Document:

exv4w12

 

EXHIBIT 4.12

GUARANTEE

     GUARANTEE dated as of September 2, 2005 of Valero Energy Corporation, a Delaware corporation
(“Valero”), for the benefit of Deutsche Bank Trust Company Americas (“Deutsche Bank”) and HSBC Bank
USA, National Association (successor by merger to HSBC Bank USA) (“HSBC” and, together with
Deutsche Bank, the “Trustees”), and holders (“Holders”) from time to time of the Notes (as defined
herein) of The Premcor Refining Group Inc., a Delaware corporation and an indirect, wholly owned
subsidiary of Valero (the “Company”), and Port Arthur Finance Corp., a Delaware corporation and an
indirect, wholly owned subsidiary of the Company (“PAFC”).

RECITALS

     WHEREAS, PAFC, Port Arthur Coker Company L.P. (“PACC”), Sabine River Holding Corp. (“Sabine”),
Neches River Holding Corp. (“Neches”), HSBC and Bankers Trust Company (“Bankers Trust”) have
executed an Indenture dated August 19, 1999 (the “1999 Indenture”), as supplemented by the First
Supplemental Indenture dated June 6, 2002 (the “First Supplemental Indenture” and, together with
the 1999 Indenture, the “PAFC Indenture”), among PAFC, PACC, Sabine, Neches, The Premcor Refining
Group Inc. (“PRG”), HSBC and Deutsche Bank (formerly known as Bankers Trust), pursuant to which
PAFC’s 121/2% Senior Notes due January 15, 2009 (the “2009 Notes”) were issued and guaranteed by
PACC, Sabine, Neches and PRG;

     WHEREAS, the Company and Deutsche Bank have executed an Indenture dated February 11, 2003 (as
supplemented to date and collectively with the PAFC Indenture, the “Indentures”), pursuant to which
the Company’s (i) 91/4% Senior Notes due February 1, 2010; (ii) 63/4% Senior Notes due February 1,
2011; (iii) 73/4% Senior Subordinated Notes due February 1, 2012; (iv) 91/2% Senior Notes due February
1, 2013; and (v) 71/2% Senior Notes due June 15, 2015 (collectively with the 2009 Notes, the “Notes”)
were issued;

     WHEREAS, Valero desires to provide for the unconditional guarantee by Valero of the due and
punctual payment of the principal of, premium (if any) and interest on, and all other amounts due
under, the Notes and the Indentures;

     NOW, THEREFORE, Valero hereby agrees, for the benefit of each of the Trustees and for the
equal and proportionate benefit of all Holders of the Notes, as follows:

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ARTICLE ONE

THE GUARANTEE

Section 1.01 Guarantee.

     Valero hereby unconditionally guarantees to the Holders from time to time of the Notes of each
series (a) the full and prompt payment of the principal of and any premium on any Note of such
series when and as the same shall become due, whether at the stated maturity thereof, by
acceleration, redemption or otherwise, and (b) the full and prompt payment of any interest on and
any additional amounts with respect to any Note of such series when and as the same shall become
due, subject in each case to any applicable grace period or notice requirement or both (the
“Guarantee”). Valero also hereby unconditionally guarantees to each of the Trustees the full and
prompt payment of all amounts due it from the Company under each Indenture. The Guarantee
hereunder constitutes a guarantee of payment and not of collection.

     The obligations of Valero hereunder with respect to a series of Notes shall be absolute and
unconditional and shall remain in full force and effect until the entire principal of, premium (if
any) and interest on and any additional amounts with respect to the Notes of such series shall have
been paid or provided for in accordance with the provisions of such series and of the applicable
Indenture, or amounts due to each of the Trustees under each Indenture shall remain outstanding
until paid irrespective of the validity, regularity or enforceability of any Note of such series or
such Indenture, any change or amendment thereto, the absence of any action to enforce the same, any
waiver or consent by any of the Trustees or the Holder of any Note of such series with respect to
any provision of such Note or such Indenture, the recovery of any judgment against the Company,
PACC, Sabine, Neches or PRG, as applicable, or any action to enforce the same, or any other
circumstances that may otherwise constitute a legal or equitable discharge or defense of a
guarantor. Valero hereby waives presentment or demand of payment or notice to Valero with respect
to such Note and the obligations evidenced thereby or hereby. Valero further waives any right of
set-off or counterclaim it may have against any Holder of a Note arising from any other obligations
any such Holder may have to the Company, PACC, Sabine, Neches, PRG or Valero.

     The obligations of Valero to make any payment hereunder may be satisfied by causing the
Company, PACC, Sabine, Neches or PRG to make such payment.

Section 1.02 Subrogation.

     Valero shall be subrogated to all rights against the Company, PACC, Sabine, Neches or PRG, as
applicable, of any Holder of Notes of a series in respect of any amounts paid by Valero pursuant to
the provisions of the Guarantee; provided, however, that Valero shall be entitled to enforce, or to
receive any payments arising out of or based upon, such right of subrogation only after the
expiration of two years and one day after the principal of, premium (if any) and interest on and
any additional amounts with respect to all Notes of such series have been paid in full.

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Section 1.03 Guarantee for Benefit of Holders.

     The Guarantee is entered into by Valero for the benefit of each of the Trustees and the
Holders from time to time of the Notes. Such provisions shall not be deemed to create any right
in, or to be in whole or in part for the benefit of, any person other than the Trustees, Valero,
the Holders from time to time of the Notes and their permitted successors and assigns.

Section 1.04 No Recourse Against Others.

     A director, officer, employee, stockholder, partner or other owner of Valero, as such, shall
not have any liability for any obligations of Valero under the Guarantee or for any claim based on,
in respect of or by reason of such obligations or their creation.

ARTICLE TWO

MISCELLANEOUS

Section 2.01 SEC Reports; Financial Statements.

     Valero shall file with each of the Trustees, within 15 days after it files the same with the
United States Securities and Exchange Commission (“SEC”), copies of the annual reports and the
information, documents and other reports (or copies of such portions of any of the foregoing as the
SEC may by rules and regulations prescribe) that Valero is required to file with the SEC pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and any successor
statute. Valero shall also comply with the provisions of Section 314(a) of the Trust Indenture Act
of 1939 (the “Trust Indenture Act”). Delivery of such reports, information and documents to the
Trustees is for informational purposes only and the Trustees’ receipt thereof shall not constitute
constructive notice of any information contained therein or determinable from information contained
therein, including the Company’s compliance with any of its covenants under each Indenture.

Section 2.02 Trust Indenture Act Controls.

