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.

 

--------------------------------------------------------------------------------

 

(VALERO ENERGY CORPORATION LOGO) [d23484d2348400.gif]

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     
 
   

--------------------------------------------------------------------------------

   
                         Signature
   
 
   

--------------------------------------------------------------------------------

   
                         Print Name