Document:

Exhibit 10.06

CHANGE OF CONTROL 

SEVERANCE AGREEMENT

AGREEMENT,
dated as of the 6th day of November, 2006 (this
“Agreement”), by and among Valero L.P., a
Delaware limited partnership (the “Partnership”), Valero GP, LLC,
a Delaware limited liability company (the “Employer”), and [___] (the
“Executive”).

WHEREAS, each of the
Board of Directors of the Employer
(the “Board”) and the Board of
Directors of Valero GP Holdings, LLC (the “VEH Board”), has determined
that it is in the best interests of the Partnership
and its unitholders to assure that
the Partnership will have the
continued dedication of the Executive, notwithstanding the possibility, threat
or occurrence of a Change of Control (as defined herein).  Each of the Board and the VEH Board believes
it is imperative to diminish the inevitable distraction of the Executive by
virtue of the personal uncertainties and risks created by a pending or
threatened Change of Control and to encourage the Executive’s full attention
and dedication to the current Company,
the Partnership and the Affiliated Companies
in the event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
that ensure that the compensation and benefits expectations of the Executive
will be satisfied and that provide the Executive with compensation and benefits
arrangements that are competitive with those of other companies.  Therefore, in order to accomplish these objectives,
each of the Board and the VEH Board has caused the Partnership and the Employer to enter into this Agreement.

NOW, THEREFORE, IT IS
HEREBY AGREED AS FOLLOWS:

Section
1.              Certain Definitions.  (a) “Effective Date” means the first date
during the Change of Control Period (as defined herein) on which a Change of
Control occurs.  Notwithstanding anything
in this Agreement to the contrary, if a Change of Control occurs and if the
Executive’s employment with the Partnership
or the Employer (as applicable) is terminated prior to the date on which the
Change of Control occurs, and if it is reasonably demonstrated by the Executive
that such termination of employment (1) was at the request of a third party
that has taken steps reasonably calculated to effect a Change of Control or (2)
otherwise arose in connection with or in anticipation of a Change of Control,
then “Effective Date” means the date immediately prior to the date of such
termination of employment.

(b)           “Change
of Control Period” means the period commencing on the date hereof and ending on
the third anniversary of the date hereof; provided,
however, that, commencing on the
date one year after the date hereof, and on each annual anniversary of such
date (such date and each annual anniversary thereof, the “Renewal Date”),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless, at least 60 days prior to the Renewal Date, the Partnership shall give notice to the
Executive that the Change of Control Period shall not be so extended.

 

(c)           “Affiliated
Company”
means any company controlled by, controlling or under common control with (1)
the Partnership or the Employer
or (2) where such term is used with respect to another entity, such entity.

(d)           “Change of Control”
means, and shall be deemed to have occurred upon, the first to occur of one or
more of the following events after the date hereof:

(i)             a “person” or “group” (within the meaning of
Sections 13(d) or 14(d)(2) of the Securities Exchange Act of 1934 (the
“Exchange Act”)) (a “Person”), other than any Affiliated Company  becomes the “beneficial owner” (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act) of more than 40% of all voting
interests of Valero GP Holdings, LLC, a Delaware limited liability company,
then outstanding;

(ii)           the failure of Valero GP Holdings, LLC to “control” (as
such term is defined in Rule 405 promulgated under the Securities Act of 1933)
the Employer, Riverwalk Logistics, L.P. or all of the general partner interests
in the Partnership;

(iii)          Riverwalk Logistics, L.P. ceases to be the general partner
of the Partnership or Riverwalk Logistics, L.P. ceases to be controlled by
either the Employer or one of the Affiliated Companies of the Employer (other
than Valero Energy Corporation (“VLO”) or a direct or indirect wholly owned
subsidiary of VLO as the result of the sale by one or more of the foregoing of
limited liability company interests in Valero GP Holdings LLC);

(iv)          a Person other than any Affiliated Company becomes the
“beneficial owner” of more than 50% of all voting interests of the Partnership
then outstanding;

(v)           the consolidation or merger of Valero GP Holdings, LLC
with or into another Person pursuant to a transaction in which the outstanding
voting interests of Valero GP Holdings, LLC are changed into or exchanged for
cash, securities or other property, other than any such transaction where:

(a)           all outstanding voting interests of Valero GP Holdings,
LLC are changed into or exchanged for voting stock or interests of the
surviving corporation or entity or its parent, and

(b)           the holders of the voting interests of Valero GP Holdings,
LLC immediately prior to such transaction own, directly or indirectly, not less
than a majority of the voting stock or interests of the surviving corporation
or entity or its parent immediately after such transaction;

(vi)          the consolidation or merger of the Partnership with or into
another Person pursuant to a transaction in which the outstanding voting
interests of the Partnership are changed into or exchanged for cash, securities
or other property, other than any such transaction where Valero GP Holdings,
LLC or any of its Affiliated Companies retains “control” (as defined in Rule
405 promulgated under the Securities Act of 1933), whether by way of holding
the general partner interest, managing member interest or a majority of the
outstanding voting interests of the surviving entity or its parent;

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(vii)         the sale, lease, exchange, disposition or other transfer (in
one or a series of related transactions) of all or substantially all of the
assets of Valero GP Holdings, LLC to any Person other than one or more
Affiliated Companies of Valero GP Holdings, LLC;

(viii)        the sale, lease, exchange, disposition or
other transfer (in one or a series of related transactions) by the Partnership
of all or substantially all of the assets of the Partnership to any Person
other than one or more of the Affiliated Companies of the Partnership; or

(ix)           a change in the composition of the VEH Board, as a result
of which fewer than a majority of the directors of the VEH Board are Incumbent
Directors. “Incumbent Directors”
shall mean directors who either (A) are directors of Valero GP Holdings,
LLC as of the date hereof, (B) are elected after the date hereof to the VEH
Board by the Incumbent Directors, or (C) are elected, or nominated for
election, thereafter to the VEH Board with the affirmative votes of at least a
majority of Incumbent Directors at the time of such election or nomination, but
“Incumbent Director” shall not include an individual whose election or
nomination is in connection with (i) an actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the VEH Board or
(ii) a plan or agreement to replace a majority of the then Incumbent
Directors (other than any such plan or agreement approved by a majority of the
then Incumbent Directors).

Section
2.              Employment Period.
 The
Partnership or the Employer (as
applicable) hereby agrees to continue the Executive in its employ, subject to
the terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the third anniversary of the Effective Date (the
“Employment Period”).  The Employment
Period shall terminate upon the Executive’s termination of employment for any
reason.

Section
3.              Terms of Employment.  (a)  Position and Duties.  (1) 
During the Employment Period, (A) the Executive’s position (including
status, offices, titles and reporting requirements), authority, duties and responsibilities
shall be at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time during the
120-day period immediately preceding the Effective Date and (B) the Executive’s
services shall be performed at the office where the Executive was employed
immediately preceding the Effective Date or at any other location less than 35
miles from such office.

(2)           During
the Employment Period, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote reasonable
attention and time during normal business hours to the business and affairs of
the Partnership,
the Employer and/or the Affiliated Companies (as applicable) and, to the extent
necessary to discharge the responsibilities assigned to the Executive
hereunder, to use the Executive’s reasonable best efforts to perform faithfully
and efficiently such responsibilities. 
During the Employment Period, it shall not be a violation of this
Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive’s responsibilities as an employee of the Partnership or the Employer
in accordance with this Agreement.  It is
expressly understood and agreed that, to the extent that any such activities
have been conducted by the Executive prior to the Effective Date, the 

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continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive’s
responsibilities to the Partnership, the Employer or the Affiliated Companies (as
applicable).

(b)           Compensation.  (1)  Base Salary.  During the Employment Period, the
Executive shall receive an annual base salary (the “Annual Base Salary”) at an
annual rate at least equal to 12 times the highest monthly base salary paid or
payable, including any base salary that has been earned but deferred, to the
Executive by the Partnership,
the Employer  and/or the Affiliated
Companies (as applicable) in respect of the 12-month period immediately
preceding the month in which the Effective Date occurs.  The Annual Base Salary shall be paid at such
intervals as the Employer pays executive salaries generally.  During the Employment Period, the Annual Base
Salary shall be reviewed at least annually, beginning no more than 12 months
after the last salary increase awarded to the Executive prior to the Effective
Date.  Any increase in the Annual Base
Salary shall not serve to limit or reduce any other obligation to the Executive
under this Agreement.  The Annual Base
Salary shall not be reduced after any such increase and the term “Annual Base
Salary” shall refer to the Annual Base Salary as so increased.

(2)           Annual Bonus.  In addition to the Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the
Executive’s highest bonus earned under the Partnership’s and/or the Employer’s
annual incentive bonus plans (as applicable), or any comparable bonus under any
predecessor or successor plan or plans, for the last three full fiscal years
prior to the Effective Date (or for such lesser number of full fiscal years
prior to the Effective Date for which the Executive was eligible to earn such a
bonus, and annualized in the case of any pro rata bonus earned for a partial
fiscal year) (the “Recent Annual Bonus”). 
(If the Executive has not been eligible to earn such a bonus for any
period prior to the Effective Date, the “Recent Annual Bonus” shall mean the
Executive’s target annual bonus for the year in which the Effective Date
occurs.)  Each such Annual Bonus shall be
paid no later than two and a half months after the end of the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer
the receipt of such Annual Bonus pursuant to an arrangement that meets the
requirements of Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”).

(3)           Incentive, Savings and Retirement Plans.  During the Employment Period, the
Executive shall be entitled to participate in all cash incentive, equity
incentive, savings and retirement plans, practices, policies, and programs
applicable generally to other peer executives of the Partnership, the Employer and the
Affiliated Companies, but in no event shall such plans, practices, policies and
programs provide the Executive with incentive opportunities (measured with
respect to both regular and special incentive opportunities, to the extent, if
any, that such distinction is applicable), savings opportunities and retirement
benefit opportunities, in each case, less favorable, in the aggregate, than the
most favorable of those provided by the Partnership,
the Employer and the Affiliated Companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, those 

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provided generally at any time after the Effective Date to other peer
executives of the Partnership,
the Employer and the Affiliated Companies.

(4)           Welfare Benefit Plans.  During the Employment Period, the
Executive and/or the Executive’s family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by the Partnership, the Employer and the
Affiliated Companies (including, without limitation, medical, prescription,
dental, vision, disability, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Partnership,
the Employer and the Affiliated Companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits that are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable
to the Executive, those provided generally at any time after the Effective Date
to other peer executives of the Partnership,
the Employer and the Affiliated Companies.

(5)           Expenses. 
During the Employment Period, the Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the most favorable policies, practices and
procedures of the Partnership,
the Employer and the Affiliated Companies in effect for the Executive at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Partnership, the Employer and the Affiliated Companies.

(6)           Fringe Benefits.  During the Employment Period, the
Executive shall be entitled to fringe benefits, in accordance with the most
favorable plans, practices, programs and policies of the Partnership,  the Employer and the Affiliated Companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives
of the Partnership, the Employer
and the Affiliated Companies.

(7)           Office and Support Staff.  During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other assistance, at
least equal to the most favorable of the foregoing provided to the Executive by
the Partnership,
the Employer and the Affiliated Companies at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with respect to other
peer executives of the Partnership,
the Employer and the Affiliated Companies.

(8)           Vacation. 
During the Employment Period, the Executive shall be entitled to
paid vacation in accordance with the most favorable plans, policies, programs
and practices of the Partnership,
the Employer and the Affiliated Companies as in effect for the Executive at any
time during the 120-day period immediately preceding the Effective Date or, 

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if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Partnership, the Employer and the
Affiliated Companies.

(9)           Immediate Vesting of Outstanding Equity Incentive
Awards. Notwithstanding any provision in the Company’s and the Employer’s equity
incentive plans or the award agreements thereunder, effective immediately upon
the occurrence of a Change of Control, (A) all unit options (incentive or
non-qualified) outstanding as of the date of such Change of Control, which are
not then exercisable and vested, shall become fully exercisable and vested to
the full extent of the original grant and, following the Executive’s
termination of employment for any reason, shall remain exercisable for the
longer of (x) the post-termination exercise period provided under the
applicable award agreement with respect to the applicable circumstances of the
Executive’s termination and (y) the period ending on the date no later than (1)
the 15th day of the third month following the date the exercise period
otherwise would have expired and (2) December 31 of the calendar year in which
the exercise period otherwise would have expired (provided,
that the period in clause (y) shall be automatically extended to the maximum
extent permitted under Section 409A of the Code without being considered to be
an “extension” within the meaning of the regulations under Section 409A of the
Code, but in no event shall it be extended by this Agreement beyond two years
from the Date of Termination); provided, however,
that in no event shall a unit option be exercisable beyond the expiration date
of its full original option term; (B) all restrictions applicable to any
restricted unit awards outstanding as of the date of such Change of Control
shall lapse, and such restricted unit awards shall become free of all
restrictions and become fully vested and transferable to the full extent of the
original grant; and (C) all restricted unit awards and performance unit awards
for any outstanding performance periods outstanding as of the date of such
Change of Control shall fully vest and be earned and shall be settled and
payable in full (in the case of performance unit awards based on the deemed
achievement of performance at 200% of target level for the entire performance
period).  Notwithstanding the foregoing
provisions of clause (C), in the event the accelerated settlement or payment of
a restricted unit award or performance unit award pursuant to this Section
3(b)(9) would give rise to the additional tax imposed under Section 409A of the
Code, such restricted unit award and performance unit award shall vest and be
earned as provided in clause (C) (and shall not be subject to the forfeiture
under any circumstances), but shall not be settled until the originally
scheduled vesting date set forth in the applicable award agreement or such
earlier date or event as shall not result in the imposition of the tax imposed
under Section 409A of the Code.

Section
4.              Termination of Employment.  (a)  Death or Disability.  The Executive’s employment shall terminate
automatically if the Executive dies during the Employment Period.  If the Employer determines in good faith that
the Disability (as defined herein) of the Executive has occurred during the
Employment Period (pursuant to the definition of “Disability”), it may give to
the Executive written notice in accordance with Section 11(b) of its intention
to terminate the Executive’s employment. 
In such event, the Executive’s employment with the Partnership or the Employer (as
applicable) shall terminate effective on the 30th day after receipt of such
notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after
such receipt, the Executive shall not have returned to full-time performance of
the Executive’s duties.  “Disability”
means the 

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absence of the Executive
from the Executive’s duties with the Partnership or the Employer (as applicable) on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness that is determined to be total and permanent by a physician
selected by the Partnership or
the Employer (as applicable) or its respective insurers and acceptable to the
Executive or the Executive’s legal representative.

(b)           Cause. 
The Partnership
or the Employer (as applicable) may terminate the Executive’s employment during
the Employment Period with or without Cause. 
“Cause” means:

(1)           the willful and
continued failure of the Executive to perform substantially the Executive’s
duties (as contemplated by Section 3(a)(1)(A)) with the Partnership, the Employer or any
Affiliated Company (other than
any such failure resulting from incapacity due to physical or mental illness or
following the Executive’s delivery of a Notice of Termination for Good Reason),
after a written demand for substantial performance is delivered to the
Executive by the Board, the VEH Board or the Chief Executive Officer of the
Employer that specifically
identifies the manner in which the Board, the VEH Board or the Chief Executive
Officer of the Employer believes that the Executive has not substantially
performed the Executive’s duties; or

(2)           the willful engaging
by the Executive in illegal conduct or gross misconduct that is materially and
demonstrably injurious to the Partnership, the Employer or any Affiliated Company.

