UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4718
VALERO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1244795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
530 McCullough Avenue
San Antonio, Texas
(Address of principal executive offices)
78215
(Zip Code)
(210) 246-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicated below is the number of shares outstanding of the
registrant's only class of common stock, as of April 28, 1995.
Number of
Shares
Title of Class Outstanding
Common Stock, $1 Par Value 43,616,088
<PAGE>
VALERO ENERGY CORPORATION AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - March 31, 1995 and
December 31, 1994. . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income - For the Three
Months Ended March 31, 1995 and 1994 . . . . . . . . .
Consolidated Statements of Cash Flows - For the
Three Months Ended March 31, 1995 and 1994. . . . . .
Notes to Consolidated Financial Statements . . . . . . .
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . .
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . .
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
March 31,
1995 December 31,
(Unaudited) 1994
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments. . . . . . . . . . . . $ 14,963 $ 26,210
Cash held in debt service escrow . . . . . . . . . . . . . - 35,441
Receivables, less allowance for doubtful accounts of
$2,373 (1995) and $2,770 (1994). . . . . . . . . . . . . 201,883 232,273
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 120,683 182,089
Current deferred income tax assets . . . . . . . . . . . . 64,070 31,842
Prepaid expenses and other . . . . . . . . . . . . . . . . 18,743 25,017
420,342 532,872
PROPERTY, PLANT AND EQUIPMENT - including
construction in progress of $121,254 (1995)
and $115,785 (1994), at cost . . . . . . . . . . . . . . . 2,683,968 2,672,715
Less: Accumulated depreciation. . . . . . . . . . . . . 555,833 531,501
2,128,135 2,141,214
INVESTMENT IN AND ADVANCES TO JOINT
VENTURES . . . . . . . . . . . . . . . . . . . . . . . . . 41,963 41,162
DEFERRED CHARGES AND OTHER ASSETS. . . . . . . . . . . . . . 139,803 116,110
$2,730,243 $2,831,358
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
March 31,
1995 December 31,
(Unaudited) 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,000 $ -
Current maturities of long-term debt . . . . . . . . . . . . . . . . 64,803 62,230
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 301,592 341,694
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . 11,280 19,693
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 29,129 37,150
416,804 460,767
LONG-TERM DEBT, less current maturities. . . . . . . . . . . . . . . . 946,114 1,021,820
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 297,644 264,236
DEFERRED CREDITS AND OTHER LIABILITIES . . . . . . . . . . . . . . . . 55,578 59,405
REDEEMABLE PREFERRED STOCK, SERIES A, issued
1,150,000 shares, outstanding 126,500 (1995 and 1994) shares . . . . 12,650 12,650
COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value - 20,000,000 shares authorized
including redeemable preferred shares:
$3.125 Convertible Preferred Stock, issued and outstanding
3,450,000 (1995 and 1994) shares ($172,500 aggregate
involuntary liquidation value) . . . . . . . . . . . . . . . . 3,450 3,450
Common stock, $1 par value - 75,000,000 shares authorized;
issued 43,645,355 (1995) and 43,463,869 (1994) shares. . . . . . . 43,645 43,464
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 538,158 536,613
Unearned Valero Employees' Stock Ownership Plan
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,730) (13,706)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . 429,158 442,659
Treasury stock, 12,988 (1995) and -0- (1994)
common shares, at cost . . . . . . . . . . . . . . . . . . . . . . (228) -
1,001,453 1,012,480
$2,730,243 $2,831,358
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . $690,535 $281,277
COSTS AND EXPENSES:
Cost of sales and operating expenses . . . . . . . . . . . 619,543 220,995
Selling and administrative expenses. . . . . . . . . . . . 17,456 19,136
Depreciation expense . . . . . . . . . . . . . . . . . . . 24,869 15,568
Total. . . . . . . . . . . . . . . . . . . . . . . . . . 661,868 255,699
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . 28,667 25,578
EQUITY IN EARNINGS (LOSSES) OF AND INCOME FROM:
Valero Natural Gas Partners, L.P.. . . . . . . . . . . . . - (2,908)
Joint ventures . . . . . . . . . . . . . . . . . . . . . . 1,869 (815)
OTHER INCOME (EXPENSE), NET. . . . . . . . . . . . . . . . . 758 (103)
INTEREST AND DEBT EXPENSE:
Incurred . . . . . . . . . . . . . . . . . . . . . . . . . (26,076) (12,048)
Capitalized. . . . . . . . . . . . . . . . . . . . . . . . 941 279
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . 6,159 9,983
INCOME TAX EXPENSE . . . . . . . . . . . . . . . . . . . . . 2,400 3,700
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . 3,759 6,283
Less: Preferred stock dividend requirements . . . . . . . 2,964 532
NET INCOME APPLICABLE TO COMMON STOCK. . . . . . . . . . . . $ 795 $ 5,751
EARNINGS PER SHARE OF COMMON STOCK . . . . . . . . . . . . . $ .02 $ .13
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(in thousands) . . . . . . . . . . . . . . . . . . . . . . 43,573 43,320
DIVIDENDS PER SHARE OF COMMON STOCK. . . . . . . . . . . . . $ .13 $ .13
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,759 $ 6,283
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense . . . . . . . . . . . . . . . . . . . 24,869 15,568
Amortization of deferred charges and other, net. . . . . . 5,890 6,419
Changes in current assets and current liabilities. . . . . 63,576 (1,389)
Deferred income tax expense. . . . . . . . . . . . . . . . 2,000 1,400
Equity in (earnings) losses in excess of distributions:
Valero Natural Gas Partners, L.P.. . . . . . . . . . . . - 6,195
Joint ventures . . . . . . . . . . . . . . . . . . . . . (1,346) 815
Changes in deferred items and other, net . . . . . . . . . (4,425) (3,914)
Net cash provided by operating activities. . . . . . . . 94,323 31,377
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (29,832) (14,332)
Deferred turnaround and catalyst costs . . . . . . . . . . . . (28,287) (388)
Investment in and advances to joint ventures, net. . . . . . . (275) (2,808)
Distributions from Valero Natural Gas Partners, L.P. . . . . . - 1,383
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . (47) 1,042
Net cash used in investing activities. . . . . . . . . . . . (58,441) (15,103)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt. . . . . . . . . . . . . . . . . . 10,000 -
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . 6,500 -
Long-term debt reduction, net. . . . . . . . . . . . . . . . . (78,857) (60,000)
Decrease in cash held in debt service escrow for principal . . 22,768 -
Common stock dividends . . . . . . . . . . . . . . . . . . . . (5,665) (5,634)
Preferred stock dividends. . . . . . . . . . . . . . . . . . . (2,964) (293)
Issuance of Convertible Preferred Stock, net . . . . . . . . . - 167,878
Issuance of common stock, net. . . . . . . . . . . . . . . . . 1,089 917
Net cash provided by (used in) financing activities. . . . . (47,129) 102,868
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS . . . . . . . . . . . . . . . . . . (11,247) 119,142
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . . . . . 26,210 7,252
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . $ 14,963 $126,394
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
VALERO ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Basis of Presentation
The consolidated financial statements included herein have
been prepared by Valero Energy Corporation ("Energy") and
subsidiaries (collectively referred to as the "Company"), without
audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. However, all adjustments have been made
to the accompanying financial statements which are, in the
opinion of the Company's management, necessary for a fair
presentation of the Company's results of operations for the
periods covered. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the
information presented herein not misleading. These consolidated
financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included
in the Company's latest Annual Report on Form 10-K. Certain
prior period amounts have been reclassified for comparative
purposes.
Note 2
Acquisition of Valero Natural Gas Partners, L.P.
Effective May 31, 1994, the Company acquired through a
merger (the "Merger") the remaining effective equity interest of
approximately 51% in Valero Natural Gas Partners, L.P. and its
consolidated subsidiaries (collectively referred to herein as the
"Partnership"). The consolidated statements of income of the
Company for the three months ended March 31, 1995 and 1994,
reflect the Company's 100% interest and its effective equity
interest of approximately 49% in the Partnership's operations,
respectively. The following unaudited pro forma financial
information of the Company for the three months ended March 31,
1994 assumes that the Merger occurred for the period presented.
Such pro forma information is not necessarily indicative of the
results of future operations. (Dollars in thousands, except per
share amounts.)
<TABLE>
<S> <C>
Operating revenues . . . . . . . . . . $607,193
Operating income . . . . . . . . . . . 28,915
Net income . . . . . . . . . . . . . . 1,964
Net loss applicable to common stock. . (1,025)
Loss per share of common stock . . . . (.02)
</TABLE>
Prior to the Merger, the Company entered into transactions
with the Partnership commensurate with its status as the General
Partner. The Company charged the Partnership a management fee
equal to the direct and indirect costs incurred by it on behalf
of the Partnership. In addition, the Company purchased natural
gas and natural gas liquids ("NGLs") from the Partnership, sold
NGLs to the Partnership and paid the Partnership a fee for
operating certain of the Company's assets. Also, the Company and
the Partnership entered into other transactions, including
certain leasing transactions. The following table summarizes
transactions between the Company and the Partnership for the
three months ended March 31, 1994 (in thousands):
<TABLE>
<S> <C>
Purchases of NGLs and natural gas, and services
from the Partnership. . . . . . . . . . . . . . . . . . . $27,582
Sales of NGLs and natural gas, and transportation
and other charges to the Partnership. . . . . . . . . . . 6,524
Management fees billed to the Partnership for
direct and indirect costs . . . . . . . . . . . . . . . . 20,702
Interest income from capital lease transactions. . . . . . . 3,287
</TABLE>
Note 3
Statements of Cash Flows
In order to determine net cash provided by operating
activities, net income has been adjusted by, among other things,
changes in current assets and current liabilities, excluding
changes in cash and temporary cash investments, cash held in debt
service escrow for principal, current deferred income tax assets,
short-term debt and current maturities of long-term debt. The
changes in the Company's current assets and current liabilities,
excluding the items noted above, are shown in the following table
as an (increase) decrease in current assets and an increase
(decrease) in current liabilities. The Company's temporary cash
investments are highly liquid, low-risk debt instruments which
have a maturity of three months or less when acquired and whose
carrying amounts approximate fair value. (Dollars in thousands.)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Cash held in debt service escrow for interest . . $ 12,673 $ -
Receivables, net. . . . . . . . . . . . . . . . . 30,390 (12,618)
Inventories . . . . . . . . . . . . . . . . . . . 61,406 12,188
Prepaid expenses and other. . . . . . . . . . . . 6,274 10,860
Accounts payable. . . . . . . . . . . . . . . . . (30,733) (17,845)
Accrued interest. . . . . . . . . . . . . . . . . (8,413) 4,462
Other accrued expenses. . . . . . . . . . . . . . (8,021) (94)
Income taxes payable. . . . . . . . . . . . . . . - 1,658
Total. . . . . . . . . . . . . . . . . . . . . $ 63,576 $ (1,389)
</TABLE>
<PAGE>
The following table provides information related to cash
interest and income taxes paid by the Company for the periods
indicated (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Interest (net of amount capitalized of $941 (1995)
and $279 (1994)) . . . . . . . . . . . . . . . . . . $33,150 $7,274
Income taxes. . . . . . . . . . . . . . . . . . . . . . 74 -
</TABLE>
Noncash financing activities for the three months ended
March 31, 1995 include $8.6 million of common and preferred stock
dividends declared for the second quarter of 1995.
Note 4
Inventories
Refinery feedstocks and refined products and blendstocks
are carried at the lower of cost or market with cost determined
primarily under the last-in, first-out ("LIFO") method of
inventory pricing. The excess of the replacement cost of such
inventories over their LIFO values was approximately $25 million
at March 31, 1995. Natural gas in underground storage, natural
gas liquids and materials and supplies are carried principally at
weighted average cost not in excess of market. Inventories as of
March 31, 1995 and December 31, 1994 were as follows (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
Refinery feedstocks . . . . . . . . . . . . . . $ 68,170 $ 82,099
Refined products and blendstocks. . . . . . . . 22,885 50,499
Natural gas in underground storage. . . . . . . 11,158 29,678
Natural gas liquids . . . . . . . . . . . . . . 4,491 4,664
Materials and supplies. . . . . . . . . . . . . 13,979 15,149
$120,683 $182,089
</TABLE>
Refinery feedstock and refined product and blendstock
inventory volumes totalled 6.4 million barrels ("MMbbls") and
8.9 MMbbls at March 31, 1995 and December 31, 1994, respectively.
Natural gas inventory volumes totalled approximately 3.4 trillion
British thermal units ("TBtus") and 9.8 TBtus at March 31, 1995
and December 31, 1994, respectively.
