**EXHIBIT 10.02**

**EMPLOYEEBENEFITS TRANSITION AGREEMENT**

ThisEmployee Benefits Transition Agreement (“Agreement”) is entered into by andbetween 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 transactionsreferenced herein, Holdings has been an indirect wholly-owned subsidiary ofVEC; and

WHEREAS,pursuant to a series of public offerings, VEC intends to sell its ownershipinterest 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 InternalRevenue Code section 414(b); and

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

WHEREAS,VEC, Holdings and GP have agreed that VEC and certain of its wholly ownedsubsidiaries (the “VEC Subsidiaries”) will transfer to Holdings relatedliabilities and assets, such transfer to relate to whichever entity holds suchliability; and

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

NOW, THEREFORE,the parties hereby agree as follows:

# 1.                                       **Definitions**.  In addition to the terms defined elsewhere inthis Agreement, the following terms, when used herein, shall have the followingmeanings:

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

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

“DOL” shall mean theDepartment of Labor.

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

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

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

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

“IRS” shall mean theInternal Revenue Service.

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

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

“VEC Employees” shallmean all employees of VEC or any of its affiliates other than Eligible GPEmployees.

# 2.                                       **General Support and Cooperation**.  The parties agree, as a general matter, thatthey shall fully cooperate with each other in all reasonable respects in thedesign, adoption, amendment, implementation, and administration of the employeebenefit plans and programs, as well as the other matters, contemplatedherein.  In furtherance but not inlimitation of this general provision, each party shall provide the other partywith such records, data and information as may be reasonably necessary in orderto carry out the intent of this Agreement. Additionally, VEC shall, at its cost and expense, assist GP in thedesign, preparation and initial implementation of each of the GP Plans, suchassistance to include reasonable access to appropriate individuals within thehuman resources and legal functions of VEC. Notwithstanding anything else provided herein, payment of all costsassociated with the design, preparation and initial implementation of each ofthe GP Plans contemplated herein shall be borne by VEC, including but notlimited to related legal and actuarial fees.

# 3.                                       **No Limitation on Right to Amend Plans**.  Notwithstanding any provision of thisAgreement, nothing herein shall be interpreted or construed to limit the rightof either VEC or GP to amend any of their respective employee benefit plans inwhole or in part, or to terminate any such plan or program, at any time, andnothing herein is intended to require VEC or GP to continue to maintain any ofthe plans or programs described herein. This Agreement is not intended, and shall not be construed, toconstitute an amendment of any plan or program of VEC or GP, nor shall thisAgreement provide any Eligible  GPEmployee, VEC Employee, or any other individual any third party beneficiaryrights of any kind.

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# 4.                                       **Term**. Each of the transition services and arrangements provided for hereinshall continue through the earlier of its completion or the Final Tranche;provided that the parties may agree to extend any of the services andarrangements beyond the effective date of the Final Tranche by mutualagreement, and provided further that nothing in this Agreement shall be deemedto alter or diminish any of the services provided by affiliates of VEC to GP orany of its affiliates pursuant to that certain Third Amended and RestatedServices Agreement dated as of January 1, 2006 among Diamond Shamrock Refiningand Marketing Company, Valero Corporate Services Company, Valero L.P., Valero LogisticsOperations, L.P., Riverwalk Logistics, L.P. and GP, as may be amended andrestated from time to time.

# 5.                                       **Pension Plan**.

(a)                                  GPPension Plan.  GP has adopted adefined benefit pension plan (“GP Pension Plan”) effective as of July 1, 2006,to cover Eligible GP Employees, as well as other individuals subsequentlyemployed by GP and determined to be eligible under the terms of the GP PensionPlan.  The GP Pension Plan provides allEligible GP Employees with service credit for purposes of vesting and eligibilityfor all service credited by VEC under the Valero Energy Corporation PensionPlan (“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 coveredunder the VEC Pension Plan, as well as eligible compensation earned with GPafter July 1, 2006.

