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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[ ] 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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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 2002 ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors has determined that the 2002 Annual Meeting of
Stockholders of Valero Energy Corporation will be held on Thursday, May 9, 2002
at 10:00 a.m., Central Time, at Valero's offices in San Antonio, Texas, located
at 6000 North Loop 1604 West, San Antonio, Texas 78249-1112, for the following
purposes:
(1) To elect two Class I directors to serve until the 2004 Annual
Meeting, four Class II directors to serve until the 2005
Annual Meeting, and one Class III director to serve until the
2003 Annual Meeting, or in each case until their respective
successors are elected and have qualified;
(2) To ratify the appointment of Ernst and Young LLP as
independent public accountants to examine Valero's accounts
for the year 2002; and
(3) To transact any other business properly brought before the
meeting.
By order of the Board of Directors,
Jay D. Browning
Vice President and
Corporate Secretary
San Antonio, Texas
April 5, 2002
VALERO ENERGY CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 9, 2002
GENERAL INFORMATION
This Proxy Statement is being mailed to stockholders beginning on or about
April 5, 2002 in connection with the solicitation of proxies by the Board of
Directors of Valero Energy Corporation(1) to be voted at the 2002 Annual Meeting
of Stockholders of Valero on May 9, 2002. 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 11, 2002 are
entitled to vote on the matters presented at the Annual Meeting. On the record
date, 105,671,352 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
9, 2002 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 two 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 $11,500,
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 as a wholly owned subsidiary of a corporation then
known as 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 to them 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."
1
PARTICIPANTS IN VALERO BENEFIT PLANS PLEASE NOTE:
In the case of participants in Valero's 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 accounts under the thrift plan. For those
shares held under the plan, the proxy card will constitute an instruction to the
Trustee of the 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 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 2001, the board held 10 meetings and the committees held 11
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 Board is currently comprised of twelve members.
The Board has standing Audit, Compensation, Executive and Finance 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 2001 are described below.
EXPANSION OF BOARD OF DIRECTORS IN CONNECTION WITH UDS MERGER
On December 31, 2001, Ultramar Diamond Shamrock Corporation ("UDS") merged with
and into Valero, with Valero as the surviving corporation of the merger. The
Agreement and Plan of Merger (the "Merger Agreement"), dated May 6, 2001 between
Valero and UDS required in connection with the merger that Valero expand its
Board of Directors by up to four members and cause four members of the UDS board
of directors (collectively, the "UDS Board Designees") to be appointed to
Valero's Board of Directors. The Merger Agreement further required Valero to
nominate and recommend each of the UDS Board Designees for reelection to
Valero's Board of Directors at the May 9, 2002 Annual Meeting of Stockholders,
with at least one UDS Board Designee serving in each of the three classes of
directors and with no more than two UDS Board Designees serving in the same
class of directors. Accordingly, pursuant to the recommendation of the
Nominating Committee, made at its meeting on October 10, 2001, the Board of
Directors at its meeting on October 18, 2001 expanded the size of Valero's Board
of Directors and appointed the UDS Board Designees to Valero's Board of
Directors, effective upon the consummation of the merger on December 31, 2001.
The UDS Board Designees are Messrs. E. Glenn Biggs, W. E. "Bill" Bradford, W. H.
Clark and Bob Marbut. As further described below under the heading, "Proposal
No. 1 Election Of Directors," the Nominating Committee and the Board have also
nominated and recommended to the Stockholders that each UDS Board Designee be
reelected to Valero's Board of Directors. The class assignments for the UDS
Board Designees and Valero's other Board members are shown below under Proposal
No. 1.
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), E. Glenn
2
Biggs, W. E. "Bill" Bradford and Dr. Susan Kaufman Purcell. The Audit Committee
met three times in 2001. For further information, see the "Report of the Audit
Committee" on page 24.
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 Bob Marbut, none of whom are current or
former employees or officers of Valero. The Compensation Committee met five
times in 2001.
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.
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), E. Glenn Biggs, Robert G. Dettmer and Ruben M.
Escobedo. The Executive Committee met once in 2001.
FINANCE COMMITTEE
The Finance Committee reviews and monitors the investment policies and
performance of the Company's thrift and pension plans, insurance and risk
management policies and programs, and finance and financial policy matters as
needed. Current members of the Finance Committee are W. H. Clark (Chairman), Dr.
Ronald K. Calgaard, Dr. Donald M. Carlton and William B. Richardson. The Finance
Committee, which was formed in connection with the UDS merger, did not meet in
2001 and has had one meeting in 2002.
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 nominations, and may consider and recommend candidates for election to
the Board. Robert G. Dettmer (Chairman) and Dr. Ronald K. Calgaard were
appointed as a Nominating Committee by the Board with respect to nominations for
the 2002 Annual Meeting. As indicated above under the heading, "Expansion of
Board of Directors in Connection with UDS Merger," the Nominating Committee also
considered and made recommendations to the Board with respect to the UDS Board
Designees to be appointed to Valero's Board of Directors in connection with the
UDS merger, and assignments for the committees of the Board. The full Board
approved the recommendations of the Nominating Committee and adopted resolutions
approving the UDS Board Designees, the slate of director nominees to stand for
election at the 2002 Annual Meeting, and assignments for the committees of the
Board. There were two Nominating Committee meetings in 2001.