<PAGE>
Note 5
Litigation and Contingencies
A lawsuit was filed in November 1994 against various
pipeline owners, including a subsidiary of Energy, arising from
the rupture of several pipelines and fire as a result of severe
flooding of the San Jacinto River in Harris County, Texas on
October 20, 1994. The plaintiffs are property owners in
Highlands, Crosby, Baytown, and McNair, Texas, and surrounding
areas. The plaintiffs allege that the defendant pipeline owners
were negligent and grossly negligent in failing to bury the
pipelines at a proper depth to avoid rupture or explosion and in
allowing the pipelines to leak chemicals and hydrocarbons into
the flooded area. The original plaintiffs and additional
intervening plaintiffs make other similar assertions and seek
certification as a class. The plaintiffs assert claims for
property damage, costs for medical monitoring, personal injury
and nuisance and seek an unspecified amount of actual and
punitive damages.
Energy and certain of its subsidiaries are defendants in a
lawsuit originally filed in January 1993. The lawsuit is based
upon construction work performed by the plaintiff at certain of
the Partnership's gas processing plants in 1991 and 1992. The
plaintiff alleges that it performed work for the defendants for
which it was not compensated. The plaintiff's second amended
petition, filed April 30, 1994, asserts claims for breach of
contract and numerous other contract and tort claims. The
plaintiff alleges actual damages of approximately $9.7 million
and punitive damages of $45.5 million. The defendants have filed
a motion for partial summary judgment to dismiss the plaintiff's
tort claims.
In 1987, Valero Transmission, L.P. ("VT, L.P.") and a
producer from whom VT, L.P. has purchased natural gas entered
into an agreement resolving certain take-or-pay issues between
the parties. Under this agreement, VT, L.P. agreed to pay one-
half of certain excess royalty claims arising after the date of
the agreement. The royalty owners of the producer completed an
audit of the producer and have presented to the producer a claim
for additional royalty payments in the amount of approximately
$17.3 million, approximately one-half of which has accrued since
the effective date of the agreement between VT, L.P. and the
producer. VT, L.P. has received no indication that any lawsuit
has been filed by the royalty owners. The Company believes that
various defenses may reduce or eliminate any liability of VT,
L.P. to the producer in this matter.
Valero Transmission Company ("VTC") and one of its gas
suppliers are parties to various gas purchase contracts assigned
to and assumed by VT, L.P. upon formation of the Partnership in
1987. The supplier is also a party to a series of gas purchase
contracts between the supplier, as buyer, and certain trusts, as
seller. In 1989, the trusts brought suit against the supplier,
alleging breach of various minimum take, take-or-pay and other
contractual provisions, and asserting a statutory nonratability
claim. In the trusts' claims against the supplier, the trusts
seek alleged actual damages, including interest, of approximately
$30 million. Neither VTC nor VT, L.P. was originally a party to
the lawsuit. However, because of the relationship between VTC
and VT, L.P's contracts with the supplier and the supplier's
contracts with the trusts, and in order to resolve existing and
potential disputes, the supplier, VTC and VT, L.P. agreed in
March 1991 to cooperate in the conduct of the litigation, and
agreed that VTC and VT, L.P. will bear a substantial portion of
the costs of any appeal and any nonappealable final judgment
rendered against the supplier. In January 1993, the District
Court ruled on the trusts' motion for summary judgment, finding
that as a matter of law the three gas purchase contracts at issue
were fully binding and enforceable, the supplier breached the
minimum take obligations under one of the contracts, the supplier
is not entitled to claimed offsets for gas purchased by third
parties and the availability of gas for take-or-pay purposes is
established solely by the delivery capacity testing procedures in
the contracts. Damages, if any, were not determined. On
April 15, 1994, the trusts named VTC and VT, L.P. as additional
defendants (the "Valero Defendants") to the lawsuit, alleging
that the Valero Defendants maliciously interfered with the
trusts' contracts with the supplier. In the trusts' claim
against the Valero Defendants, the trusts seek unspecified actual
and punitive damages. The Company believes that the claims
brought by the trusts have been significantly overstated, and
that the supplier and the Valero Defendants have a number of
meritorious defenses to the claims.
A lawsuit was filed against a subsidiary of Energy in June
1994 by certain residents of the Mobile Estate subdivision
located near the Company's specialized petroleum refinery (the
"Refinery") in Corpus Christi, Texas, alleging that air, soil and
water in the subdivision have been contaminated by emissions of
allegedly hazardous chemicals and toxic hydrocarbons produced by
the subsidiary. The plaintiffs' claims include negligence, gross
negligence, strict liability, nuisance and trespass. The
plaintiffs seek certification as a class and an unspecified
amount of damages, based on an alleged diminution in the value of
their property, loss of use and enjoyment of property, emotional
distress and other costs.
Valero Javelina Company, a subsidiary of Energy, owns a 20%
general partner interest in Javelina Company ("Javelina"), a
general partnership that owns a refinery off-gas processing plant
in Corpus Christi. Javelina has been named as a defendant in
seven lawsuits filed since 1992 in state district courts in
Nueces County and Duval County, Texas. Five of the suits include
as defendants other companies that own refineries or other
industrial facilities in Nueces County. These suits were brought
by a number of plaintiffs who reside in neighborhoods near the
facilities. The plaintiffs claim injuries relating to an alleged
exposure to toxic chemicals, and generally claim that the
defendants were negligent, grossly negligent and committed
trespass. The plaintiffs claim personal injury and property
damages resulting from soil and ground water contamination and
air pollution allegedly caused by the operations of the
defendants. One of the suits seeks certification of the
litigation as a class action. The plaintiffs seek unspecified
actual and punitive damages. The other two suits were brought by
plaintiffs who either live or have businesses near the Javelina
plant. The suits allege claims similar to those described above.
These plaintiffs do not specify an amount of damages claimed.
The Company is also a party to additional claims and legal
proceedings arising in the ordinary course of business. The
Company believes it is unlikely that the final outcome of any of
the claims or proceedings to which the Company is a party,
including those described above, would have a material adverse
effect on the Company's financial statements; however, due to the
inherent uncertainty of litigation, the range of possible loss,
if any, cannot be estimated with a reasonable degree of precision
and there can be no assurance that the resolution of any
particular claim or proceeding would not have an adverse effect
on the Company's results of operations for the interim period in
which such resolution occurred.
<PAGE>
VALERO ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACQUISITION OF VNGP, L.P.
As described in Note 2 of Notes to Consolidated Financial
Statements, the Merger of VNGP, L.P. with Energy was consummated
on May 31, 1994. As a result of the Merger, VNGP, L.P. has
become a subsidiary of Energy. The accompanying consolidated
statements of income of the Company for the three months ended
March 31, 1995 and 1994 include 100% of the Partnership's
operations for the first quarter of 1995 and the Company's
approximate 49% effective equity interest in the Partnership's
operations for the first quarter of 1994. Because first quarter
1994 results of operations for the Company's natural gas and
natural gas liquids segments are not comparable to the first
quarter of 1995 due to the Merger, the discussion of these
segments which follows under "Results of Operations - Segment
Results" is based on pro forma operating results for the first
quarter of 1994 that reflect the consolidation of the Partnership
with Energy for all of such period.
<PAGE>
RESULTS OF OPERATIONS
The following are the Company's financial and operating
highlights for the three months ended March 31, 1995 and 1994.
The 1994 amounts of operating revenues and operating income
(loss) by segment have been restated to conform to the 1995
segment presentation. The amounts in the following table are in
thousands of dollars, unless otherwise noted:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
OPERATING REVENUES:
Refining and marketing . . . . . . . . . . . . . . . . . . . . . . . . . $404,181 $247,526
Natural gas <F1>:
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,405 23
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,228 75
Natural gas liquids <F1> . . . . . . . . . . . . . . . . . . . . . . . . 96,503 12,180
Other <F1> . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 21,473
Intersegment eliminations <F1> . . . . . . . . . . . . . . . . . . . . . (43,814) -
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $690,535 $281,277
OPERATING INCOME (LOSS):
Refining and marketing . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,111 $ 28,440
Natural gas <F1> . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,794 (10)
Natural gas liquids <F1> . . . . . . . . . . . . . . . . . . . . . . . . 11,950 1,189
Corporate general and administrative expenses and other, net <F1>. . . . (8,188) (4,041)
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,667 $ 25,578
Equity in earnings (losses) of and income from:
Valero Natural Gas Partners, L.P. <F2> . . . . . . . . . . . . . . . . . $ - $ (2,908)
Joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,869 $ (815)
Interest and debt expense, net . . . . . . . . . . . . . . . . . . . . . . $ 25,135 $ 11,769
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,759 $ 6,283
Net income applicable to common stock. . . . . . . . . . . . . . . . . . . $ 795 $ 5,751
Earnings per share of common stock . . . . . . . . . . . . . . . . . . . . $ .02 $ .13
PRO FORMA OPERATING INCOME (LOSS) <F3>:
Refining and marketing . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,111 $ 28,440
Natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,794 8,164
Natural gas liquids. . . . . . . . . . . . . . . . . . . . . . . . . . . 11,950 1,084
Corporate general and administrative expenses and other, net . . . . . . (8,188) (8,773)
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,667 $ 28,915
OPERATING STATISTICS:
Refining and marketing:
Throughput volumes (Mbbls per day) . . . . . . . . . . . . . . . . . . 149 145
Average throughput margin per barrel . . . . . . . . . . . . . . . . . $ 4.86 $ 6.08
Natural gas <F3>:
Gas volumes (BBtu per day):
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,465 1,290
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,685 1,642
Total gas volumes. . . . . . . . . . . . . . . . . . . . . . . . . 3,150 2,932
Average gas sales price per MMBtu. . . . . . . . . . . . . . . . . . . $ 1.66 $ 2.38
Average gas transportation fee per MMBtu . . . . . . . . . . . . . . . $ .094 $ .114
Natural gas liquids <F3>:
Plant production (Mbbls per day) . . . . . . . . . . . . . . . . . . . 85.4 78.3
Average market price per gallon. . . . . . . . . . . . . . . . . . . . $ .267 $ .252
Average gas cost per MMBtu . . . . . . . . . . . . . . . . . . . . . . $ 1.41 $ 2.05
<FN>
<F1>
Reflects the consolidation of the Partnership commencing June 1, 1994.
<F2>
Represents the Company's approximate 49% effective equity interest in the operations of the Partnership
and interest income on certain capital lease transactions with the Partnership for the 1994 quarter.
<F3>
Operating income (loss) presented herein for the 1994 quarter represents pro forma amounts that reflect
the consolidation of the Partnership with Energy for that period. Operating statistics for the natural
gas and natural gas liquids segments for the 1994 quarter represent pro forma statistics that reflect
such consolidation.
</FN>
</TABLE>
<PAGE>
Consolidated Results
The Company reported net income of $3.8 million, or $.02
per share, for the first quarter of 1995 compared to
$6.3 million, or $.13 per share, for the same period in 1994.
Net income and earnings per share decreased due primarily to a
decrease in operating income from the Company's refining and
marketing operations, partially offset by the inclusion of 100%
of the Partnership's net income for the first quarter of 1995
compared to the Company's approximate 49% equity interest in the
Partnership's net losses recognized in 1994. Earnings per share
were also reduced by an increase in preferred stock dividend
requirements resulting from the issuance in March 1994 of
3.45 million shares of Energy's $3.125 Convertible Preferred
Stock.
Operating revenues increased $409.2 million to
$690.5 million during the first quarter of 1995 compared to the
same period in 1994 due primarily to the inclusion in the 1995
period of operating revenues attributable to Partnership
operations, and to a lesser extent to an increase in operating
revenues from refining and marketing operations which is
explained below under "Segment Results." The increases
attributable to these factors were partially offset by the
recognition in 1994 of management fees received from the
Partnership prior to the Merger.
Operating income increased $3.1 million, or 12%, to
$28.7 million during the first quarter of 1995 compared to the
same period in 1994 due primarily to the inclusion in the 1995
period of Partnership operating income. This increase was offset
to a large extent by a decrease in operating income from refining
and marketing operations which is explained below under "Segment
Results."
