April 26, 2007 Valero Energy Corporation One Valero Way San Antonio, Texas 78249-1616 Ladies and Gentlemen: The purpose of this letter agreement is to confirm the terms and conditions of the Transaction (the “Transaction”) entered into between J.P....

April 26, 2007 Valero Energy Corporation One Valero Way San Antonio, Texas 78249-1616 Ladies and Gentlemen: The purpose of this letter agreement is to confirm the terms and conditions of the Transaction (the “Transaction”) entered into between J.P....

Document Metadata

Table of Contents

Document Metadata

Exhibit 10.1

April 26, 2007

Valero Energy Corporation
Xxx Xxxxxx Xxx
Xxx Xxxxxxx, Xxxxx 00000-0000

Ladies and Gentlemen:

The purpose of this letter agreement is to confirm the terms and conditions of the Transaction (the “Transaction”) entered into between X.X. Xxxxxx Securities Inc., as agent for JPMorgan Chase Bank, National Association, London Branch (the “Seller”), and Valero Energy Corporation, a Delaware corporation (the “Purchaser”), on the date hereof (the “Trade Date”). This letter agreement and, upon execution, the Pricing Supplement shall constitute a “Confirmation” as referred to in the Agreement specified below (the “Confirmation”). In the event of a conflict between the Agreement (as defined below) and this Confirmation, the terms of this Confirmation shall govern.

This Confirmation evidences a complete and binding agreement between the Seller and the Purchaser as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the 2002 ISDA Master Agreement (the “Agreement”) as if the Seller and the Purchaser had executed an agreement in such form (but without any Schedule except for the election of the laws of the State of New York as the governing law) on the Trade Date. In the event of any inconsistency between provisions of that Agreement and this Confirmation, this Confirmation will prevail for the purpose of the Transaction to which this Confirmation relates. The parties hereby agree that no Transaction other than the Transaction to which this Confirmation relates shall be governed by the Agreement.

ARTICLE 1
Definitions

Section 1.01. Definitions. (a) As used in this Confirmation, the following terms shall have the following meanings:

“10b-18 VWAP” means, (A) for any Trading Day described in clause (x) of the definition of Trading Day hereunder, the volume-weighted average price at which the Common Stock trades as reported in the composite transactions for the principal United States securities exchange on which such Common Stock is then listed (or, if applicable, the Successor Exchange on which the Common Stock has been listed in accordance with Section 7.01(c)), on such Trading Day, excluding (i) trades that do not settle regular way, (ii) opening (regular way) reported trades in the consolidated system on such Trading Day, (iii) trades that occur in the last ten minutes before the scheduled close of trading on the Exchange on such Trading Day and ten minutes before the scheduled close of the primary trading in the market where the trade is effected, and (iv) trades on such Trading Day that do not satisfy the requirements of Rule 10b-18(b)(3), as determined in good faith by the Calculation Agent, or (B) for any Trading Day that is described in clause (y) of the definition of Trading Day hereunder, an amount determined in good faith by the Calculation Agent as 10b-18 VWAP. The Purchaser acknowledges that the Seller may refer to the

JPMorgan Chase Bank, National Association
Organised under the laws of the United States as a National Banking Association.
Main Xxxxxx 0000 Xxxxxxx Xxxxxxx, Xxxxxxxx, Xxxx 00000
Registered as a branch in England & Wales branch No. BR000746.
Registered Branch Office 000 Xxxxxx Xxxx, Xxxxxx XX0X 0XX
Authorised and regulated by the Financial Services Authority

Bloomberg Page “VLO.N <Equity> AQR SEC” (or any successor thereto), in its judgment, for such Trading Day to determine the 10b-18 VWAP.

“Additional Termination Event” has the meaning set forth in Section 7.01.

“Agreement” has the meaning set forth in the second paragraph of this Confirmation.

“Affected Party” has the meaning set forth in Section 14 of the Agreement.

“Affected Transaction” has the meaning set forth in Section 14 of the Agreement.

“Affiliated Purchaser” means any “affiliated purchaser” (as such term is defined in Rule 10b-18) of the Purchaser.

“Alternative Termination Delivery Unit” means (i) in the case of a Termination Event (other than a Merger Event or Nationalization) or Event of Default (as defined in the Agreement), one share of Common Stock and (ii) in the case of a Merger Event or Nationalization, a unit consisting of the number or amount of each type of property received by a holder of one share of Common Stock in such Merger Event or Nationalization; provided that if such Merger Event involves a choice of consideration to be received by holders of the Common Stock, an Alternative Termination Delivery Unit shall be deemed to include the amount of cash received by a holder who had elected to receive the maximum possible amount of cash as consideration for his shares.

“Bankruptcy Code” has the meaning set forth in Section 9.07.

“Business Day” means any day on which the Exchange is open for trading.

“Calculation Agent” means JPMorgan Chase Bank, National Association.

“Cash Distribution Amount” means, for any “Reference Period” referred to in the Pricing Supplement, the amount specified in the Pricing Supplement for such Reference Period.

“Common Stock” means the Purchaser’s common stock, par value $0.01 per share.

“Communications Procedures” has the meaning set forth in Annex B hereto.

“Confirmation” has the meaning set forth in the first paragraph of this letter agreement.

“Contract Period” means the period commencing on and including the Effective Date and ending on and including the date all payments or deliveries of shares of Common Stock pursuant to Section 3.01 or Section 7.03 have been made.

“Default Notice Day” has the meaning set forth in Section 7.02(a).

“De-Listing” has the meaning set forth in Section 7.01(c).

“Discount Amount” means the amount specified as such in the Pricing Supplement.

“Distribution Termination Event” has the meaning set forth in Section 7.01(f).

“Early Termination Date” has the meaning set forth in Section 14 of the Agreement.

“Effective Date” has the meaning set forth in Section 2.01.

“Event of Default” has the meaning set forth in Section 14 of the Agreement.

“Exchange” means the New York Stock Exchange.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Expiration Date” means the 87th Trading Day following the Effective Date.

“Extraordinary Cash Dividend” means the per share cash dividend or distribution, or a portion thereof, declared by the Purchaser on shares of Common Stock that is classified by the board of directors of the Purchaser as an “extraordinary” dividend.

“Increase Amount” means the sum of the products, for each date specified in the Pricing Supplement under Increase Amount, of (i) the amount so specified in the Pricing Supplement and (ii) the theoretical delta number of shares required for the Seller to hedge its exposure to the Transaction, as solely determined by the Calculation Agent, on the date corresponding to such amount.

“Indemnified Person” has the meaning set forth in Section 9.02.

“Indemnifying Party” has the meaning set forth in Section 9.02.

“Initial Commission” has the meaning specified as such in the Pricing Supplement.

“Initial Purchase Price” has the meaning set forth in Section 2.01.

“Initial Settlement Date” has the meaning set forth in Section 2.02.

“Initial Stock Price” means, for any day, the official closing price for the Common Stock on the Exchange at the scheduled weekday closing time of such Exchange on such day, without regard to after hours or other trading outside of the regular trading session hours; provided, however, that if such day is not a Trading Day, the Initial Stock Price shall be determined on the first succeeding Trading Day following such day.

“Maximum Delivery Shares” means, for any date, (i) 87,500,000 shares of Common Stock, minus (ii) the net number of shares of Common Stock delivered by the Purchaser to the Seller in respect of this Transaction on or prior to such date, plus (iii) the net number of shares of Common Stock delivered by the Seller to the Purchaser in respect of this Transaction on or prior to such date, subject to appropriate adjustments pursuant to Section 8.02.

“Minimum Completion Date” means the date specified as such in the Pricing Supplement.

“Merger Event” has the meaning set forth in Section 7.01(d).

“Nationalization” has the meaning set forth in Section 7.01(e).

