Document:

Stipulation with the NYDOI

 Exhibit 10.2 
 

 
 STATE OF NEW YORK 
 INSURANCE DEPARTMENT 
 25 BEAVER STREET 
 NEW YORK, NEW YORK 10004 
  

			
	In the Matter of	  	
		
	 ACE LIMITED, ACE GROUP HOLDINGS, INC. and
 their insurer subsidiaries authorized to transact
 insurance business in the State of New York,
	  	 STIPULATION
 No. 2006-0108-S

	Respondents.	  	

 WHEREAS, Respondent ACE Limited is a Cayman Islands corporation with its principal place of
business in Bermuda and is a holding company within the meaning of Article 15 of the New York Insurance Law (“Insurance Law”) which owns and or controls ACE Group Holdings, Inc., a Delaware corporation, ACE INA Holdings, Inc., a Delaware
corporation, and the following insurers authorized to transact insurance business in the State of New York: ACE Fire Underwriters Insurance Company, ACE Property and Casualty Insurance Company, Century Reinsurance Company, Bankers Standard Insurance
Company, Century Indemnity Company, ACE American Insurance Company, ACE American ReInsurance Company, Insurance Company of North America, Pacific Employers Insurance Company, Westchester Fire Insurance Company, ACE Indemnity Insurance Company,
Indemnity Insurance Company of North America and ACE Capital Title Reinsurance Company; 
 WHEREAS, pursuant to the provisions of Executive
Law § 63 (12), the Donnelly Act (Gen. Bus. Law § 340 et seq.), the Martin Act (Gen. Bus. Law § 352-c) and the common law of the State of New York, Eliot Spitzer, Attorney General of the State of New York, caused an
investigation to be made of ACE Limited and its subsidiaries including but not limited to ACE Group Holdings, Inc. and ACE INA Holdings, Inc. (collectively “ACE”) relating to practices in the marketing, sale, renewal, placement or
servicing of insurance and reinsurance and their accounting and public reporting practices, including those relating to nontraditional and finite insurance and reinsurance (the “Investigation”); and pursuant to Conn. Gen. Stat. §
35-24 et seq. (the Connecticut Antitrust Act) and Conn. Gen. Stat. § 42-110a et seq. (the Connecticut Unfair Trade Practices Act), Richard Blumenthal, Attorney General of the State of Connecticut, caused an investigation to be made of ACE on the subject matter of the Investigation; and pursuant to the Illinois
Antitrust Act, 740 ILCS 10/1 et seq. and the Illinois 

			
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Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. Lisa Madigan, Attorney General of the State of Illinois, caused an
investigation to be made of ACE on the subject matter of the Investigation (collectively “Attorneys General Investigations”); 
 WHEREAS, the Superintendent of Insurance of the State of New York (“Superintendent”) and the New York State Insurance Department (“Department”) conducted an investigation of ACE on the subject matter of the Investigation
(the “Superintendent’s Investigation”); 
 WHEREAS, the Attorneys General and the Superintendent allege that ACE unlawfully
deceived policyholders, regulators and other authorities and shareholders by: (a) participating in schemes to steer business; (b) participating in rigging of bids for excess casualty insurance through Marsh & McLennan Companies,
Inc. (“Marsh”); and (c) improperly using insurance transactions to bolster the quality, quantity and stability of their clients and ACE’s earnings; 
 WHEREAS, ACE has been and is continuing to cooperate with the Attorneys General Investigations and the Superintendent’s Investigation; 
 WHEREAS, the Attorneys General have resolved all issues uncovered to date (with the exception of those areas noted below) in the Attorneys General
Investigations pursuant to an Assurance of Discontinuance and Voluntary Compliance (the “Assurance”); 
 WHEREAS, in the wake of
the Attorneys General Investigations and the Superintendent’s Investigation, ACE has adopted and under the Assurance and this Stipulation, ACE will continue to implement a number of business reforms governing the conduct of employees of ACE;

 WHEREAS, the Superintendent and ACE are entering into this Stipulation to resolve all issues uncovered to date in the
Superintendent’s Investigation, but not including any issues in the Superintendent’s current examination of Westchester Fire Insurance Company; 
 WHEREAS, nothing herein shall be construed to apply to any business or operations involving group and individual: (1) fixed and variable life insurance, (2) fixed and variable, immediate and deferred
annuities, (3) accidental death and dismemberment insurance, (4) short and long term disability insurance, (5) long term care insurance, (6) accident and health insurance, including vision and dental insurance, (7) credit
insurance, (8) involuntary unemployment insurance, (9) guaranteed investment contracts, and (10) funding agreements (collectively “ACE’s Life Insurance Operations”). Nor shall this Stipulation nor any its provisions be
construed to apply to or waive any claims or causes of action related to any Loss Portfolio Arrangement, Loss 

			
	In the Matter of ACE Limited, et al.	  	 Page  
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Portfolio Program nor any similar Worker’s Compensation arrangement with the State of Connecticut or any department or entity thereof (collectively
“Connecticut’s Worker’s Compensation investigation”); 
 WHEREAS, this Stipulation is entered into solely for the purpose
of resolving the Superintendent’s Investigation (with the exceptions noted above) and is not intended to be used for any other purpose; NOW THEREFORE 
 IT IS HEREBY STIPULATED AND AGREED by and between ACE and the Department, subject to the approval of the Superintendent, as follows: 
 BID RIGGING – EXCESS CASUALTY POLICYHOLDERS 
 1. On or before June 7, 2006, ACE Group
Holdings, Inc. shall pay $40 million into a fund (the “Excess Casualty Fund”) held by ACE to be paid to ACE’s policyholders who purchased or renewed ACE’s Excess Casualty policies (including policies written on the “Bermuda
Form” in categories 1 and 2 as classified by ACE), excluding Excess Workers Compensation policies, through Marsh during the period from January 1, 2002 through September 30, 2004 (the “Eligible Policyholders”). All of the
money paid into the Excess Casualty Fund and any investment or interest income earned thereon shall be paid to Eligible Policyholders pursuant to this Assurance. No portion of the Excess Casualty Fund shall be considered a fine or a penalty.

