EXHIBIT 1.1
EXECUTION COPY
6,300,000 SHARES
VALERO ENERGY CORPORATION
COMMON STOCK (PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
March 25, 2003
March 25, 2003
Morgan Stanley & Co. Incorporated
J.P. Morgan Securities Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Valero Energy Corporation, a Delaware corporation (the "COMPANY"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "UNDERWRITERS"), an aggregate of 6,300,000 shares of its Common
Stock, par value $.01 per share (the "SHARES").
The shares of common stock, par value $.01 per share, of the Company to
be outstanding after giving effect to the sales contemplated hereby are
hereinafter referred to as the "COMMON STOCK." The Shares will have attached
thereto preferred share purchase rights (the "RIGHTS") issued pursuant to the
Rights Agreement (the "RIGHTS AGREEMENT") dated as of July 17, 1997 between the
Company and Computershare Investors Services L.L.C., as Rights Agent.
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION"), in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder (the
"SECURITIES ACT"), a registration statement on Form S-3 (registration no. 333-
84820), including a related prospectus, relating to the registration of certain
shares of Common Stock including the Shares and the related Rights and certain
debt and other securities (the "SHELF SECURITIES"), to be sold from time to time
by the Company. The registration statement as amended at the date of this
Agreement, including information, if any, deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act is hereinafter referred to as the "REGISTRATION STATEMENT," and
the prospectus included therein relating to the Shelf Securities, in the form
first used to confirm sales of the Shares, is hereinafter referred to as the
"BASIC PROSPECTUS." The Basic Prospectus, as supplemented by the prospectus
supplement dated March 25, 2003 (the "PROSPECTUS SUPPLEMENT"), relating to the
Shares, in the form first used to confirm sales of the Shares is hereinafter
referred to as the "PROSPECTUS". If the Company has filed an abbreviated
registration statement pursuant to Rule 462(b)
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under the Securities Act (the "RULE 462 REGISTRATION STATEMENT"), then any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462 Registration Statement. Any reference to the term Registration
Statement, the Basic Prospectus or the Prospectus shall include the documents
incorporated therein by reference. The terms "SUPPLEMENT" and "AMENDMENT" or
"AMEND" as used in this Agreement shall include all documents subsequently filed
by the Company with the Commission pursuant to the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), that are deemed to be incorporated by
reference in the Prospectus.
1. Representations and Warranties of the Company. The Company represents
and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus complied
or will comply when so filed in all material respects with the Exchange
Act and the applicable rules and regulations of the Commission
thereunder, (ii) the Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will
not contain, any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (iii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (iv)
the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter or its counsel through you expressly for use therein.
(c) The Company (i) has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the jurisdiction of
its incorporation, (ii) has the corporate power and authority
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to own its property and to conduct its business as described in the
Prospectus and (iii) is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company which is a significant subsidiary
as defined in Rule 1-02(w) of Regulation S-X (a "Significant
Subsidiary") (i) has been duly formed, is validly existing in good
standing under the laws of the jurisdiction of its formation, (ii) has
the corporate, limited liability company, limited partnership or
partnership power and authority to own its property and to conduct its
business as described in the Prospectus and (iii) is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid
and non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights.
(i) The Rights Agreement has been duly authorized, executed and
delivered by the Company; the Rights have been duly authorized by the
Company and, when issued upon issuance of the Shares, will be validly
issued, and the shares of Junior Participating Preferred Stock, Series
I, issuable upon exercise of the Rights have been duly authorized by
the Company and validly reserved for issuance, and when issued upon the
exercise of the Rights in accordance with the terms of the Rights
Agreement, will be validly issued, fully paid and non-assessable.
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(j) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement and the Rights
Agreement will not contravene any provision of applicable law or the
certificate of incorporation or by-laws of the Company or any agreement
or other instrument binding upon the Company or any of its subsidiaries
that is material to the Company and its subsidiaries, taken as a whole,
or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency that has not already been obtained is
required for the performance by the Company of its obligations under
this Agreement or the Rights Agreement, except such as may be required
by the securities or Blue Sky laws of the various states in connection
with the offer and sale of the Shares.