As a result of the Merger and the Company's change in the
method of accounting for its investment in the Partnership from
the equity method to the consolidation method, the Company did
not report equity in earnings of and income from the Partnership
for the first quarter of 1995. See "Segment Results" below for a
discussion of the Company's natural gas and natural gas liquids
operations, including 100% of the operations of the Partnership
on a pro forma basis for the first quarter of 1994. Equity in
earnings of joint ventures was $1.9 million for the first quarter
of 1995 compared to equity in losses of $.8 million for the same
period in 1994 due primarily to an increase in the Company's
equity in earnings of Javelina. Javelina's earnings increased
due to higher product prices as a result of strong product demand
from the petrochemical industry.
Net interest and debt expense increased $13.3 million to
$25.1 million during the first quarter of 1995 compared to the
same period in 1994 due primarily to the inclusion in the 1995
period of Partnership interest expense. Income tax expense
decreased $1.3 million to $2.4 million in the first quarter of
1995 compared to the same period in 1994 due primarily to lower
pre-tax income.
Segment Results
Refining and Marketing
Operating revenues from the Company's refining and
marketing operations increased $156.7 million, or 63%, to
$404.2 million during the first quarter of 1995 compared to the
same period in 1994 due primarily to higher purchases for resale
and an 18% increase in the average sales price per barrel. The
increase in purchases for resale was due primarily to purchases
of conventional gasoline to supply rack customers which
previously had been satisfied with barrels produced at the
Refinery. The need to purchase conventional gasoline resulted
from the Company's decision to convert its Refinery operations to
produce virtually all reformulated gasoline ("RFG"). The average
sales price per barrel also increased due primarily to the
Refinery producing virtually all of its gasoline during the 1995
period as higher-valued RFG, which typically sells at a premium
to conventional gasoline.
Operating income from the Company's refining and marketing
operations decreased $13.3 million, or 47%, to $15.1 million
during the first quarter of 1995 compared to the same period in
1994 due primarily to a decrease in throughput margins resulting
from lower margins between conventional refined product prices
and crude oil (approximately $15 million), narrower discounts for
the Company's residual oil ("resid") feedstocks (approximately
$6 million), and the impact of various Refinery unit turnarounds
and downtimes which occurred during the first quarter of 1995
(approximately $7 million), which more than offset higher margins
on sales of RFG and other premium products (approximately
$14 million). As a result of the above factors, the Refinery's
average throughput margin per barrel, before operating expenses
and depreciation expense, decreased from $6.08 in the first
quarter of 1994 to $4.86 in the first quarter of 1995. Operating
expenses and depreciation expense for the first quarter of 1995
were basically unchanged from the same period in 1994. Operating
expenses per barrel decreased, however, due to a 3% increase in
throughput volumes.
Natural Gas
Operating income from the Company's natural gas operations
was $9.8 million for the first quarter of 1995 compared to pro
forma operating income of $8.2 million for the same period in
1994. The $1.6 million, or 20% increase was due primarily to a
$3.6 million benefit from the nonrecurrence of certain
settlements which adversely affected operating income in the
first quarter of 1994 and a $2 million decrease in selling and
administrative expenses resulting from a decrease in legal fees
and other expenses. The increases in operating income
attributable to these factors were partially offset by a
$2.6 million decrease in transportation revenues due
to an 18% decrease in average transportation fees and
lower gas sales margins ($.8 million). Both transportation
fees and sales margins were adversely affected by warmer weather
and higher natural gas storage inventories in the first quarter
of 1995, resulting in intense competition for market share.
The adverse effect on gas sales margins from the factors noted
above was partially offset by reductions in gas costs resulting
from hedging activities and a 14% increase in gas sales volumes,
primarily lower-margin spot market sales.
Natural Gas Liquids
Operating income from the Company's NGL operations was
$12 million for the first quarter of 1995 compared to pro forma
operating income of $1.1 million for the same period in 1994. The
$10.9 million increase was due primarily to an increase in NGL
margins ($6.5 million), a 9% increase in NGL production volumes
($2.1 million), a decrease in transportation and fractionation
costs ($1.3 million) and a decrease in operating expenses
($.6 million). NGL margins increased due to a 6% increase in
the average NGL market price resulting from higher refined
product prices and strong demand for NGLs by the petrochemical
and refining industries, and to a decrease in fuel and
shrinkage costs resulting from a 31% decrease in the average
cost of natural gas. Average natural gas costs decreased due to
the factors affecting gas sales margins noted above under
"Natural Gas." NGL production volumes increased due to the
addition of new natural gas supplies under processing agreements
with natural gas producers and to operational improvements and
production enhancements at certain of the Company's NGL plants.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by the Company's operating activities
totalled $94.3 million during the first quarter of 1995 compared
to $31.4 million during the same period in 1994. The increase in
1995 from 1994 was due primarily to a decrease in working capital
requirements primarily attributable to a reduction in refining
and natural gas inventory levels in the 1995 quarter. Refining
inventory levels decreased due to both changes in volumes
available under feedstock contracts and higher-than-normal
refined product inventory levels at the end of 1994 attributable
to the implementation of the new reformulated gasoline
regulations. Natural gas inventories declined due to seasonal
drawdowns of storage inventories which are not reflected in the
1994 quarter due to not consolidating the Partnership until
June 1, 1994. During the 1995 period, the Company utilized the
cash provided by its operating activities, proceeds from the
issuance of medium-term notes ("Medium-Term Notes"), short-term
bank borrowings, and a portion of its existing cash balances to
fund capital expenditures and deferred turnaround and catalyst
costs, to reduce borrowings under its revolving bank credit and
letter of credit facility, to repay principal on certain
outstanding nonbank debt, including Valero Management
Partnership, L.P.'s (the "Management Partnership") First Mortgage
Notes (the "First Mortgage Notes"), and to pay common and
preferred stock dividends.
In the first quarter of 1995, the Securities and Exchange
Commission (the "Commission") declared effective Energy's shelf
registration statement to offer up to $250 million principal
amount of additional debt securities, including Medium-Term
Notes, $6.5 million of which had been issued through April 30,
1995. The net proceeds from this offering will be added to the
Company's funds and used for general corporate purposes,
including the repayment of existing indebtedness, financing of
capital projects and additions to working capital.
Energy currently maintains an unsecured $250 million
revolving bank credit and letter of credit facility. Energy also
has $130 million of unsecured short-term bank credit lines which
are uncommitted and unrestricted as to use, $10 million of which
was outstanding at March 31, 1995. Under the terms of Energy's
$250 million credit facility, total borrowings under these short-
term credit lines are limited to $100 million and any amounts
outstanding under such short-term lines automatically reduce the
availability under the $250 million credit facility. As of
March 31, 1995, Energy had approximately $115.3 million available
under its $250 million credit facility for additional borrowings
and letters of credit.
Energy's revolving bank credit and letter of credit
facility (which is the most restrictive of the Company's various
financing agreements) contains covenants limiting Energy's
ability to make certain "restricted payments," including dividend
payments on and purchases, redemptions or exchanges of its
capital stock, to make certain "restricted disbursements,"
including the restricted payments described above plus capital
expenditures and certain capital investments, and to make
advances and capital contributions to the Partnership. In
February 1995, the bank credit facility was amended to, among
other things, increase by $50 million through December 31, 1995,
the amount of "restricted disbursements" payable by Energy. The
facility also contains covenants that require Energy to maintain
a minimum consolidated net worth and also contains various
financial tests including debt-to-capitalization, working
capital, fixed charge and earnings coverage ratios. Under the
most restrictive of such covenants, Energy had the ability to pay
approximately $29 million in common and preferred stock dividends
and other "restricted payments" at March 31, 1995.
The Company's long-term debt also includes the Management
Partnership's First Mortgage Notes which were assumed by the
Company in connection with the Merger, $476.1 million of which
was outstanding at March 31, 1995. The indenture of mortgage and
deed of trust pursuant to which the First Mortgage Notes were
issued (the "Mortgage Indenture") also contains various
restrictive covenants. The Company was in compliance with all
covenants contained in its various debt facilities as of
March 31, 1995.
During the first quarter of 1995, the Company expended
approximately $59 million for capital investments, including
capital expenditures, deferred turnaround and catalyst costs, and
investments in and advances to joint ventures. Of this amount,
$50 million related to refining and marketing operations
including $28 million for turnarounds of the Refinery's
hydrodesulfurization, hydrocracker and reformer units, while
$7 million related to natural gas and NGL operations. Also
included in the refining and marketing amount was $18 million for
renovation of a methanol plant located in Clear Lake, Texas. The
remaining $42 million of the Company's total commitment for the
plant renovation is expected to be paid in the second quarter of
1995. For total year 1995, the Company currently expects to
spend approximately $160 million for capital expenditures,
deferred turnaround and catalyst costs, and investments and
related expenditures, including payments related to the methanol
plant renovation discussed above.
The Company believes it has sufficient funds from
operations, and to the extent necessary, from the public and
private capital markets and bank market, to fund its ongoing
operating requirements. The Company expects that it will raise
additional funds from time to time through equity or debt
financings, including borrowings under bank credit agreements;
however, except for Medium-Term Notes or other debt securities
that may be issued from time to time under the $250 million shelf
registration statement discussed above, the Company has no
specific financing plans as of the date hereof.
<PAGE>
PART II OTHER INFORMATION
Item 5. Other Information
On April 28, 1995, the United States Court of Appeals for
the District of Columbia Circuit struck down a controversial
renewable oxygenate regulation issued in June 1994
by the Environmental Protection Agency ("EPA") under the Clean
Air Act. The regulation could have required 30 percent of the
oxygenates used in RFG to originate from renewable sources,
primarily ethanol. The American Petroleum Institute and National
Petroleum Refiners Association challenged the EPA's authority to
promulgate the renewable oxygenate regulation. The Court of
Appeals concluded that the EPA improperly interpreted provisions
of the Clean Air Act as giving the agency power to adopt a
renewable oxygenate mandate in the RFG program.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Valero Energy Corporation Executive Stock Incentive
Plan.
10.2 Employment Agreement between Valero Energy
Corporation and F. Joseph Becraft, dated May 1,
1995.
10.3 Schedule of Executive Severance Agreements.
10.4 Schedule of Indemnity Agreements.
11.1 Computation of Earnings Per Share.
27.1* Financial Data Schedule.
__________
* The Financial Data Schedule shall not be deemed
"filed" for purposes of Section 11 of the Securities
Act of 1933 or Section 18 of the Securities Act of
1934, and is included as an exhibit only to the
electronic filing of this Form 10-Q in accordance
with Item 601(c) of Regulation S-K and Section 401
of Regulation S-T.
Pursuant to subparagraph 601(b)(4)(iii)(A) of
Regulation S-K, the registrant has omitted from the foregoing
list of exhibits, and hereby agrees to furnish to the Commission
upon its request, copies of certain instruments, each relating to
long-term debt not exceeding 10 percent of the total assets of
the registrant and its subsidiaries on a consolidated basis.
(b) Reports on Form 8-K.
(i) A report on Form 8-K dated March 13, 1995, was filed
electronically on March 15, 1995, reporting Item 5. Other Events
and Item 7. Financial Statements and Exhibits, in connection with
the execution of a Distribution Agreement dated March 13, 1995 by
and among the Company, Lehman Brothers Inc., Salomon Brothers
Inc, and BT Securities Corporation providing for the issuance
from time to time of the Company's Medium-Term Notes. A shelf
registration statement for up to $250,000,000 aggregate principal
amount of the Company's debt securities, including Medium-Term
Notes, was declared effective by the Commission on February 22,
1995. No financial statements were filed with this report.
(ii) An amended report on Form 8-K/A dated May 31, 1994,
was filed electronically on February 9, 1995, reporting Item 7.
Financial Statements and Exhibits, to amend certain pro forma
information of the Company in connection with the May 31, 1994
merger of Valero Natural Gas Partners, L.P. with a wholly owned
subsidiary of the Company. The following pro forma information
of the Company was filed with this amended report:
Pro Forma Condensed Consolidated Balance Sheet --
March 31, 1994
Pro Forma Consolidated Statement of Income --
For the Three Months Ended March 31, 1994
Pro Forma Consolidated Statement of Income --
For the Year Ended December 31, 1993
Notes to Pro Forma Condensed Consolidated
Financial Statements
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VALERO ENERGY CORPORATION
(Registrant)
By: /s/ Don M. Heep
Don M. Heep
Senior Vice President and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
Date: May 12, 1995
Appendix A
VALERO ENERGY CORPORATION
EXECUTIVE STOCK INCENTIVE PLAN
Table of Contents
SECTION 1. Purpose. . . . . . . . . . . . . . . . . . . .