“Number of Shares” means a number of shares of Common Stock equal to the quotient of $3,000,000,000 divided by the Initial Stock Price, as set forth in the Pricing Supplement.

“Obligations” has the meaning set forth in Section 9.02.

“Payment Shares” has the meaning set forth in Section 3.01(b).

“Pricing Supplement” has the meaning set forth in Section 2.01.

“Private Placement Agreement” has the meaning set forth in Annex A hereto.

“Private Placement Price” has the meaning set forth in Annex A hereto.

“Private Placement Procedures” has the meaning set forth in Annex A hereto.

“Private Securities” has the meaning set forth in Annex A hereto.

“Purchaser” has the meaning set forth in the first paragraph of this Confirmation.

“Regulation M” means Regulation M under the Exchange Act.

“Rule 10b-18” means Rule 10b-18 promulgated under the Exchange Act (or any successor rule thereto).

“SEC” means the Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended.

“Seller” has the meaning set forth in the first paragraph hereto.

“Seller Payment Share Purchase Period” has the meaning set forth in Section 3.01(d).

“Seller Termination Share Purchase Period” has the meaning set forth in Section 7.03.

“Settlement Amount” means an amount equal to (i) the Valuation Price minus (ii) the Initial Purchase Price, plus (iii) the Increase Amount.

“Settlement Date” means the third Business Day following the Valuation Completion Date; provided, however, that if the Purchaser elects pursuant to Section 3.01(b) to deliver Payment Shares, the Settlement Date shall be the Trading Day immediately following the day on which the Seller informs the Purchaser, pursuant to Annex A hereto, of the number of Payment Shares required to be delivered pursuant to Section 3.01(b).

“Share De-listing Event” has the meaning set forth in Section 7.01(c).

“Successor Exchange” has the meaning set forth in Section 7.01(c).

“Termination Amount” has the meaning set forth in Section 7.02(a).

“Termination Event” has the meaning set forth in Section 14 of the Agreement.

“Termination Price” means the value of an Alternative Termination Delivery Unit to the Seller (determined as provided in Annex A hereto).

“Termination Settlement Date” has the meaning set forth in Section 7.03(a).

“Trade Date” has the meaning set forth in the first paragraph of this Confirmation.

“Trading Day” means (x) any day (i) other than a Saturday, a Sunday or a day on which the Exchange is not open for business, (ii) during which trading of any securities of the Purchaser on any national securities exchange has not been suspended, (iii) during which there has not been, in the Seller’s judgment, a material limitation in the trading of Common Stock or any options contract or futures contract related to the Common Stock, and (iv) during which there has been no suspension pursuant to Section 4.02 of this Confirmation, or (y) any day that, notwithstanding the occurrence of events contemplated in clauses (ii), (iii) and (iv) of this definition, the Calculation Agent determines to be a Trading Day.

“Transaction” has the meaning set forth in the first paragraph of this Confirmation.

“Valuation Completion Date” means the Trading Day, during the period commencing on and including the Minimum Completion Date and ending on and including the Expiration Date, specified as such by the Seller, in its sole discretion, by delivering a notice designating such Trading Day as a Valuation Completion Date by the close of business on the Business Day immediately following such Trading Day; provided that if the Seller fails to validly

designate the Valuation Completion Date prior to the Expiration Date, the Valuation Completion Date shall be the Expiration Date.

“Valuation Period” means the period of consecutive Trading Days commencing on and including the first Trading Day following the Effective Date and ending on and including the Valuation Completion Date.

“Valuation Price” means the product of (i) the Number of Shares and (ii) the arithmetic average of 10b-18 VWAP for each of the Trading Days in the Valuation Period minus the Discount Amount, as determined by the Calculation Agent in its sole judgment.

ARTICLE 2
Purchase of the Stock

Section 2.01. Purchase of the Stock. Subject to the terms and conditions of this Confirmation, the Purchaser agrees to purchase from the Seller, and the Seller agrees to sell to the Purchaser, on April 27, 2007 or on such other Business Day as the Purchaser and the Seller shall otherwise agree (the “Effective Date”), the Number of Shares for an initial purchase price equal to the product of (i) the Initial Stock Price on the Effective Date and (ii) the Number of Shares (the “Initial Purchase Price”); provided that if the Seller is unable to borrow or otherwise acquire a number of shares of Common Stock equal to the Number of Shares for delivery to the Purchaser on the Initial Settlement Date, the Number of Shares shall be reduced to such number of shares of Common Stock as the Seller is able to borrow or otherwise acquire. The Initial Purchase Price shall be subject to adjustment and such adjusted amounts will be payable as provided in Article 3 hereof. On the Effective Date, the Seller shall deliver to the Purchaser a pricing supplement, substantially in the form of Exhibit B attached hereto, setting forth the Initial Stock Price, the Number of Shares, the Initial Purchase Price, the Discount Amount, the Minimum Completion Date, the Initial Commission and the per share amounts and dates, as applicable, for the Increase Amount and Cash Distribution Amount (the “Pricing Supplement”).

Section 2.02. Delivery and Payments. On the first Business Day immediately following the Effective Date (such day, the “Initial Settlement Date”), the Seller shall deliver the Number of Shares to the Purchaser, upon payment by the Purchaser of (i) an amount equal to the Initial Purchase Price to the Seller and (ii) a commission in the amount per share specified in the Pricing Supplement (the “Initial Commission”) to X.X. Xxxxxx Securities Inc., in connection with the Purchaser’s purchase of the Number of Shares; provided that Seller may deliver the Number of Shares to be delivered on the Initial Settlement Date at two or more times; and provided further that the aggregate number of Shares that Seller shall deliver to Purchaser hereunder in all such deliveries shall equal the Number of Shares. Such delivery and payment shall be effected in accordance with the Seller’s customary procedures.

Section 2.03. Conditions to Seller’s Obligations. The Seller’s obligation to deliver the Number of Shares to the Purchaser on the Initial Settlement Date is subject to the condition that the representations and warranties made by the Purchaser in the Agreement shall be true and correct as of the date hereof and the Initial Settlement Date.

ARTICLE 3
Adjustment of Initial Purchase Price

Section 3.01. Purchase Price Adjustment. (a) As an adjustment to the Initial Purchase Price,

(i) if the Settlement Amount is greater than zero, the Purchaser shall pay to the Seller such Settlement Amount in the manner provided in clause (c) or (e), as the case may be, of this Section 3.01; or

(ii) if the Settlement Amount is less than zero, the Seller shall pay to the Purchaser the absolute value of such Settlement Amount in the manner provided in clause (d) or (e), as the case may be, of this Section 3.01.

(b) Payment of the Settlement Amount shall be in cash or validly issued shares of Common Stock (“Payment Shares”), as the Purchaser shall elect, which binding election shall be made within three Business Days following the Valuation Completion Date and communicated to the Seller in writing; provided that if the Purchaser fails to make such an election in the manner contemplated hereunder, the Purchaser shall be deemed to have elected settlement in cash; and provided further that the Purchaser shall not have the right to elect payment of the Settlement Amount or receipt of the absolute value of the Settlement Amount in Payment Shares pursuant to this Section 3.01 if:

(i) the representations and warranties made by the Purchaser to the Seller in Section 5.01 are not true and correct in all material respects as of the date the Purchaser makes such election; or

(ii) in the event the Settlement Amount shall be payable by the Purchaser to the Seller, the Purchaser has taken any action that would make unavailable either (A) the exemption set forth in Section 4(2) of the Securities Act for the sale of any Payment Shares by the Purchaser to the Seller or (B) an exemption from the registration requirements of the Securities Act reasonably acceptable to the Seller for resales of Payment Shares by the Seller.

For the avoidance of doubt, upon the Purchaser’s making an election to receive or to deliver Payment Shares pursuant to this Section 3.01(b), the Purchaser shall be deemed to make the representations and warranties in Section 5.01 hereof as if made on the date of the Purchaser’s election.