 2. The Excess Casualty Fund shall be invested in a designated money market fund subject to the prior approval of the Attorneys General and
the Superintendent. 
 3. ACE shall (a) by August 9, 2006 calculate the amount of money each of the Eligible Policyholders paid for
excess casualty insurance placed through Marsh with inception or renewal dates during the period from January 1, 2002 through September 30, 2004 (the “Eligible Policies”); (b) within ten days of completing these
calculations, file a report with the Attorneys General and the Superintendent, certified by an officer of ACE, setting forth: (i) each Eligible Policyholder’s name and address; (ii) the Eligible Policyholder’s Eligible
Policy(ies) purchased or renewed and policy number(s); (iii) the amount the Eligible Policyholder paid in premiums for each such policy; and (iv) the amount each policyholder is eligible to receive which shall equal each
policyholder’s pro rata share of the Excess Casualty Fund as calculated by multiplying the amount in the Excess Casualty Fund by the ratio of the policyholder’s gross written premium for Eligible Policies for the period from
January 1, 2002 through September 30, 2004, divided by the total gross written premium for all Eligible Policies; and (c) by August 23, 2006, send a notice to each Eligible Policyholder, setting forth items (ii) through
(iv), above, and stating that the amount paid may increase if there is less than full participation by Eligible Policyholders in the Excess Casualty Fund (the “Excess 

			
	In the Matter of ACE Limited, et al.	  	 Page  
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Notice”). The form of the Excess Notice shall be subject to the prior approval of the Attorneys General and Superintendent. 
 4. Eligible Policyholders who receive an Excess Notice and who voluntarily elect to receive a cash distribution (the “Participating
Policyholders”) shall tender a release in the form attached hereto on or before January 26, 2007. 
 5. On or before March 6,
2007, ACE Group Holdings, Inc. shall pay each Participating Policyholder the amount that that Participating Policyholder is eligible to receive from the Excess Casualty Fund as set forth in paragraph 3(b)(iv) above, and any interest or investment
income earned thereon. 
 6. On or before April 6, 2007, ACE shall file an interim report with the Attorneys General and the
Superintendent, certified by an officer of ACE, listing all amounts paid from the Excess Casualty Fund. 
 7. In the event that any Eligible
Policyholder elects not to participate or otherwise does not respond to the Excess Notice (the “Non-Participating Policyholders”), the amount that such policyholder was eligible to receive from the Excess Casualty Fund as set forth in
paragraph 3(b)(iv) may be used by ACE to satisfy any pending or other claims asserted by policyholders relating to the excess casualty bid rigging or excess casualty steering allegations set forth in this Assurance, provided that in no event shall a
distribution be made from the Excess Casualty Fund to any other policyholder until all Participating Policyholders have been paid the full aggregate amount set forth in paragraph 3(b)(iv) above, and any interest or investment income earned thereon;
nor shall the total payments from the Excess Casualty Fund to any Non-Participating Policyholder exceed 80% of the amount that Non-Participating Policyholder was originally eligible to receive as set forth in paragraph 3(b)(iv). 
 8. If any money remains in the Excess Casualty Fund as of January 7, 2008 any such funds shall be distributed by February 7, 2008 on a pro rata
basis to the Participating Policyholders. 
 9. In no event shall any of the money in the Excess Casualty Fund or the investment or interest
income earned thereon be used to pay or considered in the calculation of attorneys fees. 
 10. In no event shall any of the money in the
Excess Casualty Fund or the investment or interest income earned thereon be used to pay or considered in the calculation of commissions, administrative or other fees to ACE. 

			
	In the Matter of ACE Limited, et al.	  	 Page  
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 11. On or before February 22, 2008, ACE shall file a report with the Attorneys General and the
Superintendent, certified by an officer of ACE, listing all amounts paid from the Excess Casualty Fund, including any payments subsequent to the payments described in paragraph 6. 
 MONETARY FINE, PENALTY AND PAYMENT 
 12. On or before June 7, 2006, ACE
Group Holdings, Inc. shall pay $40 million as a fine or penalty of which a $24 million fine will be paid by wire transfer to the State of New York, a $8 million payment will be made in accordance with 815 ILCS 505/7(d) by wire transfer to the State
of Illinois and a $8 million penalty will be paid by wire transfer to the State of Connecticut. Each Attorney General and the Superintendent shall provide issuing instructions with respect to the payments. These fines and penalties are imposed for
all of the improper conduct described in the Assurance and this Stipulation. 
 BUSINESS REFORMS 
 13. ACE commits that ACE will enact policies and procedures satisfactory to the Attorneys General and the Superintendent to prevent transactions designed
solely to manipulate accounting results, transactions involving insufficient risk transfer created for purposes of improperly qualifying such transactions for reinsurance accounting, and transactions that contain undisclosed side agreements.

 14. ACE shall not engage or attempt to engage in violations of New York State Executive Law § 63(12), New York State’s Donnelly
Act (Gen. Bus. Law § 340 et seq.), New York State’s Martin Act (Gen. Bus. Law § 352-c), New York Insurance Law, Conn. Gen. Stat. § 35-24 et seq, 42-1l0a et seq. and 33-1335 and the Illinois Antitrust Act, 740 ILCS 10/1 et seq.
and the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. 
 REINSURANCE REPORTING OBLIGATIONS

 15. For a period of five years beginning August 7, 2006, ACE will provide annually by May 1 of each year to the
Superintendent a report, in a format approved by the Superintendent, that includes: 
 a. A review of ceded and assumed reinsurance of the
property/casualty insurance subsidiaries of ACE required to file statutory financial statements on the NAIC blanks (the “Property/Casualty Insurers”) verifying that all contracts comply with SSAP 62 and 75 and the new NAIC disclosure and
attestation 

			
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requirements including the attestation that with respect to all reinsurance contracts for which the reporting entity is taking credit on its current
financial statements, to the best of ACE’s knowledge and belief, after diligent inquiry and unless noted as an exception under the attestation requirement: 
 i. Consistent with SSAP 62, there are no separate written or oral agreements between the reporting entity (or its affiliates or companies it controls) and the assuming reinsurer that would under any circumstances,
reduce, limit, mitigate or otherwise affect any actual or potential toss to the parties under the reinsurance contract, other than inuring contracts that are explicitly defined in the reinsurance contract except as disclosed; 
 ii. For each such reinsurance contract entered into, renewed or amended on or after January 1, 1994, for which risk transfer is not reasonably
considered to be self-evident, documentation concerning the economic intent of the transaction and the risk transfer analysis evidencing the proper accounting treatment, as required by SSAP 62 and 75, is available for review; 
 iii. The reporting entity complies with all the requirements set forth in SSAP 62 and 75, and any supporting documentation is available for review;

 iv. The reporting entity has appropriate controls in place to monitor the use of reinsurance and adhere to the provisions of SSAP 62 and
75. 
 b. A list of all its affiliated insurers, categorized by domicile, whether controlled through ownership or otherwise under the
Insurance Law. The list shall include the percentage of ownership or other means by which ACE controls the affiliated insurer. 
 c. A list of
its ownership of five percent or more of the voting shares of any non-affiliated insurer entities. 
 d. A list of non-affiliated insurers to
whom ACE’s Property/Casualty Insurers have ceded business during the preceding calendar year either directly, or through retrocession agreements if known, excluding those captive reinsurance entities that do not accept third party business,
where the business ceded represents fifty percent or more of the entire direct and assumed premium written by insurer, based upon such insurer’s most recent publicly available financial statements. 