SECTION 2. Definitions. . . . . . . . . . . . . . . . . .
SECTION 3. Administration . . . . . . . . . . . . . . . .
SECTION 4. Shares Available For Awards. . . . . . . . . .
Shares Available. . . . . . . . . . . . . . . . . . .
Sources of Shares Deliverable Under Awards. . . . . .
Adjustments . . . . . . . . . . . . . . . . . . . . .
Share Counting. . . . . . . . . . . . . . . . . . . .
SECTION 5. Eligibility. . . . . . . . . . . . . . . . . .
SECTION 6. Awards . . . . . . . . . . . . . . . . . . . .
Options . . . . . . . . . . . . . . . . . . . . . . .
Exercise Price . . . . . . . . . . . . . . . . .
Incentive Stock Options. . . . . . . . . . . . .
Stock Appreciation Rights . . . . . . . . . . . . . .
Grant Price. . . . . . . . . . . . . . . . . . .
Other Terms and Conditions . . . . . . . . . . .
Restricted Stock. . . . . . . . . . . . . . . . . . .
Dividends. . . . . . . . . . . . . . . . . . . .
Registration . . . . . . . . . . . . . . . . . .
Forfeiture . . . . . . . . . . . . . . . . . . .
Performance Awards. . . . . . . . . . . . . . . . . .
Terms and Conditions . . . . . . . . . . . . . .
Payment of Performance Awards. . . . . . . . . .
Stock Compensation. . . . . . . . . . . . . . . . . .
Other Stock-Based Awards. . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . .
Grants . . . . . . . . . . . . . . . . . . . . .
Forms of Payment by Company. . . . . . . . . . .
Limits on Transfer . . . . . . . . . . . . . . .
Term of Awards . . . . . . . . . . . . . . . . .
Share Certificates . . . . . . . . . . . . . . .
Delivery of Shares or other Securities and
Payment by Participant of Consideration . . .
Termination of Employment. . . . . . . . . . . .
Award Agreements . . . . . . . . . . . . . . . .
Exercise of Option or SAR Awards. . . . . . . . . . .
Notice . . . . . . . . . . . . . . . . . . . . .
Payment. . . . . . . . . . . . . . . . . . . . .
Tax Payment Election . . . . . . . . . . . . . .
Payment with Stock . . . . . . . . . . . . . . .
Valuation. . . . . . . . . . . . . . . . . . . .
Rights as Stockholder. . . . . . . . . . . . . .
SECTION 7. Amendment and Termination. . . . . . . . . . .
Amendments to the Plan. . . . . . . . . . . . . . . .
Amendments to Awards. . . . . . . . . . . . . . . . .
Unusual or Nonrecurring Events. . . . . . . . . . . .
SECTION 8. Change Of Control. . . . . . . . . . . . . . .
Nonacceleration . . . . . . . . . . . . . . . . . . .
Effect. . . . . . . . . . . . . . . . . . . . . . . .
Defined . . . . . . . . . . . . . . . . . . . . . . .
SECTION 9. General Provisions . . . . . . . . . . . . . .
No Rights to Awards . . . . . . . . . . . . . . . . .
Delegation. . . . . . . . . . . . . . . . . . . . . .
Withholding . . . . . . . . . . . . . . . . . . . . .
No Limit on Other Compensation Arrangements . . . . .
No Right to Employment. . . . . . . . . . . . . . . .
Governing Law . . . . . . . . . . . . . . . . . . . .
Severability. . . . . . . . . . . . . . . . . . . . .
Other Laws. . . . . . . . . . . . . . . . . . . . . .
No Trust or Fund Created. . . . . . . . . . . . . . .
No Fractional Shares. . . . . . . . . . . . . . . . .
Headings. . . . . . . . . . . . . . . . . . . . . . .
Construction. . . . . . . . . . . . . . . . . . . . .
SECTION 10. Effective Date of the Plan. . . . . . . . . .
SECTION 11. Term of the Plan. . . . . . . . . . . . . . .
<PAGE>
VALERO ENERGY CORPORATION
EXECUTIVE STOCK INCENTIVE PLAN
SECTION 1. Purpose.
The purposes of the Valero Energy Corporation Executive Stock
Incentive Plan (the "Plan") are to promote the interests of
Valero Energy Corporation (together with any successor thereto,
the "Company") and its stockholders by (i) attracting and
retaining executive personnel and other key employees of the
Company and its affiliates; (ii) motivating these employees by
using performance-related incentives to achieve longer range
performance goals; and (iii) enabling these employees to
participate in the long-term growth and financial success of the
Company.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings
set forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or
through one or more intermediaries, is controlled by the Company
and (ii) any entity in which the Company has a significant equity
interest, as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Performance Award, Stock Compensation Award or
Other Stock-Based Award.
(c) "Award Agreement" shall mean any written agreement,
contract, or other instrument or document evidencing any Award,
which may, but need not, be executed or acknowledged by a
Participant.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Change of Control" is defined in Section 8(b) of the Plan.
(f) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(g) "Committee" or "Compensation Committee" shall mean the
Compensation Committee of the Board as further described in
Section 3 of the Plan.
(h) "Employee" shall mean any employee of the Company or of any
Affiliate.
(i) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(j) "Exercise Notice" is defined in Section 6(h) of the Plan.
(k) "Fair Market Value" shall mean the average of the "high" and
"low" reported sales price per Share (as reported in the New York
Stock Exchange - Composite Transactions listing) as of the
relevant measuring date, or if there are no sales on the New York
Stock Exchange on that measuring date, then as of the next
following day on which there were sales.
(l) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the
requirements of Section 422 of the Code or any successor
provision thereto.
(m) "Non-Qualified Stock Option" shall mean an option granted
under Section 6(a) of the Plan that is not intended to be an
Incentive Stock Option.
(n) "Notice Date" is defined in Section 6(h) of the Plan.
(o) "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option.
(p) "Other Stock-Based Award" shall mean any right granted under
Section 6(f) of the Plan.
(q) "Participant" shall mean any Employee granted an Award under
the Plan.
(r) "Performance Award" shall mean any right granted under
Section 6(d) of the Plan.
(s) "Person" shall mean any individual, corporation,
partnership, association, joint-stock company, trust,
unincorporated organization, government or political subdivision
thereof or other entity.
(t) "Restricted Stock" shall mean any Share, prior to the lapse
of restrictions thereon, granted under Section 6(c) of the Plan.
(u) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC
under the Exchange Act, or any successor rule or regulation
thereto as in effect from time to time.
(v) "SAR" or "stock appreciation right" shall mean the right,
subject to the provisions of this Plan, to receive a payment in
cash equal to the difference between the specified exercise price
of the SAR and the Fair Market Value of one share of the Common
Stock.
(w) "SEC" shall mean the Securities and Exchange Commission, or
any successor thereto.
(x) "Settlement Date" is defined in Section 6(h) of the Plan.
(y) "Share" or "Shares" shall mean the common stock of the
Company, $1.00 par value, and other securities or property that
may become the subject of Awards or become subject to Awards
pursuant to an adjustment made under Section 4(b) of the Plan.
(z) "Stock Compensation" shall mean any right granted under
Section 6(e) of the Plan.
(aa) "Tax Payment" is defined in Section 6(h) of the Plan.
SECTION 3. Administration.
The Plan shall be administered by a committee of not less than
three directors of the Company, which Committee shall be, except
as hereinafter set forth, the Compensation Committee. In the
event the Compensation Committee shall have fewer than three
members, or if fewer than three members of the Compensation
Committee shall be eligible to act with respect to this Plan,
then additional members of the Board of Directors shall be
appointed by the Board to act with and as a part of the
Compensation Committee for purposes of administering this Plan so
that the committee administering this Plan shall consist of at
least three members of the Board of Directors. No person shall
serve on or act as a member of the committee administering this
Plan who would be ineligible to serve on the Committee under Rule
16b-3. Subject to the terms of the Plan and applicable law, and
in addition to other express powers and authorizations conferred
on the Committee by the Plan, the Committee shall have full power
and authority to:
(a) designate Participants;
(b) determine the type or types of Awards to be granted to an
eligible Employee;
(c) determine the number of Shares to be covered by, or with
respect to which payments, rights, or other matters are to be
calculated in connection with, Awards;
(d) determine the terms and conditions of any Award and any
subsequent amendments thereto;
(e) determine to what extent and under what circumstances Awards
may be settled or exercised in cash, Shares, other securities,
other Awards or other property, or cancelled, forfeited, or
suspended, and the method or methods by which Awards may be
settled, exercised, cancelled, forfeited, or suspended;
(f) determine to what extent and under what circumstances any
amount payable (in whatever form) with respect to an Award may be
deferred either automatically or at the election of the holder
thereof or the Committee;
(g) provide for the acceleration of any time period relating to
the vesting, exercise or realization of any Award so that the
Award may be exercised or realized in full on or before a date
fixed by the Committee; the Committee may, in its discretion,
include other provisions and limitations in any Award Agreement
as the Committee may deem equitable and in the best interests of
the Company;
(h) interpret and administer the Plan and any instrument or
agreement relating to the Plan, including Award Agreements.
(i) establish, amend, suspend, or waive any rules or regulations
regarding the Plan, and appoint any agent the Committee shall
deem appropriate for the proper administration of the Plan; and
(j) make any other determination and take any other action that
the Committee deems necessary or desirable for the administration
of the Plan. Unless otherwise expressly provided in the Plan,
all designations, determinations, interpretations, and other
decisions with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time,
and shall be final, conclusive, and binding upon all Persons,
including the Company, any Affiliate, any Participant, any holder
or beneficiary of any Award, any stockholder of the Company and
any Employee.
SECTION 4. Shares Available For Awards.
(a) Shares Available. Subject to adjustment as provided in
Section 4(c), the number of Shares with respect to which Awards
may be granted under the Plan shall be 2,100,000. No more than
750,000 of the Shares available for Awards shall be issued as
Restricted Stock. The maximum aggregate number of Shares
available for Options and SARs to any one Participant during any
twelve-month period is equal to 500,000 or any lesser amount that
will enable the Company to comply with the deductibility
requirements of Section 162(m) of the Code and the rules
promulgated thereunder as determined by the Committee.
(b) Sources of Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist, in whole or in part,
of authorized and unissued Shares or treasury Shares.
(c) Adjustments. In the event that the Committee determines
that any dividend or distribution (whether in the form of cash,
Shares, other securities, or other property), recapitalization,
stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase,
exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction
or event affects the Shares so that an adjustment is determined
by the Committee to be appropriate in order to prevent dilution
or enlargement of the benefits or potential benefits intended to
be made available under the Plan, then the Committee shall
adjust, in such manner as it may deem equitable (i) any or all of
the number and type of Shares (or other securities or property)
with respect to which Awards may be granted, (ii) any or all of
the number and type of Shares (or other securities or property)
subject to outstanding Awards, and/or (iii) the grant or exercise
price with respect to any Award or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding
Award; provided in each case that with respect to Awards of
Incentive Stock Options and Awards intended to qualify as
performance-based compensation under Section 162(m)(4)(C) of the
Code, no adjustment shall be authorized to the extent that the
adjustment would cause the Plan to violate Section 422(b)(1) of
the Code or would cause any part of the Award to fail to qualify
under Section 162(m) of the Code, as the case may be, or any
successor provisions thereto; and provided further, that the
number of Shares subject to any Award denominated in Shares shall
always be a whole number.
(d) Share Counting. For purposes of determining at any time the
number of Shares that remain available for grant under this Plan,
the number of Shares then authorized pursuant to Section 4 of the
Plan shall be (i) decreased by the "gross" number of Shares
issued pursuant to exercised Awards, (ii) decreased by the
"gross" number of Shares issuable pursuant to outstanding
unexercised Awards, and (iii) increased by the difference between
the "gross" number of Shares and the "net" number of Shares
issued pursuant to exercised Awards. As used herein, the "gross"
number of Shares refers to the maximum number of Shares that may
be issued upon the exercise of an Award. The "net" number of
Shares refers to the net number of Shares actually issued to an
Award holder upon exercise of an Award, after reducing the
"gross" number of Shares by the number of Shares tendered back to
the Company in payment of the Award's exercise price or for the
satisfaction of any Tax Payment obligation. If a Participant
shall forfeit, voluntarily surrender or otherwise permanently
lose his or her right to exercise an Award under any provision of
this Plan or otherwise, or if any Award shall terminate or expire
pursuant to its terms, the Shares subject to the Award shall once
again be available to be awarded and sold under this Plan
pursuant to a new Award granted hereunder.