(k) Neither the Company nor any of its subsidiaries is in violation of
its corporate charter or by-laws or other constitutive document or in
default under any agreement, indenture or instrument, which default
could reasonably be expected to have a material adverse effect on the
business, properties, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole, and no event or
condition has occurred or exists which, with the giving of notice or
the lapse of time or both, would result in any such violation or
default which would have such an effect. Neither the Company nor any of
its subsidiaries is in violation of any law, ordinance, governmental
rule or regulation or court decree to which it may be subject, which
violation could reasonably be expected to have a material adverse
effect on the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole.
(l) There has not occurred any material adverse change, or any
development involving a prospective material adverse change in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(m) There are no legal or governmental investigations or proceedings
pending or threatened to which the Company or any of its subsidiaries
is a party or to which any of the properties of the Company or any of
its subsidiaries is subject, that are required to be described in the
Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are
required to be
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described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not described
or filed as required.
(n) The Company is not, and after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus will not be, required to register as an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended.
(o) All licenses, permits, consents, certificates of need,
authorizations, certifications, accreditations, franchises, approvals,
grants of rights by, or filings or registrations with, any federal,
state, local or foreign court or governmental or public body,
authority, or other instrumentality or third person (including without
limitation the Federal Energy Regulatory Commission ("FERC")) (any of
the foregoing a "LICENSE") necessary for the Company and its
subsidiaries to own, build, maintain or operate their respective
businesses or properties have been duly authorized and obtained, and
are in full force and effect, except where the failure to so be
obtained or in effect would not, individually or in the aggregate, have
a material adverse effect on the Company and its subsidiaries, taken as
a whole; and the Company and its subsidiaries are in compliance in all
material respects with all provisions thereof; no event has occurred
which permits (or with the passage of time would permit) the revocation
or termination of any License, or which could result in the imposition
of any restriction thereon, which is of such a nature or the effect of
which would reasonably be expected to have a material adverse effect on
the Company and its subsidiaries, taken as a whole; no material License
is the subject of any pending or, to the best of the Company's
knowledge, threatened challenge or revocation which, if such License
were revoked, would reasonably be expected to have a material adverse
effect on the Company and its subsidiaries, taken as a whole; the
Company and its subsidiaries are not required to obtain any material
License that has not already been obtained from, or effect any material
filing or registration that has not already been effected with, the
FERC or any other federal, state or local regulatory authority in
connection with the execution and delivery of this Agreement or the
Rights Agreement; and except, in each case, as described in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement).
(p) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants
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("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with
all terms and conditions of any such permit, license or approval,
except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or
approvals would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
and except, in each case, as described in the Prospectus (exclusive of
any amendments or supplements thereto subsequent to the date of this
Agreement).
(q) Except as described in the Prospectus (exclusive of any amendments
or supplements thereto subsequent to the date of this Agreement), there
are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to
third parties) which would, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(r) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement.
(s) The Company has prepared its financial statements on a consistent
basis in accordance with generally accepted accounting principles.
(t) Neither the Company nor any of its subsidiaries is a "holding
company", a "subsidiary company" or a "holding company", an "affiliate"
of a "holding company" or of a "subsidiary company" of a "holding
company", or a "public utility", as each of such terms is defined in
the Public Utility Holding Company Act of 1935, as amended, and the
rules and regulations thereunder.
(u) The Company and its subsidiaries have good and indefeasible title
to all items of real property and good and defensible title to all
personal property owned by them and the right to use all other property
used or proposed to be used by them in the ordinary course of business,
in
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each case free and clear of all liens, encumbrances and defects except
such as are described or referred to in the Prospectus or such as do
not materially adversely affect the value of such property and do not
unreasonably interfere with the use made or proposed to be made of such
property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are held
by them under valid, existing and enforceable leases with such
exceptions as are not material and do not unreasonably interfere with
the use made or proposed to be made of such property and buildings by
the Company or its subsidiaries.
