MANAGEMENT STABILITY AGREEMENT
AGREEMENT dated effective August 1, 1997 ("Agreement") between Valero
Energy Corporation (formerly Valero Refining and Marketing Company), a
Delaware corporation (the "Corporation"), and Gregory C. King (the
"Executive"),
WITNESSETH:
WHEREAS, Executive and Valero Energy Corporation ("VEC"), (now, by change
of name, PG&E Gas Transmission Texas Co.) entered into that certain Management
Stability Agreement dated November 1, 1996 (the "Prior Agreement"); and
WHEREAS, the Prior Agreement specifies that, in the event of a
Divestiture (as defined in the Prior Agreement), the Corporation shall execute
and deliver this Agreement to Executive; and
WHEREAS, at a meeting of the Board of Directors of the Corporation held
on April 23, 1997, the Board of Directors approved the execution, delivery and
performance by the Corporation of management retention agreements,
substantially in the form of this Agreement, between the Corporation and
certain officers and other key executives of the Corporation and its
subsidiaries, including the Executive;
WHEREAS, should the Corporation become involved in any Change of Control
situation, in addition to Executive's regular duties, Executive may be called
upon to assist in the assessment of any third-party or internal proposals,
advise management and the Board as to whether such proposals would be in the
best interests of the Corporation and its shareholders, participate in
successfully completing such transactions and to take such other actions as
the Board might determine appropriate;
NOW, THEREFORE, to assure that the Corporation will have the continued
dedication of the Executive, and the availability of Executive's advice and
counsel as to the best interests of the Corporation and its stockholders,
notwithstanding the possibility, threat, or occurrence of a Change of Control,
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. Certain Definitions. The following terms, as used herein, have the
following meanings:
"Applicable Period" shall mean the two-year period following the
Termination Date.
"Annual Rate of Compensation" shall mean the aggregate regular base
salary paid or payable to Executive by the Corporation and/or VEC with respect
to any period of 12 consecutive months.
"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 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 within 45 days from the date notice is given or such longer
period as may be required under applicable law.
"Change of Control" shall mean:
(i) The acquisition by any Person of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended) of 15% or more of either (a) the then outstanding shares of
common stock of the Corporation (the "Outstanding Corporation Common Stock")
or (b) the combined voting power of the then outstanding voting securities of
the Corporation entitled to vote generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided, however, that for
purposes of this subparagraph (i), the following acquisitions shall not
constitute a Change of Control: (a) any acquisition directly from the
Corporation, (b) any acquisition by the Corporation, (c) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Corporation or any corporation or other entity controlled by the Corporation
or (d) any acquisition by any corporation or other entity pursuant to a
transaction which complies with clauses (a), (b) and (c) of subparagraph (iii)
of this definition;
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of the Corporation (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose election,
or nomination for election by the Corporation's shareholders, was approved by
a vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation, or
sale, transfer, or other disposition of all or substantially all of the assets
of the Corporation (a "Business Combination"), in each case, unless, following
such Business Combination, (a) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Corporation Common Stock and Outstanding Corporation Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation or other entity surviving or resulting from
such Business Combination (including, without limitation, a corporation or
other entity which as a result of such transaction owns the Corporation or all
or substantially all of the Corporation's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Outstanding
Corporation Common Stock and Outstanding Corporation Voting Securities, as the
case may be, (b) no Person (excluding any corporation or other entity
surviving or resulting from such Business Combination or any employee benefit
plan (or related trust) of the Corporation or such corporation or other entity
surviving or resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then outstanding
shares of common stock of the corporation or other entity surviving or
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation or other entity except
to the extent that such ownership existed prior to the Business Combination
and (c) at least a majority of the members of the board of directors or other
governing body of the corporation or other entity surviving or resulting from
such Business Combination were members of the Incumbent Board at the time of
the execution of the initial agreement or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation; or
(v) any other event determined by the Board of Directors or the
Committee to constitute a "Change of Control" hereunder. "Good Reason" shall
mean (i) the occurrence of any event or circumstance which, if occurring
following a Change in Control, would render Executive's termination of
employment "involuntary" (as defined in Paragraph 3.D), 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
"Person" shall mean any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended).
"Termination Date" shall mean the Executive's last day of employment with
the Corporation or any of its subsidiaries.
2. Services During Certain Events.
A. In the event any Person (i) begins a tender or exchange offer
for equity securities of the Corporation, (ii) or publicly announces an
intention to take or consider taking any actions which, if consummated, would
constitute a Change of Control, (iii) circulates a stockholder consent or
solicits a proxy for the election of directors, (iv) enters into an agreement
with the Corporation, the consummation of which would result in a Change of
Control, (v) becomes an "Acquiring Person" under the Rights Agreement dated
July 17, 1997 between the Corporation and Harris Trust and Savings Bank, as
Rights Agent, or (vi) publicly takes other steps which, if consummated, would
constitute a Change of Control, Executive agrees not to 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 (x) such date as
such Person has abandoned or terminated efforts to effect a Change of Control,
(y) sixty days following the date on which a Change of Control has occurred or
(z) thirty days following written notice to the Corporation that Executive
intends to terminate employment with the Corporation.
