EMPLOYEE BENEFITS AGREEMENT
BETWEEN
VALERO ENERGY CORPORATION
AND
VALERO REFINING AND MARKETING COMPANY
Dated as of ______, 1997
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . .2
1.01. Definitions. . . . . . . . . . . . . . . . . . . . .2
1.02. Schedules, etc.. . . . . . . . . . . . . . . . . . .6
ARTICLE II GENERAL . . . . . . . . . . . . . . . . . . . . . .6
2.01. Transfers of Employees . . . . . . . . . . . . . . .6
2.02. Liabilities Under Plans. . . . . . . . . . . . . . .6
ARTICLE III STOCK-BASED PLANS. . . . . . . . . . . . . . . . . .7
3.01. Stock Options. . . . . . . . . . . . . . . . . . . .7
ARTICLE IV RETIREMENT PLANS . . . . . . . . . . . . . . . . . .8
4.01. Pension Plan . . . . . . . . . . . . . . . . . . . .8
4.02. Non-Employee Directors Pension Plan. . . . . . . . .8
4.03. Thrift Plan. . . . . . . . . . . . . . . . . . . . .8
4.04. Excess Thrift Plan . . . . . . . . . . . . . . . . .9
4.05. Supplemental Retirement Plan and Supplemental
Executive Retirement Agreements . . . . . . . . .9
4.06. Other Postemployment Benefits. . . . . . . . . . . 10
ARTICLE V OTHER PLANS AND ARRANGEMENTS .. . . . . . . . .. . 10
5.01. Deferred Compensation. . . . . . . . . . . . . . . 10
5.02. Severance Pay. . . . . . . . . . . . . . . . . . . 11
5.03. VESOP. . . . . . . . . . . . . . . . . . . . . . . 11
5.04. ESOP . . . . . . . . . . . . . . . . . . . . . . . 12
5.05. Reimbursement Account Plan . . . . . . . . . . . . 12
ARTICLE VI OTHER LIABILITIES . . . . . . . . . . . . . . . .. 12
6.01. Other Liabilities and Obligations. . . . . . . . . 12
ARTICLE VII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . 13
7.01. Recognition of Company Employment Service, etc.. . 13
7.02. Indemnification. . . . . . . . . . . . . . . . . . 13
7.03. Guarantee of Subsidiaries' Obligations . . . . . . 13
7.04. Sharing of Information . . . . . . . . . . . . . . 13
7.05. Amendments . . . . . . . . . . . . . . . . . . . . 13
7.06. Successors and Assigns . . . . . . . . . . . . . . 13
7.07. Termination. . . . . . . . . . . . . . . . . . . . 13
7.08. Rights to Amend or Terminate Plans; No Third
Party Beneficiaries. . . . . . . . . . . . . . . 14
7.09. Transfer of Reserves . . . . . . . . . . . . . . . 14
7.10. Further Transfers. . . . . . . . . . . . . . . . . 14
7.11. Payment Under Other Agreements . . . . . . . . . . 14
7.12. Incorporation by Reference . . . . . . . . . . . . 14
SCHEDULE ALIST OF COMPANY PLANS. . . . . . . . . . . . . . . .A-1
SCHEDULE BEMPLOYEES TRANSFERRING TO VRM. . . . . . . . . . . .B-1
EMPLOYEE BENEFITS AGREEMENT
EMPLOYEE BENEFITS AGREEMENT, dated as of _______, 1997 (this
"Agreement"), by and between Valero Energy Corporation, a Delaware corporation
(the "Company"), and Valero Refining and Marketing Company, a Delaware
corporation and a wholly owned Subsidiary of the Company ("VRM").
RECITALS
A. The Merger Transaction. The Company, PG&E Corporation, a California
corporation ("Acquiror"), and [PG&E SubCo.], a Delaware corporation ("Sub")
have entered into a Plan and Agreement of Merger, dated as of January 31, 1997
(the "Merger Agreement"), providing for the Merger (as defined in the Merger
Agreement) of Sub with and into the Company, with the Company as the surviving
corporation.
B. The Distribution. Immediately prior to the Effective Time (as
defined in the Merger Agreement), the Company intends to distribute (the
"Distribution") to the holders of the Company's common stock, par value $1.00
per share ("Company Common Stock"), on a pro rata basis, all of the then
outstanding shares of common stock, par value $0.01 per share ("VRM Common
Stock"), of VRM.
