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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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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 Rule 14a-12
VALERO ENERGY CORPORATION
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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):
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(4) Date Filed: March 28, 2001
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THE PROMPT RETURN OF PROXY CARDS WILL SAVE THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ASSURE A QUORUM.
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[VALERO ENERGY CORPORATION LOGO]
NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors has determined that the 2001 Annual Meeting of
Stockholders of Valero Energy Corporation will be held on Thursday, May 10, 2001
at 10:00 a.m., Central Time, at Valero's corporate headquarters in San Antonio,
Texas, One Valero Place, for the following purposes:
(1) To elect three Class I directors as members of the Board of
Directors to serve until the 2004 Annual Meeting, or until
their successors are elected and have qualified;
(2) To approve the 2001 Executive Stock Incentive Plan for
executive officers and employees of the Company; and
(3) To ratify the appointment of Arthur Andersen LLP as
independent public accountants to examine Valero's accounts
for the year 2001; and
(4) To transact any other business properly brought before the
meeting.
By order of the Board of Directors,
Jay D. Browning
Corporate Secretary
San Antonio, Texas
March 28, 2001
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[VALERO ENERGY CORPORATION LOGO]
PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
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GENERAL INFORMATION
This Proxy Statement is being mailed to stockholders beginning on or about March
28, 2001 in connection with the solicitation of proxies by the Board of
Directors of Valero Energy Corporation(1) to be voted at the 2001 Annual Meeting
of Stockholders of Valero on May 10, 2001. The accompanying notice describes the
time, place and purposes of the Annual Meeting. Holders of record of Valero's
Common Stock, $0.01 par value, at the close of business on March 12, 2001 are
entitled to vote on the matters presented at the Annual Meeting. On the record
date, 61,125,321 shares of Common Stock were issued and outstanding, and
entitled to one vote per share. Action may be taken at the Annual Meeting on May
10, 2001 or on any date or dates to which the meeting may be adjourned. A
majority of such shares, present in person or represented by properly executed
proxy, shall constitute a quorum. If instructions to the contrary are not given,
shares will be voted as indicated on the proxy card. A stockholder may revoke a
proxy at any time before it is voted by submitting a written revocation to
Valero, returning a subsequently dated proxy to Valero or by voting in person at
the Annual Meeting.
Brokers holding shares must vote according to specific instructions they receive
from the beneficial owners. If specific instructions are not received, brokers
may generally vote these shares in their discretion. However, the New York Stock
Exchange precludes brokers from exercising voting discretion on certain
proposals without specific instructions from the beneficial owner. This results
in a "broker non-vote" on such a proposal. A broker non-vote is treated as
"present" for purposes of determining the existence of a quorum, has the effect
of a negative vote when a majority of the shares issued and outstanding is
required for approval of a particular proposal and has no effect when a majority
of the shares present and entitled to vote or a majority of the votes cast is
required for approval. Pursuant to the rules of the New York Stock Exchange,
brokers will have discretion to vote on the three items scheduled to be
presented at the Annual Meeting.
Valero pays for the cost of soliciting proxies and the Annual Meeting. In
addition to the solicitation of proxies by mail, proxies may be solicited by
personal interview, telephone and similar means by directors, officers or
employees of Valero, none of whom will be specially compensated for such
activities. Valero also intends to request that brokers, banks and other
nominees solicit proxies from their principals and will pay such brokers, banks
and other nominees certain expenses incurred by them for such activities. Valero
has retained Georgeson Shareholder Communications, Inc., a proxy soliciting
firm, to assist in the solicitation of proxies, for an estimated fee of $10,500,
plus reimbursement of certain out-of-pocket expenses.
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(1) Valero was incorporated in Delaware in 1981 under the name Valero Refining
and Marketing Company and became a publicly held corporation on July 31,
1997. Prior to July 31, 1997, Valero was a wholly owned subsidiary of
Valero Energy Corporation, or Old Valero. Old Valero was engaged in both
the refining and marketing business and the natural gas related services
business. On July 31, 1997, Old Valero spun off Valero to Old Valero's
stockholders by distributing all of the Common Stock of Valero. Immediately
after this distribution, Old Valero, with its remaining natural gas related
services business, merged with a wholly owned subsidiary of PG&E
Corporation. The distribution and the merger are collectively referred to
as the "Restructuring." Upon completion of the Restructuring, Valero's name
was changed from Valero Refining and Marketing Company to Valero Energy
Corporation and its common stock was listed for trading on the New York
Stock Exchange under the symbol "VLO."
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PARTICIPANTS IN THE VALERO THRIFT PLAN PLEASE NOTE:
In the case of participants in the Valero Thrift Plan, the proxy card will
represent (in addition to any shares held individually of record) the number of
shares allocated to the participant's account under the Thrift Plan. For those
shares held under the plan, the proxy card will constitute an instruction to the
Trustee of the Thrift Plan as to how those shares are to be voted. Shares for
which instructions are not received may be voted by the Trustee in accordance
with the terms of the Thrift Plan.
INFORMATION REGARDING THE BOARD OF DIRECTORS
The business of Valero is managed under the direction of the Board of Directors.
The Board conducts its business through meetings of the Board and its
committees. During 2000, the Board held nine meetings and the committees held
seven meetings in the aggregate. No member of the Board attended less than 75%
of the meetings of the Board of Directors and committees of which he or she was
a member.
Valero's Restated Certificate of Incorporation requires the Board to be divided
into Class I, Class II and Class III directors, with each class serving a
staggered three-year term. The size of the Board is currently set at nine
members.
The Board has standing Audit, Compensation and Executive Committees. When deemed
necessary or advisable, the Board will form from its members a Nominating
Committee to consider and recommend candidates for election to the Board. The
standing committees of the Board and the number of meetings held by each
committee in 2000 are described below.
AUDIT COMMITTEE
The Audit Committee reviews and reports to the Board on various auditing and
accounting matters, including the quality, objectivity and performance of
Valero's internal and external accountants and auditors, the adequacy of its
financial controls and the reliability of financial information reported to the
public. The Audit Committee also monitors Valero's efforts to comply with
environmental laws and regulations. Current members of the Audit Committee are
Ruben M. Escobedo (Chairman), Dr. Donald M. Carlton and Dr. Susan Kaufman
Purcell. The Audit Committee met three times in 2000. For further information,
see the "Report of the Audit Committee" on page 27.
COMPENSATION COMMITTEE
The Compensation Committee reviews and reports to the Board on matters related
to compensation strategies, policies and programs, including certain personnel
policies and policy controls, management development, management succession and
benefit programs. The Compensation Committee also approves and administers
Valero's stock option, restricted stock, incentive bonus and other stock plans.
See "Report of the Compensation Committee of the Board of Directors on Executive
Compensation." Current members of the Compensation Committee are Robert G.
Dettmer (Chairman), Jerry D. Choate and Lowell H. Lebermann, none of whom are
current or former employees or officers of Valero. The Compensation Committee
met four times in 2000.
There are no compensation committee interlocks. For the previous three fiscal
years, except for compensation arrangements disclosed in this Proxy Statement,
the Company has not participated in any contracts, loans, fees, awards or
financial interests, direct or indirect, with any committee member, nor is the
Company aware of any means, directly or indirectly, by which a committee member
could receive a material benefit from the Company.
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EXECUTIVE COMMITTEE
The Executive Committee exercises the power and authority of the Board during
intervals between meetings of the Board. With limited exceptions specified in
Valero's By-laws and under Delaware law, actions taken by the Executive
Committee do not require Board ratification. In the absence of a Nominating
Committee, the Executive Committee may also review possible director candidates
for nomination as a director. Current members of the Executive Committee are
William E. Greehey (Chairman), Dr. Ronald K. Calgaard, Robert G. Dettmer and
William B. Richardson. The Executive Committee did not meet in 2000.
NOMINATING COMMITTEE
When deemed necessary or advisable, the Board will form from its members a
Nominating Committee. If appointed, a Nominating Committee may evaluate policy
on the size and composition of the Board and criteria and procedures for
director nomination, and may consider and recommend candidates for election to
the Board. No Nominating Committee meetings were held in 2000. Robert G. Dettmer
(Chairman) and Dr. Ronald K. Calgaard were appointed as a Nominating Committee
by the Board with regard to nominations for the 2001 Annual Meeting, and the
Committee has had one meeting in 2001. The full Board approved the
recommendations of the Nominating Committee and adopted resolutions approving
the slate of director nominees to stand for election at the 2001 Annual
Meeting. The full Board also reviewed and approved assignments for the
committees of the Board following the Annual Meeting.
COMPENSATION OF DIRECTORS
Non-employee directors receive a retainer fee of $18,000 per year, plus $1,250
for each Board and committee meeting attended. Directors who serve as
chairperson of a committee receive an additional $2,000 annually. Each director
is also reimbursed for expenses of meeting attendance. Directors who are
employees of the Company receive no compensation (other than reimbursement of
expenses) for serving as directors.
Valero maintains the Restricted Stock Plan for Non-Employee Directors, or
Director Stock Plan, and the Non-Employee Director Stock Option Plan, or
Director Option Plan, to supplement the compensation paid to non-employee
directors and increase their identification with the interests of Valero's
stockholders through ownership of Common Stock. Upon election to the Board, each
non-employee director receives a grant of Common Stock valued at $45,000 that
vests (become nonforfeitable) in equal annual installments over a three-year
period. After all of the Common Stock previously granted to a director under the
Director Stock Plan is fully vested and the director is reelected for an
additional term, another similar grant is made.
The Director Option Plan provides non-employee directors of Valero automatic
annual grants of stock options to purchase Valero's Common Stock. To the extent
necessary, the plan is administered by the Compensation Committee of the Board.
The plan provides that each new non-employee director elected to the Valero
Board automatically receives an initial grant of 5,000 options which vest in
equal annual installments over a three-year period. On the date of each
subsequent annual meeting of stockholders, each non-employee director (who is
not a new non-employee director) automatically receives a grant of 1,000
additional options which vest fully six months following the date of grant.
Stock options awarded under the Director Option Plan have an exercise price
equal to the market price of the Common Stock on the date of grant. All options
expire ten years following the date of grant. Options vest and remain
exercisable in accordance with their original terms if a director retires from
the Board.
In the event of a "Change of Control" as defined in the Director Stock Plan and
Director Option Plan, all unvested shares of Common Stock and options previously
granted under the plans immediately become vested or exercisable. The Director
Option Plan also contains anti-dilution provisions providing for an adjustment
in the number of options granted to prevent dilution of benefits or potential
benefits in the event any change in the capital structure of the Company affects
the Common Stock.
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Under the Retirement Plan for Non-Employee Directors, or Retirement Plan,
non-employee directors become entitled to a retirement benefit upon completion
of five years of service.
The annual benefit at retirement is equal to 10% of the highest annual cash
retainer paid to the director during his or her service on the Board, multiplied
by the number of full and partial years of service (not to exceed 10 years).
This benefit is then paid for a period (not to exceed 10 years) that is equal to
director's length of service on the Board or the director's remaining life,
whichever is shorter. Service on the Board of Directors of Old Valero is counted
for purposes of computing benefits under the Retirement Plan. The Retirement
Plan provides no survivor benefits and is an unfunded plan paid from the general
assets of the Company.
PROPOSAL NO. 1 ELECTION OF DIRECTORS
The Company's Board is divided into three classes for purposes of election.
Three Class I directors will be elected at the Annual Meeting to serve until the
2004 Annual Meeting of Stockholders or until replaced by their respective
successors. Ruben M. Escobedo, Lowell H. Lebermann and William B. Richardson
have been nominated for election as Class I directors. The persons named in the
enclosed proxy card intend to vote for the election of each of the three
nominees, unless you indicate on the proxy card that your vote should be
withheld from any or all of such nominees.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR ALL" NOMINEES.
Directors are elected by a plurality of the shares of Common Stock represented
at the Annual Meeting and entitled to vote. The three nominees for Class I
director receiving the greatest number of votes, whether or not these votes
represent a majority of the shares present and voting at the Annual Meeting,
will be elected as Class I directors. Votes "withheld" from a nominee will not
count against the election of the nominee. If any nominee is unavailable as a
candidate at the time of the Annual Meeting, either the number of directors
constituting the full Board will be reduced to eliminate the vacancy, or the
persons named as proxies will use their best judgment in voting for any
available nominee. The Board has no reason to believe that any current nominee
will be unable to serve.
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INFORMATION CONCERNING NOMINEES AND OTHER DIRECTORS
The following table sets forth information concerning each nominee for election
as a director and the current directors whose terms expire in 2002 and 2003. The
information provided regarding directors of Valero is based partly on data
furnished by the directors and partly on the Company's records. There is no
family relationship among any of the executive officers, directors or nominees
for director of Valero.
EXECUTIVE
OFFICER AGE AS OF PRESENT CURRENT
POSITION(S) HELD OR DIRECTOR DECEMBER 31, TERM DIRECTOR
NAME WITH VALERO SINCE(1) 2000 EXPIRES CLASS
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NOMINEES
Ruben M. Escobedo Director 1994 63 2001 I
Lowell H. Lebermann Director 1986 61 2001 I
William B. Richardson Director 2001 53 2001 N/A(2)
OTHER CURRENT DIRECTORS
Dr. Ronald K. Calgaard Director 1996 63 2002 II
William E. Greehey Director, Chairman 1979 64 2002 II
of the Board, President
and Chief Executive
Officer
Dr. Susan Kaufman Purcell Director 1994 58 2002 II
Dr. Donald M. Carlton Director 1999 63 2003 III
Jerry D. Choate Director 1999 62 2003 III
Robert G. Dettmer Director 1991 68 2003 III
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(1) Dates reported include service with Old Valero prior to the spin-off of
Valero from Old Valero. All directors serving prior to that date were
elected to the Board of Valero in 1997 in connection with the spin-off of
Valero from Old Valero.
(2) In accordance with Valero's By-Laws, Mr. Richardson, who was elected as a
director by the Board during 2001, will be assigned as a Class I director
upon his election by the stockholders at the Annual Meeting.
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NOMINEES
MR. ESCOBEDO has been with his own public accounting firm, Ruben Escobedo &
Company, CPAs, in San Antonio, Texas since its formation in 1977. Mr. Escobedo
also serves as a director of Cullen/Frost Bankers, Inc. and previously served as
a director of Valero Natural Gas Company from 1989 to 1994. Mr. Escobedo has
served as a director of Valero since 1994.
MR. LEBERMANN has been President of Centex Beverage, Inc., a wholesale beverage
distributor in Austin, Texas, since 1981. He is also a director of Station
Casinos, Inc. Mr. Lebermann has served as a director of Valero since 1986, and
previously served on Valero's Board from 1979 to 1983.
MR. RICHARDSON served as Secretary of the United States Department of Energy
from August 18, 1998 to January 20, 2001, and served as the United States
Ambassador to the United Nations in 1997-1998. Prior to his ambassadorship, Mr.
Richardson was elected eight times to the United States House of Representatives
to represent New Mexico's 3rd Congressional District. As a Congressman, Mr.
Richardson served as Chief Deputy Democratic Whip and was a member of the House
Commerce, Resources, and Intelligence Committees. Mr. Richardson also serves as
a director of Diamond Offshore Drilling, Inc. and Peregrine Systems, Inc.
OTHER CURRENT DIRECTORS
DR. CALGAARD served as President of Trinity University, San Antonio, Texas, from
1979 until his retirement in 1999. Dr. Calgaard currently serves as Chief
Operating Officer of Austin Calvert & Flavin Inc. in San Antonio, and is a
director of Luby's Cafeteria, Inc. and The Trust Company. Dr. Calgaard has
served as a director of Valero since 1996.
DR. CARLTON was elected as a director of Valero in 1999. Until his retirement on
December 31, 1998, Dr. Carlton served as President and Chief Executive Officer
of Radian International LLC, an Austin, Texas based engineering and technology
firm that is a subsidiary of URS Corporation. Dr. Carlton also serves as a
director of National Instruments Corp., American Electric Power Company, Inc.
and Salomon Smith Barney Investment Series.