     If any provision of this Guarantee limits, qualifies or conflicts with any provision of the
Trust Indenture Act that is required under such Act to be part of and govern this Guarantee, the
latter provision shall control. If any provision hereof modifies or excludes any provision of the
Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to
apply to this Guarantee, as so modified or excluded, as the case may be.

Section 2.03 Notices.

     Any notice or communication provided for herein shall be duly given if in writing and
delivered in person or mailed by mail (registered, return receipt requested, first-class postage
prepaid), facsimile or overnight air courier guaranteeing next day delivery, as follows:

	 	(a)	 	If to the Trustees, to the address set forth in the applicable Indenture;

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	 	(b)	 	If to Valero:

Valero Energy Corporation

One Valero Way

San Antonio, Texas 78249

Attn: Chief Financial Officer

Telephone: (210) 345-2000

Facsimile: (210) 345-2646

     Valero or any of the Trustees by notice to the other may designate additional or different
addresses for subsequent notices or communications.

     All such notices and communications shall be in writing and shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; 10 business days after being
deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if by facsimile; and
the next business day after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery. If, by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to give such notice or communication by mail,
then such notice or communication as shall be made with the approval of the Trustees shall
constitute a sufficient notification or communication for every purpose hereunder.

Section 2.04 Date and Time of Effectiveness.

     This Guarantee shall become a legally effective and binding instrument at and as of the date
hereof.

Section 2.05 Notes Deemed Conformed.

     As of the date hereof, the provisions of the Notes shall be deemed to be conformed, without
the necessity for any reissuance or exchange of such Note or any other action on the part of the
Holders of Notes, the Company, PACC, Sabine, Neches, PRG or any of the Trustees, so as to reflect
this Guarantee.

Section 2.06 Successors.

     All agreements of Valero in this Guarantee shall bind its successors and assigns, whether or
not so expressed.

Section 2.07 Benefits of Guarantee.

     Nothing in this Guarantee, express or implied, shall give to any person, other than the
parties hereto and their successors hereunder and the Holders of Notes, any benefit or any legal or
equitable right, remedy or claim under this Guarantee.

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Section 2.08 Separability.

     In case any provision in this Guarantee shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to
the full extent permitted by law.

Section 2.09 Headings.

     The section headings of this Guarantee have been inserted for convenience of reference only,
are not to be considered a part of this Guarantee and shall in no way modify or restrict any of the
terms or provisions hereof.

Section 2.10 GOVERNING LAW.

     THIS GUARANTEE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK.

Section 2.11 Amendments.

     This Guarantee may be amended by the parties hereto by an instrument in writing signed on
behalf of each of the parties. Upon the execution of any such amendment, this Guarantee shall be
modified in accordance therewith, and such amendment shall form a part of this Guarantee for all
purposes; and every Holder of Notes shall be bound thereby.

Section 2.12 Counterparts.

     This Guarantee may be executed in two or more counterparts, each of which shall constitute an
original, but all of which when taken together shall constitute the same instrument.

Section 2.13 Trustees Not Responsible for Recitals.

     The recitals herein contained are made by Valero, and not by the Trustees, and the Trustees
assume no responsibility for the correctness thereof. The Trustees make no representations as to
the validity or sufficiency of this Guarantee.

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     IN WITNESS WHEREOF, Valero has caused this Guarantee to be duly executed as of the day and
year first above written.

	 	 	 	 	 
	 	VALERO ENERGY CORPORATION

 	 
	 	By:  	/s/ Michael S. Ciskowski
 	 
	 	 	Name:  	Michael S. Ciskowski 	 
	 	 	Title:  	Executive Vice President and
Chief Financial Officer 	 
	 

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ACCEPTED this 2nd day of

September, 2005.

DEUTSCHE BANK TRUST COMPANY AMERICAS,

as Trustee
 

By:
/s/ Susan Johnson

 

       Name: Susan Johnson

       Title: Vice President

HSBC BANK USA, NATIONAL ASSOCIATION,

as Capital Markets Trustee
 

By:
/s/ Herawattee Alli

 

       Name: Herawattee Alli

       Title: Assistant Vice President

7exv10w04

 

Exhibit 10.04

VALERO ENERGY CORPORATION

2001 EXECUTIVE STOCK INCENTIVE PLAN

Amended and Restated as of

October 1, 2005

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	SECTION 1. Purpose.
	 	 	1	 
	SECTION 2. Definitions.
	 	 	1	 
	SECTION 3. Administration.
	 	 	3	 
	SECTION 4. Shares and Other Property Available For Awards.
	 	 	4	 
	Shares Available
	 	 	4	 
	Sources of Shares Deliverable Under Awards
	 	 	4	 
	Adjustments
	 	 	5	 
	SECTION 5. Eligibility.
	 	 	6	 
	SECTION 6. Awards.
	 	 	7	 
	Options
	 	 	7	 
	Exercise Price

	 	 	7	 
	Incentive Stock Options
	 	 	7	 
	Stock Appreciation Rights
	 	 	7	 
	Grant Price
	 	 	7	 
	Other Terms and Conditions
	 	 	7	 
	Restricted Stock
	 	 	7	 
	Dividends
	 	 	7	 
	Registration
	 	 	8	 
	Forfeiture
	 	 	8	 
	Performance Awards
	 	 	8	 
	Payment of Performance Awards
	 	 	9	 
	Stock Compensation
	 	 	9	 
	Other Stock-Based Awards
	 	 	9	 
	Exercise of Option or SAR Awards
	 	 	9	 
	Notice
	 	 	9	 
	Payment
	 	 	10	 
	Tax Payment Election
	 	 	10	 
	Payment with Stock
	 	 	10	 
	Valuation
	 	 	10	 
	Rights as Stockholder
	 	 	11	 
	General
	 	 	11	 
	Grants
	 	 	11	 
	Forms of Payment by Company
	 	 	11	 
	Limits on Transfer
	 	 	11	 
	Term of Awards
	 	 	12	 
	Share Certificates
	 	 	12	 
	Delivery of Shares or Other Securities and Payment of Consideration
	 	 	12	 
	Termination of Employment
	 	 	12	 
	Award Agreements
	 	 	13	 
	Deferral of Receipt
	 	 	13	 

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	SECTION 7. Amendment and Termination.
	 	 	14	 
	Amendments to the Plan
	 	 	14	 
	Amendments to Awards
	 	 	14	 
	Unusual or Nonrecurring Events
	 	 	14	 
	SECTION 8. Change Of Control.
	 	 	15	 
	Effect
	 	 	15	 
	Defined
	 	 	15	 
	Actions of Committee
	 	 	16	 
	SECTION 9. General Provisions.
	 	 	16	 
	No Rights to Awards
	 	 	16	 
	Delegation
	 	 	16	 
	Withholding
	 	 	17	 
	No Limit on Other Compensation Arrangements
	 	 	17	 
	Governing Law
	 	 	17	 
	Severability
	 	 	17	 
	NYSE Listing and Other Laws and Regulations
	 	 	17	 
	No Trust or Fund Created
	 	 	18	 
	No Fractional Shares
	 	 	18	 
	Headings
	 	 	18	 
	Construction
	 	 	18	 
	SECTION 10. Effective Date of the Plan.
	 	 	18	 
	SECTION 11. Term of the Plan.
	 	 	18	 

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2001 EXECUTIVE STOCK INCENTIVE PLAN

SECTION 1. Purpose.