(i) Notwithstanding any election by the Purchaser to make payment in Payment Shares, at any time prior to the time the Seller (or any affiliate of the Seller) has contracted to resell such Payment Shares, the Purchaser may deliver in lieu of such Payment Shares an amount in cash equal to the Settlement Amount, in the manner set forth in Section 3.01(e).

(ii) If the Purchaser elects to pay any Settlement Amount in Payment Shares, then on the Settlement Date, the Purchaser shall deliver to the Seller a number of Payment Shares equal to the quotient of (A) such Settlement Amount divided by (B) the Private Placement Price (determined in accordance with the Private Placement Procedures contained in Annex A hereto).

(d) Subject to Section 3.01(b), if the absolute value of the Settlement Amount shall be payable by the Seller to the Purchaser and the Purchaser elects to receive the absolute value of the Settlement Amount in Payment Shares, then (i) the Seller shall, beginning on the fourth Trading Day following the Valuation Completion Date and ending when the Seller shall have satisfied its obligations under this clause (the “Seller Payment Share Purchase Period”), purchase (subject to the provisions of Section 4.01 and Section 4.02 hereof) shares of Common Stock with an aggregate value (which such value shall be determined by the prices at which the Seller purchases such shares plus a commission of $0.03 per share) equal to such Settlement Amount and (ii) the Seller shall deliver such shares of Common Stock to the Purchaser on the settlement dates relating to such purchases.

(e) If the Purchaser elects to receive the absolute value of the Settlement Amount or to pay the Settlement Amount in cash, then payment of such Settlement Amount shall be made by wire transfer of immediately available U.S. dollar funds on the Settlement Date.

Section 3.02. Private Placement Procedures. If the Purchaser elects to deliver Payment Shares pursuant to Section 3.01(b) or elects to deliver Alternative Termination Delivery Units pursuant to Section 7.02(a), the Private Placement Procedures contained in Annex A hereto shall apply.

Section 3.03. Continuing Obligation to Deliver Shares. (a) If at any time, as a result of provisions limiting deliveries of shares of Common Stock to the number of Maximum Delivery Shares, the Purchaser fails to deliver to the Seller any shares of Common Stock, the Purchaser shall, to the extent that the Purchaser has at such time authorized but unissued shares of Common Stock not reserved for other purposes, promptly notify the Seller thereof

and deliver to the Seller a number of shares of Common Stock not previously delivered as a result of such provisions.

(b) The Purchaser agrees to use its best efforts to cause the number of authorized but unissued shares of Common Stock to be increased, if necessary, to an amount sufficient to permit the Purchaser to fulfill its obligations under this Section 3.03.

ARTICLE 4
Market Transactions

Section 4.01. Transactions by the Seller. (a) The parties agree and acknowledge that:

(i) During the Valuation Period, any Seller Payment Share Purchase Period and any Seller Termination Share Purchase Period, the Seller (or its agent or affiliate) may purchase (and with respect to the Valuation Period also sell) shares of Common Stock in connection with this Confirmation. The timing of such purchases and sales, as applicable, by the Seller, the price paid or received per share of Common Stock pursuant to such purchases or sales, as applicable, and the manner in which such purchases or sales, as applicable, are made, including without limitation whether such purchases or sales, as applicable, are made on any securities exchange or privately, shall be within the sole judgment of the Seller; provided that the Seller shall use good faith efforts to (i) make all purchases of Common Stock in a manner that would comply with the limitations set forth in clauses (b)(2), (b)(3), (b)(4) and (c) of Rule 10b-18 as if such rule were applicable to such purchases and (ii) not make purchases on any Trading Day in an amount that would exceed 20% of the daily trading volume for the Common Stock on the Exchange on such Trading Day; and provided, further, that on any Trading Day during the Valuation Period, Seller shall use good faith efforts to not make purchases in an amount that would exceed 20% of the ADTV (as defined in Rule 10b-18(a)(1)) on such Trading Day.

(ii) The Purchaser shall, at least one day prior to the first day of any Seller Payment Share Purchase Period and any Seller Termination Share Purchase Period, notify the Seller of the total number of shares of Common Stock purchased in Rule 10b-18 purchases of blocks pursuant to the once-a-week block exception set forth in Rule 10b-18(b)(4) by or for the Purchaser or any of its Affiliated Purchasers during each of the four calendar weeks preceding such day and during the calendar week in which such day occurs (“Rule 10b-18 purchase” and “blocks” each being used as defined in Rule 10b-18), which notice shall be substantially in the form set forth as Exhibit A hereto.

(b) The Purchaser acknowledges and agrees that (i) all transactions effected pursuant to Section 4.01 hereunder shall be made in the Seller’s sole judgment and for the Seller’s own account and (ii) the Purchaser does not have, and shall not attempt to exercise, any influence over how, when or whether to effect such transactions, including, without limitation, the price paid or received per share of Common Stock pursuant to such transactions whether such transactions are made on any securities exchange or privately. It is the intent of the Seller and the Purchaser that this Transaction comply with the requirements of Rule 10b5-1(c) of the Exchange Act and that this Confirmation shall be interpreted to comply with the requirements of Rule 10b5-1(c)(1)(i)(B) and the Seller shall take no action that results in the Transaction not so complying with such requirements.

(c) Notwithstanding anything to the contrary in this Confirmation, the Purchaser acknowledges and agrees that, on any day, the Seller shall not be obligated to deliver or receive any shares of Common Stock to or from the Purchaser and the Purchaser shall not be entitled to receive any shares of Common Stock from the Seller on such day, to the extent (but only to the extent) that after such transactions the Seller’s ultimate parent entity would directly or indirectly beneficially own (as such term is defined for purposes of Section 13(d) of the Exchange Act) at any time on such day in excess of 8.0% of the outstanding shares of Common Stock. Any purported receipt or delivery of shares of Common Stock shall be void and have no effect to the extent (but only to the extent) that after any receipt or delivery of such shares of Common Stock the Seller’s ultimate parent entity would directly or indirectly so beneficially own in excess of 8.0% of the outstanding shares of Common Stock. If, on any day, any delivery or receipt of shares of Common Stock by the Seller is not effected, in whole or in part, as a result of this

provision, the Seller’s and Purchaser’s respective obligations to make or accept such receipt or delivery shall not be extinguished and such receipt or delivery shall be effected over time as promptly as the Seller determines, in the reasonable determination of the Seller, that after such receipt or delivery its ultimate parent entity would not directly or indirectly beneficially own in excess of 8.0% of the outstanding shares of Common Stock.

Section 4.02. Adjustment of Transaction for Securities Laws. (a) If, based on the advice of counsel, Seller reasonably determines that, due to insufficient trading volume in the Common Stock, Seller’s trading activity in order to manage its economic hedge in respect of the Transaction would not be advisable in respect of applicable securities laws, then Seller may extend the Expiration Date or otherwise adjust the terms of the Transaction in its good faith reasonable discretion to ensure Seller’s compliance with such laws and to preserve the fair value of the Transaction to the Seller. The Seller shall notify the Purchaser of the exercise of the Seller’s rights pursuant to this Section 4.02(a) upon such exercise.

(b) The Purchaser agrees that, during the Contract Period, neither the Purchaser nor any of its affiliates or agents shall make any distribution (as defined in Regulation M) of Common Stock, or any security for which the Common Stock is a reference security (as defined in Regulation M) or take any other action that would, in the view of the Seller, preclude purchases by the Seller of the Common Stock or cause the Seller to violate any law, rule or regulation with respect to such purchases.

