-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PBEEANO4oVcrNPjJfrryPBkkzy0PePX7cSYL0CoM5AqJE4c0yhEs2QP793W+VwLr KArVq4V85l4HcCcqYBCSKg== 0000950134-03-009999.txt : 20030711 0000950134-03-009999.hdr.sgml : 20030711 20030710175509 ACCESSION NUMBER: 0000950134-03-009999 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20030711 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALERO ENERGY CORP/TX CENTRAL INDEX KEY: 0001035002 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 741828067 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-106949 FILM NUMBER: 03782612 BUSINESS ADDRESS: STREET 1: P.O. BOX 500 CITY: SAN ANTONIO STATE: TX ZIP: 78292-0500 BUSINESS PHONE: 2103702000 MAIL ADDRESS: STREET 1: P.O. BOX 500 CITY: SAN ANTONIO STATE: TX ZIP: 78292-0500 S-3 1 h07312sv3.txt VALERO ENERGY CORPORATION AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 2003 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- VALERO ENERGY CORPORATION (Exact name of each registrant as specified in its charter) DELAWARE 74-1828067 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Nos.)
JAY D. BROWNING, ESQ. VICE PRESIDENT AND SECRETARY ONE VALERO PLACE ONE VALERO PLACE SAN ANTONIO, TEXAS 78212 SAN ANTONIO, TEXAS 78212 (210) 370-2000 (210) 370-2000 (Address, including zip code, and telephone number, (Address, including zip code, and telephone number, including including area code, of each registrant's principal executive office) area code, of each registrant's principal executive office) COPY TO: R. JOEL SWANSON, ESQ. BAKER BOTTS L.L.P. ONE SHELL PLAZA 910 LOUISIANA HOUSTON, TEXAS 77002-4995 (713) 229-1234 ---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------------------- Preferred Stock.............................. 10,000,000 shares $25.00 $250,000,000.00 $20,225 - --------------------------------------------------------------------------------------------------------------------------------- Common Stock, $.01 per share................. (2) (4) (3) (3) (3) - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee. (2) There are being registered hereunder an indeterminate number of shares of common stock issuable upon conversion of the convertible preferred stock. Each share of convertible preferred stock, prior to the mandatory conversion date, is convertible into .4955 shares of common stock, subject to adjustments under certain circumstances. Pursuant to Rule 416 under the Securities Act, such number of shares of common stock registered hereby shall include an indeterminate number of shares of common stock that may be issued in connection with a stock split, stock dividend, recapitalization, or similar event or adjustment in the number of shares issuable as provided in certificate of designations of the convertible preferred stock. (3) The shares of common stock issuable upon conversion of the convertible preferred stock will be issued for no additional consideration, and therefore no registration fee is required pursuant to Rule 457(i). (4) Each share of common stock includes one preferred share purchase right. No separate consideration is payable for the preferred share purchase rights. The registration fee for these securities is included in the fee for the common stock. --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED JULY 10, 2003 PRELIMINARY PROSPECTUS 10,000,000 SHARES OF VALERO ENERGY CORPORATION 2% MANDATORY CONVERTIBLE PREFERRED STOCK (LIQUIDATION PREFERENCE $25 PER SHARE) --------------------- This prospectus relates to the offering for resale of Valero Energy Corporation's 2% Mandatory Convertible Preferred Stock (liquidation preference $25 per share) and the shares of our common stock issuable upon conversion of the convertible preferred stock. In this prospectus, the terms "Valero", "we", or "us" will each refer to Valero Energy Corporation and its subsidiaries and "Orion" refers to Orion Refining Corporation. The convertible preferred stock was issued to Orion, a debtor in possession, in connection with Valero's purchase of Orion's refinery located in Louisiana. This prospectus will be used by selling securityholders, which could include, among others, Orion or its stockholders or creditors who receive the convertible preferred stock in Orion's bankruptcy proceedings, to resell their shares of our convertible preferred stock and shares of our common stock issuable upon conversion of their convertible preferred stock. We will not receive any proceeds from sales by the selling securityholders. Valero will pay annual dividends on each share of convertible preferred stock in the amount of $0.50 when, as and if declared by our board of directors. Dividends will be paid quarterly, provided that dividends will not accrue or be payable with respect to a particular calendar quarter if we do not declare a dividend on our common stock during that calendar quarter. On July 1, 2006, each share of convertible preferred stock will automatically convert, subject to adjustments described in this prospectus, into between .4955 and .6690 of a share of our common stock, depending on the then current market price of our common stock. At any time prior to July 1, 2006, holders may elect to convert each of their shares of convertible preferred stock, subject to adjustment described in this prospectus, into .4955 of a share of common stock of Valero. Prior to this offering, there has been no public market for the convertible preferred stock. We have not applied to list the convertible preferred stock on any national securities exchange or established trading market. The common stock currently trades on the New York Stock Exchange under the symbol "VLO." The closing price of the common stock on the New York Stock Exchange was $37.70 per share on July 9, 2003. --------------------- INVESTING IN OUR PREFERRED OR COMMON STOCK INVOLVES RISKS. PLEASE READ CAREFULLY THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 4. --------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. July [ ], 2003 You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus. TABLE OF CONTENTS
PAGE ---- About This Prospectus....................................... i About Valero Energy Corporation............................. 1 The Offering................................................ 1 Risk Factors................................................ 4 Ratio of Earnings to Combined Fixed Charges and Preferred Dividends................................................. 8 Use of Proceeds............................................. 9 Description of the Convertible Preferred Stock.............. 9 Description of Valero Capital Stock......................... 14 Federal Income Tax Considerations........................... 17 Selling Securityholders..................................... 20 Plan of Distribution........................................ 20 Legal Matters............................................... 22 Experts..................................................... 22 Matters Relating to Arthur Andersen LLP..................... 23 Where You Can Find More Information......................... 23 Information We Incorporate By Reference..................... 23
ABOUT THIS PROSPECTUS This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission utilizing a "shelf" registration process or continuous offering process. Under this shelf registration process, the selling securityholders may, from time to time, sell the securities described in this prospectus in one or more offerings. This prospectus provides you with a general description of the securities which may be offered by the selling securityholders. Each time a selling securityholder sells securities, the selling securityholder is required to provide you with this prospectus and, in certain cases, a prospectus supplement containing specific information about the selling securityholder and the terms of the securities being offered. That prospectus supplement may include additional risk factors or other special considerations applicable to those securities. Any prospectus supplement may also add, update, or change information in this prospectus. If there is any inconsistency between the information in this prospectus and any prospectus supplement, you should rely on the information in that prospectus supplement. You should read both this prospectus and any prospectus supplement together with additional information described under "Where You Can Find More Information." i ABOUT VALERO ENERGY CORPORATION We are a Fortune 500 company based in San Antonio with approximately 20,000 employees and annual revenues of nearly $27 billion. We are one of the top three U.S. refining companies in terms of refining capacity. Prior to our acquisition of Orion's Louisiana refinery located near New Orleans, we owned and operated twelve refineries in the United States and Canada with a combined throughput capacity of approximately 1.9 million barrels per day and total crude oil capacity of approximately 1.5 million barrels per day. The Orion refinery has a throughput capacity of approximately 185,000 barrels per day and a crude oil capacity of approximately 155,000 barrels per day. Valero's refining network extends from eastern Canada to the U.S. Gulf Coast and West Coast. We produce premium, environmentally clean products such as reformulated gasoline, gasoline meeting the specifications of the California Air Resources Board, or CARB gasoline, CARB diesel fuel, low sulfur diesel fuel and oxygenates. We also produce a substantial slate of conventional gasoline, distillates, jet fuel, asphalt and petrochemicals. We are also a leading marketer of refined products. We market branded and unbranded refined products on a wholesale basis in 40 U.S. states and Canada through an extensive bulk and rack marketing network. We also market refined products and convenience store merchandise through a network of approximately 4,100 retail outlets in the United States and Canada, under various brand names including Diamond Shamrock(R), Shamrock(R), Ultramar(R), Valero(R), Beacon(R), Total(R) and Exxon(R). We have access to a logistics system that complements our refining and marketing assets in the U.S. Gulf Coast, Mid-Continent and West Coast regions. We own approximately 48 percent (including the general partner interest) of Valero L.P., a master limited partnership that owns and operates crude oil pipelines, crude oil and intermediate feedstock storage facilities, and refined product pipelines and terminals primarily in Texas, California, Oklahoma, New Mexico and Colorado. Units of Valero L.P. are listed on the New York Stock Exchange under the symbol "VLI". We were incorporated in Delaware in 1981 as Valero Refining and Marketing Company, a wholly owned subsidiary of our predecessor company. On July 31, 1997, our stock was distributed, or spun off, by our predecessor company to its stockholders, and we changed our name to Valero Energy Corporation. Our common stock is listed for trading on the New York Stock Exchange under the symbol "VLO." We have our principal executive offices at One Valero Place, San Antonio, Texas, 78212, and our telephone number is (210) 370-2000. THE OFFERING On May 14, 2003, we entered into an agreement to acquire Orion's refinery located in St. Charles Parish, Louisiana for $400 million plus approximately $145 million for inventory and up to $175 million of potential earn-out payments as further described below. The $400 million was payable in the form of cash and $250 million stated value of convertible preferred stock, subject to closing adjustments. The potential earn-out payments arise if agreed upon refining margins reach a specified level during any of the seven years following the closing and are subject to an annual maximum of $50 million and an aggregate limit of $175 million. On July 1, 2003, we completed the purchase of the Orion refinery and issued the convertible preferred stock to Orion. We entered into a registration rights agreement with Orion in which we agreed, for the benefit of Orion and its stockholders and creditors who may receive the convertible preferred stock in Orion's bankruptcy proceedings and certain other transferees of Orion or its stockholders or creditors, to file a shelf registration statement with the SEC with respect to resales of the convertible preferred stock and common stock issued upon the conversion thereof. We also agreed to keep the shelf registration statement continuously effective, subject to certain suspension periods when we are excused from keeping it effective, until the convertible preferred stock and common stock issued upon the conversion thereof have been sold pursuant to the shelf registration statement or are eligible to be sold under Rule 144(k) of the Securities Act. 1 Securities Offered............ 10,000,000 shares of 2% mandatory convertible preferred stock. Dividends..................... Annual dividends of $0.50 per share payable quarterly in cash on each March 31, June 30, September 30 and December 31, commencing September 30, 2003, when, as and if declared by the board of directors. Dividends will be paid in arrears on the basis of a 360-day year consisting of twelve 30-day months. Dividends on the convertible preferred stock will be non-cumulative and will not accrue or be payable with respect to a particular calendar quarter if we do not declare a dividend on our common stock during that calendar quarter, subject to certain exceptions set forth in the certificate of designation of the convertible preferred stock. Liquidation Preference........ $25 per share, plus accrued and unpaid dividends. Ranking....................... The convertible preferred stock will rank with respect to dividend rights and rights upon our liquidation, winding-up or dissolution: - senior to all of our common stock and to all of our other capital stock issued in the future that ranks junior to the convertible preferred stock; - on a parity with any of our capital stock issued in the future the terms of which expressly provide that it will rank on a parity with the convertible preferred stock; and - junior to all of our capital stock the terms of which expressly provide that such stock will rank senior to the convertible preferred stock. Redemption.................... Shares of convertible preferred stock are not redeemable by us. Optional Conversion Rights.... Each share of convertible preferred stock may be converted at any time, at the option of the holder, into .4955 of a share of our common stock, referred to as the "optional conversion ratio," plus cash in lieu of fractional shares. The optional conversion ratio is subject to adjustment upon the occurrence of certain events. Mandatory Conversion.......... On July 1, 2006, referred to as the "mandatory conversion date," each share of convertible preferred stock will be automatically converted into a fraction of a share of our common stock, based on the applicable market value of our common stock as of the mandatory conversion date, as follows:
MANDATORY CONVERSION RATIO -------------------------- SHARES OF COMMON STOCK FOR EACH SHARE APPLICABLE MARKET VALUE OF PREFERRED STOCK ----------------------- -------------------------- Less than or equal to $37.37...... .6690 Greater than $37.37 but less than or equal to $50.45.............. $ 25.00 ------------------------ applicable market value of common stock Greater than $50.45............... .4955
2 The "applicable market value" of the common stock as of the mandatory conversion date is the average of the closing prices per share of our common stock for the 20 consecutive trading days ending on the second day prior to the mandatory conversion date. The mandatory conversion ratio is subject to adjustment upon the occurrence of certain events. Early Conversion Upon Change of Control Upon a change of control that is not a Common Stock Transaction (as defined below) and that occurs at least five business days prior to the mandatory conversion date, each holder of convertible preferred stock will have a one-time option for a period of 30 days to convert all or any portion of its shares of convertible preferred stock into shares of common stock or other securities or property at the then mandatory conversion ratio that would have been in effect if the mandatory conversion date was the date of such conversion. A "Common Stock Transaction" means any transaction in which more than 50% of the value of the consideration received by holders of our common stock consists of common stock that for each of the ten consecutive trading days prior to the effective date of the transaction has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on the Nasdaq National Market. Voting Rights................. The holders of the convertible preferred stock will generally be entitled to vote with the common stock and not as a separate class and have a number of votes equal to the mandatory conversion ratio that would be in effect if the mandatory conversion date was the record date of such vote. The affirmative vote of holders of 66 2/3% of the convertible preferred stock is necessary to make any change to the certificate of incorporation or the bylaws that would adversely affect any power, preference or special right of the convertible preferred stock. Tax Consequences.............. The U.S. Federal income tax consequences of purchasing, owning and disposing of the convertible preferred stock and any of our common stock received upon its conversion are described in "Federal Income Tax Considerations." Prospective investors are urged to consult their own tax advisors regarding the tax consequences of purchasing, owning and disposing of the convertible preferred stock and any of our common stock received upon its conversion in light of their personal investment circumstances. Common Stock.................. Our common stock is listed for trading on the NYSE under the symbol "VLO." 3 RISK FACTORS In addition to the other information set forth elsewhere or incorporated by reference in this prospectus, the following factors relating to our company, our convertible preferred stock and our common stock should be considered carefully before making an investment decision. Because a share of convertible preferred stock is convertible into our common stock, you are making an investment decision with respect to our common stock, as well as our convertible preferred stock. We cannot assure you of a profit or protect you against a loss on the shares of our convertible preferred stock that you purchase. RISKS RELATED TO VALERO OUR FINANCIAL RESULTS ARE AFFECTED BY VOLATILE REFINING MARGINS. Our financial results are primarily affected by the relationship, or margin, between refined product prices and the prices for crude oil and other feedstocks. The cost to acquire our feedstocks and the price at which we can ultimately sell refined products depend upon numerous factors beyond our control. Historically, refining margins have been volatile, and they are likely to continue to be volatile in the future. Earnings on a fully diluted basis for 2001 and 2002 were $8.83 per share and $.83 per share, respectively. OUR LEVERAGE MAY LIMIT OUR FINANCIAL FLEXIBILITY. As of March 31, 2003, we had total debt of approximately $4.2 billion (including capital lease obligations), trust preferred securities in an aggregate liquidation amount of $372.5 million, stockholders' equity of approximately $4.8 billion, and cash and temporary cash investments of $741 million. Under our revolving bank credit facilities, at March 31, 2003, our debt to capitalization ratio (net of cash) was approximately 41% as more fully described in our quarterly report on Form 10-Q for the quarter ended March 31, 2003 incorporated by reference herein. For purposes of this computation, 50% of our $200 million of 8.32% Trust Originated Preferred Securities and 20% of our $172.5 million of aggregate liquidation amount of trust preferred securities issued as part of our 7.75% Premium Equity Participating Security Units were included as debt and the remainder as equity. We may also incur additional indebtedness in the future, including in connection with acquisitions, although our ability to do so will be restricted by existing bank credit facilities. The level of our indebtedness will have several important effects on our future operations, including, among others: - a significant portion of our cash flow from operations will be dedicated to the payment of principal and interest on our indebtedness and will not be available for other purposes - covenants contained in our existing debt arrangements require us to meet certain financial tests, which may affect our flexibility in planning for, and reacting to, changes in our business, including possible acquisition opportunities - our ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate and other purposes may be limited - we may be at a competitive disadvantage to our competitors that are less leveraged - our vulnerability to adverse economic and industry conditions may increase. Our ability to meet our debt service obligations and to reduce our total indebtedness will be dependent upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. We cannot assure you that our business will continue to generate sufficient cash flow from operations to service our indebtedness. If we are unable to generate sufficient cash flow from operations, we may be required to sell assets, to refinance all or a portion of our indebtedness or to obtain additional financings. Such refinancing might not be possible and additional financing might not be available on commercially acceptable terms or at all. 4 Our bank credit facility imposes financial and other restrictions on us. Covenants contained in the credit facility and relating to certain of our other indebtedness limit, among other things, our ability and our subsidiaries' ability to incur funded indebtedness and require maintenance of a minimum coverage ratio and a maximum debt-to-capitalization ratio. Failure to comply with such covenants may result in a default with respect to the related debt under the credit facility or such other indebtedness and could lead to acceleration of such debt or any instruments evidencing indebtedness that contain cross-acceleration or cross-default provisions. In such a case, we might not be able to refinance or otherwise repay such indebtedness. COMPLIANCE WITH AND CHANGES IN ENVIRONMENTAL LAWS COULD ADVERSELY AFFECT OUR PERFORMANCE. We are subject to extensive federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the environment, waste management, pollution prevention measures and characteristics and composition of gasoline and diesel fuels. If we violate or fail to comply with these laws and regulations, we could be fined or otherwise sanctioned. Because environmental laws and regulations are increasingly becoming more stringent and new environmental laws and regulations are continuously being enacted or proposed, such as those relating to methyl tertiary butyl ether (MTBE), CARB gasoline, the Tier II gasoline and distillate standards and the Maximum Available Control Technology rule (MACT II rule) under the Clean Air Act, the level of future expenditures required for environmental matters could increase in the future. In addition, any major upgrades in any of our refineries could require material additional expenditures to comply with environmental laws and regulations. In February 2000, the Environmental Protection Agency's "Tier II" gasoline standard was published in final form under the Clean Air Act. The standard requires the sulfur content in gasoline to be reduced from approximately 300 parts per million to 30 parts per million. The regulation will be phased in beginning in 2004. In addition, the EPA finalized its Tier II distillate standard to reduce the sulfur content of diesel fuel sold to highway consumers by 97%, from 500 parts per million to 15 parts per million, beginning June 1, 2006. We have determined that modifications will be required at most of our refineries as a result of the Tier II standards. Based on preliminary estimates, we believe that the new Tier II specifications, after giving effect to the acquisition of Orion, will require approximately $1.2 billion in capital expenditures for our refineries to comply. We expect all modifications to be complete in time for compliance with the effective dates of the gasoline and distillate standards. DISRUPTION OF OUR ABILITY TO OBTAIN CRUDE OIL COULD ADVERSELY AFFECT OUR OPERATIONS. About two-thirds of our total crude oil feedstock requirements are purchased through term crude oil feedstock contracts. The remainder of our crude oil feedstock requirements are purchased on the spot market. The term agreements include contracts to purchase feedstocks from various foreign national companies and various domestic integrated oil companies. In particular, a significant portion of our feedstock requirements are satisfied through suppliers located in the Middle East, and we are, therefore, subject to the political, geographic and economic risks attendant to doing business with suppliers located in that area. In the event one or more of our term contracts were terminated or political events disrupted our traditional crude oil supply, it is possible that we would be unable to find alternative sources of supply. If we are unable to obtain adequate crude oil volumes or are only able to obtain such volumes at unfavorable prices, our results of operations could be materially adversely affected, including reduced sales volumes of refined products or reduced margins as a result of higher crude oil costs. COMPETITORS WHO PRODUCE THEIR OWN SUPPLY OF FEEDSTOCKS, WHO HAVE MORE EXTENSIVE RETAIL OUTLETS OR WHO HAVE GREATER FINANCIAL RESOURCES MAY HAVE A COMPETITIVE ADVANTAGE. The refining and marketing industry is highly competitive with respect to both feedstock supply and refined product markets. We compete with numerous other companies for available supplies of crude oil and other feedstocks and for outlets for our refined products. We do not produce any of our crude oil feedstocks. Many of our competitors, however, obtain a significant portion of their feedstocks from company-owned production and some have more extensive retail outlets than we do. Competitors that have 5 their own production or extensive retail outlets (and brand-name recognition) are at times able to offset losses from refining operations with profits from producing or retailing operations, and may be better positioned to withstand periods of depressed refining margins or feedstock shortages. A number of our competitors also have materially greater financial and other resources than we possess. Such competitors have a greater ability to bear the economic risks inherent in all phases of the industry. In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial and individual consumers. A SIGNIFICANT INTERRUPTION IN ONE OR MORE OF OUR REFINERIES COULD ADVERSELY AFFECT OUR BUSINESS. With the acquisition of Orion, our refining activities will be conducted at thirteen major refineries in Texas, Louisiana, New Jersey, California, Oklahoma, Colorado and Quebec, Canada. The refineries are our principal operating assets. As a result, our operations could be subject to significant interruption if one or more of the refineries were to experience a major accident, be damaged by severe weather or other natural disaster, or otherwise be forced to shut down. If any refinery were to experience an interruption in operations, earnings therefrom could be materially adversely affected, including as a result of lost production and repair costs. WE MAY BE UNABLE TO COMPETE SUCCESSFULLY WITH OTHER COMPANIES IN THE RETAIL SECTOR. The retail sector has become increasingly competitive. We face strong competition from the fully integrated major oil companies that have increased their efforts to capture retail market share in recent years. We also compete with large grocery stores and other general merchandisers (the so-called "hypermarts") that often sell gasoline at aggressively competitive prices in order to attract customers to their sites. A number of our competitors also have materially greater financial and other resources than we possess. The actions of our competitors could lead to lower prices and reduced margins, which could have a material adverse effect on our financial position. OUR OPERATIONS EXPOSE US TO MANY OPERATING RISKS, NOT ALL OF WHICH ARE INSURED. Our refining and marketing operations are subject to various hazards common to the industry, including explosions, fires, toxic emissions, maritime hazards and uncontrollable flows of oil and gas. They are also subject to the additional hazards of loss from severe weather conditions. As protection against operating hazards, we maintain insurance coverage against some, but not all, such potential losses. We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of market conditions, premiums and deductibles for certain of our insurance policies have increased substantially, and could escalate further. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. For example, insurance carriers are now requiring broad exclusions for losses due to war risk and terrorist acts. If we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our financial position. WE MAY NOT BE SUCCESSFUL IN CONTINUING TO GROW THROUGH ACQUISITIONS, AND ANY FURTHER ACQUISITIONS MAY REQUIRE US TO OBTAIN ADDITIONAL FINANCING OR COULD RESULT IN DILUTION. A substantial portion of our growth over the last several years has been attributed to acquisitions. The ability to continue to grow through acquisitions will be dependent on a number of factors, including our ability to - identify acceptable acquisition candidates - consummate acquisitions on favorable terms - obtain financing to support our growth - successfully integrate acquired businesses. 6 We may not be successful in continuing to grow through acquisitions. In addition, the financing of future acquisitions may require us to incur additional indebtedness, which could limit our financial flexibility, or to issue additional equity, which could result in further dilution of the ownership interest of existing stockholders. PROVISIONS IN OUR CORPORATE DOCUMENTS AND DELAWARE LAW COULD DELAY OR PREVENT A CHANGE IN OUR CONTROL. The existence of some provisions in our corporate documents and Delaware law could delay or prevent a change in control of Valero, even if that change might be beneficial to our stockholders. In addition, we have adopted a stockholder rights plan that would cause extreme dilution to any person or group who attempts to acquire a significant interest in Valero without advance approval of our board of directors. Delaware law imposes additional restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. A PATENT DISPUTE WITH UNOCAL COULD ADVERSELY AFFECT US. Union Oil Company of California has filed a patent infringement lawsuit against Valero in California federal court. The complaint seeks a 5.75 cent per gallon royalty on all reformulated gasoline infringing on Unocal patents that cover certain compositions of cleaner-burning gasoline. The complaint seeks treble damages for Valero's alleged willful infringement of Unocal's patents. In a previous lawsuit involving one of its patents, Unocal prevailed against five other major refiners. In August 2001, the Federal Trade Commission, or the FTC, announced that it would begin an antitrust investigation concerning Unocal's conduct with a joint industry research group during the time that Unocal was prosecuting its patents at the U.S. Patent and Trademark Office, or the PTO. On March 4, 2003, the FTC announced that it was filing a complaint against Unocal for antitrust violations. The FTC's complaint seeks an injunction against any future patent enforcement activity by Unocal. This matter is set for trial beginning in November 2003. The PTO has reexamined Unocal's patents, and has issued a notice of rejection of all claims of the patents. Unocal has the opportunity to respond to the PTO's action. Due to the inherent uncertainty of litigation, there can be no assurance that Valero will prevail in the lawsuit, and an adverse result could have a material adverse effect on Valero's results of operations and financial position. RISKS RELATED TO OWNERSHIP OF THE CONVERTIBLE PREFERRED STOCK THERE HAS NOT BEEN A PRIOR MARKET FOR THE SHARES OF THE CONVERTIBLE PREFERRED STOCK, AND AN ACTIVE TRADING MARKET FOR THE SHARES OF THE CONVERTIBLE PREFERRED STOCK MAY NOT DEVELOP. The shares of the convertible preferred stock are a new issue of securities with no established trading market. In addition, we have not applied for the listing of the convertible preferred stock on any securities exchange or established trading market. We cannot assure you that a market for the convertible preferred stock will develop or that holders of our convertible preferred stock will be able to sell their shares of the convertible preferred stock easily. An inactive or illiquid trading market could adversely affect the trading price of the shares of the convertible preferred stock. In addition, the market price of shares of the convertible preferred stock could vary significantly in response to our operating results and other factors, including the size of the public float of the shares of the convertible preferred stock. WE MAY NOT PAY CASH DIVIDENDS ON THE CONVERTIBLE PREFERRED STOCK UNDER CERTAIN CONDITIONS AND HOLDERS OF THE CONVERTIBLE PREFERRED STOCK CANNOT COMPEL US TO PAY THEM. If in any calendar year quarter, our board of directors does not declare a dividend on our common stock (unless we announce a change in our common stock dividend policy to suspend quarterly dividends and pay dividends on a semiannual or annual basis), then the dividends on the convertible preferred stock will be non-cumulative, will not accrue and will not be payable with respect to that calendar quarter. 7 THE CONVERTIBLE PREFERRED STOCK IS SUBORDINATED TO ALL OF OUR EXISTING OR FUTURE DEBT OBLIGATIONS AND WILL NOT LIMIT OUR ABILITY TO INCUR FUTURE INDEBTEDNESS THAT WILL RANK SENIOR TO THE CONVERTIBLE PREFERRED STOCK. The rights of holders of the convertible preferred stock to the payments of dividends and amounts distributable upon our dissolution, liquidation or winding up are inferior to the rights of all of our creditors to have our obligations paid to them. The terms of the convertible preferred stock will not limit the amount of debt or other obligations that we may incur. OUR ABILITY TO ISSUE STOCK SENIOR TO THE CONVERTIBLE PREFERRED STOCK IN THE FUTURE COULD ADVERSELY AFFECT THE RIGHTS OF HOLDERS OF THE CONVERTIBLE PREFERRED STOCK. Under our certificate of incorporation, our board of directors is authorized, without further stockholder action, to issue up to 20,000,000 shares of preferred stock in one or more series on terms determined by our board of directors. Accordingly, we may authorize, increase the authorized amount of, or issue any shares of any series of preferred stock that would rank senior to the convertible preferred stock as to dividend rights or rights upon our liquidation, winding-up or dissolution. We would not need that vote or consent to authorize, increase the authorized amount of, or issue any such series of preferred stock. Our future issuance of preferred stock could, therefore, effectively diminish or supersede dividends on, and the liquidation preference of, the convertible preferred stock. SALES, OR THE AVAILABILITY FOR SALE, OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK COULD ADVERSELY AFFECT THE VALUE OF THE CONVERTIBLE PREFERRED STOCK AND IMPAIR OUR ABILITY TO RAISE EQUITY CAPITAL. Sales of substantial amounts of our common stock in the public market, and the availability of shares for future sale, including shares of our common stock issuable upon the conversion of shares of convertible preferred stock or debt or upon exercise of outstanding options or other rights to acquire shares of our common stock, could adversely affect the prevailing market price of our common stock. This would adversely affect the value of the convertible preferred stock and could impair our future ability to raise capital through an offering of our equity securities. THE TRADING PRICES FOR THE CONVERTIBLE PREFERRED STOCK WILL BE DIRECTLY AFFECTED BY THE TRADING PRICES FOR OUR COMMON STOCK. To the extent there is a secondary market for the convertible preferred stock, we believe that the trading prices of the convertible preferred stock will be directly affected by the trading prices of our common stock. We cannot predict how our common stock will trade, but it has been volatile. Trading prices of our common stock and the convertible preferred stock, if it trades at all, will be influenced by our consolidated operating results and financial condition and by economic, financial and other factors and market conditions that can affect the capital markets generally. If the trading price of our common stock declines or if we are unable to pay a dividend on our common stock, the trading price of the shares of the convertible preferred stock can be expected to decline and may decline to a price that is less than the initial price that you paid for the shares of convertible preferred stock. RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS The following table sets forth the ratio of earnings to combined fixed charges and preferred dividends for the periods indicated:
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED -------------------------------- MARCH 31, 2003 2002 2001 2000 1999 1998 --------------- ---- ---- ---- ---- ---- Ratio of earnings to combined fixed charges and preferred dividends..... 3.5x 1.3x 7.3x 5.6x 1.3x N/A
8 We have computed the ratio of earnings to combined fixed charges and preferred dividends by dividing earnings by fixed charges and preferred dividends. For this purpose, earnings consist of consolidated income from continuing operations before income taxes and fixed charges (excluding capitalized interest), with certain other adjustments. Fixed charges consist of total interest, whether expensed or capitalized, including amortization of debt expense and premiums or discounts related to outstanding indebtedness, one-third ( the proportion deemed representative of the interest factor) of rental expense and distributions on preferred securities of subsidiary trusts which are deducted in the determination of consolidated pre-tax income from continuing operations. For the year ended December 31, 1998, our earnings were insufficient to cover fixed charges by $77.7 million. This deficiency was due primarily to a $170.9 million pre-tax charge to earnings to write down the carrying amount of our refinery inventories to market value. Excluding the effect of the inventory write-down, the ratio of earnings to fixed charges would have been 2.7x. We had no preferred or preference securities outstanding with respect to continuing operations for any period presented, other than preferred securities of subsidiary trusts. As a result, the ratio of earnings to combined fixed charges and preferred dividends is the same as the ratio of earnings to fixed charges. USE OF PROCEEDS We will not receive any of the proceeds from the sale of the preferred stock or the common stock contemplated by this prospectus. Please read "Selling Securityholders" for a list of the persons receiving proceeds from the sale of the convertible preferred stock or the underlying common stock. DESCRIPTION OF THE CONVERTIBLE PREFERRED STOCK The following is a summary of certain provisions of the certificate of designation for the convertible preferred stock. A copy of the certificate of designation and the form of convertible preferred stock share certificate have been filed as exhibits to the registration statement of which this prospectus is a part and are available upon request from Valero at the address set forth under "Where You Can Find More Information." The following summary of the terms of the convertible preferred stock does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the certificate of designation. As used in this section, the terms "Valero", "us", "we" or "our" refer to Valero Energy Corporation and not any of its subsidiaries. General Under our certificate of incorporation, our board of directors is authorized, without further stockholder action, to issue up to 20,000,000 shares of preferred stock, par value $.01 per share, in one or more series, with such voting powers or without voting powers, and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions, as shall be set forth in the resolutions providing therefore. We have 8,500,000 shares of authorized preferred stock which are undesignated. Our board of directors has reserved for issuance pursuant to our Stockholder Rights Plan described below a total of 1,500,000 shares of Junior Participating Preferred Stock, Series I. We have not issued any shares of Junior Participating Preferred Stock. We have 10,000,000 shares of preferred stock which are designated as 2% Mandatory Convertible Preferred Stock, of which all are currently outstanding. Please read "Description of Valero Capital Stock." The convertible preferred stock and any common stock issued upon the conversion of the convertible preferred stock will be fully paid and nonassessable. The holders of the convertible preferred stock have no preemptive or preferential right to purchase or subscribe for stock, obligations, warrants or other securities of Valero of any class. The transfer agent, registrar, redemption, conversion and dividend disbursing agent for shares of the convertible preferred stock is . The convertible preferred stock is subject to mandatory conversion, as described below in "-- Mandatory Conversion," but is not redeemable by Valero. 9 Ranking The convertible preferred stock, with respect to dividend rights or rights upon the liquidation, winding-up or dissolution of Valero, ranks: - senior to all classes of common stock and each other class of capital stock or series of preferred stock established after the original issue date of the convertible preferred stock (the "Issue Date"), the terms of which provide that such class or series ranks junior to the convertible preferred stock as to dividend rights or rights upon the liquidation, winding-up or dissolution of the Company (collectively referred to as "Junior Stock"); - on a parity, in all respects, with any class of capital stock or series of preferred stock established after the Issue Date, the terms of which expressly provide that such class or series will rank on a parity with the convertible preferred stock as to dividend rights or rights upon our liquidation, winding-up or dissolution (which we will refer to collectively as "Parity Stock"); and - junior to each class of capital stock or series of preferred stock established after the Issue Date by our board of directors, the terms of which expressly provide that such class or series will rank senior to the convertible preferred stock as to dividend rights or rights upon the liquidation, winding-up or dissolution of the Company ("Senior Stock"). The affirmative vote or consent of the holders of at least 66 2/3% of the outstanding convertible preferred stock is necessary to change the provisions of our restated certificate of incorporation or the certificate of designation when such a change would adversely affect any power, preference or special right of the holders of the convertible preferred stock. See "-- Voting Rights" below. Dividends Holders of shares of the convertible preferred stock will be entitled to receive, when, as and if declared by our board of directors out of funds legally available for payment, cash dividends at the rate per annum of $0.50 per share on the liquidation preference thereof of $25 per share of convertible preferred stock (equivalent to 2% per annum per share). Dividends on the convertible preferred stock will be payable quarterly on March 31, June 30, September 30 and December 31 of each year, commencing September 30, 2003 (each, a "Dividend Payment Date") at such annual rate, and shall accrue from July 1, 2003. The first dividend on the convertible preferred stock paid on the last day of the calendar quarter during which the convertible preferred stock is issued will reflect an accrual of dividends from the date of issuance to the end of such quarter at the annual dividend rate. Dividends payable on the convertible preferred stock for any period less than a full dividend period (based upon the number of days elapsed during the period) are computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as they appear on our stock register on such record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by our board of directors (each, a "Record Date"). If in any calendar year quarter, our board of directors does not declare a dividend on our common stock, then the dividends on the convertible preferred stock shall be non-cumulative, shall not accrue and shall not be payable with respect to that calendar quarter unless we announce a change in common stock dividend policy to suspend quarterly dividends and pay dividends on a semiannual or annual basis. Subject to certain exceptions, if we have neither declared and paid nor irrevocably set apart for payment when due all accrued but unpaid dividends on the convertible preferred stock then we may not (1) declare or pay any dividend on any Parity Stock or Junior Stock, (2) redeem, purchase, retire or otherwise acquire for consideration shares of any Junior Stock or any Parity Stock, or (3) permit any Valero subsidiary to acquire for consideration any shares of stock of Valero unless Valero could, pursuant to the foregoing, purchase or otherwise acquire such shares at such time and in such manner. Our ability to declare and pay cash dividends and make other distributions with respect to our capital stock, including the convertible preferred stock, is limited by the terms of our outstanding indebtedness. 10 Liquidation Preference In the event of any liquidation, winding-up or dissolution, each holder of convertible preferred stock will be entitled to receive and to be paid out of our assets available for distribution to our stockholders, before any payment or distribution is made to holders of Junior Stock (including our common stock), a liquidation preference in the amount of $25 per share of the convertible preferred stock, plus accrued and unpaid dividends (whether or not declared) on the shares to the date fixed for liquidation, winding-up or dissolution. If, upon any liquidation, winding-up or dissolution, the amounts payable with respect to the liquidation preference of the convertible preferred stock and all Parity Stock are not paid in full, the holders of the convertible preferred stock and the Parity Stock will share equally and ratably in any distribution of our assets in proportion to the full liquidation preference and accumulated and unpaid dividends to which they are entitled. The certificate of designation does not contain any provision requiring funds to be set aside to protect the liquidation preference of the convertible preferred stock even though it is substantially in excess of the par value thereof. Voting Rights Each holder of shares of the convertible preferred stock will be entitled to vote with holders of our common stock on all matters voted upon by the holders of our common stock. The number of votes such holder of convertible preferred stock will be entitled to in such a vote per share of convertible preferred stock will be equal to the mandatory conversion ratio that would be in effect if the mandatory conversion date had occurred on the record date for determining holders of common stock entitled to vote on such matter. On any other matter described below, the holders of the convertible preferred stock will be entitled to one vote per share. While any shares of convertible preferred stock are outstanding, we may not, without the affirmative vote or consent of the holders of at least 66 2/3% of the outstanding shares of convertible preferred stock, permit, effect or validate any amendment, alteration or repeal, by merger or otherwise, of any of the provisions of the restated certificate of incorporation or of the certificate of designation which would adversely affect any power, preference or special right of the convertible preferred stock provided that such an adverse effect shall not be deemed to have occurred solely as a result of the authorization, designation or issuance of any class of equity security. Mandatory Conversion On July 1, 2006, each outstanding share of convertible preferred stock will be automatically converted into (a) a fraction of a share of our common stock equal to the mandatory conversion ratio, which will be determined as set forth below and subject to adjustment as described in "-- Conversion Price Adjustment" and (b) the right to receive an amount in cash equal to all accrued and unpaid dividends to and including the day immediately prior to the mandatory conversion date. Dividends for the quarter in which the mandatory conversion date occurs shall be considered accrued and unpaid unless we publicly announce an intention not to declare a dividend on our common stock for that quarter. The mandatory conversion ratio will be determined as follows, based on the applicable market value of our common stock as of the mandatory conversion date;
