8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 10, 2005

VALERO ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	1-13175	74-1828067
(State or other jurisdiction	(Commission File Number)	(IRS Employer
of incorporation)		Identification No.)

One Valero Way
San Antonio, Texas	78249
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (210) 345-2000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

Restricted Stock Plan for Non-Employee Directors

Non-Employee Director Stock Option Plan

Form of Restricted Stock Agreement

Form of Stock Option Agreement

Item 1.01 Entry into a Material Definitive Agreement.

On March 10, 2005, the board of directors (the “Board”) of Valero Energy Corporation (the “Company”), upon the recommendation of the Compensation Committee of the Board, revised the compensation structure for members of the Board.

Under the new compensation structure, non-employee directors will receive a retainer fee of $60,000 per year, plus $1,500 for each Board and committee meeting attended in person, and $1,000 for each Board and committee meeting attended telephonically. A director who serves as chairperson of the Audit or Compensation Committee will receive an additional $20,000 annually, and a director who serves as chairperson of a committee other than the Audit or Compensation Committee will receive an additional $10,000 annually. Each director will also be reimbursed for expenses of meeting attendance. Directors who are employees of the Company will receive no compensation (other than reimbursement of expenses) for serving as directors.

Valero maintains its Restricted Stock Plan for Non-Employee Directors (“Director Stock Plan”) and its Non-Employee Director Stock Option Plan (“Director Option Plan”) to supplement the compensation paid to non-employee directors and to increase their identification with the interests of Valero’s stockholders through ownership of Valero’s common stock, $.01 par value (“Common Stock”). Each non-employee director will receive from the Director Stock Plan an annual grant of Common Stock valued at $60,000 that will vest (become nonforfeitable) in equal annual installments over a three-year period.

The Director Option Plan provides non-employee directors of Valero annual grants of options to purchase Valero’s Common Stock. The plan provides that each new non-employee director elected to the Valero Board will receive an initial grant of 5,000 options that will vest in equal annual installments over a three-year period. On the date of each subsequent annual meeting of stockholders, each non-employee director (who is not a new non-employee director) will automatically receive a grant of 1,000 additional options that will vest fully one year following the date of grant. Stock options granted from the Director Option Plan have an exercise price equal to the market price of the Common Stock on the date of grant, and expire seven years following the date of grant. The options will vest and remain exercisable in accordance with their original terms if a director retires from the Board.

In the event of a “Change of Control” as defined in the Director Stock Plan and the Director Option Plan, all unvested shares of Common Stock and options previously granted under the plans will immediately become vested or exercisable. Each plan also contains anti-dilution provisions providing for an adjustment in the number of options granted to prevent dilution of benefits in the event any change in the capital structure of the Company affects the Common Stock.

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Item 9.01 Financial Statements and Exhibits.

(c)	Exhibits.
* 10.01	Valero Energy Corporation Restricted Stock Plan for Non-Employee Directors, as amended and restated effective March 10, 2005.
* 10.02	Valero Energy Corporation Non-Employee Director Stock Option Plan, as amended and restated effective March 10, 2005.
* 10.03	Form of Restricted Stock Agreement pursuant to the Restricted Stock Plan for Non-Employee Directors.
* 10.04	Form of Stock Option Agreement pursuant to the Non-Employee Director Stock Option Plan.

* filed herewith

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	VALERO ENERGY CORPORATION
Date: March 16, 2005	By:	/s/ Jay D. Browning
		Jay D. Browning
		Vice President and Secretary

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EXHIBIT INDEX

Number	Exhibit
10.01	Valero Energy Corporation Restricted Stock Plan for Non-Employee Directors, as amended and restated effective March 10, 2005.
10.02	Valero Energy Corporation Non-Employee Director Stock Option Plan, as amended and restated effective March 10, 2005.
10.03	Form of Restricted Stock Agreement pursuant to the Restricted Stock Plan for Non-Employee Directors.
10.04	Form of Stock Option Agreement pursuant to the Non-Employee Director Stock Option Plan.

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EX-10.01

Exhibit 10.01

VALERO ENERGY CORPORATION

RESTRICTED STOCK PLAN
for
NON-EMPLOYEE DIRECTORS

Adopted April 23, 1997,
as amended and restated through March 10, 2005

RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS

TABLE OF CONTENTS

		Page
1.	Purpose and Effective Date of Plan.		2
2.	Certain Definitions.		2
3.	Shares Subject to the Plan.		3
4.	Eligibility.		3
5.	Automatic Grants to Non-Employee Directors.		3
6.	Administration of the Plan.		4
7.	Restrictions Applicable to Restricted Shares.		5
8.	Forfeiture, Completion of Restriction Period.		7
9.	Adjustment in Event of Changes in Common Stock.		7
10.	Non-Alienation of Benefits.		7
11.	Appointment of Attorney-in-Fact.		7
12.	Withholding Taxes.		8
13.	Amendment and Termination of Plan.		9
14.	[reserved]		9
15.	Government and Other Regulations.		9
16.	No Right to Nomination.		9
17.	Non-Exclusivity of Plan.		9
18.	Governing Law.		9
19.	Miscellaneous Provisions.		9

VALERO ENERGY CORPORATION

Restricted Stock Plan for Non-Employee Directors

1.

Purpose and Effective Date of Plan. The purpose of this Plan is to supplement the compensation paid to Non-Employee Directors, to increase their proprietary interest in the Company, to attract and retain persons of outstanding caliber to serve as directors of the Company and to enhance their identification with the interests of the Company’s stockholders through ownership of Common Stock. The Effective Date of this Plan is July 31, 1997. Shares awarded under the Plan shall be in addition to, and shall not replace, any cash or other compensation arrangement available to Non-Employee Directors.

2.

Certain Definitions.

(a)   “Annual Meeting” shall mean the annual meeting of stockholders for election of directors of the Company. In the event of any adjournment of any such meeting, the date on which the inspectors appointed for such meeting declare directors to have been elected shall be deemed the meeting date for purposes of the Plan.

(b)	“Board” shall mean the board of directors of the Company.
(c)	“Common Stock” shall mean the common stock, $0.01 par value, of the Company.
(d)	“Company” shall mean Valero Energy Corporation, a Delaware corporation.
(e)	“Compensation Committee” shall mean the Compensation Committee of the Board.
(e-1)	“Effective Date” shall mean July 31, 1997.
(f)	“Employee Director” shall mean a member of the Board who is an employee of the Company or any subsidiary of the Company.
(g)	“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
(h)	“Fair Market Value” shall mean the average of the high and low sales prices of the Common Stock on a Grant Date (or if Common Stock was not traded on such day, the first day following the Grant Date on which Common Stock was traded) as reported on the New York Stock Exchange.
(i)	“Grant Date” shall mean the date on which Restricted Shares are awarded to a Non-Employee Director pursuant to Paragraph 5.
(j)	“Mandatory Retirement Policy” shall mean the retirement policy set forth in Article I, Section 6, of the Corporate Governance Guidelines of the Company, or any successor policy.
(k)	“Non-Employee Director” shall mean a member of the Board who is not an employee of the Company or any subsidiary of the Company.
(l)	“Participant” shall have the meaning given in Paragraph 5(c).
(m)	“Plan” shall mean this Restricted Stock Plan for Non-Employee Directors.
(n)	“Restriction Period” shall mean the period of time, as specified in Paragraph 7(c), applicable to Restricted Shares granted under the Plan.
(o)	“Restricted Shares” shall mean shares of Common Stock granted to a Non-Employee Director pursuant to Paragraph 5.
(p)	“Restricted Shares Agreement” shall mean the agreement described in Paragraph 5(c).