Section 4.03. Purchases of Common Stock by the Purchaser. Without the prior written consent of the Seller, the Purchaser shall not, and shall cause its affiliates and affiliated purchasers (each as defined in Rule 10b-18) not to, directly or indirectly (including, without limitation, by means of a derivative instrument) purchase, offer to purchase, place any bid or limit order that would effect a purchase of, or commence any tender offer relating to, any shares of Common Stock (or equivalent interest, including a unit of beneficial interest in a trust or limited partnership or a depository share) or any security convertible into or exchangeable for shares of Common Stock during the Contract Period; provided, however, that without the prior written consent of the Seller the Purchaser may continue to (a) purchase shares of Common Stock pursuant to its previously announced stock buyback program, so long as (i) on any day such purchases (other than non-10b-18 purchases which comply with the provisions of Rule 10b-18(a)(13)(ii)), which may be effected by an agent independent of the Purchaser) are conducted solely through the same broker or dealer used by Seller in effecting purchases of Common Stock in connection with this Confirmation; (ii) on any Trading Day during the Valuation Period, such purchases do not exceed 5% of the ADTV (as defined in Rule 10b-18(a)(1)) on such Trading Day; and (iii) such purchases otherwise comply with other provisions of Rule 10b-18 and other applicable laws, rules and regulations, and (b) effect non-10b-18 purchases that comply with the provisions of Rule 10b-18(a)(13)(ii), which are to be effected by an agent independent of the Purchaser.

ARTICLE 5
Representations, Warranties and Agreements

Section 5.01. Repeated Representations, Warranties and Agreements of the Purchaser. The Purchaser represents and warrants to, and agrees with, the Seller, on the date hereof and on any date pursuant to which the Purchaser makes an election to receive or deliver Payment Shares pursuant to Section 3.01 or Alternative Termination Delivery Units pursuant to Section 7.03, that:

(a) Disclosure; Compliance with Laws. The reports and other documents filed by the Purchaser with the SEC pursuant to the Exchange Act when considered as a whole (with the more recent such reports and documents deemed to amend inconsistent statements contained in any earlier such reports and documents), do not contain any untrue statement of a material fact or any omission of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading. The Purchaser is not in possession of any material nonpublic information regarding the Purchaser or the Common Stock.

(b) Rule 10b5-1. The Purchaser acknowledges that (i) the Purchaser does not have, and shall not attempt to exercise, any influence over how, when or whether to effect purchases of Common Stock by the Seller (or

its agent or affiliate) in connection with this Confirmation and (ii) the Purchaser is entering into the Agreement and this Confirmation in good faith and not as part of a plan or scheme to evade compliance with federal securities laws including, without limitation, Rule 10b-5 promulgated under the Exchange Act. The Purchaser also acknowledges and agrees that any amendment, modification, waiver or termination of this Confirmation must be effected in accordance with the requirements for the amendment or termination of a “plan” as defined in Rule 10b5-1(c) under the Exchange Act. Without limiting the generality of the foregoing, any such amendment, modification, waiver or termination shall be made in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5 under the Exchange Act, and no amendment, modification or waiver shall be made at any time at which the Purchaser or any officer or director of the Purchaser is aware of any material nonpublic information regarding the Purchaser or the Common Stock.

(c) Nature of Shares Delivered. Any shares of Common Stock or Alternative Termination Delivery Units delivered to the Seller pursuant to this Confirmation, when delivered, shall have been duly authorized and shall be duly and validly issued, fully paid and nonassessable and free of preemptive or similar rights, and such delivery shall pass title thereto free and clear of any liens or encumbrances.

(d) No Manipulation. The Purchaser is not entering into this Confirmation to create actual or apparent trading activity in the Common Stock (or any security convertible into or exchangeable for Common Stock) or to manipulate the price of the Common Stock (or any security convertible into or exchangeable for Common Stock).

(e) Regulation M. The Purchaser is not engaged in a distribution, as such term is used in Regulation M, that would preclude purchases by the Purchaser or the Seller of the Common Stock or cause the Seller to violate any law, rule or regulation with respect to such purchases.

(f) Board Authorization. The Purchaser is entering into this Transaction in connection with its share repurchase program, which was approved by its board of directors and publicly disclosed, solely for the purposes stated in such board resolution and public disclosure. There is no internal policy of the Purchaser, whether written or oral, that would prohibit the Purchaser from entering into any aspect of this Transaction, including, but not limited to, the purchases of shares of Common Stock to be made pursuant hereto.

(g) Due Authorization and Good Standing. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. This Confirmation has been duly authorized, executed and delivered by the Purchaser and (assuming due authorization, execution and delivery thereof by the Seller) constitutes a valid and legally binding obligation of the Purchaser. The Purchaser has all corporate power to enter into this Confirmation and to consummate the transactions contemplated hereby and to purchase the Common Stock and deliver any Payment Shares in accordance with the terms hereof.

(h) Certain Transactions. There has not been any public announcement (as defined in Rule 165(f) under the Securities Act) of any merger, acquisition, or similar transaction involving a recapitalization relating to the Purchaser that would fall within the scope of Rule 10b-18(a)(13)(iv).

Section 5.02. Initial Representations, Warranties and Agreements of the Purchaser. The Purchaser represents and warrants to, and agrees with the Seller, as of the date hereof, that:

(a) Solvency. The assets of the Purchaser at their fair valuation exceed the liabilities of the Purchaser, including contingent liabilities; the capital of the Purchaser is adequate to conduct the business of the Purchaser and the Purchaser has the ability to pay its debts and obligations as such debts mature and does not intend to, or does not believe that it will, incur debt beyond its ability to pay as such debts mature.

(b) Required Filings. The Purchaser has made, and will use its best efforts to make, all filings required to be made by it with the SEC, any securities exchange or any other regulatory body with respect to the Transaction contemplated hereby.

(c) No Conflict. The execution and delivery by the Purchaser of, and the performance by the Purchaser of its obligations under, this Confirmation and the consummation of the transactions herein contemplated do not

conflict with or violate (i) any provision of the certificate of incorporation, by-laws or other constitutive documents of the Purchaser, (ii) any statute or order, rule, regulation or judgment of any court or governmental agency or body having jurisdiction over the Purchaser or any of its subsidiaries or any of their respective assets or (iii) any contractual restriction binding on or affecting the Purchaser or any of its subsidiaries or any of its assets.

(d) Consents. All governmental and other consents that are required to have been obtained by the Purchaser with respect to performance, execution and delivery of this Confirmation have been obtained and are in full force and effect and all conditions of any such consents have been complied with.

(e) Investment Company Act. The Purchaser is not and, after giving effect to the transactions contemplated in this Confirmation, will not be required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.

(f) Commodity Exchange Act. The Purchaser is an “eligible contract participant”, as such term is defined in Section 1a(12) of the Commodity Exchange Act, as amended.

Section 5.03. Additional Representations, Warranties and Agreements. The Purchaser and the Seller represent and warrant to, and agree with, each other that:

(a) Agency. Each party agrees and acknowledges that (i) X.X. Xxxxxx Securities Inc., an affiliate of the Seller (“JPMSI”), has acted solely as agent and not as principal with respect to this Transaction and (ii) JPMSI has no obligation or liability, by way of guaranty, endorsement or otherwise, in any manner in respect of this Transaction (including, if applicable, in respect of the settlement thereof). Each party agrees it will look solely to the other party (or any guarantor in respect thereof) for performance of such other party’s obligations under this Transaction. JPMSI is authorized to act as agent for the Seller.

(b) Non-Reliance. Each party has entered into this Transaction solely in reliance on its own judgment. Neither party has any fiduciary obligation to the other party relating to this Transaction. In addition, neither party has held itself out as advising, or has held out any of its employees or agents as having the authority to advise, the other party as to whether or not the other party should enter into this Transaction, any subsequent actions relating to this Transaction or any other matters relating to this Transaction. Neither party shall have any responsibility or liability whatsoever in respect of any advice of this nature given, or views expressed, by it or any such persons to the other party relating to this Transaction, whether or not such advice is given or such views are expressed at the request of the other party. The Purchaser has conducted its own analysis of the legal, accounting, tax and other implications of this Transaction and consulted such advisors, accountants and counsel as it has deemed necessary.