(x) Immediately after any sale of Shares by the Company
hereunder, the aggregate initial offering price of Shares which have
been issued and sold by the Company hereunder and of any securities of
the Company (other than the Shares) that shall have been issued and
sold pursuant to the Registration Statement will not exceed the
aggregate initial offering price of securities registered under the
Registration Statement.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell to
the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company at $39.75 a share (the "PURCHASE PRICE") the number of Shares set forth
in Schedule I hereto opposite the name of such Underwriter.
The Company hereby agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated and J.P. Morgan Securities, Inc., it will not, during
the period ending 90 days after the date of the final prospectus supplement
included in the Prospectus, (i) register, offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Shares to be sold hereunder, (B)
transactions by any person other than the Company relating to shares of Common
Stock or other securities of the Company acquired in the open market, (C) the
grant of options or Common Stock under the Company's stock and incentive plans
as in effect at the date hereof or the issuance of shares of Common Stock under
the Company's non-employee director stock plan, (D) the issuance by the Company
of shares of Common Stock upon the exercise of an option or warrant or the
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conversion of a security outstanding on the date hereof and disclosed in the
Prospectus, or (E) the issuance by the Company of unregistered securities in
connection with acquisitions, which securities will not be registered for resale
before the end of the 90-day period.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
$40.25 a share (the "PUBLIC OFFERING PRICE") and to certain dealers selected by
you at a price that represents a concession not in excess of $0.35 a share under
the Public Offering Price.
4. Payment and Delivery. Payment for the Shares to be sold by the Company
shall be made to the Company in Federal or other funds immediately available in
New York City against delivery of such Shares for the respective accounts of the
several Underwriters at 10:00 a.m., New York City time, on March 28, 2003, or at
such other time on the same or such other date, not later than April 4, 2003, as
shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "CLOSING DATE."
The Shares shall be delivered in electronic form through the facilities of
the Depository Trust Company ("DTC") and registered in such names and in such
denominations as you shall request in writing not later than one full business
day prior to the Closing Date. The Shares shall be delivered to DTC on the
Closing Date, for the respective accounts of the several Underwriters, with any
transfer taxes payable in connection with the transfer of the Shares to the
Underwriters duly paid, against payment of the Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the following further conditions:
(a) no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the Securities Act
and no proceedings for that purpose shall have been instituted or shall
be pending or, to your knowledge or the knowledge of the Company, shall
be contemplated by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel for the Underwriters.
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(b) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does
not indicate an improvement, in the rating accorded any of the
Company's securities by any "nationally recognized statistical
rating organization," as such term is defined for purposes of
Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a
whole, from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of
this Agreement) that, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated
in the Prospectus.
(c) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company, to the effect set forth in Section 5(b)(i) above and to
the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing Date
and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely
upon the best of his or her knowledge as to proceedings threatened.
(d) The Underwriters shall have received on the Closing Date an
opinion of Baker Botts L.L.P., outside counsel for the Company, to the
effect that:
(i) the Company has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to
conduct its business as described in the Prospectus;
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(ii) the authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in
the Prospectus;
(iii) the Shares have been duly authorized and, when issued
and delivered in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive
or similar rights under the Company's certificate of
incorporation or by-laws or under Delaware General Corporation
Law or, to the best of such counsel's knowledge, any agreement
to which the Company is a party;
(iv) the Rights Agreement has been duly authorized by
the Company; the Rights have been duly authorized by the
Company and, when issued upon issuance of the Shares, will be
validly issued, and the Shares of Junior Participating
Preferred Stock, Series I, issuable upon exercise of the
Rights have been duly authorized by the Company and, when
issued upon such exercise in accordance with the terms of the
Rights Agreement, will be validly issued, fully paid and
non-assessable;
(v) this Agreement has been duly authorized, executed
and delivered by the Company;
(vi) the execution and delivery by the Company of,
and the performance by the Company of its obligations under,
this Agreement and the Rights Agreement will not contravene
any provision of applicable law or the certificate of
incorporation or by-laws of the Company;
(vii) the statements (A) in the Prospectus under the
caption "Description of Capital Stock", (B) in the