C. Purpose. The purpose of the Distribution is to facilitate the
reorganization of the Company, wherein the stockholders of the Company will
continue to own and operate VRM, and to make possible the Merger by divesting
the Company of the businesses and operations conducted by VRM in a tax-free
distribution to the Company's stockholders. The Company and VRM have entered
into an Agreement and Plan of Distribution (the "Distribution Agreement"),
which sets forth or provides for certain agreements between the Company and
VRM in consideration of the separation of their ownership.
D. This Agreement. Among other things, the Distribution Agreement
provides that the Company and VRM will enter into this Employee Benefits
Agreement regarding certain liabilities and obligations relating to employees.
NOW, THEREFORE, in consideration of the premises and of the respective
covenants and agreements set forth herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. As used in this Agreement, the following terms shall
have the following respective meanings (capitalized terms used but not defined
herein (other than the names of Company employee benefit plans) shall have the
respective meanings ascribed thereto in the Distribution Agreement):
"Agreement" shall have the meaning specified in the first paragraph
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning specified in the first paragraph
hereof.
"Company Annual Bonus Plan" shall mean the Company's Executive
Incentive Bonus Plan effective on or about February 27, 1980 and amended and
restated effective as of January 23, 1997.
"Company Common Stock" shall have the meaning specified in paragraph
B of the recitals to this Agreement.
"Company Deferred Compensation Plans" shall mean the Company's
Executive Deferred Compensation Plan, effective as of November 26, 1984 and
amended and restated effective as of October 21, 1986, and the Company's Key
Employee Deferred Compensation Plan, effective as of August 20, 198_, and
amended and restated effective as of October 21, 1986.
"Company Employee" shall mean any individual who is employed by any
member of the Company Group immediately before the Time of Distribution and
who is not a VRM Employee.
"Company ESIP" shall mean the Executive Stock Incentive Plan,
effective as of July 21, 1994 and amended and restated effective as of
November 21, 1996.
"Company Excess Thrift Plan" shall mean the Company Excess Thrift
Plan, effective as of January 1, 1990.
"Company Former Employee" shall mean any individual who is,
immediately before the Time of Distribution, a former employee of any member
of the Company Group who has not been an employee of any member of the VRM
Group since his or her most recent active employment with any member of the
Company Group.
"Company Group" shall have the meaning set forth in the Distribution
Agreement.
"Company Non-Employee Director Retirement Plan" shall mean the
Non-Employee Director Retirement Plan, effective as of January 1, 1991.
"Company Participants" shall mean Company Employees, Company Former
Employees and their respective beneficiaries and dependents.
"Company Pension Plan" shall mean the Company's Pension Plan,
effective as of March 1, 1985 and amended and restated effective as of January
1, 1994.
"Company Performance Shares" shall have the meaning set forth in the
Company ESIP for "Performance Shares."
"Company Plan" shall mean any plan, policy, program, payroll
practice, on-going arrangement, trust, insurance policy or other agreement or
funding vehicle maintained by, contributed to or sponsored by any member of
the Company Group providing benefits to employees, former employees or
non-employee directors of any member of the Company Group, including without
limitation the plans listed on Schedule A hereto; provided, however, that the
term "Company Plans" shall not include any VRM Plans.
"Company Reimbursement Account Plan" shall mean the Company's
Reimbursement Account Plan, effective as of November 29, 1983.
"Company Restricted Stock" shall mean restricted shares of Company
Common Stock granted pursuant to, and subject to forfeiture under, the
Company's Restricted Stock Bonus and Incentive Stock Plan, effective as of
April 30, 1981 and amended and restated effective as of November 21, 1996, the
1990 Restricted Stock Plan for Non-employee Directors, effective as of
November 14, 1990 and amended and restated effective as of August 22, 1996, or
the Company ESIP.
"Company SAR" or "stock appreciation right" shall mean the right,
subject to the provisions of the applicable Company plan, to receive a payment
in cash equal to the difference between the specified exercise price of the
SAR and the fair market value (as defined in the applicable plan) of one share
of Company Common Stock.
"Company SERA" shall mean any Supplemental Executive Retirement
Agreement entered into prior to the Time of Distribution between the Company
and either a Company Participant or a VRM Participant.
"Company Stock Option" shall mean an option to purchase shares of
Company Common Stock, granted pursuant to the Company's Stock Option Plan No.
3, effective as of January 21, 1986 and amended and restated effective as of
August 22, 1996; Stock Option Plan No. 4, effective as of January 1, 1990 and
amended and restated effective as of August 22, 1996; Stock Option Plan No. 5,
effective as of September 16, 1992 and amended and restated effective as of
August 22, 1996; the Company ESIP; or the Non-Employee Director Stock Option
Plan, effective as of July 25, 1995 and amended and restated effective as of
November 21, 1996.
