EXHIBIT 10.20
PERFORMANCE AWARD AGREEMENT
This Performance Award Agreement (the "Agreement"), dated effective JANUARY 15,
2004, is by and between VALERO ENERGY CORPORATION, a Delaware corporation
("Valero"), and GREGORY C. KING, 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 12,600
Performance Shares pursuant to Section 6(d) of the Plan. The
Performance Shares represent rights to receive shares of Common Stock
of Valero, subject to the terms and conditions of this Agreement and
the Plan.
2. PERFORMANCE PERIOD. Except as provided below with respect to a Change
of Control (as defined in the Plan), the "Performance Period" for any
Performance Shares eligible to vest on any given Normal Vesting Date
(as defined below) shall be the three calendar years ending on the
December 31 immediately preceding the Normal Vesting Date.
3. VESTING AND DELIVERY OF SHARES. The Performance Shares 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 2005, and the second and third increments
vesting on the Committee's Meeting Dates in January 2006 and January
2007, 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. Until shares of Common Stock are actually
issued to Participant (or his or her estate) in settlement of the
Performance Shares, neither Participant nor any person claiming by,
through or under Participant shall have any rights as a stockholder of
Valero (including, without limitation, voting rights or any right to
receive dividends or other distributions) with respect to such shares,
and Participant's status with respect to the issuance of such shares
shall be that of a general creditor of Valero.
4. PERFORMANCE OBJECTIVES.
A. TOTAL SHAREHOLDER RETURN. Total Shareholder Return ("TSR") will be
compiled for a peer group of companies (the "Target Group") for the
Performance Period immediately preceding each Normal Vesting Date.
TSR for each such company is measured by dividing the sum of (i)
the dividends on the common stock of such company during the
Performance Period, assuming dividend reinvestment, and (ii) the
difference between the price of a share of such company's common
stock at the end and at the beginning of the period (appropriately
adjusted for any stock dividend, stock split, spin-off, merger or
other similar corporate events) by (iii) the price of a share of
such company's common stock at the beginning of the period.
B. TARGET GROUP. The applicable Target Group shall be selected by the
Compensation Committee of the Board of Directors of Valero, acting
in its sole discretion, at or near the time of each Normal Vesting
Date. The same Target Group shall be utilized to determine the
number of Performance Shares vesting under all Performance Award
Agreements of Valero having a similar Normal Vesting Date, but the
decision of the Compensation Committee as to the composition of
such Target Group shall be final.
C. PERFORMANCE RANKING. The TSR for the Performance Period for Valero
and each company in the Target Group shall be arranged by rank from
best to worst according to the TSR achieved by 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:
<Table>
<Caption>
Fraction Extra Company(ies)
-------- ------------------
1/4 1st Quartile
1/2 1st Quartile
2nd Quartile
3/4 1st Quartile
2nd Quartile
3rd Quartile
</Table>
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:
<Table>
<Caption>
Percent of vested Performance
Shares to be awarded as
Valero TSR Position Shares of Common Stock
------------------- -----------------------------
4th Quartile 0%
3rd Quartile 50%
2nd Quartile 100%
1st Quartile 150%
</Table>
If Valero's TSR is the highest achieved in the 1st Quartile for the
Performance Period, Participant shall be awarded a number of shares
of Common Stock equal to 200% of the Performance Shares that vested
during the Performance Period.
5. TERMINATION OF EMPLOYMENT. Except for a Change of Control (described
below), if Participant's employment is voluntarily terminated by the
Participant (other than through retirement, death or disability), or is
terminated by Valero for "cause" (as defined pursuant to the Plan),
then (a) those Performance Shares that have not vested or been
forfeited, and for which a Normal Vesting Date occurs on or before the
30th day following the date of such termination, may be awarded as
shares of Common Stock on such Normal Vesting Date in accordance with
Paragraph 4 hereof, and (b) any such Performance Shares for which a
Normal Vesting Date does not occur within such 30-day period,
or that are not otherwise awarded as shares of Common Stock on a Normal
Vesting Date as a result of the application of Paragraph 4, shall
thereupon be forfeited. Except for a Change of Control, if a
Participant's employment is terminated through retirement, death, or
disability, or by Valero other than for cause (as determined pursuant
to the Plan), then (x) those Performance Shares that have not
theretofore vested or been forfeited, and for which a Normal Vesting
Date occurs on or before the 90th day following the date of such
termination, shall be subject to vesting on such Normal Vesting Date in
accordance with Paragraph 4 hereof, and (y) any such Performance Shares
for which such a Normal Vesting Date does not occur within such 90-day
period, or which otherwise do not vest on a Normal Vesting Date as a
result of application of Paragraph 4, shall thereupon be forfeited.
6. CHANGE OF CONTROL. If a Change of Control occurs with respect to
Valero, then each Performance Period with respect to any Performance
Shares that have not vested or been forfeited shall be terminated
effective as of the date of such Change of Control (a "Change of
Control Vesting Date"); the TSR for Valero and for each company in the
Target Group shall be determined for each such shortened Performance
Period and the percentage of Performance Shares to be received by the
Participant for each such Performance Period shall be determined in
accordance with Paragraph 4. For purposes of determining the number of
Performance Shares to be received as of any Change of Control Vesting
Date, the Target Group as most recently determined by the Compensation
Committee prior to the date of the Change of Control shall be used.
7. PLAN INCORPORATED BY REFERENCE. The Plan is incorporated into this
Agreement by this reference and is made a part hereof for all purposes.
Capitalized terms not otherwise defined in this Agreement shall have
the meaning specified in the Plan.
8. LIMITATION OF RIGHTS OF PARTICIPANT. With respect to any Performance
Shares, the Participant shall not have any rights that are not
expressly conferred by the Plan and this Agreement or any other
Performance Award Agreement between Valero and the Participant.
9. NO ASSIGNMENT. This Agreement and the Participant's interest in the
Performance Shares granted by this Agreement are of a personal nature,
and, except as expressly permitted under the Plan, Participant's rights
with respect thereto may not be sold, mortgaged, pledged, assigned,
transferred, conveyed or disposed of in any manner by Participant,
except by an executor or beneficiary pursuant to a will or pursuant to
the laws of descent and distribution. Any such attempted sale,
mortgage, pledge, assignment, transfer, conveyance or disposition shall
be void, and Valero shall not be bound thereby.
10. SUCCESSORS. This Agreement shall be binding upon any successors of
Valero and upon the beneficiaries, legatees, heirs, administrators,
executors, legal representatives, successors and permitted assigns of
Participant.
VALERO ENERGY CORPORATION
By:
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KEITH D. BOOKE, Executive Vice President
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GREGORY C. KING, Participant