Valero Energy Annual Report 2011

Plain-text annual report

Table of ContentsFORM 10-KUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549(Mark One)RANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2011ORoTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________Commission file number 1-13175VALERO ENERGY CORPORATION(Exact name of registrant as specified in its charter)Delaware74-1828067(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.)One Valero Way78249San Antonio, Texas(Zip Code)(Address of principal executive offices) Registrant’s telephone number, including area code: (210) 345-2000 Securities registered pursuant to Section 12(b) of the Act: Common stock, $0.01 par value per share listed on the New York Stock Exchange.Securities registered pursuant to Section 12(g) of the Act: None.Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes R No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes R No oIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes R No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files). Yes R No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. [X]Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule12b-2 of the Exchange Act.Large accelerated filer RAccelerated filer oNon-accelerated filer oSmaller reporting company oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No RThe aggregate market value of the voting and non-voting common stock held by non-affiliates was approximately $14.6 billion based on the last sales pricequoted as of June 30, 2011 on the New York Stock Exchange, the last business day of the registrant’s most recently completed second fiscal quarter.As of January 31, 2012, 555,069,442 shares of the registrant’s common stock were outstanding.DOCUMENTS INCORPORATED BY REFERENCEWe intend to file with the Securities and Exchange Commission a definitive Proxy Statement for our Annual Meeting of Stockholders scheduled for May 3,2012, at which directors will be elected. Portions of the 2012 Proxy Statement are incorporated by reference in Part III of this Form 10-K and are deemed to be apart of this report.Table of ContentsCROSS-REFERENCE SHEETThe following table indicates the headings in the 2012 Proxy Statement where certain information required in Part III of this Form 10-K may befound.Form 10-K Item No. and Caption Heading in 2012 Proxy Statement 10.Directors, Executive Officers and Corporate Governance Information Regarding the Board of Directors, IndependentDirectors, Audit Committee, Proposal No. 1 Election ofDirectors, Information Concerning Nominees and OtherDirectors, Identification of Executive Officers, Section 16(a)Beneficial Ownership Reporting Compliance, and GovernanceDocuments and Codes of Ethics 11.Executive Compensation Compensation Committee, Compensation Discussion andAnalysis, Director Compensation, Executive Compensation, andCertain Relationships and Related Transactions 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Beneficial Ownership of Valero Securities and EquityCompensation Plan Information 13.Certain Relationships and Related Transactions, and Director Independence Certain Relationships and Related Transactions and IndependentDirectors 14.Principal Accountant Fees and Services KPMG Fees for Fiscal Year 2011, KPMG Fees for Fiscal Year2010, and Audit Committee Pre-Approval PolicyCopies of all documents incorporated by reference, other than exhibits to such documents, will be provided without charge to each person whoreceives a copy of this Form 10-K upon written request to Jay D. Browning, Senior Vice President – Corporate Law and Secretary, Valero EnergyCorporation, P.O. Box 696000, San Antonio, Texas 78269-6000.iCONTENTS PAGEPART I Items 1., 1A., & 2.Business, Risk Factors, and Properties1 Segments2 Valero’s Operations3 Risk Factors13 Environmental Matters17 Properties17Item 1B.Unresolved Staff Comments17Item 3.Legal Proceedings18Item 4.Reserved19 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities20Item 6.Selected Financial Data23Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations24Item 7A.Quantitative and Qualitative Disclosures About Market Risk54Item 8.Financial Statements and Supplementary Data56Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure133Item 9A.Controls and Procedures133Item 9B.Other Information133 PART III Item 10.Directors, Executive Officers and Corporate Governance134Item 11.Executive Compensation134Item 12.Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters134Item 13.Certain Relationships and Related Transactions, and Director Independence134Item 14.Principal Accountant Fees and Services134 PART IV Item 15.Exhibits and Financial Statement Schedules134 Signatures 138 iiTable of ContentsPART IThe terms “Valero,” “we,” “our,” and “us,” as used in this report, may refer to Valero Energy Corporation, to one or more of our consolidatedsubsidiaries, or to all of them taken as a whole. In this Form 10-K, we make certain forward-looking statements, including statements regarding ourplans, strategies, objectives, expectations, intentions, and resources, under the safe harbor provisions of the Private Securities Litigation Reform Actof 1995. You should read our forward-looking statements together with our disclosures beginning on page 24 of this report under the heading:“CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIESLITIGATION REFORM ACT OF 1995.”ITEMS 1., 1A., and 2. BUSINESS, RISK FACTORS, AND PROPERTIESOverview. We are a Fortune 500 company based in San Antonio, Texas. Our corporate offices are at One Valero Way, San Antonio, Texas, 78249,and our telephone number is (210) 345-2000. Our common stock trades on the New York Stock Exchange under the symbol “VLO.” We wereincorporated in Delaware in 1981 under the name Valero Refining and Marketing Company. We changed our name to Valero Energy Corporation onAugust 1, 1997. On January 31, 2012, we had 21,942 employees.Our 16 petroleum refineries are located in the United States (U.S.), Canada, the United Kingdom (U.K.), and Aruba. Our refineries can produceconventional gasolines, distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products as well as a slate of premium productsincluding CBOB and RBOB1, gasoline meeting the specifications of the California Air Resources Board (CARB), CARB diesel fuel, and low-sulfur and ultra-low-sulfur diesel fuel.We market branded and unbranded refined products on a wholesale basis in the U.S., Canada, and the U.K. through an extensive bulk and rackmarketing network, and we sell refined products through a network of about 6,800 retail and branded wholesale outlets in the U.S., Canada, the U.K.,Aruba, and Ireland.We also own 10 ethanol plants in the central plains region of the U.S. with a combined ethanol nameplate production capacity of about 1.1 billiongallons per year.Available Information. Our website address is www.valero.com. Information on our website is not part of this annual report on Form 10-K. Ourannual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K filed with (or furnished to) the Securities andExchange Commission (SEC) are available on our website (under “Investor Relations”) free of charge, soon after we file or furnish such material.In this same location, we also post our corporate governance guidelines, codes of ethics, and the charters of the committees of our board of directors.These documents are available in print to any stockholder that makes a written request to Jay D. Browning, Senior Vice President – Corporate Lawand Secretary, Valero Energy Corporation, P.O. Box 696000, San Antonio, Texas 78269-6000._____________________________1 CBOB, or “conventional blendstock for oxygenate blending,” is conventional gasoline blendstock intended for blending with oxygenates downstream of the refinery where it wasproduced. CBOB becomes conventional gasoline after blending with oxygenates. RBOB is a base unfinished reformulated gasoline mixture known as “reformulated gasolineblendstock for oxygenate blending.” It is a specially produced reformulated gasoline blendstock intended for blending with oxygenates downstream of the refinery where it wasproduced to produce finished gasoline that meets or exceeds U.S. emissions performance requirements for federal reformulated gasoline. Ethanol is the primary oxygenatecurrently used in gasoline blending in the U.S.1Table of ContentsSEGMENTSWe have three reportable business segments: refining, ethanol, and retail. The financial information about our segments is discussed in Note 18 ofNotes to Consolidated Financial Statements and is incorporated herein by reference.•Our refining segment includes refining operations, wholesale marketing, product supply and distribution, and transportation operations. Therefining segment is segregated geographically into the U.S. Gulf Coast, U.S. Mid-Continent, North Atlantic, and U.S. West Coast regions.•Our ethanol segment includes sales of internally produced ethanol and distillers grains. Our ethanol operations are geographically located inthe central plains region of the U.S.•Our retail segment includes company-operated convenience stores, Canadian dealers/jobbers, truckstop facilities, cardlock facilities, andhome heating oil operations. The retail segment is segregated into two geographic regions. Our retail operations in the U.S. are referred to asRetail-U.S. Our retail operations in Canada are referred to as Retail-Canada.2Table of ContentsVALERO’S OPERATIONSREFININGOn December 31, 2011, our refining operations included 16 refineries in the U.S., Canada, the U.K., and Aruba, with a combined total throughputcapacity of approximately 3.0 million barrels per day (BPD). The following table presents the locations of these refineries and their approximatefeedstock throughput capacities as of December 31, 2011.Refinery Location ThroughputCapacity (a)(BPD)U.S. Gulf Coast: Corpus Christi (b) Texas 325,000Port Arthur Texas 310,000St. Charles Louisiana 270,000Texas City Texas 245,000Aruba Aruba 235,000Houston Texas 160,000Meraux Louisiana 135,000Three Rivers Texas 100,000 1,780,000 U.S. Mid-Continent: Memphis Tennessee 195,000McKee Texas 170,000Ardmore Oklahoma 90,000 455,000 North Atlantic: Pembroke Wales, U.K. 270,000Quebec City Quebec, Canada 235,000 505,000 U.S. West Coast: Benicia California 170,000Wilmington California 135,000 305,000Total 3,045,000 (a) “Throughput capacity” represents estimated capacity for processing crude oil, intermediates, and other feedstocks. Total estimated crude oil capacity isapproximately 2.6 million BPD.(b) Represents the combined capacities of two refineries – the Corpus Christi East and Corpus Christi West Refineries.3Table of ContentsTotal Refining SystemThe following table presents the percentages of principal charges and yields (on a combined basis) for all of our refineries for the year endedDecember 31, 2011 (includes the results of operations of our Meraux and Pembroke Refineries from the dates of their acquisition through the end ofthe year). Our total combined throughput volumes averaged 2.4 million BPD for the year ended December 31, 2011.Combined Total Refining System Charges and Yields Charges: sour crude oil37% acidic sweet crude oil5% sweet crude oil31% residual fuel oil11% other feedstocks5% blendstocks11%Yields: gasolines and blendstocks46% distillates34% petrochemicals3% other products (includes gas oil, No. 6 fuel oil, petroleum coke,and asphalt)17%U.S. Gulf CoastThe following table presents the percentages of principal charges and yields (on a combined basis) for the nine refineries in this region for the yearended December 31, 2011 (includes the results of operations of our Meraux Refinery from October 1, 2011, the date of its acquisition, through theend of the year). Total throughput volumes for the U.S. Gulf Coast refining region averaged 1.45 million BPD for the year ended December 31,2011.Combined U.S. Gulf Coast Region Charges and Yields Charges: sour crude oil50% acidic sweet crude oil2% sweet crude oil10% residual fuel oil19% other feedstocks6% blendstocks13%Yields: gasolines and blendstocks41% distillates33% petrochemicals4% other products (includes gas oil, No. 6 fuel oil, petroleum coke,and asphalt)22%4Table of ContentsCorpus Christi East and West Refineries. Our Corpus Christi East and West Refineries are located on the Texas Gulf Coast along the CorpusChristi Ship Channel. The East Refinery processes sour crude oil into conventional gasoline, diesel, jet fuel, asphalt, aromatics, and other lightproducts. The West Refinery specializes in processing primarily sour crude oil and residual fuel oil into premium products such as RBOB. The Eastand West Refineries allow for the transfer of various feedstocks and blending components between the two refineries and the sharing of resources.The refineries typically receive and deliver feedstocks and products by tanker and barge via deepwater docking facilities along the Corpus ChristiShip Channel. Three truck racks with a total of 16 bays service local markets for gasoline, diesel, jet fuels, liquefied petroleum gases, and asphalt.Finished products are distributed across the refineries’ docks into ships or barges, and are transported via third-party pipelines to the Colonial,Explorer, Valley, and other major pipelines.Port Arthur Refinery. Our Port Arthur Refinery is located on the Texas Gulf Coast approximately 90 miles east of Houston. The refineryprocesses primarily heavy sour crude oils and other feedstocks into gasoline, diesel, jet fuel, petrochemicals, intermediates, petroleum coke, andsulfur. The refinery receives crude oil over marine docks and through crude oil pipelines, and has access to the Sunoco and Oiltanking terminals atNederland, Texas. Finished products are distributed into the Colonial, Explorer, and TEPPCO pipelines and across the refinery docks into ships orbarges.St. Charles Refinery. Our St. Charles Refinery is located approximately 15 miles from New Orleans along the Mississippi River. The refineryprocesses sour crude oils and other feedstocks into gasoline, distillates, and other light products. The refinery receives crude oil over five marinedocks and has access to the Louisiana Offshore Oil Port where it can receive crude oil through a 24-inch pipeline. Finished products can be shippedover these docks or through the Colonial pipeline network for distribution to the eastern U.S.Texas City Refinery. Our Texas City Refinery is located southeast of Houston on the Texas City Ship Channel. The refinery processes sour crudeoils into a wide slate of products. The refinery receives and delivers its feedstocks and products by ship and barge via deepwater docking facilitiesalong the Texas City Ship Channel and uses the Colonial, Explorer, and TEPPCO pipelines for distribution of its products.Aruba Refinery. Our Aruba Refinery is located on the island of Aruba in the Caribbean Sea. It processes primarily heavy sour crude oil andproduces intermediate feedstocks and finished distillate products. Significant amounts of the refinery’s intermediate feedstock production aretransported and further processed in our other refineries in the U.S. Gulf Coast and U.S. West Coast regions. The refinery receives crude oil by shipat its two deepwater marine docks, which can berth ultra-large crude carriers. The refinery’s products are delivered by ship primarily into markets inthe U.S., the Caribbean, Europe, and South America.Houston Refinery. Our Houston Refinery is located on the Houston Ship Channel. It processes a mix of crude oils and low-sulfur residual fuel oilinto reformulated gasoline and distillates. The refinery receives its feedstocks via tanker at deepwater docking facilities along the Houston ShipChannel and interconnecting pipelines with the Texas City Refinery. It delivers its products through major refined-product pipelines, including theColonial, Explorer, Orion, and TEPPCO pipelines.Meraux Refinery. Our Meraux Refinery is located in St. Bernard Parish southeast of New Orleans. We acquired the refinery on October 1, 2011. The refinery processes primarily medium sour crude oils into gasoline, distillates, and other light products. The refinery receives crude oil at itsmarine dock and has access to the Louisiana Offshore Oil Port where it can receive crude oil via the Clovelly-Alliance-Meraux pipeline system.Finished products can be shipped from the refinery’s dock or through the Colonial pipeline network for distribution to the eastern U.S. The MerauxRefinery is located about 40 miles from our St. Charles Refinery, allowing for integration of feedstocks and refined product blending.5Table of ContentsThree Rivers Refinery. Our Three Rivers Refinery is located in South Texas between Corpus Christi and San Antonio. It processes sweet andmedium sour crude oils into gasoline, distillates, and aromatics. The refinery has access to crude oil from sources outside the U.S. delivered to theTexas Gulf Coast at Corpus Christi as well as crude oil from U.S. sources through third-party pipelines and trucks. A 70-mile pipeline transportscrude oil via connections to the Three Rivers Refinery from Corpus Christi. The refinery distributes its refined products primarily through pipelinesowned by NuStar Energy L.P.U.S. Mid-ContinentThe following table presents the percentages of principal charges and yields (on a combined basis) for the three refineries in this region for the yearended December 31, 2011. Total throughput volumes for the U.S. Mid-Continent refining region averaged approximately 411,000 BPD for the yearended December 31, 2011.Combined U.S. Mid-Continent Region Charges and Yields Charges: sour crude oil9% sweet crude oil82% other feedstocks1% blendstocks8%Yields: gasolines and blendstocks54% distillates35% petrochemicals5% other products (includes gas oil, No. 6 fuel oil, and asphalt)6%Memphis Refinery. Our Memphis Refinery is located in Tennessee along the Mississippi River’s Lake McKellar. It processes primarily sweetcrude oils. Most of its production is light products, including regular and premium gasoline, diesel, jet fuels, and petrochemicals. Crude oil issupplied to the refinery via the Capline pipeline and can also be received, along with other feedstocks, via barge. The refinery’s products aredistributed via truck racks at our three product terminals, barges, and a pipeline network, including one pipeline directly to the Memphis airport.McKee Refinery. Our McKee Refinery is located in the Texas Panhandle. It processes primarily sweet crude oils into conventional gasoline,RBOB, low-sulfur diesel, jet fuels, and asphalt. The refinery has access to crude oil from Texas, Oklahoma, Kansas, and Colorado through third-party pipelines. The refinery also has access at Wichita Falls, Texas to third-party pipelines that transport crude oil from West Texas to the U.S. Mid-Continent region. The refinery distributes its products primarily via NuStar Energy L.P.’s pipelines to markets in Texas, New Mexico, Arizona,Colorado, and Oklahoma.Ardmore Refinery. Our Ardmore Refinery is located in Ardmore, Oklahoma, approximately 100 miles south of Oklahoma City. It processesmedium sour and sweet crude oils into conventional gasoline, ultra-low-sulfur diesel, liquefied petroleum gas products, and asphalt. Local crude oil isgathered by TEPPCO’s crude oil gathering/trunkline systems and trucking operations, and is then transported to the refinery through third-party crudeoil pipelines. The refinery also receives crude oil from other locations via third-party pipelines. Refined products are transported to market via railcars,trucks, and the Magellan pipeline system.6Table of ContentsNorth AtlanticThe following table presents the percentages of principal charges and yields (on a combined basis) for the two refineries in this region for the yearended December 31, 2011 (includes the results of operations of our Pembroke Refinery from August 1, 2011, the date of its acquisition, through theend of the year). Total throughput volumes for the North Atlantic refining region averaged approximately 317,000 BPD for the year endedDecember 31, 2011.North Atlantic Region Charges and Yields Charges: sour crude oil2% acidic sweet crude oil11% sweet crude oil78% residual fuel oil3% other feedstocks1% blendstocks5%Yields: gasolines and blendstocks43% distillates44% petrochemicals1% other products (includes gas oil, No. 6 fuel oil, and otherproducts)12%Pembroke Refinery. Our Pembroke Refinery is located in the County of Pembrokeshire in southwest Wales, U.K. We acquired the refinery onAugust 1, 2011. The refinery processes primarily sweet crude oils into ultra-low sulfur gasoline and diesel, jet fuel, heating oil, and low sulfur fueloil. The refinery receives all of its feedstocks and delivers the majority of its products by ship and barge via deepwater docking facilities along theMilford Haven Waterway with its remaining products being delivered by the Mainline pipeline system.Quebec City Refinery. Our Quebec City Refinery is located in Lévis, Canada (near Quebec City). It processes sweet, high mercaptan crude oilsand lower-quality, sweet acidic crude oils into conventional gasoline, low-sulfur diesel, jet fuel, heating oil, and propane. The refinery receives crudeoil by ship at its deepwater dock on the St. Lawrence River. We charter large ice-strengthened, double-hulled crude oil tankers that can navigate theSt. Lawrence River year-round. The refinery transports its products to its terminals in Quebec and Ontario primarily by train, and also uses ships andtrucks extensively throughout eastern Canada.7Table of ContentsU.S. West CoastThe following table presents the percentages of principal charges and yields (on a combined basis) for the two refineries in this region for the yearended December 31, 2011. Total throughput volumes for the U.S. West Coast refining region averaged approximately 256,000 BPD for the yearended December 31, 2011.Combined U.S. West Coast Region Charges and Yields Charges: sour crude oil48% acidic sweet crude oil17% sweet crude oil7% other feedstocks13% blendstocks15%Yields: gasolines and blendstocks62% distillates25% other products (includes gas oil, No. 6 fuel oil, petroleum coke,and asphalt)13%Benicia Refinery. Our Benicia Refinery is located northeast of San Francisco on the Carquinez Straits of San Francisco Bay. It processes sourcrude oils into premium products, primarily CARBOB gasoline. (CARBOB is a reformulated gasoline mixture that meets the specifications of theCARB when blended with ethanol.) The refinery receives crude oil feedstocks via a marine dock that can berth large crude oil carriers and a 20-inchcrude oil pipeline connected to a southern California crude oil delivery system. Most of the refinery’s products are distributed via the Kinder Morganpipeline system in California.Wilmington Refinery. Our Wilmington Refinery is located near Los Angeles, California. The refinery processes a blend of lower-cost heavy andhigh-sulfur crude oils. The refinery can produce all of its gasoline as CARBOB gasoline and produces ultra-low-sulfur diesel, CARB diesel, and jetfuel. The refinery is connected by pipeline to marine terminals and associated dock facilities that can move and store crude oil and other feedstocks.Refined products are distributed via the Kinder Morgan pipeline system and various third-party terminals in southern California, Nevada, and Arizona.8Table of ContentsFeedstock SupplyApproximately 63 percent of our current crude oil feedstock requirements are purchased through term contracts while the remaining requirements aregenerally purchased on the spot market. Our term supply agreements include arrangements to purchase feedstocks at market-related prices directly orindirectly from various national oil companies (including feedstocks originating in the Middle East, Africa, Asia, Mexico, and South America) aswell as international and U.S. oil companies. The contracts generally permit the parties to amend the contracts (or terminate them), effective as of thenext scheduled renewal date, by giving the other party proper notice within a prescribed period of time (e.g., 60 days, 6 months) before expiration ofthe current term. The majority of the crude oil purchased under our term contracts is purchased at the producer’s official stated price (i.e., the“market” price established by the seller for all purchasers) and not at a negotiated price specific to us.The U.S. network of crude oil pipelines and terminals allows us to acquire crude oil from producing leases, crude oil trading centers, and shipsdelivering cargoes of crude oil. Our Pembroke, Quebec City, and Aruba Refineries rely on crude oil that is delivered to the refineries’ dock facilitiesby ship.Refining Segment SalesOur refining segment includes sales of refined products in both the wholesale rack and bulk markets. These sales include refined products that aremanufactured in our refining operations as well as refined products purchased or received on exchange from third parties. Most of our refineries haveaccess to marine transportation facilities and interconnect with common-carrier pipeline systems, allowing us to sell products in the U.S., Canada, theU.K., and other countries. No customer accounted for more than 10 percent of our total operating revenues in 2011.Wholesale MarketingWe market branded and unbranded transportation fuels on a wholesale basis through an extensive rack marketing network. The principal purchasers ofour transportation fuels from terminal truck racks are wholesalers, distributors, retailers, and truck-delivered end users throughout the U.S., the U.K.,and Ireland.The majority of our rack volume is sold through unbranded channels. The remainder is sold to distributors and dealers that are members of the Valero-brand family that operate approximately 4,000 branded sites in the U.S. and approximately 1,000 branded sites in the U.K. and Ireland. These sites areindependently owned and are supplied by us under multi-year contracts. For wholesale branded sites, we promote our Valero®, Beacon®, andShamrock® brands in the U.S., and the Texaco® brand in the U.K. and Ireland.Bulk Sales and TradingWe sell a significant portion of our gasoline and distillate production through bulk sales channels in U.S. and international markets. Our bulk sales aremade to various oil companies and traders as well as certain bulk end-users such as railroads, airlines, and utilities. Our bulk sales are transportedprimarily by pipeline, barges, and tankers to major tank farms and trading hubs.We also enter into refined product exchange and purchase agreements. These agreements help minimize transportation costs, optimize refineryutilization, balance refined product availability, broaden geographic distribution, and provide access to markets not connected to our refined productpipeline systems. Exchange agreements provide for the delivery of refined products by us to unaffiliated companies at our and third parties’ terminalsin exchange for delivery of a similar amount of refined products to us by these unaffiliated companies at specified locations. Purchase agreementsinvolve our purchase of refined products from third9Table of Contentsparties with delivery occurring at specified locations.Specialty ProductsWe sell a variety of other products produced at our refineries, which we refer to collectively as “Specialty Products.” Our Specialty Products includeasphalt, lube oils, natural gas liquids (NGLs), petroleum coke, petrochemicals, and sulfur.•We produce asphalt at five of our refineries. Our asphalt products are sold for use in road construction, road repair, and roofing applicationsthrough a network of refinery and terminal loading racks.•We produce napthenic oils at one of our refineries suitable for a wide variety of lubricant and process applications.•NGLs produced at our refineries include butane, isobutane, and propane. These products can be used for gasoline blending, home heating,and petrochemical plant feedstocks.•We are a significant producer of petroleum coke, supplying primarily power generation customers and cement manufacturers. Petroleumcoke is used largely as a substitute for coal.•We produce and market a number of commodity petrochemicals including aromatic solvents (benzene, toluene, and xylene) and two gradesof propylene. Aromatic solvents and propylenes are sold to customers in the chemical industry for further processing into such products aspaints, plastics, and adhesives.•We are a large producer of sulfur with sales primarily to customers in the agricultural sector. Sulfur is used in manufacturing fertilizer.10Table of ContentsETHANOLWe own 10 ethanol plants with a combined ethanol nameplate production capacity of about 1.1 billion gallons per year. Our ethanol plants are dry millfacilities1 that process corn to produce ethanol and distillers grains.2 We source our corn supply from local farmers and commercial elevators. Ourfacilities receive corn by rail and truck. We publish on our website a corn bid for local farmers and cooperative dealers to use to facilitate corn supplytransactions.After processing, our ethanol is held in storage tanks on-site pending loading to trucks and railcars. We sell our ethanol (i) to large customers –primarily refiners and gasoline blenders – under term and spot contracts, and (ii) in bulk markets such as New York, Chicago, Dallas, Florida, andthe U.S. West Coast. We also use our ethanol for our own needs in blending gasoline. We ship our dry distillers grains (DDG) by truck or railprimarily to animal feed customers in the U.S. and Mexico, with some sales into the Far East. We also sell modified distillers grains locally at ourplant sites.The following table presents the locations of our ethanol plants, their approximate ethanol and DDG production capacities, and their approximate cornprocessing capacities.State City Ethanol NameplateProduction(in gallons per year) Production of DDG(in tons per year) Corn Processed(in bushels per year)Indiana Linden 110 million 350,000 40 millionIowa Albert City 110 million 350,000 40 million Charles City 110 million 350,000 40 million Fort Dodge 110 million 350,000 40 million Hartley 110 million 350,000 40 millionMinnesota Welcome 110 million 350,000 40 millionNebraska Albion 110 million 350,000 40 millionOhio Bloomingburg 110 million 350,000 40 millionSouth Dakota Aurora 120 million 390,000 43 millionWisconsin Jefferson 110 million 350,000 40 million Total 1,110 million 3,540,000 403 millionThe combined ethanol production from our plants in 2011 averaged 3.4 million gallons per day.________________________1 Ethanol is commercially produced using either the wet mill or dry mill process. Wet milling involves separating the grain kernel into its component parts (germ, fiber,protein, and starch) prior to fermentation. In the dry mill process, the entire grain kernel is ground into flour. The starch in the flour is converted to ethanol during thefermentation process, creating carbon dioxide and distillers grains.2 During fermentation, nearly all of the starch in the grain is converted into ethanol and carbon dioxide, while the remaining nutrients (proteins, fats, minerals, and vitamins)are concentrated to yield modified distillers grains, or, after further drying, dried distillers grains. Distillers grains generally are an economical partial replacement for corn,soybean, and dicalcium phosphate in feeds for livestock, swine, and poultry.11Table of ContentsRETAILOur retail segment operations include:•sales of transportation fuels at retail stores and unattended self-service cardlocks,•sales of convenience store merchandise and services in retail stores, and•sales of home heating oil to residential customers.We are one of the largest independent retailers of transportation fuels in the central and southwest U.S. and eastern Canada. Our retail operations aresegregated geographically into two groups: Retail-U.S. and Retail-Canada.Retail-U.S.Sales in Retail-U.S. represent sales of transportation fuels and convenience store merchandise and services through our company-operated retail sites.For the year ended December 31, 2011, total sales of transportation fuels through Retail-U.S.’s sites averaged 119,780 BPD. In addition totransportation fuels, our company-operated stores sell convenience-type items, such as tobacco products, beer, snacks and beverages, and fast foods.Our stores also offer services such as ATM access, money orders, lottery tickets, car wash facilities, air and water, and video rentals. OnDecember 31, 2011, we had 998 company-operated sites in Retail-U.S. (of which 80 percent were owned and 20 percent were leased). Ourcompany-operated stores are operated primarily under the Corner Store® brand name. Transportation fuels sold in our Retail-U.S. stores are soldprimarily under the Valero® brand.Retail-CanadaSales in Retail-Canada include:•sales of transportation fuels and convenience store merchandise through our company-operated retail sites and cardlocks,•sales of transportation fuels through sites owned by independent dealers and jobbers, and•sales of home heating oil to residential customers.Retail-Canada includes retail operations in eastern Canada where we are a major supplier of transportation fuels serving Quebec, Ontario,Newfoundland, Nova Scotia, New Brunswick, and Prince Edward Island. For the year ended December 31, 2011, total retail sales of transportationfuels through Retail-Canada averaged approximately 76,100 BPD. Transportation fuels are sold under the Ultramar® brand through a network of791 outlets throughout eastern Canada. On December 31, 2011, we owned or leased 381 retail stores in Retail-Canada and distributed gasoline to410 dealers and independent jobbers. In addition, Retail-Canada operates 82 cardlocks, which are card- or key-activated, self-service, unattendedstations that allow commercial, trucking, and governmental fleets to buy transportation fuel 24 hours a day. Retail-Canada operations also include alarge home heating oil business that provides home heating oil to approximately 133,000 households in eastern Canada. Our home heating oil businessis seasonal to the extent of increased demand for home heating oil during the winter.12Table of ContentsRISK FACTORSOur financial results are affected by volatile refining margins, which are dependent upon factors beyond our control.Our financial results are primarily affected by the relationship, or margin, between refined product prices and the prices for crude oil and otherfeedstocks. Our cost to acquire feedstocks and the price at which we can ultimately sell refined products depend upon several factors beyond ourcontrol, including regional and global supply of and demand for crude oil, gasoline, diesel, and other feedstocks and refined products. These in turndepend on, among other things, the availability and quantity of imports, the production levels of U.S. and international suppliers, levels of refinedproduct inventories, productivity and growth (or the lack thereof) of U.S. and global economies, U.S. relationships with foreign governments,political affairs, and the extent of governmental regulation. Historically, refining margins have been volatile, and we believe they will continue to bevolatile in the future.Economic turmoil and political unrest or hostilities, including the threat of future terrorist attacks, could affect the economies of the U.S. and othercountries. Lower levels of economic activity could result in declines in energy consumption, including declines in the demand for and consumptionof our refined products, which could cause our revenues and margins to decline and limit our future growth prospects.Refining margins are also significantly impacted by additional refinery conversion capacity through the expansion of existing refineries or theconstruction of new refineries. Worldwide refining capacity expansions may result in refining production capability exceeding refined productdemand, which would have an adverse effect on refining margins.A significant portion of our profitability is derived from the ability to purchase and process crude oil feedstocks that historically have been cheaperthan benchmark crude oils, such as Louisiana Light Sweet (LLS) and Brent crude oils. These crude oil feedstock differentials vary significantlydepending on overall economic conditions and trends and conditions within the markets for crude oil and refined products, and they could decline inthe future, which would have a negative impact on our results of operations.Uncertainty and illiquidity in credit and capital markets can impair our ability to obtain credit and financing on acceptable terms, and canadversely affect the financial strength of our business partners.Our ability to obtain credit and capital depends in large measure on capital markets and liquidity factors that we do not control. Our ability to accesscredit and capital markets may be restricted at a time when we would like, or need, to access those markets, which could have an impact on ourflexibility to react to changing economic and business conditions. In addition, the cost and availability of debt and equity financing may be adverselyimpacted by unstable or illiquid market conditions. Protracted uncertainty and illiquidity in these markets also could have an adverse impact on ourlenders, commodity hedging counterparties, or our customers, causing them to fail to meet their obligations to us. In addition, decreased returns onpension fund assets may also materially increase our pension funding requirements.Our access to credit and capital markets also depends on the credit ratings assigned to our debt by independent credit rating agencies. We currentlymaintain investment-grade ratings by Standard & Poor’s Ratings Services (S&P), Moody’s Investors Service (Moody’s), and Fitch Ratings (Fitch)on our senior unsecured debt. (Ratings from credit agencies are not recommendations to buy, sell, or hold our securities. Each rating should beevaluated independently of any other rating.) We cannot provide assurance that any of our current ratings will remain in effect for any given period oftime or that a rating will not be lowered or withdrawn entirely13Table of Contentsby a rating agency if, in its judgment, circumstances so warrant. Specifically, if S&P, Moody’s, or Fitch were to downgrade our long-term rating,particularly below investment grade, our borrowing costs would increase, which could adversely affect our ability to attract potential investors andour funding sources could decrease. In addition, we may not be able to obtain favorable credit terms from our suppliers or they may require us toprovide collateral, letters of credit, or other forms of security which would increase our operating costs. As a result, a downgrade below investmentgrade in our credit ratings could have a material adverse impact on our future operations and financial position.From time to time, our cash needs may exceed our internally generated cash flow, and our business could be materially and adversely affected if wewere unable to obtain necessary funds from financing activities. From time to time, we may need to supplement our cash generated from operationswith proceeds from financing activities. We have existing revolving credit facilities, committed letter of credit facilities, and an accounts receivablesales facility to provide us with available financing to meet our ongoing cash needs. In addition, we rely on the counterparties to our derivativeinstruments to fund their obligations under such arrangements. Uncertainty and illiquidity in financial markets may materially impact the ability of theparticipating financial institutions and other counterparties to fund their commitments to us under our various financing facilities or our derivativeinstruments, which could have a material adverse effect on our operations and financial position.Compliance with and changes in environmental laws, including proposed climate change laws and regulations, could adversely affect ourperformance.The principal environmental risks associated with our operations are emissions into the air and releases into the soil, surface water, or groundwater.Our operations are subject to extensive environmental laws and regulations, including those relating to the discharge of materials into the environment,waste management, pollution prevention measures, greenhouse gas emissions, and characteristics and composition of gasoline and diesel fuels.Certain of these laws and regulations could impose obligations to conduct assessment or remediation efforts at our facilities as well as at formerlyowned properties or third-party sites where we have taken wastes for disposal or where our wastes have migrated. Environmental laws and regulationsalso may impose liability on us for the conduct of third parties, or for actions that complied with applicable requirements when taken, regardless ofnegligence or fault. If we violate or fail to comply with these laws and regulations, we could be fined or otherwise sanctioned.Because environmental laws and regulations are becoming more stringent and new environmental laws and regulations are continuously being enactedor proposed, such as those relating to greenhouse gas emissions and climate change, the level of expenditures required for environmental matterscould increase in the future. Current and future legislative action and regulatory initiatives could result in changes to operating permits, materialchanges in operations, increased capital expenditures and operating costs, increased costs of the goods we sell, and decreased demand for ourproducts that cannot be assessed with certainty at this time. We may be required to make expenditures to modify operations or install pollution controlequipment that could materially and adversely affect our business, financial condition, results of operations, and liquidity. For example, the U.S.Environmental Protection Agency (EPA) has announced its intent to promulgate in 2012 more stringent requirements for refinery air emissionsthrough revisions to existing New Source Performance Standards and National Emission Standards for Hazardous Air Pollutants. In addition, theEPA has, in recent years, adopted final rules making more stringent the National Ambient Air Quality Standards (NAAQS) for ozone, sulfur dioxideand nitrogen dioxide, and the EPA is considering further revisions to the NAAQS. Emerging rules and permitting requirements implementing theserevised standards may require us to install more stringent controls at our facilities, which may result in increased capital expenditures.14Table of ContentsGovernmental restrictions on greenhouse gas emissions – including so-called “cap-and-trade” programs targeted at reducing carbon dioxideemissions – could result in material increased compliance costs, additional operating restrictions for our business, and an increase in the cost of, andreduction in demand for, the products we produce, which could have a material adverse effect on our financial position, results of operations, andliquidity.Disruption of our ability to obtain crude oil could adversely affect our operations.A significant portion of our feedstock requirements is satisfied through supplies originating in the Middle East, Africa, Asia, North America, andSouth America. We are, therefore, subject to the political, geographic, and economic risks attendant to doing business with suppliers located in, andsupplies originating from, these areas. If one or more of our supply contracts were terminated, or if political events disrupt our traditional crude oilsupply, we believe that adequate alternative supplies of crude oil would be available, but it is possible that we would be unable to find alternativesources of supply. If we are unable to obtain adequate crude oil volumes or are able to obtain such volumes only at unfavorable prices, our results ofoperations could be materially adversely affected, including reduced sales volumes of refined products or reduced margins as a result of higher crudeoil costs.In addition, the U.S. government can prevent or restrict us from doing business in or with other countries. These restrictions, and those of othergovernments, could limit our ability to gain access to business opportunities in various countries. Actions by both the U.S. and other countries haveaffected our operations in the past and will continue to do so in the future.We are subject to interruptions of supply and increased costs as a result of our reliance on third-party transportation of crude oil and refinedproducts.We often use the services of third parties to transport feedstocks and refined products to and from our facilities. If we experience prolongedinterruptions of supply or increases in costs to deliver refined products to market, or if the ability of the pipelines or vessels to transport feedstocks orrefined products is disrupted because of weather events, accidents, governmental regulations, or third-party actions, it could have a material adverseeffect on our business, financial condition, results of operations, and liquidity.Competitors that produce their own supply of feedstocks, have more extensive retail outlets, have greater financial resources, or providealternative energy sources may have a competitive advantage.The refining and marketing industry is highly competitive with respect to both feedstock supply and refined product markets. We compete with manycompanies for available supplies of crude oil and other feedstocks and for outlets for our refined products. We do not produce any of our crude oilfeedstocks. Many of our competitors, however, obtain a significant portion of their feedstocks from company-owned production and some havemore extensive retail outlets than we have. Competitors that have their own production or extensive retail outlets (and greater brand-name recognition)are at times able to offset losses from refining operations with profits from producing or retailing operations, and may be better positioned towithstand periods of depressed refining margins or feedstock shortages.Some of our competitors also have materially greater financial and other resources than we have. Such competitors have a greater ability to bear theeconomic risks inherent in all phases of our industry. In addition, we compete with other industries that provide alternative means to satisfy the energyand fuel requirements of our industrial, commercial, and individual consumers.15Table of ContentsA significant interruption in one or more of our refineries could adversely affect our business.Our refineries are our principal operating assets. As a result, our operations could be subject to significant interruption if one or more of our refinerieswere to experience a major accident or mechanical failure, encounter work stoppages relating to organized labor issues, be damaged by severe weatheror other natural or man-made disaster, such as an act of terrorism, or otherwise be forced to shut down. If any refinery were to experience aninterruption in operations, earnings from the refinery could be materially adversely affected (to the extent not recoverable through insurance) becauseof lost production and repair costs. Significant interruptions in our refining system could also lead to increased volatility in prices for crude oilfeedstocks and refined products, and could increase instability in the financial and insurance markets, making it more difficult for us to access capitaland to obtain insurance coverage that we consider adequate.We are subject to operational risks and our insurance may not be sufficient to cover all potential losses arising from operating hazards.Failure by one or more insurers to honor its coverage commitments for an insured event could materially and adversely affect our futureliquidity, operating results, and financial condition.Our refining and marketing operations are subject to various hazards common to the industry, including explosions, fires, toxic emissions, maritimehazards, and natural catastrophes. As protection against these hazards, we maintain insurance coverage against some, but not all, such potential lossesand liabilities. We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of marketconditions, premiums and deductibles for certain of our insurance policies could increase substantially. In some instances, certain insurance couldbecome unavailable or available only for reduced amounts of coverage. For example, coverage for hurricane damage is very limited, and coverage forterrorism risks includes very broad exclusions. If we were to incur a significant liability for which we were not fully insured, it could have a materialadverse effect on our financial position.Our insurance program includes a number of insurance carriers. Significant disruptions in financial markets could lead to a deterioration in thefinancial condition of many financial institutions, including insurance companies. We can make no assurances that we will be able to obtain the fullamount of our insurance coverage for insured events.Compliance with and changes in tax laws could adversely affect our performance.We are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, transactional taxes (excise/duty, sales/use, andvalue-added taxes), payroll taxes, franchise taxes, withholding taxes, and ad valorem taxes. New tax laws and regulations and changes in existing taxlaws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future. Many ofthese liabilities are subject to periodic audits by the respective taxing authority. Subsequent changes to our tax liabilities as a result of these audits maysubject us to interest and penalties.We may incur losses as a result of our forward-contract activities and derivative transactions.We currently use commodity derivative instruments, and we expect to continue their use in the future. If the instruments we use to hedge our exposureto various types of risk are not effective, we may incur losses.16Table of ContentsENVIRONMENTAL MATTERSWe incorporate by reference into this Item the environmental disclosures contained in the following sections of this report:•Item 1 under the caption “Risk Factors – Compliance with and changes in environmental laws, including proposed climate change laws andregulations, could adversely affect our performance,”•Item 3 “Legal Proceedings” under the caption “Environmental Enforcement Matters,” and•Item 8 “Financial Statements and Supplementary Data” in Note 10 of Notes to Consolidated Financial Statements under the caption“Environmental Liabilities” and Note 12 of Notes to Consolidated Financial Statements under the caption “Environmental Matters.”Capital Expenditures Attributable to Compliance with Environmental Regulations. In 2011, our capital expenditures attributable tocompliance with environmental regulations were approximately $241 million, and are currently estimated to be $140 million for 2012 and$155 million for 2013. The estimates for 2012 and 2013 do not include amounts related to capital investments at our facilities that management hasdeemed to be strategic investments. These amounts could materially change as a result of governmental and regulatory actions.PROPERTIESOur principal properties are described above under the caption “Valero’s Operations,” and that information is incorporated herein by reference. Wealso own feedstock and refined product storage and transportation facilities in various locations. We believe that our properties and facilities aregenerally adequate for our operations and that our facilities are maintained in a good state of repair. As of December 31, 2011, we were the lesseeunder a number of cancelable and noncancelable leases for certain properties. Our leases are discussed more fully in Notes 11 and 12 of Notes toConsolidated Financial Statements.Our patents relating to our refining operations are not material to us as a whole. The trademarks and tradenames under which we conduct our retail andbranded wholesale business – including Valero®, Diamond Shamrock®, Shamrock®, Ultramar®, Beacon®, Texaco®, Corner Store®, andStop N Go® – and other trademarks employed in the marketing of petroleum products are integral to our wholesale and retail marketing operations.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.17Table of ContentsITEM 3. LEGAL PROCEEDINGSLitigationWe incorporate by reference into this Item our disclosures made in Part II, Item 8 of this report included in Note 12 of Notes to ConsolidatedFinancial Statements under the caption “Litigation Matters.”Environmental Enforcement MattersWhile it is not possible to predict the outcome of the following environmental proceedings, if any one or more of them were decided against us, webelieve that there would be no material effect on our financial position or results of operations. We are reporting these proceedings to comply withSEC regulations, which require us to disclose certain information about proceedings arising under federal, state, or local provisions regulating thedischarge of materials into the environment or protecting the environment if we reasonably believe that such proceedings will result in monetarysanctions of $100,000 or more.EPA (mobile source enforcement). In November 2010, the EPA issued a letter to us formalizing a proposed penalty of $585,000 in connection witheight alleged violations of U.S. federal fuels regulations (most of which were self-reported) purportedly occurring from March 2004 to 2006 atvarious refineries and terminals. We are negotiating with the EPA to resolve this matter.EPA (Port Arthur Refinery). We expect the EPA to assess a penalty in an amount greater than $100,000 for a flaring event that occurred at our PortArthur Refinery in 2011. The penalty would be a stipulated amount prescribed under our consent decree with the EPA. We have not yet received aformal penalty assessment from the EPA.EPA (Three Rivers Refinery). We expect the EPA to assess a penalty in an amount greater than $100,000 for a flaring event that occurred at our ThreeRivers Refinery in 2011. The penalty would be a stipulated amount prescribed under our consent decree with the EPA. We have not yet received aformal penalty assessment from the EPA.Bay Area Air Quality Management District (BAAQMD) (Benicia Refinery). In the fourth quarter of 2011, we settled 23 violation notices(VN’s) with the BAAQMD that were issued in 2009. In the first quarter of 2012, we settled five VN’s from 2009 and nine VN’s from 2010. Wepresently have outstanding 75 VN’s issued by the BAAQMD from 2010 to the present. These VN’s are for various alleged air regulation and airpermit violations at our Benicia Refinery and asphalt plant.People of the State of Illinois, ex rel. v. The Premcor Refining Group Inc., et al., Third Judicial Circuit Court, Madison County (Case No.03-CH-00459, filed May 29, 2003) (Hartford Refinery and terminal). The Illinois Environmental Protection Agency has issued several notices ofviolation alleging violations of air and waste regulations at Premcor’s Hartford, Illinois terminal and closed refinery. We are negotiating the terms of aconsent order for corrective action.South Coast Air Quality Management District (SCAQMD) (Wilmington Refinery). Due to excess flare related emissions in 2011 at ourWilmington Refinery, we will pay a mitigation fee of about $2.3 million under SCAQMD Rule 1118 for emissions from refinery flares. We will paythe fee in the first quarter of 2012.Texas Commission on Environmental Quality (TCEQ) (Corpus Christi West Refinery). In our annual report on Form 10-K for the year endedDecember 31, 2010, we disclosed that in the second quarter of 2009, the TCEQ issued a notice of enforcement (NOE) to our Corpus Christi WestRefinery. The NOE alleged excess air emissions relating to two cooling tower leaks that occurred in 2008. We settled this matter with the TCEQ18Table of Contentsin the fourth quarter of 2011.TCEQ (Three Rivers Refinery). In our quarterly report on Form 10-Q for the quarter ended September 30, 2011, we disclosed that the TCEQ hadissued a proposed agreed order to our Three Rivers Refinery for various alleged air violations. We settled this matter with the TCEQ in the firstquarter of 2012.ITEM 4. RESERVED19Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUERPURCHASES OF EQUITY SECURITIESOur common stock trades on the New York Stock Exchange under the symbol “VLO.”As of January 31, 2012 there were 7,659 holders of record of our common stock.The following table shows the high and low sales prices of and dividends declared on our common stock for each quarter of 2011 and 2010. Sales Prices of theCommon Stock DividendsPerCommon ShareQuarter Ended High Low 2011: December 31 $26.70 $17.17 $0.15September 30 26.89 17.78 0.05June 30 30.50 23.18 0.05March 31 30.73 23.19 0.052010: December 31 $23.35 $17.25 $0.05September 30 18.31 15.65 0.05June 30 21.37 16.36 0.05March 31 20.69 17.45 0.05On January 24, 2012, our board of directors declared a quarterly cash dividend of $0.15 per common share payable March 14, 2012 to holders ofrecord at the close of business on February 15, 2012.Dividends are considered quarterly by the board of directors and may be paid only when approved by the board.20Table of ContentsThe following table discloses purchases of shares of Valero’s common stock made by us or on our behalf during the fourth quarter of 2011.PeriodTotal Number ofShares PurchasedAverage Price Paidper ShareTotal Number of SharesNot Purchased as Part ofPublicly Announced Plansor Programs (a)Total Number of SharesPurchased as Part of PubliclyAnnounced Plans or ProgramsApproximate Dollar Value ofShares that May Yet BePurchased Under the Plans orPrograms (b)October 2011195,078$25.08195,078—$ 3.46 billionNovember 20111,986,045$23.431,986,045—$ 3.46 billionDecember 20111,338,789$20.761,338,789—$ 3.46 billionTotal3,519,912$22.513,519,912—$ 3.46 billion(a)The shares reported in this column represent purchases settled in the fourth quarter of 2011 relating to (a) our purchases of shares in open-markettransactions to meet our obligations under incentive compensation plans, and (b) our purchases of shares from our employees and non-employeedirectors in connection with the exercise of stock options, the vesting of restricted stock, and other stock compensation transactions in accordance withthe terms of our incentive compensation plans.(b)On April 26, 2007, we publicly announced an increase in our common stock purchase program from $2 billion to $6 billion, as authorized by ourboard of directors on April 25, 2007. The $6 billion common stock purchase program has no expiration date. On February 28, 2008, we announcedthat our board of directors approved a $3 billion common stock purchase program, which is in addition to the $6 billion program. This $3 billionprogram has no expiration date.21Table of ContentsThe following performance graph is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated byreference into any of Valero’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended,respectively.This performance graph and the related textual information are based on historical data and are not indicative of future performance. The followingline graph compares the cumulative total return1 on an investment in our common stock against the cumulative total return of the S&P 500 CompositeIndex and an index of peer companies (that we selected) for the five-year period commencing December 31, 2006 and ending December 31, 2011.Our peer group consists of the following nine companies that are engaged in refining operations in the U.S.: Alon USA Energy, Inc.; ChevronCorporation; CVR Energy, Inc.; Exxon Mobil Corporation; Hess Corporation; HollyFrontier Corporation; Marathon Petroleum Corporation; TesoroCorporation; and Western Refining, Inc. Our peer group previously included ConocoPhillips; Marathon Oil Corporation; Murphy Oil Corporation;and Sunoco, Inc., but they are not included in our current peer group because they have exited or are exiting refining operations in the U.S. FrontierOil Corporation and Holly Corporation are now represented in our peer group as HollyFrontier Corporation. 12/2006 12/2007 12/2008 12/2009 12/2010 12/2011Valero Common Stock$100.00 $137.91 $43.38 $34.60 $48.28 $44.49S&P 500100.00 105.49 66.46 84.05 96.71 98.75Old Peer Group100.00 127.94 98.91 94.54 112.51 130.65New Peer Group100.00 127.92 103.60 97.91 113.09 133.471 Assumes that an investment in Valero common stock and each index was $100 on December 31, 2006. “Cumulative total return” is based on share price appreciation plusreinvestment of dividends from December 31, 2006 through December 31, 2011.22Table of ContentsITEM 6. SELECTED FINANCIAL DATAThe selected financial data for the five-year period ended December 31, 2011 was derived from our audited financial statements. The following tableshould be read together with the historical financial statements and accompanying notes included in Item 8, “Financial Statements and SupplementaryData,” and with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”The following summaries are in millions of dollars, except for per share amounts: Year Ended December 31, 2011 (a) 2010 (b) 2009 (b) 2008 2007Operating revenues$125,987 $82,233 $64,599 $106,676 $85,079Income (loss) from continuing operations2,096 923 (273) (1,154) 4,230Earnings per common share from continuing operations - assuming dilution3.69 1.62 (0.50) (2.20) 7.31Dividends per common share0.30 0.20 0.60 0.57 0.48Total assets42,783 37,621 35,572 34,417 42,722Debt and capital lease obligations, less current portion6,732 7,515 7,163 6,264 6,470___________________________(a)We acquired the Meraux Refinery on October 1, 2011 and the Pembroke Refinery on August 1, 2011. The information presented for 2011 includes theresults of operations from these acquisitions commencing on their respective acquisition dates.(b)We acquired three ethanol plants in the first quarter of 2010 and seven ethanol plants in the second quarter of 2009. The information presented for 2010and 2009 includes the results of operations of these plants commencing on their respective acquisition dates.23Table of ContentsITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following review of our results of operations and financial condition should be read in conjunction with Items 1, 1A, and 2, “Business, RiskFactors, and Properties,” and Item 8, “Financial Statements and Supplementary Data,” included in this report. In the discussions that follow, per-share amounts include the effect of common equivalent shares for periods reflecting income from continuing operations and exclude the effect ofcommon equivalent shares for periods reflecting a loss from continuing operations.CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIESLITIGATION REFORM ACT OF 1995This report, including without limitation our disclosures below under the heading “OVERVIEW AND OUTLOOK,” includes forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You canidentify our forward-looking statements by the words “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “projection,”“predict,” “budget,” “forecast,” “goal,” “guidance,” “target,” “could,” “should,” “may,” and similar expressions.These forward-looking statements include, among other things, statements regarding:•future refining margins, including gasoline and distillate margins;•future retail margins, including gasoline, diesel, home heating oil, and convenience store merchandise margins;•future ethanol margins;•expectations regarding feedstock costs, including crude oil differentials, and operating expenses;•anticipated levels of crude oil and refined product inventories;•our anticipated level of capital investments, including deferred refinery turnaround and catalyst costs and capital expenditures forenvironmental and other purposes, and the effect of these capital investments on our results of operations;•anticipated trends in the supply of and demand for crude oil and other feedstocks and refined products globally and in the regions where weoperate;•expectations regarding environmental, tax, and other regulatory initiatives; and•the effect of general economic and other conditions on refining, retail, and ethanol industry fundamentals.We based our forward-looking statements on our current expectations, estimates, and projections about ourselves and our industry. We caution thatthese statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that we cannot predict. In addition, webased many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual resultsmay differ materially from the future performance that we have expressed or forecast in the forward-looking statements. Differences between actualresults and any future performance suggested in these forward-looking statements could result from a variety of factors, including the following:•acts of terrorism aimed at either our facilities or other facilities that could impair our ability to produce or transport refined products orreceive feedstocks;•political and economic conditions in nations that produce crude oil or consume refined products;•demand for, and supplies of, refined products such as gasoline, diesel fuel, jet fuel, home heating oil, petrochemicals, and ethanol;•demand for, and supplies of, crude oil and other feedstocks;24Table of Contents•the ability of the members of the Organization of Petroleum Exporting Countries (OPEC) to agree on and to maintain crude oil price andproduction controls;•the level of consumer demand, including seasonal fluctuations;•refinery overcapacity or undercapacity;•our ability to successfully integrate any acquired businesses into our operations;•the actions taken by competitors, including both pricing and adjustments to refining capacity in response to market conditions;•the levels of competitors’ imports into markets that we supply;•accidents, unscheduled shutdowns, or other catastrophes affecting our refineries, machinery, pipelines, equipment, and informationsystems, or those of our suppliers or customers;•changes in the cost or availability of transportation for feedstocks and refined products;•the price, availability, and acceptance of alternative fuels and alternative-fuel vehicles;•the levels of government subsidies for ethanol and other alternative fuels;•delay of, cancellation of, or failure to implement planned capital projects and realize the various assumptions and benefits projected for suchprojects or cost overruns in constructing such planned capital projects;•earthquakes, hurricanes, tornadoes, and irregular weather, which can unforeseeably affect the price or availability of natural gas, crude oil,grain and other feedstocks, and refined products and ethanol;•rulings, judgments, or settlements in litigation or other legal or regulatory matters, including unexpected environmental remediation costs, inexcess of any reserves or insurance coverage;•legislative or regulatory action, including the introduction or enactment of legislation or rulemakings by governmental authorities, includingtax and environmental regulations, such as those to be implemented under the California Global Warming Solutions Act (also known as AB32) and the EPA’s regulation of greenhouse gases, which may adversely affect our business or operations;•changes in the credit ratings assigned to our debt securities and trade credit;•changes in currency exchange rates, including the value of the Canadian dollar, the pound sterling, and the euro relative to the U.S. dollar;•overall economic conditions, including the stability and liquidity of financial markets; and•other factors generally described in the “Risk Factors” section included in Items 1, 1A, and 2, “Business, Risk Factors, and Properties” inthis report.Any one of these factors, or a combination of these factors, could materially affect our future results of operations and whether any forward-lookingstatements ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and actual results and futureperformance may differ materially from those suggested in any forward-looking statements. We do not intend to update these statements unless we arerequired by the securities laws to do so.All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety bythe foregoing. We undertake no obligation to publicly release any revisions to any such forward-looking statements that may be made to reflect eventsor circumstances after the date of this report or to reflect the occurrence of unanticipated events.25Table of ContentsOVERVIEW AND OUTLOOKWe reported net income attributable to Valero stockholders from continuing operations of $2.1 billion, or $3.69 per share, for the year endedDecember 31, 2011 compared to $923 million, or $1.62 per share, for the year ended December 31, 2010. The improvement in net incomeattributable to Valero stockholders from continuing operations in 2011 versus 2010 was primarily due to an increase in operating income of$1.8 billion attributable to the business segments outlined in the following table (in millions): Year Ended December 31, 2011 2010 ChangeOperating income (loss) by business segment: Refining $3,516 $1,903 $1,613Retail 381 346 35Ethanol 396 209 187Corporate (613) (582) (31)Total $3,680 $1,876 $1,804The increase of $1.6 billion in refining operating income was primarily due to the favorable difference between the price of sweet crude oils sourcedfrom the inland U.S., such as West Texas Intermediate (WTI), versus the price of benchmark sweet crude oils, such as LLS and Brent. Historically,the price of WTI-type crude oil has closely approximated LLS and Brent crude oils. Due to the significant development of crude oil reserves withinthe U.S. Mid-Continent region and increased deliveries of crude oil from Canada into the U.S. Mid-Continent region, the increased supply of WTI-type crude oil resulted in WTI-type crude oil being priced at a significant discount to LLS and Brent crude oils for most of 2011 as compared to2010. Our McKee and Ardmore Refineries in the U.S. Mid-Continent region process WTI-type crude oils and significantly benefited from thisfavorable price difference.The increase of $35 million in retail operating income was primarily due to higher fuel margins and volumes in our Canadian operations, including afavorable impact from the strengthening of the Canadian dollar relative to the U.S. dollar.The increase of $187 million in ethanol operating income was primarily due to improved operating margins combined with an increase in productionvolumes to an average of 3.4 million gallons per day. The ethanol business is dependent on margins between ethanol and corn feedstocks and isimpacted by U.S. government subsidies and biofuels (including ethanol) mandates.On August 1, 2011, we acquired 100 percent of the outstanding shares of Chevron Limited from a subsidiary of Chevron Corporation and wesubsequently changed the name of Chevron Limited to Valero Energy Ltd. Valero Energy Ltd owns and operates the Pembroke Refinery. ValeroEnergy Ltd also owns, directly and through various subsidiaries, an extensive network of marketing and logistics assets throughout the U.K. andIreland. On the acquisition date, we initially paid $1.8 billion from available cash, of which $1.1 billion was for working capital. Subsequent to theacquisition date, we recorded an adjustment to working capital (primarily inventory), resulting in an adjusted purchase price of $1.7 billion. Thisacquisition is referred to as the Pembroke Acquisition.26Table of ContentsOn October 1, 2011, we acquired the Meraux Refinery and related logistics assets from Murphy Oil Corporation for an initial payment of$586 million, which was funded from available cash. In the fourth quarter of 2011, we recorded an adjustment related to inventories acquired thatreduced the purchase price to $547 million.The benefit we experienced in our refining business for most of 2011 from processing discounted WTI-type crude oils declined significantly duringthe fourth quarter of 2011 as the premium of LLS and Brent crude oils versus WTI-type crude oil narrowed considerably. In addition, our fourthquarter 2011 results reflected a significant decline in margins for most of the products we produce. Product margins have since improved in early2012, but we expect the energy markets and margins to be volatile. The U.S. and worldwide refining business continues to experience capacityrationalization, particularly in Europe, the U.S. East Coast, and the Caribbean, where declining product margins have negatively impacted refineries inthose regions. In particular, our Aruba Refinery has been negatively impacted. We restarted the Aruba Refinery in January 2011 after shutting it downtemporarily in July 2009, but the refinery has not yet generated positive cash flows on a sustained basis. We are exploring strategic alternatives for therefinery, including alternative feedstocks, configuration changes, and a temporary or permanent shutdown of the refinery facilities. We expect toconclude our evaluation of these strategic alternatives in the first quarter of 2012. A decision to temporarily or permanently shut down the refinery or arevision to the future operating plans for the refinery that results in a decrease in future expected cash flows could result in the refinery beingimpaired. The Aruba Refinery had a net book value of $958 million as of December 31, 2011; therefore, an impairment loss would be material to ourresults of operations.As of the date of the filing of this report, the financial markets continue to experience significant volatility and the overall impact on our business isuncertain at this time.27Table of ContentsRESULTS OF OPERATIONSThe following tables highlight our results of operations, our operating performance, and market prices that directly impact our operations. Thenarrative following these tables provides an analysis of our results of operations.2011 Compared to 2010Financial Highlights (a) (b) (c) (d)(millions of dollars, except per share amounts) Year Ended December 31, 2011 2010 ChangeOperating revenues$125,987 $82,233 $43,754Costs and expenses: Cost of sales115,719 74,458 41,261Operating expenses: Refining3,406 2,944 462Retail678 654 24Ethanol399 363 36General and administrative expenses571 531 40Depreciation and amortization expense: Refining1,338 1,210 128Retail115 108 7Ethanol39 36 3Corporate42 51 (9)Asset impairment loss— 2 (2)Total costs and expenses122,307 80,357 41,950Operating income3,680 1,876 1,804Other income, net43 106 (63)Interest and debt expense, net of capitalized interest(401) (484) 83Income from continuing operations before income tax expense3,322 1,498 1,824Income tax expense1,226 575 651Income from continuing operations2,096 923 1,173Loss from discontinued operations, net of income taxes(7) (599) 592Net income2,089 324 1,765Less: Net loss attributable to noncontrolling interests(1) — (1)Net income attributable to Valero stockholders$2,090 $324 $1,766 Net income attributable to Valero stockholders: Continuing operations$2,097 $923 $1,174Discontinued operations(7) (599) 592Total$2,090 $324 $1,766 Earnings per common share – assuming dilution: Continuing operations$3.69 $1.62 $2.07Discontinued operations(0.01) (1.05) 1.04Total$3.68 $0.57 $3.11________________See note references on page 33.28Table of ContentsOperating Highlights(millions of dollars, except per barrel amounts) Year Ended December 31, 2011 2010 ChangeRefining (a) (b) (c): Operating income$3,516 $1,903 $1,613Throughput margin per barrel (e)$9.30 $7.80 $1.50Operating costs per barrel: Operating expenses3.83 3.79 0.04Depreciation and amortization expense1.51 1.56 (0.05)Total operating costs per barrel5.34 5.35 (0.01)Operating income per barrel$3.96 $2.45 $1.51 Throughput volumes (thousand BPD): Feedstocks: Heavy sour crude454 458 (4)Medium/light sour crude442 386 56Acidic sweet crude116 60 56Sweet crude745 668 77Residuals282 204 78Other feedstocks122 110 12Total feedstocks2,161 1,886 275Blendstocks and other273 243 30Total throughput volumes2,434 2,129 305 Yields (thousand BPD): Gasolines and blendstocks1,120 1,048 72Distillates834 712 122Other products (f)494 395 99Total yields2,448 2,155 293__________See note references on page 33.29Table of ContentsRefining Operating Highlights by Region (g)(millions of dollars, except per barrel amounts) Year Ended December 31, 2011 2010 ChangeU.S. Gulf Coast: (a) Operating income$1,833 $1,349 $484Throughput volumes (thousand BPD)1,450 1,280 170Throughput margin per barrel (e)$8.63 $8.20 $0.43Operating costs per barrel: Operating expenses3.66 3.71 (0.05)Depreciation and amortization expense1.50 1.60 (0.10)Total operating costs per barrel5.16 5.31 (0.15)Operating income per barrel$3.47 $2.89 $0.58 U.S. Mid-Continent: Operating income$1,413 $339 $1,074Throughput volumes (thousand BPD)411 398 13Throughput margin per barrel (e)$15.10 $7.33 $7.77Operating costs per barrel: Operating expenses4.15 3.60 0.55Depreciation and amortization expense1.52 1.40 0.12Total operating costs per barrel5.67 5.00 0.67Operating income per barrel$9.43 $2.33 $7.10 North Atlantic (b): Operating income$171 $129 $42Throughput volumes (thousand BPD)317 195 122Throughput margin per barrel (e)$5.43 $6.18 $(0.75)Operating costs per barrel: Operating expenses3.08 2.99 0.09Depreciation and amortization expense0.87 1.39 (0.52)Total operating costs per barrel3.95 4.38 (0.43)Operating income per barrel$1.48 $1.80 $(0.32) U.S. West Coast: Operating income$99 $88 $11Throughput volumes (thousand BPD)256 256 —Throughput margin per barrel (e)$8.60 $7.73 $0.87Operating costs per barrel: Operating expenses5.25 5.09 0.16Depreciation and amortization expense2.29 1.69 0.60Total operating costs per barrel7.54 6.78 0.76Operating income per barrel$1.06 $0.95 $0.11 Operating income for regions above$3,516 $1,905 $1,611Asset impairment loss applicable to refining— (2) 2Total refining operating income$3,516 $1,903 $1,613__________See note references on page 33.30Table of ContentsAverage Market Reference Prices and Differentials (h)(dollars per barrel, except as noted) Year Ended December 31, 2011 2010 ChangeFeedstocks: LLS crude oil$111.47 $81.62 $29.85LLS less WTI crude oil16.42 2.21 14.21LLS less Alaska North Slope (ANS) crude oil1.93 2.55 (0.62)LLS less Brent crude oil0.54 2.09 (1.55)LLS less Mars crude oil4.00 3.62 0.38LLS less Maya crude oil12.72 11.34 1.38WTI crude oil95.05 79.41 15.64WTI less Mars crude oil(12.42) 1.41 (13.83)WTI less Maya crude oil(3.70) 9.13 (12.83) Products: U.S. Gulf Coast: Conventional 87 gasoline less LLS$5.04 $5.30 $(0.26)Ultra-low-sulfur diesel less LLS13.24 8.93 4.31Propylene less LLS7.69 5.71 1.98Conventional 87 gasoline less WTI21.46 7.51 13.95Ultra-low-sulfur diesel less WTI29.66 11.14 18.52Propylene less WTI24.11 7.92 16.19U.S. Mid-Continent: Conventional 87 gasoline less WTI22.37 8.20 14.17Ultra-low-sulfur diesel less WTI31.06 11.91 19.15North Atlantic: Conventional 87 gasoline less Brent6.24 8.38 (2.14)Ultra-low-sulfur diesel less Brent15.64 12.63 3.01Conventional 87 gasoline less WTI22.12 8.50 13.62Ultra-low-sulfur diesel less WTI31.52 12.76 18.76U.S. West Coast: CARBOB 87 gasoline less ANS11.48 14.21 (2.73)CARB diesel less ANS18.47 13.79 4.68CARBOB 87 gasoline less WTI25.97 13.88 12.09CARB diesel less WTI32.96 13.45 19.51New York Harbor corn crush (dollars per gallon)0.25 0.39 (0.14)__________See note references on page 33.31Table of ContentsOperating Highlights (continued)(millions of dollars, except per gallon amounts) Year Ended December 31, 2011 2010 ChangeRetail–U.S.: Operating income$213 $200 $13Company-operated fuel sites (average)994 990 4Fuel volumes (gallons per day per site)5,060 5,086 (26)Fuel margin per gallon$0.144 $0.140 $0.004Merchandise sales$1,223 $1,205 $18Merchandise margin (percentage of sales)28.7% 28.3% 0.4 %Margin on miscellaneous sales$88 $86 $2Operating expenses$416 $412 $4Depreciation and amortization expense$77 $73 $4 Retail–Canada: Operating income$168 $146 $22Fuel volumes (thousand gallons per day)3,195 3,168 27Fuel margin per gallon$0.299 $0.271 $0.028Merchandise sales$261 $240 $21Merchandise margin (percentage of sales)29.4% 30.1% (0.7)%Margin on miscellaneous sales$43 $38 $5Operating expenses$262 $242 $20Depreciation and amortization expense$38 $35 $3 Ethanol (d): Operating income$396 $209 $187Ethanol production (thousand gallons per day)3,352 3,021 331Gross margin per gallon of ethanol production (e)$0.68 $0.55 $0.13Operating costs per gallon of production: Operating expenses0.33 0.33 —Depreciation and amortization expense0.03 0.03 —Total operating costs per gallon of production0.36 0.36 —Operating income per gallon of production$0.32 $0.19 $0.13__________See note references on page 33.32Table of ContentsThe following notes relate to references on pages 28 through 32.(a)The financial highlights and operating highlights for the refining segment and U.S. Gulf Coast region include the results of operations of our Meraux Refinery, includingrelated logistics assets, from the date of its acquisition on October 1, 2011 through December 31, 2011.(b)The financial highlights and operating highlights for the refining segment and North Atlantic region include the results of operations of our Pembroke Refinery, including therelated market and logistics business from the date of its acquisition on August 1, 2011 through December 31, 2011.(c)In 2010, we sold our Paulsboro Refinery and our shutdown Delaware City refinery assets and associated terminal and pipeline assets. The results of operations of theserefineries have been presented as discontinued operations for the year ended December 31, 2010. In addition, the operating highlights for the refining segment and NorthAtlantic region exclude these refineries for the year ended December 31, 2010.(d)We acquired three ethanol plants in the first quarter of 2010. The information presented includes the results of operations of these plants commencing on their respectiveacquisition dates. Ethanol production volumes are based on total production during each year divided by actual calendar days per year.(e)Throughput margin per barrel represents operating revenues less cost of sales of our refining segment divided by throughput volumes. Gross margin per gallon ofproduction represents operating revenues less cost of sales of our ethanol segment divided by production volumes.(f)Other products primarily include petrochemicals, gas oils, No. 6 fuel oil, petroleum coke, and asphalt.(g)The regions reflected herein contain the following refineries: the U.S. Gulf Coast region includes the Corpus Christi East, Corpus Christi West, Texas City, Houston,Three Rivers, St. Charles, Aruba, Port Arthur, and Meraux Refineries; the U.S. Mid-Continent region includes the McKee, Ardmore, and Memphis Refineries; theNorth Atlantic (formerly known as Northeast) region includes the Pembroke and Quebec City Refineries; and the U.S. West Coast region includes the Benicia andWilmington Refineries.(h)Average market reference prices for LLS crude oil, along with price differentials between the price of LLS crude oil and other types of crude oil, have been included in thetable of Average Market Reference Prices and Differentials. The table also includes price differentials by region between the prices of certain products and the benchmarkcrude oil that provides the best indicator of product margins for each region. Prior to the first quarter of 2011, feedstock and product differentials were based on the price ofWTI crude oil. However, the price of WTI crude oil no longer provides a reasonable benchmark price of crude oil for all regions. Beginning in late 2010, WTI crude oilbegan to price at a discount to benchmark sweet crude oils, such as LLS and Brent, because of increased WTI supplies resulting from greater U.S. production andincreased deliveries of crude oil from Canada into the U.S. Mid-Continent region. Therefore, the use of the price of WTI crude oil as a benchmark price for regions that donot process WTI crude oil is no longer reasonable.GeneralOperating revenues increased 53 percent (or $43.8 billion) for the year ended December 31, 2011 compared to the year ended December 31, 2010primarily as a result of higher average refined product prices and higher throughput volumes between the two years related to our refining segmentoperations. The higher throughput volumes resulted primarily from the incremental throughput of 33,000 BPD1 ($1.3 billion of revenue) from theMeraux Refinery, which was acquired on October 1, 2011, incremental throughput of 109,000 BPD1 ($7.5 billion of revenue) from the PembrokeRefinery, which was acquired on August 1, 2011, and incremental throughput of 145,000 BPD ($4.9 billion of revenue) from the Aruba Refinery,which restarted operations in January 2011. Operating income increased $1.8 billion and income from continuing operations before taxes alsoincreased $1.8 billion for the year ended December 31, 2011 compared to the amounts reported for the year ended December 31, 2010 primarily dueto a $1.6 billion increase in refining segment operating income discussed below._______________1Calculated based on throughput volumes of the Meraux Refinery and the Pembroke Refinery from the date of their respective acquisitions (October 1, 2011 and August 1,2011), divided by the number of days during the year ended December 31, 2011.33Table of ContentsRefiningRefining segment operating income nearly doubled from $1.9 billion for the year ended December 31, 2010 to $3.5 billion for the year endedDecember 31, 2011. The $1.6 billion improvement in operating income was due to a $2.2 billion increase in refining margin, partially offset by a$462 million increase in operating expenses.The $2.2 billion increase in refining margin was primarily due to a 19 percent increase in throughput margin per barrel (a $1.50 per barrel increasebetween the years). This increase in refining margin was largely driven by an improvement in the U.S. Mid-Continent region, which experienced anincrease in its throughput margin per barrel of $7.77. The U.S. Mid-Continent throughput margin per barrel of $15.10 for the year endedDecember 31, 2011 was more than double the throughput margin per barrel of $7.33 for the year ended December 31, 2010. This increase was dueto the substantial discount in the price of WTI-type crude oil, the primary type of crude oil processed by our U.S. Mid-Continent refineries, versusthe price of LLS and Brent crude oils. Historically, the price of WTI-type crude oil has closely approximated LLS and Brent crude oils, but due tothe significant development of crude oil reserves within the U.S. Mid-Continent region and increased deliveries of crude oil from Canada into theU.S. Mid-Continent region, the increased supply of WTI-type crude oil resulted in WTI-type crude oil being priced at a significant discount to LLSand Brent crude oils during 2011. For example, the WTI-based benchmark reference margin for U.S. Mid-Continent conventional 87 gasoline was$22.37 per barrel for the year ended December 31, 2011 compared to $8.20 per barrel for the year ended December 31, 2010, representing afavorable increase of $14.17 per barrel. In addition, the WTI-based benchmark reference margin for U.S. Mid-Continent ultra-low sulfur diesel (atype of distillate) was $31.06 per barrel for the year ended December 31, 2011 compared to $11.91 per barrel for the year ended December 31,2010, representing a favorable increase of $19.15 per barrel. We estimate that these increases in gasoline and distillate margins per barrel had apositive impact to our refining margin of approximately $1.1 billion and $1.0 billion, respectively, year over year.The increase of $462 million in operating expenses discussed above was partially due to $42 million in operating expenses of the Meraux Refinery,which was acquired on October 1, 2011, and $141 million in operating expenses of the Pembroke Refinery, which was acquired on August 1, 2011.The remaining increase of $279 million was due to a $107 million increase in chemicals and catalyst costs, an $86 million increase in employee-related expenses, and a $75 million increase in reliability expenses.RetailRetail operating income was $381 million for the year ended December 31, 2011 compared to $346 million for the year ended December 31, 2010.This 10 percent (or $35 million) increase was primarily due to increases in fuel margins of $43 million primarily from our Canadian operations,including a favorable impact from the strengthening of the Canadian dollar relative to the U.S. dollar, and an increase in merchandise margins of$15 million, offset by increased operating expenses of $24 million.EthanolEthanol segment operating income was $396 million for the year ended December 31, 2011 compared to $209 million for the year endedDecember 31, 2010. This increase of $187 million was primarily due to a $226 million increase in gross margin, partially offset by a $36 millionincrease in operating expenses.Gross margin increased from the year ended December 31, 2010 to the year ended December 31, 2011 due to an increase in ethanol production (a331,000 gallon per day increase between the years) primarily resulting from the full operation of three additional plants acquired in the first quarter of2010 and higher utilization rates and increased yields during 2011 combined with a $0.13 per gallon increase in the ethanol gross margin.34Table of ContentsThe increase in operating expenses was primarily due to $27 million of additional expenses related to the three ethanol plants acquired in the firstquarter of 2010. We operated these plants for all of 2011 compared to part of 2010.Corporate Expenses and OtherGeneral and administrative expenses increased $40 million for the year ended December 31, 2011 compared to the year ended December 31, 2010due to a $25 million increase in variable compensation expense, $27 million in costs incurred in connection with the Pembroke Acquisition, and afavorable settlement with an insurance company for $40 million recorded in 2010, which reduced general and administrative expenses in 2010. Theseincreases in general and administrative expenses were partially offset by favorable legal settlements of $47 million in 2011.“Other income, net” for the year ended December 31, 2011 decreased $63 million from the year ended December 31, 2010 due to a pre-tax gain of$55 million related to the sale of our 50 percent interest in Cameron Highway Oil Pipeline Company (CHOPS) recognized in November 2010 and the$16 million effect of earnings on our interest in CHOPS recognized in 2010.“Interest and debt expense, net of capitalized interest” for the year ended December 31, 2011 decreased $83 million from the year endedDecember 31, 2010. This decrease is primarily due to an increase of $62 million in capitalized interest related to an increase in capital expendituresbetween the years and the resumption of construction activity on previously suspended projects combined with a $19 million favorable impact fromthe decrease in average borrowings.Income tax expense for the year ended December 31, 2011 increased $651 million from the year ended December 31, 2010 mainly as a result ofhigher operating income in 2011 and a one-time $20 million income tax benefit recognized in 2010 related to a tax settlement with the Government ofAruba (GOA).The loss from discontinued operations of $7 million for the year ended December 31, 2011 is primarily due to adjustments to the working capitalsettlement related to the sale of our Paulsboro Refinery in December 2010. The loss from discontinued operations of $599 million for the year endedDecember 31, 2010 represents a $47 million after-tax loss from the discontinued operations of the Delaware City and Paulsboro Refineries and a$610 million after-tax loss on the sale of the Paulsboro Refinery, partially offset by a $58 million after-tax gain on the sale of the shutdown refineryassets at Delaware City.35Table of Contents2010 Compared to 2009Financial Highlights (a) (b) (c)(millions of dollars, except per share amounts) Year Ended December 31, 2010 2009 ChangeOperating revenues$82,233 $64,599 $17,634Costs and expenses: Cost of sales74,458 58,686 15,772Operating expenses: Refining2,944 2,880 64Retail654 626 28Ethanol363 169 194General and administrative expenses531 572 (41)Depreciation and amortization expense: Refining1,210 1,194 16Retail108 101 7Ethanol36 18 18Corporate51 48 3Asset impairment loss (d)2 222 (220)Total costs and expenses80,357 64,516 15,841Operating income1,876 83 1,793Other income, net106 17 89Interest and debt expense, net of capitalized interest(484) (416) (68)Income (loss) from continuing operationsbefore income tax expense (benefit)1,498 (316) 1,814Income tax expense (benefit)575 (43) 618Income (loss) from continuing operations923 (273) 1,196Loss from discontinued operations, net of income taxes(599) (1,709) 1,110Net income (loss)324 (1,982) 2,306Less: Net loss attributable to noncontrolling interests— — —Net income (loss) attributable to Valero stockholders$324 $(1,982) $2,306 Net income (loss) attributable to Valero stockholders: Continuing operations$923 $(273) $1,196Discontinued operations(599) (1,709) 1,110Total$324 $(1,982) $2,306 Earnings per common share – assuming dilution: Continuing operations$1.62 $(0.50) $2.12Discontinued operations(1.05) (3.17) 2.12Total$0.57 $(3.67) $4.24__________See note references on page 41.36Table of ContentsOperating Highlights(millions of dollars, except per barrel amounts) Year Ended December 31, 2010 2009 ChangeRefining (a) (b): Operating income (d)$1,903 $247 $1,656Throughput margin per barrel (e)$7.80 $6.00 $1.80Operating costs per barrel (d): Operating expenses3.79 3.71 0.08Depreciation and amortization expense1.56 1.55 0.01Total operating costs per barrel5.35 5.26 0.09Operating income per barrel$2.45 $0.74 $1.71 Throughput volumes (thousand BPD): Feedstocks: Heavy sour crude458 457 1Medium/light sour crude386 417 (31)Acidic sweet crude60 64 (4)Sweet crude668 616 52Residuals204 170 34Other feedstocks110 136 (26)Total feedstocks1,886 1,860 26Blendstocks and other243 264 (21)Total throughput volumes2,129 2,124 5 Yields (thousand BPD): Gasolines and blendstocks1,048 1,040 8Distillates712 692 20Other products (f)395 402 (7)Total yields2,155 2,134 21 __________See note references on page 41.37Table of ContentsRefining Operating Highlights by Region (d) (g)(millions of dollars, except per barrel amounts) Year Ended December 31, 2010 2009 ChangeU.S. Gulf Coast: Operating income (loss)$1,349 $(56) $1,405Throughput volumes (thousand BPD)1,280 1,274 6Throughput margin per barrel (e)$8.20 $5.13 $3.07Operating costs per barrel: Operating expenses3.71 3.71 —Depreciation and amortization expense1.60 1.54 0.06Total operating costs per barrel5.31 5.25 0.06Operating income (loss) per barrel$2.89 $(0.12) $3.01 U.S. Mid-Continent: Operating income$339 $189 $150Throughput volumes (thousand BPD)398 387 11Throughput margin per barrel (e)$7.33 $6.52 $0.81Operating costs per barrel: Operating expenses3.60 3.66 (0.06)Depreciation and amortization expense1.40 1.53 (0.13)Total operating costs per barrel5.00 5.19 (0.19)Operating income per barrel$2.33 $1.33 $1.00 North Atlantic (a) (b): Operating income$129 $196 $(67)Throughput volumes (thousand BPD)195 196 (1)Throughput margin per barrel (e)$6.18 $6.36 $(0.18)Operating costs per barrel: Operating expenses2.99 2.31 0.68Depreciation and amortization expense1.39 1.33 0.06Total operating costs per barrel4.38 3.64 0.74Operating income per barrel$1.80 $2.72 $(0.92) U.S. West Coast: Operating income$88 $252 $(164)Throughput volumes (thousand BPD)256 267 (11)Throughput margin per barrel (e)$7.73 $9.16 $(1.43)Operating costs per barrel: Operating expenses5.09 4.83 0.26Depreciation and amortization expense1.69 1.74 (0.05)Total operating costs per barrel6.78 6.57 0.21Operating income per barrel$0.95 $2.59 $(1.64) Operating income for regions above$1,905 $581 $1,324Asset impairment loss applicable to refining(2) (220) 218Loss contingency accrual related to Aruba tax matter (h)— (114) 114Total refining operating income$1,903 $247 $1,656__________See note references on page 41.38Table of ContentsAverage Market Reference Prices and Differentials(dollars per barrel, except as noted) Year Ended December 31, 2010 2009 ChangeFeedstocks: LLS crude oil$81.62 $62.25 $19.37LLS less WTI crude oil2.21 0.56 1.65WTI crude oil79.41 61.69 17.72WTI less Mars crude oil1.41 1.36 0.05WTI less Maya crude oil9.13 5.19 3.94 Products: U.S. Gulf Coast: Conventional 87 gasoline less WTI$7.51 $7.61 $(0.10)Ultra-low-sulfur diesel less WTI11.14 8.02 3.12Propylene less WTI7.92 (1.31) 9.23U.S. Mid-Continent: Conventional 87 gasoline less WTI8.20 8.01 0.19Ultra-low-sulfur diesel less WTI11.91 8.26 3.65North Atlantic: Conventional 87 gasoline less WTI8.50 7.99 0.51Ultra-low-sulfur diesel less WTI12.76 9.55 3.21U.S. West Coast: CARBOB 87 gasoline less WTI13.88 15.75 (1.87)CARB diesel less WTI13.45 9.86 3.59New York Harbor corn crush (dollars per gallon)0.39 0.47 (0.08)__________See note references on page 41.39Table of ContentsOperating Highlights(millions of dollars, except per gallon amounts) Year Ended December 31, 2010 2009 ChangeRetail–U.S.: Operating income$200 $170 $30Company-operated fuel sites (average)990 999 (9)Fuel volumes (gallons per day per site)5,086 4,983 103Fuel margin per gallon$0.140 $0.126 $0.014Merchandise sales$1,205 $1,171 $34Merchandise margin (percentage of sales)28.3% 28.1% 0.2%Margin on miscellaneous sales$86 $87 $(1)Operating expenses$412 $405 $7Depreciation and amortization expense$73 $70 $3 Retail–Canada: Operating income$146 $123 $23Fuel volumes (thousand gallons per day)3,168 3,159 9Fuel margin per gallon$0.271 $0.247 $0.024Merchandise sales$240 $201 $39Merchandise margin (percentage of sales)30.1% 28.3% 1.8%Margin on miscellaneous sales$38 $33 $5Operating expenses$242 $221 $21Depreciation and amortization expense$35 $31 $4 Ethanol (c): Operating income$209 $165 $44Ethanol production (thousand gallons per day)3,021 1,479 1,542Gross margin per gallon of ethanol production (e)$0.55 $0.65 $(0.10)Operating costs per gallon of ethanol production: Operating expenses0.33 0.31 0.02Depreciation and amortization expense0.03 0.03 —Total operating costs per gallon of production0.36 0.34 0.02Operating income per gallon of production$0.19 $0.31 $(0.12)__________See note references on page 41.40Table of ContentsThe following notes relate to references on pages 36 through 40.