For purposes of this
Section 4(b), no act, or failure to act, on the part of the Executive shall be
considered “willful” unless it is done, or omitted to be done, by the Executive
in bad faith or without reasonable belief that the Executive’s action or
omission was in the best interests of the Partnership, the Employer or the Affiliated Companies.  Any act, or failure to act, based upon
authority (A) given pursuant to a resolution duly adopted by the Board, the VEH
Board, or if Valero GP Holdings, LLC is not the ultimate parent corporation of
the Affiliated Companies and is not publicly traded, the board of directors of
the ultimate parent of the Partnership
(the “Applicable Board”), (B) upon the instructions of the Chief Executive
Officer of the Employer or a senior officer of the Employer or (C) based upon
the advice of counsel for the Partnership
or the Employer shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Partnership, the Employer or the Affiliated
Companies.  The cessation of
employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Applicable Board (excluding the Executive, if the
Executive is a member of the Applicable Board) at a meeting of the Applicable
Board called and held for such purpose (after reasonable notice is provided to
the Executive and the Executive is given an opportunity, together with counsel
for the Executive, to be heard before the Applicable Board), finding that, in
the good faith opinion of the board, the Executive is guilty of the conduct
described in Section 4(b)(1) or 4(b)(2), and specifying the particulars thereof
in detail.

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(c)           Good Reason.  The Executive’s employment may be
terminated by the Executive for Good Reason or by the Executive voluntarily
without Good Reason.  “Good Reason”
means:

(1)           the assignment to
the Executive of any duties inconsistent in any respect with the Executive’s
position (including status, offices, titles and reporting requirements), authority,
duties or responsibilities as contemplated by Section 3(a), or any other
diminution in such position, authority, duties or responsibilities (whether or
not occurring solely as a result of either Valero GP Holdings, LLC or the Partnership ceasing to be a publicly
traded entity), excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and that is remedied by the Partnership or the Employer (as
applicable) promptly after receipt of notice thereof given by the Executive;

(2)           any failure by the Partnership or the Employer (as
applicable) to comply with any of the provisions of Section 3(b), other than an
isolated, insubstantial and inadvertent failure not occurring in bad faith and
that is remedied by the Partnership
or the Employer (as applicable) promptly after receipt of notice thereof given
by the Executive;

(3)           the Partnership, the Employer or an
Affiliated Company (as applicable) requiring the Executive (i) to be based at
any office or location other than as provided in Section 3(a)(1)(B), (ii) to be
based at a location other than the principal executive offices of the Partnership if the Executive was
employed at such location immediately preceding the Effective Date, or (iii) to
travel on Partnership, the Employer
or an Affiliated Company’s business to a substantially greater extent than
required immediately prior to the Effective Date;

(4)           any purported
termination by the Partnership
or the Employer (as applicable) of the Executive’s employment otherwise than as
expressly permitted by this Agreement; or

(5)           any failure by the Partnership or the Employer to comply
with and satisfy Section 10(c).

For
purposes of this Section 4(c), any good faith determination of Good Reason made
by the Executive shall be conclusive. 
The Executive’s mental or physical incapacity following the occurrence
of an event described above in clauses (1) through (5) shall not affect the
Executive’s ability to terminate employment for Good Reason.

(d)           Notice of Termination.  Any termination by the Partnership or the Employer (as
applicable) for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 11(b).  “Notice
of Termination” means a written notice that (1) indicates the specific
termination provision in this Agreement relied upon, (2) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the 

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Executive’s employment under the provision so indicated, and (3) if the
Date of Termination (as defined herein) is other than the date of receipt of
such notice, specifies the Date of Termination (which Date of Termination shall
be not more than 30 days after the giving of such notice).  The failure by the Executive or the Partnership or the Employer (as
applicable) to set forth in the Notice of Termination any fact or circumstance
that contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Partnership
or the Employer, respectively, hereunder or preclude the Executive or the Partnership or the Employer
respectively, from asserting such fact or circumstance in enforcing the
Executive’s or the Partnership’s
or the Employer’s respective rights hereunder.

(e)           Date of Termination.  “Date of Termination” means (1) if the
Executive’s employment is terminated by the Partnership or the Employer (as
applicable) for Cause, or by the Executive for Good Reason, the date of receipt
of the Notice of Termination or any later date specified in the Notice of
Termination (which date shall not be more than 30 days after the giving of such
notice), as the case may be, (2) if the Executive’s employment is terminated by
the Partnership or the Employer
(as applicable) other than for Cause or Disability, the date on which the Partnership or the Employer (as
applicable) notifies the Executive of such termination, (3) if the Executive
resigns without Good Reason, the date on which the Executive notifies the Partnership or the Employer (as
applicable) of such termination, and (4) if the Executive’s employment is
terminated by reason of death or Disability, the date of death of the Executive
or the Disability Effective Date, as the case may be.

Section
5.              Obligations of the Partnership or the
Employer (as applicable) upon Termination. 
(a)  Good
Reason; Other Than for Cause, Death or Disability.  If, during the Employment Period, the Partnership or the Employer (as
applicable) terminates the Executive’s employment other than for Cause or
Disability or the Executive terminates employment for Good Reason:

(1)           the Partnership or the Employer (as
applicable) shall pay to the Executive, in a lump sum in cash within 30 days
after the Date of Termination, the aggregate of the following amounts:

(A)         the
sum of (i) the Executive’s Annual Base Salary through the Date of Termination
to the extent not theretofore paid, (ii) the product of (x) the higher of (I)
the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including
any bonus or portion thereof that has been earned but deferred (and annualized
for any fiscal year consisting of less than 12 full months or during which the
Executive was employed for less than 12 full months), for the most recently
completed fiscal year during the Employment Period, if any (such higher amount,
the “Highest Annual Bonus”) and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination and
the denominator of which is 365, and (iii) any accrued vacation pay, in each
case, to the extent not theretofore paid (the sum of the amounts described in
subclauses (i), (ii) and (iii), the “Accrued Obligations”);

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(B)           the amount equal to
the product of (i) two and (ii)
the sum of (x) the Executive’s Annual Base Salary and (y) the Highest Annual Bonus;

(C)           an amount equal to
the excess of (i) the actuarial equivalent of the benefit under the Partnership’s, the Employer’s and/or
any Affiliated Company’s qualified defined benefit retirement plan (the “Retirement
Plan”) (utilizing actuarial assumptions no less favorable to the Executive than
those in effect under the Retirement Plan immediately prior to the Effective
Date) and any excess or supplemental retirement plan in which the Executive participates
(collectively, the “SERP”) that the Executive would receive if the Executive’s
employment continued for two years
after the Date of Termination, assuming for this purpose that (x) the
Executive’s age and service credit are increased by the number of years that
the Executive is deemed to be so employed and, (y) all accrued benefits are
fully vested and (z) the Executive’s compensation in each of the two years is
that required by Sections 3(b)(1) and 3(b)(2) payable in equal monthly
installments over such two years,
over (ii) the actuarial equivalent of the Executive’s actual benefit (paid or
payable), if any, under the Retirement Plan and the SERP as of the Date of Termination;
and

(D)          an amount equal to
the sum of the Partnership,
the Employer or an Affiliated Company’s (as applicable) matching or other Partnership, the Employer or an
Affiliated Company’s (as applicable) contributions under the Partnership’s, the Employer’s or an
Affiliated Company’s (as applicable) qualified defined contribution plans and
any excess or supplemental defined contribution plans in which the Executive
participates that the Executive would receive if the Executive’s employment continued
for two years after the Date of
Termination, assuming for this purpose that (x) the Executive’s benefits under
such plans are fully vested, (y) the Executive’s compensation in each of the
two years is that required by
Sections 3(b)(1) and 3(b)(2) and (z) to the extent that the Partnership and/or the Employer (as
applicable) contributions are determined based on the contributions or
deferrals of the Executive, that the Executive’s contribution or deferral
elections, as appropriate, are those in effect immediately prior the Date of
Termination; and

(2)           for two years after the Executive’s Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, but, to the extent required in
order to comply with Section 409A of the Code, in no event beyond the end of
the second calendar year that begins after the Executive’s “separation from
service” within the meaning of Section 409A of the Code (the “Benefit
Continuation Period”), the Partnership and/or the Employer (as applicable) shall continue
benefits to the Executive and/or the Executive’s family at least equal to, and
at the same cost to the Executive and/or the Executive’s family, as those that
would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 3(b)(4) if the Executive’s
employment had not been terminated or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect to other peer
executives of the Partnership,
the Employer and

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the Affiliated
Companies and their families, provided, however, that, if the Executive becomes reemployed with
another employer and is eligible to receive such benefits under another
employer provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such applicable period of
eligibility.  The Executive’s entitlement
to COBRA continuation coverage under Section 4980B of the Code (“COBRA
Coverage”) shall not be offset by the provision of benefits under this Section
5(a)(2) and the period of COBRA Coverage shall commence at the end of the
Benefit Continuation Period.  For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have
remained employed (for purposes of both age and service credit) until the end
of the Benefit Continuation Period and to have retired on the last day of such
period; and

(3)           to the extent not
theretofore paid or provided, the Partnership or the Employer (as applicable) shall timely pay or
provide to the Executive any Other Benefits (as defined in Section 6).

Notwithstanding
the foregoing provisions of this Section 5(a), to the extent required in order
to comply with Section 409A of the Code, cash amounts that would otherwise be
payable under this Section 5(a) during the six-month period immediately
following the Date of Termination shall instead be paid, with interest on any
delayed payment at the applicable federal rate provided for in Section
7872(f)(2)(A) of the Code (“Interest”), on the first business day after the
date that is six months following the Executive’s “separation from service”
within the meaning of Section 409A of the Code.

(b)           Death. 
If the Executive’s employment is terminated by reason of the Executive’s
death during the Employment Period, the Partnership or the Employer (as
applicable) shall provide the Executive’s estate or beneficiaries with the
Accrued Obligations and the timely payment or delivery of the Other Benefits,
and shall have no other severance obligations under this Agreement.  The Accrued Obligations shall be paid to the
Executive’s estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination.  With
respect to the provision of the Other Benefits, the term “Other Benefits” as
utilized in this Section 5(b) shall include, without limitation, and the Executive’s
estate and/or beneficiaries shall be entitled to receive, benefits at least
equal to the most favorable benefits provided by the Partnership, the Employer and the Affiliated Companies to the estates
and beneficiaries of peer executives of the Partnership, the Employer and the Affiliated Companies under
such plans, programs, practices and policies relating to death benefits, if
any, as in effect with respect to other peer executives and their beneficiaries
at any time during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive’s estate and/or the Executive’s
beneficiaries, as in effect on the date of the Executive’s death with respect
to other peer executives of the Partnership,
the Employer and the Affiliated Companies and their beneficiaries.

(c)           Disability. 
If the Executive’s employment is terminated by reason of the
Executive’s Disability during the Employment Period, the Partnership or the Employer (as

 11
 

 

 

applicable) shall provide the Executive with the Accrued Obligations
and the timely payment or delivery of the Other Benefits, and shall have no
other severance obligations under this Agreement.  The Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination,
provided, that to the extent required in order to comply with Section 409A of
the Code, amounts and benefits to be paid or provided under this Section 5(c)
shall be paid, with Interest, or provided to the Executive on the first
business day after the date that is six months following the Executive’s
“separation from service” within the meaning of Section 409A of the Code.  With respect to the provision of the Other
Benefits, the term “Other Benefits” as utilized in this Section 5(c) shall
include, and the Executive shall be entitled after the Disability Effective
Date to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Partnership, the Employer and the
Affiliated Companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other peer executives and their
families at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive’s
family, as in effect at any time thereafter generally with respect to other
peer executives of the Partnership,
the Employer and the Affiliated Companies and their families.

(d)           Cause; Other Than for Good Reason.  If the Executive’s employment is
terminated for Cause during the Employment Period, the Partnership or the Employer (as
applicable) shall provide the Executive with the Executive’s Annual Base Salary
through the Date of Termination, and the timely payment or delivery of the
Other Benefits and shall have no other severance obligations under this Agreement.  If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination for Good
Reason, the Partnership or the
Employer (as applicable) shall provide to the Executive the Accrued Obligations
and the timely payment or delivery of the Other Benefits, and shall have no
other severance obligations under this Agreement.  In such case, all the Accrued Obligations
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination, provided, that to the extent required in order to comply with
Section 409A of the Code, amounts and benefits to be paid or provided under
this sentence of Section 5(d) shall be paid, with Interest, or provided to the
Executive on the first business day after the date that is six months following
the Executive’s “separation from service” within the meaning of Section 409A of
the Code.

Section
6.              Non-exclusivity of
Rights.  Nothing in
this Agreement shall prevent or limit the Executive’s continuing or future
participation in any plan, program, policy or practice provided by the Partnership, the Employer or the
Affiliated Companies and for which the Executive may qualify, nor, subject to
Section 11(f), shall anything herein limit or otherwise affect such rights as
the Executive may have under any other contract or agreement with the Partnership, the Employer or the Affiliated
Companies.  Amounts that are vested
benefits or that the Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any other contract or agreement with the Partnership, the Employer or the
Affiliated Companies at or subsequent to the Date of Termination (“Other
Benefits”) shall be payable in accordance with such plan, policy, practice or
program or contract or agreement, except as explicitly modified by this
Agreement.  Without limiting the
generality of the 

 12
 

 

 

foregoing, the
Executive’s resignation under this Agreement with or without Good Reason, shall
in no way affect the Executive’s ability to terminate employment by reason of
the Executive’s “retirement” under any compensation and benefits plans,
programs or arrangements of the Partnership, the Employer or the Affiliated
Companies in which the Executive participates, including without limitation any
retirement or pension plans or arrangements or to be eligible to receive
benefits under any compensation or benefit plans, programs or arrangements of
the Partnership, the Employer or the 
Affiliated Companies, including without limitation any retirement or
pension plan or arrangement of the Partnership, the Employer or the Affiliated
Companies or substitute plans adopted by the Partnership or the Employer or their
respective successors, and any termination which otherwise qualifies as Good
Reason shall be treated as such even if it is also a “retirement” for purposes
of any such plan.  Notwithstanding the
foregoing, if the Executive receives payments and benefits pursuant to Section
5(a) of this Agreement, the Executive shall not be entitled to any severance
pay or benefits under any severance plan, program or policy of the Partnership, the Employer and the
Affiliated Companies, unless otherwise specifically provided therein by a specific
reference to this Agreement.