(b)                                 VECPension Plan.  Effective as of July1, 2006, GP shall cease to be a participating employer under the VEC PensionPlan and all Eligible GP Employees shall no longer be eligible to accrueadditional credited service for purposes of accruing additional benefits underthe VEC Pension Plan. VEC shall amend the VEC Pension Plan to provide that, forpurposes of calculating the benefits of each Eligible GP Employee, FinalAverage Salary (as defined in the VEC Pension Plan) shall include all eligiblecompensation earned by the Eligible GP Employee while employed by GP (or anaffiliate of GP provided, and for so long as, such affiliate maintains atraditional formula-based defined benefit pension plan) following the effectivedate of this Agreement and prior to the earlier of the date that the EligibleGP Employee commences his/her benefit under the VEC Pension Plan, or separatesfrom service from GP.  GP or itsaffiliate, as appropriate, shall provide to VEC an affidavit to be certified byan appropriate representative setting forth the amount of earned compensationand years of service with the respective entity to be used in determining FinalAverage Salary as contemplated in the preceding sentence. VEC shall amend theVEC Pension Plan further to provide that vesting service under the VEC PensionPlan shall include all service with GP following the effective date of thisAgreement prior to the date that the Eligible GP Employee commences his/herbenefits under the VEC Pension Plan.

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6.                                       **Retiree Welfare Benefits**.  GP has adopted a retiree welfare benefit planeffective July 1, 2006 that will offer retiree coverage for medical, dental,prescription drug, vision and life insurance benefits for eligible retirees ofGP, as determined by GP from time to time, beginning January 1, 2007.  The parties agree that VEC will provideretiree 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 VECunder the VEC Pension Plan; or (ii) on or prior to December 31, 2006, areeligible for, and elect to begin receiving, a pension benefit under the VECPension Plan and, coincident with such pension benefit commencement, elect tocommence retiree welfare plan coverage.

# 7.                                       **Active Employee Welfare Benefits**.

(a)                                  WelfarePlan Transition Period.  Health andwelfare benefit coverage for Eligible GP Employees, as well as otherindividuals subsequently employed by GP and determined to be eligible under theterms of the applicable welfare plan sponsored by GP, and their eligibledependents, shall, during the period beginning July 1, 2006 and ending December31, 2006, or such other date to which the parties may agree (“Welfare PlanTransition Period”), continue to be provided under the VEC welfare benefitplans, subject to the respective terms of such plans, as they may be amendedfrom time to time.  VEC will also beresponsible for providing any required COBRA coverage for Eligible GP Employeesand dependents whose COBRA qualifying event occurs during the Welfare PlanTransition Period, and for administering any QMCSOs received during the WelfarePlan Transition Period.  With respect tothe continuation of coverage during the Welfare Plan Transition Period for theEligible GP Employees and their dependents, GP shall continue to be charged byVEC the percentage of payroll attributable to the overall benefit costs asdetermined on January 1, 2006 (such percentage being 50.6%, a portion of whichrelates to the provision of welfare benefits).

(b)                                 GPWelfare Plans.  As of the expirationof the Welfare Plan Transition Period, GP will have established its welfarebenefit plans for Eligible GP Employees and their dependents, as well as otherindividuals subsequently employed by GP and determined to be eligible under theterms of the applicable welfare plan sponsored by GP, and such individualsshall no longer be eligible for coverage or benefits under the VEC welfarebenefit plans, except as may be required under COBRA for qualifying events thatoccurred during the Welfare Plan Transition Period.

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

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identified on Schedule A are more particularlydescribed in Exhibit A. At the expiration of the Welfare Plan TransitionPeriod, VEC shall be obligated solely with respect to the provision of LTD paycontinuance benefits for any Eligible GP Employee (other than those formerKaneb employees listed on Schedule A) who is or becomes eligible to receive LTDpay continuance benefits due to a disability that occurs on or before December31, 2006, such LTD pay continuance benefits to be payable in accordance withthe terms of the applicable insurance policy sponsored by VEC.  Also at the expiration of the Welfare PlanTransition Period, each entity shall be responsible for the LTD coverage andbenefits that may become payable to its respective employees due to a disabilitythat occurs on or after January 1, 2007. The parties shall cooperate with each other and coordinate the transferof appropriate individuals from the VEC LTD and health and welfare plans to theGP LTD  and health and welfare plansconsistent with the provisions of this paragraph.

