EXHIBIT 10.12
MANAGEMENT STABILITY AGREEMENT
AGREEMENT dated as of ________, 1997 ("Agreement") between Valero Refining
and Marketing Company, a Delaware corporation (the "Corporation"), and Xxxxxxx
X. Xxxx (the "Executive"),
WITNESSETH:
WHEREAS, for the reasons more fully set forth in the minutes of the
Executive Committee (the "Committee") of the Board of Directors of the
Corporation, the Committee has approved the execution, delivery and performance
by the Corporation of management retention agreements, substantially in the form
of this Agreement, between the Corporation and certain officers and other key
executives of the Corporation and its subsidiaries, including the Executive;
WHEREAS, should the Corporation become involved in any Change of Control or
Divestiture (each as hereinafter defined) situation, in addition to Executive's
regular duties, Executive may be called upon to assist in the assessment of any
third-party or internal proposals, advise management and the Board as to whether
such proposals would be in the best interests of the Corporation and its
shareholders, participate in successfully completing such transactions and to
take such other actions as the Board might determine to be appropriate;
NOW, THEREFORE, to assure that the Corporation will have the continued
dedication of the Executive, and the availability of Executive's advice and
counsel as to the best interests of the Corporation and its stockholders,
notwithstanding the possibility, threat, or occurrence of a Change of Control or
Divestiture, and to induce the Executive to remain in the employ of the
Corporation
and/or its designated subsidiaries, and for other good and valuable
consideration, Corporation and Executive agree as follows:
1. Services During Certain Events.
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A. In the event any Person (as defined in Paragraph 2.E) (i) begins a
tender or exchange offer for equity securities of the Company, (ii) or
publicly announces an intention to take or consider taking any actions
which, if consummated, would constitute a Change of Control, (iii)
circulates a stockholder consent or solicits a proxy for the election of
directors, (iv) enters into an agreement with the Corporation, the
consummation of which would result in a Change of Control, (v) becomes an
"Acquiring Person" under the Rights Agreement, dated June 18, 1997, between
the Corporation and Xxxxxx Trust and Savings Bank, as Rights Agent, or (vi)
publicly takes other steps which, if consummated, would constitute a Change
of Control, Executive agrees that he will not voluntarily leave the employ
of the Corporation or its subsidiaries, and will render the services
contemplated in the recitals to this Agreement and in any employment
agreement between the Corporation and Executive, until the earlier of (u)
such date as such Person has abandoned or terminated efforts to effect a
Change of Control, (v) sixty days following the date on which a Change of
Control has occurred or (w) thirty days following written notice to the
Corporation of such termination of employment. In the event the
Corporation determines to undertake any transaction or transactions which,
if consummated, would constitute a Divestiture, Executive agrees that he or
she will not voluntarily leave the employ of the Corporation or its
subsidiaries and will continue to render the services recited in the
preambles to this Agreement and in any employment agreement between the
Corporation and the Executive until the earlier of
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(x) such date as the Corporation has either abandoned or terminated its
efforts to effect such Divestiture, or (y) sixty days following the date on
which such Divestiture has occurred, or (z) thirty days following written
notice to the Corporation of such termination of employment.
B. The provisions of Paragraph 1.A notwithstanding, Executive may
terminate employment for any reason prior to the occurrence of an event
specified in Paragraph 1.A(i)-(vi), or a determination by the Corporation
to undertake a Divestiture, as the case may be, and, following the
occurrence of any such event or a determination by the Corporation to
undertake a Divestiture, as the case may be, may terminate employment
through retirement, total and permanent disability, or for Good Reason.
For purposes of this Agreement, "Good Reason" means (i) the occurrence of
any event or circumstance which, if occurring following a Change in Control
or Divestiture, would render Executive's termination of employment
"involuntary" (as defined in Paragraph 2.H), or (ii) a breach (other than
an insubstantial failure which is remedied by the Corporation promptly
after receipt of notice thereof from the Executive) by the Corporation of
any provision of this Agreement.