Section
7.              Full Settlement.  The Partnership’s
and the Employer’s obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense, or other claim,
right or action that the Partnership
or the Employer may have against the Executive or others.  In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement,
and such amounts shall not be reduced whether or not the Executive obtains
other employment.  The Partnership and the Employer agree to
pay as incurred (within 10 days following the Partnership’s or the Employer’s 
receipt of an invoice from the Executive), to the full extent permitted
by law, all legal fees and expenses that the Executive may reasonably incur as
a result of any contest (regardless of the outcome thereof) by the Partnership, the Employer, the Executive
or others of the validity or enforceability of, or liability under, any
provision of this Agreement or any guarantee of performance thereof (including
as a result of any contest by the Executive about the amount of any payment
pursuant to this Agreement), plus, in each case, Interest.

 13
 

 

 

Section 8.              Certain Additional Payments by the Partnership or the
Employer.

(a)           Anything in this Agreement to the
contrary notwithstanding and except as set forth below, in the event it shall
be determined that any payment or distribution by the Partnership, the Employer or the
Affiliated Companies to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 8) (a “Payment”) would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred
by the Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, collectively the “Excise Tax”), then the
Executive shall be entitled to receive an additional payment (the “Gross-Up Payment”)
in an amount such that, after payment by the Executive of all taxes (and any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, but excluding
any income taxes and penalties imposed pursuant to Section 409A of the Code,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.  Notwithstanding
the foregoing provisions of this Section 8(a), if it shall be determined that
the Executive is entitled to the Gross-Up Payment, but that the Parachute Value
of all Payments does not exceed 110% of the Safe Harbor Amount, then no
Gross-Up Payment shall be made to the Executive and the amounts payable under
this Agreement shall be reduced so that the Parachute Value of all Payments, in
the aggregate, equals the Safe Harbor Amount. 
The reduction of the amounts payable hereunder, if applicable, shall be
made by first reducing the payments under Section 5(a)(i)(B), unless an alternative
method of reduction is elected by the Executive, and in any event shall be made
in such a manner as to maximize the Value of all Payments actually made to the
Executive.  For purposes of reducing the
Payments to the Safe Harbor Amount, only amounts payable under this Agreement
(and no other Payments) shall be reduced. 
If the reduction of the amount payable under this Agreement would not
result in a reduction of the Parachute Value of all Payments to the Safe Harbor
Amount, no amounts payable under the Agreement shall be reduced pursuant to
this Section 8(a).  The Partnership’s or the Employer’s (as
applicable) obligation to make Gross-Up Payments under this Section 8 shall not
be conditioned upon the Executive’s termination of employment.  For the purposes of this Section 8, (i) the
term “Parachute Value” of a Payment shall mean the present value as of the date
of the change of control for purposes of Section 280G of the Code of the
portion of such Payment that constitutes a “parachute payment” under Section
280G(b)(2), as determined by the Accounting Firm for purposes of determining
whether and to what extent the Excise Tax will apply to such Payment; (ii) the
“Safe Harbor Amount” means 2.99 times the Executive’s “base amount,” within the
meaning of Section 280G(b)(3) of the Code; and (iii) the “Value” of a Payment
shall mean the economic present value of a Payment as of the date of the change
of control for purposes of Section 280G of the Code, as determined by the
Accounting Firm using the discount rate required by Section 280G(d)(4) of the
Code.

(b)           Subject
to the provisions of Section 8(c), all determinations required to be made
under this Section 8, including whether and when a Gross-Up Payment is
required,

 14
 

 

 

the amount of such Gross-Up Payment and the assumptions to be utilized
in arriving at such determination, shall be made by Deloitte & Touche, LLP,
or such other nationally recognized certified public accounting firm as may be
designated by the Executive, subject to the Partnership’s approval which
will not be unreasonably withheld (the “Accounting Firm”).  The Accounting Firm shall provide detailed
supporting calculations both to the Partnership,
the Employer and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment or such earlier time as is requested
by the Partnership or the
Employer.  In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive, subject to the
Partnership’s approval which will not be unreasonably withheld, may appoint another nationally recognized
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder).  All fees and expenses of the Accounting Firm
shall be borne solely by the Partnership.  Any Gross-Up Payment, as determined pursuant
to this Section 8, shall be paid by the Partnership
or the Employer (as applicable) to the Executive within 5 days of the receipt
of the Accounting Firm’s determination. 
Any determination by the Accounting Firm shall be binding upon the Partnership, the Employer and the
Executive.  As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments that will not have been made by the Partnership or the Employer (as applicable) should have been
made (the “Underpayment”), consistent with the calculations required to be made
hereunder.  In the event the Partnership or the Employer (as
applicable) exhausts its remedies pursuant to Section 8(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Partnership or the Employer (as applicable) to or for the benefit
of the Executive.

(c)           The
Executive shall notify the Partnership in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Partnership or the Employer (as
applicable) of the Gross-Up Payment. 
Such notification shall be given as soon as practicable, but no later
than 10 business days after the Executive is informed in writing of such
claim.  The Executive shall apprise the Partnership of the nature of such
claim and the date on which such claim is requested to be paid.  The Executive shall not pay such claim prior
to the expiration of the 30-day period following the date on which the
Executive gives such notice to the Partnership
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due).  If the Partnership or the Employer notifies
the Executive in writing prior to the expiration of such period that the Partnership or the Employer desires to
contest such claim, the Executive shall:

(1)           give the Partnership and the Employer any
information reasonably requested by the Partnership
or the Employer relating to such claim,

(2)           take such action in
connection with contesting such claim as the Partnership or the Employer shall
reasonably request in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an attorney
reasonably selected by the Partnership
or the Employer,

 15
 

 

 

(3)           cooperate with the Partnership and the Employer in good
faith in order effectively to contest such claim, and

(4)           permit the Partnership and the Employer to
participate in any proceedings relating to such claim;

provided,
however, that the Partnership or the Employer shall bear
and pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest, and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties) imposed as a result of such
representation and payment of costs and expenses.  Without limitation on the foregoing
provisions of this Section 8(c), the Partnership
shall control all proceedings taken in connection with such contest, and, at
its sole discretion, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the applicable taxing authority in
respect of such claim and may, at its sole discretion, either pay the tax
claimed to the appropriate taxing authority on behalf of the Executive and
direct the Executive to sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Partnership shall determine; provided, however, that,
if the Partnership or the
Employer pays such claim and directs the Executive to sue for a refund, the Partnership and the Employer shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties) imposed with respect
to such payment or with respect to any imputed income in connection with such
payment; and provided, further,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.  Furthermore, the Partnership’s control of the contest shall be limited to issues
with respect to which the Gross-Up Payment would be payable hereunder, and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.

(d)           If,
after the receipt by the Executive of a Gross-Up Payment or payment by the Partnership or the Employer of an
amount on the Executive’s behalf pursuant to Section 8(c), the Executive
becomes entitled to receive any refund with respect to the Excise Tax to which
such Gross-Up Payment relates or with respect to such claim, the Executive
shall (subject to the Partnership’s
and the Employer’s complying with the requirements of Section 8(c), if
applicable) promptly pay to the Partnership
or the Employer (as applicable) the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto).  If, after payment by the Partnership or the Employer (as
applicable) of an amount on the Executive’s behalf pursuant to Section 8(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Partnership
or the Employer does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then the amount of such payment shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.

 16
 

 

 

(e)           Notwithstanding
any other provision of this Section 8, the Partnership or the Employer (as
applicable) may, in its sole discretion, withhold and pay over to the Internal
Revenue Service or any other applicable taxing authority, for the benefit of
the Executive, all or any portion of any Gross-Up Payment, and the Executive
hereby consents to such withholding.

(f)           
Notwithstanding anything contained herein to the contrary, no Gross Up Payment
shall be payable under this Section 8, if the Partnership furnishes to the
Executive an opinion of a nationally recognized accounting or law firm to the
effect that, as of immediately prior to the Effective Date, the Partnership
should not be treated a “corporation” within the meaning of the regulations
issued under Section 280G of the Code; provided, however, that the Executive
shall continue to have rights and the Partnership shall continue to have
obligations under this Section 8, including without limitation those under
Sections 8(b), (c) and (d).

Section 9.              Confidential
Information. 
The Executive shall hold in a fiduciary capacity for the benefit of the
Partnership and the Employer all secret or confidential information, knowledge
or data relating to the Partnership, the Employer or the Affiliated Companies,
and their respective businesses, which information, knowledge or data shall
have been obtained by the Executive during the Executive’s employment by the
Partnership or the Employer (as applicable) and which information, knowledge or
data shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this
Agreement).  After termination of the
Executive’s employment with the Employer, the Executive shall not, without the
prior written consent of the Partnership or the Employer (as applicable) or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Partnership or the
Employer and those persons designated by the Partnership or the Employer.  In no event shall an asserted violation of
the provisions of this Section 9 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this
Agreement.

Section 10.            Successors.  (a) 
This Agreement is personal to the Executive, and, without the prior
written consent of the Partnership or
the Employer, shall not be assignable by the Executive other than by
will or the laws of descent and distribution. 
This Agreement shall inure to the benefit of and be enforceable by the
Executive’s legal representatives.

(b)           This
Agreement shall inure to the benefit of and be binding upon the Partnership and its successors and
assigns and the Employer and its successors and assigns.  Except as provided in Section 10(c), without
the prior written consent of the Executive, this Agreement shall not be
assignable by the Partnership or
the Employer.

(c)           Each
of the Partnership
and the Employer will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Partnership
or the Employer (as applicable) to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Partnership or the Employer (as applicable)
would be required to

 17
 

 

 

perform it if no such succession had taken place.  “Partnership” means the Partnership
as hereinbefore defined and any successor to its business and/or assets as
aforesaid that assumes and agrees to perform this Agreement by operation of law
or otherwise.  “Employer” means the
Employer as hereinbefore defined and any successor to its business and/or
assets as aforesaid that assumes and agrees to perform this Agreement by
operation of law or otherwise.

Section
11.            Miscellaneous.  (a) 
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, without reference to principles of conflict of
laws.  The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended or modified
other than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.

(b)           All
notices and other communications hereunder shall be in writing and shall be
given by hand delivery to the other party or by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:

	
   

  	
  if to the Executive:

  	
   

  	
  At the most recent address

  
	
   

  	
   

  	
   

  	
  on file in the Employer’s records

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  if to the Partnership or the Employer:

  	
   

  	
  Valero L.P.

  
	
   

  	
   

  	
   

  	
  One Valero Way

  
	
   

  	
   

  	
   

  	
  San Antonio, Texas 78249

  
	
   

  	
   

  	
   

  	
  Attention: Corporate Secretary

  

 

or to such other
address as either party shall have furnished to the other in writing in accordance
herewith.  Notice and communications
shall be effective when actually received by the addressee.

(c)           The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement.

(d)           The
Partnership
or the Employer (as applicable) may withhold from any amounts payable under
this Agreement such United States federal, state or local or foreign taxes as
shall be required to be withheld pursuant to any applicable law or regulation.

(e)           The
Executive’s or the Partnership’s
or the Employer’s failure to insist upon strict compliance with any provision
of this Agreement or the failure to assert any right the Executive, the Partnership or the Employer may have
hereunder, including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Sections 4(c)(1) through 4(c)(5), shall
not be deemed to be a waiver of such provision or right or any other provision
or right of this Agreement.

(f)            The
Executive and the Partnership
and the Employer acknowledge that, except as may otherwise be provided under
any other written agreement between the Executive

 18
 

 

 

and the Partnership,
the Employer or the Executive, the employment of the Executive by the Partnership or the Employer (as
applicable) is “at will” and, subject to Section 1(a), prior to the Effective
Date, the Executive’s employment may be terminated by either the Executive or
the Partnership or the Employer
(as applicable) at any time prior to the Effective Date, in which case the
Executive shall have no further rights under this Agreement.  From and after the Effective Date, except as
specifically provided herein, this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof.

(g)           If any compensation or benefits provided by
this Agreement may result in the application of Section 409A of the Code, the
Partnership or the Employer shall, in consultation with the Executive, modify
the Agreement in the least restrictive manner necessary in order to exclude
such compensation from the definition of “deferred compensation” within the
meaning of such Section 409A or in order to comply with the provisions of
Section 409A, other applicable provision(s) of the Code and/or any rules,
regulations or other regulatory guidance issued under such statutory provisions
and without any diminution in the value of the payments to the Executive.

(h)           The
Partnership hereby guarantees the full payment and performance of all of the
Employer’s obligations under this Agreement and the Executive shall be entitled
to full recourse against the Partnership with respect to any obligations of the
Employer to the Executive hereunder.

 19
 

 

 

IN WITNESS WHEREOF, the Executive has hereunto set the
Executive’s hand and, pursuant to the authorization from the Board and the VEH
Board, the Partnership and
the Employer have caused these presents to be executed in its name on its
behalf, all as of the day and year first above written.

	
  

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  [Executive]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  VALERO
  L.P.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  Riverwalk Logistics,
  L.P., its general partner, by Valero GP, LLC, its general partner

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  VALERO GP, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  

 

 

 20Exhibit 10.1

 

This EMPLOYMENT AGREEMENT (this “Agreement”) is made
as of January 1, 2006 (the “Effective Date”), by and between SCIENTIFIC GAMES
CORPORATION, a Delaware corporation (the “Company”), and A. Lorne Weil (“Executive”).

W I T N E S S E T H :

WHEREAS, Executive has been employed pursuant to an
Amended and Restated Employment Agreement with the Company, dated as of
February 28, 2003 (the “Original Agreement”); and

WHEREAS, the Company and Executive desire that this
Agreement replace and supersede the Original Agreement;

NOW, THEREFORE, in
consideration of the premises and the mutual benefits to be derived herefrom
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:

1.             Termination
of Existing Employment Agreements.  As of
the Effective Date, all existing employment agreements between the parties,
whether oral or written, including the Original Agreement, are hereby
terminated and superseded.

2.             Employment;
Term.  The Company hereby agrees to employ
Executive, and Executive hereby accepts employment with the Company, in
accordance with and subject to the terms and conditions set forth herein.  The term of employment of Executive under
this Agreement (the “Term”) shall be the period commencing on the Effective
Date and ending on December 31, 2009, as may be extended in accordance with
this Section and subject to earlier termination in accordance with Section
5.  The Term shall be extended
automatically without further action by either party by one additional year
(added to the end of the Term), and then on each succeeding annual anniversary
thereafter (each such initial and
succeeding year-long extension (if any), an “Extension Term”), unless either party shall have given written
notice to the other party at least ninety (90) days prior to the date upon
which such extension would otherwise have become effective electing not to
further extend the Term (a “Nonrenewal Notice”), in which case Executive’s
employment shall terminate on the date of expiration of the then current Term
(whether it be the initial Term or the then current Extension Term), unless
earlier terminated in accordance with Section 5.  In the event that Executive’s employment
terminates because either party shall have given timely a Nonrenewal Notice to
the other party, in accordance with the preceding sentence, then,
notwithstanding anything to the contrary set forth herein, Executive shall upon
such termination be entitled to receive the compensation and benefits set forth
in Section 5(d) as if Executive’s employment had been terminated by the Company
without Cause, or by Executive for Good Reason, as of the date of expiration of
the Term (including, as the case may be, the date of expiration of the
Extension Term during which the Nonrenewal Notice is given).  Except
to the extent (if any) that the context specifically requires otherwise,

 

references to the Term
hereafter in this Agreement shall include the initial Term and any Extension
Term.  It is intended that Executive’s
previous term of employment with the Company shall be included when calculating
Executive’s tenure at the Company for all purposes; it being understood that for all such purposes Executive’s
tenure at the Company commenced on August 1, 1990.

