Exhibit 10.1
(JPMORGAN LOGO) [d46054d4605401.gif]
April 26, 2007
Valero Energy Corporation
One Valero Way
San Antonio, Texas 78249-1616
Ladies and Gentlemen:
     The purpose of this letter agreement is to confirm the terms and conditions
of the Transaction (the “Transaction”) entered into between J.P. Morgan
Securities Inc., as agent for JPMorgan Chase Bank, National Association, London
Branch (the “Seller”), and Valero Energy Corporation, a Delaware corporation
(the “Purchaser”), on the date hereof (the “Trade Date”). This letter agreement
and, upon execution, the Pricing Supplement shall constitute a “Confirmation” as
referred to in the Agreement specified below (the “Confirmation”). In the event
of a conflict between the Agreement (as defined below) and this Confirmation,
the terms of this Confirmation shall govern.
     This Confirmation evidences a complete and binding agreement between the
Seller and the Purchaser as to the terms of the Transaction to which this
Confirmation relates. This Confirmation shall supplement, form a part of, and be
subject to an agreement in the form of the 2002 ISDA Master Agreement (the
“Agreement”) as if the Seller and the Purchaser had executed an agreement in
such form (but without any Schedule except for the election of the laws of the
State of New York as the governing law) on the Trade Date. In the event of any
inconsistency between provisions of that Agreement and this Confirmation, this
Confirmation will prevail for the purpose of the Transaction to which this
Confirmation relates. The parties hereby agree that no Transaction other than
the Transaction to which this Confirmation relates shall be governed by the
Agreement.
ARTICLE 1
Definitions
     Section 1.01. Definitions. (a) As used in this Confirmation, the following
terms shall have the following meanings:
     “10b-18 VWAP” means, (A) for any Trading Day described in clause (x) of the
definition of Trading Day hereunder, the volume-weighted average price at which
the Common Stock trades as reported in the composite transactions for the
principal United States securities exchange on which such Common Stock is then
listed (or, if applicable, the Successor Exchange on which the Common Stock has
been listed in accordance with Section 7.01(c)), on such Trading Day, excluding
(i) trades that do not settle regular way, (ii) opening (regular way) reported
trades in the consolidated system on such Trading Day, (iii) trades that occur
in the last ten minutes before the scheduled close of trading on the Exchange on
such Trading Day and ten minutes before the scheduled close of the primary
trading in the market where the trade is effected, and (iv) trades on such
Trading Day that do not satisfy the requirements of Rule 10b-18(b)(3), as
determined in good faith by the Calculation Agent, or (B) for any Trading Day
that is described in clause (y) of the definition of Trading Day hereunder, an
amount determined in good faith by the Calculation Agent as 10b-18 VWAP. The
Purchaser acknowledges that the Seller may refer to the
JPMorgan Chase Bank, National Association
Organised under the laws of the United States as a National Banking Association.
Main Office 1111 Polaris Parkway, Columbus, Ohio 43271
Registered as a branch in England & Wales branch No. BR000746.
Registered Branch Office 125 London Wall, London EC2Y 5AJ
Authorised and regulated by the Financial Services Authority

 

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Bloomberg Page “VLO.N <Equity> AQR SEC” (or any successor thereto), in its
judgment, for such Trading Day to determine the 10b-18 VWAP.
     “Additional Termination Event” has the meaning set forth in Section 7.01.
     “Agreement” has the meaning set forth in the second paragraph of this
Confirmation.
     “Affected Party” has the meaning set forth in Section 14 of the Agreement.
     “Affected Transaction” has the meaning set forth in Section 14 of the
Agreement.
     “Affiliated Purchaser” means any “affiliated purchaser” (as such term is
defined in Rule 10b-18) of the Purchaser.
     “Alternative Termination Delivery Unit” means (i) in the case of a
Termination Event (other than a Merger Event or Nationalization) or Event of
Default (as defined in the Agreement), one share of Common Stock and (ii) in the
case of a Merger Event or Nationalization, a unit consisting of the number or
amount of each type of property received by a holder of one share of Common
Stock in such Merger Event or Nationalization; provided that if such Merger
Event involves a choice of consideration to be received by holders of the Common
Stock, an Alternative Termination Delivery Unit shall be deemed to include the
amount of cash received by a holder who had elected to receive the maximum
possible amount of cash as consideration for his shares.
     “Bankruptcy Code” has the meaning set forth in Section 9.07.
     “Business Day” means any day on which the Exchange is open for trading.
     “Calculation Agent” means JPMorgan Chase Bank, National Association.
     “Cash Distribution Amount” means, for any “Reference Period” referred to in
the Pricing Supplement, the amount specified in the Pricing Supplement for such
Reference Period.
     “Common Stock” means the Purchaser’s common stock, par value $0.01 per
share.
     “Communications Procedures” has the meaning set forth in Annex B hereto.
     “Confirmation” has the meaning set forth in the first paragraph of this
letter agreement.
     “Contract Period” means the period commencing on and including the
Effective Date and ending on and including the date all payments or deliveries
of shares of Common Stock pursuant to Section 3.01 or Section 7.03 have been
made.
     “Default Notice Day” has the meaning set forth in Section 7.02(a).
     “De-Listing” has the meaning set forth in Section 7.01(c).
     “Discount Amount” means the amount specified as such in the Pricing
Supplement.
     “Distribution Termination Event” has the meaning set forth in
Section 7.01(f).
     “Early Termination Date” has the meaning set forth in Section 14 of the
Agreement.
     “Effective Date” has the meaning set forth in Section 2.01.
     “Event of Default” has the meaning set forth in Section 14 of the
Agreement.

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     “Exchange” means the New York Stock Exchange.
     “Exchange Act” means the Securities Exchange Act of 1934, as amended.
     “Expiration Date” means the 87th Trading Day following the Effective Date.
     “Extraordinary Cash Dividend” means the per share cash dividend or
distribution, or a portion thereof, declared by the Purchaser on shares of
Common Stock that is classified by the board of directors of the Purchaser as an
“extraordinary” dividend.
     “Increase Amount” means the sum of the products, for each date specified in
the Pricing Supplement under Increase Amount, of (i) the amount so specified in
the Pricing Supplement and (ii) the theoretical delta number of shares required
for the Seller to hedge its exposure to the Transaction, as solely determined by
the Calculation Agent, on the date corresponding to such amount.
     “Indemnified Person” has the meaning set forth in Section 9.02.
     “Indemnifying Party” has the meaning set forth in Section 9.02.
     “Initial Commission” has the meaning specified as such in the Pricing
Supplement.
     “Initial Purchase Price” has the meaning set forth in Section 2.01.
     “Initial Settlement Date” has the meaning set forth in Section 2.02.
     “Initial Stock Price” means, for any day, the official closing price for
the Common Stock on the Exchange at the scheduled weekday closing time of such
Exchange on such day, without regard to after hours or other trading outside of
the regular trading session hours; provided, however, that if such day is not a
Trading Day, the Initial Stock Price shall be determined on the first succeeding
Trading Day following such day.
     “Maximum Delivery Shares” means, for any date, (i) 87,500,000 shares of
Common Stock, minus (ii) the net number of shares of Common Stock delivered by
the Purchaser to the Seller in respect of this Transaction on or prior to such
date, plus (iii) the net number of shares of Common Stock delivered by the
Seller to the Purchaser in respect of this Transaction on or prior to such date,
subject to appropriate adjustments pursuant to Section 8.02.
     “Minimum Completion Date” means the date specified as such in the Pricing
Supplement.
     “Merger Event” has the meaning set forth in Section 7.01(d).
     “Nationalization” has the meaning set forth in Section 7.01(e).
     “Number of Shares” means a number of shares of Common Stock equal to the
quotient of $3,000,000,000 divided by the Initial Stock Price, as set forth in
the Pricing Supplement.
     “Obligations” has the meaning set forth in Section 9.02.
     “Payment Shares” has the meaning set forth in Section 3.01(b).
     “Pricing Supplement” has the meaning set forth in Section 2.01.
     “Private Placement Agreement” has the meaning set forth in Annex A hereto.
     “Private Placement Price” has the meaning set forth in Annex A hereto.
     “Private Placement Procedures” has the meaning set forth in Annex A hereto.

