Exhibit 10.04


 


 


 


 


 


 


ADMINISTRATION AGREEMENT


BETWEEN


VALERO GP HOLDINGS, LLC


AND


VALERO GP, LLC


DATED AS OF July 19, 2006















 


ADMINISTRATION
AGREEMENT


This ADMINISTRATION AGREEMENT (this “Agreement”)
is entered into as of July 19, 2006 and effective as of Effective Date, as
defined below, between VALERO GP HOLDINGS, LLC, a Delaware limited liability
company (“Holdings”), and VALERO GP, LLC, a Delaware limited liability
company (“Valero GP”).


RECITALS


WHEREAS, management of Holdings has determined that
certain executive management, accounting, legal, cash management, corporate
finance and other administrative services required by Holdings should be
performed by Valero GP in exchange for an administrative services fee;


WHEREAS, on March 10, 2006, upon recommendation by
management of Valero GP and the Conflicts Committee of the Board of Directors
of Valero GP (the “Conflicts Committee”), the Board of Directors of Valero
GP approved the terms of this Agreement;


WHEREAS, Valero GP has agreed to provide certain administrative
services under this Agreement to Holdings; and


NOW, THEREFORE, for and in consideration of the mutual
covenants contained in this Agreement, the parties hereto hereby agree as
follows:


ARTICLE I

DEFINITIONS


Section 1.1            Definitions.   The following definitions shall be for
all purposes, unless otherwise clearly indicated to the contrary, applied to
the terms used in this Agreement.


(a)           “Affiliates”
means entities that directly or indirectly through one or more intermediaries
control, or are controlled by, or are under common control with, such party,
and the term “control” shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of management and
policies of an entity, whether through the ownership of voting securities, by
contract or otherwise; provided, however, that with respect to Valero GP, the term “Affiliate”
shall exclude Holdings.


(b)           “Associate”
means, when used to indicate a relationship with any Person, (a) any
corporation or organization which such Person is a director, officer or partner
or is, directly or indirectly, the owner of 20% or more of any class of voting
stock or other voting interest; (b) any trust or other estate in which such
Person has at least a 20% beneficial interest or as to which such Person serves
as trustee or in a similar fiduciary capacity; and (c) any relative or spouse
of such Person, or any relative of such spouse, who has the same principal
residence as such Person.


(c)           “Effective
Date” means the closing date of the initial public offering of Holdings.


 















 


(d)           “force majeure”
means any one or more of: (a) an act of God, (b) a strike, lockout, labor
difficulty or other industrial disturbance, (c) an act of a public enemy, war,
blockade, insurrection or public riot, (d) lightning, fire, storm, flood or
explosion, (e) governmental action, delay, restraint or inaction, (f) judicial
order or injunction, (g) material shortage or unavailability of equipment, or
(h) any other cause or event, whether of the kind specifically enumerated above
or otherwise, which is not reasonably within the control of the party claiming
suspension..


(e)           “Group” means
a Person that with or through any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting (except voting pursuant to a revocable proxy or consent given to such
Person in response to a proxy or consent solicitation made to ten or more
Persons), exercising investment power or disposing of any membership interests
in Holdings with any other Person that beneficially owns, or whose Affiliates
or Associates beneficially own, directly or indirectly, membership interests in
Holdings.


(f)            “Person”
 means an
individual or a corporation, limited liability company, partnership, joint venture,
trust, unincorporated organization or other enterprise (including an employee
benefit plan), association, government agency or political subdivision thereof
or other entity.


(g)           “Valero Energy Affiliates”
shall mean any and all Affiliates of Valero Energy Corporation.


ARTICLE II

PROVISION OF SERVICES


Section 2.1                Provision
of Administrative Services by Valero GP.


(a)           Administrative
Services.  Valero GP or any Affiliate
or designee of Valero GP shall provide to Holdings non-exclusive executive
management, accounting, legal, cash management, corporate finance and other
administrative services, and such other services as Valero GP and Holdings may
from time to time agree (the “Administrative Services”).


(b)           Additional
Services.  Valero GP or any Affiliate
or designee of Valero GP shall provide Holdings with such other services as Holdings
may request from time to time during the term of this Agreement and for such
additional compensation as the parties may agree.


(c)           Direct Charges.  Notwithstanding Section 1.1 (a) above, the
following items will be directly charged to Holdings (“Direct Charges”):


all third party expenses directly related to Holdings,
including, but not limited to, public company costs, outside legal fees,
outside accounting fees, fees and expenses of directors, external advisors and
consultants, and insurance costs, including but not limited to, directors and
officers.



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(d)           Nature
and Quality of Services.  The quality
of the Administrative Services shall be substantially identical to those provided
to subsidiaries and Affiliates of Valero GP.


Section 2.2            Fees for Administrative
Services.