3.             Offices
and Duties.

a.                                       From January 1, 2006 through December 31,
2007, Executive will serve as Chief Executive Officer of the Company and as
Chairman of the Board of Directors of the Company (the “Board of Directors”),
and as an officer or director of any subsidiary or affiliate of the Company if
elected or appointed to any such position by the shareholders or by the board
of directors of such subsidiary or affiliate, as the case may be.

b.                                      From and after January 1, 2008, Executive
shall continue to serve as both Chief Executive Officer and Chairman of the
Board of Directors, unless notice within the time frames in the following
sentence is provided by either Executive or the Company to the other
party.  Executive will relinquish the
role of Chief Executive Officer of the Company (but will continue to be
employed as and serve in the capacity of Chairman of the Board of Directors and
shall continue to receive the compensation and benefits provided for herein) if
(i) for the period January 1, 2008 to December 31, 2008, notice is provided by
either party to the other party no later than September 1, 2007, or (ii) for
the period January 1, 2009 to December 31, 2009, notice is provided by either
party to the other party no later than September 1, 2008, or (iii) for each
Extension Term, if any, notice is provided by either party to the other party
no later than September 1 in the calendar year immediately preceding the
commencement of such Extension Term. 
Receipt or giving of such notice and subsequent change in position shall
not constitute “Cause” or “Good Reason” within the meaning of Section 5 of this
Agreement.

c.                                       In such capacities, Executive shall perform
such duties and shall have such responsibilities as are normally associated
with such positions and as otherwise may be assigned to Executive from time to
time by the Board of Directors.  Subject
to Section 5(d) and to Executive’s right to continue to receive the
compensation and benefits provided for herein, Executive’s functions, duties
and responsibilities are subject to reasonable changes as the Board of 

 2
 

 

Directors may in good faith
determine after consultation with Executive.

d.                                      Executive hereby agrees to accept such
employment and to serve the Company to the best of his ability in such
capacities, devoting substantially all of his business time to such employment;
provided, however, that Executive shall be entitled to (i) manage his personal
investments and otherwise attend to personal affairs, including family
financial and legal affairs, and (ii) serve on the boards of directors of up to
three entities, each in a manner that does not conflict or unreasonably
interfere with his responsibilities hereunder.

4.             Compensation;
Benefits.

(a)           Base
Salary.  During the Term
the Company shall pay Executive a base salary (the “Base Salary”) at the
initial rate of one million five hundred thousand dollars ($1,500,000.00) per
annum, payable biweekly (except to the extent deferred under a deferred
compensation plan).  The first payment of
Base Salary following the execution and delivery by the parties of this
Agreement shall be in an amount equal to the difference between (i) the
aggregate amount of Base Salary that Executive is entitled to have received at
a base salary rate of one million five hundred thousand dollars ($1,500,000.00)
per annum for all pay periods in 2006 up to and including the pay period
covered by such first payment date, and (ii) the aggregate amount of Base
Salary that Executive has received for such pay periods referred to in clause
(i).  The Base Salary shall be increased
annually on each January 1 during the Term by a percentage of the Base Salary
then in effect equal to the percentage increase, if any, during the preceding
twelve months in the Consumer Price Index for the Greater New York Area.  For purposes of this Agreement, the
percentage increase, if any, during the preceding twelve months in the Consumer
Price Index for the Greater New York area will be computed by dividing (i) the
difference between (A) the Consumer Price Index—All Urban Consumers, New
York-Northern New Jersey-Long Island, NY-NJ-CT-PA, All Items (1982-84=100),
published by the U.S. Department of Labor Bureau of Labor Statistics (the “CPI”)
for the month of December in the calendar year most recently ended prior to, or
ending on, the date as of which the relevant increase is to be made (e.g., December 2007 for an increase to be
made on January 1, 2008) and (B) the CPI for the month of December in the
calendar year immediately preceding the year referred to in clause (i)(A) by
(ii) the CPI referred to in clause (i)(B); provided, however, that if such
computation yields a negative number, such percentage increase shall be deemed
to be zero.  Without limiting the
foregoing, in the event that the Company, in its sole discretion, from time to
time determines to increase the Base Salary, such increased amount shall, from
and after the effective date of the increase, constitute the “Base Salary” for
purposes of this Agreement.

 3
 

 

(b)           Incentive
Compensation.  Executive
shall have the opportunity annually to be paid incentive compensation in
amounts determined by the Compensation Committee of the Board of Directors of
the Company (the “Compensation Committee”) in accordance with the applicable
incentive compensation plan of the Company as in effect from time to time.
Under such plan, Executive shall have the opportunity to earn a target bonus
(the “Target Bonus”) up to 100% of Base Salary as incentive compensation at
Target Opportunity and a maximum bonus up to 200% of Base Salary as incentive
compensation at Maximum Opportunity.  “Target
Opportunity” and “Maximum Opportunity” shall have the meaning ascribed to them
in the applicable incentive compensation plan. 
Notwithstanding the foregoing, if no incentive compensation plan is in
effect at any relevant time, or if such plan, as in effect at any relevant
time, does not provide a reasonable opportunity for Executive to earn annually
incentive compensation in the amounts described in the foregoing provisions of
this Section 4(b), then the Company shall provide such reasonable opportunity
to Executive independently of such plan. 
Any incentive compensation payable to Executive shall be paid in
accordance with the Company’s usual practices with respect to payment of
incentive compensation to its other senior executives (regardless of whether,
at such time, the Company has an incentive compensation plan in effect), except
that the Company shall make available to Executive an opportunity to defer
receipt of the incentive compensation under a deferred compensation plan.

(c)           Eligibility
for Annual Equity Awards  and
Participation in Executive Compensation Plans.  Executive shall be eligible to receive an
annual grant of stock options or other equity awards, in the sole discretion of
the Compensation Committee, in accordance with the applicable plans and
programs for senior executives of the Company and subject to the Company’s
right to at any time amend or terminate any such plan or program, so long as
any such change does not adversely affect any accrued or vested interest under
any such plan or program.  Executive
shall be eligible to participate in such plans and programs, and in other
executive compensation plans and programs which are made generally available by
the Company to its other senior executives (in accordance with the terms of
such plans and programs and subject to the Company’s right to at any time amend
or terminate any such plan or program) in each case on terms no less favorable
to Executive than the most favorable terms of participation of any other
executive of the Company.  For the
avoidance of doubt, Executive’s participation in any such equity award plan or
program shall be deemed to be on terms no less favorable to Executive than the
most favorable terms of participation of any other executive of the Company if
the absolute number or amount of stock options, restricted stock units, or
other equity awards awarded to Executive is at least equal to the highest
absolute number or amount of stock options, restricted stock units or other
equity award awarded to any other executive of the Company in respect of the
same period (regardless of the percentage of Executive’s Base Salary, incentive
compensation or any other compensation or benefit represented by such award).

 4
 

 

(d)           Incentive
Equity Awards.

(i)            The Company shall grant to Executive (A) as
a sign-on bonus thirty days following the parties’ execution of this Agreement
(the “2006 RSU Grant”), 235,000 restricted stock units; and (B) thereafter on
June 30, 2007 (the “2007 RSU Grant” and collectively with the 2006 RSU Grant,
the “Special RSU Grants” and each individually, a “Special RSU Grant”) (the
respective date each Special RSU Grant is made, the “Grant Date” thereof)
restricted stock units in a number equal to (x) $8 million divided by (y) the
average closing price per share of the Company’s common stock for the 30-day
period preceding the Grant Date of the 2007 RSU Grant (such closing prices, in
each case, as reported in the Wall Street Journal for those dates during such
30-day period on which the principal national stock exchange or quotation
system on which the Company’s stock is traded is open for business).  Each Special RSU Grant shall be granted under
and subject to the terms and conditions of the Company’s 2003 Incentive Compensation
Plan, as amended and restated, or an applicable successor plan (in either case,
the “Equity Plan”) and a restricted stock unit agreement in the form attached
hereto as Exhibit A to be entered into with respect to such Special RSU
Grant by and between the Company and Executive (each, an “RSU Agreement”),
provided, however, that the parties hereby agree, and the RSU Agreements shall
respectively provide, that the 2006 RSU Grant shall vest with respect to
twenty-five percent (25%) of the shares of common stock subject to the 2006 RSU
Grant on December 31, 2006 and each subsequent December 31st through December 31, 2009, and that the 2007
RSU Grant shall vest with respect to one third (1/3) of the shares of common
stock subject to the 2007 RSU Grant on December 31, 2007 and each subsequent
December 31st through December 31, 2009, subject to certain
provisions relating to accelerated vesting and forfeiture as described in this
Agreement, the applicable RSU Agreement and the Equity Plan; provided, however,
that, notwithstanding anything to the contrary set forth in the Equity Plan, in
the RSU Agreements, in this Agreement or in any other Company plan or policy,
it is hereby agreed that this Agreement (or any written amendment hereto signed
by Executive and the Company that expressly states that it supersedes this
proviso) and the RSU Agreement in the form of Exhibit A hereto contain
the only provisions regarding forfeiture that shall apply to the Special RSU
Grants.  In each case, the applicable RSU
Agreement shall provide that delivery to Executive of shares of Company common
stock subject to vested restricted stock units under the applicable Special RSU
Grant shall occur on earliest date on which such shares may be so delivered
without becoming subject to taxes, interest or penalties as a result of Section
409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”)
and applicable administrative guidance and regulations, and without affecting
any compensation deduction applicable thereto as a result of Section 162(m) of
the Code but in no event shall such shares be delivered (x) later than six
months plus one day after the date of termination of Executive’s employment
(the date of termination of Executive’s employment, regardless of the ground or
reason therefor, being referred to in this Agreement as the “Termination Date”),
nor (y) sooner than five (5) days after the Termination Date.

 5
 

 

(ii)           Notwithstanding anything to the contrary set
forth in this Agreement, in the RSU Agreements or in the Equity Plan (but
without limiting any rights or entitlements of Executive in addition to the
following that may be provided elsewhere in this Agreement, the RSU Agreements
or the Equity Plan), in the event of any Change in Control described in clause (B)
or (C) of Section 5(e)(iii), or any Change in Control described in Clause (A)
of Section 5(e)(iii) pursuant to which holders of the Company’s common stock
generally are entitled to receive cash and/or non-cash consideration for all or
substantially all of their shares: 
(A) if such Change in Control occurs before the 2007 RSU Grant has
otherwise been made to Executive, then (x) the 2007 RSU Grant shall be
granted (or if not granted, shall be deemed to have been granted) to Executive
on the “Change in Control Reference Date” (as defined below) and the Change in
Control Reference Date shall be the Grant Date of the 2007 RSU Grant, provided
that (y) the number of restricted stock units included in the 2007 RSU Grant
shall be the number determined using the Change in Control Reference Date as
the Grant Date of the 2007 RSU Grant, or such lesser number of restricted stock
units, if any, as may be determined by dividing (I) $8 million by (II) the
consideration per share (including the fair value per share of any non-cash
consideration as specified by the governing legal documents in connection with
such Change in Control or otherwise determined in good faith by the Board of
Directors) to be received by holders of the Company’s common stock generally
for their shares pursuant to such Change in Control transaction; (B) if such
Change in Control occurs before all restricted stock units included in the
Special RSU Grants (including those granted or deemed granted pursuant to
clause (A) of this paragraph 4(d)(ii) and including those subject to the
2006 RSU Grant, whether or not such Change in Control occurs prior to the Grant
Date of the 2006 RSU Grant) have vested (except by reason of forfeiture
pursuant to the terms of Section 5(j) of this Agreement or the terms of Section
5(a) or 5(c) of this Agreement and the applicable RSU Agreement), then all such
unvested restricted stock units shall fully vest and become non-forfeitable as
of the Change in Control Reference Date; (C) any and all shares of the Company’s
common stock underlying vested restricted stock units included in the Special
RSU Grants (including those granted or deemed granted pursuant to clause (A) of
this paragraph 4(d)(ii) and those vested pursuant to clause (B) of this
paragraph 4(d)(ii)) that have not otherwise been delivered as of the time of
the Change in Control shall be deemed to have been delivered to Executive at
the latest date and time that shall entitle Executive to receive for such
shares, in the manner described in clause (D) below, the consideration payable
to holders of the Company’s common stock generally for their shares pursuant to
such Change in Control transaction (provided, for the avoidance of doubt, that
no such shares shall be deemed to have been delivered to Executive if such
Change in Control transaction is not consummated and holders of the Company’s
common stock generally receive no such consideration for their shares pursuant
thereto); and (D) Executive shall be entitled to receive for shares of the
Company’s common stock underlying vested restricted stock units included in the
Special RSU Grants (including those granted or deemed granted pursuant to
clause (A) of this paragraph 4(d)(ii) and those vested pursuant to clause (B)
of this paragraph 4(d)(ii)), at substantially the same time and as to

 6
 

 

the same percentage of common stock held, any
consideration payable to holders of the Company’s common stock generally for
their shares pursuant to such Change in Control transaction, as if Executive
held, as of the Change in Control Reference Date, all shares of the Company’s
common stock underlying all the vested restricted stock units included in the
Special RSU Grants (including those granted or deemed granted pursuant to
clause (A) of this paragraph 4(d)(ii)) and those vested pursuant to clause
(B) of this paragraph 4(d)(ii)).  The “Change
in Control Reference Date” shall mean the date of, and the time immediately
prior to the time of, the Change in Control, or such earlier date and/or time
as shall entitle Executive to receive pursuant to such Change in Control
transaction, at substantially the same time and as to the same percentage of
common stock held, any consideration payable to holders of the Company’s common
stock generally for their shares, as the holder of the common stock underlying
all the vested restricted stock units included in the Special RSU Grants
(including those granted or deemed granted pursuant to clause (A) of this
paragraph 4(d)(ii) and those vested pursuant to clause (B) of this paragraph
4(d)(ii)).  For purposes of this
paragraph 4(d)(ii), references to common stock underlying restricted stock
units shall include securities substituted or resubstituted therefor in
accordance with the terms of the RSU Agreements and the Equity Plan.