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     “Private Securities” has the meaning set forth in Annex A hereto.
     “Purchaser” has the meaning set forth in the first paragraph of this
Confirmation.
     “Regulation M” means Regulation M under the Exchange Act.
     “Rule 10b-18” means Rule 10b-18 promulgated under the Exchange Act (or any
successor rule thereto).
     “SEC” means the Securities and Exchange Commission.
     “Securities Act” means the Securities Act of 1933, as amended.
     “Seller” has the meaning set forth in the first paragraph hereto.
     “Seller Payment Share Purchase Period” has the meaning set forth in
Section 3.01(d).
     “Seller Termination Share Purchase Period” has the meaning set forth in
Section 7.03.
     “Settlement Amount” means an amount equal to (i) the Valuation Price minus
(ii) the Initial Purchase Price, plus (iii) the Increase Amount.
     “Settlement Date” means the third Business Day following the Valuation
Completion Date; provided, however, that if the Purchaser elects pursuant to
Section 3.01(b) to deliver Payment Shares, the Settlement Date shall be the
Trading Day immediately following the day on which the Seller informs the
Purchaser, pursuant to Annex A hereto, of the number of Payment Shares required
to be delivered pursuant to Section 3.01(b).
     “Share De-listing Event” has the meaning set forth in Section 7.01(c).
     “Successor Exchange” has the meaning set forth in Section 7.01(c).
     “Termination Amount” has the meaning set forth in Section 7.02(a).
     “Termination Event” has the meaning set forth in Section 14 of the
Agreement.
     “Termination Price” means the value of an Alternative Termination Delivery
Unit to the Seller (determined as provided in Annex A hereto).
     “Termination Settlement Date” has the meaning set forth in Section 7.03(a).
     “Trade Date” has the meaning set forth in the first paragraph of this
Confirmation.
     “Trading Day” means (x) any day (i) other than a Saturday, a Sunday or a
day on which the Exchange is not open for business, (ii) during which trading of
any securities of the Purchaser on any national securities exchange has not been
suspended, (iii) during which there has not been, in the Seller’s judgment, a
material limitation in the trading of Common Stock or any options contract or
futures contract related to the Common Stock, and (iv) during which there has
been no suspension pursuant to Section 4.02 of this Confirmation, or (y) any day
that, notwithstanding the occurrence of events contemplated in clauses (ii),
(iii) and (iv) of this definition, the Calculation Agent determines to be a
Trading Day.
     “Transaction” has the meaning set forth in the first paragraph of this
Confirmation.
     “Valuation Completion Date” means the Trading Day, during the period
commencing on and including the Minimum Completion Date and ending on and
including the Expiration Date, specified as such by the Seller, in its sole
discretion, by delivering a notice designating such Trading Day as a Valuation
Completion Date by the close of business on the Business Day immediately
following such Trading Day; provided that if the Seller fails to validly

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designate the Valuation Completion Date prior to the Expiration Date, the
Valuation Completion Date shall be the Expiration Date.
     “Valuation Period” means the period of consecutive Trading Days commencing
on and including the first Trading Day following the Effective Date and ending
on and including the Valuation Completion Date.
     “Valuation Price” means the product of (i) the Number of Shares and
(ii) the arithmetic average of 10b-18 VWAP for each of the Trading Days in the
Valuation Period minus the Discount Amount, as determined by the Calculation
Agent in its sole judgment.
ARTICLE 2
Purchase of the Stock
     Section 2.01. Purchase of the Stock. Subject to the terms and conditions of
this Confirmation, the Purchaser agrees to purchase from the Seller, and the
Seller agrees to sell to the Purchaser, on April 27, 2007 or on such other
Business Day as the Purchaser and the Seller shall otherwise agree (the
“Effective Date”), the Number of Shares for an initial purchase price equal to
the product of (i) the Initial Stock Price on the Effective Date and (ii) the
Number of Shares (the “Initial Purchase Price”); provided that if the Seller is
unable to borrow or otherwise acquire a number of shares of Common Stock equal
to the Number of Shares for delivery to the Purchaser on the Initial Settlement
Date, the Number of Shares shall be reduced to such number of shares of Common
Stock as the Seller is able to borrow or otherwise acquire. The Initial Purchase
Price shall be subject to adjustment and such adjusted amounts will be payable
as provided in Article 3 hereof. On the Effective Date, the Seller shall deliver
to the Purchaser a pricing supplement, substantially in the form of Exhibit B
attached hereto, setting forth the Initial Stock Price, the Number of Shares,
the Initial Purchase Price, the Discount Amount, the Minimum Completion Date,
the Initial Commission and the per share amounts and dates, as applicable, for
the Increase Amount and Cash Distribution Amount (the “Pricing Supplement”).
     Section 2.02. Delivery and Payments. On the first Business Day immediately
following the Effective Date (such day, the “Initial Settlement Date”), the
Seller shall deliver the Number of Shares to the Purchaser, upon payment by the
Purchaser of (i) an amount equal to the Initial Purchase Price to the Seller and
(ii) a commission in the amount per share specified in the Pricing Supplement
(the “Initial Commission”) to J.P. Morgan Securities Inc., in connection with
the Purchaser’s purchase of the Number of Shares; provided that Seller may
deliver the Number of Shares to be delivered on the Initial Settlement Date at
two or more times; and provided further that the aggregate number of Shares that
Seller shall deliver to Purchaser hereunder in all such deliveries shall equal
the Number of Shares. Such delivery and payment shall be effected in accordance
with the Seller’s customary procedures.
     Section 2.03. Conditions to Seller’s Obligations. The Seller’s obligation
to deliver the Number of Shares to the Purchaser on the Initial Settlement Date
is subject to the condition that the representations and warranties made by the
Purchaser in the Agreement shall be true and correct as of the date hereof and
the Initial Settlement Date.
ARTICLE 3
Adjustment of Initial Purchase Price
     Section 3.01. Purchase Price Adjustment. (a) As an adjustment to the
Initial Purchase Price,
     (i) if the Settlement Amount is greater than zero, the Purchaser shall pay
to the Seller such Settlement Amount in the manner provided in clause (c) or
(e), as the case may be, of this Section 3.01; or
     (ii) if the Settlement Amount is less than zero, the Seller shall pay to
the Purchaser the absolute value of such Settlement Amount in the manner
provided in clause (d) or (e), as the case may be, of this Section 3.01.

