SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-1(c) or
Section 240.14a-12
VALERO ENERGY CORPORATION
(Name of Registrant as Specified In Its Charter)
________________________________________
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-7(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
______________________________________________________
2) Aggregate number of securiites to which transaction
applies:
______________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
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[ ] Check box if any part of the fee is offset as provided by
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<PAGE>
THE PROMPT RETURN OF PROXY CARDS WILL SAVE THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ASSURE A QUORUM.
NOTICE OF 1996 ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors has determined that the 1996 Annual Meeting of
Stockholders of Valero Energy Corporation ("Valero") will be held on Tuesday,
April 30, 1996, at 10:00 a.m., Central Time, at 530 McCullough Avenue, San
Antonio, Texas 78215, for the following purposes:
(1) To elect three Class I directors as members of the Board of Directors
to serve until the 1999 Annual Meeting, or until their successors are elected
and have qualified;
(2) To approve the Non-Employee Director Stock Option Plan for
non-employee directors of Valero;
(3) To ratify the appointment of Arthur Andersen LLP as independent
public accountants to examine the Company's accounts for the year 1996; and
(4) To transact such other business as may properly come before the
meeting or any adjournment thereof.
By order of the Board of Directors,
Rand C. Schmidt
Corporate Secretary
San Antonio, Texas
March 15, 1996
<PAGE>
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
General Information
This Proxy Statement is being mailed to stockholders beginning on or about
March 15, 1996 in connection with the solicitation of proxies by the Board of
Directors of Valero Energy Corporation ("Valero") to be voted at the 1996
Annual Meeting of Stockholders of Valero (the "Annual Meeting") to be held at
the time and place and for the purposes set forth in the accompanying notice.
Only holders of record of Valero's Preferred Stock, $8.50 Cumulative Series A
(the "Series A Preferred Stock"), and Common Stock, $1.00 par value (the
"Common Stock"), at the close of business on March 1, 1996 are entitled to
vote and will vote together as a single class with respect to all matters
described herein. On such date, 43,758,943 shares of Common Stock and 69,000
shares of Series A Preferred Stock were issued and outstanding, making a total
of 43,827,943 shares entitled to one vote per share. Action may be taken at
the Annual Meeting on the date specified herein, or on any date or dates to
which, by original or later adjournment, 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,
depending on the type of proposal involved. However, the New York Stock
Exchange (the "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. The Exchange has
determined that brokers will have discretion to vote on the three items
scheduled to be presented at the Annual Meeting.
Valero and its consolidated subsidiaries are collectively referred to herein
and in the accompanying notice as the "Company."
Information Regarding the Board of Directors
The business of Valero is managed by or under the direction of the Board of
Directors (the "Board"). The Board conducts its business through meetings of
the Board and its committees. Eight regular meetings of the Board were held
in 1995. The Board has standing Audit, Compensation and Executive Committees,
and in 1995 also had a Nominating Committee. No Board member attended less
than 85% of the meetings of the Board and committees of which he or she was a
member.
Valero's Restated Certificate of Incorporation requires the Board to be
divided into Class I, Class II and Class III directors, with each class
serving a staggered three-year term. The size of the Board is currently set
at ten members.
The standing committees of the Board and the number of meetings held by each
committee in 1995 are described below.
Audit Committee (3 meetings)
The Audit Committee reviews and reports to the Board on various auditing and
accounting matters, including the quality and performance of the Company'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 the Company's efforts to comply with
environmental laws and regulations. Current members of the Audit Committee
are James L. Johnson (Chairman), Robert G. Dettmer, Ruben M. Escobedo and
Susan Kaufman Purcell.
Compensation Committee (3 Meetings)
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 Committee also approves and administers the
Company's stock option, restricted stock bonus, 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 Lowell H. Lebermann (Chairman), Robert G. Dettmer, A. Ray Dudley
and James L. Johnson, none of whom are current or former employees or officers
of the Company.
There are no compensation committee interlocks. For the previous three fiscal
years, except for compensation arrangements disclosed herein, 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 (2 meetings)
The Executive Committee exercises the power and authority of the Board during
intervals between meetings of the Board. Actions taken by the Executive
Committee do not require ratification by the Board. If a Nominating Committee
is not appointed, the Executive Committee may also review possible director
candidates and recommend individuals for election as a director. Current
members of the Executive Committee are A. Ray Dudley (Chairman), William E.
Greehey and Lowell H. Lebermann.
Nominating Committee (No Meetings in 1995)
The Nominating Committee, if appointed by the Board, evaluates policy on the
size and composition of the Board and criteria and procedures for director
nomination. It reviews possible director candidates and recommends to the
full Board nominees for election by the stockholders. The Nominating
Committee also reviews and recommends assignments for the committees of the
Board. A. Ray Dudley (Chairman), James L. Johnson and Lowell H. Lebermann were
appointed to serve as the Nominating Committee with regard to nominations for
the 1996 Annual Meeting. The recommendations of the Nominating Committee were
adopted by the Nominating Committee at a January 23, 1996 meeting, approved by
the full Board and are reflected in this Proxy Statement.
Compensation of Directors
Non-employee directors receive a retainer fee of $18,000 per year, plus $1,000
for each Board and committee meeting attended ($500 for telephonic meetings).
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 1990 Restricted Stock Plan for Non-Employee Directors
("Director 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 ("Director Stock"). Under the
Director Plan, approved by Valero's stockholders in 1991, non-employee
directors receive grants of Director Stock that vest in equal annual
installments over a period of three years. Upon election to the Board, each
non-employee director receives a grant, the value of which is determined
annually based on changes in the consumer price index. Directors receiving a
grant in 1996 will receive Director Stock having a value of approximately
$52,470. Annual installments usually vest on or about the date of the Annual
Meeting. When all of the Director Stock previously granted to a director is
fully vested and the director is reelected for an additional term, or his term
of office otherwise continues after his Director Stock is fully vested,
another similar grant is made. However, if a director is not eligible for
reelection due to Valero's mandatory retirement policy or if a director does
not intend to stand for reelection, the grant is reduced pro rata based on the
number of years remaining to the end of that director's term.
Under the Retirement Plan for Non-Employee Directors ("Retirement Plan"),
established in 1992, non-employee directors become entitled to a retirement
benefit upon completion of five years of service. The annual benefit at
retirement is equal to 10% of the highest annual cash retainer paid to the
director during his or her service on the Board, multiplied by the number of
full and partial years of service (not to exceed 10 years). Such benefit is
then paid for a period equal to the shorter of the director's number of years
of service or the director's lifetime, but in no event for longer than 10
years. The Retirement Plan provides no survivor benefits, is an unfunded plan
paid from the general assets of the Company.
In 1995, the Board of Directors approved the Non-Employee Director Stock
Option Plan, subject to stockholder approval. This plan is described below
under Item No. 2.
ITEM NO. 1. Election of Directors
Three Class I directors will be elected at the Annual Meeting to serve until
the 1999 Annual Meeting of Stockholders or until their respective successors
are elected and have qualified.
F. Joseph Becraft, Ronald K. Calgaard and Susan Kaufman Purcell have been
nominated for election as Class I directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION OF
EACH SUCH NOMINEE.
Directors are elected by a plurality of the shares of Common Stock and Series
A Preferred Stock represented at the Annual Meeting and entitled to vote.
Votes "withheld" from a nominee will not count against the election of the
nominee, and the three nominees for Class I director receiving the greatest
number of votes, whether or not such votes represent a majority of the shares
present and voting at the Annual Meeting, will be elected as Class I
directors.
In the election of directors each share has as many votes as there are
directors to be elected, and those votes may be cumulated and voted for one
nominee, or they may be distributed among the nominees in any way the
stockholder desires. To vote cumulatively, the stockholder should write the
words "cumulative" followed by the name of the nominee or nominees selected on
the line under Item 1 of the proxy. Otherwise, for shares represented by
proxies the votes will be cast, except when authority to vote is withheld for
any nominee, for the election of the nominees in equal proportions unless the
persons named therein as proxies shall, in accordance with their best
judgment, otherwise direct. If any nominee should be unavailable as a
candidate at the time of the meeting, either the number of directors
constituting the full Board will be appropriately reduced to eliminate the
vacancy, or the persons named as proxies will vote, in accordance with their
best judgment, for any available nominee. The Board has no reason to believe
that any current nominee will be unable to serve.
Upon recommendation of the Nominating Committee, the Board at its meeting on
February 16, 1996, increased the size of the Board from nine to ten directors
and elected Ronald K. Calgaard as a director. Dr. Calgaard, who previously
served on the Board of Valero Natural Gas Company from 1987 until May 1994,
has been nominated together with F. Joseph Becraft and Susan Kaufman Purcell
for election as Class I directors. In conjunction with the increase in the
size of the Board and in accordance with Valero's Bylaws, William E. Greehey
was redesignated as a Class III director so that following the redesignation
and after giving effect to the election of Class I directors, the Board would
consist of three Class I directors, three Class II directors, and four Class
III directors. As a Class III director, Mr. Greehey's term as a director will
end in 1998, coinciding with the expiration of the terms of the other Class
III directors.
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 1997
and 1998. The information regarding directors of Valero contained herein 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.
<TABLE>
<CAPTION>
______________________________________________________________________________________________________
Age
Executive as of
Officer December Present
Position(s) Held or Director 31, Term Director
Name with Valero Since 1995 Expires Class
______________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Nominees
F. Joseph Becraft Director, President 1995 52 (1) (1)
and Chief Operating
Officer
Ronald K. Calgaard Director (2) 1996 58 (1) (1)
Susan Kaufman Purcell Director 1994 53 1996 I
Other Current Directors
Edward C. Benninger Director, Executive 1979 53 1997 II
Vice President
Robert G. Dettmer Director 1991 64 1998 III
A. Ray Dudley Director 1988 71 1997 II
Ruben M. Escobedo Director 1994 58 1998 III
William E. Greehey Director, Chairman 1979 59 1998 III
of the Board and
Chief Executive
Officer
James L. Johnson Director 1991 68 1997 II
Lowell H. Lebermann Director 1986 56 1998 III
______________________________________________________________________________________________________
</TABLE>
<FN1>
(1) Not currently assigned to a director class.
<FN2>
(2) Dr. Calgaard was elected as a director on February 16, 1996.
Mr. Becraft was elected as a director in 1995 and was elected as President
and Chief Operating Officer of Valero effective January 1, 1996. Prior to
rejoining Valero in May 1995, he had served as President and Chief
Executive Officer of Transok, Inc. since 1989. From 1984 to 1989 Mr.
Becraft served as Senior Vice President in the Company's natural gas
division.
Dr. Calgaard has served as President of Trinity University, San Antonio,
Texas, since 1979. He also serves as a director of Rayco, Ltd. Dr.
Calgaard previously served as a director of Valero Natural Gas Company
from 1987 until 1994.