3
COMPENSATION OF DIRECTORS
Non-employee directors receive a retainer fee of $25,000 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 (becomes 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 that 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 2,000
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.
The Board of Directors determined in 2001 to cease benefit accruals in the
Retirement Plan for Non-Employee Directors, or Retirement Plan. The plan
provided for non-employee directors to receive a retirement benefit upon
completion of five years of service. The annual benefit at retirement was 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 was then paid for a period (not
to exceed 10 years) that is equal to the 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 was counted for purposes of computing benefits
under the Retirement Plan. The Retirement Plan provided no survivor benefits and
was an unfunded plan paid from the general assets of the Company. The Board also
determined that the Director retirees already receiving benefits under the
Retirement Plan would continue to receive their benefits in accordance with the
terms of the plan. Additionally, they determined that each of the then current
directors would receive the actuarial value of their accrued benefits through
December 31, 2001, via a lump sum cash payment or a monthly annuity for the
director's length of service on the Board, not to exceed 10 years.
4
PROPOSAL NO. 1 ELECTION OF DIRECTORS
The Company's Board is divided into three classes for purposes of election. Two
Class I directors, four Class II directors and one Class III director will be
elected at the Annual Meeting. The Class I directors will serve until the 2004
Annual Meeting of Stockholders, the Class II directors will serve until the 2005
Annual Meeting and the Class III director will serve until the 2003 Annual
Meeting. The nominees for Class I director are E. Glenn Biggs and Bob Marbut.
The nominees for Class II director are W. E. "Bill" Bradford, Dr. Ronald K.
Calgaard, William E. Greehey and Dr. Susan Kaufman Purcell. The nominee for
Class III director is W. H. Clark.
The persons named in the enclosed proxy card intend to vote for the election of
each of the 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 nominees for Class I, Class II
and Class III directors 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 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.
5
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 2003 and 2004. The
information provided 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.
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EXECUTIVE
OFFICER AGE AS OF PRESENT
POSITION(s) HELD OR DIRECTOR DECEMBER 31, TERM DIRECTOR
NAME WITH VALERO SINCE (1) 2001 EXPIRES CLASS
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NOMINEES
Dr. Ronald K. Calgaard Director 1996 64 2002 II
William E. Greehey Director, Chairman 1979 65 2002 II
of the Board, Chief
Executive Officer
and President
Dr. Susan Kaufman Purcell Director 1994 59 2002 II
FORMER UDS DIRECTOR NOMINEES (2)
E. Glenn Biggs Director 2001 68 2004 I
Bob Marbut Director 2001 66 2004 I
W. E. "Bill" Bradford Director 2001 67 2004 II
W. H. Clark Director 2001 69 2003 III
OTHER CURRENT DIRECTORS
Ruben M. Escobedo Director 1994 64 2004 I
William B. Richardson Director 2001 54 2004 I
Dr. Donald M. Carlton Director 1999 64 2003 III
Jerry D. Choate Director 1999 63 2003 III
Robert G. Dettmer Director 1991 69 2003 III
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(1) Dates reported include service with Old Valero prior to the July 31,
1997 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, Messrs. Biggs, Marbut, Bradford
and Clark, who were elected as directors by the Board during 2001, will
be assigned to the director class indicated upon election by the
stockholders at the Annual Meeting.
6
CLASS II NOMINEES
DR. CALGAARD served as President of Trinity University, San Antonio, Texas, from
1979 until his retirement in 1999. Dr. Calgaard currently serves as Chairman 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 the Restructuring in 1997 and of Old Valero since 1996.
MR. GREEHEY has served as Chairman of the Board and Chief Executive Officer of
Valero since the Restructuring in 1997, has served as President of Valero since
December 31, 1998, and previously served as Chairman of the Board and Chief
Executive Officer of Old Valero. Mr. Greehey is also a director of the managing
general partner of Valero L.P.
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 serves as a director of The Brazil Fund, Inc., The Korea Fund, Inc., Scudder
Global High Income Fund, Inc. and Scudder New Asia Fund, Inc. Dr. Purcell has
served as a director of Valero since the Restructuring in 1997 and of Old Valero
since 1994.
FORMER UDS DIRECTOR NOMINEES
CLASS I NOMINEES
MR. BIGGS is President of Biggs & Co., a corporation engaged in developmental
projects and financial planning. He has been involved in commercial banking
beginning with his service as Chairman of the Board of First National Bank of
San Antonio. He later served as Vice Chairman and Chairman of the Executive
Committee of InterFirst Bank, San Antonio. He is currently Chairman of Hester
Asset Management Corp. and Southwestern Bancorp. He is a former Chairman and
Director of Bolivian Power Corporation. He previously served as a director of
Valero Natural Gas Company from 1987 to 1989. Mr. Biggs served as a director of
UDS or its predecessors since 1987.