MANDATORY CONVERSION RATIO ----------------------------- SHARES OF COMMON STOCK FOR APPLICABLE MARKET VALUE EACH SHARE OF PREFERRED STOCK - ----------------------- ----------------------------- (1) Less than or equal to $37.37............................ .6690 (2) Greater than $37.37 but less than or equal to $50.45.... $25.00 ----------------------------- applicable market value of common stock (3) Greater than $50.45..................................... .4955
11 The applicable market value of our common stock as of the mandatory conversion date is the average of the closing prices per share of Valero common stock for the 20 consecutive trading days ending on the second day prior to the conversion date. Optional Conversion Rights Each share of convertible preferred stock is convertible at any time at the option of the holder thereof into .4955 share of common stock subject to adjustment as described below under "-- Conversion Price Adjustment," such ratio or adjusted ratio being referred to as the "optional conversion ratio." The holders of shares of convertible preferred stock at the close of business on a Record Date will be entitled to receive the dividend payment on those shares on the corresponding Dividend Payment Date notwithstanding the conversion of such shares following that Record Date or our default in payment of the dividend due on that Dividend Payment Date. Except as provided above, in connection with an optional conversion, we will make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the shares of our common stock issued upon conversion. Early Conversion Right Upon Change of Control Except as provided below, upon a Change of Control (as defined below) that is not a Common Stock Transaction (as defined below), holders of convertible preferred stock will have an option for a period of 30 days after the mailing of a notice of the Change of Control to convert all or any portion of such holder's outstanding shares of convertible preferred stock into shares of our common stock (or other securities or property) at a conversion ratio equal to the mandatory conversion ratio that would have been in effect if the mandatory conversion date was the date of such conversion. A holder who exercises his right pursuant to this provision shall be entitled to receive on the date of conversion the aggregate amount of any accrued and unpaid dividends to and including the day immediately prior to the date such holder converted its shares on such shares of convertible preferred stock that are converted, whether or not earned or declared, out of funds legally available therefor. The certificate of designation defines "Change of Control" as any of the following events: - the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of Valero and its subsidiaries taken as a whole to any "person" or group of related persons (a "Group") (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act")); - the consummation of any transaction (including without limitation, any purchase, sale, acquisition, disposition, merger or consolidation) of which the result is that any "person" or Group becomes the "beneficial owner" (as such term is used in Section 13(d)(3) of the Exchange Act) of more than 50% of the aggregate voting power of all classes of capital stock of Valero having the right to elect directors under ordinary circumstances; or - any consolidation or merger of Valero with or into another corporation (other than a merger or consolidation in which our common stock outstanding immediately prior to the merger or consolidation is not exchanged for cash, securities or other property of Valero or another entity except an entity created for such transaction in which each share of our common stock is converted into one share of common stock of such entity); or - the adoption of a plan the consummation of which would result in our liquidation or dissolution. The certificate of designation defines a "Common Stock Transaction" as any transaction in which more than 50% of the value of the consideration received by holders of our common stock consists of common stock that for each of the ten consecutive trading days prior to the effective date of the transaction has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on the Nasdaq National Market. 12 The phrase "all or substantially all" of our assets is likely to be interpreted by reference to applicable state law at the relevant time, and will be dependent on the facts and circumstances existing at such time. As a result, there may be a degree of uncertainty in ascertaining whether a sale or transfer is of "all or substantially all" of our assets. Fractional Shares No fractional shares of our common stock or securities representing fractional shares of our common stock will be issued upon conversion, whether voluntary or mandatory. Any fractional interest in a share of our common stock resulting from conversion will be paid in cash based on the average sale price of our common stock for the 20 days ending on the second trading day prior to the date of determination as listed in the Wall Street Journal's NYSE-Composite Transaction listing (or such other national securities exchange or automated quotation system on which our common stock is then listed or authorized for quotation or, if not so listed or authorized for quotation, an amount determined to be the market value of our common stock on such date as determined by a recognized independent investment banking firm retained for this service by Valero). Conversion Price Adjustment The conversion ratios are subject to adjustment (in accordance with formulas set forth in the certificate of designation) in certain events, including: - any payment of a dividend (or other distribution) payable in shares of our common stock on our common stock; - any issuance to all holders of shares of our common stock of rights, options or warrants entitling them to subscribe for or purchase shares of our common stock at less than the Market Value (as defined below); provided, however, that if such rights, options or warrants are not exercised before their expiration, then the conversion ratios will be adjusted to the amount it would have been had it not been adjusted based upon such issuance in the first place; - any subdivision, combination or reclassification of our common stock; - a distribution to all holders of our common stock consisting of evidences of indebtedness, cash or assets or rights to subscribe; - pursuant to our Rights Agreement, dated as of July 17, 1997 between the corporation and Computershare Investors Services L.L.C., as Rights Agent, a Distribution Date occurs (as defined in the Rights Agreement) with respect to the Preference Share Purchase Rights (as defined in the Rights Agreement); - the completion of a tender or exchange offer made by us or any of our subsidiaries for shares of our common stock that involves an aggregate consideration that, together with (a) any cash and other consideration payable in a tender or exchange offer by us or any of our subsidiaries for shares of our common stock expiring within the then preceding 12 months in respect of which no adjustment has been made and (b) the aggregate amount of any all-cash distributions to all holders of shares of our common stock within the then preceding 12 months in respect of which no adjustments have been made, exceeds 15% of our market capitalization on the expiration of such tender offer; or - the completion of a tender or exchange offer made by a person other than us or our subsidiaries that increases the offeror's ownership of our common stock by more than 25% of our common stock outstanding where the offeror is to pay consideration per share of common stock having a fair market value at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to the tender or exchange offer that exceeds the Market Value of our common stock on the trading day next succeeding the Expiration Time, and in which, as of the Expiration Time, our board of directors is recommending acceptance of the offer. 13 No adjustment of the conversion ratios will be required to be made until the cumulative adjustments (whether or not made) amount to 1.0% or more of the conversion ratios as last adjusted. We reserve the right to make such reductions in the conversion ratios in addition to those required in the foregoing provisions as we consider to be advisable in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights will not be taxable to the recipients. In the event we elect to make such a reduction in the conversion ratios, we will comply with the requirements of securities laws and regulations thereunder if and to the extent that such laws and regulations are applicable in connection with the reduction of the conversion ratios. The term "Market Value" means the average closing price of the common stock for a 20 consecutive trading day period on the New York Stock Exchange ending on the second trading day prior to the date of determination (or such other national securities exchange or automated quotation system on which the common stock is then listed or authorized for quotation or, if not so listed or authorized for quotation, an amount determined to be the market value of the common stock by a recognized independent investment banking firm retained for this service by the corporation). Following any consolidation or merger of us with or into another person or any merger of another person with or into us (with certain exceptions), or any sale or transfer to another entity of our assets as an entirety or substantially as an entirety or any statutory exchange of our securities with another entity (other than in connection with a merger or acquisition), each share of convertible preferred stock then outstanding will, without the consent of any holder of convertible preferred stock, be convertible only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or other disposition or share exchange by a holder of the number of shares of our common stock into which such convertible preferred stock was convertible immediately prior thereto, after giving effect to any adjustment event. Sinking Fund The convertible preferred stock shall not be entitled to any mandatory redemption or prepayment (except on liquidation, dissolution or winding up of the affairs of Valero) or to the benefit of any sinking fund. DESCRIPTION OF VALERO CAPITAL STOCK We have summarized selected aspects of our capital stock below. The summary is not complete. For a complete description, you should refer to our restated certificate of incorporation, restated by-laws and the Rights Agreement, all of which are exhibits to the registration statement of which this prospectus is a part. AUTHORIZED CAPITAL STOCK Our authorized capital stock consists of: - 300,000,000 shares of common stock, par value $.01 per share - 20,000,000 shares of preferred stock, par value $.01 per share, issuable in series. COMMON STOCK Each share of common stock is entitled to participate equally in dividends as and when declared by our board of directors. The payment of dividends on our common stock may be limited by obligations we may have to holders of any preferred stock. Common stockholders are entitled to one vote for each share held on all matters submitted to them. The common stock does not have cumulative voting rights, meaning that holders of a majority of the shares of common stock voting for the election of directors can elect all the directors if they choose to do so. 14 If we liquidate or dissolve our business, the holders of common stock will share ratably in the distribution of assets available for distribution to stockholders after creditors are paid and preferred stockholders receive their distributions. The shares of common stock have no preemptive rights and are not convertible, redeemable or assessable or entitled to the benefits of any sinking fund. All issued and outstanding shares of common stock are fully paid and nonassessable. Any shares of common stock into which the convertible preferred stock may be converted will be fully paid and nonassessable. The common stock is listed on the New York Stock Exchange and trades under the symbol "VLO." PREFERRED STOCK Our board of directors can, without action by stockholders, issue one or more series of preferred stock. The board can determine for each series the number of shares, designation, relative voting rights, dividend rates, liquidation and other rights, preferences and limitations. In some cases, the issuance of preferred stock could delay or discourage a change in control of us. Any shares of preferred stock we issue will be fully paid and nonassessable. Our board of directors has reserved for issuance pursuant to our Stockholder Rights Plan described below a total of 1,500,000 shares of Junior Participating Preferred Stock, Series I. We have not issued any shares of the Junior Participating Preferred Stock, Series I at the date of this prospectus. ANTI-TAKEOVER PROVISIONS The provisions of Delaware law and our restated certificate of incorporation and our restated by-laws summarized below may have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in his or her best interest, including those attempts that might result in a premium over the market price for the common stock. Staggered Board of Directors Our board of directors is divided into three classes that are elected for staggered three-year terms. The classification of the board of directors has the effect of requiring at least two annual stockholder meetings, instead of one, to effect a change in control of the board of directors. Holders of 60% of the shares of common stock entitled to vote in the election of directors may remove a director for cause, but stockholders may not remove any director without cause. Fair Price Provision Our restated certificate of incorporation contains a fair price provision. Mergers, consolidations and other business combinations involving us and an "interested stockholder" require the approval of holders of at least 66 2/3% of our outstanding voting stock not owned by the interested stockholder. Interested stockholders include any holder of 15% or more of our outstanding voting stock. The 66 2/3% voting requirement does not apply, however, if the "continuing directors," as defined in our restated certificate of incorporation, approve the business combination, or the business combination meets other specified conditions. Liability of Our Directors As permitted by the Delaware corporation statute, we have included in our restated certificate of incorporation a provision that limits our directors' liability for monetary damages for breach of their fiduciary duty of care to us and our stockholders. The provision does not affect the liability of a director: - for any breach of his/her duty of loyalty to us or our stockholders; 15 - for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; - for the declaration or payment of unlawful dividends or unlawful stock repurchases or redemptions; or - for any transaction from which the director derived an improper personal benefit. This provision also does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. Stockholder Proposals and Director Nominations Our stockholders can submit stockholder proposals and nominate candidates for our board of directors if the stockholders follow advance notice procedures described in our restated by-laws. Generally, stockholders must submit a written notice between 60 and 90 days before the first anniversary of the date of our previous year's annual stockholders' meeting. To nominate directors, the notice must include the name and address of the stockholder, the class and number of shares owned by the stockholder, information about the nominee required by the SEC and a description of any arrangements or understandings with respect to the election of directors that exist between the stockholder and any other person. To make stockholder proposals, the notice must include a description of the proposal, the reasons for bringing the proposal before the meeting, the name and address of the stockholder, the class and number of shares owned by the stockholder and any material interest of the stockholder in the proposal. In each case, if we have changed the date of the annual meeting to more than 30 days before or 60 days after the anniversary date of our previous year's annual stockholders' meeting, stockholders must submit the notice between 60 and 90 days prior to such annual meeting or no later than 10 days after the day we make public the date of the annual meeting. Director nominations and stockholder proposals that are late or that do not include all required information may be rejected. This could prevent stockholders from bringing certain matters before an annual meeting, including making nominations for directors. Delaware Anti-takeover Statute We are a Delaware corporation and are subject to Section 203 of the Delaware General Corporation Law. In general, Section 203 prevents us from engaging in a business combination with an "interested stockholder" (generally, a person owning 15% or more of our outstanding voting stock) for three years following the time that person becomes a 15% stockholder unless one of the following is satisfied: - before that person became a 15% stockholder, our board of directors approved the transaction in which the stockholder became a 15% stockholder or approved the business combination; - upon completion of the transaction that resulted in the stockholder's becoming a 15% stockholder, the stockholder owns at least 85% of our voting stock outstanding at the time the transaction began (excluding stock held by directors who are also officers and by employee stock plans that do not provide employees with the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or - after the transaction in which that person became a 15% stockholder, the business combination is approved by our board of directors and authorized at a stockholders' meeting by at least two-thirds of the outstanding voting stock not owned by the 15% stockholder. Under Section 203, these restrictions also do not apply to certain business combinations proposed by a 15% stockholder following the disclosure of an extraordinary transaction with a person who was not a 15% stockholder during the previous three years or who became a 15% stockholder with the approval of a majority of our directors. This exception applies only if the extraordinary transaction is approved or not 16 opposed by a majority of our directors who were directors before any person became a 15% stockholder in the previous three years, or the successors of these directors. Other Provisions Our restated certificate of incorporation also provides that: - stockholders may act only at an annual or special meeting and not by written consent; - an 80% vote of the outstanding voting stock is required for the stockholders to amend our restated by-laws; and, - an 80% vote of the outstanding voting stock is required to amend our restated certificate of incorporation with respect to certain matters, including those described in the first two bullet points above. TRANSFER AGENT AND REGISTRAR , is our transfer agent and registrar. STOCKHOLDER RIGHTS PLAN We have a stockholder rights plan under which one preferred share purchase right is attached to each outstanding share of our common stock. The rights become exercisable under specified circumstances, including any person or group (an "acquiring person") becoming the beneficial owner of 15% or more of our outstanding common stock, subject to specified exceptions. Each right entitles the registered holder to purchase from us one one-hundredth of a share of Junior Participating Preferred Stock, Series I, at an exercise price of $100, subject to adjustment under specified circumstances. If events specified in the stockholder rights plan occur, each holder of rights other than the acquiring person can exercise their rights. When a holder exercises a right, the holder will be entitled to receive common stock valued at twice the exercise price of the right. In some cases, the holder will receive cash, property or other securities instead of common stock. We may redeem the rights for $0.01 per right at any time prior to the tenth day after a person or group becomes an acquiring person. FEDERAL INCOME TAX CONSIDERATIONS The following discussion summarizes the material U.S. Federal income tax consequences to U.S. holders (as defined below) of the purchase, ownership, and disposition of the convertible preferred stock and any common stock received upon its conversion. This discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the final, temporary and proposed Treasury Regulations promulgated thereunder, and administrative rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. This summary does not purport to deal with all aspects of U.S. Federal income taxation that may be relevant to an investor's decision to purchase shares of preferred stock, nor any tax consequences arising under the laws of any state, locality or foreign jurisdiction. This summary is not intended to be applicable to all categories of investors, such as dealers in securities, banks, insurance companies, tax-exempt organizations, foreign persons, persons that hold the convertible preferred stock or common stock as part of a straddle or conversion transaction, or holders subject to the alternative minimum tax, which may be subject to special rules. In addition, this discussion is limited to persons who hold the convertible preferred stock or common stock as "capital assets" (generally, property held for investment) within the meaning of Section 1221 of the Code. As used in this section, a "U.S. holder" is a beneficial owner of preferred stock or common stock that is for U.S. Federal income tax purposes: - an individual U.S. citizen or resident alien; - a corporation, or entity taxable as a corporation that was created or organized in or under the laws of the United States, any state thereof or the District of Columbia; 17 - an estate or trust whose world-wide income is subject to U.S. Federal income tax; or - a trust (1) that is subject to the primary supervision of a U.S. court and the control of one or more U.S. persons or (2) that has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a United States person. If a partnership holds preferred stock or common stock, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, CONVERSION, AND DISPOSITION OF THE CONVERTIBLE PREFERRED STOCK AND COMMON STOCK RECEIVED AS A RESULT OF A CONVERSION OF THE CONVERTIBLE PREFERRED STOCK. Consequences to Holders of Preferred Stock or Common Stock Distributions. Except as provided below, the amount of any distribution to you with respect to the convertible preferred stock or common stock will be treated as a dividend, taxable as ordinary income to you, to the extent of our current or accumulated earnings and profits ("earnings and profits") as determined under U.S. Federal income tax principles. To the extent the amount of such distribution exceeds our earnings and profits, the excess will be applied against and will reduce your tax basis (on a dollar-for-dollar basis) in the convertible preferred stock or common stock, as the case may be. Any amount in excess of your tax basis will be treated as capital gain. If you are an individual and receive a distribution that is treated as a dividend, recently enacted legislation generally will treat the dividend as net capital gain taxed at rates up to 15%. However, there are several exceptions and restrictions relating to the treatment of the dividend as net capital gain, such as restrictions relating to: - your holding period of stock the dividends on which are received; - your obligation, if any, to make related payments with respect to positions in substantially similar or related property; and - amounts you take into account as investment income under Section 163(d)(4)(B) of the Code. The provisions in the Code that treat a dividend as net capital gain apply only to taxable years beginning after December 31, 2002 and on or before December 31, 2008. Individuals should consult their own tax advisors regarding the extent, if any, to which such exceptions and restrictions may apply to their particular factual situation. Dividends to Corporate Shareholders. In general, a distribution which is treated as a dividend for U.S. Federal income tax purposes and is made to a corporate shareholder with respect to the convertible preferred stock or common stock will qualify for the 70% dividends-received deduction under Section 243 of the Code. Corporate shareholders should note, however, there can be no assurance that the amount of distributions made with respect to the convertible preferred stock or the common stock will not exceed the amount of our earnings and profits in the future. Accordingly, there can be no assurance that the dividends-received deduction will be available in respect of distributions on the convertible preferred stock or common stock. In addition, there are many exceptions and restrictions relating to the availability of such dividends-received deduction such as restrictions relating to: - the holding period of stock the dividends on which are sought to be deducted; - debt-financed portfolio stock; 18 - dividends treated as "extraordinary dividends" for purposes of Section 1059 of the Code; and - taxpayers that pay corporate alternative minimum tax. Corporate shareholders should consult their own tax advisors regarding the extent, if any, to which such exceptions and restrictions may apply to their particular factual situation. Sale or Other Disposition. Upon a sale or other disposition of the convertible preferred stock or common stock (other than an exchange of convertible preferred stock for common stock pursuant to the conversion privilege), you generally will recognize capital gain or loss equal to the difference between the amount of cash and the fair market value of property you receive on the sale or other disposition and your adjusted tax basis in the convertible preferred stock or common stock. Such capital gain or loss will be long-term capital gain or loss if your holding period for the preferred stock or common stock, as applicable, is more than one year. Under recently enacted legislation, if you are an individual, such long-term capital gain will generally be taxed at rates up to 15%. Moreover, if you are an individual and previously received, with respect to such stock, one or more dividends that were treated as net capital gain, as described above under "Distributions," any capital loss on a subsequent disposition of the stock will, regardless of your holding period, be treated as long-term capital loss to the extent that the previous dividends were extraordinary dividends within the meaning of Section 1059(c) of the Code. Conversion of Convertible Preferred Stock in Exchange for Common Stock. You generally will not recognize gain or loss by reason of receiving common stock in exchange for the convertible preferred stock upon conversion of the convertible preferred stock, except gain or loss will be recognized with respect to any cash received in lieu of fractional shares, and any cash received attributable to dividend arrearages will be treated as a distribution and taxed as described above under "Distributions." The adjusted tax basis of the common stock (including fractional share interests) so acquired will be equal to the tax basis of the shares of the convertible preferred stock exchanged and the holding period of the common stock received will include the holding period of the preferred stock exchanged. Adjustment of Conversion Price. Holders of the convertible preferred stock may, in certain circumstances, be deemed to have received constructive distributions of stock if the conversion rate for the convertible preferred stock is adjusted. Adjustments to the conversion price made pursuant to a bona fide reasonable adjustment formula which has the effect of preventing the dilution of the interest of the holders of the convertible preferred stock, however, generally will not be considered to result in a constructive distribution of stock. Certain of the possible adjustments provided in the anti-dilution provisions of the convertible preferred stock, including, without limitation, adjustments in respect of stock dividends or the distribution of rights to subscribe for common stock should qualify as being pursuant to a bona fide reasonable adjustment formula and should not result in a constructive distribution. In contrast, adjustments in respect of distributions of our indebtedness or assets to our stockholders, for example, will not qualify as being pursuant to a bona fide reasonable adjustment formula. In addition, an adjustment triggered by a change of control or mandatory conversion as described under "Description of the Convertible Preferred Stock" may not so qualify. If such adjustments are made, the holders generally will be deemed to have received constructive distributions in amounts based upon the value of such holders' increased interests in our equity resulting from such adjustments. The amount of the distribution will be treated as a distribution to a holder with the tax consequences specified above under "Distributions." Accordingly, you could be considered to have received distributions taxable as dividends to the extent of our earnings and profits even though you did not receive any cash or property as a result of such adjustments. Backup Withholding. Under the backup withholding provisions of the Code and applicable Treasury Regulations, you may be subject to backup withholding with respect to dividends paid on, or the proceeds of a sale, exchange or redemption of, the convertible preferred stock or common stock unless: - you are a corporation or come within certain other exempt categories and when required demonstrate this fact, or - you timely supply an accurate taxpayer identification number and otherwise comply with applicable United States information reporting and certification requirements. 19 The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. Federal income tax liability and may entitle you to a refund, provided that the required information is furnished to the Internal Revenue Service. THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES THAT WOULD RESULT FROM YOUR PURCHASE, OWNERSHIP AND DISPOSITION OF THE CONVERTIBLE PREFERRED STOCK, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS. SELLING SECURITYHOLDERS On May 14, 2003, we entered into an agreement to acquire Orion's refinery located in St. Charles Parish, Louisiana for $400 million plus approximately $145 million for inventory and up to $175 million of potential earn-out payments as further described below. The $400 million was payable in the form of cash and $250 million stated value of the convertible preferred stock, subject to closing adjustments. The potential earn-out payments arise if agreed upon refining margins reach a specified level during any of the seven years following the closing and are subject to an annual maximum of $50 million and an aggregate of $175 million. On July 1, 2003, we completed the purchase of the Orion Refinery and issued the convertible preferred stock. In connection with the issuance of the convertible preferred stock, we entered into a registration rights agreement with Orion pursuant to which we agreed to file a shelf registration statement covering the resale from time to time of the convertible preferred stock and any of our common stock issued upon conversion of the convertible preferred stock by (a) Orion, (b) any trustee appointed in the bankruptcy of Orion, (c) any trust created as part of the bankruptcy of Orion, (d) any person to whom Orion or any such trustee or trust transfers any such securities, (e) any stockholder or creditor of Orion who receives any such securities in exchange for or satisfaction of all or any portion of such person's claims against or interests in Orion or any Orion bankruptcy trust or (f) any affiliate of any of the foregoing. The convertible preferred stock, and any shares of our common stock issued upon conversion of the convertible preferred stock, are being offered by the selling securityholders. As used in this prospectus, the term "selling securityholder" will include any of the foregoing persons to the extent they are named in this prospectus, any supplement to this prospectus or any amendment to the registration statement of which this prospectus is a part. As of the date of this prospectus, Orion owned 10,000,000 shares of convertible preferred stock and no shares of our common stock. We have agreed to keep the shelf registration statement continuously effective, subject to certain suspension periods when we are excused from keeping it effective, until the convertible preferred stock and common stock issued upon the conversion thereof have been sold pursuant to the shelf registration statement or are eligible to be sold under Rule 144(k) of the Securities Act. PLAN OF DISTRIBUTION The convertible preferred stock and the common stock issuable upon conversion thereof are being registered to permit public secondary trading of these securities by the holders thereof from time to time after the date of this prospectus. We have agreed, among other things, to bear all expenses (other than underwriting discounts and selling commissions and direct expenses of the selling securityholders) in connection with the registration and sale of the preferred stock and the common stock covered by this prospectus. We will not receive any of the proceeds from the offering of the convertible preferred stock or the common stock by the selling securityholders. We have been advised by the selling securityholders that the 20 selling securityholders may sell all or a portion of the convertible preferred stock and common stock beneficially owned by them and offered hereby from time to time on any exchange on which the securities are listed on terms to be determined at the times of such sales. The selling securityholders may also make private sales directly or through a broker or brokers. Alternatively, any of the selling securityholders may from time to time offer the convertible preferred stock or the common stock beneficially owned by them through underwriters, dealers or agents, who may receive compensation in the form of underwriting discounts, commissions or concessions from the selling securityholders and the purchasers of the convertible preferred stock and the common stock for whom they may act as agent. Offerings may be made at market, through a firm commitment underwriting or a best-efforts underwriting. The aggregate proceeds to the selling securityholders from the sale of the convertible preferred stock or common stock offering by them hereby will be the purchase price of such convertible preferred stock or common stock less discounts and commissions, if any. The convertible preferred stock and common stock may be sold from time to time in one or more transactions at fixed offering prices, which may be changed, or at varying prices determined at the time of sale or at negotiated prices. These prices will be determined by the holders of such securities or by agreement between these holders and underwriters or dealers who may receive fees or commissions in connection therewith. These transactions may include block transactions or crosses. Crosses are transactions in which the same broker acts as an agent on both sides of the trade. In connection with sales of the convertible preferred stock or our common stock or otherwise, a selling securityholder may enter into hedging transactions with broker-dealers or others, which may in turn engage in short sales of the convertible preferred stock or our common stock in the course of hedging the positions they assume. A selling securityholder may also sell convertible preferred stock or our common stock short and deliver the convertible preferred stock or our common stock to close out short positions, or loan or pledge the convertible preferred stock or our common stock to broker-dealers or others that in turn may sell such securities. A selling securityholder may pledge or grant a security interest in some or all of the convertible preferred stock or our common stock issued upon conversion of the convertible preferred stock owned by it and if it defaults in the performance of its secured obligations, the pledgees or secured parties may offer and sell the convertible preferred stock or our common stock from time to time pursuant to this prospectus. A selling securityholder also may transfer and donate the convertible preferred stock or shares of our common stock issuable upon conversion of the convertible preferred stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling securityholder for purposes of the prospectus. A selling securityholder may sell short our common stock and may deliver this prospectus in connection with such short sales and use the shares of our common stock covered by the prospectus to cover such short sales. In addition, any convertible preferred stock or shares of our common stock covered by this prospectus that qualify for sale pursuant to Rule 144A or any other available exemption from registration under the Securities Act may be sold under Rule 144, Rule 144A or such other available exemption. At the time a particular offering of convertible preferred stock or shares of our common stock issuable upon conversion of the preferred stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of convertible preferred stock or number of shares of our common stock being offered and the terms of the offering, including the name or names of any underwriters, dealers, brokers or agents, if any, and any discounts, commissions or concessions allowed or reallowed to be paid to brokers or dealers. Our outstanding common stock is listed for trading on the New York Stock Exchange. We have agreed to indemnify the selling securityholders, and each selling securityholder has agreed to indemnify us and each other selling securityholder against certain liabilities arising under the Securities Act. 21 Selling securityholders and any underwriters, dealers, brokers or agents who participate in the distribution of the convertible preferred stock or our common stock may be deemed to be "underwriters" within the meaning of the Securities Act and any profits on the sale of the convertible preferred stock and our common stock by them and any discounts, commissions or concessions received by any such underwriters, dealers, brokers or agents may be deemed to be underwriting discounts and commissions under the Securities Act. The selling securityholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M which may limit the timing of purchases and sales of the convertible preferred stock and our common stock by the selling securityholders and any other such person. Furthermore, Regulation M under the Exchange Act may restrict the distribution rights of any person who decides to engage in a distribution of the convertible preferred stock and our common stock being distributed for a period of up to five business days prior to the commencement of such distribution. All of the foregoing may affect the marketability of the convertible preferred stock and our common stock and the ability of any person or entity to engage in market-making activities with respect to the convertible preferred stock and our common stock. We will use our commercially reasonable best efforts to keep the registration statement of which this prospectus is a part effective until the earliest of (a) the sale pursuant to the shelf registration statement of all the convertible preferred stock and the shares of common stock issuable upon conversion of the convertible preferred stock thereunder, (b) the expiration of the holding period applicable to such securities held by persons that are not our affiliates under Rule 144(k) under the Securities Act or any successor provision, subject to certain permitted exceptions, and (c) the date all of the convertible preferred stock and common stock issuable upon conversion of the convertible preferred stock cease to be outstanding. LEGAL MATTERS Mr. Jay D. Browning, Esq., Vice President and Corporate Secretary of Valero, will issue opinions about the validity of the issuance of the convertible preferred stock and the common stock issuable upon conversion of the convertible preferred stock for us. Mr. Browning is our employee and at June 30, 2003, beneficially owned approximately 7,334 shares of our common stock (including shares held under employee benefit plans) and held options under our employee stock option plans to purchase an additional 30,212 shares of our common stock. None of such shares or options were granted in connection with the offering of the securities. Any underwriters will be advised about other issues relating to any offering by their own legal counsel. EXPERTS Our audited consolidated financial statements incorporated by reference in this prospectus from our annual report on Form 10-K for the year ended December 31, 2002 have been audited by Ernst & Young LLP, independent auditors, as indicated in their report with respect thereto, and are incorporated in this prospectus by reference in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. Our consolidated financial statements at December 31, 2001, and for each of the two years in the period ended December 31, 2001, appearing in our Annual Report on Form 10-K for the year ended December 31, 2002, have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing. On March 12, 2002, upon the recommendation of the audit committee, our Board of Directors approved the dismissal of Arthur 22 Andersen LLP as our independent auditors and the selection of Ernst & Young LLP to audit our consolidated financial statements for the year ending December 31, 2002. MATTERS RELATING TO ARTHUR ANDERSEN LLP Arthur Andersen LLP completed its audit of our consolidated financial statements for the year ended December 31, 2001 and issued its report with respect to such consolidated financial statements on March 5, 2002. On June 15, 2002, Arthur Andersen LLP was convicted of obstruction of justice for activities relating to its previous work for Enron Corp., and Arthur Andersen LLP announced that it would cease to audit publicly held companies in August 2002. Investors may not be able to effectively recover against Arthur Andersen LLP for any claims they may have under securities or other laws as a result of Arthur Andersen LLP's previous role as our independent public accountants and as author of the audit report for the audited consolidated financial statements incorporated by reference in this prospectus supplement and the accompanying prospectus. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read and copy any materials we file with the SEC at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain information about the operation of the SEC's public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains information we file electronically with the SEC, which you can access over the Internet at http://www.sec.gov. You can obtain information about us at the offices of the New York Stock Exchange, 20 Broad St., New York, New York 10005. This prospectus is part of a registration statement we have filed with the SEC relating to the securities we may offer. As permitted by SEC rules, this prospectus does not contain all of the information we have included in the registration statement and the accompanying exhibits and schedules we file with the SEC. You may refer to the registration statement, the exhibits and schedules for more information about us and our securities. The registration statement, exhibits and schedules are available at the SEC's public reference room or through its web site. INFORMATION WE INCORPORATE BY REFERENCE We are incorporating by reference information we file with the SEC, which means that we are disclosing important information to you by referring you to those documents. The information we incorporate by reference is an important part of this prospectus, and information that we file later with the SEC automatically will update and supersede this information. We incorporate by reference the documents listed below and any future filings we make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until we sell all the securities: - our annual report on Form 10-K for the fiscal year ended December 31, 2002 - the description of our common stock contained in our registration statement on Form 8-A, as may be amended from time to time to update that description - the description of the rights associated with our common stock contained in our registration statement on Form 8-A, as may be amended from time to time to update that description - our current report on Form 10-Q filed on May 14, 2003 - our current reports on Form 8-K filed on February 6, 2003, March 10, 2003, March 28, 2003, April 22, 2003 and June 4, 2003 (excluding any information furnished pursuant to Item 9 on any such current report on Form 8-K). 23 You may request a copy of these filings (other than an exhibit to those filings unless we have specifically incorporated that exhibit by reference into the filing), at no cost, by writing or telephoning us at the following address: Valero Energy Corporation One Valero Place San Antonio, TX 78212 Attention: Investor Relations Telephone: (210) 370-2139 24 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses of this offering (all of which are to be paid by the registrant) are estimated to be as follows: Securities and Exchange Commission registration fee......... $ 20,225 Legal fees and expenses..................................... 50,000 Accounting fees and expenses................................ 50,000 Printing expenses........................................... 25,000 Miscellaneous............................................... 10,000 -------- TOTAL..................................................... 155,225 ========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS The Company's Restated Certificate of Incorporation contains a provision that eliminates the personal liability of a director to the Company and its stockholders for monetary damages for breach of fiduciary duty as a director to the extent currently allowed under the Delaware General Corporation Law. If a director were to breach such duty in performing his duties as a director, neither the Company nor its stockholders could recover monetary damages from the director, and the only course of action available to the Company's stockholders would be equitable remedies, such as an action to enjoin or rescind a transaction involving a breach of fiduciary duty. To the extent certain claims against directors are limited to equitable remedies, the provision in the Company's Restated Certificate of Incorporation may reduce the likelihood of derivative litigation and may discourage stockholders or management from initiating litigation against directors for breach of their fiduciary duty. Additionally, equitable remedies may not be effective in many situations. If a stockholder's only remedy is to enjoin the completion of the Board of Directors' action, this remedy would be ineffective if the stockholder does not become aware of a transaction or event until after it has been completed. In such a situation, it is possible that the stockholders and the Company would have no effective remedy against the directors. Under the Company's Restated Certificate of Incorporation, liability for monetary damages remains for (i) any breach of the duty of loyalty to the Company or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) payment of an improper dividend or improper repurchase or redemption of the Company's stock under Section 174 of the Delaware General Corporation Law, or (iv) any transaction from which the director derived an improper personal benefit. Under Article V of the Restated Certificate of Incorporation and Article VIII of the Company's Restated By-laws as currently in effect and an indemnification agreement with the Company's officers and directors (the "Indemnification Agreement"), each person who is or was a director or officer of the Company or a subsidiary of the Company, or who serves or served any other enterprise or organization at the request of the Company or a subsidiary of the Company, shall be indemnified by the Company to the full extent permitted by the Delaware General Corporation Law. Under such law, to the extent that such person is successful on the merits in defense of a suit or proceeding brought against him by reason of the fact that he is or was a director or officer of the Company, or serves or served any other enterprise or organization at the request of the Company, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred in connection with such action. Under such law, if unsuccessful in defense of a third-party civil suit or a criminal suit, or if such suit is settled, such a person shall be indemnified against both (a) expenses, including attorneys' fees, and (b) judgments, fines and amounts paid in settlement if he acted in good faith and in a manner he II-1 reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action, had no reasonable cause to believe his conduct was unlawful. If unsuccessful in defense of a suit brought by or in the right of the Company, or if such a suit is settled, such a person shall be indemnified under such law only against expenses (including attorneys' fees) actually and reasonably incurred in the defense or settlement of such suit if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company, except that if such person is adjudged to be liable in such a suit for negligence or misconduct in the performance of his duty to the Company, he cannot be made whole for expenses unless the court determines that he is fairly and reasonably entitled to indemnity for such expenses. The Indemnification Agreement provides directors and officers with specific contractual assurance that indemnification and advancement of expenses will be available to them regardless of any amendments to or revocation of the indemnification provisions of the Company's Restated By-laws. The Indemnification Agreement provides for indemnification of directors and officers against both stockholder derivative claims and third-party claims. Sections 145(a) and 145(b) of the Delaware General Corporation Law, which grant corporations the power to indemnify directors and officers, specifically authorize lesser indemnification in connection with derivative claims than in connection with third-party claims. The distinction is that Section 145(a), concerning third-party claims, authorizes expenses and judgments and amounts paid in settlement (as is provided in the Indemnification Agreement), while Section 145(b), concerning derivative suits, generally authorizes only indemnification of expenses. However, Section 145(f) expressly provides that the indemnification and advancement of expenses provided by or granted pursuant to the subsections of Section 145 shall not be exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any agreement. No Delaware case directly answers the question whether Delaware's public policy would support this aspect of the Indemnification Agreement under the authority of Section 145(f), or would cause its invalidation because it does not conform to the distinctions contained in Sections 145(a) and 145(b). Delaware corporations also are authorized to obtain insurance to protect officers and directors from certain liabilities, including liabilities against which the corporation cannot indemnify its directors and officers. The Company currently has in effect a directors' and officers' liability insurance policy. ITEM 16. EXHIBITS The following exhibits are filed herewith pursuant to the requirements of Item 601 of Regulation S-K:
EXHIBIT NO. DESCRIPTION - ------- ----------- 2.1 Purchase and Sale Agreement dated as of May 13, 2003 among Orion Refining Corporation, Valero Energy Corporation and Valero Refining -- New Orleans, L.L.C as amended by the First Amendment to the Purchase and Sale Agreement dated as of June 13, 2003 and by the Second Amendment to the Purchase and Sale Agreement dated as of July 1, 2003. 3.1 Amended and Restated Certificate of Incorporation of Valero Energy Corporation, formerly known as Valero Refining and Marketing Company, (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-27013)) 3.2 Amendment to Restated Certificate of Incorporation of Valero Energy Corporation (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed on January 11, 2002 (SEC file no. 1-13175)) 3.3 Amended and Restated By-Laws of Valero Energy Corporation (incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (SEC file no. 1-13175)) 4.1 Rights Agreement, dated as of July 17, 1997, between Valero Refining and Marketing Company and Harris Trust and Savings Bank, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration No. 333-31709)) 4.2.1 Certificate of Designation of Preferred Stock
II-2
EXHIBIT NO. DESCRIPTION - ------- ----------- 4.2.2 Form of Preferred Stock 5.1 Opinion of Jay D. Browning, Esq. 10.1 Registration Rights Agreement dated July 1, 2003 between Orion Refining Corporation and Valero Energy Corporation 12.1 Computation of ratio of earnings to fixed charges (incorporated by reference to Exhibit 12.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (SEC file no. 1-13175)). 23.1 Consent of Ernst & Young LLP 23.2 Consent of Jay D. Browning (included in the opinion filed as Exhibit 5.1) 24.1 Powers of Attorney (included on signature page)
- --------------- * The Company will file as an exhibit to a Current Report on Form 8-K (i) any underwriting agreement, including any remarketing agreement, relating to securities offered hereby, and (ii) any required opinion of counsel to the Company as to certain tax matters relative to securities offered hereby. ITEM 17. UNDERTAKINGS (a) The undersigned registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to the Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) of the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the Registration Statement is on Form S-3 or Form S-8 and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report II-3 pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, State of Texas, on July 7, 2003. VALERO ENERGY CORPORATION By: /s/ W. E. GREEHEY ------------------------------------ William E. Greehey Chairman of the Board and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints William E. Greehey and Jay D. Browning, or either of them, each with power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all subsequent pre- and post-effective amendments and supplements to this registration statement and any registration statement of the type contemplated by Rule 462(b) under the Securities Act of 1933, and to file the same, or cause to be filed the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ W.E. GREEHEY Chairman of the Board and July 7, 2003 ------------------------------------------------ Chief Executive Officer William E. Greehey (Principal Executive Officer) /s/ JOHN D. GIBBONS Executive Vice President and Chief July 7, 2003 ------------------------------------------------ Financial Officer (Principal John D. Gibbons Financial and Accounting Officer) /s/ E.G. BIGGS Director July 3, 2003 ------------------------------------------------ E. Glenn Biggs /s/ W.E. BRADFORD Director July 3, 2003 ------------------------------------------------ W.E. Bradford /s/ R.K. CALGAARD Director July 7, 2003 ------------------------------------------------ Ronald K. Calgaard /s/ JERRY D. CHOATE Director July 7, 2003 ------------------------------------------------ Jerry D. Choate
II-5
SIGNATURE TITLE DATE --------- ----- ---- /s/ ROBERT G DETTMER Director July 7, 2003 ------------------------------------------------ Robert G. Dettmer /s/ RUBEN M. ESCOBEDO Director July 2, 2003 ------------------------------------------------ Ruben M. Escobedo /s/ BOB MARBUT Director July 3, 2003 ------------------------------------------------ Bob Marbut /s/ SUSAN KAUFMAN PURCELL Director July 7, 2003 ------------------------------------------------ Susan Kaufman Purcell
II-6 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------- 2.1 Purchase and Sale Agreement dated as of May 13, 2003 among Orion Refining Corporation, Valero Energy Corporation and Valero Refining -- New Orleans, L.L.C. as amended by the First Amendment to the Purchase and Sale Agreement dated as of June 13, 2003 and by the Second Amendment to the Purchase and Sale Agreement dated as of July 1, 2003. 3.1 Amended and Restated Certificate of Incorporation of Valero Energy Corporation, formerly known as Valero Refining and Marketing Company, (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-27013)) 3.2 Amendment to Restated Certificate of Incorporation of Valero Energy Corporation (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed on January 11, 2002 (SEC file no. 1-13175)) 3.3 Amended and Restated By-Laws of Valero Energy Corporation (incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (SEC file no. 1-13175)) 4.1 Rights Agreement, dated as of July 17, 1997, between Valero Refining and Marketing Company and Harris Trust and Savings Bank, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration No. 333-31709)) 4.2.1 Certificate of Designation of Preferred Stock 4.2.2 Form of Preferred Stock 5.1 Opinion of Jay D. Browning, Esq. 10.1 Registration Rights Agreement dated July 1, 2003 between Orion Refining Corporation and Valero Energy Corporation 12.1 Computation of ratio of earnings to fixed charges (incorporated by reference to Exhibit 12.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (SEC file no. 1-13175)). 23.1 Consent of Ernst & Young LLP 23.2 Consent of Jay D. Browning (included in the opinion filed as Exhibit 5.1) 24.1 Powers of Attorney (included on signature page)
- --------------- * The Company will file as an exhibit to a Current Report on Form 8-K (i) any underwriting agreement, including any remarketing agreement, relating to securities offered hereby, and (ii) any required opinion of counsel to the Company as to certain tax matters relative to securities offered hereby. EX-2.1 3 h07312exv2w1.txt PURCHASE AND SALE AGREEMENT EXHIBIT 2.1 PURCHASE AND SALE AGREEMENT AMONG ORION REFINING CORPORATION, VALERO ENERGY CORPORATION AND VALERO REFINING--NEW ORLEANS, L.L.C. DATED MAY 13, 2003 TABLE OF CONTENTS
Page - ---- ARTICLE I DEFINITIONS ...................................................................... 1 Section 1.1 Definitions ................................................................... 1 Section 1.2 Other Defined Terms ........................................................... 11 Section 1.3 Construction .................................................................. 11 ARTICLE II PURCHASE AND SALE OF ASSETS ..................................................... 11 Section 2.1 Purchase and Sale of Assets ................................................... 11 Section 2.2 Excluded Liabilities .......................................................... 13 ARTICLE III CLOSING; INVENTORY ADJUSTMENT .................................................. 13 Section 3.1 Closing ....................................................................... 13 Section 3.2 Closing Deliveries ............................................................ 13 Section 3.3 Seller Inventory Adjustment ................................................... 14 Section 3.4 Earn Out ...................................................................... 15 Section 3.5 Taxes, Utilities, Etc ......................................................... 16 Section 3.6 Escrow Agreement .............................................................. 18 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER ........................................ 18 Section 4.1 Organization and Qualification ................................................ 18 Section 4.2 Authority Relative to Agreements .............................................. 18 Section 4.3 Conflicts and Approvals ....................................................... 19 Section 4.4 Title to Assets ............................................................... 19 Section 4.5 Assumed Contracts ............................................................. 19 Section 4.6 Authorizations ................................................................ 20 Section 4.7 Compliance with Law ........................................................... 20 Section 4.8 Environmental Matters ......................................................... 20 Section 4.9 Insurance ..................................................................... 21 Section 4.10 Labor Matters ................................................................. 21 Section 4.11 Taxes ......................................................................... 21 Section 4.12 No Brokers .................................................................... 21 Section 4.13 Licenses ...................................................................... 21 Section 4.14 Foreign Person ................................................................ 21 Section 4.15 Foreign Trade Zone ............................................................ 21 ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER AND VALERO................................ 22 Section 5.1 Organization and Qualification ................................................ 22 Section 5.2 Authority Relative to Agreements .............................................. 22 Section 5.3 Conflicts and Approvals ....................................................... 22 Section 5.4 Litigation .................................................................... 23 Section 5.5 No Brokers .................................................................... 23 Section 5.6 Preferred Stock ............................................................... 23 Section 5.7 Capital Stock ................................................................. 23 Section 5.8 Financial Statements .......................................................... 23 Section 5.9 Absence of Certain Changes .................................................... 24
i Section 5.10 SEC Filings ................................................................... 24 Section 5.11 Regulation as a Utility ....................................................... 24 Section 5.12 Takeover Statutes ............................................................. 24 ARTICLE VI COVENANTS ....................................................................... 25 Section 6.1 Operation of the Business ..................................................... 25 Section 6.2 Appropriate Action; Consents; Filings ......................................... 26 Section 6.3 Employee Benefit Matters ...................................................... 28 Section 6.4 UOP Claim ..................................................................... 30 Section 6.5 Public Announcements .......................................................... 30 Section 6.6 Expenses ...................................................................... 30 Section 6.7 Foreign Trade Zone ............................................................ 30 Section 6.8 Further Assurances ............................................................ 30 Section 6.9 Cure Amount Determination ..................................................... 30 Section 6.10 Valero Guaranty ............................................................... 31 Section 6.11 Post-Closing Access; Transition Personnel Arrangements ........................ 31 Section 6.12 Sales and Use Tax Matters ..................................................... 32 ARTICLE VII CLOSING CONDITIONS ............................................................. 33 Section 7.1 Conditions to Obligations of Each Party Under This Agreement .................. 33 Section 7.2 Additional Conditions to Seller's Obligations ................................. 33 Section 7.3 Additional Conditions to Buyer's Obligations .................................. 33 ARTICLE VIII TERMINATION ................................................................... 37 Section 8.1 Termination ................................................................... 37 Section 8.2 Effect of Termination Under Section 8.1 ....................................... 37 ARTICLE IX MISCELLANEOUS ................................................................... 38 Section 9.1 Independent Investigation; Scope of Representations and Warranties of Seller... 38 Section 9.2 Indemnification ............................................................... 39 Section 9.3 Amendment ..................................................................... 44 Section 9.4 Waiver ........................................................................ 44 Section 9.5 Notices ....................................................................... 44 Section 9.6 Headings ...................................................................... 45 Section 9.7 Severability .................................................................. 45 Section 9.8 Entire Agreement .............................................................. 45 Section 9.9 Assignment .................................................................... 45 Section 9.10 Parties in Interest ........................................................... 46 Section 9.11 Failure or Indulgence Not Waiver .............................................. 46 Section 9.12 Disclosure Schedule ........................................................... 46 Section 9.13 Governing Law ................................................................. 46 Section 9.14 Counterparts .................................................................. 46 Section 9.15 Buyer's Like Kind Exchange .................................................... 46 ARTICLE X SPECIAL PROVISIONS ............................................................... 47 Section 10.1 Motion to Approve Agreement and Transaction ................................... 47
ii Section 10.2 Break-Up Fee and Expense Reimbursement ........................................ 47 Section 10.3 Disclosure .................................................................... 47
Exhibits: 1.1-A Certificate of Designations 1.1-B Escrow Agreement 1.1-C Inventory Sale Agreement 2.1(a) Land 2.1(c) Personalty 3.2(a) Act of Sale 3.2(b) Bill of Sale, Assignment and Assumption Agreement 3.2(i) Registration Rights Agreement 3.3(b) Seller Inventory Calculation 3.4 Earn Out 10.1 Sales Procedures and Sale Motion 10.2 Sales Procedures Order 10.3 Sale Order Schedules to Seller Disclosure Schedule: 1.1-A Certain Assumed Contracts 1.1-B Possible Assumed Contracts 1.1-C Assumed Licenses 1.1-D Certain Excluded Assets 3.5(a) Tax Prorations 4.3(B) Third Person Consents 4.3(C) Governmental Authorizations 4.8 Environmental Matters 4.9 Insurance 4.11 Tax Liens 6.1 Certain Exceptions to Covenants iii PURCHASE AND SALE AGREEMENT This PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into as of May 13, 2003 (the "Effective Date"), by and among ORION REFINING CORPORATION, a Delaware corporation ("Seller"), VALERO ENERGY CORPORATION, a Delaware corporation ("Valero") and VALERO REFINING--NEW ORLEANS, L.L.C., a Delaware limited liability company ("Buyer"). RECITALS Immediately prior to Seller's execution of this Agreement on the date hereof, Seller filed for bankruptcy protection (the "Seller Bankruptcy") under chapter 11 of Title 11, U.S. Code, as amended (the "Bankruptcy Code") in the United States Bankruptcy Court for the State of Delaware (the "Bankruptcy Court"). Seller desires to sell, and Buyer desires to purchase, the Assets. The sale of the Assets to Buyer, subject to the terms and conditions of this Agreement, has been duly approved by the Board of Directors of Seller, Buyer and Valero. NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, and covenants contained herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. As used in this Agreement (including in the Recitals), the following terms shall have the following meanings: "Aggregate Purchase Price" has the meaning given such term in Section 3.2. "Agreed Rate" means the rate of interest published by The Wall Street Journal as one month LIBOR on the Closing Date plus 112.5 basis points (1.125%), such rate to change each month on the monthly anniversary date of the Closing Date based on the quotation of one-month LIBOR in The Wall Street Journal. "Agreement" has the meaning given such term in the first paragraph hereof. "Assets" has the meaning given such term in Section 2.1. "Assumed Contracts" means (i) those contracts listed on Schedule 1.1-A of the Seller Disclosure Schedule to which Seller is a party related to the Assets or the Business, (ii) those contracts listed on Schedule 1.1-B of the Seller Disclosure Schedule, except for such deletions to such list which Buyer designates to Seller prior to Closing, and (iii) all rights of Seller as licensee under those licenses of intellectual property of another Person listed on Schedule 1.1-C, together with all applications and registrations with respect thereto, to the extent used by Seller in 1 connection with the ownership and operation of the Refinery, in each case only to the extent they are executory contracts on the Closing Date. "Assumed Environmental Liabilities" means all environmental remediation obligations of Seller associated with the Land or land immediately adjacent to the Land, whether known or unknown and whether accruing before or after the Closing, except claims asserted in connection with the offsite transportation and disposal prior to Closing of wastes containing Hazardous Materials generated at the Refinery or otherwise in connection with the Business. "Assumed Liabilities" means: (a) Assumed Environmental Liabilities; (b) the Settlement Agreement between Seller and the Louisiana Department of Environmental Quality entered into on September 5, 2002, becoming final and binding on December 30, 2002; and (c) all obligations and liabilities under the Assumed Contracts for the period after 2:59 a.m. Central Time on the Closing Date. "Authorization" means any franchise, permit, license, authorization, order, certificate, registration, or other consent or approval granted by any Governmental Authority. "Bankruptcy Code" has the meaning given such term in the first recital of this Agreement. "Bankruptcy Court" has the meaning given such term in the first recital of this Agreement. "Benefit Plan" means (i) any "employee benefit plan," as such term is defined in Section 3(3) of ERISA, (ii) any stock bonus, stock ownership, stock option, stock purchase, stock appreciation rights, phantom stock, or other stock plan (whether qualified or nonqualified), (iii) any bonus, deferred compensation, or incentive compensation plan, and (iv) any other severance agreement, plan, program, policy, or arrangement; provided, however, that such term shall not include (a) routine employment policies and procedures developed and applied in the ordinary course of business and consistent with past practice, including wage, vacation, holiday, and sick or other leave policies, (b) workers compensation insurance, and (c) directors' and officers' liability insurance. "Business" means the business related to the Assets conducted by Seller. "Business Day" means a 24-hour period ending at 5:00 p.m. EST on a weekday on which banks are open for general commercial business in New York. "Buyer" has the meaning given such term in the first paragraph of this Agreement. "Buyer Covered Loss" has the meaning given such term in Section 9.2(c). "Buyer Plan" has the meaning given such term in Section 6.3(a). 2 "Buyer's Savings Plan" has the meaning given such term in Section 6.3(d). "Cash Purchase Price" has the meaning given such term in Section 3.2(d). "Certificate of Designation" means the certificate designating the shares of Preferred Stock substantially in the form of Exhibit 1.1-A. "Claim Notice" has the meaning given such term in Section 9.2(e). "Closing" has the meaning given such term in Section 3.1. "Closing Condition" means each of the conditions to the Closing set forth in Article VII. "Closing Date" means the date on which the Closing occurs. "Closing Permitted Encumbrances" means: (i) easements, leases, reservations, or other rights of others in, or minor defects and irregularities in title that do not materially impair the use of, the encumbered property or assets for the purposes for which they are held; and (ii) any Lien or privilege vested in any lessor, licensor or permittor for rent or other obligations solely related to the period after the Closing. "Code" means the Internal Revenue Code of 1986, as amended. "Confidentiality Agreement" means the Amended and Restated Confidentiality Agreement dated as of March 5, 2002, by and between Seller and Valero. "Counterparty" shall have the meaning set forth in Section 6.9. "CPA Firm" has the meaning given such term in Section 3.3(d). "Cure Amount" means the amount of cash required for the cure or compensation necessary to assume and assign, a contract or agreement, pursuant to the requirements of Section 365(b) of the Bankruptcy Code. "Department of Revenue Claim" means all claims of Seller against the Department of Revenue, State of Louisiana, relating to enterprise zone tax credits accruing prior to the Closing Date, including those as described in filings made by Seller in Suit No. 501828, Div. "27" pending in the 19th Judicial District Court for the Parish of East Baton Rouge, State of Louisiana. "Earn Out Amount" shall have the meaning set forth in Section 3.4(a). "Earn Out Payment" shall mean for any Earn Out Year, the excess of the 2-1-1 Crack Spread over the Base Crack Spread determined in the manner specified in (and as such terms are defined in) Exhibit 3.4. 3 "Earn Out Period" shall mean the seven year period commencing on either September 1, 2003 or January 1, 2004, at Seller's option designated in writing to Buyer on or before the Closing Date; provided that if no such designation is made, the Earn Out Period shall commence on January 1, 2004. "Earn Out Year" shall mean any one-year period commencing on the first day of the Earn Out Period or on any anniversary thereof during the Earn Out Period. "Effective Date" has the meaning given such term in the first paragraph of this Agreement. "Election Period" has the meaning given such term in Section 9.2(e). "Environmental Law" means any Law pertaining to health (with respect to exposure to Hazardous Materials) or the environment currently in effect in any or all jurisdictions in which Seller owns or has owned property or conducts or has conducted business, including the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980, as amended, the Federal Water Pollution Control Act, as amended, the Resource Conservation and Recovery Act of 1976, as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Hazardous & Solid Waste Amendments Act of 1984, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, the Oil Pollution Act of 1990, and any state and local Laws implementing or comparable to the foregoing federal Laws. "Environmental Permit" means any Authorization with respect to the Business or the Assets under any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Account" means the escrow account established in accordance with the Escrow Agreement. "Escrow Agent" means Wilmington Trust Company, in its capacity as Escrow Agent under the Escrow Agreement. "Escrow Agreement" means the Escrow Agreement substantially in the form of Exhibit 1.1-B dated as of the date of this Agreement among the Escrow Agent, Buyer, and Seller. "Estimated MSCG Inventory Amount" has the meaning given such term in the Inventory Sale Agreement. "Estimated Seller Inventory Amount" means 90% of Seller's good faith estimate of the value of the Seller Inventory on the Closing Date, prepared on the basis of an inventory conducted on the Closing Date, and valued on the same basis as specified for the Seller Inventory Amount in Exhibit 3.3(b). "Exchange Act" means the Securities Exchange Act of 1934, as amended. 4 "Excluded Assets" means (i) all cash and cash equivalents, (ii) the UOP Claim, (iii) accounts receivable, (iv) prepaid expenses, (v) exchange imbalances, (vi) other current assets other than Inventory, (vii) all rights related to the ownership of the Assets or the operation of the Business prior to 2:59 a.m. Central Time on the Closing Date, including litigation claims and claims under insurance policies (including director and officer liability policies), (viii) all rights and powers of a trustee and debtor-in-possession against any Person whatsoever, including all avoidance powers granted to Seller or its bankruptcy estate under the Bankruptcy Code and all causes of action and remedies granted pursuant to Section 502, 510, 541, 544, 545, 547 through 551 and 553 of the Bankruptcy Code, (ix) all deposits and escrow accounts provided to contract parties for credit enhancement or to secure obligations except the GATX Environmental Escrow Account, (x) rights and obligations under contracts to which Seller is a party or related to the Assets that are not Assumed Contracts, (xi) deposits, (xii) tax refunds and benefits, (xiii) the Department of Revenue Claim, (xiv) all real and personal property located in Houston, Texas except books and records related to the Refinery other than Restricted Information and (xv) those assets identified on Schedule 1.1-D of the Seller Disclosure Schedule. "Excluded Liabilities" means all liabilities, obligations, claims, costs, penalties and expenses related to the Business for the period prior to 2:59 a.m. Central Time on the Closing Date whether known or unknown, contingent or otherwise, excluding Assumed Liabilities, but including the following: (a) All indebtedness for borrowed money of Seller; (b) All guarantees of third party obligations by Seller and reimbursement obligations to guarantors of Seller's obligations or under letters of credit; (c) All Taxes imposed (i) on the Business or Assets that are properly attributable to any period, or portion thereof, ending on or before the Closing Date and (ii) on the Seller regardless of whether attributable to periods ending before, on or after the Closing Date; (d) Except to the extent constituting Assumed Liabilities, all actions, suits, proceedings, arbitrations or investigations pending against Seller on or before the Closing Date or relating to the Business or Assets prior to the Closing Date even if instituted after the Closing Date; (e) All liabilities of Seller to any owner or former owner of capital stock or warrants, holder of indebtedness for borrowed money, or current or former officer or director of Seller; (f) Except as provided in Section 6.3, any liabilities or obligation: (i) for salary, wages, benefits, vacation, supplies or overhead for or on behalf of any current or former employees of Seller pertaining to their employment by Seller at the Assets, (ii) to the extent arising out of acts or omissions prior to Closing with respect to any Seller Benefit Plan, employee practices or programs, including employee claims of wrongful discharge or discrimination, (iii) severance liabilities of Seller and any other obligations of Seller under employment contracts for any employees of Seller, and (iv) any change of control amounts due from Seller and 5 payable to any Retained Employees or Transferred Employees as a result of the transactions contemplated by this Agreement; (g) drafts or checks outstanding at the Closing; (h) any claims related to Excluded Assets, including contracts that are not Assumed Contracts; (i) obligations under any futures contracts, options on futures, swap agreements or forward sale agreements; and (j) Retained Environmental Liabilities. "Filed SEC Documents" means the SEC Documents filed with the SEC and publicly available as of the date of this Agreement. "GATX Environmental Escrow Account" means that escrow account established pursuant to the Environmental Escrow Agreement dated September 19, 1997, and any amendments or restatements thereto, among Seller, GATX Terminals Corporation, and First National Bank of Commerce, as escrow agent. "Governmental Authority" means any national, federal, regional, state, local or other governmental agency, authority, administrative agency, regulatory body, commission, instrumentality, court, or arbitral tribunal, including any multinational authority having governmental or quasi-governmental powers; provided, however, that such term shall not include any entity or organization that is engaged in industrial or commercial operations and is wholly or partly owned by any government. "Hazardous Materials" means those pollutants, contaminants, chemicals or toxic, hazardous, or petroleum hydrocarbon substances or wastes that are regulated under applicable Environmental Laws. "Holdback Amount" means $20,000,000 in stated value of Preferred Stock (800,000 shares). "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "HSR Fee" means $280,000. "Indemnified Party" has the meaning given such term in Section 9.2(e). "Indemnity Notice" has the meaning given such term in Section 9.2(e). "Intellectual Property" has the meaning given such term in Section 2.1(e). "Inventory" means the MSCG Inventory and the Seller Inventory. 6 "Inventory Sale Agreement" means the Inventory Sale Agreement substantially in the form of Exhibit 1.1-C dated as of the date hereof among Seller, Buyer, Valero, and MSCG. "knowledge" means, when used with respect to Seller, the actual knowledge of S. Clark Johnson, Eric E. Bluth, Lynn Bourdon, Richard Rayzor, or Roberta Rossi or, but only to their actual knowledge with respect to their areas of responsibility at Seller, the actual knowledge of Aubrey Marchand, Mark Bowen, Richard Price, Troy Champeaux, Susan Nelson, Dan McCormick, Gary Sorrells, or Richard Kaminski, and, when used with respect to Buyer, the actual knowledge of Mike Ciskowski, Jason Fraser, Chris Quinn, Kimberly Bowers, or the chief financial officer of Valero. "Land" has the meaning given such term in Section 2.1(a). "Law" means any applicable law, statute, or ordinance of any nation or state, including the United States of America, and any political subdivision thereof, including any state of the United States of America, any regulation, policy, protocol, proclamation, or executive order promulgated by any Governmental Authority, any rule or regulation of any self-regulatory organization such as a securities exchange, or any applicable judgment, order, decree, or decision of any court or other Governmental Authority having the effect of law in any such jurisdiction. "Lien" means any mortgage, pledge, security interest, lien, encumbrance or charge of any kind (including any agreement to give any of the foregoing), any conditional sale or other title retention agreement, or the filing of or agreement to give any financing statement under the Laws of any jurisdiction. "Material Adverse Effect" means any condition, circumstance, event, change, or effect that (i) when used with respect to the Assets, would reasonably be expected to cause loss or liability in excess of $3,000,000 with respect to the Assets after the Closing or (ii) when used with respect to the ability of a Person to perform its obligations under this Agreement, would reasonably be expected to materially and adversely affect such ability; provided, however, that in no event shall any condition, circumstance, event, change, or effect arising from any of the following be deemed to constitute a Material Adverse Effect: (A) entering into this Agreement or the announcement of the transactions contemplated by this Agreement, including the filing and continuation of the Seller Bankruptcy and any insolvency or lack of liquidity of Seller, and any reasonably anticipated effects of any thereof, (B) United States or global regulatory or political conditions, (C) changes in the United States or global economy as a whole, and (D) any effect resulting from changes that are the result of factors generally affecting the specific industry or markets in which Seller competes. "MSCG" means Morgan Stanley Capital Group Inc., a Delaware corporation. "MSCG Inventory" means the "Inventory," as defined in the Inventory Sale Agreement. "Objection" has the meaning given such term in Section 3.3(c). 7 "Permitted Encumbrance" means: (i) Liens for Taxes, assessments, and other governmental charges not delinquent or that are currently being contested in good faith by appropriate proceedings; (ii) mechanics' and materialmen's Liens not filed of record and similar charges not delinquent or that are filed of record but are being contested in good faith by appropriate proceedings; (iii) Liens in respect of judgments or awards with respect to which an appeal or other proceeding for review is being prosecuted and with respect to which a stay of execution pending such appeal or such proceeding for review has been obtained; (iv) easements, leases, reservations, or other rights of others in, or minor defects and irregularities in title that do not materially impair the use of, the encumbered property or assets for the purposes for which they are held; (v) any Lien or privilege vested in any lessor, licensor, or permittor for rent or other obligations; and (vi) Liens that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect with respect to the Assets. "Person" means an individual, partnership, limited liability company, corporation, joint stock company, trust, estate, joint venture, association, or unincorporated organization, or any other form of business or professional entity. "Pre-Closing Determined Cure Amount" shall have the meaning given such term in Section 6.9. "Preliminary Tax Proration" shall have the meaning given such term in Section 3.5(a) "Preferred Stock" has the meaning given such term in Section 3.2(d). "Refinery" has the meaning given such term in Section 2.1(b). "Restricted Information" means (i) any information related to offers for the purchase of Seller or all or any material portion of its assets received or created by Seller, whether prior to or after the Effective Date, (ii) any other information restricted from Buyer by the Bankruptcy Court, and (iii) any strategic plans of Seller except plans for the operation of or capital additions to the Refinery. "Retained Employees" has the meaning given such term in Section 6.3(a). "Retained Environmental Liabilities" means all environmental liabilities and obligations related to the Seller, the Assets or the Business with respect to actions, inactions or matters occurring or arising prior to the Closing whether a claim with respect thereto is raised before or after Closing, excluding Assumed Environmental Liabilities, but including without limitation: 8 (a) penalties assessed for any notice of violation received from any Governmental Authority related to the operation of the Assets or the Business prior to Closing that is pending and unresolved as of the Closing Date; (b) claims asserted in connection with the offsite transportation and disposal prior to Closing of wastes containing Hazardous Materials generated at the Refinery or otherwise in connection with the Business; and (c) claims for bodily injury or property damage arising out of exposure to or contamination by Hazardous Materials to the extent arising from the ownership of, or operations at or in connection with, the Refinery prior to the Closing Date. "Review Period" has the meaning given such term in Section 3.3(c). "Sale Order" has the meaning given such term in Section 10.1. "Sale Procedures Order" has the meaning given such term in Section 10.1. "SEC" means the Securities and Exchange Commission. "SEC Documents" has the meaning given such term in Section 5.10. "Securities Act" means the Securities Act of 1933, as amended. "Seller" has the meaning given such term in the first paragraph of this Agreement. "Seller Bankruptcy" has the meaning given such term in the first Recital of this Agreement. "Seller Benefit Plans" has the meaning given such term in Section 6.3(a). "Seller Covered Loss" has the meaning given such term in Section 9.2(a). "Seller Disclosure Schedule" means the disclosure schedule delivered by Seller to Buyer on the date of this Agreement. "Seller Inventory" means the inventory at Closing other than the MSCG Inventory, including sulfur, petroleum coke, and other product inventory (other than the MSCG Inventory) and the stores inventory, spare parts, catalyst (including reclaimable precious metals), chemicals and consumables in warehouse storage owned by Seller at Closing, in each case whether at the Refinery or terminals, in transit by pipeline or by vessel, or located elsewhere, whether in the possession of Seller or any other Person (but attributable to the Business), but excluding wholesale exchange balances. "Seller Inventory Adjustment" has the meaning given such term in Section 3.3(a). "Seller Inventory Amount" means the value of the Seller Inventory as of the Closing Date, determined in accordance with Exhibit 3.3(b). 