Exhibit 10.8

 

PERFORMANCE AWARD AGREEMENT

 

This Performance Award Agreement (the “Agreement”), dated effective January 22,
2003, is by and between Valero Energy Corporation, a Delaware corporation
(“Valero”), and Curtis V. Anastasio, a participant (the “Participant”) in
Valero’s 2001 Executive Stock Incentive Plan, approved by the Board of Directors
of Valero on March 15, 2001, and approved by Valero’s stockholders on May 10,
2001 (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 2,000
Performance Shares pursuant to Section 6(d) of the Plan. The Performance Shares
represent rights to receive shares of Common Stock of Valero, subject to the
terms and conditions of this Agreement and the Plan.

 

2. Performance Period. Except as provided below with respect to a Change of
Control (as defined in the Plan), the “Performance Period” for any Performance
Shares eligible to vest on any given Normal Vesting Date (as defined below)
shall be the three calendar years ending on the December 31 immediately
preceding the Normal Vesting Date.

 

3. Vesting and Delivery of Shares. The Performance Shares shall be eligible to
vest in the following increments: one-third on January 22, 2004; one-third on
January 22, 2005; and one-third on January 22, 2006 (each a “Normal Vesting
Date”), subject to verification of attainment of the Performance Objectives
described in Paragraph 4 by the Compensation Committee of the Valero Board of
Directors, which determination is usually made each year at a meeting of the
Compensation Committee of the Board held in January. 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, and Participant’s status
with respect to the issuance of such shares shall be that of a general creditor
of Valero.

 

4. 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 the sum of (i) the dividends on the common stock of such
company during the Performance Period, assuming dividend reinvestment, and (ii)
the difference between the price of a share of such company’s common stock at
the end and at the beginning of the period (appropriately adjusted for any stock
dividend, stock split, spin-off, merger or other similar corporate events) by
(iii) the price of a share of such company’s common stock at the beginning of
the period.

 

  B. Target Group. The applicable Target Group shall be selected by the
Compensation Committee of the Board of Directors of Valero, acting in its sole
discretion, at or near the time of each Normal Vesting Date. The same Target
Group shall be utilized to determine the number of Performance Shares vesting
under all Performance Award Agreements of Valero having a similar Normal Vesting
Date, but the decision of the Compensation Committee as to the composition of
such Target Group shall be final.

 

  C.

Performance Ranking. The TSR for the Performance Period for Valero and each
company in the Target Group shall be arranged by rank from best to worst
according to the TSR achieved by

 

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each company. The total number of companies so ranked shall then be divided into
four groups (“Quartiles”). For purposes of assigning companies to Quartiles
(with the 1st Quartile being the best and the 4th Quartile being the worst), the
total number of companies ranked (including Valero) shall be divided into four
groups as nearly equal in number as possible. The number of companies in each
group shall be the total number contained in the Target Group divided by four.
If the total number of companies is not evenly divisible by four, so that there
is a fraction contained in such quotient, the extra company(ies) represented by
such fraction will be included in one or more Quartiles as follows:

 

Fraction

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Extra Company(ies)

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1/4   1st Quartile 1/2   1st Quartile     2nd Quartile 3/4   1st Quartile    
2nd Quartile     3rd Quartile

 

Any performance shares not awarded as shares of Common Stock as a result of a
ranking in the 3rd or 4th Quartile will carry forward for one more Performance
Period; up to 100% of the Performance Shares carried forward may be awarded
based on Valero’s TSR during the next Performance Period, provided, that if any
Performance Shares are carried forward due to a ranking in the 3rd Quartile, no
such shares shall be awarded unless Valero’s TSR in the subsequent period is in
the 2nd or 1st Quartile.

 

  D. Vesting Percentages. The number of shares of Common Stock, if any, that
Participant will be entitled to receive in settlement of the vested Performance
Shares will be determined on each Normal Vesting Date and, subject to the
provisions of the Plan and this Agreement, on such Normal Vesting Date, the
following percentage of the vested Performance Shares will be awarded as shares
of Common Stock to the Participant if Valero’s TSR during the Performance Period
falls within the following ranges:

 

Valero TSR Position

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   Percent of vested Performance
Shares to be awarded as
Shares of Common Stock

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    4th Quartile

       0%

    3rd Quartile

     50%

    2nd Quartile

   100%

    1st Quartile

   150%

 

If Valero’s TSR is the highest achieved in the 1st Quartile for the Performance
Period, Participant shall be awarded a number of shares of Common Stock equal to
200% of the Performance Shares that vested during the Performance Period.

 

5.

Termination of Employment. Except for a Change of Control (described below), if
Participant’s employment is voluntarily terminated by the Participant (other
than through retirement, death or disability), or is terminated by Valero for
“cause” (as defined pursuant to the Plan), then (a) those Performance Shares
that have not vested or been forfeited, and for which a Normal Vesting Date
occurs on or before the 30th day following the date of such termination, may be
awarded as shares of Common Stock on such Normal Vesting Date in accordance with
Paragraph 4 hereof, and (b) any such Performance Shares for which a Normal
Vesting Date does not occur within such 30-day period, or that are not otherwise
awarded as shares of Common Stock on a Normal Vesting Date as a result of

 

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the application of Paragraph 4, shall thereupon be forfeited. Except for a
Change of Control, if a Participant’s employment is terminated through
retirement, death, or disability, or by Valero other than for cause (as
determined pursuant to the Plan), then (x) those Performance Shares that have
not theretofore vested or been forfeited, and for which a Normal Vesting Date
occurs on or before the 90th day following the date of such termination, shall
be subject to vesting on such Normal Vesting Date in accordance with Paragraph 4
hereof, and (y) any such Performance Shares for which such a Normal Vesting Date
does not occur within such 90-day period, or which otherwise do not vest on a
Normal Vesting Date as a result of application of Paragraph 4, shall thereupon
be forfeited.

 

6. Change of Control. If a Change of Control occurs with respect to Valero, then
each Performance Period with respect to any Performance Shares that have not
vested or been forfeited shall be terminated effective as of the date of such
Change of Control (a “Change of Control Vesting Date”); the TSR for Valero and
for each company in the Target Group shall be determined for each such shortened
Performance Period and the percentage of Performance Shares to be received by
the Participant for each such Performance Period shall be determined in
accordance with Paragraph 4. For purposes of determining the number of
Performance Shares to be received as of any Change of Control Vesting Date, the
Target Group as most recently determined by the Compensation Committee prior to
the date of the Change of Control shall be used.

 

7. 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.

 

8. Limitation of Rights of Participant. With respect to any Performance Shares,
the Participant shall not have any rights that are not expressly conferred by
the Plan and this Agreement or any other Performance Award Agreement between
Valero and the Participant.

 

9. 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 the laws of descent and distribution. Any such
attempted sale, mortgage, pledge, assignment, transfer, conveyance or
disposition shall be void, and Valero shall not be bound thereby.

 

10. 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.

 

VALERO ENERGY CORPORATION By:   /s/     KEITH D. BOOKE            

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Keith D. Booke,

Executive Vice President and

Chief Administrative Officer

 

/s/    CURTIS V. ANASTASIO        

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Curtis V. Anastasio, Participant

 

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