The purposes of this 2001 Executive Stock Incentive Plan (the “Plan”) are to promote the interests
of the Company and its stockholders by (i) attracting and retaining executive personnel and other
key employees of the Company and its affiliates; (ii) motivating these employees by using
performance-related incentives to achieve longer range performance goals; and (iii) enabling these
employees to participate in the long-term growth and financial success of the Company.

SECTION 2. Definitions.

As used in the Plan, the following terms shall have the meanings set forth below:

	(a)	 	“Affiliate” shall mean (i) any entity that, directly or through one or more
intermediaries, is controlled by the Company and (ii) any entity in which the Company has a
significant equity interest, as determined by the Committee.
	 
	(b)	 	“Award” shall mean any Option, Stock Appreciation Right, Restricted Stock,
Performance Award, Stock Compensation Award or Other Stock-Based Award.
	 
	(c)	 	“Award Agreement” shall mean any written agreement, contract, or other instrument or
document evidencing any Award, which may, but need not, be executed or acknowledged by a
Participant.
	 
	(d)	 	“Board” shall mean the Board of Directors of the Company.
	 
	(e)	 	“Cause” shall mean the (i) conviction of the Participant by a state or federal court
of a felony involving moral turpitude, (ii) conviction of the Participant by a state or
federal court of embezzlement or misappropriation of funds of the Company, (iii) the Company’s
(or applicable Affiliate’s) reasonable determination that the Participant has committed an act
of fraud, embezzlement, theft, or misappropriation of funds in connection with such
Participant’s duties in the course of his or her employment with the Company (or applicable
Affiliate), (iv) the Company’s (or its applicable Affiliate’s) reasonable determination that
the Participant has engaged in gross mismanagement, negligence or misconduct which causes or
could potentially cause material loss, damage or injury to the Company, any of its Affiliates
or their respective employees, or (v) the Company’s (or applicable Affiliate’s) reasonable
determination that (a) the Participant has violated any policy of the Company (or applicable
Affiliate), including but not limited to, policies regarding sexual harassment, insider
trading, confidentiality, substance abuse and/or conflicts of interest, which violation could
result in the termination of the Participant’s employment, or (b) the Participant has failed
to satisfactorily perform the material duties of Participant’s position with the Company or
any of its Affiliates.
	 
	(f)	 	“Change of Control” is defined in Section 8(b) of the Plan.

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	(g)	 	“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
	 
	(h)	 	“Committee” or “Compensation Committee” shall mean the Compensation Committee
of the Board as further described in Section 3 of the Plan.
	 
	(i)	 	“Company” shall mean Valero Energy Corporation, a Delaware corporation, formerly
known as “Valero Refining and Marketing Company.”
	 
	(j)	 	“Employee” shall mean any employee of the Company or of any Affiliate.
	 
	(k)	 	“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
	 
	(l)	 	“Exercisable Award” is defined in Section 6(h)(vii)(A).
	 
	(m)	 	“Exercise Notice” is defined in Section 6(g)(i) of the Plan.
	 
	(n)	 	“Fair Market Value” shall mean the average of the “high” and “low” reported sales
price per Share (as reported in the NYSE — Composite Transactions listing) as of the relevant
measuring date, or if there are no sales on the NYSE on that measuring date, then as of the
next following day on which there were sales.
	 
	(o)	 	“Incentive Stock Option” shall mean an option granted under Section 6(a) of the Plan
that is intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.
	 
	(p)	 	“Non-Qualified Stock Option” shall mean an option granted under Section 6(a) of the
Plan that is not intended to be an Incentive Stock Option.
	 
	(q)	 	“Notice Date” is defined in Section 6(g)(i) of the Plan.
	 
	(r)	 	“Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.
	 
	(s)	 	“Other Stock-Based Award” shall mean any right granted under Section 6(f) of the
Plan.
	 
	(t)	 	“Participant” shall mean any Employee granted an Award under the Plan.
	 
	(u)	 	“Performance Award” shall mean any right granted under Section 6(d) of the Plan.
	 
	(v)	 	“Person” shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political subdivision
thereof or other entity.

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	(w)	 	“Restricted Stock” shall mean any Share, prior to the lapse of restrictions thereon,
granted under Section 6(c) of the Plan.
	 
	(x)	 	“Rights Agreement” shall mean the Rights Agreement, dated as of June 18, 1997,
between the Company and Computershare Investor Services, L.L.C., as Rights Agent (successor
Rights Agent to Harris Trust and Savings Bank), as amended.
	 
	(y)	 	“Rule 16b-3” shall mean Rule 16b-3 promulgated by the SEC under the Exchange Act, or
any successor rule or regulation thereto as in effect from time to time.
	 
	(z)	 	“SAR” or “stock appreciation right”is further described in Section 6(b) of
the Plan and shall mean the right, subject to the provisions of this Plan, to receive a
payment in cash equal to the difference between the specified exercise price of the SAR and
the Fair Market Value of one Share.
	 
	(aa)	 	“SEC” shall mean the Securities and Exchange Commission.
	 
	(bb)	 	“Settlement Date” is defined in Section 6(g)(i) of the Plan.
	 
	(cc)	 	“Share” or “Shares” shall mean the common stock of the Company, $0.01 par
value, and other securities or property that may become the subject of Awards or become
subject to Awards pursuant to an adjustment made under Section 4(c) of the Plan.
	 
	(dd)	 	“Stock Compensation” shall mean any right granted under Section 6(e) of the Plan.
	 
	(ee)	 	“Tax Payment” is defined in Section 6(g)(ii) of the Plan.

SECTION 3. Administration.