9 "Seller Inventory Statement" has the meaning given such term in Section 3.3(b). "Seller Savings Plan" has the meaning given such term in Section 6.3(d). "Seller's Pro Rata Taxes" has the meaning given such term in Section 3.5(a). "Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company, joint venture, or other legal entity (and any successor to such legal entity) of which such Person owns, directly or indirectly, more than 50 percent of the stock or other equity or partnership interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity. "Tax" means any income, profits, franchise, withholding, ad valorem, employment, social security, disability, occupation, property, severance, or excise tax, together with any interest and penalties with respect thereto, imposed by or on behalf of any Taxing Authority. "Taxing Authority" means, with respect to any Tax, the Governmental Authority that imposes such Tax and the Governmental Authority charged with the collection of such Tax, including any Governmental Authority that imposes, or is charged with collecting, social security or similar charges or premiums. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto. "Termination Date" has the meaning given such term in Section 8.1(e). "Third Person Claim" has the meaning given such term in Section 9.2(e). "Third Person Consent" means any approval, consent, amendment, or waiver of a Person that is required under any organizational document of Seller or Buyer or under any contract to which Seller or Buyer is a party or by which it or its assets is bound in order to effect the transactions contemplated hereby or any part thereof, including waivers and consents by lenders and waivers of transfer restrictions; provided, however, that the use of the term "Third Person Consent" in this Agreement shall not be deemed to require any such approval, consent, amendment or waiver of such Person when such approval, consent, amendment or waiver has been obtained, or could be obtained, by entry of an Order of the Bankruptcy Court or another court of competent jurisdiction. "Transferred Employee" has the meaning given such term in Section 6.3(a). "UOP Claim" means all claims of Seller against UOP, a general partnership, EM Sectors Holdings, Inc., and Catalysts, Adsorbents and Process Systems, Inc., and others relating to technology and services provided to Seller prior to Closing for its catalytic cracking unit, including those as described in pleadings filed by Seller in the District Court in Harris County, Texas, for misrepresentation, negligence, breach of contract, and violation of the Illinois Deceptive Trade Practice Act. "Valero" has the meaning given such term in the first paragraph of this Agreement. 10 "Valero Balance Sheet" means the audited balance sheet of Valero as of December 31, 2002 included in the Valero Financial Statements. "Valero Common Stock" means the common stock, par value $0.01 per share, of Valero. "Valero Financial Statements" means the audited financial statements of Valero as of and for the years ended December 31, 2001 and 2002. "Valero Form 10-K" means the Annual Report on Form 10-K for the year ended December 31,2002. "Valero Parties" means Valero and its Subsidiaries (including Buyer) and their respective officers, directors and employees. "Welfare Benefits" has the meaning given such term in Section 6.3(e). Section 1.2 Other Defined Terms. Other terms defined in this Agreement have the meanings so given them. Section 1.3 Construction. Whenever the context requires, the gender of all words used in this Agreement includes the masculine, feminine, and neuter. Terms defined in the singular have the corresponding meanings in the plural, and vice versa. All references to Articles and Sections refer to articles and sections of this Agreement, and all references to Exhibits refer to exhibits to this Agreement, which are attached hereto and made a part hereof for all purposes. The word "including" means "including, but not limited to." ARTICLE II PURCHASE AND SALE OF ASSETS Section 2.1 Purchase and Sale of Assets. Subject to and in accordance with the terms and conditions of this Agreement, at the Closing, Seller shall sell to Buyer, and Buyer shall purchase from Seller, the following assets (the "Assets") free and clear of any Liens except Closing Permitted Encumbrances: (a) the land more particularly described in Exhibit 2.1(a) (the "Land"), together with all of Seller's right, title, and interest in and to all land lying in the bed of any street, road, or avenue, opened or proposed, in front of or adjoining the Land, any land owned, claimed, or fenced by Seller which adjoins or is located near the Land (including property owned by Seller in New Sarpy, Louisiana), and all easements, servitudes, rights-of-way, privileges, licenses (written or oral), and appurtenances relating to the Land; (b) all buildings, fixtures and other improvements located on the Land, including the petroleum refinery located thereon (the "Refinery"); (c) all of Seller's right, title, and interest in and to all refinery equipment and systems, including (i) all processing units, cokers, crackers, and distillation, cracking, desulphurization and deasphalting systems and catalysts, chemicals, precious metals and consumables not 11 included in Inventory, (ii) all heating, lighting, and power systems, fire prevention and fire extinguishing systems, control systems, and heating, refrigerating, air conditioning, and ventilating systems, (iii) all tanks, meters, pumps, engines, vehicles, compressors, pipes, fittings, valves, connections, regulators, and loading and unloading lines, (iv) all telecommunication facilities and equipment and computer hardware, (v) all tools, computers, unit fill and line fill, and (vi) all other tangible personal property, in each case (1) presently located on the Land or (2) used or held for use by Seller in connection with the ownership and operation of the Refinery, including the tangible personal property more particularly described in Exhibit 2.1(c); (d) all of Seller's right, title, and interest in and to all Assumed Contracts accruing after Closing; (e) all of Seller's right, title, and interest in and to all patents, copyrights, trademarks, trade secrets, information technology, and other intellectual property rights ("Intellectual Property"), together with all applications and registrations with respect thereto, all to the extent used by Seller in connection with the ownership and operation of the Refinery; (f) to the extent assignment is permitted by Law, all of Seller's right, title, and interest in and to all Authorizations granted by any Governmental Authority to Seller and used or held for use in connection with the ownership and operation of the Refinery accruing after Closing; (g) the Inventory; (h) all of Seller's right, title, and interest in and to all originals and copies of plans, specifications, designs, reports, maps, surveys, manuals, and operating and maintenance records (whether paper, photographic, electronic, magnetic, optical or otherwise) used or held for use by Seller in connection with the ownership and operation of the Refinery; (i) all of Seller's books and records relating to the Business and the Assets, including Transferred Employees, except Restricted Information; (j) (i) all rights of Seller to property damage insurance proceeds related to the Assets to the extent Seller has not incurred costs or losses prior to Closing giving rise to such proceeds and (ii) all rights of Seller to business interruption insurance proceeds to the extent the period covered by such business interruption insurance extends past the Closing Date (it being understood that Seller shall have the right to terminate coverage under its insurance policies effective as of the Closing); (k) all of Seller's right, title, and interest in and to GATX Environmental Escrow Account; (l) all warranties related to the Assets to the extent a claim under such warranties arises after the Closing; and (m) all other real and personal property owned by Seller, located at the Refinery; but excluding the Excluded Assets. 12 Section 2.2 Excluded Liabilities. Buyer and Seller agree that Buyer is not assuming the Excluded Liabilities. ARTICLE III CLOSING; INVENTORY ADJUSTMENT Section 3.1 Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place (a) at the offices of Vinson & Elkins L.L.P. in Houston, Texas, at 11:00 A.M. local time on the third business day after the day on which the last to be fulfilled of the Closing Conditions (other than Closing Conditions to be fulfilled on the Closing Date) is fulfilled or waived by the relevant party or (b) at such other time and place as Seller and Buyer shall agree. Section 3.2 Closing Deliveries. At the Closing, Seller and Buyer shall take the following actions and execute and deliver the following documents: (a) Each of Seller and Buyer shall execute and deliver to the other an Act of Sale substantially in the form of Exhibit 3.2(a), pursuant to which Seller conveys the Land and the improvements and fixtures thereon to Buyer, free and clear of all Liens except Closing Permitted Encumbrances; (b) Each of Seller and Buyer shall execute and deliver to the other a Bill of Sale, Assignment, and Assumption Agreement substantially in the form of Exhibit 3.2(b), pursuant to which Seller conveys the Assets to Buyer, free and clear of all Liens other than Closing Permitted Encumbrances, and Buyer assumes the Assumed Liabilities, in each case effective as of 2:59 a.m. on the Closing Date; (c) Seller shall deliver to Buyer possession of the Assets, free and clear of all Liens except Closing Permitted Encumbrances; (d) Buyer shall pay to Seller an amount equal to the sum of the Estimated Seller Inventory Amount reported in writing to Buyer by Seller before 9:00 a.m. Central Time on the Closing Date plus $400,000,000 and shall make the payment to MSCG described in Section 3.2(e) on behalf of Seller (collectively, the "Aggregate Purchase Price"), less (A) the Pre-Closing Determined Cure Amounts, (B) the Seller's Pro Rata Taxes, and (C) one-half the HSR Fee (items (A), (B) and (C) being referred to herein as the "Closing Purchase Price Adjustments"), payable as follows: (x) an amount in immediately available funds equal to the Estimated Seller Inventory Amount plus $150,000,000 less the Closing Purchase Price Adjustments (the "Cash Purchase Price"), and (y) Valero shall deliver to Seller 10,000,000 shares of 2% Mandatory Convertible Preferred Stock of Valero, with a stated value of $25 per share, equal to $250,000,000 having the terms set forth in the Certificate of Designation (the "Preferred Stock") less the Holdback Amount (800,000 shares); (e) Buyer shall pay to MSCG on behalf of Seller the Estimated MSCG Inventory Amount in accordance with the Inventory Sale Agreement; 13 (f) Buyer shall pay to each Counterparty the Pre-Closing Determined Cure Amounts with respect to such Counterparty; (g) Buyer shall deliver to the Escrow Agent the Holdback Amount; (h) Valero shall deliver to Seller (i) a copy of Valero's Certificate of Incorporation, as amended as of the Closing Date and including the Certificate of Designation, certified by the Secretary of State of the State of Delaware as of a date within five business days immediately preceding the Closing Date and (ii) a copy duly certified by a secretary or assistant secretary of Valero to be true and correct of the resolutions of Valero referred to in Section 5.12; and (i) Each of Seller and Valero shall execute and deliver to the other a Registration Rights Agreement substantially in the form of Exhibit 3.2(i). Section 3.3 Seller Inventory Adjustment. (a) If the Seller Inventory Amount is greater than the Estimated Seller Inventory Amount, Buyer shall make an additional payment to Seller in an amount equal to the excess of the Seller Inventory Amount as calculated in accordance with this Section 3.3 over the Estimated Seller Inventory Amount, together with interest thereon at the Agreed Rate from the Closing Date to the date of payment, which payment shall be made on or before the fifth Business Day after the final determination of the Seller Inventory Adjustment in accordance with this Section 3.3. If the Seller Inventory Amount is less than the Estimated Seller Inventory Amount, Seller shall pay to Buyer an amount equal to the excess of the Estimated Seller Inventory Amount over the Seller Inventory Amount as calculated in accordance with this Section 3.3, together with interest thereon at the Agreed Rate from the Closing Date to the date of payment, which payment shall be made on or before the fifth Business Day after the final determination of the Seller Inventory Adjustment in accordance with this Section 3.3. Buyer shall provide Seller with payment instructions prior to the date of payment. The payment to be made by Buyer or Seller, as applicable, is herein called the "Seller Inventory Adjustment." (b) The Seller Inventory Statement shall be prepared based on a physical inventory performed by Buyer and Seller and valuation calculations initially made by Seller. Such physical inventory and valuation calculations shall be carried out using the methods set forth in Exhibit 3.3(b). Such physical inventory shall be commenced on the Closing Date and shall be completed as soon as reasonably practicable thereafter. With respect to all items of warehouse inventory, such physical inventory shall be completed by Buyer and Seller prior to Closing based on a reasonable sampling of such inventory commenced no earlier than the date of this Agreement in accordance with the procedures specified in Exhibit 3.3(b). The Seller Inventory specified in Exhibit 3.3(b) shall be included in the Seller Inventory Amount at fair market value, determined based on the market price indices set forth in such Exhibit. The warehouse inventory and other inventory for which a market price index is not set forth on Exhibit 3.3(b) shall be included in Seller Inventory at its book value at Closing. After receipt of the Adjusted Inventory Report (as defined in Exhibit 3.3(b)) Seller shall initially calculate the Seller Inventory Amount and shall deliver to Buyer a statement (the "Seller Inventory Statement") setting forth the Seller Inventory Amount, together with supporting calculations and information, as soon as reasonably practicable after the receipt of the Adjusted Inventory Report but no later than within 10 14 Business Days thereof. From the Closing Date through the final determination of the Seller Inventory Amount in accordance with this Section 3.3, (i) Seller shall give Buyer access at all reasonable times to the personnel and working papers utilized in determining the Seller Inventory Amount for purposes of confirming Seller's calculation of same and (ii) Seller and Buyer shall give one another access at all reasonable times to the personnel, properties, and books and records of the Refinery for purposes of determining the Seller Inventory Amount, including permitting the parties and their respective advisors to participate in the taking of the physical inventory. (c) Unless Buyer delivers notice (an "Objection") to Seller on or before the fifth Business Day after Buyer's receipt of the Seller Inventory Statement that Buyer disputes the Seller Inventory Amount specified in the Seller Inventory Statement and providing its proposed calculation of the Seller Inventory Amount, the Seller Inventory Amount shall be as specified in the Seller Inventory Statement. If Buyer delivers an Objection to Seller on or before such fifth Business Day that it disputes the Seller Inventory Amount specified in the Seller Inventory Statement, Seller shall respond to Buyer with respect to the Objection within five Business Days from the date of receipt (the "Review Period"). In any event the party hereto being obligated to pay the Seller Inventory Adjustment shall pay to the party hereto entitled to receive the Seller Inventory Adjustment the undisputed amount thereof in accordance with this Section 3.3. Buyer and Seller shall consult in good faith and use all reasonable efforts to reach agreement on any dispute regarding Seller Inventory Amount. (d) If on or before the fifth Business Day after the end of the Review Period Seller and Buyer have not agreed on the Seller Inventory Amount, Seller or Buyer shall have the right to submit such matters as remain in dispute to Deloitte & Touche, or such other accounting firm as Seller and Buyer shall agree (the "CPA Firm"), for final resolution. The CPA Firm promptly shall review this Agreement and the disputed items, subject to any scope that the parties hereto jointly agree upon. The parties hereto shall make readily available to the CPA Firm all books and records relating to the Seller Inventory volumes and valuation calculation and any other items the CPA Firm may reasonably request. In resolving the dispute, the CPA Firm shall consider only those items or amounts on which the parties hereto have disagreed. (e) The CPA Firm shall deliver to the parties as promptly as practicable a report determining the disputed Seller Inventory Adjustment. Such report shall be final and binding upon Seller and Buyer (and judgment thereupon may be entered in any court having jurisdiction over the party against which the same is sought to be enforced), and the Seller Inventory Amount and Seller Inventory Adjustment shall be determined accordingly. Buyer and Seller shall each pay one-half the fees and expenses of such accounting firm for its services in resolving such dispute. Seller and Buyer may agree in writing prior to Closing on the value of one or more items of inventory at or prior to Closing and agree that such value is not subject to further adjustment in accordance with this Section 3.3. Section 3.4 Earn Out. (a) Buyer shall, subject to the conditions and at the times set forth in this Section 3.4, pay to Seller an additional and contingent amount not to exceed $50,000,000 annually and $175,000,000 in the aggregate (the "Earn Out Amount"). 15 (b) The Earn Out Amount shall be payable as follows: (i) Within 30 days following the end of each Earn Out Year, Buyer shall pay to Seller the Earn Out Payment for such Earn Out Year, if any. (ii) No interest shall accrue on the Earn Out Amount. (iii) The manner in which Earn Out Payments shall be calculated and hypothetical examples of when and how Earn Out Payments would be made are set forth in Exhibit 3.4. (c) All payments by Buyer to Seller pursuant to this Section 3.4 shall be made by wire transfer of immediately available funds to the account specified by Seller from time to time. (d) If, at any time prior to or during the Earn Out Period, Platts Oilgram Price Report or Petroleum Argus Global Markets shall cease to be published or shall fail to publish any of the prices used in calculating the Earn Out Payments, the parties (acting in good faith) shall mutually agree on an alternate publication for the purpose of establishing any such prices. If the Maya Crude pricing formula ceases to represent the true market price for Maya Crude, or if Maya Crude is no longer the industry reference for heavy, sour Gulf Coast crudes, then the parties (acting in good faith) shall mutually agree on an alternative pricing formula consistent with the intent of the parties as of the date of this Agreement. (e) Buyer shall initially calculate the Earn Out Payment and shall deliver to Seller a statement setting forth the calculation of the Earn Out Payment, together with supporting information, at such time as the Earn Out Payment is made. The acceptance by Seller of any Earn Out Payment shall not preclude Seller from taking exception to the correctness of the amount of any Earn Out Payment due hereunder; provided, however, that any such exception must be specified by Seller in a written notice to Buyer within 30 days after the date such payment is made, which notice shall describe the basis for Seller's dispute in reasonable detail. If Seller gives such notice, Buyer shall pay to Seller any undisputed additional amount of the Earn Out Payment in accordance with this Section 3.4, and Seller and Buyer shall consult in good faith and use all reasonable efforts to agree upon the calculation of the Earn Out Payment. If on or before the 30th day after Seller's notice Seller and Buyer have not agreed on the Earn Out Payment, either Seller or Buyer shall have the right to submit such matters as remain in dispute to Deloitte & Touche, or such other accounting firm as Seller and Buyer shall agree, for final resolution, which resolution shall be binding upon Seller and Buyer, and judgment upon which may be entered in any court having jurisdiction over the party against which such determination is sought to be enforced. Buyer and Seller shall each pay one-half the fees and expenses of such accounting firm for its services in resolving such dispute. Section 3.5 Taxes, Utilities, Etc. (a) Real estate and personal property Taxes for the calendar year December 31, 2003, shall be prorated on a per diem basis to the Closing Date, with Seller being responsible for such Taxes allocable to the period from January 1, 2003, to the Closing Date, and Buyer being responsible for such Taxes allocable for the period from the 16 Closing Date through December 31, 2003. The initial proration (the "Preliminary Tax Proration") shall be based upon the amounts of real estate and personal property Taxes allocated to the Assets from the most recent property tax assessments if known, or upon the amounts paid during the preceding year to the extent not known, all as shown on Schedule 3.5(a) of the Seller Disclosure Schedule. Such prorations shall be made at Closing, and Seller's pro rata share of such Taxes ("Seller's Pro Rata Taxes") shall be deducted from the Aggregate Purchase Price and the Cash Purchase Price as provided in Section 3.2(d). Buyer will assume responsibility for the actual payment to the applicable Governmental Authority of (1) any unpaid property Taxes not yet due to the extent they relate to periods after the Closing Date, and (2) any property Taxes to the extent that there has been a reduction in the Aggregate Purchase Price and the Cash Purchase Price pursuant to this Section 3.5(a). Seller shall remain liable for any unpaid property Taxes to the extent they relate to periods ending on or before the Closing Date and for which there has not been a reduction in the Aggregate Purchase Price and the Cash Purchase Price pursuant to this Section 3.5(a). Buyer shall have the right to contact any Governmental Authority with respect to obtaining assurances that Buyer shall not be liable for the payment of any property Taxes which are to be paid by Seller pursuant to the preceding sentence. Promptly upon Buyer's receipt of the final invoices for the Taxes prorated in accordance with this Section 3.5(a), Buyer shall deliver a copy of such invoices to Seller. If the amount of such Taxes as reflected in such invoices is different from the amount of such Taxes as reflected in Schedule 3.5(a) of the Seller Disclosure Schedule, Buyer or Seller, as applicable, shall make an adjustment payment to the other such that the Seller's Pro Rata Taxes deducted from the Aggregate Purchase Price and the Cash Purchase Price, together with such adjustment payment, shall equal Seller's pro rata portion of such Taxes as specified in the first sentence of this Section 3.5(a). The resulting amount payable by Buyer or Seller shall be paid promptly upon demand by the party hereto to whom such payment is owed and any failure by Seller to pay such claim shall be a Seller Covered Loss, and any failure by Buyer to pay such claim shall be a Buyer Covered Loss. To the extent permitted by Law, Buyer shall claim the credit against Louisiana franchise and income taxes with respect to the full amount of the personal property taxes imposed on inventory for the period from January 1, 2003, through December 31, 2003, and, upon the receipt of such credit (whether through reduction of an amount due or through refund) shall pay to Seller Seller's pro-rata portion, based on the portion of such taxes included in Seller's Pro Rata Taxes. (b) Any charges for utilities or similar costs or assessments, common area maintenance reimbursements to lessors, local business or other license fees and other similar periodic charges shall be prorated on a per diem basis through the Closing Date, with Seller being responsible for all of such prorated charges attributable to the period up to and ending on the Closing Date and Buyer being responsible for all of such prorated charges attributable to the period after the Closing Date. Promptly upon receipt, Buyer or Seller, as appropriate, shall provide the other with copies of all bills for such items for which the other party is responsible pursuant to this Section 3.5(b). The resulting amount payable by Buyer or Seller shall be paid promptly upon demand by the party hereto to whom such payment is owed and any failure by Seller to pay such claim shall be a Seller Covered Loss, and any failure by Buyer to pay such claim shall be a Buyer Covered Loss. 17 Section 3.6 Escrow Agreement. Pursuant to the Escrow Agreement, (a) the Escrow Agent shall deliver to Buyer from the Escrow Account shares of Preferred Stock with a stated value equal to (i) if applicable and not otherwise paid pursuant to the provisions of this Agreement, the Seller Inventory Adjustment and (ii) the amount of any claim for Seller Covered Losses (subject to the limitations set forth in Section 9.2(a)) mutually agreed by Seller and Buyer or finally determined pursuant to judicial proceedings to be due to Buyer and (b) the Escrow Agent shall pay to Seller from the Escrow Account (i) at the request of Seller at any time, any dividends received on the Preferred Stock in the Escrow Account, (ii) at the end of the survival periods specified in Section 9.2(a)(ii), an amount equal to the remaining Preferred Stock and dividends, if any, in the Escrow Account (less the amount of any Preferred Stock still required to be maintained in the Escrow Account pursuant to Section 9.2(a)(viii)) plus any pending claims of Buyer for Seller Covered Losses duly made in accordance with Section 9.2(a)(ii)), and (iii) after the end of the survival periods specified in Section 9.2(a)(ii), upon final determination of any claim of Buyer for Seller Covered Losses, an amount equal to the excess of the amount of Preferred Stock retained in the Escrow Account in respect of such claim in accordance with Section 9.2(a)(ii) over the amount finally determined to be due to Buyer in connection with such claim. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Buyer and Valero as follows: Section 4.1 Organization and Qualification. Seller is a corporation duly organized and validly existing and, except for the effects of the Seller Bankruptcy, in good standing under the Laws of the State of Delaware. Subject to the Bankruptcy Court's entry of the Sale Order, Seller has the requisite corporate power and authority to carry on its business as it is now being conducted. Seller has delivered to Buyer correct and complete copies of its certificate of incorporation and by-laws. Seller is duly qualified as a foreign corporation and, except for the effects of the Seller Bankruptcy, in good standing in the State of Louisiana and in each other jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect with respect to the Assets. Seller has no subsidiaries. Section 4.2 Authority Relative to Agreements. Subject to the Bankruptcy Court's entry of the Sale Order, Seller has the requisite corporate power and authority to enter into this Agreement and the other agreements to which Seller is a party contemplated hereby and to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and the other agreements to which Seller is a party contemplated hereby by Seller and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of Seller and its stockholders and, prior to the Closing Date, will be duly authorized by the Bankruptcy Court. Following the approval of this Agreement and the other agreements to which Seller is a party contemplated hereby by the Bankruptcy Court pursuant to the Sale Order, each of this Agreement and the other agreements to which Seller is a party contemplated hereby will have been duly and validly executed by Seller and, assuming the 18 due authorization, execution, and delivery of this Agreement and such other agreements by the other parties thereto, will constitute the legal, valid, and binding obligation of Seller enforceable in accordance with its terms, except (i) as enforcement may be, after Seller's emergence from its pending bankruptcy, limited by bankruptcy, insolvency, or other similar Laws affecting the enforcement of creditors' rights generally, and (ii) that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought. Section 4.3 Conflicts and Approvals. To Seller's knowledge, except (A) as required in connection with the HSR Act, (B) for the receipt of the Third Person Consents set forth in Schedule 4.3(B) of the Seller Disclosure Schedule, (C) for the effectuation of the filings and registrations with and the receipt of the Authorizations from Governmental Authorities set forth in Schedule 4.3(C) of the Seller Disclosure Schedule, and (D) as permitted under the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure or the orders of the Bankruptcy Court, neither the execution and delivery by Seller of this Agreement and the other agreements to which Seller is a party contemplated hereby nor the performance by Seller of its obligations hereunder and thereunder will (a) violate or breach the terms of or cause a default or require any filing, consent, authorization, notice or approval under (i) any Law applicable to Seller, (ii) the Certificate of Incorporation or By-Laws or other organizational documents of Seller, or (iii) any Authorization or Environmental Permit or any Assumed Contract or (b) with the passage of time, the giving of notice, or the taking of any action by a third Person, have any of the effects set forth in clause (a) of this Section 4.3, except for any matters described in this Section 4.3 (excluding consents set forth in Schedule 4.3(B)) that would not reasonably be expected to have a Material Adverse Effect with respect to the Assets or the ability of Seller to perform its obligations under this Agreement. Section 4.4 Title to Assets. To Seller's knowledge, Seller has title to the Assets (other than the MSCG Inventory), free and clear of Liens, other than (a) Liens securing debt that will not encumber the Assets after Closing and (b) Permitted Encumbrances. To Seller's knowledge, at Closing, Seller will convey to Buyer the Assets (including the MSCG Inventory), free and clear of any Liens except the Closing Permitted Encumbrances. To Seller's knowledge, to the extent that any of the Assets are held by Seller under lease agreements or easements, Seller enjoys peaceful and undisturbed possession of such properties, other than any properties that, individually or in the aggregate, are not material. Section 4.5 Assumed Contracts. (a) To Seller's knowledge, Seller has provided Buyer (through Seller's data website or otherwise) complete and correct copies of the Assumed Contracts listed on Schedules 1.1-A, 1.1-B and 1.1-C. (b) To Seller's knowledge, except for any matter arising from the Seller Bankruptcy, any failure of Seller to make timely payments or any matter that would not reasonably be expected to have a Material Adverse Effect with respect to the Assets, as of the date of this Agreement (i) Seller has not breached the terms of any Assumed Contract described in Section 4.5(a), (ii) Seller has not received from any other party to any Assumed Contract described in Section 4.5(a) specific written notification that such Assumed Contract is not in full force and 19 effect, that Seller has not performed its obligations thereunder to date, or that any other party thereto has not performed its obligations thereunder to date, and (iii) no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) would reasonably be expected to result in a breach or violation of, or a default under, the terms of any Assumed Contract described in Section 4.5(a). Section 4.6 Authorizations. To Seller's knowledge, except with respect to matters (A) arising from the Seller Bankruptcy, (B) subject to Section 4.8 or (C) as would not reasonably be expected to have a Material Adverse Effect with respect to the Assets, as of the date of this Agreement (a) Seller has obtained all Authorizations that are necessary to construct, own, operate, use and carry on the Business as currently conducted, (b) no event has occurred, and no circumstance or condition exists, that (with or without notice) would reasonably be expected to constitute or result in a violation by Seller of, or a failure on the part of Seller to comply with the terms of, any Authorization, (c) Seller has not received from any Governmental Authority written notification that any Authorization (i) is not in full force and effect, (ii) has been violated in any respect, or (iii) is subject to any suspension, revocation, modification or cancellation, and (d) there is no action, suit, proceeding, arbitration, or investigation pending or, threatened regarding suspension, revocation, modification, or cancellation of any Authorization. Section 4.7 Compliance with Law. To Seller's knowledge, except for matters subject to Section 4.3, 4.6, 4.8, or 4.11 or that would not reasonably be expected to result in a Lien on the Assets after Closing or require material corrective action by Buyer with respect to the Assets after Closing, as of the date of this Agreement (a) the Assets are in compliance with all applicable Laws, (b) Seller has received no specific written notification from any applicable Governmental Authority that the Assets are not in compliance with all applicable Laws, and (c) no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) would reasonably be expected to constitute or result in a failure of the Assets to comply with the terms of, any applicable Law. Section 4.8 Environmental Matters. To Seller's knowledge as of the date of this Agreement, except for matters arising from the Seller Bankruptcy or disclosed in Schedule 4.8 of the Seller Disclosure Schedule and except for Assumed Liabilities and matters that would not reasonably be expected to result in a Lien on the Assets after Closing or require material corrective action by Buyer with respect to the Assets after Closing: (a) the Assets and the operations of Seller with respect thereto are in compliance with all applicable Environmental Laws, including Environmental Permits; (b) all Authorizations, if any, required to be obtained or filed by or complied with by Seller under any applicable Environmental Law in connection with the Assets and the operations of Seller with respect thereto, as they are currently being conducted, including those relating to Hazardous Materials, have been duly obtained or filed for and are in full force and effect, and the Assets and Seller are in compliance with the terms and conditions of all such Authorizations, (c) there are no pending or threatened actions, suits, investigations, inquiries, or proceedings by or before any Governmental Authority under any applicable Environmental Law relating to the Assets or Seller's operations with respect thereto; 20 (d) there have been no releases of Hazardous Materials on or under the Assets by Seller as a result of Seller's operations with respect to the Assets that would require remediation by Buyer after Closing under applicable Environmental Laws; and (e) other than materials with respect to which Seller has asserted the attorney-client or the attorney-work product privileges, Seller has made available to Buyer all environmental site assessment reports and all material environmental studies and correspondence on environmental matters (in each case relevant to the Assets) in Seller's possession and relating to the Assets or Seller's operations with respect thereto. Section 4.9 Insurance. To Seller's knowledge, Schedule 4.9 of the Seller Disclosure Schedule sets forth a list, including the name of the underwriter, risks insured, coverage and related limits and deductibles, expiration dates, and significant riders, of the property damage and business interruption insurance policies currently maintained by Seller. To Seller's knowledge, as of the date of this Agreement, all such policies are in full force and effect and all premiums due thereon have been paid. Section 4.10 Labor Matters. To Seller's knowledge, as of the date of this Agreement, there is no labor dispute, strike, or work stoppage against Seller which would reasonably be expected to have a Material Adverse Effect with respect to the Assets after the Closing. Section 4.11 Taxes. To Seller's knowledge, except as set forth in Schedule 4.11 of the Seller Disclosure Schedule or as would not reasonably be expected to have a Material Adverse Effect with respect to the Assets after the Closing, there are no Liens on any of the Assets that arose in connection with any failure (or alleged failure) to pay any Tax that will continue to be Liens against the Assets (as distinguished from the proceeds thereof) after Closing. Section 4.12 No Brokers. To Seller's knowledge, no broker, finder, or investment banker is entitled to any brokerage, finder's, or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller or any stockholder of Seller, except any thereof the fees and commissions for which will be discharged by Seller or one or more stockholders of Seller. Section 4.13 Licenses. To Seller's knowledge, Seller has taken reasonable precautions to protect its rights in and to the Intellectual Property, including maintaining the confidentiality of trade secrets, pending patent applications, know-how, and other confidential Intellectual Property. Section 4.14 Foreign Person. Seller is not a "foreign person" as defined in Section 1445 of the Code. Seller's U.S. tax identification number is 76-0584376. Section 4.15 Foreign Trade Zone. To Seller's knowledge, as of the date of this Agreement, the Refinery is operating as a subzone, Subzone 124A (the "Subzone"), under a valid grant of authority from the Foreign Trade Zones Board and has been activated with the U.S. Customs Service. 21 ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER AND VALERO Buyer and Valero hereby jointly and severally represent and warrant to Seller as follows: Section 5.1 Organization and Qualification. Each of Buyer and Valero is a corporation duly organized and validly existing and in good standing under the Laws of Delaware. Each of Buyer and Valero has the requisite corporate power and authority to carry on its business as it is now being conducted. Buyer is duly qualified as a foreign corporation and in good standing in the State of Louisiana and in each other jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not, individually or in the aggregate, reasonably be expected to have a material adverse effect with respect to Valero and its Subsidiaries taken as a whole. Each Valero subsidiary (other than Buyer) which is a significant subsidiary as defined in Rule 1-.02(w) of Regulation S-X of the Exchange Act (a "Significant Subsidiary") is a corporation or other entity duly organized and validly existing and in good standing under the Laws of the jurisdiction in which it is incorporated or organized except where the failure to be in good standing would not, individually or in the aggregate, reasonably be expected to have a material adverse effect with respect to Valero and its Subsidiaries taken as a whole. Valero and each Valero Significant Subsidiary is duly qualified as a foreign corporation or other entity and in good standing in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not, individually or in the aggregate, reasonably be expected to have a material adverse effect with respect to Valero and its Subsidiaries taken as a whole. Section 5.2 Authority Relative to Agreements. Each of Buyer and Valero has the requisite corporate or partnership power and authority to enter into this Agreement and the other agreements to which Buyer and/or Valero is a party contemplated hereby and to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and the other agreements to which Buyer and/or Valero is a party contemplated hereby by each of Buyer and Valero and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of Buyer and Valero. Each of this Agreement and the other agreements to which Buyer and/or Valero is a party contemplated hereby have been duly and validly executed by Buyer and Valero and, assuming the due authorization, execution, and delivery of this Agreement and such other agreements by the other parties thereto, constitutes the legal, valid, and binding obligation of Buyer and Valero enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, or other similar Laws affecting the enforcement of creditors' rights generally and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought. Section 5.3 Conflicts and Approvals. Except as required in connection with the HSR Act and the obtaining of any required permits or licenses from any Governmental Authority, neither the execution and delivery by Buyer or Valero of this Agreement and the other agreements to which Buyer and/or Valero is a party nor the performance by Buyer or Valero of 22 its obligations hereunder and thereunder will (a) violate or breach the terms of or cause a default or require any filing, consent, authorization, notice or approval under (i) any Law applicable to Valero or any of its Significant Subsidiaries, (ii) the certificate of incorporation or by-laws or other organizational documents of Buyer, Valero or any of its Significant Subsidiaries, or (iii) any Authorization or contract or agreement to which Buyer, Valero or any of its Significant Subsidiaries is a party or by which it or any of its properties or assets is bound or (b), with the passage of time, the giving of notice, or the taking of any action by a third Person, have any of the effects set forth in clause (a) of this Section 5.3, except in each case for any matters described in this Section 5.3 that would not reasonably be expected to have a material adverse effect with respect to Valero and its Subsidiaries taken as a whole or the ability of Buyer or Valero to perform their obligations under this Agreement. Section 5.4 Litigation. As of the date of this Agreement, except as set forth in the Filed SEC Documents, there are no actions, suits, proceedings, arbitrations, or investigations pending or, to the knowledge of Valero or Buyer, threatened against Buyer, Valero or any of its Significant Subsidiaries, that, individually or, with respect to multiple actions, suits, proceedings, or arbitrations that allege similar theories of recovery based on similar facts, in the aggregate, would not reasonably be expected to have a material adverse effect with respect to Valero and its Subsidiaries taken as a whole or the ability of Valero or Buyer to perform its obligations under this Agreement in all material respects. Section 5.5 No Brokers. No broker, finder, or investment banker is entitled to any brokerage, finder's, or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Buyer, except any thereof the fees and commissions for which will be discharged by Buyer. Section 5.6 Preferred Stock. Valero has the requisite corporate power and authority to issue and deliver the Preferred Stock and the Valero Common Stock issuable upon conversion of the Preferred Stock (the "Underlying Shares") in accordance with and upon the terms and conditions set forth in this Agreement and in the Certificate of Designation. All corporate action required to be taken by Valero for the authorization, issuance, and delivery of the Preferred Stock and the Underlying Shares has been validly and sufficiently taken. The Preferred Stock has been duly and validly authorized, and, upon delivery of the Preferred Stock as provided herein, will be validly issued, fully paid and nonassessable, with no personal liability attaching to the ownership thereof. The Underlying Shares have been duly and validly authorized and reserved for issuance upon such conversion and, when issued upon conversion, will be validly issued, fully paid and nonassessable. The Preferred Stock and the Underlying Shares will not be issued in violation of, and will not be subject to, any purchase option, call, right of first refusal, preemptive, subscription or similar rights under any provision of applicable Law, the certificate of incorporation or by-laws of Valero or any of its Subsidiaries, any contract, agreement or instrument to which Valero or any of its Subsidiaries is subject, bound or a party or otherwise. Section 5.7 Capital Stock. The authorized capital stock of Valero is as set forth in the Valero Form 10-K. Section 5.8 Financial Statements. The Valero Financial Statements have been prepared in accordance with GAAP and fairly present, in all material respects, the consolidated 23 financial position of Valero and its Subsidiaries as of the dates thereof and the results of operations for the periods then ended. Section 5.9 Absence of Certain Changes. To Buyer's knowledge, since the date of the Valero Balance Sheet, except as set forth in the Filed SEC Documents, (i) there has not been any material adverse effect with respect to Valero and its Subsidiaries taken as a whole and (ii) Valero has caused the business of Valero and its Subsidiaries to be operated in the usual and ordinary course, consistent with past practice except for any matter or occurrence which would not have a material adverse effect on Valero and its Subsidiaries taken as a whole. Section 5.10 SEC Filings. Valero has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under the Securities Act and the Exchange Act since January 1, 2000 (the "SEC Documents"). As of its filing date, each SEC Document filed (A) complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations thereunder and (B) did not, at the time it was filed (and at the effective date thereof in the case of a registration statement), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of Valero or any of its Subsidiaries included in the SEC Documents comply as to form in all material respects with the applicable accounting requirements and the published rules and regulations of the SEC with respect thereto and have been prepared in accordance with GAAP (except, in the case of unaudited statements or pro forma statements, as permitted by Form 10-Q or Form 8-K of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto). Section 5.11 Regulation as a Utility. Neither Valero nor any of its Subsidiaries is a "holding company," a "subsidiary holding company," an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company" or a "public utility," as each such term is defined in the Public Utility Holding Company Act of 1935 and the rules and regulations promulgated thereunder. Section 5.12 Takeover Statutes. The Board of Directors of Valero has approved the issuance of the Preferred Stock and the Underlying Shares to Seller for purposes of Section 203(a)(1) of the Delaware General Corporation Law. To the knowledge of Buyer and Valero, no other "fair price," "moratorium," "control share acquisition" or other similar anti-takeover statute, law, regulation or rule of any Governmental Authority is applicable to the transactions contemplated hereby. 