Dr. Purcell was elected as a director of Valero in 1994. She has served as
Vice President of the Americas Society in New York, New York since 1989 and
as Managing Director, Council of the Americas, since 1994. She is a
consultant for several international and national firms and serves on the
boards of several mutual funds, including The Argentina Fund, The Latin
America Dollar Income Fund and Scudder World Income Opportunities Fund.
Mr. Benninger has served as a director of Valero since 1990. He was
elected Executive Vice President in 1989 and served as Chief Operating
Officer of Valero Natural Gas Company from 1992 to 1995, and in various
other capacities with the Company since 1975.
Mr. Dettmer was elected as a director of Valero in 1991. He has served
as Executive Vice President and Chief Financial Officer of PepsiCo, Inc.
since 1986.
Mr. Dudley has been a director of Valero since 1988 and currently serves
as an independent consultant in the petroleum industry. Mr. Dudley
served in various capacities with Tenneco Oil Company from 1959
until his retirement in 1987.
Mr. Escobedo was elected as a director of Valero in 1994. He previously
served as a director of Valero Natural Gas Company from 1989 to 1994. He
has been a Senior Partner of the accounting firm of Ruben Escobedo &
Company, CPAs, in San Antonio, Texas since its formation in 1977. Mr.
Escobedo also serves as a director of Frost National Bank of San Antonio,
N.A.
Mr. Greehey has served as Chief Executive Officer and as a director of
Valero since 1979 and as Chairman of the Board since 1983. He is also a
director of Weatherford Enterra, Inc. and Santa Fe Energy Resources,
Inc.
Mr. Johnson has been a director of Valero since 1991. He previously served
as Chairman and Chief Executive Officer of GTE Corporation from 1988 to 1992,
and since 1992 has served as Chairman Emeritus. Mr. Johnson also serves as
a director of CellStar Corporation, FINOVA Group, Inc., Harte-Hanks
Communications, Inc., The Mutual Life Insurance Company of New York and
Walter Industries, Inc.
Mr. Lebermann was elected as a director of Valero in 1986, and previously
served on Valero's Board from 1979 to 1983. Mr. Lebermann has been President
of Centex Beverage, Inc., a beverage distributor, in Austin, Texas, since
1981. Mr. Lebermann is also a director of Station Casinos, Inc. and of
Franklin Federal Bankcorp, a Federal Savings Bank, Austin, Texas.
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."
ITEM No. 2. Approval of Non-Employee Director Stock Option Plan
The Board desires to obtain stockholder approval of the following
resolution adopted at the Board meeting held on February 16, 1996:
RESOLVED, that the Valero Energy Corporation Non-Employee Director
Stock Option Plan for non-employee directors of Valero, as set forth in the
Proxy Statement for the 1996 Annual Meeting of Stockholders, is hereby
approved and ratified.
Passage of the proposal requires approval of a majority of the shares
represented at the Annual Meeting and entitled to vote thereat.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL
TO APPROVE AND RATIFY THE VALERO ENERGY CORPORATION NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN.
Description of the Plan
The Non-Employee Director Stock Option Plan (the "Non-Employee Director Option
Plan" or the "Plan") authorizes automatic annual grants of stock options to
the directors of Valero who are not also employees of the Company. The Plan
was approved by the Executive Committee of the Board of Directors on July 25,
1995, contingent upon approval by the stockholders. The Board believes that
the Company's success and long-term progress are dependent upon attracting and
retaining qualified persons to serve as directors of Valero, and that adoption
of the Plan will aid in attracting and retaining qualified directors. In the
following description of the Plan, the term "Shares" shall mean Valero's
Common Stock or such other securities or property as may become the subject of
awards under the Plan.
The full text of the Plan is set forth at Appendix A to this Proxy Statement.
The essential features of the Plan are summarized below, but such summary is
qualified in its entirety by reference to the full text of the Plan.
Type of Awards
The Plan permits only the automatic grant of stock options to directors of
Valero who are not also employees of the Company. No other types of award,
and no discretionary awards, may be made under the Plan.
Eligibility for Participation
Non-employee directors of Valero are automatically eligible for and
participate in the Plan. Directors of Valero who are also employees of the
Company are not eligible to participate in the Plan. There are currently
seven non-employee directors of Valero.
Administration
Grants of stock options under the Plan are automatic, and the Plan is intended
to be largely self-administering. However, to the extent necessary, the Plan
will be administered by the Compensation Committee of the Board of Directors,
which may interpret the Plan.
Amendment and Termination
The Board may terminate or amend the Plan without stockholder approval, except
that stockholder approval is required for any amendment that materially
increase the number of Shares available for grant, materially increase the
benefits accruing to Participants under the Plan, decrease the exercise price
for any options or otherwise cause the Plan to cease to qualify for any tax or
regulatory exemption, status or requirement.
Termination of the Plan
If approved by the stockholders, the Plan will automatically terminate on July
25, 2005, after which time no additional awards will be made under the Plan.
If the Plan is not approved by the stockholders, the Plan will automatically
terminate and all prior grants of stock options (described below) which were
made, subject to approval by the stockholders, will be deemed null and void.
Shares Available under the Plan
Subject to adjustment as described more fully below, 100,000 Shares may be
issued under the Plan.
Stock Options
Upon approval of the Plan by the Compensation Committee on July 25, 1995,
awards of 6,000 options were made to each non-employee director of Valero,
with an exercise price of $22.75 per share. Each new non-employee director
elected from time to time to the Valero Board automatically receives an
initial grant of 5,000 options. Accordingly, upon his election to the Board
on February 16, 1996, Ronald K. Calgaard received an initial grant of 5,000
options with an exercise price of $24.50 per share. In addition, on the date
of each annual meeting of stockholders of Valero, each non-employee director
(other than new non-employee directors then receiving the initial grant
described in the preceding sentence) will automatically receive a grant of
1,000 additional options. Stock options awarded under the Plan are priced
automatically with an exercise price equal to the market price of the Common
Stock on the date of grant. The initial grant of options to each non-employee
director will vest (become nonforfeitable) in three equal annual installments
on each anniversary date of the grant. The subsequent annual grants of 1,000
options to such directors will vest six months following the date of grant.
All options will expire 10 years following the date of grant. Options will
vest and remain exercisable in accordance with their original terms in the
case of a director retiring from the Board.
Tax Consequences
The granting of options will not result in taxable compensation for the option
holder. When a non-employee director exercises an option, the difference
between the option price and any higher fair market value of the underlying
shares, generally on the date of exercise, will be ordinary income to the
director and deductible as a compensation expense by Valero. Any gain or loss
realized by a director on disposition of the shares so acquired generally will
be capital gain or loss to such director, long-term or short-term depending on
the holding period, and will not result in any additional tax consequences to
Valero. The director's basis in the shares for determining gain or loss on
disposition generally will be the fair market value of the shares on the date
of exercise of the option.
Change of Control
In the event of a "Change of Control" as defined in the Plan, all options
previously granted under the Plan shall immediately become vested or
exercisable upon the date of the Change of Control, except as otherwise
provided in the Plan.
Adjustments
In the event the Compensation Committee determines that any dividend or other
distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other similar corporate transaction or
event affects the Shares so that an adjustment is determined by the
Compensation Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended under the Plan,
then the Compensation Committee shall adjust any or all of the option awards.
Certain Awards
Subject to approval of the Plan by the stockholders, awards of options under
the Plan have been conditionally made in the following amounts to the
non-employee directors of Valero.
Non-Employee Director Plan Awards
_______________________________________________________________
Grant Date Number of
Name and Position Present Value Shares Options
($)(1) (Shares)(2)
_______________________________________________________________
Ronald K. Calgaard $ 39,100 5,000
Robert G. Dettmer 46,920 6,000
A. Ray Dudley 46,920 6,000
Ruben M. Escobedo 46,920 6,000
James L. Johnson 46,920 6,000
Lowell H. Lebermann 46,920 6,000
Susan Kaufman Purcell 46,920 6,000
All non-employee $320,620 41,000
directors as a group
_______________________________________________________________
<FN1>
(1) The grant date present value of the options granted to each non-employee
director was determined utilizing a variation of the Black-Scholes option
pricing model more fully described in footnote (2) to the table entitled
"Option/SAR Grants in the Last Fiscal Year." For purposes of applying the
Black-Scholes model to such grants, an expected average option term of six
years, a risk-free rate of return of 6.3% (5.5% in the case of Dr. Calgaard),
an average volatility rate for the six years preceding the grant of 32.4%
(30.2% in the case of Dr. Calgaard), and a dividend yield of 2.3% (2.1% in the
case of Dr. Calgaard), which is the annualized quarterly dividend rate in
effect at the date of grant, were utilized. The actual value of the options
granted under the Plan will depend upon the future performance of the Common
Stock and the timing of the exercise of the option. Accordingly, the values
set forth herein may not be realized. The benefits that will be realized by
each current and future non-employee director during the life of the Plan are
more fully described above under the heading "Stock Options."
<FN2>
(2) On July 25, 1995, the date of adoption of the Plan, options were
conditionally granted to all non-employee directors then on the Board (Messrs.
Dettmer, Dudley, Escobedo, Johnson, Lebermann and Dr. Purcell), with an option
price of $22.75, representing the market price of the Common Stock on the date
of grant. Options for Dr. Calgaard were conditionally granted on February 16,
1996, the date of his election to the Board, with an option price of $24.50,
representing the market price of the Common Stock on the date of grant.
ITEM No. 3. Ratification of Independent Public Accountants
The Board desires to obtain stockholder approval of the following resolution
adopted at the Board meeting held on February 16, 1996, appointing Arthur
Andersen LLP, 70 N.E. Loop 410, San Antonio, Texas 78216, as independent
public accountants for the Company for the year 1996. Arthur Andersen LLP has
served continuously in such capacity for the Company since 1979.
RESOLVED, that the appointment of the firm of Arthur Andersen LLP,
Certified Public Accountants, as the independent auditors for the Company for
the purpose of conducting an examination and audit of the financial statements
of Valero and its subsidiaries for the fiscal year ending December 31, 1996,
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 at the Annual Meeting and entitled to vote thereat. 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 the year 1996 will
be permitted to stand unless the Board finds other good reason for making a
change.
A representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting to respond to appropriate questions raised at the Annual
Meeting or submitted to such firm in writing prior to the Annual Meeting, and
to make a statement if he desires to do so.