SECTION 5. Eligibility.
Any Employee who is not a member of the Committee, including any
officer or employee-director of the Company or any affiliate,
shall be eligible to be designated a Participant.
SECTION 6. Awards.
(a) Options. In determining that an eligible Employee shall be
granted an Option, the Committee shall determine, subject to the
provisions of the Plan, the number of Shares to be covered by
each Option, the purchase price therefor and the conditions and
limitations applicable to the exercise of the Option, including
the following terms and conditions and any additional terms and
conditions not inconsistent with the provisions of the Plan as
the Committee shall determine.
(i) Exercise Price. The purchase price per Share
purchasable under an Option shall be determined by the Committee
at the time each Option is granted; provided, that the purchase
price per Share shall not be less than 100% of Fair Market Value
on the date of grant.
(ii) Incentive Stock Options. The terms of any Incentive
Stock Option granted under the Plan shall comply in all respects
with the provisions of Section 422 of the Code, or any successor
provision, and any regulations promulgated thereunder.
(b) Stock Appreciation Rights. Subject to the provisions of the
Plan, in determining the Employees to whom SARs shall be granted,
the Committee shall determine the number of Shares to be covered
by each SAR Award, the grant price thereof and the conditions and
limitations applicable to the exercise thereof. SAR Awards shall
be payable in cash only and may be granted in tandem with another
Award, in addition to another Award, or freestanding and
unrelated to another Award. SARs granted in tandem with or in
addition to another Award may be granted either at the same time
as the other Award or at a later time.
(i) Grant Price. The grant price of an SAR shall be
determined by the Committee.
(ii) Other Terms and Conditions. Subject to the terms of
the Plan and any applicable Award Agreement, the Committee shall
determine, at or after the grant of an SAR, the term, methods of
exercise, and any other terms and conditions of any SAR; provided
that the Committee may not grant an SAR to any Participant
subject to Section 16 of the Exchange Act that is exercisable
earlier than six months from the date of its grant.
(c) Restricted Stock. Subject to the provisions of the Plan, in
determining the Employees to whom Restricted Stock shall be
granted, the Committee shall determine the number of Shares of
Restricted Stock to be granted to each Participant, the duration
of the restriction period during which, and the conditions under
which, the Restricted Stock may be forfeited to the Company, and
the other terms and conditions of the Awards.
(i) Dividends. Unless otherwise determined by the
Committee, a Restricted Stock Award shall provide for the payment
of dividends during its restriction period. Dividends paid on
Restricted Stock may be paid directly to the Participant, may be
subject to risk of forfeiture, and may be subject to transfer
restrictions during any period established by the Committee, all
as determined by the Committee in its discretion.
(ii) Registration. Any Restricted Stock may be evidenced in
any manner deemed appropriate by the Committee, including
book-entry registration or the issuance of stock certificates.
If any stock certificate is issued with respect to Restricted
Stock, the certificate shall be registered in the name of the
Participant and may bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to the Restricted
Stock.
(iii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of a Participant's employment (as
determined under criteria established by the Committee) for any
reason during the applicable restriction period, all Restricted
Stock shall be forfeited by the Participant to the Company
without compensation therefor. However, when the Committee finds
that a waiver would be in the best interests of the Company, the
Committee may waive in whole or in part any or all remaining
restrictions with respect to the Restricted Stock held by the
Participant whose employment is terminating. Unrestricted
Shares, evidenced in any manner as the Committee shall deem
appropriate, shall be issued to the holder of Restricted Stock
promptly after the applicable restrictions have lapsed or
otherwise have been satisfied.
(d) Performance Awards. The Committee shall have authority to
determine the Employees who may receive a Performance Award,
which shall consist of a right, (A) denominated or payable in
cash, Shares, other securities or other property (including
Restricted Stock), and (B) that shall confer on the holder
thereof, rights valued at an amount determined by the Committee
and payable to or exercisable by the holder thereof, in whole or
in part, upon the achievement of prescribed performance goals
during prescribed performance periods as the Committee shall
establish.
(i) Terms and Conditions. Subject to the terms of the Plan
and any applicable Award Agreement, the Committee shall determine
the performance goals to be achieved during any performance
period, the length of any performance period, the amount of any
Performance Award and the amount of any payment or transfer to be
made pursuant to any Performance Award.
(ii) Payment of Performance Awards. Performance Awards may
be paid in a lump sum or in installments following the close of
the performance period or, in accordance with procedures
established by the Committee, on a deferred basis.
(e) Stock Compensation. The Committee shall have authority to
pay in Shares all or any portion of the amounts payable under any
compensation program of the Company. The number and type of
Shares to be distributed in lieu of the cash compensation
applicable to any Award, as well as the terms and conditions of
any bonus awards, shall be determined by the Committee.
(f) Other Stock-Based Awards. The Committee is hereby
authorized to grant to eligible Employees an "Other Stock-Based
Award", which shall consist of a right
(i) that is not an Award or right described in Section
6(a), (b), (c), (d), or (e) above and
(ii) that is denominated or payable in, valued in whole or
in part by reference to, or otherwise based on or related to,
Shares (including securities convertible into Shares), as are
deemed by the Committee to be consistent with the purposes of the
Plan; provided, that any such rights must comply, to the extent
deemed desirable by the Committee, with Rule 16b-3 and applicable
law. Subject to the terms of the Plan and any applicable Award
Agreement, the Committee shall determine the terms and conditions
of any Other Stock-Based Award.
(g) General.
(i) Grants. Awards may be granted, in the discretion of
the Committee, either alone or in addition to, in tandem with, or
in substitution for any other Award granted under the Plan or any
award granted under any other plan of the Company or any
Affiliate. Awards granted in addition to or in tandem with other
Awards or awards granted under any other plan of the Company or
any Affiliate may be granted either at the same time as or at a
different time from the grant of other Awards or awards. The
Committee may authorize the grant of Awards prior to stockholder
approval of the Plan, but any Award granted by the Committee
shall be contingent upon stockholder approval of the Plan.
(ii) Forms of Payment by Company. Subject to the terms of
the Plan and of any applicable Award Agreement, payments or
transfers to be made by the Company or an Affiliate upon the
grant, exercise or payment of an Award may be made in any form as
the Committee shall determine, including cash, Shares, other
securities, other Awards or other property, or any combination
thereof, and may be made in a single payment or transfer, in
installments, or on a deferred basis, in each case in accordance
with rules and procedures established by the Committee. These
rules and procedures may include, without limitation, provisions
for the payment or crediting of reasonable interest on
installment or deferred payments.
(iii) Limits on Transfer.
(A) Each Award, and each right under any Award, shall
be exercisable only by the Participant during the Participant's
lifetime, or if permissible under applicable law, by the
Participant's beneficiary or by an immediate family member as a
transferee receiving the Award pursuant to a gift if the transfer
is permitted under the terms of the Award Agreement.
(B) No Award and no right under any Award may be
assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by a Participant otherwise than as
provided in Paragraph (A) above or by will or by the laws of
descent and distribution and any purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance
shall be void and unenforceable against the Company or any
Affiliate.
(iv) Term of Awards. The term of each Award shall be for
the period determined by the Committee; provided, that in no
event shall the term of any Incentive Stock Option exceed a
period of ten years from the date of its grant.
(v) Share Certificates. All certificates for Shares or
other securities of the Company or any Affiliate delivered under
the Plan pursuant to any Award or the exercise thereof shall be
subject to all stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan; the rules,
regulations, and other requirements of the SEC, and any stock
exchange upon which the Shares or other securities are then
listed; and any applicable federal or state laws. The Committee
may cause a legend or legends to be put on any stock certificates
to make appropriate reference to applicable restrictions.
(vi) Delivery of Shares or other Securities and Payment by
Participant of Consideration. No Shares or other securities
shall be delivered pursuant to any Award until payment in full of
any amount required to be paid pursuant to the Plan or the
applicable Award Agreement is received by the Company. Payment
may be made in any form or method prescribed by the Committee,
including cash, Shares, other securities, other Awards or other
property, or any combination thereof; provided that the combined
value, as determined by the Committee, of all cash and cash
equivalents and the Fair Market Value of any Shares or other
property tendered to the Company as of the date of such tender,
is at least equal to the full amount required to be paid.
(vii) Termination of Employment. Except as otherwise
provided in the Plan, or otherwise determined by the Committee on
the date of grant and included in the Award Agreement, an Award
vests to and/or may be exercised by a Participant only while the
Participant is and has continually been since the date of the
grant of the Award an Employee. If a Participant's employment
with the Company is voluntarily terminated by the Participant
(other than through retirement, death or disability), then all
unexercised Awards previously granted to that Participant under
the Plan shall lapse automatically and be forfeited 30 days
following the date of the Participant's termination of
employment. If a Participant's employment is terminated by the
Company other than for "cause" (as determined by the Company),
then all unexercised Awards previously granted to the Participant
shall lapse and be forfeited by the Participant 90 days after
termination of employment.
If a Participant's employment is terminated because of
retirement, death or total and permanent disability (with the
determination of disability to be made within the sole discretion
of the Committee), any unexercised Award held by the Participant
shall remain outstanding according to the Award's original terms
or the Committee may prescribe new or additional terms not
inconsistent with the terms of the Plan for the vesting, exercise
or realization of the Award. Absent any determination by the
Committee to the contrary, any unexercised Award held by a
Participant whose employment is terminated because of retirement,
death or disability shall vest or become exercisable according to
the Award's original terms.
(viii) Award Agreements. Awards shall be evidenced by
Award Agreements having terms and conditions, not inconsistent
with the Plan, as prescribed by the Committee. Award Agreements
need not be uniform.
(h) Exercise of Option or SAR Awards.
(i) Notice. Unless otherwise prescribed by the Committee,
Awards may be exercised only by written notice of exercise (the
"Exercise Notice"), in the form prescribed by the Committee,
delivered to the Company to the Financial Benefit Plan
Administration Manager, and signed by the Participant, other
person acting on behalf of the Participant or transferee being
entitled to exercise the same. The date on which the Exercise
Notice is delivered to the Company shall be the "Notice Date."
The Exercise Notice shall specify a date (the "Settlement Date"),
not less than five business days nor more than ten business days
following the Notice Date, upon which the Shares or other rights
shall be issued or transferred to the Participant (or other
person entitled to exercise the Award) and the Award's exercise
price shall be paid to the Company.
(ii) Payment. Unless otherwise prescribed by the Committee,
on the Settlement Date, the person exercising an Award shall
tender to the Company full payment for the Shares or other rights
with respect to which the Award is exercised, together with an
additional amount, in cash, certified check, cashier's check or
bank draft approved by Valero, equal to the amount of any taxes
required to be collected or withheld by the Company in connection
with the exercise of the Award (the "Tax Payment").
(iii) Tax Payment Election. Subject to the approval of
the Committee, and to any rules and limitations as the Committee
may adopt, a person exercising an Award may make the Tax Payment
in whole or in part by electing, at or before the time of
exercise of the Award, either (a) to have the Company withhold
from the number of Shares otherwise deliverable a number of
Shares whose Fair Market Value equals the Tax Payment, or (b) to
deliver certificates for other Shares owned by the person
exercising the Award, endorsed in blank with appropriate
signature guarantee, having a Fair Market Value equal to the
amount otherwise to be collected or withheld. Following any
election to withhold Shares or deliver other Shares to make a Tax
Payment, the Committee shall have sole discretion to approve or
disapprove the election at any time prior to the Settlement Date.
If the election is disapproved, the Tax Payment shall be made in
cash, or in any combination of cash and Shares as the Committee
may direct. If the Committee shall fail to disapprove the
election prior to the Settlement Date, the election will be
deemed approved.