24 ARTICLE VI COVENANTS Section 6.1 Operation of the Business. Except (A) as set forth in Schedule 6.1 of the Seller Disclosure Schedule, (B) as otherwise contemplated by this Agreement, or (C) as otherwise consented to in writing by Buyer, from the date of this Agreement until the Closing, Seller shall: (a) afford to Buyer and its agents, advisors, and representatives reasonable access to the Assets and to Seller's documents and records relating thereto except Restricted Information and to Seller's personnel and shall furnish such information about the Assets as Buyer shall reasonably request, all upon reasonable notice to Seller and in a manner that does not interfere in any material respect with the normal operations of Seller and the Business; (b) subject to the effects of the Seller Bankruptcy, operate the Business in the usual and ordinary course consistent with past practice and not voluntarily shut down any material unit of the Refinery to the extent such material unit is capable of being safely operated; (c) operate the Business in material compliance with all Environmental Laws; (d) keep those insurance policies identified in Schedule 4.9 (or substantially comparable replacement policies) in effect until Closing; (e) subject to the effects of the Seller Bankruptcy, use all commercially reasonable efforts to preserve substantially intact its business organization, to maintain its rights, privileges and immunities, to retain the services of its key employees (subject to work force requirements), to maintain its insurance coverages, and to maintain its relationships with its customers and suppliers who are approved by the Bankruptcy Court as critical vendors; (f) not sell, lease, exchange, or otherwise dispose of, or grant any Lien with respect to, any material Assets, except for (i) dispositions of inventories in the ordinary course of business consistent with past practice, (ii) Permitted Encumbrances, and (iii) Liens securing debt that will not encumber the Assets after Closing; (g) not increase the compensation (excluding any compensation in respect of retention, change of control or severance obligations not assumed by Buyer) payable to or to become payable to any director or executive officer of Seller or, in the case of other employees, increase the compensation payable or to become payable to other employees other than normal salary increases consistent with past practice except pursuant to any contract, agreement, or other legal obligation of Seller existing as of the date of this Agreement that has been disclosed to Buyer and except with respect to such increases in compensation as may be made in Seller's ordinary course of business; (h) not acquire or construct any assets or properties other than any assets or properties that are not material to the Business and other than repairs to existing units or assets (including repair of casualty loss and the application of insurance proceeds thereto) or the acquisition of 25 assets from suppliers or vendors in the ordinary course of business and consistent with past practice; (i) not consent to the entry of any decree or order by any Governmental Authority agreeing to pay any fine or penalty payable by Buyer after the Closing or causing a significant expansion in the scope of the Assumed Environmental Liabilities; and (j) not agree in writing or otherwise to do any of the foregoing; except, in each case, for any matters that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect with respect to the Assets being sold at Closing. Section 6.2 Appropriate Action; Consents; Filings. From the date of this Agreement until the Closing: (a) Seller and Buyer shall each use all commercially reasonable efforts (i) to take, or to cause to be taken, all actions, and to do, or to cause to be done, all things that, in either case, are necessary, proper, or advisable under applicable Law or otherwise to consummate and make effective the transactions contemplated by this Agreement, (ii) to obtain from the relevant Governmental Authorities all Authorizations required to be obtained by Seller or Buyer in connection with the authorization, execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby, and (iii) to make all necessary filings, and thereafter to make any other required submissions, with respect to this Agreement and the transactions contemplated hereby required under any applicable Law. Seller and Buyer shall cooperate in connection with the making of all such filings, through, among other means, providing copies of all such documents to the nonfiling party and its advisors prior to filing and, if requested, accepting all reasonable additions, deletions, or changes suggested in connection therewith. Seller and Buyer shall furnish or cause to be furnished all information required for any application or other filing to be made pursuant to any applicable Law in connection with the transactions contemplated by this Agreement. (b) Without limiting the generality of Section 6.2(a), each of Seller and Buyer shall use its reasonable best efforts to respond as promptly as practicable to any inquiries received from the Federal Trade Commission or the Antitrust Division of the Department of Justice for additional information or documentation with respect to the HSR Act filings and to respond as promptly as practicable to all inquiries and requests received from any State Attorney General or other Governmental Authority in connection with antitrust matters relating to the transactions contemplated by this Agreement. Each party hereto shall provide a copy of its filing materials under the HSR Act to the other party hereto (excluding any Restricted Information) prior to making such filing and the parties hereto shall confer on the matters set forth therein. (c) Seller and Buyer shall each timely give or cause to be given all notices to third Persons and use all commercially reasonable efforts to obtain all Third Person Consents (i) required under any Assumed Contract in connection with the consummation of the transactions contemplated hereby or (ii) otherwise required to prevent a Material Adverse Effect with respect to the Assets from occurring prior to or after the Closing. If any Authorization or Third Party Consent required for the assignment of any Assumed Contract to Buyer is not obtained on or 26 prior to the Closing Date (without any consent fee or other consideration to be paid by Seller to the Counterparty thereunder for such assignment except for Pre-Closing Determined Cure Amounts), then, notwithstanding anything to the contrary in this Agreement, such Assumed Contract shall not be assigned to Buyer at Closing, and thereafter (1) the parties hereto shall continue to use all commercially reasonable efforts to obtain the required Authorization or Third Person Consent for a reasonable period of time after the Closing Date and, if such Authorization or Third Person Consent is obtained after the Closing Date, such Assumed Contract shall be assigned to Buyer as soon as reasonably practicable after such Authorization or Third Person Consent is obtained, (2) if such Authorization or Third Person Consent is not obtained within a reasonable time after the Closing Date, Seller shall have the right to terminate such Assumed Contract, and (3) with respect to the period of time from the Closing Date until such Assumed Contract is assigned to Buyer or such Assumed Contract is terminated by Seller, Seller and Buyer shall enter into such arrangements as shall be reasonably practicable such that the economic and other costs and benefits of such Assumed Contract shall be passed through from Seller to Buyer and such that Buyer shall indemnify, defend, and hold harmless Seller from and against all liabilities arising under such Assumed Contract from and after the Closing Date. Any out-of-pocket costs associated with obtaining such consents except the consents of holders of indebtedness shall be borne one-half by Buyer and one-half by Seller. (d) Seller and Buyer shall each give prompt notice to the other of the receipt of any written notice or other written communication (i) from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated hereby, (ii) from any Governmental Authority in connection with the transactions contemplated hereby, (iii) from any Governmental Authority or other Person regarding the initiation or threat of initiation of any claims, actions, suits, proceedings, arbitrations, or investigations against, relating to, or involving or otherwise affecting Seller or Buyer that relate to the consummation of the transactions contemplated hereby, and (iv) from any Person regarding the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of which would be reasonably likely (A) to cause any condition to the obligations of the other party hereto to consummate the transactions contemplated hereby not to be satisfied, (B) to cause a breach of the representations, warranties, or covenants of such party under this Agreement, or (C) to delay or impede the ability of either Seller or Buyer, respectively, to consummate the transactions contemplated by this Agreement or to fulfill their respective obligations set forth herein. No delivery of any notice pursuant to clause (iv) of this Section 6.2(d) shall cure any breach of any representation or warranty of the party hereto giving such notice contained in this Agreement or otherwise limit or affect the remedies available hereunder to the party hereto receiving such notice. (e) Seller and Buyer each agree to cooperate and to use all commercially reasonable efforts vigorously to contest and to resist any action, including legislative, administrative, or judicial action, and to have vacated, lifted, reversed, or overturned any order (whether temporary, preliminary, or permanent) of any court or other Governmental Authority that is in effect and that restricts, prevents, or prohibits the consummation of the transactions contemplated by this Agreement, including the vigorous pursuit of all available avenues of administrative and judicial appeal and all available legislative action. Notwithstanding the foregoing, the Valero Parties shall not be required to dispose of any assets or withdraw from doing business in particular jurisdictions if required by any Governmental Authority as a condition to the granting of any Authorization necessary for the consummation of the transactions contemplated hereby or as 27 may be required to avoid, lift, vacate, or reverse any legislative, administrative, or judicial action that would otherwise cause any Closing Condition not to be satisfied. (f) Prior to the Closing, Valero shall file the Certificate of Designation with the Office of the Secretary of State of the State of Delaware in accordance with the requirements of the General Corporation Law of the State of Delaware. Section 6.3 Employee Benefit Matters. (a) Buyer agrees to offer employment for a period of at least six months beginning on the Closing Date (unless terminated for cause) to substantially all Seller's employees actively employed at the Refinery. Neither Buyer nor Valero will be responsible for any severance obligations for Seller employees who are not offered employment or for any Seller employee who does not accept employment with Buyer (each a "Retained Employee"). Buyer shall offer to any employee of Seller who commences employment with Buyer on or after the Closing Date (each a "Transferred Employee") participation after the Closing Date in Benefit Plans maintained by Valero and provided generally to Valero's own similarly situated employees (each a "Buyer Plan"). On or prior to the Effective Date, Buyer will have provided Seller with summaries of the terms of the Buyer Plans as in effect on the Effective Date, which plans may thereafter be amended, modified or terminated by Buyer in accordance with the terms of such plans. For the purposes of determining benefit entitlement and eligibility under any Buyer Plan for any Transferred Employee, Buyer shall grant to such Transferred Employee credit for his or her service with Seller for all purposes of such Buyer Plan (other than the accrual of benefits under a defined benefit pension plan and any entitlement to benefits under a Buyer retiree medical or life insurance plan) for which such service was recognized by Seller for employee benefit plan purposes. With respect to any Buyer Plan that provides group health, life or disability benefits that Buyer offers to any Transferred Employee, Buyer shall cause such Buyer Plan to waive any exclusions or limitations with respect to pre-existing conditions or waiting periods as are necessary to provide immediate coverage if such Transferred Employee was covered by a comparable Benefit Plan of Seller (a "Seller Benefit Plan(s)") and to the extent similar restrictions were not applicable under the comparable Seller Benefit Plan. (b) Buyer shall provide any notice required under the United States Worker Adjustment and Retraining Notification Act or any other Law with respect to the transactions contemplated by this Agreement; provided, however, that Buyer shall have no responsibility or liability for any termination of employees by Seller prior to Closing or any such notice that would not otherwise be required but for terminations of employees by Seller prior to Closing. Buyer shall pay all severance payments, damages for wrongful dismissal and related costs with respect to the termination of any Transferred Employee after the Closing, including any severance payments under Buyer Plans regarding severance. Buyer shall not be responsible for (i) the payment of any severance payments, damages for wrongful dismissal and related costs with respect to the termination of any Retained Employee prior to, on or after the Closing, including any severance payments under Seller Benefit Plans regarding severance or (ii) for any change of control payments or similar payments due to any Transferred Employees or Retained Employees as a result of the transactions contemplated hereby. 28 (c) Vacation entitlement accrued but not utilized by a Transferred Employee and available to be utilized in the year in which the Closing Date occurs or thereafter (but not any carryover accruals that were available for use in years prior to the year in which the Closing Date occurs) under the vacation policy applicable to such Transferred Employee immediately prior to the Closing Date shall be recognized by Buyer following the Closing Date; provided, however, that the terms of Buyer's vacation policy shall govern the utilization of vacation time after the Closing Date. (d) Seller shall permit each Transferred Employee to elect on the Closing Date (or as soon thereafter as reasonably practicable) a direct rollover of his or her eligible rollover distributions under the Orion Refining Corporation Long Term Savings Plan ("Seller's Savings Plan") to the Valero Energy Corporation Thrift Plan (the "Buyer Savings Plan"). Any such rollovers shall be made to the Buyer Savings Plan in cash and, if applicable, in-kind to the extent of any outstanding plan loans of the Transferred Employee that are not accelerated. Seller shall cause the Seller's Savings Plan to deliver to the Buyer Savings Plan as soon as reasonably practicable after the Closing Date the promissory notes and other loan documentation, if any, of the Transferred Employees who have elected such a direct rollover in accordance with the procedures prescribed by the Seller. Seller shall also take such actions, if any, as are necessary to permit the continuation of loan repayments by Transferred Employees to the Seller Savings Plan during the period beginning on the Closing Date and ending 90 calendar days after the Closing Date; provided, however, that if a Transferred Employee makes a direct rollover election as described in this paragraph within such 90-day period, then the Seller Savings Plan shall continue to accept loan repayments from such Transferred Employee until the date of such direct rollover. The Seller represents, covenants and agrees with respect to the Seller Savings Plan, and the Buyer represents, covenants and agrees with respect to the Buyer Savings Plan, that, as of each date of a rollover described in this paragraph, such plan (i) is intended to satisfy the requirements of Sections 401(a) and (k) of the Code, (ii) will have received, or an application will have been timely filed for, a favorable determination letter from the IRS regarding such qualified status and covering amendments required to have been adopted by Law (except the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA")) prior to the Closing Date, and (iii) will have been timely amended to comply with EGTRRA prior to the Closing Date. Buyer will have no obligation with respect to amounts attributable to Seller's Savings Plan other than acceptance of the rollovers requested by Transferred Employees and the facilitation of loan repayments described above. (e) Claims of Transferred Employees and their eligible beneficiaries and dependents for medical, dental, prescription drug, life insurance, and/or other welfare benefits ("Welfare Benefits") that are incurred before the Closing Date shall be the sole responsibility of Seller and the Seller Benefit Plans. Claims of Transferred Employees and their eligible beneficiaries and dependents for Welfare Benefits that are incurred on or after the Closing Date shall be the sole responsibility of the Buyer. For purposes of the preceding provisions of this paragraph, a medical/dental claim shall be considered incurred on the date when the medical/dental services are rendered or medical/dental supplies are provided, and not when the condition arose or when the course of treatment began; provided, however, that claims relating to a hospital confinement that begins prior to the Closing Date but continues on the Closing Date or thereafter shall be treated as incurred before the Closing Date. 29 Section 6.4 UOP Claim. If and for so long as Seller or its respective successors and assigns shall be prosecuting the UOP Claim, Buyer shall cooperate in all reasonable respects with the prosecuting party and its counsel with respect to the UOP Claim, including providing test runs of the catalytic cracking unit at the request and expense of Seller (including lost profit margin) and making reasonably available Transferred Employees and records, in each case at the expense of the prosecuting party; provided, however, that Buyer shall not be responsible to Seller for any failure by Seller to resolve successfully its UOP Claim or otherwise be responsible for any actions taken or information provided by any Transferred Employees in connection with the UOP Claim. Section 6.5 Public Announcements. Seller and Buyer shall consult with each other before any press release or other public statement is issued or made with respect to the transactions contemplated hereby, and no party hereto shall issue any such press release or make any such public statement prior to such consultation or, subject to applicable securities or bankruptcy laws or stock exchange requirements, issue any statement to which the other party shall have objected. Section 6.6 Expenses. Except as otherwise expressly provided herein, all costs and expenses incurred by Seller in connection with this Agreement and the transactions contemplated hereby shall be paid by Seller, and all costs and expenses incurred by Buyer in connection with this Agreement and the transactions contemplated hereby shall be paid by Buyer. Section 6.7 Foreign Trade Zone. Prior to Closing, Seller and Buyer will use reasonable efforts to transfer Seller's grant of authority for the Subzone to Buyer to be effective as of the Closing Date. Section 6.8 Further Assurances . Buyer and Seller shall take such additional action, and shall cooperate with one another, as may be reasonably necessary to effectuate the terms of this Agreement and any agreement or instrument delivered pursuant hereto. Section 6.9 Cure Amount Determination. With respect to any Assumed Contract which was entered into prior to the Seller Bankruptcy and for which a Cure Amount is required for Seller to assume and assign such contract to Buyer and which Buyer has agreed to assume, Buyer and Seller shall use commercially reasonable efforts to agree upon the Cure Amount with the counterparty to such contract (the "Counterparty"). In the event that each of Seller, Buyer and the Counterparty agree on the Cure Amount prior to the Closing (the "Pre-Closing Determined Cure Amount"), Buyer shall pay such Counterparty the Cure Amount at the Closing in accordance with Section 3.2(f). In the event that Seller, Buyer and the Counterparty are unable to agree on such Cure Amount prior to the Closing, upon determination by the Bankruptcy Court of such Cure Amount, Seller shall pay such Cure Amount to the Counterparty. Notwithstanding the foregoing, Buyer shall not be obligated to assume any such contract which is not listed on Schedule 1.1-A. 30 Section 6.10 Valero Guaranty. (a) Valero hereby irrevocably and unconditionally guarantees, as primary obligor and not merely as surety, to Seller, the due and punctual payment and performance by Buyer of all of its obligations to Seller under this Agreement (the "Guaranteed Obligations"), as and when the same shall become due in accordance with the terms of this Agreement. (b) The obligations of Valero hereunder are absolute, irrevocable and unconditional and shall not be affected by: (i) any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations; (ii) any bankruptcy, insolvency, reorganization or winding up of Buyer and the occurrence of any other proceeding as a result of such bankruptcy; (iii) any claim, setoff, defense, or other right that Valero may have against Seller; (iv) any claim as to the unenforceability of this Agreement against Buyer or the lack of authority of Buyer to execute this Agreement; (v) any delay or failure by Seller in the exercise of its rights and remedies under this Section 6.10; (vi) any delay or failure of Seller to enforce this Agreement against Buyer or to obtain any judgment against Buyer or to pursue any action to enforce any judgment against Buyer; or (vii) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor. Valero hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of its obligations under this Section 6.10 and any requirement that Seller exhaust any right or take any action against Buyer or any other person or pursue any other remedy in the power of Buyer or Seller. So long as any sum remains owing by Buyer to Seller, Valero shall not exercise any right of subrogation or any other rights of a surety or enforce any security or other right or claim against Buyer (whether in respect of its liability under this Section 6.10 or otherwise) or claim the insolvency or liquidation of Buyer or any such other person in competition with Seller. Section 6.11 Post-Closing Access; Transition Personnel Arrangements. (a) Buyer shall afford duly authorized representatives of Seller reasonable access to the Refinery and the books and records transferred to Buyer at Closing after the Closing Date with respect to any legal, technical or operational matter relating to (i) Seller's rights and obligations under this Agreement, (ii) the operation of the Refinery before the Closing, (iii) the Excluded Assets, (iv) the Excluded Liabilities, and (v) the Seller Bankruptcy; provided in each case that Seller gives Buyer reasonable prior notice, such access does not unreasonably interfere with normal operations and any access is at Seller's sole risk except for Buyer's gross negligence. (b) With respect to Retained Employees and Transferred Employees, for a period of two years following the Closing: (i) Seller shall permit Buyer and its representatives, at Buyer's expense, to have reasonable access to all Retained Employees who are then employed or retained by Seller or any of Seller's Affiliates and who have relevant information regarding any claim or dispute related to the Refinery or to assist Buyer in the reasonable transition of the Assets and the Business to Buyer. (ii) Buyer shall permit Seller and its representatives, at Seller's expense, to have reasonable access to Transferred Employees who are then employed by Buyer or 31 any of Buyer's Affiliates with regard to any matters relating to this Agreement or the Excluded Assets or the Seller Bankruptcy. (iii) Buyer and Seller agree, for purposes of this Section 6.11(b) that: (A) the requesting party must provide advance notice to the providing party of its request to obtain access to specified employees with sufficient time to allow the providing party to rearrange work schedules to accommodate the diversion or absence of the specified employee(s) from their work; (B) access to the specified employees must be during reasonable work hours (or as otherwise agreed to by the parties and the specified employees) and be conducted in a manner so as not to interfere unduly with the business operations of the providing party; (C) the requesting party will have access to the specified employees only at the providing party's offices, unless otherwise agreed to by the providing party (such agreement not to be unreasonably withheld); (D) when pursuant to this Section 6.11 of the Agreement, a requesting party requires access to any employee in excess of three days in any calendar year, the expenses to be borne by the requesting party will include reimbursement for such employee's wages upon receipt of an invoice from the providing party; and (E) the providing party will not be held responsible for the specified employee's actions taken or testimony given on behalf of the requesting party. Section 6.12 Sales and Use Tax Matters. (a) On or prior to the Closing, Buyer shall have registered with the Louisiana Department of Revenue and St. Charles Parish for purposes of sales and use taxes. (b) On or prior to the Closing, Buyer (or any affiliate of Buyer that has been assigned purchase rights pursuant to Section 9.9 of this Agreement) shall provide to Seller a certificate in the form required by applicable Law certifying that the portion of the Inventory consisting of raw materials and finished products is being purchased by Buyer or such affiliate for purposes of further processing and/or resale. (c) On or prior to the Closing, Seller shall certify in writing to Buyer that Seller is not in the business, and does not hold itself out to be in the business, of selling tangible personal property of a nature similar to the tangible personal property being sold pursuant to this Agreement with the exception of Inventory consisting of raw materials and finished products. 32 ARTICLE VII CLOSING CONDITIONS Section 7.1 Conditions to Obligations of Each Party Under This Agreement. The respective obligations of Seller and Buyer to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of the following conditions, any or all of which may be waived by the parties hereto, in whole or in part, to the extent permitted by applicable Law: (a) No Governmental Authority (other than the Bankruptcy Court) shall have enacted, issued, promulgated, enforced or entered any Law (whether temporary, preliminary, or permanent) that is in effect and prohibits or renders illegal the transactions contemplated hereby. (b) The waiting period applicable to the consummation of the transactions contemplated hereby under the HSR Act shall have expired or been terminated. (c) The Sale Order shall have been entered by the Bankruptcy Court; the operational effect of the Sale Order shall not have been stayed and the Sale Order shall not be subject to any pending appeal, request for leave to appeal, or request for reconsideration; and the time for any such appeal, request for leave to appeal or request for reconsideration shall have expired. Section 7.2 Additional Conditions to Seller's Obligations. The obligations of Seller to effect the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of the following conditions, any or all of which may be waived by Seller, in whole or in part, to the extent permitted by applicable Law: (a) Each of the representations and warranties of Buyer and Valero contained in this Agreement that is qualified as to materiality shall be true and correct, and each of such representations and warranties that is not so qualified shall be true and correct except for any failure of the same to be true and correct that would not reasonably be expected to have a material adverse effect with respect to Buyer or Valero or the ability of Buyer or Valero to perform its obligations under this Agreement, as of the date of this Agreement and as of the Closing Date as though made again on and as of the Closing Date, and Seller shall have received a certificate of an executive officer of Buyer and Valero, dated the Closing Date, to such effect. (b) Buyer and Valero shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and Seller shall have received a certificate of an executive officer of Buyer and Valero, dated the Closing Date, to such effect. (c) Buyer shall make the deliveries required of Buyer under Section 3.2. Section 7.3 Additional Conditions to Buyer's Obligations. The obligations of Buyer to effect the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of the following conditions, any or all of which may be waived by Buyer, in whole or in part, to the extent permitted by applicable Law: 33 (a) Each of the representations and warranties of Seller contained in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made again on and as of the Closing Date without regard to any qualification thereof as to materiality, except for any failure of the same to be true and correct that would not reasonably be expected to have a Material Adverse Effect with respect to the Assets, provided that solely for purposes of this Section 7.3(a) the $3,000,000 threshold referred to in the definition of "Material Adverse Effect" shall instead be $25,000,000, and Buyer shall have received a certificate of an executive officer of Seller, dated the Closing Date, to such effect. (b) Seller shall have performed or complied in all respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to Closing Date except for any failure of Seller to perform or comply with the same that would not reasonably be expected to have a Material Adverse Effect, provided that solely for purposes of this Section 7.3(b) the $3,000,000 threshold referred to in the definition of "Material Adverse Effect" shall instead be $25,000,000, and Buyer shall have received a certificate of an executive officer of Seller, dated the Closing Date, to such effect. (c) There shall have been no casualty loss to the Assets, except any such casualty loss (i) that has been substantially repaired or replaced, or (ii) for which Seller has received or is entitled to receive, and will assign to Buyer at Closing such receipts or Seller's right to receive, property damage and business interruption insurance proceeds sufficient to pay the reasonably expected (as of Closing) full cost of such repair and loss due to business interruption; provided that if the insurance proceeds that are assigned to Buyer are insufficient to pay such reasonably expected cost of such repair, the number of shares of Preferred Stock to be delivered at Closing shall be reduced by a number of shares equal to (i) the sum of the amount of such reasonably expected repair costs and business interruption losses not compensated by such insurance proceeds so assigned divided by (ii) the stated value of $25 per share, with such number of shares of Preferred Stock to be delivered to the Escrow Agent for disposition as provided in the last sentence of this Section 7.3(c). At Closing, Buyer shall deliver such shares of Preferred Stock to the Escrow Agent and specify that such shares of Preferred Stock are to be deposited in the Casualty Subaccount under the Escrow Agreement, and Seller shall deliver to the Escrow Agent an instruction confirming the number of shares of Preferred Stock to be deposited into the Casualty Subaccount. Buyer shall use its commercially reasonable best efforts to complete the repair of such casualty as promptly as practicable after the Closing and to collect amounts of insurance proceeds the right to receive which has been assigned to Buyer in accordance with this Section 7.3(c). Following the completion of the repair of such casualty, the Escrow Agent, pursuant to the Escrow Agreement, shall release to Buyer a number of shares of the Preferred Stock held by the Escrow Agent in the Casualty Subaccount equal to the amount of the repair cost and business interruption losses not covered by such insurance proceeds, as mutually agreed to by Seller and Buyer or as finally determined pursuant to a judicial proceeding, divided by $25, and shall release the remainder of such shares of Preferred Stock to Seller. For the avoidance of doubt, the parties hereto agree that the fire in the Refinery's coker unit on January 29, 2003 shall not result in the failure of this Section 7.3(c) to be satisfied. (d) Seller shall make the deliveries required of Seller under Section 3.2. 34 (e) The Coker Unit at the Refinery shall be Operational (as defined below); provided that, if, at such time as all other conditions to the Closing set forth in this Article VII have been satisfied or waived by the applicable party, the Coker Unit is not Operational, Buyer and Seller agree that this condition shall be satisfied as set forth below: (i) Seller shall (1) direct Buyer to deliver to the Escrow Agent at Closing shares of Preferred Stock, otherwise deliverable at Closing to Seller by Buyer pursuant to Section 3.2(d)(y), with an aggregate stated value equal to the Coker Escrow Value (as defined below); and (2) assign to Buyer at Closing all rights of Seller to property damage and business interruption insurance proceeds with respect to damages to the Coker Unit resulting from the January 2003 casualty, in the case of property damage proceeds, to the extent Seller has not incurred costs or losses prior to Closing giving rise to such proceeds and, in the case of business interruption insurance proceeds, to the extent the period covered by such business interruption insurance extends past the Closing Date, including Seller's right to receive any such proceeds funded into the GE Capital insurance escrow account (provided that Seller shall be entitled to withdraw from such escrow account the amount of such proceeds not assigned to Buyer under this clause (i)(2)); (ii) At Closing, Buyer shall deliver to the Escrow Agent shares of Preferred Stock having a stated value equal to the Coker Escrow Value and specify that such shares of Preferred Stock are to be deposited in the Coker Subaccount under the Escrow Agreement, and Seller shall deliver to the Escrow Agent an instruction confirming the number of shares of Preferred Stock to be deposited into the Coker Subaccount. Buyer shall have the right to have released to Buyer from the Coker Subaccount shares of Preferred Stock with a stated value equal to the amount of any Buyer Coker Claim, provided that such Buyer Coker Claim is duly made in accordance with the Escrow Agreement on or before the 15th day after Buyer has delivered the Buyer Certification to Seller. Seller shall have the right to make a Claim under the Escrow Agreement and to have released to Seller from the Coker Subaccount all Preferred Stock (and any Common Stock into which such Preferred Stock has been converted prior to such release and any dividends or other funds, if any, in the Coker Subaccount) in excess of the number of shares of Preferred Stock subject to Buyer Coker Claims after the 15th day after Buyer has delivered the Buyer Certification to Seller. Unless Buyer shall have delivered the Buyer Certification to Seller on or before the date that is six months after the Closing Date, Seller shall have the right at any time thereafter to have an independent industry expert retained by Seller determine if the Coker Unit is Operational, and if such independent industry expert determines that the Coker Unit is Operational to have such independent industry expert certify to the Escrow Agent and Buyer that the Coker Unit is Operational. Unless, on or before the fifth Business Day after receipt of such expert certification, Buyer shall have notified the Seller and the Escrow Agent in writing that Buyer disputes such certification, Seller shall have after such fifth Business Day the right to have released to Seller from the Coker Subaccount all Preferred Stock (and any Common Stock into which such Preferred Stock has been converted prior to such release and any dividends or other funds, if any, in the Coker Subaccount) in excess of the number of shares of Preferred Stock subject to Buyer Coker Claims. Buyer agrees to give access to and cooperate with any independent industry expert reasonably designated by Seller in order for such expert to make the determination of whether the Coker Unit is 35 Operational. If Buyer disputes the expert certification, the Escrow Agent shall not be permitted to make any release from the Coker Subaccount to Seller unless directed to do so in a writing signed by Seller and Buyer or in a final nonappealable order of a court. (iii) Buyer shall use its commercially reasonable best efforts to continue to repair the Coker Unit such that it is Operational as promptly as practicable after the Closing and to collect amounts of insurance proceeds the right to receive which has been assigned to Buyer with respect to costs and losses that would otherwise constitute Buyer Coker Claims. Promptly following the date (but in any event within five Business Days after such date) on which the Coker Unit is Operational, Buyer shall provide written notice to Seller and the Escrow Agent that the Coker Unit is Operational (the "Buyer Certification"). (iv) As used in this subsection (e), the following capitalized terms are used as defined below: "Business Interruption Losses" shall mean an amount, calculated through the date of any Buyer Coker Claim, equal to the sum of (i) $300,000 per day for each day covered by the Buyer Coker Claim on which the Coker Unit produced less than 30,000 barrels per day ("BPD") of commercial petroleum coke; (ii) $250,000 per day for each day covered by the Buyer Coker Claim on which the Coker Unit produced at least 30,000 BPD of commercial petroleum coke but less than 40,000 BPD; (iii) $200,000 per day for each day covered by the Buyer Coker Claim on which the Coker Unit produced at least 40,000 BPD of commercial petroleum coke but less than 45,000 BPD; and (iv) for each day covered by the Buyer Coker Claim on which the Coker Unit produced at least 45,000 BPD but less than 48,000 BPD, an amount equal to $300,000 multiplied by a fraction, the numerator of which is the excess of 48,000 over the number of barrels of commercial petroleum coke produced by the Coker Unit on such day and the denominator of which is 48,000. "Buyer Coker Claim" shall mean the sum of (i) any claim made in writing by Buyer for costs incurred by Buyer as of the date of such claim in completing the repairs to the Coker Unit necessitated by the January 2003 fire in order to make the Coker Unit Operational, plus (ii) the Business Interruption Losses for the period of time covered by such Buyer Coker Claim (until such date as the Coker Unit shall become Operational), less (iii) any insurance proceeds described above received by Buyer through the date of such Buyer Coker Claim. "Coker Escrow Value" shall mean the sum of (A) $20,000,000 plus the difference (if positive) between $35,000,000 and the Seller Repair Costs, and (B) (i) $0, if the Seller Repair Costs exceed $30,000,000, or (ii) $10,000,000, if the Seller Repair Costs exceed $25,000,000 but are less than $30,000,000, or (iii) $20,000,000, if the Seller Repair Costs are equal to or less than $25,000,000. "Operational" shall mean that all four of the coker drums located at the Coker Unit at the Refinery shall have been simultaneously and continuously 36 operated for five consecutive days at any time after the date hereof and the Coker Unit shall have produced at least 48,000 BPD of commercial petroleum coke during such 5-consecutive day period. "Seller Repair Costs" shall mean the total amount incurred by Seller as of the fifth Business Day prior to the Closing Date for repair and replacement costs at the Refinery directly or indirectly arising out of or relating to the January 2003 fire in the Coker Unit; provided that Buyer shall have the right to audit and verify the amount of all such payments made by or on behalf of Seller at least three Business Days prior to the Closing. ARTICLE VIII TERMINATION Section 8.1 Termination. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written consent of Seller and Buyer; (b) by Seller upon notice to Buyer, if any of the conditions in Section 7.1 or 7.2 cannot be satisfied on or prior to the Termination Date; (c) by Buyer upon notice to Seller, if any of the conditions in Section 7.1 or 7.3 cannot be satisfied on or prior to the Termination Date; (d) by Buyer pursuant to Section 10.1; or (e) by either Seller or Buyer upon notice to the other, if the Closing contemplated hereby shall not have occurred on or before six months after the date hereof (the "Termination Date"). provided, however, that a party shall not be allowed to exercise any right of termination pursuant to this Section 8.1 if the event giving rise to such termination shall be due to the grossly negligent or willful failure of the party seeking to terminate this Agreement to perform or observe in any material respect any of the covenants or agreements set forth herein to be performed or observed by such party. Section 8.2 Effect of Termination Under Section 8.1. The following provisions shall apply in the event of a termination of this Agreement under Section 8.1: (a) If this Agreement is terminated by the Seller or the Buyer as permitted under Section 8.1 hereof and not as the result of the gross negligence or willful failure of any party to perform its obligations hereunder, such termination shall be without liability (except as provided in Section 10.2) to any party to this Agreement or any stockholder, director, officer, employee, agent or representative of such party. 