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(q)	“Retained Distributions” shall mean distributions that are retained by the Company pursuant to Paragraph 7(e)(ii).
(r)	“Share” means a share of Common Stock.
(s)	“Subsidiary of the Company” shall mean any corporation, partnership or other entity in which the Company owns, directly or indirectly, a controlling interest.

3.   Shares Subject to the Plan.

(a)	Subject to the provisions of Paragraph 9 below, the maximum aggregate number of shares of Common Stock that may be granted under the Plan shall be 100,000 Shares (pre-split), provided, however, that any Restricted Shares granted under the Plan that are forfeited pursuant to the terms of the Plan or otherwise surrendered shall again become available for grant under the Plan. Shares withheld by the Company, or delivered to the Company, to pay taxes pursuant to Paragraph 12 shall not be available for additional grants under the Plan.
(b)	The Restricted Shares may be, in whole or in part, authorized but unissued shares of Common Stock or shares of Common Stock previously issued and outstanding and reacquired by the Company.
(c)	The Company shall not be required to issue fractional Shares, and in lieu thereof any fractional Shares shall be rounded to the next higher number of whole Shares.

4.

Eligibility. The only persons eligible to participate in the Plan shall be Non-Employee Directors. An Employee Director who retires from employment with the Company or any Subsidiary of the Company shall be (without further action by the Committee) eligible to participate in the Plan and shall be entitled to receive a grant of Restricted Shares immediately upon the commencement of his or her service as a Non-Employee Director.

5.

Automatic Grants to Non-Employee Directors.

(a)	On the date of each Annual Meeting, each Non-Employee Director who is elected as a Non-Employee Director at the Annual Meeting or whose term of office otherwise continues following the date of the Annual Meeting shall thereupon receive an automatic grant of Restricted Shares valued at $60,000 in the aggregate based upon the Fair Market Value of a Share on such Grant Date.
(b)	Each person who is first elected or appointed as a Non-Employee Director on a date other than the date of an Annual Meeting shall automatically receive, on the date so elected or appointed, a pro-rata grant of Restricted Shares (as compared to the annual grant of Restricted Shares described in Paragraph 5(a) above) valued (based upon the Fair Market Value of a Share on the Grant Date) at an amount equal to $60,000 multiplied by a number equal to the quotient of the whole number of months (rounding upward for fractional months) until the next Annual Meeting divided by 12.
(c)	The officers of the Company shall promptly cause the Company to enter into an agreement with each Non-Employee Director who is granted Restricted Shares pursuant to this Paragraph 5 (“Restricted Share Agreement”), and shall cause the Company to issue such Restricted Shares, all without further action by the Company, the Board, the Compensation Committee or the Special Committee. Each Non-Employee Director receiving an automatic grant of Restricted Shares pursuant to this Paragraph 5 is referred to herein as a “Participant.” The execution and delivery of a Restricted Shares Agreement shall be a condition precedent to the issuance of Restricted Shares to a Participant.

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6.   Administration of the Plan.

(a)

Except as otherwise set forth herein, the Plan shall be administered by the Compensation Committee, as appointed and constituted from time to time by the Board so long as the Compensation Committee is composed solely of two or more “Non-Employee Directors” (as defined in Rule 16b-3 under the Exchange Act). In the event the Compensation Committee shall fail to meet the foregoing criteria, then additional or different persons shall be appointed by the Board for purposes of administering this Plan so that the committee administering this Plan shall be composed solely of two or more Non-Employee Directors (as defined in Rule 16b-3).

(b)

In connection with its administration of this Plan, the Compensation Committee is empowered to:

(i)	Make rules and regulations for the administration of the Plan that are not inconsistent with the terms and provisions of this Plan;
(ii)	Construe all terms, provisions, conditions and limitations of the Plan in good faith, and adopt amendments to the Plan;
(iii)	Make equitable adjustments for any mistakes or errors in the administration of this Plan or deemed to be necessary as the result of any unusual situation or any ambiguity in the Plan;
(iv)	Select, employ and compensate, from time to time, consultants, accountants, attorneys and other agents and employees as the Compensation Committee may deem necessary or advisable for the proper and efficient administration of this Plan.

(c)	The foregoing list of express powers granted to the Compensation Committee upon the adoption of this Plan is not necessarily intended to be either complete or exclusive, and the Compensation Committee shall, in addition to the specific powers granted by this Plan, have such powers not inconsistent with the Plan or Rule 16b-3, whether or not expressly authorized herein, which it may deem necessary, desirable, advisable, proper, convenient or appropriate for the supervision and administration of this Plan. Except as otherwise specifically provided herein, the decisions and judgment of the Compensation Committee on any question or claim arising hereunder shall be final, binding and conclusive upon the Participants and all persons claiming by, through or under a Participant.
(d)	Notwithstanding the foregoing, the Compensation Committee shall have no authority to exercise discretion with respect to the selection of any Non-Employee Director as a Participant in the Plan, the determination of the number of Restricted Shares that are allocated to any such Non-Employee Director or the terms or conditions of any such allocation, and shall have no authority to amend any provision of the Plan relating to eligibility for participation in the Plan, the amount or timing of grants under the Plan or the imposition or removal of restrictions on the vesting of Restricted Shares.
(e)	Distributions of Shares may, as the Compensation Committee shall in its sole discretion determine, be made from authorized but unissued Shares or from treasury or reacquired Shares.

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7.   Restrictions Applicable to Restricted Shares.

(a)	All Restricted Shares granted pursuant to Paragraph 5 of the Plan shall be subject to the risk of forfeiture during the applicable Restriction Period. The Restriction Period for each grant of Restricted Shares shall commence on the Grant Date.
(b)	The Restriction Period for Restricted Shares granted to a Non-Employee Director shall end and the Restricted Shares and any related Retained Distributions shall become nonforfeitable on the earlier of any of the following events:

(i)	The date a Non-Employee Director ceases to be a Director of the Company by reason of the Mandatory Retirement Policy;
(ii)	The date a Non-Employee Director completes his or her tenure as a Director of the Company as provided in the bylaws of the Company and declines to stand for reelection;
(iii)	The date a Non-Employee Director, having been nominated for and having agreed to stand for reelection, is not reelected by the stockholders of the Company to serve as a member of the Board;
(iv)	The date of the death of a Non-Employee Director;
(v)	The date a Non-Employee Director certifies in writing to the Company that he or she is resigning as a member of the Board due to medical or health reasons which render such Non-Employee Director unable to continue to serve as a member of the Board;
(vi)	Subject to the provisions of and definitions contained in Paragraph 7(f), the occurrence of a Change of Control of the Company; or
(vii)	The date specified in Paragraph 7(c).