MR. MARBUT has been Chairman and Chief Executive Officer of Argyle
Communications, Inc. since January 1992, and Chairman of Hearst-Argyle
Television, Inc. since August 1997. He was also Co-CEO of Hearst-Argyle from
August 1997 until January 1, 2001. He was Chairman and Chief Executive Officer
of Argyle Television, Inc. from August 1994 until its merger with Hearst
Broadcasting in August 1997. He was Chairman and Chief Executive Officer of
Argyle Television Holding, Inc. from its founding in March 1993 until April
1994. Prior to 1992, Mr. Marbut was President and Chief Executive Officer of
Harte-Hanks Communications, Inc. for 20 years and served one year as Vice
Chairman of that company. He is a director of Tupperware Corporation,
Hearst-Argyle Television, Inc., ProAct Technologies Corp., and iKnowledge, Inc.
Mr. Marbut served as a director of UDS or its predecessors since 1990.
CLASS II NOMINEE
MR. BRADFORD is the retired Chairman of Halliburton Company. He became Chairman
of Halliburton Company upon its merger in 1998 with Dresser Industries, Inc.
Prior to that, Mr. Bradford was Chairman and Chief Executive Officer of Dresser
Industries, Inc. Mr. Bradford had been with Dresser Industries, Inc. since 1963,
holding various positions in production and management. He is also a director of
Kerr-McGee Corporation. Mr. Bradford served as a director of UDS or its
predecessors since 1992.
7
CLASS III NOMINEE
MR. CLARK is the retired Chief Executive Officer and Chairman of the Board of
Directors of Nalco Chemical Company. He was the President and Chief Executive
Officer of Nalco Chemical Company from 1982 until 1990, and Chairman of the
Board of Directors and Chief Executive Officer of that company from 1984 until
1994. Mr. Clark is President of W. "H" Clark Associates, Ltd., and is a director
of Merrill Lynch Corporation, Bethlehem Steel Corporation, Georgia Pacific
Corp., Millennium Chemicals Corp., The Merchants Exchange and Exchange Cubed. He
served as a director of UDS or its predecessors since 1994.
OTHER CURRENT DIRECTORS
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 the Restructuring in 1997 and of Old Valero
since 1994.
MR. RICHARDSON was elected as a director of Valero in 2001. He 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. He is presently a candidate in the November
2002 election for the office of Governor of the State of New Mexico. Mr.
Richardson is Senior Managing Director of Kissinger McLarty Associates. He also
serves as a director of Diamond Offshore Drilling, Inc. and Peregrine Systems,
Inc., and acts as a consultant for Salomon Smith Barney's Global Energy and
Power Group.
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 as a trustee of 26 Smith Barney (Citi) mutual funds.
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 the Restructuring in 1997 and of Old Valero since
1991.
RETIRED DIRECTOR
MR. LOWELL H. LEBERMANN retired from Valero's Board of Directors effective
December 31, 2001. 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 served as a director of Valero
since 1986, and previously served on Valero's Board from 1979 to 1983.
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 Securities," "Executive
Compensation," "Arrangements with Certain Officers and Directors" and
"Transactions with Management and Others."
8
BENEFICIAL OWNERSHIP OF VALERO SECURITIES
The following table sets forth information as of December 31, 2001 with respect
to each entity known to Valero to be the beneficial owner of more than 5% of its
Common Stock, based solely upon a statement on Schedule 13G filed by such entity
with the Securities and Exchange Commission ("SEC"):
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SHARES
NAME AND ADDRESS BENEFICIALLY PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNED OF CLASS *
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Common Stock AXA Financial, Inc. (1) 5,922,605 5.7%
1290 Avenue of the Americas
11th Floor
New York, New York 10104
Common Stock Mellon Financial Corporation (2) 4,549,299 4.4%
One Mellon Center
Pittsburgh, Pennsylvania 15258
Common Stock Putnam Investments LLC (3) 3,112,359 3.0%
One Post Office Square
Boston, MA 02109
* The reported percentage is based on the number of shares of Valero common
stock issued and outstanding of 104,424,109 shares on December 31, 2001,
following the consummation on December 31, 2001 of the merger of UDS with and
into Valero. Per the terms of the merger Valero issued 45,887,826 additional
shares of its common stock to shareholders of UDS as part of the merger
consideration.
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(1) AXA Financial, Inc. has filed with the SEC a Schedule 13G, reporting that
it or certain of its affiliates beneficially owned 5,922,605 shares. One
such affiliate, Alliance Capital Management L.P., reported sole
dispositive power with respect to 5,783,405 shares, sole voting power with
respect to 3,593,705 shares and shared voting power with respect to
387,225 shares.