37 (b) If this Agreement is terminated as a result of the gross negligence or willful failure of the Buyer to perform its obligations hereunder, the Buyer shall be fully liable for any and all damages sustained or incurred by Seller. (c) If this Agreement is terminated as a result of the gross negligence or willful failure of the Seller to perform its obligations hereunder, the Seller shall be fully liable for any and all damages sustained or incurred by Buyer. (d) The Seller and the Buyer hereby agree that the provisions of Sections 6.6, 8.2, 10.2 and Article IX hereof shall survive any termination of this Agreement; provided, however, that neither party shall have the right to bring any claim for breach thereof after two years following the termination of the Agreement. (e) Except as provided in Section 10.2, the Seller and the Buyer agree that, if this Agreement is terminated, none of the parties hereto shall be liable to any of the other parties hereto for consequential, special or punitive damages. ARTICLE IX MISCELLANEOUS Section 9.1 Independent Investigation; Scope of Representations and Warranties of Seller. (a) Buyer acknowledges and affirms that (i) it has had access to the data website through October 3, 2002 and to the two data rooms located at the Refinery through the date hereof provided by Seller the information contained in, or made available or provided with respect to materials contained in, such data website and data rooms, and to other information made available by Seller and its representatives during the course of Buyer's due diligence investigation of the Assets, (ii) it has had access to the personnel, officers, professional advisors, operations, and records (except to the extent redacted by Seller prior to disclosure) of Seller, and (iii) in making the decision to enter into this Agreement and to consummate the transactions contemplated hereby, it has relied on the express representations, warranties, covenants, and agreements of Seller set forth in this Agreement, and, other than such reliance, it has relied solely on the basis of its own independent investigation, analysis, and evaluation of the Business and the Assets. (b) Except to the extent expressly set forth in this Agreement, Seller does not make any representation or warranty whatsoever and disclaims all liability and responsibility for any other representation, warranty, statement, or information made or communicated (orally or in writing) to Buyer. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, SELLER DOES HEREBY EXPRESSLY DISCLAIM AND NEGATE ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, OF FITNESS FOR A PARTICULAR PURPOSE, AND OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS. BUYER EXPRESSLY WAIVES THE WARRANTY OF FITNESS AND THE WARRANTY AGAINST REDHIBITORY VICES AND DEFECTS, WHETHER APPARENT OR LATENT, IMPOSED BY LOUISIANA CIVIL CODE ARTICLES 2520 THROUGH 2548, INCLUSIVE, AND THE 38 JURISPRUDENCE THEREUNDER. BUYER ALSO WAIVES ANY RIGHTS BUYER MAY HAVE IN REDHIBITION OR IN A REDUCTION OF THE PURCHASE PRICE PURSUANT TO LOUISIANA CIVIL CODE ARTICLES 2520 THROUGH 2548, INCLUSIVE, IN CONNECTION WITH THE ASSETS HEREBY CONVEYED TO BUYER BY SELLER. BY BUYER'S SIGNATURE, BUYER EXPRESSLY ACKNOWLEDGES ALL SUCH WAIVERS AND BUYER'S EXERCISE OF BUYER'S RIGHT TO WAIVE WARRANTY PURSUANT TO LOUISIANA CIVIL CODE ARTICLES 2520 THROUGH 2548, INCLUSIVE. Section 9.2 Indemnification. (a) Seller shall defend, indemnify, and hold harmless Buyer from and against any and all losses, costs, penalties, and expenses, including reasonable attorneys' fees and costs, arising out of any breach of the representations and warranties of Seller contained in this Agreement or any breach of any covenant of Seller contained in this Agreement (a "Seller Covered Loss"). Notwithstanding anything to the contrary in this Agreement or in any other agreement entered into by any of the parties hereto in connection with the transactions contemplated by this Agreement (but subject to Section 9.2(d)): (i) a claim by Buyer (A) for the payment of the Seller Inventory Adjustment in accordance with Section 3.3(a), (B) under Section 3.5, (C) under Section 8.2 or (D) under Section 10.2, shall not be subject to the limitations set forth in (ii), (iii), (iv) or (v) below but the Escrow Account shall be available to satisfy such claims if Seller is unable to do so; (ii) Buyer's right to make any claim for all Seller Covered Losses shall terminate at the close of business on the day that is six months after Closing with respect to any Seller Covered Losses arising out of a breach of the representations and warranties of Seller contained in this Agreement, two years after Closing with respect to Seller Covered Losses arising out of a breach by Seller of Section 6.11, and nine months after the Closing with respect to any other Seller Covered Loss, except with respect to each claim for a Seller Covered Loss with respect to which a notice is delivered to the Escrow Agent and Seller prior to the close of business on such day specifying in reasonable detail the specific nature of and specific basis of the Seller Covered Loss and the estimated amount of such Seller Covered Loss; (iii) Buyer shall have the right to recover for Seller Covered Losses only after such time as the aggregate amount of Seller Covered Losses exceeds $3,000,000, and then only to the extent that such Seller Covered Losses exceed such amount; (iv) Buyer shall not have the right to recover any amount in excess of the Holdback Amount for all Seller Covered Losses and such Seller Covered Losses shall only be paid out of the Escrow Account; (v) No Buyer Covered Loss shall constitute a Seller Covered Loss. (vi) Buyer shall not have the right to recover for any Seller Covered Loss (A) arising from a breach of any representation and warranty of Seller of which breach Buyer had knowledge on or prior to the Effective Date or (B) to the extent that such Seller 39 Covered Loss is reduced by any insurance proceeds or other amount actually recovered by Buyer or any of its Subsidiaries from any Person other than a Subsidiary of Buyer provided that such insurance benefit shall be net of any additional insurance cost incurred by Buyer as a result of such claim Loss. (vii) In the event of a threshold determination that a breach of a representation, warranty or covenant qualified by materiality or Material Adverse Effect shall have occurred, for purposes of determining a Seller Covered Loss, such materiality or Material Adverse Effect shall be disregarded. (viii) Any Preferred Stock with an aggregate stated amount in excess of $10,000,000 in the Escrow Account after six months following the Closing Date for which a claim has not been made shall be delivered to Seller. Nine months following the Closing Date, Preferred Stock with a stated amount equal to the amount of any claim or claims made under this Section 9.2(a) shall be retained in the Escrow Account until the resolution of such claim or claims and any remaining Preferred Stock shall be delivered to Seller. (b) BUYER AND SELLER ACKNOWLEDGE AND AGREE THAT THE REMEDIES SET FORTH IN SECTION 3.2, SECTION 3.3(a), SECTION 7.3(c), SECTION 7.3(e), SECTION 8.2, SECTION 10.2 AND THIS SECTION 9.2, INCLUDING THE DEDUCTIBLES, LIABILITY LIMITS, AND SURVIVAL PERIODS SET FORTH ABOVE AND THE DISCLAIMERS SET FORTH IN SECTION 9.1, ARE INTENDED TO BE, AND SHALL BE, THE EXCLUSIVE REMEDIES OF BUYER OR SELLER WITH RESPECT TO ANY ASPECT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, OTHER THAN CAUSES OF ACTION AND CLAIMS EXPRESSLY RESERVED IN SECTION 9.2(a)(i) OR 9.2(c)(i). BUYER AND SELLER HEREBY RELEASE, WAIVE, AND DISCHARGE, AND COVENANT NOT TO SUE THE OTHER PARTY WITH RESPECT TO, ANY CAUSE OF ACTION OR CLAIM (OTHER THAN THOSE EXPRESSLY RESERVED IN SECTIONS 9.2(a)(i) OR 9.2(c)(i), NOT EXPRESSLY PROVIDED FOR IN THIS AGREEMENT TO THE MAXIMUM EXTENT PERMITTED BY LAW. (c) Buyer shall defend, indemnify, and hold harmless Seller from and against any and all losses, costs, penalties, and expenses, including reasonable attorneys' fees and costs, arising out of (1) any breach of the representations and warranties of Buyer contained in this Agreement or any breach of any covenant of Buyer contained in this Agreement or (2) any of the Assumed Liabilities (a "Buyer Covered Loss"), including any Buyer Covered Loss arising in whole or in part from the sole or concurrent negligence of Seller (but excluding any Seller Covered Losses). Notwithstanding anything to the contrary in this Agreement or in any other agreement entered into by any of the parties hereto in connection with the transactions contemplated by this Agreement (but subject to Section 9.2(d)): (i) a claim by Seller (A) for the payment of the Seller Inventory Adjustment in accordance with Section 3.3(a), (B) under Section 8.2, (C) under the Bill of Sale, Assignment, and Assumption Agreement referred to in Section 3.2(b), (D) under Section 3.4, or (E) under Section 3.5 shall not be subject to the limitations set forth in (ii), (iii) and (iv) below; 40 (ii) Seller's right to make any claim for all Buyer Covered Losses shall terminate at the close of business on the day that is six months after Closing with respect to any Buyer Covered Losses arising out of a breach of the representations and warranties of Valero and Buyer contained in this Agreement, two years after Closing with respect to Buyer Covered Losses arising out of a breach by Buyer of Section 6.11, and nine months after the Closing with respect to any other Buyer Covered Loss, except with respect to each claim for a Buyer Covered Loss with respect to which a notice is delivered to Valero and Buyer prior to the close of business on such day specifying in reasonable detail the specific nature of and specific basis of the Buyer Covered Loss and the estimated amount of such Buyer Covered Loss; (iii) no Seller Covered Loss shall constitute a Buyer Covered Loss; (iv) Seller shall have the right to recover for Buyer Covered Losses for breach of Buyer's representations and warranties or covenants only after such time as the aggregate amount of Buyer Covered Losses exceeds $3,000,000, and then only to the extent that such Covered Losses exceed such amount; and (v) Seller shall not have the right to recover for any Buyer Covered Loss (A) arising from a breach of any representation and warranty of Buyer of which breach Seller had knowledge on or prior to the Effective Date or (B) to the extent that such Buyer Covered Loss is reduced by any insurance proceeds or other amount actually recovered by Seller from any Person other than Seller. (d) Notwithstanding anything to the contrary contained in this Agreement, (i) Buyer and Valero agree that Seller shall have no liability or responsibility with respect to the UOP licenses referred to in Schedule 1.1-C of the Seller Disclosure Schedule beyond the payment to UOP, if required, of the Cure Amount with respect thereto (if any) and up to $1,500,000, and (ii) neither party hereto shall be entitled to recover from the other party hereto or from the Escrow Account any amount in respect of exemplary, punitive, special, indirect, consequential, remote, or speculative damages, including lost profits, but including, however, any incidental, consequential, indirect, special or punitive damages recovered by any third party pursuant to a claim that otherwise constitutes a Seller Covered Loss or Buyer Covered Loss. (e) All claims for indemnification under this Agreement (including under this Section 9.2) shall be asserted and resolved as follows: (A) A party claiming indemnification under this Agreement (an "Indemnified Party") shall promptly (i) notify the party from whom indemnification is sought (the "Indemnifying Party") of any third-party claim or claims asserted against the Indemnified Party ("Third Person Claim") which could give rise to a right of indemnification under this Agreement and (ii) transmit to the Indemnifying Party a written notice ("Claim Notice") describing in reasonable detail the nature of the Third Person Claim, a copy of all papers served with respect to such claim (if any), an estimate of the amount of damages attributable to the Third Person Claim and the basis of the Indemnified Party's request for indemnification under this Agreement. 41 Within 30 days after receipt of any Claim Notice (the "Election Period"), the Indemnifying Party shall notify the Indemnified Party (i) whether the Indemnifying Party disputes its potential liability to the Indemnified Party under this Article IX with respect to such Third Person Claim and (ii) whether the Indemnifying Party desires, at the sole cost and expense of the Indemnifying Party, to defend the Indemnified Party against such Third Person Claim. (B) If the Indemnifying Party notifies the Indemnified Party within the Election Period that the Indemnifying Party does not dispute its potential liability to the Indemnified Party under this Article IX and that the Indemnifying Party elects to assume the defense of the Third Person Claim, then the Indemnifying Party shall have the right to defend, at its sole cost and expense, such Third Person Claim by all appropriate proceedings, which proceedings shall be prosecuted diligently by the Indemnifying Party to a final conclusion or settled at the discretion of the Indemnifying Party in accordance with this Section 9.2(e)(B). The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof. The Indemnified Party is hereby authorized, at the sole cost and expense of the Indemnifying Party (but only if the Indemnified Party is actually entitled to indemnification hereunder or if the Indemnifying Party assumes the defense with respect to the Third Person Claim), to file, during the Election Period, any motion, answer or other pleadings which the Indemnified Party shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party and not prejudicial to the Indemnifying Party (it being understood and agreed that if an Indemnified Party takes any such action which is prejudicial and conclusively causes a final adjudication which is adverse to the Indemnifying Party, the Indemnifying Party shall be relieved of its obligations hereunder with respect to such Third Person Claim). If requested by the Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense of the Indemnifying Party, to cooperate with the Indemnifying Party and its counsel in contesting any Third Person Claim which the Indemnifying Party elects to contest, including, without limitation, the making of any related counterclaim against the person asserting the Third Person Claim or any cross-complaint against any Person. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Person Claim controlled by the Indemnifying Party pursuant to this Section 9.2(e) and shall bear its own costs and expenses with respect to such participation. (C) If the Indemnifying Party fails to notify the Indemnified Party within the Election Period that the Indemnifying Party elects to defend the Indemnified Party pursuant to Section 9.2(e)(B), or if the Indemnifying Party elects to defend the Indemnified Party pursuant to Section 9.2(e)(B) but fails to diligently and promptly prosecute or settle the Third Person 42 Claim, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party, the Third Person Claim by all appropriate proceedings, which proceedings shall be promptly and vigorously prosecuted by the Indemnified Party to a final conclusion or settled. The Indemnified Party shall have full control of such defense and proceedings, provided, however, that the Indemnified Party may not enter into, without the Indemnifying Party's consent, which shall not be unreasonably withheld, any compromise or settlement of such Third Person Claim. Notwithstanding the foregoing, if the Indemnifying Party has delivered a written notice to the Indemnified Party to the effect that the Indemnifying Party disputes its potential liability to the Indemnified Party under this Article IX and if such dispute is resolved in favor of the Indemnifying Party by final, nonappealable order of a court of competent jurisdiction, the Indemnifying Party shall not be required to bear the costs and expenses of the Indemnified Party's defense pursuant to this Section or of the Indemnifying Party's participation therein at the Indemnified Party's request and the Indemnified Party shall reimburse the Indemnifying Party in full for all costs and expenses of such litigation. The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this Section, and the Indemnifying Party shall bear its own costs and expenses with respect to such participation. (D) In the event any Indemnified Party should have a claim against any Indemnifying Party hereunder which does not involve a Third Person Claim, the Indemnified Party shall transmit to the Indemnifying Party a written notice (the "Indemnity Notice") describing in reasonable detail the nature of the claim, an estimate of the amount of damages attributable to such claim and the basis of the Indemnified Party's request for indemnification under this Agreement. If the Indemnifying Party does not notify the Indemnified Party within 60 days from its receipt of the Indemnity Notice that the Indemnifying Party disputes such claim, the claim specified by the Indemnified Party in the Indemnity Notice shall be deemed a liability of the Indemnifying Party hereunder. If the Indemnifying Party has timely disputed such claim, as provided above, such dispute shall be resolved by litigation in an appropriate court of competent jurisdiction. (E) Payments of all amounts owing by the Indemnifying Party pursuant to Sections 9.2(a) and 9.2(c) shall be made within 30 days after the latest of (i) the settlement of the Third Person Claim, (ii) the expiration of the period for appeal of a final adjudication of such Third Person Claim or (iii) the expiration of the period for appeal of a final adjudication of the Indemnifying Party's liability to the Indemnified Party under this Agreement. 43 Section 9.3 Amendment. This Agreement may not be amended except by an instrument in writing signed by Seller, Valero and Buyer. Section 9.4 Waiver. At any time prior to the Closing, either Seller, on the one hand, or Buyer and Valero, on the other hand, may (a) extend the time for the performance of any of the obligations or other acts of the other, (b) waive any inaccuracies in the representations and warranties of the other contained herein or in any document delivered pursuant hereto, and (c) waive compliance by the other with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party hereto to be bound thereby. Section 9.5 Notices. All notices and other communications that are required to be or may be given pursuant to this Agreement shall be in writing and shall be deemed to have been duly given if delivered in person or by courier or mailed by registered or certified mail (postage prepaid, return receipt requested) to the relevant party hereto at the following addresses or sent by confirmed facsimile to the following numbers: If to Seller, to: Orion Refining Corporation 16701 Greenspoint Park Drive Suite 145 Houston, Texas 77060 Attention: Ms. Roberta Rossi Telephone: (832) 601-1022 Facsimile: (832) 601-1021 with copies to: Morris, Nichols, Arsht & Tunnell 1201 North Market Street, P.O. Box 1347 Wilmington, Delaware 19899-1347 Attention: Mr. Robert Dehney Telephone: (302) 575-7353 Facsimile: (302) 425-4673 and: Vinson & Elkins L.L.P. 2300 First City Tower Suite 2300 Houston, Texas 77002-6760 Attention: Mr. Bruce R. Bilger Telephone: (713) 758-2614 Facsimile: (713) 615-5429 44 If to Buyer or Valero, to: Valero Refining--New Orleans, L.L.C. Valero Energy Corporation One Valero Place San Antonio, Texas 78212 Attention: Kim Bowers Telephone: (210) 370-2246 Facsimile: (210) 370-5889 or to such other address or facsimile number as Seller or Buyer and Valero may, from time to time, designate in a written notice given in accordance with this Section 9.5. Any such notice or communication shall be effective, (a) if delivered in person or by courier, upon actual receipt by the intended recipient, (b) if sent by facsimile transmission, upon actual receipt if received during the recipient's normal business hours, or at the beginning of the recipient's next business day after receipt if not received during recipient's normal business hours, or (c) if mailed, upon the earlier of five days after deposit in the mail and the date of delivery as shown by the return receipt therefor. Section 9.6 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 9.7 Severability. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party hereto. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties hereto as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. Section 9.8 Entire Agreement. This Agreement (together with the Exhibits and the Seller Disclosure Schedule) constitutes the entire agreement of the parties hereto, and supersedes all prior agreements and undertakings, both written and oral, among the parties hereto, with respect to the subject matter hereof (other than the Confidentiality Agreement, which shall continue in full force and effect). Section 9.9 Assignment. This Agreement shall not be assigned by any party hereto except by operation of Law; provided that Buyer may assign this Agreement to a Subsidiary of Valero without consent if such assignment does not affect the timing or obtaining of any consents or approvals required for the transaction contemplated hereby and Buyer shall not by such assignment be relieved of its obligations hereunder or under applicable bankruptcy law; provided, further that Seller shall have the right to assign after Closing its rights to the Earn Out Payments. Any purported assignment of this Agreement in violation of this Section 9.9 shall be null and void. 45 Section 9.10 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and its successors, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit, or remedy of any nature whatsoever under or by reason of this Agreement. Section 9.11 Failure or Indulgence Not Waiver. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, covenant, or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. Section 9.12 Disclosure Schedule. The Seller Disclosure Schedule has been arranged in schedules corresponding to the relevant Sections of this Agreement. Any matter disclosed by Seller in the Seller Disclosure Schedule pursuant to any Section of this Agreement shall be deemed to have been disclosed by Seller for purposes of each other Section of this Agreement to which such disclosure would reasonably relate. Section 9.13 Governing Law. This Agreement shall be construed (both as to validity and performance), interpreted, and enforced in accordance with, and governed by, the Laws of the State of Texas applicable to agreements made and to be performed wholly within such jurisdiction. Any judicial proceeding brought against any of the parties hereto with respect to this Agreement (i) during Seller's Bankruptcy shall be brought in the Bankruptcy Court, (ii) thereafter in any United States District Court or in any Texas State District court, in each case, in Houston, Texas, and any appellate court from any thereof, irrespective of where such party may be located at the time of such proceeding, and by execution and delivery of this Agreement, each of the parties hereto hereby consents to the exclusive personal jurisdiction of such court and waives any defense or opposition to such personal jurisdiction. Each party waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any proceedings relating to this Agreement. Section 9.14 Counterparts. This Agreement may be executed in multiple counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Section 9.15 Buyer's Like Kind Exchange. Purchase of the Assets may be part of a transaction intended to qualify as an exchange under Section 1031 of the Code. The Seller agrees to allow an assignment of the Buyer's interest in this Agreement to an exchange facilitator to effect the exchange, provided that such assignment does not affect the timing or obtaining of any consents or approvals required for the transaction contemplated hereby. Such assignment shall not relieve Valero of any of its rights and obligations hereunder and Valero's guarantee hereunder shall apply to such Buyer assignee's obligations hereunder. Seller further agrees to otherwise reasonably cooperate to accomplish such exchange. Seller makes no representations as to any particular Tax treatment that may be afforded to Buyer by reason of such assignment, and Seller shall not be obligated to pay any additional costs or incur any additional obligations hereunder as a result of such exchange. Buyer hereby agrees to pay all costs associated with such exchange and to indemnify and hold Seller harmless from and against any and all losses and Taxes arising out of such exchange. 46 such exchange and to indemnify and hold Seller harmless from and against any and all losses and Taxes arising out of such exchange. ARTICLE X SPECIAL PROVISIONS Section 10.1 Motion to Approve Agreement and Transaction. Seller shall file in the Bankruptcy Court (i) on or before the Effective Date, a motion in substantially the form set forth in Exhibit 10.1 (or otherwise reasonably acceptable to Seller and Buyer) (a) seeking approval of this Agreement and the transactions contemplated herein pursuant to Sections 363 and 365 of the Bankruptcy Code, (b) seeking approval of the payment to Buyer of the Break-Up Fee pursuant to Section 10.2 of this Agreement, and (c) seeking authority for Seller to perform all its obligations under this Agreement. Seller shall use commercially reasonable efforts to obtain entry of an order in substantially the form set forth on Exhibit 10.2 (the "Sale Procedures Order") on or before fifteen days after the Effective Date and entry of an order in substantially the form set forth on Exhibit 10.3 on or before forty days after the Effective Date. If the order in substantially the form set forth on Exhibit 10.3 or an order in another form approving the sale of the Assets to Buyer in accordance with this Agreement, including that the transfer of the Assets shall be free and clear of Liens other than Closing Permitted Encumbrances, reasonably acceptable to Seller and Buyer (the "Sale Order"), is not entered on or before 75 days after the Effective Date, then Buyer shall have the right to terminate this Agreement, whereupon neither party shall have any further liability to the other (except with respect to items which expressly survive termination pursuant to the provisions hereof). Section 10.2 Break-Up Fee and Expense Reimbursement. If all or substantially all of the Assets are sold to a third party in connection with the Seller Bankruptcy, other than any such sale following either (a) a termination of this Agreement by Buyer or the exercise by Buyer of a right not to consummate the Closing because of the failure of a Closing Condition in Section 7.1(a) or (b) or Section 7.3(c) or (e) to be satisfied or (b) a termination of this Agreement by Seller or the exercise by Seller of a right not to consummate the Closing because of the failure of a Closing Condition in Section 7.1(a) or (b) or Section 7.2 to be satisfied, then Buyer will be entitled to receive from Seller $17,000,000 plus reasonable, documented out of pocket fees and expenses not to exceed $1,000,000 in the event the Assets are sold to a third party payable by wire transfer in immediately available funds at the closing of such sale. Section 10.3 Disclosure. Except as required by the Sales Procedure Order and the Bankruptcy Code or other applicable law, Seller agrees that, from the date hereof and until the first to occur of the Closing Date or the termination of this Agreement in accordance with Article VIII, Seller, nor any of its officers, agents or other representatives shall, and Seller will direct and use its reasonable best efforts to cause each of such Persons not to, initiate or solicit, directly or indirectly, any inquiries or the making or implementation of any proposal or offer with respect to a transaction involving all or any significant portion of the Assets. Subject to and in accordance with the Sale Procedures Order, Seller shall provide Buyer with the material terms of competing offers received (whether written or oral) at least two business days prior to any auction concerning the Assets or, in the event no auction is held, at least two business days prior to any hearing to consider entry of the Sale Order; provided, however, if any such competing offer is received prior to the qualifying bid deadline, Seller shall not be obligated to provide Buyer the identity of any such offeror until the bid deadline, and if any such competing 47 offer is received after the qualifying bid deadline, Seller shall be obligated to provide Buyer the identity of any such offeror. Notwithstanding the preceding provisions of this Section 10.3, Seller may take any action or refrain from taking any action necessary to comply with Section 363 of the Bankruptcy Code and will not be deemed to be in breach of this Section 10.3 by taking such action or refraining from taking any action, including, without limitation: (a) the performance of all actions contemplated under the Sale Procedures Order; (b) responding to inquiries from potential acquirers of all or any significant portions of the Assets; (c) the provision of due diligence information and access to and the ability to inspect the Assets and the Business to potential acquirers of all or any significant portions of the Assets; (d) arranging for and conducting an auction with respect to all or any significant portions of the Assets; and (e) preparation and distribution to potential acquirers of marketing materials concerning all or any significant portions of the Assets. 48 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. ORION REFINING CORPORATION By: /s/ S. Clark Johnson -------------------------------------------- Name: S. Clark Johnson Title: President and Chief Executive Officer VALERO REFINING--NEW ORLEANS, L.L.C. By: /s/ Michael S. Ciskowski -------------------------------------------- Name: Michael S. Ciskowski Title: Executive Vice President VALERO ENERGY CORPORATION By: /s/ Michael S. Ciskowski -------------------------------------------- Name: Michael S. Ciskowski Title: Executive Vice President FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT This FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Amendment") is entered into as of June 13, 2003, by and among ORION REFINING CORPORATION, a Delaware corporation ("Seller"), VALERO ENERGY CORPORATION, a Delaware corporation ("Valero") and VALERO REFINING--NEW ORLEANS, L.L.C., a Delaware limited liability company ("Buyer"). RECITALS Seller, Valero, and Buyer have entered into the Purchase and Sale Agreement dated as of May 13, 2003 (the "PSA"), pursuant to which Seller has agreed to sell to Buyer, and Buyer has agreed to purchase from Seller, the Assets (as defined in the PSA). Seller, Valero, and Buyer now desire to enter into this Amendment to amend certain provisions of the PSA and to set forth their further agreements with respect to certain matters. NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, and covenants contained herein, the parties hereto agree as follows: Section 1. Definitions. Capitalized terms used but not otherwise defined in this Amendment have the meanings given such terms in the PSA. Section 2. Amendments to PSA. Section 9.2(d) of the PSA is hereby amended by replacing the comma immediately prior to clause (i) with a colon, formatting clauses (i) and (ii) as separate subparagraphs, and replacing subparagraph (i) in its entirety with the following: "(i) Buyer and Valero agree that Seller shall have no liability or responsibility to Buyer or Valero, and that Buyer and Valero shall have no rights or remedies against Seller (or any of its employees or representatives), with respect to the Platforming Process License Agreement (the "Platforming License") with UOP LLC ("UOP") listed in Schedule 1.1(C) of the Seller Disclosure Schedule (whether under the representations, warranties, covenants, indemnities, conditions, or other provisions of this Agreement or otherwise, it being acknowledged by Buyer and Valero that (A) Seller has received a notice from UOP that Seller is in default under the Platforming License for failure to timely make required payments thereunder and a notice from UOP purporting to terminate the Platforming License for such default, and (B) UOP has filed a petition seeking certain injunctive and other relief and obtained a temporary restraining order to, inter alia, prohibit Seller's use and disclosure of UOP's proprietary platforming process and related technical information based on its purported termination of the Platforming License), except that, if Seller does not assign the Platforming License to Buyer at Closing, then, as Buyer's and Valero's exclusive remedy, the Purchase Price shall be reduced at Closing by $2,400,000 as follows: $1,800,000 in cash plus a number of shares of Preferred Stock having a stated value of $600,000; provided, however, that if Buyer increases the cash portion of the Purchase Price to be paid by Buyer by an amount equal to or greater than $600,000 in response to a Qualifying Bid from a third party in accordance with the Sale Procedures Order, such $600,000 reduction shall be a reduction in cash rather than in Preferred Stock. Accordingly, the failure to assign the Platforming License shall not constitute the failure to satisfy a condition to Closing hereunder (directly, as a result of such failure causing (l) any representation or warranty to be untrue or incorrect or (2) any covenant not to be performed or complied with, or otherwise), and Seller shall not have any obligation (through litigation or otherwise) to make any efforts or take any actions to remedy any default under, contest any termination of, or defend against any legal action with respect to the Platforming License or otherwise make any efforts or take any actions to maintain such license or to reinstate or otherwise obtain such license or any substitute therefor. Without limiting the foregoing, Seller shall have the right, in its sole and absolute discretion, in its bankruptcy proceedings to reject the Platforming License effective as of the Closing." Section 3. Representation and Warranty of Buyer and Valero. Each of Buyer and Valero hereby represent and warrant to Seller that neither Buyer nor Valero has any knowledge of any breach by Seller of any of its representations and warranties under the PSA as of the date of this Amendment. Section 4. No Other Amendments. Except as amended by this Amendment, the PSA remains in full force and effect as originally written. Section 5. Governing Law. This Amendment shall be construed (both as to validity and performance), interpreted, and enforced in accordance with, and governed by, the Laws of the State of Texas applicable to agreements made and to be performed wholly within such jurisdiction. Section 6. Counterparts. This Amendment may be executed in multiple counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be executed as of the date first written above by their respective officers thereunto duly authorized. ORION REFINING CORPORATION By: /s/ S. Clark Johnson ----------------------------------------- Name: S. Clark Johnson Title: President and Chief Executive Officer VALERO REFINING--NEW ORLEANS, L.L.C. By: /s/ Michael S. Ciskowski ----------------------------------------- Name: Michael S. Ciskowski Title: Executive Vice President VALERO ENERGY CORPORATION By: /s/ Michael S. Ciskowski ----------------------------------------- Name: Michael S. Ciskowski Title: Executive Vice President SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT This SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Amendment") is entered into as of July 1, 2003, by and among ORION REFINING CORPORATION, a Delaware corporation ("Seller"), VALERO ENERGY CORPORATION, a Delaware corporation ("Valero") and VALERO REFINING--NEW ORLEANS, L.L.C., a Delaware limited liability company ("Buyer"). RECITALS Seller, Valero, and Buyer have entered into the Purchase and Sale Agreement dated as of May 13, 2003, as amended by the First Amendment to Purchase and Sale Agreement entered into as of June 13, 2003, by Seller, Valero, and Buyer (as so amended, the "PSA"), pursuant to which Seller has agreed to sell to Buyer, and Buyer has agreed to purchase from Seller, the Assets (as defined in the PSA). Seller, Valero, and Buyer now desire to enter into this Amendment to set forth their further agreements with respect to certain matters. NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, and covenants contained herein, the parties hereto agree as follows: Section 1. Definitions. Capitalized terms used but not otherwise defined in this Amendment have the meanings given such terms in the PSA. Section 2. Coker Unit Repairs. (a) Buyer and Valero hereby agree and acknowledge that the Coker Unit at the Refinery is Operational and that the condition to Closing set forth in Section 7.3(e) of the PSA is satisfied (b) The PSA is hereby amended by adding the following as a new Section 6.13: "Section 6.13 Coker Unit Repairs. (a) Buyer shall use its commercially reasonable best efforts to complete the remaining fireproofing, painting, and removal of demo wire and any other repairs (the "Outstanding Repairs") necessary to fully complete the repair of the damages to the Coker Unit resulting from the January 2003 casualty as promptly as practicable after the Closing and to collect amounts of insurance proceeds the right to receive which has been assigned to Buyer with respect to the cost of the Outstanding Repairs. (b) At Closing, Buyer shall deliver to the Escrow Agent 20,000 shares of Preferred Stock that would otherwise be delivered to Seller under Section 3.2(d)(y) of the PSA. Each time that Buyer receives a payment of insurance proceeds with respect to Outstanding Repairs completed by Buyer, Preferred Stock having a stated value equal to the amount of such insurance proceeds promptly thereafter shall be released to Seller (rounded to the nearest share of Preferred Stock). If on the date that is two years after the Closing Date any Preferred Stock remains in such escrow, Preferred Stock having a stated value equal to the amount of costs actually incurred by Buyer in carrying out Outstanding Repairs with respect to which Buyer has not received insurance proceeds shall be released to Buyer, and Buyer shall assign to Seller the right to receive the insurance proceeds with respect to such costs. Any Preferred Stock thereafter remaining in such escrow (and any Common Stock into which such Preferred Stock has been converted prior to such release and any dividends or other funds, if any, in such escrow representing proceeds from such Preferred Stock) shall be released to Seller." Section 3. Section 9.2(d)(i)--UOP Platforming License. Section 9.2(d)(i) of the PSA is hereby amended by replacing it in its entirety with the following: "(i) Buyer and Valero agree that Seller shall have no liability or responsibility to Buyer or Valero, and that Buyer and Valero shall have no rights or remedies against Seller (or any of its employees or representatives), with respect to the Platforming Process License Agreement (the "Platforming License") with UOP LLC ("UOP") listed in Schedule 1.1(C) of the Seller Disclosure Schedule (whether under the representations, warranties, covenants, indemnities, conditions, or other provisions of this Agreement or otherwise, it being acknowledged by Buyer and Valero that (A) Seller has received a notice from UOP that Seller is in default under the Platforming License for failure to timely make required payments thereunder and a notice from UOP purporting to terminate the Platforming License for such default, and (B) UOP has filed a petition seeking certain injunctive and other relief and obtained a temporary restraining order to, inter alia, prohibit Seller's use and disclosure of UOP's proprietary platforming process and related technical information based on its purported termination of the Platforming License), except that, if Seller does not assign the Platforming License to Buyer at Closing, then, as Buyer's and Valero's exclusive remedy, Buyer shall deliver to the Escrow Agent $1,800,000 of the Cash Purchase Price and 24,000 shares of Preferred Stock that would otherwise be delivered to Seller under Section 3.2(d)(x) and (y) of the PSA (such cash and Preferred Stock referred to herein as the "UOP Escrow"). If pursuant to an order of the Bankruptcy Court (or other court having jurisdiction) or the agreement of UOP, Seller transfers the Platforming License to Buyer and either pays or makes an adequate reserve for the payment of all Cure Amounts with respect to the Platforming License, the UOP Escrow shall be released to Seller. If the Bankruptcy Court (or such other court) fully and finally makes a determination the effect of which is that Seller cannot and will not be able to transfer the Platforming License (e.g. that the Platforming License was terminated by UOP), the UOP Escrow shall be released in full to Buyer. Following release of the UOP Escrow as provided in the immediately preceding sentences, no party shall have any remaining obligation to any of the other parties hereunder with respect to the Platforming License or the Dispute. Accordingly, the failure to assign the Platforming License shall not constitute the failure to satisfy a condition to Closing hereunder (directly, as a result of such failure causing (l) any representation or warranty to be untrue or incorrect or (2) any covenant not to be performed or complied with, or otherwise), and Seller shall not have any obligation (through litigation or otherwise) to make any efforts or take any actions to remedy any default under, contest any termination of, or defend against any legal action with respect to the Platforming License or otherwise make any efforts or take any actions to maintain such license or to reinstate or otherwise obtain such license or any substitute therefor. Without limiting the foregoing, Seller shall have the right, in its sole and absolute discretion, in its bankruptcy proceedings to reject the Platforming License effective as of the Closing." Section 4. Transition Services. (a) The PSA is hereby amended by adding the following as a new Section 6.14: "Section 6.14 Transition Services. The parties hereto shall have the rights and obligations with respect to transition services specified in Schedule 6.14." (b) The PSA is hereby amended by adding Attachment 1 hereto to the PSA as a new Schedule 6.14. Section 5. Employee Transition Matters. (a) The PSA is hereby amended by adding the following as a new Section 6.15: "Section 6.15 Employee Transition Matters. The parties shall have the rights and obligations with respect to employee transition matters specified in Schedule 6.15." (b) The PSA is hereby amended by adding Attachment 2 hereto to the PSA as a new Schedule 6.15. Section 6. Amendments with respect to Certain Excluded Assets. (a) The definition of "Excluded Assets" in the PSA is hereby amended by replacing the word "and" immediately prior to "(xv)" with a comma, and adding the following at the end of the definition immediately prior to the period: ", (xvi) scrap material from the January 2003 casualty in the Coker Unit at the Refinery, (xvii) the surplus equipment purchased by Seller for repairs to the Coker Unit at the Refinery and not used, and (xviii) the valves that were recently in the possession of LA Valves" (b) Section 6.11(a) of the PSA is hereby amended by adding the following as a new sentence at the end of such Section: Without limiting the generality of the foregoing, Buyer shall permit Seller to access the Refinery for purposes of removing the Excluded Assets described in items (xvi), (xvii) and (xviii) of the definition of Excluded Assets, and Seller shall remove such Excluded Assets from the Refinery within 45 days after the Closing Date and shall permit Buyer to observe, and shall provide Buyer with 48 hours prior notice of, such removal. Section 7. Amendments with respect to Assumed Contracts. (a) The definition of "Assumed Contracts" in the PSA is deleted in its entirety and replaced with the following: "Assumed Contracts" means (i) those contracts listed on Schedule 1.1-A of the Seller Disclosure Schedule to which Seller is a party related to the Assets or the Business, (ii) those contracts listed on Schedule 1.1-B of the Seller Disclosure Schedule, (iii) all rights of Seller as licensee under those licenses of intellectual property of another Person listed on Schedule 1.1-C, together with all applications and registrations with respect thereto, to the extent used by Seller in connection with the ownership and operation of the Refinery, (iv) those spot feedstock purchase contracts and spot product sales contracts being assigned to Seller by MSCG pursuant to the Inventory Sale Agreement and vessel charters listed in Schedule 1.1-D of the Seller Disclosure Schedule, and (v) those additional contracts listed in Schedule 1.1-E of the Seller Disclosure Schedule with respect to which Buyer is paying Cure Amounts. (b) Schedules 1.1-A, 1.1-B, and 1.1-C of the Seller Disclosure Schedules are hereby deleted in their entirety and replaced with Schedules 1.1-A, 1.1-B, 1.1-C, 1.1-D, and 1.1-E attached hereto as Attachment 3. (c) Section 6.9 of the PSA is hereby amended by adding the following sentence at the end of such Section: "Notwithstanding the foregoing, Buyer shall pay, and Seller shall have no obligation to pay, Cure Amounts as set forth in Exhibit B to the Sale Order with respect to the Assumed Contracts specified in Schedule 1.1-E to the Seller Disclosure Schedule, and Cure Amounts with respect thereto shall not constitute Pre-Closing Determined Cure Amounts." Section 8. Amendments to Exhibit 3.3(b). The last sentence of the body of Exhibit 3.3(b) to the PSA (the sentence immediately preceding Attachment A thereto) is hereby deleted in its entirety and replaced with the following: "Buyer agrees to cause all gasoline and motor fuels included in Inventory to be exported from the State of Louisiana on or before July 31, 2003, to provide appropriate documentation to such effect to Seller and MSCG promptly after each cargo/shipment is so exported and in any event within five business days after the last such cargo/shipment is so exported, and to indemnify Seller and MSCG for all liability, loss and expense (including any taxes, penalties, and interest) incurred as a result of Buyer's failure to perform its obligations in this sentence." Section 9. No Other Amendments. Except as amended by this Amendment, the PSA remains in full force and effect as originally written. Section 10. Governing Law. This Amendment shall be construed (both as to validity and performance), interpreted, and enforced in accordance with, and governed by, the Laws of the State of Texas applicable to agreements made and to be performed wholly within such jurisdiction. Section 11. Counterparts. This Amendment may be executed in multiple counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be executed as of the date first written above by their respective officers thereunto duly authorized. ORION REFINING CORPORATION By: /s/ R. M. Rossi --------------------------------------- Name: Roberta M. Rossi Title: Senior Vice President and General Counsel VALERO REFINING--NEW ORLEANS, L.L.C. By: /s/ Kimberly S. Bowers --------------------------------------- Name: Kimberly S. Bowers Title: Vice President VALERO ENERGY CORPORATION By: /s/ Kimberly S. Bowers --------------------------------------- Name: Kimberly S. Bowers Title: Vice President EX-4.2.1 4 h07312exv4w2w1.txt CERTIFICATE OF DESIGNATION OF PREFERRED STOCK EXHIBIT 4.2.1 CERTIFICATE OF DESIGNATION VALERO ENERGY CORPORATION CERTIFICATE OF DESIGNATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, the undersigned, John D. Gibbons, Executive Vice President and Chief Financial Officer, and Jay D. Browning, Vice President and Corporate Secretary of Valero Energy Corporation, a Delaware corporation (herein called the "corporation"), pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, do hereby make this Certificate of Designation and do hereby state and certify that pursuant to the authority expressly vested in the Board of Directors of the corporation by the Restated Certificate of Incorporation, the Board of Directors, at a meeting thereof duly called and held on March 20, 2003, at which meeting a quorum was present, appointed a special committee of directors (the "Special Committee") to designate the terms of an issue of preferred stock of the corporation in connection with a proposed acquisition by the corporation approved at such meeting and pursuant to a meeting of the Special Committee held on April 23, 2003, the Special Committee duly adopted the following resolutions providing for the issuance of a series of shares of Preferred Stock as hereinafter referred to, and further providing for the powers, designations, preferences and relative, participating, optional or other special rights thereon, and the qualifications, limitations or restrictions thereof, in addition to those set forth in said Restated Certificate of Incorporation, all in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware: RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the corporation by the provisions of the Restated Certificate of Incorporation of the corporation, as amended, out of the authorized but unissued shares of Preferred Stock of the corporation, this corporation hereby creates a series of the Preferred Stock, par value $.01 per share, of the corporation, and authorizes the issuance thereof, and hereby fixes the powers, designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations, or restrictions thereof (in addition to the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Restated Certificate of Incorporation of the corporation, as amended, which are applicable to Preferred Stock of all series) as follows: 2% MANDATORY CONVERTIBLE PREFERRED STOCK 1. Designation and Amount. The designation of the series of Preferred Stock created by this resolution shall be 2% Mandatory Convertible Preferred Stock (hereinafter called the "Preferred Stock"), and the number of shares constituting such series shall initially be 10 million shares with a stated value of $25.00 per share. The number of authorized but unissued shares of Preferred Stock may be reduced by further resolution duly adopted by the Board of Directors of the corporation or a duly authorized committee thereof and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such 2. reduction has been so authorized, but the number of authorized shares of Preferred Stock shall not be increased. 