Section 5.04. Representations and Warranties of the Seller. The Seller represents and warrants to the Purchaser that:

(a) Due Authorization. This Confirmation has been duly authorized, executed and delivered by the Seller and (assuming due authorization, execution and delivery thereof by the Purchaser) constitutes a valid and legally binding obligation of the Seller. The Seller has all corporate power to enter into this Confirmation and to consummate the transactions contemplated hereby and to deliver the Common Stock in accordance with the terms hereof.

(b) Right to Transfer. The Seller will, at the Initial Settlement Date, have the free and unqualified right to transfer the Number of Shares of Common Stock to be sold by the Seller pursuant to Section 2.01 hereof, free and clear of any security interest, mortgage, pledge, lien, charge, claim, equity or encumbrance of any kind.

ARTICLE 6
Additional Covenants

Section 6.01. Purchaser’s Further Assurances. The Purchaser hereby agrees with the Seller that the Purchaser shall cooperate with the Seller, and execute and deliver, or use its best efforts to cause to be executed and

delivered, all such other instruments, and to obtain all consents, approvals or authorizations of any person, and take all such other actions as the Seller may reasonably request from time to time, consistent with the terms of this Confirmation, in order to effectuate the purposes of this Confirmation and the Transaction contemplated hereby.

Section 6.02. Purchaser’s Hedging Transactions. The Purchaser hereby agrees with the Seller that the Purchaser shall not, during the Contract Period, enter into or alter any corresponding or hedging transaction or position with respect to the Common Stock (including, without limitation, with respect to any securities convertible or exchangeable into the Common Stock) and agrees not to alter or deviate from the terms of this Confirmation.

Section 6.03. No Communications. The Purchaser hereby agrees with the Seller that the Purchaser shall not, directly or indirectly, communicate any information relating to the Common Stock or this Transaction (including any notices required by Section 6.05) to any employee of the Seller or X.X. Xxxxxx Securities Inc., other than as set forth in the Communications Procedures attached as Annex B hereto.

Section 6.04. Maximum Deliverable Number of Shares of Common Stock. Notwithstanding any other provision of this Confirmation, the Purchaser shall not be required to deliver Payment Shares, or shares of Common Stock or other securities comprising the aggregate Alternative Termination Delivery Units, in excess of the number of Maximum Delivery Shares, in each case except to the extent that the Purchaser has available at such time authorized but unissued shares of such Common Stock or other securities not expressly reserved for any other uses (including, without limitation, shares of Common Stock reserved for issuance upon the exercise of options or convertible debt). The Purchaser shall not permit the sum of (i) the number of Maximum Delivery Shares plus (ii) the aggregate number of shares expressly reserved for any such other uses, in each case whether expressed as caps or as numbers of shares reserved or otherwise, to exceed at any time the number of authorized but unissued shares of Common Stock.

Section 6.05. Notice of Certain Transactions. If at any time during the Contract Period, the Purchaser makes, or expects to be made, or has made, any public announcement (as defined in Rule 165(f) under the Securities Act) of any merger, acquisition, or similar transaction involving a recapitalization relating to the Purchaser (other than any such transaction in which the consideration consists solely of cash and there is no valuation period, or as to which the completion of such transaction or the completion of the vote by target shareholders has occurred), then the Purchaser shall (i) notify the Seller prior to the opening of trading in the Common Stock on any day on which the Purchaser makes, or expects to be made, or has made any such public announcement, (ii) notify the Seller promptly following any such announcement (or, if later, prior to the opening of trading in the Common Stock on the first day of any Seller Payment Share Purchase Period or any Seller Termination Share Payment Period) that such announcement has been made and (iii) promptly deliver to the Seller following the making of any such announcement (or, if later, prior to the opening of trading in the Common Stock on the first day of any Seller Payment Share Purchase Period or any Seller Termination Share Payment Period) a certificate indicating (A) the Purchaser’s average daily Rule 10b-18 purchases (as defined in Rule 10b-18) during the three full calendar months preceding the date of such announcement and (B) the Purchaser’s block purchases (as defined in Rule 10b-18) effected pursuant to paragraph (b)(4) of Rule 10b-18 during the three full calendar months preceding the date of such announcement. In addition, the Purchaser shall promptly notify the Seller of the earlier to occur of the completion of such transaction and the completion of the vote by target shareholders. Accordingly, the Purchaser acknowledges that its actions in relation to any such announcement or transaction must comply with the standards set forth in Section 6.03.

ARTICLE 7
Termination

Section 7.01. Additional Termination Events. (a) An Additional Termination Event shall occur in respect of which the Purchaser is the sole Affected Party and this Transaction is the sole Affected Transaction if, on any day, the Seller determines, in its sole reasonable judgment, that it is unable to establish, re-establish or maintain any hedging transactions reasonably necessary in the normal course of such party’s business of hedging the price and market risk of entering into and performing under this Transaction, due to illegality.

(b) An Additional Termination Event shall occur in respect of which the Purchaser is the sole Affected Party and this Transaction is the sole Affected Transaction if (i) a Share De-listing Event occurs; (ii) a Merger Event occurs; (iii) a Nationalization occurs, (iv) a Distribution Termination Event occurs or (v) an event described in paragraph III of Annex B occurs.

(c) A “Share De-listing Event” means that at any time during the Contract Period, the Common Stock ceases to be listed, traded or publicly quoted on the Exchange for any reason (other than a Merger Event, a “De-Listing”) and is not immediately re-listed, traded or quoted as of the date of such de-listing, on another U.S. national securities exchange or a U.S. automated interdealer quotation system (a “Successor Exchange”); provided that it shall not constitute an Additional Termination Event if the Common Stock is immediately re-listed on a Successor Exchange upon its De-Listing from the Exchange, and the Successor Exchange shall be deemed to be the Exchange for all purposes. In addition, in such event, the Seller shall make any commercially reasonable adjustments it deems necessary to the terms of the Transaction.

(d) A “Merger Event” means the public announcement, including any public announcement as defined in Rule 165(f) of the Securities Act (by the Purchaser or otherwise) at any time during the Contract Period of any (i) planned recapitalization, reclassification or change of the Common Stock that will, if consummated, result in a transfer of more than 20% of the outstanding shares of Common Stock, (ii) planned consolidation, amalgamation, merger or similar transaction of the Purchaser with or into another entity (other than a consolidation, amalgamation or merger in which the Purchaser will be the continuing entity and which does not result in any such recapitalization, reclassification or change of more than 20% of such shares outstanding), (iii) other takeover offer for the shares of Common Stock that is aimed at resulting in a transfer of more than 20% of such shares of Common Stock (other than such shares owned or controlled by the offeror) or (iv) irrevocable commitment to any of the foregoing.

(e) A “Nationalization” means that all or substantially all of the outstanding shares of Common Stock or assets of the Purchaser are nationalized, expropriated or are otherwise required to be transferred to any governmental agency, authority or entity.

(f) A “Distribution Termination Event” means a declaration by the Purchaser of any cash dividend or distribution on shares of Common Stock, other than an Extraordinary Cash Dividend, that has a record date during the Contract Period, the amount of which, together with all prior declared cash dividends or distributions that have a record date during the same regular reference period of the Purchaser, exceeds the applicable “Cash Distribution Amount.”

