EXHIBIT 10.02

EMPLOYEE BENEFITS TRANSITION AGREEMENT

This Employee Benefits Transition Agreement (“Agreement”) is entered into by and
between Valero Energy Corporation (“VEC”), Valero GP Holdings, LLC (“Holdings”)
and Valero GP, LLC (“GP”) to be effective as of July 1, 2006.

WHEREAS, GP is a wholly-owned subsidiary of Holdings and, prior to the
transactions referenced herein, Holdings has been an indirect wholly-owned
subsidiary of VEC; and

WHEREAS, pursuant to a series of public offerings, VEC intends to sell its
ownership interest in Holdings to public unitholders; and

WHEREAS, the first such public offering (“Initial Tranche”) became effective on
July 19, 2006, at which time Holdings and (as a result of Holdings’ ownership,
GP) ceased to be within the controlled group of VEC, as contemplated under
Internal Revenue Code section 414(b); and

WHEREAS, VEC, Holdings and GP have made certain provisions for, and certain
agreements with respect to, the transition of employee benefit plans covering
employees of GP in connection with such transactions;

WHEREAS, VEC, Holdings and GP have agreed that VEC and certain of its wholly
owned subsidiaries (the “VEC Subsidiaries”) will transfer to Holdings related
liabilities and assets, such transfer to relate to whichever entity holds such
liability; and

WHEREAS, VEC, Holdings and GP desire to enter into this Agreement in order to
confirm and memorialize such agreements.

NOW, THEREFORE, the parties hereby agree as follows:

1.                                       DEFINITIONS.  IN ADDITION TO THE TERMS
DEFINED ELSEWHERE IN THIS AGREEMENT, THE FOLLOWING TERMS, WHEN USED HEREIN,
SHALL HAVE THE FOLLOWING MEANINGS:

“COBRA” shall mean the continuation coverage requirements for “group health
plans” under Title X of the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended from time to time, and as codified in section 4980B of the Code
and sections 601 through 608 of ERISA.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to
time.

“DOL” shall mean the Department of Labor.

“Eligible GP Employees” shall mean individuals who, as of July 1, 2006, are
employees of GP, as well as any other individuals who are transferred from VEC
or any of its affiliates to GP on or before the effective date of the Final
Tranche.

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“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.

“Final Tranche” shall mean the effective date of the final sale by VEC of its
equity ownership interest in Holdings, whether by public offering, private
placement or otherwise, at which time it is contemplated that VEC shall cease to
have any equity ownership interest in Holdings.

“GP Plans” shall mean each of the employee benefit plans and programs to be
adopted and maintained by GP as contemplated herein.

“IRS” shall mean the Internal Revenue Service.

“QDRO” shall mean a domestic relations order which qualifies under section
414(p) of the Code and section 206(d) of ERISA.

“QMCSO” shall mean a domestic relations order which qualifies under section
609(a) of ERISA.

“VEC Employees” shall mean all employees of VEC or any of its affiliates other
than Eligible GP Employees.

2.                                       GENERAL SUPPORT AND COOPERATION.  THE
PARTIES AGREE, AS A GENERAL MATTER, THAT THEY SHALL FULLY COOPERATE WITH EACH
OTHER IN ALL REASONABLE RESPECTS IN THE DESIGN, ADOPTION, AMENDMENT,
IMPLEMENTATION, AND ADMINISTRATION OF THE EMPLOYEE BENEFIT PLANS AND PROGRAMS,
AS WELL AS THE OTHER MATTERS, CONTEMPLATED HEREIN.  IN FURTHERANCE BUT NOT IN
LIMITATION OF THIS GENERAL PROVISION, EACH PARTY SHALL PROVIDE THE OTHER PARTY
WITH SUCH RECORDS, DATA AND INFORMATION AS MAY BE REASONABLY NECESSARY IN ORDER
TO CARRY OUT THE INTENT OF THIS AGREEMENT.  ADDITIONALLY, VEC SHALL, AT ITS COST
AND EXPENSE, ASSIST GP IN THE DESIGN, PREPARATION AND INITIAL IMPLEMENTATION OF
EACH OF THE GP PLANS, SUCH ASSISTANCE TO INCLUDE REASONABLE ACCESS TO
APPROPRIATE INDIVIDUALS WITHIN THE HUMAN RESOURCES AND LEGAL FUNCTIONS OF VEC. 
NOTWITHSTANDING ANYTHING ELSE PROVIDED HEREIN, PAYMENT OF ALL COSTS ASSOCIATED
WITH THE DESIGN, PREPARATION AND INITIAL IMPLEMENTATION OF EACH OF THE GP PLANS
CONTEMPLATED HEREIN SHALL BE BORNE BY VEC, INCLUDING BUT NOT LIMITED TO RELATED
LEGAL AND ACTUARIAL FEES.