"Company Supplemental Retirement Plan" shall mean the Company's
Supplemental Executive Retirement Plan, effective as of January 1, 1983 and
amended and restated effective as of January 1, 1996.
"Company Thrift Plan" shall mean the Company's Thrift Plan,
effective as of December 31, 1979 and amended and restated effective as of
January 1, 1994.
"Distribution" shall have the meaning specified in paragraph B of
the recitals to this Agreement.
"Distribution Agreement" shall have the meaning specified in
paragraph C of the recitals to this Agreement.
"Distribution Year" shall mean the calendar year in which the Time
of Distribution occurs.
"ESOP" shall mean the Company's Employees' Stock Ownership Plan,
effective as of January 1, 1983 and amended and restated effective as of
January 1, 1994.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Liabilities" shall have the meaning set forth in the Distribution
Agreement.
"Merger Agreement" shall have the meaning specified in paragraph A
of the recitals to this Agreement.
"Merger Partner Common Stock" shall mean the common stock, 0 par
value, of PG&E Corporation.
"Merger Partner Thrift Plan" shall mean the [name] Plan, a defined
contribution plan intended to qualify under Section 401(a) of the Code.
"Notes" shall mean the 9.14% Senior ESOP Notes Due 1999 and the
9.85% VESOP Note Due 2001, together with any amendments thereto, issued by
Frost National Bank of San Antonio, N.A., in its capacity as trustee for the
VESOP Trust forming part of the VESOP.
"Pre-Distribution Year" shall mean the calendar year immediately
preceding the Distribution Year.
"Rabbi Trust" shall mean a grantor trust subject to s 671 et seq.
of the Code.
"Ratio" shall mean the amount obtained by dividing the average of
the daily high and low trading prices on the New York Stock Exchange for the
Company Common Stock on each of the fifteen trading days prior to the
ex-dividend date for the Distribution by the average of the daily high and low
trading prices on the New York Stock Exchange for the VRM Common Stock on each
of the fifteen trading days beginning with either (a) in the event the VRM
Common Stock trades on a "when-issued" basis prior to the Time of the
Distribution, the ex-dividend date for the Distribution or (b) in the event
the VRM Common Stock does not trade on a "when-issued" basis prior to the Time
of the Distribution, the Time of Distribution.
"Subsidiary" shall have the meaning set forth in the Merger
Agreement.
"Thrift Plan Transfer" shall have the meaning set forth in Section
4.03(b) of this Agreement.
"VESOP" shall mean the Valero Employees' Stock Ownership Plan of
Valero Energy Corporation, effective as of February 15, 1989.
"VESOP Stock Sale" shall have the meaning set forth in Section
5.03(a) of this Agreement.
"VRM" shall have the meaning set forth in the first paragraph of
this Agreement.
"VRM Assumed Plans" shall have the meaning set forth in Section
2.02.
"VRM Common Stock" shall have the meaning specified in paragraph B
of the recitals to this Agreement.
"VRM Employee" shall mean any individual who, immediately before the
Time of Distribution, is employed by any member of the VRM Group.
"VRM Former Employee" shall mean any individual who is, immediately
before the Time of Distribution, a former employee of any member of the VRM
Group who has not been an employee of any member of the Company Group since
his or her most recent active employment with any member of the VRM Group.
"VRM Group" shall have the meaning set forth in the Distribution
Agreement.
"VRM Stock Option" shall mean an option to purchase from VRM shares
of VRM Common Stock provided to a VRM Participant pursuant to Section 3.01.
"VRM Participants" shall mean VRM Employees, VRM Former Employees,
and their respective beneficiaries and dependents.
"VRM Plans" shall mean any plan, policy, program, payroll practice,
on-going arrangement, trust, insurance policy or other agreement or funding
vehicle maintained by, contributed to or sponsored by any member of the VRM
Group providing benefits to employees, former employees or non-employee
directors of any member of the VRM Group, but excluding any Company Plan.
"VRM Thrift Plan" shall have the meaning set forth in Section
4.03(a) of this Agreement.
1.02. Schedules, etc. References to a "Schedule" are, unless otherwise
specified, to one of the Schedules attached to this Agreement, and references
to a "Section" are, unless otherwise specified, to one of the Sections of this
Agreement.