(c)	Except as otherwise provided herein, the Restriction Period shall terminate as follows, and the Restricted Shares (and any Retained Distributions) shall vest and accrue (i.e., become non-forfeitable) to the Non-Employee Director in the following increments: with respect to any grant of Restricted Shares under Paragraph 5, the Restriction Period for one-third of such Restricted Shares shall terminate on the date of the first Annual Meeting following the Grant Date, the Restriction Period for another one-third of such Restricted Shares shall terminate on the date of the second Annual Meeting following the Grant Date, and the Restriction Period for the final one-third of such Restricted Shares shall terminate on the date of the third Annual Meeting following the Grant Date.
(d)	Restricted Shares and the shares of Common Stock issuable in connection with the vesting of the Restricted Shares will be issued in uncertificated form, pursuant to the Direct Registration System (“DRS”) or similar system for recording the issuance and transfer of uncertificated shares of Common Stock that is administered by the Company’s stock transfer agent.
(e)	Restricted Shares shall constitute issued and outstanding shares of Common Stock for all corporate purposes. The Non-Employee Director will have the right to vote such Restricted Shares, to receive and retain all regular cash dividends paid on such Restricted Shares and to exercise all other rights, powers and privileges of a holder of Common Stock with respect to such Restricted Shares, with the exception that:

(i)   the Non-Employee Director will not be entitled to delivery of a stock certificate or a designation of “unrestricted” status in the DRS until the Restriction Period applicable to such Restricted Shares shall have expired and all other vesting requirements with respect thereto shall have been fulfilled;

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(ii)

other than cash dividends and rights to purchase stock which might be distributed to shareholders of the Company, the Company will retain custody of all distributions (“Retained Distributions”) made or declared with respect to Restricted Shares (and such Retained Distributions will be subject to the same restrictions, terms and conditions as are applicable to the Restricted Shares with respect to which they were made, paid or declared) until such time, if ever, as the Restriction Period applicable to the Restricted Shares with respect to which such Retained Distributions shall have been made, paid or declared shall have expired, and such Retained Distributions shall not bear interest or be segregated in separate accounts;

(iii)

upon the breach of any restrictions, terms or conditions provided in the Plan with respect to any Restricted Shares or Retained Distributions, such Restricted Shares and any related Retained Distributions shall thereupon be automatically forfeited.

(f)   A “Change of Control” as used herein, shall be deemed to occur when:

(i)   the stockholders of the Company approve any agreement or transaction pursuant to which:

(A)	the Company will merge or consolidate with any other person (other than a wholly owned subsidiary of the Company) and will not be the surviving entity (or in which the Company survives only as the subsidiary of another entity);
(B)	the Company will sell all or substantially all of its assets to any other person (other than a wholly owned subsidiary of the Company); or
(C)	the Company will be liquidated or dissolved; or

(ii)	any “person” or “group” (as these terms are used in Section 13(d) and 14(d) of the Exchange Act) other than the Company, any subsidiary of the Company, any employee benefit plan of the Company or its subsidiaries, or any entity holding Common Stock for or pursuant to the terms of such employee benefit plans, is or becomes an “Acquiring Person” as defined in the Rights Agreement dated June 18, 1997 (“Rights Agreement”) between the Company and Computershare Investor Services, L.L.C., as Rights Agent (successor Rights Agent to Harris Trust and Savings Bank), as amended (or any successor Rights Agreement) (or, if no Rights Agreement is then in effect, such person or group acquires or holds such number of shares as, under the terms and conditions of the most recent such Rights Agreement to be in force and effect, would have caused such person or group to be an “Acquiring Person” thereunder); or
(iii)	any “person” or “group” shall commence a tender offer or exchange offer for 15% or more of the shares of Common Stock then outstanding, or for any number or amount of shares which, if the tender or exchange offer were to be fully subscribed and all shares for which the tender or exchange offer is made were to be purchased or exchanged pursuant to the offer, would result in the acquiring person or group directly or indirectly beneficially owning 50% or more of the shares of Common Stock then outstanding; or
(iv)	individuals who, as of any date, constitute the Board (the “Incumbent Board”) thereafter cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of

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an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person or group other than the Board; or

(v)	the occurrence of the Distribution Date (as defined in the Rights Agreement); or
(vi)	any other event determined by the Board or the Committee to constitute a “Change of Control” hereunder.

8.   Forfeiture, Completion of Restriction Period.

(a)	If a Non-Employee Director ceases to be a member of the Board for any reason other than as set forth in Paragraph 7(b), then all Restricted Shares and all Retained Distributions with respect thereto issued to such Non-Employee Director and to which the Restriction Period still applies shall be forfeited to the Company and the Non-Employee Director shall not have any rights (including dividend and voting rights) with respect to such forfeited Restricted Shares and Retained Distributions.
(b)	Upon expiration of the Restriction Period with respect to a Non-Employee Director’s Restricted Shares, and the satisfaction of any other applicable restrictions, terms and conditions, such Restricted Shares and any Retained Distributions with respect to such Restricted Shares shall become nonforfeitable. The Company shall promptly thereafter direct the Company’s stock transfer agent to redesignate such shares in the Non-Employee Director’s DRS account as “issued and unrestricted” Shares.
(c)	Notwithstanding any other provision of this Plan, if the Committee finds by a majority vote, that the Participant, before or after termination of his capacity as a Non-Employee Director of the Company, committed fraud, embezzlement, theft, commission of felony, or proven dishonesty in the course of his relationship to the Company and/or a Subsidiary of the Company which conduct damaged the Company and/or a Subsidiary of the Company, or disclosed trade secrets of the Company or a Subsidiary of the Company, then all Restricted Shares and all Retained Distributions with respect thereto issued to such Participant to which the Restriction Period still applies shall be forfeited to the Company and the Participant will have no further rights with respect thereto. The decision of the Committee will be final.

9.	Adjustment in Event of Changes in Common Stock. In the event of a recapitalization, stock split, stock dividend, combination or exchange of shares, merger, consolidation, liquidation or other similar event, the aggregate number and class of Restricted Shares and other securities or property available for grant under the Plan shall be automatically adjusted so that the total number of Restricted Shares or other securities or property issuable under the Plan immediately following such event shall be the number of shares of Common Stock and other securities or property which, had all remaining shares of Common Stock available under the Plan been granted to a single holder immediately prior to such event, would be held or received by such holder immediately following such event.
10.	Non-Alienation of Benefits. No Shares, Retained Distributions, or other rights or benefits under the Plan or any Restricted Shares Agreement shall be subject, prior to the end of any applicable Restriction Period or other restrictive period, to anticipation, alienation, sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or charge (other than by will or the laws of descent and distribution), and any such attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the same shall be void. No Shares, Retained Distributions, or other rights or benefits under the Plan shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such right or benefit. If any Non-Employee Director or other person claiming by, through or under a Non-Employee Director hereunder should attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge any Shares, Retained Distributions, or any right or benefit hereunder, prior to the end of any applicable Restriction Period or other restrictive period, then such Restricted Shares and related Retained Distributions shall be automatically forfeited and such rights or benefits shall cease and terminate.
11.	Appointment of Attorney-in-Fact. Upon the grant of any Restricted Shares the Non-Employee Director shall be deemed to have appointed the Company, acting through its Corporate Secretary, the attorney-in-fact of the Non-Employee Director, with full power of substitution, for the purpose of carrying out the provisions of this Plan and taking any action and executing any instruments which

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such attorney-in-fact may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact shall be irrevocable and coupled with an interest. The Company as attorney-in-fact for the Non-Employee Director may, in the name and stead of the Non-Employee Director, make and execute all conveyances, assignments and transfers of the Restricted Shares and Retained Distributions deposited with the Company or its stock transfer agent pursuant to the Plan. The Non-Employee Director shall, if so requested by the Company, execute and deliver to the Company all such instruments as may, in the judgement of the Company, be advisable for such purpose.