(a)In December 2010, we sold our Paulsboro Refinery to PBF Holding Company LLC for $547 million of cash proceeds and a $160 million one-year note, resulting in a pre-tax loss on the sale of $980 million ($610 million after taxes). The results of operations of the refinery, including the loss on the sale, have been presented as discontinuedoperations for both years presented. The refining segment and North Atlantic Region operating highlights exclude the Paulsboro Refinery for both years presented.(b)During the fourth quarter of 2009, we permanently shut down our Delaware City Refinery and wrote down the book value of the refinery assets to net realizable value,resulting in a pre-tax loss on the shutdown of $1.9 billion ($1.2 billion after taxes). In June 2010, we sold the shutdown refinery assets and associated terminal and pipelineassets to wholly owned subsidiaries of PBF Energy Partners LP for $220 million of cash proceeds, resulting in a pre-tax gain on the sale of the refinery assets of $92 million($58 million after taxes) and an insignificant gain on the sale of the terminal and pipeline assets. The results of operations of the shutdown refinery, including the gain on thesale in 2010 and the loss on the shutdown in 2009, have been presented as discontinued operations for both years presented. The refining segment and North Atlantic Regionoperating highlights exclude the Delaware City Refinery for both years presented. The terminal and pipeline assets associated with the refinery were not shut down in 2009and continued to be operated until they were sold; the results of these operations are reflected in continuing operations for both years presented.(c)We acquired three ethanol plants in the first quarter of 2010 and seven ethanol plants in the second quarter of 2009. The information presented includes the results ofoperations of these plants commencing on their respective acquisition dates. Ethanol production volumes are based on total production during each year divided by actualcalendar days per year.(d)The asset impairment loss relates primarily to the permanent cancellation of certain capital projects classified as “construction in progress” as a result of the unfavorableimpact of the economic slowdown on refining industry fundamentals. The asset impairment loss amounts are included in the refining segment operating income but areexcluded from the regional operating income amounts and the consolidated and regional operating costs per barrel.(e)Throughput margin per barrel represents operating revenues less cost of sales of our refining segment divided by throughput volumes. Gross margin per gallon ofproduction represents operating revenues less cost of sales of our ethanol segment divided by production volumes.(f)Other products primarily include petrochemicals, gas oils, No. 6 fuel oil, petroleum coke, and asphalt.(g)The regions reflected herein contain the following refineries: the U.S. Gulf Coast region includes the Corpus Christi East, Corpus Christi West, Texas City, Houston,Three Rivers, St. Charles, Aruba, and Port Arthur Refineries; the U.S. Mid-Continent region includes the McKee, Ardmore, and Memphis Refineries; the North Atlanticregion includes the Quebec City Refinery; and the U.S. West Coast region includes the Benicia and Wilmington Refineries.(h)A loss contingency accrual of $140 million was recorded in the third quarter of 2009 related to our dispute with the GOA regarding a turnover tax on export sales as well asother tax matters. The portion of the loss contingency accrual that relates to the turnover tax was recorded in cost of sales for the year ended December 31, 2009, andtherefore is included in refining operating income (loss) but has been excluded in determining throughput margin per barrel.GeneralOperating revenues increased 27 percent (or $17.6 billion) for the year ended December 31, 2010 compared to the year ended December 31, 2009primarily as a result of higher average refined product prices between the two years. Operating income increased $1.8 billion and income fromcontinuing operations before taxes also increased $1.8 billion for the year ended December 31, 2010 compared to the amounts reported for the yearended December 31, 2009, primarily due to a $1.7 billion increase in refining segment operating income discussed below.RefiningOperating income for our refining segment increased from $247 million for the year ended December 31, 2009 to $1.9 billion for the year endedDecember 31, 2010, primarily due to an overall improvement in operating results of $1.3 billion (discussed below), reduced asset impairment loss of$218 million, and the nonrecurrence of a $114 million loss contingency accrual in 2009. The asset impairment loss recorded in 2009 related to ourdecision to permanently cancel certain construction projects in response to the economic slowdown that began in 2008. We continued to evaluate ourongoing construction projects during 2009 and 2010, but the number and significance of projects cancelled substantially declined in 2010. The losscontingency accrual recorded in 2009 related to our dispute of a turnover tax on export sales in Aruba.41Table of ContentsThe $1.3 billion improvement in operating results was primarily due to a 30 percent increase in throughput margin per barrel (an overall $1.80 perbarrel increase between the comparable years). The increase in throughput margin per barrel was caused by a significant improvement in distillatemargins and petrochemical (primarily propylene) margins, but these improvements were somewhat offset by a decline in gasoline margins in two ofour refining regions. Throughput margin per barrel also benefited from wider sour crude oil differentials. The impact of these factors on ourthroughput margin per barrel is described below.•Changes in the margin we receive for our products have a material impact on our results of operations. For example, the WTI-basedbenchmark reference margin for U.S. Gulf Coast ultra-low-sulfur diesel was $11.14 per barrel for the year ended December 31, 2010compared to $8.02 per barrel for the year ended December 31, 2009, representing a favorable increase of $3.12 per barrel. Similar increasesin distillate margins were experienced in other regions. We estimate that the increase in margin for distillates had an $820 million positiveimpact on our overall refining margin, year over year, as we produced 712,000 BPD of distillates during the year ended December 31, 2010.Similarly, the WTI-based benchmark reference margin for U.S. Gulf Coast propylene was $7.92 per barrel for the year endedDecember 31, 2010 compared to a negative margin of $1.31 for the year ended December 31, 2009, representing a favorable increase of$9.23 per barrel. We estimate that the increase in margin for petrochemicals (primarily propylene) had a $199 million positive impact on ourrefining margin, year over year. Distillate and propylene margins were higher in 2010 as compared to 2009 due to an increase in the industrialdemand for these products resulting from the ongoing recovery of the U.S. and worldwide economies and exports.•The WTI-based benchmark reference margin for U.S. Gulf Coast conventional 87 gasoline was $7.51 per barrel for the year endedDecember 31, 2010 compared to $7.61 per barrel for the year ended December 31, 2009, representing an unfavorable decrease of $0.10 perbarrel. The WTI-based CARBOB 87 gasoline benchmark reference margins decreased year over year to an even greater extent in the U.S.West Coast region (a $1.87 per barrel unfavorable decrease). We estimate that the decrease in gasoline margins had a $119 million negativeimpact to our overall refining margin, year over year, as we produced 1.05 million BPD of gasoline during the year ended December 31,2010. Gasoline margins were lower in 2010 as compared to 2009 despite an increase in gasoline prices during 2010. We believe that themargins for gasoline were constrained due to continued weak consumer demand and high levels of inventory. In addition, our downstreamcustomers increased the use of ethanol as a component in transportation fuels because its price was lower than the price of gasoline.•For the year ended December 31, 2010, the differential applicable to the price of sour crude oil as compared to the price of sweet crude oilwas wider than the differential for the year ended December 31, 2009. For example, Maya crude oil, which is a type of sour crude oil, soldat a discount of $9.13 per barrel to WTI crude oil, a type of sweet crude oil, during the year ended December 31, 2010. This compared to adiscount of $5.19 per barrel during the year ended December 31, 2009, representing a favorable increase of $3.94 per barrel. The benefit ofthis wider differential, however, was offset by a reduction of 30,000 BPD of sour crude oil that we processed during 2010 as compared to2009. We estimate that the wider differentials for all types of sour crude oil that we process, offset by reduced throughput volumes, had a$196 million positive impact to our overall refining margin for 2010 as we processed 844,000 BPD of sour crude oils.42Table of ContentsRetailRetail operating income was $346 million for the year ended December 31, 2010 compared to $293 million for the year ended December 31, 2009.This 18 percent (or $53 million) increase was primarily due to increases in retail fuel margins of $57 million and merchandise margin of$27 million, partially offset by a $28 million increase in operating expenses.Retail fuel margins are affected by the blending of ethanol with the gasoline sold by our retail segment. For most of 2010, ethanol was a lower costproduct than gasoline and this lower cost resulted in an increase in retail fuel margins. For example, the Chicago Board of Trade (CBOT) price for agallon of ethanol was $0.23 less than a gallon of U.S. Gulf Coast conventional 87 gasoline for the year ended December 31, 2010, but there was littledifference between the prices of these products for the year ended December 31, 2009. We estimate that the lower cost of ethanol had a $32 millionpositive impact to our U.S. retail fuel margins for 2010 as approximately 80 percent of the gasoline we sold during the year ended December 31, 2010contained 10 percent ethanol. Retail fuel margins in our Canadian retail operations increased by $27 million due to the favorable impact from thestrengthening of the Canadian dollar relative to the U.S. dollar in 2010 compared to 2009. On average, Cdn$1 was equal to $0.96 during 2010compared to $0.88 in 2009, representing an increase in value of nine percent.Retail merchandise margins increased due to increased product pricing combined with improved product mix, and a favorable impact from thestronger Canadian dollar relative to the U.S. dollar in 2010 compared to 2009, as described above.The increase in operating expenses was also due to the stronger Canadian dollar relative to the U.S. dollar in 2010 compared to 2009. The strongerCanadian dollar had a $21 million unfavorable impact on the 2010 operating expenses of our Canadian retail operations compared to 2009.EthanolEthanol operating income was $209 million for the year ended December 31, 2010 compared to $165 million for the year ended December 31, 2009.This increase of $44 million was primarily due to a full year of operations of the seven ethanol plants acquired in the second quarter of 2009 and theaddition of three ethanol plants acquired in the first quarter of 2010, as described in Note 2 of Notes to Consolidated Financial Statements.Corporate Expenses and OtherGeneral and administrative expenses decreased $41 million for the year ended December 31, 2010 compared to the year ended December 31, 2009primarily due to a favorable settlement with an insurance company for $40 million recorded in 2010, which offset an increase in litigation costs of$40 million recorded in 2009. After adjusting for these items, the $40 million increase in general and administrative expenses year over year resultedfrom an increase of $21 million for incentive compensation expenses and an increase of $18 million for environmental remediation expenses.“Other income, net” for the year ended December 31, 2010 increased $89 million from the year ended December 31, 2009 due to a pre-tax gain of$55 million related to the sale of our 50 percent interest in CHOPS in November 2010 and the effect of a $42 million loss in 2009 on changes in thefair values of an earn-out agreement and associated derivative instruments that were entered into in connection with the sale of our Krotz SpringsRefinery in 2008.“Interest and debt expense, net of capitalized interest” increased $68 million from the year ended December 31, 2009 to the year endedDecember 31, 2010. This increase is composed of a $53 million increase43Table of Contentsin interest incurred on $1.25 billion of debt issued in February 2010 and $1.0 billion of debt issued in March 2009 (see Note 11 of Notes toConsolidated Financial Statements) and a $15 million decrease in capitalized interest due to a reduction in capital expenditures between the years andthe temporary suspension of activity on certain construction projects. We do not capitalize interest with respect to suspended construction projectsuntil significant construction activities resume.Income tax expense increased $618 million from a $43 million benefit in 2009 to $575 million of expense in 2010 mainly as a result of higheroperating income in 2010.“Loss from discontinued operations, net of income taxes” decreased $1.1 billion from the year ended December 31, 2009 to the year endedDecember 31, 2010 due to the after-tax loss of $1.2 billion related to the permanent shut down of our Delaware City Refinery in the fourth quarter of2009. The results of operations for the Paulsboro and Delaware City Refineries, including the loss and gain, respectively, on their sales, are reflectedin “Loss from discontinued operations, net of income taxes” as discussed in Note 3 of Notes to Consolidated Financial Statements.LIQUIDITY AND CAPITAL RESOURCESCash Flows for the Year Ended December 31, 2011Net cash provided by operating activities for the year ended December 31, 2011 was $4.0 billion compared to $3.0 billion for the year endedDecember 31, 2010. The increase in cash generated from operating activities was primarily due to the $1.8 billion increase in operating incomediscussed above under “RESULTS OF OPERATIONS.” Changes in cash provided by or used for working capital during the years endedDecember 31, 2011 and 2010 are shown in Note 19 of Notes to Consolidated Financial Statements. Both receivables and accounts payable increasedin 2011 due to significant increases in prices for gasoline, distillate, and crude oil at the end of 2011 compared to such prices at the end of 2010.The net cash generated from operating activities during the year ended December 31, 2011 combined with $150 million of proceeds from the sale ofreceivables and $2.3 billion from available cash on hand was used mainly to:•fund $3.0 billion of capital expenditures and deferred turnaround and catalyst costs;•purchase the Pembroke Refinery and the related marketing and logistics business for $1.7 billion;•purchase the Meraux Refinery for $547 million;•redeem our Series 1997B 5.4% and Series 1997C 5.4% industrial revenue bonds for $56 million;•make scheduled long-term note repayments of $418 million;•acquire the Gulf Opportunity Zone Revenue Bonds Series 2010 (GO Zone Bonds) for $300 million;•purchase our common stock for $349 million; and•pay common stock dividends of $169 million.Cash Flows for the Year Ended December 31, 2010Net cash provided by operating activities for the year ended December 31, 2010 was $3.0 billion compared to $1.8 billion for the year endedDecember 31, 2009. The increase in cash generated from operating activities was due primarily to the receipt of a $923 million tax refund in 2010.Changes in cash provided by or used for working capital during the years ended December 31, 2010 and 2009 are shown in Note 19 of Notes toConsolidated Financial Statements. Both receivables and accounts payable increased in 2010 due to significant increases in prices for gasoline,distillate, and crude oil at the end of 2010 compared to such prices at the end of 2009.44Table of ContentsThe net cash generated from operating activities during the year ended December 31, 2010, combined with $1.5 billion of proceeds from theissuance of $400 million of 4.5% notes due in February 2015, $850 million of 6.125% notes due in February 2020, and $300 million of GO ZoneBonds as discussed in Note 11 of Notes to Consolidated Financial Statements, $547 million of proceeds from the sale of the Paulsboro Refinery,$220 million of proceeds from the sale of the shutdown Delaware City Refinery assets and associated terminal and pipeline assets, and $330 millionof proceeds from the sale of our 50 percent interest in CHOPS as discussed in Note 3 of Notes to Consolidated Financial Statements, were usedmainly to:•fund $2.3 billion of capital expenditures and deferred turnaround and catalyst costs;•redeem our 7.5% senior notes for $294 million and our 6.75% senior notes for $190 million;•make scheduled long-term note repayments of $33 million;•make net repayments under our accounts receivable sales facility of $100 million;•pay common stock dividends of $114 million;•purchase additional ethanol facilities for $260 million; and•increase available cash on hand by $2.5 billion.Cash flows related to the discontinued operations of the Paulsboro and Delaware City Refineries have been combined with the cash flows fromcontinuing operations within each category in the statements of cash flows for the years ended December 31, 2010 and 2009 and are summarized asfollows (in millions): Year Ended December 31, 2011 2010 2009Cash provided by (used in)operating activities: Paulsboro Refinery$— $88 $10Delaware City Refinery— (26) (126)Cash used in investing activities: Paulsboro Refinery— (41) (121)Delaware City Refinery— — (153)Capital InvestmentsOur operations, especially those of our refining segment, are highly capital intensive. Each of our refineries comprises a large base of property assets,consisting of a series of interconnected, highly integrated and interdependent crude oil processing facilities and supporting logistical infrastructure(Units), and these Units are continuously improved. Improvements consist of the addition of new Units and betterments of existing Units, and thecost of these improvements is significant. We have historically acquired our refineries at amounts significantly below their replacement costs, whereasour improvements are made at full replacement value. As such, the costs for improving our refinery assets increase over time and are significant inrelation to the amounts we paid to acquire our refineries. We plan for these improvements by developing a multi-year capital program that is updatedand revised based on changing internal and external factors.We make improvements to our refineries in order to maintain and enhance their operating reliability, to meet environmental obligations with respect toreducing emissions and removing prohibited elements from the products we produce, or to enhance their profitability. Reliability and environmentalimprovements generally do not increase the throughput capacities of our refineries. Improvements that enhance refinery profitability may increasethroughput capacity, but many of these improvements allow our refineries to process higher volumes of sour crude oil, which lowers our feedstockcosts, and enables us to refine crude oil into products with higher market values. Therefore, many of our improvements do not increase throughputcapacity45Table of Contentssignificantly.During the year ended December 31, 2011, we expended $2.4 billion for capital expenditures and $629 million for deferred turnaround and catalystcosts. Capital expenditures for the year ended December 31, 2011 included $241 million of costs related to environmental projects.For 2012, we expect to incur approximately $3.4 billion for capital investments, including approximately $2.8 billion for capital expenditures(approximately $140 million of which is for environmental projects) and approximately $560 million for deferred turnaround and catalyst costs. Thecapital expenditure estimate excludes expenditures related to future strategic acquisitions. We continuously evaluate our capital budget and makechanges as conditions warrant.Contractual ObligationsOur contractual obligations as of December 31, 2011 are summarized below (in millions). Payments Due by Period 2012 2013 2014 2015 2016 Thereafter TotalDebt and capital lease obligations (including interest on capital lease obligations)$1,015 $494 $209 $483 $8 $5,615 $7,824Operating lease obligations291 198 131 106 86 294 1,106Purchase obligations36,303 3,088 962 407 360 899 42,019Other long-term liabilities— 176 152 145 137 1,271 1,881Total$37,609 $3,956 $1,454 $1,141 $591 $8,079 $52,830Debt and Capital Lease ObligationsDuring 2011, the following activity occurred related to our non-bank debt:•in December 2011, we redeemed our Series 1997B 5.4% and Series 1997C 5.4% industrial revenue bonds for $56 million, or 100% oftheir stated values;•in May 2011, we made a scheduled debt repayment of $200 million related to our 6.125% senior notes;•in April 2011, we made scheduled debt repayments of $8 million related to our Series 1997A 5.45%, Series 1997B 5.4%, and Series1997C 5.4% industrial revenue bonds;•in February 2011, we made a scheduled debt repayment of $210 million related to our 6.75% senior notes; and•in February 2011, we paid $300 million to acquire the GO Zone Bonds, which were subject to mandatory tender.We have an accounts receivable sales facility with a group of third-party entities and financial institutions to sell on a revolving basis up to $1 billionof eligible trade receivables. We amended our agreement in June 2011 to extend the maturity date to June 2012. As of December 31, 2011, the amountof eligible receivables sold was $250 million. During the year ended December 31, 2011, we sold $150 million of eligible receivables under thisprogram and made no repayments. All amounts outstanding under this facility are reflected as debt.46Table of ContentsOur agreements do not have rating agency triggers that would automatically require us to post additional collateral. However, in the event of certaindowngrades of our senior unsecured debt to below investment grade ratings by S&P, Moody’s and Fitch, the cost of borrowings under some of ourbank credit facilities and other arrangements would increase. As of December 31, 2011, all of our ratings on our senior unsecured debt are at orabove investment grade level as follows:Rating Agency RatingStandard & Poor’s Ratings Services BBB (stable outlook)Moody’s Investors Service Baa2 (stable outlook)Fitch Ratings BBB (stable outlook)We cannot provide assurance that these ratings will remain in effect for any given period of time or that one or more of these ratings will not belowered or withdrawn entirely by a rating agency. We note that these credit ratings are not recommendations to buy, sell, or hold our securities and maybe revised or withdrawn at any time by the rating agency. Each rating should be evaluated independently of any other rating. Any future reductionbelow investment grade or withdrawal of one or more of our credit ratings could have a material adverse impact on our ability to obtain short- andlong-term financing and the cost of such financings.Operating Lease ObligationsOur operating lease obligations include leases for land, office facilities and equipment, retail facilities and equipment, transportation equipment, timecharters for ocean-going tankers and coastal vessels, dock facilities, and various facilities and equipment used in the storage, transportation,production, and sale of refinery feedstocks, refined products, and corn inventories. Operating lease obligations include all operating leases that haveinitial or remaining noncancelable terms in excess of one year, and are not reduced by minimum rentals to be received by us under subleases.Purchase ObligationsA purchase obligation is an enforceable and legally binding agreement to purchase goods or services that specifies significant terms, including (i)fixed or minimum quantities to be purchased, (ii) fixed, minimum, or variable price provisions, and (iii) the approximate timing of the transaction.We have various purchase obligations including industrial gas and chemical supply arrangements (such as hydrogen supply arrangements), crude oiland other feedstock supply arrangements, and various throughput and terminalling agreements. We enter into these contracts to ensure an adequatesupply of utilities and feedstock and adequate storage capacity to operate our refineries. Substantially all of our purchase obligations are based onmarket prices or adjustments based on market indices. Certain of these purchase obligations include fixed or minimum volume requirements, whileothers are based on our usage requirements. The purchase obligation amounts shown in the table above include both short- and long-term obligationsand are based on (a) fixed or minimum quantities to be purchased and (b) fixed or estimated prices to be paid based on current market conditions. Asof December 31, 2011, our short- and long-term purchase obligations increased by approximately $6 billion from the amount reported as ofDecember 31, 2010. The increase is primarily attributable to higher crude oil and other feedstock prices at December 31, 2011 compared toDecember 31, 2010.Other Long-term LiabilitiesOur other long-term liabilities are described in Note 10 of Notes to Consolidated Financial Statements. For purposes of reflecting amounts for otherlong-term liabilities in the table above, we have made our best estimate of expected payments for each type of liability based on information availableas of December 31, 2011.47Table of ContentsOther Commercial CommitmentsAs of December 31, 2011, our committed lines of credit were as follows (in millions): BorrowingCapacity Expiration OutstandingLetters of CreditLetter of credit facilities $500 June 2012 $300U.S. revolving credit facility $3,000 December 2016 $119Canadian revolving credit facility C$115 December 2012 C$20As of December 31, 2011, we had no amounts borrowed under our revolving credit facilities. The letters of credit outstanding as of December 31,2011 expire during 2012 and 2013.Other Matters Impacting Liquidity and Capital ResourcesStock Purchase ProgramsAs of December 31, 2011, we have approvals under common stock purchase programs previously approved by our board of directors to purchaseapproximately $3.5 billion of our common stock.Pension Plan Funded StatusDuring 2011, we contributed $204 million to our pension plans that have minimum funding requirements. As of December 31, 2011, the fair value ofthe assets of these plans was approximately 88 percent of the projected benefit obligations under these plans.We have minimum required contributions of $2 million to these pension plans during 2012; however, we plan to contribute approximately $100million to our pension plans during 2012.Environmental MattersOur operations are subject to extensive environmental regulations by governmental authorities relating to the discharge of materials into theenvironment, waste management, pollution prevention measures, greenhouse gas emissions, and characteristics and composition of gasolines anddistillates. Because environmental laws and regulations are becoming more complex and stringent and new environmental laws and regulations arecontinuously being enacted or proposed, the level of future expenditures required for environmental matters could increase in the future. In addition,any major upgrades in any of our operating facilities could require material additional expenditures to comply with environmental laws and regulations.See Note 12 of Notes to Consolidated Financial Statements for a further discussion of our environmental matters.Tax MattersWe are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, transactional taxes (excise/duty, sales/use, andvalue-added taxes), payroll taxes, franchise taxes, withholding taxes, and ad valorem taxes. New tax laws and regulations and changes in existing taxlaws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future. Many ofthese liabilities are subject to periodic audits by the respective taxing authority. Subsequent changes to our tax liabilities as a result of these audits maysubject us to interest and penalties. See Notes 12 and 16 of Notes to Consolidated Financial Statements for a further discussion of our tax matters.48Table of ContentsAs of December 31, 2011, the Internal Revenue Service (IRS) has ongoing tax audits related to our U.S. federal tax returns from 2002 through2009, as discussed in Note 16 of Notes to Consolidated Financial Statements. We have received Revenue Agent Reports on our tax years for 2002through 2007 and we are vigorously contesting many of the tax positions and assertions from the IRS. Although we believe our tax liabilities are fairlystated and properly reflected in our financial statements, should the IRS eventually prevail, it could result in a material amount of our deferred taxliabilities being reclassified to current liabilities which could have a material adverse effect on our liquidity.Cash Held by Our International SubsidiariesWe operate in countries outside the U.S. through subsidiaries incorporated in these countries, and the earnings of these subsidiaries are taxed by thecountries in which they are incorporated. We intend to reinvest these earnings indefinitely in our international operations even though we are notrestricted from repatriating such earnings to the U.S. in the form of cash dividends. Should we decide to repatriate such earnings, we would incur andpay taxes on the amounts repatriated. In addition, such repatriation could cause us to record deferred tax expense that could significantly impact ourresults of operations, as further discussed in Note 16 of Notes to Consolidated Financial Statements. We believe, however, that a substantial portionof our international cash can be returned to the U.S. without significant tax consequences through means other than a repatriation of earnings. As ofDecember 31, 2011, $822 million of our cash and temporary cash investments was held by our international subsidiaries.Financial Regulatory ReformIn July 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Wall Street Reform Act). The WallStreet Reform Act, among many things, creates new regulations for companies that extend credit to consumers and requires most derivativeinstruments to be traded on exchanges and routed through clearinghouses. Rules to implement the Wall Street Reform Act are being finalized andtherefore, the impact to our operations is not yet known. However, implementation could result in higher margin requirements, higher clearing costs,and more reporting requirements with respect to our derivative activities.Concentration of CustomersOur refining and marketing operations have a concentration of customers in the refining industry and customers who are refined product wholesalersand retailers. These concentrations of customers may impact our overall exposure to credit risk, either positively or negatively, in that these customersmay be similarly affected by changes in economic or other conditions. However, we believe that our portfolio of accounts receivable is sufficientlydiversified to the extent necessary to minimize potential credit risk. Historically, we have not had any significant problems collecting our accountsreceivable.Sources of LiquidityWe believe that we have sufficient funds from operations and, to the extent necessary, from borrowings under our credit facilities, to fund ourongoing operating requirements. We expect that, to the extent necessary, we can raise additional funds from time to time through equity or debtfinancings in the public and private capital markets or the arrangement of additional credit facilities. However, there can be no assurances regardingthe availability of any future financings or additional credit facilities or whether such financings or additional credit facilities can be made available onterms that are acceptable to us.49Table of ContentsNEW ACCOUNTING PRONOUNCEMENTSAs discussed in Note 1 of Notes to Consolidated Financial Statements, certain new financial accounting pronouncements have been issued that eitherhave already been reflected in the accompanying financial statements, or will become effective for our financial statements at various dates in thefuture. The adoption of these pronouncements has not had, and is not expected to have, a material effect on our financial statements.CRITICAL ACCOUNTING POLICIES INVOLVING CRITICAL ACCOUNTING ESTIMATESThe preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates andassumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.The following summary provides further information about our critical accounting policies that involve critical accounting estimates, and should beread in conjunction with Note 1 of Notes to Consolidated Financial Statements, which summarizes our significant accounting policies. The followingaccounting policies involve estimates that are considered critical due to the level of sensitivity and judgment involved, as well as the impact on ourfinancial position and results of operations. We believe that all of our estimates are reasonable.Property, Plant and EquipmentThe cost of property, plant and equipment (property assets) purchased or constructed, including betterments of property assets, are capitalized. Thecost of repairs to and normal maintenance of property assets, however, is expensed as incurred. Betterments of property assets are those which eitherextend the useful life, increase the capacity or improve the operating efficiency of the asset, or improve the safety of our operations. The cost ofproperty assets constructed includes interest and certain overhead costs allocable to the construction activities.Our operations, especially those of our refining segment, are highly capital intensive. Each of our refineries comprises a large base of property assets,consisting of a series of interconnected, highly integrated and interdependent crude oil processing facilities and supporting logistical infrastructure(Units), and these Units are continuously improved. Improvements consist of the addition of new Units and betterments of existing Units. We planfor these improvements by developing a multi-year capital program that is updated and revised based on changing internal and external factors.Depreciation of property assets used in our refining segment is recorded on a straight-line basis over the estimated useful lives of these assetsprimarily using the composite method of depreciation. We maintain a separate composite group of property assets for each of our refineries. Weestimate the useful life of each group based on an evaluation of the property assets comprising the group, and such evaluations consist of, but are notlimited to, the physical inspection of the assets to determine their condition, consideration of the manner in which the assets are maintained,assessment of the need to replace assets, and evaluation of the manner in which improvements impact the useful life of the group. The estimateduseful lives of our composite groups range primarily from 25 to 30 years.Under the composite method of depreciation, the cost of an improvement is added to the composite group to which it relates and is depreciated overthat group’s estimated useful life. We design improvements to our refineries in accordance with engineering specifications, design standards andpractices accepted in our industry, and these improvements have design lives consistent with our estimated useful lives. Therefore, we believe the useof the group life to depreciate the cost of improvements made to the group is reasonable because the estimated useful life of each improvement isconsistent with that of the group. It should be noted, however, that factors such as competition, regulation, or environmental matters could cause us tochange our estimates, thus impacting depreciation expense in the future.50Table of ContentsAlso under the composite method of depreciation, the historical cost of a minor property asset (net of salvage value) that is retired or replaced ischarged to accumulated depreciation and no gain or loss is recognized in income. However, a gain or loss is recognized in income for a major propertyasset that is retired, replaced or sold and for an abnormal disposition of a property asset (primarily involuntary conversions). Gains and losses arereflected in depreciation and amortization expense, unless such amounts are reported separately due to materiality.Impairment of AssetsLong-lived assets, which include property, plant and equipment, intangible assets, and refinery turnaround and catalyst costs, are tested forrecoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment lossshould be recognized if the carrying amount of the asset exceeds its fair value.In order to test for recoverability, we must make estimates of projected cash flows related to the asset being evaluated, which include, but are notlimited to, assumptions about the use or disposition of the asset, its estimated remaining life, and future expenditures necessary to maintain its existingservice potential. In order to determine fair value, management must make certain estimates and assumptions including, among other things, anassessment of market conditions, projected cash flows, investment rates, interest/equity rates, and growth rates, that could significantly impact thefair value of the asset being tested for impairment. Our impairment evaluations are based on assumptions that we deem to be reasonable. Providingsensitivity analyses if other assumptions were used in performing the impairment evaluations is not practicable due to the significant number ofassumptions involved in the estimates. See Note 4 of Notes to Consolidated Financial Statements for a further discussion of our asset impairmentanalysis and certain losses resulting from those analyses.We evaluate our equity method investments for impairment when there is evidence that we may not be able to recover the carrying amount of ourinvestments or the investee is unable to sustain an earnings capacity that justifies the carrying amount. A loss in the value of an investment that is otherthan a temporary decline is recognized currently in earnings, and is based on the difference between the estimated current fair value of the investmentand its carrying amount.Environmental MattersOur operations are subject to extensive environmental regulations by governmental authorities relating primarily to the discharge of materials into theenvironment, waste management, and pollution prevention measures. Future legislative action and regulatory initiatives, as discussed in Note 12 ofNotes to Consolidated Financial Statements could result in changes to required operating permits, additional remedial actions, or increased capitalexpenditures and operating costs that cannot be assessed with certainty at this time.Accruals for environmental liabilities are based on best estimates of probable undiscounted future costs over a 20-year time period using currentlyavailable technology and applying current regulations, as well as our own internal environmental policies. However, environmental liabilities aredifficult to assess and estimate due to uncertainties related to the magnitude of possible remediation, the timing of such remediation, and thedetermination of our obligation in proportion to other parties. Such estimates are subject to change due to many factors, including the identification ofnew sites requiring remediation, changes in environmental laws and regulations and their interpretation, additional information related to the extent andnature of remediation efforts, and potential improvements in remediation technologies. An estimate of the sensitivity to earnings for changes in thosefactors is not practicable due to the number of contingencies that must be assessed, the number of underlying assumptions, and the wide range ofpossible outcomes.51Table of ContentsThe amount of and changes in our accruals for environmental matters as of and for the years ended December 31, 2011, 2010, and 2009 is includedin Note 10 of Notes to Consolidated Financial Statements.Pension and Other Postretirement Benefit ObligationsWe have significant pension and other postretirement benefit liabilities and costs that are developed from actuarial valuations. Inherent in thesevaluations are key assumptions including discount rates, expected return on plan assets, future compensation increases, and health care cost trendrates. Changes in these assumptions are primarily influenced by factors outside our control. For example, the discount rate assumption represents ayield curve comprised of various long-term bonds that have an average rating of double-A when averaging all available ratings by the recognizedrating agencies, while the expected return on plan assets is based on a compounded return calculated assuming an asset allocation that is representativeof the asset mix in our pension plans. These assumptions can have a significant effect on the amounts reported in our financial statements. Forexample, a 0.25 percent decrease in the assumptions related to the discount rate or expected return on plan assets or a 0.25 percent increase in theassumptions related to the health care cost trend rate or rate of compensation increase would have the following effects on the projected benefitobligation as of December 31, 2011 and net periodic benefit cost for the year ending December 31, 2012 (in millions): PensionBenefits OtherPostretirementBenefitsIncrease in projected benefit obligation resulting from: Discount rate decrease$85 $13Compensation rate increase33 —Health care cost trend rate increase— 5 Increase in expense resulting from: Discount rate decrease14 1Expected return on plan assets decrease4 —Compensation rate increase8 —Health care cost trend rate increase— 1See Note 14 of Notes to Consolidated Financial Statements for a further discussion of our pension and other postretirement benefit obligations.Tax MattersWe are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, transactional taxes (excise/duty, sales/use, andvalue-added taxes), payroll taxes, franchise taxes, withholding taxes, and ad valorem taxes. New tax laws and regulations and changes in existing taxlaws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities that cannot be predictedat this time. In addition, we have received claims from various jurisdictions related to certain tax matters. Tax liabilities include potential assessmentsof penalty and interest amounts.We record tax liabilities based on our assessment of existing tax laws and regulations. A contingent loss related to a transactional tax claim is recordedif the loss is both probable and estimable. The recording of our tax liabilities requires significant judgments and estimates. Actual tax liabilities canvary from our52Table of Contentsestimates for a variety of reasons, including different interpretations of tax laws and regulations and different assessments of the amount of tax due.In addition, in determining our income tax provision, we must assess the likelihood that our deferred tax assets, primarily consisting of net operatingloss and tax credit carryforwards, will be recovered through future taxable income. Significant judgment is required in estimating the amount ofvaluation allowance, if any, that should be recorded against those deferred income tax assets. If our actual results of operations differ from suchestimates or our estimates of future taxable income change, the valuation allowance may need to be revised. However, an estimate of the sensitivity toearnings that would result from changes in the assumptions and estimates used in determining our tax liabilities is not practicable due to the number ofassumptions and tax laws involved, the various potential interpretations of the tax laws, and the wide range of possible outcomes. See Notes 12 and16 of Notes to Consolidated Financial Statements for a further discussion of our tax liabilities.Legal MattersA variety of claims have been made against us in various lawsuits. We record a liability related to a loss contingency attributable to such legal mattersif we determine the loss to be both probable and estimable. The recording of such liabilities requires judgments and estimates, the results of which canvary significantly from actual litigation results due to differing interpretations of relevant law and differing opinions regarding the degree of potentialliability and the assessment of reasonable damages. However, an estimate of the sensitivity to earnings if other assumptions were used in recording ourlegal liabilities is not practicable due to the number of contingencies that must be assessed and the wide range of reasonably possible outcomes, both interms of the probability of loss and the estimates of such loss.53Table of ContentsITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKCOMMODITY PRICE RISKWe are exposed to market risks related to the volatility in the price of crude oil, refined products (primarily gasoline and distillate), grain (primarilycorn), and natural gas used in our operations. To reduce the impact of price volatility on our results of operations and cash flows, we use commodityderivative instruments, including swaps, futures, and options to hedge:•inventories and firm commitments to purchase inventories generally for amounts by which our current year inventory levels (determined on alast-in, first-out (LIFO) basis) differ from our previous year-end LIFO inventory levels and•forecasted feedstock and refined product purchases, refined product sales, natural gas purchases, and corn purchases to lock in the price ofthese forecasted transactions at existing market prices that we deem favorable.We use the futures markets for the available liquidity, which provides greater flexibility in transacting our hedging and trading operations. We useswaps primarily to manage our price exposure. We also enter into certain commodity derivative instruments for trading purposes to take advantage ofexisting market conditions related to future results of operations and cash flows.Our positions in commodity derivative instruments are monitored and managed on a daily basis by a risk control group to ensure compliance with ourstated risk management policy that has been approved by our board of directors.The following sensitivity analysis includes all positions at the end of the reporting period with which we have market risk (in millions): Derivative Instruments Held For Non-Trading Purposes TradingPurposesDecember 31, 2011 Gain (loss) in fair value resulting from: 10% increase in underlying commodity prices$(156) $110% decrease in underlying commodity prices156 2 December 31, 2010 Gain (loss) in fair value resulting from: 10% increase in underlying commodity prices(199) —10% decrease in underlying commodity prices189 (1)See Note 21 of Notes to Consolidated Financial Statements for notional volumes associated with these derivative contracts as of December 31, 2011.54Table of ContentsCOMPLIANCE PROGRAM PRICE RISKWe are exposed to market risks related to the volatility in the price of financial instruments associated withvarious governmental and regulatory compliance programs that we must purchase in the open market to comply with these programs. To reduce theimpact of this risk on our results of operations and cash flows, we may enter into derivative instruments, such as futures. As of December 31, 2011,there was no significant gain or loss in the fair value of derivative instruments that would result from a 10 percent increase or decrease in theunderlying price of the futures contracts. See Note 21 of Notes to Consolidated Financial Statements for a discussion about these complianceprograms and notional volumes associated with these derivative contracts as of December 31, 2011. INTEREST RATE RISKThe following table provides information about our debt instruments, excluding capital lease obligations (dollars in millions), the fair values of whichare sensitive to changes in interest rates. Principal cash flows and related weighted-average interest rates by expected maturity dates are presented. Wehad no interest rate derivative instruments outstanding as of December 31, 2011 and 2010. December 31, 2011 Expected Maturity Dates 2012 2013 2014 2015 2016 There-after Total FairValueDebt: Fixed rate$754 $484 $200 $475 $— $5,578 $7,491 $9,048Average interest rate6.9% 5.5% 4.8% 5.2% —% 7.3% 6.9% Floating rate$250 $— $— $— $— $— $250 $250Average interest rate0.6% —% —% —% —% —% 0.6% December 31, 2010 Expected Maturity Dates 2011 2012 2013 2014 2015 There-after Total FairValueDebt: Fixed rate$418 $759 $489 $209 $484 $5,605 $7,964 $9,092Average interest rate6.4% 6.9% 5.5% 4.8% 5.2% 7.2% 6.9% Floating rate$400 $— $— $— $— $— $400 $400Average interest rate0.5% —% —% —% —% —% 0.5% FOREIGN CURRENCY RISKAs of December 31, 2011, we had commitments to purchase $751 million of U.S. dollars. Our market risk was minimal on the contracts, as theymatured on or before January 26, 2012, resulting in a $3 million loss in the first quarter of 2012.55Table of ContentsITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAMANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGOur management is responsible for establishing and maintaining adequate “internal control over financial reporting” (as defined in Rule 13a-15(f)under the Securities Exchange Act of 1934) for Valero. Our management evaluated the effectiveness of Valero’s internal control over financialreporting as of December 31, 2011. In its evaluation, management used the criteria established in Internal Control – Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management believes that as of December 31, 2011,our internal control over financial reporting was effective based on those criteria.Management’s evaluation of and conclusion regarding the effectiveness of our internal control over financial reporting excludes the internal controlover financial reporting of Valero Energy Ltd and its subsidiaries (VEL), which we acquired on August 1, 2011 and of Valero Refining-MerauxLLC (Meraux), the operations of which we acquired on October 1, 2011, (as described in Note 2 of Notes to Consolidated Financial Statements).The VEL and Meraux acquisitions contributed approximately 7 percent of our total operating revenues for the year ended December 31, 2011 andaccounted for approximately 10 percent of our total assets as of December 31, 2011. We plan to fully integrate VEL and Meraux into our internalcontrol over financial reporting in 2012.Our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial reporting,which begins on page 58 of this report.56Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Stockholdersof Valero Energy Corporation and subsidiaries:We have audited the accompanying consolidated balance sheets of Valero Energy Corporation and subsidiaries (the Company) as of December 31,2011 and 2010, and the related consolidated statements of income, equity, cash flows, and comprehensive income for each of the years in the three-year period ended December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the PCAOB). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Valero EnergyCorporation and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in thethree-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the PCAOB, the Company’s internal control over financial reporting as of December 31,2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission, and our report dated February 24, 2012 expressed an unqualified opinion on the effectiveness of the Company’s internalcontrol over financial reporting./s/ KPMG LLPSan Antonio, TexasFebruary 24, 201257Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Stockholdersof Valero Energy Corporation and subsidiaries:We have audited Valero Energy Corporation and subsidiaries’ (the Company’s) internal control over financial reporting as of December 31, 2011,based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Controlover Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the PCAOB). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reportingwas maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the riskthat a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Ouraudit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could havea material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.In our opinion, Valero Energy Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by COSO.The Company acquired Valero Energy Ltd and its subsidiaries (VEL) on August 1, 2011 and the operations of Valero Refining-Meraux LLC(Meraux) on October 1, 2011, and management excluded VEL’s and Meraux’s internal control over financial reporting from its assessment of theeffectiveness of the Company’s internal control over financial reporting as of December 31, 2011. The VEL and Meraux acquisitions58Table of Contentscontributed approximately 7 percent of the Company’s total operating revenues for the year ended December 31, 2011 and accounted forapproximately 10 percent of its total assets as of December 31, 2011. Our audit of internal control over financial reporting of the Company alsoexcluded an evaluation of the internal control over financial reporting of VEL and Meraux.We also have audited, in accordance with the standards of the PCAOB, the consolidated balance sheets of Valero Energy Corporation and subsidiariesas of December 31, 2011 and 2010, and the related consolidated statements of income, equity, cash flows, and comprehensive income for each ofthe years in the three-year period ended December 31, 2011, and our report dated February 24, 2012 expressed an unqualified opinion on thoseconsolidated financial statements./s/ KPMG LLPSan Antonio, TexasFebruary 24, 201259Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Millions of Dollars, Except Par Value) December 31, 2011 2010ASSETS Current assets: Cash and temporary cash investments$1,024 $3,334Receivables, net8,706 4,583Inventories5,623 4,947Income taxes receivable212 343Deferred income taxes283 190Prepaid expenses and other124 121Total current assets15,972 13,518Property, plant and equipment, at cost32,253 28,921Accumulated depreciation(7,076) (6,252)Property, plant and equipment, net25,177 22,669Intangible assets, net227 224Deferred charges and other assets, net1,407 1,210Total assets$42,783 $37,621LIABILITIES AND EQUITY Current liabilities: Current portion of debt and capital lease obligations$1,009 $822Accounts payable9,472 6,441Accrued expenses595 590Taxes other than income taxes1,264 671Income taxes payable119 3Deferred income taxes249 257Total current liabilities12,708 8,784Debt and capital lease obligations, less current portion6,732 7,515Deferred income taxes5,017 4,530Other long-term liabilities1,881 1,767Commitments and contingencies Equity: Valero Energy Corporation stockholders’ equity: Common stock, $0.01 par value; 1,200,000,000 shares authorized; 673,501,593 and 673,501,593 shares issued7 7Additional paid-in capital7,486 7,704Treasury stock, at cost; 116,689,450 and 105,113,545 common shares(6,475) (6,462)Retained earnings15,309 13,388Accumulated other comprehensive income96 388Total Valero Energy Corporation stockholders’ equity16,423 15,025Noncontrolling interest22 —Total equity16,445 15,025Total liabilities and equity$42,783 $37,621See Notes to Consolidated Financial Statements.60Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Millions of Dollars, Except per Share Amounts) Year Ended December 31, 2011 2010 2009Operating revenues (a)$125,987 $82,233 $64,599Costs and expenses: Cost of sales115,719 74,458 58,686Operating expenses: Refining3,406 2,944 2,880Retail678 654 626Ethanol399 363 169General and administrative expenses571 531 572Depreciation and amortization expense1,534 1,405 1,361Asset impairment loss— 2 222Total costs and expenses122,307 80,357 64,516Operating income3,680 1,876 83Other income, net43 106 17Interest and debt expense, net of capitalized interest(401) (484) (416)Income (loss) from continuing operations before income tax expense (benefit)3,322 1,498 (316)Income tax expense (benefit)1,226 575 (43)Income (loss) from continuing operations2,096 923 (273)Loss from discontinued operations, net of income taxes(7) (599) (1,709)Net income (loss)2,089 324 (1,982)Less: Net loss attributable to noncontrolling interests(1) — —Net income (loss) attributable to Valero Energy Corporation stockholders$2,090 $324 $(1,982) Net income (loss) attributable to Valero Energy Corporation stockholders: Continuing operations$2,097 $923 $(273)Discontinued operations(7) (599) (1,709)Total$2,090 $324 $(1,982)Earnings per common share: Continuing operations$3.70 $1.63 $(0.50)Discontinued operations(0.01) (1.06) (3.17)Total$3.69 $0.57 $(3.67)Weighted-average common shares outstanding (in millions)563 563 541Earnings per common share – assuming dilution: Continuing operations$3.69 $1.62 $(0.50)Discontinued operations(0.01) (1.05) (3.17)Total$3.68 $0.57 $(3.67)Weighted-average common shares outstanding – assuming dilution (in millions)569 568 541Dividends per common share$0.30 $0.20 $0.60_____________________________ Supplemental information: (a) Includes excise taxes on sales by our U.S. retail system$892 $891 $873See Notes to Consolidated Financial Statements.61Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF EQUITY(Millions of Dollars) Valero Energy Corporation Stockholders’ Equity CommonStock AdditionalPaid-inCapital TreasuryStock RetainedEarnings AccumulatedOtherComprehensiveIncome (Loss) Total Non-controllingInterest TotalEquityBalance as of December 31, 2008$6 $7,190 $(6,884) $15,484 $(176) $15,620 $— $15,620Net loss— — — (1,982) — (1,982) — (1,982)Dividends on common stock— — — (324) — (324) — (324)Sale of common stock1 798 — — — 799 — 799Stock-based compensationexpense— 68 — — — 68 — 68Tax deduction less than stock-based compensation expense— (4) — — — (4) — (4)Transactions in connection withstock-based compensationplans: Stock issuances— (156) 167 — — 11 — 11Stock repurchases— — (4) — — (4) — (4)Other comprehensive income— — — — 541 541 — 541Balance as of December 31, 20097 7,896 (6,721) 13,178 365 14,725 — 14,725Net income— — — 324 — 324 — 324Dividends on common stock— — — (114) — (114) — (114)Stock-based compensationexpense— 54 — — — 54 — 54Tax deduction in excess of stock-based compensation expense— 6 — — — 6 — 6Transactions in connection withstock-based compensationplans: Stock issuances— (252) 272 — — 20 — 20Stock repurchases— — (13) — — (13) — (13)Other comprehensive income— — — — 23 23 — 23Balance as of December 31, 20107 7,704 (6,462) 13,388 388 15,025 — 15,025Net income— — — 2,090 — 2,090 (1) 2,089Dividends on common stock— — — (169) — (169) — (169)Stock-based compensationexpense— 57 — — — 57 — 57Tax deduction in excess of stock-based compensation expense— 22 — — — 22 — 22Transactions in connection withstock-based compensationplans: Stock issuances— (287) 336 — — 49 — 49Stock repurchases— (10) (349) — — (359) — (359)Contributions from noncontrollinginterest in DGD— — — — — — 23 23Recognition of noncontrollinginterests in MLP in connectionwith Pembroke Acquisition— — — — — — 5 5Acquisition of noncontrollinginterests in MLP— — — — — — (5) (5)Other comprehensive loss— — — — (292) (292) — (292)Balance as of December 31, 2011$7 $7,486 $(6,475) $15,309 $96 $16,423 $22 $16,445See Notes to Consolidated Financial Statements.62Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Millions of Dollars) Year Ended December 31, 2011 2010 2009Cash flows from operating activities: Net income (loss)$2,089 $324 $(1,982)Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense1,534 1,473 1,527Asset impairment loss— 2 607Loss on shutdown and sales of refinery assets, net12 888 1,868Gain on sale of investment in Cameron Highway Oil Pipeline Company— (55) —Stock-based compensation expense58 54 66Deferred income tax expense (benefit)461 347 (343)Changes in current assets and current liabilities81 68 255Changes in deferred charges and credits and other operating activities, net(197) (56) (175)Net cash provided by operating activities4,038 3,045 1,823Cash flows from investing activities: Capital expenditures(2,355) (1,730) (2,306)Deferred turnaround and catalyst costs(629) (535) (415)Acquisition of Pembroke Refinery, net of cash acquired(1,691) — —Acquisition of Meraux Refinery(547) — —Acquisitions of ethanol plants— (260) (577)Minor acquisitions(37) — (29)Proceeds from the sale of the Paulsboro Refinery— 547 —Proceeds from the sale of the Delaware City Refinery assets andassociated terminal and pipeline assets— 220 —Proceeds from the sale of investment in Cameron Highway Oil Pipeline Company— 330 —Other investing activities, net(39) 23 35Net cash used in investing activities(5,298) (1,405) (3,292)Cash flows from financing activities: Non-bank debt: Borrowings— 1,544 998Repayments(774) (517) (285)Bank credit agreements: Borrowings— — 39Repayments(4) — (39)Accounts receivable sales facility: Proceeds from the sale of receivables150 1,225 950Repayments— (1,325) (850)Proceeds from the sale of common stock, net of issuance costs— — 799Proceeds from the exercise of stock options49 20 11Purchase of common stock for treasury(349) (13) (4)Common stock dividends(169) (114) (324)Contributions from noncontrolling interests22 — —Other financing activities, net9 (4) (6)Net cash provided by (used in) financing activities(1,066) 816 1,289Effect of foreign exchange rate changes on cash16 53 65Net increase (decrease) in cash and temporary cash investments(2,310) 2,509 (115)Cash and temporary cash investments at beginning of year3,334 825 940Cash and temporary cash investments at end of year$1,024 $3,334 $825See Notes to Consolidated Financial Statements.63Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Millions of Dollars) Year Ended December 31, 2011 2010 2009Net income (loss)$2,089 $324 $(1,982)Other comprehensive income (loss): Foreign currency translation adjustment, net of income tax expense of $ - , $ - , and $ -(122) 158 375Pension and other postretirement benefits: Net gain (loss) arising during the year, net of income tax (expense) benefit of $101, $5, and $(132)(188) (14) 219Net (gain) loss reclassified into income, net of income tax expense (benefit) of $2, $3, and $(2)(1) (4) (1)Net gain (loss) on pension and other postretirement benefits(189) (18) 218Derivative instruments designated and qualifying as cash flow hedges: Net gain (loss) arising during the year, net of income tax (expense) benefit of $(11), $1, and $(44)21 (1) 81Net (gain) loss reclassified into income, net of income tax expense (benefit) of $1, $62, and $72(2) (116) (133)Net gain (loss) on cash flow hedges19 (117) (52)Other comprehensive income (loss)(292) 23 541Comprehensive income (loss)1,797 347 (1,441)Less: Comprehensive loss attributable to noncontrolling interests(1) — —Comprehensive income (loss) attributable to Valero Energy Corporation stockholders$1,798 $347 $(1,441)See Notes to Consolidated Financial Statements.64Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of PresentationGeneralAs used in this report, the terms “Valero,” “we,” “us,” or “our” may refer to Valero Energy Corporation, one or more of its consolidatedsubsidiaries, or all of them taken as a whole. We are an independent petroleum refining and marketing company and own 16 refineries with acombined total throughput capacity of approximately 3.0 million barrels per day as of December 31, 2011. We market our refined products throughan extensive bulk and rack marketing network and we sell refined products through a network of approximately 6,800 retail and wholesale brandedoutlets in the United States (U.S.), Canada, the United Kingdom (U.K.), Aruba, and Ireland under various brand names including Valero®, DiamondShamrock®, Shamrock®, Ultramar®, Beacon®, and Texaco®. We also produce ethanol and operate ten ethanol plants in the U.S. with a combinednameplate production capacity of approximately 1.1 billion gallons per year as of December 31, 2011. Our operations are affected by:•company-specific factors, primarily refinery utilization rates and refinery maintenance turnarounds;•seasonal factors, such as the demand for refined products during the summer driving season and heating oil during the winter season; and•industry factors, such as movements in and the level of crude oil prices including the effect of quality differentials between grades of crudeoil, the demand for and prices of refined products, industry supply capacity, and competitor refinery maintenance turnarounds.We have evaluated subsequent events that occurred after December 31, 2011 through the filing of this Form 10-K. Any material subsequent eventsthat occurred during this time have been properly recognized or disclosed in these financial statements.Noncontrolling InterestOn January 21, 2011, we entered into a joint venture agreement with Darling Green Energy LLC, a subsidiary of Darling International, Inc., to formDiamond Green Diesel Holdings LLC (DGD Holdings). DGD Holdings, through its wholly owned subsidiary, Diamond Green Diesel LLC (DGD),is constructing and will operate a biomass-based diesel plant having a design feed capacity of 10,000 barrels per day that will process animal fats, usedcooking oils, and other vegetable oils into renewable green diesel. The plant will be located next to our St. Charles Refinery. The aggregate cost of thisfacility is estimated to be approximately $368 million and the construction is expected to be completed in late 2012. The joint venture agreementrequires that contributions be made to DGD Holdings based on the percentage of units held by each member, which is currently on a 50/50 basis.From the inception of DGD Holdings (January 21, 2011) through December 31, 2011, each member had contributed $22 million of cash and$1 million of noncash assets, consisting primarily of property, plant, and equipment, to DGD Holdings. In addition, on May 31, 2011, we agreed tolend DGD up to $221 million in order to finance 60 percent of the construction costs of the plant.Because of our controlling financial interest in DGD Holdings, we have included the financial statements of DGD Holdings in these consolidatedfinancial statements and have separately disclosed the related noncontrolling interest.65Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Significant Accounting PoliciesReclassificationsCertain amounts previously reported in our annual report on Form 10-K for the year ended December 31, 2010 have been reclassified to conform tothe 2011 presentation.Principles of ConsolidationThese consolidated financial statements include the accounts of Valero and subsidiaries in which Valero has a controlling interest. Intercompanybalances and transactions have been eliminated in consolidation. Investments in significant noncontrolled entities are accounted for using the equitymethod.Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles (GAAP)requires us to make estimates andassumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from thoseestimates. On an ongoing basis, we review our estimates based on currently available information. Changes in facts and circumstances may result inrevised estimates.Cash and Temporary Cash InvestmentsOur temporary cash investments are highly liquid, low-risk debt instruments that have a maturity of three months or less when acquired.ReceivablesTrade receivables are carried at original invoice amount. We maintain an allowance for doubtful accounts which is adjusted based on management’sassessment of our customers’ historical collection experience, known credit risks, and industry and economic conditions.InventoriesInventories are carried at the lower of cost or market. The cost of refinery feedstocks purchased for processing, refined products, and grain andethanol inventories are determined under the last-in, first-out (LIFO) method using the dollar-value LIFO method, with any increments valued basedon average purchase prices during the year. The cost of feedstocks and products purchased for resale and the cost of materials, supplies, andconvenience store merchandise are determined principally under the weighted-average cost method.Property, Plant and EquipmentThe cost of property, plant and equipment (property assets) purchased or constructed, including betterments of property assets, is capitalized. Thecost of repairs to and normal maintenance of property assets, however, is expensed as incurred. Betterments of property assets are those which eitherextend the useful life, increase the capacity or improve the operating efficiency of the asset, or improve the safety of our operations. The cost ofproperty assets constructed includes interest and certain overhead costs allocable to the construction activities.Our operations, especially those of our refining segment, are highly capital intensive. Each of our refineries comprises a large base of property assets,consisting of a series of interconnected, highly integrated and interdependent crude oil processing facilities and supporting logistical infrastructure(Units), and these Units are continuously improved. Improvements consist of the addition of new Units and betterments of existing Units. We planfor these improvements by developing a multi-year capital program that is updated and revised66Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)based on changing internal and external factors.Depreciation of property assets used in our refining segment is recorded on a straight-line basis over the estimated useful lives of these assetsprimarily using the composite method of depreciation. We maintain a separate composite group of property assets for each of our refineries. Weestimate the useful life of each group based on an evaluation of the property assets comprising the group, and such evaluations consist of, but are notlimited to, the physical inspection of the assets to determine their condition, consideration of the manner in which the assets are maintained,assessment of the need to replace assets, and evaluation of the manner in which improvements impact the useful life of the group. The estimateduseful lives of our composite groups range primarily from 25 to 30 years.Under the composite method of depreciation, the cost of an improvement is added to the composite group to which it relates and is depreciated overthat group’s estimated useful life. We design improvements to our refineries in accordance with engineering specifications, design standards andpractices accepted in our industry, and these improvements have design lives consistent with our estimated useful lives. Therefore, we believe the useof the group life to depreciate the cost of improvements made to the group is reasonable because the estimated useful life of each improvement isconsistent with that of the group. It should be noted, however, that factors such as competition, regulation, or environmental matters could cause us tochange our estimates, thus impacting depreciation expense in the future.Also under the composite method of depreciation, the historical cost of a minor property asset (net of salvage value) that is retired or replaced ischarged to accumulated depreciation and no gain or loss is recognized in income. However, a gain or loss is recognized in income for a major propertyasset that is retired, replaced or sold and for an abnormal disposition of a property asset (primarily involuntary conversions). Gains and losses arereflected in depreciation and amortization expense, unless such amounts are reported separately due to materiality.Depreciation of property assets used in our retail segment is also recorded on a straight-line basis over the estimated useful lives of the related facilitiesprimarily using the composite method of depreciation. However, depreciation of property assets used in our ethanol segment is recorded on a straight-line basis over the estimated useful lives of each individual asset. Leasehold improvements and assets acquired under capital leases are amortized usingthe straight-line method over the shorter of the lease term or the estimated useful life of the related asset.Deferred Charges and Other Assets“Deferred charges and other assets, net” include the following:•turnaround costs, which are incurred in connection with planned major maintenance activities at our refineries and ethanol plants and whichare deferred when incurred and amortized on a straight-line basis over the period of time estimated to lapse until the next turnaround occurs;•fixed-bed catalyst costs, representing the cost of catalyst that is changed out at periodic intervals when the quality of the catalyst hasdeteriorated beyond its prescribed function, which are deferred when incurred and amortized on a straight-line basis over the estimated usefullife of the specific catalyst;•investments in entities that we do not control; and•other noncurrent assets such as convenience store dealer incentive programs, investments of certain benefit plans, debt issuance costs, andvarious other costs.67Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Impairment of AssetsLong-lived assets, which include property, plant and equipment, intangible assets, and refinery turnaround and catalysts costs, are tested forrecoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. A long-lived asset isnot recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. If along-lived asset is not recoverable, an impairment loss is recognized for the amount by which the carrying amount of the long-lived asset exceeds itsfair value, with fair value determined based on discounted estimated net cash flows or other appropriate methods. See Note 4 for our impairmentanalysis of our long-lived assets.We evaluate our equity method investments for impairment when there is evidence that we may not be able to recover the carrying amount of ourinvestments or the investee is unable to sustain an earnings capacity that justifies the carrying amount. A loss in the value of an investment that is otherthan a temporary decline is recognized currently in income, and is based on the difference between the estimated current fair value of the investmentand its carrying amount.Environmental MattersLiabilities for future remediation costs are recorded when environmental assessments from governmental regulatory agencies and/or remedial effortsare probable and the costs can be reasonably estimated. Other than for assessments, the timing and magnitude of these accruals generally are based onthe completion of investigations or other studies or a commitment to a formal plan of action. Environmental liabilities are based on best estimates ofprobable undiscounted future costs over a 20-year time period using currently available technology and applying current regulations, as well as ourown internal environmental policies, without establishing a range of loss for these liabilities. Environmental liabilities are difficult to assess andestimate due to uncertainties related to the magnitude of possible remediation, the timing of such remediation, and the determination of our obligation inproportion to other parties. Such estimates are subject to change due to many factors, including the identification of new sites requiring remediation,changes in environmental laws and regulations and their interpretation, additional information related to the extent and nature of remediation efforts,and potential improvements in remediation technologies. Amounts recorded for environmental liabilities have not been reduced by possible recoveriesfrom third parties.Asset Retirement ObligationsWe record a liability, which is referred to as an asset retirement obligation, at fair value for the estimated cost to retire a tangible long-lived asset at thetime we incur that liability, which is generally when the asset is purchased, constructed, or leased. We record the liability when we have a legalobligation to incur costs to retire the asset and when a reasonable estimate of the fair value of the liability can be made. If a reasonable estimate cannotbe made at the time the liability is incurred, we record the liability when sufficient information is available to estimate the liability’s fair value.68Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Foreign Currency TranslationThe functional currency of each of our international operations is generally the respective local currency, which includes the Canadian dollar, theAruban florin, the pound sterling, and the euro. Balance sheet accounts are translated into U.S. dollars using exchange rates in effect as of the balancesheet date. Revenue and expense accounts are translated using the weighted-average exchange rates during the year presented. Foreign currencytranslation adjustments are recorded as a component of accumulated other comprehensive income.Revenue RecognitionRevenues for products sold by the refining, retail, and ethanol segments are recorded upon delivery of the products to our customers, which is thepoint at which title to the products is transferred, and when payment has either been received or collection is reasonably assured.We present excise taxes on sales by our U.S. retail system on a gross basis with supplemental information regarding the amount of such taxesincluded in revenues provided in a footnote on the face of the statements of income. All other excise taxes are presented on a net basis.We enter into certain purchase and sale arrangements with the same counterparty that are deemed to be made in contemplation of one another. Wecombine these transactions and, as a result, revenues and cost of sales are not recognized in connection with these arrangements. We also enter intorefined product exchange transactions to fulfill sales contracts with our customers by accessing refined products in markets where we do not operateour own refineries. These refined product exchanges are accounted for as exchanges of non-monetary assets, and no revenues are recorded on thesetransactions.Product Shipping and Handling CostsCosts incurred for shipping and handling of products are included in cost of sales.Stock-Based CompensationCompensation expense for our share-based compensation plans is based on the fair value of the awards granted and is recognized in income on astraight-line basis over the requisite service period of each award. For new grants that have retirement-eligibility provisions, we use the non-substantive vesting period approach, under which compensation cost is recognized immediately for awards granted to retirement-eligible employees orover the period from the grant date to the date retirement eligibility is achieved if that date is expected to occur during the nominal vesting period.Income TaxesIncome taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the futuretax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective taxbases. Deferred amounts are measured using enacted tax rates expected to apply to taxable income in the year those temporary differences areexpected to be recovered or settled.We have elected to classify any interest expense and penalties related to the underpayment of income taxes in income tax expense.69Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Earnings per Common ShareEarnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the year.Participating share-based payment awards, including shares of restricted stock granted under certain of our stock-based compensation plans, areincluded in the computation of basic earnings per share using the two-class method. Earnings per common share – assuming dilution reflects thepotential dilution arising from our outstanding stock options and nonvested shares granted to employees in connection with our stock-basedcompensation plans. Potentially dilutive securities are excluded from the computation of earnings per common share – assuming dilution when theeffect of including such shares would be antidilutive.Financial InstrumentsOur financial instruments include cash and temporary cash investments, receivables, payables, debt, capital lease obligations, commodity derivativecontracts, and foreign currency derivative contracts. The estimated fair values of these financial instruments approximate their carrying amounts,except for certain debt as discussed in Note 20.Derivatives and HedgingAll derivative instruments are recorded in the balance sheet as either assets or liabilities measured at their fair values. When we enter into a derivativeinstrument, it is designated as a fair value hedge, a cash flow hedge, an economic hedge, or a trading derivative. The gain or loss on a derivativeinstrument designated and qualifying as a fair value hedge, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, arerecognized currently in income in the same period. The effective portion of the gain or loss on a derivative instrument designated and qualifying as acash flow hedge is initially reported as a component of other comprehensive income and is then recorded in income in the period or periods duringwhich the hedged forecasted transaction affects income. The ineffective portion of the gain or loss on the cash flow derivative instrument, if any, isrecognized in income as incurred. For our economic hedging relationships (derivative instruments not designated as fair value or cash flow hedges)and for derivative instruments entered into for trading purposes, the derivative instrument is recorded at fair value and changes in the fair value of thederivative instrument are recognized currently in income. The cash flow effects of all of our derivative instruments are reflected in operating activitiesin the statements of cash flows.Business CombinationsIn December 2010, the provisions of ASC Topic 805, “Business Combinations,” were modified to specify that if a public entity presentscomparative financial statements, then the entity should disclose pro forma revenues and earnings of the combined entity as though the businesscombination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. In addition,the supplemental pro forma disclosures were expanded to include a description of the nature and amount of material, nonrecurring pro formaadjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This guidance is effectiveprospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on orafter December 15, 2010 with early adoption permitted. The adoption of this guidance effective January 1, 2011 did not affect our financial positionor results of operations because these requirements only affect disclosures.70Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)New Accounting PronouncementsIn December 2011, the provisions of ASC Topic 210, “Balance Sheet,” were amended to require an entity to disclose information about offsettingand related arrangements to enable users of its financial statements to understand the effect of these arrangements on its financial position. Theguidance requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in thebalance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. These provisions are effective forinterim and annual reporting periods beginning on January 1, 2013. The adoption of this guidance effective January 1, 2013 will not affect ourfinancial position or results of operations, but may result in additional disclosures.In December 2011, the provisions of ASC Topic 220, “Comprehensive Income,” were amended to allow an entity the option to present the total ofcomprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement orin two separate but consecutive financial statements. These provisions to ASC Topic 220 are effective for the first interim or annual period beginningafter December 15, 2011 and are to be applied retrospectively, with early adoption permitted. The adoption of this guidance effective January 1, 2012will not affect our financial position or results of operations because these requirements only affect presentation.In May 2011, the provisions of ASC Topic 820, “Fair Value Measurement,” were amended to clarify the application of existing fair valuemeasurement requirements and to change certain fair value measurement and disclosure requirements. Amendments that change measurement anddisclosure requirements relate to (i) fair value measurement of financial instruments that are managed within a portfolio, (ii) application of premiumsand discounts in a fair value measurement, and (iii) additional disclosures about fair value measurements categorized within Level 3 of the fair valuehierarchy. These provisions are effective for the first interim or annual period beginning after December 15, 2011. The adoption of this guidanceeffective January 1, 2012 will not affect our financial position or results of operations, but may result in additional disclosures.71Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)2.ACQUISITIONSAcquisitions of RefineriesThe acquired refining and marketing businesses as discussed below involve the production and marketing of refined petroleum products. Theseacquisitions are consistent with our general business strategy and complement our existing refining and marketing network.Meraux AcquisitionOn October 1, 2011, we acquired the Meraux Refinery and related logistics assets from Murphy Oil Corporation for an initial payment of$586 million, which was funded from available cash. This acquisition is referred to as the Meraux Acquisition. The Meraux Refinery has a totalthroughput capacity of 135,000 barrels per day and is located in Meraux, Louisiana.In the fourth quarter of 2011, we recorded an adjustment related to inventories acquired that reduced the purchase price to $547 million. The assetsacquired and liabilities assumed in the Meraux Acquisition were recognized at their acquisition-date estimated fair values, pending the completion ofan independent appraisal and other evaluations, and are as follows (in millions):Inventories$219Property, plant and equipment320Deferred charges and other assets, net9Other long-term liabilities(1)Purchase price$547Pembroke AcquisitionOn August 1, 2011, we acquired 100 percent of the outstanding shares of Chevron Limited from a subsidiary of Chevron Corporation (Chevron),and we subsequently changed the name of Chevron Limited to Valero Energy Ltd. Valero Energy Ltd owns and operates the Pembroke Refinery,which has a total throughput capacity of 270,000 barrels per day and is located in Wales, U.K. Valero Energy Ltd also owns, directly and throughvarious subsidiaries, an extensive network of marketing and logistics assets throughout the U.K. and Ireland. On the acquisition date, we initially paid$1.8 billion from available cash, of which $1.1 billion was for working capital. Subsequent to the acquisition date, we recorded an adjustment toworking capital (primarily inventory), resulting in an adjusted purchase price of $1.7 billion, as outlined below. This acquisition is referred to as thePembroke Acquisition.72Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The assets acquired and liabilities assumed in the Pembroke Acquisition were recognized at their acquisition-date estimated fair values, pending thecompletion of an independent appraisal and other evaluations, and are as follows (in millions):Current assets, net of cash acquired$2,214Property, plant and equipment804Deferred charges and other assets, net32Intangible assets23Current liabilities, less current portion of debtand capital lease obligations(1,287)Debt and capital leases assumed, including current portion(12)Other long-term liabilities(78)Noncontrolling interests(5)Purchase price, net of cash acquired$1,691The acquired intangible assets are subject to amortization and have weighted-average useful lives of 10 years. These acquired intangible assets havebeen assigned to the intangible asset classes of trade names and supply agreements. These acquired intangible assets have no residual value.In connection with the Pembroke Acquisition, we acquired an 85 percent interest in Mainline Pipelines Limited (MLP). MLP owns a pipeline thatdistributes refined products from the Pembroke Refinery to terminals in the U.K. In the fourth quarter of 2011, we acquired the remaining 15 percentinterest in MLP.Other DisclosuresIn conjunction with the Meraux and Pembroke Acquisitions, neither goodwill nor a gain from a bargain purchase was recognized, and no significantcontingent assets or liabilities were acquired or assumed.The statement of income includes the results of operations of each of the acquisitions from the dates of their acquisition. Actual operating revenues,income from continuing operations, and acquisition-related costs associated with the Meraux and Pembroke Acquisitions included in our statement ofincome for the year ended December 31, 2011 were as follows (in millions): Meraux Acquisition PembrokeAcquisitionOperating revenues$1,343 $7,522Loss from continuing operations(74) (10)Acquisition-related costs (included in general andadministrative expenses)2 27The acquisition-related costs shown above are not included in the loss from continuing operations of the respective acquisitions.73Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following unaudited pro forma financial information (in millions, except per share amounts) presents our results assuming the Meraux andPembroke Acquisitions occurred on January 1, 2010. The pro forma financial information is not necessarily indicative of the results of futureoperations. Year Ended December 31, 2011 2010Operating revenues$142,109 $99,824Income from continuing operations attributable to Valero stockholders2,071 953Earnings per common share from continuing operations – basic3.66 1.68Earnings per common share from continuing operations – assuming dilution3.64 1.68Acquisitions of Ethanol PlantsThe acquired ethanol businesses as discussed below involve the production and marketing of ethanol and its co-products, including distillers grains.The operations of our ethanol business complement our existing clean motor fuels business.ASA and Renew AssetsIn December 2009, we signed an agreement with ASA Ethanol Holdings, LLC to buy two ethanol plants located in Linden, Indiana andBloomingburg, Ohio and made a $20 million advance payment towards the acquisition of these plants. In January 2010, we completed the acquisitionof these plants, including certain inventories, for total consideration of $202 million.Also in December 2009, we received approval from a bankruptcy court to acquire one ethanol plant located near Jefferson, Wisconsin from RenewEnergy LLC and made a $1 million advance payment towards the acquisition of this plant. We completed the acquisition of this plant, includingcertain receivables and inventories, in February 2010 for total consideration of $79 million.VeraSun AssetsIn the second quarter of 2009, we acquired seven ethanol plants and one site under development from VeraSun Energy Corporation for $556 million.The ethanol plants are located in Charles City, Fort Dodge, Hartley, and Albert City, Iowa; Aurora, South Dakota; Welcome, Minnesota; Albion,Nebraska; and the site under development is located in Reynolds, Indiana.74Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)3.SALES OF ASSETSPaulsboro RefineryIn December 2010, we sold our Paulsboro Refinery to PBF Holding Company LLC (PBF Holding). Working capital, consisting primarily ofinventory, was included as part of this transaction. The results of operations of the Paulsboro Refinery, including the loss on the sale discussed below,have been presented as discontinued operations for all years presented.We received total proceeds of $707 million, including $361 million from the sale of working capital, resulting in a pre-tax loss of $980 million($610 million after taxes). The loss includes a $50 million charge related to a LIFO inventory liquidation that resulted from the sale of inventory toPBF Holding and the effect of a $40 million accrual to settle differences between estimated and actual inventory volumes sold. The sale proceedsconsisted of $547 million of cash and a $160 million note secured by the Paulsboro Refinery. In February 2012, we received full payment on thisnote.Selected results of operations of the Paulsboro Refinery prior to its sale, excluding the loss on the sale in 2010, are shown below (in millions). Year Ended December 31, 2011 2010 2009Operating revenues$— $4,692 $3,545Loss before income taxes(9) (53) (133)Delaware City Refinery Assets and Associated Terminal and Pipeline AssetsIn November 2009, we announced the permanent shutdown of our Delaware City Refinery, and we recorded a pre-tax loss of $1.9 billion, of which$1.4 billion represented the write-down of the book value of the refinery assets to net realizable value. The results of operations of the Delaware CityRefinery have been presented as discontinued operations for all years presented.In June 2010, we sold the shutdown refinery assets and the terminal and pipeline assets to wholly owned subsidiaries of PBF Energy Partners LP for$220 million of cash proceeds. The sale resulted in a gain of $92 million ($58 million after taxes) related to the shutdown refinery assets and a gainof $3 million related to the terminal and pipeline assets. The gain on the sale of the shutdown refinery assets primarily resulted from receivingproceeds related to the scrap value of the assets and the reversal of certain liabilities recorded in the fourth quarter of 2009 associated with theshutdown of the refinery, which we will not incur because of the sale. This gain is presented in discontinued operations for the year endedDecember 31, 2010.75Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Selected results of operations of the Delaware City Refinery prior to its sale, excluding the gain on the sale in 2010 and the loss on the shut down ofthe refinery in 2009, are shown below (in millions). Year Ended December 31, 2011 2010 2009Operating revenues$— $— $2,764Loss before income taxes(3) (29) (769)Investment in Cameron Highway Oil Pipeline Company (CHOPS)In November 2010, we sold our 50 percent interest in CHOPS to Genesis Energy, L.P. for total cash proceeds of $330 million. The sale resulted in apre-tax gain of $55 million ($36 million after taxes), which is included in “other income, net” for the year ended December 31, 2010. CHOPS is ageneral partnership that operates a 390-mile pipeline, which delivers up to 500,000 barrels per day of crude oil from the Gulf of Mexico to majorrefining areas of Port Arthur and Texas City, Texas.4.IMPAIRMENT ANALYSISIn late 2008, the U.S. and worldwide economies experienced severe disruptions in their capital and commodities markets resulting in a significanteconomic slowdown that negatively impacted refining industry fundamentals and the demand and price for our refined products. Because of thisnegative impact, we decided to shut down our Aruba Refinery temporarily in July 2009. We also decided to shut down our Delaware City Refinerypermanently in late 2009 and ultimately sold that refinery in June 2010, and we sold our Paulsboro Refinery in December 2010, as discussed inNote 3. In addition, we temporarily suspended construction activity on various capital projects and permanently cancelled other projects. Thesepermanent cancellations resulted in asset impairment losses of $2 million and $222 million for the years ended December 31, 2010 and 2009,respectively.The U.S. and worldwide economies and refining industry fundamentals improved throughout 2010 and most of 2011, resulting in a significantimprovement in the operating results of all of our refining segment assets. These improvements led to our decision to restart our Aruba Refinery andresume construction activities on the majority of the previously suspended capital projects. However, we analyzed our Aruba Refinery for potentialimpairment as of December 31, 2011 because of its recent temporary shutdown, its inability to generate positive cash flows on a sustained basissubsequent to its restart, and the sensitivity of its profitability to sour crude oil differentials, which narrowed significantly in the fourth quarter of2011. In addition, we are exploring strategic alternatives for the refinery, including alternative feedstocks, configuration changes, and a temporary orpermanent shutdown of the refinery facilities.We considered all of these matters in our impairment analysis and concluded that our Aruba Refinery was not impaired as of December 31, 2011.Our future cash flow estimates for the refinery are based on our expectation that refining industry fundamentals will continue to improve inconnection with an increase in the demand for refined products. However, should refining industry fundamentals fail to continue to improve, ourfuture cash flow estimates will be negatively impacted. In addition, as discussed above, we are exploring strategic alternatives for the refinery andexpect to conclude our evaluation of these strategic alternatives in the first quarter of 2012. A decision to temporarily or permanently shut down therefinery or a revision to76Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)the future operating plans for the refinery that results in a decrease in future expected cash flows could result in the refinery being impaired. TheAruba Refinery had a net book value of $958 million as of December 31, 2011; therefore, an impairment loss would be material to our results ofoperations.5.RECEIVABLESReceivables consisted of the following (in millions): December 31, 2011 2010Accounts receivable$8,366 $4,299Commodity derivative receivables174 144Notes receivable and other214 182 8,754 4,625Allowance for doubtful accounts(48) (42)Receivables, net$8,706 $4,583Notes receivable primarily represent amounts due from PBF Holding related to the sale of the Paulsboro Refinery, the full payment of which wasreceived in February 2012.Changes in the allowance for doubtful accounts consisted of the following (in millions): Year Ended December 31, 2011 2010 2009Balance as of beginning of year$42 $45 $58Increase in allowance charged to expense21 14 28Accounts charged against the allowance, net of recoveries(14) (17) (42)Foreign currency translation(1) — 1Balance as of end of year$48 $42 $45 77Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)6.INVENTORIESInventories consisted of the following (in millions): December 31, 2011 2010Refinery feedstocks$2,474 $2,225Refined products and blendstocks2,633 2,233Ethanol feedstocks and products195 201Convenience store merchandise103 101Materials and supplies218 187Inventories$5,623 $4,947During the years ended December 31, 2011, 2010, and 2009, we had net liquidations of LIFO inventory layers that were established in prior years,which decreased cost of sales in 2011 and 2010 by $247 million and $16 million, respectively, and increased cost of sales in 2009 by $66 million.The effect of the liquidation in 2010 excludes the impact from the sale of inventory in connection with the sale of our Paulsboro Refinery to PBFHolding. The effect of the 2010 liquidation attributable to the sale of that inventory increased the loss on the sale of the Paulsboro Refinery by$50 million ($31 million after taxes) as discussed in Note 3 and is reflected in discontinued operations.As of December 31, 2011 and 2010, the replacement cost (market value) of LIFO inventories exceeded their LIFO carrying amounts byapproximately $6.8 billion and $6.1 billion, respectively. 78Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)7.PROPERTY, PLANT AND EQUIPMENTMajor classes of property, plant and equipment, which include capital lease assets, consisted of the following (in millions): December 31, 2011 2010Land $722 $624Crude oil processing facilities 23,322 21,421Pipeline and terminal facilities 856 709Grain processing equipment 673 656Retail facilities 1,346 1,277Administrative buildings 712 705Other 1,290 1,226Construction in progress 3,332 2,303Property, plant and equipment, at cost 32,253 28,921Accumulated depreciation (7,076) (6,252)Property, plant and equipment, net $25,177 $22,669We had crude oil processing facilities, pipeline and terminal facilities, and certain buildings and other equipment under capital leases totaling$77 million and $59 million as of December 31, 2011 and 2010, respectively. Accumulated amortization on assets under capital leases was$26 million and $22 million, respectively, as of December 31, 2011 and 2010.Depreciation expense for the years ended December 31, 2011, 2010, and 2009 was $1.1 billion, $985 million, and $919 million, respectively.8.INTANGIBLE ASSETSIntangible assets include trade names, customer lists, air emission credits, and various other agreements. All of our intangible assets are subject toamortization. Intangible assets with finite useful lives are amortized on a straight-line basis. Amortization expense for intangible assets was$18 million, $22 million, and $25 million for the years ended December 31, 2011, 2010, and 2009, respectively. The estimated aggregateamortization expense is expected to be $20 million for each of the next five years.9.DEFERRED CHARGES AND OTHER ASSETS“Deferred charges and other assets, net” primarily includes turnaround and catalyst costs, which are deferred and amortized as discussed in Note 1.Amortization expense for deferred refinery turnaround and catalyst costs was $444 million, $383 million, and $404 million for the years endedDecember 31, 2011, 2010, and 2009, respectively.79Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)10.ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIESAccrued expenses and other long-term liabilities consisted of the following as of December 31 (in millions): Accrued Expenses Other Long-TermLiabilities 2011 2010 2011 2010Defined benefit plan liabilities (see Note 14)$37 $54 $796 $636Wage and other employee-related liabilities259 172 79 85Uncertain income tax position liabilities (see Note 16)— — 337 343Other tax liabilities— — 103 106Environmental liabilities39 40 235 228Accrued interest expense108 116 — —Derivative liabilities25 39 — —Insurance liabilities13 13 79 80Asset retirement obligations6 20 81 81Other108 136 171 208Accrued expenses and other long-term liabilities$595 $590 $1,881 $1,767Environmental LiabilitiesChanges in our environmental liabilities were as follows (in millions): Year Ended December 31, 2011 2010 2009Balance as of beginning of year$268 $279 $297Pembroke Acquisition30 — —Additions to liability18 50 21Reductions to liability(5) (21) (5)Payments, net of third-party recoveries(35) (42) (40)Foreign currency translation(2) 2 6Balance as of end of year$274 $268 $279In connection with our various acquisitions, we assumed certain environmental liabilities including, but not limited to, certain remediation obligations,site restoration costs, and certain liabilities relating to soil and groundwater remediation. There were no significant environmental liabilities assumed inconnection with the Meraux Acquisition.80Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Asset Retirement ObligationsWe have asset retirement obligations with respect to certain of our refinery assets due to various legal obligations to clean and/or dispose of variouscomponent parts of each refinery at the time they are retired. However, these component parts can be used for extended and indeterminate periods oftime as long as they are properly maintained and/or upgraded. It is our practice and current intent to maintain our refinery assets and continue makingimprovements to those assets based on technological advances. As a result, we believe that our refineries have indeterminate lives for purposes ofestimating asset retirement obligations because dates or ranges of dates upon which we would retire refinery assets cannot reasonably be estimated atthis time. When a date or range of dates can reasonably be estimated for the retirement of any component part of a refinery, we estimate the cost ofperforming the retirement activities and record a liability for the fair value of that cost using established present value techniques.We also have asset retirement obligations for the removal of underground storage tanks (USTs) for refined products at owned and leased retaillocations. There is no legal obligation to remove USTs while they remain in service. However, environmental laws require that unused USTs beremoved within certain periods of time after the USTs no longer remain in service, usually one to two years depending on the jurisdiction in which theUSTs are located. We have estimated that USTs at our owned retail locations will not remain in service after 25 years of use and that we will have anobligation to remove those USTs at that time. For our leased retail locations, our lease agreements generally require that we remove certainimprovements, primarily USTs and signage, upon termination of the lease. While our lease agreements typically contain options for multiple renewalperiods, we have not assumed that such leases will be renewed for purposes of estimating our obligation to remove USTs and signage.Changes in our asset retirement obligations were as follows (in millions). Year Ended December 31, 2011 2010 2009Balance as of beginning of year$101 $179 $72Additions to accrual4 3 98Reductions to accrual— (34) —Accretion expense4 7 14Settlements(22) (54) (5)Balance as of end of year$87 $101 $179There are no assets that are legally restricted for purposes of settling our asset retirement obligations.OtherOther tax liabilities relate primarily to contingent liabilities for transactional tax claims that are both probable and reasonably estimable.81Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11.DEBT AND CAPITAL LEASE OBLIGATIONSDebt, at stated values, and capital lease obligations consisted of the following (in millions): FinalMaturity December 31, 2011 2010Bank credit facilitiesVarious $— $—Industrial revenue bonds: Tax-exempt Revenue Refunding Bonds: Series 1997A, 5.45%2027 18 21Series 1997B, 5.4%2018 — 30Series 1997C, 5.4%2018 — 30Tax-exempt Waste Disposal Revenue Bonds: Series 1997, 5.6%2031 25 25Series 1998, 5.6%2032 25 25Series 1999, 5.7%2032 25 25Series 2001, 6.65%2032 19 194.5% notes2015 400 4004.75% notes2013 300 3004.75% notes2014 200 2006.125% notes2017 750 7506.125% notes2020 850 8506.625% notes2037 1,500 1,5006.875% notes2012 750 7507.5% notes2032 750 7508.75% notes2030 200 200Debentures: 7.65%2026 100 1008.75%2015 75 75Senior Notes: 6.125%2011 — 2006.7%2013 180 1806.75%2011 — 2106.75%2037 24 247.2%2017 200 2007.45%2097 100 1009.375%2019 750 75010.5%2039 250 250Gulf Opportunity Zone Revenue Bonds, Series 2010, variable rate2040 — 300Accounts receivable sales facility2012 250 100Net unamortized discount, including fair value adjustments (51) (64)Total debt 7,690 8,300Capital lease obligations, including unamortized fair value adjustments 51 37Total debt and capital lease obligations 7,741 8,337Less current portion (1,009) (822)Debt and capital lease obligations, less current portion $6,732 $7,51582Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Bank Debt and Credit FacilitiesIn December 2011, we entered into a $3 billion revolving credit facility (the Revolver) that has an initial maturity date of December 2016, whichreplaced our maturing $2.4 billion revolving credit facility. Borrowings under the Revolver bear interest at LIBOR plus a margin, or an alternate baserate as defined under the agreement, plus a margin. We are also charged various fees and expenses in connection with the Revolver, including facilityfees and letter of credit fees. The interest rate and fees under the Revolver are subject to adjustment based upon the credit ratings assigned to our non-bank debt. The Revolver has certain restrictive covenants, including a maximum debt-to-capitalization ratio of 60 percent. As of December 31, 2011and 2010, our debt-to-capitalization ratios, calculated in accordance with the terms of the Revolver, were 29 percent and 25 percent, respectively. Webelieve that we will remain in compliance with this covenant.In addition to the Revolver, one of our Canadian subsidiaries has a committed revolving credit facility under which it may borrow and obtain letters ofcredit up to C$115 million.During the years ended December 31, 2011 and 2010, we had no borrowings or repayments under the Revolver or the Canadian revolving creditfacility. During the year ended December 31, 2009, we borrowed and repaid $39 million under the Revolver and had no borrowings or repaymentsunder the Canadian revolving credit facility.We had outstanding letters of credit under our committed lines of credit as follows (in millions): Amounts Outstanding BorrowingCapacity Expiration December 31,2011 December 31,2010Letter of credit facilities $500 June 2012 $300 $100Revolver $3,000 December 2016 $119 $399Canadian revolving credit facility C$115 December 2012 C$20 C$20We also have various other uncommitted short-term bank credit facilities. As of December 31, 2011 and 2010, we had no borrowings outstandingunder our uncommitted short-term bank credit facilities; however, there were letters of credit outstanding under such facilities of $391 million and$176 million, respectively, for which we are charged letter of credit issuance fees. The uncommitted credit facilities have no commitment fees orcompensating balance requirements.In connection with the Pembroke Acquisition, we assumed a €2.8 million short-term demand loan, which bore interest at EURIBOR plus a margin.We repaid this loan in full in November 2011.Non-Bank DebtDuring the year ended December 31, 2011, the following activity occurred:•in December 2011, we redeemed our Series 1997B 5.4% and Series 1997C 5.4% industrial revenue bonds for $56 million, or 100% oftheir stated values;•in May 2011, we made a scheduled debt repayment of $200 million related to our 6.125% senior notes;•in April 2011, we made scheduled debt repayments of $8 million related to our Series 1997A 5.45%, Series 1997B 5.4%, and Series1997C 5.4% industrial revenue bonds;•in February 2011, we made a scheduled debt repayment of $210 million related to our 6.75% senior83Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)notes; and•in February 2011, we paid $300 million to acquire the Gulf Opportunity Zone Revenue Bonds Series 2010 (GO Zone Bonds), which weresubject to mandatory tender. We expect to hold the GO Zone Bonds for our own account until conditions permit the remarketing of thesebonds at an interest rate acceptable to us.During the year ended December 31, 2010, the following activity occurred:•in December 2010, the Parish of St. Charles, State of Louisiana (Issuer) issued GO Zone Bonds totaling $300 million, with a maturity dateof December 1, 2040. The GO Zone Bonds initially bore interest at a weekly rate with interest payable monthly, commencing January 5,2011. Pursuant to a financing agreement, the Issuer lent the proceeds of the sale of the GO Zone Bonds to us to finance a portion of theconstruction costs of a hydrocracker project at our St. Charles Refinery. We received proceeds of $300 million. Under the financingagreement, we were obligated to pay the Issuer amounts sufficient for the Issuer to pay principal and interest on the GO Zone Bonds;•in June 2010, we made a scheduled debt repayment of $25 million related to our 7.25% debentures;•in May 2010, we redeemed our 6.75% senior notes with a maturity date of May 1, 2014 for $190 million, or 102.25% of stated value;•in April 2010, we made scheduled debt repayments of $8 million related to our Series 1997A 5.45%, Series 1997B 5.4%, andSeries 1997C 5.4% industrial revenue bonds;•in March 2010, we redeemed our 7.5% senior notes with a maturity date of June 15, 2015 for $294 million, or 102.5% of stated value, and•in February 2010, we issued $400 million of 4.5% notes due February 1, 2015 and $850 million of 6.125% notes due in February 1, 2020for total net proceeds of $1.2 billion.During the year ended December 31, 2009, the following activity occurred:•in October 2009, we redeemed $76 million of our 6.75% senior notes with a maturity date of October 15, 2037 at 100% of stated value;•in April 2009, we made scheduled debt repayments of $200 million related to our 3.5% notes and $9 million related to our 5.125% Series1997D industrial revenue bonds; and•in March 2009, we issued $750 million of 9.375% notes due March 15, 2019 and $250 million of 10.5% notes due March 15, 2039.Proceeds from the issuance of these notes totaled $998 million.Accounts Receivable Sales FacilityWe have an accounts receivable sales facility with a group of third-party entities and financial institutions to sell on a revolving basis up to $1 billionof eligible trade receivables. We amended our agreement in June 2011 to extend the maturity date to June 2012. Under this program, one of ourmarketing subsidiaries (Valero Marketing) sells eligible receivables, without recourse, to another of our subsidiaries (Valero Capital), whereupon thereceivables are no longer owned by Valero Marketing. Valero Capital, in turn, sells an undivided percentage ownership interest in the eligiblereceivables, without recourse, to the third-party entities and financial institutions. To the extent that Valero Capital retains an ownership interest in thereceivables it has purchased from Valero Marketing, such interest is included in our financial statements solely as a result of the consolidation of thefinancial statements of Valero Capital with those of Valero Energy Corporation; the receivables are not available to satisfy the claims of the creditorsof Valero Marketing or Valero Energy Corporation.84Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)As of December 31, 2011 and 2010, $3.3 billion and $2.2 billion, respectively, of our accounts receivable composed the designated pool ofaccounts receivable included in the program. All amounts outstanding under the accounts receivable sales facility are reflected as debt on our balancesheets and proceeds and repayments are reflected as cash flows from financing activities on the statements of cash flows. Changes in the amountsoutstanding under our accounts receivable sales facility were as follows (in millions): Year Ended December 31, 2011 2010 2009Balance as of beginning of year$100 $200 $100Proceeds from the sale of receivables150 1,225 950Repayments— (1,325) (850)Balance as of end of year$250 $100 $200Capitalized InterestFor the years ended December 31, 2011, 2010, and 2009, capitalized interest was $152 million, $90 million, and $105 million, respectively.Other DisclosuresIn addition to the maximum debt-to-capitalization ratio applicable to the Revolver discussed above under “Bank Credit Facilities,” our bank creditfacilities and other debt arrangements contain various customary restrictive covenants, including cross-default and cross-acceleration clauses.Principal payments on our debt obligations and future minimum rentals on capital lease obligations as of December 31, 2011 were as follows (inmillions): Debt CapitalLeaseObligations2012$1,004 $112013484 102014200 92015475 82016— 8Thereafter5,578 37Net unamortized discountand fair value adjustments(51) —Less interest expense— (32)Total$7,690 $5185Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12.COMMITMENTS AND CONTINGENCIESOperating LeasesWe have long-term operating lease commitments for land, office facilities, retail facilities and related equipment, transportation equipment, timecharters for ocean-going tankers and coastal vessels, dock facilities, and various facilities and equipment used in the storage, transportation,production, and sale of refinery feedstocks, refined product and corn inventories.Certain leases for processing equipment and feedstock and refined product storage facilities provide for various contingent payments based on,among other things, throughput volumes in excess of a base amount. Certain leases for vessels contain renewal options and escalation clauses, whichvary by charter, and provisions for the payment of chartering fees, which either vary based on usage or provide for payments, in addition toestablished minimums, that are contingent on usage. Leases for convenience stores may also include provisions for contingent rental payments basedon sales volumes. In most cases, we expect that in the normal course of business, our leases will be renewed or replaced by other leases.As of December 31, 2011, our future minimum rentals and minimum rentals to be received under subleases for leases having initial or remainingnoncancelable lease terms in excess of one year were as follows (in millions):2012$291201319820141312015106201686Thereafter294Total minimum rental payments1,106Less minimum rentals to be received under subleases(41)Net minimum rental payments$1,065Rental expense was as follows (in millions): Year Ended December 31, 2011 2010 2009Minimum rental expense$523 $485 $519Contingent rental expense23 23 21Total rental expense546 508 540Less sublease rental income(2) (3) (4)Net rental expense$544 $505 $53686Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Other CommitmentsWe have various purchase obligations under certain industrial gas and chemical supply arrangements (such as hydrogen supply arrangements), crudeoil and other feedstock supply arrangements, and various throughput and terminalling agreements. We enter into these contracts to ensure an adequatesupply of utilities and feedstock and adequate storage capacity to operate our refineries. Substantially all of our purchase obligations are based onmarket prices or adjustments based on market indices. Certain of these purchase obligations include fixed or minimum volume requirements, whileothers are based on our usage requirements. None of these obligations are associated with suppliers’ financing arrangements. These purchaseobligations are not reflected as liabilities.Environmental MattersThe U.S. Environmental Protection Agency (EPA) began regulating greenhouse gases on January 2, 2011, under the Clean Air Act Amendments of1990 (Clean Air Act). Any new construction or material expansions will require that, among other things, a greenhouse gas permit be issued at eitheror both the state or federal level in accordance with the Clean Air Act and regulations, and we will be required to undertake a technology review todetermine appropriate controls to be implemented with the project in order to reduce greenhouse gas emissions. The determination would be on a caseby case basis, and the EPA has provided only general guidance on which controls will be required.Furthermore, the EPA is currently developing refinery-specific greenhouse gas regulations and performance standards that are expected to impose, onnew and existing operations, greenhouse gas emission limits and/or technology requirements. These control requirements may affect a wide range ofrefinery operations but have not yet been delineated. Any such controls, however, could result in material increased compliance costs, additionaloperating restrictions for our business, and an increase in the cost of the products we produce, which could have a material adverse effect on ourfinancial position, results of operations, and liquidity.Certain states and foreign governments have pursued regulation of greenhouse gases independent of the EPA. For example, the California GlobalWarming Solutions Act, also known as AB 32, directs the California Air Resources Board (CARB) to develop and issue regulations to reducegreenhouse gas emissions in California to 1990 levels by 2020. The CARB has issued a variety of regulations aimed at reaching this goal, including aLow Carbon Fuel Standard (LCFS) as well as a statewide cap-and-trade program.•The LCFS was scheduled to become effective in 2011, but recent rulings by the U.S. District Court have stayed enforcement of the LCFSuntil certain legal challenges to the LCFS have been resolved. Most notably, the court determined that the LCFS violates the Commerce Clauseof the U.S. Constitution to the extent that the standard discriminates against out-of-state crude oils and corn ethanol. CARB has appealed thelower court’s ruling to the U.S. Court of Appeals for the Ninth Circuit.▪As initially designed, the LCFS called for initially small reductions in the carbon intensity of transportation fuels sold in California. Themandated reductions in carbon intensity were thereafter scheduled to increase through 2020, after which another step-change in reductionsis anticipated.▪CARB designed the LCFS to encourage substitution of traditional petroleum fuels, and, over time, lead to greater use of electric cars andalternative fuels, such as E85, as companies seek to generate more credits to offset petroleum fuels.•A California statewide cap-and-trade program will begin in 2013. Initially, the program will apply only to stationary sources of greenhousegases (e.g., refinery and power plant greenhouse gas87Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)emissions). Greenhouse gas emissions from fuels that we sell in California will be covered by the program beginning in 2015. We anticipatethat free allocations of credits will be available in the early years of the program, but we expect that compliance costs will increase significantlybeginning in 2015, when transportation fuels are included in the program.•Complying with AB 32, including the LCFS and the cap-and-trade program, could result in material increased compliance costs for us,increased capital expenditures, increased operating costs, and additional operating restrictions for our business, resulting in an increase in thecost of, and decreases in the demand for, the products we produce. To the degree we are unable to recover these increased costs, these matterscould have a material adverse effect on our financial position, results of operations, and liquidity.In January 2012, CARB adopted amendments to its Clean Fuels Outlet (CFO) Regulation. CARB states that the CFO Regulation is intended toprovide outlets of clean fuel to meet the needs of alternative fuel vehicles. The regulation would require major refiners and importers of gasoline,including Valero, to install clean fuel outlets at five percent of California’s retail stations for hydrogen fueling and electric vehicle charging. Weexpect this regulation to be challenged, but we could be required to make significant capital expenditures if the regulation is implemented as presentlyadopted.The EPA has disapproved certain permitting programs of the Texas Commission on Environmental Quality (TCEQ) that historically have streamlinedthe environmental permitting process in Texas. For example, the EPA has disapproved the TCEQ pollution control standard permit, thus requiringconventional permitting for future pollution control equipment. Litigation is pending from industry groups and others against the EPA for each ofthese actions. The EPA has also objected to numerous Title V permits in Texas and other states, including permits at our Port Arthur, Corpus ChristiEast, and McKee Refineries. Environmental activist groups have filed a notice of intent to sue the EPA, seeking to require the EPA to assume controlof these permits from the TCEQ. All of these developments have created substantial uncertainty regarding existing and future permitting. Because ofthis uncertainty, we are unable to determine the costs or effects of the EPA’s actions on our permitting activity. But the EPA’s disruption of the Texaspermitting system could result in material increased compliance costs for us, increased capital expenditures, increased operating costs, and additionaloperating restrictions for our business, resulting in an increase in the cost of, and decreases in the demand for, the products we produce, which couldhave a material adverse effect on our financial position, results of operations, and liquidity.Tax MattersWe are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, transactional taxes (excise/duty, sales/use, andvalue-added taxes), payroll taxes, franchise taxes, withholding taxes, and ad valorem taxes. New tax laws and regulations and changes in existing taxlaws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future. Many ofthese liabilities are subject to periodic audits by the respective taxing authority. Subsequent changes to our tax liabilities as a result of these audits maysubject us to interest and penalties.As of December 31, 2011, the Internal Revenue Service (IRS) has ongoing tax audits related to our U.S. federal tax returns from 2002 through2009, as discussed in Note 16. We have received Revenue Agent Reports on our tax years for 2002 through 2007 and we are vigorously contestingmany of the tax positions and assertions from the IRS. Although we believe our tax liabilities are fairly stated and properly reflected88Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)in our financial statements, should the IRS eventually prevail, it could result in a material amount of our deferred tax liabilities being reclassified tocurrent liabilities which could have a material adverse effect on our liquidity.Effective June 1, 2010, the Government of Aruba (GOA) enacted a new tax regime applicable to refinery and terminal operations in Aruba. Under thenew tax regime, we are subject to a profit tax rate of 7 percent and a dividend withholding tax rate of zero percent. In addition, all imports and exportsare exempt from turnover tax and throughput fees. Beginning June 1, 2012, we will also make a minimum annual tax payment of $10 million(payable in equal quarterly installments), with the ability to carry forward any excess tax prepayments to future tax years.The new tax regime was the result of a settlement agreement entered into on February 24, 2010 between the GOA and us that set the parties’ proposedterms for settlement of a lengthy and complicated tax dispute between the parties. On May 30, 2010, the Aruban Parliament adopted several laws thatimplemented the provisions of the settlement agreement, which became effective June 1, 2010. Pursuant to the terms of the settlement agreement, werelinquished certain provisions of a previous tax holiday regime. On June 4, 2010, we made a payment to the GOA of $118 million (primarily fromrestricted cash held in escrow) in consideration of a full release of all tax claims prior to June 1, 2010. This settlement resulted in an after-tax gain of$30 million recognized primarily as a reduction to interest expense of $8 million and an income tax benefit of $20 million for the year endedDecember 31, 2010.Health Care ReformIn March 2010, a comprehensive health care reform package composed of the Patient Protection and Affordable Care Act and the Health Care andEducation Reconciliation Act of 2010 (Health Care Reform) was enacted into law. Provisions of the Health Care Reform are expected to affect thefuture costs of our U.S. health care plans. We sponsor U.S. health care plans that are grandfathered under Health Care Reform and have made onlythose changes required by Health Care Reform to our plans. Legislative challenges have been made to several of the Health Care Reform provisionsand are currently under review by the U.S. Supreme Court. We expect to receive more guidance on the Health Care Reform provisions which arerequired in 2014 and will then be able to evaluate the potential impact of the Health Care Reform on our financial position and results of operations.Litigation MattersWe are party to claims and legal proceedings arising in the ordinary course of business. We have not recorded a loss contingency liability with respectto some of these matters because we have determined that it is remote that a loss has been incurred. For other matters, we have recorded a losscontingency liability where we have determined that it is probable that a loss has been incurred and that the loss is reasonably estimable. These losscontingency liabilities are not material to our financial position. We re-evaluate and update our loss contingency liabilities as matters progress overtime, and we believe that any changes to the recorded liabilities will not be material to our financial position or results of operations.89Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)13.EQUITYShare ActivityFor the years ended December 31, 2011, 2010, and 2009, activity in the number of shares of common stock and treasury stock was as follows (inmillions): Common Stock TreasuryStockBalance as of December 31, 2008627 (111)Sale of common stock46 —Transactions in connection with stock-based compensation plans: Stock issuances— 2Balance as of December 31, 2009673 (109)Transactions in connection with stock-based compensation plans: Stock issuances— 5Stock repurchases— (1)Balance as of December 31, 2010673 (105)Transactions in connection with stock-based compensation plans: Stock issuances— 5Stock repurchases— (17)Balance as of December 31, 2011673 (117)90Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Common Stock OfferingIn June 2009, we sold in a public offering 46 million shares of our common stock, which included 6 million shares related to an overallotment optionexercised by the underwriters, at a price of $18.00 per share and received proceeds of $799 million, net of underwriting discounts and commissionsand other issuance costs.Preferred StockWe have 20 million shares of preferred stock authorized with a par value of $0.01 per share. No shares of preferred stock were outstanding as ofDecember 31, 2011 and 2010.Treasury StockWe purchase shares of our common stock in open market transactions to meet our obligations under employee stock-based compensation plans. Wealso purchase shares of our common stock from our employees and non-employee directors in connection with the exercise of stock options, thevesting of restricted stock, and other stock compensation transactions.On February 28, 2008, our board of directors approved a $3 billion common stock purchase program, which is in addition to the remaining amountunder a $6 billion program previously authorized. This additional $3 billion program has no expiration date. As of December 31, 2011, we had madeno purchases of our common stock under this $3 billion program. As of December 31, 2011, we have approvals under these stock purchaseprograms to purchase approximately $3.5 billion of our common stock.Common Stock DividendsOn January 24, 2012, our board of directors declared a quarterly cash dividend of $0.15 per common share payable March 14, 2012 to holders ofrecord at the close of business on February 15, 2012.Accumulated Other Comprehensive IncomeChanges in the balances of each component of accumulated other comprehensive income (loss) were as follows (in millions): ForeignCurrencyTranslationAdjustment Pension/OPEBLiabilityAdjustment Net Gain (Loss)On Cash FlowHedges AccumulatedOtherComprehensiveIncome (Loss)Balance as of December 31, 2008$90 $(435) $169 $(176)Other comprehensive income (loss)375 218 (52) 541Balance as of December 31, 2009465 (217) 117 365Other comprehensive income (loss)158 (18) (117) 23Balance as of December 31, 2010623 (235) — 388Other comprehensive income (loss)(122) (189) 19 (292)Balance as of December 31, 2011$501 $(424) $19 $9691Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)14.EMPLOYEE BENEFIT PLANSDefined Benefit PlansWe have defined benefit pension plans, some of which are subject to collective bargaining agreements, that cover most of our employees. These plansprovide eligible employees with retirement income based on years of service and compensation during specific periods. We fund our pension plans asrequired by local regulations. In the U.S., all qualified pension plans are subject to the Employee Retirement Income Security Act (ERISA) minimumfunding standard. We typically do not fund or fully fund U.S. nonqualified and certain international pension plans that are not subject to fundingrequirements because contributions to these pension plans may be less economic and investment returns may be less attractive than our otherinvestment alternatives.We also provide health care and life insurance benefits for certain retired employees through our postretirement benefit plans. Most of our employeesbecome eligible for these benefits if, while still working for us, they reach normal retirement age or take early retirement. These plans are unfunded,and retired employees share the cost with us. Individuals who became our employees as a result of an acquisition became eligible for otherpostretirement benefits under our plans as determined by the terms of the relevant acquisition agreement.92Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The changes in benefit obligation, the changes in fair value of plan assets, and the funded status of our pension plans and other postretirement benefitplans as of and for the years ended December 31, 2011 and 2010 were as follows (in millions): Pension Plans Other PostretirementBenefit Plans 2011 2010 2011 2010Change in benefit obligation: Benefit obligation at beginning of year$1,626 $1,454 $426 $466Service cost104 88 11 10Interest cost85 83 22 26Acquisitions— — 4 —Participant contributions— — 12 12Plan amendments4 — — (31)Special termination benefits— 4 — —Medicare subsidy for prescription drugs— — 3 1Benefits paid(117) (109) (30) (31)Actuarial (gain) loss179 106 (9) (28)Foreign currency exchange rate changes— — (1) 1Benefit obligation at end of year$1,881 $1,626 $438 $426 Change in plan assets: Fair value of plan assets at beginning of year$1,362 $1,251 $— $—Actual return on plan assets(2) 149 — —Valero contributions244 71 15 18Participant contributions— — 12 12Medicare subsidy for prescription drugs— — 3 1Benefits paid(117) (109) (30) (31)Fair value of plan assets at end of year$1,487 $1,362 $— $— Reconciliation of funded status: Fair value of plan assets at end of year$1,487 $1,362 $— $—Less benefit obligation at end of year1,881 1,626 438 426Funded status at end of year$(394) $(264) $(438) $(426)93Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The accumulated benefit obligations for certain of our pension plans exceed the fair values of the assets of those plans. For those plans, the tablebelow presents the total projected benefit obligation, accumulated benefit obligation, and fair value of the plan assets (in millions). December 31, 2011 2010Projected benefit obligation$244 $231Accumulated benefit obligation189 192Fair value of plan assets40 44Benefit payments that we expect to pay, including amounts related to expected future services, and the anticipated Medicare subsidies that we expectto receive are as follows for the years ending December 31 (in millions): PensionBenefits Other PostretirementBenefits Medicare Subsidy2012$84 $23 $(2)201399 24 n/a2014101 26 n/a2015107 28 n/a2016117 29 n/a2017-2021766 159 n/aWe have minimum required contributions of $2 million to our pension plans during 2012 under ERISA and other local regulations; however, we planto contribute approximately $100 million to our pension plans during 2012.94Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The components of net periodic benefit cost were as follows for the years ended December 31, 2011, 2010, and 2009 (in millions): Pension Plans Other PostretirementBenefit Plans 2011 20102009 2011 2010 2009Components of net periodicbenefit cost: Service cost$104 $88 $104 $11 $10 $12Interest cost85 83 79 22 26 25Expected return on plan assets(112) (112) (108) — — —Amortization of: Prior service cost (credit)2 3 3 (23) (20) (19)Net loss12 2 10 2 4 6Net periodic benefit cost before specialcharges91 64 88 12 20 24Special charges4 8 7 4 — 1Net periodic benefit cost$95 $72 $95 $16 $20 $25Amortization of prior service cost (credit) shown in the above table was based on the average remaining service period of employees expected toreceive benefits under each respective plan. Special charges in 2011 relate to purchase accounting for the Meraux Acquisition and settlements relatedto lump sum payments in excess of thresholds. Special charges in 2010 and 2009 related to early retirement programs for corporate employees andemployees at our Delaware City and Paulsboro Refineries.Pre-tax amounts recognized in other comprehensive income for the years ended December 31, 2011, 2010, and 2009 were as follows (in millions): Pension Plans Other PostretirementBenefit Plans 2011 2010 2009 2011 2010 2009Net loss (gain) arising duringthe year: Net actuarial loss (gain)$294 $68 $(273) $(9) $(28) $(27)Prior service credit4 — — — (31) (51) Net gain (loss) reclassified into income: Net actuarial loss(12) (2) (10) (2) (4) (6)Prior service (cost) credit(2) (3) (3) 23 20 19Curtailment and settlement(4) (4) (1) — — —Total changes in other comprehensive (income) loss$280 $59 $(287) $12 $(43) $(65)95Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The pre-tax amounts in accumulated other comprehensive income as of December 31, 2011 and 2010 that have not yet been recognized ascomponents of net periodic benefit cost were as follows (in millions): Pension Plans Other Postretirement BenefitPlans 20112010 2011 2010Prior service cost (credit)$16 $14 $(103) $(126)Net actuarial loss681 403 50 61Total$697 $417 $(53) $(65)The following pre-tax amounts included in accumulated other comprehensive income as of December 31, 2011 are expected to be recognized ascomponents of net periodic benefit cost during the year ending December 31, 2012 (in millions): Pension Plans OtherPostretirementBenefit PlansAmortization of prior service cost (credit)$3 $(23)Amortization of net actuarial loss33 1Total$36 $(22)The weighted-average assumptions used to determine the benefit obligations as of December 31, 2011 and 2010 were as follows: Pension Plans OtherPostretirementBenefit Plans 2011 2010 2011 2010Discount rate5.08% 5.40% 4.97% 5.22%Rate of compensation increase3.68% 3.56% —% —%The discount rate assumption used to determine the benefit obligations as of December 31, 2011 for the pension plans and other postretirementbenefit plans was based on the Aon Hewitt AA Only Above Median yield curve and considered the timing of the projected cash outflows under ourplans. This curve was designed by Aon Hewitt to provide a means for plan sponsors to value the liabilities of their pension plans or postretirementbenefit plans. It is a hypothetical double-A yield curve represented by a series of annualized individual discount rates with maturities from one-halfyear to 99 years. Each bond issue underlying the curve is required to have an average rating of double-A when averaging all available ratings byMoody’s Investor Services (Moody’s), Standard and Poor’s Ratings Service (S&P), and Fitch Ratings. Only the bonds representing the 50 percenthighest yielding issuance among these with average ratings of double-A are included in this yield curve.96Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The discount rate assumption used to determine the benefit obligations as of December 31, 2010 for the pension plans and other postretirement benefitplans was based on the Hewitt Above Median yield curve and considered the timing of the projected cash outflows under our plans. This curve wasalso designed by Aon Hewitt to provide a means for plan sponsors to value the liabilities of their pension plans or other postretirement benefit plans.This curve was a hypothetical double yield curve represented by a series of annualized individual discount rates with maturities from one-half year tomore than 30 years. Each bond issue underlying the curve was required to have a rating of Aa or better by Moody’s or a rating of AA or better byS&P.We based our December 31, 2011 discount rate assumption on the Aon Hewitt AA Only Above Median yield curve because we believe it isrepresentative of the types of bonds we would use to settle our pension and other postretirement benefit plan liabilities as of that date. We believe thatthe market volatility of the last two to three years has largely subsided and that the yields associated with the bonds used to develop this yield curvereflect the current level of interest rates. In 2010 and 2009, we based our discount rate assumption on the Hewitt Above Median yield curve because itincluded a larger number of bonds which lessened the effect of outlier bonds whose yields were influenced by the volatility in the market at that time.The weighted-average assumptions used to determine the net periodic benefit cost for the years ended December 31, 2011, 2010, and 2009 were asfollows: Pension Plans Other PostretirementBenefit Plans 2011 2010 2009 2011 2010 2009Discount rate5.40% 5.80% 5.40% 5.22% 5.68% 5.39%Expected long-term rate of return on planassets7.69% 7.71% 7.72% —% —% —%Rate of compensation increase3.56% 4.18% 4.18% —% —% —%The assumed health care cost trend rates as of December 31, 2011 and 2010 were as follows: 2011 2010Health care cost trend rate assumed for the next year7.43% 7.46%Rate to which the cost trend rate was assumed to decline (the ultimate trend rate)5.00% 5.00%Year that the rate reaches the ultimate trend rate2018 2018Assumed health care cost trend rates have an impact on the amounts reported for retiree health care plans. A one percentage-point change in assumedhealth care cost trend rates would have the following effects on other postretirement benefits (in millions): 1% Increase 1% DecreaseEffect on total of service and interest cost components$1 $(1)Effect on accumulated postretirement benefit obligation18 (16)97Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The tables below present the fair values of the assets of our pension plans (in millions) as of December 31, 2011 and 2010 by level of the fair valuehierarchy. Assets categorized in Level 1 of the hierarchy are measured at fair value using a market approach based on quotations from nationalsecurities exchanges. Assets categorized in Level 2 of the hierarchy are measured at net asset value as a practical expedient for fair value. Aspreviously noted, we do not fund or fully fund U.S. nonqualified and certain international pension plans that are not subject to funding requirements,and we do not fund our other postretirement benefit plans. Plan assets for certain U.S. nonqualified pension plans are disclosed in Note 20 and are notincluded in the plan assets reflected below because they are not protected from our creditors and therefore cannot be reflected as a reduction from ourobligations under the pension plans. Fair Value Measurements Using QuotedPrices inActiveMarkets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Total as ofDecember 31,2011Equity securities: Valero Energy Corporation common stock$5 $— $— $5Other U.S. companies (a)375 — — 375International companies120 — — 120Preferred stock2 — — 2Mutual funds: International growth102 — — 102Index funds (b)63 — — 63Corporate debt instruments246 — — 246Government securities: U.S. Treasury securities67 — — 67Mortgage-backed securities3 — — 3Other government securities81 — — 81Common collective trusts— 247 — 247Insurance contracts— 17 — 17Interest and dividends receivable5 — — 5Cash and cash equivalents154 — — 154Total$1,223 $264 $— $1,487______________________See notes on page 99.98Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair Value Measurements Using QuotedPrices inActiveMarkets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Total as ofDecember 31,2010Equity securities: Valero Energy Corporation common stock$5 $— $— $5Other U.S. companies (a)369 — — 369International companies107 — — 107Preferred stock1 — — 1Mutual funds: International growth117 — — 117Index funds (b)64 — — 64Corporate debt instruments274 — — 274Government securities: U.S. Treasury securities30 — — 30Mortgage-backed securities3 — — 3Other government securities93 — — 93Common collective trusts— 231 — 231Insurance contracts— 18 — 18Interest and dividends receivable5 — — 5Cash and cash equivalents45 — — 45Total$1,113 $249 $— $1,362(a)Equity securities are held in a wide range of industrial sectors, including consumer goods, information technology, healthcare, industrials,and financial services.(b)This class include primarily investments in approximately 60 percent equities and 40 percent bonds.The investment policies and strategies for the assets of our pension plans incorporate a diversified approach that is expected to earn long-term returnsfrom capital appreciation and a growing stream of current income. This approach recognizes that assets are exposed to risk and the market value of thepension plans’ assets may fluctuate from year to year. Risk tolerance is determined based on our financial ability to withstand risk within theinvestment program and the willingness to accept return volatility. In line with the investment return objective and risk parameters, the pension plans’mix of assets includes a diversified portfolio of equity and fixed-income investments. As of December 31, 2011, the target allocations for planassets are 70 percent equity securities and 30 percent fixed income investments. Equity securities include international stocks and a blend of U.S.growth and value stocks of various sizes of capitalization. Fixed income securities include bonds and notes issued by the U.S. government and itsagencies, corporate bonds, and mortgage-backed securities. The aggregate asset allocation is reviewed on an annual basis.99Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The overall expected long-term rate of return on plan assets for the pension plans is estimated using models of asset returns. Model assumptions arederived using historical data given the assumption that capital markets are informationally efficient. Three methods are used to derive the long-termexpected returns for each asset class. Because each method has distinct advantages and disadvantages and differing results, an equal weighted averageof the methods’ results is used.Defined Contribution PlansValero Energy Corporation Thrift PlanThe Valero Energy Corporation Thrift Plan covers substantially all U.S. employees except for those employees covered by the plans discussed below.Employees are immediately eligible to participate in the plan and receive employer matching contributions.Through December 31, 2009, participants could make basic contributions up to 8 percent of their total annual salary, which included overtime andcash bonuses. In addition, participants who made a basic contribution of 8 percent could also make a supplemental contribution of up to 22 percent oftheir total eligible annual salary. We matched 75 percent of each participant’s total basic contributions up to 8 percent based on the participant’s totalannual salary, excluding cash bonuses. Commencing January 1, 2010, we match 100 percent of basic contributions up to 6 percent of eachparticipant’s total annual salary, excluding cash bonuses.Valero Savings PlanThe Valero Savings Plan covers our U.S. retail store employees, certain other employees supporting the retail organization, and employees at ourethanol plants. Under this plan, participants can contribute from 1 percent to 30 percent of their eligible compensation. We contribute $0.60 for every$1.00 of the participant’s contribution up to 6 percent of eligible compensation. At our discretion, we may also make profit-sharing contributions,which can range from 3.5 to 5 percent of eligible compensation, to the Plan to be allocated to the participants.Premcor Retirement Savings PlanThe Premcor Retirement Savings Plan covers certain union employees. Under this plan, participants can contribute from 1 percent to 50 percent oftheir eligible compensation. We contribute 200 percent of the first 3 percent of a participant’s eligible compensation. In addition, we contribute 100percent of the next 3 percent of a participant’s eligible compensation for certain union participants who contribute to the plan.Ultramar Ltd. Savings PlanThe Ultramar Ltd. Savings Plan covers all Canadian employees. Permanent employees are eligible after three months of service, temporary employeesare eligible after one year of service, and seasonal employees are eligible after 220 days of service during 36 consecutive months. We contribute 9percent of the employee’s base salary plus 50 percent of the employee’s voluntary contribution, which is limited to 6 percent of the base salary. Ourcontribution does not exceed 12 percent of the base salary.Valero Refining Company – Aruba N.V. Thrift PlanThe Valero Refining Company – Aruba N.V. Thrift Plan covers all Aruban employees. Employees are eligible to participate after completing one yearof service and can contribute a maximum of 8 percent of salary. We match 100 percent of employee contributions up to a maximum of 8 percentbased on years of service.100Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Our contributions to these defined contribution plans were as follows (in millions): Year Ended December 31, 2011 2010 2009Valero Energy Corporation Thrift Plan$35 $36 $37Valero Savings Plan8 6 5Premcor Retirement Savings Plan5 5 6Ultramar Ltd. Savings Plan10 9 8Valero Refining Company – Aruba N.V. Thrift Plan1 1 1Other PlansWe have several defined contribution plans in the U.K. and Ireland that cover employees of those countries. Employer contributions to these planswere immaterial for the year ended December 31, 2011.We also have two defined contribution plans in the U.S., the assets and liabilities of which are measured and recorded at fair value on a recurring basisas disclosed in Note 20. No employer contributions were made to these defined contribution plans for the years ended December 31, 2011, 2010, and2009.15.STOCK-BASED COMPENSATIONWe have various fixed and performance-based stock compensation plans under which awards have been granted, which are summarized as follows:•The 2011 Omnibus Stock Incentive Plan (the OSIP) authorizes the grant of various stock and stock-based awards to our employees and ournon-employee directors. Awards available under the OSIP include options to purchase shares of common stock, performance awards thatvest upon the achievement of an objective performance goal, stock appreciation rights, and restricted stock that vests over a perioddetermined by our compensation committee. The OSIP was approved by our stockholders on April 28, 2011. As of December 31, 2011,18,498,630 shares of our common stock remained available to be awarded under the OSIP.•Prior to the approval of the OSIP by our stockholders, most of the equity awards granted to our employees and non-employee directors weremade under our 2005 Omnibus Stock Incentive Plan. Prior awards granted under this plan included options to purchase shares of commonstock, performance awards that vest upon the achievement of an objective performance goal, and restricted stock that vests over a perioddetermined by our compensation committee. No additional grants may be awarded under this plan.•The Restricted Stock Plan for Non-Employee Directors authorizes an annual grant of our common stock valued at $160,000 to each non-employee director. Vesting generally will occur based on the number of grants received as follows: (i) initial grants will vest in three equalannual installments, (ii) second grants will vest one-third on the first anniversary of the grant date and the remaining two-thirds on the second anniversary ofthe grant date, and (iii) all grants thereafter will vest 100 percent on the first anniversary of the grant date. As of December 31, 2011, 8,289 shares of our commonstock remained available to be awarded under this plan.101Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)•The 2003 Employee Stock Incentive Plan authorizes the grant of various stock and stock-related awards to employees and prospectiveemployees. Awards include options to purchase shares of common stock, performance awards that vest upon the achievement of an objectiveperformance goal, stock appreciation rights, and restricted stock that vests over a period determined by our compensation committee. As ofDecember 31, 2011, 536,141 shares of our common stock remained available to be awarded under this plan.•In addition, we maintained other stock option and incentive plans under which previously granted equity awards remain outstanding. Noadditional grants may be awarded under these plans.Each of our stock-based compensation arrangements is discussed below.The following table reflects activity related to our stock-based compensation arrangements (in millions): Year Ended December 31, 2011 2010 2009Stock-based compensation expense$58 $54 $68Tax benefit recognized on stock-based compensationexpense20 19 24Tax benefit realized for tax deductions resulting fromexercises and vestings35 23 9Effect of tax deductions in excess of recognized stock-based compensation expense reported as a financing cashflow23 11 5Stock OptionsUnder the terms of our various stock-based compensation plans, the exercise price of options granted is not less than the fair market value of ourcommon stock on the date of grant. Stock options become exercisable pursuant to the individual written agreements between the participants and us,usually in three or five equal annual installments beginning one year after the date of grant, with unexercised options generally expiring seven or tenyears from the date of grant.The fair value of each stock option grant was estimated on the grant date using the Black-Scholes option-pricing model. The expected life of optionsgranted is the period of time from the grant date to the date of expected exercise or other expected settlement. The expected life for each of the yearsin the table below was calculated using the safe harbor provisions of SEC Staff Accounting Bulletin No. 107 and No. 110 related to share-basedpayments. Because the vesting period for all of the stock options granted during the years ended December 31, 2011, 2010, and 2009 was three yearsrather than five years as in prior years, historical exercise patterns did not provide a reasonable basis for estimating the expected life. Expectedvolatility is based on closing prices of our common stock for periods corresponding to the expected life of options granted. Expected dividend yieldis based on annualized dividends at the date of grant. The risk-free interest rate used is the implied yield currently available from the U.S. Treasuryzero-coupon issues with a remaining term equal to the expected life of the options at the grant date.102Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)A summary of the weighted-average assumptions used in our fair value measurements is presented in the table below. Year Ended December 31, 2011 2010 2009Expected life in years6.0 6.0 6.0Expected volatility49.30% 48.21% 47.8%Expected dividend yield2.28% 1.05% 3.1%Risk-free interest rate1.44% 1.83% 2.8%A summary of the status of our stock option awards is presented in the table below.Number ofStockOptions Weighted-AverageExercisePrice PerShare Weighted-AverageRemainingContractualTerm AggregateIntrinsicValue (in years) (in millions)Outstanding as of January 1, 201124,379,558 $24.83 Granted370,025 26.30 Exercised(4,345,678) 11.56 Forfeited(497,319) 50.29 Outstanding as of December 31, 201119,906,586 27.11 3.5 $67 Exercisable as of December 31, 201117,864,926 27.05 3.0 64The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2011, 2010, and 2009 was $10.10, $8.17,and $6.91 per stock option, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2011, 2010, and2009 was $63 million, $25 million, and $12 million, respectively. Cash received from stock option exercises for the years ended December 31,2011, 2010, and 2009 was $49 million, $20 million, and $11 million, respectively.As of December 31, 2011, there was $9 million of unrecognized compensation cost related to outstanding unvested stock option awards, which isexpected to be recognized over a weighted-average period of approximately one year.103Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Restricted StockRestricted stock is granted to employees and non-employee directors. Restricted stock granted to employees vests in accordance with individualwritten agreements between the participants and us, usually in equal annual installments over a period of three to five years beginning one year after thedate of grant. Restricted stock granted to our non-employee directors vests from one to three years following the date of grant. A summary of thestatus of our restricted stock awards is presented in the table below.Number ofShares Weighted-AverageGrant-DateFair ValuePer ShareNonvested shares as of January 1, 20113,360,213 $21.05Granted1,297,464 26.32Vested(1,350,658) 23.17Forfeited(57,929) 20.66Nonvested shares as of December 31, 20113,249,090 22.28As of December 31, 2011, there was $44 million of unrecognized compensation cost related to outstanding unvested restricted stock awards, whichis expected to be recognized over a weighted-average period of approximately two years. The total fair value of restricted stock that vested during theyears ended December 31, 2011, 2010, and 2009 was $32 million, $25 million, and $12 million, respectively.Performance AwardsPerformance awards are issued to certain of our key employees and represent rights to receive shares of our common stock upon the achievement byus of an objective performance measure. The objective performance measure is our total shareholder return, which is ranked among the totalshareholder returns of a defined peer group of companies. Our ranking determines the rate at which the performance awards convert into our commonshares. Conversion rates can range from zero to 200 percent.Performance awards vest in equal one-third increments (tranches) on an annual basis. Our compensation committee establishes the peer group ofcompanies for each tranche of awards at the beginning of the one-year vesting period for that tranche. Therefore, performance awards are notconsidered to be granted for accounting purposes until our compensation committee establishes the peer group of companies for each tranche ofawards. The fair value of each tranche of awards is determined at the time the awards are considered to be granted and is based on the expectedconversion rate for those awards and the fair value per share. Fair value per share is equal to the market price of our common stock on the grant datereduced by expected dividends over that tranche’s vesting period.For performance awards awarded in 2010, if a tranche of these awards fails to meet the minimum performance measure at the end of its vesting periodas established by our compensation committee, that tranche of awards remains outstanding for an additional year and may convert into our commonshares that following year. If such tranche of awards does not convert to our common shares the following year, those awards are forfeited.Performance awards awarded in 2011 do not have carry-forward features.104Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)A summary of the status of our performance awards considered granted is presented below. NonvestedAwards VestedAwardsAwards outstanding as of January 1, 2011253,611 24,219Granted468,941 —Vested(31,361) 31,361Converted— —Forfeited— (30,945)Awards outstanding as of December 31, 2011691,191 24,635There were two grants of performance awards during the year ended December 31, 2011 as follows (dollars in millions). The first grant shownbelow represents the second tranche of vesting awards from the performance awards authorized by our compensation committee in 2010. The secondgrant shown represents the first tranche of vesting awards from the performance awards authorized by our compensation committee in 2011. AwardsGranted ExpectedConversionRate Fair ValuePer ShareFirst grant222,250 50% $25.70Second grant246,691 —% 25.70Total468,941 105Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)16.INCOME TAXESIncome (loss) from continuing operations before income tax expense (benefit) from U.S. and international operations was as follows (in millions): Year Ended December 31, 2011 2010 2009U.S. operations$3,190 $1,436 $(371)International operations132 62 55Income (loss) from continuing operations before income taxexpense (benefit)$3,322 $1,498 $(316)The following is a reconciliation of income tax expense (benefit) related to continuing operations to income taxes computed by applying the U.S.statutory federal income tax rate (35 percent for all years presented) to income (loss) from continuing operations before income tax expense (benefit)(in millions): Year Ended December 31, 2011 2010 2009Federal income tax expense (benefit) at the U.S. statutory rate$1,163 $524 $(111)U.S. state income tax expense (benefit), net of U.S. federal income tax effect29 (21) (2)U.S. manufacturing deduction(28) 5 7International operations46 27 75Permanent differences8 8 (7)Change in tax law— 16 —Other, net8 16 (5)Income tax expense (benefit)$1,226 $575 $(43)The Aruba Refinery’s profits through June 1, 2010 were non-taxable in Aruba due to a tax holiday granted by the GOA. The tax holiday, whichexpired on June 1, 2010, had an immaterial effect on our results of operations for the years ended December 31, 2010 and 2009.The income tax benefit related to discontinued operations for the years ended December 31, 2011, 2010, and 2009 was $4 million, $370 million, and$1.1 billion, respectively.106Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Components of income tax expense (benefit) related to continuing operations were as follows (in millions): Year Ended December 31, 2011 2010 2009Current: U.S. federal$562 $(75) $(309)U.S. state13 (13) (16)International186 22 142Total current761 (66) (183) Deferred: U.S. federal527 634 181U.S. state32 (19) 12International(94) 26 (53)Total deferred465 641 140Income tax expense (benefit)$1,226 $575 $(43)107Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The tax effects of significant temporary differences representing deferred income tax assets and liabilities were as follows (in millions): December 31, 2011 2010Deferred income tax assets: Tax credit carryforwards$158 $99Net operating losses (NOL)300 265Compensation and employee benefit liabilities324 286Environmental liabilities78 85Inventories273 170Property, plant and equipment14 —Other160 184Total deferred income tax assets1,307 1,089Less: Valuation allowance(295) (270)Net deferred income tax assets1,012 819 Deferred income tax liabilities: Turnarounds(310) (256)Property, plant and equipment(5,292) (4,835)Inventories(274) (260)Other(119) (65)Total deferred income tax liabilities(5,995) (5,416)Net deferred income tax liabilities$(4,983) $(4,597)We had the following income tax credit and loss carryforwards as of December 31, 2011 (in millions): Amount ExpirationU.S. state income tax credits$63 2013 through 2027U.S. state income tax credits42 UnlimitedU.S. foreign tax credits30 2012U.S. state NOL (gross amount)5,431 2012 through 2031International NOL249 UnlimitedU.S. alternative minimum tax credit59 UnlimitedWe have recorded a valuation allowance as of December 31, 2011 and 2010 due to uncertainties related to our ability to utilize some of our deferredincome tax assets, primarily consisting of certain U.S. state NOLs and income tax credits, international NOLs, and U.S. foreign tax credits, beforethey expire. The valuation allowance is based on our estimates of taxable income in the various jurisdictions in which we operate and the period overwhich deferred income tax assets will be recoverable. The realization of net deferred income108Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)tax assets recorded as of December 31, 2011 is primarily dependent upon our ability to generate future taxable income in certain U.S. states andinternational jurisdictions and foreign source income in the U.S.Subsequently recognized tax benefits related to the valuation allowance for deferred income tax assets as of December 31, 2011 will be allocated asfollows (in millions):Income tax benefit$286Additional paid-in capital9Total$295Deferred income taxes have not been provided on the future tax consequences attributable to differences between the financial statement carryingamounts of existing assets and liabilities and the respective tax bases of our international subsidiaries based on the determination that such differencesare essentially permanent in duration in that the earnings of these subsidiaries are expected to be indefinitely reinvested in the international operations.As of December 31, 2011, the cumulative undistributed earnings of these subsidiaries were approximately $4.9 billion. If those earnings were notconsidered indefinitely reinvested, deferred income taxes would have been recorded after consideration of U.S. foreign tax credits. In addition, as aresult of our Pembroke Acquisition, certain U.S. tax elections may be available to us. The decision by us to forego these elections could significantlyincrease our taxable earnings and profits. It is not practicable to estimate the amount of additional tax that might be payable on those earnings, ifdistributed.The following is a reconciliation of the change in unrecognized tax benefits, excluding the effect of related penalties and interest and the U.S. federaltax effect of U.S. state unrecognized tax benefits (in millions): Year Ended December 31, 2011 2010 2009Balance as of beginning of year$330 $484 $238Additions based on tax positions related to the current year14 4 158Additions for tax positions related to prior years55 49 106Reductions for tax positions related to prior years(66) (203) (6)Reductions for tax positions related to the lapse of applicable statute of limitations(3) (4) (1)Settlements(4) — (11)Balance as of end of year$326 $330 $484As of December 31, 2011, 2010, and 2009, there were $135 million, $153 million, and $155 million respectively, of unrecognized tax benefits thatif recognized would affect our annual effective tax rate. We do not expect our unrecognized tax benefits to change significantly over the next 12months.During the years ended December 31, 2011, 2010, and 2009, we recognized approximately $1 million, $19 million, and $22 million in interest andpenalties, which is reflected within income tax expense (benefit). We had accrued approximately $110 million and $109 million for the payment ofinterest and penalties as of December 31, 2011 and 2010, respectively.109Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Our tax years for 2002 through 2009 and Premcor Inc.’s separate tax years for 2004 and 2005 are currently under examination by the IRS. PremcorInc. was merged into Valero effective September 1, 2005. The IRS proposed adjustments to our taxable income for certain open years, includingadjustments related to depreciation methods and how we accounted for line fill, which is the volume of hydrocarbon materials present within ourUnits and pipelines necessary to maintain pressure and provide uninterrupted flow. We are protesting the proposed adjustments and do not expect thatthe ultimate disposition of these adjustments will result in a material change to our financial position or results of operations. Thus, we believe thatadequate provisions for income taxes have been reflected in the financial statements.110Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)17.EARNINGS PER COMMON SHAREEarnings per common share from continuing operations were computed as follows (dollars and shares in millions, except per share amounts): Year Ended December 31, 2011 2010 2009 RestrictedStock CommonStock RestrictedStock CommonStock RestrictedStock CommonStockEarnings per common share fromcontinuing operations: Net income (loss) attributable to Valerostockholders from continuing operations $2,097 $923 $(273)Less dividends paid: Common stock 168 113 323Nonvested restricted stock 1 1 1Undistributed earnings (loss) $1,928 $809 $(597)Weighted-average common sharesoutstanding3 563 3 563 2 541Earnings per common share from continuingoperations: Distributed earnings$0.30 $0.30 $0.20 $0.20 $0.60 $0.60Undistributed earnings (loss)3.40 3.40 1.43 1.43 — (1.10)Total earnings per common share fromcontinuing operations$3.70 $3.70 $1.63 $1.63 $0.60 $(0.50) Earnings per common share fromcontinuing operations – assumingdilution: Net income (loss) attributable to Valerostockholders from continuing operations $2,097 $923 $(273)Weighted-average common sharesoutstanding 563 563 541Common equivalent shares: Stock options 4 3 —Performance awards and unvestedrestricted stock 2 2 —Weighted-average common sharesoutstanding – assuming dilution 569 568 541Earnings per common share from continuingoperations – assuming dilution $3.69 $1.62 $(0.50)111Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table reflects potentially dilutive securities (in millions) that were excluded from the calculation of “earnings per common share fromcontinuing operations – assuming dilution” as the effect of including such securities would have been antidilutive. These potentially dilutive securitiesincluded common equivalent shares (primarily stock options), which were excluded due to the loss from continuing operations for 2009, and stockoptions for which the exercise prices were greater than the average market price of our common shares during each respective reporting period. Year Ended December 31, 2011 2010 2009Common equivalent shares— — 4Stock options6 14 12112Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)18.SEGMENT INFORMATIONWe have three reportable segments, refining, retail, and ethanol. Our refining segment includes refining operations, wholesale marketing, productsupply and distribution, and transportation operations. The retail segment includes company-operated convenience stores, Canadian dealers/jobbersand truckstop facilities, cardlock facilities, and home heating oil operations. Our ethanol segment includes primarily sales of internally-producedethanol and distillers grains. Operations that are not included in any of the three reportable segments are included in the corporate category.The reportable segments are strategic business units that offer different products and services. They are managed separately as each business requiresunique technology and marketing strategies. Performance is evaluated based on operating income. Intersegment sales are generally derived fromtransactions made at prevailing market rates.The following table reflects activity related to continuing operations (in millions): Refining Retail Ethanol Corporate TotalYear ended December 31, 2011: Operating revenues from external customers$109,138 $11,699 $5,150 $— $125,987Intersegment revenues8,665 — 145 — 8,810Depreciation and amortization expense1,338 115 39 42 1,534Operating income (loss)3,516 381 396 (613) 3,680Total expenditures for long-lived assets2,556 134 32 265 2,987 Year ended December 31, 2010: Operating revenues from external customers69,854 9,339 3,040 — 82,233Intersegment revenues6,416 — 245 — 6,661Depreciation and amortization expense1,210 108 36 51 1,405Operating income (loss)1,903 346 209 (582) 1,876Total expenditures for long-lived assets2,084 102 — 48 2,234 Year ended December 31, 2009: Operating revenues from external customers55,516 7,885 1,198 — 64,599Intersegment revenues5,137 — 137 — 5,274Depreciation and amortization expense1,194 101 18 48 1,361Operating income (loss)247 293 165 (622) 83Total expenditures for long-lived assets2,338 66 5 39 2,448113Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Our principal products include conventional and CARB gasolines, RBOB (reformulated gasoline blendstock for oxygenate blending), ultra-low-sulfur diesel, and gasoline blendstocks. We also produce a substantial slate of middle distillates, jet fuel, and petrochemicals, in addition to lube oilsand asphalt. Other product revenues include such products as gas oils, No. 6 fuel oil, and petroleum coke. Operating revenues from externalcustomers for our principal products were as follows (in millions): Year Ended December 31, 2011 2010 2009Refining: Gasolines and blendstocks$49,019 $33,491 $27,322Distillates43,713 26,402 20,526Petrochemicals4,253 3,161 2,177Lubes and asphalts1,948 1,315 1,126Other product revenues10,205 5,485 4,365Total refining operating revenues109,138 69,854 55,516Retail: Fuel sales (gasoline and diesel)9,730 7,498 6,148Merchandise sales and other1,635 1,581 1,505Home heating oil334 260 232Total retail operating revenues11,699 9,339 7,885Ethanol: Ethanol4,436 2,647 1,032Distillers grains714 393 166Total ethanol operating revenues5,150 3,040 1,198Consolidated operating revenues$125,987 $82,233 $64,599Operating revenues by geographic area are shown in the table below (in millions). The geographic area is based on location of customer and nocustomer accounted for more than 10 percent of our consolidated operating revenues. Year Ended December 31, 2011 2010 2009U.S.$98,806 $67,392 $55,247Canada10,110 6,945 6,048U.K.4,297 149 —Other countries12,774 7,747 3,304Consolidated operating revenues$125,987 $82,233 $64,599114Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Long-lived assets include property, plant and equipment, intangible assets, and certain long-lived assets included in “deferred charges and otherassets, net.” Geographic information by country for long-lived assets consisted of the following (in millions): December 31, 2011 2010U.S.$22,317 $20,488Canada2,362 2,308U.K.848 —Aruba958 981Total long-lived assets$26,485 $23,777Total assets by reportable segment were as follows (in millions): December 31, 2011 2010Refining$38,164 $30,363Retail1,999 1,925Ethanol943 953Corporate1,677 4,380Total assets$42,783 $37,621115Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)19.SUPPLEMENTAL CASH FLOW INFORMATIONIn order to determine net cash provided by operating activities, net income (loss) is adjusted by, among other things, changes in current assets andcurrent liabilities as follows (in millions): Year Ended December 31, 2011 2010 2009Decrease (increase) in current assets: Receivables, net$(3,110) $(679) $(806)Inventories643 (407) (77)Income taxes receivable128 545 (668)Prepaid expenses and other(2) 107 56Increase (decrease) in current liabilities: Accounts payable2,004 670 1,475Accrued expenses(18) (99) 73Taxes other than income taxes312 (66) 107Income taxes payable124 (3) 95Changes in current assets and current liabilities$81 $68 $255The above changes in current assets and current liabilities differ from changes between amounts reflected in the applicable balance sheets for therespective periods for the following reasons:•the amounts shown above exclude changes in cash and temporary cash investments, deferred income taxes, and current portion of debt andcapital lease obligations, as well as the effect of certain noncash investing and financing activities discussed below;•the amounts shown above exclude the current assets and current liabilities acquired in connection with the Meraux Acquisition in October2011, the Pembroke Acquisition in August 2011, and the acquisitions of ethanol plants in 2010 and 2009;•amounts accrued for capital expenditures and deferred turnaround and catalyst costs are reflected in investing activities when such amountsare paid;•amounts accrued for common stock purchases in the open market that are not settled as of the balance sheet date are reflected in financingactivities when the purchases are settled and paid;•changes in assets held for sale and liabilities related to assets held for sale pertaining to the operations of the Paulsboro and Delaware CityRefineries prior to their sale are reflected in the line items to which the changes relate in the table above; and•certain differences between balance sheet changes and the changes reflected above result from translating foreign currency denominatedamounts at the applicable exchange rates as of each balance sheet date.116Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Noncash investing activities for the year ended December 31, 2010 consist of the $160 million note receivable from PBF Holding related to the saleof the Paulsboro Refinery discussed in Note 3. There were no significant noncash investing activities for the years ended December 31, 2011 and2009.There were no significant noncash financing activities for the years ended December 31, 2011, 2010, and 2009.Cash flows related to interest and income taxes were as follows (in millions): Year Ended December 31, 2011 2010 2009Interest paid in excess of amount capitalized$(397) $(457) $(390)Income taxes received (paid), net(486) 690 (165)Cash flows related to the discontinued operations of the Paulsboro and Delaware City Refineries have been combined with the cash flows fromcontinuing operations within each category in the statements of cash flows for all years presented and are summarized as follows (in millions): Year Ended December 31, 2011 2010 2009Cash provided by (used in) operating activities: Paulsboro Refinery$— $88 $10Delaware City Refinery— (26) (126)Cash used in investing activities: Paulsboro Refinery— (41) (121)Delaware City Refinery— — (153)117Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)20.FAIR VALUE MEASUREMENTSGeneralGAAP requires that certain financial instruments, such as derivative instruments, be recognized at their fair values in our balance sheets. However,other financial instruments, such as debt obligations, are not required to be recognized at their fair values, but GAAP provides an option to elect fairvalue accounting for these instruments. GAAP requires the disclosure of the fair values of all financial instruments, regardless of whether they arerecognized at their fair values or carrying amounts in our balance sheets. For financial instruments recognized at fair value, GAAP requires thedisclosure of their fair values by type of instrument, along with other information, including changes in the fair values of certain financial instrumentsrecognized in income or other comprehensive income, and this information is provided below under “Recurring Fair Value Measurements.” Forfinancial instruments not recognized at fair value, the disclosure of their fair values is provided below under “Other Financial Instruments.”Nonfinancial assets, such as property, plant and equipment, and nonfinancial liabilities are recognized at their carrying amounts in our balance sheets.GAAP does not permit nonfinancial assets and liabilities to be remeasured at their fair values. However, GAAP requires the remeasurement of suchassets and liabilities to their fair values upon the occurrence of certain events, such as the impairment of property, plant and equipment. In addition, ifsuch an event occurs, GAAP requires the disclosure of the fair value of the asset or liability along with other information, including the gain or lossrecognized in income in the period the remeasurement occurred. This information is provided below under “Nonrecurring Fair ValueMeasurements.”GAAP provides a framework for measuring fair value and establishes a three-level fair value hierarchy that prioritizes inputs to valuation techniquesbased on the degree to which objective prices in external active markets are available to measure fair value. Following is a description of each of thelevels of the fair value hierarchy.•Level 1 - Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities.•Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities inmarkets that are not active.•Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservableinputs reflect our own assumptions about what market participants would use to price the asset or liability. The inputs are developed based onthe best information available in the circumstances, which might include occasional market quotes or sales of similar instruments or our ownfinancial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fairvalue determination requires significant judgment.The financial instruments and nonfinancial assets and liabilities included in our disclosure of recurring and nonrecurring fair value measurements arecategorized according to the fair value hierarchy based on the inputs used to measure their fair values.118Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Recurring Fair Value MeasurementsThe tables below present information (in millions) about our financial instruments recognized at their fair values in our balance sheets categorizedaccording to the fair value hierarchy of the inputs utilized by us to determine the fair values as of December 31, 2011 and 2010.Cash collateral deposits of $136 million and $403 million with brokers under master netting arrangements are included in the fair value of thecommodity derivatives reflected in Level 1 as of December 31, 2011 and December 31, 2010, respectively. Certain of our commodity derivativecontracts under master netting arrangements include both asset and liability positions. We have elected to offset the fair value amounts recognized formultiple similar derivative instruments executed with the same counterparty, including any related cash collateral asset or obligation under the column“Netting Adjustments” below; however, fair value amounts by hierarchy level are presented on a gross basis in the tables below. Fair Value Measurements Using Quoted Prices inActive Markets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservable Inputs(Level 3) NettingAdjustments Total as ofDecember 31,2011Assets: Commodity derivative contracts$2,038 $78 $— $(1,940) $176Physical purchase contracts— (2) — — (2)Investments of certain benefit plans84 — 11 — 95Other investments— — — — —Liabilities: Commodity derivative contracts1,864 101 — (1,940) 25Obligations of certain benefit plans34 — — — 34119Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair Value Measurements Using Quoted Prices inActive Markets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservable Inputs(Level 3) NettingAdjustments Total as ofDecember 31,2010Assets: Commodity derivative contracts$3,240 $489 $— $(3,560) $169Physical purchase contracts— 17 — — 17Investments of certain benefit plans104 — 10 — 114Other investments— — — — —Liabilities: Commodity derivative contracts3,097 502 — (3,560) 39Biofuels blending obligation51 — — — 51Obligations of certain benefit plans36 — — — 36A description of our financial instruments and the valuation methods used to measure those instruments at fair value are as follows:•Commodity derivative contracts consist primarily of exchange-traded futures and swaps, and as disclosed in Note 21, some of thesecontracts are designated as hedging instruments. These contracts are measured at fair value using the market approach. Exchange-tradedfutures are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy. Swaps are pricedusing third-party broker quotes, industry pricing services, and exchange-traded curves, with appropriate consideration of counterparty creditrisk, but because they have contractual terms that are not identical to exchange-traded futures instruments with a comparable market price,these financial instruments are categorized in Level 2 of the fair value hierarchy.•Physical purchase contracts to purchase inventories represent the fair value of firm commitments to purchase crude oil feedstocks and thefair value of fixed-price corn purchase contracts, and as disclosed in Note 21, some of these contracts are designated as hedginginstruments. The fair values of these firm commitments and purchase contracts are measured using a market approach based on quoted pricesfrom the commodity exchange, but because these commitments have contractual terms that are not identical to exchange-traded futuresinstruments with a comparable market price, they are categorized in Level 2 of the fair value hierarchy.•Investments of certain benefit plan assets consist of investment securities held by trusts for the purpose of satisfying a portion of ourobligations under certain U.S. nonqualified benefit plans. The assets categorized in Level 1 of the fair value hierarchy are measured at fairvalue using a market approach based on quotations from national securities exchanges. The assets categorized in Level 3 of the fair valuehierarchy represent insurance contracts, the fair value of which is provided by the insurer. Obligations of certain benefit plans relate tocertain U.S. nonqualified defined contribution plans under which our obligations to eligible employees are equal to the fair value of the assetsheld by those plans.•Other investments consist of (i) equity securities of private companies over which we do not exercise significant influence nor whosefinancial statements are consolidated into our financial statements120Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)and (ii) debt securities of a private company whose financial statements are not consolidated into our financial statements. We have elected toaccount for these investments at their fair values. These investments are categorized in Level 3 of the fair value hierarchy as the fair values ofthese investments are determined using the income approach based on internally developed analyses.