3.                                       NO LIMITATION ON RIGHT TO AMEND PLANS. 
NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT, NOTHING HEREIN SHALL BE
INTERPRETED OR CONSTRUED TO LIMIT THE RIGHT OF EITHER VEC OR GP TO AMEND ANY OF
THEIR RESPECTIVE EMPLOYEE BENEFIT PLANS IN WHOLE OR IN PART, OR TO TERMINATE ANY
SUCH PLAN OR PROGRAM, AT ANY TIME, AND NOTHING HEREIN IS INTENDED TO REQUIRE VEC
OR GP TO CONTINUE TO MAINTAIN ANY OF THE PLANS OR PROGRAMS DESCRIBED HEREIN. 
THIS AGREEMENT IS NOT INTENDED, AND SHALL NOT BE CONSTRUED, TO CONSTITUTE AN
AMENDMENT OF ANY PLAN OR PROGRAM OF VEC OR GP, NOR SHALL THIS AGREEMENT PROVIDE
ANY ELIGIBLE  GP EMPLOYEE, VEC EMPLOYEE, OR ANY OTHER INDIVIDUAL ANY THIRD PARTY
BENEFICIARY RIGHTS OF ANY KIND.

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4.                                       TERM.  EACH OF THE TRANSITION SERVICES
AND ARRANGEMENTS PROVIDED FOR HEREIN SHALL CONTINUE THROUGH THE EARLIER OF ITS
COMPLETION OR THE FINAL TRANCHE; PROVIDED THAT THE PARTIES MAY AGREE TO EXTEND
ANY OF THE SERVICES AND ARRANGEMENTS BEYOND THE EFFECTIVE DATE OF THE FINAL
TRANCHE BY MUTUAL AGREEMENT, AND PROVIDED FURTHER THAT NOTHING IN THIS AGREEMENT
SHALL BE DEEMED TO ALTER OR DIMINISH ANY OF THE SERVICES PROVIDED BY AFFILIATES
OF VEC TO GP OR ANY OF ITS AFFILIATES PURSUANT TO THAT CERTAIN THIRD AMENDED AND
RESTATED SERVICES AGREEMENT DATED AS OF JANUARY 1, 2006 AMONG DIAMOND SHAMROCK
REFINING AND MARKETING COMPANY, VALERO CORPORATE SERVICES COMPANY, VALERO L.P.,
VALERO LOGISTICS OPERATIONS, L.P., RIVERWALK LOGISTICS, L.P. AND GP, AS MAY BE
AMENDED AND RESTATED FROM TIME TO TIME.

5.                                       PENSION PLAN.

(a)                                  GP Pension Plan.  GP has adopted a defined
benefit pension plan (“GP Pension Plan”) effective as of July 1, 2006, to cover
Eligible GP Employees, as well as other individuals subsequently employed by GP
and determined to be eligible under the terms of the GP Pension Plan.  The GP
Pension Plan provides all Eligible GP Employees with service credit for purposes
of vesting and eligibility for all service credited by VEC under the Valero
Energy Corporation Pension Plan (“VEC Pension Plan”) for such purposes. 
Additionally, Final Average Salary (as defined in the GP Pension Plan) includes
eligible compensation earned by Eligible GP Employees while covered under the
VEC Pension Plan, as well as eligible compensation earned with GP after July 1,
2006.