12.   Withholding Taxes.

(a)

At the time any Restricted Shares become nonforfeitable under the Plan (or, if at the time of receipt the Participant shall not be subject to taxation with respect to such Shares, at such later date as such Participant becomes subject to taxation with respect to such Shares; whichever such date is applicable being referred to herein as the “tax date”), the Participant shall make a cash payment to the Company equal to the amount required by applicable provisions of law to be withheld by the Company in connection with federal income tax, FICA and all other federal, state and local taxes in respect of such Shares (or such greater amount as the Participant shall elect to have withheld in respect of such taxes; whichever such amount is applicable being referred to herein as the “tax amount”), provided that subject to the prior approval of the Committee, the Participant may elect that all or any portion of the tax amount be collected by withholding from the number of Shares otherwise to be delivered to the Participant that number of Shares having a Fair Market Value on the tax date equal to all or any portion of the amount otherwise to be collected subject to any limitations prescribed by applicable law, in all cases, only that number of whole Shares the Fair Market Value of which does not exceed the tax amount shall be withheld or delivered and the Participant shall make a cash payment to the Company equal to any excess amount to be withheld or collected. In lieu of the foregoing withholding procedure, a Participant, subject to the prior approval of the Committee, may satisfy the tax withholding or collection requirement by delivering to the Company on the tax date certificates for other Shares already owned by the Participant, endorsed in blank with appropriate signature guarantee, having a Fair Market Value on the tax date equal to the tax amount. All taxes payable with respect to income of a Participant resulting from the grant or issuance of any Shares hereunder shall be the sole responsibility of the Participant, not of the Company, whether or not the Company shall have withheld or collected from the Participant any sums required to be so withheld or collected in respect of such income, and whether or not any sums so withheld or collected shall be sufficient to provide for any such taxes. The determination of any tax resulting from the award or vesting of Shares or from cash or other distributions with respect to Shares or Retained Distributions shall be the sole responsibility of the Participant.

(b)

To the extent permitted under the Internal Revenue Code of 1986, as amended, a Non-Employee Director granted Restricted Shares may elect (which, apart from any other notice required by law, shall require that the Non-Employee Director notify the Company of such election at the time it is made) within 30 days after the Grant Date to include in gross income for federal income tax purposes an amount equal to the Fair Market Value of such Shares at the Grant Date.

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13.	Amendment and Termination of Plan. Subject to the provisions of Paragraph 6(d), the Compensation Committee may at any time terminate, modify or amend the Plan as it shall deem advisable. Notwithstanding the foregoing, shareholder approval shall be obtained for any action with respect to the Plan to the extent required by applicable state or federal rules, regulations or laws. No termination or amendment of the Plan shall adversely affect the rights of any Non-Employee Director under any grant previously made.
14.	[reserved]
15.	Government and Other Regulations. Notwithstanding any other provisions of the Plan, the obligations of the Company with respect to Restricted Shares or Retained Distributions shall be subject to all applicable laws, rules and regulations, and such approvals by any governmental agencies as may be required or deemed appropriate by the Company. The Company reserves the right to delay or restrict, in whole or in part, the issuance or delivery of Common Stock pursuant to any grants of Restricted Shares or Retained Distributions under the Plan until such time as any legal requirements or regulations shall have been met relating to the issuance of such Restricted Shares or Retained Distributions.
16.	No Right to Nomination. Nothing in the Plan or in any grant shall confer upon any Director the right be nominated for reelection to the Board.
17.	Non-Exclusivity of Plan. Neither the adoption of the Plan by the Compensation Committee nor any submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Compensation Committee or the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the awarding of Common Stock otherwise than under the Plan, and such arrangements as may be either generally acceptable or applicable in specific cases.
18.	Governing Law. The Plan shall be governed by, and construed in accordance with, the laws of the State of Texas.
19.	Miscellaneous Provisions.

(a)	Except as to automatic grants to Non-Employee Directors pursuant to Paragraph 5 hereof, no employee or other person shall have any claim or right to be granted Shares under this Plan.
(b)	The expenses of the Plan shall be born by the Company.
(c)	By accepting any grant under the Plan, each Non-Employee Director and each personal representative or beneficiary and each other person claiming by, through or under such Non-Employee Director shall be conclusively deemed to have indicated his or her acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board or the Compensation Committee.
(d)	[reserved].
(e)	Each grant of Restricted Shares to any person serving at the Grant Date as a Non-Employee Director shall be in consideration of past services of the Participant. Each grant of Restricted Shares to a person who was not serving as a Non-Employee Director prior to the Grant Date shall be in consideration of such person’s agreement to stand for election as or be considered for appointment as a Non-Employee Director and to serve as such if so elected or appointed. Each such grant shall be deemed to constitute a conclusive finding by the Board that such services or agreement, as applicable, have a value equal to or in excess of the value of such Restricted Shares, and constitute payment in full therefor. All authorized and unissued shares

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issued as Restricted Shares in accordance with the Plan shall be fully paid and nonassessable shares and free from preemptive rights. No Restricted Shares shall be issued for consideration having a value less than the par value of the Common Stock.

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EX-10.02

Exhibit 10.02

VALERO ENERGY CORPORATION

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

Adopted April 23, 1997,
as amended and restated through
March 10, 2005

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

TABLE OF CONTENTS

Purpose and Effective Date	1
Administration	1
Option Shares	2
Grant of Options	2
Eligibility	2
Option Price	3
Duration of Options	3
Amount Exercisable	3
Exercise of Options.	4
Transferability of Options	5
Forfeitures	5
Requirements of Laws and Regulations	5
No Rights as Stockholder	5
No Obligation to Retain Optionee	6
Changes in the Company’s Capital Structure	6
Amendment or Termination of Plan	7
Written Agreement	8

VALERO ENERGY CORPORATION
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

1.

Purpose and Effective Date. The Non-Employee Director Stock Option Plan (the “Plan”) of Valero Energy Corporation, a Delaware corporation (the “Company”), is for the benefit of members of the board of directors of the Company (“Board” or “Board of Directors”) who, at the time of their service, are not employees of the Company or any of its subsidiaries (“Non-Employee Directors”), but are persons who have made or are expected to make a significant contribution to the continued growth of the Company. The purpose of the Plan is to provide such persons with an additional incentive to continue to serve on the Board through grants of options to purchase the Company’s common stock (“Options”). The Effective Date of the Plan (“Effective Date”) is July 31, 1997. No Options shall be granted pursuant to the Plan after April 23, 2007.