BENEFICIAL OWNERSHIP OF VALERO SECURITIES
The following table sets forth information as of December 31, 1995, with
respect to each entity known to Valero to be the beneficial owner of more than
five percent of its Common Stock, based solely upon a statement on Schedule
13G filed by such entity with the Securities and Exchange Commission ("SEC"):
<TABLE>
<CAPTION>
_____________________________________________________________________________________________
Shares
Name and Address Beneficially Percent
Title of Class of Beneficial Owner Owned of Class
_____________________________________________________________________________________________
<S> <C> <C> <C>
Common Stock Franklin Resources, Inc.(1) 5,976,400 13.66%
777 Mariners Island Blvd.
San Mateo, CA 94404
Common Stock Merrill Lynch & Co., Inc.(2) 4,131,250 9.44
World Financial Center, North Tower
250 Vessey Street
New York, NY 10281
Common Stock Frost National Bank of 4,029,583 9.21
San Antonio, N.A.(3)
100 West Houston Street
San Antonio, TX 78205
Common Stock Wellington Management Company(4) 3,726,293 8.52
75 State Street
Boston, MA 02109
_____________________________________________________________________________________________
</TABLE>
<FN1>
(1) Franklin Resources, Inc. has reported that it and certain of its
shareholders and subsidiaries have sole voting power with respect to 5,471,760
shares, shared voting power with respect to 459,960 shares and shared
dispositive power with respect to 5,976,400 shares.
<FN2>
(2) Merrill Lynch & Co., Inc. has reported that it has shared voting power
with respect to 4,131,250 shares, while certain of its subsidiaries have
shared voting power and shared dispositive power with respect to up to
4,110,950 shares.
<FN3>
(3) Frost National Bank of San Antonio, N.A. has reported that it has shared
voting and dispositive power with respect to 4,029,583 shares in its capacity
as Trustee for the Valero Energy Corporation Thrift Plan, Valero Energy
Corporation Employees' Stock Ownership Plan, Valero Employees' Stock Ownership
Plan and Valero Energy Corporation Benefits Trust.
<FN4>
(4) Wellington Management Company ("Wellington") and Vanguard/Windsor Fund,
Inc. ("Vanguard") have filed with the Securities and Exchange Commission
separate Schedules 13G, reporting their beneficial ownership with respect to
3,726,293 shares. As disclosed in the Schedules 13G, Wellington has shared
dispositive power with respect to 3,726,293 shares and shared voting power
with respect to 29,797 shares, while Vanguard has shared dispositive power and
sole voting power with respect to 3,659,500 shares.
In addition, all 69,000 outstanding shares of Series A Preferred Stock are
held by American General Corporation, P.O. Box 3855, Houston, Texas 77253; no
filing of Schedule 13G or 13D is required with respect thereto.
Except as otherwise indicated, the following table sets forth information as
of February 1, 1996, regarding Common Stock and $3.125 Convertible Preferred
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. Such information has been furnished to Valero by such persons and
cannot be independently verified by Valero. The $3.125 Convertible Preferred
Stock is not entitled to vote at the Annual Meeting.
<TABLE>
<CAPTION>
_______________________________________________________________________________________________
Common Stock
Shares $3.125 Percent
Name of Beneficially Shares Under Convertible of Class
Beneficial Owner (1) Owned Exercisable Preferred (Common
(2)(3)(4) Options(5) Stock(2) Stock)(2)
_______________________________________________________________________________________________
<S> <C> <C> <C> <C>
F. Joseph Becraft 27,445 0 0 *
Edward C. Benninger 113,904 62,472 1,000 *
Ronald K. Calgaard 0 0 0 *
Robert G. Dettmer(6) 5,877 0 0 *
A. Ray Dudley 9,802 0 0 *
Ruben M. Escobedo(7) 3,361 0 0 *
William E. Greehey 334,712 196,218 4,385 1.21%
James L. Johnson 3,852 0 0 *
Lowell H. Lebermann 5,525 0 0 *
E. Baines Manning 47,459 38,217 1,000 *
Stan L. McLelland 108,885 47,857 0 *
Susan Kaufman Purcell 2,289 0 0 *
All current executive officers 696,439 373,332 6,385 2.45%
and directors as a group,
including the persons named
above (13 persons)(8)
_______________________________________________________________________________________________
* Indicates that the percentage of beneficial ownership does not exceed 1% of the class.
</TABLE>
<FN1>
(1) The business address for all beneficial owners listed above is 530
McCullough Avenue, San Antonio, Texas 78215.
<FN2>
(2) No executive officer, director or nominee for director of Valero owns any
class of equity securities of Valero other than Common Stock and $3.125
Convertible Preferred Stock. Neither any such person, nor all such persons as
a group, owns 1% or more of the $3.125 Convertible Preferred Stock. The
calculation for Percent of Class includes shares listed under the captions
"Shares Beneficially Owned" and "Shares Under Exercisable Options."
<FN3>
(3) Includes shares allocated pursuant to various employee stock plans
available to its employees generally (collectively, the "Employee Stock
Plans"), as well as shares granted under Valero's Restricted Stock Bonus and
Incentive Stock Plan (the "Restricted Stock Plan"), Executive Stock Incentive
Plan ("ESIP") and the Director 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 of all such shares beneficially owned by him or her.
Except as otherwise noted, each person named in the table, and each other
executive officer, has sole power to dispose or direct the disposition of
shares beneficially owned by him or her. Common Stock granted under the
Restricted Stock Plan, ESIP and the Director Plan ("Restricted Stock") may not
be disposed of until vested.
<FN4>
(4) Does not include shares that could be acquired under options, which
information is set forth in the second column.
<FN5>
(5) Includes shares subject to options that are exercisable within 60 days
from February 1, 1996. 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. None of the
current executive officers, directors or nominees for director of Valero holds
any rights to acquire Common Stock except through exercise of stock options.
<FN6>
(6) Includes shares held by spouse.
<FN7>
(7) Includes shares held by spouse and shares held in a trust.
<FN8>
(8) Certain officers of Valero not designated as executive officers by the
Board of Directors do not perform the duties of executive officers and are not
classified as "executive officers" for purposes of this Proxy Statement.
SECTION 16(a) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), requires Valero's executive officers, directors, and greater than 10
percent to stockholders to file 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, 1995, its executive officers, directors and
greater than 10 percent stockholders were in compliance with applicable
requirements of Section 16(a), except for two required reports. Ruben M.
Escobedo, a director of Valero, was late in filing two reports relating to
three separate transactions.
Notwithstanding anything to the contrary set forth in any of Valero's previous
filings under the Securities Act of 1933, as amended, or in the Exchange Act
that might incorporate future filings by reference, including this Proxy
Statement, in whole or in part, the following Performance Graph and Report of
the Compensation Committee of the Board of Directors on Executive Compensation
shall not be incorporated by reference into any such filings.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return on Valero's Common Stock against the cumulative total return of the S&P
500 Composite Index and the S&P Oil (Domestic Integrated) Index for the period
of five fiscal years commencing December 31, 1990 and ending December 31,
1995. As a result of the Company's reacquisition of the publicly held
interest in Valero Natural Gas Partners, L.P. in 1994, the Company now has
significant operations in both the refining and natural gas industries.
Accordingly, the accompanying graph also contains supplemental information for
the S&P Natural Gas Index for the same period.
<TABLE>
<CAPTION>
Comparison of Five Year Cumulative Total Return*
Among Valero Energy Corporation, The S&P 500 Index,
The S&P Oil (Domestic Integrated) Index and The S&P Natural Gas Index
12/1990 12/1991 12/1992 12/1993 12/1994 12/1995
<S> <C> <C> <C> <C> <C> <C>
Valero Common Stock 100 196 153 144 118 176
S&P 500 100 130 140 155 157 215
S&P Oil (Domestic Integrated) 100 93 95 101 106 120
S&P Natural Gas 100 87 97 115 110 155
</TABLE>
* Assumes that the value of the investment in Valero Common Stock and each
index was $100 on December 31, 1990, and that all dividends were reinvested.
The foregoing Performance Graph and related textual information are based on
historical data and are not necessarily indicative of future performance. The
S&P Oil (Domestic Integrated) Index includes Amerada Hess Corp., Ashland Oil,
Inc., Atlantic Richfield Co., Kerr-McGee Corp., Louisiana Land & Exploration
Co., Occidental Petroleum Corp., Pennzoil Co., Philips Petroleum Co., Sun
Company, Inc., USX-Marathon Group and Unocal Corp. The S&P Natural Gas Index
includes Coastal Corp., Columbia Gas System, Inc., Consolidated Natural Gas
Co., Eastern Enterprises, Enron Corp., Enserch Corp., NICOR Inc., NorAm Energy
Corp., ONEOK Inc., Pacific Enterprises, PanEnergy Corp., Peoples Energy Corp.,
Sonat Inc., and Williams Companies, Inc.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Company's executive compensation programs are administered by the
Compensation Committee (the "Committee") of Valero's Board. The Committee is
composed of four independent outside directors not eligible to participate in
the Company's executive compensation programs. The Committee's policies are
implemented by the Company's compensation and benefits staff under the
direction of the Director, Human Resources. The Company's executive
compensation programs are intended to provide strong incentives for high
performance, enabling the Company to recruit, retain, and motivate the
executive talent necessary to be successful.
Overview. The Company's executive compensation program 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 employees of the Company. Because of its ongoing
business activities, the Company competes for executive talent in both the oil
refining industry and the natural gas industry. Accordingly, for purposes of
determining executive compensation levels, the Company utilizes a subgroup of
companies from a nationally recognized compensation database compiled by
Hewitt Associates, L.L.C. ("Hewitt"), an independent compensation consultant
retained by the Company. The subgroup consists of 17 companies with
significant participation in the oil refining industry or natural gas industry
(the "Comparator Group"). The Comparator Group has been approved by the
Committee, and the companies in the Comparator Group are identified in
Appendix B. Base salary, bonuses, and other compensation recommendations are
developed by the Company's compensation and benefits staff, reviewed by Hewitt
and submitted to the Committee for consideration. Other nationally recognized
compensation surveys are utilized to validate the information provided by
Hewitt. In establishing and implementing executive compensation arrangements,
the Committee reviews and discusses the staff recommendations directly with
representatives of Hewitt. For 1995, one company was deleted from the
Comparator Group due to a merger, and two others were deleted and five added
to address changes in the availability of salary survey information, as well
as to better reflect the mix of companies with which the Company competes for
executive talent.
Annual incentive bonuses, when awarded, are related both to measures of
Company financial performance and to individual performance. Long-term
incentives, consisting of restricted stock and stock option grants, as well as
the noncash portion of annual incentive bonus awards, are intended to balance
executive management focus between short- and long-term goals and provide
capital accumulation linked directly to the performance of Valero's Common
Stock. Base salary levels are targeted at approximately the 50th percentile
of the Comparator Group, while annual incentive compensation and long-term
incentive compensation, when awarded, are targeted at the 65th percentile.
While no specific percentile target is set for overall compensation, the
Committee intends that each executive's total compensation package favor
longer-term and variable compensation over fixed compensation. For the five
executives named in the Summary Compensation Table, the average base salary
component of total annual and long-term compensation for 1995, as reported in
the Summary Compensation Table, was approximately 37.1%, while the average
annual incentive and longer-term compensation component was approximately
62.9%. For purposes of the preceding sentence, stock options granted in 1995
have been valued using the "grant date present value" set forth in the table
below titled "Option/SAR Grants in the Last Fiscal Year."