(iv) Payment with Stock. Subject to approval by the
Committee, a person exercising an Award for the receipt of Shares
may pay for the Shares by tendering to the Company other Shares
legally and beneficially owned by that person at the time of the
exercise of the Award. If approved by the Committee, this method
of exercise may include use of a procedure whereby a person
exercising an Award may request that Shares received upon
exercise of a portion of an Award be automatically applied to
satisfy the exercise price for additional and increasingly larger
portions of the Award. The certificate(s) representing any
Shares tendered in payment of an Award's exercise price must be
accompanied by a stock power duly executed with appropriate
signature guarantees. The Committee may, in its sole discretion,
refuse any tender of Shares in which case the Company shall
promptly redeliver the Shares to the person exercising the Award
and notify the person of the refusal as soon as practicable. In
this event, the person may either (a) tender to the Company on
the Settlement Date the cash amount required to pay for the
Award's Shares, or (b) rescind the Exercise Notice. If the
person elects to rescind his or her Exercise Notice, the person
may again (subject to the other terms of this Plan) deliver an
Exercise Notice with respect to the Award at any time prior to
its expiration date.
(v) Valuation. Any calculation with respect to a
Participant's income, required tax withholding or other matters
required to be made by the Company upon the exercise of an Award
shall be made using the Fair Market Value of the Shares on the
Notice Date, whether or not the Exercise Notice is delivered to
the Company before or after the close of trading on that date,
unless otherwise specified by the Committee.
(vi) Rights as Stockholder. Except as provided in Section
6(c) of this Plan, until the issuance of the stock certificate(s)
for Shares purchased hereunder (as evidenced by the appropriate
entry on the books of the Company or any authorized transfer
agent of the Company), no right to vote or receive dividends or
any other rights as a stockholder of the Company shall exist with
respect to such Shares, notwithstanding the exercise of any
Award. No adjustment will be made for a dividend or other rights
for which the record date is prior to the date the stock
certificates evidencing such Shares are issued, except as
otherwise provided in this Plan.
SECTION 7. Amendment and Termination.
Except to the extent prohibited by applicable law and unless
otherwise expressly provided in an Award Agreement or in the
Plan:
(a) Amendments to the Plan. The Board may amend, alter,
suspend, discontinue, or terminate the Plan without the consent
of any stockholder, Participant, other holder or beneficiary of
an Award, or other Person; provided that notwithstanding any
other provision of the Plan or any Award Agreement, without the
approval of the stockholders of the Company no amendment,
alteration, suspension, discontinuation, or termination may be
made that would:
(i) materially increase the total number of Shares
available for Awards under the Plan (except as provided in
Section 4) or materially increase the benefits accruing to
Participants under the Plan;
(ii) permit Awards encompassing rights to purchase Shares to
be granted with a per Share grant, exercise or purchase price of
less than the Fair Market Value of a Share on the grant thereof;
or
(iii) otherwise cause the Plan to cease to qualify for
or cease to comply with any tax or regulatory exemption, status
or requirement, including for these purposes any approval or
other prerequisite for exemptive relief from Section 16(b) of the
Exchange Act.
(b) Amendments to Awards. The Committee may waive any
conditions or rights under, amend any terms of, or alter any
Award theretofore granted, provided that no change in any Award
shall reduce the benefit accruing to any Participant without the
consent of the Participant.
(c) Unusual or Nonrecurring Events. The Committee is hereby
authorized to make adjustments in the terms, conditions, and
criteria of Awards in recognition of unusual or nonrecurring
events (including the events described in Section 4(c) of the
Plan) affecting the Company, any Affiliate, or the financial
statements of the Company or any Affiliate, or in recognition of
changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such
adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be
made available under the Plan. Notwithstanding the foregoing,
with respect to any Award intended to qualify as
performance-based compensation under Section 162(m) of the Code,
no adjustment shall be authorized to the extent the adjustment
would cause the Award to fail to qualify.
SECTION 8. Change Of Control.
(a) Nonacceleration. In the event of any Change of Control, the
Chairman of the Board and Chief Executive Officer (or, if the
office is vacant, the President) of the Company may on or before
the date of the event constituting a Change of Control, file with
the Corporate Secretary of the Company a written notice (the
"Nonacceleration Notice") signed by the officer stating that the
Change of Control shall not result in the acceleration of Awards
granted under the Plan to the Participants identified in the
notice (or held by persons claiming by, through or under such
Participants). The Nonacceleration Notice may be filed with
respect to all Awards granted under the Plan or with respect to
certain Awards granted to Participants specified in the notice
(each Participant referred to by name or generically in a
Nonacceleration Notice, together with each person claiming by,
through or under such Participant, is hereinafter referred to as
a "Nonaccelerated Person"). Notwithstanding any other provision
of this Plan, each Award granted under this Plan, not theretofore
forfeited or terminated and held as of the date of a Change of
Control by a person who as of such date is not a Nonaccelerated
Person shall upon occurrence of the Change of Control immediately
become vested or exercisable with respect to all of the rights
specified therein. The inclusion of a Participant or other
person as a Nonaccelerated Person in a Nonacceleration Notice
shall not be construed to alter or amend any rights the
Participant or other person may have under this Plan under the
provisions of any executive severance agreement or other
contractual relationship with the Company.
(b) Effect. If a Change of Control shall occur, each Award held
by a Participant pursuant to the Plan shall remain in full force
and effect until the earlier of (i) the expiration date of the
Award, or (ii) 90 days following the Participant's date of
termination of employment with the Company.
In addition to the Committee's authority set forth in
Section 7(c) of the Plan, in order to maintain the Participants'
rights in the event of any Change of Control, the Committee, as
constituted before the Change of Control, is hereby authorized,
and has sole discretion, as to any Award, either at the time the
Award is made hereunder or any time thereafter, to take any one
or more of the following actions:
(i) provide for the acceleration of any time periods
relating to the vesting, exercise or realization of the Award so
that the Award may be exercised or realized in full on or before
a date fixed by the Committee;
(ii) provide for the purchase of any Award, upon the
Participant's request, for an amount of cash equal to the amount
that could have been attained upon the exercise of the Award or
realization of the Participant's rights in the Award had the
Award been currently exercisable or payable;
(iii) adjust any outstanding Award as the Committee
deems appropriate to reflect the Change of Control; or
(iv) cause any outstanding Award to be assumed, or new
rights substituted therefor, by the acquiring or surviving
corporation after the Change of Control. The Committee may in
its discretion include other provisions and limitations in any
Award Agreement as it may deem equitable and in the best
interests of the Company.
(c) Defined. A Change of Control shall be deemed to occur if:
(i) the Company merges or consolidates with any other
Person (other than a wholly owned subsidiary of the Company) and
is not the surviving entity (or survives only as the subsidiary
of another entity);
(ii) the Company sells all or substantially all of its
assets to any other Person (other than a wholly owned subsidiary
of the Company);
(iii) the Company is liquidated or dissolved;
(iv) any "person" or "group" (as such terms are used in
Section 13(d) and 14(d) of the Exchange Act) other than the
Company, any subsidiary of the Company, any employee benefit plan
of the Company or its subsidiaries, or any entity holding Shares
for or pursuant to the terms of those employee benefit plans, is
or becomes an "Acquiring Person" as defined in that certain
Amended and Restated Rights Agreement dated October 17, 1991,
between the Company and Ameritrust Texas, N.A., successor to
MBank Alamo, N.A. (or any successor Rights Agreement).
(v) any "person" or "group" (as these terms are used in
subparagraph (iv) above) shall commence a tender offer or
exchange offer for 30% or more of the Shares then outstanding, or
for any number or amount of Shares which, if the tender or
exchange offer were to be fully subscribed and all Shares for
which the tender or exchange offer is made were to be purchased
or exchanged pursuant to the Offer, would result in the acquiring
person or group directly or indirectly beneficially owning 50% or
more of the Shares then outstanding; or
(vi) as a result of or in connection with a contested
election of directors, a number of directors equal to a majority
of the Board before the election cease to be members of the
Board.
SECTION 9. General Provisions.
(a) No Rights to Awards. No Employee, Participant or other
Person shall have any claim to be granted any Award. The
Committee is not required to treat uniformly the Employees,
Participants, or holders or beneficiaries of Awards when making
grants of Awards under the Plan. The terms and conditions of
Awards are not required to be the same with respect to each
recipient.
(b) Delegation. Subject to the terms of the Plan and applicable
law, the Committee may delegate to one or more officers or
managers of the Company or any Affiliate, or to a committee of
such officers or managers, the authority, subject to the terms
and limitations the Committee shall determine, to grant Awards
to, or to cancel, modify or waive rights with respect to, or to
alter, discontinue, suspend, or terminate Awards held by,
Employees who are not deemed "officers" or "directors" of the
Company for purposes of Section 16 of the Exchange Act, or any
successor Section thereto, or who are otherwise not subject to
Section 16.
(c) Withholding. The Company or any Affiliate is hereby
authorized to withhold from any Award, from any payment due or
transfer made under any Award or under the Plan or from any
compensation or other amount owing to a Participant the amount
(in cash, Shares, other securities, other Awards or other
property) of any applicable withholding taxes with respect to an
Award, its exercise, the lapse of restrictions thereon, payment
or transfer under an Award or under the Plan, and to take any
other action necessary in the opinion of the Company to satisfy
all obligations for the payment of the taxes.
(d) No Limit on Other Compensation Arrangements. Nothing
contained in the Plan shall prevent the Company or any Affiliate
from adopting or continuing in effect any other compensation
arrangements.
(e) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the
employ of the Company or any Affiliate. Further, the Company or
an Affiliate may at any time dismiss a Participant from
employment, free from any liability or any claim under the Plan,
unless otherwise expressly provided in the Plan or in any Award
Agreement.
(f) Governing Law. The validity, construction, and effect of
the Plan and any rules and regulations relating to the Plan shall
be determined in accordance with the laws of the State of Texas
and applicable federal law.
(g) Severability. If any provision of the Plan or any Award is
or becomes or is deemed to be invalid, illegal, or unenforceable
in any jurisdiction as to any Person or Award, or would
disqualify the Plan or any Award under any law deemed applicable
by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the
Award, such provision shall be stricken as to such jurisdiction,
Person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.
(h) Other Laws. The Committee may refuse to issue or transfer
any Shares or other consideration under an Award if, acting in
its sole discretion, it determines that the issuance or transfer
of the Shares or other consideration might violate any applicable
law or regulation or entitle the Company to recover the same
under Section 16(b) of the Exchange Act, and any payment tendered
to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly
refunded.
(i) No Trust or Fund Created. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund
of any kind or any fiduciary relationship between the Company or
any Affiliate and a Participant or any other Person. To the
extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general
creditor of the Company or any Affiliate.
(j) No Fractional Shares. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Award, and the Committee
shall determine whether cash, other securities, or other property
shall be paid or transferred in lieu of any fractional Shares or
whether fractional Shares or any rights thereto shall be
cancelled, terminated, or otherwise eliminated.
(k) Headings. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate
reference. The headings shall not be deemed in any way material
or relevant to the construction or interpretation of the Plan or
any provision thereof.
(l) Construction. Use of the term "including" in this Plan
shall be construed to mean "including but not limited to."
SECTION 10. Effective Date of the Plan.
The Plan shall be effective July 21, 1994, subject to approval by
the stockholders of the Company.
SECTION 11. Term of the Plan.
No Award shall be granted under the Plan ten years after approval
of the Plan by the Board. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any
Award theretofore granted may, and the authority of the Board or
the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award or to waive any conditions or rights
under any such Award shall, extend beyond that date.
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") entered into as
of May 1, 1995, ("Effective Date") is between Valero Energy
Corporation, a Delaware corporation ("Valero"), and F. Joseph
Becraft, a resident of Tulsa, Oklahoma ("Employee"). Valero and
Employee are sometimes referred to herein individually as a
"Party", and collectively as the "Parties". Valero and its
subsidiary companies are sometimes referred to herein
collectively as the "Company." The Parties hereby agree as
follows:
1. Employment. Valero hereby employs Employee, and
Employee hereby accepts employment with Valero, subject to the
terms and conditions set forth in this Agreement.
2. Term. Subject to the provisions for termination of
employment as provided in Section 9(a), the Agreement shall be in
effect for a period beginning May 1, 1995 through April 30, 2000.
