VALERO ENERGY CORPORATION


                     STOCK OPTION PLAN NO. 3

       (as amended and restated effective January 1, 1996)


<PAGE>
                    VALERO ENERGY CORPORATION
                     STOCK OPTION PLAN NO. 3
                                                                Page
1.  Introduction and Statement of Purpose. . . . . . . . . . . .
2.  Definitions. . . . . . . . . . . . . . . . . . . . . . . . .
3.  Granting of Options, Limited Rights and SARs to Employees. .
      3.1.  Selection of Participants. . . . . . . . . . . . . .
      3.2.  Exclusion of Committee Members . . . . . . . . . . .
      3.3.  No Right to Participate. . . . . . . . . . . . . . .
      3.4.  Automatic Grant of Limited Rights. . . . . . . . . .
      3.5.  Determination of Option Provisions . . . . . . . . .
      3.6.  Option Shares, Limited Rights and SARs
              Available for Grant. . . . . . . . . . . . . . . .
      3.7.  Limitations Regarding Option Price and Strike Price.
      3.8.  Limitation Regarding Option Period . . . . . . . . .
      3.9.  Option Agreements. . . . . . . . . . . . . . . . . .
      3.10.  Provisions Regarding Prospective Employees. . . . .
4.  Exercise of Options, Limited Rights and SARs.. . . . . . . .
      4.1.  Exercise of Options. . . . . . . . . . . . . . . . .
      4.2.  Exercise of Limited Rights . . . . . . . . . . . . .
      4.3.  Automatic Exercise of SARs; Settlement Price
              for SARs . . . . . . . . . . . . . . . . . . . . .
      4.4.  Exercise of Limited Rights by Restricted Optionees .
      4.5.  Forfeiture of Certain SARs . . . . . . . . . . . . .
      4.6.  Exercise Procedure . . . . . . . . . . . . . . . . .
      4.7.  Payment for SARs and Limited Rights. . . . . . . . .
      4.8.  Payment with Common Stock. . . . . . . . . . . . . .
      4.9.  Rights as Stockholder. . . . . . . . . . . . . . . .
      4.10. Effect of Termination and Forfeiture . . . . . . . .
      4.11. Effect of Leave of Absence . . . . . . . . . . . . .
      4.12 Effect of Disability. . . . . . . . . . . . . . . . .
      4.13. Effect of Retirement or Death. . . . . . . . . . . .
      4.14. Exercise Following Termination, Retirement, 
               Disability or Death . . . . . . . . . . . . . . .
      4.15 Effect of Change of Control . . . . . . . . . . . . .
5.  Adjustments Upon Changes In Capitalization . . . . . . . . .
      5.1.  Securities Received Upon Exercise. . . . . . . . . .
      5.2.  Adjustment of Option Shares Available. . . . . . . .
6.  Administration.. . . . . . . . . . . . . . . . . . . . . . .
      6.1.  Plan Administered by Committee . . . . . . . . . . .
      6.2.  Powers of the Committee. . . . . . . . . . . . . . .
      6.3.  Express Powers not Exclusive . . . . . . . . . . . .
7.  Miscellaneous Provisions . . . . . . . . . . . . . . . . . .
      7.1.  Nonassignability . . . . . . . . . . . . . . . . . .
      7.2.  Investment Letter. . . . . . . . . . . . . . . . . .
      7.3.  [Reserved] . . . . . . . . . . . . . . . . . . . . .
      7.4.  Responsibility for Taxes . . . . . . . . . . . . . .
      7.5.  Employment Not Guaranteed. . . . . . . . . . . . . .
      7.6.  Gender, Singular and Plural. . . . . . . . . . . . .
      7.7.  Captions . . . . . . . . . . . . . . . . . . . . . .
      7.8.  Validity . . . . . . . . . . . . . . . . . . . . . .
      7.9.  Notice . . . . . . . . . . . . . . . . . . . . . . .
      7.10. Applicable Law . . . . . . . . . . . . . . . . . . .
      7.11. Inconsistency. . . . . . . . . . . . . . . . . . . .
      7.12. No Adoption of SEC Rules . . . . . . . . . . . . . .
8.  Amendment and Termination of Plan and Option Agreements. . .
      8.1.  Amendments . . . . . . . . . . . . . . . . . . . . .
      8.2.  Termination. . . . . . . . . . . . . . . . . . . . .
      8.3.  Effect of Amendment or Termination . . . . . . . . .
      8.4  Cancellation of Options . . . . . . . . . . . . . . .
9.  Claims . . . . . . . . . . . . . . . . . . . . . . . . . . .
      9.1.  Filing of Claims . . . . . . . . . . . . . . . . . .
      9.2.  Denial of Claims . . . . . . . . . . . . . . . . . .
      9.3.  Review of Claims . . . . . . . . . . . . . . . . . .
      9.4.  Decision by Committee. . . . . . . . . . . . . . . .

<PAGE>

1.  Introduction and Statement of Purpose.

     This Valero Energy Corporation Stock Option Plan No. 3 (the "Plan") is
established for the purpose of giving additional incentive to Key Employees of
the Company by creating an opportunity for capital accumulation by such Key
Employees.  It is intended that the benefits available under this Plan, when
added to other benefits payable to these Key Employees, will furnish total
compensation to such Key Employees which is competitive in the industries in
which the Company conducts its business and in which the Company competes for
employees.  This Plan sets forth the basis for the eligibility of Employees to
participate in the Plan and the terms and conditions regulating such
participation.  The Plan provides for the grant of Options to purchase Common
Stock of Valero, Limited Rights which may be exercised in lieu of Options and
stock appreciation rights which are automatically exercised upon the exercise
of an Option.  The Options granted under the Plan are and are intended to be
"non-qualified" options under the Internal Revenue Code of 1986, as amended.
The Plan amendments first included in this amended and restated Stock Option
Plan No. 3 shall be effective as of January 1, 1996.

2.  Definitions.

     For the purposes of this Plan, the following terms shall have the
meanings stated below unless a different meaning is plainly required by the
context or such term is otherwise defined herein.