(b)                                 VEC Pension Plan.  Effective as of July 1,
2006, GP shall cease to be a participating employer under the VEC Pension Plan
and all Eligible GP Employees shall no longer be eligible to accrue additional
credited service for purposes of accruing additional benefits under the VEC
Pension Plan. VEC shall amend the VEC Pension Plan to provide that, for purposes
of calculating the benefits of each Eligible GP Employee, Final Average Salary
(as defined in the VEC Pension Plan) shall include all eligible compensation
earned by the Eligible GP Employee while employed by GP (or an affiliate of GP
provided, and for so long as, such affiliate maintains a traditional
formula-based defined benefit pension plan) following the effective date of this
Agreement and prior to the earlier of the date that the Eligible GP Employee
commences his/her benefit under the VEC Pension Plan, or separates from service
from GP.  GP or its affiliate, as appropriate, shall provide to VEC an affidavit
to be certified by an appropriate representative setting forth the amount of
earned compensation and years of service with the respective entity to be used
in determining Final Average Salary as contemplated in the preceding sentence.
VEC shall amend the VEC Pension Plan further to provide that vesting service
under the VEC Pension Plan shall include all service with GP following the
effective date of this Agreement prior to the date that the Eligible GP Employee
commences his/her benefits under the VEC Pension Plan.

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6.                                       Retiree Welfare Benefits.  GP has
adopted a retiree welfare benefit plan effective July 1, 2006 that will offer
retiree coverage for medical, dental, prescription drug, vision and life
insurance benefits for eligible retirees of GP, as determined by GP from time to
time, beginning January 1, 2007.  The parties agree that VEC will provide
retiree welfare benefits under the VEC retiree welfare benefit plan, as it  may
be amended from time to time, for: (a) Eligible GP Employees who: (i) as of July
1, 2006, are at least age fifty-five (55) and have at least five (5) years of
credited service recognized by VEC under the VEC Pension Plan; or (ii) on or
prior to December 31, 2006, are eligible for, and elect to begin receiving, a
pension benefit under the VEC Pension Plan and, coincident with such pension
benefit commencement, elect to commence retiree welfare plan coverage.

7.                                       ACTIVE EMPLOYEE WELFARE BENEFITS.

(a)                                  Welfare Plan Transition Period.  Health and
welfare benefit coverage for Eligible GP Employees, as well as other individuals
subsequently employed by GP and determined to be eligible under the terms of the
applicable welfare plan sponsored by GP, and their eligible dependents, shall,
during the period beginning July 1, 2006 and ending December 31, 2006, or such
other date to which the parties may agree (“Welfare Plan Transition Period”),
continue to be provided under the VEC welfare benefit plans, subject to the
respective terms of such plans, as they may be amended from time to time.  VEC
will also be responsible for providing any required COBRA coverage for Eligible
GP Employees and dependents whose COBRA qualifying event occurs during the
Welfare Plan Transition Period, and for administering any QMCSOs received during
the Welfare Plan Transition Period.  With respect to the continuation of
coverage during the Welfare Plan Transition Period for the Eligible GP Employees
and their dependents, GP shall continue to be charged by VEC the percentage of
payroll attributable to the overall benefit costs as determined on January 1,
2006 (such percentage being 50.6%, a portion of which relates to the provision
of welfare benefits).

(b)                                 GP Welfare Plans.  As of the expiration of
the Welfare Plan Transition Period, GP will have established its welfare benefit
plans for Eligible GP Employees and their dependents, as well as other
individuals subsequently employed by GP and determined to be eligible under the
terms of the applicable welfare plan sponsored by GP, and such individuals shall
no longer be eligible for coverage or benefits under the VEC welfare benefit
plans, except as may be required under COBRA for qualifying events that occurred
during the Welfare Plan Transition Period.