Section 7.02. Consequences of Additional Termination Events. (a) In the event of the occurrence or effective designation of an Early Termination Date under the Agreement, cash settlement, as set forth in Section 7.02(b), shall apply unless (i) the Purchaser elects (which election shall be binding), in lieu of payment of the amount payable in respect of this Transaction pursuant to Section 6(d)(ii) of the Agreement (the “Termination Amount”), to deliver or to receive Alternative Termination Delivery Units pursuant to Section 7.03, and (ii) notifies the Seller of such election by delivery of written notice to the Seller on the Business Day immediately following the Purchaser’s receipt of a notice (as required by Section 6(d) of the Agreement following the designation of an Early Termination Date in respect of this Transaction or in respect of all transactions under the Agreement) setting forth the amounts payable by the Purchaser or by the Seller with respect to such Early Termination Date (the date of such delivery, the “Default Notice Day”); provided that the Purchaser shall not have the right to elect the delivery or receipt of the Alternative Termination Delivery Units pursuant to Section 7.03 if:

(i) the representations and warranties made by the Purchaser to the Seller in Section 5.01 are not true and correct as of the date the Seller makes such election, as if made on such date, or

(ii) in the event that the Termination Amount is payable by the Purchaser to the Seller, (A) the Purchaser has taken any action that would make unavailable (x) the exemption set forth in Section 4(2) of the Securities Act, for the sale of any Alternative Termination Delivery Units by the Purchaser to the Seller or (y) an exemption from the registration requirements of the Securities Act reasonably acceptable to the Seller for resales of Alternative Termination Delivery Units by the Seller, and (B) such Early Termination Date is in respect of an Event of Default which is within Purchaser’s control (including,

without limitation, failure to execute a Private Placement Agreement or otherwise comply with the requirements applicable to Purchaser set forth in Annex A hereto).

For the avoidance of doubt, upon the Purchaser’s making an election to deliver Alternative Termination Delivery Units pursuant to this Section 7.02(a), the Purchaser shall be deemed to make the representations and warranties in Section 5.01 hereof as if made on the date of the Purchaser’s election. Notwithstanding the foregoing, at any time prior to the time the Seller (or any affiliate of the Seller) has contracted to resell the property to be delivered upon alternative termination settlement, the Purchaser may deliver in lieu of such property an amount in cash equal to the Termination Amount in the manner set forth in Section 6(d) of the Agreement.

(b) If cash settlement applies in respect of an Early Termination Date, Section 6 of the Agreement shall apply.

Section 7.03. Alternative Termination Settlement. (a) Subject to Section 7.02(a), if the Termination Amount shall be payable by the Purchaser to the Seller and the Purchaser elects to deliver the Alternative Termination Delivery Units to the Seller, the Purchaser shall, as soon as directed by the Seller after the Default Notice Day (such date, the “Termination Settlement Date”), deliver to the Seller a number of Alternative Termination Delivery Units equal to the quotient of (A) the Termination Amount divided by (B) the Termination Price.

(b) Subject to Section 7.02(a), if the Termination Amount shall be payable by the Seller to the Purchaser and the Purchaser elects to receive the Alternative Termination Delivery Units from the Seller, (i) the Seller shall, beginning on the first Trading Day following the Default Notice Day and ending when the Seller shall have satisfied its obligations under this clause (the “Seller Termination Share Purchase Period”), purchase (subject to the provisions of Section 4.01 and Section 4.02 hereof) a number of Alternative Termination Delivery Units equal to the quotient of (A) the Termination Amount divided by (B) the Termination Price; and (ii) the Seller shall deliver such Alternative Termination Delivery Units to the Purchaser on the settlement dates relating to such purchases.

Section 7.04. Notice of Default. If an Event of Default occurs in respect of the Purchaser, the Purchaser will, promptly upon becoming aware of it, notify the Seller specifying the nature of such Event of Default.

ARTICLE 8
Adjustments

Section 8.01. Extraordinary Cash Dividends. If the Purchaser declares any Extraordinary Cash Dividend that has a record date during the Contract Period, then prior to or on the date on which such Extraordinary Cash Dividend is paid by the Purchaser to holders of record, the Purchaser shall pay to the Seller an amount in cash equal to the product of (i) the amount of such Extraordinary Cash Dividend and (ii) the theoretical short delta number of shares, as determined by the Calculation Agent, required for the Seller to hedge its exposure to the Transaction.

Section 8.02. Other Dilution Adjustments. If (x) any corporate event occurs involving the Purchaser or the Common Stock (other than any cash dividend but including, without limitation, a spin-off, a stock split, stock or other dividend or distribution, reorganization, rights offering or recapitalization or any other event having a dilutive or concentrative effect on the Common Stock), or (y) as a result of the definition of Trading Day (whether because of a suspension of transactions pursuant to Section 4.02 or otherwise), any day that would otherwise be a Trading Day during the Contract Period is not a Trading Day or on such Trading Day, pursuant to Section 4.02, the Seller effects transactions with respect to shares of Common Stock at a volume lower than originally anticipated with respect to this Transaction, then in any such case, the Calculation Agent shall make corresponding adjustments with respect to any variable relevant to the terms of the Transaction, as the Calculation Agent determines appropriate to preserve the fair value of the Transaction to the Seller, and shall determine the effective date of such adjustment.

ARTICLE 9
Miscellaneous

Section 9.01. Successors and Assigns. All covenants and agreements in this Confirmation made by or on behalf of either of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not.

Section 9.02. Purchaser Indemnification. The Purchaser (the “Indemnifying Party”) agrees to indemnify and hold harmless the Seller and its officers, directors, employees, affiliates, advisors, agents and controlling persons (each, an “Indemnified Person”) from and against any and all losses, claims, damages and liabilities, joint or several (collectively, “Obligations”), to which an Indemnified Person may become subject arising out of or in connection with this Confirmation or any claim, litigation, investigation or proceeding relating thereto, regardless of whether any of such Indemnified Person is a party thereto, and to reimburse, within 30 days, upon written request, each such Indemnified Person for any reasonable legal or other expenses incurred in connection with investigating, preparation for, providing evidence for or defending any of the foregoing, provided, however, that the Indemnifying Party shall not have any liability to any Indemnified Person to the extent that such Obligations (i) are finally determined by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnified Person (and in such case, such Indemnified Person shall promptly return to the Indemnifying Party any amounts previously expended by the Indemnifying Party hereunder) or (ii) are trading losses incurred by the Seller as part of its purchases or sales of shares of Common Stock pursuant to this Confirmation (unless the Purchaser has breached any agreement, term or covenant herein).

Section 9.03. Assignment and Transfer. Notwithstanding the Agreement, the Seller may assign any of its rights or duties hereunder to any one or more of its affiliates without the prior written consent of the Purchaser. Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing Seller to purchase, sell, receive or deliver any shares of Common Stock or other securities to or from the Purchaser, Seller may designate any of its affiliates to purchase, sell, receive or deliver such shares of Common Stock or other securities and otherwise to perform the Seller’s obligations in respect of this Transaction and any such designee may assume such obligations. The Seller may assign the right to receive Payment Shares to any third party who may legally receive Payment Shares. The Seller shall be discharged of its obligations to the Purchaser only to the extent of any such performance. For the avoidance of doubt, Seller hereby acknowledges that notwithstanding any such designation hereunder, to the extent any of Seller’s obligations in respect of this Transaction are not completed by its designee, Seller shall be obligated to continue to perform or to cause any other of its designees to perform in respect of such obligations.

Section 9.04. Calculation Agent. Whenever the Calculation Agent is required to act or to exercise judgment in a any way with respect to this Transaction, it will do so in good faith and in a commercially reasonable manner.

Section 9.05. Non-confidentiality. The Seller and the Purchaser hereby acknowledge and agree that subject to Section 6.03 each is authorized to disclose every aspect of this Confirmation and the transactions contemplated hereby to any and all persons, without limitation of any kind, and there are no express or implied agreements, arrangements or understandings to the contrary.

Section 9.06. Unenforceability and Invalidity. To the extent permitted by law, the unenforceability or invalidity of any provision or provisions of this Confirmation shall not render any other provision or provisions herein contained unenforceable or invalid.