      (a)  "Board of Directors" shall mean the Board of Directors of Valero.
      (b)  "Change of Control" shall have the meaning specified in Paragraph
4.15.
      (c)  "Change of Control Period" shall mean a period beginning on any
date that a Change of Control shall occur and ending at the close of business
on the 90th day thereafter, provided however, that if a tender offer or
exchange offer constituting a Change of Control pursuant to clause (ii) of
Paragraph 4.15 shall be canceled, expire or otherwise terminate without Voting
Securities having been acquired pursuant thereto, the Change of Control Period
shall terminate at the close of business on (a) the seventh day following the
date of cancellation, expiration or other termination of such tender offer or
exchange offer, or (b) the 90th day after the commencement of such offer,
whichever shall first occur.
      (d)  "Committee" shall mean the persons administering this Plan from
time to time pursuant to Paragraph 6.1.
      (e)  "Common Stock" shall mean the common stock, par value $1.00 per
share, of Valero.
      (f)  "Company" shall mean Valero and any Parent or Subsidiary of Valero
which now exists or hereafter is organized or acquired by or acquires Valero,
and any successor or successors to such entities.  The terms "Parent" and
"Subsidiary" shall have the same meaning as the terms "parent corporation" and
"subsidiary corporation," respectively, as specified in Section 425 of the
Internal Revenue Code of 1986, as amended.
      (g)  "Compensation Committee" shall mean the Compensation Committee of
the Board of Directors, as constituted from time to time.
      (h)  "Controlled Subsidiary" shall mean a corporation of which a
majority of the outstanding common stock is directly or indirectly
beneficially owned by Valero.
      (i)  "Employee" shall mean any person employed by the Company, including
officers and directors of the Company within the meaning of Section 16(a) of
the Exchange Act, but shall include a director only if also employed by the
Company on a full-time basis.
      (j)  "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended and in effect from time to time.
      (k)  "Exercise Date" -- see Paragraph 4.6.
      (l)  "Expiration Date" -- see Paragraph 3.5.
      (m)  "Exercise Notice" -- see Paragraph 4.6.
      (n)  "Group" -- see Paragraph 4.15.
      (o)  "Installment Option" -- see Paragraph 4.1.  
      (p)  "Key Employee" shall mean any key executive, managerial or
professional Employee or prospective Employee of the Company having
responsibility for planning the Company's operations, controlling or managing
its business activities, or advising the management of the Company with
respect to its operations and business activities.  The determination of "Key
Employees" for purposes of determining eligibility for participation in this
Plan, and the determination of "key employees" for purposes of applying any
New York Stock Exchange Rule or determining eligibility for participation in
any other stock option plan of the Company, need not be consistent.
      (q)  "Limited Right" shall mean the right, following a Change of Control
of Valero and in lieu of purchasing an Option Share pursuant to the exercise
of an Option, to receive a cash payment equal to the difference between the
Strike Price of such Limited Right and the price of one share of Common Stock
at the time specified in Paragraph 4.2.
      (r)  "Nonaccelerated Person" -- see Paragraph 4.15.
      (s)  "Nonacceleration Notice" -- see Paragraph 4.15.
      (t)  "Option" or "Options" shall mean an option or options granted
pursuant to this Plan to purchase shares of Common Stock.
      (u)  "Option Agreement" shall mean a written agreement entered into
between Valero and a Participant pursuant to Paragraph 3.9.
      (v)  "Option Price" -- see Paragraph 3.5.
      (w)  "Option Share" shall mean one share of Common Stock purchased or
which may be purchased pursuant to an Option.
      (x)  "Parent" -- see subparagraph (f) of this Paragraph 2.
      (y)  "Participant" shall mean a Key Employee who has entered into an
Option Agreement which is in force and effect.
      (z)  "Person" -- see Paragraph 4.15.
      (aa) "Plan" -- see Paragraph 1.
      (bb) "Plan No. 1" shall mean the Valero Energy Corporation Stock Option
Plan No. 1, as amended and in effect from time to time.
      (cc) "Plan No. 2" shall mean the Valero Energy Corporation Non-Qualified
Stock Option Plan No. 2, as amended and in effect from time to time.
      (dd) "Preference Share Purchase Right" shall mean one of the rights
distributed to holders of record of Valero on November 25, 1985, to purchase
1/100 share of the Junior Participating Serial Preference Stock, Series II, of
Valero.
      (ee) "Rights Agreement" shall mean that certain Amended and Restated
Rights Agreement, dated as of October 17, 1991, between Valero and Ameritrust
Texas National Association, successor to MBank Alamo, N.A., as Rights Agent,
as amended and in effect from time to time.
      (ff) "Restricted Optionee" shall mean any person who is a "director" or
"officer" of Valero within the meaning of Section 16(a) of the Exchange Act,
together with any person who is the beneficial owner of more than 10 percent
of any class of equity security of Valero registered under Section 12 of the
Exchange Act.
      (gg) "SAR" or "stock appreciation right" shall mean the right, subject
to the provisions of this Plan, to receive a payment in cash equal to the
difference between the specified Strike Price of the SAR and the price of one
share of the Common Stock at the time specified in Paragraph 4.3.
      (hh) "SEC" shall mean the Securities and Exchange Commission.
      (ii) "Settlement Date" -- see Paragraph 4.6.
      (jj) "Strike Price" shall mean the price per share of the Common Stock,
determined pursuant to Paragraph 3.7, from which the appreciation (if any)
with respect to a SAR or Limited Right shall be calculated.
      (kk) "Subsidiary" -- see subparagraph (f) of this Paragraph 2.
      (ll) "Tax Payment" -- see Paragraph 4.6.
      (mm) "Valero" shall mean Valero Energy Corporation, a Delaware
corporation.
      (nn) "Valero Pension Plan" -- see Paragraph 4.13.
      (oo) "Voting Securities" -- see Paragraph 4.15.
      (pp) "Window Period" shall mean a period beginning on the third business
day following the date of release for publication of the financial data
specified in paragraph (e)(1)(ii) of Rule 16b-3 under the Exchange Act and
ending on the twelfth business date following such date.

3.  Granting of Options, Limited Rights and SARs to Employees.

      3.1.  Selection of Participants.  The Committee shall, from time to
time, grant Options to purchase a specified number of Option Shares to such
Key Employees of the Company as the Committee, in its sole and absolute
discretion, shall select to become Participants.  At or subsequent to the time
that an Option is granted to a Key Employee by the Committee, the Committee
may grant such Key Employee a number of SARs not exceeding the number of
Option Shares which may be purchased (whether in installments or otherwise)
pursuant to such Option, provided, that no SARs shall be granted with respect
to Option Shares which have theretofore been purchased by a Participant or to
any Participant who, subsequent to the date of grant of such Option, is no
longer an Employee as such term is defined herein.  Subject to the full and
final authority of the Committee to administer the Plan and select
Participants, the granting of Options, Limited Rights and SARs hereunder and
the selection of Participants may be based on recommendations made by the
Chairman of the Board and Chief Executive Officer (or, if such office shall be
vacant, the President) of Valero.

      3.2.  Exclusion of Committee Members.  No member of the Committee, while
so serving, may be granted any Option, Limited Rights or SARs.  However, a
Participant who has been granted an Option, Limited Rights or SARs under this
Plan prior to serving on the Committee may, during such term of service,
continue to hold any Options, Limited Rights and SARs previously granted and
may exercise any such Options, Limited Rights and SARs and hold Option Shares
acquired upon the exercise of any such Options, subject to the provisions of
this Plan.

       3.3.  No Right to Participate.  No Employee or prospective Employee of
the Company shall have the right to require the Company or the Committee to
make him a Participant under this Plan.

       3.4.  Automatic Grant of Limited Rights.  Each Option granted pursuant
to this Plan (whether or not the Option Agreement shall so specify) shall be
automatically accompanied by that number of Limited Rights which equals the
number of Option Shares which may be purchased (whether in installments or
otherwise) pursuant to such Option.  Limited Rights may not be granted
separate or apart from the grant of an Option to purchase Option Shares.

       3.5.  Determination of Option Provisions.  In determining that a Key
Employee shall be granted an Option, the Committee shall designate the number
of Option Shares the Employee may purchase under the Option, a date upon which
the Option (unless an earlier termination date is established pursuant to
Paragraph 8.4) will automatically expire (the earlier of such dates being
referred to herein as the "Expiration Date"), the price per share at which
such Option Shares may be purchased (the "Option Price") and the remaining
terms and conditions of such Option.  If the Committee shall determine to
grant SARs to the grantee or holder of an Option, the Committee shall
designate the number of SARs granted and any terms and conditions pertaining
thereto.

       3.6.  Option Shares, Limited Rights and SARs Available for Grant.  (A)
Subject to the provisions of Paragraphs 4.10 and 5, the maximum number of
shares of Common Stock which may be optioned and sold under this Plan shall be
equal to the sum of (a) 500,000 shares, plus (b) the number of shares
available for grant under Plan No. 1 and Plan No. 2 at the close of business
on the day that the stockholders of Valero  approved the adoption of this
Plan, plus (c) a number of shares equal to the number of shares previously
granted under Plan No. 1 and Plan No. 2 pursuant to Options which are
forfeited or surrendered, or which expire, terminate or lapse, after such date
of approval.  Shares of Common Stock optioned and sold under this Plan (and
any rights or other securities sold or delivered in accordance with Paragraph
5.1) may be either authorized but unissued securities or reacquired (treasury)
securities.