B. The provisions of Paragraph 2.A notwithstanding, Executive may
terminate employment for any reason prior to the occurrence of an event
specified in Paragraph 2.A(i)-(vi), and, following the occurrence of any such
event may terminate employment through retirement, total and permanent
disability, or for Good Reason.
3. Termination After Change of Control. In the event that, within two
years following the occurrence of a Change of Control of the Corporation,
Executive's employment is terminated so that Executive is no longer employed
with the Corporation or any of its subsidiaries, then, except as is otherwise
provided in Paragraph 3.C below, Executive shall be entitled to receive the
following payments and other benefits:
A. Lump Sum Cash Payment. On or before Executive's Termination
Date, the Corporation will pay to Executive (in addition to any base salary,
bonuses, incentive compensation, expenses, vacation, benefits, benefit plan
distributions and other amounts which would otherwise normally be payable to
Executive, to the extent not theretofore paid), as compensation for services
rendered to the Corporation, a lump sum cash amount (subject to any applicable
payroll or other taxes required to be withheld) equal to two (2) times the
Executive's highest Annual Rate of Compensation in effect with the Corporation
or VEC at any time during the 36-month period ending on the Termination
Date.In the event there are fewer than 24 months remaining from the
Termination Date to Executive's normal retirement date at age 65, the amount
otherwise payable hereunder shall be reduced as follows: the amount otherwise
calculated under this Paragraph 3.A will be multiplied by a fraction, the
numerator of which is the number of days remaining to Executive's normal
retirement date and the denominator of which is 720, and the resulting product
shall be the amount payable to Executive under this Paragraph 3.A.
B. Other Benefits.
(i) Insurance or Other Special Benefits. For the Applicable
Period, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Corporation shall continue
benefits to Executive and/or Executive's family at least equal to those which
would have been provided to them under the welfare benefit plans, practices,
policies and programs provided by the Corporation (including, without
limitation, medical, prescription, dental, disability, employee life, group
life, accidental death and travel accident insurance plans and programs)
immediately prior to such termination if the Executive's employment had not
been terminated; provided, however, that in no event shall the continued
benefits provided hereunder be less favorable, in the aggregate, than those
provided under the most favorable of such plans, practices, policies and
programs in effect for Executive at any time during the 120-day period
immediately preceding the Termination Date or, if more favorable to Executive,
those provided generally at any time after the Termination Date to other peer
executives of the Corporation, its affiliated companies or their successors.
To the extent that, during the Applicable Period, or any portion thereof, the
benefits required to be provided under this Paragraph 3.B are also required to
be provided by the Corporation under applicable provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the Corporation may
discharge such portion of its obligation hereunder by providing such
COBRA-mandated benefits, but at the Corporation's sole cost and expense. If
Executive is reemployed by another employer and is eligible to receive medical
or other welfare benefits under another employer-provided plan, the medical
and other welfare benefits described herein shall be secondary to those
provided under such other plan during the Applicable Period.
(ii) Thrift and Other Plans. The Executive's participation in
the Corporation's Thrift Plan, retirement plan for employees generally
("Pension Plan"), Supplemental Executive Retirement Plan ("SERP") or other
applicable plans of the Corporation shall not continue after the Termination
Date. Any terminating distributions and/or vested rights under such plans
shall be governed by the terms of the respective plans.
C. The foregoing provisions of this Paragraph 3 notwithstanding,
Executive shall not be entitled to receive, and the Corporation shall not be
obligated to make, the payments and other benefits specified in Paragraphs
3.A and 3.B above if Executive's termination employment occurs under any
one of more of the following circumstances:
(i) Executive's termination of employment is "voluntary";
(ii) Executive is terminated by his employer company for Cause;
(iii) Executive's termination is a consequence of death or total and
permanent disability; or
(iv) Executive retires under the Corporation's Pension Plan.
D. "Voluntary"/involuntary". In the event that Executive ceases
to be an employee of the Corporation or its subsidiaries after (i) Executive's
base salary is reduced to an amount below the base salary pertaining
immediately prior to the Change of Control, or (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 Change of Control, 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; costs of packing,
shipping 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 a home sale allowance or other
assistance in selling Executive's home commensurate with the assistance
customarily provided by the Corporation to transferred executives prior to the
Change of Control, then such termination of employment shall be deemed for all
purposes of this Agreement to be "involuntary" and Executive shall be entitled
to the benefits specified in Paragraphs 3.A and 3.B. If the Executive's
termination of employment is not "involuntary," as defined above, and does not
arise from one or more of the circumstances itemized in Paragraph 3.C(ii)
through (iv), then such termination of employment is deemed to be "voluntary"
for purposes of this Agreement.