(2) Mellon Financial Corporation has filed with the SEC a Schedule 13G,
reporting that it or certain of its affiliates beneficially owned
4,549,299 shares. One such affiliate, The Boston Company, Inc., reported
beneficial ownership of 3,392,631 shares, sole voting power with respect
to 2,700,162 shares, shared voting power with respect to 1,740 shares,
sole dispositive power with respect to 3.367,631 shares and shared
dispositive power with respect to 4,034 shares.
(3) Putnam Investments LLC has filed with the SEC a Schedule 13G, reporting
that it or certain of its affiliates beneficially owned 3,112,359 shares.
Putman Investments, LLC reported shared voting power with respect to
449,847 shares, and shared dispositive power with respect to 3,112,359
shares. Putnam Investment Management, LLC reported shared dispositive
power with respect to 2,569,839 shares. Putnam Advisory Company, LLC
reported shared voting power with respect to 449,847 shares and shared
dispositive power with respect to 542,520 shares.
9
Except as otherwise indicated, the following table sets forth information as of
February 1, 2002 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.
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COMMON STOCK
PERCENT
SHARES SHARES UNDER OF CLASS
NAME OF BENEFICIALLY EXERCISABLE COMMON
BENEFICIAL OWNER (1) OWNED(2)(3) OPTIONS(4) STOCK)(2)
--------------------------------------------------------------------------------
E. Glenn Biggs 1,170 13,909 *
Keith D. Booke 41,162 47,500 *
W. E. Bradford 10,139 13,909 *
Dr. Ronald K. Calgaard 2,850 11,468 *
Dr. Donald M. Carlton 3,389 5,334 *
Jerry D. Choate 2,014 5,334 *
W. H. Clark 6,800 13,909 *
Robert G. Dettmer(5) 11,041 14,456 *
Ruben M. Escobedo(6) 6,442 14,456 *
John D. Gibbons 60,086 66,064 *
William E. Greehey(7) 1,224,710 2,568,433 3.54%
John F. Hohnholt 47,929 78,457 *
Gregory C. King 48,117 90,040 *
Bob Marbut 1,170 13,909 *
Dr. Susan Kaufman Purcell 3,845 14,456 *
William B. Richardson 1,245 1,667 *
All executive officers and
directors as a group, including
the persons named above
(18 persons)(8) 1,523,192 3,059,839 4.25%
--------------------------------------------------------------------------------
* 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, 2002, 104,689,898 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, 2002, 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 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.
10
(4) Includes shares subject to options that are exercisable within 60 days
from February 1, 2002. 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:
118,334 shares awarded under the Executive Stock Incentive Plan as
performance shares and 123,640 shares awarded under the plan that
comprise Mr. Greehey's bonus award for 2001.
(8) Only those officers of Valero who have been designated by the Board as
"executive officers" for 2001 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, 2001, 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.
11
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 peer companies selected by Valero for
the period of five fiscal years commencing December 31, 1996 and ending December
31, 2001. The Peer Group selected by Valero consists of two companies, Sunoco,
Inc. and Ultramar Diamond Shamrock Corporation ("UDS"), that are engaged in the
domestic petroleum refining industry with business operations, risks and markets
comparable to Valero's. Valero's Peer Group for the prior year also included
Tosco Corporation. Because Tosco merged into Phillips Petroleum Corporation on
September 17, 2001, Tosco is no longer included in the Peer Group.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG VALERO ENERGY CORPORATION,
THE S & P 500 INDEX AND A PEER GROUP
[GRAPH]
12/1996 12/1997 12/1998 12/1999 12/2000 12/2001
------- ------- ------- ------- ------- -------
Valero Common Stock.............................. 100 165 113 107 202 209
Peer Group....................................... 100 136 114 90 131 180
S&P 500.......................................... 100 133 171 208 189 166
This Performance Graph and the related textual information are based on
historical data and are not necessarily indicative of future performance.
----------
* Assumes an investment in Old Valero common stock (Valero's former parent)
and assumes that each index was $100 on December 31, 1996. "Cumulative
Total Return" is based on share price appreciation plus reinvestment of
dividends on Old Valero common stock from December 31, 1996 through the
date of the Restructuring (July 31, 1997) and on Valero Common Stock from
the date of the Restructuring through December 31, 2001 (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).
12
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 11 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 non-cash 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.
13
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
50% 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 2001:
o return on equity, or ROE, compared with the average ROE for a group of
three companies in the domestic oil refining and marketing business,
referred to as the Target Group, for the 12-month period ended
September 30, 2001;
o return on investment, or ROI, for the 12 month period ended September
30, 2001, compared with the ROI of the Target Group;
o earnings per share, or EPS, of Valero's common stock in 2001 (based on
estimates available at the time of computation) compared with Valero's
EPS for 2000; and
o the daily average closing price per share of Valero's common stock
during November 2001 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 2001. 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 2001, the Company's performance was above the Target Group average for ROE,
above the Target Group average for ROI, and above the 2000 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.