       (B)  The maximum number of SARs which may be granted under this Plan
shall (subject to the provisions of Paragraphs 4.10 and 5) be equal to the
maximum number of shares of Common Stock which may be optioned and sold under
this Plan, as determined pursuant to clauses (a), (b) and (c) of  subparagraph
(A) above.  The number of Limited Rights which shall be granted under this
Plan shall be equal to the number of shares of Common Stock optioned under
this Plan.

       (C)  During the term of this Plan, Valero will at all times reserve and
keep available, or have authorized but unissued, shares of Common Stock
sufficient to satisfy the requirements of this Plan.  The inability of Valero
to obtain, from any regulatory body having jurisdiction, any authority deemed
by Valero's counsel to be necessary to the lawful issuance and sale of Common
Stock hereunder, shall relieve the Company of any liability in respect of the
nonissuance or sale of such Common Stock as to which such requisite authority
shall not have been obtained.

       3.7.  Limitations Regarding Option Price and Strike Price.  The Option
Price for any Option Share shall be as specified by the Committee, but shall
not be less than 75% of the average sales price of a share of Common Stock on
the date such Option is granted.  The determination of such average sales
price shall be made in accordance with Paragraph 4.2.  The Strike Price at
which an SAR or Limited Right is granted shall be equal to the Option Price of
the Option Shares to which such SAR or Limited Right is related.

       3.8.  Limitation Regarding Option Period.  The Plan shall continue
indefinitely.  However, no Option granted under this Plan shall have a stated
Expiration Date which is more than 10 years and thirty days following the date
of grant of such Option.  Subject to the provisions of Paragraph 4.14, an
Option, the associated Limited Rights and any associated SARs shall lapse and
shall be automatically forfeited upon the earlier of the Expiration Date (i)
as set forth in the Option Agreement pursuant to which such Option, the
associated Limited Rights and any associated SARs are granted, or (ii) as
established pursuant to Paragraph 8.4, unless an Exercise Notice is delivered
to Valero on or before the Expiration Date.

       3.9.  Option Agreements.  Options, Limited Rights and SARs shall be
evidenced by Option Agreements having such terms and provisions, not
inconsistent with this Plan, as the Committee deems advisable.  Option
Agreements need not be uniform.  Promptly following each determination by the
Committee to grant an Option or SARs to a Key Employee, the Committee shall
cause Valero to enter into an appropriate Option Agreement (or, in the case of
a grant only of SARs, an amendment to an existing Option Agreement) with such
Key Employee.  No Key Employee or other person claiming by, through or under a
Key Employee shall be entitled to exercise any Option, Limited Right or SAR
until an appropriate Option Agreement (or amendment thereto) shall have been
executed by Valero and such Key Employee.  In the event a Key Employee of the
Company is granted an Option or SARs by the Committee but for any reason,
including, but not limited to, death or total and permanent disability, does
not actually enter into a fully executed Option Agreement (or appropriate
amendment thereto) with Valero, such Key Employee shall not be deemed a
Participant with respect to such Option or SARs and neither such Key Employee
nor any person claiming by, through or under such Key Employee shall be
entitled under any circumstances to exercise such Option, Limited Rights or
SARs.

       3.10.  Provisions Regarding Prospective Employees.  In the event that a
prospective Key Employee of the Company is granted an Option, Limited Rights
or SARs pursuant to this Plan prior to actually commencing employment with the
Company but for any reason, including, but not limited to, death or total and
permanent disability, does not actually commence employment with the Company,
such person shall not be deemed a Participant for any purpose of this Plan and
neither such person nor any person claiming by, through or under such person
shall be entitled under any circumstances to exercise such Option, Limited
Rights or SARs.  Upon actually commencing employment with the Company, such a
prospective Key Employee will then be deemed a Participant for all purposes of
this Plan, and will then, but only then, be deemed for purposes of this Plan
(but not for purposes of the Valero Pension Plan or other employee benefit
plans of the Company unless expressly so provided therein) to have been
continually employed by the Company from the date of grant of the Option to
the date of commencement of employment.

4.  Exercise of Options, Limited Rights and SARs.

       4.1.  Exercise of Options.  Any Option and any associated SARs shall be
exercisable at such time and in such amounts, either as to all of the Option
Shares covered thereby or in installments ("Installment Options"), as is
provided in the Participant's Option Agreement or as may otherwise be provided
in this Plan.  An Installment Option may allow the purchase of all or any part
of the Option Shares on a specified installment date or dates, and the
subsequent purchase of any unpurchased Option Shares after such installment
date(s) and through the Expiration Date.  However, no Option may be exercised
with respect to a fractional share.

       4.2.  Exercise of Limited Rights.  Any Limited Right may be exercised
only following a Change of Control of Valero, and may be exercised only in
lieu of the purchase of the related Option Shares.  However, a Participant
may, at his election, either exercise a Limited Right or purchase the related
Option Share upon exercise of the Option.  Upon the exercise of a Limited
Right, the Participant's Option to purchase the related Option Share shall
automatically terminate and be forfeited.  Upon the exercise of a Limited
Right, the Participant shall be entitled to receive a cash payment in an
amount equal to the difference between the Strike Price of the Limited Right
and (a) if the Limited Right is exercised during a Window Period or Change of
Control Period, the highest of the daily average sales prices for the Common
Stock during such Window Period or Change of Control Period or (b) if the
Limited Right is not exercised during a Window Period or Change of Control
Period, the highest of the daily average sales prices for the Common Stock
within the 30 day period prior to the Exercise Date.  The daily average sales
price of the Common Stock on a given date shall be the mean of the reported
"high" and "low" prices for the Common Stock on such date, as reported in the
New York Stock Exchange - Composite Transactions listing in The Wall Street
Journal (or such other listing or quotation medium as the Committee shall
later designate) for such date, corrected, if necessary, to exclude the effect
of typographical errors.

       4.3.  Automatic Exercise of SARs; Settlement Price for SARs.  (A) No
SARs may be exercised except simultaneously with the exercise of an Option or
Limited Right.  A Participant or other person exercising an Option or Limited
Right shall be deemed to have automatically exercised on the Exercise Date
that number of related SARs which equals the number of Option Shares purchased
or Limited Rights exercised, not exceeding the lesser of (a) the number of
related SARs held by such Participant, or (b) the number of SARs then
permitted to be exercised under the Participant's Option Agreement.  Where a
Participant holds fewer related SARs than the number of Option Shares to which
his Option pertains, the Committee may adopt policies, or include terms in the
Participant's Option Agreement, which permit or require the Participant to
exercise such SARs during or after specified periods, or in conjunction with
the exercise of a certain portion of an Option, or which permit the
Participant to determine, with such restrictions as the Committee may
prescribe, the timing of exercise of such SARs.

       (B)  Any SAR which is exercised at the same time as a related Limited
Right shall be settled on the basis of the same daily average sales price for
the Common Stock as is such Limited Right.  Except as provided in the
foregoing sentence, any SAR which is exercised during a Window Period or
Change of Control Period shall be settled on the basis of the highest daily
average sales prices of the Common Stock during such Window Period or Change
of Control Period.  Except as provided in the two foregoing sentences, SARs
shall be settled on the basis of the daily average sales price of the Common
Stock on the Exercise Date.

       4.4.  Exercise of Limited Rights by Restricted Optionees.  A Restricted
Optionee exercising Limited Rights may do so only during a Change of Control
Period or Window Period following a Change of Control and more than six months
following the date of grant of the Option to which such Limited Rights relate.

       4.5.  Forfeiture of Certain SARs.  No SARs may be exercised by a
Restricted Optionee within six months following the date of grant of such SARs
or the date of grant of the Option to which such SARs relate.  Any other
provision of this Plan to the contrary notwithstanding, in the event that an
Option or Limited Rights are exercised by a Restricted Optionee within six
months following the date of grant of the Option or within six months
following the date of grant of any related SARs, any SARs related to the
Option Shares purchased upon such exercise or to the Limited Rights exercised
shall thereupon automatically terminate and be forfeited with the same effect
as if such SARs had never been granted.

