EXHIBIT 10.02


EMPLOYEE
BENEFITS TRANSITION AGREEMENT


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


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


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


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


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


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


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


NOW, THEREFORE,
the parties hereby agree as follows:


1.                                       Definitions.  In addition to the terms defined elsewhere in
this Agreement, the following terms, when used herein, shall have the following
meanings:


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


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


“DOL” shall mean the
Department of Labor.


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









 



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


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


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


“IRS” shall mean the
Internal Revenue Service.


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


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


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


2.                                       General Support and Cooperation.  The parties agree, as a general matter, that
they shall fully cooperate with each other in all reasonable respects in the
design, adoption, amendment, implementation, and administration of the employee
benefit plans and programs, as well as the other matters, contemplated
herein.  In furtherance but not in
limitation of this general provision, each party shall provide the other party
with such records, data and information as may be reasonably necessary in order
to carry out the intent of this Agreement. 
Additionally, VEC shall, at its cost and expense, assist GP in the
design, preparation and initial implementation of each of the GP Plans, such
assistance to include reasonable access to appropriate individuals within the
human resources and legal functions of VEC. 
Notwithstanding anything else provided herein, payment of all costs
associated with the design, preparation and initial implementation of each of
the GP Plans contemplated herein shall be borne by VEC, including but not
limited to related legal and actuarial fees.


3.                                       No Limitation on Right to Amend Plans.  Notwithstanding any provision of this
Agreement, nothing herein shall be interpreted or construed to limit the right
of either VEC or GP to amend any of their respective employee benefit plans in
whole or in part, or to terminate any such plan or program, at any time, and
nothing herein is intended to require VEC or GP to continue to maintain any of
the plans or programs described herein. 
This Agreement is not intended, and shall not be construed, to
constitute an amendment of any plan or program of VEC or GP, nor shall this
Agreement provide any Eligible  GP
Employee, VEC Employee, or any other individual any third party beneficiary
rights of any kind.



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4.                                       Term. 
Each of the transition services and arrangements provided for herein
shall continue through the earlier of its completion or the Final Tranche;
provided that the parties may agree to extend any of the services and
arrangements beyond the effective date of the Final Tranche by mutual
agreement, and provided further that nothing in this Agreement shall be deemed
to alter or diminish any of the services provided by affiliates of VEC to GP or
any of its affiliates pursuant to that certain Third Amended and Restated
Services Agreement dated as of January 1, 2006 among Diamond Shamrock Refining
and Marketing Company, Valero Corporate Services Company, Valero L.P., Valero Logistics
Operations, L.P., Riverwalk Logistics, L.P. and GP, as may be amended and
restated from time to time.


5.                                       Pension Plan.


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


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



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


7.                                       Active Employee Welfare Benefits.


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


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


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



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


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


8.                                       Thrift Plan.  Effective as of July 1, 2006, GP adopted a
defined contribution retirement plan (“GP Thrift Plan”) for Eligible GP
Employees as well as other individuals subsequently employed by GP and
determined to be eligible under the terms of the GP Thrift Plan.  GP Employees who were participating in the
Valero Energy Corporation Thrift Plan (“VEC Thrift Plan”) immediately prior to
the adoption of the GP Thrift Plan began participating in the GP Thrift Plan
effective as of July 1, 2006, at the same contribution rate as then in effect
under the VEC Thrift Plan.  Eligible GP
Employees are deemed to have incurred a termination of employment for purposes
of the VEC Thrift Plan as of the effective date of the Initial Tranche, and all
accrued benefits of Eligible GP Employees under the VEC Thrift Plan shall be
deemed to be fully vested as of July 1, 2006. 
The GP Thrift Plan shall accept direct rollovers of the account balances
of Eligible GP Employees under the VEC Thrift Plan, and shall provide credit to
all Eligible GP Employees for purposes of eligibility and vesting for all
service credited by VEC for such purposes under the VEC Thrift Plan.  The parties will cooperate with each other to
establish and implement one or more special direct rollover “window”
opportunities for Eligible GP Employees to roll over their account balances
under the VEC Thrift Plan (including, for such special direct rollover window
periods, outstanding plan loans) to the GP Thrift Plan on such terms as the
parties agree.



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9.                                       Equity Incentive Arrangements.