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     (b) Payment of the Settlement Amount shall be in cash or validly issued
shares of Common Stock (“Payment Shares”), as the Purchaser shall elect, which
binding election shall be made within three Business Days following the
Valuation Completion Date and communicated to the Seller in writing; provided
that if the Purchaser fails to make such an election in the manner contemplated
hereunder, the Purchaser shall be deemed to have elected settlement in cash; and
provided further that the Purchaser shall not have the right to elect payment of
the Settlement Amount or receipt of the absolute value of the Settlement Amount
in Payment Shares pursuant to this Section 3.01 if:
     (i) the representations and warranties made by the Purchaser to the Seller
in Section 5.01 are not true and correct in all material respects as of the date
the Purchaser makes such election; or
     (ii) in the event the Settlement Amount shall be payable by the Purchaser
to the Seller, the Purchaser has taken any action that would make unavailable
either (A) the exemption set forth in Section 4(2) of the Securities Act for the
sale of any Payment Shares by the Purchaser to the Seller or (B) an exemption
from the registration requirements of the Securities Act reasonably acceptable
to the Seller for resales of Payment Shares by the Seller.
     For the avoidance of doubt, upon the Purchaser’s making an election to
receive or to deliver Payment Shares pursuant to this Section 3.01(b), the
Purchaser shall be deemed to make the representations and warranties in
Section 5.01 hereof as if made on the date of the Purchaser’s election.
     (c) Subject to Section 3.01(b), if the Settlement Amount shall be payable
by the Purchaser to the Seller:
     (i) Notwithstanding any election by the Purchaser to make payment in
Payment Shares, at any time prior to the time the Seller (or any affiliate of
the Seller) has contracted to resell such Payment Shares, the Purchaser may
deliver in lieu of such Payment Shares an amount in cash equal to the Settlement
Amount, in the manner set forth in Section 3.01(e).
     (ii) If the Purchaser elects to pay any Settlement Amount in Payment
Shares, then on the Settlement Date, the Purchaser shall deliver to the Seller a
number of Payment Shares equal to the quotient of (A) such Settlement Amount
divided by (B) the Private Placement Price (determined in accordance with the
Private Placement Procedures contained in Annex A hereto).
     (d) Subject to Section 3.01(b), if the absolute value of the Settlement
Amount shall be payable by the Seller to the Purchaser and the Purchaser elects
to receive the absolute value of the Settlement Amount in Payment Shares, then
(i) the Seller shall, beginning on the fourth Trading Day following the
Valuation Completion Date and ending when the Seller shall have satisfied its
obligations under this clause (the “Seller Payment Share Purchase Period”),
purchase (subject to the provisions of Section 4.01 and Section 4.02 hereof)
shares of Common Stock with an aggregate value (which such value shall be
determined by the prices at which the Seller purchases such shares plus a
commission of $0.03 per share) equal to such Settlement Amount and (ii) the
Seller shall deliver such shares of Common Stock to the Purchaser on the
settlement dates relating to such purchases.
     (e) If the Purchaser elects to receive the absolute value of the Settlement
Amount or to pay the Settlement Amount in cash, then payment of such Settlement
Amount shall be made by wire transfer of immediately available U.S. dollar funds
on the Settlement Date.
     Section 3.02. Private Placement Procedures. If the Purchaser elects to
deliver Payment Shares pursuant to Section 3.01(b) or elects to deliver
Alternative Termination Delivery Units pursuant to Section 7.02(a), the Private
Placement Procedures contained in Annex A hereto shall apply.
     Section 3.03. Continuing Obligation to Deliver Shares. (a) If at any time,
as a result of provisions limiting deliveries of shares of Common Stock to the
number of Maximum Delivery Shares, the Purchaser fails to deliver to the Seller
any shares of Common Stock, the Purchaser shall, to the extent that the
Purchaser has at such time authorized but unissued shares of Common Stock not
reserved for other purposes, promptly notify the Seller thereof

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and deliver to the Seller a number of shares of Common Stock not previously
delivered as a result of such provisions.
     (b) The Purchaser agrees to use its best efforts to cause the number of
authorized but unissued shares of Common Stock to be increased, if necessary, to
an amount sufficient to permit the Purchaser to fulfill its obligations under
this Section 3.03.
ARTICLE 4
Market Transactions
     Section 4.01. Transactions by the Seller. (a) The parties agree and
acknowledge that:
     (i) During the Valuation Period, any Seller Payment Share Purchase Period
and any Seller Termination Share Purchase Period, the Seller (or its agent or
affiliate) may purchase (and with respect to the Valuation Period also sell)
shares of Common Stock in connection with this Confirmation. The timing of such
purchases and sales, as applicable, by the Seller, the price paid or received
per share of Common Stock pursuant to such purchases or sales, as applicable,
and the manner in which such purchases or sales, as applicable, are made,
including without limitation whether such purchases or sales, as applicable, are
made on any securities exchange or privately, shall be within the sole judgment
of the Seller; provided that the Seller shall use good faith efforts to (i) make
all purchases of Common Stock in a manner that would comply with the limitations
set forth in clauses (b)(2), (b)(3), (b)(4) and (c) of Rule 10b-18 as if such
rule were applicable to such purchases and (ii) not make purchases on any
Trading Day in an amount that would exceed 20% of the daily trading volume for
the Common Stock on the Exchange on such Trading Day; and provided, further,
that on any Trading Day during the Valuation Period, Seller shall use good faith
efforts to not make purchases in an amount that would exceed 20% of the ADTV (as
defined in Rule 10b-18(a)(1)) on such Trading Day.
     (ii) The Purchaser shall, at least one day prior to the first day of any
Seller Payment Share Purchase Period and any Seller Termination Share Purchase
Period, notify the Seller of the total number of shares of Common Stock
purchased in Rule 10b-18 purchases of blocks pursuant to the once-a-week block
exception set forth in Rule 10b-18(b)(4) by or for the Purchaser or any of its
Affiliated Purchasers during each of the four calendar weeks preceding such day
and during the calendar week in which such day occurs (“Rule 10b-18 purchase”
and “blocks” each being used as defined in Rule 10b-18), which notice shall be
substantially in the form set forth as Exhibit A hereto.
     (b) The Purchaser acknowledges and agrees that (i) all transactions
effected pursuant to Section 4.01 hereunder shall be made in the Seller’s sole
judgment and for the Seller’s own account and (ii) the Purchaser does not have,
and shall not attempt to exercise, any influence over how, when or whether to
effect such transactions, including, without limitation, the price paid or
received per share of Common Stock pursuant to such transactions whether such
transactions are made on any securities exchange or privately. It is the intent
of the Seller and the Purchaser that this Transaction comply with the
requirements of Rule 10b5-1(c) of the Exchange Act and that this Confirmation
shall be interpreted to comply with the requirements of Rule 10b5-1(c)(1)(i)(B)
and the Seller shall take no action that results in the Transaction not so
complying with such requirements.
     (c) Notwithstanding anything to the contrary in this Confirmation, the
Purchaser acknowledges and agrees that, on any day, the Seller shall not be
obligated to deliver or receive any shares of Common Stock to or from the
Purchaser and the Purchaser shall not be entitled to receive any shares of
Common Stock from the Seller on such day, to the extent (but only to the extent)
that after such transactions the Seller’s ultimate parent entity would directly
or indirectly beneficially own (as such term is defined for purposes of Section
13(d) of the Exchange Act) at any time on such day in excess of 8.0% of the
outstanding shares of Common Stock. Any purported receipt or delivery of shares
of Common Stock shall be void and have no effect to the extent (but only to the
extent) that after any receipt or delivery of such shares of Common Stock the
Seller’s ultimate parent entity would directly or indirectly so beneficially own
in excess of 8.0% of the outstanding shares of Common Stock. If, on any day, any
delivery or receipt of shares of Common Stock by the Seller is not effected, in
whole or in part, as a result of this

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provision, the Seller’s and Purchaser’s respective obligations to make or accept
such receipt or delivery shall not be extinguished and such receipt or delivery
shall be effected over time as promptly as the Seller determines, in the
reasonable determination of the Seller, that after such receipt or delivery its
ultimate parent entity would not directly or indirectly beneficially own in
excess of 8.0% of the outstanding shares of Common Stock.
     Section 4.02. Adjustment of Transaction for Securities Laws. (a) If, based
on the advice of counsel, Seller reasonably determines that, due to insufficient
trading volume in the Common Stock, Seller’s trading activity in order to manage
its economic hedge in respect of the Transaction would not be advisable in
respect of applicable securities laws, then Seller may extend the Expiration
Date or otherwise adjust the terms of the Transaction in its good faith
reasonable discretion to ensure Seller’s compliance with such laws and to
preserve the fair value of the Transaction to the Seller. The Seller shall
notify the Purchaser of the exercise of the Seller’s rights pursuant to this
Section 4.02(a) upon such exercise.
     (b) The Purchaser agrees that, during the Contract Period, neither the
Purchaser nor any of its affiliates or agents shall make any distribution (as
defined in Regulation M) of Common Stock, or any security for which the Common
Stock is a reference security (as defined in Regulation M) or take any other
action that would, in the view of the Seller, preclude purchases by the Seller
of the Common Stock or cause the Seller to violate any law, rule or regulation
with respect to such purchases.
     Section 4.03. Purchases of Common Stock by the Purchaser. Without the prior
written consent of the Seller, the Purchaser shall not, and shall cause its
affiliates and affiliated purchasers (each as defined in Rule 10b-18) not to,
directly or indirectly (including, without limitation, by means of a derivative
instrument) purchase, offer to purchase, place any bid or limit order that would
effect a purchase of, or commence any tender offer relating to, any shares of
Common Stock (or equivalent interest, including a unit of beneficial interest in
a trust or limited partnership or a depository share) or any security
convertible into or exchangeable for shares of Common Stock during the Contract
Period; provided, however, that without the prior written consent of the Seller
the Purchaser may continue to (a) purchase shares of Common Stock pursuant to
its previously announced stock buyback program, so long as (i) on any day such
purchases (other than non-10b-18 purchases which comply with the provisions of
Rule 10b-18(a)(13)(ii)), which may be effected by an agent independent of the
Purchaser) are conducted solely through the same broker or dealer used by Seller
in effecting purchases of Common Stock in connection with this Confirmation;
(ii) on any Trading Day during the Valuation Period, such purchases do not
exceed 5% of the ADTV (as defined in Rule 10b-18(a)(1)) on such Trading Day; and
(iii) such purchases otherwise comply with other provisions of Rule 10b-18 and
other applicable laws, rules and regulations, and (b) effect non-10b-18
purchases that comply with the provisions of Rule 10b-18(a)(13)(ii), which are
to be effected by an agent independent of the Purchaser.
ARTICLE 5
Representations, Warranties and Agreements
     Section 5.01. Repeated Representations, Warranties and Agreements of the
Purchaser. The Purchaser represents and warrants to, and agrees with, the
Seller, on the date hereof and on any date pursuant to which the Purchaser makes
an election to receive or deliver Payment Shares pursuant to Section 3.01 or
Alternative Termination Delivery Units pursuant to Section 7.03, that:
     (a) Disclosure; Compliance with Laws. The reports and other documents filed
by the Purchaser with the SEC pursuant to the Exchange Act when considered as a
whole (with the more recent such reports and documents deemed to amend
inconsistent statements contained in any earlier such reports and documents), do
not contain any untrue statement of a material fact or any omission of a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading. The Purchaser is not in possession of any material nonpublic
information regarding the Purchaser or the Common Stock.
     (b) Rule 10b5-1. The Purchaser acknowledges that (i) the Purchaser does not
have, and shall not attempt to exercise, any influence over how, when or whether
to effect purchases of Common Stock by the Seller (or

