawful manner and that its reputation and the financial assets were preserved.

31. The Individual Defendants, individually and in concert, engaged in the aforesaid conduct as set forth above in knowing or intentional and/or reckless disregard of their fiduciary duties which they owed to the Company, as officers and/or directors and/or employees thereof, or acted with such gross negligence or indifference to their responsibilities that they may be held personally liable for the wrongs complained of.

32. The Individual Defendants, by their conduct, have caused the Company to waste its valuable assets and otherwise unnecessarily expend its corporate funds and to have its reputation and credibility impaired, as a result of which the Company has been and continues to be substantially damaged both in its reputation and financially, and otherwise. The Company also is exposed to liability in the lawsuits as a result of defendants' conduct.

33. Texaco has been injured by reason of the Individual Defendants' breach and/or culpable disregard of their fiduciary duties as set forth above.

WHEREFORE, plaintiffs request relief as follows:

A. declaring that the directors and officers and employees named as Individual Defendants herein have breached their fiduciary duties as alleged herein;

B. requiring the Individual Defendants to pay to Texaco the amounts by which it has been damaged or will be damaged by reason of the conduct complained of herein;

C. requiring the Individual Defendants to remit to the Company all of their salaries and other compensation received for the periods when they breached their duties;

D. ordering that the Individual Defendants and those under their supervision and control refrain from any further such unlawful activities as are alleged herein and implement corrective measures including a system of internal controls and procedures sufficient to prevent the repetition of the acts complained of herein which will rectify all such wrongs as have been committed and prevent their recurrence;

E. awarding plaintiffs reasonable attorneys' fees, expert fees and other reasonable costs and expenses; and

F. granting such other and further relief as this Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiffs demand a trial by jury of all issues so triable.

Dated: New York, New York November 13, 1996

MILBERG WEISS BERSHAD HYNES & LERACH LLP

By: /s/ David J. Bershad (DB-9981) Sol Schrieber (SS-5927) Sanford P. Dumain (SD-8712) Joan T. Brown (JB-7604) One Pennsylvania Plaza New York, New York 10119 (212) 594-5300

Attorneys for Plaintiff Citron

LAW OFFICES OF CURTIS V. TRINKO, LLP

By: /s/ Curtis V. Trinko (CT-1838) 310 Madison Avenue Suite 1401 New York, New York 10017 (212) 490-9550

Attorneys for Plaintiff Philip

VERIFICATION

STATE OF NEW YORK

COUNTY OF NEW YORK

SANFORD P. DOMAIN, being duly sworn, deposes and says:

1. I am an attorney and a member of the Bar of the State of New York.

2. I am a member of the firm of Milberg Weiss Bershad Hynes & Lerach LLP, counsel for plaintiff Citron.

3. I have read the foregoing Verified Derivative Complaint and know the contents thereof. To the best of my knowledge, information and belief, the allegations set forth herein are true and correct. My information and belief is based upon documents publicly filed by the defendants, including a review of the public filings of Texaco and reports, press releases and articles pertaining to Texaco.

4. I make this Verification because plaintiffs are absent from New York County, where I maintain my office.

/s/ SANFORD P. DUMAIN

Sworn to before me this 13th day of November, 1996 /s/ Notary Public