Document:

Exhibit 10.02

 

Form of Performance Award Agreement for CEO

 

This Performance Award Agreement (the “Agreement”), dated effective February 3, 2005, is by and between Valero
Energy Corporation, a Delaware corporation (“Valero”), and William E. Greehey, a participant (the “Participant”) in
Valero’s 2001 Executive Stock Incentive Plan, a
plan approved by the Board of Directors of Valero (the “Board”) 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                    
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.

 

A.                 Vesting.  The Performance Shares granted hereunder
shall vest over a period of three years in equal, one-third increments with the
first increment vesting on the date of the regularly scheduled meeting of the
Board’s Compensation Committee (“Meeting Date”) in January 2006, and the
second and third increments vesting on the Committee’s Meeting Dates in
January 2007 and January 2008, respectively (each of these three
vesting dates is referred to as a “Normal Vesting Date”), such vesting being
subject to verification of attainment of the Performance Objectives described
in Paragraph 4 by the Compensation Committee. 
If the Committee is unable to meet in January of a given year, then the
Normal Vesting Date for that year will be the date not later than March 31
of that year as selected by the Compensation Committee.

 

B.                 Delivery of
Shares.  The shares of Common
Stock that Participant becomes eligible to receive as determined (a) on
any Normal Vesting Date, or (b) per the terms of Paragraph 5 below,
shall not be issued or delivered to Participant (or his estate) until the
Participant dies, becomes “disabled” (as contemplated in Section 409A of the
Internal Revenue Code, hereafter “IRC Section 409A”) or “separates from service”
(as contemplated in IRC Section 409A) with Valero, in accordance with the following:

 

(i)                  If Participant’s dies or becomes
disabled, then the shares of Common Stock shall be distributed to Participant
(or his estate or heirs) as soon as practicable following the date on which the
Participant died or became disabled; or

 

(ii)               if Participant separates from service
from Valero, then the shares of Common Stock shall be distributed to
Participant upon the latter of: (a) the date that is six months following
the Participant’s separation from service, or (b) January 1 of the
year following the year in which Participant separates from service.

 

C.                 Rights.  Until shares of Common Stock are actually
issued to Participant (or his 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.

 

1

 

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, acting in its sole discretion, at the beginning
of the calendar year immediately preceding each Normal Vesting Date (or not
later than 90 days after the commencement of such calendar year).  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 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

  	
   

  	
  Extra
  Company(ies)

  
	
  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.

 

2

 

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

  	
   

  	
  Percent of vested Performance

  Shares to be awarded as

  Shares of Common Stock

  	
   

  
	
  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 separates from service (as
contemplated under IRC Section 409A) with Valero for reasons other than his
termination for “cause” (as defined pursuant to the Employment Agreement then
in effect between Valero and Participant), or if Participant dies or becomes
disabled (as contemplated in IRC Section 409A), then upon the occurrence of
such an event, those Performance Shares that have not vested or have not been
forfeited and for which a Normal Vesting Date has not yet occurred shall be
deemed to have been earned and vested at the target level (2nd Quartile).  If Participant’s separation from service is
due to his termination by Valero for “cause” (as defined pursuant to the
Employment Agreement then in effect between Valero and Participant), then those
Performance Shares for which the Normal Vesting Date has not yet occurred shall
be forfeited as of the effective date of termination of Participant’s
separation from service.

 

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
and shall be distributed as soon as administratively practicable thereafter.  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.

 

3

 

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.  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:

  	
   

  	
   

  
	
   

  	
   

  	
  Keith D. Booke, Executive Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WILLIAM E. GREEHEY, Participant

  
					

 

4Exhibit 10.03

 

Form of Performance Award Agreement for Other
NEOs

 

This Performance Award Agreement (the “Agreement”), dated effective February 2, 2005, is by and between Valero
Energy Corporation, a Delaware corporation (“Valero”), and                ,
a participant (the “Participant”) in Valero’s 2001
Executive Stock Incentive Plan, a plan approved by the Board of
Directors of Valero (the “Board”) 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        
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.

 

A.                 Vesting.  The Performance Shares granted hereunder
shall vest over a period of three years in equal, one-third increments with the
first increment vesting on the date of the regularly scheduled meeting of the
Board’s Compensation Committee (“Meeting Date”) in January 2006, and the
second and third increments vesting on the Committee’s Meeting Dates in
January 2007 and January 2008, respectively (each of these three
vesting dates is referred to as a “Normal Vesting Date”), such vesting being
subject to verification of attainment of the Performance Objectives described
in Paragraph 4 by the Compensation Committee. 
If the Committee is unable to meet in January of a given year, then the
Normal Vesting Date for that year will be the date not later than March 31
of that year as selected by the Compensation Committee.

 

B.                 Rights.  Until shares of Common Stock are actually
issued to Participant (or his or her estate) in settlement of the Performance
Shares, neither Participant nor any person claiming by, through or under
Participant shall have any rights as a stockholder of Valero (including,
without limitation, voting rights or any right to receive dividends or other
distributions) with respect to such shares, and Participant’s status with
respect to the issuance of such shares shall be that of a general creditor of
Valero.

 

C.                 Distribution.  Any shares of Common Stock to be distributed
under the terms of this Agreement shall be distributed as soon as
administratively practicable after the applicable Normal Vesting Date, but not
later than two-and-one-half months following the end of the year in which the
vesting date for such Common Stock occurred.

 

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.

 

1

 

B.                 Target Group.  The applicable Target Group shall be selected
by the Compensation Committee, acting in its sole discretion, at the beginning
of the calendar year immediately preceding each Normal Vesting Date (or not
later than 90 days after the commencement of such calendar year).  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 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

  	
   

  	
  Extra
  Company(ies)

  
	
  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

  	
   

  	
  Percent of vested Performance

  Shares to be awarded as

  Shares of Common Stock

  	
   

  
	
  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.

 

2

 

5.                                      Termination
of Employment.

 

A.                 Voluntary
Termination and Termination for “Cause”.  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, shall be awarded as shares of Common Stock on such
Normal Vesting Date subject to the attainment of the performance objectives 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 the application of Paragraph 4, shall
thereupon be forfeited.

 

B.                 Retirement,
Death, Disability, and Involuntary Termination Other Than for “Cause”.  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
(a) 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
(b) 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
and shall be distributed as soon as administratively practicable thereafter.  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.

 

3

 

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:

  	
   

  	
   

  
	
   

  	
   

  	
  Keith D. Booke, Executive Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GREGORY C. KING, Participant

  
					

 

4

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