•Our biofuels blending obligation represents a liability for the purchase of RINs and RTFCs, as defined and described in Note 21 under“Compliance Program Price Risk,” to satisfy our obligation to blend biofuels into the products we produce. Our obligation is based onour deficiency in RINs and RTFCs and the price of these instruments as of the balance sheet date. Our obligation is categorized in Level 1of the fair value hierarchy and is measured at fair value using the market approach based on quoted prices from an independent pricingservice.The following is a reconciliation of the beginning and ending balances (in millions) for fair value measurements developed using significantunobservable inputs (Level 3). Investments ofCertainBenefit Plans Other Investments Earn-OutAgreement 2011 2010 2009 2011 2010 2009 2011 2010 2009Balance as of beginning of year$10 $10 $— $— $— $— $— $— $13Purchases1 — — 21 1 — — — —Settlements— — — — — — — — (33)Total losses included in income— — — (21) (1) — — — 20Transfers in and/or out of Level 3— — 10 — — — — — —Balance as of end of year$11 $10 $10 $— $— $— $— $— $—The amount of total losses included in incomeattributable to the change in unrealized losses relatingto assets still held at end of period$— $— $— $(21) $(1) $— $— $— $—For the year ended December 31, 2009, the amount reflected in “total losses included in income” in the table above related to the earn-out agreementare reported in “other income, net.” We entered into an earn-out agreement with Alon Refining Krotz Springs, Inc. in connection with the sale of ourKrotz Springs Refinery in 2008. We also entered into commodity derivative instruments to hedge the risk of changes in the fair value of the earn-outagreement. The gains (losses) associated with these instruments are also reported in “other income, net.”Nonrecurring Fair Value MeasurementsAs of December 31, 2011 and 2010, there were no assets or liabilities that were measured at fair value on a nonrecurring basis.121Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Other Financial InstrumentsFinancial instruments that we recognize in our balance sheets at their carrying amounts include cash and temporary cash investments, receivables,payables, debt and capital lease obligations. The fair values of these financial instruments approximate their carrying amounts, except for debt asshown in the table below (in millions): December 31, 2011 2010Carrying amount$7,690 $8,300Fair value9,298 9,492The fair value of our debt is determined using the market approach based on quoted prices in active markets (Level 1).21.PRICE RISK MANAGEMENT ACTIVITIESWe are exposed to market risks related to the volatility in the price of commodities, the price of financial instruments associated with governmentaland regulatory compliance programs, interest rates, and foreign currency exchange rates, and we enter into derivative instruments to manage some ofthese risks. We also enter into derivative instruments to manage the price risk on other contractual derivatives into which we have entered. The onlytypes of derivative instruments we enter into are those related to the various commodities we purchase or produce, financial instruments we mustpurchase to maintain compliance with various governmental and regulatory programs, interest rate swaps, and foreign currency exchange andpurchase contracts, as described below. All derivative instruments are recorded as either assets or liabilities measured at their fair values (see Note 20).When we enter into a derivative instrument, it is designated as a fair value hedge, a cash flow hedge, an economic hedge, or a trading derivative. Thegain or loss on a derivative instrument designated and qualifying as a fair value hedge, as well as the offsetting loss or gain on the hedged itemattributable to the hedged risk, is recognized currently in income in the same period. The effective portion of the gain or loss on a derivative instrumentdesignated and qualifying as a cash flow hedge is initially reported as a component of other comprehensive income and is then recorded in income inthe period or periods during which the hedged forecasted transaction affects income. The ineffective portion of the gain or loss on the cash flowderivative instrument, if any, is recognized in income as incurred. For our economic hedges (derivative instruments not designated as fair value orcash flow hedges) and for derivative instruments entered into by us for trading purposes, the derivative instrument is recorded at fair value andchanges in the fair value of the derivative instrument are recognized currently in income. The cash flow effects of all of our derivative instruments arereflected in operating activities in our statements of cash flows for all periods presented.122Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Commodity Price RiskWe are exposed to market risks related to the volatility in the price of crude oil, refined products (primarily gasoline and distillate), grain (primarilycorn), and natural gas used in our operations. To reduce the impact of price volatility on our results of operations and cash flows, we use commodityderivative instruments, including futures, swaps, and options. We use the futures markets for the available liquidity, which provides greater flexibilityin transacting our hedging and trading operations. We use swaps primarily to manage our price exposure. Our positions in commodity derivativeinstruments are monitored and managed on a daily basis by a risk control group to ensure compliance with our stated risk management policy that hasbeen approved by our board of directors.For risk management purposes, we use fair value hedges, cash flow hedges, and economic hedges. In addition to the use of derivative instruments tomanage commodity price risk, we also enter into certain commodity derivative instruments for trading purposes. Our objective for entering into eachtype of hedge or trading derivative is described below.Fair Value HedgesFair value hedges are used to hedge price volatility in certain refining inventories and firm commitments to purchase inventories. The level of activityfor our fair value hedges is based on the level of our operating inventories, and generally represents the amount by which our inventories differ fromour previous year-end LIFO inventory levels.As of December 31, 2011, we had the following outstanding commodity derivative instruments that were entered into to hedge crude oil and refinedproduct inventories and commodity derivative instruments related to the physical purchase of crude oil and refined products at a fixed price. Theinformation presents the notional volume of outstanding contracts by type of instrument and year of maturity (volumes in thousands of barrels). Notional ContractVolumes by Year ofMaturityDerivative Instrument 2012Crude oil and refined products: Futures – long 15,398Futures – short 35,708Physical contracts – long 20,310123Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Cash Flow HedgesCash flow hedges are used to hedge price volatility in certain forecasted feedstock and refined product purchases, refined product sales, and naturalgas purchases. The objective of our cash flow hedges is to lock in the price of forecasted feedstock, product or natural gas purchases or refinedproduct sales at existing market prices that we deem favorable.As of December 31, 2011, we had the following outstanding commodity derivative instruments that were entered into to hedge forecasted purchasesor sales of crude oil and refined products. The information presents the notional volume of outstanding contracts by type of instrument and year ofmaturity (volumes in thousands of barrels). Notional ContractVolumes by Year ofMaturityDerivative Instrument 2012Crude oil and refined products: Swaps – long 5,961Swaps – short 5,961Futures – long 38,201Futures – short 36,637Physical contracts – short 1,564124Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Economic HedgesEconomic hedges represent commodity derivative instruments that are not designated as fair value or cash flow hedges and are used to manage pricevolatility in certain (i) refinery feedstock, refined product, and corn inventories, (ii) forecasted refinery feedstock, refined product, and cornpurchases, and refined product sales, and (iii) fixed-price corn purchase contracts. Our objective for entering into economic hedges is consistentwith the objectives discussed above for fair value hedges and cash flow hedges. However, the economic hedges are not designated as a fair valuehedge or a cash flow hedge for accounting purposes, usually due to the difficulty of establishing the required documentation at the date that thederivative instrument is entered into that would allow us to achieve “hedge deferral accounting.”As of December 31, 2011, we had the following outstanding commodity derivative instruments that were entered into as economic hedges andcommodity derivative instruments related to the physical purchase of corn at a fixed price. The information presents the notional volume ofoutstanding contracts by type of instrument and year of maturity (volumes in thousands of barrels, except those identified as corn contracts that arepresented in thousands of bushels). Notional Contract Volumes byYear of MaturityDerivative Instrument 2012 2013Crude oil and refined products: Swaps – long 67,862 —Swaps – short 67,040 —Futures – long 70,211 —Futures – short 65,339 —Options – long 10 —Corn: Futures – long 18,530 —Futures – short 49,565 780Physical contracts – long 20,377 833125Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Trading DerivativesOur objective for entering into commodity derivative instruments for trading purposes is to take advantage of existing market conditions related tofuture results of operations and cash flows.As of December 31, 2011, we had the following outstanding commodity derivative instruments that were entered into for trading purposes. Theinformation presents the notional volume of outstanding contracts by type of instrument and year of maturity (volumes represent thousands of barrels,except those identified as natural gas contracts that are presented in billions of British thermal units and corn contracts that are presented in thousandsof bushels). Notional Contract Volumes byYear of MaturityDerivative Instrument 2012 2013Crude oil and refined products: Swaps – long 15,128 2,000Swaps – short 14,968 2,000Futures – long 50,126 825Futures – short 50,133 825Options – long 300 —Options – short 600 —Natural gas: Futures – long 400 —Futures – short 400 —Options – long 2,000 —Corn: Swaps – long 1,050 —Swaps – short 3,355 —Futures – long 2,510 —Futures – short 2,310 —Compliance Program Price RiskWe are exposed to market risks related to the volatility in the price of financial instruments associated with various governmental and regulatorycompliance programs that we must purchase in the open market to comply with these programs. These programs are described below.Obligation to Blend BiofuelsWe are obligated to blend biofuels into the products we produce in most of the countries in which we operate, and those countries set annual quotasfor the percentage of biofuels that must be blended into the motor fuels consumed in these countries. As a producer of motor fuels from petroleum,we are obligated to blend biofuels into the products we produce at a rate that is at least equal to the applicable quota. To the degree we are unable toblend at the applicable rate in the U.S. and the U.K., we must purchase Renewable Identification Numbers (RINs) in the U.S. and RenewableTransport Fuel Obligation certificates (RTFCs) in the U.K., and126Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)as such, we are exposed to the volatility in the market price of these financial instruments. We have not entered into derivative instruments to managethis risk, but we purchase RINs and RTFCs when the price of these instruments is deemed favorable. For the years ended December 31, 2011, 2010,and 2009, the cost of meeting our obligations under these compliance programs was $231 million, $66 million, and $96 million, respectively, andthese amounts are reflected in cost of sales.Maintaining Minimum Inventory QuantitiesIn the U.K., we are required to maintain a minimum quantity of refined products as a reserve against shortages or interruptions in the supply of theseproducts. To the degree we decide not to physically hold the minimum quantity of these products, we must purchase Compulsory Stock Obligation(CSO) tickets from other suppliers of refined products in the U.K. or other European Union (EU) member countries, and we make economicdecisions as to the cost of maintaining certain quantities of refined products versus the cost of purchasing CSO tickets. We have not entered intoderivative instruments to manage the price volatility of CSO tickets. For the year ended December 31, 2011, the cost of purchasing CSO tickets tohelp meet our obligations under this compliance program was $4 million, and this amount was reflected in cost of sales. We had no obligations underthis compliance program prior to completing the Pembroke Acquisition in 2011.Emission AllowancesOur Pembroke Refinery is subject to a maximum amount of carbon dioxide that it can emit each year under the EU Emissions Trading Scheme.Under this cap-and-trade program, we purchase emission allowances on the open market for the difference between the amount of carbon dioxideemitted and the maximum amount allowed under the program. Therefore, we are exposed to the volatility in the market price of these allowances. Forthe year ended December 31, 2011, the cost of meeting our obligation under this compliance program was $2 million, and this amount is reflected inrefining operating expenses. We had no obligations under this compliance program prior to completing the Pembroke Acquisition in 2011.We enter into derivative instruments (futures) to reduce the impact of this risk on our results of operations and cash flows. Our positions in thesederivative instruments are monitored and managed on a daily basis by a risk control group to ensure compliance with our stated risk managementpolicy that has been approved by our board of directors. As of December 31, 2011, we had purchased futures contracts – long for 68,000 metrictons of EU emission allowances that were entered into as economic hedges. As of December 31, 2011, the fair value of these futures contracts wasimmaterial and therefore not separately presented in the table below under “Fair Values of Derivative Instruments.” For the year endedDecember 31, 2011, the loss recognized in income on these derivative instruments designated as economic hedges was also immaterial and thereforenot separately presented in the table below under “Effect of Derivative Instruments on Statements of Income and Other ComprehensiveIncome.”Interest Rate RiskOur primary market risk exposure for changes in interest rates relates to our debt obligations. We manage our exposure to changing interest ratesthrough the use of a combination of fixed-rate and floating-rate debt. In addition, at times we have used interest rate swap agreements to manage ourfixed to floating interest rate position by converting certain fixed-rate debt to floating-rate debt.127Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Foreign Currency RiskWe are exposed to exchange rate fluctuations on transactions entered into by our international operations that are denominated in currencies other thanthe local (functional) currencies of these operations. To manage our exposure to these exchange rate fluctuations, we use foreign currency exchangeand purchase contracts. These contracts are not designated as hedging instruments for accounting purposes, and therefore they are classified aseconomic hedges. As of December 31, 2011, we had commitments to purchase $751 million of U.S. dollars. These commitments matured on orbefore January 26, 2012.Fair Values of Derivative InstrumentsThe following tables provide information about the fair values of our derivative instruments as of December 31, 2011 and 2010 (in millions) and theline items in the balance sheets in which the fair values are reflected. See Note 20 for additional information related to the fair values of our derivativeinstruments.As indicated in Note 20, we net fair value amounts recognized for multiple similar derivative instruments executed with the same counterparty undermaster netting arrangements. The tables below, however, are presented on a gross asset and gross liability basis, which results in the reflection ofcertain assets in liability accounts and certain liabilities in asset accounts. In addition, in Note 20, we included cash collateral on deposit with orreceived from brokers in the fair value of the commodity derivatives; these cash amounts are not reflected in the tables below. Balance SheetLocation December 31, 2011 AssetDerivatives LiabilityDerivatives Derivatives designated as hedginginstruments Commodity contracts: FuturesReceivables, net $264 $240SwapsAccrued expenses 36 46Total $300 $286 Derivatives not designated as hedginginstruments Commodity contracts: FuturesReceivables, net $1,636 $1,624SwapsPrepaid expenses and other 4 2SwapsAccrued expenses 38 51OptionsReceivables, net 2 —OptionsAccrued expenses — 2Physical purchase contractsInventories — 2Total $1,680 $1,681Total derivatives $1,980 $1,967128Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Balance SheetLocation December 31, 2010 AssetDerivatives LiabilityDerivatives Derivatives designated as hedginginstruments Commodity contracts: FuturesReceivables, net $120 $183SwapsPrepaid expenses and other 55 39SwapsAccrued expenses 31 32Total $206 $254 Derivatives not designated as hedginginstruments Commodity contracts: FuturesReceivables, net $2,717 $2,914SwapsPrepaid expenses and other 287 277SwapsAccrued expenses 116 148OptionsAccrued expenses — 6Physical purchase contractsInventories 17 —Total $3,137 $3,345Total derivatives $3,343 $3,599Market and Counterparty RiskOur price risk management activities involve the receipt or payment of fixed price commitments into the future. These transactions give rise to marketrisk, which is the risk that future changes in market conditions may make an instrument less valuable. We closely monitor and manage our exposure tomarket risk on a daily basis in accordance with policies approved by our board of directors. Market risks are monitored by a risk control group toensure compliance with our stated risk management policy. Concentrations of customers in the refining industry may impact our overall exposure tocounterparty risk because these customers may be similarly affected by changes in economic or other conditions. In addition, financial servicescompanies are the counterparties in certain of our price risk management activities, and such financial services companies may be adversely affectedby periods of uncertainty and illiquidity in the credit and capital markets.As of December 31, 2011, we had net receivables related to derivative instruments of $2 million from counterparties in the refining industry and noamounts from counterparties in the financial services industry. As of December 31, 2010, we had net receivables related to derivative instruments of$4 million from counterparties in the refining industry and $21 million from counterparties in the financial services industry. These amounts representthe aggregate amount payable to us by companies in those industries, reduced by payables from us to those companies under master nettingarrangements that allow for the setoff of amounts receivable from and payable to the same party. We do not require any collateral or other security tosupport derivative instruments into which we enter. We also do not have any derivative instruments that require us to maintain a minimum investment-grade credit rating.129Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Effect of Derivative Instruments on Statements of Income and Other Comprehensive IncomeThe following tables provide information about the gain or loss recognized in income and other comprehensive income on our derivative instrumentsand the line items in the financial statements in which such gains and losses are reflected (in millions).Derivatives in Fair ValueHedging Relationships Location of Gain (Loss)Recognized in Income on Derivatives Year Ended December 31, 2011 2010 2009Commodity contracts: Gain (loss) recognized in income on derivatives Cost of sales $(6) $45 $(75)Gain (loss) recognized in income on hedged item Cost of sales (23) (40) 69Gain (loss) recognized in income on derivatives (ineffective portion) Cost of sales (29) 5 (6)For fair value hedges, no component of the derivative instruments’ gains or losses was excluded from the assessment of hedge effectiveness for theyears ended December 31, 2011, 2010, and 2009. No amounts were recognized in income for hedged firm commitments that no longer qualify as fairvalue hedges for the years ended December 31, 2011, 2010, and 2009.Derivatives in Cash FlowHedging Relationships Location of Gain (Loss)Recognized in Income on Derivatives Year Ended December 31, 2011 2010 2009Commodity contracts: Gain (loss) recognized inOCI on derivatives(effective portion) $32 $(2) $125Gain (loss) reclassified fromaccumulated OCI intoincome (effective portion) Cost of sales 3 178 337 Loss fromdiscontinued operations,net of income taxes — — (132)Gain (loss) recognized inincome on derivatives(ineffective portion) Cost of sales 5 — 3For cash flow hedges, no component of the derivative instruments’ gains or losses was excluded from the assessment of hedge effectiveness for theyears ended December 31, 2011, 2010, and 2009. For the year ended December 31, 2011, cash flow hedges primarily related to forward sales ofdistillates and associated forward purchases of crude oil, with $19 million of cumulative after-tax gains on cash flow hedges remaining inaccumulated other comprehensive income. We estimate that $19 million of the deferred gains as of December 31, 2011 will be reclassified into costof sales over the next 12 months as a result of hedged transactions that are forecasted to occur. For the years ended December 31, 2011 and 2010,there were no amounts reclassified from accumulated other comprehensive income into income as a result of the130Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)discontinuance of cash flow hedge accounting. For the year ended December 31, 2009, there were $132 million of pre-tax losses reclassified fromaccumulated other comprehensive income into income as a result of the discontinuance of cash flow hedge accounting. This amount, which is theamount classified as a loss from discontinued operations in the table, relates to the forecasted sales of distillates that did not occur due to the shutdownof the Delaware City Refinery.Derivatives Designated asEconomic Hedges and OtherDerivative Instruments Location of GainRecognized in Income on Derivatives Year Ended December 31, 2011 2010 2009Commodity contracts Cost of sales $(349) $(210) $55Foreign currency contracts Cost of sales 18 (24) (22)Other contract Cost of sales 29 — — (302) (234) 33Alon earn-out agreement Other income, net — — 20Alon earn-out hedge commodity contracts Other income, net — — (62) — — (42)Total $(302) $(234) $(9)The gain of $29 million on the other contract for the year ended December 31, 2011 is related to the difference between the fair value of inventoriesacquired in connection with the Pembroke Acquisition and the amount paid for such inventories based on the terms of the purchase agreement. Theloss of $349 million on commodity contracts for the year ended December 31, 2011 includes a $542 million loss related to forward sales of refinedproducts.Trading Derivatives Location of Gain (Loss)Recognized in Incomeon Derivatives Year Ended December 31, 2011 2010 2009Commodity contracts Cost of sales $23 $8 $126131Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)22.QUARTERLY FINANCIAL DATA (Unaudited)The following table summarizes quarterly financial data for the years ended December 31, 2011 and 2010 (in millions, except per share amounts). 2011 Quarter Ended March 31 June 30 September 30 (a) December 31 (b)Operating revenues$26,308 $31,293 $33,713 $34,673Operating income244 1,290 1,979 167Income from continuing operations104 744 1,203 45Net income98 743 1,203 45Net income attributable toValero Energy Corporation stockholders98 744 1,203 45Earnings per common share from continuing operations – assuming dilution0.18 1.30 2.11 0.08Earnings per common share – assuming dilution0.17 1.30 2.11 0.08 2010 Quarter Ended March 31 June 30 (c) September 30 December 31 (d)Operating revenues$18,493 $20,561 $21,015 $22,164Operating income4 904 590 378Income (loss) from continuing operations(80) 520 303 180Net income (loss)(113) 583 292 (438)Net income (loss) attributable toValero Energy Corporation stockholders(113) 583 292 (438)Earnings per common share from continuing operations – assuming dilution(0.14) 0.92 0.53 0.32Earnings per common share – assuming dilution(0.20) 1.03 0.51 (0.77)______________(a)Includes the operations related to the Pembroke Acquisition beginning August 1, 2011.(b)Includes the operations related to the Meraux Acquisition beginning October 1, 2011.(c)Net income for the quarter ended June 30, 2010 includes the $92 million pre-tax gain related to the sale of the Delaware City Refinery asdiscussed in Note 3.(d)Net loss for the quarter ended December 31, 2010 includes the $980 million pre-tax loss related to the sale of the Paulsboro Refinery asdiscussed in Note 3.132Table of ContentsITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A. CONTROLS AND PROCEDURESDisclosure Controls and Procedures. Our management has evaluated, with the participation of our principal executive officer and principalfinancial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of1934) as of the end of the period covered by this report, and has concluded that our disclosure controls and procedures were effective as ofDecember 31, 2011.Internal Control over Financial Reporting.(a) Management’s Report on Internal Control over Financial Reporting.The management report on Valero’s internal control over financial reporting required by Item 9A appears in Item 8 on page 56 of this report, and isincorporated herein by reference.(b) Attestation Report of the Independent Registered Public Accounting Firm.KPMG LLP’s report on Valero’s internal control over financial reporting appears in Item 8 beginning on page 58 of this report, and is incorporatedherein by reference.(c) Changes in Internal Control over Financial Reporting.There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or isreasonably likely to materially affect, our internal control over financial reporting.ITEM 9B. OTHER INFORMATIONNone.133Table of ContentsPART IIIITEMS 10-14.The information required by Items 10 through 14 of Form 10-K is incorporated herein by reference to the definitive proxy statement for our 2012annual meeting of stockholders. We will file the proxy statement with the SEC before March 31, 2012.PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) 1. Financial Statements. The following consolidated financial statements of Valero Energy Corporation and its subsidiaries are included inPart II, Item 8 of this Form 10-K: PageManagement’s report on internal control over financial reporting56Reports of independent registered public accounting firm57Consolidated balance sheets as of December 31, 2011 and 201060Consolidated statements of income for the years ended December 31, 2011, 2010, and 200961Consolidated statements of equity for the years ended December 31, 2011, 2010, and 200962Consolidated statements of cash flows for the years ended December 31, 2011, 2010, and 200963Consolidated statements of comprehensive income for the years ended December 31, 2011, 2010, and 200964Notes to consolidated financial statements652. Financial Statement Schedules and Other Financial Information. No financial statement schedules are submitted because either theyare inapplicable or because the required information is included in the consolidated financial statements or notes thereto.3. Exhibits. Filed as part of this Form 10-K are the following exhibits: 3.01--Amended and Restated Certificate of Incorporation of Valero Energy Corporation, formerly known as Valero Refining and MarketingCompany - incorporated by reference to Exhibit 3.1 to Valero’s Registration Statement on Form S-1 (SEC File No. 333-27013) filedMay 13, 1997. 3.02--Certificate of Amendment (effective July 31, 1997) to Restated Certificate of Incorporation of Valero Energy Corporation - incorporated byreference to Exhibit 3.02 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2003 (SEC File No. 1-13175). 3.03--Certificate of Merger of Ultramar Diamond Shamrock Corporation with and into Valero Energy Corporation dated December 31, 2001 -incorporated by reference to Exhibit 3.03 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2003 (SEC File No. 1-13175). 3.04--Amendment (effective December 31, 2001) to Restated Certificate of Incorporation of Valero Energy Corporation - incorporated by referenceto Exhibit 3.1 to Valero’s Current Report on Form 8-K dated December 31, 2001, and filed January 11, 2002 (SEC File No. 1-13175). 3.05--Second Certificate of Amendment (effective September 17, 2004) to Restated Certificate of Incorporation of Valero Energy Corporation -incorporated by reference to Exhibit 3.04 to Valero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (SEC FileNo. 1-13175). 3.06--Certificate of Merger of Premcor Inc. with and into Valero Energy Corporation effective September 1, 2005 - incorporated by reference toExhibit 2.01 to Valero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (SEC File No. 1-13175).134Table of Contents 3.07--Third Certificate of Amendment (effective December 2, 2005) to Restated Certificate of Incorporation of Valero Energy Corporation -incorporated by reference to Exhibit 3.07 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2005 (SEC File No. 1-13175). 3.08--Fourth Certificate of Amendment (effective May 24, 2011) to Restated Certificate of Incorporation of Valero Energy Corporation -incorporated by reference to Exhibit 4.8 to Valero’s Current Report on Form 8-K dated and filed May 24, 2011 (SEC File No. 1-13175). 3.09--Amended and Restated Bylaws of Valero Energy Corporation (as of July 12, 2007) - incorporated by reference to Exhibit 3.01 to Valero’sCurrent Report on Form 8-K dated July 11, 2007, and filed July 17, 2007 (SEC File No. 1-13175). 4.01--Indenture dated as of December 12, 1997 between Valero Energy Corporation and The Bank of New York - incorporated by reference toExhibit 3.4 to Valero’s Registration Statement on Form S-3 (SEC File No. 333-56599) filed June 11, 1998. 4.02--First Supplemental Indenture dated as of June 28, 2000 between Valero Energy Corporation and The Bank of New York (including Formof 7 3/4% Senior Deferrable Note due 2005) - incorporated by reference to Exhibit 4.6 to Valero’s Current Report on Form 8-K datedJune 28, 2000, and filed June 30, 2000 (SEC File No. 1-13175). 4.03--Indenture (Senior Indenture) dated as of June 18, 2004 between Valero Energy Corporation and Bank of New York - incorporated byreference to Exhibit 4.7 to Valero’s Registration Statement on Form S-3 (SEC File No. 333-116668) filed June 21, 2004. 4.04--Form of Indenture related to subordinated debt securities - incorporated by reference to Exhibit 4.8 to Valero’s Registration Statement onForm S-3 (SEC File No. 333-116668) filed June 21, 2004. 4.05--Specimen Certificate of Common Stock - incorporated by reference to Exhibit 4.1 to Valero’s Registration Statement on Form S-3 (SEC FileNo. 333-116668) filed June 21, 2004. +10.01--Valero Energy Corporation Annual Bonus Plan, amended and restated as of July 29, 2009 - incorporated by reference to Exhibit 10.01 toValero’s Current Report on Form 8-K dated July 29, 2009, and filed August 4, 2009 (SEC File No. 1-13175). +10.02--Valero Energy Corporation 2005 Omnibus Stock Incentive Plan, amended and restated as of October 1, 2005 - incorporated by reference toExhibit 10.02 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2009 (SEC File No. 1-13175). +10.03--Valero Energy Corporation 2011 Omnibus Stock Incentive Plan - incorporated by reference to Appendix A to Valero’s Definitive ProxyStatement on Schedule 14A for the 2011 annual meeting of stockholders, filed March 18, 2011 (SEC File No. 1-13175). +10.04--Valero Energy Corporation Deferred Compensation Plan, amended and restated as of January 1, 2008 - incorporated by reference to Exhibit10.04 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2008 (SEC File No. 1-13175). *+10.05--Form of 2011 Elective Deferral Agreement pursuant to the Valero Energy Corporation Deferred Compensation Plan. *+10.06--Form of Investment Election Form pursuant to the Valero Energy Corporation Deferred Compensation Plan. *+10.07--Form of 2011 Distribution Election Form pursuant to the Valero Energy Corporation Deferred Compensation Plan. +10.08--Valero Energy Corporation Amended and Restated Supplemental Executive Retirement Plan, amended and restated as of November 10,2008 - incorporated by reference to Exhibit 10.08 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2008 (SEC FileNo. 1-13175). *+10.09--Valero Energy Corporation Supplemental Retirement Plan for Selected Employees of Canadian Subsidiaries, amended and restated as ofDecember 31, 2011. *+10.10--Valero Energy Corporation Excess Pension Plan, as amended and restated effective December 31, 2011. 135Table of Contents+10.11--Valero Energy Corporation 2003 Employee Stock Incentive Plan, as amended and restated effective October 1, 2005 - incorporated byreference to Exhibit 10.11 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2005 (SEC File No. 1-13175). +10.12--Valero Energy Corporation Restricted Stock Plan for Non-Employee Directors, as amended and restated July 11, 2007 - incorporated byreference to Exhibit 10.02 to Valero’s Current Report on Form 8-K/A dated July 11, 2007, and filed September 18, 2007 (SEC File No. 1-13175). +10.13--Form of Indemnity Agreement between Valero Energy Corporation (formerly known as Valero Refining and Marketing Company) andcertain officers and directors - incorporated by reference to Exhibit 10.8 to Valero’s Registration Statement on Form S-1 (SEC File No. 333-27013) filed May 13, 1997. *+10.14--Schedule of Indemnity Agreements. *+10.15--Change of Control Agreement (Tier I) dated January 18, 2007 between Valero Energy Corporation and William R. Klesse, with IRC Section409A technical amendment dated December 14, 2011. *+10.16--Schedule of Change of Control Agreements (Tier I). *+10.17--Change of Control Agreement (Tier II) dated March 15, 2007 between Valero Energy Corporation and Kimberly S. Bowers, with IRCSection 409A technical amendment dated December 14, 2011. +10.18--Form of Performance Award Agreement pursuant to the Valero Energy Corporation 2005 Omnibus Stock Incentive Plan - incorporated byreference to Exhibit 10.18 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2010 (SEC File No. 1-13175). *+10.19--Form of Performance Award Agreement pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan. +10.20--Form of Stock Option Agreement pursuant to the Valero Energy Corporation 2005 Omnibus Stock Incentive Plan - incorporated byreference to Exhibit 10.03 to Valero’s Current Report on Form 8-K dated October 20, 2005, and filed October 26, 2005 (SEC File No. 1-13175). *+10.21--Form of Stock Option Agreement pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan. +10.22--Form of Stock Option Agreement pursuant to the Valero Energy Corporation Non-Employee Director Stock Option Plan - incorporated byreference to Exhibit 10.04 to Valero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (SEC File No. 1-13175). +10.23--Form of Restricted Stock Agreement pursuant to the Valero Energy Corporation 2005 Omnibus Stock Incentive Plan - incorporated byreference to Exhibit 10.02 to Valero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (SEC File No. 1-13175). *+10.24--Form of Restricted Stock Agreement pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan. +10.25--Form of Restricted Stock Agreement pursuant to the Valero Energy Corporation Restricted Stock Plan for Non-Employee Directors -incorporated by reference to Exhibit 10.03 to Valero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (SEC FileNo. 1-13175). *10.26--$3,000,000,000 5-Year Amended and Restated Revolving Credit Agreement, dated as of December 5, 2011, among Valero EnergyCorporation, as Borrower; JPMorgan Chase Bank, N.A., as Administrative Agent; and the lenders named therein. *12.01--Statements of Computations of Ratios of Earnings to Fixed Charges. 14.01--Code of Ethics for Senior Financial Officers - incorporated by reference to Exhibit 14.01 to Valero’s Annual Report on Form 10-K for theyear ended December 31, 2003 (SEC File No. 1-13175). *21.01--Valero Energy Corporation subsidiaries. *23.01--Consent of KPMG LLP dated February 24, 2012. 136Table of Contents*24.01--Power of Attorney dated February 23, 2012 (on the signature page of this Form 10-K). *31.01--Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal executive officer. *31.02--Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal financial officer. *32.01--Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002). *99.01--Audit Committee Pre-Approval Policy. **101--Interactive Data Files______________*Filed herewith.+Identifies management contracts or compensatory plans or arrangements required to be filed as an exhibit hereto.**Submitted electronically herewith.Copies of exhibits filed as a part of this Form 10-K may be obtained by stockholders of record at a charge of $0.15 per page, minimum $5.00 each request.Direct inquiries to Jay D. Browning, Senior Vice President – Corporate Law and Secretary, Valero Energy Corporation, P.O. Box 696000, San Antonio, Texas78269-6000.Pursuant to paragraph 601(b)(4)(iii)(A) of Regulation S-K, the registrant has omitted from the foregoing listing of exhibits, and hereby agrees to furnish to theSEC upon its request, copies of certain instruments, each relating to debt not exceeding 10 percent of the total assets of the registrant and its subsidiaries on aconsolidated basis.137Table of ContentsSIGNATUREPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized. VALERO ENERGY CORPORATION(Registrant) By: /s/ William R. Klesse (William R. Klesse) Chief Executive Officer, President, andChairman of the BoardDate: February 24, 2012138Table of ContentsPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints William R. Klesse, Michael S.Ciskowski, and Jay D. Browning, or any of them, each with power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitutionand resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all subsequent amendments and supplements to this Annual Report onForm 10-K, and to file the same, or cause to be filed the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and ExchangeCommission, granting unto each said attorney-in-fact and agent full power to do and perform each and every act and thing requisite and necessary to be done in and aboutthe premises, as fully to all intents and purposes as he might or could do in person, hereby qualifying and confirming all that said attorney-in-fact and agent or his substituteor substitutes may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.Signature Title Date /s/ William R. Klesse Chief Executive Officer, President, andChairman of the Board(Principal Executive Officer) February 23, 2012 (William R. Klesse) /s/ Michael S. Ciskowski Executive Vice President and Chief Financial Officer(Principal Financial and Accounting Officer) February 23, 2012(Michael S. Ciskowski) /s/ Ronald K. Calgaard Director February 23, 2012(Ronald K. Calgaard) /s/ Jerry D. Choate Director February 23, 2012(Jerry D. Choate) /s/ Ruben M. Escobedo Director February 23, 2012(Ruben M. Escobedo) /s/ Bob Marbut Director February 23, 2012(Bob Marbut) /s/ Donald L. Nickles Director February 23, 2012(Donald L. Nickles) /s/ Robert A. Profusek Director February 23, 2012(Robert A. Profusek) /s/ Susan Kaufman Purcell Director February 23, 2012 (Susan Kaufman Purcell) /s/ Stephen M. Waters Director February 23, 2012(Stephen M. Waters) /s/ Randall J. Weisenburger Director February 23, 2012(Randall J. Weisenburger) /s/ Rayford Wilkins, Jr. Director February 23, 2012(Rayford Wilkins, Jr.) 139Exhibit 10.052012 ELECTIVE DEFERRAL AGREEMENTValero Energy CorporationDeferred Compensation PlanPursuant to the Valero Energy Corporation Deferred Compensation Plan (the “Plan”):o I elect not to participate in the Plan during 2012.o I hereby elect to defer a portion of my compensation for the period commencing January 1, 2012 and ending December 31, 2012 (the “PlanYear”) as follows:Salary (elect either 1 or 2)1. ________% (in even 1% increments not to exceed 30%) of the regular salary to which I maybecome entitled during the Plan Year;2. $_________ per pay period of the regular salary to which I may become entitled with respect to(check either (a) or (b) below):(a) ________ all pay periods during the Plan Year(b) ________ the following pay periods (specify):____________________________________________Bonus (elect either 3 or 4 for bonus earned in 2012 and possibly payable in 2012)3. ________% (in even 1% increments not to exceed 50%) of any cash bonuses to which I maybecome entitled;4. $_________ of any cash bonuses to which I may become entitled.NOTE: In order to be effective, this form must be completed, signed, and returned to Financial Benefits (San Antonio/Mailstation E1L) on orbefore December 2, 2011. If your form is not timely submitted, you will not be eligible to participate in the Plan for the 2012 Plan Year.The Company has taken measures to design the Plan in a manner that conforms to current tax law. However, it is possible that new legislation could affect your deferral elections.Your 2012 Plan Year deferral elections are irrevocable and are governed by the terms and conditions of the Plan as well as any modifications made to the Plan in order toconform to legal requirements.ACKNOWLEDGED AND AGREED:I hereby authorize the above amounts to be deducted and deferred through payroll deduction/reduction by the Company. Participant's Signature Date Participant's Name Participant's Employee ID NumberExhibit 10.062012 INVESTMENT ELECTION FORMValero Energy CorporationDeferred Compensation PlanDirection of InvestmentsThe undersigned Participant hereby directs that the measurement of the Participant's account be determined as if it were invested in the fund options asindicated below.DEFERRALS OF SALARY AND/OR BONUSES BEGINNING 1/1/2012WILL BE TREATED AS IF INVESTED AS INDICATED BELOW.Enter your investment elections: 5% minimum/increments of 5%.The total of the percentages must equal 100%.You may invest in any one or more (including all) of the fund options._ _ _ _ _% Dreyfus Appreciation (DGAGX)_ _ _ _ _% Fidelity Intermediate Government (FSTGX)_ _ _ _ _% Janus Worldwide (JAWWX)_ _ _ _ _% Milestone Funds Treasury Obligations Portfolio (MTIXX)_ _ _ _ _% Oakmark I (OAKMX)_ _ _ _ _% Price Mid-Cap Growth (RPMGX)_ _ _ _ _% Columbia Income Z (SRINX)_ _ _ _ _% Vanguard Asset Allocation (VAAPX)_ _ _ _ _% Vanguard Index Extended Market (VEXMX)_ _ _ _ _% Vanguard Index 500 (VFINX)_ _ _ _ _% Vanguard Growth and Income (VQNPX)________100 %I understand that the elections I have chosen on this form shall remain in effect until I make a directive to change. Participant's Signature Date Participant's Name Participant's Employee ID NumberExhibit 10.072012 DISTRIBUTION ELECTION FORMValero Energy CorporationDeferred Compensation PlanPayment ElectionUpon RetirementDEFAULT PAYMENT IF NO ELECTION IS MADE:Fifteen annual installments commencing at date of retirementI elect that, upon retirement, the value of my Plan account related to deferrals made for the 2012 Plan Year will be paid at the time and in the mannerelected below:Payment Commencement (choose one):o As soon as administratively possible following retirement (this is the default if no election is made)o January 1 after the year of retirementANDForm of Distribution (choose one):o Lump sum paymento Annual installments for _______ years (choose 2 - 15 years)Payment ElectionUpon Other SeparationDEFAULT PAYMENT IF NO ELECTION IS MADE:Immediate lump sum payable upon separationI elect that, upon my separation from employment for a reason other than retirement, the value of my Plan account related to deferrals made for the2012 Plan Year will be paid at the time and in the manner elected below: Payment Commencement (choose one):o As soon as administratively possible following separation (this is the default if no election is made) o January 1 after the year of separationANDForm of Distribution (choose one):o Lump sum (this is the default payment if no election is made)o Five annual installmentsDistribution on Specified DateIn accordance with Section 6.4 of the Plan, I hereby elect to receive in one lump sum payment my Account derived from deferrals made during the2012 Plan Year on the date or dates specified below, or the balance of the Account, if less. Any amounts distributed pursuant to this election shallimmediately reduce my Account accordingly. (The earliest date that can be elected to receive 2012 deferrals is January 1, 2016.)Specified Date Amount of Elective Deferral orTotal Amount of the Account (Whichever is Less) NOTE: In order to be effective, this form must be completed, signed, and returned to Financial Benefits (San Antonio/Mailstation E1L) on orbefore December 2, 2011. If your form is not timely submitted, your Plan deferral will be subject to the default distributions noted above.The Company has taken measures to design the Plan in a manner that conforms to current tax law. However, it is possible that new legislation could affect your distributionelections, including delaying your distributions, in order to comply with legal requirements. Distribution elections submitted pursuant to the Plan will be governed by the termsand conditions of the Plan and governing law, and your elections will be subject to modifications made to the Plan in order to conform to legal requirements. ACKNOWLEDGED AND AGREED: Participant's Signature Date Participant's Name Participant's Employee ID NumberExhibit 10.09VALERO ENERGY CORPORATIONSUPPLEMENTAL EXECUTIVE RETIREMENT PLANFORSELECTED EMPLOYEES OF CANADIAN SUBSIDIARIESAmended and Restated effective December 31, 2011TABLE OF CONTENTS Page ARTICLE I DEFINITIONS1 1.1 Accrued Benefit11.2 Actuarial Equivalent or Actuarially Equivalent Basis11.3 Board of Directors.11.4 Change of Control11.5 Code21.6 Company or Valero21.7 Committee21.8 Credited Service21.9 Eligible Earnings31.10 Final Average Compensation31.11 Normal Retirement Date31.12 Participant31.13 Participating Employer31.14 Plan31.15 Plan of Deferred Compensation31.16 Plan Year31.17 Retirement31.18 Subsidiary41.19 Surviving Spouse41.20 Valero Pension Plan41.21 Voting Securities4 ARTICLE II ELIGIBILITY4 2.1 Initial Eligibility42.2 Frozen Participation52.3 Renewed Eligibility5 ARTICLE III VESTING5 ARTICLE IV RETIREMENT BENEFIT6 4.1 Calculation of Retirement Benefits; Commencement of Benefit Payments64.2 Form and Time of Payment6 iARTICLE V PRE-RETIREMENT SPOUSAL DEATH BENEFIT6 5.1 Death Prior to Retirement65.2 Beneficiary Designation Prohibited6 ARTICLE VI PROVISIONS RELATING TO ALL BENEFITS7 6.1 Effect of This Article76.2 No Duplication of Benefits76.3 Forfeiture for Cause76.4 Forfeiture for Competition76.5 Expenses Incurred in Enforcing the Plan7 ARTICLE VII ADMINISTRATIOIN8 7.1 Administration of the Plan by the Committee87.2 Committee Discretion87.3 Reliance Upon Information8 ARTICLE VIII ADOPTION BY SUBSIDIARIES9 8.1 Procedure for Adoption98.2 Termination of Participation by Adopting Subsidiary9 ARTICLE IX AMENDMENT AND/OR TERMINATION9 9.1 Amendment or Termination of the Plan99.2 No Retroactive Effect on Accrued Benefits99.3 Effect of Termination99.4 Effect of Change of Control10 ARTICLE X MISCELLANEOUS10 10.1 Mandatory Arbitration1010.2 Responsibility for Distributions and Withholding of Taxes1010.3 Limitation of Rights1010.4 Distributions to Incompetents1110.5 Nonalienation of Benefits1110.6 Severability1110.7 Notice1110.8 Gender and Number1110.9 Governing Law1110.10 Code Section 409A11iiVALERO ENERGY CORPORATIONSUPPLEMENTAL EXECUTIVE RETIREMENT PLANFORSELECTED EMPLOYEES OF CANADIAN SUBSIDIARIESWHEREAS, Valero Energy Corporation (“Valero”) has established the Valero Energy Corporation Supplemental ExecutiveRetirement Plan for Selected Employees of Canadian Subsidiaries originally effective November 1, 2004, which provides for selectedmanagement personnel of Canadian Subsidiaries of Valero who adopt this Plan with supplemental retirement compensation as anincentive to such personnel to maintain and increase their performance and loyalty to the Company and such affiliated entities; andWHEREAS, Valero retained the right of the Board of Directors to amend the Plan at any time by an instrument in writing; andWHEREAS, the Plan has been amended from time to time, and Valero desires at this time to further amend and to restate thePlan.NOW, THEREFORE, the Plan is hereby amended and restated as follows:ARTICLE IDEFINITIONSThe following terms shall have the meanings set forth below.1.1 Accrued Benefit. “Accrued Benefit” means, as of any given date of determination, the Retirement benefit calculatedunder Section 4.1 hereof, with Final Average Compensation and Credited Service determined as of that date.1.2 Actuarial Equivalent or Actuarially Equivalent Basis. “Actuarial Equivalent” or “Actuarially Equivalent Basis”means an equality in value of the aggregate amounts expected to be received under different forms of benefit payment based on thesame mortality and interest rate assumptions. Such assumptions shall be determined by the actuary for the Plan selected by theCommittee, and shall be reasonable in light of legal requirements and precedent, standard actuarial practice and other plans maintained byValero and its affiliates.1.3 Board of Directors. “Board of Directors” means the Board of Directors of the Company.1.4 Change of Control. “Change of Control” means the occurrence of one or more of the following events:(a)Change in Ownership of Valero. The acquisition by any one person, or more than one person acting as a group(within the meaning of Code Section 409A), of ownership of stock of Valero that, together with stock held by such person orgroup, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of Valero.1(b)Change in Effective Control of Valero. Either of the following:(i)The acquisition, during any 12-month period, by any one person, or more than one person acting as agroup (within the meaning of Code Section 409A), of stock of Valero comprising thirty percent (30%) or moreof the total voting power of the stock of Valero; or(ii)The replacement, during any 12-month period, of a majority of the members of the Board ofDirectors with directors whose appointment or election is not endorsed by the majority of the members of theBoard of Directors before the date of such appointment or election.(c)Change in Ownership of a Substantial Portion of Valero’s Assets. The acquisition by any one person, or morethan one person acting as a group (within the meaning of Code Section 409A), during the 12 month period ending on the date ofthe most recent acquisition by such person or persons, of assets of Valero that have a total gross fair market value equal to ormore than forty percent (40%) of the total gross fair market value of all of the assets of Valero immediately before suchacquisition or acquisitions. For purposes of this provision, “gross fair market value” means the value of the assets of Valero, orthe value of the assets being disposed of, determined without regard to any liabilities associated with such assets.The provisions of this Plan relating to a Change in Control shall be interpreted and administered in a manner consistent withCode Section 409A.1.5 Code. “Code” means the United States Internal Revenue Code of 1986, as amended from time to time.1.6 Company or Valero. “Company” or “Valero” means Valero Energy Corporation, the plan sponsor of the Plan.1.7 Committee. “Committee” means the Compensation Committee of Valero.1.8 Credited Service. “Credited Service” means a Participant’s continuing period of employment with a ParticipatingEmployer (whether or not contiguous), commencing on the first day for which such Participant is paid, or entitled to payment, for theperformance of duties with a Participating Employer and terminating with the Participant’s final cessation of participation in the Plan.With respect to any full calendar year in which a Participant receives Eligible Earnings in each payroll period as an active employee, heshall be credited with one year of Credited Service. With respect to any partial calendar year in which a Participant receives EligibleEarnings as an active employee (such as the calendar year in which employment commences or participation ceases) he shall be creditedwith a fraction of a year of Credited Service in proportion to the number of payroll periods during such calendar year that he receivedEligible Earnings as an active employee bears to the total number of payroll periods during such year. All partial years of CreditedService shall be aggregated so that a Participant receives credit for all periods of employment regardless of whether the Credited Serviceis interrupted.21.9 Eligible Earnings. “Eligible Earnings” means all compensation paid or payable by a Participating Employer to aParticipant in the form of base salary performance and bonuses (not to include a retention bonus and whether paid or payable in cash orsecurities or any combination thereof), including therein any amounts of such base salary and bonuses earned which, at the employee’selection, in lieu of a cash payment to him, are contributed to a Plan of Deferred Compensation maintained by a Participating Employer.During a leave of absence from work without pay, such as disability leave of absence or personal leave of absence, the Participant’s baserate of pay in effect immediately prior to the leave of absence and (if he does not receive a bonus for such period of absence from work)his most recent bonus amount paid shall be used in computing his Eligible Earnings.1.10 Final Average Compensation. “Final Average Compensation” means a Participant’s average monthly Eligible Earnings from aParticipating Employer for the thirty-six consecutive calendar months that give the highest average monthly rate of Eligible Earringsfor the Participant out of all calendar months next preceding the earliest of: (a) the date upon which a Participant becomes ineligible forparticipation in this Plan pursuant to Section 2.2; (b) the latest of (i) the Participant’s termination for total disability, or (ii) his Retirement;(c) the termination of the Plan; or (d) a Change of Control.1.11 Normal Retirement Date. “Normal Retirement Date” means the first day of the month coincident with or nextfollowing the date on which the Participant attains the age of 65 years.1.12 Participant. “Participant” means an employee of a Participating Employer who is selected by the Committee forparticipation in the Plan pursuant to Section 2.1, as well as a former employee of a Participating Employer who, as a result ofparticipation in the Plan, is receiving or is eligible to receive benefits under the Plan.1.13 Participating Employer. “Participating Employer” means any Subsidiary which is established and operates under thelaws of Canada, and which adopts this Plan pursuant to action of its board of directors or other governing body, and is approved forparticipation in this Plan by the Committee. A listing of Participating Employers is set forth on Exhibit “A” attached hereto. Said Exhibit“A” may be modified from time to time to reflect the then current Participating Employers.1.14 Plan. “Plan” means the Valero Energy Corporation Supplemental Executive Retirement Plan for Selected Employeesof Canadian Subsidiaries as set forth in this document, as amended from time to time.1.15 Plan of Deferred Compensation. “Plan of Deferred Compensation” means any plan maintained by a ParticipatingEmployer providing for the deferral or reduction of Eligible Earnings.1.16 Plan Year. “Plan Year” means the calendar year.1.17 Retirement. “Retirement,” “Retirees,” “Retire” or “Retired” means the retirement of a Participant from a ParticipatingEmployer either (a) early, as of the first day of any month coincident with or next following (with respect to a Participant in the active3employment of a Participating Employer who has attained the age of 55 years and completed at least five (5) years of Credited Service),the date such Participant retires from the service of the Participating Employer prior to his attainment of age 65, or (b) upon, or as of thefirst day of any month following, his Normal Retirement Date.1.18 Subsidiary. “Subsidiary” means (i) any corporation 50% or more of whose stock having ordinary voting power to electdirectors (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have votingpower by reason of the happening of any contingency) is at the time owned, directly or indirectly, by Valero, and (ii) any partnership,association, joint venture or other entity in which, Valero, directly or indirectly, has a 50% or greater equity interest at the time.1.19 Surviving Spouse. “Surviving Spouse” means the individual, if any, who was the legally recognized spouse (asdetermined under the governing law of the Participant’s residence) of a Participant at the time of Participant’s death.1.20 Valero Pension Plan. “Valero Pension Plan” means the Valero Energy Corporation Pension Plan, as amended from timeto time.1.21 Voting Securities. “Voting Securities” means with respect to any corporation or other entity, the common stock or anyother security of such person ordinarily entitled to vote for directors (or other governing body) of such corporation or entity, and anydebt or equity security convertible into or exchangeable or exercisable for a security so entitled to vote. In calculating the percentage ofVoting Securities owned by a person or group, securities that are immediately convertible, or by their terms upon the occurrence of anyevent or the lapse of time, or both, will become convertible into or exchangeable or exercisable for securities so entitled to vote shall bedeemed to represent the number of shares of common stock or other voting securities into which such securities are then or willbecome ultimately convertible or for which they are or will ultimately become exchangeable or exercisable, and the total number ofissued and outstanding shares of common stock (or other voting securities) shall be determined on a pro forma basis after giving effect tosuch conversion, exchange or exercise. The percentage of Voting Securities held by a person or Group shall be deemed to be equal to thepercentage of the number of votes that could be cast for the election of directors (or other governing body) that such person or Groupwould be entitled to so cast after giving effect to the provisions of the preceding sentence. As used in this Plan, the term “person” shallinclude any individual, corporation, partnership, firm or other entity.ARTICLE IIELIGIBILITY2.1 Initial Eligibility. An employee of a Participating Employer shall become a Participant in the Plan as of the date suchemployee is selected and named by the Committee for inclusion as a Participant in the Plan. The determination of employees whobecome Participants in the Plan, as well as the effective date of such participation shall be made by the Committee in its sole and absolutediscretion.42.2 Frozen Participation. If an employee who is a Participant later becomes ineligible to continue to participate but still isemployed by a Participating Employer, his Accrued Benefit will be frozen as of the last day of the Plan Year prior to the Plan Year duringwhich he initially became ineligible to participate. He will later be entitled to that frozen Accrued Benefit, upon Change of Control, Plantermination, Retirement or his earlier termination of employment with all Participating Employers with a vested interest, subject to therequirements of Articles III and IV. The frozen Accrued Benefit will be payable at the time and in the available payment options set forthin Article IV. The Surviving Spouse of a Participant whose Accrued Benefit is frozen at the time of the Participant’s death may beentitled to a death benefit pursuant to the terms of Article V. A Participant whose Accrued Benefit is frozen at the time of incurring adisability shall not accrue any further Credited Service either for accrual or vesting purposes after the disability occurs so long as theParticipant’s Accrued Benefit in this Plan is frozen. If the frozen Accrued Benefit is less than the benefit which could otherwise beprovided without this limitation, then the benefit will not exceed the Participant’s frozen Accrued Benefit. Additionally, if any of theevents described in Article VI should occur, the Participant whose Accrued Benefit is frozen shall be subject to having his frozenAccrued Benefit either restricted in amount or forfeited in accordance with Article VI.Notwithstanding the foregoing or any other provision of this Plan, unless otherwise determined and approved by the Committee,the following shall apply to a Participant who is transferred from a Participating Employer to a Subsidiary of the Company which isestablished under and operates under the laws of the United States: (i) such Participant’s period of service with such United StatesSubsidiary shall not be included as Credited Service under this Plan; and (ii) such Participant’s Eligible Earnings shall includecompensation paid or payable by such United States Subsidiary to the Participant to the same extent that such compensation would haveconstituted Eligible Earnings if it had been paid or payable from a Participating Employer.2.3 Renewed Eligibility. If a Participant becomes ineligible to continue to participate but remains employed by a ParticipatingEmployer and then later again becomes eligible to participate, the Participant will be given Credited Service for the intervening period,will have his Final Average Compensation computed as though the freeze had never occurred, and will be treated for all purposes asthough he had not had his participation interrupted.ARTICLE IIIVESTINGExcept as otherwise set forth herein, effective as of August 1, 2010, a Participant’s Accrued Benefit shall, subject to theforfeiture provisions set forth in Sections 6.4 and 6.5 hereof, become fully vested upon the Participant attaining at least five (5) years ofCredited Service. Prior to such time, a Participant shall have no vested interest in his Accrued Benefit. All Credited Service of aParticipant shall be counted in determining whether the Participant’s Accrued Benefit has vested.Except as otherwise set forth herein, a Participant’s Accrued Benefit shall vest only upon the occurrence of the Participant’sdeath, disability or Retirement, and all benefits under this Plan5shall be forfeited if the Participant terminates employment from all Companies prior to death, disability or Retirement.The foregoing notwithstanding, a Participant’s Accrued Benefit shall vest upon the occurrence of a Change of Control, upontermination of the Plan pursuant to Section 9.1 or if the adopting Subsidiary employing a Participant terminates its participation in thePlan and such Participant’s participation in the Plan is not promptly continued through employment by another adopting Subsidiary.ARTICLE IVRETIREMENT BENEFIT4.1 Calculation of Retirement Benefits; Commencement of Benefit Payments. Subject to the provisions of this Plan, thebenefit payable under this Plan shall be an amount equal to the lump sum of the Accrued Benefit payable for life from NormalRetirement Date where the Accrued Benefit is equal to 1.2% of the Participant’s Final Average Compensation multiplied by his numberof years of Credited Service; provided that, if the Participant’s termination of employment occurs prior to the Participant attaining age55, the benefit shall be calculated in the same manner as set forth above, but 1% shall be used instead of 1.2%. The lump sum amountpayable hereunder shall be determined using the lump sum actuarial factors provided for, and/or used under, the Valero Pension Plan.4.2 Form and Time of Payment. Benefits payable under this Plan shall be made in a single lump sum payment as soon asreasonably practical following the Participant’s Retirement or other termination of employment, and in any event within 90 daysthereof. Such lump sum amount shall be calculated as of the date of the Participant’s Retirement or termination of employment by theactuary for the Valero Pension Plan applying actuarial factors used under the Valero Pension Plan.ARTICLE VPRE-RETIREMENT SPOUSAL DEATH BENEFIT5.1 Death Prior to Retirement. In the event that a Participant who completed at least five years of Credited Service dieswhile employed by a Participating Employer but has not Retired, the Participant’s Surviving Spouse shall receive a Surviving Spousebenefit under the Plan equal to fifty percent (50%) of the amount the Participant would have received under Section 4.1 if he hadRetired or otherwise terminated his employment on his date of death. Such payment shall be made to the Participant’s Surviving Spouseas soon as reasonably practical following the Participant’s death and, in any event within 90 days thereof.5.2 Beneficiary Designation Prohibited. Since the only death benefit payable under the Plan is to a Surviving Spouse, noParticipant shall have the right to designate a beneficiary other than the Participant’s Surviving Spouse to receive death benefitshereunder.6ARTICLE VIPROVISIONS RELATING TO ALL BENEFITS6.1 Effect of This Article. The provisions of this Article will control over all other provisions of this Plan.6.2 No Duplication of Benefits. It is not intended that there be any duplication of benefits. Therefore, if a Participant has metthe requirements of Article IV and has Retired, then the Participant and/or his Surviving Spouse shall only receive a benefit under thatArticle. If a Participant dies before actual Retirement, the Participant’s Surviving Spouse shall only receive a benefit, if the SurvivingSpouse qualifies for one, under Article V. But, in no event will a Participant and/or such Participant’s Surviving Spouse qualify for abenefit under both Articles IV and V.6.3 Forfeiture for Cause. If the Committee determines that a Participant was discharged for fraud, embezzlement, theft,commission of a felony, dishonesty in the course of his employment which damaged a Participating Employer or any affiliate, or fordisclosing trade secrets or other confidential or proprietary information of a Participating Employer or any affiliate, the entire benefitaccrued for the benefit of the Participant and/or his Surviving Spouse will be forfeited even though it may have been previously vestedunder Article III. The decision of the Committee as to the cause of a former Participant’s discharge and the damage caused thereby willbe final and binding on all parties. No decision of the Committee will affect the finality of the discharge of the Participant in any manner.6.4 Forfeiture for Competition. If at the time a distribution is being made or is to be made to a Participant, the Committeedetermines that the Participant at any time within two years following his termination of employment, and without written consent ofthe Committee, directly or indirectly owns, operates, manages, controls or participates in the ownership, (other than through ownershipof less than 5% of the Voting Securities of a publicly traded entity) management, operation or control of or is employed by, or is paid as aconsultant or other independent contractor by a business which competes or at any time did compete with a Participating Employer orany affiliate by which he was formerly employed in a trade area served by a Participating Employer or any affiliate at the timedistributions are being made or to be made and in which the Participant had represented a Participating Employer or any affiliate whileemployed by it, and if the Participant continues to be so engaged 60 days after written notice has been given to him, the Committee mayforfeit all benefits otherwise due the Participant even though such benefit may have been previously vested under Article III.6.5 Expenses Incurred in Enforcing the Plan. The Company or other Participating Employer will reimburse a Participantfor all reasonable legal fees and expenses incurred by him in successfully seeking to obtain or enforce any benefit provided by this Planif such disputed benefit is payable following a Change of Control.7ARTICLE VIIADMINISTRATION7.1 Administration of the Plan by the Committee. The Committee will have the exclusive authority and responsibility forthe general administration of this Plan according to the terms and provisions of this Plan and will have all such authority, discretion andpowers necessary or appropriate to accomplish those purposes, including but not by way of limitation the right, discretion, power andauthority:(a)to make rules and regulations for the administration of this Plan;(b)to construe and interpret all terms, provisions, conditions and limitations of this Plan, including any termswhich are alleged or determined to be ambiguous or susceptible to differing interpretations, and the interpretation of the Committeeshall be final and binding on all parties;(c)to correct any defect, supply any omission or reconcile any inconsistency that may appear in this Plan;(d)to determine all controversies relating to the administration of this Plan, including but not limited to:(1)differences of opinion arising between the Company and a Participant; and(2)any question it deems advisable to determine in order to promote the proper and efficientadministration of this Plan for the benefit of all parties at interest; and(e)to delegate, without limitation, by written notice to Company representatives or independent advisers or anyother designee, powers of investment and administration as well as those ministerial duties of the Committee, as it deems necessaryor advisable for the proper and efficient administration of this Plan.7.2 Committee Discretion. The Committee in exercising any power or authority granted under this Plan or in making anydetermination under this Plan may use its sole discretion and judgment. Any decision made or any act or omission, by the Committee ingood faith shall be final and binding on all parties and shall not be subject to de novo review.7.3 Reliance Upon Information. The Committee will not be liable for any decision or action taken in good faith inconnection with the administration of this Plan. Without limiting the generality of the foregoing, any decision or action taken by theCommittee when it relies upon information supplied it by any officer of the Company, a Participating Employer, the Company’s legalcounsel, the Company’s actuary, the Company’s independent accountants or other advisors in connection with the administration of thisPlan will be deemed to have been taken in good faith.8ARTICLE VIIIADOPTION BY SUBSIDIARIES8.1 Procedure for Adoption. Any Subsidiary may adopt this Plan and become a Participating Employer by appropriate actionof its board of directors or other governing body, subject to approval of such participation by the Committee. Each Subsidiary adopting thePlan delegates to the Committee exclusive administrative responsibility for the Plan. However, subject to the following sentence, thecosts of Plan benefits shall be allocated among Participating Employers such that each Participating Employer shall bear the primaryresponsibility for the costs of participation by those Participants who are or were employees of such Participating Employer.Notwithstanding the foregoing, each Participating Employer, by adopting this Plan, and in consideration of the like undertakings of theother adopting Participating Employers, agrees that the obligations and liabilities of the Participating Employers for the payment ofbenefits to all Participants (and to any person claiming through a Participant) hereunder shall be the joint and several obligation of eachParticipating Employer, not solely of the Participating Employer employing or previously employing a Participant. Thus, a Participant (ora person claiming through a Participant) shall look first to the Participating Employer which employed the Participant for payment ofPlan benefits, but if such Participating Employer fails to pay any Plan benefit payable hereunder, such Participant (or other person) maysubmit a claim for payment of such Plan benefits to the other Participating Employer.8.2 Termination of Participation By Adopting Subsidiary. Any Subsidiary adopting, this Play may, by appropriate actionof its board of directors or other governing body, terminate its participation in this Plan. The Committee may, in its discretion, alsoterminate a Subsidiary’s participation in this Plan at any time. The termination of the participation in this Plan by a Subsidiary will not,however, affect the rights of any Participant who is working or has worked for the Subsidiary as to benefits previously accrued andvested under Articles II and III of this Plan.ARTICLE IXAMENDMENT AND/OR TERMINATION9.1 Amendment or Termination of the Plan. The Committee may amend or terminate this Plan in whole or in part at anytime.9.2 No Retroactive Effect on Accrued Benefits. No amendment will affect the rights of any Participant to suchParticipant’s then Accrued Benefit or will change a Participant’s rights under any provision relating to a Change of Control after aChange of Control has occurred.9.3 Effect of Termination. If this Plan is terminated, the accrued benefit of all Participants shall immediately become fullyvested, and the benefit of each Participant (determined as of the date of the Plan termination and calculated in the manner provided inthis Plan) shall, except as provided in Section 9.4, be paid at the time it would otherwise be paid under the terms of the Plan.99.4 Effect of Change of Control. In the event of a Change in Control, the accrued benefit of all Participants in the Plan shallimmediately become fully vested. Additionally, the Committee may, within the period beginning thirty (30) days prior to the effectivedate of the Change in Control, and ending twelve (12) months after the effective date of the Change in Control, make an irrevocabledecision to terminate the Plan (and all deferred compensation plans maintained by Valero which must be aggregated with the Plan underCode Section 409A) and distribute all benefits to Participants. In the event of such termination following a Change in Control, theaccrued benefits of each Participant (determined as of the date of Plan termination and calculated in the manner provided for in this Plan)shall be distributed in the form of a lump sum payment within twelve (12) months following the termination of this Plan. In the absenceof such Plan termination, a Change in Control shall not alter the time and manner of the payment of benefits hereunder, and all benefitsshall be paid at the time and in the manner as they would otherwise be paid in accordance with the provisions of this Plan.ARTICLE XMISCELLANEOUS10.1 Mandatory Arbitration. Any and all disputes, claims and/or controversies relating to, or arising out of, this Plan shall,to the fullest extent legally permitted, be submitted to final and binding arbitration.10.2 Responsibility for Distributions and Withholding of Taxes. The Committee shall calculate, or cause the actuary forthe Plan to calculate, the amount of any benefit payable to a Participant hereunder, and the amounts of any deductions required withrespect to federal, state or local tax withholding, and shall withhold or cause the same to be withheld. However, any and all taxes payablewith respect to any distribution or benefit hereunder shall be the sole responsibility of the Participant, not of Valero or any ParticipatingEmployer, whether or not Valero or any Participating Employer shall have withheld or collected from the Participant any sums requiredto be so withheld or collected in respect thereof and whether or not any sums so withheld or collected shall be sufficient to provide forany such taxes.10.3 Limitation of Rights. Nothing in this Plan will be construed:(a)to give a Participant or other person claiming through him/her any right with respect to any benefit except inaccordance with the terms of this Plan;(b)to limit in any way the right of to terminate a Participant’s employment with a Participating Employer at anytime;(c)to evidence any agreement or understanding, expressed or implied, that a Participating Employer will employa Participant in any particular position or for any particular remuneration; or(d)to give a Participant or any other person claiming through him any interest or right under this Plan other thanthat of any unsecured general creditor.1010.4 Distributions to Incompetents. Should a Participant or a Surviving Spouse become incompetent, the Company isauthorized to pay the funds due to the guardian or conservator of the incompetent Participant or Surviving Spouse or directly to theParticipant or Surviving Spouse or to apply those funds for the benefit of the incompetent Participant or Surviving Spouse in anymanner the Committee determines in its sole discretion.10.5 Nonalienation of Benefits. No right or benefit provided in this Plan will be transferable by the Participant except, uponhis death, to a Surviving Spouse as provided in this Plan. No right or benefit under this Plan will be subject to anticipation, alienation,sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge thesame will be void. No right or benefit under this Plan will in any manner be liable for or subject to any debts, contracts, liabilities or tortsof the person entitled to such benefits. If any Participant or any Surviving Spouse becomes bankrupt or attempts to anticipate, alienate,sell, assign, pledge, encumber or charge any right or benefit under this plan, that right or benefit will, in the discretion of theCommittee, cease. In that event, the Committee may have a Participating Employer hold or apply the right or benefit or any part of it tothe benefit of the Participant or Surviving Spouse, his or her spouse, children or other dependents or any of them in any manner and inany proportion the Committee believes to be proper in its sole and absolute discretion, but is not required to do so.10.6 Severability. If any term, provision, covenant or condition of this Plan is held to be invalid, void or otherwiseunenforceable, the rest of this Plan will remain in full force and effect and will in no way be affected, impaired or invalidated.10.7 Notice. Any notice or filing required or permitted to be given to the Company, the Committee or a Participant will besufficient if in writing and hand delivered or sent by Canadian mail to the principal office of the Company, acting on behalf of theCompany or the Committee, or to the residential mailing address of the Participant. Notice will be deemed to be given as of the date ofhand delivery or if delivery is by mail, as of the third day following the date shown on the postmark10.8 Gender and Number. If the context requires it, words of one gender when used in this Plan will include the othergenders, and words used in the singular or plural will include the other.10.9 Governing Law. The Plan will be construed, administered and governed in all respects by the laws of Canada.10.10 Code Section 409A. This Plan is intended to comply, and shall be administered consistently in all respects, with CodeSection 409A, and the regulations and additional guidance promulgated thereunder, to the extent applicable. In this connection, theCompany shall have authority to take any action, or refrain from taking any action, with respect to this Plan that is reasonably necessaryto ensure compliance with Code Section 409A (provided that the Company shall choose the action that best preserves the value of thepayments and benefits provided to Participants that is consistent with Code Section 409A). In furtherance, but not in limitation of theforegoing: (a) in no event may Participant designate, directly or indirectly, the calendar year of any payment to be made hereunder; (b) inthe event that a Participant is a “specified11employee” within the meaning of Code Section 409A, payments which constitute a “deferral of compensation” under Code Section409A and which would otherwise become due during the first six (6) months following the Participant’s Retirement or termination ofemployment shall be delayed and all such delayed payments shall be paid in full in the seventh (7th) month after the Participant’sRetirement or termination of employment or, if earlier, upon the Participant’s death, provided that the above delay shall not apply to anypayment that is excepted from coverage by Code Section 409A; (c) notwithstanding any other provision of this Plan, a termination,resignation or Retirement of a Participant’s employment hereunder, shall mean, and be interpreted consistent with, a “separation fromservice” within the meaning of Code Section 409A; (d) with respect to any reimbursement of expenses, or similar payments or any in-kind benefits, the following shall apply: (i) unless a specific time period during which such expense reimbursements and payments maybe incurred is provided for herein, such time period shall be deemed to be Participant’s lifetime; (ii) the amount of expenses eligible forreimbursement hereunder, or in-kind benefits to which a Participant is entitled hereunder, in any particular year shall not affect theexpenses eligible for reimbursement or in-kind benefits in any other year; (ii) the right to reimbursement of expenses or in-kindbenefits shall not be subject to liquidation or exchange for any other benefit; (iii) the reimbursement of an eligible expense or a paymentshall be made on or before the last day of the calendar year following the calendar year in which the expense was incurred or thepayment was remitted, as the case may be.IN WITNESS WHEREOF, the Company has executed this document on this _____ day of __________, 2011, to beeffective as of December 31, 2011.VALERO ENERGY CORPORATIONBy ___________________________________William R. Klesse,Chief Executive Officer 12Exhibit AParticipating EmployersUltramar Ltd.13Exhibit 10.10VALERO ENERGY CORPORATIONEXCESS PENSION PLANAmended and Restated December 31, 2011Table of ContentsPAGE PART I. GRANDFATHERED PLAN 3PART II. CURRENT PLAN 3SECTION 1. DEFINITIONS 3SECTION 2. PARTICIPATION - §415(b) BENEFIT PLAN COMPONENT 6SECTION 3. PARTICIPATION - §401(a)(17) BENEFIT PLAN COMPONENT 6SECTION 4. AMOUNT OF BENEFIT - TRADITIONAL FORMULA 7SECTION 4A. AMOUNT OF BENEFIT - CASH BALANCE FORMULA 8SECTION 5. VESTING 9SECTION 6. PROVISIONS REGARDING PAYMENT OF BENEFITS 9SECTION 7. DEATH BENEFIT 10SECTION 8. ADMINISTRATION 10SECTION 9. AMENDMENT AND TERMINATION 12SECTION 10. CHANGE IN CONTROL 12SECTION 11. GENERAL 12iVALERO ENERGY CORPORATIONEXCESS PENSION PLANThe Valero Energy Corporation Excess Pension Plan (hereinafter referred to as the “Plan” or the “Excess Pension Plan”) wasoriginally established effective January 1, 1995 for the purpose of providing benefits to those employees of Valero Energy Corporationand its participating subsidiaries (hereinafter collectively referred to as “Valero”) whose pension benefits under the Valero EnergyCorporation Pension Plan (the “Basic Plan”) are subject to limitations under the Internal Revenue Code of 1986, as amended (the“Code”), or are otherwise indirectly constrained by the Code from realizing the maximum benefit available to them under the terms ofthe Basic Plan.The Plan is designed as an “excess benefit plan” as defined under §3(36) of the Employee Retirement Income Security Act of1974, as amended (“ERISA”), for those benefits provided in excess of section 415 of the Code. Benefits provided as a result of otherstatutory limitations are limited to a select group of management or other highly compensated employees. The Plan is not intended toconstitute either a qualified plan under the provisions of Section 401(a) of the Code, or a funded plan subject to the funding requirementsof ERISA.The Plan was amended and restated effective January 1, 2008 to: (i) segregate the Plan into two (2) separate components, one (1)for the benefits of Participants who incurred a Separation from Service on or prior to December 31, 2004, which shall be evidenced andgoverned by the Grandfathered Plan, and one (1) for the benefits of Participants whose Separation from Service with the Companyoccurs on or after January 1, 2005; (ii) incorporate modifications and additional provisions in order to comply with section 409A of theCode; (iii) reflect the spin-off and transfer of liabilities relating to Eligible NuStar Employees into a separate plan maintained by NuStar;and1(iv) evidence certain other changes described herein. The Plan is hereby amended and restated effective as of December 31, 2011, toreflect certain amendments made since the previous restatement.2VALERO ENERGY CORPORATIONEXCESS PENSION PLANPART IGRANDFATHERED PLANNotwithstanding any other provision of this Plan, the terms, conditions and provisions of the Grandfathered Plan (as defined inPart II, Section 1.13 of this Plan) shall be the sole and exclusive provisions which apply with respect to Participants who incurred aSeparation from Service (and whose benefits hereunder had fully accrued and were fully vested as of their Separation from Service) onor prior to December 31, 2004, regardless of when the benefits of such Participants commence. The provisions of Part II of this Planshall not apply to such Participants.PART IICURRENT PLANThe terms, conditions and provisions of this Part II shall apply with respect to Participants whose Separation from Service withthe Company occurred, or occurs, on or after January 1, 2005 (except for Eligible NuStar Employees, whose benefit liabilities underthe Plan were transferred to the NuStar Excess Pension Plan, as described in Section 11.8).SECTION 1. DEFINITIONSAll defined terms used in the Pension Plan shall have the same meanings provided therein for purposes of this Plan except asmodified below.1.1 “Change in Control” means the occurrence of one or more of the following events:(a)Change in Ownership of Valero. The acquisition by any one person, or more than one person acting as a group (withinthe meaning of Code section 409A), of ownership of stock of Valero that, together with stock held by such person orgroup, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock ofValero.(b)Change in Effective Control of Valero. Either of the following:(i)The acquisition, during any 12-month period, by any one person, or more than one person acting as a group(within the meaning of Code section 409A), of stock of Valero comprising thirty percent (30%) or more of thetotal voting power of the stock of Valero; or(ii)The replacement, during any 12-month period, of a majority of the members of the Board of Directors withdirectors whose appointment or election is not endorsed by the majority of the members of the Board ofDirectors before the date of such appointment or election.3(c)Change in Ownership of a Substantial Portion of Valero's Assets. The acquisition by any one person, or more than oneperson acting as a group (within the meaning of Code section 409A), during the 12 month period ending on the date ofthe most recent acquisition by such person or persons, of assets of Valero that have a total gross fair market value equalto or more than forty percent (40%) of the total gross fair market value of all of the assets of Valero immediately beforesuch acquisition or acquisitions. For purposes of this provision, “gross fair market value” means the value of the assets ofValero, or the value of the assets being disposed of, determined without regard to any liabilities associated with suchassets.The provisions of this Plan relating to a Change in Control shall be interpreted and administered in a manner consistent withCode section 409A and the regulations and additional guidance thereunder.1.2“Code” shall mean the Internal Revenue Code of 1986, as amended.1.3“Committee” shall mean the Valero Benefit Plans Administrative Committee.1.4“Company” shall include the Employer and any Affiliated Employer as such terms are respectively defined in the Pension Plan.1.5“Considered Compensation” shall mean Considered Compensation as such term is defined in the Pension Plan, but determinedwithout regard to the Compensation Limit.1.6“Compensation Limit” shall mean the maximum annual compensation allowed to be taken into account under the Pension Planfor any Plan Year pursuant to the provisions of Code section 401(a)(17), or any successor provision thereto.1.7“Credited Service” shall have the meaning provided under the Pension Plan, except that Credited Service shall not include anyperiod for which a Participant has received a payment hereunder, under the SERP, under the NuStar Excess Pension Plan, orunder the NuStar SERP.1.8“Former Eligible NuStar Employees” shall mean (a) individuals who, as of July 1, 2006, were employees of Valero GP, LLC, aswell as any other individuals who transferred from the Company to NuStar on or before December 22, 2006; and (b) individualswho are identified on the list of Former Eligible NuStar Employees attached to this Plan as Exhibit “A”.1.9“Employee” shall mean any individual who is characterized on the internal payroll records of the Company as an employee.1.10“Equivalent Actuarial Value” shall mean equality in value of the aggregate amounts expected to be received under differentforms of payment based on the same mortality and interest rate assumptions. For this purpose, the mortality and interest rateassumptions used in computing benefits under the Pension Plan will be used.41.11“Excess Pension Plan” or “Plan” shall mean the Valero Energy Corporation Excess Pension Plan, as evidenced hereby.1.12“Final Average Monthly Earnings” shall mean Final Average Salary as such term is defined in the Pension Plan, but determinedwithout regard to the Compensation Limit, and inclusive of amounts that would otherwise be excluded because of having beencontributed to a Plan of Deferred Compensation.1.13“Grandfathered Plan” shall mean all of the terms and provisions of the Valero Energy Corporation Excess Pension Plan as ineffect on October 3, 2004, which said provisions are attached hereto as Addendum 1, and are hereby incorporated in this Plan byreference with respect to Participants who incurred a Separation from Service, and whose benefits hereunder had fully accruedand were fully vested on or prior to December 31, 2004, as provided for in Part I of this Plan.1.14“NuStar” shall mean NuStar GP, LLC, formerly known as Valero GP, LLC.1.15“NuStar Excess Pension Plan” shall mean the NuStar Excess Pension Plan, as amended from time to time, or any successorplan.1.16“NuStar SERP” shall mean the NuStar Supplemental Executive Retirement Plan, as amended from time to time, or anysuccessor plan.1.17“Participant” shall mean an Employee who meets the eligibility criteria of, and is a participant in, this Plan.1.18“Pension Plan” shall mean the Valero Energy Corporation Pension Plan, as amended from time to time, or any successor definedBenefit pension plan.1.19“Plan of Deferred Compensation” shall mean (a) the Valero Energy Corporation Deferred Compensation Plan, as amended, anysuccessor, alternative or additional nonqualified deferred compensation plan maintained by the Company, and (b) any Codesection 125 cafeteria plan or Code section 401(k) cash or deferred arrangement maintained by the Company.1.20“Separation from Service” shall mean a separation from service within the meaning of Code section 409A.1.21“SERP” shall mean Valero Energy Corporation Supplemental Executive Retirement Plan, as amended from time to time, orany successor plan.1.22“Trust” shall mean the Valero Energy Corporation Excess Pension Plan Trust as is created by the terms and conditions of saidTrust and as may be amended from time to time.1.23“Valero” shall mean Valero Energy Corporation, or any successor entity.5SECTION 2. PARTICIPATION - §415(b) BENEFIT PLAN COMPONENT2.1 Conditions of Eligibility and Participation.(a)Except as otherwise provided herein, each Employee actively participating in the Pension Plan whose benefit under thePension Plan would exceed the annual addition limitations of Code section 415(b) but for the limitations provided in thePension Plan, shall automatically become a Participant in the §415(b) benefit plan component of this Plan as of the date itis determined that such excess benefit applies.(b)Notwithstanding paragraph (a) above, any Employee who is covered under a collective bargaining agreement and whosebenefits are the subject of good faith bargaining shall not be eligible to participate in the §415(b) benefit plan componentof the Plan, except to the extent such collective bargaining agreement expressly provides for participation in the Plan.(c)Additionally, effective as of July 1, 2006, Employees of NuStar ceased to be eligible to participate in this Plan or accrueany additional benefits hereunder. Additionally, the benefit obligations relating to Former Eligible NuStar Employeeswere transferred to the NuStar Excess Pension Plan as provided for in Section 11.8 hereof.2.2 Special Rule.Any Employee actively participating in the SERP, or any other plan designed to provide a benefit with respect to thelimitations under Code §415(b) similar to the benefit provided under this Plan, shall not be eligible to participate in the §415(b)benefit plan component of this Plan.2.3 Forfeiture.Notwithstanding anything herein to the contrary, a Participant who is discharged for cause, or performs acts of willfulmalfeasance or gross negligence in a matter of material importance to Valero (all as determined by the Committee in its solediscretion), shall, at the discretion of the Committee, forfeit any and all benefits hereunder, and such Participant shall have noright to any future benefit payments hereunder. The determination of the nature of a Participant's discharge shall, for purposesof this Plan, be made by the Committee in its sole and absolute discretion, and such determination shall be final and binding on allparties.SECTION 3. PARTICIPATION - §401(a)(17) BENEFIT PLAN COMPONENT3.1 Conditions of Eligibility and Participation.