(c)                                  Special Provisions Regarding Long-Term
Disability/Health and Welfare Benefits.  Consistent with the foregoing
provisions of this Section 7, VEC shall continue to provide long-term disability
(“LTD”) pay continuance coverage to Eligible GP Employees during the Welfare
Plan Transition Period under the VEC LTD plan, as it may be amended from time to
time.  However, GP will be obligated for the cost of LTD benefits (pay
continuance and/or health and welfare benefits, as applicable) to those
individuals identified on Schedule A during the Welfare Plan Transition Period
and going forward shall provide such benefits under GP LTD and health and
welfare plans.  The transfer of liabilities relating to the individuals

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identified on Schedule A are more particularly described in Exhibit A. At the
expiration of the Welfare Plan Transition Period, VEC shall be obligated solely
with respect to the provision of LTD pay continuance benefits for any Eligible
GP Employee (other than those former Kaneb employees listed on Schedule A) who
is or becomes eligible to receive LTD pay continuance benefits due to a
disability that occurs on or before December 31, 2006, such LTD pay continuance
benefits to be payable in accordance with the terms of the applicable insurance
policy sponsored by VEC.  Also at the expiration of the Welfare Plan Transition
Period, each entity shall be responsible for the LTD coverage and benefits that
may become payable to its respective employees due to a disability that occurs
on or after January 1, 2007.  The parties shall cooperate with each other and
coordinate the transfer of appropriate individuals from the VEC LTD and health
and welfare plans to the GP LTD  and health and welfare plans consistent with
the provisions of this paragraph.

(d)                                 Section 125 Plan.  During the period
beginning July 1, 2006 and ending at the expiration of the Welfare Plan
Transition Period, Eligible GP Employees will continue to be eligible to
participate in the VEC flexible benefits plan under Code section 125, subject to
its terms and conditions as they may be amended from time to time.   The
existing elections for Eligible GP Employees participating in the VEC flexible
benefits plan during 2006 shall remain in effect throughout 2006 subject to any
changes permitted under the VEC flexible benefits plan.  Effective as of the
expiration of the Welfare Plan Transition Period, Eligible GP Employees shall
cease participation in the VEC flexible benefits plan, and GP may establish a
flexible benefits plan under Code section 125 for Eligible GP Employees.

8.                                       THRIFT PLAN.  EFFECTIVE AS OF JULY 1,
2006, GP ADOPTED A DEFINED CONTRIBUTION RETIREMENT PLAN (“GP THRIFT PLAN”) FOR
ELIGIBLE GP EMPLOYEES AS WELL AS OTHER INDIVIDUALS SUBSEQUENTLY EMPLOYED BY GP
AND DETERMINED TO BE ELIGIBLE UNDER THE TERMS OF THE GP THRIFT PLAN.  GP
EMPLOYEES WHO WERE PARTICIPATING IN THE VALERO ENERGY CORPORATION THRIFT PLAN
(“VEC THRIFT PLAN”) IMMEDIATELY PRIOR TO THE ADOPTION OF THE GP THRIFT PLAN
BEGAN PARTICIPATING IN THE GP THRIFT PLAN EFFECTIVE AS OF JULY 1, 2006, AT THE
SAME CONTRIBUTION RATE AS THEN IN EFFECT UNDER THE VEC THRIFT PLAN.  ELIGIBLE GP
EMPLOYEES ARE DEEMED TO HAVE INCURRED A TERMINATION OF EMPLOYMENT FOR PURPOSES
OF THE VEC THRIFT PLAN AS OF THE EFFECTIVE DATE OF THE INITIAL TRANCHE, AND ALL
ACCRUED BENEFITS OF ELIGIBLE GP EMPLOYEES UNDER THE VEC THRIFT PLAN SHALL BE
DEEMED TO BE FULLY VESTED AS OF JULY 1, 2006.  THE GP THRIFT PLAN SHALL ACCEPT
DIRECT ROLLOVERS OF THE ACCOUNT BALANCES OF ELIGIBLE GP EMPLOYEES UNDER THE VEC
THRIFT PLAN, AND SHALL PROVIDE CREDIT TO ALL ELIGIBLE GP EMPLOYEES FOR PURPOSES
OF ELIGIBILITY AND VESTING FOR ALL SERVICE CREDITED BY VEC FOR SUCH PURPOSES
UNDER THE VEC THRIFT PLAN.  THE PARTIES WILL COOPERATE WITH EACH OTHER TO
ESTABLISH AND IMPLEMENT ONE OR MORE SPECIAL DIRECT ROLLOVER “WINDOW”
OPPORTUNITIES FOR ELIGIBLE GP EMPLOYEES TO ROLL OVER THEIR ACCOUNT BALANCES
UNDER THE VEC THRIFT PLAN (INCLUDING, FOR SUCH SPECIAL DIRECT ROLLOVER WINDOW
PERIODS, OUTSTANDING PLAN LOANS) TO THE GP THRIFT PLAN ON SUCH TERMS AS THE
PARTIES AGREE.