The Plan shall be administered by a committee composed solely of two or more “Non-Employee
Directors” (as defined in Rule 16b-3) of the Company who are also “Outside Directors” (as defined
in Section 162(m) of the Code) of the Company, which Committee shall be, except as hereinafter set
forth, the Compensation Committee. In the event that the membership of the Compensation Committee
shall fail to meet the foregoing criteria, then additional or different members of the Board of
Directors shall be appointed by the Board to act for purposes of administering this Plan so that
the committee administering this Plan shall consist solely of two or more “Non-Employee Directors.”
Subject to the terms of the Plan and applicable law, and in addition to other express powers and
authorizations conferred on the Committee by the Plan, the Committee shall have authority to:

	 	(a)	 	designate Participants;
	 
	 	(b)	 	determine the type or types of Awards to be granted to an eligible Employee;
	 
	 	(c)	 	determine the number of Shares to be covered by, or with respect to which payments,
rights, or other matters are to be calculated in connection with, Awards;

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	 	(d)	 	determine the terms and conditions of any Award and any subsequent amendments
thereto;
	 
	 	(e)	 	determine to what extent and under what circumstances Awards may be settled or
exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited, or suspended, and the method or methods by which Awards may be
settled, exercised, canceled, forfeited, or suspended;
	 
	 	(f)	 	determine to what extent and under what circumstances any amount payable (in
whatever form) with respect to an Award may be deferred either automatically or at the
election of the holder thereof or the Committee;
	 
	 	(g)	 	provide for the acceleration of any time period relating to the vesting, exercise
or realization of any Award so that the Award may be exercised or realized in full on or
before a date fixed by the Committee; the Committee may, in its discretion, include other
provisions and limitations in any Award Agreement as the Committee may deem equitable and
in the best interests of the Company;
	 
	 	(h)	 	interpret and administer the Plan and any instrument or agreement relating to the
Plan, including Award Agreements.
	 
	 	(i)	 	establish, amend, suspend, or waive any rules or regulations regarding the Plan,
and appoint any agent the Committee shall deem appropriate for the proper administration
of the Plan; and
	 
	 	(j)	 	make any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations, and other
decisions with respect to the Plan or any Award shall be within the sole discretion of
the Committee, may be made at any time, and shall be final, conclusive, and binding upon
all Persons, including the Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, any stockholder of the Company and any Employee.

SECTION 4. Shares and Other Property Available For Awards.

     (a) Shares Available. Subject to adjustment as provided in Section 4(c), the number
of Shares with respect to which Awards may be granted under the Plan shall be 3,000,000. The
maximum aggregate number of Shares that may be awarded to any one Participant during any calendar
year shall not exceed 1,000,000 such Shares.

     (b) Sources of Shares Deliverable Under Awards. Any Shares delivered pursuant to an
Award may consist, in whole or in part, of authorized and unissued Shares or treasury Shares.

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     (c) Adjustments. (i) If all or any portion of an Award vests or is exercised
subsequent to any stock dividend, rights distribution, split-up, recapitalization, combination or
exchange of shares, merger, consolidation, acquisition of property or stock, spin-off or
separation, reorganization, liquidation or other similar event (any one of which being hereafter
referred to as a “Reorganization Event”), as a result of which shares or other securities of any
class or rights shall be issued in respect of outstanding Shares, or Shares shall be changed into
the same or a different number of shares of the same or another class or classes or other
securities, the person exercising or otherwise entitled to such Award shall receive, except as may
be otherwise determined by the Committee:

	 	(A)	 	for the aggregate price payable upon such exercise of an Option, or upon vesting of
an Award (other than an Option) denominated in Shares (1) the aggregate number and class
of shares, rights or other securities for which a recognized market exists, and (2) a
cash amount equal to the fair market value (as reasonably determined by the Committee) on
such exercise or vesting date 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 (as authorized at the date of the granting of such Award) had
been acquired at the date of granting of the Award for the same aggregate price (on the
basis of the price per share, if any, provided in the Award) and had not been disposed
of, such person or persons would be holding at the time of such exercise or vesting as a
result of such acquisition and any such Reorganization Event, and
	 
	 	(B)	 	a cash amount upon the exercise of any SARs equal to the difference between the
aggregate grant price of such SARs and the aggregate of (1) the fair market value, on the
exercise date of any whole shares, rights or other securities for which a recognized
market exists, and (2) the fair market value (as reasonably determined by the Committee)
on such date of any other property (other than regular cash dividend payments) which the
holder of a number of Shares equal to the number of such SARs, if such Shares had been
purchased at the date of granting of such SARs and not otherwise disposed of, would be
holding at the time of exercise of such SARs as a result of such purchase and any such
Reorganization Event;

provided, however, that no fractional Share, fractional right or other fractional security
shall be issued upon any such exercise or vesting, and the aggregate price paid shall be
appropriately reduced to reflect any fractional Share, fractional right or other fractional
security not issued; and provided further, however, that if the exercise or vesting of any
Award subsequent to any Reorganization Event would, pursuant to clause (A) of this Section
4(c)(i), 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 or vesting in such Award shall receive,
in lieu of such shares, rights or other securities, a cash payment equal to the Fair Market
Value on the exercise or vesting date, as the case may be, as reasonably determined by the
Committee, of such shares, rights or other securities. For purposes of applying the
provisions of this Plan, the Preference

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Share Purchase Rights distributed to stockholders of
the Company pursuant to the Rights Agreement shall be deemed not to have been distributed
until the Distribution Date (as defined in the Rights Agreement).

          (ii) In the event of any change in the number of Shares outstanding resulting from a
Reorganization Event, the aggregate number and class of Shares remaining available to be awarded
under this Plan shall be that number and class which a person, to whom an Award had been granted
for all of the available Shares under this Plan on the date preceding such change, would be
entitled to receive as provided in Section 4(c)(i).

          (iii) Upon the occurrence of any Reorganization Event, the Committee shall be entitled (but
shall not be required) to determine that new Award Agreements shall be entered into with
Participants reflecting such event.

     (d) Share Counting. For purposes of determining at any time the number of Shares that
remain available for grant under this Plan, the number of Shares then authorized pursuant to
Section 4 of the Plan shall be (i) decreased by the “gross” number of Shares issued pursuant to
exercised Awards, (ii) decreased by the “gross” number of Shares issuable pursuant to outstanding
unexercised Awards, and (iii) increased by the number of Shares to which a Participant shall have
forfeited, voluntarily surrendered or otherwise permanently lost his or her right to exercise or
vest in an Award under any provision of this Plan or otherwise. As used herein, the “gross” number
of Shares refers to the maximum number of Shares that may be issued upon the exercise of an Award.
Should the exercise price of an Award under the Plan be paid with shares of Common Stock or should
shares of Common Stock otherwise issuable under the Plan be withheld by the Company in satisfaction
of the withholding taxes incurred in connection with the exercise or vesting of an Award, then the
number of Shares available for issuance under the Plan shall be reduced by the gross number of
Shares for which the Award is exercised or which vest under the stock issuance, and not by the net
number of Shares of Common Stock issued to the holder of such option. The provisions above shall
be applied in a manner which will permit compensation generated under the Plan which is intended to
constitute “performance-based” compensation for purposes of Section 162(m) of the Code to be
treated as such “performance-based” compensation.