In furtherance of Valero's goal of increasing stock ownership as a component of
both short and long-term
14
compensation, 25% of each bonus award was paid with shares of Valero's common
stock and the remainder in cash.
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, 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. 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,
respectively; 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, 2001, Valero's performance 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 awards 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.
STOCK OPTIONS
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, provide for an option price equal to the market price of
Valero's common stock on the date of grant 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.
15
DETERMINATION OF THE CEO'S COMPENSATION
The CEO's compensation is recommended by the Committee and approved by the Board
of Directors. Mr. Greehey's base salary, which is determined as described above,
was set at $1.3 million in 2000 and was not changed in 2001. In determining the
CEO's annual incentive bonus for the 2001 bonus year, the Committee considered
the four financial performance measures previously discussed 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 2001, particularly in stewarding
the successful acquisitions of Ultramar Diamond Shamrock Corporation, Huntway
Refining Company and El Paso Corporation's Corpus Christi refinery and related
logistics assets, the Committee recommended, and on January 17, 2002 the Board
of Directors approved, a bonus award to Mr. Greehey equal to $5,000,000, which
is approximately 3.8 times his annual base pay, 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 $1.9 million in 2001. 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 $1.9 million. The loan is evidenced by a promissory note executed by Mr.
Greehey and made payable to Valero. The loan will be combined with a similar
$400,000 loan made to Mr. Greehey in 2001. The note has a five-year term and
bears interest at a rate of 4.49% 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 $1 million only if it is paid (i) solely upon
attainment of one or more performance goals, (ii) pursuant to a qualifying
performance-based compensation plan adopted by the Committee, and (iii) the
material terms, including the performance goals, of such plan are approved by
the stockholders before payment of the compensation. Valero believes that stock
option awards and performance share grants under the Executive Stock Incentive
Plan qualify as performance-based compensation and are not subject to any
deductibility limitations under Section 162(m). Grants of restricted stock and
other stock based awards will likely not qualify as "performance based"
compensation and, in such event, would be subject to 162(m) deduction
restrictions.
MEMBERS OF THE COMPENSATION COMMITTEE:
Robert G. Dettmer, Chairman
Jerry D. Choate
Bob Marbut
16
EXECUTIVE COMPENSATION
The following table provides a summary of compensation paid for the last three
years to Valero's CEO and to its four other most highly compensated executive
officers. The table shows amounts earned by such persons for services rendered
to the Company in all capacities in which they served. Benefits under health
care, disability, term life insurance, vacation and other plans available to
employees generally are not included in the table.
SUMMARY COMPENSATION TABLE (1999-2001)
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
----------------------------------- STOCK UNDERLYING LTIP ALL OTHER
NAME AND BONUS AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION(s) YEAR SALARY($) ($)(1) ($)(2) (#) ($)(3) ($)(4)
------- ----------- ----------- ----------- ----------- ----------- -----------
William E. Greehey 2001 1,300,008 5,000,000 0 250,000 9,983,835 148,407
Chairman of the Board, 2000 1,266,674 3,600,000 0 150,000 7,494,375 98,212
President and Chief 1999 900,000 600,000 0 860,000 1,032,429 77,635
Executive Officer
Gregory C. King 2001 395,841 500,000 0 30,000 633,455 34,956
Executive Vice President 2000 345,833 375,000 0 30,000 420,898 22,151
and General Counsel 1999 266,169 90,000 143,750 32,500 158,533 20,012
John D. Gibbons 2001 369,167 450,000 0 30,000 590,351 33,146
Executive Vice President 2000 300,833 350,000 0 30,000 398,171 18,535
and Chief Financial Officer 1999 255,000 80,000 40,313 12,500 130,875 20,056
Keith D. Booke 2001 345,004 455,000 0 30,000 549,916 31,448
Executive Vice President and 2000 286,917 325,000 0 30,000 375,375 17,847
Chief Administrative Officer 1999 233,755 76,000 81,688 27,500 123,633 18,690
John F. Hohnholt 2001 307,091 360,000 0 24,000 506,812 28,202
Senior Vice President 2000 272,504 300,000 0 18,000 366,298 16,884
1999 245,004 70,000 40,313 12,500 130,875 19,419
(1) For 1999, executive bonuses were paid 50% cash and 50% in Common Stock. For
2000, executive bonuses (other than Mr. Greehey) were paid 50% in cash and
50% in Common Stock. For 2001, executive bonuses (other than Mr. Greehey)
were paid 75% in cash and 25% in Common Stock. Mr. Greehey's bonus awards
for 2000 and 2001 were made 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 restricted stock at the same rate as on Valero's
unrestricted Common Stock. 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, 2001 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, 0 shares, Mr. King,
1,666 shares, $63,508; Mr. Gibbons, 0 shares; Mr. Booke, 666 shares,
$25,388; and Mr. Hohnholt, 0 shares.