Registration Statement in Item 15 and (C) incorporated by
reference into the Prospectus under the caption "Description
of Securities to be Registered" in the report on Form 8-A/A
dated May 10, 2001, in each case insofar as such statements
constitute summaries of legal matters, accurately present the
information called for with respect to such legal matters,
documents and proceedings and accurately summarize the matters
referred to therein; and
(viii) the Company is not, and after giving effect to the
offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus will not be,
required to
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register as an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
In addition, such counsel shall state that nothing
has come to such counsel's attention to cause such counsel to believe
that (A) the Registration Statement and Prospectus (except for
financial statements and schedules and other financial and statistical
data included therein as to which such counsel need not comment) do not
comply as to form in all material respects with the Securities Act and
the applicable rules and regulations of the Commission thereunder or
(B)(i) (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not
express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became
effective or at the time of the execution of this agreement contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) (except for financial statements and
schedules and other financial and statistical data as to which such
counsel need not express any belief) the Prospectus contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(e) The Underwriters shall have received on the Closing
Date an opinion of Jay D. Browning, Esq., Vice President and Corporate
Secretary of the Company, to the effect that:
(i) the Company is duly qualified to
transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole;
(ii) each Significant Subsidiary of the
Company has been duly formed, is validly existing in good
standing under the laws of the jurisdiction of its formation,
has the corporate, limited liability company, limited
partnership or partnership power and authority to own its
property and to conduct its business and is in good standing
in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified
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or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(iii) the shares of Common Stock outstanding
prior to the issuance of the Shares have been duly authorized
and are validly issued, fully paid and non-assessable;
(iv) all of the issued shares of capital
stock of each subsidiary of the Company have been duly and
validly authorized and issued, are fully paid and
non-assessable and are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities
or claims;
(v) the execution and delivery by the
Company of, and the performance by the Company of its
obligations under, this Agreement and the Rights Agreement
will not contravene any agreement or other instrument binding
upon the Company or any of its subsidiaries that is known to
such counsel and material to the Company and its subsidiaries,
taken as a whole, or to the best of such counsel's knowledge,
any judgment, order or decree of any governmental body, agency
or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency
that has not already been obtained is required for the
performance by the Company of its obligations under this
Agreement or the Rights Agreement, except such as may be
required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares;
(vi) the statements (A) in the Prospectus
under the captions "Risk Factors-Compliance with and changes
in environmental laws could adversely affect our performance"
and "-A patent dispute with Unocal could adversely affect us,"
(B) in the Registration Statement in Item 15 and (C)
incorporated by reference into the Prospectus under the
caption "Item 1-Business & Properties-Environmental Matters
and "Item 3-Legal Proceedings" in the Company's Annual Report
on Form 10-K for the year ended December 31, 2002, in each
case insofar as such statements constitute summaries of legal
matters, accurately present the information called for with
respect to such legal matters, documents and proceedings and
accurately summarize the matters referred to therein;
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(vii) after due inquiry, such counsel does not know
of any legal or governmental investigations or proceedings
pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of
the Company or any of its subsidiaries is subject that are
required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes,
regulations, contracts or other documents that are required to
be described in the Registration Statement or the Prospectus
or to be filed as exhibits to the Registration Statement that
are not described or filed as required;
(viii) nothing has come to such counsel's attention
to cause such counsel to believe that the Company and its
subsidiaries (A) are not in compliance with any and all
applicable Environmental Laws, (B) have not received all
permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective
businesses or (C) are not in compliance with all terms and
conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such
permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on the Company and
its subsidiaries, taken as a whole; and
(ix) the documents incorporated by reference in the
Prospectus (except for the consolidated financial statements
and other financial or statistical data included therein or
omitted therefrom, as to which such counsel need express no
opinion), as of the dates they were filed with the Commission
or to the extent such documents were subsequently amended
prior to the date hereof, at the time so amended, complied as
to form in all material respects with the requirements of the
Exchange Act and the regulations thereunder.