MR. CHOATE was elected as a director of Valero in 1999. Mr. Choate retired from
Allstate Corporation at the end of 1998 where he had served as Chairman of the
Board and Chief Executive Officer since January 1, 1995. Mr. Choate also serves
as a director of Amgen, Inc. and Van Kampen Mutual Funds.
MR. DETTMER served as Executive Vice President and Chief Financial Officer of
PepsiCo, Inc. from 1986 until his retirement in 1996. Mr. Dettmer has served as
a director of Valero since 1991.
MR. GREEHEY served as Chief Executive Officer and a director of Old Valero from
1979, and as Chairman of the Board of Old Valero from 1983. He retired from his
position as Chief Executive Officer in June 1996, but upon request of the Board,
resumed this position in November 1996. Since the Restructuring in 1997, Mr.
Greehey has served as Chairman of the Board and Chief Executive Officer of
Valero and has served as President since the retirement of Mr. Edward C.
Benninger on December 31, 1998. Mr. Greehey is also a director of Devon Energy
Corporation.
DR. PURCELL has served as Vice President of the Americas Society in New York,
New York since 1989 and is also Vice President of the Council of the Americas.
She is a consultant for several international and national firms and serves as a
director of The Argentina Fund and Scudder Global High Income Fund. Dr. Purcell
has served as a director of Valero since 1994.
For detailed information regarding the nominees' holdings of Common Stock,
compensation and other arrangements, see "Information Regarding the Board of
Directors," "Beneficial Ownership of Valero
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Securities," "Executive Compensation," "Arrangements with Certain Officers and
Directors" and "Transactions with Management and Others."
BENEFICIAL OWNERSHIP OF VALERO SECURITIES
As of the date of this Proxy Statement, Valero had not received any report from
any person or entity reporting that such person or entity is the beneficial
owner of 5% or more of Valero's Common Stock.
Except as otherwise indicated, the following table sets forth information as of
February 1, 2001 regarding Common Stock beneficially owned (or deemed to be
owned) by each nominee for director, each current director, each executive
officer named in the Summary Compensation Table and all current directors and
executive officers of Valero as a group. The persons listed below have furnished
this information to Valero and accordingly this information cannot be
independently verified by Valero.
COMMON STOCK
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PERCENT
SHARES SHARES UNDER OF CLASS
NAME OF BENEFICIALLY EXERCISABLE (COMMON
BENEFICIAL OWNER(1) OWNED(2)(3) OPTIONS(4) STOCK)(2)
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Keith D. Booke 33,635 27,500 *
Dr. Ronald K. Calgaard 2,850 10,135 *
Dr. Donald M. Carlton 3,389 2,667 *
Jerry D. Choate 2,014 2,667 *
Robert G. Dettmer(5) 11,041 13,123 *
Ruben M. Escobedo(6) 5,524 13,123 *
John D. Gibbons 49,564 51,064 *
William E. Greehey(7) 856,319 1,997,816 4.53%
John F. Hohnholt 37,033 73,432 *
Gregory C. King 39,765 68,373 *
Lowell H. Lebermann 1,351 4,161 *
Dr. Susan Kaufman Purcell 3,845 13,123 *
All executive officers and
directors as a group, including
the persons named above
(14 persons)(8) 1,084,836 2,352,629 5.43%
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* Indicates that the percentage of beneficial ownership does not exceed 1% of
the class.
(1) The business address for all beneficial owners listed above is One Valero
Place, San Antonio, Texas 78212.
(2) As of February 1, 2001, 61,038,088 shares of Common Stock were issued and
outstanding. No executive officer, director or nominee for director of
Valero owns any class of equity securities of Valero other than Common
Stock. The calculation for Percent of Class includes shares listed under
the captions "Shares Beneficially Owned" and "Shares Under Exercisable
Options."
(3) Includes shares allocated pursuant to the Valero Thrift Plan through
January 31, 2001, as well as shares of restricted stock granted under
Valero's Executive Stock Incentive Plan and the Director Stock Plan. Except
as otherwise noted, each person named in the table, and each other
executive officer, has sole power to vote or direct the vote and to dispose
or direct the disposition of all such shares beneficially owned by him or
her. Restricted Stock granted under the Executive Stock Incentive Plan and
the Director
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Stock Plan may not be disposed of until vested. Does not include shares
that could be acquired under options, which information is set forth in
the second column.
(4) Includes shares subject to options that are exercisable within 60 days from
February 1, 2001. Such shares may not be voted unless the options are
exercised. Options that may become exercisable within such 60 day period
only in the event of a change of control of Valero are excluded. Except as
set forth in this Proxy Statement, none of the current executive officers,
directors or nominees for director of Valero hold any rights to acquire
Common Stock, except through exercise of stock options.
(5) Includes 1,500 shares held by spouse.
(6) Includes 673 shares held by spouse and 673 shares held in a trust.
(7) Includes the following shares for which issuance and delivery have been
deferred until January of the year following Mr. Greehey's retirement:
340,834 shares awarded under the Executive Stock Incentive Plan as
performance shares, 105,480 shares awarded under the plan that comprise
Mr. Greehey's bonus award for 2000, and 27,678 shares previously awarded
under the plan as restricted stock.
(8) Only those officers of Valero who have been designated by the Board as
"executive officers" have been included in this group.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, or Exchange
Act, requires Valero's executive officers, directors and greater than 10%
stockholders to file with the SEC certain reports of ownership and changes in
ownership. Based on a review of the copies of such forms received and written
representations from certain reporting persons, Valero believes that, during the
year ended December 31, 2000, its executive officers, directors and greater than
10% stockholders were in compliance with applicable requirements of Section
16(a).
The following Performance Graph and Report of the Compensation Committee of the
Board of Directors on Executive Compensation are not "soliciting material," are
not deemed filed with the SEC and are not to be incorporated by reference in any
of our filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934, as amended, respectively, whether made before or after the date of this
Proxy Statement and irrespective of any general incorporation language therein.
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PERFORMANCE GRAPH
Set forth below is a line graph which compares the Cumulative Total Return* on
an investment in Valero Common Stock, against the cumulative total return of the
S&P 500 Composite Index and an index of three peer companies selected by Valero
for the period of five fiscal years commencing December 31, 1995 and ending
December 31, 2000. The Peer Group selected by Valero consists of three companies
engaged in the domestic petroleum refining industry with business operations,
risks and markets comparable to Valero's. The Peer Group consists of Sunoco,
Inc., Tosco Corporation and Ultramar Diamond Shamrock Corporation.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
AMONG VALERO ENERGY CORPORATION,
THE S&P 500 INDEX AND A PEER GROUP
[GRAPH]
12/1995 12/1996 12/1997 12/1998 12/1999 12/2000
------- ------- ------- ------- ------- -------
Valero Common Stock .......... 100 119 197 134 128 242
Peer Group ................... 100 137 192 146 133 180
S&P 500 ...................... 100 123 164 211 255 232
This Performance Graph and the related textual information are based on
historical data and are not necessarily indicative of future performance.
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* Assumes an investment in Old Valero common stock (Valero's former parent)
and assumes that each index was $100 on December 31, 1995. "Cumulative
Total Return" is based on share price appreciation plus reinvestment of
dividends on Old Valero common stock from December 31, 1995 through the
date of the Restructuring (July 31, 1997) and on Valero Common Stock from
the date of the Restructuring through December 31, 2000 (including
reinvestment of the value of the PG&E Corporation shares received as a
result of the merger of Old Valero with a subsidiary of PG&E Corporation).
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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
Valero's executive compensation programs are administered by the Compensation
Committee of Valero's Board of Directors. The Committee is presently composed of
three independent outside directors who are not participants in the Company's
executive compensation programs. Policies adopted by the Committee are
implemented by Valero's compensation and benefits staff. Valero's executive
compensation programs are intended to provide strong incentives for high
performance, enabling Valero to recruit, retain and motivate the executive
talent necessary to be successful.
COMPENSATION POLICIES
Valero's philosophy for compensating executive officers is based on the belief
that a significant portion of executive compensation should be incentive based
and determined by both the Company's and the executive's performance.
Compensation for Valero executives includes base salary, an annual incentive
bonus opportunity and long-term, stock-based incentives. The CEO and other
executive officers also participate in benefit plans generally available to
other employees. The Committee believes that the market in which the Company
competes for executive talent is broader than the market defined by the
companies included in the Peer Group presented above in the Comparison of Five
Year Cumulative Total Return. Accordingly, to assist with determining executive
compensation levels, Valero utilizes a group of companies from a nationally
recognized compensation database compiled by Towers Perrin, an independent
compensation consultant. This group consists of 16 companies, referred to as the
Compensation Peer Group, who have significant participation in the domestic oil
refining and marketing industry and includes those Peer Group companies for
which compensation data is available. Towers Perrin's Compensation Peer Group
recommendation reflects consideration of each company's relative revenue, asset
base, employee population and capitalization, along with the scope of managerial
responsibility and reporting relationships. Base salary, bonuses and other
compensation recommendations are developed by Valero's compensation and benefits
staff using recognized, independent compensation surveys, reviewed by Towers
Perrin and submitted to the Committee for consideration.
Annual incentive bonuses, when awarded, are related both to measures of Company
financial performance and to individual performance. Long-term incentives,
consisting of performance shares, restricted stock and stock option grants, as
well as the noncash portion of annual incentive bonus awards, are intended to
balance executive management focus between short and long-term goals and provide
capital accumulation linked directly to the performance of Valero's Common
Stock. For executive officers other than the CEO, base salary levels are
targeted at approximately the 50th percentile of the Compensation Peer Group,
while annual and long-term incentive compensation, when awarded, are targeted at
the 65th percentile. For the CEO, base salary levels as well as annual and long
term incentive compensation, when awarded, are targeted at the 75th percentile.
BASE SALARIES
Base salaries for each executive position are set based on the Compensation Peer
Group data for positions having similar duties and levels of responsibility.
Base salaries are reviewed annually and may be adjusted to reflect promotions,
the assignment of additional responsibilities, individual performance or the
performance of the Company. Salaries are also periodically adjusted to remain
competitive with the Compensation Peer Group.
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ANNUAL INCENTIVE BONUS
Executive officers have the opportunity to earn an annual incentive bonus based
on the following three factors:
o the position of the executive officer, which is used to determine a
targeted percentage of annual base salary that may be awarded as
incentive bonus, with the targets ranging from a low of approximately
45% of base salary to approximately 100% of base salary (for the CEO);
o realization by the Company of quantitative financial performance goals
approved by the Committee; and
o a qualitative evaluation of the individual's performance.
For each executive, the target percentage of base salary is adjusted upward or
downward depending upon whether Valero achieves certain financial performance
goals. The Committee retains discretion to further adjust individual bonus
targets upward or downward by up to 25%, based upon such factors as the
Committee deems appropriate, and ultimately to determine whether to award a
bonus to any individual. The following quantitative measures of financial
performance were utilized in establishing incentive bonuses for 2000:
o return on equity, or ROE, compared with the average ROE for a group of
six companies in the domestic oil refining and marketing business,
referred to as the Target Group, for the 12-month period ended
September 30, 2000;
o return on investment, or ROI, for the 12 month period ended September
30, 2000, compared with the ROI of the Target Group;
o earnings per share, or EPS, of Valero's common stock in 2000 (based on
estimates available at the time of computation) compared with Valero's
EPS for 1999; and
o the daily average closing price per share of Valero's common stock
during November 2000 compared with the daily average closing price
during the corresponding period in the prior year.
For the ROE and ROI financial performance measures, the target percentage of
base salary is subject to adjustment, upward or downward, depending upon whether
Valero's ROE and ROI exceeds, or falls short of, the average ROE and ROI for the
Target Group. For the earnings per share and stock price performance measures,
the target percentage of base salary is subject to adjustment if the Company's
performance exceeds or falls short of the prior year's measures. The four
performance factors are given approximately equal weight in determining
potential adjustments to the target percentages of base salary for 2000. ROE and
ROI are measured against the Target Group rather than the Compensation Peer
Group because (i) certain entities for which compensation survey information is
not available are nonetheless included in the Target Group because their
operations are most comparable to Valero's; and (ii) certain entities with whom
Valero competes for executive talent, and who are therefore included in the
Compensation Peer Group, have operations sufficiently different in size or scope
from Valero's such that financial comparisons are less meaningful.
For 2000, the Company's performance was above the Target Group average for ROE,
above the Target Group average for ROI, and above the 1999 earnings per share
and stock price performance. Based on these financial results, the Committee
determined to adjust the bonus target amounts upward. Executives received bonus
awards at an average of approximately 200% of the original target bonus amounts.
To further emphasize Valero's goal of increasing stock ownership as a component
of both short- and long-term compensation, 50% of each bonus award was paid with
shares of Valero's common stock and the remainder in cash.
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LONG-TERM INCENTIVE AWARDS
Valero provides stock-based, longer-term compensation for executives through its
Executive Stock Incentive Plan. The plan authorizes awards of performance shares
which vest (become nonforfeitable) upon the achievement of an objective
performance goal, as well as grants of restricted stock, which vest over a
period determined by the Committee. For each eligible executive, other than the
CEO, a targeted number of performance shares is set with an aggregate
hypothetical market value at the date of grant targeted at the 65th percentile
of the Compensation Peer Group (described above). For the CEO, a targeted number
of performance shares is set with an aggregate hypothetical market value at the
date of grant targeted at the 75th percentile of the Compensation Peer Group.
The targeted award can then be adjusted based upon an evaluation of individual
performance, which (for executives other than the CEO) is based upon the
recommendation of the CEO, and other factors the Committee deems appropriate. As
with the annual incentive bonus, the Committee retains the discretion to
determine whether an award should be made. The total number of shares awarded is
a function of Valero's common stock price at the time of grant and the number of
shares required to achieve a percentage of compensation target. The Committee
anticipates that awards of performance shares will generally be made annually.
Performance shares are earned only upon the achievement of an objective
performance measure. Total shareholder return is the performance measure
utilized for determining what portion of performance share awards may vest. Each
award is subject to vesting in three annual increments, based upon Valero's
total shareholder return during rolling three-year periods that end on December
31 of each year following the date of grant. At the end of each performance
period, the Company's total shareholder return is compared to the Target Group
and ranked by quartile. Participants then earn 0%, 50%, 100% or 150% of that
portion of the initial grant amount that is vesting, depending upon whether
Valero's total shareholder return is in the last, 3rd, 2nd or 1st quartile; and
they earn 200% if Valero ranks highest in the group. Amounts not earned in a
given performance period can be carried forward for one additional performance
period and up to 100% of the carried amount can still be earned, depending upon
the quartile achieved for that subsequent period. For the performance period
ended December 31, 2000, Valero's total shareholder return ranked highest in the
group, resulting in vesting of eligible shares at the 200% level. The Committee
believes this type of incentive award strengthens the tie between the named
executive's pay and the Company's financial performance. Because performance
share awards are intended to provide an incentive for future performance,
determination of individual award grants are not based upon Valero's past
performance. Additionally, in determining an individual award, the Committee
does not consider performance shares or restricted stock previously awarded or
currently held, because the Committee does not wish to encourage executives to
sell stock in order to qualify for additional awards.
Under the Executive Stock Incentive Plan, the Committee may grant stock options
to executive officers. Procedures for determining the number of options to be
granted are in all material respects the same as for performance share awards.
Generally, option awards made by the Committee vest over a period of three years
in equal installments and expire ten years from the date of grant. The Committee
expects to continue this practice. The award and vesting of stock options are
not contingent on achievement of any specified performance targets, but the
options will provide a benefit to the executive only to the extent that there is
appreciation in the market price of Valero's common stock during the option
period.
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DETERMINATION OF THE CEO'S COMPENSATION
The CEO's compensation is recommended by the Committee and approved by the Board
of Directors.