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9.                                       EQUITY INCENTIVE ARRANGEMENTS.

(a)                                  VEC Stock Plans.  VEC shall effect
appropriate amendments to the Valero Energy Corporation 2003 Employee Stock
Incentive Plan and the Valero Energy Corporation 2001 Executive Stock Incentive
Plan (the “VEC Stock Plans”) such that, for purposes of administering the
outstanding awards previously made to Eligible GP Employees: (i) such employees
shall be deemed to have terminated employment as of the effective date of the
Final Tranche; and (ii) all such awards shall become fully vested as of the
effective date of the Final Tranche, and exercisable over the succeeding
12-month period.  All costs, expenses and liabilities associated with or arising
from VEC’s obligations under this paragraph 9(a) shall be the responsibility of 
VEC.

(b)                                 GP Unit Plans.  GP shall continue to sponsor
and administer the Valero GP, LLC Amended and Restated 2000 Long-Term Incentive
Plan and the Valero GP, LLC Amended and Restated 2002 Unit Option Plan (the “GP
Unit Plans”), in accordance with their terms and conditions, as they may be
amended from time to time.  It is the parties’ current intent that no
modifications to outstanding awards under the GP Unit Plans will be made as a
result of the transactions contemplated in this Agreement.  All costs, expenses
and liabilities associated with or arising from GP’s obligations under this
paragraph 9(b) shall be the responsibility of GP.

10.           Nonqualified Deferred Compensation Arrangements.

(a)                                  Valero Energy Corporation Deferred
Compensation Plan.  Under the terms of the Valero Energy Corporation Deferred
Compensation Plan (“Deferred Compensation Plan”), Eligible GP Employees who are
participants in the Deferred Compensation Plan shall be deemed to have
terminated employment upon VEC ceasing to own a majority of the equity interest
in GP.  As provided for under the Deferred Compensation Plan, the account
balances of such GP Employees shall be distributed in accordance with the
deferral and distribution elections previously made by such Eligible GP
Employees consistent with the provisions of the Deferred Compensation Plan.

(b)                                 Excess Thrift Plan.  Effective as of July 1,
2006, GP shall adopt an Excess Thrift Plan (“GP Excess Thrift Plan”) for
Eligible GP Employees, as well as other individuals subsequently employed by GP
and determined to be eligible under the terms of the GP Excess Thrift Plan,
which shall have initial terms substantially similar to the terms of the Valero
Energy Corporation Excess Thrift Plan (“VEC Excess Thrift Plan”).  Eligible GP
Employees shall cease to be eligible for additional contributions or accruals
under the VEC Excess Thrift Plan effective as of July 1, 2006, and, in
accordance with the terms of the VEC Excess Thrift Plan, all benefits accrued as
of July 1, 2006 by Eligible GP Employees shall be distributed to such Eligible
GP Employees as soon as reasonably practical following the effective date of the
Initial Tranche, considering, without limitation, restrictions on certain
distributions imposed by the Code.  The GP Excess Thrift

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Plan shall provide credit to all Eligible GP Employees for purposes of vesting
for all service credited by VEC for such purpose under the VEC Excess Thrift
Plan.