       4.6.  Exercise Procedure.  Options, Limited Rights and SARs may be
exercised only by written notice of such exercise (the "Exercise Notice"), in
such form as the Committee may prescribe, delivered to Valero's Stock Benefit
Plan Administration department at Valero's principal business office and
signed by the Participant or other person specified herein as being entitled
to exercise the same.  The date on which such Exercise Notice is delivered to
Valero shall be the "Exercise Date".  The Exercise Notice for Options Shares
shall specify a date (the "Settlement Date"), not less than five business days
nor more than 10 business days following the Exercise Date, upon which the
Option Shares shall be issued to the Participant (or other person entitled to
exercise the Option) and the Option Price shall be paid to Valero.  Upon the
exercise of an Option, the Participant's right to exercise the related Limited
Rights shall automatically terminate and be forfeited.  Subject to the
provisions of Paragraph 3.6(A), on the Settlement Date the person exercising
an Option shall tender to Valero full payment (in cash, certified check,
cashier's check or bank draft approved by Valero, unless shares of Common
Stock are tendered, as provided in Paragraph 4.8) for the Option Shares with
respect to which the Option is exercised, together with an additional amount,
in cash, certified check, cashier's check or bank draft approved by Valero,
equal to the amount of any and all taxes required to be collected or withheld
by the Company in connection with such exercise of such Option (the "Tax
Payment"); provided, however, that when related SARs are exercised at the same
time an Option is exercised, such Tax Payment shall be reduced by withholding
the amount thereof, to the extent possible, from the cash payment otherwise
payable by the Company to the Participant as the result of the exercise of
such SARs.  Subject to the prior approval or disapproval of the Committee, and
to such rules and limitations as it may adopt, if no related SARs are
exercised such Tax Payment may also be made in whole or in part by (a)
withholding from the number of shares otherwise deliverable to the person
exercising the Option a number of shares whose fair market value equals the
Tax Payment or (b) delivering certificates for other shares of Common Stock
owned by the person exercising the Option, endorsed in blank with appropriate
signature guarantee, having a fair market value equal to the amount otherwise
to be collected or withheld.  When Limited Rights are exercised, the Tax
Payment shall be withheld, to the extent possible, from any cash amount
otherwise payable by the Company as the result of the exercise of such Limited
Rights (and any related SARs).  Any and all calculations 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 Option shall be made using the
average sales price of the Common Stock on the Exercise Date, whether or not
the Exercise Notice is delivered to Valero before or after the close of
trading on such date, unless otherwise specified by the Committee.  Any and
all calculations made with respect to a Participant's income, required tax
withholding or other matters made upon exercise of a SAR or Limited Right
shall be made using the price at which such SAR or Limited Right is settled,
unless otherwise specified by the Committee.

      4.7.  Payment for SARs and Limited Rights.  SARS and Limited Rights
shall be paid or settled only in cash.  Payment for Limited Rights and SARs
exercised hereunder shall be made on the Settlement Date.  In the event the
final amount of such payment cannot be immediately determined (e.g., if
exercise occurs near the beginning of a Change of Control Period), an interim
payment shall be made as soon as practicable following the Exercise Date, and
the final payment shall be made as soon as practicable after the applicable
daily average sales price can be determined.

      4.8.  Payment with Common Stock.  Subject to approval of the Committee,
a person exercising an Option may pay for Option Shares by tendering to Valero
other shares of Common Stock legally and beneficially owned by such person at
the time of the exercise of an Option.  Subject to approval of the Committee,
a person exercising an Option may also pay for Option Shares by delivering a
notarized affidavit, in such form as the Committee may prescribe, certifying
as to such person's legal and beneficial ownership of shares of Common Stock
held either in such person's name or in "street name" and, in the case of
shares held in such person's name, providing the certificate number(s) for
such shares; if such method of payment is approved and utilized, the number of
shares issued upon exercise of the Option shall be reduced by the number of
shares represented by such affidavit.  If approved by the Committee, either
such method of exercise may include use of a procedure whereby a person
exercising an Option may request that shares received upon exercise of a
portion of an Option be automatically applied to satisfy the exercise price
for additional and increasingly larger portions of the Option.  The
certificate(s) representing any shares of Common Stock tendered in payment of
the Option Price must be accompanied by a stock power duly executed with
appropriate signature guarantees.  Shares of Common Stock tendered in payment
of the Option Price (including shares represented by an affidavit) shall be
valued at the daily average sales price of the Common Stock on the Exercise
Date, determined as specified in Paragraph 4.2 above.  The Committee may, in
its sole and absolute discretion, refuse any tender of shares of Common Stock,
in which case it shall promptly deliver the shares of Common Stock back to the
person exercising the Option and notify such person of such refusal as soon as
practicable.  In such event, such person may either (a) tender to Valero on
the Settlement Date the cash amount required to pay for such Option Shares, or
(b) rescind his Exercise Notice.  If such person elects to rescind his
Exercise Notice, such person may again (subject to the provisions of this Plan
relating to the termination, forfeiture, lapse or expiration of Options
granted hereunder) deliver an Exercise Notice with respect to such Option
Shares or the associated Limited Rights (and any related SARs) at any time
prior to the Expiration Date of such Options.

       4.9.  Rights as Stockholder.  Until the issuance of the stock
certificate(s) for Option Shares purchased hereunder (as evidenced by the
appropriate entry on the books of Valero or of a duly authorized transfer
agent of Valero), no right to vote or receive dividends or any other rights as
a stockholder of Valero shall exist with respect to such Option Shares,
notwithstanding the exercise of any Option.  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 of Common Stock are issued, except
as otherwise provided under Paragraph 5 of this Plan.

       4.10.  Effect of Termination and Forfeiture.  Except as provided in
Paragraphs 4.14 and 4.15, an Option (and any associated Limited Rights and
SARs) may be exercised by a Participant only while he is and has continually
been, since the date of the grant of the Option, an Employee of the Company.
In the event a Participant's employment with the Company is voluntarily
terminated by the Participant (other than through retirement) or is terminated
by the Company under circumstances involving willful misconduct or criminal
activity by the Participant, then, except as provided in Paragraph 4.14(D),
all Options (and any associated Limited Rights and SARs) previously awarded to
such Participant hereunder and not theretofore exercised in accordance with
Paragraph 4.6 shall automatically lapse and be forfeited as of the date of the
Participant's termination.  Should a Participant's employment be terminated by
retirement, death or total and permanent disability, or by the Company (except
under circumstances involving willful misconduct or criminal activity by the
Participant), the provisions of Paragraph 4.14 shall apply.  Except as set
forth in the following sentence, if a Participant shall forfeit, voluntarily
surrender or otherwise permanently lose his right to exercise an Option or
SARs or any associated Limited Rights under any provision of this Plan or
otherwise, or any Option shall terminate or expire pursuant to its terms, the
Option Shares subject to such Option shall once more be available to be
optioned and sold under this Plan pursuant to a new Option granted hereunder,
and any associated Limited Rights and SARs shall again be available for grant
hereunder.  However, if a Limited Right has terminated and been forfeited
because an Option has been exercised with respect to the related Option
Shares, or an Option to purchase Option Shares has terminated and been
forfeited because the related Limited Rights have been exercised, the Limited
Rights or Option Shares so forfeited shall not become available for additional
grants hereunder.