ARTICLE II
GENERAL
2.01. Transfers of Employees. Within thirty days of the effective date
of the Merger Agreement, the Company, VRM and Acquiror will mutually consent
to a decision-making procedure for the purpose of determining the identity of
individuals who shall be transferred from the employ of members of the Company
Group to the employ of VRM or any of its affiliated companies designated by
VRM, which individuals shall be listed on Schedule B hereto; provided,
however, that the consent of the Company, VRM or the Acquiror to any proposal
for such decision-making procedure shall not be unreasonably withheld.
Schedule B hereto may be amended by VRM or the Company at any time or from
time to time before the Time of Distribution with the consent of the other
party and the Acquiror, which consent shall not be unreasonably withheld.
2.02. Liabilities Under Plans. From and after the Time of Distribution,
except as otherwise specifically set forth in this Agreement, VRM shall (a)
sponsor and (b) assume or retain, as the case may be, and be solely
responsible for all Liabilities arising under, resulting from or relating to,
the VRM Plans and the Company Plans marked with an asterisk on Schedule A (the
"VRM Assumed Plans") (whether to Company Participants or to VRM Participants),
whether incurred before, on or after the Time of Distribution, and the Company
shall assume or retain, as the case may be, and shall be solely responsible
for, all Liabilities arising under the other Company Plans to Company
Participants incurred before, on or after the Time of Distribution; provided,
however, that VRM shall be under no obligation (except with respect to any
obligation specifically described in this Agreement or the Merger Agreement)
to permit Continuing Employees (as such term is defined in the Merger
Agreement) to continue to participate in the VRM Assumed Plans after the Time
of Distribution.
ARTICLE III
STOCK-BASED PLANS
3.01. Stock Options. (a) The Company and VRM shall take all action
necessary or appropriate (including amending appropriate Company Plans, if
required) so that each Company Stock Option held by a VRM Participant that is
outstanding as of the Time of Distribution shall be replaced as of the Time of
Distribution with a VRM Stock Option with respect to a number of shares of VRM
Common Stock equal to the number of shares of Company Common Stock subject to
such Company Stock Option immediately before such replacement, multiplied by
the Ratio (rounded up to the nearest whole share if necessary), and with a
pershare exercise price equal to the pershare exercise price of such Company
Stock Option immediately before such replacement, divided by the Ratio
(rounded down to the nearest cent). Such VRM Stock Option shall otherwise
have the same terms and conditions as the corresponding Company Stock Option,
except that references to the Company shall be changed to refer to VRM.
(b) Effective as of the Time of Distribution, VRM shall assume and be
solely responsible for all Liabilities of the Company to or with respect to
VRM Employees and VRM Former Employees arising out of or relating to Company
Stock Options that are outstanding as of the Time of Distribution. VRM shall
be solely responsible for all Liabilities arising out of or relating to VRM
Stock Options.
(c) The Company shall take all action necessary or appropriate
(including amending appropriate Company Plans, if required) so that the terms
of each Company Stock Option held by a Company Participant that is outstanding
immediately after the Time of Distribution shall be adjusted, either
immediately prior to or in connection with the Merger, to take into account
the impact of the Distribution upon the capitalization of the Company.
(d) Any adjustments to Company Stock Options (other than those provided
by, or necessary to implement, this Section 3.01 and Section 3.1(a)(iii) of
the Merger Agreement) shall be subject to the approval of the Acquiror. VRM
shall indemnify, defend and hold harmless the Retained Companies (as defined
in the Distribution Agreement) from any and all claims by any holder of any
Company Stock Option (or replacement option thereto) that such holder is
entitled to any securities (or other property, including without limitation,
cash) other than the securities expressly provided by the adjustments
specified by this Section 3.01 and Section 3.1(a)(iii) of the Merger
Agreement.
ARTICLE IV
RETIREMENT PLANS
4.01. Pension Plan. (a) The Company and VRM shall take all action
necessary or appropriate (including amending appropriate Company Plans,
including, without limitation, the Company Pension Plan) so that, effective as
of the Time of Distribution, VRM shall become the Sponsor (as defined in the
Company Pension Plan) of the Company Pension Plan and in such capacity assume
responsibility for maintaining the Company Pension Plan. Except as
specifically set forth in this Section, from and after the Time of
Distribution the VRM Group shall assume, and shall be solely responsible for
all Liabilities existing under the Company Pension Plan as of the Time of
Distribution to or with respect to Company and VRM Participants. Each Company
Participant in the Company Pension Plan shall become entitled to all benefits
accrued and vested under the Company Pension Plan as of the Time of
Distribution pursuant to the terms and conditions of the Company Pension Plan
upon termination of his or her employment with the Company, but (except in the
case of the death of the Participant) no earlier than the date of the
Participant's attainment of the Early Retirement Age (as defined in Section
1.16 of the Company Pension Plan).