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its agent or affiliate) in connection with this Confirmation and (ii) the
Purchaser is entering into the Agreement and this Confirmation in good faith and
not as part of a plan or scheme to evade compliance with federal securities laws
including, without limitation, Rule 10b-5 promulgated under the Exchange Act.
The Purchaser also acknowledges and agrees that any amendment, modification,
waiver or termination of this Confirmation must be effected in accordance with
the requirements for the amendment or termination of a “plan” as defined in
Rule 10b5-1(c) under the Exchange Act. Without limiting the generality of the
foregoing, any such amendment, modification, waiver or termination shall be made
in good faith and not as part of a plan or scheme to evade the prohibitions of
Rule 10b-5 under the Exchange Act, and no amendment, modification or waiver
shall be made at any time at which the Purchaser or any officer or director of
the Purchaser is aware of any material nonpublic information regarding the
Purchaser or the Common Stock.
     (c) Nature of Shares Delivered. Any shares of Common Stock or Alternative
Termination Delivery Units delivered to the Seller pursuant to this
Confirmation, when delivered, shall have been duly authorized and shall be duly
and validly issued, fully paid and nonassessable and free of preemptive or
similar rights, and such delivery shall pass title thereto free and clear of any
liens or encumbrances.
     (d) No Manipulation. The Purchaser is not entering into this Confirmation
to create actual or apparent trading activity in the Common Stock (or any
security convertible into or exchangeable for Common Stock) or to manipulate the
price of the Common Stock (or any security convertible into or exchangeable for
Common Stock).
     (e) Regulation M. The Purchaser is not engaged in a distribution, as such
term is used in Regulation M, that would preclude purchases by the Purchaser or
the Seller of the Common Stock or cause the Seller to violate any law, rule or
regulation with respect to such purchases.
     (f) Board Authorization. The Purchaser is entering into this Transaction in
connection with its share repurchase program, which was approved by its board of
directors and publicly disclosed, solely for the purposes stated in such board
resolution and public disclosure. There is no internal policy of the Purchaser,
whether written or oral, that would prohibit the Purchaser from entering into
any aspect of this Transaction, including, but not limited to, the purchases of
shares of Common Stock to be made pursuant hereto.
     (g) Due Authorization and Good Standing. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. This Confirmation has been duly authorized, executed and
delivered by the Purchaser and (assuming due authorization, execution and
delivery thereof by the Seller) constitutes a valid and legally binding
obligation of the Purchaser. The Purchaser has all corporate power to enter into
this Confirmation and to consummate the transactions contemplated hereby and to
purchase the Common Stock and deliver any Payment Shares in accordance with the
terms hereof.
     (h) Certain Transactions. There has not been any public announcement (as
defined in Rule 165(f) under the Securities Act) of any merger, acquisition, or
similar transaction involving a recapitalization relating to the Purchaser that
would fall within the scope of Rule 10b-18(a)(13)(iv).
     Section 5.02. Initial Representations, Warranties and Agreements of the
Purchaser. The Purchaser represents and warrants to, and agrees with the Seller,
as of the date hereof, that:
     (a) Solvency. The assets of the Purchaser at their fair valuation exceed
the liabilities of the Purchaser, including contingent liabilities; the capital
of the Purchaser is adequate to conduct the business of the Purchaser and the
Purchaser has the ability to pay its debts and obligations as such debts mature
and does not intend to, or does not believe that it will, incur debt beyond its
ability to pay as such debts mature.
     (b) Required Filings. The Purchaser has made, and will use its best efforts
to make, all filings required to be made by it with the SEC, any securities
exchange or any other regulatory body with respect to the Transaction
contemplated hereby.
     (c) No Conflict. The execution and delivery by the Purchaser of, and the
performance by the Purchaser of its obligations under, this Confirmation and the
consummation of the transactions herein contemplated do not

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conflict with or violate (i) any provision of the certificate of incorporation,
by-laws or other constitutive documents of the Purchaser, (ii) any statute or
order, rule, regulation or judgment of any court or governmental agency or body
having jurisdiction over the Purchaser or any of its subsidiaries or any of
their respective assets or (iii) any contractual restriction binding on or
affecting the Purchaser or any of its subsidiaries or any of its assets.
     (d) Consents. All governmental and other consents that are required to have
been obtained by the Purchaser with respect to performance, execution and
delivery of this Confirmation have been obtained and are in full force and
effect and all conditions of any such consents have been complied with.
     (e) Investment Company Act. The Purchaser is not and, after giving effect
to the transactions contemplated in this Confirmation, will not be required to
register as an “investment company” as such term is defined in the Investment
Company Act of 1940, as amended.
     (f) Commodity Exchange Act. The Purchaser is an “eligible contract
participant”, as such term is defined in Section 1a(12) of the Commodity
Exchange Act, as amended.
     Section 5.03. Additional Representations, Warranties and Agreements. The
Purchaser and the Seller represent and warrant to, and agree with, each other
that:
     (a) Agency. Each party agrees and acknowledges that (i) J.P. Morgan
Securities Inc., an affiliate of the Seller (“JPMSI”), has acted solely as agent
and not as principal with respect to this Transaction and (ii) JPMSI has no
obligation or liability, by way of guaranty, endorsement or otherwise, in any
manner in respect of this Transaction (including, if applicable, in respect of
the settlement thereof). Each party agrees it will look solely to the other
party (or any guarantor in respect thereof) for performance of such other
party’s obligations under this Transaction. JPMSI is authorized to act as agent
for the Seller.
     (b) Non-Reliance. Each party has entered into this Transaction solely in
reliance on its own judgment. Neither party has any fiduciary obligation to the
other party relating to this Transaction. In addition, neither party has held
itself out as advising, or has held out any of its employees or agents as having
the authority to advise, the other party as to whether or not the other party
should enter into this Transaction, any subsequent actions relating to this
Transaction or any other matters relating to this Transaction. Neither party
shall have any responsibility or liability whatsoever in respect of any advice
of this nature given, or views expressed, by it or any such persons to the other
party relating to this Transaction, whether or not such advice is given or such
views are expressed at the request of the other party. The Purchaser has
conducted its own analysis of the legal, accounting, tax and other implications
of this Transaction and consulted such advisors, accountants and counsel as it
has deemed necessary.
     Section 5.04. Representations and Warranties of the Seller. The Seller
represents and warrants to the Purchaser that:
     (a) Due Authorization. This Confirmation has been duly authorized, executed
and delivered by the Seller and (assuming due authorization, execution and
delivery thereof by the Purchaser) constitutes a valid and legally binding
obligation of the Seller. The Seller has all corporate power to enter into this
Confirmation and to consummate the transactions contemplated hereby and to
deliver the Common Stock in accordance with the terms hereof.
     (b) Right to Transfer. The Seller will, at the Initial Settlement Date,
have the free and unqualified right to transfer the Number of Shares of Common
Stock to be sold by the Seller pursuant to Section 2.01 hereof, free and clear
of any security interest, mortgage, pledge, lien, charge, claim, equity or
encumbrance of any kind.
ARTICLE 6
Additional Covenants
     Section 6.01. Purchaser’s Further Assurances. The Purchaser hereby agrees
with the Seller that the Purchaser shall cooperate with the Seller, and execute
and deliver, or use its best efforts to cause to be executed and