       4.11.  Effect of Leave of Absence.  A Participant who commences a leave
of absence (such as a disability leave of absence) shall thereupon be
suspended from participation in this Plan during such leave of absence. 
During a period of suspension from this Plan, a Participant cannot exercise
any Option (including any Installment Option) or any associated SARs that, but
for this provision, would otherwise become exercisable during such period of
suspension, provided however, that such Participant shall be entitled to
exercise any Options, Limited Rights or SARs which become exercisable during
such period of suspension pursuant to Paragraph 4.15.  A Participant, while
suspended, may exercise an Option (and any related SARs) with respect to any
unpurchased Option Shares which such Participant was eligible to purchase on
the day preceding the first day of such suspension; however, such Option
Shares must be purchased prior to the Expiration Date of the Option. 
Notwithstanding the foregoing provisions of this Paragraph 4.11, the
Committee, in its sole and absolute discretion, may determine at any time
before or after the commencement of such leave of absence that the
commencement of such leave of absence will be treated as a termination of
employment for purposes of the Plan.  If the Committee so determines, the
Committee shall so notify the Participant and specify a date, not less than 10
days following such notification, by which the Participant must deliver an
Exercise Notice with respect to any Option Shares which the Participant is
then entitled to purchase and exercise any related Limited Rights and SARs
which may then be exercised.  Options, Limited Rights and SARs not exercised
by the Participant by such date shall be forfeited.  The Committee may, in its
sole and absolute discretion, change or modify the exercise dates or other
terms of any Option or SARs held by a Participant who goes on a leave of
absence and which were not exercisable by such Participant at the commencement
of such leave of absence.

       4.12  Effect of Disability.  The total and permanent disability of a
Participant shall terminate, effective on the first day of such disability, as
determined by the Committee, the participation of such Participant in this
Plan subject to the conditions set forth in Paragraph 4.14.  The Committee
shall determine, in its sole and absolute discretion, whether or not a
Participant is totally and permanently disabled for purposes of this Plan and
when such disability (if any) commenced, and such determinations by the
Committee shall be conclusive and binding on the Participant and all persons
claiming by, through or under such Participant.  Such determinations shall be
made on the basis of medical reports and other evidence satisfactory to the
Committee and in accordance with a uniform, nondiscriminatory policy applied
by the Committee, but such determinations shall not be binding on the Company
or any Participant with respect to any other employee benefit or other plan or
insurance policy wherein such determinations may be relevant, and need not be
consistent with any determinations made under any such plan or insurance
policy.

       4.13.  Effect of Retirement or Death.  The retirement or death of a
Participant shall terminate, effective on the date of such retirement or
death, the participation of such Participant in this Plan subject to the
conditions set forth in Paragraph 4.14.  For purposes of this Plan, a
Participant shall be deemed to have retired when the Participant retires under
the provisions of the Pension Plan for Employees of Valero Energy Corporation
or any other, similar pension plan of the Company providing benefits to such
Participant ("Valero Pension Plan").  In the case of a Participant who is not
a participant in a Valero Pension Plan, retirement shall be deemed to occur
when the Participant retires from the service of the Company.

       4.14.  Exercise Following Termination, Retirement, Disability or Death. 
(A) Should the Committee determine that a Participant has become totally and
permanently disabled, or should the Participant's employment with the Company
be terminated as the result of death or retirement, the first day of such
disability (as determined by the Committee) or the date of retirement or
death, as the case may be, shall be treated as the date of the Participant's
termination from the Plan, and the Participant (or the Participant's heir,
beneficiary, guardian, legal representative, administrator or executor, as the
case may be) shall be entitled for the period specified in subparagraph (C)
below to (a) purchase any Option Shares (or, if a Change of Control has
occurred, exercise any Limited Rights) that the Participant was eligible to
purchase or exercise on the day prior to such date of retirement, death or
disability and which such Participant (had he not died, retired or become
disabled) would have become eligible to purchase or exercise within the six
month period following such date of retirement, death or disability and (b)
exercise any SARs associated with such Option Shares so purchased or Limited
Rights so exercised.

       (B)  A Participant who retires, dies, or becomes totally and
permanently disabled while suspended from this Plan will be deemed to have
been reinstated into the Plan on the day prior to the date of retirement,
death or disability, and such Participant (or the Participant's heir,
beneficiary, guardian, legal representative, administrator or executor, as the
case may be), shall be entitled for the period specified in subparagraph (C)
below to (i) purchase any Option Shares (or, if a Change of Control has
occurred, exercise any Limited Rights) which the Participant, had he not
retired, died or become disabled, would have been entitled to purchase or
exercise on the day prior to the date of retirement, death or disability, and
would have become entitled to purchase or exercise within the six month period
following the date of retirement, death or disability, and (ii) exercise any
SARs related to the Option Shares so purchased or Limited Rights so exercised. 

       (C)  A Participant or other person entitled to exercise any Options,
Limited Rights or SARs pursuant to subparagraph (A) or (B) above other than a
Restricted Optionee or other person exercising an Option, Limited Right or SAR
on behalf of a Restricted Optionee shall have until the earlier of (i) the
Option Expiration Date, or (ii) three years from the date of such
Participant's retirement, death or disability, to deliver in accordance with
Paragraph 4.6 an Exercise Notice with respect to such Options, Limited Rights
and SARs.  A Restricted Optionee or other person entitled to exercise an
Option, Limited Right or SAR on behalf of a Restricted Optionee pursuant to
subparagraph (A) or (B) above shall have until the earlier of (i) the Option
Expiration Date, or (ii) three years from the date of such Restricted
Optionee's retirement, death or disability, to deliver in accordance with
Paragraph 4.6 an Exercise Notice with respect to such Options, Limited Rights
and SARs granted on or after November 28, 1993.  For Options, Limited Rights
and SARs granted to Restricted Optionees under this Plan before November 28,
1993, a Restricted Optionee or other person entitled to exercise an Option,
Limited Right or SAR on behalf of a Restricted Optionee pursuant to
subparagraph (A) or (B) above shall have until the earlier of (i) the Option
Expiration Date, or (ii) 90 days from the date of such Restricted Optionee's
retirement, death or disability to deliver the Exercise Notice prescribed by
Paragraph 4.6 herein.  Any Options, Limited Rights or SARs not exercised
within such periods shall be automatically forfeited; provided however, that
the Committee or the Chairman of the Board and Chief Executive Officer (or if
such office shall be vacant, the President) of Valero upon application of any
proper party may in its sole and absolute discretion grant extensions of such
three year or 90 day period upon such terms and subject to such conditions as
it may specify; provided further, however, that in the case of a Restricted
Optionee, any such extension shall be subject to the prior approval of the
Committee, which shall either approve or disapprove the same in its sole
discretion.  Neither the Company, its officers, directors, employees, or
agents, nor any member of the Committee shall bear any liability to the estate
of, or to any spouse, beneficiary, legatee or heir of a Participant, or to the
Participant himself, or to any other person, for authorizing an heir,
beneficiary, executor, legatee, administrator, guardian or legal
representative of a Participant, or an individual or entity who is represented
as such, to exercise an Option, Limited Right or SAR granted hereunder or for
issuing the Option Shares purchased pursuant to the exercise of any Option, or
for making any cash payment (or for withholding any Tax Payment from any cash
payment) relating to any Limited Right or SAR, granted under this Plan.
       (D)  In the case of any retirement and/or termination of employment 
(whether voluntary or involuntary termination or otherwise), the Committee or,
except with respect to a Restricted Optionee, the Chairman of the Board and
Chief Executive Officer (or, if such office shall be vacant, the President) of
Valero shall be entitled (but shall not be required) to permit the Participant
to exercise, for a period not to exceed 90 days, all or part of the
Participant's Options (and any associated Limited Rights and SARs) which, at
the date of termination of employment, were exercisable pursuant to the
Participant's Option Agreement(s) and the provisions of the Plan and remained
unexercised.  In addition, the Committee or, except with respect to a
Participant who is a Restricted Optionee at the date of such Option Agreement
amendment, the Chairman of the Board and Chief Executive Officer (or, if such
office shall be vacant, the President) of Valero may, in connection with any
Participant's retirement and/or termination of employment with the Company,
(i) authorize any existing Option Agreement of such Participant to remain in
full force and effect under its existing terms and conditions (including its
existing vesting schedule) or such amended terms and conditions as the
Committee or the Chairman of the Board and Chief Executive Officer shall
approve, and/or (ii) authorize amendments to any existing Option Agreement (or
a new Option Agreement superseding any prior Option Agreement) between Valero
and such Participant removing and/or modifying any or all of the then present
or future restrictions, conditions and/or limitations (whether arising under
such Option Agreement or this Plan) on the exercise of the Options (and any
associated Limited Rights and SARs) previously granted to such Participant; no
such authorization or amendment (or new Option Agreement) shall increase the
aggregate number of Options granted to any Participant.  Any action referred
to in the preceding two sentences shall be taken by the Committee, Chairman of
the Board and Chief Executive Officer (or, if such office shall be vacant, the
President) of Valero, if at all, not later than six months following the
Participant's effective date of termination.