SECTION 5. Eligibility.

Any Employee who is (a) not a member of the Committee, and either (b) an executive officer of the
Company or an executive officer of a subsidiary of the Company, or (c) a key employee of the
Company or of a subsidiary of the Company designated as such by the Committee, shall be eligible to
be designated a Participant by the Committee.

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SECTION 6. Awards.

     (a) Options. In determining that an eligible Employee shall be granted an Option, the
Committee shall determine, subject to the provisions of the Plan, the number of Shares to be
covered by each Option, the purchase price therefor and the conditions and limitations applicable
to the exercise of the Option, including the following terms and conditions and any additional
terms and conditions not inconsistent with the provisions of the Plan as the Committee shall
determine.

          (i) Exercise Price. The purchase price per Share purchasable under an Option shall be
determined by the Committee at the time each Option is granted; provided, that the purchase price
per Share shall not be less than 100% of Fair Market Value on the date of such grant.

          (ii) Incentive Stock Options. The terms of any Incentive Stock Option granted under
the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any
successor provision, and any regulations promulgated thereunder.

     (b) Stock Appreciation Rights. Subject to the provisions of the Plan, in determining
that an eligible Employee shall be awarded SARs, the Committee shall determine the number of
Shares to be covered by each SAR Award, the grant price thereof and the conditions and limitations
applicable to the exercise thereof. SAR Awards shall be payable in cash or in stock, as determined
by the Committee, and may be granted in tandem with another Award, in addition to another Award, or
freestanding and unrelated to another Award. SARs granted in tandem with or in addition to another
Award may be granted either at the same time as the other Award or at a later time.

          (i) Grant Price. The grant price (strike price) of an SAR shall be determined by the
Committee, provided, that the grant price shall not be less than 100% of Fair Market Value on the
date of such grant.

          (ii) Other Terms and Conditions. Subject to the terms of the Plan and any applicable
Award Agreement, the Committee shall determine, at or after the grant of an SAR, the term, methods
of exercise, and any other terms and conditions of any SAR.

     (c) Restricted Stock. Subject to the provisions of the Plan, in determining that an
eligible Employee shall be awarded Restricted Stock, the Committee shall determine the number of
Shares of Restricted Stock to be granted to each Participant, the duration of the restriction
period during which, and the conditions under which, the Restricted Stock may be forfeited to the
Company, and the other terms and conditions of the Awards.

          (i) Dividends. Unless otherwise determined by the Committee, a Restricted Stock Award
shall provide for the payment of dividends during its restriction period. Dividends paid on
Restricted Stock may be paid directly to the Participant, may be subject to risk of forfeiture, or
may be subject to transfer restrictions during any period established by the Committee, all as
determined by the Committee in its discretion.

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          (ii) Registration. Any Restricted Stock may be evidenced in any manner deemed
appropriate by the Committee, including book-entry registration or the issuance of stock
certificates. If any stock certificate is issued with respect to Restricted Stock, the certificate
shall be registered in the name of the Participant and may bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to the Restricted Stock. The Participant shall
be entitled to exercise all voting rights with respect to the Restricted Stock during the
restriction period.

          (iii) Forfeiture. Except as otherwise determined by the Committee or the Chief
Executive Officer, subject to Section 6(h)(vii)(D), upon termination of a Participant’s employment
with the Company for any reason, the provisions of Section 6(h)(vii)(B) and (C) shall apply with
respect to Restricted Stock granted hereunder.

          (iv) Issuance of Shares. Unrestricted Shares, evidenced in any manner as the
Committee shall deem appropriate, shall be nonforfeitable and shall be issued to the Participant
promptly after the applicable restrictions have lapsed or otherwise terminated or been satisfied.

     (d) Performance Awards. The Committee shall have authority to determine the Employees
who may receive a Performance Award, which shall consist of a right, denominated or payable in
cash, Shares, other securities or other property (including Restricted Stock), and that shall
confer on the holder thereof, rights valued at an amount determined by the Committee and payable to
or exercisable by the holder thereof, in whole or in part, upon the achievement of prescribed
performance goals during prescribed performance periods as the Committee shall establish.

          (i) Terms and Conditions. Performance Awards shall be based upon (A) achievement of a
specified performance goal or goals established by the Committee, and (B) certification by the
Committee prior to payment that the previously established performance goal(s) has been met.
Performance goals under the Plan shall be based upon any one or a combination of (1) the total
stockholder return (“TSR”) of the Company during a specified performance period, either
individually or in comparison with the TSR achieved by a specified group of other companies (a
“Target Group”) approved by the Committee, (2) the Company’s return on equity (“ROE”) during a
specified period, either individually or in comparison with the ROE achieved by a Target Group, (3)
the Company’s return on investment (“ROI”) during a specified period, either individually or in
comparison with the ROI achieved by a Target Group, (4) the Company’s earnings per Share during a
specified period, or (5) the Company’s final or average stock price compared with the stock price
for an earlier specified date or period. For a given performance period, “TSR” means the (x) the
final stock price at the end of the performance period, plus (y) the dividends paid during the
performance period, divided by (z) the stock price at the beginning of the performance period. In
addition to specifying the performance goal(s) to be achieved during any performance period, the
Committee shall also specify the length of the performance period(s), the number of Shares subject
to any Performance Award and the amount of any payment or transfer to be made pursuant to any
Performance Award. For any Award that is intended to comply with Section 162(m) of the Code,
specification of the performance goal(s) shall

8

 

be made either (aa) prior to the beginning of the
performance period, or (bb) not later than 90 days after the commencement of the performance
period, provided that the outcome as to the attainment or non-attainment of the performance goal(s)
is substantially uncertain when the specification is made and that no more than 25% of the
performance period has elapsed. The Committee, in its sole discretion, may provide for a reduction
in the value of a Performance Award during the performance period and prior to certification that
the established performance goal(s) has been met.

          (ii) Payment of Performance Awards. When earned, Performance Awards may be paid in a
lump sum or in installments following the close of the performance period or, in accordance with procedures established by the
Committee, on a deferred basis.