(c)                                  Frozen Nonqualified 401(k) Plan for Former
UDS Employees.  Effective as of July 1, 2006, the Ultramar Diamond Shamrock
Corporation Nonqualified 401(k) Plan (the “VEC UDS Plan”), which is maintained
as a frozen nonqualified deferred compensation plan covering certain former
employees of Ultramar Diamond Shamrock Corporation, shall be effectively split
into two plans, the VEC UDS Plan and the Valero GP, LLC Frozen Nonqualified
401(k) Plan for Former Employees of Ultramar Diamond Shamrock Corporation (the
“GP UDS Plan”).  The remaining VEC UDS Plan shall continue to be sponsored,
maintained, and administered by VEC, and the spun-off GP UDS Plan shall be
sponsored, maintained, and administered by GP.  Effective as of July 1, 2006,
all Eligible GP Employees who are participants in the VEC UDS Plan shall
automatically become participants in the GP UDS Plan and shall cease their
eligibility for and participation in the VEC UDS Plan in accordance with its
terms as amended from time to time.  All VEC Employees who are participating in
the VEC UDS Plan shall continue to participate in such plan, in accordance with
its terms as amended from time to time.

(d)                                 Excess Pension Plan and Supplemental
Retirement Plan.  Effective as of July 1, 2006, GP shall adopt an Excess Pension
Plan (“GP Excess Pension Plan”) and a Supplemental Retirement Plan (“GP SERP”)
for Eligible GP Employees, as well as other individuals subsequently employed by
GP and determined to be eligible under the terms of the GP Excess Pension Plan
or GP SERP, which shall have initial terms substantially similar to the terms of
the corresponding VEC plans (“VEC Excess Pension Plan” and “VEC SERP”,
respectively).  Eligible GP Employees who, as of July 1, 2006, are participants
in the VEC Excess Pension Plan or the VEC SERP shall automatically become
participants in the GP Excess Pension Plan or the GP SERP, as the case may be,
and shall cease to be eligible to participate in, or to receive additional
accruals under, the VEC Excess Pension Plan or the VEC SERP.  Upon the  transfer
of assets and liabilities described in paragraph 12 below as of the effective
date of the initial tranche, GP shall be solely obligated with respect to all
excess pension and supplemental retirement benefits of Eligible GP Employees,
and VEC shall have no further liabilities with respect to such benefits.

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11.                                      Determination Letter Application;
Filings.  VEC shall assist GP in preparing, submitting and processing
determination letter applications with the IRS for the GP Pension Plan and the
GP Thrift Plan, seeking determinations that such plans and their underlying
trusts meet the qualification requirements of Code section 401(a). 
Additionally, VEC shall assist GP in preparing and making any and all other
governmental filings, whether with the DOL, IRS or otherwise, as the parties may
deem appropriate with respect to the adoption of the GP Plans.  All costs and
expenses incurred by VEC or GP pursuant to this paragraph shall be for VEC’s
account.

12.                                 Transfer of  Liabilities and Associated
Assets.  The parties hereto agree that the liabilities described in Exhibit A
attached hereto and incorporated herein shall be transferred to Holdings. 
Additionally, the assets described on Exhibit A shall be transferred to Holdings
by VEC or certain VEC Subsidiaries.

13.                                 Tax Deduction Agreement.   In connection
with the transfer of liabilities and assets  described in paragraph 12 above and
in order to simplify the ongoing administrative effort required by all parties
in connection with this Agreement, VEC and Holdings agree that the entire tax
deduction related to long-term incentive plans of Holdings and GP, as
applicable, will be deductible by Holdings and GP, as applicable, and that the
entire tax deduction related to stock options and restricted stock of VEC will
be deductible by VEC.