In 1999, the Committee and the Board approved a new employment agreement between
the Company and Mr. Greehey as CEO. See "Arrangements with Certain Officers and
Directors." Under that agreement, Mr. Greehey's base salary initially remained
at $900,000 based on the Committee's evaluation of the most recently available
Compensation Peer Group data. In January 2000, Mr. Greehey's base salary was
increased to $1.3 million and he received an award of 72,500 performance shares
in accordance with the base salary and long-term incentive award targets
described above, respectively. In May 2000, Mr. Greehey was awarded options to
purchase 150,000 shares of Common Stock under the Executive Stock Incentive Plan
in accordance with the guidelines discussed above. In determining the CEO's
annual incentive bonus for 2000, the Committee considered the four financial
performance measures described above and made substantially the same adjustments
as discussed above. Based upon these factors, and considering Mr. Greehey's
individual performance and contributions to the Company's growth and record
profitability for 2000, in particular, his stewarding the successful acquisition
of the Benicia refinery and related assets, the Committee recommended, and on
January 18, 2001 the Board of Directors approved, a bonus award to Mr. Greehey
equal to $3,600,000, which is approximately 38% higher than the average bonus
targets for executives, with 100% of the award payable in shares of Valero's
common stock. The Committee and the Board further determined that Mr. Greehey's
bonus award would be delivered on January 1 of the year following Mr. Greehey's
retirement. As a result, the Company's tax burden under Section 162(m) of the
Internal Revenue Code (discussed below) was reduced by approximately $1.3
million in 2000. In order to alleviate the cash flow impact to Mr. Greehey
resulting from the delivery of his bonus after his retirement, the Committee and
the Board determined to make a loan to Mr. Greehey of $400,000. The loan is
evidenced by a promissory note executed by Mr. Greehey and made payable to
Valero. The note has a five-year term and bears interest at a rate of 5.85% per
annum. Interest and principal on the note are payable at maturity. If Mr.
Greehey's employment with Valero ceases prior to the stated maturity of the
note, the note must be repaid in full by the end of the third month following
such cessation of employment.
TAX POLICY
Under Section 162(m) of the Internal Revenue Code, publicly held corporations
may not take a tax deduction for compensation in excess of $1 million paid to
the CEO or the other four most highly compensated executive officers unless that
compensation meets the Internal Revenue Code's definition of "performance based"
compensation. Section 162(m) allows a deduction for compensation to the
specified executives that exceeds $1 million only if it is paid solely upon
attainment of one or more performance goals established by a compensation
committee comprised solely of two or more outside directors, and the material
terms under which the compensation is to be paid are disclosed to and approved
by the stockholders before payment of the compensation. Valero believes that
options granted under its stock option plans (including stock option awards
under the Executive Stock Incentive Plan) qualify as performance-based
compensation. However, the Executive Stock Incentive Plan does not require
satisfaction of quantifiable performance goals for awards of restricted stock,
and the performance goals adopted for the performance shares described above
have not been specifically approved by the stockholders. Accordingly, restricted
stock and performance share grants made under the Executive Stock Incentive Plan
are likely ineligible for the performance-based compensation exception of
Section 162(m), notwithstanding the fact that no performance shares are issued
unless the performance criteria established by the Committee are met. The
Committee considers deductibility under Section 162(m) with respect to
compensation arrangements for executive officers. As noted above, the Committee
and the Board determined that Mr. Greehey's bonus award would be delivered on
January 1 of the year following Mr. Greehey's retirement, and as a result, the
Company's tax burden under Section 162(m) was reduced by approximately $1.3
million in 2000. Additionally, as noted below under Proposal No. 2, the Company
is seeking stockholder approval of the 2001 Executive Stock Incentive Plan so
that awards of performance shares, as well as stock options and stock
appreciation rights, will be eligible to meet the "performance based"
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compensation criteria under Section 162(m). The Committee and the Board believe
that it is in the best interest of the Company for the Committee to retain its
flexibility and discretion to make compensation awards to foster achievement of
performance goals established by the Committee (which may include performance
goals defined in the Internal Revenue Code) and other corporate goals the
Committee deems important to Valero's success, such as encouraging employee
retention, rewarding achievement of nonquantifiable goals and achieving progress
with specific projects.
MEMBERS OF THE COMPENSATION COMMITTEE:
Robert G. Dettmer, Chairman
Jerry D. Choate
Lowell H. Lebermann
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EXECUTIVE COMPENSATION
The following table provides a summary of compensation paid for the last three
years to Valero's CEO, and to its four other most highly compensated executive
officers. The table shows amounts earned by such persons for services rendered
to the Company in all capacities in which they served, including compensation
paid or accrued by Old Valero or by subsidiaries of Old Valero (including Valero
and subsidiaries of Valero) prior to the effective date of the Restructuring
(see page 1 of this Proxy Statement for a discussion of the Restructuring).
Benefits under health care, disability, term life insurance, vacation and other
plans available to employees generally are not included in the table.
SUMMARY COMPENSATION TABLE (1998-2000)
LONG-TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
---------------------------------- STOCK UNDERLYING LTIP ALL OTHER
NAME AND BONUS AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION(S) YEAR SALARY($) ($)(1) ($)(2) (#) ($)(3) ($)(4)
----------- ---- --------- --------- --------- ---------- --------- ------------
William E. Greehey 2000 1,266,674 3,600,000 0 150,000 7,494,375 98,212
Chairman of the Board, 1999 900,000 600,000 0 860,000 1,032,429 77,635
President and Chief 1998 900,000 234,000 117,000 400,000 683,394 78,956
Executive Officer
Gregory C. King 2000 345,833 375,000 0 30,000 420,898 22,151
Executive Vice President 1999 266,169 90,000 143,750 32,500 158,533 20,012
and Chief Operating Officer 1998 226,002 38,000 19,019 27,500 51,975 16,134
John D. Gibbons 2000 300,833 350,000 0 30,000 398,171 18,535
Executive Vice President 1999 255,000 80,000 40,313 12,500 130,875 20,056
and Chief Financial Officer 1998 240,000 40,000 125,750 27,500 28,875 18,935
Keith D. Booke 2000 286,917 325,000 0 30,000 375,375 17,847
Executive Vice President and 1999 233,755 76,000 81,688 27,500 123,633 18,690
Chief Administrative Officer
John F. Hohnholt 2000 272,504 300,000 0 18,000 366,298 16,884
Senior Vice President 1999 245,004 70,000 40,313 12,500 130,875 19,419
1998 212,502 40,000 65,000 27,500 28,875 14,243
(1) For 1998, executives received a cash bonus and a bonus payable in restricted
stock equal to 50% of the cash award. For 1999, executive bonuses were paid
50% cash and 50% in Common Stock. For 2000, executive bonuses (other than
Mr. Greehey) were paid 50% cash and 50% in Common Stock. Mr. Greehey's bonus
award for 2000 is payable 100% in Common Stock to be delivered on January 1
of the year following Mr. Greehey's retirement. For further information, see
"Report of the Compensation Committee of the Board of Directors on Executive
Compensation" above.
(2) Dividends are paid on the restricted stock at the same rate as on Valero's
unrestricted Common Stock. Amounts for each of Messrs. King, Gibbons, Booke
and Hohnholt include 2,000 shares of restricted stock which vest two years
following the date of grant. All other shares of restricted stock reported
vest 1/3 annually over a three-year period. Amounts reported may include
awards the executive has elected to defer. The aggregate number of unvested
shares of restricted stock held at December 31, 2000 and the market value of
such shares on that date (calculated according to SEC regulation without
regard to restrictions on such shares) were: Mr. Greehey, 6,078 shares,
$226,026; Mr. King, 6,321 shares, $235,062; Mr. Gibbons, 4,039 shares,
$150,200; Mr. Booke, 4,321 shares, $160,687; and Mr. Hohnholt, 3,039 shares,
$113,013.
(3) LTIP payouts are the number of performance share awards vested for 2000
performance multiplied by the market price per share of Valero Common Stock
on the vesting date. Amounts reported may include awards the executive has
elected to defer. For further information, see the notes following the table
entitled "Long Term Incentive Plans-Awards in Last Fiscal Year."
(4) Amounts include Company contributions pursuant to the Thrift Plan and
Valero's Excess Thrift Plan, unused portions of amounts provided by the
Company under the Company's Flexible Benefits Plan and that portion of
interest accrued under the Executive Deferred Compensation Plan which is
deemed to be at "above-market" rates under applicable SEC rules. Messrs.
Greehey, King, Gibbons, Booke and Hohnholt, were allocated $79,700, $21,450,
$18,525, $17,847 and $16,775, respectively, as a result of Company
contributions to the Thrift Plan and Valero's Excess Thrift Plan for 2000,
and received $6,336, $2,586, $4,122, $4,224 and $3,522, respectively, as
reimbursement of certain membership dues. Mr. Greehey also received $13,112
as a result of "above-market" allocations to the Executive Deferred
Compensation Plan for 2000. Amounts for Mr. Greehey also include executive
insurance policy premiums with respect to cash value life insurance (not
split-dollar life insurance) in the amount of $12,212 for 1998, 1999 and
2000.
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STOCK OPTION GRANTS AND RELATED INFORMATION
The following table provides further information regarding the grants of stock
options to the named executive officers reflected in the Summary Compensation
Table.
OPTION GRANTS IN THE LAST FISCAL YEAR(1)
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS MARKET
UNDERLYING GRANTED PRICE AT GRANT DATE
OPTIONS TO EMPLOYEES EXERCISE PRICE GRANT DATE EXPIRATION PRESENT VALUE
NAME GRANTED(#) IN FISCAL YEAR ($/SH)(1) ($/SH) DATE ($)(2)
---- ---------- -------------- -------------- ---------- ---------- -------------
William E. Greehey 150,000 8.1% 28.0000 28.0000 05/04/10 $1,496,100
Gregory C. King 30,000 1.6% 28.0000 28.0000 05/04/10 $ 299,220
John D. Gibbons 30,000 1.6% 28.0000 28.0000 05/04/10 $ 299,220
Keith D. Booke 30,000 1.6% 28.0000 28.0000 05/04/10 $ 299,220
John F. Hohnholt 18,000 1.0% 28.0000 28.0000 05/04/10 $ 179,532
(1) All options reported vest in equal increments over a three-year period from
the date of grant, unless otherwise noted. In the event of a change of
control of Valero, such options may become immediately exercisable pursuant
to provisions of the plan under which such options were granted or of an
executive severance agreement. Under the terms of the Company's option
plans, the exercise price and tax withholding obligations related to
exercise may be paid by delivery of already owned shares or by offset of
the underlying option shares, subject to certain conditions.
(2) A variation of the Black-Scholes option pricing model was used to determine
grant date present value. This model is designed to value publicly traded
options. Options issued under the Company's option plans are not freely
traded, and the exercise of such options is subject to substantial
restrictions. Moreover, the Black-Scholes model does not give effect to
either risk of forfeiture or lack of transferability. The estimated values
under the Black-Scholes model are based on assumptions as to variables such
as interest rates, stock price volatility and future dividend yield. The
estimated grant date present values presented in this table were calculated
using an expected average option term of 3.32 years, risk-free rate of
return of 6.74%, average volatility rate from August 1, 1997 (the date
Valero common stock began trading) through the grant date of 42.79%, and
dividend yield of 1.14%, which is the annualized quarterly dividend rate in
effect at the date of grant expressed as a percentage of the market value
of the Common Stock at the date of grant. The actual value of stock options
could be zero; realization of any positive value depends upon the actual
future performance of the Common Stock, the continued employment of the
option holder throughout the vesting period and the timing of the exercise
of the option. Accordingly, the values set forth in this table may not be
achieved.
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LONG TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR(1)
PERFORMANCE ESTIMATED FUTURE PAYOUTS
NUMBER OF OR OTHER PERIOD UNDER NON-STOCK PRICE-BASED PLANS
NUMBER OF OR OTHER PERIOD --------------------------------------
SHARES, UNITS UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME OR OTHER RIGHTS OR PAYOUT (# SHARES) (# SHARES) (# SHARES
- ---- --------------- ---------------- ---------- ---------- ---------
William E. Greehey 24,167 12/31/00 0 24,167 48,334
24,167 12/31/01 0 24,167 48,334
24,166 12/31/02 0 24,166 48,332
Gregory C. King 3,334 12/31/00 0 3,334 6,668
3,333 12/31/01 0 3,333 6,666
3,333 12/31/02 0 3,333 6,666
John D. Gibbons 2,834 12/31/00 0 2,834 5,668
2,833 12/31/01 0 2,833 5,666
2,833 12/31/02 0 2,833 5,666
Keith D. Booke 2,667 12/31/00 0 2,667 5,334
2,667 12/31/01 0 2,667 5,334
2,666 12/31/02 0 2,666 5,332
John F. Hohnholt 2,367 12/31/00 0 2,367 4,734
2,367 12/31/01 0 2,367 4,734
2,366 12/31/02 0 2,366 4,732
(1) Long-term incentive awards are grants of Performance Shares made under the
Executive Stock Incentive Plan. Total shareholder return, or TSR, during a
specified "performance period" was established as the performance measure
for determining what portion of an award may vest. TSR is measured by
dividing the sum of (a) the net change in the price of a share of Valero's
Common Stock between the beginning of the performance period and the end of
the performance period, and (b) the total dividends paid on the Common
Stock during the performance period, by (c) the price of a share of
Valero's Common Stock at the beginning of the performance period. Each
Performance Share award is subject to vesting in three equal increments,
based upon the Company's TSR during rolling three-year periods that end on
December 31, 2000, 2001 and 2002, respectively. At the end of each
performance period, the Company's TSR is compared to the TSR for a target
group of comparable companies. Valero and the companies in the target group
are then ranked by quartile. Participants then earn 0%, 50%, 100% or 150%
of that portion of the initial grant amount that is vesting for such
period, depending upon whether the Company's TSR is in the last, 3rd, 2nd
or 1st quartile of the target group; 200% will be earned if the Company
ranks highest in the group. Amounts not earned in a given performance
period can be carried forward for one additional performance period and up
to 100% of the carried amount can still be earned, depending upon the
quartile achieved for such subsequent period.
The following table provides information regarding securities underlying options
exercisable at December 31, 2000, and options exercised during 2000, for the
executive officers named in the Summary Compensation Table:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
VALUE OF UNEXERCISED
SHARES NUMBER OF SECURITIES IN-THE-MONEY
ACQUIRED VALUE UNDERLYING UNEXERCISED OPTIONS AT
ON EXERCISE REALIZED OPTIONS AT FY-END(#) FY-END ($)(1)
-------------------------- --------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ---------- -------------
William E. Greehey -- -- 1,997,816 713,333 34,389,969 9,965,099
Gregory C. King 3,440 57,310 64,207 60,832 931,276 936,965
10,455 192,273
John D. Gibbons 3,440 57,310 46,898 47,499 656,650 497,596
Keith D. Booke 1,121 17,365 23,334 57,499 297,296 662,596
14,396 204,495
3,440 57,310
John F. Hohnholt 3,440 57,310 69,266 35,499 1,199,762 387,346
(1) Represents the dollar value obtained by multiplying the number of
unexercised options by the difference between the stated exercise price per
share of the options and the closing market price per share of Valero's
Common Stock on December 31, 2000.
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RETIREMENT BENEFITS
The following table shows the estimated annual gross benefits payable under
Valero's Pension Plan, Excess Pension Plan and Supplemental Executive Retirement
Plan, or SERP, upon retirement at age 65, based upon the assumed compensation
levels and years of service indicated and assuming an election to have payments
continue for the life of the participant only.