2.

Administration. (a) Except as otherwise set forth herein, the Plan shall be administered by the Compensation Committee (“Committee”) of the Board. If the Committee is not composed solely of two or more “Non-Employee Directors” (as defined in Rule 16b-3 under the Exchange Act) of the Company, then such additional or different persons shall be appointed by the Board to act for purposes of administering this Plan so that the committee administering this Plan shall be composed solely of two or more Non-Employee Directors.

(b)   In connection with its administration of this Plan, the Committee is empowered to:

(i)	Make rules and regulations for the administration of the Plan which are not inconsistent with the terms and provisions of this Plan;
(ii)	Construe all terms, provisions, conditions and limitations of the Plan in good faith, and adopt amendments to the Plan;
(iii)	Make equitable adjustments for any mistakes or errors in the administration of this Plan or deemed to be necessary as the result of any unusual situation or any ambiguity in the Plan;
(iv)	Select, employ and compensate, from time to time, consultants, accountants, attorneys and other agents and employees as the Committee may deem necessary or advisable for the proper and efficient administration of the Plan.

(c)

The foregoing list of express powers granted to the Committee upon the adoption of this Plan is not necessarily intended to be either complete or exclusive, and the Committee shall, in addition to the specific powers granted by this Plan, have such powers not inconsistent with the Plan or Rule 16b-3, whether or not expressly authorized herein, which it may deem necessary, desirable, advisable, proper, convenient or appropriate for the supervision and administration of this Plan. Except as otherwise specifically provided herein , the decisions and judgment of the Committee on any question or claim arising hereunder shall be final, binding and conclusive upon the Participants and all persons claiming by, through or under a Participant.

(d)

Notwithstanding the foregoing, the Committee shall have no authority to exercise discretion with respect to the selection of any Non-Employee Director as a Participant in the Plan, the determination of the number of Options that may be allocated to any such Non-Employee Director or the terms or conditions of any such allocation, and shall have no authority to amend any provision of the Plan relating to eligibility for participation in the Plan, the

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amount or timing of grants under the Plan or the imposition or removal of restrictions on the vesting of Options.

3.

Option Shares. The stock subject to the Options and other provisions of the Plan shall be shares of the Company’s common stock, $0.01 par value (the “Common Stock”). The total number of shares of Common Stock with respect to which Options may be granted under this Plan shall not exceed in the aggregate 200,000 shares (pre-split). The class and aggregate number of shares of Common Stock that may be subject to the Options granted under this Plan shall be subject to adjustment under Section 16 below. The shares issued upon the exercise of Options may be treasury shares or authorized but unissued shares. If an outstanding Option expires or is terminated for any reason, the shares of Common Stock allocable to the unexercised portion of that Option may again be subject to an Option under the Plan.

4.

Grant of Options.

(a)	[reserved]
(b)	Options Granted after the Effective Date of this Plan.

(i)

For so long as this Plan is in effect and shares are available for the grant of Options hereunder, each person who shall first become a Non-Employee Director after the Effective Date of this Plan shall be granted, on the date of his or her election, an Option to purchase 5,000 shares of Common Stock at a per share Option Price equal to the Fair Market Value (as defined in Section 7 below) of a share of Common Stock on such date (such number of shares being subject to adjustment as provided in Section 16 of this Plan).

(ii)

For so long as this Plan is in effect and shares are available for the grant of Options hereunder, at the annual meeting of the Company’s stockholders (the “Annual Meeting”) each year beginning in the year after the year of his or her first election as a Non-Employee Director, there shall be granted to each person whose term as a Non-Employee Director will continue following the date of such Annual Meeting, an Option to purchase 1,000 shares of Common Stock at a per share Option Price equal to the Fair Market Value (as defined in Section 7 below) of a share of Common Stock on such date (such number of shares being subject to the adjustments provided in Section 16 of this Plan).

5.

[reserved].

6.

Eligibility. The individuals who shall be eligible to participate in the Plan shall be those individuals who are members of the Board who, at the time of a grant hereunder, are not employees of the Company or an Affiliate (as defined in Section 12 below). An employee-director who retires from employment with the Company or an Affiliate shall be (without further action by the Committee) eligible to participate in the Plan and shall be entitled to receive the Option grants described in Section 4 immediately upon commencement of his or her service as a Non-Employee Director.

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7.	Option Price. The price at which a share of Common Stock subject to an Option may be purchased pursuant to an Option granted under this Plan (the “Option Price”) shall be its Fair Market Value on the date the Option is granted. The “Fair Market Value” of a share of Common Stock shall be the average of the high and low sales prices of a share of Common Stock on that date as reported on the New York Stock Exchange. If no closing price or quotes are reported on that date or if, in the discretion of the Committee, another means of determining the Fair Market Value of a share of stock on that date is necessary or advisable, the Committee may provide for another means for determining the Fair Market Value.
8.	Duration of Options. No Option shall be exercisable after the expiration of seven years from the date the Option is granted.
9.	Amount Exercisable.

9A.	The Options granted pursuant to Section 4(b)(i) shall vest and become exercisable in one-third increments beginning on the first anniversary of the date the Options were granted (the “Date of Grant”), and continuing on each subsequent anniversary until the third anniversary of the Date of Grant, whereupon the Options will be fully vested.
9B.	The Options granted pursuant to Section 4(b)(ii) shall vest fully and become exercisable on the first anniversary of their Date of Grant.
9C.	Notwithstanding the preceding provisions of this Section 9, all outstanding Options granted to a Non-Employee Director that that have not already vested shall become fully vested and immediately exercisable on the earlier of any of the following events:

(a)	The date a Non-Employee Director ceases to be a director of the Company by reason of his or her retirement in good standing from the Board by reason of age or disability under the then-established retirement policy of the Company;
(b)	The date a Non-Employee Director completes his or her tenure as a director of the Company as provided in the bylaws of the Company and declines to stand for reelection;
(c)	The date a Non-Employee Director, having been nominated for and having agreed to stand for reelection, is not reelected by the stockholders of the Company to serve as a member of the Board;
(d)	The date of the death of a Non-Employee Director;
(e)	The date a Non-Employee Director certifies in writing to the Company that he or she is resigning as a member of the Board due to medical or health reasons which render such Non-Employee Director unable to continue to serve as a member of the Board;
(f)	Subject to the provisions of and definitions contained in Paragraph 9D(b), the occurrence of a Change of Control of the Company.