			
	In the Matter of ACE Limited, et al.	  	 Page  
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 Such report shall be certified by the Chief Reinsurance Officer and the Chief Executive Officer of ACE Limited and a
copy of such report shall be submitted to the relevant Audit Committee of ACE. 
 16. The Chief Reinsurance Officers of ACE will maintain
approved lists of reinsurers. ACE will not cede insurance to any reinsurer not set forth on those lists. Such lists will be available to the Superintendent upon examination. All approved reinsurance relationships will be reviewed by the Chief
Reinsurance Officer of ACE Limited and such review will include a written determination of whether the reinsurance entity is affiliated or controlled (by ownership, by contract or otherwise) by ACE. 
 17. Additional Undertakings. 
 a. ACE agrees
that it will establish and maintain a training and education program, completion of which will be required for all officers, executives, and employees of ACE who have supervisory responsibility over accounting, financial reporting and public
disclosure functions relating to the United States (collectively, the “Mandatory Participants”). 
 b. The training and education
program shall be designed to cover, at a minimum, the following: (i) the obligations imposed by federal and state securities law, ACE’s financial reporting and disclosure obligations; (ii) the financial reporting and disclosure
obligations imposed on ACE by New York State, Illinois and Connecticut insurance laws; (iii) compliance with federal and state anti-trust laws; (iv) proper internal accounting controls and procedures; (v) discovering and recognizing
accounting practices that do not conform to GAAP or SSAP or that are otherwise improper; and (vi) the obligations assumed by, and responses expected of the Mandatory Participants upon learning of improper, illegal or potentially illegal acts
relating to ACE’s accounting and financial reporting. The General Counsel of ACE Limited shall communicate to Mandatory Participants, in writing or by video, its endorsement of the training and education program. 
 COOPERATION WITH THE SUPERINTENDENT 
 18. ACE will maintain and provide to the Superintendent, upon the Superintendent’s request, complete underwriting files, including correspondence and e-mails, and risk transfer analysis to the extent required by SSAP 62 relating to all
reinsurance ceded or assumed by ACE. ACE will authorize its independent auditors and direct its internal auditors to make available to the Superintendent upon request all workpapers of their auditors, including but not limited to all Schedules of
Unadjusted Differences. 

			
	In the Matter of ACE Limited, et al.	  	 Page  
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 19. ACE will file all holding company transactions in a timely manner in compliance with Article 15
of the New York Insurance Law and Department Regulation 52. 
 20. ACE will cooperate fully on all examinations and on all other regulatory
requests and will respond to all Department inquiries in a prompt, timely and complete manner and will provide appropriate staff during examinations in order to provide timely responses. Failure to respond to the Department in a timely manner, as
required by this paragraph, will constitute violations of this Assurance and the Insurance Law. Any issues that relate to the timeliness of the responses shall be reported to the Chief Financial Officer of ACE Limited. 
 21. The Chair of the ACE’s Audit Committee, if requested, will meet with the Superintendent and/or a designated official of the Superintendent on an
annual basis or more frequently as deemed necessary by the Superintendent. 
 OTHER PROVISIONS 
 22. ACE shall implement procedures and controls designed to provide full and complete disclosure to state insurance regulators. 
 23. ACE commits that it shall not seek or accept, directly or indirectly, indemnification pursuant to any insurance policy, with regard to any or all of
the amounts payable pursuant to this Stipulation and the Assurance. 
 24. None of the provisions of this Stipulation shall apply to either
ACE’s Life Insurance Operations or Connecticut’s Worker’s Compensation Investigation. 
 25. The Superintendent agrees that
any prior approval required under the terms of this Stipulation shall not be unreasonably withheld. 
 26. This Stipulation is not intended
to disqualify ACE, its subsidiaries, or any of its current employees from engaging in any business in New York, Illinois, Connecticut or in any other jurisdiction. Nothing in this Stipulation shall relieve ACE or its subsidiaries of obligations
imposed by any applicable state insurance law or regulations or other applicable law. 
 27. This Stipulation shall not confer any rights
upon any persons or entities besides the Superintendent, the Department and ACE. 
 28. ACE shall maintain custody of, or make arrangements
to have maintained, all documents and records related to this matter for a period of not less than six years. 

			
	In the Matter of ACE Limited, et al.	  	 Page  
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 29. ACE neither admits nor denies the allegations contained in the Assurance or this Stipulation.

 30. This Stipulation shall in no way limit the statutory authority of the Superintendent to take regulatory action to enforce this
Stipulation, or to examine, investigate and/or take regulatory action against ACE or any current or former licensee of the Department for any violations of the Insurance Law or Department Regulation other than the specific matters resolved by this
Stipulation and the Assurance. 
 31. The monetary obligations described in paragraphs 1-12 above in this Stipulation are identical to the
monetary payment obligations contained in the Assurance and, as a result, ACE need only make one payment with respect to each such obligation. 
  

	Dated:	New York, New York 

 April 25th, 2006 
  

					
	 NEW YORK STATE INSURANCE DEPARTMENT

			
	By:	 	  	 	/s/ Jon G. Rothblatt
		 		 	Jon G. Rothblatt
		 		 	Principal Attorney
	
	 ACE LIMITED

			
	By:	 	  	 	/s/ Robert Cusumano
		 	Name:	 	Robert Cusumano
		 	Title:	 	General Counsel
	
	 ACE GROUP HOLDINGS, INC,

			
	By:	 	  	 	/s/ Robert Cusumano
		 	Name:	 	Robert Cusumano
		 	Title:	 	General Counsel

			
	In the Matter of ACE Limited, et al.	  	Page  10

  

			
	 STATE OF New York
	  	)
		  	) ss.:
	 COUNTY OF New York
	  	)

 On this day of 25th day of April, 2006, before me personally came Robert Cusumano, to me known, who, being by me duly sworn, did depose and say that he is the General Counsel of
ACE Limited, the corporation described in and which executed the above instrument; and that he signed his name thereto by order of the board of directors of said corporation. 
  

	
	
	/s/ Helen Freemonde
	Notary Public
	
	HELEN FREEMONDE
	Notary Public, State of New York
	No. 41-4955250
	Qualified in Queens County
	Certificate Filed in New York County
	Commission Expires August 28, 2009

  

			
	 STATE OF New York
	  	)
		  	) ss.:
	 COUNTY OF New York
	  	)

 On this day of 25th day of April, 2006, before me personally came Robert Cusumano, to me known, who, being by me duly sworn, did depose and say that he is the General Counsel of
ACE Group Holdings, Inc., the corporation described in and which executed the above instrument; and that he signed his name thereto by order of the board of directors of said corporation. 
  