(3) LTIP payouts are the number of performance share awards vested for 2001
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 $101,834,
$31,084, $29,025, $27,117 and $24,109, respectively, as a result of Company
contributions to the Thrift Plan and Valero's Excess Thrift Plan for 2001,
and received $6,335, $2,586, $4,121, $4,331 and $3,522, respectively, as
reimbursement of certain membership dues. Mr. Greehey also received $22,726
as a result of "above-market" allocations to the Executive Deferred
Compensation Plan for 2001. 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 $12,212 for 1999, 2000 and
2001.
17
STOCK OPTION GRANTS AND RELATED INFORMATION
The following table provides further information regarding the grants of stock
options to the named executive officers reflected in the Summary Compensation
Table.
OPTION GRANTS IN THE LAST FISCAL YEAR (1)
---------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS MARKET
UNDERLYING GRANTED PRICE AT GRANT DATE
OPTIONS TO EMPLOYEES EXERCISE PRICE GRANT DATE EXPIRATION PRESENT VALUE
NAME GRANTED(#) IN FISCAL YEAR ($/SH)(1) ($/SH) DATE ($)(2)
---------------------------------------------------------------------------------------------------------------
William E. Greehey 250,000 10.2% 33.7450 33.7450 07/18/11 $2,912,750
Gregory C. King 30,000 1.2% 33.7450 33.7450 07/18/11 $349,530
John D. Gibbons 30,000 1.2% 33.7450 33.7450 07/18/11 $349,530
Keith D. Booke 30,000 1.2% 33.7450 33.7450 07/18/11 $349,530
John F. Hohnholt 24,000 1.0% 33.7450 33.7450 07/18/11 $279,624
---------------------------------------------------------------------------------------------------------------
(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 life of 3.32 years, risk-free rate of
return of 4.51%, average volatility rate for the 3.32 year period prior to
the grant date of 45.42%, and dividend yield of 1.19%, which is the
expected 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.
18
LONG TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR (1)
-------------------------------------------------------------------------------------------------------------------
ESTIMATED FUTURE PAYOUTS
PERFORMANCE 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 25,000 12/31/01 0 25,000 50,000
25,000 12/31/02 0 25,000 50,000
25,000 12/31/03 0 25,000 50,000
Gregory C. King 2,667 12/31/01 0 2,667 5,333
2,667 12/31/02 0 2,667 5,333
2,667 12/31/03 0 2,667 5,333
John D. Gibbons 2,467 12/31/01 0 2,467 4,933
2,467 12/31/02 0 2,467 4,933
2,467 12/31/03 0 2,467 4,933
Keith D. Booke 2,300 12/31/01 0 2,300 4,600
2,300 12/31/02 0 2,300 4,600
2,300 12/31/03 0 2,300 4,600
John F. Hohnholt 1,900 12/31/01 0 1,900 3,800
1,900 12/31/02 0 1,900 3,800
1,900 12/31/03 0 1,900 3,800
-------------------------------------------------------------------------------------------------------------------
(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, 2001, 2002 and 2003, 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, 2001, and options exercised during 2001, 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
NUMBER OF SECURITIES IN-THE-MONEY
SHARES UNDERLYING UNEXERCISED OPTIONS AT
ACQUIRED VALUE OPTIONS AT FY-END(#) FY-END ($)(1)
ON EXERCISE REALIZED -------------------------- --------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------------------------------------------------------------------------------------------------
William E. Greehey -- -- 2,568,433 350,000 45,222,707 2,105,750
Gregory C. King 2,937 57,316 90,040 60,832 1,379,393 449,855
John D. Gibbons 2,937 57,316 66,064 54,166 973,604 331,250
Keith D. Booke 2,937 57,316 47,500 59,166 678,839 417,513
John F. Hohnholt 5,975 203,029 78,457 40,166 1,363,291 226,440
2,937 57,316
--------------------------------------------------------------------------------------------------------------
(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, 2001.
19
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 $108,000 $126,000
300,000 84,000 111,000 139,000 167,000 194,000
400,000 113,000 150,000 188,000 225,000 263,000
500,000 142,000 189,000 236,000 284,000 331,000
600,000 171,000 228,000 285,000 342,000 399,000
700,000 200,000 267,000 334,000 401,000 467,000
800,000 230,000 306,000 383,000 459,000 536,000
900,000 259,000 345,000 431,000 518,000 604,000
1,000,000 288,000 384,000 480,000 576,000 672,000
1,100,000 317,000 423,000 529,000 635,000 740,000
1,200,000 347,000 462,000 578,000 693,000 809,000
1,300,000 376,000 501,000 626,000 752,000 877,000
1,400,000 405,000 540,000 675,000 810,000 945,000
1,500,000 434,000 579,000 724,000 869,000 1,013,000
1,600,000 464,000 618,000 773,000 927,000 1,082,000
1,700,000 493,000 657,000 821,000 986,000 1,150,000
1,800,000 522,000 696,000 870,000 1,044,000 1,218,000
1,900,000 551,000 735,000 919,000 1,103,000 1,286,000
2,000,000 581,000 774,000 968,000 1,161,000 1,355,000
------------------------------------------------------------------------------------------------------------
Valero maintains a noncontributory defined benefit Pension Plan in which
virtually all employees are eligible to participate and under which
contributions by individual participants are neither required nor permitted.