9D.	(a)	In the event of any Change of Control, each Option granted under this Plan not theretofore forfeited or terminated and held as of the date of a Change of Control shall upon occurrence of the Change of Control immediately become vested or exercisable with respect to all of the shares granted thereunder and will remain exercisable for the remainder of the original term of the Option.
	(b)	A “Change of Control” shall be deemed to occur when:

(i)   the stockholders of the Company approve any agreement or transaction pursuant to which:

(A)	the Company will merge or consolidate with any other entity (other than a wholly owned subsidiary of the Company) and will not be the surviving entity (or in which the Company survives only as the subsidiary of another entity);
(B)	the Company will sell all or substantially all of its assets to any other entity (other than a wholly owned subsidiary of the Company); or
(C)	the Company will be liquidated or dissolved; or

(ii)   any “person” or “group” (as these terms are used in Section 13(d) and 14(d) of the Exchange Act) other than the Company, any subsidiary of the Company, any employee benefit plan of the Company or its subsidiaries, or

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	any entity holding Common Stock for or pursuant to the terms of such employee benefit plans, is or becomes an “Acquiring Person” as defined in the Rights Agreement dated June 18, 1997 (“Rights Agreement”) between the Company and Computershare Investor Services, L.L.C., as Rights Agent (successor Rights Agent to Harris Trust and Savings Bank), as amended (or any successor Rights Agreement) (or, if no Rights Agreement is then in effect, such person or group acquires or holds such number of shares as, under the terms and conditions of the most recent such Rights Agreement to be in force and effect, would have caused such person or group to be an “Acquiring Person” thereunder); or
(iii)	any “person” or “group” shall commence a tender offer or exchange offer for 15% or more of the shares of Common Stock then outstanding, or for any number or amount of shares which, if the tender or exchange offer were to be fully subscribed and all shares for which the tender or exchange offer is made were to be purchased or exchanged pursuant to the offer, would result in the acquiring person or group directly or indirectly beneficially owning 50% or more of the shares of Common Stock then outstanding; or
(iv)	individuals who, as of any date, constitute the Board (the “Incumbent Board”) thereafter cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person or group other than the Board; or
(v)	the occurrence of the Distribution Date (as defined in the Rights Agreement); or
(vi)	any other event determined by the Board or the Committee to constitute a “Change of Control” hereunder.

10.   Exercise of Options.

(a)

Unless otherwise prescribed by the Committee, Options may be exercised only by written notice of exercise (the “Exercise Notice”), in the form prescribed by the Committee, delivered to the Company to the Stock Option Plan administrator, and signed by the Participant or other person acting on behalf of the Participant. The date on which the Exercise Notice is delivered to the Company shall be the “Notice Date.” The Exercise Notice shall specify a date (the “Settlement Date”), not less than five business days nor more than ten business days following the Notice Date, upon which the shares or other rights shall be issued or transferred to the Participant (or other person entitled to exercise the Option) and the Option’s exercise price shall be paid to the Company.

(b)

Unless otherwise prescribed by the Committee, on the Settlement Date, the person exercising an Option shall tender to the Company full payment for the shares or other rights with respect to which the Award is exercised, together with an additional amount, in cash,

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	certified check, cashier’s check or bank draft approved by the Company, equal to the amount of any taxes required to be collected or withheld by the Company in connection with the exercise of the Option (the “Tax Payment”).
(c)	Subject to any rules and limitations as the Committee may adopt, a person exercising an Option may make the Tax Payment in whole or in part by electing, at or before this time of exercise of the Option, either (i) to have the Company withhold from the number of shares otherwise deliverable a number of shares whose value equals the Tax Payment, or (ii) to deliver certificates for other shares owned by the person exercising the Option, endorsed in blank with appropriate signature guarantee, having a value equal to the amount otherwise to be collected or withheld. If the Committee shall fail to disapprove the election prior to the Settlement Date, the election will be deemed approved .
(d)	Subject to any rules and limitations as the Committee may adopt or as may be set forth in any written stock option agreement signed by the Company, a person exercising an Option for the receipt of shares may pay for the shares with other shares of Company Common Stock legally and beneficially owned by that person at the time of the exercise of the Options.
(e)	Any calculation with respect to a Participant’s income, required tax withholding or other matters required to be made by the Company upon the exercise of an Option shall be made using the Fair Market Value of the shares of Common Stock on the Notice Date, whether or not the Exercise Notice is delivered to the Company before or after the close of trading on that date, unless otherwise specified by the Committee. Notwithstanding the foregoing, for Option exercises using the Company’s “same-day-sale for cash method” or “broker sale for stock method,” a Participant’s taxable gain and related tax withholding on the exercise will be calculated using the actual market price at which Shares were sold in the transaction .

11.	Transferability of Options. Without prior written approval from the Committee, Options shall not be transferable by the optionee except by will or under the laws of descent and distribution, and shall be exercisable, during the optionee’s lifetime, only by the optionee.
12.	Forfeitures. Notwithstanding any other provision of this Plan, if the Committee finds by a majority vote, that the optionee, before or after termination of his capacity as a Non-Employee Director of the Company or any subsidiary corporation, limited partnership or other entity controlling, or controlled by, or under common control with the Company (an “Affiliate”), committed fraud, embezzlement, theft, commission of felony, or proven dishonesty in the course of his relationship to the Company and/or its Affiliates which conduct damaged the Company or its Affiliates, or disclosed trade secrets of the Company or its Affiliates, then any outstanding Options which have not been exercised by optionee shall be forfeited. The decision of the Committee will be final.
13.	Requirements of Laws and Regulations. The Company shall not be required to sell or issue any shares under any Option if issuing the shares shall constitute a violation by the optionee or the Company of any provisions of any law or regulation of any governmental authority..
14.	No Rights as Stockholder. No optionee shall have rights as a stockholder with respect to shares covered by his or her Option until the date shares of Common Stock are issued as a result of the Option’s exercise. Except as provided in Section 16, no adjustment for dividends, or other matters shall be made if the record date is prior to the date the shares of Common Stock are issued.

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15.

No Obligation to Retain Optionee. The granting of any Option shall not impose upon the Company or any of its subsidiaries any obligation to retain or continue to retain any optionee in his or her capacity as a Non-Employee Director. The right of the Company, the directors or the stockholders of the Company or of any subsidiary of the Company to terminate any optionee shall not be diminished or affected by reason of the fact that one or more Options have been or will be granted to such Non-Employee Director.

16.

Changes in the Company’s Capital Structure.

(a)

The existence of outstanding Options shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalization, reorganization or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights of the Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

(b)

If all or any portion of an Option is exercised subsequent to any stock dividend, stock split, rights distribution, split-up, recapitalization, exchange of shares, merger, spin-off, reorganization or liquidation (“Reorganization Event”), as a result of which (a) securities of any class or rights shall be issued in respect of outstanding shares of Common Stock or (b) shares of Common Stock shall be changed into the same or a different number of shares of the same or another class of other securities, then the person so exercising such Option shall receive, for the aggregate price payable upon the exercise of such Option,

(i)	the aggregate number and class of shares, rights or other securities for which a recognized market exists, and
(ii)	a cash amount equal to the fair market value on such date, as reasonably determined by the Committee, of any other property (other than regular cash dividend payments) and of any shares, rights or other securities for which no recognized market exists,

which, if shares of Common Stock (as authorized at the date of the granting of such Option) had been purchased at the date of granting of the Option for the same aggregate price (on the basis of the price per share provided in the Option) and had not been disposed of, such person or persons would be holding at the time of such exercise as a result of such purchase and any such Reorganization Event;

provided, however, that no fractional share of Common Stock, fractional right or other fractional security shall be issued upon any such exercise, and the aggregate price paid shall be appropriately reduced to reflect any fractional share of Common Stock, fractional right or other fractional security not issued; and provided further, however, that if the exercise of any Option subsequent to any Reorganization Event would, pursuant to this Section 16, require the delivery of shares, rights or other securities which the Company is not then authorized to issue or which in the sole judgment of the Committee cannot be issued without undue effort or expense, the person exercising such Option shall receive, in lieu of such shares, rights or other securities, a cash payment equal to the fair market value on the Exercise Date, as reasonably determined by the Committee, of such shares, rights or other securities.