Base Salaries. Base salaries are set against established grades, salary
ranges and midpoints reflecting the position, duties and level of
responsibility for each executive and the Hewitt compensation survey data for
the Comparator Group. Base salaries are reviewed annually and may be adjusted
within the established salary ranges for each salary grade to reflect
promotions, the assignment of additional responsibilities, individual
performance or the performance of the Company. Salary grades, compensation
ranges and midpoints are also periodically adjusted to remain competitive with
the Comparator Group. Base salaries for the named executive officers (other
than the CEO and Mr. Becraft) were increased in mid-1995 by an average of
approximately 9.5%. Such salaries were last adjusted in mid-1992 and had not
been increased in 1993 or 1994.
Annual Incentive Bonus. Executive officers have the opportunity to earn an
annual incentive bonus based on three factors: (i) the position of the
executive officer, which is used to determine a targeted percentage of annual
base salary that may be awarded as incentive bonus, with the targets ranging
from a low of approximately 45% of base salary to approximately 60% of base
salary (for the CEO); (ii) realization by the Company of quantitative
financial performance targets approved by the Committee; and (iii) a
qualitative evaluation of the individual's performance. For each executive,
the targeted percentage of base salary is adjusted, upward or downward, based
upon Company achievement of the financial performance goals. In addition, the
Committee considers the total amount of executive bonuses in relation to
earnings available to common stock. The Committee retains discretion to
adjust the bonus targets by up to approximately 25%, based upon such factors
as it deems to be appropriate, and ultimately to determine whether to award a
bonus to any individual. Four approximately equally weighted quantitative
measures of Company financial performance were utilized in establishing
incentive bonuses for 1995, consisting of (i) return on equity ("ROE")
compared with the average ROE for a group of 12 similarly-sized companies in
the oil refining and natural gas businesses (the "Target Group"); (ii) return
on investment ("ROI") compared with the Target Group; (iii) earnings per share
of Common Stock in 1995 compared with 1994; and (iv) the daily average closing
price of a share of Common Stock during a recent period, compared with the
daily average closing price during the corresponding period in the prior year.
For the ROE and ROI financial performance measures, the targeted salary
percentage is subject to adjustment, upward or downward, depending upon
whether the Company's ROE and ROI exceeded, or fell short of, the average ROE
and ROI for such Target Group. For the earnings per share and stock price
performance measures, the Committee established a targeted performance range;
the targeted salary percentage is then subject to adjustment if the Company's
performance falls outside the preestablished ranges. The four performance
factors were given approximately equal weight in determining potential
adjustments to the targeted salary percentages. ROE and ROI are measured
against the Target Group, rather than the Comparator Group, because (i) some
entities for which compensation survey information is either not available or
not comparable are nonetheless included in the Target Group because their
operations are most comparable to the Company; and (ii) some entities with
which the Company competes for executive talent, and which are therefore
included in the Comparator Group, have operations sufficiently different in
size or scope from the Company's to make financial comparisons less
meaningful. For 1995, the Target Group was changed to include companies in
both the natural gas business and the oil refining business because of the
Company's reacquisition of the publicly held interest in Valero Natural Gas
Partners, L.P. in 1994.
For 1995, the Company's performance was essentially comparable to the Target
Group's averages for ROE and ROI and was significantly above the established
range for earnings per share and stock price. Based solely on these results,
a substantial upward adjustment to bonus targets could have been made.
However, the Committee ultimately determined to adjust the bonus target
amounts upward by approximately 5% from the originally targeted amounts. In
reaching this result, the Committee considered the fact that the ROE and ROI
performance measures were near the average of the Target Group; it also took
into account the fact that no bonuses were paid for 1994, and that several
companies in the Target Group paid 1994 bonuses despite reporting financial
results less favorable than the Company's results. While bonus amounts for
each executive may be adjusted to reflect the Committee's subjective
evaluation of individual performance, this evaluation did not result in any
change in the bonus amounts in 1995.
Thirty percent of each executive's 1995 annual incentive award was paid in
shares of Common Stock and the remainder in cash. After giving effect to
payment of federal income taxes out of the cash portion of the award, the
Committee believes that this allocation is consistent with the Company's goal
of emphasizing stock ownership in both short-term and long-term compensation
and providing a vested interest and incentive for long-term financial and
operating performance.
Long-Term Incentive Awards. To provide stock-based longer-term compensation
for executives, the Company maintains the Executive Stock Incentive Plan
("ESIP"), which was approved by the stockholders in 1995. The plan authorizes
grants of restricted shares of Common Stock ("Restricted Stock") which vest
(become nonforfeitable) over a period determined by the Committee. For each
executive, a targeted number of Restricted Shares is set with an aggregate
market value at the date of grant equivalent to approximately the 65th
percentile of the Comparator Group. Such targeted award can then be adjusted
based upon an individual subjective performance evaluation, which (for
executives other than the CEO) is based upon the recommendation of the CEO,
and such other factors as the Committee deems appropriate. As with the annual
incentive bonus, discretion is retained by the Committee ultimately to
determine that no award should be made. The total number of shares awarded is
a function of the Common Stock price at the time of grant and the number of
shares required to achieve the percentile compensation target. In the past,
the Committee has generally made awards of restricted stock every year. The
awards made in 1995 vest in equal installments over a period of three years
commencing in 1996, but will be subject to forfeiture if an executive
terminates employment prior to vesting. Award recipients participate in any
appreciation or depreciation in the market price of the Common Stock during
the vesting period and thereafter as long as such stock is retained. The 1995
awards had no additional performance criteria and, because they were intended
to provide an incentive for future performance, were not based upon past
Company performance. In determining individual awards, the Committee does not
consider Restricted Stock previously awarded or currently held, because such
considerations are not reflected in the compensation survey information upon
which awards are based, and because the Company does not wish to encourage
executives to sell stock in order to qualify for additional awards. See
"Stock Retention Guidelines," below.
For 1996 and future awards, the Committee determined to reduce the use of
Restricted Stock and emphasize the use of performance shares. While the
methodology for determining initial award size is identical to that for
Restricted Stock, performance shares would vest only upon the achievement of
an objective performance goal. The Committee established total shareholder
return ("TSR") as the performance measure for determining what portion of 1996
performance share awards will vest. Each award would be subject to vesting in
three increments, based upon the Company's TSR during overlapping three-year
periods. In order to coordinate the transition from use of Restricted Stock
to use of performance shares, the first such three-year period will end
December 31, 1996. At the end of each three-year period, the Company's TSR
will be compared to that of a specified group of companies and ranked by
quartile. Participants would then earn 0%, 50%, 100% or 150% of the initial
grant amount depending upon whether the Company's TSR is in the last, 3rd, 2nd
or 1st quartile; 200% would be earned if the Company ranks highest in the
group. Amounts not earned in a given three-year period can be carried forward
for one additional three-year period and up to 100% of the carried amount can
still be earned, depending upon the quartile achieved for such subsequent
period. The Committee believes this type of incentive award strengthens the
tie between pay and performance for the Company's executive compensation
program.
Stock Retention Guidelines. Beginning in 1996, the Committee has chosen to
implement stock retention guidelines for executive officers and certain other
key executives of the Company. The Committee and the Company have always
encouraged employee stock ownership and, although informal encouragement has
been successful, the Committee believes the adoption of formal guidelines will
strengthen the goals for long-term performance. The guidelines will apply to
the CEO, other executive officers and key executive division heads (currently
a total of 14 executives). The guidelines are established at five times
annual salary for the CEO, three times annual salary for four functional head
executive officers and one times annual salary for the remaining executives.
While all executives currently meet or exceed the guidelines (with the
exception of Mr. Becraft who was employed in 1995), a period of three years is
provided as a time frame in which to achieve the established guideline.
Considering the past success of informal methods, the Committee did not adopt
any formal measures should guidelines not be met. The Company's employees as
a whole are estimated to own or control approximately 15% of Valero's Common
Stock (including both exercisable stock options and shares beneficially owned)
and the executives participating in the stock retention program are estimated
to own or control approximately 3%. The Committee believes these amounts,
coupled with the adopted guidelines, exemplify executive management's
commitment to continued improvement in Company performance.
Stock Options. Under the ESIP, as well as under the Company's Stock Option
Plan No. 3 and Stock Option Plan No. 4, previously approved by Valero's
stockholders, the Committee may grant stock options to executive officers.
Procedures for determining option grants are in all material respects the same
as for Restricted Stock and performance share awards. In the past, option
awards made by the Committee have generally vested over a period of three
years in equal installments and have remained exercisable for approximately
ten years. However, in 1994, stock option awards were made to the CEO and
other executive officers named in the Summary Compensation Table (other than
Mr. Becraft) which were larger than prior awards and were intended by the
Committee to provide a significant incentive for long-term performance. These
grants will vest in their entirety on the third anniversary of the grant,
subject to possible forfeiture upon termination of employment. Because of the
nature of the 1994 stock option grants, no further grants were made during
1995 to the CEO or other executive officers named in the Summary Compensation
Table, except that Mr. Becraft was awarded options in connection with his
employment by the Company. 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 the Common Stock during the option
period.
Determination of the CEO's Compensation. The CEO's compensation is
recommended by the Committee and established by the Board of Directors. The
1995 compensation of Valero's CEO, Mr. William E. Greehey, consisted of base
salary, a Restricted Stock award and an annual incentive bonus paid in January
1996. Base salary comprised approximately 40.8% of the CEO's 1995 total
annual and long-term compensation reported in the Summary Compensation Table,
versus approximately 59.2% for incentive and long-term compensation. The base
salary component comprised a lower percentage of the total in 1995 compared
with 1994, principally because no stock options were granted to the CEO during
1995. The CEO's base salary and incentive bonus, when paid, are determined
using the procedures described above. Based upon a comparison of the CEO's
base salary with salary information for the Comparator Group, the Committee
adjusted Mr. Greehey's base salary in mid-1995 to remain near the 50th
percentile for the Comparator Group. In determining the CEO's incentive bonus
for 1995, the Committee considered the four financial performance measures,
and made substantially the same adjustments, as discussed above. Based upon
these factors, the Committee awarded an incentive bonus of $560,000. No
incentive bonus was paid for 1994. In January 1995, Mr. Greehey was awarded
25,000 shares of Restricted Stock pursuant to the ESIP, also reflecting the
guidelines mentioned above. Such Restricted Stock vests over a period of
three years.