3. Dividend. (a) The holders of the Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of the funds of the corporation legally available therefor, dividends in cash at the rate per annum of $0.50 per share. Dividends on the Preferred Stock, will accrue from the date of original issuance and will be paid (when and as declared by the Board of Directors of the corporation) quarterly, in arrears, on the last day of each March, June, September and December (each, a "Dividend Payment Date"), commencing on September 30, 2003, except that if such Dividend Payment Date is not a business day, then such dividend shall be payable on the first immediately succeeding business day (as used herein, the term "business day" shall mean any day except a Saturday, Sunday or day on which banking institutions are legally authorized to close in the City of New York). The first dividend on the Preferred Stock paid on the last day of the calendar quarter during which the Preferred Stock is issued will reflect an accrual of dividends from the date of issuance to the end of such quarter at the annual dividend rate. The amount of dividends payable on each share of Preferred Stock for each full quarterly period thereafter shall be computed by dividing the annual dividend rate by four. The amount of dividends payable for any other period that is shorter or longer than a full quarterly dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Notwithstanding the foregoing and subject to the following sentence, dividends on the Preferred Stock shall be non-cumulative, shall not accrue and shall not be payable with respect to any calendar quarter (a "Non-Accruing Quarter") in any calendar year if between the first day of such calendar quarter and the last day of such calendar quarter the Board of Directors shall not have declared a dividend on the Common Stock. If the Board of Directors announces a change in dividend policy to suspend quarterly dividends and pay dividends on a semiannual or annual basis, any dividend that would have otherwise accrued on the Preferred Stock during any Non-Accruing Quarter in the period covered by such policy but for the operation of the immediately preceding sentence shall accrue and shall become payable in accordance with the terms of this Certificate of Designation. Each such dividend shall be paid to the holders of record of shares of the Preferred Stock as they appear on the stock register of the corporation on the first business day of the calendar month in which the applicable Dividend Payment Date falls. Dividends in arrears on any Preferred Stock not declared for payment or paid on any Dividend Payment Date (or, as applicable, next business day) may be declared by the Board of Directors of the corporation and paid on any date fixed by the Board of Directors of the corporation, whether or not a Dividend Payment Date (or, as applicable, the next business day) to the holders of record of the shares of Preferred Stock as they appear on the stock register of the corporation on such record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board of Directors of the corporation. (b) If all accrued but unpaid dividends on the Preferred Stock have not been declared and paid or irrevocably set apart for payment when due, then the corporation shall not (i) declare or pay any dividend on any Dividend Pari Passu Security or 2 Dividend Junior Security (each as defined below), (ii) redeem, purchase, retire or otherwise acquire for consideration shares of any Dividend Junior Security (or rights, options or warrants to purchase such Dividend Junior Security), other than (w) purchases or acquisitions of shares of any Dividend Junior Security in connection with any employee benefit or incentive plan, including the purchase of Common Stock to prevent dilution of outstanding Common Stock in the administration of such plans, (x) as a result of a reclassification of any Dividend Junior Security or the exchange or conversion of one class or series of any Dividend Junior Security for another class or series of any Dividend Junior Security, (y) redemptions or purchases of any Preference Share Purchase Rights (as defined below) or the declaration and payment of a dividend or distribution of similar share purchase rights in the future or (z) the purchase of fractional interests in shares of any Dividend Junior Security pursuant to the conversion or exchange provisions of such Dividend Junior Security, (iii) redeem, purchase, retire or otherwise acquire for consideration any Dividend Pari Passu Security (or rights, options or warrants to purchase such Dividend Pari Passu Security) or (iv) permit any subsidiary of the corporation to purchase or otherwise acquire for consideration any shares of stock of the corporation unless the corporation could, pursuant to the foregoing, purchase or otherwise acquire such shares at such time and in such manner. The preceding sentence, however, shall not apply to, or prohibit (i) dividends or distributions of any Preference Share Purchase Rights, (ii) dividends or distributions of similar share purchase rights in the future, (iii) dividends or distributions in shares of Common Stock or another class or series of capital stock of the corporation that is junior to the Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding-up of the corporation or (iv) dividends, distributions, redemptions and other payments under the Premium Equity Participating Security Units and the Trust Originated Preferred Securities issued by subsidiaries of the corporation and outstanding on the date of the issuance of the Preferred Stock. The term "Dividend Pari Passu Security" means any preference stock or preferred stock or other capital stock of the corporation ranking pari passu with the Preferred Stock as to the payment of dividends. "Dividend Junior Security" means Common Stock and any other class or series of capital stock of the corporation ranking junior to the Preferred Stock as to the payment of dividends. 4. Redemption. The shares of Preferred Stock are not redeemable by the corporation. 5. Regarding Voting Rights. (a) The holders of the Preferred Stock shall not, except as otherwise provided by subsections (b) or (c) of this Section 4 or as required by law or as set forth in the Restated Certificate of Incorporation of the corporation, have any right or power to vote on any question or in any proceeding or to be represented at or to receive notice of any meeting of stockholders. Except as otherwise provided in subsection (b) of this Section 4, on any matters on which the holders of the Preferred Stock shall be entitled to vote, they shall be entitled to one vote for each share held. (b) Each holder of shares of Preferred Stock shall have a number of votes per share of Preferred Stock as to all matters voted upon by the holders of Common Stock 3 equal to the Voting Ratio in effect on the record date for determining the holders of Common Stock entitled to vote on such matters, and shall be entitled to vote on all such matters together with the holders of the Common Stock, and together with the holders of any other classes or series of stock who are entitled to vote thereon and, except as provided in subsection (c), not as a separate class. The "Voting Ratio," in effect on a particular date, shall mean the Conversion Ratio that would have been in effect if the Conversion Date occurred on such date. (c) So long as any shares of Preferred Stock remain outstanding, the approval of the holders of at least two-thirds of the outstanding shares of Preferred Stock voting together as a separate class, given in person or by proxy, at any special or annual meeting called for such purpose, or by written consent as permitted by applicable law and the Restated Certificate of Incorporation and Bylaws of the corporation, shall be necessary to permit, effect or validate any amendment, alteration or repeal, by merger or otherwise, of any of the provisions of the Restated Certificate of Incorporation or of this Certificate of Designation which would adversely affect any power, preference or special right of the Preferred Stock provided that such an adverse effect shall not be deemed to have occurred solely as a result of the authorization, designation or issuance of any class of equity security. 6. Priority in Event of Dissolution. In the event of any liquidation, dissolution, or winding up of the affairs of the corporation, after payment or provision for payment of the debts and other liabilities of the corporation, the holders of the Preferred Stock shall be entitled to receive, out of the remaining assets of the corporation, the amount of $25.00 in cash for each share of Preferred Stock, plus in each case an amount equal to all dividends accrued and unpaid on each such share (whether or not declared) up to the date fixed for distribution, before any distribution shall be made to the holders of the Common Stock or to the holders of any other class of stock ranking junior to the Preferred Stock as to distribution of assets upon the liquidation, dissolution or winding up of the affairs of the corporation. If upon any liquidation, dissolution or winding up of the affairs of the corporation, the assets distributable among the holders of Preferred Stock shall be insufficient to permit the payment in full to the holders of all of the Preferred Stock of all preferential amounts payable to all such holders, then the entire assets of the corporation thus distributable shall be distributed ratably among the holders of the Preferred Stock in proportion to the respective amounts that would be payable per share if such assets were sufficient to permit payment in full. 7. Conversion. (a) On July 1, 2006 (the "Conversion Date"), each share of Preferred Stock will be automatically converted (unless previously converted at the option of the holder of such Preferred Stock in accordance with Section 6(b) or a Change of Control Early Conversion has occurred in accordance with Section 6(c)) into (i) the number of shares of Common Stock, $.01 par value, of the corporation ("Common Stock") as provided below and (ii) the right to receive an amount in cash equal to all accrued and unpaid dividends on such share of Preferred Stock to and including the day immediately prior to the Conversion Date, whether or not earned or declared, out of funds legally available therefor provided, that for purposes of this clause (ii) any dividends that would have 4 been accrued and unpaid as of the Conversion Date in respect of the quarter in which the Conversion Date occurs but for the fact that the corporation shall not have declared a dividend on the Common Stock during such quarter and prior to the Conversion Date, such dividends shall be treated as accrued and unpaid unless prior to the Conversion Date the corporation shall have publicly announced an intention to not declare a dividend on the Common Stock during such quarter. The number of shares of Common Stock to be received for each share of Preferred Stock (the "Conversion Ratio") shall be based on the Applicable Market Value in accordance with the following table, in each case subject to adjustment as provided in this Section 6:
Conversion Ratio --------------------------- Shares of Common Stock for Applicable Market Value each share of Preferred Stock - --------------------------------------- ----------------------------- (1) Less than or equal to $37.37 .6690 (2) Greater than $37.37 but less than $25.00 or equal to $50.45 ----------------------- Applicable Market Value (3) Greater than $50.45 .4955
Subject to any adjustment pursuant to this Section 6, the "Applicable Market Value" means the average of the Closing Prices (as defined in subsection (j) below) per share of Common Stock on each of the twenty (20) consecutive Trading Days (as defined in subsection (j) below) ending on the second Trading Day immediately preceding the Conversion Date or the applicable Change of Control Early Conversion Date (as defined herein) as the case may be. (b) Each share of Preferred Stock is convertible, at the option of the holder thereof ("Optional Conversion"), at any time or from time to time, before the Conversion Date into a number of shares of Common Stock equal to the conversion ratio set forth in clause (3) of the definition of Conversion Ratio (as may be adjusted pursuant to this Section 6) (the "Optional Conversion Ratio"). Optional Conversion of shares of Preferred Stock may be effected by delivering written notice of conversion and the certificates and instruments required by subsection (d) to the office of the corporation set forth in subsection (d). Each Optional Conversion shall be deemed to have been effected immediately before the close of business on the date on which the foregoing requirements shall have been satisfied. The Optional Conversion shall be at the Optional Conversion Ratio in effect at such time and on such date. Holders of shares of Preferred Stock at the close of business on the record date for any payment of declared dividends shall be entitled to receive the dividend payable on such share of Preferred Stock on the corresponding dividend payment date notwithstanding the Optional Conversion of such shares of Preferred Stock following such record date and on or prior to such dividend payment date. Except as provided above, upon any Optional Conversion of shares of Preferred Stock, the corporation shall make no payment of or allowance for unpaid dividends, whether or not in arrears, on such shares of Preferred Stock as to which 5 Optional Conversion has been effected or for previously declared dividends or distributions on the shares of Common Stock issued upon Optional Conversion. (c) Upon a Change of Control (as defined below) that is not a Common Stock Transaction (as defined below) and that occurs no later than the fifth business day immediately preceding the Conversion Date, each holder of Preferred Stock shall have the right, at the holder's option, for a period of 30 days after the mailing of a notice by the corporation to the holders of the Preferred Stock pursuant to this subsection (c) that a Change of Control has occurred, to convert all or any portion of such holder's shares of Preferred Stock (a "Change of Control Early Conversion") into Common Stock (or other securities or property pursuant to an adjustment to the Conversion Ratio including in respect of such Change of Control) at the Conversion Ratio in effect (after giving effect to any adjustments in respect of such Change of Control) on the effective date of such conversion (the "Change of Control Early Conversion Date"). Within 20 days after the occurrence of the Change of Control, the corporation shall mail written notice to each holder of Preferred Stock of the occurrence of the Change of Control, which notice shall be made by certified or registered mail and shall specify the deadline for submitting a notice of an election to convert pursuant to this subsection (c), the date on which such Change of Control shall have occurred, the applicable Conversion Ratio and the amount per share of Preferred Stock or cash, securities and other consideration receivable by the holder upon conversion if an election is made pursuant to the immediately preceding sentence. In addition, if a holder of Preferred Stock effects a Change of Control Early Conversion of some or all of such holder's Preferred Stock, such holder shall be entitled to receive, on the Change of Control Early Conversion Date, the aggregate amount of any accrued and unpaid dividends to and including the day immediately prior to the Change of Control Early Conversion Date on such shares of Preferred Stock that are so converted, whether or not earned or declared, out of funds legally available therefor. The Change of Control Early Conversion of shares of Preferred Stock may be effected by delivering written notice of conversion and certificates and instruments required by subsection (d) to the office of the corporation as set forth in subsection (d). Each Change of Control Early Conversion shall be deemed to have been effected immediately before the close of business on the date on which the foregoing requirements shall have been satisfied. "Change of Control" means any of the following events: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the corporation and its subsidiaries taken as a whole to any "person" or group of related persons (a "Group") (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")); (ii) the consummation of any transaction (including, without limitation, any purchase, sale, acquisition, disposition, merger or consolidation) the result of which is that any "person" or Group becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of more than 50% of the aggregate voting power of all classes of capital stock of the corporation having the right to elect directors under ordinary circumstances; (iii) any consolidation or merger of the corporation with or into another corporation (other than a merger or consolidation in which the Common Stock outstanding 6 immediately prior to the merger or consolidation is not exchanged for cash, securities or other property of the corporation or another entity except an entity created for such transaction in which each share of Common Stock is converted into one share of common stock of such entity) or (iv) the adoption of a plan relating to the liquidation or dissolution of the corporation. "Common Stock Transaction" means any transaction in which more than 50% of the value (as determined in good faith by the Board of Directors of the corporation) of the consideration received by holders of the Common Stock consists of common stock that for each of the ten consecutive Trading Days prior to the effective date of the transaction has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on the Nasdaq National Market. (d) As promptly as practicable following the Conversion Date or, in the case of an Optional Conversion or a Change of Control Early Conversion, after the surrender of a certificate representing shares of Preferred Stock which have been converted to the corporation at the principal offices of the corporation located at One Valero Place, San Antonio, Texas 78212, Attention: Shareholder Services Department (or at such other place as the corporation shall hereafter designate in writing to the registered holders of the Preferred Stock), accompanied by a written instrument in form reasonably satisfactory to the corporation duly executed by the registered holder or his duly authorized legal representative specifying the name or names (with address) in which the Common Stock is to be issued, the corporation shall deliver or cause to be delivered at the offices set forth above to or upon the written order of the holder of such shares of Preferred Stock so surrendered a certificate or certificates representing the number of fully paid and nonassessable shares of Common Stock or other cash, securities or property into which such shares of Preferred Stock have been converted in accordance with the provisions of this Section 6. Conversion shall be deemed to have been made immediately prior to the close of business on the Conversion Date or the date specified in subsection (b) and (c), as applicable, so that the rights of the holders of such shares as holders of Preferred Stock shall cease with respect to such shares at such time, and the person or persons entitled to receive the shares of Common Stock upon conversion of shares of Preferred Stock shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock at such time. Except as otherwise expressly provided herein, no adjustments in respect of cash dividends on Common Stock or Preferred Stock shall be made upon the conversion of any shares provided that if a record date for dividends on the Preferred Stock shall have occurred prior to the close of business on the Conversion Date or such other date as the conversion is deemed to have been effected, holders of Preferred Stock shall be entitled to receive such dividend, irrespective of whether conversion of such Preferred Stock into Common Stock has occurred prior to such dividend payment date. (e) If the corporation shall (i) pay a stock dividend or stock dividends or otherwise make a distribution or distributions on shares of its Common Stock in each case payable in shares of its Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger number of shares, (iii) combine outstanding shares of Common Stock into a smaller number of shares, or (iv) issue by reclassification of shares 7 of Common Stock any shares of capital stock of the corporation of any class or classes, the Conversion Ratio applicable prior to such action shall be adjusted so that the holder of any Preferred Stock thereafter surrendered for conversion shall be entitled to receive the Conversion Ratio in effect immediately prior to such action times the number and class or classes of shares of the capital stock of the corporation which a holder of one share of Common Stock would have owned or have been entitled to receive immediately after the happening of any of the events described above. An adjustment made pursuant to this subsection (e) shall become effective immediately after the record date for determination of stockholders entitled to receive such dividend or distribution in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. (f) In case the corporation shall issue rights or warrants to all holders of Common Stock entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase shares of Common Stock at a price per share less than the then Current Market Price per share of Common Stock (as defined in subsection (j) below) at the record date mentioned below, the Conversion Ratio in effect immediately prior to such record date shall be increased by multiplying the Conversion Ratio applicable prior to such record date by a fraction, of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on such record date plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares so offered for subscription or purchase would purchase at such Current Market Price. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. However, upon the expiration of any right or warrant to purchase Common Stock the issuance of which resulted in an adjustment in the Conversion Ratio pursuant to this subsection (f), if any such right or warrant shall expire and shall not have been exercised, the Conversion Ratio shall immediately upon such expiration be recomputed and effective immediately upon such expiration be increased to the ratio which it would have been (but reflecting any other adjustments in the Conversion Ratio made pursuant to the provisions of this Section 6 after the issuance of such rights or warrants) had the adjustment of the Conversion Ratio made upon the issuance of such rights or warrants been made on the basis of offering for subscription or purchase only that number of shares of Common Stock actually purchased upon the exercise of such rights or warrants actually exercised. (g) In case the corporation shall distribute, by dividend or otherwise, to all holders of Common Stock evidences of its indebtedness, cash or other assets (excluding any dividend or distribution referred to in subsection (e) above and Excluded Dividends) or rights to subscribe (excluding those referred to in subsection (f) above) or if the Distribution Date (as defined below) with respect to the Preference Share Purchase Rights shall occur, then in each such case the Conversion Ratio shall be adjusted by multiplying the Conversion Ratio in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction, of which 8 the numerator shall be the Current Market Price per share of Common Stock determined as of the record date mentioned above, and of which the denominator shall be such Current Market Price per share of the Common Stock less the then fair market value (as determined by the Board of Directors of the corporation in good faith, whose determination shall be conclusive if made in good faith and shall be described in a statement provided to all registered holders of Preferred Stock) of the portion of cash, other assets or evidences of indebtedness so distributed or such subscription rights or Preference Share Purchase Rights applicable to one share of the Common Stock. Such adjustment shall become effective immediately after the record date mentioned above. "Excluded Dividends" shall mean any quarterly cash dividend on the Common Stock to the extent that the aggregate cash dividend per share of Common Stock in any fiscal quarter does not exceed the greater of (A) the amount per share of Common Stock of the immediately preceding quarterly cash dividend on the Common Stock to the extent that such preceding quarterly dividend did not require an adjustment of the Conversion Ratio pursuant to this subsection (g) (as adjusted to reflect subdivisions or combinations of Common Stock), and (B) 3.5% of the arithmetic average of the Closing Prices (as defined below) of the Common Stock during the ten consecutive Trading Days immediately prior to the date of declaration of such dividend. (h) In case of a tender or exchange offer (other than any odd-lot tender offer) made by the corporation or any subsidiary of the corporation for all or any portion of the Common Stock and upon expiration of such tender or exchange offer, the corporation or its subsidiary shall be required to pay to the stockholders based on acceptance (up to any maximum specified in the terms of the tender or exchange offer) of Corporation Purchased Shares (as herein defined) any consideration, then if the sum of (i) the fair market value of the aggregate consideration to be paid in such tender offer or exchange offer (as determined by the Board of Directors of the corporation in good faith, whose determination shall be conclusive if made in good faith and shall be described in a statement provided to all registered holders of Preferred Stock) plus (ii) the aggregate of the cash plus the fair market value (as determined by the Board of Directors of the corporation in good faith, whose determination shall be conclusive if made in good faith and shall be described in a statement provided to all registered holders of Preferred Stock), as of the expiration of such tender or exchange offer, of consideration payable in respect of any other tender or exchange offer (other than consideration payable in respect of any odd-lot tender offer), by the corporation or any subsidiary of the corporation for all or any portion of Common Stock expiring within the 12 months preceding the expiration of such tender or exchange offer and in respect of which no adjustment pursuant to this subsection (h) has been made, plus (iii) the aggregate amount of any distributions (other than regular quarterly cash dividends) to all holders of Common Stock made exclusively in cash within the 12 months preceding the expiration of such tender or exchange offer and in respect of which no adjustment pursuant to subsection (g) has been made, exceeds 15% of the product of the Current Market Price per share of Common Stock as of the last time (the "Corporation Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) times the number of shares of Common Stock outstanding (including any tendered shares but excluding treasury shares, if any) on the Corporation Expiration Time, the Conversion Ratio shall be increased so that the same shall equal the rate determined by multiplying the Conversion 9 Ratio in effect immediately prior to the Corporation Expiration Time by a fraction of which the numerator shall be the product of (a) the Current Market Price per share of Common Stock as of the Corporation Expiration Time and (b) the number of shares of Common Stock outstanding (including any tendered shares but excluding treasury shares, if any) as of the Corporation Expiration Time less the number of all shares validly tendered and not withdrawn as of the Corporation Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Corporation Purchased Shares") and the denominator of which shall be equal to (x) the product of (1) the Current Market Price per share of Common Stock on the date of the Corporation Expiration Time and (2) the number of shares of Common Stock outstanding (including any tendered shares but excluding treasury shares, if any) on the date of the Corporation Expiration Time less (y) the amount of cash plus the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the transactions described in clauses (i), (ii) and (iii) above (assuming in the case of clause (i) the acceptance, up to any maximum specified in the terms of the tender or exchange offer, of Corporation Purchased Shares), such adjustment to become effective at the opening of business on the date following the date of the Corporation Expiration Time. (i) In case of a tender or exchange offer made by a person other than the corporation or any subsidiary of the corporation for an amount which increases the offeror's ownership of Common Stock by more than 25% of the Common Stock outstanding (excluding treasury shares, if any) and shall involve the payment by such person of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors of the corporation in good faith, whose determination shall be conclusive if made in good faith and shall be described in a statement provided to all registered holders of Preferred Stock) at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, and in which, as of the Expiration Time, the Board of Directors is recommending acceptance of the offer, the Conversion Ratio shall be increased so that the same shall equal the rate determined by multiplying the Conversion Ratio in effect immediately prior to the Expiration Time by a fraction of which the numerator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares and excluding treasury shares, if any) on the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, and the denominator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares but excluding treasury shares, if any) on the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such increase to become effective immediately prior the opening of business on the day following the Expiration Time. In the event that such person is obligated to purchase shares pursuant to any such tender or exchange offer, but such 10 person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Ratio shall again be adjusted to the Conversion Ratio which would be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this subsection (i) shall not be made if, as of the Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the corporation to engage in a consolidation or merger of the corporation or a sale of all or substantially all of the assets of the corporation. (j) For purposes of this Section 6, the "Current Market Price" per share of Common Stock of the corporation at any date shall be deemed to be equal to the average Closing Price of the Common Stock for the twenty (20) consecutive Trading Days ending on the second trading day prior to the date of determination. As used herein the "Closing Price" per share of Common Stock on any day shall mean the closing sales prices for such shares as reported in the Wall Street Journal's NYSE-Composite Transaction listing for such day (corrected for typographical errors), or if such shares are not reported in such listing, then the closing sales prices reported on the largest exchange (based on the aggregate dollar value of securities listed) on which such shares are listed, or if such shares are not listed or traded on any exchange, then the closing sales prices for such shares in the over-the-counter market, as reported on the National Association of Securities Dealers Automated Quotations System, or, if such price shall not be reported thereon, the average of the means between the closing bid and asked prices so reported, or, if such prices shall not be reported thereon, as the same shall be reported by the National Quotation Bureau Incorporated, or, in all other cases, the market value of the Common Stock on such date as determined by a recognized independent investment banking firm retained for this service by the corporation. A "Trading Day" means a day on which the Common Stock (A) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (B) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock. (k) No adjustment otherwise required in the Conversion Ratio shall be required unless such adjustment would require an increase or decrease of at least 1% in such ratio; provided, however, that any adjustment which by reason of this subsection (k) is not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 6 shall be made to the nearest 1/100th of a share. (l) If an adjustment is made to the Conversion Ratio pursuant to subsections (e), (f), (g), (h) or (i), an adjustment shall also be made to the Applicable Market Value solely to determine which of clauses (1), (2) or (3) of the definition of Conversion Ratio in subsection (a) shall apply on the Conversion Date or the applicable Change of Control Early Conversion Date, as the case may be. Such adjustment shall be made by multiplying the Applicable Market Value by a fraction of which the numerator shall be the Conversion Ratio immediately after such adjustment pursuant to subsections (e), (f), (g), (h) or (i) and the denominator shall be the Conversion Ratio 11 immediately before such adjustment; provided, however, that if such adjustment to the Conversion Ratio is required to be made pursuant to the occurrence of any of the events contemplated by subsections (e), (f), (g), (h) or (i) during the period taken into consideration for determining the Applicable Market Value, appropriate and customary adjustments shall be made to the Conversion Ratio. (m) Whenever the Conversion Ratio is adjusted, as herein provided, the corporation shall promptly mail to each registered holder of Preferred Stock a notice setting forth the Conversion Ratio after such adjustment and setting forth a brief statement of the facts requiring such adjustment. The Conversion Ratio as most recently adjusted pursuant to this Section 6 shall then apply to the conversion of Preferred Stock pursuant to subsections (a), (b) or (c) of this Section 6. (n) For the purposes of this Section 6 the term "Common Stock" shall mean (i) the class of stock designated as the Common Stock of the corporation at the date of this certificate, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value or from par value to no par value, or from no par value to par value. Unless the context otherwise specifies or requires, all references in this certificate to "Common Stock" include the Common Stock and the Preference Share Purchase Rights trading therewith. As used herein, all references to "Preference Share Purchase Rights" in this certificate shall mean the Preference Share Purchase Rights issued pursuant to that certain Rights Agreement, dated as of July 17, 1997, between the corporation and Computershare Investors Services L.L.C., as Rights Agent, as the same may hereafter be amended or supplemented (the "Rights Agreement"), and any similar rights issued in exchange for, upon conversion of or in substitution for such Preference Share Purchase Rights. As used herein, all references to the term "Distribution Date" shall have the meaning set forth in the Rights Agreement or in any successor agreement pertaining to any similar rights issued in exchange for, upon conversion of or in substitution for the Preference Share Purchase Rights. In the event that at any time, as a result of an adjustment made pursuant to this Section 6, the holder of any Preferred Stock thereafter surrendered for conversion shall become entitled to receive any shares of the corporation other than shares of Common Stock, thereafter the number of such other shares so receivable upon conversion of any Preferred Stock shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in subsections (a) to (m) inclusive above and subsections (o) and (p) below, and the provisions of said subsections (a) to (m) above and of subsections (o) and (p) below shall apply on like terms to any such other shares. (o) No fractional shares or scrip representing fractional shares shall be issued upon the conversion of Preferred Stock. If more than one share of Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed by multiplying the aggregate number of shares of Preferred Stock so surrendered by the Conversion Ratio in effect at the time of conversion. If the conversion of any shares of Preferred Stock results in a fraction, an amount equal to such fraction multiplied by the Current Market Price of the Common Stock as of the time of conversion shall be paid promptly to such holder in 12 cash by the corporation. All shares of Preferred Stock delivered to the corporation pursuant to this Section 6 shall be imprinted with a legend indicating such conversion, and such converted shares shall be held by the corporation and restored to authorized but unissued shares of preferred stock of the Corporation. (p) In case of (i) any consolidation or merger of the corporation with or into another entity (other than a merger or consolidation in which the corporation is the continuing corporation and in which the Common Stock outstanding immediately prior to the merger or consolidation is not exchanged for cash, securities or other property of the corporation or another entity created for such transaction in which each share of Common Stock is converted into one share of common stock of such entity), (ii) any sale or transfer to another entity of the property of the corporation as an entirety or substantially as an entirety or (iii) any statutory exchange of securities of the corporation with another entity (other than in connection with a merger or acquisition) (any such event, a "Reorganization Event"), the Conversion Ratio shall be adjusted to provide that each holder of Preferred Stock shall receive upon conversion thereof, the kind and amount of securities, cash and other property (the "Event Consideration") receivable upon consummation of the Reorganization Event by a holder of one share of Common Stock multiplied by the Conversion Ratio, assuming such holder of Common Stock is not a person or entity with which the Corporation consolidated or into which the corporation merged or that merged into the corporation or to which such sale or transfer was made, as the case may be ("Constituent Person"), or an affiliate of a Constituent Person, and that such holder failed to exercise such holder's rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such Reorganization Event (provided that if the kind or amount of securities, cash and other property receivable upon such Reorganization Event is not the same for each share of Common Stock held immediately prior to such Reorganization Event by other than a Constituent Person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purpose of this subsection (p) the kind and amount of securities, cash and other property receivable upon such Reorganization Event by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Following a Reorganization Event, the Applicable Market Value shall equal the value of the Event Consideration receivable in respect of one share of Common Stock, determined in the following manner: (i) for any Event Consideration consisting of cash, the amount of such cash; (ii) for any Event Consideration consisting of Marketable Common Stock, the average of the Closing Prices per share of such Marketable Common Stock on each of the twenty (20) consecutive Trading Days ending on the second Trading Day immediately preceding the Conversion Date or the applicable Change of Control Early Conversion Date, as the case may be; and (iii) for any Event Consideration consisting of securities or other property other than cash or Marketable Common Stock, an amount equal to the fair market value of such Event Consideration on the Conversion Date or the applicable Change of Control Early Conversion Date, as the case may be (as determined by the Board of Directors of the corporation in good faith, whose determination shall be conclusive if made in good faith and shall be described in a statement provided to all registered holders of Preferred Stock). "Marketable Common Stock" means any common equity securities listed on a U.S. national exchange or automated quotation system. In the event of and as a condition 13 to such a Reorganization Event, the person or entity formed by such consolidation, merger or exchange shall expressly provide for (x) the rights of the Preferred Stock provided by this subsection (p), (y) adjustments to the Conversion Ratio for events subsequent to the effective date of such Reorganization Event that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6, and (z) such modifications to the definition of "Common Stock" and such other provisions hereof and of the Preferred Stock as shall be necessary to carry out the economic intent of this Certificate of Designations. This provision shall similarly apply to successive Reorganization Events. (q) The issuance of certificates for shares of Common Stock upon the conversion of shares of Preferred Stock shall be made without charge to the converting stockholders for such certificates or for any tax in respect of the issuance of such certificates, and such certificates shall be issued in the respective names of, or in such names as may be directed by, the holders of the shares so converted; provided, however, that the corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificate in a name other than that of the holder of the shares converted, and the corporation shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issuance thereof shall have paid to the corporation the amount of such tax or shall have established to the satisfaction of the corporation that such tax has been paid, and provided further, that the corporation shall not be required to pay or reimburse the holder for any income tax payable by such holder as a result of such issuance. Upon conversion of the Preferred Stock, the corporation may withhold the payment of dividends on Common Stock for the account of any holder who has not surrendered its certificate(s) of Preferred Stock until such time as such holder shall have done so. (r) In case: (i) the corporation shall declare a dividend (or any other distribution) on the Common Stock other than Excluded Dividends; or (ii) the corporation shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock; or (iii) the corporation shall authorize the granting to the holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (iv) the approval of any stockholders of the corporation shall be required in connection with any reclassification of the Common Stock (other than a subdivision or combination of the outstanding shares of Common Stock), any consolidation or merger to which the corporation is a party, any sale or transfer of all or substantially all of the assets of the corporation or any statutory share exchange involving the Common Stock; or 14 (v) of the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the corporation; then the corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of the Preferred Stock, and shall cause to be mailed to the holders of record of the Preferred Stock, at their last addresses as they shall appear upon the stock books of the corporation, at least 10 days prior to the applicable record date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, redemption, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up (but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice). (s) The corporation shall at all times reserve and keep available out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of the shares of Preferred Stock, the full number of shares of Common Stock then issuable upon the conversion of all outstanding shares of Preferred Stock. For the purpose of this subsection (s), the full number of shares of Common Stock issuable upon the conversion of all outstanding shares of Preferred Stock shall be computed as if at the time of computation of such number of shares of Common Stock, all outstanding shares of Preferred Stock were held by a single holder. The corporation shall from time to time, in accordance with the laws of the State of Delaware, increase the authorized amount of its Common Stock if at any time the authorized amount of its Common Stock remaining unissued shall not be sufficient to permit the conversion of all shares of Preferred Stock at the time outstanding. 