(a)           Commencing
on the Effective Date of this Agreement, and for each contract year thereafter,
Holdings shall pay to Valero GP an annual fee (the “Administrative Services
Fee”).  The Administrative Services
Fee shall be $500,000 per year, subject to adjustment as provided in Section
2.2(b).


(b)           On
the last day of each contract year starting with the contract year ending December
31, 2006, and prior to the beginning of the next contract year, the
Administrative Services Fee shall be increased by an amount equal to Valero GP’s
general annual merit increase percentage for the just completed contract year.


(c)           Valero
GP, with the approval and consent of the Conflicts Committee, may agree to
further modifications in the Administrative Services Fee in connection with changed
levels of Administrative Services provided to Holdings due to modifications of Holdings’
operations through acquisitions or otherwise.


(d)           The
parties hereto acknowledge that the Administrative Services Fee is intended to
reflect Valero GP’s actual costs to provide the Administrative Services.  At the end of each contract year, the scope
of the Administrative Services and the related Administrative Services Fee are
subject to review either at the request of Valero GP or Holdings, in either
case by providing 10 days written notice to the other party but in no event
later than 60 days before the end of the applicable contract year, with such
review to be completed no later than March 31 of the immediately following contract
year, with any modification of the Administrative Services Fee, other than as
provided in Sections 2.2 (b) and 2.4, subject to the consent and approval of
the Conflicts Committee.


(e)           Any
fees payable hereunder for periods less than a full contract year shall be
prorated for the period for which services were provided based on the actual
number of days elapsed and a year of 365 days.


Section 2.3                Payment
of Fees.


(a)           The fees to be paid
pursuant to this Agreement shall be paid by Holdings in equal monthly
installments in arrears within 30 days of the end of the month.


(b)           To the extent
reasonably practicable, all third party invoices for Direct Charges shall be
submitted to Holdings for payment.  For
Direct Charges not paid directly by Holdings, if any, Valero GP shall present Holdings
with an invoice within 10 days after the end of each calendar month that
reflects an amount equal to all Direct Charges reimbursable to Valero GP.  Holdings shall pay such sum within 30 days of
the end of the applicable calendar month.


Section 2.4            Cancellation or Reduction of
Services.   Holdings may terminate or reduce the
level of any Administrative Service on 60 days’ prior written notice to Valero
GP.  Upon such termination or reduction,
the Administrative Services Fee shall be reduced 



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accordingly, whether on a temporary or a permanent
basis, for such time as such service is reduced or terminated.


Section 2.5            Term.   The provisions of this Article II will
apply until this Agreement is terminated or amended in accordance with Section
3.1 or Section 3.12, respectively.


ARTICLE III

MISCELLANEOUS


Section 3.1            Termination/Change of Control.


(a)           This
Agreement shall terminate on December 31, 2011 (the “Initial Term”);
provided that this Agreement shall automatically continue for successive two-year
terms after the Initial Term unless or until six months’ advance notice is
given by Valero GP to terminate this Agreement, in which case this Agreement
shall terminate six months after such notice is delivered.  Notwithstanding the foregoing, Holdings (i)
may terminate the provision of one or more Administrative Services or reduce
the level of one or more Administrative Services, in each case in accordance with
the provisions of Section 2.4 hereof and (ii) shall have the right at any time
to terminate this Agreement by giving written notice to Valero GP, and in such
event this Agreement shall terminate six months from the date on which such
notice is given.


(b)           Notwithstanding
Section 3.1(a), if a Change of Control of Holdings or Valero GP occurs, this
Agreement shall terminate.  The following
shall constitute a Change of Control:


(i)            Holdings shall cease to own,
directly or indirectly, 100% of each of Valero GP and Riverwalk Logistics, L.P.,
a Delaware limited partnership (“Riverwalk”);


(ii)           both (A) the Valero Energy Affiliates
shall be in the aggregate the legal or beneficial owners (within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of less than
a majority of the combined voting power of the then total membership interests
(including all securities which are convertible into membership interests) of Holdings,
and (B) any Person or Group of Persons acting in concert as a partnership or
other Group (a “Group of Persons”), other than one or more of the Valero
Energy Affiliates, shall be the legal or beneficial owner (within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of more
than 20% of the combined voting power of the then total membership interests
(including all securities which are convertible into membership interests) of
Holdings, provided, that a “Group of Persons” shall not include the underwriter
in any firm underwriting undertaken in connection with the initial public
offering or any subsequent public offering of Holdings; or


(iii)          occupation of a majority of the seats
(other than vacant seats) on the Board of Directors (or Board of Managers) of
Holdings by Persons who were neither (A) nominated by the board of directors of
Holdings nor (B) appointed by directors, a majority of whom were so nominated.