Tax Policy. Under Section 162(m) of the Code, with certain exceptions,
publicly held corporations, including the Company, may not take a tax
deduction for compensation in excess of $1 million paid to the CEO or the
other executive officers named in the Summary Compensation Table in the proxy
statement. Section 162(m) will not apply to limit the deductibility of
performance-based compensation exceeding $1 million if such compensation 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 terms of such plan are approved by the stockholders
before payment of the compensation. The Company believes that options granted
under its stock option plans (including stock option awards under the ESIP)
qualify as performance based compensation and are not subject to any
deductibility limitations under Section 162(m) of the Code. The Company
believes that Section 162(m) will not limit the deductibility of any
compensation paid to the CEO or any of the other executive officers named in
the Summary Compensation Table in 1995. Bonus amounts shown in the Summary
Compensation Table, though attributable to 1995 performance, were not paid
until January 1996 and are therefore not included in determining 1995
compensation under Section 162(m). Similarly, awards of Restricted Stock are
included in compensation for purposes of Section 162(m) only upon vesting.
Since Restricted Stock shown in the Summary Compensation Table will vest over
a three-year period beginning in 1996, none of such awards will be included in
determining 1995 compensation under Section 162(m).
The ESIP does not require satisfaction of quantifiable performance goals for
awards of restricted stock, and the performance goals adopted for performance
shares, as described above, have not been specifically approved by the
stockholders. Accordingly, restricted stock and performance share grants made
under the ESIP are ineligible for the performance-based compensation exception
of Section 162(m) described above. The Committee will consider deductibility
under Section 162(m) with respect to future compensation arrangements with
executive officers. However, the Committee and the Board believe that it is
in the best interests of the stockholders that the Committee retain its
flexibility and discretion to make compensation awards to foster other
corporate goals, such as to encourage employee retention or to reward
achievement of nonquantifiable goals, such as achieving progress with specific
projects.
Members of the Compensation Committee:
Lowell H. Lebermann, Chairman
Robert G. Dettmer
A. Ray Dudley
James L. Johnson
The foregoing Performance Graph and Report of the Compensation Committee of
the Board of Directors on Executive Compensation shall not be deemed to be
"soliciting material" or to be "filed" with the SEC or subject to regulations
14A or 14C under the Exchange Act, or to the liabilities of Section 18 of the
Exchange Act.
EXECUTIVE COMPENSATION
The following table provides a summary of compensation paid to Valero's CEO
and its four other most highly compensated executive officers for services
rendered in all capacities to the Company for the last three years. Benefits
under health care, disability, term life insurance, vacation and other plans
available to employees generally are not included herein.
<TABLE>
<CAPTION>
Summary Compensation Table (1993-1995)
__________________________________________________________________________________________________
Long-Term Compensation
Restricted Securities
Annual Compensation Stock Underlying All Other
Name and Bonus Awards Options/ Compensation
Position Year Salary($) ($)(1) ($)(2) SARs(#) ($)(3)
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
William E. Greehey
Director, Chairman of 1995 $684,540 $560,000 $431,250 0 $73,007
the Board and Chief 1994 622,020 0 0 355,300 71,664
Executive Officer of 1993 622,020 375,000 457,500 50,000 77,861
Valero
F. Joseph Becraft
Director, President 1995 266,680 180,000 421,875 120,000 4,252
and Chief Operating
Officer of Valero
Edward C. Benninger
Director and 1995 342,600 210,000 189,750 0 27,016
Executive Vice 1994 335,040 0 0 125,500 27,598
President of Valero 1993 335,040 170,000 228,750 18,000 32,923
Stan L. McLelland
Executive Vice 1995 278,700 162,000 138,000 0 23,313
President and General 1994 262,380 0 0 82,600 23,836
Counsel of Valero 1993 262,380 87,000 102,938 12,000 28,777
E. Baines Manning(5)
Executive Vice 1995 231,420 120,000 51,750 0 12,468
President of Valero 1994 216,420 0 0 63,500 15,524
Refining and 1993 216,420 60,000 68,625 9,000 17,682
</TABLE>
<FN1>
(1) In 1993, executives received bonuses payable 60% in cash and 40% in
Common Stock. No bonus was paid in 1994. For 1995, executives received
bonuses payable 70% in cash and 30% in Common Stock.
<FN2>
(2) No shares of Restricted Stock were granted to the named executive
officers in 1994. For each named executive officer, the number of shares of
Restricted Stock held at December 31, 1995, and the value thereof, based on
the closing market price of the Common Stock at December 31, 1995, was as
follows: Mr. Greehey: 44,399 shares -- $1,087,776; Mr. Becraft: 25,000 shares
- -- $612,500; Mr. Benninger: 20,399 shares -- $499,776; Mr. McLelland: 12,466
shares -- $305,417; and Mr. Manning: 5,666 shares -- $138,817. Dividends are
paid on the Restricted Stock at the same rate as on Valero's unrestricted
Common Stock. Grants of Restricted Stock vest in annual increments of 33
1/3% beginning on the first anniversary of the grant date.
<FN3>
(3) Amounts include Company contributions pursuant to the Employee Stock
Plans, 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, Becraft, Benninger, McLelland, and
Manning were allocated $52,050, $4,252, $24,408, $19,296 and $16,435,
respectively, as a result of Company contributions to Employee Stock Plans for
1995, and $7,957, $0, $2,608, $4,017 and $0, respectively, as a result of
"above-market" allocations to the Executive Deferred Compensation Plan for
1995. Messrs. Becraft and Manning do not participate in the Executive
Deferred Compensation Plan. Amounts also include executive insurance policy
premiums with respect to standard cash value life insurance (and not
split-dollar life insurance) for Mr. Greehey in the amount of $13,000 per
year.
<FN4>
(4) For the period beginning May 1, 1995, when Mr. Becraft was employed by
the Company.
<FN5>
(5) The Board of Directors of Valero has determined to include Mr. Manning in
the Summary Compensation Table in accordance with Rule 3b-7 under the Exchange
Act.
Stock Option Grants and Related Information
The following table provides further information regarding the grants of stock
options to the named executive officers reflected in the Summary Compensation
Table.
<TABLE>
<CAPTION>
Option/SAR Grants in the Last Fiscal Year
___________________________________________________________________________________________________________________
Number of Percent of
Securities Total
Underlying Options/
Options/ SARs Granted Market
SARs to Employees Exercise or Price at Grant Date
Granted in Fiscal Base Price Grant Date Expiration Present
Name (#)(1) Year (/$/Sh) ($/Sh) Date Value $ (2)
___________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
William E. Greehey 0
F. Joseph Becraft 120,000 12% $19 $16.81 5/01/2005 $516,000
Edward C. Benninger 0
Stan L. McLelland 0
E. Baines Manning 0
___________________________________________________________________________________________________________________
</TABLE>
<FN1>
(1) Options granted to Mr. Becraft in 1995 become exercisable three years
from the date of grant. In the event of a change of control of Valero, such
options would also become immediately exercisable pursuant to provisions of
the plan or of an executive severance agreement. Under the terms of the plan,
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
shares, subject to certain conditions.
<FN2>
(2) A variation of the Black-Scholes option pricing model was used to
determine grant date present value. This model is designed to value publicly
traded options. Options issued under the Company's option plans are not
freely traded, and the exercise of such options is subject to substantial
restrictions. Moreover, the Black-Scholes model does not give effect to
either risk of forfeiture or lack of transferability. The estimated values
under the Black-Scholes model are based on assumptions as to variables such as
interest rates, stock price volatility and future dividend yield. The
estimated grant date present values presented in this table were calculated
using an expected average option term of six years, risk-free rates of return
of 7.1%, an average volatility rate for the six years preceding such grant of
33.2% and a dividend yield of 3.1%, which is the annualized quarterly
dividend rates 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.
The following table provides information regarding securities underlying
options exercisable at December 31, 1995, and options exercised during 1995,
for the executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
____________________________________________________________________________________________________________
Value of Unexercised
Shares Number of Securities In-the-Money
Acquired Value Underlying Unexercised Options/SARs at
on Exercise Realized Options/SARs at FY-End(#) FY-End ($)(1)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
William E. Greehey 0 0 159,885 350,299 $821,712 $1,723,694
F. Joseph Becraft 0 0 0 120,000 0 645,000
Edward C. Benninger 0 0 48,139 123,166 130,910 602,519
Stan L. McLelland 0 0 38,190 80,933 146,778 394,891
E. Baines Manning 0 0 30,884 62,166 128,088 303,706
____________________________________________________________________________________________________________
</TABLE>
<FN1>
(1) Represents the dollar value obtained by multiplying the number of
unexercised options/SARs by the difference between the stated exercise price
per share of the options/SARs and the average market price per share of
Valero's Common Stock on December 31, 1995.
Retirement Benefits
The following table shows the estimated annual gross benefits payable under
Valero's Pension Plan ("Pension Plan"), Excess Pension Plan and Supplemental
Executive Retirement Plan ("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 benefit of the life of the
participant only.
<TABLE>
Estimated Annual Pension Benefits at Age 65
___________________________________________________________________________________
Years of Service
Covered ___________________________________________________________________
Compensation 15 20 25 30 35
___________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 55,000 $ 74,000 $ 92,000 $111,000 $129,000
250,000 70,000 93,000 117,000 140,000 163,000
300,000 85,000 113,000 141,000 169,000 197,000
400,000 114,000 152,000 190,000 228,000 266,000
500,000 143,000 191,000 238,000 286,000 334,000
600,000 172,000 230,000 287,000 345,000 402,000
700,000 202,000 269,000 336,000 403,000 470,000
800,000 231,000 308,000 385,000 462,000 539,000
900,000 260,000 347,000 433,000 520,000 607,000
1,000,000 289,000 386,000 482,000 579,000 675,000
1,200,000 348,000 464,000 580,000 696,000 812,000
___________________________________________________________________________________
</TABLE>
Valero maintains a noncontributory defined benefit Pension Plan in which
virtually all employees are eligible to participate and under which
contributions for individual participants are not determinable. Valero also
maintains a noncontributory, nonqualified Excess Pension Plan which provides
supplemental pension benefits to certain highly compensated employees to the
extent that the pension benefits otherwise payable to such employees from the
Pension Plan would exceed benefits permitted under applicable regulations to
be paid from a tax-qualified defined benefits plan. Accrued contributions for
the 1995 Pension Plan year were approximately 5.58% of total covered
compensation. No contributions were made to the Excess Pension Plan. The
Pension Plan (supplemented, as necessary, by the Excess Pension Plan) provides
a monthly pension at normal retirement equal to 1.6% of the participant's
average monthly compensation (based upon the participant's base earnings
during the 60 consecutive months of the participant's credited service
affording the highest such average) times the participant's years of credited
service, plus .35% times the product of the participant's years of credited
service (maximum 35 years) multiplied by the excess of the participant's
average monthly compensation over the lesser of 1.25 times the monthly average
(without indexing) of the social security wage bases for the 35-year period
ending with the year the participant attains social security retirement age,
or the monthly average of the social security wage base in effect for the year
that the participant retires.