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


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


10.           Nonqualified
Deferred Compensation Arrangements.


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


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



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


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


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



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


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


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


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


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



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


16.                                 Notices.  All communications, notices and disclosures
required or permitted by this Agreement shall be in writing and shall be deemed
to have been given at the earlier of the date (a) when delivered
personally or by messenger or by overnight delivery service by a recognized
commercial carrier to an officer of the other party, (b) three days after being
mailed by registered or certified United States mail, postage prepaid, return
receipt requested, or (c) when received via facsimile or electronic mail,
in all cases addressed to the individual for whom it is intended at his address
set forth below or to such other address as a party shall have designated by
notice in writing to the other party in the manner provided by this
Section 10:


	
  If to VEC:

  	
  Valero Energy Corporation

  
	
   

  	
  One Valero Way

  
	
   

  	
  San Antonio, TX 78249

  
	
   

  	
  Attention:

  	
  Debbie Hevner,

  
	
   

  	
   

  	
  Executive Director HR

  
	
   

  	
   

  	
  Administration, Payroll and Benefits

  



 


	
  If to Holdings:

  	
  Valero GP Holdings , LLC

  
	
   

  	
  One Valero Way

  
	
   

  	
  San Antonio, TX 78249

  
	
   

  	
  Attention:

  	
  Bradley Barron,

  
	
   

  	
   

  	
  Vice President, General Counsel

  
	
   

  	
   

  	
  and Secretary

  



 


	
  If to GP:

  	
  Valero GP, LLC

  
	
   

  	
  One Valero Way

  
	
   

  	
  San Antonio, TX 78249

  
	
   

  	
  Attention:

  	
  Bradley Barron,

  
	
   

  	
   

  	
  Vice President, General Counsel

  
	
   

  	
   

  	
  and Secretary

  



 


17.                                 Entire Agreement; Amendment.  This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions of the parties, whether oral or written.  No amendment, supplement, modification or
termination of this Agreement shall be binding unless executed in writing by
the party to be bound thereby.  No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute
a waiver of any other provision of this Agreement, whether or not similar, nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.



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18.                                 Governing Law.  This Agreement shall be construed and
interpreted, and the rights of the parties shall be determined in accordance
with the laws of the State of Texas, without reference or regard to the choice
of law provisions thereof.


19.                                 Counterparts; Headings.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement.  The section headings in this Agreement are
inserted for convenience of reference only and shall not constitute a part
hereof.


[Signature Page Follows]



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


	
  

  	
  VALERO ENERGY CORPORATION

  
	
   

  	
  By:

  	
  /s/ Michael S.
  Ciskowski

  
	
   

  	
   

  	
  Name: 

  	
  Michael S. Ciskowski

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice President and 

  
	
   

  	
   

  	
   

  	
  Chief Financial Officer

  
	
   

  	
   

  	
  VALERO GP HOLDINGS, LLC

  
	
   

  	
  By:

  	
  /s/ Steven A. Blank

  
	
   

  	
   

  	
  Name:

  	
  Steven A. Blank

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President, Chief Financial Officer and
  Treasurer

  
	
   

  	
   

  	
  VALERO GP, LLC

  
	
   

  	
  By:

  	
  /s/ Steven A. Blank

  
	
   

  	
   

  	
  Name: 

  	
  Steven A. Blank

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President, Chief Financial Officer and
  Treasurer

  



 



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EXHIBIT
A


VALERO
ENERGY CORPORATION


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


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


Liabilities to be
transferred to Valero GP Holdings:


	
  Other post-employment
  benefits

  	
   

  	
  $

  	
  6,091,031

  	
   

  
	
  Excess pension plan

  	
   

  	
  222,552

  	
   

  
	
  SERP

  	
   

  	
  857,000

  	
   

  
	
  Long-term disability

  	
   

  	
  686,533

  	
   

  
	
  Total amount of
  liabilities to be transferred to Valero GP Holdings

  	
   

  	
  7,857,116

  	
  (1)

  
	
  Assets to be
  transferred to Valero GP Holdings:

  	
   

  	
   

  	
   

  
	
  Receivable from
  Valero L.P

  	
   

  	
  $

  	
  5,812,033

  	
  (2)

  
	
  Deferred tax
  asset

  	
   

  	
  1,024,260

  	
  (3)

  
	
  Cash

  	
   

  	
  1,020,823

  	
  (4)

  
	
  Total amount of assets
  to be transferred to Valero GP

  	
   

  	
   

  	
   

  
	
  Holdings in exchange for the above liabilities

  	
   

  	
  $

  	
  7,857,116

  	
   

  







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


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


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


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



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