ESTIMATED ANNUAL PENSION BENEFITS AT AGE 65
YEARS OF SERVICE
COVERED --------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------ ---------- ---------- ---------- ---------- ----------
$ 200,000 $ 54,000 $ 72,000 $ 90,000 $ 109,000 $ 127,000
250,000 69,000 92,000 115,000 138,000 161,000
300,000 84,000 111,000 139,000 167,000 195,000
400,000 113,000 150,000 188,000 226,000 263,000
500,000 142,000 189,000 237,000 284,000 331,000
600,000 171,000 228,000 285,000 343,000 400,000
700,000 201,000 267,000 334,000 401,000 468,000
800,000 230,000 306,000 383,000 460,000 536,000
900,000 259,000 345,000 432,000 518,000 604,000
1,000,000 288,000 384,000 480,000 577,000 673,000
1,100,000 318,000 423,000 529,000 635,000 741,000
1,200,000 347,000 462,000 578,000 694,000 809,000
1,300,000 376,000 501,000 627,000 752,000 877,000
1,400,000 405,000 540,000 675,000 811,000 946,000
Valero maintains a noncontributory defined benefit Pension Plan in which
virtually all employees are eligible to participate and under which
contributions for individual participants are not determinable. Valero also
maintains a noncontributory, non-qualified Excess Pension Plan and a
non-qualified SERP, which provide supplemental pension benefits to certain
highly compensated employees. The Pension Plan (supplemented, as necessary, by
the Excess Pension Plan) provides a monthly pension at normal retirement equal
to 1.6% of the participant's average monthly compensation (based upon the
participant's base earnings during the 60 consecutive months of the
participant's credited service, including service with Old Valero, affording the
highest such average) times the participant's years of credited service, plus
.35% times the product of the participant's years of credited service (maximum
35 years) multiplied by the excess of the participant's average monthly
compensation over the lesser of 1.25 times the monthly average (without
indexing) of the social security wage bases for the 35-year period ending with
the year the participant attains social security retirement age, or the monthly
average of the social security wage base in effect for the year that the
participant retires.
Compensation for purposes of the Pension Plan and Excess Pension Plan includes
only salary as reported in the Summary Compensation Table and excludes bonuses.
For purposes of the SERP, the participant's most highly compensated consecutive
36 months of service during the participant's last 10 years of employment
(rather than 60 months), including employment with Old Valero and its
subsidiaries, are considered, and bonuses are included. Accordingly, the amounts
reported in the Summary Compensation Table under the headings "Salary" and
"Bonus" constitute covered compensation for purposes of the SERP. Pension
benefits are not subject to any deduction for social security or other offset
amounts.
Credited years of service for the period ended December 31, 2000 for the
executive officers named in the Summary Compensation Table are as follows: Mr.
Greehey - 37 years; Mr. King - 7 years; Mr. Gibbons - 20 years; Mr. Booke - 18
years; and Mr. Hohnholt - 19 years.
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ARRANGEMENTS WITH CERTAIN OFFICERS AND DIRECTORS
Old Valero entered into a severance agreement with Mr. Greehey, which provides
certain payments and other benefits in the event of his termination of
employment under certain circumstances. Mr. Greehey's severance agreement
provides that if he leaves the Company for any reason (other than death,
disability or normal retirement) within two years after a "change of control,"
he will receive a lump-sum cash payment equal to three times his highest
compensation during any consecutive 12-month period in the prior three years. He
will also be entitled to accelerated vesting of all previously granted stock
options and restricted stock. The agreement also provides for special retirement
benefits if he would have qualified for benefits under the Pension Plan had he
remained with the Company for the three-year period following such termination,
continuance of life and health insurance coverages, relocation assistance and
other fringe benefits for such three-year period.
Valero has entered into management stability agreements with various key
executives, including Messrs. King, Gibbons, Booke and Hohnholt. These
agreements are intended to assure the continued availability of these executives
in the event of certain transactions culminating in a "change of control" of
Valero. Under the management stability agreements, in the event Mr. King, Mr.
Gibbons, Mr. Booke or Mr. Hohnholt is terminated within two years after a change
of control or divestiture transaction has occurred, and termination is not
voluntary or the result of death, permanent disability, retirement or certain
other defined circumstances, the executive would be entitled to receive (i) a
lump sum cash payment equal to two times the highest annual compensation paid to
him during the prior three-year period, and (ii) the continuation of life,
disability and health insurance coverages for two years. Each executive would
also be entitled to accelerated vesting of all previously granted stock options
and restricted stock.
Valero has entered into an employment agreement with Mr. Greehey. The agreement
became effective March 25, 1999 and the initial period of the agreement expires
on July 31, 2001, which may be extended on a month-to-month basis thereafter.
Mr. Greehey has in accordance with the agreement delivered written notice to
Valero of his intention to extend the employment agreement, and the Company and
Mr. Greehey have executed an extension of employment agreement extending the
term of Mr. Greehey's employment beyond the end of the initial period on a
month-to-month basis in accordance with the employment agreement. Mr. Greehey
may terminate the employment agreement within the extension period by giving
Valero 90 calendar days written notice of termination. The agreement provided
for Mr. Greehey to serve as Chief Executive Officer of Valero and receive an
initial base salary of $900,000 per annum, subject to possible increase
adjustments by the Board of Directors. The agreement also provided for the grant
to Mr. Greehey of an option to acquire 860,000 shares of Common Stock and a
grant of 150,000 Performance Shares, each vesting 50% per year over two years.
Mr. Greehey is also eligible to receive an annual bonus in an amount determined
by the Board. During his employment, Mr. Greehey will also receive reimbursement
for certain club membership dues and fees, tax planning services and a permanent
life insurance benefit. In the event Mr. Greehey dies during employment, his
base salary shall be paid to his beneficiaries or estate for the remainder of
the agreement period.
The agreement provides that Mr. Greehey may retire at any time upon 90 days
prior notice. Upon his retirement from employment, Mr. Greehey has agreed to
continue to serve at the discretion of the Board as Chairman of the Board for
two additional years at a rate of compensation equal to one-half of his base
salary in effect at the time of his retirement. Upon his retirement, in addition
to retiree medical and other benefits payable to retirees generally, Mr. Greehey
would also receive credit for eight additional years of service for purposes of
calculating his pension benefits, vesting of certain outstanding derivative
securities, office and secretarial facilities and $300,000 of permanent life
insurance.
The Company may terminate Mr. Greehey's employment as Chief Executive Officer at
any time upon 90 days notice. Unless his termination is for cause, Mr. Greehey
would be entitled to receive a pro rata, lump sum cash settlement equal to the
sum of (i) Mr. Greehey's base salary for the remaining term of the agreement,
plus (ii) an amount equal to the highest annual bonus paid to Mr. Greehey during
the preceding five years. If Mr. Greehey's
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employment is terminated by the Company, he would not be entitled to serve as
Chairman or to receive the compensation specified for such service. However, if
Mr. Greehey retires and commences service as Chairman of the Board, and is then
removed from such position by a majority of the remaining Board members, he
would be entitled to receive the balance of the two years compensation for
serving as Chairman of the Board. The employment agreement provides that if Mr.
Greehey receives a cash payment, and the payment is determined to be subject to
the excise tax required for certain "excess parachute payments," then he shall
receive a cash bonus to cover the amount of the excise tax payable, plus any
taxes on such bonus amount. The employment agreement also states that any
amounts that Mr. Greehey may receive under his severance agreement shall be
credited against amounts payable under his employment agreement.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
See "Executive Compensation" and "Arrangements with Certain Officers and
Directors" for a discussion of compensation paid to certain officers and
directors. In connection with the deferral of certain compensation, the Company
has made a loan to Mr. Greehey. See "Determination of the CEO's Compensation" in
the "Report of the Compensation Committee of the Board of Directors on Executive
Compensation."
Except as referenced above, no executive officer, director or nominee for
director of Valero has been indebted to the Company, or has acquired a material
interest in any transaction to which the Company is a party, during the last
fiscal year.
PROPOSAL NO. 2 APPROVAL OF 2001 EXECUTIVE STOCK INCENTIVE PLAN
The Compensation Committee and the Board of Directors have approved, subject to
stockholder approval, the Company's 2001 Executive Stock Incentive Plan (the
"2001 Plan"). The Board requests stockholder approval of the following
resolution.
RESOLVED, that the 2001 Executive Stock Incentive Plan for executive
officers and key employees of the Company is hereby approved and
ratified.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE
THE 2001 EXECUTIVE STOCK INCENTIVE PLAN.
Passage of the proposal requires approval of a majority of the shares
represented and entitled to vote at the Annual Meeting. Pursuant to the rules of
the New York Stock Exchange, brokers will have discretion to vote on this item
to be presented at the Annual Meeting.
Unless otherwise instructed or unless authority to vote is withheld, the persons
named in the enclosed proxy card intend to vote for the 2001 Executive Stock
Incentive Plan.
The 2001 Plan is necessary because, as of February 1, 2001, only 170,340 shares
remain under the Company's existing Executive Stock Incentive Plan (the "Old
Plan"), which the Compensation Committee and Board expect to be depleted prior
to the 2002 annual meeting of stockholders. Once the Old Plan is depleted, the
Company will no longer have a vehicle for equity grants to the Company's
executive officers and key employees. Accordingly, the Company is recommending
that the stockholders approve the 2001 Plan, which will provide for 3,000,000
shares of Common Stock to be made available for awards under the 2001 Plan.
The Company believes that it has been able to attract and retain highly
qualified personnel in part through the use of stock based awards under the Old
Plan. The Company believes its executives and key employees will continue to be
encouraged to remain with the Company with the adoption of the 2001 Plan. The
Company also believes that by providing such executives and key employees with
an opportunity to acquire a proprietary interest in the Company and additional
incentive and reward opportunities based on the profitable growth of
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the Company, the 2001 Plan will give the Company's executives and key employees
a stronger incentive to work for the continued success of the Company.
No awards or grants have been made under the 2001 Plan, and no awards or grants
will be made under the 2001 Plan unless and until the plan is approved by the
stockholders. If the 2001 Plan is approved, no awards will be made under the Old
Plan once the remaining authorized shares have been utilized, and the Old Plan
will be terminated. If the 2001 Plan is not approved by the stockholders, the
2001 Plan shall automatically terminate and be deemed null and void.
DESCRIPTION OF THE PLAN
The following is a summary of the 2001 Plan, and is qualified in its entirety by
reference to the 2001 Plan, which is attached as Appendix A to this Proxy
Statement. All capitalized terms used but not defined either above or in the
following description are used as defined in the 2001 Plan.
The 2001 Plan authorizes the grant of various stock and stock-related awards.
The 2001 Plan was adopted by the Board on March 15, 2001. The Board believes
that the Company's success and long-term progress depend upon attracting and
retaining executive personnel and other key employees of the Company. The Plan
is intended to allow the Compensation Committee continued flexibility to use
stock and stock-related awards in the Company's overall compensation program. In
the following description of the Plan, "Shares" shall mean Valero's $.01 par
value common stock, and such other securities or property as may become the
subject of awards under the Plan.
Types of Awards
The 2001 Plan permits the granting, to any eligible employee, any or all of the
following types of awards: (1) stock options, including both incentive ("ISOs")
and non-qualified options; (2) stock appreciation rights ("SARs"), in tandem
with stock options or freestanding; (3) restricted stock; (4) performance
awards; (5) stock compensation; and (6) other stock-based awards (collectively,
"Awards").
Stock Options
Stock options granted under the 2001 Plan are subject to the terms and
conditions determined by the Compensation Committee, except that the option
exercise price cannot be less than 100% of the fair market value of a Share at
the time the option is granted. ISOs may be granted provided they meet the
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
The Compensation Committee determines the form in which payment of the exercise
price may be made, including cash, Shares, other securities or other property,
or any combination thereof, having a fair market value on the exercise date
equal to the relevant exercise price.
When a non-qualified option is exercised, the difference between the option
price and any higher fair market value of the underlying Shares, generally on
the date of exercise, will be ordinary income to the optionee. The Company will
be entitled to claim a tax deduction equal to the amount the optionee recognizes
as ordinary income. Any gain or loss realized by an optionee upon disposition of
the Shares acquired under the option generally will represent a capital gain or
loss to the optionee. The optionee's basis in the Shares for determining gain or
loss on the disposition of the Shares generally will be the fair market value of
the Shares on the date the option is exercised.
In the case of ISOs, although no compensation income is realized upon exercise,
the excess of the fair market value on the date of exercise over the option
price generally is included in alternative minimum taxable income of the
optionee for alternative minimum tax purposes. No Company tax deduction can be
claimed in the
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absence of a disqualifying disposition of the Shares following exercise (within
two years of the grant or within one year of exercise).
Stock Appreciation Rights
Stock Appreciation Rights, or SARs, may be granted in tandem with another Award,
in addition to another Award, or freestanding and unrelated to another Award.
The grant price of an SAR cannot be less than 100% of the fair market value of a
Share at the time the SAR is granted. The Compensation Committee may impose such
conditions or restrictions on the exercise of any SAR as it shall deem
appropriate.
In the case of SARs granted either freestanding or in tandem with an option, the
participant will not realize any compensation income at the time of grant.
However, the fair market value of stock or cash delivered to the participant
pursuant to the exercise of such SAR will be treated as ordinary income to the
participant at the time of exercise.
Restricted Stock
The Compensation Committee determines the employees to whom restricted stock
shall be granted, the number of Shares to be granted to each participant, the
duration of the restriction period, the conditions under which the restricted
stock may be forfeited to the Company and other terms and conditions of Awards
of restricted stock. Restricted stock may not be disposed of by the participant
until the restrictions specified in the Award expire. The participant will have
the right to vote the Shares and receive any cash dividends during the
restriction period.
When a participant receives an award of restricted stock, the participant
generally will realize ordinary income in an amount equal to the fair market
value of the Shares less any amount paid for such Shares at the time when the
participant's rights with respect to such Shares are no longer subject to a
substantial risk of forfeiture (unless the participant elects to accelerate
recognition as of the date of the grant). Dividends paid to the participant
during the restriction period will be taxable as ordinary income. Subject to
Section 162(m) of the Code, the Company generally will be allowed a tax
deduction, subject to certain limitations, equal to the amount of ordinary
income that is realized by the participant.
Performance Awards
Performance awards may be granted under the 2001 Plan which shall consist of a
right payable in cash, Shares, other securities or other property upon the
achievement of performance goals. The Compensation Committee shall determine the
performance goals to be achieved during any performance period, the length of
any performance period, the amount of any performance award and the amount of
any payment or transfer to be made pursuant to any performance award.
Performance awards may be paid in a lump sum, installments, on a deferred basis
or otherwise in accordance with procedures established by the Compensation
Committee.
The Compensation Committee must certify prior to payment that the previously
established performance goal has been met. Performance goals are based upon any
one or a combination of (i) the Company's total stockholder return during a
specified performance period, either individually or in comparison with that
achieved by a specified target group of other companies approved by the
Committee, (ii) the Company's return on equity during a specified period, either
individually or in comparison with that achieved by a target group, (iii) the
Company's return on investment during a specified period, either individually or
in comparison with that achieved by a target group, (iv) the Company's earnings
per Share during a specified period, or (v) the Company's final or average stock
price compared with the stock price for an earlier specified date or period. For
any performance award that is intended to comply with Section 162(m) of the
Code, specification of the performance goal must be made either (a) prior to the
beginning of the performance period, or (b) not later than 90 days after the
commencement of the performance period, provided that the outcome as to the
attainment or
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non-attainment of the performance goal is substantially uncertain when the
specification is made and that no more than 25% of the performance period has
elapsed. The Committee, in its sole discretion, may provide for a reduction, but
not an increase, in the value of a Performance award during the performance
period and prior to certification that the established performance goal has been
met.
When a participant receives payment of a performance award, the participant
generally will realize ordinary income in an amount equal to the fair market
value of such award less any amount paid for the award. The Company generally
will be allowed a tax deduction, subject to certain limitations, equal to the
amount of ordinary income that is realized by the participant. Such deduction
may be limited by Section 162(m) of the Code for any performance award not
intended to comply with Section 162(m).