     (e) Stock Compensation. The Committee shall have authority to pay in Shares all or
any portion of the amounts payable under any compensation program of the Company. The number and
type of Shares to be distributed in lieu of the cash compensation applicable to any Award, as well
as the terms and conditions of any bonus awards, shall be determined by the Committee.

     (f) Other Stock-Based Awards. The Committee is hereby authorized to grant to eligible
Employees an “Other Stock-Based Award,” which shall consist of a right

          (i) that is not an Award or right described in Section 6(a), (b), (c), (d), or (e) above, and

          (ii) that is denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Shares (including securities convertible into Shares), as are
deemed by the Committee to be consistent with the purposes of the Plan; provided, that any such
rights must comply, to the extent deemed desirable by the Committee, with Rule 16b-3 and applicable
law. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall
determine the terms and conditions of any Other Stock-Based Award.

     (g) Exercise of Option or SAR Awards.

          (i) Notice. Unless otherwise prescribed by the Committee, Awards 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 Financial Benefit Plan Administration Manager or other
Company official administering the Plan, and signed by the Participant or the representative or
transferee thereof. 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 Award) and the Award’s exercise price shall be paid to the Company.

9

 

          (ii) Payment. Unless otherwise prescribed by the Committee, on the Settlement Date,
the person exercising an Award 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 equal to
the amount of any taxes required to be collected or withheld by the Company in connection with the
exercise of the Award (the “Tax Payment”).

          (iii) Tax Payment Election. Subject to the approval of the Committee, and to any
rules and limitations as the Committee may adopt, a person exercising an Award may make the Tax
Payment in whole or in part by electing, at or before the time of exercise of the Award, either (A) to have the Company withhold from the number of Shares
otherwise deliverable a number of Shares whose value equals the Tax Payment, or (B) to deliver
certificates for other Shares owned by the person exercising the Award, endorsed in blank with
appropriate signature guarantee, having a value equal to the amount otherwise to be collected or
withheld. Following any election to withhold Shares or deliver other Shares to make a Tax Payment,
the Committee shall have sole discretion to approve or disapprove the election at any time prior to
the Settlement Date. If the election is disapproved, the Tax Payment shall be made in cash, or in
any combination of cash and Shares as the Committee may direct. If the Committee shall fail to
disapprove the election prior to the Settlement Date, the election will be deemed approved.

          (iv) Payment with Stock. Subject to approval by the Committee, a person exercising an
Award for the receipt of Shares may pay for the Shares by tendering to the Company other Shares
legally and beneficially owned by that person at the time of the exercise of the Award. If approved
by the Committee, this method of exercise may include use of a procedure whereby a person
exercising an Award may request that Shares received upon exercise of a portion of an Award be
automatically applied to satisfy the exercise price for additional and increasingly larger portions
of the Award. The certificate(s) representing any Shares tendered in payment of an Award’s
exercise price must be accompanied by a stock power duly executed with appropriate signature
guarantees. The Committee may, in its sole discretion, refuse any tender of Shares in which case
the Company shall promptly redeliver the Shares to the person exercising the Award and notify the
person of the refusal as soon as practicable. In this event, the person may either (A) tender to
the Company on the Settlement Date the cash amount required to pay for the Award’s Shares, or (B)
rescind the Exercise Notice. If the person elects to rescind his or her Exercise Notice, the
person may again (subject to the other terms of this Plan) deliver an Exercise Notice with respect
to the Award at any time prior to its expiration date.

          (v) Valuation. 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 Award shall
be made using the Fair Market Value of the Shares 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.

10

 

          (vi) Rights as Stockholder. Except as provided in Section 6(c) of this Plan, until the
issuance of the stock certificate(s) for Shares purchased hereunder (as evidenced by the
appropriate entry on the books of the Company or any authorized transfer agent of the Company), no
right to vote or receive dividends or any other rights as a stockholder of the Company shall exist
with respect to such Shares, notwithstanding the exercise of any Award. No adjustment will be made
for a dividend or other rights for which the record date is prior to the date the stock
certificates evidencing such Shares are issued, except as otherwise provided in this Plan.

     (h) General.

          (i) Grants. Awards may be granted, in the discretion of the Committee, either alone
or in addition to, in tandem with, or in substitution for any other Award granted under the Plan or
any award granted under any other plan of the Company or any Affiliate. Awards granted in addition
to or in tandem with other Awards or awards granted under any other plan of the Company or any
Affiliate may be granted either at the same time as or at a different time from the grant of other
Awards or awards. The Committee may make the grant of any award subject to prior stockholder
approval of the Plan, but any Award so granted by the Committee shall then be contingent upon
stockholder approval of the Plan.

          (ii) Forms of Payment by Company. Subject to the terms of the Plan and of any
applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon
the grant, exercise or payment of an Award may be made in any form as the Committee shall
determine, including cash, Shares, other securities, other Awards or other property, or any
combination thereof, and may be made in a single payment or transfer, in installments, or on a
deferred basis, in each case in accordance with rules and procedures established by the Committee.
These rules and procedures may include, without limitation, provisions for the payment or crediting
of reasonable interest on installment or deferred payments.

          (iii) Limits on Transfer. Each Award, and each right under any Award, shall be
exercisable only by the Participant during the Participant’s lifetime, or if permissible under
applicable law, (A) upon Participant’s death, by the Participant’s beneficiary, (B) for Option
Awards other than an Incentive Stock Option Award, by an immediate family member as a transferee
receiving the Award pursuant to a gift, or (C) by any transferee authorized by the Committee. Upon
the Participant’s death, each Award, and each right under any Award, shall be exercisable by the
Participant’s beneficiary designated under the Valero Energy Corporation Beneficiary Designation
Form, or if there is no such designation, by the beneficiary designated in the Participant’s will,
or if there is no will, by the laws of descent and distribution. Without prior written approval
from the Committee, no Award, and no right under any Award, may be assigned, pledged, sold or
otherwise transferred or encumbered by a Participant otherwise than as provided in this Section and
any purported assignment, pledge, sale, transfer or encumbrance shall be void and unenforceable
against the Company or any Affiliate.

11

 

          (iv) Term of Awards. The term of each Award shall be for the period determined by the
Committee; provided, that in no event shall the term of any Incentive Stock Option exceed a period
of 10 years from the date of its grant.

          (v) Share Certificates. All certificates for Shares or other securities of the
Company or any Affiliate delivered under the Plan pursuant to any Award or the exercise thereof
shall be subject to (A) all stop transfer orders and other restrictions as the Committee may deem
advisable under the Plan, (B) the rules, regulations, and other requirements of the SEC and any
stock exchange upon which the Shares or other securities are then listed, (C) and any applicable
federal or state laws. The Committee may cause a legend or legends to be put on any stock
certificates to make appropriate reference to applicable restrictions.

