CHANGE OF CONTROL
SEVERANCE AGREEMENT
AGREEMENT, dated
as of the 15th day of March, 2007 (this “Agreement”),
by and between Valero Energy Corporation, a Delaware corporation
(the “Company”), and Kimberly S. Bowers (the
“Executive”).
WHEREAS, the Board
of Directors of the Company (the “Board”), has
determined that it is in the best interests of the Company and its
stockholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined herein).
The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive’s full attention
and dedication to the current Company in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control that ensure that the compensation and benefits
expectations of the Executive will be satisfied and that are
competitive with those of other corporations. Therefore, in order
to accomplish these objectives, the Board has caused the Company to
enter into this Agreement.
NOW, THEREFORE, IT
IS HEREBY AGREED AS FOLLOWS:
Section 1. Certain Definitions . (a)
“Effective Date” means the first date during the Change
of Control Period (as defined herein) on which a Change of Control
occurs. Notwithstanding anything in this Agreement to the contrary,
if a Change of Control occurs and if the Executive’s
employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment
(1) was at the request of a third party that has taken steps
reasonably calculated to effect a Change of Control or
(2) otherwise arose in connection with or anticipation of a
Change of Control, then “Effective Date” means the date
immediately prior to the date of such termination of
employment.
(b) “Change
of Control Period” means the period commencing on the date
hereof and ending on the third anniversary of the date hereof;
provided , however , that, commencing on the date one
year after the date hereof, and on each annual anniversary of such
date (such date and each annual anniversary thereof, the
“Renewal Date”), unless previously terminated, the
Change of Control Period shall be automatically extended so as to
terminate three years from such Renewal Date, unless, at least
60 days prior to the Renewal Date, the Company shall give
notice to the Executive that the Change of Control Period shall not
be so extended.
(c) “Affiliated
Company” means any company controlled by, controlling or
under common control with the Company.
(d) “Change
of Control” means:
(1) The
acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”))
(a
“Person”) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (A) the then-outstanding shares of common stock
of the Company (the “Outstanding Company Common Stock”)
or (B) the combined voting power of the then-outstanding
voting securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting
Securities”); provided , however , that, for
purposes of this Section 1(d)(1), the following acquisitions
of Outstanding Company Common Stock or of Outstanding Company
Voting Securities shall not constitute a Change of Control:
(i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Company or any Affiliated Company or (iv) any acquisition
by any corporation pursuant to a transaction that complies with
Sections 1(d)(3)(A), 1(d)(3)(B) and 1(d)(3)(C);
(2) Individuals
who, as of the date hereof, constitute the Board (the
“Incumbent Board”) cease for any reason to constitute
at least a majority of the Board; provided , however
, that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the
Company’s stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board;
(3) Consummation
of a reorganization, merger, statutory share exchange or
consolidation or similar corporate transaction involving the
Company or any of its subsidiaries, a sale or other disposition of
all or substantially all of the assets of the Company (each, a
“Business Combination”), in each case unless, following
such Business Combination, (A) all or substantially all of the
individuals and entities that were the beneficial owners of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of the
then-outstanding shares of common stock and the combined voting
power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including,
without limitation, a corporation that, as a result of such
transaction, owns the Company or all or substantially all of the
Company’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any
corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the
then-outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting
power of the then-outstanding voting securities of such
corporation, except to the extent that such ownership existed prior
to the Business Combination, and (C) at least a majority of
the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board
at the time of the execution of the initial agreement or of the
action of the Board providing for such Business Combination;
or
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(4) Approval
by the stockholders of the Company of a complete liquidation or
dissolution of the Company.
Section 2. Employment Period . The Company
hereby agrees to continue the Executive in its employ, subject to
the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third
anniversary of the Effective Date (the “Employment
Period”). The Employment Period shall terminate upon the
Executive’s termination of employment for any
reason.
Section 3. Terms of Employment . (a)
Position and Duties . (1) During the Employment
Period, (A) the Executive’s position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately
preceding the Effective Date and (B) the Executive’s
services shall be performed at the office where the Executive was
employed immediately preceding the Effective Date or at any other
location less than 35 miles from such office.
(2) During
the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive’s reasonable best
efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period, it shall not be a
violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with the
performance of the Executive’s responsibilities as an
employee of the Company in accordance with this Agreement. It is
expressly understood and agreed that, to the extent that any such
activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive’s
responsibilities to the Company.
(b)
Compensation . (1) Base Salary . During
the Employment Period, the Executive shall receive an annual base
salary (the “Annual Base Salary”) at an annual rate at
least equal to 12 times the highest monthly base salary paid or
payable, including any base salary that has been earned but
deferred, to the Executive by the Company and the Affiliated
Companies in respect of the 12-month period immediately preceding
the month in which the Effective Date occurs. The Annual Base
Salary shall be paid at such intervals as the Company pays
executive salaries generally. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually, beginning
no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date. Any increase in the
Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. The Annual Base
Salary shall not be reduced after any such increase and the term
“Annual Base Salary” shall refer to the Annual Base
Salary as so increased.