In addition, such counsel shall state that nothing has come to such
counsel's attention to cause such counsel to believe that (A) the
Registration Statement and Prospectus (except for financial statements
and schedules and other financial and statistical data included therein
as to which such counsel need not comment) do not comply as to form in
all material respects with the Securities Act and the applicable rules
and regulations of the Commission thereunder or (B)(i) (except for
financial statements and schedules and other financial and statistical
data as to which such counsel need not express any belief) the
Registration
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Statement and the prospectus included therein at the time the
Registration Statement became effective or at the time of the execution
of this Agreement contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) (except
for financial statements and schedules and other financial and
statistical data as to which such counsel need not express any belief)
the Prospectus contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
The opinions of Baker Botts L.L.P. and Jay D. Browning,
Esq. referred to in paragraphs 5(d) and 5(e) above shall be rendered to
the Underwriters at the request of the Company and shall so state
therein.
(f) The Underwriters shall have received on the Closing Date
an opinion of Davis Polk & Wardwell, counsel for the Underwriters,
dated the Closing Date in form and substance satisfactory to the
Underwriters.
(g) The Underwriters shall have received, on the Closing Date,
a letter dated the Closing Date in form and substance satisfactory to
the Underwriters, from Ernst & Young LLP, independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
provided that the letter delivered on the Closing Date shall use a
"cut-off date" not earlier than the date hereof.
(h) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and William E. Greehey, Gregory C. King,
William R. Klesse, John D. Gibbons and Keith D. Booke relating to
sales and certain other dispositions of shares of Common Stock or
certain other securities, delivered to you on or before the date
hereof, shall be in full force and effect on the Closing Date.
6. Covenants of the Company. In further consideration of the agreements of
the Underwriters herein contained, the Company covenants with each Underwriter
as follows:
(a) To furnish to you, without charge, 2 conformed copies of the
Registration Statement (including exhibits and documents incorporated
by reference thereto) and for delivery to each other Underwriter a
conformed copy of the Registration Statement (without exhibits thereto)
and to furnish to you in New York City, without charge, prior to
10:00 a.m. New
14
York City time on the business day next succeeding the date of this
Agreement and, during the period mentioned in Section 6(d) below, as
many copies of the Prospectus, any documents incorporated by reference
therein and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) During the period after the first date of the public offering of
the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, before amending or supplementing the
Registration Statement or the Prospectus, (including by filing any
document that would as a result thereof be incorporated by reference in
the Prospectus) to furnish to you a copy of each such proposed
amendment, supplement or other document and not to file any such
proposed amendment, supplement or other document to which you
reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) During the period after the first date of the public offering of
the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, to file promptly all documents required to
be filed with the Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(d) If, during such period after the first date of the public offering
of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist
as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing when the Prospectus is delivered to a purchaser,
not misleading, or if, in the opinion of counsel for the Underwriters,
it is necessary to amend or supplement the Prospectus to comply with
applicable law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to the dealers
(whose names and addresses you will furnish to the Company) to which
Shares may have been sold by you on behalf of the Underwriters and to
any other dealers upon request, either amendments or supplements to the
Prospectus, so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
15
(e) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request and to maintain such qualifications for as long as
the Underwriters shall reasonably request.
(f) To make generally available to the Company's security
holders and to you as soon as practicable an earnings statement
covering the twelve-month period ending March 31, 2003 that
satisfies the provisions of Section 11(a) of the Securities Act and
the rules and regulations of the Commission thereunder.
(g) To comply with all rules and regulations of the New York
Stock Exchange in respect of the listing of the Shares and to use its
best efforts to cause the Shares to be eligible for trading thereon.
7. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities herein above specified, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) the
cost of printing or producing any Blue Sky or Legal Investment memorandum in
connection with the offer and sale of the Shares under state securities laws and
all expenses in connection with the qualification of the Shares for offer and
sale under state securities laws as provided in Section 6(e) hereof, including
filing fees and the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky or Legal Investment memorandum, (iv) all filing fees and the reasonable
fees and disbursements of counsel to the Underwriters incurred in connection
with any required review and qualification of the offering of the Shares by the
National Association of Securities Dealers, Inc., (v) all fees and expenses in
connection with the preparation and filing of the registration statement on Form
8-A relating to the Common Stock and all costs and expenses incident to listing
the Shares on the New York Stock Exchange, (vi) the cost of printing
certificates representing the Shares, (vii) the costs and charges of any
transfer agent, registrar or depositary, (viii) the costs and expenses of the
Company relating to investor presentations on
16
any "road show" undertaken in connection with the marketing of the offering of
the Shares, including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the officers of
the Company and any such consultants, and (ix) all other costs and expenses
incident to the performance of the obligations of the Company hereunder for
which provision is not otherwise made in this Section, provided that the
Underwriters agree to pay all of the costs and expenses relating to any "road
show" relating directly to the Underwriters, including the cost of chartering
any aircraft. It is understood that except as provided in this Section, Section
8 entitled "Indemnity and Contribution", and the last paragraph of Section 10
below, the Underwriters will pay all of their costs and expenses, including fees
and disbursements of their counsel, stock transfer taxes payable on resale of
any of the Shares by them and any advertising expenses connected with any offers
they may make.
8. Indemnity and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
or through your counsel expressly for use therein; provided, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
losses, claims, damages or liabilities, unless such failure is the result of
noncompliance by the Company with Section 6(a) hereof.
17
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the directors of the Company,
the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or
any amendment thereof, any preliminary prospectus or the Prospectus (as
amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but
only with reference to information relating to such Underwriter
furnished to the Company in writing by such Underwriter through you or
through your counsel expressly for use in the Registration Statement,
any preliminary prospectus, the Prospectus or any amendments or
supplements thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to Section 8(a) or 8(b), such
person (the "INDEMNIFIED PARTY") shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In
any such proceeding, any indemnified party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the fees and
expenses of more than one separate firm (in addition to any local
counsel) for all Underwriters and all persons, if any, who control any
Underwriter within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act and (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the
18
Registration Statement and each person, if any, who controls the
Company within the meaning of either such Section, and that all such
fees and expenses shall be reimbursed as they are incurred. In the case
of any such separate firm for the Underwriters and such control persons
of any Underwriters, such firm shall be designated in writing by Morgan
Stanley & Co. Incorporated and J.P. Morgan Securities, Inc. In the case
of any such separate firm for the Company, and such directors, officers
and control persons of the Company, such firm shall be designated in
writing by the Company. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent,
but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of
such settlement or judgment. Notwithstanding the foregoing sentence, if
at any time an indemnified party shall have requested an indemnifying
party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this
paragraph, the indemnifying party agrees that it shall be liable for
any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt
by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are
the subject matter of such proceeding.
(d) To the extent the indemnification provided for in Section 8(a)
or 8(b) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to
therein, then each indemnifying party under such subsection, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnifying party or parties on the one hand and the indemnified party
or parties on the other hand from the offering of the Shares or (ii) if
the allocation provided by clause 8(d)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 8(d)(i) above but also
the relative fault of the indemnifying party or parties on the one hand
and of the indemnified party or parties on the other hand in connection
with the statements or omissions that resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same respective
19
proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total
underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover of the Prospectus,
bear to the aggregate Public Offering Price of the Shares. The relative
fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Underwriters' respective obligations to contribute pursuant to this
Section 8 are several in proportion to the respective number of Shares
they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in Section 8(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be
deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Underwriter shall
be required to contribute any amount in excess of the amount by which
the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section
8 are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in
equity.
(f) The indemnity and contribution provisions contained in this
Section 8 and the representations, warranties and other statements of
the Company contained in this Agreement shall remain operative and in
full force and effect regardless of any termination of this Agreement,
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, or the Company, its officers or directors
or any person controlling the Company and acceptance of and payment for
any of the Shares.