2. Termination After Change of Control. In the event that, within two
years following the occurrence of a Change of Control of the Corporation or a
Divestiture, Executive's employment is terminated so that Executive is no longer
employed with any of the Corporation or its then remaining subsidiaries, or a
Divested Entity or its subsidiaries, then, except as is otherwise provided in
Paragraph 2.D below, Executive shall be entitled to receive the following
payment and other benefits:
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A. Lump Sum Cash Payment. On or before Executive's Termination Date,
the Corporation will pay to Executive (in addition to any base salary,
bonuses, incentive compensation, expenses, vacation, benefits, benefit plan
distributions and other amounts which would otherwise normally be payable
to Executive, to the extent not theretofore paid), as compensation for
services rendered to the Corporation, a lump sum cash amount (subject to
any applicable payroll or other taxes required to be withheld) equal to two
(2) times the highest annual rate of compensation in effect at any time
during the 36-month period ending on the Termination Date. As used herein,
"annual rate of compensation" shall mean the aggregate regular base salary
paid or payable to Executive by the Corporation with respect to any period
of 12 consecutive months. In the event there are fewer than 24 months
remaining from the Termination Date to Executive's normal retirement date
at age 65, the amount otherwise payable hereunder shall be reduced as
follows: the amount otherwise calculated under this Paragraph 2.A will be
multiplied by a fraction, the numerator of which is the number of days
remaining to Executive's normal retirement date and the denominator of
which is 720, and the resulting product shall be the amount payable to
Executive under this Paragraph 2.A.
B. Other Benefits.
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(i) Insurance or Other Special Benefits. For two years (the
"Applicable Period") after the Termination Date, or such longer period
as may be provided by the terms of the appropriate plan, program,
practice or policy, the Corporation shall continue benefits to
Executive and/or Executive's family at least equal to those which
would have been provided to them under the welfare benefit plans,
practices, policies
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and programs provided by the Corporation (including, without
limitation, medical, prescription, dental, disability, employee life,
group life, accidental death and travel accident insurance plans and
programs) immediately prior to such termination, to the extent
applicable generally to other peer executives of the Corporation and
its affiliated companies, if the Executive's employment had not been
terminated; provided, however, that in no event shall the continued
benefits provided hereunder be less favorable, in the aggregate, than
those provided under the most favorable of such plans, practices,
policies and programs in effect for Executive at any time during the
120-day period immediately preceding the Termination Date or, if more
favorable to Executive, those provided generally at any time after the
Termination Date to other peer executives of the Corporation, its
affiliated companies or their successors. To the extent that, during
the Applicable Period, or any portion thereof, the benefits required
to be provided under this Paragraph 2.B are also required to be
provided by the Corporation under applicable provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the
Corporation may discharge such portion of its obligation hereunder by
providing such COBRA-mandated benefits, but at the Corporation's sole
cost and expense. If Executive is reemployed by another employer and
is eligible to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other
plan during such applicable period of eligibility.
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(ii) Thrift and Other Plans. The Executive's participation in
the Corporation's Thrift Plan, Employee Stock Ownership Plans,
retirement plan for employees generally ("Pension Plan") or other
applicable plans of the Corporation (or, if applicable, such similar
plans as the Divested Entity may establish) shall not continue after
the Termination Date. Any terminating distributions and/or vested
rights under such plans shall be governed by the terms of the
respective plans.
C. The foregoing provisions of this Paragraph 2 notwithstanding,
Executive shall not be entitled to receive, and the Corporation and, if
applicable, the Divested Entity shall not be obligated to make, the
payments and other benefits specified in Paragraphs 2.A and 2.B above if
Executive's termination employment occurs under any one of more of the
following circumstances:
(i) Executive's termination of employment is "voluntary" (as
hereinafter defined);
(ii) Executive is terminated by his employer company for "cause"
(as hereinafter defined);
(iii) Executive's termination is a consequence of death or total
and permanent disability; or
(iv) Executive retires under the Corporation's Pension Plan (or,
if Executive is then an employee of a Divested Entity or its
subsidiaries, under such entity's similar tax-qualified pension plan).
D. Definition of Termination Date. For the purpose of this
Agreement, "Termination Date" shall mean: (i) in the case of a Change of
Control, the Executive's last
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day of employment with the Corporation or any of its subsidiaries, and (ii)
in the case of a Divestiture, the Executive's last day of employment with
any of the Corporation or any of its subsidiaries, or with a Divested
Entity or any of its subsidiaries, as the case may be.