          (vi) Delivery of Shares or Other Securities and Payment of Consideration. No Shares
or other securities shall be delivered pursuant to any Award until payment in full of any amount
required to be paid pursuant to the Plan or the applicable Award Agreement is received by the
Company. Payment may be made in any form or method prescribed by the Committee, including cash,
Shares, other securities, other Awards or other property, or any combination thereof, provided that
the combined value, as determined by the Committee, of all cash and cash equivalents and the Fair
Market Value of any Shares or other property tendered to the Company as of the date of such tender,
is at least equal to the full amount required to be paid.

          (vii) Termination of Employment.

               (A) Except as otherwise provided in the Plan, or otherwise determined by the Committee and
included in the applicable Award Agreement, an Option, SAR or Other Stock Based Award having an
exercise provision (each an “Exercisable Award”) vests to and/or may be exercised by a Participant
only while the Participant is and has continually been since the date of the grant of the
Exercisable Award an Employee. If a Participant’s employment with the Company is voluntarily
terminated by the Participant (other than through retirement, death or disability; see subsection
(C) below), then: (i) that portion of any Exercisable Award that has not vested on or prior to such
date of termination shall automatically lapse and be forfeited, and (ii) all vested but unexercised
Exercisable Awards previously granted to that Participant under the Plan shall automatically lapse
and be forfeited at the close of business on the 30th day following that date of such Participant’s
termination, unless an Exercisable Award expires earlier according to its original terms. If a
Participant’s employment is involuntarily terminated by the Company for Cause: (i) that portion of
any Exercisable Award that has not vested on or prior to such date of termination shall
automatically lapse and be forfeited, and (ii) all vested but unexercised Exercisable Awards
previously granted to that Participant under the Plan shall automatically lapse and be forfeited at
the close of business on the 30th day following that date of such Participant’s termination, unless
an Exercisable Award expires earlier according to its original terms. If a Participant’s
employment is involuntarily terminated by the Company other than for Cause: (i) that portion of any
Exercisable Award which has not vested on or prior to such date of termination shall automatically
lapse and be forfeited, and (ii) all vested but unexercised Exercisable Awards previously granted
to that Participant under the Plan shall automatically lapse and be forfeited at the close of
business on the

12

 

last business day of the twelfth month following the date of Participant’s
termination (or, in the case of an Incentive Stock Option Award, 12 months after the Participant’s
termination by reason of death or disability, or 3 months after any other termination), unless an
Exercisable Award sooner expires according to its original terms.

               (B) Except as otherwise provided in the Plan, or otherwise determined by the Committee and
included in the applicable Award Agreement, if a Participant’s employment with the Company is
voluntarily terminated by the Participant (other than through retirement, death or disability; see
subsection (C) below), or is terminated by the Company for Cause or without Cause, then any
Restricted Stock or Performance Award previously granted to that Participant under the Plan which remains unvested, shall automatically lapse and be forfeited at the close
of business on the date of the Participant’s termination of employment.

               (C) Except as otherwise provided in the Plan, or otherwise determined by the Committee and
included in the applicable Award Agreement, if a Participant’s employment is terminated because of
retirement, death or disability (with the determination of disability to be made within the sole
discretion of the Committee), any Award held by the Participant shall remain outstanding and vest
or become exercisable according to the Award’s original terms; provided, however, that any
Restricted Stock held by the Participant which remains unvested as of the date of retirement, death
or disability shall immediately vest and become non-forfeitable as of such date.

               (D) The Committee or the Chief Executive Officer may prescribe new or additional terms for the
vesting, exercise or realization of any Award; provided, however, that, in accordance with Article
III. Section 4 of the Company’s Bylaws, any such action with respect to the Chief Executive
Officer or the President must be approved by the Board of Directors and any such action with
respect to a Participant subject to Section 16 of the Exchange Act must be approved by the
Committee.

          (viii) Award Agreements. Awards shall be evidenced by Award Agreements having terms
and conditions, not inconsistent with the Plan, as prescribed by the Committee. Award Agreements
need not be uniform.

          (ix) Deferral of Receipt. By filing a written request with the Committee or the
Company not later than December 31st of any calendar year, a Participant may elect to defer receipt
of all or any portion of any stock to be awarded pursuant to a Restricted Stock award, Performance
Award or Other Stock-Based Award which, absent such election, the Participant would be entitled to
receive during the calendar year following the Participant’s request (hereafter referred to as the
“Deferred Award”). The Deferred Award will be delivered to the Participant on January 2nd of the
second calendar year following the calendar year in which the deferral election is made.
Successive elections may be made with respect to the same Deferred Award to defer from year to year
the receipt of such Deferred Award. Each Participant shall be solely responsible for determining
the personal income tax effect of making any deferral election; the Company makes no representation
that such election shall have the effect of deferring receipt of any income attributable to the
Deferred Award for federal income tax purposes.

13

 

SECTION 7. Amendment and Termination.

Except to the extent prohibited by applicable law and unless otherwise expressly provided in an
Award Agreement or in the Plan:

     (a) Amendments to the Plan. The Committee or the Board may amend, suspend or
terminate the Plan without the consent of any stockholder, Participant, other holder or beneficiary
of an Award, or other Person; provided that notwithstanding any other provision of the Plan or any
Award Agreement, without the approval of the stockholders of the Company no amendment, suspension,
or termination may be made that would:

          (i) materially increase the total number of Shares available for Awards under the Plan (except
as provided in Section 4);

          (ii) change the class of employees eligible to receive Awards under the Plan; or

          (iii) permit Awards encompassing rights to purchase Shares to be granted with a per Share
grant, exercise or purchase price of less than the Fair Market Value of a Share on the date of
grant thereof.

     (b) Amendments to Awards. The Committee may waive any conditions or rights under,
amend any terms of, or alter any Award theretofore granted; provided that, no change in any Award
shall reduce the benefit accruing to any Participant without the consent of the Participant; and
provided further that, no amendment, without the approval of the stockholders, may be made to any
outstanding Option to lower the purchase price per Share under that Option (or to cancel and
replace any outstanding Option with a new Option having a lower purchase price per Share).

     (c) Unusual or Nonrecurring Events. The Committee is hereby authorized to make
adjustments in the terms, conditions, and criteria of Awards in recognition of unusual or
nonrecurring events (including the events described in Section 4(c) of the Plan) affecting the
Company, any Affiliate, or the financial statements of the Company or any Affiliate, or in
recognition of changes in applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available under the Plan.
Notwithstanding the foregoing, with respect to any Award intended to qualify as performance-based
compensation under Section 162(m) of the Code, no adjustment shall be authorized to the extent the
adjustment would cause the Award to fail to qualify unless otherwise determined in the sole
discretion of the Committee.