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For purposes of applying the provisions of this Plan, the Preference Share Purchase Rights distributed to stockholders of record of the Company pursuant to the Rights Agreement, or any successor rights, shall be deemed not to have been distributed until the Distribution Date (as defined in the Rights Agreement or any successor agreement).

(c)

In the event of any change in the number of shares of Common Stock outstanding resulting from a Reorganization Event, the aggregate number and class of shares of Common Stock remaining available to be optioned under this Plan shall be that number and class which a person, to whom an Option had been granted for all of the available shares of Common Stock under this Plan on the date preceding such change as provided in Section 3 would be entitled to receive upon exercise of such Option following such change. Upon the occurrence of any Reorganization Event, the Committee shall be entitled (but shall not be required) to determine that new Option Agreements (or amendments to the existing Option Agreements) shall be entered into with Participants reflecting such stock dividend or other event.

(d)

Except as expressly provided before in this Plan, the issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe for shares, or upon conversion of shares or obligations of the Company convertible into shares or other securities, shall not affect, and no adjustment by reason of it shall be made with respect to, the number or price of shares of Common Stock then subject to outstanding Options.

17.   Amendment or Termination of Plan. The Board of Directors may modify, revise or terminate this Plan at any time. However, without the further approval of the holders of at least a majority of the outstanding shares of voting stock, or if the provisions of the corporate charter, bylaws or applicable state law prescribe a greater degree of stockholder approval for this action, without the degree of stockholder approval thus required, the Board of Directors may not

(a)	change the aggregate number of shares which may be issued under Options pursuant to the provisions of this Plan;
(b)	reduce the Option Price permitted for options;
(c)	change the class of persons eligible to receive options;
(d)	extend the term during which an Option may be exercised or the termination date of the Plan; or
(e)	materially increase any other benefits accruing to the Non-Employee Directors under the Plan or materially modify the requirements as to eligibility for participation in the Plan

unless the Board of Directors shall have obtained an opinion of legal counsel to the effect that stockholder approval of the amendment is not required by law or the applicable rules and regulations of, or any agreement with, the New York Stock Exchange. In addition, the terms of the Plan relating to the number of shares that may be subject to an Option, the times at which Options are to be granted, and the means by which the Option Price for the Options granted is to be determined shall not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code of 1986, the Employee Retirement Income Security Act or the rules under either of those laws. All Options granted under this Plan shall be subject to the terms and provisions of this Plan, and any amendment, modification or revision of this Plan shall be deemed to amend, modify or revise all Options outstanding under this Plan at the time of the amendment, modification or revision, except with respect to the date of expiration, the vesting schedule, or the exercise price

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of the outstanding Option(s), which shall remain subject to the terms and conditions of the stock option agreement between the Non-Employee Director and the Company.

18.   Written Agreement. Each Option granted under this Plan shall be embodied in a written option agreement, which shall be subject to the terms and conditions prescribed above, and shall be signed by the optionee and by the appropriate officer of the Company for and in the name and on behalf of the Company. Each option agreement shall contain any other provisions that the Committee in its discretion shall deem advisable so long as they do not conflict with the terms of this Plan.

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EX-10.03

Exhibit 10.03

FORM OF RESTRICTED STOCK AGREEMENT

This Restricted Stock Agreement (“Agreement”) is between Valero Energy Corporation, a Delaware corporation (“Valero”), and __________________, a Non-Employee Director of the Board of Directors of Valero (“Director”); who agree as follows:

     1. Introduction. Pursuant to the Valero Energy Corporation Restricted Stock Plan for Non-Employee Directors (as may be amended, the “Director Plan”), Valero has granted ___ shares of its Common Stock, $.01 par value (“Restricted Shares”) to the Director. As directed by the Director Plan, the parties enter into this Agreement to evidence the terms, conditions and restrictions applicable to the Restricted Shares.

     2. The Director Plan, Restrictions, Vesting. The Director has read and understands the Director Plan, which is incorporated herein by reference for all purposes, and agrees to the terms and conditions applicable to the Restricted Shares and the rights and powers of Valero as provided therein. In addition, the Director agrees as follows:

     2.01 Except as provided in the Director Plan and this Agreement, Restricted Shares may not be sold, exchanged, pledged, hypothecated, transferred, garnished or otherwise disposed of or alienated prior to vesting.

     2.02 Restricted Shares granted hereunder shall vest and accrue to the Director in the following increments: _________ shares on the date of the annual meeting of stockholders of Valero Energy Corporation for election of directors of Valero (“Annual Meeting”) occurring in 2006; _________ shares on the date of the Annual Meeting occurring in 2007; and _________ shares on the date of the Annual Meeting occurring in 2008. The restrictions may terminate prior to the expiration of such period as set forth in the Director Plan.

     2.03 The Director agrees that in lieu of certificates representing the Director’s Restricted Shares, the Restricted Shares and the shares of Common Stock issuable in connection with the vesting of the Restricted Shares may be issued in uncertificated form pursuant to the Direct Registration Service (“DRS”) of Valero’s stock transfer agent.

     2.04 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 Director shall be entitled to new or additional or different shares of stock or securities, such stock or securities shall be subject to the terms and conditions of the Plan and this Agreement.

     2.05 If Restricted Shares are forfeited per the terms of the Director Plan, the stock transfer agent of Valero is instructed, upon confirmation by the Corporate Secretary of such forfeiture, to surrender the certificates representing such shares for cancellation, or the cancel the forfeited shares from the Directors’ DRS account.

     3. Limitation. The Director shall have no rights with respect to any Restricted Shares not expressly conferred by the Director Plan or this Agreement.

     4. Miscellaneous. All capitalized terms contained in this Agreement shall have the definitions set forth in the Director Plan unless otherwise defined herein. This Agreement shall be binding upon the parties hereto and their respective beneficiaries, heirs, administrators, executors, legal representatives, and successors.

     EFFECTIVE as of the ______ day of ______ 2005.

VALERO ENERGY CORPORATION

Mike Crownover, Director – Human Resources

[name of non-employee director]

EX-10.04

Exhibit 10.04

Notice of Grant of Stock Option and Option Agreement	Valero Energy Corporation
	ID: 74-1828067
	P. O. Box 696000
	San Antonio, TX 78269-6000
[name of non-employee director]	Option Number:		00000000
	Plan:	RMSO
	ID:		11111111

Effective ______________, 2005 you have been granted a Non-Qualified Stock Option to buy _______ shares of the common stock of Valero Energy Corporation (the “Company”) at $_____ per share.

The total Option price of the shares granted is $__________.

Your Options will vest on the dates shown below.

Shares Grant Date Vest Type Full Vest Expiration

By your signature and the Company’s signature below, you and the Company agree that the Option referenced above is granted under and governed by the terms and conditions of the Company’s Non-Employee Director Stock Option Plan, as amended, and the Option Agreement attached hereto, all of which are made a part of this agreement.