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delivered, all such other instruments, and to obtain all consents, approvals or
authorizations of any person, and take all such other actions as the Seller may
reasonably request from time to time, consistent with the terms of this
Confirmation, in order to effectuate the purposes of this Confirmation and the
Transaction contemplated hereby.
     Section 6.02. Purchaser’s Hedging Transactions. The Purchaser hereby agrees
with the Seller that the Purchaser shall not, during the Contract Period, enter
into or alter any corresponding or hedging transaction or position with respect
to the Common Stock (including, without limitation, with respect to any
securities convertible or exchangeable into the Common Stock) and agrees not to
alter or deviate from the terms of this Confirmation.
     Section 6.03. No Communications. The Purchaser hereby agrees with the
Seller that the Purchaser shall not, directly or indirectly, communicate any
information relating to the Common Stock or this Transaction (including any
notices required by Section 6.05) to any employee of the Seller or J.P. Morgan
Securities Inc., other than as set forth in the Communications Procedures
attached as Annex B hereto.
     Section 6.04. Maximum Deliverable Number of Shares of Common Stock.
Notwithstanding any other provision of this Confirmation, the Purchaser shall
not be required to deliver Payment Shares, or shares of Common Stock or other
securities comprising the aggregate Alternative Termination Delivery Units, in
excess of the number of Maximum Delivery Shares, in each case except to the
extent that the Purchaser has available at such time authorized but unissued
shares of such Common Stock or other securities not expressly reserved for any
other uses (including, without limitation, shares of Common Stock reserved for
issuance upon the exercise of options or convertible debt). The Purchaser shall
not permit the sum of (i) the number of Maximum Delivery Shares plus (ii) the
aggregate number of shares expressly reserved for any such other uses, in each
case whether expressed as caps or as numbers of shares reserved or otherwise, to
exceed at any time the number of authorized but unissued shares of Common Stock.
     Section 6.05. Notice of Certain Transactions. If at any time during the
Contract Period, the Purchaser makes, or expects to be made, or has made, any
public announcement (as defined in Rule 165(f) under the Securities Act) of any
merger, acquisition, or similar transaction involving a recapitalization
relating to the Purchaser (other than any such transaction in which the
consideration consists solely of cash and there is no valuation period, or as to
which the completion of such transaction or the completion of the vote by target
shareholders has occurred), then the Purchaser shall (i) notify the Seller prior
to the opening of trading in the Common Stock on any day on which the Purchaser
makes, or expects to be made, or has made any such public announcement,
(ii) notify the Seller promptly following any such announcement (or, if later,
prior to the opening of trading in the Common Stock on the first day of any
Seller Payment Share Purchase Period or any Seller Termination Share Payment
Period) that such announcement has been made and (iii) promptly deliver to the
Seller following the making of any such announcement (or, if later, prior to the
opening of trading in the Common Stock on the first day of any Seller Payment
Share Purchase Period or any Seller Termination Share Payment Period) a
certificate indicating (A) the Purchaser’s average daily Rule 10b-18 purchases
(as defined in Rule 10b-18) during the three full calendar months preceding the
date of such announcement and (B) the Purchaser’s block purchases (as defined in
Rule 10b-18) effected pursuant to paragraph (b)(4) of Rule 10b-18 during the
three full calendar months preceding the date of such announcement. In addition,
the Purchaser shall promptly notify the Seller of the earlier to occur of the
completion of such transaction and the completion of the vote by target
shareholders. Accordingly, the Purchaser acknowledges that its actions in
relation to any such announcement or transaction must comply with the standards
set forth in Section 6.03.
ARTICLE 7
Termination
     Section 7.01. Additional Termination Events. (a) An Additional Termination
Event shall occur in respect of which the Purchaser is the sole Affected Party
and this Transaction is the sole Affected Transaction if, on any day, the Seller
determines, in its sole reasonable judgment, that it is unable to establish,
re-establish or maintain any hedging transactions reasonably necessary in the
normal course of such party’s business of hedging the price and market risk of
entering into and performing under this Transaction, due to illegality.

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     (b) An Additional Termination Event shall occur in respect of which the
Purchaser is the sole Affected Party and this Transaction is the sole Affected
Transaction if (i) a Share De-listing Event occurs; (ii) a Merger Event occurs;
(iii) a Nationalization occurs, (iv) a Distribution Termination Event occurs or
(v) an event described in paragraph III of Annex B occurs.
     (c) A “Share De-listing Event” means that at any time during the Contract
Period, the Common Stock ceases to be listed, traded or publicly quoted on the
Exchange for any reason (other than a Merger Event, a “De-Listing”) and is not
immediately re-listed, traded or quoted as of the date of such de-listing, on
another U.S. national securities exchange or a U.S. automated interdealer
quotation system (a “Successor Exchange”); provided that it shall not constitute
an Additional Termination Event if the Common Stock is immediately re-listed on
a Successor Exchange upon its De-Listing from the Exchange, and the Successor
Exchange shall be deemed to be the Exchange for all purposes. In addition, in
such event, the Seller shall make any commercially reasonable adjustments it
deems necessary to the terms of the Transaction.
     (d) A “Merger Event” means the public announcement, including any public
announcement as defined in Rule 165(f) of the Securities Act (by the Purchaser
or otherwise) at any time during the Contract Period of any (i) planned
recapitalization, reclassification or change of the Common Stock that will, if
consummated, result in a transfer of more than 20% of the outstanding shares of
Common Stock, (ii) planned consolidation, amalgamation, merger or similar
transaction of the Purchaser with or into another entity (other than a
consolidation, amalgamation or merger in which the Purchaser will be the
continuing entity and which does not result in any such recapitalization,
reclassification or change of more than 20% of such shares outstanding),
(iii) other takeover offer for the shares of Common Stock that is aimed at
resulting in a transfer of more than 20% of such shares of Common Stock (other
than such shares owned or controlled by the offeror) or (iv) irrevocable
commitment to any of the foregoing.
     (e) A “Nationalization” means that all or substantially all of the
outstanding shares of Common Stock or assets of the Purchaser are nationalized,
expropriated or are otherwise required to be transferred to any governmental
agency, authority or entity.
     (f) A “Distribution Termination Event” means a declaration by the Purchaser
of any cash dividend or distribution on shares of Common Stock, other than an
Extraordinary Cash Dividend, that has a record date during the Contract Period,
the amount of which, together with all prior declared cash dividends or
distributions that have a record date during the same regular reference period
of the Purchaser, exceeds the applicable “Cash Distribution Amount.”
     Section 7.02. Consequences of Additional Termination Events. (a) In the
event of the occurrence or effective designation of an Early Termination Date
under the Agreement, cash settlement, as set forth in Section 7.02(b), shall
apply unless (i) the Purchaser elects (which election shall be binding), in lieu
of payment of the amount payable in respect of this Transaction pursuant to
Section 6(d)(ii) of the Agreement (the “Termination Amount”), to deliver or to
receive Alternative Termination Delivery Units pursuant to Section 7.03, and
(ii) notifies the Seller of such election by delivery of written notice to the
Seller on the Business Day immediately following the Purchaser’s receipt of a
notice (as required by Section 6(d) of the Agreement following the designation
of an Early Termination Date in respect of this Transaction or in respect of all
transactions under the Agreement) setting forth the amounts payable by the
Purchaser or by the Seller with respect to such Early Termination Date (the date
of such delivery, the “Default Notice Day”); provided that the Purchaser shall
not have the right to elect the delivery or receipt of the Alternative
Termination Delivery Units pursuant to Section 7.03 if:
     (i) the representations and warranties made by the Purchaser to the Seller
in Section 5.01 are not true and correct as of the date the Seller makes such
election, as if made on such date, or
     (ii) in the event that the Termination Amount is payable by the Purchaser
to the Seller, (A) the Purchaser has taken any action that would make
unavailable (x) the exemption set forth in Section 4(2) of the Securities Act,
for the sale of any Alternative Termination Delivery Units by the Purchaser to
the Seller or (y) an exemption from the registration requirements of the
Securities Act reasonably acceptable to the Seller for resales of Alternative
Termination Delivery Units by the Seller, and (B) such Early Termination Date is
in respect of an Event of Default which is within Purchaser’s control
(including,