14.                                 Responsibility for Own Plans; Limitation of
Liability.  VEC makes no (and hereby disclaims and negates any and all)
representations and warranties, express or implied, with respect to the
assistance provided to GP in the design of the employee benefit plans
established by GP as contemplated herein and with respect to the plans
themselves, including without limitation qualification of such plans under
relevant provisions of the Code, and shall have no liability with respect to
such design.  GP acknowledges and accepts full responsibility for the design of
its own employee benefit plans, and acknowledges that the decisions made with
respect to the design of each employee benefit plan contemplated by this
Agreement is GP’s sole responsibility as sponsor of such plan, as evidenced by
the actions of its Board of Directors and its Benefit Plans Administrative
Committee.

GP acknowledges (1) that this Agreement does not address the implementation, or
the ongoing maintenance or administration of such plans, (2) that to the extent
that any subsidiary or affiliate of VEC provides assistance with respect to
implementation, or ongoing maintenance or administration with regard to any of
such plans, such implementation, maintenance or administration shall be
performed pursuant to the Services Agreement and subject to the terms thereof,
or such other written agreement between the parties as may be in force at the
time such implementation, maintenance or administration is performed, and (3)
that VEC shall have no liability pursuant to this Agreement with respect to any
implementation, maintenance or administration of such plans.

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15.                                 Confidentiality.  Each of the parties agrees
to treat, and to cause its affiliates, employees and agents to treat, all
records and other information with respect to the other party in confidence and
in compliance with all applicable laws regarding confidentiality and privacy.

16.                                 NOTICES.  ALL COMMUNICATIONS, NOTICES AND
DISCLOSURES REQUIRED OR PERMITTED BY THIS AGREEMENT SHALL BE IN WRITING AND
SHALL BE DEEMED TO HAVE BEEN GIVEN AT THE EARLIER OF THE DATE (A) WHEN DELIVERED
PERSONALLY OR BY MESSENGER OR BY OVERNIGHT DELIVERY SERVICE BY A RECOGNIZED
COMMERCIAL CARRIER TO AN OFFICER OF THE OTHER PARTY, (B) THREE DAYS AFTER BEING
MAILED BY REGISTERED OR CERTIFIED UNITED STATES MAIL, POSTAGE PREPAID, RETURN
RECEIPT REQUESTED, OR (C) WHEN RECEIVED VIA FACSIMILE OR ELECTRONIC MAIL, IN ALL
CASES ADDRESSED TO THE INDIVIDUAL FOR WHOM IT IS INTENDED AT HIS ADDRESS SET
FORTH BELOW OR TO SUCH OTHER ADDRESS AS A PARTY SHALL HAVE DESIGNATED BY NOTICE
IN WRITING TO THE OTHER PARTY IN THE MANNER PROVIDED BY THIS SECTION 10:

If to VEC:

Valero Energy Corporation

 

One Valero Way

 

San Antonio, TX 78249

 

Attention:

Debbie Hevner,

 

 

Executive Director HR

 

 

Administration, Payroll and Benefits

 

If to Holdings:

Valero GP Holdings , LLC

 

One Valero Way

 

San Antonio, TX 78249

 

Attention:

Bradley Barron,

 

 

Vice President, General Counsel

 

 

and Secretary

 

If to GP:

Valero GP, LLC

 

One Valero Way

 

San Antonio, TX 78249

 

Attention:

Bradley Barron,

 

 

Vice President, General Counsel

 

 

and Secretary

 

17.                                 ENTIRE AGREEMENT; AMENDMENT.  THIS AGREEMENT
CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER HEREOF, AND SUPERSEDES ALL PRIOR AND CONTEMPORANEOUS AGREEMENTS,
UNDERSTANDINGS, NEGOTIATIONS AND DISCUSSIONS OF THE PARTIES, WHETHER ORAL OR
WRITTEN.  NO AMENDMENT, SUPPLEMENT, MODIFICATION OR TERMINATION OF THIS
AGREEMENT SHALL BE BINDING UNLESS EXECUTED IN WRITING BY THE PARTY TO BE BOUND
THEREBY.  NO WAIVER OF ANY OF THE PROVISIONS OF THIS AGREEMENT SHALL BE DEEMED
OR SHALL CONSTITUTE A WAIVER OF ANY OTHER PROVISION OF THIS AGREEMENT, WHETHER
OR NOT SIMILAR, NOR SHALL SUCH WAIVER CONSTITUTE A CONTINUING WAIVER UNLESS
OTHERWISE EXPRESSLY PROVIDED.