4.02. Non-Employee Directors Pension Plan. The Company and VRM shall
take all action necessary or appropriate (including amending appropriate
Company Plans, including, without limitation, the Non-Employee Directors
Pension Plan) so that, effective as of the Time of Distribution, VRM shall
assume and be solely responsible for all Liabilities existing under the
Non-Employee Directors Pension Plan as of the Time of Distribution. VRM and
the Company shall cooperate in taking all actions necessary or appropriate to
accomplish the foregoing.
4.03. Thrift Plan. (a) The Company and VRM shall take all action
necessary or appropriate (including amending appropriate Company Plans,
including, without limitation, the Company Thrift Plan) so that (i) effective
as of the Time of Distribution, VRM shall become the Sponsor (as defined in
the Company Thrift Plan) of the Company Thrift Plan (such plan, following such
event, is hereinafter referred to as the "VRM Thrift Plan"), and in such
capacity assume responsibility for maintaining the VRM Thrift Plan, and (ii)
immediately following the Time of Distribution, each Company Employee in the
VRM Thrift Plan shall be entitled, in connection with the transactions
contemplated by the Merger Agreement and to the extent permissible by
applicable law and the Plan, to direct the trustee of the VRM Thrift Plan to
take any of the following actions with respect to the Company Employee's
account (including all Company contributions thereto, whether previously
vested or nonvested, and the earnings thereon) in the VRM Thrift Plan: (A)
maintain the account in the VRM Thrift Plan; (B) transfer the account to a
qualified Individual Retirement Account held in the name of such Participant;
(C) transfer the account to the Merger Partner Thrift Plan; or (D) receive a
distribution of the account. The transfers described in clauses (ii)(B) and
(C) of this paragraph (each a "Thrift Plan Transfer") shall be effected in
cash, except that the Merger Partner Thrift Plan may accept promissory notes
evidencing any outstanding participant loans. As a condition to the Merger
Partner Thrift Plan accepting any transfer under this Section 4.03, VRM shall
provide Acquiror with an IRS letter ruling addressed to VRM, an IRS
Determination Letter or an opinion of counsel satisfactory to Acquiror
confirming the permissibility of the transfers under applicable law.
(b) VRM and the Company shall cooperate in making all appropriate
filings required under the Code or ERISA, and the regulations thereunder and
any applicable securities laws, implementing all appropriate communications
with Company Thrift Plan participants, transferring appropriate records, and
taking all such other actions as may be necessary and appropriate to implement
the provisions of this Section and to permit the timely effectuation of Thrift
Plan Transfers.
(c) From and after the time when VRM becomes Sponsor of the Company
Thrift Plan, VRM and the VRM Thrift Plan shall be solely responsible for all
Liabilities of the Company under the Company Thrift Plan arising after the
Time of Distribution to or with respect to VRM Participants, Company Former
Employees, and Company Employees who have elected to maintain their account
balances in the VRM Thrift Plan, except that the Company shall be responsible
for any Liabilities arising under Section 5.2 of the Company Thrift Plan with
respect to any Participant Basic Contribution (as such term is defined in the
Company Thrift Plan) for any Company Employee made with respect to any period
of employment prior to the Time of Distribution. The VRM Group and the VRM
Thrift Plan shall be solely responsible for all Liabilities arising out of or
relating to the VRM Thrift Plan.
4.04. Excess Thrift Plan. (a) The Company and VRM shall take all action
necessary or appropriate (including amending appropriate Company Plans,
including, without limitation, the Company Excess Thrift Plan) so that,
effective as of the Time of Distribution, VRM shall become the Sponsor (as
defined in the Company Excess Thrift Plan) of the Company Excess Thrift Plan
(such plan, following such event, is hereinafter referred to as the "VRM
Excess Thrift Plan"), and in such capacity assume responsibility for
maintaining the VRM Excess Thrift Plan and for all Liabilities of the Company
under the Company Excess Thrift Plan arising after the Time of Distribution to
or with respect to VRM Participants and Company Participants, except that the
Company shall be responsible for any Liabilities arising under the Company
Excess Thrift Plan with respect to any Participant Basic Contribution (as such
term is defined in the Company Thrift Plan) for any Company Employee made with
respect to any period of employment prior to the Time of Distribution. The
VRM Group and the VRM Excess Thrift Plan shall be solely responsible for all
Liabilities arising out of or relating to the VRM Excess Thrift Plan.