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 earnings during the three consecutive calendar years during the
last 10 years of the participant's credited service, including service with Old
Valero, affording the highest such average) times the participant's years of
credited service. The SERP provides an additional benefit equal to .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. 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,
including employment with Old Valero and its subsidiaries, are considered.
Compensation for purposes of the Pension Plan, Excess Pension Plan and SERP
includes salary and bonus as reported in the Summary Compensation Table. 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, 2001 for the
executive officers named in the Summary Compensation Table are as follows: Mr.
Greehey - 38 years; Mr. King - 8 years; Mr. Gibbons - 21 years; Mr. Booke - 19
years; and Mr. Hohnholt - 20 years.
20
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 expired
on July 31, 2001. In accordance with the agreement, prior to the expiration
date, Mr. Greehey delivered written notice to Valero of his intention to extend
the employment agreement, and the Company and Mr. Greehey executed an extension
of employment agreement that extended the term of Mr. Greehey's employment
beyond the end of the initial period on a month-to-month basis. 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
21
agreement, plus (ii) an amount equal to the highest annual bonus paid to Mr.
Greehey during the preceding five years. If Mr. Greehey's 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.
22
PROPOSAL NO. 2 RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
Following a thorough evaluation, and in accordance with the recommendation of
the Audit Committee, the Board of Directors determined on March 12, 2002 to
engage Ernst and Young LLP to serve as the Company's independent auditors for
the fiscal year ending December 31, 2002. Prior to the selection of Ernst and
Young, Arthur Andersen LLP served as the company's independent auditors.
Arthur Andersen's reports on the Company's consolidated financial statements for
each of the years ended December 31, 2001 and 2000 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. During the years ended
December 31, 2001 and 2000 and through the date hereof, there were no
disagreements with Arthur Andersen on any matter of accounting principle or
practice, financial statement disclosure, or auditing scope or procedure which,
if not resolved to Arthur Andersen's satisfaction, would have caused them to
make reference to the subject matter in connection with their report on the
Company's consolidated financial statements for such years; and there were no
reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
During the years ended December 31, 2001 and 2000 and through the date hereof,
the Company did not consult Ernst and Young LLP with respect to the application
of accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on the Company's
consolidated financial statements, or any other matters or reportable events as
set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
The Board requests stockholder approval of the following resolution adopted at
the Board of Directors meeting held on March 12, 2002, appointing Ernst and
Young LLP as independent auditors for the Company for the fiscal year ending
December 31, 2002.
RESOLVED, that the appointment of the firm of Ernst and Young 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, 2002 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 2002 will be permitted to stand unless the Board finds
other good reason for making a change.
Representatives of Ernst and Young and Arthur Andersen are 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
representatives may also make a statement if they desire to do so.
23
ARTHUR ANDERSEN LLP FEES FOR FISCAL YEAR 2001
Audit Fees. Audit fees incurred by the Company with respect to the Arthur
Andersen LLP audit of Fiscal Year 2001 financial statements were $984,000.
Financial Information Systems Design and Implementation Fees. Fees incurred by
the Company to Arthur Andersen LLP in connection with financial information
systems design and implementation projects for Fiscal Year 2001 were $867,504.
All Other Fees. All other fees incurred by the Company payable to Arthur
Andersen LLP with respect to Fiscal Year 2001 were $4,833,885. These fees
related primarily to provision of services with respect to acquisitions.
The Audit Committee considered whether the provision of services described above
under "All Other Fees" is compatible with maintaining Arthur Andersen's
independence.
REPORT OF THE AUDIT COMMITTEE FOR FISCAL YEAR 2001(2)
The Audit Committee is composed of four directors who are not officers or
employees 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 A 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
for the fiscal year ended December 31, 2001, is 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 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 required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and has discussed with Arthur Andersen 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, 2001.
MEMBERS OF THE AUDIT COMMITTEE:
Ruben M. Escobedo, Chairman
E. Glenn Biggs
W. E. Bradford
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.
24
PROPOSAL NO. 3 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 2003 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, 2002.
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.
25
MISCELLANEOUS
Consolidated financial statements and related information for Valero, including
audited financial statements for the fiscal year ended December 31, 2001, 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,
2001 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
Vice President &
Corporate Secretary
San Antonio, Texas
April 5, 2002
26
APPENDIX A
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.
1
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.
2
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.
3
CONTROL NUMBER
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MR A SAMPLE
DESIGNATION (IF ANY) 000000000.000 ext
ADD 1
ADD 2 HOLDER ACCOUNT NUMBER
ADD 3 C 1234567890 J N T
ADD 4
ADD 5 [BAR CODE]
ADD 6
Use a black pen. Print in
CAPITAL letters inside the grey A B C 1 2 3 X [ ] Mark this box with an X if you have made
areas as shown in this example. changes to your name or address details above.