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SECTION 8. Change Of Control.

     (a) Effect. If a Change of Control shall occur, each Award held by a Participant
pursuant to the Plan shall remain in full force and effect until the earlier of (i) the expiration
date of the Award, or (ii) 90 days following the Participant’s date of termination of employment
with the Company.

     (b) Defined. 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 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 Shares for or pursuant to the terms of such
employee benefit plans, is or becomes an “Acquiring Person” as defined in the Rights Agreement (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 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 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

15

 

          (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.

     (c) Actions of Committee. In addition to the Committee’s authority set forth in
Section 7(c) of the Plan, in order to maintain the Participants’ rights in the event of any Change
of Control, the Committee, as constituted before the Change of Control, is hereby authorized, and
has sole discretion, as to any Award, either at the time the Award is made hereunder or any time
thereafter, to take any one or more of the following actions:

          (i) provide for the acceleration of any time periods relating to the vesting, exercise or
realization of the Award so that the Award may be exercised or realized in full on or before a date
fixed by the Committee;

          (ii) provide for the purchase of any Award, upon the Participant’s request, for an amount of
cash equal to the amount that could have been attained upon the exercise of the Award or realization of the Participant’s rights in the Award had the Award been currently exercisable
or payable;

          (iii) adjust any outstanding Award as the Committee deems appropriate to reflect the Change of
Control; or

          (iv) cause any outstanding Award to be assumed, or new rights substituted therefor, by the
acquiring or surviving corporation after the Change of Control. The Committee may in its
discretion include other provisions and limitations in any Award Agreement as it may deem equitable
and in the best interests of the Company.

SECTION 9. General Provisions.

     (a) No Rights to Awards. No Employee, Participant or other Person shall have any
claim to be granted any Award. The Committee is not required to treat uniformly the Employees,
Participants, or holders or beneficiaries of Awards when making grants of Awards under the Plan.
The terms and conditions of Awards are not required to be the same with respect to each recipient.

     (b) Delegation. Subject to the terms of the Plan and applicable law, the Committee
may delegate to one or more officers or managers of the Company or any Affiliate, or to a committee
of such officers or managers, the authority, subject to the terms and limitations the Committee
shall determine, to grant Awards to, or to cancel, modify or waive rights with respect to, or to
amend, suspend, or terminate Awards held by, Employees who are not deemed “officers” or “directors”
of the Company for purposes of Section 16 of the Exchange Act, or who are otherwise not subject to
Section 16.

16

 

     (c) Withholding. The Company or any Affiliate is hereby authorized to withhold from
any Award, from any payment due or transfer made under any Award or under the Plan or from any
compensation or other amount owing to a Participant the amount (in cash, Shares, other securities,
other Awards or other property) of any applicable withholding taxes with respect to an Award, its
exercise, the lapse of restrictions thereon, payment or transfer under an Award or under the Plan,
and to take any other action necessary in the opinion of the Company to satisfy all obligations for
the payment of the taxes.

     (d) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall
prevent the Company or any Affiliate from adopting or continuing in effect any other compensation
arrangements.

     (e) No Right to Employment. The grant of an Award shall not be construed as creating
a contract of employment or giving Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a
Participant from employment, free from any liability or any claim under the Plan, unless otherwise
expressly provided in the Plan or in any Award Agreement.

     (f) Governing Law. The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan shall be determined in accordance with the laws of the State
of Texas and applicable federal law.

     (g) Severability. If any provision of the Plan or any Award is or becomes or is
deemed to be invalid, illegal, or unenforceable in any jurisdiction as to any Person or Award, or
would disqualify the Plan or any Award under any law deemed applicable by the Committee, such
provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person
or Award and the remainder of the Plan and any such Award shall remain in full force and effect.

     (h) NYSE Listing and Other Laws and Regulations. Notwithstanding anything to the
contrary contained in this Plan, in any Award, or any Award Agreement or other agreement entered
into under this Plan, the grant or making of any Award shall be conditional and shall be granted or
awarded subject to acceptance of the shares of Common Stock deliverable pursuant to the Award for
listing on the NYSE. The Committee may refuse to issue or transfer any Shares or other
consideration under an Award if, acting in its sole discretion, it determines that the issuance or
transfer of the Shares or other consideration might violate any applicable law or regulation,
violate any regulation for admission or trading on the NYSE, or entitle the Company to recover any
consideration or proceeds under Section 16 of the Exchange Act, and any payment tendered to the
Company by a Participant, other holder or beneficiary in connection with the exercise of such Award
shall be promptly refunded.

17

 

     (i) No Trust or Fund Created. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or any fiduciary relationship between the
Company or any Affiliate and a Participant or any other Person. To the extent that any Person
acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such
right shall be no greater than the right of any unsecured general creditor of the Company or any
Affiliate.

     (j) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant
to the Plan or any Award, and the Committee shall determine whether cash, other securities, or
other property shall be paid or transferred in lieu of any fractional Shares or whether fractional
Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.

     (k) Code Section 162(m). It is intended for the Plan to meet the requirements of
Section 162(m) of the Code so that the Committee may, in its discretion, make Awards of Options,
Stock Appreciation Rights and Performance Awards that constitute “performance-based” compensation
within the meaning of such section. If any provision of the Plan would not otherwise permit the
Plan to meet the requirements of Section 162(m) of the Code, such provision shall be construed or
deemed amended to conform with the requirements of such section; provided that, no such construction or amendment shall have an adverse effect on the economic value of any Award
previously granted hereunder.

     (l) Headings. Headings are given to the Sections and subsections of the Plan solely
as a convenience to facilitate reference. The headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or any provision thereof.

     (m) Construction. Use of the term “including” in this Plan shall be construed to mean
“including but not limited to.”

SECTION 10. Effective Date of the Plan.

The Plan shall be effective May 10, 2001, provided the Plan is approved by the stockholders of the
Company.

SECTION 11. Term of the Plan.

The Plan shall expire on May 10, 2011. However, unless otherwise expressly provided in the Plan or
in an applicable Award Agreement, any Award made prior to, and outstanding on such date, shall
remain valid in accordance with its terms and conditions, and the authority of the Board or the
Committee to amend, suspend, or terminate any such Award or to waive any conditions or rights under
any such Award in accordance with the Plan, shall extend beyond such date.

18

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