3. Compensation. Employee's compensation during his
employment under the terms of this Agreement shall be as follows:
(a) Base Salary. Valero shall pay to Employee a base
salary (the "Base Salary") of Four Hundred Thousand Dollars
($400,000) per year for service in any and all capacities. In
addition, the Compensation Committee ("Compensation Committee")
of the Board of Directors of Valero shall in good faith consider
granting annual increases to the Base Salary based upon such
factors as Employee's performance and the growth and
profitability of the Company, but it shall have no obligation to
grant any such increases in compensation. Any such increase to
the Base Salary shall become a part thereof and for purposes
hereof the Base Salary as so increased shall be deemed thereafter
to be the Base Salary. The Base Salary shall be payable in
equal, semi-monthly installments on the 15th day and last day of
each month or at such other times and in such installments as may
be agreed between Valero and Employee. All payments shall be
subject to the deduction of payroll taxes, income tax
withholdings, and similar deductions and withholdings as required
by law.
(b) Bonus. In addition to the Base Salary, Employee
shall be eligible to receive bonus compensation in such amounts
and at such times as the Committee shall from time to time
determine pursuant to Valero's Executive Incentive Bonus Plan (or
any successor plan available for providing incentive compensation
to executive officers of Valero generally); for purposes of
determining Employee's incentive bonus for any year, Valero
agrees that Employee's targeted percentage of Base Salary shall
be 60%. Such targeted percentage of Base Salary shall be subject
to adjustment by the Committee based upon such performance
measure or other objective or subjective factors relating to the
Company or Employee, including a qualitative evaluation of
Employee's performance, as the Committee shall utilize in
determining executive bonuses generally. The Parties recognize,
however, that the determination and payment of bonus or other
incentive compensation is within the complete discretion of the
Committee, and nothing herein shall be construed to require the
payment of any bonus or other incentive compensation to Employee
if the Committee shall determine not to do so.
4. Expenses and Benefits. During employment, Employee is
authorized to incur reasonable expenses in connection with the
business of the Company, including expenses for entertainment,
travel and similar matters. Valero will reimburse Employee for
such expenses upon presentation by Employee of such accounts and
records as Valero may from time to time reasonably require.
Valero also agrees to provide Employee with the following
benefits during employment:
(a) Employee Benefit Plans. Participation in any
employee benefit plans now existing or hereafter adopted by
Valero for its executive or other officers and employees
generally.
(b) Vacations. Employee shall be entitled (in
addition to the usual public holidays) to a paid vacation in each
year in accordance with Company's vacation policy for exempt
employees (but not in any event less than four weeks per year),
such vacation to be taken at such times as may be mutually agreed
to by both Parties.
(c) Working Facilities. Employee shall be furnished
by Valero with an office, secretarial help and other facilities
and services, including but not limited to full use of the
Company's mail and communication facilities and services,
reasonably suitable to his position and reasonably necessary for
the performance of his duties under this Agreement.
(d) Supplemental Executive Retirement Plan. Employee
shall participate in the pension plan available to substantially
all employees of the Company. In addition, Employee shall
participate in Valero's unfunded Supplement Executive Retirement
Plan ("SERP") and, for purposes of determining his benefits under
the SERP, shall be credited with his period of prior service with
the Company.
(e) Tax Planning. Employee will be furnished tax
planning services by an independent certified public accounting
firm, of the type furnished to executive officers of Valero
generally.
5. Duties. Employee is employed as Executive Vice
President of Valero. In addition, Employee agrees to serve,
without additional compensation, as the Chairman of the Board,
President and Chief Executive Officer and as a member of the
Board of Directors of each wholly owned subsidiary of Valero
engaged in the natural gas and natural gas liquids businesses.
Such duties shall be performed at the Company's principal place
of business in San Antonio, Texas. Employee will also be
recommended for election to the Board of Directors of Valero and
agrees to serve thereon without additional compensation, other
than reimbursement of normal expenses or meeting attendance. The
performance by Employee of his duties hereunder shall be subject
to the provisions of subparagraph 9(d) hereof.
6. Extent of Service. Employee shall, during his
employment under the terms of this Agreement, devote
substantially all of his working time, attention, energies and
business efforts to his duties as an employee of Valero and to
the business of the Company generally, and shall not, during the
term of this Agreement, engage in any other business activity
whatsoever, whether or not such business activity is pursued for
gain, profit or other pecuniary advantage; however, this
paragraph 6 shall not be construed to prevent Employee from
investing his personal, private assets as a passive investor in
such form or manner as will not require any active services on
the part of Employee in the management or operation of the
affairs of the companies, partnerships, or other business
entities in which any such passive investments are made.
7. Stock Option and Restricted Stock Grants.
(a) Subject to the actual commencement of employment
by Employee under this agreement, the Committee has granted as of
May 1, 1995 to Employee (i) options to purchase 120,000 shares of
the Common Stock $1.00 par value ("Common Stock") of Valero, such
options to vest in their entirety on the third anniversary of the
grant date and to be subject to the terms and conditions of
Valero's Executive Stock Incentive Plan (the "Plan"); and (ii)
25,000 shares of restricted Common Stock pursuant to the Plan,
such shares to vest in three equal installments on the first,
second and third anniversaries of the grant date. Employee will
enter into a stock option agreement and a restricted stock
agreement with respect to such grants. Employee acknowledges and
agrees that the Plan and all grants made thereunder are subject
to approval at the Annual of Meeting of Stockholders of the
Company scheduled to be held May 9, 1995.
(b) Employee will be eligible for future grants of
stock options and restricted Common Stock in accordance with the
practices of the Committee in awarding grants of stock options
and restricted stock to executive officers generally. For
purposes of determining the number of options and shares of
restricted stock which may be awarded by the Committee to
Employee, Valero agrees that the targeted number of shares
subject to any option grant shall be that number of shares of
Common Stock having a market value equal to 200% of Employee's
Base Salary, and that the targeted number of shares of restricted
Common Stock subject to any grant of restricted stock shall be
that number of shares of Common Stock having a market value equal
to 50% of Employee's Base Salary. Such targeted percentages of
Base Salary shall be subject to adjustment by the Committee based
upon such performance measures or other objective or subjective
factors related to the Company or Employee, including a
qualitative evaluation of Employee's performance, as the
Committee shall utilize in determining executive stock option and
restricted stock grants generally. The Parties recognize,
however, that the determination of stock options and restricted
stock awards is within the complete discretion of the Committee,
and nothing herein shall be construed to require the award of
stock options, restricted stock or other similar compensation to
Employee if the Committee shall determine not to do so.
8. Relocation. In connection with the relocation of
Employee from Tulsa, Oklahoma, to San Antonio, Texas, Valero
agrees to make the following payments and allowances to Employee:
(a) Valero will reimburse Employee for the actual
amount of initiation fees incurred for one country club
membership in the San Antonio area;
(b) Valero will reimburse Employee for the actual cost
(not to exceed $30,000) of purchasing an automobile for use in
connection with the duties of Employee;
(c) Valero will pay or reimburse Employee for the
actual and reasonable costs of relocation, including (i)
reasonable expenses of transportation, meals and lodging for
Employee and his spouse in travelling between Tulsa, Oklahoma and
San Antonio, Texas (including, without limitation, expenses
incurred by Employee or his spouse for weekend commuting between
Tulsa and San Antonio for a period of up to five months from and
after May 1, 1995), (ii) costs of packing, moving and unpacking
household goods and other personnel possessions from Tulsa,
Oklahoma to San Antonio, Texas (including costs of shipment of
three antique automobiles owned by Employee), (iii) reasonable
costs of temporary living expenses for Employee and his spouse in
San Antonio, Texas, for a period of up to five months from and
after May 1, 1995, prior to moving into a permanent residence,
(iv) the reasonable cost and expense of house hunting trips
(including transportation, meals and lodging) for Employee and/or
his spouse to the San Antonio area prior to or during such five
month period, and (v) reimbursement to Employee for the actual
difference, if any, between (A) the final sales price of
Employee's present home in Tulsa, Oklahoma (net of any real
estate commissions, "points" or other costs, fees or expenses
paid by Employee in such transaction) and (B) the sum of (I) the
original purchase price of such home (including any real estate
commissions or other closing costs, fees or expenses (exclusive
of financing costs) paid by Employee in such transaction) and
(II) the cost of capital improvements made to such home by
Employee and not paid or reimbursed by a prior owner, insurer or
other third party. Upon request, Employee shall provide
appropriate documentation, in such form and in such detail as is
reasonably satisfactory to Valero, with respect to all costs,
fees, expenses and other amounts for which payment or
reimbursement is sought from Valero hereunder. Employee shall be
entitled, but not required, to utilize the home sale program
provided by the Company to certain employees and new hires in
order to sell his present Tulsa, Oklahoma, home.
(d) Valero will pay to Employee a one-time
miscellaneous moving allowance of $20,000.
(e) Valero will make an additional payment (the
"Gross-Up Payment") to Employee in an amount such that, after
payment by Employee of all federal income taxes imposed upon the
income of Employee and arising out of the payments and
reimbursements made to or for the benefit of Employee pursuant to
subparagraphs 8(a) through (d) above and upon such Gross-Up
Payment, and assuming that Employee is subject to federal income
taxation at the highest individual marginal tax rate, Employee
will receive net after-tax payments and benefits equal to the
amount of all such payments and reimbursements specified in such
subparagraphs 8(a) through (d).
9. Termination by Valero. Valero shall have the right to
terminate Employee's employment as hereinafter provided.
(a) Termination for Cause. Valero shall have the
right to terminate Employee's employment under this Agreement for
cause. As used herein, "cause" shall mean:
(i) Employee's conviction of a crime (excluding a
misdemeanor offense not involving moral turpitude) under federal
or state law; Employee's gross and deliberate disregard of his
duties and responsibilities hereunder, as reasonably determined
by the Board of Directors; or Employee's violation of any
provision of this agreement; or
(ii) any failure by Employee to cooperate fully
with any inquiry, investigation, claim, lawsuit or other
proceeding involving the Company, whether initiated by the
Company or by any third party or by federal, state or other
lawfully constituted authority, after written notice of such
failure and the refusal to correct such failure within five days
following the date such notice is given; or
(iii) the continued material impairment of
abilities of Employee to fulfill responsibilities under this
Agreement as a result of alcoholism or drug dependency after
written notice of such material impairment from Valero and the
failure to correct such impairment within 45 days from the date
such notice is given; or
(iv) the willful refusal by Employee to fulfill
responsibilities under this Agreement after written notice of
such willful refusal from Valero and the failure to correct such
refusal within 10 days from the date such notice is given.
If Valero terminates this Agreement pursuant to the provisions of
this paragraph 9(a), all compensation or other benefits due
Employee pursuant to Paragraphs 3 and 4 hereof shall be paid by
Valero to Employee to the date of such termination and, upon such
payment being made by Valero, all obligations of Valero to
Employee hereunder shall be totally and completely satisfied and
discharged, and Valero shall have no further obligations of any
type to Employee pursuant to this Agreement.
(b) Termination other than for Cause. Valero shall
have the right, in its sole discretion, to terminate Employee's
employment under the Agreement without cause at any time, and
Employee's employment under this Agreement shall be deemed
terminated upon the giving of written notice to such effect by
Valero to Employee. Any termination of employment other than as
a result of death, retirement, disability, voluntary resignation
by Employee or in accordance with paragraph 9(a) shall be deemed
a termination without cause. In the event of termination without
cause:
(i) Valero shall pay Employee in cash for and
throughout the period from the date of such termination to April
30, 2000 an annual amount equal to Employee's Annual Base Salary
at the time of such termination. Such annual amount shall be
payable in equal, semi-monthly installments on the 15th day and
last day of each month through April 30, 2000, or at such other
times and in such installments as may be agreed between Employee
and Valero;
(ii) Employee shall receive all of the payments
and benefits to which he is entitled pursuant to paragraph 8, to
the extent not theretofore paid by Valero; and
(iii) Any restricted shares of Common Stock or
other securities previously granted to Employee by Valero subject
to any restrictions shall have all such restrictions removed
immediately preceding such termination. All options, stock
appreciation rights or similar rights granted to Employee under
the Plan or any other any stock option or similar plan and not
previously exercised, expired or otherwise terminated shall be
accelerated and become exercisable immediately in full and shall
remain exercisable for such period as is specified in the
relevant plan document; provided however, that no such option or
other right shall be exercisable within six months following the
grant thereof.