VALERO ENERGY CORPORATION

By:
Mike Crownover	Date
Director — Human Resources
Non-Employee Director	Date

OPTION AGREEMENT
Valero Energy Corporation Non-Employee Director Stock Option Plan

This Option Agreement (“Agreement”) is entered into between Valero Energy Corporation, a Delaware corporation (“Valero”), and a Non-Employee Director of the Board of Directors of Valero pursuant to the terms of the Valero Energy Corporation Non-Employee Director Stock Option Plan (as may be amended, the “Director Plan”). As used herein, Director shall mean ____________. Capitalized terms used in this Agreement but not otherwise defined in this Agreement have the meanings set forth in the Director Plan.

     1. Grant of Option. Valero grants to Director the option (“Option”) to purchase up to ___ shares of Common Stock of Valero, $.01 par value per share (“Shares”), in accordance with the terms of this Agreement and the Director Plan. The Shares, when issued to Director upon the exercise of the Option, shall be fully paid and non-assessable.

     2. Purchase Price. The purchase price of the Shares shall be $_________per Share.

     3. Exercise of Option. The period during which the Option is in effect (“Option Period”) shall commence on _________, 2005. The Option Period shall terminate on _________, 2012. No portion of the Option may be exercised prior to _________, 2006. Subject to the provisions of the Director Plan relating to suspension or termination from the Director Plan, the Option will be available for exercise in the following increments: _________.

     If the Director desires to exercise the Option, Director must deliver written notice to Stock Plan Administration of Valero substantially in the form of the attached Form A (“Exercise Notice”). The Option must be exercised in accordance with one of the methods for exercise set forth in the attached form of Exercise Notice. The date on which the Exercise Notice is received by Valero will be the “Exercise Date.” The completed Exercise Notice must include the number of Shares with respect to which the Option is being exercised. 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 the date of delivery of the Shares against payment shall be extended for the period necessary to take such action. In the event of any failure by Director to pay for the number of Shares specified in the Exercise Notice on the Settlement Date, as the same may be extended as provided above, the exercise of the Option with respect to such number of Shares shall be treated as if it had never been made.

     4. Director Plan Incorporated by Reference. The Director Plan is incorporated herein, and by this reference, is made a part hereof for all purposes. The Director Plan contains detailed provisions relating to, among other things, forfeiture of this Option under certain circumstances, adjustment of Shares in the event of certain changes in capitalization, and other matters of importance to Director. Director warrants and agrees that he or she has received and read a copy of the Director Plan or a Director Plan Summary relating thereto, and that all rights granted hereunder are subject to the more detailed provisions of the Director Plan.

     5. Limitation of Rights of Director. Director shall have no rights with respect to any Shares not expressly conferred by the Director Plan or this Agreement.

     6. No Assignment. This Agreement and the Option granted hereunder are of a personal nature and, without prior written approval from the Compensation Committee of the Board of Directors, the option shall not be transferable by Director except by will or under the laws of descent and distribution, and shall be exercisable, during the Director’s lifetime, only by Director.

     7. Successors. This Agreement shall be binding upon any successors of Valero and the heirs, successors and legal representatives of Director.

     8. Direct Registration. Employee agrees that in lieu of stock certificates, any Shares issuable in connection with the exercise of the Options may be issued in uncertificated form pursuant to the Direct Registration Service of Valero’s stock transfer agent.

FORM A — STOCK OPTION EXERCISE FORM

On the day you exercise your options, this exercise form must be faxed to Valero’s Stock Option Administration department at (210) 345-2717 or (210) 444-8528 and the original(s) mailed to P.O. Box 696000, San Antonio, TX 78269-6000, mailstation VHC/E1N. The Stock Option Administration department must receive your original form(s) within three days after exercise date.

ATTN: Stock Option Administration (VHC-E1N), telephone (210) 345-2072 or (210) 345-2447
fax (210) 345-2717 or (210) 444-8528.

The undersigned elects to exercise an Option to purchase shares as follows:

Name:
	(Use Complete Legal Name)
Address:

Employee Number: Telephone Number:	(Where you can be reached at time of exercise)
Date of Grant to Which Exercise Applies:
Option Number to Which Exercise Applies:
Option Price to Which Exercise Applies:
Number of Shares to Which Exercise Applies:

The Settlement Date on which the shares will be tendered may not be less than three nor more than ten business days following this Exercise Date.

Federal income tax will be withheld at 25%; if a higher amount is requested, please specify __________ (max 35%).

On or before the Settlement Date, I will pay the Option price, applicable taxes, and any transaction fees as follows: [Choose One]

o	a)	CASH PURCHASE METHOD. I will furnish a check made payable to Valero Energy Corporation on the date of exercise. In addition to the Option price, federal income tax, social security tax, Medicare tax and state tax, as applicable, will be payable to Valero on the Exercise Date. I will be informed not later than the close of business on the Exercise Date of the total settlement funds required. All option shares will be issued to me via the Computershare Direct Registration System; or
o	b)	STOCK PURCHASE METHOD. I will submit a signed Representation of Ownership statement attesting as to shares of Valero Common Stock that I own. The number of shares of Valero Common Stock attested to on this signed statement must have a market value equal to or exceeding the sum of the Option price plus the amount of applicable tax withholding for the number of Option shares being exercised. The stock will be valued at the average of the high and low sales price per share of Valero Common Stock quoted on the New York Stock Exchange on the exercise date. In addition to the Option price, federal income tax, social security tax, Medicare tax and state tax, as applicable, will be deducted from the Option shares exercised, and a net number of shares will be issued to me via the Computershare Direct Registration System. Fractional shares will be settled in cash within one week of the exercise date; or
o	c)	RELOAD METHOD — former UDS Options only. I will submit documentation indicating that I currently hold, which I have held for a minimum of at least six months,                                    shares of Valero Energy Corporation common stock. I recognize that in addition to the option price, federal income tax (25%), social security tax, Medicare tax and state tax, as applicable will be deducted from the Option shares exercised (fractional shares will be settled in cash within one week of the exercise date). I will receive a new option for the number of shares tendered for the option price. This new option vests 100% at the end of two years and the expiration date is the same as the underlying option (available for eligible options granted under the former 1990 Diamond Shamrock, 1992 Ultramar and 1996 Ultramar Diamond Shamrock plans); or
o	d)	SAME-DAY-SALE FOR CASH  METHOD. I am making an irrevocable election for same day sale with this option program’s broker, electing to receive cash from the sale. Cash proceeds from the sale of Option shares (less Option price, applicable taxes, and transaction fees) will be remitted to me by the broker; or
o	e)	BROKER SALE FOR STOCK METHOD - for active employees only. I am making an irrevocable election to sell with this option program’s broker, electing to receive shares of Valero Common Stock from the exercise. The broker will sell from the Option shares a number of shares approximating the sum of the Option price and applicable taxes. This will result in a cash balance, which will be issued to me by the broker after processing is completed. Remaining Option shares will be issued to me via the Computershare Direct Registration System.

Executed this                     day of                              , 20     

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