(iii)          Notwithstanding anything to the contrary set
forth in this Agreement, in the RSU Agreements or in the Equity Plan, in the
event that Executive’s employment is terminated by reason of Executive’s death
or Total Disability, or by the Company without Cause, or by Executive for Good
Reason (including, without limitation, a deemed termination by the Company
without Cause due to a Failed Termination for Cause (as defined in Section 5(c)
hereof) pursuant to Section 5(c) hereof): 
(A) if such termination of employment occurs before the 2007 RSU Grant
has otherwise been made to Executive, then (x) the 2007 RSU Grant shall be
granted (or if not granted, shall be deemed to have been granted) to Executive
on the day immediately preceding the Termination Date, and such day shall be
the Grant Date of the 2007 RSU Grant; and (y) the number of restricted
stock units included in the 2007 RSU Grant shall be the number determined using
the day immediately preceding the Termination Date as the Grant Date of the
2007 RSU Grant; and (B) if such termination of employment occurs before all
restricted stock units included in the Special RSU Grants (including those
granted or deemed granted pursuant to clause (A) of this paragraph 4(d)(iii)
and including those subject to the 2006 RSU Grant, whether or not such termination
occurs prior to the Grant Date of the 2006 RSU Grant) have vested (except by
reason of forfeiture pursuant to the terms of Section 5(j) of this Agreement),
then all such vested restricted stock units shall fully vest and become
non-forfeitable as of the Termination Date and Executive shall be entitled to
the benefits thereof, as provided in Section 5(b) (in the case of termination
by reason of Executive’s death) or 5(d) (in the case of termination by reason
of Executive’s Total Disability, by the Company without Cause, or by Executive
for Good Reason).

 7
 

 

(e)           Expense Reimbursement. 
The Company shall reimburse Executive for all reasonable and necessary
travel, business entertainment and other business expenses incurred by
Executive in connection with the performance of Executive’s duties under this
Agreement, on a timely basis upon submission by Executive of vouchers therefor
in accordance with the Company’s standard procedures.

(f)            Use of
Company Aircraft. 
Executive shall have use of the Company’s “Flight Options” fractional
ownership aircraft, or any substitute or replacement private aircraft wholly or
partially owned, or leased, chartered by the Company or otherwise made
available by the Company to any executive officers of the Company (collectively,
the “Company Plane”) for personal use, provided that such personal use shall
not interfere with the business use of the Company Plane.  Family members and/or other guests may
accompany Executive on Company Plane flights, whether such flights are for personal
use, business use or a combination thereof, as seating permits.  When using the Company Plane for a flight
that is exclusively for personal use, Executive shall reimburse the Company for
the out-of-pocket cost to the Company of such flight as invoiced by Flight
Options LLC or a successor owner, charterer, lessor or servicer of the Company
Plane, as the case may be (the “Invoiced Amount”).  When using the Company Plane on a flight that
has a bona fide business-related purpose (whether or not such business-related
purpose is the sole purpose of such flight), Executive shall reimburse the
Company for any personal use in respect of such flight in an amount that is
computed in accordance with the provisions of section 274(e) of the Code and
regulations promulgated thereunder and any applicable interpretations by the
U.S. Internal Revenue Service (the “IRS Amount”); provided, however, that if
the IRS Amount is greater than the Invoiced Amount for such flight, then
Executive shall reimburse the Company for the Invoiced Amount, instead of the
IRS Amount, for such flight.

(g)           Health
and Welfare Benefits  Executive
shall be entitled to participate, without discrimination or duplication, in any
and all medical insurance, group health, disability, life, accidental death,
dismemberment insurance, 401(k) or other retirement, deferred compensation,
profit sharing, stock ownership and such other plans and programs which are
made generally available by the Company to its other senior executives in
accordance with the terms of such plans and programs and subject to the Company’s
right to at any time amend or terminate any such plan or program; provided,
however, that Executive shall be eligible to participate in such insurance,
benefit, fringe benefit and perquisite plans and programs on terms and
conditions at least as favorable to Executive as the most favorable terms and
conditions offered to any other employee of the Company.  Executive shall be entitled to paid vacation,
holidays, and any other time off in accordance with the Company’s policies in
effect from time to time.

(h)           Residual
SERP Benefit.  Executive’s
aggregate retirement benefit under the Company’s Supplemental Executive
Retirement Plan, as amended, restated and

 8
 

 

finally terminated as of December 31, 2005 (“SERP”)
had a value equal to $9,853,046 (representing the lump sum present value of his
SERP benefit as of December 31, 2005) which will accrue interest at a rate of
four percent (4%) per annum, compounded annually, for the period from December
31, 2005 through the date of distribution (the “SERP Benefit”).  Executive shall receive his aggregate SERP
Benefit in a lump sum payment on the date that is six months plus one day after
the Termination Date.  Notwithstanding
anything to the contrary contained in the SERP, in any other plan or policy of
the Company or in this Agreement, it is hereby acknowledged and agreed that the
SERP Benefit is and shall remain a fully vested and nonforfeitable benefit and
shall be payable to Executive, in the manner provided above, following any
termination of his employment by the Company regardless of the reason or
grounds for such termination of employment.

(i)            Taxes.  Payment of all compensation and benefits to
Executive specified in this Section 4 and in Section 5 of this Agreement shall
be subject to all legally required and customary withholdings.  The Company makes no representations
regarding the tax implications of the compensation and benefits to be paid to
Executive under this Agreement, including, without limitation, under Section
409A of the Code and applicable administrative guidance and regulations.  Internal Revenue Code Section 409A governs
plans and arrangements that provide “nonqualified deferred compensation” (as
defined under the Code) which may include, among others, nonqualified
retirement plans, bonus plans, stock option plans, employment agreements and
severance agreements.  The Company
reserves the right (but is not required) to provide compensation and benefits
under any plan or arrangement in amounts, at times and in a manner that
minimizes taxes, interest or penalties as a result of Section 409A. In
addition, in the event any benefits or amounts paid hereunder are deemed to be
subject to Section 409A, including payments under Section 5 of this Agreement, Executive
consents to the Company adopting such conforming amendments as the Company or
Executive deems necessary, in its or his reasonable discretion, to comply with
Section 409A (including, but not limited to, delaying payment until six months
following termination of employment)

(j)            Registration. 
The Company will use its best efforts to file with the Securities and
Exchange Commission and thereafter maintain the effectiveness of one or more
registration statements registering under the Securities Act of 1933, as
amended, the offer and sale of shares by the Company to Executive pursuant to
stock options or other equity-based awards granted to Executive under Company
plans and this Agreement.

5.             Termination
of Employment.  Executive’s employment
hereunder may be terminated prior to the end of the Term under the following
circumstances:

(a)           Termination
by Executive for Other than Good Reason. 
Executive may terminate his employment hereunder for any
reason or no reason upon 45 days’ prior written notice to the Company referring
to this Section 5(a); provided, however, that a termination of Executive’s
employment for “Good Reason” shall not constitute a

 9
 

 

termination by Executive for other than Good Reason
pursuant to this Section 5(a).  In the
event Executive terminates his employment for other than Good Reason, Executive
shall be entitled only to the following compensation and benefits:

(i)            Any accrued but unpaid Base Salary (as
determined pursuant to Section 4(a)) for services rendered to the Termination
Date, payable on the next regular payday following the Termination Date;

(ii)           All vested nonforfeitable amounts owing or
accrued at the Termination Date under compensation and benefit plans, programs,
and arrangements set forth or referred to in Section 4 hereof in which
Executive theretofore participated (including, without limitation, any earned
and vested annual incentive compensation and the SERP benefit) will be paid
under the terms and conditions of such plans, programs, and arrangements (and
agreements and documents thereunder);

(iii)          Reasonable business expenses and
disbursements incurred by Executive prior to such termination will be
reimbursed in accordance with Section 4(e).

(iv)          In lieu of any incentive compensation under
Section 4(b) for the year of termination, an amount equal to the amount of
annual incentive compensation payable to Executive assuming achievement of the
maximum performance targets for such year, multiplied by a fraction the
numerator of which is the number of days Executive was employed in the year of
termination and the denominator of which is the total number of days in the
year of termination.  Such amount shall
be payable in a lump sum in accordance with Section 5(f) of this Agreement;

(v)           Stock options held by Executive at termination,
if not then vested and exercisable, will become fully vested and exercisable at
the date of such termination, except to the extent otherwise specifically
provided under the terms of any “Non-Ordinary Course Grant or Award” (as
defined below) made to Executive after December 31, 2005, and any such options
shall remain exercisable until the earlier of three years after the date of
such termination or the scheduled expiration date, and, in other respects, all
such options shall be governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;

(vi)          Except to the extent otherwise specifically
provided under the terms of any Non-Ordinary Course Grant or Award made to
Executive after December 31, 2005 (including, without limitation, the RSU
Agreements governing the 2006 RSU Grant and the 2007 RSU Grant), all deferred
stock, restricted stock and other equity-based awards will become fully vested
and non-forfeitable, and all restrictions and conditions with respect to such
awards shall lapse, and all such awards and arrangements will be settled in
accordance with the plans and programs under which the awards were granted or
governing such arrangements including, if so permitted by the plans or
programs, Executive’s duly executed deferral election forms or the terms of any

 10
 

 

mandatory deferral under such plans or programs;
provided, however, if necessary to comply with Section 409A(a)(2)(B)(i) of the
Code, and applicable administrative guidance and regulations, such settlement
shall be made on the date that is six months plus one day following the
Termination Date; and

(vii)         Executive may elect continued participation
after termination in the Company’s health and medical coverage for himself and
his spouse and dependent children after such coverage would otherwise end until
such time as Executive becomes eligible for Medicare; provided, however, that
in the event of such election, Executive shall pay the Company each year an
amount equal to the then-current annual COBRA premium being paid (or payable)
by any other former employee of the Company.

For purposes of this Agreement, a “Non-Ordinary-Course Grant or Award”
shall mean any grant or award conferring the right to acquire equity-based
securities of the Company, other than
a “Normal Course Award”, and a “Normal Course Award” shall mean and be limited
to a grant or award to acquire equity-based securities of the Company made
under the annual equity incentive program of the Company’s management incentive
compensation program, or under any amended, replacement or supplemental plan or
program that is established to take the place of, modify, or supplement such
equity incentive program (as the same may be hereafter amended, replaced or
supplemented), or to reinstitute such a plan or program, in order to carry out
the Company’s regular program of equity grants to senior executives generally.

(b)           Termination
by Reason of Death.  If
Executive dies during the Term, the Company shall pay to the last beneficiary
designated by Executive by written notice to the Company or, failing such
designation, to Executive’s estate, the following amounts:

(i)            The payments and benefits referred to in
clauses (i) through (iii), inclusive, of Section 5(a) (collectively, the “Standard
Termination Payments”);

(ii)           A lump sum payment equal to (A) Executive’s
annual Base Salary, plus (B) the highest annual incentive compensation paid to
Executive in respect of the two most recent fiscal years of the Company but not
more than Executive’s Target Bonus for the year of termination, payable within
30 days of the Termination Date;

(iii)           Stock options held by Executive at
termination, if not then vested and exercisable, will become fully vested and
exercisable at the date of such termination, except to the extent otherwise
specifically provided under the terms of any Non-Ordinary Course Grant or Award
made to Executive after December 31, 2005, and any such options shall remain
exercisable until the earlier of three years after the date of such termination
or the scheduled expiration date, and, in other respects, all such options
shall be governed by the plans and programs and the agreements and other
documents pursuant to which such options were granted; and

 11
 

 

(iv)          Except to the extent otherwise specifically
provided under the terms of any Non-Ordinary Course Grant or Award made to
Executive after December 31, 2005, all deferred stock, restricted stock and
other equity-based awards will become fully vested and non-forfeitable, and all
restrictions and conditions with respect to such awards shall lapse, and all
such awards and arrangements will be settled in accordance with the plans and
programs under which the awards were granted or governing such arrangements
including, if so permitted by the plans or programs, Executive’s duly executed
deferral election forms or the terms of any mandatory deferral under such plans
or programs.

(c)           Termination
by the Company for Cause. 
The Company may terminate Executive’s employment hereunder for Cause by
giving a Cause Termination Notice (as defined below) in accordance with and
subject to the provisions of this Section 5(c). 
For purposes of this Agreement, the term “Cause” shall mean Executive’s
gross misconduct (as defined herein) or willful and material breach of Section
6.1(a) (other than the first sentence thereof), 6.1(b), 6.2 (other than the
first and penultimate sentences thereof) or 6.3.  “Gross misconduct” shall mean (i) Executive’s
conviction (including conviction on a nolo contendere plea) in a court of law of
a felony, or (ii) Executive’s willful and continued failure substantially to
perform his material duties under this Agreement.  For purposes of this Agreement, an act or
failure to act on Executive’s part shall be considered “willful” if it was done
or omitted to be done by him knowingly, purposefully and not in good faith and
shall not include, without limitation, any act or failure to act resulting from
any disagreement or difference of views between Executive and one or more
directors or officers of the Company or any of its affiliates with respect to
any matter(s) relating to the business, affairs or operations of the Company
and/or any of its affiliates (including, without limitation, with respect to
any management, business or operational matter, strategy, plan, proposal,
initiative or decision, any issue regarding the hiring, firing, appointment or
removal of any director, officer, employee, agent, consultant, advisor or
contractor, any proposed transaction, venture, affiliation or alliance, or any
change in business, structure, organization, management or operations).  Executive may not be terminated for Cause
unless and until there shall have been delivered to him, within ninety (90)
days after the Company first had actual knowledge of the most recent conduct or
event comprising an element of the alleged ground for termination for Cause (it
not being necessary that all elements comprising the alleged ground for
termination for Cause have occurred within such ninety (90) day period), a copy
of a resolution duly adopted by the Board of Directors by a vote of Directors
constituting a majority of the Board of Directors (excluding Executive) at a
meeting of the Board of Directors at which a quorum is physically present in
person and which is called and held for such purpose (after giving Executive
reasonable notice of the specific grounds for such termination including a
reasonably detailed statement of the facts and circumstances claimed as the
basis for such termination and, except if a felony conviction is the grounds
for termination, 30 days to correct such grounds, and affording Executive and
his counsel the opportunity to be heard before the Board of Directors) finding
that, in

 12
 

 

the good faith opinion of the Board of Directors,
Executive was guilty of conduct constituting Cause (the “Cause Resolution”).  The Company’s delivery of the Cause
Resolution to Executive shall be accompanied or followed by delivery by the
Company to Executive of a written notice of termination for Cause referring to
this Section 5(c), stating the grounds for such termination (which shall be the
same grounds as set forth in the Cause Resolution) and specifying the effective
date of such termination for Cause, which date shall be no earlier than 31 days
after the date on which Executive receives such written notice of termination
for Cause (the “Cause Termination Notice”), provided that at any time prior to
the effective date of such termination, the Board of Directors may, in
accordance with the next sentence, relieve Executive of all or a portion of his
duties and treat him as a suspended employee of the Company, and until the
Termination Date Executive shall be entitled to continue to receive all
compensation and benefits under this Agreement as if he had not been suspended
or given notice of termination (and such suspension for the avoidance of doubt
shall not constitute “Good Reason” for purposes of this Agreement).  Any such suspension shall be effected either
(i) pursuant to the Cause Resolution or (ii) pursuant to a resolution otherwise
approved (which approval need not be by meeting on formal notice) either by a
majority of the Board of Directors (excluding Executive) or, if a majority of
the Board of Directors cannot reasonably be convened promptly in person or by
telephone, by a majority of the Executive Committee of the Board of Directors
(excluding Executive), in each case determining, in the good faith opinion of
the participants, that Executive was guilty of conduct constituting Cause and
that prompt suspension of Executive is reasonably required in the best
interests of the Company, which resolution is confirmed within 10 days by a
Cause Resolution.  Notwithstanding any
such suspension, Executive shall be afforded such opportunity as may be
reasonable under the circumstances to correct grounds for termination as
contemplated by the fifth sentence of this Section 5(c) until the expiration of
the 30-day period provided therein.