(d)Except as otherwise provided herein, each Employee whose Considered Compensation exceeds the CompensationLimit shall become a Participant in the §401(a)(17) benefit plan component of the Plan as of the first date of such excess6Considered Compensation.(e)Notwithstanding paragraph (a) above, any Employee who is covered under a collective bargaining agreement and whosebenefits are the subject of good faith bargaining shall not be eligible to participate in the §401(a)(17) benefit plancomponent of the Plan, except to the extent such collective bargaining agreement expressly provides for participation inthis Plan.(f)Notwithstanding Section 3.1(a) above, effective as of July 1, 2006, Employees of NuStar ceased to be eligible toparticipate in this Plan or accrue additional benefits hereunder. Additionally, the benefit obligations relating to FormerEligible NuStar Employees were transferred to the NuStar Excess Pension Plan as provided for in Section 11.8 hereof.3.2 Special Rule.Any Employee actively participating in the SERP, or any other plan designed to provide the same or similar benefit with respectto the Compensation Limit as is provided under this Plan shall not be eligible to participate in the §401(a)(17) benefit plancomponent of this Plan.3.3 Forfeiture.Notwithstanding anything herein to the contrary, a Participant who is discharged for cause, or performs acts of willfulmalfeasance or gross negligence in a matter of material importance to the Company, shall, at the discretion of the Committee,forfeit any and all benefits hereunder, and such Participant shall have no right to any future benefit payments hereunder. Thedetermination of the nature of a Participant's discharge shall, for purposes of this Plan, be made by the Committee, and suchdetermination shall be final and binding on all parties.SECTION 4. AMOUNT OF BENEFIT - TRADITIONAL FORMULA4.1Amount of Benefit. For Participants whose Pension Plan benefit is calculated and determined under Article 4 of the PensionPlan, the benefit payable under this Plan shall, subject to the provisions of Sections 4.2 and 4.3, be an amount equal to “x” minus“y”, where:— x is equal to 1.6 percent of a Participant's Final Average Monthly Earnings multiplied by his/her number ofyears of Credited Service; and— y is equal to such Participant's Pension Plan benefit that is, or would be, payable at such time as benefitpayments commence under this Plan.Notwithstanding any other provision of this Plan, for purposes of calculating a Participant's benefit hereunder, Credited Serviceshall not include any period of service with the Company for which the Participant received, or has commenced and isreceiving, a benefit under this Plan, the SERP, the NuStar Excess Pension Plan or the NuStar SERP. The benefits payable7hereunder shall be calculated as the Participant's Accrued Benefit payable at Normal Retirement, determined as if theParticipant commenced payment of the Participant's Pension Plan benefit at the same time as benefits are paid, or commencehereunder (regardless of whether the Participant commences his/her Pension Plan benefit at such time). A Participant's benefitunder this Plan shall not be recalculated or re-determined in the event that the Participant actually commences payment ofhis/her Pension Plan benefit at a different time.4.2Early Retirement Factors; Modification of Benefit Calculation. If a Participant's Plan benefit commences prior to his NormalRetirement Date, the Plan benefit payable to such Participant shall be determined by applying the early retirement reductionfactors contained in the schedule of such factors set forth in the Pension Plan. Additionally, the benefit payable hereunder shallbe reduced by the Equivalent Actuarial Value increase in the amount of the Pension Plan benefit and/or Prior Pension Planbenefit as the result of increases in the amount of maximum benefits payable from qualified plans in accordance with Codesection 415.4.3Additionally, the Committee shall have the right to modify the calculation of Amount “x”, identified in Section 4.1, as to anyParticipant as it may desire from time to time; provided, however, that any such modification shall not result in a reduction ofAmount “x” below the basic level provided in Section 4.1, and shall not affect the timing of the payment, or the form, ofbenefits hereunder.SECTION 4A. AMOUNT OF BENEFIT - CASH BALANCE FORMULA4A.1Amount of Benefit. For Participants whose Pension Plan benefit is calculated and determined under Article 4A of the PensionPlan, the benefit payable under this Plan in the form of a lump sum payment shall be an amount equal to “x” minus “y”, where:- x is equal to the accumulated Account Balance which the Participant would be entitled to receive underArticle 4A of the Pension Plan without regard to the limitations imposed by Code Sections 415 and 401(a)(17); and- y is equal to the Participant's accumulated Account Balance under Article 4A of the Pension Plan that is, orwould be, payable under the terms of the Pension Plan at such time as benefit payments commence under this PlanNotwithstanding any other provision of this Plan, for purposes of calculating a Participant's benefit hereunder, Account Balanceshall not include any Pay Credits corresponding to a period of service with the Company for which the Participant received, orhas commenced and is receiving, a benefit under this Plan or the SERP. A Participant's benefit under this Plan shall not berecalculated or re-determined in the event that the Participant actually commences payment of his/her Pension Plan benefit at adifferent time.84A.2Modification of Benefit Calculation. The Committee shall have the right to modify the calculation of amount “x” identified inSection 4A.1, as to any Participant as it may desire from time to time; provided, however, that any such modification shall notresult in a reduction of amount “x” below the basic level provided for in Section 4A.1, and shall not affect the timing of thepayment or the form, of benefits hereunder.SECTION 5. VESTING5.1Vesting. A Participant's benefits under this Plan shall vest concurrently with the vesting of the Participant's benefits under thePension Plan.SECTION 6. PROVISIONS REGARDING PAYMENT OF BENEFITS6.1 Form and Time of Payment.Except as otherwise specifically provided herein, effective for benefit payments commencing on or after January 1, 2008,benefits shall be made in a single lump sum payment (i.e., the single sum payment of the monthly life annuity payable atNormal Retirement Date) as of the Participant's Separation from Service. Such lump sum amount shall be calculated as of theParticipant's Separation from Service by the actuary for the Pension Plan applying actuarial factors used under the Pension Plan,and shall be made as soon as reasonably practical following the Participant's Separation from Service and, in any event, within 90days thereafter.6.2 Special Provision for Vested Terminated Participants.Notwithstanding any other provision of this Plan, for Participants who incurred a Separation from Service on or after January 1,2005 and prior to January 1, 2008, but had not commenced the receipt of benefit payments hereunder as of January 1, 2008, thebenefits hereunder shall be made in a single lump sum payment (i.e., the single sum payment of the monthly life annuitypayable at Normal Retirement Date) as of a date, on or after January 1, 2009, selected by the Participant on an election formprovided by Valero (and if no such election is made by the Participant within the election period prescribed by Valero, whichelection period shall end prior to December 31, 2008, such lump sum payment shall be made on, or as soon as administrativelypractical after January 1, 2009, and, in any event within 90 days after such date). Such lump sum payment shall be calculated asof the date of payment, by the actuary for the Pension Plan applying actuarial factors used under the Pension Plan.6.3 Application of Code Section 409A Transition Relief Provisions.Notwithstanding any other provision of this Plan, between January 1, 2005 and December 31, 2008, the Plan was administeredin compliance with the applicable transition relief provided by the U.S. Treasury Department and the Internal Revenue Serviceunder applicable guidance, including Notice 2005-1, the Temporary Regulations issued under Code section 409A, Notice 2007-78, and Notice 2007-86. Specifically, but without limitation, Participants who incurred a Separation from Service with theCompany between January 1, 2005 and9December 31, 2008, and who commenced their Pension Plan benefits prior to January 1, 2008, received, or commenced, theirbenefits hereunder at the time and in the form provided for under the Grandfathered Plan.6.4 Delay of Certain Payments.With respect to any Participant who is a “specified employee”, as defined in Code section 409A and the regulations and rulingsissued hereunder, any benefit that becomes payable by reason of such Participant's Separation from Service shall not commenceprior to the date that is six (6) months following such Participant's Separation from Service (except to the extent that thepayment of such benefit is not subject to Code section 409A, or is subject to an exception to such delay in payment). Suchdelayed payment shall be made in a single lump sum payment as soon as reasonably practical following the expiration of such 6month delay period (and in any event within 90 days thereof) and shall be calculated as of the Participant's Separation fromService by the actuary for the Pension Plan applying actuarial factors used under the Pension Plan. The provisions of thisSection 6.4 shall not apply (a) with respect to any benefit that becomes payable as the result of a reason other than theParticipant's Separation from Service, or (b) if, at the time of such Participant's Separation from Service, no stock of theCompany is publicly traded on an established securities market or otherwise.SECTION 7. DEATH BENEFIT7.1 Death Benefit.In the event that a Participant with a vested, accrued benefit hereunder dies while in the employ of the Company and prior to thepayment of his/her benefit, the surviving spouse of such Participant, or (if the Participant is not married at the time of his/herdeath) the Beneficiary designated by the Participant under the Pension Plan, shall be entitled to receive a death benefithereunder. The amount of such death benefit shall equal: (a) the preretirement death benefit as calculated under the PensionPlan without regard to the annual addition limitations of Code section 415 or the Compensation Limit, less (b) the preretirementdeath benefit payable under the Pension Plan. Such death benefit shall be paid in the form of a single lump sum payment (i.e.,the single sum payment of the monthly life annuity payable at Normal Retirement Date) as soon as administratively practicalfollowing the Participant's death (and in any event within 90 days thereof), and shall be calculated by the actuary for the PensionPlan applying actuarial assumptions used under the Pension Plan.SECTION 8. ADMINISTRATION8.1 Committee.The Plan will be administered by the Committee.108.2 Powers of the Committee.The Committee will have the exclusive responsibility for the general administration of this Plan according to the terms andprovisions of this Plan and will have all powers necessary to accomplish those purposes, including but not by way of limitationthe right, power and authority:a.to make rules and regulations for the administration of this Plan;b.to construe all terms, provisions, conditions and limitations of this Plan;c.to correct any defect, supply any omission or reconcile any inconsistency that may appear in this Plan;d.to determine all controversies relating to the administration of this Plan, including but not limited to:1.differences of opinion arising between a Company and a Participant;2.any question it deems advisable to determine in order to promote the uniform administration of this Plan for thebenefit of all interested parties; and3.delegating powers of investment and administration, as well as those clerical and recordation duties of theCommittee, as it deems necessary or advisable for the proper and efficient administration of this Plan.8.3 Committee Discretion.The Committee in exercising any power or authority granted under this Plan or in making any determination under this Planmay use its sole discretion and judgment. Any decision made or any act or omission, by the Committee in good faith shall be finaland binding on all parties and shall not be subject to de novo review.8.4 Reliance Upon Information.The Committee will not be liable for any decision or action taken in good faith in connection with the administration of this Plan.Without limiting the generality of the foregoing, any decision or action taken by the Committee when it relies upon informationsupplied it by any officer of the Company, the Company's legal counsel, the Plan's actuary, the Company's independentaccountants, or other advisors in connection with the administration of this Plan will be deemed to have been taken in good faith.8.5 Binding Arbitration.Any claims relating to or arising out of this Plan of any nature whatsoever shall be submitted to, and settled by, mandatory andfinal arbitration in accordance with the provisions of the Valero Energy Corporation Dialogue dispute resolution program.11SECTION 9. AMENDMENT AND TERMINATION9.1 Amendment and Termination.Valero reserves the right, in its sole discretion, to terminate, suspend or amend this Plan, at any time and from time to time, inwhole or in part for whatever reason it may deem appropriate. However, no such termination, suspension or amendment of thisPlan shall result in the acceleration of the payment of any benefit hereunder, nor shall any such termination, suspension oramendment alter, impair or void any Participant's (or Beneficiary's) right with respect to a benefit which was accrued and vestedunder the Plan as of the date of such termination, suspension or amendment except such benefits as are voluntarily forfeited bya Participant. In the event of termination of the Plan, all unvested benefits shall immediately forfeit.SECTION 10. CHANGE IN CONTROL10.1 Effect of Change in Control.In the event of a Change in Control, the accrued benefit of all Participants in the Plan shall immediately become fully vested.Additionally, the Committee may, within the period beginning thirty (30) days prior to the effective date of the Change inControl, and ending twelve (12) months after the effective date of the Change in Control, make an irrevocable decision toterminate the Plan (and all deferred compensation plans maintained by Valero which must be aggregated with the Plan underCode section 409A) and distribute all benefits to Participants. In the event of such termination following a Change in Control,the accrued benefits of each Participant (determined as of the date of Plan termination and calculated in the manner provided forin this Plan) shall be distributed in the form of a lump sum payment within twelve (12) months following the termination of thisPlan. In the absence of such Plan termination, a Change in Control shall not alter the time or manner of the payment of benefitshereunder, and all benefits shall be paid at the time and in the manner as they would otherwise be paid in accordance with theprovisions of this Plan.SECTION 11. GENERAL11.1 No Employment Rights.Nothing contained in this Plan shall be construed as a contract of employment between the Employer and an Employee, or as aright of any employee to be continued in the employment of the Employer or as a limitation of the right of the Employer todischarge any Employee, with or without cause.11.2 Forfeiture and Obligation to Repay for Competition.If the Committee finds, after consideration of the facts presented on behalf of the Company and a Participant, that theParticipant, at any time within two years following his termination of employment from all Companies and without writtenconsent of a Company, directly or12indirectly owned, operated, managed, controlled or participated in the ownership (other than through mere ownership of lessthan 5% of the voting securities of a publicly traded entity), management, operation or control of or was employed by, or waspaid as a consultant or independent contractor by a business which competes with the Company, and if the Participant continuesto be so engaged sixty (60) days after written notice is given to him/her: (a) the Participant shall, upon the demand of theCommittee, repay to Valero the full amount of the payment(s) previously made to the Participant hereunder; or (b) if theParticipant has not yet received the payment of his vested Accrued Benefit, the Participant shall forfeit any rights under thisPlan and shall not be entitled to receive any benefit hereunder.11.3 Assignment.To the maximum extent permitted by law, no benefit under this Plan shall be assignable or in any manner subject to alienation,sale, transfer, hypothecation, claims, pledge, attachment or encumbrance of any kind. Notwithstanding the preceding sentence,however, this provision shall not effect the right of the Committee (upon the determination that a judgment, decree or orderrelating to child support, alimony payments or marital property rights of the spouse, former spouse, child or other dependent ofthe Participant is a “Qualified Domestic Relations Order” within the meaning of Code section 414(p)), to distribute or establish aseparate subaccount of all or any portion of a Participant's benefits under the Plan to or for the benefit of the beneficiary of theQualified Domestic Relations Order in a manner permitted under the Plan.11.4 Withholding Taxes.The Company shall have the right to deduct from all payments made under the Plan any federal, state or local taxes required bylaw to be withheld with respect to such payments. However, any and all taxes payable with respect to any distribution or benefithereunder shall be the sole responsibility of the Participant, not of the Company or any Company, whether or not the Companyor any Company shall have withheld or collected from the Participant any sums required to be so withheld or collected inrespect thereof and whether or not any sums so withheld or collected shall be sufficient to provide for any such taxes. Withoutlimitation of the foregoing, and except as may otherwise be provided in any separate employment, severance or other agreementbetween the Participant and any Company, the individual Participant or Surviving Spouse, as the case may be, shall be solelyresponsible for payment of any excise, income or other tax imposed (i) upon any payment hereunder which may be deemed toconstitute an “excess parachute payment” pursuant to Code section 4999, (ii) under a theory that any additional or excise tax isrequired under Code section 409A, or (iii) under a theory of “constructive receipt” of any lump sum or other amount hereunder.11.5 Rules and Regulations.The Committee may adopt rules and regulations to assist in the administration of the Plan.1311.6 Administration and Interpretation Consistent with Code Section 409A.The Plan, as amended and restated, is intended to satisfy the requirements of Code section 409A and the rules and regulationsissued thereunder, and shall be construed, interpreted and administered consistent with such intent.11.7 Law Applicable.The Plan is established under and will be construed in accordance with and governed by the laws of the State of Texas.11.8 Spinoff Plan.All benefits accrued under this Plan with respect to Former Eligible NuStar Employees were, in connection with the spin-offof Valero's equity interest in NuStar and/or the transfer of such employees from the Company to NuStar, spun off andtransferred to the NuStar Excess Pension Plan. Effective as of July 1, 2006, NuStar established what is now known as theNuStar Pension Plan, a defined benefit pension plan qualified under Code section 401(a), which will provide benefits to eligibleemployees of NuStar with respect to service earned by eligible employees of NuStar and its participating affiliated companiesfrom and after July 1, 2006. Additionally, from and after July 1, 2006, NuStar ceased being a participating subsidiary under thisPlan. It is the intent of Valero and NuStar that the NuStar Excess Pension Plan assumed the current liabilities of this Plan withrespect to Former Eligible NuStar Employees, and shall provide a single supplemental benefit to such employees that is basedon the benefits such Participant receives under the Valero Pension Plan, as well as the NuStar Pension Plan. Unless and exceptto the extent that a Former Eligible NuStar Employee is reemployed by the Company and, thereafter, becomes a Participanthereunder with respect to such reemployment, this Plan shall have no liability of any kind to any Former Eligible NuStarEmployee, and all Former Eligible NuStar Employees shall look solely to NuStar and the NuStar Excess Pension Plan forbenefits previously accrued hereunder.IN WITNESS WHEREOF, Valero has executed this amendment and restatement of the Excess Pension Plan on , 2011, tobe effective as of December 31, 2011.VALERO ENERGY CORPORATIONBy: ____________________________ 14EXHIBIT 10.14SCHEDULE OF INDEMNITY AGREEMENTSThe following have executed Indemnity Agreements substantially in the form of the agreement attached as Exhibit 10.8 to Valero's RegistrationStatement on Form S-1 (SEC File No. 333-27013) filed May 13, 1997.Ronald K. CalgaardRuben M. EscobedoSusan Kaufman PurcellExhibit 10.15CHANGE OF CONTROLSEVERANCE AGREEMENTAGREEMENT, dated as of the 18th day of January, 2007 (this “Agreement”), by and between Valero Energy Corporation, aDelaware corporation (the “Company”), and William R. Klesse (the “Executive”).WHEREAS, the Board of Directors of the Company (the “Board”), has determined that it is in the best interests of theCompany and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding thepossibility, threat or occurrence of a Change of Control (as defined herein). The Board believes it is imperative to diminish the inevitabledistraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and toencourage the Executive's full attention and dedication to the current Company in the event of any threatened or pending Change ofControl, and to provide the Executive with compensation and benefits arrangements upon a Change of Control that ensure that thecompensation and benefits expectations of the Executive will be satisfied and that are competitive with those of other corporations.Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:Section 1.Certain Definitions. (a) “Effective Date” means the first date during the Change of Control Period(as defined herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change ofControl occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Controloccurs, and if it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third partythat has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of aChange of Control, then “Effective Date” means the date immediately prior to the date of such termination of employment.(b) “Change of Control Period” means the period commencing on the date hereof and ending on the third anniversary of thedate hereof; provided, however, that, commencing on the date one year after the date hereof, and on each annual anniversary of suchdate (such date and each annual anniversary thereof, the “Renewal Date”), unless previously terminated, the Change of Control Periodshall be automatically extended so as to terminate three years from such Renewal Date, unless, at least 60 days prior to the RenewalDate, the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.(c) “Affiliated Company” means any company controlled by, controlling or under common control with the Company.(d) “Change of Control” means:(1)The acquisition by any individual, entity or group (within the meaning of Section113(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership(within the meaning of Rule 13d‑3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding shares ofcommon stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company VotingSecurities”); provided, however, that, for purposes of this Section 1(d)(1), the following acquisitions of Outstanding CompanyCommon Stock or of Outstanding Company Voting Securities shall not constitute a Change of Control: (i) any acquisition directly fromthe Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored ormaintained by the Company or any Affiliated Company or (iv) any acquisition by any corporation pursuant to a transaction that complieswith Sections 1(d)(3)(A), 1(d)(3)(B) and 1(d)(3)(C);(2)Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason toconstitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereofwhose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directorsthen comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, butexcluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened electioncontest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or onbehalf of a Person other than the Board;(3)Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transactioninvolving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company (each, a“Business Combination”), in each case unless, following such Business Combination, (A) all or substantially all of the individuals andentities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securitiesimmediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding sharesof common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election ofdirectors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporationthat, as a result of such transaction, owns the Company or all or substantially all of the Company's assets either directly or through oneor more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of theOutstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excludingany corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or suchcorporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of thethen-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the BusinessCombination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such BusinessCombination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board2providing for such Business Combination; or(4)Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.Section 2.Employment Period. The Company hereby agrees to continue the Executive in its employ, subjectto the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary ofthe Effective Date (the “Employment Period”). The Employment Period shall terminate upon the Executive's termination ofemployment for any reason.Section 3.Terms of Employment. (a) Position and Duties. (1) During the Employment Period, (A) theExecutive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at leastcommensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-dayperiod immediately preceding the Effective Date and (B) the Executive's services shall be performed at the office where the Executivewas employed immediately preceding the Effective Date or at any other location less than 35 miles from such office.(2) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled,the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Companyand, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable bestefforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of thisAgreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speakingengagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantlyinterfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. Itis expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to theEffective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent tothe Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.(a)Compensation. (1) Base Salary. During the Employment Period, the Executive shall receive an annualbase salary (the “Annual Base Salary”) at an annual rate at least equal to 12 times the highest monthly base salary paid orpayable, including any base salary that has been earned but deferred, to the Executive by the Company and the AffiliatedCompanies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. TheAnnual Base Salary shall be paid at such intervals as the Company pays executive salaries generally. During the EmploymentPeriod, the Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the last salaryincrease awarded to the Executive prior to the Effective Date. Any increase in the Annual Base Salary shall not serve to limitor reduce any other obligation to the Executive under this Agreement. The Annual Base Salary shall not be reduced after anysuch increase and the term “Annual Base Salary” shall refer to the Annual Base Salary3as so increased.(2) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending duringthe Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the Executive's highest bonus earned under theCompany's annual incentive bonus plans, or any comparable bonus under any predecessor or successor plan or plans, for the last threefull fiscal years prior to the Effective Date (or for such lesser number of full fiscal years prior to the Effective Date for which theExecutive was eligible to earn such a bonus, and annualized in the case of any bonus earned for a partial fiscal year) (the “Recent AnnualBonus”). (If the Executive has not been eligible to earn such a bonus for any period prior to the Effective Date, the “Recent AnnualBonus” shall mean the Executive's target annual bonus for the year in which the Effective Date occurs.) Each such Annual Bonus shallbe paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded,unless the Executive shall elect to defer the receipt of such Annual Bonus.(3) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled toparticipate in all incentive, savings and retirement plans, practices, policies, and programs applicable generally to other peer executives ofthe Company and the Affiliated Companies, but in no event shall such plans, practices, policies and programs provide the Executive withincentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that suchdistinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, thanthe most favorable of those provided by the Company and the Affiliated Companies for the Executive under such plans, practices,policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorableto the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and theAffiliated Companies.(4) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case maybe, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programsprovided by the Company and the Affiliated Companies (including, without limitation, medical, prescription, dental, vision, disability,employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to otherpeer executives of the Company and the Affiliated Companies, but in no event shall such plans, practices, policies and programs providethe Executive with benefits that are less favorable, in the aggregate, than the most favorable of such plans, practices, policies andprograms in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if morefavorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company andthe Affiliated Companies.(5) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for allreasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Companyand the Affiliated Companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective4Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of theCompany and the Affiliated Companies.(6) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, withoutlimitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of relatedexpenses, in accordance with the most favorable plans, practices, programs and policies of the Company and the Affiliated Companies ineffect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to theExecutive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the AffiliatedCompanies.(7) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of asize and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the mostfavorable of the foregoing provided to the Executive by the Company and the Affiliated Companies at any time during the 120-dayperiod immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafterwith respect to other peer executives of the Company and the Affiliated Companies.(8) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the mostfavorable plans, policies, programs and practices of the Company and the Affiliated Companies as in effect for the Executive at any timeduring the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at anytime thereafter with respect to other peer executives of the Company and the Affiliated Companies.(9) Immediate Vesting of Outstanding Equity Incentive Awards. Notwithstand-ing any provision in the Company's stockincentive plans or the award agreements thereunder, effective immediately upon the occurrence of a Change of Control, (A) all stockoptions (incentive or non-qualified) outstanding as of the date of such Change of Control, which are not then exercisable and vested,shall become fully exercisable and vested to the full extent of the original grant and, following the Executive's termination ofemployment for any reason, shall remain exercisable for the remainder of the original option term; (B) all restrictions and deferrallimitations applicable to any restricted stock awards outstanding as of the date of such Change of Control shall lapse, and such restrictedstock awards shall become free of all restrictions and become fully vested and transferable to the full extent of the original grant; and(C) all performance share awards outstanding as of the date of such Change of Control for any outstanding performance periods shallfully vest and be earned and payable in full based on the deemed achievement of performance at 200% of target level for the entireperformance period.Section 4.Termination of Employment. (a) Death or Disability. The Executive's employment shallterminate automatically if the Executive dies during the Employment Period. If the Company determines in good faith that theExecutive has a Disability (as defined herein) that has occurred during the Employment Period (pursuant to the definition of“Disability”), it may give to the Executive written notice in accordance with Section 11(b) of its intention to terminate the Executive'semployment. In such event, the Executive's employment with the Company shall5terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that,within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties.“Disability” means the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutivebusiness days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physicianselected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative.(b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. “Cause”means:(1)the willful and continued failure of the Executive to perform substantially the Executive's duties (ascontemplated by Section 3(a)(1)(A)) with the Company or any Affiliated Company (other than any such failure resulting fromincapacity due to physical or mental illness or following the Executive's delivery of a Notice of Termination for Good Reason),after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer ofthe Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the Companybelieves that the Executive has not substantially performed the Executive's duties, or(2)the willful engaging by the Executive in illegal conduct or gross misconduct that is materially anddemonstrably injurious to the Company.For purposes of this Section 4(b), no act, or failure to act, on the part of the Executive shall be considered “willful” unless it isdone, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in thebest interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board orupon the instructions of the Chief Executive Officer of the Company or a senior officer of the Company or based upon the advice ofcounsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in thebest interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until thereshall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters ofthe entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to theExecutive and the Executive is given an opportunity, together with counsel for the Executive, to be heard before the Board), findingthat, in the good faith opinion of the Board, the Executive is guilty of the conduct described in Section 4(b)(1) or 4(b)(2), and specifyingthe particulars thereof in detail.(c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason or by the Executivevoluntarily without Good Reason. “Good Reason” means:(3)the assignment to the Executive of any duties inconsistent in any respect with the Executive's position(including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section3(a)(1)(A), or any other action by the Company that results in a diminution in such position, authority, duties or6responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that isremedied by the Company promptly after receipt of notice thereof given by the Executive;(4)any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated,insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt ofnotice thereof given by the Executive;(5)the Company's requiring the Executive (i) to be based at any office or location other than as provided inSection 3(a)(1)(B), (ii) to be based at a location other than the principal executive offices of the Company if the Executive wasemployed at such location immediately preceding the Effective Date, or (iii) to travel on Company business to a substantiallygreater extent than required immediately prior to the Effective Date;(6)any purported termination by the Company of the Executive's employment otherwise than as expresslypermitted by this Agreement; or(7)any failure by the Company to comply with and satisfy Section 10(c).For purposes of this Section 4(c), any good faith determination of Good Reason made by the Executive shall be conclusive. TheExecutive's mental or physical incapacity following the occurrence of an event described above in clauses (1) through (5) shall notaffect the Executive's ability to terminate employment for Good Reason.(d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall becommunicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). “Notice of Termination”means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable,sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employmentunder the provision so indicated, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice,specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). Thefailure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showingof Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executiveor the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's respective rightshereunder.(e) Date of Termination. “Date of Termination” means (1) if the Executive's employment is terminated by the Companyfor Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Noticeof Termination, as the case may be, (2) if the Executive's employment is terminated by the Company other than for Cause or Disability,the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (3) if the Executive'semployment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the7Disability Effective Date, as the case may be.Section 5.Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause,Death or Disability. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause orDisability or the Executive terminates employment for Good Reason:(1)the Company shall pay to the Executive, in a lump sum in cash within 30 days after the Date ofTermination, the aggregate of the following amounts:(A)the sum of (i) the Executive's Annual Base Salary through the Date of Termination, (ii) the productof (x) the Recent Annual Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscalyear through the Date of Termination and the denominator of which is 365, and (iii) any accrued vacation pay, in eachcase, to the extent not theretofore paid (the sum of the amounts described in subclauses (i), (ii) and (iii), the “AccruedObligations”);(B)the amount equal to the product of (i) three and (ii) the sum of (x) the Executive's Annual BaseSalary and (y) the Recent Annual Bonus;(C)an amount equal to the excess of (i) the actuarial equivalent of the benefit under the Company'squalified defined benefit retirement plan (the “Retirement Plan”) (utilizing actuarial assumptions no less favorable to theExecutive than those in effect under the Retirement Plan immediately prior to the Effective Date) and any excess orsupplemental retirement plan in which the Executive participates (collectively, the “SERP”) that the Executive wouldreceive if the Executive's employment continued for three years after the Date of Termination, assuming for thispurpose that (x) the Executive's age and service credit increase during the three-year period, (y) all accrued benefits arefully vested and (z) the Executive's compensation in each of the three years is that required by Sections 3(b)(1) and3(b)(2), over (ii) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under theRetirement Plan and the SERP as of the Date of Termination; and(D)an amount equal to the sum of the Company matching or other Company contributions under theCompany's qualified defined contribution plans and any excess or supplemental defined contribution plans in which theExecutive participates that the Executive would receive if the Executive's employment continued for three years afterthe Date of Termination, assuming for this purpose that (x) the Executive's benefits under such plans are fully vested,(y) the Executive's compensation in each of the three years is that required by Sections 3(b)(1) and 3(b)(2) and (z) tothe extent that the Company contributions are determined based on the contributions or deferrals of the Executive, thatthe Executive's contribution or deferral elections, as appropriate, are those in effect immediately prior the Date ofTermination; and8(2)for three years after the Executive's Date of Termination, or such longer period as may be provided by theterms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or theExecutive's family at least equal to those that would have been provided to them in accordance with the plans, programs,practices and policies described in Section 3(b)(4) and 3(b)(6) if the Executive's employment had not been terminated or, ifmore favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of theCompany and the Affiliated Companies and their families, provided, however, that, if the Executive becomes reemployed withanother employer and is eligible to receive the benefits described in Section 3(b)(4) under another employer provided plan, themedical and other welfare benefits described herein shall be secondary to those provided under such other plan during suchapplicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of theExecutive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to haveremained employed (for purposes of both age and service credit) until three years after the Date of Termination and to haveretired on the last day of such period;(3)during the 12-month period following the Date of Termination, the Company shall, at its sole expense asincurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executivein the Executive's sole discretion, provided that, the cost of such outplacement shall not exceed $25,000 (as adjusted forinflation based on the Consumer Price Index or another nationally recognized published inflation index); and(4)to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive anyother amounts or benefits required to be paid or provided or that the Executive is eligible to receive under any plan, program,policy or practice or contract or agreement of the Company and the Affiliated Companies (such other amounts and benefits, the“Other Benefits”).(b) Death. If the Executive's employment is terminated by reason of the Executive's death during the EmploymentPeriod, the Company shall provide the Executive's estate or beneficiaries with the Accrued Obligations and the timelypayment or delivery of the Other Benefits, and shall have no other severance obligations under this Agreement. The AccruedObligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of theDate of Termination. With respect to the provision of the Other Benefits, the term “Other Benefits” as utilized in this Section5(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits atleast equal to the most favorable benefits provided by the Company and the Affiliated Companies to the estates andbeneficiaries of peer executives of the Company and the Affiliated Companies under such plans, programs, practices andpolicies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any timeduring the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or theExecutive's beneficiaries, as in effect on the date of the Executive's death9with respect to other peer executives of the Company and the Affiliated Companies and their beneficiaries.(c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during theEmployment Period, the Company shall provide the Executive with the Accrued Obligations and the timely payment ordelivery of the Other Benefits, and shall have no other severance obligations under this Agreement. The Accrued Obligationsshall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provisionof the Other Benefits, the term “Other Benefits” as utilized in this Section 5(c) shall include, and the Executive shall beentitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of thosegenerally provided by the Company and the Affiliated Companies to disabled executives and/or their families in accordancewith such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peerexecutives and their families at any time during the 120-day period immediately preceding the Effective Date or, if morefavorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to otherpeer executives of the Company and the Affiliated Companies and their families.(d) Cause; Other Than for Good Reason. If the Executive's employment is terminated for Cause during theEmployment Period, the Company shall provide to the Executive (1) the Executive's Annual Base Salary through the Dateof Termination, (2) any accrued vacation pay, and (3) the Other Benefits, in each case, to the extent theretofore unpaid, andshall have no other severance obligations under this Agreement. If the Executive voluntarily terminates employment duringthe Employment Period, excluding a termination for Good Reason, the Company shall provide to the Executive the AccruedObligations and the timely payment or delivery of the Other Benefits, and shall have no other severance obligations under thisAgreement. In such case, all the Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days ofthe Date of Termination.Section 6.Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive'scontinuing or future participation in any plan, program, policy or practice provided by the Company or the Affiliated Companies and forwhich the Executive may qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as theExecutive may have under any other contract or agreement with the Company or the Affiliated Companies. Amounts that are vestedbenefits or that the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any other contract oragreement with the Company or the Affiliated Companies at or subsequent to the Date of Termination shall be payable in accordancewith such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement. Notwithstandingthe foregoing, if the Executive receives payments and benefits pursuant to Section 5(a) of this Agreement, the Executive shall not beentitled to any severance pay or benefits under any severance plan, program or policy of the Company and the Affiliated Companies,unless otherwise specifically provided therein by a specific reference to this Agreement.10Section 7.Full Settlement. The Company's obligation to make the payments provided for in this Agreementand otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or otherclaim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seekother employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions ofthis Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agreesto pay as incurred, to the full extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result ofany contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liabilityunder, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executiveabout the amount of any payment pursuant to this Agreement), plus, in each case, interest on any delayed payment at the applicablefederal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the “Code”).Section 8.Certain Additional Payments by the Company.(a)Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that anypayment or distribution by the Company or its Affiliated Companies to or for the benefit of the Executive (whether paid orpayable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard toany additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax,together with any such interest and penalties, collectively the "Excise Tax"), then the Executive shall be entitled to receivean additional payment (the "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes(including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (andany interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executiveretains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.(b)Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8,including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions tobe utilized in arriving at such determination, shall be made by Ernst & Young, LLP, or such other nationally recognizedcertified public accounting firm as may be designated by the Executive, subject to the Company's approval which will not beunreasonably withheld (the “Accounting Firm”). The Accounting Firm shall provide detailed supporting calculations both tothe Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been aPayment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountantor auditor for the individual, entity or group effecting the Change of Control, the Executive, subject to the Company'sapproval which will not be unreasonably withheld, may appoint another nationally recognized accounting firm to make thedeterminations required hereunder11(which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the AccountingFirm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid bythe Company to the Executive within 5 days of the receipt of the Accounting Firm's determination. Any determination by theAccounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application ofSection 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the “Underpayment”), consistent withthe calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 8(c) andthe Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amountof the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for thebenefit of the Executive.(c)The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, ifsuccessful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon aspracticable, but no later than 10 business days after the Executive is informed in writing of such claim. The Executive shallapprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shallnot pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice tothe Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If theCompany notifies the Executive in writing prior to the expiration of such period that the Company desires to contest suchclaim, the Executive shall:(1)give the Company any information reasonably requested by the Company relating to such claim,(2)take such action in connection with contesting such claim as the Company shall reasonably request in writingfrom time to time, including, without limitation, accepting legal representation with respect to such claim by an attorneyreasonably selected by the Company,(3)cooperate with the Company in good faith in order effectively to contest such claim, and(4)permit the Company to participate in any proceedings relating to such claim;provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest andpenalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for anyExcise Tax or income tax (including interest and penalties) imposed as a result of such representation and payment of costs and expenses.Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection withsuch contest, and, at its sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferenceswith the12applicable taxing authority in respect of such claim and may, at its sole discretion, either pay the tax claimed to the appropriate taxingauthority on behalf of the Executive and direct the Executive to sue for a refund or contest the claim in any permissible manner, and theExecutive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and inone or more appellate courts, as the Company shall determine; provided, however, that, if the Company pays such claim and directs theExecutive to sue for a refund, the Company shall indemnify and hold the Executive harmless, on an after-tax basis, from any ExciseTax or income tax (including interest or penalties) imposed with respect to such payment or with respect to any imputed income inconnection with such payment; and provided, further, that any extension of the statute of limitations relating to payment of taxes forthe taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contestedamount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which the Gross-Up Paymentwould be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by theInternal Revenue Service or any other taxing authority.(d)If, after the receipt by the Executive of a Gross-Up Payment or payment by the Company of an amount onthe Executive's behalf pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to theExcise Tax to which such Gross-Up Payment relates or with respect to such claim, the Executive shall (subject to theCompany's complying with the requirements of Section 8(c), if applicable) promptly pay to the Company the amount of suchrefund (together with any interest paid or credited thereon after taxes applicable thereto). If, after payment by the Company ofan amount on the Executive's behalf pursuant to Section 8(c), a determination is made that the Executive shall not be entitledto any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contestsuch denial of refund prior to the expiration of 30 days after such determination, then the amount of such payment shalloffset, to the extent thereof, the amount of Gross-Up Payment required to be paid.(e)Notwithstanding any other provision of this Section 8, the Company may, in its sole discretion, withhold andpay to the Internal Revenue Service or any other applicable taxing authority, for the benefit of the Executive, all or anyportion of any Gross-Up Payment, and the Executive hereby consents to such withholding.Section 9.Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of theCompany all secret or confidential information, knowledge or data relating to the Company or the Affiliated Companies, and theirrespective businesses, which information, knowledge or data shall have been obtained by the Executive during the Executive'semployment by the Company or the Affiliated Companies and which information, knowledge or data shall not be or become publicknowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After terminationof the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or asmay otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone otherthan the Company and those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section9 constitute a basis for13deferring or withholding any amounts otherwise payable to the Executive under this Agreement.Section 10.Successors. (a) This Agreement is personal to the Executive, and, without the prior writtenconsent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. ThisAgreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. Except asprovided in Section 10(c), without the prior written consent of the Executive, this Agreement shall not be assignable by the Company.(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) toall or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in thesame manner and to the same extent that the Company would be required to perform it if no such succession had taken place.“Company” means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes andagrees to perform this Agreement by operation of law or otherwise.Section 11.Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with thelaws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of theprovisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreementexecuted by the parties hereto or their respective successors and legal representatives.(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other partyor by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:if to the Executive: At the most recent address on file in the Company's recordsif to the Company: Valero Energy CorporationOne Valero WaySan Antonio, Texas 78249Attention: Corporate Secretaryor to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communicationsshall be effective when actually received by the addressee.(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of anyother provision of this Agreement.14(d) The Company may withhold from any amounts payable under this Agreement such United States federal, state or local orforeign taxes as shall be required to be withheld pursuant to any applicable law or regulation.(e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or thefailure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executiveto terminate employment for Good Reason pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a waiver of suchprovision or right or any other provision or right of this Agreement.(f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other writtenagreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and, subject toSection 1(a), prior to the Effective Date, the Executive's employment may be terminated by either the Executive or the Company atany time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after theEffective Date, except as specifically provided herein, this Agreement shall supersede any other agreement between the parties withrespect to the subject matter hereof.IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from theBoard, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written./s/ William R. KlesseWilliam R. KlesseVALERO ENERGY CORPORATIONBy: /s/ Gregory C. King___________________Name: Gregory C. KingTitle: President15December 14, 2011_________________________________________________________Re: Technical Amendment for Internal Revenue Code Section 409ADear _______________:This letter constitutes an amendment of the Change of Control Severance Agreement (“Agreement”) between you and ValeroEnergy Corporation dated _________, made for the sole purpose of attempting to ensure compliance of the Agreement with thedocumentation requirements under Internal Revenue Code Section 409A and, as such, attempting to avoid the imposition of taxes andpenalties on you under Section 409A of the Internal Revenue Code.In that connection, the Agreement is hereby amended by adding the following language as a new Section 11 of the Agreementand by renumbering the remaining sections appropriately:“11. Code Section 409A. This Agreement is intended to comply, and shall be administered consistently in all respects, withCode Section 409A of the Internal Revenue Code of 1986, as amended (“Code”), and the regulations and additional guidancepromulgated thereunder, to the extent applicable. In this connection, the Company shall have authority to take any action, orrefrain from taking any action, with respect to this Agreement that is reasonably necessary to ensure compliance with CodeSection 409A (provided that the Company shall choose the action that best preserves the value of the payments and benefitsprovided to the Executive under this Agreement that is consistent with Code Section 409A), and the parties agree that thisAgreement shall be interpreted in a manner that is consistent with Code Section 409A. In furtherance, but not in limitation ofthe foregoing: (a) in no event may Executive designate, directly or indirectly, the calendar year of any payment to be madehereunder; (b) in the event that Executive is a “specified employee” within the meaning of Code Section 409A, paymentswhich constitute a “deferral of compensation” under Code Section 409A and which would otherwise become due during thefirst six (6) months following Executive's Date of Termination shall be delayed and all such delayed payments shall be paid infull in the seventh (7th) month after the Executive's termination of employment or, if earlier, upon the Executive's death,provided that the above delay shall not apply to any payment that is excepted from coverage by Code Section 409A, such as apayment covered bythe short-term deferral exception described in Treasury Regulations Section 1.409A-1(b)(4); (c) notwithstanding any otherprovision of this Agreement, a termination, resignation or retirement of Executive's employment hereunder, shall mean, and beinterpreted consistent with, a “separation from service” within the meaning of Code Section 409A, and “Date of Termination,”for purposes of determining the date that any payment or benefit is required to be provided hereunder, shall be deemed to meanthe date of Executive's separation from service within the meaning of Code Section 409A; (d) with respect to anyreimbursement of fees and expenses, or similar payments or any in-kind benefits, the following shall apply: (i) unless a specifictime period during which such expense reimbursements and payments may be incurred is provided for herein, such time periodshall be deemed to be Executive's lifetime; (ii) the amount of expenses eligible for reimbursement hereunder, or in-kindbenefits to which Executive is entitled hereunder, in any particular year shall not affect the expenses eligible forreimbursement or in-kind benefits in any other year; (ii) the right to reimbursement of expenses or in-kind benefits shall not besubject to liquidation or exchange for any other benefit; (iii) the reimbursement of an eligible expense or a payment shall bemade on or before the last day of the calendar year following the calendar year in which the expense was incurred or thepayment was remitted, as the case may be.”Please indicate your acceptance of, and agreement to, this amendment by signing this letter in the space provided below.Sincerely,Valero Energy CorporationBy: _____________________________ R. Michael CrownoverSenior Vice PresidentHuman ResourcesAGREED AND ACCEPTED:________________________[Executive]EXHIBIT 10.16SCHEDULE OF CHANGE OF CONTROL AGREEMENTSThe following have executed Change of Control Agreements substantially in the form of the agreement attached as Exhibit 10.15 to Valero's AnnualReport on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175).Michael S. CiskowskiS. Eugene EdwardsJoseph W. GorderExhibit 10.17CHANGE OF CONTROLSEVERANCE AGREEMENTAGREEMENT, dated as of the 15th day of March, 2007 (this “Agreement”), by and between Valero Energy Corporation, aDelaware corporation (the “Company”), and Kimberly S. Bowers (the “Executive”).WHEREAS, the Board of Directors of the Company (the “Board”), has determined that it is in the best interests of theCompany and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding thepossibility, threat or occurrence of a Change of Control (as defined herein). The Board believes it is imperative to diminish the inevitabledistraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and toencourage the Executive's full attention and dedication to the current Company in the event of any threatened or pending Change ofControl, and to provide the Executive with compensation and benefits arrangements upon a Change of Control that ensure that thecompensation and benefits expectations of the Executive will be satisfied and that are competitive with those of other corporations.Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:Section 1. Certain Definitions. (a) “Effective Date” means the first date during the Change of Control Period (as definedherein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Controloccurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, andif it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third party that hastaken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change ofControl, then “Effective Date” means the date immediately prior to the date of such termination of employment.(b) “Change of Control Period” means the period commencing on the date hereof and ending on the third anniversary of thedate hereof; provided, however, that, commencing on the date one year after the date hereof, and on each annual anniversary of suchdate (such date and each annual anniversary thereof, the “Renewal Date”), unless previously terminated, the Change of Control Periodshall be automatically extended so as to terminate three years from such Renewal Date, unless, at least 60 days prior to the RenewalDate, the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.(c) “Affiliated Company” means any company controlled by, controlling or under common control with the Company.(d) “Change of Control” means:(1)The acquisition by any individual, entity or group (within the meaning of Section113(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership(within the meaning of Rule 13d‑3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding shares ofcommon stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company VotingSecurities”); provided, however, that, for purposes of this Section 1(d)(1), the following acquisitions of Outstanding CompanyCommon Stock or of Outstanding Company Voting Securities shall not constitute a Change of Control: (i) any acquisition directly fromthe Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored ormaintained by the Company or any Affiliated Company or (iv) any acquisition by any corporation pursuant to a transaction that complieswith Sections 1(d)(3)(A), 1(d)(3)(B) and 1(d)(3)(C);(2)Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason toconstitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereofwhose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directorsthen comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, butexcluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened electioncontest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or onbehalf of a Person other than the Board;(3)Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transactioninvolving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company (each, a“Business Combination”), in each case unless, following such Business Combination, (A) all or substantially all of the individuals andentities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securitiesimmediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding sharesof common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election ofdirectors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporationthat, as a result of such transaction, owns the Company or all or substantially all of the Company's assets either directly or through oneor more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of theOutstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excludingany corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or suchcorporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of thethen-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the BusinessCombination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such BusinessCombination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board2providing for such Business Combination; or(4)Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.Section 2. Employment Period. The Company hereby agrees to continue the Executive in its employ, subject to the termsand conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the EffectiveDate (the “Employment Period”). The Employment Period shall terminate upon the Executive's termination of employment for anyreason.Section 3. Terms of Employment. (a) Position and Duties. (1) During the Employment Period, (A) the Executive'sposition (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensuratein all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediatelypreceding the Effective Date and (B) the Executive's services shall be performed at the office where the Executive was employedimmediately preceding the Effective Date or at any other location less than 35 miles from such office.(2) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled,the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Companyand, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable bestefforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of thisAgreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speakingengagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantlyinterfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. Itis expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to theEffective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent tothe Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.(b) Compensation. (1) Base Salary. During the Employment Period, the Executive shall receive an annual base salary (the“Annual Base Salary”) at an annual rate at least equal to 12 times the highest monthly base salary paid or payable, including any basesalary that has been earned but deferred, to the Executive by the Company and the Affiliated Companies in respect of the 12-monthperiod immediately preceding the month in which the Effective Date occurs. The Annual Base Salary shall be paid at such intervals asthe Company pays executive salaries generally. During the Employment Period, the Annual Base Salary shall be reviewed at leastannually, beginning no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Anyincrease in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. TheAnnual Base Salary shall not be reduced after any such increase and the term “Annual Base Salary” shall refer to the Annual BaseSalary as so increased.3(2) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending duringthe Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the Executive's highest bonus earned under theCompany's annual incentive bonus plans, or any comparable bonus under any predecessor or successor plan or plans, for the last threefull fiscal years prior to the Effective Date (or for such lesser number of full fiscal years prior to the Effective Date for which theExecutive was eligible to earn such a bonus, and annualized in the case of any bonus earned for a partial fiscal year) (the “Recent AnnualBonus”). (If the Executive has not been eligible to earn such a bonus for any period prior to the Effective Date, the “Recent AnnualBonus” shall mean the Executive's target annual bonus for the year in which the Effective Date occurs.) Each such Annual Bonus shallbe paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded,unless the Executive shall elect to defer the receipt of such Annual Bonus.(3) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled toparticipate in all incentive, savings and retirement plans, practices, policies, and programs applicable generally to other peer executives ofthe Company and the Affiliated Companies, but in no event shall such plans, practices, policies and programs provide the Executive withincentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that suchdistinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, thanthe most favorable of those provided by the Company and the Affiliated Companies for the Executive under such plans, practices,policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorableto the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and theAffiliated Companies.(4) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case maybe, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programsprovided by the Company and the Affiliated Companies (including, without limitation, medical, prescription, dental, vision, disability,employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to otherpeer executives of the Company and the Affiliated Companies, but in no event shall such plans, practices, policies and programs providethe Executive with benefits that are less favorable, in the aggregate, than the most favorable of such plans, practices, policies andprograms in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if morefavorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company andthe Affiliated Companies.(5)Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement forall reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of theCompany and the Affiliated Companies in effect for the Executive at any time during the 120-day period immediately preceding theEffective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect4to other peer executives of the Company and the Affiliated Companies.(6)Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including,without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment ofrelated expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and the AffiliatedCompanies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if morefavorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and theAffiliated Companies.(7)Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or officesof a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the mostfavorable of the foregoing provided to the Executive by the Company and the Affiliated Companies at any time during the 120-dayperiod immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafterwith respect to other peer executives of the Company and the Affiliated Companies.(8)Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with themost favorable plans, policies, programs and practices of the Company and the Affiliated Companies as in effect for the Executive at anytime during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generallyat any time thereafter with respect to other peer executives of the Company and the Affiliated Companies.(9)Immediate Vesting of Outstanding Equity Incentive Awards. Notwithstanding any provision in the Company'sstock incentive plans or the award agreements thereunder, effective immediately upon the occurrence of a Change of Control, (A) allstock options (incentive or non-qualified) outstanding as of the date of such Change of Control, which are not then exercisable andvested, shall become fully exercisable and vested to the full extent of the original grant and, following the Executive's termination ofemployment for any reason, shall remain exercisable for the shorter of (x) five years from the Executive's date of termination ofemployment and (y) the remainder of the original option term; (B) all restrictions and deferral limitations applicable to any restrictedstock awards outstanding as of the date of such Change of Control shall lapse, and such restricted stock awards shall become free of allrestrictions and become fully vested and transferable to the full extent of the original grant; and (C) all performance share awardsoutstanding as of the date of such Change of Control for any outstanding performance periods shall fully vest and be earned and payablein full based on the deemed achievement of performance at 200% of target level for the entire performance period.Section 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminateautomatically if the Executive dies during the Employment Period. If the Company determines in good faith that the Executive has aDisability (as defined herein) that has occurred during the Employment Period (pursuant to the definition of “Disability”), it may give tothe Executive written notice in accordance with Section 11(b) of its intention to terminate the Executive's employment. In such event,the Executive's employment with the Company shall5terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that,within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties.“Disability” means the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutivebusiness days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physicianselected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative.(b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. “Cause”means:(1)the willful and continued failure of the Executive to perform substantially the Executive's duties (ascontemplated by Section 3(a)(1)(A)) with the Company or any Affiliated Company (other than any such failure resulting fromincapacity due to physical or mental illness or following the Executive's delivery of a Notice of Termination for Good Reason),after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer ofthe Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the Companybelieves that the Executive has not substantially performed the Executive's duties, or(2)the willful engaging by the Executive in illegal conduct or gross misconduct that is materially anddemonstrably injurious to the Company.For purposes of this Section 4(b), no act, or failure to act, on the part of the Executive shall be considered “willful” unless it isdone, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in thebest interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board orupon the instructions of the Chief Executive Officer of the Company or a senior officer of the Company or based upon the advice ofcounsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in thebest interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until thereshall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters ofthe entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to theExecutive and the Executive is given an opportunity, together with counsel for the Executive, to be heard before the Board), findingthat, in the good faith opinion of the Board, the Executive is guilty of the conduct described in Section 4(b)(1) or 4(b)(2), and specifyingthe particulars thereof in detail.(c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason or by the Executivevoluntarily without Good Reason. “Good Reason” means:(1) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (includingstatus, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a)(1)(A), orany other action by the Company that results in a diminution in such position, authority, duties or6responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that isremedied by the Company promptly after receipt of notice thereof given by the Executive;(2)any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated,insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt ofnotice thereof given by the Executive;(3)the Company's requiring the Executive (i) to be based at any office or location other than as provided inSection 3(a)(1)(B), (ii) to be based at a location other than the principal executive offices of the Company if the Executive wasemployed at such location immediately preceding the Effective Date, or (iii) to travel on Company business to a substantiallygreater extent than required immediately prior to the Effective Date;(4)any purported termination by the Company of the Executive's employment otherwise than as expresslypermitted by this Agreement; or(5)any failure by the Company to comply with and satisfy Section 10(c).For purposes of this Section 4(c), any good faith determination of Good Reason made by the Executive shall be conclusive. TheExecutive's mental or physical incapacity following the occurrence of an event described above in clauses (1) through (5) shall notaffect the Executive's ability to terminate employment for Good Reason.(d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall becommunicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). “Notice of Termination”means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable,sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employmentunder the provision so indicated, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice,specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). Thefailure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showingof Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executiveor the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's respective rightshereunder.(e) Date of Termination. “Date of Termination” means (1) if the Executive's employment is terminated by the Companyfor Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Noticeof Termination, as the case may be, (2) if the Executive's employment is terminated by the Company other than for Cause or Disability,the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (3) if the Executive'semployment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the7Disability Effective Date, as the case may be.Section 5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death orDisability. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause or Disabilityor the Executive terminates employment for Good Reason:(1)the Company shall pay to the Executive, in a lump sum in cash within 30 days after the Date ofTermination, the aggregate of the following amounts:(A)the sum of (i) the Executive's Annual Base Salary through the Date of Termination, (ii) the productof (x) the Recent Annual Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscalyear through the Date of Termination and the denominator of which is 365, and (iii) any accrued vacation pay, in eachcase, to the extent not theretofore paid (the sum of the amounts described in subclauses (i), (ii) and (iii), the “AccruedObligations”);(B)the amount equal to the product of (i) two and (ii) the sum of (x) the Executive's Annual BaseSalary and (y) the Recent Annual Bonus;(C)an amount equal to the excess of (i) the actuarial equivalent of the benefit under the Company'squalified defined benefit retirement plan (the “Retirement Plan”) (utilizing actuarial assumptions no less favorable to theExecutive than those in effect under the Retirement Plan immediately prior to the Effective Date) and any excess orsupplemental retirement plan in which the Executive participates (collectively, the “SERP”) that the Executive wouldreceive if the Executive's employment continued for two years after the Date of Termination, assuming for thispurpose that (x) the Executive's age and service credit increase during the two-year period, (y) all accrued benefits arefully vested and (z) the Executive's compensation in each of the two years is that required by Sections 3(b)(1) and3(b)(2), over (ii) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under theRetirement Plan and the SERP as of the Date of Termination; and(D)an amount equal to the sum of the Company matching or other Company contributions under theCompany's qualified defined contribution plans and any excess or supplemental defined contribution plans in which theExecutive participates that the Executive would receive if the Executive's employment continued for two years afterthe Date of Termination, assuming for this purpose that (x) the Executive's benefits under such plans are fully vested,(y) the Executive's compensation in each of the two years is that required by Sections 3(b)(1) and 3(b)(2) and (z) to theextent that the Company contributions are determined based on the contributions or deferrals of the Executive, that theExecutive's contribution or deferral elections, as appropriate, are those in effect immediately prior the Date ofTermination; and8(2)for two years after the Executive's Date of Termination, or such longer period as may be provided by theterms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or theExecutive's family at least equal to those that would have been provided to them in accordance with the plans, programs,practices and policies described in Section 3(b)(4) if the Executive's employment had not been terminated or, if more favorableto the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and theAffiliated Companies and their families, provided, however, that, if the Executive becomes reemployed with another employerand is eligible to receive such benefits under another employer provided plan, the medical and other welfare benefits describedherein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes ofdetermining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to suchplans, practices, programs and policies, the Executive shall be considered to have remained employed (for purposes of both ageand service credit) until two years after the Date of Termination and to have retired on the last day of such period;(3)during the 12-month period following the Date of Termination, the Company shall, at its sole expense asincurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executivein the Executive's sole discretion, provided that, the cost of such outplacement shall not exceed $25,000 (as adjusted forinflation based on the Consumer Price Index or another nationally recognized published inflation index); and(4)to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive anyother amounts or benefits required to be paid or provided or that the Executive is eligible to receive under any plan, program,policy or practice or contract or agreement of the Company and the Affiliated Companies (such other amounts and benefits, the“Other Benefits”).(b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period,the Company shall provide the Executive's estate or beneficiaries with the Accrued Obligations and the timely payment or delivery ofthe Other Benefits, and shall have no other severance obligations under this Agreement. The Accrued Obligations shall be paid to theExecutive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to theprovision of the Other Benefits, the term “Other Benefits” as utilized in this Section 5(b) shall include, without limitation, and theExecutive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by theCompany and the Affiliated Companies to the estates and beneficiaries of peer executives of the Company and the Affiliated Companiesunder such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives andtheir beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to theExecutive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peerexecutives of the Company and the Affiliated Companies and their beneficiaries.9(c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the EmploymentPeriod, the Company shall provide the Executive with the Accrued Obligations and the timely payment or delivery of the OtherBenefits, and shall have no other severance obligations under this Agreement. The Accrued Obligations shall be paid to the Executive ina lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term “OtherBenefits” as utilized in this Section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive,disability and other benefits at least equal to the most favorable of those generally provided by the Company and the AffiliatedCompanies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating todisability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day periodimmediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any timethereafter generally with respect to other peer executives of the Company and the Affiliated Companies and their families.(d)Cause; Other Than for Good Reason. If the Executive's employment is terminated for Cause during theEmployment Period, the Company shall provide to the Executive (1) the Executive's Annual Base Salary through the Date ofTermination, (2) any accrued vacation pay, and (3) the Other Benefits, in each case, to the extent theretofore unpaid, and shall have noother severance obligations under this Agreement. If the Executive voluntarily terminates employment during the Employment Period,excluding a termination for Good Reason, the Company shall provide to the Executive the Accrued Obligations and the timely paymentor delivery of the Other Benefits, and shall have no other severance obligations under this Agreement. In such case, all the AccruedObligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.Section 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or futureparticipation in any plan, program, policy or practice provided by the Company or the Affiliated Companies and for which the Executivemay qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have underany other contract or agreement with the Company or the Affiliated Companies. Amounts that are vested benefits or that the Executiveis otherwise entitled to receive under any plan, policy, practice or program of or any other contract or agreement with the Company orthe Affiliated Companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice orprogram or contract or agreement, except as explicitly modified by this Agreement. Notwithstanding the foregoing, if the Executivereceives payments and benefits pursuant to Section 5(a) of this Agreement, the Executive shall not be entitled to any severance pay orbenefits under any severance plan, program or policy of the Company and the Affiliated Companies, unless otherwise specificallyprovided therein by a specific reference to this Agreement.Section 7. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise toperform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right oraction that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek otheremployment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of thisAgreement, and such amounts shall not be reduced whether or10not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal feesand expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company,the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee ofperformance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to thisAgreement), plus, in each case, interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) ofthe Internal Revenue Code of 1986, as amended (the “Code”).Section 8. Certain Additional Payments by the Company.(a)Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment ordistribution by the Company or its Affiliated Companies to or for the benefit of the Executive (whether paid or payable or distributed ordistributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments requiredunder this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penaltiesare incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties,collectively the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (the "Gross-Up Payment") in anamount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes),including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposedupon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon thePayments.(b)Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, includingwhether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized in arrivingat such determination, shall be made by Ernst & Young, LLP, or such other nationally recognized certified public accounting firm as maybe designated by the Executive, subject to the Company's approval which will not be unreasonably withheld (the “Accounting Firm”).The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive within 15 business days ofthe receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the eventthat the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, theExecutive, subject to the Company's approval which will not be unreasonably withheld, may appoint another nationally recognizedaccounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the AccountingFirm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, asdetermined pursuant to this Section 8, shall be paid by the Company to the Executive within 5 days of the receipt of the AccountingFirm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result ofthe uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder,it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the “Underpayment”),consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 8(c)and the Executive thereafter is required to11make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and anysuch Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.(c)The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful,would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable, but nolater than 10 business days after the Executive is informed in writing of such claim. The Executive shall apprise the Company of thenature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to theexpiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter periodending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior tothe expiration of such period that the Company desires to contest such claim, the Executive shall:(1)give the Company any information reasonably requested by the Company relating to such claim,(2)take such action in connection with contesting such claim as the Company shall reasonably request in writingfrom time to time, including, without limitation, accepting legal representation with respect to such claim by an attorneyreasonably selected by the Company,(3)cooperate with the Company in good faith in order effectively to contest such claim, and(4)permit the Company to participate in any proceedings relating to such claim;provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest andpenalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for anyExcise Tax or income tax (including interest and penalties) imposed as a result of such representation and payment of costs and expenses.Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection withsuch contest, and, at its sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferenceswith the applicable taxing authority in respect of such claim and may, at its sole discretion, either pay the tax claimed to the appropriatetaxing authority on behalf of the Executive and direct the Executive to sue for a refund or contest the claim in any permissible manner,and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdictionand in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company pays such claim anddirects the Executive to sue for a refund, the Company shall indemnify and hold the Executive harmless, on an after-tax basis, fromany Excise Tax or income tax (including interest or penalties) imposed with respect to such payment or with respect to any imputedincome in connection with such payment; and provided, further, that any extension of the statute of limitations relating to payment oftaxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to suchcontested12amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which the Gross-Up Paymentwould be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by theInternal Revenue Service or any other taxing authority.