	
	
	/s/ Helen Freemonde
	Notary Public
	
	HELEN FREEMONDE
	Notary Public, State of New York
	No. 41-4955250
	Qualified in Queens County
	Certificate Filed in New York County
	Commission Expires August 28, 2009

 THE FOREGOING STIPULATION IS HEREBY APPROVED. 
 Dated: New York, New York 
             April 25, 2006 
  

			
	HOWARD MILLS
	Superintendent of Insurance
		
	By:	 	/s/ Susan Donnellan
		 	Susan Donnellan
		 	Deputy General Counsel

 RELEASE 
 This RELEASE (the “Release”) is executed this      day of
                    , 2006 by RELEASOR (defined below) in favor of RELEASEE (defined below). 
 DEFINITIONS 
 “RELEASOR” refers to [fill in name                     ] and any of its affiliates, subsidiaries, associates,
general or limited partners or partnerships, predecessors, successors, or assigns, including, without limitation, any of their respective present or former officers, directors, trustees, employees, agents, attorneys, representatives and
shareholders, affiliates, associates, general or limited partners or partnerships, heirs, executors, administrators, predecessors, successors, assigns or insurers acting on behalf of RELEASOR. 
 “RELEASEE” refers to ACE Limited and any of its subsidiaries, associates, general or limited partners or partnerships, predecessors,
successors, or assigns, including, without limitation, any of their respective present or former officers, directors, trustees, employees, agents, attorneys, representatives and shareholders, affiliates, associates, general or limited partners or
partnerships, heirs, executors, administrators, predecessors, successors, assigns or insurers (collectively, “ACE”). 
 “ASSURANCE” refers to an Assurance of Discontinuance and Voluntary Compliance between ACE and the Attorney General of the State of New York, the Attorney General of the State of Illinois and the Attorney General of the State of
Connecticut (collectively “Attorneys General”) dated April 25, 2006 and an accompanying stipulation between ACE and the Superintendent of Insurance of the State of New York (“NYSI”) dated April 25, 2006, relating to
(i) investigation by each of the Attorneys General and NYSI related to ACE’s alleged use of contingent commission agreements or placement service agreements to steer business; and (ii) investigations by each of the Attorneys General
and NYSI related to ACE’s alleged participation in bid rigging schemes. 
 RELEASE 
 1. In consideration for the total payment of $             in accordance with the
terms of the ASSURANCE, RELEASOR does hereby fully release, waive and forever discharge RELEASEE from any and all claims, demands, debts, rights, causes of action or liabilities whatsoever, including known and unknown claims, now existing or
hereafter arising, in law, equity or otherwise, whether under state, federal or foreign statutory or common law, and whether possessed or asserted directly, indirectly, derivatively, representatively or in any other capacity (collectively,
“claims”), to the extent any such claims arc based upon, arise out of or relate to, in whole or in part, (i) any of the allegations, acts, omissions, transactions, events, types of conduct or matters described in the ASSURANCE, or
were subject to investigation by any of the Attorneys General and NYSI as referenced in the ASSURANCE; (ii) any allegations, acts, omissions, transactions, events, types of conduct or matters that are the subject of In re Insurance Brokerage
Antitrust Litigation, MDL No. 1663, or the actions pending in the United States District Court for the District of New Jersey captioned In re: Insurance Brokerage Antitrust Litigation, Civ. No. 04-5184 (FSH), and In re
Employee Benefit Insurance Brokerage Antitrust Litigation. Civ. No. 05-1079 (FSH) or any related actions filed or transferred to the United States District Court for the District of New Jersey that are consolidated into either of the
preceding Civil Action dockets; or (iii) any allegations of bid-rigging or of the use of contingent commission agreements or placement service agreements to steer business arising from acts or conduct on or before the date of the ASSURANCE;
provided, however, that RELEASOR does not hereby release, waive, or discharge RELEASEE from any claims that are based upon, arise out of or relate to (a) the purchase or sale of 

 ACE’s securities; and (b) ACE’s Life Insurance Operations (as defined by the Assurance to which this
Release is an exhibit); (c) Connecticut’s Worker’s Compensation Investigation (as defined by the Assurance to which this Release is an exhibit). 
 2. In the event that the total payment referred to in paragraph I is not made for any reason, then this RELEASE shall be deemed null, and void, provided that any payments received by RELEASOR shall be credited to ACE
in connection with any claims that RELEASOR may assert against ACE, or that are asserted on behalf of RELEASOR or by a class of which RELEASOR is a member, against ACE. 
 3. This RELEASE may not be changed orally and shall be governed by and interpreted in accordance with the internal laws of the State of New York, without giving effect to choice of law principles, except to the extent
that federal law requires that federal law governs. Any disputes arising out of or related to this RELEASE shall be subject to the exclusive jurisdiction of the Supreme Court of the State of New York or, to the extent federal jurisdiction exists,
the United States District Court for the Southern District of New York. 
 4. Releasor represents and warrants that the claims have not been
sold, assigned or hypothecated in whole or in part. 
  

	Dated:	                     

  

	RELEASOR:	                                      
   

 By:
                     
 Print Name:
                     
 Title:Form of Note

 Exhibit 4.01 
 THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM,
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO A NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO CITIGROUP FUNDING INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 
  

					
	No. R-1	 		 	 INITIAL PRINCIPAL AMOUNT

	CUSIP: 17308C 51 0	 		 	 REPRESENTED $35,800,000

	ISIN: US 17308C5105	 		 	 representing 3,580,000 PACERS

		 		 	 ($10 per PACERS)

 CITIGROUP FUNDING INC. 
 Premium mAndatory Callable Equity-linked secuRitieS (PACERSSM) Based Upon

 the Common Stock of Valero Energy Corporation Due April 28, 2008 
 Citigroup Funding Inc., a Delaware corporation (hereinafter referred to as the “Company”, which term includes any successor corporation
under the Indenture herein referred to), for value received and on condition that this Note is not redeemed by the Company prior to April 28, 2008 (the “Stated Maturity Date”), hereby promises to pay to CEDE & CO., or
its registered assigns, the Maturity Payment (as defined below), on the Stated Maturity Date. This Note will not bear interest, is not subject to any sinking fund, is not subject to redemption at the option of the holder thereof prior to the Stated
Maturity Date, and is not subject to the defeasance provisions of the Indenture. The payments due on this Note are fully and unconditionally guaranteed by Citigroup Inc., a Delaware corporation (the “Guarantor”). 
 Payment of the Maturity Payment with respect to this Note shall be made upon presentation and surrender of this Note at the corporate trust office of the
Trustee in the Borough of Manhattan, The City and State of New York, in such coin or currency of the United States as at the time of payment is legal tender for payment of public and private debts or, if applicable, in the common stock of Valero
Energy Corporation (“Valero Energy common stock”). 

 This Note is one of the series of Premium mAndatory Callable Equity-linked secuRitieS (PACERSSM) Based Upon the Common Stock of Valero Energy Corporation Due April 28, 2008 (the “PACERS”). 