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without limitation, failure to execute a Private Placement Agreement or
otherwise comply with the requirements applicable to Purchaser set forth in
Annex A hereto).
     For the avoidance of doubt, upon the Purchaser’s making an election to
deliver Alternative Termination Delivery Units pursuant to this Section 7.02(a),
the Purchaser shall be deemed to make the representations and warranties in
Section 5.01 hereof as if made on the date of the Purchaser’s election.
Notwithstanding the foregoing, at any time prior to the time the Seller (or any
affiliate of the Seller) has contracted to resell the property to be delivered
upon alternative termination settlement, the Purchaser may deliver in lieu of
such property an amount in cash equal to the Termination Amount in the manner
set forth in Section 6(d) of the Agreement.
     (b) If cash settlement applies in respect of an Early Termination Date,
Section 6 of the Agreement shall apply.
     Section 7.03. Alternative Termination Settlement. (a) Subject to
Section 7.02(a), if the Termination Amount shall be payable by the Purchaser to
the Seller and the Purchaser elects to deliver the Alternative Termination
Delivery Units to the Seller, the Purchaser shall, as soon as directed by the
Seller after the Default Notice Day (such date, the “Termination Settlement
Date”), deliver to the Seller a number of Alternative Termination Delivery Units
equal to the quotient of (A) the Termination Amount divided by (B) the
Termination Price.
     (b) Subject to Section 7.02(a), if the Termination Amount shall be payable
by the Seller to the Purchaser and the Purchaser elects to receive the
Alternative Termination Delivery Units from the Seller, (i) the Seller shall,
beginning on the first Trading Day following the Default Notice Day and ending
when the Seller shall have satisfied its obligations under this clause (the
“Seller Termination Share Purchase Period”), purchase (subject to the provisions
of Section 4.01 and Section 4.02 hereof) a number of Alternative Termination
Delivery Units equal to the quotient of (A) the Termination Amount divided by
(B) the Termination Price; and (ii) the Seller shall deliver such Alternative
Termination Delivery Units to the Purchaser on the settlement dates relating to
such purchases.
     Section 7.04. Notice of Default. If an Event of Default occurs in respect
of the Purchaser, the Purchaser will, promptly upon becoming aware of it, notify
the Seller specifying the nature of such Event of Default.
ARTICLE 8
Adjustments
     Section 8.01. Extraordinary Cash Dividends. If the Purchaser declares any
Extraordinary Cash Dividend that has a record date during the Contract Period,
then prior to or on the date on which such Extraordinary Cash Dividend is paid
by the Purchaser to holders of record, the Purchaser shall pay to the Seller an
amount in cash equal to the product of (i) the amount of such Extraordinary Cash
Dividend and (ii) the theoretical short delta number of shares, as determined by
the Calculation Agent, required for the Seller to hedge its exposure to the
Transaction.
     Section 8.02. Other Dilution Adjustments. If (x) any corporate event occurs
involving the Purchaser or the Common Stock (other than any cash dividend but
including, without limitation, a spin-off, a stock split, stock or other
dividend or distribution, reorganization, rights offering or recapitalization or
any other event having a dilutive or concentrative effect on the Common Stock),
or (y) as a result of the definition of Trading Day (whether because of a
suspension of transactions pursuant to Section 4.02 or otherwise), any day that
would otherwise be a Trading Day during the Contract Period is not a Trading Day
or on such Trading Day, pursuant to Section 4.02, the Seller effects
transactions with respect to shares of Common Stock at a volume lower than
originally anticipated with respect to this Transaction, then in any such case,
the Calculation Agent shall make corresponding adjustments with respect to any
variable relevant to the terms of the Transaction, as the Calculation Agent
determines appropriate to preserve the fair value of the Transaction to the
Seller, and shall determine the effective date of such adjustment.

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ARTICLE 9
Miscellaneous
     Section 9.01. Successors and Assigns. All covenants and agreements in this
Confirmation made by or on behalf of either of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not.
     Section 9.02. Purchaser Indemnification. The Purchaser (the “Indemnifying
Party”) agrees to indemnify and hold harmless the Seller and its officers,
directors, employees, affiliates, advisors, agents and controlling persons
(each, an “Indemnified Person”) from and against any and all losses, claims,
damages and liabilities, joint or several (collectively, “Obligations”), to
which an Indemnified Person may become subject arising out of or in connection
with this Confirmation or any claim, litigation, investigation or proceeding
relating thereto, regardless of whether any of such Indemnified Person is a
party thereto, and to reimburse, within 30 days, upon written request, each such
Indemnified Person for any reasonable legal or other expenses incurred in
connection with investigating, preparation for, providing evidence for or
defending any of the foregoing, provided, however, that the Indemnifying Party
shall not have any liability to any Indemnified Person to the extent that such
Obligations (i) are finally determined by a court of competent jurisdiction to
have resulted from the gross negligence or willful misconduct of such
Indemnified Person (and in such case, such Indemnified Person shall promptly
return to the Indemnifying Party any amounts previously expended by the
Indemnifying Party hereunder) or (ii) are trading losses incurred by the Seller
as part of its purchases or sales of shares of Common Stock pursuant to this
Confirmation (unless the Purchaser has breached any agreement, term or covenant
herein).
     Section 9.03. Assignment and Transfer. Notwithstanding the Agreement, the
Seller may assign any of its rights or duties hereunder to any one or more of
its affiliates without the prior written consent of the Purchaser.
Notwithstanding any other provision in this Confirmation to the contrary
requiring or allowing Seller to purchase, sell, receive or deliver any shares of
Common Stock or other securities to or from the Purchaser, Seller may designate
any of its affiliates to purchase, sell, receive or deliver such shares of
Common Stock or other securities and otherwise to perform the Seller’s
obligations in respect of this Transaction and any such designee may assume such
obligations. The Seller may assign the right to receive Payment Shares to any
third party who may legally receive Payment Shares. The Seller shall be
discharged of its obligations to the Purchaser only to the extent of any such
performance. For the avoidance of doubt, Seller hereby acknowledges that
notwithstanding any such designation hereunder, to the extent any of Seller’s
obligations in respect of this Transaction are not completed by its designee,
Seller shall be obligated to continue to perform or to cause any other of its
designees to perform in respect of such obligations.
     Section 9.04. Calculation Agent. Whenever the Calculation Agent is required
to act or to exercise judgment in a any way with respect to this Transaction, it
will do so in good faith and in a commercially reasonable manner.
     Section 9.05. Non-confidentiality. The Seller and the Purchaser hereby
acknowledge and agree that subject to Section 6.03 each is authorized to
disclose every aspect of this Confirmation and the transactions contemplated
hereby to any and all persons, without limitation of any kind, and there are no
express or implied agreements, arrangements or understandings to the contrary.
     Section 9.06. Unenforceability and Invalidity. To the extent permitted by
law, the unenforceability or invalidity of any provision or provisions of this
Confirmation shall not render any other provision or provisions herein contained
unenforceable or invalid.
     Section 9.07. Securities Contract. The parties hereto agree and acknowledge
as of the date hereof that (i) the Seller is a “financial institution” within
the meaning of Section 101(22) of Title 11 of the United States Code (the
“Bankruptcy Code”) and (ii) this Confirmation is a “securities contract,” as
such term is defined in Section 741(7) of the Bankruptcy Code, entitled to the
protection of Sections 362(b)(6) and 555 of the Bankruptcy Code.
     Section 9.08. No Collateral, Netting or Setoff. Notwithstanding any
provision of the Agreement, or any other agreement between the parties, to the
contrary, the obligations of the Purchaser hereunder are not secured by