E. Definition of Change of Control. For the purpose of this
Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (a) the then
outstanding shares of common stock of the Corporation (the
"Outstanding Corporation Common Stock") or (b) the combined voting
power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided, however, that
for purposes of this subparagraph (i), the following acquisitions
shall not constitute a Change of Control: (a) any acquisition
directly from the Corporation, (b) any acquisition by the Corporation,
(c) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any corporation or other
entity controlled by the Corporation or (d) any acquisition by any
corporation or other entity pursuant to a transaction which complies
with clauses (a), (b) and (c) of subparagraph (iii) of this Paragraph
2.E; or
(ii) Individuals who, as of the date hereof, constitute the Board
of Directors of the Corporation (the "Incumbent Board") cease for any
reason to
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constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation,
or sale, transfer, or other disposition of all or substantially all of
the assets of the Corporation (a "Business Combination"), in each
case, unless, following such Business Combination, (a) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as
the case may be, of the corporation or other entity surviving or
resulting from such Business Combination (including, without
limitation, a corporation or other entity which as a result of such
transaction owns the Corporation or all or substantially all of the
Corporation's assets either directly or through one or more
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subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding
Corporation Common Stock and Outstanding Corporation Voting
Securities, as the case may be, (b) no Person (excluding any
corporation or other entity surviving or resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Corporation or such corporation or other entity surviving or resulting
from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares
of common stock of the corporation or other entity surviving or
resulting from such Business Combination or the combined voting power
of the then outstanding voting securities of such corporation or other
entity except to the extent that such ownership existed prior to the
Business Combination and (c) at least a majority of the members of the
board of directors or other governing body of the corporation or other
entity surviving or resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the
initial agreement or of the action of the Board, providing for such
Business Combination; or
(iv) Approval by the shareholders of the Corporation of a
complete liquidation or dissolution of the Corporation; or
(v) any other event determined by the Board of Directors or the
Committee to constitute a "Change of Control" hereunder.
F. Definitions of Divestiture and Divested Entity. For purposes of
this Agreement, the term "Divestiture" shall mean and include any
transaction or series of
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transactions (including, without limitation, any spin-off, split-off,
merger or other business combination, or sale, lease, capital contribution,
contractual dedication or other transfer or disposition of securities or
assets) pursuant to which all or a majority of either (i) the assets
("Natural Gas Assets") constituting the natural gas and natural gas liquids
business as now conducted by Valero Natural Gas Company and its subsidiary
corporations and partnerships, or (ii) the assets ("Refining Assets")
constituting the refining and marketing business as now conducted by Valero
Refining and Marketing Company and its subsidiary corporations, are
directly or indirectly owned or controlled by one or more corporations,
partnerships, limited liability companies, joint ventures or other Persons
which are not wholly owned subsidiaries of Valero Energy Corporation
(referred to herein as a "Divested Entity"). As used herein, the term
"control" (and with correlative meaning, the terms "controlled,"
"controlling" and "controlled by") shall mean the possession, directly or
indirectly, of the power to direct, cause the direction of or influence the
management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
G. Definition of "cause". As used herein, "cause" shall mean (i)
Executive's conviction of a crime under federal or state law (excluding a
misdemeanor offense not involving moral turpitude), or (ii) Executive's
gross and deliberate disregard of Executive's duties and responsibilities,
as reasonably determined by the Board of Directors of the Corporation (or,
if Executive becomes an employee of a Divested Entity, the Board of
Directors of such Divested Entity) after written notice of such failure and
the failure or refusal by Executive to correct such failure within 10 days
from the date notice is given, or (iii) the continued material impairment
of Executive's ability to fulfill his responsibilities as
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a result of alcoholism or drug dependency after written notice of such
material impairment and the failure to correct such impairment with 45 days
from the date notice is given or such longer period as may be required
under applicable law.