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ANNUAL MEETING PROXY CARD
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A ELECTION OF DIRECTORS PLEASE REFER TO THE REVERSE SIDE FOR INTERNET AND TELEPHONE VOTING INSTRUCTIONS.
1. The Board of Directors recommends a vote FOR the listed nominees.
TO ELECT TWO CLASS I DIRECTORS TO TO ELECT FOUR CLASS II DIRECTORS TO TO ELECT ONE CLASS III DIRECTOR TO
SERVE UNTIL THE 2004 ANNUAL MEETING. SERVE UNTIL THE 2005 ANNUAL MEETING SERVE UNTIL THE 2003 ANNUAL MEETING.
FOR WITHHOLD FOR WITHHOLD FOR WITHHOLD
01 - E. Glenn Biggs [ ] [ ] 03 - Dr. Ronald K. Calgaard [ ] [ ] 07 - W. H. Clark [ ] [ ]
02 - Bob Marbut [ ] [ ] 04 - William E. Greehey [ ] [ ]
05 - Dr. Susan Kaufman Purcell [ ] [ ]
06 - W. E. "Bill" Bradford [ ] [ ]
B ISSUES
The Board of Directors recommends a vote FOR the following resolutions.
FOR AGAINST ABSTAIN
2. Ratification of Ernst and Young LLP as auditors [ ] [ ] [ ]
for 2002.
C AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
I (we) hereby revoke all proxies previously given to vote at the meeting; 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.
Signature 1 Signature 2 Date (dd/mm/yyyy)
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PROXY - VALERO ENERGY CORPORATION
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NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors has determined that the 2002 Annual Meeting of
Stockholders of Valero Energy Corporation will be held on Thursday, May 9, 2002
at 10:00 a.m., Central Time, at Valero's corporate offices in San Antonio,
Texas, located at 6000 North Loop 1604 West, San Antonio, Texas 78249-1112, for
the following purposes:
(1) To elect two Class I directors to serve until the 2004 Annual
Meeting, four Class II directors to serve until the 2005
Annual Meeting, and one Class III director to serve until the
2003 Annual Meeting, or in each case until their respective
successors are elected and have qualified;
(2) To ratify the appointment of Ernst and Young LLP as
independent public accountants to examine Valero's accounts
for the year 2002; and
(3) To transact any other business properly brought before the
meeting.
EXPANSION OF BOARD OF DIRECTORS IN CONNECTION WITH UDS MERGER
On December 31, 2001, Ultramar Diamond Shamrock Corporation ("UDS") merged with
and into Valero, with Valero as the surviving corporation of the merger. The
Agreement and Plan of Merger (the "Merger Agreement"), dated as of May 6, 2001,
between Valero and UDS required in connection with the merger that Valero expand
its Board of Directors by up to four members and cause four members of the UDS
board of directors (collectively, the "UDS Board Designees") to be appointed to
Valero's Board of Directors. The Merger Agreement further required Valero to
nominate and recommend each of the UDS Board Designees for reelection to
Valero's Board of Directors at the May 9, 2002 Annual Meeting of Stockholders,
with at least one UDS Board Designee serving in each of the three classes of
directors and with no more than two UDS Board Designees serving in the same
class of directors. Accordingly pursuant to the recommendation of the Nominating
Committee, made at its meeting on October 10, 2001, the Board of Directors at
its meeting on October 18, 2001, expanded the size of Valero's Board of
Directors and appointed the UDS Board Designees to Valero's Board of Directors,
effective upon the consummation of the merger on December 31, 2001. The UDS
Board Designees are Messrs. E. Glenn Biggs, W. E. "Bill" Bradford, W. H. Clark
and Bob Marbut. As per the proposals on the reverse side; "Proposal No. 1
Election of Directors," the Nominating Committee and the Board have also
nominated and recommended to the Stockholders that each UDS Board Designee be
reelected to Valero's Board of Directors. The class assignments for the UDS
Board Designees and Valero's other Board members are shown on the reverse side
under Proposal No. 1.
YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET!
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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:
TO VOTE BY PHONE TO VOTE BY INTERNET
o Call toll free 1-877-482-6151 in the United States or Canada o Go to the following web site:
any time on a touch tone telephone. There is NO CHARGE www.computershare.com/us/proxy
to you for the call.
o Enter the 6-digit CONTROL NUMBER located below. o Enter the information requested on your computer screen,
including your 6-digit CONTROL NUMBER located below.
Option #1: To vote as the Board of Directors recommends on the
proposals: Press 1 o Follow the simple instructions on the screen. There is NO
CHARGE to you to vote.
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.
CONTROL NUMBER
IF YOU VOTE BY TELEPHONE OR THE INTERNET, DO NOT MAIL BACK THE PROXY CARD.
THANK YOU FOR VOTING
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