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Section 3.2                No Third Party Beneficiary.  The provisions of this
Agreement are enforceable solely by the parties to the Agreement and no limited
partner, assignee, member or other person shall have the right, separate and
apart from the parties hereto, to enforce any provisions of this Agreement or
to compel an party to this Agreement to comply with the terms of this
Agreement.


Section 3.3                No
Fiduciary Duties.  Neither party hereto shall have any fiduciary
obligations or duties to the other party by reason of this Agreement.  Subject to the (i) Omnibus Agreement among
Valero Energy Corporation (as successor to Ultramar Diamond Shamrock
Corporation), Valero GP, Riverwalk, Valero L.P. and Valero Logistics
Operations, L.P., dated as of April 16, 2001, as such agreement may be amended
from time to time, and (ii) Non-Compete Agreement among Holdings, Valero GP,
Riverwalk and Valero L.P., dated as of [                   ],
2006, as such agreement may be amended from time to time, any party hereto may
conduct any activity or business for its own profit whether or not such
activity or business is in competition with any activity or business of the
other party.


Section 3.4                Limited
Warranty; Limitation of Liability


Valero GP
represents that it will provide or cause the services to be provided to Holdings
with reasonable care and in accordance with all applicable laws, rules, and
regulations, including without limitation those of the Federal Energy
Regulatory Commission.  EXCEPT AS SET
FORTH IN THE IMMEDIATELY PRECEDING SENTENCE AND IN SECTION 2.1 (d), ALL
PRODUCTS OBTAINED FOR HOLDINGS ARE AS IS, WHERE IS, WITH ALL FAULTS AND VALERO
GP MAKES NO (AND HEREBY DISCLAIMS AND NEGATES ANY AND ALL) REPRESENTATIONS AND
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE SERVICES RENDERED OR
PRODUCTS OBTAINED FOR HOLDINGS. 
FURTHERMORE, HOLDINGS MAY NOT RELY UPON ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE MADE TO VALERO GP BY ANY PARTY (INCLUDING, AN AFFILIATE OR
DESIGNEE OF VALERO GP) PERFORMING SERVICES ON BEHALF OF VALERO GP HEREUNDER,
UNLESS SUCH PARTY MAKES AN EXPRESS WARRANTY TO HOLDINGS.  HOWEVER, IN THE CASE OF SERVICES PROVIDED BY
A THIRD PARTY FOR HOLDINGS, IF THE THIRD PARTY PROVIDER OF SUCH SERVICES MAKES
AN EXPRESS WARRANTY TO HOLDINGS, HOLDINGS IS ENTITLED TO CAUSE VALERO GP TO
RELY ON AND TO ENFORCE SUCH WARRANTY.


IT IS EXPRESSLY UNDERSTOOD BY HOLDINGS THAT VALERO GP AND
ITS AFFILIATES AND DESIGNEES SHALL HAVE NO LIABILITY FOR THE FAILURE OF THIRD
PARTY PROVIDERS TO PERFORM ANY SERVICES HEREUNDER AND FURTHER THAT VALERO GP
AND ITS AFFILIATES AND DESIGNEES SHALL HAVE NO LIABILITY WHATSOEVER FOR THE
SERVICES PROVIDED BY ANY SUCH THIRD PARTY UNLESS IN EITHER EVENT SUCH SERVICES
ARE PROVIDED IN A MANNER WHICH WOULD EVIDENCE GROSS NEGLIGENCE OR INTENTIONAL
MISCONDUCT ON THE PART OF VALERO GP OR ITS AFFILIATES OR DESIGNEES BUT VALERO
GP SHALL, ON BEHALF OF HOLDINGS, PURSUE ALL RIGHTS AND REMEDIES UNDER



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ANY SUCH THIRD PARTY CONTRACT.  HOLDINGS AGREES THAT THE REMUNERATION PAID TO
ALERO GP HEREUNDER FOR THE SERVICES TO BE PERFORMED REFLECT THIS LIMITATION OF
LIABILITY AND DISCLAIMER OF WARRANTIES. 
IN NO EVENT SHALL VALERO GP BE LIABLE TO HOLDINGS OR ANY OTHER PERSON
FOR ANY INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES RESULTING FROM ANY ERROR IN
THE PERFORMANCE OF SERVICES OR FROM THE BREACH OF THIS AGREEMENT, REGARDLESS OF
THE FAULT OF VALERO GP, ANY VALERO GP AFFILIATE OR DESIGNEE, OR ANY THIRD PARTY
PROVIDER OR WHETHER VALERO GP, ANY VALERO GP AFFILIATE OR DESIGNEE, OR THE
THIRD PARTY PROVIDER ARE WHOLLY, CONCURRENTLY, PARTIALLY, OR SOLELY
NEGLIGENT.  TO THE EXTENT ANY THIRD PARTY
PROVIDER HAS LIMITED ITS LIABILITY TO VALERO GP OR ITS AFFILIATE OR DESIGNEE FOR
SERVICES UNDER AN OUTSOURCING OR OTHER AGREEMENT, HOLDINGS AGREES TO BE BOUND
BY SUCH LIMITATION OF LIABILITY FOR ANY PRODUCT OR SERVICE PROVIDED TO HOLDINGS
BY SUCH THIRD PARTY PROVIDER UNDER VALERO GP’S OR SUCH AFFILIATE’S OR DESIGNEE’S
AGREEMENT.