(c) Termination upon Certain Events. In the event
that (i) except pursuant to subparagraph 9(a) above, Employee
ceases to be Executive Vice President (or an equally or higher
ranking executive officer) of Valero, other than as a result of
his death, voluntary retirement or resignation, or (ii) Employee
shall (except in connection with an inquiry or investigation as
provided in subparagraph 9(d) below) be denied by Valero the
right or ability to perform the duties normally incident to being
Executive Vice President of Valero and such denial shall continue
and not be corrected within 10 days from the date written notice
thereof is given by Employee, or (iii) without the prior consent
of Employee, Employee shall be required to perform his duties at
a principal location other than at the Company's principal
offices in San Antonio, Texas; then such change in status of
Employee shall be deemed to be a termination of Employee's
employment by Valero under this Agreement without cause and the
obligations and rights of Valero and Employee set forth in
paragraph 9(b) shall apply as of the date of such resignation.
(d) Suspension from Duties. Nothing herein shall be
construed to limit the authority of the Board of Directors or
Chief Executive Officer of Valero to suspend Employee, with pay,
from the performance of any duties or to exclude Employee from
any offices or other premises of Valero pending the outcome of
any inquiry or investigation (whether undertaken by or under the
direction of Valero or by state, federal or other lawfully
constituted authority), and no such suspension shall constitute a
"termination" of Employee unless and until Employee shall resign
or be terminated pursuant to subparagraph 9(a), 9(b) or 9(c).
10. Executive Severance Agreement. Simultaneously with
entering into this agreement, Valero and Employee shall enter
into an executive severance agreement (the "Executive Severance
Agreement"), in the form attached hereto as Exhibit "A". In the
event Employee become entitled to receive a lump sum amount
pursuant to paragraph 2.A. of the Executive Severance Agreement,
Valero shall be entitled to apply a credit for the full amount of
such lump sum amount against any periodic or other payments that
it is would otherwise be obligated to make under this Agreement
so as to offset, discharge and fully satisfy its obligation to
make any such payments until such time as such lump sum amount
has been fully applied as a credit against such periodic or other
payments.
11. Disclosure of Confidential Information. Except to the
extent required in the performance of his duties or obligations
to the Company hereunder, or by prior consent of a duly
authorized officer or director of Valero, or as otherwise
reasonably determined not to be harmful to the business, business
plans, properties, prospects, financial condition or results of
operations of the Company Employee will not, directly or
indirectly, at any time during his employment with the Company,
or at any time subsequent to the termination thereof, for any
reason whatsoever, with or without cause, breach the confidence
reposed in him by Valero by using, disseminating, disclosing,
divulging or in any manner whatsoever disclosing or permitting to
be divulged or disclosed in any manner to any person, firm,
corporation, association, governmental authority or other entity
(referred to herein as a "Recipient") "Confidential Information"
of the Company, nor will Employee lecture on or publish articles
concerning any Confidential Information" of the Company. As used
herein, the term "Confidential Information" means any and all
non-public information regarding the business, business plans,
properties, prospects, financial condition or results of
operation of the Company, disclosed to Employee or known by
Employee as a consequence of or through his employment by the
Company. On termination of employment with Valero, all
documents, records, notebooks, or similar repositories of or
containing trade secrets, secret methods or Confidential
Information, including all copies of any documents, records,
notebooks or similar repositories of or containing trade secrets,
secret methods or Confidential Information, then in Employee's
possession or in the possession of any third party under the
control of Employee or pursuant to any agreement or other
arrangement with Employee, whether prepared by Employee or any
other person, firm, corporation, association or other business
entity, will be delivered to Valero by Employee.
12. Non-competition. Employee recognizes and understands
that in performing the responsibilities of his employment, he
will occupy a position of fiduciary trust and confidence,
pursuant to which he will develop and acquire experience and
knowledge with respect to Valero's businesses. It is the
expressed intent and agreement of Employee and Valero that such
knowledge and experience shall be used exclusively in the
furtherance of the interests of Valero and not in any manner
which would be detrimental to Valero's interests. In
consideration for the benefits herein, Employee therefore agrees
that so long as he is employed by Valero and for as long as he is
receiving payments of Base Salary (or equivalent payments under
paragraph 9(b)(i) of this Agreement), unless he first secures the
written consent of Valero, Employee will not directly or
indirectly, engage or participate in any entity in direct or
indirect competition with Valero's businesses anywhere in the
United States. In the event that the provisions of this
paragraph 12 should ever be deemed to exceed the time, geographic
or scope of activity limitations permitted by applicable laws,
then such provisions shall be, and Employee and Valero hereby
consent to such provisions being, reformed by a court of
competent jurisdiction to conform to the maximum time, geographic
or scope of activity limitations permitted by applicable law.
13. Insurance. Valero may, in its sole and absolute discretion,
at any time after the Effective Date, apply for and procure, as
owner and for its own benefit, insurance on the life of Employee,
in such amounts and in such forms as Valero may choose. Unless
otherwise agreed by Valero, Employee shall have no interest
whatsoever in any such policy or policies, but Employee shall, at
Valero's request, submit to such medical examinations, supply
such information, and execute and deliver such documents as may
be required by the insurance company or companies to which Valero
has applied for such insurance.
14. Acknowledgements of Employee. Employee hereby
acknowledges that his execution of this Agreement is given in
consideration of Valero's employment of Employee under the terms
and conditions contained herein, which Employee acknowledges is
good and sufficient consideration therefor.
15. Notice. Any notice, request, reply, instruction, or
other communication provided or permitted in this Agreement must
be given in writing and may be served by depositing same in the
United States mail in certified or registered form, postage
prepaid, addressed to the Party to be notified with return
receipt requested, or by delivering the notice in person to such
Party. Unless actual receipt is required by any provision of
this Agreement, notice deposited in the United States mail in the
manner herein prescribed shall be effective on dispatch. For
purposes of notice, the address of Employee, his spouse, any
purported donee or transferee or any administrator, executor or
legal representative of Employee or his estate, as the case may
be, shall be as follows:
Mr. F. Joseph Becraft
6001 E. 104th Street
Tulsa, Oklahoma 74137
The address of Valero shall be:
Valero Energy Corporation
Post Office Box 500
San Antonio, Texas 78292
Attention: Corporate Secretary
Valero and Employee shall have the right from time to time and at
any time to change their respective addresses and shall have the
right to specify as their respective addresses any other address
by giving at least ten days written notice to the other Party as
provided hereby.
16. Other Employment Agreements. There are no other or
prior employment agreements between the Parties in effect on the
Effective Date.
17. Controlling Law. The execution validity,
interpretation and performance of this Agreement shall be
determined and governed by the laws of the State of Texas.
18. Additional Instruments. Valero and Employee shall
execute and deliver any and all additional instruments and
agreements which may be necessary or proper to carry out this
Agreement.
19. Entire Agreement. This Agreement contains the entire
agreement of the Parties. This Agreement may not be changed
orally but only by an agreement in writing signed by the Party
against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
20. Separability. If any provision of the Agreement is
rendered or declared illegal or unenforceable by reason of any
existing or subsequently enacted legislation or by decree of a
court of last resort, Valero and Employee shall promptly meet and
negotiate substitute provisions for those rendered and declared
illegal or unenforceable, and all the remaining provisions of
this Agreement shall remain in full force and effect.
21. Effect of Agreement. This Agreement shall be binding
upon Employee and his heirs, executors, administrators, and legal
representatives, successors and assigns, and Valero and its legal
representatives, successors and assigns.
22. Execution. This Agreement may be executed in multiple
counterparts each of which shall be deemed an original and all of
which shall constitute one instrument.
23. Waiver of Breach. The waiver by Valero of a breach of
any provision of the Agreement by Employee shall not operate or
be construed as a waiver by Valero of any subsequent breach by
Employee. The waiver by Employee of a breach of any provision of
the Agreement by Valero shall not operate or be construed as a
waiver by Employee of any subsequent breach by Valero.
24. Survival. The agreements contained in paragraphs 11
and 12 hereof shall survive and remain in full force and effect,
notwithstanding any termination or cancellation of this Agreement
or of Employee's employment hereunder.
IN WITNESS WHEREOF, the Parties have executed this Agreement
as of the date below written, to be effective for all purposes as
of May 1, 1995.
Valero:
VALERO ENERGY CORPORATION
By: /s/ STAN L. MCLELLAND
(Signature)
Executive Vice President and General Counsel
Employee:
/s/ F. JOSEPH BECRAFT
F. Joseph Becraft
Date: May 1, 1995
EXHIBIT 10.3
SCHEDULE OF EXECUTIVE SEVERANCE AGREEMENTS*
Employer Employee Date of Agreement
- -------- -------- -----------------
Valero Energy Stan L. McLelland December 15, 1982
Corporation
Valero Energy Edward C. Benninger December 15, 1982
Corporation
Valero Energy Steven E. Fry December 15, 1982
Corporation
Valero Energy E. Baines Manning July 16, 1988
Corporation
Valero Energy F. Joseph Becraft May 1, 1995
Corporation
*Each of the aforecited contracts is in substantially the same
form as Exhibit 10.9 to the Valero Energy Corporation Annual
Report on For 10-K for the year ended December 31, 1994.
EXHIBIT 10.4
SCHEDULE OF INDEMNITY AGREEMENTS
Employer Employee Date of Agreement
- -------- -------- -----------------
Valero Energy Edward C. Benninger February 24, 1987
Corporation
Valero Energy Robert G. Dettmer October 17, 1991
Corporation
Valero Energy A. Ray Dudley July 21, 1988
Corporation
Valero Energy James L. Johnson April 25, 1991
Corporation
Valero Energy Lowell H. Lebermann February 24, 1987
Corporation
Valero Energy Ruben M. Escobedo October 1, 1994
Corporation
Valero Energy Susan Kaufman Purcell October 1, 1994
Corporation
Valero Energy F. Joseph Becraft May 1, 1995
Corporation
Valero Energy Steven E. Fry February 24, 1987
Corporation
Valero Energy Stan L. McLelland February 24, 1987
Corporation
Valero Energy Don M. Heep February 22, 1990
Corporation
Valero Energy E. Baines Manning July 16, 1986
Corporation
<TABLE>
EXHIBIT 11.1
VALERO ENERGY CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands of Dollars, Except Per Share Amounts)
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
COMPUTATION OF EARNINGS PER SHARE
ASSUMING NO DILUTION:
Net income. . . . . . . . . . . . . . . . . . . . . $ 3,759 $ 6,283
Less: Preferred stock dividend requirements. . . . (2,964) (532)
Net income applicable to common stock . . . . . . . $ 795 $ 5,751
Weighted average number of shares of common
stock outstanding. . . . . . . . . . . . . . . . 43,573,008 43,320,425
Earnings per share assuming no dilution . . . . . . $ .02 $ .13
COMPUTATION OF EARNINGS PER SHARE
ASSUMING FULL DILUTION:
Net income. . . . . . . . . . . . . . . . . . . . . $ 3,759 $ 6,283
Less: Preferred stock dividend requirements. . . . (2,964) (532)
Add: Reduction of preferred stock dividends
applicable to the assumed conversion of
Convertible Preferred Stock. . . . . . . . . . . 2,695 239
Net income applicable to common stock
assuming full dilution . . . . . . . . . . . . . $ 3,490 $ 5,990
Weighted average number of shares of common
stock outstanding. . . . . . . . . . . . . . . . 43,573,008 43,320,425
Weighted average common stock equivalents
applicable to stock options. . . . . . . . . . . 55,858 49,013
Weighted average shares issuable upon conversion
of Convertible Preferred Stock . . . . . . . . . 6,381,798 567,271
Weighted average shares used for computation. . . . 50,010,664 43,936,709
Earnings per share assuming full dilution . . . . . $ .07<F1> $ .14<F1>
<FN>
<F1>
This calculation is submitted in accordance with paragraph 601(b)(11) of
Regulation S-K although it is contrary to APB Opinion No. 15 because it
produces an antidilutive result.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1995 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 14,963
<SECURITIES> 0
<RECEIVABLES> 204,256
<ALLOWANCES> 2,373
<INVENTORY> 120,683
<CURRENT-ASSETS> 420,342
<PP&E> 2,683,968
<DEPRECIATION> 555,833
<TOTAL-ASSETS> 2,730,243
<CURRENT-LIABILITIES> 416,804
<BONDS> 946,114
<COMMON> 43,645
12,650
3,450
<OTHER-SE> 954,358
<TOTAL-LIABILITY-AND-EQUITY> 2,730,243
<SALES> 690,535
<TOTAL-REVENUES> 690,535
<CGS> 661,868
<TOTAL-COSTS> 661,868
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,135
<INCOME-PRETAX> 6,159
<INCOME-TAX> 2,400
<INCOME-CONTINUING> 3,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,759
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