(d)If, after the receipt by the Executive of a Gross-Up Payment or payment by the Company of an amount on theExecutive's behalf pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to the Excise Tax towhich such Gross-Up Payment relates or with respect to such claim, the Executive shall (subject to the Company's complying with therequirements of Section 8(c), if applicable) promptly pay to the Company the amount of such refund (together with any interest paid orcredited thereon after taxes applicable thereto). If, after payment by the Company of an amount on the Executive's behalf pursuant toSection 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Companydoes not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after suchdetermination, then the amount of such payment shall offset, to the extent thereof, the amount of Gross-Up Payment required to bepaid.(e)Notwithstanding any other provision of this Section 8, the Company may, in its sole discretion, withhold and pay tothe Internal Revenue Service or any other applicable taxing authority, for the benefit of the Executive, all or any portion of any Gross-Up Payment, and the Executive hereby consents to such withholding.Section 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company allsecret or confidential information, knowledge or data relating to the Company or the Affiliated Companies, and their respectivebusinesses, which information, knowledge or data shall have been obtained by the Executive during the Executive's employment by theCompany or the Affiliated Companies and which information, knowledge or data shall not be or become public knowledge (other thanby acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive'semployment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise berequired by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Companyand those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basisfor deferring or withholding any amounts otherwise payable to the Executive under this Agreement.Section 10. Successors. (a) This Agreement is personal to the Executive, and, without the prior written consent of theCompany, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inureto the benefit of and be enforceable by the Executive's legal representatives.(b)This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. Exceptas provided in Section 10(c), without the prior written consent of the Executive, this Agreement shall not be assignable by theCompany.(c)The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation orotherwise) to all or substantially all of the business and/or assets of the13Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Companywould be required to perform it if no such succession had taken place. “Company” means the Company as hereinbefore defined and anysuccessor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise.Section 11. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State ofDelaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof andshall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by theparties hereto or their respective successors and legal representatives.(b)All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the otherparty or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:if to the Executive: At the most recent address on file in the Company's recordsif to the Company: Valero Energy CorporationOne Valero WaySan Antonio, Texas 78249Attention: Corporate Secretaryor to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communicationsshall be effective when actually received by the addressee.(c)The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability ofany other provision of this Agreement.(d)The Company may withhold from any amounts payable under this Agreement such United States federal, state orlocal or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.(e)The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement orthe failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of theExecutive to terminate employment for Good Reason pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a waiverof such provision or right or any other provision or right of this Agreement.(f)The Executive and the Company acknowledge that, except as may otherwise be provided under any other writtenagreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and, subject toSection 1(a), prior to the Effective Date, the Executive's employment may be terminated by either the Executive or the Company atany time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after theEffective Date, except as specifically provided herein, this Agreement shall supersede any other agreement between the parties withrespect to the subject matter hereof.14IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from theBoard, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written._________________________________Kimberly S. BowersVALERO ENERGY CORPORATIONBy:_________________________________Name: Gregory C. KingTitle: President15December 14, 2011__________________________________________________________________Re: Technical Amendment for Internal Revenue Code Section 409ADear :This letter constitutes an amendment of the Change of Control Severance Agreement (“Agreement”) between you and ValeroEnergy Corporation dated _________, made for the sole purpose of attempting to ensure compliance of the Agreement with thedocumentation requirements under Internal Revenue Code Section 409A and, as such, attempting to avoid the imposition of taxes andpenalties on you under Section 409A of the Internal Revenue Code.In that connection, the Agreement is hereby amended by adding the following language as a new Section 11 of the Agreementand by renumbering the remaining sections appropriately:“11. Code Section 409A. This Agreement is intended to comply, and shall be administered consistently in all respects, withCode Section 409A of the Internal Revenue Code of 1986, as amended (“Code”), and the regulations and additional guidancepromulgated thereunder, to the extent applicable. In this connection, the Company shall have authority to take any action, orrefrain from taking any action, with respect to this Agreement that is reasonably necessary to ensure compliance with CodeSection 409A (provided that the Company shall choose the action that best preserves the value of the payments and benefitsprovided to the Executive under this Agreement that is consistent with Code Section 409A), and the parties agree that thisAgreement shall be interpreted in a manner that is consistent with Code Section 409A. In furtherance, but not in limitation ofthe foregoing: (a) in no event may Executive designate, directly or indirectly, the calendar year of any payment to be madehereunder; (b) in the event that Executive is a “specified employee” within the meaning of Code Section 409A, paymentswhich constitute a “deferral of compensation” under Code Section 409A and which would otherwise become due during thefirst six (6) months following Executive's Date of Termination shall be delayed and all such delayed payments shall be paid infull in the seventh (7th) month after the Executive's termination of employment or, if earlier, upon the Executive's death,provided that the above delay shall not apply to any payment that is excepted from coverage by Code Section 409A, such as apayment covered by the short-term deferral exception described in Treasury Regulations Section 1.409A-1(b)(4); (c)notwithstanding any other provision of this Agreement, a termination, resignation or retirement of Executive's employmenthereunder, shall mean, and be interpreted consistent with, a “separation from service” within the meaning of Code Section409A, and “Date of Termination,” for purposes of determining the date that any payment or benefit is required to be providedhereunder,shall be deemed to mean the date of Executive's separation from service within the meaning of Code Section 409A; (d) withrespect to any reimbursement of fees and expenses, or similar payments or any in-kind benefits, the following shall apply: (i)unless a specific time period during which such expense reimbursements and payments may be incurred is provided for herein,such time period shall be deemed to be Executive's lifetime; (ii) the amount of expenses eligible for reimbursement hereunder,or in-kind benefits to which Executive is entitled hereunder, in any particular year shall not affect the expenses eligible forreimbursement or in-kind benefits in any other year; (ii) the right to reimbursement of expenses or in-kind benefits shall not besubject to liquidation or exchange for any other benefit; (iii) the reimbursement of an eligible expense or a payment shall bemade on or before the last day of the calendar year following the calendar year in which the expense was incurred or thepayment was remitted, as the case may be.”Please indicate your acceptance of, and agreement to, this amendment by signing this letter in the space provided below. Sincerely, Valero Energy Corporation By: R. Michael Crownover Senior Vice President Human ResourcesAGREED AND ACCEPTED:___________________________[Executive]Exhibit 10.19PERFORMANCE SHARE AGREEMENTThis Performance Share Agreement (the “Agreement”) is entered into as of October 28, 2011, by and between Valero Energy Corporation, aDelaware corporation (“Valero”), and [____________________], a participant (the “Participant”) in Valero's 2011 Omnibus Stock IncentivePlan (as may be amended, the “Plan”), pursuant to and subject to the provisions of the Plan.1.Grant of Performance Shares. Valero hereby grants to Participant [________] Performance Shares pursuant to Section 6.7 of the Plan.The Performance Shares represent rights to receive shares of Common Stock of Valero, subject to the terms and conditions of thisAgreement and the Plan.2.Vesting and Delivery of Shares.A.Vesting. The Performance Shares granted hereunder shall vest over a period of three years in equal, one-third increments with the firstincrement vesting on the date of the regularly scheduled meeting of the Board's Compensation Committee in January 2013, and thesecond and third increments vesting on the Committee's meeting dates in January 2014 and January 2015, respectively (each of thesethree vesting dates is referred to as a “Normal Vesting Date”); any award(s) of shares of Common Stock resulting in connection withsuch vesting shall be subject to verification of attainment of the Performance Objectives described in Section 4 (below) by theCompensation Committee. If the Committee is unable to meet in January of a given year, then the Normal Vesting Date for that year willbe the date not later than March 31 of that year as selected by the Compensation Committee.B.Rights. Until shares of Common Stock are actually issued to Participant (or his or her estate) in settlement of the Performance Shares,neither Participant nor any person claiming by, through or under Participant shall have any rights as a stockholder of Valero (including,without limitation, voting rights or any right to receive dividends or other distributions) with respect to such shares.C.Distribution. Any shares of Common Stock to be distributed under the terms of this Agreement shall be distributed as soon asadministratively practicable after Performance Objectives described in Section 4 below have been verified by the CompensationCommittee, but not later than two-and-one-half months following the end of the year in which such verification occurred.3.Performance Period. Except as provided below with respect to a Change of Control (as defined in the Plan), the “Performance Period” forany Performance Shares eligible to vest on any given Normal Vesting Date shall be as follows:A.First Segment. The Performance Period for the first one-third vesting of Performance Shares (those vesting on the Normal VestingDate in January 2013) shall be the calendar year ending on December 31, 2012.B.Second Segment. The Performance Period for the second one-third vesting of Performance Shares (those vesting on the NormalVesting Date in January 2014) shall be the two calendar years ending December 31, 2013.C.Third Segment. The Performance Period for the final one-third vesting of Performance Shares (those vesting on the Normal VestingDate in January 2015) shall be the three calendar years ending December 31, 2014.Page 14.Performance Objectives.A.Total Shareholder Return. Total Shareholder Return (“TSR”) will be compiled for a peer group of companies (the “Target Group”)for the Performance Period immediately preceding each Normal Vesting Date. TSR for each such company is measured by dividing(A) the sum of (i) the dividends on the common stock of such company during the Performance Period, assuming dividendreinvestment, and (ii) the difference between the average closing price of a share of such company's common stock for the 30 days ofDecember 2 to December 31 at the end of the Performance Period and the average closing price of such shares for the 30 days ofDecember 2 to December 31 immediately prior to the beginning of the Performance Period (appropriately adjusted for any stockdividend, stock split, spin-off, merger or other similar corporate events), by (B) the average closing price of a share of suchcompany's common stock for the 30 days of December 2 to December 31 immediately prior to the beginning of the PerformancePeriod.B.Target Group. The applicable Target Group shall be selected by the Compensation Committee, acting in its sole discretion, each yearnot later than 90 days after the commencement of the calendar year preceding each Normal Vesting Date. The same Target Group shallbe used to measure TSR with regard to all Performance Shares vesting under all Performance Award Agreements of Valero having asimilar Normal Vesting Date.C.Performance Ranking and Award of Common Shares. For each Performance Period, the TSR for Valero and each company in theTarget Group shall be arranged by rank from best performer to worst performer according to the TSR achieved by each company.Shares of Common Stock will be awarded to Participant in accordance with Valero's percentile ranking within the Target Group. Thenumber of shares of Common Stock, if any, that Participant will be entitled to receive in settlement of the vested Performance Shareswill be determined on each Normal Vesting Date and, subject to the provisions of the Plan and this Agreement, on such Normal VestingDate, the following percentage of the vested Performance Shares will be awarded as shares of Common Stock to the Participant whenValero's TSR during the Performance Period falls within the following percentiles (“Percentiles”), with awards of Common Stock tobe interpolated between the “25th Percentile” and “50th Percentile” and between the “50th Percentile” and “75th Percentile”:Valero Performance Percent of vested PerformanceShares to be awarded asShares of Common Stock75th Percentile or Higher 200%50th Percentile (to 74.99%) 100% (to 199%)25th Percentile (to 49.99%) 50% (to 99%)Below 25th Percentile 0%D.Unearned Shares. Any Performance Shares not awarded as shares of Common Stock on a Normal Vesting Date will expire and beforfeited; such Performance Shares may not be carried forward for any additional Performance Period.Page 25.Termination of Employment.A.Voluntary Termination, Termination for “Cause,” and Early Retirement. If Participant's employment is(i)voluntarily terminated by the Participant (other than through normal retirement, death or disability), including termination inconnection with Participant's voluntary early retirement (i.e., prior to age 62),(ii)terminated by Valero for “cause” (as defined pursuant to the Plan),then those Performance Shares that are outstanding and have not vested as of the effective date of termination shall thereupon beforfeited.B.Retirement. If a Participant's employment is terminated through his or her normal retirement (i.e., age 62+ retirement), then anyPerformance Shares that (i) have not theretofore vested or been forfeited, and (ii) were granted at least one year prior to the Participant'seffective date of retirement, shall continue to remain outstanding and shall vest on the Normal Vesting Dates according to their originalvesting schedule. But any outstanding Performance Shares that were granted within one year of the Participant's effective date ofretirement shall thereupon be forfeited.C.Death, Disability, Involuntary Termination Other Than for “Cause,” and Change of Control. If a Participant's employment isterminated (i) through death or disability, or (ii) by Valero other than for cause (as determined pursuant to the Plan), or (iii) as a result ofa Change of Control (as described in the Plan) (each of the foregoing is hereafter referred to as a “Trigger Date”), then eachPerformance Period with respect to any Performance Shares that have not vested or been forfeited shall be terminated effective as ofsuch Trigger Date; the TSR for Valero and for each company in the Target Group shall be determined for each such shortenedPerformance Period and the percentage of Performance Shares to be received by the Participant for each such Performance Period shallbe determined in accordance with Section 4 and shall be distributed as soon as administratively practicable thereafter. For purposes ofdetermining the number of Performance Shares to be received as of any Trigger Date, the Target Group as most recently determined bythe Compensation Committee prior to the Trigger Date shall be used.6.Plan Incorporated by Reference. The Plan is incorporated into this Agreement by this reference and is made a part hereof for all purposes.Capitalized terms not otherwise defined in this Agreement shall have the meaning specified in the Plan.7.No Assignment. This Agreement and the Participant's interest in the Performance Shares granted by this Agreement are of a personal nature,and, except as expressly permitted under the Plan, Participant's rights with respect thereto may not be sold, mortgaged, pledged, assigned,transferred, conveyed or disposed of in any manner by Participant, except by an executor or beneficiary pursuant to a will or pursuant to thelaws of descent and distribution. Any such attempted sale, mortgage, pledge, assignment, transfer, conveyance or disposition is void, andValero will not be bound thereby.8.Successors. This Agreement shall be binding upon any successors of Valero and upon the beneficiaries, legatees, heirs, administrators,executors, legal representatives, successors and permitted assigns of Participant.Page 39.Code Section 409A. This Agreement is intended to comply, and shall be administered consistently in all respects, with Section 409A of theInternal Revenue Code of 1986, as amended (the “Code”), and the regulations and additional guidance promulgated thereunder to the extentapplicable. Accordingly, Valero shall have the authority to take any action, or refrain from taking any action, with respect to this Agreementthat is reasonably necessary to ensure compliance with Code Section 409A (provided that Valero shall choose the action that best preservesthe value of payments and benefits provided to Participant under this Agreement that is consistent with Code Section 409A), and the partiesagree that this Agreement shall be interpreted in a manner that is consistent with Code Section 409A. In furtherance, but not in limitation ofthe foregoing:(a)in no event may Participant designate, directly or indirectly, the calendar year of any payment to be made hereunder;(b)to the extent the Participant is a “specified employee” within the meaning of Code Section 409A, payments, if any, that constitute a“deferral of compensation” under Code Section 409A and that would otherwise become due during the first six months followingParticipant's termination of employment shall be delayed and all such delayed payments shall be paid in full in the seventh monthafter such termination date, provided that the above delay shall not apply to any payment that is excepted from coverage by CodeSection 409A, such as a payment covered by the short-term deferral exception described in Treasury Regulations Section 1.409A-1(b)(4);(c)notwithstanding any other provision of this Agreement, a termination, resignation or retirement of Participant's employmenthereunder shall mean and be interpreted consistent with a “separation from service” within the meaning of Code Section 409A.Executed effective as of the date first written above.VALERO ENERGY CORPORATIONBy: ______________________________________R. Michael Crownover, Senior Vice President__________________________________________[__________], ParticipantPage 4Exhibit 10.21Notice of Grant of Stock Option Valero Energy Corporationand Option Agreement ID: 74-1828067 P. O. Box 696000 San Antonio, TX 78269-6000 «First_Name» «Middle_Name» «Last_Name» Option Number:«NUM» Plan:«PLAN_NAME» ID:«SSN»Effective «Option_Date», you have been granted a «Long_Type» to buy «Shares_Granted» shares of the common stock of ValeroEnergy Corporation (the “Company”) at «Option_Price» per share.The total Option price of the shares granted is «Total_Option_Price».Your Options will vest on the dates shown below.Shares Grant Date Vest Type Full Vest Expiration«Shares_Period_1» «Option_Date» «Vest_Type_Period_1» «Vest_Date_Period_1» «Expiration_Date_Period_1»«Shares_Period_2» «Option_Date» «Vest_Type_Period_2» «Vest_Date_Period_2» «Expiration_Date_Period_2»«Shares_Period_3» «Option_Date» «Vest_Type_Period_3» «Vest_Date_Period_3» «Expiration_Date_Period_3» By your signature and the Company's signature below, you and the Company agree that the Option referenced above is granted underand governed by the terms and conditions of the Company's 2011 Omnibus Stock Incentive Plan (as may be amended) and theOption Agreement attached hereto, all of which are made a part of this agreement.VALERO ENERGY CORPORATIONBy: R Michael Crownover DateSenior Vice President - Human Resources «First_Name» «Middle_Name» «Last_Name» DateEmployee OPTION AGREEMENTValero Energy Corporation 2011 Omnibus Stock Incentive PlanThis Option Agreement (this “Agreement”) is entered into between Valero Energy Corporation, a Delaware corporation(“Valero”), and Employee pursuant to the terms of the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan (as maybe amended, the “Plan”). As used herein, Employee means «First_Name» «Middle_Name» «Last_Name». Capitalized terms used inthis Agreement and the attached Form A but not otherwise defined in this Agreement have the meanings set forth in the Plan.1. Grant of Option. Valero grants to Employee the option (the “Option”) to purchase up to «Shares_Granted» shares ofcommon stock of Valero, $.01 par value per share (“Shares”), in accordance with the terms of this Agreement and the Plan. The Shares,when issued to Employee upon the exercise of the Option, will be fully paid and non-assessable.2. Purchase Price. The purchase price of the Shares will be «Option_Price» per Share.3. Exercise of Option. The period during which the Option is in effect (the “Option Period”) will commence on«Option_Date». The Option Period will terminate on «Expiration_Date_Period_1». No portion of the Option may be exercised priorto «Vest_Date_Period_1». Subject to the provisions of the Plan relating to suspension or termination from the Plan, the Option will beavailable for exercise in the following increments: «Shares_Period_1» shares on «Vest_Date_Period_1»; «Shares_Period_2»shares on «Vest_Date_Period_2»; and «Shares_Period_3» shares on «Vest_Date_Period_3».The Option must be exercised in accordance with procedures established by Valero and pursuant to one of the methods forexercise set forth in the Exercise Notice. Payment for the Shares will be made at Valero's San Antonio offices.If any law or regulation requires Valero to take any action with respect to the Shares specified in the Exercise Notice, then thedate of delivery of the Shares against payment will be extended for the period necessary to take such action. In the event of any failureby Employee to pay for the number of Shares specified in the Exercise Notice on the Exercise Date, the exercise of the Option withrespect to such number of Shares will be treated as if it had never been made.4. Plan Incorporated by Reference. The Plan is incorporated herein, and by this reference, is made a part hereof for allpurposes.5. Limitation of Rights of Employee. Employee will have no rights with respect to any Shares not expressly conferred bythe Plan or this Agreement.6. No Assignment. This Agreement and the Option granted hereunder are of a personal nature and Employee's rights withrespect hereto and thereto may not be sold, mortgaged, pledged, assigned, transferred, conveyed or disposed of in any manner byEmployee and may notbe exercised by any person, other than Employee, except as expressly permitted under the Plan. Any such attempted sale, mortgage,pledge, assignment, transfer, conveyance, disposition or exercise will be void, and Valero will not be bound thereby.7. Successors. This Agreement is binding upon any successors of Valero and the heirs, successors and legal representativesof Employee.8. Direct Registration. Employee agrees that in lieu of stock certificates, any Shares issuable in connection with the exerciseof the Option may be issued in uncertificated form pursuant to the Direct Registration System (“DRS”) of Valero's stock transfer agent.Exhibit 10.24RESTRICTED STOCK AGREEMENTValero Energy Corporation 2011 Omnibus Stock Incentive Plan(subject to performance accelerated vesting)This Restricted Stock Agreement (this “Agreement”) is between Valero Energy Corporation, a Delaware corporation (“Valero”), and«FIRST_NAME» «MIDDLE_NAME» «LAST_NAME», an employee of Valero or one of its Affiliates (“Employee”), who agree as follows:1. Introduction. Pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan (as may be amended, the “Plan”), on«OPTION_DATE», Employee was awarded «SHARES_GRANTED_» shares of Common Stock of Valero under the Plan as Restricted Stock (as definedin the Plan) (“Restricted Stock”). The parties hereby enter into this Agreement to evidence the terms, conditions and restrictions applicable to the RestrictedStock.2. The Plan, Restrictions, Vesting. The Plan is incorporated herein by reference for all purposes, and Employee hereby agrees to the terms andconditions stated therein applicable to the Restricted Stock and the rights and powers of Valero and the Committee as provided therein. In addition, Employeeagrees as follows:2.01 Nontransferable. Except to the extent otherwise provided in the Plan or this Agreement, shares of Restricted Stock issued to Employeeunder the Plan may not be sold, exchanged, pledged, hypothecated, transferred, garnished or otherwise disposed of or alienated prior to vesting.2.02 Regular Vesting. Except to the extent otherwise provided in the Plan, Employee's rights to and interest in the shares of Restricted Stockdescribed herein shall vest and accrue to Employee in the following increments: «SHARES_PERIOD_1_» shares on«VEST_DATE_PERIOD_1»; «SHARES_PERIOD_2_» shares on «VEST_DATE_PERIOD_2»; and «SHARES_PERIOD_3_» shares on«VEST_DATE_PERIOD_3».2.03 Performance Accelerated Vesting for Eligible Shares. Fifty percent (50%) of the shares of Restricted Stock stated in Section 1 aboveshall be eligible for performance accelerated vesting (“Eligible Shares”). Notwithstanding the vesting schedule stated in Section 2.02, to the extent anyEligible Shares have not yet vested per the schedule stated in Section 2.02, and to the extent the Eligible Shares have not been forfeited or otherwisecanceled pursuant to the terms of the Plan, all unvested Eligible Shares shall automatically vest at the close of business on the last date of theAcceleration Period. The “Acceleration Period” means the first period following the Effective Date when the closing price per share of Valero CommonStock is $40.00 or above for five consecutive trading days as reported on the New York Stock Exchange (NYSE).2.04 Book Entry Shares. Employee agrees that in lieu of certificates representing Employee's shares of Restricted Stock, the RestrictedStock and any Shares issuable in connection with their vesting may be issued in uncertificated form pursuant to the Direct Registration System(“DRS”) of Valero's stock transfer agent.2.05 Restructuring or Reorganization. If, as the result of a stock split, stock dividend, combination of shares or any other change,including an exchange of securities for any reason, the Employee shall be entitled to new or additional or different shares of stock or securities, suchstock or securities shall be subject to the terms and conditions of the Plan and this Agreement.3. Limitation. The Employee shall have no rights with respect to any shares of Restricted Stock not expressly conferred by the Plan or thisAgreement.4. Miscellaneous. All capitalized terms contained in this Agreement shall have the definitions set forth in the Plan unless otherwise defined herein.This Agreement shall be binding upon the parties hereto and their respectivebeneficiaries, heirs, administrators, executors, legal representatives and successors.5. Code Section 409A. The issuance of shares under this Award shall be made on or as soon as reasonably practical following the applicable dateof vesting, but in any event no later than the 15th day of the third month following the end of the year in which the applicable date of vesting occurs. Withrespect to the receipt of dividends, the payment of dividends shall be made by the last day of the fiscal quarter during which dividends on Valero CommonStock are paid, but in any event by no later than the 15th day of the month following the end of the year in which the applicable dividends on Valero CommonStock are paid. This Agreement and the award evidenced hereby are intended to comply, and shall be administered consistently, in all respects with Section409A of the Internal Revenue Code and the regulations promulgated thereunder. If necessary in order to ensure such compliance, this Agreement may bereformed consistent with guidance issued by the Internal Revenue Service.EFFECTIVE as of the ___ day of _______________, 2011(the “Effective Date”).VALERO ENERGY CORPORATION__________________________________ R Michael CrownoverSenior Vice President-Human Resources___________________________________EmployeeExhibit 10.26$3,000,000,000 5-YEAR AMENDED AND RESTATEDREVOLVING CREDIT AGREEMENTdated as of December 5, 2011amongVALERO ENERGY CORPORATIONThe Lenders Party HeretoandJPMORGAN CHASE BANK, N.A.,as Administrative AgentCITIBANK, N.A.,as Syndication AgentandBNP PARIBAS,MIZUHO CORPORATE BANK, LTD.,andTHE ROYAL BANK OF SCOTLAND PLC,as Co-Documentation AgentsJ.P.MORGAN SECURITIES LLC, CITIGROUP GLOBAL MARKETS INC.,BNP PARIBAS SECURITIES CORP., MIZUHO CORPORATE BANK, LTD., andRBS SECURITIES INC.,as Joint Lead Arrangers and Joint BookrunnersTABLE OF CONTENTSPageARTICLE IDEFINITIONSSection 1.01Defined Terms1Section 1.02Classification of Loans and Borrowings18Section 1.03Terms Generally19Section 1.04Accounting Terms; GAAP19Section 1.05Letter of Credit Amounts19ARTICLE IITHE CREDITSSection 2.01Commitments20Section 2.02Commitment Increase20Section 2.03Swingline Loans22Section 2.04Loans and Borrowings23Section 2.05Requests for Borrowings24Section 2.06Letters of Credit24Section 2.07Funding of Borrowings30Section 2.08Interest Elections31Section 2.09Termination and Reduction of Commitments32Section 2.10Repayment of Loans; Evidence of Debt32Section 2.11Prepayment of Loans33Section 2.12Fees34Section 2.13Interest35Section 2.14Alternate Rate of Interest36Section 2.15Increased Costs36Section 2.16Break Funding Payments37Section 2.17Taxes38Section 2.18Payments Generally; Pro Rata Treatment; Sharing of Setoffs41Section 2.19Mitigation Obligations; Replacement of Lenders42Section 2.20Illegality43Section 2.21Extension of Maturity Date43Section 2.22Defaulting Lenders44-i-ARTICLE IIIREPRESENTATIONS AND WARRANTIESSection 3.01Organization; Powers47Section 3.02Authorization; Enforceability47Section 3.03Governmental Approvals; No Conflicts47Section 3.04Financial Condition47Section 3.05Environmental Matters48Section 3.06No Default48Section 3.07Investment Company Status48Section 3.08Taxes48Section 3.09ERISA48Section 3.10Disclosure48ARTICLE IVCONDITIONSSection 4.01Revolving Effective Date49Section 4.02Each Credit Event50ARTICLE VAFFIRMATIVE COVENANTSSection 5.01Financial Statements and Other Information51Section 5.02Notices of Material Events52Section 5.03Existence; Conduct of Business53Section 5.04Payment of Obligations53Section 5.05Maintenance of Properties; Insurance53Section 5.06Books and Records; Inspection Rights54Section 5.07Compliance with Laws54Section 5.08Use of Proceeds54-ii-ARTICLE VINEGATIVE COVENANTSSection 6.01Indebtedness54Section 6.02Liens55Section 6.03Fundamental Changes56Section 6.04Hedging Agreements57Section 6.05Transactions with Affiliates57ARTICLE VIIEVENTS OF DEFAULTARTICLE VIIITHE ADMINISTRATIVE AGENTARTICLE IXMISCELLANEOUSSection 9.01Notices62Section 9.02Waivers; Amendments63Section 9.03Expenses; Indemnity; Damage Waiver64Section 9.04Successors and Assigns66Section 9.05Survival69Section 9.06Counterparts; Integration; Effectiveness69Section 9.07Severability69Section 9.08Right of Setoff70Section 9.09Governing Law; Jurisdiction; Consent to Service of Process70Section 9.10Waiver of Jury Trial71Section 9.11Headings71Section 9.12Confidentiality71Section 9.13Interest Rate Limitation72Section 9.14USA PATRIOT Act72Section 9.15Amendment and Restatement72Section 9.16Assignment and Reallocation of Commitments, Etc73-iii-SCHEDULES:Schedule 1.01 - Pricing ScheduleSchedule 2.01 - CommitmentsSchedule 2.06 - Outstanding Letters of CreditSchedule 6.01 - Existing Indebtedness of SubsidiariesSchedule 6.02(j) - Existing LiensEXHIBITS:Exhibit A - Form of Assignment and AssumptionExhibit B - Notice of Commitment IncreaseExhibit C - Form of Borrowing RequestExhibit D - Form of Promissory NoteExhibit E - Form of Opinion of Jay Browning, Borrower's In-house CounselExhibit F - Form of Opinion of Baker Botts L.L.P., Borrower's Counsel-iv-$3,000,000,000 5-YEAR AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, dated as of December 5,2011 (as amended, supplemented or otherwise modified from time to time, the “Agreement”), among VALERO ENERGYCORPORATION, the LENDERS party hereto, JPMORGAN CHASE BANK, N.A., as Administrative Agent, CITIBANK, N.A., asSyndication Agent and BNP PARIBAS, MIZUHO CORPORATE BANK, LTD., and THE ROYAL BANK OF SCOTLAND PLC, asCo-Documentation Agents.WHEREAS, the parties hereto have agreed to amend and restate that certain $2,500,000,000 5-Year Revolving CreditAgreement, dated as of August 17, 2005 (as amended, supplemented or otherwise modified prior to the date hereof, the “ExistingRevolving Credit Agreement”), among the Borrower, the financial institutions party thereto as lenders, JPMorgan Chase Bank, N.A., asAdministrative Agent and the other Persons from time to time party thereto.NOW THEREFORE, the parties hereto agree as follows:ARTICLE IDEFINITIONSSection1.01 Defined Terms.As used in this Agreement, the following terms have the meanings specified below:“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising suchBorrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.“Adjusted Consolidated Net Debt” means, at any date, Consolidated Net Debt less the principal amount of HybridEquity Securities in an aggregate amount not to exceed 15% of Total Capitalization.“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate perannum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) theStatutory Reserve Rate.“Administrative Agent” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lendershereunder.“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or moreintermediaries, Controls or is Controlled by or is under common Control with the Person specified.“Agreement” has the meaning set forth in the introductory paragraphs hereto.“Alternate Base Rate” means, for any day, a rate per annum equal to the highest of-1-(a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus ½ of 1% and (c) the AdjustedLIBO Rate for a one month Interest Period plus 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate, theFederal Funds Effective Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in thePrime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate, respectively.“Alternative Currency Equivalent” means, at any time, with respect to any amount denominated in dollars, theequivalent amount thereof in the applicable Approved Currency (other than dollars) as determined by the Administrative Agent or theapplicable Issuing Bank, as the case may be, at such time on the basis of the Spot Rate on any date of determination for the purchase ofsuch Approved Currency (other than dollars) with dollars.“Applicable Percentage” means, with respect to any Lender, the percentage of the total Commitments represented bysuch Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined basedupon the Commitments most recently in effect, giving effect to any assignments.“Applicable Rate” means, for any day, with respect to any ABR Loan or Eurodollar Loan, or with respect to the facilityfees payable hereunder, as the case may be, the applicable rate per annum set forth on the Pricing Schedule under the caption “ABRMargin,” “LIBOR Margin” or “Facility Fee”, as the case may be, based upon the ratings by Moody's and S&P, respectively, applicable onsuch date to the Index Debt.“Approved Currency” means dollars, Canadian dollars, British pounds and euros.“Approved Fund” has the meaning set forth in Section 9.04(b).“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with theconsent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, substantially in the form ofExhibit A or any other form approved by the Administrative Agent.“Availability Period” means the period from and including the Revolving Effective Date to but excluding the earlier ofthe Maturity Date and the date of termination of the Commitments.“Bankruptcy Event” means, with respect to any Person, such Person becomes the subject of a bankruptcy orinsolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors orsimilar Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of theAdministrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any suchproceeding or appointment, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or theacquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof, provided, further, thatsuch ownership interest does not result in or provide such Person with immunity from the jurisdiction of courts within the United Statesor from the enforcement of judgments or writs of attachment on its assets or permit such Person (or such Governmental Authority orinstrumentality) to reject,-2-repudiate, disavow or disaffirm any contracts or agreements made by such Person.“Benefit Arrangement” means at any time an employee benefit plan within the meaning of Section 3(3) of ERISAwhich is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any ERISA Affiliate.“Board” means the Board of Governors of the Federal Reserve System of the United States of America.“Borrower” means Valero Energy Corporation, a Delaware corporation.“Borrowing” means (a) Loans of the same Type, made, converted or continued on the same date and, in the case ofEurodollar Loans, as to which a single Interest Period is in effect or (b) a Swingline Loan.“Borrowing Request” means a request by the Borrower for a Borrowing in accordance with Section 2.05.“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New YorkCity are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term“Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under anylease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations arerequired to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of suchobligations shall be the capitalized amount thereof determined in accordance with GAAP.“Cash Equivalents” means (a) marketable direct obligations issued by, or unconditionally guaranteed by, the UnitedStates Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturingwithin one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank depositshaving maturities of six months or less from the date of acquisition issued by any Lender or by any commercial bank organized under thelaws of the United States of America or any state thereof having combined capital and surplus of not less than $250,000,000;(c) commercial paper of an issuer rated at least A-2 by Standard & Poor's Ratings Services or P-2 by Moody's Investors Service, Inc., orcarrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings ofcommercial paper issuers generally, and maturing within six months from the date of acquisition; (d) money market accounts or fundswith or issued by Qualified Issuers; (e) short term debt obligations of an issuer rated at least BBB by Standard & Poor's Ratings Servicesor Baa2 by Moody's Investor Service, Inc., and maturing within thirty days from the date of acquisition; (f) repurchase obligations with aterm of not more than 90 days for underlying securities of the types described in clause (a) above entered into with any bank meeting thequalifications specified in clause (b) above; and (g) solely with respect to a Subsidiary which is incorporated or organized under the lawsof a jurisdiction outside-3-of the United States, in addition to the investments described in clauses (a) through (f) of this definition, substantially similarinvestments denominated in foreign currencies (including similarly capitalized foreign banks).“Change in Control” means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by anyPerson or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commissionthereunder as in effect on the date hereof) of shares representing more than 25% of the aggregate ordinary voting power represented bythe issued and outstanding capital stock of the Borrower (excluding, however, any such person or group entitled to report suchownership on Schedule 13G in accordance with Rule 13d-1(b)(1) or (2)); or (b) occupation of a majority of the seats (other than vacantseats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrowernor (ii) appointed by directors so nominated.“Change in Law” means the occurrence after the date of this Agreement (or, with respect to any Person that becomes aLender after the date hereof, such later date on which such Person becomes a Lender under this Agreement) (a) the adoption of any law,rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the interpretation or application thereof by anyGovernmental Authority or (c) compliance by any Lender or any Issuing Bank (or, for purposes of Section 2.15(b), by any lendingoffice of such Lender or by such Lender's or such Issuing Bank's holding company, if any) with any request, guideline or directive(whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that,notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests,rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directivespromulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similarauthority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall be deemed to be a “Change inLaw”, regardless of the date enacted, adopted or issued.“CI Lender” has the meaning set forth in Section 2.02(a).“Code” means the Internal Revenue Code of 1986, as amended from time to time.“Co-Documentation Agents” means, collectively, BNP Paribas, Mizuho Corporate Bank, Ltd., and The Royal Bank ofScotland plc, each in its capacity as a co‑documentation agent for the Lenders hereunder.“Commitment” means, with respect to each Lender, the commitment of such Lender to make Loans and to acquireparticipations in Letters of Credit and Swingline Loans hereunder, expressed as an amount representing the maximum potentialaggregate amount of such Lender's Credit Exposure hereunder, as such commitment may be (a) modified from time to time pursuant toSection 2.02, (b) reduced from time to time pursuant to Section 2.09, or (c) reduced or increased from time to time pursuant toassignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment is set forth onSchedule 2.01, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Commitment, as applicable.The-4-initial aggregate amount of the Lenders' Commitments is $3,000,000,000.“Commitment Increase” has the meaning set forth in Section 2.02(a).“Commitment Increase Effective Date” has the meaning set forth in Section 2.02(b).“Competitor” means (a) any Person who is primarily engaged in businesses of the type primarily conducted by theBorrower and its Subsidiaries and (b) any Affiliate of a Person identified in clause (a) above (it being agreed that an investment firm orother financial institution shall not be deemed to Control a Person described in clause (a) above merely as a result of owning a minorityinterest in such Person if it does not otherwise Control such Person).“Consenting Lenders” has the meaning set forth in Section 2.21(b).“Consolidated Net Debt” means, at any date, the Indebtedness of the Borrower and its Subsidiaries less the aggregateamount of (a) cash and Cash Equivalents held by the Borrower and its Subsidiaries at such date and (b) cash and Cash Equivalents thathave been deposited in a trust account or account created or pledged for the sole benefit of the holders of any Indebtedness of theBorrower or its Subsidiaries that has been defeased pursuant to such deposit and the other applicable terms of the instrument governingsuch Indebtedness, in each case determined on a consolidated basis in accordance with GAAP.“Consolidated Net Tangible Assets” means, on any date, the aggregate amount of assets (less applicable accumulateddepreciation, depletion and amortization and other reserves and other properly deductible items) of the Borrower and its Subsidiaries,minus (a) all current liabilities of the Borrower and its Subsidiaries (excluding current maturities of long-term debt) and (b) all goodwillof the Borrower and its Subsidiaries, all of the foregoing determined on a consolidated basis in accordance with GAAP.“Consolidated Net Worth” means for the Borrower at any date the Net Worth of the Borrower and its Subsidiaries as ofsuch date determined on a consolidated basis in accordance with GAAP.“Consolidated Total Assets” means, at any date, the aggregate total assets of the Borrower and its Subsidiaries,determined on a consolidated basis as of such date in accordance with GAAP.“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the managementor policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled”have meanings correlative thereto.“Credit Party” means the Administrative Agent, any Issuing Bank, the Swingline Lender or any other Lender and“Credit Parties” shall be the collective reference to all of them.“Credit Exposure” means, with respect to any Lender at any time, the sum of the-5-outstanding principal amount of such Lender's Loans, its LC Exposure and its Swingline Exposure at such time.“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time orboth would, unless cured or waived, become an Event of Default.“Defaulting Lender” means any Lender that (a) has failed, within three Business Days of the date required to be fundedor paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in LC Disbursements or Swingline Loans or (iii) payover to any Credit Party any other amount required to be paid by such Lender hereunder, unless, in the case of clause (i) above, suchLender notifies the Administrative Agent in writing that such failure is the result of such Lender's good faith determination that acondition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied or, in the case ofclause (iii) above, such Lender notifies the Administrative Agent in writing that such failure is the result of a good faith dispute withrespect to the requirement to pay such amount, (b) has notified the Borrower or any Credit Party in writing, or has made a publicstatement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement or generallyunder other agreements in which it commits to extend credit (unless such writing or public statement indicates that such position isbased on such Lender's good faith determination that a condition precedent (specifically identified and including the particular default, ifany) to funding a loan under any such agreement (including this Agreement cannot be satisfied), (c) has failed, within three BusinessDays after request by the Borrower or a Credit Party, acting in good faith, to provide a certification in writing from an authorized officerof such Lender that it will comply with its obligations to fund prospective Loans and participations in LC Disbursements and SwinglineLoans under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon Borroweror such Credit Party's receipt of such certification in form and substance satisfactory to the Borrower or such Credit Party, as applicable,and the Administrative Agent, or (d) has become the subject of a Bankruptcy Event.“Derivatives Obligations” of any Person means all obligations of such Person in respect of any Hedging Agreement.“Disclosed Matters” means the actions, suits and proceedings and the environmental and intellectual property matters(a) disclosed in (i) the Borrower's report on Form 10-K for the fiscal year ended December 31, 2010, (ii) the Borrower's report onForm 10-Q for the fiscal period ended September 30, 2011, and (iii) the Borrower's reports on Form 8-K filed during the period fromand including September 30, 2011 to but excluding the date that is two Business Days prior to the Revolving Effective Date, in eachcase as filed with the Securities and Exchange Commission, or (b) otherwise disclosed in writing to the Administrative Agent for thebenefit of the Lenders prior to the execution and delivery of this Agreement.“dollars” or “$” refers to lawful money of the United States of America, except if the term “dollar” is preceded by thename of another country.“Dollar Equivalent” means, at any time, (a) with respect to any amount denominated in dollars, such amount, and (b)with respect to any amount denominated in any Approved Currency-6-other than dollars, the equivalent amount thereof in dollars as determined by the Administrative Agent or the applicable Issuing Bank, asthe case may be, at such time on the basis of the Spot Rate on any date of determination for the purchase of dollars with such otherApproved Currency.“Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions,notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to theenvironment, preservation or reclamation of natural resources, the management, release or threatened release of any HazardousMaterials or to health and safety matters.“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs ofenvironmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from orbased upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal ofany Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials intothe environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed withrespect to any of the foregoing.“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liabilitycompany, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitlingthe holder thereof to purchase or acquire any such equity interest.“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower, istreated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 ofthe Code, is treated as a single employer under Section 414 of the Code.“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issuedthereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the filing pursuant toSection 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect toany Plan; (c) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to thetermination of any Plan, other than a standard termination under Section 4041(b) of ERISA; (d) the receipt by the Borrower or anyERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appointa trustee to administer any Plan; (e) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to thewithdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (f) the receipt by the Borrower or any ERISA Affiliate ofany notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning theimposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization,within the meaning of Title IV of ERISA.-7-“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprisingsuch Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.“Event of Default” has the meaning assigned to such term in Article VII.“Excluded Subsidiary Debt” means (i) unsecured Indebtedness of Subsidiaries existing on the Revolving Effective Dateand described on Schedule 6.01, (ii) Unsecured Acquisition Debt, (iii) refinancings, extensions, renewals, or refundings of anyIndebtedness permitted by clauses (i) and (ii) above, provided that the principal amount thereof is not increased, (iv) intercompanyIndebtedness that is owed by a Subsidiary to, and Guarantees of intercompany debt issued by such Subsidiary of debt of, the Borrower oranother wholly owned Subsidiary, (v) amounts owing pursuant to Securitization Transactions and (vi) to the extent that a Subsidiary hasprovided a Guarantee of the Borrower's Indebtedness and other obligations existing pursuant to this Agreement, such Subsidiary'sIndebtedness that is pari passu with (or subordinate to) the Indebtedness and other obligations existing pursuant to this Agreement.“Excluded Taxes” means, with respect to the Administrative Agent, any Lender, any Issuing Bank or any otherrecipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise Taxesimposed on (or measured by) its net income and/or net worth by the United States of America, or by the jurisdiction under the laws ofwhich such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lendingoffice is located, (b) any branch profits Taxes imposed by the United States of America or any similar Tax imposed by any otherjurisdiction in which the Borrower is located, (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by theBorrower under Section 2.19(b)), any withholding Tax that is imposed on amounts payable to such Foreign Lender at the time suchForeign Lender becomes a party to this Agreement (or designates a new lending office), but only to the extent that such Lender issubject to United States withholding Tax at the time such Lender first becomes party to this Agreement, except to the extent that suchForeign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receiveadditional amounts from the Borrower with respect to such withholding Tax pursuant to Section 2.17(a), (d) in the case of each Lender(other than an assignee pursuant to a request by Borrower under Section 2.19(b)), any United States withholding Tax imposed on anypayment made or to be made by the Borrower, but only to the extent that such Lender is subject to United States withholding Tax at thetime such Lender first becomes party to this Agreement, (e) income or franchise Taxes imposed as a result of a present or formerconnection between a Lender and the jurisdiction imposing such Tax (other than connections arising solely from such Lender havingexecuted, delivered, become a party to, performed its obligations under, received payments under, received or perfected a securityinterest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loanor Loan Document), (f) Taxes attributable to a Lender's failure to comply with Section 2.17(e) and (g) taxes imposed under FATCA.“Existing Lender” has the meaning set forth in Section 9.16.“Existing Revolving Credit Agreement” has the meaning set forth in the introductory-8-paragraphs hereto.“Extension Confirmation Date” has the meaning set forth in Section 2.21(b).“Extension Effective Date” has the meaning set forth in Section 2.21(b).“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (and any amended orsuccessor versions thereof that are substantially comparable and not materially more onerous to comply with) and any current or futureregulations or official interpretations thereof.“Federal Funds Effective Rate” means, for any day, the weighted average (rounded upwards, if necessary, to the next1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federalfunds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not sopublished for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations forsuch day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selectedby it.“Financial Officer” means the chief financial officer, principal accounting officer, financial vice president, treasurer orcontroller of the Borrower.“Fiscal Quarter” means a fiscal quarter of the Borrower, ending on the last day of March, June, September orDecember of each year.“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which theBorrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shallbe deemed to constitute a single jurisdiction.“GAAP” means generally accepted accounting principles in the United States of America.“Governmental Authority” means the government of the United States of America, any other nation or any politicalsubdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or otherentity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantorguaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the “primary obligor”) in anymanner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (oradvance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for thepurchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuringthe owner of such Indebtedness of the payment thereof, (c) to maintain working capital, equity capital or any other financial-9-statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or (d) as an accountparty in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term“Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business.“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances,wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinatedbiphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to anyEnvironmental Law.“Hedging Agreement” means any rate swap transaction, basis swap, forward rate transaction, commodity swap,commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, cap transaction, floortransaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similartransaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions.“Hybrid Equity Securities” means, on any date (the “determination date”), any securities issued by the Borrower or anyof its Subsidiaries or a financing vehicle of the Borrower or any of its Subsidiaries, other than common stock, that meet the followingcriteria: (a) (i) the Borrower demonstrates that such securities are classified, at the time they are issued, as possessing a minimum of“intermediate equity content” by S&P and “Basket C equity credit” by Moody's (or the equivalent classifications then in effect by suchagencies) and (ii) on such determination date such securities are classified as possessing a minimum of “intermediate equity content” byS&P or “Basket C equity credit” by Moody's (or the equivalent classifications then in effect by such agencies) and (b) such securitiesrequire no repayments or prepayments and no mandatory redemptions or repurchases, in each case, prior to at least 91 days after thelater of the termination of the Commitments and the repayment in full of the obligations of the Borrower under this Agreement. Asused in this definition, “mandatory redemption” shall not include conversion of a security into common stock.“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) allobligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person in respect ofthe deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business),(d) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, tobe secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has beenassumed, provided that the amount of any Indebtedness of such Person which constitutes Indebtedness of such Person solely by reasonof this clause (d) shall not for purposes of this Agreement exceed the greater of the book value or the fair market value of the propertiessubject to such Lien, (e) all Guarantees by such Person of Indebtedness of others, (f) all Capital Lease Obligations of such Person, (g) allobligations of such Person in respect of bankers' acceptances, and (h) all non-contingent obligations (and, for purposes of Section 6.02,all contingent obligations) of such Person-10-to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument. The Indebtedness of anyPerson shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to theextent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except tothe extent the terms of such Indebtedness provide that such Person is not liable therefor.“Indemnified Taxes” means Taxes other than Excluded Taxes.“Initial Maturity Date” means December 5, 2016.“Indemnitee” has the meaning set forth in Section 9.03(b).“Index Debt” means senior, unsecured, long-term indebtedness for borrowed money of the Borrower that is notguaranteed by any other Person or subject to any other credit enhancement.“Information Memorandum” means the Confidential Information Memorandum dated November 2011 relating to theBorrower and the Transactions.“Interest Election Request” means a request by the Borrower to convert or continue a Borrowing in accordance withSection 2.08.“Interest Payment Date” means (a) with respect to any ABR Loan (other than a Swingline Loan), the last day of eachMarch, June, September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to theBorrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months'duration each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of suchInterest Period and (c) with respect to any Swingline Loan, the day that such Loan is required to be repaid.“Interest Period” means with respect to any Eurodollar Borrowing, the period commencing on the date of suchBorrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter (or,with the consent of each Lender, such other periods for which LIBO Rates are available at the time the Borrowing Request for suchEurodollar Borrowing is made), as the Borrower may elect; provided, that (i) if any Interest Period would end on a day other than aBusiness Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Daywould fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) anyInterest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numericallycorresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month ofsuch Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made, andthereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.“Investment Grade Rating” means a rating of senior long-term unsecured debt-11-securities of the Borrower without any third-party credit enhancement of (i) BBB- or higher by S&P or (ii) Baa3 or higher by Moody's.“ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Instituteof International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance of such Letter ofCredit).“Issuing Bank” means each of JPMorgan Chase Bank, N.A., Citibank, N.A., BNP Paribas, Mizuho Corporate Bank, Ltd.and The Royal Bank of Scotland plc, each in its capacity as an issuer of Letters of Credit hereunder, and each successor in such capacityas provided in Section 2.06(i). Each Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued byAffiliates of such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Creditissued by such Affiliate.“Joint Lead Arrangers” means, collectively, J.P.Morgan Securities LLC, Citigroup Global Markets Inc., BNP ParibasSecurities Corp., Mizuho Corporate Bank, Ltd., and RBS Securities Inc., each in its capacity as a Joint Lead Arranger and JointBookrunner hereunder.“LC Disbursement” means a payment made by an Issuing Bank pursuant to a Letter of Credit.“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit atsuch time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower atsuch time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. Forpurposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall bedetermined in accordance with Section 1.05. For all purposes of this Agreement, if on any date of determination a Letter of Credit hasexpired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter ofCredit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.“LC Sublimit” means $2,500,000,000.“Lenders” means the Persons listed on Schedule 2.01 and any other Person that shall have become a party heretopursuant to Section 2.02 or pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party heretopursuant to an Assignment and Assumption. Unless the context otherwise requires, the term “Lenders” includes the Swingline Lender.“Letter of Credit” means any letter of credit issued pursuant to this Agreement, including the letters of creditoutstanding under the Existing Revolving Credit Agreement to the extent provided in Section 2.06(k).“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on ReutersBBA Libor Rates Page 3750 (or on any successor or substitute-12-page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currentlyprovided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providingquotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, twoBusiness Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to suchInterest Period. In the event that such rate is not available at such time for any reason, then the “LIBO Rate” with respect to suchEurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable tosuch Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the Londoninterbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance,charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capitallease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relatingto such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.“Loan Documents” means (a) this Agreement, (b) the Notes, if any, (c) the one or more fee letters entered into inconnection with or anticipation of this Agreement and (d) any amendment, supplement or other document modifying the foregoing.“Loans” means the loans made by the Lenders to the Borrower pursuant to this Agreement. Unless the contextotherwise requires, the term “Loans” includes the Swingline Loans.“Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations or condition, financialor otherwise, of the Borrower and the Subsidiaries taken as a whole, or (b) the ability of the Borrower to perform any of its obligationsunder this Agreement.“Material Indebtedness” means Indebtedness (other than the Loans, Letters of Credit and Indebtedness that constitutesProject Financing) or Derivatives Obligations of any one or more of the Borrower and its Subsidiaries in an aggregate principal amountexceeding $100,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borroweror any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any nettingagreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time.“Material Subsidiary” means, at any time, each Subsidiary other than (a) any Project Financing Subsidiary and (b) anySubsidiary (i) the Net Tangible Assets of which do not represent 5% or more of Consolidated Net Tangible Assets for the period of fourfiscal quarters most recently ended and (ii) that does not own Equity Interests of any Material Subsidiary.“Maturity Date” means the Initial Maturity Date, as such date may be extended pursuant to Section 2.21 to thecorresponding day in each year thereafter; provided that with respect-13-to any Non-Consenting Lender, the Maturity Date shall not be so extended.“Moody's” means Moody's Investors Service, Inc.“Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.“Net Tangible Assets” means, on any date, with respect to any Subsidiary, the aggregate amount of assets (lessapplicable accumulated depreciation, depletion and amortization and other reserves and other properly deductible items) of suchSubsidiary, minus (a) all current liabilities of such Subsidiary (excluding current maturities of long-term debt) and (b) all goodwill ofsuch Subsidiary, all determined in accordance with GAAP.“Net Worth” of the Borrower means at any time, without duplication, the sum of its capital stock, additional paid incapital, retained earnings, and any other account which, in accordance with GAAP, constitutes stockholders' equity, less treasury stock;provided that “Net Worth” shall not include the liquidation value of any Preferred Equity Interests.“New Funds Amount” has the meaning set forth in Section 2.02(d)(i).“Non-Consenting Lenders” has the meaning set forth in Section 2.21(b).“Notice of Commitment Increase” has the meaning set forth in Section 2.02(b).“Note” has the meaning set forth in Section 2.10(e).“Other Taxes” means any and all present or future stamp or documentary taxes or any other excise or property taxes,charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwisewith respect to, this Agreement.“Participant” has the meaning set forth in Section 9.04(c)(i).“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entityperforming similar functions.“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company,partnership, Governmental Authority or other entity.“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IVof ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, ifsuch plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.“Preferred Equity Interest” means any Equity Interest that, by its terms (or the terms of any security into which it isconvertible or for which it is exchangeable) or upon the happening-14-of any event or circumstance either (a) matures, (b) is redeemable (whether mandatorily or otherwise) at the option of the holderthereof for any consideration other than shares of common stock or (c) is convertible or exchangeable for Indebtedness or otherPreferred Equity Interests, in each case, in whole or in part, on or prior to the date that is one year after the earlier of (i) the MaturityDate or (ii) the date on which the Loans have been paid in full, the Commitments have terminated, all Letters of Credit have expired orterminated and all LC Disbursements have been reimbursed.“Pricing Schedule” means the Pricing Schedule attached hereto as Schedule 1.01.“Prime Rate” means the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank,N.A. as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from andincluding the date such change is publicly announced as being effective.“Project Financing” means any Indebtedness that is incurred to finance or refinance the acquisition, improvement,installation, design, engineering, construction, development, completion, maintenance, operation, securitization or monetization, inrespect of all or any portion of any project, any group of projects, or any asset related thereto, and any guaranty with respect thereto,other than such portion of such Indebtedness or guaranty (contingent or otherwise) that is at any time recourse to or obligates theBorrower or any Subsidiary (other than a Project Financing Subsidiary) in any way, or subjects any property or asset of the Borrower orany Subsidiary (other than a Project Financing Subsidiary), directly or indirectly, contingently or otherwise, to the satisfaction thereof(excluding any obligation to make a capital contribution to a Project Financing Subsidiary to the extent not otherwise prohibitedhereunder).“Project Financing Subsidiary” means any Subsidiary of the Borrower whose principal purpose is to incur ProjectFinancing and own and operate its permitted assets or to become a direct or indirect partner, member or other equity participant or ownerin a Person so created, and substantially all the assets of such Subsidiary are limited to (a) those assets for which the acquisition,improvement, installation, design, engineering, construction, development, completion, maintenance, operation, securitization ormonetization is being financed in whole or in part by one or more Project Financings, or (b) the equity in, Indebtedness or otherobligations of, one or more other such Subsidiaries or Persons, or (c) proceeds of a substantially concurrent offering of capital stock ofthe Borrower, or assets acquired with such proceeds, or (d) capital contributions from minority shareholders other than the Borrower ora Subsidiary, or assets acquired with such capital contributions.“Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible orintangible, including, without limitation, cash, securities, accounts and contract rights.“Qualified Issuer” means any commercial bank (a) which has capital and surplus in excess of $250,000,000 and (b) theoutstanding long-term debt securities of which are rated at least A by Standard & Poor's Ratings Services or at least A2 by Moody'sInvestors Service, Inc., or carry an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies-15-cease publishing ratings of investments.“Reducing Percentage Lender” has the meaning set forth in Section 2.02(d)(ii).“Reduction Amount” has the meaning set forth in Section 2.02(d)(iii).“Register” has the meaning set forth in Section 9.04(b)(iv).“Related Parties” means, with respect to any specified Person, such Person's Affiliates and the respective directors,officers, employees, agents and advisors of such Person and such Person's Affiliates.“Required Lenders” means, at any time, Lenders having Credit Exposures and unused Commitments representingmore than 50% of the sum of the total Credit Exposures and unused Commitments at such time; provided that, for the purpose ofdetermining the Required Lenders needed for any waiver, amendment, modification or consent, any Lender that is the Borrower, or anyAffiliate of the Borrower shall be disregarded.“Responsible Officer” means the Chief Executive Officer, President, Chief Financial Officer, General Counsel, or anyExecutive Vice President of the Borrower.“Revolving Effective Date” means the date on which the conditions specified in Section 4.01 are satisfied (or waived inaccordance with Section 9.02).“S&P” means Standard & Poor's Rating Services, a division of McGraw-Hill Companies, Inc.“Securitization Transaction” means any transaction in which the Borrower or a Subsidiary sells or otherwise transfersany accounts receivable (whether now existing or arising in the future) and any assets related thereto including, without limitation, allbooks and records relating to such accounts receivable, all collateral securing such accounts receivable, all contracts and all Guaranteesor other obligations in respect of such accounts receivable, rights with respect to returned goods the sale or lease of which gave rise tosuch accounts receivable, insurance thereon, proceeds of all of the foregoing and lockboxes and bank accounts into which collectionsthereon are deposited, and other assets which are customarily transferred or in respect of which security interests are customarilygranted in connection with asset securitization transactions involving accounts receivable (a) to one or more third party purchasers or(b) to a special purpose entity that borrows against such accounts receivable (or undivided interests therein) and related assets or issuessecurities payable from (or representing interests in) payments in respect of such accounts receivable and related assets or sells suchaccounts receivable (or undivided interests therein) and related assets to one or more third party purchasers, whether or not amountsreceived in connection with the sale or other transfer of such accounts receivable and related assets to an entity referred to in clause (a)or (b) above would under GAAP be accounted for as liabilities on a consolidated balance sheet of the Borrower. The amount of anySecuritization Transaction shall be deemed at any time to be the aggregate outstanding principal or stated amount of the borrowings,securities or residual obligations under a sale, in each case referred to in clause (b) of the preceding sentence, or if there shall be no-16-such principal or stated amount, the uncollected amount of the accounts receivable transferred to such third party purchaser(s) pursuantto such Securitization Transaction net of any such accounts receivable that have been written off as uncollectible.“Spot Rate” for a currency means the rate determined by the applicable Issuing Bank or the Administrative Agent, asappropriate, to be the rate quoted by such Issuing Bank or Administrative Agent, as applicable, acting in such capacity as the spot rate forthe purchase by such Issuing Bank or Administrative Agent, as applicable, of such currency with dollars through its principal foreignexchange trading office at approximately 11:00 a.m., New York City time, two Business Days prior to the date as of which the foreignexchange computation is made; provided that the applicable Issuing Bank or the Administrative Agent, as appropriate, may obtain suchspot rate from another financial institution designated by such Issuing Bank or Administrative Agent, as applicable, if the Person acting insuch capacity does not have as of the date of determination a spot buying rate for any such currency; and provided further that theapplicable Issuing Bank may use such spot rate quoted on the date as of which the foreign exchange computation is made in the case ofany Letter of Credit denominated in an Approved Currency other than dollars.“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and thedenominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special,emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject, withrespect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D ofthe Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed toconstitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions oroffsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The StatutoryReserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company,partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidatedfinancial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any othercorporation, limited liability company, partnership, association or other entity of which securities or other ownership interestsrepresenting more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50%of the general partnership interests are, as of such date, owned by the parent or one or more subsidiaries of the parent or by the parentand one or more subsidiaries of the parent.“Subsidiary” means any subsidiary of the Borrower.“Swingline Exposure” means, at any time, the aggregate principal amount of all Swingline Loans outstanding at suchtime. The Swingline Exposure of any Lender at any time shall be its Applicable Percentage of the total Swingline Exposure at suchtime.“Swingline Lender” means JPMorgan Chase Bank, N.A., in its capacity as lender-17-of Swingline Loans hereunder.“Swingline Loan” means a Loan made pursuant to Section 2.03.“Swingline Sublimit” means $150,000,000.“Syndication Agent” means Citibank, N.A., in its capacity as syndication agent for the Lenders hereunder.“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposedby any Governmental Authority.“Total Capitalization” means, at the date of any determination thereof, the sum of (a) Consolidated Net Debt plus(b) Consolidated Net Worth of the Borrower plus (c) the involuntary liquidation value of any Preferred Equity Interests.“Transactions” means the execution, delivery and performance by the Borrower of the Loan Documents, theborrowing of Loans, and the issuance of Letters of Credit hereunder.“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or onthe Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.“Unsecured Acquisition Debt” means unsecured Indebtedness of a Person that exists at the time such Person becomes aSubsidiary of the Borrower as a result of an acquisition, merger or other combination, or at the time such Person is merged orconsolidated with or into, or otherwise acquired by, a Subsidiary of the Borrower, or unsecured Indebtedness that is assumed inconnection with the acquisition of Property; provided that, in each case, such unsecured Indebtedness was not incurred or granted incontemplation of such acquisition, merger, or other combination and provided further that in no event shall such unsecured Indebtednessexceed the value of the Person or Property so acquired.“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from suchMultiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.Section 1.02 Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classifiedand referred to by Type (e.g., a “Eurodollar Loan”). Borrowings also may be classified and referred to by Type (e.g., a “EurodollarBorrowing”).Section 1.03 Terms Generally. The definitions of terms herein shall apply equally to the singular and pluralforms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine andneuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. Theword “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) anydefinition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement,instrument-18-or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on suchamendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include suchPerson's successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed torefer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibitsand Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words“asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assetsand properties, including cash, securities, accounts and contract rights.Section 1.04 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of anaccounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if theBorrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect ofany change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if theAdministrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose),regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provisionshall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective untilsuch notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding any other provisioncontained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts andratios referred to herein shall be made, without giving effect to any election under Financial Accounting Standards Board AccountingStandards Codification 825 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness orother liabilities of the Borrower or any Subsidiary at “fair value”, as defined therein.Section 1.05 Letter of Credit Amounts. Unless otherwise specified herein, the amount of a Letter of Credit atany time shall be deemed to be the Dollar Equivalent of the stated amount of such Letter of Credit in effect at such time; provided,however, that with respect to any Letter of Credit that, by its terms, provides for one or more automatic increases in the stated amountthereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after givingeffect to all such increases, whether or not such maximum stated amount is in effect at such time.ARTICLE IITHE CREDITSSection 2.01 Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to makeLoans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (a) suchLender's Credit Exposure exceeding such Lender's Commitment or (b) the sum of the total Credit Exposures exceeding the totalCommitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepayand reborrow Loans.-19-Section2.02 Commitment Increase.(a)Subject to the terms and conditions set forth herein, the Borrower shall have the right, without the consentof the Lenders, to cause, but no more than five times, an increase in the Commitments of the Lenders (a “Commitment Increase”) byadding to this Agreement one or more additional lenders that are not already Lenders hereunder and that are reasonably satisfactory to theAdministrative Agent and each Issuing Bank (not to be unreasonably withheld, delayed or conditioned) (each, a “CI Lender”) or byallowing one or more existing Lenders to increase their respective Commitments; provided that (i) no Event of Default shall haveoccurred and be continuing as of the relevant Commitment Increase Effective Date, (ii) no such Commitment Increase shall be lessthan $50,000,000, (iii) the aggregate amount of all such Commitment Increases shall not exceed $1,500,000,000, (iv) no Lender'sCommitment shall be increased without such Lender's prior written consent (which consent may be given or withheld in such Lender'ssole and absolute discretion) and (v) if, on the effective date of such increase, any Loans have been funded, then the Borrower shall beobligated to pay any breakage fees or costs that are payable pursuant to Section 2.16 in connection with the reallocation of suchoutstanding Loans.(b)The Borrower shall provide the Administrative Agent with written notice (a “Notice of CommitmentIncrease”) in the form of Exhibit B attached hereto of its intention to increase the Commitments pursuant to this Section 2.02. Eachsuch Notice of Commitment Increase shall specify (i) the proposed effective date of such Commitment Increase (each such date, a“Commitment Increase Effective Date”), which date shall be no earlier than five (5) Business Days after receipt by the AdministrativeAgent of such Notice of Commitment Increase, (ii) the amount of the requested Commitment Increase (provided that after givingeffect to such requested Commitment Increase, the aggregate amount of all Commitment Increases does not exceed the amount setforth in subsection (a)(iii) above), (iii) the identity of each CI Lender or Lender that has agreed in writing to increase its Commitmenthereunder, and (iv) the amount of the respective Commitments of the then existing Lenders and the CI Lenders from and after theCommitment Increase Effective Date (as defined below).(c)On each Commitment Increase Effective Date, to the extent that there are Loans outstanding as of suchdate, (i) each CI Lender shall, by wire transfer of immediately available funds, deliver to the Administrative Agent such CI Lender'sNew Funds Amount, which amount, for each such CI Lender, shall constitute Loans made by such CI Lender to the Borrower pursuantto this Agreement on such Commitment Increase Effective Date, (ii) each existing Lender that has agreed to increase its Commitmentshall, by wire transfer of immediately available funds, deliver to the Administrative Agent such Lender's New Funds Amount, whichamount, for each such Lender, shall constitute Loans made by such Lender to the Borrower pursuant to this Agreement on suchCommitment Increase Effective Date, (iii) the Administrative Agent shall, by wire transfer of immediately available funds, pay to eachthen Reducing Percentage Lender its Reduction Amount, which amount, for each such Reducing Percentage Lender, shall constitute aprepayment by the Borrower pursuant to Section 2.11, ratably in accordance with the respective principal amounts thereof, of theprincipal amounts of all then outstanding Loans of such Reducing Percentage Lender, and (iv) the Borrower shall be responsible to pay toeach Lender any breakage fees or costs that are payable pursuant to Section 2.16 in connection with the reallocation of any outstandingLoans;-20-provided that, notwithstanding the foregoing, no Letter of Credit may expire beyond the close of business on the date that is fiveBusiness Days prior to the earliest Maturity Date applicable to any Lender, unless the amount of such Letter of Credit on the date ofissuance, renewal or extension, as applicable, together with the outstanding LC Exposure at such time, is less than or equal to the totalCommitments of all Lenders having a later Maturity Date.(d)For purposes of this Section 2.02 and Exhibit B, the following defined terms shall have the followingmeanings: (i) ”New Funds Amount” means the amount equal to the product of a Lender's increased Commitment or a CI Lender'sCommitment (as applicable) represented as a percentage of the aggregate Commitments after giving effect to any CommitmentIncrease, times the aggregate principal amount of the outstanding Loans immediately prior to giving effect to such CommitmentIncrease, if any, as of any Commitment Increase Effective Date (without regard to any increase in the aggregate principal amount ofLoans as a result of borrowings made after giving effect to such Commitment Increase on such Commitment Increase Effective Date);(ii) ”Reducing Percentage Lender” means each then existing Lender immediately prior to giving effect to any Commitment Increasethat does not increase its respective Commitment as a result of such Commitment Increase and whose relative percentage of theCommitments shall be reduced after giving effect to such Commitment Increase; and (iii) ”Reduction Amount” means the amount bywhich a Reducing Percentage Lender's outstanding Loans decrease as of any Commitment Increase Effective Date (without regard tothe effect of any borrowings made on such Commitment Increase Effective Date after giving effect to the Commitment Increaseoccurring on such Commitment Increase Effective Date).(e)Each Commitment Increase shall become effective on its Commitment Increase Effective Date and uponsuch effectiveness (i) the Administrative Agent shall record in the register each then CI Lender's information as provided in theapplicable Notice of Commitment Increase and pursuant to an Administrative Questionnaire that shall be executed and delivered by eachCI Lender to the Administrative Agent on or before such Commitment Increase Effective Date, (ii) Schedule 2.01 hereof shall beamended and restated to set forth all Lenders (including any CI Lenders) that will be Lenders hereunder after giving effect to suchCommitment Increase (which amended and restated Schedule 2.01 shall be set forth in Annex I to the applicable Notice of CommitmentIncrease) and the Administrative Agent shall distribute to each Lender (including each CI Lender) a copy of such amended and restatedSchedule 2.01, and (iii) each CI Lender identified on the Notice of Commitment Increase for such Commitment Increase shall be a“Lender” for all purposes under this Agreement.(f)Each Commitment Increase shall be deemed to constitute a representation and warranty by the Borrower onthe applicable Commitment Increase Effective Date that (i) the representations and warranties of the Borrower set forth in thisAgreement and in the other Loan Documents are true and correct on and as of such Commitment Increase Effective Date, except to theextent any such representations and warranties are expressly limited to an earlier date, in which case, on and as of such CommitmentIncrease Effective Date, such representations and warranties shall continue to be true and correct as of such specified earlier date, and(ii) at the time of and immediately after giving effect to such Commitment Increase, no Default shall have occurred and be continuing.-21-Section2.03 Swingline Loans.(a)General. Subject to the terms and conditions set forth herein, the Swingline Lender agrees to makeSwingline Loans in dollars to the Borrower from time to time during the Availability Period; provided that the aggregate SwinglineExposure (after giving effect to any requested Swingline Loan) shall not exceed the least of (i) the total Commitments, (ii) the excess ofthe total Commitments over the aggregate amount of the Loans then outstanding, (iii) the Swingline Sublimit or (iv) the amountpermitted by Section 2.22(a)(iv)(B); and provided, further, that (after giving effect to any requested Swingline Loan) the total CreditExposures shall not exceed the total Commitments; and provided, further, that the Swingline Lender shall not be required to make aSwingline Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forthherein, the Borrower may borrow, prepay and reborrow Swingline Loans.(b)Request; Timing; Making of Swingline Loan. To request a Swingline Loan, the Borrower shall notify theAdministrative Agent of such request by telephone (confirmed by facsimile), not later than 3:00 p.m., New York City time, on the dayof a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day)and amount of the requested Swingline Loan. The Administrative Agent will promptly advise the Swingline Lender of any such noticereceived from the Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a credit tothe general deposit account of the Borrower with the Swingline Lender (or, in the case of a Swingline Loan made to finance thereimbursement of an LC Disbursement as provided in Section 2.06(e), by remittance to the applicable Issuing Bank) by 4:00 p.m., NewYork City time, on the requested date of such Swingline Loan. Except as specified in clause (c) below, all payments by the Borrower inrespect of a Swingline Loan shall be made to the Swingline Lender.(c)Participation. The Swingline Lender may by written notice given to the Administrative Agent not later than10:00 a.m., New York City time, on any Business Day require the Lenders to acquire participations on such Business Day in all or aportion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which Lenders willparticipate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Lender, specifying in suchnotice such Lender's Applicable Percentage of such Swingline Loan or Loans. Each Lender hereby absolutely and unconditionallyagrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, suchLender's Applicable Percentage of such Swingline Loan or Loans. Each Lender acknowledges and agrees that its obligation to acquireparticipations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstancewhatsoever, including the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each suchpayment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender shall comply with itsobligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.07 withrespect to Loans made by such Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Lenders), andthe Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. TheAdministrative-22-Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafterpayments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amountsreceived by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan afterreceipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the AdministrativeAgent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Lendersthat shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear; provided thatany such payment so remitted shall be repaid to the Swingline Lender or to the Administrative Agent, as applicable, if and to the extentsuch payment is required to be refunded to the Borrower for any reason. The purchase of participations in a Swingline Loan pursuant tothis paragraph shall not relieve the Borrower of any default in the payment thereof.Section2.04 Loans and Borrowings.