       4.15  Effect of Change of Control.  (A) As used herein, the term
"Change of Control" shall mean each occurrence of any one or more of the
following events:

       (i)  any person (excluding any employee benefit plan of Valero, any
trustee, administrator or other entity administering any such plan, and Valero
or any Controlled Subsidiary) or any partnership, limited partnership,
syndicate or other group formed for the purpose of acquiring, holding or
disposing of Voting Securities within the meaning of Rule 13(d) under the
Exchange Act (a "Group") which theretofore beneficially owns less than 20% of
the Voting Securities of Valero then issued and outstanding shall publicly
announce, or shall file with the SEC a Schedule 13D pursuant to Section 13(d)
of the Exchange Act (or successor form pursuant to such or any successor
provision) indicating, that it has acquired (whether in one or more
transactions) Voting Securities of Valero that result in such person or Group
directly or indirectly beneficially owning 20% or more of the Voting
Securities of Valero; or

       (ii)  any person (other than Valero, any Controlled Subsidiary, any
employee benefit plan of Valero and any trustee, administrator or other entity
administering any such plan) or Group shall commence a tender offer or
exchange offer for 30% or more of the Voting Securities of Valero, or for any
number or amount of Voting Securities of Valero which, if such offer were to
be fully subscribed and all Voting Securities for which such tender or
exchange offer is made were to be purchased or exchanged pursuant to such
offer, would result in such person or Group directly or indirectly
beneficially owning 50% or more of the Voting Securities of Valero; or 

       (iii)  during any period of 24 consecutive calendar months, there shall
be a change in the composition of the Board of Directors of Valero such that
the persons who at the beginning of any such period constituted a majority of
the directors of Valero shall cease to constitute a majority of the Board of
Directors of Valero, unless the election, or the nomination for election, by
the shareholders of Valero, or the appointment by the Board of Directors, of
each new director during such 24 month period was approved by the vote at a
meeting or the written consent of at least two-thirds of the directors then
still in office who were directors at the beginning of such period; or

       (iv)  the shareholders of Valero shall approve an agreement providing
either for any merger, consolidation, combination or other transaction in
which Valero will cease to be an independent publicly owned corporation, or
for the liquidation or the sale of all or substantially all of the assets of
Valero. 

       (v)  the occurrence of the Distribution Date, as such term is defined
in the Rights Agreement.

       (vi)  any other event determined by the Board of Directors or the
Committee to constitute a Change of Control.

       (B)  As used herein, the term "Voting Securities" shall mean the Common
Stock, any other equity security of Valero ordinarily entitled to vote for
directors at meetings of the stockholders of Valero and any debt or equity
security of Valero convertible into Common Stock or another security so
entitled to vote for the election of directors of Valero.  In calculating the
percentage of Voting Securities owned by a person or Group, securities that
are immediately convertible, or by their terms, upon the occurrence of any
event or the lapse of time, or both, will become convertible into or
exchangeable or exercisable for shares of Common Stock (or other Voting
Securities) shall be deemed to represent the number of whole shares of Common
Stock (or other Voting Securities) into which such securities are then or will
become ultimately convertible or for which they are then or will become
ultimately exchangeable or exercisable, and the total number of issued and
outstanding shares of Common Stock (or other Voting Securities) of Valero
shall be determined on a pro forma basis after giving effect to such
conversion.  The percentage of Voting Securities held by a person or Group
shall be deemed to be equal to the percentage of the number of the votes that
could be cast for the election of directors of Valero at a meeting of
stockholders that such person or Group would be entitled to so cast after
giving effect to the provisions of the preceding sentence.  As used in this
Paragraph 4.15, the term "person" shall include any individual, corporation,
partnership, firm or other entity.

       (C)  In the event that a Change of Control shall occur, the Chairman of
the Board and Chief Executive Officer (or, if such office shall at such time
be vacant, the President ) of Valero may, on or before the date of such event
constituting a Change of Control, file with the Corporate Secretary of Valero
a written notice (the "Nonacceleration Notice") signed by such officer stating
that such Change of Control shall not result in the acceleration of Options
(or any related Limited Rights and SARs) granted under the Plan to the
Participants identified in such notice (or held by persons claiming by,
through or under such Participants).  Such Nonacceleration Notice may be filed
with respect to all Options granted under the Plan or with respect to Options
granted to specified Participants (each such Participant referred to by name
or generically in a Nonacceleration Notice timely filed with the Corporate
Secretary of Valero, together with each person claiming by, through or under
such a Participant, is hereinafter referred to as a "Nonaccelerated Person").
Any other provision of this Plan notwithstanding, each Option (and, subject to
the provisions of Paragraph 4.2, all Limited Rights and SARs) granted under
this Plan, not theretofore forfeited or terminated and held at the date of a
Change of Control by a person who at such date is neither a Nonaccelerated
Person nor a Restricted Optionee shall upon occurrence of such Change of
Control immediately become exercisable with respect to all of the Shares of
Common Stock specified therein (less any such shares previously purchased
under the Option) and any related Limited Rights and SARs.  The inclusion of a
Participant or other person as a Nonaccelerated Person in a Nonacceleration
Notice shall not be construed to alter or amend any rights such Participant or
other person may have under this Plan under the provisions of any executive
severance agreement or other contractual relationship with Valero.

       (D)  Notwithstanding the provisions of Paragraph 4.10, in the event
that a Change of Control shall occur, each Option (and any Limited Rights and
SARs) held by a Participant pursuant to the Plan shall remain exercisable
until the earlier of (i) the Expiration Date of the Option, or (ii) 90 days
following the Participant's date of termination of employment.