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18.                                 GOVERNING LAW.  THIS AGREEMENT SHALL BE
CONSTRUED AND INTERPRETED, AND THE RIGHTS OF THE PARTIES SHALL BE DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE OR REGARD TO
THE CHOICE OF LAW PROVISIONS THEREOF.

19.                                 COUNTERPARTS; HEADINGS.  THIS AGREEMENT MAY
BE EXECUTED IN ONE OR MORE COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED AN
ORIGINAL, BUT SUCH COUNTERPARTS SHALL TOGETHER CONSTITUTE BUT ONE AND THE SAME
AGREEMENT.  THE SECTION HEADINGS IN THIS AGREEMENT ARE INSERTED FOR CONVENIENCE
OF REFERENCE ONLY AND SHALL NOT CONSTITUTE A PART HEREOF.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties have executed this Agreement this 13th day of
October, 2006, to be effective as of July 1, 2006.

VALERO ENERGY CORPORATION

 

By:

/s/ Michael S. Ciskowski

 

 

Name:

Michael S. Ciskowski

 

 

Title:

Executive Vice President and

 

 

 

Chief Financial Officer

 

 

VALERO GP HOLDINGS, LLC

 

By:

/s/ Steven A. Blank

 

 

Name:

Steven A. Blank

 

 

Title:

Senior Vice President, Chief Financial Officer and Treasurer

 

 

VALERO GP, LLC

 

By:

/s/ Steven A. Blank

 

 

Name:

Steven A. Blank

 

 

Title:

Senior Vice President, Chief Financial Officer and Treasurer

 

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EXHIBIT A

VALERO ENERGY CORPORATION

LIABILITIES AND ASSETS TO BE TRANSFERRED TO VALERO GP HOLDINGS, LLC

AS OF EFFECTIVE DATE OF SALE OF INITIAL TRANCHE (JULY 19, 2006)

Liabilities to be transferred to Valero GP Holdings:

Other post-employment benefits

 

$

6,091,031

 

Excess pension plan

 

222,552

 

SERP

 

857,000

 

Long-term disability

 

686,533

 

Total amount of liabilities to be transferred to Valero GP Holdings

 

7,857,116

(1)

Assets to be transferred to Valero GP Holdings:

 

 

 

Receivable from Valero L.P

 

$

5,812,033

(2)

Deferred tax asset

 

1,024,260

(3)

Cash

 

1,020,823

(4)

Total amount of assets to be transferred to Valero GP

 

 

 

Holdings in exchange for the above liabilities

 

$

7,857,116

 

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(1) The liability for OPEBs represents the actuarial present value of future
OPEB benefits for Valero L.P. employees not retirement-eligible as of July 1,
2006.  The excess pension plan and SERP liabilities represent the actuarial
present value of  future benefits applicable  to current Valero L.P. personnel
who are participants in those plans.  The LTD liability represents pay
continuance for four Kaneb employees and medical subsidies for six non-Kaneb
Valero L.P. employees.  All of these liabilities were calculated by Hewitt
Associates, LLC based on assumptions developed through correspondence with both
V.E.C. and Valero L.P. personnel.  These liabilities are being transferred in
exchange for the assets set out below.

(2) V.E.C. recorded an intercompany note receivable from Valero L.P. upon the
merger of Kaneb and Valero L.P. aggregating $5.8 million, representing the
amount of the purchase accounting adjustment for OPEBs and long-term disability
arising from that merger.  V.E.C. will transfer the remaining balance of this
note to Holdings as part of the assets to be transferred to Holdings.

(3) This represents the net deferred tax asset associated with the various
assets and liabilities being transferred to Holdings.

(4) The excess of the total assets to be transferred over the note receivable
from Valero L.P. and the deferred tax asset will be paid by V.E.C. to Holdings
in cash.

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