(d)                                 Section125 Plan.  During the periodbeginning July 1, 2006 and ending at the expiration of the Welfare PlanTransition Period, Eligible GP Employees will continue to be eligible toparticipate in the VEC flexible benefits plan under Code section 125, subjectto its terms and conditions as they may be amended from time to time.   The existing elections for Eligible GPEmployees participating in the VEC flexible benefits plan during 2006 shallremain in effect throughout 2006 subject to any changes permitted under the VECflexible benefits plan.  Effective as ofthe expiration of the Welfare Plan Transition Period, Eligible GP Employeesshall cease participation in the VEC flexible benefits plan, and GP mayestablish a flexible benefits plan under Code section 125 for Eligible GPEmployees.

# 8.                                       **Thrift Plan**.  Effective as of July 1, 2006, GP adopted adefined contribution retirement plan (“GP Thrift Plan”) for Eligible GPEmployees as well as other individuals subsequently employed by GP anddetermined to be eligible under the terms of the GP Thrift Plan.  GP Employees who were participating in theValero Energy Corporation Thrift Plan (“VEC Thrift Plan”) immediately prior tothe adoption of the GP Thrift Plan began participating in the GP Thrift Planeffective as of July 1, 2006, at the same contribution rate as then in effectunder the VEC Thrift Plan.  Eligible GPEmployees are deemed to have incurred a termination of employment for purposesof the VEC Thrift Plan as of the effective date of the Initial Tranche, and allaccrued benefits of Eligible GP Employees under the VEC Thrift Plan shall bedeemed to be fully vested as of July 1, 2006. The GP Thrift Plan shall accept direct rollovers of the account balancesof Eligible GP Employees under the VEC Thrift Plan, and shall provide credit toall Eligible GP Employees for purposes of eligibility and vesting for allservice credited by VEC for such purposes under the VEC Thrift Plan.  The parties will cooperate with each other toestablish and implement one or more special direct rollover “window”opportunities for Eligible GP Employees to roll over their account balancesunder the VEC Thrift Plan (including, for such special direct rollover windowperiods, outstanding plan loans) to the GP Thrift Plan on such terms as theparties agree.

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# 9.                                       **Equity Incentive Arrangements**.

(a)                                  VECStock Plans.  VEC shall effectappropriate amendments to the Valero Energy Corporation 2003 Employee StockIncentive Plan and the Valero Energy Corporation 2001 Executive Stock IncentivePlan (the “VEC Stock Plans”) such that, for purposes of administering theoutstanding awards previously made to Eligible GP Employees: (i) such employeesshall be deemed to have terminated employment as of the effective date of theFinal Tranche; and (ii) all such awards shall become fully vested as of theeffective date of the Final Tranche, and exercisable over the succeeding12-month period.  All costs, expenses andliabilities associated with or arising from VEC’s obligations under thisparagraph 9(a) shall be the responsibility of VEC.

(b)                                 GPUnit Plans.  GP shall continue tosponsor and administer the Valero GP, LLC Amended and Restated 2000 Long-TermIncentive Plan and the Valero GP, LLC Amended and Restated 2002 Unit OptionPlan (the “GP Unit Plans”), in accordance with their terms and conditions, asthey may be amended from time to time. It is the parties’ current intent that no modifications to outstandingawards under the GP Unit Plans will be made as a result of the transactionscontemplated in this Agreement.  Allcosts, expenses and liabilities associated with or arising from GP’sobligations under this paragraph 9(b) shall be the responsibility of GP.

10.           **NonqualifiedDeferred Compensation Arrangements**.