If Executive disputes the Company’s allegation of Cause by initiating
arbitration pursuant to Section 13 of this Agreement and the arbitration panel
finds that the Company properly terminated Executive’s employment for Cause in
accordance with the provisions of this Section 5(c), Executive shall, within 30
days of the arbitration award, repay the amount (if any) by which (A) the
amounts provided to him by the Company in respect of periods commencing after
the termination date of his employment set forth in the Cause Termination
Notice, including but not limited to salary continuation and the value of all
benefits provided to Executive in respect of periods commencing after his
termination date, exceed (B) the amounts to which he is entitled under this
Agreement upon a termination for Cause. 
If the amount in (A) does not exceed the amount in (B), the Company may
reduce any amounts owed to Executive by the amount in (A).  If the arbitration panel does not find that
the Company properly terminated Executive’s employment for Cause in accordance
with the provisions of this Section 5(c) (a “Failed Termination for Cause”),
then (x) Executive’s employment shall be deemed to have been terminated by the
Company without Cause as of the date (the “Deemed Termination

 13
 

 

Date”) which is 31 days after the date on which the
Cause Resolution and the Cause Termination Notice were delivered to Executive;
(y) the Company shall provide Executive with the payments and benefits set
forth in Section 5(d) hereof as if the Company had terminated Executive without
Cause as of the Deemed Termination Date, provided that any amounts previously
paid to Executive by the Company as a suspended employee in respect of periods
commencing on or after the Deemed Termination Date shall be credited against
amounts owed to Executive under Section 5(d) hereof; and (z) the Company shall
pay (or reimburse, if already paid by Executive) all reasonable expenses
actually incurred by Executive in connection with contesting such Failed
Termination for Cause.

In the event that Executive’s employment is terminated by the Company
for Cause in accordance with this Section 5(c), Executive shall be entitled to
receive only the following payments and benefits:

(i)            The Standard Termination Payments (as
defined in Section 5(b)(i)); and

(ii)           Except as provided in Section 6.6, all stock
options and other equity awards will be governed by the terms of the plans and
programs under which the options or other awards were granted (the “Basic
Equity Award Benefit”);

The
Company hereby acknowledges and agrees that, as of the date on which this
Agreement is executed by the Company, the Company is not aware of grounds for
terminating Executive for Cause.

(d)           Termination
By Reason of Total Disability; Termination by the Company Without Cause or by
Executive for Good Reason. 
The Company may terminate Executive’s employment (x) by reason of “Total
Disability” (as defined below) or (y) at any time, without Cause, for any
reason or no reason, and Executive may terminate his employment hereunder for “Good
Reason” (as defined below).  Executive
and the Company agree that Executive may not reasonably be expected to be able
to perform his duties and the essential functions of his office in the event of
Executive’s “Total Disability.” For purposes of this Agreement, “Total
Disability” shall mean Executive’s failure to perform the duties and
responsibilities contemplated under this Agreement for a period of more than
180 days during any consecutive 12-month period due to physical or mental
incapacity or impairment as determined by a physician or physicians selected by
the Company and reasonably acceptable to Executive, unless, within 30 days
after Executive has received written notice from the Company of a proposed
termination due to such failure (as determined in accordance with the foregoing
provisions of this sentence) which notice shall include a copy of the findings
of such physician or physicians and shall refer to this Section 5(d), Executive
shall have returned to the full performance of his duties hereunder and shall
have presented to the Company a written certificate of Executive’s good health
by a physician selected by Executive and

 14
 

 

reasonably acceptable to the Company.  For purposes of this Agreement, “Good Reason”
shall mean that without Executive’s prior written consent, any of the following
shall have occurred, within sixty (60) days after Executive first had actual
knowledge of the most recent conduct or event comprising an element of the
alleged ground for termination for Good Reason (it not being necessary that all
elements comprising the alleged ground for termination for Good Reason have
occurred within such sixty (60) day period),: 
(I) a material change, adverse to Executive, in Executive’s positions,
titles, offices, or duties as provided in Section 3, except, in such case, in
connection with the termination of Executive’s employment for Cause, Total
Disability or death; (II) an assignment of any significant duties to Executive
which are materially inconsistent with Executive’s positions or offices held
under Section 3; (III) a decrease in Base Salary or material decrease in
Executive’s compensation opportunities or in the aggregate benefits provided
under this Agreement; (IV) any other material failure by the Company to perform
any material obligation under, or material breach by the Company of any
material provision of, this Agreement; (V) a relocation of the principal
executive offices of the Company more than 35 miles from their existing
location in New York, NY, or a change in the location of Executive’s office to
a location other than the Company’s principal executive offices; or (VI) any
failure to secure the agreement of any successor corporation or other entity to
the Company to fully assume the Company’s obligations under this Agreement in a
form reasonably acceptable to Executive; provided, however, that a termination
by Executive for Good Reason under any of clauses (I) — (VI) of this Section
5(d) shall be effective only if, within thirty (30) days following delivery of
a written notice by Executive to the Company that Executive is terminating his
employment for Good Reason and setting forth in reasonable detail the facts and
circumstances allegedly constituting Good Reason, the Company has failed to
cure the circumstances giving rise to Good Reason.  In the event that Executive’s employment is
terminated (A) by reason of Total Disability, (B) by the Company without Cause
or (C) by Executive for Good Reason (as to (B) and (C), including, without
limitation, a deemed termination by the Company without Cause or by Executive
for Good Reason pursuant to the delivery of a Nonrenewal Notice in accordance
with Section 2 hereof; and as to (B), including, without limitation, a deemed
termination by the Company without Cause due to a Failed Termination for Cause
pursuant to Section 5(c) hereof), the Company shall pay the following amounts,
and make the following other benefits available, to Executive (such payments
and benefits, the “Section 5(d) Payments and Benefits”):

(i)            The Standard Termination Payments (as
defined in Section 5(b)(i));

(ii)           If such termination occurs on or prior to
December 31, 2008, an amount equal to the sum of (A) the Base Salary that would
have been payable to Executive through December 31, 2009 had Executive’s
employment not terminated and (B) Executive’s “Severance Bonus Amount” (as
defined below), or, alternatively, if such termination occurs subsequent to
December 31, 2008, an amount equal to the sum of (A)

 15
 

 

Executive’s annual Base Salary as of the Termination
Date and (B) Executive’s “Severance Bonus Amount” (as defined below), provided
in each case that such amount shall be reduced by any disability payment
provided to Executive as a result of any disability plan sponsored by the
Company or its affiliates providing benefits to Executive.  Such amount shall be payable in a lump sum in
accordance with Section 5(f) of this Agreement. 
For purposes of this Agreement, “Severance Bonus Amount” shall mean (i)
if such termination occurs on or prior to December 31, 2008, an amount equal to
(1) a fraction the numerator of which is the number of calendar months during
the period from and including the calendar month in which the Termination Date
occurs to and including December 2009 and the denominator of which is 12,
multiplied by (2) the highest annual incentive compensation paid to Executive
in respect of the two most recent fiscal years of the Company (but not more
than Executive’s Target Bonus for the year of termination), or, alternatively,
(ii) if such termination occurs subsequent to December 31, 2008, an amount
equal to the highest annual incentive compensation paid to Executive in respect
of the two most recent fiscal years of the Company but not more than Executive’s
Target Bonus for the year of termination;

(iii)          In lieu of any incentive compensation for the
year in which such termination of employment occurs (but in addition to and not
in lieu of the Severance Bonus Amount), payment of an amount equal to (A) the
highest annual incentive compensation paid to Executive in respect of the two
most recent fiscal years of the Company but not more than Executive’s Target
Bonus for the year of termination, multiplied by (B) a fraction the numerator
of which is the number of days Executive was employed in the year of
termination and the denominator of which is the total number of days in the
year of termination.  Such amount shall
be payable in a lump sum in accordance with Section 5(f) of this Agreement;

(iv)          Stock options held by Executive at
termination, if not then vested and exercisable, will become fully vested and
exercisable at the date of such termination, except to the extent otherwise
specifically provided under the terms of any Non-Ordinary Course Grant or Award
made to Executive after December 31, 2005, and any such options shall remain
exercisable until the scheduled expiration date, and, in other respects, all
such options shall be governed by the plans and programs and the agreements and
other documents pursuant to which such options were granted;

(v)           Except to the extent otherwise specifically
provided under the terms of any Non-Ordinary Course Grant or Award made to
Executive after December 31, 2005, all deferred stock, restricted stock and
other equity-based awards will become fully vested and non-forfeitable, all
restrictions and conditions with respect to such awards shall lapse, and all
such awards and arrangements shall be settled upon such termination, without
regard to any stated period of deferral or other restrictions or conditions
remaining in respect of such awards; provided, however, if necessary to comply
with Section 409A(a)(2)(B)(i) of the Code, and applicable administrative

 16
 

 

guidance and regulations, such settlement shall be
made six months plus one day following the Termination Date;

(vi)          Executive shall be entitled to receive an
amount equal to the amount accrued under any deferred compensation plan or
agreement in effect at the Termination Date in which Executive is a participant
or party, less required withholding taxes under Section 4(i); such amount to be
paid in a lump sum in accordance with Section 5(f) hereof and to be equal to Executive’s
account balance on the Termination Date of Executive’s employment if the
deferred compensation amount is in the form of an account balance or, if the
deferred compensation amount is not in the form of an account balance, the
present value of the deferred compensation on the Termination Date calculated
using a discount rate (the “Discount Rate”) equal to the yield, at the time of
determination, for U.S. Treasury securities having a maturity of thirty years;
provided, however, that if Executive elects to receive payment under this
Section 5(d)(vi), Executive shall forfeit all rights under any such deferred
compensation plan or agreement, and such deferred compensation plan or
agreement shall have no force and effect with respect to Executive; and

(vii)         For (A) a period of 3 years after such
termination other than due to Total Disability or (B) the period from
termination due to Total Disability until Executive attains age 65, Executive
shall continue to participate in all employee and executive benefit plans,
programs, and arrangements under Section 4(g) of this Agreement providing
health, medical, disability and life insurance benefits in which Executive was
participating immediately prior to termination, the terms of which allow
Executive’s continued participation, as if Executive had continued in
employment with the Company during such period or, if such plans, programs, or
arrangements do not allow Executive’s continued participation, Executive shall
receive in a lump sum a cash payment equivalent on an after-tax basis to the
value of the additional benefits Executive would have received under such
plans, programs, and arrangements in which Executive was participating
immediately prior to termination, as if Executive had received credit under
such plans, programs, and arrangements for service and age with the Company
during such period following Executive’s termination as provided in clause (A)
or (B) above (as applicable), with such benefits payable by the Company at the
same times and in the same manner as such benefits would have been received by
Executive under such plans (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to Executive,
which shall not exceed the highest risk premium charged by a carrier having an
investment grade or better credit rating).

Notwithstanding
the foregoing, if a reduction in Base Salary or other level of compensation was
a basis for Executive’s termination for Good Reason, the Base Salary or other
level of compensation in effect before such reduction shall be used to
calculate payments under this Section 5(d). 
For the avoidance of doubt, nothing in this paragraph is intended to
broaden the definition of Good Reason contained above.

 17

 

(e)           Termination
in Connection with Change in Control.

(i)            In the event Executive’s employment is
terminated by the Company without Cause or by Executive for Good Reason and the
termination occurs upon or within two years immediately following a Change in Control,
this Section 5(e) and not Section 5(d) shall apply, and Executive (A) shall
receive the “Section 5(d) Payments and Benefits” (as defined above) and, for
the avoidance of doubt, shall have such rights, if any, in respect of the
Special RSU Grants as may be provided pursuant to Section 4(d)(ii) or 4(d)(iii)
hereof, and (B) shall receive the “Change in Control Payment.”  The “Change in Control Payment” shall mean an
amount payable in a lump sum in accordance with Section 5(f) of the Agreement
equal to the sum of (x) the Base Salary and (y) the highest annual incentive
compensation paid to Executive in respect of the two most recent fiscal years
of the Company but not more than Executive’s Target Bonus for the year of
termination.

(ii)           In the event Executive’s employment is
terminated by the Company without Cause or by Executive for Good Reason and the
termination occurs “In Anticipation of a Change in Control” and the Change in
Control actually occurs within six (6) months after the termination, unless the
relevant facts and circumstances clearly demonstrate that the possibility that
such Change in Control would occur was remote as of the date of such
termination, Executive shall receive the amounts and benefits provided for in
Section 5(e)(i), less any amounts paid to Executive pursuant to Section 5(d).

(iii)          A “Change in Control” shall be deemed to have
occurred if:  (A) any “person” as defined
in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and as used in sections 13(d) and 14(d) thereof, including a “group” as
defined in Section 13(d) of the Exchange Act but excluding the Company and any
subsidiary or affiliate and any employee benefit plan sponsored or maintained
by the Company or any subsidiary or affiliate (including any trustee of such
plan acting as trustee), directly or indirectly, becomes the “beneficial owner”
(as defined in Rule 13d-3 under the Exchange Act) of securities of the
Company representing at least 40% of the combined voting power of the Company’s
then-outstanding securities; (B) the stockholders of the Company approve
a merger, consolidation, recapitalization, or reorganization of the Company, or
a reverse stock split of any class of voting securities of the Company, or the
consummation of any such transaction if stockholder approval is not obtained,
other than any such transaction which would result in at least 60% of the total
voting power represented by the voting securities of the Company or the
surviving entity outstanding immediately after such transaction being
beneficially owned by persons who together beneficially owned at least 80% of
the combined voting power of the voting securities of the Company outstanding
immediately prior to such transaction; provided that, for purposes of this
Section 5(e)(iii)(B), such continuity of ownership (and preservation of
relative voting power) shall be deemed to be satisfied if the failure to

 18
 

 

meet such 60% threshold is due solely to the
acquisition of voting securities by an employee benefit plan of the Company or
such surviving entity or of any subsidiary of the Company or such surviving
entity; (C) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of its assets (or any transaction having a
similar effect), or the Company sells all or substantially all of the stock of
the Company to any person or entity other than an affiliate of the Company; or
(D) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors, together with any
new director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in Subsection
(A), (B), or (C) hereof) whose election by the Board of Directors or nomination
for election by the Company’s stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at
least a majority of the Board of Directors.

(iv)          For purposes of this Section 5(e) a
termination shall be considered “In Anticipation of a Change in Control” (A) if
the termination occurs after:  (1) the
issuance of a proxy statement by the Company with respect to an election of
directors for which there is proposed one or more directors who are not
recommended by the Board of Directors or its nominating committee where the
election of such proposed director or directors would result in a Change in
Control or (2) the announcement by any person of an intention to take actions
which might reasonably result in a Change in Control; and (B) the Change in
Control actually occurs within six (6) months after the termination unless the
relevant facts and circumstances clearly demonstrate that the possibility that
a Change in Control was remote as of the date of such termination.