INTEREST 
 The PACERS do
not bear interest. No payments on the PACERS will be made until the Stated Maturity Date, unless the Company is required to call the PACERS, as described below. 
 MANDATORY CALL FEATURE 
 The
Company is required to call the PACERS, in whole, but not in part, if the closing value of Valero Energy common stock on any Trading Day during the three Trading-Day periods starting on and including October 24, 2006, April 24,
2007, October 24, 2007 or April 21, 2008 (each, a “Call Determination Period”) is greater than or equal to approximately 95% of the Initial Share Price of $69.10. The Trading Day within a Call Determination Period on
which the PACERS are called, if any, is the “Call Date.” If the Company calls the PACERS, holders of PACERS will receive for each PACERS a price in cash (the “Call Price”) equal to the sum of $10 and a Mandatory
Call Premium. The Mandatory Call Premium will equal $0.65 per PACERS if the PACERS are called during the Call Determination Period beginning on October 24, 2006; $1.30 per PACERS if the PACERS are called during the Call Determination Period
beginning on April 24, 2007; $1.95 per PACERS if the PACERS are called during the Call Determination Period beginning on October 24, 2007; and $2.60 per PACERS if the PACERS are called during the Call Determination Period beginning on
April 21, 2008. 
 If the Company calls the PACERS during the Call Determination Period beginning on October 24,
2006, April 24, 2007 or October 24, 2007, the Company will provide notice of the call, including the exact call payment date, within one business day after the Call Date, and the call payment date will be at least three business days
after the Call Date. If the Company calls the PACERS during the Call Determination Period beginning on April 21, 2008, the Company will not provide notice of a call but will pay the Call Price to holders of PACERS on the Stated Maturity Date.

 So long as the PACERS are represented by this Note and are held on behalf of DTC, call notices and other notices will be given by delivery
to DTC. If the PACERS are no longer represented by this Note or are not held on behalf of DTC, call notices and other notices will be published in a leading daily newspaper in the City of New York, which is expected to be The Wall Street
Journal. 
 PAYMENT AT MATURITY 
 If the Company calls the PACERS during the Call Determination Period beginning on April 21, 2008, on the Stated Maturity Date, holders of PACERS will receive for each PACERS a Call Price in cash equal to $12.60,
the sum of $10 and the applicable Mandatory Call Premium. If the Company does not call the PACERS during such period, holders of PACERS will receive for each PACERS the Maturity Payment described below. 
  

 2 

 DETERMINATION OF THE MATURITY PAYMENT 
 The Maturity Payment for each PACERS will equal either: 
  

	 	•	 	a number of shares of Valero Energy common stock equal to the Exchange Ratio, if the Trading Price of Valero Energy common stock on any Trading Day after the Pricing Date up to and
including the third Trading Day before the Stated Maturity Date is less than or equal to $41.46 (approximately 60% of the Initial Share Price) (any fractional shares will be paid in cash), which we refer to as the “Downside Trigger
Price,” or 

  

	 	•	 	$10 in cash. 

 In lieu of any fractional share of Valero
Energy common stock otherwise payable in respect of any PACERS, at maturity you will receive an amount in cash equal to the value of such fractional share. The number of full shares of Valero Energy common stock, and any cash in lieu of a fractional
share, to be delivered at maturity to each holder will be calculated based on the aggregate number of PACERS held by each holder. 
 The
“Initial Share Price” equals $69.10, the Trading Price of Valero Energy common stock at the close of trading on the Pricing Date. 
 The “Pricing Date” means April 24, 2006, the date on which the PACERS were priced for initial sale to the public. 
 The “Exchange Ratio” equals 0.14472, $10 divided by the Initial Share Price. 
 A “Market Disruption
Event” means the occurrence or existence of any suspension of or limitation imposed on trading (by reason of movements in price exceeding limits permitted by any exchange or market or otherwise) of, or the unavailability, through a
recognized system of public dissemination of transaction information, of accurate price, volume or related information in respect of, (1) the shares of Valero Energy common stock (or any other security for which a Trading Price or Closing Price
must be determined) on any exchange or market, or (2) any options contracts or futures contracts relating to the shares of Valero Energy common stock (or other security), or any options on such futures contracts, on any exchange or market, if,
in each case, in the determination of the calculation agent, any such suspension, limitation or unavailability is material. 
 A
“Trading Day” means a day, as determined by the calculation agent, on which trading is generally conducted (or was scheduled to have been generally conducted, but for the occurrence of a Market Disruption Event) on the New York
Stock Exchange, the American Stock Exchange, the Nasdaq National Market, the Chicago Mercantile Exchange and the Chicago Board Options Exchange, and in the over-the-counter market for equity securities in the United States. 
         The “Trading Price” of Valero Energy common stock or any other capital stock on any date of
determination will be (1) if the common stock or capital stock is listed on a national 
  

 3 

 securities exchange on that date of determination, any reported sale price, regular way, of the principal trading session
on that date on the principal U.S. exchange on which the common stock or capital stock is listed or admitted to trading, (2) if the common stock or capital stock is not listed on a national securities exchange on that date of determination, or
if the reported sale price on such exchange is not obtainable (even if the common stock or capital stock is listed or admitted to trading on such exchange), and the common stock or capital stock is quoted on the Nasdaq National Market, any reported
sale price of the principal trading session on that date as reported on the Nasdaq, and (3) if the common stock or capital stock is not quoted on the Nasdaq on that date of determination, or if the reported sale price on the Nasdaq is not
obtainable (even if the common stock or capital stock is quoted on the Nasdaq), any reported sale price of the principal trading session on the over-the-counter market on that date as reported on the OTC Bulletin Board, the National Quotation Bureau
or a similar organization. The determination of the Trading Price by the calculation agent in the event of a Market Disruption Event may be deferred by the calculation agent for up to five consecutive Trading Days on which a Market Disruption Event
is occurring, but not past the Trading Day prior to the Stated Maturity Date. If no reported sale price of the principal trading session is available pursuant to clauses (1), (2) or (3) above or if there is a Market Disruption Event, the
Trading Price on any date of determination, unless deferred by the calculation agent as described in the preceding sentence, will be the arithmetic mean, as determined by the calculation agent, of the bid prices of the common stock or capital stock
obtained from as many dealers in such stock (which may include Citigroup Global Markets Inc. or any of our other subsidiaries or affiliates), but not exceeding three such dealers, as will make such bid prices available to the calculation agent. A
security “quoted on the Nasdaq National Market” will include a security included for listing or quotation in any successor to such system and the term “OTC Bulletin Board” will include any successor to such service.