Valero also maintains the SERP, a non-qualified plan providing additional
pension benefits to certain executive officers and employees of the Company.
In 1989, Valero funded its obligations through that date under the SERP
through the contribution of Common Stock to a trust established to fund
disbursements to SERP participants. The Company has determined to fully fund
the SERP, to diversify investments held in the trust established for the SERP
and to appoint Frost National Bank of San Antonio, N.A., as trustee. However,
during 1995 no contributions were made to the SERP Trust.
Compensation for purposes of the Pension Plan and Excess Pension Plan includes
only salary as reported in the Summary Compensation Table and excludes cash
bonuses. For purposes of the SERP, the participant's most highly compensated
consecutive 36 months of service during the participant's last 10 years of
employment (rather than 60 months) are considered, and bonuses are included.
Accordingly, the amounts reported in the Summary Compensation Table under the
headings "Salary" and "Bonus" constitute covered compensation for purposes of
the SERP. Pension benefits are not subject to any deduction for social
security or other offset amounts.
Credited years of service for the period ended December 31, 1995 for the
executive officers named in the Summary Compensation Table are as follows: Mr.
Greehey -- 32 years; Mr. Becraft -- 5 years; Mr. Benninger -- 21 years; Mr.
McLelland -- 17 years; and Mr. Manning -- 9 years. The credited service for
Mr. Becraft and Mr. McLelland includes five years, and two years service,
respectively, credited pursuant to the terms of their employment by the
Company and for which benefits are payable only from the SERP.
ARRANGEMENTS WITH CERTAIN OFFICERS AND DIRECTORS
Effective May 1, 1995, Valero entered into an employment agreement with Mr.
Becraft expiring April 30, 2000. Under the terms of this agreement, Mr.
Becraft is to be paid a minimum base salary of $400,000 per annum, subject to
possible increase adjustments by the Board. Mr. Becraft is also entitled to
participate in the Company's executive incentive bonus plan, restricted stock
and option plans, and SERP; for purposes of determining benefits payable under
the SERP, his prior service from 1984-1989 will be credited.
Valero entered into an employment agreement with Mr. Greehey which expired
June 9, 1995. The agreement provided that Mr. Greehey would be entitled to
receive certain post-retirement benefits, including office facilities and
secretarial support until age 69, transfer of certain club memberships, the
vesting of certain stock option and restricted stock grants, certain medical
and life insurance benefits and the right to certain supplemental amounts
under the SERP. In November 1994, in consideration of Mr. Greehey's
forbearance in not giving notice of retirement prior to expiration of the
agreement, Valero's Board of Directors approved granting such post-retirement
benefits to Mr. Greehey, notwithstanding the termination of such agreement.
Valero has entered into agreements (the "Severance Agreements") with Messrs.
Greehey, Becraft, Benninger, McLelland and Manning which provide certain
payments and other benefits in the event of their termination of employment
under certain circumstances. The Severance Agreements provide that if the
executive leaves the Company for any reason (other than death, disability or
normal retirement) within two years after a "change of control," the executive
will receive a lump sum cash payment equal to three times, in the cases of
Messrs. Greehey, Becraft and McLelland, and two times, in the cases of Messrs.
Benninger and Manning, his highest compensation during any consecutive
12-month period in the prior three years. The executive will also be entitled
to accelerated exercise of stock options and SARs and accelerated vesting of
restricted stock previously granted. The agreements also provide for special
retirement benefits if the executive would have qualified for benefits under
the Pension Plan had he remained with the Company for the three-year period
following such termination, for continuance of life insurance, health
coverages and other fringe benefits for such three-year period and for
relocation assistance.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company has invested through a subsidiary approximately $9.7 million in a
program to drill coal seam gas wells in New Mexico. In order to share the
drilling and other risks inherent in this project, various officers and
employees of the Company were permitted to invest as general partners in a
partnership to which the subsidiary's interest was assigned. The Board
determined in 1992 that this transaction was fair to the Company. During 1992
and 1993 Messrs. Greehey, Benninger, McLelland and Manning invested
approximately $207,000, $52,000, $156,000 and $104,000, respectively, to
acquire respective interests of 2.0%, .50%, 1.5% and 1.0% in the project. No
additional investments were made by these executive officers during 1994.
During 1995, a company owned by Mr. Manning purchased an additional .25%
interest in the project from another investor. During 1995, Messrs. Greehey,
Benninger, McLelland and Manning (including such company) received cash
distributions of $69,440, $17,360, $52,080 and $42,515, respectively,
attributable to their investments. Additionally, all investors in the
project may be eligible to utilize certain federal income tax credits
applicable to the project.
Except as disclosed herein, 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.
ITEM NO. 4. Other Business
If any matters not referred to in this Proxy Statement properly come before
the meeting, a majority of the persons named in the proxy (or, if one such
person acts, then that one) may vote the shares represented thereby in
accordance with their best judgment. The Board of Directors 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.
SHAREHOLDER 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
time 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 foregoing provisions of the By-Laws do not affect the right of any
stockholder to request inclusion of proposals in the Proxy Statement pursuant
to Rule 14a-8 under the Exchange Act. However, the stockholder must also
comply with all applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder. Under the SEC's proxy solicitation rules,
stockholder proposals intended to be considered for inclusion in the proxy
materials for the 1997 Annual Meeting must be received by the Corporate
Secretary at Valero's principal executive office by November 15, 1996.
Valero will also consider recommendations by stockholders for directors to be
nominated at the 1997 Annual Meeting. 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 1997 Annual Meeting 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 1996 Annual Meeting.
MISCELLANEOUS
Valero's Annual Report on Form 10-K, including the financial statements and
the financial statement schedules, required to be filed with the SEC pursuant
to Rule 13a-1 of the Exchange Act, for the fiscal year ended December 31,
1995, will be furnished without charge to any stockholder upon written
request. A copy may be requested by writing to Mr. Keith Booke, Investor
Relations Department, Valero Energy Corporation, P.O. Box 500, San Antonio,
Texas 78292-0500.
Valero's Annual Report to Stockholders (the "Annual Report"), including
audited financial statements of the Company for the fiscal year ended December
31, 1995, 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.
Harris Trust and Savings Bank, Chicago, Illinois, serves as transfer agent,
registrar and dividend paying agent for Valero's Common Stock, $3.125
Convertible Preferred Stock and Series A Preferred Stock. Correspondence
relating to any stock accounts, dividends or transfers of stock certificates
should be addressed to:
Harris Trust and Savings Bank
Shareholder Services Division
P.O. Box 755
Chicago, Illinois 60690-9971
(312) 293-4913 or 4914
The cost of soliciting proxies and the cost of the Annual Meeting will be
borne by Valero. 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 the Company, 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. The Company has retained Kissel-Blake, Inc., a
proxy soliciting firm, to assist in the solicitation of proxies, for an
estimated fee of $10,000, plus reimbursement of certain out-of-pocket
expenses.
Participants in Employee Stock Plans Please Note:
In the case of participants in the Company's Thrift Plan, Employees' Stock
Ownership Plan and Valero Employees' Stock Ownership Plan, the proxy card will
represent (in addition to any shares held individually of record) the number
of shares allocated to the participant's account under each plan. For those
shares held under the plan, the proxy card will constitute an instruction to
the trustee under the plan as to how such shares are to be voted. Shares for
which instructions are not received may be voted by the Trustee in accordance
with the Plan.
By order of the Board of Directors,
Rand C. Schmidt
Corporate Secretary
San Antonio, Texas
March 15, 1996
<PAGE>
Appendix A
VALERO ENERGY CORPORATION
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. The Non-Employee Director Stock Option Plan (the "Plan") of
Valero Energy Corporation, a Delaware corporation (the "Company"), is for the
benefit of members of the board of directors of the Company (the "Board") who,
at the time of their service, are not employees of the Company or any of its
subsidiaries ("Non-Employee Directors"), but are persons who have made or are
expected to make a significant contribution to the continued growth of the
Company. The purpose of the Plan is to encourage the Non-Employee Directors
to continue to serve the Company by providing the Non-Employee Directors with
incentives under this Plan to increase their proprietary interest in the
success of the Company.
2. Administration. (a) Except as otherwise set forth herein, the Plan
shall be administered by the Compensation Committee ("Committee") as appointed
and constituted from time to time by the Board. In the event the Committee
shall have fewer than two members, or fewer than two members of the Committee
shall be eligible to act with respect to the Plan, then such additional
persons shall be appointed by the Board to act with and as a part of the
Committee for purposes of administering this Plan so that the committee
administering this Plan shall consist of at least three persons deemed to be
"disinterested persons" within the meaning of Rule 16b-3 (or any successor
regulations) under the Securities Exchange Act of 1934 (the "Exchange Act").
(b) In connection with its administration of this Plan, the Committee is
empowered to:
(i) Make rules and regulations for the administration of the Plan
that are not inconsistent with the terms and provisions of this Plan;
(ii) Construe all terms, provisions, conditions and limitations of
the Plan in good faith, and adopt amendments to the Plan;
(iii) Make equitable adjustments for any mistakes or errors in the
administration of this Plan or deemed to be necessary as the result of any
unusual situation or any ambiguity in the Plan;
(iv) Select, employ and compensate, from time to time, consultants,
accountants, attorneys and other agents and employees as the Committee may
deem necessary or advisable for the proper and efficient administration of the
Plan.
(c) The foregoing list of express powers granted to the Committee is not
necessarily intended to be exclusive, and the Committee shall have, in
addition to the specific powers granted by this Plan, such powers not
inconsistent with the Plan or Rule 16b-3, whether or not expressly authorized
herein, that it may deem necessary or desirable for the supervision and
administration of this Plan. Except as otherwise specifically provided
herein, the decisions and judgment of the Committee on any question or claim
arising hereunder shall be conclusive and binding upon the Participants and
all persons claiming through a Participant.
(d) Notwithstanding the foregoing, the Committee shall have no authority
to exercise discretion with respect to the selection of any Non-Employee
Director as a Participant in the Plan, the determination of the number of
options ("Options") that are allocated to any Non-Employee Director or the
terms or conditions of any allocation, and shall have no authority to amend
any provision of the Plan relating to eligibility for participation in the
Plan, the amount or timing of grants under the Plan or the imposition or
removal of restrictions on the vesting of Options.
3. Option Shares. The stock subject to the Options and other provisions
of the Plan shall be shares (the "Shares") of the Company's Common Stock,
$1.00 par value (the "Common Stock"). The total amount of the Common Stock
with respect to which Options may be granted shall not exceed in the aggregate
100,000 Shares. The class and aggregate number of Shares that may be subject
to the Options granted under this Plan shall be subject to adjustment under
Section 15. The Shares issued upon the exercise of Options may be treasury
Shares or authorized but unissued Shares.