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any collateral. Obligations under this Transaction shall not be netted, recouped
or set off (including pursuant to Section 6 of the Agreement) against any other
obligations of the parties, whether arising under the Agreement, this
Confirmation, under any other agreement between the parties hereto, by operation
of law or otherwise, and no other obligations of the parties shall be netted,
recouped or set off (including pursuant to Section 6 of the Agreement) against
obligations under this Transaction, whether arising under the Agreement, this
Confirmation, under any other agreement between the parties hereto, by operation
of law or otherwise, and each party hereby waives any such right of setoff,
netting or recoupment.
     Section 9.09. Notices. Unless otherwise specified herein, any notice, the
delivery of which is expressly provided for in this Confirmation, may be made by
telephone, to be confirmed in writing to the address below. Changes to the
information below must be made in writing.
(a) If to the Purchaser:
Valero Energy Corporation
One Valero Way
San Antonio, Texas 78249-1616
Attention: Donna Titzman
Telephone No: (210) 345-2180
Facsimile No: (210) 345-2267
(b) If to the Seller:
JPMorgan Chase Bank, National Association
c/o J.P. Morgan Securities Inc.
277 Park Avenue
New York, NY 10172
Attention: Eric Stefanik
Title: Operations Analyst
EDG Corporate Marketing
Telephone No: (212) 622-5814
Facsimile No: (212) 622-8534

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(JPMORGAN LOGO) [d46054d4605401.gif]
     Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing the copy of this Confirmation enclosed for that purpose
and returning it to us.

            Yours sincerely,

J.P. MORGAN SECURITIES INC., as agent for
JPMorgan Chase Bank, National Association, London Branch
      By:   /s/ Sudheer Tegulapalle         Name:   Sudheer Tegulapalle       
Title:   Executive Director     

Confirmed as of the date first above written:

              VALERO ENERGY CORPORATION
      By:   /s/ Michael S. Ciskowski         Name:   Michael S. Ciskowski       
Title:   Executive Vice President and Chief Financial Officer       

JPMorgan Chase Bank, National Association
Organised under the laws of the United States as a National Banking Association.
Main Office 1111 Polaris Parkway, Columbus, Ohio 43271
Registered as a branch in England & Wales branch No. BR000746.
Registered Branch Office 125 London Wall, London EC2Y 5AJ
Authorised and regulated by the Financial Services Authority

 

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(JPMORGAN LOGO) [d46054d4605401.gif]
ANNEX A
PRIVATE PLACEMENT PROCEDURES
     I. Introduction
     Valero Energy Corporation, a Delaware corporation (the “Purchaser”) and
J.P. Morgan Securities Inc., as agent for JPMorgan Chase Bank, National
Association, London Branch (the “Seller”) have agreed to these procedures (the
“Private Placement Procedures”) in connection with entering into the
Confirmation (the “Confirmation”) dated as of April 26, 2007 between JPMorgan
and the Purchaser relating to the sale by JPMorgan to the Purchaser of common
stock, par value $0.01 per share, or security entitlements in respect thereof
(the “Common Stock”) of the Counterparty. These Private Placement Procedures
supplement, form part of, and are subject to the Confirmation and all terms used
and not otherwise defined herein shall have the meanings assigned to them in the
Confirmation.
     II. Procedures
     If the Purchaser elects to deliver Payment Shares pursuant to
Section 3.01(b) of the Confirmation or elects to deliver Alternative Termination
Delivery Units pursuant to Section 7.02(a) of the Confirmation, the Purchaser
shall effect such delivery in compliance with the private placement procedures
provided herein.
     (a) The Purchaser shall afford the Seller, and any potential buyers of the
Payment Shares (or, in the case of alternative termination settlement,
Alternative Termination Delivery Units) (collectively, the “Private Securities”)
designated by the Seller a reasonable opportunity to conduct a due diligence
investigation with respect to the Purchaser customary in scope for private
offerings of such type of securities (including, without limitation, the
availability of senior management to respond to questions regarding the business
and financial condition of the Purchaser and the right to have made available to
them for inspection all financial and other records, pertinent corporate
documents and other information reasonably requested by them), and the Seller
(or any such potential buyer) shall be satisfied in all material respects with
such opportunity and with the resolution of any disclosure issues arising from
such due diligence investigation of the Purchaser.
     (b) Prior to or contemporaneously with the determination of the Private
Placement Price (as described below), the Purchaser shall enter into an
agreement (a “Private Placement Agreement”) with the Seller (or any affiliate of
the Seller designated by the Seller) providing for the purchase and resale by
the Seller (or such affiliate) in a private placement (or other transaction
exempt from registration under the Securities Act) of the Private Securities,
which agreement shall be on commercially reasonable terms and in form and
substance reasonably satisfactory to the Seller (or such affiliate) and (without
limitation of the foregoing) shall:
     (i) contain customary conditions, and customary undertakings,
representations and warranties (to the Seller or such affiliate, and if
requested by the Seller or such affiliate, to potential purchasers of the
Private Securities);
     (ii) contain indemnification and contribution provisions in connection with
the potential liability of the Seller and its affiliates relating to the resale
by the Seller (or such affiliate) of the Private Securities;
     (iii) provide for the delivery of related certificates and representations,
warranties and agreements of the Purchaser, including those necessary or
advisable to establish and maintain the availability of an exemption from the
registration requirements of the Securities Act for the Seller and resales of
the Private Securities by the Seller (or such affiliate); and

A-1

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     (iv) provide for the delivery to the Seller (or such affiliate) of
customary opinions (including, without limitation, opinions relating to the due
authorization, valid issuance and fully paid and non-assessable nature of the
Private Securities, the availability of an exemption from the Securities Act for
the Seller and resales of the Private Securities by the Seller (or such
affiliate), and the lack of material misstatements and omissions in the
Purchaser’s filings under the Exchange Act).
     (c) The Seller shall determine the Private Placement Price (or, in the case
of alternative termination settlement, the Termination Price) in its judgment by
commercially reasonable means, which may include (without limitation):
     (i) basing such price on indicative bids from investors;
     (ii) taking into account any factors that are customary in pricing private
sales and any and all risks and costs in connection with the resale of the
Private Securities by the Seller (or any affiliate of the Seller designated by
the Seller), including, without limitation, a reasonable placement fee or spread
to be retained by the Seller (or such affiliate); and
     (iii) providing for the payment by the Purchaser of all fees and expenses
in connection with such sale and resale, including all fees and expenses of
counsel for the Seller or such affiliate.
     (d) The Seller shall notify the Purchaser of the number of Private
Securities required to be delivered by the Purchaser and the Private Placement
Price (or, in the case of alternative termination settlement, the Termination
Price) by 6:00 p.m. on the day such price is determined.
     (e) The Purchaser agrees not to take or cause to be taken any action that
would make unavailable either (i) the exemption set forth in Section 4(2) of the
Securities Act, for the sale of any Private Securities by the Purchaser to the
Seller or (ii) an exemption from the registration requirements of the Securities
Act reasonably acceptable to the Seller for resales of Private Securities by the
Seller.
     (f) The Purchaser expressly agrees and acknowledges that the public
disclosure of all material information relating to the Purchaser is within the
Purchaser’s control and that the Purchaser shall promptly so disclose all such
material information during the period from the Valuation Completion Date to and
including the Settlement Date.
The Purchaser agrees to use its best efforts to make any filings required to be
made by it with the SEC, any securities exchange or any other regulatory body
with respect to the Transaction contemplated hereby and the issuance of the
Private Securities.