(a)Each Loan shall be made in dollars as part of a Borrowing consisting of Loans made by the Lenders ratably inaccordance with their respective Commitments (or, with respect to the Swingline Loans, made by the Swingline Lender). The failure ofany Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that theCommitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required.(b)Subject to Section 2.14, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans asthe Borrower may request in accordance herewith. Each Swingline Loan shall be an ABR Loan. Each Lender at its option may make anyEurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise ofsuch option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.(c)At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in anaggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR Borrowing is made,such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $1,000,000; provided that anABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments or that is required tofinance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e). Each Swingline Loan shall be in an amount thatis an integral multiple of $1,000,000 and not less than $5,000,000. Borrowings of more than one Type may be outstanding at the sametime; provided that there shall not at any time be more than a total of ten Eurodollar Borrowings outstanding.(d)Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or toelect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.-23-Section2.05 Requests for Borrowings. To request a Borrowing (other than a Borrowing for a Swingline Loan),the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not laterthan 12:00 p.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABRBorrowing, not later than 12:00 p.m., New York City time, on the date of the proposed Borrowing. Each such telephonic BorrowingRequest shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a writtenBorrowing Request in substantially the form of Exhibit C. Each such telephonic and written Borrowing Request shall specify thefollowing information in compliance with Section 2.04:(i)the aggregate amount of the requested Borrowing;(ii)the date of such Borrowing, which shall be a Business Day;(iii)whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;(iv)in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be aperiod contemplated by the definition of the term “Interest Period”; and(v)the location and number of the Borrower's account to which funds are to be disbursed, which shall complywith the requirements of Section 2.07(a).If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period isspecified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period ofone month's duration. Promptly following receipt of a telephonic or written Borrowing Request in accordance with this Section, theAdministrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of therequested Borrowing.Section2.06 Letters of Credit.(a)General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance ofstandby Letters of Credit, denominated in an Approved Currency, in a form reasonably acceptable to the Administrative Agent and therelevant Issuing Bank, at any time and from time to time during the Availability Period; provided that the aggregate LC Exposure (aftergiving effect to the requested issuance, amendment or extension of a Letter of Credit) shall not exceed the least of (i) the totalCommitments, (ii) the excess of the total Commitments over the aggregate amount of the Loans (including Swingline Loans) thenoutstanding, (iii) the LC Sublimit or (iv) the amount permitted by Section 2.22(a)(iv)(A); and provided, further, that, subject tolimitations set forth above, no Issuing Bank shall be obligated to front Letters of Credit to the extent that the LC Exposure associatedwith Letters of Credit issued by it would exceed the least of (A) an amount equal to one-fifth of the total LC Sublimit and(B) $500,000,000; and provided, further, that (after giving effect to the requested issuance, amendment or extension of a Letter ofCredit) the total Credit Exposures shall not exceed the total Commitments. The Letters of Credit-24-denominated in an Approved Currency (other than dollars) shall not exceed $200,000,000, in the aggregate at any one time outstanding;if giving effect to a request for a Letter of Credit to be denominated in an Approved Currency (other than dollars) would cause thislimitation to be exceeded, then such Letter of Credit may only be dollar-denominated. In the event of any inconsistency between theterms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreementsubmitted by the Borrower to, or entered into by the Borrower with, the relevant Issuing Bank relating to any Letter of Credit, theterms and conditions of this Agreement shall control.(b)Notice of Issuance, Amendment, Extension; Certain Conditions. To request the issuance of a Letter ofCredit (or the amendment or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit byelectronic communication, if arrangements for doing so have been approved by the relevant Issuing Bank) to the relevant Issuing Bankand the Administrative Agent (reasonably in advance of the requested date of issuance, amendment or extension) a notice requesting theissuance of a Letter of Credit, or identifying the Letter of Credit to be amended or extended, and specifying the date of issuance,amendment or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply withparagraph (c) of this Section), the amount of such Letter of Credit (which must be a fixed amount), which Approved Currency shall bethe denomination of such Letter of Credit (it being understood that if no denomination is specified, the Letter of Credit shall be dollar-denominated), the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend orextend such Letter of Credit. If requested by the relevant Issuing Bank, the Borrower also shall submit a letter of credit application onits standard form in connection with any request for a Letter of Credit; provided that no provision in such application shall be deemedeffective to the extent such provision contains, provides for, or requires, representations, warranties, covenants, security interests,Liens, indemnities, reimbursements of costs or expenses, events of default, remedies, or standards of care or to the extent suchprovision conflicts or is inconsistent with this Agreement. Following receipt of a notice requesting the issuance of a Letter of Credit (orthe amendment or extension of an outstanding Letter of Credit) in accordance with this Section, the Administrative Agent shall adviseeach Lender of the details thereof. A Letter of Credit shall be issued, amended or extended only if (and upon issuance, amendment orextension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance,amendment or extension, the limits and sublimits specified in Section 2.06(a) are satisfied. Notwithstanding the foregoing or anythingelse to the contrary contained herein, no Issuing Bank shall be under any obligation to issue any Letter of Credit if: (A) any order,judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such Issuing Bank fromissuing such Letter of Credit, or any law applicable to such Issuing Bank or any request or directive (whether or not having the force oflaw) from any Governmental Authority with jurisdiction over such Issuing Bank (x) shall prohibit, or request that such Issuing Bankrefrain from, the issuance of letters of credit generally or such Letter of Credit in particular, (y) shall impose upon such Issuing Bankwith respect to such Letter of Credit any restriction, reserve or capital requirement (for which such Issuing Bank is not otherwisecompensated hereunder) not in effect on the Revolving Effective Date, or (z) shall impose upon such Issuing Bank any unreimbursedloss, cost or expense which was not applicable on the Revolving Effective Date and which such Issuing Bank in good faith deemsmaterial to it; provided that, in the cases of-25-clauses (y) and (z), such Issuing Bank shall have provided written notice to the Borrower of its refusal to issue any Letter of Credit andthe specific reasons therefor and the Borrower shall not have compensated such Issuing Bank for the imposition of such restriction,reserve or capital requirement or reimbursed such Issuing Bank for such loss, cost or expense, as applicable; (B) the issuance of suchLetter of Credit would violate one or more polices of such Issuing Bank (as consistently applied); or (C) such Letter of Credit is to bedenominated in a currency other than an Approved Currency.(c)Expiration Date. Each Letter of Credit shall expire at or prior to the close of business on the date that is fiveBusiness Days prior to the Maturity Date; provided that, notwithstanding the foregoing, no Letter of Credit may expire beyond the closeof business on the date that is five Business Days prior to the earliest Maturity Date applicable to any Lender, unless the amount of suchLetter of Credit on the date of issuance, renewal or extension, as applicable, together with the aggregate of the outstanding LC Exposureand Loans at such time, is less than or equal to the total Commitments of all Lenders having a later Maturity Date.(d)Participation. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing theamount thereof) and without any further action on the part of the Issuing Bank that issues such Letter of Credit or the Lenders, suchIssuing Bank hereby grants to each Lender, and each Lender hereby acquires from such Issuing Bank, a participation in such Letter ofCredit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. Inconsideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the AdministrativeAgent, for the account of the relevant Issuing Bank, such Lender's Applicable Percentage of each LC Disbursement made by suchIssuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursementpayment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquireparticipations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by anycircumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit in accordance with this Agreementor the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall bemade without any offset, abatement, withholding or reduction whatsoever.(e)Reimbursement. If an Issuing Bank shall make any LC Disbursement in respect of a Letter of Creditdenominated in an Approved Currency, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent insuch Approved Currency (except as specified below) an amount equal to such LC Disbursement not later than 2:00 p.m., New York Citytime, on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to11:00 a.m., New York City time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date,then not later than 2:00 p.m., New York City time, on (i) the Business Day that the Borrower receives such notice, if such notice isreceived prior to 11:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day immediately following the day that theBorrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that, if such LCDisbursement is not less than $1,000,000, the Borrower may, subject to the conditions to borrowing set forth herein,-26-request in accordance with Section 2.03 or Section 2.05 that such payment be financed with an ABR Borrowing (consisting of aSwingline Loan or an ABR Loan, as appropriate) in an amount equal to the Dollar Equivalent of the amount of the LC Disbursement, asdetermined by the applicable Issuing Bank promptly following determination thereof and, to the extent so financed, the Borrower'sobligation to make such payment shall be discharged and replaced by the resulting Swingline Loan or ABR Loan, as appropriate.Notwithstanding the foregoing, any Issuing Bank may, at its option, specify in the applicable notice of LC Disbursement that suchIssuing Bank will require reimbursements in dollars; provided that the applicable Issuing Bank shall notify the Borrower of the DollarEquivalent of the amount of the drawing promptly following the determination thereof. If the Borrower fails to make such paymentwhen due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement (expressed in dollars in the amount ofthe Dollar Equivalent of such LC Disbursement), the payment then due from the Borrower in respect thereof and such Lender'sApplicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay in dollars to the Administrative Agentits Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.07 with respect toLoans made by such Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and theAdministrative Agent shall promptly pay in dollars to the relevant Issuing Bank the amounts so received by it from the Lenders.Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, theAdministrative Agent shall distribute such payment to the relevant Issuing Bank or, to the extent that Lenders have made paymentspursuant to this paragraph to reimburse such Issuing Bank, then to such Lenders and such Issuing Bank as its interests may appear. Anypayment made by a Lender pursuant to this paragraph to reimburse an Issuing Bank for any LC Disbursement (other than the funding ofa Swingline Loan or an ABR Loan as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligationto reimburse such LC Disbursement.(f)Obligations Absolute. The Borrower's obligation to reimburse LC Disbursements as provided in paragraph (e)of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of thisAgreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter ofCredit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit provingto be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by anyIssuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of suchLetter of Credit, (iv) any adverse change in the relevant exchange rates or in the availability of the relevant Approved Currency to theBorrower or in the relevant currency markets generally; or (v) any other event or circumstance whatsoever, whether or not similar toany of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right ofsetoff against, the Borrower's obligations hereunder. Neither the Administrative Agent, the Lenders nor the Issuing Banks, nor any oftheir Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter ofCredit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the precedingsentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communicationunder or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error-27-in interpretation of technical terms or any consequence arising from causes beyond the control of any Issuing Bank; provided that theforegoing shall not be construed to excuse the relevant Issuing Bank from liability to the Borrower to the extent of any direct damages(as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted byapplicable law) suffered by the Borrower that are caused by such Issuing Bank's failure to exercise care when determining whetherdrafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that,in the absence of gross negligence or willful misconduct on the part of an Issuing Bank (as finally determined by a court of competentjurisdiction), such Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing andwithout limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be insubstantial compliance with the terms of a Letter of Credit, an Issuing Bank may, in its sole discretion, either accept and make paymentupon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuseto accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter ofCredit.(g)Disbursement Procedures. The relevant Issuing Bank shall, promptly following its receipt thereof, examineall documents purporting to represent a demand for payment under a Letter of Credit. The relevant Issuing Bank shall promptly notifythe Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether it has madeor will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve theBorrower of its obligation to reimburse such Issuing Bank and the Lenders with respect to any such LC Disbursement.(h)Interim Interest. If an Issuing Bank shall make any LC Disbursement, then, unless the Borrower shallreimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, foreach day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LCDisbursement, at the rate per annum then applicable to ABR Loans; provided that, if the Borrower fails to reimburse such LCDisbursement when due pursuant to paragraph (e) of this Section, then Section 2.13(c) shall apply. Interest accrued pursuant to thisparagraph shall be for the account of the relevant Issuing Bank, except that interest accrued on and after the date of payment by a Lenderpursuant to paragraph (e) of this Section to reimburse such Issuing Bank shall be for the account of such Lender to the extent of suchpayment.(i)Replacement of an Issuing Bank. An Issuing Bank may be replaced at any time by written agreement amongthe Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shallnotify the Lenders of any such replacement of an Issuing Bank. At the time any such replacement shall become effective, theBorrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(c). From and after theeffective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of an Issuing Bank underthis Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall bedeemed to refer to such successor or to any previous Issuing Bank, or to such-28-successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replacedIssuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreementwith respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.(j)Cash Collateralization. If (i) any Event of Default shall occur and be continuing, then on the Business Daythat the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has beenaccelerated, Lenders with LC Exposures representing greater than 50% of the total LC Exposure) demanding the deposit of cashcollateral pursuant to this paragraph or (ii) the Borrower is required to pay to the Administrative Agent the excess attributable to an LCExposure pursuant to Section 2.21(b), then the Borrower shall deposit in an account with the Administrative Agent, in the name of theAdministrative Agent and for the benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accruedand unpaid interest and fees thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, andsuch deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Eventof Default with respect to the Borrower described in clause (h) or (i) of Article VII. As collateral security for the payment andperformance of the obligations of the Borrower under this Agreement, the Borrower hereby grants to the Administrative Agent, for thebenefit of each Issuing Bank and the Lenders, a first priority security interest in such account and all amounts and other property fromtime to time deposited or held in such account, and all proceeds thereof, and any substitutions and replacements therefor. TheAdministrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Otherthan any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of theAdministrative Agent and at the Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on suchinvestments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburseratably the Issuing Banks for LC Disbursements for which they have not been reimbursed and, to the extent not so applied, shall be heldfor the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loanshas been accelerated (but subject to the consent of Lenders with LC Exposure representing greater than 50% of the total LC Exposure),be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cashcollateral hereunder as a result of the occurrence of an Event of Default, and the Borrower is not otherwise required to pay to theAdministrative Agent the excess attributable to an LC Exposure pursuant to Section 2.21(b), such amount (to the extent not applied asaforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived.(k)Outstanding Letters of Credit. On the Revolving Effective Date, each of the letters of credit listed onSchedule 2.06 shall be deemed to have been issued as Letters of Credit under this Agreement by the Issuing Bank specified onSchedule 2.06, without payment of any fees otherwise due upon the issuance of a Letter of Credit, and such Issuing Bank shall bedeemed, without further action by any party hereto, to have sold to each Lender, and each Lender shall be deemed, without furtheraction by any party hereto, to have purchased from such Issuing Bank, a-29-participation, to the extent of such Lender's Applicable Percentage, in such Letter of Credit.Notwithstanding the foregoing, it is acknowledged that under the Existing Revolving Credit Agreement, Bankof America, N.A. (for purposes of this clause (k), “BANA”), in its capacity as a letter of credit issuer under the Existing RevolvingCredit Agreement, issued and, as of the Revolving Effective Date, has outstanding a letter of credit (for purposes of this clause (k), the“BANA Letter of Credit”) under the Existing Revolving Credit Agreement. BANA is not a party to this Agreement in any capacity andthe BANA Letter of Credit shall not be deemed to have been issued as a Letter of Credit under this Agreement. Each Lender partyhereto authorizes the Administrative Agent to enter into, on behalf of each Lender, an agreement with BANA pursuant to which BANAagrees that such BANA Letter of Credit is not to be deemed a Letter of Credit for any purpose under this Agreement, in the form thatthe Administrative Agent deems appropriate.(l)Exchange Rates; Currency Equivalents. The applicable Issuing Bank or the Administrative Agent shalldetermine the Spot Rates as of any date of determination to be used for calculating Dollar Equivalent amounts with respect to theissuance, amendment, extension or increase of any Letter of Credit and the LC Exposure denominated in Approved Currencies otherthan dollars. Such Spot Rates shall become effective as of such date of determination and shall be the Spot Rates employed in convertingany amounts between the applicable currencies until the next date of determination. The applicable amount of any currency forpurposes of any calculation involving the Letters of Credit shall be such Dollar Equivalent amount as so determined by the applicableIssuing Bank or the Administrative Agent, as appropriate.Section2.07 Funding of Borrowings.(a)Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transferof immediately available funds by 2:00 p.m., New York City time, to the account of the Administrative Agent most recently designatedby it for such purpose by notice to the Lenders; provided that Swingline Loans shall be made as provided in Section 2.03. TheAdministrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, toan account of the Borrower designated by the Borrower in the applicable Borrowing Request; provided that ABR Loans made to financethe reimbursement of an LC Disbursement as provided in Section 2.06(e) shall be remitted by the Administrative Agent to the relevantIssuing Bank.(b)Unless the Administrative Agent shall have received notice from a Lender prior to the proposed time of anyBorrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, theAdministrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of thisSection and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lenderhas not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and theBorrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, foreach day from and including the date such amount is made available to-30-the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of theFederal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbankcompensation or (ii) in the case of the Borrower, the interest rate applicable to such Borrowing. If such Lender pays such amount to theAdministrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. Any payment by theBorrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such paymentto the Administrative Agent.Section2.08 Interest Elections.(a)Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the caseof a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower mayelect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, mayelect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to differentportions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loanscomprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section 2.08shall not apply to Swingline Borrowings, which may not be converted or continued.(b)To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of suchelection by telephone by the time that a Borrowing Request would be required under Section 2.05 if the Borrower were requesting aBorrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic InterestElection Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of awritten Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower.(c)Each telephonic and written Interest Election Request shall specify the following information in compliancewith Section 2.04:(i)the Borrowing to which such Interest Election Request applies and, if different options are being elected withrespect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case theinformation to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);(ii)the effective date of the election made pursuant to such Interest Election Request, which shall be a BusinessDay;(iii)whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and(iv)if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to-31-be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term“Interest Period”.If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shallbe deemed to have selected an Interest Period of one month's duration.(d)Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise eachLender of the details thereof and of such Lender's portion of each resulting Borrowing.(e)If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowingprior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of suchInterest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event ofDefault has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower,then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a EurodollarBorrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Periodapplicable thereto.Section 2.09 Termination and Reduction of Commitments. (a) Unless previously terminated, theCommitments shall terminate on the Maturity Date.(b)The Borrower may at any time terminate, or from time to time reduce, the Commitments; provided that(i) each reduction of the Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000 and(ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans inaccordance with Section 2.11, the sum of the Credit Exposures would exceed the total Commitments.(c)The Borrower shall notify the Administrative Agent of any election to terminate or reduce theCommitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination orreduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agentshall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable;provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon theoccurrence of identified events, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent onor prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall bepermanent and may not be reinstated except pursuant to Section 2.02. Each reduction of the Commitments shall be made ratably amongthe Lenders in accordance with their respective Commitments.Section 2.10 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby-32-unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of eachLoan on the Maturity Date and (ii) to the Swingline Lender (except to the extent the Lenders have purchased participations in theapplicable Swingline Loan, in which case all payments shall be made to the Administrative Agent for the account of such Lenders, asspecified in the seventh sentence of Section 2.03(c)) the then unpaid principal amount of each Swingline Loan on the earlier of theMaturity Date and the first date after such Swingline Loan is made that is the 15th or the last day of a calendar month and is at least twoBusiness Days after such Swingline Loan is made; provided that on each date that a Borrowing (not consisting of Swingline Loans) ismade, the Borrower shall repay all Swingline Loans then outstanding.(b)Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing theindebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal andinterest payable and paid to such Lender from time to time hereunder.(c)The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan madehereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or tobecome due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the AdministrativeAgent hereunder for the account of the Lenders and each Lender's share thereof.(d)The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be primafacie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or theAdministrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower torepay the Loans in accordance with the terms of this Agreement.(e)Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, theBorrower shall prepare, execute and deliver to such Lender a promissory note, dated the Revolving Effective Date, payable to the orderof such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and otherwise substantially in the form ofExhibit D hereto (a “Note”). Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (includingafter assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of thepayee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).Section 2.11 Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time toprepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section.(b)The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan,the Swingline Lender) by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a EurodollarBorrowing, not later than 2:00 p.m., New York City time, three Business Days before the date of prepayment, (ii) in the case ofprepayment of an ABR Borrowing, not later than 2:00 p.m., New York City time, on the date of-33-prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 2:00 p.m., New York City time, on the date ofprepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing orportion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination ofthe Commitments as contemplated by Section 2.09, then such notice of prepayment may be revoked if such notice of termination isrevoked in accordance with Section 2.09. Promptly following receipt of any such notice relating to a Borrowing, the AdministrativeAgent shall advise the Lenders of the contents thereof. Each partial prepayment of any ABR Borrowing shall be in a minimum amountof $1,000,000 with additional increments of $1,000,000. Each partial prepayment of any Eurodollar Borrowing shall be in a minimumamount of $5,000,000 with additional increments of $1,000,000. Each partial prepayment of any Swingline Borrowing shall be in aminimum amount of $1,000,000 with additional increments of $1,000,000. Each prepayment of any Borrowing shall be applied ratably tothe Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required bySection 2.13 and any break funding costs pursuant to Section 2.16.Section 2.12 Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender afacility fee, which shall accrue at the Applicable Rate on the daily amount of the Commitment of such Lender (whether used orunused) during the period from and including the Revolving Effective Date to but excluding the date on which such Commitmentterminates; provided that, if such Lender continues to have any Credit Exposure after its Commitment terminates, then such facilityfee shall continue to accrue on the daily amount of such Lender's Credit Exposure from and including the date on which itsCommitment terminates to but excluding the date on which such Lender ceases to have any Credit Exposure. Accrued facility feesshall be payable in arrears on the last day of March, June, September and December of each year and on the date on which theCommitments terminate, commencing on the first such date to occur after the date hereof; provided that any facility fees accruing afterthe date on which the Commitments terminate shall be payable on demand. All facility fees shall be computed on the basis of a year of360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).(b)(Reserved).(c)The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender a participation feewith respect to such Lender's participations in Letters of Credit, which shall accrue at the same Applicable Rate used to determine theinterest rate applicable to Eurodollar Loans on the average daily amount of such Lender's LC Exposure (excluding any portion thereofattributable to unreimbursed LC Disbursements) during the period from and including the Revolving Effective Date to but excludingthe later of the date on which such Lender's Commitment terminates and the date on which such Lender ceases to have any LCExposure, and (ii) to each Issuing Bank a fronting fee, which shall accrue at the rate of 0.20% per annum on the average daily amount ofthe LC Exposure associated with Letters of Credit issued by such Issuing Bank (excluding any portion thereof attributable tounreimbursed LC Disbursements) during the period from and including the Revolving Effective Date to but excluding the later of thedate of termination of the Commitments and the date on which there ceases to be any LC Exposure, as well as such Issuing-34-Bank's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawingsthereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December ofeach year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after theRevolving Effective Date; provided that all such fees shall be payable on the date on which the Commitments terminate and any suchfees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to any IssuingBank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computedon the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the lastday).(d)The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amountsand at the times separately agreed upon between the Borrower and the Administrative Agent.(e)All fees payable hereunder shall be paid on the dates due, in immediately available funds, to theAdministrative Agent (or to each Issuing Bank, in the case of fees payable to them) for distribution, in the case of facility fees andparticipation fees, to the Lenders. Fees payable that have been paid shall not be refundable under any circumstances.Section2.13 Interest. (a) The Loans comprising each ABR Borrowing and each Swingline Borrowing shall bearinterest at the Alternate Base Rate plus the Applicable Rate.(b)The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for theInterest Period in effect for such Borrowing plus the Applicable Rate.(c)Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payableby the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shallbear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2.00% plusthe rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount,2.00% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section.(d)Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan andupon termination of the Commitments; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable ondemand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan (other than SwinglineLoans) prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the dateof such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current InterestPeriod therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.(e)All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed byreference to the Alternate Base Rate at times when the Alternate-35-Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each caseshall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate BaseRate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusiveabsent manifest error.-36-Section 2.14 Alternate Rate of Interest. If prior to the commencement of any Interest Period for a EurodollarBorrowing:(a)the Administrative Agent determines (which determination shall be conclusive absent manifest error) thatadequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such InterestPeriod; or(b)the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate,as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loansincluded in such Borrowing for such Interest Period;then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly aspracticable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise tosuch notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of anyBorrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, suchBorrowing shall be made as an ABR Borrowing; provided that if the circumstances giving rise to such notice affect only one Type ofBorrowings, then the other Type of Borrowings shall be permitted.Section 2.15 Increased Costs. (a) If any Change in Law shall:(i)impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of,deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in theAdjusted LIBO Rate) or any Issuing Bank;(ii)subject any Lender or any Issuing Bank to any Taxes (other than (A) Indemnified Taxes imposed on or withrespect to payments made under this Agreement, or (y) Taxes described in clauses (b) through (f) of the definition of ExcludedTaxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilitiesor capital attributable thereto; or(iii)impose on any Lender or any Issuing Bank or the London interbank market any other condition affecting thisAgreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein (excluding for purposes ofthis subsection (iii) any Taxes);and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or ofmaintaining its obligation to make any such Loan) or to increase the cost to such Lender or such Issuing Bank of participating in, issuingor maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or such Issuing Bankhereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender or such Issuing Bank, as the casemay be, such additional amount or amounts-37-as will compensate such Lender or such Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered.(b)If any Lender or any Issuing Bank determines that any Change in Law regarding capital requirements has orwould have the effect of reducing the rate of return on such Lender's or such Issuing Bank's capital or on the capital of such Lender's orsuch Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters ofCredit held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender or suchIssuing Bank or such Lender's or such Issuing Bank's holding company could have achieved but for such Change in Law (taking intoconsideration such Lender's or such Issuing Bank's policies and the policies of such Lender's or such Issuing Bank's holding companywith respect to capital adequacy), then from time to time the Borrower will pay to such Lender or such Issuing Bank, as the case maybe, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender's or such Issuing Bank'sholding company for any such reduction suffered; provided, that such Lender or such Issuing Bank is generally seeking, or intendsgenerally to seek, compensation from similarly situated borrowers under similar credit facilities (to the extent such Lender or IssuingBank has the right under such similar credit facilities to do so) with respect to such Change in Law regarding capital requirements.(c)A certificate of a Lender or an Issuing Bank setting forth in reasonable detail the basis for, the calculation ofand the amount or amounts necessary to compensate such Lender or such Issuing Bank or its holding company, as the case may be, asspecified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. TheBorrower shall pay to such Lender or such Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10days after receipt thereof. In determining such amount, such Lender agrees to act in good faith and to use reasonable averaging andattribution methods.(d)Failure or delay on the part of any Lender or any Issuing Bank to demand compensation pursuant to thisSection shall not constitute a waiver of such Lender's or such Issuing Bank's right to demand such compensation; provided that theBorrower shall not be required to compensate a Lender or an Issuing Bank pursuant to this Section for any increased costs or reductionsincurred more than 180 days prior to the date that such Lender or such Issuing Bank, as the case may be, notifies the Borrower of theChange in Law giving rise to such increased costs or reductions and of such Lender's or such Issuing Bank's intention to claimcompensation therefor; provided, further, that, if the Change in Law giving rise to such increased costs or reductions is retroactive, thenthe 180-day period referred to above shall be extended to include the period of retroactive effect thereof.Section 2.16 Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loanother than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of anyEurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepayany Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked underSection 2.11(b) and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on the last day of theInterest Period-38-applicable thereto as a result of a request by the Borrower pursuant to Section 2.19, then, in any such event, the Borrower shallcompensate each Lender (other than, in the case of a claim for compensation based on the failure to borrow as specified in clause (c)above, any Lender whose failure to make a Loan required to be made by it hereunder has resulted in such failure to borrow) for the loss,cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed toinclude an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on theprincipal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan,for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure toborrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interestwhich would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at thecommencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. Acertificate of any Lender setting forth in reasonable detail the basis for and any amount or amounts that such Lender is entitled to receivepursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay suchLender the amount shown as due on any such certificate within 10 days after receipt thereof.Section 2.17 Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereundershall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall berequired to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessaryso that after making all required deductions (including deductions applicable to additional sums payable under this Section) theAdministrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had nosuch deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted tothe relevant Governmental Authority in accordance with applicable law.(b)In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordancewith applicable law.(c)The Borrower shall indemnify the Administrative Agent, each Lender, and each Issuing Bank, within 15days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent,such Lender, or such Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of theBorrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under thisSection) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such IndemnifiedTaxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate setting forthin reasonable detail the basis for and the amount of such payment or liability delivered to the Borrower by a Lender or an Issuing Bank,or by the Administrative Agent on its own behalf or on behalf of a Lender or an Issuing Bank, shall be conclusive absent manifest error.(d)As soon as practicable after any payment of Indemnified Taxes or Other-39-Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certifiedcopy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment orother evidence of such payment reasonably satisfactory to the Administrative Agent.(e)(i) Each Lender shall deliver to the Borrower and to the Administrative Agent, when reasonably requestedby the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable laws or bythe taxing authorities of any jurisdiction that are reasonably requested by the Borrower as will permit the Borrower or theAdministrative Agent, as the case may be, to determine (A) whether or not payments made hereunder or under any other LoanDocument are subject to Taxes, (B) if applicable, the required rate of withholding or deduction, and (C) such Lender's entitlement toany available exemption from, or reduction of, applicable Taxes in respect of all payments to be made to such Lender by the Borrower asthe case may be, pursuant to this Agreement or otherwise to establish such Lender's status for withholding Tax purposes in theapplicable jurisdictions; provided that the delivery of any documentation described in this Section 2.17(e)(i) shall not be required if in theLender's reasonable judgment the completion, execution or delivery of such documentation would subject such Lender to any materialunreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.(ii)Without limiting the generality of the foregoing,A.any Lender that is a “United States person” within the meaning of Section 7701(a)(30) of the Codeshall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be reasonably requestedby the recipient) on or prior to the date on which such Lender becomes a Lender under this Agreement (and from timeto time thereafter upon the reasonable request of the Borrower or the Administrative Agent) executed originals ofInternal Revenue Service Form W-9; andB.each Foreign Lender that is entitled under the Code or any applicable treaty to an exemption from orreduction of withholding Tax with respect to payments hereunder or under any other Loan Document shall deliver tothe Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or priorto the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafterupon the request of the Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to doso), whichever of the following is applicable:(1)executed originals of Internal Revenue Service Form W‑8BEN claiming eligibility forbenefits of an income Tax treaty to which the United States is a party,(2)executed originals of Internal Revenue Service Form W‑8ECI,-40-(3)executed originals of Internal Revenue Service Form W‑8IMY and all required supportingdocumentation, or(4)in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interestunder Section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank”within the meaning of Section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower oreither Parent within the meaning of Section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation”described in Section 881(c)(3)(C) of the Code and (y) executed originals of Internal Revenue Service Form W-8BEN.(iii)If a payment made to a Lender under any Loan Document would be subject to U.S. Federal withholding Taximposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (includingthose contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and theAdministrative Agent, at the time or times prescribed by law and at such time or times reasonably requested by the Borrower orthe Administrative Agent, such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i)of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may benecessary for the Borrower and the Administrative Agent to comply with its or their obligations under FATCA, to determinethat such Lender has or has not complied with such Lender's obligations under FATCA and, as necessary, to determine theamount to deduct and withhold from such payment. Solely for purposes of this clause (iii) “FATCA” shall include anyamendments made to FATCA after the date of this Agreement.(iv)Each Lender agrees that if any form of certification it previously delivered expires or becomes obsolete orinaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the AdministrativeAgent in writing of its legal inability to do so.(f)If the Administrative Agent or a Lender determines, in its sole discretion, that it has received a refund of anyTaxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additionalamounts pursuant to this Section 2.17, it shall pay over such refund to the Borrower (but only to the extent of indemnity paymentsmade, or additional amounts paid, by the Borrower under this Section 2.17 with respect to the Taxes or Other Taxes giving rise to suchrefund), net of all out-of-pocket expenses of the Administrative Agent or such Lender and without interest (other than any interest paidby the relevant Governmental Authority with respect to such refund); provided, that the Borrower, upon the request of theAdministrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or othercharges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the AdministrativeAgent or such Lender is required to repay such refund to such Governmental Authority. This Section shall not be construed to requirethe Administrative Agent or any Lender to make available its tax returns (or any other-41-information relating to its taxes which it deems confidential) to the Borrower or any other Person.Section 2.18 Payments Generally; Pro Rata Treatment; Sharing of Setoffs.(a) Except with respect to ExcludedTaxes, the Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees orreimbursement of LC Disbursements, or of amounts payable under Section 2.15, Section 2.16 or Section 2.17, or otherwise) prior to2:00 p.m., New York City time, on the date when due, in immediately available funds, without deduction, setoff or counterclaim (otherthan any deduction or setoff in respect of Excluded Taxes as explicitly described in such Sections). Any amounts received after suchtime on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding BusinessDay for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 ParkAvenue, New York, New York, except payments to be made directly to each Issuing Bank or the Swingline Lender as expresslyprovided herein and except that payments pursuant to Section 2.15, Section 2.16, Section 2.17 and Section 9.03 shall be made directlyto the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any otherPerson to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not aBusiness Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruinginterest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars.(b)If at any time insufficient funds are received by and available to the Administrative Agent to pay fully allamounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first,towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts ofinterest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then duehereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursementsthen due to such parties.(c)If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respectof any principal of or interest on any of its Loans or participations in LC Disbursements or Swingline Loans resulting in such Lenderreceiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and SwinglineLoans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportionshall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements and Swingline Loans of otherLenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with theaggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements and SwinglineLoans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered,such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) theprovisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with theexpress terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or-42-sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borroweror any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoingand agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoingarrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if suchLender were a direct creditor of the Borrower in the amount of such participation.(d)Unless the Administrative Agent shall have received notice from the Borrower prior to the date on whichany payment is due to the Administrative Agent for the account of the Lenders or the Issuing Banks hereunder that the Borrower willnot make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordanceherewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Banks, as the case may be, the amount due.In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Banks, as the case may be,severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bankwith interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment tothe Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent inaccordance with banking industry rules on interbank compensation.(e)If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.03(c),Section 2.06(d) or (e), Section 2.07(b), Section 2.18(d) or Section 9.03(c), then the Administrative Agent may, in its discretion(notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account ofsuch Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid.Section 2.19 Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation underSection 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the accountof any Lender pursuant to Section 2.17, then such Lender shall use reasonable efforts to designate a different lending office for fundingor booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in thejudgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 orSection 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and wouldnot otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by anyLender in connection with any such designation or assignment.(b)If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additionalamount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or if any Lender is aDefaulting Lender, or if any Lender fails to execute and deliver any amendment, consent or waiver to any Loan Document requested bythe Borrower by the date specified by the Borrower (or gives the Borrower or the-43-Administrative Agent written notice prior to such date of its intention not to do so), or if any Lender delivers a notice to the Borrowerand/or the Administrative Agent pursuant to Section 2.20, or if any Lender shall fail to agree to extend the Maturity Date pursuant toSection 2.21, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, requiresuch Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all itsinterests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be anotherLender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of theAdministrative Agent (and, if a Commitment is being assigned, each Issuing Bank and the Swingline Lender), which consent (orconsents) shall not unreasonably be withheld or delayed, (ii) such Lender shall have received payment of an amount equal to theoutstanding principal of its Loans and participations in LC Disbursements and Swingline Loans, accrued interest thereon, accrued feesand all other amounts payable to it hereunder, from the assignee or the Borrower, as applicable, and (iii) in the case of any suchassignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, suchassignment will result in a reduction in such compensation or payments.Section 2.20 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomesunlawful for any Lender or its applicable lending office to honor its obligation to make or maintain Eurodollar Loans either generally orhaving a particular Interest Period hereunder, then (a) such Lender shall promptly notify the Borrower and the Administrative Agentthereof and such Lender's obligation to make such Eurodollar Loans shall be suspended (the “Affected Loans”) until such time as suchLender may again make and maintain such Eurodollar Loans and (b) all Affected Loans which would otherwise be made by such Lendershall be made instead as ABR Loans (and, if such Lender so requests by notice to the Borrower and the Administrative Agent, allAffected Loans of such Lender then outstanding shall be automatically converted into ABR Loans on the date specified by such Lenderin such notice) and, to the extent that Affected Loans are so made as (or converted into) ABR Loans, all payments of principal whichwould otherwise be applied to such Lender's Affected Loans shall be applied instead to its ABR Loans.Section 2.21 Extension of Maturity Date.(a)Not earlier than 75 days prior to, nor later than 30 days prior to, the Initial Maturity Date and eachanniversary of the Initial Maturity Date, the Borrower may, upon notice to the Administrative Agent (which shall promptly notify theLenders), request a one-year extension of the Maturity Date then in effect. Within 15 days of delivery of such notice, each Lender shallnotify the Administrative Agent whether or not it consents to such extension (which consent may be given or withheld in such Lender'ssole and absolute discretion). Any Lender not responding within the above time period shall be deemed not to have consented to suchextension. The Administrative Agent shall promptly notify the Borrower and the Lenders of the Lenders' responses.(b)The Maturity Date shall be extended only if the Required Lenders (calculated excluding any DefaultingLender and after giving effect to any replacements of Lenders permitted herein) have consented thereto (the Lenders that so consentbeing the “Consenting Lenders” and-44-the Lenders that do not consent being the “Non-Consenting Lenders”). If so extended, the Maturity Date, as to the Consenting Lenders,shall be extended to the same date in the year following the Maturity Date then in effect (such existing Maturity Date being the“Extension Effective Date”). The Administrative Agent and the Borrower shall promptly confirm to the Lenders such extension,specifying the date of such confirmation (the “Extension Confirmation Date”), the Extension Effective Date, and the new MaturityDate (after giving effect to such extension). As a condition precedent to such extension, the Borrower shall deliver to theAdministrative Agent a certificate of the Borrower dated as of the Extension Confirmation Date signed by a Responsible Officer of theBorrower (i) certifying and attaching the resolutions adopted by the Borrower approving or consenting to such extension and(ii) certifying that, (A) before and after giving effect to such extension, the representations and warranties contained in Article III madeby it are true and correct on and as of the Extension Confirmation Date, except to the extent that such representations and warrantiesspecifically refer to an earlier date, (B) before and after giving effect to such extension no Default exists or will exist as of theExtension Confirmation Date, and (C) since December 31, 2010, no event, development or circumstance that has had or couldreasonably be expected to have a Material Adverse Effect has occurred. The Borrower shall prepay any Loans outstanding on theExtension Effective Date (and pay any additional amounts required pursuant to Section 2.16) to the extent necessary to keep outstandingLoans ratable with any revised and new Applicable Percentages of all the Lenders effective as of the Extension Effective Date; and if,after giving effect to such prepayment, the total Credit Exposures exceeds the total Commitments then in effect as a result of an LCExposure, then the Borrower will pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be heldas cash collateral as provided in Section 2.06(j). In addition, each Consenting Lender shall automatically (without any further action) andratably acquire on the Extension Effective Date the Non-Consenting Lenders' participations in Letters of Credit, in an amount equal tosuch Consenting Lender's Applicable Percentage of the amount of such participations.Section 2.22 Defaulting Lenders.(a)Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a DefaultingLender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:(i)fees payable to such Defaulting Lender shall cease to accrue on the daily amount of the Commitment of suchDefaulting Lender pursuant to Section 2.12(a);(ii)the Commitment and Credit Exposure of such Defaulting Lender shall not be included in determiningwhether the Required Lenders have taken or may take any action hereunder (including any consent to any amendment, waiveror other modification pursuant to Section 9.02 or any consent to an extension of the Maturity Date pursuant to Section 2.21),provided that in no event shall (A) such Defaulting Lender's Commitment be increased or extended without its consent and(B) the principal amount of, or interest or fees payable on, Loans or LC Disbursements be reduced or excused or the scheduleddate of payment be postponed as to such Defaulting Lender without such Defaulting Lender's consent (except that fees shall becease to accrue for the account of such Defaulting Lender to the extent-45-specified in this Section 2.22 without such Defaulting Lender's consent);(iii)if any Swingline Exposure or LC Exposure exists at the time a Lender becomes a Defaulting Lender then:A.all or any part of the Swingline Exposure and LC Exposure of such Defaulting Lender shall bereallocated among the Lenders that are not Defaulting Lenders (for purposes of this Section 2.22, the “non-DefaultingLenders”) in accordance with their respective Applicable Percentages but only to the extent that (x) the sum of all non-Defaulting Lenders' Credit Exposures plus such Defaulting Lender's Swingline Exposure plus such DefaultingLender's LC Exposure does not exceed the total of all non-Defaulting Lenders' Commitments and (y) the conditions setforth in Section 4.02 are satisfied at such time;B.if the reallocation described in clause (iii)(A) above cannot, or can only partially, be effected, theBorrower shall within one Business Day following notice by the Administrative Agent (x) first, prepay such DefaultingLender's Swingline Exposure (after giving effect to any partial reallocation pursuant to clause (iii)(A) above) and(y) second, cash collateralize, for the benefit of the Issuing Banks, the Borrower's obligations corresponding to suchDefaulting Lender's LC Exposure (after giving effect to any partial reallocation pursuant to clause (iii)(A) above) inaccordance with the procedures set forth in Section 2.06(j) for so long as such LC Exposure is outstanding;C.if the Borrower cash collateralizes any portion of such Defaulting Lender's LC Exposure pursuant toclause (iii)(B) above, the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant toSection 2.12(c) with respect to such Defaulting Lender's LC Exposure during the period such Defaulting Lender's LCExposure is cash collateralized;D.if the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to clause (iii)(A) above,then the fees payable to such non-Defaulting Lenders pursuant to Section 2.12(c) shall be adjusted in accordance withsuch non-Defaulting Lenders' LC Exposure after giving effect to such reallocation and, to the extent of suchreallocation, fees under Section 2.12(c) shall no longer accrue for the benefit of such Defaulting Lender; andE.if all or any portion of such Defaulting Lender's LC Exposure is neither reallocated nor cashcollateralized pursuant to clause (iii)(A) or clause (iii)(B) above, then, without prejudice to any rights or remedies of anyIssuing Bank or any non-Defaulting Lender hereunder, all fees that otherwise would have been payable to suchDefaulting Lender pursuant to Section 2.12(c) with respect to such Defaulting Lender's LC Exposure shall be payableto the Issuing Banks (ratably in proportion to the amount of Letters of Credit issued by each Issuing Bank) until and tothe extent that such LC Exposure is reallocated and/or cash collateralized; and-46-(iv)so long as a Lender is a Defaulting Lender, the Swingline Lender shall not be required to fund any SwinglineLoan and no Issuing Bank shall be required to issue, amend or increase any Letter of Credit, unless it is satisfied that the relatedexposure and such Defaulting Lender's then outstanding LC Exposure will be 100% covered by the Commitments of the non-Defaulting Lenders and/or cash collateral will be provided by the Borrower in accordance with Section 2.22(a)(iii), andparticipating interests in any newly made Swingline Loan or any newly issued or increased Letter of Credit shall be allocatedamong non-Defaulting Lenders in a manner consistent with Section 2.22(a)(iii)(A) (and such Defaulting Lender shall notparticipate therein). For the avoidance of doubt, (A) with respect to Letters of Credit requested at a time when a Lender is aDefaulting Lender, to the extent such Defaulting Lender's obligations under Section 2.06 are reallocated to other non-Defaulting Lenders in accordance with such non-Defaulting Lenders' respective Applicable Percentages (to the extent, aftergiving effect to the issuance of such Letter of Credit, that the sum of all non-Defaulting Lenders' Credit Exposures plus suchDefaulting Lender's Swingline Exposure plus such Defaulting Lender's LC Exposure does not exceed the total of all non-Defaulting Lenders' Commitments), the existence of such Defaulting Lender shall not affect the obligation of any Issuing Bankto issue Letters of Credit up to the LC Sublimit, as reduced by such Defaulting Lender's Applicable Percentage (without takinginto consideration any reallocation described in this Section 2.22) of the LC Sublimit or (B) with respect to Swingline Loansrequested at a time when a Lender is a Defaulting Lender, to the extent such Defaulting Lender's obligations under Section 2.03are reallocated to other non-Defaulting Lenders in accordance with such non-Defaulting Lenders' respective ApplicablePercentages (to the extent, after giving effect to such Swingline Loan, that the sum of all non-Defaulting Lenders' CreditExposures plus such Defaulting Lender's Swingline Exposure plus such Defaulting Lender's LC Exposure does not exceed thetotal of all non-Defaulting Lenders' Commitments), the existence of such Defaulting Lender shall not affect the obligation ofthe Swingline Lender to make Swingline Loans up to the Swingline Sublimit, as reduced by such Defaulting Lender'sApplicable Percentage (without taking into consideration any reallocation described in this Section 2.22).(b)(Reserved)(c)In the event that the Administrative Agent, the Borrower, the Swingline Lender and each Issuing Bank eachagrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then theSwingline Exposure and LC Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender's Commitment and onsuch date such Lender shall purchase at par such of the Loans of the other Lenders (other than Swingline Loans) as the AdministrativeAgent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Applicable Percentage;provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrowerwhile that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affectedparties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunderarising from that Lender having been a Defaulting Lender.-47-ARTICLE IIIREPRESENTATIONS AND WARRANTIESThe Borrower represents and warrants to the Lenders that:Section 3.01 Organization; Powers. Each of the Borrower and its Subsidiaries is duly organized, validly existingand in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business asnow conducted and is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, exceptwhere the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.Section 3.02 Authorization; Enforceability. The Transactions are within the Borrower's corporate powers andhave been duly authorized by all necessary corporate and, if required, stockholder action. The Loan Documents have been dulyexecuted and delivered by the Borrower and constitute legal, valid and binding obligations of the Borrower, enforceable in accordancewith their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rightsgenerally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.Section 3.03 Governmental Approvals; No Conflicts. The Transactions (a) do not require the Borrower or anySubsidiary to obtain any consent or approval of, or make any registration or filing with, or request any other action by, any GovernmentalAuthority, except such as have been obtained or made and are in full force and effect (except for any reports required to be filed by theBorrower with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934), (b) will not result in aviolation by the Borrower or any Subsidiary of any law or regulation or the charter, by-laws or other organizational documents of theBorrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under anymaterial indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets, or give rise to aright thereunder to require any material payment to be made by the Borrower or any of its Subsidiaries, and (d) will not result in thecreation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries.Section 3.04 Financial Condition. The Borrower has heretofore furnished to the Lenders its consolidatedbalance sheet and statements of income, stockholder's equity and cash flows (i) as of and for the fiscal years ended December 31, 2010,and December 31, 2009, reported on by KPMG LLP, independent public accountants, and (ii) as of and for the Fiscal Quarter and theportion of the fiscal year ended September 30, 2011, certified by its chief financial officer. Such financial statements present fairly, inall material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as ofsuch dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the caseof the statements referred to in clause (ii) above.-48-Section 3.05 Environmental Matters. Except for the Disclosed Matters and except with respect to any othermatters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither theBorrower nor any of its Subsidiaries (a) has failed to comply with any applicable Environmental Law or to obtain, maintain or complywith any permit, license or other approval required under any applicable Environmental Law, (b) has become subject to anyEnvironmental Liability, (c) has received notice of any claim with respect to any Environmental Liability or (d) knows of any basis forany Environmental Liability.Section 3.06 No Default. No Default has occurred and is continuing.Section 3.07 Investment Company Status. Neither the Borrower nor any of its Subsidiaries is an “investmentcompany” as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended.Section 3.08 Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Taxreturns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except(a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable,has set aside on its books adequate reserves with respect thereto in accordance with GAAP or (b) to the extent that the failure to do socould not reasonably be expected to result in a Material Adverse Effect.Section 3.09 ERISA. Each ERISA Affiliate has fulfilled its obligations under the minimum funding standardsof ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions ofERISA and the Code with respect to each Plan. No ERISA Affiliate has (i) sought a waiver of the minimum funding standard underSection 412 of the Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or inrespect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or couldreasonably be expected to result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Code or(iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums due but not delinquent underSection 4007 of ERISA.Section 3.10 Disclosure. Neither the Information Memorandum nor any of the other reports, financialstatements, certificates or other written information (other than information of a global economic or industry nature) furnished by or onbehalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or deliveredhereunder (as modified or supplemented by other written information so furnished) contained as of the date such reports, financialstatements, certificates or other written information were so furnished, any untrue statement of a material fact or omitted to state anymaterial fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;provided that, with respect to (i) projections, estimates, pro forma financial information, engineering reports and forward-lookingstatements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934)contained in the materials referenced above, the Borrower represents only that such information was prepared in good faith based uponassumptions believed by it to be reasonable at the time and (ii) financial statements, the-49-Borrower represents only that such financial statements were prepared as represented in Section 3.04 and as required bySections 5.01(a) and (b), as applicable.ARTICLE IVCONDITIONSSection 4.01 Revolving Effective Date. The obligations of the Lenders to make Loans and of the Issuing Banksto issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (orwaived in accordance with Section 9.02):(a)The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpartof this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may includetelecopy, facsimile or other electronic transmission of a signed signature page of this Agreement) that such party has signed a counterpartof this Agreement.(b)The Administrative Agent shall have received a favorable written opinion (addressed to the AdministrativeAgent and the Lenders and dated the Revolving Effective Date) of (i) Jay Browning, in-house counsel of the Borrower, providing theopinions set forth in Exhibit E and (ii) Baker Botts L.L.P., counsel for the Borrower, providing the opinions set forth in Exhibit F, andeach such opinion covering such other matters relating to the Borrower or the Transactions as the Required Lenders shall reasonablyrequest. The Borrower hereby requests each such counsel to deliver its applicable opinion to the Administrative Agent and the Lenders.(c)The Administrative Agent shall have received a certificate of the Borrower attaching such documents andcertificates as the Administrative Agent may reasonably request relating to the organization, existence and good standing of theBorrower, the authorization of the Transactions and any other legal matters relating to the Borrower, this Agreement or theTransactions, all in form and substance satisfactory to the Administrative Agent.(d)The Administrative Agent shall have received the financial statements referred to in Section 3.04.(e)The Administrative Agent shall have received a certificate, dated the Revolving Effective Date and signed bya Responsible Officer of the Borrower, certifying (which statements shall constitute a representation and warranty made by theBorrower to the Lenders hereunder on the Revolving Effective Date) that, as of the Revolving Effective Date, (i) there are no actions,suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any ResponsibleOfficer of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (A) as to which there is a reasonablepossibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate,to result in a Material Adverse Effect (other than the Disclosed Matters) or (B) that involve the Loan Documents or the Transactions;and (ii) since December 31, 2010, there has been no material adverse change in the business, financial position, or results of-50-operations of the Borrower together with its Subsidiaries on a consolidated basis.(f)The Administrative Agent shall have received a certificate, dated the Revolving Effective Date and signed bya Responsible Officer of the Borrower, confirming compliance, as of the Revolving Effective Date, with the conditions set forth inparagraphs (a) and (b) of Section 4.02.(g)The Administrative Agent shall have received all fees and other amounts due and payable on or prior to theRevolving Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to bereimbursed or paid by the Borrower hereunder.The Administrative Agent shall notify the Borrower and the Lenders of the Revolving Effective Date, and such notice shall beconclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Banks to issueLetters of Credit hereunder shall not become effective unless each of the foregoing conditions contained in this Section 4.01 is satisfied(or waived pursuant to Section 9.02) at or prior to 5:00 p.m., New York City time, on December 31, 2011 (and, in the event suchconditions are not so satisfied or waived, the Commitments shall terminate at such time).Section 4.02 Each Credit Event. The obligation of each Lender to make a Loan on the occasion of anyBorrowing, and of each Issuing Bank to issue, amend or extend any Letter of Credit, is subject to the satisfaction of the followingconditions:(a)The representations and warranties of the Borrower set forth in this Agreement and in the other LoanDocuments shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment or extension of suchLetter of Credit, as applicable, except to the extent any such representations and warranties are expressly limited to an earlier date, inwhich case, on and as of the date of such Borrowing or the date of issuance, amendment or extension of such Letter of Credit, asapplicable, such representations and warranties shall continue to be true and correct as of such specified earlier date.(b)At the time of and immediately after giving effect to such Borrowing or the issuance, amendment orextension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing.(c)The Administrative Agent shall have received, as applicable, a Borrowing Request in accordance withSection 2.05, a request for a Swingline Loan pursuant to Section 2.03 or a request for a Letter of Credit pursuant to Section 2.06.(d)In the case of the issuance, amendment, extension or increase of a Letter of Credit to be denominated in anApproved Currency other than dollars, there shall not have occurred any change in national or international financial, political oreconomic conditions or currency exchange rates or exchange controls that in the reasonable opinion of the Administrative Agent or theapplicable Issuing Bank would make it impracticable for such issuance, amendment, extension or increase to be denominated in therelevant Approved Currency.-51-Each Borrowing and each issuance, amendment or extension of a Letter of Credit shall be deemed to constitute a representation andwarranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.ARTICLE VAFFIRMATIVE COVENANTSUntil the Commitments have expired or been terminated and the principal of and interest on each Loan and all feespayable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shallhave been reimbursed, the Borrower covenants and agrees with the Lenders that:Section 5.01 Financial Statements and Other Information. The Borrower will furnish to the AdministrativeAgent:(a)within 65 days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet andrelated statements of income, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case incomparative form the figures for the previous fiscal year, all reported on by KPMG LLP or other independent public accountants ofrecognized national standing (without a “going concern” or like qualification or exception and without any qualification or exception as tothe scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financialcondition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAPconsistently applied, except for deviations from the application of GAAP concurred with by the Borrower's independent publicaccountants;(b)within 45 days after the end of each of the first three Fiscal Quarters of each fiscal year of the Borrower, itsconsolidated balance sheet and related statements of income, stockholders' equity and cash flows as of the end of and for such FiscalQuarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the correspondingperiod or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its FinancialOfficers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidatedSubsidiaries on a consolidated basis in accordance with GAAP consistently applied, except for deviations from the application of GAAPconcurred with by the Borrower's independent public accountants, subject to normal year-end audit adjustments and the absence offootnotes;(c)concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of aFinancial Officer of the Borrower (i) certifying as to whether a Default has occurred and is continuing and, if a Default has occurred andis continuing, specifying the details thereof and any action taken or proposed to be taken with respect thereto, and (ii) setting forthreasonably detailed calculations demonstrating compliance with Section 6.01;(d)promptly after the same become publicly available, notice of all registration statements or reports filed by theBorrower or any Subsidiary with the Securities and Exchange-52-Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, on Form S-1, S-3, S-4, 10-K, 10-Q, 8-K or 12b-25, and notice of any financial statements, reports, notices or proxy statements distributed by the Borrower to itsshareholders generally, as the case may be; and(e)promptly following any request therefor, such other information regarding the operations, business affairsand financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agentor any Lender through the Administrative Agent may reasonably request.Documents required to be delivered pursuant to Section 5.01(a), Section 5.01(b) or Section 5.01(d) (to the extent any such documentsare included in materials otherwise filed with the Securities and Exchange Commission) may be delivered electronically and if sodelivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a linkthereto on the Borrower's website on the Internet at www.valero.com; or (ii) on which such documents are posted on the Borrower'sbehalf on the website of the Securities and Exchange Commission or any other Internet or intranet website, if any, to which eachLender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by theAdministrative Agent); provided that the Borrower shall notify the Administrative Agent, which shall then promptly notify each Lender(by telecopier or electronic mail) of the posting of any such documents, and the Borrower shall provide to the Administrative Agent byelectronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instancethe Borrower shall be required to provide paper copies of the compliance certificate required by Section 5.01(c) to the AdministrativeAgent, which shall then promptly furnish such compliance certificate to the Lenders. Except for such compliance certificates, theAdministrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and inany event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shallbe solely responsible for requesting delivery to it or maintaining its copies of such documents.Section5.02 Notices of Material Events. The Borrower will furnish to the Administrative Agent, which shallthen promptly furnish to each Lender, prompt written notice of the following:(a)the occurrence of any Default of which any Responsible Officer of the Borrower obtains knowledge; and(b)if and when any ERISA Affiliate (i) gives or is required to give notice to the PBGC of any “reportable event”(as defined in Section 4043 of ERISA) with respect to any Plan which could reasonably be expected to constitute grounds for atermination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to givenotice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receivesnotice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, isinsolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent toterminate, impose liability (other than for premiums under Section 4007 of ERISA) in-53-respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standardunder Section 412 of the Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) ofERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant toSection 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan orin respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or couldreasonably be expected to result in the imposition of a Lien or the posting of a bond or other security, a certificate of a Financial Officerof the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable ERISA Affiliate isrequired or proposes to take. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or otherexecutive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken orproposed to be taken with respect thereto.Section5.03 Existence; Conduct of Business. The Borrower will, and will cause each of its MaterialSubsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and therights, licenses, permits, privileges and franchises necessary or desirable in the normal conduct of its business; provided that theforegoing shall not prohibit any merger or consolidation of the Borrower permitted under Section 6.03 or any merger, consolidation,liquidation or dissolution of any Subsidiary that is not otherwise prohibited by the terms of this Agreement; and provided, further, thatneither the Borrower nor any of its Subsidiaries shall be required to preserve, renew or keep in full force and effect any right, license,permit, privilege or franchise to the extent that the failure to do so would not reasonably be expected to have a Material Adverse Effect.Section 5.04 Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay ordischarge, before the same shall become delinquent or in default, its obligations, including liabilities for Taxes, that, if not paid, couldreasonably be expected to result in a Material Adverse Effect, except where (a) the validity or amount thereof is being contested in goodfaith by appropriate proceedings, and (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respectthereto in accordance with GAAP.Section 5.05 Maintenance of Properties; Insurance. The Borrower will, and will cause each of its MaterialSubsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinarywear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts andagainst such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similarlocations (including, without limitation, by the maintenance of adequate self-insurance reserves to the extent customary among suchcompanies).Section 5.06 Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiariesto, keep proper books of record and account in which complete and accurate entries are made of its financial and business transactions tothe extent required by GAAP and applicable law. The Borrower will, and will cause each of its Subsidiaries to, permit anyrepresentatives designated by the Administrative Agent or any Lender, at such Administrative-54-Agent's or Lender's expense, upon reasonable prior notice and subject to any applicable restrictions or limitations on access to any facilityor information that is classified or restricted by contract or by law, regulation or governmental guidelines, to visit and inspect itsproperties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers andindependent accountants, all at such reasonable times and as often as reasonably requested; provided that advance notice of any discussionwith such independent accountants shall be given to the Borrower and, so long as no Event of Default shall have occurred and becontinuing, the Borrower shall have the opportunity to be present at any such discussion. The Administrative Agent and each Lenderagree to keep all information obtained by them pursuant to this Section confidential in accordance with Section 9.12.Section 5.07 Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply, inall material respects with all applicable laws, ordinances, rules, regulations, and requirements of Governmental Authorities (including,without limitation, applicable Environmental Laws and ERISA and the rules and regulations thereunder), except where the failure to doso, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.Section 5.08 Use of Proceeds. The proceeds of the Loans will be used for general corporate purposes, includingthe refinancing of existing Indebtedness of the Borrower. No part of the proceeds of any Loan will be used, whether directly orindirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X. Letters ofCredit will be issued only for general corporate purposes.ARTICLE VINEGATIVE COVENANTSUntil the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payablehereunder have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have beenreimbursed, the Borrower covenants and agrees with the Lenders that:Section 6.01 Indebtedness.(a)The Borrower will not permit Adjusted Consolidated Net Debt at any time to exceed 60% of TotalCapitalization.(b)At no time shall the aggregate of the following exceed 15% of Consolidated Net Tangible Assets: (i) securedIndebtedness and Derivative Obligations of the Borrower and its Subsidiaries (provided that, for purposes of the calculation in thisSection 6.01(b)(i), (A) Indebtedness of the Borrower and its Subsidiaries that is secured by a Lien that is permitted by Section 6.02(other than clause (l) of such Section 6.02) and (B) Liens arising as a result of customary netting and offset provisions in HedgingAgreements, shall be disregarded), plus (ii) unsecured Indebtedness of the Subsidiaries of the Borrower (provided that, for purposes ofthe calculation in this Section 6.01(b)(ii), Indebtedness that is Excluded Subsidiary Debt shall be disregarded).-55-(c)The Borrower will not permit Indebtedness of the Borrower or its Subsidiaries in respect of SecuritizationTransactions to exceed $1,500,000,000, in the aggregate at any time outstanding.Section 6.02 Liens. The Borrower will not, and will not permit any of its Subsidiaries to, create, assume orsuffer to exist any Lien to secure payment of any Indebtedness or any Derivatives Obligations on any Property now owned or hereafteracquired by it, except for:(a)Liens in favor of the Administrative Agent securing Indebtedness or other obligations existing pursuant to thisAgreement;(b)Liens created by Capital Lease Obligations, provided that the Liens created by any such Capital LeaseObligations attach only to the Property leased to the Borrower or one of its Subsidiaries pursuant thereto and general intangibles andproceeds related thereto, and improvements, accessories and upgrades to the Property leased pursuant thereto;(c)purchase-money Liens and Liens on Property acquired, constructed or improved by the Borrower or anySubsidiary (including such Liens securing Indebtedness incurred within 180 days of the date on which such Property was acquired or thedate of completion of such construction or improvement), provided that all such Liens attach only to the Property purchased,constructed or improved with the proceeds of the Indebtedness secured thereby and improvements, accessions, general intangibles andproceeds related thereto;(d)Liens on Property of a Person which exist at the time such Person becomes a Subsidiary of the Borrower as aresult of an acquisition, merger or other combination, or at the time such Person is merged or consolidated with or into, or otherwiseacquired by, the Borrower or a Subsidiary (including improvements, accessions, general intangibles and proceeds related thereto), whichLiens were not granted in contemplation of such acquisition, merger, or other combination and which Liens attach only to the Propertydescribed in this clause (d);(e)any Lien existing on any Property prior to the acquisition thereof by the Borrower or a Subsidiary (includingimprovements, accessions, general intangibles and proceeds related thereto), which Liens were not granted in contemplation of suchacquisition and which Liens attach only to the Property described in this clause (e);(f)Liens on Property of a non-wholly owned Subsidiary to secure obligations of such Subsidiary to theBorrower or to a wholly owned Subsidiary; provided, however, that the obligations so secured may not be assigned, sold or otherwisetransferred to a Person other than the Borrower or another wholly owned Subsidiary unless such Liens are otherwise permittedhereunder;(g)Liens arising in connection with statutory or contractual setoff provisions granted or arising in the ordinarycourse of business in favor of banks, brokers, or other creditors;(h)Liens customarily granted on accounts receivable and related assets in connection with SecuritizationTransactions to the extent Indebtedness in respect of such Securitization Transactions is permitted under Section 6.01(c);-56-(i)any Lien on Property of a Subsidiary of the Borrower to the extent that (A) such Subsidiary has provided aGuarantee of the Borrower's Indebtedness and other obligations existing under this Agreement, (B) the Indebtedness of the Subsidiary ofthe Borrower that is secured by such Lien is pari passu with (or subordinate to) the Indebtedness and other obligations existing pursuantto this Agreement and (C) any Property that is subject to a Lien in support of such Indebtedness is also subject to a pari passu (or higherpriority) Lien in favor of the Administrative Agent securing Indebtedness or other obligations existing pursuant to this Agreement;(j)Liens securing Indebtedness existing on the Revolving Effective Date and listed on Schedule 6.02(j);(k)any Lien arising out of refinancing, extending, renewing or refunding (or successively refinancing,extending, renewing or refunding) any Indebtedness secured by any Lien permitted by any of the foregoing clauses of this Section,provided that the principal amount of such Indebtedness is not increased and such Indebtedness is not secured by any additional Property;and(l)Liens not otherwise permitted by the foregoing clauses of this Section 6.02 securing Indebtedness andDerivative Obligations, provided such Indebtedness and Derivative Obligations are permitted under Section 6.01(b).Section 6.03 Fundamental Changes. (a) The Borrower will not merge into or consolidate with any otherPerson, or permit any other Person to merge into or consolidate with the Borrower, or sell, transfer, lease or otherwise dispose of (in onetransaction or in a series of transactions) all or substantially all of the Borrower's assets, whether now owned or hereafter acquired(including stock of its Subsidiaries), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect theretono Default shall have occurred and be continuing (i) any Person may merge into the Borrower in a transaction in which the Borrower isthe surviving corporation, and (ii) any Person may merge with the Borrower as long as the surviving entity, if other than the Borrower,is of an Investment Grade Rating equal to or higher than the Borrower's rating and so long as the surviving entity assumes, pursuant tothe terms of such transaction, each of the obligations of the Borrower under the Transactions and such assumption is evidenced by anagreement executed and delivered to the Lenders within 30 days of such transaction in a form reasonably satisfactory to the RequiredLenders. Without limiting the generality of the foregoing, the transfer of more than 50% of the Borrower's Consolidated Total Assetsshall be deemed, for the purposes of this Section 6.03(a), a transfer of all or substantially all of the assets of the Borrower.