5.  Adjustments Upon Changes In Capitalization.

       5.1.  Securities Received Upon Exercise.  If all or any portion of an
Option, Limited Right or SAR 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, or liquidation, as a result of which shares or
other Securities of any class or rights shall be issued in respect of
outstanding shares of Common Stock or shares of Common Stock 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 or persons so exercising such Option,
Limited Right or SAR shall receive, (a) for the aggregate price payable upon
such exercise of such Option, (i) the aggregate number and class of shares,
rights or other securities for which a recognized market exists, and (ii) a
cash amount equal to the fair market value on such date, as reasonably
determined by the Committee, 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 of Common Stock (as authorized at
the date of the granting of such Option) had been purchased at the date of
granting of the Option for the same aggregate price (on the basis of the price
per share provided in the Option) and had not been disposed of, such person or
persons would be holding at the time of such exercise as a result of such
purchase and any such stock dividend, rights distribution, split-up,
recapitalization, combination or exchange of shares, merger, consolidation,
acquisition of property or stock, spin-off or separation, reorganization, or
liquidation and (b) a cash amount upon the exercise of the Limited Rights or
SARs equal to the difference between the aggregate Strike Price of such
Limited Right or SAR and the aggregate of (i) the average sales price, on the
date provided in Paragraph 4.2 or 4.3 hereof, as the case may be, of any whole
shares or units of Common Stock, rights or other securities for which a
recognized market exists, and (ii) the fair market value on such date, as
reasonably determined by the Committee, of any other property (other than
regular cash dividend payments) which the holder of a number of shares of
Common Stock equal to the number of such Limited Rights or SARs, if such
shares had been purchased at the date of granting of such Limited Rights or
SARs and not otherwise disposed of, would be holding at the time of exercise
of such Limited Rights or SARs as a result of such purchase and any such stock
dividend, rights distribution, split-up, recapitalization, combination or
exchange of shares, merger, consolidation, acquisition of property or stock,
spin-off or separation, reorganization or liquidation; provided however, that
no fractional share of Common Stock, fractional right or other fractional
security shall be issued upon any such exercise, and the aggregate price paid
shall be appropriately reduced to reflect any fractional share of Common
Stock, fractional right or other fractional security not issued; and provided
further, however, that if the exercise of any Option 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 or liquidation would, pursuant to
clause (a) of this Paragraph 5.1, require the delivery of shares, rights or
other securities which Valero 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 such Option shall receive, in lieu of such
shares, rights or other securities, a cash payment equal to the fair market
value on the Exercise Date, as reasonably determined by the Committee, of such
shares, rights or other securities.   For purposes of applying the provisions
of this Plan, the Preference Share Purchase Rights distributed to stockholders
of record of Valero on November 25, 1985, shall be deemed not to have been
distributed until the Distribution Date (as defined in the Rights Agreement).

      5.2.  Adjustment of Option Shares Available.  In the event of any change
in the number of shares of Common Stock outstanding resulting from a stock
dividend, rights distribution, split-up, recapitalization, combination or
exchange of shares, merger, consolidation, acquisition of property or stock,
spin-off or separation, reorganization or liquidation, (a) the aggregate
number and class of shares of Common Stock remaining available to be optioned
under this Plan shall be that number and class which a person, to whom an
Option had been granted for all of the available shares of Common Stock under
this Plan on the date preceding such change, would be entitled to receive as
provided in Paragraph 5, and (b) the aggregate number of Limited Rights and
SARs remaining available under this Plan shall be determined pursuant to the
formula b/a (c) wherein:

       a =  the number of Option Shares available to be optioned under this
Plan immediately prior to such change,
       b =  the number of Option Shares available to be optioned under this
Plan immediately following such change, and
       c =  the number of Limited Rights or SARs available for grant under
this Plan immediately prior to such change.

     Upon the occurrence of 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 or
liquidation, the Committee shall be entitled (but shall not be required) to
determine that new Option Agreements shall be entered into with Participants
reflecting such stock dividend or other event.

6.  Administration.

       6.1.  Plan Administered by Committee.  This Plan shall be administered
by a committee of not less than three directors of Valero, which committee
shall, except as hereinafter set forth, be the Compensation Committee, as
appointed and constituted from time to time by the Board of Directors.  In the
event the Compensation Committee shall have fewer than three members, or fewer
than three members of the Compensation Committee shall be eligible to act with
respect to this Plan, then additional members of the Board of Directors shall
be appointed by the Board of Directors to act with and as a part of the
Compensation Committee for purposes of administering this Plan so that the
Committee administering this Plan shall consist of at least three members of
the Board of Directors.  No person shall serve on or act as a member of the
Committee administering this Plan who has been granted or was eligible for
selection as a person to be granted an Option or SARs pursuant to this Plan,
or was eligible for an award under any other discretionary plan of Valero or
the Company (whether or not similar to the Plan) entitling the participants
therein to acquire SARs, Limited Rights or shares of Common Stock, stock
options or other securities of Valero or the Company, within one year prior to
the date such person would first serve on or act as a member of the Committee. 

       6.2.  Powers of the Committee.  In connection with its administration
of this Plan, the Committee is empowered to:

       (a)  Make all determinations and computations concerning the selection
of Participants, the granting of Options, Limited Rights and SARs, the pricing
thereof and the number of Option Shares to be optioned, and SARs to be
granted, to each Participant; 

       (b)  Cause Valero to enter into Option Agreements with Participants; 

       (c)  With the consent of the Participant, enter into agreements
amending any Option Agreement so as to grant SARs thereunder, change the
Option Price or Expiration Date of any Option, the Strike Price of any Limited
Right or SAR or any other term or condition thereof, or to terminate any such
Option Agreement;

       (d)  Make rules and regulations for the administration of the Plan
which are not inconsistent with the terms and provisions of this Plan,
including rules providing for the accelerated exercise of Options and SARs in
such circumstances as the Committee may deem appropriate;

       (e)  Construe all terms, provisions, conditions and limitations of the
Plan in good faith, and adopt amendments to the Plan;

       (f)  Make equitable adjustments for any mistakes or errors in the
administration of this Plan or deemed by the Committee to be necessary as the
result of any unusual situation or any ambiguity in the Plan;

       (g)  Select, employ and compensate, from time to time, consultants,
accountants, attorneys and other agents and employees as the Compensation
Committee may deem necessary or advisable for the proper and efficient
administration of this Plan.

     6.3. Express Powers not Exclusive.  The foregoing list of express powers
granted to the Committee upon the adoption of this Plan is not intended to be
either complete or exclusive, but the Committee shall, in addition to the
specific powers granted by this Plan, have such powers, whether or not
expressly authorized herein, which it may deem necessary, desirable,
advisable, proper, convenient or appropriate for the supervision and
administration of this Plan.  Except as otherwise specifically provided
herein, the decisions or judgment of the Committee on any question or claim
arising hereunder shall be final, binding and conclusive upon the Participants
and all persons claiming by, through or under a Participant.

7.   Miscellaneous Provisions.

     7.1. Nonassignability.  No Options, SARs, Limited Rights or any other
security, right or interest heretofore or hereafter granted under this Plan
shall be transferable by the Participant other than pursuant to a will of the
Participant or the laws of descent and distribution, and no Participant or
other person claiming by, through or under a Participant shall have any right
to sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
transfer, hypothecate or convey in advance of actual receipt any Option
Shares, SARs, Limited Rights or any cash amounts or other shares, rights or
securities (if any) payable hereunder, or any part thereof, all of which are,
and all rights in and to which are, hereby expressly declared to be
nonassignable and nontransferable; any such purported sale, assignment,
transfer, pledge, anticipation, mortgage, encumbrance, transfer, hypothecation
or conveyance shall be void and of no force or effect.  No Option Shares,
SARs, Limited Rights and no part of any cash amounts or other shares, rights
or securities payable hereunder (if any) shall, prior to actual payment or
delivery, be subject to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant, or other
person claiming by, through or under a Participant, nor be transferable by
operation of law in the event of bankruptcy or insolvency, except as required
by law.  The designation of a beneficiary shall not constitute a transfer
hereunder.

     7.2. Investment Letter.  As a condition to the exercise of any portion of
an Option, the Committee, the General Counsel or the Corporate Secretary may
require the person exercising such Option to represent and warrant to
Valero at the time of any such exercise that the Option Shares are being
purchased only for investment and without any present intention to sell or
distribute such Option Shares, if, in the opinion of counsel for Valero, such
representation is required or desirable under the Securities Act of 1933 or
any other applicable state, federal or local law, regulation or rule of any
governmental agency.  The Committee, the General Counsel or the Corporate
Secretary may require such person to execute and deliver to Valero an
appropriate investment letter containing representations and warranties of the
type generally described above.