 DILUTION ADJUSTMENTS 
 If Valero Energy Corporation, after April 24, 2006, 
 (1) pays a stock dividend or makes a distribution with respect to its
common stock in shares of the stock, 
 (2) subdivides or splits the outstanding shares of its common stock into a greater number of shares,

 (3) combines the outstanding shares of the common stock into a smaller number of shares, or 
 (4) issues by reclassification of shares of its common stock any shares of other common stock of Valero Energy Corporation, 
 then, in each of these cases, the Exchange Ratio will be multiplied by a dilution adjustment equal to a fraction, the numerator of which will be the number of shares of
common stock outstanding immediately after the event, plus, in the case of a reclassification referred to in (4) above, the number of shares of other common stock of Valero Energy Corporation, and the denominator of 
  

 4 

 which will be the number of shares of common stock outstanding immediately before the event. The Initial Share Price and
the Downside Trigger Price will also be adjusted in that case in the manner described below. 
 If Valero Energy Corporation, after
April 24, 2006, issues, or declares a record date in respect of an issuance of, rights or warrants to all holders of its common stock entitling them to subscribe for or purchase shares of its common stock at a price per share less than the
Then-Current Market Price of the common stock, other than rights to purchase common stock pursuant to a plan for the reinvestment of dividends or interest, then, in each case, the Exchange Ratio will be multiplied by a dilution adjustment equal to a
fraction, the numerator of which will be the number of shares of common stock outstanding immediately before the adjustment is effected, plus the number of additional shares of common stock offered for subscription or purchase pursuant to the rights
or warrants, and the denominator of which will be the number of shares of common stock outstanding immediately before the adjustment is effected by reason of the issuance of the rights or warrants, plus the number of additional shares of common
stock which the aggregate offering price of the total number of shares of common stock offered for subscription or purchase pursuant to the rights or warrants would purchase at the Then-Current Market Price of the common stock, which will be
determined by multiplying the total number of shares so offered for subscription or purchase by the exercise price of the rights or warrants and dividing the product obtained by the Then-Current Market Price. To the extent that, after the expiration
of the rights or warrants, the shares of common stock offered thereby have not been delivered, the Exchange Ratio will be further adjusted to equal the Exchange Ratio which would have been in effect had the adjustment for the issuance of the rights
or warrants been made upon the basis of delivery of only the number of shares of common stock actually delivered. The Initial Share Price and the Downside Trigger Price will also be adjusted in that case in the manner described below. 
 If Valero Energy Corporation, after April 24, 2006, declares or pays a dividend or makes a distribution to all holders of the common stock of any class of its
capital stock, the capital stock of one or more of its subsidiaries, evidences of its indebtedness or other non-cash assets, excluding any dividends or distributions referred to in the above paragraph and excluding any issuance or distribution to
all holders of its common stock, in the form of Marketable Securities, of capital stock of one or more of its subsidiaries, or issues to all holders of its common stock rights or warrants to subscribe for or purchase any of its or one or more of its
subsidiaries’ securities, other than rights or warrants referred to in the above paragraph, then, in each of these cases, the Exchange Ratio will be multiplied by a dilution adjustment equal to a fraction, the numerator of which will be the
Then-Current Market Price of one share of the common stock, and the denominator of which will be the Then-Current Market Price of one share of the common stock, less the fair market value (as determined by a nationally recognized independent
investment banking firm retained for this purpose by the Company, whose determination will be final) as of the time the adjustment is effected of the portion of the capital stock, assets, evidences of indebtedness, rights or warrants so distributed
or issued applicable to one share of common stock. The Initial Share Price and the Downside Trigger Price will also be adjusted in that case in the manner described below. If any capital stock declared or paid as a dividend or otherwise distributed
or issued to all holders of Valero Energy common stock consists, in whole or in part, of Marketable Securities, then the fair market value of such Marketable Securities will 
  

 5 

 be determined by the calculation agent by reference to the Trading Price of such capital stock. The fair market value of
any other distribution or issuance referred to in this paragraph will be determined by a nationally recognized independent investment banking firm retained for this purpose by the Company, whose determination will be final. 
 Notwithstanding the foregoing, in the event that, with respect to any dividend or distribution to which the above paragraph would otherwise apply, the
denominator in the fraction referred to in the above formula is less than $1.00 or is a negative number, then the Company may, at its option, elect to have the adjustment provided by the above paragraph not be made and in lieu of this adjustment,
the Trading Price of Valero Energy common stock on any Trading Day thereafter up to and including the third Trading Day before the Stated Maturity Date will be deemed to be equal to the fair market value of the capital stock, evidences of
indebtedness, assets, rights or warrants (determined, as of the date this dividend or distribution is made, by a nationally recognized independent investment banking firm retained for this purpose by the Company, whose determination will be final)
so distributed or issued applicable to one share of Valero Energy common stock and, if the Trading Price of Valero Energy common stock on any Trading Day thereafter, up to and including the third Trading Day before the Stated Maturity Date, is less
than or equal to the Downside Trigger Price, each holder of the PACERS will have the right to receive at the Stated Maturity Date cash in an amount per PACERS equal to the Exchange Ratio multiplied by such fair market value. 
 If Valero Energy Corporation, after April 24, 2006, declares a record date in respect of a distribution of cash, other than any Permitted Dividends
described below, any cash distributed in consideration of fractional shares of common stock and any cash distributed in a Reorganization Event referred to below, by dividend or otherwise, to all holders of its common stock, or makes an Excess
Purchase Payment, then the Exchange Ratio will be multiplied by a dilution adjustment equal to a fraction, the numerator of which will be the Then-Current Market Price of the common stock, and the denominator of which will be the Then-Current Market
Price of the common stock on the record date less the amount of the distribution applicable to one share of common stock which would not be a Permitted Dividend, or, in the case of an Excess Purchase Payment, less the aggregate amount of the Excess
Purchase Payment for which adjustment is being made at the time divided by the number of shares of common stock outstanding on the record date. The Initial Share Price and the Downside Trigger Price will also be adjusted in that case in the manner
described below. 
 For the purposes of these adjustments: 
 A “Permitted Dividend” is any cash dividend in respect of Valero Energy common stock, other than a cash dividend that exceeds the immediately preceding cash dividend, and then only to the extent that
the per share amount of this dividend results in an annualized dividend yield on the common stock in excess of 10%. 
         An “Excess Purchase Payment” is the excess, if any, of (x) the cash and the value (as determined by a nationally recognized independent investment banking firm retained
for this purpose by the Company, whose determination will be final) of all other consideration paid by Valero Energy Corporation with respect to one share of common stock acquired in a tender offer 
  

 6 

 or exchange offer by Valero Energy Corporation, over (y) the Then-Current Market Price of the common stock.