If an outstanding Option expires or is terminated for any reason, the Shares
allocable to the unexercised portion of that Option may again be subject to an
Option under the Plan.
4. Grant of Options.
(a) Directors on the Effective Date of this Plan.
(i) Subject to the provisions of Section 19 hereof, each person who
is a Non-Employee Director upon the effective date of this Plan shall be
granted an Option to purchase 6,000 Shares at a per share Option Price equal
to the fair market value (as defined in section 6 below) of a share of Common
Stock on that date.
(ii) For so long as this Plan is in effect and Shares are available
for the grant of Options hereunder, on the date of the annual meeting of
directors (the "Annual Meeting") each year beginning in 1996, each person who
is a Non-Employee Director on the effective date of this Plan and on the date
of the Annual Meeting shall be granted an Option to purchase 1,000 Shares at a
per share Option Price equal to the fair market value of a share of the Common
Stock on the date of the Annual Meeting (the number of Shares being subject to
the adjustments provided in Section 15 of this Plan).
(b) Directors Elected after the Effective Date of this Plan.
(i) Subject to the provisions of Section 19, for so long as this
Plan is in effect and Shares are available for the grant of Options hereunder,
each person who becomes a Non-Employee Director after the effective date of
this Plan shall be granted, on the date of his or her election, an Option to
purchase 5,000 Shares at a per share Option Price equal to the fair market
value of a share of Common Stock on that date (the number of Shares being
subject to the adjustments provided in Section 15 of this Plan).
(ii) For so long as this Plan is in effect and Shares are available
for the grant of Options hereunder, at the Annual Meeting each year (excluding
the Annual Meeting at which the Non-Employee Director is first elected as a
director) each person who becomes a Non-Employee Director after the effective
date of this Plan and who is a Non-Employee Director on the date of the Annual
Meeting shall be granted an Option to purchase 1,000 Shares at a per share
Option Price equal to the fair market value of a share of Common Stock on the
date of the Annual Meeting (such number of Shares being subject to the
adjustments provided in Section 15 of this Plan).
5. Eligibility. The individuals who are eligible to participate in the
Plan are those members of the Board who, at the time of a grant hereunder, are
not employees of the Company or an Affiliate (as defined in Section 11 below).
6. Option Price. Any Share subject to an Option granted under this Plan
may be purchased at a price (the "Option Price") equal to that Share's "Fair
Market Value" on the date the Option is granted. The Fair Market Value of a
Share shall be the average of the "high" and "low" sales prices of a share of
Common Stock on that date as reported in the New York Stock
Exchange--Composite Transactions listing, or if there are no sales on the New
York Stock Exchange on that measuring date, then as of the next following date
on which there are sales.
7. Duration of Options. No Option may be exercised after the expiration
of 10 years from the date of its grant.
8. Amount Exercisable. All Options granted pursuant to Sections 4(a)(i)
and 4(b)(i) of the Plan shall vest and become exercisable as follows:
(a) On the first anniversary of the date the Option was granted (the
"Date of Grant"), the Option may be exercised with respect to up to one-third
of the Shares subject to the Option;
(b) On each succeeding anniversary of the Date of Grant, the Option may
be exercised with respect to up to an additional one-third of the Shares
subject to the Option, so that upon the third anniversary of the Date of
Grant, the Option shall be exercisable in full; and
(c) Notwithstanding the provisions of clauses (a) and (b), no Option may
be exercised prior to six months following the date on which this Plan is
approved by the stockholders of the Company.
Each Option granted pursuant to Sections 4(a)(ii) and 4(b)(ii) may be
exercised from time to time in part or as a whole after the later of (A)
expiration of six months following the Date of Grant or (B) six months
following the date on which this Plan is approved by the stockholders of the
Company. Notwithstanding the preceding provisions of this Section 8, if a
Non-Employee Director retires in good standing from the Board for reason of
age or disability under the then-established rules of the Company, all Options
not previously vested shall become fully vested and immediately exercisable by
the retiring Non-Employee Director.
Notwithstanding any other provision of this Plan, each Option granted under
this Plan not theretofore forfeited or terminated and held as of the date of a
Change of Control (defined below) by a Non-Employee Director who as of such
date is not a Nonaccelerated Person (defined below) shall upon occurrence of
the Change of Control immediately become vested or exercisable with respect to
all of the Shares granted thereunder and will remain exercisable for the
remainder of the original term of the Option. In the event of any Change of
Control, the Chairman of the Board and Chief Executive Officer (or, if the
office is vacant, the President) of the Company may on or before the date of
the event constituting a Change of Control, file with the Corporate Secretary
of the Company a written notice (the "Nonacceleration Notice") signed by the
officer stating that the Change of Control shall not result in the
acceleration of Options granted under the Plan to the Participants identified
in the notice (or held by persons claiming by, through or under such
Participants). The Nonacceleration Notice may be filed with respect to all
Options granted under the Plan or with respect to Options granted to
Participants specified in the notice (each Participant referred to by name or
generically in a Nonacceleration Notice, together with each person claiming
by, through or under such Participant, is hereinafter referred to as a
"Nonaccelerated Person").
For all purposes of this Plan, a "Change of Control" shall be deemed to occur
if:
(i) the Company merges or consolidates with any other entity (other
than a wholly owned subsidiary of the Company) and is not the surviving entity
of the merger (or survives only as the subsidiary of another entity);
(ii) the Company sells all or substantially all of its assets to
any other entity or person (other than a wholly owned subsidiary of the
Company);
(iii) the Company is liquidated or dissolved;
(iv) any "person" or "group" (as these terms are used in Section
13(d) and 14(d) of the Exchange Act) other than the Company, any subsidiary of
the Company any employee benefit plan of the Company, or any entity holding
Shares for or pursuant to the terms of those employee benefits plans, is or
becomes an "Acquiring Person" as defined in that certain Rights Agreement,
dated October 26, 1995 ("Rights Agreement"), between the Company and Harris
Trust and Savings Bank (or any successor Rights Agreement).
(v) any "person" or "group" (as these terms are used in
subparagraph (iv) above) shall commence a tender offer or exchange offer for
30% or more of the Shares then outstanding, or for any number or amount of
Shares which, if the tender or exchange offer were to be fully subscribed and
all Shares for which the tender or exchange offer is made were to be purchased
or exchanged pursuant to the offer, would result in the acquiring person or
group directly or indirectly beneficially owning 50% or more of the Shares
then outstanding; or
(vi) as a result of or in connection with a contested election of
directors, a number of directors equal to a majority of the Board before the
election cease to be members of the Board.
9. Exercise of Options.
(a) Unless otherwise prescribed by the Committee, Options may be
exercised only by written notice of exercise (the "Exercise Notice") in the
form prescribed by the Committee delivered to the Company to the Stock Option
Plan administrator, and signed by the Participant or other person acting on
behalf of the Participant. The date on which the Exercise Notice is delivered
to the Company shall be the "Notice Date." The Exercise Notice must specify a
date (the "Settlement Date"), not less than five business days nor more than
ten business days following the Notice Date, upon which the Shares shall be
issued or transferred to the Participant (or other person entitled to exercise
the Option) and the Option Price shall be paid to the Company.
(b) Unless otherwise prescribed by the Committee, on the Settlement
Date, the person exercising an Option shall tender to the Company full payment
of the Option Price, together with an additional amount, in cash, certified
check, cashier's check or bank draft approved by the Company, equal to the
amount of any taxes required to be collected or withheld by the Company in
connection with the exercise of the Option (the "Tax Payment").
(c) Subject to the approval of the Committee, and to any rules and
limitations as the Committee may adopt, a person exercising an Option may make
the Tax Payment in whole or in part by electing, at or before the time of
exercise of the Option, either (i) to have the Company withhold from the
number of Shares otherwise deliverable a number of Shares whose Fair Market
Value equals the Tax Payment, or (ii) to deliver certificates for other Shares
owned by the person exercising the Option, endorsed in blank with appropriate
signature guarantee, having a Fair Market Value equal to the amount otherwise
to be collected or withheld. Following any election to withhold Shares or
deliver other Shares to make a Tax Payment, the Committee shall have sole
discretion to approve or disapprove the election at any time prior to the
Settlement Date. If the election is disapproved, the Tax Payment shall be
made in cash, or in any combination of cash and Shares as the Committee may
direct. If the Committee fails to disapprove the election prior to the
Settlement Date, the election will be deemed approved.
(d) Subject to approval by the Committee, a person exercising an Option
for the receipt of shares may pay for the shares by tendering to the Company
other Shares legally and beneficially owned by that person at the time of the
exercise of the Options. If approved by the Committee, this method of
exercise may include use of a procedure whereby a person exercising an Option
may request that Shares received upon exercise of a portion of an Option be
automatically applied to satisfy the exercise price for additional and
increasingly larger portions of the Option. The certificate(s) representing
any Shares tendered in payment of an Option's exercise price must be
accompanied by a stock power duly executed with appropriate signature
guarantees. The Committee may, in its sole discretion, refuse any tender of
Shares in which case the Company shall promptly redeliver the Shares to the
person exercising the Option and notify the person of the refusal as soon as
practicable. In this event, the person may either (i) tender to the Company
on the Settlement Date the cash amount required to pay for the Option Shares,
or (ii) rescind the Exercise Notice. If the person elects to rescind his or
her Exercise Notice, the person may again (subject to the other terms of this
Plan) deliver an Exercise Notice with respect to the Option at any time prior
to its expiration date.
(e) Any calculation with respect to a Participant's income, required tax
withholding or other matters required to be made by the Company upon the
exercise of an Option shall be made using the Fair Market Value of the Shares
on the Notice Date, whether or not the Exercise Notice is delivered to the
Company before or after the close of trading on that date, unless otherwise
specified by the Committee.
10. Transferability of Options. Options may not be transferred by the
Non-Employee Director except by will or under the laws of descent and
distribution, and shall be exercisable during the lifetime of the Non-Employee
Director only by the Non-Employee Director.
11. Forfeitures. Notwithstanding any other provision of this Plan, if
the Committee finds by a majority vote, that the optionee, before or after
termination of his or her capacity as a Non-Employee Director of the Company
or any subsidiary corporation, limited partnership or other entity
controlling, or controlled by, or under common control with the Company (an
"Affiliate"), committed fraud, embezzlement, theft, any felony or dishonesty
in the course of his relationship to the Company and its Affiliates which
conduct damaged the Company or its Affiliates, or that the Non-Employee
Director disclosed trade secrets of the Company or its Affiliates, then any
unexercised Options previously granted to the Non-Employee Director shall be
forfeited. The decision of the Committee will be final.
