Document:

Exhibit 10.04

 

 

 

 

 

 

ADMINISTRATION AGREEMENT

BETWEEN

VALERO GP HOLDINGS, LLC

AND

VALERO GP, LLC

DATED AS OF July 19, 2006

 

ADMINISTRATION
AGREEMENT

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

RECITALS

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

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

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

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

ARTICLE I

DEFINITIONS

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

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

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

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

 

 

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

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

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

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

ARTICLE II

PROVISION OF SERVICES

Section 2.1                Provision
of Administrative Services by Valero GP.

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

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

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

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

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

Section 2.2            Fees for Administrative
Services.

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

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

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

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

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

Section 2.3                Payment
of Fees.

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

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

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

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

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

ARTICLE III

MISCELLANEOUS

Section 3.1            Termination/Change of Control.

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

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

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

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

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

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

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

Section 3.4                Limited
Warranty; Limitation of Liability

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

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

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

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

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

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

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

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

Valero GP, LLC

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One Valero Way

San Antonio, Texas 78249

Attention:  Legal Department

Telecopy: (210) 345-4861

(b)                                 in
the case of Holdings, to:

Valero GP Holdings, LLC

One Valero Way

San Antonio, Texas 78249

Attention: Legal Department

Telecopy: (210) 345-xxxx

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

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

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

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

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

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

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

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

	
   

  	
  VALERO
  GP, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Curtis V. Anastasio

  
	
   

  	
  Name:

  	
  Curtis V. Anastasio

  
	
   

  	
  Title:

  	
  President and Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  VALERO
  GP HOLDINGS, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Steven A. Blank 

  
	
   

  	
  Name:

  	
  Steven A. Blank

  
	
   

  	
  Title:

  	
  Senior Vice President,
  Chief Financial Officer and TreasurerExhibit 10.05

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 Curtis V.
Anastasio (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

 4
 

 

 

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,

 5
 

 

 

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

 6
 

 

 

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.

 7
 

 

 

(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

 8
 

 

 

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”);

 9

 

 

(B)           the amount equal to
the product of (i) three 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 three 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 three years is
that required by Sections 3(b)(1) and 3(b)(2) payable in equal monthly
installments over such three 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 three 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
three 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 three 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 

 10
 

 

 

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.

	
   

  	
  /s/ Curtis V. Anastasio

  
	
   

  	
  Curtis
  V. Anastasio

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VALERO
  L.P.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  Riverwalk
  Logistics, L.P., its general partner, 

  
	
   

  	
  by Valero GP,
  LLC, its general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Steven A.
  Blank

  
	
   

  	
  Name: Steven A.
  Blank

  
	
   

  	
  Title: Senior
  Vice President, Chief Financial 

  Officer and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VALERO
  GP, LLC

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Steven A.
  Blank

  
	
   

  	
  Name: Steven A.
  Blank

  
	
   

  	
  Title: Senior
  Vice President, Chief Financial Officer 

  and Treasurer

  

 

 20

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