INCENTIVE BONUS AGREEMENT
AGREEMENT dated as of November 21, 1996 ("Agreement") between Valero
Energy Corporation, a Delaware corporation (the "Corporation"), and Xxxxx X.
Xxxxxxx (the "Executive"),
WITNESSETH:
WHEREAS, for the reasons more fully set forth in the minutes of the
Compensation Committee (the "Committee") of the Board of Directors of the
Corporation, the Committee has approved the execution, delivery and
performance by the Corporation of incentive bonus 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 situation leading
to a Transaction (as hereinafter defined), the management of the Corporation
has determined that Executive is a key employee who would be essential to the
completion of such Trasnaction and that, 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 and participate in successfully completing any Transaction;
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 in
connection with the completion of any Transaction, 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.
A. In the event that the Corporation publicly announces (or privately
advises Executive that the Board has so determined) that the Corporation will
solicit or consider proposals leading to a Transaction, Executive agrees that
he or she 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 (i) such date as the Corporation has abandoned
or terminated efforts to effect a Transaction, or (ii) 30 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 such
announcement (or advice) and, following such announcment (or advice), may
terminate employment prior to the date specified in Paragraph 1.A 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 Transaction, 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. Incentive Bonus Payment.
A. In the event that, within two years following the date of this
Agreement, a Transaction occurs, then, except as set forth in Paragraph 2.C.,
the Corporation will pay to Executive or to Executive's estate (in addition to
any base salary, bonuses, incentive compensation, severance payments,
expenses, vacation, benefits, benefit plan distributions and other amounts
which would otherwise be payable to Executive, to the extent not theretofore
paid), as compensation for services rendered to the Corporation, a cash amount
(subject to any applicable payroll or other taxes required to be withheld)
equal to one (1) times Executive's highest annual rate of compensation in
effect at any time during the 36-month period ending on the date of such
Transaction, such payment to be made in accordance with Paragraph 2.B. 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.
B. The cash amount payable to Executive pursuant to Section 2.A. shall
be due and payable in the following increments:
(i) 60% on the date on which a Transaction is consummated; and
(ii) 40% on the date which is six months following the date
specified in Paragraph 2.B(i) above.
In the event that Executive's employment with the Corporation or its
subsidiaries (or, if Executive accepts employment with a Divested Entity, then
with such Divested Entity or its subsidiaries) is terminated prior to any of
the dates specified above, and payment to Executive is not otherwise excused
pursuant to Paragraph 2.C. below, then on Executive's Termination Date, the
Corporation shall pay to Executive the remaining amounts which Executive would
have been entitled to receive had he remained in the employ of the Corporation
or a Divested Entity until such dates and which have not theretofore been
paid.
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
specified in Paragraphs 2.A and 2.B if either:
(i) Executive's employment terminates prior to the occurrence of
the Transaction, unless such termination of employment results from
Executive's death or total and permanent disability; or
(ii) The payment is to be made under Paragraph 2.B(ii) and
Executive's termination of employment occurs following the occurrence of the
Transaction under any one of more of the following circumstances:
(a) Executive's termination of employment is "voluntary;"
(b) Executive is terminated by his or her employer company for
"cause"; or
(c) 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); or
(iii) in connection with a Divestiture, Executive is offered but
declines to accept Qualifying Employment with the Divested Entity or its
subsidiaries. As used herein, "Qualifying Employment" shall mean any
position, with a principal place of employment in the United States, as a
full-time, regular employee of the Divested Entity or one of its subsidiaries,
wherein (a) Executive's base salary is at least equal to Executive's base
salary immediately prior to the Divestiture, (a) 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 substantially
comparable with the benefits to which Executive was entitled prior to the
Divestiture, and (c) if Executive is required to relocate to a new principal
place of employment, Executive is 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
Divestiture, including acquisition of such home by the Corporation at an
appraised fair market value).
D. Definition of Termination Date. For the purpose of this Agreement,
"Termination Date" shall mean 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 Transaction. For the purpose of this Agreement, a
"Transaction" shall mean and include any one of more of the following events;
provided that, prior thereto, such event has been recommended or approved by a
majority of the Board of Directors of the Corporation or of a duly authorized
committee thereof:
(i) consummation of a reorganization, merger or consolidation
involving the Corporation (other than a transaction solely involving one or
more subsidiaries of the Corporation), or the sale, transfer, or other
disposition of all or substantially all of the assets of the Corporation; or
(ii) Acquisition by any individual, entity or group of beneficial
ownership of sufficient shares of common stock or other securities of the
Corporation such that, but for such prior approval and any concurrent
redemption of the Corporation's Preference Share Purchase Rights or other
actions which may be taken to cause such person or group not to become an
Acquiring Person, would cause such individual, entity or group to become an
"Acquiring Person" within the meaning of that certain Rights Agreement, dated
as of October 26, 1995 between the Corporation and Xxxxxx Trust and Savings
Bank, as Rights Agent; or
(iii) Consummation of a Divestiture; or
(iv) any other event determined by the Board of Directors of the
Corporation or a duly authorized committee thereof to constitute a
"Transaction" 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 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 or
entities which are not wholly owned subsidiaries of the 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 or entity, 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 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
Transaction, or (ii) 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 Transaction, 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 Transaction, including acquisition of such home by the
Corporation at an appraised fair market value), then such termination of
employment shall be deemed for all purposes of this Agreement to be
"involuntary." If Executive's termination of employment is not
"involuntary," as defined above, and does not arise from death, total and
permanent disability, retirement or from the circumstances described in
Paragraph 2.C(ii)(b), then such termination of employment is deemed to be
"voluntary" for all purposes of this Agreement. In addition, if the Executive
is offered, but declines to accept, Qualifying Employment with a Divested
Entity or its subsidiaries, and Executive is subsequently terminated (other
than as a result of death, total and permanent disability or retirement) from
employment with the Corporation and its subsidiaries, then Executive's
termination of employment will be deemed to be "voluntary" for all purposes of
this Agreement.
3. Excess Amounts.
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 amount payable to the
Executive pursuant to Paragraphs 2.A and 2.B 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.
B. No Duplication. Subject to the terms and conditions hereof, if
Executive has received the payments specified in Paragraph 2 for one
Transaction, Executive shall not be entitled to receive a payment under this
Agreement from the Corporation or a Divested Entity for any subsequent
Transaction. This limitation shall not be construed to prevent Executive from
receiving any 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 3.A shall be made by the Corporation, which shall provide
detailed supporting calculations to the Executive no later than the date on
which such payment is due. 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 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.
4. General.
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, defense or other right which the Corporation may
have against Executive or anyone else. 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
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 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.
D. Severability. Any provision in this Agreement which is prohibited
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
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.
/s/ Xxxxx X. Xxxxxxx
Xxxxx X. Xxxxxxx
VALERO ENERGY CORPORATION
By: /s/ X. X. Xxxxxxxxx
Xxxxxx X. Xxxxxxxxx
President