4. Acceleration of Options and Rights in Certain Events. Stock options
("options") and stock appreciation or similar rights ("rights"), if any,
granted to Executive by the Corporation under the Corporation's Stock Option
Plan and Executive Stock Incentive Plan (collectively the "Plans") (or any
other stock option or stock appreciation rights plan adopted by the
Corporation) and not previously exercised, canceled or otherwise terminated
will be exercisable in full for a period of 90 days, or if longer, such period
as is specified in such plan, commencing on the earlier of (a) the date of the
Change of Control of the Corporation or (b) the date of approval by the
Corporation's shareholders of a transaction constituting a Change of Control;
provided however, that no such option or right shall be exercisable after the
expiration date of such option or right.
5. Removal of Restrictions on Stock Grants. Stock previously granted
to Executive by the Corporation as restricted stock or performance shares
under the Corporation's Executive Stock Incentive Plan (or any other similar
stock plan adopted by the Corporation) will have all restrictions removed on
the earlier of (a) the date of the Change of Control of the Corporation, or
(b) on the date of approval by the Corporation's shareholders of a transaction
constituting a Change of Control; provided, that, in the case of stock
previously granted to Executive as performance shares under the Corporation's
Executive Stock Incentive Plan (or any other similar stock plan adopted by the
Corporation), the performance period shall be deemed to have terminated on the
earlier of the dates specified in clauses (a) or (b) above, and the number of
shares to which the Executive is then entitled shall be determined in
accordance with such plan.
6. 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 lump-sum amount payable to
the Executive pursuant to Paragraph 3.A hereof shall be reduced to such amount
(the "Reduced Payment") but not below zero, such that the receipt of the
Executive of the Reduced Payment and all other payments and distributions
pursuant to this Agreement would not give rise to any Excise Tax.
B. No Duplication. Subject to the terms and conditions hereof, if
Executive has received either (i) the lump-sum payment specified in
Section 3.A of the Prior Agreement, or (ii) the lump-sum payment and other
benefits specified in Paragraph 3 of this Agreement for one Change of Control
event under this Agreement, Executive shall not be entitled to receive a
lump-sum payment or other such benefits under this Agreement from the
Corporation for any Change of Control event occurring subsequent to the event
resulting in such payment. In addition, if Executive receives a lump-sum
payment under this Agreement, then, except as may be expressly provided in a
separate agreement between Executive and the Corporation, Executive shall not
be entitled to participate in and receive a severance benefit under any other
severance plan maintained by the Corporation for executive officers or
employees generally. The foregoing limitations shall not be construed to
prevent Executive from receiving a payment from the Corporation under any
separate agreement, contract or arrangement.
C. Overpayments and Underpayments. All determinations required to
be made under Paragraph 6.A shall be made by the Corporation which shall
provide detailed supporting calculations to the Executive no later than the
Termination Date. As a result of uncertainty in the application of Section
280G of the Code at the time of the initial determination hereunder, it is
possible that payments will have been made by the Corporation which should not
have been made ("Overpayment") or that additional payments, which will not
have been made by the Corporation could have been made ("Underpayment"), in
each case, consistent with the calculations required to be made hereunder. In
the event that an Overpayment has been made, any such Overpayment shall be
treated for all purposes as a loan to the Executive which the Executive shall
repay to the Corporation together with 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.
7. General.
A. Indemnification. If litigation is initiated to enforce or
interpret any provision contained herein, the Corporation 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 Morgan 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, or the completion of
any Change of Control . 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.
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.
F. Assumption of Obligations under Prior Agreement. The parties
recognize that, under the Prior Agreement, VEC has agreed to provide a lump
sum cash payment and certain other benefits to Executive if Executive's
employment with the Corporation is terminated within the period and under the
circumstances specified therein, and that the Prior Agreement requires the
Corporation to jointly and severally assume such obligation. Accordingly, the
Corporation further agrees to, and does hereby, assume, jointly and severally
with VEC, all obligations and liabilities of VEC to Executive under the Prior
Agreement, and agrees that any claim, demand, or cause of action which
Executive may have or claim to have under the Prior Agreement may be brought
directly against the Corporation with the same force and effect as if the
Corporation were an original party to the Prior Agreement; provided, however,
that this assumption of obligations is not intended and shall not be construed
to (i) release VEC from any obligation or liability to Executive under the
Prior Agreement, or (ii) in any way enlarge or otherwise alter the obligations
of VEC under the Prior Agreement, or extend the effectiveness of such Prior
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date set forth above.
Gregory C. King
VALERO ENERGY CORPORATION (formerly
Valero Refining and Marketing Company)
By:
Edward C. Benninger
President