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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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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] 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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(4) Date Filed:
4-12-01
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Letter to Institutional Investors
and Shareholders
April 12, 2001
Inside Address
RE: Valero Energy Corporation Proxy Statement
Request for Approval of Valero's 2001 Executive Stock Incentive Plan
Dear _______:
By now you should have received Valero Energy Corporation's 2001 Proxy
Statement. In addition to soliciting votes for the election of three directors
to our Board and ratifying the appointment of auditors, we are seeking
shareholder approval of the 2001 Executive Stock Incentive Plan (ESIP) for
executive officers and other key employees of the company. We are committed to
delivering value to our shareholders and we firmly believe in long-term,
stock-based incentives for our executives and key employees. Stock-based
incentives ALIGN the interests of our employees with yours and help us to
attract and retain the very best talent in the industry. We believe our emphasis
on stock-based compensation has played a large role in Valero's outstanding
total shareholder return for 2000, as illustrated by the Performance Graph in
our Proxy Statement. Valero's total shareholder return in 2000 was more than 90%
- -the best in our peer group. In addition, as indicated in the Annual Report
accompanying the Proxy Statement, Valero also posted record earnings and return
on equity for the year.
Our present ESIP, which was established in 1997, has only 170,000 shares
remaining for future grants. These shares will be depleted this year and the
company will no longer have a vehicle for equity grants to its executive
officers and key employees. The 2001 ESIP submitted for your approval in this
year's Proxy Statement would make an additional three million shares available
for stock-based incentives.
Unlike many other companies in the energy industry, Valero believes in granting
stock options not only to its executives and senior management, but also to the
key professional and technical employees who are responsible for the day-to-day
operation of our refineries. These are employees who really have an impact on
building shareholder value. We currently consider 1,100 of our key employees,
which represents over a third of our employees, eligible for stock option
grants. Because of the depth into the organization to which we grant options and
because Valero employees have a track record of holding their options for the
long-term, Valero's potential dilution from equity compensation plans is higher
than many of its peers who do not place the same emphasis on stock-based
incentives for their employees.
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We know that many investor groups use the advisory services of Institutional
Shareholder Services (ISS) for guidance on how they should vote on various proxy
matters. ISS has developed its own shareholder dilution model to assess a
company's option overhang position compared to its industry peers.
Unfortunately, ISS' dilution model gives little or no consideration to the fact
that nearly all of the shares that have been delivered to our employees under
our equity compensation plans have come from treasury shares repurchased by the
company and not from newly issued shares. In the last four years, the total
dilution that has resulted from all of our equity compensation plans is a MERE
238,000 SHARES, WHICH IS LESS THAN ONE HALF OF ONE PERCENT OF OUR TOTAL SHARES
OUTSTANDING. Nevertheless, ISS has advised us that based SOLELY on their
dilution model, they intend to recommend that their investor clients vote
against our request for additional shares.
We think that ISS' views create the unfortunate incentive for companies to
ENCOURAGE their employees to quickly exercise their stock options in order to
minimize the companies' overhang position and allow for more grants in the
future. We believe our equity compensation philosophy has proven to be an
excellent means for aligning our employee's interests with your interests in the
long-term growth of Valero.
Our Recommendation
The company's management and Board of Directors are requesting that you VOTE FOR
our proxy request to approve the 2001 Executive Stock Incentive Plan. If you or
your organization seek direction from ISS, we hope that you will not let their
recommendation influence your decision and instead vote for the ESIP for the
reasons that we've outlined in this letter.
Valero has followed sound corporate governance practices and has delivered on
its commitment to provide shareholder value. Without approval of the 2001 ESIP,
we will be placed in a difficult position versus our peers in attracting and
retaining executives and key employees. To remain competitive, we will be forced
to increase the cash component of compensation to our executives and key
employees, which is not in line with our compensation philosophy and distances
the employees' interests from yours as a shareholder. In order for us to
continue to retain and attract the best and brightest talent in our industry, we
need you to approve this plan.
Should you have any questions regarding this matter, I hope that you will
contact Keith Booke, Executive Vice President and Chief Administrative Officer,
at 210/370-2099, or Lee Bailey, Vice President of Investor Relations, at
210/370-2139.
Sincerely,
Bill Greehey
Chairman of the Board and
Chief Executive Officer