Stock Compensation
The Compensation Committee shall have authority to pay in Shares all or any
portion of the amounts payable under any compensation program of the Company.
The number and type of Shares to be distributed in lieu of the cash compensation
applicable to any Award, as well as the terms and conditions of any bonus
awards, shall be determined by the Compensation Committee. Such Awards generally
will result in ordinary income to the participant when paid and, subject to
Section 162(m) of the Code, the Company will be entitled to a corresponding tax
deduction.
Other Stock-Based Awards
The Compensation Committee may grant other forms of Awards based on, payable in,
or otherwise related in whole or in part to Shares under the 2001 Plan. Subject
to the terms of the 2001 Plan, the Compensation Committee shall determine the
terms and conditions of any such other stock-based Awards. Such Awards generally
will result in ordinary income to the participant when paid and, subject to
Section 162(m) of the Code, the Company will be entitled to a corresponding tax
deduction.
As of March 21, 2001, the closing price of the Company's common stock as quoted
on the New York stock Exchanges was $35.85.
Eligibility for Participation
Executive officers and key employees of the Company and its subsidiaries, as
designated by the Compensation Committee, are eligible for participation under
the 2001 Plan. The Company estimates that, at the date of this Proxy Statement,
seven executive officers of the Company and approximately 600 key employees of
the Company and its subsidiaries are eligible for Awards under the 2001 Plan.
Non-employee directors of the Company are not eligible to participate in the
2001 Plan.
Administration
The 2001 Plan will be administered by the Compensation Committee, composed of
directors appointed by the Board who are non-employee directors, as defined by
Rule 16b-3 of the Securities Exchange Act of 1934, and outside directors, as
defined in Section 162(m) of the Code. The Compensation Committee has the
authority, subject to the terms of the 2001 Plan, to determine which
participants will receive an Award, the time or times when such Awards will be
made, the types of Awards, the number of shares of Common Stock to be issued
under the Awards or the value or amount of the Awards and the terms and
conditions of Awards. All decisions under or with respect to the 2001 Plan are
within the sole discretion of the Compensation Committee and are final.
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Amendment
The Board may terminate or amend the 2001 Plan without stockholder approval,
except that stockholder approval is required for any amendment that would (i)
materially increase the number of Shares available for Awards, (ii) change the
class of employees eligible to receive Awards, (iii) permit Awards encompassing
rights to purchase Shares, including stock options and SARs, to be granted with
a per Share grant, exercise or purchase price of less than the fair market value
of a Share on the date of grant.
Additionally, no amendment, without the approval of the stockholders, may be
made to any outstanding option to lower the purchase price per Share under that
option (or to cancel and replace any outstanding option with a new option having
a lower purchase price per Share).
Effective Date and Termination
The 2001 Plan will become effective on May 10, 2001, subject to stockholder
approval. The 2001 Plan will terminate on May 10, 2011, after which no
additional Awards may be made under the 2001 Plan. Additionally, the Board may
terminate the 2001 Plan at any time. However, unless otherwise expressly
provided in the 2001 Plan or in an applicable Award Agreement, any Award made
prior to, and outstanding on such termination date, shall remain valid in
accordance with its terms and conditions, and the authority of the Board or the
Committee to amend, suspend, or terminate any such Award or to waive any
conditions or rights under any such Award in accordance with the 2001 Plan,
shall extend beyond such date.
Shares Available Under the Plan
Subject to adjustment as described more fully below, 3,000,000 Shares may be
issued under the 2001 Plan. Not more than 1,000,000 Shares may be awarded to any
one Participant during any calendar year.
Code Section 162(m)
Under Section 162(m) of the Internal Revenue Code, publicly held corporations
may not take a tax deduction for compensation in excess of $1 million paid to
the CEO or the other four most highly compensated executive officers unless that
compensation meets the Internal Revenue Code's definition of "performance based"
compensation. Section 162(m) allows a deduction for compensation to the
specified executives that exceeds $1 million only if it is paid solely upon
attainment of one or more performance goals established by a compensation
committee comprised solely of two or more outside directors, and the material
terms under which the compensation is to be paid are disclosed to and approved
by the stockholders before payment of the compensation.
The Company is seeking stockholder approval of the 2001 Plan to ensure that
awards of stock options, stock appreciation rights and performance awards under
the 2001 Plan will be eligible to meet the "performance based" compensation
criteria under Section 162(m). It is intended for the 2001 Plan to meet the
requirements of Section 162(m) so that the Compensation Committee may, in its
discretion, make Awards of options, SARs and performance awards that constitute
"performance-based" compensation within the meaning of such section. The Company
believes that Awards intended and structured as such by the Compensation
Committee will meet the requirements for "performance-based" compensation under
Section 162(m), and that the amount of ordinary income to the participant with
respect to such Awards generally will be allowed as a deduction for federal
income tax purposes to the Company. Grants of restricted stock and other
stock-based Awards will likely not qualify as "performance-based" compensation
and, in such event, would be subject to Section 162(m) deduction restrictions.
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Withholding
The Company has the right to deduct from any or all Awards any taxes required by
law to be withheld and to require any payments necessary to enable it to satisfy
its withholding obligations.
Adjustments
If the Compensation Committee determines that any stock dividend, rights
distribution, split-up, recapitalization, combination or exchange of shares,
merger, consolidation, acquisition of property or stock, spin-off or separation,
reorganization, liquidation or other similar event affects the Shares so that an
adjustment is necessary to prevent dilution or enlargement of the benefits or
potential benefits intended under the 2001 Plan, then the Compensation Committee
shall adjust any or all of the Awards appropriately.
Change of Control
In the event of a "Change of Control" as defined in the 2001 Plan, each Award
held by a Participant pursuant to the 2001 Plan shall remain in full force and
effect until the earlier of (i) the expiration date of the Award, or (ii) 90
days following the Participant's date of termination of employment with the
Company. Additionally, upon a Change of Control, the Compensation Committee may
take any one or more of the following actions in connection with any Awards made
under the 2001 Plan: (a) accelerate the exercise or vesting date; (b) provide
for the purchase in cash of the Award; (c) make adjustments to the Award as
the Compensation Committee deems appropriate to reflect the Change of Control;
or (d) cause any outstanding Award to be assumed, or a new right substituted
therefor, by the acquiring or surviving corporation.
Plan Benefits
Because Awards under the 2001 Plan are granted at the discretion of the
Compensation Committee, it is not possible for the Company to determine and
disclose the amount of Awards that may be granted to the Named Executives or to
any of the other 2001 Plan participants if the Proposal is approved.
Furthermore, no awards or grants have been made under the 2001 Plan, and no
awards or grants will be made under the 2001 Plan unless and until the plan is
approved by the stockholders.
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PROPOSAL NO. 3 RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board requests stockholder approval of the following resolution adopted at
the Board meeting held on March 15, 2001, appointing Arthur Andersen LLP, 70
N.E. Loop 410, San Antonio, Texas 78216, as independent public accountants for
the Company for the year 2001. Arthur Andersen LLP has served continuously in
such capacity for Old Valero and the Company since 1979.
RESOLVED, that the appointment of the firm of Arthur Andersen LLP,
Certified Public Accountants, as the independent auditors for the
Company for the purpose of conducting an examination and audit of the
financial statements of Valero and its subsidiaries for the fiscal year
ending December 31, 2001 is hereby approved and ratified.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO RATIFY THE
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS.
Passage of the proposal requires approval of a majority of the shares
represented and entitled to vote at the Annual Meeting. If the appointment is
not approved, the adverse vote will be considered as an indication to the Board
that it should select other independent public accountants for the following
year. Because of the difficulty and expense of making any substitution of
accountants so long after the beginning of the current year, it is contemplated
that the appointment for 2001 will be permitted to stand unless the Board finds
other good reason for making a change.
A representative of Arthur Andersen LLP is expected to be present at the Annual
Meeting to respond to appropriate questions raised at the Annual Meeting or
submitted to them in writing prior to the Annual Meeting. The representative may
also make a statement if he or she desires to do so.
ARTHUR ANDERSEN LLP FEES FOR FISCAL YEAR 2000
Audit Fees. Audit fees incurred by the Company with respect to the Arthur
Andersen LLP audit of Fiscal Year 2000 financial statements were $979,100.
Financial Information Systems Design and Implementation Fees. No services were
performed by, or fees incurred to Arthur Andersen LLP in connection with
financial information systems design and implementation projects for Fiscal Year
2000.
All Other Fees. All other fees incurred by the Company payable to Arthur
Andersen LLP with respect to Fiscal Year 2000 were $732,766. These fees related
primarily to provision of services with respect to acquisitions and related
financings and foreign trade matters.
The Audit Committee considered whether the provision of services described above
under "All Other Fees" is compatible with maintaining Arthur Andersen LLP's
independence.
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REPORT OF THE AUDIT COMMITTEE FOR FISCAL YEAR 2000(2)
The Audit Committee is composed of three directors who are not officers of the
Company. Under currently applicable rules of the New York Stock Exchange, all
members are independent. The Board of Directors has adopted a written charter
for the Audit Committee, which is included as Appendix B to this Proxy
Statement.
Management is responsible for the Company's internal controls and the financial
reporting process. Arthur Andersen LLP, the Company's independent accountants,
are responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with generally accepted auditing
standards and to issue a report thereon. The Committee monitors and oversee
these processes. The Committee recommends to the Board of Directors the
selection of the Company's independent auditors.
The Committee has reviewed and discussed the Company's audited financial
statements with management and the independent accountants. The Committee has
discussed with Arthur Andersen LLP the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communications with Audit Committees).
The Committee has received the written disclosures and the letter from Arthur
Andersen LLP required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and has discussed with Arthur
Andersen LLP that firm's independence.
Based on the foregoing review and discussions and such other matters the
Committee deemed relevant and appropriate, the Committee recommended to the
Board of Directors that the audited financial statements of the Company be
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000.
MEMBERS OF THE AUDIT COMMITTEE:
Ruben M. Escobedo, Chairman
Dr. Donald M. Carlton
Dr. Susan Kaufman Purcell
- ----------
(2) The material in this Report of the Audit Committee of the Board of
Directors is not "soliciting material," is not deemed filed with the SEC and is
not to be incorporated by reference in any of our filings under the Securities
Act of 1933 or the Securities Exchange Act of 1934, as amended, respectively,
whether made before or after the date of this Proxy Statement and irrespective
of any general incorporation language therein.
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PROPOSAL NO. 4 OTHER BUSINESS
If any matters not referred to in this Proxy Statement properly come before the
Annual Meeting, a majority of the persons named in the proxy (or, if one such
person acts, then that one) may vote the shares represented by proxy in
accordance with their best judgment. The Board was not aware at a reasonable
time before solicitation of proxies began of any other matters that would be
presented for action at the meeting.
STOCKHOLDER PROPOSALS
Under Valero's By-Laws, stockholders intending to bring any business before an
Annual Meeting of Stockholders, including nominations of persons for election as
directors, must give prior written notice to the Corporate Secretary regarding
the business to be presented or persons to be nominated. The notice must be
received at the principal executive office of Valero within the specified period
and must be accompanied by the information and documents specified in the
By-Laws. A copy of the By-Laws may be obtained by writing to the Corporate
Secretary of Valero.
The provisions of the By-Laws do not affect any stockholder's right to request
inclusion of proposals in the Proxy Statement pursuant to Rule 14a-8 under the
Exchange Act. Rule 14a-8 of the federal proxy rules specifies what constitutes
timely submission for a stockholder proposal to be included in the Company's
proxy statement. If a stockholder desires to bring business before the meeting
which is not the subject of a proposal timely submitted for inclusion in the
proxy statement, the stockholder must follow procedures outlined in the
Company's By-Laws. A copy of these procedures is available upon request from
the Corporate Secretary of the Company, P.O. Box 500, San Antonio, Texas,
78292-0500. One of the procedural requirements in the Company's By-Laws is
timely notice in writing of the business the stockholder proposes to bring
before the meeting. Notice must be received not less than 60 days nor more than
90 days prior to the first anniversary of the preceding year's annual meeting.
It should be noted that those By-Law procedures govern proper submission of
business to be put before a stockholder vote and do not preclude discussion by
any stockholder of any business properly brought before the annual meeting.
Under the SEC's proxy solicitation rules, to be considered for inclusion in the
proxy materials for the 2002 Annual Meeting of Stockholders, stockholder
proposals must be received by the Corporate Secretary at Valero's principal
office in San Antonio, Texas by November 28, 2001.
Valero will consider recommendations by stockholders for directors to be
nominated at the 2002 Annual Meeting of Stockholders. Recommendations must be in
writing and include sufficient biographical and other relevant information such
that an informed judgment as to the proposed nominee's qualifications can be
made. Recommendations must be accompanied by a notarized statement executed by
the proposed nominee consenting to be named in the Proxy Statement, if
nominated, and to serve as a director, if elected. Recommendations received in
proper order by the Corporate Secretary at Valero's principal executive office
at least six months prior to the 2002 Annual Meeting of Stockholders will be
referred to, and considered by, the Executive Committee or, if appointed, a
Nominating Committee.
Stockholders are urged to review all applicable rules and, if questions arise,
to consult their own legal counsel before submitting a nomination or proposal to
Valero. No stockholder recommendations or proposals were received within the
required period before the Annual Meeting.
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MISCELLANEOUS
Consolidated financial statements and related information for Valero, including
audited financial statements for the fiscal year ended December 31, 2000, are
contained in the Company's Annual Report on Form 10-K which is being
distributed to Stockholders with this Proxy Statement.
Valero's Annual Report to Stockholders for the fiscal year ended December 31,
2000 has simultaneously been mailed to stockholders entitled to vote at the
Annual Meeting. The Annual Report is not to be treated as a part of the proxy
materials.
Computershare Investor Services, Chicago, Illinois, serves as transfer agent,
registrar and dividend paying agent for Valero's Common Stock. Correspondence
relating to any stock accounts, dividends or transfers of stock certificates
should be addressed to:
Computershare Investor Services
Shareholder Communications
P.O. Box 1689
Chicago, IL 60690-1689
(312) 588-4700
By order of the Board of Directors,
Jay D. Browning
Corporate Secretary
San Antonio, Texas
March 28, 2001
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APPENDIX A
VALERO ENERGY CORPORATION
2001 EXECUTIVE STOCK INCENTIVE PLAN
May 10, 2001
33
TABLE OF CONTENTS
SECTION 1. PURPOSE ............................................. 1
SECTION 2. DEFINITIONS ......................................... 1
SECTION 3. ADMINISTRATION ...................................... 3
SECTION 4. SHARES AND OTHER PROPERTY AVAILABLE FOR AWARDS ...... 4
Shares Available ............................................ 4
Sources of Shares Deliverable Under Awards .................. 4
Adjustments ................................................. 4
Share Counting .............................................. 5
SECTION 5. ELIGIBILITY ......................................... 6
SECTION 6. AWARDS .............................................. 6
Options ..................................................... 6
Exercise Price .......................................... 6
Incentive Stock Options ................................. 6
Stock Appreciation Rights ................................... 6
Grant Price ............................................. 7
Other Terms and Conditions .............................. 7
Restricted Stock ............................................ 7
Dividends ............................................... 7
Registration ............................................ 7
Forfeiture .............................................. 7
Issuance of Shares ...................................... 7
Performance Awards .......................................... 7
Terms and Conditions .................................... 8
Payment of Performance Awards ........................... 8
Stock Compensation .......................................... 8
Other Stock-Based Awards .................................... 8
Exercise of Option or SAR Awards ............................ 9
Notice .................................................. 9
Payment ................................................. 9
Tax Payment Election .................................... 9
Payment with Stock ...................................... 9
Valuation ............................................... 10
Rights as Stockholder ................................... 10
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General ................................................................. 10
Grants ................................................................ 10
Forms of Payment by Company ........................................... 10
Limits on Transfer .................................................... 11
Term of Awards ........................................................ 11
Share Certificates .................................................... 11
Delivery of Shares or Other Securities and Payment of Consideration ... 11
Termination of Employment ............................................. 11
Award Agreements ...................................................... 12
Deferral of Receipt ................................................... 12
SECTION 7. AMENDMENT AND TERMINATION ..................................... 13
Amendments to the Plan .................................................. 13
Amendments to Awards .................................................... 13
Unusual or Nonrecurring Events .......................................... 13
SECTION 8. CHANGE OF CONTROL ............................................. 14
Effect .................................................................. 14
Defined ................................................................. 14
Actions of Committee .................................................... 15
SECTION 9. GENERAL PROVISIONS ............................................ 15
No Rights to Awards ..................................................... 15
Delegation .............................................................. 15
Withholding ............................................................. 16
No Limit on Other Compensation Arrangements ............................. 16
No Right to Employment .................................................. 16
Governing Law ........................................................... 16
Severability ............................................................ 16
NYSE Listing and Other Laws and Regulations ............................. 16
No Trust or Fund Created ................................................ 16
No Fractional Shares .................................................... 17
Code Section 162(m) ..................................................... 17
Headings ................................................................ 17
Construction ............................................................ 17
SECTION 10. EFFECTIVE DATE OF THE PLAN .................................... 17
SECTION 11. TERM OF THE PLAN .............................................. 17
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2001 EXECUTIVE STOCK INCENTIVE PLAN
SECTION 1. PURPOSE.