 Notwithstanding the foregoing, in the event that, with respect to any dividend, distribution or Excess Purchase Payment to which the sixth
paragraph in this section would otherwise apply, the denominator in the fraction referred to in the formula in that paragraph is less than $1.00 or is a negative number, then the Company may, at its option, elect to have the adjustment provided by
the sixth paragraph in this section not be made and in lieu of this adjustment, the Trading Price of Valero Energy common stock on any Trading Day thereafter up to and including the third Trading Day before the Stated Maturity Date will be deemed to
be equal to the sum of the amount of cash and the fair market value of other consideration (determined, as of the date this dividend or distribution is made, by a nationally recognized independent investment banking firm retained for this purpose by
the Company, whose determination will be final) so distributed or applied to the acquisition of the common stock in the tender offer or exchange offer applicable to one share of Valero Energy common stock and, if the Trading Price of Valero Energy
common stock on any Trading Day thereafter, up to and including the third Trading Day before the Stated Maturity Date, is less than or equal to the Downside Trigger Price, each holder of the PACERS will have the right to receive at the Stated
Maturity Date cash in an amount per PACERS equal to the Exchange Ratio multiplied by such sum. 
 If any adjustment is made to the Exchange
Ratio as set forth above, an adjustment will also be made to the Initial Share Price and the Downside Trigger Price. The required adjustment will be made by dividing the Initial Share Price and the Downside Trigger Price by the relevant dilution
adjustment. In this case, the PACERS will be called if the Trading Price of Valero Energy common stock is greater than or equal to approximately 95% of the adjusted Initial Share Price. 
 If Valero Energy Corporation, after April 24, 2006, issues or makes a distribution to all holders of its common stock of the capital stock of one or
more of its subsidiaries, in each case in the form of Marketable Securities, and if the Trading Price on any Trading Day after April 24, 2006 up to and including the third Trading Day before the Stated Maturity Date (whether intra-day or at the
close of trading on any day) is less than or equal to the Downside Trigger Price, then, in each of these cases, each holder of the PACERS will receive at the Stated Maturity Date for each PACERS a combination of shares of Valero Energy common stock
equal to the Exchange Ratio and a number of shares of such Valero Energy subsidiaries’ capital stock equal to the Exchange Ratio times the number of shares of such subsidiaries’ capital stock distributed per share of Valero Energy common
stock. Following the record date for an event described in this paragraph, the “Trading Price” will equal the Trading Price of Valero Energy common stock, plus the Trading Price of such subsidiaries’ capital stock times the number of
shares of such subsidiaries’ capital stock distributed per share of Valero Energy common stock. In the event a distribution pursuant to this paragraph occurs, following the record date for such distribution, the adjustments described in
“Dilution Adjustments” will also apply to such subsidiaries’ capital stock if any of the events described in “Dilution Adjustments” occurs with respect to such capital stock. 
  

 7 

 Each dilution adjustment will be effected as follows: 
  

	 	•	 	in the case of any dividend, distribution or issuance, at the opening of business on the Business Day next following the record date for determination of holders of Valero Energy
common stock entitled to receive this dividend, distribution or issuance or, if the announcement of this dividend, distribution, or issuance is after this record date, at the time this dividend, distribution or issuance was announced by Valero
Energy Corporation, 

  

	 	•	 	in the case of any subdivision, split, combination or reclassification, on the effective date of the transaction, 

  

	 	•	 	in the case of any Excess Purchase Payment for which Valero Energy Corporation announces, at or prior to the time it commences the relevant share repurchase, the repurchase price
per share for shares proposed to be repurchased, on the date of the announcement, and 

  

	 	•	 	in the case of any other Excess Purchase Payment, on the date that the holders of the repurchased shares become entitled to payment in respect thereof. 

 All dilution adjustments will be rounded upward or downward to the nearest 1/10,000th or, if there is not a nearest 1/10,000th, to the next lower
1/10,000th. No adjustment in the Exchange Ratio will be required unless the adjustment would require an increase or decrease of at least one percent therein, provided, however, that any adjustments which by reason of this sentence are not required
to be made will be carried forward (on a percentage basis) and taken into account in any subsequent adjustment. If any announcement or declaration of a record date in respect of a dividend, distribution, issuance or repurchase requiring an
adjustment as described herein is subsequently canceled by Valero Energy Corporation, or this dividend, distribution, issuance or repurchase fails to receive requisite approvals or fails to occur for any other reason, then, upon the cancellation,
failure of approval or failure to occur, the Exchange Ratio, the Initial Share Price and the Downside Trigger Price will be further adjusted to the Exchange Ratio, the Initial Share Price and the Downside Trigger Price which would then have been in
effect had adjustment for the event not been made. If a Reorganization Event described below occurs after the occurrence of one or more events requiring an adjustment as described herein, the dilution adjustments previously applied to the Exchange
Ratio will not be rescinded but will be applied to the Reorganization Event as provided for below. 
         The
“Then-Current Market Price” of the common stock, for the purpose of applying any dilution adjustment, means the average Closing Price per share of common stock for the ten Trading Days immediately before this adjustment is effected
or, in the case of an adjustment effected at the opening of business on the Business Day next following a record date, immediately before the earlier of the date the adjustment is effected and the related Ex-Date. For purposes of determining the
Then-Current Market Price, the determination of the Closing Price by the calculation agent in the event of a Market Disruption Event, as described in the definition of Closing Price, may be deferred by the calculation agent for up to five
consecutive Trading 
  

 8 

 Days on which a Market Disruption Event is occurring, but not past the Trading Day prior to the Stated Maturity Date.

 The “Closing Price” of Valero Energy common stock (or any other security for which a Closing Price must be determined) on
any date of determination will be (1) if the common stock or other security is listed on a national securities exchange on that date of determination, the closing sale price or, if no closing sale price is reported, the last reported sale price
on that date on the principal U.S. exchange on which the common stock or other security is listed or admitted to trading, (2) if the common stock or other security is not listed on a national securities exchange on that date of determination,
or if the closing sale price or last reported sale price is not obtainable (even if the common stock or other security is listed or admitted to trading on such exchange), and the common stock or other security is quoted on the Nasdaq National
Market, the closing sale price or, if no closing sale price is reported, the last reported sale price on that date as reported on the Nasdaq, and (3) if the common stock or other security is not quoted on the Nasdaq on that date of
determination or, if the closing sale price or last reported sale price is not obtainable (even if the common stock or other security is quoted on the Nasdaq), the last quoted bid price for the common stock or other security in the over-the-counter
market on that date as reported by the OTC Bulletin Board, the National Quotation Bureau or a similar organization. The determination of the Closing Price by the calculation agent in the event of a Market Disruption Event may be deferred by the
calculation agent for up to five consecutive Trading Days on which a Market Disruption Event is occurring, but not past the Trading Day prior to the Stated Maturity Date. If no closing sale price or last reported sale price is available pursuant to
clauses (1), (2) or (3) above or if there is a Market Disruption Event, the Closing Price on any date of determination, unless deferred by the calculation agent as described in the preceding sentence, will be the arithmetic mean, as
determined by the calculation agent, of the bid prices of the common stock or other security obtained from as many dealers in such security (which may include Citigroup Global Markets Inc. or any of our other subsidiaries or affiliates), but not
exceeding three such dealers, as will make such bid prices available to the calculation agent. A security “quoted on the Nasdaq National Market” will include a security included for listing or quotation in any successor to such system and
the term “OTC Bulletin Board” will include any successor to such service. If, during any period of ten Trading Days used to calculate the Then-Current Market Price, there occurs any event requiring an adjustment to be effected as described
herein, then the Closing Price for each Trading Day in such period of ten Trading Days occurring prior to the day on which such adjustment is effected will be adjusted by being divided by the relevant dilution adjustment. 
 The “Ex-Date” relating to any dividend, distribution or issuance is the first date on which the shares of the common stock trade in the
regular way on their principal market without the right to receive this dividend, distribution or issuance. 
 In the event of any of the
following “Reorganization Events:” 
  