(a)                                  ValeroEnergy Corporation Deferred Compensation Plan.  Under the terms of the Valero EnergyCorporation Deferred Compensation Plan (“Deferred Compensation Plan”), EligibleGP Employees who are participants in the Deferred Compensation Plan shall bedeemed to have terminated employment upon VEC ceasing to own a majority of theequity interest in GP.  As provided forunder the Deferred Compensation Plan, the account balances of such GP Employeesshall be distributed in accordance with the deferral and distribution electionspreviously made by such Eligible GP Employees consistent with the provisions ofthe Deferred Compensation Plan.

(b)                                 ExcessThrift Plan.  Effective as of July 1,2006, GP shall adopt an Excess Thrift Plan (“GP Excess Thrift Plan”) forEligible GP Employees, as well as other individuals subsequently employed by GPand 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 ValeroEnergy Corporation Excess Thrift Plan (“VEC Excess Thrift Plan”).  Eligible GP Employees shall cease to beeligible for additional contributions or accruals under the VEC Excess ThriftPlan effective as of July 1, 2006, and, in accordance with the terms of the VECExcess Thrift Plan, all benefits accrued as of July 1, 2006 by Eligible GPEmployees shall be distributed to such Eligible GP Employees as soon asreasonably practical following the effective date of the Initial Tranche,considering, without limitation, restrictions on certain distributions imposedby the Code.  The GP Excess Thrift

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

(c)                                  FrozenNonqualified 401(k) Plan for Former UDS Employees.  Effective as of July 1, 2006, the UltramarDiamond Shamrock Corporation Nonqualified 401(k) Plan (the “VEC UDS Plan”),which is maintained as a frozen nonqualified deferred compensation plancovering 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 DiamondShamrock 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 areparticipants in the VEC UDS Plan shall automatically become participants in theGP UDS Plan and shall cease their eligibility for and participation in the VECUDS Plan in accordance with its terms as amended from time to time.  All VEC Employees who are participating inthe VEC UDS Plan shall continue to participate in such plan, in accordance withits terms as amended from time to time.

(d)                                 ExcessPension Plan and Supplemental Retirement Plan.  Effective as of July 1, 2006, GP shall adoptan Excess Pension Plan (“GP Excess Pension Plan”) and a Supplemental RetirementPlan (“GP SERP”) for Eligible GP Employees, as well as other individualssubsequently employed by GP and determined to be eligible under the terms ofthe GP Excess Pension Plan or GP SERP, which shall have initial termssubstantially similar to the terms of the corresponding VEC plans (“VEC ExcessPension Plan” and “VEC SERP”, respectively). Eligible GP Employees who, as of July 1, 2006, are participants in theVEC Excess Pension Plan or the VEC SERP shall automatically become participantsin the GP Excess Pension Plan or the GP SERP, as the case may be, and shallcease to be eligible to participate in, or to receive additional accrualsunder, the VEC Excess Pension Plan or the VEC SERP.  Upon the transfer of assets and liabilities described in paragraph 12 below as ofthe effective date of the initial tranche, GP shall be solely obligated withrespect to all excess pension and supplemental retirement benefits of EligibleGP Employees, and VEC shall have no further liabilities with respect to suchbenefits.

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11.                                      **Determination Letter Application; Filings**.  VEC shall assist GP in preparing, submittingand processing determination letter applications with the IRS for the GPPension Plan and the GP Thrift Plan, seeking determinations that such plans andtheir underlying trusts meet the qualification requirements of Code section401(a).  Additionally, VEC shall assistGP in preparing and making any and all other governmental filings, whether withthe DOL, IRS or otherwise, as the parties may deem appropriate with respect tothe adoption of the GP Plans.  All costsand expenses incurred by VEC or GP pursuant to this paragraph shall be for VEC’saccount.