12. Requirements of Law. The Company shall not be required to sell or
issue any Shares under any Option if issuing the Shares constitutes a
violation by the optionee or the Company of any provisions of any law or
regulation of any governmental authority. Each Option granted under this Plan
shall be subject to the requirements that, if at any time the Company or the
Committee determines that the listing, registration or qualification of the
Shares upon any securities exchange or under any state or federal law of the
United States or of any other country or governmental subdivision, or the
consent or approval of any governmental regulatory body, or investment or
other representations, are necessary or desirable in connection with the issue
or purchase of Shares subject to an Option, that Option shall not be exercised
in whole or in part unless the listing, registration, qualification, consent,
approval or representations is effected or obtained free of any conditions not
acceptable to the Company. Any determination in this connection by the
Committee shall be final. In the event the Shares issuable on exercise of an
Option are not registered under the Securities Act of 1933, the Company may
imprint on the certificate for those Shares the following legend or any other
legend which counsel for the Company considers necessary or advisable to
comply with the Securities Act of 1933 or other applicable state or federal
securities laws or regulations:
"The shares of stock represented by this certificate have not
been registered under the Securities Act of 1933 or under the
securities laws of any state and may not be sold or transferred
except upon registration or upon receipt by the Company of an
opinion of counsel satisfactory to the Company, in form and
substance satisfactory to the Company, that registration is not
required for a sale or transfer."
The Company shall endeavor to register any securities covered by this Plan
under the Securities Act of 1933 (as now in effect or as later amended) and,
if any Shares are registered, the Company may remove any legend on
certificates representing those Shares. The Company shall not be obligated to
take any other affirmative action to cause the exercise of an Option or the
issuance of Shares under the Option to comply with any law or regulation or
any governmental authority.
13. No Rights as Stockholder. No optionee shall have rights as a
stockholder with respect to Shares covered by an Option until the date a stock
certificate is issued for the Shares. Except as provided in Section 15, no
adjustment for dividends or other matters shall be made if the record date is
prior to the date the certificate is issued.
14. No Obligation to Retain Optionee. The granting of any Option shall
not impose upon the Company or any of its subsidiaries any obligation to
retain or continue to retain any optionee in his or her capacity as a
Non-Employee Director.
15. Changes in the Company's Capital Structure. The existence of
outstanding Options shall not affect the right or power of the Company or its
stockholders to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, or any merger or consolidation of the Company; or any issue of debt
or equity superior to or affecting the rights of the Common Stock; or the
dissolution or liquidation of the Company; or any sale or transfer of all or
any part of the Company's assets or business; or any other corporate act or
proceeding.
If all or any portion of an Option is exercised subsequent to any stock
dividend, rights distribution, split-up, recapitalization, combination or
exchange of Shares, merger, consolidation, acquisition of property or stock,
spin-off, split-off or separation, reorganization or liquidation, as a result
of which Shares or other securities of any class or rights shall be issued in
respect of outstanding Shares (hereafter "Reorganization Event"), the person
or persons so exercising such Option shall receive, for the aggregate price
payable upon such exercise of such Option, (i) the aggregate number and class
of Shares, rights or other securities for which a recognized market exists,
and (ii) a cash amount equal to the fair market value on such date, as
reasonably determined by the Committee, of any other property (other than
regular cash dividend payments) and of any Shares, rights or other securities
for which no recognized market exists, which, if Shares of Common Stock (as
authorized at the date of the granting of such Option) had been purchased at
the date of granting of the Option for the same aggregate price (on the basis
of the price per share provided in the Option) and had not been disposed of,
such person or persons would be holding at the time of such exercise as a
result of such purchase and any such Reorganization Event; provided, however,
that no fractional share of Common Stock, fractional right or other fractional
security shall be issued upon any such exercise, and the aggregate price paid
shall be appropriately reduced to reflect any fractional share of Common
Stock, fractional right or other fractional security not issued; and provided
further, however, that if the exercise of any Option subsequent to any
Reorganization Event would, pursuant to this Section 15, require the delivery
of Shares, rights or other securities which the Company is not then authorized
to issue or which in the sole judgment of the Committee cannot be issued
without undue effort or expense, the person exercising such Option shall
receive, in lieu of such Shares, rights or other securities, a cash payment
equal to the fair market value on the Exercise Date, as reasonably determined
by the Committee, of such Shares, rights or other securities. For purposes
of applying the provisions of this Plan, the Preference Share Purchase Rights
distributed to stockholders of record of the Company on November 25, 1995, or
any successor rights, shall be deemed not to have been distributed until the
Distribution Date (as defined in the Rights Agreement or any successor
agreement).
In the event of any change in the number of Shares outstanding resulting from
a Reorganization Event, then the aggregate number and class of Shares
remaining available to be optioned under this Plan shall be that number and
class which a person, to whom an Option had been granted for all of the
available Shares under this Plan on the date preceding such change, as
provided in Section 3 would be entitled to receive upon exercise of such
Option following such change. Upon the occurrence of any Reorganization
Event, the Committee shall be entitled (but shall not be required) to
determine that new Option Agreements (or amendments to the existing Option
Agreements) shall be entered into with Participants reflecting such stock
dividend or other event.
Except as expressly provided before in this Plan, the issue by the Company of
Shares of stock of any class, or securities convertible into Shares of stock
of any class, for cash or property, or for labor or services either upon
direct sale or upon the exercise of rights or warrants to subscribe for
Shares, or upon conversion of Shares or obligations of the Company convertible
into Shares or other securities, shall not affect, and no adjustment by reason
of it shall be made with respect to, the number or price of Shares then
subject to outstanding Options.
16. Amendment or Termination of Plan. The Board may amend or terminate
this Plan at any time. However, without the further approval of the holders
of at least a majority of the outstanding Shares of voting stock, or if the
provisions of the corporate charter, by-laws or applicable state law prescribe
a greater degree of stockholder approval for this action, then without the
degree of stockholder approval thus required, the Board may not (a) change the
aggregate number of Shares that may be issued under Options pursuant to the
provisions of this Plan; (b) reduce the Option Price permitted for Options;
(c) change the class of persons eligible to receive Options; (d) extend the
term during which an Option may be exercised or the termination date of the
Plan; or (e) materially increase any other benefits accruing to the
Non-Employee Directors under the Plan or materially modify the requirements of
eligibility for participation in the Plan unless the Board obtains an opinion
of legal counsel to the effect that stockholder approval of the amendment is
not required by law or the applicable rules and regulations of, or any
agreement with, or in order to make available to the optionee with respect to
any Option granted under the Plan the benefits of Rule 16b-3 under the
Exchange Act or any similar or successor rule. In addition, the terms of the
Plan relating to the number of Shares that may be subject to an Option, the
times at which Options are to be granted, and the means by which the Option
Price for the Options granted is to be determined shall not be amended more
than once every six months, other than to comport with the changes in the
Internal Revenue Code of 1986, the Employee Retirement Security Act or the
rules under either of those laws. All Options granted under this Plan shall
be subject to the terms and provisions of this Plan and any amendment,
modification or revision of this Plan shall be deemed to amend, modify or
revise all Options outstanding under this Plan at the time of the amendment,
modification or revision.
17. Written Agreement. Each Option granted under this Plan shall be
embodied in a written option agreement which shall be subject to the terms and
conditions prescribed above and shall be signed by the Non-Employee Director
and by the appropriate officer of the Company on behalf of the Company. Each
option agreement shall contain any other provisions that the Committee in its
discretion shall deem advisable subject to the terms of this Plan.
18. Effective Date of Plan. The Plan shall become effective and shall
be deemed to have been adopted on July 25, 1995, if within one year of that
date it has been approved by the holders of at least a majority of the
outstanding Shares of voting stock of the Company voting in person or by proxy
at a duly held stockholders' meeting. Notwithstanding anything to the contrary
contained in this Plan or any option agreement entered into hereunder, any
grant of Options under this Plan shall be conditional and shall be granted
subject to such stockholder approval. If the stockholders of the Company do
not approve this Plan, any and all Options or options agreements theretofore
entered into shall thereupon terminate and shall be void and of no force or
effect. Options may not be granted under this Plan after July 25, 2005.
<PAGE>
Appendix B
The Comparator Group, as identified in the Report of the Compensation
Committee of the Board of Directors on Executive
Compensation, included the following companies for 1995:
Atlantic Richfield Company
Burlington Resources, Inc.
Citgo Petroleum Corp.
Consolidated Natural Gas Co.
Diamond Shamrock, Inc.
Enron Corp.
Freeport-McMoran Inc.
The Louisiana Land and Exploration Company
MAPCO, Inc.
Occidental Petroleum Corporation
PanEnergy Corp.
Phillips Petroleum Co.
Sonat Inc.
Sun Company, Inc.
Tenneco, Inc.
Unocal Corporation
The Williams Companies, Inc.
<PAGE>
PROXY CARD PROXY CARD
VALERO ENERGY CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 30, 1996
The undersigned hereby appoint(s) William E. Greehey, Stan L. McLelland
and Rand C. Schmidt, Proxies, with full power of substitution, to represent
and to vote all Common Stock and Preferred Stock, $8.50 Cumulative Series A,
of Valero Energy Corporation ("Valero") owned by the undersigned at the
Annual Meeting of Stockholders to be held in San Antonio, Texas on Tuesday,
April 30, 1996, including any adjournment thereof, with respect to the
matters set forth in the Notice of Annual Meeting and Proxy Statement.
When properly executed, this proxy will be voted in accordance with
the directions indicated herein by the undersigned, or if no direction
is made, will be voted for Items 1, 2 and 3. For shares allocated
to a participant's account pursuant to any Employee Stock Plan of Valero,
this proxy will constitute an instruction to the plan trustee as to
how such shares are to be voted. In their discretion, the Proxies are
authorized to vote upon such other business as may properly come before
the meeting and to vote for a substitute if a nominee named in Item 1 is
unable to serve. The undersigned authorize(s) the Proxies to cumulate
the undersigned's votes and distribute them among the nominees (excepting
any nominee for which authority to vote is withheld) in equal proportions
or in such other proportions as the Proxies shall direct.
The Board of Directors recommends a vote FOR the election of
Directors and FOR Items 2 and 3.
YOUR VOTE IS IMPORTANT! PLEASE MARK, SIGN AND DATE THIS PROXY ON THE
REVERSE SIDE AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
VALERO ENERGY CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<S> <C> <C> <C> <C> <C>
1. Election of Directors For All
Nominees: F. Joseph For Withheld Except Nominee(s) Written Below
Becraft, Ronald K.
Calgaard, Susan
Kaufman Purcell
2. Approval of Non-Employee For Against Abstain Sign here exactly as name(s) appears on this card.
Director Stock Option Plan. Dated: __________________________, 1996
3. Ratification of Arthur Andersen For Against Abstain (x)_______________________________________________
LLP as auditors for 1996.
(x)_______________________________________________
The signer hereby revokes all proxies heretofore
given by the signer to vote at said meeting or
any adjournments thereof and acknowledges 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.
</TABLE>