(f)            Timing
of Certain Payments Under Section 5.  Unless otherwise expressly provided in this
Section 5(f) or in the other provisions of this Agreement, all payments
pursuant to this Section 5 shall be made as soon as practicable after the
Termination Date but in no event later than 30 days after the Termination Date;
provided, however, that if necessary to comply with Section 409A(a)(2)(B)(i) of
the Code, and applicable administrative guidance and regulations, a payment
pursuant to Section 5(a)(iv), 5(d)(ii), 5(d)(iii), 5(d)(vi), 5(d)(vii) or
5(e)(i) shall be made in a lump sum on the date that is six months plus one day
following the Termination Date.

(g)           No
Obligation to Mitigate.  Executive
shall not be required to seek other employment or otherwise to mitigate
Executive’s damages upon any termination of employment; provided, however,
that, to the extent Executive receives from a subsequent employer health or
other insurance benefits substantially similar to the benefits referred to in
Section 4, any such benefits to be provided by the Company to Executive
following the termination of his employment shall be correspondingly reduced.

 19
 

 

(h)           Set-Off.  Amounts required to be paid by the Company to
Executive pursuant to this Agreement shall not be subject to offset with
respect to any amounts Executive otherwise owes the Company except for any
amounts that are owed to the Company by Executive due to his receipt of funds
as a result of his fraudulent activity.

(i)            No Other
Benefits or Compensation. 
Except as may be provided under this Agreement, under any other written
agreement between Executive and the Company, or under the terms of any plan or
policy applicable to Executive, Executive shall have no right to receive any
other compensation from the Company, or to participate in any other plan,
arrangement or benefit provided by the Company, with respect to any future
period after such termination or resignation.

(j)            Release
of Employment Claims; Compliance with Section 6. Executive
agrees, as a condition to receipt of any termination payments and benefits
provided for in this Section 5 (other than the Standard Termination Payments
and the Basic Equity Award Benefit (as defined in Section 5(c)(ii)), that
Executive will execute a general release agreement, in a form reasonably
satisfactory to the Company, releasing any and all claims arising out of
Executive’s employment (other than enforcement of this Agreement) and Executive
will not in the future seek employment at the Company or any of its
subsidiaries or affiliates.  The Company’s
obligation to make any termination payments and benefits provided for in this
Section 5 (other than the Standard Termination Payments and the Basic Equity
Award Benefit, all of which shall be paid by the Company) shall immediately
cease if a court of competent jurisdiction or an arbitral tribunal determines
that Executive (x) willfully and materially breached Sections 6.1, 6.2, 6.3,
6.4, or 6.8 and (y) failed to cure such breach within thirty (30) days after
his receipt of written notice from the Board of Directors, attaching a copy of
a resolution duly adopted by the Board of Directors by a vote of Directors
constituting a majority of the Board of Directors (excluding Executive) at a
meeting of the Board of Directors at which a quorum is physically present in
person, in which resolution the Board of Directors sets forth such breach in
reasonable detail and expressly elects the remedy provided in this Section
5(j), and which notice is delivered to Executive within ninety (90) days after
the Company first had knowledge of such breach (the foregoing, collectively, a “Section
5(j) Notice of Breach”) (and which cure by Executive, in the case of a breach
of Section 6.4, may be effected, without limitation, by correction or
retraction of the disparaging statements). 
During the pendency of any court or arbitration proceeding regarding
such a determination, the Company shall pay into escrow with a third-party bank
or trust company the amount of any payments or benefits provided for in this
Section 5 (other than the Standard Termination Payments and the Basic Equity
Award Benefit) pursuant to an escrow agreement in form reasonably acceptable to
Executive which provides that the amount of such payments or benefits (together
with interest earned thereon), upon the conclusion of such proceeding, shall be
returned to the Company if Executive is determined by such proceeding to have
willfully and materially breached any of such Sections and otherwise shall be
paid to Executive.  If a court of
competent jurisdiction or

 20
 

 

arbitral tribunal does not find that Executive
willfully and materially breached one of the Sections referred to above, then
the Company shall pay (or reimburse, if already paid by Executive) all
reasonable expenses actually incurred by Executive in connection with
contesting such alleged breach.

6.             Noncompetition;
Nonsolicitation; Nondisclosure; etc.

6.1           Noncompetition;
Nonsolicitation.

(a)           Executive acknowledges the highly
competitive nature of the Company’s business and that access to the Company’s
confidential records and proprietary information renders Executive special and
unique within the Company’s industry.  In
consideration of the amounts that may hereafter be paid to Executive pursuant
to this Agreement (including, without limitation, Sections 4 and 5), Executive
agrees that during the Term (including any extensions thereof) and during the
Covered Time (as defined in Section 6.1(e)), Executive, alone or with others,
will not, directly or indirectly, engage (as owner, investor, partner, stockholder,
employer, employee, consultant, advisor, director or otherwise) in any
Competing Business.  For purposes of this
Section 6, “Competing Business” shall mean any business (i) involving design
and production of instant lottery tickets and the management of related
marketing and distribution programs; manufacture, sale, operation or management
of on-line lottery systems (Lotto-type games); involving development and
commercialization of licensed and other proprietary game entertainment for all
lottery product channels; involving provision of wagering (whether pari-mutuel
(pooled) or otherwise) or venue management services for racetracks and
off-track betting facilities; production of prepaid cellular phone cards; or
any other business in which the Company is then or was within the previous
twenty-four months engaged or in which the Company, to Executive’s actual
knowledge, intends to engage during the Term or the Covered Time; and (ii)
which Competing Business is conducted or planned to be conducted anywhere in
the United States or in any other geographic area in which such business was
conducted or planned to be conducted by the Company; provided, further, that
this Section 6.1(a) shall not restrict Executive from engaging in (and the term
“Competing Business” shall not include) any business in which the Company no
longer engages or plans to engage; and provided further that activities of the
Company, or activities engaged in by Executive for or on behalf of the Company,
are not restricted by this Section 6.1.(a) and shall not constitute a “Competing
Business.”  Ownership of (i) the
securities of any entity for which a Competing Business represents less than
10% of net sales or net income (as determined in accordance with generally
accepted accounting principles) for the most recent fiscal year (or if such
entity has not completed a fiscal year, net sales or net income projected for
its first fiscal year) or (ii) not more than two percent of the equity
securities of any company having securities listed on an exchange or regularly
traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with this Section 6.1(a). 
Nothing herein shall require Executive to sell or otherwise dispose of
any securities of

 21
 

 

any entity if the acquisition of such securities did
not violate the terms of this Section 6.1(a) at the time of such acquisition.

(b)           In further consideration of the amounts that
may hereafter be paid to Executive pursuant to this Agreement (including,
without limitation, Sections 4 and 5), Executive agrees that during the Term
(including any extensions thereof) and during the Covered Time Executive shall
not, directly or indirectly, (i) solicit or attempt to induce any of the
employees, agents, consultants or representatives of the Company to terminate
his, her, or its relationship with the Company; (ii) solicit or attempt to
induce any of the employees, agents, consultants or representatives of the
Company to become employees, agents, consultants or representatives of any
other person or entity; (iii) solicit or attempt to induce any customer, vendor
or distributor of the Company to curtail or cancel any business with the
Company; or (iv) hire any person who, to Executive’s actual knowledge, is, or
was within 180 days prior to such hiring, an employee of the Company.

(c)           During the Term (including any extensions
thereof) and during the Covered Time, Executive agrees that upon the earlier of
Executive’s (i) negotiating with any Competitor (as defined below) concerning
the possible employment of Executive by the Competitor, (ii) responding to
(other than for the purpose of declining) an offer of employment from a
Competitor, or (iii) becoming employed by a Competitor, (x) Executive will
provide copies of Section 6 of this Agreement to the Competitor, and (y) in the
case of any circumstance described in (iii) above occurring during the Covered
Time, and in the case of any circumstance described in (i) or (ii) above
occurring during the Term or during the Covered Time, Executive will promptly
provide notice to the Company of such circumstances.  Executive further agrees that the Company may
provide notice to a Competitor of Executive’s obligations under this Agreement.
For purposes of this Agreement, “Competitor” shall mean any entity (other than
the Company) that engages, directly or indirectly, in the United States in any
Competing Business.

(d)           Executive understands that the restrictions
in this Section 6.1 may limit Executive’s ability to earn a livelihood in a
business similar to the business of the Company but nevertheless agrees and
acknowledges that the consideration provided under this Agreement (including,
without limitation, Sections 4 and 5) is sufficient to justify such
restrictions. In consideration thereof and in light of Executive’s education,
skills and abilities, Executive agrees that Executive will not assert in any
forum that such restrictions prevent Executive from earning a living or
otherwise should be held void or unenforceable.

(e)           For purposes of this Section 6.1, “Covered
Time” shall mean the period beginning on the Termination Date and ending
twenty-four (24) months after the Termination Date.

 22
 

 

6.2           Proprietary
Information; Inventions.

(a)           Executive acknowledges that during the
course of Executive’s employment with the Company Executive necessarily will
have access to and make use of (and during any employment of him by the Company
prior to the Term has had access to and made use of) proprietary information
and confidential records of the Company. Executive covenants that Executive
shall not during the Term or at any time thereafter, directly or indirectly,
use for Executive’s own purpose or for the benefit of any person or entity
other than the Company, nor otherwise disclose to any individual or entity, any
such proprietary information, unless such disclosure has been authorized in
writing by the Company or is otherwise required by law.  The term “proprietary information” means: (i)
the software products, programs, applications, and processes utilized by the
Company; (ii) the name and/or address of any customer or vendor of the Company
or any information concerning the transactions or relations of any customer or
vendor of the Company with the Company; (iii) any information concerning any
product, technology, or procedure employed by the Company but not generally
known to its customers or vendors or competitors, or under development by or
being tested by the Company but not at the time offered generally to customers
or vendors; (iv) any information relating to the Company’s computer software,
computer systems, pricing or marketing methods, sales margins, cost of goods,
cost of material, capital structure, operating results, borrowing arrangements
or business plans; (v) any information identified as confidential or proprietary
in any line of business engaged in by the Company; (vi) any information that,
to Executive’s actual knowledge, the Company ordinarily maintains as
confidential or proprietary; (vii) any business plans, budgets, advertising or
marketing plans; (viii) any information contained in any of the Company’s
written or oral policies and procedures or manuals; (ix) any information
belonging to customers, vendors or any other person or entity which the
Company, to Executive’s actual knowledge, has agreed to hold in confidence; and
(x) all written, graphic, electronic data and other material containing any of
the foregoing. Executive acknowledges that information that is not novel or
copyrighted or patented may nonetheless be proprietary information.  The term “proprietary information” shall not
include information generally known or available to the public or generally
known or available to the industry or information that becomes available to
Executive on an unrestricted, non-confidential basis from a source other than
the Company or its directors, officers, employees, or agents (without breach of
any obligation of confidentiality of which Executive has actual knowledge at
the time of the relevant disclosure by Executive).

(b)           Executive agrees that all processes, technologies
and inventions (collectively, “Inventions”), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by Executive during the Term (and during any
employment by the Company prior to the Term) shall belong to the Company,
provided that such Inventions grew out of Executive’s work with the Company,
are related in any manner to the business

 23
 

 

(commercial or experimental) of the Company or are
conceived or made on the Company’s time or with the use of the Company’s
facilities or materials. Executive shall further:  (i) promptly disclose such Inventions to the
Company; (ii) assign to the Company, without additional compensation, all
patent and other rights to such Inventions for the United States and foreign
countries; (iii) sign all papers necessary to carry out the foregoing; and (iv)
give testimony in support of Executive’s inventorship.  If any Invention is described in a patent
application or is disclosed to third parties, directly or indirectly, by
Executive within two years after the termination of Executive’s employment by
the Company, it is to be presumed that the Invention was conceived or made
during the Term. Executive agrees that Executive will not assert any rights to
any Invention as having been made or acquired by Executive prior to the date of
this Agreement, except for Inventions, if any, disclosed in Exhibit B to
this Agreement.

6.3           Confidentiality and Surrender of Records. 
Executive shall not during the Term or at any time thereafter
(irrespective of the circumstances under which Executive’s employment by the
Company terminates), except as required by law, directly or indirectly publish,
make known or in any fashion disclose any confidential records to, or permit any
inspection or copying of confidential records by, any individual or entity
other than in the course of such individual’s or entity’s employment or
retention by the Company, nor shall Executive retain, and Executive will
deliver promptly to the Company, any of the same following termination of
Executive’s employment hereunder for any reason or upon request by the
Company.  For purposes hereof, “confidential
records” means those portions of correspondence, memoranda, files, manuals,
books, lists, financial, operating or marketing records, magnetic tape, or
electronic or other media or equipment of any kind in Executive’s possession or
under Executive’s control or accessible to Executive which contain any
proprietary information.  All
confidential records shall be and remain the sole property of the Company
during the Term and thereafter.

6.4           Nondisparagement.  Executive shall not, during the
Term and thereafter, disparage in any material respect the Company, any of the
Company’s businesses, any of the Company’s officers, directors or employees, or
the reputation of any of the foregoing persons or entities.  Notwithstanding the provisions of Sections
5(j) and 6.6, a breach of this Section 6.4 occurring more than two (2) years
after the Termination Date shall not constitute grounds for cessation of
payments and benefits pursuant to Section 5(j) or for forfeiture of options
pursuant to Section 6.6 (provided that the Company may pursue any other
available rights and remedies with respect to such breach).  After the expiration of the Term and the
Covered Time, the foregoing prohibition shall continue to apply as to
circumstances and matters arising during or relating to the period of Executive’s
employment by the Company and the Covered Time, but shall not apply to circumstances
or matters newly arising after the Covered Time.  Notwithstanding the foregoing, nothing in
this Agreement shall preclude Executive from making what he reasonably believes
in good faith to be truthful statements that are

 24
 

 

required by applicable law, regulation or legal
process or in connection with any investigation by the Company or any
governmental authority or are reasonably required to describe the conduct,
decisions, or policies of the Company or any of its affiliates, or their
respective businesses, officers, directors or employees.

6.5           No Other
Obligations.  Executive represents that Executive is not
precluded or limited in Executive’s ability to undertake or perform the duties
described herein by any contract, agreement or restrictive covenant.  Executive covenants that Executive shall not
employ the trade secrets or proprietary information of any other person in
connection with Executive’s employment by the Company without such person’s
authorization.