4.05. Supplemental Retirement Plan and Supplemental Executive Retirement
Agreements. (a) Effective as of the Time of Distribution, the Company shall
amend the Company Supplemental Retirement Plan, if necessary, so that (i) no
VRM Employee who is a participant therein shall be deemed to have terminated
employment as a result of the Distribution or as a result of becoming a VRM
Employee in connection with the Distribution and (ii) from and after the Time
of Distribution, VRM shall become the sponsor of the Company Supplemental
Retirement Plan and assume and remain solely responsible for all Liabilities
of the Company arising under the Company Supplemental Retirement Plan to or
relating to both Company Participants and VRM Participants.
(b) Effective as of the Time of Distribution, the Company shall amend
such Company SERAs as may be necessary so that (i) no VRM Employee who is a
signatory to a SERA shall be deemed to have terminated employment as a result
of the Distribution or as a result of becoming a VRM Employee in connection
with the Distribution, and (ii) from and after the Time of Distribution, VRM
shall assume and remain solely responsible for all Liabilities of the Company
arising under Company SERAs to or relating to both Company Participants and
VRM Participants.
(c) VRM and the Company shall cooperate in taking all actions necessary
or appropriate to accomplish the foregoing and to ensure that as of the Time
of Distribution, the Company ceases to have any Liabilities to or relating to
Company Participants and VRM Participants under the Company Supplemental
Retirement Plan and any Company SERA, including, but not limited to, the
following: (i) amending the Company Supplemental Retirement Plan or any grant
thereunder; (ii) obtaining any necessary consents of affected Company or VRM
Employees; and (iii) effective as of the Time of Distribution, transferring to
VRM control of the Rabbi Trust formed by that certain Trust Agreement, dated
as of September 1, 1996, between the Company and Frost National Bank of San
Antonio, N.A., as trustee.
4.06. Other Postemployment Benefits. The Company and VRM shall take all
action necessary or appropriate so that effective at the Time of Distribution,
VRM shall assume and be solely responsible for all Liabilities to Company
Former Employees and VRM Former Employees and (except with respect to any
period after such persons subsequently recommence active employment with the
Company) all Company and VRM Employees who at the Time of Distribution are not
actively at work (excluding Company Employees who are on vacation at such
time) under the Company's health care and life insurance programs.
ARTICLE V
OTHER PLANS AND ARRANGEMENTS
5.01. Deferred Compensation. Effective as of the Time of Distribution,
the Company shall amend the Company Deferred Compensation Plans, if necessary,
so that (a) no VRM Employee who is a participant therein shall be deemed to
have terminated employment as a result of the Distribution or as a result of
becoming a VRM Employee in connection with the Distribution and (b) from and
after the Time of Distribution, VRM shall become the sponsor of the Deferred
Compensation Plans and assume and remain solely responsible for all
Liabilities of the Company arising under the Company Deferred Compensation
Plans to or relating to both Company Participants and VRM Participants. VRM
and the Company shall cooperate in taking all actions necessary or appropriate
to accomplish the foregoing and to ensure that, as of the Time of
Distribution, the Company ceases to have any Liabilities to or relating to
Company Participants or VRM Participants under the Company Deferred
Compensation Plans, including, but not limited to, the following: (i) amending
the Company Deferred Compensation Plans or any grant thereunder and (ii)
obtaining any necessary consents of affected participants, and (iii) causing
the insurance policies referred to in Section 2.1(b)(ii)(Q) of the
Distribution Agreement to be assigned to VRM.
5.02. Severance Pay. (a) VRM and the Company agree that individuals
who, on or prior to the Time of Distribution, in connection with the
Distribution, cease to be Company Employees and become VRM Employees shall not
be deemed to have experienced a termination or severance of employment from
the Company and its Subsidiaries for purposes of any policy, plan, program or
agreement of the Company or any of its Subsidiaries that provides for the
payment of severance, salary continuation or similar benefits.
(b) VRM shall assume and be solely responsible for all Liabilities of
the Company in connection with claims made by or on behalf of VRM Employees in
respect of severance pay, salary continuation and similar obligations relating
to the termination or alleged termination of any such person's employment on
or after the Time of Distribution.