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(2)
Annual Bonus . In addition to the Annual Base Salary,
the Executive shall be awarded, for each fiscal year ending during
the Employment Period, an annual bonus (the “Annual
Bonus”) in cash at least equal to the Executive’s
highest bonus earned under the Company’s annual incentive
bonus plans, or any comparable bonus under any predecessor or
successor plan or plans, for the last three full fiscal years prior
to the Effective Date (or for such lesser number of full fiscal
years prior to the Effective Date for which the Executive was
eligible to earn such a bonus, and annualized in the case of any
bonus earned for a partial fiscal year) (the “Recent Annual
Bonus”). (If the Executive has not been eligible to earn such
a bonus for any period prior to the Effective Date, the
“Recent Annual Bonus” shall mean the Executive’s
target annual bonus for the year in which the Effective Date
occurs.) Each such Annual Bonus shall be paid no later than the end
of the third month of the fiscal year next following the fiscal
year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
(3)
Incentive, Savings and Retirement Plans . During the
Employment Period, the Executive shall be entitled to participate
in all incentive, savings and retirement plans, practices,
policies, and programs applicable generally to other peer
executives of the Company and the Affiliated Companies, but in no
event shall such plans, practices, policies and programs provide
the Executive with incentive opportunities (measured with respect
to both regular and special incentive opportunities, to the extent,
if any, that such distinction is applicable), savings opportunities
and retirement benefit opportunities, in each case, less favorable,
in the aggregate, than the most favorable of those provided by the
Company and the Affiliated Companies for the Executive under such
plans, practices, policies and programs as in effect at any time
during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, those provided generally at
any time after the Effective Date to other peer executives of the
Company and the Affiliated Companies.
(4)
Welfare Benefit Plans . During the Employment Period,
the Executive and/or the Executive’s family, as the case may
be, shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and the Affiliated Companies
(including, without limitation, medical, prescription, dental,
vision, disability, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company and
the Affiliated Companies, but in no event shall such plans,
practices, policies and programs provide the Executive with
benefits that are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect
for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective
Date to other peer executives of the Company and the Affiliated
Companies.
(5)
Expenses . During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with
the most favorable policies, practices and procedures of the
Company and the Affiliated Companies in effect for the Executive at
any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer
executives of the Company and the Affiliated Companies.
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(6)
Fringe Benefits . During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, payment of club
dues, and, if applicable, use of an automobile and payment of
related expenses, in accordance with the most favorable plans,
practices, programs and policies of the Company and the Affiliated
Companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
the Affiliated Companies.
(7)
Office and Support Staff . During the Employment
Period, the Executive shall be entitled to an office or offices of
a size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at least equal
to the most favorable of the foregoing provided to the Executive by
the Company and the Affiliated Companies at any time during the
120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and
the Affiliated Companies.
(8)
Vacation . During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the
Company and the Affiliated Companies as in effect for the Executive
at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer
executives of the Company and the Affiliated Companies.
(9)
Immediate Vesting of Outstanding Equity Incentive Awards
. Notwithstanding any provision in the Company’s stock
incentive plans or the award agreements thereunder, effective
immediately upon the occurrence of a Change of Control,
(A) all stock options (incentive or non-qualified) outstanding
as of the date of such Change of Control, which are not then
exercisable and vested, shall become fully exercisable and vested
to the full extent of the original grant and, following the
Executive’s termination of employment for any reason, shall
remain exercisable for the shorter of (x) five years from the
Executive’s date of termination of employment and
(y) the remainder of the original option term; (B) all
restrictions and deferral limitations applicable to any restricted
stock awards outstanding as of the date of such Change of Control
shall lapse, and such restricted stock awards shall become free of
all restrictions and become fully vested and transferable to the
full extent of the original grant; and (C) all performance
share awards outstanding as of the date of such Change of Control
for any outstanding performance periods shall fully vest and be
earned and payable in full based on the deemed achievement of
performance at 200% of target level for the entire performance
period.
Section 4. Termination of Employment . (a)
Death or Disability . The Executive’s
employment shall terminate automatically if the Executive dies
during the Employment Period. If the Company determines in good
faith that the Executive has a Disability (as defined herein) that
has occurred during the Employment Period (pursuant to the
definition of “Disability”), it may give to the
Executive written notice in accordance with Section 11(b) of its
intention to terminate the Executive’s employment. In such
event, the Executive’s employment with the Company shall
terminate effective on the 30th day after receipt of such notice by
the Executive (the “Disability Effective Date”),
provided that, within the 30 days after such receipt,
the
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Executive shall
not have returned to full-time performance of the Executive’s
duties. “Disability” means the absence of the Executive
from the Executive’s duties with the Company on a full-time
basis for 180 consecutive business days as a result of incapacity
due to mental or physical illness that is determined to be total
and permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executive’s
legal representative.
(b)
Cause . The Company may terminate the
Executive’s employment during the Employment Period for
Cause. “Cause” means:
(1) the willful
and continued failure of the Executive to perform substantially the
Executive’s duties (as contemplated by
Section 3(a)(1)(A)) with the Company or any Affiliated Company
(other than any such failure resulting from incapacity due to
physical or mental illness or following the Executive’s
delivery of a Notice of Termination for Good Reason), after a
written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the
Company that specifically identifies the manner in which the Board
or the Chief Executive Officer of the Company believes that the
Executive has not substantially performed the Executive’s
duties, or
(2) the willful
engaging by the Executive in illegal conduct or gross misconduct
that is materially and demonstrably injurious to the
Company.
For purposes of
this Section 4(b), no act, or failure to act, on the part of
the Executive shall be considered “willful” unless it
is done, or omitted to be done, by the Executive in bad faith or
withou
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