The purposes of this 2001 Executive Stock Incentive Plan (the "Plan") are to
promote the interests of the Company and its stockholders by (i) attracting and
retaining executive personnel and other key employees of the Company and its
affiliates; (ii) motivating these employees by using performance- related
incentives to achieve longer range performance goals; and (iii) enabling these
employees to participate in the long-term growth and financial success of the
Company.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or through one or
more intermediaries, is controlled by the Company and (ii) any entity
in which the Company has a significant equity interest, as determined
by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Performance Award, Stock Compensation Award or Other Stock-Based
Award.
(c) "Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not,
be executed or acknowledged by a Participant.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" shall mean the (i) conviction of the Participant by a state or
federal court of a felony involving moral turpitude, (ii) conviction of
the Participant by a state or federal court of embezzlement or
misappropriation of funds of the Company, (iii) negligence or
misconduct of the Participant which causes material loss, damage or
injury to the Company, any of its Affiliates or their respective
employees, or (iv) Participant's failure to satisfactorily perform the
material stated duties of Participant's position with the Company or
any of its Affiliates.
(f) "Change of Control" is defined in Section 8(b) of the Plan.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(h) "Committee" or "Compensation Committee" shall mean the Compensation
Committee of the Board as further described in Section 3 of the Plan.
(i) "Company" shall mean Valero Energy Corporation, a Delaware corporation,
formerly known as "Valero Refining and Marketing Company."
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(j) "Employee" shall mean any employee of the Company or of any Affiliate.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Exercisable Award" is defined in Section 6(h)(vii)(A).
(m) "Exercise Notice" is defined in Section 6(g)(i) of the Plan.
(n) "Fair Market Value" shall mean the average of the "high" and "low"
reported sales price per Share (as reported in the NYSE - Composite
Transactions listing) as of the relevant measuring date, or if there
are no sales on the NYSE on that measuring date, then as of the next
following day on which there were sales.
(o) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section
422 of the Code or any successor provision thereto.
(p) "Non-Qualified Stock Option" shall mean an option granted under Section
6(a) of the Plan that is not intended to be an Incentive Stock Option.
(q) "Notice Date" is defined in Section 6(g)(i) of the Plan.
(r) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
(s) "Other Stock-Based Award" shall mean any right granted under Section
6(f) of the Plan.
(t) "Participant" shall mean any Employee granted an Award under the Plan.
(u) "Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
(v) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
(w) "Restricted Stock" shall mean any Share, prior to the lapse of
restrictions thereon, granted under Section 6(c) of the Plan.
(x) "Rights Agreement" shall mean the Rights Agreement, dated as of June
18, 1997, between the Company and Computershare Investor Services,
L.L.C., as Rights Agent (successor Rights Agent to Harris Trust and
Savings Bank), as amended.
(y) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the
Exchange Act, or any successor rule or regulation thereto as in effect
from time to time.
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(z) "SAR" or "stock appreciation right"is further described in Section 6(b)
of the Plan and shall mean the right, subject to the provisions of this
Plan, to receive a payment in cash equal to the difference between the
specified exercise price of the SAR and the Fair Market Value of one
Share.
(aa) "SEC" shall mean the Securities and Exchange Commission.
(bb) "Settlement Date" is defined in Section 6(g)(i) of the Plan.
(cc) "Share" or "Shares" shall mean the common stock of the Company, $0.01
par value, and other securities or property that may become the subject
of Awards or become subject to Awards pursuant to an adjustment made
under Section 4(c) of the Plan.
(dd) "Stock Compensation" shall mean any right granted under Section 6(e) of
the Plan.
(ee) "Tax Payment" is defined in Section 6(g)(ii) of the Plan.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by a committee composed solely of two or more
"Non-Employee Directors" (as defined in Rule 16b-3) of the Company who are also
"Outside Directors" (as defined in Section 162(m) of the Code) of the Company,
which Committee shall be, except as hereinafter set forth, the Compensation
Committee. In the event that the membership of the Compensation Committee shall
fail to meet the foregoing criteria, then additional or different members of the
Board of Directors shall be appointed by the Board to act for purposes of
administering this Plan so that the committee administering this Plan shall
consist solely of two or more "Non-Employee Directors." Subject to the terms of
the Plan and applicable law, and in addition to other express powers and
authorizations conferred on the Committee by the Plan, the Committee shall have
authority to:
(a) designate Participants;
(b) determine the type or types of Awards to be granted to an
eligible Employee;
(c) determine the number of Shares to be covered by, or with
respect to which payments, rights, or other matters are to be
calculated in connection with, Awards;
(d) determine the terms and conditions of any Award and any
subsequent amendments thereto;
(e) determine to what extent and under what circumstances Awards
may be settled or exercised in cash, Shares, other securities,
other Awards or other property, or canceled, forfeited, or
suspended, and the method or methods by which Awards may be
settled, exercised, canceled, forfeited, or suspended;
(f) determine to what extent and under what circumstances any
amount payable (in whatever form) with respect to an Award may
be deferred either automatically or at the election of the
holder thereof or the Committee;
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(g) provide for the acceleration of any time period relating to
the vesting, exercise or realization of any Award so that the
Award may be exercised or realized in full on or before a date
fixed by the Committee; the Committee may, in its discretion,
include other provisions and limitations in any Award
Agreement as the Committee may deem equitable and in the best
interests of the Company;
(h) interpret and administer the Plan and any instrument or
agreement relating to the Plan, including Award Agreements.
(i) establish, amend, suspend, or waive any rules or regulations
regarding the Plan, and appoint any agent the Committee shall
deem appropriate for the proper administration of the Plan;
and
(j) make any other determination and take any other action that
the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations,
interpretations, and other decisions with respect to the Plan
or any Award shall be within the sole discretion of the
Committee, may be made at any time, and shall be final,
conclusive, and binding upon all Persons, including the
Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, any stockholder of the Company and
any Employee.
SECTION 4. SHARES AND OTHER PROPERTY AVAILABLE FOR AWARDS.
(a) Shares Available. Subject to adjustment as provided in Section
4(c), the number of Shares with respect to which Awards may be granted under the
Plan shall be 3,000,000. The maximum aggregate number of Shares that may be
awarded to any one Participant during any calendar year shall not exceed
1,000,000 such Shares.
(b) Sources of Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist, in whole or in part, of authorized
and unissued Shares or treasury Shares.
(c) Adjustments. (i) If all or any portion of an Award vests or is
exercised subsequent to any stock dividend, rights distribution, split-up,
recapitalization, combination or exchange of shares, merger, consolidation,
acquisition of property or stock, spin-off or separation, reorganization,
liquidation or other similar event (any one of which being hereafter referred to
as a "Reorganization Event"), as a result of which shares or other securities of
any class or rights shall be issued in respect of outstanding Shares, or Shares
shall be changed into the same or a different number of shares of the same or
another class or classes or other securities, the person exercising or otherwise
entitled to such Award shall receive, except as may be otherwise determined by
the Committee:
(A) for the aggregate price payable upon such exercise of an
Option, or upon vesting of an Award (other than an Option)
denominated in Shares (1) the aggregate number and class of
shares, rights or other securities for which a recognized
market exists, and (2) a cash amount equal to the fair market
value (as reasonably determined by the Committee) on such
exercise or vesting date of any other property (other than
regular cash dividend payments) and of any shares, rights or
other securities for which no recognized market exists, which,
if Shares (as authorized at the date of the granting
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of such Award) had been acquired at the date of granting of
the Award for the same aggregate price (on the basis of the
price per share, if any, provided in the Award) and had not
been disposed of, such person or persons would be holding at
the time of such exercise or vesting as a result of such
acquisition and any such Reorganization Event, and
(B) a cash amount upon the exercise of any SARs equal to the
difference between the aggregate grant price of such SARs and
the aggregate of (1) the fair market value, on the exercise
date of any whole shares, rights or other securities for which
a recognized market exists, and (2) the fair market value (as
reasonably determined by the Committee) on such date of any
other property (other than regular cash dividend payments)
which the holder of a number of Shares equal to the number of
such SARs, if such Shares had been purchased at the date of
granting of such SARs and not otherwise disposed of, would be
holding at the time of exercise of such SARs as a result of
such purchase and any such Reorganization Event;
provided, however, that no fractional Share, fractional right or other
fractional security shall be issued upon any such exercise or vesting,
and the aggregate price paid shall be appropriately reduced to reflect
any fractional Share, fractional right or other fractional security not
issued; and provided further, however, that if the exercise or vesting
of any Award subsequent to any Reorganization Event would, pursuant to
clause (A) of this Section 4(c)(i), require the delivery of shares,
rights or other securities which the Company is not then authorized to
issue or which in the sole judgment of the Committee cannot be issued
without undue effort or expense, the person exercising or vesting in
such Award shall receive, in lieu of such shares, rights or other
securities, a cash payment equal to the Fair Market Value on the
exercise or vesting date, as the case may be, as reasonably determined
by the Committee, of such shares, rights or other securities. For
purposes of applying the provisions of this Plan, the Preference Share
Purchase Rights distributed to stockholders of the Company pursuant to
the Rights Agreement shall be deemed not to have been distributed until
the Distribution Date (as defined in the Rights Agreement).
(ii) In the event of any change in the number of Shares
outstanding resulting from a Reorganization Event, the aggregate number and
class of Shares remaining available to be awarded under this Plan shall be that
number and class which a person, to whom an Award had been granted for all of
the available Shares under this Plan on the date preceding such change, would be
entitled to receive as provided in Section 4(c)(i).
(iii) Upon the occurrence of any Reorganization Event, the
Committee shall be entitled (but shall not be required) to determine that new
Award Agreements shall be entered into with Participants reflecting such event.
(d) Share Counting. For purposes of determining at any time the
number of Shares that remain available for grant under this Plan, the number of
Shares then authorized pursuant to Section 4 of the Plan shall be (i) decreased
by the "gross" number of Shares issued pursuant to
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exercised Awards, (ii) decreased by the "gross" number of Shares issuable
pursuant to outstanding unexercised Awards, and (iii) increased by the number of
Shares to which a Participant shall have forfeited, voluntarily surrendered or
otherwise permanently lost his or her right to exercise or vest in an Award
under any provision of this Plan or otherwise. As used herein, the "gross"
number of Shares refers to the maximum number of Shares that may be issued upon
the exercise of an Award. Should the exercise price of an Award under the Plan
be paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Company in satisfaction of the
withholding taxes incurred in connection with the exercise or vesting of an
Award, then the number of Shares available for issuance under the Plan shall be
reduced by the gross number of Shares for which the Award is exercised or which
vest under the stock issuance, and not by the net number of Shares of Common
Stock issued to the holder of such option. The provisions above shall be applied
in a manner which will permit compensation generated under the Plan which is
intended to constitute "performance-based" compensation for purposes of Section
162(m) of the Code to be treated as such "performance-based" compensation.
SECTION 5. ELIGIBILITY.
Any Employee who is (a) not a member of the Committee, and either (b) an
executive officer of the Company or an executive officer of a subsidiary of the
Company, or (c) a key employee of the Company or of a subsidiary of the Company
designated as such by the Committee, shall be eligible to be designated a
Participant by the Committee.
SECTION 6. AWARDS.
(a) Options. In determining that an eligible Employee shall be
granted an Option, the Committee shall determine, subject to the provisions of
the Plan, the number of Shares to be covered by each Option, the purchase price
therefor and the conditions and limitations applicable to the exercise of the
Option, including the following terms and conditions and any additional terms
and conditions not inconsistent with the provisions of the Plan as the Committee
shall determine.
(i) Exercise Price. The purchase price per Share purchasable
under an Option shall be determined by the Committee at the time each Option is
granted; provided, that the purchase price per Share shall not be less than 100%
of Fair Market Value on the date of such grant.
(ii) Incentive Stock Options. The terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with the provisions
of Section 422 of the Code, or any successor provision, and any regulations
promulgated thereunder.
(b) Stock Appreciation Rights. Subject to the provisions of the
Plan, in determining that an eligible Employee shall be awarded SARs, the
Committee shall determine the number of Shares to be covered by each SAR Award,
the grant price thereof and the conditions and limitations applicable to the
exercise thereof. SAR Awards shall be payable in cash or in stock, as determined
by the Committee, and may be granted in tandem with another Award, in addition
to another Award,
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or freestanding and unrelated to another Award. SARs granted in tandem with or
in addition to another Award may be granted either at the same time as the other
Award or at a later time.
(i) Grant Price. The grant price (strike price) of an SAR
shall be determined by the Committee, provided, that the grant price shall not
be less than 100% of Fair Market Value on the date of such grant.
(ii) Other Terms and Conditions. Subject to the terms of the
Plan and any applicable Award Agreement, the Committee shall determine, at or
after the grant of an SAR, the term, methods of exercise, and any other terms
and conditions of any SAR.
(c) Restricted Stock. Subject to the provisions of the Plan, in
determining that an eligible Employee shall be awarded Restricted Stock, the
Committee shall determine the number of Shares of Restricted Stock to be granted
to each Participant, the duration of the restriction period during which, and
the conditions under which, the Restricted Stock may be forfeited to the
Company, and the other terms and conditions of the Awards.
(i) Dividends. Unless otherwise determined by the Committee, a
Restricted Stock Award shall provide for the payment of dividends during its
restriction period. Dividends paid on Restricted Stock may be paid directly to
the Participant, may be subject to risk of forfeiture, or may be subject to
transfer restrictions during any period established by the Committee, all as
determined by the Committee in its discretion.
(ii) Registration. Any Restricted Stock may be evidenced in
any manner deemed appropriate by the Committee, including book-entry
registration or the issuance of stock certificates. If any stock certificate is
issued with respect to Restricted Stock, the certificate shall be registered in
the name of the Participant and may bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to the Restricted Stock. The
Participant shall be entitled to exercise all voting rights with respect to the
Restricted Stock during the restriction period.
(iii) Forfeiture. Except as otherwise determined by the
Committee or the Chief Executive Officer, subject to Section 6(h)(vii)(D), upon
termination of a Participant's employment with the Company for any reason, the
provisions of Section 6(h)(vii)(B) and (C) shall apply with respect to
Restricted Stock granted hereunder.
(iv) Issuance of Shares. Unrestricted Shares, evidenced in any
manner as the Committee shall deem appropriate, shall be nonforfeitable and
shall be issued to the Participant promptly after the applicable restrictions
have lapsed or otherwise terminated or been satisfied.