5.03. VESOP. (a) At a date sufficiently in advance of the Time of
Distribution to permit the requirements of paragraph (b) of this Section to be
met, the Company shall direct the trustee of the Company's VESOP to sell an
amount of the Company's Common Stock maintained in the Exempt Loan Suspense
Account (as described in Section 5.4(a)(1) of the VESOP) such that the
proceeds from such sale (the "VESOP Stock Sale") are sufficient to prepay the
Notes in whole; provided, however, that the VESOP Stock Sale shall occur via
transactions on a national exchange or in the over-the-counter market, to
parties other than a "party in interest," as defined in ERISA Section 3(14),
and for "adequate consideration," as defined in ERISA Section 3(18).
(b) After the VESOP Stock Sale, but prior to the Thrift Plan Transfer,
the Company shall (i) direct the trustee of the VESOP to release the stock
remaining in the Exempt Loan Suspense Account, if any, and allocate such stock
to Company Participants and VRM Participants in the VESOP in the manner
prescribed by Section 5.5 of the VESOP, as amended, and (ii) following such
release and allocation, the Company shall cause the VESOP to be merged into
the Company Thrift Plan, in a transaction consistent with the requirements of
Section 414(1) of the Code.
(c) Immediately after receipt from the VESOP of the accounts of Company
and VRM Participants in the VESOP, the trustee of the Company Thrift Plan
shall allocate the stock thus transferred to the Participants' respective
Thrift Plan accounts; provided that, in the case of any VESOP Participant who,
as of the date of such allocation, is not participating in the Company Thrift
Plan, the Company and the trustee of the Company Thrift Plan shall take all
action necessary to establish a Company Thrift Plan account for such
Participant, to which the stock transferred from the VESOP shall be allocated.
(d) VRM and the Company shall cooperate in making all appropriate
filings required under the Code or ERISA and the regulations thereunder and
any applicable securities laws, implementing all appropriate communications
with VESOP participants, transferring records, and taking all such other
actions as may be necessary and appropriate to implement the provisions of
this Section.
5.04. ESOP. (a) Prior to the Thrift Plan Transfer, the Company shall
cause the ESOP to be merged into the Company Thrift Plan, in a transaction
consistent with the requirements of Section 414(1) of the Code.
(b) Immediately after receipt from the ESOP of the accounts of Company
and VRM Participants in the ESOP, the trustee of the Company Thrift Plan shall
allocate the stock thus transferred to the Participants' respective Thrift
Plan accounts; provided that, in the case of any ESOP Participant who, as of
the date of such allocation, is not participating in the Company Thrift Plan,
the Company and the trustee of the Company Thrift Plan shall take all action
necessary to establish a Company Thrift Plan account for such Participant, to
which the stock transferred from the ESOP shall be allocated.
(c) VRM and the Company shall cooperate in making all appropriate
filings required under the Code or ERISA and the regulations thereunder and
any applicable securities laws, implementing all appropriate communications
with ESOP participants, transferring records, and taking all such other
actions as may be necessary and appropriate to implement the provisions of
this Section.
5.05. Reimbursement Account Plan. Effective as of the Time of
Distribution, the Company shall amend the Company Reimbursement Account Plan,
if necessary, so that: (a) effective as of the Time of Distribution, VRM shall
have responsibility for administering and maintaining such plan and thereby
assume, and be solely responsible for, all Liabilities existing under the
Reimbursement Account Plan to or with respect to Company Participants and VRM
Participants; and (b) any Company Employee shall be entitled to continue to
receive reimbursements for the 1997 plan year pursuant to the terms of the
Company Reimbursement Account Plan and such transaction rules as VRM may adopt
until [April 30, 1998].
ARTICLE VI
OTHER LIABILITIES
6.01. Other Liabilities and Obligations. As of the Time of
Distribution: (i) VRM shall assume and be solely responsible for all
Liabilities of the Company not otherwise provided for in this Agreement to or
relating to VRM Employees and VRM Former Employees arising out of or relating
to employment by any of the Company or VRM, or any predecessors thereof; and
(ii) the Company shall assume and be solely responsible for all Liabilities of
VRM not otherwise provided for in this Agreement to or relating to Company
Participants arising out of or relating to employment by any of the Company or
VRM, or any predecessors thereof.
ARTICLE VII
MISCELLANEOUS
7.01. Recognition of Company Employment Service, etc. To the extent
applicable, the VRM Plans shall recognize service by a VRM Employee before the
Distribution with the Company as service with VRM. The foregoing provision
shall not, however, be construed to require VRM or any member of the VRM Group
to adopt or continue any specific employee benefit plans or arrangements.