20
9. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange or the National Association
of Securities Dealers, Inc., (ii) trading of any securities of the Company shall
have been suspended on any exchange or in any over-the-counter market, (iii) a
general moratorium on commercial banking activities in New York shall have been
declared by either Federal or New York State authorities or (iv) there shall
have occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in your judgment, is material
and adverse and (b) in the case of any of the events specified in clauses
9(a)(i) through 9(a)(iv), such event, singly or together with any other such
event, makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
10. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date, any Underwriter or Underwriters shall fail or
refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs is more than one-tenth the aggregate number of Shares
to be purchased, and arrangements satisfactory to you and the Company for the
purchase of such Shares are not made within 36 hours after such default, this
Agreement shall terminate without liability on the part of any non-defaulting
Underwriter or the Company. In any such case either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
21
11. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
13. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
14. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if mailed or transmitted by
any standard form of telecommunication. Notices to the Underwriters shall be
given to Morgan Stanley & Co. Incorporated, 1585 Broadway, New York, New York
10036 (telefax: 212-761-0588); Attention: Syndicate Department and J.P. Morgan
Securities, Inc., 277 Park Avenue, Ninth Floor, New York, New York 10172
(telefax: 212-622-8358), Attention Hank Wilson, Syndicate Department. Notices to
the Company shall be given to it at One Valero Place, San Antonio, Texas, 78212
(telefax: 210-370-2646); Attention: Corporate Secretary.
22
Very truly yours,
VALERO ENERGY CORPORATION
By: /s/ John D. Gibbons
-----------------------------------
Name: John D. Gibbons
Title: Executive Vice President and
Chief Financial Officer
Accepted as of the date hereof
MORGAN STANLEY & CO.
INCORPORATED
J.P. MORGAN SECURITIES INC.
By: Morgan Stanley & Co. Incorporated
By: /s/ Mark W. Hobbs
--------------------------------------------
Name: Mark W. Hobbs
Title: Vice President
By: J.P. Morgan Securities Inc.
By: /s/ Arnold Evans
--------------------------------------------
Name: Arnold Evans
Title: Vice President
23
SCHEDULE I
NUMBER OF SHARES TO BE
UNDERWRITERS PURCHASED
- -------------------------------------------------------------------------------
Morgan Stanley & Co. Incorporated.................. 3,150,000
J.P. Morgan Securities Inc......................... 3,150,000
---------
Total:.................................... 6,300,000
EXHIBIT A
[FORM OF EQUITY LOCK-UP LETTER]
______, 2003
Morgan Stanley & Co. Incorporated
J.P. Morgan Securities Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY") and J.P. Morgan Securities, Inc. ("J.P. MORGAN") propose to
enter into an Underwriting Agreement (the "UNDERWRITING AGREEMENT") with
Valero Energy Corporation, a Delaware corporation (the "COMPANY"), providing
for the public offering (the "PUBLIC OFFERING") by the several underwriters
named therein, (the "UNDERWRITERS"), of shares (the "SHARES") of the common
stock, par value $.01 per share, of the Company (the "COMMON STOCK").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley and J.P. Morgan Securities, Inc., he will not, during the period
commencing on the date hereof and ending 90 days after the date of the final
prospectus supplement relating to the Public Offering (the "PROSPECTUS
SUPPLEMENT"), (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, or (2) enter into any swap
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to the sale of any securities to the Underwriters
pursuant to the Underwriting Agreement or pursuant to any other underwriting
agreement entered into between the Company and Morgan Stanley and J.P. Morgan,
as lead underwriters. In addition, the undersigned agrees that, without the
prior written consent of Morgan Stanley and J.P. Morgan Securities, Inc., he
will not, during the period commencing on the
date hereof and ending 90 days after the date of the final Prospectus
Supplement, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock. The undersigned also agrees and
consents to the entry of stop transfer instructions with the Company's transfer
agent and registrar against the transfer of the undersigned's shares of Common
Stock except in compliance with the foregoing restrictions.
The undersigned understands that the Company and the Underwriters are
relying upon this Lock-Up Agreement in proceeding toward consummation of the
Public Offering. The undersigned further understands that this Lock-Up Agreement
is irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters. Notwithstanding anything
herein to the contrary, this agreement will terminate if the Underwriting
Agreement is terminated prior to the delivery of the Shares thereunder.
Very truly yours,
-----------------------------------
(Name)
-----------------------------------
(Address)
2