(b)The Borrower will not, and will not permit any of its Material Subsidiaries to, engage to any material extentin any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the Revolving Effective Date andbusinesses reasonably related thereto.Section 6.04 Hedging Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, enterinto any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business.-57-Section 6.05 Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to,sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, orotherwise engage in any other transactions with, any of its Affiliates, except in the ordinary course of business at prices and on terms andconditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated thirdparties, provided that the foregoing restriction shall not apply to:(a)transactions between or among the Borrower and its Subsidiaries or between or among Subsidiaries;(b)transactions pursuant to any contract or agreement in effect on the date hereof, as the same may be amended,modified or replaced from time to time, so long as any such contract or agreement as so amended, modified or replaced is, taken as awhole, no less favorable to the Borrower and its Subsidiaries in any material respect than the contract or agreement in effect on the datehereof; and(c)transactions pursuant to which (i) taxes are allocated among the Borrower and its Affiliates in any mannerconsistent with Section 1552 (or any successor provision) of the Code, (ii) general and administrative expenses are allocated among theBorrower and its Affiliates in any manner consistent with Section 482 (or any successor provision) of the Code, and (iii) interest ischarged or credited to Affiliates in any reasonable manner not inconsistent with the Code.ARTICLE VIIEVENTS OF DEFAULTIf any of the following events (“Events of Default”) shall occur:(a)the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LCDisbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepaymentthereof or otherwise;(b)the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amountreferred to in clause (a) of this Article) payable under the Loan Documents, when and as the same shall become due and payable, andsuch failure shall continue unremedied for a period of five Business Days;(c)any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary inor in connection with the Loan Documents or any amendment or modification thereof or waiver thereunder, or in any report,certificate, financial statement or other document furnished pursuant to or in connection with the Loan Documents or any amendmentor modification thereof or waiver thereunder, shall prove to have been incorrect in any material respect when made or deemed made;(d)the Borrower shall fail to observe or perform any covenant, condition or agreement contained inSection 5.02, Section 5.03 (with respect to the Borrower's existence) or-58-Section 5.08 or in Article VI;(e)the Borrower shall fail to observe or perform any covenant, condition or agreement contained in the LoanDocuments (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender);(f)the Borrower or any Subsidiary shall fail to make any payment in excess of $1,000,000 in the aggregate(whether of principal, interest or fees) in respect of any Material Indebtedness, when and as the same shall become due and payable(after giving effect to any applicable notice requirement or grace period);(g)any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduledmaturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale ortransfer of the property or assets securing such Indebtedness;(h)an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking(i) liquidation, reorganization or other similar relief in respect of the Borrower or any Material Subsidiary or its debts, or of a substantialpart of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or(ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any MaterialSubsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 daysor an order or decree approving or ordering any of the foregoing shall be entered;(i)the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petitionseeking liquidation, reorganization or other relief with respect to itself or its debts under any Federal, state or foreign bankruptcy,insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely andappropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of areceiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantialpart of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding provided suchpetition on its face is sufficient such that admission of the material allegations therein provides a basis for granting the relief requested,(v) make a general assignment for the benefit of creditors or (vi) take any corporate action to authorize any of the foregoing;(j)the Borrower or any Material Subsidiary shall become unable, admit in writing its inability or fail generally topay its debts as they become due;(k)one or more judgments for the payment of money in an aggregate amount in excess of $100,000,000 (to theextent not covered by independent third party insurance as to which the respective insurer does not dispute coverage and is not subject toan insolvency proceeding) shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same-59-shall remain undischarged for a period of 60 consecutive days during which execution shall not be effectively stayed, or any action shallbe legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any suchjudgment;(l)an ERISA Event shall have occurred that, when taken together with all other ERISA Events that haveoccurred, could reasonably be expected to result in a Material Adverse Effect; or(m)a Change in Control shall occur;then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at anytime thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall,by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments,and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole(or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), andthereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and otherobligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest orother notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrowerdescribed in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans thenoutstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shallautomatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are herebywaived by the Borrower.ARTICLE VIIITHE ADMINISTRATIVE AGENTEach of the Lenders and the Issuing Banks hereby irrevocably appoints the Administrative Agent as its agent andauthorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the AdministrativeAgent by the terms hereof, together with such actions and powers as are reasonably incidental thereto.The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as aLender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliatesmay accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or otherAffiliate thereof as if it were not the Administrative Agent hereunder.The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Withoutlimiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties,regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take anydiscretionary action or exercise any discretionary powers, except discretionary rights and powers-60-expressly contemplated hereby that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (orsuch other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and(c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for thefailure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bankserving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action takenor not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shallbe necessary under the circumstances as provided in Section 9.02) or in the absence of its own gross negligence or willful misconduct.The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to theAdministrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty toascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents ofany certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any ofthe covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness ofthis Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV orelsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice,request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed orsent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed byit to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legalcounsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for anyaction taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one ormore sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all itsduties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphsshall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to theirrespective activities in connection with the syndication of the credit facilities provided for herein as well as activities as AdministrativeAgent.Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, theAdministrative Agent may resign at any time by notifying the Lenders, the Issuing Banks and the Borrower. Upon any such resignation,the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been soappointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agentgives notice of its resignation, then the retiring Administrative-61-Agent may, on behalf of the Lenders and the Issuing Banks, appoint a successor Administrative Agent which shall be a bank with anoffice in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agenthereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of theretiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. Thefees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwiseagreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Articleand Section 9.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respectiveRelated Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent.None of the Joint Lead Arrangers, Syndication Agent or Co-Documentation Agents shall have any duties,responsibilities or liabilities under this Agreement and the other Loan Documents other than the duties, responsibilities and liabilitiesassigned to such entities in their capacities as Lenders (or Issuing Banks, if applicable) hereunder.Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any otherLender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter intothis Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or anyother Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its owndecisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnishedhereunder or thereunder.-62-ARTICLE IXMISCELLANEOUSSection 9.01 Notices.(a)Notices Generally. Except in the case of notices and other communications expressly permitted to be givenby telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shallbe delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows:(i)if to the Borrower, to it at Valero Energy Corporation, One Valero Way, San Antonio, Texas 78249, Attentionof Donna M. Titzman, Treasurer (Facsimile No. (210) 345-2267);(ii)if to the Administrative Agent or to JPMorgan Chase Bank, N.A., as an Issuing Bank, the Swingline Lenderor a Lender, to JPMorgan Chase Bank, N.A., Loan and Agency Services, 1111 Fannin Street, 10th Floor, Houston, Texas 77002,Attention of Nathan Lorensen (Facsimile No. (713) 427-6307), with a copy to JPMorgan Chase Bank, N.A., 712 Main Street,12th Floor, Houston, Texas 77002, Attention of Muhammad Hasan (Facsimile No. (713) 216-4117);(iii)if to Citibank, N.A. (or any Affiliate), as an Issuing Bank or a Lender, to Citibank, N.A., 811 Main Street,Houston, Texas 77002, Attention of Nannette Dockal (Facsimile No. (713) 481-0245);(iv)if to BNP Paribas, as an Issuing Bank or a Lender, to BNP Paribas, 525 Washington Blvd, Jersey City, NewJersey 07310, Attention of Robert Bruce (Facsimile No. (201) 850-4021) with a copy to the attention of Maria Albuquerque(Facsimile No. (201) 850-4021);(v)if to Mizuho Corporate Bank, Ltd., as an Issuing Bank or a Lender, to Mizuho Corporate Bank, Ltd., 1800Plaza Ten, Harborside Financial Ctr., Jersey City, New Jersey 07311, Attention of Maxim Lipovetsky (Facsimile No. (201) 626-9941) with a copy to the attention of Nicole Ferrara using the same address and facsimile number; and(vi)if to The Royal Bank of Scotland plc, as an Issuing Bank to RBS Global Banking & Markets, RBS AmericasHQ, 600 Washington Boulevard, Stamford, Connecticut, 06901, Attention of Richard Emmich (Facsimile No. (203) 873-3569) with a copy to RBS Global Banking & Markets, Castlerock, 600 Washington Boulevard, Stamford, Connecticut, 06901,Attention of Marchette Major (Facsimile No. (203) 873-3569); or, if to The Royal Bank of Scotland plc, as a Lender, to CreditAdministration, RBS Global Banking & Markets, 600 Washington Blvd, Stamford, Connecticut, 06901, Attention of DonaldHart (Facsimile No. (203) 873-4059); and(vii)if to any other Lender, to it at its address (or facsimile number) set forth in-63-its Administrative Questionnaire.(b)Electronic Communications. Notices and other communications to the Lenders hereunder may be deliveredor furnished by electronic communication (including email and Internet or intranet websites) pursuant to procedures approved by theAdministrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender hasnotified the Administrative Agent that it is incapable of receiving notices under such Article II by electronic communication. TheAdministrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder byelectronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particularnotices or communications.Notices and other communications (i) sent to an email address shall be deemed received upon the sender's receipt of anacknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return email or otherwritten acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of therecipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for therecipient, (ii) posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at itsemail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying thewebsite address therefor and (iii) transmitted by telecopier or facsimile shall be deemed to have been given when sent (except that, if notgiven during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next BusinessDay for the recipient).(c)Change of Address. Any party hereto may change its address or facsimile number for notices and othercommunications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto inaccordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.Section 9.02 Waivers; Amendments. (a) No failure or delay by the Administrative Agent, any Issuing Bank orany Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of anysuch right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or furtherexercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Banks andthe Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of anyprovision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the sameshall be permitted by paragraph (b), (c) or (d) of this Section, and then such waiver or consent shall be effective only in the specificinstance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of aLetter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or anyIssuing Bank may have had notice or knowledge of such Default at the time.(b)No provision contained in Article III, V, VI or VII hereof, and none of the-64-definitions of any defined terms related to such provisions, may be waived, amended or modified except pursuant to an agreement oragreements in writing entered into by the Borrower, and the Required Lenders or by the Borrower and the Administrative Agent withthe consent of the Required Lenders.(c)Except as provided for in Section 9.02(d), neither this Agreement or the Notes nor any provision of either ofthe foregoing may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by theBorrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders.(d)Notwithstanding anything to the contrary contained in paragraphs (b) and (c) above, no such agreement oragreements referred to in such paragraphs shall (i) increase or extend the Commitment of any Lender without the written consent ofsuch Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any feespayable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of theprincipal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or reduce the amount of,waive or excuse any such payment, or postpone the scheduled date of expiration or termination of any Commitment, without thewritten consent of each Lender affected thereby, (iv) change Section 2.09(c), Section 2.18(b) or Section 2.18(c) in a manner that wouldalter the pro rata treatment of Lenders or pro rata sharing of payments required thereby, without the written consent of each Lender,(v) change Section 2.21, Section 4.01, Section 4.02 or any of the provisions of this Section or the definition of “Required Lenders” or thedefinition of “Approved Currency” or any other provision hereof specifying the number or percentage of Lenders required to waive,amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of eachLender or (vi) amend, modify or otherwise change Section 2.22 without the written consent of the Administrative Agent, the SwinglineLender, each Issuing Bank and the Required Lenders. In addition, no such agreement shall amend, modify or otherwise affect the rightsor duties of the Administrative Agent, the Swingline Lender or any Issuing Bank hereunder without the prior written consent of theAdministrative Agent, the Swingline Lender or such Issuing Bank, as the case may be.Section 9.03 Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out of pocketexpenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of a law firm,as counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein and the preparationand administration of this Agreement, (ii) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates,including the reasonable fees, charges and disbursements of a law firm, as counsel for the Administrative Agent, in connection with anyamendments, modifications or waivers of the provisions hereof (in the case of clauses (i) and (ii), whether or not the transactionscontemplated hereby or thereby shall be consummated), (iii) all reasonable out-of-pocket expenses incurred by each Issuing Bank inconnection with the issuance, amendment, renewal or extension of any Letter of Credit issued by it or any demand for paymentthereunder, (iv) all reasonable out-of-pocket expenses incurred by the Swingline Lender in connection with making any SwinglineLoan or any demand for payment thereunder and (v) all-65-out-of-pocket expenses incurred by the Administrative Agent, any Issuing Bank, the Swingline Lender or any Lender, including thereasonable fees, charges and disbursements of any counsel for the Administrative Agent, any Issuing Bank, the Swingline Lender or anyLender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under thisSection, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of pocket expenses incurredduring any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.(b)The Borrower shall indemnify the Administrative Agent, the Joint Lead Arrangers, each Issuing Bank, theSwingline Lender and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an“Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses,including settlement costs and the reasonable fees, charges and disbursements of any counsel for any Indemnitee, incurred by orasserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or anyagreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or theconsummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of theproceeds therefrom (including any refusal by any Issuing Bank to honor a demand for payment under a Letter of Credit if thedocuments presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual oralleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries,or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim,litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardlessof whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent thatsuch losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final andnonappealable judgment to have resulted from the gross negligence, bad faith or willful misconduct of such Indemnitee.(c)To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent,any Joint Lead Arranger, the Swingline Lender or any Issuing Bank under paragraph (a) or (b) of this Section, each Lender severallyagrees to pay to the Administrative Agent, such Joint Lead Arranger, the Swingline Lender or such Issuing Bank, as the case may be,such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment issought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense,as the case may be, was incurred by or asserted against the Administrative Agent, such Joint Lead Arranger, the Swingline Lender orsuch Issuing Bank in its capacity as such.(d)To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claimagainst any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actualdamages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, theTransactions, any Loan or Letter of Credit or the use of the proceeds thereof.-66-(e)All amounts due under this Section shall be payable promptly after written demand therefor.Section 9.04 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure tothe benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of any Issuing Bankthat issues any Letter of Credit), except that (i) other than as permitted in Section 6.03, the Borrower may not assign or otherwisetransfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment ortransfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights orobligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed toconfer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliateof any Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in paragraph (c) of this Section) and, to theextent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Banks, the SwinglineLender and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.(b)(i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or moreassignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans atthe time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:A.the Borrower, provided that no consent of the Borrower shall be required for an assignment to aLender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default has occurred and is continuing, any other assignee;B.the Administrative Agent, provided that no consent of the Administrative Agent shall be required foran assignment of any Commitment to an assignee that is a Lender with a Commitment immediately prior to giving effect to suchassignment;C.each Issuing Bank; andD.the Swingline Lender.(b)Assignments shall be subject to the following additional conditions:A.except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of theentire remaining amount of the assigning Lender's Commitment or Loans, the amount of the Commitment or Loans ofthe assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption withrespect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000 unless each ofthe Borrower and the Administrative Agent otherwise consent, provided that no such consent of the Borrower shall berequired if an Event of Default has occurred and is continuing;-67-B.each partial assignment shall be made as an assignment of a proportionate part of all the assigningLender's rights and obligations under this Agreement;C.the parties to each assignment shall execute and deliver to the Administrative Agent an Assignmentand Assumption, together with a processing and recordation fee of $3,500 (which, for the avoidance of doubt, shall notbe for the account of the Borrower, other than in respect of an assignment initiated by the Borrower pursuant toSection 2.19(b));D.the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an AdministrativeQuestionnaire; andE.no assignment shall be made to a Defaulting Lender.For the purposes of this Section 9.04(b), the term “Approved Fund” has the following meaning:“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding orinvesting in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managedby (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.(iii)Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after theeffective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent ofthe interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, andthe assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be releasedfrom its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigningLender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to beentitled to the benefits of Section 2.15, Section 2.16, Section 2.17 and Section 9.03). Any assignment or transfer by a Lender ofrights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of thisAgreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of thisSection.(iv)The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of itsoffices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses ofthe Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuantto the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, theAdministrative Agent, the Issuing Banks and the Lenders may treat each Person whose name is recorded in the Registerpursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding-68-notice to the contrary. The Register shall be available for inspection by the Borrower, any Issuing Bank and any Lender, at anyreasonable time and from time to time upon reasonable prior notice.(v)Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and anassignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), theprocessing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment requiredby paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record theinformation contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed tomake any payment required to be made by it pursuant to Section 2.06(d) or (e), Section 2.07(b), Section 2.18(d) orSection 9.03(c), the Administrative Agent shall have no obligation to accept such Assignment and Assumption and record theinformation therein in the Register unless and until such payment shall have been made in full, together with all accruedinterest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register asprovided in this paragraph.(c)(i) Any Lender may, without the consent of the Borrower, the Administrative Agent, the Swingline Lender or anyIssuing Bank, sell participations to one or more banks or other entities (other than Competitors) (a “Participant”) in all or a portion ofsuch Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it);provided that (A) such Lender's obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solelyresponsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent, theSwingline Lender, the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connectionwith such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such aparticipation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment,modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lenderwill not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first sentence ofSection 9.02(d) that affects such Participant. Subject to paragraph (c)(ii) of this Section, the Borrower agrees that each Participant shallbe entitled to the benefits of Section 2.15, Section 2.16 and Section 2.17 to the same extent as if it were a Lender and had acquired itsinterest by assignment pursuant to paragraph (b) of this Section.(ii)A Participant shall not be entitled to receive any greater payment under Section 2.15 or Section 2.17 than theapplicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale ofthe participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a ForeignLender if it were a Lender shall not be entitled to the benefits of Section 2.17 unless the Borrower is notified of the participationsold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.17(e) as though itwere a Lender.-69-(d)Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under thisAgreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a FederalReserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge orassignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assigneefor such Lender as a party hereto.Section 9.05 Survival. All covenants, agreements, representations and warranties made by the Borrower hereinand in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have beenrelied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans andthe issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstandingthat the Administrative Agent, any Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrectrepresentation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as theprincipal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaidor any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Section 2.15,Section 2.16, Section 2.17 and Section 9.03 and Article VIII shall survive and remain in full force and effect regardless of theconsummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters ofCredit and the Commitments or the termination of this Agreement or any provision hereof.Section 9.06 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (andby different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken togethershall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the AdministrativeAgent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previousagreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, thisAgreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agentshall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, andthereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of anexecuted counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executedcounterpart of this Agreement.Section 9.07 Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in anyjurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affectingthe validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particularjurisdiction shall not invalidate such provision in any other jurisdiction.-70-Section 9.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender andeach of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to setoff and applyany and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing bysuch Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower that aredue and payable at such time held by such Lender, irrespective of whether or not such Lender shall have made any demand under thisAgreement; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shallbe paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.22 and,pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit ofthe Administrative Agent, the Issuing Banks, and the Lenders, and (y) the Defaulting Lender shall provide promptly to theAdministrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which itexercised such right of setoff. Each Lender agrees to promptly notify the Borrower after any such setoff and application by it or any ofits Affiliates, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of eachLender under this Section are in addition to and shall not be affected by any other rights and remedies (including other rights of setoff)which such Lender may have.Section 9.09 Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall beconstrued in accordance with and governed by the law of the State of New York.(b)The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to thenonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States DistrictCourt of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of orrelating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably andunconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York Statecourt or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such actionor proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided bylaw. Nothing in this Section is intended to waive the right of any party to remove any such action or proceeding commenced in any suchNew York State court to an appropriate New York Federal court to the extent the basis for such removal exists under applicable law.Nothing in this Agreement shall affect any right that the Administrative Agent, any Issuing Bank or any Lender may otherwise have tobring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction.(c)The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally andeffectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out ofor relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocablywaives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding inany such court.-71-(d)Each party to this Agreement irrevocably consents to service of process in the manner provided for noticesin Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other mannerpermitted by law.Section 9.10 Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLESTEXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGALPROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THETRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTYHAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OFLITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHERPARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THEMUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.Section 9.11 Headings. Article and Section headings and the Table of Contents used herein are for convenienceof reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting,this Agreement.Section 9.12 Confidentiality. (a) Each of the Administrative Agent, the Issuing Banks and the Lenders agrees tomaintain the confidentiality of the Information (as defined below), except that Information may be disclosed (i) to its and its Affiliates'directors, officers, employees and agents, including accountants, legal counsel and other advisors, including any credit insuranceprovider relating to the Borrower and its obligations (it being understood that the Persons to whom such disclosure is made will beinformed of the confidential nature of such Information and instructed to keep such Information confidential), (ii) to the extentrequested by any regulatory authority or self-regulatory authority, (iii) to the extent required by applicable laws or regulations or by anysubpoena or similar legal process, (iv) to any other party to this Agreement, (v) in connection with the exercise of any remedieshereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (vi) subject to anagreement containing provisions substantially the same as those of this Section, to (1) any assignee of or Participant in, or any prospectiveassignee of or prospective Participant in, any of its rights or obligations under this Agreement or (2) any actual or prospectivecounterparty (or its advisors) to any swap, securitization or derivative transaction relating to the Borrower and its obligations under thisAgreement, (vii) with the consent of the Borrower or (viii) to the extent such Information (1) becomes publicly available other than as aresult of a breach of this Section or (2) becomes available to the Administrative Agent, any Issuing Bank or any Lender on anonconfidential basis from a source other than the Borrower. For the purposes of this Section, “Information” means all informationreceived from or on behalf of the Borrower relating to the Borrower and its Subsidiaries or their respective businesses, other than anysuch information that is available to the Administrative Agent, any Issuing Bank or any Lender on a nonconfidential basis prior todisclosure by or on behalf of the Borrower. Any Person required to maintain the confidentiality of Information as provided in thisSection shall be-72-considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain theconfidentiality of such Information as such Person would accord to its own confidential information.(b)Each Lender acknowledges that Information as defined in Section 9.12(a) furnished to it pursuant to thisagreement may include material non-public information concerning the Borrower and its Related Parties or their respective securities,and confirms that it has developed compliance procedures regarding the use of material non-public information and that it will handlesuch material non-public information in accordance with those procedures and applicable law, including federal and state securities laws.(c)All information, including requests for waivers and amendments, furnished by the Borrower or theAdministrative Agent pursuant to, or in the course of administering, this Agreement will be syndicate-level information, which maycontain material non-public information about the Borrower and its Related Parties or its securities. Accordingly, each Lender representsto the Borrower and the Administrative Agent that it has identified in its Administrative Questionnaire a credit contact who may receiveinformation that may contain material non-public information in accordance with its compliance procedures and applicable law.Section 9.13 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time theinterest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan underapplicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contractedfor, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payablein respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, tothe extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of theoperation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periodsshall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at theFederal Funds Effective Rate to the date of repayment, shall have been received by such Lender.Section 9.14 USA PATRIOT Act. Each Lender that is subject to the requirements of the USA Patriot Act(Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”) hereby notifies the Borrower that pursuant to therequirements of the Act, it is required to obtain, verify and record information that identifies the Borrower, which information includesthe name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance withthe Act.Section 9.15 Amendment and Restatement. This Agreement shall be deemed to restate and amend the ExistingRevolving Credit Agreement in its entirety, and all of the terms and provisions hereof shall supersede the terms and conditions thereof.The parties hereto further agree that this Agreement, each Borrowing and each issuance, amendment or extension of a Letter of Creditshall serve to extend, renew and continue, but not to extinguish or novate, the “Borrowings” and “Letters of Credit” under the ExistingRevolving Credit Agreement and the corresponding promissory notes and to amend, restate and supersede, but not to extinguish or causeto be novated-73-the Indebtedness under, the Existing Revolving Credit Agreement. The Borrower hereby agrees that, upon the effectiveness of thisAgreement, the “Loans” made and outstanding under the Existing Revolving Credit Agreement and all accrued and unpaid interestthereon shall be deemed to be Loans outstanding under and payable by this Agreement and all “Letters of Credit” issued and outstandingunder the Existing Revolving Credit Agreement, if any, shall be deemed to be issued and outstanding as Letters of Credit hereunder.Section 9.16 Assignment and Reallocation of Commitments, Etc. On the Revolving Effective Date, each ofthe lenders under the Existing Revolving Credit Agreement (each, an “Existing Lender”) hereby sells, assigns, transfers and conveys tothe Lenders hereto, and each of the Lenders hereto hereby purchases and accepts, so much of the aggregate commitments under, andloans and, as further specified in Section 2.06(k), participations in letters of credit outstanding under, the Existing Revolving CreditAgreement such that, immediately after giving effect to the effectiveness of this Agreement (including any increase of thecommitments effectuated hereby), the Applicable Percentage of each Lender to this Agreement and the portion of the relevantCommitment of each Lender, shall be as set forth on Schedule 2.01 hereto. The foregoing assignments, transfers and conveyances arewithout recourse to any Existing Lender and without any warranties whatsoever by the Administrative Agent, any Issuing Bank or anyExisting Lender as to title, enforceability, collectability, documentation or freedom from liens or encumbrances, in whole or in part,other than that the warranty of any such Existing Lender that it has not previously sold, transferred, conveyed or encumbered suchinterests. The Existing Lenders and the Lenders shall, if appropriate, make all appropriate adjustments in payments under the ExistingRevolving Credit Agreement, the “Notes” and the other “Loan Documents” thereunder for periods prior to the adjustment date amongthemselves, but in no event shall any such adjustment of Eurodollar Loans (a) constitute a payment or prepayment of all or a portion ofany Eurodollar Loans or (b) entitle any Lender to any reimbursement under Section 2.16 hereof.(Signature Pages Begin Next Page)-74-IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respectiveauthorized officers as of the day and year first above written.VALERO ENERGY CORPORATION, a Delaware corporation, as BorrowerBy:_______________________________Name: Donna M. TitzmanTitle: Vice President and Treasurer-75-JPMORGAN CHASE BANK, N.A., as the Administrative Agent, the SwinglineLender, an Issuing Bank and a Lender,By:_______________________________Name: Robert TrabandTitle: Managing Director[and other lenders]We have omitted the Schedules to the Agreement from this Exhibit. We will furnish a copy of these Schedules to the Commission uponrequest.-76-EXHIBIT AFORM OFASSIGNMENT AND ASSUMPTIONThis Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below(the “Effective Date”) and is entered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee](the “Assignee”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreementidentified below (as amended, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. TheStandard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and madea part of this Assignment and Assumption as if set forth herein in full.For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee herebyirrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and theCredit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor's rightsand obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuantthereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of theAssignor under the respective facilities identified below (including any letters of credit and guarantees included in such facilities) and(ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in itscapacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, anyother documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or relatedto any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or inequity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assignedpursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”). Such sale and assignment iswithout recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation orwarranty by the Assignor.1. Assignor:____________________________________ 2. Assignee:____________________________________ [and is an Affiliate/Approved Fund of [identify Lender]1 3. Credit Agreement:The $3,000,000,000 5-Year Amended and Restated Revolving Credit Agreement dated as ofDecember 5, 2011 among Valero Energy Corporation, the Lenders parties thereto, JPMorgan ChaseBank, N.A., as Administrative Agent, Swingline Lender and an Issuing Bank and the other Personsfrom time to time party thereto.1 Select as applicable.4. Assigned Interest:Aggregate Amount ofCommitment/Loansfor all LenderssAmount of Commitment/Loans AssignedPercentage AssignedofCommitment/Loans 2$$%$$%$$%Effective Date: ___________ _____, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BETHE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.](Signatures begin on following page)______________________2 Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.The terms set forth in this Assignment and Assumption are hereby agreed to:ASSIGNOR[NAME OF ASSIGNOR]By:_____________________________________ Name:Title:ASSIGNEE[NAME OF ASSIGNEE]By:____________________________________Name:Title:(Consents begin on following page)Consented to and Accepted:JPMORGAN CHASE BANK, N.A., as[Administrative Agent,] 3 Swingline Lenderand Issuing BankBy:__________________________________Name:Title:CITIBANK, N.A.,as an Issuing BankBy:__________________________________Name:Title:BNP PARIBAS,as an Issuing BankBy:__________________________________Name:Title:By:__________________________________Name:Title:_____________________________ 3 To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement (See Section 9.04(b) of the CreditAgreement).MIZUHO CORPORATE BANK, LTD.,as an Issuing BankBy:___________________________________Name:Title:THE ROYAL BANK OF SCOTLAND PLC,as an Issuing BankBy:___________________________________Name:Title: Authorised Signatory[If additional Issuing Banks, add additional signature blocks for consent][Consented to:] 4 VALERO ENERGY CORPORATION,as BorrowerBy:___________________________________Name:Title:______________________________________ 4 To be added only if the consent of the Borrower is required by the terms of the Credit Agreement. (See Section 9.04(b) of the Credit Agreement).ANNEX 1to Exhibit A of Credit AgreementSTANDARD TERMS AND CONDITIONS FORASSIGNMENT AND ASSUMPTION1. Representations and Warranties.1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the AssignedInterest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power andauthority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactionscontemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or inconnection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness,sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of itsSubsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by theBorrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all actionnecessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and tobecome a Lender under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement that arerequired to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shallbe bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have theobligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financialstatements delivered pursuant to Section 5.01 thereof, and such other documents and information as it has deemed appropriate to makeits own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis ofwhich it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and(v) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant tothe terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently andwithout reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shalldeem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and(ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to beperformed by it as a Lender.2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of theAssigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued tobut excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the partieshereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts,which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment andAssumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. ThisAssignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.(End of Annex 1)EXHIBIT BFORM OFNOTICE OF COMMITMENT INCREASE[Date]JPMorgan Chase Bank, N.A.1111 Fannin Street, 10th FloorHouston, Texas, 77002Attention: Loan and Agency Services, Nathan LorensenWith a copy to:JPMorgan Chase Bank, N.A.712 Main Street, 12th FloorHouston, Texas 77002Attention: Muhammad HasanLadies and Gentlemen:The undersigned, Valero Energy Corporation (the “Borrower”), refers to the $3,000,000,000 5‑Year Amended and Restated RevolvingCredit Agreement dated as of December 5, 2011 (as amended, supplemented or otherwise modified from time to time, the “CreditAgreement”, with terms defined in the Credit Agreement and not otherwise defined herein being used herein as therein defined) amongthe Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and an Issuing Bank, the Lenders and otherPersons from time to time party thereto. The Borrower hereby notifies you, pursuant to Section 2.02 of the Credit Agreement, that ithas arranged for the aggregate amount of the Commitments under the Credit Agreement to be increased by adding to the CreditAgreement the CI Lenders referenced below and/or by allowing one ore more existing Lenders to increase their respectiveCommitments. With respect thereto, the Borrower sets forth below the information relating to such proposed Commitment Increase asrequired by Section 2.02(b) of the Credit Agreement:(a) the effective date of such increase of aggregate amount of the Lenders' Commitments is ________________ (herein, the“Commitment Increase Effective Date”);1 (b) the amount of the requested increase of the Commitments is $ _________________;_____________1 The Commitment Increase Effective Date shall be no earlier than five Business Days after receipt by the Administrative Agent of this notice.Exhibit B - Page 1(c) the CI Lenders that have agreed with the Borrower to provide their respective Commitments are__________________________ [INSERT NAMES OF THE CI LENDERS];(d) the existing Lenders that have agreed with the Borrower to increase their respective Commitments are_____________________________ [INSERT NAMES OF THE LENDERS]; and(e) set forth on Annex I attached hereto is the amount of the respective Commitments of each Lender and each CI Lender,after giving effect to the aggregate Commitment increase hereunder, including the Commitments of all Reducing PercentageLenders, all CI Lenders and all existing Lenders increasing their respective Commitments as of the Commitment IncreaseEffective Date.Delivery of an executed counterpart of this Notice of Commitment Increase by telecopier or facsimile shall be effective as delivery ofan original executed counterpart of this Notice of Commitment Increase.Very truly yours,VALERO ENERGY CORPORATIONBy:______________________________Name:Title:On ________ 2, acknowledged by:JPMORGAN CHASE BANK, N.A.,as Administrative AgentBy:________________________Name:Title:___________________2 Insert date that Administrative Agent acknowledges receipt of this notice.Exhibit B - Page 2ANNEX Ito Exhibit B of Credit AgreementREVISED SCHEDULE OF COMMITMENTSAS OF THE COMMITMENT INCREASE EFFECTIVE DATE[Insert revised schedule]Exhibit B - Page 3EXHIBIT CFORM OFBORROWING REQUESTJPMorgan Chase Bank, N.A., as Administrative Agentfor the Lenders partiesto the Credit Agreementreferred to below1111 Fannin Street, 10th FloorHouston, Texas, 77002Attention: Loan and Agency Services, Nathan LorensenWith a copy to:JPMorgan Chase Bank, N.A.712 Main Street, 12th FloorHouston, Texas 77002Attention: Muhammad Hasan[Date]Reference: Valero Energy CorporationLadies and Gentlemen:The undersigned, VALERO ENERGY CORPORATION, refers to the $3,000,000,000 5-Year Amended and RestatedRevolving Credit Agreement dated as of December 5, 2011 (as amended, supplemented or otherwise modified from time to time, the“Credit Agreement,” with terms defined therein and not otherwise defined herein being used herein as therein defined), among theundersigned, JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and an Issuing Bank, the Lenders and otherPersons from time to time party thereto, and the undersigned hereby gives you notice, irrevocably, pursuant to Section 2.05 of theCredit Agreement, that the undersigned hereby requests a Borrowing under the Credit Agreement, and with respect thereto sets forthbelow the information relating to such Borrowing (the “Proposed Borrowing”) as required by Section 2.05 of the Credit Agreement:(i) The aggregate amount of the Proposed Borrowing is $ __________.(ii) The Business Day of the Proposed Borrowing is ____________.(iii) The Type of the Proposed Borrowing is [an ABR Borrowing] [a Eurodollar Borrowing].(iv) The Interest Period for each Eurodollar Borrowing made as part of the Proposed Borrowing is [__________month[s]].Exhibit C - Page 1(v) The Borrower's transit routing and bank account for loan funding is___________________________________________.Very truly yours,VALERO ENERGY CORPORATIONBy: _______________________________Name:Title:Exhibit C - Page 2EXHIBIT DFORM OF PROMISSORY NOTE$________New York, New YorkDecember 5, 2011FOR VALUE RECEIVED, the undersigned, VALERO ENERGY CORPORATION, a Delaware corporation (the“Borrower”), hereby unconditionally promises to pay to the order of ______________________ (the “Lender”) at the office ofJPMorgan Chase Bank, N.A., located at 1111 Fannin Street, 10th Floor, Houston, Texas 77002, in lawful money of the United States ofAmerica and in same day funds, on the Initial Maturity Date (or such later Maturity Date as the Lender has consented to in writing) theprincipal amount of (a) ____________ DOLLARS ($ __________), or, if less, (b) the aggregate unpaid principal amount of all Loansmade by the Lender to the Borrower pursuant to the Credit Agreement, as hereinafter defined. The Borrower further agrees to payinterest in like money at such office on the unpaid principal amount hereof from time to time outstanding at the rates and on the datesspecified in the Credit Agreement.The holder of this Note is authorized to, and prior to any transfer hereof shall, endorse on the schedules attached heretoand made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date, Type and amount ofeach Loan made pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal thereof, eachcontinuation thereof, each conversion of all or a portion thereof to another Type and, in the case of a Eurodollar Loan, the length of eachInterest Period with respect thereto. The failure to make any such endorsement shall not affect the obligations of the Borrower inrespect of such Loan.This Note (a) is one of the Notes referred to in the $3,000,000,000 5-Year Amended and Restated Revolving CreditAgreement, dated as of December 5, 2011 (as amended, supplemented or otherwise modified from time to time, the “CreditAgreement”), among Valero Energy Corporation, JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and anIssuing Bank, the Lenders and other Persons from time to time party thereto, (b) is subject to the provisions of the Credit Agreementand (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement.Reference is made to the Credit Agreement for provisions for the acceleration of the maturity hereof.All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser orotherwise, hereby waive presentment, demand, protest, notice of intent to accelerate, notice of acceleration and all other notices of anykind except those expressly required under the Credit Agreement.Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings givento them in the Credit Agreement.Exhibit D - Page 1THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCEWITH, THE LAW OF THE STATE OF NEW YORK.VALERO ENERGY CORPORATIONBy:_____________________________________Name:Title:Exhibit D - Page 2SCHEDULE AtoPromissory NoteLOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANSDateAmount ofEurodollar LoansAmount Continuedor Converted toEurodollar LoansInterest Period andEurodollar Ratewith RespectTheretoAmount of Principalof Eurodollar LoansRepaidAmount ofEurodollar LoansConverted to ABRLoansUnpaid PrincipalBalance ofEurodollar LoansNotation MadeBy Exhibit D - Page 3SCHEDULE BtoPromissory NoteLOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANSDateAmount of ABRLoansAmount Converted toABR LoansAmount of Principal of ABRLoans RepaidAmount of ABR LoansConverted to EurodollarLoansUnpaid PrincipalBalance of ABR LoansNotationMade By Exhibit D - Page 4Exhibit EFORM OF LEGAL OPINION OF JAY BROWNING, BORROWER'S IN-HOUSE COUNSEL[DATE]To the Lenders and the AdministrativeAgent Referred to Belowc/o JPMorgan Chase Bank, N.A.,as Administrative Agent270 Park AvenueNew York, New York 10017Ladies and Gentlemen:I am Senior Vice President - Corporate Law and Secretary of Valero Energy Corporation, a Delaware corporation (the“Borrower”) and have acted as counsel for Borrower in connection with the $3,000,000,000 5-Year Amended and Restated RevolvingCredit Agreement dated as of December 5, 2011 (the “Credit Agreement”), among the Borrower, the banks and other financialinstitutions identified therein as Lenders, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other agents party thereto.Terms defined in the Credit Agreement are used herein with the same meanings.I, or individuals under my direction, have examined originals or copies, certified or otherwise identified to mysatisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such otherinvestigations of fact and law as I have deemed necessary or advisable for purposes of this opinion.As to matters of fact material to this opinion, I have relied on certificates of public officials and certificates of officers ofthe Borrower and I have made such inquiry of officers of the Borrower as I have deemed necessary or appropriate in connection with thematters set forth in this opinion.As a basis for this opinion, I have assumed that (i) each of the Loan Documents and all other documents and certificatesexamined by me have been duly authorized, executed and delivered by each party thereto, other than the Borrower, (ii) all signaturesother than those of the Borrower are authentic, all documents submitted to me as originals are authentic, and all documents submitted tome as certified or photostatic copies conform to authentic or original documents, (iii) each party to the Loan Documents, other than theBorrower, has been duly formed, and is validly existing and in good standing under the laws of the jurisdiction in which it is formed,(iv) each party to the Loan Documents, other than the Borrower, has all requisite power and authority to enter into and perform each ofthe Loan Documents to which it is a party and (v) each such document is or evidences the legal, valid and binding obligation of suchparties thereto (other than the Borrower).Exhibit E - Page 1Upon the basis of the foregoing, I am of the opinion that:1. Each of the Borrower and its Material Subsidiaries (a) is a corporation, limited liability company or partnership dulyorganized or formed, as applicable, validly existing and in good standing under the laws of the jurisdiction in which it was organized orformed, as applicable, (b) has all corporate, limited liability company or partnership, as applicable, power and authority to carry on itsbusiness as now conducted and (c) except where the failure to do so, individually or in the aggregate, could not reasonably be expected toresult in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification isrequired.2. The Transactions are within the Borrower's corporate powers and have been duly authorized by all necessarycorporate and, if required, stockholder action. The Loan Documents have been duly executed and delivered by the Borrower andconstitute legal, valid and binding obligations of the Borrower, enforceable in accordance with their terms, subject to bankruptcy,insolvency, fraudulent conveyance, reorganization, moratorium or other laws affecting creditors' rights generally, general principles ofequity, regardless of whether considered in a proceeding in equity or at law, and an implied covenant of good faith and fair dealing.3. In any action or proceeding arising out of or relating to the Credit Agreement in any court of the State of Texas or inany federal court sitting in the State of Texas, such court would recognize and give effect to the provisions of Section 9.09(a) of theCredit Agreement wherein the parties thereto agree that the Credit Agreement shall be governed by the laws of the State of New York.4. The Transactions (a) do not require the Borrower or any Subsidiary to obtain any consent or approval of, or makeany registration or filing with, or request any other action by, any Governmental Authority, except such as have been obtained or madeand are in full force and effect (except for any reports required to be filed by the Borrower with the Securities and ExchangeCommission pursuant to the Securities Exchange Act of 1934), (b) will not result in a violation by the Borrower or any Subsidiary ofany applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries orany order of any Governmental Authority, (c) will not violate or result in a default under any material indenture, agreement or otherinstrument binding upon the Borrower or any of its Subsidiaries or its assets, and (d) will not result in the creation or imposition of anyLien on any asset of the Borrower or any of its Subsidiaries.5. There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or,to my knowledge, threatened against or affecting the Borrower or any of its Subsidiaries (a) as to which there is a reasonable possibilityof an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to have aMaterial Adverse Effect (other than the Disclosed Matters) or (b) that involve the Loan Documents or the Transactions.Exhibit E - Page 26. Neither the Borrower nor any of its Subsidiaries is an “investment company” as defined in, or subject to regulationunder, the Investment Company Act of 1940, as amended.I am a member of the Bar of the State of Texas and the foregoing opinions are limited to the laws of the State of Texas,the statutory laws and regulations of the United States of America and the General Corporation Law of the State of Delaware, and ineach case, exclusive of municipal, local and county ordinances, laws, rules and regulations. The foregoing opinions are limited in allrespects to such laws in existence as of the date hereof, and I undertake no obligation or responsibility to update or supplement thisopinion in response to subsequent changes in the law or future events affecting the transactions contemplated by the Credit Agreement.The opinions expressed herein are subject to the following further assumptions, qualifications, limitations andcomments:a. For purposes of the opinions herein expressed, except for the opinion given in paragraph 3 regarding theenforceability of the choice of law provision of the Credit Agreement, I have assumed that the laws of the State of New York are thesame as the laws of the State of Texas in all relevant respects.b. No opinion is expressed as to whether a court would grant specific performance or any other equitable remedy withrespect to the Credit Agreement, or whether a court would grant a particular remedy sought under the Credit Agreement as opposed toanother remedy provided therein or at law or in equity.c. No opinion is expressed as to the validity, binding effect, enforceability or legality of any provision of the CreditAgreement which purports to grant the Administrative Agent the right to accelerate the obligations owned by any non‑consentingLender.d. No opinion is expressed as to the enforceability of provisions in the Credit Agreement, if any, that purport to:(i) grant rights of indemnification; (ii) provide that any provision therein is severable from any other provision; (iii) restrict access to legalor equitable remedies; (iv) establish evidentiary standards for suits or proceedings to enforce any agreements or evidentiary standardsrelating to any powers granted thereunder; (v) waive or affect any rights or demands or notices; (vi) waive either illegality as a defenseto the performance of contract obligations or any other defense to such performance which cannot, as a matter of law, be effectivelywaived; (vii) ratify actions to be taken in the future; (viii) provide for self‑help, subrogation, delay or omission to enforce rights orremedies; (ix) provide rights or remedies to third parties; (x) bestow subject matter or in personam jurisdiction on any court or todetermine the sufficiency or effectiveness of any service of process or similar judicial procedure; or (xi) provide rights of set-off.This opinion is rendered solely to you in connection with the above matter, and may not be relied on by you for anyother purpose or relied upon by any other Person (other than your successors who are not Governmental Authorities and your permittedassigns who become Lenders) without my prior written consent, and is not to be used, circulated, quoted, relied upon, published orotherwise referred to or disseminated (other than to any permitted assign, or any prospective assignee under the Credit Agreement) forany other purpose without my prior written consent;Exhibit E - Page 3provided that, copies of this opinion may be included with copies of documents to be furnished to Participants or prospective Participantsand may be furnished to the regulatory authorities having supervisory authority over the addressees hereof, for the purpose ofconfirming the existence of this opinion, as may be expressly required by law or court proceedings, and as otherwise expressly permittedpursuant to Section 9.12 of the Credit Agreement.Very truly yours,Jay D. BrowningExhibit E - Page 4Exhibit FFORM OF LEGAL OPINION OF BAKER BOTTS, L.L.P., BORROWER'S COUNSEL[DATE]To the Lenders and the AdministrativeAgent Referred to Belowc/o JPMorgan Chase Bank, N.A.,as Administrative Agent270 Park AvenueNew York, New York 10017Ladies and Gentlemen:We have acted as special counsel to Valero Energy Corporation, a Delaware corporation (the “Borrower”), in connectionwith the preparation, execution and delivery of the $3,000,000,000 5-Year Amended and Restated Revolving Credit Agreement, dated asof December 5, 2011 (the “Credit Agreement”), among the Borrower, the Lenders party thereto, JPMorgan Chase Bank, N.A., asAdministrative Agent (“Agent”), and others as agents, and in connection with the execution and delivery pursuant thereto of the Notesdated the date hereof.This opinion is delivered to you pursuant to Section 4.01(b)(ii) of the Credit Agreement. Unless otherwise definedherein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.In arriving at the opinion expressed below, we have examined the following documents:(a) a counterpart of the Credit Agreement signed by the Borrower, the Administrative Agent and the Lenders;(b) Notes signed by the Borrower dated the date hereof payable to the order of each Lender party to the CreditAgreement that has requested a Note; and(c) a copy of the opinion letter of Jay D. Browning, Senior Vice President - Corporate Law and Secretary of theBorrower, addressed to you and dated the date hereof.In rendering the opinion expressed below, we have assumed, with your permission, without independent investigation orinquiry, (a) the authenticity of all documents submitted to us as originals, (b) the genuineness of all signatures on all documents that weexamined and (c) the conformity to authentic originals of documents submitted to us as certified, conformed or photostatic copies.Exhibit F - Page 1Insofar as our opinion expressed below relates to the matters set forth in the above-mentioned opinion letter of Jay D.Browning, we have assumed without independent investigation the correctness of the matters set forth in such opinions, and our opinionis subject to the assumptions, qualifications and limitations set forth in such opinion letter.Based upon the foregoing, and subject to the qualifications and comments set forth below, we are of the opinion that,insofar as the law of the State of New York is concerned, each of the Credit Agreement and the Notes dated the date hereof constitutes alegal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as affected bybankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors'rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of goodfaith and fair dealing.Our opinion is subject to the following qualifications: We express no opinion with respect to the validity or enforceabilityof the following provisions to the extent that they are contained in the Loan Documents: (i) provisions releasing, exculpating orexempting a party from, or requiring indemnification or contribution of a party for, liability for its own negligence or to the extent thatthe same are inconsistent with the public policy underlying any law, rule or regulation; (ii) provisions purporting to waive, subordinate,or not give effect to rights to notice, demands, legal defenses or other rights or benefits that cannot be waived, subordinated, or renderedineffective under applicable law; (iii) provisions purporting to waive remedies inconsistent with applicable law; (iv) provisions relating topowers of attorney, severability or set-offs; (v) provisions restricting access to courts or purporting to affect the jurisdiction or venue ofcourts (other than the courts of the State of New York with respect to Loan Documents governed by the State of New York); (vi)provisions purporting to exclude all conflicts-of-law rules; (vii) provisions setting out methods or procedures for service of process;(viii) provisions pursuant to which a party agrees that a judgment rendered by a court or other tribunal in one jurisdiction may beenforced in any other jurisdiction and (ix) provisions providing that decisions by a party are conclusive or may be made in its solediscretion.We are members of the Bar of the State of New York and we do not express any opinion herein concerning any lawother than the law of the State of New York.This opinion letter is rendered as of the date set forth above and we expressly disclaim any obligation to update this letterafter the date hereof.This opinion has been rendered solely for your benefit in connection with the Credit Agreement and the transactionscontemplated thereby and may not be relied upon by you for any other purpose, or relied upon by any other Person, firm or corporation(other than any Person who becomes a Lender after the date hereof) without our prior written consent.Very truly yours,Exhibit F - Page 2Exhibit 12.01VALERO ENERGY CORPORATION AND SUBSIDIARIESSTATEMENTS OF COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES(Millions of Dollars) Year Ended December 31, 2011 2010 2009 2008 2007 Earnings: Income (loss) from continuing operations before income tax expense (benefit), excluding income from equity investee $3,322 $1,481 $(334) $268 $6,202 Add: Fixed charges 735 743 701 626 631 Amortization of capitalized interest 23 20 18 17 13 Distributions from equity investee — 10 — — — Less: Interest capitalized (152) (90) (105) (92) (101) Total earnings $3,928 $2,164 $280 $819 $6,745 Fixed charges: Interest expense, net $401 $484 $416 $360 $357 Interest capitalized 152 90 105 92 101 Rental expense interest factor (a) 182 169 180 174 173 Total fixed charges $735 $743 $701 $626 $631 Ratio of earnings to fixed charges 5.3x 2.9x (b) 1.3x 10.7x(a)The interest portion of rental expense represents one-third of rents, which is deemed representative of the interest portion of rental expense.(b)For the year ended December 31, 2009, earnings were insufficient to cover fixed charges by $421 million. The deficiency included the effect of a $222 million pre-taximpairment loss resulting from the permanent cancellation of certain capital projects classified as “construction in progress” as a result of the unfavorable impact of theeconomic slowdown on refining industry fundamentals during the year. The deficiency was also partially attributable to a $120 million loss contingency accrual related to ourdispute of a turnover tax on export sales in Aruba.Exhibit 21.01Valero Energy Corporation and Subsidiariesas of February 17, 2012Name of Entity State of Incorporation/Organization AUTOTRONIC SYSTEMS, INC. DelawareBIG DIAMOND, INC. TexasBIG DIAMOND NUMBER 1, INC. TexasCANADIAN ULTRAMAR COMPANY Nova ScotiaCANALUX L.P. Newfoundland and LabradorCOLONNADE VERMONT INSURANCE COMPANY VermontDIAMOND ALTERNATIVE ENERGY, LLC DelawareDIAMOND ALTERNATIVE ENERGY OF CANADA INC. CanadaDIAMOND GREEN DIESEL HOLDINGS LLC DelawareDIAMOND GREEN DIESEL LLC DelawareDIAMOND K RANCH LLC TexasDIAMOND OMEGA COMPANY, L.L.C. DelawareDIAMOND SHAMROCK ARIZONA, INC. DelawareDIAMOND SHAMROCK REFINING COMPANY, L.P. DelawareDIAMOND SHAMROCK STATIONS, INC. DelawareDIAMOND UNIT INVESTMENTS, L.L.C. DelawareDSRM NATIONAL BANK U.S.A.EASTVIEW FUEL OILS LIMITED OntarioEMERALD MARKETING, INC. TexasGOLDEN EAGLE ASSURANCE LIMITED British ColumbiaHUNTWAY REFINING COMPANY DelawareKINROSS CELLULOSIC ETHANOL LLC DelawareMAINLINE PIPELINES LIMITED England and WalesMICHIGAN REDEVELOPMENT GP, LLC DelawareMICHIGAN REDEVELOPMENT, L.P. DelawareMRP PROPERTIES COMPANY, LLC MichiganNATIONAL CONVENIENCE STORES INCORPORATED DelawareNECHES RIVER HOLDING CORP. DelawareOCEANIC TANKERS AGENCY LIMITED QuebecPORT ARTHUR COKER COMPANY L.P. DelawarePREMCOR USA INC. DelawarePROPERTY RESTORATION, L.P. DelawareROBINSON OIL COMPANY (1987) LIMITED Nova ScotiaSABINE RIVER HOLDING CORP. DelawareSABINE RIVER LLC DelawareSIGMOR BEVERAGE, INC. TexasSIGMOR CORPORATION DelawareSIGMOR NUMBER 5, INC. TexasSIGMOR NUMBER 43, INC. Texas1SIGMOR NUMBER 79, INC. TexasSIGMOR NUMBER 80, INC. TexasSIGMOR NUMBER 103, INC. TexasSIGMOR NUMBER 105, INC. TexasSIGMOR NUMBER 119, INC. TexasSIGMOR NUMBER 178, INC. TexasSIGMOR NUMBER 196, INC. TexasSIGMOR NUMBER 238, INC. TexasSIGMOR NUMBER 259, INC. TexasSIGMOR NUMBER 422, INC. TexasSKIPPER BEVERAGE COMPANY, INC. TexasSUNBELT REFINING COMPANY, L.P. DelawareSUNSHINE BEVERAGE CO. TexasTEXOIL LIMITED IrelandTHE PREMCOR PIPELINE CO. DelawareTHE PREMCOR REFINING GROUP INC. DelawareTHE SHAMROCK PIPE LINE CORPORATION DelawareTOC-DS COMPANY DelawareULTRAMAR ACCEPTANCE INC. CanadaULTRAMAR ENERGY INC. DelawareULTRAMAR INC. NevadaULTRAMAR LTD. CanadaULTRAMAR SERVICES INC. CanadaVALERO ARUBA ACQUISITION COMPANY I, LTD. Virgin Islands (U.K.)VALERO ARUBA FINANCE INTERNATIONAL, LTD. Virgin Islands (U.K.)VALERO ARUBA HOLDING COMPANY N.V. ArubaVALERO ARUBA HOLDINGS INTERNATIONAL, LTD. Virgin Islands (U.K.)VALERO ARUBA MAINTENANCE/OPERATIONS COMPANY N.V. ArubaVALERO CALIFORNIA RETAIL COMPANY DelawareVALERO CAMBRIA LLC DelawareVALERO CANADA FINANCE, INC. DelawareVALERO CANADA L.P. NewfoundlandVALERO CAPITAL CORPORATION DelawareVALERO CARIBBEAN SERVICES COMPANY DelawareVALERO CLAIMS MANAGEMENT, INC. TexasVALERO COKER CORPORATION ARUBA N.V. ArubaVALERO CUSTOMS & TRADE SERVICES, INC. DelawareVALERO DIAMOND, L.P. TexasVALERO DIAMOND METRO, INC. MichiganVALERO ENERGY ARUBA II COMPANY Cayman IslandsVALERO ENERGY CORPORATION (parent) DelawareVALERO ENERGY (IRELAND) LIMITED IrelandVALERO ENERGY LTD England and WalesVALERO EQUITY SERVICES LTD England and WalesVALERO FINANCE L.P. I Newfoundland2VALERO FINANCE L.P. II NewfoundlandVALERO FINANCE L.P. III NewfoundlandVALERO GRAIN MARKETING, LLC TexasVALERO HOLDCO UK LTD United KingdomVALERO HOLDINGS, INC. DelawareVALERO INTERNATIONAL HOLDINGS, INC. NevadaVALERO LUX COMPANY I S.à r.l. LuxembourgVALERO LUX COMPANY II S.à r.l. LuxembourgVALERO MARKETING & SUPPLY-ARUBA N.V. ArubaVALERO MARKETING AND SUPPLY COMPANY DelawareVALERO MARKETING AND SUPPLY INTERNATIONAL LTD. Cayman IslandsVALERO MISSION COMPANY, LLC DelawareVALERO MKS LOGISTICS, L.L.C. DelawareVALERO MOSELLE COMPANY S.à r.l. LuxembourgVALERO NEDERLAND COÖPERATIEF U.A. The NetherlandsVALERO NEW AMSTERDAM B.V. The NetherlandsVALERO OMEGA COMPANY, L.L.C. DelawareVALERO OPERATIONS SUPPORT, LTD England and WalesVALERO PAYMENT SERVICES COMPANY VirginiaVALERO PEMBROKESHIRE LLC DelawareVALERO POWER MARKETING COMPANY DelawareVALERO REFINING AND MARKETING COMPANY DelawareVALERO REFINING COMPANY-ARUBA N.V. ArubaVALERO REFINING COMPANY-CALIFORNIA DelawareVALERO REFINING COMPANY-OKLAHOMA MichiganVALERO REFINING COMPANY-TENNESSEE, L.L.C. DelawareVALERO REFINING-MERAUX LLC DelawareVALERO REFINING-NEW ORLEANS, L.L.C. DelawareVALERO REFINING-TEXAS, L.P. TexasVALERO RENEWABLE FUELS COMPANY, LLC TexasVALERO RETAIL HOLDINGS, INC. DelawareVALERO SECURITY SYSTEMS, INC. DelawareVALERO SERVICES, INC. DelawareVALERO TERMINALING AND DISTRIBUTION COMPANY DelawareVALERO TEXAS POWER MARKETING, INC. DelawareVALERO UK LTD United KingdomVALERO ULTRAMAR HOLDINGS INC. DelawareVALERO UNIT INVESTMENTS, L.L.C. DelawareVALERO WEST WALES LLC DelawareVALLEY SHAMROCK, INC. TexasVEC TRUST I DelawareVEC TRUST III DelawareVEC TRUST IV DelawareVRG PROPERTIES COMPANY DelawareVTD PROPERTIES COMPANY Delaware3Exhibit 23.01Consent of Independent Registered Public Accounting FirmThe Board of Directorsof Valero Energy Corporation and subsidiaries:We consent to the incorporation by reference in the registration statements, as amended, on Form S-3 (Registration No. 333-157867) and Form S-8 (Registration Nos. 333-174721, 333-31709, 333-31721, 333-31723, 333-31727, 333-81858, 333-106620, 333-118731, 333-125082, 333-129032 and 333-136333) of Valero Energy Corporation and subsidiaries (the Company), of our reports dated February 24, 2012,with respect to the consolidated balance sheets of Valero Energy Corporation and subsidiaries as of December 31, 2011 and 2010, and the relatedconsolidated statements of income, equity, cash flows, and comprehensive income for each of the years in the three-year period ended December 31,2011, and the effectiveness of internal control over financial reporting as of December 31, 2011, which reports appear in the December 31, 2011annual report on Form 10-K of the Company. Our report dated February 24, 2012, on the effectiveness of internal control over financial reporting asof December 31, 2011, contains an explanatory paragraph that states that management has excluded the internal control over financial reporting ofValero Energy Ltd and its subsidiaries (VEL) and Valero Refining-Meraux LLC (Meraux) from its assessment of the effectiveness of theCompany’s internal control over financial reporting as of December 31, 2011. Our audit of internal control over financial reporting of the Companyalso excluded an evaluation of the internal control over financial reporting of VEL and Meraux./s/ KPMG LLPSan Antonio, TexasFebruary 24, 2012Exhibit 31.01CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002I, William R. Klesse, certify that:1. I have reviewed this annual report on Form 10-K of Valero Energy Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant'sinternal control over financial reporting.Date: February 24, 2012/s/ William R. Klesse William R. KlesseChief Executive Officer and President Exhibit 31.02CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002 I, Michael S. Ciskowski, certify that:1. I have reviewed this annual report on Form 10-K of Valero Energy Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant'sinternal control over financial reporting.Date: February 24, 2012/s/ Michael S. Ciskowski Michael S. CiskowskiExecutive Vice President and Chief Financial Officer Exhibit 32.01CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Valero Energy Corporation (the Company) on Form 10-K for the year ended December 31, 2011, as filedwith the Securities and Exchange Commission on the date hereof (the Report), I, William R. Klesse, Chief Executive Officer and President of theCompany, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company./s/ William R. Klesse William R. Klesse Chief Executive Officer and President February 24, 2012 A signed original of the written statement required by Section 906 has been provided to Valero Energy Corporation and will be retained by Valero EnergyCorporation and furnished to the Securities and Exchange Commission or its staff upon request. CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Valero Energy Corporation (the Company) on Form 10-K for the year ended December 31, 2011, as filedwith the Securities and Exchange Commission on the date hereof (the Report), I, Michael S. Ciskowski, Executive Vice President and ChiefFinancial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002, that:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company./s/ Michael S. Ciskowski Michael S. Ciskowski Executive Vice President and Chief Financial OfficerFebruary 24, 2012 A signed original of the written statement required by Section 906 has been provided to Valero Energy Corporation and will be retained by Valero EnergyCorporation and furnished to the Securities and Exchange Commission or its staff upon request.Exhibit 99.01VALERO ENERGY CORPORATIONAudit Committee Pre-Approval PolicyI. Statement of PrinciplesPursuant to Section 10A of the Securities Exchange Act of 1934, as amended by Section 202 of the Sarbanes-Oxley Act of 2002 (“SOXAct”), the Audit Committee of the board of directors (the “Audit Committee”) of Valero Energy Corporation (the “Company”) is required topre-approve the audit and non-audit services performed by the Company's independent auditor to assure that the provision of such services doesnot impair the auditor's independence. The SEC's rules establish two approaches for pre-approving services. The two approaches are notmutually exclusive:•the Audit Committee may pre-approve each particular service on a case-by-case basis (“separate pre-approval”), and•the Audit Committee may adopt a pre-approval policy that is detailed as to the particular types of services that may be provided by theindependent auditor without consideration by the Audit Committee on a case-by-case basis (“policy-based pre-approval”).The Audit Committee believes that a combination of these approaches will provide an effective and efficient procedure to pre-approve servicesperformed by the independent auditor. Therefore, unless a type of service has received policy-based pre-approval (as specifically identified inthe appendices to this policy), it will require separate pre-approval by the Audit Committee.The appendices to this policy contain lists of services that have received policy-based pre-approval of this Audit Committee in the followingcategories (categorized in accordance with the SEC's rules):•Audit Services•Audit-Related Services•Tax Services•All Other ServicesII. Term of Pre-ApprovalsThe term of the policy-based pre-approvals stated in the appendices to this policy is the period from January 1, 2012 to January 31, 2015,unless the Audit Committee specifically provides for a different period. The Audit Committee will review and pre-approve the services that maybe provided by the independent auditor. The Audit Committee will revise the list of policy-based pre-approved services from time to time as theCommittee deems necessary or appropriate. Page 1III. DelegationIn accordance with the SOX Act and SEC rules, the Audit Committee hereby delegates to its Chairman the authority to grant separate pre-approvals of services and fees in accordance with this policy. The Audit Committee may further delegate pre-approval authority from time totime to one or more of its other members in its discretion. Any committee member to whom pre-approval authority is delegated shall report anypre-approval decisions to the full Audit Committee at its next meeting. The Audit Committee does not delegate its responsibilities to pre-approveservices to any member of the Company's management.IV. Services for which Separate Pre-Approval is RequiredThe terms and fees for the following services of the independent auditor require separate pre-approval by the Audit Committee:•the annual financial statement audit, including all audits, reviews, procedures and other services required to be performed by theindependent auditor to form an opinion on the Company's consolidated financial statements, and•the annual audit of the Company's internal control over financial reporting, including all services required to be performed by theindependent auditor to issue its report on the effectiveness of the Company's internal control over financial reporting.The Audit Committee will monitor these engagements as it deems appropriate, and will approve, if necessary, any changes in terms, conditionsand fees resulting from changes in engagement scope, changes in the Company's structure or other matters.V. Services for which Policy-Based Pre-Approval is AvailableA. Audit ServicesThe Audit Committee may grant policy-based pre-approval for Audit Services other than the services described in Section IV above.These Audit Services are generally services that only the Company's independent auditor reasonably can provide, and include:•services associated with SEC registration statements (e.g., comfort letters, consents), periodic reports and other documentsfiled with the SEC or other documents issued in connection with securities offerings,•statutory audits or financial audits for subsidiaries or affiliates of the Company.The Audit Committee has given policy-based pre-approval for the Audit Services listed in Appendix A. All other Audit Services must beseparately pre-approved by the Audit Committee. Page 2B. Audit-Related ServicesAudit-Related Services are assurance and related services that are reasonably related to the performance of the annual audit or quarterlyreview of the Company's financial statements or that are traditionally performed by the independent auditor. The Audit Committee may grantpolicy-based pre-approval for Audit-Related Services. These services would include:•employee benefit plan audits, and•due diligence services related to proposed mergers and acquisitions.The Audit Committee believes that the provision of the Audit-Related Services listed in Appendix B does not impair the independence ofthe auditor, and has given policy-based pre-approval for the Audit-Related Services listed in Appendix B. All other Audit-Related Servicesmust be separately pre-approved by the Audit Committee.C. Tax ServicesThe Audit Committee believes that the independent auditor can provide Tax Services to the Company such as tax compliance, tax planningand tax advice without impairing the auditor's independence. However, the Audit Committee will not permit the retention of the independentauditor in connection with a transaction initially recommended by the independent auditor, the purpose of which may be tax avoidance andthe tax treatment of which may not be supported in the U.S. Internal Revenue Code and related regulations or in the tax laws and regulationsof any jurisdiction in which the Company is subject to taxation. In addition, the independent auditor may not provide any tax services to theCompany that are deemed to be incompatible with auditor independence per standards promulgated by the Public Company AccountingOversight Board (“PCAOB”).The Audit Committee has given policy-based pre-approval for the Tax Services listed in Appendix C. All other Tax Services must beseparately pre-approved by the Audit Committee, including Tax Services related to large and complex transactions and Tax Servicesproposed to be provided by the independent auditor to any executive officer or director of the Company, in his or her individual capacity,when such services are paid for by the Company.D. All Other ServicesThe Audit Committee may grant policy-based pre-approval for those permissible non-audit services classified as All Other Services that itbelieves are routine, recurring services that would not impair the independence of the auditor. The Audit Committee has given policy-basedpre-approval for the All Other Services listed in Appendix D. Any permissible All Other Services that are not listed in Appendix D must beseparately pre-approved by the Audit Committee.VI. Prohibited ServicesA list of the SEC's prohibited non-audit services is attached to this policy as Appendix E. The list sets forth the several services that the SOXAct and the SEC have specifically identified as services that Page 3may not be performed by the Company's independent auditor. The Audit Committee will consult the SEC's rules and relevant guidance, with theassistance of counsel when necessary or appropriate, to determine whether any proposed service by the independent auditor falls within anycategory of prohibited non-audit services.In addition, the independent auditor may not provide any service or product to the Company for a contingent fee (as defined and interpreted bythe SEC pursuant to Rule 2-01(c)(5) of Regulation S-X) or a commission, or pursuant to an agreement (written or otherwise) by the Companyto pay a “value added” fee based on the results of the independent auditor's performance of a service.VII. Pre-Approval Fee LevelsPre-approval fee levels for all services to be provided by the independent auditor have been established by the Audit Committee. All services thathave received policy-based pre-approval are subject to the annual pre-approval fee levels set forth in the appendices to this policy. Any proposedservices exceeding these amounts will require separate pre-approval by the Audit Committee or by any person to whom pre-approval authority isgranted under Section III above. Unused pre-approval amounts from one year may not be carried forward to the next year.VIII. ProceduresRequests or applications to provide services that require separate approval by the Audit Committee must be submitted to the Audit Committee byboth the independent auditor and the Company's Chief Financial Officer (or his designee), and must be consistent with the SEC's rules onauditor independence. In connection with the Audit Committee's consideration of any proposed service, the independent auditor, at theCommittee's request, will provide to the Audit Committee detailed documentation regarding the specific services to be provided so that theCommittee can make a well-reasoned assessment of the impact of the service on the auditor's independence.The Audit Committee hereby designates the Company's Vice President of Internal Audit (the “Monitor”) to monitor the performance of allservices provided by the independent auditor and to determine whether such services are in compliance with this policy. The Monitor will reportto the Audit Committee on a periodic basis the results of his monitoring. Page 4Appendix APre-Approved AUDIT SERVICESServiceassistance with and review of documents filed with the SEC including registration statements, reports on Forms 10-K and 10-Q, and otherdocumentsservices associated with other documents issued in connection with securities offerings (e.g., comfort letters, consents)assistance in responding to SEC comment lettersstatutory audits (e.g., FERC and insurance audits) and financial audits for subsidiaries of the Company, to include services normally providedby the Company's independent auditor in connection with statutory and regulatory filingscertificates, letters and opinions issued to regulators, agencies and other third-parties (e.g., insurance, banking, environmental) regarding theCompany's assets and/or operations that only the Company's independent auditors reasonably can provideconsultations concerning principles of accounting and/or financial reporting treatment under standards or interpretations by the SEC, PCAOB,FASB or other regulatory or standard-setting bodies necessary to reach an audit judgment and/or opinion on the Company's financial statementsAnnual pre-approval fee limit for Audit Services (other than services pertaining to registration statements or prospectuses in connection withsecurities offerings)$500,000Annual pre-approval fee limit for Audit Services pertaining to registration statements or prospectuses in connection with securities offerings$250,000 per registration statement or prospectusAppendix BPre-Approved AUDIT-RELATED SERVICESServicedue diligence services pertaining to potential business acquisitions or dispositionsfinancial statement audits of employee benefit plansaccounting consultations and audits in connection with acquisitionsconsultations concerning principles of accounting and/or financial reporting treatment under standards or interpretations by the SEC, PCAOB,FASB or other regulatory or standard-setting bodies outside those consultations necessary to perform an audit or review of Valero's financialstatements in accordance with generally accepted auditing standards Annual pre-approval fee limit for Audit-Related Services$500,000Appendix CPre-Approved TAX SERVICESService Note: The following are subject to the terms of subsection C. of Section V. of this policy.U.S. federal, state and local tax compliance, including the preparation of original and amended tax returns and claims for refundsU.S. federal, state and local tax planning and advice, including assistance with tax audits and appeals (but expressly excluding advocacy orlitigation services), tax advice related to mergers and acquisitions, tax advice relating to employee benefit plans, and requests for rulings ortechnical advice from taxing authoritiesreview of Canadian federal and provincial income tax returnsCanadian federal and provincial tax planning and advice, including assistance with tax audits and appeals (but expressly excluding advocacy orlitigation services), and advice relating to the tax effects of certain employee benefit arrangementsreview of federal, state, local and international income, franchise, and other tax returns Annual pre-approval fee limit for Tax Services$250,000Appendix DPre-Approved ALL OTHER SERVICESServicesnone Annual pre-approval fee limit for All Other Services$ 0Appendix EProhibited Non-Audit Services•Bookkeeping or other services related to the accounting records or financial statements of the audit client*•Financial information systems design and implementation*•Appraisal or valuation services, fairness opinions or contribution-in-kind reports*•Actuarial services*•Internal audit outsourcing services*•Management functions•Human resources•Broker-dealer, investment adviser or investment banking services•Legal services•Expert services unrelated to the audit____________________*Provision of these non-audit services may be permitted if it is reasonable to conclude that the results of these services will not be subject to auditprocedures. Materiality is not an appropriate basis upon which to overcome the rebuttable presumption that prohibited services will be subject to auditprocedures.

Continue reading text version or see original annual report in PDF format above