H. Definitions of "voluntary"/involuntary". In the event that
Executive ceases to be an employee of the Corporation, a Divested Entity or
their respective subsidiaries after (i) Executive's base salary is reduced
to an amount below the base salary pertaining immediately prior to the
Change of Control or Divestiture, as the case may be, or (iii) Executive's
benefits (to include, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs, vacation benefits, retirement benefits,
participation in stock option, restricted stock and other employee stock
plans, and participation in executive incentive bonus programs) are reduced
so as not to be at least substantially comparable with the benefits to
which Executive was entitled prior to the Change of Control or Divestiture,
as the case may be, or (iii) Executive is required to relocate to a new
principal place of employment under circumstances in which Executive would
not be reimbursed for all expenses reasonably incurred in such relocation
(including taxes payable on such reimbursement and on such gross-up
payment; costs of packing, moving and unpacking household goods; reasonable
expenses of travel, meals and lodging in moving to the new location;
reasonable costs of temporary living expenses at the new location; and
assistance in selling Executive's home commensurate with the assistance
customarily provided by the Corporation to transferred executives prior to
the Change of Control or Divestiture, including acquisition of such home by
the Corporation at an appraised fair market value), then such termination
of employment shall be deemed for all
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purposes of this Agreement to be "involuntary" and Executive shall be
entitled to the benefits specified in Paragraphs 2.A and 2.B. If the
Executive's termination of employment is not "involuntary," as defined
above, and does not arise from one or more of the circumstances itemized in
Paragraph 2.C(ii) through (iv), then such termination of employment is
deemed to be "voluntary" for purposes of this Agreement.
3. Acceleration of Options and Rights in Certain Events. Stock options
("options") and stock appreciation or similar rights ("rights"), if any, granted
to Executive by the Corporation under the Corporation's Stock Option Plan and
Executive Stock Incentive Plan (collectively the "Plans") (or any other stock
option or stock appreciation rights plan adopted by the Corporation) and not
previously exercised, canceled or otherwise terminated will be exercisable in
full for a period of 90 days, or if longer, such period as is specified in such
plan, such 90 day period to commence on the earlier of (a) the date of the
Change of Control of the Corporation or the Divestiture or (b) on the date of
approval by the Corporation's shareholders of an agreement providing for a
merger or other transaction in which the Corporation will not remain an
independent publicly owned corporation or a consolidation, a sale, transfer or
other disposition of all or substantially all the assets of the Corporation or
another transaction constituting a Change of Control or Divestiture; provided
however, that no such option or right shall be exercisable after the expiration
date of such option or right.
4. Removal of Restrictions on Stock Grants. Stock previously granted to
Executive by the Corporation as restricted stock or performance shares under the
Corporation's Executive Stock Incentive Plan (or any other similar stock plan
adopted by the Corporation) will have all restrictions removed on the earlier of
(a) the date of the Change of Control of the Corporation or the Divestiture,
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or (b) on the date of approval by the Corporation's shareholders of an agreement
providing for a merger or other transaction in which the Corporation will not
remain an independent publicly owned corporation or a consolidation, a sale,
transfer or other disposition of all or substantially all the assets of the
Corporation, or another transaction constituting a Change of Control or a
Divestiture; provided, that, in the case of stock previously granted to
Executive as performance shares under the Corporation's Executive Stock
Incentive Plan (or any other similar stock plan adopted by the Corporation), the
performance period shall be deemed to have terminated on the earlier of the
dates specified in clauses (a) or (b) above, and the number of shares to which
the Executive is then entitled shall be determined in accordance with such plan.
5. Excess Amounts.
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A. Excise Taxes. Anything in this Agreement to the contrary
notwithstanding, in the event any payment or distribution by the
Corporation to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(such excise tax, including any interest or penalties incurred with respect
thereto, being referred to herein as the "Excise Tax"), then the lump-sum
amount payable to the Executive pursuant to Paragraph 2.A hereof shall be
reduced to such amount (the "Reduced Payment") but not below zero, such
that the receipt of the Executive of the Reduced Payment and all other
payments and distributions pursuant to this Agreement would not give rise
to any Excise Tax.
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B. No Duplication. Subject to the terms and conditions hereof, if
Executive has received the lump-sum payment and other benefits specified in
Paragraph 2 for one Change of Control or Divestiture event, Executive shall
not be entitled to receive a lump-sum payment or other such benefits under
this Agreement from the Corporation or a Divested Entity for any subsequent
Change of Control or Divestiture event. In addition, if Executive receives
a lump-sum payment under this Agreement, then except as may be expressly
provided in an individual agreement between Executive and the Corporation,
Executive shall not be entitled to participate in and receive a severance
benefit under any other severance plan maintained by the Corporation for
executive officers or employees generally. The foregoing limitations shall
not be construed to prevent Executive from receiving a payment from the
Corporation or a Divested Entity under any separate agreement, contract or
arrangement.