7.02. Indemnification. All Liabilities retained or assumed by or
allocated to VRM pursuant to this Agreement shall be deemed to be
Indemnifiable Losses arising out of the VRM Business, as defined in the
Distribution Agreement, and all Liabilities retained or assumed by or
allocated to the Company pursuant to this Agreement shall be deemed to be
Indemnifiable Losses arising out of the Company Business, as defined in the
Distribution Agreement and, in each case, shall be subject to the
indemnification provisions set forth in Article VIII thereof.
7.03. Guarantee of Subsidiaries' Obligations. Each of the parties
hereto shall cause to be performed, and hereby guarantees the performance and
payment of, all actions, agreements, obligations and liabilities set forth
herein to be performed or paid by any Subsidiary of such party which is
contemplated by the Distribution Agreement to be a Subsidiary of such party on
or after the Time of Distribution.
7.04. Sharing of Information. Each of the Company and VRM shall provide
to the other all such information in its possession as the other may
reasonably request to enable it to administer its employee benefit plans and
programs, and to determine the scope of, and fulfill, its obligations under
this Agreement. Such information shall, to the extent reasonably practicable,
be provided in the format and at the times and places requested, but in no
event shall the party providing such information be obligated to incur any
direct expense not reimbursed by the party making such request, nor to make
such information available outside its normal business hours and premises.
7.05. Amendments. This Agreement may be amended, modified or
supplemented only by a written agreement signed by the parties hereto and the
Acquiror.
7.06. Successors and Assigns. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns.
7.07. Termination. This Agreement shall be terminated in the event that
the Distribution Agreement is terminated and the Distribution abandoned prior
to the Time of Distribution. In the event of such termination, neither party
shall have any liability of any kind to the other party.
7.08. Rights to Amend or Terminate Plans; No Third Party Beneficiaries.
No provision of this Agreement shall be construed (a) to limit the right of
any member of the Company Group or any member of the VRM Group to amend any
plan or terminate any plan, or (b) to create any right or entitlement
whatsoever in any employee or beneficiary including, without limitation, a
right to continued employment or to any benefit under a plan or any other
benefit or compensation (it being understood that this Agreement will also not
be construed to limit any right or entitlement of any employee or beneficiary
existing without reference to this Agreement). This Agreement is solely for
the benefit of the parties hereto and their respective Subsidiaries and should
not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
7.09. Transfer of Reserves. To the extent that any Liability assumed by
VRM hereunder is secured by a reserve on the books of the Company, such
reserve shall be transferred from the Company to the books of VRM as soon as
practicable on or following the Time of Distribution.
7.10. Further Transfers. The Company and VRM recognize that there may
be VRM Employees who will, after the Time of Distribution, become employed by
the Company and there may be Company Employees who become employed, after the
Time of Distribution, by VRM. If the Company and VRM (each in their sole
discretion) so agree with respect to any such individuals, the assets and
liabilities with respect to such employees which are associated with the plans
and programs described in this Agreement may be transferred and assumed in a
manner consistent with this Agreement and such employees will be treated as
Company Employees or VRM Employees, as the case may be. Any such transfers or
assumptions will be considered to be governed by the terms of this Agreement
and shall not require the agreement of the Company and VRM if they occur
within 3 months of the Time of Distribution.
7.11. Payment Under Other Agreements. No payment made by one party to
the other pursuant to this Agreement will affect in any manner any payments
required to be made under the Distribution Agreement or any other agreement
between the parties hereto, including, without limitation, the settlement of
intercompany payables and receivables provided for in the Distribution
Agreement.
7.12. Incorporation by Reference. The following provisions of the
Distribution Agreement are hereby incorporated into this Agreement by
reference (except that references therein to the Distribution Agreement shall
be deemed to be references to this Agreement): Section 6.5 (Confidentiality);
Section 9.4 (Governing Law); Section 9.5 (Notices); Section 9.3
(Counterparts); Section 9.10 (Severability); and Section 9.9 (Captions).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
VALERO ENERGY CORPORATION
By:
Name:
Title:
VALERO REFINING AND MARKETING COMPANY
By:
Name:
Title:
[The following schedules or annexes have been omitted from this filing
pursuant to Regulation S-K section 229.601(b)(2). The Company undertakes to
furnish supplementally a copy of any omitted schedule or annex to the
Commission upon request.]
SCHEDULE A -- LIST OF COMPANY PLANS
SCHEDULE B -- EMPLOYEES TRANSFERRING TO VRM