Section 9.07. Securities Contract. The parties hereto agree and acknowledge as of the date hereof that (i) the Seller is a “financial institution” within the meaning of Section 101(22) of Title 11 of the United States Code (the “Bankruptcy Code”) and (ii) this Confirmation is a “securities contract,” as such term is defined in Section 741(7) of the Bankruptcy Code, entitled to the protection of Sections 362(b)(6) and 555 of the Bankruptcy Code.

Section 9.08. No Collateral, Netting or Setoff. Notwithstanding any provision of the Agreement, or any other agreement between the parties, to the contrary, the obligations of the Purchaser hereunder are not secured by

any collateral. Obligations under this Transaction shall not be netted, recouped or set off (including pursuant to Section 6 of the Agreement) against any other obligations of the parties, whether arising under the Agreement, this Confirmation, under any other agreement between the parties hereto, by operation of law or otherwise, and no other obligations of the parties shall be netted, recouped or set off (including pursuant to Section 6 of the Agreement) against obligations under this Transaction, whether arising under the Agreement, this Confirmation, under any other agreement between the parties hereto, by operation of law or otherwise, and each party hereby waives any such right of setoff, netting or recoupment.

Section 9.09. Notices. Unless otherwise specified herein, any notice, the delivery of which is expressly provided for in this Confirmation, may be made by telephone, to be confirmed in writing to the address below. Changes to the information below must be made in writing.

(a) If to the Purchaser:

Valero Energy Corporation
Xxx Xxxxxx Xxx
Xxx Xxxxxxx, Xxxxx 00000-0000
Attention: Xxxxx Xxxxxxx
Telephone No: (000) 000-0000
Facsimile No: (000) 000-0000

(b) If to the Seller:

JPMorgan Chase Bank, National Association
c/o X.X. Xxxxxx Securities Inc.
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxxxxx
Title: Operations Analyst
EDG Corporate Marketing
Telephone No: (000) 000-0000
Facsimile No: (000) 000-0000

Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to us.


Yours sincerely, X.X. XXXXXX SECURITIES INC., as agent for JPMorgan Chase Bank, National Association, London Branch
By:	/s/ Xxxxxxx Xxxxxxxxxxx
	Name:	Xxxxxxx Xxxxxxxxxxx
	Title:	Executive Director

Confirmed as of the date first above written:

ANNEX A

PRIVATE PLACEMENT PROCEDURES

I. Introduction

Valero Energy Corporation, a Delaware corporation (the “Purchaser”) and X.X. Xxxxxx Securities Inc., as agent for JPMorgan Chase Bank, National Association, London Branch (the “Seller”) have agreed to these procedures (the “Private Placement Procedures”) in connection with entering into the Confirmation (the “Confirmation”) dated as of April 26, 2007 between JPMorgan and the Purchaser relating to the sale by JPMorgan to the Purchaser of common stock, par value $0.01 per share, or security entitlements in respect thereof (the “Common Stock”) of the Counterparty. These Private Placement Procedures supplement, form part of, and are subject to the Confirmation and all terms used and not otherwise defined herein shall have the meanings assigned to them in the Confirmation.

II. Procedures

If the Purchaser elects to deliver Payment Shares pursuant to Section 3.01(b) of the Confirmation or elects to deliver Alternative Termination Delivery Units pursuant to Section 7.02(a) of the Confirmation, the Purchaser shall effect such delivery in compliance with the private placement procedures provided herein.

(a) The Purchaser shall afford the Seller, and any potential buyers of the Payment Shares (or, in the case of alternative termination settlement, Alternative Termination Delivery Units) (collectively, the “Private Securities”) designated by the Seller a reasonable opportunity to conduct a due diligence investigation with respect to the Purchaser customary in scope for private offerings of such type of securities (including, without limitation, the availability of senior management to respond to questions regarding the business and financial condition of the Purchaser and the right to have made available to them for inspection all financial and other records, pertinent corporate documents and other information reasonably requested by them), and the Seller (or any such potential buyer) shall be satisfied in all material respects with such opportunity and with the resolution of any disclosure issues arising from such due diligence investigation of the Purchaser.

(b) Prior to or contemporaneously with the determination of the Private Placement Price (as described below), the Purchaser shall enter into an agreement (a “Private Placement Agreement”) with the Seller (or any affiliate of the Seller designated by the Seller) providing for the purchase and resale by the Seller (or such affiliate) in a private placement (or other transaction exempt from registration under the Securities Act) of the Private Securities, which agreement shall be on commercially reasonable terms and in form and substance reasonably satisfactory to the Seller (or such affiliate) and (without limitation of the foregoing) shall:

(i) contain customary conditions, and customary undertakings, representations and warranties (to the Seller or such affiliate, and if requested by the Seller or such affiliate, to potential purchasers of the Private Securities);

(ii) contain indemnification and contribution provisions in connection with the potential liability of the Seller and its affiliates relating to the resale by the Seller (or such affiliate) of the Private Securities;

(iii) provide for the delivery of related certificates and representations, warranties and agreements of the Purchaser, including those necessary or advisable to establish and maintain the availability of an exemption from the registration requirements of the Securities Act for the Seller and resales of the Private Securities by the Seller (or such affiliate); and

A-1

(iv) provide for the delivery to the Seller (or such affiliate) of customary opinions (including, without limitation, opinions relating to the due authorization, valid issuance and fully paid and non-assessable nature of the Private Securities, the availability of an exemption from the Securities Act for the Seller and resales of the Private Securities by the Seller (or such affiliate), and the lack of material misstatements and omissions in the Purchaser’s filings under the Exchange Act).

(c) The Seller shall determine the Private Placement Price (or, in the case of alternative termination settlement, the Termination Price) in its judgment by commercially reasonable means, which may include (without limitation):

(i) basing such price on indicative bids from investors;

(ii) taking into account any factors that are customary in pricing private sales and any and all risks and costs in connection with the resale of the Private Securities by the Seller (or any affiliate of the Seller designated by the Seller), including, without limitation, a reasonable placement fee or spread to be retained by the Seller (or such affiliate); and

(iii) providing for the payment by the Purchaser of all fees and expenses in connection with such sale and resale, including all fees and expenses of counsel for the Seller or such affiliate.

(d) The Seller shall notify the Purchaser of the number of Private Securities required to be delivered by the Purchaser and the Private Placement Price (or, in the case of alternative termination settlement, the Termination Price) by 6:00 p.m. on the day such price is determined.

(e) The Purchaser agrees not to take or cause to be taken any action that would make unavailable either (i) the exemption set forth in Section 4(2) of the Securities Act, for the sale of any Private Securities by the Purchaser to the Seller or (ii) an exemption from the registration requirements of the Securities Act reasonably acceptable to the Seller for resales of Private Securities by the Seller.

(f) The Purchaser expressly agrees and acknowledges that the public disclosure of all material information relating to the Purchaser is within the Purchaser’s control and that the Purchaser shall promptly so disclose all such material information during the period from the Valuation Completion Date to and including the Settlement Date.

The Purchaser agrees to use its best efforts to make any filings required to be made by it with the SEC, any securities exchange or any other regulatory body with respect to the Transaction contemplated hereby and the issuance of the Private Securities.

A-2

ANNEX B

COMMUNICATIONS PROCEDURES

April 26, 2007

I. Introduction

Valero Energy Corporation, a Delaware corporation (“Counterparty”) and X.X. Xxxxxx Securities Inc., as agent for JPMorgan Chase Bank, National Association, London Branch (“JPMorgan”) have adopted these communications procedures (the “Communications Procedures”) in connection with entering into the Confirmation (the “Confirmation”) dated as of April 26, 2007 between JPMorgan and Counterparty relating to the sale by JPMorgan to Counterparty of common stock, par value $0.01 per share, or security entitlements in respect thereof (the “Common Stock”) of the Counterparty. These Communications Procedures supplement, form part of, and are subject to the Confirmation.