     7.3. [Reserved]

     7.4. Responsibility for Taxes.  Any and all taxes payable with respect to
income to a Participant resulting from the exercise of an Option, Limited
Rights or SARs granted hereunder shall be the sole responsibility of the
Participant, not of the Company or Valero, whether or not Valero or the
Company shall have withheld or collected from the Participant any sums
required to be so withheld or collected in respect of such income, and whether
or not any sums so withheld or collected shall be sufficient to provide for
any such taxes.

     7.5. Employment Not Guaranteed.  Nothing contained in this Plan nor any
action taken hereunder shall be construed to create a contract of employment
or to give any Participant any right to be retained in the employ of the
Company or to serve or continue to serve as an officer or director of Valero
or any Subsidiary.

     7.6. Gender, Singular and Plural.  All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, or neuter, as the
identity of the person or persons may require.  As the context may require,
the singular may be read as the plural and the plural as the singular.

     7.7. Captions.  The captions of the Paragraphs of this Plan are for
convenience only and shall not control or affect the meaning or construction
of any of its provisions.

     7.8. Validity.  In the event any provision of this Plan is held invalid,
void, or unenforceable, the same shall not affect, in any respect whatsoever,
the validity of any other provision of this Plan.

     7.9. Notice.  Any notice, statement, decision or communication required
or permitted to be given under this Plan shall be sufficient if in writing and
hand delivered, or sent by registered or certified mail, if to the Company, to
the principal office of Valero, directed to the attention of the Corporate
Secretary of Valero, and if to a Participant or other person, to the address
of the Participant or other person as it shall appear on the books of the
Company.  Any such notice shall be deemed given as of the date of delivery or,
if delivery is made by mail, as of the third day following the date shown on
the postmark on receipt for registration or certification.

     7.10.     Applicable Law.  This Plan shall be governed and construed in
accordance with the laws of the State of Texas.

     7.11.     Inconsistency.  In the event of any conflict or inconsistency
between the provisions of this Plan and the provisions of any Option
Agreement, the provisions of this Plan shall control.

     7.12.     No Adoption of SEC Rules.  The adoption by the Committee of
this amended and restated Stock Option Plan No. 3 is not intended to, and
shall not, constitute an election by the Company to adopt the rules
promulgated by the SEC under Section 16 of the Exchange Act pursuant to
Release No. 34-28869.

8.   Amendment and Termination of Plan and Option Agreements.

     8.1. Amendments.  The Board of Directors or the Committee, without
approval of the Participants but subject to Paragraph 8.3, may amend this Plan
from time to time in such respect as it deems advisable.

     8.2. Termination.  The Board of Directors or the Committee, without
approval of the Participants but subject to Paragraph 8.3, may at any time
terminate this Plan.

     8.3. Effect of Amendment or Termination.  Any such amendment or
termination of this Plan shall not materially adversely affect Options,
Limited Rights or SARs already granted.  In the event of any termination of
this Plan or amendment which materially adversely affects Options, Limited
Rights or SARs, Options, Limited Rights and SARs already granted shall,
subject to Paragraph 8.4,  remain in full force and effect as if this Plan had
not been so amended or terminated.  In any case where the Board of Directors
or the Committee feels it appropriate or is advised by counsel that such
approval is required, the amendment or termination of this Plan shall be
submitted to the stockholders of Valero for approval.

     8.4  Cancellation of Options.  Any other provision of this Plan to the
contrary notwithstanding, in the event that either (a) the Option Price of any
Option shall on any NYSE trading day equal or exceed 125% of the closing sales
price per share of the Common Stock (determined as provided in Paragraph 3.7),
or (b) out of any period of 120 consecutive NYSE trading days the Option Price
of any Option shall exceed the closing sales price per share of the Common
Stock (determined as provided in Paragraph 3.7)  on any 80 or more of such
days, then the Committee, in its sole discretion, may unilaterally determine
to cancel and terminate such Option, the related Option Agreement and
associated Limited Rights and any associated SARs.  Upon such Committee
determination, the Expiration Date of such Option, Option Agreement, Limited
Rights and SARs shall be at the close of business on the date of such
determination.  The Committee shall cause notification of such cancellation to
be sent to the Participant (or other person entitled to exercise such Option),
but failure to send or any delay in sending such notice shall not nullify,
delay, or otherwise affect such cancellation.  No compensation shall be paid
or payable to any Participant (or other person entitled to exercise such
Option), or other person claiming by, through or under a Participant, in
respect of any such cancellation.  If an Option, the related Option Agreement
and associated Limited Rights, and any associated SARs, shall be terminated
and cancelled pursuant to the provisions of this Paragraph 8.4, the Option
Shares and associated Limited Rights, and any associated SARs, subject to such
Option (to the extent not theretofore exercised) shall once more be available
to be optioned and sold under this Plan pursuant to a new Option granted
hereunder. No Participant with respect to whom an Option and associated
Limited Rights, and any associated SARs, has been cancelled pursuant to this
Paragraph 8.4 shall have any right, whether by virtue of such cancellation or
otherwise, to require the Company or the Committee to grant a new Option to
him under this Plan or any other stock option plan of the Company.

9.   Claims.

     9.1. Filing of Claims.  A Participant or other person who believes that
he has been denied any benefit or right provided under this Plan shall have
the right to file a written claim with the Committee.  All such claims shall
be submitted on a form provided by the Committee, which shall be signed by the
claimant and shall be considered filed on the date the claim is received by
the Committee.  The claim will be reviewed and a decision rendered by a member
of the Committee designated by the Committee for such purpose.

     9.2. Denial of Claims.  In the event the claim is denied, in whole or in
part, the Committee member reviewing the claim shall, within 90 days following
receipt of the claim, provide the claimant with either (i) a written statement
containing the following:

     (1)  the specific reason or reasons for the denial of benefits;
     (2)  a specific reference to the pertinent provisions of the Plan upon
which the denial is based;
     (3)  a description of any additional material or information which is
necessary for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
     (4)  an explanation of the review procedure provided below;

or (ii) a written notice that special circumstances (which shall be specified
in the notice) require an additional specified period (not to exceed 90 days)
for processing of the claim.  If a claimant is provided with the notice
specified in clause (ii), he shall thereafter be provided with the statement
required by clause (i) within the period specified in such notice.

     9.3. Review of Claims.  Within 90 days after receipt of a notice of a
denial of benefits as provided above, the claimant or his authorized
representative may request, in writing, to appear before the full Committee
for a review of his claim.  In conducting its review, the Committee shall
consider any oral or written statement or other evidence presented by the
claimant or his authorized representative in support of his claim.  The
Committee shall give the claimant and his authorized representative reasonable
access to all pertinent documents necessary for the preparation and
presentation of his claim.

     9.4. Decision by Committee.  Within 60 days after receipt by the
Committee of the written request for review of his claim (or in the event of
special circumstances which require additional time for review, not later than
120 days after receipt of such request) the Committee shall notify the
claimant of its decision.  If an extension of time for review is required
because of special circumstances, written notice of the extension shall be
furnished to the claimant prior to the commencement of the extension.  In the
event the Committee shall hold regularly scheduled meetings at least
quarterly, then in lieu of the 60 day period specified above, the decision on
review shall be made by no later than the date of the meeting of the Committee
which immediately follows receipt of the claimant's request for review,
provided, that if the request for review is received within 30 days preceding
the date of such meeting, the decision shall be made by no later than the date
of the second meeting following receipt of such request for review, provided
further, that if special circumstances require a further extension of time for
processing of the report, such decision shall be rendered not later than the
date of the third meeting of the Committee following receipt of the written
request for review.  The decision of the Committee shall be in writing and
shall include the specific reasons for the decision and references to relevant
Plan provisions on which the decision is based.  The decision of the Committee
shall be final, conclusive and binding upon the Participant or other claimant
and all persons claiming by, through or under such claimant.