C. Overpayments and Underpayments. All determinations required to be
made under Paragraph 6.A shall be made by the Corporation which shall
provide detailed supporting calculations to the Executive no later than the
Termination Date. As a result of uncertainty in the application of Section
280G of the Code at the time of the initial determination hereunder, it is
possible that payments will have been made by the Corporation which should
not have been made ("Overpayment") or that additional payments, which will
not have been made by the Corporation could have been made
("Underpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that an Overpayment has been made, any
such Overpayment shall be treated for all purposes as a loan to the
Executive which the Executive shall repay to the Corporation together with
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interest at the applicable Federal rate provided for in Section 7872(f)(2)
of the Code; provided, however, that no amount shall be payable by the
Executive to the Corporation (or if paid by the Executive to the
Corporation shall be returned to the Executive) if and to the extent such
payment would not reduce the amount which is subject to taxation under
Section 4999 of the Code. In the event that an Underpayment has occurred,
any such Underpayment shall be promptly paid by the Corporation to or for
the benefit of the Executive together with interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Code.
6. General.
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A. Indemnification. If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation, to the fullest
extent permitted by applicable law, hereby agrees to indemnify Executive
for reasonable attorneys' fees and disbursements incurred by Executive in
such litigation (including any appellate proceedings, and regardless of
whether or not such litigation is ultimately resolved in favor of
Executive), and hereby agrees to pay pre-judgement interest on any money
judgement obtained by Executive, calculated at the "prime rate" of interest
announced by Xxxxxx Guaranty Trust Company of New York, New York as being
in effect from time to time, from the date that payment(s) to Executive
should have been made in accordance with the provisions of this Agreement.
B. Payment Obligations Absolute. The Corporation's obligation to pay
Executive the compensation and other amounts specified herein and to make
the arrangements provided herein shall be absolute and unconditional and
shall not be affected by any circumstances, including, without limitation,
any set-off, counterclaim, recoupment,
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defense or other right which the Corporation may have against Executive or
anyone else, the completion of any Change of Control or Divestiture or the
employment of Executive by any Divested Entity. All amounts payable by the
Corporation hereunder shall be paid without notice or demand. Each and
every payment made hereunder by the Corporation shall be final and the
Corporation will not seek to recover all or any part of such payment from
Executive or from whoever may be entitled thereto, for any reason
whatsoever, excluding manifest error. Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided for in this Agreement be reduced by any compensation earned by
Executive as a result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owing by Executive to
the Corporation, or otherwise.
C. Successors. This Agreement shall be binding upon and inure to the
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benefit of Executive and Executive's estate, and the Corporation and any
successor of the Corporation, but neither this Agreement nor any rights
arising hereunder may be assigned or pledged by Executive. In the event of
a Divestiture, the Corporation shall cause each Divested Entity to (i)
execute and deliver to Executive a written instrument, in form reasonably
satisfactory to Executive, whereby such Divested Entity shall assume,
jointly and severally with the Corporation, the obligations of the
Corporation hereunder, provided that no such assumption shall operate to
release the Corporation from any liability hereunder, and (ii) deliver to
Executive an executive stability agreement between the Divested Entity and
the Executive, substantially identical to this Agreement, duly authorized
by the Board of Directors or other governing body of such Divested Entity
and executed by a duly authorized
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officer thereof, provided that no such executive stability agreement
between the Divested Entity and the Executive shall require the payment of
a severance payment or other benefits (a) in the event of a termination of
employment following a further Divestiture transaction involving the
Divested Entity, or (b) with respect to any termination of employment if
Executive has previously received a severance payment pursuant to this
Agreement as a result of such termination.
D. Severability. Any provision in this Agreement which is prohibited
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or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability
without invalidating or affecting the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
E. Controlling Law and Interpretation. This Agreement shall in all
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respects be governed by, and construed in accordance with, the laws of the
State of Texas. In the event that the interpretation or application of any
provision of this Agreement is determined in any proceeding to be ambiguous
or uncertain, the parties expressly intend and agree that such ambiguity or
uncertainty shall be resolved in favor of Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date set forth above.
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Xxxxxxx X. Xxxx
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VALERO ENERGY CORPORATION
By:_______________________________________________
Xxxxxx X. Xxxxxxxxx
President
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