6.6           Forfeiture of
Outstanding Options.  The provisions of Section 5 notwithstanding,
if a court of competent jurisdiction or an arbitral tribunal determines that
Executive (x) willfully and materially breached Sections 6.1, 6.2, 6.3, 6.4 or
6.8 and (y) failed to cure such breach within thirty (30) days after his
receipt of written notice from the Board of Directors, attaching a copy of a
resolution duly adopted by the Board of Directors by a vote of Directors
constituting a majority of the Board of Directors (excluding Executive) at a
meeting of the Board of Directors at which a quorum is physically present in
person, in which resolution the Board of Directors sets forth such breach in
reasonable detail and expressly elects the remedy provided in this Section 6.6,
and which notice is delivered to Executive within ninety (90) days after the
Company first had knowledge of such breach (the foregoing, collectively, a “Section
6.6 Notice of Breach”) (and which cure by Executive, in the case of a breach of
Section 6.4, may be effected, without limitation, by correction or retraction
of the disparaging statements), then all options (whether granted prior to,
contemporaneously with, or subsequent to this Agreement) to purchase common
stock granted by the Company and held by Executive or a transferee of Executive
shall be immediately forfeited and thereupon such options shall be cancelled,
such forfeiture to be effective at the later of the time of such failure to
comply or Executive’s termination of employment.  If a court of competent jurisdiction or arbitral
tribunal finds that the Company is entitled to cause the forfeiture of
Executive’s options in accordance with the foregoing terms of this Section 6.6,
Executive shall be required to forfeit such options immediately.  If any option is exercised after delivery of
the Section 6.6 Notice of Breach and if such forfeiture subsequently occurs
pursuant to the foregoing terms of this Section 6.6, Executive shall be
required to return to the Company all shares acquired upon such exercise;
provided further that if Executive has sold any shares he acquired upon such
exercise, Executive shall pay to the Company an amount equal to the difference
between the aggregate sale price of the shares sold and the aggregate exercise
price paid by Executive for such shares.  If a court of competent jurisdiction or
arbitral tribunal does not find that the Company is entitled to cause such
forfeiture in accordance with the foregoing terms of this Section 6.6, the
Company shall pay (or reimburse, if already paid by Executive) all reasonable
expenses actually incurred by Executive in connection with contesting such
attempted forfeiture.

 25
 

 

6.7           Enforcement. 
Executive acknowledges and agrees that, by virtue of Executive’s
position, services and access to and use of confidential records and
proprietary information, any violation by Executive of any of the undertakings
contained in this Section 6 would cause the Company immediate, substantial and
irreparable injury for which it has no adequate remedy at law.  Accordingly, Executive agrees and consents to
the entry of an injunction or other equitable relief by a court of competent
jurisdiction restraining any violation or threatened violation of any
undertaking contained in this Section 6. 
Executive waives posting of any bond otherwise necessary to secure such
injunction or other equitable relief. 
Rights and remedies provided for in this Section 6 are cumulative and
shall be in addition to rights and remedies otherwise available to the parties
hereunder or under any other agreement or applicable law.

6.8           Cooperation
with Regard to Litigation.  Executive agrees to cooperate reasonably with
the Company, during the Term and thereafter, by being available to testify on
behalf of the Company in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative.  In
addition, except to the extent that Executive has or intends to assert in good
faith an interest or position adverse to or inconsistent with the interest or
position of the Company, Executive agrees to cooperate reasonably with the
Company, during the Term and thereafter to assist the Company in any such
action, suit, or proceeding by providing information and meeting and consulting
with the Board of Directors or its representatives or counsel, or representatives
or counsel to the Company, in each case, as reasonably requested by the
Company.  The Company agrees to pay (or
reimburse, if already paid by Executive) all reasonable expenses actually
incurred in connection with Executive’s cooperation and assistance including,
without limitation, reasonable fees and disbursements of counsel, if any,
chosen by Executive if Executive reasonably determines in good faith, on the
advice of counsel, that the Company’s counsel may not ethically represent
Executive in connection with such action, suit or proceeding due to actual or
potential conflicts of interests. 
Notwithstanding the provisions of Sections 5(j) and 6.6, a breach of
this Section 6.6 occurring more than seven (7) years after the Termination Date
shall not constitute grounds for cessation of payments and benefits pursuant to
Section 5(j) or forfeiture of options pursuant to Section 6.6 (provided that
the Company may pursue any other available rights and remedies with respect to
such breach).

6.9           Survival.  The provisions
of this Section 6 shall survive the termination of Executive’s employment.

6.10         Company.  For
purposes of this Section 6, references to the “Company” shall include both the
Company and each subsidiary and/or affiliate of the Company.

7.             Code
of Conduct.  Executive acknowledges that he
has read the Company’s “Code of Business Conduct for Directors, Officers and
Employees (as revised and adopted by the Board of Directors, February 23, 2006)”
and agrees to

 26
 

 

conduct himself in accordance
with it, as it may be amended or supplemented from time to time, it being
understood that any termination of employment of Executive shall occur pursuant
to and in accordance with Section 5 of this Agreement.

8.             Indemnification.  During the Term of this Agreement and all
periods after the expiration of this Agreement or termination of Executive’s
employment for any reason, the Company shall indemnify Executive to the full
extent permitted under the Company’s Certificate of Incorporation or By-Laws
and pursuant to any other agreements or policies in effect from time to time.
To the extent permitted under the Company’s Certificate of Incorporation and
By-Laws and applicable law, the Company shall advance expenses for which
indemnification may be claimed as such expenses are incurred, subject to any
requirement that Executive provide an undertaking to repay such advances if it
is ultimately determined that Executive is not entitled to indemnification;
provided, however, that any determination required to be made with respect to
whether Executive’s conduct complies with the standards required to be met as a
condition of indemnification or advancement of expenses under applicable law
and the Company’s Certificate of Incorporation, By-Laws, or other agreement,
shall be made by independent counsel mutually acceptable to Executive and the
Company (except to the extent otherwise required by law).  Any provision contained herein
notwithstanding, this Agreement shall not limit or reduce, and the Company
hereby agrees to provide to Executive, any and all rights to indemnification
Executive would otherwise have, to the full extent permitted under applicable
law.  In addition, the Company will
maintain directors’ and officers’ liability insurance in effect and covering
acts and omissions of Executive. For purposes of this Section 8, references to
the “Company” shall include both the Company and each of its subsidiaries
and/or affiliates for which Executive has acted, acts or will in the future act
in any capacity.  The provisions of this
Section 8 shall survive the termination of Executive’s employment.

9.             Assignability;
Binding Effect.  Neither this Agreement nor the
rights or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution and as specified below.  The
Company may assign this Agreement and the Company’s rights and obligations
hereunder, and shall assign this Agreement and such rights and obligations, to
any Successor (as hereinafter defined) which, by operation of law or otherwise,
continues to carry on substantially the business of the Company prior to the
event of succession, and the Company shall, as a condition of the succession,
require such Successor to agree in writing to assume the Company’s obligations
and be bound by this Agreement.  For
purposes of this Agreement, “Successor” shall mean any person that succeeds to,
or has the practical ability to control, the Company’s business directly or
indirectly, by merger or consolidation, by purchase or ownership of voting
securities of the Company or all or substantially all of the Company’s assets,
or otherwise.  The Company may also
assign this Agreement and the Company’s rights and obligations hereunder to any
subsidiary or affiliate of the Company, provided that upon any such assignment
the Company shall

 27
 

 

remain liable for the
obligations to Executive hereunder.  This
Agreement shall be binding upon and inure to the benefit of Executive,
Executive’s heirs, executors, administrators, and beneficiaries, and shall be
binding upon and inure to the benefit of the Company and its successors and
assigns.

10.           Complete
Understanding; Amendment; Waiver.  This
Agreement constitutes the complete understanding between the parties with
respect to the employment of Executive and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof, and no statement, representation,
warranty or covenant has been made by either party with respect thereto except
as expressly set forth herein.  This
Agreement shall not be modified, amended or terminated except by a written
instrument signed by each of the parties. 
Any waiver of any term or provision hereof, or of the application of any
such term or provision to any circumstances, shall be in writing signed by the
party charged with giving such waiver. 
Waiver by either party of any breach hereunder by the other party shall
not operate as a waiver of any other breach, whether similar to or different
from the breach waived.  No delay by
either party in the exercise of any rights or remedies shall operate as a
waiver thereof, and no single or partial exercise by either party of any such
right or remedy shall preclude other or further exercise thereof.

11.           Severability.  If any provision of this Agreement or the
application of any such provision to any person or circumstances shall be
determined by any court of competent jurisdiction or arbitration panel to be
invalid or unenforceable to any extent, the remainder of this Agreement, or the
application of such provision to such person or circumstances other than those
to which it is so determined to be invalid or unenforceable, shall not be
affected thereby, and each provision hereof shall be enforced to the fullest
extent permitted by law.  If any
provision of this Agreement, or any part thereof, is held to be invalid or
unenforceable because of the scope or duration of or the area covered by such
provision, the parties hereto agree that the court or arbitration panel making
such determination shall reduce the scope, duration and/or area of such
provision (and shall substitute appropriate provisions for any such invalid or
unenforceable provisions) in order to make such provision enforceable to the
fullest extent permitted by law and/or shall delete specific words and phrases,
and such modified provision shall then be enforceable and shall be
enforced.  The parties hereto recognize
that if, in any judicial or arbitral proceeding, a court or arbitration panel
shall refuse to enforce any of the separate covenants contained in this
Agreement, then that invalid or unenforceable covenant contained in this
Agreement shall be deemed eliminated from these provisions to the extent
necessary to permit the remaining separate covenants to be enforced. In the
event that any court or arbitration panel determines that the time period or
the area, or both, are unreasonable and that any of the covenants is to that
extent invalid or unenforceable, the parties hereto agree that such covenants
will remain in full force and effect, first, for the greatest time period, and
second, in the greatest geographical area that would not render them
unenforceable.

 28
 

 

12.           Survivability.  The provisions of this Agreement which by
their terms call for performance subsequent to termination of Executive’s
employment hereunder shall so survive such termination, whether or not such
provisions expressly state that they shall so survive.

13.           Governing
Law; Arbitration.

(a)           Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed within that State, without regard to
its conflict of laws provisions or where the parties are located at the time a
dispute arises.

(b)           Arbitration.  Executive and the Company agree that, except
for claims for Workers’ Compensation, Unemployment Compensation, and any other
claim that is non-arbitrable under applicable law, final and binding arbitration
shall be the exclusive forum for any dispute or controversy between them,
including, without limitation, disputes arising under or in connection with
this Agreement, Executive’s employment, and/or termination of employment, with
the Company; provided, however, that the Company shall be entitled to commence
an action in any court of competent jurisdiction for injunctive relief in
connection with any alleged actual or threatened violation of any provision of
Section 6.  Judgment may be entered on
the arbitrators’ award in any court having jurisdiction.  For purposes of entering such judgment or
seeking injunctive relief with regard to Section 6, the Company and Executive
hereby consent to the jurisdiction of any or all of the following courts: (i)
the United States District Court for the Southern District of New York; (ii)
the Supreme Court of the State of New York, New York County; or (iii) any other
court having jurisdiction; provided, that damages for any alleged violation of
Section 6, as well as any claim, counterclaim or crossclaim brought by
Executive or any third-party in response to, or in connection with, any court
action commenced by the Company seeking said injunctive relief shall remain
exclusively subject to final and binding arbitration as provided for
herein.  The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which
either may now or hereafter have to such jurisdiction or venue and any defense
of inconvenient forum.  Thus, except for
the claims carved out above, this agreement to arbitrate includes all
common-law and statutory claims (whether arising under federal state or local
law), including, but not limited to, any claim for breach of contract, fraud,
fraud in the inducement, unpaid wages, wrongful termination, and gender, age,
national origin, sexual orientation, marital status, disability, or any
other  protected status.

(c)           Notwithstanding any provision in this
Section 13, Executive shall be entitled to seek in any court of competent jurisdiction
specific performance of Executive’s right (which is hereby acknowledged and
agreed to by the Company) to be paid all compensation, benefits and other
amounts required to be paid during the pendency of any dispute or controversy
arising under or in connection with this

 29
 

 

Agreement, which, to the extent such amounts are paid
by the Company shall be credited against the total amounts otherwise finally
determined to be owed to Executive pursuant to this Agreement.

(d)           All reasonable costs and expenses
(including, without limitation, reasonable fees and expenses of counsel)
incurred by Executive in seeking to enforce rights pursuant to this Agreement
shall be paid by the Company on behalf of Executive (or, if already paid by
Executive, reimbursed to Executive by the Company) to the extent that Executive
prevails in enforcing such rights before a court of competent jurisdiction or
arbitral tribunal.

(e)           Any arbitration under this Agreement shall
be filed exclusively with the American Arbitration Association in New York, New
York before three arbitrators, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association in
effect at the time of submission to arbitration.  The Company and Executive hereby agree that a
judgment upon an award rendered by the arbitrators may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law.  The Company shall pay all costs
uniquely attributable to arbitration, including the administrative fees and
costs of the arbitrators.  Subject to
Section 13(d) hereof, each party shall pay that party’s own costs and attorney
fees, if any.  Executive understands that
he is giving up no substantive rights, and this Agreement simply governs forum.  The arbitrators shall apply the same
standards a court would apply to award any damages, attorney fees or
costs.  Executive shall not be required
to pay any fee or cost that he would not otherwise be required to pay in a
court action, unless so ordered by the arbitrators.

(f)            BY SIGNING THIS AGREEMENT, EXECUTIVE AND
THE COMPANY ACKNOWLEDGE THAT THE RIGHT TO A COURT TRIAL AND TRIAL BY JURY IS OF
VALUE, AND KNOWINGLY AND VOLUNTARILY WAIVE THAT RIGHT FOR ANY DISPUTE SUBJECT
TO THE TERMS OF THIS ARBITRATION PROVISION.

14.           Titles and Captions.  All paragraph titles or captions in this
Agreement are for convenience only and in no way define, limit, extend or
describe the scope or intent of any provision hereof.

15.           Joint
Drafting.  In recognition of the fact that
the parties hereto had an equal opportunity to negotiate the language of, and
draft, this Agreement, the parties acknowledge and agree that there is no
single drafter of this Agreement and therefore, the general rule that
ambiguities are to be construed against the drafter is, and shall be,
inapplicable.  If any language in this
Agreement is found or claimed to be ambiguous, each party shall have the same
opportunity to present evidence as to the actual intent of the parties with
respect to any such ambiguous language without any inference or presumption
being drawn against any party.

 30
 

 

16.           Reimbursement
of Expenses of Executive in Negotiating Agreement.  All reasonable costs and expenses (including,
without limitation, reasonable fees and disbursements of counsel) incurred by
Executive in connection with the negotiation, preparation, execution, or
delivery of this Agreement shall be paid on behalf of Executive (or, if already
paid by Executive, reimbursed to Executive) promptly by the Company.

17.           Notices.  Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by
Federal Express or other similar overnight service or by certified or
registered mail, return receipt requested, postage prepaid and addressed to
such party at the address set forth below or at such other address as may be
designated by such party by like notice:

To the Company:

Scientific
Games Corporation

750
Lexington Avenue

New
York, N.Y. 10022

Attention: General Counsel

To Executive:

A.
Lorne Weil

51
East 90th Street

Penthouse
B

New York, New York 10128

With a copy to:

Hogan
& Hartson L.L.P.

875
Third Avenue

New
York, New York 10022

Attention: Andrew J. Trubin

18.           Counterparts.  This Agreement may be executed in two or more
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same
Agreement.  Delivery of an executed
counterpart of a signature page to this Agreement by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Agreement.

 31
 

 

IN
WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement on
August 8, 2006, to be deemed effective as of the date first above written.

 

 

	
  

  	
  SCIENTIFIC GAMES CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name: A. Lorne
  Weil

  

 

 32
 

 

EXHIBIT B

LIST OF PRE-EXISTING INVENTIONS OF EXECUTIVE

 33

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