8. Sinking Fund. The Preferred Stock shall not be entitled to any mandatory redemption or prepayment (except on liquidation, dissolution or winding up of the affairs of the corporation) or to the benefit of any sinking fund. RESOLVED FURTHER, that, before the corporation shall issue any shares of the Preferred Stock, a certificate pursuant to Section 151 of the General Corporation Law of the State of Delaware, to be entitled a "Certificate of Designation," shall be made, executed, acknowledged, filed and recorded in accordance with the provisions of said Section 151; and that the proper officers of the corporation are hereby authorized and directed to do all acts and things which may be necessary or proper in their opinion to carry into effect the purposes and intent of this and the foregoing resolutions. 15 IN WITNESS WHEREOF, this Certificate of Designation has been made under the seal of the corporation and the hands of the undersigned, said John D. Gibbons, Executive Vice President and Chief Financial Officer, and said Jay D. Browning, Vice President and Corporate Secretary, respectively, of the corporation, this 30th day of June, 2003. /s/ John D. Gibbons ------------------------------------ John D. Gibbons Executive Vice President and Chief Financial Officer /s/ Jay Browning - --------------------------------------- Jay D. Browning Vice President and Corporate Secretary EX-4.2.2 5 h07312exv4w2w2.txt FORM OF PREFERRED STOCK EXHIBIT 4.2.2 FORM OF PREFERRED STOCK FACE OF SECURITY [THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY (AND THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY (AND THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT INCLUDING ANY EXEMPTION PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (2) TO THE COMPANY, (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (4) PURSUANT TO A PLAN OF REORGANIZATION OF ORION REFINING CORPORATION ("ORION") IN EXCHANGE, OR PRINCIPALLY IN EXCHANGE, FOR A CLAIM AGAINST OR INTEREST IN ORION, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. IN ANY CASE, THE HOLDER OF THIS SECURITY WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THE SECURITY EXCEPT AS PERMITTED UNDER THE SECURITIES ACT."](1) - --------------------------- (1) Subject to removal upon registration under the Securities Act of 1933 or otherwise when the security shall no longer be a Transfer Restricted Security or is distributed pursuant to clause (4). 1 Certificate Number Number of Shares of Convertible Preferred Stock _________ ____________________ CUSIP NO.: __________________(2) 2% Mandatory Convertible Preferred stock (par value $0.01) (liquidation preference $25 per share of Convertible Preferred Stock) of Valero Energy Corporation Valero Energy Corporation, a Delaware corporation (the "Company"), hereby certifies that ______________________________ (the "Holder") is the registered owner of ____________ fully paid and non-assessable preferred securities of the Company designated the 2% Mandatory Convertible Preferred Stock (par value $0.01) (liquidation preference $25 per share of Preferred Stock) (the "Preferred Stock"). The shares of Preferred Stock are transferable on the books and records of the transfer agent, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Stock represented hereby are issued and shall in all respects be subject to the provisions of the Certificate of Designation dated June 30, 2003, as the same may be amended from time to time (the "Certificate of Designation"). Capitalized terms used herein but not defined shall have the meaning given them in the Certificate of Designation. The Company will provide a copy of the Certificate of Designation to a Holder without charge upon written request to the Company at its principal place of business. Reference is hereby made to select provisions of the Preferred Stock set forth on the reverse hereof, and to the Certificate of Designation, which select provisions and the Certificate of Designation shall for all purposes have the same effect as if set forth at this place. Upon receipt of this certificate, the Holder is bound by the Certificate of Designation and is entitled to the benefits thereunder. - --------------------------- (2) CUSIP Number _________________, if not a Transfer Restricted Security. 2 IN WITNESS WHEREOF, the Company has executed this certificate this 1st day of July, 2003. VALERO ENERGY CORPORATION By:____________________________________ Name:__________________________________ Title:_________________________________ ATTEST: By:_________________________________ Name:_______________________________ Title: Secretary or Assistant Secretary 3 REVERSE OF SECURITY Cash dividends on each share of Preferred Stock shall be payable at a rate per annum set forth in the face hereof or as provided in the Certificate of Designation to the extent declared by the Company's Board of Directors. The shares of Preferred Stock shall be converted into the Company's Common Stock on July 1, 2006 at the then prevailing conversion ratio, but prior to that time shall be convertible into the Company's Common Stock in the manner and according to the terms set forth in the Certificate of Designation. The Company will furnish without charge to each holder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 4 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of Preferred Stock evidenced hereby to: (Insert assignee's social security or tax identification number) (Insert address and zip code of assignee) and irrevocably appoints: agent to transfer the shares of Preferred Stock evidenced hereby on the books of the transfer agent. The agent may substitute another to act for him or her. Date: ___________________________ Signature: _______________________________________________ (Sign exactly as your name appears on the other side of this Preferred Stock Certificate) Signature Guarantee:(3)___________________________________ - --------------------------- (3) (Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the transfer agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the transfer agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) 5 EX-5.1 6 h07312exv5w1.txt OPINION OF JAY D. BROWNING, ESQ. EXHIBIT 5.1 (VALERO ENERGY CORPORATION LOGO) JAY D. BROWNING Vice President and Corporate Secretary July 10, 2003 Valero Energy Corporation One Valero Place San Antonio, Texas 78212 Ladies and Gentlemen: I am Vice President and Corporate Secretary of Valero Energy Corporation, a Delaware corporation (the "Company"), and have acted as counsel for the Company in connection with the Registration Statement on Form S-3 (the "Registration Statement") to be filed by the Company and with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"). The Registration Statement relates to the proposed issuance and sale from time to time of up to $250,000,000 aggregate initial offering price of (a) shares of 2% mandatory convertible preferred stock, par value $.01 per share, of the Company (the "Convertible Preferred Stock")and (b) shares of common stock, par value $.01 per share, of the Company, issuable upon conversion of the Convertible Preferred Stock (the "Common Stock"). The Convertible Preferred Stock and the Common Stock may be hereinafter referred to as the "Securities." In furnishing this opinion, I or members of my staff have examined and relied without investigation as to matters of fact upon copies of the Restated Certificate of Incorporation and Amended and Restated By-laws of the Company, as amended to date (together, the "Charter Documents"), the Certificate of Designation filed as exhibit to the Registration Statement, corporate records of the Company, including minute books of the Company, certificates of public officials and of representatives of the Company, statutes and other instruments and documents as I have deemed necessary or appropriate to form a basis for the opinions hereinafter expressed. In connection with this opinion, I have assumed: (a) the genuineness of all signatures on all documents examined by me; (b) the authenticity of all documents submitted to me as originals and the conformity to the originals of all documents submitted to me as copies; (c) the Registration Statement, and any amendments thereto (including post-effective amendments), will have become effective under the Securities Act; (d) a prospectus supplement will have been filed with the Securities and Exchange Commission describing the terms of the offering and the Securities offered thereby; and (e) all Securities will be issued and sold in compliance with applicable federal and state securities laws and in the manner stated in the Registration Statement and the applicable prospectus supplement. On the basis of the foregoing, and subject to the assumptions, limitations and qualifications set forth herein, I am of the opinion that: Valero Energy Corporation July 10, 2003 Pg. 2 1. The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware. 2. The shares of Convertible Preferred Stock have been duly authorized, validly issued, and are fully paid and non-assessable. 3. The Common Stock has been duly authorized and reserved for issuance and, when certificates representing the Common Stock have been duly executed, countersigned, registered and delivered or if uncertificated, valid book-entry notations are made in the share register of the Company, upon conversion of the Convertible Preferred Stock in accordance with the terms of the Convertible Preferred Stock and the Certificate of Designation, the Common Stock will be validly issued, fully paid and non-assessable. The opinions set forth above are limited in all respects to matters of Texas law, the General Corporation Law of the State of Delaware and the federal laws of the United States, in each instance as currently in effect, and in each case, exclusive of municipal, local and county ordinances, laws, rules and regulations. At your request, this opinion is being furnished to you for filing as Exhibit 5.1 to the Registration Statement. Additionally, I hereby consent to the reference to me under the caption "Legal Matters" in the Registration Statement. In giving such consent, I do not thereby concede that I am within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission promulgated thereunder. Very truly yours, /s/ JAY BROWNING --------------------------- Jay D. Browning EX-10.1 7 h07312exv10w1.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.1 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into this lst day of July, 2003, between Valero Energy Corporation, a Delaware corporation (the "Company"), and Orion Refining Corporation, a Delaware corporation ("Orion"). W I T N E S S E T H: WHEREAS, concurrently with the execution and delivery of this Agreement, the Company is issuing to Orion preferred stock ("Preferred Stock") which is convertible into common stock, $.01 par value, of the Company ("Common Stock") pursuant to a Purchase and Sale Agreement dated as of May 13, 2003, and, in connection with that issuance, the Company has agreed to provide the following persons or entities with registration rights as provided herein: (i) Orion, (ii) any trustee appointed in the bankruptcy of Orion (a "Trustee"), (iii) any trust or other entity created as part of the bankruptcy of Orion for the benefit of any equity holder, debtholder or other creditor of Orion (each, an "Orion Trust") to which Securities are Transferred and (iv) any Transferee (as defined herein), including without limitation any of the stockholders and debtholders of Orion who acquire the Preferred Stock through the bankruptcy proceedings of Orion, (Orion, any Trustees, any Orion Trusts and any Transferees are collectively referred to herein as the "Holders"). The Preferred Stock and the Common Stock issuable upon conversion of the Preferred Stock are collectively referred to as "Securities" and each referred to singularly as a "Security." Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Purchase and Sale Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Shelf Registration. So long as any Transfer Restricted Security (as defined in Section 5 hereof) exists until the second anniversary of the date of issuance of the Preferred Stock, the Company shall take the following actions: (a) The Company shall, within ten days after the date of issuance of the Preferred Stock, file with the Securities and Exchange Commission (the "Commission") and thereafter use its commercially reasonable best efforts to cause to be declared effective as soon as practicable following such filing (but in any event no later than 90 days after the date of issuance of the Preferred Stock) a registration statement (the "Shelf Registration Statement") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 (or any successor provision) under the Securities Act (hereinafter, the "Shelf Registration"); provided, however, that no Holder shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its commercially reasonable best efforts to keep the Shelf Registration Statement continuously effective, and, when necessary for that purpose, to amend the Shelf Registration Statement or to supplement the prospectus included therein 1 all as required by the Securities Act, in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, until such time as all the Securities covered by the Shelf Registration Statement have been sold pursuant thereto or are eligible to be sold under Rule 144(k) under the Securities Act (or any successor rule thereof), assuming for this purpose that the Holders thereof are not affiliates of the Company (in any such case, such period being called the "Shelf Registration Period"); provided, however, that the Company shall not be obligated to keep such Shelf Registration Statement usable during a Suspension Period (as defined below) if: (i) (A) at such time the Company is engaged in confidential negotiations or other confidential business activities and (B) the Company determines, in its reasonable judgment, upon advice of counsel, that the continued usability of such Shelf Registration Statement (x) would require the disclosure of such confidential negotiations or other confidential business activities (but disclosure would not be otherwise required) and (y) such disclosure could be reasonably be expected to be detrimental to the Company in any material respect (a "Confidential Event"); (ii) the Company determines, in its reasonable judgment, upon written advice of a nationally recognized investment banking firm selected by the Company to the effect that resales of the Transfer Restricted Securities pursuant to the Shelf Registration Statement could reasonably be expected to interfere in any material respect with the success of a public offering by the Company of its equity securities for which the Company has a good faith intention to promptly commence marketing efforts or other material transaction in which the Company is engaged involving the issuance of equity securities by the Company (a "Company Offering Event"); or (iii) any event occurs or facts are discovered ("Misstatement Event") which make any statement made in such Shelf Registration Statement or the related prospectus untrue in any material respect or which require the making of any changes in such Registration Statement or prospectus in order to make the statements therein not misleading (a "Material Misstatement") and the Company thereafter complies with the requirements of Section 2(h) hereof; provided, further, that the failure to keep such Shelf Registration Statement usable for offers and sales of Securities for any of the foregoing reasons (X) for the first six months following the effective date of the Shelf Registration Statement, shall occur no more than once and in such instance shall last no longer than 30 days, and (Y) after the sixth-month anniversary of such effective date, shall occur no more than four times in any 365 day period and shall last no longer than 60 days in any 365 day period; provided, further, that the failure to keep such Shelf Registration Statement usable for offers and sales of Securities for a single Company Offering Event or a single Misstatement Event shall last no longer than 30 days in respect of such event. Any such period during which the Company is excused from keeping the Shelf Registration Statement usable for offers and sales of Securities is referred to herein as a "Suspension Period"; a Suspension Period shall commence on and include the date that the Company gives prompt notice to the Holders that the Shelf Registration Statement and the prospectus included therein is no longer usable for offers and sales of Securities as a result of the application of the proviso (which 2 contains clauses (i), (ii) and (iii)) of the foregoing sentence and shall end on the earliest to occur of (1) in the event of a Confidential Event, two business days following the public announcement by the Company of the related transaction, (2) in the event of a Confidential Event or a Company Offering Event, the abandonment by the Company of negotiations regarding the Confidential Event or the Company Offering (upon which the Company shall promptly notify the Holders in writing), (3) in the event of a Misstatement Event, two business days following the day on which, whether through the filing of an amendment to the Registration Statement, the making of another filing with the Commission or otherwise, there is no longer a Material Misstatement, (4) the date on which each Holder of Securities covered by the Shelf Registration Statement either receives the copies of the supplemented or amended prospectus contemplated by Section 2(h) hereof or is advised in writing by the Company, which shall occur as promptly as practicable following its determination, that use of the prospectus may be resumed, (5) the expiration of 60 days in the aggregate in any 365 day period and (6) in the event of a Company Offering Event or a Misstatement Event, the expiration of 30 days. The Company shall extend the Shelf Registration Period by the number of days during any Suspension Period or any period during which the prospectus has been suspended pursuant to Section 2(h). Notwithstanding anything contained in this Section 1 to the contrary, the Company shall not be excused from keeping the Shelf Registration Statement usable for offers and sales of Securities during any applicable Holder Resale Period due to a Company Offering Event of which the Holders did not have notice prior to initiating such Holder Resale Period, unless on or after the date of the commencement of the applicable Holder Resale Period and prior to the later to occur of 9:00 p.m., Houston time, on the business day immediately following the date of such commencement or 48 hours from receipt of notice of the commencement of a Holder Resale Period, the Company provides written notice to such Holders that the Company elects to commence a Suspension Period as a result of a Company Offering Event in accordance with the terms of this Section 1. A "Holder Resale Period" shall mean a period commencing on the day that Holders of at least 25% of the Transfer Restricted Securities shall have provided written notice to the Company of a current intention to sell Transfer Restricted Securities pursuant to the Shelf Registration Statement and ending at 5:00 p.m., Houston time, on the 12th business day thereafter. (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement or any amendment and as of the date of the related prospectus or any supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, the Company shall have no such obligations or liabilities with respect to any written information pertaining to any Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein. (d) The Shelf Registration Statement shall not include any securities other than the Securities. (e) The methods of distribution of the Securities specified in the Shelf Registration Statement shall include, without limitation, an offering "at market," a firm underwriting and a "best efforts" underwriting. 3 2. Registration Procedures. In connection with the Shelf Registration contemplated by Section 1 hereof and the intended method of disposition thereof, the following provisions shall apply so long as any Transfer Restricted Security exists: (a) The Company shall (i), if requested by Orion or a Holder of more than 15% of the Transfer Restricted Securities, furnish, without charge, to Orion or such Holder, prior to the filing thereof with the Commission on a timely basis so as to permit review thereof, a copy of the Shelf Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein (except any supplement reflecting only previous sales by the Holders listed therein) and, in the event that Orion or such Holder is participating in the Shelf Registration Statement, the Company shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as Orion or such Holder reasonably may propose, (ii) include in each such document the names of the Holders who have delivered written notice to the Company at least three business days prior to the filing thereof that they propose to sell Transfer Restricted Securities pursuant to the Shelf Registration Statement as selling securityholders and (iii) file pursuant to Rule 424(b) under the Securities Act, or as otherwise required by the Securities Act, an amendment to the Shelf Registration Statement or supplement the prospectus to cover new Holders of Securities upon at least seven business days' prior written notice by such new Holders to such effect. (b) The Company shall give written notice to Orion, the Holders of the Securities and the Holders of Transfer Restricted Securities included within the coverage of the Shelf Registration Statement (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) (1) when the Shelf Registration Statement or any amendment or supplement thereto has been filed with the Commission and (2) when the Shelf Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Shelf Registration Statement after it has been declared effective or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Shelf Registration Statement or the prospectus in order that the Shelf Registration Statement or the prospectus do not contain an untrue statement of a 4 material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading. The Company shall also give notice to Orion and one person designated by the Holders of a majority of the Transfer Restricted Securities to act on behalf of the Holders of the receipt of any comments from the Commission or the staff thereof on the Shelf Registration Statement or the receipt of any other written communications from the Commission or the staff thereof in respect of the Shelf Registration Statement. (c) The Company shall make every commercially reasonable effort to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Shelf Registration Statement. (d) The Company shall furnish to each Holder of Transfer Restricted Securities included within the coverage of the Shelf Registration, without charge, if the Holder so requests in writing, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules and all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall, during the Shelf Registration Period, deliver to each Holder of Transfer Restricted Securities included within the coverage of the Shelf Registration Statement, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Transfer Restricted Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (f) Prior to any public offering of the Securities pursuant to the Shelf Registration Statement, the Company shall register or qualify or cooperate with the Holders of the Transfer Restricted Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by the Shelf Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (g) The Company shall cooperate with the Holders of the Transfer Restricted Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to the Shelf Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request 5 a reasonable period of time prior to sales of the Securities pursuant to the Shelf Registration Statement. (h) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 2(b) above during the Shelf Registration Period, the Company shall promptly prepare and file a post-effective amendment to the Shelf Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Securities or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and furnish promptly to each such Holder a copy of the prospectus as so amended or supplemented and such additional copies as any such Holder may reasonably request. If the Company notifies Orion or the Holders of Transfer Restricted Securities included within the coverage of the Shelf Registration Statement that it is invoking a Suspension Period pursuant to Section 1(b) and to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then Orion and the Holders shall suspend use of such prospectus during such Suspension Period. (i) Not later than the effective date of the Shelf Registration Statement, the Company will provide CUSIP numbers for the Preferred Stock registered for resale under the Shelf Registration Statement, and provide one or more certificates for such Preferred Stock, in a form eligible for deposit with The Depository Trust Company. (j) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Shelf Registration Statement, which statement shall cover such 12-month period. (k) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such Shelf Registration Statement the Securities of a Holder until such Holder furnishes such information to the Company. (l) The Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to the Shelf Registration. (m) In the case of the Shelf Registration, the Company shall (i) make reasonably available for inspection by a single representative of the Holders that is designated by a majority of the Transfer Restricted Securities, any underwriter participating in any 6 disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by such representative of the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Holders by one person or entity designated by a majority of the Transfer Restricted Securities and on behalf of the other parties, by one counsel designated by and on behalf of such other parties. (n) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby selling such Securities in an underwritten public offering, shall cause (i) its counsel to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the managing underwriters thereof and dated the closing date of such sale (it being agreed that the matters to be covered by such opinion shall include, without limitation, the due incorporation and good standing of the Company and its subsidiaries; the qualification of the Company and its subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 2(l) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the applicable Securities; the absence of governmental approvals required to be obtained in connection with the Shelf Registration Statement, the offering and sale of the applicable Securities, or any agreement of the type referred to in Section 2(l) hereof; the compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein with the requirements of the Securities Act; and, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from any documents incorporated by reference therein of an untrue statement of a material fact or the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Securities and Exchange Act of 1934, as amended (the "Exchange Act")); (ii) its officers to execute and deliver all customary documents and certificates and updates thereof requested by any underwriters of the applicable Securities and (iii) its independent public accountants to provide to any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. (o) The Company shall use its commercially reasonable best efforts to cause the Common Stock included in such Shelf Registration Statement to be, upon resale thereunder, listed on each securities exchange, if any, on which any shares of Common Stock are then listed. 7 (p) The Company shall use its commercially reasonable best efforts to take all other steps necessary to effect the registration of the Transfer Restricted Securities covered by the Shelf Registration Statement contemplated hereby. (q) In the case of an underwritten offering and if requested by the managing underwriter or agent or any Holder, the Company shall promptly incorporate in a prospectus supplement or post-effective amendment to the Shelf Registration Statement such information as the managing underwriter or agent or such Holder reasonably requests to be included therein, including, with respect to the number of Securities being sold by such Holder to such underwriter or agent, the purchase price being paid therefor by such underwriter or agent and with respect to any other terms of any underwritten offering of the Securities to be sold in such offering; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters incorporated in such prospectus supplement or post-effective amendment. (r) If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering ("Managing Underwriters") will be selected by the Holders of a majority in number of shares of such Transfer Restricted Securities to be included in such offering and will be a firm to which the Company shall not have reasonably objected. Notwithstanding anything to the contrary contained herein, the Company shall not be required to participate in an underwritten public offering of the Transfer Restricted Securities in the manner contemplated by this Agreement unless requested in writing by a majority in number of the Transfer Restricted Securities. (s) No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. (t) The Company shall use its commercially reasonable best efforts to make available the executive officers of the Company as reasonably designated by the Company to participate with the Holders of the Securities and any underwriters in one "road show" and associated selling efforts that may be reasonably requested by the Holders in connection with such road show. 3. Registration Expenses. (a) All expenses incident to the Company's performance of and compliance with this Agreement will be borne by the Company, regardless of whether the Shelf Registration Statement is ever filed or becomes effective, including without limitation: (i) all registration and filing fees and expenses (including filings made with the National Association of Securities Dealers, Inc.); 8 (ii) all fees and expenses of compliance with federal securities and state "blue sky" or securities laws; (iii) all expenses of providing certificates and prospectuses; (iv) all fees and disbursements of counsel for the Company; (v) all application and filing fees in connection with listing on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any person, including special experts, retained by the Company. (b) In connection with the Shelf Registration Statement, Orion and the Holders of Transfer Restricted Securities who are selling or reselling Securities pursuant to the "Plan of Distribution" contained in the Shelf Registration Statement shall bear their own expenses. 4. Indemnification. (a) The Company agrees to indemnify and hold harmless each Holder of the Transfer Restricted Securities included within the coverage of the Shelf Registration Statement, each director or officer of such Holder and each other person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act (each Holder and such directors, officers and controlling persons are referred to collectively as the "Indemnified Parties") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained or incorporated by reference in the Shelf Registration Statement or the related prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to the Shelf Registration, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in the Shelf Registration 9 Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder from whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder under the Securities Act in connection with such purchase and any such loss, claim, damage or liability of such Holder results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder; provided further, however, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters, their officers and directors and each person who controls such underwriters within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company, each director or officer of the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Shelf Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof; provided, however, that no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Securities pursuant to such Shelf Registration Statement. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this Section 4 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the 10 indemnifying party under this Section 4, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party except to the extent that the indemnifying party has been materially prejudiced by such omission. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with one counsel reasonably satisfactory to such indemnified parties (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 4 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. In the event the indemnifying party assumes defense of such proceeding, any indemnified party shall have the right to participate in such proceeding and retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless the named parties to any such proceeding include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, in which case the indemnifying party shall be responsible for the reasonable expenses of a single additional counsel mutually selected by the indemnifying and the indemnified parties to represent the indemnified parties. If the indemnifying party declines or fails to assume the defense of the action or to employ counsel reasonably satisfactory to the indemnified party, in either case within a 30-day period following notice from the indemnified party, or if a court of competent jurisdiction determines that the indemnifying party is not vigorously defending such action, then such indemnified party may employ counsel to represent or defend it in any such action and the indemnifying party shall pay the reasonable fees and disbursements of such counsel or other representative as incurred. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action, (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party and (iii) such settlement involves only the payment of money. (d) If the indemnification provided for in this Section 4 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or 11 the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified party, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by one counsel on behalf of such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 4(d), the Holders shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to the Shelf Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 4(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in this Section 4(d). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 4 shall survive the sale of the Securities pursuant to the Shelf Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 5. Rules 144 and 144A. The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time during the Shelf Registration Period the Company is not required to file such reports, it will, upon the request of any Holder of Transfer Restricted Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)) or any other exemption from the registration requirements of the Securities Act. The Company will provide a copy of this Agreement to prospective purchasers of the Preferred Stock identified to the Company by a Holder upon request. Notwithstanding the foregoing, nothing in this Section 5 shall be deemed to require the Company to register any of the Preferred Stock pursuant to the Exchange Act. "Transfer Restricted Securities" means each Security until (i) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement; provided that, for the avoidance of any doubt, unless Orion 12 agrees otherwise in writing, any Transfer (including from an Orion Trust) of Securities to any equity holder, debt holder or other creditor of Orion or any affiliate thereof (each an "Orion Claimant") in exchange for or satisfaction of all or any portion of such Orion Claimant's claims against or interests in Orion or any Orion Trust and any Transfer to any Orion Trust, shall not be deemed to be a disposition of such Securities in accordance with the Shelf Registration Statement or (ii) the date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 6. Miscellaneous. (a) Remedies. The Company acknowledges and agrees that any failure by the Company to comply with its obligations under Section 1 hereof may result in material irreparable injury to Orion or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, Orion or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Section 1 hereof. The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The Company hereby represents and warrants that the rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and the written consent of the Holders of a majority in number of shares of Transfer Restricted Securities (provided that Holders of Common stock issued upon conversion of Preferred Stock shall be deemed to be Holders of the aggregate number of shares of Preferred stock from which such Common Stock was converted) affected by such amendment, modification, supplement, waiver or consents. Notwithstanding the foregoing, the provisions of this Agreement may not be amended, modified or supplemented in any manner that would uniquely and adversely affect a Holder or group of Holders without such amendment, modification or supplement being approved by written consent of the affected Holder or Holders, as the case may be. (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (i) if to the Holders, at the most current address shown for the Holders in the records of the Transfer Agent, with a copy in like manner as follows: (ii) if to Orion: 13 Orion Refining Corporation 16701 Greenspoint Park Drive Suite 145 Houston, Texas 77060 Attention: Ms. Roberta Rossi Telephone: (832) 601-1022 Facsimile: (832) 601-1021 with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower Suite 2300 Houston, Texas 77002-6760 Attention: Mr. Bruce R. Bilger Telephone: (713) 758-2614 Facsimile: (713) 615-5429 So long as Orion is subject to the jurisdiction of a bankruptcy court. with an additional copy to: Morris, Nichols, Arsht & Tunnell 1201 North Market Street, P.O. Box 1347 Wilmington, Delaware 19899-1347 Attention: Mr. Robert Dehney Telephone: (302) 575-7353 Facsimile: (302) 425-4673 (iii) if to the Company, at its address as follows: Valero Energy Corporation One Valero Place San Antonio, Texas 78212 Attention: Kim Bowers Telephone: (210) 370-2246 Facsimile: (210) 370-5889 All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. (e) Third Party Beneficiaries. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and Orion, on the other hand, and shall have the right to enforce such agreements directly to the extent they 14 may deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without the need for an express assignment or any consent by the Company thereto, subsequent Holders of Transfer Restricted Securities. The Company hereby agrees to extend the benefits of this Agreement to any Holder of Transfer Restricted Securities and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (j) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Securities Held by the Company. Whenever the consent or approval of Holders of a specified number of Transfer Restricted Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Transfer Restricted Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (l) Assignment of Rights Hereunder. In connection with any Transfer (as defined herein) of any Transfer Restricted Securities to any Transferee (as defined herein), the person or entity making such Transfer ("Transferor") to a Transferee shall be entitled to assign to such Transferee the Transferor's rights hereunder in respect of such Transfer Restricted Securities provided that the Transferee agrees to be bound by the terms of this Agreement. For purposes of this Agreement, "Transfer" shall mean to sell, transfer, assign or otherwise dispose of, either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment or other disposition of, Transfer Restricted Securities owned by a person or entity and "Transferee" shall mean (i) any person or entity to whom Orion, a Trustee or any Orion Trust Transfers any Transfer Restricted Securities, (ii) any subsequent transferee thereof; provided that in the case of any subsequent transferee, such subsequent transferee must receive Transfer of the Transfer Restricted Securities prior to the sixth-month anniversary 15 date of the effective date of this Agreement, (iii) any Orion Claimant who receives Securities in exchange for or satisfaction of all or any portion of such Orion Claimant's claims against or interests in Orion or any Orion Trust, (iv) any affiliate of Orion, any Trustee, any Orion Trust or any of the persons or entities described in clauses (i), (ii) or (iiii) above and (v) any other person or entity who receives Securities to which the Company agrees in writing to designate as a Transferee. 16 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. VALERO ENERGY CORPORATION By: /s/ Kimberly S. Bowers --------------------------------- Name: Kimberly S. Bowers Title: Vice President Confirmed and accepted as of the date first above written: ORION REFINING CORPORATION By: /s/ R. M. Rossi ---------------------------------- Name: Roberta M. Rossi Title: Senior Vice President & General Counsel 17 EX-23.1 8 h07312exv23w1.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" in the Registration Statement on Form S-3 and related Prospectus of Valero Energy Corporation for the registration of 10,000,000 shares of its 2% Mandatory Convertible Preferred Stock and to the incorporation by reference therein of our report dated March 19, 2003 with respect to the consolidated financial statements of Valero Energy Corporation included in its Annual Report (Form 10-K) for the year ended December 31, 2002, filed with the Securities and Exchange Commission. /s/ Ernst & Young San Antonio, Texas July 10, 2003 -----END PRIVACY-ENHANCED MESSAGE-----