Section 3.5                Force
Majeure.  If either party to this Agreement is rendered
unable by force majeure to carry out its obligations under this Agreement,
other than a party’s obligation to make payments as provided for herein, that
party shall give the other party prompt written notice of the force majeure
with reasonably full particulars concerning it. 
Thereupon, the obligations of the party giving the notice, insofar as
they are affected by the force majeure, shall be suspended during, but no
longer than the continuance of, the force majeure.  The affected party shall use all reasonable
diligence to remove or remedy the force majeure situation as quickly as
practicable.


The requirement that any force majeure situation be
removed or remedied with all reasonable diligence shall not require the
settlement of strikes, lockouts or other labor difficulty by the party
involved, contrary to its wishes. Rather, all such difficulties may be handled
entirely within the discretion of the party concerned.


Section 3.6                Further
Assurances.  In connection with this Agreement and all
transactions contemplated by this Agreement, each signatory party hereto agrees
to execute and deliver such additional documents and instruments as may be
required for a party to provide the services hereunder and to perform such
other additional acts as may be necessary or appropriate to effectuate, carry
out, and perform all of the terms and provisions of this Agreement.


Section 3.7                Notices.  Any
notice, request, demand, direction or other communication required or permitted
to be given or made under this Agreement to a party shall be in writing and may
be given by hand delivery, postage prepaid first-class mail delivery, delivery
by a reputable international courier service guaranteeing next business day
delivery or by facsimile (if confirmed by one of the foregoing methods) to such
party at its address noted below:


(a)                                  in
the case of Valero GP, to:


Valero GP, LLC



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One Valero Way

San Antonio, Texas 78249

Attention:  Legal Department


Telecopy: (210) 345-4861


(b)                                 in
the case of Holdings, to:


Valero GP Holdings, LLC

One Valero Way

San Antonio, Texas 78249

Attention: Legal Department

Telecopy: (210) 345-xxxx


or at such other address of which notice may have been
given by such party in accordance with the provisions of this Section.


Section 3.8            Counterparts.  This Agreement may be executed in several
counterparts, no one of which needs to be executed by all of the parties.  Such counterpart, including a facsimile
transmission of this Agreement, shall be deemed to be an original and shall
have the same force and effect as an original. 
All counterparts together shall constitute but one and the same
instrument.


Section 3.9            Applicable
Law.  he provisions of
this Agreement shall be construed in accordance with the laws of the State of
Texas, excluding any conflicts of law rule or principle that might refer the construction
or interpretation hereof to the laws of another jurisdiction.


Section 3.10         Binding
Effect; Assignment.  Except
for the ability of Valero GP to cause one or more of the Administrative
Services to be performed by a third party provider or an Affiliate of Valero GP,
no party shall have the right to assign its rights or obligations under this
Agreement (by operation of law or otherwise) without the consent of the other
parties.


Section 3.11         Invalidity
of Provisions.  In the
event that one or more of the provisions contained in this Agreement shall be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality or enforceability of the remaining provisions hereof shall
not be affected or impaired thereby.


Section 3.12         Modification;
Amendment.  This
Agreement may be amended or modified from time to time only by a written
amendment signed by both parties hereto; provided however, that Valero GP may
not, without the prior approval of the Conflicts Committee, agree to any
amendment or modification to this Agreement that, in the reasonable discretion
of Valero GP, will adversely affect the holders of common units of the
Partnership.


Section 3.13         Entire
Agreement.  This
Agreement constitutes the whole and entire agreement between the parties hereto
and supersedes any prior agreement, undertaking, declarations, commitments or
representations, verbal or oral, in respect of the subject matter hereof.



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IN WITNESS WHEREOF, the parties hereto have executed
this Agreement with effect as of the date first above written.


	
   

  	
  VALERO
  GP, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Curtis V. Anastasio

  
	
   

  	
  Name:

  	
  Curtis V. Anastasio

  
	
   

  	
  Title:

  	
  President and Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  VALERO
  GP HOLDINGS, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Steven A. Blank 

  
	
   

  	
  Name:

  	
  Steven A. Blank

  
	
   

  	
  Title:

  	
  Senior Vice President,
  Chief Financial Officer and Treasurer