(d) Performance Awards. The Committee shall have authority to
determine the Employees who may receive a Performance Award, which shall consist
of a right, denominated or payable in cash, Shares, other securities or other
property (including Restricted Stock), and that shall confer on the holder
thereof, rights valued at an amount determined by the Committee and payable
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to or exercisable by the holder thereof, in whole or in part, upon the
achievement of prescribed performance goals during prescribed performance
periods as the Committee shall establish.
(i) Terms and Conditions. Performance Awards shall be based
upon (A) achievement of a specified performance goal or goals established by the
Committee, and (B) certification by the Committee prior to payment that the
previously established performance goal(s) has been met. Performance goals under
the Plan shall be based upon any one or a combination of (1) the total
stockholder return ("TSR") of the Company during a specified performance period,
either individually or in comparison with the TSR achieved by a specified group
of other companies (a "Target Group") approved by the Committee, (2) the
Company's return on equity ("ROE") during a specified period, either
individually or in comparison with the ROE achieved by a Target Group, (3) the
Company's return on investment ("ROI") during a specified period, either
individually or in comparison with the ROI achieved by a Target Group, (4) the
Company's earnings per Share during a specified period, or (5) the Company's
final or average stock price compared with the stock price for an earlier
specified date or period. For a given performance period, "TSR" means the (x)
the final stock price at the end of the performance period, plus (y) the
dividends paid during the performance period, divided by (z) the stock price at
the beginning of the performance period. In addition to specifying the
performance goal(s) to be achieved during any performance period, the Committee
shall also specify the length of the performance period(s), the number of Shares
subject to any Performance Award and the amount of any payment or transfer to be
made pursuant to any Performance Award. For any Award that is intended to comply
with Section 162(m) of the Code, specification of the performance goal(s) shall
be made either (aa) prior to the beginning of the performance period, or (bb)
not later than 90 days after the commencement of the performance period,
provided that the outcome as to the attainment or non-attainment of the
performance goal(s) is substantially uncertain when the specification is made
and that no more than 25% of the performance period has elapsed. The Committee,
in its sole discretion, may provide for a reduction in the value of a
Performance Award during the performance period and prior to certification that
the established performance goal(s) has been met.
(ii) Payment of Performance Awards. When earned, Performance
Awards may be paid in a lump sum or in installments following the close of the
performance period or, in accordance with procedures established by the
Committee, on a deferred basis.
(e) Stock Compensation. The Committee shall have authority to pay
in Shares all or any portion of the amounts payable under any compensation
program of the Company. The number and type of Shares to be distributed in lieu
of the cash compensation applicable to any Award, as well as the terms and
conditions of any bonus awards, shall be determined by the Committee.
(f) Other Stock-Based Awards. The Committee is hereby authorized
to grant to eligible Employees an "Other Stock-Based Award," which shall consist
of a right
(i) that is not an Award or right described in Section 6(a),
(b), (c), (d), or (e) above, and
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(ii) that is denominated or payable in, valued in whole or in
part by reference to, or otherwise based on or related to, Shares (including
securities convertible into Shares), as are deemed by the Committee to be
consistent with the purposes of the Plan; provided, that any such rights must
comply, to the extent deemed desirable by the Committee, with Rule 16b-3 and
applicable law. Subject to the terms of the Plan and any applicable Award
Agreement, the Committee shall determine the terms and conditions of any Other
Stock-Based Award.
(g) Exercise of Option or SAR Awards.
(i) Notice. Unless otherwise prescribed by the Committee,
Awards may be exercised only by written notice of exercise (the "Exercise
Notice"), in the form prescribed by the Committee, delivered to the Company to
the Financial Benefit Plan Administration Manager or other Company official
administering the Plan, and signed by the Participant or the representative or
transferee thereof. The date on which the Exercise Notice is delivered to the
Company shall be the "Notice Date." The Exercise Notice shall specify a date
(the "Settlement Date"), not less than five business days nor more than ten
business days following the Notice Date, upon which the Shares or other rights
shall be issued or transferred to the Participant (or other person entitled to
exercise the Award) and the Award's exercise price shall be paid to the Company.
(ii) Payment. Unless otherwise prescribed by the Committee, on
the Settlement Date, the person exercising an Award shall tender to the Company
full payment for the Shares or other rights with respect to which the Award is
exercised, together with an additional amount equal to the amount of any taxes
required to be collected or withheld by the Company in connection with the
exercise of the Award (the "Tax Payment").
(iii) Tax Payment Election. Subject to the approval of the
Committee, and to any rules and limitations as the Committee may adopt, a person
exercising an Award may make the Tax Payment in whole or in part by electing, at
or before the time of exercise of the Award, either (A) to have the Company
withhold from the number of Shares otherwise deliverable a number of Shares
whose Fair Market Value equals the Tax Payment, or (B) to deliver certificates
for other Shares owned by the person exercising the Award, endorsed in blank
with appropriate signature guarantee, having a Fair Market Value equal to the
amount otherwise to be collected or withheld. Following any election to withhold
Shares or deliver other Shares to make a Tax Payment, the Committee shall have
sole discretion to approve or disapprove the election at any time prior to the
Settlement Date. If the election is disapproved, the Tax Payment shall be made
in cash, or in any combination of cash and Shares as the Committee may direct.
If the Committee shall fail to disapprove the election prior to the Settlement
Date, the election will be deemed approved.
(iv) Payment with Stock. Subject to approval by the Committee,
a person exercising an Award for the receipt of Shares may pay for the Shares by
tendering to the Company other Shares legally and beneficially owned by that
person at the time of the exercise of the Award. If approved by the Committee,
this method of exercise may include use of a procedure whereby a person
exercising an Award may request that Shares received upon exercise of a portion
of an Award be automatically applied to satisfy the exercise price for
additional and increasingly larger portions
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of the Award. The certificate(s) representing any Shares tendered in payment of
an Award's exercise price must be accompanied by a stock power duly executed
with appropriate signature guarantees. The Committee may, in its sole
discretion, refuse any tender of Shares in which case the Company shall promptly
redeliver the Shares to the person exercising the Award and notify the person of
the refusal as soon as practicable. In this event, the person may either (A)
tender to the Company on the Settlement Date the cash amount required to pay for
the Award's Shares, or (B) rescind the Exercise Notice. If the person elects to
rescind his or her Exercise Notice, the person may again (subject to the other
terms of this Plan) deliver an Exercise Notice with respect to the Award at any
time prior to its expiration date.
(v) Valuation. Any calculation with respect to a Participant's
income, required tax withholding or other matters required to be made by the
Company upon the exercise of an Award shall be made using the Fair Market Value
of the Shares on the Notice Date, whether or not the Exercise Notice is
delivered to the Company before or after the close of trading on that date,
unless otherwise specified by the Committee.
(vi) Rights as Stockholder. Except as provided in Section 6(c)
of this Plan, until the issuance of the stock certificate(s) for Shares
purchased hereunder (as evidenced by the appropriate entry on the books of the
Company or any authorized transfer agent of the Company), no right to vote or
receive dividends or any other rights as a stockholder of the Company shall
exist with respect to such Shares, notwithstanding the exercise of any Award. No
adjustment will be made for a dividend or other rights for which the record date
is prior to the date the stock certificates evidencing such Shares are issued,
except as otherwise provided in this Plan.
(h) General.
(i) Grants. Awards may be granted, in the discretion of the
Committee, either alone or in addition to, in tandem with, or in substitution
for any other Award granted under the Plan or any award granted under any other
plan of the Company or any Affiliate. Awards granted in addition to or in tandem
with other Awards or awards granted under any other plan of the Company or any
Affiliate may be granted either at the same time as or at a different time from
the grant of other Awards or awards. The Committee may make the grant of any
award subject to prior stockholder approval of the Plan, but any Award so
granted by the Committee shall then be contingent upon stockholder approval of
the Plan.
(ii) Forms of Payment by Company. Subject to the terms of the
Plan and of any applicable Award Agreement, payments or transfers to be made by
the Company or an Affiliate upon the grant, exercise or payment of an Award may
be made in any form as the Committee shall determine, including cash, Shares,
other securities, other Awards or other property, or any combination thereof,
and may be made in a single payment or transfer, in installments, or on a
deferred basis, in each case in accordance with rules and procedures established
by the Committee. These rules and procedures may include, without limitation,
provisions for the payment or crediting of reasonable interest on installment or
deferred payments.
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(iii) Limits on Transfer. Each Award, and each right under any
Award, shall be exercisable only by the Participant during the Participant's
lifetime, or if permissible under applicable law, (A) upon Participant's death,
by the Participant's beneficiary, (B) for Option Awards other than an Incentive
Stock Option Award, by an immediate family member as a transferee receiving the
Award pursuant to a gift, or (C) by any transferee authorized by the Committee.
Upon the Participant's death, each Award, and each right under any Award, shall
be exercisable by the Participant's beneficiary designated under the Valero
Energy Corporation Beneficiary Designation Form, or if there is no such
designation, by the beneficiary designated in the Participant's will, or if
there is no will, by the laws of descent and distribution. Without prior written
approval from the Committee, no Award, and no right under any Award, may be
assigned, pledged, sold or otherwise transferred or encumbered by a Participant
otherwise than as provided in this Section and any purported assignment, pledge,
sale, transfer or encumbrance shall be void and unenforceable against the
Company or any Affiliate.
(iv) Term of Awards. The term of each Award shall be for the
period determined by the Committee; provided, that in no event shall the term of
any Incentive Stock Option exceed a period of 10 years from the date of its
grant.
(v) Share Certificates. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan pursuant to
any Award or the exercise thereof shall be subject to (A) all stop transfer
orders and other restrictions as the Committee may deem advisable under the
Plan, (B) the rules, regulations, and other requirements of the SEC and any
stock exchange upon which the Shares or other securities are then listed, (C)
and any applicable federal or state laws. The Committee may cause a legend or
legends to be put on any stock certificates to make appropriate reference to
applicable restrictions.
(vi) Delivery of Shares or Other Securities and Payment of
Consideration. No Shares or other securities shall be delivered pursuant to any
Award until payment in full of any amount required to be paid pursuant to the
Plan or the applicable Award Agreement is received by the Company. Payment may
be made in any form or method prescribed by the Committee, including cash,
Shares, other securities, other Awards or other property, or any combination
thereof, provided that the combined value, as determined by the Committee, of
all cash and cash equivalents and the Fair Market Value of any Shares or other
property tendered to the Company as of the date of such tender, is at least
equal to the full amount required to be paid.
(vii) Termination of Employment.
(A) Except as otherwise provided in the Plan, or
otherwise determined by the Committee and included in the applicable Award
Agreement, an Option, SAR or Other Stock Based Award having an exercise
provision (each an "Exercisable Award") vests to and/or may be exercised by a
Participant only while the Participant is and has continually been since the
date of the grant of the Exercisable Award an Employee. If a Participant's
employment with the Company is voluntarily terminated by the Participant (other
than through retirement, death or disability; see sub- Section (C) below), or is
terminated by the Company for Cause, then any Exercisable Award
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previously granted to that Participant under the Plan which remains unexercised,
whether vested or unvested, shall automatically lapse and be forfeited at the
close of business on the date of the Participant's termination of employment. If
a Participant's employment is involuntarily terminated by the Company other than
for Cause, (1) that portion of any Exercisable Award which has not vested on or
prior to such date of termination shall automatically lapse and be forfeited,
and (2) all vested but unexercised Exercisable Awards previously granted to that
Participant under the Plan shall automatically lapse and be forfeited at the
close of business on the last business day of the twelfth month following the
date of Participant's termination (or, in the case of an Incentive Stock Option
Award, 12 months after the Participant's termination by reason of death or
disability, or 3 months after any other termination), unless an Exercisable
Award sooner expires according to its original terms.
(B) Except as otherwise provided in the Plan, or
otherwise determined by the Committee and included in the applicable Award
Agreement, if a Participant's employment with the Company is voluntarily
terminated by the Participant (other than through retirement, death or
disability; see sub-Section (C) below), or is terminated by the Company for
Cause or without Cause, then any Restricted Stock or Performance Award
previously granted to that Participant under the Plan which remains unvested,
shall automatically lapse and be forfeited at the close of business on the date
of the Participant's termination of employment.
(C) Except as otherwise provided in the Plan, or
otherwise determined by the Committee and included in the applicable Award
Agreement, if a Participant's employment is terminated because of retirement,
death or disability (with the determination of disability to be made within the
sole discretion of the Committee), any Award held by the Participant shall
remain outstanding and vest or become exercisable according to the Award's
original terms; provided, however, that any Restricted Stock held by the
Participant which remains unvested as of the date of retirement, death or
disability shall immediately vest and become non-forfeitable as of such date.
(D) The Committee or the Chief Executive Officer
may prescribe new or additional terms for the vesting, exercise or realization
of any Award; provided, however, that, in accordance with Article III. Section 4
of the Company's Bylaws, any such action with respect to the Chief Executive
Officer or the President must be approved by the Board of Directors and any such
action with respect to a Participant subject to Section 16 of the Exchange Act
must be approved by the Committee.
(viii) Award Agreements. Awards shall be evidenced by Award
Agreements having terms and conditions, not inconsistent with the Plan, as
prescribed by the Committee. Award Agreements need not be uniform.
(ix) Deferral of Receipt. By filing a written request with
the Committee or the Company not later than December 31st of any calendar year,
a Participant may elect to defer receipt of all or any portion of any stock to
be awarded pursuant to a Restricted Stock award, Performance Award or Other
Stock-Based Award which, absent such election, the Participant would be entitled
to receive during the calendar year following the Participant's request
(hereafter referred to as the
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"Deferred Award"). The Deferred Award will be delivered to the Participant on
January 2nd of the second calendar year following the calendar year in which the
deferral election is made. Successive elections may be made with respect to the
same Deferred Award to defer from year to year the receipt of such Deferred
Award. Each Participant shall be solely responsible for determining the personal
income tax effect of making any deferral election; the Company makes no
representation that such election shall have the effect of deferring receipt of
any income attributable to the Deferred Award for federal income tax purposes.
SECTION 7. AMENDMENT AND TERMINATION.
Except to the extent prohibited by applicable law and unless otherwise expressly
provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Committee or the Board may amend,
suspend or terminate the Plan without the consent of any stockholder,
Participant, other holder or beneficiary of an Award, or other Person; provided
that notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the stockholders of the Company no amendment,
suspension, or termination may be made that would:
(i) materially increase the total number of Shares available
for Awards under the Plan (except as provided in Section 4);
(ii) change the class of employees eligible to receive Awards
under the Plan; or
(iii) permit Awards encompassing rights to purchase Shares to
be granted with a per Share grant, exercise or purchase price of less than the
Fair Market Value of a Share on the date of grant thereof.
(b) Amendments to Awards. The Committee may waive any conditions
or rights under, amend any terms of, or alter any Award theretofore granted;
provided that, no change in any Award shall reduce the benefit accruing to any
Participant without the consent of the Participant; and provided further that,
no amendment, without the approval of the stockholders, may be made to any
outstanding Option to lower the purchase price per Share under that Option (or
to cancel and replace any outstanding Option with a new Option having a lower
purchase price per Share).
(c) Unusual or Nonrecurring Events. The Committee is hereby
authorized to make adjustments in the terms, conditions, and criteria of Awards
in recognition of unusual or nonrecurring events (including the events described
in Section 4(c) of the Plan) affecting the Company, any Affiliate, or the
financial statements of the Company or any Affiliate, or in recognition of
changes in applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan. Notwithstanding the foregoing, with respect to
any Award intended to qualify as performance-based compensation under Section
162(m) of the Code, no adjustment shall be authorized to the extent the
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adjustment would cause the Award to fail to qualify unless otherwise determined
in the sole discretion of the Committee.
SECTION 8. CHANGE OF CONTROL.
(a) Effect. If a Change of Control shall occur, each Award held by
a Participant pursuant to the Plan shall remain in full force and effect until
the earlier of (i) the expiration date of the Award, or (ii) 90 days following
the Participant's date of termination of employment with the Company.