II. Communications Rules

1. From the date hereof until the end of the Contract Period, neither Counterparty nor any Employee or Designee of Counterparty shall (a) engage in any Program-Related Communication with any EDG Personnel, other than any of the Permitted Contacts, or (b) disclose any Material Non-Public Information to any EDG Personnel, other than any of the Permitted Contacts, and

2. Subject to the preceding provision, the Counterparty, any Employee of Counterparty and any Designee of Counterparty may at any time engage in any Non-Program-Related Communication with any affiliate or Employee of JPMorgan.

3. JPMorgan and/or its affiliate shall implement reasonable policies and procedures, designed to ensure that any affiliate or Employee of JPMorgan effecting purchases of Common Stock in connection with the Confirmation are not privy to the timing, price or amount of purchases made by those affiliates or Employees of JPMorgan effecting Discretionary Purchases on behalf of Counterparty.

III. Termination

If, in the sole judgment of any EDG Personnel or any affiliate or Employee of JPMorgan participating in any Communication with Counterparty or any Designee of Counterparty, such Communication would not be permitted by these Communications Procedures, such EDG Personnel or such affiliate or Employee of JPMorgan shall immediately terminate such Communication. In such case, or if such EDG Personnel or such affiliate or Employee of JPMorgan determines following completion of any Communication with Counterparty or any Employee or Designee of Counterparty that such Communication was not permitted by these Communications Procedures, such EDG Personnel or such affiliate or Employee of JPMorgan shall promptly consult with his or her supervisors and with counsel for JPMorgan regarding such Communication. If, in the reasonable judgment of JPMorgan’s counsel following such consultation, there is more than an insignificant risk that such Communication could materially jeopardize the availability of the affirmative defenses provided in Rule 10b5-1 under the 1934 Act with respect to any ongoing or contemplated activities of JPMorgan or its affiliates in respect of the Confirmation, it shall be an Additional Termination Event with respect to the Confirmation.

IV. Definitions

Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Confirmation. As used herein, the following words and phrases shall have the following meanings:

B-1

“Communication” means any contact or communication (whether written, electronic, oral or otherwise) between Counterparty, any Employee of Counterparty or one or more Designees of Counterparty, on the one hand, and JPMorgan or any of its affiliates or Employees, on the other hand.

“Designee” means a person designated, in writing or orally, by Counterparty to communicate with JPMorgan on behalf of Counterparty.

“Discretionary Purchases” means purchases of shares of Common Stock by Counterparty pursuant to its previously announced stock buyback program.

“EDG Personnel” means Xxxxxx Xxxxx, Xxxxxx Xxxxx and any other Employee of the public side of the Equity Derivatives Group of X.X. Xxxxxx Chase & Co.; provided that JPMorgan may amend the list of EDG Personnel by delivering a revised list of EDG Personnel to Counterparty.

“Employee” means, with respect to any entity, any owner, principal, officer, director, employee or other agent or representative of such entity, and any affiliate of any of such owner, principal, officer, director, employee, agent or representative.

“Material Non-Public Information” means information relating to the Counterparty or the Common Stock that (a) has not been widely disseminated by wire service, in one or more newspapers of general circulation, by communication from the Counterparty to its shareholders or in a press release, or contained in a public filing made by the Counterparty with the Securities and Exchange Commission and (b) a reasonable investor might consider to be of importance in making an investment decision to buy, sell or hold shares of Common Stock. For the avoidance of doubt and solely by way of illustration, information should be presumed “material” if it relates to such matters as dividend increases or decreases, earnings estimates, changes in previously released earnings estimates, significant expansion or curtailment of operations, a significant increase or decline of orders, significant merger or acquisition proposals or agreements, significant new products or discoveries, extraordinary borrowing, major litigation, liquidity problems, extraordinary management developments, purchase or sale of substantial assets and similar matters.

“Non-Program-Related Communication” means any Communication other than a Program Related Communication.

“Permitted Contact” means any of Xx. Xxxxx Xxxxxxxx, Xx. Xxxxxxxxxx Xxxxxxx, Xx. Xxxxxx Xxxxxx, Xx. Xxxxxxx Xxxxx, Xx. Xxxxx Xxxxxxxxxx and Xx. Xxxxxxx Xxxxxxxxxxx or any of their designees; provided that JPMorgan may amend the list of Permitted Contacts by delivering a revised list of Permitted Contacts to Counterparty.

“Program-Related Communication” means any Communication the subject matter of which relates to the Confirmation or any Transaction under the Confirmation or any activities of JPMorgan (or any of its affiliates) in respect of the Confirmation or any Transaction under the Confirmation. For the avoidance of doubt, Program-Related Communication will not include communications relating to Discretionary Purchases between Employees of the Special Equities Group of X.X. Xxxxxx Chase & Co. on the one hand, and Counterparty or any Employee or designee of Counterparty on the other hand.

B-2

EXHIBIT A

[Letterhead of Purchaser]

JPMorgan Chase Bank, National Association
c/o X.X. Xxxxxx Securities Inc.
000 Xxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000

Re: Accelerated Purchase of Equity Securities

Ladies and Gentlemen:

In connection with our entry into the Confirmation dated as of April 26, 2007 (the “Confirmation”), we hereby represent that set forth below is the total number of shares of our common stock purchased by or for us or any of our affiliated purchasers in Rule 10b-18 purchases of blocks (all defined in Rule 10b-18 under the Securities Exchange Act of 1934) pursuant to the once-a-week block exception set forth in Rule 10b-18(b)(4) during the four full calendar weeks immediately preceding the first day of the Valuation Period (as defined in the Confirmation) and the week during which the first day of the Valuation Period occurs.

Number of Shares: _______________

We understand that you will use this information in calculating trading volume for purposes of Rule 10b-18.


	Very truly yours, VALERO ENERGY CORPORATION
	By:
		Name:
		Title:

Exh-A-1

EXHIBIT B

FORM OF PRICING SUPPLEMENT

JPMorgan Chase Bank, National Association
c/o X.X. Xxxxxx Securities Inc.
000 Xxxx Xxxxxx, 00^xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000

April 27, 2007

Valero Energy Corporation
Xxx Xxxxxx Xxx
Xxx Xxxxxxx, Xxxxx 00000-0000

Ladies and Gentlemen:

This letter is a Pricing Supplement within the meaning of Section 2.01 of the Confirmation dated as of April 26, 2007 (the “Confirmation”) between Valero Energy Corporation (the “Purchaser”) and JPMorgan Chase Bank, National Association, London Branch (the “Seller”), by X.X. Xxxxxx Securities Inc., as its agent. Capitalized terms used herein have the meanings set forth in the Confirmation.

This Pricing Supplement relates to the Transaction described in the Confirmation. Upon the terms and subject to the conditions of the Confirmation, the terms of the Transaction shall be as follows:


1	Initial Stock Price:	[______]
2	Number of Shares:	[______]
3	Initial Purchase Price:	[______]
4	Discount Amount:	[______]
5	Minimum Completion Date:	[______]
6	Initial Commission:	[______]
7	Cash Distribution Amount:

	Cash Distribution Amount	Reference Period

	$0.00	Trade Date — [___, 2007]

	$[ ] per share of Common Stock	[___, 2007 — ___, 2007]

	$[ ] per share of Common Stock	[___, 2007 — ___, 2007]

	$[ ] per share of Common Stock	Any period after [___, 2007]

8	Increase Amount:

	Date	Amount

Exh-B-1


	Very truly yours, X.X. XXXXXX SECURITIES INC., as agent for JPMorgan Chase Bank, National Association, London Branch
	By:
		Name:
		Title:


Acknowledged and Confirmed: VALERO ENERGY CORPORATION

By:
	Name:

Exh-B-2

VALERO ENERGY CORPORATION

/s/ Xxxxxxx X. Xxxxxxxxx

Xxxxxxx X. Xxxxxxxxx

Executive Vice President and Chief Financial Officer