	 	•	 	any consolidation or merger of Valero Energy Corporation, or any surviving entity or subsequent surviving entity of Valero Energy Corporation, with or into another entity, other
than a merger or consolidation in which Valero Energy Corporation is the continuing corporation and in which the common stock 

  

 9 

 outstanding immediately before the merger or consolidation is not exchanged for cash, securities or other
property of Valero Energy Corporation or another issuer, 
  

	 	•	 	any sale, transfer, lease or conveyance to another corporation of the property of Valero Energy Corporation or any successor as an entirety or substantially as an entirety,

  

	 	•	 	any statutory exchange of securities of Valero Energy Corporation or any successor of Valero Energy Corporation with another issuer, other than in connection with a merger or
acquisition, or 

  

	 	•	 	any liquidation, dissolution or winding up of Valero Energy Corporation or any successor of Valero Energy Corporation, 

 the Trading Price of Valero Energy common stock on any Trading Day thereafter up to and including the third Trading Day before the Stated Maturity Date will be deemed to
be equal to the Transaction Value. 
 The “Transaction Value” will be the sum of: 
 (1) for any cash received in a Reorganization Event, the amount of cash received per share of common stock, 
 (2) for any property other than cash or Marketable Securities received in a Reorganization Event, an amount equal to the market value on the date the
Reorganization Event is consummated of that property received per share of common stock, as determined by a nationally recognized independent investment banking firm retained for this purpose by the Company, whose determination will be final, and

 (3) for any Marketable Securities received in a Reorganization Event, an amount equal to the Closing Price per share of these Marketable
Securities on the applicable Trading Day multiplied by the number of these Marketable Securities received for each share of common stock. 
 “Marketable Securities” are any perpetual equity securities or debt securities with a stated maturity after the Stated Maturity Date, in each case that are listed on a U.S. national securities exchange or reported by the
Nasdaq National Market. The number of shares of any equity securities constituting Marketable Securities included in the calculation of Transaction Value pursuant to clause (3) above will be adjusted if any event occurs with respect to the
Marketable Securities or the issuer of the Marketable Securities between the time of the Reorganization Event and the Stated Maturity Date that would have required an adjustment as described above, had it occurred with respect to Valero Energy
common stock or Valero Energy Corporation Adjustment for these subsequent events will be as nearly equivalent as practicable to the adjustments described above. 
  

 10 

 If Valero Energy common stock has been subject to a Reorganization Event and the Trading Price of Valero
Energy common stock on any Trading Day thereafter, up to and including the third Trading Day before the Stated Maturity Date, is less than or equal to the Downside Trigger Price, then each holder of the PACERS will have the right to receive per $10
principal amount of PACERS (i) cash in an amount equal to the Exchange Ratio multiplied by the sum of clauses (1) and (2) in the definition of “Transaction Value” above and (ii) the number of Marketable Securities
received for each share of stock in the Reorganization Event multiplied by the Exchange Ratio. 
 Citigroup Funding will be responsible for
the calculation and effectuation of any adjustment described herein and will furnish the indenture trustee with notice of any adjustment. 
 GENERAL 
 This Note is one of a duly authorized issue of debt securities (the “Debt
Securities”) of the Company, issued and to be issued in one or more series under a Senior Debt Indenture, dated as of June 1, 2005 (the “Indenture”), among the Company, the Guarantor and The Bank of New York, as
trustee (the “Trustee,” which term includes any successor trustee under the Indenture), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Guarantor, the Trustee and the holders of the PACERS, and the terms upon which the PACERS are, and are to be, authenticated and delivered. 
 In case an Event of Default with respect to the PACERS shall have occurred and be continuing, the amount declared due and payable upon any acceleration of the PACERS permitted by the Indenture will be determined by
the calculation agent and will be equal to, with respect to this Note, the Call Price or Maturity Payment, as applicable, calculated as though the Call Date or Stated Maturity Date of this Note were the date of early repayment. In case of default at
the Stated Maturity Date of this Note, this Note shall bear interest, payable upon demand of the beneficial owners of this Note in accordance with the terms of the PACERS, from and after the Stated Maturity Date through the date when payment of such
amount has been made or duly provided for, at the rate of 5.625% per annum on the unpaid amount (or the cash equivalent of such unpaid amount) due. 
 The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company, the Guarantor and the rights of the holders of the Debt
Securities of each series to be affected under the Indenture at any time by the Company, the Guarantor and a majority in aggregate principal amount of the Debt Securities at the time Outstanding of each series affected thereby. The Indenture also
contains provisions permitting the holders of specified percentages in aggregate principal amount of the Debt Securities of any series at the time Outstanding, on behalf of the holders of all Debt Securities of such series, to waive compliance by
the Company and the Guarantor with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the holder of this Note shall be conclusive and binding upon such holder and
upon all future holders of this Note and of any Note issued upon the registration of 
  

 11 

 transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon
this Note. 
 The holder of this Note may not enforce such holder’s rights pursuant to the Indenture or the PACERS except as provided in
the Indenture. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, or, failing which, the Guarantor to pay the Call Price or Maturity Payment, as applicable,
with respect to this Note, and to pay any interest on any overdue amount thereof at the time, place and rate, and in the coin or currency, herein prescribed. 
 All terms used in this Note which are defined in the Indenture but not in this Note shall have the meanings assigned to them in the Indenture. 
 Unless the certificate of authentication hereon has been executed by the Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purposes. 
  

 12 

 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.

  

			
	CITIGROUP FUNDING INC.
		
	By:	 	 /s/ Geoffrey S. Richards

	Name:	 	Geoffrey S. Richards
	Title:	 	Vice President and Assistant Treasurer

 Corporate Seal 
 Attest: 
  

			
	By:	 	 /s/ Douglas C. Turnbull

	Name:	 	Douglas C. Turnbull
	Title:	 	Assistant Secretary
	
	Dated: April 27, 2006
	
	 CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in
the within-mentioned Indenture.

	
	 The Bank of New York,
 as
Trustee

		
	By:	 	 /s/ Geovanni Barris

	Name:	 	Geovanni Barris

  

 13

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