(b) Defined. A Change of Control shall be deemed to occur when:
(i) the stockholders of the Company approve any agreement or
transaction pursuant to which: (A) the Company will merge or consolidate with
any other Person (other than a wholly owned subsidiary of the Company) and will
not be the surviving entity (or in which the Company survives only as the
subsidiary of another entity); (B) the Company will sell all or substantially
all of its assets to any other Person (other than a wholly owned subsidiary of
the Company); or (C) the Company will be liquidated or dissolved; or
(ii) any "person" or "group" (as these terms are used in
Section 13(d) and 14(d) of the Exchange Act) other than the Company, any
subsidiary of the Company, any employee benefit plan of the Company or its
subsidiaries, or any entity holding Shares for or pursuant to the terms of such
employee benefit plans, is or becomes an "Acquiring Person" as defined in the
Rights Agreement (or any successor Rights Agreement) (or, if no Rights Agreement
is then in effect, such person or group acquires or holds such number of shares
as, under the terms and conditions of the most recent such Rights Agreement to
be in force and effect, would have caused such person or group to be an
"Acquiring Person" thereunder); or
(iii) any "person" or "group" shall commence a tender offer or
exchange offer for 15% or more of the Shares then outstanding, or for any number
or amount of Shares which, if the tender or exchange offer were to be fully
subscribed and all Shares for which the tender or exchange offer is made were to
be purchased or exchanged pursuant to the offer, would result in the acquiring
person or group directly or indirectly beneficially owning 50% or more of the
Shares then outstanding; or
(iv) individuals who, as of any date, constitute the Board
(the "Incumbent Board") thereafter cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a person or group other than the Board; or
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(v) the occurrence of the Distribution Date (as defined in the
Rights Agreement); or
(vi) any other event determined by the Board or the Committee
to constitute a "Change of Control" hereunder.
(c) Actions of Committee. In addition to the Committee's authority
set forth in Section 7(c) of the Plan, in order to maintain the Participants'
rights in the event of any Change of Control, the Committee, as constituted
before the Change of Control, is hereby authorized, and has sole discretion, as
to any Award, either at the time the Award is made hereunder or any time
thereafter, to take any one or more of the following actions:
(i) provide for the acceleration of any time periods relating
to the vesting, exercise or realization of the Award so that the Award may be
exercised or realized in full on or before a date fixed by the Committee;
(ii) provide for the purchase of any Award, upon the
Participant's request, for an amount of cash equal to the amount that could have
been attained upon the exercise of the Award or realization of the Participant's
rights in the Award had the Award been currently exercisable or payable;
(iii) adjust any outstanding Award as the Committee deems
appropriate to reflect the Change of Control; or
(iv) cause any outstanding Award to be assumed, or new rights
substituted therefor, by the acquiring or surviving corporation after the Change
of Control. The Committee may in its discretion include other provisions and
limitations in any Award Agreement as it may deem equitable and in the best
interests of the Company.
SECTION 9. GENERAL PROVISIONS.
(a) No Rights to Awards. No Employee, Participant or other Person
shall have any claim to be granted any Award. The Committee is not required to
treat uniformly the Employees, Participants, or holders or beneficiaries of
Awards when making grants of Awards under the Plan. The terms and conditions of
Awards are not required to be the same with respect to each recipient.
(b) Delegation. Subject to the terms of the Plan and applicable
law, the Committee may delegate to one or more officers or managers of the
Company or any Affiliate, or to a committee of such officers or managers, the
authority, subject to the terms and limitations the Committee shall determine,
to grant Awards to, or to cancel, modify or waive rights with respect to, or to
amend, suspend, or terminate Awards held by, Employees who are not deemed
"officers" or "directors" of the Company for purposes of Section 16 of the
Exchange Act, or who are otherwise not subject to Section 16.
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50
(c) Withholding. The Company or any Affiliate is hereby authorized
to withhold from any Award, from any payment due or transfer made under any
Award or under the Plan or from any compensation or other amount owing to a
Participant the amount (in cash, Shares, other securities, other Awards or other
property) of any applicable withholding taxes with respect to an Award, its
exercise, the lapse of restrictions thereon, payment or transfer under an Award
or under the Plan, and to take any other action necessary in the opinion of the
Company to satisfy all obligations for the payment of the taxes.
(d) No Limit on Other Compensation Arrangements. Nothing contained
in the Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect any other compensation arrangements.
(e) No Right to Employment. The grant of an Award shall not be
construed as creating a contract of employment or giving Participant the right
to be retained in the employ of the Company or any Affiliate. Further, the
Company or an Affiliate may at any time dismiss a Participant from employment,
free from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Agreement.
(f) Governing Law. The validity, construction, and effect of the
Plan and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Texas and applicable federal law.
(g) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, Person or Award and the remainder of the Plan
and any such Award shall remain in full force and effect.
(h) NYSE Listing and Other Laws and Regulations. Notwithstanding
anything to the contrary contained in this Plan, in any Award, or any Award
Agreement or other agreement entered into under this Plan, the grant or making
of any Award shall be conditional and shall be granted or awarded subject to
acceptance of the shares of Common Stock deliverable pursuant to the Award for
listing on the NYSE. The Committee may refuse to issue or transfer any Shares or
other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of the Shares or other consideration
might violate any applicable law or regulation, violate any regulation for
admission or trading on the NYSE, or entitle the Company to recover any
consideration or proceeds under Section 16 of the Exchange Act, and any payment
tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded.
(i) No Trust or Fund Created. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or any
fiduciary relationship between the
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51
Company or any Affiliate and a Participant or any other Person. To the extent
that any Person acquires a right to receive payments from the Company or any
Affiliate pursuant to an Award, such right shall be no greater than the right of
any unsecured general creditor of the Company or any Affiliate.
(j) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(k) Code Section 162(m). It is intended for the Plan to meet the
requirements of Section 162(m) of the Code so that the Committee may, in its
discretion, make Awards of Options, Stock Appreciation Rights and Performance
Awards that constitute "performance-based" compensation within the meaning of
such section. If any provision of the Plan would not otherwise permit the Plan
to meet the requirements of Section 162(m) of the Code, such provision shall be
construed or deemed amended to conform with the requirements of such section;
provided that, no such construction or amendment shall have an adverse effect on
the economic value of any Award previously granted hereunder.
(l) Headings. Headings are given to the Sections and subsections
of the Plan solely as a convenience to facilitate reference. The headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
(m) Construction. Use of the term "including" in this Plan shall
be construed to mean "including but not limited to."
SECTION 10. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective May 10, 2001, provided the Plan is approved by the
stockholders of the Company.
SECTION 11. TERM OF THE PLAN.
The Plan shall expire on May 10, 2011. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award made prior
to, and outstanding on such date, shall remain valid in accordance with its
terms and conditions, and the authority of the Board or the Committee to amend,
suspend, or terminate any such Award or to waive any conditions or rights under
any such Award in accordance with the Plan, shall extend beyond such date.
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52
APPENDIX B
VALERO ENERGY CORPORATION
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
(Adopted May 4, 2000)
I. PURPOSE
The primary purpose of the Audit Committee ("Committee") of the Board of
Directors of Valero Energy Corporation (the "Company") is to assist the Board of
Directors in fulfilling its oversight responsibilities by: reviewing the
financial reports and other financial information provided by the Company to any
governmental body or to the public, and reviewing processes established by
management to assess whether an adequate system of financial reporting and
internal control is functioning within the Company. The Committee's primary
responsibilities are to:
o Serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system.
o Review the audit activities of the Company's independent accountants
and internal auditors.
o Provide an open avenue of communication among the Company's
independent accountants, its management, its internal auditing
department, and the Board of Directors.
The Committee will fulfill these responsibilities by carrying out the
activities described in Section III of this Charter, in accordance with the
parameters set forth in Section II of the Charter.
II. COMMITTEE MEMBERSHIP REQUIREMENTS
The Committee shall be comprised of at least three directors as
determined by the Board of Directors. The Board of Directors will designate one
member of the Committee to chair the committee. Each member of the Committee
shall be an independent director or be otherwise eligible to serve on the
Committee pursuant to the parameters for eligibility set forth by the Securities
and Exchange Commission and the New York Stock Exchange.
Specifically, each member of the Committee shall be financially literate,
or become financially literate within a reasonable period of time after
appointment to the Committee. The Board of Directors will exercise its business
judgment to appoint Committee members who fulfill this requirement. In addition,
at least one Committee member shall possess accounting or related financial
management expertise. The Board of Directors will exercise its business judgment
to appoint at least one Committee member who fulfills this requirement.
III. COMMITTEE FUNCTIONS.
A. Meetings. The Committee undertakes to meet at least three
times each year. The Committee will report to the Board of Directors
regarding any significant discussions or findings relating to the
meetings of the Committee.
B. Charter. The Committee shall annually review and reassess
the adequacy of this Charter.
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C. Independent Accountants. The independent accountants for
the Company are ultimately accountable to the Board of Directors and the
Committee. The Committee undertakes the following with respect to the
Company's independent accountants.
1. The Committee will recommend annually to the Board of
Directors the name of the independent accountants to be
appointed to conduct an examination and audit of the financial
statements of the Company and its subsidiaries.
2. The Committee will review with the appropriate officers
of the Company the terms of the independent accountants'
engagement with the Company, including fee estimates for
arranged audit services and special services.
3. The Committee will require the independent accountants
to submit to the Committee at least annually a written report
delineating all relationships between the independent
accountants and the Company (and its subsidiaries) as well as
the independent accountants' assessment of whether any such
relationships affect their ability to serve as independent
accountants for the Company. The Committee will discuss with
the appropriate officers of the Company and the independent
accountants any disclosed relationships or services that may
impact the objectivity and independence of the independent
accountants. The Committee will recommend that the Board of
Directors take appropriate action in response to the
independent accountants' report to satisfy itself of the
independent accountants' independence.
4. Before the Company files its Annual Report on Form 10-K
with the Securities and Exchange Commission, the Committee
will review and discuss with the appropriate officers of the
Company and the independent accountants any report or
information delivered to the Committee by the independent
accountants and required to be discussed under the Statement
on Auditing Standards (SAS) No. 61, as may be amended or
superseded, regarding the scope and results of the independent
accountants' audit.
5. The Committee shall review the audited financial
statements of the Company with the appropriate officers of the
Company and the independent accountants, and make a
recommendation to the Board of Directors whether the audited
financial statements should be included in the Company's
Annual Report on Form 10-K.
6. The Committee shall review the independent accountants'
internal control report and the adequacy of the Company's
internal controls with the appropriate officers of the Company
and the independent accountants.
D. The Company's Internal Auditors. The Committee will review
the Company's annual internal audit plan and annual internal audit
performance report with the appropriate officers of the Company,
including its Internal Audit Director, and the independent accountants.
The Committee will also review the Company's internal audit reports and
its completed and active internal audit projects with the appropriate
officers of the Company, including its Internal Audit Director, and the
independent accountants.
E. Environmental and Safety Matters. The Committee will review
annually the Company's and its subsidiaries' compliance with applicable
environmental and safety laws and regulations and the results of internal
environmental and safety assessment and compliance programs with the
appropriate environmental and safety personnel of the Company.
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F. Reporting. The Committee will prepare and deliver to the
Company a report of the Committee for inclusion in the Company's annual
proxy statement. The report will contain all of the information required
by the Securities and Exchange Commission pursuant to its rules and
regulations pertaining to reports of audit committees included in proxy
statements.
G. Other Activities. In its discretion, the Committee will
perform the following activities when deemed necessary or appropriate.
1. The Committee will meet separately with the Company's
financial and executive officers, including the Internal Audit
Director, and the Company's independent accountants to assess
whether any conditions may exist that could impair the working
relationship between the independent accountants and the
Company's management.
2. The Committee will review compliance with the Company's
policies regarding conflicts of interest and employee trading
of securities, and inquire about any fraud or significant
conflicts of interest.
3. The Committee will review any legal proceedings
affecting the Company or its subsidiaries that could have a
material adverse effect on the Company's financial statements.
4. The Committee will consider any other matters in
relation to the financial affairs of the Company and its
accounts, and in relation to audits of the Company, as the
Committee may determine to be advisable.
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55
VALERO ENERGY CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
The Board of Directors recommends a vote FOR FOR WITHHOLD FOR ALL EXCEPT
ALL Nominees listed under Item 1 and FOR ALL ALL NOMINEE(S) WRITTEN BELOW
Items 2 and 3.
1. Election of Directors
Nominees: 01 - Ruben M. Escobedo - - -
02 - Lowell H. Lebermann -----------------------
03 - William B. Richardson Nominee Exception(s)
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
2. Approval of Executive Stock Incentive Plan - - - 3. Ratification of Arthur - - -
Andersen LLP as auditors
for 2001.
Sign here exactly as name(s) appear on
this card.
Dated , 2001
---------------------------
(x)
------------------------------------
(x)
------------------------------------
I (we) hereby revoke all proxies
previously given to vote at the meeting
or any adjournments thereof and
acknowledge receipt of the Notice of
Annual Meeting and Proxy Statement. If
signing for a corporation or
partnership or as agent, attorney or
fiduciary, indicate full title or
capacity in which you are signing.
- ------------------------------------------------------------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET!
QUICK o EASY o IMMEDIATE o AVAILABLE 24 HOURS A DAY o 7 DAYS A WEEK
VALERO ENERGY CORPORATION encourages you to take advantage of convenient ways to vote your shares. If voting by proxy, you may vote
by mail, or choose one of the two methods described below. Your telephone or Internet vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed, and returned your proxy card. To vote by telephone or Internet, read the 2001
proxy statement and then follow these easy steps:
--------------------------------------------------------------------------------------------
Call toll free 1-877-482-6151 in the United States or Canada any time on a touch tone
TO VOTE BY PHONE telephone. There is NO CHARGE to you for the call.
Enter the 6-digit Control Number located above.
Option #1: To vote as the Board of Directors recommends on the proposals: Press 1
When asked, confirm your vote by pressing 1
Option #2: If you choose to vote on the proposals separately, press 0 and follow the simple
recorded instructions.
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Go to the following Website:
TO VOTE BY INTERNET
www.computershare.com/us/proxy
Enter the information requested on your computer screen, including your 6-digit Control
Number located above.
Follow the simple instructions on the screen. There is NO CHARGE to you to vote.
--------------------------------------------------------------------------------------------
If you vote by telephone or the Internet, DO NOT mail back the proxy card.
THANK YOU FOR VOTING!
56
VALERO ENERGY CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 10, 2001.
The undersigned hereby appoint(s) each of William E. Greehey, Gregory C.
King and Jay D. Browning as Proxies, with full power of substitution, to
represent and to vote all the shares of common stock of Valero Energy
Corporation ("Valero") which the undersigned would be entitled to vote at the
Annual Meeting of Stockholders to be held in San Antonio, Texas on Thursday, May
10, 2001, including any adjournment thereof, with respect to the matters set
forth in the Notice of Annual Meeting and Proxy Statement. When properly
executed, this proxy will be voted in accordance with the directions indicated,
or if no direction is made, will be voted for all of the nominees listed under
Item 1 and for Items 2 and 3. For shares allocated to a participant's account
pursuant to any Employee Stock Plan of Valero, this proxy will constitute an
instruction to the plan trustee as to how such shares are to be voted. In their
discretion, the Proxies are authorized to vote upon any other matter that may
properly come before the meeting and to vote for a substitute if a nominee named
in Proposal 1 is unable to serve.
The Board of Directors recommends a vote FOR~ALL~Nominees listed under Item 1
and FOR Items 2 and 3.
YOUR VOTE IS IMPORTANT. PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM
PROMPTLY USING THE ENCLOSED ENVELOPE, OR VOTE BY TELEPHONE
OR BY THE INTERNET BY FOLLOWING THE DIRECTIONS
ON THE REVERSE SIDE.
(Please See Reverse Side)