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ANNEX B
COMMUNICATIONS PROCEDURES
April 26, 2007
     I. Introduction
     Valero Energy Corporation, a Delaware corporation (“Counterparty”) and J.P.
Morgan Securities Inc., as agent for JPMorgan Chase Bank, National Association,
London Branch (“JPMorgan”) have adopted these communications procedures (the
“Communications Procedures”) in connection with entering into the Confirmation
(the “Confirmation”) dated as of April 26, 2007 between JPMorgan and
Counterparty relating to the sale by JPMorgan to Counterparty of common stock,
par value $0.01 per share, or security entitlements in respect thereof (the
“Common Stock”) of the Counterparty. These Communications Procedures supplement,
form part of, and are subject to the Confirmation.
     II. Communications Rules
     1. From the date hereof until the end of the Contract Period, neither
Counterparty nor any Employee or Designee of Counterparty shall (a) engage in
any Program-Related Communication with any EDG Personnel, other than any of the
Permitted Contacts, or (b) disclose any Material Non-Public Information to any
EDG Personnel, other than any of the Permitted Contacts, and
     2. Subject to the preceding provision, the Counterparty, any Employee of
Counterparty and any Designee of Counterparty may at any time engage in any
Non-Program-Related Communication with any affiliate or Employee of JPMorgan.
     3. JPMorgan and/or its affiliate shall implement reasonable policies and
procedures, designed to ensure that any affiliate or Employee of JPMorgan
effecting purchases of Common Stock in connection with the Confirmation are not
privy to the timing, price or amount of purchases made by those affiliates or
Employees of JPMorgan effecting Discretionary Purchases on behalf of
Counterparty.
     III. Termination
     If, in the sole judgment of any EDG Personnel or any affiliate or Employee
of JPMorgan participating in any Communication with Counterparty or any Designee
of Counterparty, such Communication would not be permitted by these
Communications Procedures, such EDG Personnel or such affiliate or Employee of
JPMorgan shall immediately terminate such Communication. In such case, or if
such EDG Personnel or such affiliate or Employee of JPMorgan determines
following completion of any Communication with Counterparty or any Employee or
Designee of Counterparty that such Communication was not permitted by these
Communications Procedures, such EDG Personnel or such affiliate or Employee of
JPMorgan shall promptly consult with his or her supervisors and with counsel for
JPMorgan regarding such Communication. If, in the reasonable judgment of
JPMorgan’s counsel following such consultation, there is more than an
insignificant risk that such Communication could materially jeopardize the
availability of the affirmative defenses provided in Rule 10b5-1 under the 1934
Act with respect to any ongoing or contemplated activities of JPMorgan or its
affiliates in respect of the Confirmation, it shall be an Additional Termination
Event with respect to the Confirmation.
     IV. Definitions
     Capitalized terms used and not otherwise defined herein shall have the
meanings ascribed to them in the Confirmation. As used herein, the following
words and phrases shall have the following meanings:

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     “Communication” means any contact or communication (whether written,
electronic, oral or otherwise) between Counterparty, any Employee of
Counterparty or one or more Designees of Counterparty, on the one hand, and
JPMorgan or any of its affiliates or Employees, on the other hand.
     “Designee” means a person designated, in writing or orally, by Counterparty
to communicate with JPMorgan on behalf of Counterparty.
     “Discretionary Purchases” means purchases of shares of Common Stock by
Counterparty pursuant to its previously announced stock buyback program.
     “EDG Personnel” means Reuben Jacob, Gaurav Arora and any other Employee of
the public side of the Equity Derivatives Group of J.P. Morgan Chase & Co.;
provided that JPMorgan may amend the list of EDG Personnel by delivering a
revised list of EDG Personnel to Counterparty.
     “Employee” means, with respect to any entity, any owner, principal,
officer, director, employee or other agent or representative of such entity, and
any affiliate of any of such owner, principal, officer, director, employee,
agent or representative.
     “Material Non-Public Information” means information relating to the
Counterparty or the Common Stock that (a) has not been widely disseminated by
wire service, in one or more newspapers of general circulation, by communication
from the Counterparty to its shareholders or in a press release, or contained in
a public filing made by the Counterparty with the Securities and Exchange
Commission and (b) a reasonable investor might consider to be of importance in
making an investment decision to buy, sell or hold shares of Common Stock. For
the avoidance of doubt and solely by way of illustration, information should be
presumed “material” if it relates to such matters as dividend increases or
decreases, earnings estimates, changes in previously released earnings
estimates, significant expansion or curtailment of operations, a significant
increase or decline of orders, significant merger or acquisition proposals or
agreements, significant new products or discoveries, extraordinary borrowing,
major litigation, liquidity problems, extraordinary management developments,
purchase or sale of substantial assets and similar matters.
     “Non-Program-Related Communication” means any Communication other than a
Program Related Communication.
     “Permitted Contact” means any of Mr. David Aidelson, Ms. Bernadette
Barnard, Mr. Elliot Chalom, Mr. Santosh Nabar, Mr. James Rothschild and
Mr. Sudheer Tegulapalle or any of their designees; provided that JPMorgan may
amend the list of Permitted Contacts by delivering a revised list of Permitted
Contacts to Counterparty.
     “Program-Related Communication” means any Communication the subject matter
of which relates to the Confirmation or any Transaction under the Confirmation
or any activities of JPMorgan (or any of its affiliates) in respect of the
Confirmation or any Transaction under the Confirmation. For the avoidance of
doubt, Program-Related Communication will not include communications relating to
Discretionary Purchases between Employees of the Special Equities Group of J.P.
Morgan Chase & Co. on the one hand, and Counterparty or any Employee or designee
of Counterparty on the other hand.

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EXHIBIT A
[Letterhead of Purchaser]
JPMorgan Chase Bank, National Association
c/o J.P. Morgan Securities Inc.
277 Park Avenue
11th Floor
New York, New York 10172
Re:   Accelerated Purchase of Equity Securities
Ladies and Gentlemen:
     In connection with our entry into the Confirmation dated as of April 26,
2007 (the “Confirmation”), we hereby represent that set forth below is the total
number of shares of our common stock purchased by or for us or any of our
affiliated purchasers in Rule 10b-18 purchases of blocks (all defined in
Rule 10b-18 under the Securities Exchange Act of 1934) pursuant to the
once-a-week block exception set forth in Rule 10b-18(b)(4) during the four full
calendar weeks immediately preceding the first day of the Valuation Period (as
defined in the Confirmation) and the week during which the first day of the
Valuation Period occurs.
     Number of Shares: _______________
     We understand that you will use this information in calculating trading
volume for purposes of Rule 10b-18.

            Very truly yours,

VALERO ENERGY CORPORATION
      By:           Name:           Title:      

Exh-A-1

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EXHIBIT B
FORM OF PRICING SUPPLEMENT
JPMorgan Chase Bank, National Association
c/o J.P. Morgan Securities Inc.
277 Park Avenue, 11th Floor
New York, New York 10172
April 27, 2007
Valero Energy Corporation
One Valero Way
San Antonio, Texas 78249-1616
Ladies and Gentlemen:
This letter is a Pricing Supplement within the meaning of Section 2.01 of the
Confirmation dated as of April 26, 2007 (the “Confirmation”) between Valero
Energy Corporation (the “Purchaser”) and JPMorgan Chase Bank, National
Association, London Branch (the “Seller”), by J.P. Morgan Securities Inc., as
its agent. Capitalized terms used herein have the meanings set forth in the
Confirmation.
          This Pricing Supplement relates to the Transaction described in the
Confirmation. Upon the terms and subject to the conditions of the Confirmation,
the terms of the Transaction shall be as follows:

             
1
  Initial Stock Price:   [______]
2
  Number of Shares:   [______]
3
  Initial Purchase Price:   [______]
4
  Discount Amount:   [______]
5
  Minimum Completion Date:   [______]
6
  Initial Commission:   [______]
7
  Cash Distribution Amount:    
 
           
 
  Cash Distribution Amount   Reference Period
 
           
 
  $0.00     Trade Date — [___, 2007]
 
           
 
  $[  ] per share of Common Stock   [___, 2007 — ___, 2007]
 
           
 
  $[  ] per share of Common Stock   [___, 2007 — ___, 2007]
 
           
 
  $[  ] per share of Common Stock   Any period after [___, 2007]
 
           
8
  Increase Amount:    
 
           
 
  Date   Amount

Exh-B-1

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  [  ]   $[  ] per share of Common Stock
 
           
 
  [  ]   $[  ] per share of Common Stock  

            Very truly yours,

J.P. MORGAN SECURITIES INC., as agent for JPMorgan
Chase Bank, National Association, London Branch
      By:           Name:           Title:        

          Acknowledged and Confirmed:

VALERO ENERGY CORPORATION       By:           Name:                  

Exh-B-2