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

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

14.                                 **Responsibility for Own Plans; Limitation ofLiability**.  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 designof the employee benefit plans established by GP as contemplated herein and withrespect to the plans themselves, including without limitation qualification ofsuch plans under relevant provisions of the Code, and shall have no liabilitywith respect to such design.  GP acknowledgesand accepts full responsibility for the design of its own employee benefitplans, and acknowledges that the decisions made with respect to the design ofeach employee benefit plan contemplated by this Agreement is GP’s soleresponsibility as sponsor of such plan, as evidenced by the actions of itsBoard of Directors and its Benefit Plans Administrative Committee.

GP acknowledges (1) that this Agreement does notaddress the implementation, or the ongoing maintenance or administration ofsuch plans, (2) that to the extent that any subsidiary or affiliate of VECprovides assistance with respect to implementation, or ongoing maintenance oradministration with regard to any of such plans, such implementation,maintenance or administration shall be performed pursuant to the ServicesAgreement and subject to the terms thereof, or such other written agreementbetween the parties as may be in force at the time such implementation,maintenance or administration is performed, and (3) that VEC shall have noliability 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 tocause its affiliates, employees and agents to treat, all records and otherinformation with respect to the other party in confidence and in compliancewith all applicable laws regarding confidentiality and privacy.

# 16.                                 **Notices**.  All communications, notices and disclosuresrequired or permitted by this Agreement shall be in writing and shall be deemedto have been given at the earlier of the date (a) when deliveredpersonally or by messenger or by overnight delivery service by a recognizedcommercial carrier to an officer of the other party, (b) three days after beingmailed by registered or certified United States mail, postage prepaid, returnreceipt requested, or (c) when received via facsimile or electronic mail,in all cases addressed to the individual for whom it is intended at his addressset forth below or to such other address as a party shall have designated bynotice in writing to the other party in the manner provided by thisSection 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 |

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# 17.                                 **Entire Agreement; Amendment**.  This Agreement constitutes the entireagreement between the parties with respect to the subject matter hereof, andsupersedes all prior and contemporaneous agreements, understandings,negotiations and discussions of the parties, whether oral or written.  No amendment, supplement, modification ortermination of this Agreement shall be binding unless executed in writing bythe party to be bound thereby.  No waiverof any of the provisions of this Agreement shall be deemed or shall constitutea waiver of any other provision of this Agreement, whether or not similar, norshall such waiver constitute a continuing waiver unless otherwise expresslyprovided.

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# 18.                                 **Governing Law**.  This Agreement shall be construed andinterpreted, and the rights of the parties shall be determined in accordancewith the laws of the State of Texas, without reference or regard to the choiceof law provisions thereof.

# 19.                                 **Counterparts; Headings**.  This Agreement may be executed in one or morecounterparts, each of which shall be deemed an original, but such counterpartsshall together constitute but one and the same Agreement.  The section headings in this Agreement areinserted for convenience of reference only and shall not constitute a parthereof.

[Signature Page Follows]

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IN WITNESSWHEREOF, 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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**EXHIBITA**

**VALEROENERGY CORPORATION**

**LIABILITIESAND ASSETS TO BE TRANSFERRED TO VALERO GP HOLDINGS, LLC**

**AS OF EFFECTIVE DATE OF SALE OF INITIAL TRANCHE (JULY19, 2006)**

Liabilities to betransferred 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 offuture OPEB benefits for Valero L.P. employees not retirement-eligible as ofJuly 1, 2006.  The excess pension planand SERP liabilities represent the actuarial present value of  future benefits applicable  to current Valero L.P. personnel who are participantsin those plans.  The LTD liabilityrepresents pay continuance for four Kaneb employees and medical subsidies forsix non-Kaneb Valero L.P. employees.  Allof these liabilities were calculated by Hewitt Associates, LLC based onassumptions developed through correspondence with both V.E.C. and Valero L.P.personnel.  These liabilities are beingtransferred 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, representingthe amount of the purchase accounting adjustment for OPEBs and long-termdisability arising from that merger. V.E.C. will transfer the remaining balance of this note to Holdings aspart of the assets to be transferred to Holdings.

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

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

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